AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1998
REGISTRATION NO. 333-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FINGERHUT MASTER TRUST
(Issuer with respect to Offered Certificates)
FINGERHUT RECEIVABLES, INC.
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
--------------------------------
DELAWARE 9999 41-1783128
(State or other (Primary Standard Industrial (I.R.S. employer
jurisdiction of Classification Code No.) identification number)
incorporation or
organization)
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)
--------------------------
Copies to:
ANDREW M. FAULKNER, ESQ. DAVID EISENBERG, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & SIMPSON THACHER & BARTLETT
FLOM LLP 425 LEXINGTON AVENUE
919 THIRD AVENUE NEW YORK, NEW YORK 10017
NEW YORK, NEW YORK 10022
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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
TITLE OF EACH CLASS AMOUNT TO BE PROPOSED MAXIMUM PROPOSED AMOUNT
OF REGISTERED(1) OFFERING PRICE MAXIMUM OF
SECURITIES TO BE PER AGGREGATE REGISTRATION
REGISTERED CERTIFICATE(1) OFFERING FEE
PRICE(1)
- ------------------------------------------------------------------------------
Floating Rate Asset $500,000 100% $500,000 $147.50
Backed Certificates,
Series 1998-1,
Class A..............
- ------------------------------------------------------------------------------
Floating Rate Asset $500,000 100% $500,000 $147.50
Backed Certificates,
Series 1998-1,
Class B..............
- ------------------------------------------------------------------------------
Total................ $1,000,000 100% $1,000,000 $295.00
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(1)Estimated solely for the purposes of calculating the registration fee.
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.
==============================================================================
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.
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1998
PROSPECTUS
FINGERHUT MASTER TRUST
$_________ FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1998-1, CLASS A
$_________ FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1998-1, CLASS B
Fingerhut Receivables, Inc. Fingerhut National Bank
Servicer Transferor
----------------------------------
EACH OF THE FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1998-1,
CLASS A (THE "CLASS A CERTIFICATES"), AND EACH OF THE FLOATING RATE ASSET
BACKED CERTIFICATES, SERIES 1998-1, CLASS B (THE "CLASS B CERTIFICATES,"
AND, TOGETHER WITH THE CLASS A CERTIFICATES, THE "OFFERED CERTIFICATES"),
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 CERTIFICATES WILL BE
SUBORDINATED TO THE CLASS A CERTIFICATES AS DESCRIBED IN "DESCRIPTION OF
THE OFFERED CERTIFICATES--REALLOCATED PRINCIPAL COLLECTIONS," "
- --APPLICATION OF COLLECTIONS," AND "--INVESTOR 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).
(COVER CONTINUED ON NEXT PAGE)
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE
INFORMATION SET FORTH IN
"RISK FACTORS" BEGINNING ON PAGE 23 HEREIN.
--------------------------
THE OFFERED CERTIFICATES 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. NEITHER THE OFFERED CERTIFICATES NOR THE RECEIVABLES ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
-------------------------
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.
-------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT THE
TRANSFEROR(1)(2)
- ------------------------------ -----------------------------------------------
Per Class A Certificate...... % % %
- ------------------------------ -----------------------------------------------
Per Class B Certificate......
- ------------------------------ -----------------------------------------------
Total........................ $ $ $
- ------------------------------ -----------------------------------------------
(1)Plus accrued interest, if any, from________________, 1998.
(2)Before deduction of expenses estimated to be $_____________.
The Offered Certificates 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 Certificates will be
delivered in book-entry form on or about __________, 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 CERTIFICATES
CHASE SECURITIES INC.
UNDERWRITERS OF THE CLASS B CERTIFICATES
CHASE SECURITIES INC.
----------------------------------
The date of this Prospectus is ____________, 1998
(continued from previous page)
Concurrently with the issuance of the Offered Certificates, the
Trust will issue the Asset Backed Certificates, Series 1998-1, Class C
(the "Class C Certificates"), which may be privately placed, and the
Asset Backed Certificates, Series 1998-1, Class D (the "Class D
Certificates," and, together with the Class C Certificates and the
Offered Certificates, the "Certificates"), to the Transferor. The
Certificates constitute "Series 1998-1". The Class C Certificates will be
subordinated to the Offered Certificates and the Class D Certificates
will be subordinated to the Class C Certificates and the Offered
Certificates as described in "Description of the Offered
Certificates--Application of Collections," "--Reallocated Principal
Collections," and "--Investor Charge-Offs." The Transferor will own the
remaining undivided interest in the Trust not represented by the
Certificates and any other investor certificates issued by the Trust,
which retained interest will be represented by the Exchangeable
Transferor Certificate (as defined herein). The Transferor from time to
time may offer other series of certificates that evidence undivided
interests in certain assets of the Trust by exchanging a portion of its
interest in the Trust therefor. Only the Offered Certificates are being
offered hereby.
Interest will accrue on the Class A Certificates from
_________________ through _________________ at the rate of % per annum
above the arithmetic mean of the London interbank offered quotations for
one-month United States dollar deposits ("LIBOR") (calculated as
described herein) determined on_________________, and from
_________________ through _________________ and with respect to each
Interest Accrual Period (as defined herein) thereafter, at a rate equal
to % per annum above LIBOR determined on the related LIBOR Determination
Date (as defined herein). Interest will accrue on the Class B
Certificates from _________________ through _________________ at the rate
of % per annum above LIBOR determined on_________________, and from
_________________ through _________________ and with respect to each
Interest Accrual Period thereafter, at a rate equal to .__% per annum
above LIBOR determined on the related LIBOR Determination Date. Interest
with respect to the Certificates will be distributed on _________________
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 Certificates is scheduled to be
distributed on each Distribution Date commencing on the Distribution Date
in _________________ but may be paid earlier under certain limited
circumstances described herein. Principal on the Class B Certificates is
scheduled to be distributed on each Distribution Date commencing on the
Distribution Date in ________ but may be paid earlier under certain
limited circumstances described herein.
Application will be made to list the Offered Certificates on the
Luxembourg Stock Exchange.
There currently is no secondary market for the Offered
Certificates. The Underwriters expect, but are not obligated, to make a
market in the Offered Certificates, 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 CERTIFI CATES, INCLUDING OVER-ALLOTMENT TRANSACTIONS,
STABILIZING TRANSACTIONS, SYNDICATE COVERING TRANSACTIONS AND PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates (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 Certificates, pursuant to the Pooling
and Servicing Agreement (as defined herein). See "Description of the
Offered Certificates--Book-Entry Registration," "--Reports to
Certificateholders" 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
Certificateholders or to the owners of beneficial interests in the
Offered Certificates ("Certificate 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
Certificates are outstanding.
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 Certificates 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
Certificates 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 in relation to the Transferor
and the Offered Certificates is true and accurate in all material
respects and that in relation to the Transferor and the Offered
Certificates 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, the ability of FNB to change payment terms and
collection policies, and potential changes in consumers' attitudes toward
financing purchases with debt. See "Risk Factors."
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 Certificates and not to other certificates which may exist from time
to time.
Offered Certificates........ $______________ aggregate principal amount of
Class A Certificates
and $____________ aggregate principal
amount of Class B Certifi cates are
being offered hereby.
The Offered Certificates will be available
for purchase in minimum denominations of
$1,000 and in integral multiples of
$1,000 in excess thereof. The Offered
Certificates will be issued in
certificated registered form. See
"Description of the Offered
Certificates--General."
The Offered Certificates 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 Certificates will be
subordinated to fund certain payments
with respect to the Class A Certificates
as described herein. See "Description of
the Offered Certificates--Subordination
of the Class B Certificates."
Other Certificates.......... $_____________ aggregate principal amount of
Class C Certificates, which may be
privately placed, and $___________
aggregate principal amount of Class D
Certificates are being issued concur
rently to the Transferor. The Trust has
previously issued three other Series
(the "Previously Issued Series") only
one of which will remain outstanding
after the issuance of the Certificates.
Concurrently with Series 1998-1, the
Trust will issue Series 1998-2
Certificates comprised of $__________
aggregate principal amount of Floating
Rate Asset Backed Certificates, Series
1998-2, Class A, $__________ aggregate
principal amount of Floating Rate Asset
Backed Certificates, Series 1998-2,
Class B, $_________ aggregate principal
amount of Asset Backed Certificates,
Series 1998-2, Class C, and $_________
aggregate principal amount of Asset
Backed Certificates, Series 1998-2,
Class D Certificates (collectively, the
"Series 1998-2 Certificates"). The
Series 1998-2 Certificates, Class A and
Class B will be offered publicly
concurrently herewith by means of a
separate prospectus. The Series 1998-2
Certificates, Class C, may be privately
placed and the Series 1998-2
Certificates, Class D, will initially be
retained by the Transferor. The Series
1998-2 Certificates will rank pari passu
with the Series 1998-1 Certificates. See
"Annex I: Other Series" for a summary of
the terms of these other Series. See
"Description of the Offered
Certificates--Other Series." The
Transferor from time to time may create
other Series that evidence undivided
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 Certificate 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 Certificates--Exchanges." Only
the Offered Certificates 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 Center, 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 significant portion of its servicing
duties to Fingerhut pursuant to a
subservicing agreement. See "The
Transferor and Related
Parties--Fingerhut National Bank" and
"Description of the Offered
Certificates--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 Certificates will have
the right to remove the Trustee. See "De
scription of the Offered
Certificates--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 1998-1
Supplement relating to the Certificates,
the Supplement relating to Series 1998-2
and the Supplements applicable to any
other Series 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 or acquired by FNB or one of
its affiliates from time to time
satisfying certain criteria described
herein (see "Description of the Offered
Certificates--Eligible Receivables"),
(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 Agreements and, to the extent
applicable to the Receivables, the Bank
Purchase Agreement, (iv) the benefit of
funds on deposit in certain bank
accounts maintained for the benefit of
certificateholders of each Series,
including the Excess Funding Account,
(v) the benefit of funds on deposit in
certain bank accounts maintained for the
benefit of the Certificateholders, (vi)
Recoveries, and (vii) proceeds of the
foregoing. The Offered Certificates will
not have the benefit of any
Enhancement other than the subordination
of the Class B Certificates, Class C
Certificates and Class D Certificates
for the benefit of each Class of
Certificates with an earlier
alphabetical designation as described
above.
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 which 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. Contemporaneously with
the issuance of the Certificates, the
FCI Purchase Agreement and the Pooling
and Servicing Agreement will be 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.
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 until the Obligor thereof has made
at least one payment with respect to
such Receivable or any other receivable
owing to FNB or Fingerhut (such an
Obligor, a "Back End Customer"). In
addition, the Trust assets include
recoveries (net of collection expenses)
on Receivables which were previously
charged off as uncollectible
("Recoveries"). Subject to certain
restrictions on the addition of new
Obligors set forth herein, all
Receivables originated by FNB which are
Eligible Receivables are purchased by
the Transferor and thereafter
automatically transferred to the Trust.
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
revolving credit card loans originated
by FNB, 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, investment earnings
on amounts credited to the Excess
Funding Account and 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 on which the
Obligors are Fingerhut customers will
initially be ___% and for Closed End
Receivables on which the Obligors are
Fingerhut customers 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 Certificates--Finance Charge
Collections; Principal Collections."
Subject to the satisfaction of the Rating
Agency Condition, Receivables acquired
by FNB or arising in Accounts acquired
by FNB or Receivables originated by FNB
in connection with the sale of
merchandise or services by Persons who
are not affiliated with Fingerhut on the
Closing Date may be transferred to the
Trust. Receivables acquired by FNB or
originated by FNB in connection with the
sale of merchandise or services by a
Person who is affiliated with Fingerhut
on the Closing Date may be transferred
to the Trust without satisfying the
Rating Agency Condition. These
Receivables may have been 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 Certificates--Addition of Trust
Assets."
Collections................. The Servicer deposits all collections of
Receivables in the Collection Account.
Collections on the Receivables will be
allocated as collections of Principal
Receivables or collections of Finance
Charge Receivables in accordance with
the definitions thereof. See
"Description of the Offered
Certificates--Finance Charge
Collections; Principal Collections."
Finance Charge Collections and Principal
Collections are allocated on each
business day among the Transferor
Interest, the interest of the holder of
any Participation and the respective
interests of the certificateholders 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 certificates of any
Series then outstanding, to pay certain
fees and expenses, to cover investor
default amounts, to reimburse investor
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 certificates of
any Series then outstanding, except that
during any revolving period applicable
to a Series, Principal Collections
otherwise allocable to the
certificateholders of such Series which
are not reallocated to cover amounts
payable from Finance Charge Collections
in the event of a shortfall thereof are
paid to the holder of the Exchangeable
Transferor Certificate or paid to the
certificateholders of any other Series
then outstanding. See "Description of
the Offered Certificates--Application of
Collections--Payment of Fees, Interest
and Other Items."
Allocation of Trust Assets.. The Trust's assets will be allocated among the
Class A Certificateholders' Interest,
the Class B Certificateholders'
Interest, the Class C
Certificateholders' Interest, the Class
D Certificateholders' Interest, the
interest of the certificateholders of
the Previously Issued Series that remain
outstanding and any other Series
(including the interest of the
certificateholders of the Series 1998-2
Certificates) issued pursuant to the
Pooling and Servicing Agreement and
applicable Supplements, the interest of
the holder of any Participation and the
Transferor Interest. The interest of the
certificateholders of any class of any
Series in the assets of the Trust will
be limited to the certificateholders'
interest for such class and Series, and
such certificateholders will not have
any recourse against any assets of the
Trust other than those allocated to such
certificateholders' interest pursuant to
the Pooling and Servicing Agreement and
any applicable Supplement. The
Transferor Interest represents the right
to the assets of the Trust not allocated
to the certificateholders' interest of
any Series issued pursuant to the
Pooling and Servicing Agreement and
applicable Supplements or the interests
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
certificates) and the amounts on deposit
in the Excess Funding Account change
from time to time. See "Description of
the Offered Certificates--General,"
"--Other Series," and "--Excess Funding
Account."
The Class A Certificates will represent
the right to receive payments of
interest on the Class A Certificates at
the Class A Certificate 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
Certificates, in certain circumstances,
if the Investor Default Amount exceeds
funds allocable thereto and the Class B
Invested Amount, the Class C Invested
Amount and the Class D Invested Amount
are reduced to zero). See "Description
of the Offered
Certificates--Subordination of the Class
B Certificates," " --Allocation
Percentages" and "--Investor
Charge-Offs."
The Class B Certificates will represent
the right to receive payments of
interest on the Class B Certificates at
the Class B Certificate 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
Certificates, in certain circumstances,
if the Investor Default Amount exceeds
funds allocable thereto and the Class C
Invested Amount and the Class D Invested
Amount are reduced to zero). See
"Description of the Offered
Certificates--Subordination of the Class
B Certificates," "--Allocation
Percentages" and "--Investor
Charge-Offs."
The Class C Certificates will represent
the right to receive payments of
interest on the Class C Certificates at
the Class C Certificate Rate and the
payment of principal to the extent of
the Class C Invested Amount (which may
be less than the aggregate unpaid
principal amount of the Class C
Certificates, in certain circumstances,
if the Investor Default Amount exceeds
funds allocable thereto and the Class D
Invested Amount is reduced to zero). See
"Description of the Offered
Certificates--Allocation Percentages"
and "--Investor Charge-Offs." The Class
C Certificates are not being offered
hereby.
The Class D Certificates will represent
the right to receive payments of
principal to the extent of the Class D
Invested Amount. The Class D
Certificates are not being offered
hereby.
The aggregate amount of Receivables in the
Trust as of , 1998 (assuming that the
Receivables to be added to the Trust on
the Closing Date, including revolving
credit card loans originated by FNB, had
been included in the Trust on such date)
was $ comprised of $ of Finance Charge
Receivables and $________ of Principal
Receivables. As of ____________, 1998
(assuming that the Receivables to be
added to the Trust on the Closing Date,
including revolving credit card loans
originated by FNB, had been included in
the Trust on such date), the Principal
Receivables consisted of $____________
of closed-end installment sale contracts
originated by Fingerhut, $__________ of
closed-end credit card loans originated
by FNB and $__________ 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
Certificates; (ii) an amount equal to
the initial principal amount of the
Class B Certificates; (iii) an amount
equal to the initial principal amount of
the Class C Certificates; and (iv) an
amount equal to the initial principal
amount of the Class D Certificates. The
aggregate principal amount of the
Certificates, 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 Certificates during the
Amortization Period. No payment of
principal with respect to the Class B
Certificates may be made until the final
principal payment of the Class A
Invested Amount with respect to the
Class A Certificates has been made. No
payment of principal with respect to the
Class C Certificates may be made until
the final principal payment of the Class
A Invested Amount with respect to the
Class A Certificates and the final
principal payment of the Class B
Invested Amount with respect to the
Class B Certificates 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
Certificates and the Class C
Certificates to an amount equal to the
Stated Class D Amount. See "Description
of the Offered Certificates--Principal
Payments."
The Class A Certificateholders' Interest,
the Class B Certificateholders'
Interest, the Class C
Certificateholders' Interest, and the
Class D Certificateholders' 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 amount of Defaulted
Receivables at all times, and Principal
Collections during the Revolving Period
will be allocated on each business day
to the Class A Certificateholders'
Interest, the Class B
Certificateholders' Interest, the Class
C Certificateholders' Interest, and the
Class D Certificateholders' Interest
based on the Class A Floating Allocation
Percentage, the Class B Floating
Allocation Percentage, the Class C
Floating Allocation Percentage, and the
Class D Floating Allocation Percentage,
respectively. On and after the date on
which a Pay Out Event is deemed to
occur, Finance Charge Collections will
be allocated on each business day to the
Class A Certificateholders' Interest,
the Class B Certificateholders'
Interest, the Class C Certificateholders'
Interest and the Class D
Certificateholders' Interest based on
the Fixed/Floating Allocation
Percentage. During the Revolving Period,
all Principal Collections that would
otherwise be allocated to the
Certificateholders will be allocated on
each business day and paid to the holder
of the Exchangeable Transferor
Certificate (except for Shared Principal
Collections used to make payments to
other Series). During the Amortization
Period, until the Class B Principal
Payment Com mencement Date, Principal
Collections will generally be allocated
on each business day to the Class A
Certificateholders' Interest based on
the Fixed/Floating Allocation
Percentage. On and after the Class B
Principal Payment Commencement Date,
Principal Collections will generally be
allocated on each business day to the
Class B Certificateholders' Interest
based on the Fixed/Floating Allocation
Percentage. On and after the Class C
Principal Payment Commence ment Date,
all Principal Collections will generally
be allocated on each business day to the
Class C Certificateholders' Interest
based on the Fixed/Floating Allocation
Percentage. See "Description of the
Offered Certificates--Allocation
Percentages."
Exchanges................... The Pooling and Servicing Agreement provides
that the Trustee may issue three types
of certificates: (i) investor
certificates in one or more Series each
of which may have multiple classes of
certificates of which one or more such
classes may be transferable, (ii)
Participations representing
participation interests in the
Receivables, as described below, and
(iii) the Exchangeable Transferor
Certificate. The Exchangeable Transferor
Certificate 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 Certifi
cate. See "Description of the Offered
Certificates--Exchanges." The Pooling
and Servicing Agreement also provides
that, pursuant to any one or more
Supplements, the Transferor may tender
the Exchangeable Transferor Certificate
or, if provided in the relevant
Supplement, certificates comprising any
Series and the Exchangeable Transferor
Certificate, to the Trustee in exchange
for certificates comprising one or more
new Series and a reissued Exchangeable
Transferor Certificate. 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
Certificates--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, 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 Certificate for certificates
comprising one or more Series and a
reissued Exchangeable Transferor
Certificate 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) an opinion of
counsel to the effect that the
certificates of such Series will be
characterized as indebtedness or as a
partnership interest for federal income
tax purposes under existing law, and
that the issuance of such Series will
not have a material adverse effect on
the federal income tax characterization
of any outstanding Series or result in
the Trust being subject to tax at the
entity level, (iii) if required by such
Supplement, the form of Enhancement and
an appropriate Enhancement agreement
with respect thereto, (iv) 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, (v) 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 (vi) the
existing Exchangeable Transferor
Certificate and, if applicable, the
existing certificates representing the
Series to be exchanged. See "Description
of the Offered Certificates--Exchanges."
The Pooling and Servicing Agreement
provides that, pursuant to any one or
more supplements to the Pooling and
Servicing Agreement (each, a
"Participation Supplement"), the
Transferor may direct the Trustee to
issue on behalf of the Trust one or more
participations (each, a
"Participation"), to be delivered 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 Certificates -- Exchanges."
Interest.................... Each Class A Certificate represents the right
to receive interest accruing from the
Closing Date at the rate equal to ___%
per annum above LIBOR (calculated as
described under "Description of the
Offered Certificates--Interest
Payments") as determined on , 1998 for
the period from the Closing Date through
__________, 1998 and at a rate equal to
__% per annum above LIBOR determined on
the related LIBOR Determination Date for
the period from ___________, 1998
through ___________, 1998 and with
respect to each Interest Accrual Period
thereafter (such rate, as in effect from
time to time, the "Class A Certificate
Rate"). Each Class B Certificate
represents the right to receive interest
accruing from the Closing Date at the
rate equal to % per annum above LIBOR
determined on________, 1998 for the
period from the Closing Date through
___________, 1998 and at a rate equal to
% per annum above LIBOR determined on
the related LIBOR Determination Date for
the period from___________, 1998 through
___________, 1998 and with respect to
each Interest Accrual Period thereafter
(such rate, as in effect from time to
time, the "Class B Certificate Rate" and
together with the Class A Certificate
Rate sometimes referred to as a
"Certificate Rate" and collectively as
the "Certificate Rates"). Interest on
the Offered Certificates will be payable
on ___________, and on each Distribution
Date thereafter, in an amount equal to
(i) with respect to the Class A
Certificates, the product of (a) the
actual number of days in the related
Interest Accrual Period divided by 360,
(b) the Class A Certificate Rate for
such Interest Accrual Period and (c) the
outstanding aggregate principal amount
of the Class A Certificates as of the
preceding Record Date (or in the case of
the first Distribution Date, the initial
principal amount of the Class A
Certificates) and (ii) with respect to
the Class B Certificates, the product of
(a) the actual number of days in the
related Interest Accrual Period divided
by 360, (b) the Class B Certificate Rate
for such Interest Accrual Period and (c)
the outstanding aggregate principal
amount of the Class B Certificates as of
the preceding Record Date (or in the
case of the first Distribution Date, the
initial principal amount of the Class B
Certificates).
[On the Closing Date, the Transferor will make
a deposit to the Interest
Funding Account in an amount equal to
$------------.]
Interest payments on the Class A
Certificates on each Distribution Date
will be funded from Available Series
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 , 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
Class A Certificates, and deposited on
each business day during such Monthly
Period in the Interest Funding Account.
See "Description of the Offered
Certificates--Interest Payments" and
"--Application of Collections; Payment
of Fees, Interest and Other Items."
Subject to the prior payment of interest
on the Class A Certificates, interest
payments on the Class B Certificates on
each Distribution Date will be funded
from the portion of Available Series
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 ___________ [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
Class B Certificates, and deposited on
each business day during such Monthly
Period in the Interest Funding Account.
See "Description of the Offered
Certificates--Interest Payments" and
"--Application of Collections; Payment
of Fees, Interest and Other Items."
Revolving Period............ The "Revolving Period" with respect to the
Certificates 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. See "De scription of the
Certificates--Pay Out Events" herein for
a discussion of the events which might
lead to the termination of the Revolving
Period prior to the commencement of the
Controlled Amortization Period. The
controlled amortization period with
respect to the Certificates (the
"Controlled Amortization Period") is
scheduled to begin at the close of
business on the last day of the Monthly
Period. During the Revolving Period,
Principal Collections otherwise
allocable to the Certificateholders
(other than any Shared Principal
Collections paid to the holders of
certificates of other Series and any
Reallocated Principal Collections) will,
subject to certain limitations, be paid
from the Trust to the holder of the
Exchangeable Transferor Certificate. See
"Description of the Offered
Certificates--Pay Out Events" for a
discussion of the events which might
lead to the termination of the Revolving
Period for the Certificates prior to the
end of the ___________ Monthly Period.
Principal Payment;
Controlled Amortization..... Unless a Pay Out Event shall have occurred
with respect to the Certificates, during
the period commencing with the
___________ Monthly Period and ending
with the ___________ Monthly Period, on
each business day during such period, an
amount equal to the lesser of (i)
Available Investor 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.
The funds on deposit in the Principal
Account will be available to be paid to
the Class A Certificateholders on
the___________ 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
Certificateholders on ___________ (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
Certificateholders 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 Certificateholders
monthly on each Distribution Date. No
payment of principal to the Class B
Certificateholders will be made until
the Class A Invested Amount has been
paid in full. See "Description of the
Offered Certificates--Principal
Payments."
Onand after the Class B Principal Payment
Commencement Date, on each business day
thereafter, an amount equal to the
lesser of (i) Available Investor
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 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.
The funds on deposit in the Principal
Account will be available to be paid to
the Class B Certificateholders 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 Certificateholders on ___________ (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
Certificateholders 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 Certificateholders
monthly on each Distribution Date. No
payment of principal to the Class C
Certificateholders will be made until
the Class B Invested Amount has been
paid in full. See "Description of the
Offered Certifi cates--Principal
Payments."
Other Series offered by the Trust may or
may not have amortization periods like
the Amortization Periods for the
Certificates, 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
Certificates--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
Certificates.
Early Amortization Period... During the Early Amortization Period,
Principal Collections allocable to the
respective Certificateholders' Interest
and certain other amounts (including
Shared Principal Collections from any
other Series, and the Excess Funding
Account) will no longer be reinvested in
the Trust or otherwise used to maintain
the Certificateholders' 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 Certificateholders in
respect of the Class A Invested Amount
and, following the payment in full of
the Class A Invested Amount, to the
Class B Certificateholders in respect of
the Class B Invested Amount and,
following the payment in full of the
Class B Invested Amount, to the Class C
Certificateholders in respect of the
Class C Invested Amount and, following
the payment in full of the Class C
Invested Amount, to the Class D
Certificateholders until the Class D
Invested Amount is paid in full. See
"Description of the Offered
Certificates--Pay Out Events."
Shared Principal Collections To the extent that Principal Collections and
other amounts that are allocated to the
Certificateholders' Interest are not
needed to make payments to the
Certificateholders or required to be
deposited in the Principal Account, they
may be applied to cover principal
payments due to or for the benefit of
certificateholders of another Series,
including principal payments which the
Transferor elects to make with respect
to any Variable Funding Certificates.
Any such reallocation will not result in
a reduction in the Certificateholders'
Interest. In addition, Principal
Collections and certain other amounts
otherwise allocable to other Series, to
the extent such collections are not
needed to make payments to the
certificateholders of such other Series,
[and certain amounts allocated to any
Participation] may be applied to cover
principal payments due to or for the
benefit of the holders of the
Certificates. See "Description of the
Offered Certificates--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.
Any funds on deposit in the Excess Funding
Account at the beginning of the
Amortization Period 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
certificates 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
certificates of such Series have been paid
in full. See "Description of the Offered
Certificates--Excess Funding Account."
Distribution of Available Series
Finance Charge Collections Allocable
to Certificateholders....... Available Series 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
Class C Monthly Interest and any overdue
Class C 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 Investor
Default Amount on such business day and,
to the extent not previously paid, the
Investor Default Amount for each prior
business day in such Monthly Period will
be (a) during the Revolving Period,
treated as Shared Principal Collec tions
and (b) during the Amortization Period,
treated as Available Investor Principal
Collections for the benefit of the
Certificates;
(vi) an amount equal to the Series
Allocation 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 Investor Principal
Collections for the benefit of the
Certificates;
(vii) an amount equal to unreimbursed
Class A Investor Charge-Offs on such
business day will be (a) during the
Revolving Period, treated as Shared
Principal Collections or (b) during the
Amortization Period, treated as
Available Investor Principal Collections
for the benefit of the Certificates;
(viii) an amount equal to the accrued
and unpaid interest on the outstanding
aggregate principal amount of the Class
B Certificates not previously deposited
in the Interest Funding Account for such
Monthly Period will be deposited in the
Interest Funding Account;
(ix) an amount equal to the accrued and
unpaid interest on the outstanding
aggregate principal amount of the Class
C Certificates 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 Investor Charge-Offs on such business
day will be (a) during the Revolving
Period, treated as Shared Principal
Collections and (b) during the
Amortization Period, treated as
Available Investor Principal Collections
for the benefit of the Certificates;
(xi) an amount equal to unreimbursed Class
C Investor Charge-Offs on such business
day will be (a) during the Revolving
Period, treated as Shared Principal
Collections and (b) during the
Amortization Period, treated as
Available Investor Principal Collections
for the benefit of the Certificates;
(xii) an amount equal to unreimbursed
Class D Investor Charge-Offs on such
business day will be (a) during the
Revolving Period, treated as Shared
Principal Collections and (b) during the
Amortization Period, treated as
Available Investor Principal Collections
for the benefit of the Certificates;
(xiii) at the option of the Transferor, on
and after the Reserve Account Funding
Date, but prior to the date on which the
Defeasance Reserve Account terminates,
an amount equal to the excess, if any,
of the Required Reserve Account Amount
over the Available Reserve Account
Amount will be deposited in the
Defeasance Reserve Account; and
(xiv) the remainder will be treated as
Excess Finance Charge Collections. See
"Description of the Offered
Certificates--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 Allocation Percentage of the
Finance Charge Collections allocable to
the Exchangeable Transferor Certificate
("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 Finance
Charge Collections.
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.
Investor Default Amount;
Investor Charge-Offs........ A portion of all Defaulted Receivables (the
"Investor Default Amount") will be
allocated to the Certificateholders on
each business day in an amount equal to
the product of the Floating Allocation
Percentage and the principal amount of
Defaulted Receivables on such business
day. If on any Determination Date the
aggregate Investor Default Amount and
Series Allocation Percentage of unpaid
Adjustment Payments, if any, for the
preceding Monthly Period exceeds the
aggregate amount of Available Series
Finance Charge Collections applied to
the payment thereof as described in
clauses (v) and (vi) of "Distribution of
Available Series Finance Charge
Collections Allocable to
Certificateholders," 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 Reallocated
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 Investor Default
Amount and the remaining Series
Allocation 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 Certificates) on any
business day by the amount of Available
Series Finance Charge Collections
allocated and available for such purpose
as described in clause (xii) of
"Distribution of Available Series
Finance Charge Collections Allocable to
Certificateholders." If the Class D
Invested Amount is reduced to zero, the
Class C 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 Investor
Default Amount and the remaining Series
Allocation Percentage of unpaid
Adjustment Payments for such Monthly
Period).
