<PAGE>
As filed with the Securities and Exchange Commission on June 12, 2000
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
Spiegel Credit Corporation III
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
Spiegel Credit Card Master Note Trust
(Issuer of the Notes)
Delaware 36-3976025
(State of Incorporation) (I.R.S. Employer
Identification No.)
400 West 9th Street, Suite 101B
Wilmington, Delaware 19801
(302) 429-7609
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
John R. Steele
Spiegel, Inc.
3500 Lacey Road
Downers Grove, Illinois 60515
(630) 986-8800
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Robert F. Hugi Jay A. Lipe
Mayer, Brown & Platt Rooks, Pitts and Poust
190 South LaSalle Street 10 South Wacker Drive
Chicago, Illinois 60603-3441 Suite 2300
(312) 782-0600 Chicago, Illinois 60606
(312) 876-1700
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective as determined
by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. [_]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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 delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Unit(1) Offering Price(1) Registration Fee
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Notes.................... $1,000,000 100% $1,000,000 $264
===================================================================================================================
Collateral Certificate(2)............. $1,000,000 -- -- --
===================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) No additional consideration will be paid by the purchasers of the Asset
Backed Notes for the Collateral Certificate, which is pledged as
security for the Asset Backed Notes and issued by another trust formed by
the registrant.
________________
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
The information in this prospectus supplement and the accompanying prospectus is
not complete and may be amended. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus supplement and the accompanying prospectus are not
an offer to sell and are not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
Subject to Completion, dated __________ ___, 2000
Prospectus Supplement to Prospectus dated ____________ ___, 2000
Spiegel Credit Card Master Note Trust
Issuer
Spiegel Credit Corporation III
Transferor
First Consumers National Bank
Servicer
Series 2000- Asset Backed Notes
<TABLE>
<CAPTION>
Class A Notes Class B Notes Class C Notes
------------- ------------- -------------
<S> <C> <C> <C>
Principal amount $ $ $
Interest Rate [One-Month LIBOR [One-Month LIBOR [One-Month LIBOR
plus] [ ]% per year plus] [ ]% per year plus] [ ]% per year
Interest payment dates Monthly on the 15th, Monthly on the 15th, Monthly on the 15th,
beginning , 2000 beginning , 2000 beginning , 2000
Expected principal
payment date 200 200 200
Final maturity date 200 200 200
Price to public $ (or %) $ (or %) $ (or %)
Underwriting discount $ (or %) $ (or %) $ (or %)
Proceeds to issuer $ (or %) $ (or %) $ (or %)
</TABLE>
The Class B notes are subordinated to the Class A notes. The Class C notes are
subordinated to the Class A and the Class B notes. In addition, the notes will
have the benefit of a $____ excess collateral amount (___% of the overall
collateral amount for your series), which is subordinated to all of the notes in
your series, and the Class C notes will have the benefit of a spread account.
We expect to issue your series of notes in book-entry form on or about ,
2000.
--------------------------------------------------------------------------------
You should consider carefully the risk factors beginning on page ___ in the
prospectus.
A note is not a deposit and neither the notes nor the underlying accounts or
receivables are insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
The notes are obligations of Spiegel Credit Card Master Note Trust only and are
not obligations of Spiegel Credit Corporation III, First Consumers National Bank
or any other person.
This prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved these notes or determined that this prospectus
supplement or the prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
Underwriters of the Class A notes
Underwriters of the Class B notes
Underwriters of the Class C notes
, 2000
<PAGE>
Important Notice about Information Presented in this
Prospectus Supplement and the Accompanying Prospectus
We provide information to you about the notes in two separate documents:
(a) the accompanying prospectus, which provides general information, some of
which may not apply to your series of notes, and (b) this prospectus supplement,
which describes the specific terms of your series of notes.
If the terms of your series of notes vary between this prospectus
supplement and the accompanying prospectus, you should rely on the information
in this prospectus supplement.
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. We have not authorized anyone to provide you with
different information. We are not offering the notes in any state where the
offer is not permitted.
We include cross references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following Table of Contents and the Table of
Contents in the accompanying prospectus provide the pages on which these
captions are located.
This prospectus supplement uses defined terms. You can find a listing of
the pages where definitions can be found under the caption "Index of Terms for
Prospectus Supplement" beginning on page S-__ in this prospectus supplement and
under the caption "Index of Terms for Prospectus" beginning on page __ in the
accompanying prospectus.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Summary of Terms................................................ S-1
Structural Summary.............................................. S-3
The Issuer................................................. S-3
Collateral for the Notes................................... S-3
Maturity Considerations.................................... S-3
Credit Enhancement......................................... S-4
Subordination......................................... S-4
Spread Account........................................ S-4
Events of Default.......................................... S-4
Other Claims on the Receivables............................ S-5
Other Series of Notes................................. S-5
Outstanding Series of Investor Certificates........... S-5
The Transferor Interest............................... S-5
Allocations of Collections and Losses...................... S-5
Application of Finance Charge Collections.................. S-6
Principal Collections...................................... S-6
Pay Out Events............................................. S-7
Optional Redemption........................................ S-8
Tax Status................................................. S-8
ERISA Considerations....................................... S-8
Exchange Listing........................................... S-8
Spiegel Credit Corporation III............................. S-8
Receivables Performance......................................... S-9
Delinquency and Loss Experience............................ S-9
Revenue Experience......................................... S-10
The Trust Portfolio............................................. S-12
Maturity Considerations......................................... S-16
Controlled Accumulation Period............................. S-16
Rapid Amortization Period.................................. S-16
Paired Series.............................................. S-17
Spiegel's Retail Operations..................................... S-18
Description of Series Provisions................................ S-19
General.................................................... S-19
Collateral Amount.......................................... S-20
Allocation Percentages..................................... S-20
Interest Payments.......................................... S-21
Principal Payments......................................... S-22
Controlled Accumulation Period........................ S-23
Rapid Amortization Period............................. S-24
Subordination.............................................. S-24
Application of Finance Charge Collections.................. S-25
Reallocation of Principal Collections...................... S-26
Investor Charge-Offs....................................... S-27
Sharing Provisions......................................... S-28
Principal Accumulation Account............................. S-28
Reserve Account............................................ S-29
Excess Collateral Amount................................... S-30
Spread Account............................................. S-32
Spread Account Distributions............................... S-33
Paired Series.............................................. S-34
Pay Out Events............................................. S-35
Events of Default.......................................... S-37
Servicing Compensation and Payment of Expenses............. S-37
Underwriting.................................................... S-37
Index of Terms for Prospectus Supplement........................ S-40
Other Securities Issued and Outstanding......................... I-1
Part A..................................................... I-1
Part B..................................................... I-1
</TABLE>
i
<PAGE>
Summary of Terms
--------------------------------------------------------------------------------
Issuer: Spiegel Credit Card Master Note Trust
Transferor: Spiegel Credit Corporation III
Originator and Servicer: First Consumers National Bank
Indenture Trustee: BNY Midwest Trust Company
Owner Trustee: ________________________
Closing Date: , 2000
Clearance and Settlement: DTC/Clearstream/Euroclear
Minimum denominations: $1,000
Servicing Fee Rate: 2% per annum
Collateral Amount: $______________
Excess Collateral Amount: $________________________ (___% of the collateral
amount)
Primary Assets of the Issuer: An interest in receivables originated in private
label credit card accounts
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
Principal Amount $ $ $
<S> <C> <C> <C>
Percentage of Collateral Amount % % %
Anticipated Ratings:/*/ Aaa/AAA/AAA A2/A/A Baa2/NA/BBB
(Moody's/Standard &
Poor's/Fitch IBCA)
Credit Enhancement: subordination of subordination of spread account and
Class B and Class C Class C and excess subordination of
and excess collateral collateral amount excess collateral
amount amount
Interest Rate: [One-Month LIBOR [One-Month [One-Month
plus] LIBOR plus] LIBOR plus]
[ ]% per year [ ]% per year [ ]% per year
Interest Accrual Method: [30] [actual]/360 [30] [actual]/360 [30] [actual]/360
Interest Payment Dates: monthly (15th) monthly (15th) monthly (15th)
[Interest Rate Index Reset Date: 2 London business 2 London business 2 London business
days before each days before each days before each
interest payment date interest payment interest payment
date date]
First Interest Payment Date: , 2000 , 2000 , 2000
Commencement of Accumulation Period
(subject to adjustment): , 200 , 200 , 200
Expected Principal Payment Date: , 200 , 200 , 200
Final Maturity Date: , 200 , 200 , 200
ERISA eligibility (investors should Yes, subject to important considerations described under "ERISA
consult with their counsel): Considerations" in the accompanying prospectus.
Debt for United States Federal Income Yes, subject to important considerations described under "Federal
Tax Purposes (investors should consult Income Tax Consequences" in the accompanying prospectus.
with their tax counsel):
</TABLE>
______________________________
/*/ It is a condition to issuance that one of these ratings be obtained.
S-1
<PAGE>
Structural Summary
This summary highlights selected information and does not contain all of the
information that you need to consider in making your investment decision. You
should carefully read this entire document and the accompanying prospectus
before you purchase any notes.
The Issuer
The notes will be issued by Spiegel Credit Card Master Note Trust, an Illinois
common law trust, pursuant to an indenture supplement to an indenture, each
between the issuer and the indenture trustee.
The indenture trustee is BNY Midwest Trust Company.
Collateral for the Notes
The notes are secured by a beneficial interest in a pool of receivables that
arise under private label retail credit card accounts owned by First Consumers
National Bank, a wholly owned subsidiary of Spiegel, Inc. The accounts can be
used to make purchases from the retail operations of Spiegel and its affiliates,
including, Spiegel Catalog, Eddie Bauer and Newport News and to obtain cash
advances on a limited basis. The receivables are currently held by Spiegel
Master Trust, which has issued a certificate to the issuer that represents a
beneficial interest in the receivables. After some pre-existing series of
investor certificates issued by Spiegel Master Trust are retired, we may cause
Spiegel Master Trust to terminate, at which time the receivables will be
transferred to the issuer and held directly by the issuer. We use the term
"trust" to refer to the entity -- either Spiegel Master Trust or the issuer --
that holds the receivables at any given time. The receivables in the trust as of
_______, 2000 were as follows:
. total receivables: $_________
. principal receivables: $________
. finance charge receivables: $________
. total accounts designated to the trust: ________
Maturity Considerations
Although we expect the principal amount of each class of notes to be paid in
full on the expected principal payment date specified in the "Summary of Terms"
above:
. Principal may be paid earlier if a pay out event occurs. In that case,
Class A will receive monthly payments of principal until the Class A notes
are paid in full, then Class B will receive monthly payments of principal
until the Class B notes are paid in full and then Class C will receive
monthly payments of principal until the Class C notes are paid in full.
. Alternatively, principal payments may be delayed or reduced if collections
on the credit card receivables are less than expected. If any class of
notes is not repaid on the expected principal payment date, the issuer will
continue to make monthly payments of principal to that class of notes until
they are paid in full or until the final maturity date for those notes,
whichever occurs first. However, no principal will be paid on the Class B
notes until the Class A notes are paid in full and no principal will be
paid on the Class C notes until the Class A notes and the Class B notes are
paid in full.
S-2
<PAGE>
If any principal or interest on the Series 2000- notes is outstanding on the
final maturity date, the indenture trustee will sell receivables in an amount up
to the collateral amount of your series. The proceeds of this sale will be
allocated solely to your series and will be applied in the same way as
collections. After you have been paid your share of the proceeds, you will not
be entitled to any further payments from the issuer even if you have not been
paid in full.
Credit Enhancement
Subordination
Credit enhancement for the Class A notes is provided by the subordination of the
Class B notes and the Class C notes.
Credit enhancement for the Class B notes is provided by the subordination of the
Class C notes.
