<PAGE> 1
As filed with the Securities and Exchange Commission on June 17, 1999
REGISTRATION NO. 333-71757
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------------
CHARMING SHOPPES MASTER TRUST
(Issuer and Co-Registrant)
CHARMING SHOPPES RECEIVABLES CORP.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 9999 51-0383871
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
</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) 638-6898
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
Copies to:
<TABLE>
<S> <C>
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
</TABLE>
------------------------------
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>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
BE REGISTERED
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<S> <C> <C> <C> <C>
Class A Certificates.................. $1,000,000 100% $1,000,000 $278
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Class B Certificates.................. $1,000,000 100% $1,000,000 $278
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</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.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
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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<S> <C> <C>
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CLASS A CERTIFICATES CLASS B CERTIFICATES
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Price to public per certificate.... % %
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Underwriting discount per
certificate..................... % %
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Proceeds to seller per
certificate..................... % %
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</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 7 IN THIS
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 TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
CLASS A UNDERWRITERS
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
CLASS B UNDERWRITER
BEAR, STEARNS & CO. INC.
, 1999
<PAGE> 3
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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........ 4
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.................. 6
Risk Factors.................... 7
It may not be possible to find
an investor to purchase
your certificates.......... 7
Allocations of charged-off
receivables could reduce
your payments.............. 7
Class B bears additional risk
because it is subordinated
to Class A................. 7
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
The FDIC has special powers
under banking laws to take
actions during the
insolvency of the
originator................. 8
Attempted recharacterization
of the transfer from
Charming Shoppes
Receivables Corp. to the
trust could delay or reduce
payments to you............ 9
Actions of a conservator,
receiver or bankruptcy
court could reduce or delay
payments to you............ 9
The bankruptcy of the servicer
could further delay or
reduce payments to you..... 10
Some liens could be given
priority over your
securities which could
cause delayed or reduced
payments................... 10
Changes to consumer protection
laws may impede collection
efforts.................... 11
Limited remedies for breaches
of representations could
reduce or delay payments... 11
Factors that reduce
collections could cause
early repayment, delayed
payment or reduced
payment.................... 12
High concentrations in a
geographic area could
affect the collection rate
on the receivables......... 16
</TABLE>
iii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Issuance of additional series
by the trust may affect the
timing of payments......... 17
Issuance of a paired series
could affect your
payments................... 17
Individual certificateholders
will have limited control
of future events........... 18
Recharacterization of
principal receivables would
reduce principal
receivables and may require
addition of new
receivables................ 19
The certificates are not
guaranteed and will only be
paid from trust assets..... 19
Potential reduced payment due
to shortfalls on the
proceeds of a sale of
receivables on the Series
1999-1 termination
date....................... 19
The Year 2000 problem could
disrupt the generation and
servicing of the
receivables................ 19
Trust........................... 21
Maturity Considerations......... 21
Spirit of America's Credit Card
Activities.................... 23
Overview...................... 23
New Account Underwriting...... 23
Description of Subservicer.... 25
Billing and Payments.......... 25
Delinquencies and
Collections--Collection
Efforts.................... 26
Credit Return Policy.......... 27
The Trust Portfolio........... 27
Overview................... 27
Delinquency and Loss
Experience.............. 28
Revenue Experience......... 30
Payment Rates.............. 31
The Receivables................. 32
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Use of Proceeds................. 37
Description of Charming Shoppes
Entities...................... 37
Overview...................... 37
Legal Proceedings............. 38
Year 2000 Disclosure.......... 38
Description of the
Certificates.................. 43
Overview...................... 43
Interest Payments............. 44
Principal Payments............ 46
Allocation Percentages........ 49
Servicing Fees................ 52
Application of Collections.... 53
Reallocations and Payments of
Principal.................. 56
Series Shared Excess Finance
Charge Collections......... 59
Series Shared Principal
Collections................ 60
Investor Charge-Offs.......... 62
Paired Series................. 64
Early Amortization Events..... 65
The Pooling Agreement........... 69
Transfer and Assignment of
Receivables................ 69
Issuance of Additional
Series..................... 69
Book-Entry Registration....... 71
Definitive Certificates....... 76
Required Removal of
Receivables from the
Trust...................... 77
Eligible Accounts; Eligible
Receivables................ 80
Addition of Accounts.......... 82
Removal of Accounts........... 83
Collection Account............ 84
Deposits in Collection
Account.................... 84
Excess Funding Account........ 85
Loss Amount; Dilution
Amounts.................... 86
Discount Option............... 88
Defeasance.................... 88
</TABLE>
iv
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Optional Repurchase; Final
Payment of Principal;
Termination................ 89
Servicing Compensation and
Payment of Expenses........ 90
Resignation of Servicer; Scope
of Indemnities............. 90
Servicer Default.............. 91
Reports to Series 1999-1
Certificateholders......... 94
Agreed Upon Procedures........ 94
Amendments.................... 95
List of Investor
Certificateholders......... 96
The Trustee................... 96
Description of the Purchase
Agreement..................... 97
Overview...................... 97
Purchase Price for
Receivables................ 98
Required Reassignment of
Receivables to the
Originator................. 98
Originator's obligations
relating to Cardholder
Agreements and
Receivables................ 99
Addition and Removal of
Accounts................... 99
Description of the Security
Agreement..................... 100
Legal Aspects of the
Receivables................... 101
Nature of Interests in the
Receivables................ 101
Consumer Protection Laws...... 102
Claims and Defenses of
Cardholders Against the
Trust...................... 103
Insolvency Laws Affecting
Transfers.................. 104
Other Issues Under Insolvency
Laws....................... 108
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
U.S. Federal Income Tax
Consequences.................. 108
Overview...................... 108
Characterization of the
Certificates and the
Trust...................... 109
Taxation of Interest Income of
Certificateholders......... 110
Sale or Disposition of a
Certificate................ 111
Possible Classification as a
Partnership or as an
Association Taxable as a
Corporation................ 111
Foreign Investors............. 113
Backup Withholding............ 114
Ohio State Tax Consequences..... 115
ERISA Considerations............ 117
Underwriting.................... 117
Legal Matters................... 119
Certificate Ratings............. 119
Reports to Certificateholders... 120
Where You Can Find More
Information................... 121
Index of Terms for Prospectus... 122
Annex I
Other Series Outstanding........ 124
Annex II
Global Clearance, Settlement and
Tax Documentation
Procedures.................... 125
Initial Settlement............ 125
Secondary Market Trading...... 126
U.S. Federal Income Tax
Documentation
Requirements............... 128
</TABLE>
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 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."