The Class C Invested Amount will
thereafter be increased (but not in
excess of the unpaid principal amount of
the Class C Certificates) on any
business day by the amount of Available
Series Finance Charge Collections
allocated and available for that purpose
as described in clause (xi) of
"Distribution of Available Series
Finance Charge Collections Allocable to
Certificateholders." If the Class C
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
Class C Invested Amount to be reduced
below zero (but not in excess of the sum
of the remaining aggregate Investor
Default Amount and the remaining Series
Allocation Percentage of unpaid
Adjustment Payments for such Monthly
Period). If and for so long as the Class
C Invested Amount is reduced to zero,
the Class B Certificateholders will bear
directly 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 Certificates) on any
business day by the amount of Available
Series Finance Charge Collections
allocated and available for that purpose
as described in clause (x) of
"Distribution of Available Series
Finance Charge Collections Allocable to
Certificateholders." 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 Investor
Default Amount and the remaining Series
Allocation 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 Certificateholders 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 Certificates) on any
business day by the amount of Available
Series Finance Charge Collections
allocated and available for that purpose
as described in clause (vii) of
"Distribution of Available Series
Finance Charge Collections Allocable to
Certificateholders." See "Description of
the Offered Certificates--Investor
Charge-Offs."
Paired Series............... Subject to satisfaction of the Rating Agency
Condition, the Certificates 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 1998-1, 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 1998-1, the
increase in the invested amount of the
Paired Series will be equal to the
amount of the Invested Amount paid to
Certificateholders of Series 1998-1
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
Certificates, the final payment of
principal to the Certificateholders may
be delayed. See "Description of the
Offered Certificates--Paired Series."
Subordination of the Class B
Certificates, the Class C
Certificates and the Class D
Certificates................ The Class B Certificates will be subordinated
as described herein to the extent
necessary to fund payments of principal
and interest on the Class A
Certificates. The Class C Certificates
will be subordinated as described herein
to the extent necessary to fund payments
of principal and interest on the Class A
Certificates and the Class B
Certificates. The Class D Certificates
will be subordinated as described herein
to the extent necessary to fund payments
of principal and interest on the Class A
Certificates, the Class B Certificates
and the Class C Certificates. See
"Description of the Offered
Certificates--Subordination of the Class
B Certificates," "--Reallocation of Cash
Flows" and "--Reallocated Principal
Collections." If on any business day
there is a positive Class A Required
Amount, Class B Required Amount or Class
C 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 Class C
Required Amount and the Invested Amounts
of the Class D Certificates, the Class C
Certificates or the Class B Certificates
may be reduced on the related
Distribution Date as more fully
described herein in "Description of the
Offered Certificates--Reallocated
Principal Collections." To the extent
the Class B Invested Amount, the Class C
Invested Amount or the Class D Invested
Amount is reduced, the percentage of
Finance Charge Collections allocated to
the Class B Certificateholders, the
Class C Certificateholders, or the Class
D Certificateholders, as applicable, in
subsequent Monthly Periods will be
reduced. Moreover, to the extent the
amount of such reduction in the Class B
Invested Amount, the Class C Invested
Amount, or the Class D Invested Amount
is not reimbursed, the amount of
principal distributable to the Class B
Certificateholders, the Class C Certifi
cateholders, or the Class D
Certificateholders, as applicable, from
the Collection Account will be reduced.
Principal payments with respect to the
Class B Certificates will not be made
until the final payment of the Class A
Invested Amount has been made to the
Class A Certificateholders. Principal
payments with respect to the Class C
Certificates will not be made until the
final payment of the Class A Invested
Amount has been made to the Class A
Certificateholders and the final payment
of the Class B Invested Amount has been
made to the Class B Certificateholders.
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
Certificateholders, the Class B
Certificateholders and the Class C
Certificateholders to an amount equal to
the Stated Class D Amount. During the
Early Amortization Period, principal
payments with respect to the Class D
Certificates will not be made and,
except as a result of Class D Investor
Charge-Offs or Reallocated 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
Certificateholders, the final payment of
the Class B Invested Amount has been
made to the Class B Certificateholders
and the final payment of the Class C
Invested Amount has been made to the
Class C Certificateholders. See
"Description of the Offered
Certificates--Subordination of the Class
B Certificates," "--Reallocation of Cash
Flows" and "--Reallocated Principal
Collections."
Defeasance.................. On the date during the Amortization Period
that (x) 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 Certificates, the Class B Certificates
and the Class C Certificates, 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 Class C Monthly
Interest over the 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
_____________ Distribution Date for the
Offered Certificates and the Class C
Certificates, (y) the Rating Agency
Condition has been satisfied and (z) the
Transferor has satisfied certain other
conditions, the Certificates 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 allocation to the
Certificateholders of Principal
Collections, Finance Charge Collections
and Defaulted Receivables will be
reduced to zero. Upon the satisfaction
of the foregoing condi tions, the Class
D Invested Amount will be reduced to
zero. See "Description of the Offered
Certificates--Defeasance."
Optional Repurchase......... The Class A Certificates and the Class B
Certificates 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 Class C 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 Class C 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 Amount and the
Class C 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
Certificates, the Class B Cer tificates
and the Class C Certificates through the
day preceding the Distribution Date on
which the repurchase occurs. See
"Description of the Offered
Certificates--Final Payment of
Principal; Termination."
Tax Status.................. In the opinion of Special Tax Counsel, the
Class A Certificates and the Class B
Certificates will be characterized as
debt for federal income tax purposes.
Under the Pooling and Servicing
Agreement, the Transferor, the Servicer,
the Class A Certificateholders and the
Class B Certificateholders, agree to
treat the Class A Certificates and the
Class B Certificates 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 Certificates or
Class B Certificates if such Class of
Certificates 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 Certificates
be held by at least 100 persons
independent of the Transferor and each
other upon completion of the public
offering being made hereby. [The Class A
Underwriters expect, although no
assurance can be given, that the Class A
Certificates will 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 Certificates.] No monitoring
or other measures will be taken to
ensure that any such conditions will be
met with respect to the Class A
Certificates. 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
Consider ations."
The Class B Underwriters do not expect
that the Class B Certificates will be
held by 100 or more independent
investors and, therefore, do not expect
that the Class B Certificates will
qualify as "publicly-offered securities"
under the Plan Assets Regulation.
Accordingly, the Class B Certificates
may not be acquired by employee benefit
plan investors subject to Title I of
ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended (the
"Code"), including, but not limited to,
as applicable, an insurance company
general account. Each Certificate Owner
of a Class B Certificate, 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 or Section
4975 of the Code. See "Employee Benefit
Plan Consider ations."
Offered Certificate Ratings... It is a condition to the issuance of the
Class A Certificates 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 Certificates that they be rated
at least "A" or its equivalent by at
least one nationally recog nized rating
agency.
Listing..................... Application will be made to list the Offered
Certificates on the Luxembourg Stock
Exchange.
RISK FACTORS
LIMITED LIQUIDITY
There is currently no market for the Offered Certificates. Each
Underwriter expects to make a market in each Class of the Offered
Certificates 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 Certificate Owners with liquidity
of investment or that it will continue until the Offered Certificates 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 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 Certificateholder will have recourse for distributions on its
Certificates to any assets of any of the Transferor (other than the
Exchangeable Transferor Certificate, to the extent described herein),
FCI, FNB, Fingerhut or any affiliates thereof. Consequently,
Certificateholders must rely solely upon payments on the Receivables for
distributions of principal of and interest on the Certificates.
Furthermore, under the Pooling and Servicing Agreement, the
Certificateholders have an interest in the Receivables and Collections
only to the extent of the Certificateholders' Interest and, to the
limited extent described herein, the Transferor Interest. Should the
Offered Certificates not be paid in full on a timely basis,
Certificateholders may not look to any assets of any of the Transferor
(other than the Exchangeable Transferor Certificate, 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
recharacterized as a pledge of such Receivables, then delays in payments
on the Offered Certificates or (should the bankruptcy court rule in favor
of any such trustee, debtor-in-possession or creditor) reductions in such
payments on such Certificates 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 Certificates 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
Certificates 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.
The Transferor believes that the general practice of the FDIC in such
circumstances is to permit the collateral to be applied to pay the
principal owed plus interest at the contract rate up to the date of
payment, together with the costs of liquidation of the collateral if
provided for in the contract. In one case involving the repudiation by
the Resolution Trust Corporation (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 Certificateholders could, depending upon circumstances
existing on the date of the repudiation, be less than the principal of
the Certificates 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
certificates 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 Certificate, the Class D Certificates, a class of
each of the Previously Issued Series, a class of the Series 1998-2
Certificates and any other class of Certificates 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 government
lien on property of the Transferor arising before Receivables come into
existence may have priority over the Trust's interest in such
Receivables. In the event of the insolvency of the Transferor, 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 Certificates 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, Certificateholders might experience delays in payment or
possibly losses in their investment in the Certificates. 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
certificateholders 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 Certificates or any other interest in the
Exchangeable Transferor Certificates other than the Transferor instruct
otherwise), thereby causing early termination of the Trust and a loss to
the Certificateholders if the net proceeds allocable to the
Certificateholders from such sale, if any, were insufficient to pay the
Certificateholders 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 1998-1 will first be used to pay amounts
due to the Class A Certificateholders, will thereafter be used to pay
amounts due to the Class B Certificateholders, will thereafter be used to
pay amounts due to the Class C Certificateholders, and will thereafter be
used to pay amounts due to the Class D Certificateholders. 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 Certificates.
In the event of an early payment of principal on the Certificates,
Certificateholders 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."
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
regulate further 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
notice of motion to dismiss, or in the alternative 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 Certificates--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 Certificateholders in the Receivables. See
"Description of the Offered Certificates--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 Certificates--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 Certificates
may be significantly reduced. There can be no assurance in that event
that the holders of the Offered Certificates would be able to reinvest
any accelerated distributions on account of such Offered Certificates in
other suitable investments having a comparable yield.
EFFECT OF SUBORDINATION OF CLASS B CERTIFICATES; PRINCIPAL PAYMENTS
The Class B Certificates will be subordinated in right of payment
of principal to the payment of principal and interest on the Class A
Certificates. Payments of principal in respect of the Class B
Certificates will not commence until after the final principal payment
with respect to the Class A Certificates 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 Certificates are
reallocated to cover the Class A Required Amount or if the aggregate
Investor Default Amount and unpaid Adjustment Payments, if any, for each
business day in the preceding Monthly Period exceeds the aggregate
Available Series Finance Charge Collections applied to the payment
thereof and is not funded from Excess Finance Charge Collections,
Transferor Finance Charge Collections, Class C Reallocated Principal
Collections or Class D Reallocated Principal Collections and the Class C
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 allocable to the Class B Certificateholders' 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
Certificateholders will be reduced. See "Description of the Offered
Certificates--Allocation Percentages," "--Reallocated Principal
Collections," "--Investor Charge-Offs" and "--Subordination of the Class
B Certificates."
EFFECT OF ADDITION OF TRUST ASSETS ON CREDIT QUALITY
The Transferor automatically designates all Receivables which 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.
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
amounts billed with respect to finance charges and fees and principal
amounts discounted at designated rates. Closed End Receivables are
discounted at a fixed rate of 25% and Revolving Receivables will be
discounted at a fixed rate of ___%. The Class A Certificate Rate and the
Class B Certificate Rate are each based on LIBOR. If there is an increase
in LIBOR, the amount of collections from the Discount Receivables may not
be similarly increased. In addition, 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. If there is a
decline in such prime rate or other designated index which does not
coincide with a decline in LIBOR, the amount of Finance Charge
Collections on such Receivables would be reduced, whereas amounts payable
as interest on the Class A and Class B Certificates and other amounts
required to be funded out of collections of Finance Charge Receivables
with respect to the Certificates 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 Certificates initially will be
represented by one or more certificates registered in the name of Cede &
Co., the nominee for DTC, and will not be registered in the names of the
Certificate Owners or their nominees. Unless and until Definitive
Certificates are issued, Certificate Owners will not be recognized by the
Trustee as Certificateholders, as that term is used in the Pooling and
Servicing Agreement. Hence, until such time, Certificate Owners will only
be able to receive payments from, and exercise the rights of
Certificateholders indirectly through DTC and its participating
organizations and, unless a Certificate 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 Certificate Owners by DTC and its participating
organizations. In addition, the ability of Certificate Owners to pledge
Certificates to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such Certificates, may be
limited due to the lack of physical certificates for such Certificates.
See "Description of the Offered Certificates--Book-Entry Registration"
and "--Definitive Certificates."
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 Certificates. An alteration of payment terms
may result in fewer payments on Receivables being made in any month.
Under the Bank Purchase Agreement, FNB agrees that, unless required by
law, it will not at any time change the terms and provisions of the
Contracts establishing the Accounts or the Credit and Collection Policy
if, as a result of any such change, either (i) FNB's reasonable belief is
that such change will materially impair the collectibility of any
Receivable or cause a Pay Out Event to occur either immediately or with
the passage of time or (ii) such change is not also applied to any
comparable segment of the receivables owned by FNB or one of its
affiliates that have characteristics the same as, or substantially
similar to, the Receivables.
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 certificateholders 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
Certificateholders have given their approval or consent, except as
otherwise specified, the Class A Certificateholders, the Class B
Certificateholders and the Class C Certificateholders will be treated as
a single Series. Accordingly, while the Class A Certificates are
outstanding, the Class A Certificateholders will have the power to
determine whether any such action is taken without regard to the position
or interests of the Class B Certificateholders or the Class C
Certificateholders 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, directing the Servicer not to sell
the Receivables upon the occurrence of an Insolvency Event 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 Certificates, the Trust, as a master trust, has
issued the Previously Issued Series and is expected to issue additional
Series (including Series 1998-2) from time to time. See "Annex I: Other
Series." While the Principal Terms of any Series will be specified in a
Supplement, the provisions of a Supplement and, therefore, the terms of
any additional Series, will not be subject to the prior review or consent
of holders of the certificates 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 certificates (including subordinated
classes of certificates), provisions subordinating such 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 to the Pooling and
Servicing Agreement which is made applicable only to such Series. See
"Description of the Offered Certificates--Exchanges." In addition, the
provisions of any Supplement may give the holders of the certificates
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 certificateholders 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 issuance of
any additional Series that each Rating Agency that has rated any
outstanding Series deliver written confirmation to the Trustee that the
Exchange 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, might not have an adverse impact on the
timing and amount of payments received by a Certificateholder or the
value of Certificates even if there is no change in the rating of any
outstanding Series. See "Description of the Offered
Certificates--Exchanges."
CERTIFICATE RATING
It is a condition to issuance of the Class A Certificates that they
be rated "AAA" or its equivalent by at least one nationally recognized
rating agency. It is a condition to issuance of the Class B Certificates
that they be rated "A" or its equivalent by at least one nationally
recognized rating agency. The ratings assigned to the Offered
Certificates by a Rating Agency will reflect such Rating Agency's
assessment of the likelihood that Certificateholders 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 Certificates (including in the Excess Funding
Account, if any) and the subordination of the Class B Certificates, Class
C Certificates and the Class D Certificates for the benefit of the Class
A Certificates and the subordination of the Class C Certificates and the
Class D Certificates for the benefit of the Class B Certificates.
However, any such rating will not address the possibility of the
occurrence of a Pay Out Event with respect to the Offered Certificates,
the possibility of the imposition of United States withholding tax with
respect to non-U.S. Certificateholders or the likelihood that the
principal of, or interest on, the Offered Certificates 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 issuance of the Class C
Certificates that they be rated "BBB" or its equivalent by at least one
nationally recognized rating agency. The Class D Certificates will not be
rated. The ratings are not a recommendation to purchase, hold, or sell
the Class A Certificates or the Class B Certificates, 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 circum-
stances so warrant.
The Transferor will request a rating of the Offered Certificates 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 Certificates will nonetheless issue a rating with respect to any
Class of the Offered Certificates, and, if so, what such rating would be.
A rating assigned to any Class of the Offered Certificates 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.
DEFEASANCE
The Certificates 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 Certificates 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 Scheduled Payment Date or Class B Scheduled 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 Certificateholders for
federal income tax purposes, notwithstanding that, if such a sale or
exchange were deemed to occur, each Certificateholder 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 on which the Obligors are Fingerhut
customers and ___% of the amount of Revolving Receivables on which the
Obligors are Fingerhut customers that otherwise would be treated as
Principal Receivables to be treated as Finance Charge Receivables. The
Transferor may, without notice or consent of the Certificateholders, from
time to time, increase, reduce or eliminate such percentages. 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 must provide prior written notice
to the Servicer, the Trustee, and each Rating Agency of any such
increase, reduction or elimination, and such increase, decrease or
elimination will become effective on the date specified therein unless
such increase, reduction or elimination would cause a Pay Out Event to
occur with respect to any Series or, in the case of any increase, the
Rating Agency Condition shall have not been satisfied with respect to
such increase.
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 Certificates, the
Exchangeable Transferor Certificate, and certificates representing other
Series 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. Fingerhut offers
extended payment terms on all purchases and makes substantially all of
its sales on proprietary credit issued by an affiliate, FNB. 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 active list of existing customers account for
approximately __% 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 all private label credit for 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 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 Fingerhut customers to provide
traditional credit information in order to approve purchases on credit.
Instead of using traditional credit applications, over the years
Fingerhut developed 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 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 customer
places an order, FNB employs proprietary techniques to analyze the
information available about the customer to determine the appropriate
credit action. Customer payments are continuously monitored to identify
credit problems as early as possible. See "-- Credit Management" below.
At the present time, only Receivables arising in connection with
the sale of merchandise, financial service products or services from
Fingerhut are included in the Trust. In the future, Receivables generated
or acquired by FNB and arising in connection with the purchase of
merchandise, financial service products or services from a retailer other
than Fingerhut may be included in the Trust, subject to satisfaction of
the Rating Agency Condition. See "Description of the Offered
Certificates--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
____ million of whom have purchased products from Fingerhut within the
past 24 months, and contains up to 1,400 potential data items in a
customer record. These data items include names, addresses, behavioral
characteristics, general demographic information, information provided by
the customer and information on the sources of the customers' initial
responses. 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 approximately 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 [16,000] different products.
Fingerhut's sales mix by product category for 1997 is shown in the
following table:
FINGERHUT CORPORATION 1997 PRODUCT MIX
Percent of
Gross Retail Sales
Electronics........................... %
Home Textiles.........................
Housewares............................
Furniture/Home Accessories............
Leisure...............................
Jewelry...............................
Apparel...............................
Tools/Automotive/Lawn & Garden........
Other.................................
-----
Total.............................. 100%
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 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 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
___-page holiday big book. Specialty catalogs mailed to targeted portions
of Fingerhut's customer list include outdoor living, jewelry,
electronics, domestics/housewares, gifts, juvenile, home fitness, home
improvement and Spanish-language catalogs.
MARKETING
Marketing activities are divided into three primary programs: new
customer acquisition, a transitional program and existing customer
programs. During 1997, Fingerhut mailed approximately ___ 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.
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 20% of Fingerhut's
annual 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 amount of
time a first-time buyer 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 mail efforts, primarily catalogs, and through telemarketing.
In 1997, Fingerhut mailed ___ 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. Management believes that 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, 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 revolving credit card accounts and then reviewing credit
risk before authorizing individual closed-end credit card loans or
individual transactions on revolving credit card accounts.
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 the loan
is approved, the sale is booked, and the merchandise is shipped.
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
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 who wishes to
refinance his or her existing Fingerhut or FNB closed-end credit card
loan with a revolving credit card loan, an FNB 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 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 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.
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 revolving credit card accounts.
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 or acquired by FNB. On the Closing
Date, only Receivables arising 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 or acquired by FNB and arising in connection with the purchase
of merchandise, financial service products or services from a retailer
other than 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 amount of the closed-end credit card
loans originated by FNB in the Trust 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 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 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 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 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 revolving credit card accounts.
The following tables summarize the Receivables in revolving credit
card accounts of Back End Customers, which will be conveyed to the Trust
on the Closing Date by various criteria as of the close of business on
______________. Because the future composition of the revolving credit
card accounts included in the Trust may change over time, these tables
are not necessarily indicative of the composition of the revolving credit
card accounts included in the Trust at any subsequent time. The
Transferor will continuously add to the Trust, in compliance with
provisions of the Pooling and Servicing Agreement, Receivables which are
Eligible Receivables in addition to those reflected in the tables below.
COMPOSITION BY CREDIT LIMIT
REVOLVING ACCOUNTS
Percentage
Total of
Number of Percentage of Total Receivables Receivables
Credit Limit Range Accounts Number of Accounts Outstanding Outstanding
- ------------------ --------- ------------------- ----------- -----------
$ 0- $ 500.....
$ 501- $ 800.....
$ 801- $1,000.....
$1,001- $1,500.....
$1,501- $2,000.....
$2,001 & Greater...
Total.......... 100% 100%
COMPOSITION BY ACCOUNT BALANCE
REVOLVING ACCOUNTS
Percentage
of Total
Account Balance Number of Percentage of Total Receivables Receivables
Range Accounts Number of Accounts Outstanding Outstanding
- --------------- --------- ------------------- ----------- -----------
Credit Balance.....
No Balance.........
$ 0.01-$ 250.00..
$ 250.01-$ 500.00..
$ 500.01-$1,000.00..
$1,000.01-$1,500.00.
$1,500.01-$3,000.00.
$3,000.01-& Greater.
Total............... 100.0% 100.0%
SERVICING
Fingerhut services both the closed-end credit card contracts and
the 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 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 [16]
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 revolving credit card accounts
receive a monthly billing statement, in addition to the invoice shipped
with the customer's order. Under 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 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.). 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 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 fifteen to
twenty 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 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. Revolving credit card
account collections are managed through the VisionPlus, Credit Management
System. One of the modules making up the Vision 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 fifteen to twenty 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 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.
LOSS AND DELINQUENCY HISTORY
Closed-End Credit. All closed-end loans of a particular customer
may be charged off as "uncollectible" when collections 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. Revolving credit card accounts are generally
charged off when the account is 180 days delinquent or upon notification
of Obligor bankruptcy. In certain situations, if an account is 180 days
delinquent and a payment 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 revolving credit card accounts currently are being referred
to outside collection agencies on a fee basis. As the pool of 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 originated by Fingerhut and FNB from Back End Customers for
the given periods. 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 Back End Customer Receivables were comprised
substantially of closed-end installment sale contracts originated by
Fingerhut and closed-end credit card loans originated by FNB and the Back
End Customer Receivables are expected to become entirely revolving credit
card loans originated by FNB over the next several years.
LOSS EXPERIENCE FOR BACK END CUSTOMER RECEIVABLES
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED
1997 1996 1995
---- ---- ----
Average Receivables
outstanding (1)..........
Net charge-offs (2).......
Net charge-offs as a
percentage of
Average Receivables
outstanding..............
(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.
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 the Receivables originated by Fingerhut and FNB
from Back End Customers. 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 Back End Customer Receivables were
comprised substantially of closed-end installment sales contracts
originated by Fingerhut and closed-end credit card loans originated by
FNB and the Back End Customer Receivables are expected to become entirely
revolving credit card loans originated by FNB over the next several
years.
<TABLE>
<CAPTION>
DELINQUENCIES FOR BACK END CUSTOMER RECEIVABLES (3)
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED
1997 1996 1995
------------------- ----------------------- ----------------------
AMOUNT(1) PERCENTAGE(2) AMOUNT(1) PERCENTAGE(2) AMOUNT(1) PERCENTAGE(2)
<S> <C> <C> <C>
30-59 days
past due....
60-89 days
past due....
90 days or
more past
due.........
Total
</TABLE>
(1)The Receivable delinquent amount by category is the arithmetic average
of the delinquencies at fiscal month end during the period shown.
(2)The delinquency period and total percentages for the fiscal years
shown are the quotients obtained by dividing the average of the
Receivable delinquent amount at fiscal month end by the average of the
Receivables outstanding at fiscal month end.
(3)If a customer has one Receivable that is delinquent, all Receivables
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 the Receivables originated by Fingerhut and/or FNB from
Back End Customers. 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 chart, in part because for the historical
periods shown, the Back End Customer Receivables were comprised
substantially of closed-end installment sales contracts originated by
Fingerhut and closed-end credit card loans originated by FNB and the Back
End Customer Receivables are expected to become entirely revolving credit
card loans originated by FNB over the next several years.
DILUTION EXPERIENCE FOR BACK END CUSTOMER RECEIVABLES
MONTHLY
DILUTION
MONTHLY PERIOD PERCENTAGE (1)
- -----
January
February
March
April
May
June
July
August
September
October
November
December
- ----
January
February
March
April
May
June
July
August
September
October
November
December
- ----
January
February
March
- ----------
(1) Monthly Dilution Percentage is calculated by dividing the total
amount of Receivable dilution activity for Receivables originated by
Fingerhut from Back End Customers for a given fiscal month by
outstanding Receivables originated by Fingerhut from Back End
Customers at the beginning of such fiscal month.
GEOGRAPHIC DISTRIBUTION
The Table below sets forth the geographic distribution of the Back
End Customers as of _____. Because the future composition of the Back End
Customer Receivables may change over time, this table is not indicative
of the geographic distribution of the Back End Customers at any
subsequent time.
GEOGRAPHIC DISTRIBUTION
AS OF _________
PERCENTAGE OF
PERCENTAGE OF OUTSTANDING
NUMBER OF RECEIVABLES BY
STATE CUSTOMER ORDERS DOLLAR AMOUNT
Alabama % %
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
U.S. Territories and Other
Total 100.0% 100.0%
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. The Transferor
was organized for the limited purpose 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 its
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 over 45 years and sells general merchandise
(including electronics, housewares, home textiles, apparel, furniture,
home accessories, jewelry, sporting goods and toys, tools, automotive,
and lawn and garden products) and financial service products 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 multi-media direct 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. Its principal executive offices are located at 3904
West Technology Circle, Suite 102, Sioux Falls, South Dakota 57106,
telephone number (605) 362-2380.
MATURITY CONSIDERATIONS
The Class A Invested Amount is payable to the Class A
Certificateholders, to the extent funds are available therefor in the
Principal Account, on each Distribution Date beginning with the
_____________ 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 Certificateholders 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 Certificates will be made on the ___________
Distribution Date (the "Class A Expected Final Payment Date"). The
Pooling and Servicing Agreement provides that the Class B
Certificateholders will not begin to receive payments of principal until
the Class A Invested Amount has been paid in full. The Class B
Certificateholders 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 with
respect to the Class B Certificates will be made on the_____________
Distribution Date (the "Class B Expected Final Payment Date"). The
Pooling and Servicing Agreement provides that the Class C
Certificateholders 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 Investor 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 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 Investor 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 initial Distribution Date
following the payment of the Class A Invested Amount in full 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 Certificateholders in an amount equal to the Class A Controlled
Amortization Amount on each Distribution Date beginning on the ________
Distribution Date and ending on the ____________ Distribution Date and to
the Class B Certificateholders in an amount equal to the Class B
Controlled Amortization Amount beginning on the ___________ Distribution
Date and ending on the __________ 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 Certificateholders will be entitled to receive
monthly payments of principal as described above, 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 Certificateholders will be entitled to receive monthly
payments of principal as described above, until the Class B Invested
Amount is paid in full or until the Termination Date. Thereafter, on and
after the Class C Principal Payment Commencement Date, the Class C
Certificateholders will be entitled to receive monthly payments of
principal, until the Class C 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 Certificateholders
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, FCI or Fingerhut
National Bank, (d) the occurrence of a Servicer Default that would have a
material adverse effect on the Certificateholders, (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, (f) the Trust
becoming subject to regulation as an "investment company" within the
meaning of the Investment Company Act, (g) a reduction in the average of
the Portfolio Yields for any three consecutive Monthly Periods to a rate
which is less than the weighted average of the Base Rates for such three
consecutive Monthly Periods or (h) the amount on deposit in the Excess
Funding Account as a percentage of the sum of the aggregate amount of
Principal Receivables plus the amount on deposit in the Excess Funding
Account being equal to or greater than 30% on the last day of three
consecutive Monthly Periods. See "Description of the Offered
Certificates--Pay Out Events."
The "Base Rate" means, with respect to any Monthly Period, the sum
of (i) the weighted average of the Class A Certificate Rate, the Class B
Certificate Rate and the Class C Certificate Rate as of the last day of
such Monthly Period (weighted based on the Class A Invested Amount, the
Class B Invested Amount and the Class C Invested Amount, respectively, as
of the last 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 last 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
Finance Charge Collections for such Monthly Period (not including
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 (ii) amounts withdrawn from the Defeasance Reserve Account with
respect to such Monthly Period calculated on a cash basis after
subtracting the Investor Default Amount and the Series Allocation
Percentage of any Adjustment Payments which the Transferor is required
but fails to make pursuant to the Pooling and Servicing Agreement for
such Monthly Period, and the denominator of which is the average daily
Invested Amount during the preceding Monthly Period; provided, however,
that Excess Finance Charge Collections applied for the benefit of the
Certificateholders may be added to the numerator if the Rating Agency
Condition is satisfied. See "Description of the Offered Certificates--Pay
Out Events."
The following table sets forth the highest and lowest monthly
payment rates ("MPR") for the Receivables originated by Fingerhut and FNB
from Back End Customers 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 percentage. The middle fiscal month of each fiscal quarter is, and
____________ 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.
MONTHLY PAYMENT RATES FOR BACK END CUSTOMER RECEIVABLES
FISCAL YEAR ENDED
-----------------
1997 1996 1995 1994
---- ---- ---- ----
Lowest Month.........
Highest Month........
Monthly Average......
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 Certificateholders could expect to receive
payments of principal on their Certificates during the Amortization
Period, will be similar to the historical experience set forth above, in
part because for the historical periods shown, the Back End Customer
Receivables were comprised substantially of closed-end installment sales
contracts originated by Fingerhut and closed-end credit card loans
originated by FNB and the Back End Customer 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 Certificates could be significantly reduced.
POOL FACTOR AND RELATED INFORMATION
The "Class A Pool Factor" and the "Class B Pool Factor" are each a
seven-digit decimal, which the Servicer will compute monthly, expressing
as of each Record Date, respectively, the Class A Invested Amount as a
proportion of the initial Class A Invested Amount and the Class B
Invested Amount as a proportion of the initial Class B Invested Amount.
On the Closing Date, the Class A Pool Factor and the Class B Pool Factor
will each be 1.0000000 and will remain unchanged during the Revolving
Period, except in certain limited circumstances. Thereafter, on and after
the first Distribution Date on which principal payments are made to the
Class A Certificateholders during the Amortization Period, the Class A
Pool Factor will decline to reflect reductions in the Class A Invested
Amount and on and after the Class B Principal Payment Commencement Date,
the Class B Pool Factor will decline to reflect reductions in the Class B
Invested Amount. A Certificateholder's pro rata interest in the Principal
Receivables in the Trust for a given month can be determined by
multiplying the denomination of the holder's Certificate by the
applicable Pool Factor for that month.
Pursuant to the Pooling and Servicing Agreement, monthly reports
concerning the Class A Invested Amount, the Class A Pool Factor, the
Class B Invested Amount and the Class B Pool Factor and various other
items of information will be made available to the Class A
Certificateholders and the Class B Certificateholders, respectively. See
"Description of the Offered Certificates--Reports to Certificateholders."