In addition, the Series 2000- notes will have the benefit of a $________
excess collateral amount (__% of the aggregate collateral amount for Series
2000- ).
Spread Account
A spread account will provide credit enhancement for the Class C notes. The
spread account initially will not be funded. After the Series 2000- notes are
issued, deposits into the spread account will be made each month from finance
charge collections allocated to your series and excess finance charge
collections available from other series up to the required spread account amount
as described in this prospectus supplement under "Description of Series
Provisions -- Spread Account." The spread account will be used to make payments
on the Class C notes if collections of receivables available to the Class C
notes are insufficient to make required payments and to off set any potential
reductions in the collateral amount if the excess collateral amount has been
reduced to zero.
On any day following an event of default and an acceleration of the Series 2000-
notes, funds available in the spread account will be used to fund any shortfalls
in amounts owed on the Class C notes, the Class A notes and the Class B notes,
in that order of priority.
Credit enhancement for your series is for your series' benefit only, and you are
not entitled to the benefits of credit enhancement available to other series.
Events of Default
The Series 2000- notes are subject to specified events of default described
under "The Indenture -- Events of Default; Rights upon Event of Default" in the
accompanying prospectus. These include, among other things, the failure to pay
interest for 35 days after it is due or to pay principal when it is due on the
final maturity date.
In the case of an event of default involving certain bankruptcy, insolvency or
similar events relating to the issuer or Spiegel Master Trust, the principal
amount of the Series 2000- notes automatically will be deemed to be immediately
due and payable. If any other event of default occurs and continues with respect
to the Series 2000- notes, the indenture trustee or holders of more than 50% of
the then-outstanding principal balance of the Series 2000-notes may declare the
principal amount of the Series 2000- notes to be immediately due and payable.
These declarations may, under certain circumstances be rescinded by holders of
more than 50% of the then-outstanding principal balance of the Series 2000-
notes.
S-3
<PAGE>
After an event of default and the acceleration of the Series 2000- notes, funds
allocated to Series 2000- and on deposit in the collection account, the excess
funding account and the other trust accounts will be applied to pay principal of
and interest on the Series 2000- notes to the extent permitted by law. Principal
collections and finance charge collections allocated to Series 2000- will be
applied to make monthly principal and interest payments on the Series 2000-
notes until the earlier of the date those notes are paid in full or the final
maturity date of those notes.
If the Series 2000- notes are accelerated or the issuer fails to pay the
principal of the Series 2000- notes on the final maturity date, once certain
conditions described in the prospectus under "The Indenture -- Events of
Default; Rights upon Event of Default" are satisfied, the indenture trustee may,
if legally permitted, cause the issuer to sell principal receivables in an
amount equal to the collateral amount for Series 2000- and the related finance
charge receivables.
Other Claims on the Receivables
Other Series of Notes
Series 2000- is the [___] series of notes issued by the issuer. The issuer may
issue other series of notes from time to time in the future. [A summary of the
outstanding series of notes is in Part A of "Annex I: Other Securities Issued
and Outstanding" included at the end of this prospectus supplement.] Neither you
nor any other noteholder will have the right to consent to the issuance of
future series of notes.
Outstanding Series of Investor Certificates
The certificate issued by Spiegel Master Trust to the issuer will be the
[________] series of investor certificates issued by Spiegel Master Trust. In
addition to the certificate held by the issuer, there will be [____] series of
investor certificates outstanding on the closing date. Each series of investor
certificates represents a beneficial interest in the receivables and the other
trust assets. A summary of the outstanding series of investor certificates is
in [Part B] of "Annex I: Other Securities Issued and Outstanding" included at
the end of this prospectus supplement. Neither you nor any other noteholder
will have the right to consent to the issuance of future series of investor
certificates.
The Transferor Interest
We own the interest, called the transferor interest, in the receivables and the
other assets of the trust not securing your series or any other series of notes
or investor certificates. The transferor interest does not provide credit
enhancement for your series or any other series.
Allocations of Collections and Losses
Your notes represent the right to payments from a portion of the collections on
the receivables. The servicer will also allocate to your notes a portion of
defaulted receivables and would also allocate a portion of the dilution on the
receivables to your series if the servicer failed to comply with its obligation
to compensate the trust for dilution. Dilution means any reduction to the
principal balances of receivables made by the servicer because of merchandise
returns or any other reason except losses or payments.
The portion of collections, defaulted receivables and uncovered dilution
allocated to your series will be based mainly upon the ratio of the collateral
amount of your series to the sum of the total amount of principal receivables in
the trust and any balance in the trust's excess funding account. For allocations
of defaulted receivables and uncovered dilution
S-4
<PAGE>
at all times, allocations of finance charge collections during the revolving
period and the controlled accumulation period and allocations of principal
collections during the revolving period, the collateral amount used in
determining these ratios will be reset no less frequently than at the end of
each month. For allocations of finance charge collections during the rapid
amortization period and allocations of principal collections during the
controlled accumulation period or the rapid amortization period, the collateral
amount at the end of the revolving period will be used (subject to reduction
during the controlled accumulation period if the issuer issues a paired series).
The collateral amount for your series is the original principal amount of the
notes plus an excess collateral amount of $______, reduced by principal payments
on the notes. Your collateral amount may also be reduced if (i) principal
collections are reallocated to cover required interest and servicing fee
payments for your series or (ii) finance charge collections and investment
earnings allocated to your series are not sufficient to cover your series' share
of defaulted receivables and uncovered dilution. A reduction to the collateral
amount because of reallocated principal collections, defaults or uncovered
dilution will be reversed to the extent that your series has extra finance
charge collections and investment earnings in future periods.
Application of Finance Charge Collections
The issuer will apply your series' share of collections of finance charge
receivables each month in the following order of priority:
. to pay interest on the Class A notes;
. to pay interest on the Class B notes;
. to pay the servicing fee for your series;
. to pay interest on the Class C notes;
. to cover your series' share of defaulted receivables and uncovered
dilution;
. to cover reductions in your series' collateral amount resulting from
defaults and uncovered dilution allocated to your series and from
reallocated principal collections, in each case that have not been
reimbursed;
. to fund, in limited circumstances, a reserve account to cover interest
payment shortfalls for the Series 2000- notes during the accumulation
period;
. to make a deposit, if needed, to the spread account for Class C up to the
required spread account amount; and
. to other series in group one or to us or our assigns.
Principal Collections
During the revolving period, no principal will be paid or accumulated in a trust
account for you.
During the controlled accumulation period, your series' share of principal
collections will be deposited in a trust account, up to a specified deposit
amount on each distribution date. On the expected principal payment date,
amounts on deposit in that account will be paid first to the Class A noteholders
until the Class A notes are paid in full, then to the Class B noteholders until
the Class B notes are paid in full and then to the Class C noteholders until the
Class C notes are paid in full.
S-5
<PAGE>
During the rapid amortization period, your series' share of principal
collections will be paid first to the Class A noteholders until the Class A
notes are paid in full, then to the Class B noteholders until the Class B notes
are paid in full and then to the Class C noteholders until the Class C notes are
paid in full.
During any of the above periods, principal collections allocated to your series
may be reallocated, if necessary, to make required payments of interest on the
Class A notes, the Class B notes and the Class C notes and monthly servicing fee
payments not made from your series' share of finance charge collections and
excess finance charge collections available from other series in group one.
However, for any calendar month, these reallocated principal collections cannot
exceed the sum of (i) for the required interest payments on the Class A notes, [
]% of the initial collateral amount of your series, (ii) for the required
interest payments on the Class B notes and the required servicing fee payments,
[ ]% of the initial collateral amount of your series and (iii) for the required
interest payments on the Class C notes, [ ]% of the initial collateral amount of
your series, in each case after the initial collateral amount has been reduced
due to defaulted receivables, uncovered dilution or for previously reallocated
principal collections that have not been reimbursed.
At all times, collections of principal receivables allocated to your series that
are not needed for payments on your series will first be made available to other
series and then be paid to us or our assigns or deposited in the excess funding
account.
Pay Out Events
The issuer will begin to repay the principal of the notes before the expected
principal payment date if a pay out event occurs. A pay out event will occur if
the finance charge collections on the receivables in the designated accounts are
too low. The minimum amount of collections for any month, referred to as the
base rate, is the sum of the interest payable on the Series 2000- notes for the
related interest period, plus your series' share of the servicing fee for the
related calendar month. If the average net yield for the trust portfolio, after
deducting net defaulted receivables, for any three consecutive months is less
than the average base rate for the same three consecutive calendar months, a pay
out event will occur.
The other pay out events are:
. Our failure to make required payments or deposits or material failure to
perform other obligations, subject to applicable grace periods;
. Material inaccuracies in our representations and warranties;
. The Series 2000- notes are not paid in full on the expected principal
payment date;
. Certain bankruptcy, insolvency or similar events relating to us or the
bank;
. We are unable to transfer receivables to the trust when required;
. We do not transfer receivables in additional accounts to the trust within 5
business days after we are required to do so;
. Material defaults of the servicer;
. Spiegel Master Trust or the issuer becomes subject to regulation as an
"investment company" under the Investment Company Act of 1940; or
S-6
<PAGE>
. An event of default occurs for the Series 2000- notes and their maturity
date is accelerated.
Optional Redemption
The servicer has the option to purchase your notes when the outstanding
principal amount for your series has been reduced to 10% or less of the initial
principal amount. See"Description of the Notes -- Final Payment of Principal"
in the accompanying prospectus.
Tax Status
Subject to important considerations described under "Federal Income Tax
Consequences" in the accompanying prospectus, Rooks, Pitts and Poust as special
tax counsel to the issuer, is of the opinion that under existing law your Series
2000- notes will be characterized as debt for
federal income tax purposes. By your acceptance of a Series 2000- note, you will
agree to treat your Series 2000- notes as debt for federal, state and local
income and franchise tax purposes. See "Federal Income Tax Consequences" in the
accompanying prospectus for additional information concerning the application of
federal income tax laws.
ERISA Considerations
Subject to important considerations described under "ERISA Considerations" in
the accompanying prospectus, the Series 2000- notes are eligible for purchase by
persons investing assets of employee benefit plans or individual retirement
accounts. A fiduciary or other person contemplating purchasing the Series 2000-
notes on behalf of or with plan assets of any plan or account should consult
with its counsel regarding whether the purchase or holding of the Series 2000-
notes could give rise to a transaction prohibited or not otherwise permissible
under ERISA or Section 4975 of the Internal Revenue Code.
[Exchange Listing
We will apply to list the Series 2000- notes on the Luxembourg Stock Exchange.
We cannot guarantee that the application for the listing will be accepted.]
Spiegel Credit Corporation III
Our address is 400 West 9/th/ Street, Suite 101B, Wilmington, Delaware 19801.
Our phone number is (302) 429-7609.
S-7
<PAGE>
Receivables Performance
The tables below contain certain performance information for the
receivables in the Spiegel private label credit card portfolio for the ____
calendar months in the period ended _______ __, 2000 and for the fiscal years
ended December 31, 1999, 1998, 1997, 1996 and 1995. The composition of the trust
portfolio is expected to change over time. The actual performance of the
receivables in the trust portfolio may be different from that set forth below.
Delinquency and Loss Experience
The following tables set forth the aggregate delinquency and loss
experience for cardholder payments on the credit card accounts in the Spiegel
private label credit card portfolio for each of the five fiscal years in the
period ended December 31, 1999, and for the calendar months in the period ended
____________ ___, 2000.
We cannot assure you that the future delinquency and loss experience for
the receivables will be similar to the historical experience set forth below.
