<PAGE> 1
As filed with the Securities and Exchange Commission on May 25, 1999
REGISTRATION NO. 333-71757
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CHARMING SHOPPES MASTER TRUST
(Issuer)
CHARMING SHOPPES RECEIVABLES CORP.
(Exact name of Registrant as specified in its charter)
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DELAWARE 9999 51-0383871
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
3411 SILVERSIDE ROAD
WILMINGTON, DELAWARE 19810
(302) 479-5510
(Address, including zip code, and telephone number, including area code, of
principal executive offices of Registrant)
COLIN STERN
C/O CHARMING SHOPPES INC.
450 WINKS LANE
BENSALEM, PENNSYLVANIA 19020
(215) 638-689
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
MARY C. FONTAINE PAUL WEIFFENBACH
MAYER, BROWN & PLATT ORRICK, HERRINGTON & SUTCLIFFE LLP
190 SOUTH LASALLE STREET 3050 K STREET, N.W.
CHICAGO, ILLINOIS 60603 WASHINGTON, D.C. 20007
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
---------------- ---------- ---------- ----------------- ---
<S> <C> <C> <C> <C>
Class A Certificates $1,000,000 100% $ 1,000,000 $278
Class B Certificates $1,000,000 100% $1,000,000 $278
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE> 2
PROSPECTUS SUBJECT TO COMPLETION, DATED [ ], 1999
-----------------------
CHARMING SHOPPES MASTER TRUST
Issuer
CHARMING SHOPPES RECEIVABLES CORP.
Seller
SPIRIT OF AMERICA, INC.
Servicer
Series 1999-1
$[ ] Floating Rate Class A Asset Backed Certificates
---------
$[ ] Floating Rate Class B Asset Backed Certificates
---------
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Class A Certificates Class B Certificates
Price to public per certificate % %
Underwriting discount per certificate % %
Proceeds to seller per certificate % %
</TABLE>
The total price to public is $______.
The total amount of the underwriting discount is $_____.
The total amount of proceeds plus accrued interest and before deduction of
expenses is $_____.
A certificate is not a deposit and neither the certificates nor the
underlying accounts or receivables are insured or guaranteed by the Federal
Deposit Insurance Corporation or any government agency. The certificates offered
in this prospectus will represent interests in the trust only and will not
represent interests in or obligations of Charming Shoppes Receivables Corp.,
Spirit of America National Bank or any of their affiliates.
PLEASE CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 8 IN THE
PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE CLASS A CERTIFICATES OR THE CLASS B
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
Class A Underwriters
BEAR, STEARNS & CO. INC.
[OTHERS]
Class B Underwriter
BEAR, STEARNS & CO. INC.
, 1999
--------------
2
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IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
We include cross-references in this prospectus to captions in these
materials where you can find further related discussions. The following table of
contents provide the pages on which these captions are located.
TABLE OF CONTENTS
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PAGE
PAGE
----
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Summary of Trust Terms.............................................................................................................1
The Trust and the Trustee.......................................................................................................1
The Originator..................................................................................................................1
The Seller......................................................................................................................1
The Servicer....................................................................................................................1
The Receivables.................................................................................................................1
Summary of Series 1999-1 Terms.....................................................................................................2
Structural Summary.................................................................................................................3
The Series 1999-1 Certificates..................................................................................................3
Other Interests in the Trust....................................................................................................3
Credit Enhancement for Series 1999-1............................................................................................4
Schedule of Principal Payments and Factors
That Could Affect the Schedule................................................................................................5
Federal Tax Status of the Offered Certificates
and the Trust.................................................................................................................6
Ohio Tax Status of the Offered Certificates
and the Trust.................................................................................................................6
Erisa Considerations for Investors..............................................................................................7
Risk Factors.......................................................................................................................8
It may not be possible to find an investor to
purchase your certificates....................................................................................................8
Allocations of charged-off receivables could
reduce your payments..........................................................................................................8
Class B bears additional risk because it is
subordinated to Class A.......................................................................................................8
The bankruptcy or insolvency of the
originator, the seller, the servicer or
Charming Shoppes, Inc., could accelerate,
reduce or delay payments to you...............................................................................................9
Some liens could be given priority over your
securities which could cause delayed or
reduced payments.............................................................................................................11
Changes to consumer protection laws may
impede collection efforts....................................................................................................12
Limited remedies for breaches of
representations could reduce or delay
payments.....................................................................................................................13
Factors that reduce collections could cause
early repayment, delayed payment or
reduced payment..............................................................................................................13
High concentrations in a geographic area
could affect the collection rate on the
receivables .................................................................................................................17
Issuance of additional series by the trust may
affect the timing of payments................................................................................................18
Issuance of a paired series could affect your
payments.....................................................................................................................19
Individual certificateholders will have limited
control of trust actions.....................................................................................................19
Recharacterization of principal receivables
would reduce principal
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iii
<PAGE> 4
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receivables and may
require addition of new receivables .........................................................................................19
The certificates are not guaranteed and will
only be paid from trust assets...............................................................................................20
Potential reduced payment due to shortfalls on
the proceeds of a sale of receivables on the
Series 1999-1 termination date...............................................................................................20
Exposure to cap providers could lead to an
early amortization event.....................................................................................................20
The Year 2000 problem could disrupt the
generation and servicing of the receivables
............................................................................................................................21
Trust.............................................................................................................................22
Maturity Considerations...........................................................................................................22
Spirit of America's Credit Card Activities........................................................................................24
Overview.......................................................................................................................24
New Account Underwriting.......................................................................................................24
Description of Subservicer.....................................................................................................25
Billing and Payments...........................................................................................................26
Delinquencies and Collections-Collection
Efforts......................................................................................................................26
Credit Return Policy...........................................................................................................27
Delinquency and Loss Experience................................................................................................27
Revenue Experience.............................................................................................................29
Payment Rates..................................................................................................................30
The Receivables...................................................................................................................31
Use of Proceeds...................................................................................................................35
Description of Charming Shoppes Entities..........................................................................................35
Overview.......................................................................................................................35
Legal Proceedings..............................................................................................................36
Year 2000 Disclosure...........................................................................................................36
Description of the Certificates...................................................................................................40
Overview.......................................................................................................................40
Interest Payments..............................................................................................................42
Interest Rate Cap Agreements...................................................................................................44
Principal Payments.............................................................................................................45
Allocation Percentages.........................................................................................................48
Servicing Fees.................................................................................................................51
Application of Collections.....................................................................................................51
Reallocations and Payments of Principal........................................................................................55
Series Shared Excess Finance Charge
Collections..................................................................................................................58
Series Shared Principal Collections............................................................................................59
Investor Charge-Offs...........................................................................................................61
Paired Series..................................................................................................................62
Early Amortization Events......................................................................................................63
The Pooling Agreement.............................................................................................................68
Transfer and Assignment of Receivables.........................................................................................68
Issuance of Additional Series..................................................................................................68
Book-Entry Registration........................................................................................................69
Definitive Certificates........................................................................................................74
Required Removal of Receivables from the
Trust........................................................................................................................74
Eligible Accounts; Eligible Receivables........................................................................................77
Addition of Accounts...........................................................................................................79
Removal of Accounts............................................................................................................80
Collection Account.............................................................................................................81
Deposits in Collection Account.................................................................................................81
Excess Funding Account.........................................................................................................82
Loss Amount; Dilution Amounts..................................................................................................83
Discount Option................................................................................................................85
Defeasance.....................................................................................................................85
Optional Repurchase; Final Payment of
Principal; Termination.......................................................................................................86
Servicing Compensation and Payment of
Expenses.....................................................................................................................87
Resignation of Servicer; Scope of Indemnities
............................................................................................................................87
Servicer Default...............................................................................................................88
Reports to Series 1999-1 Certificateholders
............................................................................................................................90
Agreed Upon Procedures.........................................................................................................91
Amendments.....................................................................................................................91
List of Investor Certificateholders............................................................................................92
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iv
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The Trustee....................................................................................................................92
Description of the Purchase Agreement.............................................................................................93
Overview.......................................................................................................................93
Purchase Price for Receivables.................................................................................................94
Required Reassignment of Receivables to the
Originator...................................................................................................................94
Originator's obligations relating to Cardholder
Agreements and Receivables...................................................................................................95
Addition and Removal of Accounts...............................................................................................96
Description of the Security Agreement.............................................................................................96
Legal Aspects of the Receivables..................................................................................................97
Nature of Interests in the Receivables.........................................................................................97
Consumer Protection Laws.......................................................................................................98
Claims and Defenses of Cardholders Against
the Trust....................................................................................................................99
Insolvency Laws Affecting Transfers...........................................................................................100
Other Issues Under Insolvency Laws............................................................................................103
U.S. Federal Income Tax Consequences.............................................................................................103
Overview......................................................................................................................103
Characterization of the Certificates and the
Trust.......................................................................................................................104
Taxation of Interest Income of
Certificateholders..........................................................................................................105
Sale or Disposition of a Certificate..........................................................................................106
Possible Classification as a Partnership or as
an Association Taxable as a Corporation
...........................................................................................................................106
FASIT Legislation.............................................................................................................107
Foreign Investors.............................................................................................................108
Backup Withholding............................................................................................................110
Ohio State Tax Consequences......................................................................................................110
ERISA Considerations.............................................................................................................112
Underwriting.....................................................................................................................112
Legal Matters....................................................................................................................114
Certificate Ratings..............................................................................................................114
Reports to Certificateholders....................................................................................................115
Where You Can Find More Information..............................................................................................116
Index of Terms for Prospectus....................................................................................................117
Annex I
Other Series Outstanding.........................................................................................................119
Annex II
Global Clearance, Settlement and Tax
Documentation
Procedures.......................................................................................................................120
Initial Settlement............................................................................................................120
Secondary Market Trading......................................................................................................121
U.S. Federal Income Tax Documentation
Requirements................................................................................................................123
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v
<PAGE> 6
SUMMARY OF TRUST TERMS
THE TRUST AND THE TRUSTEE
Charming Shoppes Master Trust was formed in December of 1992. The Trustee is
First Union National Bank. The purpose of the trust is to acquire credit card
receivables of the originator. The trust may finance the receivables by issuing
securities representing ownership interests in its assets and by borrowing on a
secured basis. The trust may not engage in any unrelated activities.
THE ORIGINATOR
Spirit of America National Bank is a national banking association whose
principal place of business is 1103 Allen Drive, Milford, Ohio 45150 and whose
telephone number is 513-576-5300. The originator is an indirect subsidiary of
Charming Shoppes Inc., a company that operates a chain of Fashion Bug(R) and
Fashion Bug Plus(R) stores that sell moderately and popularly priced women's
specialty apparel.
THE SELLER
Charming Shoppes Receivables Corp. is an indirect subsidiary of Charming Shoppes
Inc. whose principal place of business is 3411 Silverside Road, Wilmington,
Delaware 19810 and whose telephone number is 302-479-5510.
THE SERVICER
Spirit of America, Inc. is an indirect subsidiary of Charming Shoppes Inc. whose
principal place of business is 1103 Allen Drive, Milford, Ohio 45150 and whose
telephone number is 513- 576-5300. It has delegated some of its duties to
Alliance Data Systems, Inc.
THE RECEIVABLES
The receivables arise in a portfolio of credit card accounts originated by
Spirit of America National Bank. Currently, the receivables are originated under
private label credit cards used primarily at Fashion Bug stores. Additional
types of receivables may be added to the trust as described in "The Pooling
Agreement-Addition of Accounts." Receivables include charges
<PAGE> 7
for merchandise or services, credit insurance premiums, finance charges, late
payment fees and returned check charges. See "Spirit of America's Credit Card
Activities" and "The Receivables."
2
<PAGE> 8
SUMMARY OF SERIES 1999-1 TERMS
Series Structure: initial investor interest % of total
Class A $ %
Class B $ %
Class C $ %
Class D $ %
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- --------------------------------------------------------------------------------------------------------------------
The Offered Certificates: Class A Class B
Anticipated ratings: Aaa or its equivalent from two A2 or its equivalent from at
nationally recognized rating least one nationally recognized
agencies rating agency
- --------------------------------------------------------------------------------------------------------------------
Credit Enhancement: subordination of the Class B, subordination of the Class C
Class C and Class D and Class D certificates;
certificates; interest rate cap interest rate cap payments if
payments if one month libor exceeds % one month libor exceeds exceeds %
------- ----
- --------------------------------------------------------------------------------------------------------------------
Monthly Servicing Fee: 2% of class investor interest 2% of class investor interest
- --------------------------------------------------------------------------------------------------------------------
Interest Rate: one-month libor, plus %; one-month libor, plus %;
--- ---
except that after the expected except thatafter the expected
final payment date for final payment date for this class,
this class, one-month libor may not one-month libor may not exceed %
---
exceed % for any interest period for any interest period
--
- --------------------------------------------------------------------------------------------------------------------
Interest Accrual Method: actual/360 actual/360
- --------------------------------------------------------------------------------------------------------------------
Interest Payment Dates: the fifteenth of each month the fifteenth of each month
- --------------------------------------------------------------------------------------------------------------------
First Interest Payment: , 1999 , 1999
----------- -- ---------- --
- --------------------------------------------------------------------------------------------------------------------
Scheduled Monthly $ N/A
Principal Payment: ------------
- --------------------------------------------------------------------------------------------------------------------
First Scheduled Principal , 200 , 200
Payment ---------- -- - -- ------- -- -
- --------------------------------------------------------------------------------------------------------------------
Expected Final Payment: , 200 , 200
---------- -- - ---------- -- -
- --------------------------------------------------------------------------------------------------------------------
Series Termination Date: , 200 , 200
---------- -- - ---------- -- -
- --------------------------------------------------------------------------------------------------------------------
Clearance/Settlement DTC/Euroclear/Cedel DTC/Euroclear/Cedel
- --------------------------------------------------------------------------------------------------------------------
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3
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- --------------------------------------------------------------------------------------------------------------------
Minimum Denomination $1,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
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STRUCTURAL SUMMARY
This summary briefly describes major structural components of Series 1999-1. To
fully understand the terms of Series 1999-1, you need to read all of this
prospectus.
THE SERIES 1999-1 CERTIFICATES
Your certificates represent the right to a portion of collections on the trust's
assets. The servicer will also allocate to your certificates a portion of losses
on the receivables and dilution on the receivables. Dilution means the amount of
reductions, other than those for losses or payments, to the principal balances
of receivables made by the servicer as described in "The Pooling Agreement-Loss
Amount; Dilution Amounts."
The servicer will apply collections allocated to your series each month to make
interest or principal payments to you, to pay a portion of the servicer's
monthly fee and to cover losses and dilution allocated to your series. If any
amounts remain from your allocations after covering the required monthly
applications, the servicer will share the excess with other outstanding series
to cover their shortfalls or return the excess to the seller. You are not
entitled to receive more than the principal and interest owed to you by the
trust.
Required allocations and payments are more fully described in "Description of
the Certificates-Allocation Percentages;" and "-Application of Collections."
The seller may repurchase your certificates once the outstanding amount of your
series is reduced to 10% or less of the initial outstanding amount.
OTHER INTERESTS IN THE TRUST
4
<PAGE> 10
The trust has previously issued five series and may issue additional series in
the future. Of those five, only three remain outstanding. The trust paid the
first two series in full on their scheduled payment dates. Like your series,
each outstanding series will be allocated a portion of collections and will be
required to absorb a portion of losses and dilution amounts each month. You can
review a summary of each outstanding series under the caption "Annex 1: Other
Series Outstanding" at the end of this prospectus.
The seller holds the remaining claim to the trust assets, the size of which
fluctuates with the total amount of receivables in the trust and the total
amount of outstanding series. This interest does not provide credit enhancement
for any series.
CREDIT ENHANCEMENT FOR SERIES 1999-1
Subordination of Classes
Credit enhancement is provided for the Class A certificates by the subordination
of the Class B certificates, the Class C certificates and the Class D
certificates.
Credit enhancement is provided for the Class B certificates by the subordination
of the Class C certificates and the Class D certificates.
Subordination serves as credit enhancement in two ways. First, the more
subordinated classes will not receive payment of interest or principal until
required payments have been made to the more senior classes, except that Class B
may receive interest even if required Class A payments have not been made.
Second, collections allocated to the more subordinated classes will be required
to cover losses and dilution amounts allocated to your series and make up
shortfalls in cash flows each month. If allocations to the subordinated classes
are insufficient to cover those amounts, the principal balance of the more
subordinated classes will be reduced by any shortfall, beginning with reductions
to the most subordinated class then outstanding.
If Class C and Class D are reduced to zero, Class B would then be exposed to
reduction to cover losses, dilutions and cash shortfalls. If Class B is reduced
to zero, Class A would be exposed to
5
<PAGE> 11
reduction. The size of each class is described in "Summary of Series 1999-1
Terms" above.
For a detailed description of the subordination terms and of events that may
lead to a reduction of the investor interest of any class, see "Description of
the Certificates-Application of Collections;" and "-Reallocations and Payments
of Principal."
Interest Rate Caps
As additional enhancement for Class A and Class B, the trust will enter into
interest rate cap agreements for your certificates. Under these agreements if
one-month libor exceeds a specified rate, the trust will receive payments from
[name of counterparty] or a permitted replacement equal to the product of (1)
the difference between one-month libor minus the specified rate for your class
times (2) the outstanding principal balance of your class.
The specified rate for the Class A certificates is [______]%. The specified rate
for the Class B certificates is [____]%.
The interest rate cap agreement for each class will terminate on its expected
final payment date. After that date, if that class has not been paid in full,
interest will continue to accrue on that class, but the LIBOR rate on which the
interest calculation is based will not exceed the specified rate in any future
month.
These agreements are more fully described in "Description of the
Certificates-Interest Rate Cap Agreements."
SCHEDULE OF PRINCIPAL PAYMENTS AND FACTORS THAT COULD AFFECT
THE SCHEDULE
The trust expects to pay the entire principal amount of the Class A certificates
on , 200 by making eight monthly principal payments of $
beginning in [month/year].
The trust expects to pay the entire principal amount of the Class B certificates
in one payment on , 200 . Because the
6
<PAGE> 12
trust will not pay principal on Class B until Class A has been paid in full,
this payment could be delayed.
If Class A is not repaid in full on its expected final payment date, the trust
will continue to make monthly payments of principal only to Class A until it has
been fully repaid. If Class B is not paid in full on its expected final payment
date and Class A has been repaid in full, the Trust will continue to make
monthly payments of principal only to Class B until it has been fully repaid.
The amount of these monthly payments will equal all collections on the trust
assets available to make principal payments to your series as described in
"Description of the Certificates -Application of Collections."
Your series will begin to amortize, and you may receive payments of principal
earlier than scheduled, if an early amortization event occurs. The early
amortization events for your series are described in "Description of the
Certificates-Early Amortization Events."
If your series begins to amortize because an early amortization event has
occurred, Class A will receive monthly payments of principal until fully repaid
and then Class B will receive monthly payments of principal until fully repaid.
Payments on your certificates may be delayed or reduced if collections on the
trust assets are less than expected. If any principal or interest on the Series
1999-1 certificates is outstanding on __________ __, 200_, the trustee will sell
receivables in an amount up to 110% of the then outstanding principal on your
series. The proceeds of this sale will be allocated solely to your series and
will be applied in the same way as collections. After you have been paid your
share of the proceeds, you will not be entitled to any further payments from the
trust even if you have not been paid in full.
For a detailed description of the allocation mechanics and schedule of payments,
see "Maturity Considerations;" "Description of the Certificates-Allocation
Percentages;" and "-Reallocation and Payments of Principal."
FEDERAL TAX STATUS OF THE OFFERED CERTIFICATES AND THE TRUST
7
<PAGE> 13
Mayer, Brown & Platt, counsel to the seller, is of the opinion that, under
existing law:
-- the Class A and Class B certificates will be characterized as
debt for federal income tax purposes; and
-- the trust will not be treated as an association or publicly traded
partnership taxable as a corporation.
The seller has agreed, and by your purchase of certificates, you agree, to treat
your certificates as debt for federal, state and local income tax purposes and
franchise tax purposes. See "U.S. Federal Income Tax Consequences" for
additional information concerning the application of federal income tax law.
OHIO TAX STATUS OF THE OFFERED CERTIFICATES AND THE TRUST
Squire, Sanders & Dempsey L.L.P., special Ohio tax counsel, is of the opinion
that, under existing Ohio law:
-- if the Class A and Class B certificates are treated as indebtedness for
federal income tax purposes, they will be treated as indebtedness for Ohio
income tax purposes. As a result, investors not otherwise required to pay
Ohio tax would not be required to pay Ohio tax solely as a result of their
ownership of these certificates; and
-- the trust will not be required to pay the Ohio personal income tax, the
Ohio corporate franchise tax or the Ohio tax on dealers in intangibles.
See "Ohio State Tax Consequences" for additional information concerning the
application of Ohio income tax law.
ERISA CONSIDERATIONS FOR INVESTORS
You may not acquire Class A certificates or Class B certificates if you are
purchasing with the assets of an employee benefit plan, including a retirement
plan or individual retirement plan, unless you are an insurance company
purchasing the certificates for your general account and you satisfy the
conditions described in "ERISA Considerations."
8
<PAGE> 14
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the asset-backed certificates described in this prospectus.
IT MAY NOT BE POSSIBLE TO FIND AN INVESTOR TO PURCHASE YOUR CERTIFICATES
The underwriters may assist in resales of Class A and Class B certificates, but
they are not required to do so. A secondary market for your certificates may not
develop. If a secondary market does develop, it might not continue or it might
not be sufficiently liquid to allow you to resell any of your certificates.
ALLOCATIONS OF CHARGED-OFF RECEIVABLES COULD REDUCE YOUR PAYMENTS
The servicer anticipates that it will charge-off some of the receivables. Each
class of Series 1999-1 will be allocated a portion of those charged-off
receivables. If the amount of charged-off receivables allocated to the Class A
or Class B certificates exceeds the amount of funds available for reimbursement
of those charge-offs, the holders of the Class A and B certificates may not
receive the full amount of principal and interest due to them. See "Description
of the Certificates-Reallocations and Payments of Principal."
CLASS B BEARS ADDITIONAL RISK BECAUSE IT IS SUBORDINATED TO CLASS A
Because Class B is subordinated to Class A, principal payments to Class B will
not begin until Class A is repaid. Additionally, if collections of finance
charge receivables allocated to Series 1999-1 are insufficient to cover amounts
due to Class A, the investor interest for Class B might be reduced. This would
reduce the amount of the collections of finance charge receivables available to
Class B in future periods and could cause a delay or reduction in principal and
interest payments on Class B. If receivables have to be sold, the net proceeds
of that sale available to pay principal would be paid first to Class A, and only
remaining net proceeds would be paid to Class B. See "Description of the
9
<PAGE> 15
Certificates-Allocation Percentages" and "-Application of Collections."
THE BANKRUPTCY OR INSOLVENCY OF THE ORIGINATOR, THE SELLER, THE SERVICER OR
CHARMING SHOPPES, INC., COULD ACCELERATE, REDUCE OR DELAY PAYMENTS TO YOU
The FDIC has special powers under banking laws to take actions during the
insolvency of the originator
Under the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, the FDIC, as receiver
for an insolvent bank, has the power to invalidate contracts entered into by the
bank before insolvency. The FDIC has issued a policy statement describing some
circumstances when it will not exercise this power. See "Legal Aspects of the
Receivables-Insolvency Laws Affecting Transfers."
The policy statement does not cover transfers of assets by a bank to an
affiliate, such as Spirit of America National Bank's sale of receivables to
Charming Shoppes Receivables Corp. It does cover grants of security interests to
non-affiliates.
10
<PAGE> 16
To fit within the policy statement, the originator has entered into a security
agreement with the trustee, for the benefit of investors in, and creditors of,
the trust that are not affiliates of the originator. The security agreement
covers any interest the originator would have in the trust's assets if the
transfer of those assets to Charming Shoppes Receivables Corp. were invalidated.
The originator believes that the security interest in the receivables granted to
the trustee meets all requirements specified by the policy statement. However,
we have not sought and will not seek any rulings from the FDIC on the
applicability of the policy statement to the security interest. Additionally,
the policy statement is not binding on the FDIC, and it could take a contrary
position at a later date.
If the FDIC invalidated the transfer of receivables by the originator or began
proceedings to do so, whether or not successful, you might not receive any
payments on the certificates or payments could be delayed or reduced.
Additionally, if the FDIC were appointed as the originator's conservator or
receiver, under the Federal Deposit Insurance Act, the FDIC could-
-- require the trustee for the trust to go through an administrative
claims procedure to establish its right to payments collected on the
receivables in the trust;
-- request a stay of proceedings relating to the originator; or
-- repudiate the agreements under which the originator transferred
receivables and limit the trust's resulting claim to actual direct
compensatory damages measured on the date of receivership.
See "Legal Aspects of the Receivables." If the FDIC were to take any of those
actions, your payments could be delayed or reduced.
Attempted recharacterization of the transfer from Charming Shoppes Receivables
Corp. to the trust could delay or reduce payments to you
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Charming Shoppes Receivables Corp., as seller, has documented the transfers by
it to the trust as sales. However, if the seller were to become a debtor in a
bankruptcy case, a bankruptcy trustee or creditor of the seller may take the
position that the transfer of the receivables to the trust should be
recharacterized as a pledge of the receivables. If so, the trustee for the trust
would be required to go through bankruptcy court proceedings to establish its
rights to collections on the receivables in the trust, and, if the transfer were
held to be a pledge, to establish the amount of claims secured by the pledge. If
any of these events occur, payments to you could be delayed or reduced.
Actions of a conservator, receiver or bankruptcy court could reduce or delay
payments to you
If a conservator or receiver were appointed for Spirit of America National Bank,
Charming Shoppes Receivables Corp., Spirit of America, Inc. or Charming Shoppes,
Inc., then an early amortization event would occur for all outstanding series.
The trust documents would not permit new principal receivables to be transferred
to the trust and the trustee would sell the receivables unless holders of more
than 50% of the investor interest of each class of outstanding certificates, all
credit enhancement providers and each representative of outstanding receivables
purchase series gave the trustee alternate instructions. The trust would then
terminate earlier than planned and you could have a loss if the sale of the
receivables produced insufficient net proceeds to pay you in full. See
"Description of the Certificates - Early Amortization Events."
The conservator or receiver, in the case of Spirit of America National Bank, or
the bankruptcy court, in the case of any of Charming Shoppes Receivables Corp.,
Spirit of America, Inc. or Charming Shoppes, Inc., may have the power-
-- regardless of the terms of the relevant agreements, (a) to prevent the
beginning of an early amortization period, (b) to prevent the early
sale of the receivables and termination of the trust or (c) to require
new principal receivables to continue being transferred to the trust;
or
-- regardless of the instructions of the certificateholders, (a) to
require the early sale of the trust's receivables, (b) to require
termination of the trust and retirement of the trust's
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certificates, including Series 1999-1, or (c) to prohibit the
continued transfer of principal receivables to the trust.
Depending on which action, if any, were taken, payments to you could be made
earlier than scheduled or payments to you could be delayed or reduced.
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The bankruptcy of the servicer could further delay or reduce payments to you.
There is a time delay between the servicer's receipt of collections and its
deposit of those collections in an account of the trust. If the servicer becomes
the subject of bankruptcy proceedings, the trustee's claim to collections in the
servicer's possession at the time of the bankruptcy filing may not be perfected.
In this event, funds available to pay principal and interest on your
certificates may be reduced.
Additionally, if the servicer defaults on its obligations under the pooling and
servicing agreement solely because it becomes insolvent, the bankruptcy court
might have the power to prevent either the trustee or the holders of interests
in the trust from appointing a new servicer. See "Legal Aspects of the
Receivables." In this event, the ability of the servicer to service the
receivables could be impaired by its bankruptcy and its actions would be
supervised by the bankruptcy court, which could cause delays in payments being
made on your certificates.
SOME LIENS COULD BE GIVEN PRIORITY OVER YOUR SECURITIES WHICH COULD CAUSE
DELAYED OR REDUCED PAYMENTS
Each of Spirit of America National Bank and Charming Shoppes Receivables Corp.
account for the transfer of the receivables to the trust as a sale. However, a
court could conclude that either transferor still owns the receivables and that
the trust holds only a security interest. Each transferor has taken steps to
give the trustee a senior lien on the receivables if a court concludes that it
still owns the receivables.
However, if either transferor became insolvent and a conservator or receiver
were appointed for it, the fees and expenses of the receiver or conservator
might be paid
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from the receivables before the trust received any payments on the receivables.
Additionally, if a court concludes that the transfer to the trust is only a
grant of a security interest in the receivables, some liens on either
transferor's property arising before new receivables come into existence may get
paid before the trust's interest in those receivables. Those liens are liens
permitted under the law without the consent of the transferor, including tax or
government liens. See "Legal Aspects of the Receivables."
If any of these events occur payments to you could be delayed or reduced.
CHANGES TO CONSUMER PROTECTION LAWS MAY IMPEDE COLLECTION EFFORTS
Federal and state consumer protection laws regulate the creation and enforcement
of consumer loans, including credit card accounts and receivables. Changes or
additions to those regulations could make it more difficult for the servicer of
the receivables to collect payments on the receivables or reduce the finance
charges and fees that the originator can charge on credit card account balances,
resulting in reduced collections.
Receivables that do not comply with consumer protection laws may not be valid or
enforceable under their terms against the obligors on those receivables.
If a cardholder sought protection under federal or state bankruptcy or debtor
relief laws, a court could reduce or discharge completely the cardholder's
obligations to repay amounts due on its account and, as a result, the related
receivables would be written off as uncollectible.
LIMITED REMEDIES FOR BREACHES OF REPRESENTATIONS COULD REDUCE OR DELAY PAYMENTS
Each of Spirit of America National Bank and Charming Shoppes Receivables Corp.,
as transferor of the receivables, makes representations and warranties relating
to the validity and enforceability of the receivables arising under the accounts
in the
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trust portfolio, and as to the perfection and priority of the trustee's
interest in the receivables.
If a representation or warranty relating to the receivables is violated, the
related obligors may have defenses to payment or offset rights, or creditors of
the originator or the seller may claim rights to the trust assets. If a
representation or warranty is violated, the transferors may have an opportunity
to cure the violation. If they are unable to cure the violation within the
specified time period or if there is no right to cure the violation, each
transferor must accept reassignment of the receivables affected by the
violation. These reassignments are the only remedy for breaches of
representations and warranties, even if your damages exceed your share of the
reassignment price. See "The Pooling Agreement -Required Removal of Receivables
from the Trust."
FACTORS THAT REDUCE COLLECTIONS COULD CAUSE EARLY REPAYMENT, DELAYED PAYMENT OR
REDUCED PAYMENT
A reduction in collections could cause an early amortization event if the three
month average net trust portfolio yield is less than the three month average
base rate for the same three month period. If an early amortization event
occurs, the trust will begin to amortize Series 1999-1 and you would receive
principal payments earlier than scheduled. Moreover, if principal collections
allocated to other series are available for application during an early
amortization of Series 1999-1 certificates, the period during which that early
amortization occurs may be substantially shortened.
If your certificates are paid sooner than expected, you may not be able to
reinvest the amount paid to you at an interest rate
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comparable to the rate you would have earned on your certificates. In addition
to lost opportunity costs, you may incur negative arbitrage costs or breakage
costs if you fund your investment in the certificates by incurring fixed rate
obligations and/or obligations that cannot be repaid at any time without
penalty.
A reduction in collections could also cause the period during which collections
are applied to the principal payment of Class A to be longer than otherwise
would have been the case, or could cause a reduction in the amount of principal
and interest paid to you.
Because of the potential impact on the payment schedule and amount of payments
made to you if collections on the receivables are reduced, any circumstances
that tend to reduce collections may increase these risks for Series 1999-1. The
following factors could result in circumstances that tend to reduce collections:
The originator may change the terms and conditions of the accounts in a way that
reduces collections
Only the receivables arising under specified credit card accounts will be
transferred to the trust. The originator will continue to own those accounts. As
the owner of the accounts, the originator retains the right to change the terms
and conditions of those accounts. For example, the originator could change the
finance charge rate, reduce or eliminate fees on the accounts or reduce the
required minimum monthly payment.
The originator may change the terms of the accounts to maintain its competitive
position in the credit card industry. Changes in the terms of the accounts may
reduce the amount of receivables arising under the accounts, reduce the amount
of collections on those receivables, or prompt obligors on the accounts to pay
sooner or later than would otherwise have been expected.
