<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 1998
REGISTRATION NO. 333-45611
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
FINGERHUT MASTER TRUST
(Issuer with respect to Offered Securities)
FINGERHUT RECEIVABLES, INC.
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 9999 41-1783128
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer
incorporation or organization) Classification Code No.) identification number)
</TABLE>
4400 BAKER ROAD
SUITE F480
MINNETONKA, MN 55343
(612) 936-5035
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
MICHAEL P. SHERMAN, ESQ.
4400 BAKER ROAD
MINNETONKA, MN 55343
(612) 932-3585
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
<TABLE>
<S> <C>
Copies to:
ANDREW M. FAULKNER, ESQ. LAURA PALMA, ESQ.
SKADDEN, ARPS, SLATE, SIMPSON THACHER & BARTLETT
MEAGHER & FLOM LLP 425 LEXINGTON AVENUE
919 THIRD AVENUE NEW YORK, NEW YORK 10017
NEW YORK, NEW YORK 10022-3897
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of the Registration Statement.
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, 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
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
BE REGISTERED REGISTERED(1) SECURITY(1) PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
% Asset Backed Securities, Series
1998-2, Class A..................... $337,500,000 100% $337,500,000 $99,562.50
% Asset Backed Securities, Series
1998-2, Class B..................... $51,136,000 100% $51,136,000 $15,085.12
Total................................. $388,636,000 100% $388,636,000 $114,647.62(2)
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee.
(2) $295 of which has previously been paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THE 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 10, 1998
PROSPECTUS
FINGERHUT MASTER TRUST
$337,500,000 % ASSET BACKED SECURITIES, SERIES 1998-2, CLASS A
$51,136,000 % ASSET BACKED SECURITIES, SERIES 1998-2, CLASS B
FINGERHUT RECEIVABLES, INC.
Transferor
FINGERHUT NATIONAL BANK
Servicer
Each of the % Asset Backed Securities, Series 1998-2, Class A (the "Class A
Securities"), and each of the % Asset Backed Securities, Series 1998-2, Class
B (the "Class B Securities," and, together with the Class A Securities, the
"Offered Securities"), will represent an undivided interest in the Fingerhut
Master Trust (the "Trust") created pursuant to a Pooling and Servicing Agreement
among Fingerhut Receivables, Inc., as transferor (the "Transferor"), Fingerhut
National Bank, as servicer (the "Servicer"), and The Bank of New York
(Delaware), as trustee (the "Trustee"). The Class B Securities will be
subordinated to the Class A Securities as described in "Description of the
Offered Securities--Subordination of the Class B Securities," "--Redirected
Principal Collections," "--Application of Collections" and "--Series
Charge-Offs." The property of the Trust includes Receivables generated from time
to time in the ordinary course of business by Fingerhut National Bank and
Fingerhut Corporation, all monies due or to become due in payment of such
Receivables and the benefit of funds on deposit in the Excess Funding Account
(as defined herein) and certain other accounts described herein.
(COVER CONTINUED ON NEXT PAGE)
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" BEGINNING ON PAGE 26 HEREIN.
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THE OFFERED SECURITIES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR RECOURSE OBLIGATIONS OF THE TRANSFEROR, FINGERHUT
NATIONAL BANK, FINGERHUT COMPANIES, INC., FINGERHUT CORPORATION OR ANY AFFILIATE
THEREOF. AN OFFERED SECURITY IS NOT A DEPOSIT AND NEITHER THE OFFERED SECURITIES
NOR THE UNDERLYING ACCOUNTS OR RECEIVABLES ARE INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C>
PROCEEDS TO
PRICE TO UNDERWRITING THE
PUBLIC(1) DISCOUNT TRANSFEROR(1)(2)
PER CLASS A SECURITY % % %
PER CLASS B SECURITY
TOTAL $ $ $
</TABLE>
(1) Plus accrued interest, if any, from April , 1998.
(2) Before deduction of expenses estimated to be $665,000.
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The Offered Securities are offered by the Underwriters, subject to prior sale,
when, as and if issued to and accepted by the Underwriters, subject to approval
of certain legal matters by counsel for the Underwriters. The Underwriters
reserve the right to reject orders in whole or in part. It is expected that the
Offered Securities will be delivered in book-entry form on or about April ,
1998 through the facilities of The Depository Trust Company, Cedel Bank, societe
anonyme and the Euroclear System, against payment therefor in immediately
available funds.
Underwriters of the Class A Securities
CHASE SECURITIES INC.
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES LLC
UBS SECURITIES
Underwriter of the Class B Securities
CHASE SECURITIES INC.
The date of this Prospectus is April , 1998
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Concurrently with the issuance of the Offered Securities, the Trust will
issue the Floating Rate Asset Backed Collateralized Trust Obligations, Series
1998-2 (the "Collateralized Trust Obligations"), which may be privately placed,
and the Asset Backed Securities, Series 1998-2, Class D (the "Class D
Securities," and, together with the Collateralized Trust Obligations and the
Offered Securities, the "Securities" or the "Series 1998-2 Securities"), which
will initially be retained by the Transferor. The Securities constitute "Series
1998-2". The Collateralized Trust Obligations will be subordinated to the
Offered Securities and the Class D Securities will be subordinated to the
Collateralized Trust Obligations and the Offered Securities as described in
"Description of the Offered Securities--Subordination of Class B Securities,"
"--Redirected Principal Collections," "--Application of Collections" and
"--Series Charge-Offs." The Transferor will own the remaining undivided interest
in the Trust not represented by the Securities, any Participations or any other
investor securities issued by the Trust, which retained interest will be
represented by the Exchangeable Transferor Security (as defined herein). The
Transferor from time to time may offer other series of securities that evidence
interests in certain assets of the Trust by exchanging a portion of its interest
in the Trust therefor. Only the Offered Securities are being offered hereby.
Interest will accrue on the Class A Securities at the rate of % per
annum (the "Class A Interest Rate"). Interest will accrue on the Class B
Securities at the rate of % per annum (the "Class B Interest Rate").
Interest with respect to the Securities will be distributed on June 15, 1998 and
on the 15th day of each month thereafter (or, if such 15th day is not a business
day, the next succeeding business day) (each, a "Distribution Date"). Principal
on the Class A Securities is scheduled to be distributed on each Distribution
Date commencing on the Distribution Date in September 2002 but may be paid
earlier under certain limited circumstances described herein. Principal on the
Class B Securities is scheduled to be distributed on each Distribution Date
commencing on the Distribution Date in December 2003 but may be paid earlier
under certain limited circumstances described herein.
Application has been made to list the Offered Securities on the Luxembourg
Stock Exchange.
There currently is no secondary market for the Offered Securities. The
Underwriters expect, but are not obligated, to make a market in the Offered
Securities, and there is no assurance that any such market will develop or
continue.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED
SECURITIES, INCLUDING OVER-ALLOTMENT TRANSACTIONS, STABILIZING TRANSACTIONS,
SYNDICATE COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities (as defined herein) are issued,
monthly and annual reports, containing information concerning the Trust and
prepared by the Servicer, will be sent on behalf of the Trust to Cede & Co., as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Offered Securities, pursuant to the Pooling and Servicing Agreement (as defined
herein). See "Description of the Offered Securities--Book-Entry Registration,"
"--Reports to Securityholders" and "--Evidence as to Compliance." Such reports
will not constitute financial statements prepared in accordance with generally
accepted accounting principles. Neither Fingerhut National Bank nor any
successor servicer intends to send any of its financial reports to
Securityholders or to the owners of beneficial interests in the Offered
Securities ("Security Owners"). The Servicer will file with the Securities and
Exchange Commission (the "Commission") such periodic reports with respect to the
Trust as are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder for
so long as the Offered Securities are outstanding.
2
<PAGE>
AVAILABLE INFORMATION
The Transferor, as originator of the Trust, has filed a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
with the Commission on behalf of the Trust with respect to the Securities
offered pursuant to this Prospectus. For further information, reference is made
to the Registration Statement and amendments thereof and exhibits thereto, which
are available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
7 World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the
Registration Statement and amendments thereof and exhibits thereto may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a website at "http://www.sec.gov" that contains information regarding
registrants that file electronically with the Commission. Periodic reports with
respect to the Trust that have been filed under the Exchange Act and the rules
and regulations of the Commission thereunder and other information filed by the
Servicer can be inspected and copied at the public reference facilities
maintained by the Commission referred to above.
OTHER INFORMATION
Upon receipt of a request by an investor who has received an electronic
Prospectus from an Underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a Prospectus,
the Transferor or such Underwriter will promptly deliver, or cause to be
delivered, without charge, a paper copy of the Prospectus.
The distribution of this Prospectus and the offering of the Offered
Securities in certain jurisdictions may be restricted by law. Persons into whose
possession this Prospectus comes are required by the Underwriters to inform
themselves about and to observe any such restrictions.
The Transferor has taken all reasonable care to ensure that the information
contained in this Prospectus is true and accurate in all material respects and
that there are no material facts the omission of which would make misleading any
statement herein, whether fact or opinion. The Transferor accepts responsibility
accordingly.
As used in this Prospectus, all references to "dollars" and "$" refer to
United States dollars.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed herein under the captions "Fingerhut
Corporation's and Fingerhut National Bank's Businesses," "The Receivables" and
"Maturity Considerations" may constitute forward-looking statements within the
meaning of Section 27A of the Securities Act. Such forward-looking statements
may involve uncertainties and other factors that may cause the actual results
and performance of the Trust and the Receivables to be materially different from
future results or performance expressed or implied by such statements. Among
others, factors that could adversely affect actual results and performance
include economic conditions, declines in sales of merchandise and financial
services products by Fingerhut Corporation, the ability of Fingerhut National
Bank to change payment terms and collection policies, and potential changes in
consumers' attitudes toward financing purchases with debt. See "Risk Factors."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. CERTAIN CAPITALIZED
TERMS USED HEREIN ARE DEFINED IN THE "GLOSSARY OF TERMS" OR ELSEWHERE IN THIS
PROSPECTUS. UNLESS THE CONTEXT REQUIRES OTHERWISE, CERTAIN CAPITALIZED TERMS,
WHEN USED IN THIS PROSPECTUS, RELATE ONLY TO THE SECURITIES AND NOT TO OTHER
SECURITIES ISSUED BY THE TRUST WHICH MAY BE OUTSTANDING FROM TIME TO TIME.
<TABLE>
<S> <C>
Offered Securities.............. $337,500,000 aggregate principal amount of Class A
Securities and $51,136,000 aggregate principal amount of
Class B Securities are being offered hereby.
The Offered Securities will be available for purchase in
minimum denominations of $1,000 and in integral
multiples of $1,000 in excess thereof. The Offered
Securities will be issued in certificated registered
form. See "Description of the Offered
Securities--General."
The Offered Securities represent the right to receive
certain payments from the Trust only and do not
represent interests in or recourse obligations of
Fingerhut National Bank ("FNB"), Fingerhut Companies,
Inc. ("FCI"), the Transferor, Fingerhut Corporation
("Fingerhut"), or any affiliate thereof.
The Class B Securities will be subordinated to fund
certain payments with respect to the Class A Securities
as described herein. See "Description of the Offered
Securities-- Subordination of the Class B Securities."
Other Securities................ $61,364,000 aggregate principal amount of Collateralized
Trust Obligations, which may be privately placed, and
$61,364,000 aggregate principal amount of Class D
Securities, which will initially be retained by the
Transferor, are being issued concurrently. The Trust has
previously issued three other Series (the "Previously
Issued Series") only one of which will remain
outstanding after the issuance of the Securities.
Concurrently with Series 1998-2, the Trust will issue
Series 1998-1 Securities comprised of $337,500,000
aggregate principal amount of % Asset Backed
Securities, Series 1998-1, Class A, $51,136,000
aggregate principal amount of % Asset Backed
Securities, Series 1998-1, Class B, $61,364,000
aggregate principal amount of Floating Rate Asset Backed
Collateralized Trust Obligations, Series 1998-1, and
$61,364,000 aggregate principal amount of Asset Backed
Securities, Series 1998-1, Class D (collectively, the
"Series 1998-1 Securities"). The Series 1998-1
Securities, Class A and Class B, will be offered
publicly concurrently herewith by means of a separate
prospectus. The Series 1998-1 Securities, Collateralized
Trust Obligations, may be privately placed and the
Series 1998-1 Securities, Class D, will initially be
retained by the Transferor. The Series 1998-1 Securities
will rank PARI PASSU with the Series 1998-2 Securities.
See "Annex I: Other Series" for a summary of the terms
of these other Series which will be outstanding on the
Closing Date. See also "Description of the
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Offered Securities--Other Series." The Transferor from
time to time may create other Series that evidence
interests in assets of the Trust (other than any
Enhancement for, or Collections allocated initially to,
any other Series), by exchanging a portion of the
Exchangeable Transferor Security and satisfying certain
conditions described herein. In addition, on the Closing
Date the Trust will issue to FNB a Participation. See
"Description of the Offered Securities--Exchanges" and
"--Participations." Only the Offered Securities are
being offered hereby.
Transferor...................... Fingerhut Receivables, Inc. is the Transferor. The
principal executive offices of the Transferor are located
at 4400 Baker Road, Suite F480, Minnetonka, MN 55343,
telephone number (612) 936-5035. See "The Transferor and
Related Parties-- Fingerhut Receivables, Inc."
Servicer........................ FNB is the Servicer. The principal executive offices of
the Servicer are located at 3904 West Technology Circle,
Suite 102, Sioux Falls, South Dakota 57106, telephone
number (605) 362-2380. A substitute Servicer may be
appointed in certain circumstances. FNB has delegated a
substantial portion of its servicing duties to Fingerhut
pursuant to a subservicing agreement. See "The
Receivables--Servicing," "The Transferor and Related
Parties-- Fingerhut National Bank" and "Description of
the Offered Securities--Certain Matters Regarding the
Transferor and the Servicer."
Trustee......................... The Bank of New York (Delaware) is the Trustee. Under
certain circumstances specified herein, the Transferor and
the holders of the Securities will have the right to
remove the Trustee. See "Description of the Offered
Securities--The Trustee."
Trust........................... Fingerhut Master Trust was formed pursuant to the Pooling
and Servicing Agreement, which has been supplemented by
the Supplements thereto relating to the Previously
Issued Series and will be supplemented by the Series
1998-2 Supplement relating to the Securities, the
Supplement relating to the Series 1998-1 Securities, the
Participation Supplement relating to the Participation
to be issued to FNB on the Closing Date and the
Supplements relating to any other Series that may be
issued in the future and the Participation Supplements
relating to any Participations that may be issued in the
future. See "The Trust."
As more fully described below and elsewhere herein, the
Trust's assets include the Receivables and the proceeds
thereof. Collections on the Receivables are deposited
into the Collection Account maintained in the name of
the Trust.
Trust Assets.................... The Trust assets include (i) all Receivables generated by
FNB or one of its affiliates from time to time satisfying
certain criteria described herein (see "Description of
the Offered Securities-- Eligible Receivables"), (ii)
all monies and investments due or to become due with
respect thereto (including, without limitation, the
right to any Finance Charge Receivables), (iii) all
proceeds of
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
such Receivables, (iv) all right, title, and interest of
the Transferor in, to, and under the Purchase Agreements
and the Bank Purchase Agreement with respect to
Receivables arising under Eligible Accounts, (v) the
benefit of funds on deposit in certain bank accounts
maintained for the benefit of securityholders of each
Series, including the Excess Funding Account, (vi) the
benefit of funds on deposit in the Revolving Receivables
Reserve Account and certain other bank accounts
maintained for the benefit of the Securityholders, (vii)
recoveries (net of collection expenses) on Receivables
which were previously charged off as uncollectible
("Recoveries") and (viii) all proceeds of the foregoing.
The Offered Securities will not have the benefit of any
Enhancement other than the subordination of the Class B
Securities, the Collateralized Trust Obligations and the
Class D Securities for the benefit of each more senior
Class of Securities as described herein. See
"Description of the Offered Securities--Subordination of
the Class B Certificates."
On and after the Initial Closing Date and prior to January
12, 1997, all Receivables that were transferred to the
Trust by the Transferor were closed-end installment sale
contracts originated by Fingerhut in connection with the
sale of merchandise, financial service products or
services. Such Receivables were sold by Fingerhut to the
Transferor pursuant to the Fingerhut Purchase Agreement.
Since January 12, 1997, FNB has been originating all
receivables in connection with the sale of merchandise,
financial service products and services by Fingerhut.
These receivables, in the form of closed-end loans and
revolving credit card loans extended by FNB under credit
card accounts, have been sold on an ongoing basis by FNB
to FCI pursuant to the Bank Purchase Agreement and, in
the case of closed-end loans that are Eligible
Receivables, have been sold by FCI to the Transferor
pursuant to the FCI Purchase Agreement. Pursuant to the
Pooling and Servicing Agreement, the Transferor
automatically transfers to the Trust all of its right,
title, and interest in and to the Receivables purchased
by it pursuant to the Purchase Agreements, subject to
certain restrictions on the automatic addition of new
Obligors set forth herein. See "Risk Factors--Transfer
of the Receivables; Insolvency Risk Considerations" for
a discussion of certain legal considerations relating to
such transfer. On March 18, 1998, the FCI Purchase
Agreement and the Pooling and Servicing Agreement were
amended to provide for the sale on an ongoing basis by
FCI to the Transferor, and by the Transferor to the
Trust, respectively, of the revolving credit card loans
originated by FNB that are Eligible Receivables.
Receivables..................... The Receivables consist of Closed End Receivables and
Revolving Receivables. Receivables will not be Eligible
Receivables and, therefore, will not be transferred to
the Transferor and the Trust unless the Obligor thereof
is a Back End Customer. Subject to
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
certain restrictions on the addition of new Obligors set
forth herein, all Receivables originated by FNB that are
Eligible Receivables are purchased by the Transferor and
thereafter automatically transferred to the Trust. The
Transferor may elect at any time to suspend the
automatic inclusion of receivables in accounts that
would otherwise constitute Additional Accounts. See
"Description of the Offered Securities--Addition of
Trust Assets." The amount of Receivables fluctuates from
day to day as new Receivables are generated and as
existing Receivables are collected, written off as
uncollectible, or otherwise adjusted.
The Receivables consist of Principal Receivables and
Finance Charge Receivables. "Finance Charge Receivables"
include (i) with respect to consumer revolving credit
card accounts, amounts billed from time to time to
Obligors in respect of Periodic Finance Charges,
overlimit fees, late charges, returned check fees,
annual account fees or service charges, transaction
charges and similar fees and charges (except for fees
associated with ancillary products and services sold to
Obligors) plus (ii) with respect to all Receivables,
Recoveries, any other fees, other than prepaid insurance
premiums, billed to Obligors, plus (iii) investment
earnings on amounts credited to the Excess Funding
Account, plus (iv) Discount Receivables. Discount
Receivables are portions of the principal balance of
Receivables which are recharacterized as Finance Charge
Receivables based on a Discount Factor. The Discount
Factor for Revolving Receivables generated in connection
with sales by Fingerhut will initially be 9% and for
Closed End Receivables generated in connection with
sales by Fingerhut will initially be 25%. "Principal
Receivables" are amounts payable by Obligors with
respect to the Receivables other than such amounts that
are Finance Charge Receivables or Default Amounts. See
"Description of the Offered Securities--Finance Charge
Collections; Principal Collections."
Subject to the satisfaction of the Rating Agency
Condition, Receivables originated by FNB or an affiliate
of FNB other than in connection with the sale of
merchandise or services by Fingerhut may be transferred
to the Trust. These Receivables may be originated using
criteria different from those applied, and may have
different terms or characteristics than the Receivables
originated, by FNB in connection with the sale of
merchandise or services by Fingerhut. See "Description
of the Offered Securities--Addition of Trust Assets."
Subject to the satisfaction of the Rating Agency
Condition, the Transferor may, but will not be obligated
to, designate from time to time certain Accounts (the
"Removed Accounts"), all Receivables in which shall be
subject to removal from the Trust in an aggregate amount
not greater than the lesser of (i) the excess of the
Transferor Interest over the Minimum Transferor Interest
and (ii) the excess of Aggregate Principal Receivables
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
over the Minimum Aggregate Principal Receivables as of
the last day of the related Monthly Period; PROVIDED,
HOWEVER, that there will be no more than one such
removal with respect to any Monthly Period. See
"Description of the Offered Securities-- Removal of
Accounts."
Collections..................... The Servicer is obligated to deposit all collections of
Receivables, other than the portion of Collections
allocable to Participations, in the Collection Account.
Collections on the Receivables will be applied as
collections of Principal Receivables or collections of
Finance Charge Receivables in accordance with the
definitions thereof. See "Description of the Offered
Securities--Finance Charge Collections; Principal
Collections." Finance Charge Collections and Principal
Collections are applied on each business day to the
Transferor Interest, the holders of any Participation
and the respective interests of the securityholders of
each Series issued and outstanding from time to time in
accordance with the Pooling and Servicing Agreement and
applicable Supplements. In general, in accordance with
the provisions of the Pooling and Servicing Agreement
and the applicable Supplements, (i) Finance Charge
Collections and certain other amounts are applied on
each business day to fund interest on the securities of
any Series then outstanding, to pay certain fees and
expenses, to cover Series default amounts, to reimburse
Series charge-offs and to make required payments to the
Transferor, and (ii) Principal Collections and certain
other amounts are applied on each business day to fund
principal on the securities of any Series then
outstanding, except that during any revolving period
applicable to a Series, Principal Collections otherwise
applied for the benefit of the securityholders of such
Series which are not redirected to cover amounts payable
from Finance Charge Collections in the event of a
shortfall thereof are paid to the holder of the
Exchangeable Transferor Security or paid to the
securityholders of any other Series then outstanding.
See "Description of the Offered Securities--Application
of Collections--Payment of Fees, Interest and Other
Items."
Allocation of Trust Assets...... The right to receive payments from the Trust's assets will
be allocated among the Class A Securityholders' Interest,
the Class B Securityholders' Interest, the CTO
Securityholders' Interest, the Class D Securityholders'
Interest, the interest of the securityholders of the
Previously Issued Series that remain outstanding and any
other Series (including the interest of the
securityholders of the Series 1998-1 Securities) issued
pursuant to the Pooling and Servicing Agreement and
applicable Supplements, the interest of the holders of
any Participations and the Transferor Interest. The
interest of the securityholders of any class of any
Series in the assets of the Trust will be limited to the
securityholders' interest for such class and Series, and
such securityholders will not have any recourse against
any assets of the Trust other than those allocated to
such securityholders' interest pursuant to the Pooling
and Servicing Agreement and
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any applicable Supplement. The Transferor Interest
represents the right to receive payments from the assets
of the Trust not allocated to the securityholders'
interest of any Series issued pursuant to the Pooling
and Servicing Agreement and applicable Supplements or
the interest of the holder of any Participation. The
principal amount of the Transferor Interest will
fluctuate as the amount of Receivables in the Trust, the
invested amount of each Series (including any Series
consisting of variable funding securities), the amount
of any Participation and the amounts on deposit in the
Excess Funding Account change from time to time. See
"Description of the Offered Securities--General," "--
Other Series," and "--Excess Funding Account."
The Class A Securities will represent the right to receive
payments of interest on the aggregate outstanding
principal amount of the Class A Securities at the Class
A Interest Rate and the payment of principal to the
extent of the Class A Invested Amount (which may be less
than the aggregate outstanding principal amount of the
Class A Securities, in certain circumstances, if the
Series Default Amount exceeds funds allocable thereto
and the Class B Invested Amount, the CTO Invested Amount
and the Class D Invested Amount are reduced to zero).
See "Description of the Offered
Securities--Subordination of the Class B Securities,"
"--Allocation Percentages" and "--Series Charge-Offs."
The Class B Securities will represent the right to receive
payments of interest on the aggregate outstanding
principal amount of the Class B Securities at the Class
B Interest Rate and the payment of principal to the
extent of the Class B Invested Amount (which may be less
than the aggregate outstanding principal amount of the
Class B Securities, in certain circumstances, if the
Series Default Amount exceeds funds allocable thereto
and the CTO Invested Amount and the Class D Invested
Amount are reduced to zero). See "Description of the
Offered Securities-- Subordination of the Class B
Securities," "--Allocation Percentages" and "--Series
Charge-Offs."
The Collateralized Trust Obligations will represent the
right to receive payments of interest on the aggregate
outstanding principal amount of the Collateralized Trust
Obligations at the CTO Interest Rate and the payment of
principal to the extent of the CTO Invested Amount
(which may be less than the aggregate unpaid principal
amount of the Collateralized Trust Obligations, in
certain circumstances, if the Series Default Amount
exceeds funds allocable thereto and the Class D Invested
Amount is reduced to zero). See "Description of the
Offered Securities--Allocation Percentages" and
"--Series Charge-Offs." The Collateralized Trust
Obligations are not being offered hereby.
The Class D Securities will represent the right to receive
payments of principal to the extent of the Class D
Invested Amount and, to the extent the Transferor
assigns an interest rate (the "Class D
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Interest Rate") to all or a portion of the Class D
Securities, payments of interest at such rate on the
Class D Securities or such portion thereof. The Class D
Securities are not being offered hereby.
The aggregate amount of Receivables in the Trust as of
March 27, 1998 was $1,686,837,273, comprised of
$417,752,162 of Finance Charge Receivables and
$1,269,085,112 of Principal Receivables. As of March 27,
1998, the Principal Receivables consisted of
$240,526,025 of closed-end installment sale contracts
originated by Fingerhut, $930,597,170 of closed-end
credit card loans originated by FNB and $48,650,283 of
revolving credit card loans originated by FNB. The
"Initial Invested Amount" will be equal to the sum of
(i) an amount equal to the initial principal amount of
the Class A Securities; (ii) an amount equal to the
initial principal amount of the Class B Securities;
(iii) an amount equal to the initial principal amount of
the Collateralized Trust Obligations; and (iv) an amount
equal to the initial principal amount of the Class D
Securities. The aggregate principal amount of the
Securities, except as otherwise provided herein, will
remain fixed at the Initial Invested Amount during the
period beginning on the Closing Date and ending with the
date on which the first principal payment is made with
respect to the Securities during the Amortization
Period. No payment of principal with respect to the
Class B Securities may be made until the final principal
payment of the Class A Invested Amount with respect to
the Class A Securities has been made. No payment of
principal with respect to the Collateralized Trust
Obligations may be made until the final principal
payment of the Class A Invested Amount with respect to
the Class A Securities and the final principal payment
of the Class B Invested Amount with respect to the Class
B Securities have been made. During the Controlled
Amortization Period, the Class D Invested Amount may be
reduced and the amount of the Transferor Interest
correspondingly increased concurrently with payments of
principal for the benefit of the Offered Securities and
the Collateralized Trust Obligations to an amount equal
to the Stated Class D Amount. See "Description of the
Offered Securities--Principal Payments."
The Class A Securityholders' Interest, the Class B
Securityholders' Interest, the CTO Securityholders'
Interest, and the Class D Securityholders' Interest will
each include the right to receive (but only to the
extent needed to make required payments under the
Pooling and Servicing Agreement) varying percentages of
Finance Charge Collections and Principal Collections
during each Monthly Period. Finance Charge Collections
prior to the occurrence of a Pay Out Event, the Default
Amount at all times, and Principal Collections during
the Revolving Period will be applied on each business
day for the benefit of the Series 1998-2
Securityholders' Interest based on the Floating
Percentage. On and after the date on which a Pay Out
Event is deemed to occur,
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Finance Charge Collections will be applied on each
business day for the benefit of the Series 1998-2
Securityholders' Interest based on the Fixed/Floating
Percentage. During the Revolving Period, all Principal
Collections that would otherwise be applied for the
benefit of the Securityholders will be applied on each
business day and paid to the holder of the Exchangeable
Transferor Security (except for Shared Principal
Collections used to make payments to other Series).
During the Amortization Period, until the Class B
Principal Payment Commencement Date, Principal
Collections will be applied on each business day for the
benefit of the Class A Securityholders' Interest based
on the Fixed/Floating Percentage. On and after the Class
B Principal Payment Commencement Date, Principal
Collections will be applied on each business day for the
benefit of the Class B Securityholders' Interest based
on the Fixed/Floating Percentage. On and after the CTO
Principal Payment Commencement Date, Principal
Collections will be applied on each business day for the
benefit of the CTO Securityholders' Interest based on
the Fixed/Floating Percentage. See "Description of the
Offered Securities--Allocation Percentages."
Exchanges....................... The Pooling and Servicing Agreement provides that the
Trustee may issue two types of securities, (i) investor
securities in one or more Series, each of which may have
multiple classes of securities of which one or more such
classes may be transferable and (ii) the Exchangeable
Transferor Security. In addition, the Trust may issue
Participations representing participation interests in
the assets of the Trust, as described below. The
Exchangeable Transferor Security will evidence the
Transferor Interest, will initially be held by the
Transferor, and will be transferable only as provided in
the Pooling and Servicing Agreement, including through
the issuance of a Supplemental Security. See
"Description of the Offered Securities-- Exchanges." The
Pooling and Servicing Agreement also provides that,
pursuant to any one or more Supplements, the Transferor
may tender the Exchangeable Transferor Security or, if
provided in the relevant Supplement, securities
comprising any Series and the Exchangeable Transferor
Security, to the Trustee in exchange for securities
comprising one or more new Series and a reissued
Exchangeable Transferor Security. However, at all times,
the interest in the Principal Receivables in the Trust
and amounts on deposit in the Excess Funding Account
represented by the Transferor Interest must equal or
exceed the Minimum Transferor Interest. Under the
Pooling and Servicing Agreement, the Transferor may
define, with respect to any new Series, the Principal
Terms of such Series. See "Description of the Offered
Securities--Exchanges." The Transferor may offer any
Series for sale in transactions either registered under
the Securities Act or exempt from registration
thereunder, directly, through one or more underwriters
or placement agents, in fixed-price offerings,
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or in negotiated transactions or otherwise. The
Transferor currently intends to offer, from time to
time, additional Series issued by the Trust.
Under the Pooling and Servicing Agreement, an Exchange of
the Exchangeable Transferor Security for securities
comprising one or more Series and a reissued
Exchangeable Transferor Security may occur only upon
delivery to the Trustee of the following: (i) a
Supplement specifying the Principal Terms of each Series
to be issued in connection therewith, (ii) the
applicable enhancement, if any, (iii) the agreement, if
any, pursuant to which the enhancement provider agrees
to provide the enhancement, if any, (iv) a Tax Opinion,
(v) an opinion of counsel to the effect that the
securities of such Series will be characterized as
indebtedness or as a partnership interest for Applicable
Tax State income tax purposes under existing law or that
the issuance of such Series will not materially
adversely affect the Applicable Tax State income tax
characterization of any outstanding Series or the
taxability of the Trust under Applicable Tax State
income tax laws, (vi) written confirmation from each
Rating Agency that the Exchange will not result in the
Rating Agency reducing or withdrawing its original
rating on any then outstanding Series rated by it, (vii)
an officer's certificate of the Transferor stating that,
after giving effect to such Exchange, the Transferor
Interest would be at least equal to the Minimum
Transferor Interest, and (viii) the existing
Exchangeable Transferor Security and, if applicable, the
existing securities representing the Series to be
exchanged. See "Description of the Offered Securities--
Exchanges."
Participations.................. The Pooling and Servicing Agreement provides that the
Transferor may direct the Trustee to issue on behalf of
the Trust one or more participation interests in the
assets of the Trust or in any portion thereof (each
interest, a "Participation"), the terms of which shall
be defined in a supplement to the Pooling and Servicing
Agreement (a "Participation Supplement"), which shall
include, among other things, a conveyance to the holder
of the Participation of all right, title and interest of
the Trust in a specified percentage of the Receivables.
The Trustee shall deliver the Participation to or upon
the order of the Transferor upon the satisfaction of the
Rating Agency Condition and certain other conditions
described herein under "Description of the Offered
Securities--Participations."
Interest........................ Each Class A Security represents the right to receive
interest accruing from the Closing Date at the rate equal
to % per annum (such rate, the "Class A Interest
Rate"). Each Class B Security represents the right to
receive interest accruing from the Closing Date at the
rate equal to % per annum (such rate, the "Class B
Interest Rate" and together with the Class A Interest
Rate sometimes referred to as an "Interest Rate" and
collectively as the "Interest Rates"). Interest on the
Offered
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Securities will be payable on June 15, 1998, and on each
Distribution Date thereafter, in an amount equal to (i)
with respect to the Class A Securities, one-twelfth of
the product of (a) the Class A Interest Rate and (b) the
outstanding aggregate principal amount of the Class A
Securities as of the close of business on the first day
of such Interest Accrual Period (or in the case of the
first Distribution Date, the initial principal amount of
the Class A Securities) and (ii) with respect to the
Class B Securities, one-twelfth of the product of (a)
the Class B Interest Rate and (b) the Class B Invested
Amount as of the close of business on the first day of
such Interest Accrual Period (or in the case of the
first Distribution Date, the initial principal amount of
the Class B Securities). Interest for the first
Distribution Date will include accrued interest at the
applicable Interest Rate from the Closing Date through
June 14, 1998. Interest on the Offered Securities will
be calculated on the basis of a 360-day year of twelve
30-day months.
On the Closing Date, the Transferor will make a deposit to
the Interest Funding Account in an amount equal to
$2,000,000.
Interest payments on the Class A Securities on each
Distribution Date will be funded from Available Series
1998-2 Finance Charge Collections with respect to the
preceding Monthly Period (or, with respect to the first
Distribution Date, such Collections from and including
the Closing Date to and including May 29, 1998), and
from certain other funds allocated as set forth in the
Pooling and Servicing Agreement to the Class A
Securities, and deposited on each business day during
such Monthly Period in the Interest Funding Account. See
"Description of the Offered Securities--Interest
Payments" and "--Application of Collections--Payment of
Fees, Interest and Other Items."
Subject to the prior payment of interest on the Class A
Securities, interest payments on the Class B Securities
on each Distribution Date will be funded from the
portion of Available Series 1998-2 Finance Charge
Collections with respect to the preceding Monthly Period
(or, with respect to the first Distribution Date, such
collections from and including the Closing Date to and
including May 29, 1998), and from certain other funds
allocated as set forth in the Pooling and Servicing
Agreement to the Class B Securities, and deposited on
each business day during such Monthly Period in the
Interest Funding Account. See "Description of the
Offered Securities--Interest Payments" and
"--Application of Collections--Payment of Fees, Interest
and Other Items."
Revolving Period................ The "Revolving Period" with respect to the Securities
means the period from and including the Closing Date to,
but excluding, the earlier of (a) the commencement of
the Controlled Amortization Period and (b) the
commencement of the Early Amortization Period. The
Controlled Amortization Period with respect to the
Securities is scheduled to begin at the close of
business on the
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last day of the July 2002 Monthly Period. During the
Revolving Period, Principal Collections otherwise
allocable to the Securityholders (other than any Shared
Principal Collections paid to the holders of securities
of other Series and any Redirected Principal
Collections) will, subject to certain limitations, be
paid from the Trust to the holder of the Exchangeable
Transferor Security. See "Description of the Offered
Securities--Pay Out Events" for a discussion of the
events which might lead to the termination of the
Revolving Period for the Securities prior to the end of
the July 2002 Monthly Period.
Principal Payment; Controlled
Amortization.................. Unless a Pay Out Event shall have occurred with respect to
the Securities, during the period commencing with the
August 2002 Monthly Period and ending with the October
2003 Monthly Period, on each business day during such
period, an amount equal to the lesser of (i) Available
Series 1998-2 Principal Collections, and (ii) the Class
A Controlled Amortization Amount for such Monthly Period
plus any Class A Deficit Controlled Amortization Amount
arising from prior Monthly Periods, will be deposited in
the Principal Account. On any business day when the
amount on deposit in the Principal Account equals or
exceeds the Class A Controlled Distribution Amount for
the related Distribution Date, the balance of all such
funds remaining on deposit in the Collection Account
will be treated as Shared Principal Collections and may
be used to make payments on other Series or classes of
such Series that may be accumulating principal or
amortizing or paid to the holder of the Exchangeable
Transferor Security. The funds on deposit in the
Principal Account will be available to be paid to the
Class A Securityholders on the September 2002
Distribution Date and on each Distribution Date
thereafter until the Class A Invested Amount is paid in
full. If the funds available for distribution to the
Class A Securityholders on the November 2003
Distribution Date (the "Class A Expected Final Payment
Date") are insufficient to pay the Class A Invested
Amount in full, all such funds will be distributed to
the Class A Securityholders at such time on a pro rata
basis. Thereafter, until the Class A Invested Amount has
been paid in full or the Termination Date has occurred,
principal and interest payments will be made to Class A
Securityholders monthly on each Distribution Date. No
payment of principal to the Class B Securityholders will
be made until the Class A Invested Amount has been paid
in full. See "Description of the Offered
Securities--Principal Payments."
On and after the Class B Principal Payment Commencement
Date, on each business day thereafter, an amount equal
to the lesser of (i) Available Series 1998-2 Principal
Collections, and (ii) the Class B Controlled
Amortization Amount for such Monthly Period plus any
Class B Deficit Controlled Amortization Amount arising
from prior Monthly Periods, will be deposited in
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the Principal Account. On any business day when the
amount on deposit in the Principal Account equals or
exceeds the Class B Controlled Distribution Amount for
the related Distribution Date, the balance of all such
funds remaining on deposit in the Collection Account
will be treated as Shared Principal Collections and may
be used to make payments on other Series or classes of
such Series which may be accumulating principal or
amortizing or paid to the holder of the Exchangeable
Transferor Security. The funds on deposit in the
Principal Account will be available to be paid to the
Class B Securityholders on the Class B Principal Payment
Commencement Date and on each Distribution Date
thereafter until the Class B Invested Amount is paid in
full. If the funds available for distribution to the
Class B Securityholders on the February 2004
Distribution Date (the "Class B Expected Final Payment
Date") are insufficient to pay the Class B Invested
Amount in full, all such funds will be distributed to
the Class B Securityholders at such time on a pro rata
basis. Thereafter, until the Class B Invested Amount has
been paid in full or the Termination Date has occurred,
principal and interest payments will be made to Class B
Securityholders monthly on each Distribution Date. No
payment of principal to the CTO Securityholders will be
made until the Class B Invested Amount has been paid in
full. See "Description of the Offered
Securities--Principal Payments."
Other Series offered by the Trust may or may not have
amortization periods like the Amortization Periods for
the Securities, and any such periods may have different
lengths and begin on different dates than the
Amortization Period described herein. Thus, certain
Series may be in their revolving periods while others
are in their amortization periods. In addition, other
Series may allocate Principal Receivables based upon
different investor percentages. See "Description of the
Offered Securities--Exchanges" for a discussion of the
potential terms of other Series. See "Annex I: Other
Series" for a description of the terms of the Other
Series that will remain outstanding upon the issuance of
the Securities.
Early Amortization Period....... During the Early Amortization Period, Principal
Collections allocable to the respective Securityholders'
Interest and certain other amounts (including Shared
Principal Collections from any other Series, and amounts
deposited in the Excess Funding Account) will no longer
be reinvested in the Trust or otherwise used to maintain
the Securityholders' Interest of such Series, but
instead will be distributed as principal payments
monthly on each Distribution Date beginning with the
first Distribution Date following the Monthly Period in
which a Pay Out Event occurs or is deemed to have
occurred to the Class A Securityholders in respect of
the Class A Invested Amount and, following the payment
in full of the Class A Invested Amount, to the Class B
Securityholders in respect of the Class B Invested
Amount and, following the payment in full of the Class B
Invested Amount, to
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the CTO Securityholders in respect of the CTO Invested
Amount and, following the payment in full of the CTO
Invested Amount, to the Class D Securityholders until
the Class D Invested Amount is paid in full. See
"Description of the Offered Securities--Pay Out Events."
Shared Principal Collections.... To the extent that Principal Collections and other amounts
that are initially applied for the benefit of the
Securityholders' Interest are not needed to make
payments to the Securityholders or required to be
deposited in the Principal Account, they may be applied
to cover principal payments due to or for the benefit of
securityholders of another Series, including principal
payments which the Transferor elects to make with
respect to any Variable Funding Securities. Any such
application will not result in a reduction in the
Securityholders' Interest. In addition, Principal
Collections and certain other amounts initially applied
for the benefit of other Series, to the extent such
collections are not needed to make payments to the
securityholders of such other Series, and certain
amounts that any Participation Supplements specify are
to be treated as "Shared Principal Collections" may be
applied to cover principal payments due to or for the
benefit of the holders of the Securities. See
"Description of the Offered Securities--Principal
Payments" and "--Application of Collections."
Excess Funding Account.......... At any time at which the Transferor Interest is less than
the Minimum Transferor Interest, funds (to the extent
available therefor as described herein) otherwise
payable to the Transferor will be deposited in the
Excess Funding Account on each business day until the
Transferor Interest is at least equal to the Minimum
Transferor Interest. Funds on deposit in the Excess
Funding Account may, at the option of the Transferor, be
withdrawn and paid to the Transferor to the extent that
on any day the Transferor Interest exceeds the Minimum
Transferor Interest.
The portion of any funds on deposit in the Excess Funding
Account at the beginning of the Amortization Period that
are allocable to Series 1998-2 will be deposited in the
Principal Account and applied as Class A Principal for
the next succeeding Distribution Date. In addition, no
funds allocated to investor securities of any Series
will be deposited in the Excess Funding Account during
any amortization period or early amortization period
with respect to such Series until the principal account
for such Series for such Distribution Date has been
fully funded or the investor securities of such Series
have been paid in full. See "Description of the Offered
Securities--Excess Funding Account."
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Distribution of Available Series 1998-2
Finance Charge Collections............ Available Series 1998-2 Finance Charge
Collections will be applied on each
business day in a Monthly Period in
the following order of priority:
(i) an amount equal to the amount of
Class A Monthly Interest and any
overdue Class A Monthly Interest not
previously deposited in the Interest
Funding Account for such Monthly
Period and interest on any overdue
interest amounts will be deposited
in the Interest Funding Account;
(ii) an amount equal to the amount of
Class B Monthly Interest and any
overdue Class B Monthly Interest
not previously deposited in the
Interest Funding Account for such
Monthly Period and interest on any
overdue interest amounts will be
deposited in the Interest Funding
Account;
(iii) an amount equal to the amount of
CTO Monthly Interest and any overdue
CTO Monthly Interest not
previously deposited in the
Interest Funding Account for such
Monthly Period and interest on any
overdue interest amounts will be
deposited in the Interest Funding
Account;
(iv) an amount equal to the Monthly
Servicing Fee plus any Monthly
Servicing Fee that was due but not
paid on any prior business day will
be paid to the Servicer;
(v) an amount equal to the Series
Default Amount on such business day
and, to the extent not previously
paid, the Series Default Amount for
each prior business day in such
Monthly Period will be (a) during
the Revolving Period, treated as
Shared Principal Collections and (b)
during the Amortization Period,
treated as Available Series 1998-2
Principal Collections for the
benefit of the Securities;
(vi) an amount equal to the Series
1998-2 Percentage of any Adjustment
Payment which the Transferor is
required but failed to make
pursuant to the Pooling and
Servicing Agreement will be (a)
during the Revolving Period,
treated as Shared Principal
Collections and (b) during the
Amortization Period, treated as
Available Series 1998-2 Principal
Collections for the benefit of the
Securities;
(vii) an amount equal to unreimbursed
Class A Charge-Offs will be (a) during
the Revolving Period, treated as
Shared Principal Collections or
(b) during the Amortization
Period, treated as Available
Series 1998-2 Principal
Collections for the benefit of the
Securities;
(viii) an amount equal to the accrued
and unpaid interest on the outstanding
aggregate principal amount of the
Class B Securities not previously
deposited in the Interest Funding
Account for such Monthly Period
will be deposited in the Interest
Funding Account;
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(ix) an amount equal to the accrued and
unpaid interest on the outstanding
aggregate principal amount of the
Collateralized Trust Obligations
not previously deposited in the
Interest Funding Account for such
Monthly Period will be deposited in
the Interest Funding Account;
(x) an amount equal to unreimbursed
Class B Charge-Offs will be (a) during
the Revolving Period, treated as
Shared Principal Collections and (b)
during the Amortization Period,
treated as Available Series 1998-2
Principal Collections for the
benefit of the Securities;
(xi) an amount equal to unreimbursed CTO
Charge-Offs will be (a) during the
Revolving Period, treated as Shared
Principal Collections and (b)
during the Amortization Period,
treated as Available Series 1998-2
Principal Collections for the
benefit of the Securities;
(xii) an amount equal to unreimbursed
Class D Charge-Offs will be (a) during
the Revolving Period, treated as
Shared Principal Collections and
(b) during the Amortization
Period, treated as Available
Series 1998-2 Principal
Collections for the benefit of the
Securities;
(xiii) an amount equal to the accrued
and unpaid interest on the outstanding
aggregate principal amount of the
Class D Securities not previously
deposited in the Interest Funding
Account for such Monthly Period
plus any additional interest (to
the extent permitted by
applicable law) at the Class D
Interest Rate on interest that
was payable during a prior
Monthly Period but was not
deposited in the Interest Funding
Account or paid to the Class D
Securityholders will be deposited
in the Interest Funding Account;
(xiv) an amount equal to the excess, if
any, of the Specified Revolving
Receivables Reserve Amount over
the amount then on deposit in the
Revolving Receivables Reserve
Account will be deposited in the
Revolving Receivables Reserve
Account;
(xv) at the option of the Transferor, on
and after the Defeasance Reserve
Account Funding Date, but prior to
the date on which a Defeasance
occurs, an amount equal to the
excess, if any, of the Required
Defeasance Reserve Account Amount
over the Available Defeasance
Reserve Account Amount will be
deposited in the Defeasance Reserve
Account;
(xvi) an amount equal to any amount
required to be deposited in a reserve
account established for the
benefit of the Collateralized
Trust Obligations will be
deposited in such reserve account;
(xvii) an amount designated by the
Transferor in writing will be
deposited in the Payment Reserve
Account; and
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(xviii) the remainder will be treated as
Excess Finance Charge Collections. See
"Description of the Offered
Securities-- Application of
Collections."
Coverage of Interest Shortfalls from
Transferor Finance Charge
Collections........................... If any amounts are on deposit in the
Excess Funding Account on any business
day, the Servicer will determine the
amount (the "Negative Carry Amount"),
if any, equal to the excess of (x) the
product of (a) the Base Rate and (b)
the product of (i) the amounts on
deposit in the Excess Funding Account
and (ii) the number of days elapsed
since the previous business day
divided by 360 over (y) the aggregate
amount of all earnings since the
previous business day available from
the Cash Equivalents in which funds on
deposit in the Excess Funding Account
are invested. The Servicer will apply
an amount equal to the lesser of (i)
the Series 1998-2 Percentage of the
Finance Charge Collections allocable
to the Exchangeable Transferor
Security ("Transferor Finance Charge
Collections") on such business day and
(ii) the Negative Carry Amount for
such business day in the manner
specified for application of Available
Series 1998-2 Finance Charge
Collections.
Revolving Receivables Reserve Account... The "Revolving Receivables Reserve
Account" will be funded from Available
Series 1998-2 Finance Charge
Collections as described in clause
(xiv) of "Distribution of Available
Series 1998-2 Finance Charge
Collections" up to an amount generally
equal to the product of (x) the
Floating Percentage and (y) 1% of the
aggregate amount of Principal
Receivables which are Revolving
Receivables; provided, however, that
such percentage may be reduced at the
option of the Transferor at any time
if the Rating Agency Condition shall
have been satisfied. Funds on deposit
in the Revolving Receivables Reserve
Account will be withdrawn by the
Servicer on each Transfer Date to the
extent of any shortfalls in amounts to
be paid or deposited as of the end of
the day on the last business day of
the preceding Monthly Period and will
be applied as Available Series 1998-2
Finance Charge Collections as if such
amounts were available on the last
business day of the preceding Monthly
Period.
Sharing of Excess Finance Charge
Collections........................... Finance Charge Collections on any
business day in excess of the amounts
necessary to make required payments on
such business day will be applied to
cover any shortfalls with respect to
amounts payable from Finance Charge
Collections allocable to any other
Series then outstanding, pro rata
based upon the amount of the
shortfall, if any, with respect to
such other Series. Any Excess Finance
Charge Collections remaining after
covering shortfalls with respect to
all outstanding Series will be paid to
the Transferor.
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Series Default Amount; Series
Charge-Offs........................... A portion of all Receivables in
Defaulted Accounts will be allocated to
the Securityholders on each business
day in an amount equal to the product
of the Floating Percentage and the
Default Amount on such business day
(the "Series Default Amount"). If on
any Determination Date the aggregate
Series Default Amount and the Series
1998-2 Percentage of unpaid Adjustment
Payments, if any, for the preceding
Monthly Period exceeds the aggregate
amount of Available Series 1998-2
Finance Charge Collections applied to
the payment thereof as described in
clauses (v) and (vi) of "Distribution
of Available Series 1998-2 Finance
Charge Collections," and the amount of
(x) Transferor Finance Charge
Collections and (y) Excess Finance
Charge Collections, in each case to
the extent applied to the payment
thereof as described in "Coverage of
Interest Shortfalls from Transferor
Finance Charge Collections," and
"Sharing of Excess Finance Charge
Collections," respectively, and any
Redirected Principal Collections
applied with respect thereto, then the
Class D Invested Amount will be
reduced to the extent of such excess
(but not in an amount greater than the
sum of the remaining aggregate Series
Default Amount and the remaining
Series 1998-2 Percentage of unpaid
Adjustment Payments for such Monthly
Period).
The Class D Invested Amount will
thereafter be increased (but not in
excess of the unpaid principal amount
of the Class D Securities) on any
business day by the amount of
Available Series 1998-2 Finance Charge
Collections applied for such purpose
as described in clause (xii) of
"Distribution of Available Series
1998-2 Finance Charge Collections." If
the Class D Invested Amount is reduced
to zero, the CTO Invested Amount will
be reduced by an amount equal to the
amount by which such excess would have
caused the Class D Invested Amount to
be reduced below zero (but not in
excess of the sum of the remaining
aggregate Series Default Amount and
the remaining Series 1998-2 Percentage
of unpaid Adjustment Payments for such
Monthly Period).
The CTO Invested Amount will thereafter
be increased (but not in excess of the
unpaid principal amount of the
Collateralized Trust Obligations) on
any business day by the amount of
Available Series 1998-2 Finance Charge
Collections applied for that purpose
as described in clause (xi) of
"Distribution of Available Series
1998-2 Finance Charge Collections." If
the CTO Invested Amount is reduced to
zero, the Class B Invested Amount will
be reduced by an amount equal to the
amount by which such excess would have
caused the CTO Invested Amount to be
reduced below zero (but not in excess
of the sum of the remaining aggregate
Series Default Amount and the
remaining Series 1998-2 Percentage of
unpaid Adjustment Payments for such
Monthly Period). If and for so long as
the CTO Invested Amount is reduced to
zero, the Class B Securityholders will
bear directly
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the credit and other risks associated
with their undivided interest in the
Trust.
The Class B Invested Amount will
thereafter be increased (but not in
excess of the unpaid principal amount
of the Class B Securities) on any
business day by the amount of
Available Series 1998-2 Finance Charge
Collections applied for that purpose
as described in clause (x) of
"Distribution of Available Series
1998-2 Finance Charge Collections." If
the Class B Invested Amount is reduced
to zero, the Class A Invested Amount
will be reduced by an amount equal to
the amount by which such excess would
have caused the Class B Invested
Amount to be reduced below zero (but
not in excess of the sum of the
remaining aggregate Series Default
Amount and the remaining Series 1998-2
Percentage of unpaid Adjustment
Payments for such Monthly Period). If
and for so long as the Class B
Invested Amount is reduced to zero,
the Class A Securityholders will bear
directly the credit and other risks
associated with their undivided
interest in the Trust.
The Class A Invested Amount will
thereafter be increased (but not in
excess of the unpaid principal amount
of the Class A Securities) on any
business day by the amount of
Available Series 1998-2 Finance Charge
Collections applied for that purpose
as described in clause (vii) of
"Distribution of Available Series
1998-2 Finance Charge Collections."
See "Description of the Offered
Securities--Series Charge-Offs."
Paired Series........................... Subject to satisfaction of the Rating
Agency Condition, the Securities may be
paired with one or more other Series
or a portion of one or more other
series issued by the Trust (each, a
"Paired Series") at or after the
Amortization Period Commencement Date
but prior to the occurrence of a Pay
Out Event. If a Paired Series is
issued with respect to Series 1998-2,
following the issuance of such Paired
Series, as the Invested Amount is
reduced, the invested amount of the
Paired Series would increase by an
amount that otherwise would have
increased the Transferor Interest.
Upon payment in full of Series 1998-2,
the increase in the invested amount of
the Paired Series will be equal to the
amount of the Invested Amount paid to
Securityholders of Series 1998-2 since
the issuance of such Paired Series. If
a Pay Out Event occurs with respect to
any such Paired Series prior to the
payment in full of the Securities, the
final payment of principal to the
Securityholders may be delayed. See
"Description of the Offered
Securities--Paired Series."
Subordination of the Class B Securities,
the Collateralized Trust Obligations
and the Class D Securities............ The Class B Securities will be
subordinated as described herein to the
extent necessary to fund payments of
principal and interest on the Class A
Securities. The Collateralized Trust
Obligations will be subordinated as
described herein to the extent
necessary
</TABLE>
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to fund payments of principal and
interest on the Class A Securities and
the Class B Securities. The Class D
Securities will be subordinated as
described herein to the extent
necessary to fund payments of
principal and interest on the Class A
Securities, the Class B Securities and
the Collateralized Trust Obligations.
See "Description of the Offered
Securities-- Subordination of the
Class B Securities," "--Redirection of
Cash Flows" and "--Redirected
Principal Collections." If on any
business day there is a positive Class
A Required Amount, Class B Required
Amount or CTO Required Amount, certain
Principal Collections for such
business day will be used to fund
first the Class A Required Amount,
second the Class B Required Amount and
third the CTO Required Amount and the
Invested Amounts of the Class D
Securities, the Collateralized Trust
Obligations or the Class B Securities
may be reduced on the related
Distribution Date as more fully
described herein in "Description of
the Offered Securities--Redirected
Principal Collections." To the extent
the Class B Invested Amount, the CTO
Invested Amount or the Class D
Invested Amount is reduced, the
percentage of Finance Charge
Collections applied for the benefit of
the Series 1998-2 Securityholders, in
subsequent Monthly Periods will be
reduced. Moreover, to the extent the
amount of such reduction in the Class
B Invested Amount, the CTO Invested
Amount, or the Class D Invested Amount
is not reimbursed, the amount of
principal distributable to the Class B
Securityholders, the CTO
Securityholders, or the Class D
Securityholders, as applicable, from
the Collection Account will be
reduced. Principal payments with
respect to the Class B Securities will
not be made until the final payment of
the Class A Invested Amount has been
made to the Class A Securityholders.
Principal payments with respect to the
Collateralized Trust Obligations will
not be made until the final payment of
the Class A Invested Amount has been
made to the Class A Securityholders
and the final payment of the Class B
Invested Amount has been made to the
Class B Securityholders. During the
Controlled Amortization Period, the
Class D Invested Amount may be reduced
and the amount of the Transferor
Interest correspondingly increased
concurrently with payments of
principal to the Class A
Securityholders, the Clasrityholders
and the CTO Securityholders to an
amount equal to the Stated Class D
Amount. During the Early Amortization
Period, principal payments with
respect to the Class D Securities will
not be made and, except as a result of
Class D Charge-Offs or Redirected
Principal Collections, the Class D
Invested Amount will not be reduced to
an amount equal to the Stated Class D
Amount until the final payment of the
Class A Invested Amount has been made
to the Class A Securityholders, the
final payment of the Class B Invested
Amount has been made to the Class B
Securityholders and the final payment
of the CTO Invested Amount has been
made to the CTO Securityholders. See
"Description of the Offered
Securities--Subordination of
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the Class B Securities,"
"--Redirection of Cash Flows" and
"--Redirected Principal Collections."
Defeasance.............................. On the date during the Amortization
Period that (v) an amount has been
deposited (i) in the Defeasance
Funding Account equal to the sum of
the outstanding aggregate principal
amount of the Class A Securities, the
Class B Securities and the
Collateralized Trust Obligations,
which amount shall be invested in Cash
Equivalents and (ii) in the Defeasance
Reserve Account equal to or greater
than the excess of the sum of the
Class A Monthly Interest, the Class B
Monthly Interest and the estimated CTO
Monthly Interest over the estimated
amount of investment earnings on
amounts in the Defeasance Funding
Account, as estimated by the
Transferor, for each of the Monthly
Periods during the period from the
date of such deposit to the Defeasance
Funding Account through the CTO
Expected Final Payment Date, (w) the
Transferor shall have delivered to the
Trustee an opinion of counsel to the
effect that such deposit and
termination of obligations will not
result in the Trust being required to
register as an "investment company"
within the meaning of the Investment
Company Act and an opinion of counsel
to the effect that following such
deposit none of the Trust, the
Defeasance Reserve Account or the
Defeasance Funding Account will be
deemed to be an association (or
publicly traded partnership) taxable
as a corporation; (x) the Transferor
shall have delivered to the Trustee a
certificate of an officer of the
Transferor stating that the Transferor
reasonably believes that such deposit
and termination of its obligations
will not constitute a Pay Out Event or
an event that, with the giving of
notice or the lapse of time, would
cause a Pay Out Event to occur; (y)
the Rating Agency Condition has been
satisfied and (z) the Transferor has
satisfied certain other conditions,
the Securities will no longer be
entitled to the security interest of
the Trust in the Receivables and other
Trust assets (except those set forth
above), and the percentages applicable
to the rights of the Securityholders
to Principal Collections, Finance
Charge Collections and Default Amounts
shall be reduced to zero. Upon the
satisfaction of the foregoing
conditions, the Class D Invested
Amount shall be reduced to zero. See
"Description of the Offered
Securities--Defeasance."
Optional Repurchase..................... The Class A Securities, the Class B
Securities and the Collateralized Trust
Obligations will be subject to
optional repurchase by the Transferor
on any Distribution Date if on such
Distribution Date the sum of the Class
A Invested Amount, the Class B
Invested Amount and the CTO Invested
Amount would be reduced to an amount
less than or equal to 10 percent of
the sum of the initial Class A
Invested Amount, the initial Class B
Invested Amount and the initial CTO
Invested Amount, if certain conditions
set forth in the Pooling and Servicing
Agreement are met. The repurchase
price will be equal to the sum of the
Class A Invested Amount, the Class B
Invested
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23
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Amount and the CTO Invested Amount
that would be remaining on such date
after giving effect to any payments on
such date plus accrued interest which
would otherwise remain unpaid on the
Class A Securities, the Class B
Securities and the Collateralized
Trust Obligations through the day
preceding the Distribution Date on
which the repurchase occurs. See
"Description of the Offered
Securities--Final Payment of
Principal; Termination."
Tax Status.............................. In the opinion of Special Tax Counsel,
the Class A Securities and the Class B
Securities will be characterized as
debt for federal income tax purposes.
Under the Pooling and Servicing
Agreement, the Transferor, the
Servicer, the Class A Securityholders
and the Class B Securityholders, agree
to treat the Class A Securities and
the Class B Securities as debt for
federal, state, and other tax
purposes. See "Certain Federal Income
Tax Consequences" for additional
information concerning the application
of federal income tax laws.
ERISA Considerations.................... Under a regulation issued by the U.S.
Department of Labor (the "Plan Assets
Regulation"), the Trust's assets would
not be deemed "plan assets" of an
employee benefit plan holding an
interest in the Class A Securities or
Class B Securities if such Class of
Securities qualify as
"publicly-offered securities" within
the meaning of the Plan Assets
Regulation. To qualify as
"publicly-offered securities" within
the meaning of the Plan Assets
Regulation, certain conditions must be
met, including that interests in such
Class of Securities be held by at
least 100 persons independent of the
Transferor and each other upon
completion of the public offering
being made hereby. Although no
assurance is given, the Class A
Securities may be held by at least 100
such persons, and the Transferor
anticipates that the other conditions
of the "publicly-offered security"
exception contained in the Plan Assets
Regulation will be met with respect to
the Class A Securities. The Class A
Securities may not be purchased by
Plans subject to Title I of ERISA or
Section 4975 of the Code if all of
such conditions are not met. No
monitoring or other measures will be
taken to ensure that any such
conditions will be met with respect to
the Class A Securities. If the Trust's
assets were deemed to be "plan assets"
of such a plan, there is uncertainty
whether existing exemptions from the
"prohibited transaction" rules of the
Employee Retirement Income Security
act of 1974, as amended ("ERISA"),
would apply to all transactions
involving the Trust's assets. See
"Employee Benefit Plan
Considerations."
The Class B Underwriter does not expect
that the Class B Securities will be
held by 100 or more independent
investors and, therefore, do not
expect that the Class B Securities
will qualify as "publicly-offered
securities" under the Plan Assets
Regulation. Accordingly, the Class B
Securities may not be acquired by
employee benefit plan investors
subject to Title I of ERISA or
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Section 4975 of the Internal Revenue
Code of 1986, as amended (the "Code")
or any substantially similar federal,
state or local law, including, but not
limited to, as applicable, an
insurance company general account.
Each Security Owner of a Class B
Security, by its acceptance thereof,
will be deemed to have represented and
warranted that it is not an employee
benefit plan investor subject to Title
I of ERISA of Section 4975 of the Code
or any substantially similar federal,
state or local law. See "Employee
Benefit Plan Considerations."
Offered Security Ratings................ It is a condition to the issuance of the
Class A Securities that they be rated
"AAA" or its equivalent by at least
one nationally recognized rating
agency.
It is a condition to the issuance of the
Class B Securities that they be rated
at least "A" or its equivalent by at
least one nationally recognized rating
agency.
Listing................................. Application has been made to list the
Offered Securities on the Luxembourg
Stock Exchange.
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RISK FACTORS
LIMITED LIQUIDITY
There is currently no market for the Offered Securities. Each Underwriter
expects to make a market in each Class of the Offered Securities purchased by it
from the Transferor, but is not obligated to do so. There is no assurance that a
secondary market will develop or, if it does develop, that it will provide
Security Owners with liquidity of investment or that it will continue until the
Offered Securities are paid in full.
LIMITED HISTORY FOR ORIGINATION OF REVOLVING LOANS
FNB began originating revolving credit card loans in November 1996 and began
originating closed-end loans in January 1997 and thus has limited underwriting
experience. While Fingerhut originated closed-end installment sale contracts for
more than 25 years, Fingerhut has not originated a significant amount of
revolving credit card loans. As a result, FNB and its affiliates have very
limited experience with respect to revolving credit card loans. However, the
underwriting criteria being utilized by FNB in originating these Receivables are
derived from the underwriting criteria utilized by Fingerhut prior to January
1997 in originating closed-end installment sale contracts. There can be no
assurances that the performance of the revolving credit card loans originated by
FNB will be comparable to the historical performance of the closed-end
installment sale contracts originated by Fingerhut and FNB. See "Fingerhut
Corporation's and Fingerhut National Bank's Businesses--Credit Management."
NON-RECOURSE TO TRANSFEROR, FCI, FNB, FINGERHUT OR AFFILIATES THEREOF
No Securityholder will have recourse for distributions on its Securities to
any assets of any of the Transferor (other than the Exchangeable Transferor
Security, to the extent described herein), FCI, FNB, Fingerhut or any affiliates
thereof. Consequently, Securityholders must rely solely upon payments on the
Receivables for distributions of principal of and interest on the Securities.
Furthermore, under the Pooling and Servicing Agreement, the Securityholders have
an interest in the Receivables and Collections only to the extent of the
Securityholders' Interest and, to the limited extent described herein, the
Transferor Interest. Should the Offered Securities not be paid in full on a
timely basis, Securityholders may not look to any assets of any of the
Transferor (other than the Exchangeable Transferor Security, to the extent
described herein), FCI, FNB, Fingerhut or any affiliates thereof to satisfy
their claims.
TRANSFERS OF THE RECEIVABLES; INSOLVENCY RISK CONSIDERATIONS
Under the Bank Purchase Agreement, FNB has represented and warranted to FCI,
and, under the applicable Purchase Agreement, FCI and Fingerhut have represented
and warranted to the Transferor, that the transfer of Receivables to FCI or the
Transferor, is a valid sale and assignment. In addition, FNB, FCI, Fingerhut and
the Transferor have agreed that if, notwithstanding their intent, the respective
sales of Receivables to FCI and the Transferor, are not treated as sales, the
Bank Purchase Agreement or the Purchase Agreement, as applicable, will be deemed
to create a security interest in the Receivables. In a receivership or
conservatorship of FNB or in a bankruptcy proceeding involving FCI or Fingerhut,
if the conveyance of the Receivables is not treated as a sale, but is deemed to
create a security interest in the Receivables, FCI's, or the Transferor's
interest in the Receivables may be subject to tax or other governmental liens
relating to FNB, FCI or Fingerhut, as applicable, arising before the subject
Receivables came into existence and to certain administrative expenses of the
receivership, conservatorship or bankruptcy proceeding. FNB, FCI and Fingerhut
have taken or will take certain actions required to perfect the interest of FCI
or the Transferor, as applicable, in the Receivables. If a bankruptcy trustee
for FCI or Fingerhut, FCI or Fingerhut as debtor-in-possession, or a creditor of
FCI or Fingerhut were to take the view that FCI or Fingerhut and the Transferor
should be substantively consolidated or that the transfer of the Receivables
from FCI to the Transferor, or from Fingerhut to the Transferor, respectively,
should be
26
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recharacterized as a pledge of such Receivables, then delays in payments on the
Offered Securities or (should the bankruptcy court rule in favor of any such
trustee, debtor-in-possession or creditor) reductions in such payments on such
Securities could result.
In addition, a conservator or receiver would have the power under the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
to repudiate contracts of, and to request a stay of up to 90 days of any
judicial action or proceeding involving, FNB. However, notwithstanding the
insolvency of, or the appointment of a receiver or conservator for, FNB, subject
to certain qualifications, a valid perfected security interest of FCI in the
Receivables should be enforceable (to the extent of FCI's "actual direct
compensatory damages" (as described below)) and payments to FCI with respect to
the Receivables (up to the amount of such damages) should not be subject to an
automatic stay of payment or to recovery by such a conservator or receiver. If,
however, the conservator or receiver were to assert that the security interest
was unperfected or unenforceable, or were to require FCI to establish its right
to those payments by submitting to and completing the administrative claims
procedure established under FIRREA, or the conservator or receiver were to
request a stay of proceedings with respect to FNB as provided under FIRREA,
delays in payments to the Trust and on the Securities and possible reductions in
the amount of those payments could occur. In the event of a repudiation of
obligations by a conservator or receiver, FIRREA provides that a claim for the
repudiated obligation is limited to "actual direct compensatory damages"
determined as of the date of the appointment of the conservator or receiver
(which in most cases are expected to include the outstanding principal on the
Securities plus interest accrued thereon to the date of payment). The FDIC has
not adopted a formal policy statement on payment of principal and interest on
collateralized borrowings of banks that are repudiated. On April 10, 1990, the
Resolution Trust Corporation ("RTC"), formerly a sister agency of the FDIC,
adopted a statement of policy (the "RTC Policy Statement") with respect to the
payment of interest on collateralized borrowings. The RTC Policy Statement
states that interest on such borrowings will be payable at the contract rate up
to the date of the redemption or payment by the conservator, receiver, or the
trustee of an amount equal to the principal owed plus the contract rate of
interest up to the date of such payment or redemption, plus any expenses of
liquidation if provided for in the contract, to the extent secured by the
collateral. In one case involving the repudiation by the RTC of certain secured
zero-coupon bonds issued by a savings association, a United States federal
district court held that "actual direct compensatory damages" in the case of a
marketable security meant the value of the repudiated bonds as of the date of
repudiation. If that court's view were applied to determine FCI's "actual direct
compensatory damages" in the event a conservator or receiver of FNB repudiated
the Bank Purchase Agreement, the amount paid to Securityholders could, depending
upon circumstances existing on the date of the repudiation, be less than the
principal of the Securities and the interest accrued thereon to the date of
payment. See "Certain Legal Aspects of the Receivables-- Certain Matters
Relating to Bankruptcy or Receivership."
Although the Pooling and Servicing Agreement provides that the Transferor
will transfer all of its right, title, and interest in and to the Receivables to
the Trust, a court could treat such transactions as an assignment of collateral
as security for the benefit of holders of securities issued by the Trust. It is
possible that the risk of such treatment may be increased by the retention by
the Transferor of the Exchangeable Transferor Security, the Class D Securities,
each class of the Previously Issued Series, a class of the Series 1998-1
Securities and any other class of Securities that may be issued and retained by
the Transferor. The Transferor represents and warrants in the Pooling and
Servicing Agreement that the transfer of the Receivables to the Trust is either
a valid transfer and assignment of the Receivables to the Trust or the grant to
the Trust of a security interest in the Receivables. The Transferor has taken
and will take certain actions required to perfect the Trust's interest in the
Receivables and warrants that if the transfer to the Trust is deemed to be a
grant to the Trust of a security interest in the Receivables, the Trustee will
have a first priority perfected security interest therein, subject only to
Permitted Liens. If the transfer of the Receivables to the Trust is deemed to
create a security interest therein under the UCC, a tax or governmental lien on
property of the Transferor arising before the Receivables came into existence
may have priority over the Trust's interest in such Receivables. In the event of
the insolvency of the Transferor,
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certain administrative expenses may also have priority over the Trust's interest
in such Receivables. See "Certain Legal Aspects of the Receivables--Transfer of
Receivables."
To the extent that the Transferor is deemed to have granted a security
interest in the Receivables to the Trust and such security interest was validly
perfected before any insolvency of the Transferor and was not granted or taken
in contemplation of insolvency or with the intent to hinder, delay, or defraud
the Transferor or its creditors, such security interest should not be subject to
avoidance in the event of insolvency or receivership of the Transferor, and
payments to the Trust with respect to the Receivables should not be subject to
recovery by a bankruptcy trustee or receiver of the Transferor. If, however, a
bankruptcy trustee or receiver were to assert a contrary position, delays in
payments on the Offered Securities and possible reductions in the amount of
those payments could occur.
In OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir. 1993), CERT.
DENIED, 114 S. Ct. 554 (1993), the United States Court of Appeals for the 10th
Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's estate in a bankruptcy of the seller. If Fingerhut, FCI
or the Transferor were to become subject to a bankruptcy proceeding or if FNB
were to become subject to a receivership and a court were to follow the 10th
Circuit's reasoning, Securityholders might experience delays in payment or
possibly losses in their investment in the Securities. Counsel to the Transferor
has advised the Transferor that the facts of OCTAGON are distinguishable from
those in the sale transactions between FNB and FCI, FCI and the Transferor,
Fingerhut and the Transferor and the Transferor and the Trust and the reasoning
of the 10th Circuit appears to be inconsistent with established precedent and
the UCC. See "Certain Legal Aspects of the Receivables--Certain Matters Relating
to Bankruptcy or Receivership."
If a receiver or conservator were appointed for the Servicer, and no
Servicer Default other than such bankruptcy or receivership or insolvency of the
Servicer exists, the bankruptcy trustee or receiver may have the power to
prevent either the Trustee or the majority of the securityholders of all Series
from effecting a transfer of servicing to a successor Servicer. If a bankruptcy
trustee were appointed for the Transferor, causing a Pay Out Event with respect
to all Series then outstanding, new Principal Receivables would not be
transferred to the Trust pursuant to the Pooling and Servicing Agreement and the
Trustee would sell the portion of the Receivables allocable in accordance with
the Pooling and Servicing Agreement to each Series (unless holders of more than
50% of the principal amount of each class of each Series, excluding any class or
portion thereof held by the Transferor, and the holders of any Supplemental
Securities or any other interest in the Exchangeable Transferor Securities other
than the Transferor instruct otherwise), thereby causing early termination of
the Trust and a loss to the Securityholders if the net proceeds allocable to the
Securityholders from such sale, if any, were insufficient to pay the
Securityholders in full. The net proceeds of any such sale of the portion of the
Receivables allocated in accordance with the Pooling and Servicing Agreement to
Series 1998-2 will first be used to pay amounts due to the Class A
Securityholders, will thereafter be used to pay amounts due to the Class B
Securityholders, will thereafter be used to pay amounts due to the CTO
Securityholders, and will thereafter be used to pay amounts due to the Class D
Securityholders. If the only Pay Out Event to occur is either the insolvency of
the Transferor or the appointment of a bankruptcy trustee for the Transferor,
the bankruptcy trustee may have the power to continue to require the Transferor
to transfer new Receivables to the Trust and to prevent the early sale,
liquidation, or disposition of the Receivables and the commencement of the Early
Amortization Period. In addition, a bankruptcy trustee for the Transferor may
have the power to cause early payment of the Securities. In the event of an
early payment of principal on the Securities, Securityholders may realize a
lower yield on their reinvestment of such early payment and may be required to
incur costs associated with reinvesting such funds. See "Certain Legal Aspects
of the Receivables--Certain Matters Relating to Bankruptcy or Receivership."
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CONSUMER AND DEBTOR PROTECTION LAWS
The Accounts and the Receivables are subject to numerous federal and state
consumer protection laws that impose requirements related to offering and
extending credit. Any failure by the Servicer to comply with such legal
requirements also could adversely affect the Servicer's ability to collect the
full amount of the Receivables. The United States Congress and the states may
enact laws and amendments to existing laws to further regulate consumer credit
or to reduce finance charges or other fees or charges applicable to credit card
and other consumer revolving loan accounts. Such laws, as well as any new laws
or rulings which may be adopted, may adversely affect the Servicer's ability to
collect on the Receivables or maintain previous levels of collections.
Receivables originated by Fingerhut were generated under the Minnesota
"time-price" doctrine. Under this doctrine, the difference between the time
price and cash price for the goods sold is not treated as interest subject to
regulation under Minnesota's usury laws. In certain states, these Receivables
are subject to regulations that limit maximum finance charges and require
refunding of finance charges to customers under certain circumstances. Fingerhut
believes that the time payment pricing and credit practices applicable to these
Receivables are in compliance with applicable state requirements. On August 14,
1997, Fingerhut was served with a summons and class action complaint commenced
in Minnesota District Court, Fourth Judicial District, on behalf of named
plaintiffs in ten states. The alleged class consists of "Fingerhut customers
whose contracts are declared by Fingerhut to be governed by Minnesota law." The
complaint alleges violations of the usury law, deceptive trade practices and
consumer fraud based on Fingerhut's use of the "time price" doctrine in its
credit sales. Fingerhut has filed a motion for summary judgment. There can be no
assurance that the outcome of such lawsuit will not be adverse to Fingerhut. The
plaintiffs' claims are substantially identical to the claims asserted in an
earlier case brought against Fingerhut in the same court. The court granted
summary judgment in favor of Fingerhut in that case in March 1997. The
plaintiffs in the earlier case did not appeal the summary judgment, and their
counsel has refiled their claims on behalf of new members of the purported
plaintiff class.
Any change of law, including any changes to the "time-price" doctrine with
retroactive application, negatively affecting the Receivables or FNB's credit
practices could adversely affect the Servicer's ability to collect the full
amount of the Receivables.
Although the Transferor will make certain representations and warranties
relating to the validity and enforceability of the Receivables, the Trustee will
not make any examination of the Receivables or the records relating thereto for
the purpose of establishing the presence or absence of defects or compliance
with such representations and warranties, or for any other purpose. In the event
of a breach of certain representations and warranties, the Transferor may be
obligated to accept the reassignment and transfer of the entire Trust portfolio.
See "Description of the Offered Securities--Representations and Warranties" and
"Certain Legal Aspects of the Receivables--Consumer Protection Laws."
Application of federal and state bankruptcy and debtor relief laws to the
obligations represented by the Receivables could adversely affect the interests
of the Securityholders in the Receivables. See "Description of the Offered
Securities--Defaulted Receivables; Dilution."
PAYMENTS AND MATURITY
The Receivables may be paid at any time and there is no assurance that there
will be additional Receivables created or that any particular pattern of
repayments will occur. A significant decline in the amount of Receivables
generated could result in the occurrence of a Pay Out Event and the commencement
of the Early Amortization Period if, as a result, the Transferor Interest were
reduced below the Minimum Transferor Interest or amounts in the Excess Funding
Account result in significant Negative Carry Amounts. See "Maturity
Considerations" and "Description of the Offered Securities--Pay Out Events" for
a discussion of other Pay Out Events. If a Pay Out Event occurs, the Early
Amortization Period will commence and the average life and maturity of the
Offered Securities may be significantly reduced.
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There can be no assurance in that event that the holders of the Offered
Securities would be able to reinvest any accelerated distributions on account of
such Offered Securities in other suitable investments having a comparable yield.
EFFECT OF SUBORDINATION OF CLASS B SECURITIES; PRINCIPAL PAYMENTS
The Class B Securities will be subordinated in right of payment of principal
to the payment of principal and interest on the Class A Securities. Payments of
principal in respect of the Class B Securities will not commence until after the
final principal payment with respect to the Class A Securities has been made and
the Class A Invested Amount has been paid in full. Moreover, the Class B
Invested Amount is subject to reduction on any Distribution Date if collections
of Principal Receivables allocable to the Class B Securities are redirected to
cover the Class A Required Amount or if the aggregate Series Default Amount and
unpaid Adjustment Payments, if any, for each business day in the preceding
Monthly Period exceeds the aggregate Available Series 1998-2 Finance Charge
Collections applied to the payment thereof and is not funded from Excess Finance
Charge Collections, Transferor Finance Charge Collections, CTO Redirected
Principal Collections or Class D Redirected Principal Collections and the CTO
Invested Amount and the Class D Invested Amount have been reduced to zero. If
the Class B Invested Amount suffers such a reduction, Finance Charge Collections
applicable to the Series 1998-2 Securityholders' Interest in future Monthly
Periods will be reduced. Moreover, to the extent the amount of such reduction in
the Class B Invested Amount is not reimbursed, the amount of principal
distributable to the Class B Securityholders will be reduced. See "Description
of the Offered Securities--Allocation Percentages," "--Redirected Principal
Collections," "--Series Charge-Offs" and "--Subordination of the Class B
Securities."
EFFECT OF ADDITION OF TRUST ASSETS ON CREDIT QUALITY
The Transferor automatically designates all Receivables that are Eligible
Receivables to be conveyed to the Trust. Such additional Receivables may include
receivables originated using criteria different from those which were applied to
the Receivables existing on the Closing Date related to the Trust or to
previously-designated Receivables, because such accounts were originated at a
different date. Consequently, there can be no assurance that Receivables
designated in the future will be of the same credit quality as
previously-designated Receivables. In addition, subject to the satisfaction of
certain conditions described herein, including satisfaction of the Rating Agency
Condition, such additional Receivables may have been originated in connection
with the sale of merchandise or services by an entity other than Fingerhut and
may consist of receivables that have different terms or characteristics than the
Receivables previously included in the Trust, including lower periodic rate
finance charges and other fees and charges, or different payment rates and
higher loss or delinquency experience, which may have the effect of reducing the
average yield on the portfolio of accounts included in the Trust. See
"Description of the Offered Securities--Addition of Trust Assets."
NEGATIVE CARRY
Any amounts deposited in the Excess Funding Account subsequent to the
Closing Date will result in a reduction of Portfolio Yield to the extent that
the Cash Equivalents in which such amounts are invested earn a rate which is
less than the effective yield from Finance Charge Receivables.
BASIS RISK
Finance Charge Collections with respect to the Receivables include
collections of amounts billed with respect to finance charges and fees and
principal amounts discounted at designated rates. The revolving credit card
loans in the Trust generally will have finance charges set at a variable rate
above a designated prime rate or other designated index. It is anticipated that
the revolving credit card loans will represent an increasing portion of the
assets of the Trust. Closed End Receivables generated in connection with sales
by
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Fingerhut are discounted at a fixed rate of 25% and Revolving Receivables
generated in connection with sales by Fingerhut are discounted at a fixed rate
of 9%. If there is a decline in the designated prime rate or other designated
index applicable to the revolving credit card loans in the Trust or a decline in
the payment rate, the amount of Finance Charge Collections on the Receivables
may be reduced, whereas amounts payable as interest on the Class A Securities
and Class B Securities and other amounts required to be funded out of
collections of Finance Charge Receivables with respect to the Securities would
not be similarly reduced.
DEPENDENCE ON FINGERHUT
All new Receivables currently arise from the extension of credit by FNB in
connection with the sale of merchandise and financial service products by
Fingerhut. The Trust is dependent upon Fingerhut for the retail sales from which
FNB generates Receivables. The direct marketing industry, in general, is highly
competitive. Generally, Fingerhut competes not only with other direct marketers
but with department stores and numerous other types of retail outlets, including
variety stores and discount stores. None of the transaction documents prohibit
Fingerhut from selling all or any portion of its business or assets.
Accordingly, there can be no assurance that Fingerhut will continue to generate
Receivables at the same rate as in prior years.
SOCIAL, TECHNOLOGICAL AND ECONOMIC FACTORS
Changes in purchase and payment patterns by Obligors may result from a
variety of social, technological, and economic factors. Social factors include
potential changes in consumers' attitudes toward financing purchases with debt.
Technological factors include new methods of payment. Economic factors include
the rate of inflation, unemployment levels and relative interest rates. Obligors
generally have billing addresses in all 50 states, the District of Columbia and
other United States territories and possessions. There is no basis, however, to
predict whether, or to what extent, social, technological, or economic factors
will affect future use of credit or repayment patterns.
BOOK-ENTRY REGISTRATION
Each Class of the Offered Securities initially will be represented by one or
more securities registered in the name of Cede & Co., the nominee for DTC, and
will not be registered in the names of the Security Owners or their nominees.
Unless and until Definitive Securities are issued, Security Owners will not be
recognized by the Trustee as Securityholders, as that term is used in the
Pooling and Servicing Agreement. Hence, until such time, Security Owners will
only be able to receive payments from, and exercise the rights of
Securityholders indirectly through DTC and its participating organizations and,
unless a Security Owner requests a copy of any such report from the Trustee,
will receive reports and other information provided for under the Pooling and
Servicing Agreement only if, when and to the extent provided to Security Owners
by DTC and its participating organizations. In addition, the ability of Security
Owners to pledge Securities to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such Securities, may be
limited due to the lack of physical securities for such Securities. See
"Description of the Offered Securities--Book-Entry Registration" and
"--Definitive Securities."
ABILITY OF FNB TO CHANGE PAYMENT TERMS
Pursuant to the Pooling and Servicing Agreement, the Transferor will not be
transferring to the Trust any Accounts but only the Receivables arising in the
Accounts. As owner of the Accounts, FNB will have the right to determine the
annual percentage rates, if any, and the fees which will be applicable from time
to time to the Receivables, to alter the payment terms of the Receivables and to
change various other terms with respect to the Receivables. A decrease in the
annual percentage rates or a reduction in fees would decrease the effective
yield on the Receivables and could result in the occurrence of a Pay Out Event
with respect to the Securities. An alteration of payment terms may result in
fewer payments on
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Receivables being made in any month. Under the Bank Purchase Agreement, FNB
agrees that, except as it deems such action necessary to maintain its credit
card business on a competitive basis or as required by law, it will not reduce
the annual percentage rates of the Periodic Finance Charges assessed on the
Receivables or other fees charged on the Accounts if, as a result of any such
reduction, a pay out event (or other early termination event) would occur under
the Pooling and Servicing Agreement or any Supplement. Subject to compliance
with applicable law and the preceding restriction, FNB may change the terms and
provisions of the Contracts establishing the Accounts or the Credit and
Collection Policy if (i) it is FNB's reasonable belief that such change would
not materially impair the collectibility of any Receivable or cause a Pay Out
Event (or other early termination event) to occur under the Pooling and
Servicing Agreement or any Supplement either immediately or with the passage of
time and (ii) such change (A) if FNB owns a comparable segment of receivables,
is made applicable to the comparable segment of the receivables owned by FNB
which have characteristics the same as, or substantially similar to, the
Receivables that are the subject of such change and (B) if FNB does not own a
comparable segment of receivables, will not be made with the intent to
materially benefit FNB over the purchaser of the Receivables or to materially
adversely affect such purchaser, except as otherwise restricted by an
endorsement, sponsorship or other agreement between FNB and an unrelated third
party or by the terms of the Contracts.
The Servicer will have the right to generate new Receivables with payment
terms which are generally longer than the current payment terms on the
Receivables. Such a lengthening of the payment period could result in a
reduction of the monthly payment rate and consequently a reduction in the
Portfolio Yield unless the Discount Factor is increased accordingly, with
respect thereto for any Monthly Period.
CONTROL
Subject to certain exceptions, the investor securityholders of each Series
may take certain actions, or direct certain actions to be taken, under the
Pooling and Servicing Agreement or the related Supplement. In determining
whether the required percentage of Securityholders have given their approval or
consent, except as otherwise specified, the Class A Securityholders, the Class B
Securityholders and the CTO Securityholders will be treated as a single Series.
Accordingly, while the Class A Securities are outstanding, the Class A
Securityholders will have the power to determine whether any such action is
taken without regard to the position or interests of the Class B Securityholders
or the CTO Securityholders relating to such action. However, under certain
circumstances the consent or approval of a specified percentage of the aggregate
invested amount of all Series outstanding or of the invested amount of each
class of each Series may be required to direct certain actions, including
requiring the appointment of a successor Servicer following a Servicer Default,
amending the Pooling and Servicing Agreement in certain circumstances and
directing a repurchase of all outstanding Series upon the breach of certain
representations and warranties by the Transferor.
MASTER TRUST CONSIDERATIONS
In addition to the Securities, the Trust, as a master trust, has issued the
Previously Issued Series, will issue the Series 1998-1 Securities and a
Participation on the Closing Date and is expected to issue additional Series
from time to time. See "Annex I: Other Series." While the terms of any
Participation or the Principal Terms of any Series will be specified in a
Participation Supplement or a Supplement, as applicable, the provisions of such
Participation Supplement or a Supplement and, therefore, the terms of any
Participation or additional Series, will not be subject to the prior review or
consent of holders of the securities of any previously issued Series. Such
Principal Terms may include methods for determining applicable investor
percentages and allocating collections, provisions creating security or
Enhancements, different classes of securities (including subordinated classes of
securities), provisions subordinating the new Series to another Series (if the
Supplement relating to such Series so permits) or another Series to such Series
(if the Supplement for such other Series so permits), and any other amendment or
supplement
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to the Pooling and Servicing Agreement which is made applicable only to such
Series. See "Description of the Offered Securities--Exchanges" and
"--Participations." In addition, the provisions of any Supplement may give the
holders of the securities issued pursuant thereto consent, approval, or other
rights that could result in such holders having the power to cause the
Transferor, the Servicer, or the Trustee to take or refrain from taking certain
actions, including, without limitation, actions with respect to the exercise of
certain rights and remedies under the Pooling and Servicing Agreement, without
regard to the position or interest of the securityholders of any other Series.
Similar rights may also be given to the provider of any Enhancement for any
Series. It is a condition precedent to the issuance of any Participation or any
additional Series that each Rating Agency that has rated any outstanding Series
deliver written confirmation to the Trustee that such issuance will not result
in such Rating Agency reducing or withdrawing its rating on any outstanding
Series. There can be no assurance, however, that the Principal Terms of any
other Series, including any Series issued from time to time hereafter, or of any
Participation might not have an adverse impact on the timing and amount of
payments received by a Securityholder or the value of Securities even if there
is no change in the rating of any outstanding Series. See "Description of the
Offered Securities--Exchanges" and "--Participations."
SECURITY RATING
It is a condition to the issuance of the Class A Securities that they be
rated "AAA" or its equivalent by at least one nationally recognized rating
agency. It is a condition to the issuance of the Class B Securities that they be
rated "A" or its equivalent by at least one nationally recognized rating agency.
The ratings assigned to the Offered Securities by a Rating Agency will reflect
such Rating Agency's assessment of the likelihood that Securityholders of such
Class will receive the payments of interest and principal required to be made
under the Pooling and Servicing Agreement and the applicable Supplement, in the
case of principal on or prior to the Termination Date, and in the case of
interest, as required under the Pooling and Servicing Agreement. The ratings
will be based primarily on an assessment of the Receivables in the Trust
(including the eligibility criteria for the transfer of Receivables to the
Trust), of the amounts held in any trust account for the benefit of the Offered
Securities (including in the Excess Funding Account, if any) and the
subordination of the Class B Securities, Collateralized Trust Obligations and
the Class D Securities for the benefit of the Class A Securities and the
subordination of the Collateralized Trust Obligations and the Class D Securities
for the benefit of the Class B Securities. However, any such rating will not
address the possibility of the occurrence of a Pay Out Event with respect to the
Offered Securities, the possibility of the imposition of United States
withholding tax with respect to non-U.S. Securityholders or the likelihood that
the principal of, or interest on, the Offered Securities will be paid by the
Class A Expected Final Payment Date or the Class B Expected Final Payment Date,
as applicable. It is a condition to the issuance of the Collateralized Trust
Obligations that they be rated "BBB" or its equivalent by at least one
nationally recognized rating agency. The Class D Securities will not be rated.
The ratings are not a recommendation to purchase, hold, or sell the Class A
Securities or the Class B Securities, inasmuch as such ratings do not comment as
to the market price or suitability for a particular investor. There can be no
assurance that the ratings will remain in effect for any given period of time or
that any rating will not be lowered or withdrawn by any Rating Agency if in its
judgment circumstances so warrant.
The Transferor will request a rating of the Offered Securities by at least
one nationally recognized Rating Agency. There can be no assurance as to whether
any rating agency not requested to rate the Offered Securities will nonetheless
issue a rating with respect to any Class of the Offered Securities, and, if so,
what such rating would be. A rating assigned to any Class of the Offered
Securities by a rating agency that has not been requested by the Transferor to
do so may be lower than the ratings assigned by the Rating Agencies pursuant to
the Transferor's request.
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DEFEASANCE
The Securities are subject to Defeasance in certain circumstances. It is not
clear under the existing authorities whether Defeasance would, for federal
income tax purposes, result in a deemed taxable sale or exchange of the
Securities in exchange for the amounts deposited in the Defeasance Funding
Account and the Defeasance Reserve Account as a result of the Defeasance.
However, if such a sale or exchange were deemed to occur, because of the short
time period until the Class A Expected Final Payment Date or Class B Expected
Final Payment Date, as applicable, the amount required to be deposited and the
nature of the assets in which such amount may be invested, such a result would
not be expected to have a material adverse effect on Securityholders for federal
income tax purposes, notwithstanding that, if such a sale or exchange were
deemed to occur, each Securityholder would thereafter be deemed to own its pro
rata share of the assets in which such amount is invested, and would be required
to report its taxable income on such basis.
EFFECT OF DISCOUNT FACTOR
Pursuant to the Pooling and Servicing Agreement, the Transferor has elected
to discount the Receivables by initially designating 25% of the amount of Closed
End Receivables generated in connection with sales by Fingerhut and 9% of the
amount of Revolving Receivables generated in connection with sales by Fingerhut
that otherwise would be treated as Principal Receivables to be treated as
Finance Charge Receivables. The Transferor may, without notice or consent of the
Securityholders, from time to time, increase, reduce or eliminate such
percentages. In addition, the Discount Factor may be different for other types
of Receivables. An increase in the percentage of Principal Receivables to be
treated as Finance Charge Receivables will increase the percentage of
collections on the Receivables that are treated as collections of Finance Charge
Receivables, which will increase the Portfolio Yield to a level higher than it
would be in the absence of such designation. As a result, such designation would
decrease the likelihood of the occurrence of a Pay Out Event based upon a
reduction of the average Portfolio Yield for any three-month period to a rate
below the average Base Rate for such period. However, such designation would
also reduce the aggregate amount of Principal Receivables, which could increase
the likelihood of the occurrence of a Pay Out Event if the Aggregate Principal
Receivables fall below the Minimum Aggregate Principal Receivables. A reduction
in the Discount Factor could reduce the Portfolio Yield and may increase the
possibility of a Pay Out Event arising, if the average Portfolio Yield for any
three-month period is less than the Base Rate for such period. The ability of
the Transferor to adjust the Discount Factor to change the amount of Receivables
that otherwise would be treated as Principal Receivables to be treated as
Finance Charge Receivables is limited in certain circumstances. The Transferor
may, following written notice to the Rating Agencies, increase the Discount
Factor by up to two percentage points over the amounts set forth herein or other
amounts approved by the Rating Agencies. In addition, the Transferor may make
other adjustments to the Discount Factor if such change would not cause a pay
out event to occur with respect to any Series and the Rating Agency Condition
shall have been satisfied with respect to such change.
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THE TRUST
The Trust was formed, in accordance with the laws of the State of Delaware,
pursuant to the Pooling and Servicing Agreement. The Trust was formed for the
transactions described herein and similar transactions, as contemplated by the
Pooling and Servicing Agreement, and prior to formation had no assets or
obligations. The Trust has not engaged, and will not engage, in any business
activity, other than as described herein, but rather will only acquire and hold
the Receivables (and related assets), issue (or cause to be issued) the
Securities, the Exchangeable Transferor Security, and securities representing
other Series, and any Participation and engage in related activities (including,
with respect to any Series, entering into any Enhancement and Enhancement
agreement relating thereto) and make payments thereon. As a consequence, the
Trust is not expected to have any need for additional capital resources.
FINGERHUT CORPORATION'S AND FINGERHUT NATIONAL BANK'S BUSINESSES
Fingerhut Corporation ("Fingerhut"), one of the largest catalog marketers in
the United States, sells general merchandise and financial service products to
moderate income consumers. The median age of Fingerhut's customers is slightly
higher than the national average and families are a significant portion of its
customer base. FNB offers extended payment terms on all purchases and Fingerhut
makes substantially all of its sales on FNB's proprietary credit. Fingerhut has
used its extensive database and proprietary database segmentation software,
along with credit programs, to establish a strong position in this market.
Fingerhut's existing customers account for approximately 84% of Fingerhut's net
sales.
CREDIT PROGRAMS
Substantially all of Fingerhut's sales are made using proprietary credit
card loans made by FNB. Historically, Fingerhut financed its customers'
purchases through fixed-term fixed payment installment sales contracts. FNB
began testing private label revolving credit card programs for Fingerhut
customers in late 1996 and in January 1997, FNB began extending private label
credit for all credit purchases from Fingerhut. Although closed-end credit card
loans presently are the predominant form of credit extended to Fingerhut
customers, FNB is increasing its use of revolving credit for both existing
Fingerhut customers and prospective customers. In addition, FNB offers Fingerhut
customers the opportunity to refinance existing closed-end installment sale
contracts originated by Fingerhut and closed-end credit card loans originated by
FNB with new revolving credit card loans. In those cases where the refinanced
closed-end installment sale contracts originated by Fingerhut or closed-end
credit card loans originated by FNB include finance charges, the new revolving
credit card loan has a 0% finance charge and the related Receivable is treated
as a Closed End Receivable for purposes of calculating Discount Receivables. FNB
expects that eventually revolving credit card loans will be the only type of
credit it offers to Fingerhut customers. Although the billing mechanism used for
consumer revolving credit card accounts and the associated fees and charges will
differ from those used in closed-end credit card loans, Fingerhut's marketing
strategies, as well as FNB's credit risk underwriting and collections
strategies, will remain largely the same.
FNB generally does not require its customers to provide traditional credit
information in order to approve purchases on credit. Instead of using
traditional credit applications, FNB uses highly automated proprietary
techniques for evaluating the creditworthiness of new and existing customers and
for selecting those customers who will receive various categories of mailings.
The goal of the evaluation is not to achieve the lowest possible credit losses
but to balance credit losses and return rates with customer response, thereby
optimizing overall profitability. Consequently, FNB's planned credit losses
typically are higher than the private label credit card programs of other direct
mail and retail companies. Once a consumer places an order, FNB employs
proprietary techniques to determine the appropriate credit action. Customer
payments are continuously monitored to identify credit problems as early as
possible. See "--Credit Management" below.
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At the present time, only Receivables arising in accounts originated by FNB
generated in connection with the sale of merchandise, financial service products
or services from Fingerhut are included in the Trust. In the future, Receivables
generated by FNB or one of its affiliates in accounts originated other than in
connection with sales by Fingerhut may be included in the Trust, subject to
satisfaction of the Rating Agency Condition. See "Description of the Offered
Securities--Addition of Trust Assets."
FINGERHUT DATABASE
Fingerhut's target customers include people who have limited information at
the credit bureaus. To be successful in this niche, Fingerhut and FNB have
developed an extensive database (the "Fingerhut Database") and sophisticated
credit scoring models for determining the creditworthiness of Fingerhut's target
customers. Fingerhut believes its development and use of information-based
marketing concepts, the Fingerhut Database and proprietary data base
segmentation software afford it a competitive advantage within its market niche.
The Fingerhut Database contains information on over 30 million people,
approximately 8 million of whom have purchased products from Fingerhut within
the past 24 months, and contains up to 3,500 potential data items in a customer
record. These data items include names, addresses, behavioral characteristics,
general demographic information and information provided by the customer. FNB
uses this information, along with proprietary credit scoring models, to produce
proprietary credit scores for Fingerhut customers. The Fingerhut Database also
includes a "suppress" file, which contains information on more than 8 million
individuals about whom it has information relating to fraud and similar
indicators of unacceptably high risk. The Fingerhut Database is continually
updated as new information is obtained. Fingerhut uses the Fingerhut Database
for marketing and FNB uses the Fingerhut Database for extending credit.
PRODUCTS
Fingerhut offers a broad mix of brand name and private label consumer
products, including electronics, housewares, home textiles, apparel, furniture,
home accessories, jewelry, sporting goods and toys, tools, automotive, lawn and
garden, and financial service products. In 1997, Fingerhut offered approximately
17,000 different products. Fingerhut's sales mix by product category for 1997 is
shown in the following table:
FINGERHUT CORPORATION 1997 PRODUCT MIX
<TABLE>
<CAPTION>
PERCENT OF
GROSS RETAIL SALES
---------------------
<S> <C>
Electronics................................................................ 22%
Home Textiles.............................................................. 19
Housewares................................................................. 17
Furniture/Home Accessories................................................. 10
Jewelry.................................................................... 8
Leisure.................................................................... 8
Apparel.................................................................... 7
Tools/Automotive/Lawn & Garden............................................. 6
Other...................................................................... 3
---
Total...................................................................... 100%
---
---
</TABLE>
Fingerhut selects merchandise to be offered to its customers by evaluating
historical product and category demand and analyzing emerging merchandise trends
in conjunction with proprietary marketing information. Fingerhut is constantly
developing unique brand name and private label product groupings, such as
coordinated kitchen ensembles, coordinated bed and bath ensembles and tool sets,
targeted to
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appeal to its customers and to add value and/or style to its merchandise.
Historically, Fingerhut has offered its customers financial service products,
including credit and property insurance and extended service agreements.
Fingerhut and FNB expect to offer additional products and services, such as
credit card registration, membership clubs and fee-based services, to Fingerhut
customers with consumer revolving credit card accounts.
Fingerhut's general merchandise catalogs feature a wide array of products;
they are updated and published throughout the year, including a holiday big book
of approximately 500 pages. Specialty catalogs mailed to targeted portions of
Fingerhut's customer list include outdoor living, jewelry, electronics,
domestics/housewares, gifts, juvenile, home fitness, home improvement and
Spanish-language catalogs.
MARKETING
Marketing activities are divided into three primary programs: new customer
acquisition, a transitional program and existing customer programs. During 1997,
Fingerhut mailed approximately 472 million catalogs and other promotions to
existing and prospective customers.
Fingerhut's new customer acquisition program is designed to identify and
attract new customers on a cost-effective basis. The primary sources of new
customers are rented lists, catalog requests, customer referrals and other
direct marketing solicitations. Fingerhut mails catalogs and other multi-product
offerings to prospective customers and adds them to the Fingerhut Database as
responses are received. At the present time, solicitations to prospective new
customers generally have lower retail prices and a limited number of product
offerings. These programs are intended to target new customers who will become
long-term Fingerhut customers. New customers account for approximately 16% of
Fingerhut's net sales. The decisions on which prospective customers to solicit,
which products to offer and which media to use are based upon the projected
long-term profitability and internal rates of financial return of the program.
Fingerhut continuously tests various media, products, offerings and incentives
and analyzes the results in order to maximize the effectiveness of its customer
acquisition efforts.
After first-time buyers commence payments on their initial purchases, they
are placed into a transitional program. The time a person remains in a
transitional program and the number and type of products he or she is offered
depends on the buyer's purchasing and payment practices. A customer is placed on
Fingerhut's promotable customer list after demonstrating his or her
creditworthiness.
Fingerhut reaches its existing customers through extensive promotional
mailing efforts, primarily catalogs, and through telemarketing. In 1997,
Fingerhut mailed 139 different catalogs and other promotions to its established
customers. These mailings include general merchandise catalogs, specialty
catalogs, small and large multi-product mailers and single product promotions.
Fingerhut believes the key factors in maximizing the profitability of its
existing customer list are developing long-term repeat buyers and balancing
customer response with appropriate credit losses and merchandise return rates
for each segment of its customer list. Fingerhut promotes customer satisfaction
and loyalty by extending credit through its affiliate FNB, by using a number of
marketing devices (including targeted promotions, deferred payments, 30-day home
trials, a "satisfaction pledge" policy, free gifts, merchandise giveaways,
sweepstakes and personalized mailings) and by offering attractive brand name and
private label merchandise.
CREDIT MANAGEMENT
Although the mechanics differ, the credit management processes used by FNB
for closed-end and revolving credit are similar. In each case, FNB uses a two
step process of first establishing a credit score before mailing catalogs that
offer closed-end credit or before establishing credit lines for consumer
revolving credit card accounts and then reviewing credit risk before authorizing
individual closed-end credit card loans or individual transactions on consumer
revolving credit card accounts.
37
<PAGE>
CLOSED-END CREDIT. Potential new customers are solicited after undergoing
credit risk evaluation and scoring. When a prospect makes an order, FNB reviews
his or her credit risk a second time using order scoring models. The orders of
customers deemed too risky (due to deteriorating credit, order size, etc.) are
credit canceled. If FNB approves the loan, Fingerhut records the sale and ships
the merchandise. Closed-end credit card loans that relate to a customer's
initial purchase are not included in the Trust until the customer becomes a Back
End Customer. Subsequent purchases are allowed only after a customer has made at
least one payment on his or her first closed-end credit card loan and is not
delinquent on any closed-end credit card loan.
Solicitations to existing customers are based on the customers' credit score
at the time of mailing. These credit scores are based on the customers' internal
behavioral data as well as external credit bureau information. Each order placed
by a customer is reviewed systematically and credit is approved or declined
based on the total balance of all closed-end credit card loans, delinquency
status and other behavioral scoring data. A customer's ability to increase his
or her purchasing level is based on his or her ability to maintain closed-end
credit card loans in good standing over a period of time and a favorable overall
risk assessment. By reviewing a customer at the time of mailing and again at
time of response, the credit models allow FNB to maintain control over the
credit granting process.
REVOLVING CREDIT. The credit granting process is similar for consumer
revolving credit card accounts. Prospective customers are solicited after credit
risk evaluation and scoring. Each qualified applicant is issued an introductory
line of credit based on his or her credit profile. The amount of this initial
line generally will be consistent with the current limits on new customer
closed-end loans, but new customers may be given higher credit lines based on
the credit scoring models. After a new customer's first order, Fingerhut will
suspend subsequent solicitations only if the customer has no "open-to-buy"
(unused credit line) or does not meet specified credit criteria. FNB plans to
use credit bureau information when available for extending credit to prospective
customers. At the present time, FNB is only offering revolving credit to
prospective customers on a test basis. For an existing customer, an FNB consumer
revolving credit card account is established with a credit line based on the
individual's demonstrated creditworthiness with Fingerhut or FNB and on credit
bureau information. FNB authorizes each transaction on a consumer revolving
credit card account based on the customer's "open to buy" amount, delinquency
status and other behavioral scoring data. Orders from customers with a
delinquent balance (1+ days) will not be approved.
Although customers with consumer revolving credit card accounts have a
credit line with an "open to buy" amount, Fingerhut and FNB maintain control by
reviewing individual transactions and also by using mail select models that
determine which customers receive mailings. Thus, if a customer's credit risk
deteriorates, Fingerhut can limit his or her ability to purchase by suspending
mailings to that customer or mailing lower price point catalogs.
FNB's credit line assignments for existing customers are based on historical
credit performance data and are expected to be lower than most private label
revolving portfolios. Credit line assignments for new customers are based on a
proprietary bureau score, other bureau score, and other characteristics derived
from the Fingerhut Database. Decisions to increase credit lines are made based
on the customer's demonstrated ability to keep his or her account in good
standing over a period of time. From time to time, either at the customer's
request or at FNB's option, a customer's credit line may be reviewed for a
potential increase or decrease. Two events currently trigger an automatic credit
line adjustment review: the next scheduled review date or an account becoming 30
or more days delinquent. Scheduled review dates for new and existing customers
are within three months and 12 months, respectively. In the future, FNB
anticipates a change in credit bureau score of more than 10 points (credit
bureau scores are reviewed every 6 months) will also trigger an automatic
review. Adjustment criteria considered in line adjustments (up or down) includes
number of payments made, amount of payments made, credit bureau score and time
as a revolving credit customer. Credit line increases requested by customers are
evaluated as received. Currently, delinquency is the only factor used in
determining credit line decreases but FNB may add additional factors in the
future.
38
<PAGE>
All new orders are subject to FNB's existing internal fraud screens. Future
plans include use of a third party account management software which will allow
FNB to maximize operational functions in the areas of line management,
authorizations, overlimit treatment and collections.
FNB's credit management processes will evolve as it accumulates more data on
the performance of its consumer revolving credit card accounts.
YEAR 2000 COMPLIANCE
FNB and Fingerhut are heavily dependent upon complex computer systems for
all phases of their operations. Fingerhut supplies FNB with information systems
and acts as a subservicer of the Receivables. Since many of FNB's and
Fingerhut's currently installed computer systems and software products use only
the last two digits to identify a year in the date field (e.g., "98" for
"1998"), some software may fail to operate properly in the year 2000 if the
computer systems or software are not reprogrammed or replaced to comply with
such "Year 2000" requirements. Problems may also arise earlier than January 1,
2000 as dates in the next millennium are entered into non-Year 2000 compliant
programs.
In early 1996, Fingerhut started an aggressive conversion effort to identify
and correct the Year 2000 programming issues in a timely manner. By mid-1996,
the most critical mainframe processing system was converted to be Year 2000
compliant and Fingerhut initiated a large project to address all remaining
systems. This project consists of many sub-projects that will span the remainder
of 1998 and the first quarter of 1999. This project will use a combination of
internal and external resources. In late 1997, Fingerhut created a Year 2000
Project Office to oversee the project, address all related business issues and
facilitate communication with significant suppliers and service providers.
Fingerhut believes that many of its suppliers and customers also have Year
2000 programming issues which could affect Fingerhut. Fingerhut is working with
its significant suppliers and service providers to assure that failures in those
organizations will have minimal impact on Fingerhut. There can be no assurance
that Fingerhut's suppliers or service providers have, or will have, management
information systems that are Year 2000 compliant. Therefore, Fingerhut is
developing contingency plans with respect to its significant suppliers and
service providers.
Each of FNB and Fingerhut believes that it has allocated adequate resources
to achieve Year 2000 compliance in a timely manner; however, there can be no
assurance to that effect.
39
<PAGE>
THE RECEIVABLES
TYPES OF RECEIVABLES
On the Closing Date, the Receivables in the Trust will include existing
closed-end installment sale contracts originated by Fingerhut (no new closed-end
installment sale contracts are being originated) as well as existing receivables
related to closed-end credit card loans and revolving credit card loans
originated by FNB. On the Closing Date, only Receivables arising in accounts
originated in connection with the sale of merchandise, financial service
products or services from Fingerhut customers will be included in the Trust. In
the future, Receivables generated by FNB or one of its affiliates and arising in
accounts originated other than in connection with sales by Fingerhut may be
included in the Trust, subject to satisfaction of the Rating Agency Condition.
Customers typically order products after being promoted by Fingerhut by
completing a home trial order form that is pre-printed by Fingerhut or by
telephone. A small percentage of orders are generated by customers writing an
order on their own stationery. As described in more detail above, after
receiving an order for merchandise from a customer, and before shipping the
ordered merchandise to the consumer, FNB performs an evaluation of the
creditworthiness of the potential customer making the order. If FNB determines
that the customer is an acceptable credit risk, Fingerhut then sends the ordered
merchandise to the customer for a thirty day trial period. The Receivables arise
upon shipment of the ordered merchandise.
CLOSED-END CREDIT. At the end of the thirty day trial period a customer who
has closed-end credit has three options: (1) the customer can return the
merchandise to Fingerhut; (2) the customer may elect to pay a cash price for the
merchandise; or (3) the customer may elect to pay for the merchandise over a
defined period of time under the terms of the closed-end credit card loan. The
Receivables balance relating to closed-end credit card loans is based on the
full installment loan amount. Therefore, to the extent that an Obligor exercises
options (1) or (2) above, a portion of the related Receivable will be adjusted
to reflect the reduction in the amount owing.
An invoice and an explanation of the customer's options are included with
the merchandise when it is initially sent to the customer for the thirty day
trial period. For closed-end installment sale contracts originated by Fingerhut
the material explained that the customer had two options for remitting payment.
The customer could elect to pay the lower cash price by paying such amount in
full before the first payment due date, or the customer could elect to pay the
higher "time price" in installments. The cash price, the installment price, and
the time price differential were displayed in the material. As required by the
federal Truth-in-Lending Act and Regulation Z, 12 C.F.R. Part 226 (1989), the
differential between the cash price and the time price was referred to as the
finance charge and was disclosed as both a dollar amount and as an annual
percentage rate. For closed-end credit card loans originated by FNB, the
material explains that the buyer has two options for remitting payment. The
customer can elect either to pay the cash price by paying such amount in full
before the first payment due date, or to pay the installment credit card loan
price (which includes the cash price plus an interest charge) over a specified
period of time. As required by the federal Truth-in-Lending Act and Regulation
Z, 12 C.F.R. Part 226 (1989), the difference between the cash price and the
installment credit card loan price is referred to as the finance charge and is
disclosed as both a dollar amount and as an annual percentage rate.
REVOLVING CREDIT. At the end of the thirty day trial period, a customer
with a consumer revolving credit card account may return the product to
Fingerhut or keep it and make payments pursuant to the terms of the account.
These terms include minimum payments with the right to repay all or a portion of
the account balance and may include deferred payment options. Refinanced
closed-end installment sale contracts originated by Fingerhut and refinanced
closed-end credit card loans originated by FNB receive special treatment. In the
case where the refinanced amount includes a finance charge, the portion of the
Obligor's consumer revolving credit card account balance related to that
refinanced amount has a 0% interest rate and such receivables are treated as
Closed End Receivables for purposes of calculating
40
<PAGE>
Discount Receivables. Any payments received in excess of the minimum payment
will be applied first to any refinanced balance with a 0% interest rate.
At the present time, Revolving Receivables are a small portion of the
Receivables in the Trust. In the fourth quarter of 1996, FNB had approximately
1,000 Fingerhut customers with consumer revolving credit card accounts.
Approximately 84,500 Fingerhut customers were converted to revolving credit
during the second and third quarters of 1997 and approximately 14,500 more
Fingerhut customers were converted to revolving credit in the fourth quarter of
1997. FNB currently plans to convert approximately 1,300,000 Back End Customers
to revolving credit in 1998 and another 1,500,000 Back End Customers to
revolving credit in 1999. At the present, all new Fingerhut customers generally
are being granted closed-end credit card loans, but FNB is offering revolving
credit on a test basis to prospective customers. By the end of 1998, FNB expects
to originate all new customer accounts under consumer revolving credit card
accounts.
The following tables summarize the Receivables in consumer revolving credit
card accounts by various criteria as of February 27, 1998. These consumer
revolving credit card accounts include a small amount (less than 1%) of
Receivables in accounts that are not Eligible Accounts because the Obligors are
not Back End Customers. Because the future composition of the consumer revolving
credit card accounts included in the Trust may change over time, these tables
are not necessarily indicative of the composition of the consumer revolving
credit card accounts included in the Trust at any subsequent time. The
Transferor will continuously add Eligible Receivables to the Trust, in
compliance with provisions of the Pooling and Servicing Agreement.
COMPOSITION BY CREDIT LIMIT
REVOLVING ACCOUNTS
AS OF FEBRUARY 27, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL PERCENTAGE OF
NUMBER OF RECEIVABLES TOTAL RECEIVABLES
CREDIT LIMIT RANGE NUMBER OF ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- ---------------------------------------- ------------------ ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
$0.00-250.00............................ 10,093 6.23% $ 414,484 1.04%
$250.01-500.00.......................... 29,327 18.09 2,375,728 5.94
$500.01-750.00.......................... 5,366 3.31 1,216,001 3.04
$750.01-1,000.00........................ 56,037 34.57 10,843,744 27.11
$1,000.01-1,500.00...................... 42,718 26.35 10,368,079 25.92
$1,500.01-2,000.00...................... 9,926 6.12 5,419,375 13.55
$2,000.01 and greater................... 8,601 5.31 9,361,185 23.40
Not Available(1)........................ 25 0.02 52 0.00
------- ------ ------------- ------
Total................................. 162,093 100.00% $ 39,998,648 100.00%
------- ------ ------------- ------
------- ------ ------------- ------
</TABLE>
- ------------------------
(1) As of February 27, 1998, there were 25 new accounts whose credit limits had
not yet been posted to the receivables management system.
41
<PAGE>
COMPOSITION BY ACCOUNT BALANCE
REVOLVING ACCOUNTS
AS OF FEBRUARY 27, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL PERCENTAGE OF
NUMBER OF RECEIVABLES TOTAL RECEIVABLES
ACCOUNT BALANCE RANGE NUMBER OF ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- --------------------------------------- ------------------ ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Credit Balance......................... 1,808 1.12% $ (46,916) (0.12)%
No Balance............................. 72,892 44.97 0 0.00
$0.01-250.00........................... 41,731 25.75 4,704,230 11.76
$250.01-500.00......................... 18,739 11.56 6,777,598 16.94
$500.01-750.00......................... 10,341 6.38 6,374,158 15.94
$750.01-1,000.00....................... 6,342 3.91 5,474,706 13.69
$1,000.01-2,000.00..................... 8,148 5.03 11,076,605 27.69
$2,000.01 and greater.................. 2,092 1.29 5,638,267 14.10
------- ------ -------------- ------
Total.................................. 162,093 100.00% $ 39,998,648 100.00%
------- ------ -------------- ------
------- ------ -------------- ------
</TABLE>
SERVICING
Fingerhut currently performs a substantial portion of the servicing of both
the closed-end credit card contracts and the consumer revolving credit card
accounts for FNB under a subservicing agreement. Under the terms of the
subservicing agreement, Fingerhut has agreed to perform all of FNB's obligations
as Servicer under the Pooling and Servicing Agreement that FNB requests it to
perform and indemnifies FNB against any liability for its performance. FNB pays
a portion of the servicing fee it receives under the Pooling and Servicing
Agreement to Fingerhut based on the proportion of servicing functions performed
by it and by Fingerhut. FNB is contemplating moving all or a portion of the
servicing functions for its consumer revolving credit card accounts to a third
party servicer.
BILLING AND PAYMENTS
Payments from customers are received and processed at Fingerhut's payment
processing department pursuant to a subservicing agreement between FNB and
Fingerhut.
CLOSED-END CREDIT. Monthly payments on closed-end contracts are made by
customers and processed primarily through the use of coupons contained in
payment booklets delivered with each order shipment. Customers receive a new
coupon book for each individual closed-end loan and, therefore, a customer with
multiple outstanding closed-end loans will have several different coupon books
(with separate payment due dates).
Payment terms to Back End Customers generally range from 4 to 36 monthly
payments with an average payment term of approximately 19 monthly payments. In
addition, a majority of sales are to Back End Customers who receive a deferred
billing option, which extends the due date of the first payment by up to five
months. Many Back End Customers pay their contracts in full before the end of
the scheduled payment term.
REVOLVING CREDIT. Customers who have consumer revolving credit card
accounts receive a monthly billing statement in addition to the invoice shipped
with the customer's order. Under consumer revolving credit card accounts, all
orders are combined into a single monthly billing statement with one due date.
Obligors receive a monthly billing statement for any month during which there is
a balance or activity on the account. The monthly billing statement contains the
following information: new balance, previous balance, payments made, periodic
interest rate, annual percentage rate, purchases (deferred and non-deferred),
minimum payment, cycle date and payment due date (25 days from cycle date),
returns and
42
<PAGE>
allowances. In addition, each billing statement may include a message of up to
120 characters that can be specific to the account (such as delinquency, credit
line increase or decrease, promotional offer, etc.). Consumer revolving credit
card accounts are in one of six monthly billing cycles and payment due dates are
set 25 days from the cycle date. A customer who pays the outstanding balance in
full prior to the due date (grace period) is exempt from finance charges for
that billing cycle. Those customers who pay less than the outstanding balance
are assessed interest on the average daily balance of the previous billing
cycle. The minimum payment for revolving credit customers is set at the greater
of 5% of the outstanding balance (excluding deferred balances) or $7.00.
Interest rates are variable, set at a margin above a designated prime rate. At
the current prime rate most of the accounts have an APR set at 24.9%. FNB is
testing other rates, which currently range from 18.9% to 31.9%, based on the
credit risk profile of the customer. FNB charges a late payment fee of up to
$10.00 and a $10.00 fee for insufficient funds or returned checks.
COLLECTION PROCEDURES
Receivables are monitored on a daily, weekly, and monthly basis, through a
series of automated reports, to identify credit problems as early as possible.
FNB has a flexible policy of working with certain delinquent customers to, among
other things, adjust payment schedules, which it believes reduces default rates,
and improves customer loyalty. In no case does FNB or Fingerhut repossess
merchandise.
CLOSED-END CREDIT. All of a customer's closed-end loans are considered
delinquent if the total payments received from such customer are less than the
total payments due on all such loans at any point in time. Closed-end loan
collections are managed under a process called the "Dynamic Dunning System."
Each customer is assigned to a specific dun series based on a "risk score"
calculated by FNB's credit area. FNB currently has over 200 different dun
series. Each series is made up of letters and/or phone calls, varying in
content, approximately twelve to eighteen days apart. Delinquent customers are
generally contacted with in the first ten days of delinquency and four times
within the first 60 days. The actual timing and number of contacts, as well as
type of contacts (letter or phone) are dependent upon the dollar balance, risk
score, whether the customer has a telephone, and other account characteristics
and can vary depending on payment arrangements made with the customer. For
closed-end loans, delinquency and collection strategies are based on all of an
Obligor's closed-end loans rather than on an individual loan basis.
REVOLVING CREDIT. A consumer revolving credit card account is considered
delinquent if the minimum payment on the account is not received by the payment
due date listed in the monthly statement. Consumer revolving credit card account
collections are managed through the VisionPlus, Credit Management System. One of
the modules making up the VisionPlus system is the Collection, Tracking and
Analysis system. Currently, FNB uses approximately 20 separate dun series for
delinquent revolving credit customers. Accounts are classified by balance, level
of delinquency and other account characteristics. Each series is made up of
letters and/or phone calls, varying in content, approximately twelve to eighteen
days apart. Delinquent customers are generally contacted beginning at six days
of delinquency and four events occur within the first 60 days. The actual timing
and number of contacts, as well as type of contacts (letter or phone) are
dependent upon the dollar balance, whether the customer has a telephone, and
other account characteristics, and can vary depending on payment arrangements
made with the customer.
In addition to the dunning strategy, the monthly billing statement provides
an additional delinquency reminder. While a consumer revolving credit card
account is delinquent, all monthly statements on that account will contain a
message informing the customer that he or she is past due. The actual message
delivered will depend on account history and status at the time the statement is
printed. Any late fees incurred as a result of delinquency will also be
highlighted on the monthly billing statement.
43
<PAGE>
LOSS AND DELINQUENCY HISTORY
CLOSED-END CREDIT. All closed-end loans of a particular customer may be
charged off as "uncollectible" when collection efforts fail to provide a
recovery of the balance due or when account aging has reached certain time
limits and no payment has been received within the prior 30 days. To be
considered for charge-off, all the customer's closed-end loans must be at least
30 days delinquent and there must be no orders pending. Accounts are charged-off
when the following circumstances occur: no later than 210 days since the last
payment; upon notification of an Obligor bankruptcy; when at least two pieces of
undeliverable mail have been returned and no request for credit authorization is
outstanding; and upon notification of death of the Obligor. FNB may change its
charge-off policy and collection practices at any time in accordance with its
business judgment, applicable law and certain restrictions in the Bank Purchase
Agreement. See "Description of the Purchase Agreements--Certain Covenants."
REVOLVING CREDIT. Consumer revolving credit card accounts are generally
charged off when the account is 210 days delinquent or upon notification of
Obligor bankruptcy. In certain situations, if an account is 210 days delinquent
and a payment or a promise to pay has been made (as part of a revised payment
arrangement) within the last 30 days, the account may remain active. Charge-offs
can also occur upon notice of the death of the Obligor. Charged-off consumer
revolving credit card accounts currently are being referred to outside
collection agencies on a fee basis. As the pool of consumer revolving credit
card accounts grow, FNB will use Fingerhut's in house collection group and
outside agencies.
The following table sets forth the historical net charge-offs for
Receivables (both Closed End Receivables and Revolving Receivables) originated
by Fingerhut and FNB from Back End Customers for the given periods, but does not
include Receivables relating to (i) the initial orders of Back End Customers,
which became eligible for inclusion in the Trust as of March 18, 1998 and (ii)
purchases by Back End Customers from Fingerhut's prospective new customer
marketing materials. The amount of such Receivables is not material and the
Transferor does not believe that the performance of such Receivables would be
materially different than the historical data set forth in the following table.
There can be no assurance, however, that the loss experience for the Receivables
in the future will be similar to the historical experience set forth below, in
part because for the historical periods shown, the Receivables were comprised
substantially of closed-end installment sale contracts originated by Fingerhut
and closed-end credit card loans originated by FNB and the Receivables are
expected to become entirely revolving credit card loans originated by FNB over
the next several years.
LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS ENDED FISCAL YEAR ENDED
-------------------------- ----------------------------------------------------------
FEBRUARY 27, FEBRUARY 28, DECEMBER 26, DECEMBER 27, DECEMBER 29, DECEMBER 30,
1998 1997 1997 1996 1995 1994
------------ ------------ ------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Average Receivables
outstanding(1)................ $ 1,756,422 $ 1,865,448 $ 1,674,219 $ 1,695,578 $ 1,544,955 $ 1,305,942
Net charge-offs(2).............. $ 47,173 $ 57,651 $ 296,923 $ 268,387 $ 219,689 $ 175,480
Net charge-offs as a percentage
of average Receivables
outstanding................... 16.1%(3) 18.5%(3) 17.7% 15.8% 14.2% 13.4%
</TABLE>
- ------------------------
(1) Average Receivables outstanding is the arithmetic average of Receivables
outstanding at the beginning of each fiscal month during the period shown.
(2) Net charge-offs reflect charge-offs relating to merchandise purchases less
recoveries.
(3) Annualized percentage.
44
<PAGE>
The following table sets forth the delinquency experience with respect to
Receivables for which no payment had been received within 30 days of the most
recent due dates for each such Receivable for each of the periods shown for
Receivables originated by Fingerhut and FNB from Back End Customers, but does
not include Receivables relating to (i) the initial orders of Back End
Customers, which became eligible for inclusion in the Trust as of March 18, 1998
and (ii) purchases by Back End Customers from Fingerhut's prospective new
customer marketing materials. The amount of such Receivables is not material and
the Transferor does not believe that the performance of such Receivables would
be materially different than the historical data set forth in the following
table. In addition, the table does not include Receivables which are less than
30 days delinquent. There can be no assurance, however, that the delinquency
experience for the Receivables in the future will be similar to the historical
experience set forth below, in part because for the historical periods shown,
the Receivables were comprised substantially of closed-end installment sales
contracts originated by Fingerhut and closed-end credit card loans originated by
FNB and the Receivables are expected to become entirely revolving credit card
loans originated by FNB over the next several years.
DELINQUENCY EXPERIENCE(3)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS ENDED FISCAL YEAR ENDED
------------------------------------------------------ ------------------------------------------------------
FEBRUARY 27, 1998 FEBRUARY 28, 1997 DECEMBER 26,1997 DECEMBER 27, 1996
-------------------------- -------------------------- -------------------------- --------------------------
AMOUNT(1) PERCENTAGE(2) AMOUNT(1) PERCENTAGE(2) AMOUNT(1) PERCENTAGE(2) AMOUNT(1) PERCENTAGE(2)
----------- ------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-59 days past
due........... $ 97,467 5.83% $ 112,089 6.01% $ 99,464 5.97% $ 116,251 6.85%
60-89 days past
due........... $ 53,741 3.22% $ 64,473 3.46% $ 62,140 3.73% $ 68,181 4.01%
90 days or more
past due...... $ 230,249 13.78% $ 241,024 12.92% $ 231,606 13.91% $ 226,785 13.35%
<CAPTION>
DECEMBER 29, 1995 DECEMBER 30, 1994
-------------------------- --------------------------
AMOUNT(1) PERCENTAGE(2) AMOUNT(1) PERCENTAGE(2)
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
30-59 days past
due........... $ 111,148 7.10% $ 94,279 7.08%
60-89 days past
due........... $ 63,190 4.04% $ 51,337 3.86%
90 days or more
past due...... $ 184,450 11.78% $ 141,942 10.67%
</TABLE>
- ------------------------
(1) The Receivable delinquent amount by category is the arithmetic average of
the delinquencies at each fiscal month end during the period shown.
(2) The delinquency percentages for the periods shown are the quotients obtained
by dividing (i) the arithmetic average of the Receivable delinquent amount
by category at each fiscal month end during the period by (ii) the average
of the Receivables outstanding at each fiscal month end during the period.
(3) If a customer has one Account that is delinquent, all Accounts of such
customer are considered delinquent.
DILUTION EXPERIENCE
A factor used to evaluate a portfolio of receivables is Dilution. "Dilution"
occurs if a Receivable is adjusted because of a rebate, billing error, return,
exchange, allowance (including adjustments because of the selection of a cash
price payment option) or certain other non-cash items, or if a Receivable is
cancelled due to goods that have been refused by the Obligor. The table below
sets forth dilution experience for Receivables originated by Fingerhut and FNB
from Back End Customers, but does not include Receivables with respect to (i)
the initial orders of the Back End Customers, which became eligible for
inclusion in the Trust as of March 18, 1998 and (ii) purchases by Back End
Customers from Fingerhut's prospective new customer marketing materials. The
amount of such Receivables is not material and the Transferor does not believe
that the performance of such Receivables would be materially different than the
historical data set forth in the following tables. The middle fiscal month of
each fiscal quarter is a five week fiscal month. There can be no assurance that
the actual dilution experience in the future will be similar to the historical
experience set forth in this table, in part because for the historical periods
shown, the Receivables were comprised substantially of closed-end installment
sales contracts originated by Fingerhut and closed-end credit card loans
originated by FNB and the Receivables are expected to become entirely revolving
credit card loans originated by FNB over the next several years.
45
<PAGE>
DILUTION EXPERIENCE
<TABLE>
<CAPTION>
MONTHLY
DILUTION
MONTHLY PERIOD PERCENTAGE(1)
- ---------------------------------------------------------------------------------------------------- ---------------
<S> <C>
1994
January............................................................................................. 2.6%
February............................................................................................ 2.8
March............................................................................................... 2.2
April............................................................................................... 2.2
May................................................................................................. 2.4
June................................................................................................ 2.1
July................................................................................................ 1.9
August.............................................................................................. 2.7
September........................................................................................... 2.2
October............................................................................................. 2.1
November............................................................................................ 3.1
December............................................................................................ 2.6
1995
January............................................................................................. 2.3%
February............................................................................................ 2.6
March............................................................................................... 1.9
April............................................................................................... 1.9
May................................................................................................. 2.3
June................................................................................................ 1.9
July................................................................................................ 1.7
August.............................................................................................. 2.3
September........................................................................................... 1.9
October............................................................................................. 2.1
November............................................................................................ 2.8
December............................................................................................ 2.3
1996
January............................................................................................. 2.1%
February............................................................................................ 2.3
March............................................................................................... 1.8
April............................................................................................... 1.8
May................................................................................................. 2.0
June................................................................................................ 1.5
July................................................................................................ 1.4
August.............................................................................................. 1.9
September........................................................................................... 1.5
October............................................................................................. 1.7
November............................................................................................ 2.4
December............................................................................................ 1.9
1997
January............................................................................................. 2.0%
February............................................................................................ 1.8
March............................................................................................... 1.3
April............................................................................................... 1.6
May................................................................................................. 2.0
June................................................................................................ 1.4
July................................................................................................ 1.5
August.............................................................................................. 1.7
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
MONTHLY
DILUTION
MONTHLY PERIOD PERCENTAGE(1)
- ---------------------------------------------------------------------------------------------------- ---------------
<S> <C>
September........................................................................................... 1.5%
October............................................................................................. 1.7
November............................................................................................ 2.1
December............................................................................................ 1.7
1998
January............................................................................................. 1.6%
February............................................................................................ 2.0
</TABLE>
- ------------------------
(1) Monthly Dilution Percentage is calculated by dividing the total amount of
Receivable dilution activity for a given fiscal month by the outstanding
Receivables at the beginning of such fiscal month.
GEOGRAPHIC DISTRIBUTION
The table below sets forth the geographic distribution of the Accounts as of
February 27, 1998, but does not include Receivables relating to (i) the initial
orders of the Back End Customers, which became eligible for inclusion in the
Trust as of March 18, 1998 and (ii) purchases by Back End Customers from
Fingerhut's prospective new customer marketing materials. The amount of such
Receivables is not material and the Transferor does not believe that the
geographic distribution of Receivables in such Accounts would be materially
different than as set forth in the following table. Because the future
composition of the Receivables may change over time, this table is not
indicative of the geographic distribution of the Receivables at any subsequent
time.
GEOGRAPHIC DISTRIBUTION
AS OF FEBRUARY 27, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF OUTSTANDING
NUMBER OF RECEIVABLES BY
STATE ACCOUNTS DOLLAR AMOUNT
- --------------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
Alabama.......................................................................... 2.36% 2.27%
Alaska........................................................................... 0.18 0.17
Arizona.......................................................................... 1.86 1.91
Arkansas......................................................................... 1.41 1.37
California....................................................................... 8.14 8.05
Colorado......................................................................... 1.53 1.62
Connecticut...................................................................... 1.00 1.02
Delaware......................................................................... 0.31 0.30
District of Columbia............................................................. 0.35 0.33
Florida.......................................................................... 4.95 4.98
Georgia.......................................................................... 3.06 3.09
Hawaii........................................................................... 0.22 0.19
Idaho............................................................................ 0.48 0.49
Illinois......................................................................... 3.37 3.43
Indiana.......................................................................... 2.51 2.54
Iowa............................................................................. 0.85 0.83
Kansas........................................................................... 1.06 1.08
Kentucky......................................................................... 2.25 2.18
Louisiana........................................................................ 2.13 2.11
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF OUTSTANDING
NUMBER OF RECEIVABLES BY
STATE ACCOUNTS DOLLAR AMOUNT
- --------------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
Maine............................................................................ 0.58% 0.57%
Maryland......................................................................... 2.22 2.18
Massachusetts.................................................................... 1.75 1.69
Michigan......................................................................... 3.61 3.70
Minnesota........................................................................ 1.03 1.06
Mississippi...................................................................... 1.52 1.48
Missouri......................................................................... 2.33 2.34
Montana.......................................................................... 0.33 0.33
Nebraska......................................................................... 0.53 0.53
Nevada........................................................................... 0.86 0.92
New Hampshire.................................................................... 0.37 0.38
New Jersey....................................................................... 3.03 3.10
New Mexico....................................................................... 0.90 0.90
New York......................................................................... 6.63 6.83
North Carolina................................................................... 3.45 3.34
North Dakota..................................................................... 0.21 0.20
Ohio............................................................................. 4.06 4.10
Oklahoma......................................................................... 1.55 1.54
Oregon........................................................................... 1.08 1.07
Pennsylvania..................................................................... 4.35 4.30
Rhode Island..................................................................... 0.34 0.32
South Carolina................................................................... 1.41 1.39
South Dakota..................................................................... 0.23 0.23
Tennessee........................................................................ 2.31 2.32
Texas............................................................................ 7.58 7.71
Utah............................................................................. 0.63 0.62
Vermont.......................................................................... 0.26 0.27
Virginia......................................................................... 2.93 2.83
Washington....................................................................... 2.07 2.12
West Virginia.................................................................... 1.34 1.27
Wisconsin........................................................................ 1.58 1.58
Wyoming.......................................................................... 0.24 0.27
U.S. Territories and Other....................................................... 0.68 0.53
----- -----
Total............................................................................ 100.0% 100.0%
----- -----
----- -----
</TABLE>
48
<PAGE>
THE TRANSFEROR AND RELATED PARTIES
FINGERHUT RECEIVABLES, INC.
Fingerhut Receivables, Inc. was incorporated under the laws of the State of
Delaware on April 14, 1994. At the present time, all of its outstanding capital
stock is owned by FCI. In connection with the Spin Off described below, FCI
expects to contribute all the capital stock of the Transferor to another direct,
wholly owned subsidiary of FCI. The Transferor was organized for the limited
purposes of purchasing, holding, owning and selling receivables and any
activities incidental to and necessary or convenient for the accomplishment of
such purposes, and has no material assets other than such receivables. Neither
FCI, as stockholder of the Transferor, nor the Transferor's board of directors,
intend to change the Transferor's business purpose. The Transferor's executive
offices are located at 4400 Baker Road, Suite F480, Minnetonka, Minnesota 55343;
the Transferor's telephone number is (612) 936-5035.