Delinquency Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------
Percentage Percentage Percentage
of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Receivables Outstanding $ % $ % $ %
Receivables Delinquent:
30-59 Days $ % $ % $ %
60-89 Days $ % $ % $ %
90 Days or more $ % $ % $ %
Total $ % $ % $ %
======================== ======================== =========================
<CAPTION>
-----------------------------------------------------
1996 1995
-----------------------------------------------------
Percentage Percentage
of Total Of Total
Receivables Receivables Receivables Receivables
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Receivables Outstanding $ % $ %
Receivables Delinquent:
30-59 Days $ % $ %
60-89 Days $ % $ %
90 Days or more $ % $ %
Total $ % $ %
======================== =======================
</TABLE>
<TABLE>
<CAPTION>
,2000 ,1999
------------------------ --------------------------
Percentage Percentage
of Total of Total
Receivables Receivables Receivables Receivables
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Receivables Outstanding $ % $ %
Receivables Delinquent:
30-59 Days $ % $ %
60-89 Days $ % $ %
90 Days or more $ % $ %
Total $ % $ %
======================== ==========================
</TABLE>
S-8
<PAGE>
Loss Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
Months
Ended ,
2000 1999 1998 1997 1996 1995
------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Average Principal
Receivables Outstanding(1) $ $ $ $ $ $
Total Principal Charge-
Offs(2) $ $ $ $ $ $
Recoveries $ $ $ $ $ $
Net Principal Charge-Offs $ $ $ $ $ $
Net Principal Charge-Offs
as a percentage of Average
Principal Receivables
Outstanding(3) % % % % % %
</TABLE>
(1) Average principal receivables outstanding is the average of the principal
receivable balance at the end of each month during the period indicated.
(2) Total principal charge-offs are shown on a cash basis for principal
receivables only, before recoveries, and do not include the amount of any
reductions in average principal receivables outstanding due to fraud,
returned goods, customer disputes or other miscellaneous credit
adjustments.
(3) The percentage reflected for the _____ months ended _________, 2000 is an
annualized figure.
Revenue Experience
The gross revenues from finance charges and fees billed to accounts in the
Spiegel private label credit card portfolio for each of the five fiscal years in
the period ended December 31, 1999 and for the ______ calendar months in the
period ended __________, 2000 are set forth in the following table. The
historical yield figures reflected in the following table are calculated on an
accrual basis.
S-9
<PAGE>
Revenue Experience
<TABLE>
<CAPTION>
Months December 31,
------ -----------------------------------------------------------------------------
Ended ,
---------
2000 1999 1998 1997
----------------------- ------------------------ ----------------------- ------------------------
Percentage Percentage Percentage Percentage
---------- ---------- ---------- -----------
of Total of Total of Total of Total
-------- ----------- ----------- -----------
Receivables Receivables Receivables Receivables Receivables Receivables Receivables Receivables
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average
-------
Principal
---------
Receivables(1) $ $ $ $
-------------- - - - -
Finance Charges
---------------
and Fees(2) $ % $ % $ % $ %
----------- - - - - - - - -
Total Yield from
----------------
Finance
-------
Charges and
-----------
Fees(3) $ % $ % $ % $ %
-------- =========== ========== =========== =========== =========== =========== =========== ==========
<CAPTION>
1996 1995
------------------------ ------------------------
Percentage Percentage
----------- -----------
of Total of Total
-------- -----------
Receivables Receivables Receivables Receivables
----------- ----------- ----------- -----------
Average
-------
Principal
---------
Receivables(1) $ $
--------------
Finance Charges
---------------
and Fees(2) $ % $ %
-----------
Total Yield from
----------------
Finance
-------
Charges and
-----------
Fees(3) $ % $ %
------- =========== =========== =========== ===========
</TABLE>
(1) Average principal receivables outstanding is the average of the principal
receivable balance at the end of each month during the period indicated.
(2) Finance charges and fees are comprised of monthly periodic finance charges
and all other credit card fees.
(3) The percentage reflected for the _______ months ended _________, 2000 is an
annualized figure.
The revenue for the credit accounts shown in the above table is comprised
of monthly periodic finance charges and credit card fees. These revenues vary
for each account based on the type and volume of activity for each account. See
"The Bank's Credit Card Activities" in the accompanying prospectus.
S-10
<PAGE>
The Trust Portfolio
As of the beginning of the day on _________, 2000:
. The receivables in the trust portfolio included $________ of
principal receivables and $_________ of finance charge
receivables.
. The accounts designated for the trust portfolio had an average
principal receivable balance of $___________ and an average
credit limit of $__________.
. The percentage of the aggregate total receivable balance to the
aggregate total credit limit was _____%.
. The average age of the accounts was approximately _____ months.
. Cardholders whose accounts are designated for the trust portfolio
had billing addresses in all 50 states and the District of
Columbia.
The receivables in the trust portfolio are created by purchases of
merchandise and services from Spiegel and its retail subsidiaries and by
cash advances to accountholders. During 1999, cash advances accounted for
less than 1% of new principal receivables. Since Spiegel and its
subsidiaries accept other credit cards, including American Express,
MasterCard, VISA and Discover, the issuer will depend upon the decisions of
customers to use their Spiegel private label credit cards rather than other
credit cards in order to generate additional receivables. The following
table summarizes for the periods indicated the sales made and the
percentage of total sales made with the Spiegel private label credit card.
There can be no assurance that private label credit card sales in the
future will be similar to the historical experience set forth below .
Private Label Credit Card Purchases
Year Ended December 31,
----------------------------------
Months Ended
________, 2000 1999 1998 1997 1996 1995
---------------- ------ ------ ------ ------ ------
Total Sales charged $ $ $ $ $ $
to private label credit
card
Percentage of total
sales charged to
private label credit % % % % % %
card
The following tables summarize the trust portfolio by various criteria
as of the beginning of the day on _________ __, 2000. Because the future
composition of the trust portfolio will
S-11
<PAGE>
change over time, these tables are not indicative of the composition of the
trust portfolio at any subsequent time.
Composition by Account Balance
Trust Portfolio
Percentage
Number of Total Percentage
of Number of of Total
Account Balance Range Accounts Accounts Receivables Receivables
--------------------- -------- ---------- ----------- -----------
Credit Balance................. % $ ( ) ( ) %
No Balance..................... 0 0.0
$.01-$ 240.00..................
$ 240.01-$ 600.00..............
$ 600.01-$ 900.00..............
$ 900.01-$1200.00..............
$1200.01-$2000.00..............
$2000.01 or More...............
-------- ---------- ----------- -----------
Total....................... % $ %
======== ========== =========== ===========
Composition by Credit Limit
Trust Portfolio
Percentage
Number of Total Percentage
of Number of of Total
Credit Limit Range Accounts Accounts Receivables Receivable
------------------ -------- ---------- ----------- -----------
Less than or equal to $500.00.. % $ %
$500.01-$1,000.00..............
$1,000.01-$2,000.00............
$2,000.01-$3,000.00............
$3,000.01-$4,000.00............
$4,000.01-$5,000.00............
$5,000.01-$6,000.00............
$6,000.01 or More..............
-------- --------- ----------- ----------
Total....................... % $ %
======== ========= =========== ==========
S-12
<PAGE>
Composition by Period of Delinquency
Trust Portfolio
Number Percentage of Percentage
of Total Number of Total
Account Balance Range Accounts of Accounts Receivables Receivables
--------------------- -------- ------------- ----------- -----------
Not Delinquent................. % $ %
Up to 29 Days..................
30 to 59 Days..................
60 to 89 Days..................
90 or More Days................
-------- ------------ ------------ ----------
Total....................... % $ %
======== ============ ============ ==========
Composition by Account Age
Trust Portfolio
Percentage of Percentage
Number Total Number of Total
Account Balance Range of Accounts of Accounts Receivables Receivables
--------------------- ----------- ------------- ----------- -----------
Not More Than 6 Months....... % $ %
Over 6 Months to 12 Months...
Over 12 Months to 24 Months..
Over 24 Months to 36 Months..
Over 36 Months to 48 Months..
Over 48 Months to 60 Months..
Over 60 Months to 72 Months..
Over 72 Months
----------- ------------ ----------- ----------
Total..................... % $ %
=========== ============ =========== ==========
S-13
<PAGE>
Geographic Distribution of Accounts
Trust Portfolio
<TABLE>
<CAPTION>
Percentage of Percentage
Number Total Number of Total
Account Age of Accounts of Accounts Receivables Receivables
----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
[New York.......... % $ %
California.........
Texas..............
Illinois...........
Pennsylvania.......
New Jersey
Other..............]
----------- ------------- ------------- -------------
Total............ % $ %
=========== ============= ============= =============
</TABLE>
S-14
<PAGE>
Maturity Considerations
Unless a pay out event occurs, you will not receive payments of principal
until the "expected payment date," which is ___________, 2000. We expect to
have sufficient funds to pay the full principal amount of each class of Series
2000- notes on the expected principal payment date. However, if a pay out
event occurs, principal payments may begin prior to the expected principal
payment date.
Controlled Accumulation Period
During the controlled accumulation period, principal allocated to the
Series 2000-noteholders will accumulate in the principal accumulation account in
an amount calculated to pay the Series 2000- notes in full on the expected
principal payment date. We expect, but cannot assure you, that the amounts
available in the principal accumulation account on the expected principal
payment date will be sufficient to pay in full the outstanding principal amount
of the Series 2000- notes. If these amounts are not available on the expected
principal payment date, a pay out event will occur and the rapid amortization
period will begin.
Rapid Amortization Period
If a pay out event occurs during either the revolving period or the
controlled accumulation period, the rapid amortization period will begin. If a
pay out event occurs during the controlled accumulation period, on the next
distribution date any amount on deposit in the principal funding account will be
paid:
. first to Class A noteholders, up to the outstanding principal balance
of the Class A notes;
. then to Class B noteholders, up to the outstanding principal balance
of the Class B notes; and
. then to Class C noteholders, up to the outstanding principal balance
of the Class C notes.
In addition, if the outstanding principal balance of the notes has not been
paid in full, the issuer will continue to pay principal to the noteholders on
each distribution date during the rapid amortization period until _______ ,
200 , called the "Series 2000- final maturity date." Available Principal
Collections will be distributed first to the Class A noteholders until the
outstanding principal amount of the Class A notes has been paid in full, then to
the Class B noteholders until the outstanding principal amount of the Class B
notes has been paid in full, and then to the Class C noteholders until the
outstanding principal amount of the Class C notes has been paid in full.
S-15
<PAGE>
Payment Rates
The most important factor that will determine whether the issuer has funds
available to repay the Series 2000- notes on the expected principal payment
date and the size of principal payments during a rapid amortization period is
the payment rate on the receivables. The following table sets forth the highest
and lowest cardholder monthly payment rates on the credit card accounts during
any month in the periods shown and the average cardholder monthly payment rates
for all months in the periods shown, in each case calculated as a percentage of
total opening monthly account balances during the periods shown. Payment rates
shown in the table are based on amounts which would be deemed payments of
principal receivables and finance charge receivables with respect to the
accounts, including recoveries on charged-off accounts.
Cardholder Monthly Payment Rates
<TABLE>
<CAPTION>
Months Year Ended December 31,
Ended
,
2000 1999 1998 1997 1996 1995
------- -------- -------- -------- -------- --------
<S> <S> <C> <C> <C> <C> <C>
Lowest Month....... % % % % % %
Highest Month...... % % % % % %
Monthly............ % % % % % %
</TABLE>
We cannot assure you that the cardholder monthly payment rates in the
future will be similar to the historical experience set forth above. In
addition, the amount of collections of receivables may vary from month to month
due to seasonal variations, general economic conditions and payment habits of
individual cardholders.
Paired Series
The issuer may issue another series of notes as a paired series for Series
2000- . If issued, a paired series may have terms that are different than the
terms of Series 2000- and other series. For example, the pay out events for
the paired series may vary from the pay out events for Series 2000- and may
include pay out events that are unrelated to our status, the status of the
servicer or the receivables, such as pay out events related to the continued
availability and rating of certain providers of credit enhancement for the
paired series. If a pay out event occurs with respect to the paired series
prior to the payment in full of the Series 2000- notes, the allocation
percentage used to determine your series' share of principal collections may
S-16
<PAGE>
be reduced, which may delay the final payment of principal for your series. See
"Description of Series Provisions--Paired Series" in this prospectus supplement.