The terms or collection patterns of new accounts may vary from those of
existing
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accounts
In addition to the accounts already designated for the trust, Spirit of America
National Bank is expected to designate additional accounts for the trust
portfolio and to transfer the receivables in those accounts to the trust. Any
new accounts and receivables may have different terms and conditions than the
accounts and receivables already in the trust portfolio - including higher or
lower fees or interest rates, or longer or shorter principal payment terms. The
new accounts also could have higher loss or delinquency experience. Any or all
of these factors could affect the average yield on the trust assets.
Currently, most of the receivables represent the right to be paid for
merchandise and services purchased at Fashion Bug(R) and Fashion Bug Plus(R)
stores and charged on a private label credit card. However, cardholders may use
the card to pay for direct mail purchases of goods and services offered by
additional vendors selected by the originator. The card may also be used to pay
for services, for example credit insurance, offered by the originator. The
originator plans to promote increased use of the private label credit card for
these purposes. Additionally, the originator is considering offering new types
of credit cards, including Visa or MasterCard or a secured credit card.
Rating agency approval is not required for the originator to designate
additional private label accounts from which receivables will be transferred to
the trust. However, the rating agencies must consent to the originator
designating accounts in the new types of credit card programs contemplated by
the originator.
The terms of the new programs, the target customer base for these programs,
and/or the payment patterns for the related customers could vary from the
accounts currently in the trust.
Credit card accounts purchased by the originator may be included as additional
accounts. Credit card accounts purchased by the originator will have been
originated using a third party's
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underwriting criteria. The third party's underwriting criteria may be less
stringent than those of Spirit of America National Bank. The new accounts and
receivables may produce higher or lower collections or charge-offs over time
than the accounts and receivables already in the trust and could tend to reduce
the amount of collections allocated to Series 1999-1.
Also, if receivables in the trust are less than the amount required to support
all outstanding securities, Charming Shoppes Receivables Corp. and the
originator will be required to designate additional accounts for the trust
portfolio and transfer the receivables in those accounts to the trust. If the
originator is required to add accounts to the trust, it may not have additional
accounts available for this purpose. If new accounts are not added when
required, an "early amortization event" will occur and you could receive payment
of principal sooner than expected. See "The Pooling Agreement -Addition of
Accounts."
Additionally, when the seller is obligated to designate additional accounts for
the trust, it may instead elect to make a cash deposit to the excess funding
account. Amounts on deposit in the excess funding account may accrue interest at
a lower rate than finance charge receivables. If contributions are made to the
excess funding account, then the trust may receive significantly less finance
charge receivables than it would if the seller had designated additional
accounts.
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The interest rate on receivables is reset at different times than the interest
rate on your certificates
Finance charges on the accounts currently in the trust accrue at a fixed rate.
If LIBOR increases, the amount required to be funded out of collections of
finance charge receivables, including interest on your certificate, will
increase, while the amount of collections of finance charge receivables on the
accounts will remain the same unless and until the rates on the accounts are
reset.
Finance charges on accounts in the trust in the future may accrue at a fixed
rate or at a variable rate above a designated prime rate or other designated
index. The certificate rate of your certificate is based on LIBOR. Changes in
LIBOR might not be reflected in the prime rate or the designated index,
resulting in a higher or lower spread, or difference, between the amount of
collections of finance charge receivables on the accounts on one hand, and the
amounts required to be funded out of collections of finance charge receivables,
including interest payable on Series 1999-1, on the other hand.
Payment pattern of receivables could reduce collections
The receivables transferred to the trust may be paid at any time. We cannot
assure the creation of additional receivables in the trust's accounts or that
any particular pattern of cardholder payments will occur. A significant decline
in the amount of new receivables generated by the accounts in the trust could
result in reduced amounts of trust collections.
Monthly payment rates by accountholders depend on a variety of factors,
including seasonal purchasing and individual payment
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habits, the availability of alternate sources of credit and general economic
conditions. Increased convenience use, where accountholders pay their balances
in full on or before the due date and thus avoid all finance charges, would
decrease the yield on the accounts, as well as decrease the protection to you
against defaults under the accounts.
Operation of Fashion Bug stores may affect payments
The majority of the currently outstanding Spirit of America credit cards can be
used primarily to purchase merchandise or services from the Fashion Bug(R) and
Fashion Bug Plus(R) stores owned by affiliates of Charming Shoppes Inc. The
business of marketing and selling women's specialty apparel and related services
is highly competitive. Many considerations enter into the competition for the
consumer's patronage, including price, quality, style, service, product mix,
convenience and credit availability and terms. Additionally, store closings in a
concentrated area could decrease the amount of receivables generated or increase
losses in that area. There can therefore be no assurance that the Fashion Bug
stores will continue to generate receivables at the same rate as in earlier
years.
Competition in the credit card industry could affect payment
Fashion Bug Stores accept American Express cards and MasterCard, Visa and
Discover credit cards. We cannot assure that the originator will continue to
maintain its historic percentage share of Fashion Bug Stores credit card sales
against competition from these credit cards.
HIGH CONCENTRATIONS IN A GEOGRAPHIC AREA COULD AFFECT THE
COLLECTION RATE ON THE RECEIVABLES
If the trust contains a high concentration of receivables relating to
cardholders located within a single state or region of the United States, events
in that state or region may adversely affect the collection rate of receivables
in the trust. For example, an increase in unemployment in one state or region
might result in higher default rates on the trust's receivables. A change in a
state's consumer protection laws could reduce the interest rate or fees payable
on accounts maintained with residents of that state. This prospectus contains a
geographic breakdown of the number of
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accounts and the amount of receivables relating to cardholders in each state and
the District of Columbia. See "The Receivables -Geographic Distribution of
Accounts."
On April 30, 1999, approximately 16.1% of the outstanding balance of receivables
were located in Pennsylvania and 10.8% of the outstanding balance of receivables
were located in Ohio. No other state currently accounts for more than 10% of the
receivables. These concentration levels may change in the future.
We are not aware of any existing adverse economic conditions or relevant laws
particularly affecting either of these regions that are material to
certificateholders, but cannot assure you (1) whether materially adverse
economic conditions will develop in the future or (2) whether laws will change
in the future in a way that would materially affect the collection rate of
receivables.
If any of these events occur, payments to you could be delayed or reduced.
ISSUANCE OF ADDITIONAL SERIES BY THE TRUST MAY AFFECT THE TIMING OF
PAYMENTS
The trust, as a master trust, may issue series of certificates or receivables
purchase interests from time to time. These series and the currently outstanding
series may have terms that are different from your series. For example, the new
series may have additional and more restrictive early amortization events than
Series 1999-1. If so, the new series may be entitled to be paid out before
Series 1999-1 at a time when the quality of the trust portfolio is
deteriorating. This increases the risk that payments to you will be delayed or
reduced.
Additionally, a series could specify a minimum seller interest greater than
zero. If the seller interest fell below the specified minimum, the originator
and the seller would be obligated to designate additional accounts for the trust
even though your series would not require that designation. If the originator
did not have
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sufficient accounts to designate, an early amortization event would occur for
all outstanding series, including your series. If this were to happen, you could
be paid sooner than expected and may not be able to reinvest the amount paid to
you at the same rate you would have been able to earn on your certificates.
The issuance of a new series would also increase the number of
certificateholders. Their interests may not coincide with yours. This could
limit your control as described in the risk factor "Individual
certificateholders will have limited control of trust actions" on the next page.
Before a new series is issued, each rating agency that has rated an outstanding
series confirm that the issuance of the new series will not result in a
reduction or withdrawal of its rating of any class of any outstanding series.
However, a ratings confirmation does not guaranty that the timing or amount of
payments on your series will remain the same. See "The Pooling
Agreement-Issuance of Additional Series."
ISSUANCE OF A PAIRED SERIES COULD AFFECT YOUR PAYMENTS
As Series 1999-1 begins to amortize, a new series of certificates paired with
Series 1999-1 could be issued by the trust. A reduction in the invested amount
of Series 1999-1 would result in an increase in the invested amount of the
paired series. If an early amortization event occurs for the "paired" series,
the seller may reduce the percentage used to allocate principal collections to
the Series 1999-1 certificates and increase the same allocation percentage to
the paired series by that amount to provide for the early amortization of the
paired series. A reduction of the Series 1999-1 principal allocation percentage
will reduce the amount of principal collections available to make principal
payments on your certificates. This reduction could cause a longer amortization
period if the remaining allocation were insufficient to amortize the
certificates as scheduled. If this were to happen, payments to you could be
delayed or reduced. See "Description of the Certificates-Paired Series."
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INDIVIDUAL CERTIFICATEHOLDERS WILL HAVE LIMITED CONTROL OF TRUST
ACTIONS
Certificateholders of any series, or any class within a series, may need the
consent or approval of a specified percentage of the investor interest of other
series, a class of another series, or a credit enhancement provider to take or
direct the trustee to take an action. Examples of these actions would be to (a)
require the appointment of a successor servicer after Spirit of America, Inc.,
as servicer, defaults on its obligations under the pooling and servicing
agreement, (b) amend the pooling and servicing agreement in some cases, or (c)
direct a repurchase of all outstanding series after violations of
representations and warranties by the transferors. The interests of the
certificateholders of other series or an enhancement provider may not coincide
with yours, making it more difficult for you to achieve the desired results from
any vote.
RECHARACTERIZATION OF PRINCIPAL RECEIVABLES WOULD REDUCE
PRINCIPAL RECEIVABLES AND MAY REQUIRE ADDITION OF NEW RECEIVABLES
The seller may designate a percentage of the receivables that would otherwise be
treated as principal receivables to be treated as finance charge receivables.
This designation should decrease the likelihood of an early amortization event
occurring because of a reduction of the average net portfolio yield for a given
period. However, this designation will also reduce the aggregate amount of
principal receivables, which may increase the likelihood that the seller will be
required to add receivables to the trust. If the seller were unable to add
receivables and could not make a sufficient cash deposit into the excess funding
account, Series 1999-1 could go into early amortization.
THE CERTIFICATES ARE NOT GUARANTEED AND WILL ONLY BE PAID FROM
TRUST ASSETS
The certificates will represent interests in the trust only, and will not
represent an obligation of the originator, the seller, the servicer, the trustee
or any of their affiliates. The certificates are not deposits and neither the
certificates nor the underlying accounts or receivables are insured or
guaranteed by any government agency, including the FDIC. Therefore, if
collections
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on the trust assets are insufficient to make payments to you, payments to you
may be reduced or delayed.
POTENTIAL REDUCED PAYMENT DUE TO SHORTFALLS ON THE PROCEEDS OF A
SALE OF RECEIVABLES ON THE SERIES 1999-1 TERMINATION DATE
If any amounts remain outstanding on the series termination date for Series
1999-1, receivables, in an amount up to 110% of the investor interest for Series
1999-1, will be sold by the trust. The proceeds will be applied as final payment
on the certificates. Even if these proceeds are insufficient to pay you in full,
your rights to receive further payments on your certificates will terminate.
EXPOSURE TO CAP PROVIDERS COULD LEAD TO AN EARLY AMORTIZATION
EVENT
The trust will enter into interest rate cap agreements to provide additional
enhancement for your series. These agreements will require the counterparties to
make payments to the trust if one month libor for Class A or Class B exceeds a
specified rate. The interest rate cap agreements will not be traded in the over
the counter market.
Interest rate cap agreements are not regulated by the Securities and Exchange
Commission or the Commodity Futures Trading Commission. As a result, a
counterparty's risk management and operating procedures are not reviewed by
these agencies, and may not be restricted by any regulations. Failure of a
counterparty to adequately address its exposure under its interest rate risk
agreements could weaken its ability to make payments to the trust when required.
If a counterparty does not make a required payment, the trust will have less
funds available to pay interest on your certificates. This
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could cause delays or reductions in the amount of interest paid to you.
We cannot assure you that the servicer will be able to enter into replacement
interest rate cap agreements or make arrangements to protect you if a
counterparty is downgraded or if a counterparty defaults on its obligations.
Failure to replace a counterparty will result in early amortization of Series
1999-1. If this were to happen, you could be paid sooner than expected and may
not be able to reinvest the amount paid to you at the same rate you would have
been able to earn on the certificates.
THE YEAR 2000 PROBLEM COULD DISRUPT THE GENERATION AND
SERVICING OF THE RECEIVABLES
Date-sensitive computer functions, including those necessary for the servicing
of receivables, are susceptible to the Year 2000 problem. This problem arises
from the risk that computer applications will not be able to recognize and
properly perform functions involving dates before and after January 1, 2000.
Charming Shoppes has been modifying and/or replacing its computer systems,
including those of the servicer, the originator and the seller, to address the
Year 2000 problem, and expects to be able to perform these date-sensitive
functions without interruption. Charming Shoppes has also been communicating
with its important suppliers of merchandise and services to ensure that they are
addressing the Year 2000 problem.
One company's systems failure could directly or indirectly affect other
companies. If any of the Charming Shoppes entities or their suppliers fail to
adequately address the Year 2000 problem, the generation and servicing of
receivables could be disrupted and payments to you could be reduced or delayed.
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You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Terms for Prospectus"
beginning on page 117 in this document.
TRUST
The Charming Shoppes Master Trust was formed under the laws of the
State of New York. It is operated under the Second Amended and Restated Pooling
and Servicing Agreement, dated November 25, 1997 which has been and may be
amended from time to time - and is referred to in this prospectus supplement as
the pooling agreement. The pooling agreement is among Charming Shoppes
Receivables Corp., as seller, Spirit of America, Inc., as servicer, and First
Union National Bank, as trustee. The Series 1999-1 certificates will be governed
by the pooling agreement as supplemented by the Series 1999-1 supplement.
The trust, as a master trust, may issue certificate series and sell
receivables purchase series from time to time. The trust is only allowed to:
- acquire and hold trust assets
- issue and make payments on certificate series
- issue and make payments on the Exchangeable Seller Certificate
- sell receivables purchase series
- engage in activities to allow it to perform its obligations relating
to the activities listed above.
MATURITY CONSIDERATIONS
Series 1999-1 will always be in one of three payment periods-the
Revolving Period, the Controlled Amortization Period or the Early Amortization
Period.
Monthly interest payments will be made on the certificates during each
of the payment periods. Principal payments, however, will only be made during
the Controlled Amortization Period and the Early Amortization Period. In any
case, the trust will not pay principal on the Class B certificates until the
Investor Interest for Class A has been paid in full. The trust will not pay
principal on the Class C or Class D certificates until the Investor Interest for
Class B has been paid in full. For a detailed description of when interest and
principal are payable on the certificates, see "Description of the
Certificates-Interest Payments" and "-Reallocations and Payments of Principal."
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As described in this prospectus under "Risk Factors," the ability of
the trust to make payments of interest or principal when scheduled depends upon
several factors:
- the payment rates on the receivables
- the amount of outstanding receivables, delinquencies,
charge-offs and new borrowings on the accounts
- the potential issuance by the trust of additional certificate
series and sale of additional receivables purchase series
- the availability of shared principal collections.
Monthly payment rates on the receivables may vary for several reasons
including:
- accountholders having different payment rates
- accountholders failing to make required minimum payments
- accountholders paying only minimum payments
- accountholders paying off entire outstanding balances
- accountholders making seasonal purchases or altering their
payment habits based on the season
- Charming Shoppes changing its merchandise return policies or
programs in which accountholders participate.
Additionally, the amount of outstanding receivables and the
delinquencies, charge-offs and new borrowings on the accounts may vary from
month to month due to a variety of factors:
- seasonal variations
- the availability of alternate sources of credit
- the effect of consumer protection laws in relevant
jurisdictions
- general economic conditions
- spending and borrowing habits of individual accountholders.
Although we have provided historical data concerning the payment rates
on the receivables, because of these factors, we cannot provide you with any
assurance that the levels and timing of payments on receivables in the trust
portfolio from time to time will be similar to the historic experience described
in the "Accountholder Monthly Payment Rates for the Trust Portfolio" table in
"Spirit of America's Credit Card Activities-Payment Rates."
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Additionally, if an Early Amortization Event occurs for Series 1999-1,
the average life and maturity of the Series 1999-1 certificates could be
significantly reduced.
For all of these reasons; and the reasons discussed in "Risk Factors,"
we cannot provide assurances relating to:
- the level or timing of collections of receivables which have
been transferred to the trust,
- the rate at which Series 1999-1 certificateholders will
receive payments of principal on their certificates during the
Early Amortization Period,
- the rate at which the scheduled payments will be made during
the Controlled Amortization Period,
- whether any class will be paid on its expected final payment
date, or
- whether the rate of payments on the receivables will be
similar to the historic experience of the trust portfolio.
SPIRIT OF AMERICA'S CREDIT CARD ACTIVITIES
OVERVIEW
The seller currently transfers to the trust only receivables that are
owed by customers under Fashion Bug revolving private label credit card
accounts. The credit cards are called "private label" because the originator
establishes credit card accounts to permit qualified customers to purchase
merchandise and services from retail stores affiliated with Charming Shoppes.
These stores operate under the names of Fashion Bug(R) and Fashion Bug Plus(R).
We refer to these stores as Fashion Bug stores in this prospectus. The total
amount of receivables in the trust on April 30, 1999 was $263.8 million. Spirit
of America, Inc., an affiliate of the originator, is currently responsible for
all aspects of the credit card program, which include the granting of credit,
the issuance of credit cards, collections,
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account processing and customer service. Spirit of America, Inc. also acts as
servicer of the trust portfolio.
NEW ACCOUNT UNDERWRITING
The originator generates new accounts primarily through credit card
applications available in Fashion Bug stores. Store personnel offer credit card
applications and information about the credit card program to customers. A
credit card application may be processed either by (1) the store personnel
telephoning the originator at its operations center located in Milford, Ohio, or
(2) the store personnel mailing the application on behalf of the customer to the
originator at its operations center. A complete application is required
regardless of the method used to process the application.
The originator currently evaluates the creditworthiness of an applicant
by applying one of its several proprietary credit scoring models. The scoring of
a credit card application under the selected credit scoring model determines
whether the application for credit is approved or declined. These models use a
number of variables coming from information provided by an applicant and
obtained from credit bureaus. While no one variable is determinative, an
applicant's previous credit history is an important variable in the approval
system.
Periodically, the credit scoring models are reviewed and, if
appropriate, refined to take advantage of the most current statistical
information. No person may override the results from the credit scoring system.
However, some applications may from time to time be manually checked to ensure
that the credit information is accurate.
In addition to applications generated from Fashion Bug stores, the
originator has issued, and may issue in the future, pre-approved credit card
accounts through mail solicitations. The list of customers who are offered
pre-approved accounts is based upon information received from credit services
and entities in the business of selling customer lists. Before an account is
opened under the pre-approved program, the applicant's credit information is
reviewed for completeness and creditworthiness. This review is based upon
independent credit reporting bureau models that meet the originator's standards
for approving applications. The credit standards for pre-approved accounts are
similar to the standards established by the originator for all accounts.
Credit limits are determined by policies established from time to time
by the originator. When an application for credit is approved, the
accountholder's initial credit limit will be based upon the results of the
credit scoring model. The range of initial credit limits is $100 to $700. Credit
limits are automatically increased periodically, if warranted by the
accountholder's purchase and payment activities. An increase in the
accountholder's credit limit may be requested directly by the accountholder.
Fashion Bug store personnel may also request an increase in a credit limit for
an accountholder through the use of a toll-free 800 number. Any
30
<PAGE> 36
request to increase an accountholder's credit limit over $1,500 must be approved
by a vice president of the originator or his or her designee. The average credit
limit for all accounts on April 30, 1999 was $507.
Each grant of credit by the originator to an accountholder is governed
by the terms and conditions contained in the originator's retail installment
credit agreement in effect at that time.
The originator reserves the right to change or terminate the terms,
conditions, services, or features of an account under the conditions described
in the applicable retail installment credit agreement. These changes include
increasing or decreasing periodic finance charges, late fees, returned check
charges, charges for credit protection services or the minimum payment required
each month. The originator may, at any time and without advance notice to the
accountholder, restrict further credit card use by the accountholder. The
originator restricts use because of poor payment performance or the occurrence
of events which may impair the creditworthiness of the accountholder. The
originator has the ability to prevent the accountholder from using his or her
credit card to make purchases at Fashion Bug stores until the reason for the
restriction has been resolved.
All accounts are grouped into billing cycles. Each billing cycle has a
separate monthly billing date which may vary slightly from month to month. On
the monthly billing date, the activity in the account during the month ended
before that billing date is processed and billed to the accountholder. Payment
is due within 25 days after the billing date shown in the monthly statement,
with a grace period of up to 5 days for mailing time. A late fee of $20 is
assessed, in most states, if the minimum payment is not received within 30 days
after it is due. As long as the accountholder makes the minimum payment when
due, his or her account remains on current status.
DESCRIPTION OF SUBSERVICER
The servicer is a party to a multi-year agreement with Alliance Data
Systems, Inc. to act as subservicer. Under this agreement, the subservicer has
assumed a portion of the servicer's account maintenance and service
administration responsibilities. The subservicer provides administrative
services, including customer and collection services for delinquent accounts,
through its facilities located in Voorhees, New Jersey. The subservicer also
provides billing, payment processing, and account maintenance services through
its facilities located in Columbus, Ohio and Dallas and San Antonio, Texas. The
subservicer has been performing these account servicing functions since October,
1988. The servicer's contract with the subservicer is scheduled to expire in
2002. At this time, the servicer believes it will be able to enter into a
comparable servicing contract at comparable pricing either with the current
subservicer or another servicing provider upon the expiration of that agreement.
31
<PAGE> 37
BILLING AND PAYMENTS
If an accountholder elects not to pay the entire amount due on a
payment due date, the originator assesses finance charges on the related
account. The assessed charges are based upon the average daily balance
outstanding on the account during the monthly billing cycle. The average daily
balance outstanding on an account for any day during a monthly billing cycle is
equal to the sum of:
- the beginning balance of the account during any day,
- plus purchases and unpaid finance charges posted to the account
that day,
- minus any payments and credits posted to the account that day,
- divided by the number of days in the billing cycle.
Currently, the finance charge rate charged to all accountholders is
22.9% annually. Accountholders must make a minimum monthly payment equal to the
greater of 1/20th of their statement balance or $10.00. Currently, less than 10%
of all Accounts are paid off monthly.
No finance charges are charged on new purchases if two conditions are
met. First, the accountholder's previous balance must have been paid in full on
the most recent payment due date. Second, new purchases are paid in full by the
first payment due date after they are initially billed. If the entire
outstanding balance of an account is not paid in full by the payment due date, a
finance charge is charged on the account balance from the date that each
purchase is made to the date of payment for that purchase. The originator
generally charges accountholders a late fee in an amount up to $20.00 for each
late payment and a returned check fee in an amount up to $20.00 for each
returned check.
The originator charges an annual membership fee to cardholders in its
premium account program. These fees are treated as principal receivables. The
originator does not currently impose overlimit fees or transaction-related
service fees on these premium accounts. If any of these fees were imposed in the
future, they would be treated as principal receivables. Except for the annual
membership fee on its premium account, the originator does not currently charge
any annual fees. If any new annual fees were imposed in the future, they would
be treated as finance charge receivables.
The originator from time to time in conjunction with special
promotional offers allows customers to make purchases on their accounts without
imposing any finance charges until payments are due at some specified time in
the future.
DELINQUENCIES AND COLLECTIONS-COLLECTION EFFORTS
An account is considered delinquent when the minimum payment due is not
received by the payment due date specified in the accountholder's billing
statement. Messages regarding an accountholder's delinquency status are included
on the accountholder's billing statement when
32
<PAGE> 38
an account becomes delinquent. Collection actions are initiated no later than
five days after the date the accountholder's scheduled payment is due. These
collection efforts escalate in intensity as the delinquency continues.
If 90 days have elapsed since the payment due date without payment of
the minimum amount due, the accountholder is not permitted to use the credit
card to purchase any additional merchandise or services from Fashion Bug stores.
After 180 days have elapsed since the payment due date without payment of the
minimum amount due, the account is charged off and referred to various outside
collection agencies for recovery. Additionally, accounts are also charged off at
the beginning of the first billing cycle occurring after the originator receives
notice that (1) the accountholder is the subject of a bankruptcy filing, (2) the
accountholder is deceased or imprisoned, or (3) there has been fraudulent
activity associated with the account.
The originator tracks the number of accounts and amounts outstanding in
six aging categories: 1-29 days past due; 30-59 days past due; 60-89 days past
due; 90-119 days past due; 120-149 days past due; and 150-179 days past due.
The originator employs a monthly automated re-aging program that
reclassifies the status of accounts to current upon receipt of at least three
consecutive scheduled payments greater than $10.00. If an account was ever
greater than 90 days past due, that account is not eligible for purchasing
privileges under this re-aging program.
CREDIT RETURN POLICY
Charming Shoppes believes that its merchandise and credit return policy
is competitive with other specialty retailers. Return transactions are processed
nightly along with sales and payment data. During the fiscal year ending January
30, 1999, returns for credit represented approximately 7.8% of the average
outstanding receivables during that year.
DELINQUENCY AND LOSS EXPERIENCE
The following tables describe the delinquency and loss experience for
the trust portfolio for each of the periods shown. During the periods shown, the
trust portfolio has consisted solely of receivables arising under accounts of
the private label credit card program. During 1996, Charming Shoppes closed 327
under-performing Fashion Bug stores. This resulted in a reduction to the
receivables outstanding for that year. However, these closings did not impact
delinquencies for that year, leading to a higher delinquency percentage in 1996.
We cannot assure you that the delinquency and loss experience for the trust
portfolio in the future will be similar to the historical experience described
in these tables.
33
<PAGE> 39
DELINQUENCIES AS A PERCENTAGE OF THE TRUST PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
At Month End At Month End
|| April 30, 1999 April 30, 1998
--------------------------- -------------------------
Delinquent Delinquent
Number of Days Delinquent Amount Percentage Amount Percentage
- -------------------------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
30-59 Days.................... $10,284 4.0% $12,246 4.2%
60-89 Days.................... 4,953 1.9% 5,175 1.8%
90-119 Days................... 3,966 1.5% 3,839 1.3%
120 + Days.................... 3,915 1.5% 4,277 1.5%
----- --- ----- ---
TOTAL...................... $23,118 9.0% $25,537 8.8%
======= --- ====== ===
</TABLE>
||
<TABLE>
<CAPTION>
AT YEAR END DECEMBER 31,
====================================================
1998 1997 1996
========================= ========================= =========================
Delinquent Delinquent Delinquent
========== ========== ==========
Number of Days Delinquent Amount Percentage Amount Percentage Amount Percentage
========================= ====== ========== ====== ========== ====== ==========
<S> <C> <C> <C> <C> <C> <C>
30-59 Days $12,789 4.5% $14,014 4.3% $18,106 5.2%
========== ======= ==== ======= ==== ======= ====
60-89 Days 5,357 1.9% 6,480 2.0% 7,739 2.2%
========== ======= ==== ======= ==== ======= ====
90-119 Days 4,184 1.5% 4,613 1.4% 5,492 1.6%
=========== ======= ==== ======= ==== ======= ====
120 + Days 3,955 1.4% 4,836 1.5% 5,332 1.5%
========== ======= ==== ======= ==== ======= ====
TOTAL $26,285 9.3% $29,942 9.2% $36,670 10.5%
===== ======= ==== ======= ==== ======= =====
<CAPTION>
1995 1994
========================= =======================
Delinquent Delinquent
========== ==========
Number of Days Delinquent Amount Percentage Amount Percentage
========================= ====== ========== ====== ==========
<S> <C> <C> <C> <C>
30-59 Days $18,741 4.8% $19,895 4.8%
========== ======= ==== ======= ====
60-89 Days 7,521 1.9% 6,996 1.7%
========== ======= ==== ======= ====
90-119 Days 4,678 1.2% 4,105 1.0%
=========== ======= ==== ======= ====
120 + Days 3,510 0.9% 3,345 0.8%
========== ======= ==== ======= ====
TOTAL $34,450 8.8% $34,341 8.2%
===== ======== ==== ======= ====
</TABLE>
- ---------------------------
(1) The percentages are the result of dividing the delinquent amount by end of
the Due Period receivables outstanding on the applicable date. The
delinquent amount is the dollar amount of monthly sum of cycles
delinquencies in each category on the applicable date. The respective
cycle-end receivables outstanding for month end April 30, 1999 and April 30,
1998 were $257,865 and $289,533. The respective cycle-end receivables
outstanding at year end December 1998, 1997, 1996, 1995 and 1994 were
$281,509, $325,611, $348,124, $389,714 and $418,960. These amounts represent
the aggregation of the receivable balances at the close of the respective
monthly billing cycle periods, which may differ from the respective month
end outstanding receivable balances.
34
<PAGE> 40
LOSS EXPERIENCE FOR THE TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
||
<TABLE>
<CAPTION>
Year Ended December 31,
4 MONTHS ENDED 4 Months Ended ------------------------------------------------------
APRIL 30, 1999(1) April 30, 1998(1) 1998 1997 1996 1995 1994
-------------- -------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Average Receivables Outstanding(2)... $290,514 $315,03 $351,560 $379,86 $392,301
$271,401 $308,878 5 6
Gross Losses......................... $34,906 $38,257 $40,914 $28,194
$10,795 $11,577 $32,173
Gross Losses as a Percentage of
Average Receivables Outstanding...... 11.9% 11.2% 12.0% 12.1% 11.6% 8.5% 7.2%
Net Recoveries....................... $2,814 $2,494 $6,630 $7,474 $7,009 $7,095 $5,635
Net Losses........................... $28,276 $30,783 $33,905 $22,559
$7,981 $9,083 $25,078
Net Losses as a Percentage of Average
Receivables Outstanding............ 8.8% 8.8% 9.7% 9.8% 9.6% 6.6% 5.8 %
||
</TABLE>
- ---------------------------
(1) The percentages shown for the four months ended April 30 are annualized
figures. Annualized figures are not necessarily indicative of results for
the entire year.
(2) Represents an average for all receivables outstanding for each account and
each billing cycle for January, February, March and April in 1999.
REVENUE EXPERIENCE
The next table describes the total revenues from finance charges and
fees billed on the trust portfolio for the four months ended April 30, 1999 and
for each year during the five-year period ended December 31, 1998. The figures
in the table represent amounts billed to accountholders before deductions for
charge-offs, returned merchandise, and customer disputes or other expenses and
reductions due to fraud.
<TABLE>
<CAPTION>
REVENUE EXPERIENCE FOR THE TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
||
YEAR ENDED DECEMBER 31,
4 MONTHS ENDED 4 MONTHS ENDED ------------------------------------------------------
APRIL 30, 1999(1) APRIL 30, 1999(1) 1998 1997 1996 1995 1994
-------------- -------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Average Receivables Outstanding(2)... $271,401 $308,878 $290,51 $315,03 $351,56 $379,86 $392,301
4 5 0 6
Finance Charges and Fees(3).......... $25,265 $25,111 $71,512 $78,716 $86,354 $88,569 $89,691
Yield from Finance Charges and Fees 27.9% 24.4% 24.6% 25.0% 24.6% 23.3% 22.9%
||
</TABLE>
- ---------------------------
35
<PAGE> 41
(1) The percentages shown for the four months ended April 30 are annualized
figures. Annualized figures are not necessarily indicative of results for
the entire year.
(2) Represents an average for all receivables outstanding at the corresponding
billing date.
(3) Finance charges and fees do not include interest on subsequent collections
on accounts previously charged off. Finance charges and fees include monthly
periodic rate finance charges, late charges and returned check charges.
The revenue for the accounts in the trust portfolio shown in the above
table is comprised of monthly periodic rate finance charges and service charges,
including late charges and returned check charges. If payment rates decline, the
balances which incur monthly periodic rate finance charges tend to grow,
assuming no change in the level of purchasing activity. Accordingly, under these
circumstances, the yield related to monthly periodic rate finance charges
normally increases. Conversely, if payment rates increase, the balances which
incur monthly periodic rate finance charges tend to fall, assuming no change in
the level of purchasing activity. Accordingly, under these circumstances, the
yield related to monthly periodic rate finance charges normally decreases. The
yield related to service charges varies with the type and volume of activity in
and the amount of each account.
Increased revenue for the first four months of 1999 reflects, in part,
the fact that the originator has increased its late fee to $20 from $10.
PAYMENT RATES
The next table describes the highest and lowest accountholder monthly
payment rates for the trust portfolio during any single month in the period
shown and the average of the accountholder monthly payment rates for all months
during the periods shown, in each case calculated as a percentage of the average
of the monthly account balances during the periods shown. Payment rates shown in
the table are based on amounts which would be payments of principal receivables
and finance charge receivables on the account.