FINGERHUT CORPORATION
FCI's principal subsidiary, Fingerhut, has been in the direct mail marketing
business for 50 years and sells general merchandise and financial service
products to moderate income consumers using catalogs and other direct marketing
solicitations. Fingerhut's merchandise includes a broad mix of quality brand
name and private label products. In 1997, Fingerhut generated over $1.4 billion
in net sales. Fingerhut's executive offices are located at 4400 Baker Road,
Minnetonka, Minnesota 55343; Fingerhut's telephone number is (612) 932-3100.
FINGERHUT COMPANIES, INC.
FCI is a database marketing company that sells a broad range of products and
services directly to consumers via catalogs, television and other media. It had
1997 net revenues of approximately $1.8 billion. FCI is the successor to the
business of several related companies, the first of which was a partnership
formed in 1948. FCI was incorporated in 1978 in connection with the acquisition
of Fingerhut by a predecessor of Travelers Group Inc. in 1979 and became a
publicly held company in May 1990. FCI announced, in October 1997, that its
Board of Directors had authorized it to file an application with the IRS for a
tax-free distribution to FCI shareholders of all of FCI's ownership in Metris
Companies Inc. (the "Spin Off"). The proposed Spin Off, anticipated in 1998, is
subject to the final approval of FCI's Board of Directors and approval of the
IRS, and is subject to market conditions. There are no assurances that the Spin
Off will be consummated.
FINGERHUT NATIONAL BANK
FNB, a wholly owned subsidiary of FCI, is a special-purpose credit card
bank, established under Section 2(c)(2)(F) of the Bank Holding Company Act of
1956, as amended by the Competitive Equality Banking Act of 1987, as amended.
FNB was chartered as a national banking association on November 11, 1996. FNB's
principal executive offices are located at 3904 West Technology Circle, Suite
102, Sioux Falls, South Dakota 57106; FNB's telephone number is (605) 362-2380.
MATURITY CONSIDERATIONS
The Class A Invested Amount is payable to the Class A Securityholders, to
the extent funds are available therefor in the Principal Account, on each
Distribution Date beginning with the September 2002 Distribution Date, or
earlier in the event of a Pay Out Event that results in the commencement of the
Early Amortization Period. The Class A Securityholders will receive payments of
principal on each Distribution Date during the Controlled Amortization Period
until the Class A Invested Amount has been paid in full or the Termination Date
has occurred. It is anticipated that the final payment of principal with respect
to the Class A Securities will be made on the November 2003 Distribution Date
(the "Class A Expected Final Payment Date"). The Pooling and Servicing Agreement
provides that the Class B Securityholders will not begin to receive payments of
principal until the Class A Invested Amount has been paid in full. The Class B
Securityholders will receive payments of principal on the Class B Principal
Payment Commencement Date and each Distribution Date thereafter until the Class
B Invested Amount is paid in full or the Termination Date has occurred. It is
anticipated that the final payment of principal
49
<PAGE>
with respect to the Class B Securities will be made on the February 2004
Distribution Date (the "Class B Expected Final Payment Date"). The Pooling and
Servicing Agreement provides that the CTO Securityholders will not begin to
receive payments of principal until the Class A Invested Amount and the Class B
Invested Amount have been paid in full.
During the Controlled Amortization Period an amount equal to the lesser of
(i) Available Series 1998-2 Principal Collections and (ii) the "Class A
Controlled Distribution Amount" which is equal to the sum of the Class A
Controlled Amortization Amount and any existing Class A Deficit Controlled
Amortization Amount will be deposited in the Principal Account during each
Monthly Period. The term "Class A Deficit Controlled Amortization Amount" means
zero on the initial Distribution Date with respect to the Controlled
Amortization Period and, on any subsequent Distribution Date, means the excess,
if any, of the amount determined on the preceding Distribution Date under clause
(ii) above over the amount determined under clause (i) above with respect to the
related Monthly Period. During the Controlled Amortization Period following the
deposit in the Principal Account of an amount sufficient to pay the Class A
Invested Amount in full, an amount equal to the lesser of (i) Available Series
1998-2 Principal Collections and (ii) the "Class B Controlled Distribution
Amount" which is equal to the sum of the Class B Controlled Amortization Amount
and any existing Class B Deficit Controlled Amortization Amount will be
deposited in the Principal Account during each Monthly Period. The term "Class B
Deficit Controlled Amortization Amount" means zero on the Class B Principal
Payment Commencement Date and, on any subsequent Distribution Date, means the
excess, if any, of the amount determined under clause (ii) above over the amount
determined under clause (i) above with respect to the related Monthly Period.
Although it is anticipated that principal payments will be made to Class A
Securityholders in an amount equal to the Class A Controlled Amortization Amount
on each Distribution Date beginning on the September 2002 Distribution Date and
ending on the November 2003 Distribution Date and to the Class B Securityholders
in an amount equal to the Class B Controlled Amortization Amount beginning on
the December 2003 Distribution Date and ending on the February 2004 Distribution
Date, no assurance can be given in that regard.
Should a Pay Out Event occur and the Early Amortization Period commence, the
Class A Securityholders will be entitled to receive monthly payments of
principal in an amount equal to the lesser of the Available Series 1998-2
Principal Collections and the Class A Invested Amount, until the Class A
Invested Amount is paid in full or until the Termination Date. Thereafter, on
and after the Class B Principal Payment Commencement Date, the Class B
Securityholders will be entitled to receive monthly payments of principal in an
amount equal to the lesser of the Available Series 1998-2 Principal Collections
and the Class B Invested Amount, until the Class B Invested Amount is paid in
full or until the Termination Date. Thereafter, on and after the CTO Principal
Payment Commencement Date, the CTO Securityholders will be entitled to receive
monthly payments of principal, until the CTO Invested Amount is paid in full or
until the Termination Date. A "Pay Out Event" occurs, either automatically or
after specified notice, upon (a) the failure of the Transferor to make certain
payments or transfers of funds for the benefit of the Securityholders or to
observe or perform in any material respect certain other covenants within the
time periods stated in the Pooling and Servicing Agreement, (b) material
breaches of certain representations, warranties, or covenants of the Transferor
which remain uncured after grace periods specified in the Pooling and Servicing
Agreement, (c) certain bankruptcy or insolvency events relating to the
Transferor, Fingerhut, FCI or FNB, (d) the occurrence of a Servicer Default that
would have a material adverse effect on the Securityholders, (e) (x) the
Transferor Interest being less than the Minimum Transferor Interest, (y) the
total amount of Principal Receivables and the amount on deposit in the Excess
Funding Account being less than the Minimum Aggregate Principal Receivables or
(z) the Retained Percentage being equal to or less than 2 percent, in each case
as of any Determination Date, and not exceeding the required amount on or prior
to the tenth business day following such Determination Date, (f) the Trust
becoming subject to regulation as an "investment company" within the meaning of
the Investment Company Act or (g) a reduction in the average of the Portfolio
Yields for any three consecutive Monthly Periods to a rate which
50
<PAGE>
is less than the weighted average of the Base Rates for such three consecutive
Monthly Periods. See "Description of the Offered Securities--Pay Out Events."
The "Base Rate" means, with respect to any Monthly Period, the sum of (i)
the weighted average of the Class A Interest Rate, the Class B Interest Rate,
the CTO Interest Rate and, if an interest rate is assigned to any portion of the
Class D Securities, the Class D Interest Rate as of the last day of such Monthly
Period (weighted based on the Class A Invested Amount, the Class B Invested
Amount, the CTO Invested Amount and, if an interest rate is assigned to any
portion of the Class D Securities, such portion of the Class D Invested Amount,
respectively, as of the beginning of the day on the first day of such Monthly
Period) plus (ii) the product of 2.00 percent per annum and the percentage
equivalent of a fraction the numerator of which is the Adjusted Invested Amount
and the denominator of which is the Invested Amount, each as of the beginning of
the day on the first day of such Monthly Period. The term "Portfolio Yield"
means, with respect to any Monthly Period, the annualized percentage equivalent
of a fraction, the numerator of which is the sum of (i) the aggregate amount of
Available Series 1998-2 Finance Charge Collections for each business day during
such Monthly Period (not including (x) the amounts withdrawn from the Payment
Reserve Account, (y) Adjustment Payments made by the Transferor with respect to
Adjustment Payments required to be made but not made in prior Monthly Periods,
if any, and (z) the amount of any Finance Charge Collections received with
respect to the final payment of any Closed End Receivable that is refinanced
with a receivable arising under a consumer revolving credit card account) and
(ii) amounts withdrawn from the Defeasance Reserve Account with respect to such
Monthly Period calculated on a cash basis after subtracting the aggregate Series
Default Amount for such Monthly Period and the Series 1998-2 Percentage of any
Adjustment Payments which the Transferor is required but fails to make pursuant
to the Pooling and Servicing Agreement for each business day during such Monthly
Period, and the denominator of which is the average daily Invested Amount during
such Monthly Period; PROVIDED, HOWEVER, that Excess Finance Charge Collections
applied for the benefit of the Securityholders may be added to the numerator if
the Transferor shall have provided ten Business Days prior written notice of
such action to each Rating Agency and the Transferor, the Servicer and the
Trustee shall have received notifications in writing that such action will not
result in Standard & Poor's reducing or withdrawing its then existing rating of
the Investor Securities of any outstanding Series or class with respect to which
it is a Rating Agency. See "Description of the Offered Securities--Pay Out
Events."
The following table sets forth for the Receivables originated by Fingerhut
and FNB from Back End Customers, but not including Receivables relating to (i)
the initial orders of the Back End Customers, which became eligible for
inclusion in the Trust as of March 18, 1998 and (ii) purchases by Back End
Customers from Fingerhut's prospective new customer marketing materials, the
highest and lowest monthly payment rates during any month in the period shown
and the average monthly payment rates for such Receivables for all months during
the periods shown, in each case calculated by dividing the total collections
during a given fiscal month by total opening monthly balances of such
Receivables during the periods shown and expressing such amounts as a
percentage. The middle fiscal month of each fiscal quarter is, and each of
February 1997 and February 1998 was, a five week fiscal month. Payment rates
shown in the table are based on amounts which are or would be deemed payments of
Principal Receivables with respect to such Receivables, but do not include
payments resulting from refinancing existing Receivables that are closed-end
installment sales contracts or closed-end credit card loans with Receivables
under consumer revolving credit card accounts.
MONTHLY PAYMENT RATES
<TABLE>
<CAPTION>
TWO MONTHS ENDED FISCAL YEAR ENDED
-------------------------------- -----------------------------------------------------------
FEBRUARY 27, FEBRUARY 28, DECEMBER 26, DECEMBER 27, DECEMBER 29,
1998 1997 1997 1996 1995
--------------- --------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
Lowest Month.................... 5.9% 6.0% 5.7% 5.5% 5.6%
Highest Month................... 8.5% 8.2% 8.2% 8.2% 9.1%
Monthly Average................. 7.2% 7.0% 7.1% 7.1% 7.6%
<CAPTION>
DECEMBER 30,
1994
---------------
<S> <C>
Lowest Month.................... 6.0%
Highest Month................... 10.3%
Monthly Average................. 8.1%
</TABLE>
51
<PAGE>
The amount of collections of Receivables may vary from month to month due to
seasonal variations, general economic conditions, economic and financial
conditions affecting the payment habits of individual customers, the length of
the fiscal month and other factors. There can be no assurance that Principal
Collections with respect to the Trust, and thus the rate at which the
Securityholders could expect to receive payments of principal on their
Securities during the Amortization Period, will be similar to the historical
experience set forth above, in part because for the historical periods shown,
the Receivables were comprised substantially of closed-end installment sales
contracts originated by Fingerhut and closed-end credit card loans originated by
FNB and the Receivables are expected to become entirely revolving credit card
loans originated by FNB over the next several years. If a Pay Out Event occurs,
the average life and maturity of the Offered Securities could be significantly
reduced.
USE OF PROCEEDS
The Transferor will apply the net proceeds received from the sale of the
Offered Securities, to repay principal of classes of the Series 1997-1 Variable
Funding Trust Certificates (a substantial portion of which are held by certain
of the Underwriters or their affiliates) and the Series 1994-2 Variable Funding
Trust Certificates, to pay the purchase price of Receivables and to make a
deposit to the Interest Funding Account for the payment of interest on the first
Distribution Date. See "Annex I: Other Series."
DESCRIPTION OF THE OFFERED SECURITIES
The Offered Securities will be issued pursuant to the Pooling and Servicing
Agreement and the Series 1998-2 Supplement. The Pooling and Servicing Agreement,
the Series 1998-2 Supplement and the Offered Securities will be governed by, and
construed in accordance with, the laws of the State of Delaware. Pursuant to the
Pooling and Servicing Agreement, the Transferor and the Trustee have executed
the Supplements with respect to the Previously Issued Series and may execute
additional Supplements in order to issue additional Series (including the Series
1998-1 Securities) and Participation Supplements in order to issue
Participations (including the Participation to be issued to FNB on the Closing
Date).
GENERAL
The Offered Securities will represent the right to receive payments from
certain assets of the Trust, including the right to the investor percentage of
all Obligor payments on the Receivables in the Trust. Each Class A Security and
Class B Security represents the right to receive payments of interest at the
Class A Interest Rate or the Class B Interest Rate, as the case may be, funded
from Available Series 1998-2 Finance Charge Collections and the right to receive
payments of principal after the beginning of the Amortization Period, with
respect to the Class A Securities, and on and after the Class B Principal
Payment Commencement Date, with respect to the Class B Securities, in each case
funded from Principal Collections applied for the benefit of the Series 1998-2
Securityholders' Interest.
The Transferor owns the Exchangeable Transferor Security and will initially
own the Class D Securities. The Exchangeable Transferor Security will represent
an undivided interest in the Trust, including the right to the Transferor
Percentage of all Obligor payments on the Receivables in the Trust equal to 100%
minus the sum of the applicable investor percentages (which shall not exceed
100%) for all Series of securities then outstanding and the Participation
Percentages for all Participations then outstanding. See "--Certain Matters
Regarding the Transferor and the Servicer."
During the Revolving Period, the Invested Amount will remain constant except
under certain limited circumstances. See "--Defaulted Receivables; Dilution."
The amount of Principal Receivables in the Trust, however, will vary each day as
new Principal Receivables are transferred to the Trust and others are paid or
charged off. The amount of the Transferor Interest (or the amount in the Excess
Funding Account) will fluctuate each day, therefore, to reflect the changes in
the amount of the Principal Receivables in the Trust unless and to the extent
that the Other Series or another Series absorbs such change. During the
Amortization Period, the Adjusted Invested Amount will decline as Principal
Collections are held for distribution or distributed to the Securityholders. As
a result, unless and to the extent that the Variable Funding absorb such
increase, the Transferor Interest will generally increase each month during the
52
<PAGE>
Amortization Period to reflect the reductions in the Invested Amount and will
also change to reflect the variations in the amount of the Principal Receivables
in the Trust. The Transferor Interest may be reduced as the result of an
Exchange or the issuance of a Participation. See "--Exchanges" and
"--Participations."
Each Class of Offered Securities initially will be represented by securities
registered in the name of the nominee of DTC (together with any successor
depository selected by the Transferor, the "Depository"), except as set forth
below. Beneficial interests in each Class of Offered Securities will be
available for purchase in minimum denominations of $1,000 and integral multiples
of $1,000 in excess thereof in book-entry form only. The Transferor has been
informed by DTC that DTC's nominee will be Cede & Co. Accordingly, Cede & Co. is
expected to be the holder of record of the Offered Securities. Unless and until
Definitive Securities are issued under the limited circumstances described
herein, no Security Owner acquiring an interest in any Class of Offered
Securities will be entitled to receive a security representing such Security
Owner's interest in such Securities. Until such time, all references herein to
actions by Securityholders of any Class of Offered Securities will refer to
actions taken by the Depository upon instructions from its participating
organizations ("Participants") and all references herein to distributions,
notices, reports, and statements to Securityholders of any Class of Offered
Securities will refer to distributions, notices, reports, and statements to the
Depository or its nominee, as the registered holder of the Offered Securities of
such Class, for distribution to Security Owners of such Class in accordance with
the Depository's procedures. See "--Book-Entry Registration" and "--Definitive
Securities."
BOOK-ENTRY REGISTRATION
With respect to each Class of Offered Securities in book-entry form,
Securityholders may hold their Securities through DTC (in the United States) or
Cedel or Euroclear (in Europe), which in turn hold through DTC, if they are
participants of such systems, or indirectly through organizations that are
participants in such systems.
Cede & Co., as nominee for DTC, will hold the global securities. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants and
the Euroclear Participants, respectively, through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
DTC 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 pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities for its Participants ("DTC Participants") and facilitates the
clearance and settlement among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities. Participants include securities brokers and dealers,
banks, trust companies, clearing corporations, and certain other organizations.
Indirect access to the DTC system is also available to others such as securities
brokers and dealers, banks, and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants are
on file with the Commission.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through Cedel Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time).
53
<PAGE>
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 in accordance with normal
procedures for same-day funds settlement applicable to DTC. Cedel Participants
and Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits or 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, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such 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
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
Purchases of Securities under the DTC system must be made by or through
Participants, which will receive a credit for the Securities on DTC's records.
The ownership interest of each actual Security Owner is in turn to be recorded
on the Participants' and Indirect Participants' records. Security Owners will
not receive written confirmation from DTC of their purchase, but Security Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant or Indirect Participant through which the Security Owner entered
into the transaction. Transfers of ownership interests in the Securities are to
be accomplished by entries made on the books of Participants acting on behalf of
Security Owners. Security Owners will not receive securities representing their
ownership interest in Securities, except in the event that use of the book-entry
system for the Securities is discontinued.
To facilitate subsequent transfers, all Securities deposited by 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. effects no
change in beneficial ownership. DTC will have no knowledge of the actual
Security Owners of the Securities; DTC's records will reflect only the identity
of the Participants to whose accounts such Securities are credited, which may or
may not be the Security Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Security Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to Securities.
Under its usual procedures, DTC mails an omnibus proxy to the issuer as soon as
possible after the record date, which assigns Cede & Co.'s consenting or voting
rights to those Participants to whose accounts the Securities are credited on
the record date (identified in a listing attached thereto). Principal and
interest payments on the Securities will be made to DTC. DTC's practice is to
credit Participants' accounts on the Distribution Date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payment on the Distribution Date. Payments by Participants
to Security Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
such Participant and not of DTC, the Trustee or the Transferor, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the Trustee,
disbursement of such payments to Participants shall be the responsibility of
DTC, and disbursement of such payments to the Security Owners shall be the
responsibility of Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the
Transferor or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Definitive Securities are
required to be printed
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and delivered. The Transferor may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities depository). In that
event, Definitive Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Transferor believes to be reliable, but
the Transferor takes no responsibility for the accuracy thereof.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") 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 securities. Transactions may be
settled by Cedel in any of 36 currencies, including United States dollars. Cedel
provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is subject to
regulations by the Luxembourg Monetary Institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters of the
Securities. Indirect access to Cedel is also available to others, such as 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 participants
of the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of securities and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 34 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. The Euroclear System is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New
York (the "Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, S.C., a Belgian cooperative corporation (the "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 Cooperative. The Cooperative establishes policy for
the Euroclear system on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the underwriters of
any Series of Securities. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission. 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 and applicable Belgian
law (collectively, the "Terms and Conditions"). The 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 with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific securities
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with Persons holding through Euroclear Participants.
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Distributions with respect to Securities held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant 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 Securityholder under the related Pooling and
Servicing Agreement on behalf of a Cedel Participant or a Euroclear Participant
only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Securities among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
DEFINITIVE SECURITIES
The Offered Securities of each Class will be issued in fully registered,
certificated form to the Security Owners of such Class or their nominees
("Definitive Securities"), rather than to the Depository or its nominee, only if
(i) the Transferor advises the Trustee in writing that the Depository is no
longer willing or able to discharge properly its responsibilities as Depository
with respect to the Securities of such Class, and the Trustee or the Transferor
is unable to locate a qualified successor, (ii) the Transferor, at its option,
advises the Trustee in writing that it elects to terminate the book-entry system
through the Depository, or (iii) after the occurrence of a Servicer Default,
Security Owners representing not less than 50 percent of the Invested Amount of
such Class advise the Trustee and the Depository through Participants in writing
that the continuation of a book-entry system through the Depository is no longer
in the best interest of the Security Owners of such Class.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee is required to notify all Security Owners
through the Depository of the availability through the Depository of Definitive
Securities. Upon surrender by the Depository of the definitive security
representing the Securities of the affected Class and instructions for
registration, the Trustee will issue the Securities of such Class as Definitive
Securities, and thereafter the Trustee will recognize the holders of such
Definitive Securities as Securityholders under the Pooling and Servicing
Agreement.
Distribution of principal and interest on the Offered Securities will be
made by the Trustee directly to Securityholders in accordance with the
procedures set forth herein and in the Pooling and Servicing Agreement. Interest
payments and any principal payments on each Distribution Date will be made to
Securityholders in whose names the Definitive Securities were registered at the
close of business on the related Record Date. Distributions will be made by
check mailed to the address of such Securityholder as it appears on the register
maintained by the Trustee. The final payment on any Offered Security, however,
will be made only upon presentation and surrender of such Certificate at the
office or agency specified in the notice of final distribution to
Securityholders. The Trustee will provide such notice to registered
Securityholders mailed not later than the fifth day of the month of such final
distributions.
Definitive Securities will be transferable and exchangeable at the offices
of the transfer agent and registrar, which initially will be the Trustee (in
such capacity, the "Transfer Agent and Registrar") and, following issuance of
Definitive Securities and thereafter for so long as the Offered Securities are
listed on the Luxembourg Stock Exchange and the rules of such Exchange so
require, at the office or agency maintained by the Paying Agent for such purpose
in Luxembourg. No service charge will be imposed for any registration of
transfer or exchange, but the Transfer Agent and Registrar may require payment
of a sum sufficient to cover any tax or other governmental charge imposed in
connection therewith. The Transfer Agent and Registrar will not be required to
register the transfer or exchange of Definitive Securities for the period from
the Record Date preceding the due date for any payment to the Distribution Date
with respect to such Definitive Securities.
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STATUS OF THE SECURITIES
Upon issuance, the Securities will rank PARI PASSU with all other
outstanding series. Payments on the Class B Securities are subordinated to the
Class A Securities as described herein.
INTEREST PAYMENTS
Interest will accrue on the outstanding principal amount of each Class of
the Securities at the applicable Interest Rate from the Closing Date. Interest
will be distributed on June 15, 1998, and on each Distribution Date thereafter
to Securityholders, to the extent of Available Series 1998-2 Finance Charge
Collections. Interest payments on the Class A Securities and the Class B
Securities on any Distribution Date will be calculated on the outstanding
principal amount of the Class A Securities or the outstanding principal amount
of the Class B Securities, as applicable, as of the close of business on the
first day of such Interest Accrual Period, except that interest for the first
Distribution Date will be calculated on the initial principal amount of the
Class A Securities or the initial principal amount of the Class B Securities
from the Closing Date. Interest on the Offered Securities will be calculated on
the basis of a 360-day year of twelve 30-day months.
PRINCIPAL PAYMENTS
During the Revolving Period (which begins on the Closing Date and ends on
the day before the Amortization Period begins), no principal payments will be
made to Securityholders. During the Amortization Period, principal will be paid
to the Principal Account on each business day and such amounts will be
distributed, first to the Class A Securityholders until the Class A Invested
Amount is paid in full, then to the Class B Securityholders until the Class B
Invested Amount is paid in full, then to the CTO Securityholders until the CTO
Invested Amount is paid in full, and finally to the Class D Securityholders
until the Class D Invested Amount is paid in full. The amount of principal
distributed with respect to the Class A Securities on each Distribution Date
during the Controlled Amortization Period shall not exceed the Class A
Controlled Distribution Amount. The amount of principal distributed with respect
to the Class B Securities during the Controlled Amortization Period on and after
the Class B Principal Payment Commencement Date shall not exceed the Class B
Controlled Distribution Amount. See "--Pay Out Events" for a discussion of
events which might lead to the commencement of the Amortization Period prior to
the first day of the August 2002 Monthly Period. See "--Application of
Collections" for a discussion of the method by which Principal Collections are
applied during the Amortization Period.
Available Series 1998-2 Principal Collections for any Monthly Period will
first be used to cover, with respect to any Monthly Period during the
Amortization Period, required deposits into the Principal Account for the
benefit of the Class A Securityholders. On and after the Class B Principal
Payment Commencement Date, Available Series 1998-2 Principal Collections for any
Monthly Period will first be used to cover required deposits into the Principal
Account for the benefit of the Class B Securityholders. On and after the CTO
Principal Payment Commencement Date, Available Series 1998-2 Principal
Collections for any Monthly Period will first be used to cover required deposits
into the Principal Account for the benefit of the CTO Securityholders.
"Available Series 1998-2 Principal Collections" means, with respect to any
Monthly Period or portion thereof commencing on the Amortization Period
Commencement Date, an amount equal to the sum of (i) an amount equal to the
Fixed/Floating Percentage on each business day during such period of all
Principal Collections (less the amount of Redirected Principal Collections)
received during such period, (ii) any amount on deposit in the Excess Funding
Account allocated to the Securities with respect to such period, (iii) an amount
equal to the sum of the aggregate Series Default Amount and the Series 1998-2
Percentage of any unpaid Adjustment Payments paid from Available Series 1998-2
Finance Charge Collections, Transferor Finance Charge Collections, Excess
Finance Charge Collections or Redirected Principal Collections with respect to
such period and any reimbursements from Available Series 1998-2 Finance Charge
Collections, Transferor Finance Charge Collections, Excess Finance Charge
Collections or Redirected Principal Collections of unreimbursed Series
Charge-Offs and (iv) the aggregate Shared Principal Collections applied to the
Securities during such period.
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The Servicer will determine the amount of Principal Collections for any
business day applied to the Offered Securities and remaining after covering
required deposits or payments of principal to the Securityholders and any
similar amount remaining with respect to securities of any other Series plus
amounts specified in any Participation Supplement to be treated as Shared
Principal Collections (collectively, "Shared Principal Collections"). The
Servicer will allocate the Shared Principal Collections to cover, (x) with
respect to Series 1998-2, (i) during the Controlled Amortization Period on or
prior to the CTO Principal Payment Commencement Date, the excess of the Class A
Controlled Distribution Amount or the Class B Controlled Distribution Amount, as
applicable, over the aggregate amount applied with respect thereto for such
business day and for each prior business day in such Monthly Period, and (ii) at
all other times, the Invested Amount of the Class then receiving principal
payments, if any, after the application of Principal Collections on such
business day or (y) with respect to any other Series, the amounts specified as
such in the Supplement for such other Series ("Principal Shortfalls"). Shared
Principal Collections will not be used to cover series charge-offs for any
Series. If Principal Shortfalls exceed Shared Principal Collections on any
business day, Shared Principal Collections will be allocated pro rata among the
applicable Series based on the relative amounts of Principal Shortfalls. To the
extent that Shared Principal Collections exceed Principal Shortfalls, the
balance will, subject to certain limitations, be paid to the holder of the
Exchangeable Transferor Security.
FINANCE CHARGE COLLECTIONS; PRINCIPAL COLLECTIONS
The Servicer is obligated to deposit all Collections on the Receivables,
other than the portion of Collections allocable to Participations, into the
Collection Account maintained in the name of the Trust. Collections are
allocated on each business day between Finance Charge Collections and Principal
Collections. Finance Charge Receivables include (i) with respect to consumer
revolving credit card accounts, amounts billed from time to time to Obligors in
respect of Periodic Finance Charges, overlimit fees, late charges, returned
check fees, annual account fees or service charges, transaction charges and
similar fees and charges (except for fees associated with ancillary products and
services sold to Obligors) plus (ii) with respect to all Receivables,
Recoveries, any other fees (other than prepaid insurance premiums or fees
associated with ancillary products and services sold to Obligors) billed to
Obligors, plus (iii) investment earnings on amounts credited to the Excess
Funding Account, plus (iv) Discount Receivables. Discount Receivables are
portions of the principal balance of Receivables which are recharacterized as
Finance Charge Receivables based on a Discount Factor. Discount Receivables on
any day include the product of the amount of the outstanding balance of the
Receivables on such day (less, with respect to revolving credit card loans, the
Periodic Finance Charges and other fees and charges described in clause (i) of
the definition of Finance Charge Receivables) and the applicable Discount
Factor. The Discount Factor for Revolving Receivables generated in connection
with sales by Fingerhut will initially be 9% and for Closed End Receivables
generated in connection with sales by Fingerhut will initially be 25%. The
Discount Factor for other Receivables will be such other rate or rates (which
may be a fixed percentage or a variable percentage based on a formula) approved
by the Rating Agencies. Following notice to the Rating Agencies, the Transferor
may increase the Discount Factor from time to time in an amount not to exceed
two percentage points from the amounts set forth above or the amounts otherwise
approved by the Rating Agencies if such change will not cause a Pay Out Event to
occur. In addition, the Discount Factor may be adjusted from time to time if
such change will not cause a Pay Out Event to occur and the Rating Agencies have
confirmed that the change will not result in any of the Rating Agencies reducing
or withdrawing its original rating on any then outstanding Series rated by it.
Principal Receivables are amounts payable by Obligors with respect to Eligible
Receivables other than such amounts that are Finance Charge Receivables or
Default Amounts. Finance Charge Collections are Collections received with
respect to Finance Charge Receivables (other than Discount Receivables) and
Discount Receivables Collections. Principal Collections include all amounts
collected which are not Finance Charge Collections (Principal Collections and
Finance Charge Collections are collectively sometimes referred to herein as
"Collections").
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Finance Charge Collections and Principal Collections are allocated on each
business day among the Transferor Interest, the interest of the holders of any
Participations, and the respective interests of the securityholders of each
Series issued and outstanding from time to time in accordance with the Pooling
and Servicing Agreement and applicable Supplements. In general, in accordance
with such allocations and the provisions of the Pooling and Servicing Agreement
and the applicable Supplements, (i) Finance Charge Collections and certain other
amounts are applied on each business day to fund interest on the securities of
any Series then outstanding, to pay certain fees and expenses, to cover default
amounts, to cover any Adjustment Payments the Transferor fails to make, to
reimburse series charge-offs and to make required payments to the Transferor,
and (ii) Principal Collections and certain other amounts are applied on each
business day to fund principal on the securities of any Series then outstanding,
except that during any revolving period applicable to a Series, Principal
Collections otherwise allocable to the securityholders of such Series which are
not redirected to cover amounts payable from Finance Charge Collections in the
event of a shortfall thereof are paid to the holder of the Exchangeable
Transferor Security or paid to the securityholders of any other Series then
outstanding.
SUBORDINATION OF THE CLASS B SECURITIES
The Class B Securities will be subordinated to the extent necessary to fund
certain payments with respect to the Class A Securities. To the extent the Class
B Invested Amount is reduced, the percentage of Finance Charge Collections
applied for the benefit of the Series 1998-2 Securityholders in subsequent
Monthly Periods will be reduced. Moreover, to the extent the amount of such
reduction in the Class B Invested Amount is not reimbursed, the amount of
principal distributable to the Class B Securityholders will be reduced.
The Collateralized Trust Obligations will be subordinated to the extent
necessary to fund certain payments with respect to the Class A Securities and
the Class B Securities. To the extent the CTO Invested Amount is reduced, the
percentage of Finance Charge Collections applied for the benefit of the Series
1998-2 Securityholders in subsequent Monthly Periods will be reduced. Moreover,
to the extent the amount of such reduction in the CTO Invested Amount is not
reimbursed, the amount of principal distributable to the CTO Securityholders
will be reduced.
If, on any Determination Date, the aggregate Series Default Amount and the
Series 1998-2 Percentage of the unpaid Adjustment Payments, if any, for all
business days in the preceding Monthly Period exceeds the sum of (a) the
aggregate amount of Available Series 1998-2 Finance Charge Collections
(including amounts withdrawn from the Revolving Receivables Reserve Account)
applied to the payment thereof as described in clauses (v) and (vi) of
"--Application of Collections--Payment of Fees, Interest and Other Items," (b)
the amount of Transferor Finance Charge Collections and Excess Finance Charge
Collections allocated thereto as described in "--Redirection of Cash Flows," and
(c) the amount of Redirected Principal Collections allocated with respect
thereto as described in "--Redirected Principal Collections," the Class D
Invested Amount will be reduced by the aggregate amount of such excess. Such
reductions of the Class D Invested Amount will thereafter be reimbursed and the
Class D Invested Amount increased on each business day by the amount, if any, of
Available Series 1998-2 Finance Charge Collections and Excess Finance Charge
Collections applied for that purpose.
In the event that any such reduction of the Class D Invested Amount would
cause the Class D Invested Amount to be a negative number, the Class D Invested
Amount will be reduced to zero and the CTO Invested Amount will be reduced by
the amount by which the Class D Invested Amount would have been reduced below
zero, but not by more than the sum of the remaining aggregate Series Default
Amount and the remaining Series 1998-2 Percentage of the unpaid Adjustment
Payments for such Monthly Period. Such reductions of the CTO Invested Amount
will thereafter be reimbursed and the CTO Invested Amount increased on each
business day by the amount, if any, of Available Series 1998-2 Finance Charge
Collections and Excess Finance Charge Collections for such business day applied
for that purpose.
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In the event that any such reduction of the CTO Invested Amount would cause
the CTO Invested Amount to be a negative number, the CTO Invested Amount will be
reduced to zero and the Class B Invested Amount will be reduced by the amount by
which the CTO Invested Amount would have been reduced below zero, but not by
more than the sum of the remaining aggregate Series Default Amount and the
remaining Series 1998-2 Percentage of the unpaid Adjustment Payments for such
Monthly Period. Such reductions of the Class B Invested Amount will thereafter
be reimbursed and the Class B Invested Amount increased on each business day by
the amount, if any, of Available Series 1998-2 Finance Charge Collections and
Excess Finance Charge Collections for such business day applied for that
purpose. If the Class B Invested Amount is reduced to zero, the Class A Invested
Amount will be reduced by the amount by which the Class B Invested Amount would
have been reduced below zero, but not by more than the sum of the remaining
aggregate Series Default Amount and the remaining Series 1998-2 Percentage of
the unpaid Adjustment Payments for such Monthly Period. Such reductions of the
Class A Invested Amount will thereafter be reimbursed and the Class A Invested
Amount increased on each business day by the amount, if any, of Available Series
1998-2 Finance Charge Collections and Excess Finance Charge Collections applied
for that purpose. See "--Redirection of Cash Flows," "--Redirected Principal
Collections" and "--Series Charge-Offs."
TRANSFER AND ASSIGNMENT OF RECEIVABLES
On and after the Initial Closing Date and prior to January 12, 1997, all
Receivables that were transferred to the Trust by the Transferor were closed-end
installment sales contracts originated by Fingerhut (each such installment sale
contract constitutes a separate Account for purposes of the Trust). Such
Receivables were sold by Fingerhut to the Transferor pursuant to the Fingerhut
Purchase Agreement. In January 1997, Fingerhut ceased extending credit to its
customers pursuant to closed-end installment sale contracts and FNB commenced
the origination of closed-end credit card loans to finance purchases of
merchandise and services from Fingerhut (each such loan is a separate Account
for purposes of the Trust). In addition, in November 1996, FNB commenced the
origination of revolving credit card loans to finance purchases of merchandise
and services from Fingerhut. Since January 12, 1997, all closed-end credit card
loans and revolving credit card loans originated by FNB have been sold on an
ongoing basis by FNB to FCI pursuant to the Bank Purchase Agreement and, all
such closed-end credit card loans that are Eligible Receivables, have been
transferred by FCI to the Transferor pursuant to the FCI Purchase Agreement.
Since January 12, 1997, the Transferor has been transferring to the Trust the
closed-end credit card loans originated by FNB that it purchases from FCI. On
March 18, 1998, the FCI Purchase Agreement and the Pooling and Servicing
Agreement were amended to provide for the sale on an ongoing basis by FCI to the
Transferor, and by the Transferor to the Trust, respectively, of the revolving
credit card loans originated by FNB that are Eligible Receivables. The aggregate
amount of Receivables in the Trust as of March 27, 1998 was $1,686,837,273
comprised of $417,752,162 of Finance Charge Receivables and $1,269,085,112 of
Principal Receivables. As of March 27, 1998, the Principal Receivables consisted
of $240,526,025 of closed-end installment sale contracts originated by
Fingerhut, $930,597,170 of closed-end credit card loans originated by FNB and
$48,650,283 of revolving credit card loans originated by FNB. See "Description
of the Purchase Agreements."
Fingerhut filed one or more UCC-1 or UCC-3 financing statements in
accordance with the UCC to perfect the Transferor's interest in the Receivables
sold pursuant to the Fingerhut Purchase Agreement. FNB filed one or more UCC-1
financing statements in accordance with the UCC to perfect the interest of FCI
in the Receivables sold pursuant to the Bank Purchase Agreement and FCI filed
one or more UCC-1 or UCC-3 financing statements in accordance with the UCC to
perfect the interest of the Transferor in the Receivables sold pursuant to the
FCI Purchase Agreement. The Transferor, in turn, filed one or more UCC-1
financing statements in accordance with applicable state law to perfect the
Trust's interest in the Receivables and one or more UCC-3 financing statements
in accordance with the UCC to reflect the Transferor's assignment to the Trust
of revolving credit card loans originated by FNB and to amend certain
definitions in the filing. FCI, Fingerhut, FNB and the Transferor will file any
additional amendments or
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continuation statements to the UCCs that may be required to be filed from time
to time. See "Certain Legal Aspects of the Receivables."
FNB for itself and as Servicer has identified in its computer files that the
Receivables are Receivables as defined herein. FNB, as Servicer, retains and
will not deliver to the Trustee any other records or agreements relating to the
Receivables. The records and agreements relating to the Receivables will not be
segregated from those relating to other accounts and receivables of FNB and the
physical documentation relating to Receivables will not be stamped or marked to
reflect the transfer of Receivables to the Trust. The Trustee will have
reasonable access to such records and agreements as required by applicable law
or to enforce the rights of the Securityholders.
EXCHANGES
The Pooling and Servicing Agreement provides for the Trustee to issue two
types of securities: (i) investor securities in one or more Series, each of
which may have one or more classes of securities of which one or more such
classes may be transferable and (ii) the Exchangeable Transferor Security. The
Exchangeable Transferor Security evidences the Transferor Interest, is held by
the Transferor, and will be transferable only as provided in the Pooling and
Servicing Agreement. The Pooling and Servicing Agreement also provides that,
pursuant to any one or more Supplements, the holder of the Exchangeable
Transferor Security may tender the Exchangeable Transferor Security and the
securities evidencing any Series of securities, to the Trustee in exchange for
one or more new Series and a reissued Exchangeable Transferor Security. Under
the Pooling and Servicing Agreement, the holder of the Exchangeable Transferor
Security may define, with respect to any newly issued Series, certain terms
including: (i) its name or designation; (ii) its initial invested amount (or
method for calculating such amount); (iii) its interest rate (or the method of
calculating interest payments or other cash flows to such Series); (iv) the
closing date; (v) the rating agency or agencies, if any, rating such Series;
(vi) the interest payment date or dates and the date or dates from which
interest shall accrue; (vii) the name of the clearing agency, if any; (viii) the
method of allocating Principal Collections for such Series and the method by
which the principal amount of investor securities of such Series will amortize
or accrue and the method for allocating Finance Charge Collections and Default
Amounts; (ix) the names of any accounts to be used by such Series and the terms
governing the operation of any such accounts; (x) the percentage used to
calculate monthly servicing fees for such Series; (xi) the Minimum Transferor
Percentage; (xii) the Enhancement provider, if applicable, and the terms of any
Enhancement with respect to such Series; (xiii) the base rate applicable to such
Series; (xiv) the terms on which the securities of such Series may be
repurchased or remarketed to other investors; (xv) the termination date of such
Series; (xvi) any deposit into any account provided for such Series; (xvii) the
number of classes of such Series and, if more than one class, the rights and
priorities of each such class; (xviii) the fees, if any, to be included in funds
available to securityholders of such Series; (xix) the subordination, if any, of
such new Series with respect to any other Series; (xx) the rights, if any, of
the holder of the Exchangeable Transferor Security that have been transferred to
the holders of such Series pursuant to such Exchange (including any rights to
allocations of Finance Charge Collections and Principal Collections); (xxi) the
Minimum Retained Percentage; (xxiii) whether such Series will be part of a group
or subject to being paired with any other Series; (xxii) whether such Series
will be prefunded; and (xxiv) any other relevant terms, including whether or not
such Series will be pledged as collateral for an issuance of any other
securities, including commercial paper (all such terms, the "Principal Terms" of
such Series). None of the Transferor, the Servicer, the Trustee, or the Trust is
required or intends to obtain the consent of any Securityholder to issue any
additional Series or in connection with the determination of the Principal Terms
thereof. However, as a condition of an Exchange, the holder of the Exchangeable
Transferor Security will deliver to the Trustee written confirmation that the
Exchange will not result in any Rating Agency reducing or withdrawing its rating
of any outstanding Series, including the Offered Securities. The Transferor may
offer any Series to the public or other investors in transactions either
registered under the Securities Act or exempt from registration thereunder,
directly, through one or more underwriters or placement agents, in fixed-price
offerings, in negotiated transactions or otherwise. Any
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such Series may be issued in fully registered or book-entry form in minimum
denominations determined by the Transferor. The Transferor currently intends to
offer, from time to time, additional Series.
The Pooling and Servicing Agreement provides that the holder of the
Exchangeable Transferor Security may perform Exchanges and define the Principal
Terms of each Series, including the period during which amortization of the
principal amount thereof is intended to occur, which period may have a different
length and begin on a different date than such period for any other Series.
Accordingly, one or more Series may be in their amortization periods while other
Series are not. Moreover, any Series may have the benefit of an Enhancement that
is available only to such Series. Under the Pooling and Servicing Agreement, the
Trustee will hold any such form of Enhancement only on behalf of the Series with
respect to which it relates. Likewise, with respect to each such form of
Enhancement, the holder of the Exchangeable Transferor Security may deliver a
different form of Enhancement agreement. Collections allocated to Finance Charge
Receivables not used to pay interest on the securities, the monthly servicing
fee, the series default amount, or series charge-offs with respect to any Series
will be allocated as provided in such Enhancement agreement, if applicable. The
Pooling and Servicing Agreement also provides that the holder of the
Exchangeable Transferor Security may specify different coupon rates and monthly
servicing fees with respect to each Series (or a particular class within such
Series). The holder of the Exchangeable Transferor Security also has the option
under the Pooling and Servicing Agreement to vary between Series the terms upon
which a Series (or a particular class within such Series) may be repurchased by
the Transferor or remarketed to other investors. Additionally, certain Series
may be subordinated to other Series, and classes within a Series may have
different priorities. The Series 1998-2 Supplement does not permit the
subordination of the Securities to any other Series that may be issued by the
Trust (except to the limited extent described herein with respect to Shared
Principal Collections and Excess Finance Charge Collections). There is no limit
to the number of Exchanges that may be performed under the Pooling and Servicing
Agreement. The Trust will terminate only as provided in the Pooling and
Servicing Agreement.
Under the Pooling and Servicing Agreement and pursuant to a Supplement, an
Exchange may occur only upon the satisfaction of certain conditions provided in
the Pooling and Servicing Agreement. Under the Pooling and Servicing Agreement,
the holder of the Exchangeable Transferor Security may perform an Exchange by
notifying the Trustee at least five business days in advance of the date upon
which the Exchange is to occur. Under the Pooling and Servicing Agreement, the
notice will state the designation of any Series to be issued on the date of the
Exchange and, with respect to each such Series: (i) its initial invested amount
(or method for calculating such amount), (ii) its interest rate (or the method
of calculating interest payments or other payments to such Series), and (iii)
the provider of the Enhancement, if any, with respect to such Series. The
Pooling and Servicing Agreement provides that on the date of the Exchange the
Trustee will authenticate any such Series only upon delivery to the Trustee of
the following: (i) a Supplement specifying the Principal Terms of such Series,
(ii) a Tax Opinion and an opinion of counsel to the effect that the securities
of such Series sold to third parties will be characterized as either
indebtedness or as partnership interests under existing law for federal and
Applicable Tax State income tax purposes, or that the issuance of such Series
will not materially adversely affect the Applicable Tax State income tax
characterization of any outstanding Series or the taxability of the Trust under
Applicable Tax State income tax laws, (iii) if required by such Supplement, the
form of Enhancement and an appropriate Enhancement agreement with respect
thereto executed by the Transferor and the provider of the Enhancement, (iv)
written confirmation from each Rating Agency that the Exchange will not result
in such Rating Agency's reducing or withdrawing its rating on any then
outstanding Series rated by it, (v) the existing Exchangeable Transferor
Security or, if applicable, the securities representing the Series to be
exchanged, and (vi) an officer's certificate of the Transferor stating that,
after giving effect to such Exchange, (a) the Transferor Interest would be at
least equal to the Minimum Transferor Interest and (b) the Retained Interest (as
defined in the Pooling and Servicing Agreement) equals or exceeds the Minimum
Retained Interest.
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Under the Pooling and Servicing Agreement, the Transferor may also exchange
the Exchangeable Transferor Security for a newly issued Exchangeable Transferor
Security and a second security (a "Supplemental Security") the terms of which
will be defined in a Supplement upon the satisfaction of certain conditions
provided in the Pooling and Servicing Agreement.
PARTICIPATIONS
The Pooling and Servicing Agreement provides that the Transferor may direct
the Trustee to issue on behalf of the Trust one or more participation interests
in the assets of the Trust or in any portion thereof (each interest, a
"Participation"), the terms of which shall be defined in a supplement to the
Pooling and Servicing Agreement (a "Participation Supplement"), which shall
include, among other things, a conveyance to the holder of the Participation of
all right, title and interest of the Trust in a specified percentage of the
Receivables. The Trustee is expected to issue a one percent Participation to FNB
on the Closing Date.
The Trustee shall issue the Participation to or upon the order of the
Transferor upon satisfaction of the following conditions: (a) the Rating Agency
Condition will be satisfied in connection with such issuance, (b) the Transferor
Interest shall not be less than the Minimum Transferor Interest and the Retained
Interest shall not be less than the Minimum Retained Interest, in each case, as
of the date of, and after giving effect to, such issuance, (c) the Transferor
shall have delivered to the Trustee and each Rating Agency a Tax Opinion and an
opinion of counsel, each dated the date of such issuance, to the effect that
such Participation will not adversely affect the Minnesota or Delaware income
tax characterization of any outstanding Series or the taxability of the Trust
under Minnesota or Delaware income tax laws and (d) the Trust and the Trustee
shall have received a representation from each beneficial owner of a
Participation that such beneficial owner is not a trust estate, partnership or
an "S Corporation" (within the meaning of Section 1361(a) of the Code) for
United States federal income tax purposes or if it is such an entity, that after
giving effect to such transfer of a Participation and at all times thereafter,
less than 50% of the aggregate value of such beneficial owner's assets would
consist of Participations. Any Participation may be transferred or exchanged
only upon satisfaction of the conditions described in clauses (a) and (c) above.
Each Participation will entitle its holder to a specified percentage (the
"Participation Percentage") of all Collections of Principal Receivables and
Finance Charge Receivables and any other Trust Assets to the extent specified in
the applicable Participation Supplement. Pursuant to the Pooling and Servicing
Agreement, no Participation may be issued, sold or otherwise transferred on an
"established securities market" within the meaning of Section 7704(b)(1) of the
Code.
OTHER SERIES
The Trust has previously issued the Series 1994-2 Variable Funding
Certificates bearing the rate of interest and having the outstanding principal
amounts set forth in "Annex I: Other Series." In addition, the Trust previously
issued two other Series that will no longer be outstanding upon the issuance of
the Securities. Concurrently with the issuance of the Securities, the Trust will
issue the Series 1998-1 Securities bearing the rate of interest and having the
outstanding principal amounts set forth in "Annex I: Other Series" (the Series
1998-1 Securities, together with the Previously Issued Series, the "Other
Series").
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REPRESENTATIONS AND WARRANTIES
Pursuant to the Pooling and Servicing Agreement, the Transferor represents
and warrants that, among other things, subject to specified exceptions and
limitations (i) the Transferor is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware and has
the corporate power and authority to execute, deliver, and perform its
obligations under the Pooling and Servicing Agreement and the Purchase
Agreement, (ii) the Transferor is duly qualified to do business and in good
standing (or is exempt from such requirement) in any state required in order to
conduct its business and has obtained all necessary licenses and approvals
required under federal and Delaware law, PROVIDED, HOWEVER, that no
representation or warranty is made with respect to any qualifications, licenses
or approvals which the Trustee would have to obtain to do business in any state
in which the Trustee seeks to enforce any Receivable, (iii) the execution and
delivery of the Pooling and Servicing Agreement and the Purchase Agreements, and
the consummation of the transactions provided for therein, have been duly
authorized by the Transferor by all necessary corporate action on its part, (iv)
each of the Pooling and Servicing Agreement and the Purchase Agreements
constitutes a legal, valid, and binding obligation of the Transferor, and (v)
the transfer of Receivables by it to the Trust under the Pooling and Servicing
Agreement constitutes either a valid transfer and assignment to the Trust of all
right, title, and interest of the Transferor in and to the Receivables and the
proceeds thereof and amounts in any of the accounts established for the benefit
of securityholders free and clear of any lien of any Person claiming through or
under the Transferor or any of its affiliates (except for Permitted Liens and
certain rights of the Transferor) or the grant of a first priority security
interest in such Receivables and the proceeds thereof (including amounts in any
of the accounts established for the benefit of securityholders). In the event of
a breach of any of the representations and warranties described in this
paragraph with respect to any Series, either the Trustee or the holders of
securities evidencing undivided interests in the Trust aggregating more than 50
percent of the invested amount of such Series, by written notice to the
Transferor (and to the Trustee and the Servicer if given by the Securityholders
of such Series), may direct the Transferor to accept reassignment of an amount
of Principal Receivables equal to the invested amount to be reassigned (as
described below) within 60 days of such notice. The Transferor will thereupon be
obligated to accept reassignment of such Receivables (which shall include
related Finance Charge Receivables) on a Distribution Date occurring within such
applicable period (such Distribution Date, a "Reassignment Date"). Such
reassignment will not be required to be made, however, if at any time during
such applicable period such representations and warranties shall then be true
and correct in all material respects. The Transferor shall provide written
notice to the Rating Agencies of any such reassignment. The amount to be
deposited by the Transferor for distribution to securityholders in connection
with such reassignment will be equal to the invested amount for all Series of
securities, other than Variable Funding Securities, required to be reassigned,
at the end of the day on the business day preceding the Reassignment Date, less,
in each case, the amount, if any, on deposit in any Series Account on such date
and allocated for payment of principal to such securityholders, plus an amount
equal to all interest accrued but unpaid on such securities at the applicable
interest rate through such business day, less the amount transferred to the
Distribution Account from any Series Account in respect of interest on such
securities. The payment of the reassignment deposit amount and the transfer of
all other amounts deposited on such date and allocated for payment to the
Securityholders, shall be considered payment in full of the investor interest
for all Series of securities required to be repurchased and will be distributed
upon presentation and surrender of the securities for each such Series. If the
Trustee or securityholders give a notice as provided above, the obligation of
the Transferor to make any such deposit will constitute the sole remedy
available to the Trustee and the securityholders with respect to any breach of
the Transferor's representations and warranties.
Pursuant to the Pooling and Servicing Agreement, the Transferor also
represents and warrants that, among other things, subject to specified
exceptions and limitations, (i) the execution and delivery of the Pooling and
Servicing Agreement and the Purchase Agreement, and the performance of the
transactions contemplated thereby, do not contravene the Transferor's charter or
by-laws, violate any material provision of law applicable to it or require any
filing (except for filing under the UCC), registration, consent, or
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approval under any such law except for such filings, registrations, consents, or
approvals as have already been obtained and are in full force and effect, (ii)
except as described in the Pooling and Servicing Agreement, the Transferor and
each prior owner of the Receivables has filed all tax returns required to be
filed and has paid or made adequate provision for the payment of all taxes,
assessments, and other governmental charges due from the Transferor or such
prior owner or is contesting any such tax, assessment or other governmental
charge in good faith through appropriate proceedings, (iii) there are no
proceedings or investigations pending or, to the best knowledge of the
Transferor, threatened against the Transferor, before any Governmental Authority
asserting the invalidity of the Pooling and Servicing Agreement, and the
Purchase Agreement, seeking to prevent the consummation of any of the
transactions contemplated thereby, seeking any determination or ruling that
would materially and adversely affect the performance by the Transferor of its
obligations thereunder, or seeking any determination or ruling that would
materially and adversely affect the validity or enforceability thereof or
seeking to affect adversely the tax attributes of the Trust, (iv) each
Receivable is or will be an account receivable arising out of the performance by
the applicable Originator in accordance with the terms of the Contract giving
rise to such Receivable, (v) the Transferor has no knowledge of any act which
should have led it to expect at the time of the classification of any Receivable
as an Eligible Receivable that such Receivable would not be paid in full when
due, and each Receivable classified as an Eligible Receivable by the Transferor
in any document or report delivered under the Pooling and Servicing Agreement
satisfies the requirements of eligibility contained in the definition of
Eligible Receivable set forth in the Pooling and Servicing Agreement, (vi) the
Transferor is not an "investment company" within the meaning of the Investment
Company Act (or is exempt from all provisions of such Act), (vii) the Transferor
is not insolvent and will not be rendered insolvent upon the transfer of the
Receivables to the Trust and (viii) the Transferor is the legal and beneficial
owner of all right, title and interest in and to each Receivable conveyed to the
Trust by the Transferor pursuant to the Pooling and Servicing Agreement, and
each such Receivable has been or will be transferred to the Trust free and clear
of any lien other than Permitted Liens and in compliance in all material respect
with all requirements of law applicable to the Transferor. If any representation
or warranty made by the Transferor in the Pooling and Servicing Agreement or the
Series 1998-2 Supplement proves to have been incorrect in any material respect
when made, and as a result the interests of the Securityholders are materially
adversely affected, and such representation or warranty continues to be
incorrect for 60 days after notice to the Transferor by the Trustee or to the
Transferor and the Trustee by more than 50 percent of the Invested Amount and
the interests of the Securityholders continue to be materially adversely
affected during such period, then the holders of more than 50 percent of the
Invested Amount may give notice to the Transferor, the Trustee and the Servicer
declaring that a Pay Out Event has occurred, thereby commencing the Early
Amortization Period; provided, however, that a Pay Out Event will not be deemed
to have occurred as aforesaid if the Transferor has accepted a reassignment of
the affected Receivables during such period in accordance with the Pooling and
Servicing Agreement. See "--Pay Out Events."
It is not required or anticipated that the Trustee will make any initial or
periodic general examination of the Receivables or any records relating to the
Receivables for the purpose of establishing the presence or absence of defects
or compliance with the Transferor's representations and warranties or for any
other purpose. The Servicer, however, will deliver to the Trustee on or before
March 31 of each year an opinion of counsel with respect to the continued
perfection of the security interest of the Trust in and to the Receivables and
certain other Trust assets.
CERTAIN COVENANTS
Pursuant to the Pooling and Servicing Agreement, the Transferor covenants
that, among other things, subject to specified exceptions and limitations, (i)
it will take no action to cause any Receivable to be evidenced by any
instruments or to be anything other than an account, chattel paper or general
intangible, except in connection with the enforcement or collection of a
Receivable, (ii) except for the conveyances under the Pooling and Servicing
Agreement, it will not sell any Receivable or grant a lien (other than a
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Permitted Lien) on any Receivable, (iii) in the event it receives a collection
on any Receivables, it will deposit such collections to the Collection Account
within two business days, (iv) it will notify the Trustee promptly after
becoming aware of any lien on any Receivable other than Permitted Liens, (v) it
will take all actions necessary and appropriate to enforce its rights and claims
under the Bank Purchase Agreement, the Fingerhut Purchase Agreement and the FCI
Purchase Agreement with respect to Receivables arising under Eligible Accounts,
(vi) it will promptly provide the Trustee any notices, reports or certificates
given or delivered under the Fingerhut Purchase Agreement and the FCI Purchase
Agreement and (vii) except as permitted by the Pooling and Servicing Agreement,
it will maintain its separate corporate existence and it will not commingle its
assets with those of FNB or FCI or any affiliate thereof.
ELIGIBLE ACCOUNTS
As of the date the Receivables of such Account are first designated for
inclusion in the Trust, each Account which is in existence and owned by an
Originator that satisfies each of the following criteria will be an Eligible
Account (each, an "Eligible Account"): (a) it is payable in Dollars; (b) the
related Obligor has provided, as its billing address, an address located in the
United States or its territories or possessions or a United States military
address; (c) it has not been identified by the applicable Originator or any of
its affiliates in its computer files as stolen or lost; (d) it is not at the
time of transfer to the Trust sold or pledged to any other party and which does
not have Receivables which, at the time of transfer to the Trust, are sold or
pledged to any other party (provided that Receivables which were sold or pledged
prior to the date such Receivables are first designated for inclusion in the
Trust, but were repurchased free of all liens or where all liens were released
prior to the sale hereunder, shall not be disqualified under this clause (d));
(e) the Receivables in which the applicable Originator has not charged off in
its customary and usual manner for charging off Receivables in such Accounts
unless such Account is subsequently reinstated and (f) the related Obligor is a
Back End Customer.
ELIGIBLE RECEIVABLES
Each Receivable that satisfies each of the following criteria will be an
Eligible Receivable (each, an "Eligible Receivable"): (a) each Receivable
designated for inclusion in the Trust on or after the Amendment Closing Date
shall have arisen under an Eligible Account, (b) it constitutes an "account,"
"chattel paper" or a "general intangible" as such terms are defined in Article 9
of the UCC as then in effect in each Relevant UCC State, (c) it is at the time
of its transfer to the Trust the legal, valid and binding obligation of, or is
guaranteed by, a Person who is competent to enter into a contract and incur debt
and is enforceable against such Person in accordance with its terms, (d) it was
created or acquired in compliance, in all material respects, with all
Requirements of Law applicable to the Originator and pursuant to a Contract that
complies, in all material respects, with all Requirements of Law applicable to
the Originator or such Contract (including without limitation, laws, rules and
regulations relating to truth in lending, usury, fair credit billing, fair
credit reporting, equal credit opportunity and fair debt collection practices),
(e) all material consents, licenses, or authorizations of, or registrations
with, any Governmental Authority required to be obtained or given in connection
with the creation of such Receivable or the execution, delivery, creation, and
performance of the related Contract have been duly obtained or given and are in
full force and effect as of the date of the creation of such Receivables and (f)
immediately prior to giving effect to the sale, the Transferor had good and
marketable title free and clear of all liens and security interests arising
under or through the Transferor (other than Permitted Liens).
ADDITION OF TRUST ASSETS
Subject to the following restrictions, all new Receivables purchased by the
Transferor will be automatically transferred to the Trust; PROVIDED, HOWEVER
that receivables arising pursuant to a consumer revolving credit card account or
a closed-end installment credit card loan originated by FNB or one of its
affiliates other than in connection with sales of merchandise or services by
Fingerhut will not be eligible for
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transfer to the Trust until the Rating Agency Condition has been satisfied with
respect thereto. Future Receivables may be originated using different criteria,
and may have different terms or characteristics, than the Receivables originated
by FNB in connection with the sale of merchandise or services by Fingerhut.
All Receivables will be automatically transferred to the Trust upon purchase
by the Transferor so long as the number of new Obligors (which shall include any
Obligors who, prior to the relevant measuring period did not have a relationship
with Fingerhut, FNB or any affiliate thereof) since the first day of the
eleventh preceding Monthly Period that are Back End Customers minus the number
of new Obligors that are Back End Customers who have previously been approved by
the Rating Agencies since the first day of such eleventh preceding Monthly
Period shall not exceed 20% of the number of Back End Customers at the close of
business on the last day of such eleventh preceding Monthly Period. In addition,
the Transferor may elect at any time to suspend the automatic inclusion of
receivables in new accounts which would otherwise be Additional Accounts as of
any business day (the "Automatic Addition Suspension Date"), or terminate any
such inclusion as of any business day (an "Automatic Addition Termination Date")
until a date (the "Restart Date") to be identified in writing by the Transferor
to the Trustee, the Servicer and each Rating Agency at least 10 days prior to
such Restart Date. If the Transferor has elected to terminate or suspend the
inclusion of receivables in new accounts which would otherwise be Additional
Accounts and (i) on any Determination Date, the Transferor Interest is less than
the Minimum Transferor Interest, the Transferor is required to designate
additional consumer revolving credit card accounts or closed-end installment
loans ("Supplemental Accounts") to be included as Accounts in a sufficient
number such that the Transferor Interest as a percentage of the Aggregate
Principal Receivables for such Monthly Period after giving effect to such
addition is at least equal to the Minimum Transferor Interest, or (ii) on any
Determination Date, the Aggregate Principal Receivables is less than the Minimum
Aggregate Principal Receivables, the Transferor will be obligated to designate
Supplemental Accounts to be included as Accounts and transfer the outstanding
receivables therein in a sufficient number such that the Aggregate Principal
Receivables will be equal to or greater than the Minimum Aggregate Principal
Receivables. Receivables in such Supplemental Accounts are required to be
transferred to the Trust on or before the tenth business day following such
Determination Date. In addition, the Transferor may, but will not be obligated
to, designate from time to time Supplemental Accounts of the Transferor to be
included as Accounts.
Any such transfer of Receivables from Supplemental Accounts will be subject
to the following conditions: (i) on or before the fifth business day prior to
the date of any such addition (each, an "Addition Date") with respect to
required additions and on or before the tenth business day prior to the Addition
Date with respect to optional additions (as applicable, the "Notice Date"), the
Transferor is obligated to give the Trustee, each Rating Agency and the Servicer
written notice that such Supplemental Accounts will be included, which notice
shall specify the approximate aggregate amount of the Receivables to be
transferred; (ii) on or before the applicable Addition Date, the Transferor will
have delivered to the Trustee a written assignment (the "Assignment") and the
Transferor will have indicated in its computer files that the Receivables in the
Supplemental Accounts have been transferred to the Trust and, within five
business days thereafter, the Transferor will have delivered to the Trustee or
the bailee of the Trustee a computer file or microfiche list containing a true
and complete list of all Supplemental Accounts, identified by account number and
the Principal Receivables in such Supplemental Accounts, as of the Addition
Date; (iii) the Transferor will represent and warrant that (x) no selection
procedure that is materially adverse to the interests of the Securityholders or
any holder of a Participation was utilized in selecting the Supplemental
Accounts and (y) as of the applicable Addition Date, the Transferor is not
insolvent and will not be rendered insolvent upon the transfer of the
Receivables in the Supplemental Accounts to the Trust; (iv) the Transferor will
represent and warrant that, as of the Addition Date, the Assignment constitutes
either (x) a valid transfer, assignment, set-over and conveyance to the Trust of
all right, title and interest of the Transferor in and to the Receivables in the
Supplemental Accounts then existing and thereafter created, in each case,
immediately upon the Transferor's acquisition of rights
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therein, and related property or (y) a grant of a security interest (as defined
in the UCC as in effect in the Relevant UCC State) in such property to the
Trust, which grant is enforceable with respect to the then existing Receivables
in the Supplemental Accounts and the proceeds thereof upon the conveyance of
such Receivables to the Trust, and which will be enforceable with respect to
such Receivables thereafter created and the proceeds thereof, upon such
creation, and (z) if the Assignment constitutes the grant of a security interest
to the Trust in such property, upon the filing of a financing statement and in
the case of the Receivables thereafter created in such Supplemental Accounts and
the proceeds thereof, upon such creation, the Trust shall have a first priority
perfected security interest in such property, except for Permitted Liens; (v)
the Transferor will deliver to the Trustee an officer's certificate confirming
the items set forth in clause (ii) above; (vi) the Transferor will deliver to
the Trustee an opinion of counsel with respect to the Trust's security interest
in the Receivables in the Supplemental Accounts (with a copy to the Rating
Agencies); and (vii) the Transferor will have received written notice from each
Rating Agency that the inclusion of such accounts as Supplemental Accounts will
not result in a Ratings Event.
REMOVAL OF ACCOUNTS
On any Determination Date, the Transferor may, but will not be obligated to,
designate certain Accounts (the "Removed Accounts"), all Receivables in which
shall be subject to deletion and removal from the Trust in an aggregate amount
not greater than the lesser of (i) the excess of the Transferor Interest over
the Minimum Transferor Interest and (ii) the excess of Aggregate Principal
Receivables over the Minimum Aggregate Principal Receivables as of the last day
of the related Monthly Period; PROVIDED, HOWEVER, that there will be no more
than one such removal with respect to any Monthly Period. The Transferor will be
permitted to accept reassignment to it of the Receivables from Removed Accounts
only upon satisfaction of the following conditions: (i) on each date specified
by the Transferor for removal of the Removed Accounts (a "Removal Date"), the
Transferor will prepare and the Trustee shall execute and deliver to the
Transferor a written reassignment (the "Reassignment") and the Transferor will
deliver to the Trustee or the bailee of the Trustee a computer file or
microfiche list containing a true and complete schedule identifying all Accounts
the Receivables in which remain in the Trust specifying for each such Account,
as of the Removal Notice Date, its account number and the principal balance of
such Account; (ii) the Transferor will represent and warrant as of each Removal
Notice Date that (a) the list of the Accounts not removed from the Trust, as of
the Removal Notice Date, complies in all material respects with the requirements
of clause (i) above and (b) no selection procedure used by the Transferor that
is materially adverse to the interests of the Investor Securityholders was
utilized in selecting the Removed Accounts; (iii) the Transferor will represent
and warrant that the removal of any Receivables in any Removed Accounts on any
Removal Date will not, in the reasonable belief of the Transferor, cause,
immediately or with the passage of time, a Pay Out Event to occur; (iv) the
Transferor will have delivered at least 20 days' (or such lesser number as any
Rating Agency may agree) prior written notice of such removal to each Rating
Agency that has rated any outstanding Class of any Series and the Trustee shall
have received written confirmation from each such Rating Agency that a Ratings
Event would not occur as a result of such removal; and (v) the Transferor will
have delivered to the Trustee an officer's certificate confirming the
Transferor's compliance with the items set forth in clauses (i) through (iv)
above.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling and Servicing Agreement, the Servicer is responsible
for servicing, enforcing, and administering the Receivables and collecting
payments due thereunder in accordance with its usual and customary servicing
procedures and the applicable Credit and Collection Policy. Servicing functions
to be performed with respect to the Receivables include coupon or statement
processing and mailing, collecting and recording payments, investigating payment
delinquencies, and communicating with Obligors. The Servicer may delegate these
servicing functions to a subservicer who agrees to conduct these functions in
accordance with the applicable Credit and Collection Policies; PROVIDED,
HOWEVER, that the delegation of such duties shall not materially adversely
affect the taxability of the Trust under the
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applicable state income tax law of any Applicable Tax State; AND PROVIDED,
FURTHER, that the Servicer shall remain jointly and severally liable with such
subservicer. FNB, as servicer, has designated Fingerhut as a subservicer for a
substantial portion of the servicing of the Receivables. FNB has the ability to
change subservicers from time to time. FNB is contemplating delegating all or a
portion of the servicing functions for consumer revolving credit card accounts
to a third party subservicer. See "The Receivables--Collection Procedures."
Managerial functions to be performed by the Servicer on behalf of the Trust
include maintaining books and records with respect to the foregoing and other
matters pertinent to the Receivables, assisting the Trustee with any inspections
of such books and records by the Trustee pursuant to the Pooling and Servicing
Agreement, preparing and delivering the monthly and annual statements described
in "--Reports to Securityholders," and causing a firm of independent certified
public accountants to prepare and deliver the annual reports described in
"--Evidence as to Compliance."
TRUST ACCOUNTS
The Trustee has established and maintains with a Qualified Institution in
the name of the Trust, for the benefit of the Securityholders, two separate
accounts, each in a segregated trust account, consisting of an "Interest Funding
Account" and a "Principal Account". The Trustee will also establish a
"Distribution Account" for the benefit of the Securityholders which will be a
non-interest bearing segregated demand deposit account established with a
Qualified Institution. The Servicer is required to establish and maintain, in
the name of the Trust, for the benefit of securityholders of all Series, a
"Collection Account," which shall be a deposit account or a segregated trust
account established by and maintained by the Servicer with a Qualified
Institution. A "Qualified Institution" is (i) with respect to a deposit account,
a depository institution or trust company, which may include the Trustee,
organized under the laws of the United States or any one of the states thereof
or the District of Columbia, which at all times has a short-term rating of P-1
by Moody's and of A-1+ by Standard & Poor's or long-term unsecured debt
obligation (other than such obligation the rating of which is based on
collateral or on the credit of a Person other than such institution or trust
company) rating of at least Aa3 by Moody's and of AAA by Standard & Poor's and
deposit insurance provided by the FDIC, or (ii) with respect to a segregated
trust account, the corporate trust department of a depository institution, which
may include the Trustee, which is rated at least Baa3 by Moody's. Funds in the
Principal Account and the Interest Funding Account, will be invested, at the
direction of the Transferor, in (a) negotiable instruments or securities
represented by instruments in bearer or registered form which evidence (i)
obligations of or fully guaranteed by the United States of America; (ii) time
deposits, promissory notes, or certificates of deposit of any depositary
institution or trust company; PROVIDED, HOWEVER, that at the time of the Trust's
investment or contractual commitment to invest therein, the certificates of
deposit or short-term deposits of such depositary institution or trust company
shall have a credit rating from Standard & Poor's of A-1+ and from Moody's of
P-1; (iii) commercial paper having, at the time of the Trust's investment or
contractual commitment to invest therein, a rating from Standard & Poor's of
A-1+ and from Moody's of P-1; (iv) bankers acceptances issued by any depositary
institution or trust company described in clause (a)(ii) above; and (v)
investments in money market funds rated AAA-m or AAA-mg by Standard & Poor's and
Aaa by Moody's or otherwise approved in writing by Moody's and Standard &
Poor's; (b) time deposits and demand deposits in the name of the Trust or the
Trustee in any depositary institution or trust company referred to in clause
(a)(ii) above; (c) securities not represented by an instrument that are
registered in the name of the Trustee or its nominee (which may not be FCI or an
affiliate) upon books maintained for that purpose by or on behalf of the issuer
thereof and identified on books maintained for that purpose by the Trustee as
held for the benefit of the Trust or the Securityholders, and consisting of (x)
shares of an open end diversified investment company which is registered under
the Investment Company Act which (i) invests its assets exclusively in
obligations of or guaranteed by the United States of America or any
instrumentality or agency thereof having in each instance a final maturity date
of less than one year from their date of purchase or other Cash Equivalents,
(ii) seeks to maintain a constant net asset value per share, (iii) has aggregate
net assets of not less than $100,000,000 on the date of purchase of such shares
and (iv) which the Rating Agency designates in writing
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will not result in a withdrawal or downgrading of its then current rating of any
Series rated by it or (y) Eurodollar time deposits of a depository institution
or trust company that are rated A-1+ by Standard & Poor's and P-1 by Moody's;
PROVIDED, HOWEVER, that at the time of the Trust's investment or contractual
commitment to invest therein, the Eurodollar deposits of such depositary
institution or trust company shall have a credit rating from Standard & Poor's
of A-1+ and P-1 by Moody's; (d) a guaranteed investment contract (guaranteed as
to timely payment) which each Rating Agency designates in writing will not
result in a withdrawal or downgrading of its then current rating of any Series
rated by it; (e) repurchase agreements transacted with either (i) an entity
subject to the United States federal bankruptcy code, provided, however, that
(A) the term of the repurchase agreement is consistent with the requirements
with regard to the maturity of Cash Equivalents specified herein or in the
applicable Supplement for the applicable account or is due on demand, (B) the
Trustee or a third party acting solely as agent for the Trustee has possession
of the collateral, (C) the Trustee on behalf of the Trust has a perfected first
priority security interest in the collateral, (D) the market value of the
collateral is maintained at the requisite collateral percentage of the
obligation in accordance with standards of the Rating Agencies, (E) the failure
to maintain the requisite collateral level will obligate the Trustee to
liquidate the collateral as promptly as practicable upon instructions from the
Servicer, (F) the securities subject to the repurchase agreement are either
obligations of, or fully guaranteed as to principal and interest by, the United
States of America or any agency or any instrumentality or agency thereof,
certificates of deposit or bankers acceptances and (G) the securities subject to
the repurchase agreement are free and clear of any third party lien or claim, or
(ii) a financial institution insured by the FDIC, or any broker-dealer with
"retail-customers" that is under the jurisdiction of the Securities Investors
Protection Corporation, provided, however, that (A) the market value of the
collateral is maintained at the requisite collateral percentage of the
obligation in accordance with the standards of the Rating Agencies, (B) the
Trustee or a third party (with a rating from Moody's and Standard & Poor's of
P-1 and A-1+, respectively) acting solely as agent for the Trustee has
possession of the collateral, (C) the collateral is free and clear of third
party liens and, in the case of a broker that is under the jurisdiction of the
Securities Investors Protection Corporation, was not acquired pursuant to a
repurchase or reverse repurchase agreement and (D) the failure to maintain the
requisite collateral percentage will obligate the Trustee to liquidate the
collateral upon instructions from the Servicer; provided, however, that at the
time of the Trust's investment or contractual commitment to invest in any
repurchase agreement the short-term deposits or commercial paper rating of such
entity or institution in subsections (i) and (ii) above shall have a credit
rating of P-1 or A-1+ or their equivalent from each Rating Agency; and (f) any
other investment if each Rating Agency confirms in writing that such investment
will not adversely affect its then current rating of the Investor Securities
(such investments, "Cash Equivalents"). Any earnings (net of losses and
investment expenses) on funds in the Interest Funding Account and the Principal
Account will be Available Series 1998-2 Finance Charge Collections. The Servicer
has the revocable power to withdraw funds from the Collection Account, and to
instruct the Trustee to make withdrawals and payments from the Interest Funding
Account, the Excess Funding Account, the Principal Account and any Series
Account, in each case for the purpose of making deposits and distributions
required under the Pooling and Servicing Agreement, including the deposits and
distributions described in "--Applications of Collections." The agent making
payments to the Securityholders (the "Paying Agent") has the revocable power to
withdraw funds from the Distribution Account for the purpose of making
distributions to Securityholders. The Paying Agent initially will be The Bank of
New York and in certain limited circumstances the Banque Generale du Luxembourg
S.A.
On the Closing Date, the Transferor will make an initial deposit to the
Interest Funding Account in an amount equal to $2,000,000.
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EXCESS FUNDING ACCOUNT
The Trustee has established and will maintain in the name of the Trust, for
the benefit of the securityholders of all Series, an "Excess Funding Account"
which is a segregated account established by and maintained by the Servicer with
a Qualified Institution. At any time during which no Series is in an
amortization period (including any early amortization period), or for a Series
in amortization, the principal account, if any, is fully funded for an
applicable period, and the Transferor Interest does not exceed the Minimum
Transferor Interest, funds (to the extent available therefor as described
herein) otherwise payable to the Transferor will be deposited in the Excess
Funding Account on any business day until the Transferor Interest is at least
equal to the Minimum Transferor Interest. Funds on deposit in the Excess Funding
Account may, at the option of the Transferor, be withdrawn and paid to the
Transferor to the extent that on any day the Transferor Interest exceeds the
Minimum Transferor Interest. Such deposits in and withdrawals from the Excess
Funding Account may be made on a daily basis.
The portion of any funds on deposit in the Excess Funding Account to be
applied for the benefit of the Securities at the beginning of the Amortization
Period will be deposited in the Principal Account as part of Class A Principal
for the next succeeding Distribution Date. In the event that more than one
Series begins its amortization period at the same time, any funds on deposit in
the Excess Funding Account will be applied as if they were Shared Principal
Collections.
Funds on deposit in the Excess Funding Account will be invested by the
Trustee at the direction of the Transferor in Cash Equivalents. On each
Distribution Date, all net investment income earned on amounts in the Excess
Funding Account since the preceding Distribution Date will be withdrawn from the
Excess Funding Account and treated as Finance Charge Collections.
ALLOCATION PERCENTAGES
Pursuant to the Pooling and Servicing Agreement, during each Monthly Period
the Servicer will allocate among the Series 1998-2 Securityholders' Interest,
the interest of the holders of the Other Series then outstanding, the holders of
any Participations then outstanding and the Transferor Interest pursuant to the
Pooling and Servicing Agreement and applicable Supplements all Finance Charge
Collections and all Principal Collections and the Default Amount. Finance Charge
Collections will be allocated prior to the commencement of an Early Amortization
Period and the Default Amount will be allocated at all times, and Principal
Collections will be allocated during the Revolving Period to the Series 1998-2
Securityholders' Interest, based on the percentage equivalent of a fraction, the
numerator of which is the Adjusted Invested Amount as of the beginning of such
business day after giving effect to any deposits to be made to the Principal
Account on such business day and the denominator of which is the greater of (a)
the sum of the aggregate amount of Principal Receivables and the amounts on
deposit in the Excess Funding Account as of the beginning of such business day
after giving effect to any deposits or withdrawals to be made to the Excess
Funding Account on such business day and (b) the sum of the numerators used to
calculate the applicable floating or fixed/floating percentages with respect to
all Participations and all classes of all Series then outstanding (the "Floating
Percentage"). During the Revolving Period, all Principal Collections allocable
to the Securities will be allocated and paid to the Transferor (except for
collections applied as Redirected Principal Collections and Shared Principal
Collections paid to the holders of securities of other Series, if any, and
except for funds deposited in the Excess Funding Account). On any business day
on or after the Amortization Period Commencement Date, Principal Collections
will be allocated to the Series 1998-2 Securityholders' Interest based on the
percentage equivalent of a fraction the numerator of which is the Invested
Amount at the end of the last day of the Revolving Period and the denominator of
which is the greater of (a) the sum of the aggregate amount of Principal
Receivables and the amounts on deposit in the Excess Funding Account as of the
beginning of such business day after giving effect to any deposits or
withdrawals to be made to the Excess Funding Account on such business day and
(b) the sum of the numerators used to calculate the applicable floating or
fixed/floating percentages with respect to Principal Collections for all
Participations and all classes of all Series then outstanding (the
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"Fixed/Floating Percentage"). Finance Charge Collections will be applied on and
after the date on which a Pay Out Event is deemed to occur to the Series 1998-2
Securityholders' Interest based on the Fixed/ Floating Percentage. On and after
the date on which a Defeasance occurs with respect to the Securities, each of
the percentages specified above with respect to the Securities will be zero. See
"--Defeasance."
The term "Transferor Percentage" means (a) when used with respect to (i)
Principal Collections during the Revolving Period and (ii) Finance Charge
Collections and Default Amounts, a percentage equal to 100 percent minus the sum
of the Floating Percentage, the floating percentages for all other Series and
the Participation Percentages with respect to all Participations and (b) when
used with respect to Principal Collections during the Amortization Period, 100
percent minus the sum of the Fixed/Floating Percentage, the allocation
percentages used with respect to Principal Collections for all other Series and
the Participation Percentages with respect to all Participations.
As used herein: (i) the term "Class A Invested Amount" for any date means an
amount equal to (a) the initial principal amount of the Class A Securities,
minus (b) the aggregate amount of principal payments made to Class A
Securityholders through and including such date, and minus (c) the aggregate
amount of Class A Charge-Offs for all prior Distribution Dates plus (d) the
aggregate amount of Available Series 1998-2 Finance Charge Collections,
Transferor Finance Charge Collections, Excess Finance Charge Collections and
Redirected Principal Collections applied on all prior Distribution Dates for the
purpose of reimbursing amounts deducted pursuant to the foregoing clause (c),
PROVIDED, HOWEVER, that the Class A Invested Amount may not be reduced below
zero; (ii) the term "Class A Adjusted Invested Amount" for any date means an
amount not less than zero equal to the then current Class A Invested Amount
minus the amount then on deposit in the Principal Account; (iii) the term "Class
B Invested Amount" for any date means an amount equal to (a) the initial
principal amount of the Class B Securities, minus (b) the aggregate amount of
principal payments made to Class B Securityholders through and including such
date, minus (c) the aggregate amount of Class B Charge-Offs for all prior
Distribution Dates, minus (d) the aggregate amount of Redirected Class B
Principal Collections through and including such business days for which neither
the Class D Invested Amount nor the CTO Invested Amount has been reduced on all
prior Distribution Dates pursuant to the Pooling and Servicing Agreement, plus
(e) the aggregate amount of Available Series 1998-2 Finance Charge Collections,
Transferor Finance Charge Collections, Excess Finance Charge Collections,
Redirected CTO Principal Collections, Redirected Class D Principal Collections
and certain other amounts applied on all prior Distribution Dates for the
purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c)
and (d); PROVIDED, HOWEVER; that the Class B Invested Amount may not be reduced
below zero; (iv) the term "Class B Adjusted Invested Amount" for any date means
an amount not less than zero equal to the Class B Invested Amount minus the
excess, if any, of the amount then on deposit in the Principal Account over the
Class A Invested Amount; (v) the term "CTO Invested Amount" for any date means
an amount equal to (a) the initial principal amount of the Collateralized Trust
Obligations, minus (b) the aggregate amount of principal payments made to CTO
Securityholders through and including such date, minus (c) the aggregate amount
of CTO Charge-Offs for all prior Distribution Dates minus (d) the aggregate
amount of Redirected CTO Principal Collections and Redirected Class B Principal
Collections for which the Class D Invested Amount has not been reduced for all
prior Distribution Dates, plus (e) the aggregate amount of Available Series
1998-2 Finance Charge Collections, Transferor Finance Charge Collections, Excess
Finance Charge Collections, Redirected Class D Principal Collections, and
certain other amounts applied on all prior Distribution Dates for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d)
PROVIDED, HOWEVER, that the CTO Invested Amount may not be reduced below zero;
(vi) the term "CTO Adjusted Invested Amount" for any date means an amount not
less than zero equal to the CTO Invested Amount minus the excess, if any, of the
amount then on deposit in the Principal Account over the Class A Invested Amount
and the Class B Invested Amount; (vii) the term "Class D Invested Amount" for
any date means an amount equal to (a) the initial principal amount of the Class
D Securities, minus (b) the aggregate amount of principal payments made to Class
D Securityholders through and including such date and minus the amounts by which
the Transferor has elected to reduce the Class D Invested Amount to the extent
it
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exceeds the Stated Class D Amount, minus (c) the aggregate amount of Class D
Charge-Offs for all prior Distribution Dates, minus (d) the aggregate amount of
Redirected Principal Collections through and including such business day, plus
(e) the aggregate amount of Finance Charge Collections, Transferor Finance
Charge Collections, Excess Finance Charge Collections and certain other amounts
applied on all prior Distribution Dates for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (c) and (d); PROVIDED, HOWEVER, that
the Class D Invested Amount may not be reduced below zero; (viii) the term
"Stated Class D Amount" means the greater of (a) zero and (b) a number rounded
to the nearest dollar equal to 13.64 percent of the ABC Adjusted Invested
Amount; PROVIDED, HOWEVER, that during any Early Amortization Period the Stated
Class D Amount shall be equal to the Stated Class D Amount immediately preceding
the commencement of the Early Amortization Period; provided, further, that on
any business day after the earlier of (a) the Class A Expected Final Payment
Date if the Class A Invested Amount was not paid in full on the Class A Expected
Final Payment Date or (b) the Class B Expected Final Payment Date if the Class B
Invested Amount was not paid in full on the Class B Expected Final Payment Date,
the Stated Class D Amount shall be equal to the Stated Class D Amount on the
Class A Expected Final Payment Date or the Class B Expected Final Payment Date,
as applicable; provided, further, that there shall be no reduction in the Stated
Class D Amount on any day on which the amount on deposit in the Revolving
Receivables Reserve Account is less than the Specified Revolving Receivables
Reserve Amount or the amount on deposit in the reserve account established for
the benefit of the CTO Securities is less than the specified amount for such
account and; provided, further, that the Stated Class D Amount shall not be less
than $15,340,920 prior to the date on which each of the outstanding principal
balances of the Class A Securities, the Class B Securities and the
Collateralized Trust Obligations have been reduced to zero; and (ix) the term
"Invested Amount" means the sum of the Class A Invested Amount, the Class B
Invested Amount, the CTO Invested Amount and the Class D Invested Amount.
As a result of the Floating Percentage, the portion of the Finance Charge
Collections and the Default Amount applicable with respect to the
Securityholders will change each business day based on the relationship of the
Adjusted Invested Amount to the total amount of Principal Receivables and
amounts on deposit in the Excess Funding Account on the preceding business day.
The numerator of the percentage of collections of Principal Receivables
allocable to the Series 1998-2 Securityholders, however, will remain fixed
during the Amortization Period. Collections of Principal Receivables allocable
to the Class B Securities are subject to possible redirection for the benefit of
the Class A Securityholders; collections of Principal Receivables allocable to
the CTO Invested Amount are subject to possible redirection for the benefit of
the Class A Securityholders and the Class B Securityholders and collections of
Principal Receivables allocable to the Class D Invested Amount are subject to
possible redirection for the benefit of the Class A Securityholders, the Class B
Securityholders and the CTO Securityholders. See "--Redirected Principal
Collections" below.
REDIRECTION OF CASH FLOWS
If any amounts are on deposit in the Excess Funding Account on any business
day, the Servicer will determine the Negative Carry Amount, if any. The Servicer
will apply an amount equal to the lesser of (i) the Transferor Finance Charge
Collections on such business day, and (ii) the Negative Carry Amount for such
business day in the manner specified for application of Available Series 1998-2
Finance Charge Collections.
On each business day the Servicer will determine the Required Amount, if
any. To the extent of any Required Amount, the Servicer will apply all or a
portion of the Excess Finance Charge Collections of other Series with respect to
such business day allocable to the Securities in an amount equal to the Required
Amount. Excess Finance Charge Collections from other Series allocable to the
Securities for any business day will be equal to the product of (x) Excess
Finance Charge Collections available from all other Series for such business day
and (y) a fraction, the numerator of which is the Required Amount for such
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business day (as reduced by amounts applied pursuant to the preceding paragraph)
and the denominator of which is the aggregate amount of shortfalls in required
amounts or other amounts to be paid from available Finance Charge Collections
for all Series for such business day.
REDIRECTED PRINCIPAL COLLECTIONS
On each business day, the Servicer will apply or cause the Trustee to apply
an amount, not to exceed the Class D Invested Amount, equal to the lesser of (x)
the product of (a)(i) during the Revolving Period, the Class D Floating
Percentage or (ii) during an Amortization Period, the Class D Fixed/Floating
Percentage and (b) the amount of Principal Collections with respect to such
business day and (y) an amount equal to the sum of (a) the Class A Required
Amount for such business day, (b) the Class B Required Amount for such business
day and (c) the CTO Required Amount for such business day (such amount,
"Redirected Class D Principal Collections"), as if such amount was Available
Series 1998-2 Finance Charge Collections. Any such Principal Collections
allocable to the Securities not applied in the foregoing manner (and therefore
not constituting Redirected Class D Principal Collections) will, on business
days with respect to the Revolving Period, be applied as Shared Principal
Collections and, on business days with respect to an Amortization Period, be
included in Available Series 1998-2 Principal Collections.
On each business day, the Servicer will apply or cause the Trustee to apply
an amount, not to exceed the CTO Invested Amount, equal to the lesser of (x) the
product of (a)(i) during the Revolving Period, the CTO Floating Percentage or
(ii) during an Amortization Period, the CTO Fixed/Floating Percentage and (b)
the amount of Principal Collections with respect to such business day and (y) an
amount equal to the sum of (a) the excess, if any, of the Class A Required
Amount for such business day over the amount of Redirected Class D Principal
Collections applied with respect thereto for such business day and (b) the
excess, if any, of the Class B Required Amount for such business day over the
amount of Redirected Class D Principal Collections applied with respect thereto
for such business day (such amount, "Redirected CTO Principal Collections"), as
if such amount was Available Series 1998-2 Finance Charge Collections. Any such
Principal Collections allocable to the Securities not applied in the foregoing
manner (and therefore not constituting Redirected CTO Principal Collections)
will, on business days with respect to the Revolving Period, be applied as
Shared Principal Collections and, on business days with respect to an
Amortization Period, be included in Available Series 1998-2 Principal
Collections.
On each business day, the Servicer will apply or cause the Trustee to apply
an amount, not to exceed the Class B Invested Amount, equal to the lesser of (x)
the product of (a)(i) during the Revolving Period, the Class B Floating
Percentage or (ii) during an Amortization Period, the Class B Fixed/Floating
Percentage and (b) the amount of Principal Collections with respect to such
business day and (y) an amount equal to the excess, if any, of the Class A
Required Amount for such business day over the sum of the amount of Redirected
Class D Principal Collections and Redirected CTO Principal Collections applied
with respect thereto for such business day (such amount, "Redirected Class B
Principal Collections"), as if such amount was Available Series 1998-2 Finance
Charge Collections. Any such Principal Collections allocable to the Securities
not applied in the foregoing manner (and therefore not constituting Redirected
Class B Principal Collections) will, on business days with respect to the
Revolving Period, be applied as Shared Principal Collections and, on business
days with respect to an Amortization Period, be included in Available Series
1998-2 Principal Collections.
On each Distribution Date the Class D Invested Amount will be reduced by the
aggregate amount of unreimbursed Redirected Principal Collections for the
related Monthly Period. In the event that such reduction would cause the Class D
Invested Amount to be a negative number, the Class D Invested Amount will be
reduced to zero and the CTO Invested Amount will be reduced by the amount by
which the Class D Invested Amount would have been reduced below zero. On each
Distribution Date, in the event that the aggregate amount of unreimbursed
Redirected Principal Collections for the related Monthly Period would cause the
CTO Invested Amount to be a negative number, the CTO Invested Amount will be
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reduced to zero and the Class B Invested Amount will be reduced by the amount by
which the CTO Invested Amount would have been reduced below zero. In the event
that on any business day the aggregate amount of unreimbursed Redirected
Principal Collections for the then current Monthly Period would cause the Class
B Invested Amount to be a negative number on the related Distribution Date, the
amount of Redirected Class B Principal Collections on such business day will be
an amount not to exceed the amount which would cause the Class B Invested Amount
to be reduced to zero.
APPLICATION OF COLLECTIONS
IN GENERAL. Obligors make payments on the Receivables to the Servicer, who
deposits all such payments, other than collections allocated to the holder of
any Participation, in the Collection Account no later than the second business
day following the date of processing. On the day on which any deposit to the
Collection Account is available, the Servicer will make the deposits and
payments to the accounts and parties as indicated below; PROVIDED, HOWEVER, that
for as long as FNB or any affiliate of FNB remains the Servicer under the
Pooling and Servicing Agreement, then the Servicer may make such deposits and
payments on the business day immediately prior to each Distribution Date (the
"Transfer Date") in an aggregate amount equal to the net amount of such deposits
and payments which would have been made had the conditions of this proviso not
applied if (a)(i) FNB or any affiliate of FNB provides to the Trustee a letter
of credit or other form of Enhancement rated at least A-1 by Standard & Poor's
and P-1 by Moody's and (ii) the Transferor shall not have received a notice from
each Rating Agency that making payments monthly rather than daily would result
in the lowering of such Rating Agency's then-existing rating of any Series of
securities then outstanding or (b) FNB has and maintains a short-term credit
rating of P-1 by Moody's and A-1 by Standard & Poor's.
If clause (a) or clause (b) set forth in the proviso to the immediately
preceding paragraph is satisfied, payments on the Receivables collected by the
Servicer will not be segregated from the assets of the Servicer. Until such
payments on the Receivables collected by the Servicer are deposited into the
Collection Account, such funds may be used by the Servicer for its own benefit,
and the proceeds of any short-term investment of such funds will accrue to the
Servicer. During such times as the Servicer holds funds representing payments on
the Receivables collected by the Servicer and is permitted to use such funds for
its own benefit, the Securityholders are subject to risk of loss, including risk
resulting from the bankruptcy or insolvency of the Servicer. The Servicer pays
no fee to the Trust or any Securityholder for any use by the Servicer of funds
representing Collections on the Receivables.
The Servicer will withdraw the following amounts from the Collection Account
for application on each business day as indicated:
(i) an amount equal to the Transferor Percentage of the aggregate amount
of Principal Collections will be paid to the Transferor;
(ii) an amount equal to the Transferor Percentage of the aggregate
amount of Finance Charge Collections will be paid to the holder of the
Exchangeable Transferor Security to the extent such funds are not allocated
to any Series as set forth in the applicable Supplement;
(iii) an amount equal to the sum of (a) prior to the occurrence of a Pay
Out Event, the Floating Percentage, and on and after the occurrence of a Pay
Out Event, the Fixed/Floating Percentage, of the sum of the aggregate amount
of Finance Charge Collections, (b) certain Transferor Finance Charge
Collections allocable to the Securities and (c) Excess Finance Charge
Collections of other Series allocable to such Series, will be allocated and
paid as described below in "--Payment of Fees, Interest and Other Items";
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(iv) during the Revolving Period, an amount equal to the Floating
Percentage of Principal Collections (less the amount thereof which may be
applied as Redirected Principal Collections) will be applied as Shared
Principal Collections;
(v) during the Amortization Period, an amount equal to the
Fixed/Floating Percentage of Principal Collections (less the amount thereof
applied as Redirected Principal Collections), any amount on deposit in the
Excess Funding Account allocated to the holders of the Securities, any
amounts to be paid in respect of the Series Default Amount, unpaid
Adjustment Payments, Class A Charge-Offs, Class B Charge-Offs and CTO
Charge-Offs and any amount of Shared Principal Collections allocated to the
Securities on such business day, up to (a) during the Controlled
Amortization Period, the Class A Controlled Distribution Amount or Class B
Controlled Distribution Amount, as applicable, or (b) during the Early
Amortization Period, the Invested Amount, will be deposited in the Principal
Account;
(vi) Shared Principal Collections will be allocated to each outstanding
Series pro rata based on any shortfalls with respect to principal payments
with respect to any Series which is in its amortization period, and then, at
the option of the Transferor, to make payments of principal with respect to
the Variable Funding Securities. The Servicer will pay any remaining Shared
Principal Collections on such business day to the holder of the Exchangeable
Transferor Security; and
(vii) Excess Finance Charge Collections will be allocated as set forth
below in clause (xviii) of "--Payment of Fees, Interest and Other Items."
In addition, on each business day the Servicer will pay to the holder of
each Participation an amount equal to the applicable Participation Percentage of
all Collections received on such day.
Any Shared Principal Collections and other amounts described above as being
payable to the Transferor will not be paid to the Transferor if the Transferor
Interest on any date, after giving effect to the inclusion in the Trust of all
Receivables on or prior to such date and the application of all prior payments
to the Transferor, does not exceed the Minimum Transferor Interest. Any such
amounts otherwise payable to the Transferor, together with any Adjustment
Payments, as described below, will be deposited into and held in the Excess
Funding Account, and on and after the Amortization Period Commencement Date with
respect to any Series, such amounts will be applied as if they were Shared
Principal Collections. See "--Excess Funding Account."
PAYMENT OF FEES, INTEREST AND OTHER ITEMS. On each business day during a
Monthly Period, the Servicer will determine, (a) prior to the date on which a
Pay Out Event is deemed to occur, the Floating Percentage of the Finance Charge
Collections for such business day or, on and after the date on which a Pay Out
Event is deemed to occur, the Fixed/Floating Percentage of the Finance Charge
Collections for such business day, (b) amounts on deposit in the Payment Reserve
Account, if any, if and to the extent the Transferor designates that such
amounts are to be so applied, (c) Reserve Account Investment Proceeds and
investment earnings on amounts on deposit in the Interest Funding Account and
the Principal Account and (d) Defeasance Funding Account Investment Proceeds and
amounts withdrawn from the Defeasance Reserve Account and the Revolving
Receivables Reserve Account (which amounts shall be applied on each Transfer
Date as if such amounts had been available on the last business day of the
preceding Monthly Period) (collectively, the "Available Series 1998-2 Finance
Charge Collections" PROVIDED, that with respect to the Closing Date the amount
of the initial deposit by the Transferor to the Interest Funding Account will
constitute Available Series 1998-2 Finance Charge Collections, and PROVIDED
FURTHER that certain Transferor Finance Charge Collections and Excess Finance
Charge Collections allocable to the Series 1998-2 Securities and Redirected
Principal Collections shall be applied as if such amounts were Available Series
1998-2 Finance Charge Collections) and will distribute such amount in the
following priority:
(i) an amount equal to the lesser of (A) the Available Series 1998-2
Finance Charge Collections and (B) the excess of (a) the sum of (1) the
Class A Monthly Interest, (2) the amount of any Class A Monthly Interest due
to be deposited but not deposited in the Interest Funding Account in prior
Monthly Periods, and (3) any additional interest (to the extent permitted by
applicable law) at the
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Class A Interest Rate with respect to interest amounts that were due to be
deposited but not deposited in prior Monthly Periods over (b) the amount
which has already been deposited in the Interest Funding Account with
respect thereto in the current Monthly Period, will be deposited in the
Interest Funding Account for distribution on the next succeeding
Distribution Date to the Class A Securityholders;
(ii) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) the excess of (a) the sum of
(1) the Class B Monthly Interest, (2) the amount of any Class B Monthly
Interest due to be deposited but not deposited in the Interest Funding
Account in prior Monthly Periods, and (3) any additional interest (to the
extent permitted by applicable law) at the Class B Interest Rate with
respect to Class B Monthly Interest amounts that were due to be deposited
but not deposited in prior Monthly Periods over (b) the amount which has
already been deposited in the Interest Funding Account with respect thereto
in the current Monthly Period, will be deposited in the Interest Funding
Account for distribution on the next succeeding Distribution Date to the
Class B Securityholders;
(iii) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) the excess of (a) the sum of
(1) the CTO Monthly Interest, (2) the amount of any CTO Monthly Interest due
to be deposited but not deposited in the Interest Funding Account in prior
Monthly Periods, and (3) any additional interest (to the extent permitted by
applicable law) at the CTO Interest Rate with respect to CTO Monthly
Interest amounts that were due to be deposited but not deposited in prior
Monthly Periods over (b) the amount which has already been deposited in the
Interest Funding Account with respect thereto in the current Monthly Period,
will be deposited in the Interest Funding Account for distribution on the
next succeeding Distribution Date to the CTO Securityholders;
(iv) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) the portion of the Monthly
Servicing Fee for the current month that has not been previously paid to the
Servicer plus any prior Monthly Servicing Fee that was due but not
previously paid to the Servicer will be distributed to the Servicer;
(v) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) the sum of (1) the aggregate
Series Default Amount for such business day and (2) the unpaid Series
Default Amount for any prior business day during the then-current Monthly
Period, will be (w) during the Revolving Period, treated as Shared Principal
Collections and (x) during the Amortization Period, treated as Available
Series 1998-2 Principal Collections for the benefit of the Securities;
(vi) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) the Series 1998-2 Percentage of
any Adjustment Payment which the Transferor is required but fails to make on
such business day or any prior business day during such Monthly Period
pursuant to the Pooling and Servicing Agreement, less any amounts previously
withdrawn pursuant to this clause (vi) on account of such unpaid Adjustment
Payments, will be (a) during the Revolving Period, treated as Shared
Principal Collections and (b) during the Amortization Period, treated as
Available Series 1998-2 Principal Collections for the benefit of the
Securities;
(vii) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) unreimbursed Class A
Charge-Offs, if any, will be applied to reimburse Class A Charge-Offs and
(w) during the Revolving Period, be treated as Shared Principal Collections
and (x) during the Amortization Period, be treated as Available Series
1998-2 Principal Collections for the benefit of the Securities;
(viii) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) the sum of (1) the amount of
interest which has accrued with respect to the outstanding aggregate
principal amount of the Class B Securities at the Class B Interest Rate but
not previously deposited in the Interest Funding Account will be deposited
in the Interest Funding
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Account and (2) any additional interest (to the extent permitted by
applicable law) at the Class B Interest Rate with respect to such interest
amounts that were due to be deposited but not deposited in the Interest
Funding Account in any previous Monthly Period, will be deposited in the
Interest Funding Account for distribution on the next succeeding
Distribution Date to Class B Securityholders;
(ix) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) the sum of (1) the amount of
interest which has accrued with respect to the outstanding aggregate
principal balance of the Collateralized Trust Obligations at the CTO
Interest Rate but not previously deposited in the Interest Funding Account
will be deposited in the Interest Funding Account, and (2) any additional
interest (to the extent permitted by applicable law) at the CTO Interest
Rate with respect to such interest amounts that were due to be deposited but
not deposited in the Interest Funding Account in any previous Monthly
Period, will be deposited in the Interest Funding Account for distribution
on the next succeeding Distribution Date to CTO Securityholders;
(x) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) unreimbursed Class B
Charge-Offs, if any, will be applied to reimburse Class B Charge-Offs and
(w) during the Revolving Period, be treated as Shared Principal Collections
and (x) during the Amortization Period, be treated as Available Series
1998-2 Principal Collections for the benefit of the Securities;
(xi) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) unreimbursed CTO Charge-Offs,
if any, will be applied to reimburse CTO Charge-Offs and (w) during the
Revolving Period, be treated as Shared Principal Collections and (x) during
the Amortization Period, be treated as Available Series 1998-2 Principal
Collections for the benefit of the Securities;
(xii) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) unreimbursed Class D
Charge-Offs, if any, will be applied to reimburse Class D Charge-Offs and
(w) during the Revolving Period, be treated as Shared Principal Collections
and (x) during the Amortization Period, be treated as Available Series
1998-2 Principal Collections for the benefit of the Securities;
(xiii) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) the sum of (1) the amount of
interest which has accrued with respect to the outstanding aggregate
principal amount of the Class D Securities at the Class D Interest Rate but
not previously been deposited in the Interest Funding Account on any prior
business day or paid to the Class D Securityholders will be deposited in the
Interest Funding Account and (2) any additional interest (to the extent
permitted by applicable law) at the Class D Interest Rate with respect to
such interest amounts that were due but not deposited in the Interest
Funding Account in any previous Monthly Period, will be deposited in the
Interest Funding Account for distribution on the next succeeding
Distribution Date to Class D Securityholders;
(xiv) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) an amount equal to the excess,
if any, of the Specified Revolving Receivables Reserve Amount on such date
over the amount then on deposit in the Revolving Receivables Reserve Account
will be deposited in the Revolving Receivables Reserve Account;
(xv) at the option of the Transferor, on and after the Defeasance Reserve
Account Funding Date, but prior to the date on which a Defeasance occurs, an
amount equal to the lesser of any Available Series 1998-2 Finance Charge
Collections remaining and the excess, if any, of the Required Defeasance
Reserve Account Amount over the Available Defeasance Reserve Account Amount
will be deposited in the Defeasance Reserve Account;
(xvi) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) any amount required to be
deposited in a reserve account established for the benefit of the
Collateralized Trust Obligations will be deposited in such reserve account;
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(xvii) an amount equal to the lesser of (A) any Available Series 1998-2
Finance Charge Collections remaining and (B) an amount designated by the
Transferor in writing will be deposited in the Payment Reserve Account; and
(xviii) any Available Series 1998-2 Finance Charge Collections remaining
after making the above described distributions will be treated as Excess
Finance Charge Collections which will be available to cover shortfalls, if
any, in amounts payable from Finance Charge Collections to securityholders
of other Series, then to pay any unpaid commercially reasonable costs and
expenses of a successor Servicer, if any, then to reserve for (or pay when
due) any taxes and related expenses anticipated by the Servicer to be
payable by the Trust with respect to the related Monthly Period or prior
Monthly Periods. Excess Finance Charge Collections which are not so used
will be paid to the Transferor.
On each Transfer Date all investment income (net of investment losses and
expenses) on funds on deposit in the Defeasance Funding Account, the Defeasance
Reserve Account and the Revolving Receivables Reserve Account will be applied as
if such amounts were Available Series 1998-2 Finance Charge Collections on the
last business day of the preceding Monthly Period.
"Class A Monthly Interest" with respect to any Distribution Date will equal
one-twelfth of the product of (i) the Class A Interest Rate and (ii) the
outstanding principal amount of the Class A Securities at the close of business
on the first day of the related Interest Accrual Period (or in the case of the
initial Distribution Date, an amount equal to the product of (u) the initial
Class A Invested Amount, (v) divided by 360, and (w) the Class A Interest
Rate).
"Class B Monthly Interest" with respect to any Distribution Date will equal
one-twelfth of the product of (i) the Class B Interest Rate and (ii) the Class B
Invested Amount at the close of business on the first day of the related
Interest Accrual Period (or in the case of the initial Distribution Date, an
amount equal to the product of (u) the initial Class B Invested Amount, (v)
divided by 360, and (w) the Class B Interest Rate).
"CTO Monthly Interest" with respect to any Distribution Date will equal the
product of (i) the CTO Interest Rate for the related Interest Accrual Period,
(ii) the CTO Invested Amount at the close of business on the first day of the
related Interest Accrual Period and (iii) a fraction the numerator of which is
the actual number of days in the related Interest Accrual Period and the
denominator of which is 360 (or in the case of the initial Distribution Date, an
amount equal to the product of (u) the initial CTO Invested Amount, (v)
divided by 360, and (w) the CTO Interest Rate for the initial Interest Accrual
Period).
"Required Amount" means on any business day the amount, if any, by which the
full amount to be paid pursuant to clauses (i)-(xiii) above exceeds the portion
of the Available Series 1998-2 Finance Charge Collections and Transferor Finance
Charge Collections, if any, applied to the payment of the amounts described in
such clauses.
PAYMENT OF PRINCIPAL. On each business day during the Revolving Period, the
Trustee, acting in accordance with instructions from the Servicer, will treat
the amount described in clause (iv) of "--Allocations" as Shared Principal
Collections which will be applied as described in clause (vi) of
"--Allocations." On each Transfer Date during the Amortization Period, the
Trustee, acting in accordance with instructions from the Servicer, will withdraw
the amount on deposit in the Principal Account and, to the extent of Class A
Principal until the Class A Invested Amount is paid in full, deposit such
amounts in the Distribution Account for distribution to the Class A
Securityholders on the next succeeding Distribution Date. The Class A
Securityholders will be entitled to receive principal payments to the extent of
Class A Principal until the Class A Invested Amount is paid in full. Beginning
on the Class B Principal Payment Commencement Date, the Class B Securityholders
will be entitled to receive principal payments to the extent of Class B
Principal until the Class B Invested Amount is paid in full only after the Class
A Invested Amount has been paid in full. Beginning on the CTO Principal Payment
Commencement Date, the CTO
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Securityholders will be entitled to receive principal payments to the extent of
CTO Principal until the CTO Invested Amount is paid in full only after the Class
A Invested Amount and the Class B Invested Amount have been paid in full. Except
with respect to payments or reductions of the Class D Invested Amount during the
Controlled Amortization Period to the extent of the excess of the Class D
Invested Amount over the Stated Class D Amount, the Class D Securityholders will
be entitled to receive principal payments only after the Class A Invested
Amount, the Class B Invested Amount, and the CTO Invested Amount have been paid
in full. If a Defeasance occurs the Trustee shall withdraw amounts from the
Defeasance Funding Account on each Distribution Date and make principal payments
to the Securityholders in the amounts and at the times specified above.
The amount of principal (the "Class A Principal") distributable from the
Distribution Account with respect to the Class A Securities for each
Distribution Date with respect to the Amortization Period will be equal to the
Available Series 1998-2 Principal Collections on deposit in the Principal
Account with respect to the related Monthly Period; provided, however, that with
respect to any Distribution Date during the Controlled Amortization Period,
Class A Principal shall not exceed the lesser of (i) the Class A Controlled
Distribution Amount and (ii) the Class A Invested Amount; provided, further that
with respect to any Distribution Date with respect to the Early Amortization
Period following a Defeasance, Class A Principal will be equal to the lesser of
(i) the balance in the Defeasance Funding Account and (ii) the Class A Invested
Amount; provided, further that with respect to the Termination Date, Class A
Principal will be an amount equal to the Class A Invested Amount.
The amount of principal (the "Class B Principal") distributable from the
Distribution Account with respect to the Class B Securities for each
Distribution Date, beginning on the Class B Principal Payment Commencement Date,
will be equal to the Available Series 1998-2 Principal Collections remaining on
deposit in the Principal Account with respect to the related Monthly Period
after application thereof to Class A Principal, if any; PROVIDED, HOWEVER, that
with respect to any Distribution Date during the Controlled Amortization Period,
Class B Principal will not exceed the lesser of (i) the Class B Controlled
Distribution Amount and (ii) the Class B Invested Amount; provided, further that
with respect to any Distribution Date with respect to the Early Amortization
Period following a Defeasance, Class B Principal will be equal to the lesser of
(i) the balance in the Defeasance Funding Account after application of amounts
on deposit therein to Class A Principal and (ii) the Class B Invested Amount;
provided, further that with respect to the Termination Date, Class B Principal
will be an amount equal to the Class B Invested Amount.
The amount of principal (the "CTO Principal") distributable from the
Distribution Account with respect to the Collateralized Trust Obligations for
each Distribution Date, beginning on or after the CTO Principal Payment
Commencement Date, will be equal to the Available Series 1998-2 Principal
Collections remaining on deposit in the Principal Account with respect to the
related Monthly Period after application thereof to Class A Principal and Class
B Principal, if any; provided that with respect to any Distribution Date with
respect to the Early Amortization Period following a Defeasance, CTO Principal
will be equal to the lesser of (i) the balance in the Defeasance Funding Account
after application of amounts on deposit therein to Class A Principal and Class B
Principal and (ii) the CTO Invested Amount; provided, further with respect to
the Termination Date, CTO Principal will be an amount equal to the CTO Invested
Amount.
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The amount of principal (the "Class D Principal") distributable from the
Distribution Account with respect to the Class D Securities for each
Distribution Date, beginning on the Class D Principal Payment Commencement Date,
or, in the case of distributions of Class D Excess Amounts during the Controlled
Amortization Period, and on each Distribution Date thereafter until the Trust is
terminated or until the Class D Invested Amount is paid in full, will be equal
to the Available Series 1998-2 Principal Collections remaining on deposit in the
Principal Account with respect to the related Monthly Period after application
thereof to Class A Principal, Class B Principal and CTO Principal, if any, and
the Trustee, acting in accordance with instructions from the Servicer, will
withdraw such amounts from the Principal Account and, to the extent of the Class
D Invested Amount, deposit such amounts in the Distribution Account for
distribution to the Class D Securityholders on the next succeeding Distribution
Date. Notwithstanding the foregoing, if so designated in writing by the
Transferor, any such payment of Class D Principal shall not be made to the Class
D Securityholders but such amount shall nonetheless be subtracted from the Class
D Invested Amount and added to the Transferor Interest and Class D Excess
Amounts may be subtracted from the Class D Invested Amount and added to the
Transferor Interest whether or not such amount has been deposited into the
Distribution Account.
COVERAGE OF INTEREST SHORTFALLS
To the extent of any shortfall in the amount of Available Series 1998-2
Finance Charge Collections due to the accumulation of principal in the Excess
Funding Account, the Transferor Finance Charge Collections will be made
available to cover such Negative Carry Amount.
Rights with respect to Finance Charge Collections allocable to any Series in
excess of the amounts necessary to make required payments with respect to such
Series ("Excess Finance Charge Collections") will be applied to cover any
shortfalls with respect to amounts payable from Finance Charge Collections
allocable to any other Series, pro rata based upon the amounts of the
shortfalls, if any, with respect to such other Series. Any Excess Finance Charge
Collections remaining after covering shortfalls with respect to all outstanding
Series during a Monthly Period will be paid to the successor Servicer, if any,
to cover certain costs and expenses and then to the holder of the Exchangeable
Transferor Security.
DEFAULTED RECEIVABLES; DILUTION
Receivables in Defaulted Accounts will be charged off as uncollectible in
accordance with the Servicer's customary and usual policies and the Credit and
Collection Policy. See "The Receivables--Loss and Delinquency History." On each
business day, the Servicer will allocate to the Securityholders a portion of all
Receivables in Defaulted Accounts in an amount (the "Series Default Amount")
equal to the product of (a) the Floating Percentage applicable for such business
day and (b) the aggregate principal amount of Receivables in Defaulted Accounts
identified since the prior reporting date (the "Default Amount").
If on any business day the Servicer adjusts the amount of any Principal
Receivable due to Dilution, then the amount of the Transferor Interest in the
Trust will be reduced, on a net basis, by the amount of the adjustment on such
business day. In the event the Transferor Interest would be reduced below the
Minimum Transferor Interest, the Transferor will be required to pay to the Trust
for deposit in the Excess Funding Account the amount by which the Transferor
Interest would be reduced below the Minimum Transferor Interest (an "Adjustment
Payment"). If the Transferor fails to pay such amount when due, Available Series
1998-2 Finance Charge Collections and certain other amounts may be applied for
such purpose. To the extent that such amounts are not sufficient to cover the
portion of the unpaid Adjustment Payments allocated to Series 1998-2, there will
be a Series Charge-Off as described below.
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SERIES CHARGE-OFFS
If on the second business day preceding each Distribution Date (the
"Determination Date"), the aggregate Series Default Amount and the Series 1998-2
Percentage of unpaid Adjustment Payments, if any, for all business days in the
preceding Monthly Period exceeds the aggregate amount of the Available Series
1998-2 Finance Charge Collections (including amounts withdrawn from the
Revolving Receivables Reserve Account), Transferor Finance Charge Collections,
Excess Finance Charge Collections and Redirected Collections applied with
respect thereto, then the Class D Invested Amount will be reduced by the
aggregate amount of such excess (a "Class D Charge-Off"). The Class D Invested
Amount thereafter will be increased (but not in excess of the unpaid principal
amount of the Class D Securities) on any business day by any amounts applied for
that purpose as described under clause (xii) of "--Application of
Collections--Payment of Fees, Interest and Other Items."
In the event that any such reduction of the Class D Invested Amount would
cause the Class D Invested Amount to be a negative number, the Class D Invested
Amount will be reduced to zero, and the CTO Invested Amount will be reduced by
the aggregate amount of such excess, but not by more than the sum of the
remaining aggregate Series Default Amount and the remaining unpaid Adjustment
Payments with respect to such Monthly Period (a "CTO Charge-Off"), which will
have the effect of slowing or reducing the return of principal to the CTO
Securityholders. The CTO Invested Amount will thereafter be increased (but not
in excess of the unpaid principal amount of the Collateralized Trust
Obligations) on any business day by any amounts applied for that purpose as
described under clause (xi) of "--Application of Collections--Payment of Fees,
Interest and Other Items."
In the event that any such reduction of the CTO Invested Amount would cause
the CTO Invested Amount to be a negative number, the CTO Invested Amount will be
reduced to zero, and the Class B Invested Amount will be reduced by the
aggregate amount of such excess, but not by more than the sum of the remaining
aggregate Series Default Amount and the remaining unpaid Adjustment Payments
with respect to such Monthly Period (a "Class B Charge-Off"), which will have
the effect of slowing or reducing the return of principal to the Class B
Securityholders. The Class B Invested Amount will thereafter be increased (but
not in excess of the unpaid principal amount of the Class B Securities) on any
business day by any amounts applied for that purpose as described under clause
(x) of "--Application of Collections-- Payment of Fees, Interest and Other
Items."
In the event that any such reduction of the Class B Invested Amount would
cause the Class B Invested Amount to be a negative number, the Class B Invested
Amount will be reduced to zero, and the Class A Invested Amount will be reduced
by the amount by which the Class B Invested Amount would have been reduced below
zero, but not by more than the sum of the remaining aggregate Series Default
Amount and the remaining unpaid Adjustment Payments with respect to such Monthly
Period (a "Class A Charge-Off") which will have the effect of slowing or
reducing the return of principal to the Class A Securityholders. The Class A
Invested Amount will thereafter be increased (but not in excess of the unpaid
principal amount of the Class A Securities) on any business day by any of the
amounts applied for that purpose as described under clause (vii) of
"--Application of Collections--Payment of Fees, Interest and Other Items."
PAIRED SERIES
Subject to the satisfaction of the Rating Agency Condition, prior to the
commencement of the Early Amortization Period the Securities may be paired with
one or more other Series (each, a "Paired Series"). Each Paired Series either
will be pre-funded with an initial deposit to a pre-funding account in an amount
up to the initial principal amount of such Paired Series primarily from the
proceeds of the sale of such Paired Series or will have a variable principal
amount. Any such pre-funding account will be held for the benefit of such Paired
Series and not for the benefit of the Series 1998-2 Securityholders. As amounts
are paid for the benefit of the Class A Securityholders, Class B Securityholders
and CTO Securityholders, either (i) in the case of a pre-funded Paired Series,
an equal amount of funds on deposit in any pre-funding
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account for such pre-funded Paired Series will be released (which funds will be
distributed to the Transferor) or (ii) in the case of a Paired Series having a
variable principal amount, an interest in such variable Paired Series in an
equal or lesser amount may be sold by the Trust (and the proceeds thereof will
be distributed to the Transferor) and, in either case, the invested amount in
the Trust of such Paired Series will increase by up to a corresponding amount.
Upon payment in full of the Securities, assuming that there have been no
unreimbursed charge-offs with respect to any related Paired Series, the
aggregate invested amount of such related Paired Series will have been increased
by an amount up to an aggregate amount equal to the Invested Amount paid to the
Securityholders since the issuance of such Paired Series. The issuance of a
Paired Series will be subject to the conditions described under "--Exchanges."
There can be no assurance, however, that the terms of any Paired Series might
not have an impact on the timing or amount of payments received by a
Securityholder. In particular, the denominator of the Fixed/Floating Percentage
may be increased upon the occurrence of a Pay Out Event with respect to a Paired
Series resulting in a possible reduction of the percentage of Collections of
Principal Receivables and Finance Charge Receivables allocated to the Securities
if such event required reliance by the Securities on clause (b) of the
denominator of the applicable Fixed/Floating Percentage and, in the case of
Principal Collections allowed payment of principal at such time to the Paired
Series. See "--Allocation Percentages."
DEFEASANCE
On the date during the Amortization Period that the following conditions
shall have been satisfied: (i) an amount shall have been deposited (x) in the
Defeasance Funding Account equal to the sum of the outstanding principal amounts
of the Class A Securities, the Class B Securities and the Collateralized Trust
Obligations, which amount shall be invested in Cash Equivalents and (y) in the
Defeasance Reserve Account equal to or greater than the excess of the sum of the
Class A Monthly Interest, the Class B Monthly Interest and the estimated CTO
Monthly Interest over the estimated amount of investment earnings on amounts in
the Defeasance Funding Account, as estimated by the Transferor, for each of the
Interest Accrual Periods during the period from the date of the deposit to the
Defeasance Funding Account through the CTO Expected Final Payment Date (the
"Required Defeasance Reserve Account Amount"); (ii) the Transferor shall have
delivered to the Trustee an opinion of counsel to the effect that such deposit
and termination of obligations will not result in the Trust being required to
register as an "investment company" within the meaning of the Investment Company
Act and an opinion of counsel to the effect that following such deposit none of
the Trust, the Defeasance Reserve Account or the Defeasance Funding Account will
be deemed to be an association (or publicly traded partnership) taxable as a
corporation; (iii) the Transferor shall have delivered to the Trustee a
certificate of an officer of the Transferor stating that the Transferor
reasonably believes that such deposit and termination of its obligations will
not constitute a Pay Out Event or any event that, with the giving of notice or
the lapse of time, would cause a Pay Out Event to occur; and (iv) the Rating
Agency Condition shall have been satisfied; then, the Securities will no longer
be entitled to the security interest of the Trust in the Receivables and, except
those set forth in clause (i) above, other Trust assets ("Defeasance"), the
percentages applicable to the allocation to the Securityholders of Principal
Collections, Finance Charge Collections, unpaid Adjustment Payments and Default
Amounts shall be reduced to zero and the Monthly Servicing Fee will be reduced
to zero; PROVIDED, HOWEVER, that no such Defeasance shall occur for so long as
any Series Charge-Off exists. Upon the satisfaction of the foregoing conditions,
the Class D Invested Amount shall be reduced to zero.
DEFEASANCE FUNDING ACCOUNT
Pursuant to the Series 1998-2 Supplement, the Servicer will establish and
maintain with a Qualified Institution a defeasance funding account as a
segregated trust account held for the benefit of the Securityholders (the
"Defeasance Funding Account"). On the date of Defeasance of the Securities, the
Trustee will transfer to the Defeasance Funding Account proceeds from the
issuance of a new Series in an
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amount equal to the sum of the outstanding principal amounts of the Class A
Securities, the Class B Securities and the Collateralized Trust Obligations.
Funds on deposit in the Defeasance Funding Account will be invested by the
Trustee at the direction of the Servicer in Cash Equivalents maturing no later
than the following Transfer Date. Investment earnings (net of investment losses
and expenses) on funds on deposit in the Defeasance Funding Account (the
"Defeasance Funding Account Investment Proceeds") will be applied on each
Transfer Date following a Defeasance as if such amount were Available Series
1998-2 Finance Charge Collections on the last business day of the preceding
Monthly Period. If, for any Interest Accrual Period, the Defeasance Funding
Account Investment Proceeds for the related Monthly Period are less than the sum
of the Class A Monthly Interest, the Class B Monthly Interest and the CTO
Monthly Interest for such Interest Accrual Period, the amount of such deficiency
will be paid from the Defeasance Reserve Account to the extent of the Available
Defeasance Reserve Account Amount and applied on the applicable Transfer Date as
Available Series 1998-2 Finance Charge Collections as if such amounts were
available on the last business day of the preceding Monthly Period.
The Defeasance Funding Account will be terminated following the earliest to
occur of (a) the termination of the Trust pursuant to the Pooling and Servicing
Agreement, (b) the date on which the ABC Invested Amount is paid in full and (c)
after Defeasance, the earlier of the first Transfer Date with respect to the
Early Amortization Period and the CTO Expected Final Payment Date. Upon the
termination of the Defeasance Funding Account, all amounts remaining on deposit
therein (after the payment in full of the Series 1998-2 Securities) will be
treated as Shared Principal Collections.
DEFEASANCE RESERVE ACCOUNT
Pursuant to the Series 1998-2 Supplement, the Servicer will establish and
maintain with a Qualified Institution a defeasance reserve account as a
segregated trust account held for the benefit of the Securityholders (the
"Defeasance Reserve Account"). The Defeasance Reserve Account is established to
assist with the subsequent distribution of interest on the Class A Securities,
Class B Securities and Collateralized Trust Obligations following Defeasance. At
the option of the Transferor, on each business day from and after the Defeasance
Reserve Account Funding Date, but prior to Defeasance, the Trustee, acting
pursuant to the Servicer's instructions, will apply Available Series 1998-2
Finance Charge Collections allocated to the Securities (to the extent described
above in clause (xv) under "--Application of Collections--Payment of Fees,
Interest and Other Items") to increase the amount on deposit in the Defeasance
Reserve Account (to the extent such amount is less than the Required Defeasance
Reserve Account Amount). The "Defeasance Reserve Account Funding Date" will be
the first day of the Monthly Period prior to the Defeasance, or such earlier
date as the Transferor may determine. On the date of Defeasance, an amount equal
to the excess of the Required Defeasance Reserve Account Amount over the amount
then on deposit in the Defeasance Reserve Account will be deposited in the
Defeasance Reserve Account.
On or before each Transfer Date following Defeasance, a withdrawal will be
made from the Defeasance Reserve Account, and the amount of such withdrawal will
be applied as if such amount were Available Series 1998-2 Finance Charge
Collections on the last business day of the preceding Monthly Period. On each
Transfer Date following Defeasance, the amount available to be withdrawn from
the Defeasance Reserve Account (the "Available Defeasance Reserve Account
Amount") will be equal to the lesser of the amount on deposit in the Defeasance
Reserve Account (before giving effect to any withdrawal from the Defeasance
Reserve Account on such Transfer Date) and the Required Defeasance Reserve
Account Amount for such Transfer Date.
Provided that the Defeasance Reserve Account has not terminated as described
below, all amounts on deposit in the Defeasance Reserve Account on any Transfer
Date (after giving effect to any deposits to, or withdrawals from, the
Defeasance Reserve Account to be made on such Transfer Date) will be invested by
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the Trustee at the direction of the Servicer in Cash Equivalents maturing no
later than the following Transfer Date. The interest and other investment income
(net of investment expenses and losses) earned on such investments will be
retained in the Defeasance Reserve Account (to the extent the amount on deposit
therein is less than the Required Defeasance Reserve Account Amount) or applied
on each Transfer Date as Available Series 1998-2 Finance Charge Collections as
if such amounts were available on the last business day of the preceding Monthly
Period.
The Defeasance Reserve Account will be terminated following the earliest to
occur of (a) the termination of the Trust pursuant to the Pooling and Servicing
Agreement, (b) the date on which the ABC Invested Amount is paid in full, (c)
prior to Defeasance, the occurrence of a Pay Out Event with respect to the
Series 1998-2 Securities and (d) after Defeasance, the earlier of the first
Transfer Date with respect to the Early Amortization Period and the CTO Expected
Final Payment Date. Upon the termination of the Defeasance Reserve Account, all
amounts on deposit therein (after giving effect to any withdrawal from the
Defeasance Reserve Account on such date as described above) will be applied as
if they were Available Series 1998-2 Finance Charge Collections.
REVOLVING RECEIVABLES RESERVE ACCOUNT
Pursuant to the Series 1998-2 Supplement, the Servicer will establish and
maintain or cause to be established and maintained with a Qualified Institution,
which may be the Trustee, in the name of the Trustee, on behalf of the
Securityholders, the "Revolving Receivables Reserve Account," which shall be a
segregated trust account with the corporate trust department of such Qualified
Institution, bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Securityholders. The Trustee will
possess all right, title and interest in all funds on deposit from time to time
in the Revolving Receivables Reserve Account and in all proceeds thereof. The
Revolving Receivables Reserve Account will be under the sole dominion and
control of the Trustee for the benefit of the Securityholders. If at any time,
the institution holding the Revolving Receivables Reserve Account ceases to be a
Qualified Institution, the Trustee will within ten (10) business days establish
a new Revolving Receivables Reserve Account meeting the conditions specified
above with a Qualified Institution, and will transfer any cash or any
investments to such new Revolving Receivables Reserve Account. From the date
such new Revolving Receivables Reserve Account is established, it will be the
"Revolving Receivables Reserve Account."
On the Closing Date, the Transferor will make an initial deposit to the
Revolving Receivables Reserve Account in an amount equal to $200,000. In
addition, the Revolving Receivables Reserve Account will be funded from
Available Series 1998-2 Finance Charge Collections up to an amount generally
equal to the product of (x) the Series 1998-2 Percentage and (y) 1% of the
aggregate amount of Principal Receivables which are Revolving Receivables. Funds
on deposit in the Revolving Receivables Reserve Account will be withdrawn by the
Servicer on each Transfer Date to the extent of any shortfalls in amounts to be
paid or deposited as described above under clauses (i) through (xiii) of
"--Application of Collections--Payment of Fees, Interest and Other Items" as of
the end of the day on the last business day of the preceding Monthly Period and
will be applied as Available Series 1998-2 Finance Charge Collections as if such
amounts were available on the last business day of the preceding Monthly Period.
Funds on deposit in the Revolving Receivables Reserve Account will be
invested by the Trustee at the direction of the Servicer in Cash Equivalents
maturing no later than the following Transfer Date. The interest and other
investment income (net of investment expenses and losses) earned on such
investments will be retained in the Revolving Receivables Reserve Account (to
the extent the amount on deposit therein is less than the Specified Revolving
Receivables Reserve Amount) or applied on each Transfer Date as Available Series
1998-2 Finance Charge Collections as if such amounts were available on the last
business day of the preceding Monthly Period.
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The Revolving Receivables Reserve Account will be terminated following the
earlier to occur of (a) the termination of the Trust pursuant to the Pooling and
Servicing Agreement and (b) the date on which the ABC Invested Amount is paid in
full. Upon the termination of the Revolving Receivables Reserve Account, all
amounts on deposit therein (after giving effect to any withdrawal from the
Revolving Receivables Reserve Account on such date as described above) will be
applied as Available Series 1998-2 Finance Charge Collections as if such amounts
were available on the last business day of the preceding Monthly Period.
PAYMENT RESERVE ACCOUNT
Pursuant to the Series 1998-2 Supplement, the Servicer will establish and
maintain or cause to be established and maintained with a Qualified Institution,
which may be the Trustee, in the name of the Trustee, on behalf of the
Securityholders, the "Payment Reserve Account," which will be a segregated trust
account with the corporate trust department of such Qualified Institution,
bearing a designation clearly indicating that the funds deposited therein are
held for the benefit of the Securityholders. The Trustee will possess all right,
title and interest in all funds on deposit from time to time in the Payment
Reserve Account and in all proceeds thereof. The Payment Reserve Account will be
under the sole dominion and control of the Trustee for the benefit of the
Securityholders. If, at any time, the institution holding the Payment Reserve
Account ceases to be a Qualified Institution, the Trustee will within ten (10)
business days establish a new Payment Reserve Account meeting the conditions
specified above with a Qualified Institution, and will transfer any cash or any
investments to such new Payment Reserve Account. From the date such new Payment
Reserve Account is established, it shall be the "Payment Reserve Account."
The Payment Reserve Account will be funded at the discretion of the
Transferor as described above under clause (xvii) of "--Application of
Collections--Payment of Fees, Interest and Other Items." The Transferor, at its
discretion, may on any business day withdraw all or a part of any amounts then
on deposit in the Payment Reserve Account and apply such funds as Available
Series 1998-2 Finance Charge Collections in accordance with the Pooling and
Servicing Agreement.
Funds on deposit in the Payment Reserve Account will be invested by the
Trustee (or, at the direction of the Trustee, by the Servicer on behalf of the
Trustee) at the direction of the Servicer in Cash Equivalents that will mature
so that such funds will be available for withdrawal on or prior to the following
business day. The proceeds of any such investments will be invested in Cash
Equivalents that will mature so that such funds will be available for withdrawal
on or prior to the following business day. The interest and other investment
income (net of investment expenses and losses) earned on such investments will
be applied on each business day as Reserve Account Investment Proceeds.
The Payment Reserve Account will be terminated following the earlier to
occur of (a) the termination of the Trust pursuant to the Pooling and Servicing
Agreement and (b) the date on which the ABC Adjusted Invested Amount is reduced
to zero. Upon the termination of the Payment Reserve Account, all amounts on
deposit therein (after giving effect to any withdrawal from the Payment Reserve
Account on such date as described above) will be applied as Available Series
1998-2 Finance Charge Collections as if such amounts were available to be
applied on the last business day of the preceding Monthly Period.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
The Class A Securities, the Class B Securities and the Collateralized Trust
Obligations will each be subject to optional repurchase by the Transferor on any
Distribution Date if on such Distribution Date the sum of the Class A Invested
Amount, the Class B Invested Amount and the CTO Invested Amount would be reduced
to an amount less than or equal to 10 percent of the sum of the initial Class A
Invested Amount, the initial Class B Invested Amount and the initial CTO
Invested Amount, if certain conditions set forth in the Pooling and Servicing
Agreement are satisfied. The repurchase price will be equal to (i) the unpaid
Class A Invested Amount plus accrued and unpaid interest on the Class A
Securities, (ii) the unpaid Class B Invested Amount plus accrued and unpaid
interest on the Class B Securities, and (iii) the unpaid CTO Invested Amount
plus accrued and unpaid interest on the Collateralized Trust Obligations, in
each case after giving effect to any payments on such date. In each case,
interest will accrue through the day preceding the Distribution Date on which
the repurchase occurs.
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The Securities will be retired on the day following the Distribution Date on
which the final payment of principal is scheduled to be made to the
Securityholders, whether as a result of optional reassignment to the Transferor
or otherwise. Subject to prior termination as provided above, the Pooling and
Servicing Agreement provides that the final distribution of principal and
interest on the Offered Securities will be made on the February 2007
Distribution Date (the "Termination Date"), except to the extent provided below.
In the event that the Invested Amount is greater than zero, exclusive of any
Class held by the Transferor, on the Termination Date, the Trustee will sell or
cause to be sold (and apply the proceeds first to the Class A Securities until
paid in full, then to the Class B Securities until paid in full, then to the
Collateralized Trust Obligations until paid in full, and finally to the Class D
Securities to the extent necessary to pay such remaining amounts to all
Securityholders pro rata within each Class as final payment of the Securities)
interests in the Receivables or certain Receivables, as specified in the Pooling
and Servicing Agreement and the Series 1998-2 Supplement, in an amount up to
110% of the Invested Amount at the close of business on such date (but not more
than the total amount of Receivables allocable to the Securities in accordance
with the Pooling and Servicing Agreement). If the sale contemplated by the
preceding sentence has not occurred by the Termination Date, the affected
Securityholders shall remain entitled to receive proceeds of such sale when it
occurs. The net proceeds of such sale and any Collections on the Receivables
through the date of sale, up to an amount equal to the Invested Amount plus
accrued interest due on the Securities, will be paid on the Termination Date
first to Class A Securityholders until the Class A Invested Amount is paid in
full, then to the Class B Securityholders until the Class B Invested Amount is
paid in full, then to the CTO Securityholders until the CTO Invested Amount is
paid in full, and then to the Class D Securityholders until the Class D Invested
Amount is paid in full.