Spiegel's Retail Operations
Spiegel offers merchandise primarily through three subsidiaries -- Eddie
Bauer, Inc., Newport News, Inc. and Spiegel Catalog.
Eddie Bauer
Eddie Bauer is a leading specialty retailer serving the active, casual
lifestyle needs of men and women through the sale of high quality private-label
apparel, accessories and home furnishings. Eddie Bauer markets its products
through stores, catalogs and e-commerce sites. Total net sales were $1.8 billion
and $1.7 billion for the years ended January 1, 2000 and January 2, 1999,
respectively. Approximately 74 percent of total net sales for Eddie Bauer are
retail and outlet store sales.
Eddie Bauer's apparel category comprised 86 percent of its total net sales
in 1999. Eddie Bauer presents its active, casual apparel and related
accessories through its trademark Eddie Bauer sportswear stores, catalogs and
the eddiebauer.com and eddiebaueroutlet.com e-commerce sites. The apparel
category includes full seasonal collections of fine quality sportswear and dress
casual, outerwear, footwear and accessories. Eddie Bauer presents its
comfortable, relaxed home furnishings and decor for the bed and bath through its
Eddie Bauer HOME retail stores, catalogs and on its e-commerce sites.
At January 1, 2000, Eddie Bauer operated a total of 532 stores, consisting
of 479 retail stores and 53 outlets. There are 492 stores located in the United
States and 40 stores in Canada. The Eddie Bauer catalog division distributed 97
million catalogs in 1999 and at January 1, 2000 had approximately 3.4 million
active customers who had purchased merchandise within the last 18 months.
S-17
<PAGE>
Spiegel Catalog
Spiegel Catalog is a leading lifestyle resource for the working woman.
Spiegel Catalog serves its customers by offering an extensive array of
fashionable apparel, home furnishings and other merchandise through its
trademark semi-annual catalog, seasonal and specialty catalogs, and the
spiegel.com e-commerce site. Spiegel Catalog offers overstock, end-of-season
and other merchandise through its Ultimate Outlet stores, predominantly located
in outlet malls, catalogs and the ultimate-outlet.com e-commerce site. Total
net sales were $717 million and $587 million for the fiscal years ended January
1, 2000 and January 2, 1999, respectively. Sales through catalog offerings
comprise approximately 86 percent of total net sales. Spiegel distributed over
129 million catalogs in 1999 and at January 1, 2000 had approximately 3.0
million active customers who had purchased merchandise within the last 18
months.
Newport News
Newport News is a specialty catalog business offering fashionable,
moderately priced women's apparel and home furnishings. Total net sales were
$411 million for the fiscal year ended January 1, 2000, compared to $345 million
for the year ended January 2, 1999. Newport News distributed 212 million
catalogs in 1999 and at January 1, 2000 had approximately 3.9 million active
customers who had purchased merchandise within the last 18 months. In 1999,
Newport News launched an e-commerce site, newport-news.com, to broaden its sales
and marketing reach.
Description of Series Provisions
We have summarized the material terms of the Series 2000- notes below and
under "Description of the Notes" in the accompanying prospectus.
General
The Class A notes, the Class B notes and the Class C notes comprise the
Series 2000- notes and will be issued under the indenture, as supplemented by
the Series 2000- indenture supplement, in each case between the issuer and the
indenture trustee.
The Series 2000- notes will be issued in denominations of $1,000 and
integral multiples of $1,000 and will be available only in book-entry form,
registered in the name of Cede & Co., as nominee of DTC. See "Description of
the Notes -- General," "-- Book-Entry Registration" and "-- Definitive Notes" in
the accompanying prospectus. Payments of interest and principal will be made on
each distribution date on which those amounts are due to the noteholders in
whose names Series 2000-A notes were registered on the related record date,
which will be the last day of the calendar month preceding that distribution
date.
S-18
<PAGE>
[We will apply to list the notes on the Luxembourg Stock Exchange; however,
we cannot assure you that the listing will be obtained. You should consult with
the Luxembourg listing agent for the notes, [Address] Luxembourg, phone number
( ) , for the status of the listing].
Collateral Amount
Your notes are secured by collateral consisting of an interest in the
receivables. We call the principal amount of the collateral for your notes the
"collateral amount." At any time, the collateral amount is calculated as
follows:
(a) the initial collateral amount, which equals the aggregate initial
principal amount of the notes in your series plus an excess collateral
amount of $_________, less
(b) all previous principal payments made on your series, less
(c) all unreimbursed reductions to the collateral amount as a result of
defaulted receivables or uncovered dilution allocated to your series
or reallocations of principal collections to cover interest or the
servicing fee for your series.
The collateral amount will also be reduced if we purchase and cancel notes
in your series. We are not permitted to do this if it would reduce the
proportional amount of credit enhancement available for any class of notes. The
collateral amount will also increase or reduce if we increase or reduce the
excess collateral amount as described under "Excess Collateral Amount" below.
The collateral amount cannot be less than zero.
Allocation Percentages
The servicer will allocate among your series, other series of notes issued
and outstanding, outstanding series of investor certificates issued by Spiegel
Master Trust and our unpledged interest in the trust, all collections of finance
charge receivables and principal receivables, defaulted receivables and any
dilution amounts that are not absorbed by our interest in the trust or
reimbursed by the servicer. On any day, the allocation percentage for your
series will be the percentage equivalent--which may not exceed 100%--of a
fraction:
. the numerator of which is the collateral amount measured as of a
specified date, and
. the denominator of which is the greater of:
(a) the sum of the total amount of principal receivables in the trust
and the amount on deposit in the excess funding account as of the
preceding day, and
S-19
<PAGE>
(b) the sum of the numerators used to calculate the applicable
allocation percentages for all series of notes or investor
certificates outstanding as of the date of determination.
The numerator referred to above will initially be set as of the closing
date. For purposes of allocating defaulted receivables at all times, all
collections during the revolving period and finance charge collections during
the controlled accumulation period, the numerator will be reset at the end of
each calendar month for allocations during the following calendar month. For
purposes of allocations of principal collections during a controlled
accumulation period and all collections in the rapid amortization period, the
numerator will be fixed at the end of the revolving period and will not change
thereafter except as follows.
The Series 2000- notes are subject to being paired with a future series.
If a pay out event occurs with respect to such a paired series during the
controlled accumulation period for Series 2000- , we may, by written notice
delivered to the indenture trustee and the servicer, designate a different
numerator for allocating principal collections to your series, provided that (i)
the numerator is not less than the collateral amount as of the last day of the
revolving period for such paired series and (ii) we have certified to the
indenture trustee that, based on the facts known to the certifying officer at
the time, in our reasonable belief, the designation will not cause a pay out
event or an event that, after the giving of notice or the lapse of time, would
constitute a pay out event, to occur with respect to the Series 2000- .
Interest Payments
The Class A notes will accrue interest from and including the closing date
through but excluding , 2000, and for each following interest period, at
a rate of % per year [above LIBOR for the related LIBOR determination date
with respect to each interest period].
The Class B notes will accrue interest from and including the closing date
through but excluding , 2000, and for each following interest period, at
a rate of % per year [above LIBOR for the related LIBOR determination date
with respect to each interest period].
The Class C notes will accrue interest from and including the closing date
through but excluding , 2000, and for each following interest period, at
a rate of % per year [above LIBOR for the related LIBOR determination date
with respect to each interest period].
[The indenture trustee will determine LIBOR for each interest period two
London business days before the related interest period commences. We refer to
each of these determination dates as a "LIBOR determination date." For purposes
of calculating LIBOR, a "London business day" is any business day on which
dealings in deposits in United States dollars are transacted in the London
interbank market.]
S-20
<PAGE>
Each interest period will begin on and include a distribution date and end
on but exclude the next distribution date. However, the first interest period
will begin on and include the closing date.
["LIBOR" means, for any LIBOR determination date, the rate for deposits in
United States dollars for a one-month period which appears on Telerate Page 3750
as of 11:00 a.m., London time, on that date. If that rate does not appear on
Telerate Page 3750, the rate for that LIBOR determination date will be
determined based on the rates at which deposits in United States dollars are
offered by four major banks, selected by the servicer, at approximately 11:00
a.m., London time, on that day to prime banks in the London interbank market for
a one-month period. The indenture trustee will request the principal London
office of each of those banks to provide a quotation of its rate. If at least
two quotations are provided, the rate for that LIBOR determination date will be
the arithmetic mean of the quotations. If fewer than two quotations are
provided, the rate for that LIBOR determination date will be the arithmetic mean
of the rates quoted by major banks in New York City, selected by the servicer,
at approximately 11:00 a.m., New York City time, on that day for loans in United
States dollars to leading European banks for a one-month period.]
["Telerate Page 3750" means the display page currently so designated on the
Bridge Telerate Capital Markets Report (or any other page as may replace that
page on that service for the purpose of displaying comparable rates or prices).]
[The Class A note interest rate, the Class B note interest rate and the
Class C note interest rate applicable to the then current and immediately
preceding interest period may be obtained by telephoning the indenture trustee
at its corporate trust office at [____________].]
Interest on the notes will be calculated on the basis of the [actual number
of days in the related interest period and] a 360-day year [of twelve 30-day
months].
If the issuer does not pay interest as calculated above to any class when
due on a distribution date, the amount not paid will be due on the next
distribution date, together with interest on the overdue amount of regular
monthly interest at the interest rate for the applicable class.
Principal Payments
During the revolving period, no principal payments will be made on your
notes. During the controlled accumulation period and the rapid amortization
period, deposits to the principal accumulation account and principal payments on
the Series 2000- notes will be paid from "Available Principal Collections"
which, for any calendar month, equal:
(a) the aggregate amount of principal collections allocated to your
series (using the applicable Investor Percentage) and retained in
the collection account during that calendar month, less any
amounts required to be
S-21
<PAGE>
reallocated to cover interest payments on the Series 2000- notes
or servicing fees; plus
(b) any amount on deposit in the excess funding account allocated to
your series on the related distribution date; plus
(c) any finance charge collections or other amounts required to be
treated as Available Principal Collections in order to cover the
share of defaulted receivables and uncovered dilution amounts
allocated to your series or to reinstate prior reductions to the
collateral amount; plus
(d) any principal collections from other series that are shared with
your series.
Controlled Accumulation Period
The controlled accumulation period is scheduled to commence on _________,
200_ and to last [ ] months. However, the servicer may elect to extend the
revolving period and postpone the controlled accumulation period, subject to the
conditions described under "Description of the Notes--Suspension and
Postponement of Controlled Accumulation Period" in the accompanying prospectus.
The servicer may elect to postpone the controlled accumulation period only if
the number of months needed to fund the principal accumulation account is less
than [ ] months. In no event will the servicer postpone the beginning of
the controlled accumulation period to later than [__________], 200_.
The servicer may also elect to suspend the controlled accumulation period,
subject to the conditions described under "Description of the Notes--Suspension
and Postponement of Controlled Accumulation Period" in the accompanying
prospectus.
On each distribution date relating to the controlled accumulation period,
the indenture trustee will deposit in the principal accumulation account an
amount equal to the least of:
(1) Available Principal Collections with respect to that distribution
date;
(2) $__________________ (or, if the commencement of the controlled
accumulation is postponed as described above, such higher specified
deposit amount as the servicer may determine is necessary to fully
fund the principal accumulation account), plus any amounts required to
be deposited to the principal accumulation account on prior
distribution dates that have not yet been deposited; and
(3) an amount equal to the then collateral amount, minus the excess
collateral amount, and minus the amount on deposit in the principal
accumulation account prior to any deposits on that date.