<TABLE>
<CAPTION>
ACCOUNTHOLDER MONTHLY PAYMENT RATES
FOR THE TRUST PORTFOLIO(1)
||
YEAR ENDED DECEMBER 31,
4 Months Ended 4 Months Ended ------------------------------------------------------
April 30 , 1999(1) April 30 , 1999(1) 1998 1997 1996 1995 1994
------------------- ------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Lowest Month (2) (3)............ 13.2% 11.4% 11.4% 10.7% 9.5% 10.9% 10.6%
Highest Month (2)............... 14.8% 13.6% 14.0% 12.9% 12.2% 12.5% 12.8%
Average Payment for the Period.. 13.8% 12.8% 12.8% 11.9% 11.6% 11.9% 12.0%
||
</TABLE>
- ---------------------------
(1) The monthly payment rates include amounts which are payments of principal
receivables and finance charge receivables on the Accounts.
(2) The monthly payment rates are calculated as the total amount of payments
received during the billing cycles for a month, divided by the monthly
receivables outstanding at the beginning of each month.
36
<PAGE> 42
(3) In July 1996, the originator changed its billing cycle dates. The billing
cycle date changes resulted in spreading its billing dates evenly throughout
the month to improve collections workload distribution. This change resulted
in moving one of its six billing cycles to the following calendar reporting
period. The servicer is required to report in its monthly servicer report
the actual results during the reporting period of the monthly payment rate,
portfolio yield, net write-offs and net portfolio excess spread for the 5
billing cycles in the reporting period expressed as a percentage of the
aggregate receivables in the trust. The resultant payment rate for July 1996
was 9.5%. Consequently, the resultant effect produces an inconsistent
comparison to previous and subsequent reported data. If the sixth billing
cycle had occurred in July 1996, the monthly payment rate would have been
11.8%.
The increased accountholder payment rate for the first four months of
1999 is consistent with the upward trend of payment rates in the private label
credit card market.
THE RECEIVABLES
The receivables consist of finance charge receivables and principal
receivables arising under accounts designated by the seller from time to time.
If an account is designated, it means that the receivables that arise under that
account are transferred to the trust. We refer to these designated accounts as
"Accounts." Only the receivables arising under the Accounts are transferred to
the trust, and not the Accounts themselves. The originator continues to own and
control the Accounts.
"Finance charge receivables" consist of all amounts billed to
cardholders on any Account in the ordinary course of the originator's business
including:
- periodic rate finance charges
- late payment fees and returned check charges
- annual fees
- any fees designated by the seller as finance charge
related items
- - any Discount Option Receivables designated by the seller
Finance charge receivables do not include any membership fees payable
for any special program credit cards because these fees are treated as principal
receivables. Discount Option Receivables are collections that constitute
principal receivables for which the seller has exercised its option to have
those collections treated as finance charge receivables as described in "The
Pooling Agreement-Discount Option." If the originator adds receivables from
accounts arising under the Co-Brand Program in the future, finance charge
receivables will include all amounts paid to the originator as allocated
interchange.
37
<PAGE> 43
"Principal receivables" consist of all amounts other than finance
charge receivables, billed to a cardholder on any Account, including purchases
of merchandise, services or credit insurance premiums, and all fees billed to
cardholders not designated as finance charge receivables.
The seller automatically transfers receivables in existing Accounts to
the trust when they are originated. The seller will transfer to the trust
receivables outstanding in additional Accounts it designates from time to time
in the future on the designation date for those additional Accounts. The seller
will then automatically transfer receivables generated after that from those
Accounts. The seller represents that each receivable is an eligible receivable
on the day it is transferred to the trust. Eligibility requirements for the
receivables are described in "The Pooling Agreement-Eligible Accounts; Eligible
Receivables."
The seller has the right, and in some cases is required, to designate
from time to time additional Accounts and to transfer to the trust all
receivables arising under those additional Accounts. Any additional Accounts
that the seller designates must be eligible Accounts when designated. The
circumstances under which the seller is required to designate additional
accounts and the eligibility criteria for required or voluntary designations are
described in "The Pooling Agreement-Addition of Accounts."
Under the conditions described in "The Pooling Agreement-Removal of
Accounts," the seller has the right to remove Accounts from the pool of Accounts
designated as a source of receivables for the trust, and to require the trustee
to return all of its rights to receivables in those Accounts to the seller. Once
removed, an account is no longer an Account and receivables existing or
generated under that account are not transferred to the trust.
The Accounts today consist solely of accounts arising under private
label credit cards used primarily at Fashion Bug stores. In addition to store
purchases, cardholders may use these credit cards to purchase credit insurance
on their Account and to purchase other merchandise and services sold through
direct mail advertising. Some examples of merchandise and services that may be
purchased include credit insurance, housewares and consumer electronics.
Receivables generated from these other uses currently represent less than 5% of
the outstanding balance of all receivables.
The originator may in the future originate credit card accounts for new
purposes, including facilitating credit purchases at additional vendors. For
example, the originator expects to originate Visa and Mastercard accounts this
year. Before designating any accounts other than private label accounts as
"Accounts" for purposes of the trust, the seller must receive written
confirmation from each rating agency then rating any outstanding series issued
by the trust that the designation would not cause that rating agency to reduce
or withdraw its ratings. After receiving this rating agency confirmation, the
seller could only designate these accounts as Accounts if they were eligible on
the date of designation. For further information concerning these accounts, see
"The Pooling Agreement-Eligible Accounts; Eligible Receivables."
38
<PAGE> 44
The aggregate total receivables outstanding in the trust on April 30,
1999 was approximately $263.8 million. The Accounts had an average principal
receivables balance of $214 and an average credit limit of $507. The aggregate
total receivables outstanding as a percentage of the aggregate total credit
limit was 5.3%. The average age of the Accounts was approximately 58 months. On
April 30, 1999, accountholders whose Accounts are included in the trust
portfolio had billing addresses as indicated in the table "Geographic
Distribution of Accounts-Trust Portfolio" below.
The following tables summarize the trust portfolio by various criteria
on April 30, 1999. References to "receivables" in the following tables include
both finance charge receivables and principal receivables. Because the future
composition of the trust portfolio may change over time, these tables do not
describe the composition of the trust portfolio at any future time. See
"Maturity Considerations."
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL RECEIVABLES PERCENTAGE
ACCOUNTS NUMBER OF (DOLLARS IN OF TOTAL
ACCOUNT BALANCE RANGE (IN THOUSANDS) ACCOUNTS THOUSANDS) RECEIVABLES
- --------------------- --------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Credit Balance.............................. 22 0.2% ($489) -0.2%
No Balance.................................. 8,614 87.3% 0 0.0%
$.01 to $99.99.............................. 505 5.1% 26,186 9.9%
$100 to $199.99............................. 290 2.9% 42,196 16.0%
$200 to $299.99............................. 174 1.8% 42,806 16.2%
$300 to $399.99............................. 98 1.0% 33,705 12.8%
$400 to $499.99............................. 56 0.6% 24,961 9.5%
$500 and Over............................... 113 1.1% 94,395 35.8%
--- --- ------ ----
TOTAL.............................. 9,871 100.0% $263,758 100.0%
===== ===== ======== =====
</TABLE>
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF RECEIVABLES PERCENTAGE
ACCOUNTS TOTAL NUMBER (DOLLARS IN OF TOTAL
CREDIT LIMIT RANGE (IN THOUSANDS) OF ACCOUNTS THOUSANDS) RECEIVABLES
- ------------------ -------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Less than $300........................... 2,486 25.2% $35,565 13.5%
$300 to $499............................. 3,556 36.0% 57,871 21.9%
$500 to $699............................. 1,478 15.1% 36,383 13.8%
$700 to $999............................. 921 9.3% 28,717 10.9%
$1,000 and Over.......................... 1,430 14.5% 105,222 39.9%
----- ---- ------- ----
TOTAL........................... 9,871 100.0% $263,758 100.0%
===== ===== ======= =====
</TABLE>
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
39
<PAGE> 45
<TABLE>
<CAPTION>
PERIOD OF
DELINQUENCY NUMBER OF PERCENTAGE OF RECEIVABLES PERCENTAGE
(DAYS CONTRACTUALLY ACCOUNTS TOTAL NUMBER (DOLLARS IN OF TOTAL
DELINQUENT) (IN THOUSANDS) OF ACCOUNTS THOUSANDS) RECEIVABLES
------------- -------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Not Delinquent................................. 9,632 97.6% $217,502 82.5%
Up to 29 Days.................................. 110 1.1% 27,865 10.6%
30 to 59 Days.................................. 27 0.3% 6,934 2.6%
60 to 89 Days.................................. 17 0.2% 4,358 1.7%
90 + Days...................................... 85 0.9% 7,078 2.7%
----- ----- -------- -----
TOTAL 9,871 100.0% $263,758 100.0%
===== ===== ======== =====
</TABLE>
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF RECEIVABLES PERCENTAGE
ACCOUNTS TOTAL NUMBER (DOLLARS IN OF TOTAL
ACCOUNT AGE (IN THOUSANDS) OF ACCOUNTS THOUSANDS) RECEIVABLES
----------- -------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Not More than 6 Months......................... 388 3.9% $ 11,957 4.5%
Over 6 Months to 12 Months..................... 429 4.4% 16,246 6.2%
Over 12 Months to 24 Months.................... 760 7.7% 24,885 9.4%
Over 24 Months to 36 Months.................... 658 6.7% 18,829 7.1%
Over 36 Months................................. 7,635 77.3% 191,840 72.7%
----- ----- -------- -----
TOTAL 9,871 100.0% $261,346 100.0%
===== ===== ======== =====
</TABLE>
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS
TRUST PORTFOLIO
<TABLE>
<CAPTION>
NUMBER OF RECEIVABLES PERCENTAGE
ACCOUNTS PERCENTAGE OF OUTSTANDING OF TOTAL
(IN TOTAL NUMBER (DOLLARS IN RECEIVABLES
STATE THOUSANDS) OF ACCOUNTS THOUSANDS) OUTSTANDING
----- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Alabama................................... 46 0.46% $1,498 0.57%
Alaska.................................... 3 0.03% 16 0.01%
Arizona................................... 52 0.52% 1,197 0.45%
Arkansas.................................. 11 0.11% 180 0.07%
California................................ 198 2.01% 3,144 1.19%
Colorado.................................. 38 0.39% 774 0.29%
Connecticut............................... 217 2.20% 6,060 2.30%
Delaware.................................. 62 0.63% 1,854 0.70%
District of Columbia...................... 11 0.11% 328 0.12%
Florida................................... 238 2.41% 4,744 1.80%
Georgia................................... 133 1.35% 3,684 1.40%
Hawaii.................................... 2 0.02% 14 0.01%
Idaho..................................... 43 0.43% 485 0.18%
Illinois.................................. 510 5.17% 14,060 5.33%
Indiana................................... 357 3.62% 10,601 4.02%
Iowa...................................... 92 0.93% 1,206 0.46%
Kansas.................................... 72 0.73% 1,296 0.49%
Kentucky.................................. 232 2.35% 7,977 3.02%
Louisiana................................. 9 0.10% 243 0.09%
Maine..................................... 168 1.70% 5,413 2.05%
Maryland.................................. 361 3.65% 9,921 3.76%
Massachusetts............................. 414 4.20% 11,867 4.50%
Michigan.................................. 660 6.68% 19,302 7.32%
Minnesota................................. 200 2.03% 2,190 0.83%
Mississippi............................... 9 0.09% 66 0.03%
Missouri.................................. 186 1.88% 4,909 1.86%
Montana................................... 10 0.10% 33 0.01%
Nebraska.................................. 36 0.36% 331 0.13%
Nevada.................................... 30 0.31% 683 0.26%
New Hampshire............................. 140 1.42% 3,783 1.43%
New Jersey................................ 516 5.23% 15,957 6.05%
</TABLE>
40
<PAGE> 46
<TABLE>
<CAPTION>
NUMBER OF RECEIVABLES PERCENTAGE
ACCOUNTS PERCENTAGE OF OUTSTANDING OF TOTAL
(IN TOTAL NUMBER (DOLLARS IN RECEIVABLES
STATE THOUSANDS) OF ACCOUNTS THOUSANDS) OUTSTANDING
----- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
New Mexico................................ 11 0.11% 222 0.08%
New York.................................. 709 7.19% 18,516 7.02%
North Carolina............................ 134 1.35% 3,666 1.39%
North Dakota.............................. 21 0.22% 147 0.06%
Ohio...................................... 994 10.07% 28,517 10.81%
Oklahoma.................................. 6 0.06% 53 0.02%
Oregon.................................... 64 0.65% 1,038 0.39%
Pennsylvania.............................. 1,370 13.88% 42,565 16.14%
Rhode Island.............................. 93 0.94% 2,875 1.09%
South Carolina............................ 43 0.44% 981 0.37%
South Dakota.............................. 14 0.14% 52 0.02%
Tennessee................................. 139 1.40% 3,647 1.38%
Texas..................................... 49 0.50% 486 0.18%
Utah...................................... 44 0.45% 463 0.18%
Vermont................................... 68 0.69% 1,960 0.74%
Virginia.................................. 290 2.93% 7,953 3.02%
Washington................................ 119 1.21% 2,296 0.87%
West Virginia............................. 184 1.87% 7,160 2.71%
Wisconsin................................. 373 3.78% 6,792 2.58%
Wyoming................................... 16 0.16% 235 0.09%
Other (1)................................. 75 0.75% 318 0.12%
TOTAL............................ 9,871 100.00% $263,758 100.00%
===== ======= ======== ======
</TABLE>
- -----------------------
(1) Includes accounts which represent billing addresses in Canada and U.S.
Territories.
41
<PAGE> 47
USE OF PROCEEDS
The trust will transfer the Series 1999-1 certificates to the seller
and the Seller Interest will be reduced by the initial Series 1999-1 Investor
Interest. The seller will use the proceeds of the sale of the Series 1999-1
certificates for general corporate purposes, including purchasing receivables.
DESCRIPTION OF CHARMING SHOPPES ENTITIES
OVERVIEW
Charming Shoppes Inc. is a Pennsylvania corporation that provides for
the overall management of approximately 1,135 Fashion Bug stores throughout the
United States. We refer to Charming Shoppes Inc. in this prospectus as "Charming
Shoppes." For the fiscal year ended January 30, 1999, Charming Shoppes' net
sales were approximately $1.035 billion and consolidated assets were
approximately $684.6 million. Charming Shoppes and its affiliated companies
employ more than 12,000 people throughout 44 states in the United States. The
Fashion Bug stores have concentrations in the Middle Atlantic, New England and
Midwest markets. In addition to its purchase of merchandise through the domestic
wholesale apparel market, Charming Shoppes also has a network of merchandise
sourcing operations, both domestic and overseas, that provide apparel to its
affiliated Fashion Bug stores.
Fashion Service Corp. is a Delaware corporation and a subsidiary of
Charming Shoppes. Fashion Service Corp.'s primary business is to provide
credit-related services to Charming Shoppes and its affiliated Fashion Bug
stores. Fashion Service Corp. also provides services for the establishment of
collection and credit policies to support the credit card program.
Spirit of America National Bank, the originator, is a subsidiary of
Fashion Service Corp. The originator is a national bank chartered by the Office
of the Comptroller of the Currency and was organized for the purposes of the
origination and purchase of credit card receivables and the establishment and
operation of the Charming Shoppes credit card programs.
Charming Shoppes Receivables Corp., the seller, is a Delaware
corporation and a subsidiary of Fashion Service Corp. It was organized to
facilitate receivables financing transactions by the originator.
Spirit of America, Inc., the servicer, is a Delaware corporation and is
a subsidiary of Fashion Service Corp. It was organized to service receivables
generated by the originator,
42
<PAGE> 48
including the receivables transferred to the trust. The employees of the
servicer are the same employees who previously serviced the receivables when
Spirit of America National Bank acted as servicer.
LEGAL PROCEEDINGS
Neither the servicer nor the originator is involved in any legal
proceedings that could have a material impact on operations or property.
YEAR 2000 DISCLOSURE
For many years, dates have been stored in computer systems with two
digit rather than four digit years. The Year 2000 computer problem occurs when a
computer system cannot properly recognize dates stored with two digit years
beyond 1999. Calculations may inaccurately interpret a date stored in a format
of "00" as the year 1900 rather than 2000, resulting in improper computations,
execution of faulty logic, or outright computer system failure. Systems must be
remediated and tested in order to minimize the potential for failure caused by
the Year 2000 computer calculation.
Charming Shoppes and its subsidiaries, including the seller and the
servicer, use computer equipment and software in their retailing operations to
supply stores with products for sale, process customer transactions, including
credit transactions, and to record and report their financial condition and
results of operations. Since 1997 Charming Shoppes has been implementing a
comprehensive program to correct its computer systems, equipment and facilities
so that they will be Year 2000 compliant. Charming Shoppes has also communicated
with its important suppliers of merchandise and services to ensure that they are
addressing their Year 2000 issues.
An Executive Oversight Committee made up of Charming Shoppes' General
Counsel, Corporate Director of Human Resources and Chief Financial Officer,
oversees Charming Shoppes' overall Year 2000 initiatives. The committee is
implementing a comprehensive Year 2000 readiness program, which has been adopted
by all business units of Charming Shoppes. Individual department heads have
assigned resources to this program to coordinate and manage Year 2000 readiness
within and among Charming Shoppes' departments and to evaluate the state of Year
2000 readiness of outside vendors and suppliers. Charming Shoppes' Corporate
Audit Department facilitates the implementation of the Year 2000 readiness
program by identifying and reporting outstanding issues to the committee for
resolution, administering vendor compliance programs, and monitoring the
progress of each business unit. Charming Shoppes' Year 2000 readiness program is
currently on schedule. Internal resources and outside consultants are being used
to implement the Year 2000 readiness program.
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<PAGE> 49
The Year 2000 readiness program consists of five phases:
(a) Standardization: The development of a set of policies,
guidelines and standards to be used during the Year 2000
readiness program. Examples of these include standard date
routines to be used in computer programs, standard test plans
to be used for testing all systems, and guidelines for
migrating a tested system into the production environment.
These policies, guidelines, and standards are designed to
in implementing the Year 2000 readiness program;
(b) Evaluation: The identification and evaluation of Charming
Shoppes' business systems so as to determine the method by
which the systems will be made Year 2000 compliant. All these
systems are prioritized for attention based on usage of dates,
the extent to which they are critical to Charming Shoppes'
business, and the likelihood of failure;
(c) Remediation: The development of a remediation strategy for
each system. Strategies include system replacement,
remediation of existing systems, and coordination with the
supplying vendor to provide a version that is Year 2000
compliant;
(d) End-to-End Testing: The development and implementation of a
testing strategy and test plan for each system. Testing is
designed to cover all significant transition dates, and
includes testing within and among systems, as well as data
communications with critical vendors; and
(e) Contingency Planning: The development of contingency plans if
Charming Shoppes does not successfully complete significant
portions of its Year 2000 readiness program or if the critical
vendors are not Year 2000 compliant.
Corporate Business Systems
Charming Shoppes has been implementing its Year 2000 readiness program
for corporate business systems since 1997. These systems include all mainframe
and non-mainframe systems and software, the corporate computing infrastructure
and network of hardware and software, desktop equipment and software, and
external and internal communication software and equipment. Third-party
software, along with in-house developed systems, are included within the scope
of Charming Shoppes' Year 2000 readiness program. These corporate business
systems are located at Charming Shoppes' headquarters in Bensalem, Pennsylvania,
its distribution center in Greencastle, Indiana, and its private label credit
card operations in Milford, Ohio. They are also located in Charming Shoppes'
approximately 1,160 stores located in 44
44
<PAGE> 50
states, its factory operations in the Dominican Republic, and its international
operations in Hong Kong, Singapore, and Shanghai.
The standardization and evaluation phases covering these corporate
business systems have been completed. The remediation and end-to-end testing
phases are currently being implemented. The remediation phase for Charming
Shoppes' mainframe systems is complete. The remediation phase for Charming
Shoppes' non-mainframe systems is approximately 95% complete and is scheduled
for completion during the second quarter ending July 31, 1999. The remediation
phase of Charming Shoppes' in-store systems has been completed. Comprehensive
test plans have been established for each corporate business system. The
end-to-end testing phase commenced during the fourth quarter ended January 30,
1999 and is scheduled for completion during the second quarter ending July 31,
1999.
Charming Shoppes' private label credit card organization is monitored
and regulated by the office of the Comptroller of the Currency. The Comptroller
has performed quarterly Year 2000 reviews of this organization since the quarter
ended May 2, 1998 and is scheduled to do so through year 2000. This organization
has two separate system components, namely, internal credit systems and a
third-party credit card processing system used for all primary functions of the
private label credit card program. The standardization, evaluation and
remediation phases have been completed for the internal credit systems. The
end-to-end testing phase is scheduled to commence during the first quarter ended
May 1, 1999 and is scheduled for completion during the second quarter ending
July 31, 1999. Charming Shoppes is regularly monitoring the progress of its
third-party credit processor in achieving Year 2000 compliance. Based on
information provided to Charming Shoppes by that third-party processor, the
standardization, evaluation and remediation phases for the third-party credit
card processing system have been completed. Testing of the third-party credit
card processing systems has commenced and is scheduled for completion during the
second quarter ending July 31, 1999.
Embedded Technologies
Embedded technologies refer to any equipment or machinery that relies
on a computer chip or microprocessor in order to operate. Examples include
office systems, including fax machines and photocopiers; building systems
including elevators, lighting, security systems, and environmental control
units; and business communication systems including data switching equipment and
telephone exchange equipment.
45
<PAGE> 51
Microprocessors within this equipment may fail if they cannot properly recognize
dates into the Year 2000.
Charming Shoppes uses various technologies and computer controlled
equipment in the operation of its corporate and stores facilities. This
equipment includes security monitoring systems; primary and back-up power supply
systems; energy management systems; elevators, and office equipment. Some of
this equipment may contain embedded chip technology that may be affected by the
Year 2000 issue. Charming Shoppes has taken an inventory of all of this
equipment and has begun discussions with vendors who supply and/or support this
technology and equipment to assess the sensitivity of these systems and
equipment to the Year 2000 issue. In conjunction with the Corporate Audit
department's program of auditing vendor preparedness for Year 2000, Charming
Shoppes will obtain assurances from these vendors and, to the extent possible,
test these systems to ensure Year 2000 compliance. Private branch exchanges at
Charming Shoppes' Bensalem, Pennsylvania corporate facilities are Year 2000
compliant. Telecommunication software at Charming Shoppes' corporate
headquarters is in the process of being upgraded and is scheduled for completion
during the second quarter ending July 31, 1999.
Distribution Center Computer Systems
Charming Shoppes' distribution center, located in Greencastle, Indiana,
uses a variety of computer systems and embedded technology equipment for its
day-to-day operations. Shop floor machinery, interacting with complex computer
systems, monitors, processes, and controls plant processes and material
movement. Automated equipment includes conveyor systems, palletizers, sorters,
scales, and radio frequency devices. Vendors have supplied software and
equipment which have been heavily customized for Charming Shoppes' distribution
center configuration. Charming Shoppes is working with appropriate distribution
center system vendors to perform all necessary Year 2000 remediation and testing
services. The standardization and evaluation phases covering the distribution
center systems have been completed. The remediation phase is currently being
implemented, and it is anticipated that Charming Shoppes' vendors will deliver
Year 2000 compliant systems to Charming Shoppes in several stages between the
first quarter ended May 1, 1999 and the third quarter ended October 30, 1999.
Vendors and Suppliers
Charming Shoppes has initiated a formal communication program with
significant vendors to evaluate their Year 2000 compliance, and will be
assessing their responses to Charming Shoppes' Year 2000 readiness
questionnaire. Comprehensive mailings were made during the fourth quarter ended
January 30, 1999. Questionnaires may be followed up with telephone interviews,
and where necessary, audits are being performed by Charming Shoppes' corporate
audit department. Charming Shoppes cannot assure
46
<PAGE> 52
timely compliance of vendors and may be adversely affected by the failure of a
significant vendor to supply merchandise or services due to Year 2000 compliance
failures. Although Charming Shoppes values its relationship with significant
vendors, it may use an alternative vendor if it determines that a particular
vendor is unlikely to be Year 2000 compliant.
Costs
The total cost of Charming Shoppes' Year 2000 readiness program is
estimated at $6.6 million, of which approximately $1.3 million is for
replacement systems and the remainder is for remediation and upgrade costs.
To-date, $2.4 million of Year 2000 costs have been incurred, of which $2.1
million were incurred in the fiscal year ended January 30, 1999. Charming
Shoppes expects to fund the estimated balance of $4.2 million for its Year 2000
readiness program from operating cash flows. Charming Shoppes does not
anticipate delaying any significant information technology project as a result
of Charming Shoppes' Year 2000 compliance effort. Estimated future expenditures
are not expected to have a material adverse effect on Charming Shoppes'
financial position, results of operations, or cash flows.
Year 2000 Risk Assessment and Year 2000 Contingency Planning
Charming Shoppes is a retailer of women's apparel, and does not rely on
a single customer for any significant amount of sales. Charming Shoppes does not
sell products which use computer systems, embedded chip technology, or other
devices that may be sensitive to dates.
If Charming Shoppes does not complete a significant portion of its Year
2000 readiness program in a timely fashion, its financial condition may be
materially adversely impacted; however, management does not consider the
possibility of that occurrence to be likely at the present time. Charming
Shoppes anticipates that the most reasonably likely worst case scenarios
include, but are not limited to, loss of communications to the stores, loss of
utilities, and the inability to process customer transactions or engage in
normal business activity. Charming Shoppes is in the process of developing a
Year 2000 contingency plan, which is scheduled for completion during the third
quarter ending October 30, 1999. Despite these contingency plans, Charming
Shoppes may be adversely affected by the failure of significant third-party
vendors to become Year 2000 compliant.
Projected completion dates and the estimated costs of Charming Shoppes'
Year 2000 readiness program are based on management's best estimates for future
events and are forward- looking statements that may be updated as additional
information becomes available. These forward-looking statements may be affected
by various risks and uncertainties that could cause actual results to differ
materially from those indicated. These factors may include, but are not limited
to, the ability of Charming Shoppes, its critical vendors and service providers
to complete Year 2000 compliance remediation in a timely
47
<PAGE> 53
fashion, the ability to identify and correct all relevant computer codes and
embedded chips, delay in the rendition of remediation services provided by third
parties and disruptions to operations as a result of Year 2000 compliance
issues.
DESCRIPTION OF THE CERTIFICATES
OVERVIEW
The following statements about the certificates summarize the material
terms of the pooling agreement and the Series 1999-1 supplement, forms of which
are filed as exhibits to the registration statement of which this prospectus
forms a part.
When we discuss the amounts due to each class of certificateholders in
this prospectus, we also refer to the Investor Interest of each class. For each
class of certificates, the corresponding "Investor Interest" is calculated as
follows:
(1) the initial Investor Interest of the class, less
(2) all previous principal payments made to the class, less
(3) for Class B, C and D, all unreimbursed reductions to its
initial Investor Interest because of Principal Collections
being reallocated from that class as described in
"-Reallocations and Payments of Principal" below, less
(4) all unreimbursed Charge Offs for that class.
The Investor Interest for a class will also be reduced if the seller
purchases and cancels certificates of that class as described in "-Optional
Cancellation of Certificates by the Seller" below. The Investor Interest for a
class cannot be less than zero.
The Series 1999-1 Investor Interest is an amount equal to the sum of
the Investor Interests for each class of Series 1999-1.
The Class A and Class B certificates are the only certificates offered
by this prospectus. The offered certificates will evidence a beneficial interest
entitling the holder to a proportional share in the trust's assets and the right
to receive funds up to the amounts required to make payments of principal and
interest on the certificates. Payments will be made, if there are funds
available, on the fifteenth day of each month, or if that day is not a business
day, on the next business day. Each of these payment dates is called a
48
<PAGE> 54
distribution date. The first distribution date will be , 1999. Payments will be
made to offered certificateholders in whose names the offered certificates were
registered on the last business day of the calendar month preceding a
distribution date.
The seller holds a certificate called the "Exchangeable Seller
Certificate." The Exchangeable Seller Certificate represents an undivided
interest in the receivables. It includes the right to a percentage of all
accountholder payments on the receivables equal to 100% minus the sum of the
allocation percentages for all outstanding series. This percentage is called the
"Seller Percentage." The Exchangeable Seller Certificate may be transferred in
whole or in part to an affiliate of the seller. It may not be transferred to any
other person unless the seller consents to the transfer and the trustee receives
an opinion of counsel that the transfer will not adversely affect the federal
income tax characterization of the certificates of any outstanding certificate
series.
The offered certificates initially will be represented by certificates
registered in the name of Cede & Co. as nominee of DTC. Accordingly, Cede & Co.
will be the holder of the offered certificates. We refer to persons acquiring
beneficial interests in the offered certificates as certificate owners.
Certificate owners will not be entitled to receive a certificate representing
their interest in the offered certificates unless definitive certificates are
issued under the circumstances described in "The Pooling Agreement-Definitive
Certificates." Until that time, all references in this prospectus to actions by
certificateholders mean actions taken by DTC upon instructions from its
participants. Further, all references to distributions, notices, reports and
statements to certificateholders refer to distributions, notices, reports and
statements to DTC or Cede & Co. DTC will distribute this information to
certificate owners under DTC procedures.
The trustee will distribute principal and interest on the offered
certificates directly to DTC or the holders of definitive certificates, as the
case may be, under the procedures described in this prospectus. The trust will
make interest payments and any principal payments on each distribution date to
holders in whose names the offered certificates were registered at the close of
business on the last business day of the calendar month preceding that
distribution date. The trust will make distributions by wire transfer of federal
funds to the account and number specified in the register maintained by the
trustee or, if no account number is specified, by check mailed to the address of
a holder as it appears on that register. The trust will make the final payment
on any offered certificate, however, only upon presentation and surrender of
that certificate at the office or agency specified in the notice of final
distribution to offered certificateholders. The trustee will provide this notice
no later than the fifth day of the month of the final distribution.
49
<PAGE> 55
INTEREST PAYMENTS
Scheduled Interest
Interest will accrue on each class in Series 1999-1 during each
Interest Period at the interest rate specified for that class. An "Interest
Period" means, for each distribution date, the period from and including the
previous distribution date through the day preceding that distribution date. The
first Interest Period, however, will be the period from and including the
closing date through the day preceding the first distribution date.
Interest payable on each distribution date for each class is called its
"Class Monthly Interest." Class Monthly Interest will, except as noted below, be
calculated as follows:
days in Interest Period x Class Certificate Rate x Outstanding
Principal Balance of Class
360
where:
"Class Certificate Rate" = LIBOR + Applicable Spread.
The "Applicable Spread" for each class is as follows:
- Class A: [__]%
- Class B: [__]%
- Class C: The percentage described in the Class C
Purchase Agreement.
- Class D: The percentage described in the Class D
Purchase Agreement.
Outstanding Principal Balance of Class = (1) for Class A and
Class B, the outstanding principal balance of that class and
(2) for Class C and Class D, the Investor Interest of that
class, in each case, on the last business day of the calendar
month preceding that distribution date.
If Class A remains outstanding after [____________, 200_], its Class
Certificate Rate cannot exceed a per annum rate of [__]% for any Interest Period
ending after that date.
If Class B remains outstanding after [____________, 200_], its Class
Certificate Rate cannot exceed an annual rate of [__]% for any Interest Period
ending after that date.
50
<PAGE> 56
"LIBOR" = the rate for deposits in U.S. dollars for a
one-month period that appears on the Telerate Page 3750, or
similar replacement page, at 11:00 a.m., London time, on the
related LIBOR determination date. If that rate is not
available, LIBOR will be determined as described at the end of
this section.
The LIBOR determination dates are:
- for the first Interest Period
_________, 1999, for the period beginning on and
including _________, 1999 and ending on and
excluding _________, 1999; and
_________, 1999, for the period beginning on and
including ________, 1999 and ending on and excluding
the first distribution date; and
- for the remaining Interest Periods, the second London
business day before the first day of that Interest
Period.
If LIBOR cannot be determined using the Telerate Page 3750, it will be
determined as follows:
- on the basis of the rates at which deposits in U.S. dollars
are offered by the London office of four major banks in the
London interbank market, selected by the servicer, at
approximately 11:00 a.m., London time, on that day to prime
banks in the London interbank market for a one-month
period-using the arithmetic mean of the quotations given by
those banks. If fewer than two quotations are given, then
- the rate for that date will be the arithmetic mean of the
rates quoted by major banks in New York City, selected by the
servicer, at approximately 11:00 a.m., New York City time, on
that day for loans in U.S. dollars to leading European banks
for a one-month period.
You may obtain the certificate rates for any current and immediately
preceding interest period by telephoning the trustee at 215/985-7585.
Late Interest Payments
If the trust does not pay Class Monthly Interest to any class when due
on a distribution date, the amount not paid for that class, called its "Class
Deficiency Amount," will itself accrue monthly interest payable on the next
distribution date.
