UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For The Fiscal Year Ended January 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from _________ to _________
Commission File Number 1-09100
Gottschalks Inc.
(Exact name of Registrant as specified in its charter)
Delaware 77-0159791
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7 River Park Place East, Fresno, CA 93720
(Address of principal executive offices) (Zip code)
Registrant's telephone no., including area code: (209) 434-4800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
Common Stock, $.01 par value New York Stock Exchange
Pacific Stock Exchange
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 (or for such
shorter period that the Registrant was required to file such
reports); and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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 the 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 ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 31, 1999:
Common Stock, $.01 par value: $51,061,000
On March 31, 1999 the Registrant had outstanding 12,575,565 shares
of Common Stock.
Documents Incorporated By Reference: Portions of the Registrant's
definitive proxy statement with respect to its Annual Stockholders'
Meeting scheduled to be held on June 24, 1999, which will be filed
pursuant to Regulation 14A, are incorporated by reference into
Part III of this Form 10-K.
INDEX
PART I
Page No.
Item 1. Business........................ 1
Item 2. Properties...................... 24
Item 3. Legal Proceedings............... 28
Item 4. Submission of Matters to a Vote of
Security Holders................ 28
PART II
Item 5. Market for Registrant's Common
Stock and Related Stockholder
Matters......................... 28
Item 6. Selected Financial Data......... 29
Item 7. Management's Discussion and Analysis
of Results of Operations and Financial
Condition....................... 33
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk... 50
Item 8. Financial Statements and
Supplementary Data.............. 50
Item 9. Changes in and Disagreements with
Accountants on Auditing and
Financial Disclosures........... 50
PART III
Item 10. Directors and Executive Officers
of the Registrant............... 51
Item 11. Executive Compensation.......... 53
Item 12. Security Ownership of Certain
Beneficial Owners and Management. 53
Item 13. Certain Relationships and
Related Transactions............ 53
PART IV
Item 14. Exhibits, Financial Statement
Schedule and Reports on Form 8-K. 53
Signatures................................. 90
PART I
Item 1. BUSINESS
GENERAL
Gottschalks Inc. is a regional department and specialty store
chain based in Fresno, California. The Company currently operates forty full-
line department stores, including thirty Gottschalks' stores located
throughout California, and in Oregon, Washington and Nevada, and ten
"Harris/Gottschalks" stores located in the Southern California area. The
Company also operates twenty-two "Gottschalks" and "Village East" specialty
stores which carry a limited selection of merchandise. On August 20, 1998,
the Company acquired nine of the stores now operated under the
"Harris/Gottschalks" nameplate (closing one of the acquired stores on
January 31, 1999, as planned) from The Harris Company ("Harris") of San
Bernardino, California. In fiscal 1998, the Company's sales, which include
sales applicable to the Harris/Gottschalks locations after August 20, 1998,
exceeded a half-a-billion dollars for the first time in the Company's
history. Fiscal 1998 sales totaled $517.1 million, a 15.4% increase from
fiscal 1997 sales of $448.2 million. Total department store sales comprised
96.5%, and specialty store sales comprised 3.5%, of fiscal 1998 sales.
Gottschalks and Harris/Gottschalks department stores typically
offer a wide range of moderate to better brand-name and private-label
merchandise, including men's, women's, junior's and children's apparel;
cosmetics, shoes, fine jewelry and accessories; home furnishings including
china, housewares, domestics, electronics (in ten locations) and small
electric appliances; and other consumer goods. The Company's stores also
carry private-label merchandise and a mix of higher and budget priced
merchandise. The Company's department stores are generally anchor tenants of
regional shopping malls. Village East specialty stores, which offer apparel
for larger women, are located in the same mall in which a Company department
store is located, or as a separate department within some of the Company's
larger stores. The Company services all of its stores, including its store
locations outside California, from a 420,000 square foot distribution
facility centrally located in Madera, California.
The Company has operated continuously for over 94 years since it
was founded by Emil Gottschalk in 1904. The Company did its initial public
offering of stock in 1986, and most of its growth has occurred since then.
Gottschalks Inc. includes the accounts of its wholly-owned
subsidiary, Gottschalks Credit Receivables Corporation ("GCRC"). GCRC is a
qualified special purpose entity which was formed in 1994 in connection with
a receivables securitization program. (See Note 3 to the Consolidated
Financial Statements and Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources".)
BUSINESS ACQUISITION
On August 20, 1998, the Company acquired substantially all the
assets and business of Harris, a wholly-owned subsidiary of El Corte Ingles
("ECI") of Spain. Harris operated nine full-line department stores located
in the Southern California area. The assets acquired consisted primarily of
merchandise inventories, customer credit card receivables, fixtures and
equipment and certain intangibles. The Company also assumed certain
liabilities relating to the business, including vendor payables, store
leases and certain other contracts. The purchase price for the assets was
2,095,900 shares of common stock of the Company and a $22.2 million 8%
Subordinated Note due August 20, 2003. As planned, the Company closed one of
the acquired stores on January 31, 1999.
Management believes the primary benefits of the acquisition are:
(1) the addition of approximately $90.0 million of annual sales volume to
further leverage Gottschalks' overhead; (2) the elimination of certain
duplicative corporate and distribution functions of Harris; (3) increased
purchasing power in areas such as merchandising, advertising, supplies and
insurance; (4) the acquisition of a profitable shoe division operated by
Harris; (5) the potential to more fully develop Harris' home divisions,
which management believes are under-penetrated in the Company's market
areas; and (6) the addition of more than 100,000 active proprietary credit
card customers.
OPERATING STRATEGY
Merchandising Strategy. The Company's merchandising strategy is
directed at offering and promoting nationally advertised, brand-name
merchandise recognized by its customers for style and value, and to
complement the branded merchandise with a mixture of private-label and other
higher and budget priced merchandise. Brand-name apparel, shoe, cosmetic and
accessory lines carried by the Company include Estee Lauder, Lancome,
Clinique, Dooney & Bourke, Nine West, Liz Claiborne, Carole Little, Calvin
Klein, Ralph Lauren, Guess, Nautica, Karen Kane, Tommy Hilfiger, Esprit,
Evan Picone, Haggar, Koret and Levi Strauss. Brand-name merchandise carried
for the home includes Sony, Mitsubuishi, Lenox, Krups, Calphalon, Royal
Velvet, KitchenAid and Samsonite. Certain of the Company's stores also carry
apparel lines desired by the Company's more affluent customers, including
St. John Knits, Dana Buchman, Ellen Tracy and Ralph Lauren (Polo). In the
Company's stores, brand-name merchandise is prominently displayed, in many
cases with vendor supplied fixtures and signage. The Company's merchandising
activities are conducted centrally from its corporate offices in Fresno,
California.
The Company's merchandising strategy also continues to focus on
reallocating selling floor space to higher profit margin items, such as
shoes, and shifting its merchandise mix to a higher proportion of better
brands. For example, during fiscal 1998, the Company reduced the number of
stores that carry electronics, traditionally a lower gross margin line of
business, and intends to discontinue carrying electronics in its stores by
the end of fiscal 1999. In fiscal 1999, the Company will assume the
operation of its shoe division, which is currently operated by an outside
company as a leased department (in Gottschalks locations). In fiscal 1999,
the Company also plans to expand and remodel the shoe departments in certain
of its stores. The Company's merchandising strategy also continues to focus
on serving particular market segments experiencing increasing growth in its
market areas, including the "55 Plus" age group and the Hispanic population.
The following table sets forth for the periods indicated
a summary of the Company's total sales by division,
expressed as a percent of net sales:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
Softlines:
<S> <C> <C> <C> <C> <C>
Cosmetics & Accessories... 18.2% 17.8% 17.5% 17.2% 16.6%
Women's Clothing.......... 16.8 16.8 15.9 15.5 16.1
Men's Clothing............ 14.0 14.0 14.4 14.3 13.9
Women's Dresses, Coats
& Lingerie.............. 7.7 7.9 7.9 7.8 7.9
Shoes, Fine Jewelry & Other
Leased Departments (1).. 7.7 7.8 7.8 7.4 7.1
Junior's Clothing......... 4.6 5.2 5.5 6.0 6.3
Children's Clothing....... 5.5 5.3 5.3 4.9 4.9
Village East.............. 2.5 2.5 2.5 2.6 2.6
Shoes (2)................. 0.8
---- ---- ---- ---- ----
Total Softlines........ 77.8 77.3 76.8 75.7 75.4
Hardlines:
Housewares................ 10.7 10.6 10.4 11.0 10.9
Domestics & Luggage....... 7.8 8.1 7.9 8.1 8.1
Electronics & Furniture... 3.7 4.0 4.9 5.2 5.6
---- ---- ---- ---- ----
Total Hardlines........ 22.2 22.7 23.2 24.3 24.6
---- ---- ---- ---- ----
Total Sales (3)........... 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
===== ===== ===== ===== =====
- ---------------------
(1) The Company currently leases the fine jewelry, shoe (in
thirty-one of its stores as of January 30, 1999) and maternity
wear departments, custom drapery, restaurants and the beauty
salons in its department stores. The shoe department lease has
been terminated effective mid-fiscal 1999.
(2) The Company currently operates the shoe departments in
the Harris/Gottschalks locations. Upon terminating the shoe
department lease in mid-fiscal 1999, the Company will operate the
shoe department in all of its locations.
(3) Fiscal 1998 amounts include sales applicable to the
Harris/Gottschalks stores starting August 20, 1998. Fiscal 1997
and prior amounts presented reflect Gottschalks sales only and do
not reflect amounts applicable to Harris.
The Company is a member of Frederick Atkins, Inc. ("Frederick
Atkins"), a national association of major retailers which provides its
members with group purchasing opportunities. The Company's membership in
Frederick Atkins provides it with the ability to obtain better prices by
purchasing a larger volume of merchandise along with other members of the
organization. Substantially all of the Company's private-label merchandise
is currently purchased through Frederick Atkins. The Company also purchases
merchandise from numerous other suppliers, none of which accounted for more
than 5% of the Company's net purchases in fiscal 1998.
Store Location and Expansion Strategy. The Company's stores are
located primarily in diverse, growing, non-major metropolitan areas in the
western United States. Management believes the Company has a competitive
advantage in offering moderate to better brand-name merchandise and a high
level of service to customers in secondary markets where there is a strong
demand and fewer competitors offering such merchandise. The Company has
historically avoided expansion into major metropolitan areas which are well
served by the Company's larger competitors. Some of the Company's stores are
located in agricultural areas and cater to mature customers with above
average levels of disposable income. The Company's department stores are
generally anchor tenants of regional shopping malls, with the majority of
its stores ranging in size from 50,000 to 150,000 gross square feet. Other
anchor tenants in the malls generally complement the Company's goods with a
mixture of competing and non-competing merchandise, and serve to increase
customer foot traffic within the mall.
The Company generally seeks to open two new stores per year,
although more stores may be opened in any given year if it is believed to be
financially attractive to the Company. As part of its expansion strategy,
the Company may also pursue selective strategic acquisitions. The Company
has continued to invest in the renovation and refixturing of its existing
store locations in an attempt to maintain and improve market share in those
market areas. Store renovation projects can range from updating decor and
improving in-store lighting, fixturing, wall merchandising and signage, to
more extensive remodeling and expansion projects. The Company sometimes
receives reimbursement for certain of its new store construction costs and
costs associated with the renovation and refixturing of existing store
locations from mall owners and vendors. Such contributions have enhanced the
Company's ability to enter into attractive market areas that are consistent
with the Company's long-term expansion plans.
The following table presents selected data related to the
Company's stores for the fiscal years indicated:
<TABLE>
<CAPTION>
Stores open at
year-end: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Department stores 40 (1) 34 32 31 26
Specialty stores 22 (2) 25 27 29 27
-- -- -- -- --
TOTAL 62 59 59 60 53
== == == == ==
Gross store square
footage (in thousands):
Department
stores 4,301 3,391 3,175 2,878 2,327
Specialty stores 83 94 101 106 98
== == === === ==
TOTAL 4,384 3,485 3,276 2,984 2,425
</TABLE>
===== ===== ===== ===== =====
- ---------------------------
(1) The Company acquired nine stores from Harris in August 1998,
closing one of the stores acquired on January 31, 1999. Two of the
stores acquired are located in malls with pre-existing Gottschalks
locations. The Company combines separate locations within the same
mall for the purpose of determining the total number of stores
being operated, resulting in a net addition of six department
stores in fiscal 1998.
(2) The Company has continued to close certain free-
standing Village East stores as their leases expire and
incorporate those stores into nearby larger Company department
stores as separate departments. Sales generated by these
departments are combined with total specialty store sales for
reporting purposes.
As of the end of fiscal 1999, the Company operated thirty-six
department stores in California, two in Nevada and one each in Oregon and
Washington. The Company's stores range in size from 25,000 to over 200,000
gross square feet. Management believes the Company has a competitive
advantage in being able to accommodate diverse locations into its operation
that may not be desired by its larger competitors that adopt a more
standardized approach to expansion. Following is a summary of the Company's
department store locations, by store size:
<TABLE>
<CAPTION>
# of
stores
open
<S> <C>
Larger than 200,000 gross square feet 3
150,000 - 199,000 gross square feet 7
100,000 - 149,999 gross square feet 8
50,000 - 99,000 gross square feet 19
25,000 - 49,000 gross square feet 3
--
TOTAL 40
==
</TABLE>
See Part I, Item 2, "Properties--Store Leases and Locations" for additional
information related to the Company's store locations.
Sales Promotion Strategy. The Company commits considerable
resources to advertising, using a combination of media types which it
believes to be most efficient and effective by market area, including
newspapers, television, radio, direct mail and catalogs. The Company's sales
promotion strategy includes seasonal promotions, promotions directed at
selected items and frequent storewide sales events to highlight brand-name
merchandise and promotional prices. The Company also conducts a variety of
special events including fashion shows, bridal shows and wardrobing seminars
in its stores and in the communities in which they are located to convey
fashion trends to its customers. The Company receives reimbursement for
certain of its promotional activities from certain of its vendors.
Management has continued to focus on enhancing its information
systems as a means to improve the effectiveness of its sales promotion
strategy. The Company uses direct marketing techniques to access niche
markets by generating specific lists of customers who may be most responsive
to specific promotional mailings and sending mailings only to those specific
customers. The Company has also implemented a telemarketing program, which,
through the use of an advanced call management system and the Company's
existing credit department personnel, the Company is able to auto-dial
potential customers within a selected market area and deliver a personalized
message regarding current promotions and events. In fiscal 1998, the Company
completed the installation of a new targeted marketing system through which
the Company is now able to analyze the purchasing patterns of third party
bank card users and, for the first time, direct targeted marketing
activities at those customers. (See Part I, Item I, "Business--Private-Label
Credit Card")
In addition to targeted advertising efforts, the Company also uses
a variety of other marketing formats in its sales promotion strategy. One of
the Company's most significant recent marketing efforts is the inception of
"Emil's Market", named after the Company's founder, Emil Gottschalk. Emil's
Market, introduced in the Company's stores in fiscal 1998, is a complete
marketing strategy for the Company's housewares division, intended to
present houseware products in a specialty store format within the main
department store using a consistent theme with visual presentation,
advertising and packaging. A portion of the initial funding for the project
and certain annual recurring costs are paid by participating vendors. In
fiscal 1998, the Company also launched its new "KidZone" program for the
children's division and the new "Get It" program for the junior's and young
men's divisions, through which members receive additional discounts and
special services. The primary objectives of these programs are to improve
customer loyalty and increase sales in these divisions.
The Company offers selected merchandise, a complete Bridal
Registry service, and other general corporate information on the World Wide
Web at http://www.gottschalks.com. The Company also sells merchandise
through its mail order department. In addition to the previously described
marketing efforts, the Company also has a wide variety of credit-related
programs aimed at improving sales, including the "Gottschalks Rewards"
program. (See Part I, Item I, "Business--Private-Label Credit Card.")
Customer Service. Management believes one way the Company can
differentiate itself from its competitors is to provide a consistently high
level of customer service. The Company has a "Four Star" customer service
program, designed to continually emphasize and reward high standards of
customer service in the Company's stores. Sales associates are encouraged to
keep notebooks of customers' names, clothing sizes, birthdays, and major
purchases, to telephone customers about promotional sales and send thank-you
notes and other greetings to their customers during their normal working
hours. The "Four Star" customer service program also emphasizes sales
associate and store management training. Product seminars and other training
programs are frequently conducted in the Company's stores and its corporate
headquarters to ensure that sales associates will be able to provide useful
product information to customers. The Company also offers opportunities for
management training and leadership classes for those associates identified
for promotion within the Company. Various financial incentives are offered
to the Company's sales associates to reward reaching sales performance
goals.
In addition to providing a high level of personal sales
assistance, management believes that well-stocked stores, a liberal return
and exchange policy, frequent sales promotions and a conveniently located
and attractive shopping environment enhance the customer's shopping
experience and increase customer loyalty. Management also believes that
maintaining appropriate staffing levels in its stores, particularly at peak
selling periods, is essential for providing a high level of customer
service. In fiscal 1999, the Company expects to implement a new labor
scheduling system, through which management believes it will be able to more
efficiently match staffing levels to projected sales, thereby improving
customer service and maximizing the return on its store payroll
expenditures.
Distribution of Merchandise. The Company's 420,000 square foot
distribution center is centrally located in Madera, California and serves
all of the Company's store locations, including its store locations outside
California. Completed in 1989, the distribution center presently has the
capacity to process merchandise for up to seventy-five department store
locations, and the capacity may be expanded beyond that amount. The Company
receives substantially all of its merchandise at the distribution center and
makes daily distributions to the stores.
The Company has continued to focus on the adoption of new
technology and operational best practices at its distribution center with
the goals of receiving, processing and distributing merchandise to stores at
a faster rate and at a lower cost per unit. In fiscal 1998, the Company
completed the implementation of a new logistical system at its distribution
center, which is the same system that many of the Company's larger
competitors have also put into place. The new system enables the Company to
minimize the manual handling of a large percentage of incoming merchandise
and provides for the processing of such merchandise through the distribution
center and to the stores in minutes and hours as compared to several days in
the past. Currently, approximately 50% of merchandise is purchased from
vendors which provide the Company with an advanced shipping notice ("ASN"),
which is an electronic document transmitted by a vendor that details the
contents of each carton en route to the distribution center. These vendors
also ship only "floor-ready" merchandise which arrives on approved hangers
pre-tagged with universal product code ("UPC") tickets, a bar coded price
label containing retail prices that can be electronically translated into
the Company's inventory systems.
The Company also has formal guidelines for vendors with respect to
shipping, receiving and invoicing for merchandise under its "Partners in
Technology" program. Vendors that do not comply with the guidelines for
shipping merchandise using ASN's and in floor-ready status are charged
specified fees depending upon the instance of non-compliance. Such fees are
intended to offset higher costs associated with the processing of such
merchandise. Vendors can obtain the Company's shipping guidelines through
the Company's Web site.
Private-Label Credit Card. The Company issues its own credit
card, which management believes enhances the Company's ability to generate
and retain market acceptance and increase sales and other revenues for the
Company. As described more fully in Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," the Company sells its customer credit card
receivables on an ongoing basis in connection with a receivables
securitization program. The Company has continued to service and administer
the receivables under the program.
The following represents a summary of information related to the
Company's credit card receivable portfolio for the fiscal years indicated:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(In thousands of dollars, except selected data)
Average credit
card receivables
<S> <C> <C> <C> <C> <C>
serviced (1) $69,143 $64,612 $64,162 $62,492 $57,613
Service charge
income 13,431 11,618 10,493 10,937 8,904
Credit sales as a
% of total
sales (2) 43.1% 43.7% 43.1% 43.6% 42.2%
# of days credit
sales in
receivables (3) 115.6 119.3 123.7 127.5 146.2
</TABLE>
_______________________
(1) Includes receivables sold, the retained
interest in receivables sold, and other
receivables, which are all serviced
by the Company.
(2) The decrease in credit sales as a percentage of total sales
in fiscal 1998 is primarily due to the new Harris/Gottschalks
locations, which generally have a lower credit sales
volume than that of the rest of the Company.
(3) Excludes receivables acquired from Harris on August 20, 1998.
The Company has a variety of credit-related programs which
management believes have improved customer service and have increased
service charge revenues. Such programs include:
- an "Instant Credit" program, through which successful credit
applicants receive a discount ranging from 10% to 50%
(depending on the results of the Instant Credit scratch-off
card) on the first days' purchases made with the Company's
credit card;
- a "55-Plus" charge account program, which offers additional
merchandise and service discounts to customers 55 years of
age and older;
- "Gold Card" and "55-Plus Gold Card" programs, which offer
special services at a discount for customers who have a net
minimum spending history on their charge accounts of $1,000
per year;
- The "Gottschalks Rewards" program which offers an annual
rebate certificate for up to 5% of annual credit purchases on
the Company's credit card (up to a maximum of $10,000 of
annual purchases) which can be applied towards future
purchases of merchandise; and
- Ongoing credit card reactivation programs designed to
recapture credit cardholders who have not utilized their
credit card for a specified period of time.
The Company had approximately 589,000 active credit card holders
as of February 28, 1999 as compared to 460,000 as of February 28, 1998. This
increase is primarily due to the acquisition of approximately 100,000 credit
card accounts from Harris in August 1998. Management believes holders of the
Company's credit card typically buy more merchandise from the Company than
other customers.
The Company's credit management software system has automated
substantially all aspects of the Company's credit authorization, collection
and billing processes, and enhances the Company's ability to provide
customer service. This system, combined with a credit scoring system,
enables the Company to process thousands of credit applications daily at a
rate of less than three minutes per application. The Company also has an
automated advanced call management system through which the Company manages
the process of collecting delinquent customer accounts. As described more
fully in Part I, Item I, "Business--Sales Promotion Strategy", the Company
is also able to utilize the credit management and advanced call management
systems for direct marketing and telemarketing activities.
The credit authorization process is centralized at the Company's
corporate headquarters in Fresno, California. Credit is extended to
applicants based on a scoring model. Applicants who meet pre-determined
criteria based on prior credit history, occupation, number of months at
current address, income level and geographic location are automatically
assigned an account number and awarded a credit limit ranging from $300 to
$2,000. Credit limits may be periodically revised. The Company's credit
system also provides full on-line positive authorization lookup capabilities
at the point-of-sale. Within seconds, each charge, credit and payment
transaction is approved or referred to the Company's credit department for
further review. Sales associates speed-dial the credit department for an
approval when a transaction has been referred by the system.
The Company offers credit to customers under several payment
plans: the "Option Plan", under which the Company bills customers monthly
for charges without a minimum purchase requirement; the "Time-Pay Plan",
under which customers may make monthly payments for purchases of home
furnishings, major appliances and other qualified items of more than $100;
and the "Club Plan", under which customers may make monthly payments for
purchases of fine china, silver, crystal and collectibles of more than $100.
The Company also periodically offers special promotions to its credit card
holders through which customers are given the opportunity to obtain
discounts on merchandise purchases or purchase merchandise under special
deferred billing and deferred interest plans. Finance charges may be
assessed on unpaid balances at an annual percentage rate of up to 21.6%, and
a late charge fee on delinquent charge accounts may be assessed at a rate of
up to $15 per late payment occurrence. Such charges may vary depending on
applicable state law.
Information Systems and Technology. The Company has continued to
invest in technology and systems improvements in its efforts to improve
customer service and increase the profitability of the Company. The
Company's information systems include IBM mainframe technology, supplemented
by applications on client servers, mid-range and personal computers
connected through a local area network. All of the Company's transaction
processing and reporting activities are computerized, including its sales,
inventory, credit, accounts payable, payroll and financial reporting
systems. Every store processes each sales transaction through point-of-sale
("POS") terminals that connect on-line with the Company's mainframe computer
located at its corporate offices in Fresno, California. This system provides
detailed reports on a real-time basis of sales, gross margin and inventory
levels by store, department, vendor, class, style, color, and size.
Management believes the continued enhancement of its merchandise-
related systems is essential for gross margin improvement and shrinkage
control. The Company has an automatic markdown system which has assisted in
the more timely and accurate processing of markdowns and reduced inventory
shortage resulting from paperwork errors. The Company's price management
system has improved the Company's POS price verification capabilities,
resulting in fewer POS errors and enhanced customer service. Combined with
enhanced physical inventory procedures and improved security systems in the
Company's stores, these systems have resulted in the Company's inventory
shrinkage decreasing from approximately 1.4% in fiscal 1994 and 1.3% in
fiscal 1995 to approximately 1.1% of net sales in fiscal 1996, 1997 and
1998.
Management also believes improved technology is critical for
future reductions in costs related to the purchase, handling and
distribution of merchandise, traditionally labor-intensive tasks. The
Company's merchandise management and allocation system, upgraded in fiscal
1998, has enhanced the Company's ability to allocate merchandise to stores
more efficiently and make prompt reordering and pricing decisions. The
system also provides merchandise-related information used by the Company's
buying division in its analysis of market trends and specific item
performance in stores. The Company has also implemented a variety of
programs with its vendors, including an automatic replenishment inventory
system for certain basic merchandise and an electronic data interchange
("EDI") system providing for on-line purchase order entry and electronic
invoicing. Such systems have automated certain processes associated with the
purchasing and payment for merchandise.
Management is also focused on improving systems as a means to
reduce operating costs and improve efficiencies throughout the Company.
Recent system implementations include the previously described logistical
system installed at the Company's distribution center, which has resulted in
lower distribution center payroll and other overhead costs. A workflow and
imaging system was also recently installed, which has created a "paperless"
environment in the Company's accounts payables department and has automated
certain tasks that were previously manual. Efficiencies gained through this
system have enabled the department to process a significantly higher volume
of invoices and payments without increasing staffing levels. The Company
also intends to utilize the imaging technology to reduce operating costs and
improve efficiencies in other areas of the Company, including the credit and
human resources departments. In fiscal 1999, the Company expects to complete
a strategic review of its information systems and formulate a long-term
strategy for further system improvements.
The Company's Year 2000 readiness is described more fully in Part
II, Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources".
Competition. The Company operates in a highly competitive
environment, competing with national, regional, and local chain department
and specialty stores, some of which are considerably larger and have
substantially greater financial and other resources than the Company.
Competition has intensified in recent years as new competitors, including
specialty stores, general merchandise stores, discount and off-price
retailers and outlet malls, have entered the Company's primary market areas.
Increased use and acceptance of the internet and other home shopping
formats, and the trend towards consolidation of competitors within the
retail industry, have also created additional competition for the Company.
The Company competes primarily on the basis of current merchandise
availability, customer service, price and store location and the
availability of services, including credit and product delivery.
The Company's larger national and regional competitors have the
ability to purchase larger quantities of merchandise at lower prices.
Management believes its buying practices partially counteract this
competitive pressure. Such practices include: (i) the ability to accept
smaller or odd-sized orders of merchandise from vendors than its larger
competitors may be able to accept; (ii) the ability to structure its
merchandise mix to more closely reflect the different regional, local and
ethnic needs of its customers; and (iii) the ability to react quickly and
make opportunistic purchases of individual items. The Company's membership
in Frederick Atkins also provides it with increased buying power in the
marketplace. Management also believes that its knowledge of its primary
market areas, developed over more than 94 years of continuous operations,
and its focus on those markets as its primary areas of operations, give the
Company an advantage that its competitors cannot readily duplicate. Many of
the Company's competitors are national chains whose operations are not
focused specifically on non-major metropolitan cities in the western United
States. One aspect of the Company's strategy is to differentiate itself as a
home-town, locally-oriented store versus its more nationally focused
competitors. The Company encourages its store management and associates to
actively participate in local charitable activities.
Seasonality. The Company's stores experience seasonal sales and
earnings patterns typical of the retail industry. Peak sales occur during
the Christmas selling months of November and December, and to a lesser
extent, during the Easter and Back-to-School selling seasons. The Company
generally increases its inventory levels and sales staff for these seasons.
(See Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality").
Employees. As of January 30, 1999, the Company had 6,600
employees, including 1,780 employees working part-time (less than 20 hours
per week on a regular basis). The Company hires additional temporary
employees and increases the hours of part-time employees during seasonal
peak selling periods. None of the Company's employees are covered by a
collective bargaining agreement. Management considers its employee
relations to be good.
To attract and retain qualified employees, the Company offers a
25% discount on most merchandise purchases; participation in a 401(k)
Retirement Savings Plan to which the Company makes quarterly and annual
contributions depending upon the profitability of the Company; and vacation,
sick and holiday pay benefits as well as health care, accident, death,
disability, dental and vision insurance at a competitive cost to the
employee and eligible beneficiaries and dependents. The Company has
performance-based incentive pay programs for its officers and certain of its
key employees and has stock option plans that provide for the grant of stock
options to officers and key employees of the Company. The Company's
stockholders have also approved a stock purchase plan, which is expected to
be implemented in fiscal 1999. The Company also offers management training
and leadership classes for those associates identified for promotion within
the Company.
Executive Officers of the Registrant. Information relating to the
Company's executive officers is included in Part III, Item 10 of this report
and is incorporated herein by reference.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain "forward-looking statements"
regarding activities, developments and conditions that the Company
anticipates may occur or exist in the future relating to things such as:
revenues and earnings;
savings or synergies from acquisitions;
future capital expenditures;
its expansion strategy (including store and department
openings);
the impact of sales promotions and customer service programs
on consumer spending;
the utilization of consumer credit programs;
its Year 2000 readiness.
Such forward-looking statements can be identified by words such as:
"believes", "anticipates", "expects", "intends", "seeks", "may", "will" and
"estimates". The Company bases its forward-looking statements on its
current views and assumptions. As a result, those statements are subject to
risks and uncertainties that could cause actual results to differ materially
from those predicted. Some of the factors that could cause the Company's
results to differ from those predicted include the following:
RISK FACTORS
General Economic and Market Conditions. The Company's stores are
located primarily in non-major metropolitan and agricultural areas in the
western United States. A substantial portion of the stores are located in
California. The Company's success depends upon consumer spending, which may
be materially and adversely affected by any of the following events or
conditions:
a downturn in the national economy or in the California
economy;
a downturn in the local economies where the stores are
located;
a decline in consumer confidence;
an increase in interest rates;
inflation or deflation;
consumer credit availability;
consumer debt levels;
tax rates and policy; and
unemployment trends.
Seasonality and Weather. Seasonal influences affect the Company's
sales and profits. The Company experiences its highest levels of sales and
profits during the Christmas selling months of November and December, and to
a lesser extent, during the Easter holiday and Back-to-School seasons. The
Company also has increased working capital needs prior to the Christmas
season to carry significantly higher inventory levels to meet anticipated
demands. Any substantial decrease in sales during its traditional peak
selling periods could materially adversely impact the Company's business,
financial condition and results of operations. Factors that could cause
results to vary include:
the timing and level of sales promotions;
the weather;
fashion trends;
local unemployment levels; and
the overall health of the national and local economies.
The Company depends on normal weather patterns across its markets.
Historically, unusual weather patterns have significantly impacted its
business.
Consumer Trends. The Company's success partially depends on its
ability to anticipate and respond to changing consumer preferences and
fashion trends in a timely manner. However, it is difficult to predict what
merchandise consumers will demand, particularly merchandise that is trend
driven. Failure to accurately predict constantly changing consumer tastes,
preferences and spending patterns could adversely affect short and long term
results.
Expansion Strategy - Future Growth and Recent Acquisitions. The
Company's expansion strategy involves remodeling and expanding existing
stores and acquiring or opening new stores. Achieving such expansion plans
(including any potential acquisitions) depends upon many factors, including
the ability of the Company to:
- identify, negotiate, finance, obtain, construct, lease or
refurbish suitable store sites;
- hire, train and retain qualified personnel; and
- integrate new stores into existing information systems and
operations.
The Company also expects to achieve synergies from its recent
acquisition of the Harris stores. Achieving such synergies depends upon
many factors, including the ability of the Company to:
- leverage the additional sales volume of the Harris stores
over existing overhead;
- increase the Company's purchasing power;
- increase usage of the Company's credit card by the new
Harris customers; and
- successfully assume the operation of its shoe business.
The Company cannot guarantee that it will achieve its targets for
remodeling or expanding existing stores or for opening new stores, or that
such stores will operate profitably when opened or acquired, or that it will
achieve the expected synergies from the Harris acquisition. If the Company
fails to effectively implement its expansion strategy, it could materially
and adversely affect the Company's business, financial condition and results
of operations.
Competition. The retail business is highly competitive. The
Company's primary competitors include: national, regional and local chain
department and specialty stores, general merchandise stores, discount and
off-price retailers and outlet malls. Increased use and acceptance of the
internet and other home shopping formats also creates increased competition.
Some of these competitors offer similar or better branded merchandise and
are larger and have greater financial resources to purchase larger
quantities of merchandise at lower prices. The Company's success in
counteracting these competitive pressures depends on its ability to:
- offer merchandise which reflects the different regional
and local needs of its customers;
- differentiate and market itself as a home-town, locally-
oriented store (as opposed to its more nationally focused
competitors);
- continue to shift its merchandise mix to a higher
proportion of better branded merchandise.
- increase its buying power as a member of Fredrick Atkins; and
- accept smaller or odd-sized orders of merchandise.
Existing or new competitors, however, may begin to carry such
brand-name merchandise or increase their offering of better quality
merchandise which may negatively impact the Company's business, financial
condition and results of operations.
Vendor Relations. The Company believes its close relationship
with its key vendors enhances its ability to purchase brand-name merchandise
at competitive prices. If the Company loses key vendor support, is unable
to participate in group purchasing activities or its vendors withdraw brand-
name merchandise, it could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company cannot
guarantee that it will be able to acquire brand-name merchandise at
competitive prices or on competitive terms in the future.
Leverage and Restrictive Covenants. Due to the level of the
Company's indebtedness, any material adverse development affecting the
Company could significantly limit its ability to withstand competitive
pressures and adverse economic conditions, take advantage of expansion
opportunities or to meet its obligations as they become due. The Company's
existing debt imposes operating and financial restrictions that limit
the Company's ability to make dividend payments and grant liens.
Interest Rate Risk. The Company's borrowings under its revolving
line of credit facility bear a variable interest rate. If interest rates
increase, the Company's financial results could be materially adversely
affected. See Item 7A, "Quantitative and Qualitative Disclosures About
Market Risk."
Consumer Credit Risks. The Company's private-label credit card
facilitates sales and generates additional revenue from credit card fees.
Changes in credit card use, default rates or in the laws regulating the
granting or servicing of credit (including late fees and finance charges
applied to outstanding balances) could materially adversely affect the
Company's business, financial condition and results of operations. In
addition, the Company cannot guarantee that the credit card programs it has
implemented will increase or maintain customer spending.
Securitization of Accounts Receivable. The Company securitizes
the receivables generated under its private-label credit card. Under the
securitization program, the Company transfers such receivables to a special
purpose entity which issues interests in the receivables to investors. The
Company cannot guarantee that it will continue to generate receivables by
credit card holders at the same rate, or that it will establish new credit
card accounts at the rate it has in the past. Any material decline in the
generation of receivables or in the rate of cardholder payments on accounts
could have a material adverse effect on the Company's financial condition
and results of operations.
Year 2000 Readiness. If computer hardware, software or technology
improperly function using dates after December 31, 1999, then the Company
may be adversely affected. The Company estimated its costs and completion
dates for its Year 2000 readiness based on assumptions of future events
including:
- the continued availability of internal and external
resources, such as human resources and capital;
- the ability of third parties doing business with the
Company to timely modify their computer systems; and
- the Company's contingency plans.
The Company cannot guarantee that it or the third parties it does
do business with will successfully complete the Year 2000 conversion on a
timely basis. If either the Company or any third party with whom it does
substantial business fails to complete its Year 2000 conversion on a timely
basis, it may adversely affect the Company's business, financial condition
and results of operations.
Dependence on Key Personnel. The Company's success depends to a
large extent on its executive management team. The loss of the services of
any such executive could have a material adverse effect on the Company.
The Company cannot guarantee that it will be able to retain such key
personnel or attract additional qualified members to its management
team in the future.
Labor Conditions. The Company depends on attracting and retaining
a large number of qualified employees to maintain and increase sales and to
execute its customer service programs. Many of the employees are in entry
level or part-time positions with historically high levels of turnover. The
Company's ability to meet its employment needs is dependent on a number
of factors, including the following factors which affect the Company's
ability to hire or retain qualified employees:
- unemployment levels;
- minimum wage legislation; and
- changing demographics in the local economies where stores are
located.
The foregoing list of important factors is not exclusive and the
Company does not undertake to revise any forward-looking statement to
reflect events or circumstances that occur after the statement is made.
Item 2. PROPERTIES
Corporate Offices and Distribution Center. The Company's
corporate headquarters are located in an office building in northeast
Fresno, California, constructed in 1991 by a limited partnership of which
the Company is the sole limited partner holding a 36% interest. The Company
leases 89,000 square feet of the 176,000 square foot building under a twenty-
year lease expiring in the year 2011. The lease contains two consecutive ten-
year renewal options and the Company receives favorable rental terms under
the lease. (See Note 1 to the Consolidated Financial Statements.) The
Company believes that its current office space is adequate to meet its long-
term office space requirements.
The Company's distribution center, completed in 1989, was
constructed and equipped to meet the Company's long-term merchandise
distribution needs. The 420,000 square foot distribution facility is
strategically located in Madera, California to service economically the
Company's existing store locations in the western United States and its
projected future market areas. The Company leases the distribution facility
from an unrelated party under a 20-year lease expiring in the year 2009,
with six consecutive five-year renewal options.
Store Leases and Locations. The Company owns six of its forty
department stores, and leases the remaining thirty-four department stores
and all of its twenty-two specialty stores. While there is no assurance that
the Company will be able to negotiate further extensions of any particular
lease, management believes that satisfactory extensions or suitable
alternative store locations will be available. Additional information
pertaining to the Company's store leases is included in Note 6 to the
Consolidated Financial Statements.
The following table contains specific information about each of
the Company's stores open as of the end of fiscal 1998:
<TABLE>
<CAPTION>
Expiration
Gross(1) Date of
Square Date Current
Feet Opened Lease Owned or Leased(2)
DEPARTMENT STORES:
Northern Region (17 Gottschalks locations):
<S> <C> <C> <S> <C> <S>
Antioch............. 80,000 1989 N/A (3) Own
Auburn.............. 40,000 1995 2005 Lease
Carson City, Nevada. 68,000 1995 2005 Lease
Chico............... 85,000 1988 2017 Lease
Eureka.............. 96,900 1989 N/A (3) Own
Klamath Falls,
Oregon............ 65,400 1992 2007 Lease
Modesto:
Vintage Faire.....161,500 1977 2007 Lease
Century Center.... 65,000 1984 2013 Lease
Reno, Nevada........138,000 1996 2016 Lease
Sacramento..........194,400 1994 2014 Lease
Santa Rosa..........131,300 1997 2017 Lease
Sonora.............. 59,800 1997 2017 Lease
Stockton............ 90,800 1987 2009 Lease
Tacoma, Washington..119,300 1992 2012 Lease
Tracy...............113,000 1995 2015 Lease
Woodland............ 57,300 1987 2017 Lease
Yuba City........... 80,000 1989 N/A(3) Own
Central Region (13 Gottschalks locations):
Bakersfield,
Valley Plaza...... 90,000 1987 2017 Lease
Capitola............105,000 1990 2015 Lease
Clovis..............101,400 1988 2018 Lease
Fresno:
Fashion Fair......163,000 1970 2016 Lease
Fig Garden........ 36,000 1983 2005 Lease
Manchester........175,600 1979 2009 Lease
Hanford............. 98,800 1993 N/A(3) Own
Merced.............. 60,000 1983 2013 Lease
Oakhurst............ 25,600 1994 2005 Lease
San Luis Obispo..... 99,300 1986 N/A(3) Own
Santa Maria.........114,000 1976 2006 Lease
Visalia.............150,000 1995 2014 Lease
Watsonville......... 75,000 1995 2006 Lease
Southern Region (10 Harris/Gottschalks locations) (4):
Bakersfield, East
Hills:
Women's, Shoes and
Accessories.....105,000 1998 2008(5) Lease
Men's, Children's
and Home........ 92,900 1988 2009 Lease
Hemet............... 51,000 1998 2005 Lease
Indio............... 60,000 1998 2005 Lease
Moreno Valley.......153,000 1998 2008(5) Lease
Palmdale:
Women's, Shoes and
Accessories.....114,000 1998 2008(5) Lease
Men's, Children's
and Home.........114,900 1990 N/A(3) Own
Palm Springs........ 82,000 1991 2015 Lease
Redlands............106,000 1998 2007 Lease
Riverside...........208,000 1998 2002 Lease
San Bernardino......204,000 1995 2017 Lease
Victorville......... 71,000 1998 2006 Lease
Total Department
Store Square
Footage........ 4,301,200
SPECIALTY STORES:
Gottschalks:
Aptos............... 11,200 1988 2004 Lease
Redding............. 7,800 1993 Automatically Lease
renews every
60 days
Scotts Valley....... 11,200 1988 2001 Lease
Village East:
Antioch............. 2,100 1989 1999(6) Lease
Capitola............ 2,360 1991 2009 Lease
Carson City, Nevada. 3,400 1995 2005 Lease
Chico............... 2,300 1988 2000 Lease
Clovis.............. 2,300 1988 2009 Lease
Eureka.............. 2,820 1989 2004 Lease
Fresno, Fig Garden.. 2,800 1986 30 days(7) Lease
Hanford............. 2,800 1993 2008 Lease
Modesto,
Century Center.... 2,730 1986 2005 Lease
Palmdale............ 2,716 1990 2000 Lease
Sacramento.......... 2,700 1994 2004 Lease
San Luis Obispo..... 2,500 1987 2011 Lease
Santa Maria......... 3,000 1976 2001 Lease
Stockton............ 1,799 1989 30 days(7) Lease
Tacoma.............. 4,000 1992 2012 Lease
Tracy............... 3,428 1995 2006 Lease
Visalia............. 3,400 1975 1999(6) Lease
Woodland............ 2,022 1987 1999(8) Lease
Yuba City........... 3,200 1990 2000 Lease
Total Specialty Store
Square Footage.... 82,575
Total Square
Footage.........4,383,775
</TABLE>
__________________________
(1) Reflects total store square footage, including office space,
storage, service and other support space that is not dedicated to
direct merchandise sales.
(2) Most of the Company's department store leases contain renewal
options. Leases for specialty store locations generally do not
contain renewal options.
(3) These stores are Company owned and have been pledged as security
for various debt obligations of the Company. (See Note 5 to the
Consolidated Financial Statements.)
(4) Locations opened in fiscal 1998 were acquired from
Harris. Locations open prior to that date were original
Gottschalks locations that are now operated under
Harris/Gottschalks nameplates.
(5) These leases are with ECI, an affiliate of the Company.
(6) The Company expects to renegotiate these leases prior to
their expiration.
(7) These leases are renewable on a month-to-month basis.
(8) The Company expects to close this location upon the expiration of
its lease and incorporate it into the nearby department store
location as a separate department.
Item 3. LEGAL PROCEEDINGS
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matter was submitted to a vote of security holders of the
Company during the fourth quarter of the fiscal year covered in this report.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's stock is listed for trading on both the New York
Stock Exchange ("NYSE") and the Pacific Stock Exchange. The following table
sets forth the high and low sales prices per share of common stock as
reported on the NYSE Composite Tape under the symbol "GOT" during the
periods indicated:
<TABLE>
<CAPTION>
1998 1997
Fiscal Quarters High Low High Low
<C> <S> <C> <C> <C> <C>
1st Quarter....... 9 1/4 6 13/16 6 1/2 5 1/8
2nd Quarter....... 8 7/8 7 3/4 9 5 1/2
3rd Quarter....... 8 3/4 6 9/16 9 7/8 7 11/16
4th Quarter....... 7 15/16 6 7/8 9 1/8 6 3/4
</TABLE>
On March 31, 1999, the Company had 894 stockholders of record,
some of which were brokerage firms or other nominees holding shares for
multiple stockholders. The sales price of the Company's common stock as
reported by the NYSE on March 31, 1999 was $7 1/16 per share.
The Company has not paid a cash dividend since its initial public
offering in 1986. The Board of Directors has no present intention to pay
cash dividends in the foreseeable future, and will determine whether to
declare cash dividends in the future depending on the Company's earnings,
financial condition and capital requirements. In addition, the Company's
credit agreement with Congress Financial Corporation prohibits the Company
from paying dividends without prior written consent from that lender.
On August 20, 1998, in connection with completing the acquisition
of substantially all of the assets and business of Harris, the Company
issued 2,095,900 shares of its common stock and the Subordinated Note to
Harris (see Note 2 to the Consolidated Financial Statements). The
transaction was a private placement involving one offeree and one purchaser
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
Item 6. SELECTED FINANCIAL DATA
The Company reports on a 52/53 week fiscal year ending on the
Saturday nearest to January 31. The fiscal years ended January 30, 1999,
January 31, 1998, February 1, 1997, February 3, 1996 and January 28, 1995
are referred to herein as fiscal 1998, 1997, 1996, 1995 and 1994,
respectively. All fiscal years noted include 52 weeks, except for fiscal
1995 which includes 53 weeks.
The selected financial data below should be read in conjunction
with Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Consolidated Financial
Statements of the Company and related notes included elsewhere herein. The
Company completed the acquisition of nine stores from Harris on August 20,
1998, closing one of the acquired stores on January 31, 1999, as planned.
The acquisition has affected the comparability of the Company's financial
results.
RESULTS OF OPERATIONS:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Net sales........... $517,140 $448,192 $422,159 $401,041 $363,603
Net credit revenues.. 6,897 6,385 4,198 4,896 4,210
------- ------- ------- ------- -------
524,037 454,577 426,357 405,937 367,813
Costs and expenses:
Cost of sales...... 347,531 304,558 287,164 278,827 247,423
Selling, general and
administrative
expenses......... 150,719 130,922 123,860 120,637 101,516
Depreciation and
amortization(1)... 8,461 6,667 6,922 8,092 5,860
Acquisition related
expenses........... 859 673
Unusual items(2)..... 3,833
------- ------- ------- ------- -------
507,570 442,820 417,946 407,556 358,632
======= ======= ======= ======= =======
Operating income (loss) 16,467 11,757 8,411 (1,619) 9,181
Other (income) expense:
Interest expense...... 9,470 7,325 8,111 7,718 7,599
Miscellaneous income.. (2,032) (1,955) (2,792) (726) (755)
------- ------- ------- ------- -------
7,438 5,370 5,319 6,992 6,844
======= ======= ======= ======= =======
Income (loss) before
income tax expense
(benefit)........... 9,029 6,387 3,092 (8,611) 2,337
Income tax expense
(benefit)........... 3,747 2,657 1,258 (2,972) 821
------- ------- ------ ------ ------
Net income (loss)..... $ 5,282 $ 3,730 $ 1,834 $(5,639) $ 1,516
======= ======= ====== ====== ======
Net income (loss)
per common share -
basic and diluted.. $ 0.46 $ 0.36 $ 0.18 $ (0.54) $ 0.15
======= ======= ====== ====== ======
Weighted-average
number of common
shares outstanding
basic and diluted 11,418 10,474 10,461 10,416 10,413
</TABLE>
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET DATA:
1998 1997 1996 1995 1994
(In thousands of dollars)
Retained interest in
<S> <C> <C> <C> <C> <C>
receivables sold...$ 37,399 $ 15,813 $ 20,871 $ 25,892 $ 25,745
Receivables, net.... 16,136 3,085 1,818 1,575 1,566
Merchandise
inventories........ 123,118 99,294 89,472 87,507 80,678
Property and
equipment, net..... 113,645 99,057 87,370 89,250 93,809
Total assets........ 324,364 242,311 232,400 239,041 233,353
Working capital..... 96,231 67,579 70,231 42,904 37,900
Long-term obligations,
less current portion.74,114 62,420 60,241 34,872 33,672
Subordinated note
payable to affiliate.20,618 --- --- --- ---
Stockholders' equity.103,468 83,905 80,139 77,917 83,577
</TABLE>
OTHER SELECTED DATA:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(In thousands of dollars, except other selected data)
Sales growth:
<S> <C> <C> <C> <C> <C>
Total store sales.... 15.4% 6.2% 5.3% 10.3% 6.2%
Comparable store
sales. 2.1% 3.3% 1.4% (3.1%) 3.3%
Comparable stores data:
Sales per selling
square foot $170 $160 $170 $181 $195
Selling square
footage 2,621 2,642 2,161 1,892 1,747
Gross margin percent:
Owned............. 34.3% 33.5% 33.4% 31.8% 33.3%
Leased............. 14.8% 14.6% 14.6% 14.4% 14.1%
EBITDA(3)...........$31,133 $24,631 $21,689 $10,777 $22,268
Capital
expenditures... $16,801 $14,976 $ 6,845 $12,773 $ 4,539
Current ratio..... 1.98:1 2.01:1 2.10:1 1.45:1 1.43:1
Inventory turnover
ratio............. 2.6 2.6 2.6 2.7 2.9
</TABLE>
- -----------------------------------
(1) Includes the amortization of new store pre-opening costs of
$421,000, $589,000, $1.3 million, $2.5 million and $438,000
in fiscal 1998, 1997, 1996, 1995 and 1994, respectively.
This amount also includes the amortization of goodwill of
$291,000 in fiscal 1998 and $116,000 in each of fiscal
years 1997 through 1994.
(2) Represents legal fees and other
costs incurred to settle litigation against the Company.
(See the Company's 1997 Annual Report on Form 10-K for
additional information.)
(3) "EBITDA" is defined as earnings before
interest, income taxes, depreciation and amortization, and
other unusual items. EBITDA also excludes interest expense
on securitized receivables which is included in net credit
revenues. EBITDA is not intended to represent cash
flows from operations, to be an indicator of the Company's
operating performance or to be a measure of its liquidity.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Following is management's discussion and analysis of significant
factors which have affected the Company's financial position and its results
of operations for the periods presented in the accompanying Consolidated
Financial Statements. As described more fully in "Liquidity and Capital
Resources", the Company completed the acquisition of nine stores from Harris
on August 20, 1998, closing one of the acquired stores on January 31, 1999,
as planned. The acquisition has affected the comparability of the Company's
financial results.
Results of Operations
The following table sets forth for the periods indicated certain
items from the Company's Consolidated Income Statements, expressed as a
percent of net sales:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0%
Net credit revenues.............. 1.3 1.4 1.0
----- ----- -----
101.3 101.4 101.0
Costs and expenses:
Cost of sales................. 67.2 68.0 68.0
Selling, general and
administrative expenses..... 29.1 29.2 29.3
Depreciation and amortization. 1.6 1.5 1.7
Acquisition related expenses.. 0.2 0.1
----- ----- -----
98.1 98.8 99.0
----- ----- -----
Operating income ................ 3.2 2.6 2.0
Other (income) expense:
Interest expense.............. 1.8 1.6 1.9
Miscellaneous income.......... (0.3) (0.4) (0.6)
----- ----- -----
1.5 1.2 1.3
----- ----- -----
Income before income tax expense. 1.7 1.4 0.7
Income tax expense...... 0.7 0.6 0.3
----- ----- -----
Net income ................. 1.0% 0.8% 0.4%
===== ===== =====
</TABLE>
Fiscal 1998 Compared to Fiscal 1997
Net Sales
In fiscal 1998, net sales exceeded a half-a-billion dollars for
the first time in the Company's history. Net sales in fiscal 1998 increased
by $68.9 million to $517.1 million as compared to $448.2 million in fiscal
1997, a 15.4% increase. This increase is primarily due to additional sales
volume generated by the nine new Harris/Gottschalks locations, beginning
August 20, 1998, and by two new stores not open for the entire year in
fiscal 1997. As planned, the Company closed one of the stores acquired from
Harris on January 31, 1999. Comparable store sales, which increased by 2.1%
in fiscal 1998 as compared to the prior year, were negatively impacted by
unseasonably cold and wet weather conditions caused by the El Nino weather
system.
Net Credit Revenues
Net credit revenues related to the Company's credit card
receivables portfolio consist of the following:
<TABLE>
<CAPTION>
(In thousands of dollars) 1998 1997
<S> <C> <C>
Service charge revenues $13,431 $11,618
Gain (loss) on sale of
receivables (45) 1,050
Interest expense on
securitized receivables (3,314) (3,579)
Charge-offs on receivables
sold and provision for
credit losses on
receivables ineligible
for sale (3,175) (2,704)
------ ------
$ 6,897 $ 6,385
====== ======
</TABLE>
Net credit revenues associated with the Company's private label
credit card increased by $512,000, or 8.0%, in fiscal 1998 as compared to
fiscal 1997. As a percent of net sales, net credit revenues was 1.3% of net
sales in fiscal 1998 as compared to 1.4% in fiscal 1997. As described more
fully in Note 3 to the Consolidated Financial Statements, the gain on sale
of receivables in fiscal 1997 relates to the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities", and
includes a non-recurring credit of $898,000 related to a change in the
estimate for the allowance for doubtful accounts for receivables which were
ineligible for sale. SFAS No. 125 has not materially affected the Company's
operating results since its initial implementation in fiscal 1997.
Service charge revenues increased by approximately $1.8 million,
or 15.6%, in fiscal 1998 as compared to fiscal 1997. This increase is
primarily due to additional service charge revenues generated by customer
credit card receivables acquired from Harris, combined with an increase in
the volume of late charge fees collected on delinquent credit card balances.
This increase was partially offset by lower revenues resulting from a
decrease in credit sales as a percent of total sales (43.1% in fiscal 1998
as compared to 43.7% in fiscal 1997), partially due to lower credit sales
volume in the Harris/Gottschalks locations than in the Gottschalks
locations.
Interest expense on securitized receivables decreased by $265,000,
or 7.4%, in fiscal 1998 as compared to fiscal 1997. This decrease relates to
lower outstanding borrowings against securitized receivables during the
period. (See Note 3 to the Consolidated Financial Statements and "Liquidity
and Capital Resources".) Charge-offs on receivables sold and the provision
for credit losses on receivables ineligible for sale increased by $471,000,
or 17.4%, in fiscal 1998 as compared to 1997. As a percent of sales,
however, such amounts remained unchanged at 0.6% in fiscal 1998 and 1997.
Cost of Sales
Cost of sales, which includes costs associated with the buying,
handling and distribution of merchandise, increased by approximately $43.0
million to $347.5 million in fiscal 1998 as compared to $304.6 million in
fiscal 1997, an increase of 14.1%. The Company's gross margin percentage
increased to 32.8% in fiscal 1998 as compared to 32.0% in fiscal 1997,
primarily due to increased sales of higher gross margin merchandise
categories in certain of the Company's stores, combined with lower costs
associated with the processing of merchandise at the Company's distribution
center. Inventory shrinkage remained unchanged at 1.1% of net sales in
fiscal 1998 and 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by
approximately $19.8 million to $150.7 million in fiscal 1998 as compared to
$130.9 million in fiscal 1997, an increase of 15.1%. As a percent of net
sales, selling, general and administrative expenses decreased to 29.1% in
fiscal 1998 as compared to 29.2% in fiscal 1997, primarily due to higher
sales volume gained through the acquisition of the Harris stores. This
decrease also reflects lower rental expense resulting from the modification
of certain store lease agreements and from the refinancing and conversion of
certain operating equipment leases into capital leases. This decrease was
partially offset by increased payroll and payroll related costs in the
Company's stores as a result of the mandatory minimum wage increase in
California (from $5.15 to $5.75 per hour, an 11.7% increase) effective March
1, 1998, and other competitive wage adjustments. The Company also increased
advertising and credit solicitation expenditures during the year in an
attempt to improve sluggish apparel sales during the first half of the year
and in connection with the integration of the Harris stores.
Depreciation and Amortization
Depreciation and amortization expense increased by approximately
$1.8 million to $8.5 million in fiscal 1998 as compared to $6.7 million in
fiscal 1997, an increase of 26.9%. As a percent of net sales, depreciation
and amortization increased to 1.6% in fiscal 1998 as compared to 1.5% in
fiscal 1997. These increases are primarily due to additional depreciation
related to capital expenditures for new stores and for the renovation of
existing stores, new capital lease obligations, and assets acquired from
Harris. These increases are also due to the amortization of goodwill
associated with the recent acquisition of the Harris stores.
Acquisition Related Expenses
Acquisition related expenses of $859,000 were incurred in fiscal
1998, consisting primarily of costs incurred prior to the elimination of
certain duplicative operations of Harris, including certain merchandising,
advertising, credit and distribution functions. As of the end of fiscal
1998, all duplicative operations of Harris have been eliminated.
The Company had previously entered into negotiations for the
acquisition of Harris in fiscal 1997. The parties were unable to agree on
the terms of the transaction, however, and negotiations were discontinued.
Fiscal 1997 results include $673,000 of costs related to the proposed
transaction, consisting primarily of legal, accounting and investment
banking fees.
Interest Expense
Interest expense, which includes the amortization of deferred
financing costs, increased by approximately $2.1 million to $9.5 million in
fiscal 1998 as compared to $7.3 million in fiscal 1997, an increase of
29.3%. As a percent of net sales, interest expense increased to 1.8% in
fiscal 1998 as compared to 1.6% in fiscal 1997. These increases are
primarily due to higher average outstanding borrowings under the Company's
working capital facilities, and additional interest associated with the
Subordinated Note issued to Harris (see Note 2 to the Consolidated Financial
Statements). These increases were partially offset by a decrease in the
weighted-average interest rate applicable to outstanding borrowings under
the Company's working capital facilities (7.88% in fiscal 1998 as compared
to 8.16% in fiscal 1997) resulting from interest rate reductions during the
year.
Interest expense related to securitized receivables is reflected
as a reduction to net credit revenues and is not included in interest
expense for financial reporting purposes.
Miscellaneous Income
Miscellaneous income, which includes the amortization of deferred
income and other miscellaneous income and expense amounts, remained
unchanged at approximately $2.0 million in fiscal 1998 and 1997.
Income Taxes
The Company's effective tax rate was 41.5% in fiscal 1998 as
compared to 41.6% in fiscal 1997. (See Note 7 to the Consolidated Financial
Statements.)
Net Income
As a result of the foregoing, the Company's net income increased
by $1.6 million to $5.3 million in fiscal 1998 as compared to $3.7 million
in fiscal 1997. On a per share basis (basic and diluted), net income per
share increased to $0.46 per share in fiscal 1998 as compared to $0.36 per
share in fiscal 1997.
Fiscal 1997 Compared to Fiscal 1996
Net Sales
Net sales increased by approximately $26.0 million to $448.2
million in fiscal 1997 as compared to $422.2 million in fiscal 1996, an
increase of 6.2%. This increase resulted from a 3.3% increase in comparable
store sales, combined with additional sales volume generated by new store
openings in fiscal 1997 and 1996. The Company operated thirty-four
department stores as of the end of fiscal 1997 as compared to thirty-two as
of the end of fiscal 1996.
Net Credit Revenues
Net credit revenues consist of the following:
<TABLE>
<CAPTION>
(In thousands of dollars) 1997 1996
<S> <C> <C>
Service charge revenues $11,618 $10,493
Gain on sale of receivables 1,050
Interest expense on
securitized receivables (3,579) (3,564)
Charge-offs on receivables
sold and provision for
credit losses on receivables
ineligible for sale (2,704) (2,731)
------ ------
$ 6,385 $ 4,198
====== ======
</TABLE>
Net credit revenues increased by approximately $2.2 million, or
52.1%, in fiscal 1997 as compared to fiscal 1996. As a percent of net sales,
net credit revenues increased to 1.4% in fiscal 1997 as compared to 1.0% in
fiscal 1996. The gain on sale of receivables in fiscal 1997 includes a non-
recurring credit of $898,000 related to a change in the estimate for the
allowance for doubtful accounts for receivables which were ineligible for
sale. Because the provisions of SFAS No. 125 were not permitted to be
applied retroactively to prior periods presented, there was no gain or loss
on receivables sold in fiscal 1996. (See Note 3 to the Consolidated
Financial Statements.)
Service charge revenues increased by approximately $1.1 million,
or 10.7%, in fiscal 1997 as compared to fiscal 1996. This increase is
primarily due to an increase in credit sales as a percent of total sales
(43.7% in fiscal 1997 as compared to 43.1% in fiscal 1996), driven by the
success of the Company's "Gottschalks Rewards" customer loyalty program,
introduced in early fiscal 1997. This increase is also due to additional
income generated by modifications made to credit terms in selected states,
initiated in late fiscal 1996.
Interest expense on securitized receivables remained unchanged at $3.6
million in fiscal 1997 and 1996, and charge-offs on receivables sold and the
provision for credit losses on receivables ineligible for sale remained
unchanged at $2.7 million in fiscal 1997 and 1996.
Cost of Sales
Cost of sales increased by approximately $17.4 million to $304.6
million in fiscal 1997 as compared to $287.2 million in fiscal 1996, an
increase of 6.1%. As a percentage of sales, cost of sales and the Company's
gross margin percentage remained unchanged at 68.0% and 32.0% in fiscal 1997
and 1996, respectively. Due to additional promotional activity, markdowns as
a percentage of net sales increased in fiscal 1997 as compared to 1996. This
increase was offset by lower costs related to the buying and distribution of
merchandise in fiscal 1997, primarily driven by improved technology
implemented at the Company's distribution center during the year. Inventory
shrinkage remained unchanged at 1.1% of net sales in fiscal 1997 and 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by
approximately $7.0 million to $130.9 million in fiscal 1997 as compared to
$123.9 million in fiscal 1996, an increase of 5.7%. Due to the increase in
sales volume and ongoing Company-wide expense control measures, selling,
general and administrative expenses as a percent of net sales decreased to
29.2% in fiscal 1997 as compared to 29.3% in fiscal 1996.
Depreciation and Amortization
Depreciation and amortization expense, which includes the
amortization of new store pre-opening costs, decreased by approximately
$200,000 to $6.7 million in fiscal 1997 as compared to $6.9 million in
fiscal 1996, a decrease of 3.7%. As a percent of net sales, depreciation and
amortization expense decreased to 1.5% in fiscal 1997 as compared to 1.7% in
fiscal 1996. The decrease in dollars is primarily due to a $748,000 decrease
in the amortization of new store pre-opening costs as compared to the prior
year, partially offset by additional depreciation related to capital
expenditures for new stores opened and capital lease obligations entered
into during the year. Excluding the amortization of new store pre-opening
costs, depreciation and amortization expense as a percent of net sales
increased to 1.4% in fiscal 1997 as compared to 1.3% in fiscal 1996.
Interest Expense
Interest expense, which includes the amortization of deferred
financing costs, decreased by approximately $800,000 to $7.3 million in
fiscal 1997 as compared to $8.1 million in fiscal 1996, a decrease of 9.7%.
Due to the increase in sales volume, interest expense as a percent of net
sales decreased to 1.6% in fiscal 1997 as compared to 1.9% in fiscal 1996.
The decrease in dollars is primarily due to a decrease in the weighted-
average interest rate charged on outstanding borrowings under the Company's
working capital facilities (8.16% in fiscal 1997 as compared to 8.62% in
fiscal 1996), resulting from interest rate reductions during the period, and
lower average outstanding borrowings under those facilities in fiscal 1997
as compared to fiscal 1996. This decrease was partially offset by higher
interest expense associated with additional long-term financing arrangements
entered into during late fiscal 1996, including the issuance of the $6.0
million 1996-1 Series certificate and a $6.0 million mortgage loan. (See
"Liquidity and Capital Resources".)
Miscellaneous Income
Miscellaneous income, which includes the amortization of deferred
income and other miscellaneous income and expense items, decreased by
approximately $800,000 to $2.0 million in fiscal 1997 as compared to $2.8
million in fiscal 1996. Other income in fiscal 1997 includes a credit of
$400,000 from a deferred lease incentive resulting from the revision of
certain terms of the related lease. Other income in fiscal 1996 includes a
pre-tax gain of $1.3 million resulting from the termination of two leases
previously accounted for as capital leases by the Company. (See Note 6 to
Consolidated Financial Statements.)
Acquisition Related Expenses
Acquisition related expenses of $673,000 were incurred in fiscal
1997 in connection with a proposed acquisition of Harris. Such costs,
consisting primarily of legal, accounting and investment banking fees, were
recognized by the Company after the parties were unable to agree on the
terms of the transaction and discontinued negotiations. The companies
resumed negotiations and successfully completed the acquisition in fiscal
1998.
Income Taxes
The Company's effective tax rate was 41.6% in fiscal 1997 as
compared to 40.7% in fiscal 1996. (See Note 7 to the Consolidated Financial
Statements.)
Net Income
As a result of the foregoing, the Company's net income increased
by approximately $1.9 million to $3.7 million in fiscal 1997 as compared to
$1.8 million in fiscal 1996. On a per share basis (basic and diluted), net
income increased by $0.18 per share to $0.36 per share in fiscal 1997 as
compared to $0.18 per share in fiscal 1996.
Liquidity and Capital Resources
The Company's working capital requirements are currently met
through a combination of cash provided by operations, short-term trade
credit, and by borrowings under its revolving line of credit and its
receivables securitization program. Working capital increased by $28.6
million to $96.2 million in fiscal 1998 as compared to $67.6 million in
fiscal 1997. The Company's liquidity position and capital structure was
enhanced in fiscal 1998 by a business acquisition through which the Company
acquired net current assets that were readily convertible into cash,
including merchandise inventories and customer credit card receivables and
funded the acquisition of those assets through the issuance of long-term
unsecured subordinated debt and equity. The increase is also due to a $15.0
million increase ($40.0 million as of the end of fiscal 1998 as compared to
$25.0 million as of the end of fiscal 1997) in the amount of line of credit
borrowings that are classified as long-term for financial reporting
purposes. The Company's ratio of current assets to current liabilities
decreased slightly to 1.98:1 as of the end of fiscal 1998 as compared to
2.01:1 as of the end of fiscal 1997.
Business Acquisition. As described more fully in Note 2 to the
Consolidated Financial Statements, the Company completed the acquisition of
substantially all of the assets and business of Harris on August 20, 1998.
The assets acquired consisted primarily of merchandise inventories, customer
credit card receivables, fixtures and equipment and certain intangibles. The
Company also assumed certain liabilities relating to the business, including
vendor payables, store leases and certain other contracts. The purchase
price for the assets was the issuance to Harris of 2,095,900 shares of
common stock of the Company and the issuance of a $22.2 million 8%
Subordinated Note due August 20, 2003. Interest on the Subordinated Note is
payable semi-annually beginning in February 1999, with the principal portion
due and payable upon its maturity date, unless such payment would result in
the default on any of the Company's other credit facilities, in which case
the maturity of the note would be extended by three years to August 2006.
The Company also incurred additional costs related to the transaction,
including professional fees and transaction costs, severance pay, costs
related to the consolidation of duplicative distribution and administrative
functions, and costs associated with the closure of the former Harris store
located in San Bernardino on January 31, 1999.
Revolving Line of Credit. The Company has a $110.0 million
revolving line of credit facility with Congress through March 30, 2001.
Borrowings under the arrangement are limited to a restrictive borrowing base
equal to 65% of eligible merchandise inventories, increasing to 70% of such
inventories during the period of September 1 through December 20 of each
year (except for fiscal 1998, which was extended to February 28, 1999) to
fund increased seasonal inventory requirements. Interest under the facility
is charged at a rate of approximately LIBOR plus 2.25% (reduced to LIBOR
plus 2.00% on March 1, 1999), with no interest charged on the unused portion
of the line of credit. The maximum amount available for borrowings under the
line of credit with Congress was $79.9 million as of January 30, 1999, of
which $60.3 million was outstanding as of that date. As described below,
such outstanding borrowings were reduced by $25.3 million on March 1, 1999
by proceeds from the issuance of a new certificate under the Company's
receivables securitization program.
Receivables Securitization Program. The Company's receivables
securitization program provides the Company with an additional source of
working capital and long-term financing that is generally more cost-
effective than traditional debt financing.
As of January 30, 1999, the Company had three outstanding series
of certificates issued through private placements under the program,
including $40.0 million principal amount 7.35% Fixed Base Class A-1 Credit
Card Certificates (the 1994-1 Series), a $6.0 million principal amount
6.79% Fixed Base Certificate (the "1996-1 Series") and a Variable Base
Certificate in the principal amount of up to $15.0 million (the "Variable
Series"). As described more fully in Note 3 to the Consolidated Financial
Statements, the Company commenced the repayment of the outstanding principal
balances of the 1994-1 and 1996-1 Series certificates on October 15, 1998,
making total principal reductions of $15.8 million through January 30, 1999.
The Company also reduced amounts outstanding against the Variable Series
certificate to $700,000 from $7.7 million as of January 31, 1998. The
outstanding principal balances of the certificates, totaling $30.9 million
and $53.7 million as of January 30, 1999 and January 31, 1998, respectively,
are off-balance sheet for financial reporting purposes.
On March 1, 1999, the Company issued a $53.0 million principal
amount 7.66% Fixed Base Class A-1 Credit Card Certificate (the "1999-1
Series") to a single investor through a private placement. Proceeds from the
issuance of the 1999-1 Series were used to repay the outstanding balances of
the 1994-1, 1996-1 and Variable Series certificates, totaling $26.9 million
as of that date, reduce outstanding borrowings under the Company's revolving
line of credit by $25.3 million and pay certain costs associated with the
transaction. Interest on the 1999-1 Series will be earned by the certificate
holder on a monthly basis at a fixed interest rate of 7.66%, and the
outstanding principal balance of the certificate will be repaid in twelve
equal monthly installments commencing September 2003 and continuing through
August 2004. Monthly cash flows generated by the Company's credit card
portfolio, consisting of principal and interest collections, are first used
to pay certain costs of the program, which include interest payable to the
investor, and are then available to fund the working capital requirements of
the Company. Subject to certain conditions, the Company may expand the
securitization program to meet future receivables growth.
Other Financings. As described more fully in Note 5 to the
Consolidated Financial Statements, the Company has other long-term
obligations with total outstanding balances of $30.2 million at January 30,
1999 ($32.7 million as of January 31, 1998). The loans mature at dates
ranging from 2001 to 2010, bear interest at fixed rates ranging from 9.23%
to 10.45%, and are collateralized by various properties and equipment of the
Company. The scheduled annual principal maturities on the Company's various
long-term obligations are $2.7 million, $2.8 million, $2.5 million, $1.4
million and $1.4 million for fiscal 1999 through fiscal 2003, with $19.4
million due thereafter.
The Company's revolving line of credit agreement, and certain of
its long-term debt and lease arrangements contain various restrictive
covenants. The Company was in compliance with all such restrictive covenants
as of January 30, 1999.
The Company has entered into an agreement to open one new
department store in the second half of fiscal 1999 and is in the process of
remodeling certain existing store locations. The estimated cost of such
projects, totaling $6.4 million, is expected to be provided for from
existing financial resources. Such projects are expected to be fully
complete in fiscal 1999. However, there can be no assurance that the
completion of such projects will not be delayed subject to a variety of
conditions precedent or other factors.
Management believes the previously described sources of liquidity
are adequate to meet the Company's working capital, capital expenditure and
debt service requirements for fiscal 1999. Management also believes it has
sufficient sources of liquidity for its long-term growth plans at moderate
levels. The Company may engage in other financing activities if they are
deemed to be advantageous.
Year 2000 Readiness
The year 2000 problem is pervasive, with almost every business,
large and small, affected. The year 2000 problem impacts both information
technology ("IT"), including hardware (mainframes, client/server systems and
personal computers) and software (packaged software and custom designed),
and impacts non-information technology ("non-IT"), including building
security, climate control and telephone systems. The Company also exchanges
data with certain trade suppliers and other third parties. Like many other
companies, the year 2000 computer issue creates risks and uncertainties for
the Company. If internal systems do not correctly recognize and process date
information beyond the year 1999, there could be a material adverse impact
on the Company's operations. To address year 2000 issues, the Company
established a task force in fiscal 1997 to coordinate the identification,
evaluation and implementation of changes to computer systems and
applications necessary to achieve a year 2000 date conversion with no
disruption to business operations. Plans and progress against plans are
reviewed by the year 2000 task force and are reported to the Company's
senior executive officers and the Board of Directors on a regular basis. It
is expected that activities related to the year 2000 issues will be continue
through mid-fiscal 1999 with the goal of appropriately resolving all
material internal systems and third party issues.
The Company's State of Readiness.
As of January 30, 1999, the Company's efforts towards becoming
year 2000 compliant with respect to its IT systems are progressing on
schedule with a projected completion date of mid-fiscal 1999. Based on
testing to date, management believes its mainframe operating system
environment and point-of-sale systems are already year 2000 compliant.
Modifications to the Company's proprietary, or custom designed software,
have been substantially completed and tested. Upgrades have been scheduled
for certain purchased software packages and are expected to be complete by
mid-fiscal 1999. The Company's operating system contains a testing
environment specifically designed to test year 2000 compliance. IT systems
acquired from Harris are limited to point-of-sale equipment, which has
already been converted to Gottschalks technology and is year 2000 compliant.
The Company has also completed the identification and evaluation
of all of its non-IT systems, which include, among other things, store alarm
and security systems, air conditioners and lighting, fire control, elevators
and escalators. The Company has already communicated with its suppliers,
dealers, financial institutions and other third parties with which it does
business to determine that the supplier's operations and the products or
services they provide are year 2000 compliant or to monitor their progress
toward year 2000 compliance. Some providers are not yet year 2000 compliant
and the Company is monitoring their progress on a continual basis.
Costs Associated with Year 2000 Issues.