<PAGE> 7
SUMMARY OF SERIES 1999-1 TERMS
<TABLE>
<CAPTION>
SERIES STRUCTURE: INITIAL INVESTOR INTEREST % OF TOTAL
<S> <C> <C>
Class A $ %
Class B $ %
Class C $ %
Class D $ %
</TABLE>
<TABLE>
<CAPTION>
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THE OFFERED CERTIFICATES: CLASS A CLASS B
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<S> <C> <C> <C> <C>
Anticipated Ratings: Aaa or its equivalent from A2 or its equivalent from at
two nationally recognized least one nationally
rating agencies recognized rating agency
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Credit Enhancement: subordination of the Class subordination of the Class C
B, Class C and Class D and Class D certificates
certificates
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Monthly Servicing Fee: 2% of class investor 2% of class investor
interest interest
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Interest Rate: one-month libor, plus % one-month libor, plus %
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Interest Accrual Method: actual/360 actual/360
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Interest Payment Dates: the fifteenth of each month the fifteenth of each month
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First Interest Payment: , 1999 , 1999
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Scheduled Monthly Principal $ N/A
Payment:
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First Scheduled Principal , 2004 , 2004
Payment
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Expected Final Payment: , 2004 , 2004
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Series Termination Date: , 200 , 200
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Clearance/Settlement DTC/Euroclear/Cedel DTC/Euroclear/Cedel
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Minimum Denomination $1,000 $1,000
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</TABLE>
2
<PAGE> 8
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
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.
3
<PAGE> 9
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
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 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."
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 , 2004 by making eight
4
<PAGE> 10
monthly principal payments of $ beginning in [month/ 2004].
The trust expects to pay the entire principal amount of the Class B certificates
in one payment on , 2004. Because the 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."
5
<PAGE> 11
FEDERAL TAX STATUS OF THE OFFERED CERTIFICATES AND THE TRUST
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."
6
<PAGE> 12
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
Certificates--Allocation Percentages" and "--Application of Collections."
7
<PAGE> 13
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 originator believes that the transactions described in this prospectus, as a
whole, meet all requirements specified by the policy statement. However, we have
not sought and will not seek any rulings from the FDIC on these transactions.
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.
8
<PAGE> 14
ATTEMPTED RECHARACTERIZATION OF THE TRANSFER FROM CHARMING SHOPPES RECEIVABLES
CORP. TO THE TRUST COULD DELAY OR REDUCE PAYMENTS TO YOU
Charming Shoppes Receivables Corp., as seller, has documented the transfers by
it to the trust as sales. However, 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. If so, the trustee for the trust would be
required to go through court proceedings to establish its rights to collections
on the receivables in the trust. If 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. 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 to
override express provisions of the documents described in this prospectus
regarding the commencement of early amortization or the trust's acquisition and
sale of receivables. See "Legal Aspects of the Receivables."
As a result, 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
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 the appointment of 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. Even if a court would reach that
conclusion, each transferor has given the trustee a senior lien on 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 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.
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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 trust portfolio, and as to the perfection and priority of the trustee's
interest in the receivables. However, the trustee will not make any examination
of the receivables or the related assets to determine the presence or absence of
defects, compliance with the representations and warranties or for any other
purpose.
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
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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 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
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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
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.
The seller may designate additional private label accounts from which
receivables will be transferred to the trust without obtaining rating agency
confirmation that the addition will not cause a reduction or withdrawal of the
rating on any outstanding series issued by the trust. However, the seller must
obtain this confirmation before designating accounts in the new types of credit
card programs contemplated by the originator.
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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 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.
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 one-month 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.
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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 one-month libor.
Changes in one-month 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 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.
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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 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.
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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. As a result, less excess finance charge or principal collections
may be available to cover shortfalls in the funds available to pay amounts owed
to you.
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 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 have to reinvest the amount paid
to you at a lower rate than you would have earned on your certificates. As a
result, your anticipated return from your investment would be reduced.
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,
making it more difficult for you to achieve your desired result on any matter
that requires a vote of certificateholders.
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
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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 your certificates as
scheduled. If this were to happen, payments to you could be delayed or reduced.
See "Description of the Certificates--Paired Series."
INDIVIDUAL CERTIFICATEHOLDERS WILL HAVE LIMITED CONTROL OF FUTURE EVENTS
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.
While it has no present intent to do so, the seller may direct the trust in the
future to make an exchange offer for some or all of the certificates previously
issued by the trust. The documents governing the trust do not describe the
circumstances under which an exchange might be initiated or the mechanics of the
exchange. An exchange might or might not include Series 1999-1. We cannot
predict the terms of an exchange, or whether the exchange offer would be adverse
to your interests.
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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 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.
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
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applications will not be able to recognize and properly perform functions
involving dates before and after January 1, 2000.
Charming Shoppes Inc. 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 Inc. 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 terms used in this prospectus are
described under the caption "Index of Terms for Prospectus" beginning on page
122 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 description of when interest and principal are payable
on the certificates, see "Description of the Certificates--Interest Payments"
and "--Reallocations and Payments of Principal." For a description of how the
Investor Interest of a class is calculated, see "Description of the
Certificates--Overview."
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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 Inc. 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."
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,
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- 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
historical 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 Inc. 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 $262.4 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, 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.
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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 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
$508.
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.
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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.
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 account balances are paid off monthly.
25
<PAGE> 31
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 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.
26
<PAGE> 32
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 Inc. 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.
THE TRUST PORTFOLIO
Overview
The following tables describe the performance of the trust portfolio for
each of the periods shown. During these periods, the trust portfolio has
consisted solely of receivables arising under accounts of the private label
credit card program.
The information presented in these tables pertains to the trust portfolio
only and does not include other receivables originated by the originator.