USE OF PROCEEDS
The Transferor will apply the net proceeds received from the sale
of the Offered Certificates, to repay principal of classes of the Series
1994-2 Variable Funding Certificates and the Series 1997-1 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 CERTIFICATES
The Offered Certificates will be issued pursuant to the Pooling and
Servicing Agreement and the Series 1998-1 Supplement. 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 Series 1998-2) and Participation Supplements in order to issue
Participations.
GENERAL
The Offered Certificates will represent undivided interests in
certain assets of the Trust, including the right to the investor
allocation percentage of all Obligor payments on the Receivables in the
Trust. Each Class A Certificate and Class B Certificate represents the
right to receive payments of interest at the Class A Certificate Rate or
the Class B Certificate Rate, as the case may be, funded from Available
Series Finance Charge Collections and the right to receive payments of
principal after the beginning of the Amortization Period, with respect to
the Class A Certificates, and on and after the Class B Principal Payment
Commencement Date, with respect to the Class B Certificates, in each case
funded from Principal Collections allocated to the Class A
Certificateholders' Interest or the Class B Certificateholders' Interest,
as the case may be.
The Transferor owns the Exchangeable Transferor Certificate and
will initially own the Class D Certificates. The Exchangeable Transferor
Certificate 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 allocation percentages (which shall not exceed 100%) for all
Series of certificates 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. 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 Invested Amount will decline as Obligor payments of Principal
Receivables are collected and held for distribution or distributed to the
Certificateholders. As a result, unless and to the extent that the
Variable Funding Certificates absorb such increase, the Transferor
Interest will generally increase each month during the 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. See "--Exchanges."
Each Class of Offered Certificates initially will be represented by
certificates 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
Certificates 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 Certificates. Unless and until Definitive
Certificates are issued under the limited circumstances described herein,
no Certificate Owner acquiring an interest in any Class of Offered
Certificates will be entitled to receive a certificate representing such
Certificate Owner's interest in such Certificates. Until such time, all
references herein to actions by Certificateholders of any Class of
Offered Certificates 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 Certificateholders of any Class of Offered Certificates will refer to
distributions, notices, reports, and statements to the Depository or its
nominee, as the registered holder of the Offered Certificates of such
Class, for distribution to Certificate Owners of such Class in accordance
with the Depository's procedures. See "--Book-Entry Registration" and
"--Definitive Certificates."
BOOK-ENTRY REGISTRATION
With respect to each Class of Offered Certificates in book-entry
form, Certificateholders may hold their Certificates 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 certificates.
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 certificates. 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). 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 Certificates under the DTC system must be made by or
through Participants, which will receive a credit for the Certificates on
DTC's records. The ownership interest of each actual Certificate Owner is
in turn to be recorded on the Participants' and Indirect Participants'
records. Certificate Owners will not receive written confirmation from
DTC of their purchase, but Certificate 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 Certificate Owner entered into the
transaction. Transfers of ownership interests in the Certificates are to
be accomplished by entries made on the books of Participants acting on
behalf of Certificate Owners. Certificate Owners will not receive
certificates representing their ownership interest in Certificates,
except in the event that use of the book-entry system for the
Certificates is discontinued.
To facilitate subsequent transfers, all Certificates deposited by
Participants with DTC are registered in the name of DTC's nominee, Cede &
Co. The deposit of Certificates 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 Certificate Owners of the Certificates;
DTC's records will reflect only the identity of the Participants to whose
accounts such Certificates are credited, which may or may not be the
Certificate 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 Certificate 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
Certificates. Under its usual procedures, DTC mails an omnibus proxy to
the issuer as soon as possible after the record date, which assigns Cede
& Co.'s consenting or voting rights to those Participants to whose
accounts the Certificates are credited on the record date (identified in
a listing attached thereto). Principal and interest payments on the
Certificates 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 Certificate 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
Certificate Owners shall be the responsibility of Participants and
Indirect Participants.
DTC may discontinue providing its services as securities depository
with respect to the Certificates 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
Certificates are required to be printed 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
Certificates 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 certificates. 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 Certificates. 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 certificates 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 Certificates. 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 certificates 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.
Distributions with respect to Certificates 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
Certificateholder 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 Certificates 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 CERTIFICATES
The Offered Certificates of each Class will be issued in fully
registered, certificated form to the Certificate Owners of such Class or
their nominees ("Definitive Certificates"), 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 Certificates 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, Certificate 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
Certificate Owners of such Class.
Upon the occurrence of any of the events described in the
immediately preceding paragraph, the Depository is required to notify all
Participants of the availability through the Depository of Definitive
Certificates. Upon surrender by the Depository of the definitive
certificate representing the Certificates of the affected Class and
instructions for registration, the Trustee will issue the Certificates of
such Class as Definitive Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as
Certificateholders under the Pooling and Servicing Agreement.
Distribution of principal and interest on the Offered Certificates
will be made by the Trustee directly to Certificateholders 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 Certificateholders in whose names the
Definitive Certificates were registered at the close of business on the
related Record Date. Distributions will be made by check mailed to the
address of such Certificateholder as it appears on the register
maintained by the Trustee. The final payment on any Offered Certificate,
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 Certificateholders. The Trustee will provide such notice
to registered Certificateholders mailed not later than the fifth day of
the month of such final distributions.
Definitive Certificates 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"). 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 Certificates
for the period from the Record Date preceding the due date for any
payment to the Distribution Date with respect to such Definitive
Certificates.
INTEREST PAYMENTS
Interest will accrue on the outstanding principal amount of each
Class of the Certificates at the applicable Certificate Rate from the
Closing Date. Interest will be distributed on______________, and on each
Distribution Date thereafter to Certificateholders, to the extent of
Available Series Finance Charge Collections. Interest payments on the
Class A Certificates and the Class B Certificates on any Distribution
Date will be calculated on the outstanding principal amount of the Class
A Certificates or the outstanding principal amount of the Class B
Certificates, as applicable, as of the preceding Record Date, except that
interest for the first Distribution Date will accrue at the applicable
Certificate Rate on the initial principal amount of the Class A
Certificates or the initial principal amount of the Class B Certificates
from the Closing Date.
The Class A Certificates will bear interest at the rate of .__% per
annum above LIBOR determined as set forth below for the period from
____________, 1998 through ____________, 1998 and at a rate equal to .__%
per annum above LIBOR determined as set forth below for the period from
____________, 1998 through ____________, 1998 and with respect to each
Interest Accrual Period thereafter. The Class B Certificates will bear
interest at the rate of .__% per annum above LIBOR determined as set
forth below for the period from____________, 1998 through ____________,
1998 and at a rate equal to .__% per annum above LIBOR determined as set
forth below for the period from ____________, 1998 through ____________,
1998 and with respect to each Interest Accrual Period thereafter. The
Class C Certificates will bear interest at a rate equal to a specified
margin in excess of LIBOR determined as set forth below.
The Trustee will determine LIBOR on ____________, 1998 for the
period from ____________, 1998 through ____________, 1998 and will
determine LIBOR for each Interest Accrual Period following the initial
Interest Accrual Period on the second business day prior to the
Distribution Date on which such Interest Accrual Period commences (each,
a "LIBOR Determination Date"). For purposes of calculating LIBOR, a
business day is any day on which banks in London and New York are open
for the transaction of international business.
"LIBOR" means, 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 the 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 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 the relevant
Interest Accrual Period).
"Telerate Page 3750" means 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).
The Class A Certificate Rate and the Class B Certificate Rate
applicable to the then current and immediately preceding Interest Accrual
Period may be obtained by telephoning the Trustee at its Corporate Trust
Office at (212) 815- 5737. Following the listing of the Offered
Certificates on the Luxembourg Stock Exchange, the Trustee will cause the
Class A Certificate Rate and the Class B Certificate Rate applicable to
an Interest Accrual Period to be provided to the Luxembourg Stock
Exchange as soon as possible after its determination but in no event
later than the first day of such Interest Accrual Period.
Interest on the Class A Certificates and the Class B Certificates
will be calculated on the basis of the actual number of days in the
Interest Accrual Period and a 360 day year.
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 Certificateholders. 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
Certificateholders until the Class A Invested Amount is paid in full,
then to the Class B Certificateholders until the Class B Invested Amount
is paid in full, then to the Class C Certificateholders until the Class C
Invested Amount is paid in full, and finally to the Class D
Certificateholders until the Class D Invested Amount is paid in full. The
amount of principal distributed with respect to the Class A Certificates
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 Certificates during the
Controlled Amortization Period 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 ___________ Monthly Period. See "--Application of
Collections" for a discussion of the method by which Principal
Collections are allocated during the Amortization Period.
Available Investor 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 Certificateholders. On and after the Class B
Principal Payment Commencement Date, Available Investor 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
Certificateholders. On and after the Class C Principal Payment
Commencement Date, Available Investor Principal Collections for any
Monthly Period will first be used to cover required deposits into the
Principal Account for the benefit of the Class C Certificateholders.
"Available Investor Principal Collections" means, with respect to any
Monthly Period, an amount equal to the sum of (i) an amount equal to the
Fixed/Floating Allocation Percentage of all Principal Collections (less
the amount of Reallocated Principal collections) received during such
Monthly Period, (ii) any amount on deposit in the Excess Funding Account
allocated to the Certificates with respect to such Monthly Period, (iii)
the aggregate Investor Default Amount and the Series Allocation
Percentage of any unpaid Adjustment Payments paid from Available Series
Finance Charge Collections, Transferor Finance Charge Collections, Excess
Finance Charge Collections or Reallocated Principal Collections with
respect to such Monthly Period and any reimbursements from Available
Series Finance Charge Collections, Transferor Finance Charge Collections,
Excess Finance Charge Collections or Reallocated Principal Collections of
unreimbursed Class A Investor Charge-Offs, Class B Investor Charge-Offs,
Class C Investor Charge-Offs and Class D Investor Charge-Offs and (iv)
Shared Principal Collections allocated to the Certificates.
The Servicer will determine the amount of Principal Collections for
any business day allocated to the Offered Certificates and remaining
after covering required deposits or payments of principal to the
Certificateholders and any similar amount remaining with respect to
certificates 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 any scheduled or
permitted principal distributions to certificateholders (including
principal distributions that the Transferor may elect to make to the
holders of the Variable Funding Certificates, if any) and deposits to
principal funding accounts, if any, for any Series that have not been
covered out of the Principal Collections allocable to such Series and
certain other amounts ("Principal Shortfalls"). Shared Principal
Collections will not be used to cover investor 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 Certificate.
FINANCE CHARGE COLLECTIONS; PRINCIPAL COLLECTIONS
Collections on the Receivables are deposited into the Collection
Account maintained in the name of the Trust and allocated on each
business day between Finance Charge Collections and Principal
Collections. Finance Charge Receivables include (i) with respect to
revolving credit card loans originated by FNB, 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 services sold by Fingerhut) plus (ii) with respect
to all Receivables, Recoveries, any other fees, other than prepaid
insurance premiums, billed to Obligors, investment earnings on amounts
credited to the Excess Funding Account and 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 originated by FNB, 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 will initially be
___% and for Closed End Receivables 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. Finance Charge Collections include collections of
Periodic Finance Charges and fees with respect to Revolving Receivables,
Recoveries, investment earnings on amounts on deposit in the Excess
Funding Account 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").
Finance Charge Collections and Principal Collections are allocated
on each business day among the Transferor Interest, the interest of the
holder of any Participation, and the respective interests of the
certificateholders 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
certificates of any Series then outstanding, to pay certain fees and
expenses, to cover investor default amounts, to cover any Series
Allocation Percentage of Adjustment Payments the Transferor fails to
make, to reimburse investor 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 certificates of
any Series then outstanding, except that during any revolving period
applicable to a Series, Principal Collections otherwise allocable to the
certificateholders of such Series which are not reallocated to cover
amounts payable from Finance Charge Collections in the event of a
shortfall thereof are paid to the holder of the Exchangeable Transferor
Certificate or paid to the certificateholders of any other Series then
outstanding.
SUBORDINATION OF THE CLASS B CERTIFICATES
The Class B Certificates will be subordinated to the extent
necessary to fund certain payments with respect to the Class A
Certificates. To the extent the Class B Invested Amount is reduced, the
percentage of Finance Charge Collections allocated to the Class B
Certificateholders 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 Certificateholders will be reduced.
The Class C Certificates will be subordinated to the extent
necessary to fund certain payments with respect to the Class A
Certificates and the Class B Certificates. To the extent the Class C
Invested Amount is reduced, the percentage of Finance Charge Collections
allocated to the Class C Certificateholders in subsequent Monthly Periods
will be reduced. Moreover, to the extent the amount of such reduction in
the Class C Invested Amount is not reimbursed, the amount of principal
distributable to the Class C Certificateholders will be reduced.
If, on any Determination Date, the aggregate Investor Default
Amount and the Series Allocation Percentage of the unpaid Adjustment
Payments, if any, for each business day in the preceding Monthly Period
exceeds (a) the aggregate amount of Available Series Finance Charge
Collections 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
"--Reallocation of Cash Flows," and (c) the amount of Reallocated
Principal Collections allocated with respect thereto as described in
"--Reallocated Principal Collections," the Class D Invested Amount
(following the reduction thereof in an amount equal to the amount of
Reallocated Principal Collections to be applied on the related
Distribution Date) will be reduced by the amount by which the sum of the
aggregate Investor Default Amount and the Series Allocation Percentage of
the unpaid Adjustment Payments exceeds the amount applied with respect
thereto during the preceding Monthly Period. 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 Finance Charge Collections and Excess Finance Charge Collections
allocated and available 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 Class C Invested
Amount will be reduced by the amount by which the Class D Invested Amount
would have been reduced below zero, but not more than the sum of the
remaining aggregate Investor Default Amount and the remaining Series
Allocation Percentage of the unpaid Adjustment Payments for such Monthly
Period. Such reductions of the Class C Invested Amount will thereafter be
reimbursed and the Class C Invested Amount increased on each business day
by the amount, if any, of Available Series Finance Charge Collections and
Excess Finance Charge Collections for such business day allocated and
available for that purpose.
In the event that any such reduction of the Class C Invested Amount
would cause the Class C Invested Amount to be a negative number, the
Class C Invested Amount will be reduced to zero and the Class B Invested
Amount will be reduced by the amount by which the Class C Invested Amount
would have been reduced below zero, but not more than the sum of the
remaining aggregate Investor Default Amount and the remaining Series
Allocation 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 Finance Charge Collections and
Excess Finance Charge Collections for such business day allocated and
available 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
more than the sum of the remaining aggregate Investor Default Amount and
the remaining Series Allocation 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
Finance Charge Collections and Excess Finance Charge Collections
allocated and available for that purpose. See "--Reallocation of Cash
Flows," "--Reallocated Principal Collections" and "--Investor
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.
Contemporaneously with the issuance of the Certificates, the FCI Purchase
Agreement and the Pooling and Servicing Agreement will be 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. The aggregate amount of Receivables in the Trust
as of , 1998 (assuming that the Receivables to be added to the Trust on
the Closing Date, including revolving credit card loans originated by
FNB, had been included in the Trust on such date) was $
comprised of $ of Finance Charge Receivables
and $________ of Principal Receivables. As of ____________, 1998
(assuming that the Receivables to be added to the Trust on the Closing
Date, including revolving credit card loans originated by FNB, had been
included in the Trust on such date), the Principal Receivables consisted
of $____________ of closed-end installment sale contracts originated by
Fingerhut, $__________ of closed-end credit card loans originated by FNB
and $__________ of revolving credit card loans originated by FNB. See
"Description of the Purchase Agreements."
Fingerhut filed one or more UCC-1 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 financing statements
in accordance with the UCC to perfect the interest of the Transferor in
the Receivables sold pursuant to the FCI Purchase Agreement. FCI will
file one or more UCC-3 financing statements in accordance with the UCC on
or about the Closing Date to reflect FCI's assignment to FRI of revolving
credit card loans originated by FNB and to amend certain definitions in
the filing. 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. The Transferor will file one or more UCC-3
financing statements in accordance with the UCC on or about the Closing
Date 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. Fingerhut, FNB and the Transferor will file any additional
amendments 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 Certificateholders.
EXCHANGES
The Pooling and Servicing Agreement provides for the Trustee to
issue three types of certificates: (i) investor certificates in one or
more Series of certificates, each of which may have one or more classes
of certificates of which one or more such classes may be transferable,
(ii) Participations representing participation interests in the
Receivables, as described below, and (iii) the Exchangeable Transferor
Certificate. The Exchangeable Transferor Certificate 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 Certificate may
tender the Exchangeable Transferor Certificate and the certificates
evidencing any Series of certificates, to the Trustee in exchange for one
or more new Series and a reissued Exchangeable Transferor Certificate.
Under the Pooling and Servicing Agreement, the holder of the Exchangeable
Transferor Certificate 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 certificate rate (or the method of allocating interest payments or
other cash flows to such Series); (iv) the closing date; (v) the rating
agency or agencies, if any, rating the 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 certificates 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;
(xi) the Minimum Transferor Interest; (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 certificates 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 certificateholders 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 Certificate
that have been transferred to the holders of such Series; (xxi) the pool
factor; (xxii) the Minimum Aggregate Principal Receivables; (xxiii)
whether such Series will be part of a group or subject to being paired
with any other Series; (xxiv) whether such Series will be prefunded; and
(xxv) 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 Certificateholder 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 Certificate 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 Certificates. 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 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 Certificate 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 Certificate may
deliver a different form of Enhancement agreement. The Pooling and
Servicing Agreement also provides that the holder of the Exchangeable
Transferor Certificate may specify different coupon rates and monthly
servicing fees with respect to each Series (or a particular class within
such Series). Collections allocated to Finance Charge Receivables not
used to pay interest on the certificates, the monthly servicing fee, the
investor default amount, or investor charge-offs with respect to any
Series will be allocated as provided in such Enhancement agreement, if
applicable. The holder of the Exchangeable Transferor Certificate 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 1998-1 Supplement does not permit the subordination of the
Certificates 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 Certificate 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
principal amount (or method for calculating such amount), (ii) its
certificate rate (or the method of allocating interest payments or other
cash flows to such Series), and (iii) the provider of the Enhancement, if
any, which is expected to provide credit support with respect to it. 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) an opinion of counsel to the effect that the
certificates of such Series will be characterized as indebtedness or as
partnership interests under existing law for federal and applicable state
income tax purposes, or that the issuance of such Series will not
adversely affect the federal income tax characterization of any
outstanding Series or result in the trust being subject to tax at the
entity level for federal or applicable state tax purposes (a "Tax
Opinion"), (iii) if required by such Supplement, the form of Enhancement
and an appropriate Enhancement agreement with respect thereto executed by
the Transferor and the issuer 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
Certificate and, if applicable, the certificates 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.
Under the Pooling and Servicing Agreement, the Transferor may also
exchange the Exchangeable Transferor Certificate for a newly issued
Exchangeable Transferor Certificate and a second certificate (a
"Supplemental Certificate") the terms of which will be defined in a
Supplement upon the satisfaction of certain conditions provided in the
Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that, pursuant to any
one or more supplements to the Pooling and Servicing Agreement (each, a
"Participation Supplement"), the Transferor may direct the Trustee to
issue on behalf of the Trust one or more participation interests in the
Trust (each, a "Participation"), to be delivered to or upon the order of
the Transferor; provided that (a) the Rating Agency Condition will be
satisfied in connection with such issuance, (b) the Transferor Interest
(excluding the interest represented by any Supplemental Certificate)
shall not be less than the Minimum Transferor Interest as of the date of,
and after giving effect to, such issuance and (c) the Transferor shall
have delivered to the Trustee and each Rating Agency a Tax Opinion, dated
the date of such issuance, with respect to such issuance. 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.
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 Certificates. Concurrently with the
issuance of the Certificates, the Trust will issue the Series 1998-2
Certificates bearing the rate of interest and having the outstanding
principal amounts set forth in "Annex I: Other Series" (the Series 1998-2
Certificates, together with the Previously Issued Series, the "Other
Series").
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 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, the
Series 1998-1 Supplement, 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, the Series
1998-1 Supplement, 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, the Series 1998-1 Supplement, 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
certificateholders 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 certificateholders). 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 certificates
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
Certificateholders 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 on a Distribution Date occurring within such
applicable period. Such reassignment will not be required to be made,
however, if at any time during such applicable period the representations
and warranties shall then be true and correct in all material respects.
The amount to be deposited by the Transferor for distribution to
certificateholders in connection with such reassignment will be equal to
the invested amount for all Series of certificates other than Variable
Funding Certificates required to be reassigned on the last day of the
Monthly Period preceding the Distribution Date on which the reassignment
is scheduled to be made, and, with respect to the Variable Funding
Certificates, the invested amount as of the Distribution Date on which
the reassignment is scheduled to be made, less the amount, if any,
previously allocated for payment of principal to such certificateholders
on such Distribution Date, plus an amount equal to all interest accrued
but unpaid on such certificates at the applicable certificate rate
through the last day of the related Interest Accrual Period, less the
amount transferred to the Distribution Account from the Interest Funding
Account in respect of interest on such certificates for the month ending
on such last day of the Monthly Period. The payment of the reassignment
deposit amount and the transfer of all other amounts deposited for the
preceding month in the Distribution Account will be considered payment in
full of the investor interest for all Series of certificates required to
be repurchased and will be distributed upon presentation and surrender of
the certificates for each such Series. If the Trustee or
certificateholders 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 certificateholders 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, the Series 1998-1 Supplement 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 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 Purchase 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 court, regulatory body, administrative agency, or
other tribunal or governmental instrumentality asserting the invalidity
of the Pooling and Servicing Agreement, the Series 1998-1 Supplement, 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 of 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) each Account classified
as an Eligible Account in any document or report delivered pursuant to
the Pooling and Servicing Agreement satisfies the definition of Eligible
Account and 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 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 (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 1998-1 Supplement proves to have been
incorrect in any material respect when made, and as a result the
interests of the Certificateholders 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
Certificateholders' Interest continues to be materially adversely
affected during such period, then the Trustee or 50 percent of the
Certificateholders' Interest of any Class may give notice to the
Transferor (and to the Trustee if given by the Certificateholders)
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 validity of the security interest of the
Trust in and to the Receivables and certain other components of the
Trust.
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 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 to enforce its rights and claims
under the Bank Purchase Agreement, the Fingerhut Purchase Agreement and
the FCI Purchase Agreement, (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 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 owned by an Originator that
satisfies each of the following criteria will be an Eligible Account
(each, an "Eligible Account"): (a) which is payable in Dollars; (b) the
Obligor on which 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) which has not been identified by the
applicable Originator or any of its Affiliates in its computer files as
stolen or lost; (d) which 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 charg ing off
Receivables in such Accounts unless such Account is subsequently
reinstated and (f) the Obligor on which 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 Closing
Date shall have arisen in an Eligible Account, (b) it is not sold or
pledged to any other party, (c) it constitutes an "account," "chattel
paper" or a "general intangible" as each are defined in Article 9 of the
UCC as then in effect in each Relevant UCC State, (d) it is at the time
of its transfer to the Trust the legal, valid and binding obligation of,
or is guaranteed by, a Person who is competent to enter into a contract
and incur debt and is enforceable against such person in accordance with
its terms, (e) it 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), (f) all material
consents, licenses, or authorizations of, or registrations with, any
Governmental Authority required to be obtained or given in connection
with the creation of such Receivable or the execution, delivery,
creation, and performance of the related Contract have been duly obtained
or given and are in full force and effect as of the date of the creation
of such Receivables and (g) immediately prior to giving effect to the
sale, the Transferor will have good and marketable title free and clear
of all liens and security interests arising under or through the
Transferor (other than Permitted Liens).
ADDITION OF TRUST ASSETS
Subject to the following restrictions, all new Receivables
originated by FNB which are purchased by FCI and are Eligible Receivables
will be purchased by the Transferor and thereafter automatically
transferred to the Trust; provided, however that Receivables arising in
connection with sales of merchandise and financial service products by
retailers who are not affiliates of Fingerhut on the Closing Date will
not automatically be transferred to the Trust until the Rating Agency
Condition has been satisfied with respect thereto. These Receivables may
have been 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.
Eligible Receivables will be automatically transferred to the Trust
with respect to any Monthly Period 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 or FNB) 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 Moody's since the first day of such eleventh
preceding Monthly Period shall not exceed 25% of the number of Back End
Customers at the close of business on the last day of such Monthly
Period; provided, however that, with Moody's consent, such limitation may
be exceeded.
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 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 Back End Customers. The Servicer may delegate these
servicing functions to a subservicer who agrees to conduct these
functions in accordance with the Credit and Collection Policies. FNB, as
servicer, has designated Fingerhut as a subservicer. FNB has the ability
to change subservicers from time to time. FNB is contemplating delegating
all or a portion of the servicing functions for 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
Certificateholders," and causing a firm of independent 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
Certificateholders, 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 Certificateholders which will be a non-interest
bearing segregated demand deposit account established with a Qualified
Institution. The Servicer has established and maintains, in the name of
the Trust, for the benefit of certificateholders of all Series, a
"Collection Account," which is a segregated account established by and
maintained by the Servicer with a Qualified Institution. A "Qualified
Institution" is a depository institution, which may include the Trustee,
organized under the laws of the United States or any one of the states
thereof, 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 Aa3 by Moody's and of AAA by Standard & Poor's and deposit
insurance provided by the FDIC, or a depository institution, which may
include the Trustee, which is acceptable to the Rating Agencies;
provided, however, that no such rating shall be required of an
institution which shall have corporate trust powers and which maintains
the Collection Account, the Principal Account, the Interest Funding
Account or any other account maintained for the benefit of
Certificateholders as a fully segregated trust account with the trust
department of such institution 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 Certificateholders,
and consisting of (x) shares of an open end diversified investment
company which is registered under the Investment Company Act which (i)
invests its assets exclusively in obligations of or guaranteed by the
United States of America or any instrumentality or agency thereof having
in each instance a final maturity date of less than one year from their
date of purchase or other Cash Equivalents, (ii) seeks to maintain a
constant net asset value per share, (iii) has aggregate net assets of not
less than $100,000,000 on the date of purchase of such shares and (iv)
which the Rating Agency designates in writing will not result in a
withdrawal or downgrading of its then current rating of any Series rated
by it or (y) Eurodollar time deposits of a depository institution or
trust company that are rated A-1+ by Standard & Poor's and P-1 by
Moody's; provided, however, that at the time of the Trust's investment or
con tractual 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 inter est 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 Corp. ("SIPC"), 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 an
SIPC broker, 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 con tractual 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 the Rating Agency
confirms in writing that such investment will not adversely affect its
then current rating of the Investor Certificates (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
paid to the Transferor. 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 and the
Principal 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 Certificateholders (the
"Paying Agent") has the revocable power to withdraw funds from the
Distribution Account for the purpose of making distributions to
Certificateholders. The Paying Agent initially will be The Bank of New
York and in certain limited circumstances the Banque de Luxembourg.
[On the Closing Date, the Transferor will make an initial deposit
to the Interest Funding Account in an amount equal to the sum of the
Class A Monthly Interest, the Class B Monthly Interest and the Class C
Monthly Interest for the initial Interest Accrual Period.]
EXCESS FUNDING ACCOUNT
The Trustee has established and will maintain in the name of the
Trust, for the benefit of the certificateholders 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.
Any funds on deposit in the Excess Funding Account 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, amount on deposit in the Excess Funding Account will be paid
out to each such Series pro rata based on the aggregate invested amount
of each such Series. In addition, no funds allocated to investor
certificates will be deposited in the Excess Funding Account during any
amortization period or early amortization period for any Series until the
Principal Account for such Series for such Distribution Date has been
fully funded or the investor certificates of such Series have been paid
in full.
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 Class A
Certificateholders' Interest, the Class B Certificateholders' Interest,
the Class C Certificateholders' Interest, the Class D Certificateholders'
Interest, the interest of the holders of the Other Series then
outstanding, the holders of any Participations then outstanding, the
Transferor Interest and the holders of the other Series issued and
outstanding from time to time pursuant to the Pooling and Servicing
Agreement and applicable Supplements all Finance Charge Collections and
all Principal Collections and the amount of all Defaulted Receivables.
Finance Charge Collections will be allocated prior to the commencement of
an Early Amortization Period and the amount of Defaulted Receivables will
be allocated at all times, and Principal Collections will be allocated
during the Revolving Period to the Class A Certificateholders' Interest,
the Class B Certificateholders' Interest, the Class C Certificateholders'
Interest and the Class D Certificateholders' Interest, based on the
percentage equivalent of a fraction the numerator of which is the Class A
Invested Amount, the Class B Invested Amount, the Class C Invested
Amount, or the Class D Invested Amount, respectively, at 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 amounts on
deposit in the Excess Funding Account as of the end of the preceding
business day and (b) the sum of the numerators for all Participations and
all classes of all Series then outstanding used to calculate the
applicable allocation percentage (the "Class A Floating Allocation
Percentage," the "Class B Floating Allocation Percentage," the "Class C
Floating Allocation Percentage" and the "Class D Floating Allocation
Percentage," respectively; the sum of all such percentages, the "Floating
Allocation Percentage"). During the Revolving Period, all Principal
Collections allocable to the Certificates will be allocated and paid to
the Transferor (except for collections applied as Reallocated Principal
Collections and Shared Principal Collections paid to the holders of
certificates 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 Certificateholders' Interest based on the percentage
equivalent of a fraction the numerator of which is the Class A Invested
Amount, the Class B Invested Amount, the Class C Invested Amount or the
Class D Invested Amount, respectively, 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 at the end of the preceding
business day and (b) the sum of the numerators used to calculate the
allocation percentages with respect to Principal Collections for all
Participations and all classes of all Series then outstanding (the "Class
A Fixed/Floating Allocation Percentage," the "Class B Fixed/Floating
Allocation Percentage," the "Class C Fixed/Floating Allocation
Percentage," and the "Class D Fixed/Floating Allocation Percentage,"
respectively; the sum of all such percentages the "Fixed/Floating
Allocation Percentage"). Finance Charge Collections will be allocated on
and after the date on which a Pay Out Event is deemed to occur to the
Certificateholders' Interest based on the Fixed/Floating Allocation
Percentage. On and after the date on which a Defeasance occurs with
respect to the Certificates, each of the allocation percentages specified
above with respect to the Certificates 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 the amount of Defaulted Receivables at all times,
100 percent minus the sum of the Floating Allocation Percentage, the
floating allocation 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 Allocation
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 Class A Initial Invested Amount minus
(b) the aggregate amount of principal payments made to Class A
Certificateholders through and including such date, and minus (c) the
aggregate amount of Class A Investor Charge-Offs for all prior
Distribution Dates, equal to the amount by which the Class A Invested
Amount has been reduced to fund the Investor Default Amount and the
unpaid Adjustment Payments on all prior Distribution Dates as described
under "--Investor Charge-Offs," plus (d) the aggregate amount of
Available Series Finance Charge Collections, Transferor Finance Charge
Collections, Excess Finance Charge Collections and Reallocated 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 B Invested Amount" for any date means an
amount equal to (a) the Class B Initial Invested Amount minus (b) the
aggregate amount of principal payments made to Class B Certificateholders
through and including such date, minus (c) the aggregate amount of Class
B Investor Charge-Offs for all prior Distribution Dates, equal to the
amount by which the Class B Invested Amount has been reduced to fund the
Investor Default Amount and the unpaid Adjustment Payments on all prior
Distribution Dates as described under "--Investor Charge-Offs," minus (d)
the aggregate amount of Reallocated Class B Principal Collections for
which neither the Class D Invested Amount nor the Class C Invested Amount
has been reduced for all prior Distribution Dates, and plus (e) the
aggregate amount of Available Series Finance Charge Collections,
Transferor Finance Charge Collections, Excess Finance Charge Collections,
Reallocated Class C Principal Collections, Reallocated 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; (iii) the term "Class C
Invested Amount" for any date means an amount equal to (a) the Class C
Initial Invested Amount minus (b) the aggregate amount of principal
payments made to Class C Certificateholders through and including such
date, minus (c) the aggregate amount of Class C Investor Charge-Offs for
all prior Distribution Dates, equal to the amount by which the Class C
Invested Amount has been reduced to fund the Investor Default Amount and
the unpaid Adjustment Payments on all prior Distribution Dates as
described under "--Investor Charge-Offs," minus (d) the aggregate amount
of Reallocated Class C Principal Collections and Reallocated Class B
Principal Collections for which the Class D Invested Amount has not been
reduced for all prior Distribution Dates, and plus (e) the aggregate
amount of Available Series Finance Charge Collections, Transferor Finance
Charge Collections, Excess Finance Charge Collections, Reallocated 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 C Invested Amount may not be reduced below zero; (iv) the term
"Class D Invested Amount" for any date means an amount equal to (a) the
initial principal balance of the Class D Certificates, minus (b) the
aggregate amount of principal payments made to Class D Certificateholders
through and including such date, minus (c) the aggregate amount of Class
D Investor Charge-Offs for all prior Distribution Dates, equal to the
amount by which the Class D Invested Amount has been reduced to fund the
Investor Default Amount and the unpaid Adjustment Payments on all prior
Distribution Dates as described under "--Investor Charge-Offs," minus (d)
the aggregate amount of Reallocated 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 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; (v) the term "Stated Class
D Amount" means the greater of (a) zero and (b) a number rounded to the
nearest dollar equal to ____ 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;
and (vi) the term "Invested Amount" means the sum of the Class A Invested
Amount, the Class B Invested Amount, the Class C Invested Amount and the
Class D Invested Amount.