The costs incurred to date related to the IT year 2000 conversion
are approximately $316,000. The Company currently expects that the total
remaining cost of these efforts, including both incremental spending and re-
deployed resources, will be approximately $330,000. Such costs, which
represent approximately 10.9% of the Company's fiscal 1999 IT budget,
consist primarily of internal personnel costs, external consulting fees and
costs in excess of normal hardware and software upgrades and replacements
and do not include potential costs related to the cost of internal software
and hardware replaced in the normal course of business. Management expects
such costs will be funded with working capital. Purchased hardware and
software are being capitalized in accordance with normal policy. Personnel
and all other costs related to the year 2000 project are being expensed as
incurred. In some instances, the installation schedule of new software and
hardware in the normal course of business has been accelerated, or deferred,
in order to resolve year 2000 compatibility issues. The acceleration, or
delay of such projects, however, will not have a materiel adverse effect on
the Company's financial position or results of operations.
The cost of the project and the estimated completion dates for the year
2000 conversion are based on the Company's best estimates, which have been
derived based on a number of assumptions of future events including the
continued availability of internal and external resources, the timely
completion of third party modifications and other factors. The ultimate cost
of the project is subject to change as the project progresses. Actual
results may differ from original estimates. The Company has not yet
completed its assessment of costs that may be associated with non-IT year
2000 issues, as such determination will be dependant upon the results of
communications with the related suppliers.
Contingency Plans.
Management believes its efforts towards year 2000 compliance will
be completed on schedule in mid-fiscal 1999. In the event the Company is not
able to progress according to schedule, however, the Company has developed
contingency plans. The Company's year 2000 conversion schedule contains
"trigger" dates to implement the contingency plan specifically designed for
each system in the event the conversion has not progressed accordingly to
schedule. If necessary, the Company has the ability to divert additional
internal IT staff onto the year 2000 project. The Company also has
additional sources of contract programming specialists who are familiar with
the Company's operating environment. The Company also believes that it has
alternate sources of suppliers for substantially all of its non-IT systems
to replace suppliers that are unable to become year 2000 compliant within an
appropriate time frame.
Based on currently available information, management does not
believe that the year 2000 matters discussed above related to internal
systems will have a material adverse impact on the Company's financial
condition or its results of operations; however, it is uncertain to what
extent the Company may be affected by such matters and no assurance can be
given. In addition, there can be no assurance that the failure to ensure
year 2000 capability by a supplier or another third party would not have a
material adverse effect on the Company.
Inflation
Although inflation has not been a material factor to the Company's
operations during the past several years, the Company does experience
increases in the cost of certain of its merchandise, salaries, employee
benefits and other general and administrative costs. The Company is
generally able to offset these increases by adjusting its selling prices or
by modifying its operations. The Company's ability to adjust selling prices
is limited by competitive pressures in its market areas.
The Company accounts for its merchandise inventories on the retail
method using last-in, first-out (LIFO) cost using the department store price
indexes published by the Bureau of Labor Statistics. Under this method, the
cost of products sold reported in the financial statements approximates
current costs and thus reduces the impact of inflation on reported income
due to increasing costs.
Seasonality
The Company's business, like that of most retailers, is subject to
seasonal influences, with the major portion of net sales, gross profit and
operating results realized during the Christmas selling months of November
and December of each year, and to a lesser extent, during the Easter and
Back-to-School selling seasons. The Company's results may also vary from
quarter to quarter as a result of, among other things, the timing and level
of the Company's sales promotions, weather, fashion trends and the overall
health of the economy, both nationally and in the Company's market areas.
Working capital requirements also fluctuate during the year, increasing
substantially prior to the Christmas selling season when the Company must
carry significantly higher inventory levels.
The following table sets forth unaudited quarterly results of
operations for fiscal 1998 and 1997 (in thousands, except per share data).
(See Note 11 to the Consolidated Financial Statements.)
<TABLE>
<CAPTION>
1998
Quarter Ended May 2 August 1 October 31 January 30
<S> <C> <C> <C> <C>
Net sales $95,468 $104,131 $123,118 $194,423
Gross profit 29,941 32,601 43,188 63,879
Income (loss) before
income tax expense
(benefit) (3,408) (2,310) 604 14,143
Net income (loss) (1,994) (1,352) 345 8,283
Net income (loss)
per common share
-basic and
diluted $ (0.19) $ (0.13) $ 0.03 $ 0.66
Weighted-average
number of common
shares outstanding(1) 10,479 10,479 12,138 12,575
</TABLE>
<TABLE>
<CAPTION>
1997
Quarter Ended May 3 August 2 November 1 January 31
<S> <C> <C> <C> <C>
Net sales $90,506 $99,997 $101,466 $156,223
Gross profit 28,510 32,279 32,871 49,974
Income (loss) before
income tax expense
(benefit) (1,673) ( 422) (2,516) 10,998
Net income (loss) ( 987) ( 248) (1,485) 6,450
Net income (loss)
per common share
-basic and diluted $ (0.09) $ (0.02) $ (0.14) $ 0.62
Weighted-average
number of common
shares outstanding 10,473 10,473 10,473 10,477
</TABLE>
- ------------------------------
(1) The increase in the weighted-average number of
common shares outstanding during fiscal 1998 is due to the
issuance of 2,095,900 shares of common stock to Harris on August
20, 1998 in connection with a business acquisition (see Note 2 to
the Consolidated Financial Statements.)
Recently Issued Accounting Standards
AICPA Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities" was recently issued and is effective for fiscal 1999.
This statement requires start-up costs, such as new store pre-opening costs,
to be expensed as incurred. SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" was also issued and is
effective for fiscal 1999. SOP 98-1 requires certain internal and external
software development costs to be capitalized upon meeting certain criteria.
The Company does not expect the adoption of these new accounting standards
will have a material effect on its financial position or the results of its
operations.
_________________________________
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks in the normal course of
business, due to changes in interest rates on short-term
borrowings under its revolving line of credit. As of January 30, 1999, line
of credit borrowings subject to a variable interest rate represented 46.5%
of the Company's total outstanding borrowings (both on and off-balance
sheet). The Company does not engage in financial transactions for
speculative or trading purposes, nor does the Company purchase or hold any
derivative financial instruments.
The interest payable on the Company's revolving line of credit is
based on a variable interest rate and is therefore affected by changes in
market interest rates. An increase of 51 basis points on existing line of
credit borrowings (a 10% change from the Company's weighted-average interest
rate as of January 30, 1999, less a scheduled interest rate reduction of 25
basis points on March 1, 1999) would reduce the Company's pre-tax net income
and cash flow by approximately $375,000. This 51 basis point increase in
interest rates would not materially affect the fair value of the Company's
fixed rate financial instruments. (See Note 1 to the Consolidated Financial
Statements.)
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is set forth under Part IV, Item 14,
included elsewhere herein.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by Item 10 of Form 10-K, other than the
following information required by Paragraph (b) of Item 401 of Regulation S-
K, is incorporated by reference from those portions of the Company's
definitive proxy statement with respect to the Annual Stockholders' Meeting
scheduled to be held on June 24, 1999, to be filed pursuant to Regulation
14A (the "1999 Proxy") under the headings "Nominees for Election as
Director" and "Section 16(a) Beneficial Ownership Reporting Compliance."
The following table lists the executive officers of the Company:
<TABLE>
<CAPTION>
Name Age(1) Position
<S> <C> <S>
Joe W. Levy 67 Chairman and Chief
Executive Officer
James R. Famalette 46 President and Chief
Operating Officer
Gary L. Gladding 59 Executive Vice
President/
General Merchandise
Manager
Michael S. Geele 48 Senior Vice President
and Chief Financial Officer
Michael J. Schmidt 57 Senior Vice
President/
Director of Stores
</TABLE>
- ---------------------------------
(1) As of March 31, 1999
Joe W. Levy became Chairman and Chief Executive Officer of the
Company's predecessor and former subsidiary, E. Gottschalk & Co., Inc. ("E.
Gottschalk") in 1982 and of the Company in 1986. Mr. Levy was Executive Vice
President from 1972 to 1982 and first joined E. Gottschalk in 1956. He
serves on the Board of Directors of the National Retail Federation and the
Executive Committee of Frederick Atkins. He was formerly Chairman of the
California Transportation Commission and served on the Board of Directors of
Community Hospitals of Central California. Mr. Levy has also served on
numerous other state and local commissions and public service agencies.
James R. Famalette became President and Chief Operating Officer of
the Company on April 14, 1997. Prior to joining the Company, Mr. Famalette
was President and Chief Executive Officer of Liberty House, a department and
specialty store chain based in Honolulu, Hawaii, from 1993 through 1997, and
served in a variety of other positions with Liberty House from 1987 through
1993, including Vice President, Stores and Vice President, General
Merchandise Manager. From 1982 through 1987, he served as Vice President,
General Merchandise Manager and later as President of Village Fashions/Cameo
Stores in Philadelphia, Pennsylvania, and from 1975 to 1982 served as a
Divisional Merchandise Manager for Colonies, a specialty store chain, based
in Allentown, Pennsylvania. Mr. Famalette serves on the Board of Directors
of the National Retail Federation and Frederick Atkins.
Gary L. Gladding has been Executive Vice President of the Company
since 1987, and joined E. Gottschalk as Vice President/General Merchandise
Manager in 1983. From 1980 to 1983, he was Vice President and General
Merchandise Manager for Lazarus Department Stores, a division of Federated
Department Stores, Inc., and he previously held merchandising manager
positions with the May Department Stores Co.
Michael S. Geele became Senior Vice President and Chief Financial
Officer of the Company on January 21, 1999. Prior to joining the Company,
Mr. Geele was Chief Financial Officer of Southwest Supermarkets in Phoenix,
Arizona from 1995 to 1998. From 1991 to 1995, Mr. Geele served as Vice
President of Finance for Smitty's Super Valu in Phoenix, Arizona, and from
1981 to 1991 served in various financial positions with Smitty's, including
Senior Director and Corporate Controller. Mr. Geele is a Certified Public
Accountant.
Michael J. Schmidt became Senior Vice President/Director of Stores
of E. Gottschalk in 1985 and of the Company in 1986. From 1983 through 1985,
he was Manager of the Gottschalks Fashion Fair store. Prior to joining the
Company, he was General Manager of the Liberty House store in Fresno from
1981 to 1983, and before 1981, held management positions with Allied
Corporation and R.H. Macy & Co., Inc.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference
from those portions of the Company's 1999 Proxy under the headings
"Executive Compensation" and "Director Compensation For Fiscal Year 1998."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference
from the portion of the Company's 1999 Proxy under the heading "Security
Ownership of Certain Beneficial Owners and Management."
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference
from the portion of the Company's 1999 Proxy under the heading "Certain
Relationships and Related Transactions."
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of Gottschalks
Inc. and Subsidiary as required by Item 8 are included in Part IV,
Item 14 of this report:
Consolidated balance sheets -- January 30, 1999 and January 31,
1998
Consolidated income statements -- Fiscal years ended January 30,
1999, January 31, 1998 and February 1, 1997
Consolidated statements of stockholders' equity -- Fiscal years
ended January 30, 1999, January 31, 1998 and February 1, 1997
Consolidated statements of cash flows -- Fiscal years ended
January 30, 1999, January 31, 1998 and February 1, 1997
Notes to consolidated financial statements -- Three years ended
January 30, 1999
Independent auditors' report
(a)(2) The following financial statement schedule of Gottschalks Inc. and
Subsidiary is included in Item 14(d):
Schedule II -- Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
included in the consolidated financial statements, are not required under
the related instructions or are inapplicable, and therefore have been
omitted.
(a)(3) The following exhibits are required by Item 601 of the
Regulation S-K and Item 14(c):
Incorporated by
Reference From
the
Exhibit Following
No. Description Document
3.1 Certificate of Incorporation Registration
of the Registrant, as amended Statement on Form
S-1 (File No. 33-3949)
3.2 By-Laws of the Registrant, Annual Report on
as amended Form 10-K for the
year ended January
28, 1995 (File No.
1-09100)
10.1 Agreement of Limited Partnership Annual Report on
dated March 16, 1990, by and Form 10-K for the
between River Park Properties I year ended February
and Gottschalks Inc. relating to 2, 1991 (File No.
the Company's corporate 1-09100)
headquarters
10.2 Gottschalks Inc. Retirement Registration
Savings Plan(*) Statement on Form
S-1 (File No.
33-3949)
10.3 Participation Agreement dated Annual Report on
as of December 1, 1988 among Form 10-K for the
Gottschalks Inc., General Foods year ended January
Credit Investors No. 2 Corporation 29, 1994 (File No.
and Manufacturers Hanover Trust 1-09100)
Company of California relating to
the sale-leaseback of the Stockton
and Bakersfield department stores
and the Madera distribution facility
10.4 Lease Agreement dated December 1, Annual Report on
1988 by and between Manufacturers Form 10-K for the
Hanover Trust Company of California year ended January
and Gottschalks Inc. relating to 29, 1994 (File No.
the sale-leaseback of department 1-09100)
stores in Stockton and Bakersfield,
California and the Madera
distribution facility
10.5 Ground Lease dated December 1, Annual Report on
1988 by and between Gottschalks Form 10-K for the
Inc. and Manufacturers Hanover year ended January
Trust Company of California 29, 1994 (File No.
relating to the sale-leaseback 1-09100)
of the Bakersfield department store
10.6 Memorandum of Lease and Lease Annual Report on
Supplement dated July 1, 1989 by Form 10-K for the
and between Manufacturers Hanover year ended January
Trust Company of California and 29, 1994 (File No.
Gottschalks Inc. relating to the 1-09100)
sale-leaseback of the Stockton
department store
10.7 Ground Lease dated August 17, Annual Report on 1989
by and between Gottschalks Form 10-K for the
Inc. and Manufacturers Hanover year ended January
Trust Company of California 29, 1994 (File No.
relating to the sale-leaseback of 1-09100)
the Madera distribution facility
10.8 Lease Supplement dated as of Annual Report on
August 17, 1989 by and between Form 10-K for the
Manufacturers Hanover Trust year ended January
Company of California and 29, 1994 (File No.
Gottschalks Inc. relating to the 1-09100)
sale-leaseback of the Madera
distribution facility
10.9 Tax Indemnification Agreement Annual Report on
dated as of August 1, 1989 by Form 10-K for the
and between Gottschalks Inc. year ended January
and General Foods Credit 29, 1994 (File No.
Investors No. 2 Corporation 1-09100)
relating to the sale-leaseback
of the Stockton and Bakersfield
department stores and the
Madera distribution facility
10.10 Lease Agreement dated as of Annual Report on
March 16, 1990 by and between Form 10-K for the
Gottschalks Inc. and River year ended January
Park Properties I relating to the 29, 1994 (File No.
Company's corporate headquarters 1-09100)
10.11 Consulting Agreement dated Quarterly Report on
June 1, 1994 by and between Form 10-Q for the
Gottschalks Inc. and Gerald quarter ended April
H. Blum(*) 30, 1994 (File No.
1-09100)
10.12 Form of Severance Agreement Annual Report on
dated March 31, 1995 by and Form 10-K for the
between Gottschalks Inc. and year ended January
the following senior executives 28, 1995 (File No.
of the Company: Joseph W. Levy, 1-09100)
Gary L. Gladding and Michael
J. Schmidt(*)
10.13 1994 Key Employee Incentive Registration
Stock Option Plan(*) Statement on Form
S-8 (File #33-54783)
10.14 1994 Director Nonqualified Registration
Stock Option Plan(*) Statement on Form
S-8 (File #33-54789)
10.15 Promissory Note and Security Annual Report on
Agreement dated December 16, Form 10-K for the
1994 by and between year ended January
Gottschalks Inc. and 28, 1995 (File No.
Heller Financial, Inc. 1-09100)
10.16 Agreement of Sale dated June 27, Quarterly Report on
1995, by and between Gottschalks Form 10-Q for the
Inc. and Jack Baskin relating to quarter ended July
the sale and leaseback of the 29, 1995 (File No.
Capitola, California property 1-09100)
10.17 Lease and Agreement dated June 27, Quarterly Report on
1995, by and between Jack Baskin Form 10-Q for the
and Gottschalks Inc. relating to quarter ended July
the sale and leaseback of the 29, 1995 (File No.
Capitola, California property 1-09100)
10.18 Promissory Notes and Security Quarterly Report on
Agreements dated October 4, 1995 Form 10-Q for the
and October 10, 1995 by and quarter ended
between Gottschalks Inc. and October 28, 1995
Midland Commercial Funding (File No. 1-09100)
10.19 Promissory Note and Security Annual Report on
Agreement dated October 2, Form 10-K for the
1996, by and between Gottschalks year ended February
Inc. and Heller Financial, Inc. 3, 1996 (File No.
1-09100)
10.20 Loan and Security Agreement dated Annual Report on
December 29, 1996, by and between Form 10-K for the
Gottschalks Inc. and Congress year ended February
Financial Corporation 1, 1997 (File No.
1-09100)
10.21 Promissory Notes dated March 28, Annual Report on
1996 and September 11, 1996, Form 10-K for the
by and between Gottschalks year ended February
Inc. and Broadway Stores, 1, 1997 (File No.
Inc., a wholly-owned division 1-09100)
of Federated Department Stores, Inc.
10.22 Employment Agreement dated Annual Report on
March 14, 1997 by and between Form 10-K for the
Gottschalks Inc. and year ended February
James R. Famalette(*) 1, 1997 (File No.
1-09100)
10.23 Gottschalks Inc. 1998 Stock Registration
Option Plan(*) Statement on Form
S-8 (File #33-
61471)
10.24 Gottschalks Inc. 1998 Registration
Employee Stock Purchase Statement on Form
Plan(*) S-8 (File #33-
61473)
10.25 Asset Purchase Agreement dated Current Report on
as of July 21, 1998 among Form 8-K dated July
Gottschalks Inc., The Harris 21, 1998 (File No.
Company and El Corte Ingles, 1-09100)
S. A. together with all
Exhibits thereto
10.26 Non-Negotiable, Extendable, Current Report on
Subordinated Note due Form 8-K dated
August 20, 2003 issued to August 20, 1998
The Harris Company (File No. 1-09100)
10.27 Registration Rights Agreement Current Report on
between The Harris Company and Form 8-K dated
Gottschalks Inc. dated August 20, 1998
August 20, 1998 (File No. 1-09100)
10.28 Employee Lease Agreement between Current Report on
The Harris Company and Gottschalks Form 8-K dated
Inc. dated August 20, 1998 August 20, 1998
(File No. 1-09100)
10.29 Tradename License Agreement Current Report on
between The Harris Company and Form 8-K dated
Gottschalks Inc. dated August 20, 1998
August 20, 1998 (File No. 1-09100)
10.30 Stockholders' Agreement among Current Report on
El Corte Ingles, S. A., Gottschalks Form 8-K dated
Inc., Joseph Levy and Bret Levy August 20, 1998
dated August 20, 1998 (File No. 1-09100)
10.31 Standstill Agreement between Current Report on
El Corte Ingles, S. A., and Form 8-K dated
Gottschalks Inc. dated August 20, 1998
August 20, 1998 (File No. 1-09100)
10.32 Store Lease Agreement between Current Report on
El Corte Ingles, S. A., and Form 8-K dated
Gottschalks Inc. dated August 20, 1998
August 20, 1998 re: East Hills (File No. 1-09100)
Mall, Bakersfield, California
10.33 Store Lease Agreement between Current Report on
El Corte Ingles, S. A., and Form 8-K dated
Gottschalks Inc. dated August 20, 1998
August 20, 1998 re: Moreno (File No. 1-09100)
Valley Mall at Towngate,
Moreno Valley, California
10.34 Store Lease Agreement between Current Report on
El Corte Ingles, S. A., and Form 8-K dated
Gottschalks Inc. dated August 20, 1998
August 20, 1998 re: Antelope (File No. 1-09100)
Valley Mall at Palmdale, California
10.35 Store Lease Agreement between Current Report on
El Corte Ingles, S. A., and Form 8-K dated
Gottschalks Inc. dated August 20, 1998
August 20, 1998 re: Carousel (File No. 1-09100)
Mall at San Bernardino, California
10.36 Waiver Agreement dated Quarterly Report on
December 15, 1998 by and between Form 10-Q for the
Gottschalks Inc. and Congress quarter ended
Financial Corporation October 31, 1998
(File No. 1-09100)
10.37 Form of Severance Agreement Filed electronically
dated January 21, 1999 by herewith
and between Gottschalks Inc.
and Michael S. Geele (*)
10.38 Receivables Purchase Filed electronically
Agreement dated March 1, 1999 herewith
By and between Gottschalks
Credit Receivables Corporation
and Gottschalks Inc.
10.39 Pooling and Servicing Filed electronically
Agreement dated as of March 1, herewith
1999 by and among Gottschalks
Credit Receivables Corporation,
Gottschalks Inc. and Bankers
Trust Company
10.40 Series 1999-1 Supplement to Filed electronically
Pooling and Servicing herewith
Agreement dated March 1, 1999
by and among Gottschalks Credit
Receivables Corporation,
Gottschalks Inc. and Bankers
Trust Company
21. Subsidiary of the Registrant Annual Report on
Form 10-K for the
year ended January
28, 1995 (File No.
1-09100)
23. Independent Auditors' Consent Filed electronically
herewith
27. Financial Data Schedule Filed electronically
herewith
(*) Management contract, compensatory plan or arrangement.
- ---------------------------------
(b) Reports on Form 8-K -- The Company filed the following Report
on Form 8-K during the fourth quarter of fiscal 1998:
-- Current Report on Form 8-K/A dated November 2, 1998,
amending the Form 8-K which was filed on September 2,
1998, (for an event dated August 20, 1998) to provide
the required financial information pursuant to Item 2,
Acquisition or Disposition of Assets, for the
acquisition of substantially all of the assets and
business of The Harris Company.
(c) Exhibits -- The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedule--The response to this portion of
Item 14 is submitted as a separate section of this report.
ANNUAL REPORT ON FORM 10-K
ITEM 8, 14(a)(1) and (2), (c) and (d)
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED JANUARY 30, 1999
GOTTSCHALKS INC. AND SUBSIDIARY
FRESNO, CALIFORNIA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Gottschalks Inc.
Fresno, California
We have audited the accompanying consolidated balance sheets of Gottschalks
Inc. and Subsidiary as of January 30, 1999 and January 31, 1998, and the
related consolidated income statements, stockholders' equity and cash flows
for each of the three years in the period ended January 30, 1999. Our audits
also included the financial statement schedule listed in the Index at Item
14(a)(2). These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Gottschalks Inc. and
Subsidiary as of January 30, 1999 and January 31, 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended January 30, 1999, in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Fresno, California
February 23, 1999 (March 1, 1999 as to Note 3)
<TABLE>
<CAPTION>
GOTTSCHALKS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
January 30, January 31,
ASSETS 1999 1998
CURRENT ASSETS:
<S> <C> <C>
Cash $ 1,693 $ 1,601
Retained interest in
receivables sold (Note 3) 37,399 15,813
Receivables:
Credit card receivables, less
allowances of $1,195 in 1998
and $437 in 1997 (Note 3) 16,136 3,085
Vendor claims, less allowances of
$121 in 1998 and $80 in 1997 2,849 3,475
------- -------
18,985 6,560
Merchandise inventories 123,118 99,294
Other 12,836 11,444
------- -------
Total current assets 194,031 134,712
PROPERTY AND EQUIPMENT (Note 6):
Land and land improvements 15,102 15,101
Buildings and leasehold improvements 62,561 52,339
Furniture, fixtures and equipment 77,060 64,993
Buildings and equipment under capital
leases 12,148 10,875
Construction in progress 909 1,858
------- -------
167,780 145,166
Less accumulated depreciation and
amortization 54,135 46,109
------- -------
113,645 99,057
OTHER ASSETS:
Goodwill, less accumulated amortization
of $1,554 in 1998 and $1,263 in 1997
(Note 2) 9,244 1,136
Other 7,444 7,406
------- -------
16,688 8,542
------- -------
$324,364 $242,311
======= =======
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
GOTTSCHALKS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
January 30, January 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
CURRENT LIABILITIES:
<S> <C> <C>
Trade accounts payable
and accrued expenses (Note 4) $ 68,623 $ 53,633
Revolving line of credit (Note 5) 20,273 5,767
Current portion of long-term debt (Note 5) 2,710 2,641
Current portion of capitalized lease
obligations (Note 6) 1,724 1,309
Deferred income taxes (Note 7) 4,470 3,783
------- -------
Total current liabilities 97,800 67,133
LONG-TERM OBLIGATIONS, less current portion
(Notes 5 and 6):
Line of credit 40,000 25,000
Notes and mortgage loans payable 27,506 30,083
Capitalized lease obligations 6,608 7,337
------- -------
74,114 62,420
DEFERRED INCOME AND OTHER (Note 6) 24,111 25,061
DEFERRED INCOME TAXES (Note 7) 4,253 3,792
SUBORDINATED NOTE PAYABLE TO AFFILIATE,
net of discount of $1,561 (Note 2) 20,618
COMMITMENTS AND CONTINGENCIES (Notes 3, 6 and 10)
STOCKHOLDERS' EQUITY:
Preferred stock, par value of $.10 per share;
2,000,000 shares authorized; none issued
Common stock, par value of $.01 per share;
30,000,000 shares authorized;
12,575,565 and 10,478,415 issued
Common stock 126 105
Additional paid-in capital 70,626 56,366
Retained earnings 32,716 27,434
------- -------
103,468 83,905
------- -------
$324,364 $242,311
</TABLE>
======= =======
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
GOTTSCHALKS INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
(In thousands of dollars, except per share data)
1998 1997 1996
<S> <C> <C> <C>
Net sales $517,140 $448,192 $422,159
Net credit revenues (Note 3) 6,897 6,385 4,198
------- ------- -------
524,037 454,577 426,357
Costs and expenses:
Cost of sales 347,531 304,558 287,164
Selling, general and
administrative expenses 150,719 130,922 123,860
Depreciation and amortization 8,461 6,667 6,922
Acquisition related expenses (Note 2) 859 673
------- ------- -------
507,570 442,820 417,946
======= ======= =======
Operating income 16,467 11,757 8,411
Other (income) expense:
Interest expense 9,470 7,325 8,111
Miscellaneous income (2,032) (1,955) (2,792)
------- ------- -------
7,438 5,370 5,319
------- ------- -------
Income before income tax expense 9,029 6,387 3,092
Income tax expense (Note 7) 3,747 2,657 1,258
------- ------- -------
Net income $ 5,282 $ 3,730 $ 1,834
======= ======= =======
Net income per common share -
basic and diluted $ 0.46 $ 0.36 $ 0.18
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
GOTTSCHALKS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands of dollars, except share data)
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
BALANCE,
<C> <C> <C> <C> <C> <C>
FEBRUARY 4, 1996 10,416,520 $104 $55,943 $21,870 $ 77,917
Net income 1,834 1,834
Shares issued to
Retirement
Savings Plan 56,395 1 387 388
---------- --- ------ ------ ------
BALANCE,
FEBRUARY 1, 1997 10,472,915 105 56,330 23,704 80,139
Net income 3,730 3,730
Shares issued under
stock option plan 5,500 36 36
---------- --- ------ ------ ------
BALANCE,
JANUARY 31, 1998 10,478,415 105 56,366 27,434 83,905
Net income 5,282 5,282
Shares issued for
business acquisition
(Note 2) 2,095,900 21 14,252 14,273
Shares issued under
stock option plan 1,250 8 8
---------- --- ------ ------ -------
BALANCE,
JANUARY 30, 1999 12,575,565 $126 $70,626 $32,716 $103,468
========== === ====== ====== =======
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
GOTTSCHALKS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
1998 1997 1996
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 5,282 $ 3,730 $ 1,834
Adjustments:
Depreciation and amortization 8,461 6,667 6,922
Deferred income taxes 633 2,557 419
Amortization of deferred items (950) (888) (300)
Provision for credit losses 992 470 2,724
Net loss (gain) from sale of assets 26 (72)
Other non-cash items, net (106) (1,170) (1,457)
Decrease (increase) in assets, excluding
effect of business acquisition (Note 2):
Receivables (1,312) (1,346) (9)
Retained interest in receivables sold (979)
Merchandise inventories (4,524) (9,227) (1,370)
Other current and long-term assets 2,958 2,594 (6,518)
Increase (decrease) in liabilities,
excluding effect of business acquisition
(Note 2):
Trade accounts payable and accrued
expenses (2,571) 1,873 2,570
Other current and long-term
liabilities 2,605 (1,546) 6,421
------- ------- -------
Net cash provided by operating
activities 11,494 3,642 10,257
INVESTING ACTIVITIES:
Available-for-sale securities (Note 3):
Maturities (262,357) (230,433)
Purchases 256,571 235,491
Acquisition of business (Note 2) (1,369)
Purchases of property and equipment (16,801) (14,976) (6,845)
Proceeds from property and equipment sales 680 365 2,026
Distributions from limited partnership 198 229 112
------- ------- ------
Net cash used in investing
activities (23,078) (9,324) (4,707)
FINANCING ACTIVITIES:
Net proceeds (repayments) under revolving
line of credit 29,506 (8,137) (6,260)
Proceeds from long-term obligations 3,214 3,878
Principal payments on long-term obligations (4,065) (3,054) (4,850)
Proceeds from issuance of 1996-1 Series
certificate (Note 3) 6,000
Principal payments on outstanding Series
certificates (Note 3) (15,800)
Changes in cash management liability
and other 2,035 13,764 (4,304)
------- ------- -------
Net cash provided by (used in)
financing activities 11,676 5,787 (5,536)
------- ------- -------
INCREASE IN CASH 92 105 14
CASH AT BEGINNING OF YEAR 1,601 1,496 1,482
------- ------- -------
CASH AT END OF YEAR $ 1,693 $ 1,601 $ 1,496
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITY:
OPERATING ACTIVITY:
Issuance of common stock to Retirement
Savings Plan $ 388
INVESTING ACTIVITIES:
Consideration for acquisition of business (Note 2):
Issuance of 2,095,900 shares of
common stock $ 14,273
Issuance of 8% Subordinated Note 20,467
-------
$ 34,740
=======
FINANCING ACTIVITIES:
Acquisition of equipment under capital
leases $ 1,273 $ 3,562
Acquisition of fixtures under long-term
debt obligation $ 2,650
</TABLE>
See notes to consolidated financial statements.
GOTTSCHALKS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Gottschalks Inc. is a regional department and specialty store chain based in
Fresno, California, currently consisting of forty full-line department
stores, including thirty "Gottschalks" and ten "Harris/Gottschalks"
department stores, and twenty-two specialty stores which carry a limited
selection of merchandise. The Company's department stores are located
primarily in non-major metropolitan cities throughout California and in
Oregon, Washington and Nevada, and typically offer a wide range of moderate
and better brand-name and private-label merchandise, including men's,
women's, junior's and children's apparel, cosmetics, shoes and accessories,
home furnishings and other consumer goods. The Company operates in one
reportable operating segment.
Use of Estimates - The preparation of the 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 at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Such estimates and
assumptions are subject to inherent uncertainties which may cause actual
results to differ from reported amounts.
Principles of Consolidation - The accompanying financial statements include
the accounts of Gottschalks Inc., and its wholly-owned subsidiary,
Gottschalks Credit Receivables Corporation ("GCRC"), (collectively, the
"Company"). All significant intercompany transactions and balances have been
eliminated in consolidation.
Fiscal Year - The Company's fiscal year ends on the Saturday nearest January
31. Fiscal years 1998, 1997 and 1996, which ended on January 30, 1999,
January 31, 1998 and February 1, 1997, respectively, each consist of 52
weeks.
Transfers and Servicing of Financial Assets - The Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" in fiscal 1997. SFAS No. 125 requires the
Company to recognize gains and losses on transfers of financial assets
(securitizations) that qualify as sales and to recognize as assets certain
financial components that are retained as a result of such sales. Such
assets consist primarily of the retained interest in receivables sold, the
right to service the receivables sold, if any, which is based on a
contractually specified servicing fee, and the retained rights to future
interest income from the serviced assets in excess of the contractually
specified servicing fee.
Retained Interest in Receivables Sold - The retained interest in receivables
sold consists of securities backed by receivables sold pursuant to the
Company's receivables securitization program and the retained right to
future income resulting from such sales which are recorded pursuant to the
provisions of SFAS No. 125. The retained right to future interest income
($237,000 at January 30, 1999 and $211,000 at January 31, 1998) is carried
at fair value. As of January 30, 1999 and January 31, 1998, the estimated
cost to service the assets is equal to the contractually specified servicing
fee, resulting in no servicing asset or liability.
The certificated portion of the retained interest is considered readily
marketable and is classified as available-for-sale in accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
Due to the short-term revolving nature of the credit card portfolio, the
carrying value of the Company's retained interest approximates its fair
value, resulting in no unrealized gains or losses.
Receivables - Receivables consist primarily of customer credit card
receivables that do not meet certain eligibility requirements of the
Company's receivables securitization program, and as of January 30, 1999,
also includes $12,708,000 of recently acquired receivables which were
incorporated into the securitization program in early fiscal 1999. (See Note
2). Such receivables are not certificated and include revolving charge
accounts with terms which, in some cases, provide for payments with terms in
excess of one year. In accordance with usual industry practice such
receivables are included in current assets.
The Company maintains a reserve for possible credit losses on such
receivables which is based on the expected collectibility of those
receivables.
Concentrations of Credit Risk - The Company extends credit to individual
customers based on their credit worthiness and generally requires no
collateral from such customers. Concentrations of credit risk with respect
to the Company's credit card receivables are limited due to the large number
of customers comprising the Company's customer base.
Merchandise Inventories - Inventories, which consist of merchandise held for
resale, are valued by the retail method and are stated at last-in, first-out
(LIFO) cost, which is not in excess of market. Current cost, which
approximates replacement cost, under the first-in, first-out (FIFO) method
is equal to the LIFO value of inventories at January 30, 1999 and January
31, 1998.
The Company includes in inventory the capitalization of certain indirect
purchasing, merchandise handling and inventory storage costs to better match
sales with these related costs.
Store Pre-Opening Costs - Store pre-opening costs represent certain
expenditures incurred prior to the opening of a new store that are deferred
and amortized generally on a straight-line basis not to exceed a twelve
month period commencing with the store opening. All new store pre-opening
costs were fully amortized as of January 30, 1999. Store pre-opening costs,
net of accumulated amortization, of $421,000 at January 31, 1998 is included
in other current assets. The amortization of new store pre-opening costs,
totaling $421,000, $589,000 and $1,337,000 in 1998, 1997 and 1996,
respectively, is included in depreciation and amortization in the
accompanying income statements.
Property and Equipment - Property and equipment is stated on the basis of
cost or appraised value as to certain contributed land. Depreciation and
amortization is computed by the straight-line method for financial reporting
purposes over the estimated useful lives of the assets, which range from 20
to 40 years for buildings, land improvements and leasehold improvements and
3 to 15 years for furniture, fixtures and equipment. Reimbursements received
for certain capital expenditures are reported as reductions to the original
cost of the related assets. Amortization of buildings and equipment under
capital leases is generally computed by the straight-line method over the
term of the lease or the estimated economic life of the asset, depending on
the criteria used to classify the lease, and such amortization is combined
with depreciation in the accompanying income statements.
Investment in Limited Partnership - The Company is the limited partner in a
partnership that was formed for the purpose of acquiring the land and
constructing and maintaining the building in which the Company's corporate
headquarters are located. The Company made an initial capital contribution
of $5,000,000 to acquire a 36% ownership interest in the partnership and
receives favorable rental terms for the space occupied in the building. Of
the initial $5,000,000 capital contribution, $3,212,000 was allocated to the
investment in limited partnership based on the estimated fair market value
of the land and building and the remaining $1,788,000 was allocated to
prepaid rent and is being amortized to rent expense over the 20 year lease
term.
The Company accounts for its investment in the limited partnership on the
equity method of accounting. As of January 30, 1999 and January 31, 1998,
the investment is $2,632,000 and $2,679,000, respectively, and prepaid rent,
net of accumulated amortization, is $675,000 and $793,000, respectively.
Such amounts are included in other long-term assets. The Company's equity in
the income of the partnership, totaling $140,000 in 1998, $141,000 in 1997
and $133,000 in 1996, is included in miscellaneous income.
Goodwill - The excess of acquisition costs over the fair value of the net
assets acquired is amortized on a straight-line basis over 20 years. The
Company periodically analyzes the value of net assets acquired to determine
whether any impairment in the value of such assets has occurred. The primary
indicators of recoverability used by the Company are current or forecasted
profitability of the related acquired assets as compared to their carrying
values.
Cash Management Liability - Under the Company's cash management program,
checks issued by the Company and not yet presented for payment frequently
result in overdraft balances for accounting purposes. Such amounts represent
interest-free, short-term borrowings to the Company.
Deferred Income - Deferred income consists primarily of donated land and
cash incentives received to construct a store and enter into a lease
arrangement. Land contributed to the Company is included in land and
recorded at appraised fair market values. Donated income is amortized to
income over the average depreciable life of the related fixed assets built
on the land for locations that are owned by the Company, and over the
minimum lease periods of the related building leases with respect to
locations that are leased by the Company, ranging from 10 to 32 years.
Deferred income, net of accumulated amortization, is $16,347,000 as of
January 30, 1999 and $17,574,000 as of January 31, 1998.
Leased Department Sales - Net sales include leased department sales of
$40,216,000, $35,179,000 and $32,781,000 in 1998, 1997 and 1996,
respectively. Cost of sales include related costs of $34,271,000,
$30,044,000 and $28,006,000 in 1998, 1997 and 1996, respectively.
Income Taxes - Deferred tax assets and liabilities are generally recognized
for the expected future tax consequences of events that have been included
in the financial statements or tax returns, determined based on the
differences between the financial statement and tax basis of assets and
liabilities and net operating loss and tax credit carryforwards, and by
using enacted tax rates in effect when the differences are expected to
reverse.
Net Income Per Common Share - Basic earnings per common share is computed
based on the weighted average number of common shares outstanding which were
11,417,744, 10,473,682 and 10,461,424 in 1998, 1997 and 1996, respectively.
Diluted earnings per share includes the effect of stock options and other
potentially dilutive securities, if any. In 1998, 1997 and 1996, diluted
earnings per common share is equal to basic earnings per common share
because the effect of potentially dilutive securities under the stock option
plans were antidilutive and therefore not included.
Fair Value of Financial Instruments - The carrying value of the Company's
cash and cash management liability, receivables, notes receivable, trade
payables and other accrued expenses, revolving line of credit and stand-by
letters of credit approximate their estimated fair values because of the
short maturities or variable interest rates underlying those instruments.
The retained interest in receivables sold and the Subordinated Note are
carried at their estimated fair values. The following methods and
assumptions were used to estimate the fair value for each remaining class of
financial instruments:
Long-Term Obligations - The fair values of the Company's notes and
mortgage loans payable are estimated using discounted cash flow
analysis, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements. Borrowings with aggregate
carrying values of $30,216,000 and $32,724,000 at January 30, 1999 and
January 31, 1998, had estimated fair values of $27,809,000 and
$31,207,000 at January 30, 1999 and January 31, 1998, respectively.
Off-Balance Sheet Financial Instruments - The Company's off-balance
sheet financial instruments consist primarily of certificates issued
under the securitization program. (See Note 3.) The aggregate estimated
fair values of the 1994-1 and 1996-1 Series certificates, based on
similar issues of certificates at current rates for the same remaining
maturities, with aggregate face values of $30,667,000 at January 30,
1999 and $46,000,000 at January 31, 1998 are $30,154,000 and
$44,408,000, respectively. The estimated fair value of the Variable
Series certificate approximates its reported value due to the short-
term revolving nature of the credit card portfolio.
Stock-Based Compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
"Accounting for Stock Issued to Employees". Accordingly, no compensation
expense has been recognized in the 1998, 1997 or 1996 financial statements
for employee stock arrangements. Pro-forma information regarding net income
and earnings per share, as calculated under the provisions of SFAS No. 123,
"Accounting for Stock Based Compensation", is disclosed in Note 8.
Long-Lived Assets - The Company periodically evaluates the carrying value of
long-lived assets to be held and used, including goodwill and other
intangible assets, when events and circumstances warrant such a review. When
the anticipated undiscounted cash flow from a long-lived asset is less than
its carrying value, a loss is recognized based on the amount by which its
carrying value exceeds its fair market value. Fair market value is
determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risks involved. Based on such a review, the Company
recognized no impairment loss in 1998, 1997 or 1996.
Recently Issued Accounting Standards - AICPA Statement of Position (SOP) 98-
5, "Reporting on the Costs of Start-Up Activities" was recently issued and
is effective for fiscal 1999. This statement requires start-up costs, such
as new store pre-opening costs, to be expensed as incurred. SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" was also issued and is effective for fiscal 1999. SOP 98-1
requires certain internal and external software development costs to be
capitalized upon meeting certain criteria. The Company does not expect the
adoption of these new accounting standards will have a material effect on
its financial position or the results of its operations.
Reclassifications - Certain amounts in the accompanying 1997 and 1996
consolidated financial statements have been reclassified to conform with the
1998 presentation.
2. BUSINESS ACQUISITION
On August 20, 1998, the Company completed the acquisition of substantially
all of the assets and business of The Harris Company ("Harris"), pursuant to
an Asset Purchase Agreement entered into with Harris and El Corte Ingles, S.
A. ("ECI") of Spain, the parent company of Harris. Harris operated nine full-
line department stores located throughout southern California. The assets
acquired consisted primarily of merchandise inventories, customer credit
card receivables, fixtures and equipment and certain intangibles. The
Company also assumed certain liabilities relating to the business, including
vendor payables, store leases and certain other contracts. The purchase
price for the assets consisted of the issuance to Harris of 2,095,900 shares
of common stock of the Company and the issuance of an 8% Non-Negotiable,
Extendable, Subordinated Note (the "Subordinated Note") due August 20, 2003
in the principal amount of $22,179,000. Interest on the Subordinated Note
is payable semi-annually beginning in February 1999, with the principal
portion due and payable upon its maturity date, unless such payment would
result in the default on any of the Company's other credit facilities,
whereby the maturity date of the Subordinated Note would be extended by
three years to August 2006. Additional purchase liabilities recorded include
costs related to the transaction, severance and related costs and costs
associated with the closure of the former Harris store located in San
Bernardino. The acquisition was accounted for under the purchase method of
accounting and, accordingly, the results of operations of the acquired
stores are included in the Company's financial statements from the
acquisition date of August 20, 1998.
The purchase price has been allocated to the acquired assets and assumed
liabilities on the basis of their estimated fair values as of the date of
the acquisition. The financial statements reflect the preliminary allocation
of the purchase price, as estimates of certain direct costs and certain
store closure costs have not yet been finalized. The fair value of the
assets acquired and liabilities assumed, based on the preliminary allocation
of the purchase price, is summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
Fair value of common stock issued to Harris $14,273
Fair value of Subordinated Note 20,467
Total estimated direct fees and expenses 1,369
------
Total purchase price $36,109
======
Customer credit card and other receivables $11,827
Merchandise inventories 18,570
Other current and long-term assets 3,809
Leaseholds, fixtures and other equipment 5,731
Trade accounts payable and other current
liabilities (11,713)
Deferred income taxes (515)
Excess of purchase price over
the estimated fair value of
identifiable net assets acquired
to be amortized over 20 years 8,400
------
Total purchase price $36,109
======
</TABLE>
Unaudited Pro Forma Financial Information.
The following unaudited pro forma financial information for the Company
gives effect to the acquisition as if it had occurred at the beginning of
fiscal 1998 and 1997, and includes certain adjustments, including the
amortization of goodwill, interest expense associated with acquisition debt,
adjustments to rental expense to reflect new store leases, adjustments to
depreciation expense to reflect the fair value of assets acquired and the
related income tax effects. These pro forma results have been prepared for
comparative purposes only and are not necessarily indicative of what would
have occurred if the acquisition had been completed as of those dates. In
addition, pro forma information is not intended to be a projection of future
results and does not reflect expected cost savings or synergies expected to
result from the integration of the Harris stores into the Company's
business.
<TABLE>
<CAPTION>
(In thousands, except share data) 1998 1997
<S> <C> <C>
Net sales $565,745 $545,595
Net income (loss) $ 870 $ (2,771)
Net income (loss) per
common share -
basic and diluted $ 0.07 $ (0.22)
Weighted-average number of
common shares outstanding -
basic and diluted 12,575 12,569
</TABLE>
Acquisition Related Expenses.
Acquisition related expenses of $859,000 were incurred in fiscal 1998
consisting primarily of costs incurred prior to the elimination of certain
duplicative operations of Harris, including certain merchandising,
advertising, credit and distribution functions. As of the end of fiscal
1998, all duplicative operations of Harris have been eliminated.
The Company had previously entered into negotiations for the acquisition of
the stores from Harris in fiscal 1997. The parties were unable to agree on
the terms of the transaction, however, and negotiations were discontinued
during that year. Fiscal 1997 results include $673,000 of costs related to
the proposed acquisition, consisting primarily of legal, accounting and
investment banking fees.
3. CREDIT CARD RECEIVABLES
Securitization Program.
The Company's receivables securitization program provides the Company with a
source of long-term financing that is generally more cost-effective than
traditional debt financing. Under the program, the Company automatically
sells all of its accounts receivable arising under its private label
customer credit cards, servicing retained, to a wholly-owned subsidiary,
Gottschalks Credit Receivables Corporation ("GCRC"), and those receivables
are subsequently conveyed to Gottschalks Credit Card Master Trust ("GCC
Trust"), to be used as collateral for securities issued to investors. GCC
Trust is a qualified special purpose entity under SFAS No. 125. Accordingly,
all transfers of receivables to GCC Trust are accounted for as sales for
financial reporting purposes and such transferred receivables are removed
from the Company's balance sheet. The Company retains an ownership interest
in certain of the receivables sold under the program, represented by
Exchangeable and Subordinated Certificates, and also retains an
uncertificated ownership interest in receivables that do not meet certain
eligibility requirements of the program. As of January 30, 1999, the
uncertificated receivables also include $12,708,000 of receivables acquired
from Harris which were incorporated into the securitization program in
connection with the fiscal 1999 refinancing of the program.
As of January 30, 1999, the Company had three outstanding series of
certificates issued through private placements under the program, including
$40.0 million principal amount 7.35% Fixed Base Class A-1 Credit Card
Certificates (the "1994-1 Series"), a $6,000,000 principal amount 6.79%
Fixed Base Class A-1 Credit Card Certificate (the "1996-1 Series"), and a
Variable Base Certificate in the principal amount of up to $15.0 million
(the "Variable Series"). Interest on the certificates is earned on a monthly
basis and the principal portion of the certificates is payable in twelve
equal monthly installments which commenced on October 15, 1998. As of
January 30, 1999, the Company had repaid a total of $15,800,000 of the
outstanding balances of the 1994-1 and 1996-1 Series certificates, and had
reduced amounts outstanding against the Variable Series certificate to
$700,000 from $7.7 million as of January 31, 1998. The outstanding principal
balances of the certificates, totaling $30,900,000 and $53,700,000 as of
January 30, 1999 and January 31, 1998, respectively, are off-balance sheet
for financial reporting purposes.
On March 1, 1999, the Company issued a $53.0 million principal amount 7.66%
Fixed Base Class A-1 Credit Card Certificate (the "1999-1 Series") to a
single investor through a private placement. Proceeds from the issuance of
the 1999-1 Series were used to repay the outstanding balances of the 1994-1,
1996-1 and Variable Series certificates, totaling $26,950,000 as of that
date, reduce outstanding borrowings under the Company's revolving line of
credit (Note 5) and pay certain costs associated with the transaction.
Interest on the 1999-1 Series certificate is to be earned by the certificate
holder on a monthly basis at a fixed interest rate of 7.66%, and the
outstanding principal balance of the certificate is to be repaid in twelve
equal monthly installments commencing September 2003 and continuing through
August 2004. The Company is required, among other things, to maintain
certain portfolio performance standards under the program. Subject to
certain conditions, the master trust permits further expansion of the
program to meet future receivables growth.
Net Credit Revenues.
Net credit revenues associated with the Company's credit card receivable
portfolio, including securitized receivables, consists of the following:
<TABLE>
<CAPTION>
(In thousands of dollars) 1998 1997 1996
<S> <C> <C> <C>
Service charge revenues $13,431 $11,618 $10,493
Gain (loss) on sale of
receivables (45) 1,050
Interest expense on
securitized receivables (3,314) (3,579) (3,564)
Charge-offs on receivables
sold and provision for
credit losses on
receivables ineligible
for sale (3,175) (2,704) (2,731)
------ ------ ------
$ 6,897 $ 6,385 $ 4,198
====== ====== ======
</TABLE>
The Company adopted the provisions of SFAS No. 125 in fiscal 1997. The
provisions of the statement were not permitted to be applied retroactively
to prior periods presented. Accordingly, the Company had no gain or loss on
the sale of receivables in fiscal 1996. The gain on sale of receivables of
$1,050,000 in 1997 includes a credit of $898,000 related to a change in
estimate for the allowance for doubtful accounts for receivables which were
ineligible for sale.
4. TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Trade accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
January 30, January 31,
(In thousands of dollars) 1999 1998
<S> <C> <C>
Trade accounts payable $23,178 $20,950
Cash management liability 12,176 10,141
Taxes, other than income taxes 11,078 8,723
Accrued expenses 10,597 5,861
Accrued payroll and
related liabilities 6,416 5,734
Federal and state
income taxes payable 5,178 2,224
------ ------
$68,623 $53,633
====== ======
</TABLE>
5. DEBT OBLIGATIONS
Revolving Line of Credit.
The Company has a revolving line of credit arrangement with Congress
Financial Corporation ("Congress") which provides the Company with a
$110,000,000 working capital facility through March 30, 2001. Borrowings
under the arrangement are limited to a restrictive borrowing base equal to
65% of eligible merchandise inventories, increasing to 70% of such
inventories during the period of September 1 through December 20 of each
year (except in 1998, which was extended to February 28, 1999) to fund
increased seasonal inventory requirements. Interest on outstanding
borrowings under the facility is charged at a rate of approximately LIBOR
plus 2.25% (7.39% at January 30, 1999), with no interest charged on the
unused portion of the line of credit. On March 1, 1999, the interest rate
applicable to the line of credit was reduced by 1/4% to approximately LIBOR
plus 2.00%. The maximum amount available for borrowings under the line of
credit was $79,871,000 as of January 30, 1999, of which $60,273,000 was
outstanding as of that date. Of that amount, $40,000,000 has been classified
as long-term in the accompanying financial statements as of January 30, 1999
($25,000,000 as of January 31, 1998) as the Company does not anticipate
repaying that amount prior to one year from the balance sheet date. The
agreement contains one financial covenant, pertaining to the maintenance of
a minimum tangible net worth, with which the Company was in compliance as of
January 30, 1999.
Long-Term Obligations.
<TABLE>
<CAPTION>
Notes and mortgage loans payable consist of the following:
January 30, January 31,
(In thousands of dollars) 1999 1998
<S>
Mortgage loans payable to financial
institution, payable in monthly
principal installments of $173
including interest at 9.23% and
9.39%, principal due and
payable October 1, 2010 and
November 1, 2010; collateralized
by certain real property, assets
<S> <C> <C>
and certain property and equipment $19,242 $19,501
Mortgage loan payable to financial
institution, payable in monthly
principal installments of $79 plus
interest at 10.45%, principal due
and payable January 1, 2002;
collateralized by certain real
property, assets and certain
property and equipment 2,850 3,800
Mortgage loan payable to financial
institution, payable in monthly
principal installments of $71 plus
interest at 9.97%, principal due
and payable April 1, 2004;
collateralized by certain real
property, assets and certain
property and equipment 4,429 5,286
Notes payable to Federated
Department Stores, Inc., payable in
quarterly principal installments of
$169 including interest at 10.0%,
principal due and payable
March and July 2001 1,384 1,892
Other 2,311 2,245
------ ------
30,216 32,724
Less current portion 2,710 2,641
------ ------
$27,506 $30,083
====== ======
</TABLE>
The scheduled annual principal maturities on notes payable and mortgage
loans are $2,710,000, $2,842,000, $2,472,000, $1,362,000 and $1,412,000 for
1999 through 2003, with $19,418,000 payable thereafter.
Deferred debt issuance costs related to the Company's various financing
arrangements are included in other current and long-term assets and are
charged to income as additional interest expense on a straight-line basis
over the life of the related indebtedness. Such costs, net of accumulated
amortization, totaled $1,263,000 at January 30, 1999 and $1,734,000 at
January 31, 1998.
Interest paid, net of amounts capitalized, was $12,063,000 in 1998,
$10,302,000 in 1997 and $11,059,000 in 1996. Capitalized interest expense
was $134,000 in 1998, $114,000 in 1997 and $37,000 in 1996. The weighted-
average interest rate charged on the Company's various revolving line of
credit arrangements was 7.88% in 1998, 8.16% in 1997 and 8.62% in 1996.
Certain of the Company's long-term financing arrangements include various
restrictive covenants. The Company was in compliance with all such covenants
as of January 30, 1999.
6. LEASES
The Company leases certain retail department stores, furniture and equipment
under capital leases that expire in various years through 2020. The Company
also leases certain retail department stores, specialty stores, land,
furniture, fixtures and equipment under noncancellable operating leases that
expire in various years through 2021. Certain of the leases provide for the
payment of additional contingent rentals based on a percentage of sales in
excess of specified minimum levels, require the payment of property taxes,
insurance and maintenance costs and have renewal options for one or more
periods ranging from five to twenty years. During 1998, the Company entered
into leases with ECI, an affiliate of the Company, for three of the
department stores acquired from Harris. (See Note 2.) Management believes
the terms of the leases with ECI reflect current market rates. Rent paid to
ECI totaled $457,000 in fiscal 1998.
Certain of the Company's department store operating leases also provide for
rent abatements and scheduled rent increases during the lease terms. The
Company recognizes rental expense for such leases on a straight-line basis
over the lease term and records the difference between expense charged to
income and amounts payable under the leases as deferred lease payments.
Deferred lease payments totaled $6,850,000 at January 30, 1999 and
$6,463,000 at January 31, 1998.
Future minimum lease payments, by year and in the aggregate, under capital
leases and noncancellable operating leases with initial or remaining terms
of one year or more consist of the following at January 30, 1999:
<TABLE>
<CAPTION>
Capital Operating
(In thousands of dollars) Leases Leases
<C> <C> <C>
1999 $ 2,475 $ 19,217
2000 2,095 17,232
2001 918 16,504
2002 902 16,181
2003 889 15,940
Thereafter 6,142 127,539
------ -------
Total minimum
lease payments 13,421 $212,613
====== =======
Amount representing
interest (5,089)
------
Present value of
minimum lease payments 8,332
Less current portion (1,724)
------
$ 6,608
======
</TABLE>
<TABLE>
<CAPTION>
Rental expense consists of the following:
(In thousands of dollars) 1998 1997 1996
Operating leases:
Buildings:
<S> <C> <C> <C>
Minimum rentals $14,395 $13,099 $11,897
Contingent rentals 2,173 1,911 2,213
Fixtures and equipment 3,275 4,358 5,439
------ ------ ------
$19,843 $19,368 $19,549
====== ====== ======
</TABLE>
One of the Company's lease agreements contains a restrictive covenant
pertaining to the debt to tangible net worth ratio with which the Company
was in compliance at January 30, 1999.
The Company terminated two capital leases in fiscal 1996 in connection with
the relocation of two of its department stores to new locations. The Company
recognized a pre-tax gain of $1,344,000 upon the termination of the leases,
representing the difference between the capital lease obligations and the
net book value of the related assets recorded under the capital leases, and
such gain is included in miscellaneous income in fiscal 1996. The new leases
have been accounted for as operating leases for financial reporting
purposes.
7. INCOME TAXES
<TABLE>
<CAPTION>
The components of income tax expense are as follows:
(In thousands of dollars) 1998 1997 1996
Current:
<S> <C> <C> <C>
Federal $2,737 $ 92 $ 375
State 377 8 464
3,114 100 839
Deferred:
Federal 210 1,976 704
State 423 581 (285)
----- ----- -----
633 2,557 419
----- ----- -----
$3,747 $2,657 $1,258
===== ===== =====
</TABLE>
The principal components of deferred tax assets and liabilities
are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
Current:
Vacation accrual and
employee vacation
<S> <C> <C>
benefits $ 762 $ 689
Credit losses 658 572
Accrued employee benefits 257 353
State income taxes 125 332
LIFO inventory reserve $ (3,636) $(2,942)
Workers' compensation
insurance premiums (760) (574)
Supplies inventory (1,340) (1,429)
Gain from adoption
of SFAS No. 125 (65) (450)
Other items, net 322 (793) 803 (1,137)
----- ------ ------ ------
2,124 (6,594) 2,749 (6,532)
Long-Term:
Net operating loss
carryforwards 2,500 4,541
General business credits 2,242 2,034
Alternative minimum tax
credits 3,243 777
State income taxes 504
Depreciation expense (9,221) (8,503)
Accounting for leases 945 (3,364) 913 (3,408)
Deferred income 1,495 (2,313) 1,699 (1,958)
Other items, net 724 (1,008) 567 (454)
------ ------- ------ -------
11,653 (15,906) 10,531 (14,323)
$13,777 $(22,500) $13,280 $(20,855)
====== ======= ====== =======
</TABLE>
Income tax expense varies from the amount computed by applying the statutory
federal income tax rate to the income before income taxes. The reasons for
this difference are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit 5.8 5.9 5.7
Amortization of goodwill .4 .6 1.3
General business credit (1.7) (1.2)
Other items, net 2.0 1.3 (1.3)
---- ---- ----
Effective rate 41.5% 41.6% 40.7%
==== ==== ====
</TABLE>
The Company paid income taxes, net of refunds, of $138,000 in 1998. The
Company received income tax refunds, net of payments, of $195,000 in 1997.
At January 30, 1999, the Company has, for federal tax purposes, net
operating loss carryforwards of approximately $7,300,000 which expire in the
years 2008 through 2011, general business credits of approximately
$1,146,000 which expire in the years 2007 through 2018, and alternative
minimum tax credits of approximately $2,864,000 which may be used for an
indefinite period. At January 30, 1999, the Company has, for state tax
purposes, enterprise zone credits of approximately $1,096,000 and
alternative minimum tax credits of approximately $378,000 which may be used
for an indefinite period. These carryforwards are available to offset future
taxable income and are expected to be fully utilized.
8. STOCK OPTION PLANS
The Company has stock option plans for directors, officers and key employees
which provide for the grant of non-qualified and incentive stock options.
Under the plans, the option exercise price may not be lower than 100% of the
fair market value of such shares at the date of the grant. Options granted
generally vest on a cumulative basis over five years and expire ten years
from the date of the grant. At January 30, 1999, options for 794,500 shares
were available for future grants under the plans.
Option activity under the plans is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number of Exercise
Shares Price
Outstanding, February 4, 1996
(138,000 exercisable at a weighted-
<S> <C> <C>
average price of $9.92) 500,000 $9.74
Granted (weighted-average fair value
of $3.54) 45,000 5.75
Canceled (36,000) 9.88
------- -----
Outstanding, February 1, 1997
(221,000 exercisable at a weighted-
average price of $9.83) 509,000 9.36
Granted (weighted-average fair value
of $4.26) 74,000 5.87
Exercised (5,500) 6.55
Canceled (77,000) 9.46
======= ====
Outstanding, January 31, 1998
(298,500 exercisable at a weighted-
average price of $9.72) 500,500 9.05
Granted (weighted-average fair value
of $4.38) 336,000 7.73
Exercised (1,250) 5.75
Canceled (57,250) 9.46
------- ----
Outstanding, January 30, 1999
(366,000 exercisable at a weighted-
average price of $9.50) 778,000 $8.45
======= ====
</TABLE>
Additional information regarding options outstanding as of
January 30, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-Avg. -------------------
Remaining
Range of Number Contractual Weighted-Avg. Number Exercise
Exercise Outstanding Life (yrs.) Exercise Price Exercisable Price
Prices
$5.38
<S><C> <C> <C> <S> <C> <C> <C>
to $10.87 778,000 7.4 yrs. $8.45 366,000 $9.50
</TABLE>
Additional Stock Plan Information.
SFAS No. 123 requires the disclosure of pro-forma net income and earnings
per share had the Company adopted the fair value method as of the beginning
of fiscal 1996. Under SFAS 123, the fair value of stock-based awards to
employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely
tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models
also require subjective assumptions, including future stock price volatility
and expected time to exercise, which greatly affect the calculated values.
The Company's calculations were made using the Black-Scholes option pricing
model with the following weighted-average assumptions: expected life, 5
years; stock volatility, 51.08% in 1998, 51.09% in 1997 and 49.74% in 1996;
risk-free interest rates, 4.6% in 1998, 5.41% in 1997 and 6.30% in 1996; and
no dividends during the expected term. The Company's calculations are based
on a multiple option valuation approach and forfeitures are recognized as
they occur. Had the computed fair values of the 1998, 1997 and 1996 awards
been amortized to expense over the vesting period of the awards, pro-forma
net income and earnings per share would have been $5,282,000, or $0.46 per
share in 1998, $3,693,000, or $0.35 per share in 1997 and $1,816,000, or
$0.17 per share in 1996.
9. EMPLOYEE BENEFIT PLANS
The Company has a Retirement Savings Plan ("Plan") which qualifies as an
employee retirement plan under Section 401(k) of the Internal Revenue Code.
Full-time employees meeting certain requirements are eligible to participate
in the Plan and may elect to have up to 20% of their annual eligible
compensation, subject to certain limitations, deferred and deposited with a
qualified trustee. Participants in the Plan may receive an employer matching
contribution of up to 4% of the participants' eligible compensation,
depending on the Company's quarterly and annual financial performance. The
Company recognized $424,000, $875,000 and $197,000 in expense related to the
Plan in 1998, 1997 and 1996, respectively.
The Company has also established a Voluntary Employee Beneficiary
Association ("VEBA") trust for the purpose of funding employee vacation
benefits.
10. COMMITMENTS AND CONTINGENCIES
The Company is party to legal proceedings and claims which have arisen
during the ordinary course of business. In the opinion of management, the
ultimate outcome of such litigation and claims is not expected to have a
material adverse effect on the Company's financial position or results of
its operations.
The Company arranges for the issuance of letters of credit in the ordinary
course of business. As of January 30, 1999, the Company had outstanding
letters of credit amounting to $2,868,000. Management believes the
likelihood of non-performance under such contracts is remote.
The Company is in process of remodeling certain existing store locations.
The estimated cost of such projects as of January 30, 1999 is $6,418,000,
and such costs are expected to be funded through working capital.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for 1998 and 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
1998
-------------------------------------------
Quarter Ended May 2 August 1 October 31 January 30
<S> <C> <C> <C> <C>
Net sales $95,468 $104,131 $123,118 $194,423
Gross profit 29,941 32,601 43,188 63,879
Income (loss) before
income tax expense
(benefit) (3,408) (2,310) 604 14,143
Net income (loss) (1,994) (1,352) 345 8,283
Net income (loss)
per common share
-basic and diluted $ (0.19) $ (0.13) $ 0.03 $ 0.66
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------
Quarter Ended May 3 August 2 November 1 January 31
<S> <C> <C> <C> <C>
Net sales $90,506 $ 99,997 $101,466 $156,223
Gross profit 28,510 32,279 32,871 49,974
Income (loss) before
income tax expense
(benefit) (1,673) ( 422) (2,516) 10,998
Net income (loss) ( 987) ( 248) (1,485) 6,450
Net income (loss)
per common share
-basic and diluted $ (0.09) $ (0.02) $ (0.14) $ 0.62
</TABLE>
Net income for the three month period ended January 31, 1998 includes
a pre-tax adjustment to the inventory shrinkage reserve resulting in
a $637,000 increase in the gross margin, and also includes an $898,000
credit related to a change in estimate for the allowance for doubtful
accounts. (See Note 3.)
**********
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
GOTTSCHALKS INC. AND SUBSIDIARY
COL. A COL. B COL. C COL. D COL. E COL. F
- ----------------------------------------------------------------------------
ADDITIONS
Balance at Charged to Charged to Balance at
Beginning Costs and Other Accounts Deductions End of
DESCRIPTION of Period Expenses Describe Describe Period
Year ended
January 30, 1999:
Allowance for
doubtful
<S> <C> <C> <C> <C> <C> <C><C>
accounts. $ 437,179 $ 991,523 (1) $ 541,759(2) $(775,296)(3)$1,195,165
========= ========= ========== ========== =========
Allowance
for vendor
claims
receivable $ 80,000 $ 40,700(4) $ 120,700
========= ========= ========== ========== =========
Allowance for
notes
receivable $ -0- $ $ -0-
========= ========= ========== ========== =========
Year ended
January 31, 1998:
Allowance for
doubtful
accounts..$1,322,107 $ 469,935 (1) $( 898,000)(5) $(456,863)(3)$ 437,179
========= ========= ========== ========== =========
Allowance
for vendor
claims
receivable.$ 80,000 $ 80,000
========= ========= ========== ========== =========
Allowance
for notes
receivable.$ -0- $ -0-
========= ========= ========== ========== =========
Year ended
February 1, 1997:
Allowance for
doubtful
accounts... $1,261,983 $2,730,502 (1) $(2,670,378)(3)$1,322,107
========= ========= ========== ========== =========
Allowance
for vendor
claims
receivable.$ 90,000 $ (10,000)(6) $ 80,000
========= ========= ========== ========== =========
Allowance
for notes
receivable.. $ 282,767 $ (282,767)(7) $ -0-
========= ========= ========== ========== =========
</TABLE>
Notes:
(1) Represents the provision for credit losses on receivables
ineligible for sale.
(2) Represents the allowance for doubtful accounts
applicable to the receivables acquired from Harris
(see Note 2 to the Consolidated Financial Statements).
(3) Represents uncollectible accounts written off,
net of recoveries, pertaining to receivables
ineligible for sale.
(4) Represents the allowance for vendor claims
receivable applicable to the outstanding vendor
claims acquired from Harris (see Note 2
to the Consolidated Financial Statements.)
(5) Represents a change in estimate for the allowance
for doubtful accounts related to receivables
which were ineligible for sale. (See Note 3 to
the Consolidated Financial Statements.) This amount
is included in net credit revenues in the fiscal
1997 consolidated income statement.
(6) Reduction in provision for uncollectible vendor claims
receivable.
(7) Reversal of uncollectible portion of note receivable
recorded in connection with transferring related asset
to a held for sale classification during the year ended
February 1, 1997.
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.
Dated: April 30, 1999 GOTTSCHALKS INC.
By: \s\ Joseph W. Levy
Joseph W. Levy
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
Chairman and Chief
Executive Officer
(principal executive
/s/ Joseph W. Levy officer) April 30, 1999
Joseph W. Levy
President, Chief
Operating Officer April 30, 1999
_/s/ James R. Famalett e and Director
James R. Famalette
Senior Vice President
and Chief Financial
Officer (principal April 30, 1999
financial and
_/s/ Michael S. Geele accounting officer)
Michael S. Geele
/s/ O. James Woodward III Director April 30, 1999
O. James Woodward III
/s/ Bret W. Levy Director April 30, 1999
Bret W. Levy
/s/ Sharon Levy Director April 30, 1999
Sharon Levy
/s/ Joseph J. Penbera Director April 30, 1999
Joseph J. Penbera
/s/ Fred Ruiz Director April 30, 1999
Fred Ruiz
/s/ Max Gutmann Director April 30, 1999
Max Gutmann
/s/ Isidoro Alvarez Director April 30, 1999
Isidoro Alvarez
/s/ Jorge Pont Director April 30, 1999
Jorge Pont
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference
in Registration Statements No. 33-54783, 33-
54789, 33-61471, and 33-61473 of Gottschalks
Inc. on Form S-8 of our report dated February
23, 1999 (March 1, 1999 as to Note 3),
appearing in this Annual Report on Form 10-K
of Gottschalks Inc. for the year ended January
30, 1999.
\s\ Deloitte & Touche LLP
Fresno, California
April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE IS BEING FILED IN ACCORDANCE WITH REGULATION S-T
AND INCLUDES AUDITED SELECTED FINANCIAL DATA FROM THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED JANUARY 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> JAN-30-1999
<CASH> 1,693
<SECURITIES> 37,399
<RECEIVABLES> 20,301
<ALLOWANCES> 1,316
<INVENTORY> 123,118
<CURRENT-ASSETS> 194,031
<PP&E> 167,780
<DEPRECIATION> 54,135
<TOTAL-ASSETS> 324,364
<CURRENT-LIABILITIES> 97,800
<BONDS> 94,732
0
0
<COMMON> 126
<OTHER-SE> 103,342
<TOTAL-LIABILITY-AND-EQUITY> 324,364
<SALES> 517,140
<TOTAL-REVENUES> 524,037
<CGS> 347,531
<TOTAL-COSTS> 347,531
<OTHER-EXPENSES> 8,461
<LOSS-PROVISION> 3,175
<INTEREST-EXPENSE> 9,470
<INCOME-PRETAX> 9,029
<INCOME-TAX> 3,747
<INCOME-CONTINUING> 5,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,282
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
SEVERANCE AGREEMENT
This Severance Agreement (this
"Agreement"), is made as of this 21st day
of January, 1999, by and between Gottschalks
Inc., a Delaware Corporation ("Company") and
Michael S. Geele, an individual ("Employee").
1. Subject to the provisions of
paragraph (4) below, Company hereby agrees
that in the event Employee's employment with
the Company is terminated by written notice of
Company for other than for cause (as defined
below), Company will pay Employee a severance
benefit equal to twelve (12) months salary,
determined at Employee's annual base rate of
pay in effect at the time such notice of
termination is given (less standard
withholdings and authorized deductions), and
Employee shall have the right to continue
Employee's coverage in Company's group medical
plan with the Company making full payment on
Cobra benefits for a period of one year from
the termination date (such benefits being
referred to herein as the "Severance
Benefit").
2. For purposes of this agreement,
"annual base rate of pay" means Employee's
annual base salary only, and excludes all
other income heretofore received by Employee,
such as, but not limited to, bonuses,
incentive compensation, fringe benefits,
commissions, overtime, retainers, fees under
contracts, income arising from the exercise of
stock options, or expense allowances granted
by Company.
3. The Severance Benefit, less
standard withholding and other authorized
deductions, will be paid to Employee after the
date of Employee's termination out of the
general assets of the Company in the same form
and at the same time as Employee's salary
otherwise would have been paid to Employee if
Employee had continued to be employed by the
Company.
4. Subject to the provisions of
this paragraph (4) following this sentence,
the Severance Benefit shall be paid to
Employee only in the event that Employee's
employment with Company is terminated by
written notice from Company (other than for
cause) and only if Employee continues to
report to work, and adequately performs each
and every duty of Employee's employment until
the date set forth in the notice of
termination as Employee's date of termination
(unless the Company consents to a date of
termination that is prior to such date).
Notwithstanding anything to the contrary
contained in this Agreement, Employee shall
not be entitled to the Severance Benefit if:
(i) Employee's employment with Company is
terminated other than by written notice of
termination from Company, including without
limitation, the retirement, resignation,
disability or death of Employee; (ii) Company
sells all or part of its business (or
otherwise merges, divides, consolidates or
reorganizes) and Employee has the opportunity
to continue employment with the buyer (or with
one of the resulting entities in the event of
a merger, division, consolidation or
reorganization), at or above the employee's
base rate of pay, regardless of whether the
other terms and conditions of Employee's
employment after such sale, division,
consolidation or reorganization are the same
or different from the terms and conditions of
Employee's employment with Company; or (iii)
Employee is terminated for "cause", which
includes, without limitation, a good faith
determination by Company that Employee (1) has
committed a material breach of his duties and
responsibilities, (2) refused to perform
required duties and responsibilities or
performed them incompetently, (3) breached or
violated any fiduciary duty owed to Company or
(4) is or has been personally dishonest, or
has willfully or negligently violated any law,
rule or regulation or has been convicted of a
felony or misdemeanor (other than minor
traffic violations and similar offenses).
5. Nothing contained herein shall
be construed as conferring on Employee the
right to continue in the employ of the Company
in Employee's present or any other capacity.
Employee hereby expressly acknowledges that
Employee's employment with Company is "at
will" and therefore may be terminated by
Company at any time, with or without cause, at
Company's sole discretion. Employee also
expressly acknowledges that, except for
benefits to which Employee may otherwise be
entitled by law, Employee shall not be
entitled to receive from Company any benefits,
compensation or remuneration other than the
Severance Benefit upon satisfaction of the
conditions which entitle Employee to receive
the Severance Benefit. Employee agrees that
the Severance Benefit shall constitute the
exclusive and sole remedy for any termination
of Employee's employment and Employee
covenants not to assert or pursue any other
remedies, at law or in equity, with respect to
any termination of employment.
6. This Agreement shall be
governed by the laws of the State of
California. This Agreement may be amended
only by a subsequent written agreement signed
by Employee and an authorized representative
of Company following approval by the Board of
Directors of Company. This Agreement is
personal to Employee and is not assignable by
Employee. This Agreement shall inure to the
benefit of and be binding upon Company and its
successors and assigns and any such successor
or assignee shall be deemed substituted for
Company under the terms of this Agreement for
all purposes. As used herein, "successor" and
"assignee" shall include any person, firm,
corporation or other business entity which at
any time, whether by purchase, merger or
otherwise, directly or indirectly acquires the
stock of Company or to which Company assigns
this Agreement by operation of law or
otherwise. This instrument constitutes and
contains the entire agreement and
understanding concerning the subject matters
addressed herein between the parties, and
supersedes and replaces all prior negotiations
and all agreements proposed or otherwise,
whether written or oral, concerning the
subject matters hereof. This is an integrated
document.
7. Any dispute, controversy or
claim arising out of or in connection with
this Agreement or any other aspect of
Employee's employment with Company shall be
resolved exclusively through binding
arbitration to be held in Fresno County,
California in accordance with California Civil
Procedure Code 1282-1284.2. In the event
either party institutes arbitration under this
Agreement, the party prevailing in any such
arbitration shall be entitled, in addition to
all other relief, to reasonable attorneys'
fees relating to such arbitration. The
nonprevailing party shall be responsible for
all costs of the arbitration, including but
not limited to, the arbitration fees, court
reporter fees, et.