S-22
<PAGE>
If the rapid amortization period has not commenced, amounts in the
principal accumulation account will be paid on the expected principal payment
date:
. first to Class A noteholders, up to the outstanding principal balance
of the Class A notes;
. then to Class B noteholders, up to the outstanding principal balance
of the Class B notes; and
. then to Class C noteholders, up to the outstanding principal balance
of the Class C notes.
During the controlled accumulation period, the portion of Available
Principal Collections not deposited in the principal accumulation account on a
distribution date may be applied to make payments to us that will reduce your
excess collateral amount, to the extent that the excess collateral amount is
greater than the required excess collateral amount. Any remaining Available
Principal Collections generally will be made available to investors in other
series as shared principal collections, be paid to us to purchase additional
interests in receivables in order to maintain the collateral amount or be
deposited in the excess funding account if necessary to maintain the Required
Transferor Amount.
Rapid Amortization Period
On each distribution date relating to the rapid amortization period, the
Class A noteholders will be entitled to receive Available Principal Collections
for the related calendar month in an amount up to the outstanding principal
balance of the Class A notes.
After payment in full of the outstanding principal balance of the Class A
notes, the Class B noteholders will be entitled to receive, on each distribution
date relating to the rapid amortization period, Available Principal Collections
for the related calendar month in an amount up to the outstanding principal
balance of the Class B notes.
After payment in full of the outstanding principal balance of the Class B
notes, the Class C noteholders will be entitled to receive on each distribution
date relating to the rapid amortization period, Available Principal Collections
for the related calendar month in an amount up to the outstanding principal
balance of the Class C notes.
See "-- Pay Out Events" below for a discussion of events that might lead to
the commencement of the rapid amortization period.
Subordination
The Class B notes and the Class C notes are subordinated to the Class A
notes. Interest payments will be made on the Class A notes prior to being made
on the Class B notes and the
S-23
<PAGE>
Class C notes. Interest payments will be made on the Class B notes prior to
being made on the Class C notes. Principal payments on the Class B notes will
not begin until the Class A notes have been paid in full. Principal payments on
the Class C notes will not begin until the Class A notes and the Class B notes
have been paid in full. If principal collections allocated to your series in an
amount greater than the excess collateral amount are reallocated to pay the
interest on the Class A notes, the principal amount of the Class B notes and the
Class C notes may not be repaid. If principal collections allocated to your
series in an amount greater than the excess collateral amount are reallocated to
pay interest on the Class B notes or your series' share of the servicing fee,
the principal amount of the Class C notes may not be repaid. If receivables are
sold after an event of default, the net proceeds of that sale which are
available to pay principal on the Series 2000-notes would be paid first to the
Class A notes before any remaining net proceeds would be available for payments
due to the Class B notes or the Class C notes.
Application of Finance Charge Collections
On each distribution date, the servicer will direct the indenture trustee
to apply your series' share of finance charge collections -- including net
investment proceeds transferred from the principal accumulation account and
amounts withdrawn from the reserve account, which are treated as finance charge
collections available to your series -- and any available excess finance charge
collections from other series for the prior month in the following order:
(1) to pay interest on the Class A notes (including any overdue interest
and additional interest on the overdue interest);
(2) to pay interest on the Class B notes (including any overdue interest
and additional interest on the overdue interest);
(3) if the bank or Spiegel is not the servicer, to pay the servicing fee
for your series for the prior calendar month and any overdue servicing
fee;
(4) to pay interest on the Class C notes (including any overdue interest
and additional interest on the overdue interest);
(5) an amount equal to your series' share of the defaulted receivables and
uncovered dilution, if any, for the related calendar month, will be
treated as Available Principal Collections for the prior calendar
month;
(6) an amount equal to any previously unreimbursed reductions to the
collateral amount on account of defaulted receivables, uncovered
dilution or reallocations of principal collections will be treated as
Available Principal Collections for the prior calendar month;
S-24
<PAGE>
(7) on and after the reserve account funding date, an amount equal to the
excess, if any, of the required reserve account amount over the amount
then on deposit in the reserve account will be deposited into the
reserve account;
(8) an amount equal to the excess, if any, of the required spread account
amount over the amount then on deposit in the spread account will be
deposited into the spread account;
(9) to pay any unpaid servicing fee for your series for the prior calendar
month and any unpaid overdue servicing fee to the extent not paid in
accordance with clause (3) above; and
(10) all remaining amounts will constitute excess finance charge
collections and will be available to cover any shortfalls in finance
charge collections for other outstanding series in group one and,
after payment of these shortfalls, the remaining amount will be paid
to us or our assigns.
If your series' share of finance charge collections for any calendar month
is insufficient to pay interest on the Class C notes (including any overdue
interest and additional interest on the overdue interest) when due, a draw will
be made from amounts available in the spread account and will be paid to the
Class C noteholders on the related distribution date.
Reallocation of Principal Collections
If your series share of finance charge collections are not sufficient to
pay interest on the Class A notes, interest on the Class B notes, interest on
the Class C notes or the servicing fee for your series, then principal
collections allocated to more junior classes of notes or the excess collateral
amount will be reallocated to cover these amounts. Any reallocation of principal
collections will reduce the collateral amount by a corresponding amount. The
amount of principal collections that will be reallocated on any distribution
date will not exceed:
. the lower of:
. the excess of the amounts needed to pay interest on the Class A
notes (including any overdue interest and additional interest)
over the amount of finance charge collections allocated to your
series (including amounts treated as finance charge collections
and excess finance charge collections available from other
series) and available to cover these amounts; and
. the greater of (a)(x) the product of (i) [ ]% and (ii) the
initial collateral amount minus (y) the amount of unreimbursed
investor charge-offs (after giving effect to investor charge-offs
for the related calendar month) and unreimbursed reallocated
principal collections (as of the previous distribution date) and
(b) zero; plus
S-25
<PAGE>
. the lower of:
. the excess of the sum of the amounts needed to pay interest on
the Class B notes (including any overdue interest and additional
interest) and the current and past due servicing fee for your
series over the amount of finance charge collections allocated to
your series (including amounts treated as finance charge
collections and excess finance charge collections available from
other series) and available to cover these amounts; and
. the greater of (a)(x) the product of (i) [ ]% and (ii) the
initial collateral amount minus (y) the amount of unreimbursed
investor charge-offs (after giving effect to investor charge-offs
for the related calendar month) and unreimbursed reallocated
principal collections (as of the previous distribution date and
after giving effect to the reallocation of principal collections
to make required interest payments for Class A on the then-
current distribution date) and (b) zero; plus
. the lower of:
. the excess of the amounts needed to pay interest on the Class C
notes (including any overdue interest and additional interest)
over the amount of finance charge collections allocated to your
series (including amounts treated as finance charge collections
and excess finance charge collections available from other
series) and available to cover these amounts; and
. the greater of (a)(x) the product of (i) [ ]% and (ii) the
initial collateral amount minus (y) the amount of unreimbursed
investor charge-offs (after giving effect to investor charge-offs
for the related calendar month) and unreimbursed reallocated
principal collections (as of the previous distribution date and
after giving effect to the reallocation of principal collections
to make required interest payments for Class A and Class B and
required servicing fee payments on the then-current distribution
date) and (b) zero.
Investor Charge-Offs
The servicer will allocate a portion of defaulted receivables for each
calendar month and--to the extent the servicer defaults in its obligation to
make a required payment to the excess funding account to cover dilution--any
uncovered dilution for any calendar month to your series based on the allocation
percentage for your series. See "Defaulted Receivables; Dilution; Investor
Charge-Offs" in the accompanying prospectus. The allocation percentage is
described under "--Allocation Percentages" above.
S-26
<PAGE>
On each distribution date, if the sum of the defaulted receivables and
dilution allocated to your series is greater than finance charge collections
(including amounts treated as finance charge collections and excess finance
charge collections from other series) used to cover those amounts, then the
collateral amount will be reduced by the amount of the excess.
Any such reductions in the collateral amount will be reinstated to the
extent that finance charge collections (including amounts treated as finance
charge collections and excess finance charge collections available from other
series) are available for that purpose on any subsequent distribution date.
Sharing Provisions
Your series is in group one for purposes of sharing excess finance charge
collections. Your series will share excess finance charge collections with other
series of notes in group one and other series of investor certificates in group
one for Spiegel Master Trust. See "Description of the Notes -- Shared Excess
Finance Charge Collections" in the accompanying prospectus.
Your series is a principal sharing series. See "Description of the Notes
-- Shared Principal Collections; Excess Funding Account" in the accompanying
prospectus.
Principal Accumulation Account
The indenture trustee will establish and maintain a segregated trust
account held for the benefit of the noteholders to serve as the "principal
accumulation account." During the controlled accumulation period, the indenture
trustee at the direction of the servicer will transfer Available Principal
Collections from the collection account to the principal accumulation account as
described under "-- Application of Collections" in this prospectus supplement.
Funds on deposit in the principal accumulation account will be invested to
the following distribution date by the indenture trustee at the direction of the
servicer in highly rated liquid investments that meet the criteria described in
the indenture supplement. Investment earnings (net of investment losses and
expenses) on funds on deposit in the principal accumulation account will be
deposited in the collection account and treated as finance charge collections
available to your series for the related interest period. If, for any
distribution date, these net investment earnings are less than the sum of:
(a) the product of (i) the balance of the principal accumulation account,
up to the outstanding principal balance of the Class A notes, on the record date
immediately preceding that distribution date, (ii) the Class A note interest
rate for the related interest period and (iii) the number of days in the related
interest period divided by 360, plus
(b) the product of (i) the balance of the principal accumulation account
in excess of the outstanding principal balance of the Class A notes on the
record date immediately preceding
S-27
<PAGE>
that distribution date, (ii) the Class B note interest rate for the related
interest period and (iii) the number of days in the related interest period
divided by 360, plus
(c) the product of (i) the balance of the principal accumulation account
in excess of the outstanding principal balance of the Class A and Class B notes
on the record date immediately preceding that distribution date, (ii) the Class
C note interest rate for the related interest period and (iii) the number of
days in the related interest period divided by 360,
then the indenture trustee will withdraw the shortfall, called the "reserve draw
amount," to the extent required and available, from the reserve account and
deposit it in the collection account for use as finance charge collections that
are available to your series.
Reserve Account
The indenture trustee will establish and maintain a segregated trust
account held for the benefit of the noteholders to serve as the "reserve
account." The reserve account is established to assist with the subsequent
distribution of interest on the notes during the controlled accumulation period
and on the first distribution date with respect to the rapid amortization
period. On each distribution date from and after the reserve account funding
date, but prior to the termination of the reserve account, the indenture
trustee, will apply (to the extent the amount on deposit in the reserve account
is less than the required reserve account amount) finance charge collections
allocated to your series (including amounts treated as finance charge
collections and excess finance charge collections available from other series)
to increase the amount on deposit in the reserve account.
The "reserve account funding date" will be the distribution date with
respect to the calendar month which commences no later than [_____] months prior
to the commencement of the controlled accumulation period, or an earlier date as
the servicer may determine.
The "required reserve account amount" for any distribution date on or after
the reserve account funding date will be equal to (a) [___]% of the outstanding
principal balance of the Series 2000- notes or (b) any other amount
designated by us; except that we may only designate a lesser amount if each
rating agency confirms that the designation will not impair its rating of any
outstanding series or class and we will certify to the indenture trustee that,
based on the facts known to the certifying officer at the time, in our
reasonable belief, the designation will not cause a pay out event or an event
that, after the giving of notice or the lapse of time, would cause a pay out
event to occur for Series 2000- .