Unless the Servicer and the holder of the Exchangeable Transferor Security
instruct the Trustee otherwise, the Trust will terminate on the earlier of (a)
the day after the Distribution Date following the date on which funds shall have
been deposited in the Distribution Account for the payment to securityholders
outstanding sufficient to pay in full the aggregate investor interest of all
Series outstanding plus interest thereon at the applicable interest rates to the
next Distribution Date and (b) a date which shall not be later than June 29,
2034. Upon the termination of the Trust and the surrender of the Exchangeable
Transferor Security, the Trustee will convey to the holder of the Exchangeable
Transferor Security, subject to the rights of the holder of any Participation,
all right, title, and interest of the Trust in and to the Receivables and other
funds of the Trust (other than funds on deposit in the Distribution Account and
other similar bank accounts of the Trust with respect to any Series).
PAY OUT EVENTS
As described above, the Revolving Period will continue through the end of
the July 2002 Monthly Period, with respect to the Securities, unless a Pay Out
Event occurs prior to such date. A "Pay Out Event" refers to any of the
following events:
(i) failure on the part of the Transferor (a) to make any payment or
deposit on the date required under the Pooling and Servicing Agreement (or
within the applicable grace period which will not exceed five business
days); (b) to perform in all material respects the Transferor's covenant not
to sell, pledge, assign, or transfer to any Person, or grant any unpermitted
lien on, any Receivable; or (c) to observe or perform in any material
respect any other covenants or agreements of the Transferor set forth in the
Pooling and Servicing Agreement, which failure has a material adverse effect
on the Securityholders and which continues unremedied for a period of 60
days after written notice of such failure, requiring the same to be
remedied, shall have been given to the Transferor by the Trustee, or to the
Transferor and the Trustee by the Securityholders representing more than 50%
of the Invested Amount and continues to materially and adversely affect the
interests of the Securityholders for such period;
(ii) any representation or warranty made by the Transferor in the
Pooling and Servicing Agreement proves to have been incorrect in any
material respect when made, and as a result the
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interests of the Securityholders are materially adversely affected, and such
representation or warranty continues to be incorrect for a period of 60 days
after notice to the Transferor by the Trustee or to the Transferor and the
Trustee by more than 50% of the Invested Amount and the Securityholders'
Interest continues to be materially adversely affected during such period;
PROVIDED, HOWEVER, that a Pay Out Event pursuant to this clause (ii) will
not be deemed to occur thereunder if the Transferor has accepted
reassignment of the related Receivable or all such Receivables, if
applicable, during such period (or such longer period as the Trustee may
specify) in accordance with the provisions thereof;
(iii) certain events of bankruptcy or insolvency relating to the
Transferor, FCI or Fingerhut National Bank;
(iv) any reduction of the average of the Portfolio Yields for any three
consecutive Monthly Periods to a rate which is less than the weighted
average Base Rates for such three consecutive Monthly Periods;
(v) the Trust shall become subject to regulation by the Commission as an
"investment company" within the meaning of the Investment Company Act;
(vi) (a) the Transferor Interest shall be less than the Minimum
Transferor Interest, (b) the total amount of Principal Receivables and the
amount on deposit in the Excess Funding Account shall be less than the
Minimum Aggregate Principal Receivables or (c) the Retained Percentage shall
be equal to or less than 2 percent, in each case as of any Determination
Date and shall not exceed the required amount on or prior to the tenth
business day following such Determination Date;
(vii) any Servicer Default (as defined below) shall occur which would
have a material adverse effect on the Securityholders; or
(viii) certain events of bankruptcy or insolvency involving Fingerhut.
In the case of any event described in clause (i), (ii), or (vii) above, a
Pay Out Event will be deemed to have occurred with respect to the Securities
only if, after any applicable grace period, the Securityholders evidencing
undivided interests aggregating more than 50% of the Invested Amount, by written
notice to the Transferor and the Servicer declare that a Pay Out Event has
occurred with respect to the Securities as of the date of such notice. In the
case of any event described in clause (iii), or (v) above, a Pay Out Event with
respect to all Series then outstanding, and in the case of any event described
in clause (iv), (vi) or (viii), a Pay Out Event with respect only to the
Securities, will be deemed to have occurred without any notice or other action
on the part of the Trustee or the Securityholders or all securityholders, as
appropriate, immediately upon the occurrence of such event. On the date on which
a Pay Out Event is deemed to have occurred, the Early Amortization Period will
commence. In such event, distributions of principal to the Securityholders will
begin on the first Distribution Date following the month in which such Pay Out
Event occurred. If, because of the occurrence of a Pay Out Event, the Early
Amortization Period begins, Securityholders will begin receiving distributions
of principal earlier than they otherwise would have, which may shorten the
average life of the Securities.
In addition to the consequences of a Pay Out Event discussed above, if,
pursuant to certain provisions of federal law, the Transferor voluntarily enters
liquidation or a trustee in bankruptcy is appointed for the Transferor (an
"Insolvency Event"), the Transferor will immediately cease to transfer Principal
Receivables to the Trust and promptly give notice to the Trustee of such event.
Notwithstanding any cessation of the transfer to the Trust of additional
Principal Receivables, Finance Charge Receivables (other than Discount
Receivables), whenever created, which arise in respect of Receivables that have
been transferred to the Trust, shall continue to be a part of the Trust, and
Collections with respect thereto shall continue to be allocated and paid in
accordance with the Pooling and Servicing Agreement and any Supplements.
If the only Pay Out Event to occur is either the bankruptcy or insolvency of
the Transferor or the appointment of a bankruptcy trustee or receiver for the
Transferor, the bankruptcy trustee or receiver may
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have the power to prevent the early commencement of the Early Amortization
Period. In addition, a bankruptcy trustee or receiver may have the power to
cause the early sale of the Receivables and the early retirement of the
Securities.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities and reimbursement
for its expenses allocable to the Series 1998-2 Securityholders' Interest will
take the form of the payment to it of a servicing fee in an amount for any
Monthly Period (the "Monthly Servicing Fee") equal to the product of (i) a
fraction the numerator of which is the actual number of days in such Monthly
Period and the denominator of which is 365 or 366, (ii) 2.00% and (iii) the
Adjusted Invested Amount as of the beginning of the day on the first day of such
Monthly Period, or, in the case of the first Distribution Date, the Initial
Invested Amount. The Monthly Servicing Fee will be funded from Available Series
1998-2 Finance Charge Collections and will be paid from the amount so allocated
and on deposit in the Collection Account. See "--Application of
Collections--Payment of Fees, Interest and Other Items" above. The remainder of
the servicing fee will be allocable to the Transferor Interest, the holders of
Participations and the investor interests of other Series. Neither the Trust nor
the Securityholders will have any obligation to pay such portion of the
servicing fee.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with the servicing of the Receivables, including without
limitation payment of the fees and disbursements of the Trustee and independent
certified public accountants and other fees which are not expressly stated in
the Pooling and Servicing Agreement to be payable by the Trust or the
Securityholders other than federal, state, and local income and franchise taxes,
if any, of the Trust.
CERTAIN MATTERS REGARDING THE TRANSFEROR AND THE SERVICER
The Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement, except upon determination that performance of
its duties is no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor to the Servicer has
assumed the Servicer's responsibilities and obligations under the Pooling and
Servicing Agreement. The Servicer may delegate some or all of its servicing
duties; PROVIDED, HOWEVER, such delegation will not relieve the Servicer of its
obligation to perform such duties in accordance with the Pooling and Servicing
Agreement and the Trustee and the Rating Agencies must be notified in writing of
any material delegation. In addition, any affiliate of FNB may be substituted in
all respects for FNB as Servicer, provided that such affiliate expressly assumes
the performance of every covenant and obligation of the Servicer under the
Pooling and Servicing Agreement and that the Rating Agencies shall have received
prior written notice of such designation. Fingerhut will remain jointly and
severally liable with any such affiliate.
The Pooling and Servicing Agreement provides that the Servicer will
indemnify the Transferor, the Trust and the Trustee from and against any
reasonable loss, liability, expense, damage, or injury suffered or sustained by
reason of any acts or omissions or alleged acts or omissions of the Servicer
with respect to the activities of the Trust or the Trustee; PROVIDED, HOWEVER,
that the Servicer will not indemnify or hold harmless (a) an indemnified party
if such acts, omissions or alleged acts or omissions constitute or are caused by
fraud, gross negligence, or willful misconduct by such indemnified party (or any
of such indemnified party's officers, directors, employees or agents) or the
Investor Securityholders, (b) the Trust, the Investor Securityholders or the
security owners for any losses, liabilities, expenses, damages or injuries
suffered or sustained by any of them with respect to any action taken by the
Trustee at the request of the Investor Securityholders, (c) the Trust, the
Investor Securityholders or the security owners as to any losses, liabilities,
expenses, damages or injuries suffered or sustained by any of them in their
capacities as investors, including without limitation losses incurred as a
result of Defaulted Accounts, or (d) the Transferor, the Trust, the Investor
Securityholders or the security owners for any losses, liabilities, expenses,
damages or injuries suffered or sustained by the Trust, the Investor
Securityholders or the security owners arising under any tax law, including
without limitation, any federal, state, local or foreign
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income or franchise taxes or any other tax imposed on or measured by income (or
any interest, penalties or additions with respect thereto or arising from a
failure to comply therewith) required to be paid by the Trust, the Investor
Securityholders or the security owners in connection herewith to any taxing
authority.
The Pooling and Servicing Agreement provides that, except for the foregoing
indemnity by the Servicer and the liability described in the next paragraph,
neither the Transferor nor the Servicer nor any of their respective directors,
officers, employees, or agents will be under any liability to the Trust, the
Securityholders, or any other Person for any action taken, or for refraining
from taking any action pursuant to the Pooling and Servicing Agreement. Neither
the Transferor nor the Servicer nor any of their respective directors, officers,
employees, or agents will be protected against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith, or gross
negligence of the Transferor, the Servicer, or any such Person in the
performance of its duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Pooling and Servicing
Agreement provides that the Servicer is not under any obligation to appear in,
prosecute, or defend any legal action that is not incidental to its servicing
responsibilities under the Pooling and Servicing Agreement and which in its
opinion may expose it to any expense or liability.
Under the Pooling and Servicing Agreement, the Transferor will be liable
directly to an injured party for the entire amount of any taxes and related
expenses imposed on or payable by the Trust. Under the Pooling and Servicing
Agreement, the Transferor agrees to pay, indemnify and hold harmless each
Investor Securityholder against and from any and all such taxes and expenses.
SERVICER DEFAULT
In the event of any Servicer Default (as defined below), either the Trustee
or Investor Securityholders representing undivided interests aggregating more
than 50 percent of the aggregate investor interests for all outstanding Series,
by written notice to the Servicer (and to the Trustee if given by the Investor
Securityholders), may terminate all of the rights and obligations of the
Servicer as servicer under the Pooling and Servicing Agreement and in and to the
Receivables and the proceeds thereof and the Trustee may appoint a new Servicer
(a "Service Transfer"). The rights and interest of the Transferor under the
Pooling and Servicing Agreement and in the Transferor Interest will not be
affected by such termination. Upon such termination, the Trustee will as
promptly as possible appoint a successor Servicer. If no such Servicer has been
appointed and has accepted such appointment by the time the Servicer ceases to
act as Servicer, all authority, power, and obligations of the Servicer under the
Pooling and Servicing Agreement will pass to and be vested in the Trustee. If
the Trustee is unable to obtain any bids from eligible servicers and the
Servicer delivers an officer's certificate to the effect that it cannot in good
faith cure the applicable Servicer Default, and if the Trustee is legally unable
to act as a successor Servicer, then the Trustee will give the Transferor the
right to accept reassignment of all of the Receivables for an amount equal to
the aggregate invested amount of all outstanding securities and the amount of
any Participation as of the date of purchase plus all accrued but unpaid
interest on the securities.
A "Servicer Default" refers to any of the following events:
(i) failure by the Servicer to make any payment, transfer, or deposit,
or to give instructions to the Trustee to make certain payments, transfers,
or deposits within five business days after the date the Servicer is
required to do so under the Pooling and Servicing Agreement or any
Supplement; PROVIDED, HOWEVER, that any such failure caused by a nonwillful
act of the Servicer shall not constitute a Servicer Default if the Servicer
promptly remedies such failure within five business days after receiving
notice of such failure or otherwise becoming aware of such failure;
(ii) failure on the part of the Servicer duly to observe or perform in
any respect any other covenants or agreements of the Servicer which has a
material adverse effect on the securityholders of any Series then
outstanding and which continues unremedied for a period of 60 days after
written notice of such failure, requiring the same to be remedied, shall
have been given to the Servicer by the
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Trustee, or to the Servicer and the Trustee by holders of securities
evidencing undivided interests aggregating not less than 50 percent of the
invested amount of any Series materially adversely affected thereby and
continues to have a material adverse effect on the securityholders of any
Series then outstanding for such period; or the delegation by the Servicer
of its duties under the Pooling and Servicing Agreement, except as
specifically permitted thereunder;
(iii) any representation, warranty, or certification made by the Servicer
in the Pooling and Servicing Agreement, or in any certificate delivered
pursuant to the Pooling and Servicing Agreement, proves to have been
incorrect when made which has a material adverse effect on the
securityholders of any Series then outstanding, and which continues to be
incorrect in any material respect for a period of 60 days after written
notice of such failure, requiring the same to be remedied, shall have been
given to the Servicer by the Trustee, or to the Servicer and Trustee by the
holders of securities evidencing undivided interests aggregating not less
than 50 percent of the invested amount of any Series materially adversely
affected thereby and continues to have a material adverse effect on such
securityholders for such period; or
(iv) the occurrence of certain events of bankruptcy, insolvency, or
receivership of the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance referred
to in clause (i) above for a period of five business days, or referred to under
clause (ii) or (iii) for a period of 60 business days, will not constitute a
Servicer Default if such delay or failure could not be prevented by the exercise
of reasonable diligence by the Servicer and such delay or failure was caused by
an act of God or other similar occurrence. Upon the Servicer becoming aware of
any such event, the Servicer will not be relieved from using its best efforts to
perform its obligations in a timely manner in accordance with the terms of the
Pooling and Servicing Agreement, and the Servicer will provide the Trustee, any
provider of Enhancement, the Transferor, and the holders of securities of all
Series outstanding prompt notice of such failure or delay by it, together with a
description of the cause of such failure or delay and its efforts to perform its
obligations.
In the event of a Servicer Default, if a bankruptcy trustee or receiver were
appointed for the Servicer and no Servicer Default other than such bankruptcy or
receivership or the insolvency of the Servicer exists, the bankruptcy trustee or
receiver may have the power to prevent either the Trustee or the majority of the
securityholders from effecting a Service Transfer.
REPORTS TO SECURITYHOLDERS
On each Distribution Date, the Paying Agent will forward to each
Securityholder of record a statement prepared by the Servicer setting forth with
respect to such Series: (a) the total amount distributed, (b) the amount of the
distribution allocable to Class A Principal, the Class B Principal, the CTO
Principal and the Class D Principal, (c) the amount of such distribution
allocable to interest on the Class A Securities, the Class B Securities and the
Collateralized Trust Obligations Collateralized Trust Obligations, (d) the
amount of Principal Collections processed during the related Monthly Period and
allocated in respect of the Class A Securities, the Class B Securities, the
Collateralized Trust Obligations and the Class D Securities, respectively, (e)
the amount of Finance Charge Collections processed during the preceding Monthly
Period and allocated in respect of the Class A Securities, the Class B
Securities, the Collateralized Trust Obligations and the Class D Securities,
respectively, and, after the Defeasance Reserve Account Funding Date, the amount
of Defeasance Funding Account Investment Proceeds and investment earnings on
amounts on deposit in the Defeasance Reserve Account, (f) the aggregate amount
of Principal Receivables, the Invested Amount, the Class A Invested Amount, the
Class B Invested Amount, the CTO Invested Amount, the Class D Invested Amount,
the Floating Percentage, and, during the Amortization Period, the Fixed/Floating
Percentage as of the end of the day on the last day of the related Monthly
Period, (g) the aggregate outstanding balance of Receivables which are current,
and 30-59, 60-89 and 90 days and over contractually delinquent as of the end of
the day on the last day of the related
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Monthly Period, (h) the aggregate Series Default Amount for the related Monthly
Period, (i) the aggregate amount of Class A Charge-Offs, Class B Charge-Offs,
CTO Charge-Offs and Class D Charge-Offs for the preceding Monthly Period, (j)
the amount of the Monthly Servicing Fee for the preceding Monthly Period, (k)
the amount of unreimbursed Redirected Class B Principal Collections, Redirected
CTO Principal Collections and Redirected Class D Principal Collections for the
related Monthly Period, (l) the aggregate amount of funds in the Excess Funding
Account as of the last day of the Monthly Period immediately preceding the
Distribution Date, (m) certain information with respect to the Collateralized
Trust Obligations, (n) the number of new Accounts the Receivables in which have
been added to the Trust during the related Monthly Period, (o) the Portfolio
Yield for the related Monthly Period, (p) the Base Rate for the related Monthly
Period, (q) the balance in the Defeasance Funding Account on the related
Transfer Date, (r) the Revolving Receivables Reserve Account balance on the
related Transfer Date and (s) the amount of Defeasance Funding Account
Investment Proceeds deposited in the Collection Account on the related Transfer
Date, the Required Defeasance Reserve Account Amount and the Available
Defeasance Reserve Account Amount as of the related Transfer Date.
The Paying Agent will furnish to each Person who at any time during the
preceding calendar year was a Securityholder of record a statement prepared by
the Servicer containing the information required to be contained in the regular
monthly report to Securityholders, as set forth in clauses (a), (b), and (c)
above aggregated for such calendar year or the applicable portion thereof during
which such Person was a Securityholder, together with, on or before January 31
of each year, beginning in 1999, such customary information (consistent with the
treatment of the Securities as debt) as the Servicer or Trustee deems necessary
or desirable for tax reporting purposes.
REPORTS; NOTICES
Following the listing of the Offered Securities on the Luxembourg Stock
Exchange, the Trustee will publish or will cause to be published following each
Distribution Date in a daily newspaper in Luxembourg (expected to be the
LUXEMBURGER WORT) a notice to the effect that the information set forth in the
foregoing paragraph will be available for review at the main office of the
listing agent of the Trust in Luxembourg, Luxembourg.
Following the listing of the Offered Securities on the Luxembourg Stock
Exchange, notices to Securityholders will be given by publication in a daily
newspaper in Luxembourg, which is expected to be the LUXEMBURGER WORT. In the
event that Definitive Securities are issued, notices to Securityholders will
also be given by mail to the addresses of such holders as they appear in the
security register.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement provides that within 100 days of the end
of each fiscal year the Servicer will cause a firm of independent certified
public accountants to furnish to the Trustee a report to the effect that such
firm has compared the amounts and percentages set forth in four of the monthly
settlement statements for the Monthly Periods covered by such report with the
computer reports (which may include personal computer generated reports that
summarize data from the computer reports generated by either the Transferor or
the Servicer which are used to prepare daily reports) which were the source of
such amounts and percentages and that, on the basis of such comparison, such
amounts and percentages are in agreement, except as shall be set forth in such
report; PROVIDED, HOWEVER, that in the event that the independent certified
public accountants who are preparing such report are not the accounting firm
that is the independent accountants for FCI during the relevant period, then the
independent certified public accountants who are preparing such report will
compare the amounts set forth in each of the monthly certificates forwarded by
the Servicer during the period covered by the report with the applicable
computer reports. A copy of such report will be sent by the Trustee to each
Securityholder.
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The Pooling and Servicing Agreement provides that within 100 days of the end
of each fiscal year, the Servicer will cause a firm of nationally recognized
independent accountants to furnish a report to the effect that such firm has
applied certain procedures, as agreed upon between such firm and the Servicer,
which would re-perform certain accounting procedures performed by the Servicer
pursuant to certain documents and records relating to the servicing of the
Receivables. Each report shall set forth the agreed upon procedures performed
and the results of such procedures.
The Pooling and Servicing Agreement also provides for delivery to the
Trustee on an annual basis, within 100 days of the end of the fiscal year, of a
statement signed by an officer of the Servicer to the effect that the Servicer
has, or has caused to be, fully performed its obligations in all material
respects under the Pooling and Servicing Agreement throughout the preceding year
or, if there has been a default in the performance of any such obligation,
specifying the nature and status of the default. A copy of such certificate may
be obtained by any Securityholder upon the submission of a written request
therefor addressed to the Trustee's Corporate Trust Office.
AMENDMENTS
The Pooling and Servicing Agreement and the Series 1998-2 Supplement may be
amended by the Transferor, the Servicer, and the Trustee, without the consent of
any of the Investor Securityholders, for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of such Pooling
and Servicing Agreement and Supplement or of modifying in any manner the rights
of such Securityholders; provided that (i) the Servicer shall have provided an
officer's certificate to the effect that such action will not adversely affect
the interests of such Investor Securityholders or any holders of a
Participation, (ii) except in the case of any amendment for the sole purpose of
curing any ambiguity or correcting or supplementing any inconsistent provision
of the Pooling and Servicing Agreement or revising any schedule thereto (other
than certain disclosure regarding tax filings and payment), the Rating Agencies
shall have been notified of such amendment and shall have provided written
confirmation that they would not lower the rating of any Series or any class of
any Series, and (iii) such action will not, in the opinion of counsel
satisfactory to the Trustee, result in certain adverse tax consequences. In
addition, the Pooling and Servicing Agreement and the Series 1998-2 Supplement
may be amended from time to time by the Transferor, the Servicer, and the
Trustee, without the consent of Securityholders, to add to or change any of the
provisions of the Pooling and Servicing Agreement to provide that bearer
securities issued with respect to any Series may be registrable as to principal,
to change or eliminate any restrictions on the payment of principal of or any
interest on such bearer securities, to permit such bearer securities to be
issued in exchange for registered securities or bearer securities of other
authorized denominations or to permit the issuance of uncertificated securities.
The Pooling and Servicing Agreement and the Supplement may be amended by the
Transferor, the Servicer, and the Trustee with the consent of the holders of
securities evidencing undivided interests aggregating not less than 66 2/3% of
the investor interests of each and every Series adversely affected, for the
purpose of adding any provisions to, changing in any manner or eliminating any
of the provisions of the Pooling and Servicing Agreement or any Supplement or of
modifying in any manner the rights of securityholders of any then outstanding
Series. No such amendment, however, may (a) reduce in any manner the amount of,
or delay the timing of, distributions required to be made on any such Series,
(b) change the definition of or the manner of calculating the interest of any
Securityholder of such Series, or (c) reduce the aforesaid percentage of
investor interests the holders of which are required to consent to any such
amendment, in each case without the consent of all securityholders of all Series
adversely affected.
Additionally, upon the receipt by the Transferor, the Servicer and the
Trustee of a Tax Opinion and an opinion of counsel to the effect that such
action shall not materially adversely affect the Applicable Tax State income tax
characterization of any outstanding Series or the taxability of the Trust under
Applicable Tax State income tax law, the Pooling and Servicing Agreement may be
amended by the Transferor, the
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Servicer and the Trustee without the consent of any of the Securityholders (i)
to add, modify or eliminate such provisions as may be necessary or advisable in
order to enable all or a portion of the Trust to qualify as, and to permit an
election to be made to cause all or a portion of the Trust to be treated as, a
"financial asset securitization trust" as described in the provisions of the
FASIT legislation, or to enable all or a portion of the Trust to qualify and an
election to be made for similar treatment under comparable subsequent federal
income tax provisions as may ultimately be enacted into law, and (ii) in
connection with any such election, to modify or eliminate existing provisions of
the Pooling and Servicing Agreement and any Supplement relating to the intended
federal income tax treatment of the Securities and the Trust in the absence of
the election.
Promptly following the execution of any amendment to the Pooling and
Servicing Agreement, the Trustee will furnish written notice of the substance of
such amendment to each Securityholder. Any Supplement and any amendments
regarding the addition or removal of Receivables from the Trust will not be
considered an amendment requiring Securityholder consent under the provisions of
the Pooling and Servicing Agreement and any Supplement.
LIST OF SECURITYHOLDERS
Upon written request of Investor Securityholders representing undivided
interests in the Trust aggregating not less than 10 percent of the invested
amount of any Series, the Trustee after having been adequately indemnified by
such Investor Securityholders for its costs and expenses, and having given the
Servicer notice that such request has been made, will afford such Investor
Securityholders access during business hours to the current list of Investor
Securityholders of the Trust for purposes of communicating with other
Securityholders with respect to their rights under the Pooling and Servicing
Agreement. See "--Book-Entry Registration" and "--Definitive Securities."
THE TRUSTEE
The Bank of New York (Delaware) is the Trustee under the Pooling and
Servicing Agreement. The Trustee's corporate trust office is located at White
Clay Center, Route 273, Newark, Delaware 19711. The Transferor, the Servicer,
and their respective affiliates may from time to time enter into normal banking,
lending and trustee relationships with the Trustee and its affiliates. The
Trustee, the Transferor, the Servicer, and any of their respective affiliates
may hold Securities in their own names. In addition, for purposes of meeting the
legal requirements of certain local jurisdictions, the Trustee will have the
power to appoint a co-trustee or separate trustees of all or any part of the
Trust. In the event of such appointment, all rights, powers, duties, and
obligations conferred or imposed upon the Trustee by the Pooling and Servicing
Agreement will be conferred or imposed upon the Trustee and such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who will exercise and perform such rights,
powers, duties, and obligations solely at the direction of the Trustee.
The Trustee may resign at any time. The Transferor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. The Trustee
at all times must not be a Related Person. In such circumstances, the Transferor
will be obligated to appoint a successor Trustee. Any resignation or removal of
the Trustee and appointment of a successor Trustee does not become effective
until acceptance of the appointment by the successor trustee.
If the Trustee fails to perform any of its obligations under the Pooling and
Servicing Agreement, and a Securityholder delivers written notice of such
failure to the Trustee, and the Trustee shall not have corrected such failure
for 60 days thereafter, then the holders of investor securities representing
more than 50 percent of the aggregate invested amount of all Series (including
related commitments) shall have the right to remove the Trustee and (with the
consent of the Transferor, which shall not be unreasonably
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withheld) promptly appoint a successor Trustee by written instrument, in
duplicate, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor Trustee.
CONSTITUENT CLASS D SECURITIES
Under the Pooling and Servicing Agreement and pursuant to the Series 1998-2
Supplement, the Transferor as holder of the Class D Securities may at any time
(i) subdivide the Class D Securities into two or more subsidiary securities, or
(ii) redirect all or any portion of the amounts distributable to the Class D
Securityholders (pursuant to the application of collections allocable to the
Class D Securityholders) to any other Securityholder. In connection with such
subdivision, the Transferor may assign an interest rate to the Class D
Securities or a portion thereof and make payments of interest with respect to
such securities from amounts initially allocated to the Securities which would
otherwise constitute Excess Finance Charge Collections. The Pooling and
Servicing Agreement provides that before any Class D Securities can be
subdivided or transferred, the following conditions must be met: (i) the Trustee
and the Transferor shall have received an opinion of counsel that such transfer
does not adversely affect the conclusions reached in any of the federal or state
income tax opinions issued in connection with the original issuance of the
Securities, (ii) the Transferor shall deliver to the Trustee an officers'
certificate stating that in the reasonable belief of the Transferor, such
subdivision would not cause a Pay Out Event with respect to Series 1998-2 to
occur, or an event which, with notice or lapse of time or both, would constitute
a Pay Out Event with respect to Series 1998-2, and (iii) the Rating Agency
Condition shall have been satisfied.
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DESCRIPTION OF THE PURCHASE AGREEMENTS
PURCHASES OF RECEIVABLES
On and after the Initial Closing Date and prior to January 12, 1997, all
Receivables that were transferred to the Trust by the Transferor were closed-end
installment sale contracts originated by Fingerhut. Such Receivables were sold
by Fingerhut to the Transferor pursuant to the Fingerhut Purchase Agreement.
Beginning in January 1997, Fingerhut ceased extending credit to its customers
and FNB commenced the origination of closed-end credit card loans to finance
purchases of merchandise and services from Fingerhut. In addition, in November
1996, FNB commenced the origination of revolving credit card loans to finance
purchases of merchandise and services from Fingerhut. Since January 12, 1997,
all closed-end credit card loans and revolving credit card loans originated by
FNB have been sold on an ongoing basis by FNB to FCI pursuant to the Bank
Purchase Agreement and, all such closed-end credit card loans that are
Receivables, have been transferred by FCI to the Transferor pursuant to the FCI
Purchase Agreement. Since January 12, 1997, the Transferor has been transferring
to the Trust the closed-end credit card loans originated by FNB that it
purchases from FCI. On March 18, 1998, the FCI Purchase Agreement and the
Pooling and Servicing Agreement were amended to provide for the sale on an
ongoing basis by FCI to the Transferor, and by the Transferor to the Trust,
respectively, of the revolving credit card loans originated by FNB.
Pursuant to the Fingerhut Purchase Agreement, the Transferor purchased from
Fingerhut the Receivables originated by Fingerhut that arose from time to time.
As described above, Fingerhut stopped originating new closed-end installment
sale contracts in January 1997. Pursuant to the FCI Purchase Agreement, the
Transferor purchases from FCI Receivables arising from time to time. On each
business day prior to the Purchase Termination Date, FCI will transfer
Receivables acquired from FNB to the Transferor. Pursuant to the Pooling and
Servicing Agreement, such Receivables are thereafter transferred immediately by
the Transferor to the Trust, and the Transferor has assigned its rights in, to
and under the Fingerhut Purchase Agreement and the FCI Purchase Agreement with
respect to such Receivables to the Trust.
REPRESENTATIONS AND WARRANTIES
BANK PURCHASE AGREEMENT. In the Bank Purchase Agreement, FNB represents and
warrants that, among other things, (a) FNB is a national banking association
validly existing in good standing under the laws of the United States, and has
corporate power, authority and legal right to execute, deliver and perform its
obligations under the Bank Purchase Agreement, (b) the Bank Purchase Agreement
constitutes the valid and binding obligations of FNB, enforceable against FNB in
accordance with its terms, subject to customary bankruptcy and equity related
exceptions, (c) FNB is the legal and beneficial owner of all right, title and
interest in and to each Receivable conveyed to FCI pursuant to the Bank Purchase
Agreement and each such Receivable has been or will be transferred to FCI free
and clear of any lien other than Permitted Liens, (d) the Bank Purchase
Agreement constitutes a valid transfer and assignment to FCI of all right, title
and interest of FNB in and to the Receivables, all monies due or to become due
and all proceeds related thereto, or an absolute sale of such property and the
proceeds thereof, (e) each Account classified as an "Eligible Account" by FNB in
any document or report delivered under the Bank Purchase Agreement will satisfy
the requirements contained in the definition of Eligible Account and each
Receivable classified as an "Eligible Receivable" by FNB in any document or
report delivered under the Bank Purchase Agreement will satisfy the requirements
contained in the definition of Eligible Receivable, (f) the execution and
delivery of the Bank Purchase Agreement and the performance of the transactions
contemplated thereby do not contravene FNB's charter or by-laws, violate any
material provision of law applicable to it, require any filing (except for
filings under the UCC), registration, consent or approval under any such law
except for such filings, registrations, consents, or approvals as have already
been obtained and are in full force and effect, (g) except as described in the
Bank Purchase Agreement, FNB has filed all tax returns required to be filed and
has paid or made adequate provision for the payment of all taxes, assessments,
and other governmental charges due from FNB or is contesting any such tax,
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assessment or other governmental charge in good faith through appropriate
proceedings, (h) there are no proceedings or investigations pending or, to the
best knowledge of FNB, threatened against FNB before any Governmental Authority
asserting the invalidity of the Bank Purchase Agreement, seeking to prevent the
consummation of any of the transactions contemplated by the Bank Purchase
Agreement, seeking any determination or ruling that would materially and
adversely affect the performance by FNB of its obligations thereunder or seeking
any determination or ruling that would materially and adversely affect the
validity or enforceability thereof, and (i) FNB is not insolvent and will not be
rendered insolvent upon the sale of the Receivables to the Transferor. In the
event of a breach of any of the representations or warranties with respect to a
Receivable under the Bank Purchase Agreement by FNB, FNB will be required,
within thirty (30) business days of such breach, to pay FCI an amount in cash
equal to the purchase price paid for such Receivables.
PURCHASE AGREEMENTS. Pursuant to the Fingerhut Purchase Agreement and the
FCI Purchase Agreement (collectively the "Purchase Agreement"), Fingerhut has
represented and warranted to the Transferor, and FCI represents and warrants to
the Transferor (each of Fingerhut and FCI, the "Seller"), each under their
respective agreement that, among other things, subject to specified exceptions
and limitations, the Seller is duly organized, validly existing, and in good
standing under the laws of the State of Minnesota, the Seller is duly qualified
to do business and in good standing (or is exempt from such requirement) in any
state required in order to conduct its business and has obtained all necessary
licenses and approvals required under applicable law; PROVIDED, HOWEVER, that no
representation or warranty is made with respect to any qualifications, licenses
or approvals which the Transferor would have to obtain to do business in any
state in which the transferor seeks to enforce any Receivables. Pursuant to the
Purchase Agreement, the Seller additionally represents and warrants that, among
other things, subject to specified exceptions and limitations, (i) the execution
and delivery of the Purchase Agreement and the consummation of the transactions
provided for in the Purchase Agreement have been duly authorized by the Seller
by all necessary corporate action on its part, (ii) the execution and delivery
of the Purchase Agreement and the performance of the transactions contemplated
thereby do not contravene the Seller's charter or by-laws, violate any material
provision of law applicable to it, require any filing (except for filings under
the UCC), registration, consent or approval under any such law except for such
filings, registrations, consents, or approvals as have already been obtained and
are in full force and effect, (iii) except as described in the Purchase
Agreement, the Seller has filed all tax returns required to be filed and has
paid or made adequate provision for the payment of all taxes, assessments, and
other governmental charges due from the Seller or is contesting any such tax,
assessment or other governmental charge in good faith through appropriate
proceedings, (iv) there are no proceedings or investigations pending or, to the
best knowledge of the Seller threatened against the Seller before any
Governmental Authority asserting the invalidity of the Purchase Agreement,
seeking to prevent the consummation of any of the transactions contemplated by
the Purchase Agreement, seeking any determination or ruling that would
materially and adversely affect the performance by the Seller of its obligations
thereunder or seeking any determination or ruling that would materially and
adversely affect the validity or enforceability thereof, (v) (A) with respect to
the Fingerhut Purchase Agreement, each Receivable is or will be an account
receivable arising out of the sale of consumer goods, services or financial
service products by Fingerhut and (B) with respect to the FCI Purchase
Agreement, each Receivable is or will be an account receivable arising out of
the performance by the applicable Originator in accordance with the terms of the
Contract giving rise to such Receivable and in each Purchase Agreement, the
Seller has no knowledge of any fact which should have led it to expect at the
time of the classification of any Receivable as an Eligible Receivable that such
Receivable would not be paid in full when due, and each Receivable classified as
an Eligible Receivable by the Seller in any document or report delivered under
the Purchase Agreement satisfies the requirements of eligibility contained in
the definition of Eligible Receivable set forth in the Pooling and Servicing
Agreement, (vi) the Purchase Agreement constitutes the legal, valid, and binding
obligation of the Seller, (vii) the Seller is not insolvent and will not be
rendered insolvent upon the sale of the Receivables to the Transferor, (viii)
the Seller is not an "investment company" within the meaning of the Investment
Company Act (or is exempt
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from all provisions of such Act), (ix) the Seller is or will be on the date of
sale the legal and beneficial owner of all right, title and interest in and to
each Receivable conveyed to the Transferor by the Seller pursuant to the
Purchase Agreement, and each such Receivable has been or will be transferred to
the Transferor free and clear of any lien other than Permitted Liens and in
compliance in all material respects with all requirements of law applicable to
the Seller and (x) the transfer of Receivables by the Seller to the Transferor
under the Purchase Agreement constitutes a valid sale, transfer, assignment,
set-over and conveyance to the Trust of all right, title and interest of the
Seller in and to the Receivables whether existing or thereafter created (except
for Permitted Liens).
If certain of the representations or warranties described above are not true
with respect to any Receivable at the time such representation or warranty was
made or any Receivable becomes an Ineligible Receivable, then the Seller will be
obligated to pay to the Transferor an amount equal to the principal amount of
such Receivable.
The Pooling and Servicing Agreement requires the Transferor to make a demand
on the applicable Seller to repurchase Receivables in such cases where the
Transferor is required under the Pooling and Servicing Agreement to repurchase
Receivables from the Trust.
CERTAIN COVENANTS
BANK PURCHASE AGREEMENT. It is the intention of FNB and FCI that the
conveyance of the Receivables by FNB to FCI contemplated by the Bank Purchase
Agreement be construed as an absolute sale of the Receivables by FNB to FCI. It
is not intended that such conveyance be deemed a pledge of the Receivables by
FNB to FCI to secure a debt or other obligation of FNB, but the Bank Purchase
Agreement shall also be deemed to be a security agreement within the meaning of
Article 9 of the UCC and the conveyance provided for in the Bank Purchase
Agreement shall be deemed to be a grant by FNB to FCI of a "security interest"
within the meaning of Article 9 of the UCC in all of FNB's right, title and
interest in and to the Receivables. In the Bank Purchase Agreement, FNB
covenants that, among other things, except as required by law or as FNB may
determine to be appropriate and subject to specified exceptions and limitations,
(i) it will take no action to cause any Receivable to be anything other than an
account, general intangible or chattel paper, (ii) except for the conveyances
under the Bank Purchase Agreement, it will not sell any Receivable or grant a
lien (other than a Permitted Lien) on any Receivable, (iii) unless FNB deems
such action necessary to maintain its credit card business on a competitive
basis or as required by law, it will not reduce the annual percentage rates of
the Periodic Finance Charges assessed on the Receivables or other fees charged
on the Accounts if, as a result of any such reduction, a Pay Out Event (or other
early termination event) would occur but FNB may, subject to compliance with all
Requirements of Law and the foregoing restriction, change the terms of the
Contracts or the Credit and Collection Policy in any respect (a) if it would
not, in the reasonable belief of FNB, materially impair the collectibility of
any Receivable or cause, immediately or with the passage of time, a Pay Out
Event to occur under the Pooling and Servicing Agreement and (B) if such change
(x) is made to a comparable segment of receivables owned by FNB, if any, which
have characteristics the same as or substantially similar to, the Receivables
that are the subject of such change and (y) if FNB does not own such a
comparable segment of receivables, will not be made with the intent to
materially benefit FNB over the buyer of such Receivables or to materially
adversely affect such buyer, except as otherwise restricted by an endorsement,
sponsorship or other agreement between FNB and an unrelated third party or by
the terms of the Contracts, (iv) it will comply with and perform its obligations
under the Contracts and the Accounts and the Credit and Collection Policy except
insofar as any failure to comply or perform would not materially and adversely
affect the rights of the Trust or the securityholders, and that it will not
enter into any amendment to the Bank Purchase Agreement that would cause a
Ratings Event to occur so long as any securities under any Series are
outstanding, and (v) in the event it receives a collection on any Receivable, it
will pay such collection to FCI or its designee as soon as practicable.
PURCHASE AGREEMENT. It is the intention of Fingerhut and FCI, each under
its respective Purchase Agreement, and the Transferor that the conveyance of the
Receivables be construed as an absolute sale of
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the Receivables to the Transferor. It is not intended that such conveyance be
deemed a pledge of the Receivables to the Transferor to secure a debt or other
obligation, but the Purchase Agreement shall also be deemed to be a security
agreement within the meaning of Article 9 of the UCC and the conveyance provided
for in the Purchase Agreement shall be deemed to be a grant to the Transferor of
a "security interest" within the meaning of Article 9 of the UCC in all of the
Seller's right, title and interest in and to the Receivables. Pursuant to the
Purchase Agreement, Fingerhut and FCI each covenant that, among other things,
subject to specified exceptions and limitations, (i) it will take no action to
cause any Receivable to be anything other than an account (with respect to the
Fingerhut Purchase Agreement) or an account, general intangible or chattel paper
(with respect to the FCI Purchase Agreement), (ii) except for the conveyances
under the Purchase Agreement, it will not sell any Receivable or grant a lien
(other than a Permitted Lien) on any Receivable, (iii) with respect to FCI
Purchase Agreement, except as the Originator deems necessary to maintain its
business on a competitive basis or as required by law, the Seller will cause
such Originator to not reduce the Periodic Finance Charges assessed on the
Receivables or other fees charged on the Accounts if, as a result of any such
reduction, a pay out event with respect to any Series would occur but, with
respect to each Purchase Agreement, the Seller may, subject to requirements of
law and the foregoing restriction, change the terms of the Contracts or the
Credit and Collection Policy in any respect (A) if it would not, in the
reasonable belief of the Seller, materially impair the collectibility of any
Receivable or cause, immediately or with the passage of time, a Pay Out Event to
occur under the Pooling and Servicing Agreement and (B) if such change (x) is
made to a comparable segment of receivables owned by the Seller, if any, which
have characteristics the same as or substantially similar to, the Receivables
that are the subject of such change and (y) if the Seller does not own such a
comparable segment of receivables, will not be made with the intent to
materially benefit the Seller over the Transferor or to materially adversely
affect the Transferor, except as otherwise restricted by an endorsement,
sponsorship or other agreement between the Seller and an unrelated third party
or by the terms of the Contracts, (iv) it will comply with and perform its
obligations under the Contracts relating to the Accounts and the Credit and
Collection Policy except insofar as any failure to comply or perform would not
materially and adversely affect the rights of the Transferor, (v) in the event
it receives a collection on any Receivable, it will pay such collection to the
Transferor as soon as practicable, (vi) it will not convey or transfer any
Receivable, except as otherwise provided in the Purchase Agreement, and (vii)
with respect to the FCI Purchase Agreement, the Seller agrees to take all action
necessary and appropriate to enforce its rights and claims under the Bank
Purchase Agreement and the FCI Purchase Agreement, including without limitation,
the covenants in the Bank Purchase Agreement with respect to the Credit and
Collection Policy, and agrees not to consent to any amendments to the Bank
Purchase Agreement or the FCI Purchase Agreement unless such amendment would be
permitted under certain provisions of the Pooling and Servicing Agreement (as if
such provisions applied to the Bank Purchase Agreement) or the Rating Agency
Condition has been satisfied. Pursuant to the Purchase Agreement, the Transferor
has covenanted that, among other things, subject to specified exceptions and
limitations, (i) it shall treat each conveyance of the Receivables as a sale on
all relevant books and records and (ii) with respect to the FCI Purchase
Agreement, it shall maintain its existence as a corporation, separate from any
of its affiliates.
PURCHASE TERMINATION DATE
BANK PURCHASE AGREEMENT. If FNB becomes insolvent, FCI's obligations under
the Bank Purchase Agreement will automatically be terminated. In addition, if
FCI becomes insolvent, or shall become unable for any reason to purchase
Receivables from FNB in accordance with the provisions of the Bank Purchase
Agreement, FCI's obligations under the Bank Purchase Agreement as to FNB will
automatically be terminated.
PURCHASE AGREEMENT. If Fingerhut or FCI become insolvent, the Transferor's
obligations under the Purchase Agreement will automatically be terminated. In
addition, if the Transferor becomes insolvent or shall become unable for any
reason to purchase Receivables in accordance with the provisions of the Purchase
Agreement, the Transferor's obligations under the Purchase Agreement will
automatically be terminated. The date of any such termination will be the
"Purchase Termination Date."
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Transferor has represented and warranted in the Pooling and Servicing
Agreement that the transfer of Receivables by it to the Trust constitutes either
a valid transfer and assignment to the Trust of all right, title, and interest
of the Transferor in and to the Receivables, except for Permitted Liens and the
interest of the Transferor as holder of the Exchangeable Transferor Security and
any other investor security of any Series then held by it, or the grant to the
Trust of a security interest in the Receivables. The Transferor has also
represented and warranted in the Pooling and Servicing Agreement that, in the
event the transfer of Receivables by the Transferor to the Trust is deemed to
create a security interest under the UCC, there will exist a valid, subsisting,
and enforceable first priority perfected security interest in such Receivables
created thereafter in favor of the Trust on and after their creation, subject
only to Permitted Liens. For a discussion of the Trust's rights arising from a
breach of these warranties, see "Description of the Offered
Securities--Representations and Warranties."
The Transferor has represented that the Receivables are "accounts," "general
intangibles" or "chattel paper" as each is defined in Article 9 of the UCC as
then in effect in each Relevant UCC State. Both the sale of accounts and chattel
paper and the transfer of accounts and chattel paper as security for an
obligation are treated under Article 9 of the UCC as creating a security
interest therein and are subject to its provisions, and the filing of an
appropriate financing statement will perfect the security interest of the Trust.
If a transfer of general intangibles is deemed to constitute the creation of a
security interest, rather than a sale, Article 9 of the UCC applies and the
filing of one or more appropriate financing statements is also required in order
to perfect the security interest of the Trust. In order to protect the interests
of the Trust in the Receivables, financing statements covering the Receivables
have been filed under the UCC.
If the transfer of Receivables constituting general intangibles is deemed to
be a sale, then the UCC is not applicable and no further action is required to
protect the Trust's interest from third parties. Although the priority of future
generated general intangibles is not as clear as the priority of interests
governed by the UCC, FNB, FCI and the Transferor believe that it would be
inconsistent for a court to afford the Trust less favorable treatment if the
transfer of the Receivables is deemed to be a sale than if it were deemed to be
a security interest and that a court should conclude that a sale of Receivables
consisting of general intangibles would be deemed to have occurred as of the
Initial Closing Date or, as applicable, the relevant date of designation for
inclusion in the Trust.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables coming into existence after the Initial
Closing Date could have an interest in such Receivables with priority over the
Trust's interest. Under the Pooling and Servicing Agreement, however, the
Transferor has represented and warranted that it transferred the Receivables to
the Trust free and clear of the lien of any third party. In addition, the
Transferor has covenanted that it will not sell, pledge, assign, transfer, or
grant any lien on any Receivable (or any interest therein) other than a
Permitted Lien. A tax or other governmental lien on property of the Transferor
arising prior to the time a Receivable comes into existence may also have
priority over the interest of the Trust in such Receivable. There is a
significant possibility that the Trust may not have a perfected security
interest in any of the Receivables created after the filing of a petition for
relief by or against FCI or the Transferor under the United States federal
bankruptcy code or after the appointment of a receiver or conservator with
respect to FNB. Nevertheless, it is anticipated that the Trust will either own
or have a perfected security interest in Receivables existing on the date of
filing a petition by or against FCI or the Transferor under the United States
federal bankruptcy code or after the date of appointment of a receiver or
conservator with respect to FNB and will be able to make payments in respect of
principal and interest on the Offered Securities, although there can be no
assurance that any of such payments would be timely. Because the Trust's
interest in the Receivables is dependent upon the Transferor's interest in the
Receivables, which is dependent upon Fingerhut's or FCI's or FNB's interest in
the Receivables, any adverse change in the priority or perfection of the
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Transferor's, FCI's or Fingerhut's security interest would correspondingly
affect the Trust's interest in the affected Receivables. In addition, if a
receiver or conservator were appointed for FNB, certain administrative expenses
of the receiver or conservator also may have priority over the interest of the
Trust in such Receivables. While FNB is the Servicer, certain cash collections
on the Receivables may be held by FNB and commingled with its funds for brief
periods, and if an Insolvency Event occurs, the Trust may not have a perfected
interest in such commingled collections.
CERTAIN MATTERS RELATING TO BANKRUPTCY OR RECEIVERSHIP
The Transferor will not engage in any activities except purchasing accounts
receivable from FCI or any affiliate of FCI, forming trusts, transferring such
accounts Receivable to such trusts and engaging in activities incident to, or
necessary or convenient to accomplish, the foregoing. The Transferor has no
intention of filing a voluntary petition under the United States federal
bankruptcy code or any similar applicable state law so long as the Transferor is
solvent and does not reasonably foresee becoming insolvent.
The voluntary or involuntary application for relief under the United States
federal bankruptcy code or any similar applicable state law with respect to
Fingerhut or FCI should not necessarily result in a similar voluntary
application with respect to the Transferor so long as the Transferor is solvent
and does not reasonably foresee becoming insolvent either by reason of
Fingerhut's or FCI's insolvency or otherwise. Counsel has advised FCI and the
Transferor that (i) the assets and liabilities of the Transferor would not be
substantively consolidated with the assets and liabilities of Fingerhut or FCI
in the event of an application for relief under the United States federal
bankruptcy code with respect to Fingerhut or FCI, as the case may be, and (ii)
the sale of Receivables by Fingerhut or FCI would constitute a valid sale and,
therefore, such Receivables would not be property of Fingerhut or FCI, as the
case may be, in the event of the filing of an application for relief by or
against Fingerhut or FCI, as the case may be, under the United States federal
bankruptcy code. The foregoing conclusions are reasoned conclusions, based upon
various assumptions regarding factual matters and future events, as to which
there necessarily can be no assurance. If a bankruptcy trustee for Fingerhut or
FCI, Fingerhut or FCI as debtor-in-possession, or a creditor of Fingerhut or FCI
were to take the view that Fingerhut or FCI and the Transferor should be
substantively consolidated or that the transfer of the Receivables from
Fingerhut or FCI to the Transferor should be recharacterized as a pledge of such
Receivables, or if a bankruptcy trustee for Fingerhut or FCI, Fingerhut or FCI
as debtor-in-possession or a creditor of Fingerhut or FCI was to take the view
that Fingerhut or FCI and the Transferor should be substantively consolidated or
that the transfer of the Receivables from Fingerhut or FCI to the Transferor
should be recharacterized as a pledge of such Receivables, then delays in
payments on the Class A Securities, Class B Securities and Collateralized Trust
Obligations or (should the bankruptcy court rule in favor of any such trustee,
debtor-in-possession or creditor) reductions in such payments on such Securities
could result.
The Pooling and Servicing Agreement provides that, upon the bankruptcy or
appointment of a receiver for the Transferor, FNB or FCI a Pay Out Event with
respect to all Series will occur, and under the Pooling and Servicing Agreement,
no new Principal Receivables will be transferred to the Trust. In addition the
Series 1998-1 Supplement provides that, upon the bankruptcy or appointment of a
receiver for Fingerhut a Pay Out Event with respect to Series 1998-2 will occur.
If the only Pay Out Event to occur is either the insolvency of the Transferor or
the appointment of a bankruptcy trustee or receiver for the Transferor, the
receiver or bankruptcy trustee for the Transferor may have the power to continue
to require the Transferor to transfer new Principal Receivables to the Trust and
to prevent the early sale, liquidation or disposition of the Receivables and the
commencement of the Early Amortization Period. See "Description of the Offered
Securities--Pay Out Events."
FNB has represented and warranted to FCI in the Bank Receivables Purchase
Agreement, and Fingerhut and FCI have each represented and warranted to the
Transferor in the respective Purchase Agreements, that the sale of the
Receivables to FCI or the Transferor, respectively, is a valid sale of the
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Receivables to FCI or the Transferor, respectively. In addition, FNB, Fingerhut,
FCI and the Transferor have treated and will treat the transaction described in
the Bank Purchase Agreement and the Purchase Agreements as sales of the
Receivables to FCI and the Transferor, respectively, FNB, FCI and Fingerhut have
taken or will take all actions that are required under the UCC to perfect FCI's
and the Transferor's ownership interest, respectively, in the Receivables.
Notwithstanding the foregoing, if FCI or Fingerhut were to become a debtor in a
bankruptcy case and a creditor or trustee-in-bankruptcy of such debtor or such
debtor itself were to take the position that the sale of Receivables from FCI or
Fingerhut to the Transferor should be recharacterized as a pledge of such
Receivables to secure a borrowing from such debtor, then delays in payments of
collections of Receivables to the Transferor (and therefore to the Trust and to
Securityholders) could occur and (should the court rule in favor of any such
trustee, debtor-in-possession or creditor) reductions in the amount of such
payments could result.
The Federal Deposit Insurance Act ("FDIA"), as amended by FIRREA, which
became effective August 9, 1989, sets forth certain powers that the FDIC could
exercise if it were appointed as conservator or receiver of FNB. Among other
things, the FDIA grants such a conservator or receiver the power to repudiate
contracts of, and to request a stay of up to 90 days of any judicial action or
proceeding involving, FNB.
To the extent that (i) FNB granted a security interest in the Receivables to
FCI, (ii) the interest was validly perfected before FNB's insolvency, (iii) the
interest was not taken or granted in contemplation of FNB's insolvency or with
the intent to hinder, delay or defraud FNB or its creditors, (iv) the Pooling
and Servicing Agreement is continuously a record of FNB, and (v) the Pooling and
Servicing Agreement represents a bona fide and arm's length transaction
undertaken for adequate consideration in the ordinary course of business, such
valid perfected security interest of FCI should be enforceable (to the extent of
FCI's "actual direct compensatory damages") notwithstanding the insolvency of,
or the appointment of a receiver or conservator for, FNB and payments to the
Trust with respect to the Receivables (up to the amount of such damages) should
not be subject to an automatic stay of payment or to recovery by the FDIC as
conservator or receiver of FNB. If, however, the FDIC were to assert that the
security interest was unperfected or unenforceable or were to require FCI to
establish its rights to those payments by submitting to and completing the
administrative claims procedure established under FIRREA, or the conservator or
receiver were to request a stay of proceedings with respect to FNB as provided
under FIRREA, delays in payments on the Securities and possible reductions in
the amount of those payments could occur. The FDIA does not define the terms
"actual direct compensatory damages." On April 10, 1990, the RTC, formerly a
sister agency of the FDIC, adopted a statement of policy (the "RTC Policy
Statement") with respect to the payment of interest on collateralized
borrowings. The RTC Policy Statement states that interest on such borrowings
will be payable at the contract rate up to the date of the redemption or payment
by the conservator, receiver, or the trustee of an amount equal to the principal
owed plus the contract rate of interest up to the date of such payment or
redemption, plus any expenses of liquidation if provided for in the contract, to
the extent secured by the collateral. In a 1993 case involving zero-coupon
bonds, however, a federal district court held that the RTC was instead obligated
to pay bondholders the fair market value of repudiated bonds as of the date of
repudiation. The FDIC itself has not adopted a policy statement on payment of
interest on collateralized borrowings.
In OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir. 1993), CERT.
DENIED, 114 S. Ct. 554 (1993), the United States Court of Appeals for the 10th
Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's bankruptcy estate in a bankruptcy of the seller. If
FCI, Fingerhut or the Transferor were to become subject to a bankruptcy
proceeding or if FNB were to become subject to a receivership and a court were
to follow the 10th Circuit's reasoning, Securityholders might experience delays
in payment or possibly losses in their investment in the Securities. Counsel to
the Transferor has advised the Transferor that the facts of the Octagon case are
distinguishable from those in the sale transactions between FNB and
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FCI, FCI and the Transferor, Fingerhut and the Transferor and the Transferor and
the Trust and that the reasoning of the 10th Circuit appears to be inconsistent
with established precedent and the UCC.
The occurrence of certain events of insolvency, conservatorship or
receivership with respect to the Servicer will result in a Servicer Default,
which Servicer Default, in turn, could result in a Pay Out Event. If no other
Servicer Default other than the commencement of such bankruptcy or similar event
exists, a conservator or receiver of the Servicer may have the power to prevent
the Trustee and the Securityholders from appointing a successor Servicer.
CONSUMER PROTECTION LAWS
The Accounts and Receivables are subject to numerous federal and state
consumer protection laws that impose requirements related to offering and
extending credit. Any failure by an Originator or the Servicer to comply with
such legal requirements also could adversely affect the Servicer's ability to
collect the full amount of the Receivables. The United States Congress and the
states may enact laws and amendments to existing laws to further regulate
consumer credit or to reduce finance charges or other fees or charges applicable
to credit card and other consumer revolving loan accounts. Such laws, as well as
any new laws or rulings which may be adopted, may adversely affect the
Servicer's ability to collect on the Receivables or maintain previous levels of
collections.
The relationship of the Obligor and credit card issuer is extensively
regulated by federal and state consumer protection and related laws. With
respect to credit extended by FNB, 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, Electronic Funds
Transfer Act and National Bank Act, as well as applicable state laws. Claims may
be brought under these statutes by private consumers as well as federal and
state regulators. 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 and, in addition, prohibit certain discriminatory
practices in extending credit and impose certain limitations on the type of
account related charges that may be assessed. Federal law 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. In addition, 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.
Certain laws, including the laws described above, may limit FNB's ability to
collect amounts owing with respect to the Receivables regardless of any act or
omission on the part of FNB. These laws further provide that in certain cases
cardholders cannot be held liable for, or the cardholder's liability is limited
with respect to, charges to the credit card account that result from
unauthorized use of the credit card.
Receivables originated by Fingerhut were generated under the Minnesota "time
price" doctrine. Under this doctrine, the difference between the time price and
cash price for the goods sold is not treated as interest subject to regulation
under Minnesota's usury laws. In certain states, these receivables are subject
to regulations that limit maximum finance charges and require refunding of
finance charges to customers under certain circumstances. Fingerhut believes
that the time payment pricing and credit practices applicable to these
receivables are in compliance with applicable state requirements. On August 14,
1997, Fingerhut was served with a summons and class action complaint commenced
in Minnesota District Court, Fourth Judicial District, on behalf of named
plaintiffs in ten states. The alleged class consists of "Fingerhut customers
whose contracts are declared by Fingerhut to be governed by Minnesota law." The
complaint alleges violations of the usury law, deceptive trade practices and
consumer fraud based on Fingerhut's use of the "time price" doctrine in its
credit sales. Fingerhut has filed a motion for summary judgment. The plaintiffs'
claims are substantially identical to the claims asserted in an earlier case
brought against Fingerhut in the same court. The court granted summary judgment
in favor of Fingerhut in that case in March 1997. The plaintiffs in the earlier
case did not appeal the summary
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judgment, and their counsel has refiled their claims on behalf of new members of
the purported plaintiff class.
Any change of law, including any changes to the "time price" doctrine with
retroactive application, negatively affecting the receivables or FNB's credit
practices could adversely affect the Servicer's ability to collect the full
amount of the Receivables.
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. In
addition, failure of the Servicer to comply with such requirements could
adversely affect the Servicer's ability to enforce the Receivables.
Certain jurisdictions may attempt to require out-of-state credit card
issuers to comply with such jurisdictions' consumer protection laws (including
laws limiting the charges imposed by such credit card issuers) in connection
with their operations in such jurisdictions. 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, such actions could have an adverse
impact on Fingerhut National Bank's credit card operations. Application of
federal and state bankruptcy and debtor relief laws (including the Soldiers' and
Sailors' Civil Relief Act of 1940) would affect the interests of the holders of
the Securities if the protection provided to debtors under such laws result in
any Receivables of the Trust being written off as uncollectible.
The Trust may be liable for certain violations of consumer protection laws
that apply to the Receivables transferred to it, either as assignee from the
Transferor with respect to obligations arising before the transfer or as a party
directly responsible for obligations arising after the transfer. In addition, a
cardholder may be entitled to assert such violations by way of set-off against
such cardholder's obligation to pay the amount of Receivables owing. The
Transferor will warrant to the Trust in the Pooling and Servicing Agreement that
all Receivables transferred to the Trust have been and will be created in
compliance with the requirements of such laws. For discussion of the Trust's
rights arising from the breach of these warranties, see "Description of the
Offered Securities--Representations and Warranties."
CLAIMS AND DEFENSES OF CARDHOLDERS AGAINST THE TRUST
The UCC provides that (a) unless an Obligor has made an enforceable
agreement not to assert defenses or claims arising out of a transaction, the
rights of the Trust, as assignee, are subject to all the terms of the Contract
between the Originator and such Obligor and any defense or claim arising
therefrom, to rights of set-off and to any other defense or claim of such
Obligor against the Originator that accrues before such Obligor receives
notification of the assignment and (b) any such Obligor is authorized to
continue to pay the Originator until (i) the Obligor 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 successor
Servicer and (ii) if requested by the Obligors, the Trustee or successor
Servicer has furnished reasonable proof of assignment. No such agreement not to
assert defenses has been entered into and no notice of the assignment of the
Receivables to the Trust will be sent to the cardholders obligated on the
Accounts in connection with the transfer of the Receivables to the Trust.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL; SCOPE OF FEDERAL INCOME TAX OPINION
Set forth below is a general discussion of the material United States
federal income tax consequences of the purchase, ownership and disposition of
the Offered Securities which are anticipated to be relevant to most categories
of investors and has been prepared or reviewed by Skadden, Arps, Slate, Meagher
& Flom LLP, special federal income tax counsel to the Transferor ("Special Tax
Counsel"). Special Tax Counsel is of the opinion that this discussion is correct
in all material respects. As more fully described below, Special Tax Counsel
will render its opinion, subject to the analysis and assumptions contained
therein, that the Offered Securities will be characterized as indebtedness
secured by the Receivables for federal income tax purposes and that the Trust
will not be subject to federal income tax at the entity level. Except as
expressly provided below, Special Tax Counsel will render no other opinions to
the Transferor with respect to the Offered Securities. This discussion is
intended as an explanatory discussion of the possible effects of the
classification of the Offered Securities as indebtedness on investors generally
and or related tax matters affecting investors generally, but does not purport
to furnish information in the level of detail or with the attention to an
investor's specific tax circumstances that would be provided by an investor's
tax advisor. This discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations ("Treasury Regulations") thereunder, current administrative rulings,
judicial decisions and other applicable authorities in effect as of the date
hereof, all of which are subject to change, possibly with retroactive effect.
There are no cases or Internal Revenue Service ("IRS") rulings on similar
transactions involving instruments issued by a trust with terms similar to those
of the Offered Securities. As a result, there can be no assurance that the IRS
will not challenge the conclusions reached herein, and no ruling from the IRS
has been or will be sought on any of the issues discussed below. Furthermore,
legislative, judicial or administrative changes may occur, perhaps with
retroactive effect, which could affect the accuracy of the statements and
conclusions set forth herein as well as the tax consequences to Securityholders.
This summary does not address all aspects of federal income taxation that
may be relevant to the Security Owners in light of their personal investment
circumstances nor, except for certain limited discussions of particular topics,
to certain types of holders subject to special treatment under the federal
income tax laws (e.g., financial institutions, broker-dealers, life insurance
companies and tax-exempt organizations). This information is directed to
prospective purchasers who purchase Offered Securities in the initial
distribution thereof, who are citizens or residents of the United States,
including domestic corporations and partnerships, and who hold the Offered
Securities as "capital assets" within the meaning of Section 1221 of the Code.
Taxpayers and preparers of tax returns (including those filed by any partnership
or other issuer) should be aware that under applicable Treasury Regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice is (i) given with respect to events that have
occurred at the time the advice is rendered and is not given with respect to the
consequences of contemplated actions, and (ii) is directly relevant to the
determination of an entry on a tax return. Accordingly, taxpayers should consult
their respective tax advisors and tax return preparers regarding the preparation
of any item on a tax return, even where the anticipated tax treatment has been
discussed herein. EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH ITS TAX ADVISOR
AS TO THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF OFFERED SECURITIES SPECIFIC TO SUCH
PROSPECTIVE INVESTOR.
CHARACTERIZATION OF THE OFFERED SECURITIES AS INDEBTEDNESS
The Transferor, the Servicer and each Security Owner will express in the
Pooling and Servicing Agreement the intent that, for federal, state and local
income and franchise tax purposes, the Offered Securities will be indebtedness
secured by the Receivables. The Transferor, by initially entering into, and the
Servicer, by accepting the assignment of, the Pooling and Servicing Agreement,
and each Security
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Owner, by acquiring an interest in an Offered Security, will agree to treat the
Offered Securities as indebtedness for federal, state and local income and
franchise tax purposes (except to the extent that different treatment is
explicitly required under state or local tax statutes). However, because
different criteria are used in determining the non-tax accounting treatment of
the transaction, the Transferor will treat the Pooling and Servicing Agreement,
for financial accounting purposes and certain other non-tax purposes, as
effecting a transfer of an ownership interest in the Receivables and not as
creating a debt obligation.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
the property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the IRS and the courts have set forth several factors
to be taken into account in determining whether the substance of a transaction
is a sale of property or a secured indebtedness for federal income tax purposes,
the primary factor in making this determination is whether the transferee has
assumed the risk of loss or other economic burdens relating to the property and
has obtained the benefits of ownership thereof. Based upon its analysis of such
factors, Special Tax Counsel is of the opinion that the Transferor will be
treated as the owner of the Receivables for federal income tax purposes and,
accordingly, the Class A Securities and the Class B Securities will be
characterized for federal income tax purposes as indebtedness that is secured by
the Receivables. Furthermore, Special Tax Counsel is of the opinion that the
Trust will not be subject to federal income tax at the entity level.
Although, in some instances, courts have held that a taxpayer is bound by a
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form, Special Tax Counsel is of the opinion
that the rationale of those cases do not apply to the transaction evidenced by
the Offered Securities, because the form of the transaction, as reflected in the
operative provisions of the documents, either is not inconsistent with the
characterization of the Offered Securities as debt for federal income tax
purposes or otherwise makes the rationale of those cases inapplicable to this
situation.
TAXATION OF INTEREST INCOME TO SECURITYHOLDERS
The following discussion is based in part upon Treasury Regulations
interpreting the original issue discount ("OID") provisions of Sections 1271
through 1275 of the Code which were adopted as final on January 27, 1994 (the
"OID Regulations"). The OID Regulations are, however, subject to varying
interpretations and do not address all issues that could affect Security Owners.
STATED INTEREST. It is not expected that any of the Offered Securities will
be issued with OID. Based upon the foregoing opinions, and assuming that all of
the Offered Securities are treated as debt, the stated interest on Offered
Securities will be taxable as ordinary income for federal income tax purposes
when received or accrued in accordance with a Securityholder's method of tax
accounting.
OID. The Offered Securities may be issued at a discount from their stated
principal amounts. If the amount of such discount is greater than the statutory
DE MINIMIS amount (i.e., greater than 0.25% of the stated principal amount of
the Offered Securities multiplied by the weighted average maturity of such
Offered Security), the amount of such discount would be considered OID and would
be includible in income of Security Owners, as OID, on a daily economic accrual
basis. Any amount treated as OID would not, however, be includible in income
again when the cash is actually received by a Security Owner in respect of such
amount. If the yield on a Class of Offered Securities were not materially
different from its coupon, this treatment would have no significant effect on
Security Owners using the accrual method of accounting. However, cash method
Security Owners may be required to report income with respect to the Offered
Securities in advance of the receipt of cash attributable to such income.
While it is not anticipated that the Offered Securities will be issued at a
discount from their stated principal amount that is greater than the statutory
DE MINIMIS amount, under Treasury Regulations the Offered Securities may
nevertheless be deemed to have been issued with OID. This could be the case, for
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example, if interest payments are not deemed to be payments of "qualified stated
interest" because (i) no reasonable legal remedies exist to compel timely
payment of such interest payments and (ii) the Offered Securities do not have
terms and conditions that make the likelihood of late payment (other than a late
payment that occurs within a reasonable grace period) or nonpayment a remote
contingency. As a result, if such Treasury Regulations were to apply, all of the
taxable income to be recognized with respect to the Offered Securities would be
includible in income as OID but would not be includible again when the interest
is actually received. The OID Regulations provide, however, that in determining
whether interest is unconditionally payable, the possibility of nonpayment due
to default, insolvency, or similar circumstances is ignored. Accordingly, the
Transferor intends to take the position that interest payments constitute
payments of "qualified stated interest" with respect to the Offered Securities
if they are issued at a price that is less than a DE MINIMIS discount from their
stated principal amount.
If the Offered Securities are in fact issued at a greater than DE MINIMIS
discount, the following rules will apply. The excess of the "stated redemption
price at maturity" of an Offered Security (generally equal to its principal
amount as of the date of issuance plus all interest other than "qualified stated
interest" payable prior to or at maturity) over the original issue price (in
this case, the initial offering price at which a substantial amount of the
Offered Securities are sold to the public) will constitute OID. A Security Owner
must include OID in income as interest over the term of the Offered Security
under a constant yield method. In general, OID must be included in income in
advance of the receipt of cash representing that income. In the case of a debt
instrument as to which the repayment of principal may be accelerated as a result
of the prepayment of other obligations securing the debt instrument (a
"Prepayable Instrument"), the periodic accrual of OID is determined by taking
into account both the prepayment assumptions used in pricing the debt instrument
and the prepayment experience. If this provision applies to the Offered
Securities (which is not clear), the amount of OID which will accrue in any
given "accrual period" may either increase or decrease depending upon the actual
prepayment rate. Accordingly, each Securityholder should consult its own tax
advisor regarding the impact to such Securityholder of the OID rules if the
Offered Securities are issued with OID. An Offered Security issued with DE
MINIMIS OID must include such OID in income proportionately as principal
payments are made on such Offered Security.
DISCOUNT AND PREMIUM. A subsequent holder who purchases an Offered Security
at a discount may be subject to the "market discount" rules of Section 1276 of
the Code. These rules provide, in part, for the treatment of gain attributable
to accrued market discount as ordinary income upon the receipt of partial
principal payments or on the sale or other disposition of the Offered Security,
and for the deferral of interest deductions with respect to debt incurred to
acquire or carry the market discount Offered Security. A Security Owner may,
however, elect to include market discount in gross income as it accrues and, if
such election is made, is not subject to the deferral of interest deductions
provision. Any such election will apply to all debt instruments acquired by the
taxpayer on or after the first day of the first taxable year to which such
election applies. Further, the adjusted tax basis of an Offered Security subject
to such election will be increased to reflect market discount included in gross
income, thereby reducing any gain or increasing any loss on a sale or taxable
disposition.
A subsequent holder who purchases an Offered Security at a premium may elect
to amortize and deduct this premium over the remaining term of the Offered
Security in accordance with rules set forth in Section 171 of the Code.
OPTIONAL ELECTION. As an alternative to the above treatments, accrual
method holders may elect to include in gross income all interest with respect to
an Offered Security, including stated interest, acquisition discount, OID, DE
MINIMIS OID, market discount, DE MINIMIS market discount, and unstated interest,
as adjusted by any amortizable bond premium or acquisition premium, using the
constant yield method described above.
TREATMENT OF LOSSES. OID, if any (in excess of DE MINIMIS OID), must be
reported by all holders of Offered Securities, and other interest income must be
reported by holders of Offered Securities that report
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income on the accrual method, as it accrues, whether or not such holders of an
Offered Security have received cash equivalent to such income and without giving
effect to delays or reductions in distributions attributable to defaults and
delinquencies on the Receivables, except to the extent it can be established
that such amounts are uncollectible. As a result, if there were in excess of DE
MINIMIS OID, the amount of income reported by a holder of Offered Securities in
any period could exceed the amount of cash distributed to such holder in that
period. A holder of Offered Securities generally will realize a loss where
either principal or previously accrued interest are determined to be
uncollectible with respect to the Offered Security, although the timing and
character of such losses (or reductions in income) are uncertain, and the
deductibility of such losses may be subject to limitations.
DISPOSITION OF OFFERED SECURITIES
Generally, capital gain or loss will be recognized on a sale or other
taxable disposition of Offered Securities in an amount equal to the difference
between the amount realized (other than amounts attributable to, and taxable as,
accrued interest) and the seller's tax basis in the Offered Securities. A
Security Owner's tax basis in an Offered Security will generally equal such
Security Owner's cost increased by any OID, market discount and gain previously
included by such Security Owner in income with respect to the Offered Security
and decreased by any bond premium previously amortized and any payments of
principal or OID previously received by such Security Owner with respect to the
Offered Security. Subject to the market discount rules of the Code discussed
above under "--Taxation of Interest Income to Securityholders--Discount and
Premium," any such gain or loss will be capital gain or loss if the Offered
Security was held as a capital asset (except, however, with regard to Prepayable
Instruments, in which case in the event of a prepayment or redemption thereof
such gain is ordinary income to the extent of any not yet accrued OID). Capital
gain or loss will be long-term if the Offered Security was held by the holder
for more than one year and otherwise will be short-term. The Taxpayer Relief Act
of 1997 reduces the maximum rates on long-term capital gains recognized on
capital assets held by individual taxpayers for more than eighteen months as of
the date of disposition (and would further reduce the maximum rates on such
gains in the year 2001 and thereafter for certain individual taxpayers who meet
specified conditions). Prospective investors should consult their own tax
advisors concerning these tax law changes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trustee will be required to report annually to the IRS, and to each
Securityholder, the amount of interest paid on the Offered Securities (and the
amount withheld for federal income taxes, if any) for each calendar year, except
as to exempt recipients (generally, corporations, tax-exempt organizations,
qualified pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status). Each
Securityholder (other than holders who are not subject to the reporting
requirements) will be required to provide, under penalties of perjury, a
certificate containing the holder's name, address, correct federal taxpayer
identification number and a statement that the holder is not subject to backup
withholding. Should a nonexempt Securityholder fail to provide the required
certification, the Trustee will be required to withhold (or cause to be
withheld) 31 percent of the interest otherwise payable to the holder, and remit
the withheld amounts to the IRS as a credit against the holder's federal income
tax liability.
RECENTLY EFFECTIVE LEGISLATION
Legislation passed by Congress and signed into law by the President on
August 20, 1996 added Sections 860H through 860L to the Code (the "FASIT
Provisions") which provide for a new type of entity for federal income tax
purposes known as a "financial asset securitization investment trust" (a
"FASIT"). Although the legislation providing for the new FASIT entity became
effective on September 1, 1997, many technical issues are to be addressed in
Treasury Regulations which have not yet been issued. In general, the FASIT
legislation enables trusts such as the Trust to be treated as a pass-through
entity not subject to federal entity-level income tax (except with respect to
certain prohibited transactions) and to issue
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securities that would be treated as debt for federal income tax purposes.
Transition rules provided for by the FASIT legislation contemplate that entities
in existence on August 31, 1997 may elect to be taxed under the FASIT
Provisions. However, how such election is made and how outstanding interests of
such entity are to be treated subsequent to the election is not explained in the
FASIT legislation.
OTHER POSSIBLE CHARACTERIZATIONS OF THE POOLING AND SERVICING AGREEMENT
Although, as described above, it is the opinion of Special Tax Counsel that
the Class A Securities, the Class B Securities and the Collateralized Trust
Obligations (not offered hereby) will properly be characterized as indebtedness
for federal income tax purposes, such opinion is not binding on the IRS and thus
no assurance can be given that such characterization will prevail. If, however,
the IRS were to contend successfully that the Class A Securities, the Class B
Securities or the Collateralized Trust Obligations, or certain securities of
other outstanding series, were not debt for federal income tax purposes, the
arrangement among the Security Owners, the Transferor, and security owners of
such other Series might be classified for federal income tax purposes as a
publicly traded partnership taxable as a corporation.
If the arrangement created by the Pooling and Servicing Agreement were
treated as a publicly traded partnership taxable as a corporation, the resulting
entity would be subject to federal income taxes at corporate tax rates on its
taxable income generated by ownership of the Receivables. Moreover,
distributions by the Trust in respect of any Securities that were not treated as
debt for federal income tax purposes would not be deductible in computing the
Trust's taxable income and all or part of such distributions would probably be
treated as dividends. Such an entity-level tax could result in reduced
distributions to Securityholders and the Securityholders could be liable for a
share of such tax.
DEFEASANCE
The Securities are subject to Defeasance in certain circumstances. It is not
clear under the existing authorities whether Defeasance would, for federal
income tax purposes, result in a deemed taxable sale or exchange of the
Securities in exchange for the amounts deposited in the Defeasance Funding
Account and the Defeasance Reserve Account as a result of the Defeasance.
However, if such a sale or exchange were deemed to occur, because of the short
time period, the amount required to be deposited and the nature of the assets in
which such amount may be invested, such a result would not be expected to have a
material adverse effect on a Securityholder for federal income tax purposes,
notwithstanding that, if such a sale or exchange were deemed to occur, each
Securityholder would thereafter be deemed to own its pro rata share of the
assets in which such amount is invested, and would be required to report its
taxable income on such basis.
TAX CONSEQUENCES TO FOREIGN INVESTORS
Special Tax Counsel will render its opinion, subject to the analysis and
assumptions contained therein, that the Class A Securities and Class B
Securities will properly be characterized as indebtedness secured by the
Receivables for U.S. federal income tax purposes. Based upon that opinion, the
following information describes the U.S. federal income tax treatment of Foreign
Persons in Offered Securities. The term "Foreign Person" means any Person other
than (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity organized in or under the laws of the United States
or any state thereof (other than a partnership that is not treated as a U.S.
Person under any applicable Treasury Regulations), (iii) an estate the income of
which is includible in gross income for U.S. federal income tax purposes,
regardless of its source or (iv) a trust whose administration is subject to the
primary supervision of a United States court and which has one or more United
States fiduciaries who have the authority to control all substantial decisions
of the trust. Notwithstanding the preceding sentence, to the extent provided in
Treasury Regulations, certain trusts in existence on August 20, 1996, and
treated as U.S. Persons under the Code, and applicable Treasury Regulations
thereunder prior to such date, that elect to continue to be treated as U.S.
Persons under the Code or applicable Treasury Regulations thereunder will also
be considered a U.S. Person.
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(a) Interest paid or accrued to a Foreign Person that is not effectively
connected with the conduct of a trade or business within the United States by
the Foreign Person, will generally be considered "portfolio interest" and
generally will not be subject to U.S. federal income tax and withholding tax, as
long as the Foreign Person (i) is not actually or constructively a "10 percent
shareholder" of the Transferor or a "controlled foreign corporation" with
respect to which the Transferor is a "related person" within the meaning of the
Code, and (ii) provides an appropriate statement, signed under penalties of
perjury, certifying that the beneficial owner of the Offered Security is a
Foreign Person and providing that Foreign Person's name and address. If the
information provided in this statement changes, the Foreign Person must so
inform the Trustee within 30 days of such change. The statement generally must
be provided in the year a payment occurs or in either of the two preceding
years. If such interest were not portfolio interest, then it would be subject to
U.S. federal income and withholding tax at a rate of 30 percent unless reduced
or eliminated pursuant to an applicable income tax treaty.
(b) Any capital gain realized on the sale or other taxable disposition of an
Offered Security by a Foreign Person will be exempt from U.S. federal income and
withholding tax, PROVIDED that (i) the gain is not effectively connected with
the conduct of a trade or business in the United States by the Foreign Person,
and (ii) in the case of an individual Foreign Person, the Foreign Person is not
present in the United States for 183 days or more in the taxable year.
(c) If the interest, gain or income on an Offered Security held by a Foreign
Person is effectively connected with the conduct of a trade or business in the
United States by the Foreign Person, the holder (although exempt from the
withholding tax previously discussed if an appropriate statement is furnished)
generally will be subject to U.S. federal income tax on the interest, gain or
income at regular federal income tax rates. In addition, if the Foreign Person
is a foreign corporation, it may be subject to a branch profits tax equal to 30
percent of its "effectively connected earnings and profits" within the meaning
of the Code for the taxable year, as adjusted for certain items, unless it
qualifies for a lower rate under an applicable tax treaty.
If the IRS were to contend successfully that any of the Offered Securities
are interests in a partnership (not taxable as a corporation), a Security Owner
that is a Foreign Person might be required to file a United States individual or
corporate income tax return and pay tax on its share of partnership income at
regular United States rates including, in the case of a corporate Security
Owner, the branch profits tax (and would be subject to withholding tax on its
share of partnership income). If any of the Offered Securities were
recharacterized as interests in a "publicly traded partnership" taxable as a
corporation, to the extent distributions on such Offered Securities were treated
as dividends, a Foreign Person would generally be subject to tax (and
withholding) on the gross amount of such dividends at a rate of 30 percent
unless reduced or eliminated pursuant to an applicable income tax treaty.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Department of the Treasury issued new regulations
(the "New Regulations") which make certain modifications to the withholding,
backup withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1998, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
CERTAIN STATE TAX CONSEQUENCES
Because of the differences in state tax laws and their applicability to
different investors, it is not possible to summarize the potential state tax
consequences of holding the Offered Securities. ACCORDINGLY, PURCHASERS OF
OFFERED SECURITIES SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE STATE TAX
CONSEQUENCES OF PURCHASING ANY CLASS OF OFFERED SECURITIES.
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EMPLOYEE BENEFIT PLAN CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), (b) plans described in Section 4975(e)(1) of
the Code, including individual retirement accounts and Keogh Plans, (c) any
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each of (a), (b) and (c) a "Plan") and (d) Persons
who have certain specified relationships to such Plans ("Parties in Interest"
under ERISA and "Disqualified Persons" under the Code). Moreover, based on the
reasoning of the United States Supreme Court in JOHN HANCOCK MUTUAL LIFE
INSURANCE CO. V. HARRIS TRUST AND SAVINGS BANK, 114 S. Ct. 517 (1993), an
insurance company's general account may be deemed to include assets of the Plans
investing in the general account (e.g., through the purchase of an annuity
contract), and the insurance company might be treated as a Party in Interest
with respect to such Plans by virtue of such investment. ERISA also imposes
certain duties on Persons who are fiduciaries of Plans, and ERISA, the Code and
any substantially similar federal, state or local law prohibit certain
transactions involving "plan assets" between a Plan and Parties in Interest or
Disqualified Persons with respect to such Plans. Violation of these rules may
result in the imposition of an excise tax or penalty. Thus, a Plan fiduciary
considering an investment in the Offered Securities should consider, among other
things, whether such an investment might constitute or give rise to a prohibited
transaction under ERISA, the Code or any substantially similar federal, state or
local law.
Neither ERISA nor the Code defines the term "plan assets." Under Section
2510.3-101 of the United States Department of Labor ("DOL") regulations (the
"Plan Assets Regulation"), a Plan's assets may be deemed to include an interest
in the underlying assets of an entity (such as a trust) for certain purposes,
including the prohibited transaction provisions of ERISA and the Code, if the
Plan acquires an "equity interest" in such entity. Accordingly, an investment in
the Offered Securities by a Plan might result in the assets of the Trust being
deemed to constitute plan assets, which in turn could have the consequence that
certain aspects of such investment, including the operation of the Trust, might
give rise to or result in prohibited transactions under ERISA and the Code.
CLASS A SECURITIES
The Plan Assets Regulation contains an exception to the plan asset rules
that provides that if a Plan acquires a "publicly-offered security," the issuer
of the security is not deemed to hold plan assets, regardless of the fact that
the security might otherwise represent an equity interest in the issuer. A
publicly-offered security is a security that is (i) freely transferable, (ii)
part of a class of securities that is "widely-held," i.e., owned by 100 or more
investors independent of the issuer and of one another and (iii) either is (A)
part of a class of securities registered under Section 12(b) or 12(g) of the
Exchange Act or (B) sold to a Plan as part of an offering of securities to the
public pursuant to an effective registration statement under the Securities Act
and the class of securities of which such security is a part is registered under
the Exchange Act within 120 days (or such later time as may be allowed by the
Commission) after the end of the fiscal year of the issuer during which the
offering of such securities to the public occurred. Under the Plan Assets
Regulation, a class of securities will not fail to be widely-held solely because
subsequent to the initial offering the number of independent investors falls
below 100 as a result of events beyond the control of the issuer.
Although no assurance is given, the Class A Securities may be held by at
least 100 independent investors at the conclusion of the offering and the
Transferor anticipates that the other conditions of the Plan Assets Regulation
will be met with respect to the Class A Securities. The Class A Securities may
not be purchased by Plans subject to Title I of ERISA or Section 4975 of the
Code if all of such conditions are not met. No monitoring or other measures will
be taken to ensure that any such conditions will be met with respect to the
Class A Securities. If the Trust's assets were deemed to be "plan assets" of a
Plan investor, there is uncertainty whether existing exemptions from the
"prohibited transaction" rules of ERISA, the Code and any substantially similar
federal, state or local law would apply to all transactions involving the
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Trust's assets. Accordingly, Plan fiduciaries should consult with counsel before
making a purchase of Class A Securities.
CLASS B SECURITIES
The Class B Underwriter does not expect that the Class B Securities will be
held by 100 or more independent investors. Accordingly, the Class B Securities
may not be purchased by Plans subject to Title I of ERISA, Section 4975 of the
Code or any substantially similar federal, state or local law.
Each Security Owner of a Class B Security will be deemed to have represented
and warranted that it is not (i) an employee benefit plan (as defined in Section
3(3) of ERISA) that is subject to the provisions of Title I of ERISA, (ii) a
plan described in Section 4975(e)(1) of the Code that is subject to Section 4975
of the Code, (iii) a governmental plan, as defined in Section 3(32) of ERISA,
subject to any federal, state or local law which is, to a material extent,
similar to the provisions of Section 406 of ERISA or Section 4975 of the Code,
(iv) an entity whose underlying assets include plan assets (as defined in the
Plan Assets Regulation or otherwise under ERISA) by reason of a plan's
investment in the entity or (v) a Person investing plan assets of any such plan
(including without limitation for purposes of clause (iv) and this clause (v),
as applicable, an insurance company general account, but excluding any entity
registered under the Investment Company Act).
SPECIAL CONSIDERATIONS FOR INSURANCE COMPANY GENERAL ACCOUNTS
It should be noted that the Small Business Job Protection Act of 1996 added
new Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Code. Pursuant to
Section 401(c), the DOL is required to issue final regulations (the "General
Account Regulations") with respect to insurance policies issued on or before
December 31, 1998 that are supported by an insurer's general account. The
General Account Regulations are to provide guidance on which assets held by the
insurer constitute "plan assets" for purposes of the fiduciary responsibility
provisions of ERISA and Section 4975 of the Code. Section 401(c) also provides
that, except in the case of avoidance of the General Account Regulations and
actions brought by the Secretary of Labor relating to certain breaches of
fiduciary duties that also constitute breaches of state or federal criminal law,
until the date that is 18 months after the General Account Regulations become
final, no liability under the fiduciary responsibility and prohibited
transaction provisions of ERISA and Section 4975 of the Code may result on the
basis of a claim that the assets of the general account of an insurance company
constitute the plan assets of any Plan. The plan asset status of insurance
company separate accounts is unaffected by new Section 401(c) of ERISA, and
separate account assets continue to be treated as the plan assets of any Plan
invested in a separate account. Potential investors that are insurance company
general accounts should consult their legal advisors concerning the effect of
the General Account Regulations on such investment.
As of the date hereof, the DOL has issued proposed regulations pursuant to
Section 401(c) of ERISA. If adopted substantially in the form in which proposed,
the General Account Regulations may not exempt the assets of an insurance
company general account from treatment as "plan assets" after December 31, 1998.
GENERAL INVESTMENT CONSIDERATIONS
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code and the potential consequences of
making an investment in the Offered Securities with respect to their specific
circumstances. Moreover, each Plan fiduciary should take into account, among
other considerations, whether the fiduciary has the authority to make the
investment; the composition of the Plan's portfolio with respect to
diversification by type of asset; the Plan's funding objectives; the tax effects
of the investment; and whether under the general fiduciary standards of
investment prudence and
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diversification an investment in the Offered Securities is appropriate for the
Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to the provisions of Title I of ERISA and Section 4975 of
the Code. Accordingly, assets of such plans may, subject to the provisions of
any other applicable federal and state law (including, without limitation,
federal or state law which is, to a material extent, similar to the provisions
of Section 406 of ERISA or Section 4975 of the Code), be invested in any class
of Offered Securities without regard to the ERISA considerations described
herein. It should be noted, however, that any such plan that is qualified and
exempt from taxation under Sections 401(a) and 501(a) of the Code is subject to
the prohibited transaction rules set forth in Section 503 of the Code.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
dated , 1998 (the "Underwriting Agreement"), among the Transferor and the
underwriters named below (the "Underwriters"), the Transferor has agreed to sell
to each of the Underwriters, and each of the Underwriters has severally agreed
to purchase from the Transferor, the principal amount of the Offered Securities
set forth opposite its name below.
<TABLE>
<CAPTION>
AMOUNT AMOUNT
OF CLASS A OF CLASS B
UNDERWRITER SECURITIES SECURITIES
- ---------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Chase Securities Inc.
BancAmerica Robertson Stephens --
NationsBanc Montgomery Securities LLC --
UBS Securities LLC --
-------------- -------------
Total $ 337,500,000 $ 51,136,000
-------------- -------------
-------------- -------------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Offered Securities
offered hereby if any Offered Securities are purchased. In the event of a
default by any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Transferor has been advised by the Underwriters that the Underwriters
propose initially to offer the Class A Securities to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of % of the principal
amount of the Class A Securities. The Underwriters may allow, and such dealers
may reallow, a discount with respect to the Class A Securities not in excess of
% of such principal amount to certain other dealers. The Transferor has been
advised by the Underwriter of the Class B Securities that the Underwriter of the
Class B Securities proposes initially to offer the Class B Securities to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of % of the principal amount of the Class B Securities. The Underwriter of
the Class B Securities may allow, and such dealers may reallow, a discount with
respect to the Class B Securities not in excess of % of such principal amount
to certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
The Underwriting Agreement provides that the Transferor and FCI will
indemnify the Underwriters against certain liabilities, including liabilities
under applicable securities laws, or contribute to payments the Underwriters may
be required to make in respect thereof.
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Chase Securities Inc., on behalf of the Underwriters, may engage in
over-allotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids with respect to the Offered Securities in
accordance with Regulation M under the Exchange Act. Over-allotment transactions
involve syndicate sales in excess of the offering size creating a syndicate
short position. Stabilizing transactions permit bids to purchase the Offered
Securities so long as the stabilizing bids do not exceed a specific maximum.
Syndicate covering transactions involve purchases of the Offered Securities in
the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit Chase Securities Inc. to reclaim
a selling concession from a syndicate member when the Offered Securities
originally sold by such syndicate member are purchased in a syndicate covering
transaction. Such over-allotment transactions, stabilizing transactions,
syndicate covering transactions and penalty bids may cause prices of the Offered
Securities to be higher than they would otherwise be in the absence of such
transactions. Neither the Trust nor the Underwriters represent that the
Underwriters will engage in any such transactions nor that such transactions,
once commenced, will not be discontinued without notice.
Each Underwriter has represented and agreed that (a) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Certificates to a person who
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or who is a person to whom
the document may otherwise lawfully be issued or passed on, (b) it has complied
and will comply with all applicable provisions of the Financial Services Act
1986 of Great Britain with respect to anything done by it in relation to the
Certificates in, from or otherwise involving the United Kingdom and (c) if that
Underwriter is an authorized person under the Financial Services Act 1986, it
has only promoted and will only promote (as that term is defined in Regulation
1.02 of the Financial Services (Promotion of Unregulated Schemes) Regulations
1991) to any person in the United Kingdom the scheme described herein if that
person is of a kind described either in Section 76(2) of the Financial Services
Act 1986 or in Regulation 1.04 of the Financial Services (Promotion Unregulated
Schemes) Regulations 1991.
In the ordinary course of their respective businesses, the Underwriters and
their respective affiliates have engaged and may in the future engage in
commercial banking and investment banking transactions with FCI and its
affiliates.
As discussed under "Use of Proceeds," a portion of the proceeds of the sale
of the Receivables will be used to repay amounts owing to the holders of certain
of the Variable Funding Trust Certificates, including certain of the
Underwriters or their affiliates. Accordingly, because more than 10% of the net
offering proceeds may be paid to any affiliate of a member of the National
Association of Securities Dealers, Inc., (the "NASD") which is participating in
the distribution of the Securities, the offering of the Securities is being made
pursuant to the provisions of Article III, Section 2710(c)(8) of the Conduct
Rules of the NASD.
LISTING AND GENERAL INFORMATION
Application has been made to list the Offered Securities on the Luxembourg
Stock Exchange. In connection with the listing application, the Certificate of
Incorporation and By-laws of the Transferor, as well as legal notice relating to
the issuance of the Securities will be deposited prior to listing with the Chief
Registrar of the District Court of Luxembourg, where copies thereof may be
obtained upon request. Once the Offered Securities have been so listed, trading
of the Offered Securities may be effected on the Luxembourg Stock Exchange. The
Class A Securities and the Class B Securities have been accepted for clearance
through the facilities of DTC, Cedel and Euroclear. The International Securities
Identification Numbers (ISIN) for the Class A Securities and the Class B
Securities are US31786YAF79 and US31786YAG52, respectively; the Common Code
numbers for the Class A Securities and the Class B Securities are 8498121 and
8498130, respectively.
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The transactions contemplated in this Prospectus were authorized by
resolutions adopted by the Transferor on January 26, 1998 and April , 1998.
Copies of the Pooling and Servicing Agreement, the Series 1998-2 Supplement,
the Purchase Agreements, the annual report of independent certified public
accountants described in "Description of the Offered Securities--Evidence as to
Compliance" in the Prospectus, the documents listed under "Available
Information" and the reports to Securityholders referred to under "Reports to
Securityholders" and "Description of the Offered Securities--Reports to
Securityholders" in the Prospectus will be available free of charge at the
office of the listing agent of the Trust in Luxembourg, whose address is Banque
Generale du Luxembourg S.A., 50, avenue J.F. Kennedy, L-2951, Luxembourg.
Financial information regarding Transferor is included in the consolidated
financial statements of Fingerhut Companies, Inc. in its Annual Report and Form
10-K for the fiscal year ended December 26, 1997, also available at the office
of the listing agent in Luxembourg.
In the event that Definitive Securities are issued and the rules of the
Luxembourg Stock Exchange require a Luxembourg Transfer Agent the Luxembourg
Paying Agent will be appointed as a Transfer Agent.
LEGAL MATTERS
Certain legal matters relating to the Offered Securities will be passed upon
for the Transferor, FNB, FCI and Fingerhut by Michael P. Sherman, General
Counsel of FCI, and by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York. Certain legal matters relating to the Offered Securities will be passed
upon for the Underwriters by Simpson Thacher & Bartlett, New York, New York.
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GLOSSARY OF TERMS
The following terms, which are used in this Prospectus, have the meanings
indicated:
"ABC Adjusted Invested Amount" means, as of any business day, the sum of the
Class A Adjusted Invested Amount, the Class B Adjusted Invested Amount and the
CTO Adjusted Invested Amount, less the amount then on deposit in the Defeasance
Funding Account.
"ABC Invested Amount" means, as of any business day, the sum of the Class A
Invested Amount, the Class B Invested Amount and the CTO Invested Amount.
"Account" means (a) on the Amendment Closing Date, (i) each consumer
revolving credit card account established pursuant to a Contract between an
Originator and any Person, which on the Amendment Closing Date is an Eligible
Account and (ii) each closed-end installment sale or closed-end installment loan
made pursuant to a Contract between an Originator and any Person, which on the
Amendment Closing Date is an Eligible Account and (b) after the Amendment
Closing Date, the accounts specified in clause (a) and each Additional Account
and each Supplemental Account from and after the date such Additional Account
and Supplemental Account is included in the Trust pursuant to the Pooling and
Servicing Agreement. The definition of Account shall include each Transferred
Account but shall not include any Account that is not an Eligible Account and
that has been reassigned to the Transferor or any Removed Account after the
Removal Date with respect thereto.
"Additional Account" means (a) each consumer revolving credit card account
established pursuant to a Contract between an Originator and any Person, which,
on the date on which a Receivable arising in such account is first transferred
to the Trust, is an Eligible Account and (b) each closed-end installment sale or
closed-end installment loan made pursuant to a Contract between an Originator
and any Person which, on the date on which a Receivable arising in such account
is first transferred to the Trust, is an Eligible Account coming into existence
after the Amendment Closing Date; PROVIDED, HOWEVER, that in each case an
"Additional Account" shall only include (i) accounts as described in clauses (a)
and (b) originated by FNB generated in connection with sales by Fingerhut that
the Transferor has not elected to exclude from the Trust and (ii) accounts
described in clauses (a) and (b) originated by FNB (and not described in clause
(i)) of any other Originator that have been designated for inclusion by the
Transferor and with respect to which the Rating Agency Condition has been
satisfied.
"Addition Date" is defined at page 67 in "Description of the Offered
Securities--Addition of Trust Assets."
"Adjusted Invested Amount" means, as of any business day, the Invested
Amount minus the sum of the amount then on deposit in the Principal Account and
the Series 1998-2 Percentage of the amount then on deposit in the Excess Funding
Account.
"Adjustment Payment" is defined at page 81 in "Description of the Offered
Securities--Defaulted Receivables; Dilution."
"Aggregate Investor Percentage" means, with respect to Principal
Collections, Finance Charge Collections and Default Amounts, as the case may be,
as of any date of determination, the sum of the applicable Investor Percentages
of all Series of securities issued and outstanding on such date of
determination; PROVIDED, HOWEVER, that the Aggregate Investor Percentage shall
not exceed 100%.
"Aggregate Principal Receivables" means, for any day, the aggregate amount
of Principal Receivables at the end of such day.
"Amendment Closing Date" means March 18, 1998.
"Amortization Period" means the period commencing on the Amortization Period
Commencement Date and continuing until the earlier of (x) the Invested Amount of
the Securities being paid in full or (y) the Termination Date.
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"Amortization Period Commencement Date" means the earlier of the first day
of the August 2002 Monthly Period or the Pay Out Commencement Date.
"Applicable Tax State" means, as of any date of determination, each state as
to which any of the following is then applicable: (a) a state in which the
Trustee maintains its principal corporate trust office, (b) a state in which the
Transferor maintains its principal executive offices, and (c) a state in which
the Servicer regularly conducts servicing and collections operations which are
not limited to ministerial activities and which relate to a material portion of
the Receivables.
"Assignment" is defined at page 67 in "Description of the Offered
Securities--Addition of Trust Assets."
"Automatic Addition Suspension Date" is defined at page 67 in "Description
of Offered Securities-- Addition of Trust Assets."
"Automatic Addition Termination Date" is defined at page 67 in "Description
of the Offered Securities--Addition of Trust Assets."
"Available Defeasance Reserve Account Amount" is defined at page 84 in
"Description of the Offered Securities--Defeasance Reserve Account."
"Available Series 1998-2 Finance Charge Collections" is defined at page 76
in "Description of the Offered Securities--Application of Collections--Payment
of Fees, Interest and Other Items."
"Available Series 1998-2 Principal Collections" is defined at page 57 in
"Description of the Offered Securities--Principal Payments."
"Back End Customer" means, with respect to any date of determination, a
Person or Obligor who has made at least one payment on any installment credit
card loan from, installment sales contract with, or consumer revolving credit
consumer credit card account with an Originator; PROVIDED, HOWEVER, that any
Person or Obligor who has made a negotiated initial down payment in connection
with any installment credit card loan shall not be a Back End Customer prior to
making at least one payment on any subsequent installment credit card loan or
consumer revolving credit card account with an Originator.
"Bank Purchase Agreement" means that certain Amended and Restated Bank
Receivables Purchase Agreement dated as of March 18, 1998, between Fingerhut
National Bank, as seller, and FCI, as purchaser, as supplemented or amended in
accordance with its terms and any other receivables purchase agreement between
FCI, as purchaser of Receivables, and an Originator, as seller of such
Receivables.
"Base Rate" is defined at page 51 in "Maturity Considerations."
"Cash Equivalents" is defined at page 70 in "Description of the Offered
Securities--Trust Accounts."
"Cedel" is defined at page 55 in "Description of the Offered
Securities--Book-Entry Registration."
"Cedel Participants" is defined at page 55 in "Description of the Offered
Securities--Book-Entry Registration."
"Class" means any of the Class A Securities, the Class B Securities, the
Collateralized Trust Obligations or the Class D Securities.
"Class A Adjusted Invested Amount" is defined at page 72 in "Description of
the Offered Securities--Allocation Percentages."
"Class A Charge-Off" is defined at page 82 in "Description of the Offered
Securities--Series Charge-Offs."
"Class A Controlled Amortization Amount" means an amount equal to
$22,500,000.
"Class A Controlled Distribution Amount" is defined at page 50 in "Maturity
Considerations."
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"Class A Deficit Controlled Amortization Amount" is defined at page 50 in
"Maturity Considerations."
"Class A Expected Final Payment Date" means the November 2003 Distribution
Date.
"Class A Floating Percentage" means, with respect to any business day, the
percentage equivalent of a fraction, the numerator of which is the Class A
Adjusted Invested Amount as of the beginning of such business day after giving
effect to any deposits to be made to the Principal Account on such business day
and the denominator of which is the greater of (a) the sum of the aggregate
amount of Principal Receivables as of the beginning of such business day and the
amounts on deposit in the Excess Funding Account as of the beginning of such
business day after giving effect to any deposits or withdrawals to be made to
the Excess Funding Account on such business day and (b) the sum of the
numerators used to calculate the applicable floating or fixed/floating
percentages with respect to all Participations and all classes of all Series
then outstanding.
"Class A Interest Rate" is defined at page 12 in "Prospectus
Summary--Interest."
"Class A Invested Amount" is defined at page 72 in "Description of the
Offered Securities-- Allocation Percentages."
"Class A Monthly Interest" is defined at page 79 in "Description of the
Offered Securities-- Application of Collections--Payment of Fees, Interest and
Other Items."
"Class A Percentage" means a fraction the numerator of which is the Class A
Invested Amount and the denominator of which is the sum of the Class A Invested
Amount, the Class B Invested Amount and the CTO Invested Amount.
"Class A Principal" is defined at page 80 in "Description of the Offered
Securities--Application of Collections--Payment of Principal."
"Class A Required Amount" means the amount determined by the Servicer for
each business day equal to the excess, if any, of (x) the sum of (i) the Class A
Monthly Interest for the Interest Accrual Period beginning in the then current
Monthly Period, (ii) any Class A Monthly Interest due but not paid on any
previous Distribution Date plus any interest due on the next succeeding
Distribution Date with respect to such Class A Monthly Interest due but not
paid, (iii) the Class A Percentage of the Series Default Amount, if any, for
such business day and for any previous business day in such Monthly Period, (iv)
the Class A Percentage of the Monthly Servicing Fee for the then current Monthly
Period and (v) the Class A Percentage of the Series 1998-2 Percentage of any
Adjustment Payment the Transferor is required but fails to make on such business
day and on each previous business day during such Monthly Period over (y) the
Available Series 1998-2 Finance Charge Collections plus any Excess Finance
Charge Collections from other Series and any Transferor Finance Charge
Collections allocated with respect to the amounts described in clauses (x)(i)
through (v) above with respect to such business day and on all previous business
days in such Monthly Period.
"Class A Securities" means the % Asset Backed Securities, Series 1998-2,
Class A.
"Class A Securityholders" means the record holders of the Class A
Securities.
"Class A Securityholders' Interest" means the interest in the assets of the
Trust allocated to the Class A Securityholders.
"Class A Underwriters" means Chase Securities Inc., BancAmerica Robertson
Stephens, NationsBanc Montgomery Securities LLC and UBS Securities LLC.
"Class B Adjusted Invested Amount" is defined at page 72 in "Description of
the Offered Securities-- Allocation Percentages."
"Class B Charge-Off" is defined at page 82 in "Description of the Offered
Securities--Series Charge-Offs."
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"Class B Controlled Amortization Amount" means an amount equal to
$17,045,333.33.
"Class B Controlled Distribution Amount" is defined at page 50 in "Maturity
Considerations."
"Class B Deficit Controlled Amortization Amount" is defined at page 50 in
"Maturity Considerations."
"Class B Expected Final Payment Date" means the February 2004 Distribution
Date.
"Class B Fixed/Floating Percentage" means for any business day on or after
the Amortization Period Commencement Date, the percentage equivalent of a
fraction, the numerator of which is the Class B Invested Amount at the end of
the last day of the Revolving Period and the denominator of which is the greater
of (a) the sum of the aggregate amount of Principal Receivables and the amount
on deposit in the Excess Funding Account as of the beginning of such business
day after giving effect to any deposits or withdrawals to be made to the Excess
Funding Account on such business day and (b) the sum of the numerators used to
calculate the applicable floating or fixed/floating percentages with respect to
all Participations and all classes of all Series then outstanding.
"Class B Floating Percentage" means, with respect to any business day, the
percentage equivalent of a fraction, the numerator of which is the Class B
Adjusted Invested Amount as of the beginning of such business day after giving
effect to any deposits to be made to the Principal Account on such business day
and the denominator of which is the greater of (a) sum of the aggregate amount
of Principal Receivables as of the beginning of such business day and the
amounts on deposit in the Excess Funding Account as of the beginning of such
business day after giving effect to any deposits or withdrawals to be made to
the Excess Funding Account on such business day business day and (b) the sum of
the numerators used to calculate the applicable floating or fixed/floating
percentages with respect to all Participations and all classes of all Series
then outstanding.
"Class B Interest Rate" is defined at page 12 in "Prospectus
Summary--Interest."
"Class B Invested Amount" is defined at page 72 in "Description of the
Offered Securities-- Allocation Percentages."
"Class B Monthly Interest" is defined at page 79 in "Description of the
Offered Securities-- Application of Collections--Payment of Fees, Interest and
Other Items."
"Class B Percentage" means a fraction the numerator of which is the Class B
Invested Amount and the denominator of which is the sum of the Class A Invested
Amount, the Class B Invested Amount and the CTO Invested Amount.
"Class B Principal" is defined at page 80 in "Description of the Offered
Securities--Application of Collections--Payment of Principal."
"Class B Principal Payment Commencement Date" means the earlier of (a) the
Distribution Date on which the Class A Invested Amount is paid in full or, if
the Class A Invested Amount is paid in full on the Class A Expected Final
Payment Date, and the Early Amortization Period has not commenced, the
Distribution Date following the Class A Expected Final Payment Date and (b) the
Distribution Date following a sale or repurchase of the Receivables pursuant to
the Pooling and Servicing Agreement.
"Class B Required Amount" means the amount determined by the Servicer for
each business day equal to the excess, if any, of (x) the sum of (i) the Class B
Monthly Interest for the Interest Accrual Period beginning in the then current
Monthly Period, (ii) any Class B Monthly Interest due but not paid on any
previous Distribution Date plus any interest due on the next succeeding
Distribution Date with respect to such Class B Monthly Interest due but not
paid, (iii) the Class B Percentage of the Series Default Amount, if any, for
such business day and for any previous business day in such Monthly Period, (iv)
the Class B Percentage of the Monthly Servicing Fee for the then current Monthly
Period and (v) the Class B Percentage of the Series 1998-2 Percentage of the
Adjustment Payment the Transferor is required but fails to make on such business
day and on each previous business day during such Monthly Period over (y) the
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Available Series 1998-2 Finance Charge Collections plus any Excess Finance
Charge Collections from other Series and any Transferor Finance Charge
Collections in each case allocated with respect to the amounts described in
clauses (x)(i) through (v) above with respect to such business day and on all
previous business days in such Monthly Period.
"Class B Securities" means the % Asset Backed Securities, Series 1998-2,
Class B.
"Class B Securityholders" means the record holders of the Class B
Securities.
"Class B Securityholders' Interest" means the interest in the assets of the
Trust allocated to the Class B Securityholders.
"Class B Underwriter" means Chase Securities Inc.
"Class D Charge-Off" is defined at page 82 in "Description of the Offered
Securities--Series Charge-Offs."
"Class D Excess Amount" means, with respect to any business day, the excess
of the Class D Invested Amount over the Stated Class D Amount on such business
day after taking into account all adjustments of the ABC Adjusted Invested
Amount on such day.
"Class D Fixed/Floating Percentage" means for any business day on or after
the Amortization Period Commencement Date, the percentage equivalent of a
fraction, the numerator of which is the Class D Invested Amount at the end of
the last day of the Revolving Period and the denominator of which is the greater
of (a) the sum of the aggregate amount of Principal Receivables and the amount
on deposit in the Excess Funding Account as of the beginning of such business
day after giving effect to any deposits or withdrawals to be made to the Excess
Funding Account on such business day and (b) the sum of the numerators used to
calculate the applicable floating or fixed/floating percentages with respect to
all Participations and all classes of all Series then outstanding.
"Class D Floating Percentage" means, with respect to any business day, the
percentage equivalent of a fraction, the numerator of which is the Class D
Invested Amount as of the beginning of such business day after giving effect to
any deposits to be made to the Principal Account on such business day and the
denominator of which is the greater of (a) the sum of the aggregate amount of
Principal Receivables as of the beginning of such business day and the amounts
on deposit in the Excess Funding Account as of the beginning of such business
day after giving effect to any deposits or withdrawals to be made to the Excess
Funding Account on such business day and (b) the sum of the numerators used to
calculate the applicable floating or fixed/floating percentages with respect to
all Participations and all classes of all Series then outstanding.
"Class D Interest Rate" means a rate assigned by the Transferor to the Class
D Securities, or a portion thereof, pursuant to the Series 1998-2 Supplement.
"Class D Invested Amount" is defined at page 72 in "Description of the
Offered Securities-- Allocation Percentages."
"Class D Principal" is defined at page 81 in "Description of the Offered
Securities--Application of Collections--Payment of Principal."
"Class D Principal Payment Commencement Date" means the earlier of (a) the
first Distribution Date on which the CTO Invested Amount is paid in full or, if
there are no Principal Collections allocable to such Series remaining after
payments have been made to the Collateralized Trust Obligations on such
Distribution Date, the next succeeding Distribution Date and (b) the
Distribution Date following a sale or repurchase of the Receivables pursuant to
the Pooling and Servicing Agreement.
"Class D Securities" means the Asset Backed Securities, Series 1998-2, Class
D.
"Class D Securityholders" means the record holders of the Class D
Securities.
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"Class D Securityholders' Interest" means the interest in the assets of the
Trust allocated to the Class D Securityholders.
"Closed End Receivable" means (a) any right to payment of amounts owed by an
Obligor under an Eligible Account with respect to a closed-end installment sale
or a closed-end installment loan, including, without limitation, all rights of
the Originator and obligations of the Obligor under the applicable Contract,
other than insurance premiums and (b) those rights to payment with respect to
certain Receivables arising under any Eligible Account that is a consumer
revolving credit card account that, pursuant to the terms of the applicable
Contract, have a 0% interest rate.
"Closing Date" means the date of the initial issuance of the Securities.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateralized Trust Obligations" means the Floating Rate Asset Backed
Collateralized Trust Obligations, Series 1998-2.
"Collection Account" means an account established and maintained by the
Servicer for the purpose of depositing all collections of Receivables.
"Collections" is defined at page 58 in "Description of the Offered
Securities--Finance Charge Collections; Principal Collections."
"Commission" means the Securities and Exchange Commission.
"Contract" means an agreement between (a) an Originator and another Person
for the extension of revolving credit, including pursuant to a credit card, in
the form of a cardholder agreement, written contract or invoice, as such
agreement may be amended, modified or otherwise changed from time to time or (b)
an Originator and another Person for the extension of closed-end credit,
including pursuant to a credit card, in the form of a written contract, invoice
or closed-end agreement, in each case pursuant to or under which such other
Person shall be obligated to either pay for, or to pay a loan made to finance
the purchase of, merchandise, financial service products or services or return
any such merchandise to the related merchant.
"Controlled Amortization Period" means, with respect to the Series 1998-2
Securities, unless a Pay Out Event shall have occurred with respect to such
Series prior thereto, the period commencing on the Amortization Period
Commencement Date and ending upon the earlier to occur of (x) the payment in
full to the holders of the Series 1998-2 Securities of the Invested Amount, and
(y) the Termination Date.
"Cooperative" is defined at page 55 in "Description of the Offered
Securities--Book-Entry Registration."
"Corporate Trust Office" means the Trustee's office located at White Clay
Center, Route 273, Newark, Delaware 19711.
"Credit and Collection Policy" means those credit, collection, customer
relations and customer service policies and practices and other written policies
and procedures of the applicable Originator relating to the operation of its
Accounts, Contracts and Receivables (including, without limitation, the written
policies and procedures for determining creditworthiness and relating to the
extension of credit, the maintenance of Accounts and the collection of
receivables with respect thereto) in effect on the Amendment Closing Date and as
such policies and procedures may be amended, modified or otherwise changed from
time to time.
"CTO Adjusted Invested Amount" is defined at page 72 in "Description of the
Offered Securities-- Allocation Percentages."
"CTO Charge-Off" is defined at page 82 in "Description of the Offered
Securities--Series Charge-Offs."
"CTO Expected Final Payment Date" means the April 2004 Distribution Date.
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"CTO Fixed/Floating Percentage" means for any business day on or after the
Amortization Period Commencement Date, the percentage equivalent of a fraction,
the numerator of which is the CTO Invested Amount at the end of the last day of
the Revolving Period and the denominator of which is the greater of (a) the sum
of the aggregate amount of Principal Receivables and the amount on deposit in
the Excess Funding Account as of the beginning of such business day after giving
effect to any deposits or withdrawals to be made to the Excess Funding Account
on such business day and (b) the sum of the numerators used to calculate the
applicable floating or fixed/floating percentages with respect to all
Participations and all classes of all Series then outstanding.
"CTO Floating Percentage" means, with respect to any business day, the
percentage equivalent of a fraction, the numerator of which is the CTO Adjusted
Invested Amount as of the beginning of such business day after giving effect to
any deposits to be made to the Principal Account on such business day and the
denominator of which is the greater of (a) the sum of the aggregate amount of
Principal Receivables as of the beginning of such business day and the amounts
on deposit in the Excess Funding Account as of the beginning of such business
day after giving effect to any deposits or withdrawals to be made to the Excess
Funding Account on such business day and (b) the sum of the numerators used to
calculate the applicable floating or fixed/floating percentages with respect to
all Participations and all classes of all Series then outstanding.
"CTO Interest Rate" means LIBOR plus % per annum or such lesser rate as
specified in the Series 1998-2 Supplement.
"CTO Invested Amount" is defined at page 72 in "Description of the Offered
Securities--Allocation Percentages."
"CTO Monthly Interest" is defined at page 79 in "Description of the Offered
Securities--Application of Collections--Payment of Fees, Interest and Other
Items."
"CTO Percentage" means a fraction the numerator of which is the CTO Invested
Amount and the denominator of which is the sum of the Class A Invested Amount,
the Class B Invested Amount and the CTO Invested Amount.
"CTO Principal" is defined at page 80 in "Description of the Offered
Securities--Application of Collections--Payment of Principal."
"CTO Principal Payment Commencement Date" means the earlier of (a) the
Distribution Date on which the Class A Invested Amount and the Class B Invested
Amount have each been paid in full or, if the Class B Invested Amount is paid in
full on the Class B Expected Final Payment Date and the Early Amortization
Period has not commenced, the Distribution Date following the Class B Expected
Final Payment Date and (b) the Distribution Date following a sale or repurchase
of the Receivables pursuant to the Pooling and Servicing Agreement.
"CTO Required Amount" means the amount determined by the Servicer for each
business day equal to the excess, if any, of (x) the sum of (i) the CTO Monthly
Interest for the Interest Accrual Period beginning in the then current Monthly
Period, (ii) any CTO Monthly Interest due but not paid on any previous
Distribution Date plus any interest due on the next succeeding Distribution Date
with respect to such CTO Monthly Interest due but not paid, (iii) the CTO
Percentage of the Series Default Amount, if any, for such business day and for
any previous business day in such Monthly Period, (iv) the CTO Percentage of the
Monthly Servicing Fee for the related Monthly Period and (v) the CTO Percentage
of the Series 1998-2 Percentage of the Adjustment Payment the Transferor is
required but fails to make on such business day and on each previous business
day during such Monthly Period over (y) the Available Series 1998-2 Finance
Charge Collections plus any Excess Finance Charge Collections from other Series
and any Transferor Finance Charge Collections in each case allocated with
respect to the amounts described in clauses (x)(i) through (v) above with
respect to such business day and all previous business days in such Monthly
Period.
"CTO Securityholders" means the record holders of the Collateralized Trust
Obligations.
"CTO Securityholders' Interest" means the interest in the assets of the
Trust allocated to the CTO Securityholders.
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"Default Amount" means, on any business day, the aggregate amount of
Principal Receivables in Accounts that became Defaulted Accounts on such
business day.
"Defaulted Account" means each Eligible Account with respect to which, in
accordance with the applicable Credit and Collection Policy or the Servicer's
customary and usual servicing procedures, the Servicer has charged off the
Receivables in such Account as uncollectible; an Account shall become a
Defaulted Account on the day on which such Receivables are recorded as charged
off as uncollectible on the Servicer's computer master file of Accounts.
Notwithstanding any other provision hereof, any Receivables in a Defaulted
Account that are Ineligible Receivables shall be treated as Ineligible
Receivables rather than Receivables in Defaulted Accounts.
"Defeasance" is defined at page 83 in "Description of the Offered
Securities--Defeasance."
"Defeasance Funding Account" is defined at page 83 in "Description of the
Offered Securities-- Defeasance Funding Account."
"Defeasance Funding Account Investment Proceeds" is defined at page 84 in
"Description of the Offered Securities--Defeasance Funding Account."
"Defeasance Reserve Account" is defined at page 84 in "Description of the
Offered Securities-- Defeasance Reserve Account."
"Defeasance Reserve Account Funding Date" is defined at page 84 in
"Description of the Offered Securities --Defeasance Reserve Account."
"Definitive Securities" is defined at page 56 in "Description of the Offered
Securities--Definitive Securities."
"Depositaries" is defined at page 53 in "Description of the Offered
Securities--Book-Entry Registration."
"Depository" is defined at page 53 in "Description of the Offered
Securities--General."
"Determination Date" is defined at page 82 in "Description of the Offered
Securities--Series Charge-Offs."
"Dilution" is defined at page 45 in "The Receivables--Dilution Experience."
"Discount Factor" means (a) 25% for Closed End Receivables generated in
connection with sales by Fingerhut, (b) 9% for Revolving Receivables generated
in connection with sales by Fingerhut and (c) such other discount rate or rates
(which may be a fixed percentage or a variable percentage based on a formula)
approved from time to time by the Rating Agencies for Receivables generated in
connection with sales by a Person other than Fingerhut; provided, however, that
such percentages or formulas may be (i) increased from time to time by the
Transferor, following written notice to the Rating Agencies, without the
approval of the Rating Agencies in an amount not to exceed two percentage points
from the amounts set forth in the Pooling and Servicing Agreement or the amounts
otherwise approved by the Rating Agencies if such change will not cause a Pay
Out Event to occur or (ii) adjusted from time to time by the Transferor
(including changing any fixed percentage to a variable percentage) if such
change will not cause a Pay Out Event to occur and the Rating Agencies will have
confirmed that the change will not result in any of the Rating Agencies reducing
or withdrawing its original rating on any then outstanding Series rated by it.
"Discount Receivables" means the sum of (a) with respect to Closed End
Receivables, the product of (i) the applicable Discount Factor and (ii) the
aggregate amount shown on the Servicer's records as amounts payable by Obligors
with respect to such Receivables (or, with respect to any Closed End Receivables
defined in clause (b) of the definition thereof, the aggregate principal amount
shown on the Servicer's records as principal amounts payable by Obligors with
respect to such Receivables) and (b) with respect to Revolving Receivables, the
product of (i) the applicable Discount Factor and (ii) the aggregate
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amount shown on the Servicer's records as amounts payable by Obligors with
respect to such Receivables minus the amount of Periodic Finance Charges,
overlimit fees, late charges, returned check fees, annual account fees or
service charges, transaction charges and similar fees and charges which
constitute Finance Charge Receivables with respect to such Revolving
Receivables.
"Discount Receivables Collections" means on any day, the sum of (a) with
respect to Closed End Receivables, the product of (i) the applicable Discount
Factor and (ii) Collections (or, with respect to any Closed End Receivables
defined in clause (b) of the definition thereof, Collections not including
amounts specified in clause (i) of the definition of "Finance Charge
Receivables") with respect to such Closed End Receivables on such day, and (b)
with respect to Revolving Receivables, the product of (i) the applicable
Discount Factor and (ii) Collections with respect to such Revolving Receivables
on such day minus the amount of Collections that represent payments of Periodic
Finance Charges, overlimit fees, late charges, returned check fees, annual
account fees or service charges, transaction charges and similar fees and
charges which represent Finance Charge Receivables with respect to such Eligible
Receivables.
"Disqualified Persons" is defined at page 111 in "Employee Benefit Plan
Considerations."
"Distribution Account" is defined at page 69 in "Description of the Offered
Securities--Trust Accounts."
"Distribution Date" means June 15, 1998 and the fifteenth day of each month
thereafter, or if such day is not a business day, the next succeeding business
day.
"DOL" means the U.S. Department of Labor.
"Dollars" or "$" means United States dollars.
"DTC" means The Depository Trust Company.
"DTC Participants" is defined at page 53 in "Description of the Offered
Securities--Book-Entry Registration."
"Early Amortization Period" means the period beginning on the earlier of (a)
the day on which a Pay Out Event occurs or is deemed to have occurred and (b)
the CTO Expected Final Payment Date if the CTO Invested Amount has not been paid
in full on or prior to such date, and ending on the earlier of (i) the date on
which the Class A Invested Amount, the Class B Invested Amount, the CTO Invested
Amount and the Class D Invested Amount have been paid in full and (ii) the
Termination Date.
"Eligible Account" is defined at page 66 in "Description of the Offered
Securities--Eligible Accounts."
"Eligible Receivable" is defined at page 66 in "Description of the Offered
Securities--Eligible Receivables."
"Enhancement" means, with respect to any Series, any letter of credit, cash
collateral account, cash collateral guaranty, guaranty, collateral invested
amount, guaranteed rate agreement, maturity guaranty facility, tax protection
agreement, interest rate cap, interest rate swap, currency swap, subordination
of the rights of one class or one Series to another, or any other contract,
agreement or arrangement for the benefit of the securityholders of such Series
(or securityholders of any class within such Series) as designated in the
applicable Supplement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Euroclear" is defined at page 55 in "Description of the Offered
Securities--Book-Entry Registration."
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"Euroclear Operator" is defined at page 55 in "Description of the Offered
Securities--Book-Entry Registration."
"Euroclear Participants" is defined at page 55 in "Description of the
Offered Securities--Book-Entry Registration."
"Excess Finance Charge Collections" means, with respect to any business day,
as the context requires, either (x) the amount described in clause (xviii) under
"Description of the Offered Securities--Application of Collections--Payment of
Fees, Interest and Other Items" available to cover shortfalls in amounts paid
from Finance Charge Collections for other Series, if any, or (y) the aggregate
amount of Finance Charge Collections allocable to other Series in excess of the
amounts necessary to make required payments with respect to such Series, if any,
and available to cover shortfalls with respect to the Securities.
"Excess Funding Account" is defined at page 71 in "Description of the
Offered Securities--Excess Funding Account."
"Exchange" means any tender by the Transferor to the Trustee of the
Exchangeable Transferor Security, pursuant to any one or more Supplements or, if
provided in the relevant Supplement, securities representing any Series and the
Exchangeable Transferor Security, in exchange for one or more new Series and a
reissued Exchangeable Transferor Security.
"Exchangeable Transferor Security" means the security which evidences the
Transferor Interest.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FASIT" is defined at page 108 in "Certain Federal Income Tax
Consequences--Recently Effective Legislation."
"FASIT Provisions" is defined at page 108 in "Certain Federal Income Tax
Consequences--Recently Effective Legislation."
"FCI" means Fingerhut Companies, Inc., a Minnesota corporation.
"FCI Purchase Agreement" means the Amended and Restated Purchase Agreement,
dated as of March 18, 1998, between FCI, as seller, and the Transferor, as
buyer, as supplemented or amended in accordance with its terms.
"FDIA" means the Federal Deposit Insurance Act.
"FDIC" means the Federal Deposit Insurance Corporation.
"Finance Charge Collections" means, with respect to any business day,
collections received with respect to Finance Charge Receivables (other than
Discount Receivables) and Discount Receivable Collections.
"Finance Charge Receivables" is defined at page 7 in "Prospectus
Summary--Receivables."
"Fingerhut" means Fingerhut Corporation, a Minnesota corporation.
"Fingerhut Database" is defined at page 36 in "Fingerhut Corporation's and
Fingerhut National Bank's Businesses."
"Fingerhut Purchase Agreement" means that certain Purchase Agreement, dated
as of June 29, 1994, between Fingerhut, as seller, and the Transferor, as buyer,
as supplemented or amended in accordance with its terms.
"FIRREA" is defined at page 27 in "Risk Factors--Transfer of the
Receivables; Insolvency Risk Considerations."
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"Fixed/Floating Percentage" is defined at page 72 in "Description of the
Offered Securities-- Allocation Percentages."
"Floating Percentage" means the sum of the Class A Floating Percentage, the
Class B Floating Percentage, the CTO Floating Percentage and the Class D
Floating Percentage.
"FNB" means Fingerhut National Bank, a national banking association.
"Foreign Person" is defined at page 109 in "Certain Federal Income Tax
Consequences--Tax Consequences to Foreign Investors."
"FRI" means Fingerhut Receivables, Inc., a Delaware corporation.
"General Account Regulations" is defined at page 112 in "Employee Benefit
Plan Considerations."
"Global Securities" is defined at page B-1-i in "Annex II."
"Governmental Authority" means the United States of America, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Indirect Participants" is defined at page 53 in "Description of the Offered
Securities--Book-Entry Registration."
"Ineligible Receivable" means any Receivable that does not satisfy the
definition of Eligible Receivable.
"Initial Closing Date" means June 29, 1994.
"Initial Invested Amount" is defined at page 10 in "Prospectus
Summary--Allocation of Trust Assets."
"Insolvency Event" is defined at page 88 in "Description of the Offered
Securities--Pay Out Events."
"Interest Accrual Period" means, with respect to a Distribution Date, the
period from and including the preceding Distribution Date to but excluding such
Distribution Date; provided, however, that the initial Interest Accrual Period
shall be the period from the Closing Date to but excluding the initial
Distribution Date.
"Interest Funding Account" is defined at page 69 in "Description of the
Offered Securities--Trust Accounts."
"Interest Rate(s)" is defined at page 12 in "Prospectus Summary--Interest."
"Invested Amount" means the sum of the Class A Invested Amount, the Class B
Invested Amount, the CTO Invested Amount, and the Class D Invested Amount.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time.
"Investor Percentage" means, (a) with respect to Finance Charge Collections
prior to the commencement of the Early Amortization Period, Default Amounts at
any time and Principal Collections during the Revolving Period, the Floating
Percentage and (b) with respect to Finance Charge Collections during the Early
Amortization Period and Principal Collections during the Amortization Period,
the Fixed/Floating Percentage, and with respect to any other Series of
securities, the percentage specified in the related Supplement.
"Investor Security" means any one of the securities (including, without
limitation, securities issued in bearer form or securities in fully registered
form) executed by the Transferor and authenticated by the Trustee substantially
in the form (or forms in the case of a Series with multiple classes) of the
investor
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security or variable funding security attached to the related Supplement, but
not including any securities which the Transferor retains (and continues to
retain) or Participation.
"Investor Securityholder" means the Holder of an Investor Security.
"IRS" means the Internal Revenue Service.
"LIBOR" means the London interbank offered quotations for one-month United
States dollar deposits.
"Minimum Aggregate Principal Receivables" means, as of any date of
determination, (a) the sum of the numerators used in the calculation of the
Investor Percentages for Principal Collections for all outstanding Series and of
the Participation Percentages for all outstanding Participations on such date of
determination, minus (b) the amount on deposit in the Excess Funding Account and
each pre-funding account and principal funding account for any Series on such
date of determination.
"Minimum Retained Interest" means the product of the weighted average
Minimum Retained Percentages for all Series and the sum of the outstanding
principal amounts of all Classes of all Series.
"Minimum Retained Percentage" means, for Series 1998-2, 2%.
"Minimum Transferor Interest" means, as of any date of determination, the
product of (i) the sum of (a) the aggregate amount of Principal Receivables at
the end of the day immediately prior to such date of determination plus (b) all
amounts on deposit in the Excess Funding Account and each pre-funding account
and principal funding account, if any, for each Series (but not including
investment earnings on such amounts) and (ii) the Minimum Transferor Percentage.
"Minimum Transferor Percentage" means, for Series 1998-2, 0%; provided,
however, that in certain circumstances such percentage may be increased.
"Monthly Period" means the period from and including the first day of each
fiscal month of the Transferor to and including the last day of such fiscal
month except that the first Monthly Period with respect to the Securities shall
begin on and include the Closing Date and shall end on and include May 29, 1998.
"Monthly Servicing Fee" is defined at page 89 in "Description of the Offered
Securities--Servicing Compensation and Payment of Expenses."
"Moody's" means Moody's Investors Service, Inc. or its successor.
"Negative Carry Amount" is defined at page 19 in "Prospectus
Summary--Coverage of Interest Shortfalls from Transferor Finance Charge
Collections."
"New Regulations" is defined at page 110 in "Certain Federal Income Tax
Consequences--New Withholding Regulations."
"Notice Date" is defined at page 67 in "Description of the Offered
Securities--Addition of Trust Assets."
"Obligor" means a Person obligated to make payments with respect to a
Receivable pursuant to a Contract.
"Offered Securities" is defined at page 1.
"OID" means original issue discount.
"OID Regulations" is defined at page 106 in "Certain Federal Income Tax
Consequences--Taxation of Interest Income to Securityholders."
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"Originator" means (i) each of Fingerhut and FNB and any of their respective
successors or assigns and (ii) any of their affiliates.
"Other Series" is defined at page 63 in "Description of the Offered
Securities--Other Series."
"Paired Series" is defined at page 82 in "Description of the Offered
Securities--Paired Series."
"Participants" is defined at page 53 in "Description of the Offered
Securities--General."
"Participation" is defined at page 63 in "Description of the Offered
Securities--Participations."
"Participation Amount" means with respect to any Participation on any date
of determination the amount of the interest in the Principal Receivables
represented by such Participation as specified in the applicable Participation
Supplement.
"Participation Percentage" is defined at page 63 in "Description of the
Offered Securities-- Participations."
"Participation Supplement" is defined at page 63 in "Description of the
Offered Securities-- Participations."
"Parties in Interest" is defined at page 111 in "Employee Benefit Plan
Considerations."
"Pay Out Commencement Date" means the date on which a Pay Out Event is
deemed to occur pursuant to the Pooling and Servicing Agreement or the Series
1998-2 Supplement.
"Pay Out Event" is defined at page 87 in "Description of the Offered
Securities--Pay Out Events."
"Paying Agent" is defined at page 70 in "Description of the Offered
Securities--Trust Accounts."
"Payment Reserve Account" is defined at page 86 in "Description of the
Offered Securities--Payment Reserve Account."
"Periodic Finance Charge" has, with respect to any Account, the meaning
specified in the Contract applicable to such Account for finance charges (due to
periodic rate) or any similar term.
"Permitted Lien" means, with respect to the Receivables: (i) liens in favor
of FCI created pursuant to the Bank Purchase Agreement and the Transferor
pursuant to the Purchase Agreement and the Bank Purchase Agreement and assigned
to the Trustee pursuant to the Pooling and Servicing Agreement; (ii) liens in
favor of the Trustee pursuant to the Pooling and Servicing Agreement; (iii)
liens in favor of the holder of any Participation pursuant to any Participation
Supplement; and (iv) liens which secure the payment of taxes, assessments, and
governmental charges or levies, if such taxes are either (a) not delinquent or
(b) being contested in good faith by appropriate legal or administrative
proceedings and as to which adequate reserves in accordance with generally
accepted accounting principles shall have been established.
"Person" means any legal person, including any individual, corporation,
partnership, limited liability company, joint venture, association, joint stock
company, trust, unincorporated organization, governmental entity or other entity
of similar nature.
"Plan" is defined at page 111 in "Employee Benefit Plan Considerations."
"Plan Assets Regulation" is defined at page 111 in "Employee Benefit Plan
Considerations."
"Pooling and Servicing Agreement" means the Amended and Restated Pooling and
Servicing Agreement, dated as of March 18, 1998, among the Transferor, the
Servicer, and the Trustee, as supplemented or amended in accordance with its
terms. Unless the context requires otherwise, the term "Pooling and Servicing
Agreement" refers to the Pooling and Servicing Agreement as supplemented by the
Series 1998-2 Supplement.
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"Portfolio Yield" is defined at page 51 in "Maturity Considerations."
"Prepayable Instrument" is defined at page 107 in "Certain Federal Income
Tax Consequences-- Taxation of Interest Income to Securityholders--OID."
"Previously Issued Series" means the Series 1994-1 Asset Backed Securities,
the Series 1994-2 Variable Funding Securities and the Series 1997-1 Variable
Funding Trust Securities.
"Principal Account" is defined at page 69 in "Description of the Offered
Securities--Trust Accounts."
"Principal Collections" means, with respect to any business day, collections
received with respect to Principal Receivables on such business day.
"Principal Receivables" means, for any business day, the aggregate amount
shown on the Servicer's records as amounts payable by Obligors with respect to
Eligible Receivables other than such amounts that are Finance Charge Receivables
or Default Amounts.
"Principal Shortfalls" is defined at page 58 in "Description of the Offered
Securities--Principal Payments."
"Principal Terms" is defined at page 61 in "Description of the Offered
Securities--Exchanges."
"Purchase Agreement" means the Fingerhut Purchase Agreement with respect to
Fingerhut and the FCI Purchase Agreement with respect to FCI.
"Purchase Termination Date" is defined at page 99 in "Description of the
Purchase Agreements-- Purchase Termination Date."
"Qualified Institution" is defined at page 69 in "Description of the Offered
Securities--Trust Accounts."
"Rating Agencies" means Standard & Poor's and Moody's.
"Rating Agency Condition" means the notification in writing by each Rating
Agency to the Transferor, the Servicer and the Trustee that any action will not
result in any Rating Agency's reducing or withdrawing its then existing rating
of the Investor Securities of any outstanding Series or class with respect to
which it is a Rating Agency.