IN WITNESS WHEREOF, Company has
caused to be executed and delivered, and
Employee has executed and delivered, this
Agreement as of the day and year first above
set forth.
GOTTSCHALKS INC.
By: \s\ Jim Famalette
Title: PRESIDENT
Employee
\s\ Michael Geele
GOTTSCHALKS CREDIT RECEIVABLES CORPORATION
Purchaser
and
GOTTSCHALKS INC.
Seller
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
Dated as of March 1, 1999
Schedule I List of Accounts
AMENDED AND RESTATED RECEIVABLES
PURCHASE AGREEMENT, dated as of March 1, 1999,
between GOTTSCHALKS CREDIT RECEIVABLES
CORPORATION, a Delaware corporation, (the
"Purchaser"), and GOTTSCHALKS INC., a Delaware
corporation, (the "Seller").
W I T N E S S E T H:
WHEREAS, the Seller in the ordinary
course of its business finances the purchase
of merchandise by consumers pursuant to
consumer revolving credit card accounts
thereby generating certain payment
obligations; and
WHEREAS, the Seller desires to sell
certain existing and future payment
obligations from time to time to the
Purchaser, and the Purchaser desires to sell
such payment obligations to the Gottschalks
Credit Card Master Trust, pursuant to the
Pooling and Servicing Agreement dated as of
March 1, 1999 (the "Pooling and Servicing
Agreement"), among the Purchaser, as
depositor, the Seller, as servicer, and
Bankers Trust Company, as Trustee;
NOW, THEREFORE, the parties hereto
agree as follows:
ARTICLE I
Definitions
SECTION 1.1. Definitions. Capitalized terms
used herein but not otherwise defined shall
have the meanings set forth in the Pooling and
Servicing Agreement, including any outstanding
Series Supplement thereto. The term
Agreement means this Amended and Restated
Receivables Purchase Agreement, as the same
may from time to time be amended, supplemented
or otherwise modified.
SECTION 1.2. Other Definitional Provisions.
(a) The words "hereof", "herein" and
"hereunder" and words of similar import when
used in this Agreement shall refer to this
Agreement as a whole and not to any particular
provision of this Agreement. Article,
Section, Schedule, and Exhibit references are
references to Articles, Sections, Schedules
and Exhibits in or to this Agreement unless
otherwise specified; and the term "including"
shall mean "including without limitation".
(b) The definitions contained in this
Agreement are applicable to the singular as
well as the plural forms of such terms and to
the masculine as well as to the feminine and
neuter genders of such terms.
ARTICLE II
Conveyance of Receivables
SECTION 2.1. Conveyance of Receivables.
(a) By execution of this Agreement, the
Seller does hereby sell, transfer, assign, set
over and otherwise convey, without recourse
(except as expressly provided herein), to the
Purchaser, on the Cut-Off Date (a) all of the
Seller's right, title and interest in, to and
under the Receivables existing at the close of
business on the Cut-Off Date and all monies
due or to become due and all amounts received
with respect thereto and all proceeds thereof
(including recoveries and "proceeds", as such
term is defined in Section 9306 of the UCC as
in effect in the State of California and
Section 9-306 of the UCC as in effect in the
State of New York, as applicable) and (b) all
of the Seller's rights, remedies, powers and
privileges with respect to such Receivables.
Subject to Article V hereof, as of each
Business Day prior to the earlier of (x) the
occurrence of a Liquidation Event specified in
Section 9.02(b) of the Pooling and Servicing
Agreement and (y) the Trust Termination Date
(each, a "Purchase Date"), the Seller does
hereby sell, transfer, assign, set over and
otherwise convey, without recourse (except as
expressly provided herein), to the Purchaser,
all of the Seller's right, title and interest
in, to and under the Receivables (other than
Receivables that are (i) charged off as of the
date of transfer of such Receivables, (ii)
repurchased by the Seller from the Purchaser
(upon receipt of payment therefor in
accordance with Section 2.2 or 2.4 hereof, as
applicable), (iii) generated during a Block
Period in Blocked Accounts, (iv) generated in
a Removed Account from and after the
applicable Removal Date, as provided in
Section 2.06(c) of the Pooling and Servicing
Agreement or (iv) arising under charge
accounts acquired by Gottschalks in connection
with the acquisition of new stores or another
retailer, or originated by Gottschalks at such
stores (unless, at the Purchaser's option,
such charge accounts are included as Charge
Accounts for purposes of the Pooling and
Servicing Agreement) owned by the Seller at
the close of business on such Purchase Date
and not theretofore conveyed to the Purchaser,
all monies due or to become due and all
amounts received with respect thereto and all
proceeds thereof (including proceeds, as
defined in Section 9306 of the UCC as in
effect in the State of California and Section
9-306 of the UCC as in effect in the State of
New York, as applicable, and Recoveries). The
foregoing sale, transfer, assignment, set-over
and conveyance and any subsequent sales,
transfers, assignments, set-overs and
conveyances do not constitute, and are not
intended to result in, the creation or an
assumption by the Purchaser of any obligation
of the Servicer, the Seller or any other
Person in connection with the Accounts or the
Receivables or under any agreement or
instrument relating thereto, including any
obligation to any Obligors.
(b) In connection with such sale, transfer,
assignment, set-over and conveyance the Seller
agrees to record and file, at its own expense,
one or more financing statements on form UCC-1
or amendments and assignments of previously
filed financing statements, to perfect the
interest of the Purchaser in the Receivables
conveyed by this Amended and Restated
Receivables Purchase Agreement as a sale of
"accounts" (as defined in Section 9106 of the
UCC as in effect in the state where the
Seller's or the Servicer's chief executive
offices or books and records relating to the
Receivables are located) meeting the
requirements of applicable state law in such
form as and in each jurisdiction in which any
such filing may be necessary to perfect, and
maintain the perfection of, the sale transfer,
assignment, set-over and conveyance of the
Receivables to the Purchaser, and to file and
record any continuation statements necessary
to maintain the continued perfection of such
interest, in each case naming the Seller as
seller and the Purchaser as buyer with
respect to the Receivables described in the
preceding paragraph, and to deliver a file-
stamped copy of such financing statements,
amendments and continuation statements, or
other evidence of such filings, to the
Purchaser as soon as practicable after receipt
thereof by the Seller. The Purchaser shall be
under no obligation whatsoever to make any
filing under the UCC in connection with such
sales to the Purchaser.
(c) The Seller further agrees, at its own
expense, on or prior to the date on which each
Charge Account becomes an Account, to indicate
in its computer files that the Receivables
created in connection with such Account have
been sold to the Purchaser pursuant to this
Agreement and sold to the Trust pursuant to
the Pooling and Servicing Agreement for the
benefit of the Certificateholders and the
other Beneficiaries and (b) not less than
weekly, to deliver to the Purchaser a computer
file or microfiche or written list containing
a true and complete list of all Accounts
specifying for each Account (i) its account
number, (ii) the aggregate amount of
Receivables outstanding in such Account and
(iii) the aggregate amount of Principal
Receivables in such Account. Such file,
microfiche or list, as supplemented from time
to time, shall be marked as Schedule I to this
Agreement and is hereby incorporated into and
made a part of this Agreement.
(d) The "Purchase Price" with respect to
Receivables sold hereunder shall be as
follows: (i) on the Cut-Off Date, an amount
equal to $__________ less certain gross costs
and expenses related to such purchase and sale
of Receivables and (ii) on each Purchase Date
thereafter, a price agreed to by the Purchaser
and the Seller at the time of such purchase by
the Purchaser; provided, however, that such
Purchase Price shall not, in the opinion of
the Purchaser, be materially less favorable to
the Purchaser than prices for transactions of
a generally similar character at the time of
the purchase taking into account the quality
of such Receivables and other pertinent
factors; and provided, further, that such
consideration shall in any event not be less
than reasonably equivalent value therefor.
(e) The parties hereto agree that (A) the
Purchase Price payable on the Cut-Off Date
shall be paid in (i) cash to the extent
available therefor from the net proceeds of
the initial sale of securities issued by the
Trust formed pursuant to the Pooling and
Servicing Agreement and (ii) by a capital
contribution in the amount of the difference,
if any, between the amount of the net proceeds
of such initial sale and the Purchase Price
payable on the Cut-Off Date, and that the
Purchase Price payable on each Purchase Date
will be paid in cash to the extent of amounts
distributable to the Depositor for such
purpose pursuant to the Pooling and Servicing
Agreement on such Purchase Date and remaining
after application to all due and unpaid
obligations of the Depositor under the Pooling
and Servicing Agreement and (ii) by a capital
contribution in the amount of the difference,
if any, between the amounts so distributable
to the Depositor on such Purchase Date and the
Purchase Price payable on such Purchase Date
(the "Purchase Consideration").
(f) All payments hereunder shall be made not
later than the close of business (New York
City time) on the date specified therefor in
lawful money of the United States of America
in same day funds to the bank account
designated in writing by the Seller to the
Purchaser from time to time. Whenever any
payment to be made hereunder shall be stated
to be due on a day other than a Business Day,
such payment shall be made on the next
succeeding Business Day.
(g) Subject to Article V hereof, on each
Business Day, the Seller shall evidence the
sale, transfer, assignment, set over and
conveyance of all its Receivables not
theretofore conveyed to the Purchaser by
delivering to the Purchaser a receivables
transmittal (a Receivables Transmittal)
specifying to the Purchaser the aggregate
outstanding balance of such Receivables.
Upon the receipt by the Seller on
any Purchase Date of the Purchase
Consideration for the Receivables to be sold
by the Seller on such date, all the Seller's
right, title and interest in and to such
Receivables shall have been sold, assigned,
transferred, conveyed and set over to the
Purchaser, and the Seller hereby acknowledges
the release of all of its right to control
such Receivables except its right to control
such Receivables in its capacity as Servicer
under the Pooling and Servicing Agreement.
(h) The parties hereto intend that the
transfers of Receivables effected by this
Agreement shall be and shall be treated as a
purchase and receipt of a capital contribution
by the Purchaser and a sale and capital
contribution by the Seller of the Receivables
and not as a lending transaction. In the
event that, notwithstanding such express
intent of the parties, a court of competent
jurisdiction were to hold that this Agreement
evidences a loan rather than a sale and
capital contribution, then the Seller shall be
deemed to have granted to the Purchaser as of
the date hereof a security interest (as
defined in the UCC as in effect in California
and New York) in, to and under the Receivables
now existing and hereafter created, as
specified in Section 2.1(a), all monies due or
to become due with respect thereto and all
other proceeds of such Receivables (including
any Recoveries with respect thereto), which
grant is enforceable with respect to
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 Purchaser in such property,
upon the filing of the financing statements
described in this Section 2.1 and in the case
of the Receivables hereafter created and
proceeds thereof, upon such creation, the
Purchaser shall have a first priority security
interest in such property (subject to Section
9306 of the UCC as in effect in California),
free and clear of any Lien other than
Permitted Liens.
SECTION 2.2. Representations and Warranties
of the Seller Relating to the Seller and the
Agreement. The Seller hereby represents and
warrants to the Purchaser as of the date
hereof and as of each Closing Date as follows:
(a) Organization and Good Standing. The
Seller is a corporation duly organized and
validly existing and in good standing under
the law of the State of Delaware and has full
corporate power, authority and legal right to
own its properties and conduct its business as
such properties are presently owned and such
business is presently conducted, and to
execute, deliver and perform its obligations
under this Agreement.
(b) Due Qualification. The Seller is duly
qualified to do business and is in good
standing as a foreign corporation (or is
exempt from such requirement) and has obtained
all necessary licenses and approvals in each
jurisdiction in which the conduct of its
business requires such qualification except
where the failure to so qualify or be in good
standing or obtain licenses or approvals would
not have a material adverse effect on its
ability to perform its obligations hereunder.
(c) Due Authorization. The execution and
delivery of this Agreement and the
consummation of the transactions provided for
or contemplated by this Agreement have been
duly authorized by the Seller by all necessary
corporate action on the part of the Seller.
(d) No Conflict. The execution and delivery
by the Seller of this Agreement, the
performance by the Seller of the transactions
contemplated by this Agreement and the
fulfillment of the terms hereof and thereof
applicable to the Seller, will not conflict
with, result in any breach of any of the terms
and provisions of, or constitute (with or
without notice or lapse of time or both) a
material default under, any indenture,
contract, agreement, mortgage, deed of trust,
or other instrument to which the Seller is a
party or by which it or its properties are
bound.
(e) No Violation. The execution and delivery
of this Agreement by the Seller, the
performance by the Seller of the transactions
contemplated by this Agreement and the
fulfillment of the terms hereof and thereof
applicable to the Seller, will not conflict
with or violate any Requirements of Law
applicable to the Seller or give rise to an
adverse claim upon the Seller or the
Receivables.
(f) No Proceedings. There are no proceedings
or investigations, pending or, to the best
knowledge of the Seller, threatened against
the Seller, before any Governmental Authority
(i) asserting the invalidity of this
Agreement, (ii) seeking to prevent the
consummation of any of the transactions
contemplated by this Agreement, (iii) seeking
any determination or ruling that, in the
reasonable judgment of the Seller, would
affect the performance by the Seller 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 income or
franchise tax attributes of the Trust and of
the Investor Certificates under the United
States Federal or any state income or
franchise tax systems. There are no
injunctions, writs, restraining orders or
other orders of any nature that would
adversely affect the performance by the Seller
of its obligations under this Agreement or the
transactions contemplated hereby.
(g) All Consents Required. All
authorizations, consents, orders, approvals or
other actions of any Person or of any
governmental body or official required in
connection with the execution and delivery by
the Seller of this Agreement, the performance
by the Seller of the transactions contemplated
by this Agreement, and the fulfillment by the
Seller of the terms hereof or thereof, have
been obtained.
(h) Enforceability. This Agreement has been
duly executed and delivered by the Seller and
constitutes a legal, valid and binding
obligation of the Seller enforceable against
the Seller in accordance with its terms,
except 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 except as such enforceability may be
limited by general principles of equity
(whether considered in a suit at law or in
equity) and the availability of equitable
remedies.
(i) Place of Business; Legal Name. The
principal place of business of the Seller is
located in Fresno, California and the offices
where the Seller keeps its records concerning
the Receivables and related contracts are
located in Fresno, California and there have
been no other such locations during the prior
four month period. The legal name of the
Seller is as set forth in this Agreement, and
the Seller has no trade names, fictitious
names, assumed names or "doing business as"
names, except for "Village East" and
"Harris/Gottschalks".
(j) Use of Proceeds. No proceeds of the sale
of any Receivables will be used by the Seller
to purchase or carry any margin security.
(k) Record of Accounts. Schedule I to this
Agreement (as in effect on the date in
question) is an accurate and complete listing
in all material respects of all of the
Accounts, and the information contained
therein with respect to the identity of such
Accounts and the Receivables existing
thereunder is true and correct in all material
respects.
(l) Tax Returns. The Seller has filed all
required tax returns on a timely basis.
(m) Compliance with Laws. The Seller has
complied with all applicable laws, rules,
regulations and orders in respect of the
conduct of its business and the ownership of
its properties and purchased assets, and has
maintained all applicable permits,
certifications, licenses and other rights of
whatever nature necessary for the conduct of
its business.
(n) Pension Plans. All pension or profit
sharing plans of the Seller and its
consolidated subsidiaries have been fully
funded in accordance with the Seller's
applicable pension or profit sharing plan
agreements.
(o) Solvency. The Seller (i) is not
insolvent and will not become insolvent after
giving effect to the transactions contemplated
hereby, (ii) is paying its debts as such debts
become due and (iii) after giving effect to
the transactions contemplated hereby, will
have adequate capital to conduct its business.
(p) Business Reasons for Sale. The Seller
has valid business reasons for selling the
Receivables to the Purchaser under this
Agreement and is not obtaining a loan secured
by the Receivables as collateral. The Seller
will to the fullest extent permitted by
generally accepted accounting principles and
by applicable law, record each purchase
hereunder as a sale on its books and records,
reflect each purchase in its financial
statements and tax returns as a sale and
recognize gain or loss, as the case may be, on
each purchase hereunder.
(q) No Material Adverse Effect. There has
been no material adverse change with respect
to the Seller's operations, including its
ability to perform its obligations under this
Agreement.
The representations and warranties
set forth in this Section 2.2 shall survive
the transfer and assignment of the Receivables
to the Purchaser. Upon discovery by the
Seller or the Purchaser of a breach of any of
the foregoing representations and warranties,
the party discovering such breach shall give
prompt written notice to the other party.
In the event of any breach of any of
the representations and warranties set forth
in this Section 2.2 and if, as a result of any
such breach, the Purchaser shall be obligated
to purchase the Investors' Interest and/or the
Depositor Interest pursuant to Section 2.03 of
the Pooling and Servicing Agreement, the
Seller shall repurchase such Investors'
Interest and/or Depositor Interest, as the
case may be, and shall pay to the Purchaser on
the Business Day preceding the Distribution
Date on which such purchase of the Investors'
Interest and/or the Depositor Interest, as
applicable, is to be made by the Purchaser an
amount equal to the purchase price therefor as
specified in Section 2.03 of the Pooling and
Servicing Agreement. The obligation of the
Seller to purchase such Investors' Interest
and/or Depositor Interest, as the case may be,
pursuant to this Section 2.2 shall constitute
the sole remedy against the Seller respecting
an event of the type specified in the first
sentence of this Section 2.2 available to the
Purchaser and to the Holders of the Investor
Certificates and/or the Holder of the
Exchangeable Certificate (or the Trustee on
behalf of such Certificateholders).
SECTION 2.3. Representations and Warranties
of the Seller Relating to the Receivables.
The Seller hereby represents and warrants to
the Purchaser as of the Cut-Off Date and each
Purchase Date that:
(a) No Liens. Each Receivable sold hereunder
has been conveyed to the Purchaser free and
clear of any Lien (except for Permitted Liens)
and the Purchaser has received good title to
each such Receivable.
(b) All Consents Required. All appraisals,
consents, orders, approvals, authorizations or
other actions of any Person or any
governmental body or official required in
connection with the conveyance of each
Receivable hereunder to the Purchaser have
been duly obtained and are in full force and
effect.
(c) Valid Sale. This Agreement constitutes a
valid sale, transfer, assignment, set-over and
conveyance to the Purchaser of all right,
title and interest of the Seller in and to the
Receivables described in Section 2.1(a)
hereof, all monies due or to become due with
respect thereto (including Finance Charge
Receivables), and all proceeds of such
Receivables (including Recoveries) and such
Receivables and all proceeds thereof will be
held by the Purchaser free and clear of any
Lien of any Person claiming through or under
the Seller or any of its Affiliates except for
Permitted Liens.
(d) Account or General Intangible. The
Seller has taken no action to cause any
Receivable sold hereunder to be anything other
than an "account" or "general intangible"
(each as defined in Section 9106 of the UCC as
in effect in the State of California and
Section 9-106 of the UCC as in effect in the
State of New York, as applicable). The Seller
has taken no action to evidence any Receivable
sold hereunder by any "instrument" or "chattel
paper" (each as defined in Section 9105 of the
UCC as in effect in the State of California
and Section 9-105 of the UCC as in effect in
the State of New York, as applicable).
The representations and warranties
set forth in this Section 2.3 shall survive
the transfer and assignment of the Receivables
to the Purchaser. Upon discovery by the
Seller or the Purchaser of a breach of any of
the representations and warranties set forth
in this Section 2.3, the party discovering
such breach shall give prompt written notice
to the other party.
SECTION 2.4. Repurchase of Receivables. In
the event any representation or warranty under
Section 2.3 is not true and correct as of the
date specified therein with respect to any
Receivable or Account and the Purchaser is, as
the result of any such breach, required to
accept a reassignment of such Receivable or
all Receivables in such Account pursuant to
Section 2.04(c) of the Pooling and Servicing
Agreement, then, within thirty (30) days (or
such longer period as may be agreed to by the
Purchaser) of the earlier to occur of the
discovery of any such event by the Seller or
the Purchaser, or receipt by the Seller or the
Purchaser of written notice of any such event
given by the Trustee or any Enhancement
Provider, the Seller shall repurchase the
Receivable or Receivables of which the
Purchaser is required to accept reassignment
pursuant to the Pooling and Servicing
Agreement on the Business Day preceding the
Determination Date on which such reassignment
is to occur.
The Seller shall purchase each such
Receivable pursuant to this Section 2.4 by
making a payment to the Purchaser in
immediately available funds on the Business
Day preceding the Determination Date on which
such reassignment is to occur in an amount
equal to the Purchase Price for such
Receivable. Upon payment of the Purchase
Price by delivery of such immediately
available funds, the Purchaser shall
automatically and without further action be
deemed to sell, transfer, assign, set over and
otherwise convey to the Seller, without
recourse, representation or warranty, all the
right, title and interest of the Purchaser in
and to such Receivable and all monies due or
to become due with respect thereto and all
proceeds thereof. The Purchaser shall execute
such documents and instruments of transfer or
assignment and take such other actions as
shall reasonably be requested by the Seller to
effect the conveyance of such Receivables
pursuant to this Section. The obligation of
the Seller to repurchase any such Receivable
shall constitute the sole remedy respecting
the event giving rise to such obligation
available to the Purchaser and to the
Certificateholders (or the Trustee on behalf
of Certificateholders).
SECTION 2.5. Covenants of the Seller. So
long as the Purchaser shall have any ownership
interest in any Receivables sold by the Seller
or until a termination date pursuant to
Section 5.01 shall have occurred, whichever is
later, the Seller covenants that:
(a) Receivables to be Accounts or General
Intangibles. The Seller shall take no action
to cause any Receivable sold hereunder to be
evidenced by any "instrument" or "chattel
paper" (each as defined in Section 9105 of the
UCC as in effect in the State of California
and Section 9-105 of the UCC as in effect in
the State of New York, as applicable). The
Seller shall take no action to cause any
Receivable sold hereunder to be anything other
than an "account" or "general intangible"
(each as defined in Section 9106 of the UCC as
in effect in the State of California and
Section 9-106 of the UCC as in effect in the
State of New York, as applicable). In the
event that any Receivable sold hereunder
shall, at any time, be evidenced by any
"instrument" or "chattel paper", the Seller
shall indicate or cause to be indicated on
such "instrument" or "chattel paper" a legend
stating that such Receivable has been conveyed
to the Purchaser pursuant to this Agreement
and conveyed to the Trust pursuant to the
Pooling and Servicing Agreement for the
benefit of the Certificateholders and other
Beneficiaries and shall deliver such
instrument or chattel paper to the Trustee to
be held thereby unless and until the Seller,
in its capacity as Servicer under the Pooling
and Servicing Agreement, requests in writing
the Trustee to return such instrument or
chattel paper to it (i) in connection with the
repurchase by or reassignment to the Seller of
the related Receivable or (ii) in connection
with its enforcement, as Servicer, of such
Receivable (in which case the writing to the
Trustee shall certify that return of such
instrument or chattel paper is necessary for
the conduct of such enforcement and that such
enforcement is being undertaken on behalf of
the Trust or Trustee).
(b) Negative Pledge. Except for the
conveyances hereunder, the Seller will not
sell, pledge, assign or transfer to any other
Person, or grant, create, incur, assume or
suffer to exist any Lien (other than Permitted
Liens) on any Receivable sold hereunder,
whether now existing or hereafter created, or
any interest therein; the Seller will
immediately notify the Purchaser of the
existence of any Lien on any Receivable sold
hereunder; and the Seller shall defend the
right, title and interest of the Purchaser
(and of the Trustee as assignee and transferee
thereof under the Pooling and Servicing
Agreement) in, to and under the Receivables
sold hereunder, whether now existing or
hereafter created, against all claims of third
parties claiming through or under the Seller.
(c) Charge Account Agreements and Financial
Guidelines. The Seller shall comply with and
perform its obligations under any Charge
Account Agreement to which the Seller is a
party that relates to the Accounts and the
Financial Guidelines except insofar as any
failure to comply or perform would not
materially and adversely affect the rights of
the Trust or any of the Beneficiaries.
Subject to compliance with all Requirements of
Law, the Seller may change the terms and
provisions of such Charge Account Agreements
or the Financial Guidelines in any respect
(including the calculation of the amount or
the timing of charge-offs and the rate of the
finance charges, if any, assessed thereon)
only if (i) such change would not, in the
reasonable judgment of the Seller, cause an
Early Amortization Event to occur and, if the
Seller owns a comparable segment of revolving
credit card accounts which have
characteristics the same as, or substantially
similar to, the Accounts that are the subject
of such change, such change is made applicable
to such comparable segments of accounts or
(ii) the Seller shall reasonably determine
that such change is necessary in order to
satisfy any Requirement of Law.
(d) Conveyance of Accounts. The Seller
covenants and agrees that it will not convey,
assign, exchange or otherwise transfer any
Account to any Person prior to the termination
of this Agreement.
(e) Compliance with Laws, Etc. The Seller
shall comply in all material respects with all
applicable laws, rules, regulations and orders
applicable to the Receivables sold hereunder,
including, without limitation, rules and
regulations relating to truth in lending, fair
credit billing, fair credit reporting, equal
credit opportunity, fair debt collection
practices and privacy, where failure to so
comply could reasonably be expected to have a
material adverse effect on the amount of
Collections thereunder.
(f) Preservation of Corporate Existence.
Except as provided in Section 4.1, the Seller
shall preserve and maintain in all material
respects its corporate existence, corporate
rights (charter and statutory) and corporate
franchises.
(g) Access to Certain Information Regarding
the Receivables. The Seller shall provide to
the Purchaser and its assigns and their agents
access to the documentation regarding the
Accounts and the Receivables, such access
being afforded without charge but only (i)
upon reasonable request, (ii) during normal
business hours, (iii) subject to the Seller's
normal security and confidentiality
procedures, and (iv) at offices designated by
the Seller. Nothing in this Section 2.5(g)
shall derogate from the obligation of the
Seller, the Purchaser or its assigns, or their
respective agents, to observe any applicable
law prohibiting disclosure of information
regarding the Obligors and the failure of the
Seller to provide access as provided in this
Section 2.5(g) as a result of such obligation
shall not constitute a breach of this Section
2.5(g).
(h) Keeping of Records and Books of Account.
The Seller shall maintain and implement, or
cause to be maintained or implemented,
administrative and operating procedures
reasonably necessary or advisable for the
collection of all such Receivables, and, until
the delivery to any Successor Servicer
appointed pursuant to the Pooling and
Servicing Agreement, keep and maintain, or
cause to be kept and maintained, all
documents, books, records and other
information reasonably necessary or advisable
for the collection of all such Receivables.
(i) Performance and Compliance with
Receivables and Charge Account Agreements.
The Seller shall at its expense take all
actions on its part reasonably necessary to
maintain in full force and effect its rights
under all Charge Account Agreements to which
the Seller is a party.
(j) Location of Records. The Seller shall
keep its chief place of business and chief
executive office, and the offices where it
keeps the records concerning the Receivables
and all underlying Charge Account Agreements
(and all original documents relating thereto),
at 7 River Park Place East, Fresno, California
93720 or upon prior written notice to the
Purchaser, at such other locations in a
jurisdiction where all action required by
Section 2.5(m) shall have been taken and
completed and be in full force and effect.
The Seller shall at all times maintain its
principal executive office within the United
States of America.
(k) Furnishing Copies, Etc. The Seller shall
furnish to the Purchaser (i) upon the
Purchaser's request, a certificate of the
chief financial officer of the Seller
certifying, as of the date thereof, that no
termination event described in Section 5.1 has
occurred and is continuing and setting forth
the computations used by the chief financial
officer of the Seller in making such
determination; (ii) as soon as possible and in
any event within five days after the
occurrence of any such termination event or
event that upon notice or with the passage of
time or expiration of an applicable cure
period (or both) may become a termination
event, a statement of the chief financial
officer of the Seller setting forth details of
such termination event or event that with the
passage of time or expiration of an applicable
cure period (or both) may become a termination
event and the action that the Seller proposes
to take or has taken with respect thereto; and
(iii) promptly following the Purchaser's
request thereof, such other information,
documents, records or reports with respect to
the Receivables sold hereunder or the
underlying Charge Account Agreements or the
conditions or operations, financial or
otherwise, of the Seller, as the Purchaser may
from time to time reasonably request.
(l) Obligation to Record and Report. The
Seller shall to the fullest extent permitted
by generally accepted accounting principles
and by applicable law, record each purchase
hereunder as a sale on its books and records,
reflect each purchase in its financial
statements and tax returns as a sale and
recognize gain or loss, as the case may be, on
each purchase hereunder.
(m) Continuing Compliance with the Uniform
Commercial Code. The Seller shall, without
limiting the requirements of Section 2.5(o),
at its expense, preserve, continue, and
maintain or cause to be preserved, continued,
and maintained the Purchaser's valid and
properly protected title to each Receivable
sold hereunder free of any Lien other than
Permitted Liens, including, without
limitation, filing or recording UCC financing
statements, or amendments or assignments
thereof, or continuation statements in each
relevant jurisdiction.
(n) Collections of Receivables. The Seller
shall cause all Collections in respect of
Receivables sold hereunder to be processed in
accordance with the collection arrangements
set forth in Section 4.03 of the Pooling and
Servicing Agreement.
(o) Further Action Evidencing Purchases. (i)
The Seller agrees that from time to time, at
its expense, it will promptly execute and
deliver all further instruments and documents,
and take all further action, that may be
necessary or desirable or that the Purchaser
may reasonably request, to protect or more
fully evidence the Purchaser's ownership,
right, title and interest in the Receivables
sold by the Seller and its rights under the
Charge Account Agreements with respect
thereto, or to enable the Purchaser to
exercise or enforce any such rights. Without
limiting the generality of the foregoing, the
Seller will upon the request of the Purchaser
(A) execute and file such financing or
continuation statements, or amendments
thereto, and such other instruments or
notices, as may be necessary or, in the
opinion of the Purchaser, desirable, (B)
indicate on its books and records (including,
without limitation, originals and copies of
sale slips and billing statements, to the
extent practicable) that Receivables have been
sold and assigned by the Seller to the
Purchaser and by the Purchaser to the Trust
pursuant to the Pooling and Servicing
Agreement, and provide to the Purchaser, upon
request, copies of any such records and (C)
contact customers to confirm and verify
Receivables. The Seller hereby irrevocably
authorizes the Purchaser to file one or more
financing or continuation statements, and
amendments thereto, relative to all or any
part of the Receivables sold by the Seller, or
the underlying Charge Account Agreements with
respect thereto, without the signature of the
Seller where permitted by law. If the Seller
fails to perform any of its agreements or
obligations under this Agreement, the
Purchaser may (but shall not be required to)
perform, or cause performance of, such
agreements or obligations, and the expenses of
the Purchaser incurred in connection therewith
shall be payable by the Seller.
(p) Change in Business. The Seller shall not
make any change in the nature of its business
as conducted on the date hereof that could
reasonably be expected to have a material
adverse effect on the value or collectibility
of the Receivables.
(q) Account Allocations. In the event that
the Seller is unable for any reason to
transfer Receivables to the Purchaser, then
the Seller agrees that it shall allocate,
after the occurrence of such event, payments
on each affected Account with respect to the
principal balance of such Account first to the
oldest principal balance of such Account and
to have such payments applied as Collections
in accordance with the terms of the Pooling
and Servicing Agreement. The parties hereto
agree that Finance Charge Receivables,
whenever created, accrued in respect of
Principal Receivables which have been conveyed
to the Purchaser and by the Purchaser to the
Trust shall continue to be a part of the Trust
notwithstanding any cessation of the transfer
of additional Principal Receivables to the
Purchaser and Collections with respect thereto
shall continue to be allocated and paid in
accordance with Article IV of the Pooling and
Servicing Agreement.
(r) Operations of Seller. The Seller agrees
that it shall conduct its operations in such a
manner that the Purchaser would not be
substantively consolidated into the bankruptcy
estate of the Seller or have its separate
corporate existence disregarded in the event
of a bankruptcy of the Seller.
(s) Compliance with Certain Provisions of the
Pooling and Servicing Agreement. The Seller
agrees that it shall, as Servicer or Seller,
as applicable, comply with and observe the
provisions of Article III of the Pooling and
Servicing Agreement. The Seller further
agrees that it shall comply, as Seller, with
the meet and confer requirements set forth in
Section 8.06(b) of the Pooling and Servicing
Agreement.
SECTION 2.6. Customer Service Adjustments.
The Seller may accept a return of goods for
full or partial credit or make a daily
adjustment in the principal amount or finance
or other charges accrued or payable with
respect to the account of a customer who has
purchased merchandise or services on credit
under a Charge Account Agreement, provided
that such adjustment is permitted under the
Seller's applicable Financial Guidelines. The
aggregate amount of all such adjustments made
by the Seller during any Collection Period
shall be payable to the Purchaser by the
Seller in immediately available funds and
shall be due no later than the next succeeding
Determination Date.
ARTICLE III
Administration and Servicing of Receivables
SECTION 3.1. Acceptance of Appointment and
Other Matters Relating to the Servicer.
(a) The Seller agrees to act as the
Servicer under this Agreement and the Pooling
and Servicing Agreement, and the Purchaser
consents to the Seller acting as Servicer.
The Seller, as Servicer, will have ultimate
responsibility for servicing, managing and
making collections on the Receivables and for
holding such Receivables in trust for the
benefit of the Purchaser and the Trust. The
Seller, as Servicer, will have the authority
to make any management decisions relating to
such Receivables, to the extent such authority
is granted to the Servicer under this
Agreement and the Pooling and Servicing
Agreement.
(b) The Seller, as Servicer, shall
service and administer the Receivables sold
hereunder in accordance with the provisions of
the Pooling and Servicing Agreement.
(c) In the event that a Successor
Servicer is appointed pursuant to the Pooling
and Servicing Agreement, such Successor
Servicer shall act as Successor Servicer under
this Agreement and the Purchaser consents to
the appointment of such Successor Servicer
hereunder.
SECTION 3.2. Servicing Compensation. As
full compensation for its servicing activities
hereunder and under the Pooling and Servicing
Agreement, the Seller, as Servicer, shall be
entitled to receive the Servicing Fee on each
Distribution Date. The Servicing Fee shall be
paid in accordance with the terms of the
Pooling and Servicing Agreement.
SECTION 3.3. Allocations and Applications of
Collections and Other Funds. The Seller, as
Servicer, will apply all Collections with
respect to the Receivables sold hereunder and
all funds on deposit in the Collection Account
as described in Article IV of the Pooling and
Servicing Agreement.
SECTION 3.4. Other Actions Taken by the
Seller. The Seller hereby agrees that upon
the occurrence of an event described in
Section 10.01(e) of the Pooling and Servicing
Agreement with respect to the Seller, the
Seller hereby agrees to cause its customer
service employees to distribute envelopes to
Obligors for mail-in payments rather than
accepting In-Store Payments at the customer
service window.
ARTICLE IV
Other Matters Relating to the Seller
SECTION 4.1. Merger or Consolidation of,
or Assumption, of the Obligations of the
Seller. The Seller 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:
(a) immediately after giving effect to any
such transaction, the consolidated tangible
net worth of the surviving person shall not
have materially decreased, determination to be
made on a pro forma basis after giving effect
to the proposed transaction; and
(b) the corporation formed by such
consolidation or into which the Seller is
merged or the Person which acquires by
conveyance or transfer the properties and
assets of the Seller substantially as an
entirety shall be a corporation organized and
existing under the laws of the United States
of America or any State thereof or the
District of Columbia and, if the Seller is not
the surviving entity, such corporation shall
expressly assume, by written agreement
supplemental hereto, executed and delivered to
the Purchaser, in form satisfactory to the
Purchaser, the performance of every covenant
and obligation of the Seller hereunder and
shall benefit from all the rights granted to
the Seller;
(c) the Seller shall have delivered to the
Purchaser and the Trustee (i) an Officers'
Certificate signed by a Vice President (or any
more senior officer) stating that such
consolidation, merger, conveyance or transfer
complies with this Section 4.1 and that all
conditions precedent herein provided for
relating to such transaction have been
complied with and (ii) 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 thereof or the District of Columbia;
(d) the Seller shall have delivered notice to
the Rating Agencies of such consolidation,
merger, conveyance or transfer and the Rating
Agency Condition shall have been satisfied;
and
(e) Consent of Certificateholders shall have
been obtained, which consent shall not be
unreasonably withheld in the event that the
Rating Agency Condition shall have been
satisfied.
provided, however, that notwithstanding the
provisions at this Section 4.1, the Seller
shall not merge into or convey or transfer its
properties and assets substantially as an
entirety to the Purchaser.
SECTION 4.2. Seller Indemnification of the
Purchaser. The Seller shall indemnify and
hold harmless the Purchaser, from and against
any loss, liability, expense, claim, damage or
injury suffered or sustained by reason of any
acts, omissions or alleged acts or omissions
arising out of activities of the Seller
pursuant to this Agreement (including, without
limitation, as Servicer hereunder) or arising
out of or based on the arrangement created by
this Agreement and the activities of the
Seller taken pursuant thereto (other than
collection losses on the Receivables or
amounts due with respect thereto, unless such
collection losses arise from a breach of a
representation or warranty by the Seller),
including 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; provided, however, that
the Seller shall not indemnify the Purchaser
if such acts, omissions or alleged acts or
omissions constitute fraud, gross negligence
or willful misconduct by the Purchaser; and
provided, further, that the Seller shall not
indemnify the Purchaser for any liabilities,
cost or expense of the Purchaser with respect
to any Federal, state or local income or
franchise taxes (or any interest or penalties
with respect thereto) required to be paid by
the Purchaser in connection herewith to any
taxing authority. Any indemnification under
this Article IV shall survive the termination
of this Agreement.
ARTICLE V
Termination
SECTION 5.1. Termination. This Agreement
will terminate immediately after the Trust
terminates pursuant to the Pooling and
Servicing Agreement. In addition, the
Purchaser shall not sell and the Seller shall
not purchase Receivables hereunder following
the occurrence of a Liquidation Event or Early
Amortization Event relating to the insolvency
or bankruptcy of the Seller.
ARTICLE VI
Miscellaneous Provisions
SECTION 6.1. Amendment. (a) This Agreement
may be amended from time to time by the Seller
and the Purchaser without the consent of any
of the Certificateholders (but with notice to
the Rating Agency) to:
(i) add to the covenants of the Seller for
the benefit of the Certificateholders, or to
surrender any right or power conferred upon
the Seller herein; or
(ii) cure any ambiguity, to correct or
supplement any provision herein which may be
defective or inconsistent with any other
provision herein or in any Certificate.
provided, however, that such action shall
not adversely affect in any material respect
the interests of any Certificateholder or the
Holder of the Exchangeable Certificate.
(b) This Agreement may also be amended from
time to time by the Purchaser and Seller with
the consent of the Holders of Investor
Certificates evidencing more than 50% of the
aggregate unpaid principal amount of the
Investor Certificates of each materially
adversely affected Series for the purpose of
adding, eliminating or changing provisions;
provided, however, that no such amendment
shall (i) reduce in any manner the amount of
or delay the timing of any distributions to be
made to Certificateholders or deposits of
amounts to be so distributed without the
consent of each affected Certificateholder,
(ii) change the definition of or the manner of
calculating the interest of any
Certificateholders without the consent of each
affected Certificateholder, (iii) reduce the
aforesaid percentage required to consent to
any such amendment without the consent of each
Certificateholder or (iv) adversely affect the
rating of any Series or Class by any Rating
Agency without the consent of the Holders of
Investor Certificates of such Series or Class
evidencing more than 50% of the aggregate
unpaid principal amount of the Investor
Certificates of such Series or Class. Any
amendment to be effected pursuant to this
subsection (b) shall be deemed to materially
adversely affect all outstanding Series, other
than any Series with respect to which such
action shall not adversely affect in any
material respect the interests of any Holder
of Investor Certificates of such Series. The
Trustee may, but shall not be obligated to,
enter into any such amendment which affects
the Trustee's rights, duties or immunities
under this Agreement or otherwise.
(c) Promptly after the execution of any such
amendment or consent (other than an amendment
pursuant to subsection (a) above), the Seller
shall furnish notification of the substance of
such amendment to the Trustee, each
Certificateholder, each Enhancement Provider
and each Rating Agency.
(d) It shall not be necessary for the consent
of Certificateholders under this Section 6.1
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 Certificateholders shall be subject
to such reasonable requirements as the Trustee
may prescribe.
(e) Notwithstanding anything in this Section
6.1 to the contrary, no amendment may be made
to this Agreement which would adversely affect
in any material respect the interests of any
Enhancement Provider without the consent of
such Enhancement Provider.
SECTION 6.2. Limited Recourse.
Notwithstanding anything to the contrary
contained herein, the obligations of the
Purchaser hereunder shall not be recourse to
the Purchaser (or any person or organization
acting on behalf of the Purchaser or any
affiliate, officer or director of the
Purchaser), other than to any assets of the
Purchaser not pledged to third parties or
otherwise encumbered in a manner permitted by
the Purchaser's Certificate of Incorporation;
provided, however, that any payment by the
Purchaser made in accordance with this Section
6.2 shall be made only after payment in full
of any amounts that the Purchaser is obligated
to deposit in the Collection Account pursuant
to the Pooling and Servicing Agreement.
SECTION 6.3. No Petition. The Seller hereby
covenants and agrees that it will not at any
time institute, or join in instituting,
against the Purchaser any bankruptcy,
reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings
under any United States Federal or state
bankruptcy or similar law.
SECTION 6.4. Governing Law. THIS AGREEMENT
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, 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 6.5. Notices. All demands, notices
and communications hereunder shall be in
writing and shall be deemed to have been duly
given if personally delivered at or mailed by
registered mail, return receipt requested, to
the parties at such addresses specified in the
Pooling and Servicing Agreement.
SECTION 6.6. 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.
SECTION 6.7. Assignment. Notwithstanding
anything to the contrary contained herein,
this Agreement may not be assigned by the
Seller without the prior consent of the
Purchaser and the Trustee. The Purchaser may
assign its rights, remedies, powers and
privileges under this Agreement to the Trustee
on behalf of the Trust pursuant to the Pooling
and Servicing Agreement.
SECTION 6.8. No Waiver; Cumulative Remedies.
No failure to exercise and no delay in
exercising, on the part of the Purchaser or
the Seller, as the case may be, any right,
remedy, power or privilege under this
Agreement shall operate as a waiver thereof;
nor shall any single or partial exercise of
any right, remedy, power or privilege under
this Agreement 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 6.9. 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 6.10. Third-Party Beneficiaries.
This Agreement will inure to the benefit of
and be binding upon the parties hereto, the
Certificateholders and the other Beneficiaries
and their respective successors and permitted
assigns. Except as otherwise provided in this
Agreement, no other Person will have any right
or obligation hereunder.
SECTION 6.11. 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 6.12. Headings. The headings herein
are for purposes of reference only and shall
not otherwise affect the meaning or
interpretation of any provision hereof.
SECTION 6.13. Rule 144A Information. For so
long as any of the Investor Certificates of
any Series or Class are restricted
securities within the meaning of Rule
144(a)(3) under the 1933 Act, the Seller
agrees to cooperate with the Purchaser to
provide to any Certificateholders of such
Series or Class and to any prospective
purchaser of Investor Certificates designated
by such Certificateholder, upon the request of
such 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 1933 Act.
IN WITNESS WHEREOF, the Seller and
the Purchaser have caused this Amended and
Restated Receivables Purchase Agreement to be
duly executed by their respective officers as
of the day and year first above written.
GOTTSCHALKS CREDIT RECEIVABLES
CORPORATION, as Purchaser
By: \s\ Michael Geele
Title: President
GOTTSCHALKS INC.,
as Seller
By: \s\ Jim Famalette
Title: President
SCHEDULE I
List of Accounts
The list of all Accounts specifying
for each Account, (i) its account number (ii)
the aggregate amount of Receivables
outstanding in such Account, and (iii) the
aggregate amount of Principal Receivables in
such Account has been delivered in the form of
computer tape. Such tape is incorporated
herein by this reference.
ARTICLE I Definitions.
SECTION 1.1. Definitions 1
SECTION 1.2. Other Definitional Provisions 1
ARTICLE II Conveyance of Receivables.
SECTION 2.1. Conveyance of Receivables 2
SECTION 2.2. Representations and Warranties of the
Seller Relating to the Seller and the
Agreement 4
SECTION 2.3. Representations and Warranties of the
Seller Relating to the Receivables 7
SECTION 2.4. Repurchase of Receivables 8
SECTION 2.5. Covenants of the Seller 8
SECTION 2.6. Customer Service Adjustments 12
ARTICLE III Administration and Servicing of Receivables.
SECTION 3.1. Acceptance of Appointment and Other
Matters Relating to the Servicer 12
SECTION 3.2. Servicing Compensation 13
SECTION 3.3. Allocations and Applications of
Collections and Other Funds 13
SECTION 3.4. Other Actions Taken by the Seller 13
ARTICLE IV Other Matters Relating to the Seller.
SECTION 4.1. Merger or Consolidation of, or
Assumption, of the Obligations
of the Seller 13
SECTION 4.2. Seller Indemnification of the
Purchaser 14
ARTICLE V Termination.
SECTION 5.1. Termination 14
ARTICLE VI Miscellaneous Provisions.
SECTION 6.1. Amendment 15
SECTION 6.2. Limited Recourse 16
SECTION 6.3. No Petition 16
SECTION 6.4. Governing Law 16
SECTION 6.5. Notices 16
SECTION 6.6. Severability of Provisions 16
SECTION 6.7. Assignment 16
SECTION 6.8. No Waiver; Cumulative Remedies 17
SECTION 6.9. Counterparts 17
SECTION 6.10. Third-Party Beneficiaries 17
SECTION 6.11. Merger and Integration 17
SECTION 6.12. Headings 17
SECTION 6.13. Rule144A Information 17
An extra section break has been inserted above this
paragraph. Do not delete this section break if
you plan to add text after the Table of
Contents/Authorities. Deleting this break
will cause Table of Contents/Authorities
headers and footers to appear on any pages
following the Table of Contents/Authorities.
GOTTSCHALKS CREDIT RECEIVABLES CORPORATION
Depositor
GOTTSCHALKS INC.
Servicer
and
BANKERS TRUST COMPANY
Trustee
_________________________________________
POOLING AND SERVICING AGREEMENT
Dated as of March 1, 1999
_________________________________________
GOTTSCHALKS CREDIT CARD MASTER TRUST
POOLING AND SERVICING AGREEMENT dated as
of March 1, 1999, among GOTTSCHALKS CREDIT
RECEIVABLES CORPORATION, a Delaware
corporation, as Depositor, GOTTSCHALKS INC., a
Delaware corporation, as Servicer, and BANKERS
TRUST COMPANY, a New York banking corporation,
as Trustee.
In consideration of the mutual agreements
herein contained, each party agrees as follows
for the benefit of the other parties and the
Beneficiaries to the extent
provided herein:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Whenever used in
this Agreement, the following words and
phrases shall have the following meanings:
"Account" shall mean (i) each Charge
Account existing on the Cut-Off Date (ii) each
Charge Account originated by the Seller in the
normal operation of its credit card business
after the Cut-Off Date and (iii) any Charge
Account acquired by, or originated at any
store acquired by, the Seller after the Cut-
Off Date from a third party that the Seller,
upon satisfaction of the Rating Agency
Condition, chooses to include as a Charge
Account for purposes of this Agreement;
provided, however, that a Charge Account
originated by the Seller during the
continuance of a Block Period shall not
constitute an Account hereunder until and
unless the Charge Account subsequently
constitutes a Supplemental Account; provided
further, that any Charge Account that
constitutes a Removed Account shall not
constitute an Account hereunder from and after
its Removal Date.
"Account Information" shall have the
meaning specified in Section 2.02(c).
"Adjusted Invested Amount" shall
mean, as of any date, an amount equal to the
Required Series Pool Balance.
"Adjusted Net Worth" shall have the
meaning set forth in that certain Loan and
Security Agreement between the Servicer (or
the successor thereto) and Congress Financial
Corporation (or the successor thereto), dated
December 20, 1996, as amended, or any
replacement line of credit obtained by the
Servicer (or the successor thereto).
"Adjustment Payment" shall have the
meaning specified in Section 3.09(a) hereof.
"Affiliate" shall mean, with respect
to any specified Person, any other Person
controlling or controlled by or under common
control with such specified Person. For the
purposes of this definition, "control" when
used with respect to any specified Person
means the power to direct the management and
policies of such Person, directly or
indirectly, whether through the ownership of
voting securities, by contract or otherwise;
and the terms "controlling" and "controlled"
have meanings correlative to the foregoing.
"Agreement" shall mean this Pooling
and Servicing Agreement, as the same may from
time to time be amended, modified or otherwise
supplemented, including with respect to any
Series or Class, by the related Supplement.
"Allocation Day" with respect to any
Series shall have the meaning specified in the
related Series Supplement.
"Applicants" shall have the meaning
specified in Section 6.07 hereof.
"Appointment Date" shall have the
meaning specified in Section 9.02 hereof.
"Authorized Newspaper" shall mean
any newspaper or newspapers of general
circulation in Fresno County, California and
in New York, New York customarily published on
each Business Day, whether or not published on
Saturdays, Sundays and holidays.
"Beneficiary" shall mean any of the
Certificateholders and any Enhancement
Provider.
"Blocked Account" means a Charge
Account originated by the Seller during the
continuance of a Block Period.
"Block Period" shall have the
meaning specified in Section 2.08(a) hereof.
"Bondable Persons" shall mean those
officers and employees of the Servicer
directly responsible for handling funds,
documents and computer systems directly
relating to any of the servicing functions
delegated to the Servicer hereunder and
performed by the Servicer at its headquarters
in Fresno, California.
"Business Day" shall mean any day
other than (a) a Saturday or a Sunday, or (b)
another day on which banking institutions or
trust companies in the States of New York or
California are authorized or obligated by law,
executive order or governmental decree to be
closed.
"Certificate" shall mean any
Certificate issued pursuant to a Series
Supplement or the Exchangeable Certificate.
"Certificate Rate" shall mean, with
respect to any Series or Class, the
certificate rate specified therefor in the
related Supplement.
"Certificate Register" shall have
the meaning specified in Section 6.04(a)
hereof.
"Certificateholder" or "Holder"
shall mean (x) a holder of any Investor
Certificate or (y) a Person (other than GCRC
or any Affiliate thereof) in whose name a
Subordinated Certificate is registered or (z)
a Person (other than GCRC or any Affiliate
thereof) in whose name the Exchangeable
Certificate is registered or, upon the pledge
of the Exchangeable Certificate by GCRC or any
Affiliate thereof, the pledgee of the
Exchangeable Certificate. The purpose of the
exclusion of GCRC or any Affiliate thereof
from this definition is to prevent such
entities from exercising the rights, whether
voting or otherwise, of a Certificateholder
hereunder.
"Certificateholders Representative"
shall mean, unless otherwise provided in a
Supplement, a representative appointed by
Consent of Certificateholders.
"Charge Account" shall mean a
consumer revolving credit card account (i)
originated by the Seller pursuant to a Charge
Account Agreement (ii) originated by the
Harris Stores and purchased by the Seller
prior to the Cut-Off Date and (iii) any Charge
Account acquired by, or originated at any
store acquired by, the Seller after the Cut-
Off Date from a third party that the Seller,
upon satisfaction of the Rating Agency
Condition, chooses to include as a Charge
Account for purposes of this Agreement.
"Charge Account Agreement" shall
mean an agreement with the Seller or, with
respect to Charge Accounts acquired by the
Seller after the Cut-Off Date, an agreement as
to which the Seller is an assignee or is
otherwise an obligee, pursuant to which a
Person is obligated to pay for purchased
merchandise or services under a credit plan
that permits such Person to purchase
merchandise and services on credit, together
with any finance charges and other charges
related thereto, as such agreement may be
amended, modified or supplemented from time
to time.
"Class" shall mean, with respect to
any Series, any one of the classes of
Certificates of that Series.
"Closing Date" shall mean, with
respect to any Series, the Closing Date
specified in the related Supplement.
"Collection Account" shall have the
meaning specified in Section 4.02 hereof.
"Collection Period" shall mean, with
respect to each Distribution Date, the
preceding calendar month.
"Collection Servicer" shall mean an
institution (other than the Servicer)
reasonably acceptable to the Trustee and
Certificateholders, as evidenced by a Consent
of Certificateholders, which shall have been
appointed to perform the functions specified
in Section 3.03(x)(D) hereof; provided,
however, that Union Bank of California and
Bank of America are hereby preapproved to
serve as Collection Servicers hereunder.
"Collection Servicer Agreement"
shall have the meaning specified in Section
3.03(x)(D) hereof.
"Collections" shall mean, without
duplication, all payments by or on behalf of
Obligors received by the Servicer in respect
of the Receivables, in the form of cash,
checks, wire transfers or any other form of
payment as provided in such Obligor's Charge
Account Agreement.
"Commitment Fee" shall mean, as of
any date of determination and for any Investor
Certificate of any Series, the per annum rate
of any commitment or similar fee payable with
respect to any such Certificate as of such
date from Finance Charge Collections that are
allocable to such Certificate.
"Consent of Certificateholders"
shall mean, with respect to any proposed
action or inaction, the written consent of
Certificateholders representing not less than
a majority of the Adjusted Invested Amount of
each Series of Investor Certificates then
outstanding, or if a Series shall have more
than one Class, of each Class within any said
Series.
"Contractually Delinquent" with
respect to an Account, shall mean an Account
as to which the required minimum payment set
forth on the related billing statement has not
been received by the due date thereof.
"Corporate Trust Office" shall mean
the principal office of the Trustee in the
City of New York, 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
Four Albany Street, New York, New York 10006,
Attention: Corporate Trust & Agency Group,
Structured Finance Team.
"Cut-Off Date" shall mean the open
of business for the Seller's retail stores on
March 1, 1999.
"Dedicated Zip Code" shall mean the
dedicated zip code, or similar arrangement, to
which Obligors are instructed to mail their
payments in respect of Receivables, and any
successor arrangement to which the Consent of
Certificateholders shall have been obtained.
"Defaulted Amount" with respect to
any Determination Date shall mean an amount
(which shall not be less than zero) equal to
(a) for all the Accounts included in the Pool,
the amount of Principal Receivables which
became Defaulted Receivables during the
immediately preceding Collection Period minus
(b) the full amount of any such Defaulted
Receivables which are subject to reassignment
or assignment to the Depositor or the Servicer
in accordance with the terms of this
Agreement; provided, however, that, if an
Insolvency Event occurs with respect to the
Depositor the amounts of such Defaulted
Receivables which are subject to reassignment
to the Depositor shall not be included in
clause (b) and, if an Insolvency Event occurs
with respect to the Servicer, the amount of
such Defaulted Receivables which are subject
to assignment to the Servicer shall not be
included in clause (b).
"Defaulted Receivables" shall mean,
with respect to any Collection Period, all
Receivables which are charged off by the
Servicer as uncollectible in respect of such
Collection Period in accordance with the
Servicer's customary and usual servicing
procedures for servicing Obligor receivables
comparable to the Receivables which have not
been sold to third parties. Notwithstanding
the foregoing, a Principal Receivable shall
become a Defaulted Receivable on the day on
which such Principal Receivable is recorded as
charged off on the Servicer's computer master
file of Accounts but, in any event, shall be
deemed a Defaulted Receivable no later than
the earlier of (i) the day on which it becomes
180 days Contractually Delinquent and (ii) the
day which is 30 days after the day on which
the Servicer receives notice of any of the
following events: (A) the Obligor has filed
for bankruptcy (B) the Obligor has had a
bankruptcy petition filed against it or (C)
the Obligor is deceased. Receivables that are
Ineligible Receivables at the time that they
are transferred to the Trust shall not be
considered Defaulted Receivables hereunder.
"Deposit Account Agreement" shall
mean a letter agreement entered into by and
among the Servicer, the Trustee and a
financial institution at which a Local Deposit
Account is maintained for the purpose of
receiving Collections, substantially in the
form of Exhibit K hereto.
"Depositor" shall mean GCRC, and its
successors in interest to the extent permitted
hereunder.
"Depositor Exchange" shall have the
meaning given in Section 6.03(c) hereof.
"Depositor Interest" shall have the
meaning specified in Section 4.01 hereof.
"Determination Date" with respect to
any Distribution Date shall mean the day that
is two Business Days prior to such
Distribution Date.
"Direct Debit Payments" shall mean
any payment made by an Obligor with respect to
a Receivable via an electronic debit made by a
Collection Servicer to a checking, savings or
other account maintained by the Obligor and
crediting the Obligor's Charge Account.
"Discount Portion" shall mean the
portion of Principal Receivables that shall be
treated as Finance Charge Receivables pursuant
to Section 2.07(a) hereof.
"Discount Rate"' shall have the
meaning specified in Section 2.07(b) hereof.
"Distribution Date" shall mean the
15th day of each month or, if such day is not
a Business Day, the next succeeding Business
Day.
"Distribution Date Statement" shall
mean, with respect to any Series, a report
prepared by the Servicer on each Determination
Date for the immediately preceding Collection
Period in substantially the form set forth in
the related Supplement.
"Duff & Phelps" shall mean Duff &
Phelps Credit Rating Co., or its successors.
"Early Amortization Event" shall
have the meaning specified in Section 9.01
hereof and, with respect to any Series, shall
also mean any Early Amortization Event
specified in the related Supplement for that
Series.
"Early Amortization Period" shall
mean, with respect to any Series, the period
beginning at the close of business on the day
on which an Early Amortization Event occurs or
is deemed to have occurred, and in each case
ending upon the earlier to occur of (a) the
payment in full to the Certificateholders of
such Series of the Invested Amount with
respect to such Series (including, to the
extent set forth in the applicable Series
Supplement, reimbursement of charge-offs in
respect thereof and payment of any accrued
make-whole premium and interest thereon), (b)
the Termination Date with respect to such
Series, and (c) termination of the Trust.
"Eligible Account" shall mean, as of
any time of determination, each Charge Account
owned by the Seller:
(a) which was created in accordance with the
Financial Guidelines of the Seller at the time
of creation of such Charge Account;
(b) which is payable in U.S. dollars;
(c) which has in full force and effect a
Charge Account Agreement that has been duly
authorized and which constitutes the legal,
valid and binding obligation of the Obligor
enforceable against such Obligor in accordance
with its terms and is not subject to any
dispute, offset, counterclaim or defense
whatsoever, including defenses arising out of
violations of usury laws (except the discharge
in bankruptcy of such Obligor);
(d) which has in full force and effect all
consents, licenses, or authorizations of, or
registrations with, any governmental authority
required to be obtained or given in connection
with such Charge Account;
(e) which has not been closed at the request
of the Obligor;
(f) which has not been identified by the
Seller in its computer files as having an
Obligor that is (i) deceased, (ii) a minor
under the laws of his/her state of residence
or (iii) not competent to enter into a
contract or incur debt;
(g) which has not been sold or pledged to any
Person other than the Depositor or the Trust,
as applicable, and which does not include
Receivables which have been sold or pledged to
any other Person;
(h) the Receivables of which the Seller has
not charged off in its customary and usual
manner for charging off Receivables in such
Charge Accounts unless such Charge Account is
subsequently reinstated;
(i) not more than 120 days Contractually
Delinquent;
(j) under which a credit card is outstanding
that has not expired or been identified by the
Seller or the Servicer as lost or stolen;
(k) which has not been identified by the
Seller or the Servicer in its computer files
as a Charge Account as to which the Seller or
the Servicer has any confirmed record of any
fraud-related activity by the Obligor
thereunder;
(l) which has been identified by the Servicer
in its computer files as having an Obligor
that has provided as his/her most recent
billing address an address located in the
United States or its territories or
possessions or Canada;
(m) which has not been identified by the
Servicer in its computer files as having an
Obligor that is involved in a voluntary or
involuntary bankruptcy proceeding; and
(n) under which no Receivable arising
therefrom has been classified as an Ineligible
Receivable.
"Eligible Deposit Account" shall
mean either (a) a segregated account with an
Eligible Institution or (b) a segregated trust
account with the corporate trust department of
a depository institution or trust company
organized under the laws of the United States
or any one of the states thereof, including
the District of Columbia (or any domestic
branch of a foreign bank) having corporate
trust powers and acting as trustee for funds
deposited in such account subject to
regulations on fiduciary funds on deposit
substantially similar to 12 C.F.R. 9-10(b).
"Eligible Institution" shall mean a
depository institution (which may be the
Trustee) or trust company organized under the
laws of the United States of America or any
one of the states thereof, or the District of
Columbia (or any domestic branch of a foreign
bank) which at all times (i) has a long-term
unsecured debt rating of A2 or better by
Moody's, A or better by Standard & Poor's, A
or better by Duff & Phelps or A or better by
Fitch or such other rating that is acceptable
to each Rating Agency, as evidenced by a
letter from such Rating Agency to the Trustee
and (ii) is a member of the FDIC.
"Eligible Investments" shall mean
book-entry securities, negotiable instruments
or securities represented by instruments in
bearer or registered form in each case having
original or remaining maturities of thirty
(30) days or less, but in no event maturing
later than the Distribution Date next
succeeding the Trustee's acquisition thereof
which evidence:
(a) obligations of, or obligations fully
guaranteed as to timely payment by, the United
States of America;
(b) demand deposits, time deposits or
certificates of deposit of any depository
institution or trust company incorporated
under the laws of the United States of America
or any state thereof, including the District
of Columbia (or any domestic branch of a
foreign bank) and subject to supervision and
examination by Federal or state banking or
depository institution authorities; provided,
however, that at the time of the Trust's
investment or contractual commitment to invest
therein, the commercial paper or other short-
term unsecured debt obligations (other than
such obligations the rating of which is based
on the credit of a person or entity other than
such depository institution or trust company)
thereof shall have a credit rating from each
Rating Agency in the highest investment
category granted thereby;
(c) commercial paper having, at the time of
the Trust's investment or contractual
commitment to invest therein, a rating from
each Rating Agency in the highest investment
category granted thereby;
(d) investments in money market funds having
a rating from each Rating Agency in the
highest investment category granted thereby
and which seek to maintain a constant net
asset value (including those for which the
Trustee acts as investment manager or
advisor);
(e) bankers' acceptances issued by any
depository institution or trust company
referred to in clause (b) above; provided,
however, that at the time of the Trust's
investment or contractual commitment to invest
therein, the commercial paper or other short-
term unsecured debt obligations (other than
such obligations the rating of which is based
on the credit of a person or entity other than
such depository institution or trust company)
thereof shall have a credit rating from each
Rating Agency in the highest investment
category granted thereby; and
(f) repurchase obligations with respect to
any security that is a direct obligation of,
or fully guaranteed as to timely payment by,
the United States of America or any agency or
instrumentality thereof the obligations of
which are backed by the full faith and credit
of the United States of America, in either
case entered into with (i) a depository
institution or trust company (acting as
principal) described in clause (b) above or
(ii) a depository institution or trust company
the deposits of which are insured by FDIC.
"Eligible Receivable" shall mean any
Receivable that, at the time of determination:
(a) exists under an Eligible Account;
(b) constitutes an "account" or "general
intangible" as defined in Article 9 of the UCC
as then in effect in the Relevant UCC State;
(c) does not contravene any laws, rules or
regulations applicable thereto (including,
without limitation, rules and regulations
relating to truth in lending, fair credit
billing, fair credit reporting, equal credit
opportunity, fair debt collection practices
and privacy) or the Charge Account Agreement
that could reasonably be expected to have an
adverse impact on the amount of Collections
thereunder;
(d) has in full force and effect all
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;
(e) is free and clear of all Liens and
security interests arising under or through
the Depositor (other than Permitted Liens);
(f) as to which all obligations required to
be fulfilled by the Seller or the Depositor,
as applicable, have been fulfilled;
(g) as to which neither the Seller nor the
Depositor, as applicable, has taken any action
which would impair, or failed to take any
action necessary to avoid impairing, the
rights of the Trust or the Certificateholders
therein; and
(h) is not more than 120 days Contractually
Delinquent.
"Eligible Servicer" shall mean the
Bankers Trust Company or an entity which, at
the time of its appointment as Servicer, (a)
is servicing a portfolio of consumer revolving
credit card accounts, (b) is legally qualified
and has the capacity to service the Accounts,
(c) has demonstrated the ability to
professionally and competently service a
portfolio of similar accounts in accordance
with high standards of skill and care, (d) is
qualified to use the software that is then
currently being used to service the Accounts
or obtains the right to use or has its own
software which is adequate to perform its
duties under this Agreement, and (e) shall
have been the subject of a Consent of
Certificateholders and shall have satisfied
the Rating Agency Condition.
"Enhancement" shall mean the rights
and benefits provided to the
Certificateholders of any Series or Class
pursuant to any letter of credit, surety bond,
cash collateral account, spread account,
guaranteed rate agreement, maturity liquidity
facility, tax protection agreement, interest
rate swap agreement or other similar
arrangement. The subordination of any Series
or Class to any other Series or Class or the
Exchangeable Certificate or of the Depositor
Interest to any Series or Class shall be
deemed to be an Enhancement.
"Enhancement Agreement" shall mean
any agreement, instrument or document
governing the terms of any Enhancement or
pursuant to which any Enhancement is issued or
outstanding.
"Enhancement Provider" shall mean a
Person providing any Enhancement, other than
any Certificateholder (including any holder of
a Subordinated Certificate) whose rights under
a Certificate are subordinated to any Series
or Class.
"ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" shall have the meaning
specified in Section 6.04(e)(i) hereof.
"Excess Balance Test" shall mean,
with respect to any Determination Date and any
particular Series, a test that is satisfied if
the related Series Pool Balance as of the
first day of each of the twelve calendar
months preceding such Determination Date shall
have exceeded the sum of the related Required
Series Pool Balance and the Required
Exchangeable Certificate Amount as of the
first day of each such calendar month by at
least 5%, provided, however that for purposes
of determining whether the requirements of the
second sentence of Section 6.03(b)(iv) hereof
have been met with respect to the issuance of
a new Series of Certificates, such test need
only be met for the one-month time period
specified in such section.
"Exchange" shall have the meaning
given thereto in Section 6.03(c) hereof.
"Exchange Date" shall have the
meaning given thereto in Section 6.03(c)
hereof.
"Exchange Notice" shall have the
meaning given thereto in Section 6.03(c)
hereof.
"Exchangeable Amount" shall mean,
with respect to any outstanding Series, the
amount specified in the related Supplement.
"Exchangeable Certificate" shall
mean the certificate substantially in the form
of Exhibit A and exchangeable as provided in
Section 6.03 of this Agreement.
"FASB" shall mean the Financial
Accounting Standards Board.
"FDIC" shall mean the Federal
Deposit Insurance Corporation or any successor
entity thereto.
"Finance Charge Collections" shall
mean Collections under the Receivables other
than Principal Collections; provided, that all
Miscellaneous Payments shall be Finance Charge
Collections.
"Finance Charge Receivables" shall
mean, with respect to any Account, all amounts
billed to the related Obligor in respect of
interest and all other finance charges
(including, without limitation, late fees,
returned check fees and credit life insurance
premiums), any Discount Portion and all
amounts resulting from application of a
Discount Rate pursuant to Section 2.07 hereof,
and any recoveries on Receivables (i.e.
Miscellaneous Payments) previously charged off
as uncollectible.
"Financial Guidelines" shall mean
the written policies and procedures relating
to the operation of the consumer credit card
business of the Seller, including, without
limitation, the written policies and
procedures for determining the
creditworthiness of credit card customers, the
extension of credit to credit card customers,
and the maintenance of credit card accounts
and collection of credit card receivables, as
such policies and procedures may be amended
from time to time in conformance with all
Requirements of Law.
"Fitch" shall mean Fitch IBCA, Inc.
or its successors.
"Gottschalks" shall mean Gottschalks
Inc., a Delaware corporation, and its
successors in interest.
"Governmental Authority" shall mean
the United States of America and any state or
other political subdivision thereof and any
entity exercising executive, legislative,
judicial, regulatory or administrative
functions of or pertaining to government.
"Independent Certified Public
Accountants" shall mean any of (a) Arthur
Anderson & Co. (b) Deloitte & Touche, (c)
Ernst & Young, (d) KMPG Peat Marwick and (e)
PricewaterhouseCoopers; provided such firm is
independent within the meaning of the
Securities Act of 1933, as amended.
"Ineligible Account" shall mean a
Charge Account that at the time of
determination is not an Eligible Account.
"Ineligible Receivable" shall mean
any Receivable that at the time of
determination is not an Eligible Receivable.
"Initial Holder" shall mean
Monumental Life Insurance Company.
"Insolvency Event" shall have the
meaning specified in Section 10.01(e).
"In-Store Payments" shall mean any
payment made by an Obligor with respect to a
Receivable by personal delivery of cash,
check, money order or any other form of
payment to a cashier or other employee of the
Seller at a retail premise.
"Interest Period" shall mean, with
respect to any Distribution Date, the period
from and including the Distribution Date
immediately preceding such Distribution Date
(or, in the case of the first Distribution
Date, from and including the Closing Date) to
but excluding such Distribution Date.
"Internal Revenue Code" shall mean
the Internal Revenue Code of 1986, as amended.
"Invested Amount" shall mean, for
each Series, the aggregate invested amount for
each Class of such Series.
"Investor Certificates" shall mean
any one of the certificates executed by the
Depositor and authenticated by the Trustee,
substantially in the form attached to the
related Supplement, other than the
Exchangeable Certificate and any Subordinated
Certificate.
"Investor Exchange" shall have the
meaning specified in Section 6.03(c) hereof.
"Investors' Interest" shall have the
meaning specified in Section 4.01 hereof.
"Investors' Servicing Fee" shall
mean the portion of the Servicing Fee
allocable to the Holders of Investor
Certificates of a Series pursuant to the terms
of the related Supplement.
"Lien" shall mean any mortgage, deed
of trust, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien
(statutory or other), preference,
participation interest, priority or other
security agreement or preferential arrangement
of any kind or nature whatsoever, including
any conditional sale or other title retention
agreement and any financing lease having
substantially the same economic effect as any
of the foregoing.
"Liquidation Event" shall have the
meaning specified in Section 9.02(b) hereof.
"Local Deposit Account" shall mean
any Eligible Deposit Account that is
maintained pursuant to a Deposit Account
Agreement for the purpose of receiving
Collections.
"Local Deposit Account Bank" shall
mean a bank that holds one or more Local
Deposit Accounts for receiving Collections
pursuant to a Deposit Account Agreement.
"Minimum Depositor Interest" shall
have the meaning given thereto in any
Supplement.
"Miscellaneous Payments" shall mean,
with respect to any Collection Period, all
Collections and recoveries (net of reasonable
recovery expenses) in respect of Receivables
previously written-off.
"Monthly Servicing Fee" shall mean,
with respect to any Series, the amount
specified therefor in the related Supplement.
"Moody's" shall mean Moody's
Investors Service, Inc. or its successors.
"1933 Act" shall mean the Securities
Act of 1933, as amended.
"Notice Date" shall have the meaning
specified in Section 2.08(d) hereof.
"Notices" shall have the meaning
specified in Section 13.06 hereof.
"Obligor" shall mean a Person
obligated to make payments with respect to a
Receivable arising under a Charge Account.
"Officer's Certificate" shall mean,
with respect to any corporation, unless
otherwise specified in this Agreement, a
certificate signed by the Chairman of the
Board, Vice Chairman of the Board, President,
any Vice President, Treasurer, any Assistant
Treasurer, Secretary or any Assistant
Secretary of such corporation.
"Opinion of Counsel" shall mean a
written opinion of counsel, in form and
substance satisfactory to the Trustee, who may
be counsel for, or an employee of, the
Depositor or Gottschalks, and who shall be
reasonably acceptable 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).
"Permitted Lien" shall mean, with
respect to the Receivables: (a) Liens in
favor of the Depositor created pursuant to the
Receivables Purchase Agreement assigned to the
Trustee pursuant to this Agreement; (b) Liens
in favor of the Trustee pursuant to this
Agreement; and (c) Liens which secure the
payment of taxes, assessments and governmental
charges or levies, if such taxes, assessment
and governmental charges or levies are either
(x) not delinquent or (y) 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.
"Permitted Transaction" shall have
the meaning specified in Section 2.05(f)
hereof.
"Person" shall mean any legal
person, including any individual, corporation,
partnership, association, joint-stock company,
trust, unincorporated organization,
governmental entity or other entity of similar
nature.
"Pool" shall mean, at any time of
determination, all Accounts with respect to
which the related Receivables have been
transferred to the Trust pursuant to Section
2.01 hereof.
"Pool Balance" shall mean, at any
time of determination, the aggregate of
Principal Receivables constituting Eligible
Receivables in the Pool at such time.
"Principal Collections" shall mean
Collections of Principal Receivables.
"Principal Receivables" shall mean,
for any day with respect to any Account,
amounts shown on the Servicer's records on
such day as Receivables (other than such
amounts which represent Finance Charge
Receivables) payable by the related Obligor;
provided that Principal Receivables shall not
include the Discount Portion. The receipt of
each Adjustment Payment and each Transfer
Deposit Amount shall also be treated as a
collection of a Principal Receivable.