Receivables from the originator's portfolio not included in the trust portfolio
are (1) receivables that do not meet eligibility requirements for the trust and
(2) receivables arising in accounts under the originator's secured account
program. Eligibility requirements and the secured account program are described
in "The Pooling Agreement -- Eligible Accounts; Eligible Receivables" below.
The tables appearing in this section show a few trends over the period from
1994 through April 30, 1999. The aggregate amount of delinquent receivables and
losses have increased, when measured as a percentage of the outstanding balance
of receivables in the trust portfolio. The outstanding balance of receivables in
the trust portfolio has declined. Trust revenues have increased over this
period. Finally, monthly payment rates have also increased.
The increase in delinquencies and losses in 1996 and 1997 resulted
primarily from the one-time effect of closing 327 under-performing Fashion Bug
stores in late 1995 and early 1996. These closings caused delinquencies and
credit card losses attributable to these stores to increase and the outstanding
receivables attributable to these stores to decrease.
27
<PAGE> 33
In both 1997 and 1998, the originator increased its late payment fee
charged to delinquent customers to mitigate the economic effect of increasing
delinquencies. These increases have contributed to the increase in revenue
generated by the trust portfolio and have mitigated the effect of increasing
delinquencies.
In addition to being caused by these factors specific to the originator,
these trends appear to be consistent with trends in the credit card industry
during the same period. Industry trends were affected by a variety of economic
factors during this period, including a strong economy leading to increased
payment rates by cardholders, increasing competition in the industry and
increasing bankruptcies of individual obligors.
We do not know whether these trends will continue or whether these or other
factors will influence the performance of the trust portfolio in the future. For
these reasons and the reasons discussed in the "Risk Factors" above, 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.
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.
28
<PAGE> 34
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 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 1.6% 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 1995
NUMBER OF ----------------------- ----------------------- ----------------------- -----------------------
DAYS DELINQUENT DELINQUENT DELINQUENT DELINQUENT
DELINQUENT AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-59 Days........... $12,789 4.5% $14,014 4.3% $18,106 5.2% $18,741 4.8%
60-89 Days........... 5,357 1.9% 6,480 2.0% 7,739 2.2% 7,521 1.9%
90-119 Days.......... 4,184 1.5% 4,613 1.4% 5,492 1.6% 4,678 1.2%
120+ Days............ 3,955 1.4% 4,836 1.5% 5,332 1.5% 3,510 0.9%
------- ---- ------- ---- ------- ----- ------- ----
Total............. $26,285 9.3% $29,943 9.2% $36,669 10.5% $34,450 8.8%
======= ==== ======= ==== ======= ===== ======= ====
<CAPTION>
1994
NUMBER OF -----------------------
DAYS DELINQUENT
DELINQUENT AMOUNT PERCENTAGE
---------- ---------- ----------
<S> <C> <C>
30-59 Days........... $19,895 4.7%
60-89 Days........... 6,996 1.7%
90-119 Days.......... 4,105 1.0%
120+ Days............ 3,345 0.8%
------- ----
Total............. $34,341 8.2%
======= ====
</TABLE>
- ---------------
(1) The percentages are the result of dividing the delinquent amount by
receivables outstanding at the end of the last monthly billing cycle for the
applicable month. 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.
29
<PAGE> 35
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)........ $271,401 $308,878 $290,514 $315,035 $351,560 $379,866 $392,301
Gross Losses............ $ 10,795 $ 11,578 $ 34,906 $ 38,257 $ 40,914 $ 32,173 $ 28,194
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 $ 2,495 $ 6,630 $ 7,474 $ 7,009 $ 7,095 $ 5,635
Net Losses.............. $ 7,981 $ 9,083 $ 28,276 $ 30,783 $ 33,905 $ 25,078 $ 22,559
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 at the beginning of
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.
REVENUE 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)........ $271,401 $308,878 $290,514 $315,035 $351,560 $379,866 $392,301
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>
- ---------------
(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
30
<PAGE> 36
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.
ACCOUNTHOLDER MONTHLY PAYMENT RATES
FOR THE TRUST PORTFOLIO(1)
<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>
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 designated to the
trust.
(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.
(3) In July 1996, the originator changed its billing cycle dates. The billing
cycle date changes resulted in spreading its billing dates evenly throughout
31
<PAGE> 37
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. Only the receivables arising under the
accounts designated to the trust 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 designated to the trust 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.
"Principal receivables" consist of all amounts other than finance charge
receivables, billed to a cardholder on any account designated to the trust,
32
<PAGE> 38
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 designated
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
an account is removed, receivables existing or generated under that account are
not transferred to the trust.
The accounts designated to the trust 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 to 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 if
they were eligible on the date of designation. For further information
33
<PAGE> 39
concerning these accounts, see "The Pooling Agreement--Eligible Accounts;
Eligible Receivables."