On each distribution date, after giving effect to any deposit to be made
to, and any withdrawal to be made from, the reserve account on that distribution
date, the indenture trustee will withdraw from the reserve account an amount
equal to the excess, if any, of the amount on deposit in the reserve account
over the required reserve account amount, will deposit the excess in the spread
account to the extent that funds available in the spread account are less than
the required spread account amount and will distribute any remaining excess to
us or our assigns.
S-28
<PAGE>
Any amounts withdrawn from the reserve account and distributed to us or our
assigns will not be available for distribution to the noteholders.
All amounts on deposit in the reserve account on any distribution date
(after giving effect to any deposits to, or withdrawals from, the reserve
account to be made on that distribution date) will be invested to the following
distribution date by the indenture trustee, at the direction of the servicer, in
highly rated liquid investments that meet the criteria described in the
indenture supplement. The interest and other investment income (net of losses
and investment expenses) earned on these investments will be retained in the
reserve account (to the extent the amount on deposit is less than the required
reserve account amount) or deposited in the collection account and treated as
finance charge collections available to your series.
On or before each distribution date with respect to the controlled
accumulation period and on or before the first distribution date with respect to
the rapid amortization period, the indenture trustee will withdraw from the
reserve account and deposit in the collection account an amount equal to the
least of:
(1) the amount then on deposit in the reserve account with respect to that
distribution date; and
(2) the reserve draw amount with respect to that distribution date.
Amounts withdrawn from the reserve account on any distribution date will be
included as finance charge collections available to your series for that
distribution date.
The reserve account will be terminated upon the earliest to occur of:
(1) the first distribution date for the rapid amortization period;
(2) the expected principal payment date; and
(3) the termination of the trust.
Upon the termination of the reserve account, all amounts on deposit in the
reserve account (after giving effect to any withdrawal from the reserve account
on that date as described above) will be deposited in the spread account to the
extent that funds available in the spread account are less than the required
spread account amount and any remaining amounts will be distributed to us or our
assigns. Any amounts withdrawn from the reserve account and distributed to us
or our assigns will not be available for distribution to the noteholders.
Excess Collateral Amount
An excess collateral amount provides credit enhancement for your series.
The initial excess collateral amount will be $[_____________], which equals
[_______]% (the "Required Excess
S-29
<PAGE>
Collateral Percentage") of the initial aggregate outstanding principal amount of
the Series 2000-notes. We may decrease the Required Excess Collateral Percentage
at any time if each rating agency then rating the Series 2000- notes confirms
that the reduction will not impair its ratings of the notes.
The "required excess collateral amount" for your series is equal to the
product of the Required Excess Collateral Percentage and the aggregate
outstanding principal amount of the notes (after giving effect to all reductions
through the date of determination). However:
(a) except as provided in clause (c), the required excess collateral
amount will never be less than 3% of the initial collateral amount,
(b) except as provided in clause (c), the required excess collateral
amount will not reduce during a rapid amortization period, and
(c) the required excess collateral amount will never exceed the aggregate
outstanding principal amount of the notes.
The excess collateral amount may be decreased by payments of Available
Principal Collections to us during the controlled accumulation period, as
described under "Description of Series Provisions--Principal Payments--
Controlled Accumulation Period" in this prospectus supplement and under "Credit
Enhancement--Excess Collateral Amount" in the accompanying prospectus.
The issuer will also be required to increase the excess collateral amount
by the amount described below, if the issuer wishes to designate automatic
additional accounts as trust accounts in excess of the limitation on account
additions during any twelve-month period described under "Description of the
Notes--Addition of Trust Assets" in the accompanying prospectus, unless the
issuer first obtains written confirmation from the rating agencies then rating
any class of the Series 2000- notes that the action will not impair their
rating of any class of the Series 2000-notes. The amount of the required
increase will be equal to:
(a) if the number of new accounts designated during that twelve-month
period (minus any accounts removed during that twelve-month period) is
less than or equal to 25% of the number of accounts as of the first
day of that twelve-month period, [2]% of the collateral amount before
giving effect to the increase; or
(b) if the number of new accounts designated during that twelve-month
period (minus any accounts removed during that twelve-month period) is
greater than 25% of the number of accounts as of the first day of that
twelve-month period, [4]% of the collateral amount before giving
effect to the increase.
S-30
<PAGE>
Spread Account
The indenture trustee will establish and maintain as a segregated account
held as security for the benefit of the Class C noteholders to serve as the
"spread account." Amounts on deposit in the spread account will be used as
described below under "--Spread Account Distributions."
The spread account initially will not be funded, but will be funded up to
the required spread account amount on each distribution date from finance charge
collections allocated to your series (including amounts treated as finance
charge collections and excess finance charge collections available from other
series), in each case, to the extent available for that purpose.
The "required spread account amount" will be determined on each
distribution date as follows:
. Prior to an event of default and acceleration of your notes, the
required spread account amount for any date of determination will be
equal to the product of (a) the Spread Account Percentage in effect on
that date of determination and (b) the initial collateral amount, but
will not exceed the outstanding principal balance of the Class C notes
minus the excess, if any, of the principal accumulation account
balance over the sum of the outstanding principal balances of the
Class A notes and the Class B notes on that date of determination.
. After an event of default and acceleration of your notes, the
required spread account amount for any distribution date will be equal
to the outstanding principal amount of your series of notes.
The "Spread Account Percentage" will be determined as follows:
If the Quarterly Excess Spread Percentage is then, the Spread Account
greater than or equal to: and less than: Percentage will equal:
--------------------------- -------------- --------------------------
[--]% -- 0
[--]% [--]% [--]%
[--]% [--]% [--]%
[--]% [--]% [--]%
-- [--]% [--]%
However, if a pay out event for Series 2000- has occurred, the Spread
Account Percentage will be [--]%.
After the Spread Account Percentage has been increased above zero as
specified in the table above, it will remain at the specified percentage until:
. further increased to a higher required percentage as specified above,
or
. the distribution date on which the Quarterly Excess Spread Percentage
has increased to a level above that for the then current Spread
Account Percentage, in which case the Spread Account Percentage will
be decreased to the appropriate
S-31
<PAGE>
percentage as specified above (or, if the Excess Spread Percentage is
greater than or equal to [ ]%, the Spread Account Percentage will be zero
and the Required Spread Account Amount will be zero).
However, if a pay out event with respect to Series 2000- has occurred, the
Spread Account Percentage will equal [--]% (as provided in the definition of
Spread Account Percentage above) and may not be subsequently reduced.
The "Quarterly Excess Spread Percentage" will be determined as follows:
<TABLE>
<S> <C>
For the [Month 1]
2000 The Excess Spread Percentage for the [Month 1] 2000
distribution date: distribution date
For the [Month 2]
2000 The sum of the Excess Spread Percentage for the [Month 1] 2000
distribution date: distribution date, plus the Excess Spread Percentage for the
[Month 2] 2000 distribution date
--------------------------------------------------------------
2
For each following
distribution date: The sum of the Excess Spread Percentages for the then-current
distribution date and the two prior distribution dates
--------------------------------------------------------------
3
</TABLE>
The "Excess Spread Percentage" for any distribution date will be the
amount, if any, by which the Portfolio Yield for the prior calendar month
exceeds the Base Rate for the prior calendar month. However, the Excess Spread
Percentage for the first distribution date will be calculated for the period
from the closing date through the end of the calendar month preceding the first
distribution date.
Funds on deposit in the spread account will be invested, at the direction
of the servicer, in highly rated liquid investments that meet the criteria
described in the indenture supplement. Investment earnings (net of losses and
investment expenses) will, except as otherwise indicated in this prospectus
supplement, not be deposited into the spread account and will be paid to the
holders of the transferor certificates. However, after an event of default
relating to your series of notes, these investment earnings will be available
for payment to holders of the Class C notes.
Spread Account Distributions
On each distribution date, funds on deposit in the spread account
(including investment earnings) will be applied in the following order of
priority:
S-32
<PAGE>
(1) if the interest to be paid on the Class C notes exceeds the amount
allocated to pay that interest, to fund any shortfall in the payment
of interest on the Class C notes;
(2) if the excess collateral amount previously has been reduced to zero,
or will be reduced to zero because of (a) the reallocation of
principal collections or (b) the allocation of defaults or uncovered
dilution to your series on the then-current distribution date, to
cover any potential reductions in the collateral amount that would
occur after the reduction of the excess collateral amount to zero; and
(3) to reimburse any prior reductions in the collateral amount that have
not been reimbursed, other than reductions to the excess collateral
amount.
On the Series 2000- final maturity date, funds available in the spread
account (after giving effect to any withdrawals to be made as discussed in the
preceding paragraph) will be used to fund any shortfall in the payment of the
outstanding principal balance of the Class C notes. On any day following an
event of default and an acceleration of the notes, funds available in the spread
account will be used to fund any shortfalls in amounts owed on the Class C
notes, the Class A notes and the Class B notes, in that order of priority.
Funds on deposit in the spread account on any distribution date, after
giving effect to all withdrawals from and deposits to the spread account, in
excess of the Required Spread Account Amount will be paid to the holders of the
transferor certificates. On the date on which all amounts due to the noteholders
from the spread account have been paid in full, all amounts, if any, then
remaining in the spread account will be distributed to the holders of the
transferor certificates.
Paired Series
Your series may be paired with one or more other series issued at a later
time once the controlled accumulation period for your series begins. We call
each of these later issued series a "paired series." See "Description of the
Notes -- Paired Series" in the accompanying prospectus. The issuance of the
paired series will be subject to the conditions described under "Description of
the Notes -- New Issuances" in the accompanying prospectus.
We cannot guarantee that the terms of any paired series will not have an
impact on the calculation of the allocation percentage used to allocate
principal collections to your series or the timing or amount of payments
received by you as a Series 2000- noteholder. In particular, the numerator for
the allocation percentage used to allocate principal collections to your series
may be reduced upon the occurrence of a pay out event for a paired series, but
not below the collateral amount as of the last day of the revolving period for
the paired series. The extent to which the timing or amount of payments received
by you may be affected will depend on many factors, only one of which is a
change in the calculation of the allocation percentage.
S-33
<PAGE>
Pay Out Events
A pay out event will occur for the Series 2000- notes upon the occurrence
of any of the following events:
(a) our failure (i) to make any payment or deposit on the date
required to be made under the transfer and servicing agreement, the
indenture or the Series 2000- indenture supplement within the applicable
grace period which shall not exceed 5 days or (ii) to observe or perform in
any material respect any of our other covenants or agreements set forth in
the transfer and servicing agreement, the indenture or the Series 2000-
indenture supplement, which failure has a material adverse effect on the
Series 2000- noteholders and which continues unremedied for a period of 60
days after written notice of the failure, requiring the same to be
remedied;
(b) any representation or warranty made by us in the transfer and
servicing agreement or the pooling and servicing agreement or any
information required to be given by us to identify the accounts proves to
have been incorrect in any material respect when made or delivered and
which continues to be incorrect in any material respect for a period of 60
days after written notice of the failure, requiring the same to be
remedied, and as a result of which the interests of the noteholders are
materially and adversely affected and continue to be materially and
adversely affected for the designated period; except that a pay out event
pursuant to this subparagraph (b) will not occur if we have accepted
reassignment of the related receivable or all related receivables, if
applicable, within the designated period;
(c) our failure to convey receivables in additional accounts to the
trust within 5 business days after we are required to do so;
(d) any servicer default occurs;
(e) the average of the Portfolio Yields for any 3 consecutive
calendar months is less than the average of the Base Rates for the same
calendar months;
(f) sufficient funds are not available to pay in full the
outstanding principal balance of the Series 2000- notes on the expected
principal payment date;
(g) certain bankruptcy, insolvency, liquidation, conservatorship,
receivership or similar events relating to us or the bank;
(h) we are unable for any reason to transfer receivables to the
trust;
(i) Spiegel Master Trust or the issuer becomes subject to regulation
as an "investment company" within the meaning of the Investment Company Act
of 1940, as amended; or
S-34
<PAGE>
(j) an event of default for Series 2000- and an acceleration of the
maturity of the Series 2000- notes occurs under the indenture.