"Principal Terms" shall mean, with
respect to any Series:
(a) the name or designation;
(b) the initial principal amount or invested
amount (or method for calculating such
amount);
(c) the Certificate Rate (or method for the
determination thereof);
(d) the payment date or dates and the date or
dates from which interest shall accrue;
(e) the method for allocating Collections to
Certificateholders;
(f) the designation of any Series Accounts
and the terms governing the operation of any
such Series Accounts;
(g) the Monthly Servicing Fee, and the
Investors' Servicing Fee, if any;
(h) the identity of the Enhancement Provider
and the terms of any form of Enhancement with
respect thereto, if any;
(i) the terms on which the Investor
Certificates of such Series may be exchanged
for Investor Certificates of another Series,
repurchased by the Depositor or remarketed to
other investors;
(j) the Termination Date;
(k) the number of Classes of Investor
Certificates of such Series and, if more than
one Class, the rights and priorities of each
such Class;
(l) the extent to which the Investor
Certificates of such Series will be issuable
in temporary or permanent global form (and, in
such case, the depository for such global
certificate or certificates, the terms and
conditions, if any, upon which such global
certificates may be exchanged, in whole or in
part, for definitive certificates and the
manner in which any interest payable on a
temporary or global certificate will be paid);
(m) whether the Investor Certificates of such
Series may be issued in bearer form and any
limitations imposed thereon;
(n) the priority of such Series with respect
to any other Series;
(o) whether such Series will be part of a
group;
(p) the Required Series Pool Balance for such
Series; and
(q) the Minimum Depositor Interest.
"Purchase Price" shall mean, with
respect to any Receivable for any date on
which such Receivable is to be purchased (a)
an amount equal to the principal amount
payable by the Obligor in respect thereof as
reflected in the records of the Servicer as of
the date of purchase, plus (b) late charges
and interest, if any, accrued thereon at a per
annum rate equal to the rate being charged to
the Obligor under the Charge Account Agreement
based on the actual number of days elapsed
over a year of 360 days.
"Rating Agency" shall mean, with
respect to any outstanding Series or Class,
each statistical rating agency, if any,
selected by the Depositor to rate the Investor
Certificates of such Series or Class.
"Rating Agency Condition" shall
mean, with respect to any action, that, after
any required notice has been given to the
applicable Rating Agencies, each such Rating
Agency shall have notified each of the
Depositor, the Servicer and the Trustee in
writing that such action will not result in a
reduction or withdrawal of the rating of any
outstanding Series or Class with respect to
which it is a Rating Agency.
"Reassignment" shall have the
meaning specified in Section 2.06(c) hereof.
"Receivables" shall mean, with
respect to any Obligor, all right to payment
for money due or to become due under a Charge
Account Agreement arising in an Account from a
sale of merchandise or services, and includes
the right to payment of any interest or
finance charges (including, without
limitation, late fees, credit life insurance
premiums and Miscellaneous Payments) and other
obligations of such Obligor with respect
thereto. Each Receivable includes, without
limitation, all rights of the Seller and
obligations of the Obligor under the
applicable Charge Account Agreement. Each
increase in the Outstanding Balance of any
Receivable (other than any such increase
resulting from the accrual of interest or
finance charges or other fees with respect to
such Receivable) shall, for purposes of
Article II, constitute a separate Receivable.
The receipt of each Adjustment Payment and
each Transfer Deposit Amount shall be treated
as a collection of a Principal Receivable.
"Receivables Purchase Agreement"
shall mean the amended and restated
receivables purchase agreement between
Gottschalks and the Depositor, in
substantially the form attached hereto as
Exhibit J, dated as of the date hereof,
governing the terms and conditions upon which
the Depositor acquired and is acquiring the
initial Receivables transferred to the Trust
on the Closing Date and all Receivables
acquired thereafter, as the same may from time
to time be amended, modified or otherwise
supplemented.
"Record Date" shall mean, with
respect to any Distribution Date, the last day
of the month preceding the month in which such
Distribution Date occurs and, if distributions
are made on any date other than a Distribution
Date, the day immediately preceding such other
date.
"Recoveries" shall mean, with
respect to any Distribution Date, any amounts
received during the Related Collection Period
by the Servicer with respect to Defaulted
Receivables (net of reasonable recovery
expenses).
"Related Collection Period" shall
mean, with respect to (a) any Distribution
Date, the preceding Collection Period and (b)
any Allocation Day, the Collection Period
during which such Allocation Day occurs.
"Related Distribution Date" shall
mean, with respect to any Collection Period or
Allocation Day, the Distribution Date
following such Collection Period or following
the month in which such Allocation Day occurs.
"Related Documents" shall mean,
collectively, the Receivables Purchase
Agreement and, with respect to any Series, any
applicable Enhancement Agreement and any
applicable certificate purchase agreement.
"Relevant UCC State" shall mean each
jurisdiction in which the filing of a UCC
financing statement is necessary to perfect
the security interest of the Trustee
established under the Agreement.
"Removal Date" shall have the
meaning specified in Section 2.06(b) hereof.
"Removal Notice Date" shall have the
meaning specified in Section 2.06(b) hereof.
"Removed Accounts" shall have the
meaning specified in Section 2.06(a) hereof.
"Required Exchangeable Certificate
Amount" shall have the meaning specified in
the related Series Supplement.
"Required Pool Balance" shall mean,
at any time of determination, the sum of the
Required Series Pool Balances for all
outstanding Series at such time.
"Required Series Pool Balance" with
respect to any Series shall have the meaning
specified in the related Supplement.
"Requirements of Law" for any Person
shall mean the certificate or articles of
incorporation and by-laws or other
organizational or governing documents of such
Person, and any law, treaty, rule or
regulation, court order 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, whether
Federal, state or local (including usury laws,
and the Federal Truth in Lending Act and the
Equal Credit Opportunity Act).
"Responsible Officer" shall mean any
Managing Director, Principal, Vice President,
Assistant Vice President, Assistant Secretary,
Assistant Treasurer, trust officer and any
other officer of the Trustee customarily
performing functions within the corporate
trust department and also, with respect to a
particular matter, any other officer to whom
such matter is referred because of such
officer's knowledge of and familiarity with
that relevant subject.
"Revolving Period" shall mean, with
respect to any Series, the period specified as
such in the related Supplement.
"Seller" shall mean Gottschalks.
"Series" shall mean any series of
Certificates issued pursuant to a Supplement.
"Series Account" shall mean any
deposit, trust, escrow, reserve or similar
account maintained for the benefit of the
Certificateholders of any Series or Class, as
specified in any Supplement.
"Series Allocation Percentage" shall
mean, with respect to any Series, (a) with
respect to all collections on Receivables,
prior to the commencement of the related
Controlled Amortization Period or an Early
Amortization Period, a fraction, expressed as
a percentage, the numerator of which is the
Adjusted Invested Amount for such Series and
the denominator of which is the sum of the
Adjusted Invested Amounts for all outstanding
Series, in each case, measured as of the first
day of the relevant Collection Period, (b)
with respect to Finance Charge Collections and
Default Amounts during the related Controlled
Amortization Period or an Early Amortization
Period, the percentage described in clause
(a), and (c) with respect to Principal
Collections during the related Controlled
Amortization Period or an Early Amortization
Period, a fraction, expressed as a percentage,
the numerator of which the Adjusted Invested
Amount for such Series and the denominator of
which is the sum of the Adjusted Invested
Amounts for all outstanding Series, in each
case, measured as of the first day of the last
Collection Period to commence before the
commencement of the Controlled Amortization
Period or Early Amortization Period.
"Series Cut-Off Date" shall mean,
with respect to any Series, the date specified
as such in the related Supplement.
"Series Issuance Date" shall mean,
with respect to any Series, the date specified
as such in the related Supplement.
"Series Pool Balance" with respect
to a particular Series shall mean, as of any
date of determination, the product of (a) the
Pool Balance as of such date and (b) the
related Series Allocation Percentage for such
date.
"Series Termination Date" shall mean
the Distribution Date specified in the related
Supplement for termination of the related
Series.
"Service Transfer" shall have the
meaning specified in Section 10.01 hereof.
"Servicer" shall initially mean
Gottschalks, in its capacity as Servicer under
this Agreement, and after any Service
Transfer, the Successor Servicer.
"Servicer Default" shall have the
meaning specified in Section 10.01 hereof and
in any Series Supplement.
"Servicer Default Certificate" shall
mean an Officer's Certificate to be delivered
by the Servicer upon the occurrence of certain
Servicer Defaults identifying the specific
Servicer Default(s), the Servicer's strategy
for curing any such Servicer Default and
certifying that (i) the Servicer is working in
good faith to effect a cure of the Servicer
Default in question and (ii) to the best of
the Servicer's knowledge as of the date of
such Officer's Certificate, the Servicer
Default in question is curable within the time
frame set forth in such Officer's Certificate.
"Servicing Fee" shall mean the
aggregate of any Monthly Servicing Fees
specified in the Supplements.
"Servicing Officer" shall mean any
officer of the Servicer involved in, or
responsible for, the administration and
servicing of the Receivables whose name
appears on a list of servicing officers
furnished to the Trustee by the Servicer, as
such list may from time to time be amended.
"Special Interest Receivables" shall
mean, with respect to an Account, Receivables
arising under special promotional programs
pursuant to which the accrual of finance
charges with respect to such Receivables is
waived, reduced or deferred.
"Standard & Poor's" shall mean
Standard & Poor's Ratings Services or its
successors.
"Subordinated Certificate" shall
mean, with respect to any Series, the
Certificates specified as such in the related
Supplement.
"Successor Servicer" shall have the
meaning specified in Section 10.02(a) hereof.
"Supplement" and "Series Supplement"
shall mean, with respect to any Series, a
Supplement to this Agreement, executed and
delivered in connection with the original
issuance of the Investor Certificates of such
Series pursuant to Section 6.03 hereof, and
all amendments thereof and supplements
thereto.
"Supplemental Accounts" shall mean,
as of the applicable Supplemental Addition
Date, each Charge Account designated by the
Depositor pursuant to Section 2.08(b) or (c)
hereof.
"Supplemental Addition Date" shall
mean, with respect to a Charge Account
originated by the Seller during the
continuance of a Block Period, the first
Business Day on which Receivables arising
under such Charge Account are to be
transferred to the Trust as specified in the
notice provided pursuant to Section 2.08(d)(i)
hereof.
"Tax Opinion" shall mean, with
respect to any action, an Opinion of Counsel
(which shall not have been issued by an
employee of the Depositor or Gottschalks) to
the effect that, for Federal income tax
purposes, (a) such action will not adversely
affect the characterization as debt of the
Investor Certificates of any outstanding
Series or Class that were characterized as
debt at the time of their issuance, (b) such
action will not cause or constitute a taxable
event with respect to any Certificateholders
or the Trust, (c) in the case of Section
6.03(b) hereof, the Investor Certificates of
the new Series will properly be characterized
as debt and (d) such action will not cause the
Trust to be treated as an association (or
publicly traded partnership) taxable as a
corporation.
"Termination Date" shall mean, with
respect to any Series, the termination date
specified in the related Supplement.
"Termination Notice" shall have the
meaning specified in Section 10.01 hereof.
"Termination Proceeds" shall have
the meaning specified in Section 12.02(c)
hereof.
"Transfer Agent and Registrar" shall
have the meaning specified in Section 6.04(a)
hereof.
"Transfer Date" shall mean, with
respect to each Receivable, the Business Day
after the Cut-Off Date and prior to the
earlier of (i) the occurrence of a Liquidation
Event, and (ii) the Trust Termination Date, on
which such Receivable was created (or, if such
date of creation was not a Business Day, the
next succeeding Business Day) and transferred
to the Trust pursuant to Section 2.01 hereof.
"Transfer Deposit Amount" shall
mean, with respect to any Receivable
reassigned or assigned to the Depositor or the
Servicer, as applicable, pursuant to Section
2.04(c) or Section 3.03 hereof, the amounts
specified in such Sections.
"Trust" shall mean the Gottschalks
Credit Card Master Trust created by this
Agreement, the corpus of which shall consist
of the Trust Assets.
"Trust Assets" shall have the
meaning specified in Section 2.01 hereof.
"Trust Liquidation Proceeds" shall
have the meaning specified in Section 9.02(c)
hereof.
"Trust Termination Date" shall have
the meaning specified in Section 12.01 hereof.
"Trustee" shall mean Bankers Trust
Company, a New York banking corporation, not
in its individual capacity but solely as
Trustee hereunder, or its successor in
interest, or any successor trustee appointed
as herein provided.
"UCC" shall mean the Uniform
Commercial Code, as amended from time to time,
as in effect in any specified jurisdiction.
"Vice President" when used with
respect to the Depositor and Servicer shall
mean any vice president whether or not
designated by a number or word or words added
before or after the title "vice president".
"Village East" shall mean the
Village East women's apparel division of
Gottschalks.
Section 1.02. Other Definitional Provisions.
(a) All terms defined in 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 in this Agreement and in any
certificate or other document made or
delivered pursuant hereto or thereto,
accounting terms not defined in this Agreement
or in any such certificate or other document,
and accounting terms partly defined in this
Agreement or in any such certificate or other
document 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 in this Agreement or in any such
certificate or other document are inconsistent
with the meanings of such terms under
generally accepted accounting principles, the
definitions contained in this Agreement or in
any such certificate or other document shall
control.
(c) Any reference to each Rating Agency shall
only apply to any specific rating agency if
such rating agency is then rating the Investor
Certificates of any outstanding Series.
(d) Unless otherwise specified, references to
any amount as on deposit or outstanding on any
particular date shall mean such amount at the
close of business on such day.
(e) The words "hereof", "herein" and
"hereunder" and words of similar import when
used in this Agreement shall refer to this
Agreement as a whole and not to any particular
provision of this Agreement; Article, Section,
Schedule and Exhibit references contained in
this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this
Agreement unless otherwise specified; and the
term "including" shall mean "including without
limitation".
(f) The definitions contained in this
Agreement are applicable to the singular as
well as the plural forms of such terms and to
the masculine as well as to the feminine and
neuter genders of such terms.
(g) References herein to "Collections
received" shall be deemed to include
Collections received and processed as to
principal and finance charges and shall not
include unprocessed Collections (i.e.,
Collections which have been received but for
which the Servicer in the ordinary course of
its business has not yet identified in its
computer records the principal and finance
charge components).
ARTICLE II
CONVEYANCE OF RECEIVABLES
SECTION 2.01. Conveyance of Receivables. By
execution of this Agreement, the Depositor
does hereby sell, transfer, assign, set over
and otherwise convey, without recourse (except
as expressly provided herein), to the Trustee,
on behalf of the Trust, for the benefit of the
Beneficiaries, (a) all of Depositor's right,
title and interest in, to and under the
Receivables existing at the close of business
on the Cut-Off Date, and all monies due or to
become due and all amounts received with
respect thereto and all proceeds thereof
(including "proceeds", as defined in Section
9306 of the UCC as in effect in the State of
California and Section 9-306 of the UCC as in
effect in the State of New York, and
Recoveries) and (b) all of the Depositor's
rights, remedies, powers and privileges under
the Receivables Purchase Agreement. As of
each Transfer Date, the Depositor does hereby
sell, transfer, assign, set over and otherwise
convey, without recourse (except as expressly
provided herein), to the Trustee, on behalf of
the Trust, for the benefit of the
Beneficiaries, all of the Depositor's right,
title and interest in, to and under the
Receivables (other than Receivables that are
(i) charged off as of the date of transfer,
(ii) repurchased by the Depositor, (iii)
generated during a Block Period in Blocked
Accounts, (iv) generated in a Removed Account
from and after the applicable Removal Date, as
provided in Section 2.06(c) hereof or (iv)
arising under charge accounts acquired by
Gottschalks in connection with the acquisition
of new stores or another retailer, or
originated by Gottschalks at such stores
(unless included in the Trust at the
Depositor's option)) owned by the Depositor at
the close of business on such Transfer Date
and not theretofore conveyed to the Trustee,
on behalf of the Trust, for the benefit of the
Beneficiaries, all monies due or to become due
and all amounts received with respect thereto
and all proceeds thereof (including
proceeds, as defined in Section 9306 of the
UCC as in effect in the State of California,
and Recoveries). Such property, together with
all monies on deposit in, and Eligible
Investments credited to, the Collection
Account or any Series Account and any
Enhancements including such monies as are from
time to time available thereunder shall
collectively constitute the assets of the
Trust (the 'Trust Assets'). The foregoing
sale, transfer, assignment, set-over and
conveyance and any subsequent sales,
transfers, assignments, set-overs and
conveyances do not constitute, and are not
intended to result in, the creation or an
assumption by the Trust, the Trustee or any
Beneficiary of any obligation of the Servicer,
the Seller, the Depositor or any other Person
in connection with the Accounts, the
Receivables, or under any agreement or
instrument relating thereto, including any
obligation to any Obligors. The foregoing
sale, 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 sale,
transfer, assignment, set-over and conveyance
shall be construed accordingly.
In connection with such sale,
transfer, assignment, set-over and conveyance,
the Depositor agrees to record and file, at
its own expense, a financing statement on form
UCC-1 (and continuation statements when
applicable) with respect to the Receivables
now existing and hereafter created for the
sale of "accounts" (in each case as defined in
Section 9106 of the UCC as in effect in any
state where the Depositor's or the Seller's
chief executive offices or books and records
relating to the Receivables are located) and
with respect to all other Trust Assets meeting
the requirements of applicable state law in
such manner and in such other jurisdictions as
are necessary to perfect, and maintain the
perfection of, the sale and assignment of the
Receivables to the Trust, and to deliver a
file-stamped copy of each such financing
statement or other evidence of such filing to
the Trustee on or prior to the first Closing
Date, and in the case of any continuation
statements filed pursuant to this Section
2.01, as soon as practicable after receipt
thereof by the Depositor.
The Depositor further agrees, at its
own expense, (a) on or prior to the date on
which each Charge Account becomes an Account,
to cause the Seller to indicate in its
computer files as required by the Receivables
Purchase Agreement, that the Receivables
created in connection with such Account have
been sold to the Depositor in accordance with
the Receivables Purchase Agreement and sold to
the Trust pursuant to this Agreement and (b)
no less frequently than weekly, to deliver to
the Trustee (or cause the Seller to do so) a
computer file or microfiche or written list
containing a true and complete list of all
Accounts specifying for each Account, (i) its
account number (ii) the aggregate amount of
Receivables outstanding in such Account, and
(iii) the aggregate amount of Principal
Receivables in such Account. Such file,
microfiche or list, as supplemented from time
to time, shall be marked as Schedule I to this
Agreement and is hereby incorporated into and
made a part of this Agreement. The Trustee
shall be under no obligation whatsoever to
verify the accuracy or completeness of the
information contained on Schedule I from time
to time.
It is the intention of the Depositor
and the Servicer that the arrangements with
respect to the Receivables shall constitute a
purchase and sale of such Receivables and not
a loan. In the event, however, that a court
of competent jurisdiction were to hold that
the transactions evidenced hereby constitute a
loan and not a purchase and sale, it is the
intention of the parties hereto that this
Agreement shall constitute a security
agreement under applicable law. In this
regard, Depositor hereby grants and transfers
to the Trustee a first priority security
interest in all of the Depositor's right,
title and interest in, to and under (i) the
Receivables now existing and hereafter created
and arising in connection with the Accounts,
all monies due or to become due with respect
thereto (including all Finance Charge
Receivables) and all proceeds thereof
(including proceeds as defined in Section
9306 of the UCC as in effect in the State of
California and Section 9-306 of the UCC as in
effect in the State of New York) (ii) the
Receivables Purchase Agreement, (iii) any
other Trust Assets and (iv) Recoveries, to
secure a loan in an amount equal to the unpaid
principal amount of the Investor Certificates
and Subordinated Certificates issued hereunder
or to be issued pursuant to this Agreement and
the interest accrued thereon (as applicable)
at the related Certificate Rate.
Section 2.02. 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 Depositor in and to the property, now
existing and hereafter created, conveyed to
the Trust pursuant to Section 2.01 hereof and
declares that it shall maintain such right,
title and interest, upon the trust herein set
forth, for the benefit of the Beneficiaries.
The Trustee further acknowledges that, prior
to or simultaneously with the execution and
delivery of this Agreement, the Depositor
delivered to the Trustee the computer file or
microfiche or written list relating to the
Accounts existing on the Cut-Off Date
described in Section 2.01 hereof.
(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.
(c) The Trustee hereby agrees not to disclose
to any Person any of the account numbers or
other information contained in the computer
files or microfiche or written lists delivered
to the Trustee or the bailee of the Trustee by
the Depositor pursuant to this Agreement
("Account Information") except as is required
in connection with the performance of its
duties hereunder or in enforcing the rights of
the Certificateholders or to a Successor
Servicer appointed pursuant to Section 10.02,
any successor trustee appointed pursuant to
Section 11.08, any co-trustee or separate
trustee appointed pursuant to Section 11.10 or
any other Person in connection with a UCC
search or as mandated pursuant to any
Requirement of Law applicable to the Trustee.
The Trustee agrees to take such measures as
shall be reasonably requested by the Depositor
to protect and maintain the security and
confidentiality of such information, and, in
connection therewith, shall allow the
Depositor to inspect the Trustee's or the
bailee of the Trustee's security and
confidentiality arrangements from time to time
during normal business hours. In the event
that the Trustee is required by law to
disclose any Account Information, the Trustee
shall use its best efforts to provide the
Depositor with written notice no later than
five days prior to any disclosure pursuant to
this subsection 2.02(c), unless such notice is
prohibited by law, of any such request or
requirement so that the Depositor may request
a protective order or other appropriate
remedy.
Section 2.03. Representations and Warranties
of the Depositor Relating to the Depositor and
this Agreement.
(a) The Depositor hereby represents and
warrants to the Trust and to the Trustee as of
each Closing Date that:
(i) Organization and Good Standing. The
Depositor is a corporation duly organized and
validly existing and in good standing under
the law of the State of Delaware and has full
corporate power, authority and legal right to
own its properties and conduct its business as
such properties are presently owned and such
business is presently conducted, and to
execute, deliver and perform its obligations
under this Agreement, each Supplement, and the
Related Documents to which it is a party, and
to authorize the Trustee to execute and
deliver the Certificates on behalf of the
Depositor. The Depositor's legal name is
Gottschalks Credit Receivables Corporation,
and it has no tradenames, fictitious names,
assumed names or doing business as names.
The Depositor has no subsidiaries.
(ii) Due Qualification. The Depositor is duly
qualified to do business and is in good
standing as a foreign corporation (or is
exempt from such requirement) and has obtained
all necessary licenses and approvals in each
jurisdiction in which the conduct of its
business requires such qualification except
where the failure to so qualify or be in good
standing or obtain licenses or approvals would
not have a material adverse effect on its
ability to perform its obligations hereunder.
(iii) Due Authorization. The execution
and delivery by the Depositor of this
Agreement, each Supplement, each Certificate
and the Related Documents to which it is a
party, and the authentication and delivery by
the Trustee of the Certificates on behalf of
the Depositor, and the consummation of the
transactions provided for or contemplated by
this Agreement, each Supplement and the
Related Documents to which the Depositor is a
party, have been duly authorized by the
Depositor by all necessary corporate action on
the part of the Depositor.
(iv) No Conflict. The execution and delivery
by the Depositor of this Agreement, each
Supplement, the Related Documents to which it
is a party and the Certificates, the
performance by the Depositor of the
transactions contemplated by this Agreement,
each Supplement and the Related Documents to
which it is a party and the fulfillment of the
terms hereof and thereof applicable to the
Depositor, will not conflict with, result in
any breach of any of the terms and provisions
of or constitute (with or without notice or
lapse of time or both) a default under, any
indenture contract, agreement, mortgage, deed
of trust, or other instrument to which the
Depositor is a party or by which it or its
properties are bound.
(v) No Violation. The execution and delivery
by the Depositor of this Agreement, each
Supplement, the Related Documents to which it
is a party and the Certificates, the
performance by the Depositor of the
transactions contemplated by this Agreement,
each Supplement and the Related Documents to
which it is a party and the fulfillment of the
terms hereof and thereof applicable to the
Depositor, will not conflict with or violate
any Requirements of Law applicable to the
Depositor or give rise to an adverse claim
upon the Depositor or the Receivables.
(vi) No Proceedings. There are no proceedings
or investigations pending or, to the best
knowledge of the Depositor, threatened against
the Depositor before any Governmental
Authority (i) asserting the invalidity of this
Agreement, any Supplement, any of the Related
Documents or the Certificates, (ii) seeking to
prevent the issuance of the Certificates or
the consummation of any of the transactions
contemplated by this Agreement, any
Supplement, any of the Related Documents or
the Certificates, (iii) seeking any
determination or ruling that, in the
reasonable judgment of the Depositor, would
materially and adversely affect the
performance by the Depositor of its
obligations under this Agreement, any
Supplement or the Related Documents to which
it is a party, (iv) seeking any determination
or ruling that would affect the validity or
enforceability of this Agreement, any
Supplement, any of the Related Documents or
the Certificates or (v) seeking to affect
adversely the income or franchise tax
attributes of the Trust and of the Investor
Certificates under Federal or state income or
franchise tax systems. There is no
injunction, writ, restraining order or other
order of any nature that adversely affects the
Depositor's performance of this Agreement or
the transaction contemplated hereby.
(vii) All Consents Required. All
appraisals, authorizations, consents, orders,
approvals or other actions of any Person or of
any governmental body or official required in
connection with the execution and delivery by
the Depositor of this Agreement, each
Supplement, each Certificate and the Related
Documents to which it is a party, the
execution and delivery by the Trustee of the
Certificates on behalf of the Depositor, the
performance by the Depositor of the
transactions contemplated by this Agreement,
each Supplement and the Related Documents to
which it is a party, and the fulfillment by
the Depositor of the terms hereof and thereof,
have been obtained.
(viii) Enforceability. This Agreement,
each Supplement, each Certificate and the
Related Documents to which it is a party have
been duly executed and delivered, and each
constitutes a legal, valid and binding
obligation of the Depositor, enforceable
against the Depositor in accordance with its
terms, except 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 generally and
except as such enforceability may be limited
by general principles of equity (whether
considered in a suit at law or in equity) and
the availability of equitable remedies.
(ix) Solvency. The Depositor is not insolvent
and will not become insolvent after giving
effect to the transactions contemplated
hereby; the Depositor is paying its debts as
they become due; the Depositor, after giving
effect to the transactions contemplated
hereby, will have adequate capital to conduct
its business.
(x) Record of Accounts. Schedule I to this
Agreement (as in effect on the date in
question) is an accurate and complete listing
in all material respects of all the Accounts,
and the information contained therein with
respect to the identity and eligibility of
such Accounts and the Receivables existing
thereunder is true and correct in all material
respects.
(xi) Place of Business. The principal place
of business of the Depositor is in Fresno,
California, and the offices where the
Depositor keeps its records concerning the
Receivables and related contracts are in
Fresno, California and there have been no
other such locations during the prior four
months; provided that in the event that the
Depositor shall have changed its place of
business in accordance with Section 13.02(c)
hereof, all references herein to Fresno,
California shall thereafter be to such new
place of business.
(xii) Use of Proceeds. No proceeds of the
issuance of any Certificate will be used by
the Depositor to purchase or carry any margin
security.
(xiii) Not an Investment Company. The
Depositor is not an "investment company" or
"controlled" by an "investment company" within
the meaning of the Investment Company Act of
1940, as amended, or is exempt from all
provisions thereof.
(xiv) Compliance. All applicable laws,
rules, regulations and orders with respect to
the Depositor, its business and properties and
purchased assets have been complied with. All
applicable permits, certifications, etc., have
been maintained. The Depositor has filed all
required tax returns on a timely basis.
(xv) Limited Purpose. The Depositor engages
in no activities other than those pursuant to
this Agreement and the transactions
contemplated hereby.
(xvi) Sale Treatment. The Depositor will
treat (i) its investment in the Receivables
pursuant to the Receivables Purchase Agreement
and (ii) the Trust's investment in the
Receivables pursuant to this Agreement as a
purchase of Receivables, rather than a loan,
for financial reporting purposes.
The representations and warranties
set forth in this Section 2.03 shall survive
the transfer and assignment of the Receivables
to the Trust and the issuance of the
Certificates. Upon discovery by the
Depositor, the Servicer or upon a Responsible
Officer of the Trustee having actual knowledge
of a breach of any of the foregoing
representations and warranties, the party
discovering such breach shall give prompt
written notice thereof to the other parties
and to any Enhancement Providers.
(b) In the event that any of the
representations and warranties set forth in
subsections (viii), (ix), (xii) and (xiii) of
this Section 2.03 have been breached, and such
breach has a material adverse effect on the
value of the Receivables or the interests of
the Certificateholders, then either (i) the
Trustee, if a Responsible Officer thereof has
actual knowledge of such a breach, or (ii)
Certificateholders evidencing not less than a
majority in aggregate unpaid Invested Amount
of all outstanding Certificates of each
Series, by notice then given in writing to the
Depositor (and to the Trustee, any Enhancement
Providers and the Servicer), may direct the
Depositor to purchase the Investors' Interest
not already owned thereby on a Distribution
Date within sixty (60) days of such notice (or
such longer period as may be specified in such
notice), and the Depositor shall be obligated
to make such purchase on a Distribution Date
within such 60-day period on the terms and
conditions set forth below; provided, however,
that no such purchase shall be required to be
made if, by the end of such 60-day period (or
such longer period as may be approved by the
Trustee), such breach shall have been remedied
in all material respects, and any material
adverse effect on the Investors' Interest
and/or the Depositor Interest, as applicable,
caused thereby shall have been cured.
In the event the Depositor is so
directed, the Depositor shall deposit in the
Collection Account in immediately available
funds on the Business Day preceding such
Distribution Date, in payment for such
purchase, an amount equal to the sum of the
amounts specified therefor with respect to
each outstanding Series, as applicable, in the
related Supplement. Notwithstanding anything
to the contrary in this Agreement, such
amounts shall be distributed to the
Certificateholders as applicable, on such
Distribution Date in accordance with Article
IV hereof and the terms of each Supplement.
If the Trustee or the Certificateholders give
notice directing the Depositor to purchase the
Investors' Interest and/or the Depositor
Interest as provided above, the obligation of
the Depositor to effect such purchase pursuant
to this Section 2.03(b) shall constitute the
sole remedy respecting all events of the type
specified in this Section 2.03(b) available to
the Certificateholders and/or the Holder of
the Exchangeable Certificate (or the Trustee
on behalf of such Certificateholders).
Section 2.04. Representations and Warranties
of the Depositor Relating to the Receivables;
Reassignment.
(a) Representations and Warranties. The
Depositor hereby represents and warrants to
the Trust and to the Trustee as of each
Transfer Date that:
(i) Each Receivable conveyed hereunder has
been conveyed to the Trust free and clear of
any Lien, except for Liens permitted under
Section 2.05(a) hereof, and the Trust has
received good title to each such Receivable.
(ii) All appraisals, authorizations, consents,
orders, approvals or other actions of any
Person or of any governmental body or official
required in connection with the conveyance of
each Receivable hereunder to the Trust have
been duly obtained and are in full force and
effect.
(iii) This Agreement constitutes either
(A) a valid transfer, assignment, set-over and
conveyance to the Trust of all right, title
and interest of the Depositor in, to and under
(i) the Receivables now existing and hereafter
created and arising in connection with the
Accounts, all monies due or to become due with
respect thereto (including all Finance Charge
Receivables), all proceeds of such
Receivables, (ii) the Receivables Purchase
Agreement, and (iii) Miscellaneous Payments
thereon, and such Receivables and all proceeds
thereof will be held by the Trust free and
clear of any Lien of any Person claiming
through or under the Depositor or any of its
Affiliates except for Permitted Liens or (B) a
grant of a security interest (as defined in
the UCC as in effect in California and New
York) in, to and under (i) the Receivables now
existing and hereafter created and arising in
connection with the Accounts, all monies due
or to become due with respect thereto
(including all Finance Charge Receivables),
and all proceeds of such Receivables, (ii) the
Receivables Purchase Agreement, and (iii)
Miscellaneous Payments thereon, which grant is
enforceable with respect to the existing
Receivables and any Receivables arising
hereafter 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 2.01 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 (subject to Section
9306 of the UCC as in effect in the State of
California), except for Permitted Liens.
(iv) the Depositor has taken no
action to cause any Receivable sold hereunder
to be anything other than an "account" or
"general intangible" (each as defined in
Section 9106 of the UCC as in effect in
California and Section 9-106 of the UCC as in
effect in New York). The Depositor has taken
no action to evidence any Receivable sold
hereunder by any "instrument" or "chattel
paper" (as defined in Section 9105 of the UCC
as in effect in California and Section 9-105
of the UCC as in effect in New York).
(b) Notice of Breach. The representations
and warranties set forth in this Section 2.04
shall survive the transfer and assignment of
the Receivables to the Trust and the issuance
of the Certificates. Upon discovery by the
Depositor, the Servicer or upon a Responsible
Officer of the Trustee having actual knowledge
of a breach of any of the representations and
warranties set forth in this Section 2.04, the
party discovering such breach shall give
prompt written notice thereof to the other
parties and to any Enhancement Providers. The
Trustee shall provide, promptly after
receiving notice thereof, written notice to
the Rating Agencies of any such breach.
(c) Reassignment. In the event any
representation or warranty under subsection
(a) of this Section 2.04 is not true and
correct as of the date specified therein with
respect to any Receivable or Account, and such
breach has a material adverse effect on the
Investors' Interest or the Depositor Interest
in any such Receivable or Account, then,
within thirty (30) days (or such longer period
as may be approved by the Trustee) of the
earlier to occur of (i) the discovery of any
such event by the Depositor or the Servicer,
or (ii) receipt by the Depositor or the
Servicer of written notice of any such event
given by the Trustee or any Enhancement
Provider, the Depositor shall accept a
reassignment of such Receivable or, in the
case of such an untrue representation or
warranty with respect to an Account, all
Receivables in such Account, on the
Determination Date immediately succeeding the
day of such discovery or notice (or such other
Determination Date as may be agreed to by the
Trustee) on the terms and conditions set forth
in the next succeeding paragraph; provided,
however, that no such reassignment shall be
required to be made with respect to such
Receivable if, by the end of such 30-day
period (or such longer period as may be agreed
to by the Trustee), the breached
representation or warranty shall then be true
and correct in all material respects and any
material adverse effect caused thereby shall
have been cured.
The Depositor shall accept a
reassignment of each such Receivable by
directing the Servicer to deduct, subject to
the next sentence, the portion of such
reassigned Receivable that is a Principal
Receivable from the Pool Balance on or prior
to the end of the Collection Period in which
such reassignment obligation arises. If,
following such deduction, the Pool Balance
would be less than the Required Pool Balance
then, unless a Liquidation Event has occurred,
not later than 12:00 noon (New York City time)
on the day on which such reassignment occurs,
the Depositor shall deposit in the Collection
Account in immediately available funds the
amount (the Transfer Deposit Amount) by
which the Pool Balance would be less than the
Required Pool Balance (up to the principal
amount of such Receivables); provided, that if
the Transfer Deposit Amount is not deposited
as required by this sentence then the
Principal Receivables shall only be deducted
from the Pool Balance to the extent that the
Pool Balance is not reduced below the Required
Pool Balance and the Principal Receivables
which have not been so deducted shall not be
reassigned to the Depositor and shall remain
part of the Trust. Any Transfer Deposit
Amount deposited in the Collection Account
shall be considered Collections of Principal
Receivables and shall be applied in accordance
with Article IV hereof and the terms of each
Supplement. Upon reassignment of such
Receivable, but only after payment by the
Depositor of the Transfer Deposit Amount, if
any, the Trust shall automatically and without
further action be deemed to sell, transfer,
assign, set-over and otherwise convey to the
Depositor, without recourse, representation or
warranty, all the right, title and interest of
the Trust in and to such Receivable and all
moneys due or to become due with respect
thereto and all proceeds thereof. The Trustee
shall execute such documents and instruments
of transfer or assignment and take such other
actions as shall reasonably be requested by
the Depositor to effect the conveyance of such
Receivables pursuant to this Section 2.04.
The obligation of the Depositor to accept a
reassignment of any such Receivable and to pay
any related Transfer Deposit Amount shall
constitute the sole remedy respecting the
event giving rise to such obligation available
to Certificateholders (or the Trustee on
behalf of the Certificateholders).
Section 2.05. Covenants of the Depositor.
The Depositor hereby covenants that:
(a) No Liens. Except for (i) the conveyances
hereunder or (ii) as provided in subsection
(c) of Section 6.03 hereof, the Depositor
shall 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, or the
Depositor's rights, remedies, powers or
privileges with respect to the Receivables
under the Receivables Purchase Agreement, or
the Exchangeable Certificate or the Depositor
Interest, and the Depositor shall defend the
right, title and interest of the Trust in, to
and under the Receivables, whether now
existing or hereafter created, and such
rights, remedies, powers and privileges,
against all claims of third parties claiming
through or under the Depositor; provided,
however, that nothing in this Section 2.05(a)
shall prevent or be deemed to prohibit the
Depositor from suffering to exist upon any of
the Receivables any Permitted Lien.
(b) Account Allocations. In the event that
the Depositor is unable for any reason to
transfer Receivables to the Trust when
required in accordance with the terms of this
Agreement, then the Depositor agrees that it
shall allocate, after the occurrence of such
event, payments on each affected Account with
respect to the principal balance of such
Account first to the oldest principal balance
of such Account and to have such payments
applied as Collections in accordance with the
terms of this Agreement. The parties hereto
agree that Finance Charge Receivables,
whenever created, accrued in respect of
Principal Receivables which have been conveyed
to the Trust shall continue to be a part of
the Trust notwithstanding any cessation of the
transfer of additional Principal Receivables
to the Trust and Collections with respect
thereto shall continue to be allocated and
paid in accordance with the terms of this
Agreement.
(c) Delivery of Collections. In the event
that the Depositor or the Seller receives
payments in respect of Receivables, the
Depositor agrees to turn over or cause to be
turned over to the Servicer all payments
received thereby in respect of the Receivables
as soon as practicable after receipt thereof,
but in no event later than two (2) Business
Days after the receipt by the Depositor or the
Seller.
(d) Notice of Liens. The Depositor shall
notify the Trustee promptly after becoming
aware of any Lien on any Receivable other than
Permitted Liens.
(e) Compliance With Law. The Depositor
hereby agrees to comply with all Requirements
of Law applicable to the Depositor in
connection with the performance of its
obligations hereunder, the failure to comply
with which would have a materially adverse
effect on the interests of the Beneficiaries.
(f) Activities of the Depositor. The
Depositor will not engage in any business or
activity of any kind or enter into any
transaction other than:
(i) the businesses, activities and
transactions contemplated and authorized by
its Certificate of Incorporation and by-laws,
this Agreement or the Related Documents;
(ii) acquiring, selling, financing, holding,
assigning, pledging and otherwise dealing with
wholesale and retail receivables arising out
of the sale of consumer products and related
activities and transactions;
(iii) transferring such receivables to
trusts pursuant to a pooling and servicing
agreement or similar agreement or arrangement;
(iv) authorizing, selling and delivering any
class of certificates or other securities of
any such trust; and
(v) engaging in any activity and exercising
any powers permitted to corporations under the
laws of the State of Delaware that are related
or incidental to the foregoing and necessary,
convenient or advisable to accomplish the
foregoing (such businesses, activities and
transactions, collectively, "Permitted
Transactions").
(g) Indebtedness. Except for the issuance of
any Series hereunder pursuant to Section 6.03
hereof, the Depositor will not create, incur
or assume any indebtedness (other than
ordinary operating expenses incurred in
connection with the operation of its business
as permitted hereunder) or issue any
securities or sell or transfer any receivables
to a trust or other Person which issues
securities in respect of any such receivables,
unless the Consent of Certificateholders shall
have been obtained.
(h) Guarantees. Except as provided in its
Certificate of Incorporation and by-laws, the
Depositor will not become or remain liable,
directly or contingently, in connection with
any indebtedness or other liability of any
other Person, whether by guarantee,
endorsement (other than endorsements of
negotiable instruments for deposit or
collection in the ordinary course of
business), agreement to purchase, agreement to
supply or advance funds, or otherwise, except
in connection with Permitted Transactions.
(i) Investments. Except as provided in its
Certificate of Incorporation or by-laws, or
the Receivables Purchase Agreement, the
Depositor will not make or suffer to exist any
loans or advances to, or extend any credit to,
or make any investments (by way of transfer of
property, contributions to capital, purchase
of stock or securities or evidences of
indebtedness, acquisition of the business or
assets, or otherwise) in, any Affiliate
provided, however, that the Depositor shall
not be prohibited under this Section 2.05(i)
from declaring or paying any dividends in
respect of its common stock or repurchasing
Receivables pursuant to Section 2.04(a).
(j) Stock; Merger. The Depositor will not
(i) sell any shares of any class of its
capital stock to any Person (other than the
Seller) or enter into any transaction of
merger or consolidation unless (A) the
surviving Person of such merger or
consolidation assumes all of the Depositor's
obligations under this Agreement, each
Supplement, the Related Documents and the
Certificates, (B) the Depositor shall have
received the Consent of Certificateholders
with respect to such transaction, which
Consent shall not be unreasonably withheld,
and the Rating Agency Condition shall have
been satisfied and (C) such merger or
consolidation does not conflict with any
provisions of the certificate of incorporation
of the Depositor, or (ii) terminate, liquidate
or dissolve itself (or suffer any termination,
liquidation or dissolution), or (iii) acquire
or be acquired by any Person (other than as
permitted pursuant to clause (i) above), or
(iv) otherwise make (or suffer) any material
change in the organization of or method of
conducting its business.
(k) Agreements. The Depositor will not
become a party to, or permit any of its
properties to be bound by, any indenture,
mortgage, instrument, contract, agreement,
lease or other undertaking, except this
Agreement, the Related Documents and any
document relating to a Permitted Transaction,
or cancel, terminate, amend, supplement,
modify or waive any of the provisions of the
Receivables Purchase Agreement or any of the
other Related Documents or request, consent or
agree to or suffer to exist or permit any such
cancellation, termination, amendment,
supplement, modification or waiver.
(l) Separate Business. Other than with
respect to In-Store Payments, the Depositor
will not permit its assets to be commingled
with those of the Seller, and the Depositor
shall maintain separate corporate records and
books of account from those of the Seller,
shall observe all corporate formalities, and
will not amend or modify its certificate of
incorporation unless the Rating Agency
Condition shall have been satisfied. The
Depositor will conduct its business and all
business correspondence solely in its own name
and will cause the Seller to conduct its
business solely in its own name so as not to
mislead others as to the identity of the
entity with which those others are concerned.
The Depositor will provide for its own
operating expenses and liabilities from its
own funds, except that the initial expenses of
the Depositor may be paid by the Seller. The
Depositor will not hold itself out, or permit
itself to be held out, as having agreed to
pay, or as being liable for, the debts of the
Seller. The Depositor will cause the Seller
not to hold itself out, or permit itself to be
held out, as having agreed to pay, or as being
liable for, the debts of the Depositor. The
Depositor will be operated such that it would
not be substantively consolidated in the
bankruptcy estate of the Seller and its
separate existence disregarded in the event of
the Seller's bankruptcy. The financial
statements of the Seller will reflect the
separate corporate existence of the Depositor.
The Depositor will maintain two independent
directors as provided in its Certificate of
Incorporation.
(m) Performance of Obligations. The
Depositor punctually will perform and observe
all of its obligations and agreements
contained in the Receivables Purchase
Agreement. If any officer of the Depositor
has knowledge of the occurrence of a breach or
default by the Seller or the Depositor under
the Receivables Purchase Agreement, the
Depositor promptly will notify the Trustee of
such breach or default, and the Trustee will
provide copies of such notice to the Rating
Agencies. Any such notice will specify the
action, if any, the Depositor is taking in
respect of such breach or default. Without
the Trustee's prior consent, the Depositor may
not waive any material breach or default
under, or amend, the Receivables Purchase
Agreement.
(n) Servicer Default. If any officer of the
Depositor has knowledge of a Servicer Default,
the Depositor promptly will notify the Trustee
in writing of such Servicer Default, and the
Trustee shall provide copies of such notice to
the Rating Agencies.
Section 2.06. Removal of Accounts.
(a) On each Determination Date on which the
Excess Balance Test has been satisfied, the
Depositor shall have the right to remove from
the Trust all of the Trust's right, title and
interest in, to and under the Receivables then
existing and thereafter created, all monies
due, or to become due, and all amounts
received with respect thereto and all proceeds
thereof in or with respect to those Accounts
randomly designated by the Depositor (the
"Removed Accounts") in an aggregate amount not
greater than the amount by which the related
Series Pool Balance exceeds 105% of the sum of
the related Required Series Pool Balance and
the Required Exchangeable Certificate Amount.
(b) Such removal of Removed Accounts shall
not be effective unless the following are
satisfied prior to the proposed effective date
of such removal (the "Removal Date"):
(i) on or before the twentieth (20th)
Business Day prior to the Removal Date (the
"Removal Notice Date"), the Depositor shall
give the Certificateholders, the Trustee, each
Rating Agency and the Servicer written notice
of the proposed action, which shall specify
for each Removed Account, (i) its account
number, (ii) the aggregate amount of
Receivables outstanding in such Removed
Account on the Removal Notice Date, and (iii)
the aggregate amount of Principal Receivables
in such Removed Account on the Removal Notice
Date;
(ii) the Depositor shall have delivered to the
Trustee an Officer's Certificate substantially
in the form of Exhibit G hereto; and the
Trustee may conclusively rely on such
certificate, shall have no duty to make
inquiries with regard to the matters set forth
therein and shall incur no liability in so
relying; and
(iii) the Rating Agency Condition shall
have been satisfied.
(c) Upon satisfaction of the conditions set
forth in subsections 2.06(a) and (b), the
Trustee shall execute and deliver a written
reassignment substantially in the form of
Exhibit E hereto (the "Reassignment") to the
Depositor, the Depositor's Interest will be
reduced by an amount equal to the Purchase
Price, and the Receivables from the Removed
Accounts shall no longer constitute a part of
the Trust as of the related Removal Date.
(d) Notwithstanding the foregoing, upon the
effective date of any rules promulgated by
FASB that would preclude sale accounting
treatment for the conveyance of the
Receivables for FASB 125 purposes because of
the existence or continued effectiveness of
the removal provisions of this Section 2.06,
then the Depositor shall no longer have the
right to so remove accounts and the provisions
of this Section 2.06 shall no longer be in
effect.
Section 2.07. Discount Option.
(a) The Depositor may, at any time, upon
thirty (30) days' prior written notice to the
Servicer, the Trustee and each Rating Agency,
designate a fixed percentage, not to exceed
10%, of the amount of Collections in respect
of Special Interest Receivables arising in the
Accounts on and after the date of such
designation that otherwise would be treated as
Principal Collections to be treated as Finance
Charge Collections. Such designation will
become effective on the date specified therein
only if the Depositor shall have delivered to
the Trustee an Officer's Certificate, dated
the date of such designation, to the effect
that the Depositor reasonably believes that
such designation will not result in an Early
Amortization Event or have a material adverse
effect on the Certificateholders.
(b) The Depositor may, at any time, upon
thirty (30) days prior written notice to the
Servicer, the Trustee and each Rating Agency,
designate a percentage (the "Discount Rate")
to be subtracted from the price at which
Receivables are conveyed to the Trust after a
specified date; provided that in the event
that the Discount Rate exceeds 2.5%, the
Rating Agency Condition shall have been
satisfied; provided, further, that in the
event the Discount Rate exceeds 3.0%, the
Consent of Certificateholders shall also have
been obtained. The Depositor may give any
number of such written notifications during
the life of the Trust but only one such
notification with respect to any Collection
Period. Such notification shall be given
prior to the first day of such Collection
Period, and shall be effective as of the first
day of such Collection Period.
(c) In addition to any Discount Rate which
may be designated pursuant to subsection (b)
above, the following shall apply: (i) the
Discount Rate shall be 1.0% with respect to
Receivables conveyed to the Trust on the
initial Closing Date and thereafter until such
time as the Depositor shall notify the Trustee
in writing of a new Discount Rate, in
accordance with the terms of this Section
2.07, and (ii) during July and November of
each year, the Discount Rate may, at the
Depositor's option, increase an additional
1.5% to take into account the effects of
reductions in the Pool Balance resulting from
the Seller's "Secret Sales" promotional
campaigns, unless and until the Servicer shall
have given written notice to each of the
Trustee, the Depositor and the Rating Agencies
that the Seller has discontinued its "Secret
Sales" promotional campaigns and (iii) Special
Interest Receivables conveyed to the Trust
shall be conveyed at a Discount Rate not to
exceed 10%. The Depositor hereby confirms
that no "Secret Sales" campaign or similar
promotional campaign shall have an adverse
effect on the Investor Certificates of any
Series that is not compensated for by (x) the
1.5% automatic increase in the Discount Rate,
and (y) the payments, if any, required to be
made as a result thereof pursuant to Section
3.09(a) hereof.
Section 2.08. Block Period; Supplemental
Accounts.
(a) On any Determination Date on which the
Excess Balance Test is satisfied, the
Depositor may, at its option, discontinue,
indefinitely or for a specified period (the
"Block Period"), inclusion of Charge Accounts
originated by the Seller during such Block
Period as Accounts. The Depositor may, at its
option, terminate a Block Period, upon which
termination all Receivables in all Accounts
shall thereafter be conveyed to the Trust
pursuant to Section 2.01 hereof.
(b) In connection with the termination of any
Block Period, the Depositor may designate any
Charge Account that was originated by the
Seller during such Block Period for inclusion
as Supplemental Accounts.
(c) If on any Determination Date during any
Block Period the Required Series Pool Balance
for any Series (or the equivalent for any
other Series) is greater than the Series Pool
Balance for such Series the Depositor shall
randomly designate additional Charge Accounts
for inclusion as Supplemental Accounts in an
amount sufficient to increase such Series Pool
Balance until the Series Pool Balance equals
the Required Series Pool Balance for such
Series. The Block Period shall be deemed to
have terminated for such designated Charge
Accounts for so long as the Depositor is
required to designate additional Charge
Accounts pursuant to this subsection.
Receivables from such Supplemental Accounts
shall be transferred to the Trust on or before
the fifth (5th) Business Day following such
Determination Date.
(d) The commencement or termination of a
Block Period, or the designation of
Supplemental Accounts, shall not be effective,
and no transfer pursuant to Section 2.08(c)
effected, unless the following are satisfied
prior to the proposed effective date of any
such action:
(i) on or before (A) the thirtieth (30th)
Business Day prior to the commencement of any
Block Period, (B) the third (3rd) Business Day
prior to the termination of a Block Period, or
(C) the fifth (5th) Business Day prior to the
proposed effective date with respect to
additions pursuant to Section 2.08(b) or (c)
(as applicable, the "Notice Date"), the
Depositor shall give the Trustee, each Rating
Agency and the Servicer written notice of the
proposed action, which in the case of (x) the
commencement of a Block Period shall set forth
in reasonable detail computations evidencing
satisfaction of the Excess Balance Test, and
(y) additions pursuant to Section 2.08(b) or
(c) shall specify the proposed effective date
of the action (the "Supplemental Addition
Date") and, for each Charge Account to be
designated as a Supplemental Account, (I) its
account number, (II) the aggregate amount of
Receivables outstanding in such Supplemental
Account on the Notice Date and (III) the
aggregate amount of Principal Receivables in
such Supplemental Account on the Notice Date;
(ii) in the case of additions pursuant to
Section 2.08(b) or (c), the Depositor shall
deliver to the Trustee an Officer's
Certificate substantially in the form of
Exhibit F hereto; and
(iii) the Rating Agency Condition shall
have been satisfied.
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 3.01. Acceptance of Appointment and
Other Matters Relating to the Servicer.
(a) The Servicer shall service and administer
the Receivables, collect payments due under
the Receivables and charge-off as
uncollectible Receivables, all in accordance
with procedures that are customary and usual
in the industry for servicing receivables
comparable to the Receivables and to the
extent not inconsistent with the foregoing,
exercise the same degree of skill and care as
that used in servicing receivables for its own
account. The Servicer shall have full power
and authority acting alone or through any
party properly designated hereunder, to do any
and all of the foregoing in connection with
such servicing and administration which it may
deem necessary or desirable. Without limiting
the generality of the foregoing and subject to
Section 10.01 hereof, the Servicer is hereby
authorized and empowered, unless such power
and authority is revoked by the Trustee on
account of the occurrence of a Servicer
Default:
(i) to instruct the Trustee to make
withdrawals and payments from the Collection
Account and any Series Account as set forth in
this Agreement and, with respect to any Series
Account, the related Supplement;
(ii) to instruct the Trustee to take any
action required or permitted under any
Enhancement Agreement;
(iii) to execute and deliver, on behalf of
the Trust for the benefit of the
Beneficiaries, 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 Requirements
of Law, to commence enforcement proceedings
with respect to such Receivables;
(iv) to make any filings, reports, notices,
applications, registrations with, and 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
laws or reporting requirements; and
(v) to delegate certain of its servicing,
collection, enforcement and administrative
duties hereunder with respect to the Accounts
and the Receivables to any Person who agrees
to conduct such duties in accordance with the
Financial Guidelines and this Agreement;
provided, however, that the Servicer shall
notify the Trustee, the Rating Agencies and
any Enhancement Providers in writing of any
such delegation of its duties which is not in
the ordinary course of its business, that no
delegation will relieve the Servicer of its
liability and responsibility with respect to
such duties and that the Rating Agency
Condition shall have been satisfied and the
Consent of Certificateholders obtained. With
respect to any such delegation the Trustee
shall execute any limited powers of attorney
and other documents prepared by the Servicer
which are reasonably necessary or appropriate
to enable the Servicer to carry out its
servicing and administrative duties hereunder.
(b) In the event that the Depositor is unable
for any reason to transfer Receivables to the
Trust in accordance with the provisions of
this Agreement (including by reason of the
application of the provisions of Section 9.02
hereof or any court of competent jurisdiction
ordering that the Depositor not transfer any
additional Principal Receivables to the Trust)
then, in any such event, the Servicer agrees
(i) to give prompt written notice thereof to
the Trustee, any Enhancement Providers and
each Rating Agency and (ii) that it shall
allocate, after the occurrence of any such
event, payments on each Account with respect
to the principal balance of such Account first
to the oldest principal balance of such
Account, and to have such payments applied as
Collections in accordance with Section 4.02
hereof. The parties hereto agree that Finance
Charge Receivables, whenever created, accrued
in respect of Principal Receivables which have
been conveyed to the Trust shall continue to
be a part of the Trust notwithstanding any
cessation of the transfer of additional
Principal Receivables to the Trust and
Collections with respect thereto shall
continue to be allocated and paid in
accordance with the terms of this Agreement.
(c) The Servicer shall not, and any Successor
Servicer shall not be obligated to, use
separate servicing procedures, offices,
employees or accounts for servicing the
Receivables from the procedures, offices,
employees and accounts used by the Servicer in
connection with servicing other receivables
comparable to the Receivables.
(d) The Servicer shall comply with and
perform its servicing obligations with respect
to the Receivables in accordance with the
Charge Account Agreements relating to the
Accounts and the Financial Guidelines, except
insofar as any failure to so comply or perform
would not materially and adversely affect the
rights of the Trust or any of the
Beneficiaries. Subject to compliance with all
Requirements of Law, the Servicer (or if it is
not then acting as Servicer, the Seller) may
change the terms and provisions of the Charge
Account Agreements or the Financial Guidelines
in any respect (including the calculation of
the amount or the timing of charge-offs and
the rate of the finance charge, if any
assessed thereon), only if (i) as a result of
such change, in the reasonable judgment of the
Servicer (or the Seller, as the case may be)
no Early Amortization Event will occur, or
(ii) the Servicer (or the Seller, as the case
may be) shall reasonably determine that such
change is necessary in order to satisfy any
Requirement of Law.
Section 3.02. Servicing Compensation.
(a) The Monthly Servicing Fee with respect to
each outstanding Series shall be payable to
the Servicer, in arrears, on each Distribution
Date occurring prior to the earlier of the
first Distribution Date following the Series
Termination Date for such Series and the first
Distribution Date on which the Invested Amount
for such Series is zero. In no event shall
the Trust, the Trustee, the Certificateholders
or the Holder of any Subordinated Certificate
be liable for any Monthly Servicing Fee or
Servicing Fee. The Monthly Servicing Fee
shall be payable to the Servicer solely to the
extent amounts are available for distribution
in accordance with the terms of the
Supplements.
(b) The Servicer's expenses include the
amounts due to the Trustee pursuant to Section
11.05 hereof and the reasonable fees and
disbursements of independent accountants and
all other expenses incurred by the Servicer in
connection with its activities hereunder, and
including all other fees and expenses of the
Trust not expressly stated herein to be for
the account of the Certificateholders but not
including any federal, state or local income
or franchise taxes, if any, of the Trust or
the Certificateholders. 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.
The Servicer will be solely responsible for
all fees and expenses incurred by or on behalf
of the Servicer in connection herewith, and
the Servicer will not be entitled to any fee
or other payment from, or claim on, any of the
Trust Assets (other than the Servicing Fee).
Section 3.03. Representations, Warranties and
Covenants of the Servicer.
(a) The Seller as Servicer hereby makes, and
any Successor Servicer by its appointment
hereunder shall make, on each Closing Date
(and on the date of any such appointment) the
following representations, warranties and
covenants, on which the Trustee has relied in
accepting the Receivables in trust and in
authenticating the Certificates:
(i) Organization and Good Standing. Such
party is a corporation or other Person duly
organized, validly existing and in good
standing under the applicable laws of the
state of its organization and has full power,
authority and legal rights to own its
properties and conduct its receivable
servicing business as such properties are
presently owned and as such business is
presently conducted, and to execute, deliver
and perform its obligations under this
Agreement and any Supplement.
(ii) Due Qualification. Such party is duly
qualified to do business and is in good
standing as a foreign Person (or is exempt
from such requirements) and has obtained all
necessary licenses and approvals in each
jurisdiction in which the servicing of the
Receivables as required by this Agreement
requires such qualification except where the
failure to so qualify or be in good standing
or obtain licenses or approvals would not have
a material adverse effect on its ability to
perform its obligations hereunder.
(iii) Due Authorization. The execution,
delivery, and performance of this Agreement
and any applicable Supplement has been duly
authorized by such party by all necessary
action on the part thereof.
(iv) Binding Obligation. This Agreement and
any Supplement have been duly executed and
delivered by such party, and each constitutes
a legal, valid and binding obligation of such
party, 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 except as such enforceability may
be limited by general principles of equity
(whether considered in a proceeding at law or
in equity) and the availability of equitable
remedies.
(v) No Violation. The execution and delivery
of this Agreement and any Supplement by such
party, the performance of the transactions
contemplated by this Agreement and any
Supplement and the fulfillment of the terms
hereof and thereof applicable to such party
will not conflict with, violate, result in any
breach of any of the 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 such party or
any indenture, contract, agreement, mortgage,
deed of trust, or other instrument to which
such party is a party or by which it is bound.
(vi) No Proceedings. There are no proceedings
or investigations, pending or, to the best
knowledge of such party, threatened against
such party before any Governmental Authority
(i) seeking to prevent the issuance of the
Certificates or the consummation of any of the
transactions contemplated by this Agreement or
any Supplement, (ii) seeking any determination
or ruling that, in the reasonable judgment of
such party, would affect the performance by
such party of its obligations under this
Agreement or the applicable Supplement, or
(iii) seeking any determination or ruling that
would materially and adversely affect the
validity or enforceability of this Agreement
or any Supplement.
(vii) Compliance with Requirements of Law.
Such party shall duly satisfy all obligations
on its part to be fulfilled under or in
connection with the Receivables and the
Accounts, will maintain in effect all
qualifications required under Requirements of
Law in order to service properly the
Receivables and the Accounts, and to conduct
its business generally, and will comply with
all Requirements of Law in connection with
servicing the Receivables and the Accounts,
and the conduct of its business generally, the
failure to comply with which would have a
materially adverse effect on the interests of
the Beneficiaries.
(viii) No Rescission or Cancellation. Such
party shall not reschedule, revise, defer,
cancel or settle payments due on any
Receivable, except as expressly provided
herein or in accordance with the Financial
Guidelines and sound industry practices for
servicing receivables comparable to the
Receivables.
(ix) Protection of Beneficiaries Rights. Such
party shall take no action, nor omit to take
any action, which would materially impair the
rights of Beneficiaries in the Receivables.
(x) Servicer Accounts.
(A) Schedule III hereto contains a true and
complete list of all accounts maintained for
the purpose of receiving Collections (each, a
"Local Deposit Account"). In the event that
any Local Deposit Account shall be held in the
name of a party other than the Trustee, on or
prior to the initial Closing Date, such party
shall, with respect to each such Local Deposit
Account, (i) cause such Local Deposit Account
to be transferred into the name of the Trustee
and enter into a Deposit Account Agreement in
respect of such account, or (ii) terminate
such Local Deposit Account.
(B) Such party shall not establish any new
Local Deposit Accounts unless such party shall
have first given notice to the Trustee of such
new Local Deposit Account (which notice shall
constitute an amendment of Schedule III
hereto) and entered into a Deposit Account
Agreement in respect of such account.
(C) Each Local Deposit Account shall be in
the name of the Trustee and bear a designation
clearly indicating that the funds deposited
therein are held solely for the benefit of the
Beneficiaries.
(D) On or before the date hereof, such party
shall have entered into an agreement (a
"Collection Servicer Agreement") with a
Collection Servicer who shall act solely at
the instruction of the Trustee. Each such
Collection Servicer Agreement shall provide
that each day Collections are received in the
Dedicated Zip Code, such party shall cause one
of its employees (who shall at all times be
covered by a fidelity bond and errors and
omissions policy substantially similar to that
referred to in Section 3.10 hereof) to deliver
the contents thereof to the Servicer for
processing, and upon completion of such
processing to deposit all such Collections
into a Local Deposit Account. The Collection
Servicer Agreement with Union Bank of
California, dated March 25, 1994 between the
Servicer and Union Bank of California, is
hereby preapproved. In the event of the
termination thereof, the Servicer shall
forthwith establish a successor Collection
Servicer Agreement. Any successor,
replacement or additional Collection Servicer
Agreement shall be in form and substance
satisfactory to the Certificateholders as
evidenced by a Consent of the
Certificateholders.
(E) On or before the date hereof, such party
shall cause its Dedicated Zip Code to be
transferred into the name of the Trustee. The
Servicer shall cause the terms of each Charge
Account to provide that all payments made by
mail shall be addressed to the Servicer at the
Dedicated Zip Code. The Servicer shall not
change said address or payment instructions
without the Consent of Certificateholders, not
to be unreasonably withheld.
(xi) Negative Pledge. Except for the
conveyances under the Receivables Purchase
Agreement and under this Agreement, the
Servicer will not sell, pledge, assign or
transfer to any other Person, or grant,
create, incur, assume or suffer to exist any
Lien (other than Permitted Liens) on, any
Receivable, whether now existing or hereafter
created, or any interest therein, and the
Servicer 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 Depositor or the
Servicer.
(xii) Receivables Not To Be Evidenced by
Promissory Notes. Except in connection with
its enforcement or collection of a Receivable,
the Servicer will take no action to cause any
Receivable to be evidenced by an instrument or
chattel paper (as defined in the UCC as in
effect in the State of California).
(xiii) All Consents Required. All
appraisals, authorizations, consents, orders,
approvals or other actions of any Person or of
any governmental body or official required in
connection with the execution and delivery by
the Servicer of this Agreement, each
Supplement and the Related Documents to which
it is a party, the performance by the Servicer
of the transactions contemplated by this
Agreement, each Supplement and the Related
Documents to which it is a party, and the
fulfillment by the Servicer of the terms
hereof and thereof, have been obtained.
(b) Notice of Breach. The representations
and warranties set forth in this Section 3.03
shall survive the transfer and assignment of
the Receivables to the Trust and the issuance
of the Certificates. Upon discovery by the
Depositor, the Servicer or upon a Responsible
Officer of the Trustee having actual knowledge
of a breach of any of the foregoing
representations and warranties, the party
discovering such breach shall give prompt
written notice thereof to the other parties
and any Enhancement Providers. The Trustee
shall give written notice to the Rating
Agencies and to the Certificateholders
promptly upon receipt of such notice.
(c) Purchase. In the event the Depositor or
the Servicer receives written notice from the
Trustee or any Enhancement Provider that any
covenant under clause (vii), (viii) or (ix) of
subsection (a) above has not been complied
with and such noncompliance has not been cured
within thirty (30) days thereafter (or such
longer period as the Trustee may permit) and
has a material adverse effect on the interests
of the Certificateholders then, unless a
Liquidation Event has occurred, the Servicer
shall purchase such Receivable or if such non-
compliance is with respect to any Account, all
Receivables in such Account, and the proceeds
therefrom shall be applied in accordance with
the terms of Article IV hereof.
(d) Payment of Purchase Price; Etc. Upon
each payment by the Servicer of the Purchase
Price for the Receivables to be purchased from
the Trust pursuant to subsection (c) above,
the Trust shall automatically and without
further action be deemed to sell, transfer,
assign, set over and otherwise convey to the
Servicer, without recourse, representation or
warranty, all the right, title and interest of
the Trust in, to and under such Receivables
and all monies due or to become due with
respect thereto and all proceeds thereof. The
Trustee shall execute such documents and
instruments of transfer or assignment and take
such other actions as shall reasonably be
requested by the Servicer to effect the
conveyance of any such Receivables pursuant to
this Section 3.03. The obligation of the
Servicer to purchase such Receivables and to
make the deposits required to be made to the
Collection Account as provided in subsection
(a) above, shall constitute the sole remedy
respecting the event giving rise to such
obligation available to the Certificateholders
(or the Trustee on behalf of the
Certificateholders).
Section 3.04. Reports and Records for the
Trustee.
(a) Records. Upon reasonable prior notice by
the Trustee or a Certificateholders'
Representative, 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 and a Certificateholders'
Representative on a Business Day during the
Servicer's normal business hours a record
setting forth (i) the Collections on each
Receivable and (ii) the amount of Receivables,
in each case for the period preceding the date
of the inspection, or such shorter period as
may be reasonably requested by the Trustee.
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 or a
Certificateholders' Representative, shall make
available to the Trustee or its agent and a
Certificateholders' Representative, 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) Distribution Date Statement. On each
Determination Date, the Servicer shall, prior
to 9:00 a.m. (Los Angeles time) on such day,
deliver to the Trustee, the Certificateholders
and the Rating Agencies the Distribution Date
Statement for the related Collection Period
substantially in the form attached to the
related Series Supplement. The Trustee shall
be under no duty to recalculate, verify or
recompute the information supplied to it under
this Section 3.04 or such other matters as are
set forth in any Distribution Date Statement.
Section 3.05. Annual Servicer's Certificate.
The Servicer will deliver to the Rating
Agencies, Certificateholders, the Trustee and
any Enhancement Providers on or before April
15 of each calendar year, beginning with April
15, 2000, an Officer's Certificate
substantially in the form of Exhibit C hereto
stating that (a) a review of the activities of
the Servicer during the preceding calendar
year and of its performance under this
Agreement was made under the supervision of
the officer signing such certificate and (b)
to the best of such officer's knowledge, based
on such review, the Servicer has performed in
all material respects its obligations under
this Agreement throughout such year, 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
Certificateholder by a request in writing to
the Trustee addressed to the Corporate Trust
Office.
Section 3.06. Independent Public Accountants'
Servicing Report.
(a) On or before the fourth monthly
anniversary of the initial Closing Date, and
thereafter on or before the 120th day
following the end of each of the Servicer's
fiscal years, beginning with the fiscal year
ending in 2000, the Servicer shall cause a
firm of Independent Certified Public
Accountants (who may also render other
services to the Servicer or the Depositor) to
furnish a report to the Trustee, any
Enhancement Provider and each Rating Agency,
to the effect that such firm has made a study
and evaluation in accordance with generally
accepted auditing standards of the Servicer's
internal accounting controls relative to the
servicing of Accounts under this Agreement,
and that, on the basis of such examination,
such firm is of the opinion (assuming the
accuracy of any reports generated by the
Servicer's third party agents) that the system
of internal accounting controls in effect on
the last day of the first monthly anniversary
of the initial Closing Date or such fiscal
year, as the case may be, relating to
servicing procedures performed by the
Servicer, taken as a whole, provided
reasonable assurance that such internal
control system was sufficient for the
prevention and detection of errors and
irregularities and that such servicing was
conducted in compliance with such provisions
of this Agreement of which such accountants
can reasonably be expected to possess adequate
knowledge of the subject matter, which are
susceptible of positive assurance by such
accountants and for which their professional
competence is relevant, except for such
exceptions as they believe to be immaterial
and such other exceptions as shall be set
forth in such statement. A copy of each such
report will be sent to each Certificateholder
and a copy of the initial such report shall be
sent to each Rating Agency by the Servicer.
In the event such firm requires the Trustee to
agree to the procedures performed by such
firm, the Servicer shall direct the Trustee in
writing to so agree; it being understood and
agreed that the Trustee will deliver such
letter of agreement in conclusive reliance
upon the direction of the Servicer, and the
Trustee makes no independent inquiry or
investigation as to, and shall have no
obligation or liability in respect of, the
sufficiency, validity or correctness of such
procedures.
(b) Within 120 days after each fiscal year
for the Servicer (commencing with the year
ended January 30, 2000), the Servicer shall
deliver to the Trustee and to each Rating
Agency, an agreed upon procedures report
prepared by accountants independent of the
Servicer solely to assist in evaluating
compliance with the requirement set forth in
Section 3.04(b) hereof during the preceding
12-month period ended on the Date of
Determination immediately following the end of
the fiscal year of the Servicer (or other
applicable period in the case of the first
such report or letter) to the effect that such
accountants have reviewed certain records and
documents relating to the servicing of the
Accounts and Receivables under the Agreement
and any Supplement (using procedures specified
in such report) and as a result of such
review, and in connection with such
procedures, they are reporting such
exceptions, if material, as shall be set forth
therein. For the purpose of such report,
exceptions shall be considered material when
either individually or in the aggregate such
exceptions exceed $250,000. Such report or
letter shall also indicate that the firm is
independent with respect to the Servicer and
the Depositor within the meaning of the Code
of Professional Ethics of the American
Institute of Certified Public Accountants. In
the event such accountants require the Trustee
to agree to the procedures performed by such
firm, the Servicer shall direct the Trustee in
writing to so agree; it being understood and
agreed that the Trustee will deliver such
letter of agreement in conclusive reliance
upon the direction of the Servicer, and the
Trustee makes no independent inquiry or
investigation as to, and shall have no
obligation or liability in respect of, the
sufficiency, validity or correctness of such
procedures.
(c) To the extent the Servicer or Successor
Servicer is a privately-held entity and is no
longer subject to the periodic reporting
requirements of the Securities Exchange Act of
1934, as amended, within 120 days after the
close of each fiscal year of the Servicer or
Successor Servicer, if applicable, the
Servicer shall deliver to the Holders of
Investor Certificates audited financial
statements of the Servicer as at the end of
such fiscal year and for the fiscal year then
ended, in each case certified by a firm of
Independent Certified Public Accountants. The
Servicer is currently a publicly-held entity
subject to the periodic reporting requirements
of the Securities Exchange Act of 1934, as
amended, and the Servicer or Successor
Servicer will give prompt notice to the
Trustee of any change in such status.
Section 3.07. Tax Treatment. The Depositor
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 of the Depositor. The
Depositor, the Servicer and each Holder of
Investor Certificates agree to treat and to
take no action inconsistent with the treatment
of the Investor Certificates (or beneficial
interest therein) as indebtedness of the
Depositor for purposes of federal, state,
local and foreign income or franchise taxes
and any other tax imposed on or measured by
income. Each Holder of Investor Certificates,
by acceptance of its Certificate, agrees to be
bound by the provisions of this Section 3.07.
Furthermore, the parties hereto agree that the
Trust shall be treated as a security device
only, and shall not file tax returns or obtain
an employer identification number on behalf of
the Trust.
Section 3.08. Notices to the Seller. In the
event the Seller is no longer acting as
Servicer, any Successor Servicer appointed
pursuant to Section 10.02 hereof shall deliver
or make available to the Seller, as the case
may be, each certificate and report required
to be prepared forwarded or delivered
thereafter pursuant to Section 3.04, Section
3.05 or Section 3.06 hereof.
Section 3.09. Adjustments.
(a) If the Servicer adjusts downward the
amount of any Principal Receivable because of
a rebate, refund, credit adjustment or billing
error to an Obligor, or because such
Receivable was created in respect of
merchandise which was refused or returned by
an Obligor, or if the Servicer otherwise
adjusts the amount of any Receivable without
receiving Collections therefor or without
charging off such amount as uncollectible in
accordance with the Servicer's customary and
usual procedures for the servicing of
comparable charge account receivables, then,
in any such case, the Pool Balance will be
automatically increased or reduced, as
appropriate, by the amount of the adjustment.
Furthermore, if following such an adjustment
the Pool Balance would be less than the
Required Pool Balance on the immediately
preceding Determination Date (after giving
effect to the allocations, distributions,
withdrawals and deposits to be made on the
Distribution Date immediately following such
Determination Date) then, unless a Liquidation
Event has occurred, the Depositor shall be
required to pay an amount equal to such
deficiency (up to the amount of such
adjustment) into the Collection Account on the
Business Day on which such adjustment or
reduction occurs (each such payment an
Adjustment Payment).
(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 by the Servicer 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.
Section 3.10. Fidelity Bond and Errors and
Omissions Insurance. The Servicer shall
maintain at all times prior to the termination
of the Trust, at its own expense, a blanket
fidelity bond and an errors and omissions
insurance policy, with broad coverage with
responsible companies on all Bondable Persons.