The aggregate total receivables outstanding in the trust on April 30, 1999
was approximately $262.4 million. The accounts designated to the trust had an
average principal receivables balance of $216 and an average credit limit of
$508. The aggregate total receivables outstanding as a percentage of the
aggregate total credit limit was 5.2%. The average age of these accounts was
approximately 59 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% $ (488) -0.2%
No Balance.................. 8,611 87.4 0 0.0
$.01 to $99.99.............. 494 5.0 25,441 9.7
$100 to $199.99............. 285 2.9 41,595 15.9
$200 to $299.99............. 173 1.8 42,790 16.3
$300 to $399.99............. 98 1.0 33,701 12.8
$400 to $499.99............. 56 0.6 24,960 9.5
$500 and Over............... 113 1.1 94,395 36.0
----- ----- -------- -----
Total................. 9,852 100.0% $262,394 100.0%
===== ===== ======== =====
</TABLE>
34
<PAGE> 40
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL RECEIVABLES PERCENTAGE
ACCOUNTS NUMBER OF (DOLLARS IN OF TOTAL
CREDIT LIMIT RANGE (IN THOUSANDS) ACCOUNTS THOUSANDS) RECEIVABLES
------------------ -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Less than $300.............. 2,468 25.1% $ 34,211 13.0%
$300 to $499................ 3,555 36.1 57,861 22.1
$500 to $699................ 1,478 15.0 36,383 13.9
$700 to $999................ 921 9.3 28,717 10.9
$1,000 and Over............. 1,430 14.5 105,222 40.1
----- ----- -------- -----
Total................. 9,852 100.0% $262,394 100.0%
===== ===== ======== =====
</TABLE>
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL RECEIVABLES PERCENTAGE
PERIOD OF DELINQUENCY ACCOUNTS NUMBER OF (DOLLARS IN OF TOTAL
(DAYS CONTRACTUALLY DELINQUENT) (IN THOUSANDS) ACCOUNTS THOUSANDS) RECEIVABLES
- ------------------------------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Not Delinquent............... 9,684 98.3% $216,512 82.5%
Up to 29 Days................ 107 1.1 27,702 10.6
30 to 59 Days................ 25 0.3 6,876 2.6
60 to 89 Days................ 15 0.1 4,303 1.6
90+ Days..................... 21 0.2 7,001 2.7
----- ----- -------- -----
Total..................... 9,852 100.0% $262,394 100.0%
===== ===== ======== =====
</TABLE>
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL RECEIVABLES PERCENTAGE
ACCOUNTS NUMBER OF (DOLLARS IN OF TOTAL
ACCOUNT AGE (IN THOUSANDS) ACCOUNTS THOUSANDS) RECEIVABLES
- ---------------------------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Not More than 6 Months...... 373 3.8% $ 10,820 4.1%
Over 6 Months to 12
Months................... 427 4.3 16,042 6.1
Over 12 Months to 24
Months................... 760 7.7 24,884 9.5
Over 24 Months to 36
Months................... 657 6.7 18,808 7.2
Over 36 Months.............. 7,635 77.5 191,840 73.1
----- ----- -------- -----
Total.................... 9,852 100.0% $262,394 100.0%
===== ===== ======== =====
</TABLE>
35
<PAGE> 41
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE OF RECEIVABLES PERCENTAGE
NUMBER OF TOTAL OUTSTANDING OF TOTAL
ACCOUNTS NUMBER (DOLLARS IN RECEIVABLES
STATE (IN THOUSANDS) OF ACCOUNTS THOUSANDS) OUTSTANDING
----- -------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Alabama................................ 46 0.46% $ 1,488 0.58%
Alaska................................. 3 0.03 16 0.01
Arizona................................ 52 0.52 1,186 0.45
Arkansas............................... 11 0.11 180 0.07
California............................. 198 2.01 3,117 1.19
Colorado............................... 38 0.39 770 0.29
Connecticut............................ 217 2.20 6,028 2.30
Delaware............................... 62 0.63 1,842 0.70
District of Columbia................... 10 0.11 325 0.12
Florida................................ 237 2.41 4,717 1.80
Georgia................................ 133 1.35 3,650 1.39
Hawaii................................. 2 0.02 14 0.01
Idaho.................................. 43 0.43 483 0.18
Illinois............................... 509 5.16 13,971 5.32
Indiana................................ 357 3.62 10,564 4.03
Iowa................................... 92 0.93 1,202 0.46
Kansas................................. 71 0.73 1,287 0.49
Kentucky............................... 231 2.35 7,940 3.03
Louisiana.............................. 9 0.10 236 0.09
Maine.................................. 168 1.70 5,387 2.05
Maryland............................... 359 3.65 9,824 3.74
Massachusetts.......................... 413 4.19 11,794 4.49
Michigan............................... 658 6.68 19,211 7.32
Minnesota.............................. 200 2.03 2,178 0.83
Mississippi............................ 9 0.09 66 0.03
Missouri............................... 185 1.88 4,864 1.85
Montana................................ 10 0.10 33 0.01
Nebraska............................... 36 0.36 328 0.12
Nevada................................. 30 0.31 678 0.26
New Hampshire.......................... 140 1.42 3,763 1.43
New Jersey............................. 515 5.23 15,875 6.05
New Mexico............................. 11 0.11 221 0.08
New York............................... 709 7.20 18,515 7.06
North Carolina......................... 133 1.35 3,633 1.38
North Dakota........................... 21 0.22 146 0.06
Ohio................................... 992 10.06 28,355 10.81
Oklahoma............................... 6 0.06 53 0.02
Oregon................................. 64 0.65 1,034 0.39
Pennsylvania........................... 1,368 13.88 42,391 16.16
Rhode Island........................... 93 0.94 2,856 1.09
South Carolina......................... 43 0.44 974 0.37
South Dakota........................... 14 0.14 52 0.02
Tennessee.............................. 138 1.40 3,626 1.38
Texas.................................. 49 0.50 478 0.18
Utah................................... 44 0.45 460 0.18
Vermont................................ 68 0.69 1,959 0.75
Virginia............................... 289 2.93 7,900 3.01
Washington............................. 119 1.21 2,282 0.87
West Virginia.......................... 184 1.87 7,136 2.72
Wisconsin.............................. 372 3.78 6,754 2.57
Wyoming................................ 16 0.16 234 0.09
Other (1).............................. 75 0.76 318 0.12
----- ------ -------- ------
Total......................... 9,852 100.00% $262,394 100.00%
===== ====== ======== ======
</TABLE>
- ---------------
(1) Includes accounts which represent billing addresses in Canada and U.S.
Territories.
36
<PAGE> 42
USE OF PROCEEDS
The trust will transfer the Series 1999-1 certificates to the seller, and
the interest of the seller in the trust will be reduced by the interest in the
trust represented by the Series 1999-1 certificates. 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 1,143 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, 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.
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<PAGE> 43
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.
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
38
<PAGE> 44
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 ensure that a consistent approach is followed by all
personnel 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 1,143 stores located in 44 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
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<PAGE> 45
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 commenced 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. 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
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<PAGE> 46
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 ending 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 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.
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<PAGE> 47
To-date, $2.9 million of Year 2000 costs have been incurred, of which $2.4
million were incurred through the fiscal year ended January 30, 1999. Charming
Shoppes expects to fund the estimated balance of $3.7 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 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.
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<PAGE> 48
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.
See "Description of the Certificates--Investor Charge-Offs" for a
description of how Charge-Offs are calculated.
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
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."
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<PAGE> 49
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.
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.