In the case of any event described in clause (a), (b) or (d) above, a pay
out event will be deemed to have occurred with respect to the notes only if,
after any applicable grace period, either the indenture trustee or the Series
2000- noteholders evidencing interests aggregating more than 50% of the
aggregate unpaid principal amount of the Series 2000- notes, by written notice
to us and the servicer (and to the indenture trustee if given by the Series
2000- noteholders), declare that a pay out event has occurred with respect to
the Series 2000- notes as of the date of the notice.
In the case of any event described in clause (g), (h) or (i), a pay out
event with respect to all series then outstanding, and in the case of any event
described in clause (c), (e), (f) or (j), a pay out event with respect to only
the Series 2000- notes, will occur without any notice or other action on the
part of the indenture trustee or the Series 2000- noteholders immediately upon
the occurrence of the event.
On the business day immediately before the date on which a pay out event is
deemed to have occurred, the rapid amortization period will begin.
See "Description of the Notes -- Pay Out Events" in the accompanying
prospectus for an additional discussion of the consequences of certain
insolvency, conservatorship or receivership events related to us.
The term "Base Rate" means, with respect to any calendar month, the
annualized percentage equivalent of a fraction:
. the numerator of which is the sum of (a) the interest due on the
Series 2000- notes and (b) the product of (i) the monthly servicing
fee rate for your series and (ii) the outstanding principal amount of
the Series 2000- notes, less amounts, if any, on deposit in the
principal accumulation account, each for the following distribution
date; and
. the denominator of which is the outstanding principal balance of the
Series 2000- notes as of the last day of that calendar month.
The term "Portfolio Yield" means, with respect to any calendar month, the
annualized percentage equivalent of a fraction:
. the numerator of which is the amount of finance charge collections
allocated to your series, including net investment proceeds
transferred from the principal accumulation account, and amounts
withdrawn from the reserve account and treated as finance charge
collections available to your series and available excess
S-35
<PAGE>
finance charge collections, minus the amount of defaulted receivables
allocated to your series for that calendar month; and
. the denominator of which is the collateral amount as of the close of
business on the last day of that calendar month.
Events of Default
The events of default for Series 2000- , as well as the rights and remedies
available to the indenture trustee and the Series 2000- noteholders when an
event of default occurs, are described under "The Indenture--Events of Default;
Rights Upon Event of Default" in the accompanying prospectus.
In the case of an event of default involving certain bankruptcy, insolvency
or similar events relating to Spiegel Master Trust or the issuer, the principal
amount of the Series 2000- notes automatically will be deemed to be immediately
due and payable. If any other event of default for Series 2000-occurs, the
indenture trustee or the holders of a majority of the then-outstanding principal
balance of the Series 2000- notes may declare the Series 2000- notes to be
immediately due and payable. If the Series 2000- notes are accelerated, you may
receive principal prior to the expected principal payment date for your class of
notes.
Servicing Compensation and Payment of Expenses
The servicing fee rate for your series is 2% per annum. Your series' share
of the servicing fee for each month will be calculated as described under
"Description of the Notes--Servicing Compensation and Payment of Expenses" in
the accompanying prospectus. However, the monthly servicing fee allocable to
your series for the first distribution date will equal $[____________].
Underwriting
Subject to the terms and conditions set forth in an underwriting agreement
between us and the underwriters named below, we have agreed to sell to the
underwriters, and each of the underwriters has severally agreed to purchase, the
principal amount of the notes set forth opposite its name:
Principal Amount of
Class A Underwriters Class A Notes
-------------------- -------------------
$
-------------------
Total........................... $
===================
S-36
<PAGE>
Principal Amount of
Class B Underwriters Class B Notes
-------------------- -------------------
$
-------------------
Total.......................... $
===================
Principal Amount of
Class C Underwriters Class C Notes
-------------------- -------------------
$
-------------------
Total.......................... $
===================
In the underwriting agreement, the underwriters of each class of notes have
agreed, subject to the terms and conditions set forth in that agreement, to
purchase all of the notes in that class offered by this prospectus supplement if
any of the notes in that class are purchased.
The underwriters of each class of notes have advised us that they propose
initially to offer the notes in that class to the public at the prices set forth
in the prospectus supplement, and to certain dealers at such prices less a
concession not in excess of the percentages set forth in the following table.
The underwriters of each class of notes and such dealers may reallow a
concession not in excess of the percentages set forth in the following table.
After the initial public offering of the notes, the public offering prices and
the concessions referred to in this paragraph may be changed.
Class A Class B Class C
Notes Notes Notes
Concessions............... % % %
Reallowances.............. % % %
The underwriters will be compensated as set forth in the following table:
Underwriters' Amount
Discounts and per $1,000
Commissions of Principal Total Amount
---------------- ------------ ------------
Class A Notes % $ $
Class B Notes % $ $
Class C Notes % $ $
-------------
Total Class A, Class B and
Class C Notes $
=============
S-37
<PAGE>
Each underwriter has represented and agreed that:
(a) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation to
the notes 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 or
sale of the notes to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or is a person to whom that document may otherwise lawfully be issued or passed
on;
(c) if it is an authorized person under Chapter III of part I of the
Financial Services Act 1986, it has only promoted and will only promote (as that
term is defined in Regulation 1.02(2) of the Financial Services (Promotion of
Unregulated Schemes) Regulations 1991) to any person in the United Kingdom the
scheme described in this prospectus supplement and the accompanying prospectus
if that person is of a kind described either in Section 76(2) of the Financial
Services Act 1986 or in Regulation 1.04 of the Financial Services (Promotion of
Unregulated Schemes) Regulations 1991; and
(d) it is a person of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996.
We will indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act, or contribute to payments the underwriters
may be required to make in respect thereof.
The underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the notes in accordance with Regulation M under the Exchange Act. Over-
allotment transactions involve syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the notes so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the notes in the
open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the underwriters to reclaim a
selling concession from a syndicate member when the notes originally sold by
that syndicate member are purchased in a syndicate covering transaction. Over-
allotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids may cause the prices of the notes to be higher
than they would otherwise be in the absence of those transactions. Neither we
nor the underwriters represent that the underwriters will engage in any of these
transactions or that those transactions, once commenced, will not be
discontinued without notice at any time.
S-38
<PAGE>
Index of Terms for Prospectus Supplement
<TABLE>
<CAPTION>
Terms Page
----- ----
<S> <C>
Available Principal Collections................................. S-22
Base Rate....................................................... S-36
collateral amount............................................... S-20
Excess Collateral Percentage.................................... S-30
Excess Spread Percentage........................................ S-33
LIBOR........................................................... S-22
LIBOR determination date........................................ S-21
London business day............................................. S-21
paired series................................................... S-34
Portfolio Yield................................................. S-36
principal accumulation account.................................. S-28
Quarterly Excess Spread Percentage.............................. S-33
required excess collateral amount............................... S-31
required reserve account amount................................. S-29
required spread account amount.................................. S-32
reserve account................................................. S-29
reserve account funding date.................................... S-29
reserve draw amount............................................. S-29
Series 2000- final maturity date................................ S-16
spread account.................................................. S-32
Spread Account Percentage....................................... S-32
Telerate Page 3750.............................................. S-22
trust........................................................... S-3
</TABLE>
S-39
<PAGE>
ANNEX I
Other Securities Issued and Outstanding
The principal characteristics of the other outstanding series of notes
previously issued by the issuer and the outstanding series of investor
certificates issued by Spiegel Master Trust are set forth in Part A and Part B,
respectively, of the table below. All of the outstanding series of notes and
investor certificates are in group one. For more specific information with
respect to any series of notes or investor certificates, any prospective
investor should contact Spiegel Credit Corporation III, [___________________].
Spiegel Credit Corporation III will provide, without charge, to any prospective
purchaser of the notes, a copy of the disclosure documents for any previous
publicly-issued series of notes or investor certificates.
Part A
[I. Series 2000-
<TABLE>
<S> <C>
Initial Class A collateral amount............................................................. $
Current Class A collateral amount............................................................. $
Class A note interest rate.........................................[one-month] LIBOR plus % per annum
Initial Class B collateral amount............................................................. $
Current Class B collateral amount............................................................. $
Class B note interest rate........................................[one-month] LIBOR plus % per annum
Initial Class C collateral amount............................................................. $
Current Class C collateral amount............................................................. $
Class C note interest rate.........................................[one-month] LIBOR plus % per annum
[Controlled Accumulation Amount................................................................$ ]
[Expected principal payment date............................................[ ] distribution date]
Annual servicing fee percentage........................................................2.0% per annum
[Enhancement for the Class A notes........................Subordination of Class B and Class C notes]
[Enhancement for the Class B notes....................................Subordination of Class C notes]
[Enhancement for the Class C notes....................................................spread account]
Series 2000- termination date................................................[ ] distribution date
Series Issuance Date.................................................................... , 2000
Part B
Series 1994-B
Initial Investor Amount.............................................................. $205,500,000.00
Class A Certificate Rate............................................................. 8.15% per annum
Class B Certificate Rate............................................................. 8.35% per annum
[Class C Certificate Rate........................................[one-month] LIBOR plus % per annum]
Controlled Distribution Amount............................................... 10,250,000.00 per month
Class A Expected Payment Date............................................ June 2000 distribution date
Annual servicing fee percentage....................................................... 2.0% per annum
[Enhancement for the Class A certificates..........Subordination of Class B and Class C certificates]
[Enhancement for the Class B certificates......................Subordination of Class C certificates]
[Enhancement for the Class C certificates.............................................spread account]
Series 1994-B termination date........................................... June 2004 distribution date
</TABLE>
I-1
<PAGE>
<TABLE>
<S> <C>
Series Issuance Date...........................................................................December 13, 1994
Series 1995-A
Initial Investor Amount..........................................................................$474,000,000.00
Class A Certificate Rate..........................................................................7.5% per annum
Class B Certificate Rate.........................................................................7.75% per annum
Class C Certificate Rate...............................Floating rate generally based upon commercial paper rates
Controlled Distribution Amount...........................................................24,083,334.00 per month
Class A Expected Payment Date...................................................September 2000 distribution date
Series servicing fee percentage...................................................................2.0% per annum
Enhancement for the Class A certificates.......................Subordination of Class B and Class C certificates
Enhancement for the Class B certificates...................................Subordination of Class C certificates
Enhancement for the Class C certificates..........................................................spread account
Series 1995-A termination date..................................................September 2004 distribution date
Series Issuance Date..............................................................................March 16, 1995
Series 1999-A
Initial Investor Amount..........................................................................$133,783,784.00
Class A Certificate Interest Rate......................Floating rate generally based upon commercial paper rates
Class B Certificate Interest Rate......................Floating rate generally based upon commercial paper rates
[Controlled Accumulation Amount....................................................................$ ]
[Expected principal payment date..................................................[ ] distribution date]
Annual servicing fee percentage...................................................................2.0% per annum
Enhancement for the Class A certificates...................................Subordination of Class B certificates
Enhancement for the Class B certificates..........................................................spread account
Series 1999-A termination date.......................................................July 2006 distribution date
Series Issuance Date...........................................................................November 15, 1999
Series 1999-B
Initial Invested Amount............................................................................$
Class A note interest rate................................................[one-month] LIBOR plus % per annum
Class B note interest rate................................................[one-month] LIBOR plus % per annum
Class C note interest rate................................................[one-month] LIBOR plus % per annum
[Controlled Accumulation Amount....................................................................$ ]
[Expected principal payment date.................................................[ ] distribution date]
Annual servicing fee percentage...................................................................2.0% per annum
[Enhancement for the Class A certificates.....................Subordination of Class B and Class C certificates]
[Enhancement for the Class B certificates.................................Subordination of Class C certificates]
[Enhancement for the Class C certificates........................................................spread account]
Series 1999-B termination date....................................................[ ] distribution date
Series Issuance Date......................................................................................