Any such fidelity bond and errors and
omissions insurance shall protect and insure
the Servicer against losses, including
forgery, theft, embezzlement, fraud, errors
and omissions and negligent acts of such
persons and shall be maintained in a form and
amount that would meet the requirements of
prudent institutional consumer credit card
servicers. No provision of this Section 3.10
requiring such fidelity bond and errors and
omissions insurance shall diminish or relieve
the Servicer from its duties and obligations
as set forth in this Agreement. The Servicer
shall be deemed on any date to have complied
with this provision if one of its respective
Affiliates has on such date such fidelity bond
and errors and omissions policy coverage and,
by the terms of such fidelity bond and errors
and omission policy, the coverage afforded
thereunder extends to the Servicer in the form
and amount described above in this Section
3.10. The Servicer shall cause each and every
sub-servicer for it to maintain a policy of
insurance covering errors and omissions and a
fidelity bond which would meet such
requirements. Upon request of the Trustee,
the Servicer shall cause to be delivered to
the Trustee a certification evidencing
coverage under such fidelity bond and
insurance policy. Any such fidelity bond or
insurance policy shall not be cancelled or
modified in a materially adverse manner
without ten (10) days' prior written notice to
the Trustee and the Rating Agencies.
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
SECTION 4.01. Rights of Certificateholders.
The Investor Certificates shall represent
fractional undivided interests in the Trust
Assets, which, with respect to each Series,
shall consist of the right to receive, to the
extent necessary to make the required payments
with respect to the Investor Certificates of
such Series at the times and in the amounts
specified in the related Supplement, the
portion of Collections allocable to the
Holders of Investor Certificates of such
Series pursuant to this Agreement and such
Supplement, funds on deposit in the Collection
Account allocable to the Holders of Investor
Certificates of such Series pursuant to this
Agreement and such Supplement, funds on
deposit in any related Series Account and
funds available pursuant to any related
Enhancement (collectively, with respect to all
Series, the "Investors' Interest"); provided,
that the Investor Certificates of one Series
or Class shall not have any interest in any
Series Account created, or Enhancement
provided, for the benefit of any other Series
or Class. The Exchangeable Certificate shall
represent the ownership interest in the
remainder of the Trust Assets not allocated to
the Investors' Interest (or to any
Subordinated Certificate) pursuant to this
Agreement or any Supplement, including the
right to receive the Collections with respect
to the Receivables and other amounts at the
times and in the amounts specified in this
Agreement or in any Supplement (collectively,
the "Depositor Interest"). Each Subordinated
Certificate shall represent only such rights
and interests as shall be specified in any
Supplement relating thereto.
Section 4.02. Establishment of the Collection
Account. The Servicer, for the benefit of the
Beneficiaries, shall cause to be established
and maintained in the name of the Trust an
Eligible Deposit Account bearing a designation
clearly indicating that the funds deposited
therein are held for the benefit of the
Beneficiaries (the "Collection Account"). The
Trustee shall possess all right, title and
interest in all funds from time to time on
deposit in, and all Eligible Investments
credited to, the Collection Account and in all
proceeds thereof. The Collection Account
shall be under the sole dominion and control
of the Trustee for the benefit of the
Beneficiaries. If, at any time, the
Collection Account ceases to be an Eligible
Deposit Account, the Servicer shall establish
a substitute Eligible Deposit Account as the
Collection Account, instruct the Trustee to
transfer any cash and/or any Eligible
Investments to such new Collection Account
and, from the date any such substitute account
is established, such account shall be the
Collection Account. Pursuant to the authority
granted to the Servicer in Section 3.01
hereof, the Servicer shall have the power,
revocable by the Trustee, to instruct the
Trustee to make withdrawals and payments from
the Collection Account for the purposes of
carrying out the duties of the Servicer or the
Trustee as specified in this Agreement.
All Eligible Investments shall be
held by the Trustee for the benefit of the
Beneficiaries. Funds on deposit in the
Collection Account shall, at the written
direction of the Servicer, be invested by the
Trustee solely in Eligible Investments that
will mature so that such funds will be
available at the close of business on or
before the next Business Day. Each Business
Day, all interest and other investment income
(net of losses and investment expenses) earned
on funds on deposit in the Collection Account
shall be released to the Depositor. Schedule
II, which is hereby incorporated into and made
part of this Agreement, identifies the
Collection Account by setting forth the
account number of such account, the account
designation of such account and the name of
the institution with which such account has
been established. If a substitute Collection
Account is established pursuant to this
Section 4.02, the Servicer shall provide to
the Trustee an amended Schedule II, setting
forth the relevant information for such
substitute Collection Account.
Section 4.03. Collections Arrangements.
Obligors shall at all times hereunder be
instructed to make payments on the Receivables
only (i) to the Dedicated Zip Code (ii) as In-
Store Payments or (iii) as Direct Deposit
Payments. All Collections on Receivables
received in the Dedicated Zip Code will,
pending remittance to the Collection Account,
be held for the benefit of the Trust and shall
be deposited into a Local Deposit Account as
promptly as possible after the processing of
such Collections. In-Store Payments shall be
deposited in a Local Deposit Account as
promptly as possible after the date of
processing of such Collections, but in no
event later than the next Business Day
following such date of processing. Direct
Deposit Payments shall be deposited in a Local
Deposit Account as promptly as possible after
the date of processing of such Collections,
but in no event later than the next Business
Day following such date of processing.
Section 4.04. Collection Allocations.
(a) Each day's Collections will be allocated
by the Servicer at the commencement of
business on the next succeeding Business Day
to each Series from and after the Series Cut-
Off Date for such Series, as specified in this
Section 4.04, and Collections so allocated
will be recorded as such in the Collection
Account ledger maintained by the Trustee
promptly after receipt of and in accordance
with the written instructions of the Servicer
with respect thereto. Amounts allocated to
any Series will not, except as specified in
the related Supplement, be available to the
Investor Certificates of any other Series. In
addition, Collections received during a
Business Day will be allocated by the Servicer
at the commencement of business on the next
succeeding Business Day between Investor
Certificates, the Exchangeable Certificate and
any Subordinated Certificate as specified in
the relevant Supplement. Amounts so allocated
to Investor Certificates will not be available
to the holder of the Exchangeable Certificate
or any Subordinated Certificate, and amounts
allocated to the Exchangeable Certificate or
any Subordinated Certificate will not, except
as specified in the related Supplement, be
available to the Holders of Investor
Certificates. Allocations among the Holders
of Investor Certificates of a Series and among
the Classes in any Series shall be made as set
forth in this Agreement and in the related
Supplement or Supplements.
(b) Finance Charge Collections, Principal
Collections and Miscellaneous Payments
received during a Business Day shall be
allocated to each Series by the Servicer at
the commencement of business on the next
succeeding Business Day based on the Series
Allocation Percentage. Thereafter, for each
Series, the Servicer shall allocate to the
holder of the Exchangeable Certificate an
amount equal to the product of (A) the
Exchangeable Holder's Percentage (as defined
in each Supplement) and (B) the aggregate
amount of such Collections allocated to the
Series for such Business Day. Collections
allocated to a Series and not otherwise
allocated to the holder of the Exchangeable
Certificate shall be retained in the
Collection Account for further disposition as
specified in the Supplement for such Series.
Unless specified in any Supplement (with
respect to a retained amount account, reserve
account, spread account or other cash
retention account), the Servicer need not
retain amounts allocated to the Exchangeable
Certificate pursuant to any Supplement, and
shall instead pay such amounts or shall direct
the Trustee in writing to pay such amounts as
collected to the holder of the Exchangeable
Certificate. Miscellaneous Payments shall be
treated as Finance Charge Collections. Any
Discount Rate or Discount Portion arising in
any Collection Period under Section 2.07 will
be deducted from Principal Collections each
day that such Collections are allocated
hereunder and allocated as Finance Charge
Collections.
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS
SECTION 5.01. Distributions. (a) On each
Distribution Date, the Trustee shall
distribute to the Certificateholders of record
on the preceding Record Date (other than as
provided in Section 12.02 of the Agreement
respecting a final distribution) such
Certificateholder's pro rata share of the
amounts required to be distributed pursuant to
the related Supplement and in accordance with
the written direction of the Servicer. Except
as provided in Section 12.02 of the Agreement
with respect to a final distribution,
distributions to Certificateholders hereunder
shall be made by wire transfer in immediately
available funds.
Section 5.02. Reports and Statements to
Certificateholders. On each Distribution
Date, the Trustee shall forward to each
Certificateholders the Distribution Date
Statement described in Section 3.04(b) hereof.
(a) The Trustee shall maintain at its
Corporate Trust Office a copy of each such
Distribution Date Statement received by it
pursuant to subsection (b) of Section 3.04
hereof. The Trustee shall make such
statements available for inspection by
Certificateholders upon reasonable notice at
its Corporate Trust Office.
(b) On or before January 31 of each calendar
year, beginning with calendar year 2000, the
Trustee shall furnish or cause to be furnished
to each Person who at any time during the
preceding calendar year was a
Certificateholder, a statement prepared by the
Servicer containing the information required
to be contained in the monthly statements to
Certificateholders described in subsection (b)
of Section 3.04, as the case may be,
aggregated for such calendar year or the
applicable portion thereof during which such
Person was a Certificateholder, together with
such other information as is customarily
provided by a Trustee to an issuer of
indebtedness in order to assist such issuer in
meeting the requirements of the Internal
Revenue Code and such other customary
information as the Servicer has indicated to
the Trustee is necessary to enable the
Certificateholders to prepare their tax
returns. Such obligation 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.
ARTICLE VI
THE CERTIFICATES
SECTION 6.01. The Certificates.
(a) The Investor Certificates of any Series
or Class and any Subordinated Certificate
shall be issued substantially in the form of
the respective exhibit attached to the related
Supplement. The Exchangeable Certificate
shall be issued in registered form, and shall
be executed, authenticated and delivered as
provided in Section 6.02 hereof. Investor
Certificates shall be issued in minimum
denominations of $1,000,000 and in integral
multiples of $100,000 in excess thereof. The
Exchangeable Certificate shall be a single
certificate and shall represent the entire
Depositor Interest.
(b) Each Certificate shall be executed by
manual or facsimile signature by the
Depositor. Certificates bearing the manual or
facsimile signature of an individual who was,
at the time such signature was affixed, an
officer of the Depositor shall not be rendered
invalid in the event such individual ceased to
be an officer of the Depositor prior to the
authentication and delivery of such
Certificates. No Certificates 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 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 that such Certificate has been duly
authenticated and delivered hereunder. Unless
otherwise provided in the Series Supplement
pursuant to which any Certificates are issued,
all Certificates shall be dated the date of
their authentication.
Section 6.02. Authentication of Certificates.
The Trustee shall authenticate and deliver the
Certificates of each Series and Class that are
issued upon original issuance to or upon the
written order of the Depositor. The Trustee
shall, upon the written request of the
Depositor, authenticate and deliver the
Exchangeable Certificate to the Depositor
simultaneously with its delivery of the
Certificates of the first Series to be issued
hereunder.
Section 6.03. New Issuances.
(a) The Depositor may, from time to time,
direct the Trustee in writing, on behalf of
the Trust, to issue one or more new Series of
Investor Certificates pursuant to a
Supplement. Except as otherwise provided in
the related Supplement, the Investor
Certificates of all outstanding Series, each
Subordinated Certificate issued pursuant to
any Supplement and the Exchangeable
Certificate shall be equally and ratably
entitled to the benefits of this Agreement
without preference, priority or distinction,
all in accordance with the terms and
provisions of this Agreement and the related
Supplement.
(b) On or before any Series Issuance Date,
the parties hereto shall execute and deliver a
Supplement which shall specify the Principal
Terms of the new Series. The terms of such
Supplement may modify or amend the terms of
this Agreement solely as applied to such new
Series. The obligation of the Trustee to
issue the Certificates of such new Series and
to execute and deliver the related Supplement
is subject to satisfaction of the following
conditions:
(i) on or before the fifth Business Day
immediately preceding the Series Issuance
Date, the Depositor shall have given the
Trustee, the Servicer, each Rating Agency and
any Enhancement Provider written notice of
such issuance (which notice shall specify,
among other things, the applicable initial
principal amount and interest rates of the
Certificates to be issued) and the related
Series Issuance Date;
(ii) the Depositor shall have delivered to the
Trustee the related Supplement, in form
satisfactory to the Trustee, executed by each
party hereto other than the Trustee;
(iii) the Depositor shall have delivered
to the Trustee any related Enhancement
Agreement in form reasonably satisfactory to
the Trustee, executed by each of the parties
thereto, other than the Trustee;
(iv) the Depositor shall have delivered to the
Trustee:
(A) an Officer's
Certificate to the effect that the
Excess Balance Test, with regard to
each outstanding Series, has been
satisfied as of the last
Determination Date, and in the case
of the issuance of a new Series of
Fixed Based Certificates, that the
Excess Balance Test has been
satisfied calculated on a projection
basis, and setting forth in
reasonable detail computations
evidencing such satisfaction.
Notwithstanding the foregoing, in
the case of the issuance of a new
Series of Certificates the Closing
Date of which is within two months
of the commencement of any
Controlled Amortization Period with
respect to any outstanding Series,
the requirement of this Section
6.03(b)(iv) will have been met upon
the delivery by the Depositor to the
Trustee of an Officer's Certificate
to the effect that (i) the Excess
Balance Test has been met for each
such Series for the calendar month
preceding the Closing Date of such
new Series and (ii) the Excess
Balance Test has been met for each
such Series for the calendar month
following the Closing Date of such
new Series, after giving effect to
any subsequent purchase of
Receivables with the proceeds of
such issuance or other application
of proceeds from the issuance of
such New Series, or
(B) the Consent of
Certificateholders approving said
new issuance; provided that each
Certificateholder by its acceptance
of its Certificates shall be deemed
to have agreed that its consent to
any issuance of a new Series
hereunder shall not be unreasonably
withheld;
(v) the Rating Agency Condition shall have
been satisfied with respect to such issuance;
(vi) the Depositor shall have delivered to the
Trustee a certificate of a Vice President or
more senior officer, dated the Series Issuance
Date, to the effect that the Depositor
reasonably believes that such issuance will
not result in the occurrence of an Early
Amortization Event;
(vii) the Depositor shall have delivered
to the Trustee a Tax Opinion, dated the Series
Issuance Date, with respect to such issuance;
and
(viii) the Trustee shall have approved said
issuance; provided, however, that the Trustee
agrees that such consent shall not be
unreasonably withheld.
Upon satisfaction of the above
conditions, the Trustee shall execute the
Supplement and any Enhancement Agreement,
and the Depositor shall deliver to the
Trustee the executed Certificates of such
Series for authentication and delivery by
the Trustee upon the written order of the
Depositor.
(c) In connection with any new Series, the
Depositor shall tender the Exchangeable
Certificate to the Trustee in exchange for (i)
one or more newly issued Series of
Certificates and (ii) a reissued Exchangeable
Certificate (any such tender a Depositor
Exchange). In addition, to the extent
permitted for any Series as specified in the
related Supplement, the Holders of
Certificates of such Series may tender their
Certificates and the Depositor may tender the
Exchangeable Certificate to the Trustee
pursuant to the terms and conditions set forth
in such Supplement in exchange for (i) in the
case of the Certificateholders of such Series,
one or more newly issued Series of
Certificates and (ii) in the case of the
Depositor, a reissued Exchangeable Certificate
(an "Investor Exchange"; a Depositor Exchange
and Investor Exchange are referred to
collectively herein as an Exchange). The
Depositor may perform an Exchange by notifying
the Trustee, in writing, at least five 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 the Principal
Terms with respect to such Series of
Certificates. Upon satisfaction of such
conditions, and those set forth in Section
6.03 hereof, the Trustee shall cancel the
existing Exchangeable Certificate or
applicable Certificates, as the case may be,
and issue, as provided above, such Series
and/or a new Exchangeable Certificate, dated
the Exchange Date.
Section 6.04. Registration of Transfer and
Exchange of Certificates.
(a) The Trustee shall cause a register (the
"Certificate Register") to be kept at its
office or agency in which a transfer agent and
registrar (the "Transfer Agent and Registrar")
shall record the issuance of the Certificates
and the Exchangeable Certificate, including
the identity of the Registered Holder, and
each transfer, pledge and exchange of such
Certificates as herein provided. The Transfer
Agent and Registrar shall initially be the
Trustee and any co-transfer agent and co-
registrar chosen by the Depositor and
acceptable to the Trustee. Any reference in
this Agreement to the Transfer Agent and
Registrar shall include any co-transfer agent
and co-registrar unless the context requires
otherwise.
(b) The Transfer Agent and Registrar shall
maintain at its expense, an office or agency
in The City of New York where Certificates may
be surrendered for registration of transfer or
exchange.
The Trustee or the Transfer Agent
and Registrar, as the case may be, shall not
be required to register the transfer or
exchange of any Certificate for a period of
fifteen (15) days preceding the due date for
any payment with respect to such Certificate.
In addition, the Trustee or the Transfer Agent
and Registrar shall not subdivide Certificates
into units smaller than the minimum initial
amount specified in 6.01 hereof.
(c) Upon the surrender of any Certificates
for registration of transfer or exchange, the
Trustee may execute, on behalf of the
Depositor, and shall authenticate and the
Transfer Agent and Registrar shall deliver one
or more new Certificates of the same series or
class in authorized denominations of like
aggregate amount and tenor to the
Certificateholder or designated transferee(s).
Every 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
or the Transfer Agent and Registrar duly
executed by the Certificateholder or its
attorney-in-fact duly authorized in writing.
All Certificates surrendered for
registration of transfer, exchange or payment
shall be canceled and disposed of in a manner
satisfactory to the Trustee.
The Depositor shall deliver to the
Trustee executed 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.
(d) 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 recover any tax or governmental
charge that may be imposed in connection with
any such transfer or exchange.
(e) Registration of transfer or exchange of
Certificates containing a legend to the effect
set forth on Exhibit H-1 hereto shall be
effected only if such transfer or exchange is
made pursuant to an effective registration
statement under the 1933 Act, or is exempt
from the registration requirements under the
1933 Act. In the event that registration of a
transfer is to be made in reliance upon an
exemption from the registration requirements
under the 1933 Act, the transferor or the
transferee shall, at its expense, deliver to
the Depositor, the Servicer and the Trustee
prior to registration an investment letter
from the transferee, substantially in the form
of the respective exhibit attached to the
related Supplement.
Certificates issued upon
registration of transfer of, or exchange for,
Certificates bearing a legend shall also bear
such legend unless the Depositor, the
Servicer, the Trustee and the Transfer Agent
and Registrar receive an Opinion of Counsel,
satisfactory to each of them, to the effect
that such legend may be removed.
Whenever a Certificate containing
the legend referred to above is presented to
the Transfer Agent and Registrar for
registration of transfer, the Transfer Agent
and Registrar shall promptly seek written
instructions from the Servicer regarding such
transfer and shall be entitled to receive and
conclusively rely upon instructions signed by
a Servicing Officer prior to registering any
such transfer. The Depositor 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
relation to any such instructions furnished
pursuant to this clause (e).
(f) Registration of transfer or exchange of
Certificates containing a legend to the effect
set forth on Exhibit I hereto shall be
effected only if such transfer or exchange is
made to a Person that is not an employee
benefit plan or individual retirement account
subject to Title I of ERISA or Section 4975 of
the Internal Revenue Code, or any trust
established under any such employee benefit
plan or individual retirement account (or
established to hold the assets thereof), or
any "governmental plan" (as defined in section
3(32) of ERISA or Section 414(d) of the
Internal Revenue Code) organized in a
jurisdiction having prohibitions on
transactions with such governmental plan
similar to those contained in Section 406 of
ERISA or Section 4975 of the Internal Revenue
Code (each such employee benefit plan,
individual retirement account and trust, an
"ERISA Plan"). No part of the funds used by
any Person (other than the Initial Holder) to
acquire any Certificate may constitute assets
(within the meaning of ERISA and any
applicable rules and regulations) of an ERISA
Plan.
(g) In addition to any limitation in Section
6.04(h) below, the Exchangeable Certificate
may not be transferred, assigned, exchanged,
pledged or otherwise conveyed unless the
conditions set forth in (i) and (ii) below
have been satisfied:
(i) the Rating Agency Condition shall have
been satisfied in connection with the proposed
action; and
(ii) the Depositor shall have delivered to the
Trustee a Tax Opinion, dated the date of such
exchange (or transfer or exchange as provided
below), with respect to such exchange.
The Trustee shall not register the
transfer of the Exchangeable Certificate
except upon receipt of certification from the
Depositor to the effect that such transfer
complies with the provisions of the 1933 Act.
(h) It is the understanding of the parties to
this Agreement that Gottschalks Inc. has
particular expertise in performing the
functions given by this Agreement to the
Servicer and that the Investor
Certificateholders will be purchasing the
Certificates relying on Gottschalks Inc.'s
exercising such expertise in performing such
functions. As provided in Sections 8.05 and
8.07 of the Agreement, the Servicer is not
permitted to resign except as provided herein
and the parties understand that the Servicer's
performance of its servicing functions and the
quality of the Receivables will best be
ensured if the Depositor retains all or a
portion of the Exchangeable Certificate.
Accordingly, the Depositor's interest in the
Exchangeable Certificate shall not be sold,
transferred, assigned, exchanged, pledged,
participated or otherwise conveyed, unless (i)
such sale, transfer, assignment, exchange,
pledge or conveyance would not reduce the
Depositor's retained interest in the
Exchangeable Certificate and any Subordinated
Certificate then outstanding below the Minimum
Depositor Interest for any Series and, in the
aggregate, for all Series, then outstanding
and (ii) in the case of an Exchange pursuant
to Section 6.03(c) hereof, the conditions for
issuance of a Series are satisfied. The
Trustee may rely on any Officer's Certificate
as to the foregoing.
Section 6.05. Mutilated, Destroyed, Lost or
Stolen Certificates. If (a) any mutilated
Certificate 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 harmless
(provided that an unsecured agreement of
indemnity from an institutional
Certificateholder with a net worth or
statutory surplus of not less than $50 million
shall be sufficient indemnity), then, in the
absence of actual notice to a Responsible
Officer of the Trustee that such Certificate
has been acquired by a bona fide purchaser,
the Depositor shall execute and the Trustee
shall authenticate, and the Transfer Agent and
Registrar shall deliver in exchange for or in
lieu of any such mutilated, destroyed, lost or
stolen Certificate, a new Certificate of the
same Series or Class and like aggregate amount
and tenor. In connection with the issuance of
any new Certificate under this Section 6.05,
the Trustee or the Transfer Agent and
Registrar may require the Certificateholder to
pay a sum sufficient to recover any tax or
governmental charge that may be imposed in
relation thereto and any other expenses
(including the fees and expenses of the
Trustee and Transfer Agent and Registrar)
connected therewith. Any duplicate
Certificate issued pursuant to this Section
6.05 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 6.06. Persons Deemed Owners. The
Trustee, the Transfer Agent and Registrar and
any agent of any of them may, prior to due
presentation of a Certificate for registration
of transfer or exchange, treat the Person or
Persons in whose name any Certificate is
registered as the owner of such Certificate
for the purpose of receiving distributions
pursuant to the terms of the related
Supplement and for all other purposes
whatsoever; and, in any such case, neither the
Trustee, the Transfer Agent and Registrar nor
any of their respect agents shall be affected
by any notice to the contrary.
Notwithstanding the foregoing, in determining
whether the holders of the requisite
Certificates have given any request, demand,
authorization, direction, notice, consent or
waiver hereunder, Certificates owned by the
Depositor, 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 Certificates that a Responsible
Officer of the Trustee knows to be so owned
shall be so disregarded. 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 pledge's
right so to act with respect to such
Certificates and that the pledgee is not the
Depositor, the Servicer or any Affiliate
thereof.
Section 6.07. Access to List of Registered
Certificateholders' Names and Addresses. The
Trustee will furnish or cause to be furnished
by the Transfer Agent and Registrar to the
Servicer, within five (5) Business Days after
receipt by the Trustee of a request therefor,
a list of the names and addresses of the
Certificateholders. If three or more holders
of Investor Certificates (the Applicants)
apply to the Trustee, and such application
states that the Applicants desire to
communicate with other Certificateholders with
respect to their rights under this Agreement
or any Supplement or under the Investor
Certificates and is accompanied by a copy of
the communication that such Applicants propose
to transmit, then the Trustee, after having
been indemnified to its reasonable
satisfaction 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
of such Series or all outstanding Series, as
applicable, held by the Trustee. Such list
shall be as of a date no more than forty-five
(45) days prior to the date of receipt of such
Applicants' request.
Every Certificateholder, by
receiving and holding an Investor 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
information as to the names and addresses of
the Certificateholders hereunder, regardless
of the sources from which such information was
derived.
ARTICLE VII
OTHER MATTERS RELATING TO THE DEPOSITOR
SECTION 7.01. Liability of the Depositor.
The Depositor shall be liable for all
obligations, covenants, representations and
warranties of the Depositor arising under or
related to this Agreement. Except as provided
in the preceding sentence, the Depositor shall
be liable only to the extent of the
obligations specifically undertaken by it in
its capacity as Depositor hereunder.
Section 7.02. Limitation on Liability of the
Depositor. Subject to Section 7.01 and
Section 7.03 hereof, neither the Depositor nor
any of the directors, officers, employees,
affiliates, stockholders, agents or
representatives or advisors of the Depositor
shall be under any liability to the Trust, the
Trustee, the Certificateholders or any other
Person for any action taken or for refraining
from taking any action in its capacity as
Depositor pursuant to this Agreement whether
arising from express or implied duties under
this Agreement; provided, however, that this
provision shall not protect the Depositor or
any such Person against any liability that
would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence
in the performance of duties or by reason of
reckless disregard of obligations and duties
hereunder. The Depositor and any director,
officer, employee, affiliate, stockholder,
agent, representative or advisor of the
Depositor 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
Depositor shall not be under any obligation to
appear in, prosecute or defend any legal
action that is not incidental to its
obligations hereunder and in its reasonable
opinion may involve it in any expense or
liability.
Section 7.03. Depositor Indemnification. (A)
The Depositor shall indemnify and hold the
Trust, for the benefit of the Beneficiaries,
and the Trustee, harmless from and against any
loss, liability, reasonable expense, damage or
injury suffered or sustained by reason of any
acts or omissions or alleged acts or omissions
arising out of or based upon this Agreement,
including, but not limited to, any judgment,
general settlement, reasonable attorneys' fees
and other costs and expenses incurred by the
Trustee in connection with the defense of any
actual or threatened action, proceeding or
claim (other than losses on Receivables and
amounts due with respect thereto); provided,
however, that the Depositor shall not
indemnify the Trust or the Trustee or any
officer, director, employee or agent of the
Trustee if such actual or threatened action,
proceeding or claim arose out of, or such
loss, liability, expense, damage or injury was
caused by fraud, negligence, breach of
fiduciary duty or willful misconduct by any of
the foregoing; provided, further, that the
Depositor shall not be liable, directly or
indirectly, for or in respect of any
indebtedness evidenced or created by any
Certificate, including with respect to any
Enhancement, recourse as to which is limited
solely to the assets of the Trust allocated
for payment thereof as provided in this
Agreement and any applicable Supplement;
provided, further, that the Depositor shall
not indemnify the Trust, the Trustee or any
Beneficiary for any liabilities, cost or
expense of the Trust with respect to any
action taken by the Trustee at the request of
any such Beneficiary to the extent the Trustee
is fully indemnified by such Beneficiary with
respect to such action or with respect to any
Federal, state or local income or franchise
taxes (or any interest or penalties with
respect thereto) required to be paid by the
Trust or any Beneficiary in connection
herewith to any taxing authority. In the
event that the Trustee is or the Trust Assets
are liable to any third party (not including
the Trustee or its agents or the Holders of
the Investor Certificates) for any losses,
claims, damages or liabilities arising out of
the holding of the Receivables or the
administration of this Agreement, any Related
Document or any related arrangement that are
not paid out of the Trust Assets, the
Depositor (as holder of the Exchangeable
Certificate) agrees (i) to be liable as though
the Agreement and any Supplement created a
partnership under the Uniform Partnership Act
and (ii) to contribute to the Trust for the
benefit of such third party, without
limitation as to the amount, sufficient cash
to satisfy and discharge such liability. The
Trustee agrees to use any such cash advanced
by the Depositor to satisfy and discharge such
liability. The agreement by the Depositor set
forth in this Section shall not limit the
liability of the Depositor hereunder to any
Person specified herein. With respect to any
liability for which the Depositor would not be
obligated to make a contribution to the Trust,
but for the operation of this Section 7.03,
any party to this Agreement that would be
liable for such liability were such liability
not paid or discharged by the Depositor
pursuant to this Section 7.03, shall indemnify
and hold the Depositor harmless against such
liability; provided that nothing in this
Section shall be construed to imply that the
Holders of any Investor Certificates have any
liability to third parties. Any
indemnification under this Article VII shall
survive the termination of this Agreement and
the earlier removal or resignation of the
Trustee.
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER
SECTION 8.01. Liability of the Servicer. The
Servicer shall be liable under this Article
VIII only to the extent of the obligations
specifically undertaken by the Servicer in its
capacity as Servicer.
Section 8.02. Limitation on Liability of the
Servicer. Except as provided in Section 8.01
and Section 8.03 hereof, neither the Servicer
nor any of the directors, officers, employees,
affiliates, stockholders, agents,
representatives or advisors of the Servicer
shall be under any liability to the Trust, the
Trustee, the Certificateholders or any other
Person for any action taken or for refraining
from taking any action in its capacity as
Servicer pursuant to this Agreement; provided,
however, that this provision shall not protect
the Servicer or any such Person against any
liability that would otherwise be imposed by
reason of willful misfeasance, bad faith or
negligence in the performance of duties or by
reason of reckless disregard of obligations
and duties hereunder. The Servicer and any
director, officer, employee, affiliate,
stockholder, agent, representative or advisor
of 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 that is not incidental to its
obligations hereunder that in its reasonable
opinion may involve it in any expense or
liability.
Section 8.03. Servicer Indemnification of the
Trust and the Trustee. The Servicer shall
indemnify and hold harmless the Trust, for the
benefit of the Beneficiaries, and the Trustee
from and against any loss, liability,
reasonable expense, damage or injury suffered
or sustained by reason of any acts or
omissions or alleged acts or omissions arising
out of or based upon this Agreement,
including, but not limited to, any judgment,
general settlement, reasonable attorneys' fees
and other costs and expenses incurred by the
Trustee in connection with the defense of any
actual or threatened action, proceeding or
claim (other than losses on Receivables and
amounts due with respect thereto); provided,
however, that the Servicer shall not indemnify
the Trust or the Trustee or any officer,
director, employee or agent of the Trustee if
such actual or threatened action, proceeding
or claim arose out of, or such loss,
liability, expense, damage or injury was
caused by fraud, negligence, breach of
fiduciary duty or willful misconduct by any of
the foregoing; provided, further, that the
Servicer shall not be liable, directly or
indirectly, for or in respect of any
indebtedness evidenced or created by any
Certificate, including with respect to any
Enhancement, recourse as to which is limited
solely to the assets of the Trust allocated
for payment thereof as provided in this
Agreement and any applicable Supplement;
provided, further, that the Servicer shall not
indemnify the Trust, the Trustee or any
Beneficiary for any liabilities, cost or
expense of the Trust with respect to any
action taken by the Trustee at the request of
any such Beneficiary to the extent the Trustee
is fully indemnified by such Beneficiary with
respect to such action or with respect to any
Federal, state or local income or franchise
taxes (or any interest or penalties with
respect thereto) required to be paid by the
Trust or any Beneficiary in connection
herewith to any taxing authority. 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 the Trust by the Trustee, the
issuance by the Trust of the Certificates or
any of the other matters contemplated herein
or in any Supplement (other than losses on
Receivables and amounts due with respect
thereto). Any indemnification under this
Article VIII 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 this Agreement. Any such
indemnification shall not be payable from the
assets of the Trust.
Section 8.04. Merger or Consolidation of, or
Assumption of, the Obligations of the
Servicer. Subject to subsection 3.01(a), the
Servicer shall not consolidate with or merge
into any other entity or convey or transfer
its properties and assets substantially as an
entirety to any Person, unless:
(i) the entity 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 or other acquiring entity
organized and existing under the laws of the
United States of America or any State thereof
or the District of Columbia and, if the
Servicer is not the surviving entity, such
entity shall expressly assume, by written
agreement supplemental hereto, executed and
delivered to the Trustee, in form reasonably
satisfactory to the Trustee, the performance
of every covenant and obligation of the
Servicer as applicable hereunder and shall
benefit from all the rights granted to the
Servicer, as applicable 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);
(ii) the Servicer shall have delivered to the
Trustee an Officer's Certificate signed by a
Vice President (or any more senior officer)
stating that such consolidation, merger,
conveyance or transfer and such supplemental
agreement comply with this Section 8.04 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 thereof
or the District of Columbia; and
(iii) the Servicer shall have delivered
notice to the Rating Agencies of such
consolidation, merger, conveyance or transfer
and the Rating Agency Condition shall have
been satisfied.
Section 8.05. The Servicer Not to Resign.
The Servicer shall not resign from the
obligations and duties hereby imposed on it
except upon determination that (a) the
performance of its duties hereunder is no
longer permissible under applicable law and
(b) there is no reasonable action that the
Servicer could take to make the performance of
its duties hereunder permissible under
applicable law. 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 10.02
hereof. If the Trustee is unable within sixty
(60) days of the date of such determination to
appoint a Successor Servicer, the Trustee
shall serve as Successor Servicer hereunder.
Section 8.06. Access to Certain Information
Regarding the Receivables; Meet and Confer.
(a) The Servicer shall provide to the Trustee
and its agents, as well as any
Certificateholders' Representative, access to
the documentation regarding the Accounts and
the Receivables, such access being afforded
without charge and as often as requested but
only (i) during normal business hours, (ii)
subject to the Servicer's normal security and
confidentiality procedures, (iii) upon receipt
of written notice at least two Business Days
in advance of such visit, and (iv) at offices
designated by the Servicer. Nothing in this
Section 8.06 shall derogate from the
obligation of the Depositor, 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 8.06(a) as a result of such obligation
shall not constitute a breach of this Section
8.06(a).
(b) Subject to the provisions of Section
8.06(a)(i) through (iv) above, the Servicer
shall also provide upon reasonable request to
a Certificateholders' Representative access to
one or more senior officers of the Servicer to
discuss the financial position of the Servicer
and its ability to perform its obligations
hereunder.
Section 8.07. 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 Charge Card Agreements,
the Financial Guidelines, this Agreement and
each Supplement. The Servicer shall give
prompt written notice of any such delegation
of a material function to the Rating Agencies,
the Trustee and any Enhancement Providers.
Such delegation 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 8.05 hereof.
Section 8.08. Examination of Records. The
Depositor and the Servicer shall indicate
generally in their respective computer files
or other records that the Receivables arising
in the Accounts have been conveyed to the
Trust pursuant to this Agreement for the
benefit of the Beneficiaries. The Depositor
and the Servicer shall, prior to the sale or
transfer to a third party of any receivable
held in its custody, examine its computer and
other records to determine that such
receivable is not a Receivable.
ARTICLE IX
EARLY AMORTIZATION EVENTS
SECTION 9.01. Early Amortization Events. If
any one of the following events shall occur:
(a) the Depositor or the Servicer (or the
Seller, if it is not the Servicer) shall file
a petition commencing a voluntary case under
any chapter of the Federal bankruptcy laws or
the Depositor or the Servicer (or the Seller,
as aforesaid) shall file a petition or answer
or consent seeking reorganization,
arrangement, adjustment, or composition under
any other similar applicable Federal or state
law, or shall consent to the filing of any
such petition, answer or consent; or the
Depositor or the Servicer (or the Seller, as
aforesaid) shall appoint, or consent to the
appointment of, a custodian, receiver,
liquidator, trustee, assignee, sequestrator or
other similar official in bankruptcy or
insolvency of it or of any substantial part of
its property; or the Depositor or the Servicer
(or the Seller, as aforesaid) shall make an
assignment for the benefit of creditors, or
shall admit in writing its inability to pay
its debts generally as they become due;
(b) any order for relief against the
Depositor or the Servicer (or the Seller, if
it is not the Servicer) shall have been
entered by a court having jurisdiction in the
premises under any chapter of the Federal
bankruptcy laws; or a decree or order by a
court having jurisdiction in the premises
shall have been entered approving as properly
filed a petition seeking reorganization,
arrangement, adjustment, or composition of the
Depositor or the Servicer (or the Seller, as
aforesaid) under any other similar applicable
Federal or state law; or a decree or order of
a court having jurisdiction in the premises
for the appointment of a custodian, receiver,
liquidator, trustee, assignee, sequestrator,
or other similar official in bankruptcy or
insolvency of the Depositor or the Servicer
(or the Seller, as aforesaid) or of any
substantial part of its property or for the
winding up or liquidation of its affairs,
shall have been entered;
(c) the occurrence of a Servicer Default; or
(d) the Trust or the Depositor shall become
an "investment company" within the meaning of
the Investment Company Act of 1940, as
amended.
then, subject to applicable law, and after the
applicable grace period, if any, an
amortization event (an "Early Amortization
Event") shall occur without any notice or
other action on the part of the Trustee or any
Beneficiary, immediately upon the occurrence
of such event. The Trustee shall provide
written notice to the Rating Agencies promptly
after receipt of written notice of any such
event.
Section 9.02. Additional Rights Upon the
Occurrence of Certain Events.
(a) If a Liquidation Event occurs with
respect to the Depositor, the Depositor shall
on the day such Liquidation Event occurs (the
"Appointment Date") immediately cease to
transfer Receivables to the Trust and shall
promptly give notice to the Trustee of such
Liquidation Event. Within fifteen (15) days
of the Appointment Date, the Trustee shall (i)
publish a notice in an Authorized Newspaper
that a Liquidation Event or violation has
occurred and that the Trustee intends to sell,
dispose of or otherwise liquidate the
Receivables on commercially reasonable terms
and in a commercially reasonable manner and
(ii) give written notice to Certificateholders
describing the provisions of this Section 9.02
and requesting instructions from such Holders.
Unless the Trustee shall have received
instructions within thirty (30) days from the
date notice pursuant to clause (ii) above is
first given from Certificateholders pursuant
to a Consent of Certificateholders, to the
effect that such Certificateholders disapprove
of the liquidation of the Receivables and wish
to continue having Principal Receivables
transferred to the Trust as before the
occurrence of such Liquidation Event then the
Trustee shall promptly sell, dispose of or
otherwise liquidate the Receivables, or cause
to be sold, disposed of or otherwise
liquidated, in a commercially reasonable
manner and on commercially reasonable terms,
which shall include the solicitation of
competitive bids. The Trustee may obtain and
conclusively rely upon a prior determination
from any applicable conservator, receiver or
liquidator that the terms and manner of any
proposed sale, disposition or liquidation are
commercially reasonable. The provisions of
Section 9.01 hereof and this Section 9.02
shall not be deemed to be mutually exclusive.
(b) A "Liquidation Event" shall occur if any
Early Amortization Event specified in Section
9.01(a), (b) or (d) of this Agreement occurs
with respect to the Servicer or the Depositor.
(c) The proceeds from the sale, disposition
or liquidation of the Receivables pursuant to
subsection (a) above (the "Trust Liquidation
Proceeds") shall be immediately deposited in
the Collection Account. The Trustee shall
determine conclusively the amount of the Trust
Liquidation Proceeds which are deemed to be
Finance Charge Receivables and Principal
Receivables. The Trust Liquidation Proceeds
shall be allocated and distributed to
Certificateholders in accordance with Article
IV hereof and the terms of each Supplement,
and the Trust shall terminate immediately
thereafter.
ARTICLE X
SERVICER DEFAULTS
SECTION 10.01. Servicer Defaults. If any one
of the following events (a "Servicer Default")
shall occur and be continuing with respect to
the Servicer:
(a) any failure by the Servicer to make any
payment, transfer or deposit, or to give
instructions or notice to the Trustee to make
such payment, transfer or deposit, or to give
notice to the Trustee as to any action to be
taken under any Enhancement Agreement, in any
case on or before the date occurring two (2)
Business Days after receipt of written notice
of such failure;
(b) failure on the part of the Servicer duly
to observe or perform its covenant not to
create any lien on any Receivable, which
failure has a material adverse effect on the
Certificateholders and which continues
unremedied for a period of thirty (30) days;
provided, however, that a Servicer Default
shall not be deemed to have occurred if the
Depositor shall have repurchased the affected
Receivables or, if applicable, all of the
Receivables during such period in accordance
with the provisions of this Agreement;
(c) failure on the part of the Servicer duly
to observe or perform any covenants or
agreements of the Servicer set forth in this
Agreement, including the delivery of any
annual report or certificate pursuant to
Sections 3.05 or 3.06 hereof, which failure
has a material adverse effect on the
Certificateholders and which continues uncured
for a period of thirty (30) days (or, upon
delivery to the Trustee and to
Certificateholders of a Servicer Default
Certificate, such longer period as may be
reasonably necessary to effect a cure) after
the receipt by the Servicer of written notice
of such failure;
(d) any representation, warranty or
certification made by the Servicer in this
Agreement or in any certificate delivered
pursuant to this Agreement (including any
certificates or statements delivered pursuant
to the requirements of Section 3.04 and
Section 3.05) shall prove to have been
materially incorrect when made and which
continues to be incorrect in any material
respect for a period of thirty (30) days after
receipt of written notice thereof and as a
result of which the interests of the
Certificateholders are materially and
adversely affected; provided, however, that a
Servicer Default shall not be deemed to have
occurred if the Depositor shall have
repurchased the affected Receivables or, if
applicable, all of the Receivables during such
period in accordance with the provisions of
this Agreement; or
(e) the Servicer shall consent to the
appointment of a conservator or receiver or
liquidator or other similar official in any
bankruptcy, 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 conservator or
receiver or liquidator or other similar
official in any 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; 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
bankruptcy, insolvency or reorganization
statute, make any assignment for the benefit
of its creditors or voluntarily suspend
payment of its obligations (any such event, an
"Insolvency Event").
In the event of any Servicer
Default, so long as such Servicer Default
shall not have been remedied, the Trustee or
the Holders pursuant to a Consent of
Certificateholders, by notice then given in
writing to the Servicer (a Termination
Notice), may terminate all but not less than
all of the rights and obligations (other than
its obligations that have accrued up to the
time of such termination) of the Servicer as
Servicer under this Agreement and in and to
the Receivables and the proceeds thereof. The
Trustee shall give prompt written notice of
any such event to the Rating Agencies, as well
as any waivers or cures of any such event
promptly after receipt of written notice
thereof. After receipt by the Servicer of a
Termination Notice, and on the date that a
Successor Servicer shall have been appointed
by the Trustee pursuant to Section 10.02
hereof, all authority and power of the
Servicer under this Agreement shall pass to
and be vested in a Successor Servicer (a
"Service Transfer") 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 Service Transfer; provided,
however, that in no event shall the Servicer
incur any liability for any such action taken
by the Trustee. 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 the
transfer to such Successor Servicer of all
authority of the Servicer to service the
Receivables provided for under this Agreement,
including 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, or which shall thereafter be received
with respect to the Receivables. The Servicer
shall promptly transfer its electronic records
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. Gottschalks, as Servicer
also agrees to provide such access, computer
time and personnel to the Successor Servicer
as shall be necessary in order to assist the
Successor Servicer in assuming its duties
hereunder. To the extent that compliance with
this Section 10.01 shall require the Servicer
to disclose to the Successor Servicer
information of any kind which the Servicer
reasonably 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 interest.
Notwithstanding the foregoing, a
delay in or failure of performance under
subsection (a) of this Section 10.01 for a
period of up to five (5) Business Days after
the applicable grace period, or a delay in or
failure of performance (or the continuance of
any such delay or failure) under subsection
(b), (c) or (d) of this Section 10.01 for a
period of up to thirty (30) Business Days (or,
upon delivery to the Trustee and
Certificateholders of a Servicer Default
Certificate, such longer period as is
reasonably necessary to effect a cure) shall
not constitute a Servicer Default if such
delay or failure or continuance was caused by
an act of God or the public enemy, acts of
declared or undeclared war, public disorder,
rebellion or sabotage, epidemics, landslides,
lightning, fire, hurricanes, earthquakes,
floods or similar causes. The preceding
sentence shall not relieve the Servicer of its
obligation to use its best efforts to perform
its respective obligations in a timely manner
in accordance with the terms of this Agreement
and the Servicer shall provide the Trustee,
any Enhancement Providers and the Depositor
with an Officer's Certificate giving prompt
notice of such failure or delay by it,
together with a description of its efforts so
to perform its obligations. The Servicer
shall immediately notify the Trustee in
writing of any Servicer Default.
Section 10.02. Trustee to Act; Appointment of
Successor.
(a) On and after the receipt by the Servicer
of a Termination Notice pursuant to Section
10.01 hereof, the Servicer shall continue to
perform all servicing functions under this
Agreement until the date specified in the
Termination Notice or 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, as promptly as
possible after the giving of a Termination
Notice, appoint an Eligible Servicer as 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. In the event that
a Successor Servicer has not been appointed or
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. The Trustee may delegate any of its
servicing obligations to an Affiliate or agent
in accordance with Section 3.01 and Section
8.07 hereof. Notwithstanding the above, the
Trustee shall, if it is legally unable or
unwilling so to act, petition a court of
competent jurisdiction to appoint any
established institution satisfying the
definition of Eligible Servicer as the
Successor Servicer hereunder. The Trustee
shall immediately give notice to the Rating
Agencies, any Enhancement Providers, the
Depositor and the Certificateholders upon the
appointment of a Successor Servicer. No party
serving as Trustee hereunder shall be
obligated to serve as Successor Servicer after
such party ceases to serve as Trustee
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; provided, however, that
(i) the Successor Servicer shall not be deemed
to have assumed any liability for any duties,
responsibilities or obligations of any
predecessor Servicer, (ii) Section 3.03(c) and
(d) hereof shall not apply to any Successor
Servicer, and (iii) the Successor Servicer
shall not be required to advance funds
hereunder or under any Supplement. Any
Successor Servicer, by its acceptance of its
appointment, will automatically agree to be
bound by the terms and provisions of any
Enhancement Agreement.
(c) In connection with any Termination
Notice, the Trustee will review any bids which
it obtains from Eligible Servicers and shall
be permitted to appoint any Eligible Servicer
submitting such a bid as a Successor Servicer
for servicing compensation not in excess of
the Servicing Fee (provided that if all such
bids exceed the Servicing Fee the Depositor,
at its own expense, shall pay when due the
amount of any compensation in excess of the
Servicing Fee provided such excess fee shall
have been determined by the Trustee in good
faith to be necessary in order to appoint the
Successor Servicer); provided, however, that
the Depositor shall be responsible for payment
of the Depositor's portion of the Servicing
Fee as determined pursuant to this Agreement
and all other amounts in excess of the
aggregate of the Monthly Servicing Fees
specified in the Supplements and that no such
monthly compensation paid out of Collections
shall be in excess of such aggregate of the
Monthly Servicing Fees.
(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
12.01 hereof, and shall pass to and be vested
in the Depositor and, without limitation, the
Depositor 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 Depositor 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 Depositor in such
electronic form as the Depositor may
reasonably request and shall transfer all
other records, correspondence and documents to
the Depositor in the manner and at such times
as the Depositor shall reasonably request. To
the extent that compliance with this Section
10.02 shall require the Successor Servicer to
disclose to the Depositor information of any
kind which the Successor Servicer deems to be
confidential, the Depositor shall be required
to enter into such customary licensing and
confidentiality agreements as the Successor
Servicer shall deem necessary to protect its
interests.
ARTICLE XI
THE TRUSTEE
SECTION 11.01. 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,
to the actual knowledge of a Responsible
Officer of the Trustee, 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 their exercise, as
a prudent person would exercise or use under
the circumstances in the conduct of his own
affairs; provided, however, that if the
Trustee shall assume the duties of the
Servicer pursuant to Section 8.05 or Section
10.02 hereof, 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 that are specifically required to
be furnished to it pursuant to any provision
of this Agreement, shall, subject to Section
11.02, examine each of the foregoing to
determine whether they conform substantially
to the requirements of this Agreement.
(c) Subject to subsection (a) above, no
provision of this Agreement shall be construed
to relieve the Trustee of liability for its
own negligent action, its own negligent
failure to act or its own willful 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 charged with
knowledge of any Servicer Default or the
failure by the Servicer to comply with the
obligations of the Servicer referred to in
subsections (a), (b) and (c) of Section 10.01
hereof unless a Responsible Officer of the
Trustee obtains actual knowledge of such
failure;
(iii) the Trustee shall not be charged
with knowledge of an Early Amortization Event
unless a Responsible Officer of the Trustee
obtains actual knowledge thereof; and
(iv) 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
Certificateholders aggregating more than 66-
2/3% 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.
(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 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. Notwithstanding the foregoing, the
Trustee is entitled to indemnification under
Section 7.03 and Section 8.03 hereof while
acting as Successor Servicer.
(e) Except as expressly provided in this
Agreement, the Trustee shall have no power to
vary the corpus of the Trust including the
power to (i) accept any substitute obligation
for a Receivable initially assigned to the
Trust under Section 2.01 or Section 2.05
hereof, (ii) add any other investment,
obligation or security to the Trust or (iii)
withdraw from the Trust any Receivables.
(f) If, to the actual knowledge of a
Responsible Officer of the Trustee, 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 under this Agreement, the Trustee
shall be obligated promptly after a
Responsible Officer of the Trustee acquires
actual knowledge thereof to perform such
obligation, duty or agreement in the manner so
required.
(g) Notwithstanding any other provision
contained in this Agreement, the Trustee is
not acting as, and shall not be deemed to be,
a fiduciary for any Enhancement Provider in
its capacity as such or as a Beneficiary, and
the Trustee's sole responsibility with respect
to said parties shall be to perform those
duties with respect to said parties as are
specifically set forth herein and no implied
duties or obligations shall be read into this
Agreement against the Trustee with respect to
any such party.
Section 11.02. Certain Matters Affecting the
Trustee. Except as otherwise provided in
Section 11.01 hereof:
(a) the Trustee may conclusively rely on and
shall be fully protected in acting on, or in
refraining from acting in accordance with, any
resolution, Officers 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
any advice or 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 Providers shall have offered to
the Trustee reasonable security or indemnity
against the costs, expenses and liabilities
which may be incurred therein or thereby;
(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 or any Enhancement;
(e) the Trustee shall not be bound to make
any investigation into the facts of matters
stated in any resolution, certificate,
statement, instrument, opinion, report,
notice, request, consent, order, approval,
bond or other paper or document;
(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 the
supervision of or any misconduct or negligence
on the part of any such agent, attorney or
custodian appointed with due care by it
hereunder except when such appointment was
made in the capacity of Successor Servicer;
(g) except as may be required by Section
11.01(a) hereof, the Trustee shall not be
required to make any initial or periodic
examination of any documents or records
related to the Receivables or the Accounts for
the purpose of establishing the presence or
absence of defects, the compliance by the
Depositor 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, request and
conclusively rely upon all Officer's
Certificates received by it; and
(i) the right of the Trustee to perform any
discretionary act enumerated in this Agreement
or any Supplement not otherwise required in
the performance of its obligations hereunder
shall not be construed as a duty, and the
Trustee shall not be answerable for
performance of any such act.
Section 11.03. 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 11.14 hereof, 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 or any security interest of the Trust
therein. The Trustee shall not be accountable
for the use or application by the Depositor of
any of the Certificates or of the proceeds of
such Certificates, or for the use or
application of any funds paid to the Depositor
in respect of the Receivables or deposited in
or withdrawn from the Collection Account or
any Series Account. 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 11.04. 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
Depositor, the Servicer and 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 Certificates.
Section 11.05. 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 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 8.04 hereof, the Servicer will pay or
reimburse the Trustee (without reimbursement
from any Collection Account or and Series
Account) upon its request for all reasonable
expenses (including, without limitation,
expenses in connection with all notices or
other communications to Certificateholders),
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,
any co-trustee and counsel) except any such
expense, disbursement or advance as may arise
from its negligence, willful misconduct,
breach of fiduciary duty or bad faith and
except as provided in the second following
sentence. The Servicer's covenants to pay the
expenses, disbursements and advances provided
for in the preceding sentence shall survive
the termination of this Agreement or the
earlier removal or resignation of the Trustee.
If the Trustee is appointed Successor Servicer
pursuant to Section 10.02 hereof, the
provisions of this Section 11.05 shall not
apply to expenses, disbursements and advances
made or incurred by the Trustee in its
capacity as Successor Servicer, which shall be
paid with amounts distributed as Servicing Fee
or as otherwise agreed upon by the parties
hereto in writing. To the extent, if any,
that any federal, state or local taxes
(including income and franchise taxes) are
payable by the Trust, such taxes shall be
payable solely out of Trust Assets and not out
of the personal assets of the Trustee and the
Servicer shall not be obligated to pay the
amount of any such tax.
Section 11.06. Eligibility Requirements for
Trustee. The Trustee hereunder shall at all
times 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, which shall be, or shall be directly
or indirectly wholly-owned by, an Eligible
Institution, and which shall have a combined
capital and surplus of at least $100,000,000
and be subject to supervision or examination
by Federal or state authority. 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 11.06, 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 11.06, the
Trustee shall resign immediately in the manner
and with the effect specified in Section 11.07
hereof.
Section 11.07. 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 Depositor
and the Servicer. Upon receiving such notice
of resignation, the Depositor 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 appointment within
thirty (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 11.06 hereof and shall fail to
resign after written request therefor by the
Servicer, or if at any time the Trustee shall
be legally unable to act, or shall be adjudged
a bankrupt or insolvent, or if 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 Servicer may with the Consent of
Certificateholders (not to be unreasonably
withheld), 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) Any resignation or removal of the Trustee
and appointment of a successor trustee
pursuant to any of the provisions of this
Section 11.07 shall not become effective until
acceptance of appointment by the successor
trustee as provided in Section 11.08 hereof.
(d) The Trustee shall not be liable for any
acts or omissions of any Successor Trustee.
Section 11.08. Successor Trustee.
(a) Any successor trustee appointed as
provided in Section 11.07 hereof shall
execute, acknowledge and deliver to the
Depositor 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 like effect as if
originally named as Trustee herein. The
predecessor Trustee shall deliver to the
successor trustee all documents or copies
thereof, at the expense of the Servicer, and
statements held by it hereunder; and the
Depositor 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, power, duties and obligations. The
Servicer shall immediately give notice to each
Rating Agency and the Certificateholders upon
the appointment of a successor trustee.
(b) No successor trustee shall accept
appointment as provided in this Section 11.08
unless at the time of such acceptance such
successor trustee shall be eligible under the
provisions of Section 11.06 hereof and shall
have been approved by a Consent of
Certificateholders, which consent shall not be
unreasonably withheld.
(c) Upon acceptance of appointment by a
successor trustee as provided in this Section
11.08, such successor trustee shall mail
notice of such succession hereunder to all
Certificateholders at their addresses as shown
in the Certificate Register.
Section 11.09. 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 without the execution or filing of
any paper or any further act on the part of
any of the parties hereto, provided such
corporation shall be eligible under the
provisions of Section 11.06 hereof, 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 11.06 hereof
and no notice to Certificateholders of the
appointment of any co-trustee or separate
trustee shall be required under Section 11.08
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 law 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, 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
of 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. Notwithstanding
Section 3.07 hereof, in the event that 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 (5) 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,
in accordance with the terms of any
Supplement, shall prepare or shall cause to be
prepared all tax information required by law
to be distributed to Certificateholders. The
Trustee will distribute or cause to be
distributed such information to the
Certificateholders. The Trustee, upon
request, will furnish the Servicer with all
such information in the possession of 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 or the
Certificateholders 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 the 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 actual knowledge
shall occur and be continuing, the Trustee, in
its discretion may, subject to the provisions
of Section 10.01 hereof, proceed to protect
and enforce its rights and the rights of any
affected Certificateholders under this
Agreement by 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 affected
Series of Certificateholders. Nothing herein
contained shall be deemed to authorize the
Trustee to authorize or consent to or accept
or adopt on behalf of any Certificateholder
any plan of reorganization, arrangement,
adjustment or composition affecting the
Certificates or the rights of any Holder
thereof, or authorize the Trustee to vote in
respect of the claim of any Certificateholder
in any such proceeding.
Section 11.14. Representations and Warranties
of Trustee. The Trustee represents and
warrants that:
(i) the Trustee is a banking corporation
organized, existing and in good standing under
the laws of the State of New York;
(ii) the Trustee has full power, authority and
right to execute, deliver and perform this
Agreement and each Supplement, and has taken
all necessary action to authorize the
execution, delivery and performance by it of
this Agreement and each Supplement; and
(iii) this Agreement and each Supplement
has been, or will be, as applicable, duly
executed and delivered by the Trustee and
constitutes a legal, valid and binding
obligation of the Trustee enforceable against
the Trustee in accordance with its terms
except 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 generally and
except as such enforceability may be limited
by general principles of equity (whether
considered in a suit at law or in equity) and
the availability of equitable remedies.
Section 11.15. Maintenance of Office or
Agency. The Trustee will maintain at its
expense in The City of New York, 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 designates its
Corporate Trust Office as its office for such
purposes in New York. The Trustee will give
prompt written notice to the Servicer and to
Certificateholders of any change in the
location of the Certificate Register or any
such office or agency.
Section 11.16. Rights of Trustee Upon the
Occurrence of an Early Amortization Event..
Notwithstanding any provision to the contrary
herein or in any Series Supplement, upon the
occurrence of any Early Amortization Event, in
no event shall the Trustee be required to
exercise any of its rights or powers on behalf
of any or all of the Certificateholders
(including, but not limited to, the
institution of any legal proceedings or any
action in connection therewith), whether or
not requested by such Certificateholders,
unless the Trustee has first been indemnified
to its reasonable satisfaction against all
expenses, claims, liabilities, losses, damages
or injuries before exercising any such right
or power. This Section 11.16 shall not be
modified, supplemented or amended without the
prior written consent of the Trustee.
ARTICLE XII
TERMINATION
SECTION 12.01. Termination of Trust. The
Trust and the respective obligations and
responsibilities of the Depositor, 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
7.03, Section 8.03 and Section 12.02(b)
hereof, upon the earlier of (such date the
Trust Termination Date), (i) the day
following the Distribution Date on which the
Invested Amount for all Series and the
Exchangeable Amount (as defined in the
applicable Supplements) is zero (ii) the time
provided in Section 9.02(c) hereof, and (iii)
twenty one (21) years less one day after the
death of the last survivor of any of the
descendants living on the date hereof of
Joseph P. Kennedy, father of John Fitzgerald
Kennedy. The Servicer shall give the Rating
Agencies prompt notice of the termination of
the Trust.
Section 12.02. Final Distribution.
(a) The Servicer shall give the Trustee at
least thirty (30) days prior notice of the
Distribution Date on which the respective
Certificateholders of any Series or Class or
the holder of the Exchangeable Certificate may
surrender their respective Certificates for
payment of the final distribution on and
cancellation of such Certificates (or, in the
event of a final distribution resulting from
the application of Section 2.03 or Section
9.01 hereof, notice of such Distribution Date
promptly after the Servicer has determined
that a final distribution will occur, if such
determination is made less than thirty (30)
days prior to such Distribution Date). Such
notice shall be accompanied by an Officer's
Certificate setting forth the information
specified in Section 3.05 hereof covering the
period during the then-current calendar year
through the date of such notice. Except as
otherwise provided in any Supplement, not
later than the fifth day of the month in which
the final distribution in respect of such
Series or Class or Exchangeable Certificate is
payable to Certificateholders or the holder of
the Exchangeable Certificate, as applicable,
the Trustee shall provide notice to the
respective Certificateholders specifying (i)
the date upon which final payment thereof will
be made upon presentation and surrender of the
related Certificates at the office or offices
therein designated, (ii) the amount of any
such final payment and (iii) that the Record
Date otherwise applicable to such payment date
is not applicable, payments being made only
upon presentation and surrender of the related
Certificates at the office or offices therein
specified. The Trustee shall give such notice
to the Transfer Agent and Registrar and the
Rating Agencies at the time such notice is
given to the respective Certificateholders.
(b) Notwithstanding a final distribution to
the Certificateholders of any Series or Class
or the holder of the Exchangeable Certificate
(or the termination of the Trust), except as
otherwise provided in this subsection (b) and
in any Supplement, all funds then on deposit
in the Collection Account and any Series
Account allocated to such Certificateholders
or the Holder of the Exchangeable Certificate
shall continue to be held in trust for the
benefit of such Certificateholders or the
Holder of the Exchangeable Certificate, as
applicable, and the Trustee shall pay such
funds to such Certificateholders upon
surrender of the related Certificates (and any
excess shall be paid in accordance with the
terms of any Enhancement Agreement). Except
as provided in any Supplement, in the event
that all such Certificateholders shall not
surrender their Certificates for cancellation
within six months after the date specified in
the notice from the Trustee described in
subsection (a) above, the Trustee shall give a
second notice to the remaining such
Certificateholders to surrender their
Certificates for cancellation and receive the
final distribution with respect thereto. If
within one year after the second notice all
such Certificates 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 such Certificateholders
concerning surrender of their Certificates,
and the cost thereof shall be paid out of the
funds in the Collection Account or, if
applicable, any Series Account held for the
benefit of such Certificateholders. The
Trustee shall pay to the Depositor any monies
held by it for the payment of principal or
interest that remain unclaimed for two years.
After payment to the Depositor,
Certificateholders entitled to the money must
look to the Depositor for payment as general
creditors unless an applicable abandoned
property law designates another Person.
(c) In the event that (i) the Invested Amount
with respect to any Series is greater than
zero on its Termination Date or (ii) the
Exchangeable Amount is greater than zero on
the Termination Date with respect to the
Exchangeable Certificate, in each case after
giving effect to deposits and distributions
otherwise to be made on such Termination Date,
the Trustee will use its best efforts to sell
or cause to be sold on such Termination Date
Receivables (or interests therein) in an
amount equal to the interest in the Pool
Balance represented by such Certificates. The
net proceeds (the Termination Proceeds) from
such sale shall be immediately deposited into
the Collection Account for the benefit of the
Certificateholders of such Series and the
holder of the Exchangeable Certificate and
Subordinated Certificate, as applicable. The
Termination Proceeds shall be allocated and
distributed to the Holders of Investor
Certificates of such Series and the holder of
the Exchangeable Certificate, as applicable,
in accordance with the terms of the applicable
Supplement.
Section 12.03. Depositor's Termination Rights.
Upon termination of the Trust pursuant to
Section 12.01 hereof and the surrender of the
Exchangeable Certificate, the Trustee shall
transfer, assign and convey to the Depositor
or its designee, without recourse,
representation or warranty, all right, title
and interest of the Trust in the Receivables,
whether then existing or thereafter created,
all monies due or to become due and all
amounts received with respect thereto and all
proceeds thereof, except for amounts held by
the Trustee pursuant to Section 12.02(b)
hereof, and all of the Depositor's rights,
remedies, powers and privileges with respect
to such Receivables under the Receivables
Purchase Agreement. The Trustee shall execute
and deliver such instruments of transfer and
assignment, in each case without recourse, as
shall be reasonably requested by the Depositor
to vest in the Depositor or its designee all
right, title and interest that the Trust had
in all such property.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Amendment.
(a) This Agreement or any Supplement may be
amended from time to time by the Servicer, the
Depositor, the Trustee and (if the Seller is
not the Servicer) the Seller, upon
satisfaction of the Rating Agency Condition,
without the consent of any of the
Certificateholders:
(i) to add to the covenants of the Depositor
for the benefit of the Certificateholders, or
to surrender any right or power herein
conferred upon the Depositor; or
(ii) to cure any ambiguity, to correct or
supplement any provision herein which may be
defective or inconsistent with any other
provision herein or in the Certificates
provided, that such action shall not, as
evidenced by an Opinion of Counsel for the
Depositor, addressed and delivered to the
Trustee, adversely affect in any material
respect the interests of any Certificateholder
or the Holder of the Exchangeable Certificate.
Notwithstanding anything contained herein to
the contrary, the Trustee may at any time and
from time to time amend, modify or supplement
the form of Distribution Date Statement.
(b) This Agreement or any Supplement may also
be amended from time to time by the Servicer,
the Depositor and the Trustee, upon
satisfaction of the Rating Agency Condition,
with the consent of (i) the Holder of the
Exchangeable Certificate, if it would be
adversely affected by such amendment, and (ii)
the Holders of Investor Certificates
evidencing more than 50% of the aggregate
unpaid principal amount of the Investor
Certificates of each adversely affected
Series, for the purpose of adding any
provisions to or changing in any manner or
eliminating or waiving any of the provisions
of this Agreement or any Supplement or of
modifying in any manner the rights of the
Certificateholders; provided, however, that no
such amendment shall:
(i) reduce in any manner the amount or delay
the timing of any distributions to be made to
Certificateholders or deposits of amounts to
be so distributed;
(ii) change the definition or the manner of
calculating the interest of any
Certificateholder without the consent of each
affected Certificateholder;
(iii) reduce the amount available under
any Enhancement without the consent of each
affected Certificateholder;
(iv) reduce the aforesaid percentage required
to consent to any such amendment without the
consent of each affected Certificateholder; or
(v) adversely affect the rating of any Series
or Class by any Rating Agency without the
consent of the Holders of Investor
Certificates of such Series or Class
evidencing more than 50% of the aggregate
unpaid principal amount of the Investor
Certificates of such Series or Class.
Any amendment to be effected
pursuant to this subsection (b) shall be
deemed to adversely affect all outstanding
Series, other than any Series with respect to
which such action shall not, as evidenced by
an Opinion of Counsel for the Depositor,
addressed and delivered to the Trustee,
adversely affect in any material respect the
interests of any Holder of Investor
Certificates of such Series. The Trustee may,
but shall not be obligated to, enter into any
such amendment which affects the Trustee's
rights, duties or immunities under this
Agreement or otherwise.
(c) Promptly after the execution of any such
amendment or consent, the Trustee shall
furnish notification of the substance of such
amendment to each Certificateholder and the
Servicer shall furnish notification of the
substance of such amendment to each Rating
Agency and each Enhancement Provider.
(d) It shall not be necessary for the consent
of Certificateholders under this Section 13.01
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 the Certificateholders shall be
subject to such reasonable requirements as the
Trustee may prescribe.
(e) Notwithstanding anything in this Section
13.01 to the contrary, no amendment may be
made to this Agreement or any Supplement that
would adversely affect in any material respect
the interests of any Enhancement Provider
without the consent of such Enhancement
Provider.
(f) Notwithstanding the foregoing, and
subject to clause (c) above, any amendment may
be made without satisfaction of the Rating
Agency Condition with the Consent of
Certificateholders of each affected Series if
the notice proposing such amendment specifies
that the Rating Agency Condition will not be
satisfied and that the rating of the affected
Series may be downgraded or withdrawn as a
result thereof.
(g) Any Supplement executed in accordance
with the provisions of Section 6.03 hereof
shall not be considered an amendment to this
Agreement for the purposes of this Section
13.01.
Section 13.02. 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 in and 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 and the
Trustee 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 Depositor 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 Section 13.02(a).
(b) Within thirty (30) days after the
Depositor or the Servicer makes any change in
its name, identity or corporate structure that
would make any financial statement or
continuation statement filed in accordance
with subsection (a) of this Section 13.02
seriously misleading within the meaning of
Section 9-402(7) of the UCC as in effect in
California, the Depositor shall give the
Trustee 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) The Depositor and the Servicer shall 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 perfect or to continue the perfection of
the Trust's ownership interest or security
interest in the Receivables and the proceeds
thereof. The Depositor and the Servicer shall
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 shall deliver to the Trustee
and any Enhancement Provider, upon the
execution and delivery of each amendment of
this Agreement or any Supplement, an Opinion
of Counsel to the effect that such amendment
was duly authorized, executed and delivered in
compliance with Section 13.01.
Section 13.03. Limitation on Rights of
Certificateholders.
(a) The death or incapacity of any
Certificateholder shall not operate to
terminate this Agreement or the Trust, nor
shall such death or incapacity entitle such
Certificateholders' 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 Certificateholder shall have any right
to vote (except as expressly provided in this
Agreement) 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 partners or members of an
association, nor shall any 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 Holder of Investor Certificates 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 the Holders of Investor Certificates
evidencing more than 50% of the aggregate
unpaid principal amount of all Investor
Certificates (or, with respect to any such
action, suit or proceeding that does not
relate to all Series, 50% of the aggregate
unpaid principal amount of the Investor
Certificates of all Series to which such
action, suit or proceeding relates) shall have
made a request to 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 the Trustee may require against
the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee,
for sixty (60) days after such request and
offer of indemnity, shall have neglected or
refused to institute any such action, suit or
proceeding.
No Holder of an Exchangeable
Certificate 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 Holder may be adversely
affected but for the institution of any such
suit, action or proceeding and shall have made
a request to 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 the
Trustee may require against the costs,
expenses and liabilities to be incurred
therein or thereby, and the Trustee, for sixty
(60) days after such request and offer of
indemnity, shall have neglected or refused to
institute any such action, suit or proceeding.
It is understood and intended, and
expressly covenanted by each Certificateholder
with every other Certificateholder and the
Trustee, that no one or more
Certificateholders shall have any 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 holders 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
except as otherwise expressly provided in this
Agreement. For the protection and enforcement
of the provisions of this Section 13.03, each
and every Certificateholder and the Trustee
shall be entitled to such relief as can be
given either at law or inequity.
Section 13.04. No Petition. The Servicer, the
Seller (if it is no longer the Servicer) and
the Trustee, by entering into this Agreement,
each Holder of Investor Certificates, by
accepting an Investor Certificate, the holder
of the Exchangeable Certificate, by accepting
the Exchangeable Certificate or the pledge of
the Exchangeable Certificate, as the case may
be, and any Successor Servicer and each other
Beneficiary, by accepting the benefits of this
Agreement, hereby covenants and agrees that
they will not at any time institute or join in
instituting against the Depositor any
bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or
other proceedings under any United States
Federal or state bankruptcy or similar law.
Section 13.05. Governing Law. This agreement
shall be construed in accordance with the laws
of the State of New York, 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 13.06. Notices.
(a) All demands, notices, instructions,
directions and communications (collectively,
Notices) under this Agreement shall be in
writing (including telegraphic, telecopy,
telex or cable communications) and shall be
deemed to have been duly given if personally
delivered or mailed by registered mail, return
receipt requested, or telegraphed, telecopied,
telexed, cabled or delivered, to:
(i) in the case of Depositor, 7 River Park
Place East, Fresno, California 93720,
Attention: Warren Williams, Esq., facsimile
number (559) 434-4804;
(ii) in the case of the Servicer, 7 River Park
Place East, Fresno, California 93720,
Attention: Michael S. Geele, facsimile number
(559) 434-4804; and
(iii) in the case of the Trustee, Bankers
Trust Company, Four Albany Street, New York,
New York 10006, Attention: Corporate Trust &
Agency Group, Structured Finance Team,
facsimile number (212) 250-6439;
or as to each party, at such other address as
shall be designated by such party in a written
notice to each other party.
(b) Any Notice required or permitted to be
given to a Certificateholder shall be given by
first-class mail, postage prepaid, at the
address of such Certificateholder as shown in
the Certificate Register. 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.
(c) The Trustee shall provide written notice
to the Rating Agencies of the events listed in
Section 2.04(b), 2.05(m) and (n), 3.03(b),
9.01(e), 10.01(a) and 10.01(e) promptly upon
receipt by a Responsible Officer of the
Trustee of written notice of the occurrence of
such events.
Section 13.07. 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.
Section 13.08. Assignment. Notwithstanding
anything to the contrary contained herein,
except as provided in Section 8.04 hereof,
this Agreement may not be assigned by the
Servicer.
Section 13.09. Certificates Nonassessable and
Fully Paid. It is the intention of the
parties to this Agreement that no
Certificateholder shall be personally liable
for obligations of the Trust, that the
interests in the Trust represented by the
Investor Certificates and the Exchangeable
Certificate shall be nonassessable for any
losses or expenses of the Trust or for any
reason whatsoever and that Investor
Certificates and the Exchangeable Certificate
upon authentication thereof by the Trustee are
and shall be deemed fully paid.
Section 13.10. Further Assurances. Each of
the Depositor, the Servicer and the Trustee
agrees 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 one or more of the other parties
hereto more fully to effect the purposes of
this Agreement, including the execution of any
financing statements or continuation
statements relating to the Receivables for
filing under the provisions of the UCC of any
applicable jurisdiction.
Section 13.11. No Waiver; Cumulative Remedies.
No failure to exercise and no delay in
exercising, on the part of the Trustee, the
Certificateholders, the Depositor or the
Servicer, as the case may be, any right,
remedy, power or privilege under this
Agreement shall operate as a waiver thereof;
nor shall any single or partial exercise of
any right, remedy, power or privilege under
this Agreement preclude any other or further
exercise thereof or the exercise of any other
right, remedy, power or privilege. The
rights, remedies, powers and privileges
provided under this Agreement are cumulative
and not exhaustive of any rights, remedies,
powers and privileges provided by law.
Section 13.12. 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 13.13. Third-Party Beneficiaries.
This Agreement will inure to the benefit of
and be binding upon the parties hereto, the
Certificateholders and the other Beneficiaries
and their respective successors and permitted
assigns. Except as otherwise expressly
provided in this Agreement, no other Person
will have any right or obligation hereunder.
Section 13.14. Actions by Certificateholders.
Any request, demand, authorization, direction,
notice, consent, waiver or other act by a
Certificateholder shall bind such
Certificateholder and every subsequent Holder
of any Certificate issued upon the
registration of transfer of the Certificates
of such Certificateholder 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 thereof,
whether or not notation of such action is made
upon any such Certificate.
Section 13.15. Rule 144A Information. For so
long as any of the Investor Certificates of
any Series or Class are restricted
securities within the meaning of Rule
144(a)(3) under the 1933 Act, each of the
Depositor, the Trustee, the Servicer and any
Enhancement Providers agree to cooperate with
each other to provide to any
Certificateholders of such Series or Class and
to any prospective purchaser of Investor
Certificates designated by such
Certificateholder, upon the request of such
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 1933 Act.