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<PAGE> 50
Interest payable on each distribution date for each class is called its
"Class Monthly Interest." Class Monthly Interest will be calculated as follows:
<TABLE>
<S> <C> <C> <C> <C>
days in interest period Outstanding Principal
- ----------------------- X Class Certificate Rate X Balance of Class
360
</TABLE>
where:
"Class Certificate Rate" = LIBOR + applicable spread.
The "applicable spread" for each class is as follows:
- Class A: [ ]%
- Class B: [ ]%
- Class C: A percentage, not to exceed 2.0%, described in the
Class C Purchase Agreement.
- Class D: A percentage, not to exceed 2.0%, 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.
"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,
45
<PAGE> 51
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.
The amount of monthly interest payable on any class deficiency amount for a
class called its "Class Additional Interest" will be calculated as follows:
<TABLE>
<S> <C> <C> <C> <C>
days in interest period
- ----------------------- X (1% + Class Certificate Rate) X class deficiency amount
360
</TABLE>
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,
(2) any shared principal collections that are allocated to Series 1999-1 as
described in "--Series Shared Principal Collections" below, and
(3) additional amounts that are treated as Available Principal Collections
as described in "--Application of 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. "Principal Allocation Percentage" is defined in "--Allocation
Percentages" below.
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<PAGE> 52
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 for Series 1999-1
or, if earlier, the early amortization period for Series 1999-1. 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:
- 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" for Series 1999-1 is scheduled to
commence on , 2004, and will continue until payment in full of the
offered certificates unless the early amortization period for Series 1999-1
begins. If an early amortization period for Series 1999-1 begins before the
scheduled beginning of the controlled amortization period for Series 1999-1,
there will not be a controlled amortization period for Series 1999-1.
During the controlled amortization period for Series 1999-1, 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 for Series 1999-1.
If an early amortization event for Series 1999-1 occurs, the "early
amortization period" for Series 1999-1 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 Series
1999-1 controlled amortization period begins or, if earlier, the first
distribution following the beginning of the Series 1999-1 early amortization
period. 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,
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<PAGE> 53
(2) during the controlled amortization period, the Controlled Payment
Amount, and
(3) the 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 Series
1999-1 controlled amortization period will equal the sum of the Controlled
Amortization Amount for that date and any portion of the Controlled Amortization
Amount for any previous due period not previously distributed to the Class A
certificateholders.
The "Controlled Amortization Amount" is $ .
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 a Series 1999-1
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. See "Description of Investor
Certificates--Investor Charge-Offs" for a description of how Charge-
Offs are calculated and allocated.
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 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.
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<PAGE> 54
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 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. For a description of these amounts and allocation
procedures, see "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
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<PAGE> 55
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
(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 as follows for any due period in which additional
accounts are designated to the trust, or receivables from previously designated
accounts are removed from the trust:
- 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.
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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 the Fixed Principal
Allocation Date, 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 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 additional accounts are
designated to the trust or receivables in previously designated accounts are
removed from the trust. The seller may reduce the numerator if Series 1999-1 is
paired with another series as described in "Paired Series" below.
The "Fixed Principal Allocation Date" is the earlier of (a) the date on
which the early amortization period for Series 1999-1 begins, and (b) the date
on which the controlled amortization period for Series 1999-1 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 its revolving
period, its Class Floating Allocation, and
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- for the purpose of allocating collections of principal receivables
allocated to Series 1999-1 during the controlled amortization period or
early amortization period for Series 1999-1, 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
- 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 Series 1999-1 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 revolving period.
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 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.
"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:
(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.
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(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
(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,
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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 payment of principal or the cancellation of Class B
certificates, 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 or the cancellation of Class C
certificates, 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;
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(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 or the cancellation of
Class C certificates, 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
(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. For a description of how
Shared Excess Finance Charge Collections are calculated, see "Series Shared
Excess Finance Charge Collections" 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.
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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 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 Charge 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 for Series
1999-1, 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
agreement for 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
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principal sharing series, will then be treated as shared principal
collections and applied to other series in group one; and
(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
required to be deposited in the excess funding account.
(C) On each distribution date during the controlled amortization
period for Series 1999-1, 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 for Series 1999-1,
(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 D
certificate purchase agreement will be so applied;
(6) an amount equal to the product of the Cumulative Principal
Shortfall for all series 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
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principal sharing series, will be treated as shared principal
collections and 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 required to be deposited in the excess
funding account.
See "--Series Shared Principal Collections" below for a description of how
the Cumulative Principal Shortfall is calculated.
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.
Each certificate series will be part of a group. Series within a group will
share shared excess finance charges and/or shared principal collections with
each other series in that group. 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 or another group
designated in the related supplement.
"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.
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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:
(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 no early amortization event occurs, 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 that are not applied as described in the preceding sentence, 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, if 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 Series 1999-1 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;
(3) on any distribution date for the Series 1999-1 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; and
(4) on any distribution date on which amounts are required to be
funded from Available Principal Collections under the certificate purchase
agreement for Class D, the excess of that amount over Available 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
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other certificate series in group one that is a principal sharing series. Shared
principal collections allocated to Series 1999-1 on any 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 when one or more
certificate series is in an 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 the Cumulative
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 principal sharing series that has a Principal
Shortfall.
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 when required to be deposited 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 Investor 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
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applicable for that class, and applied as described above under "--Application
of Collections."
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 Investor 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 Investor 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 Investor 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
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below zero, on each distribution date, for the following uncovered amounts in
the following priority:
(1) any uncovered Investor Loss Amount for Class A;
(2) any Unfunded Investor 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 under
"--Application of Collections--Excess Spread; Shared Excess Finance Charge
Collections."
The amount of any reduction to the Investor Interest of 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 Monthly Interest from prior
interest periods, if any;
(2) for Class B, its Class Monthly Interest, Class Additional
Interest, if any, and unpaid Class Monthly Interest from prior
interest periods, if any,
(3) for Class C, its Class Monthly Interest and unpaid Class
Monthly Interest from prior interest periods, if any, and
(4) for Class D, its Class Monthly Interest.