As a result of the Floating Allocation Percentage, Finance Charge
Collections and the portion of Defaulted Receivables allocated to the
Certificateholders will change each business day based on the
relationship of the 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 allocation percentages of
collections of Principal Receivables allocable to the Class A
Certificateholders, the Class B Certificateholders, the Class C
Certificateholders and the Class D Certificateholders, however, will
remain fixed during the Amortization Period. Collections of Principal
Receivables allocable to the Class B Certificates are subject to possible
reallocation for the benefit of the Class A Certificateholders;
collections of Principal Receivables allocable to the Class C Invested
Amount are subject to possible reallocation for the benefit of the Class
A Certificateholders and the Class B Certificateholders and collections
of Principal Receivables allocable to the Class D Invested Amount are
subject to possible reallocation for the benefit of the Class A
Certificateholders, the Class B Certificateholders and the Class C
Certificateholders. See "--Reallocated Principal Collections" below.
REALLOCATION 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 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 Certificates in
an amount equal to the Required Amount. Excess Finance Charge Collections
from other Series allocable to the Certificates 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 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.
REALLOCATED 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 product of (a)(i) during the Revolving Period, the Class D Floating
Allocation Percentage or (ii) during an Amortization Period, the Class D
Fixed/Floating Allocation Percentage and (b) the amount of Principal
Collections with respect to such business day to the following amounts in
the following priority (such collections applied in accordance with
clause (a) below are called "Reallocated Class D Principal Collections"):
(a) an amount equal to the sum of (i) the Class A Required Amount
with respect to such business day, (ii) the Class B Required Amount with
respect to such business day and (iii) the Class C Required Amount with
respect to such business day will be applied first to the components of
the Class A Required Amount, then to the components of the Class B
Required Amount and then to the components of the Class C Required Amount
in the same priority as such components are applied from Available Series
Finance Charge Collections as described in "--Application of
Collections--Payment of Fees, Interest and Other Items"; and
(b) any such Principal Collections not applied in the foregoing
manner (and therefore not constituting Reallocated 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 will be included in Available Investor
Principal Collections.
On each business day, the Servicer will apply or cause the Trustee
to apply an amount, not to exceed the Class C Invested Amount, equal to
the product of (a)(i) during the Revolving Period, the Class C Floating
Allocation Percentage or (ii) during an Amortization Period, the Class C
Fixed/Floating Allocation Percentage and (b) the amount of Principal
Collections with respect to such business day to the following amounts in
the following priority (such collections applied in accordance with
clause (a) below are called "Reallocated Class C Principal Collections"):
(a) an amount equal to the sum of (i) the excess, if any, of the
Class A Required Amount with respect to such business day over the amount
of Reallocated Class D Principal Collections applied with respect thereto
for such business day and (ii) the excess, if any, of the Class B
Required Amount with respect to such business day over the amount of
Reallocated Class D Principal Collections applied with respect thereto
for such business day will be applied first to the remaining components
of the Class A Required Amount and then to the remaining components of
the Class B Required Amount in the same priority as such components are
applied from Available Series Finance Charge Collections as described in
"--Application of Collections--Payment of Fees, Interest and Other
Items"; and
(b) any such Principal Collections not applied in the foregoing
manner (and therefore not constituting Reallocated Class C 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 will be included in Available Investor
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 product of (a)(i) during the Revolving Period, the Class B Floating
Allocation Percentage or (ii) during an Amortization Period, the Class B
Fixed/Floating Allocation Percentage and (b) the amount of Principal
Collections with respect to such business day to the following amounts in
the following priority (such collections applied in accordance with
clause (a) below are called "Reallocated Class B Principal Collections"
and the sum of Reallocated Class D Principal Collections, Reallocated
Class C Principal Collections and Reallocated Class B Principal
Collections is called "Reallocated Principal Collections"):
(a) an amount equal to the excess, if any, of the Class A Required
Amount with respect to such business day over the sum of the amount of
Reallocated Class D Principal Collections and Reallocated Class C
Principal Collections applied with respect thereto for such business day
will be applied to the remaining components of the Class A Required
Amount in the same priority as such components are applied from Available
Series Finance Charge Collections as described in "--Application of
Collections--Payment of Fees, Interest and Other Items"; and
(b) any such Principal Collections not applied in the foregoing
manner (and therefore not constituting Reallocated 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 will be included in Available Investor
Principal Collections.
On each Distribution Date the Class D Invested Amount will be
reduced by the amount of unreimbursed Reallocated 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 Class C 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 Reallocated Principal Collections for such Distribution Date
would cause the Class C Invested Amount to be a negative number, the
Class C Invested Amount will be reduced to zero and the Class B Invested
Amount will be reduced by the amount by which the Class C Invested Amount
would have been reduced below zero. In the event that the amount of
unreimbursed Reallocated Principal Collections would cause the Class B
Invested Amount to be a negative number on any Distribution Date, the
amount of Class B Reallocated 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.
APPLICATION OF COLLECTIONS
Allocations. Obligors make payments on the Receivables to the
Servicer, who deposits all such payments 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 the 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) the Servicer provides to the Trustee a
letter of credit or other form of Enhancement rated in the highest rating
category by the Rating Agency covering the risk of collection of the
Servicer 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 certificates then outstanding or (b) FCI 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 Certificateholders 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 Certificateholder
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 Certificate 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 Allocation Percentage, and on and after the
occurrence of a Pay Out Event, the Fixed/Floating Allocation Percentage,
of the sum of the aggregate amount of Finance Charge Collections and the
amount of Adjustment Payments made by the Transferor with respect to
Adjustment Payments required to be made but not made in a prior Monthly
Period, (b) certain Transferor Finance Charge Collections allocable to
the Certificates 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;"
(iv) during the Revolving Period, an amount equal to the Floating
Allocation Percentage of Principal Collections (less the amount thereof
which may be applied as Reallocated Principal Collections) will be
applied as Shared Principal Collections;
(v) during the Amortization Period, an amount equal to the
Fixed/Floating Allocation Percentage of Principal Collections (less the
amount thereof applied as Reallocated Principal Collections), any amount
on deposit in the Excess Funding Account allocated to the holders of the
Certificates, any amounts to be paid in respect of the Investor Default
Amount, unpaid Adjustment Payments, Class A Investor Charge-Offs, Class B
Investor Charge-Offs and Class C Investor Charge-Offs and any amount of
Shared Principal Collections allocated to the Certificates on such
business day, up to (a) during the Controlled Amortization Period, the
Class A Controlled Distribution Amount or Class B Controlled Distribution
Amount 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 Certificates.
The Servicer will pay any remaining Shared Principal Collections on such
business day to the holder of the Exchangeable Transferor Certificate;
and
(vii) Excess Finance Charge Collections will be allocated as set
forth below in paragraph (xiv) of "--Payment of Fees, Interest and Other
Items."
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 the
Amortization Period Commencement Date with respect to any Series, such
amounts will be deposited in the principal account of such Series to the
extent specified in the related Supplement until the applicable principal
account of such Series has been funded in full or the holders of
certificates of such Series have been paid in full. See "--Excess Funding
Account."
Payment of Fees, Interest and Other Items. On each business day
during a Monthly Period, the Servicer will determine, prior to the date
on which a Pay Out Event is deemed to occur, the Floating Allocation
Percentage of the sum of Finance Charge Collections and the amount of
Adjustment Payments required to be made by the Transferor but not made in
a prior Monthly Period or, on and after the date on which a Pay Out Event
is deemed to occur, the Fixed/Floating Allocation Percentage of the sum
of Finance Charge Collections and the amount of Adjustment Payments made
by the Transferor with respect to Adjustment Payments required to be made
by the Transferor but not made in a prior Monthly Period (the "Available
Series 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 also constitute Available Series Finance
Charge Collections] and will distribute such amount in the following
priority:
(i) an amount equal to the lesser of (A) the Available Series
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
previously due 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 A Certificate Rate with respect to
interest amounts that were due but not paid in a prior Monthly Period
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 Certificateholders;
(ii) an amount equal to the lesser of (A) any Available Series
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 previously due 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 Certificate Rate with respect
to Class B Monthly Interest amounts that were due but not paid in a prior
Monthly Period 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
Certificateholders;
(iii) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) the excess of (a) the sum of
(1) the Class C Monthly Interest, (2) the amount of any Class C Monthly
Interest previously due 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 C Certificate Rate with respect
to Class C Monthly Interest amounts that were due but not paid in a prior
Monthly Period 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 C
Certificateholders;
(iv) an amount equal to the lesser of (A) any Available Series
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
Finance Charge Collections remaining and (B) the sum of (1) the aggregate
Investor Default Amount for such business day and (2) the unpaid Investor
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 Investor Principal Collections for the benefit of the
Certificates;
(vi) an amount equal to the Series Allocation Percentage of any
Adjustment Payment which the Transferor is required but fails to make in
a prior Monthly Period 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
Investor Principal Collections for the benefit of the Certificates;
(vii) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) unreimbursed Class A
Investor Charge-Offs, if any, will be applied to reimburse Class A
Investor Charge-Offs and (w) during the Revolving Period, treated as
Shared Principal Collections and (x) during the Amortization Period, be
treated as Available Investor Principal Collections for the benefit of
the Certificates;
(viii) an amount equal to the lesser of (A) any Available Series
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 Class B Certificates at the Class B Certificate
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 Class B
Certificate 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 B
Certificateholders;
(ix) an amount equal to the lesser of (A) any Available Series
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 Class C Certificates at the Class C Certificate
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 Class C
Certificate 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 C
Certificateholders;
(x) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) unreimbursed Class B
Investor Charge-Offs, if any, will be applied to reimburse Class B
Investor Charge-Offs and (w) during the Revolving Period, treated as
Shared Principal Collections and (x) during the Amortization Period,
treated as Available Investor Principal Collections for the benefit of
the Certificates;
(xi) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) unreimbursed Class C
Investor Charge-Offs, if any, will be applied to reimburse Class C
Investor Charge-Offs and (w) during the Revolving Period, treated as
Shared Principal Collections and (x) during the Amortization Period, be
treated as Available Investor Principal Collections for the benefit of
the Certificates;
(xii) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) unreimbursed Class D
Investor Charge-Offs, if any, will be applied to reimburse Class D
Investor Charge-Offs and (w) during the Revolving Period, treated as
Shared Principal Collections and (x) during the Amortization Period, be
treated as Available Investor Principal Collections for the benefit of
the Certificates;
(xiii) at the option of the Transferor, on and after the Reserve
Account Funding Date, but prior to the date on which the Defeasance
Reserve Account terminates, an amount equal to the lesser of any
Available Series Finance Charge Collections remaining and the excess, if
any, of the Required Reserve Account Amount over the Available Reserve
Account Amount will be deposited in the Defeasance Reserve Account; and
(xiv) any Available Series 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
certificateholders of other Series, then to pay any unpaid commercially
reasonable costs and expenses of a successor Servicer, if any. 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 Reserve
Account will be applied as if such amounts were Available Series 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 the product of (i) the Class A Certificate Rate for the
related Interest Accrual Period, (ii) the outstanding principal amount of
the Class A Certificates 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 such Interest Accrual Period and
the denominator of which is 360.
"Class B Monthly Interest" with respect to any Distribution Date
will equal the product of (i) the Class B Certificate Rate for the
related Interest Accrual Period, (ii) the Class B 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 such Interest Accrual Period and the denominator of which is 360.
"Class C Monthly Interest" with respect to any Distribution Date
will equal the product of (i) the Class C Certificate Rate for the
related Interest Accrual Period, (ii) the Class C 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.
"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 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 Certificateholders
on the next succeeding Distribution Date. The Class A Certificateholders
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
Certificateholders 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 Class C Principal Payment Commencement Date, the Class C
Certificateholders will be entitled to receive principal payments to the
extent of Class C Principal until the Class C Invested Amount is paid in
full only after the Class A Invested Amount and the Class B Invested
Amount have been paid in full. The Class D Certificatehold ers will be
entitled to receive principal payments only after the Class A Invested
Amount, the Class B Invested Amount, and the Class C Invested Amount have
been paid in full.
"Class A Principal" with respect to any Distribution Date during
the Amortization Period will equal the Available Investor Principal
Collections; provided, however, that with respect to any Distribution
Date during the Controlled Amortization Period, Class A Principal will
not exceed the lesser of (i) the Class A Controlled Distribution Amount
and (ii) 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.
"Class B Principal" with respect to any Distribution Date on or
after the Class B Principal Payment Commencement Date will equal the
Available Investor Principal Collections; 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 the Termination Date, Class B
Principal will be an amount equal to the Class B Invested Amount.
"Class C Principal" with respect to any Distribution Date on or
after the Class C Principal Payment Commencement Date will equal the
Available Investor Principal Collections; provided, that with respect to
the Termination Date, Class C Principal will be an amount equal to the
Class C Invested Amount.
On the Transfer Date preceding the Class D Principal Payment
Commencement Date, and on each Transfer Date thereafter until the Trust
is terminated or until the Class D Invested Amount is paid in full, the
Trustee, acting in accordance with instructions from the Servicer, will
withdraw amounts deposited into the Principal Account in respect of
Available Investor Principal Collections during the related Monthly
Period and, to the extent of the Class D Invested Amount, deposit such
amounts in the Distribution Account for distribution to the Class D
Certificateholders on the next succeeding Distribution Date (the "Class D
Principal"). The Class D Certificateholders will be entitled to receive
principal payments to the extent of Class D Principal until the Class D
Invested Amount is paid in full.
COVERAGE OF INTEREST SHORTFALLS
To the extent of any shortfall in the amount of Available Series
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.
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
Certificate.
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 (a "Defaulted Receivable").
See "The Receivables--Loss and Delinquency History." On each business
day, the Servicer will allocate to the Certificateholders a portion of
all Defaulted Receivables in an amount (the "Investor Default Amount")
equal to the product of (a) the Floating Allocation Percentage applicable
on such business day and (b) the aggregate principal amount of Defaulted
Receivables identified since the prior reporting date.
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 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 1998-1,
there will be an Investor Charge-Off as described below.
INVESTOR CHARGE-OFFS
If on the second business day preceding each Distribution Date (the
"Determination Date"), the aggregate Investor Default Amount and the
Series Allocation Percentage of unpaid Adjustment Payments, if any, for
all business days in the preceding Monthly Period exceeds the aggregate
amount of the Available Series Finance Charge Collections, Transferor
Finance Charge Collections, Excess Finance Charge Collections and
Reallocated Principal Collections applied with respect to the Investor
Default Amount and the Series Allocation Percentage of unpaid Adjustment
Payments with respect to such Monthly Period, then the Class D Invested
Amount will be reduced by the aggregate amount of such excess, but not
more than the sum of the remaining aggregate Investor Default Amount and
the remaining unpaid Adjustment Payments for such Monthly Period (a
"Class D Investor Charge-Off"). The Class D Invested Amount thereafter
will be increased (but not in excess of the unpaid principal balance of
the Class D Certificates) on any business day by any amounts allocated
and available 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 Class C Invested
Amount will be reduced by the aggregate amount of such excess, but not
more than the sum of the remaining aggregate Investor Default Amount and
the remaining unpaid Adjustment Payments for such Monthly Period (a
"Class C Investor Charge-Off"), which will have the effect of slowing or
reducing the return of principal to the Class C Certificateholders. The
Class C Invested Amount will thereafter be increased (but not in excess
of the unpaid principal balance of the Class C Certificates) on any
business day by any amounts allocated and available 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 Class C Invested Amount
would cause the Class C Invested Amount to be a negative number, the
Class C 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
more than the sum of the remaining aggregate Investor Default Amount and
the remaining unpaid Adjustment Payments for such Monthly Period (a
"Class B Investor Charge-Off"), which will have the effect of slowing or
reducing the return of principal to the Class B Certificateholders. The
Class B Invested Amount will thereafter be increased (but not in excess
of the unpaid principal balance of the Class B Certificates) on any
business day by any amounts allocated and available 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 more than the sum of the
remaining aggregate Investor Default Amount and the remaining unpaid
Adjustment Payments for such Monthly Period (a "Class A Investor
Charge-Off") which will have the effect of slowing or reducing the return
of principal to the Class A Certificateholders. The Class A Invested
Amount will thereafter be increased (but not in excess of the unpaid
principal balance of the Class A Certificates) on any business day by any
of the amounts allocated and available 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 Certificates 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 Certificateholders. As amounts are deposited in the
Defeasance Funding Account for the benefit of the Class A
Certificateholders, Class B Certificateholders and Class C
Certificateholders, 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
Certificates, 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
Certificateholders 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 Certificateholder. In particu lar, the denominator
of the Fixed/Floating Allocation Percentages for the Class A Certificates
and the Class B Certificates 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 Certificates if such event
required reliance by the Certificates on clause (b) of the denominator of
the applicable Fixed/Floating Allocation Percentages 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 Certificates, the Class B
Certificates and the Class C Certificates, 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 Class C 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 the deposit to the Defeasance
Funding Account through the __________ Distribution Date (the "Required
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) a Ratings Event
will not occur as a result of such events; then, the Certificates 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 Certificateholders of Principal Collections, Finance Charge
Collections and Defaulted Receivables will be reduced to zero and the
Monthly Servicing Fee will be reduced to zero. Upon the satisfaction of
the foregoing conditions, the Class D Invested Amount will be reduced to
zero.
DEFEASANCE FUNDING ACCOUNT
Pursuant to the Series 1998-1 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
Certificateholders (the "Defeasance Funding Account"). On the date of
Defeasance of the Certificates, the Trustee will transfer to the
Defeasance Funding Account proceeds from the issuance of a new Series in
an amount equal to the sum of the outstanding principal amounts of the
Class A Certificates, the Class B Certificates and the Class C
Certificates.
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 as if such amount were
Available Series 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 Class C 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 Reserve Account
Amount and applied on the applicable Transfer Date as if such amount were
Available Series Finance Charge Collections on the last business day of
the preceding Monthly Period.
DEFEASANCE RESERVE ACCOUNT
Pursuant to the Series 1998-1 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
Certificateholders (the "Defeasance Reserve Account"). The Defeasance
Reserve Account is established to assist with the subsequent distribution
of interest on the Class A Certificates, Class B Certificates and Class C
Certificates following Defeasance. At the option of the Transferor, on
each business day from and after the Reserve Account Funding Date, but
prior to Defeasance, the Trustee, acting pursuant to the Servicer's
instructions, will apply Available Series Finance Charge Collections
allocated to the Certificates (to the extent described below 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 Reserve Account Amount).
The "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 Reserve Account Amount over the amount then on
deposit in the Defeasance Reserve Account will be deposited in the
Defeasance Reserve Account.
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 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 Reserve Account Amount) or
applied on each Transfer Date as if such amount were Available Series
Finance Charge Collections on the last business day of the preceding
Monthly Period.
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
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 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 Reserve Account Amount for such Transfer Date.
The Defeasance 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 Class A
Certificates, Class B Certificates and Class C Certificates are paid in
full. 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 Finance Charge Collections.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
The Class A Certificates, the Class B Certificates and the Class C
Certificates 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 Class
C 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 Class C 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
Certificates, (ii) the unpaid Class B Invested Amount plus accrued and
unpaid interest on the Class B Certificates, and (iii) the unpaid Class C
Invested Amount plus accrued and unpaid interest on the Class C
Certificates, 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.
The Certificates will be retired on the day following the
Distribution Date on which the final payment of principal is scheduled to
be made to the Certificateholders, 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 Certificates
will be made on the ____________ 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 Certificates until paid
in full, then to the Class B Certificates until paid in full, then to the
Class C Certificates until paid in full, and finally to the Class D
Certificates to the extent necessary to pay such remaining amounts to all
Certificateholders pro rata within each Class as final payment of the
Certificates) interests in the Receivables or certain Receivables, as
specified in the Pooling and Servicing Agreement and the Series 1998-1
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 Certificates 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
Certificateholders shall remain entitled to receive proceeds of such sale
when it occurs. The net proceeds of such sale and any Collections on the
Receivables, up to an amount equal to the Invested Amount plus accrued
interest due on the Certificates, will be paid on the Termination Date
first to Class A Certificateholders until the Class A Invested Amount is
paid in full, then to the Class B Certificateholders until the Class B
Invested Amount is paid in full, then to the Class C Certificateholders
until the Class C Invested Amount is paid in full, and then to the Class
D Certificateholders until the Class D Invested Amount is paid in full.
Unless the Servicer and the holder of the Exchangeable Transferor
Certificate 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 certificateholders outstanding sufficient to pay in full
the aggregate investor interest of all Series outstanding plus interest
thereon at the applicable certificate 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
Certificate, the Trustee will convey to the holder of the Exchangeable
Transferor Certificate 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 ________ Monthly Period, with respect to the Certificates,
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, the Purchase Agreement
or the Series 1998-1 Supplement, which failure has a material adverse
effect on the Certificateholders 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 Certificateholders
representing more than 50% of the Invested Amount and continues to
materially and adversely affect the interests of the Certificateholders
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 interests of the
Certificateholders 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% of the Invested Amount and the
Certificateholders' Interest continues to be materially adversely
affected during such period; provided, however, that a Pay Out Event
pursuant to this subparagraph (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, Fingerhut National Bank or Fingerhut;
(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; or
(vii) any Servicer Default (as defined below) shall occur which
would have a material adverse effect on the Certificateholders.
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 Certificates only if, after any applicable grace period, the
Certificateholders 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
Certificates 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) or (vi), a Pay Out Event with respect only to the
Certificates, will be deemed to have occurred without any notice or other
action on the part of the Trustee or the Certificateholders or all
certificateholders, 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 Certificateholders 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, Certificateholders will begin receiving
distributions of principal earlier than they otherwise would have, which
may shorten the average life of the Certificates.
In addition to the consequences of a Pay Out Event discussed above,
if, (i) 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. If an Insolvency Event
occurs or, at any time the Retained Percentage is equal to or less than 2
percent (a "Trigger Event"), the Pooling and Servicing Agreement and the
Trust shall be terminated, and within 15 days of notice to the Trustee,
the Trustee will publish a notice of the Insolvency Event or Trigger
Event, stating that the Trustee intends to sell, dispose of, or otherwise
liquidate the Receivables in a commercially reasonable manner. With
respect to each Series outstanding at such time (or, if any such Series
has more than one class, of each class of such Series excluding any class
or portion thereof held by the Transferor), unless otherwise instructed
within a specified period by certificateholders representing undivided
interests aggregating more than 50 percent of the invested amount of such
Series (or class excluding any class or portion thereof held by the
Transferor) and the holders of any Supplemental Certificates or any other
interest in the Exchangeable Transferor Certificate other than the
Transferor, the Trustee will sell, dispose of, or otherwise liquidate the
portion of the Receivables allocable to the Series that did not vote to
continue the Trust in accordance with the Pooling and Servicing Agreement
in a commercially reasonable manner and on commercially reasonable terms.
The proceeds from the sale, disposition or liquidation of the Receivables
will be treated as collections of the Receivables allocable to such
Certificateholders and will be distributed to the applicable
Certificateholders as provided above in "--Application of Collections."
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
have the power to prevent the early sale, liquidation, or disposition of
the Receivables and the 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
Certificates.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities and
reimbursement for its expenses will take the form of the payment to it of
a 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) _____% and (iii) the 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 Servicing Fee will be funded from Finance Charge
Collections allocated to the Certificateholders' Interest, 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
Certificateholders 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 servicing 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 Certificateholders 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. In
addition, any affiliate of Fingerhut National Bank may be substituted in
all respects for Fingerhut National Bank as Servicer, provided that such
affiliate expressly assumes the performance of every covenant and
obligation of the Servicer under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that the Servicer will
indemnify 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 (a) the Trustee for liabilities
imposed by reason of fraud, gross negligence, or willful misconduct by
the Trustee in the performance of its duties under the Pooling and
Servicing Agreement, (b) the Trust, the Certificateholders, or the
Certificate Owners for liabilities arising from actions taken by the
Trustee at the request of Certificateholders, (c) the Trust, the
Certificateholders, or the Certificate Owners for any losses, claims,
damages, or liabilities incurred by any of them in their capacities as
investors, including without limitation, losses incurred as a result of
Defaulted Receivables or Dilution, or (d) the Trust, the
Certificateholders, or the Certificate Owners for any liabilities, costs,
or expenses of the Trust, the Certificateholders, or the Certificate
Owners arising under any tax law, including without limitation any
federal, state, or local income or franchise tax or any other tax imposed
on or measured by income (or any interest or penalties with respect
thereto or arising from a failure to comply therewith) required to be
paid by the Trust, the Certificateholders, or the Certificate Owners in
connection with the Pooling and Servicing Agreement to any taxing
authority.
In addition, the Pooling and Servicing Agreement provides that,
subject to certain exceptions, the Transferor will indemnify the Trust
and the Trustee from and against any reasonable loss, liability, expense,
damage, or injury (other than to the extent that any of the foregoing
relate to any tax law or any failure to comply therewith) suffered or
sustained by reason of any acts or omissions or alleged acts or omissions
arising out of or based upon the arrangement created by the Pooling and
Servicing Agreement as though the Pooling and Servicing Agreement created
a partnership under the Delaware Uniform Partnership Law in which the
Transferor is a general partner.
The Pooling and Servicing Agreement provides that, except for the
foregoing indemnities, 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 Certificateholders, 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 losses,
claims, damages or liabilities (other than those incurred by a
Certificateholder in the capacity of an investor in the Certificates)
arising out of or based on the arrangement created by the Pooling and
Servicing Agreement or the actions of the Servicer taken pursuant to the
Pooling and Servicing Agreement as though the Pooling and Servicing
Agreement created a partnership under the Uniform Partnership Act in
which the Transferor is a general partner. The Transferor will also pay,
indemnify and hold harmless each Certificateholder for any such losses,
claims, damages or liabilities (other than those incurred by a
Certificateholder in the capacity of an investor in the Certificates)
except to the extent that they arise from any action by any
Certificateholder. In the event of a Service Transfer, the successor
Servicer will indemnify the Transferor for any losses, claims, damages
and liabilities of the Transferor as described in this paragraph arising
from the actions or omissions of such successor.]
SERVICER DEFAULT
In the event of any Servicer Default (as defined below), either the
Trustee or certificateholders 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 certificateholders), 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 on terms
equivalent to the best purchase offer as determined by the Trustee.
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 certificateholders 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 Trustee, or to the Servicer
and the Trustee by holders of Certificates 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 certificateholders 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
certificateholders 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 Certificates 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 certificateholders 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
certificates 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 certificateholders from
effecting a Service Transfer.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Paying Agent will forward to each
Certificateholder 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 principal on the Class A
Certificates, the Class B Certificates, the Class C Certificates and the
Class D Certificates, (c) the amount of such distribution allocable to
interest on the Class A Certificates, the Class B Certificates and the
Class C Certificates, (d) the amount of Principal Collections processed
during the related Monthly Period and allocated in respect of the Class A
Certificates, the Class B Certificates, the Class C Certificates and the
Class D Certificates, respectively, (e) the amount of Finance Charge
Collections processed during the preceding Monthly Period and allocated
in respect of the Class A Certificates, the Class B Certificates, the
Class C Certificates and the Class D Certificates, respectively, (f) the
aggregate amount of Principal Receivables, the Invested Amount, the Class
A Invested Amount, the Class B Invested Amount, the Class C Invested
Amount, the Class D Invested Amount, the Floating Allocation Percentage,
and during the Amortization Period, the Fixed/Floating Allocation
Percentage with respect to the Principal Receivables in the Trust as of
the close of business on the Record Date, (g) the aggregate outstanding
balance of Receivables which are current, 30-59, 60-89 and 90 days and
over contractually delinquent as of the end of the day on the Record
Date, (h) the aggregate Investor Default Amount and the Series Allocation
Percentage of unpaid Adjustment Payments for the related Monthly Period,
(i) the aggregate amount of Class A Investor Charge-Offs, Class B
Investor Charge-Offs, Class C Investor Charge-Offs and Class D Investor
Charge-Offs for the preceding Monthly Period, (j) the amount of the
Monthly Servicing Fee for the preceding Monthly Period, (k) the Class A
Pool Factor and the Class B Pool Factor as of the end of the last day of
the related Monthly Period, and (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.
The Paying Agent will furnish to each person who at any time during
the preceding calendar year was a Certificateholder of record a statement
prepared by the Servicer containing the information required to be
contained in the regular monthly report to Certificateholders, 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
Certificateholder, together with, on or before January 31 of each year,
beginning in 1999, such customary information (consistent with the
treatment of the Certificates as debt) as the Servicer or Trustee deems
necessary or desirable for tax reporting purposes.
REPORTS; NOTICES
Following the listing of the Offered Certificates 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 Certificates on the Luxembourg
Stock Exchange, notices to Certificateholders will be given by
publication in a daily newspaper in Luxembourg, which is expected to be
the Luxemburger Wort. In the event that Definitive Certificates are
issued, notices to Certificateholders will also be given by mail to the
addresses of such holders as they appear in the certificate 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 public accountants to furnish to the Trustee on an annual
basis 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. A copy of such report will be sent by
the Trustee to each Certificateholder.