"Ratings Event" means with respect to any Class of any outstanding series
rated by a Rating Agency, a reduction or withdrawal of the rating of any such
Class by a Rating Agency.
"Reassignment" is defined at page 68 in "Description of the Offered
Securities--Removal of Accounts."
"Reassignment Date" is defined at page 64 in "Description of the Offered
Securities--Representations and Warranties."
"Receivable" means, with respect to any Obligor, any right to payment of
amounts owed by that Obligor under an Account, including, without limitation,
all rights of each Originator and obligations of the Obligor under the
applicable Account.
"Record Date" means, with respect to any Distribution Date, the business day
preceding such Distribution Date, except that, with respect to any Definitive
Securities, Record Date shall mean the fifth day of the then current Monthly
Period.
"Recoveries" means any amounts received by the Servicer or the Transferor
with respect to Receivables in Defaulted Accounts, including Collections
received from Obligors and disposition proceeds.
"Redirected Class B Principal Collections" is defined at page 74 in
"Description of the Offered Securities--Redirected Principal Collections."
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"Redirected Class D Principal Collections" is defined at page 74 in
"Description of the Offered Securities--Redirected Principal Collections."
"Redirected CTO Principal Collections" is defined at page 74 in "Description
of the Offered Securities--Redirected Principal Collections."
"Redirected Principal Collections" means the sum of Redirected Class B
Principal Collections, Redirected CTO Principal Collections and Redirected Class
D Principal Collections.
"Related Person" means an entity that is an affiliate of FCI, any Investor
Securityholder, any Enhancement provider, or any Person whose status would
violate the conditions for a trustee contained in Section (4)(i) of Rule 3a-7
under the Investment Company Act of 1940, as amended.
"Relevant UCC State" means each jurisdiction in which the filing of a UCC
financing statement is necessary to perfect the ownership interest and security
interest of the Transferor pursuant to the Purchase Agreement or the ownership
or security interest of the Trustee.
"Removal Date" is defined at page 68 in "Description of the Offered
Securities--Removal of Accounts."
"Removal Notice Date" means the day, no later than the fifth business day
prior to a Removal Date, on which the Transferor gives notice to the Trustee of
its intention to remove Accounts from the Trust pursuant to the Pooling and
Servicing Agreement.
"Removed Accounts" is defined at page 68 in "Description of the Offered
Securities--Removal of Accounts."
"Required Amount" is defined at page 79 in "Description of the Offered
Securities--Application of Collections--Payment of Fees, Interest and Other
Items."
"Required Defeasance Reserve Account Amount" is defined at page 83 in
"Description of the Offered Securities--Defeasance."
"Requirements of Law" means, for any Person, the certificate of
incorporation or articles of association and by-laws or other organizational or
governing documents of such Person, and any material law, treaty, rule or
regulation or determination of an arbitrator or Governmental Authority, in each
case applicable to or binding upon such Person or to which such Person is
subject.
"Reserve Account Investment Proceeds" means, with respect to any business
day, the sum of the investment earnings on funds on deposit in (i) the reserve
account established for the benefit of the CTO Securityholders available on such
business day and (ii) the Payment Reserve Account available on such business
day.
"Restart Date" is defined at page 67 in "Description of the Offered
Securities--Addition of Trust Assets."
"Retained Interest" means, on any date of determination, the sum of the
Transferor Interest and the Invested Amount represented by any class of
securities retained by the Transferor.
"Retained Percentage" means, on any date of determination, the percentage
equivalent of a fraction the numerator of which is the Retained Interest and the
denominator of which is the aggregate amount of Principal Receivables at the end
of the day immediately prior to such date of determination plus all amounts on
deposit in the Excess Funding Account (but not including investment earnings on
such amounts).
"Revolving Period" means the period from and including the Closing Date to,
but not including, the Amortization Period Commencement Date.
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"Revolving Receivable" means any right to payment arising under an Eligible
Account that is a consumer revolving credit card account which is not a Closed
End Receivable pursuant to clause (b) of the definition thereof.
"Revolving Receivables Reserve Account" is defined at page 85 in
"Description of the Offered Securities--Revolving Receivables Reserve Account."
"RTC" means the Resolution Trust Corporation.
"RTC Policy Statement" is defined at page 102 in "Certain Legal Aspects of
the Receivables--Certain Matters Relating to Bankruptcy or Receivership."
"Securities" means, collectively, the Class A Securities, the Class B
Securities, the Collateralized Trust Obligations and the Class D Securities.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Security Owners" is defined at page 2 in "Reports to Securityholders."
"Securityholders" means the record holders of the Securities.
"Securityholders' Interest" means the interest in the assets of the Trust
allocated to the Securityholders.
"Seller" is defined at page 97 in "Description of the Purchase
Agreements--Representations and Warranties."
"Series" means any series of securities issued by the Trust pursuant to a
Supplement, including the Securities.
"Series Account" shall mean any account or accounts established pursuant to
a Supplement for the benefit of the related Series.
"Series 1998-1 Securities" is defined at page 4 in "Prospectus
Summary--Other Securities."
"Series 1998-2" is defined at page 2.
"Series 1998-2 Percentage" means, on any date of determination, the
percentage equivalent of a fraction the numerator of which is the Invested
Amount and the denominator of which is the sum of the invested amounts of all
Series then outstanding.
"Series 1998-2 Securities" means the Securities.
"Series 1998-2 Supplement" means the Supplement, dated as of the Closing
Date, among the Transferor, the Servicer, and the Trustee relating to the
Securities.
"Series Charge-Off" means the sum of the Class A Charge-Offs, Class B
Charge-Offs, CTO Charge-Offs and Class D Charge-Offs.
"Series Default Amount" is defined at page 81 in "Description of the Offered
Securities--Defaulted Receivables; Dilution."
"Service Transfer" is defined at page 90 in "Description of the Offered
Securities--Servicer Default."
"Servicer" means FNB in its capacity as Servicer of the Receivables pursuant
to the Pooling and Servicing Agreement, and any replacement Servicer as provided
in the Pooling and Servicing Agreement, or any Person appointed as successor to
service the Receivables.
"Servicer Default" is defined at page 90 in "Description of the Offered
Securities--Servicer Default."
"Shared Principal Collections" means, as the context requires, (a) the
amount of Principal Collections for any business day applied to the Series
1998-2 Securities remaining after covering required deposits or
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payments to the Securityholders and any similar amount remaining for any other
Series or (b) the amounts applied to the Investor Securities of other Series
which the applicable Supplements for such Series specify are to be treated as
"Shared Principal Collections" or (c) the amounts specified in any Participation
Supplement to be treated as "Shared Principal Collections" and which may be
applied to cover Principal Shortfalls with respect to the Series 1998-2
Securities.
"Special Tax Counsel" means Skadden, Arps, Slate, Meagher & Flom LLP,
counsel to the Transferor or such other counsel reasonably acceptable to the
Trustee.
"Specified Revolving Receivables Reserve Amount" means, on any date of
determination, an amount equal to the product of (x) the Floating Percentage on
such date and (y) 1% of the aggregate amount of Principal Receivables which are
Revolving Receivables on such date; provided, however, that such percentage may
be reduced at the option of the Transferor at any time if the Rating Agency
Condition shall have been satisfied with respect thereto.
"Spin Off" is defined at page 49 in "The Transferor and Related
Parties--Fingerhut Companies, Inc."
"Standard & Poor's" means Standard & Poor's, a Division of The McGraw-Hill
Companies, Inc. or any successor.
"Stated Class D Amount" is defined at page 73 in "Description of the Offered
Securities--Allocation Percentages."
"Supplement" means any Supplement to the Pooling and Servicing Agreement
executed in connection with the issuance of securities of such Series.
"Supplemental Accounts" is defined at page 67 in "Description of the Offered
Securities--Addition of Trust Assets."
"Supplemental Security" is defined at page 63 in "Description of the Offered
Securities--Exchanges."
"Tax Certificate" is defined at page B-1-iii in "Annex II."
"Tax Opinion" means, with respect to any action, an opinion of counsel
delivered to the Trust and the Trustee to the effect that, for United States
federal income tax purposes, (i) such action will not adversely affect the tax
characterization as debt of Securities or Participations of any outstanding
Series or Class that were characterized as debt for such purposes at the time of
their issuance, (ii) following such action the Trust will not be deemed to be an
association or a "publicly traded partnership" (within the meaning of Section
7704(b) of the Code) taxable as a corporation and (iii) such action will not
cause or constitute a taxable event in which gain or loss would be recognized by
any security owner or the Trust.
"Termination Date" means the February 2007 Distribution Date.
"Terms and Conditions" is defined at page 55 in "Description of the Offered
Securities--Book-Entry Registration."
"Transfer Agent and Registrar" is defined at page 56 in "Description of the
Offered Securities-- Definitive Securities."
"Transfer Date" is defined at page 75 in "Description of the Offered
Securities--Application of Collections--In General."
"Transferor" means Fingerhut Receivables, Inc., a Delaware corporation.
"Transferor Finance Charge Collections" is defined at page 19 in "Prospectus
Summary--Coverage of Interest Shortfalls from Transferor Finance Charge
Collections."
"Transferor Interest" means, on any date of determination, the sum of (i)
the aggregate amount of Principal Receivables at the end of the day immediately
prior to such date of determination plus (ii) all
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amounts on deposit in the Excess Funding Account, and each pre-funding account
and principal funding account, if any, for each Series (but not including
investment earnings on such amounts at the end of the immediately preceding
day), minus the sum of (x) the aggregate invested amount of all Series at the
end of the immediately preceding day and (y) the Participation Amount of each
Participation then outstanding.
"Transferor Percentage" means, on any date of determination, when used with
respect to Principal Collections, Finance Charge Collections and Default
Amounts, a percentage equal to 100% MINUS the sum of (i) the applicable
Aggregate Investor Percentage with respect to the relevant category and (ii) the
applicable Participation Percentages with respect to all Participations.
"Transferred Account" means an Account with respect to which a new account
number has been issued by the applicable Originator under circumstances
resulting from a lost or stolen credit card and not requiring standard
application and credit evaluation procedures under the applicable Credit and
Collection Policy.
"Treasury Regulations" is defined at page 105 in "Certain Federal Income Tax
Consequences-- General; Scope of Federal Income Tax Opinion."
"Trust" means the Fingerhut Master Trust.
"Trustee" means The Bank of New York (Delaware), a banking corporation
organized and existing under the laws of Delaware, and its successors and any
Person resulting from or surviving any consolidation or merger to which it or
its successors may be a party and any successor trustee appointed as provided in
the Pooling and Servicing Agreement.
"UCC" means the Uniform Commercial Code, as amended from time to time, as in
effect in the applicable jurisdiction.
"Underwriters" is defined at page 113 in "Underwriting."
"Underwriting Agreement" means the underwriting agreement dated April ,
1998 among the Transferor and the Underwriters.
"U.S. Person" is defined at page B-1-iv in "Annex II."
"Variable Funding Securities" means a series of investor securities, issued
pursuant to the Pooling and Servicing Agreement, in one or more classes, at
least one of which may vary in invested amount during the revolving period for
such Series.
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ANNEX I
OTHER SERIES
The table below sets forth the principal characteristics of the Series
1994-2 Variable Funding Trust Certificates which is the only Previously Issued
Series that will remain outstanding upon the issuance of the Securities. In
addition, the table sets forth the principal characteristics of the Series
1998-1 Securities that are being offered by the Trust concurrently with the
issuance of Series 1998-2. For more specific information with respect to any
Series, any prospective investor should contact the Transferor at (612)
936-5035. The Transferor will provide, without charge, to any prospective
purchaser of the Securities a copy of the disclosure documents for any previous
publicly issued Series.
<TABLE>
<S> <C>
SERIES 1994-2
CLASS A CERTIFICATES
Invested Amount as of April 8, 1998........ $191,400,000
Expected Invested Amount as of Closing Date
(after application of proceeds).......... $61,400,000
Maximum Permitted Invested Amount.......... $412,400,000 (subject to change)
Certificate Rate........................... Commercial Paper
Certificate Rate as of March 27, 1998...... 5.82%
Commencement of Amortization Period........ May 28, 1999 or earlier as determined in the
Pooling and Servicing Agreement (extendible)
Annual Servicing Fee Percentage............ 2.00%
Enhancement................................ Subordination of Class B Certificates, Class
C Certificates and Class D Certificates
Scheduled Series Termination Date.......... May 30, 2003 (extendible)
Series Issuance Date....................... November 15, 1994
CLASS B CERTIFICATES
Initial Invested Amount.................... $27,865,000
Certificate Rate........................... LIBOR + 0.625%
Annual Servicing Fee Percentage............ Same as above for Class A Certificates
Enhancement................................ Subordination of Class C Certificates and
Class D Certificates
Scheduled Series Termination Date.......... Same as above for Class A Certificates
CLASS C CERTIFICATES
Initial Invested Amount.................... $50,157,000
Certificate Rate........................... LIBOR + 0.750%
Annual Servicing Fee Percentage............ Same as above for Class A Certificates
Enhancement................................ Subordination of Class D Certificates
Scheduled Series Termination Date.......... Same as above for Class A Certificates
CLASS D CERTIFICATES
Invested Amount as of April 8, 1998........ $36,739,000
Expected Invested Amount as of Closing Date
(after reduction of Class A Invested
Amount).................................. $19,012,091
Maximum Permitted Invested Amount.......... $66,876,000
Certificate Rate........................... None
Annual Servicing Fee Percentage............ Same as above for Class A Certificates
Scheduled Series Termination Date.......... Same as above for Class A Certificates
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C>
SERIES 1998-1
CLASS A SECURITIES
Initial Invested Amount.................... $337,500,000
Interest Rate.............................. %
Commencement of Amortization Period........ August 2000 or the Pay Out Commencement Date
Annual Servicing Fee Percentage............ 2.00%
Enhancement................................ Subordination of Class B Securities,
Collateralized Trust Obligations and Class D
Securities
Scheduled Series Termination Date.......... February 2005 Distribution Date
Series Issuance Date....................... April , 1998
CLASS B SECURITIES
Initial Invested Amount.................... $51,136,000
Interest Rate.............................. %
Annual Servicing Fee Percentage............ Same as above for Class A Securities
Enhancement................................ Subordination of Collateralized Trust
Obligations and Class D Securities
Scheduled Series Termination Date.......... Same as above for Class A Securities
COLLATERALIZED TRUST OBLIGATIONS
Initial Invested Amount.................... $61,364,000
Interest Rate.............................. LIBOR + % per annum or such lesser rate as
specified in the Series 1998-1 Supplement
Annual Servicing Fee Percentage............ Same as above for Class A Securities
Enhancement................................ Subordination of Class D Securities
Scheduled Series Termination Date.......... Same as above for Class A Securities
CLASS D SECURITIES
Invested Amount as of ............... $61,364,000
Interest Rate.............................. None
Annual Servicing Fee Percentage............ Same as above for Class A Securities
Scheduled Series Termination Date.......... Same as above for Class A Securities
</TABLE>
A-ii
<PAGE>
ANNEX II
GLOBAL CLEARANCE SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Asset Backed
Securities, Series 1998-2 (the "Global Securities") will be available only in
book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), Cedel or
Euroclear. The Global Securities 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 Securities through
Cedel and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities 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 Securities will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities 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 such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to conventional credit card security issues.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities 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 Securities will be credited to the
securities custody accounts on the settlement date against payment in the
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 conventional
credit card security issues 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.
B-1-i
<PAGE>
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Global
Securities are to be transferred from the account of a DTC Participant to the
accounts 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 prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of actual days elapsed and a 360 day
year. Payment will then be made by the respective Depositary to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's account.
The Global Securities credit will appear the next day (European time) and the
cash debit will be back-valued to, and the interest on the Global Securities
will accrue from, the value date (which would be the preceding day when
settlement occurred in New York). If settlement is not completed on the intended
value date (i.e., the trade fails), the Cedel or Euroclear cash debit will be
valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities 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
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such 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 Securities 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 Participants 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
Securities 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 prior to 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 Securities from and including the last coupon payment date
to and excluding the settlement date on the basis of actual days elapsed and a
360 day year. 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 (which 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
debt 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 settlement is not completed on the intended value date (i.e., the
trade fails),
B-1-ii
<PAGE>
receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global Securities
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 prior to the value date for the sale to the Cedel Participant or Euroclear
Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to 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 such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such 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). Beneficial owners of Securities
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) and a
certificate under penalties of perjury (the "Tax Certificate") that such
beneficial owner is (i) not a controlled foreign corporation (within the meaning
of Section 957(a) of the Code) that is related (within the meaning of Section
864(d)(4) of the Code) to the Trust or the Transferor and (ii) not a 10 percent
shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the
Trust or the Transferor. If the information shown on Form W-8 or the Tax
Certificate changes, a new Form W-8 or Tax Certificate, as the case may be, must
be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). 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).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Security Owners 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). 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. Form 1001 may be filed by the Security Owner or
such Security Owner's agent.
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).
B-1-iii
<PAGE>
U.S. Federal Income Tax Reporting Procedure. The Security Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, such Security
Owner's 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.
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 thereof or (iii) an estate the income of
which is includible in gross income for United States tax purposes, regardless
of its source or, for trusts whose taxable years begin after December 31, 1996,
a trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States fiduciaries who 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 Securities. Investors are advised to
consult their own tax advisors for specific tax advice concerning their holding
and disposing of the Global Securities.
B-1-iv
<PAGE>
PRINCIPAL OFFICE OF
FINGERHUT RECEIVABLES, INC.
4400 Baker Road
Suite F480
Minnetonka, Minnesota 55343
TRUSTEE
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
PAYING AGENTS
The Bank of New York
White Clay Center
Route 273
Newark, Delaware 19711
Banque Generale du Luxembourg S.A.
50, Avenue J.F. Kennedy
L-2951 Luxembourg
LISTING AGENT
Banque Generale du Luxembourg S.A.
50, Avenue J.F. Kennedy
L-2951 Luxembourg
LEGAL ADVISOR TO THE TRANSFEROR
as to United States Law
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
LEGAL ADVISOR TO THE UNDERWRITERS
as to United States Law
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
INDEPENDENT ACCOUNTANTS TO THE TRANSFEROR
KPMG Peat Marwick LLP
4200 Norwest Center
90 South 7th Street
Minneapolis, Minnesota 55402-3900
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRANSFEROR OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF FINGERHUT CORPORATION, FINGERHUT COMPANIES, INC., FINGERHUT NATIONAL
BANK, FINGERHUT RECEIVABLES, INC. OR THE RECEIVABLES SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
- ------------------------------------------------------
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
Reports to Securityholders 2
Available Information 3
Other Information 3
Cautionary Notice Regarding Forward-Looking
Statements 3
Prospectus Summary 4
Risk Factors 26
The Trust 35
Fingerhut Corporation's and Fingerhut National
Bank's Businesses 35
The Receivables 40
The Transferor and Related Parties 49
Maturity Considerations 49
Use of Proceeds 52
Description of the Offered Securities 52
Description of the Purchase Agreements 96
Certain Legal Aspects of the Receivables 100
Certain Federal Income Tax Consequences 105
Certain State Tax Consequences 110
Employee Benefit Plan Considerations 111
Underwriting 113
Listing and General Information 114
Legal Matters 115
Glossary of Terms 116
</TABLE>
- ------------------------------------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE OFFERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
Fingerhut
Master Trust
$337,500,000 %
ASSET BACKED SECURITIES,
SERIES 1998-2, CLASS A
$51,136,000 %
ASSET BACKED SECURITIES,
SERIES 1998-2, CLASS B
Fingerhut Receivables, Inc.
Transferor
Fingerhut National Bank
Servicer
- ---------------------
PROSPECTUS
- ---------------------
Underwriters of the Class A Securities
Chase Securities Inc.
BancAmerica Robertson Stephens
NationsBanc Montgomery
Securities LLC
UBS Securities
Underwriter of the Class B Securities
Chase Securities Inc.
, 1998
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee............................................................... $114,647.29
Printing and Engraving......................................................... 85,000.00
Trustee's Fees................................................................. 15,000.00
Legal Fees and Expenses........................................................ 200,000.00
Blue Sky Fees and Expenses..................................................... 10,000.00
Accountants' Fees and Expenses................................................. 50,000.00
Rating Agency Fees............................................................. 180,000.00
Miscellaneous Fees............................................................. 10,352.71
----------
Total...................................................................... $665,000.00
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's certificate of incorporation and by-laws provide for the
indemnification of the directors, officers, employees, and agents of the
Registrant to the full extent that may be permitted by Delaware law from time to
time. Certain provisions of the Registrant's certificate of incorporation
protect the Registrant's directors against personal liability for monetary
damages resulting from breaches of their fiduciary duty of care; however, the
Registrant's directors remain liable for breaches of their duty of loyalty to
the Registrant, as well as for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, transactions from
which a director derives improper personal benefit and liability under section
174 of the Delaware General Corporation Law, which makes directors personally
liable for unlawful dividends or unlawful stock repurchases or redemptions in
certain circumstances and expressly sets forth a negligence standard with
respect to such liability.
Under Section 145 of the Delaware General Corporation Law, directors,
officers, employees, and other individuals may be indemnified against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative, or investigative (other than a "derivative action" by
or in the right of the corporation) if they acted in good faith and in a manner
they 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 their conduct was unlawful. A similar standard of
care is applicable in the case of a derivative action, except that
indemnification only extends to expenses (including attorneys' fees) incurred in
connection with defense or settlement of such an action and Delaware law
requires court approval before there can be any indemnification of expenses
where the person seeking indemnification has been found liable to the
corporation.
The Registrant's parent corporation currently maintains a policy insuring,
subject to certain exceptions, its directors and officers and the directors and
officers of its subsidiaries against liabilities which may be incurred by such
persons acting in such capacities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
<TABLE>
<S> <C>
Dates of sale: January 21, 1997, April 21, 1997 and June 20,
1997
Title of securities: Variable Funding Trust Certificates, Series
1997-2, Class A;
Floating Rate Accounts Receivable Trust
Certificates, Series 1997-1, Class B
Amount of securities sold: Class A: Variable funding amount up to a
maximum of $848,900,000
Class B: $51,100,000
Underwriters and other purchasers: The Chase Manhattan Bank
Receivables Capital Corporation
Enterprise Funding Corporation
Union Bank of Switzerland, New York Branch
Twin Towers, Inc.
Consideration: The consideration for the securities was a
cash payment at the time of sale in the
amount of 100% of the then outstanding
invested amount of the securities and a
commitment to pay 100% of increases in the
investment amount up to the maximum invested
amount, as provided for in the securities, at
the time of each such increase.
Exemption from registration claimed: Private placement under Section 4(2) of the
Securities Act
Terms of conversion/exercise: Not applicable
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
a. Exhibits
<TABLE>
<S> <C> <C> <C>
1 -- Form of Underwriting Agreement.
3(a) -- Amended and Restated Certificate of Incorporation of Fingerhut Receivables,
Inc.*
3(b) -- By-laws of Fingerhut Receivables, Inc. (incorporated herein by reference to
Registration Statement No. 33-77780).
4(a) -- Amended and Restated Pooling and Servicing Agreement, dated as of March 18,
1998.
4(b) -- Form of Series 1998-2 Supplement.
5 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with respect to
legality.
8 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with respect to tax
matters.
10(a) -- Purchase Agreement, dated as of June 29, 1994 between Fingerhut
Receivables, Inc. and Fingerhut Corporation.*
10(b) -- First Amendment to Purchase Agreement, dated as of November 15, 1994 by and
between Fingerhut Receivables, Inc. and Fingerhut Corporation.*
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
10(c) -- Second Amendment to Purchase Agreement, dated as of January 12, 1997 by and
between Fingerhut Receivables, Inc. and Fingerhut Corporation.*
10(d) -- Amended and Restated Purchase Agreement dated as of March 18, 1998 between
Fingerhut Receivables, Inc. and Fingerhut Companies, Inc.
10(e) -- Amended and Restated Bank Receivables Purchase Agreement dated as of March
18, 1998 between Fingerhut Companies, Inc. and Fingerhut National Bank.
23 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in its
opinion filed as Exhibit 5).
24 -- Power of Attorney.*
</TABLE>
- ------------------------
* Previously filed.
b. Financial Statements
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(A) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, 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 the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of 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 their 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 Securities Act of
1933, 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 Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(C) For the purpose of determining any liability under the Securities Act of
1933, 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Minnetonka, State of Minnesota, on April 9, 1998.
FINGERHUT RECEIVABLES, INC.
By /s/ JAMES M. WEHMANN
-----------------------------------------
Name: James M. Wehmann
Title: President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities indicated on April 9, 1998.
SIGNATURE TITLE
- ------------------------------ -----------------------
/s/ JAMES M. WEHMANN President and Director (Principal Executive
- ------------------------------ Officer and Principal
James M. Wehmann Financial Officer)
* Vice President and
- ------------------------------ Controller (Principal Accounting
Thomas C. Vogt Officer)
* Director
- ------------------------------
Peter G. Michielutti
* Director
- ------------------------------
Michael P. Sherman
* Director
- ------------------------------
William R. Latham III
* Director
- ------------------------------
Donald J. Puglisi
*By: /S/ JAMES M. WEHMANN
------------------------------
James M. Wehmann
ATTORNEY-IN-FACT
<PAGE>
EXHIBIT 1
FINGERHUT MASTER TRUST
$_____________ % ASSET BACKED SECURITIES, SERIES 1998-_, CLASS A
$_____________ % ASSET BACKED SECURITIES, SERIES 1998-_, CLASS B
FINGERHUT RECEIVABLES, INC.
(TRANSFEROR)
UNDERWRITING AGREEMENT
April __, 1998
CHASE SECURITIES INC.
As Representative of the
Several Underwriters named
on Schedule I hereto,
270 Park Avenue
New York, New York 10017
Dear Sirs:
Fingerhut Receivables, Inc., a Delaware corporation (the
"TRANSFEROR"), proposes, subject to the terms and conditions stated herein, to
issue and sell $____________ of ______% Asset Backed Securities, Series 1998-_,
Class A (the "CLASS A SECURITIES") and $____________ of ______% Asset Backed
Securities, Series 1998-_, Class B (the "CLASS B SECURITIES"; together with the
Class A Securities, the "OFFERED SECURITIES") of the Trust (as defined herein).
Each Offered Security will represent a fractional undivided interest
in the Fingerhut Master Trust (the "TRUST") established pursuant to an Amended
and Restated Pooling and Servicing Agreement (as amended, supplemented or
otherwise modified from time to time, the "POOLING AND SERVICING AGREEMENT"),
dated as of March 18, 1998, among the Transferor, Fingerhut National Bank, a
national banking association ("FNB"), in its capacity as servicer (referred to
in such capacity as the "SERVICER") and The Bank of New York (Delaware), as
trustee (the "TRUSTEE"). The Offered Securities will be issued pursuant to the
Pooling and Servicing Agreement as supplemented by the Series 1998-_ Supplement,
dated as of April ___, 1998, among the Transferor, the Servicer and the Trustee
(the "SERIES SUPPLEMENT"). Concurrently with the issuance of the Offered
Securities, the Trust will issue the Floating Rate Collateralized Trust
Obligations ("COLLATERALIZED TRUST OBLIGATIONS"), Series 1998-_, and the 0%
Asset Backed Securities, Series 1998-_, Class D (together with the Offered
Securities and the Collateralized Trust Obligations, the "SERIES 1998-_
SECURITIES").
<PAGE>
2
The assets of the Trust include, among other things, receivables
generated from time to time in the ordinary course of business by FNB and
receivables previously generated by Fingerhut Corporation ("FINGERHUT"), a
Minnesota corporation, in each case in connection with the sale of merchandise,
financial service products or services (the "RECEIVABLES"), all monies due or to
become due in respect of the Receivables and all monies on deposit in certain
bank accounts of the Trust.
The Receivables were transferred to the Transferor by Fingerhut
pursuant to a Purchase Agreement (the "FINGERHUT PURCHASE AGREEMENT"), dated as
of June 29, 1994, between Fingerhut and the Transferor and an Amended and
Restated Purchase Agreement (the "FCI PURCHASE AGREEMENT"), dated as of March
18, 1998, between Fingerhut Companies, Inc., a Minnesota corporation ("FCI"),
and the Transferor, and are serviced for the Trust by the Servicer pursuant to
the Pooling and Servicing Agreement. The Receivables transferred to the
Transferor pursuant to the FCI Purchase Agreement were acquired by FCI from FNB
pursuant to an Amended and Restated Bank Purchase Agreement, dated as of March
18, 1998, between FCI and FNB (the "BANK PURCHASE AGREEMENT"; together with the
Fingerhut Purchase Agreement and the FCI Purchase Agreement, the "PURCHASE
AGREEMENTS"). Capitalized terms used and not otherwise defined herein shall
have the meanings given them in the Pooling and Servicing Agreement.
The Transferor has filed with the Securities and Exchange Commission
(the "COMMISSION") a registration statement on Form S-1 No. 333-45611,
including a related prospectus, for the registration under the Securities Act
of 1933, as amended (the "SECURITIES ACT"), of the Offered Securities and
Amendment No. 1 thereto. For purposes of this Agreement, "EFFECTIVE TIME"
means the date and time as of which such registration statement, or the most
recent post-effective amendment thereto, if any, was or is declared effective
by the Commission. "PRELIMINARY PROSPECTUS" means each prospectus included in
such registration statement, or amendments thereof, before it becomes effective
under the Securities Act, any prospectus filed with the Commission by the
Transferor pursuant to Rule 424(a) and the prospectus included in the
Registration Statement at the Effective Time that omits the information
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A ("RULE 430A INFORMATION") under the Securities
Act. Such registration statement, as amended at the Effective Time,
including all Rule 430A Information, if any, is hereinafter referred to as the
"REGISTRATION STATEMENT", and the form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) or, if no such filing is required, as included in the
Registration Statement is hereinafter referred to as the "PROSPECTUS".
This is to confirm the agreement concerning the purchase of the
Offered Securities from the Transferor by the several Underwriters named in
Schedule 1 hereto (the "UNDERWRITERS").
<PAGE>
3
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE TRANSFEROR AND
FCI. Each of the Transferor (the representations and warranties as to the
Transferor being given by the Transferor) and FCI (the representations and
warranties as to the FCI, FNB and Fingerhut being given by FCI) represent and
warrant to and agree with the Underwriters that:
(a) At the Effective Time, the Registration Statement did or will, and
the Prospectus (and any supplements thereto) did or will, comply in all
material respects with the applicable requirements of the Securities Act,
and the rules and regulations (the "RULES AND REGULATIONS") of the
Commission and did not or will not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. The Prospectus, at the Effective Time, if not filed pursuant
to Rule 424(b), or on the date of any filing pursuant to Rule 424(b), if
filed pursuant to Rule 424(b), and, in each case, on the Closing Date, did
not or will not, include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
The preceding sentences do not apply to information contained in or omitted
from the Registration Statement or the Prospectus (or any supplement
thereto) in reliance upon and in conformity with written information
furnished to the Transferor by or on behalf of any Underwriter specifically
for use therein (the "UNDERWRITERS' INFORMATION").
(b) The Transferor is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware; the
Transferor has the corporate power and authority to conduct its business as
such business is presently conducted, and had at all relevant times, and
now has, the corporate power to acquire, own and sell the Receivables.
(c) FCI is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Minnesota; FCI is duly
qualified to do business and is in good standing in each state of the
United States where the conduct of its business requires it to be so
qualified, except where the failure to do so does not have a material
adverse effect on the financial condition or business of FCI; and FCI has
the corporate power to conduct its business as such business is presently
conducted.
(d) Fingerhut is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Minnesota; Fingerhut is
duly qualified to do business and is in good standing in each state of the
United States where the conduct of its business requires it to be so
qualified, except where the failure to do so does not have a
<PAGE>
4
material adverse effect on the financial condition or business of
Fingerhut; and Fingerhut has the corporate power to conduct its business as
such business is presently conducted.
(e) FNB is a national banking association formed under the laws of
the United States of America and is authorized to conduct the business of a
special purpose credit card bank; and FNB has the power and authority to
acquire, own and service the Accounts and the Receivables.
(f) Each of the Transferor and FCI has the power and authority to
execute and deliver this Agreement and to carry out its terms; and the
consummation of the transactions contemplated herein have been duly
authorized by each of the Transferor and FCI.
(g) This Agreement has been duly authorized, executed and delivered by
each of the Transferor and FCI.
(h) As of the Closing Date, the Offered Securities will be duly and
validly authorized and, when authenticated by the Trustee and delivered to
the Transferor in accordance with the Pooling and Servicing Agreement, and
following delivery to and payment therefor by the Underwriters as provided
herein, will be validly issued and outstanding and entitled to the benefits
afforded by the Pooling and Servicing Agreement and the Series Supplement.
(i) The execution, delivery and performance of this Agreement and the
consummation by each of the Transferor and FCI of the transactions
contemplated hereby will not (i) contravene the charter or by-laws of such
party, (ii) violate (A) any provision of law, statute, rule or regulation
applicable to such party or (B) any order applicable to such party of any
federal or state court, regulatory body, administrative agency or other
governmental authority having jurisdiction over such party (each a
"GOVERNMENTAL AUTHORITY"), except for such violations that are not
reasonably likely to have a material adverse effect on the financial
condition or business of the Transferor or FCI, as applicable
(iii) violate, result in a breach of or constitute (with or without notice
or lapse of time or both) a default under any such indenture, agreement or
other instrument to which such party is a party or by which any of them or
any of their property is or may be bound, except for such violations,
breaches or defaults that are not reasonably likely to have a material
adverse effect on the financial condition or business of the Transferor or
FCI, as applicable and (iv) except for the registration of the Offered
Securities under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and
applicable state securities laws in connection with the purchase and
distribution of the Offered Securities by the
<PAGE>
5
Underwriters, no permit, consent, approval of, or declaration to or filing
with, any Governmental Authority is required in connection with the
execution, delivery and performance of this Agreement or the consummation
of the transactions contemplated hereby.
(j) There are no proceedings or investigations pending or, to the best
knowledge of the Transferor or FCI threatened against the Transferor, FCI,
FNB or Fingerhut before any Governmental Authority having jurisdiction over
such party or its properties (i) asserting the invalidity of this Agreement
or any of the Series 1998-_ Securities,(ii) seeking to prevent the issuance
of any of the Series 1998-_ Securities or the consummation of any of the
transactions contemplated by this Agreement, the Pooling and Servicing
Agreement, the Series Supplement or the Purchase Agreements (collectively,
the "PROGRAM AGREEMENTS"),(iii) seeking any determination or ruling that
might materially and adversely affect the performance by the Transferor,
FCI, FNB or Fingerhut of their respective obligations under, or the
validity or enforceability of, this Agreement or any of the Program
Agreements, or (iv) seeking to adversely affect the federal or state income
or similar tax attributes of the Trust.
(k) The businesses of each of the Transferor, FCI, FNB and Fingerhut
conform in all material respects with the descriptions thereof contained in
the Registration Statement and the Prospectus, each as amended or
supplemented.
(l) Each of the Transferor, FCI, Fingerhut and FNB possesses all
material licenses, certificates, authorizations and permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses as described in the
Prospectus, except where the failure to possess or make the same would not
have, singularly or in the aggregate, a material adverse effect on the
Receivables, the Offered Securities or the financial condition of the
Transferor, FCI, FNB or Fingerhut.
2. PURCHASE BY THE UNDERWRITERS. On the basis of the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the Transferor agrees to sell to each of
the Underwriters, severally and not jointly, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Transferor, the
respective principal amount of the Offered Securities set forth opposite the
name of such Underwriter in Schedule 1 hereto at a purchase price equal to (i)
with respect to the Class A Securities, 99.______% of the principal amount
thereof and (ii) with respect to the Class B Securities, 99.______% of the
principal amount thereof.
The Transferor shall not be obligated to deliver any of the Offered
Securities except upon payment for all the Offered Securities to be purchased as
provided herein.
<PAGE>
6
3. DELIVERY OF AND PAYMENT FOR THE OFFERED SECURITIES. Delivery of
and payment for the Offered Securities shall be made at the office of Skadden,
Arps, Slate, Meagher & Flom LLP, or at such other place as shall be agreed upon
by Chase Securities Inc., as representative of the Underwriters (the
"REPRESENTATIVE") and the Transferor, at 9:00 A.M., New York time, on April __,
1998, or at such other date or time, not later than seven full business days
thereafter, as shall be agreed upon by the Representative and the Transferor
(such date and time being referred to herein as the "CLOSING DATE"). On the
Closing Date, the Transferor shall deliver or cause to be delivered to the
Representative the Offered Securities against payment to or upon the order of
the Transferor of the purchase price in immediately available funds. Time shall
be of the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligations of each Underwriter
hereunder. Upon delivery, each Class of the Offered Securities shall be
represented by one or more global certificates registered in the name of Cede &
Co., as nominee of The Depository Trust Company ("DTC"). The interest of the
beneficial owners of the Offered Securities will be represented by book-entries
on the records of DTC and participating members thereof. Definitive
certificates representing the Offered Securities will be available only under
the limited circumstances described in the Pooling and Servicing Agreement.
4. FURTHER AGREEMENTS OF THE TRANSFEROR. The Transferor agrees with
each Underwriter:
(a) If the Effective Time is prior to the execution and delivery of
this Agreement, to file the Prospectus with the Commission pursuant to and
in accordance with Rule 424(b) within the time period prescribed by such
rule and to provide evidence satisfactory to the Underwriters of such
timely filing;
(b) It will advise the Representative promptly of any proposal to
amend the Registration Statement or amend or supplement the Prospectus and
will not effect any such amendment or supplement to which the
Representative reasonably objects; to advise the Representative promptly of
(i) the receipt of any comments from the Commission relating to, and of the
effectiveness of, the Registration Statement (in each case if the Effective
Time is subsequent to the execution and delivery of this Agreement), (ii)
the effectiveness of any post-effective amendment to the Registration
Statement, (iii) any request by the Commission for any amendment of the
Registration Statement or of the Prospectus or for any additional
information, (iv) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation or threatening of any proceedings for that purpose, (v) the
issuance by the Commission of any order preventing or suspending the use
of any prospectus relating to the Offered Securities or the initiation or
threatening of any proceedings for that purpose
<PAGE>
7
and (vi) the receipt by the Transferor of any notification with respect to
the suspension of the qualification of the Offered Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose; and to use best efforts to prevent the issuance of any such
stop order or of any order preventing or suspending the use of any
prospectus relating to the Offered Securities or suspending any such
qualification and, if any such stop order or order of suspension is issued,
to obtain the lifting thereof at the earliest possible time.
(c) To furnish promptly to the Representative or to counsel for the
Underwriters a signed copy of the Registration Statement as originally
filed with the Commission and each amendment thereto filed with the
Commission, including all consents and exhibits filed therewith; and to
deliver promptly without charge to each Underwriter such number of the
following documents as such Underwriter may from time to time reasonably
request: (i) conformed copies of the Registration Statement as originally
filed with the Commission and each amendment thereto and (ii)each
Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus;
(d) If the delivery of a prospectus is required at any time in
connection with the sale of Offered Securities and if at such time, any
event shall have occurred as a result of which the Prospectus, as then
amended or supplemented, would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances when such Prospectus
is delivered, not misleading, or if for any other reason it shall be
necessary at such time to amend or supplement the Prospectus in order to
comply with the Securities Act, to notify the Representative immediately
thereof, and to promptly prepare and file with the Commission, subject to
paragraph (b) of this Section 4, an amended Prospectus or a supplement to
the Prospectus which will correct such statement or omission or effect such
compliance.
(e) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Transferor or the
Representative, be required by the Securities Act or that may be requested
by the Commission or be advisable in connection with the distribution of
the Offered Securities.
(f) For a period from the date of this Agreement until the retirement
of the Offered Securities, or until such time as each Underwriter shall not
maintain a secondary market in the Offered Securities, whichever occurs
first, to deliver to the Representative (i) the annual statements of
compliance, the annual servicer's certificate and the annual independent
public accountants' servicing report furnished to the Trustee
<PAGE>
8
pursuant to Sections 3.5 and 3.6 of the Pooling and Servicing Agreement,
and the monthly statements with respect to the Series 1998-_ Securities
furnished to the Trustee pursuant to Section 5.2 of the Pooling and
Servicing Agreement, as soon as such statements and reports are furnished
to the Trustee and (ii) from time to time, such other information
concerning the Transferor, FCI, Fingerhut, FNB and the Trust as any
Underwriter may reasonably request.
(g) From time to time to take such action as the Representative may
reasonably request to qualify the Offered Securities for offering and sale
under the securities laws of such states as the Representative may request
and to comply with such laws so as to permit the continuance of sales and
dealings therein in such states for as long as may be necessary to complete
the distribution of the Offered Securities; PROVIDED that in connection
therewith neither the Transferor nor any affiliate thereof shall be
required to qualify as a foreign corporation or to file a general consent
to service of process in any jurisdiction.
(h) To the extent, if any, that the ratings provided with respect to
the Offered Securities by a Rating Agency are conditional upon the
furnishing of documents or the taking of any other actions, to furnish such
documents and take any such other actions.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective
obligations of the several Underwriters hereunder are subject to the
accuracy, when made and on the Closing Date, of the representations and
warranties of the Transferor and FCI contained herein, to the accuracy of
the statements of the Transferor and FCI made in any certificates pursuant
to the provisions hereof, to the performance by the Transferor of its
obligations hereunder, and to each of the following additional terms and
conditions:
(a) If the Effective Time is not prior to the execution and delivery
of this Agreement, the Registration Statement shall have become effective,
and the Representative shall have received notice thereof, not later than
(i) 6:00 p.m., New York City time, on the date of determination of the
public offering price, if such determination occurred at or prior to 3:00
p.m., New York City time, on such date, (ii) 12:00 noon, New York City
time, on the business day following the day on which the offering price was
determined if such determination occurred after 3:00 p.m., New York City
time, on such date or (iii) such later date as shall have been consented to
by the Representative. Prior to the Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted or threatened by
the Commission. If the Transferor has elected to rely upon Rule 430A of
the
<PAGE>
9
Rules and Regulations, the price of the Offered Securities and any price-related
information previously omitted from the effective Registration Statement
pursuant to Rule 430A shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) of the Rules and Regulations within the prescribed time
period, and prior to the Closing Date, the Transferor shall have provided
evidence satisfactory to the Representative of such filing, or a post-effective
amendment shall have been promptly filed and declared effective in accordance
with the requirements of Rule 430A.
(b) Skadden, Arps, Slate, Meagher & Flom LLP shall have furnished to
the Representative their written opinions, as counsel to the Transferor,
FCI, FNB, and Fingerhut addressed to the Underwriters and dated the Closing
Date to the effect that:
(i) Each of the Program Agreements (other than the Bank
Purchase Agreement) (including, with respect to the Pooling and
Servicing Agreement and the Series Supplement, the allocation
provisions thereof) to which any of FCI, the Transferor, Fingerhut,
and the Servicer (the "Companies") is a party, constitutes a valid and
binding obligation of each of them, as applicable, enforceable against
each of the Companies in accordance with their respective terms,
except to the extent enforcement thereof may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium, receivership or
other similar laws now or hereafter in effect relating to creditors'
rights generally and, in the case of FNB, creditors of national
banking associations, (b) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in
equity), and (c) the qualification that certain remedial provisions of
the Program Agreements may be unenforceable in whole or in part, but
the inclusion of such provisions does not affect the validity of any
such agreement taken as a whole and each of such agreements, together
with applicable law, contains adequate provisions for the practical
realization of the benefits of the security created by such agreement;
(ii) Neither the execution, delivery or performance by any of
the Companies of any of the Program Agreements to which it is a party
nor the compliance by any of the Companies with the terms and
provisions thereof will contravene any provision of any Applicable
Laws. For purposes of this paragraph (ii) and paragraph (iii) below,
"Applicable Laws" means those laws, rules and regulations of the State
of New York, the United States of America and the Delaware General
Corporation Law which, in such counsel's experience, are normally
applicable to transactions of the type contemplated by the Program
Agreements but do not include laws applicable
<PAGE>
10
due to the regulatory status or nature of the business of any party
thereto other than the Companies.
(iii) No Governmental Approval, which has not been obtained or
taken and is not in full force and effect, is required to authorize or
is required in connection with the execution, delivery or performance
of any of the Program Agreements and this Agreement, except for (a)
filings of Uniform Commercial Code financing statements with respect
to the transfer of certain of the Receivables from FNB to FCI pursuant
to the Bank Purchase Agreement and then from FCI to the Transferor
pursuant to the FCI Purchase Agreement, the transfer of certain of the
Receivables from Fingerhut to the Transferor pursuant to the Fingerhut
Purchase Agreement and the transfer of all of the Receivables from the
Transferor to the Trust pursuant to the Pooling and Servicing
Agreement and (b) such Governmental Approvals as may be required under
the securities or blue sky laws of any jurisdiction. For the purposes
of this paragraph (iii), the term "Governmental Approval" means any
consent, approval, license, authorization or validation of, or filing,
recording or registration with, any Governmental Authority pursuant to
Applicable Laws, and the term "Governmental Authority" means any New
York, Delaware or federal executive, legislative, judicial,
administrative or regulatory body.
(iv) The Offered Securities, the Program Agreements and this
Agreement conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus;
(v) The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended; neither
Fingerhut, FNB, FCI, the Transferor nor the Trust is required to be
registered under the Investment Company Act of 1940, as amended;
(vi) The statements in the Prospectus under the headings "Risk
Factors -- Transfer of the Receivables; Insolvency Risk
Considerations", "Certain Legal Aspects of the Receivables" and
"Certain Federal Income Tax Consequences", and "Employee Benefit Plan
Considerations" to the extent that they constitute matters of law or
legal conclusions with respect thereto, have been reviewed by such
counsel and are correct in all material respects;
(vii) Each of the Registration Statement, as of its effective
date and the Prospectus, as of its date, complied as to form in all
material respects to the requirements of the Securities Act and the
Rules and Regulations, except that in each case such counsel need not
express any opinion as to the financial and
<PAGE>
11
statistical data included therein or excluded therefrom or the
exhibits to the Registration Statement and, except as and, to the
extent set forth in paragraphs (iv), (vi) and (viii) such counsel does
not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or
the Prospectus;
(viii) The information in the Prospectus under the heading
"Description of the Offered Securities", insofar as it constitutes a
summary of certain provisions of the Offered Securities and the
Pooling and Servicing Agreement, summarizes fairly such provisions;
(ix) When duly and validly executed by the Transferor and
authenticated by the Trustee and delivered to the Transferor in
accordance with the Pooling and Servicing Agreement and the Series
Supplement, and delivered to and paid for by the Underwriters in
accordance with this Agreement in the case of the Offered Securities
or delivered to and paid for by the purchasers in the case of the
Collateralized Trust Obligations and delivered to the Transferor in
exchange for a portion of the Exchangeable Transferor Security in the
case of the Class D Securities, the Series 1998-_ Securities will be
validly issued and outstanding and entitled to the benefits of the
Pooling and Servicing Agreement and the Series Supplement;
(x) The execution and delivery of the Purchase Agreements,
Pooling and Servicing Agreement, the Series Supplement or this
Agreement and the execution and delivery to the Trustee of the Series
1998-_ Securities, the performance of the transactions contemplated
thereby and the fulfillment of the terms thereof will not violate,
result in any breach of any of the material terms and provisions of,
or constitute (with or without notice or lapse of time or both) a
default under any currently existing indenture, contract, agreement,
mortgage, deed of trust or other instrument to which the Transferor is
bound and which has been specifically identified to such counsel in
writing by the Transferor as being material to the Transferor.
With respect to such counsel's opinion set forth in paragraph (iii)
above, such counsel shall consider only such consents, approvals,
authorizations, orders and filings which, in such counsel's experience, are
customarily required for transactions of the type contemplated by the
Purchase Agreements and Pooling and Servicing Agreement.
Such counsel shall have been advised by the Commission that the
Registration Statement was declared effective and, to the best of such
counsel's knowledge, no stop order suspending
<PAGE>
12
the effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or threatened by the
Commission.
Such counsel also shall state that they have participated in
conferences with officers and representatives of FCI, FNB, Fingerhut and
the Transferor, counsel for FCI, FNB, Fingerhut and the Transferor,
representatives of the independent accountants of FCI, FNB, Fingerhut and
the Transferor, and representatives of the Underwriters, at which the
contents of the Registration Statement, the Prospectus and related matters
were discussed and, although they are not passing upon, and do not assume
any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus and
have made no independent check or verification thereof except as and to the
extent set forth in paragraphs (iv), (vi) and (viii) above, on the basis of
the foregoing, no facts have come to such counsel's attention that have led
such counsel to believe that the Registration Statement, at the time it
became effective, contained an untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or the Prospectus,
as of the Closing Date, contains an untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that in each case such counsel need express no belief
with respect to financial and statistical data included therein or excluded
therefrom or the exhibits to the Registration Statement.
(c) Skadden, Arps, Slate, Meagher & Flom LLP shall have furnished to
the Representative their written opinions, as counsel to the Transferor,
addressed to the Underwriters and dated the Closing Date, in form and
substance reasonably satisfactory to the Representative, to the effect that
for federal income tax purposes (i) the Offered Securities will be treated
as debt for federal income tax purposes and (ii) any entity constituted by
the Trust will not be an association taxable as a corporation or publicly
traded partnership treated as a corporation;
(d) Skadden, Arps, Slate, Meagher & Flom LLP shall have furnished to
the Representative their written opinions, as counsel to the Transferor,
FCI, Fingerhut and FNB, addressed to the Underwriters and dated the Closing
Date, in form and substance reasonably satisfactory to the Representative,
with respect to the characterization of the transfers of Receivables by
Fingerhut to the Transferor pursuant to the Fingerhut Purchase Agreement as
a sale or the grant of a security interest and by FCI to the Transferor
pursuant to the FCI Purchase Agreement as a sale and the non-consolidation
of FCI and Fingerhut with the Transferor.
<PAGE>
13
(e) Skadden, Arps, Slate, Meagher & Flom LLP shall have furnished to
the Representative their written opinions, as counsel to the Transferor,
FCI and Fingerhut, addressed to the Underwriters and dated the Closing
Date, in form and substance reasonably satisfactory to the Representative,
to the effect that (i) the Fingerhut Purchase Agreement is effective to
create a security interest in all right, title and interest of Fingerhut in
the Receivables and the proceeds thereof under Article 9 of the Uniform
Commercial Code, (ii) the FCI Purchase Agreement is effective to create a
security interest in all right, title and interest of FCI in the
Receivables and the proceeds thereof under Article 9 of the Uniform
Commercial Code and (iii) the Pooling and Servicing Agreement is effective
to create a security interest in all right, title and interest of the
Transferor in the Receivables and the proceeds thereof under Article 9 of
the Uniform Commercial Code.
(f) Faegre & Benson LLP shall have furnished to the Representative
their written opinion or opinions, addressed to the Underwriters and dated
the Closing Date, in form and substance satisfactory to the Representative
and its counsel (i) with respect to certain matters relating to the
transfers of the Receivables to FCI, the Transferor and the Trust and the
perfection of FCI's, the Transferor's and the Trust's interest in the
Receivables and certain other matters relating to insolvency considerations
and with respect to other related matters and (ii) to the effect the
Offered Securities will be characterized for Minnesota state income and
franchise tax purposes as debt and that Securityholders not otherwise
subject to taxation in Minnesota will not be subject to tax in respect of
the Offered Securities, in each case in a form previously approved by the
Representative and its counsel.
(g) Davenport, Evans, Hurwitz & Smith LLP shall have furnished to the
Representative their written opinion or opinions, addressed to the
Underwriters and dated the Closing Date, in form and substance satisfactory
to the Representative and its counsel (i) with respect to certain matters
relating to the transfers of the Receivables to FCI and the perfection of
FCI's interest in the Receivables and certain other matters relating to
insolvency considerations and with respect to other related matters and
(ii) to the effect the Offered Securities will be characterized for South
Dakota state income and franchise tax purposes as debt and that
Securityholders not otherwise subject to taxation in South Dakota will not
be subject to tax in respect of the Offered Securities, in each case in a
form previously approved by the Representative and its counsel.
(h) Skadden, Arps, Slate, Meagher & Flom LLP shall have furnished to
the Representative their written opinion, as counsel to the Transferor,
addressed to the Underwriters and dated the Closing Date, to the effect
that the Offered
<PAGE>
14
Securities will be characterized as debt for Delaware state income and
franchise tax purposes, that the Trust will not be taxable as a corporation
for Delaware state income tax purposes and that Securityholders not
otherwise subject to taxation in Delaware will not be subject to tax in
respect of the Offered Securities.
(i) Michael P. Sherman, General Counsel of FCI, shall have furnished
to the Representative his written opinion, addressed to the Underwriters
and dated the Closing Date to the effect that:
(i) FCI is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Minnesota.
(ii) Fingerhut is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Minnesota.
(iii) The Transferor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and is duly qualified to transact business and is in good standing in
each state in which the conduct of its business requires such
qualification except where the failure to so qualify does not have a
material adverse effect on the financial condition or business of the
Transferor.
(iv) FNB is a national banking association formed under the
laws of the United States of America and is authorized to conduct the
business of a special purpose credit card bank, as described in the
Prospectus, and had at all relevant times and now has the power,
authority and legal right to acquire, own and service the Accounts and
the Receivables;
(v) Each Program Agreement to which FCI, Fingerhut, FNB or
the Transferor is a party has been duly and validly authorized,
executed and delivered by each of FCI, Fingerhut, FNB and the
Transferor, as applicable.
(vi) This Agreement has been duly and validly authorized,
executed and delivered by each of FCI and the Transferor.
(vii) The sale of the Series 1998-_ Securities and the
direction by the Transferor to the Trustee to execute, authenticate
and deliver the Series 1998-_ Securities have been duly authorized by
the Transferor. The Series 1998-_ Securities have been duly and
validly authorized and executed by the Transferor.
<PAGE>
15
(viii) The execution and delivery of any Program Agreement or of
this Agreement and the execution and delivery to the Trustee of the
Series 1998-_ Securities, the performance of the transactions
contemplated by this Agreement or any Program Agreement and the
fulfillment of the terms thereof will not (i) violate any Applicable
Laws (assuming compliance with all applicable state securities and
Blue Sky laws, as to which such counsel expresses no opinion), (ii)
require any Governmental Approval (except for filings under the
Uniform Commercial Code, compliance with all applicable state
securities and Blue Sky laws, as to which such counsel expresses no
opinion and such filings or registrations as have already been made
and are in full force and effect) or (iii) violate, result in any
breach of any of the material terms and provisions of, or constitute
(with or without notice or lapse of time or both) a default under any
currently existing material indenture, contract, agreement, mortgage,
deed of trust or other instrument which has been attached as an
exhibit to the report on Form 10-K filed by FCI. For purposes of this
paragraph (viii), "Applicable Laws" means those laws, rules and
regulations of the State of Minnesota and the United States of America
which, in such counsel's experience, are normally applicable to the
ordinary business operations of FCI, Fingerhut or the Transferor and
transactions of the type contemplated by the Programs Agreements. For
the purposes of this paragraph (viii), the term "Governmental
Approval" means any consent, approval, license, authorization or
validation of, or filing, recording or registration with, any
Governmental Authority pursuant to Applicable Laws, and the term
"Governmental Authority" means any Minnesota or federal executive,
legislative, judicial, administrative or regulatory body.
(ix) There are no legal or governmental proceedings pending
or, to such counsel's knowledge, threatened that are required to be
disclosed in the Registration Statement, other than those disclosed
therein. There are no proceedings or investigations pending or, to the
best of such counsel's knowledge, threatened against Fingerhut, FCI or
the Transferor, before any Governmental Authority (i) asserting the
invalidity of any Program Agreement or of this Agreement, (ii) seeking
to prevent the consummation of any of the transactions contemplated
hereby or thereby, (iii) seeking any determination or ruling that
would materially and adversely affect the performance by Fingerhut,
FCI or the Transferor of its obligations thereunder, (iv) seeking any
determination or ruling that would materially and adversely affect the
validity or enforceability thereof or (v) seeking to affect adversely
the tax attributes of the Trust or the Series 1998-_ Securities.
<PAGE>
16
(x) No consent, approval, authorization or order of, or
registration, filing (except for filings under the Uniform Commercial
Code) or declaration with, any court or governmental agency or body is
required in connection with (i) the execution, delivery and
performance by Fingerhut, FNB, FCI or the Transferor of any Program
Agreement or by FCI or the Transferor of this Agreement or (ii) the
offer, sale or delivery of the Series 1998-_ Securities, except such
as shall have been obtained or made, as the case may be, or will be
obtained or made, as the case may be, prior to the Closing Date and
except such as may be required under state securities or Blue Sky
laws.
(xi) FNB has the power and authority to sell and assign the
Receivables to FCI pursuant to the terms of the Bank Purchase
Agreement, has duly authorized such sale and assignment by all
necessary action.
(xii) FCI has full corporate power and authority to sell and
assign the Receivables to the Transferor pursuant to the terms of the
FCI Purchase Agreement, has duly authorized such sale and assignment
by all necessary corporate action.
(xiii) Fingerhut has full corporate power and authority to sell
and assign the Receivables to the Transferor pursuant to the terms of
the Fingerhut Purchase Agreement, has duly authorized such sale and
assignment by all necessary corporate action.
(xiv) The Transferor has full corporate power and authority to
transfer the Receivables to the Trust pursuant to the terms of the
Pooling and Servicing Agreement, has duly authorized such transfer by
all necessary corporate action.
(xv) Neither the execution, delivery and performance by FNB of
its obligations under the Bank Purchase Agreement or the Pooling and
Servicing Agreement, the transfer of the Receivables to FCI, the
issuance and sale of the Series 1998-_ Securities, nor the
consummation of any other of the transactions contemplated in the Bank
Purchase Agreement or the Pooling and Servicing Agreement will result
in a breach of or violation of any of the terms of, or constitute a
default under, the Articles of Association or by-laws of the FNB, each
as amended, or any Applicable Laws or the terms of any material
indenture or other material agreement or instrument known to such
counsel to which FNB is a party or by which it or its properties are
bound. For purposes of this paragraph (xii), "Applicable Laws" means
those laws, rules and regulations of the United States of America
which, in such counsel's experience, are normally applicable to the
<PAGE>
17
ordinary business operations of FNB and transactions of the type
contemplated by the Program Agreements; and
(xvi) There are no actions, proceedings or investigations
pending or, to the best of such counsel's knowledge, threatened before
any court, administrative agency or other tribunal (x) asserting the
invalidity of the Bank Purchase Agreement or the Pooling and Servicing
Agreement or (y) seeking to prevent the issuance of the Series 1998-_
Securities or the consummation of any of the transactions contemplated
by the Bank Purchase Agreement or the Pooling and Servicing Agreement
or the Series 1998-_ Securities, which might materially and adversely
affect the performance by FNB of its obligations under, or the
validity or enforceability of, the Bank Purchase Agreement or the
Pooling and Servicing Agreement or the Series 1998-_ Securities.
(xvii) Each of FCI and Fingerhut is duly qualified to transact
business and is in good standing in each state in which the conduct of
its business requires such qualification except where the failure to
so qualify does not have a material adverse effect on the financial
condition or business of FCI or Fingerhut, as the case may be.
(xv) Each of Fingerhut, FNB, FCI and the Transferor possesses
all material licenses, certificates, authorities or permits issued by
the appropriate state or federal regulatory agencies or bodies
necessary to conduct the business now conducted by it and as described
in the Prospectus, except to the extent that the failure to have such
licenses, certificates, authorities or permits does not have a
material adverse effect on the Receivables or the Series 1998-_
Securities or the financial condition of Fingerhut, FNB, FCI or the
Transferor, and none of Fingerhut, FNB, FCI or the Transferor has
received any notice of proceedings relating to the revocation or
modification of any such license, certificate, authority or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely affect the
conduct of its business, operations or financial condition.
(j) The Representative shall have received from Simpson Thacher &
Bartlett, as counsel to the Underwriters, such opinion or opinions, dated
the Closing Date, with respect to such matters as the Representative may
require, and the Transferor, FCI, Fingerhut and FNB shall have furnished to
such counsel such documents as they reasonably request for enabling them to
pass upon such matters.
<PAGE>
18
(k) Richards, Layton & Finger, Delaware counsel for the Trustee, and
Emmet, Marvin & Martin, New York counsel for the Trustee, as appropriate,
shall have furnished to the Representative their written opinion, as
counsel to the Trustee, addressed to the Underwriters and dated the Closing
Date, in substantially the form of Exhibit C hereto.
(l) The Representative shall have received a letter dated the date of
delivery thereof (the "PROCEDURES LETTER") from KPMG Peat Marwick LLP
verifying the accuracy of such financial and statistical data contained in
the Prospectus as the Representative shall deem advisable and in
substantially the form heretofore agreed on by the Representative. In
addition, if any amendment or supplement to the Prospectus made after the
date of the Procedures Letter contains new financial or statistical data,
the Representative shall have received a letter dated the Closing Date
confirming the Procedures Letter and providing additional comfort on such
new data.
(m) The Representative shall have received certificates of each of
the Transferor and FCI, dated the Closing Date, of any one of the
President, any Vice President, the Chief Financial Officer or the Treasurer
of the Transferor or FCI, as the case may be, stating that (A) (i) the
representations and warranties of the Transferor or FCI, as the case may
be, contained in this Agreement and the Program Agreements, are true and
correct in all material respects on and as of the Closing Date and (ii) in
the FCI officer's certificate only, the representations and warranties of
Fingerhut or FNB, as the case may be, contained in this Agreement and the
Program Agreements to which each is a party, are true and correct in all
material respects on and as of the Closing Date, (B) (i) the Transferor or
FNB, as the case may be, has complied in all material respects with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder and under the Program Agreements at or prior to the
Closing Date and (ii) in the FCI officer's certificate only, Fingerhut or
FNB, as the case may be, has complied in all material respects with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder and under the Program Agreements at or prior to the
Closing Date and (C) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or, to his or her knowledge, are threatened by the
Commission as of the Closing Date. Any officer making such certification
may rely upon his or her knowledge as to the proceedings pending or
threatened.
(n) The Representative shall have received evidence satisfactory to it
that each class of Offered Securities shall have been given a rating by a
Rating Agency that is equal to or better than the rating required for such
class of Offered
<PAGE>
19
Securities as set forth in the Prospectus and such rating shall not have
been rescinded or lowered.
(o) Since the respective dates as of which information is given in the
Prospectus, there shall not have occurred any material change, or any
development involving a prospective material adverse change, in or
affecting the business or assets of the Trust, the Transferor, FNB or
Fingerhut or any material adverse change in the financial position or
results of operation of the Trust, the Transferor, FNB or Fingerhut
otherwise than as set forth or contemplated in the Prospectus which in any
such case makes it impracticable or inadvisable on the Representative's
good faith judgment to proceed with the public offering or the delivery of
the Offered Securities on the terms and in the manner contemplated in the
Prospectus as then amended or supplemented.
(p) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange
shall have been suspended or limited, or minimum prices shall have been
established on either of such exchanges by the Commission, by such exchange
or by any other regulatory body or governmental authority having
jurisdiction, or trading in securities of FCI on the New York Stock
Exchange or, with respect to its debt securities, the over-the-counter
market, shall have been suspended, or a general banking moratorium on
commercial banking activities shall have been declared by Federal or New
York state authorities or (ii) an outbreak or escalation of hostilities or
a declaration by the United States or a national emergency or war, the
effect of which with respect to either clause (i) or clause (ii) is to make
it, in the good faith judgment of a majority in interest of the several
Underwriters, impracticable to market the Offered Securities or to enforce
contracts for the sale of the Offered Securities.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to the Representatives.
6. TERMINATION. The obligations of the Underwriters hereunder may be
terminated by the Representative, in its absolute discretion, by notice given to
and received by the Transferor prior to delivery of and payment for the Offered
Securities if, prior to that time, any of the events described in Section 5(o)
shall have occurred or any of the conditions described in Section 5(m) or 5(n)
shall not be satisfied.
7. DEFAULTING UNDERWRITERS. (a) If, any one or more of the
Underwriters shall fail to purchase and pay for any of the Offered Securities
agreed to be purchased by such Underwriter or
<PAGE>
20
Underwriters are obligated to purchase hereunder on the Closing Date, the
Representative may make arrangements for the purchase of such Offered Securities
by other persons satisfactory to the Transferor and the Representative,
including any of the Underwriters, but if no such arrangements are made by the
Closing Date, then each remaining non-defaulting Underwriter shall be severally
obligated to purchase the Offered Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase on the Closing Date in the respective
proportions which the principal amount of the Offered Securities set forth
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the aggregate principal amount of the Offered Securities set
forth opposite the names of all the remaining non-defaulting Underwriters in
Schedule 1 hereto; PROVIDED, HOWEVER, that the remaining non-defaulting
Underwriters shall not be obligated to purchase any of the Offered Securities on
the Closing Date if the aggregate principal amount of the Offered Securities
which the defaulting Underwriter or Underwriters agreed but failed to purchase
on such date exceeds one-tenth of the aggregate principal amount of the Offered
Securities to be purchased on the Closing Date, and any remaining non-defaulting
Underwriter shall not be obligated to purchase in total more than 110% of the
principal amount of the Offered Securities which it agreed to purchase on the
Closing Date pursuant to the terms of Section 2. If the foregoing maximums are
exceeded and the remaining Underwriters or other underwriters satisfactory to
the Representative and the Transferor do not elect to purchase the Offered
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Transferor, except that the Transferor will
continue to be liable for the payment of expenses to the extent set forth in
Sections 13 and except that the provisions of Sections 9 and 10 shall not
terminate and shall remain in effect. As used in this Agreement, the term
"Underwriter" includes, for all purposes of this Agreement unless the context
otherwise requires, any party not listed in Schedule 1 hereto who, pursuant to
this Section 7, purchases Offered Securities which a defaulting Underwriter
agreed but failed to purchase.
(b) Nothing contained herein shall relieve a defaulting Underwriter of
any liability it may have for damages caused by its default. If other
underwriters are obligated or agree to purchase the Offered Securities of a
defaulting Underwriter, either the Representative or the Transferor may postpone
the Closing Date for up to seven full business days in order to effect any
required changes in the Registration Statement, the Prospectus or in any other
document or arrangement, and the Transferor agrees to file promptly any
amendment or supplement to the Registration Statement or the Prospectus that
effects any such changes.
8. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If (a) notice shall have
been given pursuant to Section 6 preventing this Agreement from becoming
effective or (b) the Transferor shall fail
<PAGE>
21
to tender the Offered Securities for delivery to the Underwriters for any reason
permitted under this Agreement other than pursuant to Section 7, the Transferor
shall reimburse the Underwriters for the reasonable fees and expenses of their
counsel and for such other out-of-pocket expenses as shall have been reasonably
incurred by them in connection with this Agreement and the proposed purchase of
the Offered Securities, and upon demand the Transferor shall pay the full amount
thereof to the Representative.
9. INDEMNIFICATION. (a) The Transferor and FCI each, jointly and
severally, hereby agree to and do indemnify and hold harmless each Underwriter
and each person, if any, who controls each Underwriter within the meaning of
Section 15 of the Securities Act (collectively referred to for the purposes of
this Section 9 and Section 10 as the Underwriter) against any loss, claim,
damage or liability, joint or several, to which that Underwriter may become
subject, under the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of or is based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus dated April __, 1998, the Registration Statement or the
Prospectus or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading, and shall reimburse each Underwriter for
any legal or other expenses reasonably incurred by that Underwriter in
connection with investigating or preparing to defend or defending against any
such loss, claim, damage or liability, or any action in respect thereof, as such
expenses are incurred; PROVIDED, HOWEVER, that neither the Transferor nor FCI
shall be liable in any such case to the extent that any such loss, claim, damage
or liability (or any action in respect thereof) arises out of or is based upon
an untrue statement or alleged untrue statement in or omission or alleged
omission from any Preliminary Prospectus dated April __, 1998, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with the Underwriters' Information and PROVIDED, FURTHER, that
the foregoing indemnity is subject to the condition that, insofar as it relates
to any untrue statement or omission, or any alleged untrue statement or omission
made in a Preliminary Prospectus dated April __, 1998 but eliminated, corrected
or remedied in the Prospectus (as amended or supplemented), it shall not inure
to the benefit of any Underwriter if a copy of the Prospectus (as amended or
supplemented) was not delivered by such Underwriter to the person asserting any
loss, claim, damage, or liability (or any action in respect thereof) arising out
of or based upon such untrue statement or omission, or such alleged untrue
statement or omission, at or prior to the time required by the Securities Act.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless FCI, the Transferor, each of their respective directors and
officers, each officer of the Transferor who signed the Registration Statement
and each person, if any, who
<PAGE>
22
controls FCI and the Transferor within the meaning of the Securities Act
(collectively referred to for the purposes of this Section 9 and Section 10 as
the Transferor), against any loss, claim, damage or liability, joint or several,
or any action in respect thereof, to which the Transferor may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of or is based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus dated April __, 1998, the Registration Statement or the Prospectus or
in any amendment or supplement thereto or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but in each case only to the extent
that the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Transferor through the Representative by or on behalf of that
Underwriter specifically for use therein, and shall reimburse the Transferor for
any legal or other expenses reasonably incurred by the Transferor in connection
with investigating or preparing to defend or defending against any such loss,
claim, damage, liability or action as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 9, notify the indemnifying party in
writing of the claim or the commencement of that action; PROVIDED, HOWEVER, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 9 except to the extent it has
been materially prejudiced by such failure; and, PROVIDED, FURTHER, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 9.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; PROVIDED, HOWEVER, that,
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of
<PAGE>
23
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to appoint counsel to defend
such action and approval by the indemnified party of such counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 9 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by such Underwriter being indemnified in the case of
paragraph (a) of this Section 9, representing the indemnified parties under such
paragraph (a) who are parties to such action), (ii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party; and except
that, if clause (i) or (iii) is applicable, such liability shall be only in
respect of the counsel referred to in such clause (i) or (iii). Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 9(a) and 9(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall be liable for any settlement of any such action effected without its
written consent, but if settled with its written consent or if there be a final
judgment of the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
The obligations of the Transferor and FCI and the Underwriters, as the
case may be, in this Section 9 and in Section 10 are in addition to any other
liability which the Transferor, FCI or the Underwriters, as the case may be, may
otherwise have.
10. CONTRIBUTION. If the indemnification provided for in Section 9
is unavailable or insufficient to hold harmless an indemnified party under
Section 9(a) or (b), then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Transferor and FCI on the one hand and the Underwriters on the
other from the offering of the Offered Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Transferor and FCI on
the one hand and the Underwriters on the other with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, as well as
any other relevant equitable considerations. The relative benefits received by
the Transferor
<PAGE>
24
and FCI on the one hand and the Underwriters on the other with respect to such
offering shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Offered Securities purchased under this Agreement
(before deducting expenses) received by the Transferor bear to the total
underwriting discounts and commissions received by the Underwriters with respect
to the Offered Securities purchased under this Agreement, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Transferor and
FCI on the one hand or the Underwriters on the other, the intent of the parties
and their relative knowledge, access to information and opportunity to correct
or prevent such untrue statement or omission.
The Transferor, FCI and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 10 were to be
determined by pro-rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim, damage
or liability, or action in respect thereof, referred to above in this Section 10
shall be deemed to include, for purposes of this Section 10, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 10, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Offered
Securities underwritten by it and distributed to the public were offered to the
public less the amount of any damages which such Underwriter has otherwise paid
or become liable to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 10 are several in proportion to their respective underwriting
obligations and not joint.
11. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS.
Each Underwriter severally and not jointly represents, warrants, covenants and
agrees with the Transferor that it has only issued or passed on and shall only
issue or pass on in the United Kingdom any document received by it in connection
with the issue of the Securities to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or who is a person to whom the document may otherwise
lawfully be issued or passed on, it has complied and shall comply with all
applicable provisions of the Financial
<PAGE>
25
Services Act 1986 of Great Britain with respect to anything done by it in
relation to the Securities in, from or otherwise involving the United Kingdom
and if that Underwriter is an authorized person under the Financial Services Act
1986, it has only promoted and shall only promote (as that term is defined in
Regulation 1.02 of the Financial Services (Promotion of Unregulated Schemes)
Regulations 1991) to any person in the United Kingdom the scheme described in
the Prospectus if that person is of a kind described either in Section 76 (2) of
the Financial Services Act 1986 or in Regulation 1.04 of the Financial Services
(Promotion of Unregulated Schemes) Regulations 1991.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Transferor and
FCI and their respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Underwriters, the Transferor and FCI and their
respective successors and the controlling persons and officers and directors
referred to in Sections 9 and 10 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
13. EXPENSES. The Transferor agrees with the Underwriters to pay (a)
the costs incident to the authorization, issuance, sale, preparation and
delivery of the Offered Securities to the Underwriters and any taxes payable in
that connection;(b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statement and any amendments and
exhibits thereto;(c) the costs of distributing to the Underwriters the
Registration Statement as originally filed and each amendment thereto and any
post-effective amendments thereof (including, in each case, exhibits), any
Preliminary Prospectus, the Prospectus and any amendment or supplement to the
Prospectus, all as provided in this Agreement; (d)the costs of reproducing this
Agreement;(e) the fees and expenses of qualifying the Offering Securities under
the securities laws of the several states as provided in Section 4(g) and of
preparing, reproducing and distributing Blue Sky Memoranda and Legal Investment
Surveys (including the reasonable fees and expenses of counsel to the
Underwriters in connection with such qualification and in connection with the
preparation of the Blue Sky Memoranda and Legal Investment Surveys);(f) any fees
charged by Standard & Poor's and Moody's for rating the Offered Securities;(g)
all fees and expenses of the Trustee and its counsel; and (h) all other costs
and expenses incident to the performance of the obligations of the Transferor,
FNB, Fingerhut and FCI under this Agreement. Except as otherwise provided in
this Section 13 and in Section 8, the Underwriters shall pay their own costs and
expenses, including the costs and expenses of their counsel, any transfer taxes
on the Offered Securities which they may sell and the expenses of advertising
any offering of the Offered Securities made by the Underwriters.
<PAGE>
26
14. SURVIVAL. The respective indemnities, rights of contribution,
representations, warranties and agreements of the Transferor, FCI and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Offered Securities and shall remain in full force and effect,
regardless of any (i) termination or cancellation of this Agreement, (ii) any
investigation made by or on behalf of any of them or any person controlling any
of them or (iii) acceptance of and payment for the Offered Securities.
15. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(i)if to the Underwriters, shall be delivered or sent by mail or
facsimile transmission and confirmed to Chase Securities Inc., 270 Park
Avenue, New York, New York 10017, Attention: Mr. Olivier C. Levitte, with a
copy to the Legal Department;
(j)if to the Transferor, shall be delivered or sent by mail or
facsimile transmission and confirmed to the address of the Transferor set
forth in the Registration Statement, Attention: President and Treasurer;
(k) if to FCI, shall be delivered or sent by mail or facsimile
transmission and confirmed to the following address: 4400 Baker Road,
Minnetonka, Minnesota 55343, Attention: General Counsel;
PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to Section
9(c) shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representative, which address will be supplied to any other party hereto by the
Representative upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Transferor
shall be entitled to act and rely upon any request, consent, notice or agreement
given or made on behalf of the Underwriters by the Representative.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
18. SEVERABILITY OF PROVISIONS. Any covenant, provision, agreement
or term of this Agreement that is prohibited or is held to be void or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such
<PAGE>
27
prohibition or unenforceability without invalidating the remaining provisions
hereof.
19. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding of the parties hereto with respect to the matters
and transactions contemplated hereby and supersedes al prior agreement and
understandings whatsoever relating to such matters and transactions.
20. AMENDMENT. Neither this Agreement nor any term hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
21. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE>
28
If the foregoing is in accordance with your understanding of the
agreement among the Transferor, FCI and the Underwriters, kindly indicate your
acceptance in the space provided for that purpose below.
Very truly yours,
FINGERHUT RECEIVABLES, INC.
By
--------------------------------
Name:
Title:
FINGERHUT COMPANIES, INC.
By
--------------------------------
Name:
Title:
Accepted:
CHASE SECURITIES INC.
By
---------------------------
Name:
Title:
For itself and as Representative
of the Underwriters
<PAGE>
SCHEDULE 1
PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF
CLASS A CLASS B
UNDERWRITER SECURITIES SECURITIES
----------- ---------- ----------
Chase Securities Inc. $___________ $___________
BancAmerica Robertson
Stephens
NationsBanc Montgomery
Securities LLC
UBS Securities LLC
<PAGE>
Exhibit 4(a)
FINGERHUT RECEIVABLES, INC.
Transferor
FINGERHUT NATIONAL BANK
Servicer
and
THE BANK OF NEW YORK (DELAWARE)
Trustee
on behalf of Securityholders
of the Fingerhut Master Trust
--------------------------------
AMENDED AND RESTATED
POOLING AND SERVICING AGREEMENT
Dated as of March 18, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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ARTICLE I
DEFINITIONS
<S> <C>
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . 30
ARTICLE II
CONVEYANCE OF RECEIVABLES;
ISSUANCE OF SECURITIES
Section 2.1 Conveyance of Receivables . . . . . . . . . . . . . . . . . . . . . 32
Section 2.2 Acceptance by Trustee . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.3 Representations and Warranties of the
Transferor. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.4 Representations and Warranties of the
Transferor Relating to the Agreement and the Receivables. . . . . 37
Section 2.5 Covenants of the Transferor . . . . . . . . . . . . . . . . . . . . 43
Section 2.6 Addition of Receivables . . . . . . . . . . . . . . . . . . . . . . 48
Section 2.7 Removal of Accounts . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 2.8. Defaulted Account . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 2.9 Covenants of the Transferor with Respect to
the Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES
Section 3.1 Acceptance of Appointment and Other
Matters Relating to the Servicer. . . . . . . . . . . . . . . . . 57
Section 3.2 Servicing Compensation. . . . . . . . . . . . . . . . . . . . . . . 59
Section 3.3 Representations and Warranties of the
Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 3.4 Reports and Records for the Trustee . . . . . . . . . . . . . . . . 63
Section 3.5 Annual Servicer's Certificate . . . . . . . . . . . . . . . . . . . 65
Section 3.6 Annual Independent Accountants' Servicing
Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 3.7 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 3.8 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 3.9 Notices to FNB and Fingerhut. . . . . . . . . . . . . . . . . . . . 69
<CAPTION>
ARTICLE IV
RIGHTS OF SECURITYHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.1 Rights of Securityholders . . . . . . . . . . . . . . . . . . . . . 70
Section 4.2 Establishment of Accounts . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Section 4.3 Collections and Allocations . . . . . . . . . . . . . . . . . . . . 74
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY SUPPLEMENT
WITH RESPECT TO ANY SERIES]
ARTICLE VI
THE SECURITIES
Section 6.1 The Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 6.2 Authentication of Securities. . . . . . . . . . . . . . . . . . . . 80
Section 6.3 Registration of Transfer and Exchange of
Securities; Issuance of Participations. . . . . . . . . . . . . . 80
Section 6.4 Mutilated, Destroyed, Lost or Stolen
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 6.5 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . 87
Section 6.6 Appointment of Paying Agent . . . . . . . . . . . . . . . . . . . . 88
Section 6.7 Access to List of Security-holders'
Names and Addresses . . . . . . . . . . . . . . . . . . . . . . . 89
Section 6.8 Authenticating Agent. . . . . . . . . . . . . . . . . . . . . . . . 90
Section 6.9 Tender of Exchangeable Transferor
Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 6.10 Book-Entry Securities . . . . . . . . . . . . . . . . . . . . . . . 96
Section 6.11 Notices to Clearing Agency. . . . . . . . . . . . . . . . . . . . . 97
Section 6.12 Definitive Securities . . . . . . . . . . . . . . . . . . . . . . . 97
Section 6.13 Global Security; Euro-Security Exchange
Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 6.14 Meetings of Securityholders . . . . . . . . . . . . . . . . . . . . 98
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR
Section 7.1 Liability of the Transferor . . . . . . . . . . . . . . . . . . . .100
Section 7.2 Merger or Consolidation of, or Assumption
of the Obligations of, the Transferor . . . . . . . . . . . . . .100
Section 7.3 Limitation on Liability . . . . . . . . . . . . . . . . . . . . . .102
Section 7.4 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
Section 7.5 Transferor Authorized to Execute
Registration Statements and Reports
on Behalf of the Trust. . . . . . . . . . . . . . . . . . . . . .103
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER
Section 8.1 Liability of the Servicer . . . . . . . . . . . . . . . . . . . . .104
Section 8.2 Merger or Consolidation of, or Assumption of the Obligations of,
the Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . .104
Section 8.3 Limitation on Liability of the Servicer and
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105
Section 8.4 Servicer Indemnification of the Transferor,
the Trust and the Trustee . . . . . . . . . . . . . . . . . . . .106
Section 8.5 The Servicer Not to Resign. . . . . . . . . . . . . . . . . . . . .107
Section 8.6 Access to Certain Documentation and
Information Regarding the Receivables . . . . . . . . . . . . . .108
Section 8.7 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . .108
ARTICLE IX
PAY OUT EVENTS
Section 9.1 Pay Out Events. . . . . . . . . . . . . . . . . . . . . . . . . . .110
Section 9.2 Cessation of Transfers Upon the Occurrence of
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . .111
ARTICLE X
SERVICER DEFAULTS
Section 10.1 Servicer Defaults . . . . . . . . . . . . . . . . . . . . . . . . .112
Section 10.2 Trustee to Act; Appointment of Successor. . . . . . . . . . . . . .115
Section 10.3 Notification to Securityholders . . . . . . . . . . . . . . . . . .118
Section 10.4 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . .118
<CAPTION>
ARTICLE XI
THE TRUSTEE
Section 11.1 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . .119
Section 11.2 Certain Matters Affecting the Trustee . . . . . . . . . . . . . . .121
Section 11.3 Trustee Not Liable for Recitals in
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . .123
Section 11.4 Trustee May Own Securities. . . . . . . . . . . . . . . . . . . . .124
Section 11.5 The Servicer to Pay Trustee's Fees and
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . .124
Section 11.6 Eligibility Requirements for Trustee. . . . . . . . . . . . . . . .125
Section 11.7 Resignation or Removal of
Trustee.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .125
Section 11.8 Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . .127
Section 11.9 Merger or Consolidation of
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127
Section 11.10 Appointment of Co-Trustee or Separate
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Section 11.11 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . .129
Section 11.12 Trustee May Enforce Claims Without
Possession of Securities. . . . . . . . . . . . . . . . . . . . .130
Section 11.13 Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . .130
Section 11.14 Rights of Securityholders to Direct
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131
Section 11.15 Representations and Warranties of
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131
Section 11.16 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . .132
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
-----
ARTICLE XII
TERMINATION
<S> <C>
Section 12.1 Termination of Trust. . . . . . . . . . . . . . . . . . . . . . . .133
Section 12.2 Optional Termination. . . . . . . . . . . . . . . . . . . . . . . .135
Section 12.3 Final Payment with Respect to any
Series.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .136
Section 12.4 Termination Rights of Holder of Exchangeable Transferor
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . .138
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139
Section 13.2 Protection of Right, Title and Interest to
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142
Section 13.3 Limitation on Rights of Securityholders . . . . . . . . . . . . . .143
Section 13.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . .144
Section 13.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .144
Section 13.6 Severability of Provisions. . . . . . . . . . . . . . . . . . . . .145
Section 13.7 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .146
Section 13.8 Securities Non-Assessable and Fully Paid. . . . . . . . . . . . . .146
Section 13.9 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . .146
Section 13.10 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . . .146
Section 13.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . .146
Section 13.12 Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . .147
Section 13.13 Actions by Securityholders. . . . . . . . . . . . . . . . . . . . .147
Section 13.14 Rule 144A Information . . . . . . . . . . . . . . . . . . . . . . .148
Section 13.15 Merger and Integration. . . . . . . . . . . . . . . . . . . . . . .148
Section 13.16 Heading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .148
</TABLE>
<TABLE>
<S> <C>
Schedule 1 Tax Returns and Payments
Exhibit A Form of Exchangeable Transferor Security
Exhibit B Form of Daily Report
Exhibit C Form of Settlement Statement
Exhibit D Form of Annual Servicer's Certificate
Exhibit E Form of Annual Opinion of Counsel
Exhibit F Form of Reconveyance of Receivables
Exhibit G Form of Agreed-Upon Procedures
Exhibit H Form of Assignment of Receivables
in Supplemental Accounts
Exhibit I Form of Opinion of Counsel Regarding
Supplemental Accounts
Exhibit J Form of Reassignment
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT, dated as of
March 18, 1998 (the "Amended Pooling and Servicing Agreement") by and among
FINGERHUT RECEIVABLES, INC., a corporation organized and existing under the laws
of the State of Delaware, as Transferor, FINGERHUT NATIONAL BANK, a national
banking association organized and existing under the laws of the United States,
as Servicer, and THE BANK OF NEW YORK (DELAWARE), a banking corporation
organized and existing under the laws of the State of Delaware, as Trustee.
WHEREAS, Fingerhut Receivables, Inc., as Transferor, Fingerhut
National Bank, as Servicer, and The Bank of New York (Delaware), as Trustee, are
parties to an Amended and Restated Pooling and Servicing Agreement, dated as of
January 12, 1997 (the "Pooling and Servicing Agreement");
WHEREAS, Fingerhut Receivables, Inc., as Transferor, Fingerhut
National Bank, as Servicer and The Bank of New York (Delaware), as Trustee
desire to amend and restate the Pooling and Servicing Agreement in accordance
with the provisions of subsection 13.1(b) of the Pooling and Servicing Agreement
to read in its entirety as set forth below;
NOW, THEREFORE, pursuant to subsection 13.1(b) of the Pooling and
Servicing Agreement, the parties hereto hereby agree that effective on and as of
the date hereof, the Pooling and Servicing Agreement is hereby amended to read
in its entirety as follows:
In consideration of the mutual agreements herein contained, each party
agrees as follows for the benefit of the other parties and the Securityholders:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used in this Agreement, the
following words and phrases shall have the following meanings:
<PAGE>
"Account" shall mean (a) on the Amendment Closing Date, (i) each
consumer revolving credit card account established pursuant to a Contract
between an Originator and any Person, which on the Amendment Closing Date is an
Eligible Account and (ii) each closed-end installment sale, or closed-end
installment loan made pursuant to a Contract between an Originator and any
Person, which on the Amendment Closing Date is an Eligible Account and (b) after
the Amendment Closing Date, the accounts specified in clause (a) and each
Additional Account and each Supplemental Account from and after the Addition
Date with respect thereto. The definition of Account shall include each
Transferred Account but shall not include any Account that is not an Eligible
Account and that has been reassigned to the Transferor or any Removed Account
after the Removal Date with respect thereto.
"Addition Date" shall mean each date as of which Receivables under
Additional Accounts or Supplemental Accounts are included in the Trust as
Accounts pursuant to Section 2.6.
"Additional Account" shall mean (a) each consumer revolving credit
card account established pursuant to a Contract between an Originator and any
Person, which, on the date on which a Receivable arising in such account is
first transferred to the Trust, is an Eligible Account and (b) each closed-end
installment sale, or closed-end installment loan made pursuant to a Contract
between an Originator and any Person which, on the date on which a Receivable
arising in such account is first transferred to the Trust, is an Eligible
Account coming into existence after the Amendment Closing Date; provided,
however, that in each case an "Additional Account" shall only include (i)
accounts as described in clauses (a) and (b) originated by FNB generated in
connection with sales by Fingerhut that the Transferor has not elected to
exclude from the Trust and (ii) accounts described in clauses (a) and (b)
originated by FNB (and not described in clause (i)) or any other Originator that
have been designated for inclusion by the Transferor and with respect to which
the Rating Agency Condition has been satisfied. Any such election shall be made
by the Transferor or the Servicer providing to the Trustee a written notice
thereof clearly identifying such designated or excluded accounts and in
connection therewith
2
<PAGE>
the Transferor shall record and file, at its own expense, one or more financing
statements (including any amendments to existing financing statements) with
respect to such designated or excluded accounts.
"Adjustment Payment" shall have the meaning specified in subsection
3.8(a).
"Affiliate" shall mean, with respect to a particular Person, any
Person that, directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person.
"Aggregate Invested Amount" shall mean, as of any date of
determination, the sum of the Invested Amounts of all Series of Securities
issued and outstanding on such date of determination.
"Aggregate Investor Percentage" shall mean, with respect to Principal
Collections, Finance Charge Collections and Default Amounts, as the case may be,
as of any date of determination, the sum of the applicable Investor Percentages
of all Series of Securities issued and outstanding on such date of
determination; provided, however, that the Aggregate Investor Percentage shall
not exceed 100%.
"Aggregate Principal Receivables" shall mean, for any day, the
aggregate amount of Principal Receivables at the end of such day.
"Agreement" shall mean this Amended Pooling and Servicing Agreement
and all amendments hereof and supplements hereto, including any Supplement.
"Amended Pooling and Servicing Agreement" shall have the meaning
assigned in the preamble hereto.
"Amendment Closing Date" shall mean the date of this Agreement.
"Amortization Period" shall mean, with respect to any Series, the
period following the Revolving Period for such Series, which shall be the
Controlled Amortization Period, the Controlled Accumulation Period, the Early
Amortization Period, or other amortization or
3
<PAGE>
accumulation period, in each case as defined with respect to such Series in the
related Supplement.
"Amortization Period Commencement Date" shall mean with respect to any
Series, the date on which the Amortization Period commences with respect thereto
as set forth in the related Supplement.
"Applicable Tax State" shall mean, as of any date of determination,
each state as to which any of the following is then applicable: (a) a state in
which the Trustee maintains its principal corporate trust office, (b) a state in
which the Transferor maintains its principal executive offices, and (c) a state
in which the Servicer regularly conducts servicing and collection operations
which are not limited to ministerial activities and which relate to a material
portion of the Receivables.
"Applicants" shall have the meaning specified in Section 6.7.
"Assignment" shall have the meaning specified in subsection
2.6(e)(ii).
"Authenticating Agent" shall have the meaning specified in Section
6.8.
"Automatic Addition Suspension Date" shall mean the Business Day
specified in subsection 2.6(b).
"Automatic Addition Termination Date" shall mean the Business Day
specified by the Transferor pursuant to subsection 2.6(b) as of which new
consumer revolving credit card accounts and new closed-end installment sale and
new closed-end installment loans shall cease to become Additional Accounts.
"Back End Customer" shall mean, with respect to any date of
determination, a Person or Obligor who has made at least one payment on any
installment credit card loan from, installment sales contract with, or consumer
revolving credit card account with, an Originator; provided, however, that any
Person or Obligor who has made a negotiated initial down payment in connection
with any installment credit card loan shall not be a Back End Customer prior to
making at least one payment on any
4
<PAGE>
subsequent installment credit card loan or consumer revolving credit card
account with an Originator.
"Bank Receivables Purchase Agreement" shall mean the amended and
restated receivables purchase agreement dated as of March 18, 1998 between FCI,
as purchaser of such Receivables, and FNB, as seller of Receivables, as amended
from time to time and any other receivables purchase agreement between FCI, as
purchaser of Receivables, and an Originator, as seller of such Receivables.
"Base Rate" shall mean, with respect to any outstanding Series, the
amount which the related Supplement specifies as the "Base Rate."
"Bearer Rules" shall mean the provisions of the Internal Revenue Code,
in effect from time to time, governing the treatment of bearer obligations,
including sections 163(f), 871, 881, 1441, 1442 and 4701, and any regulations
thereunder including, to the extent applicable to any Series, proposed or
temporary regulations of the Internal Revenue Service.
"Bearer Securities" shall have the meaning specified in Section 6.1.
"Book-Entry Securities" shall mean securities evidencing a beneficial
interest in the Investor Securities, ownership and transfers of which shall be
made through book entries by a Clearing Agency as described in Section 6.10;
provided, that after the occurrence of a condition whereupon book-entry
registration and transfer are no longer authorized and Definitive Securities are
to be issued to the Security Owners, such securities shall no longer be
"Book-Entry Securities."
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banking institutions in New York, South Dakota, Minnesota or
Delaware (or, with respect to any Series, any additional city or state specified
in the related Supplement) are authorized or obligated by law or executive order
to be closed, and such other days in each year designated by the Servicer in
writing to the Trustee by the first day of December in the preceding year.
5
<PAGE>
"Cash Equivalents" shall mean, unless otherwise provided in the
Supplement with respect to any Series, (a) negotiable instruments or securities
represented by instruments in bearer or registered form which evidence (i)
obligations of or fully guaranteed by the United States of America; (ii) time
deposits, promissory notes, or certificates of deposit of any depositary
institution or trust company; provided, however, that at the time of the Trust's
investment or contractual commitment to invest therein, the certificates of
deposit or short-term deposits of such depositary institution or trust company
shall have a credit rating from Standard & Poor's of A-1+ and from Moody's of
P-1; (iii) commercial paper having, at the time of the Trust's investment or
contractual commitment to invest therein, a rating from Standard & Poor's of
A-1+ and from Moody's of P-1; (iv) bankers acceptances issued by any depositary
institution or trust company described in clause (a)(ii) above; and (v)
investments in money market funds rated AAA-m or AAA-mg by Standard & Poor's and
Aaa by Moody's or otherwise approved in writing by Moody's and Standard &
Poor's; (b) time deposits and demand deposits in the name of the Trust or the
Trustee in any depositary institution or trust company referred to in clause
(a)(ii) above; (c) securities not represented by an instrument that are
registered in the name of the Trustee or its nominee (which may not be FCI or an
Affiliate) upon books maintained for that purpose by or on behalf of the issuer
thereof and identified on books maintained for that purpose by the Trustee as
held for the benefit of the Trust or the Securityholders, and consisting of (x)
shares of an open end diversified investment company which is registered under
the Investment Company Act which (i) invests its assets exclusively in
obligations of or guaranteed by the United States of America or any
instrumentality or agency thereof having in each instance a final maturity date
of less than one year from their date of purchase or other Cash Equivalents,
(ii) seeks to maintain a constant net asset value per share, (iii) has aggregate
net assets of not less than $100,000,000 on the date of purchase of such shares
and (iv) which the Rating Agency designates in writing will not result in a
withdrawal or downgrading of its then current rating of any Series rated by it
or (y) Eurodollar time deposits of a depository institution or trust company
that are rated A-1+ by Standard & Poor's and P-1 by Moody's; provided, however,
that at the time of the Trust's investment or
6
<PAGE>
contractual commitment to invest therein, the Eurodollar deposits of such
depositary institution or trust company shall have a credit rating from
Standard & Poor's of A-1+ and P-1 by Moody's; (d) a guaranteed investment
contract (guaranteed as to timely payment) which each Rating Agency
designates in writing will not result in a withdrawal or downgrading of its
then current rating of any Series rated by it; (e) repurchase agreements
transacted with either (i) an entity subject to the United States federal
bankruptcy code, provided, however, that (A) the term of the repurchase
agreement is consistent with the requirements with regard to the maturity of
Cash Equivalents specified herein or in the applicable Supplement for the
applicable account or is due on demand, (B) the Trustee or a third party
acting solely as agent for the Trustee has possession of the collateral, (C)
the Trustee on behalf of the Trust has a perfected first priority security
interest in the collateral, (D) the market value of the collateral is
maintained at the requisite collateral percentage of the obligation in
accordance with standards of the Rating Agencies, (E) the failure to maintain
the requisite collateral level will obligate the Trustee to liquidate the
collateral as promptly as practicable upon instructions from the Servicer,
(F) the securities subject to the repurchase agreement are either obligations
of, or fully guaranteed as to principal and interest by, the United States of
America or any agency or any instrumentality or agency thereof, certificates
of deposit or bankers acceptances and (G) the securities subject to the
repurchase agreement are free and clear of any third party lien or claim, or
(ii) a financial institution insured by the FDIC, or any broker-dealer with
"retail-customers" that is under the jurisdiction of the Securities Investors
Protection Corporation, provided, however, that (A) the market value of the
collateral is maintained at the requisite collateral percentage of the
obligation in accordance with the standards of the Rating Agencies, (B) the
Trustee or a third party (with a rating from Moody's and Standard & Poor's of
P-1 and A-1+, respectively) acting solely as agent for the Trustee has
possession of the collateral, (C) the collateral is free and clear of third
party liens and, in the case of a broker under the jurisdiction of the
Securities Investors Protection Corporation, was not acquired pursuant to a
repurchase or reverse repurchase agreement and (D) the failure to maintain
the requisite collateral percentage will obligate the Trustee to liquidate
the collateral
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upon instructions from the Servicer; provided, however, that at the
time of the Trust's investment or contractual commitment to invest in any
repurchase agreement the short-term deposits or commercial paper rating of such
entity or institution in subsections (i) and (ii) above shall have a credit
rating of P-1 or A-1+ or their equivalent from each Rating Agency; and (f) any
other investment if each Rating Agency confirms in writing that such investment
will not adversely affect its then current rating of the Investor Securities.
"Cedel" shall mean Cedel Bank, societe anonynme.
"Class" shall mean, with respect to any Series, any one of the classes
of Securities of that Series as specified in the related Supplement.
"Clearing Agency" shall mean an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended.
"Clearing Agency Participant" shall mean a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency or Foreign Clearing Agency effects book-entry transfers and pledges of
securities deposited with the Clearing Agency or Foreign Clearing Agency.
"Closed End Receivables" shall mean (a) any right to payment of
amounts owed by an Obligor under an Eligible Account with respect to a
closed-end installment sale, or a closed-end installment loan, including,
without limitation, all rights of the Originator and obligations of the Obligor
under the applicable Contract, other than insurance premiums, and (b) those
rights to payment with respect to certain Receivables arising under any Eligible
Account that is a consumer revolving credit card account that, pursuant to the
terms of the applicable Contract, have a 0% interest rate.
"Closing Date" shall mean, with respect to any Series, the date of
issuance of such Series of Securities, as specified in the related Supplement.
"Collection Account" shall have the meaning specified in subsection
4.2(a).
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"Collections" shall mean all payments received by the Servicer in
respect of the Eligible Receivables in the form of cash, checks or any other
form of payment in accordance with the Contract in effect from time to time on
any Eligible Receivables, other than pre-paid insurance premiums.
"Contract" shall mean an agreement between (a) an Originator and
another Person for the extension of revolving credit, including pursuant to a
credit card, in the form of a cardholder agreement, written contract or invoice,
as such agreement may be amended, modified or otherwise changed from time to
time or (b) an Originator and another Person for the extension of closed-end
credit, including pursuant to a credit card, in the form of a written contract,
invoice or closed-end agreement, in each case pursuant to or under which such
other person shall be obligated to either pay for, or to pay a loan made to
finance the purchase of, merchandise, financial service products or services or
return any such merchandise to the related merchant.
"Corporate Trust Office" shall mean the principal office of the
Trustee at which at any particular time its corporate trust business shall be
administered, which office at the date of the execution of this Agreement is
located at White Clay Center, Route 273, Newark, Delaware 19711, Attention:
Corporate Trust Specialized Agency Services.
"Coupon" shall have the meaning specified in Section 6.1.
"Credit and Collection Policy" shall mean those credit, collection,
customer relations and customer service policies and practices and other written
policies and procedures of the applicable Originator relating to the operation
of its Accounts, Contracts and Receivables (including, without limitation, the
written policies and procedures for determining creditworthiness and relating to
the extension of credit, the maintenance of Accounts and the collection of
receivables with respect thereto) in effect on the date hereof and as such
policies and procedures may be amended, modified, or otherwise changed from time
to time.
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"Daily Report" shall mean a report in the form specified in subsection
1.2(e) as may be supplemented pursuant to any Supplement.
"Date of Processing" shall mean, with respect to any transaction, the
date on which such transaction is first recorded on the Servicer's computer
master file of closed-end or revolving credit Accounts (without regard to the
effective date of such recordation).
"Default Amount" shall mean, on any Business Day, the aggregate amount
of Principal Receivables in Accounts that became Defaulted Accounts on such
Business Day.
"Defaulted Account" shall mean each Eligible Account with respect to
which, in accordance with the applicable Credit and Collection Policy or the
Servicer's customary and usual servicing procedures, the Servicer has charged
off the Receivables in such Account as uncollectible; an Account shall become a
Defaulted Account on the day on which such Receivables are recorded as charged
off as uncollectible on the Servicer's computer master file of Accounts.
Notwithstanding any other provision hereof, any Receivables in a Defaulted
Account that are Ineligible Receivables shall be treated as Ineligible
Receivables rather than Receivables in Defaulted Accounts.
"Defeasance Funding Account" shall have the meaning specified in the
applicable Supplement.
"Defeasance Reserve Account" shall have the meaning specified in the
applicable Supplement.
"Definitive Security" shall have the meaning specified in Section
6.10.
"Depositary" shall have the meaning specified in Section 6.10.
"Depositary Agreement" shall mean, with respect to each Series, the
agreement among the Transferor, the Trustee and the applicable Clearing Agency,
or as otherwise provided in the related Supplement.
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"Determination Date" shall mean the second Business Day prior to each
Distribution Date.
"Discount Factor" shall mean (a) 25% for Closed End Receivables
generated in connection with sales by Fingerhut, (b) 9% for Revolving
Receivables generated in connection with sales by Fingerhut and (c) such other
discount rate or rates (which may be a fixed percentage or a variable percentage
based on a formula) approved from time to time by the Rating Agencies for
Receivables generated in connection with sales by a Person other than Fingerhut;
provided, however, that such percentages or formulas may be (i) increased from
time to time by the Transferor, following written notice to the Rating Agencies,
without the approval of the Rating Agencies in an amount not to exceed two
percentage points from the amounts set forth herein or the amounts otherwise
approved by the Rating Agencies if such change will not cause a Pay Out Event to
occur or (ii) adjusted from time to time by the Transferor (including changing
any fixed percentage to a variable percentage) if such change will not cause a
Pay Out Event to occur and the Rating Agencies will have confirmed that the
change will not result in any of the Rating Agencies reducing or withdrawing its
original rating on any then outstanding Series rated by it.
"Discount Receivables" shall mean the sum of (a) with respect to
Closed End Receivables the product of (i) the applicable Discount Factor and
(ii) the aggregate amount shown on the Servicer's records as amounts payable by
Obligors with respect to such Receivables (or, with respect to any Closed End
Receivables defined in clause (b) of the definition thereof, the aggregate
principal amount shown on the Servicer's records as principal amounts payable by
Obligors with respect to such Receivables) and (b) with respect to Revolving
Receivables the product of (i) the applicable Discount Factor and (ii) the
aggregate amount shown on the Servicer's records as amounts payable by Obligors
with respect to such Receivables minus the amount of Periodic Finance Charges,
overlimit fees, late charges, returned check fees, annual account fees or
service charges, transaction charges and similar fees and charges which
constitute Finance Charge Receivables with respect to such Revolving
Receivables.
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"Discount Receivable Collections" shall mean on any day, the sum of
(a) with respect to Closed End Receivables, the product of (i) the applicable
Discount Factor and (ii) Collections (or, with respect to any Closed End
Receivables defined in clause (b) of the definition thereof, Collections not
including amounts specified in clause (i) of the definition of "Finance Charge
Receivables") with respect to such Closed End Receivables on such day, (b) with
respect to Revolving Receivables, the product of (i) the applicable Discount
Factor and (ii) Collections with respect to such Revolving Receivables on such
day minus the amount of Collections that represent payments of Periodic Finance
Charges, overlimit fees, late charges, returned check fees, annual account fees
or service charges, transaction charges and similar fees and charges which
represent Finance Charge Receivables with respect to such Eligible Receivables.
"Distribution Account" shall have the meaning specified in subsection
4.2(c).
"Distribution Date" shall mean, unless otherwise specified in any
Supplement for the related Series, the fifteenth day of each month or, if such
fifteenth day is not a Business Day, the next succeeding Business Day.
"Dollars," "$" or "U.S. $" shall mean United States dollars.
"Early Amortization Period" shall have the meaning specified, with
respect to any Series, in the related Supplement.
"Eligible Account" shall mean, as of the date the Receivables of such
Account are first designated for inclusion in the Trust, each Account which is
in existence and owned by an Originator that satisfies each of the following
criteria: (a) it is payable in Dollars; (b) the related Obligor has provided,
as its billing address, an address located in the United States or its
territories or possessions or a United States military address; (c) it has not
been identified by the applicable Originator or any of its Affiliates in its
computer files as stolen or lost; (d) it is not at the time of transfer to the
Trust sold or pledged to any other party and does not have Receivables which, at
the time of transfer to
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the Trust, are sold or pledged to any other party (provided that Receivables
which were sold or pledged prior to the date such Receivables are first
designated for inclusion in the Trust, but were repurchased free of all Liens or
where all Liens were released prior to the sale hereunder, shall not be
disqualified under this clause (d)); (e) the Receivables in which the applicable
Originator has not charged off in its customary and usual manner for charging
off Receivables in such Accounts unless such Account is subsequently reinstated
and (f) the related Obligor is a Back End Customer.
"Eligible Receivable" shall mean each Receivable that satisfies each
of the following criteria: (a) each Receivable designated for inclusion on or
after the Amendment Closing Date shall have arisen under an Eligible Account,
(b) it constitutes an "account," "chattel paper" or a "general intangible" as
each such term is defined in Article 9 of the UCC as then in effect in each
Relevant UCC State, (c) it is at the time of its transfer to the Trust the
legal, valid, and binding obligation of, or is guaranteed by, a Person who is
competent to enter into a contract and incur debt and is enforceable against
such Person in accordance with its terms, (d) it was created in compliance, in
all material respects, with all Requirements of Law applicable to the Originator
and pursuant to a Contract that complies, in all material respects, with all
Requirements of Law applicable to the Originator or such Contract (including
without limitation, laws, rules and regulations relating to truth in lending,
usury, fair credit billing, fair credit reporting, equal credit opportunity and
fair debt collection practices), (e) all material consents, licenses, or
authorizations of, or registrations with, any Governmental Authority required to
be obtained or given in connection with the creation of such Receivable or the
execution, delivery, creation, and performance of the related Contract have been
duly obtained or given and are in full force and effect as of the date of the
creation of such Receivables and (f) immediately prior to giving effect to the
sale, the Transferor had good and marketable title free and clear of all Liens
and security interests arising under or through the Transferor (other than
Permitted Liens).
"Enhancement" shall mean, with respect to any Series, any cash
collateral account, cash collateral
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guaranty, guaranty, collateral invested amount, letter of credit, guaranteed
rate agreement, maturity guaranty facility, tax protection agreement, interest
rate cap, interest rate swap, currency swap, subordination of the rights of one
Class or one Series to another, or any other contract, agreement or arrangement
for the benefit of the Securityholders of such Series (or Securityholders of any
Class within such Series) as designated in the applicable Supplement.
"Enhancement Provider" shall mean, with respect to any Series, the
Person, if any, designated as such in the related Supplement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Euroclear Operator" shall mean Morgan Guaranty Trust Company of New
York, Brussels, Belgium office, as operator of the Euroclear System.
"Excess Funding Account" shall have the meaning specified in
subsection 4.2(d).
"Exchange" shall mean either of the procedures described in Section
6.9(b).
"Exchange Date" shall have the meaning, with respect to any Series
issued pursuant to an Exchange, specified in subsection 6.9(b).
"Exchange Notice" shall have the meaning, with respect to any Series
issued pursuant to an Exchange, specified in subsection 6.9(b).
"Exchangeable Transferor Security" shall mean the security executed by
the Transferor and authenticated by the Trustee, substantially in the form of
Exhibit A and exchangeable as provided in Section 6.9; provided, that at any
time there shall be only one Exchangeable Transferor Security.
"Extended Trust Termination Date" shall have the meaning specified in
subsection 12.1(a).
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"FASIT" shall mean a "financial asset securitization investment trust"
as defined in Section 860L of the Internal Revenue Code of 1986, as amended.
"FCI" shall mean Fingerhut Companies, Inc., a corporation organized
and existing under the laws of the State of Minnesota.
"FDIC" shall mean the Federal Deposit Insurance Corporation, or any
successor thereto.
"Finance Charge Collections" shall mean with respect to any Business
Day, Collections received with respect to Finance Charge Receivables (other than
Discount Receivables) plus Discount Receivables Collections.
"Finance Charge Receivables" shall mean (i) with respect to consumer
revolving credit card accounts, amounts billed from time to time to Obligors in
respect of Periodic Finance Charges, overlimit fees, late charges, returned
check fees, annual account fees or service charges, transaction charges and
similar fees and charges (except for fees associated with ancillary products and
services sold to Obligors) plus (ii) with respect to all Receivables,
Recoveries, any other fees (other than prepaid insurance premiums or fees
associated with ancillary products and services sold to Obligors) billed to
Obligors, plus (iii) investment earnings on amounts credited to the Excess
Funding Account plus (iv) Discount Receivables.
"Fingerhut" shall mean Fingerhut Corporation, a corporation organized
and existing under the laws of the State of Minnesota.
"FNB" shall mean Fingerhut National Bank, a national banking
association.
"Foreign Clearing Agency" shall mean Cedel and the Euroclear Operator.
"FRI" shall mean Fingerhut Receivables, Inc., a Delaware corporation.
"Global Security" shall have the meaning specified in Section 6.13.
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"Governmental Authority" shall mean the United States of America, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Holder" or "Securityholder" shall mean the Person in whose name a
Security is registered in the Security Register, and if applicable, the holder
of any Bearer Security or Coupon, as the case may be.
"Indemnified Party" shall have the meaning specified in Section 8.4.
"Independent Director" shall have the meaning specified in subsection
2.5(f)(vii).
"Ineligible Receivable" shall mean any Receivable that does not
satisfy the definition of Eligible Receivable.
"Initial Closing Date" shall mean June 29, 1994.
"Initial Invested Amount" shall mean, with respect to any Series of
Securities, the amount stated in the related Supplement or, if not stated
therein, the initial Invested Amount.
"Insolvency Event" shall have the meaning specified in subsection
9.2(a).
"Interest Funding Account" shall have the meaning specified in
subsection 4.2(b).
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
"Invested Amount" shall have, with respect to any Series of
Securities, the meaning stated in the related Supplement.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended from time to time.
"Investor Account" shall mean each of any Interest Funding Account,
any Principal Account, the Excess Funding Account, any Distribution Account and
any Series Account.
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"Investor Exchange" shall have the meaning specified in subsection
6.9(b).
"Investor Percentage" shall mean, with respect to Finance Charge
Collections, Defaulted Amounts and Principal Collections and with respect to any
Series of Securities, the percentage specified in the related Supplement.
"Investor Security" shall mean any one of the securities (including,
without limitation, the Bearer Securities or the Registered Securities) executed
by the Transferor and authenticated by the Trustee substantially in the form (or
forms in the case of a Series with multiple classes) of the Investor Security or
Variable Funding Security attached to the related Supplement, but not including
any Transferor Retained Security or Participation.
"Investor Securityholder" shall mean the Holder of an Investor
Security.
"Lien" shall mean any lien, security interest or other encumbrance;
provided, however, that any assignment pursuant to Section 7.2 shall not be
deemed to constitute a Lien.
"Minimum Aggregate Principal Receivables" shall mean, as of any date
of determination, (a) the sum of the numerators used in the calculation of the
Investor Percentages for Principal Collections for all outstanding Series and of
the Participation Percentages for all outstanding Participations on such date of
determination, minus (b) the amount on deposit in the Excess Funding Account and
the Pre-Funding Account and the Principal Funding Account for any Series on such
date of determination.
"Minimum Retained Interest" shall mean the product of the weighted
average Minimum Retained Percentages for all Series and the sum of the
outstanding principal amounts of all Classes of all Series.
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"Minimum Retained Percentage" shall mean, for any Series, the Minimum
Retained Percentage specified in the Supplement for that Series.
"Minimum Transferor Interest" shall mean, as of any date of
determination, the product of (i) the sum of (a) the aggregate amount of
Principal Receivables at the end of the day immediately prior to such date of
determination plus (b) all amounts on deposit in the Excess Funding Account and
the Pre-Funding Account and Principal Funding Account, if any, for each Series
(but not including investment earnings on such amounts) and (ii) the Minimum
Transferor Percentage.
"Minimum Transferor Percentage" shall mean the highest Minimum
Transferor Percentage specified in any Supplement.
"Monthly Period" shall mean, unless otherwise defined with respect to
a Series in the related Supplement, the period from and including the first day
of each fiscal month of the Transferor to and including the last day of such
fiscal month.
"Monthly Servicing Fee" shall mean the Servicing Fee payable to the
Servicer with respect to a Monthly Period.
"Moody's" shall mean Moody's Investors Service, Inc. or its successor.
"Notice Date" shall have the meaning specified in subsection
2.6(e)(i).
"Obligor" shall mean a Person obligated to make payments with respect
to a Receivable pursuant to a Contract.
"Officer's Certificate" shall mean a certificate signed by any Vice
President, Treasurer, Assistant Treasurer or more senior officer of the
Transferor or Servicer and delivered to the Trustee.
"Opinion of Counsel" shall mean a written opinion of counsel, who may
be counsel for or an employee of the Person providing the opinion, and who shall
be reasonably acceptable to the Trustee.
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"Originator" shall mean (i) each of Fingerhut and FNB and any of their
respective successors or assigns and (ii) any of their Affiliates.
"Participation" shall have the meaning specified in Section 6.3(f).
"Participation Amount" shall mean with respect to any Participation on
any date of determination the amount of the interest in the Principal
Receivables represented by such Participation as specified in the applicable
Participation Supplement.
"Participation Percentage," with respect to any Participation, shall
have the meaning specified in the related Participation Supplement.
"Participation Supplement" shall mean, with respect to any
Participation, a supplement to this Agreement executed in connection with the
issuance of such Participation.
"Paying Agent" shall mean any paying agent appointed pursuant to
Section 6.6 and shall initially be The Bank of New York.
"Pay Out Commencement Date" shall mean, with respect to each Series,
the date on which (a) a Trust Pay Out Event is deemed to occur pursuant to
Section 9.1 or (b) a Series Pay Out Event is deemed to occur pursuant to the
Supplement for such Series.
"Pay Out Event" shall mean, with respect to each Series, a Trust Pay
Out Event or a Series Pay Out Event.
"Periodic Finance Charges" shall have, with respect to any Account,
the meaning specified in the Contract applicable to such Account for finance
charges (due to periodic rate) or any similar term.
"Permitted Lien" shall mean with respect to the Receivables: (i)
Liens in favor of FCI created pursuant to the Bank Receivables Purchase
Agreement and the Transferor created pursuant to the Purchase Agreement and the
Bank Receivables Purchase Agreement and assigned to the Trustee pursuant to this
Agreement; (ii) Liens in favor
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of the Trustee pursuant to this Agreement; (iii) Liens in favor of the holder of
any Participation pursuant to any Participation Supplement; and (iv) Liens which
secure the payment of taxes, assessments and governmental charges or levies, if
such taxes are either (a) not delinquent or (b) being contested in good faith by
appropriate legal or administrative proceedings and as to which adequate
reserves in accordance with generally accepted accounting principles shall have
been established.
"Person" shall mean any legal person, including any individual,
corporation, partnership, limited liability company, joint venture, association,
joint-stock company, trust, unincorporated organization, governmental entity or
other entity of similar nature.
"Pool Factor" shall mean, as of any Record Date, a number carried out
to seven decimals representing the ratio of the applicable Invested Amount as of
such Record Date (determined after taking into account any reduction in the
Invested Amount which will occur on the following Distribution Date) to the
applicable Initial Invested Amount unless otherwise specified with respect to a
Series in the related Supplement.
"Pooling and Servicing Agreement" shall have the meaning assigned in
the preamble hereto.
"Portfolio Yield" shall mean, with respect to any Monthly Period and
any outstanding Series, the amount which the related Supplement specifies as the
"Portfolio Yield" for such Monthly Period.
"Pre-Funding Account" shall mean, with respect to any Series, the
account designated as such in the related Supplement.
"Principal Account" shall have the meaning specified in subsection
4.2(b).
"Principal Collections" shall mean, with respect to any Business Day,
the Collections received with respect to Principal Receivables on such Business
Day.
"Principal Funding Account" shall mean, with respect to any Series,
the account designated as such in the related Supplement.
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"Principal Receivables" shall mean for any Business Day, the aggregate
amount shown on the Servicer's records as amounts payable by Obligors with
respect to Eligible Receivables other than such amounts that are Finance Charge
Receivables or Default Amounts. A Receivable shall be deemed to have been
created at the end of the day on the Date of Processing of such Receivable. In
calculating the aggregate amount of Principal Receivables on any day, the amount
of Principal Receivables shall be reduced by the aggregate amount of credit
balances in the Accounts on such day.
"Principal Shortfalls" shall mean, with respect to any Business Day
and any outstanding Series, the amount which the related Supplement specifies as
the "Principal Shortfall" for such Business Day.
"Principal Terms" shall have the meaning, with respect to any Series
issued pursuant to an Exchange, specified in subsection 6.9(c).
"Prospective Pay Out Event" shall have the meaning specified in
subsection 2.3(m).
"Purchase Agreement" shall mean (i) the receivables purchase agreement
dated as of June 29, 1994 between the Transferor, as purchaser of Receivables,
and Fingerhut, as seller of Receivables, as amended from time to time and (ii)
the amended and restated receivables purchase agreement dated as of March 18,
1998 between the Transferor, as purchaser of Receivables and FCI, as seller of
Receivables, as amended from time to time, and (iii) any receivables purchase
agreement between a seller of Receivables and the Transferor, substantially in
the form of the receivables purchase agreement referred to in clause (ii) above.
"Qualified Institution" shall have the meaning specified in subsection
4.2(a).
"Rating Agency" shall mean, with respect to each Series, the rating
agency or agencies, if any, specified in the related Supplement.
"Rating Agency Condition" shall mean the notification in writing by
each Rating Agency to the Transferor, the Servicer and the Trustee that any
action will
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not result in any Rating Agency's reducing or withdrawing its then existing
rating of the Investor Securities of any outstanding Series or Class with
respect to which it is a Rating Agency.
"Ratings Event" shall mean with respect to any Class of any
outstanding Series rated by a Rating Agency, a reduction or withdrawal of the
rating of any such Class by a Rating Agency.
"Reassignment" shall have the meaning specified in subsection
2.7(b)(i).
"Reassignment Date" shall have the meaning specified in subsection
2.4(e).
"Receivable" shall mean with respect to any Obligor, any right to
payment of amounts owed by that Obligor under an Account, including, without
limitation, all rights of each Originator and obligations of the Obligor under
the applicable Account.
"Record Date" shall mean, with respect to any Distribution Date,
unless otherwise specified in the applicable Supplement, the Business Day
preceding such Distribution Date, except that, with respect to any Definitive
Securities, Record Date shall mean the fifth day of the then current Monthly
Period.
"Recoveries" shall mean any amounts received by the Servicer or the
Transferor with respect to Receivables in Defaulted Accounts, including
Collections received from Obligors and disposition proceeds.
"Registered Securities" shall have the meaning specified in Section
6.1.
"Related Person" shall mean a Person that is an Affiliate of FCI, any
Investor Securityholder, any Enhancement Provider, or any Person whose status
would violate the conditions for a trustee contained in Section (4)(i) of Rule
3a-7 under the Investment Company Act of 1940, as amended.
"Relevant UCC State" shall mean each jurisdiction in which the filing
of a UCC financing statement is necessary to perfect the ownership interest and
security
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interest of the Transferor pursuant to the Purchase Agreement or the ownership
or security interest of the Trustee established under this Agreement.
"Removal Date" shall have the meaning specified in subsection 2.7(b).
"Removal Notice Date" shall mean the day, no later than the fifth
Business Day prior to a Removal Date, on which the Transferor gives notice to
the Trustee pursuant to Section 2.7(a) of its intention to remove Accounts from
the Trust.
"Removed Accounts" shall have the meaning specified in subsection
2.7(a).
"Requirements of Law" for any Person shall mean the certificate of
incorporation or articles of association and by-laws or other organizational or
governing documents of such Person, and any material law, treaty, rule or
regulation, or determination of an arbitrator or Governmental Authority, in each
case applicable to or binding upon such Person or to which such Person is
subject.
"Responsible Officer" shall mean any officer within the Corporate
Trust Office (or any successor group of the Trustee), including the President,
any Vice President or any other officer of the Trustee customarily performing
functions similar to those performed by any person who at the time shall be an
above-designated officer and who shall have direct responsibility for the
administration of this Agreement.
"Restart Date" shall mean the date specified in the notice delivered
by the Transferor to the Trustee pursuant to subsection 2.6(a).
"Retained Interest" shall mean, on any date of determination, the sum
of the Transferor Interest and the Invested Amount represented by any Transferor
Retained Security.
"Retained Percentage" shall mean, on any date of determination, the
percentage equivalent of a fraction the numerator of which is the Retained
Interest and the denominator of which is the aggregate amount of Principal
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Receivables at the end of the day immediately prior to such date of
determination plus all amounts on deposit in the Excess Funding Account (but not
including investment earnings on such amounts).
"Revolving Period" shall have, with respect to each Series, the
meaning specified in the related Supplement.
"Revolving Receivables" shall mean any right to payment arising under
an Eligible Account that is a consumer revolving credit card account other than
any right to payment with respect to any such Receivables that are classified as
"Closed End Receivables" pursuant to clause (b) of the definition thereof.
"Secured Obligations" shall have the meaning specified in Section 2.1.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
"Security" shall mean any one of the Investor Securities of any Series
or the Exchangeable Transferor Security.
"Security Owner" shall mean, with respect to a Book-Entry Security,
the Person who is the beneficial owner of such Book-Entry Security, as may be
reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly or as an indirect
participant, in accordance with the rules of such Clearing Agency).
"Security Principal" shall mean principal payable in respect of the
Investor Securities of any Series pursuant to Article IV of this Agreement as
supplemented by the Supplement for such Series.
"Security Rate" shall mean, with respect to any Series of Securities
(or, for any Series with more than one Class, for each Class of such Series),
the percentage (or formula on the basis of which such rate shall be determined)
stated in the related Supplement.
"Security Register" shall mean the register maintained pursuant to
Section 6.3, providing for the
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registration of the Securities and transfers and exchanges thereof.
"Series" shall mean any series of Investor Securities issued by the
Trust pursuant to a Supplement, which may include within any such Series a Class
or Classes of Investor Securities subordinate to another such Class or Classes
of Investor Securities.
"Series Account" shall mean any account or accounts established
pursuant to a Supplement for the benefit of the related Series.
"Series Charge-Off" shall have, with respect to each Series, the
meaning specified in the related Supplement.
"Series Default Amount" shall have, with respect to any Series of
Securities, the meaning stated in the related Supplement.
"Series Pay Out Event" shall have, with respect to any Series, the
meaning specified in the related Supplement.
"Series Percentage" shall mean with respect to any Series, on any date
of determination, the percentage equivalent of a fraction the numerator of which
is the Invested Amount of such Series and the denominator of which is the sum of
the Invested Amounts of all Series then outstanding.
"Series Servicing Fee Percentage" shall mean, with respect to any
Series, the amount specified as such in the related Supplement.
"Series Termination Date" shall mean, with respect to any Series of
Securities, the date stated as such in the related Supplement.
"Service Transfer" shall have the meaning specified in subsection
10.1(d).
"Servicer" shall mean FNB in its capacity as Servicer of the
Receivables or any Person appointed as Successor Servicer as herein provided to
service the Receivables.
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"Servicer Default" shall have the meaning specified in Section 10.1.
"Servicing Fee" shall have the meaning specified in the related
Supplements.
"Settlement Statement" shall mean a report in the form specified in
subsection 1.2(e) as may be supplemented pursuant to any Supplement.
"Shared Principal Collections" shall mean, with respect to any
Business Day, the aggregate amount of Principal Collections for all outstanding
Series and Participations that the related Supplements or Participation
Supplements, as applicable, specify are to be treated as "Shared Principal
Collections" available to be allocated to other Series for such Business Day.
In addition, any payments made by the holder of any Participation and received
by the Trustee with respect to the purchase of any Participation or the increase
in the amount of the Participation shall be treated as Shared Principal
Collections pursuant to Section 4.3.
"Standard & Poor's" shall mean Standard & Poor's, a Division of The
McGraw-Hill Companies, or its successor.
"Successor Servicer" shall have the meaning specified in subsection
10.2(a).
"Supplement" shall mean, with respect to any outstanding Series, a
supplement to this Agreement complying with the terms of Section 6.9 of this
Agreement, executed in conjunction with any issuance of Securities of such
Series.
"Supplemental Accounts" shall have the meaning specified in subsection
2.6(c).
"Supplemental Security" shall have the meaning specified in subsection
6.9(d).
"Targeted Holder" shall mean the beneficial owner of any Security,
Participation or other interest in the Trust, other than Securities,
Participations or such other interests with respect to which an Opinion of
Counsel has been received by the Trust and the Trustee to
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the effect that such Securities, Participations or such other interest will
be treated as debt for United States federal income tax purposes; provided,
however, that any Person having a beneficial ownership interest in more than
one Security, Participation or other interest in the Trust, each of which
separately would cause such Person to be a Targeted Holder, shall be treated
as a single Targeted Holder.
"Tax Opinion" shall mean with respect to any action, an Opinion of
Counsel delivered to the Trust and the Trustee to the effect that, for United
States federal income tax purposes, (i) such action will not adversely affect
the tax characterization as debt of Securities or Participations of any
outstanding Series or Class that were characterized as debt for such purposes at
the time of their issuance, (ii) following such action the Trust will not be
deemed to be an association or a "publicly traded partnership" (within the
meaning of Section 7704(b) of the Code) taxable as a corporation and (iii) such
action will not cause or constitute a taxable event in which gain or loss would
be recognized by any Security Owner or the Trust.
"Termination Notice" shall have, with respect to any Series, the
meaning specified in Section 10.1.
"Transfer" shall mean transfer, sell, exchange, pledge, hypothecate,
participate, assign, or otherwise dispose, in whole or in part.
"Transfer Agent and Registrar" shall have the meaning specified in
Section 6.3(a) and shall initially be The Bank of New York.
"Transfer Date" shall mean, with respect to any Series, the Business
Day immediately prior to each Distribution Date.
"Transferor" shall mean Fingerhut Receivables, Inc., a corporation
organized and existing under the laws of the State of Delaware, and any
successor thereto.
"Transferor Exchange" shall have the meaning specified in subsection
6.9(b).
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"Transferor Interest" shall mean, on any date of determination, the
sum of (i) the aggregate amount of Principal Receivables at the end of the day
immediately prior to such date of determination plus (ii) all amounts on deposit
in the Excess Funding Account, the Pre-Funding Account and the Principal Funding
Account, if any, for each Series (but not including investment earnings on such
amounts) at the end of such immediately preceding day, minus the sum of (x) the
Aggregate Invested Amount at the end of such immediately preceding day and (y)
the Participation Amount of each Participation then outstanding.
"Transferor Percentage" shall mean, on any date of determination, when
used with respect to Principal Collections, Finance Charge Collections and
Default Amounts, a percentage equal to 100% minus the sum of (i) the applicable
Aggregate Investor Percentage with respect to the relevant category and (ii) the
applicable Participation Percentages with respect to all Participations.
"Transferor Retained Class" shall mean any Class of Investor
Securities of any Series which the Transferor retained pursuant to the terms of
any Supplement.
"Transferor Retained Securities" shall mean Investor Securities of any
Class of any Series which the Transferor retains for so long as the Transferor
retains such Investor Securities.
"Transferred Account" shall mean an Account with respect to which a
new account number has been issued by the applicable Originator under
circumstances resulting from a lost or stolen credit card and not requiring
standard application and credit evaluation procedures under the applicable
Credit and Collection Policy.
"Trust" shall mean the trust created by this Agreement, the corpus of
which shall consist of the Trust Property.
"Trust Extension" shall have the meaning specified in subsection
12.1(a).
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"Trust Pay Out Event" shall have, with respect to each Series, the
meaning specified in Section 9.1.
"Trust Property" shall have the meaning specified in Section 2.1.
"Trust Termination Date" shall mean the earliest to occur of (i)
unless a Trust Extension shall have occurred, the day after the Distribution
Date with respect to any Series following the date on which funds shall have
been deposited in the Distribution Account or the applicable Series Account for
the payment of Investor Securityholders of each Series then issued and
outstanding sufficient to pay in full the Aggregate Invested Amount plus
interest accrued at the applicable Security Rate through the end of the day
prior to the Distribution Date with respect to each such Series and certain
other amounts as may be specified in any Series Supplement, (ii) if a Trust
Extension shall have occurred, the Extended Trust Termination Date, and (iii)
the date specified in subsection 12.1(a).
"Trustee" shall mean The Bank of New York (Delaware), a banking
corporation organized and existing under the laws of Delaware, and its
successors and any Person resulting from or surviving any consolidation or
merger to which it or its successors may be a party and any successor trustee
appointed as herein provided.
"UCC" shall mean the Uniform Commercial Code, as amended from time to
time, as in effect in the applicable jurisdiction.
"Unfunded Security" shall have the meaning specified in subsection
6.9(b).
"Variable Funding Securities" shall mean a Series of Investor
Securities, issued pursuant to Section 6.9 and a Variable Funding Supplement, in
one or more Classes, at least one of which may vary in Invested Amount during
the Revolving Period for such Series.
"Variable Funding Supplement" shall mean a Supplement executed in
connection with the issuance of Variable Funding Securities.
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Section 1.2 Other Definitional Provisions.
(a) All terms defined in any Supplement or this Agreement shall have
the meanings ascribed to them herein when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein.
(b) As used herein and in any security, certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
Section 1.1, and accounting terms partially defined in Section 1.1 to the extent
not defined, shall have the respective meanings given to them under generally
accepted accounting principles. To the extent that the definitions of
accounting terms herein are inconsistent with the meanings of such terms under
generally accepted accounting principles, the definitions contained herein shall
control.
(c) The agreements, representations and warranties of FNB in this
Agreement and in any Supplement in its capacity as Servicer and of FRI in its
capacity as Transferor shall be deemed to be the agreements, representations and
warranties of FNB and FRI solely in each such capacity for so long as either of
them acts in each such capacity under this Agreement.
(d) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to any Supplement or this
Agreement as a whole and not to any particular provision of this Agreement or
any Supplement; and Section, subsection, Schedule and Exhibit references
contained in this Agreement or any Supplement are references to Sections,
subsections, Schedules and Exhibits in or to this Agreement or any Supplement
unless otherwise specified.
(e) The Daily Report and Settlement Statement shall be in
substantially the forms of Exhibits B and C, with such changes as the Servicer
may determine to be necessary or desirable; provided, however, that no such
change shall serve to exclude information required by this Agreement or any
Supplement and each such change shall be reasonably acceptable to the Trustee.
The Servicer shall, upon making such determination and receiving the consent of
the Trustee to such change,
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deliver to the Trustee and each Rating Agency an Officer's Certificate to which
shall be annexed the form of the related Exhibit, as so changed. Upon the
delivery of such Officer's Certificate to the Trustee, the related Exhibit, as
so changed, shall for all purposes of this Agreement constitute such Exhibit.
The Trustee may conclusively rely upon such Officer's Certificate in determining
whether the related Exhibit, as changed, conforms to the requirements of this
Agreement.
[End of Article I]
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ARTICLE II
CONVEYANCE OF RECEIVABLES;
ISSUANCE OF Securities
Section 2.1 Conveyance of Receivables. The Transferor does hereby
transfer, assign, set-over, and otherwise convey to the Trust, without recourse,
all of its right, title and interest in, to and under (i) the Receivables now
existing and hereafter created, in each case, immediately upon the Transferor's
acquisition of rights therein, including, without limitation, all accounts,
general intangibles, chattel paper, contract rights, and other obligations of
any Obligor with respect to the Receivables, now or hereafter existing, (ii) all
monies and investments due or to become due with respect thereto (including,
without limitation, the right to any Finance Charge Receivables, including any
Recoveries), (iii) all proceeds of such Receivables, (iv) the Purchase Agreement
with respect to Receivables arising under Eligible Accounts and (v) the Bank
Receivables Purchase Agreement with respect to Receivables arising under
Eligible Accounts. Such property, together with all monies and investments on
deposit from time to time in the Collection Account, the Excess Funding Account,
the Series Accounts maintained for the benefit of the Securityholders of any
Series of Securities, any Enhancement and all monies available under any
Enhancement, to be provided for any Series for payment to the Securityholders of
such Series, shall constitute the assets of the Trust (collectively, the "Trust
Property"). The foregoing transfer, assignment, set-over and conveyance does
not constitute and is not intended to result in a creation or an assumption by
the Trust, the Trustee or any Investor Securityholder of any obligation of the
Transferor, the Servicer, the applicable Originator or any other Person in
connection with the Receivables or any agreement or instrument relating thereto,
including, without limitation, any obligation to any Obligors, merchants,
servicers, or insurers, or in connection with the Purchase Agreement or the Bank
Receivables Purchase Agreement.
In connection with such transfer, assignment, set-over and conveyance,
the Transferor agrees to record and file, at its own expense, one or more
financing statements (including any continuation statements with
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respect to such financing statements when applicable) with respect to the
Receivables now existing and hereafter created for the transfer of accounts,
chattel paper or general intangibles (each as defined in Section 9-106 of the
UCC as in effect in the Relevant UCC State) meeting the requirements of
applicable state law in such manner and in such jurisdictions as are necessary
to perfect the assignment of the Receivables to the Trust, and to deliver
file-stamped copies of such financing statements or continuation statements or
other evidence of such filing (which may, for purposes of this Section 2.1,
consist of facsimile confirmation of such filing) to the Trustee on or prior to
the Initial Closing Date, and in the case of any continuation statements filed
pursuant to this Section 2.1, as soon as practicable after receipt thereof by
the Transferor. The foregoing transfer, assignment, set-over and conveyance to
the Trust shall be made to the Trustee, on behalf of the Trust, and each
reference in this Agreement to such transfer, assignment, set-over and
conveyance shall be construed accordingly.