"Portfolio Yield" means, for any due period, the annualized percentage
equivalent of a fraction,
the numerator of which is equal to the amount, calculated on a cash
basis after subtracting the Series 1999-1 Investor Loss Amount for that due
period, of 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
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funding account, which are treated as collections of finance charge
receivables, 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" for Series 1999-1 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 Series 1999-1 certificateholders without reference to the amount
of the Investor Interest for Class C or Class D 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;
(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 Series 1999-1
certificateholders without reference to the amount of the Investor
Interest for Class C or Class D 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;
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(d) the seller fails to convey receivables arising under additional
accounts to the trust when required by the pooling agreement;
(e) any servicer default under the pooling agreement occurs which
would have a material adverse effect on the Series 1999-1
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 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;
(h) 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;
(i) 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) or (e) 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
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given by certificateholders--the trustee. The notice must declare that an early
amortization event has occurred.
No notice or other action by the trustee or certificateholders is required
if circumstances described in subparagraphs (c), (d), (f), (g), (h) or (i)
occur. These circumstances result in the automatic occurrence of an early
amortization event for Series 1999-1 and, in the case of subparagraphs (g), (h)
and (i), all other series issued by the trust.
If a Series 1999-1 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.
The trustee has discretion to determine the terms under which receivables
will be sold. The seller does not anticipate that any sale would subject the
trust to ongoing liability to the purchaser of receivables. However, the trustee
could agree otherwise. It is also possible that a purchaser of receivables could
assert a claim against certificateholders. In the seller's view, it is highly
unlikely that any certificateholder would be held liable for a claim made by a
purchaser of receivables.
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
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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.
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 to the trust, 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 designated to the
trust and the receivables arising under those accounts 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 designated to the trust 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 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.
Second, the trust may issue a new certificate series of certificates and
offer to exchange the new certificates for certificates of an outstanding
series. Unless
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prohibited by the terms of any series, the holders of a series can tender their
certificates in exchange for certificates of a new series. Series 1999-1 does
not provide for the initiation of an exchange by its certificateholders.
Although not expressly provided for in the Series 1999-1 supplement, an exchange
could be initiated by the trust at the direction of the seller. The seller does
not currently contemplate making an exchange offer for any series. However, it
could elect to make an offer at a later time. The terms of any offer would be
set at the time when the election was made. Any offer to exchange your Series
1999-1 certificates would require your consent and must comply with the
requirements of the Exchange Act and its rules and regulations. Currently
applicable rules include Rule 14e-1 of the Exchange Act.
Rule 14e-1 currently requires that:
- we keep a tender offer open for 20 business days after we publish or give
you notice of the tender offer,
- if we (1) change the consideration offered, (2) change a dealer's
soliciting fee or (3) increase or decrease the percentage of the class of
securities being sought, we must keep the tender offer open for 10
business days after we publish or give you notice of the change,
- we make a public announcement if we are extending the scheduled
expiration of a tender offer, and
- we promptly pay you the consideration offered for your certificates if
you deposit them for tender or promptly return your certificates to you
when the tender offer terminates or we withdraw the tender offer.
The trust may also from time to time issue one or more uncertificated
interests called receivables purchase series. A receivables purchase interest is
substantively the same as a certificated interest. Each outstanding series--
whether a certificate series or a receivables purchase series--will be entitled
to a percentage of the collections of the assets of the trust based on its size
relative to the overall size of receivables in the trust. The receivables
purchase agreement that would govern the terms of a receivables purchase
interest would specify the principal terms of that interest in the same way that
a series supplement--like the one for Series 1999-1--governs the terms of the
certificates offered by this registration statement.
The choice to issue a certificate series or a receivables purchase series
is historical. Commercial paper conduits invest in credit card receivables and
other financial assets, and fund their investments by issuing commercial paper.
At the time the trust was formed, some commercial paper conduits did not have
the power, under their organizational documents, to acquire certificated
securities. However, they could acquire uncertificated interests. As a result,
the trust was designed to offer both certificated and uncertificated interests.
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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 greater than zero and at least equal to the sum of the minimum Seller
Interests specified for all series.
There is no limit to the number of new series that may be issued by the
trust.
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
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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 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.
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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 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
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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 under the pooling
agreement, 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" and "--Servicer
Default."
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
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
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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 38 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.
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
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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 under the pooling agreement,
Series 1999-1 certificate owners representing more than 66 2/3% of the
Investor Interest for Class A or Class B, as applicable, advise the
trustee and DTC through clearing agency participants 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.
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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 designated to the trust,
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 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 accounts
designated to the trust, and each related computer file or microfiche
or written list, is an accurate and complete listing in all material
respects of all the accounts designated to the trust, and (b) the
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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 or a purchaser
representative. 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 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
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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 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.
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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 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;
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- 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 origination program initiated 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;
- 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.
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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 equals:
(1) the outstanding balance of principal receivables in the
trust, plus
(2) the amount on deposit in the excess funding account, minus
(3) the outstanding investor interest of all certificate series,
minus
(4) the outstanding balance of all receivables purchase
interests, minus
(5) the outstanding loan amount of any secured indebtedness
issued by the trust.
In effect, the Seller Interest represents the interest remaining in
the trust after portions of the trust assets have been allocated to
outstanding series and their enhancement. The Seller Interest may be less
than zero and expressed as a negative number.
"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 end of that due
period, the seller must designate sufficient additional accounts to the trust so
that the Seller Interest Test is satisfied after adding the related receivables
to the trust. However, designation of additional accounts will not be required
if the Seller Interest Test is otherwise satisfied by the 10th business day
following the end of the due period. If the seller fails to add the required
amount of receivables solely because the originator does not have that amount of
eligible receivables available to transfer to the seller, this failure will,
after a grace period, be an early amortization event for Series 1999-1. This
failure will not, however, create a breach of contract claim for money damages
that could be asserted by the trust against the seller or the originator.
The Seller Interest includes amounts on deposit in the excess funding
account. The servicer may deposit collections of principal receivables payable
to
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the holder of the exchangeable seller certificate into the excess funding
account to comply with the Seller Interest Test. This deposit may forestall the
occurrence of a Series 1999-1 early amortization event.
The seller may designate to the trust, 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 date of the most recent designation of additional
accounts, 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 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 to the trust 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 no early amortization event has occurred for any series and:
(1) the removal of the related receivables will not cause an early
amortization event to occur for any outstanding series and will not
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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
(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
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- 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.