Section 13.16. Merger and Integration. Except
as specifically stated otherwise herein, this
Agreement, the Supplements and the Receivables
Purchase 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 13.17. Headings. The headings herein
are for purposes of reference only and shall
not otherwise affect the meaning or
interpretation or any provision hereof.
IN WITNESS WHEREOF, the Depositor,
the Servicer and the Trustee have caused this
Pooling and Servicing Agreement to be duly
executed by their respective officers as of
the day and year first above written.
GOTTSCHALKS CREDIT RECEIVABLES
CORPORATION, Depositor
By: \s\ Michael Geele
Title: President
GOTTSCHALKS INC., Servicer
By: \s\ Jim Famalette
Title: President
BANKERS TRUST COMPANY, Trustee
By: \s\ Lillian Perros
Title: Vice President
EXHIBIT A
FORM OF EXCHANGEABLE CERTIFICATE
THIS CERTIFICATE MAY NOT BE ACQUIRED
OR HELD BY OR FOR THE ACCOUNT OF AN ERISA PLAN
(AS DEFINED BELOW). THE GOTTSCHALKS CREDIT
CARD MASTER TRUST HAS NOT BEEN REGISTERED
UNDER THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED. THIS CERTIFICATE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS, AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM. THE TRANSFER,
ASSIGNMENT, EXCHANGE, PLEDGE OR OTHER
CONVEYANCE OF THIS CERTIFICATE IS NOT
PERMITTED EXCEPT IN COMPLIANCE WITH THE TERMS
AND CONDITIONS SET FORTH IN THE POOLING AND
SERVICING AGREEMENT UNDER WHICH THIS
CERTIFICATE IS ISSUED (COPIES OF WHICH ARE
AVAILABLE FROM THE TRUSTEE UPON REQUEST). ANY
TRANSFEREE OF THIS CERTIFICATE IS DEEMED AS OF
THE DATE OF SUCH TRANSFER TO MAKE CERTAIN
REPRESENTATIONS RELATING TO ERISA AND OTHER
MATTERS.
GOTTSCHALKS CREDIT CARD MASTER TRUST
EXCHANGEABLE CERTIFICATE
This certifies that GOTTSCHALKS
CREDIT RECEIVABLES CORPORATION (the
"Exchangeable Certificateholder") is the
registered owner of a fractional undivided
interest not allocated to the Investors'
Interest or the interest of the Holders of the
Subordinated Certificates, if any, in certain
assets of a trust (the "Trust") created
pursuant to the Pooling and Servicing
Agreement, dated as of ________ __, 1999 (the
"Pooling and Servicing Agreement"), as
amended, supplemented or otherwise modified
from time to time, among Gottschalks Credit
Receivables Corporation, as depositor (the
"Depositor"), Gottschalks Inc., as servicer
(the "Servicer"), and Bankers Trust Company,
as trustee (the "Trustee"). Capitalized terms
used but not otherwise defined herein shall
have the respective meanings provided for such
terms in the Pooling and Servicing Agreement.
The corpus of the Trust includes (i)
all Receivables sold, transferred, assigned,
set over and otherwise conveyed to the Trust
pursuant to Section 2.01 of the Pooling and
Servicing Agreement, (ii) all monies due or to
become due and all amount received with
respect thereto and all proceeds thereof
(including "proceeds", as defined in Section 9-
306 of the UCC as in effect in the State of
California, and Recoveries), (iii) all monies
on deposit in, and Eligible Investments
credited to, the Collection Account or any
Series Account and (iv) all monies as are from
time to time available under any Enhancements.
This Certificate is issued under and
subject to the terms, provisions and
conditions of the Pooling and Servicing
Agreement. By acceptance hereof, the
Exchangeable Certificateholder assents to and
is bound by the terms, provisions and
conditions of the Pooling and Servicing
Agreement, as such may be amended,
supplemented or otherwise modified from time
to time. This Certificate does not purport to
summarize the Pooling and Servicing Agreement
and reference is made to the Pooling and
Servicing 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. A copy of the Pooling and
Servicing Agreement (without schedules) may be
requested from the Trustee by writing to the
Trustee at Bankers Trust Company, Four Albany
Street, New York, New York 10006, Attention:
Corporate Trust & Agency Group, Structured
Finance Team.
The transfer of this Certificate
shall be registered in the Certificate
Register upon surrender of this Certificate
for registration of transfer at any office or
agency maintained by the Transfer Agent and
Registrar accompanied by a written instrument
of transfer, in a form satisfactory to the
Trustee or the Transfer Agent and Registrar,
duly executed by the Exchangeable
Certificateholder or such Exchangeable
Certificateholder's attorney-in-fact, and duly
authorized in writing with such signature
guaranteed, and thereupon one or more new
Exchangeable Certificates in authorized
denominations of like aggregate amount will be
issued to the designated transferee or
transferees.
The Pooling and Servicing Agreement
and the Series Supplement may be amended from
time to time, in certain circumstances, by the
Servicer, the Depositor, the Trustee and (if
the Seller is not the Servicer) the Seller
without the consent of any of the
Certificateholders. The Pooling and Servicing
Agreement and the Series Supplement may also
be amended from time to time by the Servicer,
the Depositor and the Trustee, with the
consent of (i) the Holder of the Exchangeable
Certificate, if it would be adversely affected
by such amendment, and (ii) the Holders of
Investor Certificates evidencing more than 50%
of the aggregate unpaid principal amount of
the Investor Certificates of all adversely
affected Series, for the purpose of adding any
provisions to or changing in any manner or
eliminating or waiving any of the provisions
of the Pooling and Servicing Agreement or any
Supplement or of modifying in any manner the
rights of the Certificateholders. Any such
amendment and any such consent by the Holder
of this Certificate shall be conclusive and
binding on such Holder and upon all future
Holders of this Certificate and of any
Certificate issued in exchange hereof or in
lieu hereof whether or not notation thereof is
made upon this Certificate.
This Certificate may not be acquired
or held by or for the account of any employee
benefit plan or individual retirement account
subject to Title I of ERISA or Section 4975 of
the Internal Revenue Code, or any trust
established under any such employee benefit
plan or individual retirement account (or
established to hold the assets thereof), or
any "governmental plan" (as defined in section
3(32) of ERISA or Section 414(d) of the
Internal Revenue Code) organized in a
jurisdiction having prohibitions on
transactions with such governmental plan
similar to those contained in Section 406 of
ERISA or Section 4975 of the Internal Revenue
Code (each such employee benefit plan,
individual retirement account and trust, an
"ERISA Plan"). No part of the funds used by
any Person to acquire or hold this Certificate
may constitute assets (within the meaning of
ERISA and any applicable rules and
regulations) of an ERISA Plan. By accepting
and holding this Certificate, the Holder
hereof shall be deemed to have represented and
warranted that it is not an ERISA Plan and
that this Certificate was not acquired with
the assets of an ERISA Plan.
THIS CERTIFICATE SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Depositor
has caused this Certificate to be duly
executed.
GOTTSCHALKS CREDIT RECEIVABLES
CORPORATION, as Depositor
Name: \s\ Michael Geele
Title: President
CERTIFICATE OF AUTHENTICATION
This is the Gottschalks Credit Card
Master Trust Exchangeable Certificate referred
to in the Pooling and Servicing Agreement.
BANKERS TRUST COMPANY, not in its individual
capacity, but solely in its capacity as
Trustee
Name: \s\ Lillian Perros
Title: Vice President
Dated:
EXHIBIT B
[RESERVED]
EXHIBIT C
OFFICER'S CERTIFICATE
GOTTSCHALKS INC.
Officer's Certificate
We, the undersigned, each duly
authorized officers of Gottschalks Inc., a
Delaware corporation (the "Servicer"), DO
HEREBY CERTIFY that:
1. This certificate is furnished pursuant to
Section 3.05 of the Pooling and Servicing
Agreement, dated as of even date herewith (the
"Pooling and Servicing Agreement"), among
Gottschalks Credit Receivables Corporation, a
Delaware corporation, as depositor, the
Servicer, and Bankers Trust Company, a New
York banking corporation, as trustee.
Capitalized terms used but not otherwise
defined herein shall have the respective
meanings assigned to such terms in the Pooling
and Servicing Agreement.
2. The Servicer is, as of the date hereof,
the servicer under the Pooling and Servicing
Agreement.
3. The undersigned are duly authorized by
the Servicer to execute and deliver this
Certificate to the Trustee.
4. A review of the activities of the
Servicer during the calendar year ended
December __, 200_ and of its performance under
the Pooling and Servicing Agreement was
conducted under our supervision.
5. Based on such review, the Servicer has,
to the best of our knowledge, performed in all
material respects its obligations under the
Pooling and Servicing Agreement and there has
been no default in the performance of any such
obligations [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 known to us to
have been made by the Servicer during the
calendar year ended December __, 200_, which
sets forth in detail the (i) 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 default.]
IN WITNESS WHEREOF, the undersigned
have hereunto set their hands this ____ day of
______________, ____.
Name:\s\ Michael Geele
Title: Executive VP/CFO
EXHIBIT E
FORM OF REASSIGNMENT
REASSIGNMENT No. ____ OF
RECEIVABLES, dated as of ____________, ___
(this "Reassignment"), among GOTTSCHALKS
CREDIT RECEIVABLES CORPORATION, a Delaware
corporation (the "Depositor"), GOTTSCHALKS
INC., a Delaware corporation (the "Servicer"),
and BANKERS TRUST COMPANY, a New York banking
corporation, not in its individual capacity,
but solely in its capacity as trustee (the
"Trustee"). Capitalized terms used but not
otherwise defined herein shall have the
respective meanings provided for such terms in
the Pooling and Servicing Agreement.
W I T N E S S E T H:
WHEREAS, the Depositor, the Servicer
and the Trustee are parties to the Pooling and
Servicing Agreement, dated as of ________ __,
1999 (the "Pooling and Servicing Agreement");
WHEREAS, pursuant to the Pooling and
Servicing Agreement, the Depositor desires to
remove all Receivables arising in certain
designated Accounts (the "Removed Accounts")
from the Trust and to cause the Trustee to
reconvey the Receivables arising in such
Removed Accounts, whether now existing or
hereafter created, from the Trust to the
Depositor; and
WHEREAS, the Trustee is willing to
accept such designation and to reconvey the
Receivables arising in the Removed Accounts
subject to the terms and conditions hereof;
NOW, THEREFORE, the Depositor, the
Servicer and the Trustee hereby agree as
follows:
1. Designation of Removed Accounts.
Attached hereto as Exhibit 1 is a true and
complete list of all Removed Accounts
specifying for each such Removed Account, as
of the Removal Notice Date, its account
number, the aggregate amount of Receivables
outstanding in such Removed Account and the
aggregate amount of Principal Receivables in
such Removed Account.
2. Conveyance of Receivables. The Trustee
does hereby sell, transfer, assign, set over
and otherwise convey, without recourse or
warranty of any kind whatsoever, to the
Depositor, all of the Trust's right, title and
interest in, to and under the Receivables
owned by the Trust at the close of business on
the Removal Date now existing and hereafter
created in the Removed Accounts, all monies
due or to become due and all amounts received
with respect thereto and all proceeds thereof
(including "proceeds", as defined in Section
9306 of the UCC as in effect in the State of
California, and Recoveries).
3. Representations and Warranties of the
Depositor. The Depositor hereby represents
and warrants to the Trustee, on behalf of the
Trust, as of the date of this Reassignment and
as of the Removal Date, that:
(a) the Depositor believes that the process
used to select the Removed Accounts listed on
Schedule 1 hereto (x) is not materially
adverse to the interests of the
Certificateholders, and (y) was conducted on a
random basis;
(b) the Depositor reasonably believes that
the removal of the Removed Account from the
Trust will not result in the occurrence of an
Early Amortization Event;
(c) after giving effect to the removal of
Removed Accounts, the Series Pool Balance
shall not be less than 5% in excess of the sum
of the Required Series Pool Balance and the
Required Exchangeable Certificate Amount; and
(d) after giving effect to the proposed
action, there will be no material adverse
change in the average yield on the Pool
Balance, average age of Accounts remaining
within the Pool or the rate of delinquencies
experienced by the Pool, in each case as a
result of the proposed action.
4. Governing Law. THIS REASSIGNMENT SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REFERENCE TO
ITS CONFLICTS OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the undersigned
have caused this Reassignment to be duly
executed and delivered by their respective
duly authorized officers on the day and year
first above written.
GOTTSCHALKS CREDIT RECEIVABLES
CORPORATION, as Depositor
Name: \s\ Michael Geele
Title: President
GOTTSCHALKS INC., as Servicer
Name: \s\ Jim Famalette
Title: President
BANKERS TRUST COMPANY, not in its
individual capacity, but solely in its
capacity as Trustee
Name: \s\ Lillian Perros
Title: Vice President
EXHIBIT F
OFFICER'S CERTIFICATE
GOTTSCHALKS CREDIT RECEIVABLES CORPORATION
I, the undersigned, _______________
of Gottschalks Credit Receivables Corporation,
a Delaware corporation (the "Company"), DO
HEREBY CERTIFY that:
1. This certificate is furnished
pursuant to Section 2.08(d)(ii) of the Pooling
and Servicing Agreement, dated as of March 1,
1999 (the "Pooling and Servicing Agreement"),
among the Company, as depositor, Gottschalks
Inc., a Delaware corporation, as servicer and
Bankers Trust Company, a New York banking
corporation, as trustee. Capitalized terms
used but not otherwise defined herein shall
have the respective meanings assigned to such
terms in the Pooling and Servicing Agreement.
2. The process used to select the
Supplemental Accounts listed in the notice,
dated ________ __, ____, delivered pursuant to
Section 2.08(d) of the Pooling and Servicing
Agreement, (x) is not materially adverse to
the interests of the Certificateholders, and
(y) was conducted on a random basis.
IN WITNESS WHEREOF, I have hereunto
set my hand this __ day of ____________, ____.
Name:
Title:
EXHIBIT G
OFFICER'S CERTIFICATE
GOTTSCHALKS CREDIT RECEIVABLES CORPORATION
I, the undersigned, _______________
of Gottschalks Credit Receivables Corporation,
a Delaware corporation (the "Company"), DO
HEREBY CERTIFY that:
1. This certificate is furnished
pursuant to Section 2.06(b)(ii) of the Pooling
and Servicing Agreement, dated as of ________
__, 1999 (the "Pooling and Servicing
Agreement"), among the Company, as depositor,
Gottschalks Inc., a Delaware corporation, as
servicer and Bankers Trust Company, a New York
banking corporation, as trustee. Capitalized
terms used but not otherwise defined herein
shall have the respective meanings assigned to
such terms in the Pooling and Servicing
Agreement.
2. After giving effect to the
removal of Removed Accounts, the Series Pool
Balance shall not be less than 5% in excess of
the sum of the Required Series Pool Balance
and the Required Exchangeable Certificate
Amount.
3. The process used to select the
Removed Accounts listed in the notice, dated
________ __, ____, delivered pursuant to
Section 2.06(b)(ii) of the Pooling and
Servicing Agreement (x) is not materially
adverse to the interests of the
Certificateholders, and (y) was conducted on a
random basis.
4. The Company reasonably believes
that the removal of the Removed Account from
the Trust will not result in the occurrence of
an Early Amortization Event.
5. After giving effect to the
proposed action, there will be no material
adverse change in the average yield on the
Pool Balance, average age of Accounts
remaining within the Pool or the rate of
delinquencies experienced by the Pool, in each
case as a result of the proposed action.
IN WITNESS WHEREOF, I have hereunto
set my hand this __ day of ____________, ____.
Name:
Title:
EXHIBIT H
FORM OF REPRESENTATION LETTER
[date]
Gottschalks Credit Receivables Corporation
7 River Place East
Fresno, California 93729
Bankers Trust Company
as Trustee
Four Albany Street
New York, New York 10006
Gentlemen:
Reference is made to that certain
[describe purchase agreement or assignment]
(the "Certificate Purchase Agreement") between
[name of transferor] ("Transferor") and [name
of transferee] ("Transferee") pursuant to
which Transferee, upon the terms and
conditions set therein set forth, purchased a
[ %] Fixed Base Certificate, Series 1999-
1, in the original face amount of $[amount]
(the "Trust Certificate"). Capitalized terms
used herein and not defined have the meaning
given in that certain Pooling and Servicing
Agreement, dated as of March 1_, 1999, among
Gottschalks Credit Receivables Corporation
("Depositor"), Gottschalks Inc. ("Service")
and Bankers Trust Company ("Trustee") as
amended and modified through the date hereof.
In connection with such purchase,
Transferee represents and warrants that (i) it
is acquiring its Trust Certificate solely for
its own account (or for accounts as to which
to exercise investment discretion) for the
purpose of investment only and not with a view
to distribution in violation of the Securities
Act of 1933 (the "Act"), and will not sell or
otherwise transfer such Trust Certificate in
the absence of registration under the Act or
an exemption therefrom, provided that the
disposition of its property shall at all time
be and remain within its control and (ii) it
is a corporation, partnership or other entity
having such knowledge and experience in
financial and business matters as to be
capable of evaluating the merits and risks of
an investment in its Trust Certificate and it
is (or any account for which it is purchasing
referred to in (i) above is) an institutional
accredited investor within the meaning of Rule
501 of the Act able to bear the economic risk
of investment in its Trust Certificate,
including a complete loss, while maintaining
adequate means of providing for its current
needs and foreseeable contingencies.
Sincerely yours,
[name of
transferee]
By:
Name:
Title:
EXHIBIT H-1
FORM OF SECURITIES ACT LEGEND
THIS CERTIFICATE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS, AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM. THE TRANSFER OF THIS
CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS
AND CONDITIONS SET FORTH IN THE POOLING AND
SERVICING AGREEMENT AND THE SERIES ______
SUPPLEMENT TO THE POOLING AND SERVICING
AGREEMENT UNDER WHICH THIS CERTIFICATE IS
ISSUED (COPIES OF WHICH ARE AVAILABLE FROM THE
TRUSTEE UPON REQUEST).
EXHIBIT H-2
FORM OF ERISA LEGEND
THIS CERTIFICATE HAS NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF
ANY STATE OR OTHER JURISDICTION IN RELIANCE ON
EXEMPTIONS PROVIDED BY THE SECURITIES ACT AND
SUCH STATE OR FOREIGN SECURITIES LAWS. THE
CERTIFICATES ARE ELIGIBLE FOR PURCHASE
PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT. NO RESALE OR OTHER TRANSFER OF THIS
CERTIFICATE SHALL BE MADE UNLESS SUCH RESALE
OR TRANSFER (A) IS MADE IN ACCORDANCE WITH
SECTION 6.2 OF THE SERIES 1999-1 SUPPLEMENT TO
THE POOLING AND SERVICING AGREEMENT REFERRED
TO HEREIN AND (B) IS MADE EITHER (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (ii) IN A TRANSACTION
(OTHER THAN A TRANSACTION IN CLAUSE (iv)
BELOW) EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE AND FOREIGN SECURITIES LAWS,
(iii) TO GOTTSCHALKS CREDIT RECEIVABLES
CORPORATION (THE "DEPOSITOR") OR (iv) TO A
PERSON WHO THE TRANSFEROR OF THIS CERTIFICATE
REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE
144A UNDER THE SECURITIES ACT THAT IS AWARE
THAT THE RESALE OR OTHER TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A OR TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" UNDER RULE
501(a)(1),(2),(3) OR (7) UNDER THE SECURITIES
ACT. IN THE EVENT THAT THE TRANSFER OF A
CERTIFICATE IS TO BE MADE AS DESCRIBED IN
CLAUSE (ii) OF THE PRECEDING SENTENCE, THE
PROSPECTIVE INVESTOR IS REQUIRED TO DELIVER AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE TRUSTEE AND THE DEPOSITOR
TO THE EFFECT THAT SUCH TRANSFER MAY BE MADE
WITHOUT REGISTRATION UNDER THE SECURITIES ACT
OR ANY APPLICABLE STATE OR FOREIGN SECURITIES
LAWS. THE PROSPECTIVE TRANSFEREE IN A TRANSFER
OF A CERTIFICATE TO BE MADE AS DESCRIBED IN
CLAUSES (ii) AND (iv) ABOVE MUST DELIVER TO
THE TRUSTEE A REPRESENTATION LETTER REQUIRED
BY SECTION 6.2 OF THE SERIES 1999-1 SUPPLEMENT
TO THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN. PROSPECTIVE PURCHASERS OF
THE CERTIFICATES ARE HEREBY NOTIFIED THAT THE
SELLER OF ANY CERTIFICATES MAY BE RELYING ON
THE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SECTION 5 OF THE ACT PROVIDED
BY RULE 144A UNDER THE ACT.
THIS CERTIFICATE OR A BENEFICIAL INTEREST
HEREIN MAY NOT BE TRANSFERRED UNLESS THE
TRUSTEE HAS RECEIVED (I) A CERTIFICATE FROM
THE TRANSFEREE TO THE EFFECT THAT SUCH
TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN,
TRUST OR ACCOUNT SUBJECT TO TITLE I OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA"), OR SUBJECT TO
SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"), OR A
GOVERNMENTAL PLAN DEFINED IN SECTION 3(32) OF
ERISA OR SECTION 414(d) OF THE CODE, SUBJECT
TO ANY FEDERAL STATE OR LOCAL LAW WHICH IS, TO
A MATERIAL EXTENT, SIMILAR TO THE FOREGOING
PROVISIONS OF ERISA OR THE CODE ("SIMILAR
LAW") (EACH, A "BENEFIT PLAN") AND IS NOT AN
ENTITY INCLUDING AN INSURANCE COMPANY SEPARATE
ACCOUNT OR AN INSURANCE COMPANY GENERAL
ACCOUNT IF THE ASSETS IN ANY SUCH ACCOUNTS
CONSTITUTE "PLAN ASSETS" FOR PURPOSES OF
REGULATION SECTION 2510.3-101 OF ERISA, WHOSE
UNDERLYING ASSETS INCLUDE BENEFIT PLAN ASSETS
BY REASON OF A BENEFIT PLAN'S INVESTMENT IN
THE ENTITY (SUCH BENEFIT PLAN OR ENTITY, A
"BENEFIT PLAN INVESTOR") AND (II) A
CERTIFICATE TO THE EFFECT THAT IF THE
TRANSFEREE IS A PARTNERSHIP, GRANTOR TRUST OR
S CORPORATION FOR FEDERAL INCOME TAX PURPOSES
(A "FLOW-THROUGH ENTITY"), ANY CERTIFICATES
OWNED BY SUCH FLOW-THROUGH ENTITY WILL
REPRESENT LESS THAN 50% OF THE VALUE OF ALL
THE ASSETS OWNED BY SUCH FLOW-THROUGH ENTITY
AND NO SPECIAL ALLOCATION OF INCOME, GAIN,
LOSS, DEDUCTION OR CREDIT FROM SUCH
CERTIFICATES WILL BE MADE AMONG THE BENEFICIAL
OWNERS OF SUCH FLOW-THROUGH ENTITY.
IN ADDITION, NO RESALE OR OTHER TRANSFER
OF THIS CERTIFICATE OR ANY INTEREST THEREIN
SHALL BE PERMITTED UNLESS IMMEDIATELY AFTER
GIVING EFFECT TO SUCH RESALE OR OTHER
TRANSFER, THERE WOULD BE FEWER THAN 100
CERTIFICATEHOLDERS.
EXHIBIT J
RECEIVABLES PURCHASE AGREEMENT
EXHIBIT K
FORM OF DEPOSIT ACCOUNT AGREEMENT
________ __, 1999
[Name of Local Bank]
Re: Acct. No.: (the Local
Deposit Account)
Dear :
Reference is hereby made to (a) that
certain Receivables Purchase Agreement, dated
as of ________ __, 1999 (the "Receivables
Purchase Agreement"), between Gottschalks
Inc., a Delaware corporation ("Gottschalks"),
and Gottschalks Credit Receivables
Corporation, a Delaware corporation ("GCRC");
(b) that certain Pooling and Servicing
Agreement, dated as of ________ __, 1999 (the
"Pooling and Servicing Agreement"), among
GCRC, as depositor, Gottschalks, as servicer
and Bankers Trust Company, a New York banking
corporation, as trustee (the "Trustee"); and
(c) that certain ____-_ Supplement to the
Pooling and Servicing Agreement, dated as of
________ __, ____ (the "____-1 Supplement")
among GCRC, Gottschalks and the Trustee
(collectively, the "Transaction Documents").
Capitalized terms used but not otherwise
defined herein shall have the meanings
provided for such terms in the Pooling and
Servicing Agreement.
In connection with the above-
referenced transactions, Gottschalks will act
as the servicer of Receivables that have been
sold to the Trust for the benefit of the
Beneficiaries. During the normal course of
its servicing operation, individual store
locations owned by Gottschalks will receive In-
Store Payments. Under the terms of the
Transaction Documents, Gottschalks is required
to deposit each day all Collections received
in respect of In-Store Payments in a deposit
account maintained by a local bank (the "Local
Deposit Account").
GCRC has established account number
[number] with your institution to serve as the
Local Deposit Account. This letter agreement
(this "Letter Agreement") defines certain
rights and obligations of the parties hereto
in respect of the Local Deposit Account
maintained with your institution.
GCRC hereby appoints [name of bank]
as a Local Deposit Account Bank to maintain
the Local Deposit Account. [Name of bank]
hereby agrees to maintain the Local Deposit
Account and serve as Local Deposit Account
Bank on the terms and subject to the
conditions set forth in this Letter Agreement.
1.1. The Local Deposit Account shall at
all times be maintained in the name of the
Trustee on behalf of the Trust. The Trustee
on behalf of the Trust shall have exclusive
dominion and control over, and the sole right
of withdrawal from, the Local Deposit Account.
The Trustee on behalf of the Trust shall
possess all right, title and interest in all
of the items from time to time on deposit in
the Local Deposit Account and all proceeds
thereof.
1.2. The Local Deposit Account Bank
shall, at the end of each Business Day,
transfer, in same day funds, all available
funds on deposit (other than amounts retained
for returned checks in the ordinary course of
business) in the Local Deposit Account to
Bankers Trust Company, Four Albany Street, New
York, New York 10006, Attention Corporate
Trust & Agency Group, Structured Finance Team,
ABA 021001033, Account [account number] for
deposit to the Gottschalks Credit Card Master
Trust Collection Account [number] (the
"Collection Account"). The Local Deposit
Account Bank shall, immediately thereafter,
provide the Trustee with telephonic advice of
such transfer. The Local Deposit Account Bank
shall, each Business Day, deliver to
Gottschalks all returned checks previously
deposited in the Local Deposit Account at P.O.
Box 26480, Fresno, California 93729-6480,
Attention: Returned Check Desk.
1.3. The Local Deposit Account Bank shall
respond promptly to all reasonable inquiries
made by Gottschalks in respect of the Local
Deposit Account. The Local Deposit Account
shall furnish Gottschalks and the Trustee with
monthly statements, in the form typical for
the Local Deposit Account Bank, listing all
amounts deposited in, withdrawn from, and
transferred in and/or out of the Local Deposit
Account during such monthly period.
1.4. For purposes of this Letter
Agreement, any officer of the Trustee, and any
other employee of the Trustee designated by an
officer thereof, shall be authorized to act,
and to give instructions and notice, on behalf
of the Trustee and the Local Deposit Account
Bank shall be entitled to rely on such act,
instruction or notice without further inquiry.
Gottschalks acknowledges that the Local
Deposit Account Bank shall incur no liability
to Gottschalks as a result of any action taken
pursuant to an instruction given by or on
behalf of the Trustee.
1.5. The fees for the services of the
Local Deposit Account Bank shall be mutually
agreed upon between Gottschalks and the Local
Deposit Account Bank and paid by Gottschalks.
Neither GCRC nor the Trustee on behalf of the
Trust shall have any responsibility or
liability for the payment of any such fee.
1.6. The Local Deposit Account Bank may
perform any of its duties hereunder by or
through its officers, employees or agents and
shall be entitled to rely upon the advice of
counsel as to its duties. The Local Deposit
Account Bank shall not be liable to the
Trustee or Gottschalks for any action taken or
omitted to be taken by it in good faith, nor
shall the Local Deposit Account Bank be
responsible to the Trustee or Gottschalks for
the consequences of any oversight or error of
judgment or be answerable to the Trustee or
Gottschalks for the same unless the oversight
or error of judgment is attributable to its
negligence or willful misconduct.
1.7. The Local Deposit Account Bank may
resign at any time as Local Deposit Account
Bank hereunder by delivery to the Trustee and
Gottschalks of written notice of resignation
not less than 30 days prior to the effective
date of such resignation. The Trustee may
close the Local Deposit Account at any time
upon delivery of notice to the Local Deposit
Account Bank at its address appearing below.
This Letter Agreement shall terminate upon
receipt of such notice of closing, or delivery
of such notice of resignation and the
expiration of the 30 day notice period, except
that the Local Deposit Account Bank shall
immediately transfer to the Collection Account
all funds, if any, then on deposit in, or
otherwise to the credit of, the Local Deposit
Account (other than amounts retained for
returned checks in the ordinary course of
business).
1.8. All notices and communications
hereunder shall be in writing (except where
telephonic instructions or notices are
authorized herein) and shall be deemed to have
been received and shall be effective on the
day on which delivered (including delivery by
telecopy) (i) in the case of the Trustee, to
Bankers Trust Company, Four Albany Street, New
York, New York 10006, Attention Corporate
Trust & Agency Group, Structured Finance Team,
(ii) in the case of the Local Deposit Account
Bank, to [name of bank] at the address listed
above and (iii) in the case of Gottschalks, to
Gottschalks Inc., 7 River Park Place East,
P.O. Box 26920, Fresno, California 93729, to
the attention of Michael S. Geele, Senior Vice
President and Chief Financial Officer.
1.9. The Local Deposit Account Bank shall
not assign or transfer any of its rights or
obligations hereunder (other than to the
Trustee) without the prior written consent of
the Trustee. This Letter Agreement may be
amended only by a written instrument executed
by Gottschalks, GCRC, the Trustee and the
Local Deposit Account Bank, acting by their
respective officers thereunto duly authorized.
The Local Deposit Account Bank hereby
irrevocably waives (so long as any Investor
Certificate remains outstanding) any rights to
setoff against, or otherwise deduct from, any
funds held in any Local Deposit Account for
any indebtedness or other claim owed by GCRC,
Gottschalks or any other person or entity to
the Local Deposit Account Bank. To the extent
that the Local Deposit Account Bank ever has
any such rights, it hereby expressly
subordinates all such rights to the rights of
the Trustee. THIS LETTER AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF CALIFORNIA.
1.10. This Letter Agreement (i) shall
inure to the benefit of, and be binding upon,
Gottschalks, GCRC, the Trustee, the Local
Deposit Account Bank and their respective
successors and assigns and (ii) may be
executed in two or more counterparts, each of
which shall be deemed an original but all of
which together shall constitute one and the
same instrument.
1.11. Bankers Trust Company, in its
capacity as trustee under the Pooling and
Servicing Agreement, is entering into this
Letter Agreement solely as trustee and not in
its individual capacity and in no case
whatsoever shall Bankers Trust Company be
personally liable on, or for any loss in
respect of, any representations, warranties,
agreements or obligations of the Trustee or
Gottschalks hereunder.
GOTTSCHALKS INC.
By: \s\ Jim Famalette
Title: President
BANKERS TRUST COMPANY, not in its
individual capacity, but solely in
its capacity as Trustee
By: \s\ Lillian Perros
Title: Vice President
[Name of Bank]
By:
Title:
SCHEDULE I
LIST OF ACCOUNTS
The list of all Accounts specifying
for each Account, (i) its account number (ii)
the aggregate amount of Receivables
outstanding in such Account, and (iii) the
aggregate amount of Principal Receivables in
such Account has been delivered in the form of
computer tape. Such tape is incorporated
herein by this reference.
SCHEDULE II
COLLECTION ACCOUNT
BANKERS TRUST COMPANY:
ABA No. 021001033
Account No. [1419647]
Gottschalks Credit Card Master
Trust Collection Account No. 11873
Four Albany Street
New York, New York 10006
SCHEDULE III
List of Local Deposit Accounts
UNION BANK OF CALIFORNIA: Account No. 04730240
Location 0-01
Payment Processor (Pre-encoded)
7032 North First Street
Fresno, California 93720
BANK OF AMERICA NT & SA: 14821-019-19
5292 N. Palm Avenue
Fresno, CA 93704
ARTICLE I
DEFINITIONS
Section 1.01. Definitions 1
Section 1.02. Other Definitional Provisions. 19
ARTICLE II
CONVEYANCE OF RECEIVABLES
Section 2.01. Conveyance of Receivables 20
Section 2.02. Acceptance by Trustee 21
Section 2.03. Representations and Warranties
of the Depositor Relating to the
Depositor and this Agreement 22
Section 2.04. Representations and Warranties
of the Depositor Relating to the
Receivables; Reassignment 25
Section 2.05. Covenants of the Depositor 27
Section 2.06. Removal of Accounts 30
Section 2.07. Discount Option 31
Section 2.08. Block Period; Supplemental
Accounts 32
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 3.01. Acceptance of Appointment and
Other Matters Relating to the
Servicer 33
Section 3.02. Servicing Compensation 35
Section 3.03. Representations, Warranties
and Covenants of the Servicer 35
Section 3.04. Reports and Records for the
Trustee 39
Section 3.05. Annual Servicer's Certificate 39
Section 3.06. Independent Public Accountants'
Servicing Report 39
Section 3.07. Tax Treatment 41
Section 3.08. Notices to the Seller 41
Section 3.09. Adjustments 41
Section 3.10. Fidelity Bond and Errors and
Omissions Insurance 42
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.01. Rights of Certificateholders 42
Section 4.02. Establishment of the Collection
Account 42
Section 4.03. Collections Arrangements 43
Section 4.04. Collection Allocations 43
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS
Section 5.01. Distributions. 44
Section 5.02. Reports and Statements to
Certificateholders. 44
ARTICLE VI
THE CERTIFICATES
Section 6.01. The Certificates. 45
Section 6.02. Authentication of Certificates 45
Section 6.03. New Issuances 46
Section 6.04. Registration of Transfer and
Exchange of Certificates 48
Section 6.05. Mutilated, Destroyed, Lost or
Stolen Certificates 50
Section 6.06. Persons Deemed Owners 50
Section 6.07. Access to List of Registered
Certificateholders' Names and
Addresses 51
ARTICLE VII
OTHER MATTERS RELATING TO THE DEPOSITOR
Section 7.01. Liability of the Depositor 51
Section 7.02. Limitation on Liability of
the Depositor 51
Section 7.03. Depositor Indemnification 52
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER
Section 8.01. Liability of the Servicer 52
Section 8.02. Limitation on Liability of
the Servicer 53
Section 8.03. Servicer Indemnification of
the Trust and the Trustee 53
Section 8.04. Merger or Consolidation of,
or Assumption of, the
Obligations of the Servicer 54
Section 8.05. The Servicer Not to Resign 54
Section 8.06. Access to Certain Information
Regarding the Receivables; Meet and
Confer 54
Section 8.07. Delegation of Duties 55
Section 8.08. Examination of Records 55
ARTICLE IX
EARLY AMORTIZATION EVENTS
Section 9.01. Early Amortization Events 55
Section 9.02. Additional Rights Upon the
Occurrence of Certain Events 56
ARTICLE X
SERVICER DEFAULTS
Section 10.01. Servicer Defaults 57
Section 10.02. Trustee to Act; Appointment
of Successor 59
ARTICLE XI
THE TRUSTEE
Section 11.01. Duties of Trustee 60
Section 11.02. Certain Matters Affecting
the Trustee 62
Section 11.03. Trustee Not Liable for
Recitals in Certificates 63
Section 11.04. Trustee May Own Certificates 63
Section 11.05. The Servicer to Pay Trustee's
Fees and Expenses 64
Section 11.06. Eligibility Requirements for
Trustee 64
Section 11.07. Resignation or Removal of
Trustee 64
Section 11.08. Successor Trustee 65
Section 11.09. Merger or Consolidation of
Trustee 65
Section 11.10. Appointment of Co-Trustee or
Separate Trustee 66
Section 11.11. Tax Returns 67
Section 11.12. Trustee May Enforce Claims
Without Possession of
Certificates 67
Section 11.13. Suits for Enforcement 67
Section 11.14. Representations and Warranties
of Trustee 68
Section 11.15. Maintenance of Office or
Agency 68
Section 11.16. Rights of Trustee Upon the
Occurrence of an Early
Amortization Event. 68
ARTICLE XII
TERMINATION
Section 12.01. Termination of Trust 68
Section 12.02. Final Distribution 69
Section 12.03. Depositor's Termination Rights 70
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01. Amendment 70
Section 13.02. Protection of Right, Title
and Interest to Trust 72
Section 13.03. Limitation on Rights of
Certificateholders 73
Section 13.04. No Petition 74
Section 13.05. Governing Law 74
Section 13.06. Notices 74
Section 13.07. Severability of Provisions 75
Section 13.08. Assignment 75
Section 13.09. Certificates Nonassessable
and Fully Paid 75
Section 13.10. Further Assurances 75
Section 13.11. No Waiver; Cumulative Remedies 75
Section 13.12. Counterparts 75
Section 13.13. Third-Party Beneficiaries 75
Section 13.14. Actions by Certificateholders 76
Section 13.15. Rule 144A Information 76
Section 13.16. Merger and Integration 76
Section 13.17. Headings 76
EXHIBITS
EXHIBIT A FORM OF EXCHANGEABLE
CERTIFICATE
EXHIBIT B [RESERVED]
EXHIBIT C OFFICER'S CERTIFICATE
EXHIBIT D [RESERVED]
EXHIBIT E FORM OF REASSIGNMENT
EXHIBIT F OFFICER'S CERTIFICATE
EXHIBIT G OFFICER'S CERTIFICATE
EXHIBIT H FORM OF REPRESENTATION LETTER
EXHIBIT H-1 FORM OF SECURITIES ACT LEGEND
EXHIBIT H-2 FORM OF ERISA LEGEND
SCHEDULE I LIST OF ACCOUNTS
EXHIBIT J RECEIVABLES PURCHASE AGREEMENT
EXHIBIT K FORM OF DEPOSIT ACCOUNT
AGREEMENT
SCHEDULE II COLLECTION ACCOUNT
SCHEDULE III LIST OF LOCAL DEPOSIT ACCOUNTS
LA1:817659
GOTTSCHALKS CREDIT RECEIVABLES CORPORATION
Depositor
GOTTSCHALKS INC.
Servicer
and
BANKERS TRUST COMPANY
Trustee
SERIES 1999-1 SUPPLEMENT
Dated as of March 1, 1999
to
POOLING AND SERVICING AGREEMENT
Dated as of March 1, 1999
GOTTSCHALKS CREDIT CARD MASTER TRUST
TABLE OF CONTENTS
ARTICLE I
CREATION OF THE SERIES 1999-1 CERTIFICATES
SECTION 1.1.Designation. 1
ARTICLE II
DEFINITIONS
SECTION 2.1.Definitions. 1
ARTICLE III
SERVICING FEE
SECTION 3.1.Servicing Compensation 12
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
SECTION 4.1.Allocations and Distributions 13
SECTION 4.2.Determination of FBC Monthly
Interest 23
SECTION 4.3.Determination of FBC Monthly
Principal. 24
SECTION 4.4.Series Accounts. 24
SECTION 4.5.Capitalized Interest Account 27
SECTION 4.6.Retained Amount Account. 27
SECTION 4.7.Spread Account 28
SECTION 4.8.Deficiency Amount. 30
SECTION 4.9.Investor Charge-Offs. 30
SECTION 4.10.Trustee Expenses Associated with Servicing Assumption 31
ARTICLE V
DISTRIBUTIONS AND REPORTS
SECTION 5.1.Distributions 32
SECTION 5.2.Other Notices to Holders. 32
ARTICLE VI
THE CERTIFICATES
SECTION 6.1.The Fixed Base Certificates. 32
SECTION 6.2.Transfer Restrictions. 32
SECTION 6.3.The Subordinated Certificate 35
SECTION 6.4.The Exchangeable Certificate 36
ARTICLE VII
EARLY AMORTIZATION EVENTS; SERVICER DEFAULTS;
MERGER OF SERVICER
SECTION 7.1.Additional Early Amortization
Events. 36
SECTION 7.2.Waiver 37
SECTION 7.3.Additional Servicer Defaults 38
SECTION 7.4.Merger or Consolidation of, or
Assumption of, the Obligations of
the Servicer 39
ARTICLE VIII
OPTIONAL REPURCHASE
SECTION 8.1.Optional Repurchase 39
ARTICLE IX
FINAL DISTRIBUTIONS
SECTION 9.1.Final Distributions 39
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Ratification of Agreement 41
SECTION 10.2. Counterparts 41
SECTION 10.3. Governing Law 41
SECTION 10.4. Rating Agency Notice 41
SECTION 10.5. Additional Document Delivery on
First Distribution Date 41
EXHIBITS
EXHIBIT A-1 Form of Fixed Based Certificate
EXHIBIT A-2 Form of Subordinated Certificate
EXHIBIT B Form of Distribution Date Statement
EXHIBIT C Form of Rule 144A Transferee Certificate
EXHIBIT D Form of Non Rule 144A Representation Letter
SCHEDULES
SCHEDULE I List of Series Accounts
SERIES 1999-1 SUPPLEMENT dated as of
March 1, 1999 (the Series Supplement), among
GOTTSCHALKS CREDIT RECEIVABLES CORPORATION, a
Delaware corporation, as Depositor,
GOTTSCHALKS INC., a Delaware corporation, as
Servicer, and BANKERS TRUST COMPANY, a New
York banking corporation, not in its
individual capacity but solely as Trustee.
RECITALS
Section 6.03 of the Pooling and
Servicing Agreement, dated as of March 1,
1999, among the Depositor, the Servicer and
the Trustee (the Agreement), provides, among
other things, that the Depositor may from time
to time direct the Trustee to authenticate and
deliver, on behalf of the Trust, one or more
new Series of Investor Certificates
representing fractional undivided interests in
the Trust and in connection therewith to enter
into Series Supplements with the Servicer and
the Trustee to provide for the issuance,
authentication and delivery of a new Series of
Investor Certificates and to specify the
Principal Terms thereof. Pursuant to this
Series Supplement, the Depositor and the
Trustee on behalf of the Trust shall hereby
create a new Series of Investor Certificates
and specify the Principal Terms thereof.
ARTICLE I
Creation of the Series 1999-1 Certificates
SECTION 1.1. Designation. There is hereby
created a Series of Investor Certificates to
be issued pursuant to the Agreement and this
Series Supplement to be known as the
Gottschalks Credit Card Master Trust, Series
1999-1 Certificates. The Series 1999-1
Certificates will be issued in two
certificated Classes, the first of which shall
be known as the 7.664% Fixed Base Credit Card
Certificates, Series 1999-1; and the second
of which shall be known as the Subordinated
Certificate, Series 1999-1.
(a) In the event that any term or provision
contained herein shall conflict with or be
inconsistent with any term or provision
contained in the Agreement, the terms and
provisions of this Series Supplement shall
govern.
ARTICLE II
Definitions
SECTION 2.1. Definitions. (a) Whenever
used in this Series Supplement, the following
words and phrases shall have the following
meanings.
Accelerated Payment shall mean any
FBC Principal Collections that are paid to the
Fixed Base Certificateholders during the
Controlled Amortization Period (in excess of
any then current Controlled Amortization
Amount) or otherwise prior to the Expected
Final Distribution Date due to the
commencement of an Early Amortization Period
on any date other than as a result of the
occurrence of a Servicer Default pursuant to
clauses (d) and (f) of Section 7.3.
Adjusted Invested Amount shall
mean, as of any date, an amount equal to the
Required Series Pool Balance.
Allocation Day shall have the
meaning specified in Section 4.1(b) hereof.
Applicable Interest Rate shall
mean, as of any date of determination and for
any Investor Certificate, the per annum
interest rate applicable to such Investor
Certificate as of such date.
Capitalized Interest Account shall
have the meaning specified in Section 4.4 and
Section 4.5 hereof. Deposits into and
withdrawals from the Capitalized Interest
Account shall be made in accordance with the
provisions of Section 4.5 hereof.
Certificates shall mean,
collectively, the Fixed Base Certificates and
the Subordinated Certificate.
Closing Date shall mean March 1,
1999.
Controlled Amortization Amount
means one-twelfth of the Fixed Base Invested
Amount on the Controlled Amortization Date.
Controlled Amortization Date means
August 1, 2003.
Controlled Amortization Period
shall mean, unless an Early Amortization
Period shall have commenced prior thereto, the
period commencing on the day immediately
following the last day of the Revolving
Period, and ending upon the first to occur of
(a) the commencement of an Early Amortization
Period, (b) the payment in full to the Fixed
Base Certificateholders of the Fixed Base
Invested Amount and any unreimbursed FBC
Investor Charge-Offs and (c) the Expected
Final Distribution Date.
Credit Watch shall mean the
publication by the Rating Agency of a report
indicating that the Fixed Base Certificates
are being monitored for possible upgrade or
downgrade, and Credit Watch with negative
implications shall mean the publication by
the Rating Agency of a report indicating that
the Fixed Base Certificates are being
monitored for possible downgrade.
Default Amount with respect to any
Collection Period, means the aggregate amount
of Receivables which become Defaulted
Receivables during such Collection Period.
Default Rate with respect to any
Collection Period, means the annualized
percentage equivalent of a fraction, the
numerator of which is the Default Amount for
such month and the denominator of which is the
Pool Balance as of the first day of such
month.
Deficiency Amount shall mean, with
respect to any Distribution Date, the amount,
if any, by which (i) the sum of (A) the
Monthly Senior Servicing Fee for the Related
Distribution Date, (B) the FBC Monthly
Interest for the Related Interest Period, (C)
all FBC Carryover Interest for the Related
Interest Period, and (D) the Investor Default
Amount, if any, for the Related Collection
Period, exceeds (ii) the sum of (A) the
Investor Finance Charge Collections retained
in the Collection Account during the Related
Collection Period pursuant to Section
4.1(c)(ii), (B) the Investor Finance Charge
Collections retained in the Collection Account
pursuant to Section 4.1(c)(iii) during the
Related Collection Period, (C) the Investor
Finance Charge Collections retained in the
Collection Account pursuant to Section
4.1(c)(iv) during the Related Collection
Period and (D) the Investor Investment
Proceeds on deposit in the Collection Account
on such Determination Date.
Delinquency Rate with respect to
any Collection Period, means the percentage
equivalent of a fraction, the numerator of
which is the aggregate of the balances of
Eligible Receivables that are 60 or more days
Contractually Delinquent as of the last day of
such month, and the denominator of which is
the Pool Balance as of the last day of such
month.
Distribution Date shall mean the
fifteenth day of each month (or, if such day
is not a Business Day, the next succeeding
Business Day), commencing April 15, 1999.
Early Amortization Event for
Series 1999-1 shall mean any Early
Amortization Event specified in Section 9.01
of the Agreement, together with any additional
Early Amortization Event specified in Section
7.1 hereof.
Eligible Past Due Receivables
shall mean any Receivable that is 120 or more
days Contractually Delinquent but has not been
classified as a Defaulted Receivable such
that, but for the operation of clause (h) of
the definition of Eligible Receivables, it
would be classified as an Eligible
Receivable.
Excess Spread means the annualized
percentage equivalent of a fraction, (a) the
numerator of which is Investor Finance Charge
Collections for such month less (i) the amount
of accrued Monthly Senior Servicing Fees for
such month, (ii) interest accrued on the Fixed
Base Certificates during such month and (iii)
the Investor Default Amount for such month,
and (b) the denominator of which is the
Required Series Pool Balance as of the close
of business on the Distribution Date during
such month.
Exchangeable Component shall mean,
as of any time of determination, in the case
of the Retained Amount Account, the amount set
forth as of such time on the ledger maintained
by the Servicer in accordance with Section
4.4(e) hereof as representing the net balance
of deposits made to the Retained Amount
Account pursuant to Section 4.6(a)(i) hereof
less amounts withdrawn therefrom in accordance
with Section 4.6.
Exchangeable Holder's Interest
means, for purposes of making allocations of
Series Finance Charge Collections, Series
Principal Collections or Default Amounts
allocated to any Series, the difference (but
not less than zero) between the Series Pool
Balance and the Required Series Pool Balance.
Exchangeable Holder's Percentage
means, for purposes of making any allocation
as to which the Floating Allocation Percentage
is applicable, 100% minus the Floating
Allocation Percentage, and for purposes of
making any allocation as to which the
Fixed/Floating Allocation Percentage is
applicable, 100% minus the Fixed/Floating
Allocation Percentage, provided that in any
case the Exchangeable Holder's Percentage
shall not be less than zero.
Expected Final Distribution Date
means the August 2004 Distribution Date.
FBC Additional Interest shall have
the meaning specified in Section 4.2 hereof.
FBC Allocation Percentage shall
mean, with respect to any Collection Period,
the percentage equivalent of a fraction, the
numerator of which is the Fixed Base Invested
Amount and the denominator of which is the
Required Series Pool Balance, in each case, as
of the first day of such Collection Period.
FBC Carryover Interest shall mean,
for any Collection Period, an amount equal to
the sum of (a) the amount of any FBC Monthly
Interest previously due but not distributed on
the Fixed Base Certificates on a prior
Distribution Date, (b) to the extent permitted
under applicable law, the amount of any FBC
Additional Interest to accrue during the
Related Interest Period and (c) the amount of
any FBC Additional Interest previously due but
not distributed on the Fixed Base Certificates
on a prior Distribution Date.
FBC Interest Rate shall mean, with
respect to any Interest Period and the Fixed
Base Certificates, a fixed interest rate per
annum equal to 7.664, and, upon a downgrade or
a withdrawal of the ratings of the Fixed Base
Certificates, 8.414%.
FBC Interest Shortfall shall have
the meaning specified in Section 4.2 hereof.
FBC Investor Charge-Off shall have
the meaning specified in Section 4.9 hereof.
FBC Investor Default Amount shall
mean, with respect to each Distribution Date,
an amount equal to the portion of the Investor
Default Amount for the Related Collection
Period that will be allocated to the Fixed
Base Invested Amount as set forth in Section
4.9 hereof.
FBC Monthly Interest shall have
the meaning specified in Section 4.2 hereof.
FBC Monthly Principal shall have
the meaning specified in Section 4.3 hereof.
FBC Principal Allocation
Percentage shall mean, (a) with respect to
any Collection Period commencing during the
Revolving Period, the percentage equivalent of
a fraction, the numerator of which is the
Fixed Base Invested Amount and the denominator
of which is the Required Series Pool Balance,
in each case, as of the first day of such
Collection Period and after giving effect to
any distributions made as of such date, or (b)
with respect to any Collection Period
commencing during the Controlled Amortization
Period or an Early Amortization Period, the
percentage equivalent of a fraction, the
numerator of which is the Fixed Base Invested
Amount as of the first day of the last
Collection Period commencing during the
Revolving Period, and the denominator of which
is the Required Series Pool Balance as of the
first day of the last Collection Period
commencing during the Revolving Period.
FBC Principal Collections shall
mean, for any Allocation Day, an amount equal
to the Series Principal FBC Collections for
such day minus the product of (a) the amount
of Series Principal Collections distributed to
the Holder of the Exchangeable Certificate on
such day in accordance with Section 4.1(b)
(ii) hereof and (b) the FBC Principal
Allocation Percentage in effect on such
Allocation Day.
Fixed Base Certificate Balance
shall mean the aggregate principal amount of
the Fixed Base Certificates, which as of any
date of determination, will be the Initial
Fixed Base Invested Amount reduced to the
extent that principal payments are made to the
Holders of the Fixed Base Certificates.
Fixed Base Certificates shall have
the meaning specified in Section 6.1 hereof.
Fixed Base Certificateholder shall
mean, with respect to any Fixed Base
Certificate on any date, the Person in whose
name such Fixed Base Certificate is registered
on such date.
Fixed Base Invested Amount shall
mean, as of any date of determination, an
amount equal to (a) the Initial Fixed Base
Invested Amount, minus, (b) the amount of
principal payments made to the Fixed Base
Certificateholders in respect of the Fixed
Base Invested Amount prior to such date, and
minus, (c) the aggregate amount of FBC
Investor Charge-Offs previously allocated and
not reimbursed.
Fixed/Floating Allocation
Percentage shall mean, with respect to any
Collection Period during the Controlled
Amortization Period or an Early Amortization
Period, the percentage equivalent (which
percentage shall never exceed 100%) of a
fraction, the numerator of which is the
Required Series Pool Balance as of first day
of the last Collection Period to commence
during the Revolving Period and the
denominator of which is the Series Pool
Balance as of the first day of such current
Collection Period.
Floating Allocation Percentage
shall mean, with respect to any Collection
Period, the percentage equivalent (which
percentage shall never exceed 100%) of a
fraction, the numerator of which is the
Required Series Pool Balance and the
denominator of which is the Series Pool
Balance, in each case, as of the first day of
such Collection Period; provided, however,
that, with respect to the first Collection
Period, the Floating Allocation Percentage
shall mean the percentage equivalent of a
fraction, the numerator of which is the sum of
the Initial Fixed Base Invested Amount and the
Initial Subordinated Invested Amount, and the
denominator of which is the Series Pool
Balance as of the Closing Date.
Initial Fixed Base Invested Amount
shall mean $53,000,000.
Initial Subordinated Invested
Amount shall mean $6,550,562.
Interest Period shall mean, with
respect to any Distribution Date, the period
from and including the Distribution Date
immediately preceding such Distribution Date
(or, in the case of the first Distribution
Date, from and including the Closing Date) to
but excluding such Distribution Date.
Investor Component shall mean, as
of any time of determination, the amount set
forth as of such time on the ledger maintained
by the Servicer in accordance with Section
4.4(e) hereof as representing the net balance
of deposits made to the Retained Amount
Account pursuant to Sections 4.1(d) (i) (A)
(3), 4.1(d) (i) (B) (4), 4.1(d)(ii)(A)(5) and
4.1(d)(ii)(B)(5) hereof less amounts withdrawn
therefrom in accordance with Section 4.6.
Investor Default Amount shall
mean, (i) with respect to any Distribution
Date, an amount equal to the product of (a)
the Default Amount for the Related Collection
Period, (b) the Floating Allocation Percentage
for the Related Collection Period and (c) the
Series 1999-1 Allocation Percentage for the
Related Collection Period and, (ii) with
respect to any day during a Collection Period,
an amount equal to the product of (a) the
Default Amount recognized by the Servicer
through such day of such Collection Period,
(b) the Floating Allocation Percentage for the
Related Collection Period and (c) the Series
1999-1 Allocation Percentage for the Related
Collection Period.
Investor Default Holdback Amount
shall mean, with respect to (a) any Collection
Period (other than the initial Collection
Period), the greater of (A) the Investor
Default Amount which the Servicer reasonably
anticipates for such Collection Period or (B)
the average of the Investor Default Amounts
for each of the twelve consecutive Collection
Periods preceding such Collection Period (or,
for the initial twelve Collection Periods, for
as many Collection Periods as have occurred
since the Closing Date), and (b) the initial
Collection Period, $300,000.
Investor Finance Charge
Collections shall mean, as of any Allocation
Day, the product of the amount of Series
Finance Charge Collections received since the
beginning of the preceding Business Day and
(a) for any Collection Period commencing prior
to the commencement of an Early Amortization
Period, the Floating Allocation Percentage for
the current Collection Period or (b) for any
Collection Period commencing during an Early
Amortization Period, the Fixed/Floating
Allocation Percentage for the current
Collection Period.
Investor Investment Proceeds shall
mean, with respect to any Distribution Date,
all interest and other investment earnings
(net of losses and investment expenses) on
funds on deposit in the Series Accounts,
together with an amount equal to the Series
Allocation Percentage of the interest and
other investment earnings (net of losses and
investment expenses) on funds held in the
Collection Account credited as of such date to
the Collection Account pursuant to Section
4.02 of the Agreement.
Investor Principal Collections
shall mean, as of any Allocation Day, the sum
of (a) the FBC Principal Collections and (b)
the Subordinated Principal Collections, in
each case, determined for such day.
Make Whole Premium shall mean,
with respect to any Accelerated Payment, the
aggregate of the present values calculated in
accordance with standard financial practices
and discounted at the Reinvestment Yield of
the amount of the positive difference, if any,
of (a) the amount of interest that would have
accrued on such Accelerated Payment had it
been paid as all or a portion of the next
possible payment or payments of one or more
Controlled Amortization Amounts (taking into
account any previous payments of Controlled
Amortization Amounts or Accelerated Payments)
rather than being paid currently, over (b) the
amount of interest that would accrue on such
Accelerated Payment if it were reinvested
currently in one or more instruments in
amounts and having maturities corresponding to
the one or more next possible payments
described in clause (a) and bearing interest
at the Reinvestment Yield. The Make Whole
Premium shall never be less than zero.
Monthly Payment Rate with respect
to any Collection Period, shall mean the
percentage equivalent of a fraction, the
numerator of which is the aggregate amount of
all Collections in respect of Eligible
Receivables received during such month, and
the denominator of which is the Pool Balance
as of the first day of such month.
Monthly Senior Servicing Fee shall
mean, (i) with respect to any Distribution
Date relating to a Collection Period during
which Gottschalks, Inc. (or any successor
entity resulting from a transaction meeting
the requirements of Section 8.04 of the
Agreement or Section 7.4 hereof) is the
Servicer, five-sixths of the Monthly Servicing
Fee for the Related Collection Period and (ii)
with respect to any Distribution Date relating
to a Collection Period during which
Gottschalks, Inc. (or any successor entity
resulting from a transaction meeting the
requirements of Section 8.04 of the Agreement
or Section 7.4 hereof) is not the Servicer,
100% of the Monthly Servicing Fee for the
Related Collection Period.
Monthly Servicing Fee shall mean,
with respect to any Distribution Date, an
amount equal to one-twelfth of 3.00% per annum
of the Required Series Pool Balance as of the
first day of the Related Collection Period.
Monthly Subordinated Servicing Fee
shall mean, (i) with respect to any
Distribution Date relating to a Collection
Period during which Gottschalks, Inc. (or any
successor entity resulting from a transaction
meeting the requirements of Section 8.04 of
the Agreement or Section 7.4 hereof) is the
Servicer, one-sixth of the Monthly Servicing
Fee for the Related Collection Period and (ii)
with respect to any Distribution Date relating
to a Collection Period during which
Gottschalks, Inc. (or any successor entity
resulting from a transaction meeting the
requirements of Section 8.04 of the Agreement
or Section 7.4 hereof) is not the Servicer, 0%
of the Monthly Servicing Fee for the Related
Collection Period.
Optional Purchase Price shall
mean, with respect to any Distribution Date,
after giving effect to any deposits and
distributions otherwise to be made on such
Distribution Date, the sum of (a) the Fixed
Base Certificate Balance on such Distribution
Date, (b) accrued and unpaid interest on the
outstanding Fixed Base Certificate Balance
(including any FBC Carryover Interest), and
(c) any due but not distributed Make Whole
Premium (including any interest accrued
thereon, to the extent lawful, at the FBC
Interest Rate).
Portfolio Yield shall mean, with
respect to any Collection Period, the
annualized percentage equivalent of a fraction
(a) the numerator of which is Series Finance
Charge Collections for such Collection Period
less Series Default Amounts for such
Collection Period and (b) the denominator of
which is the Series Pool Balance as of the
first day of such Collection Period.
Rating Agency shall mean Duff &
Phelps Credit Rating Company or its
successors.
Reinvestment Yield shall mean,
with respect to any Accelerated Payment, the
yield to maturity implied by (a) the yields
reported, as of 10:00 a.m. New York City time
on the Business Day next preceding the
Distribution Date on which such Accelerated
Payment is to be made, on the display
designated as Page 678 on the Telerate
Service (or such other display as may replace
Page 678 on the Telerate Service) for actively
traded U.S. Treasury securities having a
maturity equal or closest to the Remaining
Average Life of such Accelerated Payment as of
such Distribution Date, plus 1.0% per annum,
or (b) if such yields shall not be reported as
of such time or the yields reported as of such
time shall not be ascertainable, the Treasury
Constant Maturity Series yields reported, for
the latest day for which such yields shall
have been so reported as of the Business Day
preceding the Distribution Date on which such
Accelerated Payment is to be made, in Federal
Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively
traded U.S. Treasury securities having a
constant maturity equal to the Remaining
Average Life of such Accelerated Payment as of
such Distribution Date, plus 1.0% per annum.
Such implied yield shall be determined, if
necessary, by (x) converting U.S. Treasury
bill quotations to bond-equivalent yields in
accordance with accepted financial practice
and (y) interpolating linearly between
reported yields. The Servicer shall calculate
the Reinvestment Yield with respect to any
Accelerated Payment.
Related Collection Period shall
mean, with respect to (a) any Distribution
Date, the preceding Collection Period and (b)
any Allocation Day, the Collection Period
during which such Allocation Day occurs.
Related Distribution Date shall
mean, with respect to any Collection Period or
Determination Date or Allocation Day, the
Distribution Date following, as applicable,
such Collection Period or Determination Date
or the calendar month in which such Allocation
Day occurs.
Related Interest Period shall
mean, with respect to (a) any Distribution
Date, the Interest Period ended on the
preceding day and (b) any Collection Period,
the Interest Period which commences during
such Collection Period.
Remaining Average Life shall mean,
at any time of determination after the
commencement of an Early Amortization Period,
the number of years obtained by dividing the
then Remaining Dollar-Years of the Fixed Base
Certificates by the Fixed Base Invested Amount
at such time. The term Remaining
Dollar-Years means the amount obtained by (a)
multiplying (i) the amount of each remaining
payment with respect to the Fixed Base
Certificates, assuming that such payments are
made in the Controlled Amortization Amounts
(using the Fixed Base Invested Amount at the
time an Early Amortization Period commenced in
order to calculate such Controlled
Amortization Amounts) over the number of
months comprising the Controlled Amortization
Period, by (ii) the number of years
(calculated to the nearest one-twelfth) which
will elapse between the date as of which the
calculation is made and each Distribution Date
during the notional Controlled Amortization
Period and (b) totaling all the products
obtained in clause (a).
Required Exchangeable Certificate
Amount means, for any date of determination,
the product of (i) the Required Series Pool
Balance as of such date of determination and
the greater of (A) 7.00% and (B) the
percentage equivalent of a fraction:
(1) the numerator of which is the
net amount of charge account refunds or
return credits that were given to account
holders by Gottschalks during the
calendar month of the prior calendar year
corresponding to the current calendar
month in which such determination is
being made (the Anniversary Month); and
(2) the denominator of which is the
aggregate amount of net sales credited to
Charge Accounts and recognized by
Gottschalks during such Anniversary
Month.
Required Series Pool Balance shall
mean, as of any date of determination, the sum
of (a) the Fixed Base Invested Amount on such
date and (b) the Subordinated Invested Amount
on such date.
Retained Amount Account shall have
the meaning specified in Section 4.4 hereof.
Deposits into and withdrawals from the
Retained Amount Account shall be made in
accordance with the provisions of Section 4.6
hereof.
Retained Exchangeable Amount has
the meaning specified in Section 4.6(a)(ii).
Revolving Period shall mean the
period beginning at the opening of business on
the Closing Date and ending on the earlier of
(a) the last day of the Related Collection
Period for the Distribution Date that is to
occur in August, 2003 and (b) the close of
business on the Business Day immediately
preceding the day on which an Early
Amortization Period commences.
Series Accounts shall have the
meaning specified in Section 4.4 hereof.
Series Cut-Off Date shall mean the
Cut-Off Date.
Series Default Amount shall mean,
with respect to any Distribution Date, an
amount equal to the product of (a) the Default
Amount for the Related Collection Period, and
(b) the Series 1999-1 Allocation Percentage
for the Related Collection Period.
Series Finance Charge Collections
shall mean, with respect to the aggregate
amount of Finance Charge Collections received
on any Business Day, the product of such
Finance Charge Collections and the Series 1999-
1 Allocation Percentage for the Related
Collection Period.
Series Issuance Date shall mean
March 1, 1999.
Series 1999-1 shall mean the
Series of Investor Certificates and the
Subordinated Certificate created pursuant to
this Series Supplement.
Series 1999-1 Allocation
Percentage shall mean, for any Collection
Period, the Series Allocation Percentage for
Series 1999-1 as calculated for such
Collection Period in accordance with the
Agreement.
Series Pool Balance shall mean, as
of any date of determination, the product of
(a) the Pool Balance as of such date and (b)
the Series 1999-1 Allocation Percentage for
such date.
Series Principal Collections shall
mean, with respect to the aggregate amount of
Principal Collections received since the
beginning of the preceding Business Day, the
product of such Principal Collections and the
Series 1999-1 Allocation Percentage for the
Related Collection Period.
Series Principal FBC Collections
shall mean, for each Allocation Day, an amount
equal to the product of (a) the amount of the
Series Principal Collections received on any
Business Day and (b) the FBC Principal
Allocation Percentage in effect on such
Allocation Day.
Series Principal SC Collections
shall mean, for each Allocation Day, an amount
equal to the product of (a) the amount of the
Series Principal Collections received on any
Business Day and (b) the Subordinated
Principal Allocation Percentage in effect on
such Allocation Day.
Series Termination Date shall mean
the August 2006 Distribution Date.
Servicing Fee Rate shall mean 3.0%
per annum.
Spread Account shall have the
meaning specified in Section 4.4 hereof.
Deposits into and withdrawals from the Spread
Account shall be made in accordance with the
provisions of Section 4.7 hereof.
Spread Account Requirement as of
any date of determination means zero, unless a
Spread Account Trigger occurs, in which case
Spread Account Requirement shall mean (i) the
sum of (a) the Fixed Base Certificate Balance,
(b) the amount by which the accrued and unpaid
Monthly Servicing Fee payable on the next
Distribution Date exceeds Investor Finance
Charge Collections allocable thereto through
such date, (c) the amount by which accrued and
unpaid interest on the Fixed Base Certificates
(including FBC Carryover Interest) payable on
the next Distribution Date exceeds Investor
Finance Charge Collections allocable thereto
through such date and (d) the amount by which
the Investor Default Amount through such date
exceeds Investor Finance Charge Collections
allocated therefor through such date as the
Investor Default Holdback Amount, minus (ii)
the sum of (a) the amount of Investor
Principal Collections then on deposit in the
Collection Account and available for the
payment of principal on the Fixed Base
Certificates and (b) the Investor Component of
the amount on deposit in the Retained Amount
Account.
Spread Account Trigger shall mean
the occurrence of any of the following events;
(1) the rating of the Fixed Base Certificates
are put on Credit Watch with negative
implications by the Rating Agency or (2) any
of the following conditions is true, taken as
an average of the relevant calculation for
each of the three preceding consecutive
calendar months; (i) the Portfolio Yield is
less than 14.5%; (ii) the Default Rate exceeds
8.5%; (iii) the Excess Spread is less than
3.00%; (iv) the Delinquency Rate exceeds
2.00%; or (v) the Monthly Payment Rate is less
than 22.5%.
Standby Servicer shall mean
Bankers Trust Company or such other party as
may be appointed by the Trustee to stand ready
to act as a Successor Servicer in the event
that Gottschalks is removed as Servicer.
Subordinated Allocation Percentage
shall mean, with respect to any Collection
Period, the percentage equivalent of a
fraction the numerator of which is the
Subordinated Invested Amount and the
denominator of which is the Required Series
Pool Balance, in each case, as of the first
day of such Collection Period.
Subordinated Certificate means the
Certificate issued pursuant to Section 6.3
hereof, substantially in the form of Exhibit
A-2.
Subordinated Invested Amount shall
mean, as of any date of determination, an
amount equal to (a) the Initial Subordinated
Invested Amount, minus, (b) the amount, if
any, by which the aggregate amount of
Subordinated Investor Charge-Offs exceeds the
Subordinated Investor Charge-Offs reimbursed
pursuant to Section 4.1(c)(vi), and minus (c)
the amount of principal payments made to the
holder of the Subordinated Certificate in
respect of the Subordinated Invested Amount
pursuant to Section 4.1(d)(ii)(C)(7) prior to
such date, provided that at no time shall the
Subordinated Invested Amount be less than
zero.
Subordinated Investor Charge-Offs
shall have the meaning specified in Section
4.9(b) hereof.
Subordinated Principal Allocation
Percentage shall mean, (a) with respect to
any Collection Period commencing during the
Revolving Period, the percentage equivalent of
a fraction, the numerator of which is the
Subordinated Invested Amount and the
denominator of which is the Required Series
Pool Balance, in each case, as of the first
day of such Collection Period, or (b) with
respect to any Collection Period commencing
during the Controlled Amortization Period or
any Early Amortization Period, the percentage
equivalent of a fraction, the numerator of
which is the Subordinated Invested Amount as
of the first day of the last Collection Period
to commence during the Revolving Period, and
the denominator of which is the Required
Series Pool Balance as of the first day of the
last Collection Period commencing during the
Revolving Period.
Subordinated Principal Collections
shall mean, for any Allocation Day, an amount
equal to the Series Principal SC Collections
for such day minus the product of (a) the
amount of Series Principal Collections
distributed to the holder of the Exchangeable
Certificate on such day in accordance with
Section 4.1(b)(ii) hereof and (b) the
Subordinated Principal Allocation Percentage
in effect on such Allocation Day.
Subordinated Reduction shall have
the meaning specified in Section 4.9(a)
hereof.
(b) Notwithstanding anything to the
contrary in this Series Supplement or the
Agreement, the term Rating Agency shall
mean, whenever used in this Series Supplement
or the Agreement with respect to the
Certificates, Duff & Phelps.
(c) All capitalized terms used
herein and not otherwise defined herein have
the meanings ascribed to them in the
Agreement. The definitions in this Section
2.1 are applicable to the singular as well as
the plural forms of such terms and to the
masculine as well as to the feminine and
neuter genders of such terms.
(d) The words hereof, herein
and hereunder and words of similar import
when used in this Series Supplement shall
refer to this Series Supplement as a whole and
not to any particular provision of this Series
Supplement; references to any Article, Section
or Exhibit are references to Articles,
Sections and Exhibits in or to this Series
Supplement unless otherwise specified; and the
term including means including without
limitation.
(e) References herein to
Collections received shall be deemed to
include Collections received and processed as
to principal and finance charges and shall not
include unprocessed Collections (i.e.,
Collections which have been received but for
which the Servicer in the ordinary course of
its business has not yet identified in its
computer records the principal and finance
charge components).
ARTICLE III
Servicing Fee
SECTION 3.1. Servicing Compensation. The
Monthly Servicing Fee shall be payable to the
Servicer, in arrears, on each Distribution
Date occurring prior to the earlier of the
first Distribution Date following the Series
Termination Date and the first Distribution
Date on which the Fixed Base Invested Amount
and the Subordinated Invested Amount are both
zero. In no event shall the Trust, the
Trustee, the Fixed Base Certificateholders or
the holder of the Subordinated Certificate be
liable for any other servicing fee. The
Monthly Servicing Fee shall be payable to the
Servicer solely to the extent amounts are
available for distribution in accordance with
the terms of this Series Supplement.
Amounts payable in respect of the
Monthly Servicing Fee will be allocable from
Investor Finance Charge Collections (and from
amounts reallocated as Investor Finance Charge
Collections) pursuant to the priorities set
forth in Section 4.1 hereof. In the event
that Gottschalks Inc. (or any successor entity
resulting from a transaction meeting the
requirements of Section 8.04 of the Agreement
or Section 7.4 hereof) is no longer the
Servicer, the Monthly Senior Servicing Fee for
any calendar month (or portion thereof)
following such servicing transfer shall equal
100% of the Monthly Servicing Fee for such
calendar month (or portion thereof) during
which the successor servicer is acting in such
capacity. So long as Gottschalks Inc. (or any
successor entity resulting from a transaction
meeting the requirements of Section 8.04 of
the Agreement or Section 7.4 hereof) is the
Servicer, that portion of the Monthly Senior
Servicing shall equal five-sixths of the
Monthly Servicing Fee, with the remaining
Monthly Servicing Fee for such Servicer being
payable in the form of Monthly Subordinated
Servicing Fee. The Monthly Senior Servicing
Fee and the Monthly Subordinated Servicing Fee
shall be allocated to the Servicer pursuant to
Section 4.1(c)(ii).
ARTICLE IV
Rights of Certificateholders and
Allocation and Application of Collections
SECTION 4.1. Allocations and Distributions.
(a) General. Series Finance Charge
Collections, Series Principal Collections and
Series Default Amounts, as they relate to the
Certificates and the Exchangeable Certificate,
shall be allocated and distributed as set
forth in this Article IV.
(b) Distribution of Collections to the Holder
of the Exchangeable Certificate. At the
beginning of each Business Day (an Allocation
Day), the Servicer shall direct the Trustee
in writing to withdraw from the Collection
Account and distribute to the holder of the
Exchangeable Certificate (i) an amount equal
to the product of (A) the Exchangeable
Holder's Percentage in effect on such day and
(B) the amount of Series Finance Charge
Collections received on the preceding Business
Day, and (ii) an amount equal to the product
of (A) the Exchangeable Holders Percentage in
effect on such day and (B) the amount of
Series Principal Collections received on the
preceding Business Day. On each Distribution
Date, the Servicer shall allocate to the
Holder of the Exchangeable Certificate an
amount equal to the product of (x) the
Exchangeable Holder's Percentage in effect on
such date and (y) the amount of Series Default
Amount for the Related Collection Period.