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<PAGE> 57
The amount of monthly interest payable on any Class Deficiency Amount
for a class called its "Class Additional Interest" will be calculated as
follows:
days in Interest Period x (1% + Class Certificate Rate)
-----------------------
x Class Deficiency Amount
360
INTEREST RATE CAP AGREEMENTS
To provide additional enhancement for the offered certificates, on or
before the closing date the trust will enter into two interest rate cap
agreements with [name of counterparty].
One interest rate cap is for the benefit of Class A. The other is for
the benefit of Class B. Each cap agreement will require its counterparty to make
a payment to the trust on a distribution date when LIBOR has exceeded the rate
specified in that agreement for the related Interest Period.
When a payment is required on a distribution date, the "Class A Cap
Payment" or "Class B Cap Payment," as applicable, will be calculated as follows:
days in Interest Period x Cap Rate x Cap Notional Amount
-----------------------
360
where:
Cap Rate = LIBOR - Specified Rate
Specified Rate:
- Class A Cap= [__]%
- Class B Cap= [__]%
Cap Notional Amount:
- Class A Cap = outstanding principal balance of Class A
- Class B Cap = outstanding principal balance of Class B
Class A Cap Payments will be included in Class A Available Funds. Class
B Cap Payments will be included in Class B Available Funds.
The Class A Cap will terminate on Class A's expected final payment
date. Similarly, the Class B Cap will terminate on Class B's expected final
payment date. Once an interest rate cap agreement has terminated, the Class
Certificate Rate for the class benefitted by that agreement may not exceed its
specified rate listed above.
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<PAGE> 58
The trust can only enter into and maintain interest rate cap agreements
with counterparties whose unsecured, unguaranteed, short-term debt carries a
rating of P-1 by Moody's and a rating of A-1+, for the Class A counterparty, or
A-1, for the Class B counterparty, by Standard & Poor's or whose obligations are
guaranteed by an entity whose short-term debt carries those ratings. If one of
these rating agencies withdraws or lowers its rating for the counterparty, the
servicer may obtain a replacement interest rate cap from a counterparty having
the required credit ratings. Alternatively, it may enter into an arrangement
satisfactory to the rating agencies that have rated certificates issued by the
trust.
If the servicer does not comply with the conditions in the previous
paragraph, an Early Amortization Event will occur.
An Early Amortization Event will also occur if a counterparty fails to
make a Class A Cap Payment or a Class B Cap Payment to the trust within 5
calendar days of when due. See "-Early Amortization Events" below.
PRINCIPAL PAYMENTS
The trustee will apply Available Principal Collections on each
distribution date as described in this section.
"Available Principal Collections" for any distribution date are an
amount equal to the sum of
(1) the Principal Allocation Percentage of all collections of
principal receivables received during the related Due Period,
minus the amount of all Series 1999-1 Principal Collections
reallocated as described in "-Reallocations and Payments of
Principal" below, and
(2) any shared principal collections that are allocated to Series
1999-1 as described in "-Series Shared Principal Collections"
below.
A "Due Period" is a period running from the last day of the last
monthly billing cycle in a month to the last day of the last monthly billing
cycle in the next month.
The Revolving Period
The "Revolving Period" for Series 1999-1 is the period from the closing
date to the beginning of the Controlled Amortization Period or, if earlier, the
Early Amortization Period. During the Revolving Period, no principal payments
will be made to Series 1999-1 certificateholders. All Available Principal
Collections for a Due Period during the Revolving Period will be applied on the
related distribution date as follows:
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<PAGE> 59
- as required by the certificate purchase agreements for the
Class C certificates and the Class D certificates
- as shared principal collections applied to other series in
group one that are principal sharing series
- as payment on the Exchangeable Seller Certificate, unless
needed to fund the excess funding account.
The Controlled Amortization Period and Early Amortization Period
The "Controlled Amortization Period" is scheduled to commence on
___________, 200_, and will continue until payment in full of the offered
certificates unless the Early Amortization Period begins. If an Early
Amortization Period begins before the scheduled beginning of the Controlled
Amortization Period, there will not be a Controlled Amortization Period for
Series 1999-1.
During the Controlled Amortization Period, the trust will pay principal
only to the Class A certificateholders until the Class A expected final payment
date. Next, the trust will pay principal to the Class B certificateholders until
the Class B expected final payment date. The failure to pay either class in full
on its expected final payment date is one of the events that will start the
Early Amortization Period.
If an Early Amortization Event occurs, the "Early Amortization Period"
will begin and will continue until the earliest to occur of the Series 1999-1
termination date, the date on which the trust terminates and the date on which
Series 1999-1 is paid in full.
Class A certificateholders will be entitled to begin receiving
principal payments on the distribution date following the Due Period in which
the earlier of the Controlled Amortization Period or Early Amortization Period
begins. The amount of monthly principal distributable on that distribution date
and each other distribution date during the Controlled Amortization Period and
the Early Amortization Period is referred to as "Class A Monthly Principal," and
will equal the least of:
(1) the Available Principal Collections then on deposit in the
collection account,
(2) during the Controlled Amortization Period, the Controlled
Payment Amount, and
(3) the outstanding Investor Interest for Class A after taking
into account any adjustments to be made on that distribution
date for Charge-Offs.
The "Controlled Payment Amount" on any distribution date for the
Controlled Amortization Period will equal the sum of the Controlled Amortization
Amount for that date and
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<PAGE> 60
any portion of the Controlled Amortization Amount for any previous Due Period
not previously distributed to the Class A certificateholders.
The "Controlled Amortization Amount" means $______.
The amount of monthly principal distributable to the Class B
certificates on each distribution date is referred to as the Class B Monthly
Principal. Beginning with the distribution date following the Due Period in
which the Investor Interest for Class A has been paid in full or, during an
Early Amortization Period, beginning on the distribution date on which the
Investor Interest for Class A is paid in full, the "Class B Monthly Principal"
will be an amount equal to the lesser of:
(1) the Available Principal Collections then on deposit in the
collection account, after making any payment of Class A
Monthly Principal, and
(2) the Investor Interest for Class B after taking into account
any adjustments to be made on that distribution date for
Charge-Offs and reallocations of principal collections.
The Class B certificateholders are expected to receive a distribution
of Available Principal Collections equal to the amount of the Investor Interest
for Class B on the Class B expected final payment date.
Optional Cancellation of Certificates by the Seller
The seller may on any distribution date repurchase Series 1999-1
certificates on the secondary market and have the trustee cancel any
certificates repurchased. Cancellation of certificates in a class will
proportionately reduce the Investor Interest of that class of certificates. The
seller may not cause the cancellation of any certificates of a subordinated
class unless following the cancellation, the Class Investor Interest of that
class, expressed as a percentage of the current Series 1999-1 Investor Interest,
is at least equal to the percentage of the Series 1999-1 Investor Interest which
that class initially represented. These percentages are described in "Summary of
Series 1999-1 Terms." For purposes of this prospectus, the principal paid by the
seller for the cancelled certificates will be treated as a payment of principal
by the trust.
Series 1999-1 Termination Date
If the Series 1999-1 Investor Interest is not paid in full by the
Series 1999-1 termination date, the trustee will sell, or cause to be sold, an
amount of principal receivables and related finance charge receivables up to
110% of the Series 1999-1 Investor Interest at the close of business on that
date. The proceeds of that sale will be allocated in the same priority as
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collections, in an amount up to the sum of all principal and accrued interest on
the Series 1999-1 certificates, and all accrued and unpaid fees and expenses and
unreimbursed Series 1999-1 Investor Loss Amounts and Series 1999-1 Investor
Dilution Amounts to the extent reimbursable under the Series 1999-1 supplement.
The seller will be permitted to purchase those receivables being sold, and will
have a right of first refusal. The application of the sale proceeds will
constitute full and final payment of the Series 1999-1 certificates and related
amounts, even if Series 1999-1 certificates have not been paid in full.
ALLOCATION PERCENTAGES
Series Allocations
On each business day, the servicer will allocate to each series
outstanding and to the Seller Interest all collections of finance charge
receivables and principal receivables. On each distribution date, the servicer
will also allocate to each series outstanding and to the Seller Interest the
Loss Amounts for the previous Due Period. The servicer will make these
allocations based on the applicable series allocation percentage for each series
as determined from the relevant series supplements and receivables purchase
agreements, and based on the Seller Percentage for the Exchangeable Seller
Certificate. The servicer will also allocate Dilution Amounts to each series on
each distribution date according to the procedures described in "The Pooling
Agreement-Loss Amount; Dilution Amounts" below.
The series allocation percentage used for Series 1999-1 to allocate
collections of finance charge receivables and the Loss Amount for any Due Period
is the Floating Allocation Percentage.
The "Floating Allocation Percentage" means, for any day during a Due
Period, the percentage equivalent of a fraction:
- the numerator of which is the Series 1999-1 Investor Interest
on the last day of the previous Due Period or for the first
Due Period ending after the Closing Date, the Series 1999-1
initial Investor Interest, and
- the denominator of which is the greater of
(1) the sum of (A) the aggregate amount of principal
receivables in the trust at the end of the last day of the
previous Due Period or for the first Due Period ending after
the Closing Date, at the end of the day on the Closing Date
and (B) the amount on deposit in the excess funding account at
the close of business of the last day of the previous Due
Period, and
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(2) the sum of the numerators used to calculate the series
allocation percentages for finance charge receivables or Loss
Amounts, as applicable, for all certificate series and
receivables purchase series outstanding for that Due Period.
The denominator used in calculating the Floating Allocation Percentage
however, will be adjusted for any Due Period in which an Addition Date or
Removal Date occurs as follows:
- if the servicer is required to make daily deposits to the
collection account, the amount in clause (1) (A) of the
denominator will be:
(a) the aggregate amount of principal receivables in the
trust at the end of the day on the last day of the previous
Due Period or most recent Addition Date or Removal Date, as
applicable, for the period from and including the first day of
that Due Period or most recent Addition Date or Removal Date,
as applicable, to but excluding the related Addition Date or
Removal Date and
(b) the aggregate amount of principal receivables in the trust
at the end of the day on the related Addition Date or Removal
Date for the period from and including the related Addition
Date or Removal Date to and including the last day of that Due
Period or to and excluding the next Addition Date or Removal
Date, as applicable,
- otherwise, the amount in clause (1) (A) of the denominator
will be the weighted average outstanding balance of principal
receivables in the trust during that Due Period.
The series allocation percentage used for Series 1999-1 to allocate
collections of principal receivables for any Due Period is the Principal
Allocation Percentage.
The "Principal Allocation Percentage" means, (1) for any day during a
Due Period occurring before the Fixed Principal Allocation Date, the Floating
Allocation Percentage for that Due Period, and (2) for any day during a Due
Period occurring on or after the Fixed Principal Allocation Date, the Fixed
Allocation Percentage for that Due Period.
The "Fixed Allocation Percentage" is the percentage equivalent - which
percentage may never exceed 100%- of a fraction:
- the numerator of which is the Series 1999-1 Investor Interest
on the last day of the Due Period occurring immediately before
to the Fixed Principal Allocation Date, and
- the denominator of which is the greater of
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(1) the sum of (A) the aggregate amount of principal
receivables in the trust at the end of the day on the last day
of the previous Due Period and (B) the amount on deposit in
the excess funding account at the end of the day on that date
and
(2) the sum of the numerators used to calculate the series
allocation percentages for principal receivables for all
certificate series and receivables purchase series outstanding
for that Due Period.
The denominator of the Fixed Allocation Percentage however, will be
adjusted the same way that the denominator for the Floating Allocation
Percentage is adjusted for any Due Period in which an Addition Date or Removal
Date occurs.
The "Fixed Principal Allocation Date" is the earlier of (a) the date on
which the Early Amortization Period begins, and (b) the date on which the
Controlled Amortization Period begins.
Class Allocations
The Servicer will further allocate collections of principal receivables
and finance charge receivables allocated to Series 1999-1, the Series 1999-1
Investor Loss Amount and the Series 1999-1 Investor Dilution Amount among each
class of Series 1999-1 according to its Class Allocation. The servicer will make
this allocation among the classes on a daily basis, by allocating each day's
collections before the close of business on which those collections are
deposited into the collection account.
The "Class Allocation" equals, for each class and each Due Period:
- for the purpose of allocating Series 1999-1 Investor Loss
Amounts, Series 1999-1 Investor Dilution Amounts, collections
of finance charge receivables allocated to Series 1999-1 at
any time and collections of principal receivables allocated to
Series 1999-1 during the Revolving Period, its Class Floating
Allocation, and
- for the purpose of allocating collections of principal
receivables allocated to Series 1999-1 during the Controlled
Amortization Period or Early Amortization Period, its Class
Fixed Allocation.
The "Class Floating Allocation" means, for each class and each Due
Period, the percentage equivalent -which may not exceed 100%- of a fraction:
- the numerator of which is its Investor Interest at the close
of business on the last day of the preceding Due Period, and
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- the denominator of which is equal to the Series 1999-1
Investor Interest at the close of business on that day.
For the first Due Period, however, the initial Investor Interest for
each class will be used in the numerator and the initial Series 1999-1 Investor
Interest will be used in the denominator.
The "Class Fixed Allocation" means, for each class and each Due Period
other than a Due Period relating to the Revolving Period, the percentage
equivalent -which may not exceed 100%- of a fraction:
- the numerator of which is its Investor Interest at the close
of business on the last day of the Revolving Period, and
- the denominator of which is equal to the Series 1999-1
Investor Interest at the close of business on the last day of
the Due Period occurring immediately before the Fixed
Principal Allocation Date.
A collection processed on an account in excess of the aggregate amount
of receivables in that account when received by the originator, seller, servicer
or trustee will be deemed to be a payment of principal receivables to the extent
of the excess.
SERVICING FEES
The portion of the monthly servicing fee payable by Series 1999-1 to
the servicer for each Due Period, called the "Series 1999-1 Servicing Fee" will
equal one-twelfth of the product of (1) 2% and (2) an amount equal to the
servicing base amount for the Due Period. The servicing base amount for any Due
Period equals the remainder of (a) the Series 1999-1 Investor Interest
determined on the last day of that Due Period minus (b) the product of the
amount on deposit in the excess funding account on the last day of that Due
Period times the Principal Allocation Percentage for that Due Period. The Series
1999-1 Servicing Fee, however, will be prorated for the first Due Period.
The Series 1999-1 Servicing Fee for each Due Period will be allocated
among each class and will be payable on the related distribution date out of
amounts allocated to Series 1999-1 as described below under "-Application of
Collections."
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The servicer will allocate the Series 1999-1 Servicing Fee to each
class in Series 1999-1 for each Due Period by multiplying its Class Floating
Allocation times 2% times the servicing base amount for that Due Period.
However, the servicing fee allocable to each class for the first Due Period will
be prorated. The portion of the fee allocated to each class is called its "Class
Servicing Fee."
The Class Servicing Fee owed by the holders of any class will be
payable only if sufficient collections are allocated and available as described
under "-Application of Collections" and "-Reallocations and Payments of
Principal" below.
APPLICATION OF COLLECTIONS
Available Funds. To understand the allocation of Available Funds, you
need to understand the following definitions:
"Class Available Funds" means, for each class and each distribution
date, an amount equal to the sum of:
(1) its Class Floating Allocation of the collections of finance charge
receivables allocated to the Series 1999-1 certificates and deposited
in the collection account for the related Due Period,
(2) plus for Class A, if the distribution date is on or before the
Class A expected final payment date, the amount of any Class A Cap
Payment received on that distribution date, plus any overdue payment on
the Class A cap received since the last distribution date,
(3) plus for Class B, if the distribution date is on or before the
Class B expected final payment date, the amount of any Class B Cap
Payment received on that distribution date, plus any overdue payment on
the Class B cap received since the last distribution date.
"Available Funds" means the sum of the Class Available Funds for Class
A, B, C and D.
On each distribution date, the trustee, acting on the servicer's
instructions, will apply Available Funds in the following order:
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(A) for Class A, an amount equal to its Class Available Funds
will be distributed in the following priority:
(1) the sum of its Class Monthly Interest, any Class
Deficiency Amount and any Class Additional Interest for Class
A will be distributed to the Class A certificateholders;
(2) its Class Servicing Fee, plus any of its unpaid
Class Servicing Fee from any previous distribution date, will
be distributed to the servicer;
(3) an amount equal to the Investor Loss Amount for
Class A will be treated as Available Principal Collections;
(4) an amount equal to the Investor Dilution Amount
for Class A will be treated as Available Principal
Collections; and
(5) the balance, if any, will constitute Excess
Spread and will be allocated and distributed as described
under "-Excess Spread; Shared Excess Finance Charge
Collections" below.
(B) for Class B, an amount equal to its Class Available Funds
will be distributed in the following priority:
(1) the sum of its Class Monthly Interest, any Class
Deficiency Amount and any Class Additional Interest will be
distributed to the Class B certificateholders;
(2) its Class Servicing Fee, plus any of its unpaid
Class Servicing Fee from any previous distribution date, will
be distributed to the servicer; and
(3) the balance, if any, will constitute Excess
Spread and will be allocated and distributed as described
under "-Excess Spread; Shared Excess Finance Charge
Collections" below.
(C) for Class C, an amount equal to its Class Available Funds
will be distributed in the following priority:
(1) the sum of its Class C Servicing Fee, plus any of
its unpaid Class Servicing Fee from any previous distribution
date, will be distributed to the servicer; and
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(2) the balance, if any, will constitute Excess
Spread and will be allocated and distributed as described
under "-Excess Spread; Shared Excess Finance Charge
Collections" below.
(D) for Class D, an amount equal to its Class Available Funds
will be distributed in the following priority:
(1) the sum of its Class D Servicing Fee, plus any of
its unpaid Class Servicing Fee from any previous distribution
date, will be distributed to the servicer; and
(2) the balance, if any, will constitute Excess
Spread and will be allocated and distributed as described
under "-Excess Spread; Shared Excess Finance Charge
Collections" below.
"Excess Spread" means, for each distribution date, an amount equal to
the sum of the amounts described in clauses (A)(5), (B)(3), (C)(2) and (D)(2)
above.
Excess Spread; Shared Excess Finance Charge Collections. On each
distribution date, the trustee, acting on the servicer's instructions, will
apply Excess Spread and Shared Excess Finance Charge Collections allocated to
Series 1999-1 for the related Due Period to make the following distributions in
the following order:
(a) (1) the amount necessary to pay the Class Monthly
Interest, Class Deficiency Amount, Class Additional Interest and Class
Servicing Fee for Class A will be applied to these items, in that order
of priority, and (2) an amount equal to any unfunded Investor Loss
Amount and Investor Dilution Amount for Class A will be treated as
Available Principal Collections;
(b) an amount equal to the aggregate amount of Class Investor
Charge-Offs for Class A which have not been previously reimbursed will
be treated as Available Principal Collections;
(c) (1) the amount necessary to pay the Class Monthly
Interest, Class Deficiency Amount, Class Additional Interest and Class
Servicing Fee for Class B will be applied to these items, in that order
of priority, and (2) an amount equal to the Investor Loss Amount and
Investor Dilution Amount for Class B will be treated as Available
Principal Collections;
(d) the aggregate amount by which the Investor Interest for
Class B has been reduced below the Class B initial Investor Interest
for reasons other than the
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payment of principal, if not previously reimbursed, will be treated as
Available Principal Collections;
(e) an amount equal to any unpaid Class Servicing Fee for
Class C, after applying its Class Available Funds, will be paid to the
servicer;
(f) the sum of the Class Monthly Interest plus any Class
Deficiency Amount for Class C will be distributed to the Class C
certificateholders;
(g) an amount equal to the Investor Loss Amount for Class C
will be treated as Available Principal Collections;
(h) an amount equal to the Investor Dilution Amount for Class
C will be treated as Available Principal Collections;
(i) an amount equal to the aggregate amount by which the
Investor Interest for Class C has been reduced below its initial
Investor Interest for reasons other than payment of principal, if not
previously reimbursed, will be treated as Available Principal
Collections;
(j) an amount equal to any unpaid Class Servicing Fee for
Class D, after applying its Class Available Funds, will be paid to the
servicer;
(k) the Class Monthly Interest plus any past due Class Monthly
Interest for Class D will be distributed to the Class D
certificateholders;
(l) an amount equal to the Investor Loss Amount for Class D
will be treated as Available Principal Collections;
(m) an amount equal to the Investor Dilution Amount for Class
D will be treated as Available Principal Collections;
(n) an amount equal to the aggregate amount by which the
Investor Interest for Class D has been reduced below its initial
Investor Interest for reasons other than the payment of principal, if
not previously reimbursed, will be treated as a portion of Available
Principal Collections;
(o) an amount equal to the aggregate of any other amounts then
due to the Class C certificateholders or required to be applied out of
Excess Spread and Shared Excess Finance Charge Collections allocated to
Series 1999-1 will be so applied; and
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(p) any balance will constitute a portion of Shared Excess
Finance Charge Collections and will be available for allocation to
other series in group one and, if not required to be applied as Shared
Excess Finance Charge Collections, will be distributed to the holder of
the Exchangeable Seller Certificate or any other person entitled to be
paid these amounts.
Amounts specified to be treated as Available Principal Collections in
this section will be applied as described in clause (B) or (C), as applicable,
of "-Reallocations and Payments of Principal" below.
REALLOCATIONS AND PAYMENTS OF PRINCIPAL
On each day that collections are deposited into the collection account,
the servicer will make a preliminary allocation of collections processed for
principal receivables on that day. The Servicer will allocate these collections
among each series and then among each class within each series. The Servicer
will allocate the Series 1999-1 percentage of these collections to the Series
1999-1 certificateholders.
On each distribution date, following the allocation of Available Funds
described above, the trustee, acting on the servicer's instructions, will
reallocate collections of principal receivables initially allocated to Series
1999-1, the "Series 1999-1 Principal Collections", in the following order:
(A) (i) if Class A Available Funds and Excess Spread and
Shared Excess Finance Charge Collections available to fund the Class
Monthly Interest, Class Deficiency Amount, Class Additional Interest,
Class Servicing Fee, Investor Loss Amount and Investor Dilution Amount
for Class A are insufficient to fund those amounts, then Class
Allocations of Series 1999-1 Principal Collections will be reallocated
as follows:
- from Class D until fully applied, then
- from Class C until fully applied, then
- from Class B until fully applied.
These reallocated principal collections will be used to pay
the required amounts for Class A in the order of clauses (A) (1), (2),
(3) and (4) under "-Available Funds" above.
(ii) if Class B Available Funds and Excess Spread and Shared
Excess Finance Charge Collections available to fund the Class Monthly
Interest, Class Deficiency
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Amount, Class Additional Interest, Class Servicing Fee, Investor Loss
Amount and Investor Dilution Amount for Class B are insufficient to
fund these amounts, then Class Allocations of Series 1999-1 Principal
Collections that remain after reallocation in clause (i) above will be
reallocated as follows:
- from Class D until fully applied, then
- from Class C until fully applied.
These reallocated principal collections will be used to pay
the required amounts for Class B in the order of clauses (1) and (2)
under "-Available Funds" and then under clause (c)(2) of "-Excess
Spread; Shared Excess Finance Change Collections" above.
(iii) if Class C Available Funds and Excess Spread and Shared
Excess Finance Charge Collections available to fund the Class Monthly
Interest, Class Deficiency Amount, Class Servicing Fee, Investor Loss
Amount and Investor Dilution Amount for Class C are insufficient to
fund this amount, then Class Allocations of Series 1999-1 Principal
Collections for Class D that remain after reallocation in clauses (i)
and (ii) above will be reallocated to the extent necessary to pay Class
Servicing Fee for Class C and the other amounts listed above in the
priority listed.
On each distribution date, the Investor Interest for Class D,
Class C and Class B will be reduced by the amount, if any, of Series
1999-1 Principal Collections allocated to that class that has been
reallocated as provided above.
(B) On each distribution date during the Revolving Period,
following the reallocations and distributions made under subsection (A)
above, Available Principal Collections will be distributed in the
following order:
(1) any amounts required to be applied on that date
from Available Principal Collections under the certificate
purchase agreements for Class C and Class D will be so
applied;
(2) an amount equal to the product of the Cumulative
Principal Shortfall multiplied by a fraction, the numerator of
which is the remaining Available Principal Collections on that
distribution date and the denominator of which is the sum of
the available principal collections available for sharing for
each series in group one that is a principal sharing series,
will then be treated as shared principal collections and
applied to other series in group one; and
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(3) remaining Available Principal Collections on that
distribution date will then be paid to the holder of the
Exchangeable Seller Certificate in an amount up to the Seller
Interest, except when necessary to fund a shortfall in the
excess funding account.
(C) On each distribution date during the Controlled
Amortization Period, beginning with the distribution date following the
month in which the Controlled Amortization Period begins, or on each
distribution date during the Early Amortization Period, (1) following
the determination and allocation of all Charge-Offs for that
distribution date and (2) the reallocations and distributions made
under subsection (A) above, Available Principal Collections for the
related Due Period will be distributed in the following order:
(1) an amount equal to the Class A Monthly Principal
will be distributed to the Class A certificateholders;
(2) during the Controlled Amortization Period,
beginning with the distribution date following the Due Period
in which the Investor Interest for Class A has been paid in
full, and, during the Early Amortization Period, beginning
with the distribution date on which the Investor Interest for
Class A has been paid in full, an amount equal to the Class B
Monthly Principal will be distributed to the Class B
certificateholders;
(3) beginning with the distribution date on which the
Investor Interest for Class B has been paid in full, an amount
equal to the Investor Interest for Class C will be distributed
to the Class C certificateholders;
(4) beginning with distribution date on which the
Investor Interest for Class C has been paid in full, an amount
equal to the Investor Interest for Class D will be distributed
to the Class D certificateholders;
(5) an amount equal to any amounts required to be
applied from Available Principal Collections on that date
under the Class C certificate purchase agreement and then
under the Class D certificate purchase agreement will be so
applied;
(6) an amount equal to the product of the Cumulative
Principal Shortfall multiplied by a fraction the numerator of
which is Available Principal Collections remaining after the
application specified in the preceding clauses of this
subsection (C) above, and the denominator of which is the sum
of the Available Principal Collections available for sharing
for each series in group one that is a principal sharing
series, will be treated as shared principal collections and
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applied to series in group one which are principal sharing
series other than Series 1999-1; and
(7) any remaining Available Principal Collections for
that distribution date will be paid to the holder of the
Exchangeable Seller Certificate, except when necessary to fund
a shortfall in the excess funding account.
The amounts that the servicer collects, net of out-of-pocket costs of
collection, from receivables previously charged off are net recoveries. Amounts
the servicer recovers under any credit life, credit disability or unemployment
insurance policies covering any obligor on an account are insurance proceeds.
If the sum of insurance proceeds and other net recoveries received from
receivables during any Due Period exceeds the Loss Amount for that Due Period
and any previous Due Periods, that excess will be distributed to the seller and
will not be available to make payments on Series 1999-1.
SERIES SHARED EXCESS FINANCE CHARGE COLLECTIONS
On any distribution date, there may be Available Funds remaining on
deposit in the collection account after giving effect to the distributions
described in clauses (a) through (o) under "-Application of Collections-Excess
Spread; Shared Excess Finance Charge Collections". These excess amounts, if any,
will constitute a portion of Shared Excess Finance Charge Collections for that
distribution date and will be available for allocation to other certificate
series in group one. If these amounts are not required to be applied as Shared
Excess Finance Charge Collections for any series in group one, they will be
distributed to the holder of the Exchangeable Seller Certificate or any other
person then entitled to receive them.
When Series 1999-1 is issued, group one will consist of Series 1999-1,
Series 1999-2 and Series 1997-1. All or some of the subsequently issued series
may also be included in group one.
"Shared Excess Finance Charge Collections" are collections of finance
charge receivables allocated to any series in group one, to the extent they
exceed the amounts necessary to make required payments for that series,
including payments to any related enhancement provider.
Shared Excess Finance Charge Collections for the series in group one
for any distribution date will be allocated to Series 1999-1 in an amount equal
to the product of:
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(1) the aggregate amount of Shared Excess Finance Charge
Collections for all series in group one, and
(2) a fraction the numerator of which is the Series 1999-1
Finance Charge Shortfall for that distribution date and the
denominator of which is the aggregate amount of Finance Charge
Shortfalls for all series in group one for that distribution
date.
The "Series 1999-1 Finance Charge Shortfall" for any distribution date
will be equal to the amount by which the full amount to be paid - without
duplication - under clauses (a) through (o) under "-Application of
Collections-Excess Spread; Shared Excess Finance Charge Collections" above on
that distribution date exceeds the Excess Spread for that distribution date.
"Finance Charge Shortfall" means for any other certificate series, the amount
specified in the related Supplement as a "Finance Charge Shortfall" for that
certificate series. The trust will distribute Shared Excess Finance Charge
Collections allocated to Series 1999-1 to the holders of Series 1999-1
certificates described above under "-Application of Collections- Excess Spread;
Shared Excess Finance Charge Collections."
The servicer may terminate the sharing of Shared Excess Finance Charge
Collections among the series in group one if, in the reasonable belief of the
seller or its counsel, continued sharing would have adverse regulatory
implications to the seller or the originator.
SERIES SHARED PRINCIPAL COLLECTIONS
Certificate series in group one also share shared principal
collections. Collections of principal receivables for any Due Period allocated
to the investor interest of any certificate series in group one will first be
used to cover the amounts required in the related supplement, including any
required deposits into a principal funding account or required distributions.
Any excess will be treated as "shared principal collections." The servicer will
allocate the shared principal collections to cover any Principal Shortfalls for
other certificate series in group one. A "Principal Shortfall" occurs for a
series when the principal receivables allocated to that series in a Due Period
do not cover required principal distributions to investor certificateholders and
deposits to principal funding accounts.
The seller also may apply shared principal collections from a series on
a daily basis to pay down the principal balance of a variable funding
certificate if:
- the terms of that series permit daily application of shared
principal collections and
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- assuming that the early amortization period will not have
commenced, the trust will have sufficient funds to make all
required principal payments on each series in a controlled
amortization period on the next distribution date.
Series 1999-1 permits the daily application of shared principal
collections.
If Principal Shortfalls exceed shared principal collections for any Due
Period, shared principal collections will be allocated proportionately among the
certificate series in group one based on their respective Principal Shortfalls.
If shared principal collections exceed Principal Shortfalls, the balance will be
allocated to the holder of the Exchangeable Seller Certificate or, to the extent
the Seller Interest is less than the Required Seller Interest, to the excess
funding account. Shared principal collections for any distribution date will be
allocated to Series 1999-1 in an amount equal to the product of:
(1) the aggregate amount of shared principal collections from all
series in group one that are entitled to receive shared principal
collections, called principal sharing series, and
(2) a fraction the numerator of which is the Series 1999-1 Principal
Shortfall for that distribution date and the denominator of which is
the Cumulative Principal Shortfall for that distribution date.
A "Series 1999-1 Principal Shortfall" includes:
(1) on any distribution date for the Controlled Amortization Period,
the amount by which the Controlled Payment Amount for the previous Due
Period exceeds the amount of Available Principal Collections for that
distribution date, excluding any portion attributable to shared
principal collections;
(2) on the Class B expected final payment date, the amount by which the
Investor Interest for Class B exceeds the amount of Available Principal
Collections for that distribution date, excluding any portion of that
amount attributable to shared principal collections; and
(3) on any distribution date for the Early Amortization Period, the
amount by which the Series 1999-1 Investor Interest exceeds the
Available Principal Collections for that distribution date, excluding
any portion of that amount attributable to shared principal
collections.
The "Cumulative Principal Shortfall" means the sum of the Series 1999-1
Principal Shortfall plus the Principal Shortfalls, as that term is defined for
each other certificate series in group one that is a principal sharing series.
Shared principal collections allocated to Series 1999- 1 on any
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distribution date will be treated as part of Available Principal Collections for
that distribution date and distributed among the holders of Series 1999-1
certificates as described above under "-Application of Collections" and
"-Reallocations and Payments of Principal."
On the second business day before each distribution date during the
Controlled Amortization Period or during any Early Amortization Period, the
servicer will determine whether a Principal Shortfall exists for any principal
sharing series. If a Principal Shortfall does exist, then the servicer will
instruct the trustee to withdraw from the excess funding account an amount equal
to that Principal Shortfall on the related distribution date. The trustee will
include the withdrawn amount in shared principal collections for that
distribution date, to be distributed among each certificate series, including
Series 1999-1, entitled to share in shared principal collections on that
distribution date.
If not needed to fund any Cumulative Principal Shortfall, shared
principal collections from Series 1999-1 will be distributed to the holder of
the Exchangeable Seller Certificate, except where necessary to fund a shortfall
in the excess funding account. See "The Pooling Agreement-Excess Funding
Account."