To the extent that the transfer of the Receivables from the Transferor
to the Trust hereunder may be characterized as a pledge rather than as a sale,
the Transferor hereby grants and transfers to the Trustee a first priority
perfected security interest in all of the Transferor's right, title and interest
in, to and under the Trust Property to secure a loan in an amount equal to the
unpaid principal amount of the Investor Securities issued hereunder or to be
issued pursuant to this Agreement and the interest accrued thereon at the
related Security Rate and to secure all of the Transferor's and Servicer's
obligations hereunder, including, without limitation, the Transferor's
obligation to transfer Receivables hereafter created or acquired to the Trust
(the "Secured Obligations"), and agrees that this Agreement shall constitute a
security agreement under applicable law.
Section 2.2 Acceptance by Trustee.
(a) The Trustee hereby acknowledges its acceptance, on behalf of the
Trust, of all right, title and interest previously held by the Transferor in, to
and under the Trust Property and declares that it shall maintain such right,
title and interest, upon the Trust herein set forth, for the benefit of all
Securityholders.
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(b) The Trustee shall have no power to create, assume or incur
indebtedness or other liabilities in the name of the Trust other than as
contemplated in this Agreement. The Trustee shall be entitled to issue
Participations in the Trust Property or in any portion thereof in accordance
with this Agreement and subsection 6.3(f).
Section 2.3 Representations and Warranties of the Transferor. The
Transferor hereby represents and warrants to the Trustee, on behalf of the
Trust, as of the Initial Closing Date and, with respect to any Series of
Securities, as of the date of the related Supplement and the related Closing
Date for such Series:
(a) Organization and Good Standing. The Transferor is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority and legal right to
own its properties and conduct its business as such properties are presently
owned and such business is presently conducted, and to execute, deliver and
perform its obligations under this Agreement and the Purchase Agreement and to
execute and deliver to the Trustee the Securities and Participations pursuant
hereto.
(b) Due Qualification. The Transferor is duly qualified to do
business and is in good standing (or is exempt from such requirements) as a
foreign corporation in any state required in order to conduct its business, and
has obtained all necessary licenses and approvals with respect to the Transferor
required under federal and Delaware law; provided, however, that no
representation or warranty is made with respect to any qualifications, licenses
or approvals which the Trustee would have to obtain to do business in any state
in which the Trustee seeks to enforce any Receivable.
(c) Due Authorization. The execution and delivery of this Agreement
and the Purchase Agreement and the consummation of the transactions provided for
herein and therein, have been duly authorized by the Transferor by all necessary
corporate action on its part.
(d) Binding Obligation. Each of this Agreement and the Purchase
Agreement, and the consummation of
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the transactions provided for herein and therein, constitutes a legal, valid,
and binding obligation of the Transferor, enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereinafter
in effect, affecting the enforcement of creditors' rights in general and as such
enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).
(e) No Conflicts. The execution and delivery of this Agreement and
the Purchase Agreement and the performance of the transactions contemplated
hereby and thereby, do not (i) contravene the Transferor's charter or bylaws,
(ii) violate any material provision of law applicable to it or require any
filing (except for the filings under the UCC), registration, consent or approval
under, any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the
Transferor, except for such filings, registrations, consents or approvals as
have already been obtained and are in full force and effect.
(f) Taxes. Except as specified on Schedule 1, the Transferor and
each prior owner of the Receivables has filed all tax returns required to be
filed and has paid or made adequate provision for the payment of all taxes,
assessments and other governmental charges due from the Transferor or such prior
owner or is contesting any such tax, assessment or other governmental charge in
good faith through appropriate proceedings.
(g) No Violation. The execution and delivery of this Agreement and
the Purchase Agreement and the execution and delivery to the Trustee of the
Securities, the performance of the transactions contemplated by this Agreement
and the Purchase Agreement and the fulfillment of the terms hereof and thereof
will not violate any Requirements of Law applicable to the Transferor, will not
violate, result in any breach of any of the material terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default under any
Requirement of Law applicable to the Transferor or any material indenture,
contract, agreement, mortgage, deed of trust or other material instrument to
which the
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Transferor is a party or by which it or its properties are bound.
(h) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Transferor, threatened against the
Transferor, before any Governmental Authority (i) asserting the invalidity of
this Agreement and the Purchase Agreement, (ii) seeking to prevent the
consummation of any of the transactions contemplated hereby or thereby, (iii)
seeking any determination or ruling that would materially and adversely affect
the performance by the Transferor of its obligations thereunder, (iv) seeking
any determination or ruling that would materially and adversely affect the
validity or enforceability thereof or (v) seeking to affect adversely the tax
attributes of the Trust.
(i) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Governmental Authority required in connection
with the execution and delivery of this Agreement, the Purchase Agreement and
the Securities, the performance of the transactions contemplated by this
Agreement and the Purchase Agreement and the fulfillment of the terms hereof and
thereof, have been obtained.
(j) Bona Fide Receivables. Each Receivable is or will be an account
receivable arising out of the performance by the applicable Originator in
accordance with the terms of the Contract giving rise to such Receivable. The
Transferor has no knowledge of any fact which should have led it to expect at
the time of the classification of any Receivable as an Eligible Receivable that
such Receivable would not be paid in full when due, and each Receivable
classified as an Eligible Receivable by the Transferor in any document or report
delivered under this Agreement satisfies the requirements of eligibility
contained in the definition of Eligible Receivable set forth in this Agreement.
(k) Place of Business. The principal executive offices of the
Transferor are in Minnetonka, Minnesota, and the offices where the Transferor
keeps its records concerning the Receivables and related Contracts are in
Hennepin County, Minnesota and St. Cloud, Minnesota.
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(l) Use of Proceeds. No proceeds of the issuance of any Security
will be used by the Transferor to purchase or carry any margin security.
(m) Pay Out Event. No Pay Out Event and no condition that with the
giving of notice and/or the passage of time constitutes a Pay Out Event (a
"Prospective Pay Out Event") has occurred and is continuing.
(n) Not an Investment Company. The Transferor is not an "investment
company" within the meaning of the Investment Company Act, or is exempt from all
provisions of such Act.
(o) Solvency. The Transferor is not insolvent and will not be
rendered insolvent upon the transfer of the Receivables to the Trust.
The representations and warranties set forth in this Section 2.3 shall
survive the transfer and assignment of the respective Receivables to the Trust,
and termination of the rights and obligations of the Servicer pursuant to
Section 10.1. The Transferor hereby represents and warrants to the Trust, with
respect to any Series of Securities, as of its Closing Date, unless otherwise
stated in the related Supplement, that the representations and warranties of the
Transferor set forth in Section 2.3, are true and correct as of such date (and
for the purposes of such representations and warranties, "Securities" shall mean
the Securities issued on the related Closing Date) and that each representation
and warranty set forth in this Section 2.3 and in Section 2.4(a)(i) with respect
to the Agreement shall be made at such time with respect to the applicable
Supplement. Upon discovery by the Transferor, the Servicer or a Responsible
Officer of the Trustee of a breach of any of the foregoing representations and
warranties, the party discovering such breach shall give prompt written notice
to the others.
Section 2.4 Representations and Warranties of the Transferor Relating
to the Agreement and the Receivables.
(a) Binding Obligation; Valid Transfer and Assignment. The
Transferor hereby represents and warrants to the Trustee, on behalf of the
Trust, that, as of
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the Initial Closing Date and with respect to any Series of Securities, as of the
date of its related Supplement and Closing Date, and, with respect to any
Accounts arising after the Initial Closing Date, as of the date the Receivables
of such Accounts are first designated for inclusion in the Trust:
(i) Each of the Purchase Agreement and this Agreement
constitutes the legal, valid and binding obligation of the Transferor,
enforceable against the Transferor in accordance with its terms, except (A)
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect, affecting the enforcement of creditors' rights in general, and (B)
as such enforceability may be limited by general principles of equity
(whether considered in a suit at law or in equity).
(ii) The transfer of Receivables by the Transferor to the Trust
under this Agreement constitutes either (A) a valid transfer, assignment,
set-over and conveyance to the Trust of all right, title and interest of
the Transferor in and to the Trust Property, and such Trust Property will
be held by the Trust free and clear of any Lien of any Person claiming
through or under the Transferor or any of its Affiliates except for (x)
Permitted Liens, (y) the interest of the Transferor as Holder of the
Exchangeable Transferor Security and any other Class of Securities held by
the Transferor from time to time and (z) the Transferor's right, if any, to
interest accruing on, and investment earnings, if any, in respect of any
Interest Funding Account, any Principal Account, the Excess Funding
Account, or any Series Account, as provided in this Agreement or the
related Supplement, or (B) a grant of a first priority security interest
(as defined in the UCC as in effect in the Relevant UCC State) in, to and
under the Trust Property, which grant is enforceable with respect to the
existing Receivables and the proceeds thereof upon execution and delivery
of this Agreement, which will be enforceable with respect to such
Receivables hereafter created and the proceeds thereof, upon such creation
and which will be enforceable with respect to Receivables in Additional
Accounts and the proceeds thereof designated for
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inclusion in the Trust (other than Receivables in Supplemental Accounts) as
of the Addition Date with respect to such Additional Accounts. If this
Agreement constitutes the grant of a security interest to the Trust in such
property, upon the filing of the financing statement described in Section
2.1 and in the case of the Receivables hereafter created and proceeds
thereof, upon such creation, the Trust shall have a first priority
perfected security interest in such property, except for Permitted Liens.
Except as contemplated in this Agreement or any Supplement, neither the
Transferor nor any Person claiming through or under the Transferor shall
have any claim to or interest in the Collection Account, any Principal
Account, any Interest Funding Account, the Distribution Account, the Excess
Funding Account, any principal funding account for any Series or any other
Series Account, except for the Transferor's rights to receive interest
accruing on, and investment earnings in respect of, any such account as
provided in this Agreement (or, if applicable, any Series Account as
provided in any Supplement) and, if this Agreement constitutes the grant of
a security interest in such property, except for the interest of the
Transferor in such property as a debtor for purposes of the UCC as in
effect in the Relevant UCC State. The Purchase Agreement constitutes a
valid transfer, assignment, set-over and conveyance to the Transferor of
all right, title and interest of the seller which is a party thereto in and
to the Receivables purported to be sold thereunder, whether then existing
or thereafter created in the applicable Receivables and the proceeds
thereof.
(iii) The Transferor is (or, with respect to Receivables
arising after the date hereof, will be) the legal and beneficial owner of
all right, title and interest in and to each Receivable and each Receivable
has been or will be transferred to the Trust free and clear of any Lien
other than Permitted Liens.
(iv) All consents, licenses, approvals or authorizations of or
registrations or declarations with any Governmental Authority required in
connection
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with the transfer of Trust Property to the Trust have been obtained.
(v) Each Account classified as an "Eligible Account" by the
Transferor in any document or report delivered hereunder will satisfy the
requirements contained in the definition of Eligible Account as of the time
of such document or report and each Receivable classified as an "Eligible
Receivable" by the Transferor in any document or report delivered hereunder
will satisfy the requirements contained in the definition of Eligible
Receivable as of the time of such document or report.
(vi) Each Eligible Receivable then existing has been conveyed to
the Trust free and clear of any Lien of any Person claiming through or
under the Transferor or any of its Affiliates (other than Permitted Liens)
and in compliance, in all material respects, with all Requirements of Law
applicable to the Transferor.
(b) Daily Representations and Warranties. On each day on which any
new Eligible Receivable is transferred to the Trust, the Transferor shall be
deemed to represent and warrant to the Trust that (A) each Eligible Receivable
purchased by the Transferor on such day has been conveyed to the Trust in
compliance, in all material respects, with all Requirements of Law applicable to
the Transferor and free and clear of any Lien of any Person claiming through or
under the Transferor or any of its Affiliates (other than Permitted Liens) and
(B) with respect to each such Receivable, all consents, licenses, approvals or
authorizations of or registrations or declarations with, any Governmental
Authority required to be obtained, effected or given by the Transferor in
connection with the conveyance of such Receivable to the Trust have been duly
obtained, effected or given and are in full force and effect.
(c) Notice of Breach. The representations and warranties set forth
in this Section 2.4 shall survive the transfer and assignment of the respective
Receivables to the Trust. Upon discovery by the Transferor, the Servicer or a
Responsible Officer of the Trustee of a breach of any of the representations and
warranties set forth in this Section 2.4, the party discovering such
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breach shall give prompt written notice to the other parties mentioned above.
The Transferor agrees to cooperate with the Servicer and the Trustee in
attempting to cure any such breach.
(d) Designation of Ineligible Receivables. In the event of a breach
with respect to a Receivable of any representations and warranties set forth in
subsection 2.3(j) or subsections 2.4(a)(iii) through (vi) or subsection 2.4(b),
or in the event that a Receivable is not an Eligible Receivable on the date of
its transfer to the Trust as a result of the failure to satisfy the conditions
set forth in the definition of Eligible Receivable, such Receivable shall be
designated an "Ineligible Receivable" and shall be assigned a principal balance
of zero for the purpose of determining the aggregate amount of Principal
Receivables on any day; provided, however, that if such representations and
warranties with respect to such Receivable shall subsequently be true and
correct in all material respects as if such Receivable had been created on such
day or such Receivable shall subsequently satisfy the conditions set forth in
the definition of Eligible Receivable, such Receivable shall be designated an
Eligible Receivable, and the related Principal Receivable shall be included in
determining the Aggregate Principal Receivables on such day. On and after the
date of its designation as an Ineligible Receivable, each Ineligible Receivable
shall not be given credit in determining the Aggregate Principal Receivables
used in the calculation of any Investor Percentage or Participation Percentage,
the Transferor Percentage or the Transferor Interest. In the event that on any
Business Day the exclusion of an Ineligible Receivable from the calculation of
the Transferor Interest would cause the Transferor Interest to be reduced below
the Minimum Transferor Interest, the Transferor shall immediately make a deposit
in the Excess Funding Account (for allocation as a Principal Receivable) in
immediately available funds prior to the next succeeding Business Day in an
amount equal to the amount by which the Transferor Interest would be reduced
below the Minimum Transferor Interest as a result of the exclusion of such
Ineligible Receivable.
(e) Reassignment of Trust Portfolio. In the event of a breach of any
of the representations and warranties set forth in subsections 2.3(a), (b) and
(c) and subsections 2.4(a)(i) and (ii) with respect to any
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Series, either the Trustee or the Holders of Investor Securities representing
more than 50% of the aggregate Invested Amount of such Series, by notice then
given in writing to the Transferor (and to the Trustee and the Servicer, if
given by the Investor Securityholders of such Series), may direct the Transferor
to accept reassignment of an amount of Principal Receivables equal to the face
amount of the Invested Amount to be repurchased (as specified below) within 60
days of such notice (or within such longer period as may be specified in such
notice), and the Transferor shall be obligated to accept reassignment of such
Receivables (which shall include related Finance Charge Receivables) on a
Distribution Date specified by the Transferor (such Distribution Date, the
"Reassignment Date") occurring within such applicable period on the terms and
conditions set forth below; provided, however, that no such reassignment shall
be required to be made, and no notice of such reassignment may be given, if, at
any time during such applicable period, the representations and warranties
contained in subsections 2.3(a), (b) and (c) and subsections 2.4(a)(i) and (ii)
shall then be true and correct in all material respects. The Transferor shall
provide written notice to the Rating Agencies of any such reassignment. The
Transferor shall, on the Transfer Date preceding the Reassignment Date, deposit
(in next day funds) an amount equal to the reassignment deposit amount for such
Series in the related Distribution Account or Series Account, as provided in the
related Supplement, for distribution to the Investor Securityholders pursuant to
Article XII. The reassignment deposit amount with respect to any Series, unless
otherwise stated in the related Supplement, shall be equal to (i) the Invested
Amount of such Series at the end of the day on the Business Day preceding the
Reassignment Date, less the amount, if any, on deposit in the Principal Account
or any Series Account on such date and allocated for payment of principal to
such Securityholders, plus (ii) an amount equal to all interest accrued but
unpaid on the Investor Securities of such Series at the applicable Security Rate
through such Business Day, less the amount, if any, previously allocated for
payment of interest to the Securityholders of such Series on the related
Distribution Date in the Monthly Period in which the Reassignment Date occurs
plus any other amounts accrued and owing as specified in the applicable
Supplement. Payment of the reassignment deposit amount with respect to any
Series, and all other
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amounts in the Distribution Account or the applicable Series Account on such
date and allocated for payment to the Securityholders of such Series, shall be
considered a prepayment in full of the Receivables represented by the Investor
Securities of such Series. On the Distribution Date following the Transfer Date
on which such amount has been deposited in full into the Distribution Account or
the applicable Series Account, the Receivables in an amount of Principal
Receivables equal to the face amount of the Invested Amount to be repurchased
and all monies due or to become due with respect thereto and all proceeds of
such Receivables shall be released to the Transferor after payment of all
amounts otherwise due hereunder on or prior to such dates and the Trustee shall
execute and deliver such instruments of transfer or assignment, in each case
without recourse, representation or warranty, as shall be prepared by and as are
reasonably requested by the Transferor to vest in the Transferor, or its
designee or assignee, all right, title and interest of the Trust in and to such
reassigned Receivables, all monies due or to become due with respect thereto and
all proceeds of such reassigned Receivables. If the Trustee or the Investor
Securityholders of any Series give notice directing the Transferor to accept
reassignment as provided above, the obligation of the Transferor to accept
reassignment of the applicable Receivables and pay the reassignment deposit
amount pursuant to this subsection 2.4(e) shall constitute the sole remedy
respecting a breach of the representations and warranties contained in
subsections 2.3(a), (b) and (c) and 2.4(a)(i) and (ii) available to the Investor
Securityholders of such Series or the Trustee on behalf of the Investor
Securityholders of such Series. The Trustee shall have no duty to conduct any
affirmative investigation as to the occurrence of any condition requiring the
repurchase of any Receivable by the Transferor pursuant to this Agreement or any
Supplement or the eligibility of any Receivable for purposes of this Agreement
or any Supplement.
Section 2.5 Covenants of the Transferor. The Transferor hereby
covenants that:
(a) Receivables to be Accounts, Chattel Paper or General
Intangibles. The Transferor will take no action to cause any Receivable to be
evidenced by any instrument (as defined in the UCC as in effect in the
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Relevant UCC State), except in connection with the enforcement or collection of
a Receivable. Except in such circumstances, the Transferor will take no action
to cause any Receivable to be anything other than an "account," "chattel paper"
or a "general intangible" (as defined in the UCC as in effect in the Relevant
UCC State) except in connection with the enforcement of collection of a
Receivable. The Transferor will provide notice to Moody's prior to the
inclusion in the Trust of any Receivable which would be characterized as
"chattel paper" (as defined in the UCC as in effect in the relevant UCC State).
(b) Security Interests. Except for the conveyances hereunder, the
Transferor will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any Lien, on any Receivable,
whether now existing or hereafter created, or any interest therein; the
Transferor will immediately notify the Trustee of the existence of any Lien on
any Receivable; and the Transferor shall defend the right, title and interest of
the Trust in, to and under the Receivables, whether now existing or hereafter
created, against all claims of third parties claiming through or under the
Transferor; provided, however, that nothing in this subsection 2.5(b) shall
prevent or be deemed to prohibit the Transferor from suffering to exist upon any
of the Receivables any Permitted Lien.
(c) Delivery of Collections. In the event that the Transferor
receives Collections, the Transferor agrees to deposit such Collections into the
Collection Account as soon as practicable after the receipt thereof, but in no
event later than two Business Days following the Date of Processing thereof.
(d) Notice of Liens. The Transferor shall notify the Trustee
promptly after becoming aware of any Lien on any Receivable other than Permitted
Liens.
(e) Enforcement of Purchase Agreements. The Transferor agrees to
take all action necessary and appropriate to enforce its rights and claims under
the Purchase Agreement and the Bank Receivables Purchase Agreement with respect
to Receivables arising under Eligible Accounts.
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(f) Separate Corporate Existence. The Transferor shall:
(i) Maintain in full effect its existence, rights and franchises
as a corporation or a limited liability company under the laws of the state
of its incorporation and obtain and preserve its qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Agreement and
the Receivables Purchase Agreement and each other instrument or agreement
necessary or appropriate to effect proper administration hereof and to
permit and effectuate the transactions contemplated hereby.
(ii) Maintain its own deposit account or accounts, separate from
those of any Affiliate of the Transferor, with commercial banking
institutions. The funds of the Transferor will not be diverted to any
other Person or for other than the corporate use of the Transferor, and,
except as may be expressly permitted by this Agreement or the Purchase
Agreement, the funds and assets of the Transferor shall not be commingled
with those of any Affiliate of the Transferor.
(iii) Ensure that, to the extent that it shares the same
officers or other employees as any of its stockholders or Affiliates, the
salaries of and the expenses related to providing benefits to such officers
and other employees shall be fairly allocated among such entities, and each
such entity shall bear its fair share of the salary and benefit costs
associated with all such common officers and employees.
(iv) Ensure that, to the extent that it jointly contracts with
any of its stockholders or Affiliates to do business with vendors or
service providers or to share overhead expenses, the costs incurred in so
doing shall be allocated fairly among such entities, and each such entity
shall bear its fair share of such costs. To the extent that the Transferor
contracts or does business with vendors or service providers where the
goods and services provided are partially for the benefit of any other
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Person, the costs incurred in so doing shall be fairly allocated to or
among such entities for whose benefit the goods and services are provided,
and each such entity shall bear its fair share of such costs. All material
transactions between the Transferor and any of its Affiliates shall be only
on an arm's-length basis.
(v) Maintain a principal executive and administrative office
through which its business is conducted separate from those of its
stockholders and Affiliates. To the extent that the Transferor and any of
its stockholders or Affiliates have offices in contiguous space, there
shall be fair and appropriate allocation of overhead costs among them, and
each such entity shall bear its fair share of such expenses.
(vi) Conduct its affairs strictly in accordance with its charter
and by-laws and observe all necessary, appropriate and customary corporate
formalities, including taking all actions of stockholders' and directors'
meetings appropriate to authorize all corporate action, keeping separate
and accurate minutes of such meetings, adopting all resolutions or consents
necessary to authorize actions taken or to be taken, and maintaining
accurate and separate books, records and accounts, including payroll and
intercompany transaction accounts.
(vii) Ensure that its Board of Directors shall be elected
independently from the Boards of Directors of its Affiliates and shall at
all times include at least two members of the Board of Directors of the
Transferor who are not and have not been (x) directors, officers, employees
or shareholders of FCI or Fingerhut or any Affiliate thereof other than any
other limited purpose subsidiary of FCI, Fingerhut or any Affiliate within
a period of three years prior to such Person's election to the Board of
Directors or (y) members of the immediate family of any of the foregoing).
(viii) Ensure that decisions with respect to its business and
daily operations shall be independently made by the Transferor (although
the
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officer making any particular decision may also be an officer or director
of an Affiliate of the Transferor) and shall not be dictated by an
Affiliate of the Transferor.
(ix) Act solely in its own corporate name and through its own
authorized officers and agents, and no Affiliate of the Transferor shall be
appointed to act as agent of the Transferor, except as expressly
contemplated by this Agreement or the Purchase Agreement.
(x) Ensure that no Affiliate of the Transferor shall advance
funds to the Transferor, other than capital contributions from its
corporate parent made to enable the Transferor to pay the purchase price of
Receivables or as is otherwise provided in the Purchase Agreement, and no
Affiliate of the Transferor will otherwise supply funds to, or guaranty
debts of, the Transferor; provided, however, that its corporate parent may
provide funds to the Transferor in connection with capitalization of the
Transferor to assure that the Transferor has substantial assets.
(xi) Not enter into any guaranty, or otherwise become liable,
with respect to any obligation of any Affiliate of the Transferor.
(xii) Ensure that any financial reports required of the
Transferor shall comply with generally accepted accounting principles and
shall be issued separately from, but may be consolidated with, any reports
prepared for any of its Affiliates.
(g) Purchase Agreement Notices. The Transferor (i) shall promptly
give the Trustee copies of any notices, reports or certificates given or
delivered to the Transferor under the Purchase Agreement, (ii) shall not,
without the consents, approvals and opinions, if any, required by Section 13.1,
as if Section 13.1 related to the Purchase Agreement rather than this Agreement,
enter into any amendment, supplement or other modification to, or waiver of any
provision of, the Purchase Agreement and (iii) shall not permit the addition or
removal of an Account or a Receivable to or from the
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operation of the Purchase Agreement unless there is a corresponding right or
obligation of the Transferor to add or remove such Account or Receivable to or
from the Trust.
(h) Account Allocations. In the event that the Transferor is unable
for any reason to transfer Receivables to the Trust in accordance with the
provisions of this Agreement (including, without limitation, by reason of the
application of the provisions of Section 9.2 or an order of any court of
competent jurisdiction that the Transferor not transfer any additional Principal
Receivables to the Trust) then, in any such event, unless otherwise required by
law or to conform with an express direction of an Obligor, the Transferor agrees
that it shall allocate, after the occurrence of such event, payments on each
Account with respect to the principal balance of such Account first to the
oldest principal balance of such Account and to have such payments applied as
Collections in accordance with Article IV. The parties hereto agree that
Finance Charge Receivables, whenever created, accrued in respect of Principal
Receivables that have been conveyed to the Trust shall continue to be a part of
the Trust notwithstanding any cessation of the transfer of additional Principal
Receivables to the Trust and that Collections with respect thereto shall
continue to be allocated and paid in accordance with Article IV.
Section 2.6 Addition of Receivables.
(a) Subject to subsections 2.6(b) and (c), all receivables which meet
the definition of Receivables shall be included as Receivables from and after
the date upon which such Receivables are first acquired by the Transferor and
all such Receivables, whether such Receivables are then existing or thereafter
created, shall be transferred automatically to the Trust upon purchase by the
Transferor.
(b) The Transferor shall not transfer to the Trust Receivables of new
Obligors as Eligible Receivables unless, in addition to satisfying the
requirements of clauses (a) through (f) of the definition of Eligible
Receivables, the following condition is met: unless the Rating Agencies
otherwise consent, with respect to any Monthly Period the number of new Obligors
on Receivables (which shall include any Obligors who, prior to the
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relevant measuring period, did not have a relationship with Fingerhut, FNB or
any Affiliate thereof) since the first day of the eleventh preceding Monthly
Period that are Back End Customers minus the number of new Obligors on
Receivables that are Back End Customers who have previously been approved by the
Rating Agencies since the first day of such eleventh preceding Monthly Period
shall not exceed 20% of the number of Back End Customers on Receivables in the
Trust at the close of business on the last day of such eleventh preceding
Monthly Period. In addition, the Transferor may elect at any time, or may be
required in accordance with the preceding sentence, to suspend the automatic
inclusion of receivables in new accounts which would otherwise be Additional
Accounts as of any Business Day (the "Automatic Addition Suspension Date"), or
terminate any such inclusion as of any Business Day (an "Automatic Addition
Termination Date") until a date (the "Restart Date") to be identified in writing
by the Transferor to the Trustee, the Servicer and each Rating Agency at least
10 days prior to such Restart Date. Promptly after an Automatic Addition
Suspension Date or any Automatic Addition Termination Date, or a Restart Date,
the Transferor and the Trustee agree to execute and the Transferor agrees to
record and file at its own expense an amendment to the financing statements
referred to in Section 2.1 to specify the Accounts the Receivables in which are
then subject to this Agreement (which specification may incorporate a list of
accounts by reference) and may, except in connection with any such filing made
after a Restart Date, release any security interest in any accounts created
after the Automatic Addition Suspension Date or any Automatic Addition
Termination Date. The Transferor shall provide notice to Moody's if and when
the Transferor or, to the knowledge of the Transferor, the Servicer is able to
perform the test set forth above based upon the percentage growth of the
Receivables based on the amount of Receivables outstanding from time to time.
(c) The Transferor may (or shall if the condition in subsection
2.6(b) is not met) elect to terminate or suspend the automatic inclusion of
receivables in new accounts which would otherwise be Additional Accounts
pursuant to subsection 2.6(b) by delivering to the Trustee, the Servicer and
each Rating Agency ten days' prior written notice of such election. If the
Transferor has elected to terminate or suspend the inclusion of
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receivables in new accounts which would otherwise be Additional Accounts and (i)
on any Determination Date, the Transferor Interest is less than the Minimum
Transferor Interest, the Transferor shall designate additional consumer
revolving credit card accounts or closed-end installment loans that satisfy the
requirements of the first sentence of the definition of "Additional Accounts"
("Supplemental Accounts") to be included as Accounts in a sufficient number such
that the Transferor Interest as a percentage of the Aggregate Principal
Receivables for such Monthly Period after giving effect to such addition is at
least equal to the Minimum Transferor Interest, or (ii) on any Determination
Date, the Aggregate Principal Receivables is less than the Minimum Aggregate
Principal Receivables, the Transferor shall designate Supplemental Accounts to
be included as Accounts and transfer the outstanding receivables therein in a
sufficient number such that the Aggregate Principal Receivables will be equal to
or greater than the Minimum Aggregate Principal Receivables. Receivables in
such Supplemental Accounts shall be transferred to the Trust on or before the
tenth Business Day following such Determination Date. On any day on which the
Receivables in Supplemental Accounts are to be transferred to the Trust, the
Transferor shall be deemed to have represented and warranted that the
Receivables in such Accounts to be included as Eligible Receivables satisfy the
requirements of the definition of "Eligible Receivables" as of such date.
(d) In addition to its obligation under subsection 2.6(c), the
Transferor may, by giving ten Business Days' notice to the Trustee and each
Rating Agency, but shall not be obligated to, designate from time to time
Supplemental Accounts of the Transferor to be included as Accounts.
(e) Unless otherwise specified in a Series Supplement, the Transferor
agrees that any such transfer of Receivables from Supplemental Accounts, under
subsection 2.6(c) or (d), shall satisfy the following conditions (to the extent
provided below):
(i) on or before the fifth Business Day prior to the Addition
Date with respect to additions pursuant to subsection 2.6(c) and on or
before the tenth Business Day prior to the Addition Date with respect to
additions pursuant to subsection 2.6(d)
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(as applicable, the "Notice Date"), the Transferor shall give the Trustee,
each Rating Agency and the Servicer written notice that such Supplemental
Accounts will be included, which notice shall specify the approximate
aggregate amount of the Receivables to be transferred;
(ii) on or before the applicable Addition Date, the Transferor
shall have delivered to the Trustee a written assignment (including an
acceptance by the Trustee on behalf of the Trust for the benefit of the
Investor Securityholders) in substantially the form of Exhibit H (the
"Assignment") and the Transferor shall have indicated in its computer files
that the Receivables in the Supplemental Accounts have been transferred to
the Trust and, within five Business Days thereafter, the Transferor shall
have delivered to the Trustee or the bailee of the Trustee a computer file
or microfiche list containing a true and complete list of all Supplemental
Accounts, identified by account number and the Principal Receivables in
such Supplemental Accounts, as of the Addition Date, which computer file or
microfiche list shall be as of the date of such Assignment incorporated
into and made a part of such Assignment;
(iii) the Transferor shall represent and warrant that (x) no
selection procedure that is materially adverse to the interests of the
Investor Securityholders or any holder of a Participation was utilized in
selecting the Supplemental Accounts and (y) as of the applicable Addition
Date, the Transferor is not insolvent and will not be rendered insolvent
upon the transfer of the Receivables in the Supplemental Accounts to the
Trust;
(iv) the Transferor shall represent and warrant that, as of the
Addition Date, the Assignment constitutes either (x) a valid transfer,
assignment, set-over and conveyance to the Trust of all right, title and
interest of the Transferor in and to (A) the Receivables in the
Supplemental Accounts then existing and thereafter created, in each case,
immediately upon the Transferor's acquisition of rights therein, (B) all
monies and investments due or to become due with respect thereto
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(including, without limitation, the right to any Finance Charge
Receivables, including any Recoveries), (C) all proceeds of such
Receivables, (D) the Purchase Agreement with respect to Receivables arising
in the Supplemental Accounts and (E) the Bank Receivables Purchase
Agreement with respect to Receivables arising in the Supplemental Accounts,
and such Trust Property will be held by the Trust free and clear of any
Lien of any Person claiming through or under the Transferor or any of its
Affiliates except for (i) Permitted Liens, (ii) the interest of the
Transferor as Holder of the Exchangeable Transferor Security and any other
Class of Securities held by the Transferor from time to time and (iii) the
Transferor's right, if any, to interest accruing on, and investment
earnings, if any, in respect of any Interest Funding Account, any Principal
Account, the Excess Funding Account, or any Series Account, as provided in
this Agreement or the related Supplement, or (y) a grant of a security
interest (as defined in the UCC as in effect in the Relevant UCC State) in,
to and under such property to the Trust, which grant is enforceable with
respect to the then existing Receivables in the Supplemental Accounts and
the proceeds thereof upon the conveyance of such Receivables to the Trust,
and which will be enforceable with respect to such Receivables thereafter
created and the proceeds thereof, upon such creation, and (z) if the
Assignment constitutes the grant of a security interest to the Trust in
such property, upon the filing of the financing statement described in
Section 2.1 and in the case of the Receivables thereafter created in such
Supplemental Accounts and the proceeds thereof, upon such creation, the
Trust shall have a first priority perfected security interest in such
property, except for Permitted Liens;
(v) the Transferor shall deliver to the Trustee an Officer's
Certificate substantially in the form of Schedule 2 to Exhibit H confirming
the items set forth in paragraph (ii) above;
(vi) the Transferor shall deliver to the Trustee an Opinion of
Counsel with respect to the Receivables in the Supplemental Accounts (with
a
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copy to the Rating Agencies) substantially in the form of Exhibit I; and
(vii) the Transferor shall have received written notice from the
Rating Agencies that the inclusion of such accounts as Supplemental
Accounts pursuant to subsection 2.6(c) or (d), as the case may be, will not
result in the reduction or withdrawal of its then existing rating of any
Class of any Series of Investor Securities then issued and outstanding and
shall have delivered such notice to the Trustee.
Section 2.7 Removal of Accounts.
(a) On each Determination Date that the Transferor Interest as of the
last day of the related Monthly Period exceeds the Minimum Transferor Interest
as of the last day of such Monthly Period, the Trustee shall be deemed to have
offered to the Transferor automatically and without any notice to or action by
or on behalf of the Trustee, as of such Determination Date, the right to remove
from the Trust all of the Trust's right, title and interest in, to and under the
Receivables then existing and thereafter created, all monies then due or to
become due and all amounts thereafter received with respect thereto and all
proceeds thereof in or with respect to those Accounts designated by the
Transferor (the "Removed Accounts") in an aggregate amount not greater than the
lesser of (i) the excess of the Transferor Interest over the Minimum Transferor
Interest and (ii) the excess of Aggregate Principal Receivables over the Minimum
Aggregate Principal Receivables as of the last day of the related Monthly
Period. To accept such offer, the Transferor is required to furnish to the
Trustee and each Rating Agency written notice by the fifth Business Day after
the Determination Date specifying the approximate aggregate amount of Principal
Receivables covered by the offer that the Transferor intends to accept. There
shall be no more than one such removal with respect to any Monthly Period.
(b) In addition to the satisfaction of the conditions set forth in
subsection 2.7(a), the Transferor shall be permitted to accept reassignment to
it of the Receivables from Removed Accounts only upon satisfaction of the
following conditions:
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(i) On each date specified by the Transferor for removal of the
Removed Accounts (a "Removal Date"), the Transferor shall prepare and the
Trustee shall execute and deliver to the Transferor a written reassignment
in substantially the form of Exhibit J (the "Reassignment") and the
Transferor shall deliver to the Trustee or the bailee of the Trustee a
computer file or microfiche list containing a true and complete schedule
identifying all Accounts the Receivables in which remain in the Trust
specifying for each such Account, as of the Removal Notice Date, its
account number and the principal balance of such Account. Such computer
file or microfiche list shall be incorporated into and made part of this
Agreement as of the date of such Reassignment.
(ii) The Transferor shall represent and warrant as of each
Removal Notice Date that (a) the list of the Accounts not removed from the
Trust, as of the Removal Notice Date, complies in all material respects
with the requirements of paragraph (i) above and (b) no selection procedure
used by the Transferor that is materially adverse to the interests of the
Investor Securityholders was utilized in selecting the Removed Accounts.
(iii) The Transferor shall represent and warrant that the
removal of any Receivables in any Removed Accounts on any Removal Date
shall not, in the reasonable belief of the Transferor, cause, immediately
or with the passage of time, a Pay Out Event to occur.
(iv) The Transferor shall have delivered at least 20 days' (or
such lesser number as any Rating Agency may agree) prior written notice
(which may be given prior to the Removal Date in expectation that the
Trustee will make the offer described in subsection 2.7(a)) of such removal
to each Rating Agency that has rated any outstanding Class of any Series
and the Trustee shall have received written confirmation from each such
Rating Agency that such Rating Agency will not reduce or withdraw its
rating on any outstanding Class of any Series as a result of such removal.
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(v) The Transferor shall have delivered to the Trustee an
Officer's Certificate confirming the Transferor's compliance with the items
set forth in paragraphs (i) through (iv) above. The Trustee may
conclusively rely on such certificate, shall have no duty to make inquiries
with regard to the matters set forth therein and shall incur no liability
in so relying.
(c) Upon satisfaction of the conditions set forth in subsections
2.7(a) and (b), the Trustee shall execute and deliver the Reassignment to the
Transferor, and the Receivables from the Removed Accounts shall no longer
constitute a part of the Trust as of the Removal Date.
Section 2.8. Defaulted Account. On the date on which an Account
becomes a Defaulted Account, the Trust shall automatically and without further
action or consideration be deemed to transfer, set over, and otherwise convey to
the Transferor, without recourse, representation or warranty, all the right,
title and interest of the Trust in and to the Receivables outstanding in such
Account, all monies due or to become due with respect thereto and all proceeds
of such Receivables allocable to the Trust with respect to such Defaulted
Account, excluding Recoveries relating thereto, which shall remain a part of the
Trust Property. On each Determination Date, the Servicer shall calculate the
aggregate Series Default Amount for the preceding Monthly Period with respect to
each Series and the Participation Percentage of the Default Amount allocable to
each Participation.
Section 2.9 Covenants of the Transferor with Respect to the Purchase
Agreement. The Transferor, in its capacity as purchaser of the Receivables from
FCI or any Originator pursuant to a Purchase Agreement, hereby covenants that
the Transferor will at all times enforce the covenants and agreements of each
Originator in a Purchase Agreement and, as assignee of FCI's rights, of FNB in
the Bank Receivables Purchase Agreement, including, without limitation, the
covenants therein with respect to the Credit and Collection Policy.
The Transferor further covenants that the Transferor will not enter
into or consent to any amendments to the Bank Receivables Purchase Agreement or
the
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Purchase Agreement that would cause a Ratings Event to occur.
[End of Article II]
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ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES
Section 3.1 Acceptance of Appointment and Other Matters Relating to
the Servicer.
(a) FNB agrees to act as the Servicer under this Agreement. The
Investor Securityholders of each Series by their acceptance of the related
Securities consent to FNB acting as Servicer. Notwithstanding the foregoing or
any other provisions of this Agreement or any Supplement, the Investor
Securityholders consent to Fingerhut or an Affiliate of Fingerhut acting as
Servicer hereunder, in full substitution for FNB; provided that Fingerhut or any
such Affiliate acting as Servicer shall expressly assume in writing (unless such
assumption occurs by operation of law), by an agreement supplemental hereto,
executed and delivered to the Trustee, the performance of every covenant and
obligation of the Servicer, as applicable hereunder, and shall in all respects
be designated the Servicer under this Agreement; provided, further, that the
Rating Agencies shall have received prior written notice of such a designation
of a new Servicer; and provided, further, that, with respect to any Affiliate of
Fingerhut acting as Servicer hereunder, Fingerhut will remain jointly and
severally liable with such Affiliate.
(b) The Servicer shall service and administer the Receivables and
shall collect payments due under the Receivables in accordance with its
customary and usual servicing procedures and the applicable Credit and
Collection Policy and shall have full power and authority, acting alone or
through any party properly designated by it hereunder, to do any and all things
in connection with such servicing and administration that it may deem necessary
or desirable. Without limiting the generality of the foregoing and subject to
Section 10.1, the Servicer is hereby authorized and empowered (i) to make
withdrawals from the Collection Account as set forth in this Agreement, (ii)
unless such power and authority is revoked by the Trustee on account of the
occurrence of a Servicer Default pursuant to Section 10.1, to instruct the
Trustee in writing to make withdrawals and payments, from any Interest Funding
Account, the Excess Funding
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Account, any Principal Account and any Series Account, in accordance with such
instructions as set forth in this Agreement, (iii) unless such power and
authority is revoked by the Trustee on account of the occurrence of a Servicer
Default pursuant to Section 10.1, to instruct the Trustee in writing to take any
action permitted or required under any Enhancement at such time as set forth in
this Agreement and any Supplement, (iv) to execute and deliver, on behalf of the
Trust for the benefit of the Securityholders, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Receivables and, after the
delinquency of any Receivable and to the extent permitted under and in
compliance with applicable law and regulations, to commence enforcement
proceedings with respect to such Receivables, (v) to make any filings, reports,
notices, applications, registrations with, and to seek any consents or
authorizations from, the Securities and Exchange Commission and any state
securities authority on behalf of the Trust as may be necessary or advisable to
comply with any federal or state securities or reporting requirements and (vi)
to delegate certain of its service, collection, enforcement and administrative
duties hereunder with respect to the Accounts and the Receivables to any Person
who agrees to conduct such duties in accordance with the applicable Credit and
Collection Policy; provided, however, that the Servicer shall notify the Trustee
and the Rating Agencies in writing of any material delegation; and provided
further that the Servicer shall remain jointly and severally liable with such
Person. The Trustee agrees that it shall promptly follow the instructions of
the Servicer or any subservicer to withdraw funds from the Collection Account,
any Principal Account, any Interest Funding Account, the Excess Funding Account,
or any Series Account and to take any action required under any Enhancement at
such time as required under this Agreement. The Trustee shall execute at the
Servicer's written request such documents prepared by the Transferor and
acceptable to the Trustee as the Servicer certifies are necessary or appropriate
to enable the Servicer to carry out its servicing and administrative duties
hereunder.
(c) The Servicer shall not be obligated to use separate servicing
procedures, offices or employees for servicing the Receivables from the
procedures, offices
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and employees used by the Servicer in connection with servicing other credit
card receivables.
(d) The Servicer shall maintain fidelity bond coverage insuring
against losses through wrongdoing of its officers and employees who are involved
in the servicing of credit card receivables covering such actions and in such
amounts as the Servicer believes to be reasonable from time to time.
Section 3.2 Servicing Compensation. As compensation for its
servicing activities hereunder and reimbursement for its expenses as set forth
in the immediately following paragraph, the Servicer shall be entitled to
receive a servicing fee in respect of each day prior to the termination of the
Trust pursuant to Section 12.1 (the "Servicing Fee"), payable in arrears on each
date and in the manner specified in the applicable Supplement, equal to the
product of (i) a fraction, the numerator of which is the actual number of days
in the measuring period specified in the applicable Supplement and the
denominator of which is the actual number of days in the year, (ii) the weighted
average Series Servicing Fee Percentage for all outstanding Series (based upon
the Series Servicing Fee Percentage for each Series and the Invested Amount of
such Series) and (iii) the daily average aggregate amount of all Principal
Receivables over the term of such measuring period. The share of the Servicing
Fee allocable to each Series with respect to any date of payment shall be equal
to the product of (i) a fraction, the numerator of which is the actual number of
days in the measuring period specified in the applicable Supplement and the
denominator of which is the actual number of days in the year, (ii) the
applicable Series Servicing Fee Percentage for such Series and (iii) the
Invested Amount of such Series, as appropriate, as of the date of determination
for such payment as specified in the applicable Supplement. The share of the
Servicing Fee with respect to any Monthly Period allocated to any Participation
will be determined in accordance with the applicable Participation Supplement.
The remainder of the Servicing Fee shall be paid by the Transferor, or retained
by the Servicer as provided in Article IV, and in no event shall the Trust, the
Trustee, any Enhancement Provider, the holder of any Participation or the
Investor Securityholders be liable for the share of the Servicing Fee to be paid
by the Transferor.
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The Servicer shall be responsible for its own expenses incurred in
connection with the servicing of the Receivables, including without limitation
the amounts due to the Trustee pursuant to Section 11.5 and the reasonable fees
and disbursements of independent public accountants and all other expenses
incurred by the Servicer in connection with its activities hereunder; provided,
that the Servicer shall not be liable for any liabilities, costs or expenses of
the Trust, the Investor Securityholders or the Security Owners arising under any
tax law, including without limitation any federal, state or local income or
franchise taxes or any other tax imposed on or measured by income (or any
interest, penalties or additions with respect thereto or arising from a failure
to comply therewith). In the event that the Servicer fails to pay any amounts
due to the Trustee pursuant to Section 11.5, the Trustee shall be entitled to
deduct and receive such amounts from the Servicing Fee prior to the payment
thereof to the Servicer and the obligations of the Trust to pay any such amounts
shall thereby be fully satisfied. The Servicer shall be required to pay such
expenses for its own account and shall not be entitled to any payment therefor
other than the Servicing Fee.
Section 3.3 Representations and Warranties of the Servicer. FNB, as
initial Servicer, hereby makes, and any Successor Servicer by its appointment
hereunder shall make, the following representations and warranties on which the
Trustee has relied in accepting the Receivables in trust and in authenticating
the Securities issued on the Initial Closing Date:
(a) Organization and Good Standing. The Servicer is either (i) a
national banking association duly organized, validly existing and in good
standing under the laws of the United States or (ii) a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has the corporate power, authority and legal right to own its
properties and conduct its business as such properties are presently owned and
such business is presently conducted, and to execute, deliver and perform its
obligations under this Agreement.
(b) Due Qualification. The Servicer is duly qualified to do business
and is in good standing (or is
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exempt from such requirements) as a foreign corporation in any state where such
qualification is necessary in order to service the Receivables as required by
this Agreement and has obtained all necessary licenses and approvals as required
under Federal and state law in order to service the Receivables as required by
this Agreement, and if the Servicer shall be required by any Requirement of Law
to so qualify or register or obtain such license or approval, then it shall do
so except where the failure to obtain such license or approval does not
materially affect the Servicer's ability to perform its obligations hereunder or
the enforceability of the Receivables.
(c) Due Authorization. The execution and delivery of this Agreement
and the consummation of the transactions provided for herein, have been duly
authorized by the Servicer by all necessary corporate action on the part of the
Servicer.
(d) Binding Obligation. This Agreement and the consummation of the
transactions provided for herein, constitutes a legal, valid and binding
obligation of the Servicer, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect,
affecting the enforcement of creditors' rights in general and as such
enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).
(e) No Violation. The execution and delivery of this Agreement by
the Servicer, and the performance of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof applicable to the Servicer,
will not violate, result in any breach of any of the material terms and
provisions of, or constitute (with or without notice or lapse of time or both) a
default under, any Requirement of Law applicable to the Servicer or any material
indenture, contract, agreement, mortgage, deed of trust or other material
instrument to which the Servicer is a party or by which it is bound.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Servicer, threatened against the
Servicer before any Governmental Authority (i) asserting the invalidity of
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this Agreement, (ii) seeking to prevent the issuance of the Securities or the
consummation of any of the transactions contemplated by this Agreement, (iii)
seeking any determination or ruling that would materially and adversely affect
the performance by the Servicer of its obligations under this Agreement, (iv)
seeking any determination or ruling that would materially and adversely affect
the validity or enforceability of this Agreement or (v) seeking to affect
adversely the tax attributes of the Trust.
(g) Compliance with Requirements of Law. The Servicer shall duly
satisfy all obligations on its part to be fulfilled under or in connection with
each Receivable and the related Account, will maintain in effect all
qualifications required under Requirements of Law in order to service properly
each Receivable and the related Account and will comply in all material respects
with all other Requirements of Law in connection with servicing each Receivable
and the related Account the failure to comply with which would have a material
adverse effect on the Securityholders or any Enhancement Provider.
(h) Protection of Securityholders' Rights. The Servicer shall take
no action which, nor omit to take any action the omission of which, would impair
the rights of Securityholders in any Receivable or the related Account, the
rights or obligations of any Enhancement Provider, or the rights of any holder
of a Participation nor shall it reschedule, revise or defer payments due on any
Receivable except in accordance with the applicable Credit and Collection
Policy.
(i) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Governmental Authority required in connection
with the execution and delivery of this Agreement and the performance of the
transactions contemplated by this Agreement and the fulfillment of the terms
hereof, have been obtained; provided, however, that the Servicer makes no
representation or warranty regarding State securities or "Blue Sky" laws in
connection with the distribution of the Securities.
(j) Rescission or Cancellation. The Servicer shall not permit any
rescission or cancellation of any Receivable except as ordered by a court of
competent
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jurisdiction or other Governmental Authority or in accordance with the
applicable Credit and Collection Policy or the normal operating procedures of
the Servicer.
(k) Receivables Not To Be Evidenced by Promissory Notes. Except in
connection with its enforcement or collection of a Receivable (in which case any
such promissory note would be made in the name of the Trust on behalf of the
Securityholders), the Servicer will take no action to cause any Receivable to be
evidenced by an instrument (as defined in the UCC as in effect in the Relevant
UCC State).
(l) Principal Place of Business. The Servicer shall at all times
maintain its principal executive offices within the United States.
Section 3.4 Reports and Records for the
Trustee.
(a) Daily Records. Upon reasonable prior notice by the Trustee, the
Servicer shall make available at an office of the Servicer (or other location
designated by the Servicer if such records are not accessible by the Servicer at
an office of the Servicer) selected by the Servicer for inspection by the
Trustee or its agent (reasonably acceptable to the Servicer) on a Business Day
during the Servicer's normal business hours a record setting forth (i) the
Collections on the Receivables and (ii) the amount of Receivables for the
Business Day preceding the date of the inspection. The Servicer shall, at all
times, maintain its computer files with respect to the Receivables in such a
manner so that the Accounts and the Receivables may be specifically identified
and, upon reasonable prior request of the Trustee, shall make available to the
Trustee, at an office of the Servicer (or other location designated by the
Servicer if such computer files are not located at an office of the Servicer)
selected by the Servicer, on any Business Day of the Servicer during the
Servicer's normal business hours any computer programs necessary to make such
identification.
(b) Daily Report.
(i) On each Business Day the Servicer shall prepare a completed
Daily Report.
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(ii) The Servicer shall deliver to the Trustee and the Paying
Agent the Daily Report by 3:00 p.m. (New York City time) on each Business
Day with respect to activity in the Receivables for the prior Business Day
(or, in the case of a Daily Report delivered on the second Business Day
following a Saturday, Sunday or other non-Business Day, the aggregate
activity for the preceding Business Day and such preceding non-Business
Days).
(iii) Upon discovery of any error or receipt of notice of any
error in any Daily Report, the Servicer, the Transferor and the Trustee
shall arrange to confer and shall agree upon any adjustments necessary to
correct any such errors. If any such error is materially adverse to the
interests of the Investor Securityholders of any Series or any holder of a
Participation, the Servicer or the Trustee, as the case may be, shall
retain all Collections which would otherwise be paid from the Trust (or
such lesser amount as the Trustee and the Servicer shall agree to be
necessary to cover any such error) in the Collection Account until such
error is corrected. Unless the Trustee has received written notice of any
error or discrepancy, the Trustee may rely on each Daily Report delivered
to it for all purposes hereunder.
(c) Settlement Statement. On the second Business Day prior to each
Distribution Date, the Servicer shall, prior to 3:00 p.m. (New York City time)
on such day, deliver to the Trustee and the Paying Agent the Settlement
Statement for the related Monthly Period substantially in the form of Exhibit C
hereto, including the following information (which, in the case of clauses
(iii), (iv) and (v) below, will be stated on the basis of an original principal
amount of $1,000 per Security): (i) the aggregate amount of Collections
received for the Monthly Period preceding such Distribution Date and the
aggregate amount of Finance Charge Collections and the aggregate amount of
Principal Collections processed during such Monthly Period; (ii) the aggregate
amount of the applicable Investor Percentage of Principal Collections processed
during the Monthly Period preceding such Distribution Date for each Series of
Securities and each Participation and the aggregate amount of the applicable
Investor Percentage of Finance Charge Collections
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processed during the Monthly Period preceding such Distribution Date for each
Series of Securities and each Participation; (iii) for each Series and for each
Class within any such Series, the total amount to be distributed to Investor
Securityholders on the next succeeding Distribution Date; (iv) for each Series
and for each Class within any such Series, the amount of such distribution
allocable to principal; (v) for each Series and for each Class within any such
Series, the amount of such distribution allocable to interest; (vi) for each
Series, and each Class within a Series, and each Participation, the Series
Default Amount for the related Monthly Period; (vii) for each Series and each
Class within a Series, the amount of the Series Charge-Offs and the amount of
the reimbursements of Series Charge-Offs for such Distribution Date; (viii) for
each Series and each Participation, the Servicing Fee for such Distribution
Date; (ix) for each Series, the existing deficit controlled amortization amount,
if applicable; (x) the Aggregate Principal Receivables in the Trust at the close
of business on the last day of the Monthly Period preceding such Distribution
Date; (xi) for each Series, the Invested Amount thereof at the close of business
on the last day of the Monthly Period immediately preceding such Distribution
Date; (xii) the available amount of any Enhancement for each Class of each
Series, if any; (xiii) for each Series and each Class within a Series, the Pool
Factor as of the end of the related Monthly Period; (xiv) whether a Pay Out
Event or a Prospective Pay Out Event with respect to any Series shall have
occurred during or with respect to the related Monthly Period; (xv) the amount
of any Adjustment Payments for the related Monthly Period; and (xvi) such other
calculations as may be required by any Supplement. The Trustee shall be under
no duty to recalculate, verify or recompute the information supplied to it under
this Section 3.4 or such other matters as are set forth in any Settlement
Statement. The Servicer shall also provide a copy of the Settlement Statement
in a prompt manner to each Rating Agency.
Section 3.5 Annual Servicer's Certificate. The Servicer will
deliver, in accordance with Section 13.5, to the Trustee, any Enhancement
Provider and the Rating Agencies, within 100 days of the end of each fiscal year
an Officer's Certificate substantially in the form of Exhibit D stating that (a)
a review of the activities of the Servicer during the preceding fiscal year
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and of its performance under this Agreement was made under the supervision of
the officer signing such certificate and (b) to such officer's knowledge, based
on such review, the Servicer has fully performed all its obligations under this
Agreement throughout such period, or, if there has been a default in the
performance of any such obligation, specifying each such default known to such
officer and the nature and status thereof. A copy of such certificate may be
obtained by any Investor Securityholder by a request in writing to the Trustee
addressed to the Corporate Trust Office.
Section 3.6 Annual Independent Accountants' Servicing Report.
(a) Within 100 days of the end of each fiscal year, the Servicer
shall cause a firm of nationally recognized independent public accountants (who
may also render other services to the Servicer or the Transferor) to furnish a
report with respect to the prior fiscal year (or, in the case of the first such
period, the period beginning on the Initial Closing Date and ending on the last
day of the related fiscal year) to the Trustee, any Enhancement Provider and
each Rating Agency, to the effect that such firm has applied certain procedures,
agreed upon between such firm and the Servicer, which are substantially as set
forth in Exhibit G hereto, which would re-perform certain accounting procedures
performed by the Servicer pursuant to certain documents and records relating to
the servicing of the Receivables. In addition, each report shall set forth the
agreed upon procedures performed and the results of such procedures.
(b) Within 100 days of the end of each fiscal year, the Servicer
shall cause a firm of nationally recognized independent certified public
accountants (who may also render other services to the Servicer or the
Transferor) to furnish a report to the Trustee, any Enhancement Provider and the
Rating Agency to the effect that they have compared the amounts and percentages
set forth in four of the monthly certificates forwarded by the Servicer pursuant
to subsection 3.4(c) during the period covered by such report with the computer
reports (which may include personal computer generated reports that summarize
data from the computer reports generated by either the Transferor or Servicer
which are used to prepare the Daily Reports) which were the source of such
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amounts and percentages and that on the basis of such comparison, such amounts
and percentages are in agreement except as shall be set forth in such report. A
copy of such report will be sent by the Trustee to each Investor Securityholder;
provided, however, that in the event that the independent certified public
accountants who are preparing such report are not the accounting firm that is
the independent accountants for FCI during the relevant period, then the
independent certified public accountants who are preparing such report shall
compare the amounts set forth in each of the monthly certificates forwarded by
the Servicer pursuant to subsection 3.4(c) during the period covered by the
report with the applicable computer reports.
Section 3.7 Tax Treatment. The Transferor has structured this
Agreement and the Investor Securities with the intention that the Investor
Securities will qualify under applicable federal, state and local tax law as
indebtedness. Except to the extent expressly specified to the contrary in any
Supplement, the Transferor, the Servicer, the Holder of the Exchangeable
Transferor Security, each Investor Securityholder, Holder of a Variable Funding
Security, and each Security Owner agree to treat and to take no action
inconsistent with the treatment of the Investor Securities (or beneficial
interest therein) as indebtedness for purposes of federal, state, local and
foreign income or franchise taxes and any other tax imposed on or measured by
income. Each Investor Securityholder, Holder of a Variable Funding Security and
the Holder of the Exchangeable Transferor Security, by acceptance of its
Security and each Security Owner, by acquisition of a beneficial interest in a
Security, agree to be bound by the provisions of this Section 3.7. Each
Securityholder agrees that it will cause any Security Owner acquiring an
interest in a Security through it to comply with this Agreement as to treatment
as indebtedness under applicable tax law, as described in this Section 3.7.
Furthermore, subject to Section 11.11, the Trustee shall treat the Trust as a
security device only, and shall not file tax returns or obtain an employer
identification number on behalf of the Trust.
Section 3.8 Adjustments. (a) If the Servicer adjusts downward the
amount of any Receivable because of a rebate, refund, unauthorized charge or
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billing error to an Obligor, because such Receivable was created in respect of
merchandise which was refused or returned by an Obligor, or if the Servicer
otherwise adjusts downward the amount of any Receivable without receiving
Collections therefor or without charging off such amount as uncollectible, then,
in any such case, the aggregate amount of the Principal Receivables used to
calculate the Investor Percentages applicable to any Series and the Transferor
Interest will be reduced by the principal amount of any such adjustment.
Similarly, the aggregate amount of the Principal Receivables will be reduced by
the amount of any Principal Receivable which was discovered as having been
created through a fraudulent or counterfeit charge or with respect to which the
covenant contained in subsection 2.5(b) was breached. Any adjustment required
pursuant to either of the two preceding sentences shall be made on or prior to
the end of the Monthly Period in which such adjustment obligation arises. In
the event that, following any such adjustment, the Transferor Interest would be
less than the Minimum Transferor Interest, within two Business Days of the date
on which such adjustment obligation arises, the Transferor shall pay to the
Servicer, for deposit into the Excess Funding Account, in immediately available
funds an amount equal to the amount by which the Transferor Interest would be
reduced below the Minimum Transferor Interest as a result of such adjustment or
exclusion. Any amount deposited into the Excess Funding Account in connection
with the adjustment of a Receivable (an "Adjustment Payment") shall be applied
in accordance with Article IV and the terms of each Supplement.
(b) If (i) the Servicer makes a deposit into the Collection Account
in respect of a Collection of a Receivable and such deposit was in the form of a
check which is not honored for any reason or (ii) the Servicer makes a mistake
with respect to the amount of any Collection and deposits an amount that is less
than or more than the actual amount of such Collection, the Servicer shall
appropriately adjust the amount subsequently deposited into the Collection
Account (or shall be entitled to receive a refund from the Collection Account in
the case of an excess deposit) to reflect such dishonored check or mistake. Any
Receivable in respect of which a dishonored check is received shall be deemed
not to have been paid. Notwithstanding the first two sentences of this
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paragraph, any adjustments made pursuant to this paragraph will be reflected in
a current report but will not change any amount of Collections previously
reported pursuant to subsection 3.4(b).
Section 3.9 Notices to FNB and Fingerhut. In the event that FNB or
any Affiliate thereof is no longer acting as Servicer, any Successor Servicer
appointed pursuant to Section 10.2 shall deliver or make available to FNB and
Fingerhut each certificate and report required to be prepared, forwarded or
delivered thereafter pursuant to Sections 3.4, 3.5 and 3.6.
[End of Article III]
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ARTICLE IV
RIGHTS OF SECURITYHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.1 Rights of Securityholders. Each Series of
Investor Securities shall represent undivided interests in the Trust,
including the benefits of any Enhancement issued with respect to such
Series and the right to receive the Collections and other amounts at the
times and in the amounts specified in this Article IV and the related
Supplement to be deposited in the Investor Accounts or to be paid to the
Investor Securityholders of such Series; provided, however, that the
aggregate interest represented by such Investor Securities at any time in
the Principal Receivables shall not exceed an amount equal to the
Invested Amount of such Investor Securities. The Exchangeable Transferor
Security shall represent the remaining undivided interest in the Trust
not allocated, pursuant to this Agreement, any Supplement or any
Participation Supplement to the Securityholders or any Participation,
respectively, including the right to receive the Collections and other
amounts with respect to each Series at the times and in the amounts
specified in this Article IV and the related Supplement to be paid to the
Holder of the Exchangeable Transferor Security; provided, however, that
the aggregate interest represented by the Exchangeable Transferor
Security at any time in the Principal Receivables shall not exceed the
Transferor Interest at such time and the Exchangeable Transferor Security
shall not represent any interest in the Investor Accounts, except as
provided in this Agreement and the Supplements, or the benefits of any
Enhancement issued with respect to any Series.
Section 4.2 Establishment of Accounts.
(a) The Collection Account. The Servicer, for the benefit of
the Securityholders, shall establish in the name of the Trustee, on
behalf of the Trust, a non-interest bearing segregated account (the
"Collection Account") bearing a designation clearly indicating that the
funds deposited therein are held for the benefit of the Securityholders,
and shall cause such Collection Account to be established and maintained,
(i) in a deposit account of a depositary institution or trust com-
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pany (which may include the Trustee) organized under the laws of the United
States of America or any one of the states thereof or the District of
Columbia, which at all times has a short-term rating of P-1 by Moody's and of
A-1+ by Standard & Poor's or long-term unsecured debt obligation (other than
any such obligation the rating of which is based on collateral or on the
credit of a Person other than such institution or trust company) rating of at
least Aa3 by Moody's and of AAA by Standard & Poor's and deposit insurance
provided by the FDIC, or (ii) in a segregated trust account with the
corporate trust department of a depositary institution, which may include the
Trustee, which is rated at least Baa3 by Moody's (in the case of (i) and
(ii), a "Qualified Institution"). If, at any time, the institution holding
the Collection Account ceases to be a Qualified Institution, the Transferor
shall direct the Servicer to establish within 10 Business Days a new
Collection Account with a Qualified Institution, transfer any cash and/or any
investments to such new Collection Account and from the date such new
Collection Account is established, it shall be the "Collection Account." The
Servicer shall give written notice to the Trustee of the location and account
number of the Collection Account and shall notify the Trustee in writing
prior to any subsequent change thereof. Pursuant to authority granted to it
pursuant to subsection 3.1(b), the Servicer shall have the power revocable by
the Trustee to withdraw funds from the Collection Account for the purposes of
carrying out its duties hereunder.
The Collection Account shall be under the sole dominion and
control of the Trustee and the Trustee shall possess all right, title and
interest in all funds from time to time on deposit in such account.
(b) The Interest Funding and Principal Accounts. The Trustee,
for the benefit of the Investor Securityholders, shall establish and
maintain with a Qualified Institution in the name of the Trust two
segregated accounts for each Series (an "Interest Funding Account" and a
"Principal Account," respectively), each bearing a designation clearly
indicating that the funds therein are held for the benefit of the
Investor Securityholders of such Series. Except as provided in
subsection 4.2(e), each Interest Funding Account and each Principal
Account shall be under the sole dominion and control of the Trustee for
the benefit of the Investor
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Securityholders. Pursuant to authority granted to it hereunder, the Servicer
shall have the revocable power to instruct the Trustee to withdraw funds from
the Interest Funding Account and any Principal Account for the purpose of
carrying out the Servicer's or the Trustee's duties hereunder. The Trustee
at all times shall maintain accurate records reflecting each transaction in
each Principal Account and each Interest Funding Account and that funds held
therein shall at all times be held in trust for the benefit of the Investor
Securityholders of such Series. If, at any time, the institution holding the
Interest Funding Account ceases to be a Qualified Institution, the Servicer
shall direct the Trustee to establish within 10 Business Days a new Interest
Funding Account meeting the conditions specified above with a Qualified
Institution, transfer any cash and/or any investments to such new Interest
Funding Account and from the date such new Interest Funding Account is
established, it shall be the "Interest Funding Account." Similarly, if, at
any time, the institution holding any Principal Account ceases to be a
Qualified Institution, the Servicer shall direct the Trustee to establish
within 10 Business Days a new Principal Account meeting the conditions
specified above with a Qualified Institution, transfer any cash and/or any
investments to such new Principal Account and from the date such new
Principal Account is established, it shall be a "Principal Account."
(c) Distribution Accounts. The Trustee, for the benefit of
the Investor Securityholders of each Series, shall cause to be
established and maintained in the name of the Trust, with an office or
branch of a Qualified Institution a non-interest-bearing segregated
demand deposit account for each Series (a "Distribution Account") bearing
a designation clearly indicating that the funds deposited therein are
held in trust for the benefit of the Investor Securityholders of such
Series. Each Distribution Account shall be under the sole dominion and
control of the Trustee for the benefit of the Investor Securityholders of
the related Series. Pursuant to the authority granted to the Paying
Agent herein, the Paying Agent shall have the power, revocable by the
Trustee, to make withdrawals and payments from the Distribution Account
for the purpose of carrying out the Paying Agent's duties hereunder and
pursuant to any related Supplement. If, at any time, the institution
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holding a Distribution Account ceases to be a Qualified Institution, the
Servicer shall direct the Trustee to establish within 10 Business Days a
new Distribution Account meeting the conditions specified above with a
Qualified Institution, transfer any cash and/or any investments to such
new Distribution Account and from the date such new Distribution Account
is established, it shall be a "Distribution Account."
(d) The Excess Funding Account. The Trustee, for the benefit
of the Securityholders, shall cause to be established in the name of the
Trustee, on behalf of the Securityholders, with a Qualified Institution,
a segregated account (the "Excess Funding Account") bearing a designation
clearly indicating that the funds deposited therein are held for the
benefit of the Securityholders. Except as provided in subsection 4.3(f),
the Excess Funding Account shall, except as otherwise provided herein, be
under the sole dominion and control of the Trustee for the benefit of the
Securityholders. Pursuant to the authority granted to the Servicer
herein, the Servicer shall have the power, revocable by the Trustee, to
make withdrawals and payments from the Excess Funding Account for the
purpose of carrying out the Servicer's or Trustee's duties hereunder.
If, at any time, the institution holding the Excess Funding Account
ceases to be a Qualified Institution, the Servicer shall direct the
Trustee to establish within 10 Business Days a new Excess Funding Account
meeting the conditions specified above with a Qualified Institution,
transfer any cash and/or any investments to such new Excess Funding
Account and from the date such new Excess Funding Account is established,
it shall be the "Excess Funding Account." Funds on deposit in the Excess
Funding Account will be invested by the Trustee at the direction of the
Transferor in Cash Equivalents.
(e) Administration of the Principal Accounts and the Interest
Funding Accounts. Funds on deposit in each Principal Account and each
Interest Funding Account shall at all times be invested by the Trustee at
the written direction of the Transferor on behalf of the Transferor in
Cash Equivalents. Any such investment shall mature and such funds shall
be available for withdrawal on or before the Transfer Date following the
Monthly Period in which such funds were processed for collection. No
such investments shall be liquidated
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prior to maturity. At the end of each month, all interest and earnings (net
of losses and investment expenses) on funds on deposit in each Principal
Account and each Interest Funding Account shall be applied as specified in
the applicable Supplement. Any investment instructions to the Trustee shall
be in writing, shall be given no later than 10:00 a.m. New York City time on
a Business Day that such investment is proposed to be made and shall include
a certification that the proposed investment is a Cash Equivalent that
matures at or prior to the time required by this Agreement. For purposes of
determining the availability of funds or the balances in any Interest Funding
Account and any Principal Account for any reason under this Agreement, all
investment earnings on such funds shall be deemed not to be available or on
deposit.
Section 4.3 Collections and Allocations.
(a) Collections. Subject to subsection 4.3(d), Obligors shall
make payments on the Receivables to the Servicer who shall deposit all
such payments in the Collection Account no later than the second Business
Day following the Date of Processing thereof.
The Servicer shall allocate such amounts to each Series of
Investor Securities and to the Holder of the Exchangeable Transferor
Security in accordance with this Article IV and the related Supplement
and shall cause the Trustee to withdraw the required amounts from the
Collection Account or pay such amounts to the Holder of the Exchangeable
Transferor Security in accordance with this Article IV and the related
Supplement. The Servicer shall make such deposits or payments on the
date indicated herein by wire transfer or as otherwise provided in the
Supplement for any Series of Securities with respect to such Series.
Notwithstanding anything in this Agreement to the contrary, but
subject to the terms of any Supplement, for so long as, and only so long
as, FNB (or any successors to FNB pursuant to Section 8.2) or an
Affiliate of FNB shall remain the Servicer hereunder, and (a)(i) FNB (or
any successors to FNB) or an Affiliate of FNB provides to the Trustee a
letter of credit or other form of Enhancement rated at least A-1 by
Standard & Poor's and P-1 by Moody's (as certified to the Trustee by the
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Servicer), and (ii) after notifying each Rating Agency of the proposed
use of such letter of credit or other form of Enhancement the Transferor
shall have received a notice from each Rating Agency that making payments
monthly rather than daily would not result in a downgrading or withdrawal
of any of such Rating Agency's then-existing ratings of the Investor
Securities, or (b) FNB (or any successors to FNB) shall have and maintain
a short-term credit rating of at least A-1 by Standard & Poor's and P-1
by Moody's (as certified to the Trustee by the Servicer), the Servicer
need not deposit Collections from the Collection Account into the
Principal Account or the Interest Funding Account or any Series Account,
or make payments to the Holder of the Exchangeable Transferor Security,
prior to the close of business on the day any Collections are deposited
in the Collection Account as otherwise provided in this Article IV and
the related Supplement, but may instead make such deposits, payments and
withdrawals on each Transfer Date in an amount equal to the net amount of
such deposits, payments and withdrawals which would have been made but
for the provisions of this paragraph.
(b) Allocations for the Exchangeable Transferor Security.
Throughout the existence of the Trust, unless otherwise stated in any
Supplement, on each Business Day the Servicer shall allocate to the
Holder of the Exchangeable Transferor Security an amount equal to the
product of (A) the Transferor Percentage as of the end of the preceding
Business Day and (B) the aggregate amount of Principal Collections and
Finance Charge Collections available in the Collection Account. The
Servicer shall pay such amount to the Holder of the Exchangeable
Transferor Security on each Business Day; provided, however, that amounts
payable to the Holder of the Exchangeable Transferor Security pursuant to
this clause (b) shall instead be deposited in the Excess Funding Account
to the extent necessary to prevent the Transferor Interest from being
less than the Minimum Transferor Interest.
(c) Allocation for Series. On each Business Day, (i) the
amount of Finance Charge Collections available in the Collection Account
allocable to each Series, (ii) the amount of Principal Collections
available in the Collection Account allocable to each Series and (iii)
the Default Amounts allocable to each Series shall be determined in
accordance with the provisions of the related
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Supplements. The Servicer shall, prior to the close of business on the day
any Collections are deposited in the Collection Account, cause the Trustee to
withdraw the required amounts from the Collection Account and cause the
Trustee to deposit such amounts into the applicable Principal Account, the
applicable Interest Funding Account, the Excess Funding Account, or any
Series Account or pay such amounts to the Holder of the Exchangeable
Transferor Security in accordance with the provisions of this Article IV and
the Supplements.
(d) Allocation for Participations. On each Business Day,
unless otherwise stated in any Participation Supplement, amounts equal to
the applicable Participation Percentage of Principal Collections and
Finance Charge Collections, and Default Amounts will be allocated to the
holder of the applicable Participation. Notwithstanding anything in this
Agreement to the contrary, unless otherwise stated in any Participation
Supplement, the Servicer need not deposit the Participation Percentage of
Collections or any other amounts so allocated to any Participation
pursuant to any Participation Supplement into the Collection Account and
shall pay such amounts as collected to the holder of the related
Participation.
No Participation shall be entitled to an allocation pursuant to
this subsection 4.3(d) of payments of the purchase price for Receivables
pursuant to subsections 2.4(d) and 2.4(e) or 10.2, proceeds from the
sale, disposition or liquidation of Receivables pursuant to subsection
12.1(b) or 12.1(c) or payments of the purchase price for the interest of
the Securityholders of a specific Series pursuant to the related
Supplement.
(e) Unallocated Principal Collections; Excess Funding Account.
On each Business Day, (i) Shared Principal Collections plus (ii) if more
than one Series is in its Amortization Period, amounts to be released
from the Excess Funding Account shall be allocated to each outstanding
Series pro rata based on the Principal Shortfall, if any, for each such
Series, and then, at the option of the Transferor, any remainder may be
applied as principal with respect to the Variable Funding Securities.
The Servicer shall pay any remaining Shared Principal Collections on such
Business Day to the Transferor; provided, that if the Transferor Interest
as determined
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on such Business Day does not exceed the Minimum Transferor
Interest, then such remaining Shared Principal Collections shall be
deposited in the Excess Funding Account to the extent necessary to
increase the Transferor Interest above the Minimum Transferor Interest;
provided, further, that if an Amortization Period has commenced and is
continuing with respect to more than one outstanding Series, such
remaining Shared Principal Collections shall be allocated to such Series
pro rata based on the Investor Percentage for Principal Receivables
applicable for such Series.
(f) Amounts in Excess Funding Account. Amounts on deposit in
the Excess Funding Account on any Business Day will be invested by the
Servicer (or, at the direction of the Transferor, by the Trustee) on
behalf of the Transferor in Cash Equivalents which shall mature and be
available on or before the next Business Day on which amounts may be
released from the Excess Funding Account. Earnings from such investments
received shall be deposited in the Collection Account and treated as
Finance Charge Collections. Each investment shall be in Cash Equivalents
that mature at or prior to the date required by this Agreement. If on
any Business Day other than a Business Day on which a Pay Out Event or a
Prospective Pay Out Event has occurred and is continuing, the Transferor
Interest is greater than the Minimum Transferor Interest, amounts on
deposit in the Excess Funding Account may, at the option of the
Transferor, be released to the Holder of the Exchangeable Transferor
Security. On and after the first Business Day of the Amortization Period
for any Series, funds on deposit in the Excess Funding Account will be
deposited in the Principal Account for such Series to the extent of the
lesser of (x) the Principal Shortfall for such Series and (y) the amount
then on deposit in the Excess Funding Account. If more than one Series
is in its Amortization Period on any date, funds on deposit in the Excess
Funding Account will be applied in accordance with subsection 4.3(e) as
if they were Shared Principal Collections.
[THE REMAINDER OF ARTICLE IV IS RESERVED AND SHALL BE
SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES]
[End of Article IV]
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ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY
SUPPLEMENT WITH RESPECT TO ANY SERIES]
[End of Article V]
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ARTICLE VI
THE SECURITIES; PARTICIPATIONS
Section 6.1 The Securities. Subject to Sections 6.10 and
6.13, the Investor Securities of each Series and any Class thereof may be
issued in bearer form (the "Bearer Securities") with attached interest
coupons and, if applicable, a special coupon (collectively, the
"Coupons") or in fully registered form (the "Registered Securities"), and
shall be substantially in the form of the exhibits with respect thereto
attached to the related Supplement. The Exchangeable Transferor Security
shall be substantially in the form of Exhibit A. The Investor Securities
and the Exchangeable Transferor Security shall, upon issuance pursuant
hereto or to Section 6.9 or Section 6.10, be executed and delivered by
the Transferor to the Trustee for authentication and redelivery as
provided in Section 6.2. Unless otherwise specified in any Participation
Supplement, each Participation shall be uncertificated. Unless otherwise
specified in any Supplement, any Investor Security shall be issuable in a
minimum denomination of $1,000 and integral multiples thereof, and shall
be issued upon original issuance in an original aggregate principal
amount equal to the Initial Invested Amount. The Exchangeable Transferor
Security shall be issued as a single certificate. Each Security shall be
executed by manual or facsimile signature on behalf of the Transferor by
its President or any Vice President. Securities bearing the manual or
facsimile signature of the individual who was, at the time when such
signature was affixed, authorized to sign on behalf of the Transferor or
the Trustee shall not be rendered invalid, notwithstanding that such
individual has ceased to be so authorized prior to the authentication and
delivery of such Securities or does not hold such office at the date of
such Securities. No Security shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless there appears on such
Security a certificate of authentication substantially in the form
provided for herein, executed by or on behalf of the Trustee by the
manual signature of a duly authorized signatory, and such certificate of
authentication upon any Security shall be conclusive evidence, and the
only evidence, that such Security has been validly issued and duly
authenticated and delivered hereunder. All Securities shall be dated the
date of their authentication
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except Bearer Securities which shall be dated the applicable issuance date as
provided in the related Supplement.
Section 6.2 Authentication of Securities. Contemporaneously
with the initial assignment and transfer of the Receivables, whether now
existing or hereafter created and the other components to the Trust, the
Trustee shall authenticate and deliver the initial Series of Investor
Securities (or applicable Classes thereof), upon the written order of the
Transferor. Upon the issuance of such Investor Securities, such Investor
Securities shall be validly issued, fully paid and non-assessable. The
Trustee shall authenticate and deliver the Exchangeable Transferor
Security to the Transferor simultaneously with its delivery of the
initial Series of Investor Securities. Upon an Exchange as provided in
Section 6.9 and the satisfaction of certain other conditions specified
therein, the Trustee shall authenticate and deliver the Investor
Securities of additional Series (with the designation provided in the
related Supplement), upon the written order of the Transferor. Upon the
written order of the Transferor, the Securities of any Series shall be
duly authenticated by or on behalf of the Trustee, in authorized
denominations equal to (in the aggregate) the Initial Invested Amount of
such Series of Investor Securities. If specified in the related
Supplement for any Series, the Trustee shall authenticate and deliver
outside the United States the Global Security that is issued upon
original issuance thereof, upon the written order of the Transferor, to
the Depositary. If specified in the related Supplement for any Series,
the Trustee shall authenticate Book-Entry Securities that are issued upon
original issuance thereof, upon the written order of the Transferor, to a
Clearing Agency or its nominee as provided in Section 6.10.
Section 6.3 Registration of Transfer and Exchange of
Securities; Issuance of Participations.
(a) The Trustee shall cause to be kept at the office or agency
to be maintained by a transfer agent and registrar (the "Transfer Agent
and Registrar") in accordance with the provisions of Section 11.16, a
register (the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Transfer Agent and Registrar shall
provide for the registration of
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the Investor Securities of each Series (unless otherwise provided in the
related Supplement) and of transfers and exchanges of the Investor Securities
as herein provided. Whenever reference is made in this Agreement to the
transfer or exchange of the Securities by the Trustee, such reference shall
be deemed to include the transfer or exchange on behalf of the Trustee by a
Transfer Agent and Registrar. The Bank of New York is hereby initially
appointed Transfer Agent and Registrar for the purposes of registering the
Investor Securities and transfers and exchanges of the Investor Securities as
herein provided. If any form of Investor Security is issued as a Global
Security, The Bank of New York may, or if and so long as any Series of
Investor Securities is listed on a stock exchange and such exchange shall so
require, The Bank of New York shall, appoint a co-transfer agent and
co-registrar, which will also be a co-paying agent, in such city as the
Transferor may specify. Any reference in this Agreement to the Transfer
Agent and Registrar shall include any co-transfer agent and co-registrar
unless the context otherwise requires. The Bank of New York shall be
permitted to resign as Transfer Agent and Registrar upon 30 days' written
notice to the Servicer. In the event that The Bank of New York shall no
longer be the Transfer Agent and Registrar, the Transferor shall appoint a
successor Transfer Agent and Registrar. If any Series with respect to which
Book Entry Securities were originally issued is no longer issued as
Book-Entry Securities, then the Servicer may appoint a successor Transfer
Agent and Registrar.
In the case of any Investor Security or Participation with
respect to which no Opinion of Counsel to the effect that such Investor
Security (or Class or Series to which such Investor Security pertains)
will be characterized as indebtedness for United States federal income
tax purposes was delivered, no Transfer of such Investor Security (or any
interest therein) shall be made unless the Transferor shall have granted
its prior consent thereto, which consent may not be unreasonably
withheld; provided, however, that for purposes of this sentence, it shall
in all cases be reasonable for the Transferor to withhold consent to such
proposed Transfer of all or any part of a Security or a Participation (or
any interest in a Security or a Participation) if the transaction would,
if effected, give rise to any adverse tax consequence, as determined in
the sole and absolute
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discretion of the Transferor; provided, further, that the Transferor may not
consent to a proposed Transfer of a Security or a Participation (or any
interest in a Security or a Participation) if such Transfer would cause the
number of Targeted Holders to exceed 100 and any such proposed Transfer shall
be deemed to be void; and provided, further, that the transfer restrictions
set forth in this paragraph shall not apply if an Opinion of Counsel has been
delivered to the Trust and the Trustee to the effect that, as a result of a
change in law (including a change in interpretation or application thereof),
the absence of such transfer restrictions would not result in a materially
increased risk that the Trust would be treated as a publicly traded
partnership taxable as corporation under the Code.
Upon surrender for registration of transfer of any Security at
any office or agency of the Transfer Agent and Registrar maintained for
such purpose, the Transferor shall execute, subject to the provisions of
subsection 6.3(c), and the Trustee shall (unless the Transfer Agent and
Registrar is different than the Trustee, in which case the Transfer Agent
and Registrar shall) authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities in
authorized denominations of like aggregate amount; provided, that the
provisions of this paragraph shall not apply to Bearer Securities.
At the option of any Holder of Registered Securities,
Registered Securities may be exchanged for other Registered Securities of
the same Series in authorized denominations of like aggregate amount in
the Trust, upon surrender of the Registered Securities to be exchanged at
any office or agency of the Transfer Agent and Registrar maintained for
such purpose. At the option of a Bearer Securityholder, subject to
applicable laws and regulations (including without limitation, the Bearer
Rules), Bearer Securities may be exchanged for other Bearer Securities or
Registered Securities of the same Series in authorized denominations of
like aggregate amount in the Trust, in the manner specified in the
Supplement for such Series, upon surrender of the Bearer Securities to be
exchanged at an office or agency of the Transfer Agent and Registrar
located outside the United States. Each Bearer Security surrendered
pursuant to this Section 6.3 shall have attached thereto (or be
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accompanied by) all unmatured Coupons, provided that any Bearer Security so
surrendered after the close of business on the Record Date preceding the
relevant Distribution Date after the related Series Termination Date need not
have attached the Coupons relating to such Distribution Date.
Whenever any Investor Securities of any Series are so
surrendered for exchange, the Transferor shall execute, and the Trustee
shall (unless the Transfer Agent and Registrar is different than the
Trustee, in which case the Transfer Agent and Registrar shall)
authenticate and deliver, the Investor Securities of such Series which
the Securityholder making the exchange is entitled to receive. Every
Investor Security presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in a
form satisfactory to the Trustee and the Transfer Agent and Registrar
duly executed by the Securityholder thereof or his attorney-in-fact duly
authorized in writing.
The preceding provisions of this Section 6.3 notwithstanding,
the Trustee or the Transfer Agent and Registrar, as the case may be,
shall not be required to register the transfer of or exchange any
Investor Security of any Series for the period from the Record Date
preceding the due date for any payment to the Distribution Date with
respect to the Investor Securities of such Series.
Unless otherwise provided in the related Supplement, no service
charge shall be made for any registration of transfer or exchange of
Securities, but the Transfer Agent and Registrar may require payment of a
sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Securities.
All Investor Securities (together with any Coupons attached to
Bearer Securities) surrendered for registration of transfer or exchange
shall be canceled by the Transfer Agent and Registrar and disposed of in
a manner satisfactory to the Trustee. The Trustee shall cancel and
dispose of any Global Security upon its exchange in full for Definitive
Securities, but shall not be required to destroy such Global Securities.
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The Transferor shall execute and deliver to the Trustee or the
Transfer Agent and Registrar, as applicable, Bearer Securities and
Registered Securities in such amounts and at such times as are necessary
to enable the Trustee to fulfill its responsibilities under this
Agreement and the Securities.
(b) Except as provided in Section 6.9 or 7.2 or in any
Supplement, in no event shall the Exchangeable Transferor Security or any
interest therein be transferred, sold, exchanged, pledged, participated
or otherwise assigned hereunder, in whole or in part, unless the
Transferor shall have consented in writing to such transfer and unless
the Trustee shall have received (1) confirmation in writing from each
Rating Agency that such transfer will not result in a lowering or
withdrawal of its then-existing rating of any Series of Investor
Securities and (2) an Opinion of Counsel that such transfer does not (i)
adversely affect the conclusions reached in any of the federal income tax
opinions issued in connection with the original issuance of any Series of
Investor Securities or (ii) result in a taxable event to the holders of
any such Series.
(c) Unless otherwise provided in the related Supplement,
registration of transfer of Registered Securities containing a legend
relating to the restrictions on transfer of such Registered Securities
(which legend shall be set forth in the Supplement relating to such
Investor Securities) shall be effected only if the conditions set forth
in such related Supplement are satisfied.
Whenever a Registered Security containing the legend set forth
in the related Supplement is presented to the Transfer Agent and
Registrar for registration of transfer, the Transfer Agent and Registrar
shall promptly seek instructions from the Servicer regarding such
transfer. The Transfer Agent and Registrar shall be entitled to receive
written instructions signed by an officer of the Trustee prior to
registering any such transfer or authenticating new Registered
Securities, as the case may be. The Servicer hereby agrees to indemnify
the Transfer Agent and Registrar and the Trustee and to hold each of them
harmless against any loss, liability or expense incurred without
negligence or bad faith on their part arising out of or in connection
with actions taken or
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omitted by them in reliance on any such written instructions furnished
pursuant to this subsection 6.3(c).
(d) The Transfer Agent and Registrar will maintain at its
expense in the Borough of Manhattan, The City of New York, an office or
offices or an agency or agencies where Investor Securities of such Series
may be surrendered for registration of transfer or exchange.
(e) Prior to the Transfer of any portion of a Transferor
Retained Class, the Trustee shall have received an Opinion of Counsel to
the effect that such proposed Transfer will not adversely affect the
Federal or Applicable Tax State income tax characterization of any
outstanding Series of Investor Securities or the taxability (or tax
characterization) of the Trust under Federal or Applicable Tax State
income tax laws. The Transferor shall provide to Moody's notice of any
such Transfer and a copy of the Opinion of Counsel described above.
(f) Subject to the limitations set forth in Section 6.3(a)
above, the Transferor may direct the Trustee to issue on behalf of the
Trust one or more participation interests in the Trust Property or in any
portion thereof (each, a "Participation"), the terms of which shall be
defined in a Participation Supplement (which Participation Supplement
shall be subject to Section 13.1(a) to the extent that it amends any of
the terms of this Agreement) which shall include, among other things, a
conveyance to the holder of the Participation of all right, title and
interest of the Trust in a specified percentage of the Receivables. The
Trustee shall deliver the Participation to or upon the order of the
Transferor upon satisfaction of the following conditions:
(i) the Rating Agency Condition will be satisfied in
connection with such issuance;
(ii) the Transferor Interest shall not be less than the
Minimum Transferor Interest and the Retained Interest
shall not be less than the Minimum Retained Interest, in
each case, as of the date of, and after giving effect to,
such issuance;
(iii) the Transferor shall have delivered to the Trustee
and each Rating Agency a Tax Opinion
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and an Opinion of Counsel dated the date of such issuance (or
transfer as provided below) to the effect that such
Participation will not adversely affect the Minnesota or
Delaware income tax characterization of any outstanding Series
of Investor Securities or the taxability of the Trust under
Minnesota or Delaware income tax laws, with respect thereto;
and
(iv) the Trust and the Trustee shall have received a
representation from each beneficial owner of a
Participation that such beneficial owner is not a trust
estate, partnership or an "S Corporation" (within the
meaning of Section 1361(a) of the Code for United States
federal income tax purposes (any such entity, a
"Pass-Through Entity") or if it is a Pass-Through Entity,
but after giving effect to such Transfer of a
Participation and at all times thereafter, less than 50%
of the aggregate value of such beneficial owner's assets
would consist of Participations.
Any Participation may be transferred or exchanged only upon satisfaction
of the conditions set forth in clauses (i) and (iii) above. No
Participation may be issued, sold or otherwise transferred on an
"established securities market" within the meaning of Section 7704(b)(1)
of the Code.
Section 6.4 Mutilated, Destroyed, Lost or Stolen Securities.
If (a) any mutilated Security (together, in the case of Bearer
Securities, with all unmatured Coupons, if any, appertaining thereto) is
surrendered to the Transfer Agent and Registrar, or the Transfer Agent
and Registrar receives evidence to its satisfaction of the destruction,
loss or theft of any Security and (b) there is delivered to the Transfer
Agent and Registrar and the Trustee such security or indemnity as may be
required by them to hold each of them and the Trust harmless, then, in
the absence of notice to the Trustee that such Security has been acquired
by a bona fide purchaser, the Trustee shall (unless the Transfer Agent
and Registrar is different from the Trustee, in which case the Transfer
Agent and Registrar shall) authenticate and deliver (in compliance with
applicable law), in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Security, a new Security of like tenor and
aggregate amount. In connection with the
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issuance of any new Security under this Section 6.4, the Trustee or the
Transfer Agent and Registrar may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the
Trustee and the Transfer Agent and Registrar) connected therewith. Any
duplicate Security issued pursuant to this Section 6.4 shall constitute
complete and indefeasible evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Security
shall be found at any time.
Section 6.5 Persons Deemed Owners. Prior to due presentation
of a Security for registration of transfer, the Trustee, the Paying
Agent, the Transfer Agent and Registrar and any agent of any of them may
treat the Person in whose name any Security is registered as the owner of
such Security for the purpose of receiving distributions pursuant to
Article V (as described in any Supplement) and Article XII and for all
other purposes whatsoever, and neither the Trustee, the Paying Agent, the
Transfer Agent and Registrar nor any agent of any of them shall be
affected by any notice to the contrary; provided, however, that in
determining whether the holders of Investor Securities evidencing the
requisite Invested Amount have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Investor Securities owned
by the Transferor, the Servicer or any Affiliate thereof shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only
Investor Securities which a Responsible Officer in the Corporate Trust
Office of the Trustee knows to be so owned shall be so disregarded.
Investor Securities so owned that have been pledged in good faith shall
not be disregarded as outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to
such Investor Securities and that the pledgee is not the Transferor, the
Servicer or an Affiliate thereof.
In the case of a Bearer Security, the Trustee, the Paying
Agent, the Transfer Agent and Registrar and any agent of any of them may
treat the holder of a Bearer Security or Coupon as the owner of such
Bearer Security or Coupon for the purpose of receiving distributions
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pursuant to Article V (as described in any Supplement) and Article XII
and for all other purposes whatsoever, and neither the Trustee, the
Paying Agent, the Transfer Agent and Registrar nor any agent of any of
them shall be affected by any notice to the contrary. Securities so
owned that have been pledged in good faith shall not be disregarded and
may be regarded as outstanding, if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to
such Investor Securities and that the pledgee is not the Transferor, the
Servicer or an Affiliate thereof.
Section 6.6 Appointment of Paying Agent.
(a) The Paying Agent shall make distributions to Investor
Securityholders from the appropriate account or accounts maintained for
the benefit of Securityholders as specified in this Agreement or the
related Supplement for any Series pursuant to Articles IV and V hereof.
Any Paying Agent shall have the revocable power to withdraw funds from
such appropriate account or accounts for the purpose of making
distributions referred to above. The Trustee (or the Servicer if the
Trustee is the Paying Agent) may revoke such power and remove the Paying
Agent, if the Trustee (or the Servicer if the Trustee is the Paying
Agent) determines in its sole discretion that the Paying Agent shall have
failed to perform its obligations under this Agreement in any material
respect or for other good cause. The Paying Agent, unless the Supplement
with respect to any Series states otherwise, shall initially be The Bank
of New York. The Bank of New York shall be permitted to resign as Paying
Agent upon 30 days' written notice to the Servicer. Upon the resignation
of the Paying Agent, if the Paying Agent was not the Trustee, the Trustee
shall be the successor Paying Agent unless and until another successor
has been appointed as Paying Agent. In the event that the Trustee shall
no longer be the Paying Agent, the Transferor shall appoint a successor
to act as Paying Agent (which shall be a bank or trust company). Any
reference in this Agreement to the Paying Agent shall include any
co-paying agent unless the context requires otherwise.
If specified in the related Supplement for any Series, so long
as the Investor Securities of such Series are outstanding and the Paying
Agent is not located in New York City, the Transferor shall maintain a
co-paying
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agent in New York City (for Registered Securities only) or any other city
designated in such Supplement.
(b) The Trustee shall cause each Paying Agent (other than
itself) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee that such Paying Agent will
hold all sums, if any, held by it for payment to the Securityholders in
trust for the benefit of the Securityholders entitled thereto and waive
all rights of set-off the Paying Agent may have against any sums held by
it until such sums shall be paid to such Securityholders and shall agree,
and if the Trustee is the Paying Agent it hereby agrees, that it shall
comply with all requirements of the Internal Revenue Code regarding the
withholding by the Trustee of payments in respect of federal income taxes
due from Security Owners.
Section 6.7 Access to List of Security-holders' Names and
Addresses. The Trustee will furnish or cause to be furnished by the Transfer
Agent and Registrar to the Servicer or the Paying Agent, within five Business
Days after receipt by the Trustee of a request therefor from the Servicer or
the Paying Agent, respectively, in writing, a list in such form as the
Servicer or the Paying Agent may reasonably require, of the names and
addresses of the Investor Securityholders as of the most recent Record Date
for payment of distributions to Investor Securityholders. Unless otherwise
provided in the related Supplement, holders of Investor Securities evidencing
not less than 10% of the Invested Amount of the Investor Securities of any
Series (the "Applicants") may apply in writing to the Trustee, and if such
application states that the Applicants desire to communicate with other
Investor Securityholders of any Series with respect to their rights under
this Agreement or under the Investor Securities and is accompanied by a copy
of the communication which such Applicants propose to transmit, then the
Trustee, after having been adequately indemnified by such Applicants for its
costs and expenses, shall afford or shall cause the Transfer Agent and
Registrar to afford such Applicants access during normal business hours to
the current list of Securityholders held by the Trustee and shall give the
Servicer notice that such request has been made, within five Business Days
after the receipt of such application. Such list shall be as of a date no
more than 45 days prior to the date of receipt of such
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Applicants' request. Every Securityholder, by receiving and holding a
Security, agrees with the Trustee that neither the Trustee, the Transfer
Agent and Registrar, nor any of their respective agents shall be held
accountable by reason of the disclosure of any such information as to the
names and addresses of the Securityholders hereunder, regardless of the
source from which such information was obtained.
Section 6.8 Authenticating Agent.
(a) The Trustee may appoint one or more authenticating agents
(each, an "Authenticating Agent") with respect to the Securities which
shall be authorized to act on behalf of the Trustee in authenticating the
Securities in connection with the issuance, delivery, registration of
transfer, exchange or repayment of the Securities. The Trustee will
appoint any Transfer Agent and Registrar to be an Authenticating Agent.
Whenever reference is made in this Agreement to the authentication of
Securities by the Trustee or the Trustee's certificate of authentication,
such reference shall be deemed to include authentication on behalf of the
Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent must be acceptable to the Transferor. The Trustee
hereby initially appoints The Bank of New York as its Authenticating
Agent.
(b) Any institution succeeding to the corporate agency
business of an Authenticating Agent shall continue to be an
Authenticating Agent without the execution or filing of any paper or any
further act on the part of the Trustee or such Authenticating Agent.
(c) An Authenticating Agent may at any time resign by giving
written notice of resignation to the Trustee and to the Transferor. The
Trustee may at any time terminate the agency of an Authenticating Agent
by giving notice of termination to such Authenticating Agent and to the
Transferor. Upon receiving such a notice of resignation or upon such a
termination, or in case at any time an Authenticating Agent shall cease
to be acceptable to the Trustee or the Transferor, the Trustee promptly
may appoint a successor Authenticating Agent. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall
become vested with all the
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rights, powers and duties of its predecessor hereunder, with like effect as
if originally named as an Authenticating Agent. No successor Authenticating
Agent shall be appointed unless acceptable to the Trustee and the Transferor.
(d) The Servicer agrees to pay each Authenticating Agent from
time to time reasonable compensation for its services under this Section
6.8.
(e) The provisions of Sections 11.1, 11.2 and 11.3 shall be
applicable to any Authenticating Agent.
(f) Pursuant to an appointment made under this Section 6.8,
the Securities may have endorsed thereon, in lieu of the Trustee's
certificate of authentication, an alternate certificate of authentication
in substantially the following form:
Trustee's Certificate of Authentication
This is one of the securities described in the Pooling and
Servicing Agreement.
--------------------------------------
as Authenticating Agent
for the Trustee,
By:------------------------------------
Authorized Signatory
Dated:
Section 6.9 Tender of Exchangeable Transferor Security.
(a) Upon any Exchange, the Transferor shall deliver to the
Trustee for authentication under Section 6.2, one or more new Series of
Investor Securities. Any such Series of Investor Securities shall be
substantially in the form specified in the related Supplement and shall
bear, upon its face, the designation for such Series to which it belongs,
as selected by the Transferor. Except as specified in any Supplement for
a related Series, all Investor Securities of any Series shall rank pari
passu and be equally and ratably entitled as provided herein to
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the benefits hereof (except that the Enhancement provided for any Series
shall not be available for any other Series) without preference, priority or
distinction on account of the actual time or times of authentication and
delivery, all in accordance with the terms and provisions of this Agreement
and the related Supplement.
(b) The Holder of the Exchangeable Transferor Security may (i)
tender the Exchangeable Transferor Security to the Trustee in exchange
for (A) one or more newly issued Series of Investor Securities or, with
respect to any pre-funded Series, interests therein and (B) a reissued
Exchangeable Transferor Security, (ii) request the Trustee to issue to it
one or more Classes of any newly issued Series of Investor Securities
which upon payment by the purchaser thereof of the Initial Invested
Amount of such Securities to a Defeasance Funding Account, will represent
an interest in the Trust equal to such Initial Invested Amount (an
"Unfunded Security") or (iii) take a combination of the actions specified
in clauses (i) and (ii) provided that the sum of the amount of Transferor
Interest which is tendered under clause (i) and the amount to be paid to
the Defeasance Funding Account under clause (ii) equals the Initial
Invested Amount of the Investor Securities delivered to the Holder of the
Exchangeable Transferor Security (any such event under clauses (i), (ii)
or (iii), a "Transferor Exchange"). In addition, to the extent permitted
for any Series of Investor Securities as specified in the related
Supplement, the Investor Securityholders of such Series may tender their
Investor Securities and the Holder of the Exchangeable Transferor
Security may tender the Exchangeable Transferor Security to the Trustee
pursuant to the terms and conditions set forth in such Supplement in
exchange for (i) one or more newly issued Series of Investor Securities
and (ii) a reissued Exchangeable Transferor Security (an "Investor
Exchange"). The Transferor Exchange and Investor Exchange are referred
to collectively herein as an "Exchange." Unless otherwise specified in
any Supplement, the Transferor shall not be permitted to deposit money
into any Defeasance Funding Account. The Holder of the Exchangeable
Transferor Security may perform an Exchange by notifying the Trustee, in
writing, at least five Business Days in advance (an "Exchange Notice") of
the date upon which the Exchange is to occur (an "Exchange Date"). Any
Exchange Notice shall state the designation of any Series to be
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issued on the Exchange Date and, with respect to each such Class or Series:
(a) its Initial Invested Amount (or the method for calculating such Initial
Invested Amount), which at any time may not be greater than the current
principal amount of the Exchangeable Transferor Security at such time (or in
the case of an Investor Exchange or defeasance of an outstanding Series, the
sum of the Invested Amount of any Class or Series of Investor Securities to
be exchanged or defeased plus the current principal amount of the
Exchangeable Transferor Security) taking into account any Receivables
transferred to the Trust simultaneous with such Exchange, (b) its Security
Rate (or the method for allocating interest payments or other cash flows to
such Series), if any, and (c) the Enhancement Provider, if any, with respect
to such Series. On the Exchange Date, the Trustee shall authenticate and
deliver any such Class or Classes of such Series of Investor Securities only
upon delivery to it of the following: (a) a Supplement satisfying the
criteria set forth in subsection 6.9(c) and in form reasonably satisfactory
to the Trustee executed by the Transferor and the Servicer and specifying the
Principal Terms of such Series, (b) the applicable Enhancement, if any, (c)
the agreement, if any, pursuant to which the Enhancement Provider agrees to
provide the Enhancement, if any, (d) a Tax Opinion, (e) an Opinion of Counsel
to the effect that (i) any Class of the newly issued Series of Investor
Securities sold to third parties will be characterized as either indebtedness
or partnership interests for United States federal and Applicable Tax State
income tax purposes or (ii) that the issuance of the newly issued Series of
Investor Securities will not materially adversely affect the Applicable Tax
State income tax characterization of any outstanding Series of Investor
Securities or the taxability of the Trust under Applicable Tax State income
tax laws, (f) written confirmation from each Rating Agency that the Exchange
will not result in such Rating Agency's reducing or withdrawing its rating on
any then outstanding Class of any Series as to which it is a Rating Agency,
(g) an Officer's Certificate of the Transferor, that on the Exchange Date
after giving effect to such Exchange (i) the Transferor Interest would be at
least equal to the Minimum Transferor Interest and (ii) the Retained Interest
would be at least equal to the Minimum Retained Interest, (h) the existing
Exchangeable Transferor Security or applicable Investor Securities, as the
case may be and (i) such other documents, certifi-
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cates and Opinions of Counsel as may be required by the applicable
Supplement. Upon satisfaction of such conditions, the Trustee shall cancel
the existing Exchangeable Transferor Security or applicable Investor
Securities, as the case may be, and issue, as provided above, such Series of
Investor Securities and a new Exchangeable Transferor Security, dated the
Exchange Date. There is no limit to the number of Exchanges that may be
performed under this Agreement.
(c) In conjunction with an Exchange, the parties hereto shall
execute a Supplement, which shall specify the relevant terms with respect
to any newly issued Series of Investor Securities, which may include
without limitation: (i) its name or designation, (ii) its Initial
Invested Amount or the method of calculating its Initial Invested Amount,
(iii) the Security Rate (or the method of calculating interest payments
or other payments to such Series), (iv) the Closing Date, (v) the rating
agency or agencies, if any, rating such Series, (vi) the interest payment
date or dates and the date or dates from which interest shall accrete,
(vii) the name of the Clearing Agency, if any, (viii) the method of
allocating Principal Collections for such Series and the method by which
the principal amount of Investor Securities of such Series shall amortize
or accrete and the method for allocating Finance Charge Collections and
Default Amounts, (ix) the names of any accounts to be used by such Series
and the terms governing the operation of any such accounts, (x) the
Series Servicing Fee Percentage, (xi) the Minimum Transferor
Percentage,(xii) the Enhancement Provider, if applicable, (xiii) the
terms of any Enhancement with respect to such Series, (xiv) the Base Rate
applicable to such Series, (xv) the terms on which the Securities of such
Series may be repurchased or remarketed to other investors, (xvi) the
Series Termination Date, (xvii) any deposit into any account provided for
such Series, (xviii) the number of Classes of such Series and, if more
than one Class, the rights and priorities of each such Class, (xix) the
fees, if any, to be included in funds available to Securityholders of
such Series, (xx) the subordination, if any, of such Series to any other
Series, (xxi) the rights, if any, of the Holder of the Exchangeable
Transferor Security that have been transferred to the Holders of such
Series pursuant to such Exchange (including any rights to allocations of
Finance Charge Collections and
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Principal Collections), (xxii) the Pool Factor, (xxiii) the Minimum Retained
Percentage, (xxiv) whether such Series will be a part of a group or subject
to being paired with any other Series, (xxv) whether such Series will be
pre-funded, and (xxvi) any other relevant terms of such Series (including
whether or not such Series will be pledged as collateral for an issuance of
any other securities, including commercial paper) (all such terms, the
"Principal Terms" of such Series). The terms of such Supplement may modify
or amend the terms of this Agreement solely as applied to such new Series.
If on the date of the issuance of such Series there is issued and outstanding
one or more Series of Investor Securities and no Series of Investor
Securities is currently rated by a Rating Agency, then as a condition to such
Exchange a nationally recognized investment banking firm or commercial bank
shall also deliver to the Trustee an officer's certificate stating, in
substance, that the Exchange will not have an adverse effect on the timing or
distribution of payments to such other Series of Investor Securities then
issued and outstanding.
(d) The Transferor may surrender the Exchangeable Transferor
Security to the Trustee in exchange for a newly issued Exchangeable
Transferor Security and a second certificate (a "Supplemental Security"),
the terms of which shall be defined in a supplement to this Agreement
(which supplement shall be subject to Section 13.1 hereof to the extent
that it amends any of the terms of this Agreement), to be delivered to or
upon the order of the Transferor (or a Person designated by the
Transferor, in the case of the transfer or exchange thereof, as provided
below), upon satisfaction of the following conditions: (i) following
such exchange, the Transferor Interest would be at least equal to the
Minimum Transferor Interest ,(ii) following such exchange the Retained
Interest (less any interest therein represented by any Supplemental
Security) equals or exceeds the Minimum Retained Interest, and (iii) the
Trustee received prior to such exchange (A) a letter from the Rating
Agency stating that the then current ratings on the Investor Securities
of each rated class of each Series then outstanding will not be reduced
or withdrawn because of the issuance of such Supplemental Security and
(B) a Tax Opinion and an Opinion of Counsel to the effect that such
Supplemental Security will be characterized as either indebtedness or a
partnership interest for Federal and
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Applicable Tax State income tax purposes and the issuance of such
Supplemental Security will not materially adversely affect the taxation or
tax treatment of the Trust under Applicable Tax State income tax laws. A
Supplemental Security may be transferred or exchanged only upon satisfaction
of the conditions set forth in clause (iii) above.
Section 6.10 Book-Entry Securities. Unless otherwise provided
in any related Supplement, the Investor Securities, upon original
issuance, shall be issued in the form of typewritten Securities
representing the Book-Entry Securities, to be delivered to the depositary
specified in such Supplement (the "Depositary") which shall be the
Clearing Agency or Foreign Clearing Agency, by or on behalf of such
Series. The Investor Securities of each Series shall, unless otherwise
provided in the related Supplement, initially be registered on the
Security Register in the name of the nominee of the Clearing Agency or
Foreign Clearing Agency. No Security Owner will receive a definitive
security representing such Security Owner's interest in the related
Series of Investor Securities, except as provided in Section 6.12.
Unless and until definitive, fully registered Investor Securities of any
Series ("Definitive Securities") have been issued to Security Owners
pursuant to Section 6.12:
(i) the provisions of this Section 6.10 shall be in full
force and effect with respect to each such Series;
(ii) the Transferor, the Servicer, the Paying Agent, the
Transfer Agent and Registrar and the Trustee may deal with the
Clearing Agency and the Clearing Agency Participants for all
purposes (including the making of distributions on the Investor
Securities of each such Series) as the authorized representatives of
the Security Owners;
(iii) to the extent that the provisions of this Section
6.10 conflict with any other provisions of this Agreement, the
provisions of this Section 6.10 shall control with respect to each
such Series; and
(iv) the rights of Security Owners of Investor Securities
of each such Series shall be
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exercised only through the Clearing Agency or Foreign Clearing Agency and
the applicable Clearing Agency Participants and shall be limited to those
agreements between such Security Owners and the Clearing Agency or
Foreign Clearing Agency and/or the Clearing Agency Participants subject
to any statutory or regulatory requirements as may be in effect from time
to time. Pursuant to the Depositary Agreement applicable to a Series,
unless and until Definitive Securities of such Series are issued pursuant
to Section 6.12, the initial Clearing Agency will make book-entry
transfers among the Clearing Agency Participants and receive and transmit
distributions of principal and interest on the Investor Securities to
such Clearing Agency Participants.
Section 6.11 Notices to Clearing Agency. Whenever notice or
other communication to the Securityholders is required under this
Agreement, unless and until Definitive Securities shall have been issued
to Security Owners pursuant to Section 6.12, the Trustee shall give all
such notices and communications specified herein to be given to Holders
of the Investor Securities to the Clearing Agency or Foreign Clearing
Agency.
Section 6.12 Definitive Securities. If (i) (A) the Transferor
advises the Trustee in writing that the Clearing Agency or Foreign
Clearing Agency is no longer willing or able to discharge properly its
responsibilities as Depositary under the applicable Depositary Agreement,
and (B) the Trustee or Transferor is unable to locate a qualified
successor, (ii) the Transferor, at its option, advises the Trustee in
writing that it elects to terminate the book-entry system through the
Depositary with respect to any Series of Securities or (iii) after the
occurrence of a Servicer Default, Security Owners of a Class representing
not less than 50% of the Invested Amount of such Class advise the Trustee
and the Depositary through Participants in writing that the continuation
of a book-entry system through the Depositary is no longer in the best
interest of the Security Owners of such Class, the Trustee shall notify
all Security Owners of such Series or Class, through the applicable
Clearing Agency Participants, of the occurrence of any such event and of
the availability of Definitive Securities to Security Owners of such
Series or Class requesting the
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same. Upon surrender to the Trustee of the Investor Securities of the
affected Series or Class by the applicable Clearing Agency or Foreign
Clearing Agency for registration, accompanied by registration instructions
from the applicable Clearing Agency or Foreign Clearing Agency, the Trustee
shall issue the Definitive Securities of such Series or Class. Neither the
Transferor nor the Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying
on, such instructions. Upon the issuance of Definitive Securities of such
Series, all references herein to obligations imposed upon or to be performed
by the applicable Clearing Agency or Foreign Clearing Agency shall be deemed
to be imposed upon and performed by the Trustee, to the extent applicable
with respect to such Definitive Securities, and the Trustee shall recognize
the Holders of the Definitive Securities of such Series or Class as
Securityholders of such Series or Class hereunder.
Section 6.13 Global Security; Euro-Security Exchange Date. If
specified in the related Supplement for any Series, the Investor
Securities may be initially issued in the form of a single temporary
Global Security (the "Global Security") in bearer form, without interest
coupons, in the denomination of the Initial Invested Amount of such
Series and substantially in the form attached to the related Supplement.
Unless otherwise specified in the related Supplement, the provisions of
this Section 6.13 shall apply to such Global Security. The Global
Security will be authenticated by the Trustee upon the same conditions,
in substantially the same manner and with the same effect as the
Definitive Securities. The Global Security may be exchanged in the
manner described in the related Supplement for Registered Securities or
Bearer Securities in definitive form.
Section 6.14 Meetings of Securityholders.
To the extent provided by the Supplement for any Series issued
in whole or in part in Bearer Securities, the Servicer or the Trustee may
at any time call a meeting of the Securityholders of such Series, to be
held at such time and at such place as the Servicer or the Trustee, as
the case may be, shall determine, for the purpose of approving a
modification of or amendment to, or obtaining a waiver of, any covenant
or condition set
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forth in this Agreement with respect to such Series or
in the Securities of such Series, subject to Section 13.1 of this
Agreement.
[End of Article VI]
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ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR
Section 7.1 Liability of the Transferor. The Transferor shall be
liable in accordance herewith solely to the extent of the obligations
specifically undertaken by the Transferor.
Section 7.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Transferor.
(a) The Transferor shall not consolidate with or merge into any other
business entity or convey or transfer its properties and assets substantially as
an entirety to any Person, unless:
(i) the business entity formed by such consolidation or into
which the Transferor is merged or the Person which acquires by conveyance
or transfer the properties and assets of the Transferor substantially as an
entirety shall be, if the Transferor is not the surviving entity, (x) a
corporation or limited liability company organized and existing under the
laws of the United States of America or any State or the District of
Columbia or (y) a state or national banking association that is not subject
to the Bankruptcy Code of 1978, as amended from time to time, or to any
successor statute, and shall expressly assume, by an agreement supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to the
Trustee, the performance of every covenant and obligation of the
Transferor, as applicable hereunder and shall benefit from all the rights
granted to the Transferor, as applicable hereunder. To the extent that any
right, covenant or obligation of the Transferor, as applicable hereunder,
is inapplicable to the successor entity, such successor entity shall be
subject to such covenant or obligation, or benefit from such right, as
would apply, to the extent practicable, to such successor entity. In
furtherance hereof, in applying this Section 7.2 to a successor entity,
Section 9.2 hereof shall be applied by reference to events of involuntary
liquidation, receivership or conservatorship applicable to such successor
entity as
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shall be set forth in the officer's certificate described in subsection
7.2(a)(ii);
(ii) the Transferor or any business entity formed by any such
consolidation or merger or Person who acquires the Transferor's property
and assets shall have delivered to the Trustee an Officer's Certificate
signed by a Vice President (or any more senior officer) of the Transferor
stating that such consolidation, merger, conveyance or transfer and such
supplemental agreement comply with this Section 7.2 and that all conditions
precedent herein provided for relating to such transaction have been
complied with and an Opinion of Counsel that such supplemental agreement is
legal, valid and binding and that the entity surviving such consolidation,
conveyance or transfer is organized and existing under the laws of the
United States of America or any State or the District of Columbia and,
subject to customary limitations and qualifications, such entity will not
be substantively consolidated with Fingerhut, FCI, any Affiliate thereof,
any Originator or the Servicer;
(iii) the Transferor shall have delivered notice to the Rating
Agency of such consolidation, merger, conveyance or transfer and the Rating
Agency shall have provided written confirmation that such consolidation,
merger, conveyance or transfer will not result in the Rating Agency
reducing or withdrawing its rating on any then outstanding Series as to
which it is a Rating Agency;
(iv) the successor entity shall be a special purpose bankruptcy
remote entity; and
(v) if the Transferor is not the surviving entity, the surviving
entity shall file new UCC-1 financing statements with respect to the
interest of the Trust in the Receivables.
(b) The obligations of the Transferor hereunder shall not be
assignable nor shall any Person succeed to the obligations of the Transferor
hereunder except for mergers, consolidations, assumptions or transfers in
accordance with the provisions of the foregoing paragraph.
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Section 7.3 Limitation on Liability. The directors, officers,
employees or agents of the Transferor shall not be under any liability to the
Trust, the Trustee, the Securityholders, any Enhancement Provider or any other
Person hereunder or pursuant to any document delivered hereunder, it being
expressly understood that all such liability is expressly waived and released as
a condition of, and as consideration for, the execution of this Agreement and
any Supplement and the issuance of the Securities; provided, however, that this
provision shall not protect the officers, directors, employees, or agents of the
Transferor against any liability which would otherwise be imposed upon them by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties or by reason of reckless disregard of obligations and duties
hereunder. Except as provided in Section 7.1 with respect to the Trust and the
Trustee and its officers, directors, employees and agents, the Transferor shall
not be under any liability to the Trust, the Trustee, its officers, directors,
employees and agents, the Securityholders, any Enhancement Provider or any other
Person for any action taken or for refraining from the taking of any action in
its capacity as Transferor pursuant to this Agreement or any Supplement whether
arising from express or implied duties under this Agreement or any Supplement or
otherwise; provided, however, that this provision shall not protect the
Transferor against any liability which would otherwise be imposed upon it by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties or by reason of reckless disregard of obligations and duties
hereunder. The Transferor and any director, officer, employee or agent may rely
in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder.
Section 7.4 Liabilities.Notwithstanding Section 7.3, by entering
into this Agreement, the Transferor agrees to be liable, directly to the injured
party, for the entire amount of any taxes and related expenses imposed on or
payable by the Trust. The Transferor agrees to pay, indemnify and hold harmless
each Investor Certificateholder against and from any and all such taxes and
expenses.
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Section 7.5 Transferor Authorized to Execute Registration
Statements and Reports on Behalf of the Trust. The Trustee hereby authorizes the
Transferor to execute, on behalf of the Trust and file or cause to be filed with
the Securities and Exchange Commission any registration statements prepared in
connection with the issuance of Investor Securities and any periodic or annual
reports prepared in connection with the issuance of Investor Securities or the
delivery of the monthly servicer's certificates required by Section 3.4.
[End of Article VII]
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ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER
Section 8.1 Liability of the Servicer. The Servicer shall be liable
in accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer in such capacity herein.
Section 8.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer. Subject to subsection 3.1(a), the Servicer shall
not consolidate with or merge into any other Person or convey or transfer its
properties and assets substantially as an entirety to any Person, unless:
(i) the business entity formed by such consolidation or into
which the Servicer is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Servicer substantially as an
entirety shall be (x) a corporation or limited liability company organized
and existing under the laws of the United States of America or any State or
the District of Columbia or (y) a state or national banking association
that is not subject to the Bankruptcy Code of 1978, as amended from time to
time, or to any successor statute, and, if the Servicer is not the
surviving entity, shall expressly assume, by an agreement supplemental
hereto, executed and delivered to the Trustee in form satisfactory to the
Trustee, the performance of every covenant and obligation of the Servicer
hereunder (to the extent that any right, covenant or obligation of the
Servicer, as applicable hereunder, is inapplicable to the successor entity,
such successor entity shall be subject to such covenant or obligation, or
benefit from such right, as would apply, to the extent practicable, to such
successor entity);
(ii) the Servicer shall have delivered to the Trustee an
Officer's Certificate that such consolidation, merger, conveyance or
transfer and such supplemental agreement comply with this Section 8.2 and
that all conditions precedent herein provided for relating to such
transaction have been complied with and an Opinion of Counsel that such
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supplemental agreement is legal, valid and binding with respect to the
Servicer and that the entity surviving such consolidation, conveyance or
transfer is organized and existing under the laws of the United States of
America or any State or the District of Columbia; and
(iii) the Servicer shall have delivered notice to the Rating
Agency of such consolidation, merger, conveyance or transfer.
Section 8.3 Limitation on Liability of the Servicer and Others. The
directors, officers, employees or agents of the Servicer shall not be under any
liability to the Trust, the Trustee, the Securityholders, any Enhancement
Provider or any other Person hereunder or pursuant to any document delivered
hereunder, it being expressly understood that all such liability is expressly
waived and released as a condition of, and as consideration for, the execution
of this Agreement and any Supplement and the issuance of the Securities;
provided, however, that this provision shall not protect the directors,
officers, employees and agents of the Servicer against any liability which would
otherwise be imposed upon them by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties or by reason of reckless disregard
of obligations and duties hereunder. Except as provided in Sections 8.1 and 8.4
with respect to the Trustee, its officers, directors, employees and agents, the
Servicer shall not be under any liability to the Trust, the Trustee, its
officers, directors, employees and agents, the Securityholders, any Enhancement
Provider or any other Person for any action taken or for refraining from the
taking of any action in its capacity as Servicer pursuant to this Agreement or
any Supplement; provided, however, that this provision shall not protect the
Servicer against any liability which would otherwise be imposed upon it by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties or by reason of its reckless disregard of its obligations and duties
hereunder or under any Supplement. The Servicer may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising hereunder. The Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its duties to service the
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Receivables in accordance with this Agreement which in its reasonable opinion
may involve it in any expense or liability.
Section 8.4 Servicer Indemnification of the Transferor, the Trust and
the Trustee. Subject to the limitations on liability set forth in Section 8.3,
the Servicer shall indemnify and hold harmless the Transferor, the Trustee and
the Trust (each, an "Indemnified Party") from and against any loss, liability,
reasonable expense, damage or injury, including, but not limited to, any
judgment, award, settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim, suffered or sustained by reason of any acts or
omissions or alleged acts or omissions of the Servicer with respect to
activities of the Trust or the Trustee for which the Servicer is responsible
pursuant to this Agreement; provided, however, that the Servicer shall not
indemnify or hold harmless an Indemnified Party if such acts, omissions or
alleged acts or omissions constitute or are caused by fraud, gross negligence,
or willful misconduct by such Indemnified Party (or any of such Indemnified
Party's officers, directors, employees or agents) or the Investor
Securityholders; provided, further, that the Servicer shall not indemnify or
hold harmless the Trust, the Investor Securityholders or the Security Owners for
any losses, liabilities, expenses, damages or injuries suffered or sustained by
any of them with respect to any action taken by the Trustee at the request of
the Investor Securityholders; provided further, that the Servicer shall not
indemnify or hold harmless the Trust, the Investor Securityholders or the
Security Owners as to any losses, liabilities, expenses, damages or injuries
suffered or sustained by any of them in their capacities as investors, including
without limitation losses incurred as a result of Defaulted Accounts; provided
further, that the Servicer shall not indemnify or hold harmless the Transferor,
the Trust, the Investor Securityholders or the Security Owners for any losses,
liabilities, expenses, damages or injuries suffered or sustained by the Trust,
the Investor Securityholders or the Security Owners arising under any tax law,
including without limitation, any federal, state, local or foreign income or
franchise taxes or any other tax imposed on or measured by income (or any
interest, penalties or additions with respect thereto or
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arising from a failure to comply therewith) required to be paid by the Trust,
the Investor Securityholders or the Security Owners in connection herewith to
any taxing authority; and, provided, further, that in no event will the Servicer
be liable, directly or indirectly, for or in respect of any indebtedness or
obligation evidenced or created by any Security, recourse as to which shall be
limited solely to the assets of the Trust allocated for the payment thereof as
provided in this Agreement and any applicable Supplement. Any such
indemnification shall not be payable from the assets of the Trust, but the
Servicer shall be subrogated to the rights of the Trust with respect to the
foregoing matters if and to the extent that the Servicer shall have indemnified
the Trust with respect thereto. The Servicer shall indemnify and hold harmless
the Trustee and its officers, directors, employees or agents from and against
any loss, liability, reasonable expense, damage or injury suffered or sustained
by reason of the acceptance of this Trust by the Trustee, the issuance by the
Trust of the Securities or any of the other matters contemplated herein or in
any Supplement; provided, however, that the Servicer shall not indemnify the
Trustee or its officers, directors, employees or agents for any loss, liability,
expense, damage or injury caused by the fraud, negligence or willful misconduct
of any of them. The provisions of this indemnity shall run directly to and be
enforceable by an injured party subject to the limitations hereof and shall
survive the resignation or removal of the Servicer, the resignation or removal
of the Trustee and/or the termination of the Trust and shall survive the
termination of the Agreement.
Section 8.5 The Servicer Not to Resign. Subject to subsection
3.1(a), the Servicer shall not resign from the obligations and duties hereby
imposed on it except upon determination that (i) the performance of its duties
hereunder is no longer permissible under applicable law and (ii) there is no
reasonable action that the Servicer could take to make the performance of its
duties hereunder permissible under applicable law. Any such determination
permitting the resignation of the Servicer shall be evidenced as to clause (i)
above by an Opinion of Counsel to such effect delivered to the Trustee. No such
resignation shall become effective until the Trustee or a Successor Servicer
shall have assumed the responsibilities and obligations of the
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Servicer in accordance with Section 10.2 hereof. If the Trustee is unable
within 120 days of the date of delivery to it of such Opinion of Counsel to
appoint a Successor Servicer, the Trustee shall serve as Successor Servicer
hereunder (but shall have continued authority to appoint another Person as
Successor Servicer).
Section 8.6 Access to Certain Documentation and Information Regarding
the Receivables. The Servicer shall provide to the Trustee and its agents (who
shall be reasonably acceptable to the Servicer) access to the documentation
regarding the Accounts and the Receivables in such cases where the Trustee is
required in connection with the enforcement of the rights of the Investor
Securityholders, or by applicable statutes or regulations, to review such
documentation, such access being afforded without charge but only (i) upon
reasonable request, (ii) during normal business hours, (iii) subject to the
Servicer's normal security and confidentiality procedures and (iv) at offices
designated by the Servicer. Nothing in this Section 8.6 shall derogate from the
obligation of any Originator, the Transferor, the Trustee or the Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Obligors and the failure of the Servicer to provide access as provided in this
Section 8.6 as a result of such obligations shall not constitute a breach of
this Section 8.6.
Section 8.7 Delegation of Duties. It is understood and agreed by the
parties hereto that the Servicer may delegate certain of its duties hereunder to
Fingerhut; provided, however, that the delegation of such duties shall not
materially adversely affect the taxability of the Trust under Applicable Tax
State income tax law. In addition, in the ordinary course of business, the
Servicer may at any time delegate any duties hereunder to any other Person who
agrees to conduct such duties in accordance with the Credit and Collection
Policies; provided, however, that the delegation of such duties shall not
materially adversely affect the taxability of the Trust under Applicable Tax
State income tax law. Any such delegations shall not relieve the Servicer of
its liability and responsibility with respect to such duties, and shall not
constitute a resignation within the meaning of Section 8.5 and the Servicer will
remain jointly and severally liable with such Person for any amounts which
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would otherwise be payable pursuant to this Article VIII as if the Servicer had
performed such duty; provided, however, that in the case of any significant
delegation to a Person other than an Affiliate of FNB (i) written notice shall
be given to the Trustee and to each Rating Agency of such delegation, (ii)
Moody's shall have notified the Transferor and the Trustee in writing that such
delegation will not result in the lowering or withdrawal of its then existing
rating of any Series or Class of Investor Securities and (iii) the Transferor
shall not have received written notice from Standard & Poor's that such
delegation would result in the lowering or withdrawal of its then existing
rating of any Series or Class of Investor Securities.
[End of Article VIII]
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ARTICLE IX
PAY OUT EVENTS
Section 9.1 Pay Out Events. If any one of the following events
(each, a "Trust Pay Out Event") shall occur:
(a) the Transferor, FCI or FNB shall consent to the appointment of a
bankruptcy trustee or receiver or liquidator in any bankruptcy proceeding or any
other insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to all or substantially all of its property;
or a decree or order of a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a bankruptcy trustee or
receiver or liquidator in any bankruptcy proceeding or any other insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall have
been entered against the Transferor, FCI or FNB; or the Transferor, FCI or FNB
shall admit in writing its inability to pay its debts generally as they become
due, file a petition to take advantage of any applicable insolvency or
reorganization statute including the U.S. bankruptcy code, make an assignment
for the benefit of its creditors or voluntarily suspend payment of its
obligations; or the Transferor shall become unable for any reason to transfer
Receivables to the Trust in accordance with the provisions of this Agreement; or
(b) the Trust shall become subject to regulation by the Securities
and Exchange Commission as an "investment company" within the meaning of the
Investment Company Act; then a Pay Out Event with respect to all Series of
Securities shall occur without any notice or other action on the part of the
Trustee or the Investor Securityholders immediately upon the occurrence of such
event. The Trustee shall provide notice of a Pay Out Event in a prompt manner
to each Rating Agency.
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Section 9.2 Cessation of Transfers Upon the Occurrence of Insolvency
Event.
If the Transferor shall consent to the appointment of a bankruptcy
trustee or receiver or liquidator for the winding-up or liquidation of its
affairs, or a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a bankruptcy trustee
or receiver or liquidator for the winding-up or liquidation of its affairs shall
have been entered against the Transferor (an "Insolvency Event"), the Transferor
shall immediately cease to transfer Principal Receivables to the Trust and shall
promptly give written notice to the Trustee of such Insolvency Event.
Notwithstanding any cessation of the transfer to the Trust of additional
Principal Receivables, Finance Charge Receivables (other than Discount
Receivables), whenever created, which arise in respect of Receivables that have
been transferred to the Trust, shall continue to be a part of the Trust, and
Collections with respect thereto shall continue to be allocated and paid in
accordance with Article IV.
[End of Article IX]
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ARTICLE X
SERVICER DEFAULTS
Section 10.1 Servicer Defaults. If any one of the following events
(a "Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to make any payment, transfer or
deposit or to give instructions or notice to the Trustee pursuant to Article IV
or any Supplement or to instruct the Trustee to make any required drawing,
withdrawal, or payment under any Enhancement on or before the date occurring
five Business Days after the date such payment, transfer, deposit, withdrawal or
drawing or such instruction or notice is required to be made or given, as the
case may be, under the terms of this Agreement or any Supplement; provided,
however, that any such failure caused by a non- willful act of the Servicer
shall not constitute a Servicer Default if the Servicer promptly remedies such
failure within five Business Days after receiving notice of such failure or
otherwise becoming aware of such failure;
(b) failure on the part of the Servicer duly to observe or perform in
any respect any other covenants or agreements of the Servicer set forth in this
Agreement, which has a material adverse effect on the Investor Securityholders
of any Series then outstanding and which continues unremedied for a period of 60
days after the date on which written notice of such failure, requiring the same
to be remedied, shall have been given to the Servicer by the Trustee, or to the
Servicer and the Trustee by the Holders of Investor Securities representing not
less than 50% of the Invested Amount of any Series materially adversely affected
thereby and continues to have a material adverse effect on such Investor
Securityholders for such period; or the Servicer shall delegate its duties under
this Agreement, except as permitted by Section 8.7;
(c) any representation, warranty or certification made by the
Servicer in this Agreement or in any certificate delivered pursuant to this
Agreement shall prove to have been incorrect when made, which has a material
adverse effect on the Investor Securityholders of any Series then outstanding
and which continues to be
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incorrect in any material respect for a period of 60 days after the date on
which written notice of such failure, requiring the same to be remedied, shall
have been given to the Servicer by the Trustee, or to the Servicer and the
Trustee by the Holders of Investor Securities representing not less than 50% of
the Invested Amount of any Series materially adversely affected thereby and
continues to have a material adverse effect on such Investor Securityholders for
such period; or
(d) the Servicer shall consent to the appointment of a bankruptcy
trustee or receiver or conservator or liquidator in any bankruptcy proceeding or
any other insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Servicer or of or
relating to all or substantially all of its property; or a decree or order of a
court or agency or supervisory authority having jurisdiction in the premises for
the appointment of a bankruptcy trustee or receiver or liquidator in any
bankruptcy proceeding or any other insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Servicer, and
such decree or order shall have remained in force undischarged or unstayed for a
period of 60 days; or the Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make any assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations;
then, so long as such Servicer Default shall not have been remedied, either the
Trustee, or the Holders of Investor Securities representing more than 50% of the
Aggregate Invested Amount, by notice then given in writing to the Servicer and
the Rating Agencies (and to the Trustee if given by the Investor
Securityholders) (a "Termination Notice"), may terminate all of the rights and
obligations of the Servicer as servicer under this Agreement. After receipt by
the Servicer of such Termination Notice, and on the date that a Successor
Servicer shall have been appointed by the Trustee pursuant to Section 10.2, all
authority and power of the Servicer under this Agreement shall pass to and be
vested in a Successor Servicer (a "Service Transfer"); and, without limitation,
the Trustee is hereby authorized and empowered
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(upon the failure of the Servicer to cooperate) to execute and deliver, on
behalf of the Servicer, as attorney-in-fact or otherwise, all documents and
other instruments upon the failure of the Servicer to execute or deliver such
documents or instruments, and to do and accomplish all other acts or things
necessary or appropriate to effect the purposes of such transfer of servicing
rights and obligations. The Servicer agrees to cooperate with the Trustee and
such Successor Servicer in effecting the termination of the responsibilities and
rights of the Servicer to conduct servicing hereunder including, without
limitation, the transfer to such Successor Servicer of all authority of the
Servicer to service the Accounts and the Receivables provided for under this
Agreement, including, without limitation, all authority over all Collections
which shall on the date of transfer be held by the Servicer for deposit, or
which have been deposited by the Servicer, in the Collection Account, the Excess
Funding Account, the Interest Funding Account or the Principal Account, and any
Series Account, or which shall thereafter be received with respect to the
Receivables. The Servicer shall promptly transfer its electronic records or
electronic copies thereof relating to the Accounts and the Receivables to the
Successor Servicer in such electronic form as the Successor Servicer may
reasonably request and shall promptly transfer to the Successor Servicer all
other records, correspondence and documents necessary for the continued
servicing of the Accounts and the Receivables in the manner and at such times as
the Successor Servicer shall reasonably request. To the extent that compliance
with this Section 10.1 shall require the Servicer to disclose to the Successor
Servicer information of any kind which the Servicer deems to be confidential,
the Successor Servicer shall be required to enter into such customary licensing
and confidentiality agreements as the Servicer shall deem necessary to protect
its interests. The Servicer shall, on the date of any servicing transfer,
transfer all of its rights and obligations under the Enhancement with respect to
any Series to the Successor Servicer. In connection with any Service Transfer,
all reasonable costs and expenses (including attorneys' fees) incurred in
connection with transferring the records, correspondence and other documents
with respect to the Accounts and the Receivables and the other Trust Property to
the Successor Servicer and amending this Agreement to reflect such succession as
Successor Servicer pursuant to
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this Section 10.1 and Section 10.2 shall be paid by the Servicer (unless the
Trustee is acting as the Successor Servicer on a temporary basis, in which case
the original Servicer shall be responsible therefor) upon presentation of
reasonable documentation of such costs and expenses.