(c) Allocation of Investor Finance Charge
Collections. At the beginning of each
Allocation Day, the Servicer shall allocate
Investor Finance Charge Collections received
on the preceding Business Day as follows and
in the following priorities:
(i) first, if an Early Amortization Event has
occurred, resulting in the assumption of
servicing duties by the Trustee or causing the
Trustee to incur extraordinary expenses in
connection with the performance of its duties
as a result of such Early Amortization Event,
unless an amount equal to the reasonable costs
and expenses of the Trustee related to such
assumption of servicing duties or its
performance of such duties in connection with
such Early Amortization Event (such amount not
to exceed $200,000 less any amounts paid to
the Trustee in respect thereof from any letter
of credit or surety bond maintained for such
purpose pursuant to Section 4.10) is then on
deposit in the Collection Account for the
benefit of the Trustee and allocated therefor,
Investor Finance Charge Collections received
since the beginning of the preceding Business
Day shall be retained in the Collection
Account until such amount is then on deposit;
(ii) second, unless an amount equal to the
Monthly Senior Servicing Fee for the current
Interest Period, plus any previously unpaid
Monthly Senior Servicing Fee (but only with
respect to the then current Servicer) is then
on deposit in the Collection Account and
allocated therefor, Investor Finance Charge
Collections received since the beginning of
the preceding Business Day shall be retained
in the Collection Account until such amount is
then on deposit;
(iii) third, unless an amount equal to the
sum of the FBC Monthly Interest to accrue
during the Related Interest Period, plus the
amount of any FBC Carryover Interest for the
Related Collection Period is then on deposit
in the Collection Account and allocated
therefor, Investor Finance Charge Collections
received since the beginning of the preceding
Business Day shall be retained in the
Collection Account until such amounts are then
on deposit;
(iv) fourth, unless an amount equal to the
Investor Default Holdback Amount for the
current Collection Period is then on deposit
in the Collection Account and allocated
therefor, Investor Finance Charge Collections
received since the beginning of the preceding
Business Day shall be retained in the
Collection Account until such amount is then
on deposit;
(v) fifth, unless all unreimbursed FBC
Investor Charge-Offs as of such Allocation Day
have been reallocated as FBC Principal
Collections, Investor Finance Charge
Collections received since the beginning of
the preceding Business Day shall be
reallocated as FBC Principal Collections until
the amounts reallocated equal all unreimbursed
FBC Investor Charge-Offs;
(vi) sixth, unless all unreimbursed
Subordinated Investor Charge-Offs as of such
Allocation Day have been reallocated as
Subordinated Principal Collections, Investor
Finance Charge Collections received since the
beginning of the preceding Business Day shall
be reallocated as Subordinated Principal
Collections until the amounts reallocated
equal all unreimbursed Subordinated Investor
Charge-Offs;
(vii) seventh, unless the amount then on
deposit in the Spread Account is equal to the
Spread Account Requirement on such Allocation
Day, Investor Finance Charge Collections
received since the beginning of the preceding
Business Day shall be withdrawn from the
Collection Account in an amount equal to such
insufficiency and shall be deposited in the
Spread Account;
(viii) eighth, if such Allocation Day falls
within an Early Amortization Period that
commenced as a result of the occurrence of any
Early Amortization Event other than the
occurrence of a Servicer Default pursuant to
clauses (d) and (f) of Section 7.3, then,
unless an amount equal to the Make Whole
Premium for the Related Collection Period
(together with any Make Whole Premium
previously due but not paid on a prior
Distribution Date and any interest thereon at
the FBC Interest Rate) is then on deposit in
the Collection Account and allocated therefor,
Investor Finance Charge Collections received
since the beginning of the preceding Business
Day shall be retained in the Collection
Account until such amount is then on deposit
and allocated therefor;
(ix) ninth, unless an amount equal to the
Monthly Subordinated Servicing Fee for the
current Interest Period, plus any previously
unpaid Monthly Subordinated Servicing Fee, is
then on deposit in the Collection Account and
allocated therefor, Investor Finance Charge
Collections received since the beginning of
the preceding Business Day shall be retained
in the Collection Account until such amount is
then on deposit;
(x) tenth, unless an amount equal to the
amount necessary to reimburse any draws made
on any letter of credit or surety bond used to
cover expenses incurred pursuant to Section
4.1(c)(i) is on is then on deposit in the
Collection Account and allocated therefor,
Investor Finance Charge Collections received
since the beginning of the preceding Business
Day shall be retained in the Collection
Account until such amount is then on deposit;
(xi) eleventh, the balance, if any, of the
Investor Finance Charge Collections received
since the beginning of the preceding Business
Day (after making the allocations described in
paragraphs (i) through (x) above) shall be
distributed to the Depositor for application
in accordance with the Receivables Purchase
Agreement.
(d) Allocation of Principal Collections. (i)
At the beginning of each Allocation Day, the
Servicer shall allocate the FBC Principal
Collections for such day as follows and in the
following priorities:
(A) if such Allocation Day occurs during
the Revolving Period:
(1) first, unless an amount equal to the
amount of all unreimbursed FBC Investor Charge-
Offs is then on deposit in the Collection
Account and allocated therefor (to the extent
not already funded from Investor Finance
Charge Collections or amounts reallocated from
Subordinated Principal Collections pursuant to
Section 4.1(d)(ii)(A)(2)), FBC Principal
Collections received since the beginning of
the preceding Business Day shall be retained
in the Collection Account until the sum of
such amounts equals the amount of all
unreimbursed FBC Investor Charge-Offs;
(2) second, unless an amount equal to the
portion of the Investor Default Amount
allocable to the Fixed Base Invested Amount is
then on deposit in the Collection Account as
the Investor Default Holdback Amount or from
reallocated Subordinated Principal Collections
pursuant to Section 4.1(d)(ii)(A)(3), FBC
Principal Collections received since the
beginning of the preceding Business Day shall
be retained in the Collection Account until
such amount is then on deposit;
(3) third, if pursuant to Section 4.6(a)
hereof an amount is required to be deposited
in the Retained Amount Account on such day,
FBC Principal Collections received since the
beginning of the preceding Business Day in an
amount equal to the lesser of (x) the product
of (1) the amount of such required deposit and
(2) the FBC Allocation Percentage for such
Allocation Day, and (y) the balance, if any,
of FBC Principal Collections received since
the beginning of the preceding Business Day
shall be withdrawn from the Collection Account
and deposited in the Retained Amount Account;
and
(4) fourth, the balance, if any, of FBC
Principal Collections received since the
beginning of the preceding Business Day (after
making the allocations described in paragraphs
(1), (2) and (3) above) shall be distributed
to the Depositor for application in accordance
with the Receivables Purchase Agreement; or
(B) if such Allocation Day occurs during
the Controlled Amortization Period:
(1) first, unless an amount equal to the
Controlled Amortization Amount is then on
deposit in the Collection Account and
allocated therefor, FBC Principal Collections
received since the beginning of the preceding
Business Day shall be retained in the
Collection Account until such amount is then
on deposit;
(2) second, unless an amount equal to the
amount of all unreimbursed FBC Investor Charge-
Offs is then on deposit in the Collection
Account and allocated therefor (to the extent
not already funded from Investor Finance
Charge Collections or amounts reallocated from
Subordinated Principal Collections pursuant to
Section 4.1(d)(ii)(B)(3)), FBC Principal
Collections received since the beginning of
the preceding Business Day shall be retained
in the Collection Account until such amount is
then on deposit;
(3) third, unless an amount equal to the
portion of the Investor Default Amount
allocable to the Fixed Base Invested Amount
(to the extent not already funded from
Investor Finance Charge Collections or amounts
reallocated from Subordinated Principal
Collections pursuant to Section
4.1(d)(ii)(B)(4), or to be funded from amounts
on deposit in the Spread Account and available
for allocation therefor pursuant to Section
4.7) is then on deposit in the Collection
Account and allocated therefor, FBC Principal
Collections received since the beginning of
the preceding Business Day shall be retained
in the Collection Account until such amount is
then on deposit;
(4) fourth, if pursuant to Section 4.6(a)
hereof, an amount is required to be deposited
in the Retained Amount Account on such day
from Investor Principal Collections, FBC
Principal Collections received since the
beginning of the preceding Business Day in an
amount equal to the lesser of (x) the product
of (1) the amount of such required deposit and
(2) the FBC Allocation Percentage for such
Allocation Day, and (y) the balance, if any,
of FBC Principal Collections received since
the beginning of the preceding Business Day
shall be withdrawn from the Collection Account
and deposited in the Retained Amount Account;
and
(5) fifth, the balance, if any, of FBC
Principal Collections received since the
beginning of the preceding Business Day (after
making the allocations described in paragraphs
(1), (2), (3) and (4) above) shall be
distributed to the Depositor for application
in accordance with the Receivables Purchase
Agreement; or
(C) if such Allocation Day occurs during
an Early Amortization Period:
(1) first, unless an amount equal to the
Fixed Base Certificate Balance is then on
deposit in the Collection Account and
allocated therefor, FBC Principal Collections
received since the beginning of the preceding
Business Day shall be retained in the
Collection Account until such amount is then
on deposit;
(2) second, unless an amount equal to the
Make Whole Premium for the Related Collection
Period (together with any Make Whole Premium
previously due but not paid on a prior
Distribution Date and any interest thereon at
the FBC Interest Rate), is then on deposit in
the Collection Account and allocated therefor
(to the extent not already funded from
Investor Finance Charge Collections or amounts
reallocated from Subordinated Principal
Collections pursuant to Section
4.1(d)(ii)(C)(5)), FBC Principal Collections
received since the beginning of the preceding
Business Day shall be retained in the
Collection Account until such amount is then
on deposit;
(3) third, unless an amount equal to the
Subordinated Invested Amount is then on
deposit in the Collection Account and
allocated therefor, FBC Principal Collections
received since the beginning of the preceding
Business Day shall be retained in the
Collection Account until such amount is then
on deposit; and
(4) fourth, the balance, if any, of FBC
Principal Collections received since the
beginning of the preceding Business Day (after
making the allocation described in paragraphs
(1), (2) and (3) above) shall be distributed
to the Depositor for application in accordance
with the Receivables Purchase Agreement.
(ii) At the beginning of each Allocation Day,
the Servicer shall allocate the Subordinated
Principal Collections for such day as follows
and in the following priorities:
(A) if such Allocation Day occurs during
the Revolving Period:
(1) first, unless an amount equal to the sum
of the FBC Monthly Interest to accrue during
the Related Interest Period, plus the amount
of any FBC Carryover Interest for the Related
Collection Period, is then on deposit in the
Collection Account and allocated therefor (to
the extent not already funded from Investor
Finance Charge Collections or to be funded
from amounts on deposit in the Spread Account
and available for allocation therefor pursuant
to Section 4.7), Subordinated Principal
Collections received since the beginning of
the preceding Business Day shall be
reallocated as Investor Finance Charge
Collections in the amount of any such
deficiency;
(2) second, unless an amount equal to the
amount of all unreimbursed FBC Investor
Charge-Offs is then on deposit in the
Collection Account and allocated therefor (to
the extent not already funded from Investor
Finance Charge Collections), Subordinated
Principal Collections received since the
beginning of the preceding Business Day shall
be reallocated as FBC Principal Collections
and retained in the Collection Account until
the sum of such amounts equals the amount of
all unreimbursed FBC Investor Charge-Offs;
(3) third, on the last day of each Collection
Period, Subordinated Principal Collections
will be reallocated as Investor Finance Charge
Collections in the amount by which the
Investor Default Amount for such Collection
Period exceeds the sum of the amounts
allocated to the Investor Default Holdback
Amount (after giving effect to all allocations
of Investor Finance Charge Collections) and
amounts on deposit in the Spread Account and
available for allocation therefor pursuant to
Section 4.7;
(4) fourth, unless an amount equal to the
amount of all unreimbursed Subordinated
Investor Charge-Offs is then on deposit in the
Collection Account and allocated therefor,
Subordinated Principal Collections received
since the beginning of the preceding Business
Day shall be retained in the Collection
Account until the sum of such amounts equals
the amount of all unreimbursed Subordinated
Investor Charge-Offs (to the extent not
already funded from Investor Finance Charge
Collections);
(5) fifth, if pursuant to Section 4.6(a)
hereof an amount is required to be deposited
in the Retained Amount Account on such day,
Subordinated Principal Collections received
since the beginning of the preceding Business
Day in an amount equal to the lesser of (x)
the product of (1) the amount of such required
deposit and (2) the Subordinated Principal
Allocation Percentage for such Allocation Day,
and (y) the balance, if any, of Subordinated
Principal Collections received since the
beginning of the preceding Business Day shall
be withdrawn from the Collection Account and
deposited in the Retained Amount Account; and
(6) sixth, the balance, if any, of
Subordinated Principal Collections received
since the beginning of the preceding Business
Day (after making the allocations described in
paragraphs (1), (2), (3), (4) and (5) above)
shall be distributed to the Depositor for
application in accordance with the
Receivables Purchase Agreement; or
(B) if such Allocation Day occurs during
the Controlled Amortization Period:
(1) first, unless an amount equal to the sum
of the FBC Monthly Interest to accrue during
the Related Interest Period, plus the amount
of any FBC Carryover Interest for the Related
Collection Period is then on deposit in the
Collection Account and allocated therefor (to
the extent not already funded from Investor
Finance Charge Collections or to be funded
from amounts on deposit in the Spread Account
and available for allocation therefor pursuant
to Section 4.7), Subordinated Principal
Collections received since the beginning of
the preceding Business Day shall be
reallocated as Investor Finance Charge
Collections in the amount of any such
deficiency.
(2) second, unless an amount equal to the
Controlled Amortization Amount is then on
deposit in the Collection Account and
allocated therefor (to the extent not already
funded from FBC Principal Collections),
Subordinated Principal Collections received
since the beginning of the preceding Business
Day shall be reallocated as FBC Principal
Collections in the amount of any such
deficiency;
(3) third, unless an amount equal to the
amount of all unreimbursed FBC Investor
Charge-Offs is then on deposit in the
Collection Account and allocated therefor (to
the extent not already funded from Investor
Finance Charge Collections), Subordinated
Principal Collections received since the
beginning of the preceding Business Day shall
be reallocated as FBC Principal Collections
and retained in the Collection Account until
the sum of such amounts equals the amount of
all unreimbursed FBC Investor Charge-Offs;
(4) fourth, on the last day of each
Collection Period, Subordinated Principal
Collections will be reallocated as Investor
Finance Charge Collections in the amount by
which any Investor Default Amounts allocable
to the Fixed Base Invested Amount for such
Collection Period exceeds the sum of the
amount of Investor Finance Charge Collections
allocated thereto (i.e. the Investor Default
Holdback Amount) and amounts on deposit in the
Spread Account and available for allocation
therefor pursuant to Section 4.7 to fund such
deficiency;
(5) fifth, if pursuant to Section 4.6(a)
hereof an amount is required to be deposited
in the Retained Amount Account on such day,
Subordinated Principal Collections received
since the beginning of the preceding Business
Day shall be withdrawn from the Collection
Account in an amount equal to the lesser of
(x) the product of (1) the amount of such
required deposit and (2) the Subordinated
Principal Allocation Percentage for such
Allocation Day, and (y) the balance, if any,
of Subordinated Principal Collections received
since the beginning of the preceding Business
Day, and deposited in the Retained Amount
Account;
(6) sixth, unless an amount equal to the
amount of all unreimbursed Subordinated
Investor Charge-Offs is then on deposit in the
Collection Account and allocated therefor (to
the extent not already funded from Investor
Finance Charge Collections), Subordinated
Principal Collections received since the
beginning of the preceding Business Day shall
be retained in the Collection Account until
the sum of such amounts equals the amount of
all unreimbursed Subordinated Investor
Charge-Offs;
(7) seventh, unless an amount
equal to the amount by which the
Investor Default Amount for such
Collection Period exceeds the sum of
the amount of Investor Finance
Charge Collections allocated thereto
(i.e. the Investor Default Holdback
Amount) and amounts on deposit in
the Spread Account and available for
allocation therefor pursuant to
Section 4.7 is then on deposit in
the Collection Account and allocated
therefor (without duplication of
reallocations of Subordinated
Principal Collections pursuant to
clause (4) above), Subordinated
Principal Collections received since
the beginning of the preceding
Business Day shall be reallocated as
Investor Finance Charge Collections
in the amount of any such
deficiency; and
(8) eighth, the balance, if
any, of Subordinated Principal
Collections received since the
beginning of the preceding Business
Day (after making the allocations
described in paragraphs (1), (2),
(3), (4), (5), (6) and (7) above)
shall be distributed to the
Depositor for application in
accordance with the Receivables
Purchase Agreement; or
(C) if such Allocation Day occurs during
an Early Amortization Period:
(1) first, Subordinated Principal Collections
will be reallocated as Investor Finance Charge
Collections in the amount by which the sum of
FBC Monthly Interest to accrue during the
Related Interest Period, plus the amount of
any FBC Carryover Interest for the Related
Collection Period exceeds amounts on deposit
in the Collection Account in respect thereof
(after first giving effect to all allocations
of Investor Finance Charge Collections and
amounts on deposit in the Spread Account and
available for allocation therefor pursuant to
Section 4.7);
(2) second, unless an amount equal to the
amount of all unreimbursed FBC Investor
Charge-Offs is then on deposit in the
Collection Account and allocated therefor (to
the extent not already funded from Investor
Finance Charge Collections), Subordinated
Principal Collections received since the
beginning of the preceding Business Day shall
be reallocated as FBC Principal Collections
and retained in the Collection Account until
the sum of such amount equals the amount of
all unreimbursed FBC Investor Charge-Offs;
(3) third, unless an amount equal to the
amount of any Investor Default Amounts
allocable to the Fixed Base Invested Amount is
then on deposit in the Collection Account and
allocated therefor (to the extent not already
funded from Investor Finance Charge
Collections or to be funded from amounts on
deposit in the Spread Account and available
for allocation therefor pursuant to Section
4.7), Subordinated Principal Collections
received since the beginning of the preceding
Business Day shall be reallocated as Investor
Finance Charge Collections in the amount of
any such deficiency;
(4) fourth, Subordinated Principal
Collections will be reallocated as FBC
Principal Collections in the amount by which
the Fixed Base Certificate Balance exceeds
amounts on deposit in the Collection Account
in respect thereof (after first giving effect
to all allocations of FBC Principal
Collections);
(5) fifth, if amounts are required to be
allocated pursuant to Section 4.1(c)(vi),
unless an amount equal to the Make Whole
Premium for the Related Collection Period
(together with any Make Whole Premium
previously due but not paid on a prior
Distribution Date, plus interest thereon at
the FBC Interest Rate) is then on deposit in
the Collection Account and allocated therefor
(to the extent not already funded from
Investor Finance Charge Collections),
Subordinated Principal Collections received
since the beginning of the preceding Business
Day shall be reallocated as Investor Finance
Charge Collections in the amount of any such
deficiency;
(6) sixth, unless an amount equal to the
amount of all unreimbursed Subordinated
Investor Charge-Offs is then on deposit in the
Collection Account and allocated therefor (to
the extent not already funded from Investor
Finance Charge Collections), Subordinated
Principal Collections received since the
beginning of the preceding Business Day shall
be retained in the Collection Account until
the sum of such amounts equals the amount of
all unreimbursed Subordinated Investor
Charge-Offs; and
(7) seventh, the balance, if any, of
Subordinated Principal Collections received
since the beginning of the preceding Business
Day (after making the allocations described in
paragraphs (1), (2), (3), (4), (5) and (6)
above) shall (I) so long as the Subordinated
Invested Amount is greater than zero, be
retained in the Collection Account until an
amount equal to the Subordinated Invested
Amount is on deposit therein, and (II) if the
Subordinated Invested Amount is zero, be
distributed to the Depositor.
(e) Investor Default Holdback Amount. On the
last day of each Collection Period, the
Servicer shall direct the Trustee in writing
to apply the Investor Default Holdback Amount
retained in the Collection Account during such
Collection Period as follows: an amount equal
to the Investor Default Amount for such
Collection Period shall be reallocated as FBC
Principal Collections and applied pursuant to
Section 4.1(d)(i). To the extent the Investor
Default Holdback Amount for the related
Collection Period exceeds the related Investor
Default Amount for such Collection Period, the
excess Investor Default Holdback Amount shall
be deemed to be Investor Finance Charge
Collections available for application pursuant
to Section 4.1(c).
(f) Distributions.
(i) On or before each Determination Date, the
Servicer shall provide written directions to
the Trustee directing the Trustee to
distribute to the Fixed Base
Certificateholders on the following
Distribution Date from amounts on deposit in
the Collection Account:
(A) if such Determination Date
relates to a Collection Period that
commences during the Revolving
Period (and during or prior to which
no Early Amortization Event occurs),
an amount equal to the sum of the
amounts, if any, retained in the
Collection Account during the
Related Collection Period in respect
of the Fixed Base Certificates
pursuant to Section 4.1(c)(iii) and
4.1(d)(ii)(A)(1); or
(B) if such Determination Date
relates to a Collection Period that
commences after the termination of
the Revolving Period (and during or
prior to which no Early Amortization
Event occurs), an amount equal to
the sum of the amounts, if any,
retained in the Collection Account
during the Related Collection Period
in respect of the Fixed Base
Certificates pursuant to Sections
4.1(c)(iii), 4.1(c)(v),
4.1(d)(i)(B)(1), 4.1(d)(i)(B)(2),
4.1(d)(ii)(B)(1), 4.1(d)(ii)(B)(2),
4.1(d)(ii)(B)(3) and 4.1(e) (to the
extent allocated to amounts payable
to the Fixed Base
Certificateholders); or
(C) if such Determination Date
relates to a Collection Period that
commences after the occurrence of an
Early Amortization Event or during
which an Early Amortization Event
occurs, (1) an amount equal to the
sum of the amounts, if any, retained
in the Collection Account during the
Related Collection Period in respect
of the Fixed Rate Certificates
pursuant to Sections 4.1(c)(iii),
4.1(c)(v), 4.1(c)(viii),
4.1(d)(i)(C)(1), 4.1(d)(i)(C)(2),
4.1(d)(ii)(C)(1), 4.1(d)(ii)(C)(2)
and 4.1(d)(ii)(C)(4) and 4.1(e) (to
the extent allocated to amounts
payable to the Fixed Base
Certificateholders);
(ii) On or before each Determination Date, the
Servicer shall provide written directions to
the Trustee directing the Trustee to
distribute to the Servicer on the following
Distribution Date from amounts on deposit in
the Collection Account, an amount equal to the
sum of the amounts, if any, retained in the
Collection Account during the Related
Collection Period pursuant to Sections
4.1(c)(ii) and 4.1(c)(ix); provided, however,
so long as Gottschalks is the Servicer, the
Trustee shall first deduct from any amount
payable to the Servicer pursuant to this
paragraph an amount equal to the sum of (i)
any accrued but unpaid trustee's fees owed to
it pursuant to Section 11.05 of the Agreement
and (ii) any accrued but unpaid fees of the
Standby Servicer, but in no event in excess of
the Monthly Senior Servicing Fee;
(iii) On or before each Determination Date
that occurs during an Early Amortization
Period, the Servicer shall provide written
directions to the Trustee directing the
Trustee to distribute to the Subordinated
Certificateholder on the following
Distribution Date from amounts on deposit in
the Collection Account an amount equal to the
sum of the amounts, if any, retained in the
Collection Account during the Related
Collection Period in respect of the
Subordinated Certificates pursuant to Section
4.1(d)(ii)(C)(7);
(iv) On each Distribution Date, the Servicer
shall provide written instructions to the
Trustee directing the Trustee to distribute
all amounts retained in the Collection Account
pursuant to Section 4.1(c)(i) or Section
4.1(c)(x) that are necessary to cover any
expenses referred to in Section 4.1(c)(i); and
(v) On each Distribution Date, the Servicer
shall provide written instructions to the
Trustee directing the Trustee to distribute
all amounts retained in the Collection Account
pursuant to Section 4.1(c) and Section 4.1(d)
and not required for any other purpose
hereunder to the Depositor for application in
accordance with the Receivables Purchase
Agreement.
(g) Other Amounts. The withdrawals to be
made from the Collection Account pursuant to
this Section 4.1 do not apply to deposits into
the Collection Account that do not represent
Collections, including proceeds from the sale,
disposition or liquidation of Receivables
pursuant to Section 9.02 or Section 12.02 of
the Agreement, which shall be distributable
pursuant to the priorities set forth in
Article IX hereof.
SECTION 4.2. Determination of FBC Monthly
Interest. The amount of monthly interest (FBC
Monthly Interest) distributable from the
Collection Account (or, in the case of the
first Distribution Date, from the Capitalized
Interest Account) with respect to the Fixed
Base Certificates on any Distribution Date
shall be an amount equal to one-twelfth of the
product of (i) the Fixed Base Certificate
Balance as of the close of business on the
first day of the Related Collection Period,
and (ii) the FBC Interest Rate; provided that
in the case of the initial Interest Period the
FBC Monthly Interest shall be $496,456.89. On
the Determination Date preceding each
Distribution Date, the Servicer shall
determine the excess, if any, of (x) the sum
of FBC Monthly Interest for the Related
Interest Period, plus the amount, if any, of
the FBC Interest Shortfall which was due but
not paid on the prior Distribution Date (which
amount, as of the first Determination Date,
shall be zero) over (y) the amount which will
be available to be distributed to the Holders
of the Fixed Base Certificates on such
Distribution Date in respect thereof pursuant
to this Series Supplement (such excess, the
FBC Interest Shortfall). If, on any
Distribution Date, the FBC Interest Shortfall
is greater than zero, then an additional
amount (FBC Additional Interest) shall be
payable as provided herein with respect to
Fixed Base Certificates on each Distribution
Date following such Distribution Date, to but
excluding the Distribution Date on which the
FBC Interest Shortfall is paid to the Holders
of the Fixed Base Certificates, in an amount
equal to the product of (i) such FBC Interest
Shortfall (or the portion thereof which has
not previously been paid to Fixed Base
Certificateholders) and (ii) one-twelfth of
the FBC Interest Rate. Notwithstanding
anything to the contrary herein, FBC
Additional Interest shall be paid or
distributed on Fixed Base Certificates only to
the extent permitted by applicable law.
SECTION 4.3. Determination of FBC Monthly
Principal. The amount of monthly principal
(FBC Monthly Principal) distributable from
the Collection Account with respect to the
Fixed Base Certificates on each Distribution
Date prior to the Distribution Date relating
to the first Collection Period during the
Controlled Amortization Period or during which
an Early Amortization Event occurs shall be
zero. The amount of FBC Monthly Principal
distributable from the Collection Account with
respect to the Fixed Base Certificates on each
Distribution Date commencing with the
Distribution Date relating to the first
Collection Period during the Controlled
Amortization Period or during which an Early
Amortization Event occurs shall be the lesser
of (a) FBC Principal Collections (including
Investor Finance Charge Collections,
Subordinated Principal Collections, amounts on
deposit in the Spread Account and allocated
therefor pursuant to Section 4.7 and amounts
on deposit in the Retained Amount Account
reallocated as FBC Principal Collections) on
deposit in the Collection Account and
allocated thereto on such Distribution Date
and (b) either (i) prior to the occurrence of
an Early Amortization Event during such
Related Collection Period, the sum of (A) the
Controlled Amortization Amount and (B) the
amount of unreimbursed FBC Investor Charge-
Offs as of such Distribution Date, or (ii)
following the occurrence of an Early
Amortization Event during such Related
Collection Period, the Fixed Base Certificate
Balance.
SECTION 4.4. Series Accounts. (a) The
Servicer, for the benefit of the
Certificateholders, shall establish and
maintain in the name of the Trustee, on behalf
of the Trust, (i) an Eligible Deposit Account
(the Capitalized Interest Account), which
shall be identified as the Capitalized
Account for Gottschalks Credit Card Master
Trust, Series 1999-1, (ii) an Eligible
Deposit Account (the Retained Amount
Account), which shall be identified as the
Retained Amount Account for Gottschalks
Credit Card Master Trust, Series 1999-1, and
(iii) an Eligible Deposit Account (the Spread
Account), which shall be identified as the
Spread Account for Gottschalks Credit Card
Master Trust, Series 1999-1. Each of the
Capitalized Interest Account, the Retained
Amount Account and the Spread Account shall
bear a designation clearly indicating that the
funds deposited therein are held for the
benefit of the Certificateholders. The
Capitalized Interest Account, the Retained
Amount Account and the Spread Account are
referred to herein individually as a Series
Account and collectively as Series
Accounts.
(b) At the written direction of the Servicer,
funds on deposit in any Series Account shall
be invested by the Trustee in Eligible
Investments selected by the Servicer that will
mature no later than the date on which such
funds are expected to be withdrawn from such
Series Account. All such Eligible Investments
shall be held by the Trustee for the benefit
of the Certificateholders. All interest and
other investment earnings (net of losses and
investment expenses) of funds on deposit in
the Series Accounts shall be deposited in the
Collection Account and shall be treated by the
Servicer as Investor Finance Charge
Collections. In no event shall the Trustee be
liable for the selection of investments or for
investment losses incurred thereon. The
Trustee shall have no liability in respect of
losses incurred as a result of the liquidation
of any such investment prior to its stated
maturity or the failure of the party directing
such investment to provide timely written
investment direction. The Trustee shall have
no obligation to invest or reinvest any
amounts held hereunder in the absence of such
written investment direction.
(c) The Capitalized Interest Account shall be
maintained until all amounts on deposit
therein have been applied in accordance with
Section 4.5 hereof. The Retained Amount
Account shall be maintained until all amounts
on deposit therein have been applied in
accordance with Section 4.6(e) or (f) hereof.
The Spread Account shall be maintained until
all amounts on deposit therein have been
applied in accordance with Section 4.7(c)
hereof and the Fixed Base Certificate Balance
has been reduced to zero.
(d) The Trustee shall possess all right,
title and interest in and to all funds on
deposit from time to time in, and all Eligible
Investments credited to, the Series Accounts
and in all proceeds thereof. Each Series
Account shall be under the sole dominion and
control of the Trustee for the benefit of the
Certificateholders. If, at any time, any
Series Account ceases to be an Eligible
Deposit Account the Servicer shall within 10
Business Days (or such longer period, not to
exceed 30 calendar days, as to which each
Rating Agency may consent) instruct the
Trustee to establish a new Series Account
meeting the conditions specified in subsection
(a) above as an Eligible Deposit Account and
shall transfer any cash and/or any investments
to such new Series Account. Neither the
Depositor, the Servicer nor any person or
entity claiming by, through or under the
Depositor, the Servicer or any such person or
entity shall have any right, title or interest
in, or any right to withdraw any amount from,
any Series Account, except as expressly
provided herein. Schedule 1 hereto, which is
hereby incorporated into and made part of this
Series Supplement, identifies the Series
Accounts by setting forth for each such
account the account number of such account,
the account designation of such account and
the name of the institution with which such
account has been established. If a substitute
Series Account is established pursuant to this
Section 4.4, the Servicer shall provide to the
Trustee an amended Schedule 1, setting forth
the relevant information for such substitute
Series Account.
(e) The Servicer shall maintain a ledger for
the Retained Amount Account and shall record
in such ledger the Investor Component and the
Exchangeable Component of each deposit made by
the Trustee to, and each withdrawal by the
Trustee from, the Retained Amount Account.
The Servicer shall also maintain a ledger for
the Spread Account and shall record in such
ledger each deposit made by the Trustee to,
and withdrawal by the Trustee from, the Spread
Account.
(f) Pursuant to the authority granted to the
Servicer in Section 3.01(a) of the Agreement,
the Servicer shall have the power, revocable
by the Trustee, to instruct the Trustee to
make withdrawals and payments from the Series
Accounts for the purposes of carrying out the
Servicer's or the Trustee's duties hereunder.
(g) The Trustee hereby confirms that (i) the
Trustee is acting, with respect to the
establishment and maintenance of Series
Accounts, as a "securities intermediary" as
defined in Section 8-102 of the UCC or the
corresponding Section of the UCC in the
applicable State (in such capacity, the
Securities Intermediary), (ii) has
established each Series Account as a
"securities account" as such term is defined
in Section 8-501(a) of the UCC, (iii) the
Securities Intermediary shall, subject to the
terms of this Agreement, treat the Trustee as
entitled to exercise the rights that comprise
any financial asset credited to any Series
Account, and (iv) all securities or other
property underlying any financial assets
credited to any Series Account shall be
registered in the name of the Securities
Intermediary, endorsed to the Securities
Intermediary or in blank and in no case will
any financial asset credited to any Series
Account be registered in the name of any other
person, payable to the order of any other
person, or specially endorsed to any other
person, except to the extent the foregoing
have been specially endorsed by the Depositor
to the Trustee.
(h) The Trustee hereby agrees that any Series
Account and each item of property (whether
investment property, financial asset, security
or instrument), other than cash, credited to
any Series Account shall be treated as a
"financial asset" within the meaning of
Section 8-102(A)(9) of the UCC or the
corresponding Section of the UCC in the
applicable State.
(i) If at any time the Securities
Intermediary shall receive an "entitlement
order" (within the meaning of Section 8-
102(A)(8) of the UCC or the corresponding
Section of the UCC in the applicable State
issued by the Trustee and relating to any
Series Account, the Securities Intermediary
shall comply with such entitlement order
without further consent by any other person.
The Trustee hereby agrees only to issue
entitlement orders at the written direction of
the Servicer. The Securities Intermediary
shall have no obligation to act, and shall be
fully protected in refraining from acting, in
respect of the financial assets credited to
any Series Account in the absence of such an
entitlement order.
(j) In the event that the Securities
Intermediary has or subsequently obtains by
agreement, operation of law or otherwise a
security interest in the Securities Accounts,
or any security entitlement credited thereto,
the Securities Intermediary hereby agrees that
such security interest shall be subordinate to
the security interest of the Trustee. The
financial assets and other items deposited to
the Series Accounts (or any other securities
account maintained in the name of the
Securities Intermediary for the benefit of the
Trustee) will not be subject to deduction, set-
off, banker's lien, or any other right in
favor of any person other than the Trustee.
(k) The Trustee, in such capacity, has not
entered into and, until termination of this
Agreement, will not enter into, any agreement
with any other person relating to any Series
Account, or any financial assets credited
thereto pursuant to which it has agreed or
will agree to comply with entitlement orders
(as defined in Section 8-102(a)(8) of the UCC
or the corresponding Section of the UCC in the
applicable State) of such person. No
financial asset will be registered in the name
of the Trustee, in such capacity, payable to
its order, or specially endorsed to it, except
to the extent such financial asset has been
endorsed to the Securities Intermediary or in
blank.
SECTION 4.5. Capitalized Interest Account.
On the Closing Date, the Trustee shall deposit
in the Capitalized Interest Account from the
proceeds of the sale of the Fixed Base
Certificates and certain other amounts
collected in respect of the Receivables prior
to the Cut-Off Date an amount equal to the FBC
Monthly Interest that will have accrued and be
due and payable to the Holders of the Fixed
Base Certificates on the first Distribution
Date (as determined by the Servicer). On the
first Distribution Date, the Servicer shall
direct the Trustee in writing to withdraw from
the Capitalized Interest Account for
distribution to the Holders of the Fixed Base
Certificates an amount equal to the FBC
Monthly Interest that is due and payable on
such Distribution Date.
SECTION 4.6. Retained Amount Account. The
Servicer shall direct the Trustee in writing
to deposit amounts in, and withdraw amounts
from, the Retained Amount Account as follows:
(a) Deposits into Retained Amount Account.
(i) If on any Business Day
before the occurrence of an Early
Amortization Event, the Required Series
Pool Balance exceeds the Series Pool
Balance, as and to the extent set forth
in Section 4.1(d) hereof Investor
Principal Collections will be deposited
into the Retained Amount Account until
the sum of the Series Pool Balance and
the amount of Investor Principal
Collections then on deposit in the
Retained Amount Account (the Investor
Component of the balance of the Retained
Amount Account) equals the Required
Series Pool Balance on such date.
(ii) If on any Business Day
during a Collection period that commences
before the occurrence of an Early
Amortization Event, the Required
Exchangeable Certificate Amount on such
day exceeds the sum of the Exchangeable
Holder's Interest, the aggregate amount
of Eligible Past Due Receivables and
Retained Exchangeable Amounts then on
deposit in the Retained Amount Account,
the Trustee shall, in accordance with the
written directions of the Servicer,
deposit into the Retained Amount Account
from amounts otherwise distributable to
the holder of the Exchangeable
Certificate the amount of such excess
(the aggregate of the amounts so
deposited into the Retained Amount
Account on any Business Day, the
Retained Exchangeable Amount).
(b) Withdrawals of Excess Amounts from
Retained Amount Account.
(i) If on any Business Day
before the occurrence of an Early
Amortization Event, the sum of the Series
Pool Balance and the Investor Component
of amounts on deposit in the Retained
Amount Account exceeds the Required
Series Pool Balance, the Trustee will, in
accordance with the written directions of
the Servicer, withdraw the Investor
Component of funds in the Retained Amount
Account up to the amount of such excess
and distribute such amount to the
Depositor.
(ii) If on any Business Day
before the occurrence of an Early
Amortization Event, the sum of the
Exchangeable Holder's Interest, the
aggregate amount of Eligible Past Due
Receivables and Retained Exchangeable
Amounts then on deposit in the Retained
Amount Account exceeds the Required
Exchangeable Certificate Amount, the
Trustee will, in accordance with the
written directions of the Servicer,
withdraw the Retained Exchangeable Amount
up to the amount of such excess and
distribute such amount to the holder of
the Exchangeable Certificate.
(c) Withdrawals Following Termination of
Revolving Period.
(i) On each Distribution Date
relating to a Collection Period that
commences after the termination of the
Revolving Period (and during or prior to
which no Early Amortization Event
occurs), the Trustee shall, in accordance
with the written directions of the
Servicer, withdraw from the Investor
Component of amounts on deposit in the
Retained Amount Account the portion of
any Controlled Amortization Amount or any
Investor Default Amount allocable to the
Fixed Base Invested Amount pursuant to
Section 4.9 that is not funded from
Investor Finance Charge Collections,
amounts on deposit in the Spread Account
and allocated therefor pursuant to
Section 4.7, reductions of the
Subordinated Invested Amount, or
reallocations of Subordinated Principal
Collections and shall deposit such
amounts in the Collection Account as FBC
Principal Collections for application
pursuant to Section 4.1(d)(i) to make
payment on such Distribution Date of such
amounts to the Holders of the Fixed Base
Certificates or release to the Depositor
for application pursuant to the
Receivables Purchase Agreement. On the
Distribution Date relating to the first
Collection Period during which an Early
Amortization Event occurs or which
commences after the occurrence of an
Early Amortization Event, the Trustee
shall withdraw, in accordance with the
written directions of the Servicer, the
Investor Component of amounts on deposit
in the Retained Amount Account and
deposit such funds into the Collection
Account as FBC Principal Collections for
application pursuant to Section 4.1(d)
and for distribution on such Distribution
Date.
(ii) On the earlier of the
Distribution Date on which the Fixed Base
Certificate Balance in reduced to zero or
the August 2006 Distribution Date, the
Trustee shall, in accordance with the
written directions of the Servicer,
withdraw, the Retained Exchangeable
Amount on deposit in the Retained Amount
Account and distribute such amount to the
holder of the Exchangeable Certificate.
(d) Withdrawals upon Series Termination or
Payment in Full of Fixed Base Certificates.
At the close of business of the Servicer on
the earlier of (i) the Series Termination Date
and (ii) the date on which the Fixed Base
Certificate Balance has been reduced to zero,
the balance, if any, remaining in the Retained
Amount Account shall be withdrawn and
transferred to the Depositor.
SECTION 4.7. Spread Account.
(a) If on any Determination Date the Servicer
determines that a Deficiency Amount exists,
the Servicer shall direct the Trustee in
writing to withdraw from the Spread Account
and deposit in the Collection Account on the
Related Distribution Date an amount equal to
the lesser of (i) the amount of such
Deficiency Amount less, during the Controlled
Amortization Period, any amounts deposited in
the Collection Account pursuant to Section
4.6(c), and (ii) the balance of the Spread
Account. Amounts so deposited in the
Collection Account shall be set aside therein
to fund (in whole or part) the amount of any
such Deficiency Amount. In the event that a
withdrawal is made from the Spread Account on
any Determination Date and the amount of such
withdrawal is less than the Deficiency Amount
calculated on such Determination Date, then
the amount withdrawn shall be applied in the
following priority, first, against the amounts
described in clause (i)(A) of the definition
of Deficiency Amount, second, against the
amounts described in clause (i)(B) of the
definition of Deficiency Amount, third,
against the amounts described in clause (i)(C)
of the definition of Deficiency Amount, and
fourth, against the amounts described in
clause (i)(D) of the definition of Deficiency
Amount.
(b) On any Determination Date relating to a
Collection Period that commences after the
termination of the Revolving Period (and
during or prior to which no Early Amortization
Event occurs), following the applications made
pursuant to clause (a) above, the Servicer
shall direct the Trustee in writing (i.e. in
the Distribution Date Statement and by the
following provisions) to reallocate from
amounts remaining on deposit in the Spread
Account as FBC Principal Collections and
deposit into the Collection Account on the
related Distribution Date the amount by which
the Controlled Amortization Amount due on the
Related Distribution Date exceeds amounts
allocated therefor pursuant to Sections
4.1(d), 4.1(e), and 4.9. On any Determination
Date relating to a Collection Period during
which an Early Amortization Event occurs,
following the applications made pursuant to
clause (a) above, the Servicer shall direct
the Trustee in writing (i.e. in the
Distribution Date Statement and by the
following provisions) to reallocate amounts
remaining on deposit in the Spread Account as
FBC Principal Collections and deposit into the
Collection Account on the related Distribution
Date (i) the amount by which the Fixed Base
Certificate Balance on the Related
Distribution Date exceeds amounts allocated
therefor, pursuant to Sections 4.1(d), 4.1(e),
and 4.9 and (ii) the amount by which any Make
Whole Premium due on the Related Distribution
Date (plus interest accrued thereon, to the
extent lawful, at the FBC Interest Rate)
exceeds amounts allocated therefor, and,
thereafter, any remaining amounts on deposit
in the Spread Account will be applied to fund
the remaining unfunded amounts described in
Section 4.1(c), in the order of priorities set
forth therein.
(c) A Spread Account Trigger shall be cured
if no Early Amortization Events have occurred
and (i) on or prior to the Distribution Date
in August 2002, all Spread Account Triggers
have been complied with for three consecutive
months or (ii) after the Distribution Date in
August 2002, all Spread Account Triggers have
been complied with for six consecutive months.
Promptly after a Spread Account Trigger has
been cured, the Servicer shall give written
notice of such cure to the Trustee.
(d) If a Spread Account Trigger has been
cured, all funds retained in the Spread
Account will be reallocated as Investor
Finance Charge Collections and applied
pursuant to the priorities set forth in
Section 4.1(c); provided, however, that (a) if
a Spread Account Trigger is cured following
the commencement of a Controlled Amortization
Period, funds retained in the Spread Account
will be transferred to the Collection Account
on the related Distribution Date and applied
to cover any Deficiency Amount and then in
reduction of the Fixed Base Certificate
Balance, to the extent of any unpaid
Controlled Amortization Amount then due and
any unreimbursed Investor Charge-Offs
allocated thereto, and then to fund the
remaining unfunded amounts described in
Section 4.1(c), in the order of priorities set
forth therein, and (b) if an Early
Amortization Event occurs prior to any such
cure, any remaining amounts on deposit in the
Spread Account will be transferred to the
Collection Account on the related Distribution
Date and applied on such date to cover any
Deficiency Amount and then in reduction of the
Fixed Base Certificate Balance until on such
date it is reduced to zero and, thereafter, to
fund any accrued and unpaid Make Whole Premium
(together with interest thereon, to the extent
lawful, at the FBC Interest Rate), and then to
fund the remaining unfunded amounts described
in Section 4.1(c), in the order of priorities
set forth therein.
(e) On the earlier of the August 2006
Distribution Date or the Distribution Date on
which the Fixed Base Certificate Balance is
reduced to zero, any amounts remaining on
deposit in the Spread Account after all of the
foregoing applications have been made will be
applied to cover any accrued and unpaid Make
Whole Premium (plus interest thereon at the
FBC Interest Rate). Thereafter, any amounts
remaining on deposit in the Spread Account
will be applied to reduce the Subordinated
Invested Amount to zero and the balance, if
any, will be released to the Depositor..
SECTION 4.8. Deficiency Amount. On each
Determination Date, the Servicer shall
determine whether a Deficiency Amount exists.
In the event the Deficiency Amount for such
Distribution Date is greater than zero, the
Servicer shall give the Trustee written notice
thereof on the date of computation, and shall
give the Trustee the direction specified in
Section 4.7.
SECTION 4.9. Investor Charge-Offs. (a) On
each Distribution Date, the Trustee will, in
accordance with the written directions of the
Servicer, apply the Investor Default Holdback
Amount to fund any Investor Default Amount as
set forth in Section 4.1(e). Thereafter, the
Trustee will, in accordance with the written
directions of the Servicer, fund any
Deficiency Amount that represents Investor
Default Amounts not funded by the Investor
Default Holdback Amount from amounts on
deposit in the Spread Account and allocated
therefor pursuant to Section 4.7. Thereafter,
the Subordinated Invested Amount shall be
reduced by the amount of any remaining
Investor Default Amount for such Distribution
Date (a Subordinated Reduction). In the
event that a Subordinated Reduction would
cause the Subordinated Invested Amount to be a
negative number, the Subordinated Invested
Amount shall instead be reduced to zero, and
the Fixed Base Invested Amount shall be
reduced (not below zero) by the amount which
the Subordinated Invested Amount would have
been reduced below zero, except to the extent
that there are Subordinated Principal
Collections available to fund such amount
pursuant to Section 4.1(d)(ii) or amounts are
available to be withdrawn from the Investor
Component of amounts on deposit in the
Retained Amount Account and applied thereto
(such reduction to the Fixed Base Invested
Amount, a FBC Investor Charge-Off).
FBC Investor Charge-Offs shall be
reimbursed and the Fixed Base Invested Amount
shall thereupon be increased during the
Revolving Period or any related Distribution
Date (but not by an amount in excess of the
aggregate FBC Investor Charge-Offs), or the
Fixed Base Certificate Balance reduced without
corresponding reduction in the Fixed Base
Invested Amount to the extent such
reimbursements are made by payments of
principal to the Holders of the Fixed Base
Certificates on any Distribution Date pursuant
to Section 4.1(f)(i)(B) or (C), by the amount
of Investor Finance Charge Collections
reallocated as FBC Principal Collections for
that purpose pursuant to Section 4.1(c)(v),
from Subordinated Principal Collections
retained in the Collection Account pursuant to
Sections 4.1(d)(ii)(A)(2), 4.1(d)(ii)(B)(3)
and 4.1(d)(ii)(C)(2) hereof, from withdrawals
of the Investor Component of amounts on
deposit in the Retained Amount Account, and
from FBC Principal Collections retained in the
Collection Account pursuant to Sections
4.1(d)(i)(A)(1) and 4.1(d)(i)(B)(2).
(b) Subordinated Investor
Charge-Offs. Subordinated Reductions and
amounts withdrawn from Subordinated Principal
Collections pursuant to Sections
4.1(d)(ii)(A)(1), 4.1(d)(ii)(A)(2),
4.1(d)(ii)(B)(1), 4.1(d)(ii)(B)(2),
4.1(d)(ii)(B)(3), 4.1(d)(ii)(C)(1),
4.1(d)(ii)(C)(2) and 4.1(d)(ii)(C)(4) are
collectively referred to herein as
Subordinated Investor Charge-Offs.
Subordinated Investor Charge-Offs will result
in a reduction in the Subordinated Invested
Amount. Subordinated Investor Charge-Offs
shall be reimbursed to the extent that
Investor Finance Charge Collections are
reallocated as Subordinated Principal
Collections pursuant to Section 4.1(c)(vi)
hereof and (i) the Subordinated Invested
Amount increased during the Revolving Period
or any related Distribution Date (but not by
an amount in excess of the aggregate
Subordinated Investor Charge-Offs), or (ii) to
the extent such reimbursements are made by
payments of principal to the holder of the
Subordinated Certificate pursuant to Section
4.1(f)(i)(B) or (C), made without further
reduction to the Subordinated Invested Amount.
Reimbursements of Subordinated Investor
Charge-Offs will not be made in amounts in
excess of the aggregate amount of Subordinated
Investor Charge-Offs.
SECTION 4.10. Trustee Expenses Associated
with Servicing Assumption.
(a) The Servicer shall maintain a letter of
credit or surety bond in amount not to exceed
$200,000 (or such other amount as may be
agreed to in writing by the Servicer and the
Trustee), to be used to cover the reasonable
costs and expenses of the Trustee associated
with the Trustee's assumption of Servicing
duties. The requirements of this Section
4.10(a) shall not be deemed to have been met
until the Trustee shall have approved in
writing the form and substance of any such
letter of credit or surety bond, such approval
to not be unreasonably withheld.
(b) In the event of the commencement of an
Early Amortization Period or a Servicer
Default resulting in the assumption of
servicing duties by the Trustee, the Trustee
may draw upon the letter of credit or surety
bond in order to pay the reasonable costs and
expenses of the Trustee in connection with the
performance of its duties in connection with
such event, and shall provide to the Servicer
in writing an itemized report of each cost and
expense, the related duty and action
undertaken and the name of the recipient of
the related payment within three Business Days
of each such draw.
(c) Amounts drawn upon the letter of credit
shall be reimbursed from amounts allocated
pursuant to Section 4.1(c)(x).
(d) The Servicer may replace any then
existing letter of credit or surety bond with
either a letter of credit or a surety bond
with the written the consent of the Trustee,
such consent not to be unreasonably withheld.
ARTICLE V
Distributions and Reports
SECTION 5.1. Distributions. On each
Distribution Date, the Trustee shall
distribute to the Certificateholders of record
on the preceding Record Date (other than as
provided in Section 12.02 of the Agreement
respecting a final distribution) such
Certificateholder's pro rata share of the
amounts required to be distributed pursuant to
Article IV hereof and in accordance with the
written direction of the Servicer. Except as
provided in Section 12.02 of the Agreement
with respect to a final distribution,
distributions to Certificateholders hereunder
shall be made by wire transfer in immediately
available funds.
SECTION 5.2. Other Notices to Holders.
Notwithstanding any other provision of the
Agreement or this Series Supplement to the
contrary, the Trustee and the Servicer shall
promptly deliver to the initial Holders of the
Fixed Base Certificates a copy of each notice,
statement or other document received or
generated by it pursuant to Sections 3.03(b),
3.04(b), 3.05, 3.06, 9.01 or 10.01 of the
Agreement; provided, however, that the Trustee
shall not be required to deliver to the
initial Holders copies of notices, statements
or other documents received from the Servicer
and for which the Servicer is required to
deliver such notices, statements or other
documents directly to the Holders and vice
versa.
ARTICLE VI
The Certificates
SECTION 6.1. The Fixed Base Certificates.
The __% Fixed Base Credit Card Certificates,
Series 1999-1 (the Fixed Base Certificates)
upon original issuance, will be issued in
registered form in the form of one or more
definitive typewritten certificates
substantially in the form of Exhibit A-1
hereto, to be executed and delivered by, or on
behalf of, the Depositor to the Trustee for
authentication. The Trustee shall, upon the
written request of the Depositor, authenticate
and deliver the Fixed Rate Certificates to the
Person or Persons designated in such notice.
SECTION 6.2. Transfer Restrictions.
(a) The Trustee shall not authenticate and
deliver to any Person any Fixed Base
Certificate unless it contains a legend in
substantially the following form:
THIS CERTIFICATE HAS NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE 1933 ACT), OR THE SECURITIES LAWS OF
ANY STATE OR OTHER JURISDICTION IN RELIANCE ON
EXEMPTIONS PROVIDED BY THE 1933 ACT AND SUCH
STATE OR FOREIGN SECURITIES LAWS. THE
CERTIFICATES ARE ELIGIBLE FOR PURCHASE
PURSUANT TO RULE 144A UNDER THE 1933 ACT. NO
RESALE OR OTHER TRANSFER OF THIS CERTIFICATE
SHALL BE MADE UNLESS SUCH RESALE OR TRANSFER
(A) IS MADE IN ACCORDANCE WITH SECTION 6.2 OF
THE SERIES 1999-1 SUPPLEMENT TO THE POOLING
AND SERVICING AGREEMENT REFERRED TO HEREIN AND
(B) IS MADE EITHER (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE
1933 ACT, (ii) IN A TRANSACTION (OTHER THAN A
TRANSACTION IN CLAUSE (iv) BELOW) EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE 1933 ACT
AND APPLICABLE STATE AND FOREIGN SECURITIES
LAWS, (iii) TO GOTTSCHALKS CREDIT RECEIVABLES
CORPORATION (THE DEPOSITOR) OR (iv) TO A
PERSON WHO THE TRANSFEROR OF THIS CERTIFICATE
REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE
144A UNDER THE 1933 ACT THAT IS AWARE THAT THE
RESALE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A OR TO AN INSTITUTIONAL
ACCREDITED INVESTOR UNDER RULE 501(a)(1),
(2), (3) OR (7) UNDER THE 1933 ACT. IN THE
EVENT THAT THE TRANSFER OF A CERTIFICATE IS TO
BE MADE AS DESCRIBED IN CLAUSE (ii) OF THE
PRECEDING SENTENCE, THE PROSPECTIVE INVESTOR
IS REQUIRED TO DELIVER AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE
TRUSTEE AND THE DEPOSITOR TO THE EFFECT THAT
SUCH TRANSFER MAY BE MADE WITHOUT REGISTRATION
UNDER THE 1933 ACT OR ANY APPLICABLE STATE OR
FOREIGN SECURITIES LAWS. THE PROSPECTIVE
TRANSFEREE IN A TRANSFER OF A CERTIFICATE TO
BE MADE AS DESCRIBED IN CLAUSES (ii) AND (iv)
ABOVE MUST DELIVER TO THE TRUSTEE A
REPRESENTATION LETTER REQUIRED BY SECTION 6.2
OF THE SERIES 1999-1 SUPPLEMENT TO THE POOLING
AND SERVICING AGREEMENT REFERRED TO HEREIN.
PROSPECTIVE PURCHASERS OF THE CERTIFICATES ARE
HEREBY NOTIFIED THAT THE SELLER OF ANY
CERTIFICATES MAY BE RELYING ON THE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SECTION
5 OF THE ACT PROVIDED BY RULE 144A UNDER THE
ACT.
THIS CERTIFICATE OR A BENEFICIAL INTEREST
HEREIN MAY NOT BE TRANSFERRED UNLESS THE
TRUSTEE HAS RECEIVED (I) A CERTIFICATE FROM
THE TRANSFEREE TO THE EFFECT THAT SUCH
TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN,
TRUST OR ACCOUNT SUBJECT TO TITLE I OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED (ERISA), OR SUBJECT TO
SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE CODE), OR A
GOVERNMENTAL PLAN DEFINED IN SECTION 3(32) OF
ERISA OR SECTION 414(d) OF THE CODE SUBJECT TO
ANY FEDERAL STATE OR LOCAL LAW WHICH IS, TO A
MATERIAL EXTENT, SIMILAR TO THE FOREGOING
PROVISIONS OF ERISA OR THE CODE (SIMILAR
LAW) (EACH, A BENEFIT PLAN) AND IS NOT AN
ENTITY INCLUDING AN INSURANCE COMPANY SEPARATE
ACCOUNT OR AN INSURANCE COMPANY GENERAL
ACCOUNT IF THE ASSETS IN ANY SUCH ACCOUNTS
CONSTITUTE PLAN ASSETS FOR PURPOSES OF
REGULATION SECTION 2510.3-101 OF ERISA, WHOSE
UNDERLYING ASSETS INCLUDE BENEFIT PLAN ASSETS
BY REASON OF A BENEFIT PLAN'S INVESTMENT IN
THE ENTITY (SUCH BENEFIT PLAN OR ENTITY, A
BENEFIT PLAN INVESTOR) AND (II) A
CERTIFICATE TO THE EFFECT THAT IF THE
TRANSFEREE IS A PARTNERSHIP, GRANTOR TRUST OR
S CORPORATION FOR FEDERAL INCOME TAX PURPOSES
(A FLOW-THROUGH ENTITY), ANY CERTIFICATES
OWNED BY SUCH FLOW-THROUGH ENTITY WILL
REPRESENT LESS THAN 50% OF THE VALUE OF ALL
THE ASSETS OWNED BY SUCH FLOW-THROUGH ENTITY
AND NO SPECIAL ALLOCATION OF INCOME, GAIN,
LOSS, DEDUCTION OR CREDIT FROM SUCH
CERTIFICATES WILL BE MADE AMONG THE BENEFICIAL
OWNERS OF SUCH FLOW-THROUGH ENTITY.
IN ADDITION, NO RESALE OR OTHER TRANSFER
OF THIS CERTIFICATE OR ANY INTEREST THEREIN
SHALL BE PERMITTED UNLESS IMMEDIATELY AFTER
GIVING EFFECT TO SUCH RESALE OR OTHER
TRANSFER, THERE WOULD BE FEWER THAN 100
CERTIFICATEHOLDERS.
(b) No transfer of any Fixed Base
Certificates shall be made unless such resale
or transfer is made (i) pursuant to an
effective registration statement under the
1933 Act, (ii) in a transaction (other than a
transaction in clause (iv) below) exempt from
the registration requirements of the 1933 Act
and applicable state and foreign securities
laws, (iii) to the Depositor or (iv) to a
Person who the transferor of such Fixed Base
Certificate reasonably believes is a qualified
institutional buyer within the meaning of Rule
144A under the 1933 Act and that is aware that
the resale or other transfer is being made in
reliance on Rule 144A or to an institutional
accredited investor as defined in Rule
501(a)(1), (2), (3) or (7) under the 1933 Act
(an Institutional Accredited Investor). In
the event that a transfer is to be made as
described in clause (ii) of the preceding
sentence, the prospective transferee shall
deliver or cause to be delivered an Opinion of
Counsel in form and substance satisfactory to
the Trustee and the Depositor to the effect
that such transfer may be made without
registration under the 1933 Act or any
applicable state or foreign securities laws.
In the event that a transfer is to be made to
an Institutional Accredited Investor as
described in clause (iv) or in a transaction
as described in clause (ii), the Trustee shall
require that the transferee execute a
representation letter acceptable to and in
form and substance satisfactory to the Trustee
(provided that the form attached as Exhibit C
or Exhibit D, as applicable, shall be deemed
acceptable if it is completed in a manner
acceptable to the Trustee) certifying to the
Trustee the facts surrounding such transfer,
which representation letter shall not be an
expense of the Trustee, the Depositor or the
Servicer. In the case of a transfer under
either clause (ii) or clause (iv), the Holder
of a Fixed Base Certificate desiring to effect
such transfer shall, and does hereby agree to,
indemnify the Trustee, the Depositor and the
Servicer against any liability that may result
if the transfer is not so exempt or is not
made in accordance with the 1933 Act and such
state and foreign securities laws. Neither
the Depositor, the Servicer nor the Trustee is
under any obligation to register any Fixed
Base Certificates under the 1933 Act or any
applicable state or foreign securities laws.
Prospective purchasers of Fixed Base
Certificates are hereby notified that the
seller of any Fixed Base Certificate may be
relying on the exemption from the registration
requirements of Section 5 of the Act provided
by Rule 144A under the Act.
(c) Fixed Base Certificates or beneficial
interests therein may not be transferred
unless the Trustee has received a certificate
to the effect that if the transferee is a
partnership, grantor trust or S corporation
for federal income tax purposes (a
Flow-Through Entity), any Fixed Base
Certificates owned by such Flow-Through Entity
will represent less than 50% of the value of
all the assets owned by such Flow-Through
Entity and no special allocation of income,
gain, loss, deduction or credit from such
Fixed Base Certificates will be made among the
beneficial owners of such Flow-Through Entity.
(d) No Fixed Base Certificate or beneficial
interest therein may be transferred to a
transferee (other than the Initial Holder) who
is an employee benefit plan, trust or account,
subject to ERISA, or subject to Section 4975
of the Code, or a governmental plan defined in
Section 3(32) of ERISA or Section 414(d) of
the Code subject to any federal, state or
local law which is, to a material extent,
similar to the foregoing provisions of ERISA
or the Code, or to an entity, including an
insurance company separate account or an
insurance company general account if the
assets in any such accounts constitute Plan
Assets for the purposes of regulation Section
2510-3101 of ERISA, whose underlying assets
include Benefit Plan assets by reason of a
Benefit Plan's investment in the entity.
Unless the Trustee shall have received a
certificate from the transferee making the
representations with respect to such ERISA
matters set forth in Exhibit C hereto, the
Trustee shall not permit a transfer of Fixed
Base Certificates to such transferee.
(e) The Depositor shall, whenever the Trust
is not subject to Section 13 or 15(d) of the
Exchange Act, make available, upon request, to
any holder of such Fixed Base Certificates in
connection with any sale thereof and any
prospective purchaser of Fixed Base
Certificates from such holder the information
specified in Rule 144A(d)(4) under the 1933
Act.
(f) In addition, no resale or other transfer
of the Fixed Base Certificates or any interest
therein shall be permitted unless immediately
after giving effect to such resale or other
transfer, there would be fewer than 100 Fixed
Base Certificateholders.
(g) Prior to due presentation of a
Certificate for registration of transfer, the
Trustee, the Certificate Registrar and any of
their respective agents may treat the Person
in whose name any Certificate is registered as
the owner of such Certificate for the purpose
of receiving distributions and for all other
purposes whatsoever, and neither the Trustee,
the Certificate Registrar nor any of their
respective agents shall be affected by any
notice to the contrary.
(h) The Trustee may conclusively rely and
shall be fully protected in acting upon any
certificate or investment representation
letter delivered to it under this Article VI
or under Article VI of the Agreement.
SECTION 6.3. The Subordinated Certificate.
The Subordinated Certificate will be issued in
definitive registered form, substantially in
the form of Exhibit A-2, and shall upon issue,
be executed and delivered by the Depositor to
the Trustee for authentication. The Trustee
shall authenticate and deliver the
Subordinated Certificate to the Depositor
simultaneously with its delivery of the Fixed
Base Certificates. The Subordinated
Certificate shall not be transferable.
SECTION 6.4. The Exchangeable Certificate.
The Exchangeable Certificate will be issued in
definitive registered form, and shall be
executed, authenticated and delivered as
provided in Section 6.02 of the Agreement.
The Exchangeable Certificate shall be a single
certificate and shall represent the entire
Depositor Interest.
ARTICLE VII
Early Amortization Events; Servicer Defaults;
Merger of Servicer
SECTION 7.1. Additional Early Amortization
Events. If any one or more of the following
events shall occur:
(a) failure on the part of the
Depositor (i) to make any payment or
deposit required to be made by the
Depositor by the terms of (A) the
Agreement or (B) this Series
Supplement, within two Business Days
of Depositor's receipt of written
notice of such nonpayment or (ii)
duly to observe or perform in any
material respect any covenants or
agreements of the Depositor set
forth in the Agreement or this
Series Supplement, which failure to
observe or perform has a material
adverse effect on the
Certificateholders and which
continues unremedied for a period of
30 days after the earlier of (A) the
date the Depositor has knowledge
thereof and (B) the date on which
written notice of such failure,
requiring the same to be remedied,
shall have been given to the
Depositor by the Trustee, or to the
Depositor and the Trustee by the
Holders of Certificates representing
more than 50% of the Invested
Amount, and continues to affect
materially and adversely the
interests of the Certificateholders
for such period; or
(b) the balance of the
Investor Component of the Retained
Amount Account is required to exceed
$3.5 million for 60 consecutive
days; or
(c) the Subordinated Invested
Amount is reduced by a writedown of
33% or more of its initial balance
on a day when the Fixed Base
Invested Amount is greater than
zero; or
(d) the Fixed Base Certificate
Balance is not reduced to zero on or
before the Expected Final
Distribution Date, or any Controlled
Amortization Amount is not paid in
full when due; or
(e) any representation or
warranty made by the Depositor in
the Agreement or this Series
Supplement, or any information
contained in a computer file or
microfiche list or written list
required to be delivered by the
Depositor pursuant to Section 2.01,
2.06 or 2.08 of the Agreement, (i)
shall prove to have been incorrect
in any material respect when made or
when delivered, which continues to
be incorrect in any material respect
for a period of 60 days after the
earlier of (A) the date the
Depositor has knowledge thereof and
(B) the date on which written notice
of such failure, requiring the same
to be remedied, shall have been
given to the Depositor by the
Trustee, or to the Depositor and the
Trustee by the Holders of
Certificates representing more than
50% of the Invested Amount, and (ii)
as a result of which the interests
of the Certificateholders are
materially and adversely affected
and continue to be materially and
adversely affected for such period;
provided, however, that an Early
Amortization Event pursuant to this
subsection 7.1(e) shall not be
deemed to have occurred hereunder if
the Depositor has accepted
reassignment of or repurchased the
related Receivable, or all of such
Receivables, if applicable, during
such period in accordance with the
provisions of the Agreement; or
(f) the rating of the Fixed
Base Certificates is withdrawn or
downgraded below BBB;
(g) the sum of (A) the
Exchangeable Holder's Interest and
(B) the aggregate principal amount
of any Eligible Past Due Receivables
and (C) the Retained Exchangeable
Amount is reduced below the Required
Exchangeable Certificate Amount;
(h) the Required Series Pool
Balance shall exceed the Series Pool
Balance during any Block Period and
the Depositor shall fail to (i)
designate additional Charge Accounts
as Supplemental Accounts as required
pursuant to Section 2.08(c) of the
Agreement or (ii) convey Receivables
in Supplemental Accounts to the
Trust within five (5) Business Days
after the day on which it is
required to convey such Receivables
pursuant to the Agreement;
(i) taken as an average of the
relevant calculation for each of the
three preceding calendar months:
(i) the Portfolio Yield
is less than 12.0%;
(ii) the Default Rate
exceeds 10.0%;
(iii) the Excess
Spread is less than 1.0%;
(iv) the Delinquency Rate
exceeds 3.00%; or
(v) the Monthly Payment
Rate is less than 17.5%.
then, in the case of any such event
described in this Section 7.1, subject to
applicable law, an Early Amortization Event
shall occur without any notice or other action
on the part of the Trustee or the
Certificateholders (except as otherwise
provided in any such subsection), immediately
upon the occurrence of such event.
SECTION 7.2. Waiver. Notwithstanding the
declaration or occurrence of an Early
Amortization Period, the Holders of
Certificates representing more than 50% of the
FBC Invented Amount may, by written notice to
the Trustee, waive such Early Amortization
Event. Such waiver shall be binding upon all
Fixed Base Certificateholders and the other
parties to this Series Supplement. In the
case of such a waiver, all parties hereto and
all such Certificateholders shall be restored
to their former positions and rights hereunder
and any such Early Amortization Period shall
be deemed not to be continuing; provided,
however, this Section 7.2 shall not apply in
the case that a Servicer Default described in
clause (a) or (d) of Section 7.3 results in an
Early Amortization Event of the type described
in Section 9.01(c) of the Agreement.
SECTION 7.3. Additional Servicer Defaults.
If any one of the following events shall occur
and be continuing with respect to the
Servicer, it shall be deemed a Servicer
Default, subject to the provisions of Section
10.01 of the Agreement:
(a) the replacement for any reason of
Gottschalks as the Servicer; provided,
however, a Servicer Default shall not be
deemed to have occurred if (i) such Successor
Servicer, immediately after giving effect to
such transaction, has a financial condition,
taking into account such elements as (1)
liquidity, (2) leverage position and (3) net
worth equal to or stronger than Gottschalks,
and (ii) such Servicer has been appointed with
Consent of Certificateholders, such consent
not to be unreasonably withheld in accordance
with Section 8.04 of the Agreement.
(b) the Servicer shall have received a
qualified opinion from its Independent
Certified Public Accountants arising from the
discovery of an accounting irregularity.
(c) the Servicer's Adjusted Net Worth,
determined on any day in accordance with
generally accepted accounting principles shall
be less than the greater of (i) $70.0 million
or (ii) the amount stipulated in the
Servicer's line of credit agreement with
Congress Financial Corporation, Western (or
any replacement line of credit).
(d) a final judgment, claim, suit, or fine
shall have been entered against, or a
nonappealable fine imposed upon, the Servicer
which creates a liability of more than
$1,000,000 in excess of insured amounts and
has not been stayed (by appeal or otherwise),
vacated, discharged or otherwise satisfied
within 60 calendar days of the entry of such
final judgement.
(e) Gottschalks fails to maintain a credit
facility equal to or greater than the lesser
of (i) $80 million or (ii) $95 million less
any amounts raised subsequent to the Closing
Date pursuant to any offerings of equity
securities or offerings of subordinated debt
whose maturity extends beyond the Distribution
Date in August 2004.
(f) Jim Famalette (i) has become deceased,
(ii) has been rendered unable to work for a
period of six consecutive months, (iii) has
resigned from Gottschalks or (iv) has
otherwise ceased working for Gottschalks and
has not been replaced within 150 days (after
the initial instance described in (i), (ii),
(iii) or (iv) above) with a replacement which
is acceptable to the Holders holding more than
50% of the Fixed Base Invested Amount (whose
acceptance will not be unreasonably withheld).
SECTION 7.4. Merger or Consolidation of, or
Assumption of, the Obligations of the
Servicer. Subject to section 8.04 of the
Agreement, the Servicer shall not consolidate
with or merge into any other entity or convey
or transfer its properties and assets
substantially as an entirety to any Person,
unless:
(a) immediately after giving effect to such
transaction, the financial condition of the
Servicer, taking into account such elements as
(i) liquidity, (ii) leverage position and
(iii) net worth shall be equal to or stronger
than Gottschalks; and
(b) the Servicer shall have obtained the
consent of holders of more than 50% of the
Fixed Base Invested Amount (not to be
unreasonably withheld in the event the Rating
Agency Condition shall have been satisfied).
ARTICLE VIII
Optional Repurchase
SECTION 8.1. Optional Repurchase. On any
Distribution Date occurring after the date on
which the Fixed Base Invested Amount is
reduced to 10% or less of the Initial Fixed
Base Invested Amount, the Servicer shall have
the option to purchase the entire amount of,
but not less than the entire amount of, the
Receivables, at a purchase price equal to the
Optional Purchase Price for such Distribution
Date.
(a) The Depositor shall give the Servicer and
the Trustee at least ten (10) days' prior
written notice of the Distribution Date on
which the Depositor intends to exercise such
purchase option. Not later than 12:00 noon,
New York City time, on such Distribution Date
the Servicer shall deposit the Optional
Purchase Price into the Collection Account in
immediately available funds. Such purchase
option is subject to payment in full of the
Optional Purchase Price. The Optional
Purchase Price shall be distributed as set
forth in Section 9.1(a) hereof.
ARTICLE IX
Final Distributions
SECTION 9.1. Final Distributions. (a) The
amount to be deposited into the Collection
Account by the Depositor with respect to the
purchase of the Fixed Base Certificates
pursuant to Section 2.03 of the Agreement
shall equal the Optional Purchase Price as of
the first Distribution Date following the
Collection Period in which the obligation
arises under the Agreement. The Optional
Purchase Price deposited into the Collection
Account pursuant to this Section 9.1 or
Section 8.1 of this Series Supplement and
allocated to Series 1999-1, shall be applied
by the Trustee at the written direction of the
Servicer (i.e. as set forth in the
Distribution Date Statement and below), not
later than 2:00 p.m., New York City time, on
the Distribution Date on which such amounts
are deposited, provided that if such deposit
is not made prior to 1:00 p.m., New York City
time, the Trustee shall not be required to
make such applications until the following
Business Day (or, in either case, if such date
is not a Distribution Date, on the immediately
following Distribution Date). The Optional
Purchase Price shall be applied on such
Distribution Date to pay following amounts in
the following order of priority: (i) accrued
and unpaid interest on the unpaid Fixed Base
Certificate Balance (including any FBC
Carryover Interest), (ii) the Fixed Base
Certificate Balance on such Distribution Date
and (iii) any accrued and unpaid Make Whole
Premium (together with interest thereon, to
the extent lawful, at the FBC Interest Rate).
(b) Termination Proceeds deposited into the
Collection Account pursuant to Section
12.02(c) of the Agreement and allocated to
Series 1999-1 and the Certificates, shall be
applied by the Trustee at the written
direction of the Servicer (i.e. as set forth
in the Distribution Date Statement and below),
not later than 2:00 p.m., New York City time,
on the Distribution Date on which such amounts
are deposited, provided that if such deposit
is not made prior to 1:00 p.m., New York City
time, the Trustee shall not be required to
make such applications until the following
Business Day (or, in either case, if such date
of distribution is not a Distribution Date, on
the immediately following Distribution Date).
Termination Proceeds shall be applied to pay
following amounts in the following order of
priority: (i) all accrued and unpaid interest
on the unpaid Fixed Base Certificate Balance
(including any FBC Carryover Interest), (ii)
the Fixed Base Certificate Balance, (iii) any
accrued and unpaid Make Whole Premium
(together with interest thereon, to the extent
lawful, at the FBC Interest Rate), (iv) any
unreimbursed Subordinated Investor Charge-Offs
and (v) the Subordinated Invested Amount.
(c) Trust Liquidation Proceeds deposited into
the Collection Account pursuant to Section
9.02(c) of the Agreement and allocated to
Series 1999-1 shall be applied by the Trustee
at the written direction of the Servicer (i.e.
as set forth in the Distribution Date
Statement and below), not later than 2:00
p.m., New York City time, on the Distribution
Date on which such amounts are deposited,
provided that if such deposit is not made
prior to 1:00 p.m., New York City time, the
Trustee shall not be required to make such
applications until the following Business Day
(or, in either case, if such date of
distribution is not a Distribution Date, on
the immediately following Distribution Date).