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
Certificateholder 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 1998-1
Supplement may be amended by the Transferor, the Servicer, and the
Trustee, without the consent of Certificateholders, 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 Certificateholders;
provided that (i) the Servicer shall have provided an officer's
certificate to the effect that such action will not adversely affect in
any material respect the interests of such Certificateholders, (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 the list of Receivables), the Rating Agencies shall have been
notified of such amendment and shall have provided written confirmation
that they would not lower the rating of the Class A Certificates, the
Class B Certificates or the Class C Certificates, 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 1998-1 Supplement may be amended from
time to time by the Transferor, the Servicer, and the Trustee, without
the consent of Certificateholders, to add to or change any of the
provisions of the Pooling and Servicing Agreement to provide that bearer
certificates issued with respect to any other 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 certificates, to permit
such bearer certificates to be issued in exchange for registered
certificates or bearer certificates of other authorized denominations or
to permit the issuance of uncertificated certificates.
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 certificates 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 certificateholders 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
Certificateholder 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
certificateholders of all Series adversely affected. 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 Certificateholder. Any Supplement and any amendments
regarding the addition or removal of Receivables from the Trust will not
be considered an amendment requiring Certificateholder consent under the
provisions of the Pooling and Servicing Agreement and any Supplement.
Additionally, upon the receipt by the Transferor, the Servicer and
the Trustee of a Tax Opinion reasonably satisfactory to each of them, the
Pooling and Servicing Agreement and the Series 1998-1 Supplement may be
amended by the Transferor, the Servicer and the Trustee without the
consent of any of the Certificateholders (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 investment trust" as described in the
provisions of the FASIT legislation (see "Certain Federal Income Tax
Consequences--Recently Effective Legislation"), or to enable all or a
portion of the Trust to qualify and an election to be made for similar
treatment under such 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 Certificates and the Trust in the
absence of the election.
LIST OF CERTIFICATEHOLDERS
Upon written request of Certificateholders representing undivided
interests in the Trust aggregating not less than 10 percent of the
Invested Amount, the Trustee after having been adequately indemnified by
such Certificateholders for its costs and expenses, and having given the
Servicer notice that such request has been made, will afford such
Certificateholders access during business hours to the current list of
Certificateholders of the Trust for purposes of communicating with other
Certificateholders with respect to their rights under the Pooling and
Servicing Agreement. See "--Book-Entry Registration" and "--Definitive
Certificates."
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 Certificates 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 Certificateholder 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 certificates 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 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 CERTIFICATES
Under the Pooling and Servicing Agreement and pursuant to the
Series 1998-1 Supplement, the Transferor as holder of the Class D
Certificates may at any time (i) subdivide the Class D Certificates into
two or more subsidiary certificates, or (ii) reallocate all or any
portion of the amounts distributable to the Class D Certificateholders
(pursuant to the application of collections allocable to the Class D
Certificateholders) to any other Certificateholder. In connection with
such subdivision, the Transferor may assign an interest rate to the Class
D Certificates or a portion thereof and make payments of interest with
respect to such certificates from amounts initially allocated to the
Certificates which would otherwise constitute Excess Finance Charge
Collections. The Pooling and Servicing Agreement provides that before any
Class D Certificates 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 income tax opinions
issued in connection with the original issuance of the Certificates, (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 1998-1 to occur,
or an event which, with notice or lapse of time or both, would constitute
a Pay Out Event with respect to Series 1998-1, and (ii) the Rating Agency
Condition shall have been satisfied.
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 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. 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 which
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. Contemporaneously
with the issuance of the Certificates, the FCI Purchase Agreement and the
Pooling and Servicing Agreement will be 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
Eligible Receivables arising from time to time. On each business day
prior to the Purchase Termination Date, FCI will transfer Eligible
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 full 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
and (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.
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, and the Seller has
the requisite corporate power and authority to perform its obligations
under the Purchase Agreement. 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
Fingerhut'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 court, regulatory body,
administrative agency, or other tribunal or governmental instrumentality
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) each
Receivable of Fingerhut is or will be an account receivable arising out
of the sale of consumer goods, services or financial service products by
Fingerhut and each Receivable of FCI 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, (vi) the
Seller has no knowledge of any fact that 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 Fingerhut 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 Purchase Agreement, (vii) the Purchase
Agreement constitutes the legal, valid, and binding obligation of the
Seller, (viii) Fingerhut is not insolvent, (ix) the Seller is not an
"investment company" within the meaning of the Investment Company Act (or
is exempt from all provisions of such Act), (x) the Seller is 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 (xi) 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 as of the Closing Date 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 Fingerhut 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) except as it deems necessary to maintain its credit
card business on a competitive basis, 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, either a Pay Out Event would occur or such reduction is
not also applied to any comparable segment of accounts owned by it
similar to the Accounts, (iv) it will comply with and perform its
obligations under the Contracts relating to the Accounts and the Credit
and Collection Policy and that it will not change the terms of such
agreements or policies if any such change would, in either case,
materially and adversely affect the rights of the Trust or the
certificateholders, 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 certificates under any Series are outstanding, and (v) in the
event it receives a collection on any Receivable, it will pay such
collection to the Transferor as soon as practicable.
Purchase Agreement. It is the intention of Fingerhut and FCI, each
under their respective Purchase Agreement, and the Transferor that the
conveyance of the Receivables be construed as an absolute sale of 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 Fingerhut's and FCI's right, title and
interest in and to the Receivables. Pursuant to the Purchase Agreement,
Fingerhut and FCI 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, general intangible or
chattel paper, (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) except as it deems necessary to
maintain its credit card business on a competitive basis, 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, either a Pay Out Event would occur or
such reduction is not also applied to any comparable segment of accounts
owned by it similar to the Accounts, (iv) it will comply with and perform
its obligations under the Contracts relating to the Accounts and the
Credit and Collection Policy and that it will not change the terms of
such agreements or policies if any such change would, in either case,
materially and adversely affect the rights of the Trust or the
certificateholders, 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 certificates under any Series are outstanding, (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) it will take all actions reasonably necessary to
maintain its rights under all Contracts to which it is a party.
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 from Fingerhut or
FCI in accordance with the provisions of the Purchase Agreement, the
Transferor's obligations under the Purchase Agreement as to Fingerhut or
FCI will automatically be terminated. The date of any such termination
will be the "Purchase Termination Date."
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 the interest of the Transferor as holder of the Exchangeable
Transferor Certificate and any investor certificate 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 Certificates--Representations and
Warranties."
The Transferor has represented that the Receivables are "accounts,"
"general intangibles" or "chattel paper" for purposes of the UCC. 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 to the Trust. A tax or other
government 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 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 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 Certificates, 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 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 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
Bankruptcy Code or any similar applicable state law with respect to
Fingerhut 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 insolvency or otherwise. Counsel has advised
Fingerhut and the Transferor that (i) the assets and liabilities of the
Transferor would not be substantively consolidated with the assets and
liabilities of Fingerhut in the event of an application for relief under
the Bankruptcy Code with respect to Fingerhut and (ii) the sale of
Receivables by Fingerhut would constitute a valid sale and, therefore,
such Receivables would not be property of Fingerhut in the event of the
filing of an application for relief by or against Fingerhut under the
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, Fingerhut as debtor-in-possession, or a
creditor of Fingerhut were to take the view that Fingerhut and the
Transferor should be substantively consolidated or that the transfer of
the Receivables from Fingerhut to the Transferor should be
recharacterized as a pledge of such Receivables, then delays in payments
on the Class A Certificates, Class B Certificates and Class C
Certificates or (should the bankruptcy court rule in favor of any such
trustee, debtor-in-possession or creditor) reductions in such payments on
such Certificates could result.
The Pooling and Servicing Agreement provides that, upon the
bankruptcy or appointment of a receiver for the Transferor, FNB or FCI,
the Transferor will promptly give notice thereof to the Trustee, and 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. Upon the bankruptcy of the Transferor, unless
otherwise instructed within a specified period by the certificateholders
representing undivided interests aggregating more than 50 percent of the
aggregate invested amount of each Series (and, with respect to Series
1998-1, the holders of more than 50 percent of each of the Class A, Class
B, and Class C Certificates), the Trustee will proceed to sell, dispose
of, or otherwise liquidate the Receivables in a commercially reasonable
manner and on commercially reasonable terms. The proceeds from the sale
of the Receivables would then be treated by the Trustee as collections on
the Receivables. 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 Certificates--Pay Out Events."
FNB and Fingerhut have represented and warranted to FCI and the
Transferor, respectively in the Purchase Agreements that the sale of the
Receivables to FCI or the Transferor, respectively, is a valid sale of
the Receivables to FCI or the Transferor, respectively. In addition, FNB,
Fingerhut and the Transferor have treated and will treat the transaction
described in the Purchase Agreements as sales of the Receivables to FCI
and the Transferor, respectively, and Fingerhut has 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 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 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 Certificateholders) 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 Certificates 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, receive, 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, Certificateholders might experience delays in payment or
possibly losses in their investment in the Certificates. 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
FCI, FCI and the Transferor and the Transferor and the Trust and that the
reasoning of the Octagon case 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
Certificateholders 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 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
regulate further 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
notice of motion to dismiss, or in the alternative 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
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 Certificates 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 Certificates--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) 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.
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 Certificates 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 Certificates 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
Certificates. This discussion is intended as an explanatory discussion of
the possible effects of the classification of the Offered Certificates 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 Certificates. 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 Certificateholders.
This summary does not address all aspects of federal income
taxation that may be relevant to the Certificate 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 Certificates in the initial distribution thereof,
who are citizens or residents of the United States, including domestic
corporations and partnerships, and who hold the Offered Certificates 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 CERTIFICATES SPECIFIC TO SUCH PROSPECTIVE INVESTOR.
CHARACTERIZATION OF THE OFFERED CERTIFICATES AS INDEBTEDNESS
The Transferor, the Servicer and each Certificate Owner will
express in the Pooling and Servicing Agreement the intent that, for
federal, state and local income and franchise tax purposes, the Offered
Certificates 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
Certificate Owner, by acquiring an interest in an Offered Certificate,
will agree to treat the Offered Certificates 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 Certificates and the Class B
Certificates 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 Certificates, 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 Certificates as debt for federal income tax purposes or otherwise
makes the rationale of those cases inapplicable to this situation.
TAXATION OF INTEREST INCOME TO CERTIFICATEHOLDERS
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 Certificate Owners.
Stated Interest. It is not expected that any of the Offered
Certificates will be issued with OID. Based upon the foregoing opinions,
and assuming that all of the Offered Certificates are treated as debt,
the stated interest on Offered Certificates will be taxable as ordinary
income for federal income tax purposes when received or accrued in
accordance with a Certificateholder's method of tax accounting.
OID. The Offered Certificates may be issued at a discount from
their principal amounts, thereby creating OID. In such a case, all or a
portion of the taxable income to be recognized with respect to the
Offered Certificates would be includible in income of Certificate Owners
as OID. Any amount treated as OID would not, however, be includible again
when the interest is actually received. If the yield on a Class of
Offered Certificates were not materially different from its coupon, this
treatment would have no significant effect on Certificate Owners using
the accrual method of accounting. However, cash method Certificate Owners
may be required to report income with respect to the Offered Certificates
in advance of the receipt of cash attributable to such income.
While it is not anticipated that the Offered Certificates will be
issued at a discount from their stated principal amount that is greater
than a de minimis amount, under Treasury Regulations the Offered
Certificates may nevertheless be deemed to have been issued with OID.
This could be the case, for 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 Certificates 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
Certificates 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
Certificates if they are issued at a price that is less than a de minimis
discount from their stated principal amount.
If the Offered Certificates 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 Certificate
(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 Certificates
are sold to the public) will constitute OID. A Certificate Owner must
include OID in income as interest over the term of the Offered
Certificate 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
Certificates (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 Certificateholder should
consult its own tax advisor regarding the impact to such
Certificateholder of the OID rules if the Offered Certificates are issued
with OID. An Offered Certificate issued with de minimis OID must include
such OID in income proportionately as principal payments are made on such
Offered Certificate.
Discount and Premium. A subsequent holder who purchases an Offered
Certificate 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 Certificate, and for the deferral of
interest deductions with respect to debt incurred to acquire or carry the
market discount Offered Certificate. A Certificate 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 Certificate 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 Certificate at a
premium may elect to amortize and deduct this premium over the remaining
term of the Offered Certificate 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 Certificate, 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 Offered Certificate holders, and other interest
income must be reported by Offered Certificateholders that report income
on the accrual method, as it accrues, whether or not such Offered
Certificateholder has 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 Certificates in any period could exceed the amount of
cash distributed to such holder in that period. An Offered
Certificateholder generally will realize a loss where either principal or
previously accrued interest are determined to be uncollectible with
respect to the Offered Certificate, 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 CERTIFICATES
Generally, capital gain or loss will be recognized on a sale or
other taxable disposition of Offered Certificates 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 Certificates. A Certificate Owner's tax basis in an
Offered Certificate will generally equal such Certificate Owner's cost
increased by any OID, market discount and gain previously included by
such Certificate Owner in income with respect to the Offered Certificate
and decreased by any bond premium previously amortized and any principal
payments previously received by such Certificate Owner with respect to
the Offered Certificate. Subject to the market discount rules of the Code
discussed above under "--Taxation of Interest Income to
Certificateholders--Discount and Premium," any such gain or loss will be
capital gain or loss if the Offered Certificate 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 Certificate 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 Certificateholder, the amount of interest paid on the Offered
Certificates (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
Certificateholder (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 Certificateholder
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 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 Certificates and Class B Certificates will
properly be characterized as indebtedness, and that the Class C
Certificates (not offered hereby) should be classified as indebtedness
(or, if not, would be classified as an interest in a partnership), 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.
As set forth above, in the opinion of Special Tax Counsel, if the IRS
were to contend successfully that the Class C Certificates were not debt
for federal income tax purposes (assuming that neither the Class A or
Class B Certificates, nor certificates of any other outstanding Series,
were also recharacterized) the arrangement among the Transferor and the
Class C Certificateholders would be classified as a partnership for
federal income tax purposes. If, however, the IRS were to contend
successfully that either the Class A or Class B Certificates, or
certificates of any other outstanding series, were not debt for federal
income tax purposes, the arrangement among the Certificate Owners, the
Transferor, and certificate owners of such other Series might be
classified for federal income tax purposes as a publicly traded
partnership taxable as a corporation.
If the Class C Certificates (and no Class of the Offered
Certificates nor certificates of any other outstanding Series) were
treated as interests in a partnership, it is Special Tax Counsel's
opinion that the partnership would not be treated as a publicly traded
partnership because it would qualify for an applicable "safe harbor" that
the IRS has provided. Therefore, the partnership would not be subject to
federal income tax.
If, alternatively, 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 entity to all or some
of the classes of Certificateholders would probably not be deductible in
computing the entity's taxable income and all or part of distributions to
Certificateholders would probably be treated as dividends. Such an
entity-level tax could result in reduced distributions to
Certificateholders and the Certificateholders could be liable for a share
of such tax.
Because the Transferor will treat the Offered Certificates as
indebtedness for federal income tax purposes, the Trustee will not comply
with the tax reporting requirements that would apply under the foregoing
alternative characterizations of the Offered Certificates.
DEFEASANCE
The Certificates 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 Certificates in exchange for the amounts
deposited in the Principal 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 Certificateholder for federal income tax purposes,
notwithstanding that, if such a sale or exchange were deemed to occur,
each Certificateholder 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 Certificates
and Class B Certificates will properly be characterized as indebtedness
secured by the Receivables, and that the Class C Certificates (not
offered hereby) should be classified as indebtedness (or, if not, would
be classified as an interest in a partnership), for federal income tax
purposes. Based upon that opinion, the following information describes
the U.S. federal income tax treatment of Foreign Persons in Offered
Certificates. 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.
(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 United States
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 Certificate
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 United States 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 Certificate by a Foreign Person will be exempt
from United States 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 Certificate 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 United
States 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
Certificates are interests in a partnership (not taxable as a
corporation), a Certificate 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 Certificate Owner, the
branch profits tax (and would be subject to withholding tax on its share
of partnership income). If any of the Offered Certificates were
recharacterized as interests in a "publicly traded partnership" taxable
as a corporation, to the extent distributions on such Offered
Certificates 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 Certificates.
ACCORDINGLY, PURCHASERS OF OFFERED CERTIFICATES SHOULD CONSULT THEIR TAX
ADVISORS REGARDING THE STATE TAX CONSEQUENCES OF PURCHASING ANY CLASS OF
OFFERED CERTIFICATES.
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 both ERISA and the Code 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
Certificates should consider, among other things, whether such an
investment might constitute or give rise to a prohibited transaction
under ERISA or the Code.
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
Certificates 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 CERTIFICATES
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.
The Class A Underwriters expect, although no assurance can be
given, that the Class A Certificates will 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 Certificates. No
monitoring or other measures will be taken to ensure that any such
conditions will be met with respect to the Class A Certificates. 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 and the Code would apply to all transactions
involving the Trust's assets. Accordingly, Plan fiduciaries should
consult with counsel before making a purchase of Class A Certificates.
CLASS B CERTIFICATES
The Underwriters do not expect that the Class B Certificates will
be held by 100 or more independent investors. Accordingly, the Class B
Certificates may not be purchased by Plans subject to Title I of ERISA or
Section 4975 of the Code.
Each Certificate Owner of a Class B Certificate 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 Certificates 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
diversification an investment in the Offered Certificates 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
Certificates 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 Certificates set forth opposite its
name below.
AMOUNT AMOUNT
OF CLASS A OF CLASS B
UNDERWRITER CERTIFICATES CERTIFICATES
Chase Securities Inc.
Total
---------------------------
In the Underwriting Agreement, the Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all
the Offered Certificates offered hereby if any Offered Certificates 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 Certificates 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 Certificates. The
Underwriters may allow, and such dealers may reallow, a discount with
respect to the Class A Certificates not in excess of ___% of such
principal amount to certain other dealers. The Transferor has been
advised by the Underwriter of the Class B Certificates that the
Underwriter of the Class B Certificates proposes initially to offer the
Class B Certificates 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 Certificates. The Underwriter of the Class B Certificates may
allow, and such dealers may reallow, a discount with respect to the Class
B Certificates 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
Fingerhut 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.
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 Certificates 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 Certificates so long as the stabilizing bids do
not exceed a specific maximum. Syndicate covering transactions involve
purchases of the Offered Certificates in the open market after the
distribution has been completed in order to cover syndicate short
positions. Penalty bids permit Chase Securities Inc. to reclaim a selling
concession from a syndicate member when the Offered Certificates
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 Certificates 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
complied and will comply with all applicable provisions of the Financial
Services Act of 1986 with respect to anything done by it in relation to
the Certificates in, from or otherwise involving the United Kingdom; (b)
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
9(3) of the Financial Services Act of 1986 (Investment Advertisements)
(Exemptions) Order 1988 or who is a person to whom the document may
otherwise lawfully be issued or passed on; (c) if that Underwriter is an
authorized person under Chapter III of the Financial Services Act of
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 in this Prospectus if that person is of a kind described either
in Section 76(2) of the Financial Services Act of 1986 or in Regulation
1.04 of the Financial Services (Promotion of Unregulated Schemes)
Regulation 1991; and (d) it is a person of a kind described in Article
9(3) of the Financial Services Act of 1986 (Investment Advertisements)
(Exemptions) Order 1988.
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.
LISTING AND GENERAL INFORMATION
Application has been made to list the Offered Certificates 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 Certificates 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 Certificates have been so listed, trading of the Offered
Certificates may be effected on the Luxembourg Stock Exchange. The Class
A Certificates and the Class B Certificates have been accepted for
clearance through the facilities of DTC, Cedel and Euroclear (ISIN number
for the Class A Certificates ________________ and for the Class B
Certificates, ______________).
The transactions contemplated in this Prospectus were authorized by
resolutions adopted by the Transferor on -----------.
Copies of the Pooling and Servicing Agreement, the Series 1998-1
Supplement, the annual report of independent public accountants described
in "Description of the Offered Certificates--Evidence as to Compliance"
in the Prospectus, the documents listed under "Available Information" and
the reports to Certificateholders referred to under "Reports to
Certificateholders" and "Description of the Offered Certificates--Reports
to Certificateholders" in the Prospectus will be available at the office
of the Listing Agent of the Trust in Luxembourg, whose address is 80,
place de la Gare 1616, 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 ____________, also available at the office of the
Listing Agent in Luxembourg.
The Certificates, the Pooling and Servicing Agreement and the
Series 1998-1 Supplement are governed by the laws of the State of
Delaware.
LEGAL MATTERS
Certain legal matters relating to the Offered Certificates will be
passed upon for the Transferor and Fingerhut by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York. Certain legal matters relating to
the Offered Certificates will be passed upon for the Underwriters by
Simpson Thacher & Bartlett, a partnership which includes professional
corporations, New York, New York.
GLOSSARY OF TERMS
The following terms, which are used in this Prospectus, have the
meanings indicated:
"ABC Invested Amount" means the sum of the Class A Invested Amount,
the Class B Invested Amount and the Class C Invested Amount, less the
amount then on deposit in the Defeasance Funding Account.
"Account" means (a) each revolving credit consumer credit card
account established pursuant to a Contract between an Originator and any
Person, which on the Amendment Closing Date or on the date on which a
Receivable arising in such account is first transferred to the Trust, is
an Eligible Account and (b) closed-end installment sale, or closed-end
installment loan made pursuant to a Contract between an Originator and
any Person which is an Eligible Receivable on the date on which such
Receivable is transferred to the Trust. 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.
"Adjustment Payment" is defined at page 72 in "Description of the
Offered Certificates--Defaulted Receivables; Dilution."
"Aggregate Investor Percentage" with respect to Principal
Collections, Finance Charge Collections and Default Amounts, as the case
may be, means, as of any date of determination, the sum of such Investor
Percentages of all Series of certificates issued and outstanding on such
date of determination; provided, however, that the Aggregate Investor
Percentage shall not exceed 100%.
"Aggregate Principal Receivables" means, for any day, the aggregate
amount of Principal Receivables at the end of such day.
"Amendment Closing Date" means ___________.
"Amortization Period" means the period commencing on the
Amortization Period Commencement Date and continuing until the earlier of
(x) the Invested Amount of the Certificates being paid in full or (y) the
Termination Date.
"Amortization Period Commencement Date" means the earlier of the
first day of the ____________ Monthly Period or the date on which a Pay
Out Event occurs or is deemed to have occurred.
"Available Investor Principal Collections" is defined at page 52 in
"Description of the Offered Certificates-- Principal Payments."
"Available Reserve Account Amount" is defined at page 75 in
"Description of the Offered Certificates--Defeasance Reserve Account."
"Available Series Finance Charge Collections" is defined at page 69
in "Description of the Offered Certificates--Application of
Collections--Payment of Fees, Interest and Other Items."
"Back End Customer" means, with respect to any date of
determination, a customer or Obligor who has made at least one payment on
any installment credit card loan from, installment sales contract with,
or revolving credit consumer credit card account with, FNB or Fingerhut.
"Bank Purchase Agreement" means that certain Bank Receivables
Purchase Agreement dated as of January 12, 1997, between Fingerhut
National Bank, as seller, and FCI, as buyer, as supplemented or amended
in accordance with its terms.
"Base Rate" is defined at page 45 in "Maturity Considerations."
"Cash Equivalents" is defined at page 62 in "Description of the Offered
Certificates--Trust Accounts."
"Cedel" is defined at page 49 in "Description of the Offered
Certificates--Book-Entry Registration."
"Cedel Participants" is defined at page 49 in "Description of the
Offered Certificates--Book-Entry Registration."
"Certificateholders" means the record holders of the Certificates.
"Certificateholders' Interest" means the interest in the assets of the
Trust allocated to the Certificateholders.
"Certificate Owners" is defined at page 2 in "Reports to
Certificateholders."
"Certificate Rate(s)" is defined at page 12 in "Prospectus
Summary--Interest."
"Certificates" means, collectively, the Class A Certificates, the
Class B Certificates, the Class C Certificates and the Class D
Certificates.
"Class" means any of the Class A Certificates, the Class B
Certificates, the Class C Certificates or the Class D Certificates.
"Class A Certificateholders" means the record holders of the Class A
Certificates.
"Class A Certificateholders' Interest" means the interest in the
assets of the Trust allocated to the Class A Certificateholders.
"Class A Certificate Rate" is defined at page 12 in "Prospectus
Summary--Interest."
"Class A Certificates" means the Floating Rate Asset Backed
Certificates, Series 1998-1, Class A.
"Class A Controlled Amortization Amount" means an amount equal to
$-------------.
"Class A Controlled Distribution Amount" is defined at page 44 in
"Maturity Considerations."
"Class A Deficit Controlled Amortization Amount" is defined at page 44
in "Maturity Considerations."
"Class A Expected Final Payment Date" means the ______________
Distribution Date.
"Class A Fixed/Floating Allocation Percentage" is defined at page
64 in "Description of the Offered Certificates--Allocation Percentages."
"Class A Floating Allocation Percentage" means, with respect to any
business day, the percentage equivalent of the ratio that the amount of
the Class A Invested Amount as of the end of the preceding business day
bears to the greater of (a) total amount of Principal Receivables and
amounts on deposit in the Excess Funding Account as of the end of the
preceding business day and (b) with respect to Principal Collections
only, the sum of the numerators with respect to all Participations and
all classes of all Series then outstanding used to calculate the
applicable allocation percentage.
"Class A Invested Amount" is defined at page 64 in "Description of
the Offered Certificates--Allocation Percentages."
"Class A Investor Charge-Off" is defined at page 73 in "Description of
the Offered Certificates--Investor
Charge-Offs."
"Class A Monthly Interest" is defined at page 70 in "Description of
the Offered Certificates--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 Class C
Invested Amount.
"Class A Pool Factor" is defined at page 46 in "Pool Factor and Related
Information."
"Class A Principal" is defined at page 71 in "Description of the
Offered Certificates--Application of Collections--Payments of Principal."
"Class A Required Amount" means for any business day during a
Monthly Period the amount, if any, by which the sum of (i) the Class A
Monthly Interest and any overdue Class A Monthly Interest on the related
Distribution Date (and additional interest thereon), (ii) the Class A
Floating Allocation Percentage of the Default Amount for such Monthly
Period (to date), (iii) the Class A Floating Allocation Percentage of the
Monthly Servicing Fee for the related Monthly Period and (iv) the Class A
Percentage of the Series Allocation Percentage of the Adjustment Payment
required to be made by the Transferor but not made on the related
Transfer Date exceed the Available Series Finance Charge Collections plus
any Excess Finance Charge Collections from other Series and any
Transferor Finance Charge Collections allocated with respect thereto.
"Class A Underwriters" means ______________.
"Class B Certificateholders" means the record holders of the Class B
Certificates.
"Class B Certificateholders' Interest" means the interest in the
assets of the Trust allocated to the Class B Certificateholders.
"Class B Certificate Rate" is defined at page 11 in "Prospectus
Summary--Interest."
"Class B Certificates" means the Floating Rate Asset Backed
Certificates, Series 1998-1, Class B.
"Class B Controlled Amortization Amount" means an amount equal to
$-------------.
"Class B Controlled Distribution Amount" is defined at page 44 in
"Maturity Considerations."
"Class B Deficit Controlled Amortization Amount" is defined at page 44
in "Maturity Considerations."
"Class B Expected Final Payment Date" means the _____________
Distribution Date.
"Class B Fixed/Floating Allocation Percentage" is defined at page 64 in
"Description of the Offered Certificates--Allocation Percentages."
"Class B Floating Allocation Percentage" means, with respect to any
business day, the percentage equivalent of the ratio that the amount of
the Class B Invested Amount as of the end of the preceding business day
bears to the greater of (a) the total amount of Principal Receivables and
amounts on deposit in the Excess Funding Account as of the end of the
preceding business day and (b) with respect to Principal Collections
only, the sum of the numerators with respect to all Participations and
all classes of all Series then outstanding used to calculate the
applicable allocation percentage.
"Class B Invested Amount" is defined at page 64 in "Description of the
Offered Certificates--Allocation Percentages."
"Class B Investor Charge-Off" is defined at page 73 in "Description of
the Offered Certificates--Investor
Charge-Offs."
"Class B Monthly Interest" is defined at page 71 in "Description of
the Offered Certificates--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 Class C
Invested Amount.
"Class B Pool Factor" is defined at page 46 in "Pool Factor and Related
Information."
"Class B Principal" is defined at page 71 in "Description of the
Offered Certificates--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 for any business day during a
Monthly Period the amount, if any, by which the sum of (i) the Class B
Monthly Interest and any overdue Class B Monthly Interest on the related
Distribution Date (and additional interest thereon), the Class B Floating
Allocation Percentage of the Default Amount for such Monthly Period (to
date), (iii) the Class B Floating Allocation Percentage of the Monthly
Servicing Fee for the related Monthly Period and (iv) the Class B
Percentage of the Series Allocation Percentage of the Adjustment Payment
required to be made by the Transferor but not made on the related
Transfer Date exceed the Available Series Finance Charge Collections plus
any Excess Finance Charge Collections from other Series and any
Transferor Finance Charge Collections in each case allocated with respect
thereto.
"Class B Underwriters" mean ____________________.
"Class C Certificateholders" means the record holders of the Class C
Certificates.
"Class C Certificateholders' Interest" means the interest in the
assets of the Trust allocated to the Class C Certificateholders.
"Class C Certificate Rate" means a specified margin per annum above
the arithmetic mean of LIBOR prevailing on the related LIBOR
Determination Date, but in no event in excess of __% per annum.
"Class C Certificates" means the Floating Rate Asset Backed
Certificates, Series 1998-1, Class C.
"Class C Fixed/Floating Allocation Percentage" is defined at page
64 in "Description of the Offered Certificates--Allocation Percentages."
"Class C Floating Allocation Percentage" means, with respect to any
business day, the percentage equivalent of the ratio that the amount of
the Class C Invested Amount as of the end of the preceding business day
bears to the greater of (a) the total amount of Principal Receivables and
amounts on deposit in the Excess Funding Account on the last day of the
preceding business day and (b) with respect to Principal Collections
only, the sum of the numerators with respect to all Participations and
all classes of all Series then outstanding used to calculate the
applicable allocation percentage.
"Class C Invested Amount" is defined at page 64 in "Description of the
Offered Certificates--Allocation Percentages."
"Class C Investor Charge-Off" is defined at page 72 in "Description of
the Offered Certificates--Investor Charge-Offs."
"Class C Monthly Interest" is defined at page 71 in "Description of
the Offered Certificates--Application of Collections--Payment of Fees,
Interest and Other Items."
"Class C Percentage" means a fraction the numerator of which is the
Class C Invested Amount and the denominator of which is the sum of the
Class A Invested Amount, the Class B Invested Amount and the Class C
Invested Amount.
"Class C Principal" is defined at page 71 in "Description of the
Offered Certificates--Application of Collections--Payments of Principal."