INVESTOR CHARGE-OFFS
Loss Amounts and Dilution Amounts are described in "The Pooling
Agreement-Loss Amount; Dilution Amounts." The Dilution Amount allocated to
Series 1999-1 and the calculation of any Unfunded Seller Dilution Amount are
also described in that section. The allocation of Loss Amounts to Series 1999-1
and each class within Series 1999-1 are described in "Description of the
Certificates-Allocation Percentages" above. When we refer to (1) the "Series
1999-1 Investor Loss Amount" for any Due Period, we mean the Loss Amount
allocated to Series 1999-1, and (2) the "Investor Loss Amount" for any class for
any Due Period, we mean the Series 1999-1 Investor Loss Amount allocated to that
class.
When we refer to (1) the "Series 1999-1 Investor Dilution Amount" for
any Due Period, we mean the Series Dilution Amount allocated to Series 1999-1,
and (2) the "Investor Dilution Amount" for any class for any Due Period, we mean
the Series 1999-1 Investor Dilution Amount allocated to that class.
An amount equal to the sum of the Investor Loss Amount and the Investor
Dilution Amount for each class will be paid from Available Funds, for Class A
only, Excess Spread and Shared Excess Finance Charge Collections allocated to
Series 1999-1 and from Reallocated Principal Collections, if applicable for that
class, and applied as described above under "-Application of Collections."
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Classes A through D absorb excess losses and dilution in inverse order
of their payment priority. This means that Class B will only be reduced for
losses and dilutions allocated to Class A and Class B once Class C and Class D
have been reduced to zero. Class A will only be reduced for losses and dilutions
allocable to Class A once Classes B, C and D have been reduced to zero. Actual
reductions to each class are described in this section.
These reductions will only occur on a class if allocations of Class
Available Funds, Excess Spread and Shared Excess Finance Charge Collections, and
reallocations of Principal Collections for the benefit of that class, are
insufficient to cover losses and dilution which that class is required to cover.
The Investor Interest for Class D will be reduced, but not below zero,
on each distribution date, for the following uncovered amounts in the following
priority:
(1) any uncovered Investor Loss Amount for Class D;
(2) any Unfunded Seller Dilution Amount;
(3) any uncovered Investor Loss Amount for Class A;
(4) any uncovered Investor Loss Amount for Class B;
(5) any uncovered Investor Loss Amount for Class C.
After giving effect to reductions to the Investor Interest for Class D,
the Investor Interest for Class C will be reduced, but not below zero, on each
distribution date, for the following uncovered amounts in the following
priority:
(1) any uncovered Investor Loss Amount for Class C;
(2) any Unfunded Seller Dilution Amount;
(3) any uncovered Investor Loss Amount for Class A;
(4) any uncovered Investor Loss Amount for Class B.
After giving effect to reductions to the Investor Interest for Class C
and D, the Class Investor Interest for Class B will be reduced, but not below
zero, on each distribution date, for the following uncovered amounts in the
following priority:
(1) any uncovered Investor Loss Amount for Class B;
(2) any Unfunded Seller Dilution Amount;
(3) any uncovered Investor Loss Amount for Class A.
After giving effect to reductions to the Class Investor Interest for
Classes B, C and D, the Class Investor Interest for Class A will be reduced, but
not below zero, on each distribution date, for the following uncovered amounts
in the following priority:
(1) any uncovered Investor Loss Amount for Class A;
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(2) any Unfunded Seller Dilution Amount.
If the Investor Interest for any class is reduced, it will be
reinstated on any distribution date by the amount of Excess Spread and Shared
Excess Finance Charge Collections allocated and available for that purpose as
described in under "-Application of Collections - Excess Spread; Shared Excess
Finance Charge Collections."
The amount of any reduction to a class on any distribution date is
called the "Class Investor Charge-Off" for that class. The Class Investor
Charge-Offs for all classes on a distribution date are called "Charge-Offs."
PAIRED SERIES
With the consent of the Class C certificateholders, the Series 1999-1
certificates may be paired with one or more new series in group one issued as
described in "The Pooling Agreement-Issuance of Additional Series." We refer to
the additional series, not including Series 1999-1, as the paired series.
A paired series may be funded with an initial deposit to a prefunding
account in an amount up to the initial principal balance of that paired series
from the proceeds of the sale of the certificates related to the paired series.
Any prefunding account for a paired series will be held for the benefit of the
paired series and not for the benefit of Series 1999-1 certificateholders. The
maximum prefunding period for any paired series will not exceed one year. As
principal payments are made on Series 1999-1, an equal amount of funds in any
prefunding account for that paired series will be released and distributed under
the paired series and the series investor interest of that paired series will
increase by a corresponding amount.
Alternatively, a paired series may be funded through the issuance of a
series with a variable principal amount that is funded incrementally. As
principal payments are made on Series 1999-1, an interest in that paired series
in an equal or lesser amount may be sold by the trust. Proceeds of that sale
will be distributed under the paired series and the series investor interest of
that paired series will increase by a corresponding amount.
Upon payment in full of the Series 1999-1 certificates, assuming no
charge-offs on the investor interest of the paired series, the aggregate amount
of that paired series will have been increased by an amount up to the Series
1999-1 Investor Interest.
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If an early amortization period begins for the paired series, the
seller could reduce the Fixed Allocation Percentage for Series 1999-1, but not
below the Series 1999-1 Investor Interest as of the date when the early
amortization period for the paired series began.
EARLY AMORTIZATION EVENTS
You need to understand the following terms to understand when an Early
Amortization Event has occurred for Series 1999-1.
"Base Rate" means, for any Due Period, the product of 12 times
a fraction, the numerator of which is the sum of the Monthly Interest
for the related distribution date and the Series 1999-1 Servicing Fee
for that Due Period, and the denominator of which is the Series 1999-1
Investor Interest on the last day of the previous Due Period.
"Controlling Certificateholders" means:
(1) on any date of determination on which the
Investor Interest for Class A or the Investor
Interest for Class B is greater than zero, the
holders of Class A certificates and Class B
certificates evidencing more than 50% of the sum of
the Investor Interest for Class A and the Investor
Interest for Class B, and
(2) thereafter, the holders of Class C certificates
evidencing more than 50% of the Investor Interest for
Class C.
"Monthly Interest" means, for to any distribution date, the
sum of:
(1) for Class A, its Class Monthly Interest, Class
Additional Interest, if any, and unpaid Class
Deficiency Amount, if any;
(2) for Class B, its Class Monthly Interest, Class
Additional Interest, if any, and unpaid Class
Deficiency Amount, if any,
(3) for Class C, its Class Monthly Interest and
unpaid Class Deficiency Amount, if any, and
(4) for Class D, its Class Monthly Interest.
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"Portfolio Yield" means, for any Due Period, the annualized
percentage equivalent of a fraction, the numerator of which is equal to
the sum, calculated on a cash basis after subtracting the Series 1999-1
Investor Loss Amount for that Due Period, of:
(1) the Floating Allocation Percentage of collections of
finance charge receivables for that Due Period including net
earnings for that Due Period on amounts on deposit in the
collection account and the excess funding account, which are
treated as finance charge receivables, plus
(2) any Shared Excess Finance Charge Collections that are
allocated to Series 1999-1 for the related distribution date,
plus
(3) any Class A Cap Payment and Class B Cap Payment scheduled
to be paid on the related distribution date, and
the denominator of which is the Series 1999-1 Investor
Interest on the last day of the preceding Due Period - or for the
initial Due Period, the Series 1999-1 initial Investor Interest.
An "Early Amortization Event" refers to any of the following events:
(a) failure on the part of the seller or the originator:
(1) to make any payment or deposit required under the
pooling agreement, the Series 1999-1 supplement or
the purchase agreement within five days after the
date required, or
(2) to perform in any material respect any of its
agreements under the pooling agreement, the Series
1999-1 supplement or the purchase agreement, if the
failure has a material adverse effect on the Class A
and Class B certificateholders and continues
unremedied for a period of 60 days after the date on
which written notice of the failure has been given to
the seller by the trustee, or to the seller and
trustee by the Controlling Certificateholders;
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(b) any representation or warranty made by the seller or the
originator in the pooling agreement, the Series 1999-1 supplement or
the purchase agreement, or any information required to be given by the
seller to the trustee, or by the originator to the seller, to identify
the accounts:
(1) proves to have been incorrect in any material
respect when made or when delivered and which
continues to be incorrect in any material respect for
a period of 60 days after the date on which the
trustee gives written notice of the failure to the
seller or the Controlling Certificateholders give
written notice of the failure to the seller and the
trustee, and
(2) as a result the interests of the Class A and
Class certificateholders are, and continue to be,
materially and adversely affected during the 60 day
period;
provided, however, that an Early Amortization Event will not occur if
the seller has accepted reassignment of the receivables during the 60
day period;
(c) the average Portfolio Yield for any three consecutive Due
Periods is less than the average Base Rate for that period;
(d) the seller fails to convey receivables arising under
additional accounts to the trust when required by the pooling
agreement;
(e) any Servicer Default occurs which would have a material
adverse effect on the Class A certificateholders or Class B
certificateholders;
(f) the failure to pay in full the Investor Interest for Class
A on the Class A expected final payment date or the failure to pay in
full the Investor Interest for Class A on the Class B expected final
payment date;
(g) any counterparty to an Interest Rate Cap fails to make a
Class A Cap Payment or a Class B Cap Payment, as applicable, in full
within five days of the date on which payment was due;
(h) Standard & Poor's or Moody's shall have withdrawn the
short term debt rating of the counterparty under an Interest Rate Cap,
or reduced its short term debt rating below (1) A-1+, for the Class A
counterparty, or A-1 for the Class B counterparty or (2) in either
case, P-1, as applicable, and the servicer fails within 30 days of that
reduction or withdrawal, to either:
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(1) obtain a replacement interest rate cap agreement
having substantially similar terms and conditions
with a counterparty that has the required ratings or
(2) enter into any other arrangement satisfactory to the
applicable rating agency, so that the rating of the
Class A certificates or Class B certificates by the
applicable rating agency will not be withdrawn or
reduced;
(i) any of the following events--called "Insolvency
Events"--occurs:
(1) the seller, the originator, the servicer--if an
affiliate of the originator--or Charming Shoppes
consents to the appointment of a conservator or
receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to
all or substantially all of its property; or
(2) a decree or order of a court or agency or
supervisory authority having jurisdiction in the
premises for the appointment of a conservator or
receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, has been
entered against the seller, the originator, the
servicer--if an affiliate of the originator--or
Charming Shoppes; or
(3) the seller, the originator, the servicer--if an
affiliate of the originator--or Charming Shoppes
admits in writing its inability to pay its debts
generally as they become due, commences or have
commenced against it, unless dismissed within thirty
days, as a debtor in a proceeding under any
applicable insolvency or reorganization statute,
makes an assignment for the benefit of its creditors
or voluntarily suspends payment of its obligations;
(j) the originator becomes unable for any reason to convey
receivables to the seller under the purchase agreement, or the seller
becomes unable for any reason to convey receivables to the trust under
the pooling agreement; or
(k) the trust or the seller is regulated as an "investment
company" within the meaning of the Investment Company Act of 1940.
An event described in paragraphs (a), (b), (e), (g) or (h) above will
be considered an Early Amortization Event for Series 1999-1 if the trustee or
the Controlling Certificateholders give written notice to the servicer, the
seller and - if notice is given by certificateholders - the trustee. The notice
must declare that an Early Amortization Event has occurred.
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No notice or other action by the trustee or certificateholders is
required if circumstances described in subparagraphs (c), (d), (f), (i), (j) or
(k) occur. These circumstances result in the automatic occurrence of an Early
Amortization Event for Series 1999-1 and, in the case of subparagraphs (i), (j)
and (k), all other series issued by the trust.
If an Early Amortization Event occurs, an Early Amortization Period for
Series 1999-1 will commence. The period will start on the close of business on
the business day immediately preceding the Early Amortization Event and will end
on the Series 1999-1 termination date.
If an Insolvency Event for the seller or the originator occurs, the
seller is required to (1) stop transferring principal receivables to the trust
and (2) give notice to the trustee, the rating agencies, each provider of
enhancement to any series and designated representatives of each receivables
purchase series. Finance charge receivables, whenever created, accrued on
principal receivables previously conveyed to the trust, will continue to be
transferred to the trust.
Within 15 days, the trustee will publish and give to each investor
certificateholder, to each representative of purchased interest holders and to
each enhancement provider, written notice of the Insolvency Event. The trustee
will state in the notice that it intends to sell, dispose of, or otherwise
liquidate the receivables in a commercially reasonable manner. Unless the
trustee receives written instructions as provided in the paragraph below, the
trustee will use its best efforts to do so and may solicit competitive bids. The
proceeds from the sale, disposition or liquidation of the receivables will be
treated as collections of the receivables. The trustee will determine
conclusively in its sole discretion which proceeds are allocable to finance
charge receivables and which proceeds are allocable to principal receivables.
The trust will terminate following the last distribution of proceeds of the
sale, disposition or liquidation to the investor certificateholders of each
certificate series and the purchasers of each receivables purchase series.
If the trustee is instructed, within 90 days from the day it publishes
notice of the sale, by investor certificateholders representing more than 50% of
the investor interest of each certificate series, by each enhancement provider
for any certificate series, and by the designated representative of holders of
each receivables purchase series, that they wish to continue having principal
receivables conveyed to the trust as before that Insolvency Event, the trustee
will continue to accept those conveyances.
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THE POOLING AGREEMENT
TRANSFER AND ASSIGNMENT OF RECEIVABLES
When the trust was formed, the originator transferred receivables
directly to the trust. In November, 1997, the originator restructured the
transfers to the trust so that it first sells the receivables to the seller, a
bankruptcy remote entity. The seller then transfers the receivables to the
trust. The receivables currently in the trust today arise from Accounts
initially designated upon the formation of the trust by the originator and
Accounts subsequently designated by the originator and, since the restructuring,
the seller.
When Accounts are designated, the originator indicates in its computer
files that the related receivables have been transferred to the trust and
provides the trustee with a computer file or microfiche list containing a
description of the designated accounts and the outstanding receivables balances
on the related cut-off date. The originator, the seller and the servicer will
not deliver any other records or agreements relating to the Accounts or the
receivables to the trust.
The records and agreements relating to the Accounts and the receivables
maintained by the seller or the servicer are not segregated from other documents
and agreements relating to other credit card accounts and receivables. They are
not stamped or marked to reflect the transfer of the receivables to the trust.
The servicer, however, will indicate in its master computer files that
receivables created in the Accounts have been conveyed to the trust under the
pooling agreement.
ISSUANCE OF ADDITIONAL SERIES
The trust may from time to time issue additional series in one of two
ways. First, the trust may issue a new certificate series. Unless prohibited by
the terms of any series, the holders of a series can tender their certificates
in exchange for certificates of a new series. Although Series 1999-1 does not
provide for exchanges by its certificateholders, it does not prohibit exchanges.
Any exchange would require your consent and must comply with the requirements of
the Exchange Act and its rules and regulations.
Separately, the seller can cause the trust to issue a new certificate
series resulting in a reduction to the seller's interest in the trust. The
seller will define the terms of any new certificate series in a supplement for
that series. Each new certificate series will be issued in either public or
private offerings under appropriate disclosure documents which will describe the
material terms of the new certificate series.
The trust may also from time to time issue one or more uncertificated
interests called receivables purchase series. Like certificate series,
receivables purchase series constitute a claim
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to a percentage of the trust's assets. This allocation percentage is described
in a receivables purchase agreement that establishes the terms of a receivables
purchase series.
The choice to issue a certificate series or a receivables purchase
series is largely based on investor preference. An investor may have more
flexibility, given its own regulatory restrictions, to purchase uncertificated
interests in the trust. We refer to receivables purchase series and to
certificate series collectively as "series." None of the seller, the servicer,
the trustee or the trust is required to obtain the consent of the
certificateholders of any series to issue an additional series.
Series 1999-1 will not be subordinated to any other series issued by
the trust. Series 1999-1 will not be entitled to the benefits of any credit
enhancement provided for any other series.
The rights and obligations of investors may vary from series to series.
One series issued by the trust may have an amortization or accumulation period
with a different length, and beginning on a different date, than the period for
any other series. Further, one or more series may be in their accumulation or
amortization periods while other series are not. The seller may specify
different interest rates and servicing fees for each series. Other series may
also have different provisions relating to repurchase of the series or transfer
of interests by one investor to another.
Although excess collections of finance charge receivables allocated to
Series 1999-1 may be shared with other series, excess collections from other
series may not be available to make payments on Series 1999-1.
New series may be issued only if:
(a) each rating agency confirms that the issuance of the new
series will not result in a reduction or withdrawal of its previously
issued rating of any outstanding series, including Series 1999-1,
(b) the seller provides an opinion of counsel opining that the
new issuance (1) will not cause the trust to be treated as an
association or publicly traded partnership taxable as a corporation for
federal income tax purposes and (2) will not adversely affect the
federal income tax characterization of any outstanding series, and
(c) the seller provides the trustee with an officer's
certificate stating that, after giving effect to any exchange, the
Seller Interest will be at least equal to the Required Seller Interest.
There is no limit to the number of new series that may be issued by the
trust.
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BOOK-ENTRY REGISTRATION
Certificate owners may hold their interests in the offered certificates
through DTC, in the United States, or Cedel Bank or the Euroclear System, in
Europe, if they are participants in those systems, or indirectly through
organizations that are participants in those systems. Cede & Co., as nominee for
DTC, will hold the offered certificates. Cedel and Euroclear will hold omnibus
positions on behalf of their respective participants, through customers'
securities accounts in Cedel's and Euroclear's names on the books of their
respective depositaries. The depositaries in turn will hold the positions in
customers' securities accounts in the depositaries' names on the books of DTC.
DTC has advised us and the underwriters that it is:
- a limited-purpose trust company organized under the New York
Banking Law;
- a "banking organization" within the meaning of the New York
Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the New York
Uniform Commercial Code; and
- a "clearing agency" registered under the provisions of Section
17A of the Exchange Act.
DTC holds securities for its participants and facilitates the clearance and
settlement among its participants of securities transactions, including
transfers and pledges, in deposited securities through electronic book-entry
changes in its participants' accounts. This eliminates the need for physical
movement of securities certificates. DTC participants include securities brokers
and dealers, banks, trust companies, clearing corporations and other
organizations. Indirect access to the DTC system is also available to others
including securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly. The rules applicable to DTC and its participants are on file with
the SEC.
Transfers between participants on the DTC system will occur under DTC
rules. Transfers between participants on the Cedel system and participants on
the Euroclear system will occur under their rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
participants or Euroclear participants, on the other, will be effected by DTC
under DTC rules on behalf of the relevant European international clearing system
by that system's depositary. However, these cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in that system under its
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rules and procedures and within its established deadlines, European time. The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment under normal procedures for
same-day funds settlement applicable to DTC. Cedel participants and Euroclear
participants may not deliver instructions directly to their system's depositary.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date. The credits for any transactions in these
securities settled during this processing will be reported to the relevant Cedel
participant or Euroclear participant on that business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
participant or a Euroclear participant to a DTC participant will be received and
available on the DTC settlement date. However, it will not be available in the
relevant Cedel or Euroclear cash account until the business day following
settlement in DTC.
Purchases of offered certificates under the DTC system must be made by
or through DTC participants, which will receive a credit for the offered
certificates on DTC's records. The ownership interest of each actual certificate
owner is in turn to be recorded on the DTC participants' and indirect
participants' records. Certificate owners will not receive written confirmation
from DTC of their purchase. However, certificate owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the DTC participant or indirect participant
through which the certificate owner entered into the transaction. Transfers of
ownership interests in the offered certificates are to be accomplished by
entries made on the books of DTC participants acting on behalf of certificate
owners. Certificate owners will not receive certificates representing their
ownership interest in offered certificates unless use of the book-entry system
for the offered certificates is discontinued.
To facilitate subsequent transfers, all securities deposited by DTC
participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of securities with DTC and their registration in the name of Cede &
Co. does not change beneficial ownership. DTC has no knowledge of the actual
certificate owners of the offered certificates. DTC's records reflect only the
identity of the DTC participants to whose accounts the offered certificates are
credited, which may or may not be the actual beneficial owners of the
certificates. The DTC participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC
participants, by DTC participants to indirect participants, and by DTC
participants and indirect participants to
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certificate owners will be governed by arrangements among them and by any
statutory or regulatory requirements in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote on behalf of the
offered certificates. Under its usual procedures, DTC mails an omnibus proxy to
the issuer as soon as possible after the record date, which assigns Cede & Co.'s
consenting or voting rights to those DTC participants to whose accounts the
offered certificates are credited on the record date, identified in a listing
attached to the proxy.
Principal and interest payments on the offered certificates will be
made to DTC. DTC's practice is to credit its participants' accounts on the
applicable distribution date according to their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payment
on that distribution date. Payments by DTC participants to certificate owners
will be governed by standing instructions, customary practices, and any
statutory or regulatory requirements as may be in effect from time to time.
These payments will be the responsibility of the DTC participant and not of DTC,
the trustee or the seller. Payment of principal and interest to DTC is the
responsibility of the trustee. DTC is responsible for disbursing payments made
to it to DTC participants. Disbursement of these payments to certificate owners
is the responsibility of DTC participants and indirect participants.
DTC may discontinue providing its services as securities depository for
the offered certificates at any time by giving reasonable notice to the seller
or the trustee. Under these circumstances, if a successor securities depository
is not obtained, definitive certificates are required to be printed and
delivered. The seller and, upon the occurrence of a Servicer Default, a
specified percentage of each class of certificate owners may decide to
discontinue use of the system of book-entry transfers through DTC or a successor
securities depository. In that event, definitive certificates will be delivered
to certificate owners. See "-Definitive Certificates."
DTC management is aware that some computer applications, systems, and
the like for processing data that are dependent upon calendar dates, including
dates before, on, and after January 1, 2000, may encounter Year 2000 problems.
DTC has informed its participants and other members of the financial community
that it has developed and is implementing a program so that its systems relating
to the timely payment of distributions to securityholders, book-entry
deliveries, and settlement of trades within DTC will continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's program includes a testing
phase, which it expects to complete within appropriate time frames.
DTC's ability to perform properly its services is also dependent upon
other parties. Third parties include issuers and their agents, DTC's direct and
indirect participants, vendors from whom DTC licenses software and hardware, and
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vendors on whom DTC relies for information or services, including
telecommunication and electrical utility service providers. DTC has informed us
that it is contacting, and will continue to contact, third party vendors from
whom DTC acquires services to: (1) impress upon them the importance of these
services being Year 2000 compliant; and (2) determine the extent of their
efforts for Year 2000 remediation and testing of their services. Additionally,
DTC is in the process of developing contingency plans as it deems appropriate.
According to DTC, the foregoing information about DTC has been provided
to us for informational purposes only and is not a representation, warranty, or
contract modification of any kind.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Cedel participants through electronic book-entry changes in accounts of Cedel
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 32 currencies,
including United States dollars.
Cedel participants are financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
and clearing corporations. Indirect access to Cedel is also available to others,
including banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Cedel participant, either directly or
indirectly.
The Euroclear System was created in 1968 to hold securities for its
participants and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment. This
eliminates the need for physical movement of certificates. Transactions may be
settled in any of 32 currencies, including United States dollars.
The Euroclear System is operated by Morgan Guaranty Trust Company of
New York, Brussels, Belgium office, the Euroclear operator, under contract with
Euroclear Clearance System, Societe Cooperative, a Belgium cooperative
corporation, the Euroclear cooperative. All operations are conducted by the
Euroclear operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear operator, not the
Euroclear cooperative. The board of the Euroclear cooperative establishes policy
for the Euroclear System.
Euroclear participants include banks--including central banks--
securities brokers and dealers and other professional financial intermediaries.
Indirect access to the Euroclear System is also available to other firms that
maintain a custodial relationship with a Euroclear participant, either directly
or indirectly.
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Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System. These terms and
conditions govern transfers of securities and cash within the Euroclear System,
withdrawal of securities and cash from the Euroclear System, and receipts of
payments for securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear operator acts under
these terms and conditions only on behalf of Euroclear participants and has no
record of or relationship with persons holding through Euroclear participants.
Distributions on the offered certificates held through Cedel or
Euroclear will be credited to the cash accounts of Cedel participants or
Euroclear participants according to the relevant system's rules and procedures,
to the extent received by its depositary. These distributions must be reported
for tax purposes under United States tax laws and regulations. Cedel or the
Euroclear operator, as the case may be, will take any other action permitted to
be taken by a certificateholder on behalf of its participants only as permitted
by its rules and procedures, and only if its depositary is able to take these
actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to these procedures to
facilitate transfers of offered certificates among participants of DTC, Cedel
and Euroclear, they are not obligated to perform these procedures. Additionally,
these procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
We refer to certificates issued in fully registered, certificated form
as "definitive certificates." The Series 1999-1 certificates will be issued as
definitive certificates, rather than in book entry form to DTC or its nominees,
only if one of the following events occurs:
- the seller advises the trustee in writing that DTC is no
longer willing or able to discharge properly its
responsibilities as depository for the offered certificates,
and the trustee or the seller is not able to locate a
qualified successor;
- the seller, at its option, advises the trustee in writing that
it elects to terminate the book-entry system through DTC; or
- after the occurrence of a Servicer Default, Series 1999-1
certificate owners representing more than 662/3% of the
Investor Interest for Class A or Class B, as applicable,
advise the trustee and DTC through clearing agency
participants
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in writing that the continuation of a book-entry system is no
longer in the best interest of the certificate owners of that
class.
If any of these events occur, DTC is required to notify all of its
participants of the availability of definitive certificates.
Definitive certificates will be transferable and exchangeable at the
offices of the transfer agent and registrar, which is initially the Trustee. The
transfer agent and registrar will not impose a service charge for any
registration of transfer or exchange, but may require payment of an amount
sufficient to cover any tax or other governmental charge. The transfer agent and
registrar will not be required to register the transfer or exchange of
definitive certificates within the fifteen days preceding a payment date for the
definitive certificates.
REQUIRED REMOVAL OF RECEIVABLES FROM THE TRUST
The seller will represent and warrant to the trust, that on the
issuance date for Series 1999-1 and, for any additional Accounts, on the related
Addition Date that:
(1) Each receivable is an eligible receivable.
(2) Each receivable then existing (a) has been conveyed to the trust,
free of any lien of any person claiming through or under the
seller or its affiliates and in compliance, in all material
respects, with all requirements of law applicable to the seller
and (b) is the legal, valid and binding payment obligation of the
related account debtor, enforceable against it, except as
enforceability may be affected by bankruptcy or similar laws
affecting the rights of creditors, and by general principles of
equity.
(3) All approvals or authorizations of any governmental authority
required to be obtained by the seller before the conveyance of
each receivable to the trust have been obtained.
(4) On each day on which any new receivable is created, the seller
will represent and warrant to the trust that (a) the receivable
is an eligible receivable, (b) the receivable has been conveyed
to the trust in compliance, in all material respects, with all
requirements of law applicable to the seller, (c) all approvals
or authorizations of any governmental authority required to be
obtained by the seller before the conveyance of the receivable to
the trust have been obtained and (d) that the transfer of that
receivable to the trust is either: (1) a valid sale to the trust
of the transferor rights in that receivable, free and clear of
any lien of any person or entity claiming through or under the
seller or any of
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its affiliates, or (2) the grant of a first priority perfected
security interest in that receivable.
(5) On the cut-off date specified to the trustee, (a) each list of
the Accounts, and each related computer file or microfiche or
written list, is an accurate and complete listing in all material
respects of all the Accounts, and (b) the information contained
in the list as to the identity of those Accounts and the related
receivables is true and correct in all material respects.
Except as described in the next paragraph, if the seller breaches any
of these representations and warranties as to any receivable, and as a result
(a) the receivable becomes charged off as uncollectible, (b) the trust's rights
in the receivable or its proceeds are impaired or (c) the proceeds of the
receivable are not available for any reason to the trust free and clear of any
lien, then upon the expiration of a 60 day grace period, the seller must remove
that receivable from the trust. The grace period will begin on the earlier to
occur of the seller or the servicer discovering the breach, or the seller
receiving written notice of the breach from the trustee. If, however, before the
required Removal Date for any receivable, the representations and warranties
relating to that receivable become true and correct in all material respects,
the seller will not be required to accept assignment of the receivable from the
trust.
If the seller breaches any of the representations and warranties in
clause (2) above as to any receivable, that receivable will be removed from the
trust and reassigned to the seller immediately upon the earlier to occur of the
seller or servicer discovering that breach or the seller receiving written
notice of that breach from the trustee or a representative of purchasers of a
receivables purchase series, if any of the following three conditions are met:
(1) as a result of the breach, (a) the receivable is charged off
as uncollectible, (b) the trust's rights in the receivable or
its proceeds are impaired, or (c) the proceeds of the
receivable are not available for any reason to the trust free
and clear of any lien,
(2) the lien upon the receivable (a) arises in favor of the United
States, any state or any of their agencies or
instrumentalities for unpaid taxes or ERISA obligations or (b)
has been consented to by the originator or the seller, or
(3) the unsecured short-term debt rating of the originator is
rated lower than P-1 by Moody's and the lien upon the
receivable ranks ahead of the lien in favor of the trust.
If a lien referred to above does not have a material adverse effect on
the collectibility of the receivables, on any holder of an interest in any
series or on any credit enhancement provider
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for any series, then the seller will have 10 days to remove the lien before
being required to accept reassignment of the affected receivables.
When the seller is required to remove a receivable from the trust, it
will direct the servicer to deduct the amount of the receivable from the
aggregate amount of principal receivables used to calculate the allocation
percentages for each outstanding series and for the Seller Interest, and
decrease the Seller Interest by that amount. If the deduction would cause the
Seller Interest to be reduced below the Required Seller Interest, the seller
will within ten business days or on the next distribution date, if earlier, make
a deposit in the excess funding account. The deposit will be equal to the amount
by which the Required Seller Interest exceeds the Seller Interest. If any
receivables purchase series is outstanding, the seller will deposit the portion
of the required deposit amount allocated to that series to the collection
account for the benefit of that series rather than to the excess funding
account. Any deduction, and the related deposit, will be considered a repayment
in full for the receivables removed from the trust.
The seller also will represent and warrant to the trust that:
(a) each agreement that the seller or the originator has
executed relating to these transfers constitutes a legal, valid and
binding obligation of the seller or the originator, enforceable against
the seller or the originator in under its terms, except as
enforceability may be affected by bankruptcy or similar laws affecting
the rights of creditors, or by general principles of equity, and
(b) each transfer of receivables to the trust is either: (1) a
valid sale to the trust of the transferor's rights in the receivables,
free and clear of any lien of any person or entity claiming through or
under the seller or any of its affiliates, or (2) the grant of a first
priority perfected security interest in the receivables.
If the seller breaches either of these representations and warranties,
then (1) the trustee or certificateholders whose certificates evidence more than
50% of the outstanding investor interest of all certificate series outstanding
or (2) any representative of purchasers of a receivables purchase series may
require the seller to designate an entity to accept reassignment of all
receivables from the trust. The reassignment will occur on a distribution date
specified by the party giving the notice within 60 days from delivery of that
notice. If, however, before the required reassignment date for the receivables,
the representations and warranties referred to in the preceding paragraph become
true and correct in all material respects, the seller or its designee will not
be required to accept reassignment of receivables from the trust.
If the trustee, the required certificateholders or the purchaser's
representative require a reassignment of receivables, all certificate series
will be affected by the reassignment. Unless the
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terms of a certificate series specify a different amount, the amount that the
seller is required to deposit in the collection account for each certificate
series will be the outstanding Investor Interest of that series, plus all
accrued and unpaid interest for that series on that date, plus the invested
amount of any credit enhancement for that series. The required amount for Series
1999- 1 will be the Series 1999-1 Investor Interest plus accrued and unpaid
interest on the date of reassignment.
If a receivables purchase series also participates in a reassignment,
the amount that the seller is required to deposit in the collection account for
that series will be specified in the agreements for that series.
The removal of receivables from the trust is the sole remedy against
the seller for the breaches of representations and warranties referred to in
this section.
The originator has made substantially similar representations and
warranties to the seller regarding the receivables, and has agreed to accept the
reassignment from the seller of receivables on substantially similar terms. The
seller has assigned all of the seller's rights under the purchase agreement to
the trust, thereby permitting the trust to enforce the seller's reassignment
rights against the originator. See "Description of the Purchase Agreement-
Representations and Warranties."