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,
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 described under "--Addition of Accounts" above, the servicer, if
instructed by the seller, 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.
If no certificate series is in an accumulation or amortization period,
funds on deposit in the excess funding account will be withdrawn and paid to the
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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 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 designated to the trust, 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.
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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
- 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 described under
"--Addition of Accounts" above. 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.
If without regard to the limitation on supplying the Dilution Amount to the
Seller Interest described in the paragraph above, the application of the full
Dilution Amount to the Seller Interest would 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 Amount arose, will be required to compensate the trust for that
deficiency by:
- 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.
If the seller fails to take these actions, a portion of any remaining
Dilution Amount called the "Series Dilution Amount," that has not been allocated
to the Seller Interest 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:
<TABLE>
<S> <C> <C>
series investor interest receivable purchase
sum of all outstanding interests
series investor interests or the sum of all series
and investor
receivable purchase interests and receivables
interest purchase interests
</TABLE>
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.
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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 called
the "Unfunded Investor 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 designated to the trust 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 sum
of the discount option receivables and the amount of principal receivables at
the end of the preceding due period.
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
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the trustee funds 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 Series 1999-1 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 the receivables purchase interest of each receivables
purchase series 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.
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
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purchaser representatives instructed the trustee otherwise as described
under "Description of the Certificates--Early Amortization Events,"
- Unless the servicer and the holder of the exchangeable seller certificate
instruct the trustee otherwise, the distribution date after all funds
have been deposited with the trustee for the payment of all amounts owing
under each outstanding series and related obligations, 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 the receivables purchase
interest for all 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
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Systems, Inc. However, delegation of its duties will not relieve the servicer of
its obligation to perform these duties.
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) caused by 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 or willful misconduct.
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 under the pooling
agreement 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 providers. This notice of removal must be sent to the servicer
and, if the notice is not given by the trustee, to the trustee.
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The trustee will as promptly as possible appoint a successor servicer.
Purchaser representatives for each receivables purchase series and each
enhancement provider must consent in writing to any successor servicer.
If (1) the trustee is unable to obtain any acceptable 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" under the pooling agreement 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, a purchaser representative or an
enhancement provider, 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;
(c) delegation by the servicer of its duties under the pooling
agreement, except as specifically permitted in the pooling agreement;
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(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, a purchaser representative or an enhancement
provider, 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. 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.
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.
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REPORTS TO SERIES 1999-1 CERTIFICATEHOLDERS
The initial paying agent for Series 1999-1 will be the trustee.
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:
- principal and finance charge collections received during the preceding
due period, and the portion allocable to each class in Series 1999-1,
- the amount on deposit in the excess funding account,
- 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 designated to the trust
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,
- Portfolio Yield for the preceding due period, and
- LIBOR for the related interest period.
The servicer report does not provide information about new account
originations or changes in credit criteria or account terms, or attempt to
explain the reason for trends in the trust portfolio's performance.
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 nationally recognized
independent certified public accountants to annually evaluate, according to
procedures described in the pooling agreement, and report to the trustee on the
servicer's internal accounting controls for the servicing of the accounts
designated to the trust. The accountants may also perform other services for the
servicer, the seller or the originator.
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This 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.
The servicer is also required to cause a firm of nationally recognized
independent certified accountants to annually verify the accuracy of
mathematical calculations used to prepare monthly serving reports delivered
during the related twelve month period.
A copy of these reports may be obtained by any investor certificateholder
upon written request of the trustee. New reports will be prepared by May 30 of
each year.
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 the Series 1999-1 supplement to conform
its terms 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.
The holders of Class C and Class D certificates must consent to any
amendment to the Series 1999-1 supplement, and if they are adversely affected,
any amendment to the pooling agreement. Additionally, amendments having the
following effects require the consent of all, rather than just 66 2/3%, 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,
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(b) changing the definition of or 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 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 is accompanied by a copy
of the proposed communication, 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 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.
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The trustee may resign at any time, in which event the servicer will be
obligated to appoint a successor trustee. Any appointment of a successor trustee
will require the consent of each purchaser representative of a receivables
purchase series. The seller, any purchaser representative or 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, (1) the servicer will be obligated to appoint a successor trustee
and (2) the servicer, each purchaser representative and each enhancement
provider must consent to the appointment. 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. So long
as no series is outstanding, the purchase 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 purchase 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 designated to the trust, identified by account number, obligor
name and address, and setting forth the receivables balance on a specified
date.
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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.
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.
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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
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 designated to the trust 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;
(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 to the trust, 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
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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 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
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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 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 Inc. 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.
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;
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- 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
Federal Deposit Insurance 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 Federal Deposit Insurance 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
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
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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.
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
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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, a bankruptcy trustee or creditor of the
seller could take the position that the transfer of an interest in the
receivables to the trustee should be recharacterized as a pledge of those
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.
Powers of Conservator, Receiver or Court to Vary Terms of the Trust. 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.
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 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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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 other servicer default under the pooling agreement exists, the conservator,
receiver or liquidator may have the power to prevent the trustee, investor
certificateholders and receivables purchasers from appointing a successor
servicer.
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.
Mayer, Brown & Platt has prepared or reviewed the statements under the
heading "U.S. Federal Income Tax Consequences" and is of the opinion that such
statements discuss all material federal income tax consequences to investors
generally of the purchase, ownership and disposition of the offered
certificates. However, the following discussion does not discuss the unique 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,
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- 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.
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
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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.
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.
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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 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
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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 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.
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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 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.
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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 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
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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.
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
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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 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
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<PAGE> 122
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,
(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., J.P. Morgan
Securities Inc. and Salomon Smith Barney 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
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<PAGE> 123
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> <C> <C> <C>
Bear, Stearns & Co. Inc...........
J.P. Morgan Securities Inc........
Salomon Smith Barney..............
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF UNDERWRITER'S PRICE TO
UNDERWRITER OF CLASS B CERTIFICATES CLASS A CERTIFICATES COMMISSION PUBLIC
- ----------------------------------- -------------------- ------------- --------
<S> <C> <C> <C>
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.
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.
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<PAGE> 124
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 Inc., 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 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.