"Class C 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.
"Class C Required Amount" means for any business day during a
Monthly Period the amount, if any, by which the sum of (i) the Class C
Monthly Interest and any overdue Class C Monthly Interest on the related
Distribution Date (and additional interest thereon), (ii) the Class C
Floating Allocation Percentage of the Default Amount for such Monthly
Period (to date), (iii) the Class C Floating Allocation Percentage of the
Monthly Servicing Fee for the related Monthly Period and (iv) the Class C
Percentage of the Series Allocation Percentage of the Adjustment Payment
required to be made by the Transferor but not made on the related
Transfer Date exceed the Available Series Finance Charge Collections plus
any Excess Finance Charge Collections from other Series and any
Transferor Finance Charge Collections in each case allocated with respect
thereto.
"Class D Certificateholders" means the record holders of the Class D
Certificates.
"Class D Certificateholders' Interest" means the interest in the
assets of the Trust allocated to the Class D Certificateholders.
"Class D Certificates" means the Asset Backed Certificates, Series
1998-1, Class D.
"Class D Fixed/Floating Allocation Percentage" is defined at page
64 in "Description of the Offered Certificates--Allocation Percentages."
"Class D Floating Allocation Percentage" means, with respect to any
business day, the percentage equivalent of the ratio that the amount of
the Class D Invested Amount as of the end of the preceding business day
bears to the greater of (a) the total amount of Principal Receivables and
amounts on deposit in the Excess Funding Account as of the end of the
preceding business day and (b) with respect to Principal Collections
only, the sum of the numerators with respect to all Participations and
all classes of all Series then outstanding used to calculate the
applicable allocation percentage.
"Class D Invested Amount" is defined at page 65 in "Description of the
Offered Certificates--Allocation Percentages."
"Class D Investor Charge-Off" is defined at page 72 in "Description
of the Offered Certificates--Investor Charge-Offs."
"Class D Principal" is defined at page 71 in "Description of the
Offered Certificates--Application of Collections--Payment of Principal."
"Class D Principal Payment Commencement Date" means the earlier of
(a) the Distribution Date on which the Class C 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 Class C Certificates 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.
"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 closed-end credit card loan, including, without
limitation, all rights of the Originator and obligations of the Obligor
under the applicable Contract, other than insurance premiums and (b) any
right to payment arising under an Eligible Account that is a revolving
credit consumer credit card Account that, pursuant to the terms of the
applicable Contract, has a 0% interest rate.
"Closing Date" means the date of the initial issuance of the
Certificates.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Account" means an account established by the Servicer
for the purpose of depositing all collections of Receivables.
"Collections" is defined at page 53 in "Description of the Offered
Certificates--Finance Charge Collection 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
Certificates, 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 holders of the Certificates of the Invested
Amount, and (y) the Termination Date.
"Cooperative" is defined at page 50 in "Description of the Offered
Certificates--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, 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, as
such policies and procedures may be amended, modified, or otherwise
changed from time to time) in effect on the date hereof relating to the
Accounts, the Contracts and the Receivables as such may be modified from
time to time.
"Default Amount" means, on any business day, the aggregate amount
of Principal Receivables in Accounts which became Defaulted Accounts on
such business day.
"Defaulted Account" means each Eligible Account with respect to
which, in accordance with the 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. Notwith standing 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.
"Defaulted Receivable" is defined at page 72 in "Description of the
Offered Certificates--Defaulted Receivables; Dilution."
"Defeasance" is defined at page 74 in "Description of the Offered
Certificates--Defeasance."
"Defeasance Funding Account" is defined at page74 in "Description of
the Offered Certificates--Defeasance Funding Account."
"Defeasance Funding Account Investment Proceeds" is defined at page74
in "Description of the Offered Certificates--Defeasance Funding Account."
"Defeasance Reserve Account" is defined at page 74 in "Description of
the Offered Certificates--Defeasance Reserve Account."
"Definitive Certificates" is defined at page 50 in "Description of the
Offered Certificates--Definitive Certificates."
"Depositaries" is defined at page 48 in "Description of the Offered
Certificates--Book-Entry Registration."
"Depository" is defined at page 47 in "Description of the Offered
Certificates--General."
"Determination Date" is defined at page 72 in "Description of the
Offered Certificates--Investor Charge-Offs."
"Dilution" is defined at page 40 in "The Receivables--Dilution
Experience."
"Discount Factor" means (a) 25% for Closed End Receivables on which
the Obligors are Fingerhut customers, (b) ____% for Revolving Receivables
on which the Obligors are Fingerhut customers and (c) such other discount
rate or rates approved from time to time by the Rating Agencies for
Obligors who are not customers of Fingerhut; provided, however, that such
percentages may be (i) increased or decreased from time to time by the
Transferor in an amount not to exceed two percentage points from the
amounts set forth herein or otherwise approved by the Rating Agencies
with out the approval of the Rating Agencies or (ii) may be adjusted from
time to time by the Transferor if such change will not cause a Pay Out
Event to occur and the Rating Agencies will have confirmed that the
change will not result in any of the Rating Agencies reducing or
withdrawing its original rating on any then outstanding Series rated by
it.
"Discount Receivables" means the sum of (a) with respect to Closed
End Receivables on which the Obligors are Fingerhut Customers the product
of (i) the applicable Discount Factor and (ii) the outstanding balances
of the related Eligible Receivables, (b) with respect to Revolving
Receivables on which the Obligors are Fingerhut customers the product of
(i) the applicable Discount Factor and (ii) the outstanding balances of
the related Eligible Receivables minus the amount of Periodic Finance
Charges and other fees and charges with respect to such Eligible
Receivables and (c) with respect to Receivables of Obligors who are not
customers of Fingerhut (i) the applicable Discount Factor and (ii) the
outstanding balances of the related Eligible Receivables minus the amount
of Periodic Finance Charges and other fees and charges with respect to
such Eligible Receivables.
"Discount Receivables Collections" means on any day, the sum of (a)
with respect to Closed End Receivables on which the Obligors are
Fingerhut Customers the product of (i) the applicable Discount Factor and
(ii) Collections with respect to the related Eligible Receivables on such
day, (b) with respect to Revolving Receivables on which the Obligors are
Fingerhut customers the product of (i) the applicable Discount Factor and
(ii) Collections with respect to the related Eligible Receivables on such
day minus the amount of Periodic Finance Charges and other fees and
charges with respect to such Eligible Receivables and (c) with respect to
Receivables of Obligors who are not customers of Fingerhut (i) the
applicable Discount Factor and (ii) Collections with respect to the
related Eligible Receivables on such day minus the amount of Periodic
Finance Charges and other fees and charges with respect to such Eligible
Receivables.
"Distribution Account" is defined at page 61 in "Description of the
Offered Certificates--Trust Accounts."
"Distribution Date" means __________ 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 "$" shall mean United States dollars.
"DTC" means The Depository Trust Company.
"DTC Participants" is defined at page 48 in "Description of the Offered
Certificates--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 Class A Expected Final Payment Date if the
Class A Invested Amount has not been paid in full on such date, or the
Class B Expected Final Payment Date if the Class B Invested Amount has
not been paid in full on such date, and ending on the earlier of (i) the
date on which the Class A Invested Amount, the Class B Invested Amount,
the Class C Invested Amount and the Class D Invested Amount have been
paid in full and (ii) the Termination Date.
"Eligible Account" is defined at page 60 in "Description of the Offered
Certificates--Eligible Accounts."
"Eligible Receivable" is defined at page 60 in "Description of the
Offered Certificates -- 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, subordination of the rights of one class or one Series to another,
or other contract or agreement or arrangement for the benefit of the
certificateholders of such Series (or Certificateholders of any class
within such Series) as designated in the applicable Supplement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" is defined at page 50 in "Description of the Offered
Certificates--Book-Entry Registration."
"Euroclear Operator" is defined at page 50 in "Description of the
Offered Certificates--Book-Entry Registration."
"Euroclear Participants" is defined at page 50 in "Description of
the Offered Certificates--Book-Entry Registration."
"Excess Finance Charge Collections" means any Finance Charge
Collections allocable to any Series in excess of the amounts necessary to
make required payments with respect to such Series.
"Excess Funding Account" is defined at page 63 in "Description of
the Offered Certificates--Excess Funding Account."
"Exchange" means any tender by the Transferor to the Trustee of the
Exchangeable Transferor Certificate, pursuant to any one or more
Supplements or, if provided in the relevant Supplement, certificates
representing any Series and the Exchangeable Transferor Certificate, in
exchange for one or more new Series and a reissued Exchangeable
Transferor Certificate.
"Exchangeable Transferor Certificate" means the certificate which
evidences the Transferor Interest.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FASIT" is defined at page 95 in "Certain Federal Income Tax
Consequences--Recently Effective Legislation."
"FASIT Provisions" is defined at page 95 in "Certain Federal Income Tax
Consequences--Recent Legislation."
"FCI" means Fingerhut Companies, Inc., a Minnesota corporation.
"FCI Purchase Agreement" means that certain Purchase Agreement,
dated as of January 12, 1997, 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.
"Finance Charge Receivables" is defined at page 6 in "Prospectus
Summary-Receivables."
"Fingerhut" means Fingerhut Corporation, a Minnesota corporation.
"Fingerhut Database" is defined at page 32 in "Fingerhut
Corporation 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 24 in "Risk Factors--Transfer of the
Receivables; Insolvency Risk Considerations."
"Fixed/Floating Allocation Percentage" is defined at page 64 in
"Description of the Offered Certificates--Allocation Percentages."
"Floating Allocation Percentage" means the sum of the Class A
Floating Allocation Percentage, the Class B Floating Allocation
Percentage, the Class C Floating Allocation Percentage and the Class D
Floating Allocation Percentage.
"FNB" means Fingerhut National Bank, a national banking association.
"Foreign Person" is defined at page 96 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 99 in "Employee
Benefit Plan Considerations--Special Considerations for Insurance Company
General Accounts."
"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 48 in "Description of
the Offered Certificates--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 9 in "Prospectus
Summary--Allocation of Trust Assets."
"Insolvency Event" is defined at page 77 in "Description of the Offered
Certificates--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 61 in "Description of the
Offered Certificates--Trust Accounts."
"Invested Amount" means the sum of the Class A Invested Amount, the
Class B Invested Amount, the Class C 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 Certificate" means any one of the certificates
(including, without limitation, the Bearer Certificates or the Registered
Certificates) executed by the Transferor and authenticated by the Trustee
substantially in the form (or forms in the case of a Series with multiple
classes) of the investor certificate or variable funding certificate
attached to the related Supplement, but not including any Transferor
Certificate or Participation.
"Investor Certificateholder" means the Holder of an Investor
Certificate.
"Investor Charge-Off" means _______________________________.
"Investor Default Amount" is defined at page 72 in "Description of
the Offered Certificates--Defaulted Receivables; Dilution."
"Investor Percentage" means, (a) with respect to Finance Charge
Collections prior to the commencement of the Early Amortization Period,
Receivables in Defaulted Accounts at any time and Principal Collections
during the Revolving Period, the Floating Allocation Percentage and (b)
with respect to Finance Charge Collections during the Early Amortization
Period and Principal Collections during the Amortization Period, the
Fixed/Floating Allocation Percentage, and with respect to any Series of
certificates, the percentage specified in the related Supplement.
"IRS" means the Internal Revenue Service.
"LIBOR" is defined at page 52 in "Description of the Offered
Certificates--Interest Payments."
"LIBOR Determination Date" is defined at page 51 in "Description of
the Offered Certificates--Interest Payments."
"Minimum Aggregate Principal Receivables" means, as of any date of
determination, (a) the sum of the numer ators used in the calculation of
the Investor Percentages for Principal Collections for all outstanding
Series and the Participation Percentages on such date of determination,
minus (b) the amount on deposit in the Excess Funding Account and
Defeasance 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 1998-1, 2%.
"Minimum Transferor Interest" means the product of (i) the sum of
(a) the aggregate Principal Receivables and (b) the amounts on deposit in
the Excess Funding Account and (ii) the Minimum Transferor Percentage.
"Minimum Transferor Percentage" means, for Series 1998-1, 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 Certificates shall begin on and include the Closing Date and shall
end on and include __________.
"Monthly Servicing Fee" is defined at page 78 in "Description of the
Offered Certificates--Servicing Compensation and Payment of Expenses."
"Moody's" means Moody's Investors Service, Inc.
"MPR" is defined at page 45 in "Maturity Considerations."
"Negative Carry Amount" is defined at page 17 in "Prospectus
Summary--Coverage of Interest Shortfalls from Transferor Finance Charge
Collections."
"New Regulations" is defined at page 97 in "Certain Federal Income
Tax Consequences--New Withholding Regulations."
"Obligor" means a Person obligated to make payments with respect to
a Receivable pursuant to a Contract.
"Offered Certificates" is defined at page 1.
"OID" means original issue discount.
"OID Regulations" is defined at page 93 in "Certain Federal Income
Tax Consequences--Taxation of Interest Income to Certificateholders."
"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 58 in "Description of the Offered
Certificates--Other Series."
"Paired Series" is defined at page 73 in "Description of the Offered
Certificates--Paired Series."
"Participation" is defined at page 57 in "Description of the Offered
Certificates--Exchanges."
"Participation Percentage" is defined at page 58 in "Description of the
Offered Certificates--Exchanges."
"Participation Supplement" is defined at page 57 in "Description of the
Offered Certificates--Exchanges."
"Paying Agent" is defined at page 63 in "Description of the Offered
Certificates--Trust Accounts."
"Pay Out Event" is defined at page 45 in "Description of the Offered
Certificates--Pay Out Events."
"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 the Transferor created pursuant to the 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; and (iii) liens which secure the payment of taxes,
assessments, and governmental charges or levies, if such taxes are either
(a) not delinquent or (b) being contested in good faith by appropriate
legal or administrative proceedings and as to which adequate reserves in
accordance with generally accepted accounting principles shall have been
established.
"Person" means any legal person, including any individual,
corporation, partnership, joint venture, association, joint stock
company, trust, unincorporated organization, governmental entity or other
entity of similar nature.
"Plan" is defined at page 97 in "Employee Benefit Plan Considerations."
"Plan Assets Regulation" is defined at page 97 in "Employee Benefit
Plan Considerations."
"Pool Factor" means one of the Class A Pool Factor or the Class B
Pool Factor.
"Pooling and Servicing Agreement" means the Amended and Restated
Pooling and Servicing Agreement, dated as of ______________, 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 1998-1 Supplement.
"Portfolio Yield" is defined at page 45 in "Maturity Considerations."
"Prepayable Instrument" is defined at page 93 in "Certain Federal
Income Tax Consequences--Taxation of Interest Income to
Certificateholders--OID."
"Previously Issued Series" means the Series 1994-1 Asset Backed
Certificates, the Series 1994-2 Variable
Funding Certificates and the Series 1997-1 Variable Funding Trust
Certificates.
"Principal Account" is defined at page 61 in "Descriptions of the
Offered Certificates--Trust Accounts."
"Principal Collections" means with respect to any business day,
collections received with respect to Principal Receivables.
"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 Accounts other than such amounts that are
Finance Charge Receivables or Default Amounts.
"Principal Shortfalls" is defined at page 53 in "Description of the
Offered Certificates--Principal Payments."
"Principal Terms" is defined at page 56 in "Description of the Offered
Certificates--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 86 in "Description
of the Receivables Purchase Agreement--Purchase Termination Date."
"Qualified Institution" is defined at page 61 in "Description of the
Offered Certificates--Trust Accounts."
"Rating Agencies" means Standard & Poor's and Moody's Investors
Service, Inc.
"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 certificates 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.
"Reallocated Class B Principal Collections" is defined at page 66
in "Description of the Offered Certificates--Reallocated Principal
Collections."
"Reallocated Class C Principal Collections" is defined at page 66
in "Description of the Offered Certificates--Reallocated Principal
Collections."
"Reallocated Class D Principal Collections" is defined at page 66
in "Description of the Offered Certificates--Reallocated Principal
Collections."
"Reallocated Principal Collections" is defined at page 66 in
"Description of the Offered Certificates--Reallocated Principal
Collections."
"Receivable" means with respect to any Obligor, any right to
payment of amounts owed by that Obligor under an Account or a Contract,
including, without limitation, all rights of each Originator and
obligations of such Obligor under the applicable Account or Contract.
"Record Date" means, with respect to any Distribution Date, the
business day preceding such Distribution Date, except that, with respect
to any Definitive Certificates, Record Date shall mean the fifth day of
the then current Monthly Period.
"Recoveries" means any amounts received by the Servicer with
respect to Receivables in Defaulted Accounts or which were previously
charged off as uncollectible in accordance with the Servicer's customary
and usual servicing
procedures.
"Related Person" means an entity that is an affiliate of FCI, any
Investor Certificateholder, any Enhancement provider, or any Person whose
status would violate the conditions for a trustee contained in Section
(4)(i) of Rule 3a-7 under the Investment Company Act of 1940 as amended.
"Relevant UCC State" 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.
"Required Amount" is defined at page 71 in "Description of the
Offered Certificates--Application of Collections--Payment of Fees,
Interest, and Other Items."
"Required Reserve Account Amount" is defined at page 74 in
"Description of the Offered Certificates--Defeasance."
"Requirements of Law" 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.
"Reserve Account Funding Date" is defined at page 74 in
"Description of the Offered Certificates -- Defeasance Reserve Account."
"Retained Interest" means, on any date of determination, the sum of
the Transferor Interest and the Invested Amount represented by any class
of Certificates 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 beginning on the Closing Date
and ending with the commencement of the Amortization Period or an Early
Amortization Period.
"Revolving Receivable" means any right to payment arising under an
Eligible Account that is a revolving credit consumer credit card Account
which is not a Closed End Receivable.
"RTC" means the Resolution Trust Corporation.
"RTC Policy Statement" is defined at page 89 in "Certain Legal
Aspects of the Receivables--Certain Matters Relating to Bankruptcy or
Receivership."
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Seller" is defined at page 84 in "Description of the Purchase
Agreements--Representations and Warranties."
"Series" means any series of certificates issued by the Trust
pursuant to a Supplement, including the Certificates.
"Series Allocation 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 1998-1" is defined at page 2.
"Series 1998-1 Supplement" means the Supplement, dated as of the
Closing Date, among the Transferor, the Servicer, and the Trustee
relating to the Certificates.
"Series 1998-2 Certificates" are defined at page 4 in "Prospectus
Summary--Other Certificates."
"Service Transfer" is defined at page 79 in "Description of the Offered
Certificates--Servicer Default."
"Servicer" means Fingerhut National Bank 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.
"Servicer Default" is defined at page 79 in "Description of the Offered
Certificates--Servicer Default."
"Shared Principal Collections" means the amount of Principal
Collections for any business day allocated by the Servicer to the
Invested Amount remaining after covering required deposits or payments to
the Certificateholders and any similar amount remaining for any other
Series [plus amounts specified in any Participation Supplement to be
treated as Shared Principal Collections].
"Special Tax Counsel" means Skadden, Arps, Slate, Meagher & Flom LLP,
counsel to the Transferor or such other counsel reasonably acceptable to
the Trustee.
"Spin Off" is defined at page 43 in "The Transferor and Related
Parties--Fingerhut Companies, Inc."
"Standard & Poor's" means Standard & Poor's, a Division of The
McGraw-Hill Companies, Inc.
"Stated Class D Amount" is defined at page 65 in "Description of
the Offered Certificates--Allocation Percentages."
"Supplement" means any Supplement to the Pooling and Servicing
Agreement.
"Supplemental Certificate" is defined at page 57 in "Description of the
Offered Certificates--Exchanges."
"Tax Certificate" is defined at page B-1-iii in "Annex II."
"Tax Opinion" is defined at page 57 in "Description of the Offered
Certificates--Exchanges."
"Telerate Page 3750" is defined at page 52 in "Description of the
Offered Certificates--Interest Payments."
"Termination Date" means the _____ Distribution Date.
"Terms and Conditions" is defined at page 50 in "Description of the
Offered Certificates--Book-Entry Registration."
"Transfer Agent and Registrar" is defined at page 51 in
"Description of the Offered Certificates--Definitive Certificates."
"Transfer Date" is defined at page 67 in "Description of the Offered
Certificates--Application of Collections."
"Transferor" means Fingerhut Receivables, Inc., a Delaware corporation.
"Transferor Finance Charge Collections" is defined at page 17 in
"Prospectus Summary--Coverage of Interest Shortfalls from Transferor
Finance Charge Collections."
"Transferor Interest" means, on any date of determination, the
aggregate amount of Principal Receivables at the end of the day
immediately prior to such date of determination plus all amounts on
deposit in the Excess Funding Account (but not including investment
earnings on such amounts), minus the aggregate invested amount of all
Series at the end of such day.
"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)
Aggregate Investor Percentage and (ii) the 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
Credit and Collection Policy.
"Treasury Regulations" is defined at page 91 in "Certain Federal
Income Tax Consequences--General; Scope of Federal Income Tax Opinion"
"Trigger Event" is defined at page 77 in "Description of the Offered
Certificates--Pay Out Events."
"Trust" means the Fingerhut Receivables Master Trust.
"Trustee" means The Bank of New York (Delaware), a Delaware banking
corporation.
"UCC" means the Uniform Commercial Code as amended from time to
time as in effect in the applicable jurisdiction.
"Underwriters" shall mean ------------------------------
- -------------------------------.
"Underwriting Agreement" shall mean the underwriting agreement
dated _______________, among the Transferor and the Underwriters.
"U.S. Person" is defined at page B-1-iv in "Annex".
"Variable Funding Certificates" means a series of Certificates, in
one or more classes, at least one of which may vary in invested amount
during the revolving period for such Series.
"Variable Funding Series Supplement" means the Supplement to be
entered into among the Transferor, the Servicer and the Trustee relating
to the Variable Funding Certificates.
ANNEX I
OTHER SERIES
The table below sets forth the principal characteristics of the
Series 1994-2 Variable Funding Certificates which is the only Previously
Issued Series that will remain outstanding upon the issuance of the
Certificates. In addition, the table sets forth the principal
characteristics of the Series 1998-2 Certificates that are being offered
by the Trust concurrently with the issuance of Series 1998-1. 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
Certificates, a copy of the disclosure documents for any previous
publicly issued Series.
SERIES 1994-2
CLASS A CERTIFICATES
Invested Amount as of __________.. $
Expected Invested Amount as of $
Closing Date (after application
of proceeds)......................
Maximum Permitted Invested Amount. $412,400,000 (subject to change)
Certificate Rate.................. Commercial Paper
Certificate Rate as of _____...... ___ %
Commencement of Amortization October 27, 1997 or earlier as
Period............................ determined in the 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. October 29, 2001 (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 __________.. $
Expected Invested Amount as of $
Closing Date (after reduction
of Class A Invested Amount).......
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
SERIES 1998-2
CLASS A CERTIFICATES
Initial Invested Amount........... $
Certificate Rate..................
Commencement of Amortization
Period............................
Annual Servicing Fee Percentage...
Enhancement.......................
Scheduled Series Termination Date.
Series Issuance Date..............
CLASS B CERTIFICATES
Initial Invested Amount........... $
Certificate Rate..................
Annual Servicing Fee Percentage... Same as above for Class A
Certificates
Enhancement.......................
Scheduled Series Termination Date. Same as above for Class A
Certificates
CLASS C CERTIFICATES
Initial Invested Amount........... $
Certificate Rate..................
Annual Servicing Fee Percentage... Same as above for Class A
Certificates
Enhancement.......................
Scheduled Series Termination Date. Same as above for Class A
Certificates
CLASS D CERTIFICATES
Invested Amount as of __________.. $
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
ANNEX II
GLOBAL CLEARANCE SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Floating Rate Asset Backed Certificates, Series 1998-1 (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 Certificates 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
certificate 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 certificate 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.
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), 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
Certificates that are non-U.S. Persons can obtain a complete exemption
from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status) 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 Certificate 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 Certificate Owner or such Certificate 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).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner
of a Global Security or, in the case of a Form 1001 or a Form 4224 filer,
such Certificate 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.
[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 de Luxembourg
80, place de la Gare
1616 Luxembourg
Grand-Duche de 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
4200 Norwest Center
90 South 7th Street
Minneapolis, Minnesota 55402-3900]
==================================== =================================
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 FINGERHUT MASTER TRUST
THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRE- $____________ FLOATING RATE
SENTATIONS MUST NOT BE RELIED UPON ASSET BACKED CERTIFICATES,
AS HAVING BEEN AUTHORIZED BY THE SERIES 1998-1, CLASS A
TRANSFEROR OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS $____________ FLOATING RATE
PROSPECTUS NOR ANY SALE MADE ASSET BACKED CERTIFICATES,
HEREUNDER SHALL UNDER ANY SERIES 1998-1, CLASS B
CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FINGERHUT RECEIVABLES, INC.
AFFAIRS OF FINGERHUT CORPORATION, TRANSFEROR
FINGERHUT COMPANIES, INC., FINGERHUT
NATIONAL BANK, FINGERHUT FINGERHUT NATIONAL BANK
RECEIVABLES, INC. OR THE RECEIVABLES SERVICER
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 SO LICITATION IS NOT QUALIFIED TO
DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR -------------------------
SOLICITATION.
P R O S P E C T U S
--------------------- ------------------------
TABLE OF CONTENTS
PAGE
REPORTS TO CERTIFICATEHOLDERS......2
AVAILABLE INFORMATION..............3
OTHER INFORMATION..................3
CAUTIONARY NOTICE REGARDING
FORWARD-LOOKING STATEMENTS.......3 ---------, 1998
PROSPECTUS SUMMARY.................4
RISK FACTORS......................23
THE TRUST.........................30
FINGERHUT CORPORATION'S AND
FINGERHUT NATIONAL BANK'S
BUSINESSES.....................31
THE RECEIVABLES...................35
THE TRANSFEROR AND RELATED
PARTIES........................43
MATURITY CONSIDERATIONS...........44
POOL FACTOR AND RELATED
INFORMATION....................46
USE OF PROCEEDS...................46
DESCRIPTION OF THE OFFERED
CERTIFICATES...................47
DESCRIPTION OF THE PURCHASE
AGREEMENTS.....................84
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES....................87
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES...................91
CERTAIN STATE TAX
CONSEQUENCES...................97
EMPLOYEE BENEFIT PLAN
CONSIDERATIONS.................97
UNDERWRITING......................99
LISTING AND GENERAL
INFORMATION...................101
LEGAL MATTERS....................101
GLOSSARY OF TERMS................102
UNTIL 90 DAYS AFTER THE DATE OF THIS
PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE OFFERED
CERTIFICATES, 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.
==================================== =================================
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registration Fee $ 295
Printing and Engraving *
Trustee's Fees *
Legal Fees and Expenses *
Blue Sky Fees and Expenses *
Accountants' Fees and *
Expenses
Rating Agency Fees *
Miscellaneous Fees *
Total $ *
- -----------------
* To be provided by amendment.
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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
a. Exhibits
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) -- Form of Amended and Restated Pooling and
Servicing Agreement.*
4(b) -- Form of Series 1998-1 Supplement.*
4(c) -- Purchase Agreement dated as of June 29, 1994
between Fingerhut Receivables, Inc.
and Fingerhut Corporation.
4(d) -- First Amendment to Purchase Agreement, dated as
of November 15, 1994 by and
between Fingerhut Receivables, Inc. and Fingerhut
Corporation.
4(e) -- Second Amendment to Purchase Agreement, dated as
of January 12, 1997 by and
between Fingerhut Receivables, Inc. and Fingerhut
Corporation.
4(f) -- Purchase Agreement dated as of January 12, 1997
between Fingerhut Receivables,
Inc. and Fingerhut Companies, Inc.
4(g) -- Bank Receivables Purchase Agreement dated as of
January 12, 1997 between
Fingerhut Companies, Inc. and Fingerhut National
Bank.
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.*
23 -- Consent of Skadden, Arps, Slate, Meagher &
Flom LLP (included in its opinion filed as
Exhibit 5).*
24 -- Power of Attorney (contained on signature page).
-------------------
* To be filed by amendment.
b. Financial Statements
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(a) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery
to each purchaser.
(b) 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
registrants will, unless in the opinion of their counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions 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.
(c) 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) under the Securities Act of 1933 shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(d) 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.
(e) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the city of Minnetonka, state of Minnesota, on January 31, 1998.
FINGERHUT RECEIVABLES, INC.
By /s/ James M. Wehmann
---------------------------
Name: James M. Wehmann
Title: President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned does
hereby constitute and appoint both James M. Wehmann and Michael P.
Sherman his true and lawful attorney-in-fact and agent, each with full
power of substitution, for him and on his behalf to sign, execute and
file this Registration Statement and any or all amendments (including,
without limitation, post-effective amendments and any amendment or
amendments increasing the amount of securities for which registration is
being sought) to this Registration Statement, with all exhibits and any
and all documents required to be filed with respect thereto, with the
Securities and Exchange Commission or any regulatory authority, granting
unto such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done
in and about the premises in order to effectuate the same as fully to all
intents and purposes as he might or could do if personally present,
hereby ratifying and confirming all that such attorney-in-fact and agents
may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following
persons in the capacities indicated on January 31, 1998.
SIGNATURE TITLE
/s/ James M. Wehmann
- ---------------------------- President and (Principal Executive
James M. Wehmann Director Officer and
Principal
Financial Officer)
/s/ Thomas C. Vogt
- ---------------------------- Vice President and (Principal
Thomas C. Vogt Controller Accounting Officer)
/s/ Peter G. Michielutti
- ---------------------------- Director
Peter G. Michielutti
/s/ Michael P. Sherman
- ---------------------------- Director
Michael P. Sherman
/s/ William R. Latham III
- ---------------------------- Director
William R. Latham III
/s/ Donald J. Puglisi
- ---------------------------- Director
Donald J. Puglisi
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
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) -- Form of Amended and Restated Pooling and
Servicing Agreement.*
4(b) -- Form of Series 1998-1 Supplement.*
4(c) -- Purchase Agreement dated as of June 29, 1994
between Fingerhut
Receivables, Inc. and Fingerhut Corporation.
4(d) -- First Amendment to Purchase Agreement, dated
as of November 15, 1994
by and between Fingerhut Receivables, Inc.
and Fingerhut Corporation.
4(e) -- Second Amendment to Purchase Agreement,
dated as of January 12, 1997
by and between Fingerhut Receivables, Inc.
and Fingerhut Corporation.
4(f) -- Purchase Agreement dated as of January 12,
1997 between Fingerhut
Receivables, Inc. and Fingerhut Companies,
Inc.
4(g) -- Bank Receivables Purchase Agreement dated as
of January 12, 1997
between Fingerhut Companies, Inc. and
Fingerhut National Bank.
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.*
23 -- Consent of Skadden, Arps, Slate, Meagher &
Flom LLP (included in its
opinion filed as Exhibit 5).*
24 -- Power of Attorney (contained on signature
page).
- -------------------
* To be filed by amendment.
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FINGERHUT MASTER TRUST
(ISSUER WITH RESPECT TO OFFERED CERTIFICATES)
FINGERHUT RECEIVABLES, INC.