ELIGIBLE ACCOUNTS; ELIGIBLE RECEIVABLES
The seller designates accounts from which receivables will be
transferred to the trust. To be eligible for designation, the account must meet
the following eligibility criteria on the date of designation:
- amounts owing on the account must be payable in United States
dollars;
- the account must be in a Specified Program Account;
- the account is not classified as canceled, counterfeit or
fraudulent, and no credit card issued under the account has
been stolen or lost;
- amounts owing under the account have not been charged-off by
the originator;
- the account debtor of which has provided, as his or her most
recent billing address, an address that is located in the
United States or Canada; and
- the originator has obtained all necessary governmental
approvals relating to the creating of receivables under the
account and the performance by the originator of the related
cardholder agreement.
A "Specified Program Account" is a revolving credit card account
included in a Specified Program, so long as (a) the related credit application
was processed by the originator or its affiliate under the originator's
cardholder guidelines or (b) the account was acquired by the
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originator and determined by the originator to comply with its cardholder
guidelines, including those related to extensions of credit.
The "Specified Programs" are as follows:
- the "Private Label Program" - a program to originate private
label credit card receivables primarily from sales at Fashion
Bug stores;
- the "Secured Account Program" - a program under which the
obligors are required to maintain a security deposit against
amounts charged;
- the "Co-Branded Program" - a program to originate charges on a
general purpose credit card under the Visa(R) or MasterCard(R)
system, which credit card will be co- branded with Fashion
Bug;
- the "Unaffiliated Retailer Program" - a program to allow
holders of its private label credit card to use the card at
unaffiliated retail locations; and
- any other credit card program that is specified by the
originator.
Only receivables in accounts originated under the Private Label Program
are currently included in the trust. Receivables in accounts generated under any
other program will only be included in the trust if the seller receives
confirmation from each rating agency then rating any outstanding series that
inclusion will not cause the rating agency to reduce or withdraw its ratings.
When we refer to an "Eligible Receivable," we mean a receivable that
meets the following criteria:
- it has arisen under an Eligible Account;
- it was created in compliance, in all material respects, with
all requirements of law;
- the originator, the seller or the trust had good and
marketable title to the receivable, free and clear of all
liens arising under or through the originator, the seller or
any of their affiliates, other than liens relating to the
trust;
- it is a legal, valid and binding payment obligation of the
obligor and is enforceable against the obligor under its
terms, although the enforceability may be limited by
bankruptcy or similar laws affecting the rights of creditors,
and by general principles of equity;
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- it constitutes an "account" or a "general intangible" under
Article 9 of the UCC as then in effect in any applicable
jurisdiction.
Principal receivables owed by obligors with Canadian billing addresses
are considered eligible only to the extent they do not exceed 1.0% of principal
receivables in the trust, averaged on the last day of any two consecutive Due
Periods.
ADDITION OF ACCOUNTS
In our discussion of when the seller is obligated to identify
additional Accounts for the trust, we use the following terms:
The "Seller Interest" at any time is equal to the remainder of (1) the
sum of the outstanding balance of principal receivables in the trust
plus the amount on deposit in the excess funding account minus (2) the
outstanding investor interest of all certificate series, the
outstanding balance of all receivables purchase interests and the
outstanding loan amount of any secured indebtedness issued by the
trust.
"Seller Interest Test" means that, on the last business day of any Due
Period, the average of the Seller Interest over the 30-day period then
ended is equal to or greater than the Required Seller Interest.
"Required Seller Interest" means the greater of (1) the sum of the
minimum Seller Interests specified for each series and (2) zero. The
minimum Seller Interest for Series 1999-1 is zero. Other series may
have minimum Seller Interests that are greater zero.
If the Seller Interest Test is not satisfied on the last day of any Due
Period, then on or before the 10th business day following the last day of that
Due Period, unless the Seller Interest Test is satisfied in the intervening
period, the Seller must designate sufficient additional Accounts so that the
Seller Interest Test is satisfied after adding the related receivables to the
trust. If the seller fails to add the amount of receivables necessary to meet
the Seller Interest Test solely because of the unavailability of a sufficient
amount of eligible receivables, this failure will, after a grace period, be an
Early Amortization Event for Series 1999-1. This failure will not constitute a
breach of the pooling agreement by the seller.
The Seller Interest includes amounts on deposit in the excess funding
account. The servicer is required to deposit collections of principal
receivables payable to the holder of the Exchangeable Seller Certificate into
the excess funding account if the seller does not designate sufficient
additional Accounts necessary to comply with the Seller Interest Test. This
deposit may forestall the occurrence of an Early Amortization Event.
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The seller may designate, from time to time at its sole discretion,
additional Accounts that meet the eligibility criteria. The amount of
receivables arising under these voluntarily designated Accounts, together with
additional Accounts the seller was required to designate to meet the Seller
Interest Test, is limited to (1) in any calendar quarter, 10% of the receivables
in the trust on the first day of the related calendar year and (2) in any 12
month period ending on the most recent Addition Date, 15% of the receivables in
the trust on the first day of that 12 month period. However, this limitation
does not apply if each rating agency then rating any outstanding series confirms
that including receivables from the new Accounts would not cause the rating
agency to reduce or withdraw its ratings.
The seller has agreed for the benefit of Series 1999-1
certificateholders that it will not exercise its option to designate any
additional accounts unless on or before the related Addition Date the seller
provides the trustee and Class C certificateholders with an officer's
certificate stating that the designation of additional accounts to the trust
will not, on the related Addition Date:
(1) be reasonably expected by the seller to result in a rating agency
reducing or withdrawing its rating on any then outstanding
certificate series or receivables purchase series,
(2) cause the occurrence of an Early Amortization Event for Series
1999-1, or
(3) be reasonably expected by the seller to materially adversely
affect in any manner the timing or amount of payments to the
Class C certificateholders.
The date on which an additional Account is designated is called an
"Addition Date."
REMOVAL OF ACCOUNTS
The seller may, but is not obligated to, remove accounts from the list
of designated Accounts. Receivables arising in the removed Accounts will be
removed from the trust and reassigned to the seller. The seller may not remove
accounts more than once in any Due Period.
The seller will be permitted to remove accounts only if:
(1) the removal of the related receivables will not cause an early
amortization event to occur for any outstanding series and will not
result in the failure to make any required payment on any outstanding
series,
(2) the seller represents and warrants that no selection procedures
believed by it to be materially adverse to the interests of any series
were used in selecting the accounts to be removed from the trust, and
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(3) each rating agency then rating any outstanding series has
confirmed that removing the accounts would not cause the rating agency
to reduce or withdraw its ratings.
COLLECTION ACCOUNT
The Servicer has established and maintains a collection account for the
benefit of all certificateholders and purchasers of receivables purchase series.
The collection account is currently maintained with the trustee and must always
be maintained with a qualified depository institution.
A qualified depository institution is the trustee or any depository
institution or trust company:
(1) that is organized under the laws of the United States or any state
or the District or Columbia or is the domestic branch of a foreign
depository institution,
(2) whose short-term deposits have a rating of P-1 by Moody's and of
A-1+ by Standard & Poor's and
(3) for which deposit insurance is provided by either the Bank
Insurance Fund or the Savings Association Insurance Fund, each
administered by the FDIC.
Funds in the collection account will be invested, at the direction of
the servicer, in highly rated liquid investments that meet criteria specified in
the pooling agreement. Any investments will be required to mature monthly before
each distribution date. Any earnings, net of losses and investment expenses on
funds in the collection account will be treated as collections of finance charge
receivables.
DEPOSITS IN COLLECTION ACCOUNT
The seller and the servicer have agreed to the following procedures for
handling collections on the receivables:
- for payments made by mail, (1) to cause these payments to be
delivered to the subservicer, and (2) to cause the subservicer
to deposit these payments into the depository account
specified in the pooling agreement within two business days of
receipt; and
- for payments made at any Fashion Bug store, (1) to cause these
payments to be deposited into an account of that store
established for deposits of store payments, and (2) to cause
these store payments to be deposited into the depository
account within two business days of deposit into a store
account.
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Unless the servicer maintains a certificate of deposit, short-term
deposit or commercial paper rating of P-1 by Moody's and of A-1+ by Standard &
Poor's or of A-1 by Standard & Poor's, and a long-term unsecured debt obligation
rating of at least Aa3 by Moody's and AA- by Standard & Poor's, all amounts
deposited into the depository account on any business day will on that same day
be withdrawn from the depository account and deposited into the collection
account. If the servicer maintains the required rating, it may withdraw funds
from the depository account and commingle them with its other funds pending
allocation. However, during the continuance of an early amortization event, the
servicer will be required to deposit funds into the collection account within
two business days of deposit to the depository account.
The holder of the Exchangeable Seller Certificate is entitled to the
Seller Percentage of collections on principal receivables and finance charge
receivables, and any additional amounts under any series that are payable to it.
The servicer may pay these amounts to the holder of the Exchangeable Seller
Certificate, rather than depositing these amounts in the collection account, on
any day.
The servicer will stop depositing insurance proceeds and other amounts
constituting net recoveries into the collection account once the aggregate
insurance proceeds and other net recoveries received during any Due Period
exceed the unrecovered Loss Amount for that Due Period and any previous Due
Periods. The excess will be paid to the seller.
EXCESS FUNDING ACCOUNT
When we refer to the excess funding account, we mean the deposit
account established and maintained by the servicer for the benefit of the
investor certificateholders of each certificate series, in the name of the
trustee. This account is to be maintained with a qualified depository
institution.
If on any date the Seller Interest is less than the Required Seller
Interest, the servicer will not distribute to the holder of the Exchangeable
Seller Certificate any collections of principal receivables that otherwise would
be distributed to the holder of the Exchangeable Seller Certificate. Instead, it
will deposit those funds in the excess funding account.
Funds on deposit in the excess funding account will be withdrawn and
paid to the holder of the Exchangeable Seller Certificate on any distribution
date to the extent that the Seller Interest exceeds the Required Seller Interest
on that date.
If an accumulation period, controlled amortization period or early
amortization period commences for any certificate series in group one, funds on
deposit in the excess funding account will be released and treated as shared
principal collections to the
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extent needed to cover principal payments due to or for the benefit of those
certificate series, if the supplement for those series so provides.
Funds in the excess funding account will be invested, at the direction
of the servicer, in highly rated liquid investments that meet criteria specified
in the pooling agreement. Any investments will be required to mature monthly
before each distribution date. Any earnings, net of losses and investment
expenses on funds in the excess funding account will be treated as collections
of finance charge receivables.
LOSS AMOUNT; DILUTION AMOUNTS
The following definitions are necessary to understand our discussion of
loss allocations.
"Defaulted Receivables" for any Due Period are principal receivables
that were charged off as uncollectible in that Due Period, or consistent with
the originator's cardholder guidelines should have been written off as
uncollectible in that Due Period.
The "Loss Amount" for any Due Period will be an amount, not less than
zero, equal to:
(1) the aggregate principal balance of Accounts, or any portion of
that balance, which became Defaulted Receivables for that Due
Period minus
(2) the aggregate amount of net recoveries received in that Due
Period of both finance charge receivables and principal
receivables previously charged off as uncollectible.
The current policy of the seller is to charge off as uncollectible an
account 180 days after a customer has failed to make the minimum payment due,
unless the seller receives notice that: (a) the accountholder is the subject of
a bankruptcy filing; (b) the accountholder is deceased or imprisoned; or (c)
there has been fraudulent activity associated with that account, in which case
the Seller will charge off that account at the beginning of the first billing
cycle occurring after receipt of that notice.
The servicer may adjust downward the amount of any principal receivable
because of:
- a rebate, refund, chargeback or adjustment, including
adjustments for servicer error
- a fraudulent or counterfeit charge
- merchandise being refused or returned by an accountholder
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- a counterclaim or defense by an accountholder
We refer to the aggregate amount of these reductions for any Due Period
as the "Dilution Amount" for that Due Period.
The Dilution Amount for any Due Period will be initially allocated to
the Seller Interest to the extent that, on the last day of that Due Period, the
Seller Interest is greater than the Required Seller Interest. The aggregate
amount of principal receivables used to calculate the Seller Interest will be
reduced by an amount equal to the Dilution Amount so allocated.
A portion of any remaining Dilution Amount, called the "Series Dilution
Amount," will be allocated to each certificate series and receivable purchase
series based upon the percentage calculated as of the last day of the
immediately preceding Due Period:
series investor interest receivable purchase interest
sum of all outstanding or the sum of all series investor interests
series investor interests and and receivables purchase interests
receivables purchase interests
Each series investor interest will be defined when it is issued. The
series investor interest for Series 1999-1 is equal to the Investor Interest.
If Available Funds, Reallocated Principal Collections, Excess Spread
and Shared Excess Finance Charge Collections allocated and available to make
payments on Series 1999-1 certificates on any distribution date will not be
sufficient to cover the Series 1999-1 Investor Dilution Amount on that
distribution date, the remaining Series 1999-1 Investor Dilution Amount will be
allocated to the Seller Interest.
Because these allocations will cause the Seller Interest to be less
than the Required Seller Interest, the Seller, on or before the 10th business
day following the last business day of the Due Period during which the Dilution
Amounts arose, will be required to compensate the trust for that deficiency by
either:
- making a deposit in the excess funding account in immediately
available funds;
- conveying receivables arising in additional Accounts to the
trust; or
- instructing the servicer to deposit a portion of the seller
allocations to the excess funding account so that, after that
deposit or conveyance, the Seller Interest will be at least
equal to the Required Seller Interest.
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If the seller fails to take these actions, the remaining deficiency,
called the "Unfunded Seller Dilution Amount," will cause Charge-Offs on the
related distribution date as described in "Description of the
Certificates-Investor Charge-Offs" above.
DISCOUNT OPTION
The pooling agreement allows the seller to designate a portion of
principal receivables to be treated as finance charge receivables. The portion
of the principal receivables that the seller may designate as finance charge
receivables is a fixed or variable percentage of up to 4% of the amount of
principal receivables arising in the Accounts after the exercise of the discount
option. We refer to this percentage as the "Discount Percentage" and to this
portion of the principal receivables as the "Discount Option Receivables."
Any Discount Option Receivables will be subtracted from the total
amount of principal receivables in the trust. The seller must provide 30 days'
advance written notice to the servicer, the trustee and each rating agency of
this designation, and this designation will become effective on the date
specified in that notice only if:
- in the reasonable belief of the seller the designation would
not cause an early amortization event to occur or an event
which, with notice or the lapse of time or both, would
constitute an early amortization event; and
- each rating agency confirms in writing that the designation
will not cause the rating on any outstanding certificate
series to be reduced or withdrawn.
When processing collections after exercising the discount option, the
servicer will treat a specified percentage of all collections received on
principal receivables, including Discount Option Receivables, as collections on
finance charge receivables. On each date of calculation, this percentage will be
a fraction, the numerator of which is the amount of Discount Option Receivables
at the end of the preceding Due Period and the denominator of which is the
amount of principal receivables at the end of the preceding Due Period,
including Discount Option Receivables.
DEFEASANCE
The seller has the option to terminate its obligations under the
pooling agreement for a certificate series, including Series 1999-1, by
depositing with the trustee funds
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sufficient to make all remaining scheduled interest and principal payments on
that series. These payments would be made as scheduled under the related
supplement. This procedure is referred to as "defeasance."
The seller would make the deposit for the defeased series from
collections on the receivables otherwise allocable to the defeased series. The
seller would use these collections to purchase permitted investments rather than
additional receivables.
Before the defeasance of any series, the seller must deliver to the
trustee an opinion of tax counsel stating that the defeasance will not adversely
affect the federal income tax characterization of any investor certificates that
are currently outstanding and that were characterized as debt when issued. Also,
each rating agency must confirm that the defeasance will not cause the rating on
any outstanding series of investor certificates to be reduced or withdrawn.
Finally, the seller is required to deliver to the trustee a certificate of its
authorized officer stating that, based on facts known to that officer at that
time, in the reasonable opinion of the seller, the defeasance will not cause an
early amortization event to occur for any series.
OPTIONAL REPURCHASE; FINAL PAYMENT OF PRINCIPAL; TERMINATION
The seller, at its option, may purchase the Series 1999-1 certificates
on any distribution date when the Investor Interest for Series 1999-1 is 10% or
less of the Series 1999-1 initial Investor Interest. To do so, the seller must
deposit into the collection account an amount equal to (1) the Series 1999-1
Investor Interest, plus (2) accrued and unpaid interest on this series through
the date preceding the distribution date on which the optional repurchase will
occur.
The Series 1999-1 certificates will be retired on the day following the
distribution date on which the final payment of principal is made to the Series
1999-1 certificateholders, whether as a result of optional repurchase by the
seller or otherwise. The investor interest of each certificate series which is
redeemed by the trust, and of each receivables purchase interest which is
repurchased by the trust, will be deemed to be equal to zero on the distribution
date following the making of the deposit. At this time, the Seller Interest will
be deemed to have been increased by the investor interest of the certificate
series or repurchased receivables purchase interest.
Unless the servicer and the holder of the Exchangeable Seller
Certificate instruct the trustee otherwise, the trust will terminate on the
earliest of:
- the day after the distribution to investor certificateholders
and receivables purchasers of the proceeds of the sale,
disposition or liquidation of receivables due to the
insolvency of the originator or the seller, unless the
investor certificateholders, enhancement providers and
purchaser representatives instructed
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the Trustee otherwise as described under "Description of the
Certificates--Early Amortization Events,"
- the day after all funds distributed with the trustee for the
defeasance of outstanding series and related obligations have
been distributed, provided that no other series or related
obligations to enhancement providers remain outstanding, and
- December 24, 2025.
Upon the termination of the trust and the surrender of the Exchangeable
Seller Certificate, the trustee will convey to the holder of the Exchangeable
Seller Certificate all right, title and interest of the trust in and to the
receivables and other trust assets, other than funds on deposit in bank accounts
of the trust designated under any series.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicer's compensation for its servicing activities and
reimbursement for its expenses will take the form of the payment to it of a
monthly servicing fee. The monthly servicing fee will be allocated between the
Seller Interest and the investor interest for all certificate series and
receivables purchase series, including Series 1999-1.
The portion of the monthly servicing payable by Series 1999-1 will be
funded from collections of finance charge receivables allocated to Series
1999-1, and will be paid each month from the amount so allocated. Neither the
trust nor the Series 1999-1 certificateholders will have any obligation to pay
the portion of the servicing fee allocable to the Seller Interest or any other
certificate series or receivables purchase series.
The servicer will pay, from its servicing compensation, expenses
incurred servicing the receivables including the fees and disbursements of the
trustee and the subservicer and independent public accountants. However the
servicer is not liable for federal, state and local income and franchise taxes,
if any, of the trust.
RESIGNATION OF SERVICER; SCOPE OF INDEMNITIES
The servicer may not resign from its duties unless performance of its
duties is no longer permissible under applicable law, and there is no reasonable
action which the servicer could take to make the performance permissible. No
resignation will become effective until the trustee or a successor servicer has
assumed the servicer's duties under the pooling agreement. Spirit of America,
Inc., as servicer, has delegated some of its servicing duties to Alliance Data
Systems, Inc. However, delegation of its duties will not relieve the servicer of
its obligation to perform these duties.
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The servicer will indemnify the trust, the trustee, and its officers,
directors, employees and agents, against loss, liability, expense, damage or
injury suffered or sustained by reason of any acts or omissions or alleged acts
or omissions of the servicer relating to the activities of the trust or the
trustee.
The seller also indemnifies the trust and the trustee, and the
officers, directors, employees and agents of the trustee, against third party
claims and proceedings that arise from acts or omissions under the arrangements
created by the pooling agreement, any supplement or any receivables purchase
agreement. These claims could include a claim that the pooling agreement creates
a partnership under the New York Uniform Partnership Law.
The indemnities of the servicer and the seller will not cover any loss,
liability, expense, damage, injury or claim (a) caused by fraud, gross
negligence, or willful misconduct by the trustee, (b) for any action taken by
the trustee at the request of the investor certificateholders or receivables
purchasers, or (c) arising under any tax law, including any federal, state,
local or foreign income or franchise taxes or any other tax imposed on or
measured by income, or any related interest or penalties, required to be paid by
the trust.
The seller, the servicer and their respective directors, officers,
employees or agents will not be under any other liability to the trust, the
trustee or any other person for any action taken, or for refraining from taking
any action, in good faith and without gross negligence. The servicer is not
required to appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities and which, in its opinion, exposes
it to expense or liability.
If the seller or the servicer are reorganized, including as a result of
a merger, consolidation or transfer of their assets, any person succeeding to
the business of the seller or the servicer, as the case may be, will be the
successor seller or servicer under the pooling agreement.
SERVICER DEFAULT
The servicer may be removed if a Servicer Default occurs and is
continuing. The notice of removal may be given by (1) the trustee or (2)
investor certificateholders and representatives of holders of purchased
interests representing more than 66 2/3% of the aggregate interests held by
investor certificateholders, holders of receivables purchase interests and
enhancement
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providers. This notice of removal must be sent to the servicer and, if the
notice is not given by the trustee, to the trustee.
The trustee will as promptly as possible appoint a successor servicer.
If no successor has been appointed and has accepted that appointment by the time
the servicer ceases to act, all authority, power and obligations of the servicer
under the pooling agreement will pass to the trustee.
If (1) the trustee is unable to obtain any bids from eligible successor
servicers, (2) the exiting servicer certifies that it cannot in good faith cure
the Servicer Default which gave rise to a transfer of servicing, and (3) the
trustee is legally unable to act as successor servicer, then the trustee will
offer the receivables for sale. The trustee will notify each investor
certificateholder, purchaser representative and enhancement provider of the
proposed sale of receivables, and will provide each receivables purchaser and
enhancement provider with an opportunity to bid on the receivables. The trustee
will also offer the seller a right of first refusal to purchase the receivables
on terms equal to the best purchase offer. The trustee will sell the receivables
only if it is able to obtain the minimum purchase price specified in the pooling
agreement. That purchase price is intended to cover the obligation of the trust
to its investors and related fees and expenses.
A "Servicer Default" means any of the following events:
(a) failure by the servicer: (1) to make any payment or
deposit or (2) to instruct the Trustee to make a required payment or
deposit, or to draw under an enhancement facility, in each case within
one business day after receipt by the servicer of written notice from
the trustee or any purchaser representative that that action is
required under the pooling agreement, a supplement or a receivables
purchase agreement;
(b) failure on the part of the servicer to perform any other
agreements of the servicer contained in the pooling agreement, any
supplement or any receivables purchase agreement which has a material
adverse effect on:
(1) the servicer's ability to collect the
receivables or otherwise perform its obligations; or
(2) the collectibility or value of the receivables;
if that failure continues unremedied for a period of 45 days after
written notice of the failure, requiring the failure to be remedied,
has been given to the servicer by the trustee, or to the servicer and
the trustee by investor certificateholders whose investor certificates
evidence not less than 25% of the investor interest of any certificate
series;
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(c) delegation by the servicer of its duties under the pooling
agreement, except as specifically permitted in the pooling agreement;
(d) any representation or warranty made by the servicer in the
pooling agreement, any supplement or any receivables purchase
agreement, or in any certificate, proves to have been incorrect when
made, and this breach has a material adverse effect on:
(1) the servicer's ability to collect the
receivables or otherwise perform its obligations; or
(2) the collectibility or value of the receivables,
if the representation, warranty or certification continues to be
incorrect in any material respect for a period of 45 days after written
notice of that failure, requiring the breach to be remedied, has been
given to the servicer by the trustee, or to the servicer and the
trustee by investor certificateholders whose investor certificates
evidence not less than 25% of the investor interest of any certificate
series; or
(e) the occurrence of an Insolvency Event relating to the
servicer, after a 60 day grace period in the case of involuntary
proceedings against the servicer.
A delay in or failure of performance referred to in clause (a) above
for a period of 10 business days, or referred to under clause (b), (c) or (d)
for a cumulative period of 60 business days, will not constitute a Servicer
Default if that delay or failure could not be prevented by the exercise of
reasonable diligence by the servicer and that delay or failure was caused by
circumstances beyond the servicer's control.
If there is a total systems failure, a distribution date may be
postponed for up to 10 business days without default. A "total systems failure"
means a total failure of the computer system, including off-site backup systems,
of the servicer or the subservicer that contains records relating to the
receivables, if the failure would make it impossible or impracticable for the
servicer or the subservicer to perform the acts required in anticipation of a
distribution date. The servicer will not be relieved from using its best efforts
to perform its obligations in a timely manner, and the servicer will provide the
trustee with prompt notice of that failure or delay by it, together with a
description of the cause of the failure or delay and its efforts to perform its
obligations.
REPORTS TO SERIES 1999-1 CERTIFICATEHOLDERS
The initial paying agent for Series 1999-1 will be the trustee.
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On each distribution date, the paying agent will send each Series
1999-1 certificateholder a statement prepared by the servicer. The statement
will include information relating to the following:
- collections received during the preceding Due Period, and the
portion allocable to Series 1999-1,
- allocation percentages used to make allocations to Series
1999-1 and each class in Series 1999-1,
- the Investor Interest for each class in Series 1999-1,
- the aggregate outstanding balance of Accounts which were more
than 30, more than 60, more than 90 and more than 120 days
past due at the end of the preceding Due Period,
- losses, dilutions and charge-offs allocated to each class of
Series 1999-1 for the preceding Due Period,
- principal reallocations during the preceding Due Period, and
- Portfolio Yield for the preceding Due Period.
On or before January 31 of each calendar year, the trustee will furnish
to each person who at any time during the preceding calendar year was a
certificateholder of record a statement prepared by the servicer containing a
description of payments made to that certificateholder during the previous year,
together with other information to enable the certificateholder to prepare its
tax returns.
AGREED UPON PROCEDURES
The servicer is required to cause a firm of independent certified
public accountants to annually evaluate, according to procedures described in
the pooling agreement, the servicer's internal accounting controls for the
servicing of the Accounts. The accountants may also perform other services for
the servicer, the seller or the originator. The accountants will prepare a
report for the trustee.
The report will assume the accuracy of information provided by the
servicer's third party agents, and the accountants may qualify the report in a
manner that is typical for reports of this type. A copy of the report may be
obtained by any investor certificateholder upon written request of the trustee.
A new report will be prepared by May 30 of each year.
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The Servicer is also required to deliver an annual certificate signed
by its officer stating that, to the best of the officer's knowledge, the
servicer has fully performed its obligations under the pooling agreement
throughout the preceding year, or, if there has been a default in its
performance, specifying the nature and status of the default.
AMENDMENTS
The pooling agreement and the Series 1999-1 supplement may be amended
without the consent of the holders of Series 1999-1 certificates, so long as
either:
(a) the trustee receives (1) confirmation that the amendment
will not cause the ratings on the Series 1999-1 certificates to be
reduced or withdrawn, and (2) an opinion of counsel opining that the
amendment will not adversely affect, in any material respect, the
interests of any holder of Series 1999-1 certificates, or
(b) the amendment is made to conform the terms of the
supplement to the terms described in this prospectus.
The pooling agreement and any supplement, including the Series 1999-1
supplement, may be amended with the consent of investor certificateholders
representing at least 66-2/3% of the investor interest of each certificate
series adversely affected by the amendment and, if the amendment adversely
affects a receivables purchase series, the representative of the purchasers
in those series. Additionally, amendments having the following effects require
the consent of all, rather than just 66-2/2%, of the investor interest of
investor certificateholders adversely affected:
(a) reducing the amount of distributions, or delaying
the timing of distributions, required to be made on the certificates,
(b) changing the manner of calculating the investor interest,
the Loss Amount or the series allocation percentages for any
certificate series, or
(c) reducing the percentage of outstanding interests required
to consent to an amendment to the pooling agreement or any supplement.
The pooling agreement or any supplement may also be amended to permit
the trust, or portion of the trust, to be treated as a FASIT without the consent
of any investor certificateholder if the seller provides the trustee with:
(1) an opinion of counsel opining that the amendment would (A)
permit the trust or a relevant portion of the trust to be treated as a
FASIT, (B) not cause the trust to be classified, for U.S. federal
income tax purposes, as an association or publicly traded
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partnership taxable as a corporation, and (C) not cause or constitute
an event in which gain or loss would be recognized by any investor
certificateholder;
(2) a certificate that the amendment or modification would not
materially and adversely affect any investor certificateholder; and
(3) confirmation that the amendment would not cause the
ratings on any certificate series to be reduced or withdrawn.
The servicer will furnish written notice of the substance of each
amendment to certificateholders adversely affected by an amendment promptly
following its execution.
LIST OF INVESTOR CERTIFICATEHOLDERS
Series 1999-1 certificateholders of record representing at least 10% of
the Series 1999-1 Investor Interest may have access, during business hours, to
the current list of investor certificateholders of the trust if the following
conditions are satisfied:
(1) the access is for purposes of communicating with investor
certificateholders about their rights under the pooling agreement,
(2) the request for access is in writing, and
(3) the certificateholders making the request have adequately
indemnified the trustee for its costs and expenses.
The amendment provisions of the pooling agreement do not apply to the
issuance of a new series or the addition or removal of receivables from the
trust.
THE TRUSTEE
First Union National Bank is the trustee under the pooling agreement.
The Corporate Trust Department of First Union National Bank is located at 123 S.
Broad Street, Philadelphia, Pennsylvania 19109, telephone number 215/985-7585.
The seller, the servicer and their respective affiliates may from time
to time enter into other banking and trustee relationships with the trustee and
its affiliates. The trustee, the seller, the servicer and any of their
respective affiliates may hold Series 1999-1 certificates in their own names.
For purposes of meeting the legal requirements of some jurisdictions, the
trustee will have the power to appoint a co-trustee or separate trustees of all
or any part of the trust. All rights, powers, duties and obligations of the
trustee will be conferred or imposed upon the trustee and any separate trustee
or co-trustee jointly, or, in any jurisdiction in which the trustee is
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incompetent or unqualified to act, singly upon each separate trustee or
co-trustee. Any separate trustee or co-trustee will exercise and perform its
rights, powers, duties and obligations solely at the direction of the trustee
under the pooling agreement.
The trustee may resign at any time, in which event the servicer will be
obligated to appoint a successor trustee. The servicer may also remove the
trustee if the trustee ceases to be eligible to act as trustee under the pooling
agreement, or if the trustee becomes insolvent. In these circumstances, the
seller or the servicer will be obligated to appoint a successor trustee. Any
resignation or removal of the trustee, does not become effective until
acceptance of the appointment by the successor trustee.
DESCRIPTION OF THE PURCHASE AGREEMENT
OVERVIEW
The originator transfers receivables, together with related net
recoveries, insurance proceeds and other proceeds, to the seller under the
purchase agreement. Newly originated receivables are transferred each day, and
will continue to be transferred until termination of the purchase agreement. The
agreement may be terminated at the originator's election, upon 15 days' advance
written notice to the seller and the trustee or upon shorter notice if that
notice is acceptable to the trustee. The agreement will also automatically
terminate on the termination of the trust.
Under the purchase agreement, principal receivables originated after an
Insolvency Event occurs relating to the originator will not be conveyed to the
seller.
The originator has filed the financing statements, and has agreed to
file continuation statements, as are necessary to perfect the transfer to the
seller of the receivables. Additionally, the originator has:
(a) indicated in its computerized pool index file, identifying
revolving credit card accounts of the originator, that receivables
created in the Accounts have been transferred by the originator to the
seller and by the seller to the trustee; and
(b) delivered to the seller and the trustee a computer file or
microfiche or written list containing a true and complete list of all
Accounts, identified by account number, obligor name and address, and
setting forth the receivables balance on a specified date.
The originator has agreed not to alter its pool index file relating to
any account unless and until that account is no longer designated as an account
from which receivables will be transferred to the trust.
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The originator and the seller have documented the transfer of
receivables under the purchase agreement as a sale. However, if the transfer is
deemed to be a financing arrangement instead, then the originator will be deemed
to have granted the seller a first priority, perfected security interest in the
receivables, all net recoveries on the receivables, all insurance proceeds and
other proceeds of the receivables.
PURCHASE PRICE FOR RECEIVABLES
The purchase price paid by the seller to the originator for each
receivable is currently 102% of the outstanding principal balance of that
receivable. The percentage used to calculate the purchase price may be adjusted
periodically, by agreement of the originator and the seller, to account for
changes in historical losses on the receivables and changes in the seller's
carrying costs.
Seller will pay the originator for newly originated receivables on each
day. If, on any day, the amount of cash available to the seller from the trust
is less than the amount it owes to the originator, the seller may borrow the
difference from its affiliates. If borrowings are not available, payment of the
purchase price will be deferred. The deferred purchase price will accrue
interest at the prime rate published in The Wall Street Journal on the last
business day of the most recent Due Period.
The purchase price otherwise payable by the seller to the originator
will be reduced by the amount of dilution for which the originator is liable. If
the dilution exceeds the purchase price payable on any day when an early
amortization events exists or receivables are no longer being transferred to the
seller, the originator will be required to deposit the uncovered dilution amount
into the collection account. The deposit will be applied as if it were
collections on receivables.