Notwithstanding the foregoing, a delay in or failure of performance
referred to in subsection 10.1(a) for a period of five Business Days or under
subsection 10.1(b) or (c) for a period of 60 days, shall not constitute a
Servicer Default if such delay or failure could not be prevented by the exercise
of reasonable diligence by the Servicer and such delay or failure was caused by
an act of God or the public enemy, acts of declared or undeclared war, public
disorder, rebellion, riot or sabotage, epidemics, landslides, lightning, fire,
hurricanes, tornadoes, earthquakes, nuclear disasters or meltdowns, floods,
power outages, bank closings, communications outages, computer failure or
similar causes. The preceding sentence shall not relieve the Servicer from
using its best efforts to perform its obligations in a timely manner in
accordance with the terms of this Agreement and the Servicer shall provide the
Trustee, any Enhancement Provider, the Transferor and the Holders of Investor
Securities with an Officer's Certificate giving prompt notice of such failure or
delay by it, together with a description of the cause of such failure or delay
and its efforts so to perform its obligations.
Section 10.2 Trustee to Act; Appointment of Successor.
(a) On and after the receipt by the Servicer of a Termination Notice
pursuant to Section 10.1, the Servicer shall continue to perform all servicing
functions under this Agreement until the date specified in the Termination
Notice or as otherwise specified by the Trustee in writing or, if no such date
is specified in such Termination Notice, or otherwise specified by the Trustee,
until a date mutually agreed upon by the Servicer and Trustee. The Trustee
shall notify each Rating Agency of such removal of the Servicer. The Trustee
shall, as promptly as possible after the giving of a Termination Notice, appoint
a successor servicer (the "Successor Servicer"), and such Successor Servicer
shall accept its appointment by a written assumption in a form acceptable to the
Trustee ; provided, however, that
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the Trustee shall not appoint a Successor Servicer if such appointment would
materially adversely affect the taxability of the Trust Under Applicable Tax
State income tax law. If such Successor Servicer is unable to accept such
appointment, the Trustee may obtain bids from any potential successor servicer.
If the Trustee is unable to obtain any bids from any potential successor
servicer and the Servicer delivers an Officer's Certificate to the effect that
it cannot in good faith cure the Servicer Default which gave rise to a Service
Transfer, and if the Trustee is legally unable to act as Successor Servicer,
then the Trustee shall offer the Transferor the right to accept reassignment of
all of the Receivables for an amount equal to the Aggregate Invested Amount and
the Participation Amount on the date of such purchase plus all interest accrued
but unpaid on all of the outstanding Investor Securities at the applicable
Security Rate through the date of such purchase; provided, however, that no such
purchase by the Transferor shall occur unless the Transferor shall deliver an
Officer's Certificate reasonably acceptable to the Trustee which shall have
attached to it the relevant fraudulent conveyance statute, if any, and set forth
the factual basis for a conclusion that such purchase would not constitute a
fraudulent conveyance of the Transferor. The proceeds of such sale shall be
deposited in the Distribution Account or any Series Account, as provided in the
related Supplement, for distribution to the Investor Securityholders of each
outstanding Series pursuant to Section 12.3. In the event that a Successor
Servicer has not been appointed and has not accepted its appointment at the time
when the Servicer ceases to act as Servicer, the Trustee without further action
shall automatically be appointed the Successor Servicer (but shall have
continued authority to appoint another Person as Successor Servicer). The
Trustee may delegate any of its servicing obligations to an affiliate or agent
of the Trustee in accordance with Article III hereof. Any such delegations
shall not relieve the Trustee of its liability and responsibility with respect
to such duties. Notwithstanding the above, the Trustee shall, if it is legally
unable to act, petition a court of competent jurisdiction to appoint any
established financial institution having, in the case of an entity that is
subject to risk-based capital adequacy requirements, risk-based capital of at
least $50,000,000 or, in the case of an entity that is not subject to risk-based
capital requirements, having a net worth of not
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less than $50,000,000 and whose regular business includes the servicing of
receivables similar to the Receivables as the Successor Servicer hereunder.
(b) Upon its appointment, the Successor Servicer shall be the
successor in all respects to the Servicer with respect to servicing functions
under this Agreement and shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Servicer by the terms and
provisions hereof, and all references in this Agreement to the Servicer shall be
deemed to refer to the Successor Servicer. Any Successor Servicer, by its
acceptance of its appointment, will automatically agree to be bound by the terms
and provisions of each Enhancement.
(c) In connection with such appointment and assumption, the Trustee
shall be entitled to such compensation, or may make such arrangements for the
compensation of the Successor Servicer out of Collections, as it and such
Successor Servicer shall agree; provided, however, that no such compensation
shall be in excess of the Servicing Fee permitted to the Servicer pursuant to
Section 3.2. The Transferor agrees that if the Servicer is terminated
hereunder, it will agree to deposit a portion of the Collections in respect of
Finance Charge Receivables that it is entitled to receive pursuant to Article IV
to pay its ratable share of the compensation of the Successor Servicer.
(d) All authority and power granted to the Successor Servicer under
this Agreement shall automatically cease and terminate upon termination of the
Trust pursuant to Section 12.1 and shall pass to and be vested in the Transferor
and, without limitation, the Transferor is hereby authorized and empowered to
execute and deliver, on behalf of the Successor Servicer, as attorney-in-fact or
otherwise, all documents and other instruments, and to do and accomplish all
other acts or things necessary or appropriate to effect the purposes of such
transfer of servicing rights. The Successor Servicer agrees to cooperate with
the Transferor in effecting the termination of the responsibilities and rights
of the Successor Servicer to conduct servicing on the Receivables. The
Successor Servicer shall transfer its electronic records relating to the
Receivables to the Transferor in such electronic form as the Transferor may
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reasonably request and shall transfer all other records, correspondence and
documents to the Transferor in the manner and at such times as the Transferor
shall reasonably request. To the extent that compliance with this Section 10.2
shall require the Successor Servicer to disclose to the Transferor information
of any kind which the Successor Servicer deems to be confidential, the
Transferor shall be required to enter into such customary licensing and
confidentiality agreements as the Successor Servicer shall deem necessary to
protect its interests.
Section 10.3 Notification to Securityholders. Upon the Servicer
becoming aware of any Servicer Default, the Servicer shall give prompt written
notice thereof to the Trustee and any Enhancement Provider and, upon receipt of
such written notice, the Trustee shall give notice to the Investor
Securityholders at their respective addresses appearing in the Security
Register. Upon any termination or appointment of a Successor Servicer pursuant
to this Article X, the Trustee shall give prompt written notice thereof to
Investor Securityholders at their respective addresses appearing in the Security
Register.
Section 10.4 Waiver of Past Defaults. The Holders of Investor
Securities representing not less than 66-2/3% of the Invested Amount of each
Series materially adversely affected by any default by the Servicer or
Transferor may, on behalf of all Securityholders of such Series, waive any
default by the Servicer or Transferor in the performance of their respective
obligations hereunder and its consequences, except a default in the failure to
make any required deposits or payments of interest or principal relating to such
Series pursuant to Article IV, which default does not result from the failure of
the Paying Agent to perform its obligations to make any required deposits or
payments of interest and principal in accordance with Article IV. Upon any such
waiver of a past default, such default shall cease to exist, and any default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereon except to the extent expressly so waived.
[End of Article X]
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ARTICLE XI
THE TRUSTEE
Section 11.1 Duties of Trustee.
(a) The Trustee, prior to the occurrence of any Servicer Default of
which a Responsible Officer of the Trustee has actual knowledge and after the
curing of all Servicer Defaults which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Agreement, and no implied covenants or duties shall be read into this Agreement
against the Trustee. If a Responsible Officer has received written notice that
a Servicer Default has occurred (and such Servicer Default has not been cured or
waived), the Trustee shall exercise such of the rights and powers vested in it
by this Agreement, and use the same degree of care and skill in its exercise, as
a prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs; provided, however, that if the Trustee shall assume
the duties of the Servicer pursuant to Section 8.5 or 10.2, the Trustee in
performing such duties shall use the degree of skill and attention customarily
exercised by a servicer with respect to comparable receivables that it services
for itself or others.
(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee that are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
substantially conform to the requirements of this Agreement. The Trustee shall
retain all such items for at least one year after receipt and shall make such
items available for inspection by any Investor Securityholder or holder of a
Participation at the Corporate Trust Office, such inspection to be made during
regular business hours and upon reasonable prior notice to the Trustee.
(c) Subject to subsection 11.1(a), no provision of this Agreement
shall be construed to relieve the Trustee from liability for its own negligent
action, its own negligent failure to act or its own misconduct; provided,
however, that:
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(i) the Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;
(ii) the Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of the Holders of Investor Securities
representing more than 50% of the Invested Amount of any Series relating to
the time, method and place of conducting any proceeding for any remedy
available to the Trustee with respect to such Series, or exercising any
trust or power conferred upon the Trustee with respect to such Series,
under this Agreement; and
(iii) the Trustee shall not be charged with knowledge of any
failure by the Servicer referred to in clauses (a) and (b) of Section 10.1
or of any breach by the Servicer contemplated by clause (c) of Section 10.1
or any Pay Out Event unless a Responsible Officer of the Trustee obtains
actual knowledge of such failure, breach or Pay-Out Event or the Trustee
receives written notice of such failure, breach or Pay Out Event from the
Servicer or any Holders of Investor Securities representing not less than
10% of the Invested Amount of any Series adversely affected thereby.
(d) The Trustee shall not be required to expend or risk its own funds
or otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of, any
of the obligations of the Servicer under this Agreement except during such time,
if any, as the Trustee shall be the successor to, and be vested with the rights,
duties, powers and privileges of, the Servicer in accordance with the terms of
this Agreement.
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(e) Except for actions expressly authorized by this Agreement, the
Trustee shall take no action reasonably likely to impair the interests of the
Trust in any Receivable now existing or hereafter created or to impair the value
of any Receivable now existing or hereafter created.
(f) Except as provided in this Agreement, the Trustee shall have no
power to vary the corpus of the Trust.
(g) If a Responsible Officer of the Trustee, has received written
notice that the Paying Agent or the Transfer Agent and Registrar shall fail to
perform any obligation, duty or agreement in the manner or on the day required
to be performed by the Paying Agent or the Transfer Agent and Registrar, as the
case may be, under this Agreement, the Trustee shall be obligated promptly upon
its obtaining knowledge thereof by a Responsible Officer of the Trustee to
perform such obligation, duty or agreement in the manner so required.
(h) If the Transferor has agreed to transfer any of its revolving
credit card receivables (other than the Receivables) to another Person, upon the
written request of the Transferor, the Trustee on behalf of the Trust will enter
into such intercreditor agreements with the transferee of such receivables as
are customary and necessary to identify separately the rights, if any, of the
Trust and such other Person in the Transferor's revolving credit card
receivables; provided, however, that the Trust shall not be required to enter
into any intercreditor agreement that could adversely affect the interests of
the Securityholders or the Trustee and, upon the request of the Trustee, the
Transferor will deliver an Opinion of Counsel on any matters relating to such
intercreditor agreement, reasonably requested by the Trustee.
Section 11.2 Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 11.1:
(a) the Trustee may rely on and shall be protected in acting on, or
in refraining from acting in accordance with, the initial report, the Daily
Report, the Settlement Statement, the annual Servicer's certificate, the monthly
payment instructions and notification
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to the Trustee, the monthly Securityholder's statement, any resolution,
Officer's Certificates, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document believed by it to be genuine and to
have been signed or presented to it pursuant to this Agreement by the proper
party or parties;
(b) the Trustee may consult with counsel, and the advice or any
Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such advice or Opinion of Counsel;
(c) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement or any Enhancement, or to
institute, conduct or defend any litigation hereunder or in relation hereto, at
the request, order or direction of any of the Securityholders or any Enhancement
Provider, pursuant to the provisions of this Agreement, unless such
Securityholders or Enhancement Provider shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby; nothing contained herein shall,
however, relieve the Trustee of the obligations, upon the occurrence of any
Servicer Default (which has not been cured or waived) of which a Responsible
Officer of the Trustee has knowledge, to exercise such of the rights and powers
vested in it by this Agreement and any Enhancement, and to use the same degree
of care and skill in its exercise as a prudent person would exercise or use
under the circumstances in the conduct of his own affairs;
(d) the Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Agreement;
(e) the Trustee shall not be bound to make any investigation into the
facts of matters stated in the initial report, the Daily Report, the Settlement
Statement, the annual Servicer's certificate, the monthly
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payment instructions and notification to the Trustee, the monthly
Securityholders statement, any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or other paper
or document, unless requested in writing so to do by Holders of Investor
Securities representing more than 50% of the Invested Amount of any Series which
could be adversely affected if the Trustee does not perform such acts;
(f) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian, and the Trustee shall not be responsible for any
misconduct or negligence on the part of any such agent, attorney or custodian
appointed with due care by it hereunder;
(g) except as may be required by subsection 11.1(a), the Trustee
shall not be required to make any initial or periodic examination of any
documents or records related to the Accounts or the Receivables for the purpose
of establishing the presence or absence of defects, the compliance by the
Transferor with its representations and warranties or for any other purpose;
(h) whenever in the administration of this Agreement the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate; and
(i) the right of the Trustee to perform any discretionary act
enumerated in this Agreement or any Supplement, Enhancement or Participation
Supplement shall not be construed as a duty, and the Trustee shall not be
answerable for performance of any such act.
Section 11.3 Trustee Not Liable for Recitals in Securities. The
Trustee assumes no responsibility for the correctness of the recitals contained
herein and in the Securities (other than the certificate of authentication on
the Securities). Except as set forth in Section 11.15, the Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Securities (other than the certificate of authentication
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on the Securities) or of any Receivable or related document. The Trustee shall
not be accountable for the use or application by the Transferor of any of the
Securities or of the proceeds of such Securities, or for the use or application
of any funds paid to the Transferor in respect of the Receivables or deposited
in or withdrawn from the Collection Account, the Excess Funding Account, the
Principal Account or the Interest Funding Account, or any Series Account or
other accounts now or hereafter established to effectuate the transactions
contemplated herein and in accordance with the terms hereof. The Trustee shall
have no responsibility for filing any financing or continuation statement in any
public office at any time or to otherwise perfect or maintain the perfection of
any security interest or Lien granted to it hereunder (unless the Trustee shall
have become the Successor Servicer) or to prepare or file any Securities and
Exchange Commission filing for the Trust or to record this Agreement or any
Supplement.
Section 11.4 Trustee May Own Securities. The Trustee in its
individual or any other capacity may become the owner or pledgee of Investor
Securities and may deal with the Transferor, the Servicer or any Enhancement
Provider with the same rights as it would have if it were not the Trustee. The
Trustee in its capacity as Trustee shall exercise its duties and
responsibilities hereunder independent of and without reference to its
investment, if any, in Investor Securities.
Section 11.5 The Servicer to Pay Trustee's Fees and Expenses. The
Servicer covenants and agrees to pay to the Trustee from time to time, and the
Trustee shall be entitled to receive, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) for all services rendered by the Trustee in the execution of
the trust hereby created and in the exercise and performance of any of the
powers and duties hereunder of the Trustee, and, subject to Section 8.4, the
Servicer will pay or reimburse the Trustee (without reimbursement from any
Investor Account, any Series Account or otherwise) upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any of the provisions of this Agreement (including the
reasonable fees and expenses of its agents and counsel) except any such expense,
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disbursement or advance as may arise from its own negligence or bad faith and
except as provided in the following sentence. If the Trustee is appointed
Successor Servicer pursuant to Section 10.2, the provisions of this Section 11.5
shall not apply to expenses, disbursements and advances made or incurred by the
Trustee in its capacity as Successor Servicer (which shall be covered out of the
Servicing Fee).
The obligations of the Servicer under this Section 11.5 shall survive
the termination of the Trust and the resignation or removal of the Trustee.
Section 11.6 Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times (a) be a corporation organized and doing business
under the laws of the United States of America or any state thereof authorized
under such laws to exercise corporate trust powers, having a long-term unsecured
debt rating of at least Baa3 by Moody's, having, in the case of an entity that
is subject to risk-based capital adequacy requirements, risk-based capital of at
least $50,000,000 or, in the case of an entity that is not subject to risk-based
capital adequacy requirements, having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by federal or state
authority and (b) not be a Related Person. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purpose of
this Section 11.6, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section 11.6, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 11.7.
Section 11.7 Resignation or Removal of
Trustee.
(a) The Trustee may at any time resign and be discharged from the
Trust hereby created by giving written notice thereof to the Servicer. Upon
receiving such notice of resignation, the Servicer shall promptly appoint a
successor trustee by written instrument, in
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duplicate, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor trustee. If no successor trustee shall
have been so appointed and have accepted such appointment within 30 days after
the giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 11.6 hereof and shall fail to resign
after written request therefor by the Transferor, or if at any time the Trustee
shall be legally unable to act, or shall be adjudged bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Transferor may, but shall not be required to, remove the Trustee and promptly
appoint a successor trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the Trustee so removed and one copy to
the successor trustee.
(c) If (i) the Trustee shall fail to perform any of its obligations
hereunder, (ii) a Securityholder shall deliver written notice of such failure to
the Trustee, and (iii) the Trustee shall not have corrected such failure for 60
days thereafter, then the Holders of Investor Securities representing more than
50% of the Aggregate Invested Amount (including related commitments of holders
of Variable Funding Securities) shall have the right to remove the Trustee and
(with the consent of the Transferor, which shall not be unreasonably withheld)
promptly appoint a successor trustee by written instrument, in duplicate, one
copy of which instrument shall be delivered to the Trustee so removed and one
copy to the successor trustee.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 11.7 shall
not become effective until acceptance of appointment by the successor trustee as
provided in Section 11.8 hereof and any liability of the Trustee arising
hereunder shall survive such appointment of a successor trustee. Notice of any
resignation or removal of the Trustee and appointment of
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a successor trustee shall be provided to each Rating Agency by the Servicer in a
prompt manner.
Section 11.8 Successor Trustee.
(a) Any successor trustee appointed as provided in Section 11.7
hereof shall execute, acknowledge and deliver to the Transferor and to its
predecessor Trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor Trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as Trustee herein. The predecessor Trustee shall deliver to the successor
trustee all documents and statements held by it hereunder, and the Transferor
and the predecessor Trustee shall execute and deliver such instruments and do
such other things as may reasonably be required for fully and certainly vesting
and confirming in the successor trustee all such rights, powers, duties and
obligations.
(b) No successor trustee shall accept appointment as provided in this
Section 11.8 unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 11.6.
(c) Upon acceptance of appointment by a successor trustee as provided
in this Section 11.8, such successor trustee shall mail notice of such
succession hereunder to all Securityholders at their addresses as shown in the
Security Register.
Section 11.9 Merger or Consolidation of
Trustee. Any Person into which the Trustee may be merged or converted or with
which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be eligible under the provisions of Section 11.6, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
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Section 11.10 Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Agreement, at any
time, for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Trust may at the time be located, the Trustee shall have
the power and may execute and deliver all instruments to appoint one or more
Persons to act as a co-trustee or co-trustees, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person or
Persons, in such capacity and for the benefit of the Securityholders, such title
to the trust, or any part thereof, and, subject to the other provisions of this
Section 11.10, such powers, duties, obligations, rights and trusts as the
Trustee may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 11.6 and no notice to Securityholders of the appointment
of any co-trustee or separate trustee shall be required under Section 11.8. The
Trustee shall provide written notice to each Rating Agency of any co-trustee or
separate trustee so appointed.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised
or performed by the Trustee and such separate trustee or co-trustee jointly
(it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in such act),
except to the extent that under any laws of any jurisdiction in which any
particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Servicer hereunder), the Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding of title to the Trust
or any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at the
direction of the Trustee;
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(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article XI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement and
any Enhancement or Participation Supplement relating to the conduct of,
affecting the liability of, or affording protection to, the Trustee. Every such
instrument shall be filed with the Trustee and a copy thereof given to the
Servicer.
(d) Any separate trustee or co-trustee may at any time constitute the
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect to this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
Section 11.11 Tax Returns. Consistent with Section 3.7, the Trustee
shall not, except as required by law, file any United States federal income tax
returns on behalf of the Trust; provided, however, that if the Trust issues any
Participation or a Class of Securities that in either case will be characterized
(in the sole and absolute discretion of the Transferor) as equity interests in a
partnership for federal income tax purposes, partnership information returns for
the Trust shall be prepared
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and signed by the Transferor, as general partner, and the Transferor shall act
as the "Tax Matters Partner" (as defined in Section 6231(a)(7) of the Internal
Revenue Code). In the event the Trust shall be required to file tax returns,
the Servicer shall at its expense prepare or cause to be prepared any tax
returns required to be filed by the Trust and, to the extent possible, shall
remit such returns to the Trustee for signature at least five days before such
returns are due to be filed. The Trustee is hereby authorized to sign any such
return on behalf of the Trust. The Servicer shall prepare or shall cause to be
prepared all tax information required by law to be distributed to
Securityholders and shall deliver such information to the Trustee at least five
days prior to the date it is required by law to be distributed to
Securityholders. The Trustee, upon request, will furnish the Servicer with all
such information known to the Trustee as may be reasonably required in
connection with the preparation of all tax returns of the Trust and shall, upon
request, execute such return. In no event shall the Trustee be liable for any
liabilities, costs or expenses of the Trust, the Investor Securityholders or the
Security Owners arising under any tax law, including without limitation federal,
state, local or foreign income or excise taxes or any other tax imposed on or
measured by income (or any interest or penalty or addition with respect thereto
or arising from a failure to comply therewith).
Section 11.12 Trustee May Enforce Claims Without Possession of
Securities. All rights of action and claims under this Agreement or any Series
of Securities may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name as trustee. Any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of any Series of Securityholders in respect of which such
judgment has been obtained.
Section 11.13 Suits for Enforcement. If a Servicer Default of which
a Responsible Officer of the Trustee has knowledge shall occur and be
continuing, the Trustee, in its discretion may, subject to the provisions
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of Section 10.1, proceed to protect and enforce its rights and the rights of any
Series of Securityholders under this Agreement by a suit, action or proceeding
in equity or at law or otherwise, whether for the specific performance of any
covenant or agreement contained in this Agreement or in aid of the execution of
any power granted in this Agreement or for the enforcement of any other legal,
equitable or other remedy as the Trustee, being advised by counsel, shall deem
most effectual to protect and enforce any of the rights of the Trustee or any
Series of Securityholders.
Section 11.14 Rights of Securityholders to Direct Trustee. Holders
of Investor Securities representing more than 50% of the Aggregate Invested
Amount (or, with respect to any remedy, trust or power that does not relate to
all Series, 50% of the aggregate Invested Amount of the Investor Securities of
all Series to which such remedy, trust or power relates) shall have the right to
direct the time, method, and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee; provided, however, that Holders of Investor Securities representing
more than 50% of the aggregate Invested Amount of any Class may direct the
Trustee to exercise its rights under Section 8.6; provided, further, that,
subject to Section 11.1, the Trustee shall have the right to decline to follow
any such direction if the Trustee being advised by counsel determines that the
action so directed may not lawfully be taken, or if the Trustee in good faith
shall, by a Responsible Officer or Responsible Officers of the Trustee,
determine that the proceedings so directed would be illegal or involve it in
personal liability or be unduly prejudicial to the rights of Securityholders not
parties to such direction; and provided, further that nothing in this Agreement
shall impair the right of the Trustee to take any action deemed proper by the
Trustee and which is not inconsistent with such direction of such Holders of
Investor Securities.
Section 11.15 Representations and Warranties of Trustee. The Trustee
represents and warrants that:
(i) the Trustee is a corporation organized, existing and
authorized to engage in the business of banking under the laws of the State
of its incorporation;
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(ii) the Trustee is an entity that satisfies the eligibility
requirements of Section 11.6;
(iii) the Trustee has full power, authority and right to
execute, deliver and perform this Agreement, and has taken all necessary
action to authorize the execution, delivery and performance by it of this
Agreement; and
(iv) this Agreement has been duly executed and delivered by the
Trustee.
Section 11.16 Maintenance of Office or Agency. The Trustee will
maintain at its expense an office or offices, or agency or agencies, where
notices and demands to or upon the Trustee in respect of the Securities and this
Agreement may be served. The Trustee initially appoints its Corporate Trust
Office as its office for such purposes. The Trustee will give prompt written
notice to the Servicer and to Securityholders (or in the case of Holders of
Bearer Securities or Global Securities in bearer form, in the manner provided
for in the related Supplement) of any change in the location of the Security
Register or any such office or agency.
[End of Article XI]
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ARTICLE XII
TERMINATION
Section 12.1 Termination of Trust.
(a) The respective obligations and responsibilities of the
Transferor, the Servicer and the Trustee created hereby (other than the
obligation of the Trustee to make payments to Securityholders as hereafter set
forth) shall terminate, except with respect to the duties described in Sections
7.4, 8.4 and 11.5 and subsection 12.3(b), on the Trust Termination Date;
provided, however, that the Trust shall not terminate on the date specified in
clause (i) of the definition of "Trust Termination Date" if each of the Servicer
and the Holder of the Exchangeable Transferor Security notify the Trustee in
writing, not later than five Business Days preceding such date, that they desire
that the Trust not terminate on such date, which notice (such notice, a "Trust
Extension") shall specify the date on which the Trust shall terminate (such
date, the "Extended Trust Termination Date"); provided, however, that the
Extended Trust Termination Date shall be no later than June 29, 2034. The
Servicer and the Holder of the Exchangeable Transferor Security may, on any date
following the Trust Extension, so long as no Series of Securities is
outstanding, deliver a notice in writing to the Trustee changing the Extended
Trust Termination Date.
(b) In the event that (i) the Trust has not terminated by the
Distribution Date occurring in the second month preceding the Trust Termination
Date, and (ii) the Invested Amount of any Series, exclusive of any Transferor
Retained Class (after giving effect to all transfers, withdrawals, deposits and
drawings to occur on such date and the payment of principal on any Series of
Securities to be made on the related Distribution Date during such month
pursuant to Article IV and any related Supplement), would be greater than zero,
the Servicer shall sell within 30 days after such Transfer Date an amount of
Receivables up to the remaining Invested Amount of any such Series if it can do
so in a commercially reasonable manner and subject to the rights of the holder
of any Participation. The Servicer shall notify each Enhancement Provider of
the proposed sale of the Receivables and shall provide each Enhancement Provider
an
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opportunity to bid on the Receivables. The Transferor shall have the right of
first refusal to purchase the Receivables on terms equivalent to the best
purchase offer for fair value as determined by the Trustee in its sole
discretion. The proceeds of any such sale shall be treated as Collections on
the Receivables and shall be allocated and deposited in accordance with Article
IV; provided, however, that the Trustee shall determine conclusively in its sole
discretion the amount of such proceeds which are allocable to Finance Charge
Collections and the amount of such proceeds which are allocable to Principal
Collections. During such thirty-day period, the Servicer shall continue to
collect payments on the Receivables and allocate and deposit such payments in
accordance with the provisions of Article IV and the related Supplement.
(c) All principal or interest with respect to any Series of Investor
Securities shall be due and payable no later than the Series Termination Date
with respect to such Series. Unless otherwise provided in a Supplement, in the
event that the Invested Amount of any Series of Securities is greater than zero,
exclusive of any Class held by the Transferor, on its Series Termination Date
(the "Affected Series"), after giving effect to all transfers, withdrawals,
deposits and drawings to occur on such date and the payment of principal to be
made on such Series on such date, and the Trustee will sell or cause to be sold,
and the Trustee will pay the proceeds to all Securityholders of such Series pro
rata in final payment of all principal of and accrued interest on such Series of
Securities or, if any Class of such Series is subordinated, in order of their
respective seniorities, an amount of Principal Receivables and the related
Finance Charge Receivables (or interests therein) up to 110% of the Invested
Amount of such Series at the close of business on such date (but the amount of
such Principal Receivables not to be more than an amount of Receivables equal to
the sum of (1) the product of (A) the Transferor Percentage, (B) the aggregate
outstanding Principal Receivables and (C) a fraction the numerator of which is
the Invested Amount of such Series on such date and the denominator of which is
the sum of the Invested Amounts of all Series on such Date and (2) the Invested
Amount of such Series). Receivables on which the Obligor has not made the full
monthly payment for the prior months shall be deemed to be in default for
purposes of
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this Section 12.1(c) to the extent that the cash allocated to any Class of
Transferor Retained Securities of such Series pursuant to a sale under Section
12.1(c) is less than the amount that would have been allocated to the
Exchangeable Transferor Security and the Transferor Retained Securities had the
proceeds from such sale been allocated pursuant to Section 4.3. The Servicer
shall notify each Enhancement Provider of the proposed sale of such Receivables
and shall provide each Enhancement Provider an opportunity to bid on such
Receivables. The Transferor shall be permitted to purchase such Receivables in
such case and shall have a right of first refusal with respect thereto to the
extent of a bona fide offer by an unrelated third party for fair value or to the
extent the Receivables arise in Defaulted Accounts. Any proceeds of such sale
in excess of such principal and interest paid shall be paid to the Holder of the
Exchangeable Transferor Security. Upon such Series Termination Date with
respect to the applicable Series of Securities, final payment of all amounts
allocable to any Investor Securities of such Series shall be made in the manner
provided in Section 12.3.
Section 12.2 Optional Termination. (a) If so provided in any
Supplement, the Transferor may, but shall not be obligated to, cause a final
distribution to be made in respect of the related Series of Securities on a
Distribution Date specified in such Supplement by depositing into the
Distribution Account or the applicable Series Account, not later than the
Transfer Date preceding such Distribution Date, for application in accordance
with Section 12.3, the amount specified in such Supplement; provided, however
that if the short-term deposits or long-term unsecured debt obligations of the
Transferor are not rated at the time of such purchase of Receivables at least
P-3 or Baa3, respectively, by Moody's, no such event shall occur unless the
Transferor shall deliver to the Trustee, with a copy to Moody's, an Officer's
Certificate which shall have attached to it the relevant fraudulent conveyance
statute, if any, and set forth the factual basis for a conclusion that such
deposit into the Distribution Account or any Series Account as provided in the
related Supplement would not constitute a fraudulent conveyance of the
Transferor.
(b) The amount deposited pursuant to subsection 12.2(a) shall be paid
to the Investor
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Securityholders of the related Series pursuant to Section 12.3 on the related
Distribution Date following the date of such deposit. All Securities of a
Series with respect to which a final distribution has been made pursuant to
subsection 12.2(a) shall be delivered by the Holder to, and be canceled by, the
Transfer Agent and Registrar and be disposed of in a manner satisfactory to the
Trustee and the Transferor. The Invested Amount of each Series with respect to
which a final distribution has been made pursuant to subsection 12.2(a) shall,
for the purposes of the definition of "Transferor Interest," be deemed to be
equal to zero on the Distribution Date following the making of the deposit, and
the Transferor Interest shall thereupon be deemed to have been increased by the
Invested Amount of such Series.
Section 12.3 Final Payment with Respect to any Series.
(a) Written notice of any termination, specifying the Distribution
Date upon which the Investor Securityholders of any Series may surrender their
Securities for payment of the final distribution with respect to such Series and
cancellation, shall be given (subject to at least four Business Days' prior
notice from the Servicer to the Trustee) by the Trustee to Investor
Securityholders of such Series mailed not later than the fifth day of the month
of such final distribution (or in the manner provided by the Supplement relating
to such Series) specifying (i) the Distribution Date (which shall be the
Distribution Date in the month (x) in which the deposit is made pursuant to
subsection 2.4(e), 9.2(b), 10.2(a), or 12.2(a) of the Agreement or such other
section as may be specified in the related Supplement, or (y) in which the
related Series Termination Date occurs) upon which final payment of such
Investor Securities will be made upon presentation and surrender of such
Investor Securities at the office or offices therein designated (which, in the
case of Bearer Securities, shall be outside the United States), (ii) the amount
of any such final payment and (iii) that the Record Date otherwise applicable to
such Distribution Date is not applicable, payments being made only upon
presentation and surrender of the Investor Securities at the office or offices
therein specified. The Servicer's notice to the Trustee in accordance with the
preceding sentence shall be accompanied by an Officers' Certificate setting
forth the
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information specified in Article V of this Agreement covering the period during
the then current calendar year through the date of such notice and setting forth
the date of such final distribution. The Trustee shall give such notice to the
Transfer Agent and Registrar and the Paying Agent at the time such notice is
given to such Investor Securityholders.
(b) Notwithstanding the termination of the Trust pursuant to
subsection 12.1(a) or the occurrence of the Series Termination Date with respect
to any Series, all funds then on deposit in the Excess Funding Account, the
Interest Funding Account, the Principal Account, the Distribution Account or any
Series Account applicable to the related Series shall continue to be held in
trust for the benefit of the Securityholders of the related Series and the
Paying Agent or the Trustee shall pay such funds to the Securityholders of the
related Series upon surrender of their Securities (which surrenders and
payments, in the case of Bearer Securities, shall be made only outside the
United States). In the event that all of the Investor Securityholders of any
Series shall not surrender their Securities for cancellation within six months
after the date specified in the above-mentioned written notice, the Trustee
shall give a second written notice (or, in the case of Bearer Securities,
publication notice) to the remaining Investor Securityholders of such Series
upon receipt of the appropriate records from the Transfer Agent and Registrar to
surrender their Securities for cancellation and receive the final distribution
with respect thereto. If within one and one half years after the second notice
with respect to a Series, all the Investor Securities of such Series shall not
have been surrendered for cancellation, the Trustee may take appropriate steps
or may appoint an agent to take appropriate steps, to contact the remaining
Investor Securityholders of such Series concerning surrender of their
Securities, and the cost thereof shall be paid out of the funds in the
Distribution Account or any Series Account held for the benefit of such Investor
Securityholders. The Trustee and the Paying Agent shall pay to the Transferor
upon request any monies held by them for the payment of principal or interest
which remains unclaimed for two years. After payment to the Transferor,
Investor Securityholders entitled to the money must look to the Transferor for
payment as general creditors unless an applicable abandoned property law
designates otherwise.
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(c) All Securities surrendered for payment of the final distribution
with respect to such Securities and cancellation shall be canceled by the
Transfer Agent and Registrar and be disposed of in a manner satisfactory to the
Trustee and the Transferor.
Section 12.4 Termination Rights of Holder of Exchangeable Transferor
Security. Upon the termination of the Trust pursuant to Section 12.1, and after
payment of all amounts due hereunder on or prior to such termination and the
surrender of the Exchangeable Transferor Security, the Trustee shall execute a
written reconveyance substantially in the form of Exhibit F pursuant to which it
shall reconvey to the Holder of the Exchangeable Transferor Security (without
recourse, representation or warranty and subject to the rights of the holder of
any Participation) all right, title and interest of the Trust in the
Receivables, whether then existing or thereafter created, all moneys due or to
become due with respect thereto (including all accrued interest theretofore
posted as Finance Charge Receivables) allocable to the Trust pursuant to any
Supplement, except for amounts held by the Trustee pursuant to subsection
12.3(b). The Trustee shall execute and deliver such instruments of transfer and
assignment, in each case prepared by the Transferor and without recourse,
representation or warranty (other than a warranty that such property is conveyed
free and clear of any Lien of any Person claiming by or through the Trustee) as
shall be reasonably requested by the Holder of the Exchangeable Transferor
Security to vest in such Holder all right, title and interest which the Trust
had in the Receivables and other Trust Property.
[End of Article XII]
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ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Amendment.
(a) This Agreement (including any Supplement or Participation
Supplement) may be amended from time to time by the Servicer, the Transferor and
the Trustee, without the consent of any of the Securityholders, (i) to cure any
ambiguity, to revise any exhibits or Schedules (other than Schedule 1), to
correct or supplement any provisions herein or thereon which may be inconsistent
with any other provisions herein or thereon or (ii) to add any other provisions
with respect to matters or questions raised under this Agreement which shall not
be inconsistent with the provisions of this Agreement; provided, however, that
such action shall not, as evidenced by an Opinion of Counsel, adversely affect
in any material respect the interests of any of the Investor Securityholders or
any holder of a Participation. Additionally, this Agreement may be amended from
time to time by the Servicer, the Transferor and the Trustee, without the
consent of any of the Securityholders, to add to or change any of the provisions
of this Agreement to provide that Bearer Securities may be registrable as to
principal, to change or eliminate any restrictions on the payment of principal
of (or premium, if any) or any interest on Bearer Securities to comply with the
Bearer Rules, to permit Bearer Securities to be issued in exchange for
Registered Securities (if then permitted by the Bearer Rules), to permit
Registered Securities or Bearer Securities to be issued in exchange for Bearer
Securities of other authorized denominations or to permit the issuance of
Securities in uncertificated form.
This Agreement (including any Supplement), and any schedule or exhibit
thereto may also be amended from time to time by the Servicer, the Transferor
and the Trustee, without the consent of any of the Securityholders, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement, or of modifying in any manner the rights of
the Holders of Securities; provided, however, that (i) the Servicer shall have
provided an Officer's Certificate to the Trustee to the effect that such
amendment will not materially and adversely affect the interests of the
Securityholders or of any holder of a Participation, (ii) the Transferor shall
have provided a Tax Opinion and an Opinion of Counsel to the effect that such
amendment shall not materially adversely affect
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the Applicable Tax State income tax characterization of any outstanding Series
of Investor Securities or the taxability of the Trust under Applicable Tax State
income tax law and (iii) the Servicer shall have provided at least ten Business
Days prior written notice to each Rating Agency of such amendment and shall have
received written confirmation from each Rating Agency to the effect that the
rating of any Series or any class of any Series will not be reduced or withdrawn
as a result of such amendment; provided, further, that the removal of the
provisions hereof which relate to Closed End Receivables at such time as there
are no Closed End Receivables in the Trust shall be deemed not to materially and
adversely affect the interests of the Securityholders.
Additionally, upon the receipt by the Transferor, the Servicer and the
Trustee of a Tax Opinion and an Opinion of Counsel to the effect that such
action shall not materially adversely affect the Applicable Tax State income tax
characterization of any outstanding Series or the taxability of the Trust under
Applicable Tax State income tax law, this Agreement may be amended by the
Transferor, the Servicer and the Trustee without the consent of any of the
Securityholders (i) to add, modify or eliminate such provisions as may be
necessary or advisable in order to enable all or a portion of the Trust to
qualify as, and to permit an election to be made to cause all or a portion of
the Trust to be treated as, a "financial asset securitization trust" as
described in the provisions of the FASIT legislation or to enable all or a
portion of the Trust to qualify and an election to be made for similar treatment
under comparable subsequent federal income tax provisions as may ultimately be
enacted into law, and (ii) in connection with any such election, to modify or
eliminate existing provisions of the Pooling and Servicing Agreement and any
Supplement relating to the intended federal income tax treatment of the
Securities and the Trust in the absence of the election.
(b) This Agreement and any Supplement or Participation Supplement may
also be amended from time to time by the Servicer, the Transferor and the
Trustee with
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the consent of the Holders of Investor Securities representing not less than
66-2/3% of the Invested Amount of each and every Series or Participation
adversely affected, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement or any
Supplement or Participation Supplement or of modifying in any manner the rights
of the Investor Securityholders of any Series then issued and outstanding;
provided, however, that no such amendment under this subsection shall (i) reduce
in any manner the amount of, or delay the timing of, distributions which are
required to be made on any Investor Security of such Series without the consent
of all of the related Investor Securityholders; (ii) change the definition of or
the manner of calculating the interest of any Investor Securityholder of such
Series without the consent of the related Investor Securityholder or (iii)
reduce the aforesaid percentage required to consent to any such amendment, in
each case without the consent of all such Investor Securityholders.
(c) Notwithstanding anything in this Section 13.1 to the contrary,
the Supplement with respect to any Series may be amended on the items and in
accordance with the procedures provided in such Supplement.
(d) Promptly after the execution of any such amendment (other than an
amendment pursuant to paragraph (a)), the Trustee shall furnish notification of
the substance of such amendment to each Investor Securityholder of each Series
adversely affected and ten Business Days prior to the proposed effective date
for such amendment the Servicer shall furnish notification of the substance of
such amendment to each Rating Agency providing a rating for such Series and as
soon as practicable after execution thereof, a copy of such amendment.
(e) It shall not be necessary to obtain the consent of Investor
Securityholders under this Section 13.1 to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Investor Securityholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
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(f) Any Supplement executed and delivered pursuant to Section 6.9 and
any amendments regarding the addition or removal of Receivables from the Trust
as provided in Sections 2.6 or 2.7, executed in accordance with the provisions
hereof, shall not be considered amendments to this Agreement for the purpose of
subsections 13.1(a) and (b).
(g) In connection with any amendment, the Trustee may request an
Opinion of Counsel from the Transferor or Servicer to the effect that the
amendment complies with all requirements of this Agreement. The Trustee may,
but shall not be obligated to, enter into any amendment which affects the
Trustee's rights, duties or immunities under this Agreement or otherwise.
Section 13.2 Protection of Right, Title and Interest to Trust.
(a) The Servicer shall cause this Agreement, all amendments hereto
and/or all financing statements and continuation statements and any other
necessary documents covering the Securityholders and the Trustee's right, title
and interest to the Trust to be promptly recorded, registered and filed, and at
all times to be kept recorded, registered and filed, all in such manner and in
such places as may be required by law fully to preserve and protect the right,
title and interest of the Securityholders or the Trustee, as the case may be,
hereunder to all property comprising the Trust. The Servicer shall deliver to
the Trustee file-stamped copies of, or filing receipts for, any document
recorded, registered or filed as provided above, as soon as available following
such recording, registration or filing. The Transferor shall cooperate fully
with the Servicer in connection with the obligations set forth above and will
execute any and all documents reasonably required to fulfill the intent of this
subsection 13.2(a).
(b) Within 30 days after the Transferor makes any change in its name,
identity or corporate structure which would make any financing statement or
continuation statement filed in accordance with paragraph (a) above materially
misleading within the meaning of Section 9-402(7) of the UCC as in effect in the
Relevant UCC State, the Transferor shall give the Trustee written notice of any
such change and shall file such financing statements
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or amendments as may be necessary to continue the perfection of the Trust's
security interest in the Receivables and the proceeds thereof.
(c) Each of the Transferor and the Servicer will give the Trustee
prompt written notice of any relocation of any office from which it services
Receivables or keeps records concerning the Receivables or of its principal
executive office and whether, as a result of such relocation, the applicable
provisions of the UCC would require the filing of any amendment of any
previously filed financing or continuation statement or of any new financing
statement and shall file such financing statements or amendments as may be
necessary to continue the perfection of the Trust's security interest in the
Receivables and the proceeds thereof. Each of the Transferor and the Servicer
will at all times maintain each office from which it services Receivables and
its principal executive office within the United States of America.
(d) The Servicer will deliver to the Trustee on or before March 31 of
each year, beginning with March 31, 1995, an Opinion of Counsel, substantially
in the form of Exhibit E.
Section 13.3 Limitation on Rights of Securityholders.
(a) The death or incapacity of any Investor Securityholder shall not
operate to terminate this Agreement or the Trust, nor shall such death or
incapacity entitle such Securityholder's legal representatives or heirs to claim
an accounting or to take any action or commence any proceeding in any court for
a partition or winding up of the Trust, nor otherwise affect the rights,
obligations and liabilities of the parties hereto.
(b) No Investor Securityholder shall have any right to vote (except
with respect to the Investor Securityholders as provided in Section 13.1 hereof)
or in any manner otherwise control the operation and management of the Trust, or
the obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Securities, be construed so as to constitute the
Securityholders from time to time as members of an association; nor shall any
Investor Securityholder be under any liability to any third person by reason of
any
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action taken by the parties to this Agreement pursuant to any provision hereof.
(c) No Securityholder shall have any right by virtue of any
provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Securityholder previously shall have given written notice to the Trustee, and
unless the Holders of Securities representing more than 50% of the Invested
Amount of any Series which may be adversely affected but for the institution of
such suit, action or proceeding, shall have made written request upon the
Trustee to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses and liabilities to be incurred therein
or thereby, and the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused to institute any
such action, suit or proceeding; it being understood and intended, and being
expressly covenanted by each Securityholder with every other Securityholder and
the Trustee, that no one or more Securityholders shall have the right in any
manner whatever by virtue or by availing itself or themselves of any provisions
of this Agreement to affect, disturb or prejudice the rights of the
Securityholders of any other of the Securities, or to obtain or seek to obtain
priority over or preference to any other such Securityholder, or to enforce any
right under this Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of all Securityholders. For the protection
and enforcement of the provisions of this Section 13.3, each and every
Securityholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
Section 13.4 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 13.5 Notices. All demands, notices and communications
hereunder shall be in writing and
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shall be deemed to have been duly given if personally delivered at, sent by
facsimile to, sent by courier at or mailed by registered mail, return receipt
requested, to (a) in the case of the Transferor to 4400 Baker Road, Suite F480,
Minnetonka, Minnesota, 55343, Attention: Chief Financial Officer and General
Counsel, with a copy to the Servicer as provided below, (b) in the case of the
Servicer, to 3904 West Technology Circle, Suite 102, Sioux Falls, South Dakota
57106, Attention: President, with a copy to Fingerhut, 4400 Baker Road,
Minnetonka, Minnesota 55343, Attention: Treasurer and General Counsel, (c) in
the case of the Trustee, to the Corporate Trust Office, (d) in the case of the
Enhancement Provider for a particular Series, the address, if any, specified in
the Supplement relating to such Series and (e) in the case of the Rating Agency
for a particular Series, the address, if any, specified in the Supplement
relating to such Series; or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party. Unless
otherwise provided with respect to any Series in the related Supplement any
notice required or permitted to be mailed to a Securityholder shall be given by
first class mail, postage prepaid, at the address of such Securityholder as
shown in the Security Register, or with respect to any notice required or
permitted to be made to the Holders of Bearer Securities, by publication in the
manner provided in the related Supplement. If and so long as any Series or
Class is listed on the Luxembourg Stock Exchange and such Exchange shall so
require, any Notice to Investor Securityholders shall be published in an
authorized newspaper of general circulation in Luxembourg within the time period
prescribed in this Agreement. Any notice so mailed within the time prescribed
in this Agreement shall be conclusively presumed to have been duly given,
whether or not the Securityholder receives such notice.
Section 13.6 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Securities or
rights of the Securityholders thereof.
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Section 13.7 Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Section 8.2, this Agreement may not be
assigned by the Servicer without the prior consent of Holders of Investor
Securities representing not less than 66 2/3% of the Invested Amount of each
Series on a Series by Series basis. Upon such assignment, the Trustee shall
provide notice to Moody's in a prompt manner.
Section 13.8 Securities Non-Assessable and Fully Paid. Except to the
extent otherwise expressly provided in Section 7.4 with respect to the
Transferor, it is the intention of the parties to this Agreement that the
Investor Securityholders shall not be personally liable for obligations of the
Trust, that the Invested Amounts represented by the Securities shall be
non-assessable for any losses or expenses of the Trust or for any reason
whatsoever, and that Securities upon authentication thereof by the Trustee
pursuant to Section 6.2 are and shall be deemed fully paid.
Section 13.9 Further Assurances. The Transferor and the Servicer
agree to do and perform, from time to time, any and all acts and to execute any
and all further instruments required or reasonably requested by the Trustee more
fully to effect the purposes of this Agreement, including, without limitation,
the execution of any financing statements or continuation statements relating to
the Receivables and the other Trust Property for filing under the provisions of
the UCC of any applicable jurisdiction.
Section 13.10 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Trustee, any Enhancement Provider
or the Investor Securityholders, any right, remedy, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exhaustive of any rights, remedies, powers and privileges
provided by law.
Section 13.11 Counterparts. This Agreement may be executed in two or
more counterparts (and by
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different parties on separate counterparts), each of which shall be an original,
but all of which together shall constitute one and the same instrument.
Section 13.12 Third-Party Beneficiaries. This Agreement will inure
to the benefit of and be binding upon the parties hereto, the Securityholders
and, to the extent provided in the related Supplement or Participation
Supplement, to the Enhancement Provider named therein and any holder of a
Participation, and their respective successors and permitted assigns. Except as
otherwise provided in this Article XIII, no other Person will have any right or
obligation hereunder.
Section 13.13 Actions by Securityholders.
(a) Wherever in this Agreement a provision is made that an action may
be taken or a notice, demand or instruction given by Investor Securityholders,
such action, notice or instruction may be taken or given by any Investor
Securityholder, unless such provision requires a specific percentage of Investor
Securityholders.
(b) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder shall bind such Securityholder and every
subsequent holder of such Security issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or omitted to be done by the Trustee or the Servicer in reliance thereon,
whether or not notation of such action is made upon such Security.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement or any Supplement to be given
or taken by Securityholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Securityholders in
person or by agent duly appointed in writing; and except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, when required, to the Transferor
or the Servicer. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Agreement
or any Supplement and conclusive in favor of the Trustee, the Transferor
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and the Servicer, if made in the manner provided in this Section.
(d) The fact and date of the execution by any Securityholder of any
such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
Section 13.14 Rule 144A Information. For so long as any of the
Investor Securities of any Series or any Class are "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act, each of the
Transferor, the Servicer, the Trustee and the Enhancement Provider for such
Series agree to cooperate with each other to provide to any Investor
Securityholders of such Series or Class and to any prospective purchaser of
Securities designated by such an Investor Securityholder upon the request of
such Investor Securityholder or prospective purchaser, any information required
to be provided to such Holder or prospective purchaser to satisfy the condition
set forth in Rule 144A(d)(4) under the Securities Act.
Section 13.15 Merger and Integration. Except as specifically stated
otherwise herein, this Agreement sets forth the entire understanding of the
parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement. This Agreement may not be
modified, amended, waived or supplemented except as provided herein.
Section 13.16 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
[End of Article XIII]
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<PAGE>
IN WITNESS WHEREOF, the Transferor, the Servicer and the Trustee have
caused this Agreement to be duly executed by their respective officers as of the
day and year first above written.
FINGERHUT RECEIVABLES, INC.
Transferor
By:
--------------------------
Name:
Title:
FINGERHUT NATIONAL BANK
Servicer
By:
---------------------------
Name:
Title:
THE BANK OF NEW YORK (DELAWARE)
Trustee
By:
----------------------------
Name:
Title:
<PAGE>
SCHEDULE 1
TAX RETURNS AND PAYMENTS
FCI and its subsidiaries have filed all applicable federal, state and material
local tax returns and have paid or caused to be paid all associated taxes due
and payable on such returns or on any assessments received by them; except that
FCI or its subsidiaries have not filed certain tax returns purported to be
required because they believe the requirements are invalid and unenforceable
under the commerce clause of the United States Constitution as interpreted by
the Supreme Court in National Bellas Hess v. Department of Revenue of Illinois,
386 U.S. 753 (1967) and the supporting lines of cases, including Quill Corp. v.
North Dakota, 112 S. Ct. 1904 (1992). The following are the states in which FCI
or its subsidiaries are currently collecting sales/use taxes:
California Pennsylvania
Florida South Carolina
Illinois South Dakota
Iowa Tennessee
Minnesota Utah
New York Wisconsin
Ohio
Notwithstanding the Supreme Court decisions, the following states, to the best
knowledge of FCI or its subsidiaries, currently have legislation in effect which
purports or may purport to require FCI or its subsidiaries to collect sales or
use taxes:
Alabama Nebraska
Alaska Nevada
Arizona New Jersey
Arkansas New Mexico
California New York
Colorado North Carolina
Connecticut North Dakota
District of Columbia Ohio
Florida Oklahoma
Georgia Pennsylvania
Hawaii Rhode Island
Idaho South Carolina
Indiana South Dakota
Illinois Tennessee
Iowa Texas
Kansas Utah
Kentucky Vermont
<PAGE>
Louisiana Virginia
Maine Washington
Maryland West Virginia
Massachusetts Wisconsin
Michigan Wyoming
Minnesota
Mississippi
Missouri
In addition, because FNB is a national banking entity (established in 1996)
which derives the majority of its income from granting credit, it may be subject
to special financial institution rules in certain states. Such rules attempt to
impute state income tax nexus to a company if it obtains finance revenue and/or
has receivables generated from customers in that state. Of the states that have
adopted such financial institution rules, Minnesota is the only state where FNB
is currently filing income or franchise tax returns. States which currently
have rules pursuant to which they may attempt to impose income tax nexus based
upon such activity include:
Arkansas Massachusetts
California Minnesota
Hawaii New Mexico
Indiana Tennessee
Kentucky West Virginia
FNB has not filed in states implementing such rules other than Minnesota because
it believes the above-referenced financial institution rules to be
unconstitutional. Note that FNB does file tax returns in South Dakota, its
state of domicile.
<PAGE>
SCHEDULE 2
Nomenclature List
The following is a table listing the terms used in the Pooling and
Servicing Agreement prior to this Amended and Restated Pooling and Servicing
Agreement which have been renamed in this Amended and Restated Pooling and
Servicing Agreement. The terms used in the Pooling and Servicing Agreement
prior to this Amended and Restated Pooling and Servicing Agreement will keep
their meaning with respect to each Series issued prior to the Amendment Closing
Date and outstanding on the date hereof consistent with this table.
<TABLE>
<CAPTION>
Terms Used in Pooling and Terms Used in This Amended
Servicing Agreement Prior and Restated Pooling and
to Amendment Servicing Agreement
----------------------------------------------------------------------
<S> <C>
Bearer Certificate Bearer Security
Bearer Certificateholder Bearer Securityholder
Book-Entry Certificates Book-Entry Securities
Certificate Owner Security Owner
Certificate Principal Security Principal
Certificate Rate Security Rate
Certificate Register Security Register
Certificateholders Securityholders
Certificates Securities
Definitive Certificates Definitive Securities
Euro-Certificate Exchange Date Euro-Security Exchange Date
Exchangeable Transferor Certificate Exchangeable Transferor Security
Global Certificate Global Security
Investor Certificateholder Investor Securityholder
Investor Certificates Investor Securities
Investor Charge-Off Series Charge-Off
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Terms Used in Pooling and Terms Used in This Amended
Servicing Agreement Prior and Restated Pooling and
to Amendment Servicing Agreement
----------------------------------------------------------------------
<S> <C>
Investor Default Amount Series Default Amount
Registered Certificates Registered Securities
Supplemental Certificate Supplemental Security
Transferor Retained Transferor Retained
Certificate Security
Unfunded Certificate Unfunded Security
Variable Funding Variable Funding
Certificates Securities
</TABLE>
<PAGE>
EXHIBIT A
FORM OF EXCHANGEABLE TRANSFEROR SECURITY
No. __ One Unit
FINGERHUT MASTER TRUST
ASSET BACKED SECURITY
THIS SECURITY WAS ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY BE SOLD ONLY PURSUANT TO
A REGISTRATION STATEMENT EFFECTIVE UNDER THE ACT OR AN EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE ACT. IN ADDITION, THE TRANSFER OF THIS SECURITY
IS SUBJECT TO RESTRICTIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN. A COPY OF THE POOLING AND SERVICING AGREEMENT WILL BE
FURNISHED TO THE HOLDER OF THIS SECURITY BY THE TRUSTEE UPON WRITTEN REQUEST.
This Security represents an
Undivided Interest in the Fingerhut Master Trust
Evidencing an undivided interest in a trust, the corpus of which consists of
receivables generated from time to time in the ordinary course of business from
a portfolio of consumer revolving credit card accounts and closed-end
installment sale or loan contracts generated or to be generated by certain
customers of Fingerhut Corporation ("Fingerhut") and other assets and interests
constituting the Trust under the Pooling and Servicing Agreement described
below.
(Not an interest in or a recourse obligation of
Fingerhut Receivables, Inc., Fingerhut Corporation,
Fingerhut National Bank, Fingerhut Companies, Inc.
or any Affiliate of either of them.)
This certifies that FINGERHUT RECEIVABLES, INC. ("FRI," the "Holder"
or the "Transferor," as the context requires) is the registered owner of a
fractional undivided interest in the Fingerhut Master Trust (the "Trust") issued
pursuant to the Amended and Restated Pooling and Servicing Agreement, dated as
of March 18, 1998 (the "Pooling and Servicing Agreement"; such term to include
any amendment or Supplement thereto) by and among FRI, as Transferor, Fingerhut
National Bank, as Servicer
<PAGE>
(the "Servicer"), and The Bank of New York (Delaware), as Trustee (the
"Trustee"), as supplemented by each supplement thereto existing from time to
time. The corpus of the Trust will include (i) a portfolio of Receivables (the
"Receivables") generated from time to time by Fingerhut satisfying certain
criteria, (ii) all funds to be collected from Obligors in respect of the
Receivables, (iii) all right, title, and interest of the Transferor in, to, and
under the Purchase Agreement with respect to Receivables arising under Eligible
Accounts, (iv) the benefit of funds on deposit in the Excess Funding Account,
(v) Recoveries, (vi) moneys on deposit in certain Series Accounts, (vii)
proceeds of the foregoing, (viii) all monies due or to become due with respect
thereto and all amounts received with respect to the Receivables in existence on
the Closing Date or generated thereafter, all monies on deposit in the
Collection Account, the Excess Funding Account, the Distribution Account, each
Series Account, and all other assets and interests constituting the Trust and
(ix) all proceeds of the foregoing.
To the extent not defined herein, the capitalized terms used herein
have the meanings assigned in the Pooling and Servicing Agreement. This
Security is issued under and is subject to the terms, provisions and conditions
of the Pooling and Servicing Agreement, to which Pooling and Servicing
Agreement, as amended from time to time, the Holder by virtue of the acceptance
hereof assents and by which the Holder is bound.
This Security has not been registered or qualified under the
Securities Act of 1933, as amended, or any state securities law. No sale,
transfer or other disposition of this Security shall be permitted other than in
accordance with the provisions of Section 6.3, 6.9 or 7.2 of the Pooling and
Servicing Agreement.
The Receivables arise generally from amounts charged to Obligors for
consumer goods, services or financial service products.
This Security is the Exchangeable Transferor Security (the
"Security"), which represents an undivided interest in the Trust, including the
right to receive the Collections and other amounts at the times and in the
amounts specified in the Pooling and Servicing Agreement to be paid to the
Holder of the Exchangeable Transferor Security. The aggregate interest
represented by this Security at any time in the Principal Receivables in the
<PAGE>
Trust shall not exceed the Transferor Interest at such time. In addition to
this Security, Series of Investor Securities and Participations will be issued
to investors pursuant to the Pooling and Servicing Agreement. This Security
shall not represent any interest in any Enhancement, except to the extent
provided in the Pooling and Servicing Agreement. The Transferor Interest on any
date of determination will be an amount equal to the aggregate amount of
Principal Receivables at the end of the day immediately prior to such date of
determination plus amounts on deposit in the Excess Funding Account, the
Pre-Funding Account and the Principal Funding Account, if any, for each Series
(but not including any investment earnings thereon) minus the sum of the
Aggregate Invested Amount at the end of such day and the Participation Amount of
each Participation then outstanding.
The Servicer shall deposit all Collections in the Collection Account
as promptly as possible after the Date of Processing of such Collections.
Unless otherwise stated in any Supplement, throughout the existence of the
Trust, the Servicer shall allocate to the Holder of the Security an amount equal
to the product of (A) the Transferor Percentage and (B) the aggregate amount of
such Principal Collections and Finance Charge Collections, respectively, in
respect of each Monthly Period. Notwithstanding the first sentence of this
paragraph, the Servicer need not deposit this amount or any other amounts so
allocated to this Security pursuant to the Pooling and Servicing Agreement into
the Collection Account and shall pay, or be deemed to pay, such amounts as
collected to the Holder of this Security.
FNB or any permitted successor or assignee, as Servicer, is entitled
to receive as servicing compensation a monthly servicing fee. The portion of
the servicing fee which will be allocable to the Holder of the Security pursuant
to the Pooling and Servicing Agreement will be payable by the Holder of this
Security and neither the Trust nor the Trustee or the Investor Securityholders
will have any obligation to pay such portion of the servicing fee.
This Security does not represent a recourse obligation of, or any
interest in, the Transferor, FCI, Fingerhut, the Servicer or any of their
Affiliates. This Security is limited in right of payment to certain Collections
respecting the Receivables, all as more specifically set forth hereinabove and
in the Pooling and Servicing Agreement.
<PAGE>
Upon the termination of the Trust pursuant to Section 12.1 of the
Pooling and Servicing Agreement, the Trustee shall assign and convey to the
Holder of the Security (without recourse, representation or warranty) all right,
title and interest of the Trust in the Receivables, whether then existing or
thereafter created, and all proceeds relating thereto. The Trustee shall
execute and deliver such instruments of transfer and assignment, in each case
without recourse, as shall be reasonably requested by the Holder of the Security
to vest in such Holder all right, title and interest which the Trustee had in
the Receivables.
Unless the certificate of authentication hereon has been executed by
or on behalf of the Trustee, by manual signature, this Security shall not be
entitled to any benefit under the Pooling and Servicing Agreement, or be valid
for any purpose.
IN WITNESS WHEREOF, the Transferor has caused this Security to be duly
executed.
FINGERHUT RECEIVABLES, INC.,
Transferor,
By:
-------------------------
Name:
Title:
Date:
CERTIFICATE OF AUTHENTICATION
This is the Exchangeable Transferor Security referred to in the
within-mentioned Pooling and Servicing Agreement.
THE BANK OF NEW YORK
Authenticating Agent
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT B
---------
FORM OF DAILY REPORT
FINGERHUT RECEIVABLES, INC.
------------------------------
FINGERHUT MASTER TRUST
------------------------------
The undersigned, a duly authorized representative of Fingerhut
National Bank (the "Servicer"), as Servicer pursuant to the Amended and Restated
Pooling and Servicing Agreement dated as of ___________, 1998 (the "Pooling and
Servicing Agreement"; such term to include any amendment or Supplement thereto)
by and among Fingerhut Receivables Inc. (the "Transferor"), the Servicer and The
Bank of New York (Delaware), as Trustee, does hereby certify as follows:
[ATTACHED HEREWITH]
IN WITNESS WHEREOF, the undersigned has duly executed this certificate
this day of , .
--- -------- ----
FINGERHUT NATIONAL BANK,
as Servicer
------------------------------
Name:
Title:
<PAGE>
Fingerhut Receivables, Inc. Fingerhut Master Trust
Accounts Receivables Trust Security Series
-------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daily Trust Activity Class A Class B CTO Class D ___Series ___Series Transferor Trust
Interest Interest Interest Totals
---------
Beginning Receivables Balance
---------
Discount Factor
---------
Discount Receivables
---------
Finance Receivables
---------
Total Finance/Discount Receivables
---------
Principal Receivables
---------
Excess Funding Account Balance
---------
Principal Receivables+Expenses
Funding Account Balance
---------
Pre-Funding Account Balance
---------
Beg Inv Amt (Before PFA withdrawal)
-------- -------- -------- ------ ------ -------- --------- -------- ---------
Principal; CP
-------- -------- -------- ------ ------ -------- --------- -------- ---------
Adjusted Beginning Invested Amount
-------- -------- -------- ------ ------ -------- --------- -------- ---------
Floating Percentage
-------- -------- -------- ------ ------ -------- --------- -------- ---------
Fixed/Floating Percentage
-------- -------- -------- ------ ------ -------- --------- -------- ---------
Collections
---------
Finance Collections
-------- -------- -------- ------ ------ -------- --------- -------- ---------
Principal Collections
-------- -------- -------- ------ ------ -------- --------- -------- ---------
Charge-offs
Finance Charge-offs
-------- -------- -------- ------ ------ -------- --------- -------- ---------
Principal Charge-offs
-------- -------- -------- ------ ------ -------- --------- -------- ---------
Recoveries
---------
Dilution
---------
Excess Funding Account Earnings
---------
Pre-Funding Account Earnings
---------
New Receivables
---------
Ending Receivables Balance
--------
Discount Factor
---------
Discount Receivables
---------
Finance Receivables
---------
Total Finance/Discount Receivables
---------
Principal Receivables
---------
Minimum Aggregate Principal Receivables
---------
Required Excess Funding Balance
---------
Actual Deposit (Withdrawal) to Excess
Funding Account
---------
Actual Excess Funding Balance
---------
Principal Receivables+Excess
Funding Account
---------
Pre-Funding Account Balance
---------
Redirected Principal
------ ------ --------
Reimbursed Redirected Principal
------ ------ --------
Ending Invested Amount
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Monthly Interest Required Class A Class B CTO Class D Total
Series Coupon % % %
Series Interest for Reporting Period
</TABLE>
<PAGE>
EXHIBIT C
---------
FORM OF SETTLEMENT STATEMENT
<TABLE>
<CAPTION>
Fingerhut Receivables, Inc Fingerhut Master Trust Monthly Report
Certificateholder's Statement Series XXX-XX
Class A Class B CT O Class D Total
<S> <C> <C> <C> <C> <C>
(i) Security Amount 0.00 0.00 0.00 0.00 0.00
---------- ---------- --------- --------- ------
---------- ---------- --------- --------- ------
(ii) Security Principal Distributed 0.00 0.00 0.00 0.00
---------- ---------- --------- ------
---------- ---------- --------- ------
(iii) Security Interest Distributed 0.00 0.00 0.00 0.00
---------- ---------- --------- ------
---------- ---------- --------- ------
Total Distribution per $1,000 Security
Security Principal Distributed per $1,000 0.0000000 0.0000000 0.0000000
---------- ---------- ---------
---------- ---------- ---------
Security Interest Distributed per $1,000 0.0000000 0.0000000 0.0000000
---------- ---------- ---------
---------- ---------- ---------
(iv) Principal Collections 0.00 0.00 0.00 0.00 0.00
(v) Finance Charge Collections 0.00 0.00 0.00 0.00 0.00
Recoveries 0.00 0.00 0.00 0.00 0.00
---------- ---------- --------- --------- ----
Total Finance Charge Collections 0.00 0.00 0.00 0.00 0.00
---------- ---------- --------- --------- ----
Total Collections 0.00 0.00 0.00 0.00 0.00
---------- ---------- --------- --------- ----
---------- ---------- --------- --------- ----
(vi) Aggregate Amount of Principal Receivables
Invested Amount (End of Month) 0.00 0.00 0.00 0.00 0.00
---------- ---------- --------- --------- ----
---------- ---------- --------- --------- ----
Floating Percentage 0.0000000% 0.0000000% 0.0000000% 0.0000000% 0.0000000%
---------- ---------- --------- --------- -----
---------- ---------- --------- --------- -----
Invested Amount (Beginning of Month) 0.00 0.00 0.00 0.00 0.00
---------- ---------- --------- --------- ------
---------- ---------- --------- --------- ------
Average Daily Invested Amount 0.00
----
----
(vii) Receivable Delinquencies
(As a % of Total Receivables)
Current 0.00% 0.00
30 Days to 59 Days 0.00% 0.00
60 Days to 89 Days 0.00% 0.00
90 Days and Over 0.00% 0.00
--------- ------
Total Receivables 0.00% 0.00
--------- ------
--------- ------
(viii) Aggregate Investor Default Amount 0.00
------
------
As a % of Average Daily Invested Amount (annualized based on 365 days/year) 0.00%
------
------
(ix) Security Charge-Offs
Class A 0.00
Class B 0.00
Class C 0.00
------
Total Security Charge-Offs 0.00
------
------
(x) Servicing Fee
Class A 0.00
Class B 0.00
CTO 0.00
Class D 0.00
------
Total Servicing Fee 0.00
------
------
(xi) Pool Factor
Class A 0.0000000
----------
----------
Class B 0.0000000
---------
---------
CTO 0.0000000
---------
---------
(xii) Redirected Principal Collections
Class B 0.00
----
----
CTO 0.00
----
----
Class D ** Everything was reimbursed by the end of the fiscal month. 0.00
----
----
(xiii) Excess Funding Account Balance 0.00
----
----
(xiv) CTO Trigger Event Occurrence
CTO Reserve Amount
Average Net Portfolio Yield 0.0000%
------
------
Minimum Base Rate 0.0000%
------
------
</TABLE>
<PAGE>
EXHIBIT D
FORM OF ANNUAL SERVICER'S CERTIFICATE
------------------------------
FINGERHUT MASTER TRUST
------------------------------
The undersigned, a duly authorized representative of Fingerhut
National Bank ("FNB"), as Servicer pursuant to the Amended and Restated Pooling
and Servicing Agreement dated as of March 18, 1998 (the "Pooling and Servicing
Agreement"; such term to include any amendment or Supplement thereto) by and
among Fingerhut Receivables, Inc. (the "Transferor"), FNB, as Servicer and The
Bank of New York (Delaware), as trustee (the "Trustee") does hereby certify
that:
1. FNB is Servicer under the Pooling and Servicing Agreement.
2. The undersigned is duly authorized pursuant to the Pooling
and Servicing Agreement to execute and deliver this certificate to the
Trustee.
3. This certificate is delivered pursuant to Section 3.5 of the
Pooling and Servicing Agreement.
4. A review of the activities of the Servicer during (the period
from the Closing Date until) (the twelve fiscal month period ended)
________, 19__ was conducted under our supervision.
5. Based on such review, the Servicer has, to the best of our
knowledge, fully performed all its obligations under the Pooling and
Servicing Agreement throughout such period and no default in the
performance of such obligations has occurred or is continuing except as set
forth in paragraph 6 below.
6. The following is a description of each default in the
performance of the Servicer's obligations under the provisions of the
Pooling and Servicing Agreement, including any Supplement, known to us to
have been made during such period which sets forth in detail (i) the nature
of each such default, (ii) the action taken by
<PAGE>
the Servicer, if any, to remedy each such default and (iii) the current
status of each such default:
[If applicable, insert "None."]
IN WITNESS WHEREOF, the undersigned has duly executed this certificate
this ___ day of ________, ____.
FINGERHUT NATIONAL BANK,
as Servicer
------------------------------
Name:
Title:
<PAGE>
EXHIBIT E
FORM OF ANNUAL OPINION OF COUNSEL
The opinion set forth below, which is to be delivered pursuant to
subsection 13.2(d)(ii) of the Pooling and Servicing Agreement, may be subject to
certain qualifications, assumptions, limitations and exceptions taken or made in
the opinion of counsel delivered on the Initial Closing Date with respect to
similar matters.
No filing or other action, other than such filing or action described
in such opinion, is necessary from the date of such opinion through ________ of
the following year to continue the perfected status of the interest of the Trust
in the collateral described in the financing statements referred to in such
opinion.
<PAGE>
EXHIBIT F
FORM OF RECONVEYANCE OF RECEIVABLES
RECONVEYANCE OF RECEIVABLES, dated as of _________ , ____ by and
between FINGERHUT RECEIVABLES, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Transferor"), and THE BANK OF NEW YORK
(DELAWARE), a banking corporation organized and existing under the laws of the
State of Delaware (the "Trustee") pursuant to the Pooling and Servicing
Agreement referred to below.
W I T N E S S E T H:
WHEREAS, the Transferor and the Trustee are parties to the Amended and
Restated Pooling and Servicing Agreement dated as of March 18, 1998 (hereinafter
as such agreement may have been, or may from time to time be, amended,
supplemented or otherwise modified, the "Pooling and Servicing Agreement") by
and among the Transferor, Fingerhut National Bank as Servicer, and the Trustee;
WHEREAS, pursuant to the Pooling and Servicing Agreement, the
Transferor wishes to cause the Trustee to reconvey all of the Receivables and
proceeds thereof, whether now existing or hereafter created, from the Trust to
the Transferor pursuant to the terms of Section 12.4 of the Pooling and
Servicing Agreement upon termination of the Trust pursuant to subsection 12.1(a)
of the Pooling and Servicing Agreement (as each such term is defined in the
Pooling and Servicing Agreement);
WHEREAS, the Trustee is willing to reconvey the Receivables subject to
the terms and conditions hereof;
NOW THEREFORE, the Transferor and the Trustee hereby agree as follows:
1. Defined Terms. All terms defined in the Pooling and Servicing
Agreement and used herein shall have such defined meanings when used herein,
unless otherwise defined herein.
"Reconveyance Date" shall mean _____ __, ____.
2. Return of Lists of Receivables. The Trustee shall deliver to the
Transferor or the bailee of the Transferor,
<PAGE>
not later than three Business Days after the Reconveyance Date, each and every
computer file or microfiche list of Receivables delivered to the Trustee
pursuant to the terms of the Pooling and Servicing Agreement.
3. Conveyance of Receivables. (a) The Trustee does hereby reconvey
to the Transferor, without recourse, representation or warranty, on and after
the Reconveyance Date, all right, title and interest of the Trust in and to each
and every Receivable now existing and hereafter created, all monies due or to
become due with respect thereto (including all Finance Charge Receivables), all
proceeds (as defined in Section 9-306 of the UCC as in effect in the Relevant
UCC State) of such Receivables, except for amounts, if any, held by the Trustee
pursuant to subsection 12.3(b) of the Pooling and Servicing Agreement.
(b) In connection with such transfer, the Trustee agrees to
execute and deliver to the Transferor on or prior to the date of this
Reconveyance, such UCC termination statements as the Transferor may reasonably
request, evidencing the release by the Trust of its lien on the Receivables.
4. Counterparts. This Reconveyance may be executed in two or more
counterparts (and by different parties on separate counterparts), each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
5. Governing Law. THIS RECONVEYANCE SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Reconveyance of
Receivables to be duly executed and delivered by their respective duly
authorized officers on the day and year first above written.
FINGERHUT RECEIVABLES, INC.
By
----------------------------
Name:
Title:
THE BANK OF NEW YORK (DELAWARE),
Trustee
By
----------------------------
Name:
Title:
<PAGE>
EXHIBIT G
FORM OF AGREED-UPON PROCEDURES
The Servicer and Trustee will engage a firm of nationally recognized independent
public accountants (who may also render other services to the Servicer or any of
its subsidiaries) to perform certain agreed-upon procedures substantially
similar to the following:
[Describe appropriate procedures]
<PAGE>
EXHIBIT H
FORM OF ASSIGNMENT OF RECEIVABLES IN SUPPLEMENTAL ACCOUNTS
ASSIGNMENT No. __ OF RECEIVABLES IN ADDITIONAL ACCOUNTS, dated as of
____________, ____ by and between FINGERHUT RECEIVABLES, INC., a corporation
organized under the laws of the State of Delaware (the "Transferor"), and THE
BANK OF NEW YORK (DELAWARE), a banking corporation organized and existing under
the laws of the State of Delaware, as Trustee (the "Trustee") pursuant to the
Pooling and Servicing Agreement referred to below.
W I T N E S S E T H:
WHEREAS, the Transferor and the Trustee are parties to the Amended and
Restated Pooling and Servicing Agreement, dated as of March 18, 1998
(hereinafter as such agreement may have been, or may from time to time be,
amended, supplemented or otherwise modified, the "Pooling and Servicing
Agreement");
WHEREAS, pursuant to the Pooling and Servicing Agreement, the
Transferor wishes to designate Supplemental Accounts of the Transferor to be
included as Accounts and to convey the Receivables in such Supplemental
Accounts, whether now existing or hereafter created, to the Trust as part of the
corpus of the Trust (as each such term is defined in the Pooling and Servicing
Agreement); and
WHEREAS, the Trustee is willing to accept such designation and
conveyance subject to the terms and conditions hereof;
NOW, THEREFORE, the Transferor and the Trustee hereby agree as
follows:
1. Defined Terms. All terms defined in the Pooling and Servicing
Agreement and used herein shall have such defined meanings when used herein,
unless otherwise defined herein.
"Addition Date" shall mean, with respect to the Supplemental Accounts
designated hereby,
"Notice Date" shall mean, with respect to the Supplemental Accounts
designated hereby, _________, ______ (which shall be a date on or prior to the
fifth Business
<PAGE>
Day prior to the Addition Date with respect to additions pursuant to subsection
2.6(c) of the Pooling and Servicing Agreement and on or before the tenth
Business Day prior to the Addition Date with respect to additions pursuant to
subsection 2.6(d) of the Pooling and Servicing Agreement).
2. Designation of Additional Accounts. The Transferor shall deliver
to the Trustee not later than five Business Days after the Addition Date, a
computer file or microfiche list containing a true and complete list of each
account which as of the Addition Date shall be deemed to be an Additional
Account, such accounts being identified by account number and by the amount of
Receivables in such accounts as of the close of business on the Addition Date.
Such list shall be delivered five Business Days after the date of this Agreement
and shall be marked as Schedule l to this Assignment and, as of the Addition
Date, shall be incorporated into and made a part of this Assignment.
3. Conveyance of Receivables.
The Transferor does hereby transfer, assign, set-over and otherwise
convey to the Trustee, on behalf of the Trust without recourse on and after the
Addition Date, all right, title and interest of the Transferor in and to the
Receivables now existing and hereafter created in the Additional Accounts
designated hereby, all monies due or to become due with respect thereto
(including all Finance Charge Receivables) and all proceeds of such Receivables.
In connection with such transfer, the Transferor agrees to record and
file, at its own expense, a financing statement with respect to the Receivables
now existing and hereafter created in the Additional Accounts designated hereby
(which may be a single financing statement with respect to all such Receivables)
for the transfer of accounts as defined in Section 9--106 of the UCC as in
effect in the State of Delaware meeting the requirements of applicable state law
in such manner and such jurisdictions as are necessary to perfect the assignment
of such Receivables to the Trust, and to deliver a file-stamped copy of such
financing statement or other evidence of such filing (which may, for purposes of
this Section 3, consist of telephone confirmation of such filing) to the Trustee
on or prior to the date of this Assignment.
<PAGE>
In connection with such transfer, the Transferor further agrees, at
its own expense, on or prior to the date of this Assignment to indicate in its
computer files that Receivables created in connection with the Additional
Accounts designated hereby have been transferred to the Trust pursuant to this
Assignment for the benefit of the Securityholders.
The Transferor hereby grants and transfers to the Trustee a first
priority perfected security interest in all of the Transferor's right, title and
interest in, to and under the Receivables now existing and hereafter created and
arising in connection with the Additional Accounts designated hereby, all monies
due or to become due with respect thereto (including all Finance Charge
Receivables) and all proceeds of such Receivables, and that this Assignment
shall constitute a security agreement under applicable law.
4. Acceptance by Trustee. The Trustee hereby acknowledges its
acceptance on behalf of the Trust for the benefit of the Securityholders of all
right, title and interest previously held by the Transferor in and to the
Receivables now existing and hereafter created, and declares that it shall
maintain such right, title and interest, upon the trust herein set forth, for
the benefit of all Securityholders.
5. Representations and Warranties of the Transferor. The Transferor
hereby represents and warrants to the Trust as of the Addition Date:
(a) Legal, Valid and Binding Obligation. This Assignment
constitutes a legal, valid and binding obligation of the Transferor
enforceable against the Transferor in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
affecting the enforcement of creditors' rights in general and except as
such enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity).
(b) Eligibility of Accounts and Receivables. Each Additional
Account designated hereby is an Eligible Account and each Receivable in
such Additional Account is an Eligible Receivable. No selection procedures
believed by the Transferor to be materially adverse to the interests of the
Investor
<PAGE>
Securityholders were utilized in selecting the Additional Accounts from the
available Eligible Accounts, provided, that, the selection of newly
originated Accounts is deemed not to be materially adverse to the interests
of the Investor Securityholders.
(c) Insolvency. The Transferor is not insolvent and, after
giving effect to the conveyance set forth in Section 3 of this Assignment,
will not be insolvent.
(d) Security Interest. This Assignment constitutes either (i) a
valid transfer, assignment, set-over and conveyance to the Trust of all
right, title and interest of the Transferor in and to (A) the Receivables
in the DSupplemental Accounts then existing and thereafter created, in each
case, immediately upon the Transferor's acquisition of rights therein, (B)
all monies and investments due or to become due with respect thereto
(including, without limitation, the right to any Finance Charge
Receivables, including any Recoveries), (C) all proceeds of such
Receivables, (D) the Purchase Agreement with respect to Receivables arising
under the Supplemental Accounts and (E) the Bank Receivables Purchase
Agreement with respect to Receivables arising under the Supplemental
Accounts (the "Trust Property"), and such Trust Property will be held by
the Trust free and clear of any Lien of any Person claiming through or
under the Transferor or any of its Affiliates except for (x) Permitted
Liens, (y) the interest of the Transferor as Holder of the Exchangeable
Transferor Security and any other Class of Securities held by the
Transferor from time to time and (z) the Transferor's right, if any, to
interest accruing on, and investment earnings, if any, in respect of any
Interest Funding Account, any Principal Account, the Excess Funding
Account, or any Series Account, as provided in the Agreement or the related
Supplement; or (ii) a grant of a first priority security interest (as
defined in the UCC as in effect in the Relevant UCC State) in, to and under
the Supplemental Accounts, which grant is enforceable with respect to the
Receivables in Additional Accounts designated for inclusion in the Trust
(other than Receivables in Supplemental Accounts) and the proceeds thereof
upon execution and delivery of this Assignment, and which will be
enforceable with respect to such Receivables hereafter created and the
proceeds thereof, upon such creation; and provided, further, that if this
Assignment
<PAGE>
constitutes the grant of a security interest to the Trust in such property,
upon the filing of the financing statement described in Section 3 of this
Assignment with respect to the Additional Accounts designated hereby and in
the case of the Receivables hereafter created and proceeds thereof, upon
such creation, the Trust shall have a first priority perfected security
interest in such property, except for Permitted Liens.
6. Conditions Precedent. The acceptance by the Trustee set forth in
Section 4 and the amendment of the Pooling and Servicing Agreement set forth in
Section 7 are subject to the satisfaction, on or prior to the Addition Date, of
the following conditions precedent:
(a) Officer's Certificate. The Transferor shall have delivered
to the Trustee a certificate of a Vice President or more senior officer
substantially in the form of Schedule 2 hereto, certifying that (i) all
requirements set forth in Section 2.6 of the Pooling and Servicing
Agreement for designating Additional Accounts and conveying the Principal
Receivables of such Accounts, whether now existing or hereafter created,
have been satisfied and (ii) each of the representations and warranties
made by the Transferor in Section 5 is true and correct as of the Addition
Date. The Trustee may conclusively rely on such Officer's Certificate,
shall have no duty to make inquiries with regard to the matters set forth
therein, end shall incur no liability In so relying.
(b) Opinion of Counsel. The Transferor shall have delivered to
the Trustee an Opinion of Counsel with respect to the Additional Accounts
designated hereby substantially in the form of Exhibit I to the Pooling and
Servicing Agreement.
(c) Additional Information. The Transferor shall have delivered
to the Trustee such information as was reasonably requested by the Trustee
to satisfy itself as to the accuracy of the representation and warranty set
forth in subsection 5(d) to this Agreement.
7. Amendment of the Pooling and Servicing Agreement. The Pooling and
Servicing Agreement is hereby amended to provide that all references therein to
the "Pooling and Servicing Agreement," to "this Agreement" and "herein" shall be
deemed from and after the Addition
<PAGE>
Date to be a dual reference to the Pooling and Servicing Agreement as
supplemented by this Assignment. Except as expressly amended hereby, all of the
representations, warranties, terms, covenants and conditions of the Pooling and
Servicing Agreement shall remain unamended and shall continue to be, and shall
remain, in full force and effect in accordance with its terms and except as
expressly provided herein shall not constitute or be deemed to constitute a
waiver of compliance with or a consent to noncompliance with any term or
provision of the Pooling and Servicing Agreement.
8. Counterparts. This Assignment may be executed in two or more
counterparts (and by different parties on separate counterparts), each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
9. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ITS
CONFLICT OF LAW PROVISIONS.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Assignment of
Receivables in Additional Accounts to be duly executed and delivered by their
respective duly authorized officers on the day and year first above written.
FINGERHUT RECEIVABLES, INC.
By:
--------------------------
Name:
Title
THE BANK OF NEW YORK
(DELAWARE)
By:
--------------------------
Name:
Title:
<PAGE>
Schedule 1
to Assignment of
Receivables in
Supplemental Account
SUPPLEMENTAL ACCOUNTS
<PAGE>
Schedule 2
to Assignment of
Receivables in
Supplemental Account
Fingerhut Receivables,Inc.
Fingerhut Master Trust
Officer's Certificate
____________________, a duly authorized officer of Fingerhut
Receivables, Inc., a Delaware corporation (the "Transferor"), hereby certifies
and acknowledges on behalf of the Transferor that to the best of his knowledge
the following statements are true on ______, ____, (the "Addition Date"), and
acknowledges on behalf of the Transferor that this Officer's Certificate will be
relied upon by ______________ as Trustee (the "Trustee") of the Fingerhut Master
Trust in connection with the Trustee entering into Assignment No. of
Receivables in Supplemental Accounts, dated as of the Addition Date (the
"Assignment"), by and between the Transferor and the Trustee, in connection with
the Amended and Restated Pooling and Servicing Agreement, dated as of March 18,
1998, as heretofore supplemented and amended (the "Pooling and Servicing
Agreement") pursuant to which the Transferor and the Trustee are parties. The
undersigned hereby certifies and acknowledges on behalf of the Bank that:
(a) Delivery of Assignment. On or prior to the Addition Date, the
Transferor has delivered to the Trustee the Assignment (including an acceptance
by the Trustee on behalf of the Trust for the benefit of the Investor
Securityholders) and the Transferor has indicated in its computer files that the
Receivables created in connection with the Supplemental Accounts have been
transferred to the Trust and within five Business Days after the Addition Date
the Transferor shall deliver to the Trustee a computer file or microfiche list
containing a true and complete list of all Supplemental Accounts identified by
account number and the aggregate amount of the Receivables in such Supplemental
Accounts as of the Addition Date, which computer file or microfiche list shall
be as of the date of such Assignment, incorporated into and made a part of such
Assignment and the Pooling and Servicing Agreement.
<PAGE>
(b) Legal Valid and Binding Obligation. The Assignment constitutes
a legal, valid and binding obligation of the Transferor, enforceable against
the Transferor in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect affecting the
enforcement of creditors' rights in general except as such enforceability may
be limited by general principles of equity (whether considered in a suit at
law or in equity).
(c) Accounts. Each Supplemental Account designated Pursuant to the
Assignment is an Eligible Account. No selection procedures believed by the
Transferor to be materially adverse to the interests of the Investor
Securityholders were utilized in selecting the Additional Accounts from the
available Eligible Accounts, provided, that, the selection of newly originated
Accounts is deemed not to be materially adverse to the interests of the Investor
Securityholders.
(d) Insolvency. The Transferor is not insolvent and, after giving
effect to the conveyance set forth in Section 3 of the Assignment, will not be
insolvent.
(e) Security Interest. The Assignment constitutes either (i) a valid
transfer, assignment, set-over and conveyance to the Trust of all right, title
and interest of the Transferor in and to (A) the Receivable in the Supplemental
Accounts then existing and thereafter created, in each case, immediately upon
the Transferor's acquisition of rights therein, (B) all monies and investments
due or to become due with respect thereto (including, without limitation, the
right to any Finance Charge Receivables, including any Recoveries), (C) all
proceeds of such Receivables, (D) the Purchase Agreement with respect to
Receivables arising under the Supplemental Accounts and (E) the Bank Receivables
Purchase Agreement with respect to Receivables arising under the Supplemental
Accounts, and such Trust Property will be held by the Trust free and clear of
any Lien of any Person claiming through or under the Transferor or any of its
Affiliates except for (x) Liens permitted under subsection 2.5(b) of the Pooling
and Servicing Agreement, (y) the interest of the Transferor as Holder of the
Exchangeable Transferor Security and any other Class of Securities held by the
Transferor from time to time and (z) the Transferor's right, if any, to interest
accruing on, and investment earnings, if any, in respect of any Interest Funding
<PAGE>
Account, any Principal Account, the Excess Funding Account, or any Series
Account, as provided in this Agreement or the related Supplement; or (ii) a
grant of a first priority security interest (as defined in the UCC as in effect
in the Relevant UCC State) in, to and under the Trust Property, which grant is
enforceable with respect to the existing Receivables and any Receivables in
Additional Accounts designated for inclusion in the Trust (other than
Receivables in Supplemental Accounts) and the proceeds thereof upon execution
and delivery of this Agreement, and which will be enforceable with respect to
such Receivables hereafter created and the proceeds thereof, upon such creation;
and provided, further, that if this Agreement constitutes the grant of a
security interest to the Trust in such property pursuant to subsection (ii)
above, upon the filing of the financing statement described in Section 3 of the
Assignment with respect to the Additional Accounts designated hereby and in the
case of the Receivables hereafter created and proceeds thereof, upon such
creation, the Trust shall have a first priority perfected security interest in
such property, except for Liens permitted under subsection 2.5(b) of the Pooling
and Servicing Agreement.
(f) Requirements of Pooling and Servicing Agreement. All requirements
set forth in Section 2.6 of the Pooling and Servicing Agreement for designating
Additional Accounts and conveying the Principal Receivables of such Accounts,
whether now existing or hereafter created, have been satisfied.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Pooling and Servicing Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand this ___________ day
of ________ ____.
FINGERHUT RECEIVABLES, INC.
By:
----------------------------------
Name:
Title:
<PAGE>
EXHIBIT I
FORM OF OPINION OF COUNSEL REGARDING SUPPLEMENTAL ACCOUNTS
PROVISIONS TO BE INCLUDED IN OPINION OF COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 2.6(d)(vi)
OF THE POOLING AND SERVICING AGREEMENT
The opinions set forth below may be subject to certain qualifications,
assumptions, limitations and exceptions taken or made in the opinion of the
Transferor's counsel with respect to similar matters delivered on the Closing
Date. Such counsel may rely as to factual matters on certificates of officers
of the Transferor and the Servicer.
(i) The Assignment has been duly authorized, executed and delivered
by the Transferor and constitutes the valid and legally binding agreement of the
Transferor, enforceable against the Transferor in accordance with its terms,
except (x) to the extent that the enforceability thereof may be limited by (a)
bankruptcy, insolvency, receivership, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and the rights of creditors of Delaware chartered banks as the same may be
applied in the event of the bankruptcy, insolvency, receivership,
reorganization, moratorium or other similar event in respect of the Transferor,
and (b) general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
(ii) The provisions of the Pooling and Servicing Agreement are
effective to create, in favor of the Trustee, a valid security interest (as such
term is defined in Section 1-201(37) of the Delaware UCC) in all of the
Transferor's right, title and interest in that portion of the Receivables which
constitutes accounts, general intangibles or chattel paper under the Delaware
UCC and proceeds thereof which security interest if characterized as a transfer
for security will secure all Secured Obligations and which security interest if
characterized as a sale of accounts will constitute a valid sale of all of the
Transferor's right, title and interest in and to the Receivables and the
proceeds thereof.
<PAGE>
(iii) A Uniform Commercial Code financing statement having been filed
in the appropriate recording offices, the security interest (as such term is
defined in Section 1-201(37) of the Relevant UCC) in favor of the Trustee in the
Receivables and proceeds thereof has been perfected, and under the Relevant UCC
no other security interest of any other creditor of the Transferor will be equal
or prior to the security interest of the Trustee in such Receivables and the
proceeds thereof.
<PAGE>
EXHIBIT J
FORM OF REASSIGNMENT OF RECEIVABLES
REASSIGNMENT NO. OF RECEIVABLES, dated as of ,
, by and between FINGERHUT RECEIVABLES, INC., a corporation organized and
existing under the laws of the States of Delaware (the "Transferor"), and THE
BANK OF NEW YORK (DELAWARE), a banking corporation organized under the laws of
the State of Delaware (the "Trustee") pursuant to the Pooling and Servicing
Agreement referred to below.
W I T N E S S E T H
WHEREAS, the Transferor and the Trustee are parties to the Amended and
Restated Pooling and Servicing Agreement, dated as of March 18, 1998
(hereinafter as such agreement may have been, or may from time to time be,
amended, supplemented or otherwise modified, the "Pooling and Servicing
Agreement") by and among the Transferor, Fingerhut National Bank as Servicer,
and the Trustee;
WHEREAS, pursuant to Section 2.7 of the Pooling and Servicing
Agreement, the Transferor wishes to remove all Receivables from certain
designated Accounts (collectively, the "Removed Accounts") and to cause the
Trustee to reconvey the Receivables of such Removed Accounts, whether now
existing or hereafter created, from the Trust to the Transferor (as each such
term is defined in the Pooling and Servicing Agreement); and
WHEREAS, the Trustee is willing to accept such designation and to
reconvey the Receivables in the Removed Accounts subject to the terms and
conditions hereof.
NOW THEREFORE, the Transferor and the Trustee hereby agree as follows:
A. Defined Terms. All terms defined in the Pooling and Servicing
Agreement and used herein shall have such defined meanings when used herein,
unless otherwise defined herein.
"Removal Date" shall mean, with respect to the Removed Accounts
designated hereby, , .
<PAGE>
"Removal Notice Date" shall mean, with respect to the Removed Accounts
designated hereby, , (which shall be a date on or prior to the fifth
Business Day prior to the Removal Date).
B. Designation of Removed Accounts. The Transferor shall deliver to
the Trustee or the bailee of the Trustee, not later than five Business Days
after the Removal Date, a computer file or microfiche list containing a true and
complete list of each revolving consumer credit card account which as of the
Removal Date shall be deemed to be a Removed Account, such accounts being
identified by account number and by the aggregate amount of Receivables in such
accounts as of the close of business on the Removal Date. Such list shall be
marked as Schedule 1 to this Reassignment and shall be incorporated into and
made a part of this Reassignment as of the Removal Date.
C. Conveyance of Receivables
1.The Trustee does hereby reconvey to the Transferor, without
recourse, representation or warranty, on and after the Removal Date, all right,
title and interest of the Trust in and to the Receivables now existing and
hereafter created in the Removed Accounts designated hereby, all monies due or
to become due with respect thereto (including all Finance Charge Receivables)
and all proceeds (as defined in Section 9-306 of the UCC as in effect in the
Relevant UCC State) of such Receivables.
2. In connection with such transfer, the Trustee agrees to execute and
deliver to the Transferor on or prior to the date of this Reassignment, a
termination statement with respect to the Receivables now existing and hereafter
created in the Removed Accounts designated hereby evidencing the release by the
Trust of its Lien on the Receivables in the Removed Accounts, and meeting the
requirements of applicable state law, in such manner and such jurisdictions as
are necessary and advised by the Transferor to remove such Lien.
D. Representations and Warranties of the Transferor. The Transferor
hereby represents and warrants to the Trustee as of the Removal Date:
1. Legal, Valid and Binding Obligation. This Reassignment constitutes
a legal, valid and binding obligation of the Transferor enforceable against the
<PAGE>
Transferor in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the enforcement of
creditors' rights in general and except as such enforceability may be limited by
general principles of equity (whether considered in a suit at law or in equity).
2. Selection Procedures. No selection procedures believed by the
Transferor to be materially adverse to the interests of the Investor
Securityholders were utilized in selecting the Removed Accounts designated
hereby.
E. Conditions Precedent. The amendment of the Pooling and servicing
Agreement set forth in Section 6 hereof is subject to the satisfaction, on or
prior to the Removal Date, of the following condition precedent:
The Transferor shall have delivered to the Trustee an Officer's
Certificate certifying that (i) as of the Removal Date, all requirements set
forth in Section 2.7 of the Pooling and Servicing Agreement for designating
Removed Accounts and reconveying the Receivables of such Removed Accounts,
whether now existing or hereafter created, have been satisfied, and (ii) each of
the representations and warranties made by the Transferor in Section 4 hereof is
true and correct as of the Removal Date. The Trustee may conclusively rely on
such Officer's Certificate, shall have no duty to make inquiries with regard to
the matters set forth therein and shall incur no liability in so relying.
F. Amendment of the Pooling and Servicing Agreement. The Pooling and
Servicing Agreement is hereby amended to provide that all references therein to
the "Pooling and Servicing Agreement", to "this Agreement" and "herein" shall be
deemed from and after the Removal Date to be a dual reference to the Pooling and
Servicing Agreement as supplemented by this Reassignment. Except as expressly
amended hereby, all of the representations, warranties, terms, covenants and
conditions of the Pooling and Servicing Agreement shall remain unamended and
shall continue to be, and shall remain, in full force and effect in accordance
with its terms and except as expressly provided herein shall not constitute or
be deemed to constitute a waiver of compliance with or a consent to
non-compliance with any term or provision of the Pooling and Servicing
Agreement.
<PAGE>
G. Counterparts. This Reassignment may be executed in two or more
counterparts, and by different parties on separate counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
H. Governing Law. THIS REASSIGNMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS.
IN WITNESS WHEREOF, the undersigned have caused this Reassignment of
Receivables to be duly executed and delivered by their respective duly
authorized officers on the day and year first above written.
FINGERHUT RECEIVABLES, INC.
By:
----------------------------
Name:
Title:
THE BANK OF NEW YORK (DELAWARE)
as Trustee,
By:
----------------------------
Name:
Title:
<PAGE>
Exhibit 4(b)
- --------------------------------------------------------------------------------
FINGERHUT RECEIVABLES, INC.
Transferor
FINGERHUT NATIONAL BANK
Servicer
and
THE BANK OF NEW YORK (DELAWARE)
Trustee
on behalf of the Series 1998-2 Securityholders
SERIES 1998-2 SUPPLEMENT
Dated as of _____________, 1998
to
AMENDED AND RESTATED
POOLING AND SERVICING AGREEMENT
Dated as of March 18, 1998
---------------------------------
FINGERHUT MASTER TRUST
$337,500,000 __% Asset Backed
Securities, Series 1998-2, Class A
$51,136,000 __% Asset Backed
Securities, Series 1998-2, Class B
$61,364,000 Floating Rate Asset Backed
Collateralized Trust Obligation, Series 1998-2
$61,364,000 0% Asset Backed Securities,
Series 1998-2, Class D
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Designation.................................................... 1
SECTION 2. Definitions.................................................... 1
SECTION 3. Reassignment Terms............................................. 24
SECTION 4. Delivery and Payment for the Series 1998-2 Securities.......... 24
SECTION 5. Form of Delivery of Series 1998-2 Securities; Denominations;
Depositary..................................................... 25
SECTION 6. Article IV of Agreement........................................ 27
ARTICLE IV
RIGHTS OF SECURITYHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.4 Rights of Securityholders................................ 27
SECTION 4.5 Collections and Allocation; Payments on Exchangeable
Transferor Security...................................... 27
SECTION 4.6 Determination of Interest for the Series 1998-2
Securities............................................... 28
SECTION 4.7 Determination of Principal Amounts....................... 30
SECTION 4.8 Shared Principal Collections............................. 32
SECTION 4.9 Application of Funds on Deposit in the Collection
Account for the Securities............................... 32
SECTION 4.10 Coverage of Required Amount for the Series 1998-2
Securities............................................... 40
SECTION 4.11 Payment of Interest on Securities........................ 41
SECTION 4.12 Payment of Security Principal............................ 42
SECTION 4.13 Series Charge-Offs....................................... 43
SECTION 4.14 Redirected Principal Collections for the Series 1998-2
Securities............................................... 44
SECTION 4.15 Determination of LIBOR................................... 46
SECTION 4.16 Defeasance Funding Account............................... 47
SECTION 4.17 Defeasance Reserve Account............................... 48
i
<PAGE>
SECTION 4.18 Defeasance............................................... 50
SECTION 4.19 Revolving Receivables Reserve Account.................... 50
SECTION 4.20 CTO Trigger.............................................. 52
SECTION 4.21 CTO Reserve Account...................................... 52
SECTION 4.22 Payment Reserve Account.................................. 54
SECTION 4.23 Constituent Class D Securities........................... 55
SECTION 7. Article V of the Agreement....................................... 55
ARTICLE V
DISTRIBUTIONS AND REPORTS TO INVESTOR
SECURITYHOLDERS
SECTION 5.1 Distributions............................................ 56
SECTION 5.2 Securityholders' Statement............................... 58
SECTION 8. Series 1998-2 Pay Out Events................................... 60
SECTION 9. Collateralized Trust Obligation Defaults and Remedies.......... 62
SECTION 10. Series 1998-2 Termination...................................... 63
SECTION 11. Legends; Transfer and Exchange; Restrictions on Transfer of
Series 1998-2 Securities; Tax Treatment........................ 63
SECTION 12. Compliance with Withholding Requirements....................... 67
SECTION 13. Ratification of Agreement...................................... 67
SECTION 14. Counterparts................................................... 68
SECTION 15. GOVERNING LAW.................................................. 68
SECTION 16. Instructions in Writing........................................ 68
SECTION 17. Paired Series.................................................. 68
ii
<PAGE>
EXHIBITS
Exhibit A-1 Form of Class A Investor Security
Exhibit A-2 Form of Class B Investor Security
Exhibit A-3 Form of CTO Investor Security
Exhibit A-4 Form of Class D Investor Security
Exhibit B Form of Monthly Securityholder's Statement
Exhibit C Form of Clearing System Certificate
Exhibit D Form of Member Organization Certificate
Exhibit E Form of Regulation S Transfer Certificate
Exhibit F Form of Rule 144A Transfer Certificate
iii
<PAGE>
SERIES 1998-2 SUPPLEMENT, dated as of ___________, 1998 (this
"Series Supplement") by and among FINGERHUT RECEIVABLES, INC., a corporation
organized and existing under the laws of the State of Delaware, as Transferor
(the "Transferor"), FINGERHUT NATIONAL BANK, a national banking association
organized under the laws of the United States, as Servicer (the "Servicer"), and
THE BANK OF NEW YORK (DELAWARE), a Delaware banking corporation organized and
existing under the laws of the State of Delaware as trustee (together with its
successors in trust thereunder as provided in the Agreement referred to below,
the "Trustee"), under the Amended and Restated Pooling and Servicing Agreement
dated as of March 18, 1998, as amended, supplemented or otherwise modified from
time to time (the "Agreement"), among the Transferor, the Servicer and the
Trustee.
Section 6.9 of the Agreement provides, among other things, that the
Transferor and the Trustee may at any time and from time to time enter into a
supplement to the Agreement for the purpose of authorizing the issuance by the
Trustee to the Transferor, for execution and redelivery to the Trustee for
authentication, of one or more Series of Securities.
Pursuant to this Series Supplement, the Transferor and the Trustee
shall create a new Series of Investor Securities and shall specify the Principal
Terms thereof.
SECTION 1. Designation. There is hereby created a Series to be
issued pursuant to the Agreement and this Series Supplement to be known
generally as the "Series 1998-2 Securities." Series 1998-2 shall consist of four
Classes, which shall be designated generally as the % Asset Backed Securities,
Series 1998-2, Class A (the "Class A Securities"), the % Asset Backed
Securities, Series 1998-2, Class B (the "Class B Securities"), the Floating Rate
Asset Backed Collateralized Trust Obligations, Series 1998-2 (the
"Collateralized Trust Obligations") and the 0% Asset Backed Securities, Series
1998-2, Class D (the "Class D Securities").
SECTION 2. Definitions. In the event that any term or provision
contained herein shall conflict with or be inconsistent with any provision
contained in the Agreement, the terms and provisions of this Series Supplement
shall govern with respect to the Series 1998-2 Securities. All Article, Section
or subsection references herein shall mean Articles, Sections or subsections of
the Agreement, as amended or supplemented by this Series Supplement, except as
otherwise provided herein. All capitalized terms not otherwise defined herein
are defined in the
<PAGE>
Agreement. Each capitalized term defined herein shall relate only to the Series
1998-2 Securities and no other Series of Securities issued by the Trust.
"ABC Adjusted Invested Amount" shall mean as of any Business Day the
sum of the Class A Adjusted Invested Amount, the Class B Adjusted Invested
Amount and the CTO Adjusted Invested Amount minus the amount then on deposit in
the Defeasance Funding Account.
"ABC Invested Amount" shall mean as of any Business Day the sum of
the Class A Invested Amount, the Class B Invested Amount and the Class C
Invested Amount.
"Additional Interest" shall mean, at any time of determination, the
sum of the Class A Additional Interest, Class B Additional Interest and CTO
Additional Interest.
"Adjusted Invested Amount" shall mean as of any Business Day the
Invested Amount minus the sum of the amount then on deposit in the Principal
Account and the Series Allocation Percentage of the amount then on deposit in
the Excess Funding Account.
"Amortization Period" shall mean the period commencing on the
Amortization Period Commencement Date and continuing until the earlier of (x)
the Invested Amount of the Securities being paid in full or (y) the Series
1998-2 Termination Date.
"Amortization Period Commencement Date" shall mean the earlier of
the first day of the August 2002 Monthly Period or the Pay Out Commencement
Date.
"Available Defeasance Reserve Account Amount" shall mean, with
respect to any Business Day, the lesser of (a) the amount on deposit in the
Defeasance Reserve Account as of such Business Day (before giving effect to any
withdrawal made or to be made pursuant to Section 4.17 of the Agreement from the
Defeasance Reserve Account on such Transfer Date) and (b) the Required
Defeasance Reserve Account Amount for such Transfer Date.
"Available Series 1998-2 Finance Charge Collections" shall have the
meaning specified in subsection 4.9(a) of the Agreement.
2
<PAGE>
"Available Series 1998-2 Principal Collections" shall mean, with
respect to any Monthly Period or portion thereof commencing on the Amortization
Period Commencement Date, an amount equal to the sum of (i) an amount equal to
the Fixed/ Floating Percentage on each Business Day during such period of all
Principal Collections (less the amount of Redirected Principal Collections)
received during such period, (ii) any amount on deposit in the Excess Funding
Account allocated to the Series 1998-2 Securities pursuant to subsection 4.3(f)
of the Agreement with respect to such period , (iii) an amount equal to the sum
of the aggregate Series Default Amount with respect to such period and the
Series 1998-2 Percentage of any unpaid Adjustment Payments paid pursuant to
subsections 4.9(a)(v) and 4.9(a)(vi) of the Agreement with respect to such
period and any reimbursements of unreimbursed Series Charge-Offs pursuant to
subsections 4.9(a)(vii), (x), (xi) and (xii) of the Agreement with respect to
such period plus in each case, amounts applied with respect thereto pursuant to
subsections 4.10(a) and (b), 4.14(a), (b) and (c), 4.16(b) and 4.17(b), (c) and
(d) of the Agreement, and (iv) the aggregate Shared Principal Collections
allocated to the Series 1998-2 Securities pursuant to Section 4.8 of the
Agreement with respect to such period.
"Base Rate" shall mean, with respect to any Monthly Period, the sum
of (i) the weighted average of the Class A Interest Rate, the Class B Interest
Rate, the CTO Interest Rate and, if an interest rate is assigned to the Class D
Securities pursuant to Section 4.23 of the Agreement, the Class D Interest Rate
as of the last day of such Monthly Period (weighted based on the Class A
Invested Amount, the Class B Invested Amount, the CTO Invested Amount and,
following the assignment of an interest rate to the Class D Securities, the
Class D Invested Amount or portion thereof with respect to which an interest
rate has been assigned, respectively, as of the last day of such Monthly Period)
plus (ii) the product of 2.00% per annum and the percentage equivalent of a
fraction the numerator of which is the Adjusted Invested Amount and the
denominator of which is the Invested Amount, each as of the beginning of the day
on the first day of such Monthly Period.
"Carryover Class A Monthly Interest" shall mean with respect to any
Business Day (a) any Class A Monthly Interest Shortfall with respect to the
Distribution Date in the then current Monthly Period plus (b) any Class A
Additional Interest due on the Distribution Date in the next succeeding Monthly
Period.
"Carryover Class B Monthly Interest" shall mean with respect to any
Business Day (a) any Class B Monthly Interest Shortfall with respect to the
Distribution Date in the then current Monthly Period plus (b) any Class B
Additional
3
<PAGE>
Interest due on the next succeeding Distribution Date in the next succeeding
Monthly Period.
"Carryover CTO Monthly Interest" shall mean with respect to any
Business Day (a) any CTO Monthly Interest Shortfall with respect to the
Distribution Date in the then current Monthly Period plus (b) any CTO Additional
Interest due on the next succeeding Distribution Date in the next succeeding
Monthly Period.
"Class A Additional Interest" shall have the meaning specified in
subsection 4.6(a) of the Agreement.
"Class A Adjusted Invested Amount" shall mean, for any date of
determination, an amount not less than zero equal to the then current Class A
Invested Amount minus the amount then on deposit in the Principal Account on
such date of determination.
"Class A Charge-Offs" shall have the meaning specified in subsection
4.13(d) of the Agreement.
"Class A Controlled Amortization Amount" shall mean $22,500,000.
"Class A Controlled Distribution Amount" shall mean, with respect to
any Distribution Date, an amount equal to the Class A Controlled Amortization
Amount plus any existing Class A Deficit Controlled Amortization Amount
determined on the preceding Distribution Date, if any.
"Class A Deficit Controlled Amortization Amount" shall mean zero on
the initial Distribution Date with respect to the Controlled Amortization Period
and, on any subsequent Distribution Date, the excess, if any, of (i) the Class A
Controlled Distribution Amount over (ii) the Available Series 1998-2 Principal
Collections with respect to the related Monthly Period.
"Class A Expected Final Payment Date" shall mean the November
2003 Distribution Date.
"Class A Fixed/Floating Percentage" shall mean for any Business Day
on or after the Amortization Period Commencement Date, the percentage equivalent
of a fraction, the numerator of which is the Class A Invested Amount at the end
of the last day of the Revolving Period and the denominator of which is the
greater of
4
<PAGE>
(a) the sum of the aggregate amount of Principal Receivables and the amount on
deposit in the Excess Funding Account at the end of the preceding Business Day
and (b) the sum of the numerators used to calculate the applicable floating or
fixed/floating percentages with respect to all Participations and all Classes of
all Series then outstanding.
"Class A Floating Percentage" shall mean, with respect to any
Business Day, the percentage equivalent of a fraction, the numerator of which is
the Class A Adjusted Invested Amount as of the beginning of such Business Day
after giving effect to any deposits to be made to the Principal Account on such
Business Day and the denominator of which is the greater of (a) the sum of the
aggregate amount of Principal Receivables and the amount on deposit in the
Excess Funding Account as of the end of the preceding Business Day and (b) the
sum of the numerators used to calculate the applicable floating or
fixed/floating percentages with respect to all Participations and all Classes of
all Series then outstanding.
"Class A Initial Invested Amount" shall mean $337,500,000.
"Class A Interest Rate" shall mean ______% per annum.
"Class A Invested Amount" shall mean, with respect to any Business
Day, an amount equal to (a) the Class A Initial Invested Amount minus (b) the
aggregate amount of principal payments made to Class A Securityholders through
and including such Business Day, minus (c) the aggregate amount of Class A
Charge-Offs for all prior Distribution Dates, plus (d) the sum of the aggregate
amount reimbursed with respect to reductions of the Class A Invested Amount
through and including such Business Day pursuant to subsection 4.9(a)(vii) of
the Agreement plus, with respect to such subsection, amounts applied thereto
pursuant to subsections 4.10(a) and (b) and 4.14(a), (b) and (c) of the
Agreement, for the purpose of reimbursing amounts deducted pursuant to the
foregoing clause (c); provided, however, that the Class A Invested Amount may
not be reduced below zero.
"Class A Monthly Interest" shall mean the interest distributable in
respect of the Class A Securities as calculated in accordance with subsection
4.6(a) of the Agreement.
"Class A Monthly Interest Shortfall" shall have the meaning
specified in subsection 4.6(a) of the Agreement.
5
<PAGE>
"Class A Outstanding Principal Amount" shall mean, with respect to
the Class A Securities, when used with respect to any Business Day, an amount
equal to (a) the Class A Initial Invested Amount minus (b) the aggregate amount
of principal payments made to the Class A Securityholders on or prior to such
Business Day.
"Class A Percentage" shall mean a fraction the numerator of which is
the Class A Invested Amount and the denominator of which is the sum of the Class
A Invested Amount, the Class B Invested Amount and the CTO Invested Amount.
"Class A Principal" shall mean the principal distributable in
respect of the Class A Securities as calculated in accordance with subsection
4.7(a) of the Agreement.
"Class A Required Amount" shall mean the amount determined by the
Servicer for each Business Day equal to the excess, if any, of (x) the sum of
(i) the Class A Monthly Interest for the Interest Accrual Period beginning in
the then current Monthly Period, (ii) any Carryover Class A Monthly Interest,
(iii) the Class A Percentage of the Monthly Servicing Fee for the then current
Monthly Period, (iv) the Class A Percentage of the Series Default Amount, if
any, for such Business Day and for any previous Business Day in such Monthly
Period and (v) the Class A Percentage of the Series 1998-2 Percentage of any
Adjustment Payment the Transferor is required but fails to make pursuant to
subsection 3.8(a) of the Agreement on such Business Day and on each previous
Business Day during such Monthly Period over (y) the Available Series 1998-2
Finance Charge Collections plus any Excess Finance Charge Collections from other
Series and any Transferor Finance Charge Collections allocated with respect to
the amounts described in clauses (x)(i) through (v) above with respect to such
Business Day and all previous Business Days in such Monthly Period.
"Class A Securities" shall mean any of the Securities executed by
the Transferor and authenticated by or on behalf of the Trustee, substantially
in the form of Exhibit A-1 hereto.
"Class A Securityholder" shall mean the Person in whose name a Class
A Security is registered in the Security Register.
"Class A Securityholders' Interest" shall mean the portion of the
Series 1998-2 Securityholders' Interest evidenced by the Class A Securities.
6
<PAGE>
"Class B Additional Interest" shall have the meaning specified in
subsection 4.6(b) of the Agreement.
"Class B Adjusted Invested Amount" shall mean, for any date of
determination, an amount not less than zero equal to the then current Class B
Invested Amount minus the excess, if any, of the amount on deposit in the
Principal Account over the Class A Invested Amount on such date of
determination.
"Class B Charge-Offs" shall have the meaning specified in subsection
4.13(c) of the Agreement.
"Class B Controlled Amortization Amount" shall mean $17,045,333.33.
"Class B Controlled Distribution Amount" shall mean, with respect to
any Distribution Date, an amount equal to the Class B Controlled Amortization
Amount plus any existing Class B Deficit Controlled Amortization Amount
determined on the preceding Distribution Date, if any.
"Class B Deficit Controlled Amortization Amount" shall mean zero on
the Class B Principal Payment Commencement Date and, on any subsequent
Distribution Date, means the excess, if any, of (i) the Class B Controlled
Distribution Amount over (ii) the Available Series 1998-2 Principal Collections
with respect to the related Monthly Period.
"Class B Expected Final Payment Date" shall mean the February 2004
Distribution Date.
"Class B Fixed/Floating Percentage" shall mean for any Business Day
on or after the Amortization Period Commencement Date, the percentage equivalent
of a fraction, the numerator of which is the Class B Invested Amount at the end
of the last day of the Revolving Period and the denominator of which is the
greater of (a) the sum of the aggregate amount of Principal Receivables and the
amount on deposit in the Excess Funding Account at the beginning of such
Business Day after giving effect to any deposit to be made to the Principal
Account over the Class A Invested Amount on such Business Day and (b) the sum of
the numerators used to calculate the applicable floating or fixed/floating
percentages with respect to all Participations and all Classes of all Series
then outstanding.
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"Class B Floating Percentage" shall mean, with respect to any
Business Day, the percentage equivalent of a fraction, the numerator of which is
the Class B Adjusted Invested Amount as of the end of the preceding Business Day
and the denominator of which is the greater of (a) the sum of the aggregate
amount of Principal Receivables and the amount on deposit in the Excess Funding
Account as of the end of the preceding Business Day and (b) the sum of the
numerators used to calculate the applicable floating or fixed/floating
percentages with respect to all Participations and all Classes of all Series
then outstanding.
"Class B Initial Invested Amount" shall mean $51,136,000.
"Class B Interest Rate" shall mean ____% per annum.
"Class B Invested Amount" shall mean, with respect to any Business
Day, an amount equal to (a) the Class B Initial Invested Amount, minus (b) the
aggregate amount of principal payments made to Class B Securityholders through
and including such Business Day, minus (c) the aggregate amount of Class B
Charge-Offs for all prior Distribution Dates, minus (d) the aggregate amount of
Redirected Class B Principal Collections through and including such Business Day
for which neither the Class D Invested Amount nor the CTO Invested Amount has
been reduced on all prior Distribution Dates pursuant to subsection 4.14(d) of
the Agreement, plus (e) the sum of the aggregate amount reimbursed with respect
to reductions of the Class B Invested Amount through and including such Business
Day pursuant to subsection 4.9(a)(x) of the Agreement plus, with respect to such
subsection, amounts applied thereto pursuant to subsections 4.10(a) and (b) and
4.14(a) and (b) of the Agreement, for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (c) and (d); provided, however, that
the Class B Invested Amount may not be reduced below zero.
"Class B Monthly Interest" shall mean the interest distributable in
respect of the Class B Securities as calculated in accordance with subsection
4.6(b) of the Agreement.
"Class B Monthly Interest Shortfall" shall have the meaning
specified in subsection 4.6(b) of the Agreement.
"Class B Outstanding Principal Amount" shall mean, with respect to
the Class B Securities, when used with respect to any Business Day, an amount
equal to (a) the Class B Initial Invested Amount minus (b) the aggregate amount
of
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<PAGE>
principal payments made to the Class B Securityholders on or prior to such
Business Day.
"Class B Percentage" shall mean a fraction the numerator of which is
the Class B Invested Amount and the denominator of which is the sum of the Class
A Invested Amount, the Class B Invested Amount and the CTO Invested Amount.
"Class B Principal" shall mean the principal distributable in
respect of the Class B Securities as calculated in accordance with subsection
4.7(b) of the Agreement.
"Class B Principal Payment Commencement Date" shall mean the earlier
of (a) the Distribution Date on which the Class A Invested Amount is paid in
full or, if the Class A Invested Amount is paid in full on the Class A Expected
Final Payment Date, and the Early Amortization Period has not commenced, the
Distribution Date following the Class A Expected Final Payment Date and (b) the
Distribution Date following a sale or repurchase of the Receivables as set forth
in Section 2.4(e), 10.2(a), 12.1 or 12.2 of the Agreement or Section 3 of this
Series Supplement.
"Class B Required Amount" shall mean the amount determined by the
Servicer for each Business Day equal to the excess, if any, of (x) the sum of
(i) the Class B Monthly Interest for the Interest Accrual Period beginning in
the then current Monthly Period, (ii) any Carryover Class B Monthly Interest,
(iii) the Class B Percentage of the Monthly Servicing Fee for the then current
Monthly Period, (iv) the Class B Percentage of the Series Default Amount, if
any, for such Business Day and for any previous Business Day in such Monthly
Period and (v) the Class B Percentage of the Series 1998-2 Percentage of any
Adjustment Payment the Transferor is required but fails to make pursuant to
subsection 3.8(a) of the Agreement on such Business Day and on each previous
Business Day during such Monthly Period over (y) the Available Series 1998-2
Finance Charge Collections plus any Excess Finance Charge Collections from other
Series and any Transferor Finance Charge Collections allocated with respect to
the amounts described in clauses (x)(i) through (v) above with respect to such
Business Day and on all previous Business Days in such Monthly Period.
"Class B Securities" shall mean any of the Securities executed by
the Transferor and authenticated by or on behalf of the Trustee, substantially
in the form of Exhibit A-2 hereto.
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<PAGE>
"Class B Securityholder" shall mean the Person in whose name a Class
B Security is registered in the Security Register.
"Class B Securityholders' Interest" shall mean the portion of the
Series 1998-2 Securityholders' Interest evidenced by the Class B Securities.
"Class D Charge-Offs" shall have the meaning specified in subsection
4.13(a) of the Agreement.
"Class D Excess Amounts" shall mean, with respect to any Business
Day, the excess of the Class D Invested Amount over the Stated Class D Amount on
such Business Day after taking into account all adjustments of the ABC Adjusted
Invested Amount on such day.
"Class D Fixed/Floating Percentage" shall mean for any Business Day
on or after the Amortization Period Commencement Date, the percentage equivalent
of a fraction, the numerator of which is the Class D Invested Amount at the end
of the last day of the Revolving Period and the denominator of which is the
greater of (a) the sum of the aggregate amount of Principal Receivables and the
amount on deposit in the Excess Funding Account as of the end of the beginning
of such Business Day after giving effect to any payments or reductions to be
made to pursuant to subsection 4.12(d) of the Agreement and (b) the sum of the
numerators used to calculate the applicable floating or fixed/floating
percentages with respect to all Participations and all Classes of all Series
then outstanding.
"Class D Floating Percentage" shall mean, with respect to any
Business Day, the percentage equivalent of a fraction, the numerator of which is
the Class D Invested Amount as of the end of the preceding Business Day and the
denominator of which is the greater of (a) the sum of the aggregate amount of
Principal Receivables and the amount on deposit in the Excess Funding Account as
of the end of the preceding Business Day and (b) the sum of the numerators used
to calculate the applicable floating or fixed/floating percentages with respect
to all Participations and all Classes of all Series then outstanding.
"Class D Initial Invested Amount" shall mean $61,364,000.
"Class D Interest Rate" shall have the meaning specified in
subsection 4.23 of the Agreement.
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<PAGE>
"Class D Invested Amount" shall mean with respect to any Business
Day, an amount equal to (a) the Class D Initial Invested Amount, minus (b) the
aggregate amount of principal payments made to Class D Securityholders through
and including such Business Day and reductions of the Class D Invested Amount
pursuant to subsection 4.12(d), minus (c) the aggregate amount of Class D
Charge-Offs for all prior Distribution Dates, minus (d) the aggregate amount of
Redirected Principal Collections through and including such Business Day for
which the Class D Invested Amount has been reduced pursuant to subsection
4.14(d) of the Agreement, plus (e) the aggregate amount reimbursed with respect
to reductions of the Class D Invested Amount through and including such Business
Day pursuant to subsection 4.9(a)(xii) of the Agreement plus, with respect to
such subsection, amounts applied thereto pursuant to subsections 4.10(a) and (b)
of the Agreement, for the purpose of reimbursing amounts deducted pursuant to
the foregoing clauses (c) and (d); provided, however, that the Class D Invested
Amount may not be reduced below zero.
"Class D Outstanding Principal Amount" shall mean, with respect to
the Class D Securities, when used with respect to any Business Day, an amount
equal to (a) the Class D Initial Invested Amount minus (b) the aggregate amount
of principal payments made to Class D Securityholders prior to such Business
Day.
"Class D Principal" shall mean the principal distributable in
respect of the Class D Security as specified in subsection 4.7(d) of the
Agreement.
"Class D Principal Payment Commencement Date" shall mean the earlier
of (a) during the Amortization Period, the first Distribution Date on which the
CTO Invested Amount is paid in full or, if there are no Principal Collections
allocable to the Series 1998-2 Securities remaining after payments have been
made to the Collateralized Trust Obligations on such Distribution Date, the
Distribution Date following the first Distribution Date on which the CTO
Invested Amount is paid in full and (b) the Distribution Date following a sale
or repurchase of the Receivables as set forth in Section 2.4(e), 10.2(a), 12.1
or 12.2 of the Agreement or Section 3 of this Series Supplement.
"Class D Securities" shall mean any of the Securities executed by
the Transferor and authenticated by or on behalf of the Trustee, substantially
in the form of Exhibit A-4 hereto.
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<PAGE>
"Class D Securityholder" shall mean the Person in whose name a Class
D Security is registered in the Security Register.
"Class D Securityholders' Interest" shall mean the portion of the
Series 1998-2 Securityholders' Interest evidenced by the Class D Security.
"Clearing System Certificate" shall mean a certificate in
substantially the form of Exhibit C hereto or such other form of certificate as
shall be satisfactory to the Trustee, the Euroclear Operator and Cedel.
"Closing Date" shall mean ___________, 1998.
"Collateralized Trust Obligations" shall mean any of the Securities
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A-3 hereto.
"Controlled Amortization Period" shall mean, with respect to the
Series 1998-2 Securities, unless a Pay Out Event shall have occurred with
respect to such Series prior thereto, the period commencing on the Amortization
Period Commencement Date and ending upon the earliest to occur of (x) the
payment in full to the Series 1998-2 Securityholders of the Invested Amount, and
(y) the Series 1998-2 Termination Date.
"CTO Additional Interest" shall have the meaning specified in
subsection 4.6(c) of the Agreement.
"CTO Adjusted Invested Amount" shall mean, for any date of
determination, an amount not less than zero equal to the then current CTO
Invested Amount minus the excess, if any, of the amount then on deposit in the
Principal Account over the Class A Invested Amount and the Class B Invested
Amount on such date of determination.
"CTO Charge-Offs" shall have the meaning specified in subsection
4.13(b) of the Agreement.
"CTO Default" shall have the meaning specified in Section 9.
"CTO Exchange Date" shall mean the 40th day after the later of the
commencement of the offering and the Closing Date.
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<PAGE>
"CTO Expected Final Payment Date" means the April 2004 Distribution
Date.
"CTO Fixed/Floating Percentage" shall mean for any Business Day on
or after the Amortization Period Commencement Date, the percentage equivalent of
a fraction, the numerator of which is the CTO Invested Amount at the end of the
last day of the Revolving Period and the denominator of which is the greater of
(a) the sum of the aggregate amount of Principal Receivables and the amount on
deposit in the Excess Funding Account as of the end of the preceding Business
Day and (b) the sum of the numerators used to calculate the floating or
fixed/floating percentages with respect to all Participations and all Classes of
all Series then outstanding.
"CTO Floating Percentage" shall mean, with respect to any Business
Day, the percentage equivalent of a fraction, the numerator of which is the CTO
Adjusted Invested Amount as of the beginning of such Business Day after giving
effect to any deposit to be made to the Principal Account over the Class A
Invested Amount and the Class B Invested Amount on such Business Day and the
denominator of which is the greater of (a) the sum of the aggregate amount of
Principal Receivables and the amount on deposit in the Excess Funding Account as
of the end of the preceding Business Day and (b) the sum of the numerators used
to calculate the applicable floating or fixed/floating percentages with respect
to all Participations and all Classes of all Series then outstanding.
"CTO Global Security" shall mean a CTO Temporary Regulation S Global
Security, a CTO Regulation S Global Security or a CTO Rule 144A Global Security.
"CTO Initial Invested Amount" shall mean $61,364,000.
"CTO Interest Rate" shall mean ___% per annum from the Closing Date
through and including June 14, 1998 and, with respect to each Interest Accrual
Period thereafter, a per annum rate ___% in excess of LIBOR as determined on the
related LIBOR Determination Date.
"CTO Invested Amount" shall mean with respect to any Business Day,
an amount equal to (a) the CTO Initial Invested Amount minus (b) the aggregate
amount of principal payments made to CTO Securityholders through and including
such Business Day, minus (c) the aggregate amount of CTO Charge-Offs
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<PAGE>
for all prior Distribution Dates, minus (d) the aggregate amount of Redirected
CTO Principal Collections and Redirected Class B Principal Collections through
and including such Business Day for which the Class D Invested Amount has not
been reduced pursuant to subsection 4.14(d) of the Agreement, plus (e) the
aggregate amount reimbursed with respect to reductions of the CTO Invested
Amount through and including such Business Day pursuant to subsection 4.9(a)(xi)
of the Agreement plus, with respect to such subsection, amounts applied thereto
pursuant to subsections 4.10(a) and (b) and 4.14(a) of the Agreement, for the
purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c)
and (d); provided, however, that the CTO Invested Amount may not be reduced
below zero.
"CTO Monthly Interest" shall mean the interest distributable in
respect of the Collateralized Trust Obligations as calculated in accordance with
subsection 4.6(c) of the Agreement.
"CTO Monthly Interest Shortfall" shall have the meaning specified in
subsection 4.6(c) of the Agreement.
"CTO Outstanding Principal Amount" shall mean, with respect to the
Collateralized Trust Obligations when used with respect to any Business Day, an
amount equal to (a) the CTO Initial Invested Amount minus (b) the aggregate
amount of principal payments made to CTO Securityholders prior to such Business
Day.
"CTO Percentage" shall mean a fraction the numerator of which is the
CTO Invested Amount and the denominator of which is the sum of the Class A
Invested Amount, the Class B Invested Amount and the CTO Invested Amount.
"CTO Principal" shall mean the principal distributable in respect of
the Collateralized Trust Obligations as calculated in accordance with subsection
4.7(c) of the Agreement.
"CTO Principal Payment Commencement Date" shall mean the earlier of
(a) the Distribution Date on which the Class A Invested Amount and the Class B
Invested Amount have each been paid in full or, if the Class B Invested Amount
is paid in full on the Class B Expected Final Payment Date and the Early
Amortization Period has not commenced, the Distribution Date following the Class
B Expected Final Payment Date and (b) the Distribution Date following a sale or
repurchase of
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<PAGE>
the Receivables as set forth in subsections 2.4(e), 10.2(a), 12.1 or 12.2 of the
Agreement or Section 3 of this Series Supplement.
"CTO Regulation S Global Security" shall mean a Collateralized Trust
Obligation, sold in an offshore transaction in reliance on Regulation S under
the Securities Act, represented by one or more Global Securities in definitive,
fully registered form without interest coupons, deposited with DTC, as initial
Clearing Agency, or any successor, with the applicable legends set forth in
Exhibit A-3 hereto included in the form of such Collateralized Trust Obligation.
"CTO Required Amount" shall mean the amount determined by the
Servicer for each Business Day equal to the excess, if any, of (x) the sum of
(i) the CTO Monthly Interest for the Interest Accrual Period beginning in the
then current Monthly Period, (ii) any Carryover CTO Monthly Interest, (iii) the
CTO Percentage of the Monthly Servicing Fee for the then current Monthly Period,
(iv) the CTO Percentage of the Series Default Amount, if any, for such Business
Day and for any previous Business Day in such Monthly Period and (v) the CTO
Percentage of the Series 1998-2 Percentage of any Adjustment Payment the
Transferor is required but fails to make pursuant to subsection 3.8(a) of the
Agreement on such Business Day and on each previous Business Day during such
Monthly Period over (y) the Available Series 1998-2 Finance Charge Collections
plus any Excess Finance Charge Collections from other Series and any Transferor
Finance Charge Collections allocated with respect to the amounts described in
clauses (x)(i) through (v) above with respect to such Business Day and all
previous Business Days in such Monthly Period.
"CTO Reserve Account" shall have the meaning specified in subsection
4.21(a) of the Agreement.
"CTO Rule 144A Global Security" shall mean a Collateralized Trust
Obligation, sold within the United States to U.S. persons that are QIBs, issued
in definitive, fully registered form without interest coupons, in the form of
beneficial interests in one or more Global Securities, deposited with DTC, as
initial Clearing Agency, or any successor, with the applicable legends set forth
in Exhibit A-3 hereto included in the form of such Collateralized Trust
Obligation.
"CTO Securityholder" shall mean the Person in whose name a
Collateralized Trust Obligation is registered in the Security Register.
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<PAGE>
"CTO Securityholders' Interest" shall mean the portion of the Series
1998-2 Securityholders' Interest evidenced by the Collateralized Trust
Obligations.
"CTO Temporary Regulation S Global Security" shall mean a
Collateralized Trust Obligation, sold in an offshore transaction in reliance on
Regulation S under the Securities Act, represented by one or more Global
Securities in definitive, fully registered form without interest coupons,
deposited with DTC, as initial Clearing Agency , or any successor, with the
applicable legends set forth in Exhibit A-3 hereto included in the form of such
Collateralized Trust Obligation.
"CTO Trigger Event" shall have the meaning specified in subsection
4.20.
"Defeasance" shall have the meaning specified in subsection 4.18 of
the Agreement.
"Defeasance Funding Account" shall have the meaning set forth in
subsection 4.16 of the Agreement.
"Defeasance Funding Account Balance" shall mean, with respect to any
date of determination during the Amortization Period, the principal amount, if
any, on deposit in the Defeasance Funding Account on such date of determination.
"Defeasance Funding Account Investment Proceeds" shall mean, with
respect to each Transfer Date following the initial deposit to the Defeasance
Funding Account, the investment earnings on funds on deposit in the Defeasance
Funding Account, if any, (net of investment losses and expenses) for the related
Interest Accrual Period.
"Defeasance Reserve Account" shall have the meaning set forth in
subsection 4.17 of the Agreement.
"Defeasance Reserve Account Funding Date" shall mean the first day
of the Monthly Period prior to the Defeasance, or such earlier date as the
Transferor may determine.
"Distribution Date" shall mean June 15, 1998 and the fifteenth day
of each month thereafter, or if such day is not a Business Day, the next
succeeding Business Day.
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<PAGE>
"DTC" shall mean The Depository Trust Company.
"Early Amortization Period" shall mean the period beginning on the
earlier of (a) the day on which a Pay Out Event occurs or is deemed to have
occurred and (b) the CTO Expected Final Payment Date if the CTO Invested Amount
has not been paid in full on or prior to such date, and ending on the earlier of
(i) the date on which the Class A Invested Amount, the Class B Invested Amount,
the CTO Invested Amount and the Class D Invested Amount have been paid in full
and (ii) the Scheduled Series 1998-2 Termination Date.
"Enhancement" shall mean, with respect to each Class, the amount, if
any, on deposit from time to time in the Revolving Receivables Reserve Account
and with respect to the Class A Securities, the subordination of the Class B
Invested Amount, the CTO Invested Amount, and the Class D Invested Amount, with
respect to the Class B Securities, the subordination of the CTO Invested Amount
and the Class D Invested Amount, and with respect to the Collateralized Trust
Obligations, the subordination of the Class D Invested Amount and the amount, if
any, on deposit from time to time in the CTO Reserve Account.
"Excess Finance Charge Collections" shall mean, with respect to any
Business Day, as the context requires, either (x) the amount described in
subsection 4.9(a)(xviii) of the Agreement allocated to the Series 1998-2
Securities but available to cover shortfalls in amounts paid from Finance Charge
Collections for other Series, if any, or (y) the aggregate amount of Finance
Charge Collections allocable to other Series in excess of the amounts necessary
to make required payments with respect to such Series, if any, and available to
cover shortfalls with respect to the Series 1998-2 Securities.