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FINGERHUT RECEIVABLES, INC.
(adopted in accordance with Sections 245 and 242
of the General Corporation Law of the State of Delaware)
----------------
ARTICLE I
NAME
The name of the corporation is Fingerhut Receivables, Inc. (the
"Corporation").
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100 in the City of Dover,
County of Kent, 19901. The name of its registered agent at that address
is The Prentice-Hall Corporation System, Inc.
ARTICLE III
CORPORATE PURPOSES
The purposes of the Corporation are:
(a) to acquire for cash, promissory notes, or other consideration
from time to time all right, title and interest in and to receivables
arising out of or relating to the sale of consumer goods, financial
service products, and related services, monies due thereunder, security
interests in the consumer goods and financial service products financed
thereby, proceeds from claims on insurance policies related thereto, any
other proceeds related thereto, and any other related rights
(collectively, "Receivables");
(b) to acquire, own, hold, service, sell, assign, pledge and
otherwise deal with the Receivables, collateral securing the Receivables,
any related insurance policies, agreements with originators or servicers
of Receivables and any proceeds or further rights associated with any of
the foregoing;
(c) to transfer Receivables to one or more trusts (the "Trusts")
pursuant to one or more pooling and servicing agreements or other
agreements (the "Agreements") to be entered into by and among, among
others, the Corporation, the trustees named therein and any entities
acting as servicers of the Receivables;
(d) to authorize, sell, deliver to or acquire from the Trusts
certificates of one or more classes or series representing undivided
interests in the assets of the Trusts (collectively, the "Certificates")
or any other securities issued by the Trusts pursuant to the Agreements
and to sell and deliver any such Certificates or other securities;
(e) to enter into one or more indentures or other agreements
(collectively, the "Indentures") with the trustees named therein,
providing, among other things, for the issuance of the Notes referred to
below and the pledging of pools of Receivables or Certificates of any
class issued by one or more Trusts;
(f) to authorize, issue, sell and deliver one or more series and
classes of bonds, notes or other evidences of indebtedness secured or
collateralized by one or more pools of Receivables or by Certificates of
any class issued by one or more Trusts (collectively, the "Notes"),
provided that the Corporation shall have no liability under any Notes
except to the extent of the one or more pools of Receivables or
Certificates securing or collateralizing such Notes;
(g) to hold, and to enjoy all of the rights and privileges of a
holder of, any Certificates issued by the Trusts to the Corporation under
the related Agreements and to hold and enjoy all of the rights and
privileges of any class of any series of Notes issued under the related
Indentures, including any class or series of Notes or Certificates that
may be subordinate to any other class or series of Notes or Certificates,
respectively;
(h) to enter into and perform its obligations under the Agreements,
any agreement providing for the acquisition of Receivables, any agreement
providing for the sale of any Certificates or Notes (including any sale
of Certificates or Notes through one or more underwriters or dealers),
and any agreement providing for the funding of any amount due under any
Certificates through direct borrowings, letters of credit, insurance, or
otherwise; and
(i) to engage in all such other activities and to exercise all such
other powers permitted to corporations under the laws of the State of
Delaware that are incidental to or connected with the foregoing business
or purposes or necessary or desirable to accomplish the foregoing;
provided, however, that for so long as the Fingerhut Master Trust is
outstanding and has issued Notes or Certificates which are then rated by
Moody's Investors Service, Inc. ("Moody's"), the Corporation shall not
establish any other Trusts or enter into any other Indentures, issue any
other Notes or Certificates other than through the Fingerhut Master Trust
or purchase any Receivables other than Receivables that will be
transferred to the Fingerhut Master Trust unless the Corporation shall
have received written notification from Moody's that such action will not
result in a reduction or withdrawal of the rating of any such Notes or
Certificates.
ARTICLE IV
CAPITAL STOCK
The total number of shares of all classes of capital stock that the
Corporation shall have authority to issue is 1,000 shares of common stock
with no par value.
ARTICLE V
DIRECTORS PROTECTED
A director shall be fully protected in relying in good faith upon
the books of account or other records of the Corporation or statements
prepared by any of its officers or employees or by any other person as to
matters the director reasonably believes are within such other person's
professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
ARTICLE VI
CORPORATE EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VII
NO LIABILITY OR HOLDERS OF CAPITAL STOCK
FOR CORPORATE DEBTS
The holders of the capital stock of the Corporation shall not be
personally liable for the payment of the Corporation's debts and the
private property of the holders of the capital stock of the Corporation
shall not be subject to the payment of debts of the Corporation to any
extent whatsoever.
ARTICLE VIII
POWERS OF BOARD OF DIRECTORS
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly
authorized:
(a) To make, alter, amend or repeal the By-Laws, except as
otherwise expressly provided in any By-Law made by the holders of the
capital stock of the Corporation entitled to vote thereon, subject to any
limitation set forth therein or in this Certificate of Incorporation and
subject to the power of the stockholders to alter the By-Laws adopted by
the Board of Directors.
(b) To designate, by resolution passed by a majority of the whole
Board of Directors, one or more committees, each committee to consist of
two or more directors of the Corporation at least two of which shall be
Independent Directors, which, to the extent provided in the resolution
designating the committee or in the By-Laws of the Corporation, shall,
subject to the limitations prescribed by law, have and may exercise all
the powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation, and may authorize the seal
of the Corporation to be affixed to all papers which may require such
seal. Such Committee or committees shall have such name or names as may
be provided in the By-Laws of the Corporation or as may be determined
from time to time by resolution adopted by a majority of the whole Board
of Directors.
(c) To exercise, in addition to the powers and authorities herein
before or by law conferred upon it, any such powers and authorities and
do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provision of the laws of the
State of Delaware and of the Certificate of Incorporation and of the
By-Laws of the Corporation.
ARTICLE IX
LIABILITY OF DIRECTORS
No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director; provided, however, that the foregoing shall not eliminate or
limit the liability of a director (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware or any successor provision or
(iv) for any transaction from which the director derived an improper
personal benefit. If the General Corporation Law of the State of Delaware
is amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended from time to time. The right of indemnification provided in this
Article IX will not be exclusive of any other rights to which any person
seeking indemnification may otherwise be entitled, and will be applicable
to matters otherwise within its scope whether or not such matters arose
or arise before or after the adoption of this Article IX. Without
limiting the generality or the effect of the foregoing, the Corporation
may adopt By-Laws, or enter into one or more agreements with any person,
which provide for indemnification greater or different than that provided
in this Article IX. No repeal or modification of this Article IX by the
stockholders shall adversely affect any right or protection of a director
of the Corporation existing by virtue of this Article IX at the time of
such repeal or modification.
ARTICLE X
RESTRICTIONS ON CORPORATE ACTION
Notwithstanding any other provision of this Certificate of
Incorporation and any provision of law that otherwise so empowers the
Corporation, the Corporation shall not, without the affirmative vote of
100% of the members of the Board of Directors, including at least two
Independent Directors and, with respect to clause (a) below, written
notification from Moody's that such action will not result in a reduction
or withdrawal of the rating of any Notes or Certificates then outstanding
and rated by Moody's, do any of the following:
(a) engage in any business or activity other than those set forth
in Article III;
(b) incur any indebtedness, or assume or guaranty any indebtedness
of any other entity, other than (i) indebtedness to Fingerhut Corporation
or any affiliate thereof incurred in connection with the acquisition of
Receivables, which indebtedness from time to time may be represented by
notes issued by the Corporation to Fingerhut Corporation that will be
subordinate to the Certificates and Notes and will only be payable to the
extent the Corporation has available cash to pay such indebtedness, (ii)
indebtedness incurred in connection with Notes issued in compliance with
an Indenture, (iii) salaries, fees and expenses to its professional
advisors and counsel, directors, officers and employees and (iv) other
indebtedness not exceeding $4,750 at any one time outstanding, on account
of incidentals or services supplied or furnished to the Corporation;
(c) dissolve or liquidate, in whole or in part, consolidate or
merge with or into any other entity or convey or transfer its properties
and assets substantially as an entirety to any entity, or
(d) institute proceedings to be adjudicated bankrupt or insolvent,
or consent to the institution of bankruptcy or insolvency proceedings
against it or file a petition seeking, or consent to, reorganization or
relief under any applicable federal or state law relating to bankruptcy,
or consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Corporation or a
substantial part of its property, or make any assignment for the benefit
of creditors, or admit in writing its inability to pay its debts
generally as they become due, or take corporate action in furtherance of
any action.
ARTICLE XI
INDEPENDENT DIRECTORS
At all times as any Certificates or Notes are outstanding, the
Board of Directors of the Corporation shall include at least two
Independent Directors. So long as any Certificates or Notes are
outstanding, this Article XI shall not be amended without the prior
written consent of the Independent Directors. When voting on matters
subject to the vote of the Board of Directors, including those matters
specified in Article X, notwithstanding that the Corporation is not then
insolvent, the Independent Directors shall take into account the
interests of the creditors of the Corporation as well as the interests of
the Corporation.
For purposes of this Article XI the following terms shall have the
meanings set forth below:
(i) An "Independent Director" shall be an individual who: (A) is
not and has not been employed by Fingerhut Companies, Inc. or any of its
subsidiaries or affiliates as a director, officer or employee (other than
as an Independent Director of the Corporation) within the five years
immediately prior to such individual's appointment as an Independent
Director; (B) is not, and has not been within the five years immediately
prior to such individual's appointment as an Independent Director,
affiliated with a supplier to which Fingerhut Companies, Inc. and any of
its subsidiaries or affiliates collectively in the preceding fiscal year
of Fingerhut Companies, Inc. made payments in consideration for the
supplier's products and services in excess of 3% of the consolidated
gross revenues of Fingerhut Companies, Inc. and its subsidiaries during
such fiscal year; (C) does not have, and has not had within the five
years immediately prior to such individual's appointment as an
Independent Director, a personal services contract with Fingerhut
Companies, Inc. or any of its subsidiaries or affiliates, from which fees
and other compensation received by the person pursuant to such personal
services contract would exceed 5% of his or her gross revenues during the
preceding calendar year; (D) is not affiliated with a tax-exempt entity
that receives, or has received within the five years prior to such
appointment as an Independent Director, contributions from Fingerhut
Companies, Inc. or any of its subsidiaries or affiliates, in excess of
the lesser of (1) 3% of the consolidated gross revenues of Fingerhut
Companies, Inc. and its subsidiaries during such fiscal year and (2) 5%
of the contributions received by the tax-exempt entity during such fiscal
year; (E) is not the beneficial owner at the time of such individual's
appointment as an Independent Director, or at any time thereafter while
serving as an Independent Director, of such number of shares of any class
of common stock of Fingerhut Companies, Inc. the value of which
constitutes more than 5% of such individual's net worth; (F) is not a
spouse, parent, sibling or child of any person described by (A) through
(E); and (G) is not, and was not within the five years prior to such
appointment as an Independent Director, a financial institution to which
Fingerhut Companies, Inc., or any of its subsidiaries or affiliates owes
outstanding indebtedness for borrowed money in a sum exceeding more than
5% of Fingerhut Companies, Inc.'s total consolidated assets.
(ii) An "affiliate" of a person, or a person "affiliated with," a
specified person, shall mean a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is
under common control with, the specified person.
(iii) The term "control" (including the terms "controlling,"
"controlled by" and "under common control with") shall mean the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting securities, by contract, or otherwise; provided,
however, that a person shall not be deemed to control another person
solely because he or she is a director of such other person.
(iv) The term "person" shall mean an individual, partnership, firm,
corporation, association, trust, unincorporated organization or other
entity, as well as any syndicate or group deemed to be a person pursuant
to Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
(v) A "subsidiary" of Fingerhut Companies, Inc. shall mean any
corporation a majority of the voting stock of which is owned, directly or
indirectly through one or more other subsidiaries, by Fingerhut
Companies, Inc.
ARTICLE XII
RESERVATION OF RIGHT TO AMEND
CERTIFICATE OF INCORPORATION
The Corporation shall not, without the prior written consent of
each of its Independent Directors, amend, alter, change or repeal any of
Articles III, V, IX, X, XI, XII or XIV of this Certificate of
Incorporation. Subject to this Article XII, the Corporation reserves the
right to amend, alter, change or repeal any provisions contained in this
Certificate of Incorporation in the manner now or hereafter prescribed by
law, and all the provisions of this Certificate of Incorporation and all
rights and powers conferred in this Certificate of Incorporation on
stockholders, directors and officers are subject to this reserved power.
ARTICLE XIII
ELECTION OF DIRECTORS
Election of directors need not be by written ballot unless the
By-Laws of the Corporation shall so provide.
ARTICLE XIV
CORPORATE PROCEDURES
The Corporation shall be operated in such a manner that it would
not be substantively consolidated in the trust estate of any person in
the event of a bankruptcy or insolvency of such person.
FINGERHUT RECEIVABLES, INC.
Buyer
and
FINGERHUT CORPORATION
Seller
PURCHASE AGREEMENT
Dated as of June 29, 1994
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS............................................................... 1
Section 1.1 Definitions.................................................. 1
Section 1.2 Other Definitional Provisions................................ 2
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING
OF RECEIVABLES............................................................ 3
Section 2.1 Sale......................................................... 3
ARTICLE III
CONSIDERATION AND PAYMENT................................................. 6
Section 3.1 Purchase Price............................................... 6
Section 3.2 Payment of Purchase Price.................................... 6
Section 3.3 Settlement................................................... 6
Section 3.4 Capital Contribution......................................... 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES............................................ 8
Section 4.1 Seller's Representations and Warranties...................... 8
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............................................. 16
Section 5.1 Seller Covenants............................................. 16
Section 5.2 Addition of Receivables...................................... 18
Section 5.3 Buyer Covenant Regarding Sale Treatment...................... 18
ARTICLE VI
REPURCHASE OBLIGATION..................................................... 19
Section 6.1 Mandatory Repurchase......................................... 19
Section 6.2 Conveyance of Reassigned Receivables......................... 20
ARTICLE VII
CONDITIONS PRECEDENT...................................................... 21
Section 7.1 Conditions to the Buyer's Obligations
Regarding Receivables................................. 21
Section 7.2 Conditions Precedent to the Seller's
Obligations........................................... 21
ARTICLE VIII
TERM AND TERMINATION...................................................... 23
Section 8.1 Termination.................................................. 23
ARTICLE IX
MISCELLANEOUS PROVISIONS.................................................. 24
Section 9.1 Amendment................................................... 24
Section 9.2 Governing Law............................................... 24
Section 9.3 Notices..................................................... 24
Section 9.4 Severability of Provisions.................................. 24
Section 9.5 Assignment.................................................. 25
Section 9.6 Further Assurances.......................................... 25
Section 9.7 No Waiver; Cumulative Remedies.............................. 25
Section 9.8 Counterparts................................................ 26
Section 9.9 Binding Effect; Third-Party Beneficiaries................... 26
Section 9.10 Merger and Integration. ................................... 26
Section 9.11 Headings.................................................... 26
Section 9.12 Schedules and Exhibits...................................... 26
Section 9.13 No Bankruptcy Petition Against the Buyer.................... 26
Section 9.14 Merger or Consolidation of, or
Assumption of the Obligations of, the
Seller................................................ 27
Section 9.15 Protection of Right, Title and Interest
to Receivables........................................ 27
Exhibit A Form of Weekly Report
Schedule 1 Seller's Chief Executive Office
Schedule 2 Tax Returns and Payments
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of June 29, 1994 (the
"Agreement"), by and between FINGERHUT CORPORATION, a Minnesota
corporation ("Fingerhut" or 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 contract receivables generated on or before the
Initial Closing Date or to be generated after the Initial Closing Date by
the Seller in the normal course of its business;
WHEREAS, the Seller desires to sell and assign from time
to time certain installment sale contract receivables to the Buyer upon
the terms and conditions hereinafter set forth;
WHEREAS, the Buyer is an Affiliate of the Seller;
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:
"Credit Adjustment" shall have the meaning set forth in
Section 3.2(b) hereof.
"Involuntary Case" shall have the meaning set forth in
Section 2.1(c) hereof.
"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 Seller.
"Pooling and Servicing Agreement" shall mean the pooling
and servicing agreement dated as of June 29, 1994 by and among the
Transferor, Fingerhut and the Trustee.
"Purchase Price" shall have the meaning set forth in
Section 3.1 hereof.
"Sale Papers" shall have the meaning set forth in Section
4.1(c) 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 shall 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 shall
conflict with or be 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]
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 and all monies due
or to become due with respect thereto, (ii) Recoveries and (iii) all
proceeds of the foregoing. 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 in connection with the Receivables or any agreement or instrument
relating thereto, including, without limitation, any obligation to any
Obligors or insurers.
(b) In connection with the foregoing sale, the Seller
agrees to record and file on or prior to the Initial Closing Date, at its
own expense, a financing statement or statements with respect to the
Receivables and the other property described in Section 2.1(a) sold by
the Seller hereunder 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 after the Initial
Closing Date.
(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 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.
(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 (w) all Receivables outstanding on the Initial Closing Date
and thereafter created by the Seller and all rights (but not the
obligations) relating to such Receivables, (x) with respect to the
Receivables, all accounts (as defined in the applicable UCC) outstanding
on the Initial Closing Date and thereafter created by the Seller, and all
rights (but not the obligations) relating thereto, (y) all monies due or
to become due with respect thereto 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 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. The Seller and the Buyer may rely upon an Opinion of Counsel
addressed to them as to what is required to provide the Buyer with such
security interest; and any such Opinion of Counsel shall permit the
Trustee, on behalf of the Certificateholders, the Certificateholders (in
the case of any Series issued in a placement exempt from the registration
requirements of the Securities Act) and the Rating Agencies to rely on
it.
[END OF ARTICLE II]
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 shall be a dollar amount equal to for Receivables transferred
on any date, the product of (i) the aggregate Outstanding Balance of all
Receivables as of the Initial Closing 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, the Seller shall be deemed
to have contributed Receivables in an aggregate principal amount equal to
such shortfall to the Buyer.
(b) The Purchase Price shall be adjusted on a monthly
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,
the Seller shall pay the amount so adjusted to the Buyer.
Section 3.3 Settlement. On each Tuesday (or if any Tuesday
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, the aggregate amount of Receivables deemed to
have been contributed by the Seller to the Buyer, the aggregate amount,
if any, paid to the Buyer pursuant to Section 6.1 hereof, the aggregate
amount of cash paid for Receivables generated in each case for the period
from and including the preceding Tuesday (or next succeeding Business
Day, as applicable) to but not including such Tuesday.
Section 3.4 Capital Contribution. The Seller has
contributed cash in exchange for 100 shares of common stock of the Buyer,
which 100 shares represent all of the outstanding capital stock of the
Buyer. In addition, in connection with the sale of Receivables to the
Buyer on the Initial Closing Date, Receivables with an Outstanding
Balance equal to $194,986,254.91 shall be deemed paid for by the Buyer
with cash and such cash shall be retained by the Buyer and will be
considered to have been contributed to the Buyer as capital surplus.
[END OF ARTICLE III]
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 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 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 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
business, and has obtained all necessary licenses and approvals with
respect to the Seller required under applicable law.
(c) Due Authorization. The execution and delivery of 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 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 charter 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 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 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 any
Requirement of Law applicable to the Seller, or 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.
(j) Bona Fide Receivables. Each Receivable is or will be
an account receivable arising out of the sale of consumer goods, services
or financial service products by the Seller. 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 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 stock.
(m) Pay Out Event. As of the Initial Closing Date, no Pay
Out Event and no condition that with the giving of notice and/or the
passage of time would constitute a Pay Out Event (a "Prospective Pay Out
Event"), has occurred and is continuing.
(n) Not an Investment Company. The Seller is not an
"investment company" within the meaning of the Investment Company Act, or
is exempt from all provisions of such Act.
The representations and warranties set forth in this
Section 4.1 shall survive the sale of the Receivables to the Buyer. The
Seller hereby represents and warrants to the Buyer, that the
representations and warranties of the Seller set forth in Section 4.1 are
true and correct as of such date. 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
transfer to the Buyer of any Receivables with respect to such
Receivables, that:
(i) Each of this Agreement and the Pooling and
Servicing 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 created and the 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 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 Receivable is created by the Seller, the Seller shall be
deemed to represent and warrant to the Buyer that (A) each Receivable
purchased by the Seller 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 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 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.
(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 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 mate-
rial 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 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. The
Buyer hereby represents and warrants to the Seller that the
representations and warranties of the Buyer set forth in Section 4.3 are
true and correct as of such date. 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]
ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 Seller Covenants. The Seller hereby covenants
that:
(a) Receivables to be Accounts 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" (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 Per-
mitted Lien.
(c) Contracts and Credit and Collection Policies. The
Seller shall take all actions reasonably within its control to comply
with and perform its obligations under the Contracts relating to the
Receivables and the Credit and Collection Policy except insofar as any
failure to comply or perform would not materially and adversely affect
the rights of the Buyer. The Seller may change the terms and provisions
of the Contracts or the Credit and Collection Policy in any respect (i)
if it would not, in the reasonable belief of the Seller, materially
impair the collectibility of any Receivable or cause, immediately or with
the passage of time, a Pay Out Event to occur and (ii) if such change (A)
(if it owns a comparable segment of receivables) is made applicable to
the comparable segment of the receivables owned by the Buyer or 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) [Reserved]
(e) Delivery of Collections. In the event that the Seller
receives Collections, the Seller agrees to deposit such Collections into
the Collection Account as soon as practicable after the receipt thereof,
but in no event later than the second Business Day following the Date of
Processing thereof.
(f) 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 except for transfers to the Fingerhut Credit Card Bank;
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.
(g) Notice of Liens. The Seller shall notify the Buyer
promptly after becoming aware of any Lien on any Receivable other than
Permitted Liens.
(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, except
that the organizational expenses of the Buyer may be paid by the Seller
and that the Seller will contribute to the Transferor on the Initial
Closing Date a demand note. 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.
All receivables which meet the definition of Receivables
shall be included as Receivables from and after the date upon which such
Receivables are created and all such Receivables, whether such
Receivables are then existing or thereafter created, shall be sold auto
matically to the Buyer upon creation by the Seller.
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.
[END OF ARTICLE V]
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
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 to the Seller. 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 on such
day. 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 Receivables at the amount specified below 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 within such applicable period on the terms and conditions set
forth below; provided, however, that no such reassignment shall be
required to be made 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 as if made on such day. The Seller shall pay to the Buyer on the
day of such reassignment an amount equal to the aggregate Invested Amount
plus accrued and unpaid interest on the Investor Certificates. On the day
on which such amount has been paid, each Receivable 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 Receivable. The obligation
of the Seller to purchase each Receivable 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 other actions
as the Seller may reasonably require to effect any repurchase of
Receivables pursuant to this Article VI.
[END OF ARTICLE VI]
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 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;
(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
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]
ARTICLE VIII
TERM AND TERMINATION
Section 8.1 Termination. Upon the termination of the Trust
pursuant to Section 12.1 of the Pooling and Servicing Agreement and the
surrender of the Exchangeable Transferor's Certificate, the Buyer shall
return to the Seller (without recourse, representation or warranty) all
right, title and interest of the Buyer in the Receivables, whether then
existing or thereafter created, all moneys due or to become due with
respect thereto, and all proceeds thereof except for amounts held by the
Trustee pursuant to subsection 12.3(b) of the Pooling and Servicing
Agreement. The Buyer shall execute and deliver such instruments of
transfer and assignment, in each case without recourse, as shall be
reasonably requested by the Seller to vest in the Seller all right, title
and interest which the Buyer had in the Receivables.
[END OF ARTICLE VIII]
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 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
(b) in the case of the Seller, to:
Fingerhut Corporation
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 simultaneously
with the execution and delivery of this Agreement, the Buyer shall
assign all of its right, title and interest herein to the Trustee for the
benefit of the Investor Certificateholders 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 Certificates. 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; provided, however, that the Seller may assign all of its
right, title and interest herein to a national banking association
formed by Fingerhut Corporation or any Affiliate thereof to own its
customer accounts and receivables.
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 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 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 9.9 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.
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 District 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 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]
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: /s/ Daniel J. McAthie
________________________
Title: President
FINGERHUT CORPORATION,
as Seller
By: /s/ Daniel J. McAthie
________________________
Title: Senior Vice President
Chief Financial Officer
and Treasurer
EXHIBIT A
FORM OF WEEKLY REPORT
Schedule 1
Seller's Chief Executive Office:
Fingerhut Corporation
4400 Baker Road
Minnetonka, Minnesota 55343
Schedule 2
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 because the Seller believes 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 is currently collecting
sales/use taxes:
California Ohio
Florida Pennsylvania
Illinois South Carolina
Iowa Tennessee
Minnesota Wisconsin
New York
Notwithstanding the Supreme Court decisions, the following states, to
the best knowledge of the Seller, currently have legislation in effect
which purports to require certain Subsidiaries of the Seller to collect
sales or use taxes:
Alabama Missouri
Arizona Nebraska
Arkansas Nevada
California New Mexico
Colorado New York
Connecticut North Carolina
Florida North Dakota
Georgia Ohio
Idaho Oklahoma
Illinois Rhode Island
Iowa South Carolina
Kansas South Dakota
Kentucky Tennessee
Louisiana Texas
Massachusetts Utah
Michigan Vermont
Minnesota Washington
Mississippi West Virginia
FINGERHUT RECEIVABLES, INC.
Buyer
and
FINGERHUT CORPORATION
Seller
FIRST AMENDMENT
Dated as of November 15, 1994
to
PURCHASE AGREEMENT
Dated as of June 29, 1994
FIRST AMENDMENT to PURCHASE AGREEMENT, dated as of
November 15, 1994 ("First Amendment") by and between Fingerhut
Receivables, Inc., as Buyer ("Buyer") and Fingerhut Corporation,
as Seller ("Seller").
WHEREAS, the Buyer and Seller have heretofore executed
and delivered the Purchase Agreement dated as of June 29, 1994
("Purchase Agreement"), between the Buyer and Seller for the
purchase of certain installment sale contract receivables
generated by Seller from time to time in its ordinary course of
business;
WHEREAS, Section 9.1 of the Purchase Agreement provides
that the Buyer and Seller may amend the Purchase Agreement by a
written instrument signed by both parties;
WHEREAS, Section 9.1 of the Purchase Agreement requires
the Seller to provide prompt written notice of any such amendment
to the Rating Agencies and such notice has been given to each
Rating Agency; and
WHEREAS, all other conditions precedent to the
execution of this Amendment have been complied with;
NOW, THEREFORE, the Buyer and Seller are executing and
delivering this Amendment in order to amend the Purchase
Agreement in the following manner.
Capitalized terms used but not defined herein shall
have the meanings assigned to them in the Purchase Agreement or,
if not defined therein, in the Pooling and Servicing Agreement
dated as of June 29, 1994 ( "Pooling and Servicing Agreement") by
and among the Buyer, as Transferor, the Seller, as Servicer, and
The Bank of New York (Delaware), as Trustee ("Trustee"), as
supplemented by the Series 1994-1 Supplement, dated as of June
29, 1994 ("1994-1 Supplement") by and among Buyer, Seller and
Trustee, and as further supplemented by the Series 1994-2
Supplement, dated as of November 15, 1994 ("1994-2 Supplement")
by and among Buyer, Seller and Trustee.
SECTION 1. Consideration and Payment. Section 3.1 of
the Purchase Agreement shall be amended to read in its entirety
as follows:
Section 3.1 Purchase Price. The Purchase Price for
the Receivables and related property conveyed to the
Buyer under this Agreement shall be a dollar amount
equal to, for Receivables transferred on any date, the
product of (i) the aggregate Outstanding Balance of all
Receivables as of such date, and (ii) one minus the
then applicable Seller's Discount.
SECTION 1.1 Term and Termination. Section 8.1 of the
Purchase Agreement shall be amended to read in its entirety as
follows:
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 (i)
become insolvent, (ii) fail to pay its debts generally
as they become due, (iii) voluntarily seek, consent to,
or acquiesce in the benefit or benefits of any Debtor
Relief Law, (iv) become a party to (or be made the
subject of) any proceeding provided for by any Debtor
Relief Law, other than as a creditor or claimant, and,
in the event such proceeding is involuntary, the
petition instituting same is not dismissed within 60
days after its filing; provided, however, that the
Buyer shall have no duty to continue to purchase
Receivables from and after the filing against the
Seller of an involuntary petition but prior to
dismissal, or (v) 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 subsection 8.1(b) 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
bankruptcy 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.
SECTION 2.1 Ratification of Purchase Agreement. As
amended by this First Amendment, the Purchase Agreement is in all
respects ratified and confirmed, and the Purchase Agreement as so
amended by this First Amendment shall be read, taken and
construed as one and the same instrument.
SECTION 3.1 No Waiver. The execution and delivery of
this First Amendment shall not constitute a waiver of a past
default under the Purchase Agreement or impair any right
consequent thereon.
SECTION 4.1 Counterparts. The First Amendment may 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 5.1 GOVERNING LAW. THIS FIRST AMENDMENT 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 6.1 Effective Date. This First Amendment
shall become effective as of the day and year first above
written.
IN WITNESS WHEREOF, the Buyer and the Seller have
caused this First Amendment to be duly executed by their
respective officers, thereunto duly authorized, as of the day and
year first above written.
FINGERHUT RECEIVABLES, INC.
as Buyer
By: /s/ Robert W. Oberrender
___________________________
Name: Robert W. Oberrender
Title: Vice President
FINGERHUT CORPORATION
as Seller
By: /s/ Robert W. Oberrender
___________________________
Name: Robert W. Oberrender
Title: Vice President
FINGERHUT RECEIVABLES, INC.
Buyer
and
FINGERHUT CORPORATION
Seller
SECOND AMENDMENT
Dated as of January 12, 1997
to
PURCHASE AGREEMENT
Dated as of June 29, 1994
SECOND AMENDMENT to PURCHASE AGREEMENT, dated as of
January 12, 1997 ("Second Amendment") by and between Fingerhut
Receivables, Inc., as Buyer (the "Buyer") and Fingerhut
Corporation, as Seller (the "Seller").
WHEREAS, the Buyer and the Seller have heretofore
executed and delivered the Purchase Agreement, dated as of June
29, 1994, and the First Amendment to Purchase Agreement, dated
as of November 15, 1994 (as so amended, the "Original
Agreement"), each between the Buyer and the Seller for the
purchase of certain installment sale contract receivables
generated by the Seller from time to time in its ordinary course
of business;
WHEREAS, Section 9.1 of the Original Agreement provides
that the Buyer and the Seller may amend the Original Agreement by
a written instrument signed by both parties;
WHEREAS, Section 9.1 of the Original Agreement requires
the Seller to provide prompt written notice of any such amendment
to the Rating Agencies and such notice has been given to each
Rating Agency; and
WHEREAS, all other conditions precedent to the
execution of this Second Amendment have been complied with;
NOW, THEREFORE, the Buyer and the Seller are executing
and delivering this Second Amendment in order to amend the
Original Agreement in the following manner.