REQUIRED REASSIGNMENT OF RECEIVABLES TO THE ORIGINATOR
Under the purchase agreement, the originator will make representations
and warranties regarding the receivables that are substantially similar to the
representations and warranties made by the seller to the trust under the pooling
agreement. If the Seller has an obligation under the pooling agreement to remove
receivables for breaches of its representations and warranties, the originator
will have a corresponding obligation under the purchase agreement to accept the
reassignment of the receivables. In this case, reconveyance will constitute the
seller's sole remedy for the breach by the originator of its representations and
warranties.
If any receivables, but less than the entire trust portfolio, are to be
reassigned to the originator, the originator will pay to the seller an amount
equal to the outstanding unpaid balance for the receivables so reassigned. The
originator will pay in cash if the seller is obligated to pay the trust in cash
for the related removal under the pooling agreement. Otherwise, the originator
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will pay for reassigned receivables by reducing the purchase price that the
seller must pay for new receivables or the amount then owing for the deferred
purchase price of receivables.
ORIGINATOR'S OBLIGATIONS RELATING TO CARDHOLDER AGREEMENTS AND RECEIVABLES
The originator agrees to perform its obligations under the cardholder
agreements relating to the Accounts and the cardholder guidelines, unless any
failure to comply or perform would not materially and adversely affect the
rights of the seller, trust, the investor certificateholders, any enhancement
provider or any receivables purchasers. The originator may change the terms of
the cardholder agreements or the cardholder guidelines in any way, including
reducing the required minimum monthly payment, changing the calculation of the
amount, or the timing, of charge-offs and the periodic finance charges and other
fees to be assessed on accounts, unless the change would have a material adverse
effect on the collectibility of the receivables. However, the originator may not
change the required minimum monthly payment or periodic finance charge unless
(a) it has received confirmation that the change will not cause the rating of
any outstanding certificates to be reduced or withdrawn or (b) the changes are
mandated by applicable law.
The originator has also agreed that:
(1) it will defend the rights of the seller in the receivables
against claims of third parties claiming through the originator, other
than liens for local taxes not yet due or being contested in good
faith;
(2) it will not convey any interest in the receivables to any
person other than the seller;
(3) it will give the trustee notice of changes which would
require modifications to the UCC filings made against the originator;
and
(4) it will take reasonable steps to make it apparent to third
parties that the seller is an entity with assets and liabilities
distinct from those of the originator, and the seller is not a division
of the originator.
ADDITION AND REMOVAL OF ACCOUNTS
If the seller is required under the pooling agreement to designate
additional Accounts, the originator may elect to so designate additional
Accounts, and convey receivables in the additional Accounts. These designations
will be covered by the same restrictions as are on the seller's ability to
designate Accounts under the pooling agreement as described in "The Pooling
Agreement-Addition of Accounts." The failure of the originator to transfer
receivables to the
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seller solely as a result of the unavailability of a sufficient amount of
eligible receivables will not constitute a breach of the purchase agreement.
However, a failure which has not been timely cured will nevertheless result in
the occurrence of an Early Amortization Event for Series 1999-1 and any other
series that includes this event as an early amortization event.
The originator may request that the seller reacquire receivables from
the trust and reconvey the receivables to the originator. The date of any
removal is called a "Removal Date." The following conditions must be satisfied
for a removal of receivables:
(1) the removal will not, in the reasonable belief of the
originator, cause an early amortization event to occur or result in the
failure to make any payment required for a series;
(2) the originator has delivered, for execution by the seller
and the trustee, a written assignment, together with a computer file or
microfiche or written list containing a list of the affected Accounts
and the aggregate amount of receivables in those Accounts;
(3) the originator will have represented and warranted that no
selection procedure believed by it to be materially adverse to the
investor certificateholders were utilized in selecting the assets to be
removed; and
(4) no early amortization event has occurred for any series.
The originator will pay to the seller, for each removed receivable, a
reassignment price equal to the unpaid amount of that receivable in cash. The
cash will be deposited in the collection account.
DESCRIPTION OF THE SECURITY AGREEMENT
The originator has documented the transfers under the purchase
agreement as absolute sales. However, to protect certificateholders if the
transfers are determined to be financing arrangements, the originator has
executed a security agreement in favor of the trustee. Under this agreement, the
originator granted to the trustee a security interest in any rights it may have
in the receivables, net recoveries on the receivables, and all insurance
proceeds and other proceeds of the receivables.
The parties secured by the security agreement include the investor
certificateholders, including any holder of Series 1999-1 certificates, holders
of receivables purchase interests and enhancement providers for series issued by
the trust, excluding in each case affiliates of the originator.
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If a holder of a Series 1999-1 certificate is a secured party, the
security agreement will secure its right to be paid amounts specified to be
payable to it under the supplement for Series 1999-1. The secured claims of
other secured parties will be the amounts owed to them under their respective
contracts with the trust. However, no beneficiary of the security agreement will
be entitled to receive an amount in excess of the amount it would have received
if the transfer of assets under the purchase agreement were determined to be an
absolute sale by the originator.
LEGAL ASPECTS OF THE RECEIVABLES
NATURE OF INTERESTS IN THE RECEIVABLES
The originator and the seller both have represented that the
receivables are either "accounts" or "general intangibles" within the meaning of
the UCC.
If the receivables constitute accounts, both the sale of the
receivables and the transfer of those receivables as security for an obligation
are governed by Article 9 of the UCC. Under the UCC, financing statements must
be filed to perfect the transfer of the receivables by the originator to the
seller, and the seller to the Trust. Financing statements covering the
receivables have been filed in states where the originator and the seller are
located.
If the receivables constitute general intangibles and the transfer of
the receivables is deemed to be a transfer as security for an obligation, the
provisions of Article 9 of the UCC relating to the perfection of the transfer
are applicable to the same extent as they are applicable to receivables
constituting accounts.
If the transfer of receivables constituting general intangibles is
deemed to be a sale, then the UCC does not apply. Applicable state statutes do
not include requirements for the sale of general intangibles, and case law does
not clearly establish the requirements. However, no further action should be
required to protect the interests of the trust from creditors of the originator
or the seller.
Liens may have arisen on the receivables, as assets of the originator
or the seller, after the pooling agreement was executed but before the
receivables are originated and transferred to the trust. Competing liens could
include federal tax and ERISA liens, which can obtain priority status against
newly originated assets. Statutory and judgment liens created under local law
may also gain priority over the claims of the trust. Each of the originator and
the seller has agreed to defend the trust against competing claims of this type,
but we cannot assure that they will always be able to do so.
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CONSUMER PROTECTION LAWS
The relationship between the holder of a credit card and the card's
issuer is extensively regulated by federal and state consumer protection and
related laws. For credit cards issued by the originator, the most significant
laws include the federal Truth-in-Lending Act, Fair Credit Billing Act, Fair
Debt Collection Practices Act, Equal Credit Opportunity Act, Fair Credit
Reporting Act and Electronic Funds Transfer Act, as well as applicable state
laws in the originator's home jurisdiction and in the other states in which
cardholders reside.
These statutes impose disclosure requirements when a credit card
account is advertised, when it is opened, at the end of monthly billing cycles
and at year end. These statutes also prohibit discriminatory practices in
extending credit and impose limitations on the type of account-related charges
that may be assessed. Federal legislation requires credit card issuers to
disclose to consumers the interest rates, cardholder fees, grace periods and
balance calculation methods associated with their credit card accounts.
Additionally, cardholders are entitled under current laws to have payments and
credits applied to the credit card account promptly, to receive prescribed
notices and to require billing errors to be resolved promptly.
Applicable laws, including the laws described above, may limit the
servicer's ability to collect amounts owing on the receivables regardless of any
act or omission on the part of the originator, the servicer or their affiliates.
For example, under the federal Fair Credit Billing Act, a credit card issuer may
be liable for all claims, other than tort claims, and defenses arising out of
transactions in which: (1) a credit card is used as a method of payment or
extension of credit, (2) the obligor has made a good faith attempt to obtain
satisfactory resolution of a disagreement relative to the transaction from the
person honoring the credit card, (3) the amount of the initial transaction
exceeds $50, and (4) the place where the initial transaction occurred was in the
same state as the cardholder's mailing address or within 100 miles of that
address. These statutes further provide that in some cases cardholders cannot be
held liable for, or the cardholder's liability is limited for, charges to the
credit card account that result from unauthorized use of the credit card.
Additional consumer protection laws may be enacted that would impose
requirements on the making, enforcement and collection of consumer credit loans.
Any new laws or rulings that may be adopted, and existing consumer protection
laws, may adversely affect the ability to collect on the receivables or maintain
the level of yield on the trust's portfolio. Additionally, failure of the
servicer to comply with applicable legal requirements could adversely affect the
servicer's ability to enforce the receivables.
The OCC currently takes the position that a national bank, like the
originator, is entitled to apply the same interest rate in all states, without
regard to state-by-state usury limitations. Some jurisdictions may attempt to
require out-of-state credit card issuers to comply with that jurisdiction's
consumer protection laws, including laws limiting the charges imposed by these
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credit card issuers. If it were determined that out-of-state credit card issuers
must comply with a jurisdiction's laws limiting the charges imposed by credit
card issuers, this determination could have an adverse impact on a originator's
credit card operations and on the earnings of the trust.
Application of federal and state bankruptcy and debtor relief laws,
including the Soldiers' and Sailors' Civil Relief Act of 1940, could affect the
interests of the holders of the Series 1999-1 certificates if the protection
provided to debtors under these laws results in receivables of the trust being
written off as uncollectible.
The trust may be liable for violations of consumer protection laws that
apply to the receivables transferred to it, either as assignee from the
originator or the seller for obligations arising before the transfer or as a
party directly responsible for obligations arising after the transfer.
Additionally, a cardholder may be entitled to assert these violations by way of
set-off against his obligation to pay the trust amounts owing under his Account.
The originator and the seller have warranted that receivables
transferred to the trust are created under the requirements of applicable law.
They are required to repurchase receivables as to which this warranty is
breached. However, we cannot assure that they will always be able to do so.
CLAIMS AND DEFENSES OF CARDHOLDERS AGAINST THE TRUST
The provisions of the UCC apply to the trust if the trustee is deemed
to have acquired a security interest in the receivables transferred to it. The
UCC provides that:
(1) unless a cardholder has made an enforceable agreement not
to assert defenses or claims arising out of a transaction, (a) the
rights of the trust, as assignee, are governed by all the terms of the
cardholder agreement between the originator and the cardholder, and (b)
a cardholder may exercise rights of set off and any other defense or
claim of the cardholder against the originator, and
(2) any cardholder is authorized to continue to pay the
originator until (a) the cardholder receives notification, reasonably
identifying the rights assigned, that the amount due or to become due
has been assigned and that payment is to be made to the trustee or the
servicer and (b) if requested by the cardholder, the trustee or the
servicer has furnished reasonable proof of assignment.
None of the parties will send notice to cardholders obligated on the
Accounts of the transfer of the receivables to the trust.
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The Federal Trade Commission's Preservation of Claims and Defenses
Trade Regulation Rule has the effect of preserving claims and defenses that the
cardholder may have against the seller of goods or services, or against the
originator, when an account or any amount owed under an account is sold or
assigned to another creditor, including the trust.
INSOLVENCY LAWS AFFECTING TRANSFERS
Under the purchase agreement and the pooling agreement, there are three
transfers of Receivables to consider: the transfer by the originator to the
seller under the purchase agreement; the transfer by the seller to the trustee
under the pooling agreement; and the transfer by the originator to the trustee
under the security agreement. The originator and the seller intend the transfer
from the originator to the seller under the purchase agreement to be a true
sale. It is possible, however, that creditors or other persons, including a
trustee, receiver or conservator of the originator, or the originator as
debtor-in-possession, could argue that the transfer instead is a grant of a
security interest in the receivables. The seller intends the transfer of
receivables to the trustee to be either a true sale or the grant of a security
interest. The originator and the trustee intend that the transfer by the
originator to the trustee under the security agreement will be characterized as
the grant of a security interest.
The effect of characterizing any of the foregoing transfers as the
grant of a security interest was described in the following Risk Factors:
- Insolvency of the originator, the seller, the servicer or
Charming Shoppes could accelerate, reduce or delay payments to
you; and
- Some liens could be given priority over your securities which
could cause delayed or reduced payments.
The following discussion provides additional background on the issues
described in the Risk Factors.
Transfers by the Originator. Under the Federal Deposit Insurance Act, a
conservator or receiver for a federally insured bank can avoid security
interests granted by the bank. The FDIC has issued a policy statement describing
some circumstances when it will not exercise this power.
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In this policy statement, the FDIC states that it will respect a grant
of a security interest by a bank if-
- the security agreement grants a valid security interest in the
bank's assets;
- the security interest (a) is validly perfected before the
bank's insolvency and (b) was not taken in contemplation of
the bank's insolvency or with the intent to hinder, delay or
defraud the bank or its creditors;
- the security interest was not granted for the benefit of an
affiliate of the bank; and
- the security agreement is continuously an official record of
the bank and represents a bona fide and arm's length
transaction undertaken for adequate consideration in the
ordinary course of business.
The transfer by the originator to the seller under the purchase
agreement could be treated as the grant of a security interest for the benefit
of the originator's affiliate, and therefore may be repudiated by the FDIC. To
provide additional protection to holders of Series 1999-1 certificates, the
originator has granted a security interest directly to the trustee under the
security agreement for the benefit of non-affiliate Series 1999-1
certificateholders. It is possible that a conservator or receiver for the
Originator could attempt to avoid this security interest and/or recover payments
to the seller or the trustee for receivables.
A conservator or receiver may also require the seller or the trustee to
establish its right to payments by submitting to and completing the
administrative claims procedure under the Federal Deposit Insurance Act, or
requesting a stay of proceedings regarding the originator as provided under the
Act. In these events, delays in payments on the Series 1999-1 certificates and
possible reductions in the amount of those payments could occur.
The Federal Deposit Insurance Act also provides that the FDIC may
repudiate contracts determined by it to be burdensome. If the FDIC were to
repudiate the purchase agreement, the seller and the trust would be limited to
actual direct compensatory damages. The security interests securing these claims
would be enforceable only to the extent of these damages.
The Act does not define the term "actual direct compensatory damages",
but requires damages to be determined on the date of the appointment of the
conservator or receiver. Measuring damages on the date of the appointment
potentially creates a gap in the interest recoverable by the holder of the claim
against the insolvent bank for the rejection of a contract, if the rejection is
not contemporaneous with the date of appointment. Also, the FDIC
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might argue that "actual direct compensatory damages" is an amount other than
principal and interest due under the rejected contract.
Comparable regulatory schemes do not create a clear precedent for
action to be taken by the FDIC. For example, issues similar to those raised by
the Federal Deposit Insurance Act have been addressed in contradictory ways in
the savings and loan industry. On April 10, 1990, the RTC, formerly a sister
agency of the FDIC, adopted a statement of policy regarding the payment of
interest on direct collateralized borrowings of savings associations. The RTC
policy statement states that interest on these borrowings will be payable at the
contract rate up to the date of the redemption or payment, so that a secured
creditor could claim an amount equal to (1) the principal owed, plus (2)
interest at the contract rate of interest up to the date of that payment or
redemption, plus (3) any expense of liquidation if provided for in the contract
and to the extent secured by the collateral. However, in a case involving
zero-coupon bonds directly issued by a savings association which were repudiated
by the RTC, a federal district court in the Southern District of New York held,
in 1993, that the RTC was obligated to pay holders the fair market value of
repudiated bonds on the date of repudiation. The fair market value was different
than the par value due to interest rate fluctuations.
The FDIC itself has not adopted a policy statement on payment of
interest on collateralized borrowings of banks. However, the FDIC, in its 1993
policy statement regarding security interests, indicated that in the case of
repudiation of a secured obligation by the FDIC as conservator or receiver, the
liability for repudiation is limited to actual direct compensatory damages,
determined at the date of appointment.
The FDIC, as conservator or receiver, would also have the rights and
powers conferred under applicable state or Federal law, including laws regarding
bank insolvencies and applicable laws regarding preferences or fraudulent
conveyances. The appointment of a receiver or conservator could:
(1) adversely affect the originator's ability to repurchase
receivables or make cash deposits for credits, adjustments or
fraudulent charges,
(2) result in administrative expenses of the receiver or
conservator having priority over the interest of the trust in the
receivables to a third party,
(3) prevent or require the sale, liquidation or disposition of
the receivables to a third party, or
(4) prevent or require the continued sale of receivables to
the seller.
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If the transfer of receivables by the seller to the trust is deemed to
be the creation of a security interest and the seller became involved in
bankruptcy proceedings, the receivables would be part of the seller's bankruptcy
estate and under the jurisdiction of the bankruptcy court. To gain access to the
receivables, the trust would need court approval. The court has the power to
allow the seller to continue using proceeds of receivables, so long as
substitute collateral would be available to the trust. If the court were to
allow substitution of collateral in this way, the payments on the Series 1999-1
certificates could be delayed or ultimately reduced.
Additional Legal Concerns Regarding Transfers by the Seller. The seller
will warrant in the pooling agreement that the transfer of the receivables is
either a sale to the trustee or a grant of a first priority perfected security
interest in the receivables to the trustee. The seller will take actions under
the UCC in effect in its principal place of business, Delaware, to perfect the
trustee's interest in the receivables. Nevertheless, a tax or other statutory or
nonconsensual lien on the property of the originator or the seller arising
before an interest in a receivable is transferred to the trustee may have
priority over the trustee's interest in that receivable. If the seller were to
become a debtor in a bankruptcy case and a bankruptcy trustee or creditor of the
seller were to take the position that the transfer of an interest in the
receivables to the trustee should be recharacterized as a pledge of those
receivables, then delays in distributions on the Series 1999-1 certificates or
reductions in those distributions could result.
Upon the occurrence of an Early Amortization Event, if the Seller were
the subject of bankruptcy or insolvency proceedings, the bankruptcy court may
have the power to prevent the early sale, liquidation or disposition of the
receivables and the commencement of an Early Amortization Period.
OTHER ISSUES UNDER INSOLVENCY LAWS
While the originator or any of its affiliates is the servicer, cash
collections held by that entity may sometimes be commingled and used for the
benefit of that entity before the date on which those collections are required
to be deposited in the collection account. If the servicing entity becomes
insolvent or if the statutory time period under the UCC has lapsed, the trust
may not have a perfected interest in those collections. In that event, the trust
may suffer a loss of all or part of those collections which may result in a loss
to Series 1999-1 certificateholders.
If a conservator, receiver or liquidator is appointed for the servicer,
and no Servicer Default other than that conservatorship, receivership,
liquidation or insolvency of the servicer exists, the conservator, receiver or
liquidator may have the power to prevent the trustee, investor
certificateholders and receivables purchasers from appointing a successor
servicer.
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U.S. FEDERAL INCOME TAX CONSEQUENCES
OVERVIEW
The following is a summary of the material Federal income tax
consequences of the purchase, ownership and disposition of the offered
certificates. This summary is based upon current provisions of the Internal
Revenue Code of 1986, called the "Code", proposed, temporary and final Treasury
regulations under the Code, and published rulings and court decisions. The
current tax laws and the current regulations, rulings and court decisions may be
changed, possibly retroactively. The parts of this summary which relate to
matters of law or legal conclusions, represent the opinion of Mayer, Brown &
Platt, special Federal tax counsel for the seller, and are as qualified in this
summary. We have not sought and will not seek any rulings from the IRS about any
of the Federal income tax consequences we discuss. We cannot assure you that the
IRS will not take positions contrary to those we discuss.
The following summary is intended as a discussion of the possible
effects of federal income tax consequences to investors in offered certificates,
but is not intended to furnish information in the level of detail or with the
attention to an investor's specific tax circumstances that would be provided by
an investor's own tax advisor. For example, it does not discuss the tax
consequences of the purchase, ownership and disposition of the offered
certificates by investors that are given special treatment under the federal
income tax laws, including:
- banks and thrifts,
- insurance companies,
- regulated investment companies,
- dealers in securities,
- holders that will hold the offered certificates as a position
in a "straddle" for tax purposes or as a part of a "synthetic
security," "conversion transaction" or other integrated
investment comprised of the offered certificates, and
- one or more other investments, foreign investors, trusts and
estates and pass-through entities, the equity holders of which
are any of the foregoing.
Additionally, the discussion regarding the offered certificates is limited to
the federal income tax consequences to the initial investors and not to a
purchaser in the secondary market.
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Further, we do not furnish information in this summary in the level of
detail or with the attention to an investor's specific tax circumstances that
would be provided by an investor's own tax advisor. Accordingly, we recommend
that prospective investors consult with their own tax advisors about the
Federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the offered certificates.
CHARACTERIZATION OF THE CERTIFICATES AND THE TRUST
In the opinion of Mayer, Brown & Platt, the trust will not be
classified as an association or publicly traded partnership taxable as a
corporation for Federal income tax purposes. Mayer, Brown & Platt is also of the
opinion that, based on the substantive terms of the offered certificates, the
offered certificates will be treated as indebtedness for Federal income tax
purposes.
In general, whether for Federal income tax purposes a transaction
constitutes a sale of property or a loan which is secured by the property, is a
question of fact, and is based upon the economic substance of the transaction
rather than its form or label. The primary factor in determining whether the
substance of a transaction is a sale or a loan is whether the person who has
purchased the property or made a loan secured by the property has assumed the
risk of loss from the property and has obtained the benefits of ownership of the
property. The intention of the parties is another important factor in
determining whether a transaction will be treated as a sale or a loan for
Federal income tax purposes. The seller expresses in the pooling agreement its
intent that for federal, state and local income and franchise tax purposes, the
offered certificates will be indebtedness. Further, the seller, the servicer and
each initial and subsequent investor, by acquiring an interest in an offered
certificate, agrees or will be deemed to agree to treat the offered certificates
as indebtedness for Federal, state and local income or franchise tax purposes.
Based on its analysis of the substance of the transaction contemplated
in this Prospectus and the parties' intentions, Mayer, Brown & Platt has
concluded that the purchasers of the offered certificates will be treated as
making a loan to the seller secured by the receivables. Therefore, Mayer, Brown
& Platt is of the opinion that the offered certificates will be treated as debt
for Federal income tax purposes. However, no transaction closely comparable to
that contemplated in this Prospectus has been the subject of any Treasury
regulation, revenue ruling or judicial decision. Prospective investors should
also be aware that opinions of counsel are not binding on the IRS, and the IRS
could successfully challenge treatment of the offered certificates as
indebtedness for Federal income tax purposes.
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Except as otherwise expressly indicated, the remaining discussion
assumes that the offered certificates will be treated as debt for Federal income
tax purposes and that payments on the offered certificates are denominated in
U.S. dollars.
TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
If the offered certificates are not treated as issued with "original
issue discount" or "OID", investors will be required to include the stated
interest on the offered certificates in income either when received or accrued,
according to their method of tax accounting. The offered certificates will not
be treated as issued with OID if (1) the interest payable on the offered
certificates meets the requirements for "qualified stated interest" under
Treasury Regulations relating to OID, and (2) any excess of the principal amount
of the offered certificates over the issue price of the offered certificates
does not exceed a de minimis amount. Qualified stated interest generally
includes interest that is payable unconditionally at least annually at a single
fixed rate that appropriately takes into account the length of time between
payments. It is uncertain whether interest payable on the offered certificates
will qualify as qualified stated interest. A de minimis amount is defined by
Treasury Regulations as 1/4% of the principal amount of the offered certificates
multiplied by the number of full years included in their term.
If the offered certificates are treated as issued with OID, then the
excess of the payments other than "qualified stated interest" over the original
issue price for the offered certificates will constitute OID. The original issue
price for the offered certificates will be the initial offering price at which a
substantial amount of the offered certificates are sold to the public. The owner
of an offered certificate must include OID, if any, in income as interest over
the term of the certificate under a constant yield method. In general, OID must
be included in income in advance of the receipt of cash representing that
income. Further, under the Code, special rules relating to OID, market discount
and acquisition premium apply to debt obligations which may be accelerated due
to prepayments of obligations securing the debt obligation. It is uncertain
whether these special rules apply to the offered certificates. If they were to
apply, the seller would calculate and report OID, if any, based upon a
reasonable prepayment assumption.
A subsequent investor who purchases an offered certificate for less
than or more than the adjusted issue price of an offered certificate will be
governed by special rules. A subsequent investor who purchases an offered
certificate for less than the adjusted issue price of the offered certificate,
which is referred to as market discount, may be governed by the "market
discount" rules of the Code. These rules provide, in part, that gain
attributable to accrued market discount will be treated as ordinary income upon
the receipt of partial principal payments, or upon the sale or disposition of
the offered certificate. These rules also provide for the deferral of interest
deductions related to debt incurred to acquire or carry the offered certificate.
An investor who purchases an offered certificate for more than the adjusted
issue price of the offered certificate, which is referred to as a premium, may
elect to
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offset this premium against interest income over the remaining term of
the offered certificate under Section 171 of the Code.
SALE OR DISPOSITION OF A CERTIFICATE
An investor who disposes of an offered certificate by sale, exchange,
redemption or otherwise will recognize gain or loss equal to the difference
between the amount of cash and the fair market value of any property received,
other than amounts attributable to, and taxable as, accrued interest, and the
investor's adjusted tax basis in the offered certificate. The adjusted tax basis
of an offered certificate will equal the investor's cost for the offered
certificate, increased by any OID or market discount previously included in
income by the investor and decreased by any deductions previously allowed for
amortizable bond premium and by any payments reflecting principal or OID on the
offered certificate. Any gain or loss will generally be long-term capital gain
or loss, provided that the offered certificate was held as a capital asset for
more than one year. The maximum ordinary income tax rate for individuals exceeds
the maximum long-term capital gains rate for individuals. Any realized capital
losses may generally be used by a corporate taxpayer only to offset capital
gains and by an individual taxpayer only to the extent of capital gains plus
$3,000 of other income.
If the seller defeases the certificates as described in "The Pooling
Agreement- Defeasance", an investor may be required to recognize gain on an
offered certificate as described in the preceding paragraph, and may be unable
to recognize loss as a result of the defeasance. Prospective investors are
advised to consult with their tax advisors about the tax effects of a defeasance
upon them.
POSSIBLE CLASSIFICATION AS A PARTNERSHIP OR AS AN ASSOCIATION TAXABLE AS A
CORPORATION
The opinions of Mayer, Brown & Platt that the trust will not be treated
as an association or publicly traded partnership taxable as a corporation and
that the offered certificates will be treated as debt are not binding on the
courts or the IRS. Further, the IRS could assert that, for purposes of the Code,
the transactions contemplated in this Prospectus constitute a sale of the
receivables, or an interest in the receivables, to the investors and that the
legal relationship between the seller and some or all of the investors resulting
from the transactions is a partnership, including a publicly traded partnership,
or a publicly traded partnership taxable as a corporation. The seller currently
does not intend to comply with the Federal income tax reporting requirements
that would apply if any offered certificates were treated as interests in a
partnership or a publicly traded partnership taxable as a corporation.
If a partnership, other than a publicly traded partnership taxable as a
corporation, between the seller and investors were held to exist, the
partnership itself would not be required to pay Federal income tax. Rather, the
partners of the partnership, including the investors, would be taxed
individually on their distributive shares of the partnership's income, gain,
loss, deductions
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and credits. The amount and timing of items of income and deductions of an
investor could differ if the offered certificates were held to constitute
partnership interests, rather than debt. Moreover, unless the partnership were
treated as engaged in a trade or business, an individual investor's share of
expenses of the partnership would be miscellaneous itemized deductions that, in
the aggregate, are allowed as deductions only to the extent they exceed two
percent of the individual's adjusted gross income, and could be reduced under
Section 68 of the Code if the individual's adjusted gross income exceeded
specified limits. Furthermore, these deductions would be eliminated altogether
for purposes of the alternative minimum tax. As a result, the individual might
be taxed on a greater amount of income than the stated rate on the offered
certificates. Finally, if a partnership were held to exist, all or a portion of
any taxable income allocated to an investor that is a pension, profit-sharing or
employee benefit plan or other tax-exempt entity, including an individual
retirement account, may constitute "unrelated business taxable income" which
generally would be taxable to the tax-exempt investor under the Code.
If it were determined that a transaction created an entity classified
as a publicly traded partnership taxable as a corporation, the trust would be
required to pay Federal income tax at corporate income tax rates on its income,
and may have to pay state and local taxes, which would reduce the amounts
available for distribution to the investors. If the offered certificates were
treated as partnership interests in a publicly traded partnership, taxable as a
corporation, distributions to the investors generally would not be deductible in
computing the taxable income of the publicly traded partnership. Also, cash
distributions to the investors generally would be treated as dividends for tax
purposes, but possibly without the benefit of a dividends received deduction.
FASIT LEGISLATION
Recent legislation created a new type of entity for Federal income tax
purposes called a "financial asset securitization investment trust" or "FASIT."
Arrangements similar to the trust may elect to be treated as a FASIT. A FASIT
election would enable the trust to avoid Federal income taxation and to issue
securities, similar to the offered certificates, which would be treated as debt
for Federal income tax purposes. If specified in the related Supplement, the
trust may make an election for newly-authorized trust interests to be treated as
interests in a FASIT. The pooling agreement may contain any of these terms and
provide for the issuance of certificates on the terms and conditions which are
permitted to a FASIT and described in the related Supplement. Additionally, the
pooling agreement or any Supplement, including the Series 1999-1 Supplement, may
be amended to permit a FASIT election to be made for the trust, and to make the
modifications to the pooling agreement and any Supplement as may be permitted by
the making of a FASIT election. It is not known whether the seller will or will
not cause a FASIT election to be made for the trust or any certificate series,
or amend the pooling agreement or any Supplement as a part of any election.
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Although the FASIT legislation was effective on September 1, 1997, many
technical issues have not been addressed by Treasury regulations. Transition
rules permit an entity in existence on or after August 31, 1997, like the trust,
to elect FASIT status. However, it is not clear how outstanding interests of an
electing entity would be treated after an election. Thus, it is not clear how
the offered certificates would be treated if the trust made a FASIT election.
Therefore, as a condition to making a FASIT election, the seller must provide
the trustee with the following:
(1) an opinion of counsel stating that any amendment permitting a FASIT
election: (a) would permit the trust or a relevant portion of the trust
to be treated as a FASIT, (b) would not cause the trust to be
classified as an association or publicly traded partnership taxable as
a corporation for Federal income tax purposes, (c) would not cause or
constitute an event in which gain or loss would be recognized by any
holder of investor certificates in the trust, including a holder of
offered certificates, and (d) would not materially or adversely affect
the tax characterization of the offered certificates; and
(2) a certificate that the amendment would not materially and adversely
affect any holder of an interest in any certificate series, receivables
purchase series or any enhancement provider.
Prospective investors should consult their tax advisors about the effects of a
FASIT election upon them.
FOREIGN INVESTORS
The following information describes the U.S. Federal income tax
treatment of investors that are not United States persons, or "Foreign
Investors", if the offered certificates are treated as debt. The term "Foreign
Investor" means any person who is not:
(1) a citizen or resident of the United States,
(2) a corporation, partnership or other entity created or organized in
or under the laws of the United States or any political subdivision
of the United States,
(3) an estate, the income of which is includible in gross income for
United States Federal income tax purposes, regardless of its
source, or
(4) a trust if a U.S. court is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the
trust or if the trust has made an election to be treated as a
United States person.
Tax would be withheld from payments of interest, including OID, paid to
a Foreign Investor at a rate of 30% unless (1) the income is "effectively
connected" with the conduct by the Foreign Investor of a trade or business in
the United States as evidenced by an IRS Form 4224 or
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new IRS Form W-8ECI, signed by the investor or its agent; (2) the Foreign
Investor delivers an IRS Form 1001 or new IRS Form W-8BEN, signed by the
investor or its agent, claiming exemption from withholding or a reduced rate of
withholding under an applicable tax treaty; or (3) the Foreign Investor and each
securities clearing organization, bank, or other financial institution that
holds the offered certificates on behalf of the customer in the ordinary course
of its trade or business, in the chain between the investor and the United
States person otherwise required to withhold the United States tax, complies
with applicable identification requirements, and the investor does not actually
or constructively own 10% or more of the voting stock of the seller and is not a
controlled foreign corporation of the seller. Applicable identification
requirements generally will be satisfied if there is delivered to a securities
clearing organization and to the United States entity otherwise required to
withhold tax an IRS Form W-8 or new IRS Form W-8BEN signed under penalties of
perjury by the investor, stating that the investor is not a United States person
and providing the investor's name and address. In the case of (1), (2) or (3)
above, the appropriate form will be effective provided, that (a) the applicable
form is delivered as required by applicable procedures and is properly
transmitted to the United States entity otherwise required to withhold tax, and
(b) none of the entities receiving the form has actual knowledge that the
investor is a United States person.