"Fixed/Floating Percentage" shall mean for any Business Day on or
after the Amortization Period Commencement Date, the sum of the Class A
Fixed/Floating Percentage, the Class B Fixed/Floating Percentage, the CTO
Fixed/Floating Percentage and the Class D Fixed/Floating Percentage.
"Floating Percentage" shall mean for any Business Day the sum of the
applicable Class A Floating Percentage, Class B Floating Percentage, CTO
Floating Percentage, and Class D Floating Percentage.
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<PAGE>
"Initial Invested Amount" shall mean an amount equal to the sum of
(i) the Class A Initial Invested Amount; (ii) the Class B Initial Invested
Amount; (iii) the CTO Initial Invested Amount; and (iv) the Class D Initial
Invested Amount.
"Interest Accrual Period" shall mean, with respect to a Distribution
Date, the period from and including the preceding Distribution Date to but
excluding such Distribution Date; provided, however, that the initial Interest
Accrual Period shall be the period from the Closing Date to but excluding the
initial Distribution Date.
"Invested Amount" shall mean, when used with respect to any Business
Day, an amount equal to the sum of (a) the Class A Invested Amount as of such
Business Day, (b) the Class B Invested Amount as of such Business Day, (c) the
CTO Invested Amount as of such Business Day and (d) the Class D Invested Amount
as of such Business Day.
"Investor Percentage" shall mean, (a) with respect to Finance Charge
Collections prior to the commencement of the Early Amortization Period, Default
Amounts at any time and Principal Collections during the Revolving Period, the
Floating Percentage and (b) with respect to Finance Charge Collections during
the Early Amortization Period and Principal Collections during the Amortization
Period, the Fixed/Floating Percentage, and with respect to any other Series of
Securities, the percentage specified in the related Supplement.
"Investor Securityholder" shall mean the Holder of record of an
Investor Security of Series 1998-2.
"LIBOR" shall have the meaning specified in subsection 4.15(a) of
the Agreement.
"LIBOR Determination Date" shall mean the second Business Day prior
to the commencement of the second and each subsequent Interest Accrual Period.
For purposes of this definition, a Business Day is any day on which banks in
London and New York are open for the transaction of international business.
"Member Organization Certificate" shall mean a certificate
substantially in the form of Exhibit D hereto or such other form of certificate
as shall be satisfactory to the Trustee, the Euroclear Operator and Cedel.
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<PAGE>
"Minimum Retained Percentage" shall mean 2%.
"Minimum Transferor Percentage" shall mean 0%; provided, however,
that in certain circumstances such percentage may be increased.
"Monthly Period" shall have the meaning specified in the Agreement,
except that the first Monthly Period with respect to the Series 1998-2
Securities shall begin on and include the Closing Date and shall end on and
include May 29, 1998.
"Monthly Servicing Fee" shall mean for any Monthly Period, an amount
equal to the product of (i) a fraction, the numerator of which is the actual
number of days in such Monthly Period and the denominator of which is 365 or
366, (ii) the Series Monthly Servicing Fee Percentage and (iii) the Adjusted
Invested Amount as of the beginning of the day on the first day of such Monthly
Period, or, in the case of the first Distribution Date, the Initial Invested
Amount.
"Negative Carry Amount" shall have the meaning specified in
subsection 4.10(a) of the Agreement.
"Paired Series" shall have the meaning specified in Section 17 of
this Series Supplement.
"Paying Agent" shall mean, for the Series 1998-2 Securities,
initially The Bank of New York and in certain limited circumstances the Banque
Generale du Luxembourg, S.A.
"Payment Reserve Account" shall have the meaning specified in
subsection 4.22 of the Agreement.
"Pay Out Commencement Date" shall mean the date on which a Trust Pay
Out Event is deemed to occur pursuant to Section 9.1 of the Agreement or a
Series 1998-2 Pay Out Event is deemed to occur pursuant to Section 8 of this
Series Supplement.
"Portfolio Yield" shall mean, with respect to any Monthly Period,
the annualized percentage equivalent of a fraction, the numerator of which is
the sum of (i) the aggregate amount of Available Series 1998-2 Finance Charge
Collections for each Business Day during such Monthly Period (not including (a)
the amounts withdrawn from the Payment Reserve Account, (b) Adjustment Payments
made by
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<PAGE>
the Transferor with respect to Adjustment Payments required to be made but not
made in prior Monthly Periods, if any, and (c) the amount of any Finance Charge
Collections received with respect to the final payment of any Closed End
Receivable that is refinanced with a receivable arising under a revolving credit
card account) and (ii) amounts withdrawn from the Defeasance Reserve Account
with respect to such Monthly Period calculated on a cash basis after subtracting
the aggregate Series Default Amount for such Monthly Period and the Series
1998-2 Percentage of any Adjustment Payments which the Transferor is required
but fails to make pursuant to the Pooling and Servicing Agreement for each
Business Day during such Monthly Period, and the denominator of which is the
average daily Invested Amount during such Monthly Period; provided, however,
that Excess Finance Charge Collections applied for the benefit of the Series
1998-2 Securityholders may be added to the numerator if the Transferor shall
have provided ten Business Days prior written notice of such action to each
Rating Agency and the Transferor, the Servicer and the Trustee shall have
received notification in writing that such action will not result in Standard &
Poor's reducing or withdrawing its then existing rating of the Investor
Securities of any outstanding Series or Class with respect to which it is a
Rating Agency.
"Principal Shortfalls" shall mean for any Business Day (x) for
Series 1998-2, (i) during the Controlled Amortization Period on or prior to the
CTO Principal Payment Commencement Date, the excess of the Class A Controlled
Distribution Amount or the Class B Controlled Distribution Amount, as
applicable, over the aggregate amount applied with respect thereto for such
Business Day and for each prior Business Day in such Monthly Period, and (ii) at
all other times, the Invested Amount of the Class then receiving principal
payments, if any, after the application of Principal Collections on such
Business Day or (y) for any other Series the amounts specified as such in the
Supplement for such other Series.
"QIB" shall mean a "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act.
"Rating Agency" shall mean Standard & Poor's and Moody's
"Redirected Class B Principal Collections" shall have the meaning
specified in subsection 4.14(c) of the Agreement.
"Redirected Class D Principal Collections" shall have the meaning
specified in subsection 4.14(a) of the Agreement.
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"Redirected CTO Principal Collections" shall have the meaning
specified in subsection 4.14(b) of the Agreement.
"Redirected Principal Collections" shall mean the sum of Redirected
Class B Principal Collections, Redirected CTO Principal Collections and
Redirected Class D Principal Collections.
"Regulation S Transfer Certificate" shall mean a certificate
substantially in the form of Exhibit E hereto.
"Required Amount" shall have the meaning specified in subsection
4.10(b) of the Agreement.
"Required Defeasance Reserve Account Amount" shall mean, with
respect to any Business Day on or after the Defeasance Reserve Account Funding
Date, an amount equal to the excess of the sum of the Class A Monthly Interest,
the Class B Monthly Interest and the estimated amount of the CTO Monthly
Interest over the estimated amount of investment earnings on amounts in the
Defeasance Funding Account, as estimated by the Transferor, for each of the
Interest Accrual Periods during the period from the date of the deposit to the
Defeasance Funding Account through the April 2004 Distribution Date.
"Reserve Account Investment Proceeds" shall mean, with respect to
any Business Day, the sum of the investment earnings on funds on deposit in (i)
the CTO Reserve Account available in accordance with subsection 4.21(c) of the
Agreement on such Business Day and (ii) the Payment Reserve Account available in
accordance with subsection 4.22(c) of the Agreement on such Business Day.
"Revolving Period" shall mean the period from and including the
Closing Date to, but not including, the Amortization Period Commencement Date.
"Revolving Receivables Reserve Account" shall have the meaning
specified in subsection 4.19 of the Agreement.
"Rule 144A Transfer Certificate" shall mean a certificate
substantially in the form of Exhibit F hereto.
"Scheduled Series 1998-2 Termination Date" shall mean the
February 2007 Distribution Date.
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"Series 1998-2" shall mean the Series of the Fingerhut Master Trust
represented by the Series 1998-2 Securities.
"Series 1998-2 Pay Out Event" shall have the meaning specified in
Section 8 of this Series Supplement.
"Series 1998-2 Percentage" shall mean, on any date of determination,
the percentage equivalent of a fraction the numerator of which is the Invested
Amount and the denominator of which is the sum of the Invested Amounts relating
to all other Series then outstanding.
"Series 1998-2 Securities" shall mean the Class A Securities, the
Class B Securities, the Collateralized Trust Obligations and the Class D
Security.
"Series 1998-2 Securityholder" shall mean the holder of record of
any Series 1998-2 Security.
"Series 1998-2 Securityholders' Interest" shall have the meaning
specified in Section 4.4 of the Agreement.
"Series 1998-2 Termination Date" shall mean the earlier to occur of
(i) the day after the Distribution Date on which the Series 1998-2 Securities
are paid in full, or (ii) the Scheduled Series 1998-2 Termination Date.
"Series Charge-Offs" shall mean the sum of Class A Charge-Offs,
Class B Charge-Offs, CTO Charge-Offs and Class D Charge-Offs.
"Series Default Amount" shall mean, with respect to each Business
Day, an amount equal to the product of the Default Amount identified since the
prior reporting date and the Floating Percentage for such Business Day.
"Series Monthly Servicing Fee Percentage" shall mean 2.00% per
annum.
"Shared Principal Collections" shall mean, as the context requires,
(a) the amount of Principal Collections for any Business Day allocated to the
Series 1998-2 Securities which, in accordance with subsections 4.9(b) and
4.9(c)(ii) of the Agreement, may be applied in accordance with Section 4.3(d) of
the Agreement or (b) the amounts allocated to the Investor Securities of other
Series which the
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applicable Series Supplements for such Series specify are to be treated as
"Shared Principal Collections" or (c) the amounts specified in any Participation
Supplement to be treated as "Shared Principal Collections" and which may be
applied to cover Principal Shortfalls with respect to the Series 1998-2
Securities.
"Specified CTO Reserve Amount" shall mean, on any date of
determination following a CTO Trigger Event, subject to Section 9 of this
Supplement, the amount, if any, which if added to the numerator of the Target
Percentage on such date would cause such percentage to be equal to 6%; provided,
however, that except as specified in the immediately succeeding proviso, the
Specified CTO Reserve Amount shall not exceed the product of 5% and the Invested
Amount on any Business Day; and provided, further, that following a CTO Default,
in the circumstances specified in Section 9 of this Series Supplement, the
Specified CTO Reserve Amount will be equal to the CTO Outstanding Principal
Amount.
"Specified Revolving Receivables Reserve Amount" shall mean, on any
date of determination, an amount equal to the product of (x) the Floating
Percentage on such date and (y) 1% of the aggregate amount of Principal
Receivables which are Revolving Receivables on such date; provided, however,
that such percentage may be reduced at the option of the Transferor at any time
if the Rating Agency Condition shall have been satisfied with respect thereto.
"Stated Class D Amount" shall mean on any Business Day the greater
of (i) zero and (ii) a number rounded to the nearest Dollar equal to 13.64% of
the ABC Adjusted Invested Amount as of such Business Day; provided, however,
that during any Early Amortization Period the Stated Class D Amount shall be
equal to the Stated Class D Amount immediately preceding the commencement of the
Early Amortization Period; provided, further, that on any Business Day after the
earlier of (a) the Class A Expected Final Payment Date if the Class A Invested
Amount was not paid in full on the Class A Expected Final Payment Date or (b)
the Class B Expected Final Payment Date if the Class B Invested Amount was not
paid in full on the Class B Expected Final Payment Date the Stated Class D
Amount shall be equal to the Stated Class D Amount on the Class A Expected Final
Payment Date or the Class B Expected Final Payment Date, as applicable; and
provided, further, that there shall be no reduction in the Stated Class D Amount
on any day on which the amount on deposit in the Revolving Receivables Reserve
Account is less than the Specified Revolving Receivables Reserve Amount or the
amount on deposit in the CTO Reserve Account is less than the Specified CTO
Reserve Amount and; provided, further, that the Stated Class D Amount shall not
be less than $15,340,920 prior to
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the date on which each of the Class A Outstanding Principal Balance, the Class B
Outstanding Principal Balance and the CTO Outstanding Principal Balance have
been reduced to zero.
"Target Percentage" shall have the meaning specified in subsection
4.20 of the Agreement.
"Telerate Page 3750" shall mean the display page currently so
designated on the Dow Jones Telerate Service (or such other page as may replace
that page on that service for the purpose of displaying comparable rates or
prices).
"Transferor Finance Charge Collections" shall mean on any Business
Day the Series 1998-2 Percentage of the Finance Charge Collections allocable to
the Exchangeable Transferor Security.
"Transferor Retained Securities" shall mean Investors Securities of
any Series which the Transferor retains, including the Class D Securities for so
long as they are held by the Transferor, but only to the extent that and for so
long as the Transferor is the Holder of such Securities.
SECTION 3. Reassignment Terms. The Series 1998-2 Securities shall be
subject to termination by the Transferor at its option, in accordance with the
terms specified in subsection 12.2(a) of the Agreement, on any Distribution Date
on or after the Distribution Date on which the sum of the Class A Invested
Amount, the Class B Invested Amount and the CTO Invested Amount would be reduced
to an amount less than or equal to 10% of the sum of the Class A Initial
Invested Amount, the Class B Initial Invested Amount and the CTO Initial
Invested Amount. The deposit required in connection with any such termination
and final distribution shall be equal to the sum of the unpaid Class A Invested
Amount, the unpaid Class B Invested Amount and the unpaid CTO Invested Amount
plus accrued and unpaid interest on the Class A Securities, Class B Securities
and Collateralized Trust Obligations through the day prior to the Distribution
Date on which the final distribution occurs, in each case after giving effect to
any payments on such date.
SECTION 4. Delivery and Payment for the Series 1998-2 Securities.
The Transferor shall execute and deliver the Series 1998-2 Securities to the
Trustee for authentication in accordance with Section 6.1 of the Agreement. The
Trustee shall deliver the Series 1998-2 Securities to or upon the order of the
Transferor when authenticated in accordance with Section 6.2 of the Agreement.
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SECTION 5. Form of Delivery of Series 1998-2 Securities;
Denominations; Depositary. (a) The Class A Securities, the Class B Securities
and the Collateralized Trust Obligations shall be delivered as Book-Entry
Securities as provided in Sections 6.1 and 6.10 of the Agreement. The Class A
Securities and the Class B Securities shall be issued in minimum denominations
of $1,000 and integral multiples thereof. The Collateralized Trust Obligations
shall be issued in minimum denominations of $100,000 and integral multiples of
$1,000 in excess thereof. The Class D Security shall be delivered as a
Registered Security as provided in Section 6.1 of the Agreement.
(b) The Depositary for Series 1998-2 shall be DTC and the Class A
Securities and the Class B Securities shall be initially registered in the name
of Cede & Co., its nominee and will initially be held by the Trustee as
custodian for DTC.
(c) The Transferor shall execute and the Trustee shall authenticate
(i) one or more CTO Temporary Regulation S Global Securities, (ii) one or more
CTO Regulation S Global Securities, and (iii) one or more CTO Rule 144A Global
Securities, each having a principal balance as shall have been indicated to the
Trustee by the Transferor and having an aggregate principal balance equal to the
CTO Invested Amount as of the date of execution of such Global Securities by the
Transferor.
The CTO Global Securities (i) shall be delivered by the Trustee to
DTC acting as the initial Clearing Agency, and (ii) in each case shall be
registered in the name of Cede & Co. The CTO Global Securities shall bear a
legend substantially in the form set forth in Exhibit A-3. The CTO Global
Securities initially will be held by the Trustee as custodian for DTC.
(d) So long as any of the CTO Global Securities remains outstanding
and are held by or on behalf of the Clearing Agency, transfers of beneficial
interests in any of such CTO Global Securities may be made only in accordance
with this Section 5 and in accordance with the rules of the Clearing Agency and
the Euroclear Operator or Cedel.
(i) A beneficial interest in the CTO Temporary Regulation S
Global Security may be transferred to a transferee that takes delivery in
the form of a beneficial interest in the CTO Rule 144A Global Securities
only upon receipt by the Trustee of a Rule 144A Transfer Certificate.
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(ii) On and after the CTO Exchange Date, a beneficial interest
in the CTO Temporary Regulation S Global Security may be transferred to a
transferee that takes delivery in the form of a beneficial interest in the
CTO Regulation S Global Security only upon receipt by the Trustee of a
Clearing System Certificate from the Euroclear Operator or Cedel, as
applicable, and a Member Organization Certificate, relating to the
appropriate portion of the CTO Temporary Regulation S Global Security.
(iii) A beneficial interest in a CTO Rule 144A Global Security
may be transferred to a transferee that takes delivery in the form of a
beneficial interest in a CTO Regulation S Global Security or CTO Temporary
Regulation S Global Security only upon receipt by the Transfer Agent and
Registrar of a Regulation S Transfer Certificate.
(iv) No restrictions shall apply with respect to the transfer
or registration of transfer of (x) a beneficial interest in a CTO Rule
144A Global Security to a transferee that takes delivery in the form of a
beneficial interest in the CTO Rule 144A Global Security, or (y) a
beneficial interest in a CTO Regulation S Global Security to a transferee
that takes delivery in the form of a beneficial interest in the CTO
Regulation S Global Security.
(e) An exchange of a beneficial interest in the CTO Temporary
Regulation S Global Security for a beneficial interest in the CTO Regulation S
Global Security, may be made only on or after the CTO Exchange Date and only
upon receipt by the Trustee of a Clearing System Certificate from the Euroclear
Operator or Cedel, as applicable, relating to the appropriate portion of the CTO
Temporary Regulation S Global Security.
(f) Upon acceptance for transfer of a beneficial interest in any
CTO Global Security for a beneficial interest in another CTO Global Security as
provided herein, the Trustee shall (or shall request the Clearing Agency to)
endorse on the schedules affixed to each of such CTO Global Securities (or on
continuations of such schedules affixed to each of such CTO Global Securities
and made parts thereof) appropriate notations evidencing the date of such
transfer and (x) in the case of the CTO Global Security from which such transfer
is made, a decrease in the outstanding balance of such CTO Global Security equal
to the outstanding balance being transferred and (y) in the case of the CTO
Global Security into which such transfer is made, an increase in the outstanding
balance of such CTO Global Security equal to the outstanding balance being
transferred.
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SECTION 6. Article IV of Agreement. Sections 4.1, 4.2 and 4.3 of the
Agreement shall read in their entirety as provided in the Agreement. Article IV
of the Agreement (except for Sections 4.1, 4.2 and 4.3 thereof) shall read in
its entirety as follows and shall be applicable only to the Series 1998-2
Securities:
ARTICLE IV
RIGHTS OF SECURITYHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.4 Rights of Securityholders. The Series 1998-2 Securities
shall represent undivided interests in the Trust, including the right to
receive, to the extent necessary to make the required payments with respect to
such Series 1998-2 Securities at the times and in the amounts specified in this
Agreement, (a) the Floating Percentage and the Fixed/Floating Percentage (as
applicable from time to time) of Collections (including Finance Charge
Collections) available in the Collection Account, (b) funds allocable to the
Series 1998-2 Securities on deposit in the Excess Funding Account and (c) funds
on deposit in the Interest Funding Account, the Principal Account, the Revolving
Receivables Reserve Account, the Defeasance Funding Account, the Defeasance
Reserve Account, the Distribution Account, the CTO Reserve Account and the
Payment Reserve Account (for such Series, the "Series 1998-2 Securityholders'
Interest"). The Class B Invested Amount, the CTO Invested Amount and the Class D
Invested Amount shall be subordinated to the Class A Securities; the CTO
Invested Amount and the Class D Invested Amount shall be subordinated to the
Class B Securities; and the Class D Invested Amount shall be subordinated to the
Collateralized Trust Obligations, in each case to the extent provided in this
Article IV. The Class B Securities will not have the right to receive payments
of principal until the Class A Invested Amount has been paid in full. The
Collateralized Trust Obligations will not have the right to receive payments of
principal until the Class A Invested Amount and the Class B Invested Amount have
been paid in full. The Class D Securities will not have the right to receive
payments of principal, other than to the extent of Class D Excess Amounts, until
the Class A Invested Amount, the Class B Invested Amount and the CTO Invested
Amount have been paid in full.
SECTION 4.5 Collections and Allocation; Payments on Exchangeable
Transferor Security.
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(a) Collections and Allocations. The Servicer will apply or will
instruct the Trustee to apply all funds on deposit in the Collection Account and
the Excess Funding Account allocable to the Series 1998-2 Securities, and all
funds on deposit in the Interest Funding Account, the Principal Account, the
Revolving Receivables Reserve Account, the Defeasance Funding Account, the
Defeasance Reserve Account, the Distribution Account, the CTO Reserve Account
and the Payment Reserve Account, as described in this Article IV. On each
Business Day, (i) the amount of Finance Charge Collections available in the
Collection Account allocable to the Series 1998-2 Securities shall be determined
by multiplying the aggregate amount of such Finance Charge Collections by (x)
prior to the Pay Out Commencement Date, the Floating Percentage and (y) on and
after the Pay Out Commencement Date, the Fixed/Floating Percentage, (ii) the
amount of Principal Collections available in the Collection Account allocable to
the Series 1998-2 Securities shall be determined by multiplying the aggregate
amount of such Principal Collections by (x) during the Revolving Period, the
Floating Percentage and (y) during any Amortization Period, the Fixed/Floating
Percentage, and (iii) the Default Amount on such Business Day allocable to the
Series 1998-2 Securities shall be determined by multiplying the Default Amount
by the Floating Percentage. In addition, on the Closing Date the Transferor
shall make a deposit to the Interest Funding Account in the amount of $2,000,000
to be allocated to the Series 1998-2 Securities and applied as Available Series
1998-2 Finance Charge Collections in accordance with subsection 4.9(a) of the
Agreement.
(b) Payments to the Holder of the Exchangeable Transferor Security.
On each Business Day, the Servicer shall allocate and pay Collections in
accordance with the Daily Report to the Holder of the Exchangeable Transferor
Security in accordance with subsection 4.3(b) of the Agreement; provided,
however, that such amounts shall be applied in accordance with Section 4.10
hereof to the extent specified therein.
Notwithstanding the foregoing and any other provisions of this
Supplement, amounts payable to the Transferor shall instead be deposited in the
Excess Funding Account to the extent necessary to prevent the Transferor
Interest from being less than the Minimum Transferor Interest.
SECTION 4.6 Determination of Interest for the Series 1998-2
Securities. (a) The amount of monthly interest (the "Class A Monthly Interest")
which shall accrue for the benefit of the Class A Securities with respect to any
Interest Accrual Period shall be an amount equal to one-twelfth of the product
of
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(i) the Class A Interest Rate and (ii) the Class A Outstanding Principal Amount
as of the close of business on the first day of such Interest Accrual Period (or
in the case of the initial Distribution Date, an amount equal to the product of
(u) the Class A Initial Invested Amount, (v) ___ divided by 360, and (w) the
Class A Interest Rate).
On the first Business Day of each Monthly Period, the Servicer shall
determine an amount (the "Class A Monthly Interest Shortfall") with respect to
the Distribution Date in such Monthly Period equal to the excess, if any, of (x)
the Class A Monthly Interest for the Interest Accrual Period ending in such
Monthly Period over (y) the amount available to be paid to the Class A
Securityholders in respect of interest on such Distribution Date. If there is a
Class A Monthly Interest Shortfall with respect to any Distribution Date, an
additional amount ("Class A Additional Interest") shall be payable as provided
herein with respect to the Class A Securities on each Distribution Date
following such Distribution Date, to and including the Distribution Date on
which such Class A Monthly Interest Shortfall is paid to Class A
Securityholders, equal to one-twelfth of the product of (i) the Class A Interest
Rate and (ii) such Class A Monthly Interest Shortfall remaining unpaid.
Notwithstanding anything to the contrary herein, Class A Additional Interest
shall be payable or distributed to Class A Securityholders only to the extent
permitted by applicable law.
(b) The amount of monthly interest (the "Class B Monthly Interest")
which shall accrue for the benefit of the Class B Securities with respect to any
Interest Accrual Period shall be an amount equal to one-twelfth of the product
of (i) the Class B Interest Rate and (ii) the Class B Invested Amount as of the
close of business on the first day of such Interest Accrual Period (or in the
case of the initial Distribution Date, an amount equal to the product of (u) the
Class B Initial Invested Amount, (v) __ divided by 360, and (w) the Class B
Interest Rate).
On the first Business Day of each Monthly Period, the Servicer shall
determine an amount (the "Class B Monthly Interest Shortfall") with respect to
the Distribution Date in such Monthly Period equal to the excess, if any, of (x)
the aggregate Class B Monthly Interest for the Interest Accrual Period ending in
such Monthly Period over (y) the amount available to be paid to the Class B
Securityholders in respect of interest on such Distribution Date. If there is a
Class B Monthly Interest Shortfall with respect to any Distribution Date, an
additional amount ("Class B Additional Interest") shall be payable as provided
herein with respect to the Class B Securities on each Distribution Date
following such Distribution Date, to and including the Distribution Date on
which such Class B Monthly Interest Shortfall is paid to Class B
Securityholders, equal to one-twelfth of
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the product of (i) the Class B Interest Rate and (ii) such Class B Monthly
Interest Shortfall remaining unpaid. Notwithstanding anything to the contrary
herein, Class B Additional Interest shall be payable or distributed to Class B
Securityholders only to the extent permitted by applicable law.
(c) The amount of monthly interest (for the Series 1998-2
Securities, the "CTO Monthly Interest") which shall accrue for the benefit of
the Collateralized Trust Obligations with respect to any Interest Accrual Period
shall be an amount equal to the product of (i) the CTO Interest Rate for the
related Interest Accrual Period, (ii) a fraction the numerator of which is the
actual number of days in the related Interest Accrual Period and the denominator
of which is 360 and (iii) the CTO Invested Amount as of the close of business on
the first day of such Interest Accrual Period (or in the case of the initial
Distribution Date, an amount equal to the product of (u) the CTO Initial
Invested Amount, (v) __ divided by 360, and (w) the CTO Interest Rate for the
initial Interest Accrual Period).
On the first Business Day of each Monthly Period, the Servicer shall
determine an amount (the "CTO Monthly Interest Shortfall") with respect to the
Distribution Date in such Monthly Period equal to the excess, if any, of (x) the
aggregate CTO Monthly Interest for the Interest Accrual Period ending in such
Monthly Period over (y) the amount available to be paid to the CTO
Securityholders in respect of interest on such Distribution Date. If there is a
CTO Monthly Interest Shortfall with respect to any Distribution Date, an
additional amount ("CTO Additional Interest") shall be payable as provided
herein with respect to the Collateralized Trust Obligations on each Distribution
Date following such Distribution Date, to and including the Distribution Date on
which such CTO Monthly Interest Shortfall is paid to CTO Securityholders, equal
to the product of (i) the CTO Interest Rate, (ii) such CTO Monthly Interest
Shortfall remaining unpaid and (iii) a fraction the numerator of which is the
actual number of days in the related Interest Accrual Period and the denominator
of which is 360. Notwithstanding anything to the contrary herein, CTO Additional
Interest shall be payable or distributed to CTO Securityholders only to the
extent permitted by applicable law.
SECTION 4.7 Determination of Principal Amounts. (a) The amount of
principal (the "Class A Principal") distributable from the Distribution Account
with respect to the Class A Securities for each Distribution Date with respect
to the Amortization Period shall be equal to the Available Series 1998-2
Principal Collections on deposit in the Principal Account with respect to the
related Monthly Period; provided, however, that with respect to any Distribution
Date during the
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Controlled Amortization Period, Class A Principal shall not exceed the lesser of
(i) the Class A Controlled Distribution Amount and (ii) the Class A Invested
Amount; provided, further that with respect to any Distribution Date with
respect to the Early Amortization Period following a Defeasance, Class A
Principal shall be equal to the lesser of (i) the Defeasance Funding Account
Balance and (ii) the Class A Invested Amount; provided, further that with
respect to the Series 1998-2 Termination Date, Class A Principal shall be an
amount equal to the Class A Invested Amount.
(b) The amount of principal (the "Class B Principal") distributable
from the Distribution Account with respect to the Class B Securities for each
Distribution Date, beginning on the Class B Principal Payment Commencement Date,
shall be equal to the Available Series 1998-2 Principal Collections remaining on
deposit in the Principal Account with respect to the related Monthly Period
after application thereof to Class A Principal, if any; provided, however, that
with respect to any Distribution Date during the Controlled Amortization Period,
Class B Principal shall not exceed the lesser of (i) the Class B Controlled
Distribution Amount and (ii) the Class B Invested Amount; provided, further that
with respect to any Distribution Date with respect to the Early Amortization
Period following a Defeasance, Class B Principal shall be equal to the lesser of
(i) the Defeasance Funding Account Balance after application of amounts on
deposit therein to Class A Principal and (ii) the Class B Invested Amount;
provided, further that with respect to the Series 1998-2 Termination Date, Class
B Principal shall be an amount equal to the Class B Invested Amount.
(c) The amount of principal (the "CTO Principal") distributable from
the Distribution Account with respect to the Collateralized Trust Obligations
for each Distribution Date, beginning on or after the CTO Principal Payment
Commencement Date, shall be equal to the Available Series 1998-2 Principal
Collections remaining on deposit in the Principal Account with respect to the
related Monthly Period after application thereof to Class A Principal and Class
B Principal, if any; provided that with respect to any Distribution Date with
respect to the Early Amortization Period following a Defeasance, CTO Principal
shall be equal to the lesser of (i) the Defeasance Funding Account Balance after
application of amounts on deposit therein to Class A Principal and Class B
Principal and (ii) the CTO Invested Amount; provided, further with respect to
the Series 1998-2 Termination Date, CTO Principal shall be an amount equal to
the CTO Invested Amount.
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(d) The amount of principal (the "Class D Principal") distributable
from the Distribution Account with respect to the Class D Securities for each
Distribution Date, beginning on the Class D Principal Payment Commencement Date,
and on each Distribution Date thereafter until the Trust is terminated or until
the Class D Invested Amount is paid in full, shall be equal to the Available
Series 1998-2 Principal Collections remaining on deposit in the Principal
Account with respect to the related Monthly Period after application thereof to
Class A Principal, Class B Principal and CTO Principal, if any, and the Trustee,
acting in accordance with instructions from the Servicer, will withdraw such
amounts from the Principal Account and, to the extent of the Class D Invested
Amount, deposit such amounts in the Distribution Account for distribution to the
Class D Securityholder on the next succeeding Distribution Date.
SECTION 4.8 Shared Principal Collections. Shared Principal
Collections allocated to Available Series 1998-2 Principal Collections for the
Series 1998-2 Securities and to be applied to Class A Principal, Class B
Principal, CTO Principal and Class D Principal pursuant to subsection
4.9(c)(i)(y) of the Agreement for any Business Day with respect to the
Amortization Period shall be equal to the product of (x) Shared Principal
Collections for all Series for such Business Day and (y) a fraction, the
numerator of which is the Principal Shortfall for the Series 1998-2 Securities
for such Business Day and the denominator of which is the aggregate amount of
Principal Shortfalls for all Series for such Business Day. For any Business Day
with respect to the Revolving Period, Shared Principal Collections allocated to
Available Series 1998-2 Principal Collections for the Series 1998-2 Securities
shall be zero.
SECTION 4.9 Application of Funds on Deposit in the Collection
Account for the Securities. (a) Available Series 1998-2 Finance Charge
Collections. On each Business Day, the Servicer shall deliver to the Trustee a
Daily Report in which it shall instruct the Trustee to withdraw, and the
Trustee, acting in accordance with such instructions, shall withdraw amounts
from the appropriate accounts, to the extent of the sum of (i) the amount of
Finance Charge Collections allocated to the Series 1998-2 Securities pursuant to
subsection 4.5(a) of the Agreement, (ii) amounts on deposit in the Payment
Reserve Account, if any, if and to the extent the Transferor designates that
such amounts are to be so applied, (iii) Reserve Account Investment Proceeds and
investment earnings on amounts on deposit in the Interest Funding Account and
the Principal Account and (iv) Defeasance Funding Account Investment Proceeds
and amounts withdrawn from the Defeasance Reserve Account pursuant to
subsections 4.17(b), (c) and (d) and the Revolving Receivables Reserve Account
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pursuant to subsections 4.19(c), (d) and (e), which amounts shall be applied on
each Transfer Date as if such amounts had been available on the last Business
Day of the preceding Monthly Period (collectively, the "Available Series 1998-2
Finance Charge Collections"; provided that with respect to the Closing Date the
amount deposited by the Transferor into the Interest Funding Account pursuant to
subsection 4.5(a) of the Agreement shall also constitute Available Series 1998-2
Finance Charge Collections; and provided further that, with respect to any
Business Day, amounts applied pursuant to Section 4.10 and Section 4.14 of the
Agreement shall be applied as if such amounts were Available Series 1998-2
Finance Charge Collections). The Trustee shall apply Available Series 1998-2
Finance Charge Collections in the priority set forth below:
(i) Class A Monthly Interest. On each Business Day during a
Monthly Period, the Trustee, acting in accordance with instructions from
the Servicer, shall deposit into the Interest Funding Account for
distribution on the next Distribution Date to the Class A Securityholders,
to the extent of the Available Series 1998-2 Finance Charge Collections
for such Business Day, an amount equal to the lesser of (x) the Available
Series 1998-2 Finance Charge Collections and (y) the excess of (1) the sum
of Class A Monthly Interest for the Interest Accrual Period beginning in
such Monthly Period and Carryover Class A Monthly Interest over (2) any
amounts with respect thereto previously deposited into the Interest
Funding Account during such Monthly Period. Notwithstanding anything to
the contrary herein, the portion of Carryover Class A Monthly Interest
that constitutes Class A Additional Interest shall be payable or
distributable to Class A Securityholders only to the extent permitted by
applicable law.
(ii) Class B Monthly Interest. On each Business Day during a
Monthly Period, the Trustee, acting in accordance with instructions from
the Servicer, shall deposit into the Interest Funding Account for
distribution on the next Distribution Date to the Class B Securityholders,
to the extent of any Available Series 1998-2 Finance Charge Collections
remaining after giving effect to the application pursuant to subsection
4.9(a)(i) of the Agreement, an amount equal to the lesser of (x) any such
remaining Available Series 1998-2 Finance Charge Collections and (y) the
excess of (1) the sum of Class B Monthly Interest for the Interest Accrual
Period beginning in such Monthly Period and Carryover Class B Monthly
Interest over (2) any amounts with respect thereto previously deposited
into the Interest Funding Account during such Monthly Period.
Notwithstanding anything to the contrary herein, the
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portion of Carryover Class B Monthly Interest that constitutes Class B
Additional Interest shall be payable or distributable to Class B
Securityholders only to the extent permitted by applicable law.
(iii) CTO Monthly Interest. On each Business Day during a
Monthly Period, the Trustee, acting in accordance with instructions from
the Servicer, shall deposit into the Interest Funding Account for
distribution on the next Distribution Date to the CTO Securityholders, to
the extent of any Available Series 1998-2 Finance Charge Collections
remaining after giving effect to the applications pursuant to subsections
4.9(a)(i) and (ii) of the Agreement, an amount equal to the lesser of (x)
any such remaining Available Series 1998-2 Finance Charge Collections and
(y) the excess of (1) the sum of CTO Monthly Interest for the Interest
Accrual Period beginning in such Monthly Period and Carryover CTO Monthly
Interest over (2) any amounts with respect thereto previously deposited
into the Interest Funding Account during such Monthly Period.
Notwithstanding anything to the contrary herein, the portion of Carryover
Class C Monthly Interest that constitutes CTO Additional Interest shall be
payable or distributable to CTO Securityholders only to the extent
permitted by applicable law.
(iv) Monthly Servicing Fee. On each Business Day during a
Monthly Period, the Trustee, acting in accordance with instructions from
the Servicer, shall distribute to the Servicer, to the extent of any
Available Series 1998-2 Finance Charge Collections remaining after giving
effect to the applications pursuant to subsections 4.9(a)(i) through (iii)
of the Agreement, an amount equal to the lesser of (x) any such remaining
Available Series 1998-2 Finance Charge Collections and (y) the excess of
(i) the Monthly Servicing Fee for such Monthly Period plus any unpaid
Monthly Servicing Fees from prior Monthly Periods over (ii) any amounts
with respect thereto previously distributed to the Servicer during such
Monthly Period.
(v) Series Default Amount. On each Business Day during a
Monthly Period, the Trustee, acting in accordance with instructions from
the Servicer, shall apply to the extent of any Available Series 1998-2
Finance Charge Collections remaining after giving effect to the
applications pursuant to subsections 4.9(a)(i) through (iv) of the
Agreement, an amount equal to the lesser of (x) any such remaining
Available Series 1998-2 Finance Charge Collections and (y) the sum of (1)
the aggregate Series Default Amount for such Business Day plus (2) the
unpaid Series Default Amount for each
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previous Business Day during such Monthly Period, such amount to be (A)
treated as Shared Principal Collections during the Revolving Period, and
(B) treated as Available Series 1998-2 Principal Collections during the
Amortization Period.
(vi) Adjustment Payment Shortfalls. On each Business Day, the
Trustee, acting in accordance with instructions from the Servicer, shall
apply to the extent of any Available Series 1998-2 Finance Charge
Collections remaining after giving effect to the applications pursuant to
subsections 4.9(a)(i) through (v) of the Agreement, an amount equal to the
lesser of (x) any such remaining Available Series 1998-2 Finance Charge
Collections and (y) an amount equal to the Series 1998-2 Percentage of any
Adjustment Payment which the Transferor is required but fails to make
pursuant to subsection 3.8(a) of the Agreement on such Business Day and on
each previous Business Day during such Monthly Period less any amounts
previously withdrawn pursuant to this subsection 4.9(a)(vi) on account of
such unpaid Adjustment Payments, such amount to be (i) treated as Shared
Principal Collections during the Revolving Period, and (ii) treated as
Available Series 1998-2 Principal Collections during the Amortization
Period.
(vii) Reimbursement of Class A Charge-Offs. On each Business
Day, the Trustee, acting in accordance with instructions from the
Servicer, shall apply to the extent of any Available Series 1998-2 Finance
Charge Collections remaining after giving effect to the applications
pursuant to subsections 4.9(a)(i) through (vi) of the Agreement, an amount
equal to the lesser of (x) any such remaining Available Series 1998-2
Finance Charge Collections and (y) the unreimbursed Class A Charge-Offs,
if any, in order to reimburse Class A Charge-Offs, such amount to be (A)
treated as Shared Principal Collections during the Revolving Period, and
(B) treated as Available Series 1998-2 Principal Collections during the
Amortization Period.
(viii) Unpaid Class B Monthly Interest. On each Business Day,
the Trustee, acting in accordance with the instructions from the Servicer,
shall deposit in the Interest Funding Account for distribution to the
Class B Securityholders on the next Distribution Date, to the extent of
any Available Series 1998-2 Finance Charge Collections remaining after
giving effect to the applications pursuant to subsections 4.9(a)(i)
through (vii) of the
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Agreement, an amount equal to the lesser of (x) any such remaining
Available Series 1998-2 Finance Charge Collections and (y) the sum of (1)
the amount of interest which would accrue with respect to the Class B
Securities on the Class B Outstanding Principal Amount at the Class B
Interest Rate during the related Interest Accrual Period beginning in the
then Current Monthly Period but which has not been deposited into the
Interest Funding Account or paid to the Class B Securityholders and (2)
any additional interest (to the extent permitted by applicable law) at the
Class B Interest Rate on interest that was payable on any prior
Distribution Date pursuant to this subsection but was not deposited in the
Interest Funding Account or paid to the Class B Securityholders.
(ix) Unpaid CTO Monthly Interest. On each Business Day, the
Trustee, acting in accordance with the instructions from the Servicer,
shall deposit in the Interest Funding Account for distribution to the CTO
Securityholders on the next Distribution Date, to the extent of any
Available Series 1998-2 Finance Charge Collections remaining after giving
effect to the applications pursuant to subsections 4.9(a)(i) through
(viii) of the Agreement, an amount equal to the lesser of (x) any such
remaining Available Series 1998-2 Finance Charge Collections and (y) the
sum of (1) the amount of interest which would accrue with respect to the
Collateralized Trust Obligations on the CTO Outstanding Principal Amount
at the CTO Interest Rate during the Interest Accrual Period beginning in
the then Current Monthly Period but which has not been deposited into the
Interest Funding Account or paid to the CTO Securityholders and (2) any
additional interest (to the extent permitted by applicable law) at the CTO
Interest Rate on interest that was payable on any prior Distribution Date
pursuant to this subsection but was not deposited in the Interest Funding
Account or paid to the CTO Securityholders.
(x) Reimbursement of Certain Reductions of Class B Invested
Amount. On each Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall apply, to the extent of any
Available Series 1998-2 Finance Charge Collections remaining after giving
effect to the applications pursuant to subsections 4.9(a)(i) through (ix)
of the Agreement, an amount equal to the lesser of (x) any such remaining
Available Series 1998-2 Finance Charge Collections and (y) the
unreimbursed amount by which the Class B Invested Amount has been reduced
on prior Business Days pursuant to clauses (c) and (d) of the definition
of Class B Invested Amount,
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if any, such amount to be (A) treated as Shared Principal Collections
during the Revolving Period, and (B) treated as Available Series 1998-2
Principal Collections during the Amortization Period.
(xi) Reimbursement of Certain Reductions of CTO Invested
Amount. On each Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall apply, to the extent of any
Available Series 1998-2 Finance Charge Collections remaining after giving
effect to the applications pursuant to subsections 4.9(a)(i) through (x)
of the Agreement, an amount equal to the lesser of (x) any such remaining
Available Series 1998-2 Finance Charge Collections and (y) the
unreimbursed amount by which the CTO Invested Amount has been reduced on
prior Business Days pursuant to clauses (c) and (d) of the definition of
CTO Invested Amount, if any, such amount to be (A) treated as Shared
Principal Collections during the Revolving Period, and (B) treated as
Available Series 1998-2 Principal Collections during the Amortization
Period.
(xii) Reimbursement of Certain Reductions of Class D Invested
Amount. On each Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall apply, to the extent of any
Available Series 1998-2 Finance Charge Collections remaining after giving
effect to the applications pursuant to subsections 4.9(a)(i) through (xi)
of the Agreement, an amount equal to the lesser of (x) any such remaining
Available Series 1998-2 Finance Charge Collections and (y) the
unreimbursed amount by which the Class D Invested Amount has been reduced
on prior Business Days pursuant to clauses (c) and (d) of the definition
of Class D Invested Amount, if any, such amount to be (A) treated as
Shared Principal Collections during the Revolving Period, and (B) treated
as Available Series 1998-2 Principal Collections during the Amortization
Period.
(xiii) Class D Interest. On each Business Day during a Monthly
Period, the Trustee, acting in accordance with the instructions from the
Servicer, shall deposit in the Interest Funding Account for distribution
to the Class D Securityholders on the next Distribution Date, to the
extent of any Available Series 1998-2 Finance Charge Collections remaining
after giving effect to the applications pursuant to subsections 4.9(a)(i)
through (xii) of the Agreement, an amount equal to the lesser of (x) any
such remaining Available Series 1998-2 Finance Charge Collections and (y)
the sum of (1) the amount of interest which has accrued with respect to
the Class D
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Securities on the Class D Outstanding Principal Amount at the applicable
Class D Interest Rate but which has not been deposited into the Interest
Funding Account on any prior Business Day or paid to the Class D
Securityholders and (2) any additional interest (to the extent permitted
by applicable law) at the Class D Interest Rate on interest that was
payable during a prior Monthly Period pursuant to this subsection but was
not deposited in the Interest Funding Account or paid to the Class D
Securityholders.
(xiv) Revolving Receivables Reserve Account. On each Business
Day, the Trustee, acting in accordance with instructions from the
Servicer, shall deposit in the Revolving Receivables Reserve Account, to
the extent of any Available Series 1998-2 Finance Charge Collections
remaining after giving effect to the applications pursuant to subsections
4.9(a)(i) through (xiii) of the Agreement an amount equal to the lesser of
(x) any such remaining Available Series 1998-2 Finance Charge Collections
and (y) an amount equal to the excess, if any, of the Specified Revolving
Receivables Reserve Amount on such date over the amount then on deposit in
the Revolving Receivables Reserve Account.
(xv) Defeasance Reserve Account. At the option of the
Transferor, on each Business Day on and after the Defeasance Reserve
Account Funding Date, but prior to the date on which a Defeasance occurs
pursuant to subsection 4.18 of the Agreement, the Trustee, acting in
accordance with instructions from the Servicer, shall deposit in the
Defeasance Reserve Account, to the extent of any Available Series 1998-2
Finance Charge Collections remaining after giving effect to the
applications pursuant to subsections 4.9(a)(i) through (xiv) of the
Agreement, an amount equal to the lesser of (x) any such remaining
Available Series 1998-2 Finance Charge Collections and (y) the excess, if
any, of the Required Defeasance Reserve Account Amount over the Available
Defeasance Reserve Account Amount.
(xvi) CTO Reserve Account. Following the occurrence of a CTO
Trigger Event, on each Business Day, the Trustee, acting in accordance
with instructions from the Servicer, shall deposit in the CTO Reserve
Account, to the extent of any Available Series 1998-2 Finance Charge
Collections remaining after giving effect to the applications pursuant to
subsections 4.9(a)(i) through (xv) of the Agreement, an amount equal to
the
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lesser of (x) any such remaining Available Series 1998-2 Finance Charge
Collections and (y) an amount equal to the excess, if any, of the
Specified CTO Reserve Amount on such date over the amount then on deposit
in the CTO Reserve Account.
(xvii) Payment Reserve Account. On each Business Day, the
Trustee, acting in accordance with instructions from the Transferor, shall
deposit in the Payment Reserve Account, to the extent of any Available
Series 1998-2 Finance Charge Collections remaining after giving effect to
the applications pursuant to subsections 4.9(a)(i) through (xvi) of the
Agreement, an amount equal to the lesser of (x) any such remaining
Available Series 1998-2 Finance Charge Collections and (y) the amount, if
any, designated by the Transferor in writing (which includes facsimile
transmission) in its instructions to the Trustee on such Business Day.
(xviii) Excess Finance Charge Collections. Any Available
Series 1998-2 Finance Charge Collections remaining after giving effect to
the applications pursuant to subsection 4.9(a)(i) through (xvii) of the
Agreement shall be treated as Excess Finance Charge Collections, and the
Servicer shall direct the Trustee in writing on each Business Day to first
make such amounts available to pay to Securityholders of other Series to
the extent of shortfalls, if any, in amounts payable to such
Securityholders from Finance Charge Collections allocated to such other
Series, then to pay any unpaid commercially reasonable costs and expenses
of a Successor Servicer, if any, then to reserve for (or pay when due) any
taxes and related expenses anticipated by the Servicer to be payable by
the Trust with respect to the related Monthly Period or prior Monthly
Periods and then on each Business Day to pay any remaining Excess Finance
Charge Collections to the Transferor.
(b) Revolving Period Principal Collections. For each Business Day
with respect to the Revolving Period, the funds on deposit in the Collection
Account to the extent of the product of (i) the Floating Percentage and (ii)
Principal Collections with respect to such Business Day (less the amount of
Redirected Principal Collections on such Business Day) will be treated as Shared
Principal Collections and applied, pursuant to the written direction of the
Servicer in the Daily Report for such Business Day, as provided in Section
4.3(e) of the Agreement.
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(c) Amortization Period Principal Collections and Other Funds. For
each Business Day on and after the Amortization Period Commencement Date, the
amount of funds on deposit in the Collection Account or the Excess Funding
Account as described below will be distributed, pursuant to the written
direction of the Servicer in the Daily Report for such Business Day in the
following priority:
(i) an amount (not in excess of the Invested Amount) equal to
the sum of (v) the product of the Fixed/Floating Percentage and Principal
Collections (less the amount thereof applied as Redirected Principal
Collections) for such Business Day, (w) any amount on deposit in the
Excess Funding Account allocated to the Series 1998-2 Securities on such
Business Day pursuant to subsection 4.3(f) of the Agreement, (x) amounts
to be treated as Available Series 1998-2 Principal Collections for such
Business Day pursuant to subsections 4.9(a)(v), (vi), (vii), (x), (xi) and
(xii) of the Agreement (including amounts available pursuant to
subsections 4.10(a) and (b) and 4.14(a), (b) and (c) of the Agreement for
such Business Day) and (y) the amount of Shared Principal Collections
allocated to the Series 1998-2 Securities in accordance with Section 4.8
of the Agreement for such Business Day, will be deposited into the
Principal Account; provided, however, that with respect to any Monthly
Period during the Controlled Amortization Period, the aggregate amount
required to be deposited in the Principal Account pursuant to this
subsection 4.9(c)(i) shall not exceed the sum of (I) (A) prior to the
Monthly Period related to the Class B Principal Payment Commencement Date,
the Class A Controlled Distribution Amount, (B) during and after the
Monthly Period related to the Class B Principal Payment Commencement Date
but prior to the Monthly Period related to the CTO Principal Payment
Commencement Date, the Class B Controlled Distribution Amount or (C)
during and after the Monthly Period related to the CTO Principal Payment
Commencement Date but prior to the Monthly Period related to the Class D
Principal Payment Commencement Date, the CTO Invested Amount and (II) at
the option of the Transferor, the Class D Excess Amount; and
(ii) an amount equal to the excess, if any, of (A) the sum of
the amounts described in subsection 4.9(c)(i)(v) and (x) above over (B)
the sum of Class A Principal, Class B Principal, CTO Principal and Class D
Principal will be treated as Shared Principal Collections and applied as
provided in subsection 4.3(e) of the Agreement.
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SECTION 4.10 Coverage of Required Amount for the Series 1998-2
Securities. (a) Coverage of Negative Carry Amount. To the extent that any
amounts are on deposit in the Excess Funding Account on any Business Day, the
Servicer shall apply, in the manner specified for application of Available
Series 1998-2 Finance Charge Collections in subsections 4.9(a)(i) through (xiii)
of the Agreement, Transferor Finance Charge Collections in an amount (the
"Negative Carry Amount") equal to the excess of (x) the product of (a) the Base
Rate, (b) the product of (i) the amounts on deposit in the Excess Funding
Account and (ii) the number of days elapsed since the previous Business Day
divided by 360 over (y) the aggregate amount of all earnings since the previous
Business Day available from the Cash Equivalents in which funds on deposit in
the Excess Funding Account are invested.
(b) Required Amount from Other Series Excess Finance Charge
Collections. To the extent that on any Business Day payments are being made
pursuant to any of subsections 4.9(a)(i) through (xiii) of the Agreement,
respectively, and the full amount to be paid pursuant to any such subsection
receiving payments on such Business Day is not paid in full on such Business
Day, the Servicer shall apply, in the manner specified for application of
Available Series 1998-2 Finance Charge Collections in subsections 4.9(a)(i)
through (xiii) of the Agreement, all or a portion of the Excess Finance Charge
Collections from other Series with respect to such Business Day allocable to the
Series 1998-2 Securities in an amount equal to the excess of the full amount to
be allocated or paid pursuant to the applicable subsection over the amount
applied with respect thereto from Available Series 1998- 2 Finance Charge
Collections and Transferor Finance Charge Collections on such Business Day (the
"Required Amount"). Excess Finance Charge Collections allocated to the Series
1998-2 Securities for any Business Day shall mean an amount equal to the product
of (x) Excess Finance Charge Collections available from all other Series for
such Business Day and (y) a fraction, the numerator of which is the Required
Amount for such Business Day and the denominator of which is the aggregate
amount of shortfalls in required amounts or other amounts to be paid from
Finance Charge Collections for all Series for such Business Day.
SECTION 4.11 Payment of Interest on Securities . On each Transfer
Date, the Trustee, acting in accordance with instructions from the Servicer set
forth in the Daily Report for such day, shall withdraw the amount on deposit in
the Interest Funding Account with respect to the preceding Monthly Period
allocable to the Series 1998-2 Securities and deposit such amount in the
Distribution Account. On each Distribution Date, the Paying Agent shall pay in
accordance with Section 5.1 of the Agreement to (w) the Class A Securityholders
from the Distribution Account
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such amount deposited into the Distribution Account on the related Transfer Date
allocable thereto from amounts deposited in the Interest Funding Account
pursuant to subsection 4.9(a)(i) of the Agreement, (x) the Class B
Securityholders from the Distribution Account the amount deposited into the
Distribution Account on the related Transfer Date allocable thereto from amounts
deposited in the Interest Funding Account pursuant to subsections 4.9(a)(ii) and
(viii) of the Agreement, (y) the CTO Securityholders from the Distribution
Account the amount deposited into the Distribution Account on the related
Transfer Date allocable thereto from amounts deposited in the Interest Funding
Account pursuant to subsections 4.9(a)(iii) and (ix) of the Agreement, and (z)
the Class D Securityholder from the Distribution Account the amount deposited
into the Distribution Account on the related Transfer Date allocable thereto
from amounts deposited in the Interest Funding Account pursuant to subsection
4.9(a)(xiii) of the Agreement.
SECTION 4.12 Payment of Security Principal.
(a) Class A Principal. On the Transfer Date preceding each
Distribution Date with respect to the Amortization Period, the Trustee, acting
in accordance with instructions from the Servicer set forth in the Daily Report
for such day, shall withdraw from the Principal Account or, following the
occurrence of a Defeasance, from the Defeasance Funding Account, and deposit
into the Distribution Account, to the extent of funds available, an amount equal
to the Class A Principal for such Distribution Date. On each Distribution Date
with respect to the Amortization Period until the Class A Invested Amount is
paid in full, the Paying Agent shall pay in accordance with Section 5.1 of the
Agreement to the Class A Securityholders from the Distribution Account such
amounts deposited with respect to Class A Principal into the Distribution
Account on the related Transfer Date.
(b) Class B Principal. On the Transfer Date preceding the Class B
Principal Payment Commencement Date and each Transfer Date thereafter, the
Trustee, acting in accordance with instructions from the Servicer set forth in
the Daily Report for such day, shall withdraw from the Principal Account or,
following the occurrence of a Defeasance, the Defeasance Funding Account and
deposit in the Distribution Account, to the extent of funds available, an amount
equal to the Class B Principal for the related Distribution Date. On and after
the Class B Principal Payment Commencement Date, on each Distribution Date until
the Class B Invested Amount is paid in full, the Paying Agent shall pay in
accordance with Section 5.1 of the Agreement to the Class B Securityholders from
the Distribution Account such
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amounts deposited with respect to Class B Principal into the Distribution
Account on the related Transfer Date.
(c) CTO Principal. On the Transfer Date preceding the CTO Principal
Payment Commencement Date and each Transfer Date thereafter, the Trustee, acting
in accordance with instructions from the Servicer set forth in the Daily Report
for such day, shall withdraw from the Principal Account or, following the
occurrence of a Defeasance, the Defeasance Funding Account and deposit in the
Distribution Account, to the extent of funds available, an amount equal to the
CTO Principal for the related Distribution Date. On and after the CTO Principal
Payment Commencement Date, on each Distribution Date until the CTO Invested
Amount is paid in full, the Paying Agent shall pay in accordance with Section
5.1 of the Agreement to the CTO Securityholders from the Distribution Account
such amounts deposited with respect to CTO Principal into the Distribution
Account on the related Transfer Date.
(d) Class D Principal. On the Transfer Date preceding the Class D
Principal Payment Commencement Date and each Transfer Date thereafter, or, in
the case of distributions of Class D Excess Amounts, on each Transfer Date
during the Controlled Amortization Period preceding a Distribution Date on which
a distribution shall be made of Class D Excess Amounts, the Trustee, acting in
accordance with instructions from the Servicer set forth in the Daily Report for
such day, shall withdraw from the Principal Account and deposit in the
Distribution Account, to the extent of funds available after giving effect to
withdrawals pursuant to subsections 4.12(a), (b) or (c) of the Agreement, an
amount equal to the Class D Principal for the related Distribution Date. On the
Class D Principal Payment Commencement Date after the payment of any principal
amounts to the Class A Securities, the Class B Securities and the Collateralized
Trust Obligations on such day, and on each Distribution Date thereafter until
the Class D Invested Amount is paid in full and on each Distribution Date during
the Controlled Amortization Period on which amounts are to be distributed with
respect to Class D Excess Amounts, the Paying Agent shall pay in accordance with
Section 5.1 of the Agreement to the Class D Securityholder from the Distribution
Account such amounts deposited with respect to Class D Principal into the
Distribution Account on the related Transfer Date. Notwithstanding the
foregoing, if so designated in writing by the Transferor with respect to any
such Transfer Date, any such payment of Class D Principal shall not be made to
the Class D Securityholder but such amount shall nonetheless be subtracted from
the Class D Invested Amount and added to the Transferor Interest and Class D
Excess Amounts may be subtracted from the Class D Invested Amount
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and added to the Transferor Interest whether or not such amount has been
deposited into the Distribution Account.
(e) Any amounts remaining in the Principal Account and allocable to
the Series 1998-2 Securities, after the Class D Invested Amount has been paid in
full, will be treated as Shared Principal Collections and applied in accordance
with Section 4.3(e) of the Agreement.
SECTION 4.13 Series Charge-Offs. (a) If, on any Determination Date,
the sum of the aggregate Series Default Amount and the Series 1998-2 Percentage
of unpaid Adjustment Payments, if any, required to be made by the Transferor but
not made for all Business Days in the preceding Monthly Period exceeds the sum
of (x) the aggregate amount of the Available Series 1998-2 Finance Charge
Collections applied to the payment thereof pursuant to subsections 4.9(a)(v) and
(vi) of the Agreement, (y) the aggregate amount of Transferor Finance Charge
Collections and Excess Finance Charge Collections allocated thereto pursuant to
Section 4.10 of the Agreement, and (z) the aggregate amount of Redirected
Principal Collections applied with respect thereto pursuant to Section 4.14 of
the Agreement, the Class D Invested Amount will be reduced by the aggregate
amount of such excess (a "Class D Charge-Off").
(b) In the event that any such reduction of the Class D Invested
Amount would cause the Class D Invested Amount to be a negative number, the
Class D Invested Amount will be reduced to zero, and the CTO Invested Amount
will be reduced by the amount by which the Class D Invested Amount would have
been reduced below zero, but not by more than the remaining aggregate Series
Default Amount and Series 1998-2 Percentage of unpaid Adjustment Payments for
such Monthly Period (a "CTO Charge-Off").
(c) In the event that any such reduction of the CTO Invested Amount
would cause the CTO Invested Amount to be a negative number, the CTO Invested
Amount will be reduced to zero, and the Class B Invested Amount will be reduced
by the amount by which the CTO Invested Amount would have been reduced below
zero, but not by more than the remaining aggregate Series Default Amount and
Series 1998-2 Percentage of unpaid Adjustment Payments for such Monthly Period
(a "Class B Charge-Off").
(d) In the event that any such reduction of the Class B Invested
Amount would cause the Class B Invested Amount to be a negative number, the
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Class B Invested Amount will be reduced to zero, and the Class A Invested Amount
will be reduced by the amount by which the Class B Invested Amount would have
been reduced below zero, but not by more than the remaining aggregate Series
Default Amount and Series 1998-2 Percentage of unpaid Adjustment Payments for
such Monthly Period (a "Class A Charge-Off").
SECTION 4.14 Redirected Principal Collections for the Series 1998- 2
Securities. (a) On each Business Day, the Servicer will apply or cause the
Trustee to apply an amount equal to the least of (i) the Class D Invested
Amount, (ii) the product of (x)(I) during the Revolving Period, the Class D
Floating Percentage or (II) during an Amortization Period, the Class D
Fixed/Floating Percentage and (y) the amount of Principal Collections with
respect to such Business Day and (iii) an amount equal to the sum of (a) the
Class A Required Amount for such Business Day, (b) the Class B Required Amount
for such Business Day and (c) the CTO Required Amount for such Business Day
(such amount called "Redirected Class D Principal Collections") and shall apply
Principal Collections allocable to the Securities in an amount equal to such
amount in accordance with subsection 4.9(a) as if such amounts were Available
Series 1998-2 Finance Charge Collections.
(b) On each Business Day, the Servicer will apply or cause the
Trustee to apply an amount equal to the least of (i) the CTO Invested Amount,
(ii) the product of (x)(I) during the Revolving Period, the CTO Floating
Percentage or (II) during an Amortization Period, the CTO Fixed/Floating
Percentage and (y) the amount of Principal Collections for such Business Day and
(iii) an amount equal to the sum of (a) the excess, if any, of the Class A
Required Amount for such Business Day over the amount of Redirected Class D
Principal Collections applied with respect thereto for such Business Day and (b)
the excess, if any, of the Class B Required Amount for such Business Day over
the amount of Redirected Class D Principal Collections applied with respect
thereto for such Business Day (such amount called "Redirected CTO Principal
Collections") and shall apply Principal Collections allocable to the Securities
in an amount equal to such amount in accordance with subsection 4.9(a) as if
such amounts were Available Series 1998-2 Finance Charge Collections.
(c) On each Business Day, the Servicer will apply or cause the
Trustee to apply an amount equal to the least of (i) the Class B Invested
Amount, (ii) the product of (x)(I) during the Revolving Period, the Class B
Floating Percentage or (II) during an Amortization Period, the Class B
Fixed/Floating Percentage and (y) the amount of Principal Collections for such
Business Day and
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(iii) an amount equal to the excess, if any, of the Class A Required Amount for
such Business Day over the sum of the amount of Redirected Class D Principal
Collections and Redirected CTO Principal Collections applied with respect
thereto for such Business Day (such amount called "Redirected Class B Principal
Collections") and shall apply Principal Collections allocable to the Securities
equal to such amount in accordance with subsection 4.9(a) as if such amounts
were Available Series 1998-2 Finance Charge Collections.
(d) On each Distribution Date, the Class D Invested Amount will be
reduced by the aggregate amount of unreimbursed Redirected Principal Collections
for the related Monthly Period. In the event that such reduction would cause the
Class D Invested Amount to be a negative number, the Class D Invested Amount
will be reduced to zero and the CTO Invested Amount will be reduced by the
amount by which the Class D Invested Amount would have been reduced below zero.
In the event that the amount of unreimbursed Redirected Principal Collections
for such Distribution Date would cause the CTO Invested Amount to be a negative
number, the CTO Invested Amount will be reduced to zero and the Class B Invested
Amount will be reduced by the amount by which the CTO Invested Amount would have
been reduced below zero. In the event that the amount of unreimbursed Redirected
Principal Collections would cause the Class B Invested Amount to be a negative
number on any Distribution Date, the amount of Class B Redirected Principal
Collections on such Distribution Date will be an amount not to exceed the amount
which would cause the Class B Invested Amount to be reduced to zero.
SECTION 4.15 Determination of LIBOR. (a) "LIBOR" shall mean, as of
any LIBOR Determination Date, the rate for deposits in United States dollars for
one month (commencing on the first day of the relevant Interest Accrual Period)
which appears on Telerate Page 3750 as of 11:00 A.M., London time, on the LIBOR
Determination Date for such Interest Accrual Period. If such rate does not
appear on Telerate Page 3750, the rate for such LIBOR Determination Date will be
determined on the basis of the rates at which deposits in United States dollars
are offered by four major banks in the London interbank market selected by the
Servicer at approximately 11:00 a.m., London time, on such LIBOR Determination
Date to prime banks in the London interbank market for a period equal to one
month (commencing on the first day of the relevant Interest Accrual Period). The
Trustee will request the principal London office of each such bank to provide a
quotation of its rate. If at least two such quotations are provided, the rate
for such LIBOR Determination Date will be the arithmetic mean of the quotations.
If fewer than two quotations are provided as requested, the rate for such LIBOR
Determination Date
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will be the arithmetic mean of the rates quoted by four major banks in New York
City, selected by the Trustee, at approximately 11:00 a.m., New York City time,
on the LIBOR Determination Date for loans in United States dollars to leading
European banks for a period equal to one month (commencing on the first day of
such Interest Accrual Period).
(b) The CTO Interest Rate applicable to the then current and the
immediately preceding Interest Accrual Periods may be obtained by any CTO
Securityholder by telephoning the Trustee at (212) 815-5737.
(c) On each LIBOR Determination Date, the Trustee shall send to the
Servicer by facsimile notification of LIBOR for such LIBOR Determination Date.
SECTION 4.16 Defeasance Funding Account.
(a) Establishment of the Defeasance Funding Account. The Servicer
shall establish and maintain or cause to be established and maintained with a
Qualified Institution, which may be the Trustee, in the name of the Trustee, on
behalf of the Series 1998-2 Securityholders, the "Defeasance Funding Account,"
which shall be a segregated trust account with the corporate trust department of
such Qualified Institution, bearing a designation clearly indicating that the
funds deposited therein are held for the benefit of the Series 1998-2
Securityholders. The Trustee shall possess all right, title and interest in all
funds on deposit from time to time in the Defeasance Funding Account and in all
proceeds thereof. The Defeasance Funding Account shall be under the sole
dominion and control of the Trustee for the benefit of the Series 1998-2
Securityholders. If, at any time, the institution holding the Defeasance Funding
Account ceases to be a Qualified Institution, the Trustee shall within 10
Business Days establish a new Defeasance Funding Account meeting the conditions
specified above with a Qualified Institution, and shall transfer any cash or any
investments to such new Defeasance Funding Account. From the date such new
Defeasance Funding Account is established, it shall be the "Defeasance Funding
Account." The Trustee and the Transferor shall have the right to make deposits
to the Defeasance Funding Account in accordance with Section 4.18. The Trustee,
at the written direction of the Servicer, shall (i) make withdrawals from the
Defeasance Funding Account from time to time, in the amounts and for the
purposes set forth in this Series Supplement, and (ii) on each Transfer Date
from and after the commencement of the Defeasance and prior to termination of
the Defeasance Funding Account make a deposit into the Principal Account in the
amount specified in, and otherwise in accordance with, subsection 4.12 of the
Agreement.
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(b) Investment of Funds in Defeasance Funding Account. Funds on
deposit in the Defeasance Funding Account shall be invested by the Trustee at
the direction of the Servicer in Cash Equivalents maturing no later than the
following Transfer Date. Investment earnings (net of investment losses and
expenses) on funds on deposit in the Defeasance Funding Account (the "Defeasance
Funding Account Investment Proceeds") will be applied on each Transfer Date as
if such amount were Available Series 1998-2 Finance Charge Collections on the
last Business Day of the preceding Monthly Period. If, for any Interest Accrual
Period, the Defeasance Funding Account Investment Proceeds for the related
Monthly Period are less than the sum of the Class A Monthly Interest, the Class
B Monthly Interest and the CTO Monthly Interest for such Interest Accrual
Period, the amount of such deficiency will be paid from the Defeasance Reserve
Account to the extent of the Available Defeasance Reserve Account Amount and
applied on the applicable Transfer Date as Available Series 1998-2 Finance
Charge Collections as if such amounts were available to be applied pursuant to
subsection 4.9(a) on the last Business Day of the preceding Monthly Period.
(c) Termination of Defeasance Funding Account. The Defeasance
Funding Account shall be terminated following the earliest to occur of (a) the
termination of the Trust pursuant to the Agreement, (b) the date on which the
ABC Invested Amount is paid in full and (c) after Defeasance, the earlier of the
first Transfer Date with respect to the Early Amortization Period and the CTO
Expected Final Payment Date. Upon the termination of the Defeasance Funding
Account, all amounts remaining on deposit therein after the payment in full of
the Series 1998-2 Securities shall be treated as Shared Principal Collections.
SECTION 4.17 Defeasance Reserve Account. (a) Establishment of the
Defeasance Reserve Account. The Servicer shall establish and maintain or cause
to be established and maintained with a Qualified Institution, which may be the
Trustee, in the name of the Trustee, on behalf of the Series 1998-2
Securityholders, the "Defeasance Reserve Account," which shall be a segregated
trust account with the corporate trust department of such Qualified Institution,
bearing a designation clearly indicating that the funds deposited therein are
held for the benefit of the Series 1998-2 Securityholders. The Trustee shall
possess all right, title and interest in all funds on deposit from time to time
in the Defeasance Reserve Account and in all proceeds thereof. The Defeasance
Reserve Account shall be under the sole dominion and control of the Trustee for
the benefit of the Series 1998-2 Securityholders. If, at any time, the
institution holding the Defeasance Reserve Account ceases to be a Qualified
Institution, the Trustee shall within 10 Business
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Days establish a new Defeasance Reserve Account meeting the conditions specified
above with a Qualified Institution, and shall transfer any cash or any
investments to such new Defeasance Reserve Account. From the date such new
Defeasance Reserve Account is established, it shall be the "Defeasance Reserve
Account." The Trustee, at the written direction of the Servicer, shall (i) make
withdrawals from the Defeasance Reserve Account from time to time, in the
amounts and for the purposes set forth in this Series Supplement, and (ii) on
each Transfer Date (from and after the Defeasance Reserve Account Funding Date)
prior to termination of the Defeasance Reserve Account make a deposit into the
Defeasance Reserve Account in the amount specified in, and otherwise in
accordance with, subsection 4.9(a)(xv) of the Agreement.
(b) Administration of Defeasance Reserve Account. On or before each
Transfer Date following Defeasance and on the first Transfer Date with respect
to the Early Amortization Period, the Trustee at the direction of the Servicer
shall withdraw from the Defeasance Reserve Account, up to the Available
Defeasance Reserve Account Amount, an amount equal to the excess of the sum of
the Class A Monthly Interest, the Class B Monthly Interest, the CTO Monthly
Interest and the amount of monthly interest payable with respect to the Class D
Securities for the related Interest Accrual Period over the Defeasance Funding
Account Investment Proceeds with respect to such Transfer Date, and the amount
of such withdrawal shall be applied as Available Series 1998-2 Finance Charge
Collections as if such amounts were available to be applied pursuant to
subsection 4.9(a) on the last Business Day of the preceding Monthly Period.
(c) Investment of Funds in Defeasance Reserve Account. Funds on
deposit in the Defeasance Reserve Account shall be invested by the Trustee at
the direction of the Servicer in Cash Equivalents maturing no later than the
following Transfer Date. The interest and other investment income (net of
investment expenses and losses) earned on such investments will be retained in
the Defeasance Reserve Account (to the extent the amount on deposit therein is
less than the Required Defeasance Reserve Account Amount) or applied on each
Transfer Date as Available Series 1998-2 Finance Charge Collections as if such
amounts were available to be applied pursuant to subsection 4.9(a) on the last
Business Day of the preceding Monthly Period.
(d) Termination of Defeasance Reserve Account. The Defeasance
Reserve Account shall be terminated following the earliest to occur of (a) the
termination of the Trust pursuant to the Agreement, (b) the date on which the
ABC
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Invested Amount is paid in full, (c) prior to Defeasance, the Pay Out
Commencement Date and (d) after Defeasance, the earlier of the first Transfer
Date with respect to the Early Amortization Period and the CTO Expected Final
Payment Date. Upon the termination of the Defeasance Reserve Account, all
amounts on deposit therein (after giving effect to any withdrawal from the
Defeasance Reserve Account on such date as described above) shall be applied as
Available Series 1998-2 Finance Charge Collections as if such amounts were
available to be applied pursuant to subsection 4.9(a) on the last Business Day
of the preceding Monthly Period.
SECTION 4.18 Defeasance. On the date during the Amortization Period
that the following conditions shall have been satisfied: (i) an amount shall
have been deposited (x) in the Defeasance Funding Account equal to the sum of
the Class A Outstanding Principal Amount, the Class B Outstanding Principal
Amount and the CTO Outstanding Principal Amount, which amount shall be invested
in Cash Equivalents and (y) in the Defeasance Reserve Account equal to or
greater than the excess of the sum of the Class A Monthly Interest, the Class B
Monthly Interest and the estimated CTO Monthly Interest over the estimated
amount of investment earnings on amounts in the Defeasance Funding Account, as
estimated by the Transferor, for each of the Interest Accrual Periods during the
period from the date of the deposit to the Defeasance Funding Account through
the CTO Expected Final Payment Date (the "Required Defeasance Reserve Account
Amount"); (ii) the Transferor shall have delivered to the Trustee an Opinion of
Counsel to the effect that such deposit and termination of obligations will not
result in the Trust being required to register as an "investment company" within
the meaning of the Investment Company Act and an Opinion of Counsel to the
effect that following such deposit none of the Trust, the Defeasance Reserve
Account or the Defeasance Funding Account will be deemed to be an association
(or publicly traded partnership) taxable as a corporation; (iii) the Transferor
shall have delivered to the Trustee a certificate of an officer of the
Transferor stating that the Transferor reasonably believes that such deposit and
termination of its obligations will not constitute a Pay Out Event or any event
that, with the giving of notice or the lapse of time, would cause a Pay Out
Event to occur; and (iv) the Rating Agency Condition shall have been satisfied;
then, the Series 1998-2 Securities will no longer be entitled to the security
interest of the Trust in the Receivables and, except those set forth in clause
(i) above, other Trust assets ("Defeasance"), the percentages applicable to the
allocation to the Series 1998-2 Securityholders of Principal Collections,
Finance Charge Collections, unpaid Adjustment Payments and Default Amounts shall
be reduced to zero and the Monthly Servicing Fee shall be reduced to zero;
provided, however, that no such Defeasance shall occur for so long as any Class
A Charge-
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Offs, Class B Charge-Offs or CTO Charge-Offs exist. Upon the satisfaction of the
foregoing conditions, the Class D Invested Amount shall be reduced to zero.
SECTION 4.19 Revolving Receivables Reserve Account. (a)
Establishment of the Revolving Receivables Reserve Account. The Servicer shall
establish and maintain or cause to be established and maintained with a
Qualified Institution, which may be the Trustee, in the name of the Trustee, on
behalf of the Series 1998-2 Securityholders, the "Revolving Receivables Reserve
Account," which shall be a segregated trust account with the corporate trust
department of such Qualified Institution, bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Series 1998-2 Securityholders. The Trustee shall possess all right, title and
interest in all funds on deposit from time to time in the Revolving Receivables
Reserve Account and in all proceeds thereof. The Revolving Receivables Reserve
Account shall be under the sole dominion and control of the Trustee for the
benefit of the Series 1998-2 Securityholders. If at any time, the institution
holding the Revolving Receivables Reserve Account ceases to be a Qualified
Institution, the Trustee shall within 10 Business Days establish a new Revolving
Receivables Reserve Account meeting the conditions specified above with a
Qualified Institution, and shall transfer any cash or any investments to such
new Revolving Receivables Reserve Account. From the date such new Revolving
Receivables Reserve Account is established, it shall be the "Revolving
Receivables Reserve Account."
(b) Deposits to the Revolving Receivables Reserve Account. On the
Closing Date, the Transferor shall make an initial deposit of $200,000 to the
Revolving Receivables Reserve Account. Amounts shall be deposited in the
Revolving Receivables Reserve Account on each Business Day to the extent
specified pursuant to subsection 4.9(a)(xiv) of the Agreement.
(c) Withdrawals from the Revolving Receivables Reserve Account.
Funds on deposit in the Revolving Receivables Reserve Account shall be withdrawn
by the Servicer on each Transfer Date to the extent of any shortfalls in amounts
to be paid or deposited pursuant to subsections 4.9(a)(i) through (xiii) of the
Agreement as of the end of the day on the last Business Day of the preceding
Monthly Period and shall be applied in accordance with subsections 4.9(a)(i)
through (xiii) of the Agreement as Available Series 1998-2 Finance Charge
Collections as if such amounts were available on the last Business Day of the
preceding Monthly Period.
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(d) Investment of Funds in Revolving Receivables Reserve Account.
Funds on deposit in the Revolving Receivables Reserve Account shall be invested
by the Trustee at the direction of the Servicer in Cash Equivalents maturing no
later than the following Transfer Date. The interest and other investment income
(net of investment expenses and losses) earned on such investments will be
retained in the Revolving Receivables Reserve Account (to the extent the amount
on deposit therein is less than the Required Reserve Account Amount) or applied
on each Transfer Date as Available Series 1998-2 Finance Charge Collections as
if such amounts were available to be applied pursuant to subsection 4.9(a) of
the Agreement on the last Business Day of the preceding Monthly Period.
(e) Termination of Revolving Receivables Reserve Account. The
Revolving Receivables Reserve Account shall be terminated following the earliest
to occur of (a) the termination of the Trust pursuant to the Agreement and (b)
the date on which the ABC Invested Amount is paid in full. Upon the termination
of the Revolving Receivables Reserve Account, all amounts on deposit therein
(after giving effect to any withdrawal from the Revolving Receivables Reserve
Account on such date as described above) shall be applied as Available Series
1998-2 Finance Charge Collections as if such amounts were available to be
applied pursuant to subsection 4.9(a) of the Agreement on the last Business Day
of the preceding Monthly Period.
SECTION 4.20 CTO Trigger Event. If (i) the rating of Fingerhut
Companies, Inc.'s senior secured notes and, if rated, the rating of Fingerhut
Companies, Inc.'s corporate revolving lines of credit facility is reduced below
BBB from Standard & Poor's and below Baa2 from Moody's (a "CTO Trigger Event")
and (ii) with respect to any Business Day (x) the percentage equivalent of a
fraction the numerator of which is the Series 1998-2 Percentage of the
Transferor Interest and the denominator of which is the sum of the Invested
Amount and the Series 1998-2 Percentage of the Transferor Interest (the "Target
Percentage") is less than 6%, and (y) the amount on deposit in the CTO Reserve
Account is less than the Specified CTO Reserve Amount, then (a) the Transferor
shall, in connection with increases in the aggregate amount of Principal
Receivables in the Trust, the scheduled paydown of other Series or, with respect
to any Series of Variable Funding Securities, an optional payment of principal,
allow the Transferor Interest to increase such that the Target Percentage shall
be equal to or in excess of 6% and/or (b) the Servicer shall cause amounts
available pursuant to subsection 4.9(a)(xvi) of the Agreement to be deposited in
the CTO Reserve Account until the amount on deposit therein is equal to the
Specified CTO Reserve Amount. The Transferor may allow the Transferor Interest
to decrease on any Business Day, to the extent that it exceeds the Minimum
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Transferor Interest and the amount on deposit in the CTO Reserve Account
following any such decrease and after giving effect to any deposit therein on
such Business Day is at least equal to the Specified CTO Reserve Amount.
SECTION 4.21 CTO Reserve Account. (a) Establishment of the CTO
Reserve Account. The Servicer, for the benefit of the CTO Securityholders,
shall, upon the occurrence of a CTO Trigger Event, establish and maintain or
cause to be established and maintained with a Qualified Institution, which may
be the Trustee, in the name of the Trustee, on behalf of the CTO
Securityholders, the "CTO Reserve Account," which shall be a segregated trust
account with the corporate trust department of such Qualified Institution,
bearing a designation clearly indicating that the funds deposited therein are
held for the benefit of the CTO Securityholders. The Trustee shall possess all
right, title and interest in all funds on deposit from time to time in the CTO
Reserve Account and in all proceeds thereof. The CTO Reserve Account shall be
under the sole dominion and control of the Trustee for the benefit of the CTO
Securityholders. If, at any time, the institution holding the CTO Reserve
Account ceases to be a Qualified Institution, the Trustee shall within 10
Business Days establish a new CTO Reserve Account meeting the conditions
specified above with a Qualified Institution, and shall transfer any cash or any
investments to such new CTO Reserve Account. From the date such new CTO Reserve
Account is established, it shall be the "CTO Reserve Account."
(b) Administration of CTO Reserve Account. On each Business Day
following the occurrence of a CTO Trigger Event, amounts will be deposited in
the CTO Reserve Account in accordance with subsection 4.9(a)(xvi) of the
Agreement. Funds on deposit in the CTO Reserve Account shall be withdrawn by the
Servicer and applied in accordance with subsection 4.9(a)(xi) of the Agreement
as if they were Available Series 1998-2 Finance Charge Collections on any
Business Day after the payment in full of the Class A Invested Amount and the
Class B Invested Amount to the extent of the aggregate amount of CTO
Charge-Offs, if any. Amounts on deposit in the CTO Reserve Account in excess of
the Specified CTO Reserve Amount on any Business Day shall be released therefrom
and paid to the Transferor. All amounts on deposit in the CTO Reserve Account
shall be released therefrom and paid to the Transferor, if the rating of
Fingerhut Companies, Inc.'s senior secured notes or, if rated, the rating of
Fingerhut Companies, Inc.'s corporate revolving lines of credit facility is
subsequently increased to BBB or higher by Standard & Poor's and Baa2 or higher
by Moody's or the CTO Invested Amount has been paid in full.
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(c) Investment of Funds in CTO Reserve Account. Funds on deposit in
the CTO Reserve Account shall be invested by the Trustee (or, at the direction
of the Trustee, by the Servicer on behalf of the Trustee) at the direction of
the Servicer in Cash Equivalents that will mature so that such funds will be
available for withdrawal on or prior to the following Business Day. The interest
and other investment income (net of investment expenses and losses) earned on
such investments will be retained in the CTO Reserve Account (to the extent the
amount on deposit therein is less than the Specified CTO Reserve Amount) or
applied on each Business Day as Reserve Account Investment Proceeds.
(d) Termination of CTO Reserve Account. The CTO Reserve Account
shall be terminated following the earliest to occur of (a) the termination of
the Trust pursuant to the Agreement and (b) the date on which the CTO Invested
Amount is paid in full. Upon the termination of the CTO Reserve Account, all
amounts on deposit therein (after giving effect to any withdrawal from the CTO
Reserve Account on such date as described above) shall be released therefrom and
paid to the Transferor.
SECTION 4.22 Payment Reserve Account. (a) Establishment of the
Payment Reserve Account. The Servicer shall establish and maintain or cause to
be established and maintained with a Qualified Institution, which may be the
Trustee, in the name of the Trustee, on behalf of the Series 1998-2
Securityholders, the "Payment Reserve Account," which shall be a segregated
trust account with the corporate trust department of such Qualified Institution,
bearing a designation clearly indicating that the funds deposited therein are
held for the benefit of the Series 1998-2 Securityholders. The Trustee shall
possess all right, title and interest in all funds on deposit from time to time
in the Payment Reserve Account and in all proceeds thereof. The Payment Reserve
Account shall be under the sole dominion and control of the Trustee for the
benefit of the Series 1998-2 Securityholders. If, at any time, the institution
holding the Payment Reserve Account ceases to be a Qualified Institution, the
Trustee shall within 10 Business Days establish a new Payment Reserve Account
meeting the conditions specified above with a Qualified Institution, and shall
transfer any cash or any investments to such new Payment Reserve Account. From
the date such new Payment Reserve Account is established, it shall be the
"Payment Reserve Account."
(b) Administration of Payment Reserve Account. The Transferor, at
its discretion, may on any Business Day withdraw all or a part of any amounts
then on deposit in the Payment Reserve Account and apply such funds as Available
Series
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1998-2 Finance Charge Collections in accordance with Section 4.9(a) of the
Agreement.
(c) Investment on Funds in Payment Reserve Account. Funds on deposit
in the Payment Reserve Account shall be invested by the Trustee (or, at the
direction of the Trustee, by the Servicer on behalf of the Trustee) at the
direction of the Servicer in Cash Equivalents that will mature so that such
funds will be available for withdrawal on or prior to the following Business
Day. The interest and other investment income (net of investment expenses and
losses) earned on such investments will be applied on each Business Day as
Reserve Account Investment Proceeds.
(d) Termination of Payment Reserve Account. The Payment Reserve
Account shall be terminated following the earliest to occur of (a) the
termination of the Trust pursuant to the Agreement and (b) the date on which the
ABC Adjusted Invested Amount is paid in full. Upon the termination of the
Payment Reserve Account, all amounts on deposit therein (after giving effect to
any withdrawal from the Payment Reserve Account on such date as described above)
shall be applied as if they were Available Series 1998-2 Finance Charge
Collections available to be applied pursuant to subsection 4.9(a) on the last
Business Day of the preceding Monthly Period.
SECTION 4.23 Constituent Class D Securities. The Transferor as
holder of the Class D Securities may at any time (i) subdivide the Class D
Securities into two or more subsidiary Securities, or (ii) redirect all or any
portion of the amounts distributable to the Class D Securityholders (pursuant to
the application of collections allocable to the Class D Securityholders) to any
other Securityholder. In connection with such subdivision, the Transferor may
assign an interest rate to the Class D Securities, the "Class D Interest Rate,"
or a portion thereof and make payments of interest with respect to such
Securities from amounts initially allocated to the Series 1998-2 Securities and
available pursuant to subsection 4.9(a)(xiii). Before any Class D Securities can
be subdivided or transferred, the following conditions must be met: (i) the
Trustee and the Transferor shall have received an Opinion of Counsel that such
transfer does not adversely affect the conclusions reached in any of the federal
or state income tax opinions issued in connection with the original issuance of
the Series 1998-2 Securities, (ii) the Transferor shall deliver to the Trustee
an officers' certificate stating that in the reasonable belief of the
Transferor, such subdivision would not cause a Trust Pay Out Event or a Series
1998-2 Pay Out Event to occur, or an event which, with notice or lapse of time
or
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both, would constitute a Trust Pay Out Event or a Series 1998-2 Pay Out Event,
and (ii) the Rating Agency Condition shall have been satisfied.
SECTION 7. Article V of the Agreement. Article V of the Agreement
shall read in its entirety as follows and shall be applicable only to the Series
1998-2 Securities:
ARTICLE V
DISTRIBUTIONS AND REPORTS TO INVESTOR
SECURITYHOLDERS
SECTION 5.1 Distributions. (a) On each Distribution Date, the Paying
Agent shall distribute (in accordance with the Settlement Statement delivered by
the Servicer to the Trustee and the Paying Agent pursuant to subsection 3.4(c))
to each Class A Securityholder of record on the preceding Record Date (other
than as provided in subsection 2.4(e) or in Section 12.3 respecting a final
distribution) such Securityholder's pro rata share (based on the aggregate
Undivided Interests represented by each Class A Security held by such
Securityholder) of amounts on deposit in the Distribution Account as are payable
to the Class A Securityholders pursuant to Sections 4.11 and 4.12 of the
Agreement by check mailed to each Class A Securityholder at such
Securityholder's address as it appears on the Security Register or, in the case
of Class A Securityholders holding Class A Securities evidencing not less than
80% of the Class A Invested Amount, by wire transfer, at the expense of such
Class A Securityholder, to an account or accounts designated by such Class A
Securityholder by written notice given to the Paying Agent not less than five
days prior to the related Distribution Date; provided, however, that the final
payment in retirement of the Class A Securities will be made only upon
presentation and surrender of the Class A Securities at the office or offices
specified in the notice of such final distribution delivered by the Trustee
pursuant to Section 12.3.
(b) On each Distribution Date, the Paying Agent shall distribute (in
accordance with the Settlement Statement delivered by the Servicer to the
Trustee and the Paying Agent pursuant to subsection 3.4(c)) to each Class B
Securityholder of record on the preceding Record Date (other than as provided in
subsection 2.4(e) or in Section 12.3 respecting a final distribution) such
Securityholder's pro rata share (based on the aggregate Undivided Interests
represented by Class B Securities held by such Securityholder) of amounts on
deposit in the Distribution Account as are
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payable to the Class B Securityholders pursuant to Sections 4.11 and 4.12 of the
Agreement by check mailed to each Class B Securityholder at such
Securityholder's address as it appears on the Security Register or, in the case
of Class B Securityholders holding Class B Securities evidencing not less than
80% of the Class B Invested Amount, by wire transfer, at the expense of such
Class B Securityholder, to an account or accounts designated by such Class B
Securityholder by written notice given to the Paying Agent not less than five
days prior to the related Distributed Date; provided, however, that the final
payment in retirement of the Class B Securities will be made only upon
presentation and surrender of the Class B Securities at the office or offices
specified in the notice of such final distribution delivered by the Trustee
pursuant to Section 12.3.
(c) On each Distribution Date, the Paying Agent shall distribute (in
accordance with the Settlement Statement delivered by the Servicer to the
Trustee and the Paying Agent pursuant to subsection 3.4(c)) to each CTO
Securityholder of record on the preceding Record Date (other than as provided in
subsection 2.4(e) or in Section 12.3 respecting a final distribution) such
Securityholder's pro rata share (based on the aggregate Undivided Interests
represented by Collateralized Trust Obligations held by such Securityholder) of
amounts on deposit in the Distribution Account as are payable to the CTO
Securityholders pursuant to Sections 4.11 and 4.12 of the Agreement by check
mailed to each CTO Securityholder at such Securityholder's address as it appears
on the Security Register or, in the case of Securityholders holding
Collateralized Trust Obligations evidencing not less than 80% of the CTO
Invested Amount, by wire transfer, at the expense of such CTO Securityholder, to
an account or accounts designated by such CTO Securityholder by written notice
given to the Paying Agent not less than five days prior to the related
Distributed Date; provided, however, that the final payment in retirement of the
Collateralized Trust Obligations will be made only upon presentation and
surrender of the Collateralized Trust Obligations at the office or offices
specified in the notice of such final distribution delivered by the Trustee
pursuant to Section 12.3.
(d) On each Distribution Date, the Paying Agent shall distribute (in
accordance with the Settlement Statement delivered by the Servicer to the
Trustee and the Paying Agent pursuant to subsection 3.4(c)) to each Class D
Securityholder of record other than the Transferor on the preceding Record Date
(other than as provided in subsection 2.4(e) or in Section 12.3 respecting a
final distribution) such Securityholder's pro rata share (based on the aggregate
Undivided Interests represented by Class D Securities held by such
Securityholder) of amounts on deposit in the Distribution Account as are payable
to the Class D Securityholders
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pursuant to Sections 4.11 and 4.12 of the Agreement by wire transfer to each
Class D Securityholder to an account or accounts designated by such Class D
Securityholder by written notice given to the Paying Agent not less than five
days prior to the related Distribution Date; provided, however, that the final
payment in retirement of the Class D Securities will be made only upon
presentation and surrender of the Class D Securities at the office or offices
specified in the notice of such final distribution delivered by the Trustee
pursuant to Section 12.3.
SECTION 5.2 Securityholders' Statement. (a) On the 15th day of each
calendar month (or if such day is not a Business Day the next succeeding
Business Day), the Paying Agent shall forward to each Securityholder and the
Rating Agencies a statement substantially in the form of Exhibit B prepared by
the Servicer and delivered to the Trustee and the Paying Agent on the preceding
Determination Date setting forth the following information (which, in the case
of (i), (ii) and (iii) below, shall be stated on the basis of an original
principal amount of $1,000 per Security and, in the case of (ix) and (x), shall
be stated on an aggregate basis and on the basis of an original principal amount
of $1,000 per Security):
(i) the total amount distributed;
(ii) the amount of such distribution allocable to Class A
Principal, Class B Principal, CTO Principal and Class D Principal;
(iii) the amount of such distribution allocable to Class A
Monthly Interest and Carryover Class A Monthly Interest, Class B Monthly
Interest and Carryover Class B Monthly Interest, CTO Monthly Interest and
Carryover CTO Monthly Interest and any amounts payable to the Class D
Securityholders with respect to interest;
(iv) the amount of Principal Collections processed in the
Collection Account during the preceding Monthly Period and allocated in
respect of the Class A Securities, the Class B Securities, the
Collateralized Trust Obligations and the Class D Securities, respectively;
(v) the amount of Finance Charge Collections processed during
the preceding Monthly Period and allocated in respect of the Class A
Securities, the Class B Securities, the Collateralized Trust Obligations
and the Class D Securities, respectively, and, after the Defeasance
Reserve Account Funding Date, the amount of Defeasance Funding Account
Investment
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Proceeds and investment earnings on amounts on deposit in the Defeasance
Reserve Account;
(vi) the aggregate amount of Principal Receivables, the
Invested Amount, the Class A Invested Amount, the Class B Invested Amount,
the CTO Invested Amount, the Class D Invested Amount, the Floating
Percentage and, during the Amortization Period, the Fixed/Floating
Percentage as of the end of the day on the last day of the related Monthly
Period;
(vii) the aggregate outstanding balance of Receivables which
are current, 30-59, 60-89, and 90 days and over delinquent as of the end
of the day on the last day of the related Monthly Period;
(viii) the aggregate Series Default Amount for the preceding
Monthly Period;
(ix) the aggregate amount of Class A Charge-Offs, Class B
Charge-Offs, CTO Charge-Offs and Class D Charge-Offs for the preceding
Monthly Period;
(x) the amount of the Monthly Servicing Fee for the preceding
Monthly Period;
(xi) the amount of unreimbursed Redirected Class B Principal
Collections, Redirected CTO Principal Collections and Redirected Class D
Principal Collections for the related Monthly Period;
(xii) the aggregate amount of funds in the Excess Funding
Account as of the last day of the Monthly Period immediately preceding the
Distribution Date;
(xiii) whether a CTO Trigger Event has occurred and, if so,
the Specified CTO Reserve Amount and the amount then on deposit in the CTO
Reserve Account;
(xiv) the number of new Accounts the Receivables in which have
been added to the Trust during the related Monthly Period;
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(xv) the Portfolio Yield for the related Monthly Period;
(xvi) the Base Rate for the related Monthly Period;
(xvii) the Defeasance Funding Account Balance on the related
Transfer Date;
(xviii) the Revolving Receivables Reserve Account balance on
the related Transfer Date; and
(xix) the amount of Defeasance Funding Account Investment
Proceeds deposited in the Collection Account on the related Transfer Date,
the Required Defeasance Reserve Account Amount and the Available
Defeasance Reserve Account Amount as of the related Transfer Date.
(b) Annual Securityholders' Tax Statement. On or before January 31
of each calendar year, beginning with calendar year 1999, the Paying Agent shall
distribute to each Person who at any time during the preceding calendar year was
a Series 1998-2 Securityholder, a statement prepared by the Servicer containing
the information required to be contained in the regular report to Series 1998-2
Securityholders, as set forth in subclauses (i), (ii) and (iii) above,
aggregated for such calendar year or the applicable portion thereof during which
such Person was a Series 1998-2 Securityholder, together with, on or before
January 31 of each year, beginning in 1999, such other customary information
(consistent with the treatment of the Securities as debt) as the Trustee or the
Servicer deems necessary or desirable to enable the Series 1998-2
Securityholders to prepare their tax returns. Such obligations of the Trustee
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Trustee pursuant to any
requirements of the Internal Revenue Code as from time to time in effect.
SECTION 8. Series 1998-2 Pay Out Events. If any one of the
following events shall occur with respect to the Series 1998-2 Securities:
(a) failure on the part of the Transferor (i) to make any payment or
deposit required to be made by the Transferor by the terms of (A) the Agreement
or (B) this Series Supplement, on or before the date occurring five Business
Days after the date such payment or deposit is required to be made herein, (ii)
to perform in all material respects the Transferor's covenant not to sell,
pledge, assign, or transfer to any person, or grant any unpermitted lien on, any
Receivable; or (iii) duly to observe
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or perform in any material respect any covenants or agreements of the Transferor
set forth in the Agreement or this Series Supplement, which failure has a
material adverse effect on the Series 1998-2 Securityholders and which continues
unremedied for a period of 60 days after the date on which written notice of
such failure, requiring the same to be remedied, shall have been given to the
Transferor by the Trustee, or to the Transferor and the Trustee by the Holders
of Series 1998-2 Securities evidencing Undivided Interests aggregating not less
than 50% of the Invested Amount of this Series 1998-2, and continues to affect
materially and adversely the interests of the Series 1998-2 Securityholders for
such period;
(b) any representation or warranty made by the Transferor in the
Agreement or this Series Supplement, (i) shall prove to have been incorrect in
any material respect when made, which continues to be incorrect in any material
respect for a period of 60 days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to the
Transferor by the Trustee, or to the Transferor and the Trustee by the Holders
of the Series 1998-2 Securities evidencing Undivided Interests aggregating more
than 50% of the Invested Amount of this Series 1998-2, and (ii) as a result of
which the interests of the Series 1998-2 Securityholders are materially and
adversely affected and continue to be materially and adversely affected for such
period; provided, however, that a Series 1998-2 Pay Out Event pursuant to this
subsection 8(b) shall not be deemed to have occurred hereunder if the Transferor
has accepted reassignment of the related Receivable, or all of such Receivables,
if applicable, during such period (or such longer period as the Trustee may
specify) in accordance with the provisions of the Agreement;
(c) Fingerhut shall consent to the appointment of a bankruptcy
trustee or receiver or liquidator in any bankruptcy proceeding or any other
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to all or substantially all of its property;
or a decree or order of a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a bankruptcy trustee or
receiver or liquidator in any bankruptcy proceeding or any other insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall have
been entered against Fingerhut; or Fingerhut shall admit in writing its
inability to pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute including the
U.S. bankruptcy code, make an assignment for the benefit of its creditors or
voluntarily suspend payment of its obligations;
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(d) the average of the Portfolio Yields for any three consecutive
Monthly Periods is reduced to a rate which is less than the weighted average
Base Rates for such three consecutive Monthly Periods;
(e) (i) the Transferor Interest shall be less than the Minimum
Transferor Interest, (ii) the total amount of Principal Receivables and the
amount on deposit in the Excess Funding Account shall be less than the Minimum
Aggregate Principal Receivables or (iii) the Retained Percentage shall be equal
to or less than 2%, in each case as of any Determination Date and, in each case,
shall not exceed the required amount on or prior to the tenth Business Day
following such Determination Date;
(f) any Servicer Default shall occur which would have a material
adverse effect on the Series 1998-2 Securityholders;
then, in the case of any event described in subparagraph (a), (b) or (f), after
the applicable grace period, if any, set forth in such subparagraphs, the
Holders of Series 1998-2 Securities evidencing more than 50% of the Invested
Amount of this Series 1998-2, by notice then given in writing to the Trustee,
the Transferor and the Servicer may declare that a pay out event (a "Series
1998-2 Pay Out Event") has occurred as of the date of such notice, and in the
case of any event described in subparagraphs (c), (d) or (e), a Series 1998-2
Pay Out Event shall occur without any notice or other action on the part of the
Trustee or the Series 1998-2 Securityholders immediately upon the occurrence of
such event.
SECTION 9. Collateralized Trust Obligation Defaults and Remedies.
(a) "CTO Default," wherever used herein, means any one of the following events
(whatever the reason for such CTO Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) There is a CTO Monthly Interest Shortfall on two
consecutive Distribution Dates; or
(2) There is a CTO Charge-Off on three consecutive
Distribution Dates.
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(b) If a CTO Default shall have occurred, upon the direction of CTO
Securityholders holding more than 50% of the CTO Invested Amount:
(i) the Specified CTO Reserve Amount shall thereafter be equal
to the CTO Outstanding Principal Amount;
(ii) following the payment in full of the Class A Invested and
the Class B Invested Amount, the Trustee shall sell or cause to be sold,
and the Trustee shall pay the proceeds to the Series 1998-2
Securityholders in final payment of all principal of and accrued interest
on such Series to be applied first to the CTO Invested Amount until paid
in full and then to the Class D Invested Amount until paid in full, an
amount of Principal Receivables and the related Finance Charge Receivables
(or interests therein) up to 110% of the Invested Amount at the close of
business on such date; provided, that the amount of such Principal
Receivables shall not exceed the sum of (1) the product of (A) the
Transferor Percentage on the date of any such sale, (B) the aggregate
outstanding Principal Receivables on such date and (C) a fraction the
numerator of which is the Invested Amount on such date and the denominator
of which is the sum of the invested amounts of all Series and the
aggregate Participation Amount of all Participations then outstanding and
(2) the Invested Amount on such date. The Transferor shall be permitted to
purchase such Receivables in such case and shall have a right of first
refusal with respect thereto to the extent of a bona fide offer by an
unrelated third party for fair value. Any proceeds of such sale in excess
of such principal and interest paid shall be paid to the Transferor. Upon
such sale, final payment of all amounts allocable to any Class of such
Series shall be made in the manner provided in Section 12.3 of the
Agreement.
The Servicer shall provide written notice to the Rating Agencies of any such
direction of a majority of the CTO Invested Amount.
SECTION 10. Series 1998-2 Termination. The right of the Series
1998-2 Securityholders to receive payments from the Trust will terminate on the
first Business Day following the Series 1998-2 Termination Date unless such
Series is an Affected Series as specified in Section 12.1(c) of the Agreement
and the sale contemplated therein has not occurred by such date, in which event
the Series 1998-2 Securityholders shall remain entitled to receive proceeds of
such sale when such sale occurs.
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SECTION 11. Legends; Transfer and Exchange; Restrictions on Transfer
of Series 1998-2 Securities; Tax Treatment. (a) Each Class A Security, Class B
Security and Collateralized Trust Obligation will bear a legend or legends in
substantially the following form:
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF FINGERHUT
RECEIVABLES, INC. AND THE TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN
EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS
SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN
SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") THAT IS SUBJECT TO SECTION 4975 OF THE CODE, (III) A GOVERNMENTAL
PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE
OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS DEFINED IN 29 C.F.R. SECTION
2510.3-101 OR OTHERWISE UNDER ERISA) BY REASON OF A PLAN'S INVESTMENT IN
THE ENTITY OR (V) A PERSON INVESTING "PLAN ASSETS" OF ANY SUCH PLAN
(INCLUDING WITHOUT LIMITATION, FOR PURPOSES OF CLAUSE (IV) AND THIS CLAUSE
(V), AS APPLICABLE, AN INSURANCE COMPANY GENERAL ACCOUNT, BUT EXCLUDING
ANY ENTITY REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED).
Each Security Owner by virtue of its beneficial interest in the
Class A Securities or Class B Securities, as applicable, shall be deemed to have
made the representations and warranties stated in such legend.
(b) Each Class A Security and Class B Security and each
Collateralized Trust Obligation that is a CTO Global Security deposited with
DTC, or a custodian on behalf of DTC, shall bear the following legend:
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UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
(c) Each Collateralized Trust Obligation that is issued pursuant to
Rule 144A shall bear the following legend:
THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES
THAT THIS SECURITY MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER
APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT TO A PERSON WHO THE HOLDER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER ("QIB") WITHIN THE MEANING OF RULE 144A, PURCHASING
FOR ITS OWN ACCOUNT, OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM
THE HOLDER HAS INFORMED, IN EACH CASE, THAT SUCH REOFFER, RESALE, PLEDGE
OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (2) IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION
S UNDER THE SECURITIES ACT. EACH SECURITY OWNER BY
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<PAGE>
ACCEPTING A BENEFICIAL INTEREST IN THIS SECURITY, UNLESS SUCH PERSON
ACQUIRED THIS SECURITY IN A TRANSFER DESCRIBED IN CLAUSE (2) ABOVE, IS
DEEMED TO REPRESENT THAT IT IS EITHER A QIB PURCHASING FOR ITS OWN ACCOUNT
OR A QIB PURCHASING FOR THE ACCOUNT OF ANOTHER QIB.
Each Collateralized Trust Obligation that is issued pursuant to
Regulation S shall bear the following legend:
THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND PRIOR TO THE DATE THAT IS 40 DAYS AFTER THE LATER OF THE COMMENCEMENT
OF THE OFFERING AND THE CLOSING DATE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO A U.S. PERSON EXCEPT
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
(d) Each Class D Security will bear legends substantially in the
following form:
THIS SECURITY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO OR
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY OTHER APPLICABLE
SECURITIES LAW. TRANSFERS OF THIS SECURITY SHALL BE SUBJECT TO THE
RESTRICTIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT.
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EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF FINGERHUT
RECEIVABLES, INC. AND THE TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN
EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS
SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN
SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") THAT IS SUBJECT TO SECTION 4975 OF THE CODE, (III) A GOVERNMENTAL
PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE
OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE PLAN ASSETS (AS DEFINED IN 29 C.F.R. SECTION
2510.3-101 OR OTHERWISE UNDER ERISA) BY REASON OF A PLAN'S INVESTMENT IN
THE ENTITY OR (V) A PERSON INVESTING PLAN ASSETS OF ANY SUCH PLAN
(INCLUDING WITHOUT LIMITATION, FOR PURPOSES OF CLAUSE (IV) AND THIS CLAUSE
(V), AS APPLICABLE, AN INSURANCE COMPANY GENERAL ACCOUNT, BUT EXCLUDING
ANY ENTITY REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED).
SECTION 12. Compliance with Withholding Requirements.
Notwithstanding any other provision of the Agreement, the Trustee and any Paying
Agent shall comply with all Federal withholding requirements with respect to
payments to the Series 1998-2 Securityholders of interest, original issue
discount, or other amounts that the Trustee, any Paying Agent, the Servicer or
the Transferor reasonably believes are applicable under the Internal Revenue
Code. The consent of the Series 1998-2 Securityholders shall not be required for
any such withholding. In the event the Trustee or the Paying Agent withholds any
amount from payments made to any Series 1998-2 Securityholder pursuant to
federal withholding requirements, the Trustee or the Paying Agent shall indicate
to such Series 1998-2 Securityholder the amount withheld and all such amounts
shall be deemed to have been paid to such Series 1998-2 Securityholders and the
Series 1998-2 Securityholders shall have no claim therefor.
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SECTION 13. Ratification of Agreement. (a) As supplemented by this
Series Supplement, the Agreement is in all respects ratified and confirmed and
the Agreement as so supplemented by this Series Supplement shall be read, taken,
and construed as one and the same instrument. The Transferor hereby confirms the
conveyance of the Trust Property to the Trustee for the benefit of the Series
1998-2 Securityholders.
(b) For so long as any of the Collateralized Trust Obligations are
"restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act and during any period in which the Trust is not subject to
Section 13 or 15(d) of the Exchange Act, each of the Transferor, the Servicer
and the Trustee agree to cooperate with each other to provide to any CTO
Securityholder, and to any prospective purchaser of Collateralized Trust
Obligations designated by such CTO Securityholder upon the request of such CTO
Securityholder or prospective purchaser, the information required by Rule
144A(d)(4) under the Securities Act.
SECTION 14. Counterparts. This Series Supplement may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute but one and the
same instrument.
SECTION 15. GOVERNING LAW. THIS SERIES SUPPLEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 16. Instructions in Writing. All instructions or other
communications given by the Servicer or any other person to the Trustee pursuant
to this Series Supplement shall be in writing, and, with respect to the
Servicer, may be included in a Daily Report or Settlement Statement.
SECTION 17. Paired Series. Subject to the satisfaction of the Rating
Agency Condition, prior to the commencement of the Early Amortization Period the
Series 1998-2 Securities may be paired with one or more other Series (each, a
"Paired Series"). Each Paired Series either will be pre-funded with an initial
deposit to a pre-funding account in an amount up to the initial principal amount
of such Paired Series primarily from the proceeds of the sale of such Paired
Series or will
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have a variable principal amount. Any such pre-funding account will be held for
the benefit of such Paired Series and not for the benefit of the Series 1998-2
Securityholders. As amounts are paid for the benefit of the Class A
Securityholders, Class B Securityholders and CTO Securityholders, either (i) in
the case of a pre-funded Paired Series, an equal amount of funds on deposit in
any pre-funding account for such pre-funded Paired Series will be released
(which funds will be distributed to the Transferor) or (ii) in the case of a
Paired Series having a variable principal amount, an interest in such variable
Paired Series in an equal or lesser amount may be sold by the Trust (and the
proceeds thereof will be distributed to the Transferor) and, in either case, the
invested amount in the Trust of such Paired Series will increase by up to a
corresponding amount. Upon payment in full of the Series 1998-2 Securities,
assuming that there have been no unreimbursed charge-offs with respect to any
related Paired Series, the aggregate invested amount of such related Paired
Series will have been increased by an amount up to an aggregate amount equal to
the Invested Amount paid to the Series 1998-2 Securityholders since the issuance
of such Paired Series. The issuance of a Paired Series will be subject to the
conditions described in subsection 6.9(b) of the Agreement.
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IN WITNESS WHEREOF, the Transferor, the Servicer and the Trustee
have caused this Series 1998-2 Supplement to be duly executed by their
respective officers as of the day and year first above written.
FINGERHUT RECEIVABLES, INC.
Transferor
By:
-----------------------------------
Name: James M. Wehmann
Title:President and Treasurer
FINGERHUT NATIONAL BANK
Servicer
By:
-----------------------------------
Name: James M. Wehmann
Title:Treasurer
THE BANK OF NEW YORK (DELAWARE)
Trustee
By:
-----------------------------------
Name:
Title:
<PAGE>
Exhibit A-1
FORM OF CLASS A INVESTOR SECURITY
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF FINGERHUT
RECEIVABLES, INC. AND THE TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN
EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS
SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN
SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") THAT IS SUBJECT TO SECTION 4975 OF THE CODE, (III) A GOVERNMENTAL
PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE
OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS DEFINED IN 29 C.F.R. SECTION
2510.3-101 OR OTHERWISE UNDER ERISA) BY REASON OF A PLAN'S INVESTMENT IN
THE ENTITY OR (V) A PERSON INVESTING "PLAN ASSETS" OF ANY SUCH PLAN
(INCLUDING WITHOUT LIMITATION, FOR PURPOSES OF CLAUSE (IV) AND
A-1-1
<PAGE>
THIS CLAUSE (V), AS APPLICABLE, AN INSURANCE COMPANY
GENERAL ACCOUNT, BUT EXCLUDING ANY ENTITY
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED).
No. ___ $_________
CUSIP NO.
FINGERHUT MASTER TRUST
__________% ASSET BACKED SECURITY,
SERIES 1998-2, CLASS A
Evidencing an undivided interest in a trust, the corpus of which
consists of receivables generated from time to time in the ordinary course of
business from a portfolio of consumer revolving consumer credit card accounts
and closed-end installment sale or closed-end loan contracts transferred or to
be transferred by Fingerhut Receivables, Inc. (the "Transferor") and other
assets and interests constituting the Trust under the Agreement described below.
(Not an interest in or a recourse obligation of Fingerhut
Receivables, Inc., Fingerhut Companies, Inc., Fingerhut National Bank or any
affiliate of either of them.)
This certifies that _________ (the "Securityholder") is the
registered owner of a fractional undivided interest in the Fingerhut Master
Trust (the "Trust") issued pursuant to the Amended and Restated Pooling and
Servicing Agreement, dated as of March 18, 1998 (the "Pooling and Servicing
Agreement"; such term to include any amendment thereto) by and between the
Transferor, Fingerhut National Bank, as Servicer (the "Servicer"), and The Bank
of New York (Delaware) as Trustee (the "Trustee"), and the Series 1998-2
Supplement, dated as of ___________, 1998 (the "Series 1998-2 Supplement"),
among the Transferor, the Servicer and the Trustee. The Pooling and Servicing
Agreement, as supplemented by the Series 1998-2 Supplement, is herein referred
to as the "Agreement"). The corpus of the Trust consists of all of the
Transferor's right, title and interest in, to and under the Trust Property (as
defined in the Agreement).
A-1-2
<PAGE>
This Security does not purport to summarize the Agreement and
reference is made to that Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds, and duties evidenced hereby
and the rights, duties and obligations of the Trustee. To the extent not defined
herein, the capitalized terms used herein have the meanings ascribed to them in
the Agreement. This Security is one of a series of Securities entitled
"Fingerhut Master Trust ___% Asset Backed Securities, Series 1998-2, Class A"
(the "Class A Securities"), each of which represents a fractional undivided
interest in the Trust, and is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement, as amended from
time to time, the Securityholder by virtue of the acceptance hereof assents and
by which the Securityholder is bound.
The Transferor has structured the Agreement, the Class A Securities,
the Fingerhut Master Trust ___% Asset Backed Securities, Series 1998-2, Class B
(the "Class B Securities" and collectively with the Class A Securities, the
"Offered Securities") and the Fingerhut Master Trust Floating Rate Asset Backed
Securities, Series 1998-2, Collateralized Trust Obligations (the "Collateralized
Trust Obligations") with the intention that the Offered Securities and the
Collateralized Trust Obligations will qualify under applicable tax law as
indebtedness, and both the Transferor and each holder of a Class A Security (a
"Class A Securityholder") or any interest therein by acceptance of its Security
or any interest therein, agrees to treat the Class A Securities for purposes of
federal, state and local income or franchise taxes and any other tax imposed on
or measured by income, as indebtedness.
No principal will be payable to the Class A Securityholders until
the first Distribution Date in the Amortization Period. No principal will be
payable to the Class B Securityholders, CTO Securityholders or Class D
Securityholders (other than with respect to Class D Excess Amounts) until all
principal payments have been made to the Class A Securityholders.
Interest on the Class A Securities will be payable on June 15, 1998
and on the 15th day of each month thereafter or, if such day is not a business
day, on the next succeeding business day (each, a "Distribution Date"), in an
amount equal to the product of (i) the Class A Interest Rate, (ii) a fraction
the numerator of which is the actual number of days in the related Interest
Accrual Period and the denominator of which is 360 and (iii) the outstanding
principal balance of the Class A Securities as of the close of business on the
first day of such Interest Accrual Period provided that interest for the first
Distribution Date will be an amount equal to the product of (u) the initial
Class A Invested Amount, (v) ___ divided by 360, and (w) ___%.
A-1-3
<PAGE>
Interest payments on the Class A Securities on each Distribution
Date will be funded from Available Series 1998-2 Finance Charge Collections with
respect to the preceding Monthly Period (or, with respect to the first
Distribution Date, such collections from and including the Closing Date to and
including May 29, 1998 plus the amount of the initial deposit to the Interest
Funding Account to be made on the Closing Date) and from certain other funds
allocated as set forth in the Pooling and Servicing Agreement to the respective
classes of the Securities and deposited on each business day during such Monthly
Period in the Interest Funding Account.
"Class A Invested Amount" shall mean, with respect to any Business
Day, an amount equal to (a) the Class A Initial Invested Amount minus (b) the
aggregate amount of principal payments made to Class A Securityholders through
and including such Business Day, minus (c) the aggregate amount of Class A
Charge-Offs for all prior Distribution Dates, plus (d) the sum of the aggregate
amount allocated with respect to Class A Charge-Offs through and including such
Business Day pursuant to subsection 4.9(a)(vii) of the Agreement plus, with
respect to such subsection, amounts applied thereto pursuant to subsections
4.10(a) and (b), 4.14(a), (b) and (c), 4.16(b) and 4.17(b), (c) and (d) of the
Agreement, for the purpose of reimbursing amounts deducted pursuant to the
foregoing clauses (c) and (d); provided, however, that the Class A Invested
Amount may not be reduced below zero.
Subject to the Agreement, payments of principal are limited to the
unpaid Class A Invested Amount of the Class A Securities, which may be less than
the unpaid balance of the Class A Securities pursuant to the terms of the
Agreement. All principal on the Class A Securities is due and payable no later
than the February 2007 Distribution Date (or if such day is not a Business Day,
the next succeeding Business Day) (the "Scheduled Series 1998-2 Termination
Date"). After the earlier to occur of (i) the Scheduled Series 1998-2
Termination Date and (ii) the day after the Distribution Date on which the
Series 1998-2 Securities are paid in full (the "Series 1998-2 Termination Date")
neither the Trust nor the Transferor will have any further obligation to
distribute principal or interest on the Class A Securities. In the event that
the Class A Invested Amount is greater than zero on the Series 1998-2
Termination Date, the Trustee will sell or cause to be sold, to the extent
necessary, an amount of interests in the Receivables or certain of the
Receivables up to 110% of the Class A Invested Amount, the Class B Invested
Amount, the CTO Invested Amount and the Class D Invested Amount at the close
of business on such date (but not more than the total amount of Receivables
allocable to the Series 1998-2
A-1-4
<PAGE>
Securities), and shall pay the proceeds to the Class A Securityholders pro rata
in final payment of the Class A Securities, then to the Class B Securityholders
pro rata in final payment of the Class B Securities, then to the CTO
Securityholders pro rata in final payment of the Collateralized Trust
Obligations and finally to the Class D Securityholders pro rata in final payment
of the Class D Securities.
Unless the certificate of authentication hereon has been executed by
or on behalf of the Trustee, by manual signature, this Security shall not be
entitled to any benefit under the Agreement, or be valid for any purpose.
A-1-5
<PAGE>
IN WITNESS WHEREOF, the Transferor has caused this Security to be
duly executed.
FINGERHUT RECEIVABLES, INC.
By:
---------------------------------
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Class A Securities referred to in the
within-mentioned Pooling and Servicing Agreement.
THE BANK OF NEW YORK (DELAWARE)
By:
---------------------------------
Name:
Title:
A-1-6
<PAGE>
Exhibit A-2
FORM OF CLASS B INVESTOR SECURITY
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF FINGERHUT
RECEIVABLES, INC. AND THE TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN
EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS
SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN
SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") THAT IS SUBJECT TO SECTION 4975 OF THE CODE, (III) A GOVERNMENTAL
PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE
OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS DEFINED IN 29 C.F.R. SECTION
2510.3-101 OR OTHERWISE UNDER ERISA) BY REASON OF A PLAN'S INVESTMENT IN
THE ENTITY OR (V) A PERSON INVESTING "PLAN ASSETS" OF ANY SUCH PLAN
(INCLUDING WITHOUT LIMITATION, FOR PURPOSES OF CLAUSE (IV) AND THIS CLAUSE
(V), AS APPLICABLE, AN INSURANCE COMPANY GENERAL ACCOUNT, BUT EXCLUDING
ANY ENTITY REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED).
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
A-2-1
<PAGE>
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
No. ___ $__________
CUSIP NO.
FINGERHUT MASTER TRUST
____________% ASSET BACKED SECURITY,
SERIES 1998-2, CLASS B
Evidencing an undivided interest in a trust, the corpus of which
consists of receivables generated from time to time in the ordinary course of
business from a portfolio of consumer revolving consumer credit card accounts
and closed-end installment sale or closed-end loan contracts transferred or to
be transferred by Fingerhut Receivables, Inc. (the "Transferor") and other
assets and interests constituting the Trust under the Agreement described below.
(Not an interest in or a recourse obligation of Fingerhut
Receivables, Inc., Fingerhut Companies, Inc., Fingerhut National Bank or any
affiliate of either of them.)
This certifies that __________ (the "Securityholder") is the
registered owner of a fractional undivided interest in the Fingerhut Master
Trust (the "Trust") issued pursuant to the Amended and Restated Pooling and
Servicing Agreement, dated as of March 18, 1998 (the "Pooling and Servicing
Agreement"; such term to include any amendment thereto) by and between the
Transferor, Fingerhut National Bank, as the Servicer (the "Servicer"), and The
Bank of New York (Delaware), as Trustee (the "Trustee"), and the Series 1998-2
Supplement, dated as of ___________, 1998 (the "Series 1998-2 Supplement"),
among the Transferor, the Servicer and the Trustee. The Pooling and Servicing
Agreement, as supplemented by the Series 1998-2 Supplement, is herein referred
to as the "Agreement". The corpus of the Trust consists of all of the
Transferor's right, title and interest in, to and under the Trust Property (as
defined in the Agreement).
A-2-2
<PAGE>
This Security does not purport to summarize the Agreement and
reference is made to that Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds, and duties evidenced hereby
and the rights, duties and obligations of the Trustee. To the extent not defined
herein, the capitalized terms used herein have the meanings ascribed to them in
the Agreement. This Security is one of a series of Securities entitled
"Fingerhut Master Trust ____% Asset Backed Securities, Series 1998-2, Class B"
(the "Class B Securities"), each of which represents a fractional undivided
interest in the Trust, and is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement, as amended from
time to time, the Securityholder by virtue of the acceptance hereof assents and
by which the Securityholder is bound.
The Transferor has structured the Agreement, the Class B Securities,
the Fingerhut Master Trust ____% Asset Backed Securities, Series 1998-2, Class A
(the "Class A Securities" and collectively with the Class B Securities the
"Offered Securities") and the Fingerhut Master Trust Floating Rate Asset Backed
Securities, Series 1998-2, Collateralized Trust Obligations (the "Collateralized
Trust Obligations") with the intention that the Offered Securities and the
Collateralized Trust Obligations will qualify under applicable tax law as
indebtedness, and both the Transferor and each holder of a Class B Security (a
"Class B Securityholder") or any interest therein by acceptance of its Security
or any interest therein, agrees to treat the Class B Securities for purposes of
federal, state and local income or franchise taxes and any other tax imposed on
or measured by income, as indebtedness.
No principal will be payable to the Class B Securityholders until
the earlier of the Class B Expected Final Payment Date and, upon the occurrence
of a Pay Out Event, the Distribution Date following the Monthly Period in which
the Pay Out Event occurs but in no event earlier than the Distribution Date
either on or following the Distribution Date on which the Class A Invested
Amount had been paid in full. No principal will be payable to the Class B
Securityholders until all principal payments have been made to the Class A
Securityholders. No principal payments will be made to the CTO Securityholders
or Class D Securityholders (other than with respect to Class D Excess Amounts)
until the Distribution Date either on or following the Distribution Date on
which the Class B Invested Amount has been paid in full.
Interest on the Offered Securities will be payable on June 15, 1998
and on the 15th day of each month thereafter or, if such day is not a business
day, on the next succeeding business day (each, a "Distribution Date"), in an
amount equal to
A-2-3
<PAGE>
(1) with respect to the Class A Securities an amount equal to the product of (i)
the Class A Interest Rate, (ii) a fraction the numerator of which is the actual
number of days in the related Interest Accrual Period and the denominator of
which is 360 and (iii) the outstanding principal balance of the Class A
Securities as of the close of business on the first day of such Interest Accrual
Period and (2) with respect to the Class B Securities (a) the product of (i) the
Class B Interest Rate, (ii) a fraction the numerator of which is the actual
number of days in the related Interest Accrual Period and the denominator of
which is 360 and (iii) the outstanding principal balance of the Class B
Securities as of the close of business on the first day of such Interest Accrual
Period (or in the case of the initial Distribution Date, an amount equal to the
product of (u) the initial Class B Invested Amount, (v) divided by 360, and (w)
the Class B Interest Rate.
Interest payments on the Class A Securities on each Distribution
Date will be funded from Available Series 1998-2 Finance Charge Collections with
respect to the preceding Monthly Period (or, with respect to the first
Distribution Date, such collections from and including the Closing Date to and
including May 29, 1998 plus the amount of the initial deposit to the Interest
Funding Account to be made on the Closing Date) and from certain other funds
allocated as set forth in the Pooling and Servicing Agreement to the respective
classes of the Securities and deposited on each business day during such Monthly
Period in the Interest Funding Account.
Subject to the prior payment of interest on the Class A Securities,
interest payments on the Class B Securities on each Distribution Date will be
funded from the portion of Available Series 1998-2 Finance Charge Collections
with respect to the preceding Monthly Period and from certain other funds
allocated as set forth in the Pooling and Servicing Agreement to the Class B
Securities and deposited on each business day during such Monthly Period in the
Interest Funding Account.
"Class B Invested Amount" shall mean, with respect to any Business
Day, an amount equal to (a) the Class B Initial Invested Amount minus (b) the
aggregate amount of principal payments made to Class B Securityholders through
and including such Business Day, minus (c) the aggregate amount of Class B
Charge-Offs for all prior Distribution Dates, minus (d) the aggregate amount of
Redirected Class B Principal Collections through and including such Business Day
for which neither the Class D Invested Amount nor the CTO Invested Amount has
been reduced on all prior Distribution Dates pursuant to subsection 4.14(e) of
the Agreement, and plus (e) the sum of the aggregate amount allocated with
respect to
A-2-4
<PAGE>
Class B Charge-Offs through and including such Business Day pursuant to
subsection 4.9(a)(x) of the Agreement plus, with respect to such subsection,
amounts applied thereto pursuant to subsections 4.10(a) and (b), 4.14(a) and
(b), 4.16(b) and 4.17(b), (c) and (d) of the Agreement, for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d);
provided, however, that the Class B Invested Amount may not be reduced below
zero.
Subject to the Agreement, payments of principal are limited to the
unpaid Class B Invested Amount of the Class B Securities, which may be less than
the unpaid balance of the Class B Securities pursuant to the terms of the
Agreement. All principal on the Class B Securities is due and payable no later
than the February 2007 Distribution Date (or if such day is not a Business Day,
the next succeeding Business Day) (the "Scheduled Series 1998-2 Termination
Date"). After the earlier to occur of (i) the Scheduled Series 1998-2
Termination Date and (ii) the day after the Distribution Date on which the
Series 1998-2 Securities are paid in full (the "Series 1998-2 Termination
Date") neither the Trust nor the Transferor will have any further obligation to
distribute principal or interest on the Class B Securities. In the event that
the Class B Invested Amount is greater than zero on the Series 1998-2
Termination Date, the Trustee will sell or cause to be sold, to the extent
necessary, an amount of interests in the Receivables or certain of the
Receivables up to 110% of the Class A Invested Amount, the Class B Invested
Amount, the CTO Invested Amount and the Class D Invested Amount at the close of
business on such date (but not more than the total amount of Receivables
allocable to the Series 1998-2 Securities), and shall pay the proceeds to the
Class A Securityholders pro rata - in final payment of the Class A Securities,
then to the Class B Securityholders pro rata in final payment of the Class B
Securities, then to the CTO Securityholders pro rata in final payment of the
Collateralized Trust Obligations and finally to the Class D Securityholders
pro rata in final payment of the Class D Securities.
Unless the certificate of authentication hereon has been executed by
or on behalf of the Trustee, by manual signature, this Security shall not be
entitled to any benefit under the Agreement, or be valid for any purpose.
A-2-5
<PAGE>
IN WITNESS WHEREOF, the Transferor has caused this Security to be
duly executed.
FINGERHUT RECEIVABLES, INC.
By:
---------------------------------
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Class B Securities referred to in the
within-mentioned Pooling and Servicing Agreement.
THE BANK OF NEW YORK (DELAWARE)
By:
---------------------------------
Name:
Title:
A-2-6
<PAGE>
Exhibit A-3
FORM OF COLLATERALIZED TRUST OBLIGATION
No. ___ $_________
[Each Collateralized Trust Obligation that is a CTO Global Security
deposited with DTC, or a custodian on behalf of DTC, shall bear the following
legend:]
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
[Each Collateralized Trust Obligation that is issued pursuant
to Rule 144A shall bear the following legend:]
THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES
THAT THIS SECURITY MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND
A-3-1
<PAGE>
OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT TO A PERSON WHO THE HOLDER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER ("QIB") WITHIN THE MEANING OF RULE 144A,
PURCHASING FOR ITS OWN ACCOUNT, OR A QIB PURCHASING FOR THE ACCOUNT OF A
QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT SUCH REOFFER,
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR
(2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT. EACH SECURITY OWNER BY ACCEPTING A
BENEFICIAL INTEREST IN THIS SECURITY, UNLESS SUCH PERSON ACQUIRED THIS
SECURITY IN A TRANSFER DESCRIBED IN CLAUSE (2) ABOVE, IS DEEMED TO
REPRESENT THAT IT IS EITHER A QIB PURCHASING FOR ITS OWN ACCOUNT OR A QIB
PURCHASING FOR THE ACCOUNT OF ANOTHER QIB.
[Each Collateralized Trust Obligation that is issued pursuant
to Regulation S shall bear the following legend:]
THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND PRIOR TO THE DATE THAT IS 40 DAYS AFTER THE LATER OF THE COMMENCEMENT
OF THE OFFERING AND THE CLOSING DATE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO A U.S. PERSON EXCEPT
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
A-3-2
<PAGE>
[Each Collateralized Trust Obligation shall bear the following
legends:]
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF FINGERHUT
RECEIVABLES, INC. AND THE TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN
EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS
SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN
SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") THAT IS SUBJECT TO SECTION 4975 OF THE CODE, (III) A GOVERNMENTAL
PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE
OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS DEFINED IN 29 C.F.R. SECTION
2510.3-101 OR OTHERWISE UNDER ERISA) BY REASON OF A PLAN'S INVESTMENT IN
THE ENTITY OR (V) A PERSON INVESTING "PLAN ASSETS" OF ANY SUCH PLAN
(INCLUDING WITHOUT LIMITATION, FOR PURPOSES OF CLAUSE (IV) AND THIS CLAUSE
(V), AS APPLICABLE, AN INSURANCE COMPANY GENERAL ACCOUNT, BUT EXCLUDING
ANY ENTITY REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED).
A-3-3
<PAGE>
FINGERHUT MASTER TRUST
FLOATING RATE ASSET BACKED
COLLATERALIZED TRUST OBLIGATION, SERIES 1998-2
Evidencing an undivided interest in a trust, the corpus of which
consists of receivables generated from time to time in the ordinary course of
business from a portfolio of consumer revolving consumer credit card accounts
and closed-end installment sale or closed-end loan contracts transferred or to
be transferred by certain subsidiaries of Fingerhut Receivables, Inc. (the
"Transferor") and other assets and interests constituting the Trust under the
Agreement described below.
(Not an interest in or a recourse obligation of Fingerhut
Receivables, Inc., Fingerhut Companies, Inc., Fingerhut National Bank or any
affiliate of either of them.)
This certifies that ___________________ (the "Securityholder") is
the registered owner of a fractional undivided interest in the Fingerhut Master
Trust (the "Trust") issued pursuant to the Amended and Restated Pooling and
Servicing Agreement, dated as of March 18, 1998 (the "Pooling and Servicing
Agreement"; such term to include any amendment thereto) by and between the
Transferor, Fingerhut National Bank as the Servicer (the "Servicer"), and The
Bank of New York (Delaware), as Trustee (the "Trustee"), and the Series 1998-2
Supplement, dated as of __________, 1998 (the "Series 1998-2 Supplement"), among
the Transferor, the Servicer and the Trustee. The Pooling and Servicing
Agreement, as supplemented by the Series 1998-2 Supplement, is herein referred
to as the "Agreement." The corpus of the Trust consists of all of the
Transferor's right, title and interest in, to and under the Trust Property (as
defined in the Agreement).
This Security does not purport to summarize the Agreement and
reference is made to that Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds, and duties evidenced hereby
and the rights, duties and obligations of the Trustee. To the extent not defined
herein, the capitalized terms used herein have the meanings ascribed to them in
the Agreement. This Security is one of a series of Securities entitled
"Fingerhut Master Trust Floating Rate Asset Backed Securities, Series 1998-2,
Collateralized Trust Obligations (the "Collateralized Trust Obligations"), each
of which represents a fractional undivided interest in the
A-3-4
<PAGE>
Trust, and is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement, as amended from time to time,
the CTO Securityholder by virtue of the acceptance hereof assents and by which
the CTO Securityholder is bound.
The Transferor has structured the Agreement, the Collateralized
Trust Obligations, the Fingerhut Master Trust ____% Asset Backed Securities,
Series 1998-2, Class A (the "Class A Securities") and the Fingerhut Master Trust
____% Asset Backed Securities, Series 1998-2, Class B (the "Class B Securities")
with the intention that the Class A Securities, Class B Securities and
Collateralized Trust Obligations will qualify under applicable tax law as
indebtedness, and both the Transferor and each holder of a Collateralized Trust
Obligation (a "CTO Securityholder") or any interest therein by acceptance of its
Collateralized Trust Obligation or any interest therein, agrees to treat the
Collateralized Trust Obligations for purposes of federal, state and local income
or franchise taxes and any other tax imposed on or measured by income, as
indebtedness.
No principal will be payable to the CTO Securityholders until the
earlier of the Class C Expected Final Payment Date and, upon the occurrence of a
Pay Out Event, the Distribution Date following the Monthly Period in which the
Pay Out Event occurs but in no event earlier than the Distribution Date either
on or following the Distribution Date on which the Class A Invested Amount and
the Class B Invested Amount have been paid in full. No principal payments will
be payable to the CTO Securityholders until the Distribution Date either on or
following the Distribution Date on which the Class A Invested Amount and Class B
Invested Amount have been paid in full.
Interest on the Collateralized Trust Obligations will be payable on
June 15, 1998 and on each Distribution Date thereafter, in an amount equal to
the product of (i) the CTO Interest Rate, (ii) a fraction the numerator of which
is the actual number of days in the related Interest Accrual Period and the
denominator of which is 360 and (iii) the CTO Invested Amount as of the close of
business on the first day of such Interest Accrual Period (or in the case of the
initial Distribution Date, an amount equal to the sum of (I) the product of (u)
the initial CTO Invested Amount, (v) __ divided by 360, and (w) the CTO Interest
Rate.
A-3-5
<PAGE>
Subject to the prior payment of interest on the Class A Securities
and Class B Securities, interest payments on the Class C Securities on each
Distribution Date will be funded from the portion of Available Series 1998-2
Finance Charge Collections with respect to the preceding Monthly Period and from
certain other funds allocated as set forth in the Pooling and Servicing
Agreement to the Collateralized Trust Obligations and deposited on each business
day during such Monthly Period in the Interest Funding Account.
"CTO Invested Amount" shall mean with respect to any Business Day,
an amount equal to (a) the CTO Initial Invested Amount minus (b) the aggregate
amount of principal payments made to CTO Securityholders through and including
such Business Day, minus (c) the aggregate amount of CTO Charge-Offs for all
prior Distribution Dates, minus (d) the aggregate amount of Redirected CTO
Principal Collections and Redirected Class B Principal Collections through and
including such Business Day for which the Class D Invested Amount has not been
reduced for all prior Distribution Dates, and plus (e) the aggregate amount
allocated with respect to CTO Charge-Offs through and including such Business
Day pursuant to subsection 4.9(a)(xi) of the Agreement plus, with respect to
such subsection, amounts applied thereto pursuant to subsections 4.10(a) and
(b), 4.14(a), 4.16(b) and 4.17(b), (c) and (d) of the Agreement, for the purpose
of reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d);
provided, however, that the CTO Invested Amount may not be reduced below zero.