Capitalized terms used but not defined herein shall
have the meanings assigned to them in the Original Agreement or,
if not defined therein, in the Amended and Restated Pooling and
Servicing Agreement dated as of January 12, 1997 (the "Pooling
and Servicing Agreement") by and among the Buyer, as Transferor,
Fingerhut National Bank, as Servicer, and The Bank of New York
(Delaware), as Trustee.
SECTION 1. Definitions. The following defined term is
hereby added to Section 1.1 of the Original Agreement in the
appropriate alphabetical order:
"Debtor Relief Law" shall mean any of (i) the
Bankruptcy Code of the United States of America 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.
SECTION 2. Amendment of Section 6.1(b). Section
6.1(b) of the Original Agreement is hereby deleted in its
entirety and replaced with the following:
(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 Receivables at the amount specified
below 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 within such
applicable period on the terms and conditions set forth below;
provided, however, that no such reassignment shall be required to
be made 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 as if made on such day. 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 Certificates 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 Companies, Inc. to the Buyer
pursuant to the receivables purchase agreement dated as of
January 12, 1997 between the Buyer, as purchaser of such
Receivables, and Fingerhut Companies, Inc., 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 3. Ratification of Original Agreement. As
amended by this Second Amendment, the Original Agreement is in
all respects ratified and confirmed, and the Original Agreement
as so amended by this Second Amendment shall be read, taken and
construed as one and the same instrument.
SECTION 4. No Waiver. The execution and delivery of
this Second Amendment shall not constitute a waiver of a past
default under the Original Agreement or impair any right
consequent thereon.
SECTION 5. Counterparts. The Second Amendment may 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 6. GOVERNING LAW. THIS SECOND AMENDMENT 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 7. Effective Date. This Second Amendment
shall become effective as of the day and year first above
written.
IN WITNESS WHEREOF, the Buyer and the Seller have
caused this Second Amendment to be duly executed by their
respective officers, thereunto duly authorized, as of the day and
year first above written.
FINGERHUT RECEIVABLES, INC.
as Buyer
By: /s/ James M. Wehmann
___________________________
Name: James M. Wehmann
Title: Vice President,
Assistant Treasurer
FINGERHUT CORPORATION
as Seller
By: /s/ Robert W. Oberrender
___________________________
Name: Robert W. Oberrender
Title: Vice President,
Treasurer
FINGERHUT RECEIVABLES, INC.
Buyer
and
FINGERHUT COMPANIES, INC.
Seller
PURCHASE AGREEMENT
Dated as of January 12, 1997
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . 1
Section 1.2 Other Definitional Provisions . . . . . 2
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING
OF RECEIVABLES . . . . . . . . . . . . . . . . . . . 4
Section 2.1 Sale . . . . . . . . . . . . . . . . . . 4
ARTICLE III
CONSIDERATION AND PAYMENT . . . . . . . . . . . . . . 7
Section 3.1 Purchase Price . . . . . . . . . . . . . 7
Section 3.2 Payment of Purchase Price . . . . . . . 7
Section 3.3 Settlement . . . . . . . . . . . . . . . 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 7
Section 4.1 Seller's Representations and Warranties 9
Section 4.2 Seller's Representations and Warranties
Regarding Receivables . . . . . . . . 12
Section 4.3 Representations and Warranties of
the Buyer . . . . . . . . . . . . . . 14
ARTICLE V
COVENANTS OF SELLER AND BUYER . . . . . . . . . . . . 17
Section 5.1 Seller Covenants . . . . . . . . . . . . 17
Section 5.2 Addition of Receivables . . . . . . . . 19
Section 5.3 Buyer Covenant Regarding Sale Treatment 19
Section 5.4 Buyer Covenant Regarding Separate
Business . . . . . . . . . . . . . . . 19
ARTICLE VI
REPURCHASE OBLIGATION . . . . . . . . . . . . . . . . 18
Section 6.1 Mandatory Repurchase . . . . . . . . . . 21
Section 6.2 Conveyance of Reassigned Receivables . . 22
ARTICLE VII
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . 23
Section 7.1 Conditions to the Buyer's Obligations
Regarding Receivables . . . . . . . . 23
Section 7.2 Conditions Precedent to the Seller's
Obligations . . . . . . . . . . . . . 23
ARTICLE VIII
TERM AND TERMINATION . . . . . . . . . . . . . . . . 25
Section 8.1 Term . . . . . . . . . . . . . . . . . . 25
Section 8.2 Effect of Termination . . . . . . . . . 25
ARTICLE IX
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . 27
Section 9.1 Amendment . . . . . . . . . . . . . . . 27
Section 9.2 Governing Law . . . . . . . . . . . . . 27
Section 9.3 Notices . . . . . . . . . . . . . . . . 27
Section 9.4 Severability of Provisions . . . . . . . 27
Section 9.5 Assignment . . . . . . . . . . . . . . . 28
Section 9.6 Further Assurances . . . . . . . . . . . 28
Section 9.7 No Waiver; Cumulative Remedies . . . . . 28
Section 9.8 Counterparts . . . . . . . . . . . . . . 29
Section 9.9 Binding Effect; Third-Party
Beneficiaries . . . . . . . . . . . . 29
Section 9.10 Merger and Integration. . . . . . . . 29
Section 9.11 Headings . . . . . . . . . . . . . . . . 29
Section 9.12 Schedules and Exhibits . . . . . . . . . 29
Section 9.13 No Bankruptcy Petition Against the Buyer 29
Section 9.14 Merger or Consolidation of, or Assumption
of the Obligations of, the Seller . . 29
Section 9.15 Protection of Right, Title and Interest to
Receivables . . . . . . . . . . . . . 30
Exhibit A Form of Weekly Report
Schedule 1 Seller's Chief Executive Office
Schedule 2 Tax Returns and Payments
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of January 12,
1997 (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 closed-end installment loan contract
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 certain closed-end installment loan
contract receivables to the Buyer upon the terms and
conditions hereinafter set forth;
WHEREAS, the Buyer is an Affiliate of the
Seller;
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:
"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 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.
"Initial Closing Date" shall mean January 12,
1997.
"Involuntary Case" shall have the meaning set
forth in Section 2.1(c) hereof.
"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 Seller.
"Pooling and Servicing Agreement" shall mean
the Amended and Restated Pooling and Servicing Agreement
dated as of January 12, 1997 among FRI, as Transferor,
Fingerhut National Bank, as Servicer, and The Bank of New
York (Delaware), as Trustee, and any amendments and
supplements thereto.
"Purchase Price" shall have the meaning set
forth in Section 3.1 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 shall 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 shall conflict with or be 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]
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, and all monies due or to become due with respect
thereto, (ii) Recoveries, (iii) the Bank Receivables
Purchase Agreement with respect to closed-end installment
loan contract receivables of Back-End Customers and (iv)
all proceeds of the foregoing. 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 in connection with the Receivables or any
agreement or instrument relating thereto, including,
without limitation, any obligation to any Obligors or
insurers, or in connection with the Bank Receivables
Purchase Agreement.
(b) In connection with the foregoing sale, the
Seller agrees to record and file on or prior to the
Initial Closing Date, at its own expense, a financing
statement or statements with respect to the Receivables
and the other property described in Section 2.1(a) sold
by the Seller hereunder 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 after the Initial
Closing Date.
(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 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) 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.
(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 (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, and all rights (but not the obligations)
relating to such Receivables, including, without
limitation, all "accounts" or "general intangibles" (each
as defined in the applicable UCC) with respect to the
Receivables outstanding on the Initial Closing Date and
thereafter created or acquired by the Seller, and all
rights (but not the obligations) relating thereto, (x)
all monies due or to become due with respect thereto, (y)
the Bank Receivables Purchase Agreement with respect to
closed-end installment loan contract receivables of Back-
End Customers 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 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. The Seller and the Buyer may
rely upon an Opinion of Counsel addressed to them as to
what is required to provide the Buyer with such security
interest; and any such Opinion of Counsel shall permit
the Trustee, on behalf of the Certificateholders, the
Certificateholders (in the case of any Series issued in a
placement exempt from the registration requirements of
the Securities Act) and the Rating Agencies to rely on
it.
[END OF ARTICLE II]
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 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, the Seller
shall be deemed to have contributed Receivables in an
aggregate principal amount equal to such shortfall to the
Buyer.
(b) The Purchase Price shall be adjusted on a
monthly 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, the Seller shall pay the amount so
adjusted to the Buyer.
Section 3.3 Settlement. On each Tuesday (or
if any Tuesday 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
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 Tuesday (or next succeeding
Business Day, as applicable) to but not including such
Tuesday.
[END OF ARTICLE III]
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 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 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 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.
(c) Due Authorization. The execution and
delivery of 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 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 charter or by-laws, (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 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.
(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
stock.
(m) Pay Out Event. As of the Initial Closing
Date, no Pay Out Event and no condition that with the
giving of notice and/or the passage of time would
constitute a Pay Out Event (a "Prospective Pay Out
Event"), has occurred and is continuing.
(n) Not an Investment Company. The Seller is
not an "investment company" within the meaning of the
Investment Company Act, or is exempt from all provisions
of such Act.
The representations and warranties set forth in
this Section 4.1 shall survive the sale of the
Receivables to the Buyer. The Seller hereby represents
and warrants to the Buyer, that the representations and
warranties of the Seller set forth in Section 4.1 are
true and correct as of such date. 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 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
created and the 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 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 Receivable is created or
acquired by the Seller, 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 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 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.
(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 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
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. The Buyer hereby represents
and warrants to the Seller that the representations and
warranties of the Buyer set forth in Section 4.3 are true
and correct as of such date. 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]
ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 Seller Covenants. The Seller
hereby covenants that:
(a) Receivables to be Accounts 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" 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
relating to the Receivables and the Credit and Collection
Policy except insofar as any failure to comply or perform
would not materially and adversely affect the rights of
the Buyer. 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 (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 to occur and (ii) if such change
(A) (if it owns a comparable segment of receivables) is
made applicable to the comparable segment of the
receivables owned by the 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) [Reserved]
(e) Delivery of Collections. In the event
that the Seller receives Collections, the Seller agrees
to deposit such Collections into the Collection Account
as soon as practicable after the receipt thereof, but in
no event later than the second Business Day following the
Date of Processing thereof.
(f) 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.
(g) Notice of Liens. The Seller shall notify
the Buyer promptly after becoming aware of any Lien on
any Receivable other than Permitted Liens.
(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 the Seller specifies to the contrary,
all receivables which meet the definition of Receivables
shall be included as Receivables from and after the date
upon which such Receivables are created and all such
Receivables, whether such Receivables are then existing
or thereafter created or acquired, shall be sold
automatically to the Buyer upon creation or acquisition
by the Seller.
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 at all times (i) to the extent
the Buyer's office is located in the offices of any
Affiliate of the Buyer, pay fair market rent for its
office space located in the offices of such affiliate and
a fair share of any overhead costs, (ii) maintain the
Buyer's books, financial statements, accounting records
and other corporate documents and records separate from
those of its Affiliates or any other entity, (iii) not
commingle the Buyer's assets with those of any Affiliate
or any other entity, (iv) maintain the Buyer's books or
account and payroll (if any) separate from those of any
affiliate of the Buyer, (v) act solely in its corporate
name and through its own authorized officers and agents,
invoices and letterhead, (vi) separately manage the
Buyer's liabilities from those of any of its Affiliates
and pay its own material liabilities, including all
material administrative expenses, from its own separate
assets, provided that the Buyer's stockholder or other
Affiliates may pay certain of the organizational expenses
of the Buyer and expenses relating to the preparation,
negotiation, execution and delivery of the documentation
with respect to the issuance of Certificates from time to
time, and the Buyer shall reimburse any Affiliate for its
allocable portion of shared expenses paid by such
Affiliate, and (vii) pay from the Buyer's assets all
obligations and indebtedness of any kind incurred by the
Buyer except as otherwise provided in clause (vi). The
Buyer shall abide by all corporate formalities, including
the maintenance of current minute books, and the Buyer
shall cause its financial statements to be prepared in
accordance with generally accepted accounting principles
in a manner that indicates the separate existence of the
Buyer and its assets and liabilities. The Buyer shall
not assume the liabilities of any Affiliate, and shall
not guarantee the liabilities of any Affiliate. The
officers and directors of the Buyer (as appropriate)
shall make decisions with respect to the business and
daily operations of Buyer independent of and not dictated
by any Affiliate of the Buyer.
[END OF ARTICLE V]
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
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 to the
Seller. 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
on such day. 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 Receivables at the amount specified
below 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 within such applicable period on the
terms and conditions set forth below; provided, however,
that no such reassignment shall be required to be made
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 as if
made on such day. 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 Certificates, 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
other actions as the Seller may reasonably require to
effect any repurchase of Receivables pursuant to this
Article VI.
[END OF ARTICLE VI]
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 this Agreement 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
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]
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 (i)
become insolvent, (ii) fail to pay its debts generally as
they become due, (iii) voluntarily seek, consent to, or
acquiesce in the benefit or benefits of any Debtor Relief
Law, (iv) become a party to (or be made the subject of)
any proceeding provided for by any Debtor Relief Law,
other than as a creditor or claimant, and, in the event
such proceeding is involuntary, the petition instituting
same is not dismissed within 60 days after its filing;
provided, however, that the Buyer shall have no duty to
continue to purchase Receivables from and after the
filing against the Seller of an involuntary petition but
prior to dismissal, or (v) 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 subsection
8.1(b) 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 bankruptcy 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]
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 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
(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
simultaneously with the execution and delivery of this
Agreement, the Buyer shall assign all of its right, title
and interest herein to the Trustee for the benefit of the
Investor Certificateholders 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 Certificates. 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
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 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 9.9 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.
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
District 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 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]
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: /s/ James M. Wehmann
________________________
Name: James M. Wehmann
Title: Vice President,
Assistant Treasurer
FINGERHUT COMPANIES, INC.
as Seller
By: /s/ Robert W. Oberrender
________________________
Name: Robert W. Oberrender
Title: Vice President,
Treasurer
EXHIBIT A
FORM OF WEEKLY REPORT
SCHEDULE 1
Seller's Chief Executive Office:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
SCHEDULE 2
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 because the Seller believes 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 is currently collecting
sales/use taxes:
California Ohio
Florida Pennsylvania
Illinois South Carolina
Iowa South Dakota
Minnesota Tennessee
New York
Notwithstanding the Supreme Court decisions, the
following states, to the best knowledge of the Seller,
currently have legislation in effect which purports to
require certain Subsidiaries of the Seller to collect
sales or use taxes:
Alabama South Dakota
Arizona Tennessee
Arkansas Texas
California Utah
Colorado Vermont
Connecticut Virginia
Florida Washington
Georgia West Virginia
Idaho
Illinois
Iowa
Kansas
Kentucky
Louisiana
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Nebraska
Nevada
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania
Rhode Island
South Carolina
FINGERHUT COMPANIES, INC.
Buyer
and
FINGERHUT NATIONAL BANK
Seller
BANK RECEIVABLES PURCHASE AGREEMENT
Dated as of January 12, 1997
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . 1
Section 1.2 Other Definitional Provisions . . . . 8
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING
OF RECEIVABLES . . . . . . . . . . . . . . . . . . . . . 8
Section 2.1 Sale . . . . . . . . . . . . . . . . . 8
ARTICLE III
CONSIDERATION AND PAYMENT . . . . . . . . . . . . . . . 10
Section 3.1 Purchase Price . . . . . . . . . . . 10
Section 3.2 Payment of Purchase Price . . . . . 11
Section 3.3 Daily Reports . . . . . . . . . . . 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 11
Section 4.1 Seller's Representations and
Warranties . . . . . . . . . . . . . 11
Section 4.2 Seller's Representations and
Warranties Regarding Receivables . . 14
Section 4.3 Representations and Warranties of
the Buyer . . . . . . . . . . . . . 16
ARTICLE V
COVENANTS OF SELLER AND BUYER . . . . . . . . . . . . . 18
Section 5.1 Seller Covenants . . . . . . . . . . 18
Section 5.2 Buyer Covenant Regarding Sale
Treatment . . . . . . . . . . . . . 20
ARTICLE VI
OPTIONAL REPURCHASE . . . . . . . . . . . . . . . . . . 20
Section 6.1 Breach of Warranty . . . . . . . . . 20
Section 6.2 Conveyance of Reassigned Receivables 21
ARTICLE VII
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . 21
Section 7.1 Conditions to the Buyer's
Obligations Regarding Receivables . 22
Section 7.2 Conditions Precedent to the Seller's
Obligations . . . . . . . . . . . . 22
ARTICLE VIII
TERM AND TERMINATION . . . . . . . . . . . . . . . . . 24
Section 8.1 Term . . . . . . . . . . . . . . . . 24
Section 8.2 Effect of Termination . . . . . . . 24
ARTICLE IX
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . 25
Section 9.1 Amendment . . . . . . . . . . . . . 25
Section 9.2 Governing Law . . . . . . . . . . . 25
Section 9.3 Notices . . . . . . . . . . . . . . 25
Section 9.4 Severability of Provisions . . . . . 26
Section 9.5 Further Assurances . . . . . . . . . 26
Section 9.6 No Waiver; Cumulative Remedies . . . 26
Section 9.7 Counterparts . . . . . . . . . . . . 26
Section 9.9 Merger and Integration. . . . . . 26
Section 9.10 Headings . . . . . . . . . . . . . . 27
Section 9.11 Schedules and Exhibits . . . . . . . 27
Section 9.12 Protection of Right, Title and
Interest to Receivables . . . . . . 27
Section 9.13 Assignment . . . . . . . . . . . . . 28
BANK RECEIVABLES PURCHASE AGREEMENT
BANK RECEIVABLES PURCHASE AGREEMENT, dated as
of January 12, 1997 (the "Agreement"), by and between
FINGERHUT COMPANIES, INC., a Minnesota corporation
("Fingerhut" or the "Buyer"), and FINGERHUT NATIONAL
BANK, a national banking association ("FNB" or the
"Seller").
W I T N E S S E T H :
WHEREAS, the Seller and the Buyer previously
entered into that certain Bank Receivables Purchase
Agreement dated as of November 11, 1996 and wish to
terminate such agreement as of the date of this
Agreement;
WHEREAS, the Buyer desires to purchase from
time to time certain installment loan contract
receivables and/or certain open-end or revolving credit
receivables (including private label credit card
receivables) generated on or after January 12, 1997 (the
"Closing Date") by the Seller in the normal course of its
business;
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 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 pursuant to 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" shall mean, with respect to each
Revolving Receivable, each private label credit card
account now existing or hereafter established pursuant to
a Contract between the Seller and any Person.
"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.
"Back End Customer" means with respect to any
date of determination a customer who has purchased at
least one previous product from Fingerhut Corporation and
has either paid for or on such date of determination is
current on payments for the initial purchase or the
related installment loan.
"Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions
in Minneapolis, Minnesota, or Sioux Falls, South Dakota
are authorized or obligated by law or executive order to
be closed.
"Closed End Receivables" shall mean with
respect to any Obligor, any right to payment of amounts
owed by that Obligor under a closed-end credit card
installment loan Contract for the financing of purchases
of merchandise, financial service products or services.
"Closing Date" shall mean January 12, 1997.
"Collections" shall mean 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 insurance premiums.
"Contract" means an agreement between the
Seller or an Affiliate thereof and another Person for the
extension of closed-end or revolving credit pursuant to a
credit card, in the form of a written contract, invoice,
closed-end installment loan agreement or revolving credit
agreement.
"Credit Adjustment" shall have the meaning set
forth in Section 3.2(b) hereof.
"Credit and Collection Policy" means those
credit, collection, customer relations and service
policies and practices in effect on the date hereof
relating to the Contracts and the Receivables as such may
be modified from time to time.
"Date of Processing" shall mean with respect to
any transaction, the date on which such transaction is
settled according to the Seller's computer master file of
closed-end or revolving credit accounts.
"Eligible Account" shall mean, as of the
Closing Date (or, with respect to Accounts established
after the Closing Date, as of the date the Receivables
arising in such Accounts are first sold to the Buyer),
each consumer credit card account owned by the Seller:
(a) which is not at the time of sale sold or
pledged to any other party and which does not have
Receivables, which at the time of sale, are sold or
pledged to any other party (provided that Receivables
which were sold or pledged prior to the Closing Date, but
repurchased free of all Liens or where all Liens were
released prior to the sale hereunder, shall not be
disqualified under this clause (a)); and
(b) the Receivables in which the Seller has
not charged off (or required to be charged off) in its
customary and usual manner for charging off Receivables
in such Accounts as of the Closing Date (or, with respect
to Accounts, as of the date the Receivables of such
Accounts are sold to the Buyer) unless such Account is
subsequently reinstated.
"Eligible Receivable" shall mean each
Receivable that satisfies each of the following criteria:
(a) with respect to each Revolving Receivable, it arises
under an Eligible Account, (b) it is payable in United
States dollars, (c) it is not sold or pledged to any
other party, (d) it constitutes an "account" or a
"general intangible" as each are defined in Article 9 of
the UCC as then in effect in the Relevant UCC State, (e)
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, (f) it and the related
Contract do not contravene in any material respect, and
the Seller with respect to such Receivable is not in
violation of, any material laws, rules, or regulations
applicable thereto (including, without limitation, laws,
rules and regulations relating to truth in lending,
usury, fair credit billing, fair credit reporting, equal
credit opportunity and fair debt collection practices)
that could reasonably be expected to have an adverse
impact on the amount of collections thereunder, (g) 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 (h) at
the time of its sale to the Buyer, the Seller or the
Buyer 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" shall mean the sum
of (x) all amounts billed from time to time to the
Obligors on any Account or Receivable in respect of (i)
with respect to any Account under which Revolving
Receivables are generated, the meaning set forth in the
Contract applicable to such Account for finance charges
(due to periodic rate) or any similar term, (ii) with
respect to Closed End Receivables, the amount set forth
in the Contract under which any such Receivable is
generated as the finance charge, (iii) overlimit fees,
(iv) late charges, (v) returned check fees, (vi) annual
membership fees and annual service charges, if any, (vii)
transaction charges, and (viii) similar fees and charges,
excluding fees and charges for insurance and insurance
type products, plus (y) Recoveries.
"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.
"Ineligible Receivable" shall have the meaning
set forth in Section 6.1 hereof.
"Lien" shall mean any lien, security interest
or other encumbrance.
"Obligor" shall mean a Person obligated to make
payments with respect to a Receivable pursuant to a
Contract.
"Outstanding Balance" shall mean, 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.
"Permitted Lien" shall mean with respect to the
Receivables: 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" shall mean any legal person, including
any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated
organization, governmental entity or other entity of
similar nature.
"Pooling and Servicing Agreement" shall mean,
with respect to Closed End Receivables of Back End
Customers, the Amended and Restated Pooling and Servicing
Agreement, dated as of January 12, 1997, and as may be
amended 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, with respect to any other
Receivables, shall mean any similar pooling and servicing
agreement covering such Receivables.
"Principal Receivables" shall mean amounts
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 and
shall include, without limitation, amounts payable for
purchases of goods or services or cash advances. A
Principal 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" shall mean, with respect
to Closed End Receivables of Back End Customers, the
Purchase Agreement, dated as of January 12, 1997, as may
be amended from time to time, between the Buyer and
Fingerhut Receivables, Inc. and, with respect to any
other Receivables, shall mean any similar purchase
agreement covering such Receivables.
"Purchase Price" shall have the meaning set
forth in Section 3.1 hereof.
"Receivable" shall mean, with respect to any
Obligor, all of the indebtedness of such Obligor and any
right to payment of amounts owed by that Obligor under a
Contract or an Account, including the right to receive
payment of any interest or finance charges and other
obligations of such Obligor with respect thereto. Each
Receivable includes, without limitation, all rights of
the Seller under the applicable Contract.
"Recoveries" shall mean any amounts received by
the Seller with respect to Receivables that previously
were charged off as uncollectible in accordance with the
Servicer's customary and usual servicing procedures.
"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 interest of the Buyer pursuant to this
Agreement.
"Requirements of Law" for any Person shall mean
the certificate of incorporation or articles of
association and by-laws or other organizational or
governing documents of such Person, and any material law,
treaty, rule or regulation, or determination of an
arbitrator or Governmental Authority, in each case
applicable to or binding upon such Person or to which
such Person is subject.
"Revolving Receivables" shall mean with respect
to any Obligor, any right to payment of amounts owed by
that Obligor under a revolving credit card account with
respect to the sale of merchandise, financial service
products or services.
"Sale Papers" shall have the meaning set forth
in Section 4.1(c) hereof.
"Secured Obligations" shall have the meaning
set forth in Section 2.1(d) 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.
"Transferred Account" shall mean an Account
with respect to which a new credit card account number
has been issued by the Seller under circumstances
resulting from a lost or stolen credit card and not
requiring standard application and credit evaluation
procedures under the Credit and Collection Policy.
"UCC" shall mean 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 or any Sale
Paper shall 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.
[END OF ARTICLE I]
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, including, without
limitation, all accounts, general intangibles and other
obligations of any Obligor with respect to the
Receivables, now or hereafter existing, whether or not
arising out of or in connection with the sale or lease of
goods or the rendering of services, (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; provided, however, that
with respect to Receivables coming into existence after
the date hereof such sale, assignment, transfer and
conveyance shall occur on the second Business Day (or
such earlier day as specified in writing by the Seller to
the Buyer) following the date of 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 in connection with
the Receivables or any agreement or instrument relating
thereto, including, without limitation, any obligation to
any Obligors.
(b) In connection with the foregoing sale, the
Seller agrees to record and file, at the Buyer's expense,
a financing statement or statements with respect to the
Receivables and the other property described in Section
2.1(a) sold by the Seller hereunder 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.
(c) In connection with the sale and conveyance
hereunder, the Seller agrees, at the Buyer's expense, on
or prior to the 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 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 (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 (w) all Receivables outstanding on the Closing Date
and thereafter created by the Seller and all rights (but
not the obligations) relating to such Receivables,
including, without limitation, all "accounts" or "general
intangibles" (each as defined in the applicable UCC) with
respect to the Receivables outstanding on the Closing
Date and thereafter created by the Seller, and all rights
(but not the obligations) relating thereto, (x) all
monies due or to become due with respect thereto and (y)
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 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.
[END OF ARTICLE II]
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 shall be a dollar
amount equal to, for (a) Revolving Receivables sold on
any date, the product of (i) the aggregate amount of all
Principal Receivables sold as of such date, and (ii) one
minus the then applicable Seller's Discount, and (b)
Closed End Receivables sold on any date, the product of
(i) the aggregate Outstanding Balance of all such Closed
End 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 Closing Date with respect to the
Receivables existing on the 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.
(b) The Purchase Price shall be adjusted on a
daily basis (the "Credit Adjustment") if the Seller
adjusts downward the amount of any Receivable because of
a rebate, refund, unauthorized charge or billing error to
an Obligor, because such Receivable was created in
respect of merchandise which was refused or returned by
an Obligor, or if the Seller otherwise adjusts downward
the amount of any Receivable without receiving
Collections therefor or without charging off such amount
as uncollectible.
Section 3.3 Daily Reports. On 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
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.
[END OF ARTICLE III]
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Seller's Representations and
Warranties. The Seller represents and warrants to the
Buyer as of the 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 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 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 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 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 charter 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.
(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
stock.
(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.
The representations and warranties set forth in
this Section 4.1 shall survive the sale of the
Receivables to the Buyer. The Seller hereby represents
and warrants to the Buyer, that the representations and
warranties of the Seller set forth in Section 4.1 are
true and correct as of such date. 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 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
transfer 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 the Buyer of all right, title and
interest of the Seller in and to the Receivables,
whether then existing or thereafter created and
arising in connection with the Accounts, 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
created and the 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 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.
(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 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 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 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 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 certificate 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
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. The Buyer hereby represents
and warrants to the Seller that the representations and
warranties of the Buyer set forth in Section 4.3 are true
and correct as of such date. 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]
ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 Seller Covenants. The Seller
hereby covenants that:
(a) Receivables to be Accounts 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" 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) 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 Trust or the
Certificateholders hereunder or under the Certificates
(as each such term is defined in the Pooling and
Servicing Agreement). Subject to compliance with all
Requirements of Law, 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 and the Finance
Charge Receivables and other fees to be assessed thereon)
(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 (as defined in the Pooling and
Servicing Agreement) to occur and (ii) if such change (A)
(if it owns a comparable segment of receivables) is made
applicable to the comparable segment of the receivables
owned by the 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 the second Business Day following the
Date of Processing thereof.
(e) Notice of Liens. The Seller shall notify
the Buyer promptly after becoming aware of any 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.
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.
[END OF ARTICLE V]
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)(iii) through (vii) or
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 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 on such day. 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 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.
[END OF ARTICLE VI]
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 this Agreement shall be true and
correct on the 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 Closing Date, in the case of
Receivables sold to the Buyer on the Closing Date, or the
applicable Date of Processing, in the case of Receivables
created after the Closing Date;
(c) At the 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 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 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.
[END OF ARTICLE VII]
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, or (b) the occurrence of any
of the following events: the Buyer or the Seller shall
(i) become insolvent, (ii) fail to pay its debts
generally as they become due, (iii) voluntarily seek,
consent to, or acquiesce in the benefit or benefits of
any debtor relief law, (iv) become a party to (or be made
the subject of) any proceeding provided for by any debtor
relief law, other than as a creditor or claimant, and, in
the event such proceeding is involuntary, the petition
instituting same is not dismissed within 60 days after
its filing, or (v) 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.
[END OF ARTICLE VIII]
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
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 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 subsection 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
and any Pooling and Servicing Agreement; provided,
however, that simultaneously with the execution and
delivery of this Agreement, the Buyer shall assign all of
its right, title and interest herein to the extent that
this Agreement relates to Closed End Receivables of Back
End Customers to Fingerhut Receivables, Inc. as provided
in Section 2.1 of the Purchase Agreement and that
Fingerhut Receivables, Inc. shall assign all of its
right, title and interest herein to the Trustee for the
benefit of the Investor Certificateholders of all Series
as provided in Section 2.1 of the Pooling and Servicing
Agreement (as each term is defined in the Pooling and
Servicing Agreement), to which the Seller hereby
expressly consents, and 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 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.
[END OF ARTICLE IX]
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: /s/ Terry H. Hughes
________________________
Name: Terry H. Hughes
Title: Chief Executive Officer
FINGERHUT COMPANIES, INC.,
as Buyer
By: /s/ Robert W. Oberrender
________________________
Name: Robert W. Oberrender
Title: Vice President, Treasurer
EXHIBIT A
FORM OF DAILY REPORT
SCHEDULE 1
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 because the Seller believes 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 is currently collecting sales/use taxes:
California Ohio
Florida Pennsylvania
Illinois South Carolina
Iowa South Dakota
Minnesota Tennessee
New York
Notwithstanding the Supreme Court decisions, the following
states, to the best knowledge of the Seller, currently have
legislation in effect which purports to require certain
Subsidiaries of the Seller to collect sales or use taxes:
Alabama Texas
Arizona Utah
Arkansas Vermont
California Virginia
Colorado Washington
Connecticut West Virginia
Florida
Georgia
Idaho
Illinois
Iowa
Kansas
Kentucky
Louisiana
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Nebraska
Nevada
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