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<PAGE> 125
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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<PAGE> 126
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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<PAGE> 127
INDEX OF TERMS FOR PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
accounts.................................................... 32
addition date............................................... 83
Available Funds............................................. 53
Available Principal Collections............................. 46
Base Rate................................................... 65
Benefit Plans............................................... 117
Charge-Offs................................................. 64
Charming Shoppes............................................ 37
Class A Monthly Principal................................... 48
Class Additional Interest................................... 46
Class Allocation............................................ 51
Class Available Funds....................................... 53
Class B Monthly Principal................................... 48
Class Certificate Rate...................................... 45
class deficiency amount..................................... 46
Class Fixed Allocation...................................... 52
Class Floating Allocation................................... 52
Class Investor Charge-Off................................... 64
Class Monthly Interest...................................... 45
Class Servicing Fee......................................... 53
Code........................................................ 108
Controlled Amortization Amount.............................. 48
controlled amortization period.............................. 47
Controlled Payment Amount................................... 48
Controlling Certificateholders.............................. 65
Cumulative Principal Shortfall.............................. 62
defaulted receivables....................................... 86
defeasance.................................................. 89
Dilution Amount............................................. 87
discount option receivables................................. 88
discount percentage......................................... 88
due period.................................................. 47
early amortization event.................................... 66
early amortization period................................... 47
eligible receivable......................................... 81
Excess Spread............................................... 54
exchangeable seller certificate............................. 43
finance charge receivables.................................. 32
Finance Charge Shortfall.................................... 60
Fixed Allocation Percentage................................. 51
Fixed Principal Allocation Date............................. 51
Floating Allocation Percentage.............................. 50
</TABLE>
122
<PAGE> 128
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Foreign Investor............................................ 113
Insolvency Events........................................... 67
interest period............................................. 44
Investor Dilution Amount.................................... 62
Investor Interest........................................... 43
Investor Loss Amount........................................ 62
LIBOR....................................................... 45
Loss Amount................................................. 86
Monthly Interest............................................ 65
Portfolio Yield............................................. 65
Principal Allocation Percentage............................. 51
principal receivables....................................... 32
Principal Shortfall......................................... 60
private label............................................... 23
removal date................................................ 100
Required Seller Interest.................................... 82
revolving period............................................ 47
Seller Interest............................................. 82
Seller Interest Test........................................ 82
Seller Percentage........................................... 43
series...................................................... 71
Series 1999-1 Finance Charge Shortfall...................... 60
Series 1999-1 Investor Dilution Amount...................... 62
Series 1999-1 Investor Loss Amount.......................... 62
Series 1999-1 Principal Collections......................... 56
Series 1999-1 Principal Shortfall........................... 61
Series 1999-1 Servicing Fee................................. 52
servicer default............................................ 92
Shared Excess Finance Charge Collections.................... 60
shared principal collections................................ 60
specified program account................................... 80
specified programs.......................................... 80
Unfunded Investor Dilution Amount........................... 88
</TABLE>
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<PAGE> 129
ANNEX I
OTHER SERIES OUTSTANDING
The table below sets forth the principal characteristics of the other
outstanding series issued by the trust. 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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<PAGE> 130
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.
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<PAGE> 131
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 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,
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<PAGE> 132
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 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
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<PAGE> 133
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;
(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
be 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 from 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
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<PAGE> 134
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.
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.
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<PAGE> 135
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.
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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.
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
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].
<PAGE> 137
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................................ 589,000
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.................................................. $881,900
========
</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> 138
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 undertake 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> 139
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 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 17TH DAY OF JUNE, 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. 3 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
- --------------------------------------------- ------------------------------------- -------------
<C> <S> <C>
*ERIC M. SPECTER Director, President and Assistant June 17, 1999
- --------------------------------------------- Secretary (Principal Executive
Eric M. Specter Officer and Principal Financial and
Accounting Officer)
*KIRK R. SIMME Director June 17, 1999
- ---------------------------------------------
Kirk R. Simme
/s/ COLIN D. STERN Director June 17, 1999
- ---------------------------------------------
Colin D. Stern
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT NO. 3 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
- --------------------------------------------- ------------------------------------- -------------
<C> <S> <C>
*ERIC M. SPECTER Director and President (Principal June 17, 1999
- --------------------------------------------- Executive Officer and Principal
Eric M. Specter Financial and Accounting Officer)
*KIRK R. SIMME Director June 17, 1999
- ---------------------------------------------
Kirk R. Simme
*KATHLEEN H. LIEBERMAN Director June 17, 1999
- ---------------------------------------------
Kathleen H. Lieberman
*By: /s/ COLIN D. STERN
---------------------------------------
Colin D. Stern
Attorney-in-fact
</TABLE>
<PAGE> 140
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <C> <S>
Form of Underwriting Agreement
1.1* --
Certificate of Incorporation of Charming Shoppes Receivables
Corp.
3.1* --
Bylaws of Charming Shoppes Receivables Corp.
3.2* --
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
4.1* --
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
4.2* --
Form of Series 1999-1 Floating Rate Class A Asset Backed
Certificate (included in Exhibit 4.2)
4.3* --
Form of Series 1999-1 Floating Rate Class B Asset Backed
Certificate (included in Exhibit 4.2)
4.4* --
Opinion of Mayer, Brown & Platt with respect to the validity
of the securities being offered
5.1* --
Opinion of Mayer, Brown & Platt with respect to federal
income tax matters
8.1* --
Opinion of Squire Sanders & Dempsey, L.L.P. with respect to
Ohio income tax matters
8.2* --
Purchase and Sale Agreement between Spirit of America
National Bank and Charming Shoppes Receivables Corp.
10.1(a)* --
Form of First Amendment to Purchase and Sale Agreement
between Spirit of America National Bank and Charming Shoppes
Receivables Corp.
10.1(b)* --
Consent of Mayer, Brown & Platt (included in Exhibit 8.1)
23.1* --
Consent of Squire Sanders & Dempsey, L.L.P. (included in
Exhibit 8.2)
23.2* --
Powers of attorney for Charming Shoppes Receivables Corp.
(contained on the signature page to this Registration
Statement as filed on February 4, 1999)
24.1* --
Powers of attorney for Spirit of America, Inc.
24.2* --
</TABLE>
- ---------------
* Previously filed.