An investor that is a nonresident alien or foreign corporation will not
be liable for United States Federal income tax on gain realized upon the sale,
exchange, or redemption of an offered certificate, if (1) this gain is not
effectively connected with the conduct of a trade or business in the United
States, (2) in the case of an individual foreign investor, the investor is not
present in the United States for 183 days or more during the taxable year of the
sale, exchange, or redemption, and (3) in the case of gain representing accrued
interest, the conditions described in the last paragraph are satisfied.
If the trust were reclassified as a partnership that is not taxable as
a corporation, a Foreign Investor might be required to file a U.S. Federal
income tax return and pay tax on its share of partnership income at regular
United States rates, including the branch profits tax in the case of a Foreign
Investor that is a corporation. Withholding tax, at the current rate of 39.6% in
the case of individuals and 35% in the case of corporations would also be
deducted from a Foreign Investor's share of the partnership's "effectively
connected taxable income." If the offered certificates were recharacterized as
equity interests in a publicly traded partnership taxable as a corporation, tax
would be withheld from distributions on the offered certificates treated as
dividends generally at a rate of 30% unless reduced by an applicable treaty or
other exemption.
New Withholding Regulations. The Treasury Department has issued new
withholding regulations containing modifications to the withholding, backup
withholding and information reporting rules described above. For example,
persons currently required to file Form W-8 or Form 1001 will be required to
file new Form W-8BEN and persons currently required to file Form 4224 will be
required to file new Form W-8ECI. The
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new withholding regulations will be effective for payments made after December
31, 2000, but Forms W-8, 1001 and 4224 filed before that date will continue to
be effective until the earlier of December 31, 2000 or their current expiration
date. Prospective investors are advised to consult their tax advisors regarding
these new withholding regulations.
BACKUP WITHHOLDING
Backup withholding taxes will be imposed on payments to any investor,
other than an exempt holder like a corporation, tax exempt organization,
qualified pension and profit sharing trust, individual retirement account or
nonresident alien who provides certification of their status as nonresident, at
the rate of 31% on interest paid, and original issue discount accrued, if any,
on the offered certificates if the investor, upon issuance, fails to supply the
Trustee or its broker with a certified statement, under penalties of perjury,
containing the investor's name, address, correct taxpayer identification number,
and a statement that it is not required to pay backup withholding. Information
returns will be sent annually to the IRS and to each investor stating the amount
of interest paid, and original issue discount accrued, if any, on the offered
certificates and the amount of tax withheld from payments on the certificates.
We advise investors to consult with their tax advisors about their eligibility
for, and the procedure for obtaining, exemption from backup withholding.
OHIO STATE TAX CONSEQUENCES
Material Ohio tax consequences to the trust and of an investment in the
offered certificates are described below. This discussion does not address every
aspect of the Ohio tax laws that may be relevant to some investors in light of
their specific circumstances or their special treatment under Ohio law. The tax
consequences arising to the investors under the laws of other jurisdictions are
also not discussed in this summary. Therefore, prospective certificate owners
are advised to consult their own tax advisors in determining the state,
including Ohio, and local tax consequences to them as a result of purchasing,
owning and disposing of the certificates.
The following summary is based upon existing provisions of the Ohio
Revised Code pertaining to Ohio taxation, the regulations under these
provisions, relevant judicial rulings, and administrative decisions and
pronouncements, all of which are may be changed, which change may be applied
retroactively. There are no existing Ohio authorities addressing similar
transactions or involving a trust that issues interests with terms similar to
those of the offered certificates, and no ruling addressing the matters
discussed below is being sought from Ohio authorities. Accordingly, we cannot
assure you that Ohio authorities would agree with this summary.
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Except as noted below, in the opinion of Squire, Sanders & Dempsey
L.L.P., special Ohio tax counsel, the trust will not be required to pay the Ohio
personal income tax, the Ohio corporate franchise tax, or the Ohio tax on
dealers in intangibles, as those taxes do not apply to trusts of the type used
in this transaction.
In general, the treatment of the offered certificates for federal
income tax purposes should apply for Ohio tax purposes. Thus, if the
certificates are treated as indebtedness for federal income tax purposes, they
would be treated as indebtedness for Ohio income tax purposes. As a result,
investors not otherwise required to pay Ohio tax would not be required to pay
Ohio tax solely as a result of their ownership of the certificates.
For purposes of determining Ohio taxable income, Ohio has adopted the
Code and the regulations under the Code. Therefore, the Ohio tax consequences to
investors who are Ohio residents or who are otherwise required to pay Ohio
personal income tax, Ohio corporate franchise tax, or the Ohio tax on dealers in
intangibles will be the same as the consequences to those investors for federal
income tax purposes. Accordingly, the stated interest on the certificates will
be taxable as ordinary interest income, and a gain or loss on the sale of
disposition of the certificates will be capital gain or loss for Ohio tax
purposes. See "U.S. Federal Income Tax Consequences".
If some or all of the offered certificates are treated as equity
interests in a partnership, other than a "publicly traded partnership", for
federal income tax purposes, those certificates should be treated as partnership
interests for Ohio personal income tax and corporate franchise tax purposes. In
that case, Ohio could view the partnership as doing business in Ohio, but the
partnership would not itself be taxed in Ohio. However, each item of income,
gain, loss, deduction and credit generated through the ownership of the
receivables by the partnership would be passed through to the certificate owners
as partners of the partnership, who would then be responsible for any income or
franchise tax imposed at the partner level. Nonresident individual partners who
receive allocations of the partnership's Ohio taxable income would be taxed in
Ohio on that income. Corporate partners generally would be required to take into
account income from their partnership interests for purposes of calculating the
amount of their income apportioned or allocated to Ohio. However, corporate
limited partners not otherwise required to pay the Ohio corporate franchise tax
should not be required to pay that tax by reason of mere ownership of the
offered certificates.
If the offered certificates are instead treated for federal income tax
purposes as equity interests in an entity classified as an association taxable
as a corporation or in a "publicly traded partnership" taxable as a corporation,
the entity would be required to pay the Ohio corporate franchise tax on its
taxable income generated by ownership of the receivables. Investors probably
would be taxed on distributions by the entity on their offered certificates in
the same way they are taxed on regular corporate dividends and other
distributions. The equity-level taxes could result in reduced distributions to
all investors in that case. If corporate treatment were to
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apply, an investor not otherwise taxed in Ohio should not be required to pay
Ohio tax on distributions from the entity as a result of its mere ownership of
the offered certificates.
Additionally, Ohio imposes a withholding tax on a "qualifying
investor's" distributive share of the Ohio apportioned income of a "qualifying
pass-through entity." If the transaction is recharacterized by federal
authorities as creating a partnership that is doing business in Ohio, it is
likely that the Ohio authorities would also treat the trust as a partnership, in
which case the trust may be required to withhold and pay over an Ohio tax if
offered certificates are held by "qualifying investors." In general, a
"qualifying investor" is an individual or entity not otherwise required to pay
the Ohio personal income tax, corporate franchise tax or Ohio dealers in
intangibles tax. If the trust is considered to be a "qualifying pass-through
entity," then it would be required to pay an entity-level 8.5% tax on the net
sum of the distributive share of trust income apportioned to Ohio of
nonindividual investors who are "qualifying investors," and would be required to
withhold 5% of the net sum of the distributive share of trust income apportioned
to Ohio of individual investors who are "qualifying investors." The amount of
the tax paid or withheld may be claimed as a credit against the qualifying
investor's Ohio income or franchise tax liability in an amount equal to the
qualifying investor's proportionate share of the lesser of the tax due or paid.
ERISA CONSIDERATIONS
When we refer to a "Benefit Plan" we mean (1) any employee benefit
plan, trust or account (including an individual retirement account) within the
meaning of Section 3(3) of Title I of the Employee Retirement Income Security
Act of 1974, whether or not it is required to follow that law and (2) any plan
that is described in Section 4975(e)(1) of the Code.
Offered certificates may not be acquired by or for the account of (1) a
Benefit Plan or (2) any entity whose underlying assets include any Benefit Plan
assets because of a Benefit Plan's investment in that entity.
By accepting and holding an offered certificate, an investor will be
deemed to have represented and warranted that either:
(1) it is not a Benefit Plan, and that its acquisition and holding of
an offered certificate complies with the foregoing restrictions on
Benefit Plan assets or
(2) it is an insurance company purchasing the offered certificates with
assets of its general account, and at the time of acquisition and
throughout the period of holding,
(a) it meets all of the requirements of and is eligible for
exemptive relief under Prohibited Transaction Class Exemption
95-60,
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(b) less than 25% of the assets of that general account are Benefit
Plan assets and
(c) it is not a servicer to the trust or an affiliate of a servicer
to the trust, and would not otherwise be excluded under 29 CFR
2510.3-101(f)(1).
UNDERWRITING
The seller has agreed to sell and Bear, Stearns & Co., Inc. and
[Others] have agreed to purchase the principal amount of the Class A
certificates listed in the table below. Additionally, the seller has agreed to
sell and Bear, Stearns & Co., Inc. has agreed to purchase the entire principal
amount of the Class B certificates. The terms of these purchases are governed by
an underwriting agreement between the seller and Bear, Stearns & Co, for itself
and as representative of all underwriters.
<TABLE>
<CAPTION>
Principal Amount of Underwriter's Price to
Underwriters of Class A Certificates Class A Certificates Commission Public
<S> <S> <S> <S>
Bear, Stearns & Co. Inc.
[Others]
<CAPTION>
Principal Amount of Underwriter's Price to
Underwriters of Class B Certificates Class A Certificates Commission Public
<S> <S> <S> <S>
Bear, Stearns & Co. Inc.
</TABLE>
The underwriters have agreed to purchase all of the offered
certificates if any of the offered certificates are purchased.
Bear, Stearns & Co. Inc., as representative of the Class A
underwriters, has advised the seller that the Class A underwriters propose
initially to offer the Class A certificates to the public at the public offering
price stated on the cover page of this prospectus, and to some dealers at that
price, less a concession of up to [____]% for each Class A certificate. The
Class A underwriters may allow, and those dealers may reallow, concessions up to
[____]% of the principal amount of the Class A certificates to some brokers and
dealers.
Bear, Stearns & Co Inc. has advised the seller that it proposes
initially to offer the Class B certificates to the public at the public offering
price stated on the cover page of this prospectus, and to some dealers at that
price, less a concession not in excess of [____]% for each Class B certificate.
Bear, Stearns & Co Inc. may allow, and those dealers may reallow, concessions of
up to [____]% of the principal amount of the Class B certificates to some
brokers and dealers.
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Additional offering expenses are estimated to be $[____________].
The seller, the servicer and Fashion Service Corp. will indemnify the
underwriters against liabilities caused by (1) any untrue statement or alleged
untrue statement of a material fact contained in this prospectus or the related
registration statement or (2) any omission or alleged omission to state a
material fact required to be stated in this prospectus or the related
registration statement or necessary to make the statements in this prospectus or
the related registration statement not misleading. The seller, the servicer and
Fashion Service Corp., will not, however, indemnify the underwriters against
liabilities caused by any untrue statement or omission, real or alleged, made in
reliance upon and in conformity with information relating to and provided by any
underwriter for use in this prospectus and the related registration statement.
The underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids for the offered
certificates under Regulation M under the Exchange Act.
- Over-allotment transactions involve syndicate sales in excess
of the offering size, which creates a syndicate short
position.
- Stabilizing transactions permit bids to purchase the offered
certificates so long as the stabilizing bids do not exceed a
specified maximum.
- Syndicate covering transactions involve purchases of the
offered certificates in the open market after the distribution
has been completed in order to cover syndicate short
positions.
- Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the offered
certificates originally sold by that syndicate member are
purchased in a syndicate covering transaction.
These transactions may cause the prices of the offered certificates to
be higher than they would otherwise be in the absence of those transactions.
Neither the seller nor any of the underwriters represent that the underwriters
will engage in any of those transactions or that those transactions, once
commenced, will not be discontinued without notice at any time.
LEGAL MATTERS
Certain legal matters relating to the issuance of the offered
certificates will be passed upon for the Seller by Colin D. Stern, Executive
Vice President and General Counsel of Charming Shoppes, and by Mayer, Brown &
Platt, Chicago, Illinois, special counsel to the Seller. Certain legal matters
relating to the federal tax consequences of the issuance of the
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offered certificates will be passed upon for the Seller by Mayer, Brown & Platt.
Certain legal matters relating to the issuance of the offered certificates will
be passed upon for the underwriters by Orrick, Herrington & Sutcliffe LLP,
Washington, D.C.
CERTIFICATE RATINGS
Any rating of your certificates by a rating agency will indicate:
- its view on the likelihood that you will receive interest
payments and principal payments by the Series 1999-1
termination date; and
- its evaluation of the receivables and the availability of the
credit enhancement for your certificates.
Among the things a rating will not indicate are:
- the likelihood that principal payments will be paid on a
scheduled date before the Series 1999-1 termination date;
- the likelihood that an early amortization event will occur;
- the likelihood that a United States withholding tax will be
imposed on non-U.S. certificateholders;
- the marketability of your certificates;
- the market price of your certificates; or
- whether your certificates are an appropriate investment for any
purchaser.
A rating will not be a recommendation to buy, sell or hold the
certificates. A rating may be lowered or withdrawn at any time.
The seller will request a rating of the Class A certificates from at
least two nationally recognized rating agencies. The seller will request a
rating of the Class B certificates from at least one nationally recognized
rating agency. Rating agencies other than those requested could assign a rating
to the certificates, and its rating could be lower than any rating assigned by a
rating agency chosen by the seller.
REPORTS TO CERTIFICATEHOLDERS
The Servicer will prepare monthly and annual reports that will contain
information about the trust. The financial information contained in the reports
will not be prepared using generally accepted accounting principals. Unless and
until definitive certificates are issued, the reports will be sent to Cede &
Co., the nominee of DTC and the registered holder of the certificates. No
financial reports will be sent to you. See "Description of the
Certificates-Book-Entry Registration," and "-Reports to Series 1999-1
Certificateholders."
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WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement relating to the certificates with the
SEC. This prospectus is part of the registration statement, but the registration
statement includes additional information.
The Servicer will file with the SEC all required annual, monthly and
special SEC reports and other information about the trust.
You may read and copy any reports, statements or other information we
file at the SEC's public reference room in Washington, D.C. You can request
copies of these documents, upon payment of a duplicating fee, by writing to the
SEC. Please call the SEC at (800) SEC-0330 for further information on the
operation of the public reference rooms. Our SEC filings are also available to
the public on the SEC internet site (http://www.sec.gov).
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INDEX OF TERMS FOR PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounts.........................................................................................................31
Addition Date....................................................................................................80
Available Funds..................................................................................................52
Available Principal Collections..................................................................................45
Base Rate........................................................................................................63
Benefit Plans...................................................................................................112
Charge-Offs......................................................................................................62
Charming Shoppes.................................................................................................35
Class A Cap Payment..............................................................................................44
Class A Monthly Principal........................................................................................46
Class A Underwriters............................................................................................112
Class Additional Interest........................................................................................44
Class Allocation.................................................................................................50
Class Available Funds............................................................................................52
Class B Cap Payment..............................................................................................44
Class B Monthly Principal........................................................................................47
Class B Underwriter.............................................................................................112
Class Certificate Rate...........................................................................................42
Class Deficiency Amount..........................................................................................44
Class Fixed Allocation...........................................................................................51
Class Floating Allocation........................................................................................50
Class Investor Charge-Off........................................................................................62
Class Monthly Interest...........................................................................................42
Class Servicing Fee..............................................................................................51
Code............................................................................................................103
Controlled Amortization Amount...................................................................................47
Controlled Amortization Period...................................................................................46
Controlled Payment Amount........................................................................................47
Controlling Certificateholders...................................................................................63
Cumulative Principal Shortfall...................................................................................60
Defaulted Receivables............................................................................................83
defeasance.......................................................................................................85
Dilution Amount..................................................................................................83
Discount Option Receivables......................................................................................85
Discount Percentage..............................................................................................85
Due Period.......................................................................................................45
Early Amortization Event.........................................................................................64
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Early Amortization Period........................................................................................46
Eligible Receivable..............................................................................................78
ERISA...........................................................................................................112
Excess Spread....................................................................................................53
Exchangeable Seller Certificate..................................................................................41
Finance Charge Receivables.......................................................................................31
Finance Charge Shortfall.........................................................................................59
FIRREA..........................................................................................................101
Fixed Allocation Percentage......................................................................................49
Fixed Principal Allocation Date..................................................................................50
Floating Allocation Percentage...................................................................................48
Foreign Investor................................................................................................108
Insolvency Events................................................................................................66
Interest Period .................................................................................................42
Investor Dilution Amount.........................................................................................61
Investor Interest................................................................................................40
Investor Loss Amount.............................................................................................61
LIBOR............................................................................................................43
Loss Amount......................................................................................................83
Monthly Interest.................................................................................................64
Portfolio Yield..................................................................................................64
Principal Allocation Percentage..................................................................................49
Principal Receivables............................................................................................31
Principal Shortfall..............................................................................................59
private label....................................................................................................24
receivables......................................................................................................32
Removal Date.....................................................................................................96
Required Seller Interest.........................................................................................79
Revolving Period.................................................................................................45
Seller Interest Test.............................................................................................79
Seller Percentage................................................................................................41
series...........................................................................................................69
Series 1999-1 Finance Charge Shortfall...........................................................................59
Series 1999-1 Investor Dilution Amount...........................................................................61
Series 1999-1 Investor Loss Amount...............................................................................61
Series 1999-1 Principal Collections..............................................................................55
Series 1999-1 Principal Shortfall................................................................................60
Series 1999-1 Servicing Fee......................................................................................51
Servicer Default.................................................................................................88
Shared Excess Finance Charge Collections.........................................................................58
shared principal collections.....................................................................................59
Specified Program Account........................................................................................78
Specified Programs...............................................................................................78
Unfunded Seller Dilution Amount..................................................................................84
Year 2000 Disclosure.............................................................................................36
</TABLE>
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ANNEX I
OTHER SERIES OUTSTANDING
The table below sets forth the principal characteristics of the other
outstanding series issued by the trust, Series 1997-1 and the 1996 receivables
purchase series, as well as Series 1999-2, being issued together with Series
1999-1. Each of these series are in group one for purposes of sharing Shared
Excess Finance Charge Collections and shared principal collections. For more
specific information about any series, any prospective investor should contact
the servicer at its address listed on page 1. An asterisk appearing before any
series name or any class was issued in a private transaction, thus limiting the
disclosure we have made available for that series.
1. *SERIES 1997-1
<TABLE>
<S> <C>
Class A initial Investor Interest.....................................................$56,000,000
Class B initial Investor Interest......................................................$8,500,000
Class C initial Investor Interest......................................................$9,500,000
Class D initial Investor Interest......................................................$9,500,000
Class A expected final payment date...............................December 2002 distribution date
Class B expected final payment date................................January 2003 distribution date
Class C expected final payment date..................................March 2003 distribution date
Class D expected final payment date..................................April 2003 distribution date
Series 1997-1 termination date.......................................April 2006 distribution date
Series Issuance Date............................................................November 25, 1997
Minimum Required Seller Interest..............................2% of outstanding investor interest
</TABLE>
2. *1996 RECEIVABLES PURCHASE SERIES (after giving effect to issuance
of Series 1999-2
<TABLE>
<S> <C>
Maximum Investor Interest.............................................................$50,000,000
Current outstanding amount.....................................................................$0
Minimum Required Seller Interest .............................2% of outstanding investor interest
</TABLE>
3. *SERIES 1999-2 (VARIABLE FUNDING SERIES)
<TABLE>
<S> <C>
Maximum Investor Interest.............................................................$57,750,000
Current outstanding amount.....................................................................$0
Minimum Required Seller Interest..............................5% of outstanding investor interest
unless reduced as permitted
</TABLE>
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ANNEX II
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES
In most circumstances, the certificates offered by this prospectus will
be issued only as global certificates which are registered and held by a
depository. Certificate owners of the global certificates may hold their global
certificates through any of DTC, Cedel or Euroclear. The Global Certificates
will be tradeable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle in
same-day funds.
Secondary market trading between investors holding Global Certificates
through Cedel and Euroclear will be conducted in the ordinary way under their
normal rules and operating procedures and under conventional eurobond practice,
which is seven calendar day settlement.
Secondary market trading between investors holding Global Certificates
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
participants holding global certificates will be effected on a
delivery-against-payment basis through the respective depositaries of Cedel and
Euroclear and the DTC participants.
Non-U.S. holders of global certificates may have to pay U.S.
withholding taxes unless the holders meet the requirements for exemption from
the tax and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All global certificates will be held in book-entry form by DTC in the
name of Cede & Co., as nominee of DTC. Certificate owners' interests in the
global certificates will be represented through financial institutions acting on
their behalf as direct and indirect participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective depositaries, which in turn will hold their positions in accounts as
DTC participants.
Certificate owners electing to hold their global certificates through
DTC will follow the settlement practices applicable to U.S. corporate debt
obligations. Certificate owner securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Certificate owners electing to hold their global certificates through
Cedel or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global
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certificates will be credited to the securities custody accounts on the
settlement date against payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel participants or Euroclear participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When
global certificates are to be transferred from the account of a DTC participant
to the account of a Cedel participant or a Euroclear participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel participant or
Euroclear participant at least one business day before settlement. Cedel or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the global certificates against payment. Payment will include interest
accrued on the global certificates from and including the last coupon payment
date to and excluding the settlement date. Payment will then be made by the
respective Depositary to the DTC participant's account against delivery of the
global certificates. After settlement has been completed, the global
certificates will be credited to the respective clearing system and by the
clearing system, under its usual procedures, to the Cedel participant's or
Euroclear participant's account. The global certificates credit will appear the
next day according to European time, and the cash debit will be back-valued to,
and the interest on the global certificates will accrue from, the value date.
The value date would be the preceding day when settlement occurred in New York.
If the trade fails and settlement is not completed on the intended value date,
the Cedel or Euroclear cash debit will be valued instead on the actual
settlement date.
Cedel participants and Euroclear participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
global certificates are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel participants or Euroclear participants can elect not to
pre-position funds and allow that credit line
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to be drawn upon the finance settlement. Under this procedure, Cedel
participants or Euroclear participants purchasing global certificates would
incur overdraft charges for one day, assuming they cleared the overdraft when
the global certificates were credited to their accounts. However, interest on
the global certificates would accrue from the value date. Therefore, in many
cases the investment income on the global certificates earned during that
one-day period may substantially reduce or offset the amount of the overdraft
charges, although this result will depend on each Cedel participant's or
Euroclear participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC participants can employ their usual procedures for sending global
certificates to the respective Depositary for the benefit of Cedel participants
or Euroclear participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC participant a cross-market transaction
will settle no differently than a trade between two DTC participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedel participants and Euroclear
participants may employ their customary procedures for transactions in which
global certificates are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC participant. The seller will send
instructions to Cedel or Euroclear through a Cedel participant or Euroclear
participant at least one business day before settlement. In these cases, Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to deliver
the bonds to the DTC participant's account against payment. Payment will include
interest accrued on the global certificates from and including the last coupon
payment date to and excluding the settlement date. The payment will then be
reflected in the account of the Cedel participant or Euroclear participant the
following day, and receipt of the cash proceeds in the Cedel participant's or
Euroclear participant's account would be back-valued to the value date. The
value date would be the preceding day, when settlement occurred in New York.
Should the Cedel participant or Euroclear participant have a line of credit with
its respective clearing system and elect to be in debit in anticipation of
receipt of the sale proceeds in its account, the back-valuation will extinguish
any overdraft charges incurred over that one-day period. If the trade fails and
settlement is not completed on the intended value date, receipt of the cash
proceeds in the Cedel participant's or Euroclear participant's account would
instead be valued on the actual settlement date. Finally, day traders that use
Cedel or Euroclear and that purchase global certificates from DTC participants
for delivery to Cedel participants or Euroclear participants should note that
these trades would automatically fail on the sale side unless affirmative action
were taken. At least three techniques should be readily available to eliminate
this potential problem:
(a) borrowing through Cedel or Euroclear for one day, until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts, under the clearing system's customary procedures;
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(b) borrowing the global certificates in the U.S. from a DTC
participant no later than one day prior to settlement, which would give the
global certificates sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC participant is at
least one day before the value date for the sale to the Cedel participant or
Euroclear participant.
U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Certificates holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will required to pay the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between that beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) that beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8 or new Form W-8BEN).
Beneficial owners of Global Certificates that are non-U.S. Persons can obtain a
complete exemption form the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status) or new Form W- 8BEN (Certificate of Foreign
Status of Beneficial Owner for United States Tax Withholding). If the
information shown on Form W-8 changes (or new Form W-8BEN), a new Form W-8 (or
new Form W-8BEN) must be filed within 30 days of that change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224 or new Form W-8ECI). A non-U.S. Person, including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States) or New Form W-8ECI (Certificate of Foreign
Persons Claim for Exemption from Withholding on Income Effectively Connected
with the Conduct of a Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001 or new Form W-8BEN). Non-U.S. Persons that are beneficial
owners of Global Certificates residing in a country that has a tax treaty with
the United States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate) or new Form W-8BEN. If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8 or new Form W-8BEN. Form 1001 may be filed by the certificate
owner or his agent whereas new Form W-8BEN must be filed by the beneficial
owner.
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Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Certificate or in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year, but Forms W-8, 1001 and
4224 will not be effective after December 31, 2000.
A new Form W-8BEN, if furnished with a taxpayer identification number
("TIN"), will remain in effect until the status of the beneficial owner changes,
or a change in circumstances makes any information on the form incorrect. A new
Form W-8BEN, if furnished without a TIN, and a new Form W-8ECI will remain in
effect for a period starting on the date the form is signed and ending on the
last day of the third succeeding calendar year, unless a change in circumstances
makes any information on the form incorrect.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision of the United States, (iii) an
estate, the income of which is includible in gross income for United States tax
purposes, regardless of its source, or (iv) a trust if a U.S. court is able to
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial decisions of the
trust. This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global Certificates.
Certificate owners are advised to consult their own tax advisers for specific
tax advice concerning their holding and disposing of the Global Certificates.
In 1997, final Treasury regulations were issued that modify the filing
requirements with which non-U.S. persons must comply in order to be entitled to
an exemption from U.S. withholding tax or a reduction to the applicable U.S.
withholding tax rate. Those persons currently required to file Form W-8 or Form
1001 will be required to file new Form W-8BEN, while those persons currently
required to file Form 4224 will be required to file new Form W- 8ECI. These new
withholding regulations generally are effective for payments of interest due
after December 31, 2000, but Forms W-8, 1001 and 4224 filed before that date
will continue to be effective until the earlier of December 31, 2000 or the
current expiration date of those forms. Prospective investors are urged to
consult their tax advisors about the effect of these new withholding
regulations.
137
<PAGE> 143
CHARMING SHOPPES MASTER TRUST
ISSUER
CHARMING SHOPPES RECEIVABLES CORP.
SELLER
SPIRIT OF AMERICA INC.
SERVICER
SERIES 1999-1
$[_________] FLOATING RATE CLASS A ASSET BACKED CERTIFICATES
$[_________] FLOATING RATE CLASS B ASSET BACKED CERTIFICATES
------------------------------------
PROSPECTUS
------------------------------------
UNDERWRITERS OF THE CLASS A CERTIFICATES
BEAR, STEARNS & CO. INC.
[OTHERS]
UNDERWRITER OF THE CLASS B CERTIFICATES
BEAR, STEARNS & CO. INC.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the Class A Certificates or the Class B Certificates in
any state where the offer is not permitted.
Dealers will deliver a prospectus when acting as underwriters of the Class
A Certificates or the Class B Certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling the Class A or the
Class B Certificates will deliver a prospectus until [___________, 1999].
138
<PAGE> 144
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the offering of the Certificates being
registered herein are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee $ 35,000
Legal fees and expenses 444,000
Accounting fees and expenses 47,000
Blue sky fees and expenses 10,000
Rating agency fees 150,000
Trustee fees and expenses 12,500
Printing 13,400
Miscellaneous 25,000
Total $ 736,900
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is incorporated under the laws of Delaware. Section 145
of the General Corporation Law of Delaware provides that a Delaware corporation
may indemnify any director or officer who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that the
person is or was an officer or director of the corporation, or is or was serving
at the request of the corporation as an officer or director of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful. A corporation may also indemnify any officer or director in an action
by or in the right of the corporation under the same conditions, except that no
such indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought determines upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper. If an officer or director is successful
on the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify such person against the expenses (including
attorneys' fees) actually and reasonably incurred by such officer or director in
connection therewith.
The Certificate of Incorporation of the Registrant provides that the
Registrant will indemnify its officers and directors to the fullest extent
permitted by Delaware General Corporation Law.
II-1
<PAGE> 145
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) A list of exhibits filed herewith is contained in the Exhibit
Index, which is incorporated herein by reference.
(b) Financial Statement Schedules:
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrants hereby undertakes as follows:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than payment by a registrant
of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(c) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE> 146
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 2 TO REGISTRATION STATEMENT ON
FORM S-1 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF BENSALEM AND STATE OF PENNSYLVANIA, ON THE 25TH DAY
OF MAY, 1999.
CHARMING SHOPPES RECEIVABLES CORP.
By: *Eric M. Specter
-------------------------------------------------
Name: Eric M. Specter
Title: President and Assistant Secretary
(Principal Financial and Accounting Officer)
SPIRIT OF AMERICA, INC., as Servicer on behalf
of the Trust
By: *Eric M. Specter
-------------------------------------------------
Name: Eric M. Specter
Title: President
(Principal Financial and Accounting Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 TO REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS FOR CHARMING SHOPPES RECEIVABLES CORP. IN THE CAPACITIES
AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*Eric M. Specter Director, President and Assistant May 25, 1999
------------------------ Secretary (Principal Executive
Eric M. Specter Officer and Principal Financial
and Accounting Officer)
*Kirk R. Simme Director May 25, 1999
------------------------
Kirk R. Simme
/s/ Colin D. Stern Director May 25, 1999
-----------------------
Colin D. Stern
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 TO REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS FOR SPIRIT OF AMERICA, INC. IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*Eric M. Specter Director, President and Assistant May 25, 1999
------------------------ Secretary (Principal Executive
Eric M. Specter Officer and Principal Financial
and Accounting Officer)
*Kirk R. Simme Director May 25, 1999
------------------------
Kirk R. Simme
*Kathleen H. Lieberman Director May 25, 1999
-----------------------
Kathleen H. Lieberman
*By: /s/Colin D. Stern
-----------------------
Colin D. Stern
Attorney-in-fact
</TABLE>
<PAGE> 147
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C> <C>
1.1* - Form of Underwriting Agreement
3.1* - Certificate of Incorporation of Charming Shoppes Receivables Corp.
3.2* - Bylaws of Charming Shoppes Receivables Corp.
4.1* - Form of Second Amended and Restated Pooling and Servicing Agreement, as amended,
among Charming Shoppes Master Trust, Spirit of America, Inc., as successor Servicer, and
First Union National Bank, as the Trustee
4.2* - Form of Series 1999-1 Supplement between Charming Shoppes Master Trust, Spirit of
America, Inc., as Servicer, and First Union National Bank, as the Trustee
4.3* - Form of Series 1999-1 Floating Rate Class A Asset Backed Certificate (included in
Exhibit 4.2)
4.4* - Form of Series 1999-1 Floating Rate Class B Asset Backed Certificate (included in Exhibit
4.2)
5.1* - Opinion of Mayer, Brown & Platt with respect to the validity of the securities being
offered
8.1* - Opinion of Mayer, Brown & Platt with respect to federal income tax matters
8.2* - Opinion of Squire Sanders & Dempsey, L.L.P. with respect to Ohio income tax
matters
10.1(a)* - Purchase and Sale Agreement between Spirit of America National Bank and
Charming Shoppes Receivables Corp.
10.1(b)* - Form of First Amendment to Purchase and Sale Agreement
between Spirit of America National Bank and Charming
Shoppes Receivables Corp.
23.1* - Consent of Mayer, Brown & Platt (included in Exhibit 8.1)
23.2* - Consent of Squire Sanders & Dempsey, L.L.P. (included in Exhibit 8.2)
24.1* - Powers of attorney for Charming Shoppes Receivables Corp. (contained on the signature page
to this Registration Statement as filed on February 4, 1999)
24.2* - Powers of attorney for Spirit of America, Inc.
</TABLE>
*Previously filed.