Subject to the Agreement, payments of principal are limited to the
unpaid CTO Invested Amount of the Collateralized Trust Obligations, which may be
less than the unpaid balance of the Collateralized Trust Obligations pursuant to
the terms of the Agreement. All principal on the Collateralized Trust
Obligations is due and payable no later than the February 2007 Distribution
Date (or if such day is not a Business Day, the next succeeding Business Day)
(the "Scheduled Series 1998-2 Termination Date"). After the earlier to occur of
(i) the Scheduled Series 1998-2 Termination Date and (ii) the day after the
Distribution Date on which the Series 1998-2 Securities are paid in full (the
"Series 1998-2 Termination Date") neither the Trust nor the Transferor will have
any further obligation to distribute principal or interest on the Collateralized
Trust Obligations. In the event that the CTO Invested Amount is greater than
zero on the Series
A-3-6
<PAGE>
Termination Date, the Trustee will sell or cause to be sold, to the extent
necessary, an amount of interests in the Receivables or certain of the
Receivables up to 110% of the Class A Invested Amount, the Class B Invested
Amount, the CTO Invested Amount and the Class D Invested Amount at the close of
business on such date (but not more than the total amount of Receivables
allocable to the Series 1998-2 Securities), and shall pay the proceeds to the
Class A Securityholders pro rata in final payment of the Class A Securities,
then to the Class B Securityholders pro rata in final payment of the Class B
Securities, then to the CTO Securityholders pro rata in final payment of the
Collateralized Trust Obligations and finally to the Class D Securityholders pro
rata in final payment of the Class D Securities.
Unless the certificate of authentication hereon has been executed by
or on behalf of the Trustee, by manual signature, this Security shall not be
entitled to any benefit under the Agreement, or be valid for any purpose.
A-3-7
<PAGE>
IN WITNESS WHEREOF, the Transferor has caused this Security to be
duly executed.
FINGERHUT RECEIVABLES, INC.
By:
---------------------------------
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Collateralized Trust Obligations referred to in
the within-mentioned Pooling and Servicing Agreement.
THE BANK OF NEW YORK (DELAWARE)
By:
---------------------------------
Name:
Title:
A-3-8
<PAGE>
Exhibit A-4
FORM OF CLASS D INVESTOR SECURITY
THIS SECURITY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO OR
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY OTHER APPLICABLE
SECURITIES LAW. TRANSFERS OF THIS SECURITY SHALL BE SUBJECT TO THE
RESTRICTIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT.
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF FINGERHUT
RECEIVABLES, INC. AND THE TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN
EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS
SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN
SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") THAT IS SUBJECT TO SECTION 4975 OF THE CODE, (III) A GOVERNMENTAL
PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE
OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE PLAN ASSETS (AS DEFINED IN 29 C.F.R. SECTION
2510.3-101 OR OTHERWISE UNDER ERISA) BY REASON OF A PLAN'S INVESTMENT IN
THE ENTITY OR (V) A PERSON INVESTING PLAN ASSETS OF ANY SUCH PLAN
(INCLUDING WITHOUT LIMITATION, FOR PURPOSES OF CLAUSE (IV) AND THIS CLAUSE
(V), AS APPLICABLE, AN INSURANCE COMPANY GENERAL ACCOUNT, BUT EXCLUDING
ANY ENTITY
A-4-1
<PAGE>
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED).
No. ___ $_________
FINGERHUT MASTER TRUST
0% ASSET BACKED
SECURITY, SERIES 1998-2, CLASS D
Evidencing an undivided interest in a trust, the corpus of which
consists of receivables generated from time to time in the ordinary course of
business from a portfolio of consumer revolving consumer credit card accounts
and closed-end installment sale or loan contracts transferred or to be
transferred by Fingerhut Receivables, Inc. (the "Transferor") and other assets
and interests constituting the Trust under the Agreement described below.
(Not an interest in or a recourse obligation of Fingerhut
Receivables, Inc., Fingerhut National Bank or any affiliate of either of them.)
This certifies that ______________ (the "Securityholder") is the
registered owner of a fractional undivided interest in the Fingerhut Master
Trust (the "Trust") issued pursuant to the Amended and Restated Pooling and
Servicing Agreement, dated as of March 18, 1998 (the "Pooling and Servicing
Agreement"; such term to include any amendment or Supplement thereto) by and
between the Transferor, Fingerhut National Bank as the Servicer (the
"Servicer"), and The Bank of New York (Delaware), as Trustee (the "Trustee"),
and the Series 1998-2 Supplement, dated as of ___________, 1998 (the "Series
1998-2 Supplement"), among the Transferor, the Servicer and the Trustee. The
Pooling and Servicing Agreement, as supplemented by the Series 1998-2
Supplement, is herein referred to as the "Agreement." The corpus of the Trust
consists of all of the Transferor's right, title and interest in, to and under
the Trust Property (as defined in the Agreement).
This Security does not purport to summarize the Agreement and
reference is made to that Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds, and duties evidenced hereby
and the rights, duties and obligations of the Trustee. To the extent not defined
herein, the capitalized terms used herein have the meanings ascribed to them in
the Agreement. This Security is one of a series of Securities entitled
"Fingerhut Master Trust 0% Asset Backed Securities, Series 1998-2, Class D" (the
"Class D Securities"), each of which represents a fractional undivided interest
in the Trust, and is issued under and
A-4-2
<PAGE>
is subject to the terms, provisions and conditions of the Agreement, to which
Agreement, as amended from time to time, the Securityholder by virtue of the
acceptance hereof assents and by which the Securityholder is bound.
Fingerhut Receivables, Inc. shall be prohibited from transferring
any interest in or portion of the Class D Security.
No principal will be payable to the Class D Securityholders (other
than with respect to Class D Excess Amounts) until the earlier of the Expected
Final Payment Date and, upon the occurrence of a Pay Out Event, the Distribution
Date following the Monthly Period in which the Pay Out Event occurs but in no
event earlier than the Distribution Date either on or following the Distribution
Date on which Class A Invested Amount, Class B Invested Amount and the CTO
Invested Amount have been paid in full. No principal will be payable to the
Class D Securityholders until all principal payments have first been made to the
Class A Securityholders, Class B Securityholders and CTO Securityholders.
"Class D Invested Amount" shall mean with respect to any Business
Day, an amount equal to (a) the initial principal balance of the Class D
Securities, minus (b) the aggregate amount of principal payments made to Class D
Securityholders through and including such Business Day, minus (c) the aggregate
amount of Class D Charge-Offs for all prior Distribution Dates, equal to the
amount by which the Class D Invested Amount has been reduced to fund the Series
Default Amount and the unpaid Adjustment Payments on all prior Distribution
Dates, minus (d) the aggregate amount of Redirected Principal Collections for
all prior Distribution Dates, and plus (e) the aggregate amount of Finance
Charge Collections, Transferor Finance Charge Collections, Excess Finance Charge
Collections and certain other amounts applied on all prior Distribution Dates
pursuant to subsection 4.9(a)(xii) of the Agreement and, with respect to such
subsection, pursuant to subsections 4.10(a) and (b), 4.16(b) and 4.17(b), (c)
and (d) of the Agreement, for the purpose of reimbursing amounts deducted
pursuant to the foregoing clauses (c) and (d); provided, however, that the Class
D Invested Amount may not be reduced below zero.
Subject to the Agreement, payments of principal are limited to the
unpaid Class D Invested Amount of the Class D Securities, which may be less than
the unpaid balance of the Class D Securities pursuant to the terms of the
Agreement. All principal on the Class D Securities is due and payable no later
than the February 2007 Distribution Date (or if such day is not a Business Day,
the next succeeding Business Day) (the "Scheduled Series 1998-2 Termination
Date"). After the earlier to occur of (i) the Scheduled Series 1998-2
Termination Date or (ii) the day after the
A-4-3
<PAGE>
Distribution Date on which the Series 1998-2 Securities are paid in full (the
"Series 1998-2 Termination Date") neither the Trust nor the Transferor will have
any further obligation to distribute principal or interest on the Class D
Securities. In the event that the Class D Invested Amount is greater than zero
on the Series Termination Date, the Trustee will sell or cause to be sold, to
the extent necessary, an amount of interests in the Receivables or certain of
the Receivables up to 110% of the Class A Invested Amount, the Class B Invested
Amount, the CTO Invested Amount and the Class D Invested Amount at the close of
business on such date (but not more than the total amount of Receivables
allocable to the Investors Securities), and shall pay the proceeds to the Class
A Securityholders pro rata in final payment of the Class A Securities, then to
the Class B Securityholders pro rata in final payment of the Class B Securities,
then to the CTO Securityholders pro rata in final payment of the Collateralized
Trust Obligations and finally to the Class D Securityholders pro rata in final
payment of the Class D Securities.
Unless the certificate of authentication hereon has been executed by
or on behalf of the Trustee, by manual signature, this Security shall not be
entitled to any benefit under the Agreement, or be valid for any purpose.
A-4-4
<PAGE>
IN WITNESS WHEREOF, the Transferor has caused this Security to be
duly executed.
FINGERHUT RECEIVABLES, INC.
By:
---------------------------------
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Class D Securities referred to in the
within-mentioned Pooling and Servicing Agreement.
THE BANK OF NEW YORK (DELAWARE)
By:
---------------------------------
Name:
Title:
A-4-5
<PAGE>
EXHIBIT B
[Form of Monthly Securityholders' Statement]
B-1
<PAGE>
EXHIBIT C
FORM OF CLEARING SYSTEM CERTIFICATE
Fingerhut Receivables, Inc.
4400 Baker Road, Suite F470
Minnetonka, Minnesota 55343
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Re: Fingerhut Master Trust
Series 1998-2
Ladies and Gentlemen:
Reference is hereby made to the Amended and Restated Pooling and
Servicing Agreement dated as of March 18, 1998, as supplemented by the Series
1998-2 Supplement thereto, dated , 1998 (collectively, the "Pooling and
Servicing Agreement"), each by and among Fingerhut Receivables, Inc., as
Transferor, Fingerhut National Bank, as Servicer and The Bank of New York
(Delaware), as Trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Pooling and Servicing Agreement.
This is to certify that, based solely on certifications we have
received in writing, by telex or by electronic transmission from member
organizations appearing in our records as persons being entitled to a portion of
the principal amount set forth below (our "Member Organizations"), as of the
date hereof, $____ principal amount of the Fingerhut Master Trust, Series
1998-2, Collateralized Trust Obligations (the "CTOs") (i) is beneficially owned
by persons that are not U.S. persons or (ii) is owned by U.S. persons who
purchased the CTOs in transactions that did not require registration under the
United States Securities Act of 1933, as amended (the "Securities Act"). As used
in this paragraph, the term "U.S. person" has the meaning given to it by
Regulation S under the Securities Act.
C-1
<PAGE>
We further certify (i) that we are not making available herewith for
exchange (or, if relevant, for the payment of interest on) any portion of the
Temporary Regulation S Global Security excepted in such Member Organization
certifications and (ii) that as of the date hereof we have not received any
notification from any of our Member Organizations to the effect that the
statements made by such Member Organizations with respect to any portion of the
part submitted herewith for exchange (or, if relevant, for the payment of
interest on) are no longer true and cannot be relied upon at the date hereof.
C-2
<PAGE>
We understand that this certification is required in connection with
certain tax laws of the United States. In connection therewith, if
administrative and legal proceedings are commenced or threatened in connection
with which this certification is or would be relevant, we irrevocably authorize
you to produce this certification to any interested party in such proceedings.
Date: ___ *.
Yours faithfully,
[MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, Brussels
office, as operator of the Euroclear System
or
CEDEL BANK, SOCIETE ANONYME]**/
By:
---------------------------------
- -----------------------
* This certificate is to be dated on the CTO Exchange Date or, if
applicable, the subsequent date on which the CTO Regulation S Global
Security is delivered to the undersigned in definitive form.
** Delete the inappropriate reference.
C-3
<PAGE>
EXHIBIT D
FORM OF MEMBER ORGANIZATION CERTIFICATE
Fingerhut Receivables, Inc.
4400 Baker Road, Suite F470
Minnetonka, Minnesota 55343
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Re: Fingerhut Master Trust
Series 1998-2
Ladies and Gentlemen:
Reference is hereby made to the Amended and Restated Pooling and
Servicing Agreement dated as of March 18, 1998, as supplemented by the Series
1998-2 Supplement thereto, dated ________ __, 1998 (collectively, the "Pooling
and Servicing Agreement"), each by and among Fingerhut Receivables, Inc., as
Transferor, Fingerhut National Bank, as Servicer and The Bank of New York
(Delaware) as Trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Pooling and Servicing Agreement.
This is to certify that, as of the date hereof and except as set
forth below, the Fingerhut Master Trust, Series 1998-2, Collateralized Trust
Obligations (the "CTOs") held by you for our account (i) are beneficially owned
by persons that are not U.S. persons or (ii) are owned by U.S. persons who
purchased the CTOs in transactions that did not require registration under the
United States Securities Act of 1933, as amended (the "Securities Act"). As used
in this paragraph, the term "U.S. person" has the meaning given to it by
Regulation S under the Securities Act.
We undertake to advise you promptly by tested telex on or prior to
the date on which you intend to submit your certification relating to the CTOs
held by you for our account in accordance with your documented procedures if any
applicable statement herein is not correct on such date, and in the absence of
any such notification it may be assumed that this certificate applies as of such
date.
D-1
<PAGE>
This certificate excepts and does not relate to U.S. $_______ in
principal amount of CTOs held by you for our account, in respect of which we are
not able to certify beneficial ownership. We understand that exchange and
delivery of beneficial interests in the Regulation S Global Security or Rule
144A Global Security cannot be made until we do so certify.
We understand that this certificate is required in connection with
certain securities and tax laws of the United States of America. If
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate or a copy thereof to any interested party in
such proceedings. As used herein, "United States" means the United States of
America (including the States and the District of Columbia), its territories,
its possessions (including Puerto Rico, the U.S. Virgin Islands, Guam, American
Samoa, Wake Island, and Northern Mariana Islands) and other areas subject to its
jurisdiction.
Dated: ____________, 199_*/
Yours faithfully,
[Name of Person giving
the certificate]
By:
---------------------------------
- -----------------------
* This certificate must be dated no earlier than 15 days prior to the CTO
Exchange Date.
D-2
<PAGE>
EXHIBIT E
FORM OF REGULATION S TRANSFER CERTIFICATE
Fingerhut Receivables Inc.
4400 Baker Road, Suite F470
Minnetonka, Minnesota 55343
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Attention: Corporate Trust Division
Re: Fingerhut Master Trust
Series 1998-2
Ladies and Gentlemen:
Reference is hereby made to the Amended and Restated Pooling and
Servicing Agreement dated as of March 18, 1998, as supplemented by the Series
1998- 2 Supplement thereto, dated ________ __, 1998 (collectively, the "Pooling
and Servicing Agreement") each by and among Fingerhut Receivables, Inc. as
Transferor, and Fingerhut National Bank, as Servicer and The Bank of New York
(Delaware), as Trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Pooling and Servicing Agreement.
[NOTE: INSERT [A] FOR A TRANSFER PRIOR TO THE EXCHANGE DATE OF AN INTEREST IN A
RULE 144A GLOBAL SECURITY TO A TRANSFEREE THAT TAKES DELIVERY IN THE FORM OF AN
INTEREST IN A TEMPORARY REGULATION S GLOBAL SECURITY. INSERT [B] FOR A TRANSFER
ON OR AFTER THE EXCHANGE DATE OF AN INTEREST IN A RULE 144A GLOBAL SECURITY TO A
TRANSFEREE THAT TAKES DELIVERY IN THE FORM OF AN INTEREST IN A REGULATION S
GLOBAL SECURITY.]
[A] This letter relates to U.S. $______ in principal amount of
Fingerhut Master Trust, Series 1998-2, Collateralized Trust Obligations (the
"CTOs")
E-1
<PAGE>
which are held as a beneficial interest in the CTO Rule 144A Global Security
(CUSIP No. ______) with DTC in the name of [insert name of transferor] (the
"Transferor"). The Transferor has requested an exchange or transfer of such
beneficial interest for an interest in a CTO Temporary Regulation S Global
Security (CUSIP No. ______) to be held with [the Euroclear System] [Cedel Bank,
Societe Anonyme] through DTC.
[B] This letter relates to U.S. $_________ in principal amount of
Fingerhut Master Trust, Series 1998-2, Collateralized Trust Obligations (the
"CTOs"), which are held as a beneficial interest in the CTO Rule 144A Global
Security (CUSIP No. ______) with DTC in the name of [insert name of transferor]
(the "Transferor"). The Transferor has requested an exchange or transfer of such
beneficial interest for an interest in a CTO Regulation S Global Security (CUSIP
No. ______) to be held with [the Euroclear System][Cedel Bank, Societe Anonyme]
through DTC.
[NOTE: INSERT [C] IN ALL CASES UNLESS [D] IS INSERTED IN ACCORDANCE WITH THE
NEXT SENTENCE. AT THE OPTION OF THE TRANSFEROR, [C] MAY BE INSERTED IN PLACE OF
[D] ON AND AFTER THE CTO EXCHANGE DATE IN CASES OF A TRANSFER INTO A CTO
REGULATION S GLOBAL SECURITY.]
[C] In connection with such request and in respect of such CTOs, the
Transferor does hereby certify that such exchange or transfer has been effected
in accordance with the transfer restrictions set forth in the Pooling and
Servicing Agreement and such CTOs and pursuant to and in accordance with
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"), and accordingly the Transferor does hereby certify that:
(i) the offer of the CTOs was not made to a Person in the United
States,
[(ii) at the time the buy order was originated, the transferee was
outside the United States, or the Transferor and any person acting on its
behalf reasonably believed that the transferee was outside the United
States,]**
[(2) the transaction was executed in, on or through the facilities
of a designated offshore securities market and neither the Transferor nor
any person
- -----------------------
** Insert one of these two provisions, which come from the definition of
"offshore transaction" in Regulation S.
E-2
<PAGE>
acting on its behalf knows that the transaction was pre-arranged with a
buyer in the United States,]*
(iii) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable,
and
(iv) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
[D] In connection with such request and in respect of such CTOs, the
Transferor does hereby certify that such transfer has been effected in
accordance with the transfer restrictions set forth in the Pooling and Servicing
Agreement and the CTOs, and that the CTOs are being transferred in a transaction
permitted by Rule 144A under the Securities Act.
This certificate and the statements contained herein are made for
the benefit of the Trustee and the benefit of the Transferor and the initial
purchaser.
[Insert Name of Transferor]
By:
---------------------------------
Name:
Title:
Dated:
------------------
E-3
<PAGE>
EXHIBIT F
FORM OF RULE 144A TRANSFER CERTIFICATE
Fingerhut Receivables
4400 Baker Road, Suite F470
Minnetonka, Minnesota 55343
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Re: Fingerhut Master Trust
Series 1998-2
Ladies and Gentlemen:
Reference is hereby made to the Amended and Restated Pooling and
Servicing Agreement, dated as of March 18, 1998, as supplemented by the Series
1998-2 Supplement thereto, dated _______ __, 1998 (collectively, the "Pooling
and Servicing Agreement"), each by and among Fingerhut Receivables, Inc., as
Transferor, Fingerhut National Bank, as Servicer and The Bank of New York
(Delaware), as Trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Pooling and Servicing Agreement.
[NOTE: INSERT [A] FOR A TRANSFER PRIOR TO THE EXCHANGE DATE OF AN INTEREST IN A
TEMPORARY REGULATION S GLOBAL SECURITY TO A TRANSFEREE THAT TAKES DELIVERY IN
THE FORM OF AN INTEREST IN A RULE 144A GLOBAL SECURITY. INSERT [B] FOR A
TRANSFER AFTER THE EXCHANGE DATE OF AN INTEREST IN A REGULATION S GLOBAL
SECURITY TO A TRANSFEREE THAT TAKES DELIVERY IN THE FORM OF AN INTEREST IN A
RULE 144A GLOBAL SECURITY.]
[A] This letter relates to U.S. $_______ in principal amount of
Fingerhut Master Trust, Series 1998-2, Collateralized Trust Obligations (the
"CTOs") which are held in the form of a beneficial interest in the CTO Temporary
Regulation S
F-1
<PAGE>
Global Security (CUSIP No. _________) with [The Euroclear System] [Cedel Bank,
Societe Anonyme] (Common Code No. _______) through DTC in the name of [insert
name of transferor] (the "Transferor"). The Transferor has requested a transfer
of such beneficial interest in the CTOs for a beneficial interest in the CTO
Rule 144A Global Security (CUSIP No. _________) to be held with DTC in the name
of [insert name of transferee].
[B] This letter relates to U.S. $_______ in principal amount of
Fingerhut Master Trust, Series 1998-2, Collateralized Trust Obligations (the
"CTOs") which are held in the form of a beneficial interest in the CTO
Regulation S Global Security (CUSIP No. _________) with [The Euroclear System]
[Cedel Bank, Societe anonyme] (Common Code No. _______) through the DTC in the
name of [insert name of transferor] (the "Transferor"). The Transferor has
requested a transfer of such beneficial interest in the CTOs for a beneficial
interest in the CTO Rule 144A Global Security (CUSIP No. _________) to be held
with the DTC in the name of [insert name of transferee].
In connection with such request, and in respect of such CTOs, the
Transferor does hereby certify that such CTOs are being transferred in
accordance with (i) the transfer restrictions set forth in the Pooling and
Servicing Agreement and the CTOs and (ii) Rule 144A under the Securities Act to
a transferee that the Transferor reasonably believes is purchasing the CTOs for
its own account or an account with respect to which the transferee exercises
sole investment discretion and the transferee and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A, and such
transferee is aware that the sale to it is being made in reliance upon Rule
144A, in each case in a transaction meeting the requirements of Rule 144A and in
accordance with any applicable securities laws of any state of the United States
or any other jurisdiction.
F-2
<PAGE>
This certificate and the statements contained herein are made for
the benefit of the Trustee, the benefit of the Transferor and the initial
purchaser.
[Insert Name of Transferor]
By:
---------------------------------
Name:
Title:
Dated: ,
------------- -----
F-3
<PAGE>
Exhibit 5
April 10, 1998
Fingerhut Receivables, Inc.
4400 Baker Road
Suite F480
Minnetonka, MN 55343
Re: Registration Statement on Form S-1
Registration No. 333-45611
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Fingerhut Receivables, Inc., as
transferor (the "Transferor"), in connection with (a) the transfer and
assignment of a portfolio of receivables relating to existing closed-end
installment sale contracts originated by Fingerhut Corpo ration and receivables
related to closed-end credit card loans and revolving credit card loans
originated by Fingerhut National Bank, and all monies due or to become due in
payment of such receivables (collectively, the "Receivables"), by the Transferor
to The Bank of New York (Delaware), as trustee (the "Trustee") for the Fingerhut
Master Trust (the "Trust"), pursuant to an Amended and Restated Pooling and
Servicing Agreement dated as of March 18, 1998, as amended (the "Pooling and
Servicing Agreement") by and among the Transferor, Fingerhut Na tional Bank, as
servicer (the "Servicer") and the Trust ee, to be allocated by the Trust among
the interests of the holders of certain Series of Securities to be out standing
from time to time including the Series 1998-2 Class A Securityholders' Interests
(the "Class A Securi ties"), Class B Securityholders' Interests (the "Class B
Securities," and together with the Class A Securities, the "Offered
Securities"), the CTO Securityholders'
<PAGE>
Fingerhut Receivables, Inc.
April 10, 1998
Page 2
Interest and the Class D Securityholders' Interest and (b) the sale of the
Offered Securities to the underwrit ers (the "Underwriters") party to an
Underwriting Agree ment (the "Underwriting Agreement"), by and among the
Transferor, Fingerhut Companies, Inc. and Chase Securi ties Inc., as
representative of the Underwriters.
In connection with our engagement, we have examined and relied upon
the forms of the Pooling and Servicing Agreement and the Underwriting Agreement
in cluded as exhibits to the Registration Statement (Regis tration No.
333-45611) (as amended, the "Registration Statement"). In addition, we have
examined and consid ered executed originals or counterparts, or certified or
other copies identified to our satisfaction as being true copies of such
securities, instruments, documents and other corporate records of the Transferor
and matters of fact and law as we deem necessary for the purposes of the opinion
expressed below. Capitalized terms not otherwise defined herein have the
respective meanings assigned to such terms in the Underwriting Agreement.
In our examination we have assumed the genuine ness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the origi nal of such latter
documents. As to any facts material to the opinions expressed herein that we did
not indepen dently establish or verify, we have relied upon state ments and
representations of officers and other represen tatives of the Transferor and
others.
We express no opinion as to the laws of any jurisdiction other than
the laws of the State of Delaware and the laws of the United States of America
to the extent specifically referred to herein.
Based upon and subject to the foregoing, we are of the opinion that,
when the Offered Securities to be issued pursuant to the Pooling and Servicing
Agreement have been duly and validly authorized by the Transferor and when the
Offered Securities are executed and deliv-
<PAGE>
Fingerhut Receivables, Inc.
April 10, 1998
Page 3
ered by the Transferor and authenticated by the Trustee in accordance with the
provisions of the Pooling and Servicing Agreement, and when the Offered
Securities are paid for by the Underwriters in accordance with the terms of the
Underwriting Agreement, the Offered Securities will be legally issued, fully
paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the refer ence to Skadden, Arps, Slate, Meagher &
Flom LLP under the caption "Legal Matters" in the Prospectus included in the
Registration Statement.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom LLP
<PAGE>
Exhibit 8
April 10, 1998
Fingerhut Receivables, Inc.
4400 Baker Road
Suite F480
Minnetonka, MN 55343
Re: Fingerhut Master Trust
Series 1998-2 Securities
------------------------
Ladies and Gentlemen:
We have acted as special counsel to Fingerhut Receivables, Inc., as
transferor (the "Transferor"), in connection with (a) the transfer and
assignment of a pool of certain receivables generated or acquired from time to
time in the ordinary course of business in a portfolio of receivables relating
to existing closed-end installment sale contracts originated by Fingerhut
Corporation and receivables related to closed-end credit card loans and
revolving credit card loans originated by Fingerhut National Bank, and all
monies due or to become due in payment of such receivables (collectively, the
"Receiv ables") by the Transferor to The Bank of New York (Dela ware), as
trustee (the "Trustee") for the Fingerhut Master Trust, (the "Trust") pursuant
to an Amended and Restated Pooling and Servicing Agreement dated as of March 18,
1998, as amended (the "Pooling and Servicing Agreement") by and among the
Transferor, Fingerhut Na tional Bank, as servicer (the "Servicer") and the Trust
ee, to be allocated by the Trust among the interests of the holders of certain
Series of Securities to be out standing from time to time including the Series
1998-2 Class A Securityholders' Interests (the "Class A Securi-
<PAGE>
Fingerhut Receivables, Inc.
April 10, 1998
Page 2
ties"), Class B Securityholders' Interests (the "Class B Securities," and
together with the Class A Securities, the "Offered Securities"), the CTO
Securityholders' Interest and the Class D Securityholders' Interest and (b) the
sale of the Offered Securities to the underwrit ers (the "Underwriters") party
to an Underwriting Agree ment (the "Underwriting Agreement"), by and among the
Transferor, Fingerhut Companies, Inc. and Chase Securi ties Inc., as
representative of the Underwriters.
In connection with our engagement, we have examined and relied upon
the forms of the Pooling and Servicing Agreement and the Underwriting Agreement
in cluded as exhibits to the Registration Statement (Regis tration No.
333-45611) (as amended, the "Registration Statement"). In addition, we have
examined and consid ered executed originals or counterparts, or certified or
other copies identified to our satisfaction as being true copies of such
securities, instruments, documents and other corporate records of each of the
Transferor and the Servicer and matters of fact and law as we deem necessary for
the purposes of the opinion expressed below, and we have assumed (i) that such
documents will not be amended and (ii) that the parties to such documents will
comply with the terms thereof. Capitalized terms not otherwise defined herein
have the respective meanings assigned to such terms in the Registration
Statement.
In our examination, we have assumed the genu ineness of all
signatures, the authenticity of all docu ments submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents. As to any facts material to the opinions expressed herein which were
not independently established or verified, we have relied upon statements,
representations, and certifications of officers and other representatives of the
Transferor, the Servicer, the Underwriters, and others.
In rendering our opinion, we have also consid ered and relied upon
the Internal Revenue Code of 1986, as amended, and administrative rulings,
judicial deci sions, regulations, and such other authorities as we have deemed
appropriate, all as in effect as of the date
<PAGE>
Fingerhut Receivables, Inc.
April 10, 1998
Page 3
hereof. The statutory provisions, regulations, interpre tations, and other
authorities upon which our opinion is based are subject to change, and such
changes could apply retroactively. In addition, there can be no assurance that
positions contrary to those stated in our opinion will not be taken by the
Internal Revenue Service.
We express no opinions as to the laws of any jurisdiction other than
the federal laws of the United States of America to the extent specifically
referred to herein.
Based upon and subject to the foregoing, we are of the opinion that
the statements in the Prospectus under the headings "Prospectus Summary--Tax
Status" and "Certain Federal Income Tax Consequences," subject to the
qualifications set forth therein, accurately describe the material federal
income tax consequences to holders of the Offered Securities, under existing law
and the as sumptions stated therein.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the refer ences to Skadden, Arps, Slate, Meagher &
Flom LLP under the captions "Certain Federal Income Tax Consequences" and "Legal
Matters" in the Prospectus.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom LLP
<PAGE>
EXHIBIT 10(d)
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Fingerhut Receivables, Inc.
Buyer
and
Fingerhut Companies, Inc.
Seller
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Amended and Restated
Purchase Agreement
Dated as of March 18, 1998
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<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C>
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Definitional Provisions . . . . . . . . . . . . . . 3
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES
Section 2.1 Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
CONSIDERATION AND PAYMENT
Section 3.1 Purchase Price. . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Payment of Purchase Price . . . . . . . . . . . . . . . . 8
Section 3.3 Settlement. . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Seller's Representations
and Warranties. . . . . . . . . . . . . . . . . . . . . .10
Section 4.2 Seller's Representations and
Warranties Regarding Receivables
Section 4.3 Representations and Warranties . . . . . . . . . . . . .13
of the Buyer. . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 Seller Covenants. . . . . . . . . . . . . . . . . . . . .18
Section 5.2 Addition of Receivables . . . . . . . . . . . . . . . . .20
Section 5.3 Buyer Covenant Regarding Sale
Treatment . . . . . . . . . . . . . . . . . . . . . . . .21
Section 5.4 Buyer Covenant Regarding
Separate Business. . . . . . . . . . . . . . . . . . . ..21
Section 5.5 Covenants of Seller with
Respect to this Agreement . . . . . . . . . . . . . . . .23
</TABLE>
<PAGE>
ARTICLE VI
REPURCHASE OBLIGATION
<TABLE>
<S> <C>
Section 6.1 Mandatory Repurchase. . . . . . . . . . . . . . . . . . .25
Section 6.2 Conveyance of Reassigned Receivables. . . . . . . . . . .26
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to the Buyer's
Obligations Regarding Receivables . . . . . . . . . . . .28
Section 7.2 Conditions Precedent to the
Seller's Obligations. . . . . . . . . . . . . . . . . . .28
ARTICLE VIII
TERM AND TERMINATION
Section 8.1 Term. . . . . . . . . . . . . . . . . . . . . . . . . . .30
Section 8.2 Effect of Termination . . . . . . . . . . . . . . . . . .30
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . .32
Section 9.2 Governing Law . . . . . . . . . . . . . . . . . . . . . .32
Section 9.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . .32
Section 9.4 Severability of Provisions. . . . . . . . . . . . . . . .33
Section 9.5 Assignment. . . . . . . . . . . . . . . . . . . . . . . .33
Section 9.6 Further Assurances. . . . . . . . . . . . . . . . . . . .33
Section 9.7 No Waiver; Cumulative Remedies. . . . . . . . . . . . . .34
Section 9.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . .34
Section 9.9 Binding Effect; Third-Party
Beneficiaries . . . . . . . . . . . . . . . . . . . . . .34
Section 9.10 Merger and Integration. . . . . . . . . . . . . . . . . .34
Section 9.11 Headings. . . . . . . . . . . . . . . . . . . . . . . . .34
Section 9.12 Schedules and Exhibits. . . . . . . . . . . . . . . . . .34
Section 9.13 No Bankruptcy Petition Against
the Buyer . . . . . . . . . . . . . . . . . . . . . . . .35
Section 9.14 Merger or Consolidation of,
or Assumption of the Obligations
of, the Seller. . . . . . . . . . . . . . . . . . . . . .35
Section 9.15 Protection of Right, Title and
Interest to Receivables . . . . . . . . . . . . . . . . .36
</TABLE>
<PAGE>
AMENDED AND RESTATED PURCHASE AGREEMENT
AMENDED AND RESTATED PURCHASE AGREEMENT, dated as of March 18, 1998
(the "Agreement"), by and between FINGERHUT COMPANIES, INC., a Minnesota
corporation (the "Seller"), and FINGERHUT RECEIVABLES, INC., a Delaware
corporation ("FRI" or the "Buyer").
W I T N E S S E T H :
WHEREAS, the Buyer desires to purchase from time to time certain
installment sale or installment credit card loan receivables and/or certain
consumer revolving credit card receivables (including private label credit
card receivables) generated or acquired on or after the Initial Closing Date
by the Seller, the Bank or any Affiliate thereof;
WHEREAS, the Seller desires to sell and assign from time to time such
receivables to the Buyer upon the terms and conditions hereinafter set
forth;
WHEREAS, the Buyer is an Affiliate of the Seller;
WHEREAS, the Seller and the Buyer previously entered into that certain
Purchase Agreement dated as of the Initial Closing Date and wish to amend
and restate such agreement as set forth herein;
NOW, THEREFORE, it is hereby agreed by and between the Buyer and the
Seller as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Agreement, except
as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms used herein have the following meanings assigned
to them:
"Amendment Date" shall mean the date of this Agreement.
<PAGE>
"Bank" shall mean Fingerhut National Bank.
"Credit Adjustment" shall have the meaning set forth in Section 3.2(b)
hereof.
"Debtor Relief Law" shall mean any of (i) the Bankruptcy Code of the
United States of America, as amended, and (ii) all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments,
readjustment of debt, marshalling of assets or similar debtor relief laws of
the United States, any state or any foreign country from time to time in
effect affecting the rights of creditors generally.
"Independent Director" shall have the meaning set forth in subsection
5.4(vii) hereof.
"Initial Closing Date" shall mean January 12, 1997.
"Involuntary Case" shall have the meaning set forth in Section 2.1(c)
hereof.
"Obligor" shall mean a Person obligated to make payments with respect
to a Receivable pursuant to a Contract.
"Opinion of Counsel" shall mean a written opinion of counsel acceptable
to the Buyer and the Seller, which counsel may be an employee of the Person
providing the opinion.
"Outstanding Balance" shall mean (a) with respect to any Closed End
Receivable on any day, the aggregate amount owed by the Obligor thereunder
(net of returns and adjustments) assuming that the related Obligor has
selected the installment credit terms with respect to such Receivable and
(b) with respect to any Revolving Receivable, the outstanding principal
balance of such receivable (not including any amounts related to Periodic
Finance Charges or other fees).
"Pooling and Servicing Agreement" shall mean the Amended and Restated
Pooling and Servicing Agreement dated as of the Amendment Date among FRI, as
Transferor, Fingerhut National Bank, as Servicer, and The Bank of New
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York (Delaware), as Trustee, and any amendments and supplements thereto.
"Purchase Price" shall have the meaning set forth in Section 3.1
hereof.
"Reassignment Date" shall have the meaning set forth in Section 6.1(b)
hereof.
"Sale Papers" shall have the meaning set forth in Section 4.1(a)
hereof.
"Secured Obligations" shall have the meaning set forth in Section
2.1(f) hereof.
"Seller's Discount" shall mean, for any day on which Receivables are
conveyed hereunder, the discount used to determine the Seller's accounting
basis in the Receivables on such day.
"Termination Date" shall have the meaning set forth in Section 8.1
hereof.
Section 1.2 Other Definitional Provisions. The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this
Agreement or any Sale Paper refer to this Agreement as a whole and not to
any particular provision of this Agreement; and Section, subsection,
Schedule and Exhibit references contained in this Agreement are references
to Sections, subsections, Schedules and Exhibits in or to this Agreement
unless otherwise specified. All capitalized terms not otherwise defined
herein are defined in the Pooling and Servicing Agreement. In the event
that any term or provision contained herein conflicts with or is
inconsistent with any provisions contained in the Pooling and Servicing
Agreement, the terms and provisions contained herein shall govern with
respect to this Agreement.
[END OF ARTICLE I]
3
<PAGE>
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING
OF RECEIVABLES
Section 2.1 Sale. (a) In consideration for the Purchase Price and
upon the terms and subject to the conditions set forth herein, the Seller
does hereby sell, assign, transfer, set-over, and otherwise convey to the
Buyer, and the Buyer does hereby purchase from the Seller, on the terms and
subject to the conditions specifically set forth herein, all of the Seller's
right, title and interest in, to and under (i) the Receivables now existing
and hereafter created, in each case, immediately upon the Seller's
acquisition of rights therein (or, on the Amendment Date, with respect to
Receivables previously purchased by FCI, immediately upon effectiveness of
this amended Agreement), including, without limitation, all accounts,
general intangibles, chattel paper, contract rights, and other obligations
of any Obligor with respect to the Receivables, now or hereafter existing,
(ii) all monies and investments due or to become due with respect thereto
(including, without limitation, the right to any Finance Charge Receivables,
including any Recoveries), (iii) all proceeds of such Receivables and (iv)
the Bank Receivables Purchase Agreement with respect to Receivables arising
under Eligible Accounts. The foregoing sale, transfer, assignment, set-over
and conveyance does not constitute and is not intended to result in a
creation or an assumption by the Buyer of any obligation of the Seller or
any other Person in connection with the Receivables or any agreement or
instrument relating thereto, including, without limitation, any obligation
to any Obligors, merchants, servicers or insurers, or in connection with the
Bank Receivables Purchase Agreement.
(b) In connection with the foregoing sale, the Seller agrees to record
and file, at its own expense, one or more financing statements (including
any amendments or continuation statements with respect to such financing
statements when applicable) with respect to the Receivables and the other
property described in Section 2.1(a) sold by the Seller hereunder for the
transfer of accounts, chattel paper or general intangibles (each as defined
in Section 9-106 of the UCC as in effect in the
4
<PAGE>
Relevant UCC State) meeting the requirements of applicable state law in such
manner and in such jurisdictions as are necessary to perfect and protect the
interests of the Buyer created hereby under the applicable UCC against all
creditors of and purchasers from the Seller, and to deliver file-stamped
copies of such financing statements or continuation statements or other
evidence of such filings (which may, for purposes of this Section 2.1,
consist of facsimile confirmation of such filing) to the Buyer within 10
days after the Initial Closing Date, and in the case of any amendments or
continuation statements filed pursuant to this Section 2.1, as soon as
practicable after receipt thereof by the Seller.
(c) The Buyer shall not purchase Receivables hereunder if the Seller
shall become an involuntary party to (or be made the subject of) any
bankruptcy proceeding or any other insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating
to the Seller or relating to all or substantially all of its property (an
"Involuntary Case") upon receipt by the Seller at its head corporate office
of notice of such Involuntary Case.
(d) The Buyer shall not purchase Receivables hereunder if the Seller
shall admit in writing its inability to pay its debts as they are due, or
the Seller shall commence a voluntary case under the federal bankruptcy
laws, as now or hereafter in effect, or any present or future federal or
state bankruptcy, insolvency or similar law, or the Seller shall consent to
the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Seller or
of any substantial part of its property or the Seller shall make an
assignment for the benefit of creditors or the Seller shall fail generally
to pay its debts as such debts become due or the Seller shall take corporate
action in furtherance of any of the foregoing.
(e) In connection with the sale and conveyance hereunder, the Seller
agrees, at its own expense, on or prior to the Initial Closing Date and on
each Business Day thereafter, to indicate or cause to be indicated clearly
and
5
<PAGE>
unambiguously in its accounting records, and with respect to any Receivables
purchased by the Seller from the Bank, to cause the Bank to indicate clearly
and unambiguously in the Bank's accounting records, that such Receivables
and the other property described in clauses (i), (ii), (iii) and (iv) of
Section 2.1(a) have been sold to the Buyer pursuant to this Agreement as of
the Initial Closing Date or such Business Day as applicable.
(f) It is the express intent of the Seller and the Buyer that the
conveyance of the Receivables by the Seller to the Buyer pursuant to this
Agreement be construed as a sale of such Receivables by the Seller to the
Buyer. It is, further, not the intention of the Seller and the Buyer that
such conveyance be deemed a grant of a security interest in the Receivables
by the Seller to the Buyer to secure a debt or other obligation of the
Seller. However, in the event that, notwithstanding the intent of the
parties, the Receivables are held to continue to be property of the Seller,
then (i) this Agreement also shall be deemed to be and hereby is a security
agreement within the meaning of the UCC; and (ii) the conveyance by the
Seller provided for in this Agreement shall be deemed to be and the Seller
hereby grants to the Buyer a security interest in and to all of the Seller's
right, title and interest in and to (w) all Receivables outstanding on the
Initial Closing Date and thereafter created or acquired by the Seller, in
each case, immediately upon the Seller's acquisition of rights therein (or,
on the Amendment Date, with respect to Receivables previously purchased by
FCI, immediately upon effectiveness of this amended Agreement), and all
rights (but not the obligations) relating to such Receivables, including,
without limitation, all "accounts", "chattel paper" or "general intangibles"
(each as defined in the UCC as in effect in the Relevant UCC State) with
respect to the Receivables outstanding on the Initial Closing Date and
thereafter created or acquired by the Seller, (x) all monies and investments
due or to become due with respect thereto, (y) the Bank Receivables Purchase
Agreement with respect to Receivables arising under Eligible Accounts and
(z) all proceeds of the foregoing to secure (1) the rights of the Buyer and
(2) a loan to the Seller in the amount of the aggregate Purchase Price of
all Receivables outstanding from time to time as set forth in this Agreement
(the "Secured Obligations"). The Seller and the Buyer shall, to the extent
consistent with this Agreement, take such actions as may be necessary to
ensure that, if this Agreement were deemed to create a security interest in
the Receivables, such security interest would be deemed
6
<PAGE>
to be a perfected security interest of first priority in favor of the Buyer
under applicable law and will be maintained as such throughout the term of
this Agreement.
[END OF ARTICLE II]
7
<PAGE>
ARTICLE III
CONSIDERATION AND PAYMENT
Section 3.1 Purchase Price. The purchase price for the Receivables
and related property conveyed to the Buyer under this Agreement (the
"Purchase Price") shall be a dollar amount equal to, for Receivables sold on
any date, the product of (i) the aggregate Outstanding Balance of all such
Receivables as of such date, and (ii) one minus the then applicable Seller's
Discount.
Section 3.2 Payment of Purchase Price. (a) The Purchase Price for
Receivables shall be paid or provided for on the Initial Closing Date with
respect to the Receivables existing on the Initial Closing Date and on each
Business Day thereafter on which Receivables are transferred hereunder, as
the case may be, by payment in immediately available funds to the extent
such funds are available. To the extent that the total Purchase Price for
Receivables is not paid in full by the Buyer on the Initial Closing Date or
on each Business Day on which Receivables are purchased hereunder in cash
and the Seller is the direct corporate parent of the Buyer, the Seller shall
be deemed on the first Business Day of the following week to have
contributed Receivables in an aggregate principal amount equal to such
shortfall to the Buyer.
(b) The Purchase Price shall be reduced on a daily basis (a "Credit
Adjustment") with respect to any Receivable adjusted as provided in
subsection 3.8 of the Pooling and Servicing Agreement in an amount equal to
the amount of such Credit Adjustment specified in subsection 3.8 of the
Pooling and Servicing Agreement. If the Buyer is required thereunder to
deposit amounts into the Excess Funding Account pursuant to subsection 3.8
of the Pooling and Servicing Agreement, the Purchase Price shall not be
reduced by such amount and, the Seller shall pay the amount so adjusted to
the Buyer.
Section 3.3 Settlement. On each Monday (or if any Monday is not a
Business Day the next succeeding Business Day), the Seller shall deliver to
the Buyer a weekly report showing the aggregate Purchase Price of
Receivables generated or acquired, the aggregate amount of Receivables
deemed to have been contributed by the
8
<PAGE>
Seller to the Buyer, the aggregate amount, if any, paid to the Buyer
pursuant to Section 6.1 hereof, and the aggregate amount of cash paid for
Receivables generated or acquired in each case for the period from and
including the preceding Monday (or next succeeding Business Day, as
applicable) to but not including such Monday.
[END OF ARTICLE III]
9
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Seller's Representations and Warranties. The Seller
hereby represents and warrants to the Buyer as of the Initial Closing Date,
and shall be deemed to represent and warrant as of the date of any
Supplement and the related Closing Date, that:
(a) Organization and Good Standing. The Seller is a corporation duly
organized and validly existing and in good standing under the laws of the
State of Minnesota and has the corporate power and authority and legal right
to own its properties and conduct its business as such properties are
presently owned and as such business is presently conducted, and to execute,
deliver and perform its obligations under this Agreement and each other
document or instrument to be delivered by the Seller hereunder
(collectively, the "Sale Papers").
(b) Due Qualification. The Seller is duly qualified to do business and
is in good standing (or is exempt from such requirements), as a foreign
corporation in any state required in order to conduct its business, and has
obtained all necessary licenses and approvals with respect to the Seller
required under applicable law; provided, however, that no representation or
warranty is made with respect to any qualifications, licenses or approvals
which the Buyer would have to obtain to do business in any state in which
the Buyer seeks to enforce any Receivable.
(c) Due Authorization. The execution and delivery of the Sale Papers,
and the consummation of the transactions provided for herein and therein
have been duly authorized by the Seller by all necessary corporate action on
its part.
(d) Binding Obligation. Each of the Sale Papers, and the consummation
of the transactions provided for herein and therein, constitutes a legal,
valid and binding obligation of the Seller, enforceable in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereinafter in effect, affecting the enforcement of creditors' rights
10
<PAGE>
in general and as such enforceability may be limited by general principles
of equity (whether considered in a proceeding at law or in equity).
(e) No Conflicts. The execution and delivery of the Sale Papers and
the performance of the transactions contemplated hereby and thereby, do not
(i) contravene the Seller's charter or bylaws, (ii) violate any material
provision of law applicable to it, or (iii) require any filing (except for
the filings under the UCC), registration, consent or approval under, any
law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the
Seller, except for such filings, registrations, consents or approvals as
have already been obtained and are in full force and effect.
(f) Taxes. Except as specified on Schedule 2, the Seller has filed all
tax returns required to be filed and has paid or made adequate provision for
the payment of all taxes, assessments and other governmental charges due
from the Seller or is contesting any such tax, assessment or other
governmental charge in good faith through appropriate proceedings.
(g) No Violation. The execution and delivery of the Sale Papers, the
performance of the transactions contemplated by the Sale Papers and the
fulfillment of the terms hereof and thereof, will not violate any
Requirements of Law applicable to the Seller, will not violate, result in
any breach of any of the material terms and provisions of, or constitute
(with or without notice or lapse of time or both) a default under (i) any
Requirement of Law applicable to the Seller, or (ii) any material indenture,
contract, agreement, mortgage, deed of trust or other material instrument to
which the Seller is a party or by which it or its properties are bound.
(h) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Seller, threatened against the Seller
before any Governmental Authority (i) asserting the invalidity of the Sale
Papers, (ii) seeking to prevent the consummation of any of the transactions
contemplated hereby and thereby, (iii) seeking any determination or ruling
that would materially and adversely affect the performance by the Seller of
its obligations thereunder or (iv) seeking
11
<PAGE>
any determination or ruling that would materially and adversely affect the
validity or enforceability thereof.
(i) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Governmental Authority required in connection
with the execution and delivery of the Sale Papers, the performance of the
transactions contemplated by the Sale Papers and the fulfillment of the
terms hereof and thereof, have been obtained.
(j) Bona Fide Receivables. Each Receivable is or will be an account
receivable arising out of the performance by the applicable Originator in
accordance with the terms of the Contract giving rise to such Receivable.
The Seller has no knowledge of any fact which should have led it to expect
at the time of the classification of any Receivable as an Eligible
Receivable that such Receivable would not be paid in full when due, and each
Receivable classified as an Eligible Receivable by the Seller in any
document or report delivered under this Agreement satisfies the requirements
of eligibility contained in the definition of Eligible Receivable set forth
in the Pooling and Servicing Agreement.
(k) Place of Business. The principal executive offices of the Seller
are in Minnetonka, Minnesota and the offices where the Seller keeps its
records concerning the Receivables and related Contracts are in Minnetonka,
Minnesota, St. Cloud, Minnesota and Hennepin County, Minnesota.
(l) Use of Proceeds. No proceeds of the sale of any Receivable
hereunder received by the Seller will be used by the Seller to purchase or
carry any margin security.
(m) Pay Out Event. No Pay Out Event and no condition that with the
giving of notice and/or the passage of time would constitute a Pay Out Event
(a "Prospective Pay Out Event"), has occurred and is continuing.
(n) Not an Investment Company. The Seller is not an "investment
company" within the meaning of the Investment Company Act, or is exempt from
all provisions of such Act.
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<PAGE>
The representations and warranties set forth in this Section 4.1 shall
survive the sale of the Receivables to the Buyer. Upon discovery by the
Seller or the Buyer of a material breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice thereof to the other.
Section 4.2 Seller's Representations and Warranties Regarding
Receivables.
(a) Valid Sale, etc. The Seller (x) hereby represents and warrants as
of the Amendment Date, with respect to the Receivables acquired by the
Seller on such date and (y) shall be deemed to represent and warrant as of
the date of the acquisition by the Seller and transfer to the Buyer of any
Receivables with respect to such Receivables, that:
(i) Each of this Agreement and the Bank Receivables Purchase
Agreement constitutes the legal, valid and binding obligation of the
Seller, enforceable against the Seller in accordance with its terms,
except (A) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect, affecting the enforcement of
creditors' rights in general, and (B) as such enforceability may be
limited by general principles of equity (whether considered in a suit
at law or in equity).
(ii) The transfer of Receivables by the Seller to the Buyer under
this Agreement constitutes a valid sale, transfer, assignment, set-over
and conveyance to the Buyer of all right, title and interest of the
Seller in and to the Receivables, whether then existing or thereafter
created, and such Receivables will be held by the Buyer free and clear
of any Lien of any Person claiming through or under the Seller or any
of its Affiliates except for Permitted Liens. This Agreement
constitutes a valid sale, transfer, assignment, set-over and conveyance
to the Buyer of all right, title and interest of the Seller in and to
the Receivables purported to be sold hereunder, whether then existing
or thereafter
13
<PAGE>
created and all monies due or to become due and all proceeds
thereof.
(iii) The Seller is not insolvent and will not be rendered
insolvent upon sale of the Receivables to the Buyer.
(iv) The Seller is (or, with respect to Receivables arising after
the date hereof, will be) the legal and beneficial owner of all right,
title and interest in and to each Receivable and each Receivable has
been or will be transferred to the Buyer free and clear of any Lien
other than Permitted Liens.
(v) All consents, licenses, approvals or authorizations of or
registrations or declarations with any Governmental Authority required
in connection with the transfer of such Receivables to the Buyer have
been obtained.
(vi) Each Account classified as an "Eligible Account" by the
Seller in any document or report delivered hereunder on or after the
Amendment Date will satisfy the requirements contained in the
definition of Eligible Account as of the time of such document or
report and each Receivable classified as an "Eligible Receivable" by
the Seller in any document or report delivered hereunder will satisfy
the requirements contained in the definition of Eligible Receivable as
of the time of such document or report.
(vii) Each Receivable then existing has been conveyed to the Buyer
free and clear of any Lien of any Person claiming through or under the
Seller or any of its Affiliates (other than Permitted Liens) and in
compliance, in all material respects, with all Requirements of Law
applicable to the Seller.
(b) Daily Representations and Warranties. On each day on which any new
Eligible Receivable is created or acquired by the Seller, the Seller shall
be deemed to represent and warrant to the Buyer that (A) each Eligible
Receivable purchased by the Buyer on such day has been conveyed to the Buyer
in compliance, in all material
14
<PAGE>
respects, with all Requirements of Law applicable to the Seller and free and
clear of any Lien of any Person claiming through or under the Seller or any
of its Affiliates (other than Permitted Liens) and (B) with respect to each
such Receivable, all consents, licenses, approvals or authorizations of or
registrations or declarations with, any Governmental Authority required to
be obtained, effected or given by the Seller in connection with the
conveyance of such Receivable to the Buyer have been duly obtained, effected
or given and are in full force and effect.
(c) Notice of Breach. The representations and warranties set forth in
this Section 4.2 shall survive the sale, transfer and assignment of the
respective Receivables to the Buyer. Upon discovery by the Seller or the
Buyer of a breach of any of the representations and warranties set forth in
this Section 4.2, the party discovering such breach shall give prompt
written notice thereof to the other. The Seller agrees to cooperate with
the Buyer in attempting to cure any such breach.
Section 4.3 Representations and Warranties of the Buyer. The Buyer
hereby represents and warrants and agrees with, as of the date hereof and as
of the Initial Closing Date, the Seller and shall be deemed to represent and
warrant as of the date of the creation of any Receivable sold to the Buyer
hereunder that:
(a) Organization and Good Standing. The Buyer is a corporation duly
organized and validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority and legal right
to own its property and conduct its business as such properties are
presently owned and such business is presently conducted and to execute,
deliver, and perform its obligations under the Sale Papers.
(b) Due Qualification. The Buyer is duly qualified to do business and
is in good standing (or is exempt from such requirements) as a foreign
corporation in any state required in order to conduct business and has
obtained all necessary licenses and approvals with respect to the Buyer
required under federal and Delaware law.
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(c) Due Authorization. The execution and delivery of the Sale Papers
and the consummation of the transactions provided for in the Sale Papers
have been duly authorized by the Buyer by all necessary corporate action on
its part.
(d) No Conflicts. The execution and delivery of the Sale Papers and
the performance of the transactions contemplated thereby do not (i)
contravene the Buyer's certificate of incorporation or bylaws or (ii)
violate any material provision of law applicable to it, or require any
filing (except for the filings under the UCC), registration, consent or
approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Buyer, except for such filings, registrations, consents
or approvals as have already been obtained and are in full force and effect.
(e) No Violation. The execution and delivery of the Sale Papers, the
performance of the transactions contemplated by the Sale Papers, and the
fulfillment of the terms of the Sale Papers will not violate any
Requirements of Law applicable to the Buyer, will not violate, result in any
breach of any of the material terms and provisions of, or constitute (with
or without notice or lapse of time or both) a default under any Requirement
of Law applicable to the Buyer, or any material indenture, contract,
agreement, mortgage, deed of trust or other material instrument to which the
Buyer is a party or by which it or its properties are bound.
(f) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Buyer, threatened against the Buyer, before
any Governmental Authority (i) asserting the invalidity of the Sale Papers,
(ii) seeking to prevent the consummation of any of the transactions
contemplated by the Sale Papers, (iii) seeking any determination or ruling
that would materially and adversely affect the performance by the Buyer of
its obligations thereunder or (iv) seeking any determination or ruling that
would materially and adversely affect the validity or enforceability of the
Sale Papers.
(g) All Consents Required. All approvals, authorizations, consents,
orders, or other actions of any
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Governmental Authority required in connection with the execution and
delivery of the Sale Papers, the performance of the transactions
contemplated by the Sale Papers, and the fulfillment of the terms of the
Sale Papers have been obtained.
The representations and warranties set forth in this Section 4.3 shall
survive the sale of the Receivables to the Buyer. Upon discovery by the
Buyer or the Seller of a breach of any of the foregoing representations and
warranties, the party discovering such breach shall give prompt written
notice to the other.
[END OF ARTICLE IV]
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ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 Seller Covenants. The Seller hereby covenants that:
(a) Receivables to be Accounts, Chattel Paper or General Intangibles.
The Seller will take no action to cause any Receivable to be evidenced by
any instrument (as defined in the UCC as in effect in the Relevant UCC
State), except in connection with the enforcement or collection of a
Receivable. Except in such circumstances, the Seller will take no action to
cause any Receivable to be anything other than an "account", "chattel paper"
or a "general intangible" (each as defined in the UCC as in effect in the
Relevant UCC State).
(b) Security Interests. Except for the conveyances hereunder, the
Seller will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any Lien, on any Receivable,
whether now existing or hereafter created, or any interest therein; the
Seller will immediately notify the Buyer of the existence of any Lien on any
Receivable; and the Seller shall defend the right, title and interest of the
Buyer in, to and under the Receivables, whether now existing or hereafter
created, against all claims of third parties claiming through or under the
Seller; provided, however, that nothing in this subsection 5.1(b) shall
prevent or be deemed to prohibit the Seller from suffering to exist upon any
of the Receivables any Permitted Lien.
(c) Contracts and Credit and Collection Policies. The Seller shall take
all actions reasonably within its control to cause each Originator to comply
with and perform its obligations under the Contracts and the Accounts and the
Credit and Collection Policy except insofar as any failure so to comply or
perform would not materially and adversely affect the rights of the Buyer
hereunder. Except as such Originator deems necessary to maintain its credit
card business on a competitive basis or as required by law, it will not
reduce the annual percentage rates of the Periodic Finance Charges assessed
in the Receivables or other fees charged on the Accounts if, as a result of
any such reduction, a pay out event
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(or other early termination event) would occur under any Pooling and
Servicing Agreement. Subject to compliance with all Requirements of Law,
the Seller may change, and permit an Originator to change, the terms and
provisions of the Contracts or the Credit and Collection Policy in any
respect (including the calculation of the amount, or the timing, of
charge-offs) (i) if it would not, in the reasonable belief of the Seller,
materially impair the collectibility of any Receivable or cause, immediately
or with the passage of time, a pay out event (or other early termination
event) to occur under any Pooling and Servicing Agreement and (ii) if such
change (A) (if it owns a comparable segment of receivables) is made
applicable to the comparable segment of the receivables owned by the Seller
or such Originator, if any, which have characteristics the same as, or
substantially similar to, the Receivables that are the subject of such
change and (B) (if it does not own such a comparable segment of receivables)
will not be made with the intent to materially benefit the Seller over the
Buyer or to materially adversely affect the Buyer, except as otherwise
restricted by an endorsement, sponsorship, or other agreement between the
Seller and an unrelated third party or by the terms of the Contracts.
(d) Delivery of Collections. In the event that the Seller receives
Collections, the Seller agrees to pay such Collections to the Buyer as soon
as practicable after the receipt thereof, but in no event later than the
second Business Day following the Date of Precessing thereof.
(e) Conveyance of Receivables. Except as provided in Section 9.5, the
Seller covenants and agrees that it will not convey, assign, exchange or
otherwise transfer any Receivable, to any Person other than the Buyer prior
to the termination of this Agreement pursuant to Article VIII; provided,
however, that the Seller shall not be prohibited hereby from conveying,
assigning, exchanging or otherwise transferring a Receivable in connection
with a transaction in which the Seller and its successor agree to comply
with provisions substantially similar to those of Section 9.14.
(f) Notice of Liens. The Seller shall notify the Buyer promptly after
becoming aware of any Lien on any Receivable other than Permitted Liens.
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(g) Enforcement of Purchase Agreements. The Seller agrees to take all
action necessary and appropriate to enforce its rights and claims under this
Agreement and the Bank Receivables Purchase Agreement with respect to
Receivables arising under Eligible Accounts.
(h) Separate Business. The Seller will not permit its assets to be
commingled with those of the Buyer and the Seller shall maintain separate
corporate records and books of account from those of the Buyer. The Seller
will not conduct its business in the name of the Buyer and will cause the
Buyer to conduct its business solely in its own name so as not to mislead
others as to the identity of the entity with which those others are
concerned. The Seller will provide for its own operating expenses and
liabilities from its own funds. The Seller will not hold itself out, or
permit itself to be held out, as having agreed to pay, or as generally being
liable for, the debts of the Buyer. The Seller shall cause the Buyer not to
hold itself out, or permit itself to be held out, as having agreed to pay,
or as being liable for, the debts of the Seller. The Seller will maintain
an arm's length relationship with the Buyer with respect to any transactions
between the Seller, on the one hand, and the Buyer, on the other.
Section 5.2 Addition of Receivables.
Unless either the Seller or the Buyer shall provide written notice to
the other party in writing, all receivables which meet the definition of
Receivables shall be included as Receivables from and after the date upon
which such Receivables are created or acquired by the Seller and all such
Receivables, whether such Receivables are then existing or thereafter
created or acquired, shall be automatically sold to the Buyer, and
receivables which do not meet the definition of Receivables shall not be
sold to the Buyer. For the purpose of this Agreement, all receivables of
such Receivables shall be treated as Receivables upon their creation or
acquisition by the Seller and shall be subject to the eligibility criteria
specified in the definition of "Eligible Receivables" and "Eligible
Account". The Buyer shall provide the Seller with a copy of any notice to
the Trustee designating or excluding accounts as specified in the last
sentence of the definition of "Additional Accounts" in the Pooling and
Servicing Agreement.
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Section 5.3 Buyer Covenant Regarding Sale Treatment. The Buyer agrees
to treat this conveyance for all purposes (including, without limitation,
tax and financial accounting purposes) as a sale on all relevant books,
records, tax returns, financial statements and other applicable documents.
Section 5.4 Buyer Covenant Regarding Separate Business. The Buyer
shall:
(i) Maintain in full effect its existence, rights and franchises
as a corporation under the laws of the state of its incorporation and
obtain and preserve its qualification to do business in each
jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement and the
Pooling and Servicing Agreement and each other instrument or agreement
necessary or appropriate to effect proper administration hereof and to
permit and effectuate the transactions contemplated hereby.
(ii) Maintain its own deposit account or accounts, separate from
those of any Affiliate of the Buyer, with commercial banking
institutions. The funds of the Buyer will not be diverted to any other
Person or for other than the corporate use of the Buyer, and, except as
may be expressly permitted by this Agreement or the Pooling and
Servicing Agreement, the funds and assets of the Buyer shall not be
commingled with those of any Affiliate of the Buyer.
(iii) Ensure that, to the extent that it shares the same officers
or other employees as any of its stockholders or Affiliates, the
salaries of and the expenses related to providing benefits to such
officers and other employees shall be fairly allocated among such
entities, and each such entity shall bear its fair share of the salary
and benefit costs associated with all such common officers and
employees.
(iv) Ensure that, to the extent that it jointly contracts with any
of its stockholders or Affiliates to do business with vendors or
service providers or to share overhead expenses, the costs incurred in
so doing shall be allocated fairly among such entities, and each such
entity shall bear its fair share of such costs. To the extent that the
Buyer contracts or does business with vendors or service providers
where the goods and services provided are partially for the benefit of
any other Person, the costs
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incurred in so doing shall be fairly allocated to or among such
entities for whose benefit the goods and services are provided, and
each such entity shall bear its fair share of such costs. All material
transactions between the Buyer and any of its Affiliates shall be only
on an arm's-length basis.
(v) Maintain a principal executive and administrative office
through which its business is conducted separate from those of its
stockholders and Affiliates. To the extent that the Seller and any of
its stockholders or Affiliates have offices in contiguous space, there
shall be fair and appropriate allocation of overhead costs among them,
and each such entity shall bear its fair share of such expenses.
(vi) Conduct its affairs strictly in accordance with its charter
and bylaws and observe all necessary, appropriate and customary
corporate formalities, including taking all actions of stockholders'
and directors' meetings appropriate to authorize all corporate action,
keeping separate and accurate minutes of such meetings, adopting all
resolutions or consents necessary to authorize actions taken or to be
taken, and maintaining accurate and separate books, records and
accounts, including payroll and intercompany transaction accounts.
(vii) Ensure that its Board of Directors shall be elected
independently from the Boards of Directors of its Affiliates and shall
at all times include at least two members of the Board of Directors of
the Buyer who are not and have not been (x) directors, officers,
employees or shareholders of FCI or Fingerhut or any Affiliate (other
than any other limited purpose subsidiary of either of any of them)
thereof within a period of three years prior to such Person's election
to the Board of Directors
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or (y) a member of the immediate family of any of the foregoing).
(viii) Ensure that decisions with respect to its business and
daily operations shall be independently made by the Buyer (although the
officer making any particular decision may also be an officer or
director of an Affiliate of the Buyer) and shall not be dictated by an
Affiliate of the Buyer.
(ix) Act solely in its own corporate name and through its own
authorized officers and agents, and no Affiliate of the Buyer shall be
appointed to act as agent of the Buyer, except as expressly
contemplated by this Agreement or the Pooling and Servicing Agreement.
(x) Ensure that no Affiliate of the Buyer shall advance funds to
the Buyer, other than capital contributions from its corporate parent
made to enable the Buyer to pay the purchase price of Receivables or as
is otherwise provided in this Agreement, and no Affiliate of the Buyer
will otherwise supply funds to, or guaranty debts of, the Buyer;
provided, however, that its corporate parent may provide funds to the
Buyer in connection with capitalization of the Buyer to assure that the
Buyer has substantial assets.
(xi) Not enter into any guaranty, or otherwise become liable, with
respect to any obligation of any Affiliate of the Buyer.
(xii) Ensure that any financial reports required of the Buyer
shall comply with generally accepted accounting principles and shall be
issued separately from, but may be consolidated with, any reports
prepared for any of its Affiliates.
Section 5.5 Covenants of Seller with Respect to this Agreement. The
Seller, in its capacity as purchaser of the Receivables from any Originator,
hereby covenants that the Seller will at all times enforce the covenants and
agreements of each Originator, including, without limitation, the covenants
in the Bank Receivables Purchase Agreement with respect to the Credit and
Collection Policy.
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The Seller further covenants that the Seller will not enter into or
consent to any amendments to the Bank Receivables Purchase Agreement unless
such amendment would be permitted pursuant to the first paragraph of
subsection 13.1(a) of the Pooling and Servicing Agreement (as if such
paragraph of subsection 13.1(a) of the Pooling and Servicing Agreement
related to the Bank Receivables Purchase Agreement rather than the Pooling
and Servicing Agreement) or the Rating Agency Condition shall have been
satisfied.
[END OF ARTICLE V]
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ARTICLE VI
REPURCHASE OBLIGATION
Section 6.1 Mandatory Repurchase.
(a) Breach of Warranty. In the event of a breach with respect to a
Receivable of any of the representations and warranties set forth in Section
4.1(j) or subsections 4.2(a)(iii) through (vii) or Section 4.2(b), or in the
event that a Receivable is not an Eligible Receivable on the date of its
transfer to the Buyer as a result of the failure to satisfy the conditions
set forth in the definition of Eligible Receivable, such Receivable shall be
designated an "Ineligible Receivable" and the Seller shall pay to the Buyer
an amount in cash equal to the Purchase Price paid for any such Ineligible
Receivable by the Buyer. Such payment must be made by the close of business
on the fifth Business Day following the day such Receivable has been
designated an Ineligible Receivable; provided, however, that such amount
may be offset against any amounts due from the Buyer to the Seller with
respect to the Purchase Price for Receivables sold to the Buyer. The
obligation of the Seller set forth in this Section shall constitute the sole
remedy respecting any breach of the representations and warranties set forth
in the above-referenced Sections or failure to meet the conditions set forth
in the definition of Eligible Receivable with respect to such Receivable
available to the Buyer.
(b) Reassignment of the Sold Assets. In the event of a breach of any
of the representations and warranties set forth in Section 4.1(a), (b), and
(c) and 4.2(a)(i) and (ii), the Buyer by notice given in writing to the
Seller may direct the Seller to accept reassignment of the amount of
Receivables specified in subsection 2.4(e) of the Pooling and Servicing
Agreement (to the extent that such Receivables were sold to the Buyer by the
Seller) within 60 days of such notice (or within such longer period as may
be specified in such notice), and the Seller shall be obligated to accept
reassignment of the Receivables on a Distribution Date specified by the
Buyer (such Distribution Date, the "Reassignment Date") occurring within
such applicable period on the terms and conditions set forth below;
provided, however, that no
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such reassignment shall be required to be made and no notice of such
reassignment may be given, if, at any time during such applicable period,
the Seller delivers to the Buyer an Officer's Certificate stating that the
representations and warranties contained in Section 4.1(a), (b), and (c) and
4.2(a)(i) and (ii) shall then be true and correct in all material respects.
The Seller shall pay to the Buyer on the day of such reassignment an amount
equal to the product of (i) the aggregate Invested Amount plus accrued and
unpaid interest on the Investor Securities, and (ii) a fraction, the
numerator of which is the Outstanding Balance of Principal Receivables sold
by the Seller to the Buyer hereunder, and the denominator of which is the
sum of the Outstanding Balance of Principal Receivables sold by the Seller
to the Buyer hereunder plus the outstanding balance of Principal Receivables
sold by Fingerhut Corporation to the Buyer pursuant to the receivables
purchase agreement dated as of June 29, 1994 between the Buyer, as purchaser
of such Receivables, and Fingerhut, as seller of such Receivables, as
amended from time to time. On the day on which such amount has been paid,
each Receivable sold to the Buyer hereunder shall be sold and reassigned to
the Seller, and the Buyer shall execute and deliver such instruments of sale
and assignment, in each case without recourse, representation or warranty,
as shall be reasonably requested by the Seller to vest in the Seller, or its
designee or assignee, all right, title and interest of the Buyer in and to
each such Receivable. The obligation of the Seller to purchase Receivables
pursuant to this Section shall constitute the sole remedy available to the
Buyer for a breach of the representations and warranties contained in
Section 4.1(a), (b), and (c) and 4.2(a)(i) and (ii).
Section 6.2 Conveyance of Reassigned Receivables. Upon the request of
the Seller, the Buyer shall execute and deliver to the Seller a reconveyance
substantially in such form and upon such terms as shall be acceptable to the
Seller, pursuant to which the Buyer evidences the conveyance to the Seller
of all of the Buyer's right, title, and interest in any Receivables
reconveyed to the Seller pursuant to Section 6.1(b). The Buyer shall (and
shall cause the Trustee to) execute such other documents or instruments of
conveyance or take such
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other actions as the Seller may reasonably require to effect any repurchase
of Receivables pursuant to this Article VI.
[END OF ARTICLE VI]
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ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to the Buyer's Obligations Regarding
Receivables. The obligations of the Buyer to purchase the Receivables on
any Business Day shall be subject to the satisfaction of the following
conditions:
(a) All representations and warranties of the Seller contained in
Section 4.2 shall be true and correct on the Initial Closing Date and on the
day of purchase of any Receivable purchased thereafter with the same effect
as though such representations and warranties had been made on such date;
(b) All information concerning the Receivables provided to the Buyer
shall be true and correct in all material respects as of the Initial Closing
Date, in the case of Receivables sold to the Buyer on the Initial Closing
Date, or the applicable Date of Processing, in the case of Receivables
created after the Initial Closing Date;
(c) At the Initial Closing Date, the Seller shall have substantially
performed all other obligations required to be performed by the provisions
of this Agreement;
(d) With respect to Receivables sold to the Buyer on the Initial
Closing Date, the Seller shall have filed the financing statement(s)
required to be filed pursuant to Section 2.1(b); and
(e) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Buyer, and the Buyer shall have
received from the Seller copies of all documents (including, without
limitation, records of corporate proceedings) relevant to the transactions
herein contemplated as the Buyer may reasonably have requested.
Section 7.2 Conditions Precedent to the Seller's Obligations. The
obligations of the Seller to
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sell Receivables on any Business Day shall be subject to the satisfaction of
the following conditions:
(a) All representations and warranties of the Buyer contained in this
Agreement shall be true and correct with the same effect as though such
representations and warranties had been made on such date;
(b) Payment or provision for payment of the Purchase Price in
accordance with the provisions of Section 3.3 hereof shall have been made;
and
(c) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Seller, and the Seller shall have
received from the Buyer copies of all documents (including, without
limitation, records of corporate proceedings) relevant to the transactions
herein contemplated as the Seller may reasonably have requested.
[END OF ARTICLE VII]
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ARTICLE VIII
TERM AND TERMINATION
Section 8.1 Term. This Agreement shall commence as of the date of
execution and delivery hereof and shall continue in full force and effect
until the earlier of: (a) unless otherwise agreed to in writing by the
Buyer and the Seller, the latest Series Termination Date for any Series; or
(b) the occurrence of any of the following events: the Buyer or the Seller
shall consent to the appointment of a bankruptcy trustee or receiver or
liquidator in any bankruptcy proceeding or any other insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to all or substantially all of its property; or a
decree or order of a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a bankruptcy trustee or
receiver or liquidator in any bankruptcy proceeding or any other insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall have
been entered against the Buyer or the Seller; or the Buyer or the Seller
shall admit in writing its inability to pay its debts generally as they
become due, file a petition to take advantage of any applicable insolvency
or reorganization statute including the U.S. bankruptcy code, make an
assignment for the benefit of its creditors or voluntarily suspend payment
of its obligations, or become unable for any reason to purchase or
re-purchase Receivables in accordance with the provisions of this Agreement
or default in its obligations hereunder, which default continues unremedied
for more than 30 days after written notice is delivered to the defaulting
party by the non-defaulting party (any such date set forth in clause (a) or
(b) hereof being a "Termination Date"); provided, however, that the
termination of this Agreement pursuant to this Section 8.1 hereof shall not
discharge any Person from any obligations incurred prior to such
termination, including, without limitation, any obligations to make any
payments with respect to, or repurchase, pursuant to Section 6.1 hereof,
Receivables sold prior to such termination.
Section 8.2 Effect of Termination. No termination or rejection
of or failure to assume the executory obligations of this Agreement in the
event of the bank-
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ruptcy of the Seller or the Buyer shall be deemed to impair or affect the
obligations pertaining to any executed sale or executed obligations,
including, without limitation, pre-termination breaches of representations
and warranties by the Seller or the Buyer. Without limiting the foregoing,
prior to termination, the failure of the Seller to deliver computer records
of Receivables or Settlement Statements shall not render such transfer or
obligation executory, nor shall the continued duties of the parties pursuant
to Section 5 or Section 9.1 of this Agreement render an executed sale
executory.
[END OF ARTICLE VIII]
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ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Amendment. This Agreement and any other Sale Papers and
the rights and obligations of the parties hereunder may not be changed
orally, but only by an instrument in writing signed by the Buyer and the
Seller. The Seller shall provide prompt written notice of any such
amendment to the Rating Agencies. The Buyer shall not, without the
consents, approvals and opinions, if any, required by Section 13.1 of the
Pooling and Servicing Agreement as if Section 13.1 of the Pooling and
Servicing Agreement related to the Purchase Agreement rather than the
Pooling and Servicing Agreement, enter into any amendment, supplement or
other modification to, or waiver of any provision of this Agreement.
Section 9.2 Governing Law. THIS AGREEMENT AND THE OTHER SALE PAPERS
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 9.3 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by registered mail, return receipt
requested, to:
(a) in the case of the Buyer, to:
Fingerhut Receivables, Inc.
4400 Baker Road, Suite F480
Minnetonka, Minnesota 55343
(612) 936-5035
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(b) in the case of the Seller, to:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
(612) 932-3100
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party.
Section 9.4 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of the Sale Papers shall for any
reason whatsoever be held invalid, then such covenants, agreements,
provisions, or terms shall be deemed severable from the remaining covenants,
agreements, provisions, or terms of the Sale Papers and shall in no way
affect the validity or enforceability of the other provisions of the Sale
Papers.
Section 9.5 Assignment. Notwithstanding anything to the contrary
contained herein, this Agreement may not be assigned by the Buyer or the
Seller except as contemplated by this Section 9.5 and the Pooling and
Servicing Agreement; provided, however, that the Seller consents to the
Buyer's assignment simultaneously with the execution and delivery of this
Agreement, of all its right, title and interest herein to the Trustee of all
Series as provided in Section 2.1 of the Pooling and Servicing Agreement, to
which the Seller hereby expressly consents; provided, further, that except
for the foregoing assignment, no such assignment shall occur unless the
Buyer shall have received confirmation from the Rating Agencies that such
assignment shall not cause a reduction or withdrawal of the rating of any
Series of Securities. The Seller agrees to perform its obligations
hereunder for the benefit of the Trust and that the Trustee may enforce the
provisions of this Agreement, exercise the rights of the Buyer and enforce
the obligations of the Seller hereunder without the consent of the Buyer.
Section 9.6 Further Assurances. The Buyer and the Seller agree to do
and perform, from time to time, any and all acts and to execute any and all
further instruments required or reasonably requested by the other party more
fully to effect the purposes of the Sale
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Papers, including, without limitation, the execution of any financing
statements or continuation statements or equivalent documents relating to
the Receivables for filing under the provisions of the UCC or other laws of
any applicable jurisdiction.
Section 9.7 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Buyer or the Seller, any
right, remedy, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof
or the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not
exhaustive of any rights, remedies, powers and privilege provided by law.
Section 9.8 Counterparts. The Sale Papers may be executed in two or
more counterparts including facsimile transmission thereof (and by different
parties on separate counterparts), each of which shall be an original, but
all of which together shall constitute one and the same instrument.
Section 9.9 Binding Effect; Third-Party Beneficiaries. The Sale
Papers will inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns.
Section 9.10 Merger and Integration. Except as specifically stated
otherwise herein, the Sale Papers set forth the entire understanding of the
parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by the Sale Papers. The Sale Papers may not
be modified, amended, waived or supplemented except as provided herein.
Section 9.11 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation
of any provision hereof.
Section 9.12 Schedules and Exhibits. The schedules and exhibits
attached hereto and referred to herein shall constitute a part of this
Agreement and are incorporated into this Agreement for all purposes.
34
<PAGE>
Section 9.13 No Bankruptcy Petition Against the Buyer. The Seller
hereby covenants and agrees that, prior to the date which is one year and
one day after the payment in full of all Invested Amounts, it will not
institute against or join any other Person in instituting against the Buyer
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceeding under the laws of the United States
or any state of the United States.
Section 9.14 Merger or Consolidation of, or Assumption of the
Obligations of, the Seller. The Seller shall not consolidate with or merge
into any other corporation or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(i) the corporation formed by such consolidation or into
which the Seller is merged or the Person which acquires by conveyance
or transfer the properties and assets of the Seller substantially as an
entirety shall be a corporation organized and existing under the laws
of the United States of America or any State or the District of
Columbia and, if the Seller is not the surviving entity, shall
expressly assume, by an agreement supplemental hereto, executed and
delivered to the Buyer in form satisfactory to the Buyer, the
performance of every covenant and obligation of the Seller hereunder
(to the extent that any right, covenant or obligation of the Seller, as
applicable hereunder, is inapplicable to the successor entity, such
successor entity shall be subject to such covenant or obligation, or
benefit from such right, as would apply, to the extent practicable, to
such successor entity); and
(ii) the Seller shall have delivered to the Buyer an
Officer's Certificate that such consolidation, merger, conveyance or
transfer and such supplemental agreement comply with this Section 9.14
and that all conditions precedent herein provided for relating to such
transaction have been complied with and an Opinion of Counsel that such
supplemental agreement is legal, valid and binding with respect to the
successor entity and that the entity surviving such consolidation,
conveyance or transfer is organized and existing under the laws of the
United States of America or any State or the Dis-
35
<PAGE>
trict of Columbia. The Rating Agencies shall receive prompt written
notice of such merger or consolidation of the Seller.
Section 9.15 Protection of Right, Title and Interest to Receivables.
(a) The Seller shall cause this Agreement, all amendments hereto and/or
all financing statements and continuation statements and any other necessary
documents covering the Seller's and the Buyer's right, title and interest to
the Receivables to be promptly recorded, registered and filed, and at all
times to be kept recorded, registered and filed, all in such manner and in
such places as may be required by law fully to preserve and protect the
right, title and interest of the Buyer hereunder to the Receivables and
proceeds thereof. The Seller shall deliver to the Buyer file-stamped copies
of, or filing receipts for, any document recorded, registered or filed as
provided above, as soon as available following such recording, registration
or filing. The Buyer shall cooperate fully with the Seller in connection
with the obligations set forth above and will execute any and all documents
reasonably required to fulfill the intent of this subsection 9.15(a).
(b) Within 30 days after the Seller makes any change in its name,
identity or corporate structure which would make any financing statement or
continuation statement filed in accordance with paragraph (a) above
materially misleading within the meaning of Section 9-402(7) of the UCC as
in effect in the Relevant UCC State, the Seller shall give the Buyer written
notice of any such change and shall file such financing statements or
amendments as may be necessary to continue the perfection of the Buyer's
security interest in the Receivables and the proceeds thereof.
(c) The Seller will give the Buyer prompt written notice of any
relocation of any office from which it services Receivables or keeps records
concerning the Receivables or of its principal executive office and whether,
as a result of such relocation, the applicable provisions of the UCC would
require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement and shall file such
financing statements or amendments as may
36
<PAGE>
be necessary to continue the perfection of the Buyer's security interest in
the Receivables and the proceeds thereof. The Seller will at all times
maintain each office from which it services Receivables and its principal
executive office within the United States of America.
[END OF ARTICLE IX]
37
<PAGE>
IN WITNESS WHEREOF, the Buyer and the Seller each have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
FINGERHUT RECEIVABLES, INC.,
as Buyer
By:
------------------------
Title:
FINGERHUT COMPANIES, INC.
as Seller
By:
------------------------
Title:
<PAGE>
EXHIBIT A
FORM OF WEEKLY REPORT
<PAGE>
Schedule 1
Seller's Chief Executive Office:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
<PAGE>
Schedule 2
TAX RETURNS AND PAYMENTS
The Seller and its subsidiaries have filed all applicable federal, state and
material local tax returns and have paid or caused to be paid all associated
taxes due and payable on such returns or on any assessments received by
them; except that the Seller or its subsidiaries have not filed certain tax
returns purported to be required because the Seller [and its subsidiaries]
believe the requirements are invalid and unenforceable under the commerce
clause of the United States Constitution as interpreted by the Supreme Court
in National Bellas Hess v. Department of Revenue of Illinois, 386 U.S. 753
(1967) and the supporting lines of cases, including Quill Corp. v. North
Dakota, 112 S. Ct. 1904 (1992). The following are the states in which the
Seller or its subsidiaries are currently collecting sales/use taxes:
California Pennsylvania
Florida South Carolina
Illinois South Dakota
Iowa Tennessee
Minnesota Utah
New York Wisconsin
Ohio
Notwithstanding the Supreme Court decisions, the following states, to the
best knowledge of the Seller or its subsidiaries, currently have legislation
in effect which purports or may purport to require the Seller or its
subsidiaries to collect sales or use taxes:
Alabama Mississippi
Alaska Missouri
Arizona Nebraska
Arkansas Nevada
California New Jersey
Colorado New Mexico
Connecticut New York
District of Columbia North Carolina
Florida North Dakota
Georgia Ohio
Hawaii Pennsylvania
Idaho Rhode Island
Indiana South Carolina
Illinois South Dakota
Iowa Tennessee
<PAGE>
Kansas Texas
Kentucky Utah
Louisiana Vermont
Maine Virginia
Maryland Washington
Massachusetts West Virginia
Michigan Wisconsin
Minnesota Wyoming
<PAGE>
Exhibit 10(e)
================================================================================
FINGERHUT COMPANIES, INC.,
as Buyer
and
FINGERHUT NATIONAL BANK,
as Seller
----------------------------------------
AMENDED AND RESTATED BANK RECEIVABLES PURCHASE AGREEMENT
Dated as of March 18, 1998
----------------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 OTHER DEFINITIONAL PROVISIONS. . . . . . . . . . . . . . . . 6
ARTICLE II PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES . . . . . . . . . 6
Section 2.1 SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2 PURCHASE OF A PARTICIPATION. . . . . . . . . . . . . . . . . 8
ARTICLE III CONSIDERATION AND PAYMENT. . . . . . . . . . . . . . . . . . . . . 8
Section 3.1 PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 PAYMENT OF PURCHASE PRICE. . . . . . . . . . . . . . . . . . 8
Section 3.3 DAILY REPORTS. . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . 9
Section 4.1 SELLER'S REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . 9
Section 4.2 SELLER'S REPRESENTATIONS AND WARRANTIES REGARDING
RECEIVABLES. . . . . . . . . . . . . . . . . . . . . . . . .11
Section 4.3 REPRESENTATIONS AND WARRANTIES OF THE BUYER. . . . . . . . .13
ARTICLE V COVENANTS OF SELLER AND BUYER. . . . . . . . . . . . . . . . . . . .14
Section 5.1 SELLER COVENANTS . . . . . . . . . . . . . . . . . . . . . .14
Section 5.2 BUYER COVENANT REGARDING SALE TREATMENT. . . . . . . . . . .15
ARTICLE VI OPTIONAL REPURCHASE . . . . . . . . . . . . . . . . . . . . . . . .15
Section 6.1 BREACH OF WARRANTY . . . . . . . . . . . . . . . . . . . . .15
Section 6.2 CONVEYANCE OF REASSIGNED RECEIVABLES . . . . . . . . . . . .16
Section 6.3 SALES ARE NON-RECOURSE . . . . . . . . . . . . . . . . . . .16
ARTICLE VII CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . .16
Section 7.1 CONDITIONS TO THE BUYER'S OBLIGATIONS REGARDING
RECEIVABLES. . . . . . . . . . . . . . . . . . . . . . . . .16
Section 7.2 CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS . . . . . .17
ARTICLE VIII TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . .17
Section 8.1 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
i
<PAGE>
Section 8.2 EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . .18
ARTICLE IX MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . .18
Section 9.1 AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . .18
Section 9.2 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . .18
Section 9.3 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . .18
Section 9.4 SEVERABILITY OF PROVISIONS . . . . . . . . . . . . . . . . .19
Section 9.5 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . .19
Section 9.6 NO WAIVER; CUMULATIVE REMEDIES . . . . . . . . . . . . . . .19
Section 9.7 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . .19
Section 9.8 BINDING EFFECT; THIRD PARTY BENEFICIARIES. . . . . . . . . .19
Section 9.9 MERGER AND INTEGRATION . . . . . . . . . . . . . . . . . . .19
Section 9.10 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . .20
Section 9.11 SCHEDULES AND EXHIBITS . . . . . . . . . . . . . . . . . . .20
Section 9.12 PROTECTION OF RIGHT, TITLE AND INTEREST TO RECEIVABLES . . .20
Section 9.13 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . .20
EXHIBIT A A-1
Schedule 1
ii
<PAGE>
AMENDED AND RESTATED
BANK RECEIVABLES PURCHASE AGREEMENT
AMENDED AND RESTATED BANK RECEIVABLES PURCHASE AGREEMENT, dated as of March
18, 1998 (the "AGREEMENT") by and between FINGERHUT COMPANIES, INC., a Minnesota
corporation (the "BUYER"), and FINGERHUT NATIONAL BANK, a national banking
association ("FNB" or the "SELLER").
WHEREAS, the Buyer desires to purchase from time to time certain closed end
installment credit card loan receivables and/or certain consumer revolving
credit card receivables (including private label credit card receivables)
generated on or after January 12, 1997 by the Seller in the normal course of its
business; and
WHEREAS, the Seller desires to sell and assign from time to time such
receivables to the Buyer upon the terms and conditions hereinafter set forth;
and
WHEREAS, the Buyer is an Affiliate of the Seller; and
WHEREAS, the Seller and the Buyer previously entered into that certain Bank
Receivables Purchase Agreement dated as of January 12, 1997 and wish to amend
and restate such agreement as set forth herein; and
WHEREAS, the Seller understands that the Buyer may re-sell Receivables (as
defined herein) to one or more special purpose entities, which may in turn
transfer Receivables to master trusts or other financing vehicles or entities
pursuant to one or more Pooling and Servicing Agreements (as defined herein).
NOW, THEREFORE, it is hereby agreed by and between the Buyer and the Seller
as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms used herein shall have the following meanings assigned to
them:
"ACCOUNT" means (a) each consumer revolving credit card account established
pursuant to a Contract between the Seller and any Person and (b) each closed-end
installment credit card loan made pursuant to a Contract between the Seller and
any Person, in each case whether existing on the Amendment Date or arising
thereafter.
"AFFILIATE" means, with respect to a particular Person, any Person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person.
<PAGE>
"AMENDMENT DATE" means the date of this Agreement.
"BACK END CUSTOMER" means, with respect to any date of determination, a
Person or Obligor who has made at least one payment on any installment credit
card loan from, installment sales contract with, or consumer revolving credit
card account with, the Seller or Fingerhut; PROVIDED, HOWEVER, that any Person
or Obligor who has made a negotiated initial down payment in connection with any
installment credit card loan shall not be a Back End Customer prior to making at
least one payment on any subsequent installment credit card loan with the Seller
or Fingerhut.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on
which banking institutions in New York, Minnesota, South Dakota or Delaware are
authorized or obligated by law or executive order to be closed.
"CLOSED END RECEIVABLES" means (a) any right to payment of amounts owed by
an Obligor under an Account with respect to a closed-end installment credit card
loan, including, without limitation, all rights of the Seller and obligations of
the Obligor under the applicable Contract, other than insurance premiums, and
(b) any right to payment with respect to certain Receivables arising under any
consumer revolving credit card account that, pursuant to the terms of the
applicable Contract, have a 0% interest rate.
"COLLECTIONS" means all payments received by the Seller in respect of the
Receivables in the form of cash, checks or any other form of payment in
accordance with the Contract in effect from time to time on any Receivables,
other than pre-paid insurance premiums.
"CONTRACT" means an agreement between (a) the Seller and another Person for
the extension of revolving credit, including pursuant to a credit card, in the
form of a cardholder agreement, written contract or invoice, as such agreement
may be amended, modified, or otherwise changed from time to time or (b) the
Seller and another Person for the extension of closed-end credit, including
pursuant to a credit card, in the form of a written contract, invoice or
closed-end agreement, in each case pursuant to or under which such other Person
shall be obligated to either pay for, or to pay a loan made to finance the
purchase of, merchandise, financial service products or services or return any
such merchandise to the related merchant.
"CREDIT ADJUSTMENT" has the meaning set forth in SECTION 3.2(B) hereof.
"CREDIT AND COLLECTION POLICY" means those credit, collection, customer
relations and customer service policies and practices and other written policies
and procedures of the Seller relating to the operation of its Accounts,
Contracts and Receivables (including, without limitation, the written policies
and procedures for determining creditworthiness and relating to the extension of
credit, the maintenance of Accounts and the collection of receivables with
respect thereto) in effect on the date hereof and as such policies, practices
and procedures may be amended, modified, or otherwise changed from time to time.
"DAILY REPORT" has the meaning set forth in SECTION 3.3 hereof.
2
<PAGE>
"DATE OF PROCESSING" means with respect to any transaction, the date on
which such transaction is first recorded on the Seller's computer master file of
Accounts (without regarding to the effective date of such recordation).
"DEFAULT AMOUNT" means, on any Business Day, the aggregate amount of
Principal Receivables in Accounts that became Defaulted Accounts on such
Business Day.
"DEFAULTED ACCOUNT" means each Account with respect to which, in accordance
with the Credit and Collection Policy or the Seller's customary and usual
procedures, the Seller has charged off the Receivables in such Account as
uncollectible; an Account shall become a Defaulted Account on the day on which
such Receivables are recorded as charged off as uncollectible on the Seller's
computer master file of Accounts.
"ELIGIBLE ACCOUNT" means, as of the date the Receivables arising in such
Accounts are first sold to the Buyer, each Account which is in existence and
owned by the Seller that satisfies each of the following criteria:
(a) it is payable in United States dollars; and
(b) the related Obligor has provided, as its initial billing address,
an address located in the United States or its territories or possessions or a
United States military address;
(c) it has not been identified by the Seller or any of its Affiliates
in its computer files as stolen or lost;
(d) it is not at the time of sale to the Buyer hereunder sold or
pledged to any other party and does not have Receivables which, at the time of
sale to the Buyer hereunder, are sold or pledged to any other party (PROVIDED,
HOWEVER, that Receivables which were sold or pledged prior to the date such
Receivables are first sold to the Buyer hereunder, but were repurchased free of
all Liens or where all Liens were released prior to the sale hereunder, shall
not be disqualified under this clause (d)); and
(e) the Receivables in which the Seller has not charged off in its
customary and usual manner for charging off Receivables in such Accounts unless
such Account is subsequently reinstated; and
(f) the Obligor on which is a Back End Customer.
"ELIGIBLE RECEIVABLE" means each Receivable that satisfies each of the
following criteria: (a) each Receivable sold to the Buyer after the Amendment
Date shall have arisen under an Eligible Account, (b) it constitutes an
"account," "chattel paper" or a "general intangible" as each such term is
defined in Article 9 of the UCC as then in effect in the Relevant UCC State, (c)
it is at the time of its purchase by the Buyer the legal, valid, and binding
obligation of, or is guaranteed by, a Person who is competent to enter into a
contract and incur debt, and is enforceable against such Person in accordance
with its terms, (d) it was
3
<PAGE>
created in compliance, in all material respects, with all Requirements of Law
applicable to the Seller and pursuant to a Contract that complies, in all
material respects, with all Requirements of Law applicable to the Seller or such
Contract (including, without limitation, laws, rules and regulations relating to
truth in lending, usury, fair credit billing, fair credit reporting, equal
credit opportunity and fair debt collection practices), (e) all material
consents, licenses, or authorizations of, or registrations with, any
Governmental Authority required to be obtained or given in connection with the
creation of such Receivable or the execution, delivery, creation, and
performance of the related Contract have been duly obtained or given and are in
full force and effect as of the date of the creation of such Receivables, and
(f) immediately prior to giving effect to the sale, the Seller will have good
and marketable title free and clear of all Liens and security interests arising
under or through the Seller (other than Permitted Liens).
"FINANCE CHARGE RECEIVABLES" means (i) with respect to consumer revolving
credit card accounts, amounts billed from time to time to Obligors in respect of
Periodic Finance Charges, overlimit fees, late charges, returned check fees,
annual account fees or services charges, transaction charges and similar fees
and charges (except for fees associated with ancillary products and services
sold to Obligors) plus (ii) with respect to all Receivables, Recoveries, any
other fees (other than prepaid insurance premiums or fees associated with
ancillary products and services sold to Obligors) billed to Obligors.
"FINGERHUT" means, Fingerhut Corporation, an Affiliate of the Buyer and the
Seller.
"GOVERNMENTAL AUTHORITY" means the United States of America, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"INELIGIBLE RECEIVABLE" has the meaning set forth in SECTION 6.1 hereof.
"INITIAL CLOSING DATE" shall mean January 12, 1997.
"LIEN" means any lien, security interest or other encumbrance.
"OBLIGOR" means a Person obligated to make payments with respect to a
Receivable pursuant to a Contract.
"OUTSTANDING BALANCE" means, (a) with respect to any Closed End Receivable
on any day, the aggregate amount owed by the Obligor thereunder (net of returns
and adjustments) assuming that the related Obligor has selected the installment
credit terms with respect to such Receivable and (b) with respect to any
Revolving Receivable on any day, the outstanding principal balance of such
Receivable (not including any amounts relating to Periodic Finance Charges or
other fees).
"PERIODIC FINANCE CHARGES" has, with respect to any Account, the meaning
specified in the Contract applicable to such Account for finance charges (due to
periodic rate) or any similar term.
4
<PAGE>
"PERMITTED LIEN" means with respect to the Receivables: (i) Liens in favor
of the Buyer created pursuant to this Agreement and (ii) Liens that secure the
payment of taxes, assessments and governmental charges or levies, if such taxes
are either (a) not delinquent or (b) being contested in good faith by
appropriate legal or administrative proceedings and as to which adequate
reserves in accordance with generally accepted accounting principles shall have
been established.
"PERSON" means any legal person, including any individual, corporation,
partnership, limited liability company, joint venture, association, joint-stock
company, trust, unincorporated organization, governmental entity or other entity
of similar nature.
"POOLING AND SERVICING AGREEMENT" means, (i) with respect to Eligible
Receivables, the Amended and Restated Pooling and Servicing Agreement, dated as
of the Amendment Date, and as it may be amended or supplemented from time to
time, among Fingerhut National Bank, as servicer, Fingerhut Receivables, Inc.,
as transferor and The Bank of New York (Delaware), as Trustee or any replacement
thereof and, (ii) with respect to any other Receivables, shall mean any similar
pooling and servicing agreement or receivables transfer agreement covering such
Receivables.
"PRINCIPAL RECEIVABLES" means, for any Business Day, the aggregate amount
shown on the Seller's records as amounts payable by Obligors with respect to
Eligible Receivables other than such amounts that are Finance Charge Receivables
or Default Amounts. A Receivable shall be deemed to have been created at the end
of the day on the Date of Processing of such Receivable. In calculating the
aggregate amount of Principal Receivables on any day, the amount of Principal
Receivables shall be reduced by the aggregate amount of credit balances in the
Accounts on such day.
"PURCHASE AGREEMENT" means, (i) with respect to Eligible Receivables, the
Amended and Restated Purchase Agreement, dated as of the Amendment Date, as it
may be amended from time to time, between the Buyer and Fingerhut Receivables,
Inc. and, (ii) with respect to any other Receivables, shall mean any similar
purchase agreement covering such Receivables.
"PURCHASE PRICE" has the meaning set forth in SECTION 3.1 hereof.
"RECEIVABLE" means, with respect to any Obligor, any right to payment of
amounts owed by that Obligor under an Account, including without limitation, all
rights of the Seller and obligations of the Obligor under the applicable
Account.
"RECOVERIES" means any amounts received by the Seller with respect to
Receivables in Defaulted Accounts.
"REFINANCED RECEIVABLES" means revolving credit card loans made by the
Seller to refinance an Obligor's existing consumer installment obligations,
including closed-end installment sales contracts with Fingerhut and/or
installment credit card loans from the Seller.
5
<PAGE>
"RELEVANT UCC STATE" means each jurisdiction in which the filing of a UCC
financing statement is necessary to perfect the ownership interest and security
interest of the Buyer pursuant to this Agreement.
"REQUIREMENTS OF LAW" for any Person means the certificate of incorporation
or articles of association and by-laws or other organizational or governing
documents of such Person, and any material law, treaty, rule or regulation, or
determination of an arbitrator or Governmental Authority, in each case
applicable to or binding upon such Person or to which such Person is subject.
"REVOLVING RECEIVABLES" means any right to payment arising under an Account
that is a consumer revolving credit card account other than any right to payment
with respect to any such Receivables that are classified as "Closed End
Receivables" pursuant to clause (b) of the definition thereof.
"SALE PAPERS" has the meaning set forth in SECTION 4.1(A) hereof.
"SECURED OBLIGATIONS" has the meaning set forth in SECTION 2.1(D) hereof.
"SELLER'S DISCOUNT" means, for any day on which Receivables are conveyed
hereunder, the discount used to determine the Seller's accounting basis in the
Receivables on such day. The Seller and the Buyer agree that the Seller's
Discount shall be 0% with respect to Refinanced Receivables.
"TERMINATION DATE" shall have the meaning set forth in SECTION 8.1 hereof.
"UCC" means the Uniform Commercial Code, as amended from time to time, as
in effect in the applicable jurisdiction.
Section 1.2 OTHER DEFINITIONAL PROVISIONS. The words "hereof," "herein"
and "hereunder" and words of similar import when used in this Agreement refer to
this Agreement as a whole and not to any particular provision of this Agreement;
and Section, subsection, Schedule and Exhibit references contained in this
Agreement are references to Sections, subsections, Schedules and Exhibits in or
to this Agreement unless otherwise specified.
ARTICLE III
PURCHASE, CONVEYANCE AND SERVICING
OF RECEIVABLES
Section 2.1 SALE.
(a) In consideration of the Purchase Price and upon the terms
and subject to the conditions set forth herein, the Seller does hereby sell,
assign, transfer, set-over, and otherwise convey to the Buyer, and the Buyer
does hereby purchase from the Seller, on the
6
<PAGE>
terms and subject to the conditions specifically set forth herein, all of the
Seller's right, title and interest in, to and under (i) the Receivables now
existing and hereafter created, including, without limitation, all accounts,
general intangibles, chattel paper, contract rights and other obligations of any
Obligor with respect to the Receivables, now existing and hereafter created,
(ii) all monies and investments due or to become due with respect thereto
(including, without limitation, the right to any Finance Charge Receivables,
including any Recoveries) and (iii) all proceeds of such Receivables. With
respect to Receivables sold on and after the Amendment Date, such sale shall
occur immediately upon the creation of such Receivables. The foregoing sale,
transfer, assignment, set-over and conveyance does not constitute and is not
intended to result in a creation or an assumption by the Buyer of any obligation
of the Seller or any other Person in connection with the Receivables or any
agreement or instrument relating thereto, including, without limitation, any
obligation to any Obligors, merchants, servicers or insurers.
(b) In connection with the foregoing sale, the Seller agrees to
record and file, at its own expense, one or more financing statements (including
any amendments or continuation statements with respect to such financing
statements when applicable) with respect to the Receivables and the other
property described in SECTION 2.1(A) sold by the Seller hereunder for the
transfer of accounts, chattel paper or general intangibles (each as defined in
Section 9-106 of the UCC as in effect in the Relevant UCC State) meeting the
requirements of applicable state law in such manner and in such jurisdictions as
are necessary to perfect and protect the interests of the Buyer created hereby
under the applicable UCC against all creditors of and purchasers from the
Seller, and to deliver a file-stamped copy of such financing statements or other
evidence of such filings to the Buyer within 10 days of the Initial Closing Date
and, in the case of any amendments or continuation statements filed pursuant to
this Section 2.1, as soon as practicable after receipt thereof by the Seller.
(c) In connection with the sale and conveyance hereunder, the
Seller agrees, at the Buyer's expense, on or prior to the Initial Closing Date
and on each Business Day thereafter on which Receivables are sold hereunder, to
indicate or cause to be indicated clearly and unambiguously in its accounting
records that such Receivables and the other property described in clauses (i),
(ii) and (iii) of SECTION 2.1(A) have been sold to the Buyer pursuant to this
Agreement as of the Initial Closing Date or such Business Day as applicable.
(d) It is the express intent of the Seller and the Buyer that
the conveyance of the Receivables by the Seller to the Buyer pursuant to this
Agreement be construed as a sale of such Receivables by the Seller to the Buyer.
It is, further, not the intention of the Seller and the Buyer that such
conveyance be deemed a grant of a security interest in the Receivables by the
Seller to the Buyer to secure a debt or other obligation of the Seller.
However, in the event that, notwithstanding the intent of the parties, the
Receivables are held to continue to be property of the Seller, then
(i) this Agreement also shall be deemed to be and hereby is a security
agreement within the meaning of the UCC; and
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(ii) the conveyance by the Seller provided for in this Agreement shall
be deemed to be and the Seller hereby grants to the Buyer a security
interest in and to all of the Seller's right, title and interest in (A) all
Receivables outstanding on the Initial Closing Date and thereafter created
by the Seller, including, without limitation, all "accounts," "general
intangibles" or "chattel paper" (each as defined in the UCC as in effect in
the Relevant UCC State) and all rights (but not the obligations) relating
thereto, (B) all monies due or to become due with respect thereto and (C)
all proceeds of the foregoing to secure (1) the obligations of the Seller
and (2) a loan to the Seller in the amount of the aggregate Purchase Price
as set forth in this Agreement (the "SECURED OBLIGATIONS").
The Seller and the Buyer shall, to the extent consistent with this Agreement,
take such actions as may be necessary to ensure that, if this Agreement were
deemed to create a security interest in the Receivables, such security interest
would be deemed to be a perfected security interest of first priority in favor
of the Buyer under applicable law and will be maintained as such throughout the
term of this Agreement.
Section 2.2 PURCHASE OF A PARTICIPATION. The Seller understands
that the Buyer may from time to time transfer its interest in the Receivables
pursuant to the Purchase Agreement and that such Receivables may thereafter be
transferred pursuant to the Pooling and Servicing Agreement. It is a condition
of the Seller's continuing agreement to sell Receivables hereunder that the
Seller be permitted to purchase a participation interest in the Receivables
under such terms and conditions as may be set forth in the Pooling and Servicing
Agreement.
ARTICLE III
CONSIDERATION AND PAYMENT
Section 3.1 PURCHASE PRICE. The purchase price for the Receivables and
related property conveyed to the Buyer under this Agreement (the "PURCHASE
PRICE") shall be a dollar amount equal to: (a) with respect to Receivables
other than Refinanced Receivables sold on any date, the product of (i) the
aggregate Outstanding Balance of all Receivables sold as of such date, and
(ii) one hundred percent (100%) MINUS the then applicable Seller's Discount, and
(b) with respect to Refinanced Receivables sold on any date, the aggregate
principal balance of all such Refinanced Receivables sold as of such date.
Section 3.2 PAYMENT OF PURCHASE PRICE.
(a) The Seller and the Buyer acknowledge that on the date of any
sale of Receivables hereunder, the Seller may be unable to provide the Buyer
with a Daily Report with respect to such day and may be unable to accurately
estimate the Purchase Price for the Receivables sold on such day. As a result,
the Purchase Price for Receivables sold on the Amendment Date and on each day
thereafter on which Receivables are transferred hereunder, as the case may be,
shall be paid in immediately available funds on the first Business Day on which
the Seller is able to provide the Buyer with a Daily Report with respect to such
day.
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(b) The Purchase Price shall be adjusted on a daily basis (the
"CREDIT ADJUSTMENT") if the Seller adjusts downward the amount of any Receivable
sold hereunder because of a rebate, refund, unauthorized charge or billing error
to an Obligor, because such Receivable was created in respect of merchandise
which was refused or returned by an Obligor, or if the Seller otherwise adjusts
downward the amount of any such Receivable without receiving Collections
therefor or without charging off such amount as uncollectible. If the Buyer is
required to make any payment pursuant to Section 3.2(b) of the Purchase
Agreement (or any comparable provision) as a result of any Credit Adjustment,
the Seller shall pay such amount to the Buyer.
Section 3.3 DAILY REPORTS. For each Business Day on which Receivables
are sold hereunder, the Seller shall deliver to the Buyer a Daily Report (the
"DAILY REPORT") showing the aggregate Purchase Price of Receivables to be sold
on such date, the aggregate Credit Adjustment for such date, the aggregate
amount, if any, owing to the Buyer pursuant to SECTION 6.1 hereof and the
aggregate net amount of cash owing for Receivables to be sold on such Business
Day. Such Daily Report will be delivered to the Buyer as soon as practicable
after the date of sale.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 SELLER'S REPRESENTATIONS AND WARRANTIES. The Seller
represents and warrants to the Buyer as of the Initial Closing Date, and as of
each subsequent date Receivables are sold to the Buyer hereunder, that:
(a) ORGANIZATION AND GOOD STANDING. The Seller is a national
banking association organized and validly existing and in good standing under
the laws of the United States and has the corporate power and authority and
legal right to own its property and conduct its business as such properties are
presently owned and as such business is presently conducted and to execute,
deliver and perform its obligations under this Agreement and each other document
or instrument to be delivered by the Seller in connection herewith (this
Agreement and such other documentation are collectively referred to as the "SALE
PAPERS").
(b) DUE QUALIFICATION. The Seller is duly qualified to do
business and is in good standing (or is exempt from such requirements), as a
foreign corporation in any state required in order to conduct its business, and
has obtained all necessary licenses and approvals with respect to the Seller
required under applicable law; PROVIDED, HOWEVER, that no representation or
warranty is made with respect to any qualifications, licenses or approvals the
Buyer would have to obtain to do business in any state in which the Buyer seeks
to enforce any Receivable.
(c) DUE AUTHORIZATION. The execution and delivery of the Sale
Papers, and the consummation of the transactions provided for herein and therein
have been duly authorized by the Seller by all necessary corporate action on its
part.
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(d) BINDING OBLIGATION. Each of the Sale Papers, and the
consummation of the transactions provided for therein, constitutes a legal,
valid and binding obligation of the Seller, enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereinafter
in effect, affecting the enforcement of creditors' rights in general and as such
enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).
(e) NO CONFLICTS. The execution and delivery of the Sale Papers
and the performance of the transactions contemplated thereby, do not
(i) contravene the Seller's articles of association or by-laws or (ii) violate
any material provision of law applicable to it or require any filing (except for
the filings under the UCC), registration, consent or approval under, any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to the Seller, except for such
filings, registrations, consents or approvals as have already been obtained and
are in full force and effect.
(f) TAXES. Except as provided on Schedule 1, the Seller has
filed all material tax returns required to be filed and has paid or made
adequate provision for the payment of all material taxes, assessments and other
governmental charges due from the Seller or is contesting any such tax,
assessment or other governmental charge in good faith through appropriate
proceedings.
(g) NO VIOLATION. The execution and delivery of the Sale
Papers, the performance of the transactions contemplated by the Sale Papers and
the fulfillment of the terms thereof, will not violate any Requirements of Law
applicable to the Seller, will not violate, result in any breach of any of the
material terms and provisions of, or constitute (with or without notice or lapse
of time or both) a default under (i) any Requirement of Law applicable to the
Seller, or (ii) any material indenture, contract, agreement, mortgage, deed of
trust or other material instrument to which the Seller is a party or by which it
or its properties are bound.
(h) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the best knowledge of the Seller, threatened against the Seller
before any Governmental Authority (i) asserting the invalidity of the Sale
Papers, (ii) seeking to prevent the consummation of any of the transactions
contemplated thereby, (iii) seeking any determination or ruling that would
materially and adversely affect the performance by the Seller of its obligations
thereunder or (iv) seeking any determination or ruling that would materially and
adversely affect the validity or enforceability thereof.
(i) ALL CONSENTS REQUIRED. All approvals, authorizations,
consents, orders or other actions of any Governmental Authority required in
connection with the execution and delivery of the Sale Papers, the performance
of the transactions contemplated by the Sale Papers and the fulfillment of the
terms hereof and thereof, have been obtained.
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(j) BONA FIDE RECEIVABLES. Each Receivable is or will be an
account receivable arising out of the performance by the Seller in accordance
with the terms of the Contract giving rise to such Receivable. The Seller has
no knowledge of any fact which should have led it to expect at the time of the
classification of any Receivable as an Eligible Receivable that such Receivable
would not be paid in full when due, and each Receivable classified as an
Eligible Receivable by the Seller in any document or report delivered under this
Agreement satisfies the requirements of eligibility contained in the definition
of Eligible Receivable set forth herein.
(k) PLACE OF BUSINESS. The principal executive offices of the
Seller are in Sioux Falls, South Dakota and the offices where the Seller keeps
its records concerning the Receivables and related Contracts are in Sioux Falls,
South Dakota, Hennepin County, Minnesota and St. Cloud, Minnesota.
(l) USE OF PROCEEDS. No proceeds of the sale of any Receivable
hereunder received by the Seller will be used by the Seller to purchase or carry
any margin security.
(m) NOT AN INVESTMENT COMPANY. The Seller is not an "investment
company" within the meaning of the Investment Company Act, or is exempt from all
provisions of such Act.
(n) SOLVENCY. The Seller is not insolvent and will not be
rendered insolvent upon the sale of the Receivables to the Buyer.
The representations and warranties set forth in this SECTION 4.1 shall
survive the sale of the Receivables to the Buyer. Upon discovery by the Seller
or the Buyer of a material breach of any of the foregoing representations and
warranties, the party discovering such breach shall give prompt written notice
thereof to the other.
Section 4.2 SELLER'S REPRESENTATIONS AND WARRANTIES REGARDING
RECEIVABLES.
(a) VALID SALE, ETC. The Seller (x) hereby represents and
warrants as of the Initial Closing Date, with respect to the Receivables created
on or prior to, and outstanding on, such date and (y) shall be deemed to
represent and warrant as of the date of the creation and sale to the Buyer of
any Receivables with respect to such Receivables, that:
(i) This Agreement constitutes the legal, valid and
binding obligation of the Seller, enforceable against the Seller in
accordance with its terms, except (A) as such enforceability may be limited
by applicable bankruptcy, receivership, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect, affecting the
enforcement of creditors' rights in general, and (B) as such enforceability
may be limited by general principles of equity (whether considered in a
suit at law or in equity).
(ii) The transfer of Receivables by the Seller to the Buyer
under this Agreement constitutes a valid sale, transfer, assignment,
set-over and conveyance to
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the Buyer of all right, title and interest of the Seller in and to the
Receivables and the proceeds thereof, whether then existing or thereafter
created and arising in connection with the Accounts, and such Receivables
and proceeds will be held by the Buyer free and clear of any Lien of any
Person claiming through or under the Seller or any of its Affiliates except
for Permitted Liens. This Agreement constitutes a valid sale, transfer,
assignment, set-over and conveyance to the Buyer of all right, title and
interest of the Seller in and to the Receivables purported to be sold
hereunder, whether then existing or thereafter created, and the proceeds
thereof.
(iii) The Seller is (or, with respect to Receivables arising
after the date hereof, will be) the legal and beneficial owner of all
right, title and interest in and to each Receivable and each Receivable has
been or will be transferred to the Buyer free and clear of any Lien other
than Permitted Liens.
(iv) All consents, licenses, approvals or authorizations of
or registrations or declarations with any Governmental Authority required
in connection with the transfer of such Receivables to the Buyer have been
obtained.
(v) Each Account classified as an "Eligible Account" by
the Seller in any document or report delivered hereunder on or after the
Amendment Date will satisfy the requirements contained in the definition of
Eligible Account as of the date of such document or report and each
Receivable classified as an "Eligible Receivable" by the Seller in any
document or report delivered hereunder will satisfy the requirements
contained in the definition of Eligible Receivable as of the time of such
document or report.
(vi) Each Receivable then existing has been conveyed to the
Buyer free and clear of any Lien of any Person claiming through or under
the Seller or any of its Affiliates (other than Permitted Liens) and in
compliance, in all material respects, with all Requirements of Law
applicable to the Seller.
(b) DAILY REPRESENTATIONS AND WARRANTIES. On each day on which
any new Receivable is created or sold by the Seller to the Buyer hereunder, the
Seller shall be deemed to represent and warrant to the Buyer that (A) each
Receivable purchased by the Buyer on such day has been conveyed to the Buyer in
compliance, in all material respects, with all Requirements of Law applicable to
the Seller and free and clear of any Lien of any Person claiming through or
under the Seller or any of its Affiliates (other than Permitted Liens) and
(B) with respect to each such Receivable, all consents, licenses, approvals or
authorizations of or registrations or declarations with, any Governmental
Authority required to be obtained, effected or given by the Seller in connection
with the conveyance of such Receivable to the Buyer have been duly obtained,
effected or given and are in full force and effect.
(c) NOTICE OF BREACH. The representations and warranties set
forth in this SECTION 4.2 shall survive the sale, transfer and assignment of the
respective Receivables to the Buyer. Upon discovery by the Seller or the Buyer
of a breach of any of the representations and warranties set forth in this
SECTION 4.2, the party discovering such breach
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shall give prompt written notice thereof to the other. The Seller agrees to
cooperate with the Buyer in attempting to cure any such breach.
Section 4.3 REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
hereby represents and warrants and agrees with, as of the date hereof and as of
the Initial Closing Date, the Seller and shall be deemed to represent and
warrant as of the date of the creation of any Receivable sold to the Buyer
hereunder that:
(a) ORGANIZATION AND GOOD STANDING. The Buyer is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Minnesota and has the corporate power and authority and legal right to
own its property and conduct its business as such properties are presently owned
and such business is presently conducted and to execute, deliver, and perform
its obligations under the Sale Papers.
(b) DUE QUALIFICATION. The Buyer is duly qualified to do
business and is in good standing (or is exempt from such requirements) as a
foreign corporation in any state required in order to conduct business and has
obtained all necessary licenses and approvals with respect to the Buyer required
under federal and Minnesota law.
(c) DUE AUTHORIZATION. The execution and delivery of the Sale
Papers and the consummation of the transactions provided for in the Sale Papers
have been duly authorized by the Buyer by all necessary corporate action on its
part.
(d) NO CONFLICTS. The execution and delivery of the Sale Papers
and the performance of the transactions contemplated thereby do not
(i) contravene the Buyer's articles of incorporation or by-laws or (ii) violate
any material provision of law applicable to it, or require any filing (except
for the filings under the UCC), registration, consent or approval under, any
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award presently in effect having applicability to the Buyer, except for such
filings, registrations, consents or approvals as have already been obtained and
are in full force and effect.
(e) NO VIOLATION. The execution and delivery of the Sale
Papers, the performance of the transactions contemplated by the Sale Papers, and
the fulfillment of the terms of the Sale Papers will not violate any
Requirements of Law applicable to the Buyer, will not violate, result in any
breach of any of the material terms and provisions of, or constitute (with or
without notice or lapse of time or both) a default under any Requirement of Law
applicable to the Buyer, or any material indenture, contract, agreement,
mortgage, deed of trust or other material instrument to which the Buyer is a
party or by which it or its properties are bound.
(f) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the best knowledge of the Buyer, threatened against the Buyer,
before any Governmental Authority (i) asserting the invalidity of the Sale
Papers, (ii) seeking to prevent the consummation of any of the transactions
contemplated by the Sale Papers, (iii) seeking any determination or ruling that
would materially and adversely affect the performance by
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the Buyer of its obligations thereunder or (iv) seeking any determination or
ruling that would materially and adversely affect the validity or enforceability
of the Sale Papers.
(g) ALL CONSENTS REQUIRED. All approvals, authorizations,
consents, orders, or other actions of any Governmental Authority required in
connection with the execution and delivery of the Sale Papers, the performance
of the transactions contemplated by the Sale Papers, and the fulfillment of the
terms of the Sale Papers have been obtained.
The representations and warranties set forth in this SECTION 4.3 shall
survive the sale of the Receivables to the Buyer. Upon discovery by the Buyer
or the Seller of a breach of any of the foregoing representations and
warranties, the party discovering such breach shall give prompt written notice
to the other.
ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 SELLER COVENANTS. The Seller hereby covenants that:
(a) RECEIVABLES TO BE ACCOUNTS, CHATTEL PAPER OR GENERAL
INTANGIBLES. The Seller will take no action to cause any Receivable to be
evidenced by any instrument (as defined in the UCC as in effect in the Relevant
UCC State), except in connection with the enforcement or collection of a
Receivable. Except in such circumstances, the Seller will take no action to
cause any Receivable to be anything other than an "account," "chattel paper" or
a "general intangible" (each as defined in the UCC as in effect in the Relevant
UCC State).
(b) SECURITY INTERESTS. Except for the conveyances hereunder,
the Seller will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any Lien, on any Receivable,
whether now existing or hereafter created, or any interest therein; the Seller
will immediately notify the Buyer of the existence of any Lien on any
Receivable; and the Seller shall defend the right, title and interest of the
Buyer in, to and under the Receivables, whether now existing or hereafter
created, against all claims of third parties claiming through or under the
Seller; PROVIDED, HOWEVER, that nothing in this subsection shall prevent or be
deemed to prohibit the Seller from suffering to exist upon any of the
Receivables any Permitted Lien.
(c) CREDIT AND COLLECTION POLICY AND CONTRACTS. The Seller
shall comply with and perform its obligations under the Contracts and the
Accounts and the Credit and Collection Policy except insofar as any failure so
to comply or perform would not materially and adversely affect the rights of the
Buyer hereunder. Except as the Seller deems necessary to maintain its credit
card business on a competitive basis or as required by law, it will not reduce
the annual percentage rates of the Periodic Finance Charges assessed on the
Receivables or other fees charged on the Accounts if, as a result of any such
reduction, a pay out event (or other early termination event) would occur under
any Pooling and Servicing Agreement. Subject to compliance with all
Requirements of Law and the restrictions
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contained in the immediately preceding sentence, the Seller may change the terms
and provisions of the Contracts or the Credit and Collection Policy in any
respect (including the calculation of the amount, or the timing, of charge-offs)
(i) if it would not, in the reasonable belief of the Seller, materially impair
the collectibility of any Receivable or cause, immediately or with the passage
of time, a pay out event (or other early termination event) to occur under any
Pooling and Servicing Agreement and (ii) if such change (A) (if it owns a
comparable segment of receivables) is made applicable to the comparable segment
of the receivables owned by the Seller, if any, which have characteristics the
same as, or substantially similar to, the Receivables that are the subject of
such change and (B) (if it does not own such a comparable segment of
receivables) will not be made with the intent to materially benefit the Seller
over the Buyer or to materially adversely affect the Buyer, except as otherwise
restricted by an endorsement, sponsorship, or other agreement between the Seller
and an unrelated third party or by the terms of the Contracts.
(d) DELIVERY OF COLLECTIONS. In the event that the Seller
receives Collections, the Seller agrees to forward to the Buyer or its designee
such Collections as soon as practicable after the receipt thereof, but in no
event later than two Business Days following the Date of Processing thereof.
(e) ABSENCE OF LIENS. Except for conveyances under this
Agreement the Seller will not sell any Receivable or grant a Lien on any
Receivable other than Permitted Liens.
(f) SEPARATE BUSINESS. The Seller shall maintain separate
corporate records and books of account from those of the Buyer. The Seller will
not conduct its business in the name of the Buyer so as not to mislead others as
to the identity of the entity with which those others are concerned.
(g) OFFICIAL RECORD. This Agreement shall be maintained as an
official record of the Seller.
Section 5.2 BUYER COVENANT REGARDING SALE TREATMENT. The Buyer agrees
to treat this conveyance for all purposes (including, without limitation, tax
and financial accounting purposes) as a sale on all relevant books, records, tax
returns, financial statements and other applicable documents.
ARTICLE VI
OPTIONAL REPURCHASE
Section 6.1 BREACH OF WARRANTY. In the event of a breach with respect
to a Receivable of any of the representations and warranties set forth in
SECTION 4.1(J) or SUBSECTIONS 4.2(A)(II) THROUGH (VI) or SECTION 4.2(B), or in
the event that a Receivable is not an Eligible Receivable on the date of its
transfer to the Buyer as a result of the failure to satisfy the conditions set
forth in the definition of Eligible Receivable, at the sole option of the Buyer
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and upon written notice to the Seller, such Receivable shall be designated an
"INELIGIBLE RECEIVABLE" and the Seller shall pay to the Buyer an amount in cash
equal to the purchase price paid for any such Ineligible Receivable by the Buyer
to the Seller. Such payment must be made by the close of business on the
thirtieth Business Day following the day such Receivable has been designated an
Ineligible Receivable; PROVIDED, HOWEVER, that such amount may be offset
against any amounts due from the Buyer to the Seller with respect to the
Purchase Price for Receivables sold to the Buyer. The obligation of the Seller
set forth in this Section shall constitute the sole remedy respecting any breach
of the representations and warranties set forth in the above-referenced Sections
or failure to meet the conditions set forth in the definition of Eligible
Receivable with respect to such Receivable available to the Buyer.
Section 6.2 CONVEYANCE OF REASSIGNED RECEIVABLES. Upon the request of
the Seller, the Buyer shall execute and deliver to the Seller a reconveyance
substantially in such form and upon such terms as shall be acceptable to the
Seller, pursuant to which the Buyer evidences the conveyance to the Seller of
all of the Buyer's right, title, and interest in any Receivables reconveyed to
the Seller pursuant to SECTION 6.1. The Buyer shall execute such other
documents or instruments of conveyance or take such other actions as the Seller
may reasonably require to effect any repurchase of Receivables pursuant to this
Article VI.
Section 6.3 SALES ARE NON-RECOURSE. Other than the obligation to make
payments under SECTION 3.2(B) hereof or repurchase Receivables under the limited
circumstances set forth in SECTION 6.1 hereof, the sales of Receivables under
this Agreement shall be without recourse to the Seller.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 CONDITIONS TO THE BUYER'S OBLIGATIONS REGARDING RECEIVABLES.
The obligations of the Buyer to purchase the Receivables on any Business Day
shall be subject to the satisfaction of the following conditions:
(a) All representations and warranties of the Seller contained
in Section 4.2 of this Agreement shall be true and correct on the Initial
Closing Date and on the day of creation of any Receivable created thereafter
with the same effect as though such representations and warranties had been made
on such date;
(b) All information concerning the Receivables provided to the
Buyer shall be true and correct in all material respects as of the Initial
Closing Date, in the case of Receivables sold to the Buyer on the Initial
Closing Date, or the applicable Date of Processing, in the case of Receivables
created after the Initial Closing Date;
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(c) At the Initial Closing Date, the Seller shall have
substantially performed all other obligations required to be performed by the
provisions of this Agreement;
(d) With respect to Receivables sold to the Buyer on the Initial
Closing Date, the Seller shall have filed the financing statement(s) required to
be filed pursuant to SECTION 2.1(B); and
(e) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Buyer, and the Buyer shall have
received from the Seller copies of all documents (including, without limitation,
records of corporate proceedings) relevant to the transactions herein
contemplated as the Buyer may reasonably have requested.
Section 7.2 CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS. The
obligations of the Seller to sell Receivables on any Business Day shall be
subject to the satisfaction of the following conditions:
(a) All representations and warranties of the Buyer contained in
this Agreement shall be true and correct with the same effect as though such
representations and warranties had been made on such date;
(b) Payment or provision for payment of the Purchase Price for
all prior sales in accordance with the provisions of SECTION 3.2 hereof shall
have been made; and
(c) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Seller, and the Seller shall have
received from the Buyer copies of all documents (including, without limitation,
records of corporate proceedings) relevant to the transactions herein
contemplated as the Seller may reasonably have requested.
ARTICLE VIII
TERM AND TERMINATION
Section 8.1 TERM. This Agreement shall commence as of the date of
execution and delivery hereof and shall continue in full force and effect until
the earlier of: (a) such date as may be agreed to in writing by the Buyer and
the Seller, which date shall not be earlier than the termination of the Purchase
Agreement, or (b) the occurrence of any of the following events: the Buyer or
the Seller shall consent to the appointment of a bankruptcy trustee or receiver
or liquidator in any bankruptcy proceeding or any other insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings of or
relating to all or substantially all of its property; or a decree or order of a
court or agency or supervisory authority having jurisdiction in the premises for
the appointment of a bankruptcy trustee or receiver or liquidator in any
bankruptcy proceeding or any other insolvency, readjustment of
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debt, marshalling of assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, shall have been entered against the
Buyer or the Seller; or the Buyer or the Seller shall admit in writing its
inability to pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute including the
U.S. bankruptcy code, make an assignment for the benefit of its creditors or
voluntarily suspend payment of its obligations, or become unable for any reason
to purchase or re-purchase Receivables in accordance with the provisions of this
Agreement or default in its obligations hereunder, which default continues
unremedied for more than 30 days after written notice is delivered to the
defaulting party by the non-defaulting party (any such date set forth in clause
(a) or (b) hereof being a "TERMINATION DATE"); PROVIDED, HOWEVER, that the
termination of this Agreement pursuant to this Section 8.1 shall not discharge
any Person from any obligations incurred prior to such termination, including,
without limitation, any obligations to make any payments with respect to
Receivables sold prior to such termination.
Section 8.2 EFFECT OF TERMINATION. No termination or rejection of or
failure to assume the executory obligations of this Agreement in the event of
the receivership of the Seller or bankruptcy of the Buyer shall be deemed to
impair or affect the obligations pertaining to any executed sale or executed
obligations, including, without limitation, pre-termination breaches of
representations and warranties by the Seller or the Buyer.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 AMENDMENT. This Agreement and any other Sale Papers and the
rights and obligations of the parties hereunder may not be changed orally, but
only by an instrument in writing signed by the Buyer and the Seller. The Seller
shall provide prompt written notice of any such amendment to the Rating
Agencies.
Section 9.2 GOVERNING LAW. THIS AGREEMENT AND THE OTHER SALE PAPERS
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA,
WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
Section 9.3 NOTICES. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by registered mail, return receipt requested, to:
(a) in the case of the Seller, to:
Fingerhut National Bank
3094 Technology Circle
Suite 102
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Sioux Falls, South Dakota 57106
(605)362-2380
(b) in the case of the Buyer, to:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: General Counsel
(612) 932-3100
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party.
Section 9.4 SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of the Sale Papers shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions,
or terms shall be deemed severable from the remaining covenants, agreements,
provisions, or terms of the Sale Papers and shall in no way affect the validity
or enforceability of the other provisions of the Sale Papers.
Section 9.5 FURTHER ASSURANCES. The Buyer and the Seller agree to do
and perform, from time to time, any and all acts and to execute any and all
further instruments required or reasonably requested by the other party more
fully to effect the purposes of the Sale Papers, including, without limitation,
the execution of any financing statements or continuation statements or
equivalent documents relating to the Receivables for filing under the provisions
of the UCC or other laws of any applicable jurisdiction.
Section 9.6 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and
no delay in exercising, on the part of the Buyer or the Seller, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exhaustive of any rights,
remedies, powers and privileges provided by law.
Section 9.7 COUNTERPARTS. The Sale Papers may each be executed in two
or more counterparts including telefax transmission thereof (and by different
parties on separate counterparts), each of which shall be an original, but all
of which together shall constitute one and the same instrument.
Section 9.8 BINDING EFFECT; THIRD PARTY BENEFICIARIES. The Sale Papers
will inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns.
Section 9.9 MERGER AND INTEGRATION. Except as specifically stated
otherwise herein, the Sale Papers set forth the entire understanding of the
parties relating to the subject matter
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hereof, and all prior understandings, written or oral, are superseded by the
Sale Papers. The Sale Papers may not be modified, amended, waived or
supplemented except as provided herein.
Section 9.10 HEADINGS. The headings herein are for purposes of reference
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
Section 9.11 SCHEDULES AND EXHIBITS. The schedules and exhibits attached
hereto and referred to herein shall constitute a part of this Agreement and are
incorporated into this Agreement for all purposes.
Section 9.12 PROTECTION OF RIGHT, TITLE AND INTEREST TO RECEIVABLES.
(a) The Seller shall cause this Agreement, all amendments hereto
and/or all financing statements and continuation statements and any other
necessary documents covering the Seller's and the Buyer's right, title and
interest to the Receivables to be promptly recorded, registered and filed, and
at all times to be kept recorded, registered and filed, all in such manner and
in such places as may be required by law fully to preserve and protect the
right, title and interest of the Buyer hereunder to the Receivables and proceeds
thereof. The Seller shall deliver to the Buyer file-stamped copies of, or
filing receipts for, any document recorded, registered or filed as provided
above, as soon as available following such recording, registration or filing.
The Buyer shall cooperate fully with the Seller in connection with the
obligations set forth above and will execute any and all documents reasonably
required to fulfill the intent of this SECTION 9.12(A).
(b) Within 30 days after the Seller makes any change in its
name, identity or corporate structure which would make any financing statement
or continuation statement filed in accordance with paragraph (a) above
materially misleading within the meaning of Section 9-402(7) of the UCC as in
effect in the Relevant UCC State, the Seller shall give the Buyer written notice
of any such change and shall file such financing statements or amendments as may
be necessary to continue the perfection of the Buyer's security interest in the
Receivables and the proceeds thereof.
(c) The Seller will give the Buyer prompt written notice of any
relocation of any office from which it services Receivables or keeps records
concerning the Receivables or of its principal executive office and whether, as
a result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement and shall file such financing
statements or amendments as may be necessary to continue the perfection of the
Buyer's security interest in the Receivables and the proceeds thereof. The
Seller will at all times maintain each office from which it services Receivables
and its principal executive office within the United States of America.
Section 9.13 ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, this Agreement may not be assigned by the Buyer or the Seller
except as contemplated by this SECTION 9.13, any Purchase Agreement or any
Pooling and Servicing
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Agreement; PROVIDED, HOWEVER, that simultaneously with the execution and
delivery of this Agreement, the Seller consents to the Buyer's assignment of all
its right, title and interest herein to the extent that this Agreement relates
to Eligible Receivables to Fingerhut Receivables, Inc. as provided in Section
2.1 of the Purchase Agreement and to Fingerhut Receivables, Inc.'s assignment of
such right, title and interest as provided in Section 2.1 of the Pooling and
Servicing Agreement and agrees that the Buyer may make similar assignments
pursuant to Purchase Agreements subsequently entered into by the Buyer. The
Seller agrees to perform its obligations hereunder for the benefit of the Trust
(as defined in the Pooling and Servicing Agreement) and that the Trustee (as
defined in the Pooling and Servicing Agreement) may enforce the provisions of
this Agreement, exercise the rights of the Buyer and enforce the obligations of
the Seller hereunder without the consent of the Buyer.
IN WITNESS WHEREOF, the Buyer and the Seller each have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
FINGERHUT NATIONAL BANK
as Seller
By:
---------------------------
Title:
FINGERHUT COMPANIES, INC.,
as Buyer
By:
---------------------------
Title:
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EXHIBIT A
FORM OF DAILY REPORT
A-1
<PAGE>
SCHEDULE 1
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TAX RETURNS AND PAYMENTS
The Seller has filed all applicable Federal, state and material local
tax returns and has paid or caused to be paid all associated taxes due and
payable on such returns or on any assessments received by them; except that the
Seller has not filed certain tax returns purported to be required as described
below. Because the Seller is a national banking entity that derives the
majority of its income from granting credit, it may be subject to special
financial institution rules in certain states. Such rules attempt to impute
state income tax nexus to a company if it obtains finance revenue and/or has
receivables generated from customers in that state. Of the states that have
adopted such financial institution rules, Minnesota is the only state where the
Seller is currently filing income or franchise tax returns. States which
currently have rules pursuant to which they may attempt to impose income tax
nexus based upon such activity include:
Arkansas Massachusetts
California Minnesota
Hawaii New Mexico
Indiana Tennessee
Kentucky West Virginia
The Seller has not filed in states implementing such rules other than Minnesota
because it believes the above-referenced financial institution rules to be
unconstitutional. Note that the Seller does file tax returns in South Dakota,
its state of domicile.