Trust Liquidation Proceeds shall be applied to
pay following amounts in the following order
of priority: (i) all accrued and unpaid
interest on the unpaid Fixed Base Certificate
Balance (including any FBC Carryover
Interest), (ii) the Fixed Base Certificate
Balance, (iii) any accrued and unpaid Make
Whole Premium (together with interest thereon,
to the extent lawful, at the FBC Interest
Rate), (iv) any unreimbursed Subordinated
Investor Charge-Offs and (v) the Subordinated
Invested Amount.
(d) Notwithstanding anything to the contrary
contained in this Series Supplement or the
Agreement, any distribution made pursuant to
this Section 9.1 shall be deemed to be a final
distribution pursuant to Section 12.02 of the
Agreement with respect to the Certificates.
Any such final distribution shall be made no
later than the August 2006 Distribution Date.
(e) Notwithstanding Section 12.02 of the
Agreement, no Certificateholder shall be
required to surrender its Investor
Certificate(s) in order to receive its final
distribution under the Agreement and this
Series Supplement.
ARTICLE X
Miscellaneous Provisions
SECTION 10.1. Ratification of Agreement. As
amended and supplemented by this Series
Supplement, the Agreement is ratified and
confirmed and the Agreement as so amended and
supplemented by this Series Supplement, shall
be read, taken and construed as one and the
same instrument.
SECTION 10.2. Counterparts. This Series
Supplement may be executed in two or more
counterparts, each of which when so executed
shall be deemed to be an original, but all of
which shall together constitute but one and
the same instrument.
SECTION 10.3. Governing Law. THIS SERIES
SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REFERENCE TO ITS CONFLICTS OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 10.4. Rating Agency Notice. No
amendment or waiver with respect to any Early
Amortization Event shall be effective until
such time as the Rating Agency has consented
to such waiver.
SECTION 10.5. Additional Document Delivery on
First Distribution Date. On the Distribution
Date in April 1999, the Servicer shall deliver
to each Holder that has purchased Fixed Base
Certificates directly from the Depositor an
agreed upon procedures letter prepared by its
Independent Certified Public Accountants which
confirms the accuracy of data provided in the
Distribution Date Statement delivered on such
Distribution Date.
IN WITNESS WHEREOF, the Depositor,
the Servicer and the Trustee have caused this
Series Supplement to be duly executed by their
respective officers as of the day and year
first above written.
GOTTSCHALKS CREDIT RECEIVABLES CORPORATION, as
Depositor
By: \s\ Michael Geele
Title: President
GOTTSCHALKS INC., as Servicer
By: \s\ Jim Famalette
Title: President
BANKERS TRUST COMPANY, not in its individual
capacity but solely as Trustee
By: \s\ Lillian Perros
Title: Vice President
SCHEDULE I
List of Series Accounts
Bankers Trust Company
ABA # 021001033
ACCT:
REF: Gottschalks 1999-1
Attn:
Gottschalks Credit Card Master Trust Series
1999-1 Capitalized Interest Account:
Gottschalks Credit Card Master Trust Series
1999-1 Retained Amount Account:
Gottschalks Credit Card Master Trust Series
1999-1 Spread Account:
EXHIBIT A-1
FORM OF FIXED BASE CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE
1933 ACT), OR THE SECURITIES LAWS OF ANY
STATE OR OTHER JURISDICTION IN RELIANCE ON
EXEMPTIONS PROVIDED BY THE 1933 ACT AND SUCH
STATE OR FOREIGN SECURITIES LAWS. THE
CERTIFICATES ARE ELIGIBLE FOR PURCHASE
PURSUANT TO RULE 144A UNDER THE 1933 ACT. NO
RESALE OR OTHER TRANSFER OF THIS CERTIFICATE
SHALL BE MADE UNLESS SUCH RESALE OR TRANSFER
(A) IS MADE IN ACCORDANCE WITH SECTION 6.2 OF
THE SERIES 1999-1 SUPPLEMENT TO THE POOLING
AND SERVICING AGREEMENT REFERRED TO HEREIN AND
(B) IS MADE EITHER (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE
1933 ACT, (ii) IN A TRANSACTION (OTHER THAN A
TRANSACTION IN CLAUSE (iv) BELOW) EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE 1933 ACT
AND APPLICABLE STATE AND FOREIGN SECURITIES
LAWS, (iii) TO GOTTSCHALKS CREDIT RECEIVABLES
CORPORATION (THE DEPOSITOR) OR (iv) TO A
PERSON WHO THE TRANSFEROR OF THIS CERTIFICATE
REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE
144A UNDER THE 1933 ACT THAT IS AWARE THAT THE
RESALE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A OR TO AN INSTITUTIONAL
ACCREDITED INVESTOR UNDER RULE 501(a)(1),
(2), (3) OR (7) UNDER THE 1933 ACT. IN THE
EVENT THAT THE TRANSFER OF A CERTIFICATE IS TO
BE MADE AS DESCRIBED IN CLAUSE (ii) OF THE
PRECEDING SENTENCE, THE PROSPECTIVE INVESTOR
IS REQUIRED TO DELIVER AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE
TRUSTEE AND THE DEPOSITOR TO THE EFFECT THAT
SUCH TRANSFER MAY BE MADE WITHOUT REGISTRATION
UNDER THE 1933 ACT OR ANY APPLICABLE STATE OR
FOREIGN SECURITIES LAWS. THE PROSPECTIVE
TRANSFEREE IN A TRANSFER OF A CERTIFICATE TO
BE MADE AS DESCRIBED IN CLAUSES (ii) AND (iv)
ABOVE MUST DELIVER TO THE TRUSTEE A
REPRESENTATION LETTER REQUIRED BY SECTION 6.2
OF THE SERIES 1999-1 SUPPLEMENT TO THE POOLING
AND SERVICING AGREEMENT REFERRED TO HEREIN.
PROSPECTIVE PURCHASERS OF THE CERTIFICATES ARE
HEREBY NOTIFIED THAT THE SELLER OF ANY
CERTIFICATES MAY BE RELYING ON THE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SECTION
5 OF THE ACT PROVIDED BY RULE 144A UNDER THE
ACT.
THIS CERTIFICATE OR A BENEFICIAL INTEREST
HEREIN MAY NOT BE TRANSFERRED UNLESS THE
TRUSTEE HAS RECEIVED (I) A CERTIFICATE FROM
THE TRANSFEREE TO THE EFFECT THAT SUCH
TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN,
TRUST OR ACCOUNT SUBJECT TO TITLE I OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED (ERISA), OR SUBJECT TO
SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE CODE), OR A
GOVERNMENTAL PLAN DEFINED IN SECTION 3(32) OF
ERISA OR SECTION 414(d) OF THE CODE SUBJECT TO
ANY FEDERAL STATE OR LOCAL LAW WHICH IS, TO A
MATERIAL EXTENT, SIMILAR TO THE FOREGOING
PROVISIONS OF ERISA OR THE CODE (SIMILAR
LAW) (EACH, A BENEFIT PLAN) AND IS NOT AN
ENTITY INCLUDING AN INSURANCE COMPANY SEPARATE
ACCOUNT OR AN INSURANCE COMPANY GENERAL
ACCOUNT IF THE ASSETS IN ANY SUCH ACCOUNTS
CONSTITUTE PLAN ASSETS FOR PURPOSES OF
REGULATION SECTION 2510.3-101 OF ERISA, WHOSE
UNDERLYING ASSETS INCLUDE BENEFIT PLAN ASSETS
BY REASON OF A BENEFIT PLAN'S INVESTMENT IN
THE ENTITY (SUCH BENEFIT PLAN OR ENTITY, A
BENEFIT PLAN INVESTOR) AND (II) A
CERTIFICATE TO THE EFFECT THAT IF THE
TRANSFEREE IS A PARTNERSHIP, GRANTOR TRUST OR
S CORPORATION FOR FEDERAL INCOME TAX PURPOSES
(A FLOW-THROUGH ENTITY), ANY CERTIFICATES
OWNED BY SUCH FLOW-THROUGH ENTITY WILL
REPRESENT LESS THAN 50% OF THE VALUE OF ALL
THE ASSETS OWNED BY SUCH FLOW-THROUGH ENTITY
AND NO SPECIAL ALLOCATION OF INCOME, GAIN,
LOSS, DEDUCTION OR CREDIT FROM SUCH
CERTIFICATES WILL BE MADE AMONG THE BENEFICIAL
OWNERS OF SUCH FLOW-THROUGH ENTITY.
IN ADDITION, NO RESALE OR OTHER TRANSFER
OF THIS CERTIFICATE OR ANY INTEREST THEREIN
SHALL BE PERMITTED UNLESS IMMEDIATELY AFTER
GIVING EFFECT TO SUCH RESALE OR OTHER
TRANSFER, THERE WOULD BE FEWER THAN 100
CERTIFICATEHOLDERS.
No. $
GOTTSCHALKS CREDIT CARD MASTER TRUST
7.664% FIXED BASE CERTIFICATE
SERIES 1999-1
This certifies that
(the Fixed Base Certificateholder) is the
registered owner of a fractional undivided
interest in certain assets of a trust (the
Trust) created pursuant to the Pooling and
Servicing Agreement, dated as of March 1,
1999, among Gottschalks Credit Receivables
Corporation, as depositor (the Depositor),
Gottschalks Inc., as servicer (the
Servicer), and Bankers Trust Company, as
trustee (the Trustee) (the Pooling and
Servicing Agreement), as supplemented by the
Series 1999-1 Supplement dated as of March 1,
1999, among the Depositor, the Servicer and
the Trustee (the Series Supplement).
Capitalized terms used but not otherwise
defined herein shall have the meanings
ascribed thereto in the Pooling and Servicing
Agreement or the Series Supplement, as
applicable.
The corpus of the Trust includes (i)
all Receivables sold, transferred, assigned,
set over and otherwise conveyed to the Trust
pursuant to Section 2.01 of the Pooling and
Servicing Agreement, (ii) all monies due or to
become due and all amount received with
respect thereto and all proceeds thereof
(including proceeds, as defined in Section
9306 of the UCC as in effect in the State of
California), and Miscellaneous Payments, (iii)
all monies on deposit in, and Eligible
Investments credited to, the Collection
Account or any Series Account and (iv) all
monies as are from time to time available
under any Enhancements.
This Certificate is one of a series
of Investor Certificates entitled Gottschalks
Credit Card Master Trust, 7.664% Fixed Base
Credit Card Certificates, Series 1999-l (the
Fixed Base Certificates), each of which are
issued under and subject to the terms,
provisions and conditions of the Pooling and
Servicing Agreement and the Series Supplement.
By acceptance hereof, the Fixed Base
Certificateholder assents to and is bound by
the terms, provisions and conditions of the
Pooling and Servicing Agreement and Series
Supplement, as each may be amended from time
to time. Although a summary of certain
provisions of the Pooling and Servicing
Agreement and the Series Supplement is set
forth below, this Certificate does not purport
to summarize the Pooling and Servicing
Agreement and the Series Supplement and
reference is made to the Pooling and Servicing
Agreement and the Series Supplement for
information with respect to the interests,
rights, benefits, obligations, proceeds and
duties evidenced hereby and the rights, duties
and obligations of the Trustee. A copy of the
Pooling and Servicing Agreement and the Series
Supplement (without schedules) may be
requested from the Trustee by writing to the
Trustee at Bankers Trust Company, Four Albany
Street, New York, New York 10006, Attention:
Corporate Trust & Agency Group, Structured
Finance Team.
The Depositor has structured the
Pooling and Servicing Agreement, the Series
Supplement and the Investor Certificates with
the intention that the Investor Certificates
will qualify under applicable federal, state,
local and foreign tax law as indebtedness of
the Depositor. The Depositor, the Servicer
and each Holder of Investor Certificates agree
to treat and to take no action inconsistent
with the treatment of the Investor
Certificates (or beneficial interest therein)
as indebtedness of the Depositor for purposes
of federal, state, local and foreign income or
franchise taxes and any other tax imposed on
or measured by income. Each Holder of
Investor Certificates, by acceptance of its
Certificate, agrees to be bound by the
provisions of Section 3.07 of the Pooling and
Servicing Agreement.
Interest shall accrue on the Fixed
Base Certificate Balance represented by this
Certificate from its date of issuance to and
including the last day of the first Interest
Period and, with respect to each Interest
Period thereafter, at the rate of 7.664% per
annum or, upon a downgrade, modification or
withdrawal of the Rating Agency's rating of
the Fixed Base Certificates, 8.414% per annum.
Interest shall be payable on each Distribution
Date only to the extent that Investor Finance
Charge Collections for the Related Collection
Period are sufficient to pay such interest
after paying all Monthly Senior Servicing Fees
then outstanding. Interest that is due but
not paid on any Distribution Date shall be
payable on the next Distribution Date and
interest shall, to the extent permitted by
applicable law, accrue on such unpaid amount
until paid at the rate of 7.664 per annum.
Principal shall be payable in
respect of this Certificate commencing on the
Distribution Date relating to the Collection
Period during which the Controlled
Amortization Period commences or an Early
Amortization Event occurs, if earlier. During
the Controlled Amortization Period, principal
shall be payable, as and to the extent
provided in Article IV of the Series
Supplement, on each Distribution Date
(commencing on the Distribution Date in
September 2003) in the amount of the
Controlled Amortization Amount and any
unreimbursed FBC Investor Charge-Offs. During
an Early Amortization Period, principal shall
be payable, as and to the extent provided in
Article IV of the Series Supplement, on each
Distribution Date in the amount of the Fixed
Base Certificate Balance.
In general, payments of principal
with respect to the Fixed Base Certificates
are limited to the unpaid Fixed Base Invested
Amount, which may be less than the unpaid
principal balance of the Fixed Base
Certificates pursuant to the terms of the
Pooling and Servicing Agreement and the Series
Supplement. The Expected Final Distribution
Date with respect to Fixed Base Certificates
is the August 2004 Distribution Date, but
principal with respect to the Fixed Base
Certificates may be paid earlier or later
under certain limited circumstances described
in the Pooling and Servicing Agreement and the
Series Supplement. If the principal of the
Fixed Base Certificates has not been paid in
full prior to the August 2006 Distribution
Date, as set forth more fully in the Series
Supplement, the Trustee will use its best
efforts to sell or cause to be sold on such
Series Termination Date Receivables (or
interests therein) in an amount equal to the
interest in the Pool Balance represented by
the Certificates, subject to certain
limitations, and shall immediately deposit the
Termination Proceeds allocable to the Series
1999-1 Certificateholders' Interest in the
Collection Account. The Termination Proceeds
shall be allocated and distributed to the
Fixed Base Certificateholders and the Holder
of the Exchangeable Certificate in accordance
with the Pooling and Servicing Agreement and
the Series Supplement.
The Fixed Base Certificates are
issuable only in minimum denominations of
$l,000,000 and integral multiples of $100,000
in excess thereof. The transfer of this
Certificate shall be registered in the
Certificate Register upon surrender of this
Certificate for registration of transfer at
any office or agency maintained by the
Transfer Agent and Registrar accompanied by a
written instrument of transfer, in a form
satisfactory to the Trustee or the Transfer
Agent and Registrar, duly executed by the
Fixed Base Certificateholder or such Fixed
Base Certificateholder's attorney-in-fact, and
duly authorized in writing with such signature
guaranteed, and thereupon one or more new
Fixed Base Certificates in authorized
denominations of like aggregate amount will be
issued to the designated transferee or
transferees.
The Pooling and Servicing Agreement
and the Series Supplement may be amended from
time to time, in certain circumstances, by the
Servicer, the Depositor, the Trustee and (if
the Seller is not the Servicer) the Seller
without the consent of any of the
Certificateholders. The Pooling and Servicing
Agreement and the Series Supplement may also
be amended from time to time as specified by
the Pooling and Servicing Agreement by the
Servicer, the Depositor and the Trustee, upon
satisfaction of the Rating Agency Condition
with the consent of (i) the Holder of the
Exchangeable Certificate, if it would be
adversely affected by such amendment, and (ii)
the Holders of Investor Certificates
evidencing more than 50% of the aggregate
unpaid principal amount of the Investor
Certificates of all adversely affected Series,
for the purpose of adding any provisions to or
changing in any manner or eliminating or
waiving any of the provisions of the Pooling
and Servicing Agreement or any Supplement or
of modifying in any manner the rights of the
Certificateholders. Any such amendment and
any such consent by the Holder of this
Certificate shall be conclusive and binding on
such Holder and upon all future Holders of
this Certificate and of any Certificate issued
in exchange hereof or in lieu hereof whether
or not notation thereof is made upon this
Certificate.
Other then with respect to the
Initial Holder, this Certificate may not be
acquired or held by or for the account of any
employee benefit plan or individual retirement
account subject to Title I of ERISA or Section
4975 of the Internal Revenue Code, or any
trust established under any such employee
benefit plan or individual retirement account
(or established to hold the assets thereof),
or any governmental plan (as defined in
section 3(32) of ERISA or Section 414(d) of
the Code) or subject to any law or regulation
similar to those contained in Section 406 of
ERISA or Section 4975 of the Internal Revenue
Code (each such employee benefit plan,
individual retirement account and trust, an
ERISA Plan). No part of the funds used by
any Person to acquire or hold this Certificate
may constitute assets (within the meaning of
ERISA and any applicable rules and
regulations) of an ERISA Plan.
THIS CERTIFICATE SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Depositor
has caused this Certificate to be duly
executed.
GOTTSCHALKS CREDIT RECEIVABLES CORPORATION, as
Depositor
By: \s\ Michael Geele
Title: President
CERTIFICATE OF AUTHENTICATION
This is one of the Gottschalks
Credit Card Master Trust % Fixed Base
Credit Card Certificates, Series 1999-1
referred to in the Series Supplement.
BANKERS TRUST COMPANY, not in its individual
capacity, but solely in its capacity as
Trustee
By: \s\ Lillian Perros
Title: Vice President
Dated:
EXHIBIT A-2
FORM OF SUBORDINATED CERTIFICATE
THIS CERTIFICATE MAY NOT BE TRANSFERRED AFTER
INITIAL PURCHASE.
THIS CERTIFICATE MAY NOT BE ACQUIRED OR HELD
BY OR FOR THE ACCOUNT OF AN ERISA PLAN (AS
DEFINED BELOW)
THE GOTTSCHALKS CREDIT CARD MASTER
TRUST HAS NOT BEEN REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED.
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM. THE
TRANSFER, ASSIGNMENT, EXCHANGE, PLEDGE OR
OTHER CONVEYANCE OF THIS CERTIFICATE IS NOT
PERMITTED EXCEPT IN COMPLIANCE WITH THE TERMS
AND CONDITIONS SET FORTH IN THE POOLING AND
SERVICING AGREEMENT AND 1999-1 SERIES
SUPPLEMENT TO THE POOLING AND SERVICING
AGREEMENT UNDER WHICH THIS CERTIFICATE IS
ISSUED (COPIES OF WHICH ARE AVAILABLE FROM THE
TRUSTEE UPON REQUEST). ANY TRANSFEREE OF THIS
CERTIFICATE IS DEEMED AS OF THE DATE OF SUCH
TRANSFER TO MAKE CERTAIN REPRESENTATIONS
RELATING TO ERISA AND OTHER MATTERS.
GOTTSCHALKS CREDIT CARD MASTER TRUST
SUBORDINATED CERTIFICATE
SERIES 1999-1
This certifies that GOTTSCHALKS
CREDIT RECEIVABLES CORPORATION (the
Subordinated Certificateholder) is the
registered owner of a fractional undivided
interest not allocated to the Investors'
Interest or the Exchangeable Interest in
certain assets of a trust (the Trust)
created pursuant to the Pooling and Servicing
Agreement, dated as of March 1, 1999, among
Gottschalks Credit Receivables Corporation, as
depositor (the Depositor), Gottschalks Inc.,
as servicer (the Servicer), and Bankers
Trust Company, as trustee (the Trustee) (the
Pooling and Servicing Agreement), as
supplemented by the Series 1999-1 Supplement
dated as of March 1, 1999, among the
Depositor, the Servicer and the Trustee, (the
Series Supplement). Capitalized terms used
but not otherwise defined herein shall have
the meanings ascribed thereto in the Pooling
and Servicing Agreement or the Series
Supplement, as applicable.
The corpus of the Trust includes (i)
all Receivables sold, transferred, assigned,
set over and otherwise conveyed to the Trust
pursuant to Section 2.01 of the Pooling and
Servicing Agreement, (ii) all monies due or to
become due and all amount received with
respect thereto and all proceeds thereof
(including proceeds, as defined in Section
9-306 of the UCC as in effect in the State of
California), and Miscellaneous Payments, (iii)
all monies on deposit in, and Eligible
Investments credited to, the Collection
Account or any Series Account and (iv) all
monies as are from time to time available
under any Enhancements.
This Certificate is issued under and
subject to the terms, provisions and
conditions of the Pooling and Servicing
Agreement and the Series Supplement. By
acceptance hereof, the Subordinated
Certificateholder assents to and is bound by
the terms, provisions and conditions of the
Pooling and Servicing Agreement and the Series
Supplement, as each may be amended,
supplemented or otherwise modified from time
to time. This Certificate does not purport to
summarize the Pooling and Servicing Agreement
or the Series Supplement and reference is made
to the Pooling and Servicing Agreement and the
Series Supplement for information with respect
to the interests, rights, benefits,
obligations, proceeds and duties evidenced
hereby and the rights, duties and obligations
of the Trustee. A copy of the Pooling and
Servicing Agreement and the Series Supplement
(without schedules) may be requested from the
Trustee by writing to the Trustee at Bankers
Trust Company, Four Albany Street, New York,
New York 10006, Attention: Corporate Trust &
Agency Group, Structured Finance Team.
The Pooling and Servicing Agreement
and the Series Supplement may be amended from
time to time, in certain circumstances, by the
Servicer, the Depositor, the Trustee and (if
the Seller is not the Servicer) the Seller
without the consent of any of the
Certificateholders. The Pooling and Servicing
Agreement and the Series Supplement may also
be amended from time to time as specified in
the Pooling and Servicing Agreement by the
Servicer, the Depositor and the Trustee, upon
satisfaction of the Rating Agency Condition,
with the consent of (i) the Holder of the
Exchangeable Certificate, if it would be
adversely affected by such amendment, and (ii)
the Holders of Investor Certificates
evidencing more than 50% of the aggregate
unpaid principal amount of the Investor
Certificates of all adversely affected Series,
for the purpose of adding any provisions to or
changing in any manner or eliminating or
waiving any of the provisions of the Pooling
and Servicing Agreement or any Supplement or
of modifying in any manner the rights of the
Certificateholders. Any such amendment and
any such consent by the Holder of this
Certificate shall be conclusive and binding on
such Holder and upon all future Holders of
this Certificate and of any Certificate issued
in exchange hereof or in lieu hereof whether
or not notation thereof is made upon this
Certificate.
THIS CERTIFICATE MAY NOT BE
TRANSFERRED AFTER INITIAL PURCHASE.
This Certificate may not be acquired
or held by or for the account of any employee
benefit plan or individual retirement account
subject to Title I of ERISA or Section 4975 of
the Internal Revenue Code, or any trust
established under any such employee benefit
plan or individual retirement account (or
established to hold the assets thereof), or
any governmental plan (as defined in section
3(32) of ERISA or Section 414(d) of the Code)
or subject to any law or regulation similar to
those contained in Section 406 of ERISA or
Section 4975 of the Internal Revenue Code
(each such employee benefit plan, individual
retirement account and trust, an ERISA
Plan). No part of the funds used by any
Person to acquire or hold this Certificate may
constitute assets (within the meaning of ERISA
and any applicable rules and regulations) of
an ERISA Plan.
THIS CERTIFICATE SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Depositor
has caused this Certificate to be duly
executed.
GOTTSCHALKS CREDIT RECEIVABLES
CORPORATION, as Depositor
By: \s\ Michael Geele
Title: President
CERTIFICATE OF AUTHENTICATION
This is one of the Gottschalks
Credit Card Master Trust Subordinated
Certificates, Series 1999-1 referred to in the
Series Supplement.
BANKERS TRUST COMPANY, not in its individual
capacity, but solely in its capacity as
Trustee
By: \s\ Lillian Perros
Title: Vice President
Dated:
EXHIBIT B
FORM OF DISTRIBUTION DATE STATEMENT
GOTTSCHALKS CREDIT CARD MASTER TRUST
(SERIES 1999-1)
Reference is made to that certain
Pooling and Servicing Agreement, dated as of
March 1, 1999, among the Depositor, the
Servicer and the Trustee (the Pooling and
Servicing Agreement), as supplemented by the
Series 1999-1 Supplement dated as of March 1,
1999 (the Series Supplement), among
Gottschalks Credit Receivables Corporation, as
depositor (the Depositor), Gottschalks Inc.,
as servicer (the Servicer), and Bankers
Trust Company, as trustee (the Trustee).
Capitalized terms used but not otherwise
defined herein shall have the meanings
ascribed thereto in the Pooling and Servicing
Agreement or the Series Supplement, as
applicable.
Under the Pooling and Servicing
Agreement, the Servicer is required to prepare
certain information for each Distribution Date
regarding current distributions to the Holders
of the Fixed Base Certificates (the Investor
Certificateholders) and the performance of
the Gottschalks Credit Card Master Trust (the
Trust) during the Related Collection Period.
The information which is required to be
prepared with respect to the ,
____ Distribution Date and with respect to the
performance of the Trust during the Related
Collection Period for such Distribution Date
is set forth below. Certain of the
information is presented on the basis of an
original principal amount of $1,000 per
Certificate. Certain other information is
presented based on the aggregate amounts for
the Trust as a whole.
(A) Information Regarding the Current Monthly
Distribution for the Fixed Base
Certificates (stated on the basis of
$1,000 original principal amount).
(1) The total amount of the $
distribution to Series 1999-1
Fixed Base Certificateholders on
the current Distribution Date,
per $1,000 original principal
amount:
(2) The total amount of the $
distribution to Series 1999-1
Fixed Base Certificateholders in
respect of interest on the
current Distribution Date, per
$1,000 original principal amount:
(3) The total amount of the $
distribution to Series 1999-1
Fixed Base Certificateholders in
respect of principal on the
current Distribution Date, per
$1,000 original principal amount:
(4) The total amount of the $
distribution to Series 1999-1
Fixed Base Certificateholders in
respect of any Make Whole Premium
on the current Distribution Date,
per $1,000 original principal
amount:
(5) Investor Charge-Offs allocated in $
reduction of the Fixed Base
Invested Amount for the current
Collection Period:
(6) Fixed Base Certificate Balance $
before the foregoing
distributions and allocations:
(7) Fixed Base Certificate Balance $
after the foregoing distributions
an allocations:
(8) Investor Charge-Offs allocated in $
reduction of the Subordinated
Invested Amount for the current
Collection Period:
(9) Subordinated Invested Amount $
after the foregoing distributions
and allocations:
((B) Information Regarding Interest, Carryover
Interest, Unpaid Principal and Make Whole
Premium for the Fixed Base Certificates.
(1) FBC Interest Rate for the related ______%
Interest Period (generally 7.664%
per annum, but 8.414 if the
rating of the Fixed Base
Certificates is downgraded,
modified or withdrawn):
(2) Amount of interest accrued during $
the related Collection Period on
the Fixed Base Certificate
Balance:
(3) Amount of interest (including any $
FBC Carryover Interest) due on
the current Distribution Date
with respect to the Fixed Base
Certificates:
(4) Amount of interest distributed on $
the current Distribution Date to
the Holders of the Fixed Base
Certificates:
(a) Portion thereof$
funded from Investor Finance Charge Collections:
(b) Portion thereof$
funded from Spread Account:
(c) Portion thereof$
funded from Investor Principal Collections allocated to
the Subordinated Certificate
(d) Portion thereof$
funded from Retained Amount Account:
(5) Amount, if any, of FBC Carryover $
Interest that will be due on the
next Distribution Date:
(6) Amount of principal due on the $
current Distribution Date with
respect to the Fixed Base
Certificates (i.e., zero,
Controlled Amortization Amount or
Outstanding Fixed Base
Certificate Balance):
(7) Amount of principal distributed $
on the current Distribution Date
with respect to the Fixed Base
Certificates
(8) Amount of previously unpaid $
principal to be distributed on
the current Distribution Date to
the Holders of the Fixed Base
Certificates
(9) Amount of Make Whole Premium $
(including accrued interest
thereon, if any) due on the
current Distribution Date with
respect to the Fixed Base
Certificates
(10) Amount of Make Whole Premium $
(including accrued interest
thereon, if any) to be
distributed on the current
Distribution Date to the Holders
of the Fixed Base Certificates
(11) Amount, if any, of unpaid Make $
Whole Premium (including accrued
interest thereon, if any) for the
current Interest Period with
respect to the Fixed Base
Certificates
(C) Principal Receivables in the Trust and
Allocation Percentages
(1) The aggregate amount of Eligible $
Principal Receivables in the
Trust (which is net of the
Discount Portion thereof) as of
the first day of the Related
Collection Period:
(2) The aggregate amount of Eligible $
Principal Receivables in the
Trust (which is net of the
Discount Portion thereof) as of
the last day of the Related
Collection Period:
(3) The aggregate amount of Eligible $
Principal Receivables in the
Trust (which is net of the
Discount Portion thereof)
represented by the Invested
Amounts of the Certificates of
all outstanding Series as of the
first day of the related
Collection Period (i.e., the sum
of the amounts derived by
multiplying item C(1) by the
product of the Series Allocation
Percentage and by the Floating
Allocation Percentage (if such
Collection period commenced
during the Revolving Period) or
the Fixed/Floating Allocation
Percentage (if such Collection
Period commenced after the
termination of the Revolving
Period) for each outstanding
Series):
(4) Fixed Base Invested Amount for $
Series 1999-1 as of the first day
of the related Collection Period:
(5) Subordinated Invested Amount for $
Series 1999-1 as of the first day
of the related Collection Period:
(6) The Required Series Pool Balance $
for Series 1999-1 as of the first
day of the related Collection
Period (i.e., the sum of C(4) and
C(5)):
(7) Series Allocation Percentage for ________%
Series 1999-1 (i.e., item C(6)
divided by the sum of item C(6)
plus the equivalent amount for
each outstanding Series):
(8) Series 1999-1 Series Pool $
Balance: The amount of Principal
Receivables in the Trust
represented by Series 1999-1
(i.e., the product of C(1) and
item C(7)):
(9) Floating Allocation Percentage ________%
for Series 1999-1 (i.e., item
C(6) divided by item C(8) each as
of the first day of the related
Collection Period):
(10) Fixed/Floating Allocation ________%
Percentage for Series 1999-1
(i.e., item C(6) divided by item
C(8), each as of the first day of
the last Collection Period to
commence during the Revolving
Period):
(11) FBC Principal Allocation _________%
Percentage (i.e., item C(4)
divided by the sum of item C(4)
and item C(5) as of the first day
of the related Collection Period
or, for any Collection Period
commencing after the termination
of the Revolving Period, item
C(4) divided by the sum of item
C(4) and item C(5), each as of
the first day of the last
Collection Period to commence
during the Revolving Period):
(12) SC Principal Allocation _________%
Percentage (i.e., item C(5)
divided by the sum of item C(4)
and item C(5) as of the first day
of the related Collection Period
or, for any Collection Period
commencing after the termination
of the Revolving Period, item
C(5) divided by the sum of item
C(4) and item C(5), each as of
the first day of the last
Collection Period to commence
during the Revolving Period):
(13) Exchangeable Holder's Interest as $_______________
of the first day of the related ___
Collection Period (i.e., item
C(8) minus item C(6)):
(D) Information Regarding the Performance of
the Trust.
(1) Aggregate Collections
(a)The aggregate amount of $
payments on Receivables
processed for the Related
Collection Period:
(b)The aggregate amount of $
payments on Receivables
comprising Principal
Collections processed for
the Related Collection
Period:
(c)The aggregate amount of $
payments on Receivables
comprising Finance Charge
Collections processed for
the Related Collection
Period:
(2) Principal Collections.
(a)The aggregate amount of $
Principal Collections
processed during the Related
Collection Period allocated
to Series 1999-1 (i.e., the
product of item D(1)(b) and
item C(7)):
(b)The aggregate amount of $
Principal Collections
processed during the Related
Collection Period allocated
to Series 1999-1 Investor
Certificates (i.e., the
product of item D(2)(a) and
item C(9), if the related
Collection Period commences
during the Revolving Period,
or the product of item
D(2)(a) and item C(10) if
such Collection Period
commences after the
Revolving Period
terminates):
(c)The aggregate amount of $
Principal Collections
processed during the Related
Collection Period allocated
to the Fixed Base
Certificates (i.e., the
product of item D(2)(b) and
item C(11)):
(d)The aggregate amount of $
Principal Collections
processed during the Related
Collection Period allocated
to the Subordinated
Certificate (i.e., the
product of item D(2)(b) and
item C(13)):
(e)The aggregate amount of $
Principal Collections
processed during the Related
Collection Period allocated
to the Exchangeable
Certificate (i.e., the
product of item D(2)(a) and
[100% minus item C(9)], if
the related Collection
Period commences during the
Revolving Period, or the
product of item D(2)(a) and
[100% minus item C(10)],if
such Collection Period
commences after the
Revolving Period terminates
):
(3) Finance Charge Collections
(a)The aggregate amount of $
Finance Charge Collections
processed during the Related
Collection Period allocated
to Series 1999-1 (i.e., the
product of item D(1)(c) and
item C(7)):
(b)The aggregate amount of $
Finance Charge Collections
processed during the Related
Collection Period allocated
to Series 1999-1 Investor
Certificates (i.e., the
product of item D(3)(a) and
item C(9)):
(c)The aggregate amount of $
Finance Charge Collections
processed during the Related
Collection Period allocated
to the Fixed Base
Certificates (i.e., the
product of item D(3)(b) and
[item C(4) divided by item
C(6)]):
(d)The aggregate amount of $
Finance Charge Collections
processed during the Related
Collection Period allocated
to the Subordinated
Certificate (i.e., the
product of item D(3)(b) and
[item C(5) divided by item
C(6)]):
(e)The aggregate amount of $
Finance Charge Collections
processed during the Related
Collection Period allocated
to the Exchangeable
Certificate (i.e., the
product of item D(3)(a) and
[100% minus item C(9)]):
(4) Defaulted Receivables, Default
Amounts and Investor Charge-Offs
(a)Default Amount for the $
Related Collection Period:
(b)The portion of the Default $
Amount allocable to Series
1999-1 (i.e., the product of
item D(4)(a) and item C(7)):
(c)Investor Default Amount: The $
portion of the Default Amount
allocable to the Series 1999-
1 Investor Certificates
(i.e., the product of item
D(4)(b) and item C(9)):
(d)The portion of the Default $
Amount allocable to the
Exchangeable Certificate
(i.e., the product of item
D(4)(b) and [100% minus item
C(9)]):
(e)The portion of the Investor $
Default Amount funded from
the Investor Default Holdback
Amount for the related
Collection Period:
1. Investor Default Holdback $
Amount (i.e., the greater
of (A) the average of the
Investor Default Amount
for the preceding twelve
Collection Periods and (B)
the Servicer's expectation
as to the Investor Default
Amount for the related
Collection Period):
2. Excess of Investor Default $
Holdback Amount over
Investor Default Amount
(i.e., item D(4)(e)(1)
minus item D(4)(c)):
3. Excess of Investor Default $
Amount over Investor
Default Holdback Amount
(i.e., item D(4)(c) minus
item D(4)(e)(1)):
(f)The portion of the Investor $
Default Amount funded from
the Spread Account for the
related Collection Period:
(g)The portion of the Investor $
Default Amount funded from
reallocations of Investor
Principal Collections
allocated to the Subordinated
Certificate for the related
Collection Period:
(h)Investor Charge-Offs for the $
Subordinated Certificate:
The portion of the Investor
Default Amount allocated in
reduction of the Subordinated
Invested Amount for the
related Collection Period:
(i)The portion of the Investor $
Default Amount funded from
the Investor Component of
amounts on deposit in the
Retained Amount Account for
the related Collection
Period:
(j) Principal$
Collections allocated to Fixed Base Certificates used
to fund Investor Default Amounts allocated to Fixed
Base Certificates:
(k)Investor Charge-Offs for the $
Fixed Base Certificates: The
portion of the Investor
Default Amount allocated in
reduction of the Fixed Base
Invested Amount for the
related Collection Period:
(l)Investor Finance Charge $
Collections used to reimburse
Investor Charge-Offs
previously allocated to the
Fixed Base Certificates:
(m)Amounts withdrawn from Spread $
Account to reimburse Investor
Charge-Offs previously
allocated to the Fixed Base
Certificates:
(n) Principal$
Collections allocated to Subordinated Certificate used
to fund Investor Charge-Offs previously allocated to
Fixed Base Certificates:
(o)Amounts withdrawn from $
Retained Amount Account to
reimburse Investor Charge-
Offs previously allocated to
the Fixed Base Certificates:
(p) Principal$
Collections allocated to Fixed Base Certificates used
to fund Investor Charge-Offs previously allocated to
Fixed Base Certificates:
(q)Aggregate outstanding $
unreimbursed Investor Charge-
Offs allocated to the Fixed
Base Certificates as of this
Distribution Date:
(r)Investor Finance Charge $
Collections used to reimburse
Investor Charge-Offs
previously allocated to the
Subordinated Certificate:
(s) Principal$
Collections allocated to Subordinated Certificate used
to fund Investor Charge-Offs previously allocated to
Subordinated Certificate:
(t)Amounts withdrawn from $
Retained Amount Account to
reimburse Investor Charge-
Offs previously allocated to
the Subordinated Certificate:
(u)Aggregate outstanding $
unreimbursed Investor Charge-
Offs allocated to the
Subordinated Certificate as
of this Distribution Date:
(5) Aging of Receivables.
(a)The aging of Principal
Receivables as of the last
day of the related Collection
Period:
1. Current: $
2. 1-29 days: $
3. 30-59 days: $
4. 60-89 days: $
5. 90-119 days: $
6. 120-149 days: $
7. 150-179 days: $
8. 180+ days: $
9. Total $
(b) The aging of
Principal Receivables as of the last day of the related
Collection Period as a percentage of the aggregate
amount of Principal Receivables as of such day:
1. Current: %
2. 1-29 days: %
3. 30-59 days: %
4. 60-89 days: %
5. 90-119 days: %
6. 120-149 days: %
7. 150-179 days: %
8. 180+ days: %
9. Total 100 %
(6) Extraordinary Trustee
Fees/Servicing Transfer
(a) Amounts drawn under$_______________
$200,000 letter of credit or surety bond to cover fees___
and expenses of Trustee in performing duties following
an Early Amortization Event or costs of transfer of
servicing duties:
(b) Finance Charge$_______________
Collections applied to cover fees and expenses of___
Trustee in performing duties following an Early
Amortization Event or costs of transfer of servicing
duties (not in excess of $200,000 less amounts, if any,
drawn under item D(6)(a)):
(c) Amounts drawn or$_______________
released from the Spread Account to fund amounts___
described in D(6)(a) and not covered by item D(6)(a)
and D(6)(b):
(d) Finance Charge$_______________
Collections applied to cover premiums or reimbursements___
of amounts drawn under $200,000 letter of credit or
surety bond:
(7) Servicing Fee
(a) Aggregate Monthly$
Servicing Fee accrued during the Related Collection
Period (i.e., the product of 1/12, 3.0% per annum and
item C(6)):
(b) Aggregate Monthly$
Senior Servicing Fee accrued during the Related
Collection Period (i.e., the product of D(7)(a) and
5/6, for each Collection Period commencing prior to a
transfer of servicing duties, and simply item D(7)(a)
for each Collection Period commencing after a transfer
of servicing duties):
(c) Aggregate Monthly$
Subordinated Servicing Fee accrued during the Related
Collection Period (i.e., the product of D(7)(a) and
1/6, for each Collection Period commencing prior to a
transfer of servicing duties, and zero for each
Collection Period commencing after a transfer of
servicing duties):
(d) The aggregate amount$
of the Monthly Senior Servicing Fee paid to the
Servicer for the Related Collection Period from Finance
Charge Collections:
(e) The aggregate amount$
of the Monthly Senior Servicing Fee paid to the
Servicer for the Related Collection Period from the
Spread Account:
(f) The aggregate amount$
of the Monthly Senior Servicing Fee not paid to the
Servicer for the Related Collection Period:
(g) The aggregate amount$
of the Monthly Subordinated Servicing Fee paid to the
Servicer for the Related Collection Period from Finance
Charge Collections:
(h) The aggregate amount$
of the Monthly Subordinated Servicing Fee not paid to
the Servicer for the Related Collection Period:
(8) Other Applications of Investor
Finance Charge Collections:
(a) Deposited into$
Spread Account for the related Collection Period:
(b) Applied to fund Make$
Whole Premium:
(c) Released to$
Depositor for Purchase of Receivables:
(9) Other applications of Investor
Principal Collections
(a) Deposited into$
Retained Amount Account for the related Collection
Period:
(b) Applied to fund Make$
Whole Premium:
(c) Applied to reduce$
Subordinated Invested Amount:
(d) Released to$
Depositor for Purchase of Receivables:
(10) Aggregate Investor Finance Charge $
Collections and Investor
Principal Collections released to
Depositor for Purchase of
Receivables:
(11) Spread Account
(a) Was a Spread AccountYes/No
Trigger in effect during the related Collection Period?
(see item D(12))
(b) Was a Spread AccountYes/No
Trigger cured during the related Collection Period?
(see item D(12) for the related and 2 preceding
Collection Periods or, after the Distribution Date in
August 2002, the related and 5 preceding Collection
Periods, and no Early Amortization Event has occurred)
(if so, all amounts will be released from Spread
Account and run through the Investor Finance Charge
Collection waterfall):
(c) Spread Account$
Requirement as of the last day of the Related
Collection Period (i.e., after making all daily
calculations of (i) sum of item A(6), plus (ii) [item
B(3) minus item B(4)(a)], plus [item D(4)(c) minus item
D(4)(e)], plus [item D(4)(k) minus [item D(4)(l) plus
item D(4)(r)], minus (ii) Investor Principal
Collections on deposit on such day in the Collection
Account and available for item B(2) and B(6) in the
aggregate, and minus (iii) item D(13)(c) the Investor
Component of amounts on deposit in the Retained Amount
Account):
(d) Amount on deposit in$
the Spread Account as of the Determination Date
relating to the preceding Distribution Date:
(e) Amounts, if any,$
deposited into the Spread Account for the related
Collection Period:
(f) The aggregate amount$
on deposit in the Spread Account as of the related
Determination Date:
(g) The amount of any$_______________
Deficiency Amount for the current Collection Period__
(i.e., ) [item B(3) minus item B(4)(a)], plus [item
D(4)(c) minus item D(4)(e)], plus [item D(4)(k) minus
[item D(4)(l) plus item D(4)(r)]):.......... .......
(h) The amount, if any,$
to be withdrawn from the Spread Account to cover any
Deficiency Amount (i.e., the lesser of item D(11)(e)
and item D(11)(f)):
(i) The amount, if any,$
to be withdrawn from the Spread Account to fund
principal distributions to the Fixed Base Certificates:
(j) The amount, if any,$
to be withdrawn from the Spread Account to fund any
Make Whole Premium:
(k) The balance of the$
Spread Account after making the foregoing distributions
(12) Spread Account Triggers
(a) Have the Fixed BaseYes/No
Certificates been put on credit watch with negative
implications by the Rating Agency?
Actual Required Yes/N
% % o
(b) Average of the greater
Portfolio Yields for the three preceding months: than 14.50%
(c) Average of the less
Default Rates for the three preceding months: than 8.50%
(d) Average of the greater
Excess Spreads for the three preceding months: than 3.00%
(e) Average of the less
Delinquency Rates for the three preceding months:than 2.00%
(f) Average of the greater
Monthly Payment Rates for the three preceding months: than 22.50%
(13) Retained Amount Account.
(a) Balance of the$
Retained Amount Account on the Determination Date
relating to the preceding Distribution Date:
(b) Balance of the$
Retained Amount Account on the related Distribution
Date:
1. Gross increase $
attributable to increase
in Investor Component:
2. Gross decrease $
attributable to decrease
in Investor Component:
3. Gross increase $
attributable to increase
in Retained Exchangeable
Amount:
4. Gross decrease $
attributable to decrease
in Retained Exchangeable
Amount:
(c) Investor Component$
of amounts on Deposit in the Retained Amount Account on
the related Determination Date: Aggregate of Amounts
on deposit in the Retained Amount Account on the
related Determination Date because of deposits made
because the Required Series Pool Balance exceeded the
Series Pool balance and the Investor Component of
amounts on deposit therein on one or more days during
any preceding Collection Period less amounts thereof
withdrawn and applied for following items:
(d) Amounts withdrawn$
from the Investor Component of amounts on deposit in
the Retained Amount Account to fund any Controlled
Amortization Amount:
(e) Amounts withdrawn$
from the Investor Component of amounts on deposit in
the Retained Amount Account to fund any Investor
Default Amounts allocated to the Fixed Base
Certificates:
(f) Amounts withdrawn$
from the Investor Component of amounts on deposit in
the Retained Amount Account to fund any Investor Charge-
Offs allocated to the Fixed Base Certificates:
(g) Amounts withdrawn$
from the Investor Component of amounts on deposit in
the Retained Amount Account to fund any Make Whole
Premium (and any interest accrued thereon):
(h) Amounts withdrawn$
from the Investor Component of amounts on deposit in
the Retained Amount Account to fund any distribution of
principal to the holder of the Subordinated
Certificate:
(i) Retained$
Exchangeable Amounts on deposit in the Retained Amount
Account on the related Determination Date: Amounts
deposited therein because the Required Exchangeable
Certificate Amount exceeded the Exchangeable Holder's
Interest, plus the aggregate amount of Eligible Past
Due Receivables (item D(5)(a)(6) plus item D(5)(a)(7)),
plus the Retained Exchangeable Amount on deposit in the
Retained Amount Account on one or more days during any
preceding Collection Period less amounts thereof
withdrawn pursuant to item and applied for following
items:
1. Required Exchangeable $
Certificate Amount (product
of [the greater of item
D(13)(i)(4) or 7.00%] and
item C(6)):
2. Net amount of charge $
account refunds or return
credits given by
Gottschalks to
accountholders during the
Anniversary Month (same
calendar month as related
Collection Period, one year
previous):
3. Net sales credited to $
Gottschalks charge accounts
during such Anniversary
Month:
4. Item D(13)(i)(2) divided by _________%
item D(13)(i)(3):
(j) Amounts withdrawn$
from the Retained Exchangeable Amount on deposit in the
Retained Amount Account and released to the holder of
the Exchangeable Certificate:
(k) Amounts remaining on$
deposit in the Retained Amount Account after the
preceding applications:
(l) Investor Component$
of amounts remaining on deposit in the Retained Amount
Account after the preceding applications:
(m) Retained$
Exchangeable Amount remaining on deposit in the
Retained Amount Account after the preceding
applications:
(14) Early Amortization Events.
(a) Numerical Triggers
(Article VII of Series Supplement to Pooling and
Servicing Agreement)
1.The balance of the Investor Yes/No
Component of the Retained
Amount Account was required
to exceed $3.5 million
(i.e., item C(6) exceeded
item C(8) by more than $3.5
million) for 60 consecutive
days.
2.The Subordinated Invested Yes/No
Amount has been written
down by more than
$2,161,685 (33% of the
Subordinated Invested
Amount as of the Closing
Date) on a day when the
Fixed Base Invested Amount
was greater than zero.
3.The sum of (A) the Yes/No
Exchangeable Holder's
Interest (item C(13) if
measured on a daily basis),
(B) the aggregate principal
amount of any Eligible Past
Due Receivables (item
D(5)(a)(6) plus item
D(5)(a)(7) measured on a
daily basis), and (C) the
Retained Exchangeable
Amount (item D(13)(m)
measured on a daily basis)
was reduced below the
Required Exchangeable
Certificate Amount (item
D(13)(i)(1) measured on a
daily basis):
Actual Required Yes/N
% % o
4. Average of the greater
Portfolio Yields for than
the three preceding 12.00%
months:
5. Average of the less
Default Rates for than
the three preceding 10.00%
months:
6. Average of the greater
Excess Spreads for than
the three preceding 1.00%
months:
7. Average of the less
Delinquency Rates than
for the three 3.00%
preceding months:
8. Average of the greater
Monthly Payment than
Rates for the three 17.50%
preceding months:
(b) Non-Numerical Triggers
1. The Depositor has failed to Yes/No
make any material payments
or transfer of funds for
the benefit of
Certificateholders within
two Business Days of
receipt of notice of such
failure.
2. The Depositor has Yes/No
materially breached any
covenant under the
Agreement or any Series
Supplement or has come to
have knowledge that any of
its the representations or
warranties under the
Agreement or the Series
Supplement has been
breached.
3. The Trust is required to be Yes/No
registered as an investment
company within the meaning
of the Investment Company
Act of 1940, as amended.
4. The Depositor is required Yes/No
to be registered as an
investment company within
the meaning of the
Investment Company Act of
1940, as amended.
5. A Servicer Default has Yes/No
occurred (specify
___________________________
___________________________
___________________________
_______________.
6. The Depositor has failed to Yes/No
designate Blocked Accounts
as Supplemental Accounts on
any Determination Date on
which the Required Series
Pool Balance exceeded the
sum of the Series Pool
Balance and the Investor
Component of the amount on
deposit in the Retained
Amount Account or has
failed to transfer and
convey additional
Receivables from such
Supplemental Accounts
within five business days
of such Determination Date.
7. The Fixed Base Certificate Yes/No
Balance has not been
reduced to zero on the
August 2004 Distribution
Date or any Controlled
Amortization Amount was not
paid in full when due.
8. The Depositor and the Yes/No
Servicer are aware of the
occurrence of any events of
bankruptcy, insolvency or
receivership involving the
Depositor or Gottschalks,
the occurrence of which
would constitute an Early
Amortization Event.
9. The rating of the Fixed Yes/No
Base Certificate has been
reduced below BBB.
(E) Discount Rates
(a)The Discount Rate in effect %
for non-promotional
Receivables on the first day
of the related Collection
Period:
(b)Changes, if any, to the %
Discount Rate for non-
promotional Receivables since
the first day of the related
Collection Period:
(c)The Discount Rate in effect %
for promotional Receivables
on the first day of the
related Collection Period:
(d)Changes, if any, to the %
Discount Rate for promotional
Receivables since the first
day of the related Collection
Period:
IN WITNESS WHEREOF, the undersigned
has duly executed and delivered this
Certificate this day of ,
____.
GOTTSCHALKS INC.,
as Servicer
By: \s\ Jim Famalette
Servicing Officer
EXHIBIT C
FORM OF RULE 144A TRANSFEREE CERTIFICATE
Gottschalks Credit Receivables Corporation
Bankers Trust Company
7 River Place East as Trustee
Fresno, California 93729 Four Albany
Street
New York,
New York 10006
Re: Gottschalks Credit Card Master
Trust;
Fixed Base Credit Card Certificates,
Series 1999-1
Ladies and Gentlemen:
__________________________ (the
Purchaser) is today purchasing in a private
resale from ___________________________ (the
Seller) $_______ aggregate principal amount
of Fixed Base Credit Card Certificates, Series
1999-1 (the Certificates), issued pursuant
to the Pooling and Servicing Agreement and the
Series 1999-1 Supplement (the Supplement)
thereto, each dated as of March 1, 1999
(collectively, the Agreement), between
Gottschalks Inc. (the Company), Gottschalks
Credit Receivables Corporation (GCRC) and
Bankers Trust Company (Bankers Trust), as
trustee (the Trustee). The Certificates are
securities issued by and evidencing interests
in the Gottschalks Credit Card Master Trust
(the Trust).
In connection with the purchase of
the Certificates, the Purchaser hereby
represents and warrants to each of you as
follows:
1. The Purchaser understands that
the Certificates have not been registered
under the Securities Act of 1933, as amended
(the 1933 Act), or the securities laws of
any state or foreign jurisdiction.
2. The Purchaser is acquiring the
Certificates for its own account (or for the
account of a qualified institutional buyer as
defined in Rule 144A under the 1933 Act) only
for investment and not for any other person,
and not with a view to, or for resale in
connection with, a distribution that would
constitute a violation of the 1933 Act or any
state or foreign securities laws (subject to
the understanding that disposition of the
Purchaser's property will remain at all times
within its control). The Purchaser does
hereby agree to indemnify the Trustee, its
officers, directors, agents and employees,
GCRC and the Company against any liability
that may result if the transfer is not so
exempt or is not made in accordance with the
1933 Act and such state and foreign securities
laws. The Purchaser is not an affiliate of
GCRC, the Trustee or any of their respective
affiliates.
3. The Purchaser agrees that the
Certificates must be held indefinitely by it
unless (i) the Certificates are subsequently
registered under the 1933 Act or (ii) an
exemption from the registration requirements
of the 1933 Act is available.
4. The Purchaser agrees that if at
some time it wishes to dispose of or exchange
any of the Certificates, it will not transfer
or exchange any of the Certificates unless
such transfer or exchange is in accordance
with the provisions of Article VI of the
Agreement and Article VI of the Supplement.
5. The Purchaser is a qualified
institutional buyer as defined in Rule 144A of
the 1933 Act and has completed one of the
forms of certification to that effect attached
as Annexes hereto, it is aware that the sale
to it is being made in reliance on Rule 144A,
it is acquiring the Certificates for its own
account or for the account of a qualified
institutional buyer and it understands that
such Certificates may be resold, pledged or
transferred by the Purchaser only (i) to a
person who the Purchaser reasonably believes
is a qualified institutional buyer that
purchases for its own account or for the
account of a qualified institutional buyer to
whom notice is given that the resale, pledge
or transfer is being made in reliance on Rule
144A or (ii) pursuant to another exemption
from registration under the 1933 Act and
applicable state and foreign securities laws.
6. Neither the Purchaser nor
anyone acting on its behalf has offered,
transferred, pledged, sold or otherwise
disposed of any Certificate, any interest in
any Certificate or any other similar security
of GCRC or the Trust to, or solicited any
offer to buy or accept a transfer, pledge or
other disposition of any Certificate, any
interest in any Certificate or any other
similar security of GCRC or the Trust with,
any person in any manner, or made any general
solicitation by means of general advertising
or in any other manner, or taken any other
action, which would constitute a distribution
of the Certificates under the 1933 Act or
which would render the disposition of any
Certificate a violation of Section 5 of the
1933 Act or any state or foreign securities
law, require registration or qualification
pursuant thereto, or require registration of
the Trust or GCRC as an investment company
under the Investment Company Act of 1940, as
amended, nor will it act, nor has it
authorized or will it authorize any person to
act, in such manner with respect to the
Certificates.
7. The Purchaser understands that
there is no market, nor is there any assurance
that a market will develop, for the
Certificates and that GCRC and the Trust have
no obligation to make or facilitate any such
market (or to otherwise repurchase the
Certificates from the Purchaser) under any
circumstances.
8. The Purchaser has consulted
with its own legal counsel, independent
accountants and financial advisors to the
extent it deems necessary regarding the tax
consequences to it of ownership of the
Certificates, is aware that its taxable income
with respect to the Certificates in any
accounting period may not correspond to the
cash flow (if any) from the Certificates for
such period, and is not purchasing the
Certificates in reliance on any
representations of GCRC or its counsel with
respect to tax matters.
9. The Purchaser has reviewed the
Private Placement Memorandum with respect to
the Certificates dated March 1, 1999 (the
Private Placement Memorandum), and has had
the opportunity to ask questions and receive
answers concerning the terms and conditions of
the transaction contemplated by the Private
Placement Memorandum and to obtain additional
information necessary to verify the accuracy
and completeness of any information furnished
to the Purchaser or to which the Purchaser had
access.
10. The Purchaser understands that
the Certificates will bear legends
substantially as set forth in the Agreement.
11. The Purchaser hereby further
agrees to be bound by all the terms and
conditions of the Certificates as provided in
the Agreement.
12. The Purchaser is not an
employee benefit plan, trust or account
subject to Title I of the Employee Retirement
Income Security Act of 1974, as amended
(ERISA), or subject to Section 4975 of the
Internal Revenue Code of 1986, as amended (the
Code), or a governmental plan defined in
section 3(32) of ERISA or Section 414(d) of
the Code subject to any federal, state or
local law which is, to a material extent,
similar to the foregoing provisions of ERISA
or the Code (Similar Law) (each, a Benefit
Plan) and is not an entity, including an
insurance company separate account or an
insurance company general account if the
assets in any such accounts constitute plan
assets for purposes of regulation section
2510.3-101 of ERISA, whose underlying assets
include Benefit Plan assets by reason of a
Benefit Plan's investment in the entity.
13. If the Purchaser (and if the
Purchaser is acquiring the Certificates for an
account as provided in paragraph 5 above, such
account) is a partnership, grantor trust or S
corporation for federal income tax purposes (a
flow-through entity), any Certificates owned
by such flow-through entity will represent
less than 50% of the value of all the assets
owned by such flow-through entity and no
special allocation of income, gain, loss,
deduction or credit from such Certificates
will be made among the beneficial owners of
such flow-through entity.
14. If the Purchaser sells any of
the Certificates, the Purchaser will obtain
from any subsequent Purchaser the same
representations contained in this
Representation Letter.
Capitalized terms used herein that
are not otherwise defined shall have the
meanings ascribed thereto in the Agreement.
The representations and warranties
contained herein shall be binding upon the
heirs, executors, administrators and other
successors of the undersigned. If there is
more than one signatory hereto, the
obligations, representations, warranties and
agreements of the undersigned are made jointly
and severally.
Executed at ___________, this_ day
of ____.
Purchaser's Name (Print)
By \s\ Robert A. Smedley
Its Vice President
Address of Purchaser
Purchaser's Taxpayer
Identification Number
Annex 1
to Exhibit C
Qualified Institutional Buyers Status Under
Rule 144A
(Buyers other than investment companies)
Gottschalks Credit Receivables Corporation
Bankers Trust Company
7 River Place East as Trustee
Fresno, California 93729 Four Albany
Street
New York,
New York 10006
Re: Gottschalks Credit Card Master Trust;
Credit Card Certificates, Series
1999-1
Name of Buyer: (Buyer)
Dear Sirs:
I hereby certify that as indicated below,
I am the President, Chief Executive/Financial
Officer, Senior Vice President or other
executive officer of Buyer.
In connection with purchases by Buyer
from time to time, I hereby certify to you
and, if you act as broker for one or more
customers, to such customers, that Buyer is a
qualified institutional buyer as defined in
Rule 144A under the Securities Act of 1933, as
amended (Rule 144A), because (i) Buyer owned
and/or invested on a discretionary basis
$______ in securitiesi (except for the
excluded securities referred to below) as of
the end of Buyer's most recent fiscal year
(such amount being calculated in accordance
with Rule 144A) and (ii) Buyer satisfies the
criteria in the initialed category marked
below.
Corporation, etc. Buyer is a corporation
(other than a bank, savings and loan
association or similar institution),
Massachusetts or similar business trust,
partnership, or charitable organization
described in Section 501(c)(3)of the Internal
Revenue Code of 1986, as amended.
Bank. Buyer (a) is a national bank or
banking institution organized under the laws
of any State, territory or the District of
Columbia the business of which is
substantially confined to banking and is
supervised by the State or territorial banking
commission or similar official or is a foreign
bank or equivalent institution, and (b) has an
audited net worth of at least $25,000,000 as
demonstrated in its latest annual financial
statements, a copy of which is attached
hereto.
Savings and Loan. Buyer (a) is a savings
and loan association, building and loan
association, cooperative bank, homestead
association or similar institution, which is
supervised and examined by a State or Federal
authority having supervision over any such
institution or is a foreign savings and loan
association or equivalent institution and (b)
has an audited net worth of at least
$25,000,000 as demonstrated in its latest
annual financial statements, a copy of which
is attached hereto.
Broker-dealer. Buyer is a dealer
registered pursuant to Section 15 of the
Securities Exchange Act of 1934, as amended
(the 1934 Act).
Insurance Company. Buyer is an insurance
company whose primary and predominant business
activity is the writing of insurance or the
reinsuring of risks underwritten by insurance
companies and which is subject to supervision
by the insurance commissioner or a similar
official or agency of a State, territory or
the District of Columbia.
State or Local Plan. Buyer is a plan
established and maintained by a State, its
political subdivisions or any agency or
instrumentality of a State or its political
subdivisions, for the benefit of its
employees.
ERISA Plan. Buyer is an employee benefit
plan within the meaning of Title I of the
Employee Retirement Income Security Act of
1974, as amended.
Investment Advisor. Buyer is an
investment advisor registered under the
Investment Advisers Act of 1940, as amended.
The term securities as used herein does
not include (i) securities of issuers that are
affiliated with Buyer, (ii) securities that
are part of an unsold allotment to or
subscription by Buyer (if Buyer is a dealer),
(iii) securities issued or guaranteed by the
United States or any instrumentality thereof,
(iv) bank deposit notes and certificates of
deposit, (v) loan participations, (vi)
repurchase agreements, (vii) securities owned
subject to a repurchase agreement and (viii)
currency, interest rate and commodity swaps.
For purposes of determining the aggregate
of securities owned and/or invested on a
discretionary basis by Buyer, Buyer used the
cost of such securities to Buyer and did not
include any of the securities referred to in
the preceding paragraph.
Further, in determining such aggregate
amount, Buyer may have included securities
owned by subsidiaries of Buyer, but only if
such subsidiaries are consolidated with Buyer
in its financial statements prepared in
accordance with generally accepted accounting
principles and if the investments of such
subsidiaries are managed under Buyer's
direction. However, such securities were not
included if Buyer is a majority-owned,
consolidated subsidiary of another enterprise
and Buyer is not itself a reporting company
under the 1934 Act.
Buyer acknowledges that it is familiar
with Rule 144A and understands that you and
your customers (if you act as a broker for one
or more customers) are and will continue to
rely on the statements made herein because one
or more sales by you for your own account or
your customer's account to Buyer may be in
reliance on Rule 144A.
Will Buyer be purchasing Rule 144A
securities only for Buyer's own account?
Yes___ No___
If the answer to this question is no,
Buyer agrees that, in connection with any
purchase of securities sold to Buyer for the
account of a third party (including any
separate account) in reliance on Rule 144A,
Buyer will only purchase for the account of
one third party and such third party at the
time is a qualified institutional buyer
within the meaning of Rule 144A. In addition,
Buyer agrees that Buyer will not purchase
securities for a third party unless Buyer has
obtained a current representation letter from
such third party or taken other appropriate
steps contemplated by Rule 144A to conclude
that such third party independently meets the
definition of qualified institutional buyer
set forth in Rule 144A.
Buyer agrees to notify you of any changes
in the information and conclusions herein.
Until such notice is given to you, Buyer's
purchase of securities from you, or through
you from your customers, will constitute a
reaffirmation of the foregoing certifications
and acknowledgments as of the date of such
purchase. Further, if Buyer is a bank or
savings and loan as provided above, Buyer
agrees that it will furnish you with updated
annual financial statements promptly after
they become available.
Date: ____________________
Very truly yours,
Print Name of Buyer
By: ___________________________
Name:
Title:
Annex 2
to Exhibit C
Qualified Institutional Buyer Status Under
Rule 144A
(Buyers that are registered investment
companies)
Gottschalks Credit Receivables Corporation
Bankers Trust Company
7 River Place East as Trustee
Fresno, California 93729 Four Albany
Street
New York,
New York 10006
Re: Gottschalks Credit Card Master Trust;
Credit Card Certificates, Series
1999-1
Name of Buyer: _____________ (Buyer)
Name of Investment Adviser: _____________
(Adviser)
I hereby certify that, as indicated
below, I am the President, Chief
Executive/Financial Officer or Senior Vice
President of Buyer or, if Buyer is a
qualified institutional buyer as defined in
Rule 144A (Rule 144A) under the Securities
Act of 1933, as amended, because Buyer is part
of a Family of Investment Companies (as
defined below) of Adviser.
In connection with purchases by
Buyer from time to time, I hereby certify to
you and, if you act as broker for one or more
customers, to such customers, that Buyer is a
Squalified institutional buyer as defined in
Rule 144A because (i) Buyer is an investment
company registered under the Investment
Company Act of 1940, as amended, and (ii) as
marked below, Buyer alone, or Buyer's Family
of Investment Companies, owned at least
$100,000,000 in securities (other than the
excluded securities referred to below) as of
the end of Buyer's most recent fiscal year.1
Buyer owned $ in
securities (other than the excluded
securities referred to below) as of
the end of Buyer's most recent
fiscal year (such amount being
calculated in accordance with Rule
144A).
Buyer is part of a Family of
Investment Companies which owned in
the aggregate $ in securities (other
than the excluded securities
referred to below) as of the end of
Buyer's most recent fiscal year
(such amount being calculated in
accordance with Rule 144A).
For purposes of determining the
amount of securities owned by Buyer or Buyer's
Family of Investment Companies, I used the
cost of such securities and did not include
any of the securities referred to below in the
second succeeding paragraph.
The term Family of Investment
Companies as used herein will mean two or
more registered investment companies (or
series thereof) that have the same investment
adviser or investment advisers that are
affiliated (by virtue of being majority owned
subsidiaries of the same parent or because one
investment adviser is a majority owned
subsidiary of the other).
The term securities as used herein
does not include (i) securities of issuers
that are affiliated with Buyer or are part of
Buyer's Family of Investment Companies, (ii)
securities issued or guaranteed by the United
States, or any instrumentality thereof, (iii)
bank deposit notes and certificates of
deposit, (iv) loan participations, (v)
repurchase agreements, (vi) securities owned
but subject to a repurchase agreement and
(vii) currency, interest rate and commodity
swaps.
On behalf of Buyer, I acknowledge
that Buyer is familiar with Rule 144A and
understands that you and your customers (if
you act as a broker for one or more customers)
are and will continue to rely on the
statements made herein because one or more
sales to Buyer by you for your own account or
your customer's account will be in reliance on
Rule 144A. In addition, on behalf of Buyer, I
agree that, in connection with any purchase of
securities sold by or through you in reliance
on Rule 144A, Buyer will only purchase for
Buyer's own account.
Finally, on behalf of Buyer or
Adviser (as appropriate), I also agree to
notify you of any changes in the information
and conclusions herein. Until such notice is
given to you, Buyer's purchase from time to
time of securities from you, or through you
from your customers, will constitute a
reaffirmation of the foregoing certifications
and acknowledgments by me as of the date of
such purchase.
Date: _____________________
Very truly yours,
Name:
Title:
On behalf of:
Name of Buyer:
or
Name of Adviser:
EXHIBIT D
FORM OF NON-RULE 144A REPRESENTATION LETTER
Gottschalks Credit Receivables Corporation
Bankers Trust Company
7 River Place East as Trustee
Fresno, California 93729 Four Albany
Street
New York,
New York 10006
Re: Gottschalks Credit Card Master Trust;
Fixed Base Credit Card Certificates,
Series 1999-1
Ladies and Gentlemen:
The undersigned purchaser (the
Purchaser) understands that the purchase of
the above-referenced certificates (the
Certificates) may be made by institutions
which are Accredited Investors under Rule
501(a)(1), (2), (3) or (7) under the
Securities Act of 1933, as amended (the 1933
Act). The undersigned represents on behalf of
the Purchaser that the Purchaser is an
Accredited Investor within the meaning of
such definition. The Purchaser is urged to
review carefully the responses,
representations and warranties it is making
herein.
Representations and Warranties
The Purchaser makes the following
representations and warranties in order to
permit Bankers Trust Company, as trustee (the
Trustee) of the Gottschalks Credit Card
Master Trust (the Trust), Gottschalks Inc.
(Gottschalks) and Gottschalks Credit
Receivables Corporation (GCRC) to determine
its suitability as a purchaser of Certificates
and to determine that the private transfer
exemption from registration relied upon by
GCRC under the 1933 Act is available to it.
1. The Purchaser understands that
the Certificates have not been, and throughout
their term will not be, registered or
qualified under the 1933 Act or the securities
laws of any state and may be resold (which
resale is not currently contemplated) only if
registered pursuant to the provisions of the
1933 Act or if an exemption from registration
under the 1933 Act and other applicable state
securities laws is available, that neither
GCRC nor the Trustee is required to register
the Certificates under the 1933 Act or any
applicable state securities laws and that any
transfer must comply with Article VI of the
Pooling and Servicing Agreement between
Gottschalks, GCRC and the Trustee and Article
VI of the Series 1999-1 Supplement (the
Supplement) thereto, each dated as of March
1, 1999 (collectively, the Agreement). The
Purchaser does hereby agree to indemnify the
Trustee, its officers, directors, agents and
employees, GCRC and the Company against any
liability that may result if the purchase of
the Certificates is not so exempt or is not
made in accordance with the 1933 Act and such
state securities laws.
2. The Purchaser will comply with
all applicable federal and state securities
laws in connection with any subsequent resale
of the Certificates.
3. The Purchaser is an accredited
investor within the meaning of Rule
501(a)(1), (2), (3) or (7) under the 1933 Act
and a sophisticated institutional investor and
has knowledge and experience in financial and
business matters (and, in particular, in such
matters related to securities similar to the
Certificates) and is capable of evaluating the
merits and risk of its investment in the
Certificates and is able to bear the economic
risks of such investment. The Purchaser has
been given such information concerning the
Certificates, Gottschalks and GCRC as it has
requested.
4. The Purchaser is acquiring the
Certificates as principal for its own account
for the purpose of investment and not with a
view to or for sale in connection with any
distribution thereof, subject nevertheless to
any requirement of law that the disposition of
the Purchaser's property shall at all times be
and remain within its control.
5. Neither the Purchaser nor
anyone acting on its behalf has offered,
transferred, pledged, sold or otherwise
disposed of any Certificate, any interest in
any Certificate or any other similar security
of GCRC to, or solicited any offer to buy or
accept a transfer, pledge or other disposition
of any Certificate, any interest in any
Certificate or any other similar security of
GCRC with, any person in any manner, or made
any general solicitation by means of general
advertising or in any other manner, or taken
any other action, which would constitute a
distribution of the Certificates under the
1933 Act or which would render the disposition
of any Certificate a violation of Section 5 of
the 1933 Act or any state securities law,
require registration or qualification pursuant
thereto, or require registration of the Trust
under the Investment Company Act of 1940, as
amended, nor will it act, nor has it
authorized or will it authorize any person to
act in such manner with respect to the
Certificates.
6. The Purchaser has reviewed the
Private Placement Memorandum with respect to
the Certificates dated March 1, 1999 (the
Private Placement Memorandum), and has had
the opportunity to ask questions and receive
answers concerning the terms and conditions of
the transaction contemplated by the Private
Placement Memorandum and to obtain additional
information necessary to verify the accuracy
and completeness of any information furnished
to the Purchaser or to which the Purchaser had
access.
7. The Purchaser is not an
employee benefit plan, trust or account
subject to Title I of the Employee Retirement
Income Security Act of 1974, as amended
(ERISA), or subject to Section 4975 of the
Internal Revenue Code of 1986, as amended (the
Code), or a governmental plan defined in
section 3 (32) of ERISA or Section 414(d) of
the Code subject to any federal, state or
local law which is, to a material extent,
similar to the foregoing provisions of ERISA
or the Code (Similar Law) (each, a Benefit
Plan) and is not an entity, including an
insurance company separate account or an
insurance company general account if the
assets in any such accounts constitute plan
assets for purposes of regulation section
2510.3-101 of ERISA, whose underlying assets
include Benefit Plan assets by reason of a
Benefit Plan's investment in the entity.
8. The Purchaser understands that
the Certificates will bear a legend
substantially as set forth in the form of
Certificate included as an Exhibit to the
Supplement.
9. The Purchaser understands that
there is no market, nor is there any assurance
that a market will develop, for the
Certificates and that GCRC does not have any
obligation to make or facilitate any such
market (or to otherwise repurchase the
Certificates from the Purchaser) under any
circumstances.
10. The Purchaser has consulted
with its own legal counsel, independent
accountants and financial advisors to the
extent it deems necessary regarding the tax
consequences to it of ownership of the
Certificates, is aware that its taxable income
with respect to the Certificates in any
accounting period may not correspond to the
cash flow (if any) from the Certificates for
such period, and is not purchasing the
Certificates in reliance on any
representations of GCRC or its counsel respect
to tax matters.
11. The Purchaser represents, on
behalf of itself that if the Purchaser is a
partnership, grantor trusts or S corporation
for federal income tax purposes (a Flow-
Through Entity), any Certificates owned by or
on behalf of such Flow-Through Entity will
represent less than 50% of the value of all
the assets owned by such Flow-Through Entity
and no special allocation of income, gain,
loss, deduction or credit from such Fixed Base
Certificates will be made among the beneficial
owners of such Flow-Through Entity.
12. The Purchaser agrees that it
will obtain from any subsequent purchaser of
the Certificates substantially the same
representations, warranties and agreements
contained in the foregoing paragraphs 1
through 11 and in this paragraph 12.
Capitalized terms used herein that
are not otherwise defined shall have the
meanings ascribed thereto in the Agreement or
the Private Placement Memorandum, as the case
may be.
The representations and warranties
continued herein shall be binding upon the
successors of the undersigned.
Executed at _________, this___ day
of ________, ___.
Purchaser's Name (Print)
By: \s\ Robert A. Smedley
Title: Vice President
Address of Purchaser
Purchaser's Taxpayer
Identification Number
SCHEDULE I
List of Series Accounts
Bankers Trust Company
ABA #021001033
ACCT:
REF: Gottschalks 19991-1
Attn:
Gottschalks Credit Card Master Trust Series
1999-1 Capitalized Interest Account : _____
Gottschalks Credit Card Master Trust Series
1999-1 Retained Amount Account: _____
Gottschalks Credit Card Master Trust Series
1999-1 Spread Account: _______
_______________________________
1 Buyer must own and/or invest on a
discretionary basis at least $100,000,000 in
securities unless Buyer is a dealer, and, in
that case, Buyer must own and/or invest on a
discretionary basis at least $10,000,000 in
securities.