</TABLE>
I-2
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be amended. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and is not soliciting an offer to buy +
+ these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated ____________ __, 2000
Prospectus
Spiegel Credit Card Master Note Trust
Issuer
Spiegel Credit Corporation III
Transferor
First Consumers National Bank
Servicer
Asset Backed Notes
The Issuer --
. may periodically issue asset backed notes in one or more series with
one or more classes; and
. will have a direct or indirect interest in --
. receivables in a portfolio of private label retail revolving
credit card accounts owned by First Consumers National Bank;
. payments due on those receivables; and
. other property described in this prospectus and in the
accompanying prospectus supplement.
The Notes --
. will be paid only from the trust assets;
. offered with this prospectus will be rated in one of the four highest
rating categories by at least one nationally recognized rating
organization;
. may have one or more forms of credit enhancement; and
. will be issued as part of a designated series which may include one or
more classes of notes and credit enhancement.
--------------------------------------------------------------------------------
You should consider carefully the risk factors beginning on page _____ in this
prospectus.
A note is not a deposit and neither the notes nor the underlying accounts or
receivables are insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
The notes are obligations of Spiegel Credit Card Master Note Trust only and are
not obligations of First Consumers National Bank, Spiegel Credit Corporation III
or any other person.
This prospectus may be used to offer and sell notes of a series only if
accompanied by the prospectus supplement for that series.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved these notes or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
_____________, 2000
<PAGE>
Important Notice about Information Presented in this
Prospectus and the Accompanying Prospectus Supplement
We provide information to you about the notes in two separate documents:
(a) this prospectus, which provides general information, some of which may not
apply to your series of notes, and (b) the accompanying prospectus supplement,
which describes the specific terms of your series of notes, including:
. the terms, including interest rates, for each class;
. the timing of interest and principal payments;
. information about the receivables;
. information about credit enhancement, if any, for each class;
. the ratings for each class being offered; and
. the method for selling the notes.
If the terms of your series of notes vary between this prospectus and the
accompanying prospectus supplement, you should rely on the information in the
prospectus supplement.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering the notes in any state where the offer is not
permitted.
We include cross references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following Table of Contents and the Table of Contents
in the accompanying prospectus supplement provide the pages on which these
captions are located.
This prospectus uses defined terms. You can find a listing of the pages
where definitions can be found under the caption "Index of Terms for Prospectus"
beginning on page ____ in this prospectus.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary: Overview of Transactions................................................. 1
Risk Factors...................................................................... 2
It may not be possible to find an investor to purchase your notes............ 2
Some liens would be given priority over your notes which could cause
delayed or reduced payments.................................................. 2
If a conservator or receiver were appointed for First Consumers National
Bank, or if we or Spiegel Acceptance became a debtor in a bankruptcy
case, delays or reductions in payment of your notes could occur.............. 3
The account owner may change the terms and conditions of the accounts
in a way that reduces collections............................................ 5
Changes to consumer protection laws may impede collection efforts or
reduce collections........................................................... 5
Limited remedies for breaches of representations could reduce or delay
payments..................................................................... 5
Payment patterns of receivables could reduce collections..................... 6
Allocations of charged-off receivables or uncovered dilution could
reduce payments to you....................................................... 6
Subordinated classes bear losses before senior classes....................... 7
Recharacterization of principal receivables would reduce principal
receivables and may require addition of new receivables...................... 7
The note interest rate and the receivables interest rate may re-set at
different times, resulting in reduced or early payments to you............... 8
The trust is dependent on Spiegel and its retail subsidiaries to
generate new receivables..................................................... 8
Use of private label cards by customers of Spiegel and its retail
subsidiaries may decline..................................................... 9
Important Parties................................................................. 10
The Issuer................................................................... 10
Spiegel Master Trust......................................................... 10
Spiegel, Inc. and its Retail Subsidiaries.................................... 11
First Consumers National Bank................................................ 11
Spiegel Credit Corporation III............................................... 12
Spiegel Acceptance Corporation............................................... 12
The Bank's Credit Card Activities................................................. 12
General...................................................................... 12
Credit Granting Procedure.................................................... 12
Billing and Payments......................................................... 13
Delinquency and Collections.................................................. 14
Customer Service and Account Management...................................... 15
Description of First Data Resources.......................................... 16
The Trust Portfolio............................................................... 16
Use of Proceeds................................................................... 18
Description of the Notes.......................................................... 18
General...................................................................... 19
Book-Entry Registration...................................................... 21
Definitive Notes............................................................. 24
Interest Payments............................................................ 25
Principal Payments........................................................... 26
Suspension and Postponement of Controlled Accumulation Period................ 27
Transfer and Assignment of Receivables....................................... 29
New Issuances of Notes....................................................... 30
Representations and Warranties............................................... 31
Addition of Trust Assets..................................................... 34
Removal of Accounts.......................................................... 35
Collection and Other Servicing Procedures.................................... 36
Discount Option.............................................................. 36
Trust Accounts............................................................... 37
Funding Period............................................................... 38
Application of Collections................................................... 39
Shared Excess Finance Charge Collections..................................... 40
Shared Principal Collections; Excess Funding Account......................... 40
Defaulted Receivables; Dilution; Investor Charge-Offs........................ 41
Defeasance................................................................... 42
Final Payment of Principal................................................... 42
Paired Series................................................................ 43
Pay Out Events............................................................... 44
Servicing Compensation and Payment of Expenses............................... 45
Certain Matters Regarding the Transferor and the Servicer.................... 45
Servicer Default............................................................. 48
Reports to Noteholders....................................................... 51
Evidence as to Compliance.................................................... 52
Amendments................................................................... 53
The Indenture..................................................................... 54
Events of Default; Rights upon Event of Default.............................. 54
Certain Covenants............................................................ 57
Modification of the Indenture................................................ 59
Annual Compliance Statement.................................................. 62
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Indenture Trustee's Annual Report...................................... 62
List of Noteholders.................................................... 62
Satisfaction and Discharge of Indenture................................ 62
The Indenture Trustee.................................................. 62
Certain Matters Regarding the Administrator............................ 63
Pooling and Servicing Agreement............................................. 63
New Issuances of Investor Certificates................................. 63
Amendments............................................................. 64
Credit Enhancement.......................................................... 64
General................................................................ 64
Excess Collateral Amount............................................... 66
Subordination.......................................................... 66
Letter of Credit....................................................... 67
Cash Collateral Guaranty or Account.................................... 67
Surety Bond or Insurance Policy........................................ 68
Spread Account......................................................... 68
Reserve Account........................................................ 68
Description of the Receivables Purchase Agreement........................... 68
Sale of Receivables.................................................... 69
Representations and Warranties......................................... 69
Certain Covenants...................................................... 70
Amendments............................................................. 71
Termination............................................................ 71
Note Ratings................................................................ 71
Material Legal Aspects of the Receivables................................... 72
Transfer of Receivables................................................ 72
Certain Matters Relating to Conservatorship, Receivership and
Bankruptcy............................................................. 73
Consumer Protection Laws............................................... 75
Federal Income Tax Consequences............................................. 76
General................................................................ 76
Tax Characterization of the Issuer and the Notes....................... 77
Consequences to Holders of the Offered Notes........................... 78
State and Local Tax Consequences....................................... 81
ERISA Considerations........................................................ 81
Plan of Distribution........................................................ 82
Reports to Noteholders...................................................... 83
Where You Can Find More Information......................................... 83
Annex I..................................................................... A-1
Global Clearance, Settlement and Tax Documentation Procedures.......... A-1
</TABLE>
<PAGE>
Summary: Overview of Transactions
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
-------- ----------- --------- -----------
First Spiegel Spiegel Spiegel
------------- ------------- ------------ -------
Consumers Receivables Credit Receivables Master Collateral Credit Card Notes
------------- ------------- -------
National Corporation Trust Certificate Master Note
--------- ------------
Bank III Trust
-------- ----------- -----------
</TABLE>
Each series of notes will be issued turn, transferred those credit card
by Spiegel Credit Card Master Note receivables to Spiegel Master Trust
Trust and will include one or more under a pooling and servicing
classes of notes, representing debt agreement. After all outstanding
of the issuer. Each series and series of investor certificates that
class may differ as to timing and have been issued by Spiegel Master
priority of distributions, Trust have been retired, we may cause
allocations of losses, interest Spiegel Master Trust to terminate, at
rates, amount of distributions in which time the receivables will be
respect of principal or interest and transferred to the issuer and held
credit enhancement. We (Spiegel directly by the issuer. We refer to
Credit Corporation III) will the entity -- either Spiegel Master
disclose the details of these Trust or the issuer -- that holds the
timing, priority and other matters receivables at any given time as the
in a prospectus supplement. "trust".
Initially, the primary asset of the The notes will represent the right to
issuer will be an investor payments from a portion of
certificate issued by Spiegel Master collections on the credit card
Trust to us and transferred to the receivables held by the trust. All
issuer under a transfer and new receivables generated in the
servicing agreement. It represents accounts will be automatically
a beneficial interest in the assets transferred to the trust. The total
of Spiegel Master Trust. Spiegel amount of receivables held by the
Master Trust owns primarily credit trust will fluctuate daily as new
card receivables arising in private receivables are generated and
label retail revolving credit card payments are received on existing
accounts. receivables.
First Consumers National Bank is the First Consumers National Bank
originator of the credit card continues to service the receivables
receivables. It has designated that are transferred to the trust and
selected accounts from its portfolio will act as the issuer's
of private label retail credit card administrator.
accounts and has transferred the
receivables in those accounts to us, BNY Midwest Trust Company is the
directly or indirectly, under a trustee for Spiegel Master Trust.
receivables purchase agreement. BNY Midwest Trust Company will also
Indirect sales occur when the bank act as indenture trustee for the
designates accounts that have issuer. The issuer will grant a
outstanding receivables, which security interest in its assets --
receivables the bank previously has including the collateral certificate
sold to our mutual affiliate Spiegel or, if Spiegel Master Trust has
Acceptance Corporation. Spiegel terminated, the receivables -- to the
Acceptance then sells those indenture trustee for the benefit of
outstanding receivables to us. the noteholders.
We have, in
1
<PAGE>
Risk Factors
You should consider the following risk factors in deciding whether to
purchase the notes.
It may not be possible to find an investor to purchase your notes.
The underwriters may assist in resales of the notes but they are not
required to do so. A secondary market for any notes may not develop. If a
secondary market does develop, it might not continue or it might not be
sufficiently liquid to allow you to resell any of your notes.
Some liens would be given priority over your notes which could cause delayed or
reduced payments.
We, the bank and Spiegel Acceptance account for the transfer of the
receivables as a sale. Even so, a court could conclude that we, Spiegel
Acceptance or the bank owns the receivables and that the trust holds only a
security interest. Even if a court would reach that conclusion, however, the
indenture trustee will have a first-priority perfected security interest, either
directly or through Spiegel Master Trust.
If a court were to conclude that the trust has only a security interest, a
tax or governmental lien (or other lien imposed under applicable state or
federal law without consent) on the property of the person that owns the
receivables arising before receivables come into existence may be senior to the
trust's interest in the receivables. Additionally, if a receiver or conservator
were appointed for the bank, the fees and expenses of the receiver or
conservator might be paid from the receivables before the trust receives any
payments on the receivables. If insolvency proceedings were commenced by or
against the servicer or if certain time periods were to elapse, moreover, the
trust may not have a first-priority perfected security interest in collections
commingled and used for the benefit of the servicer. If any of these events were
to occur, payments to you could be delayed or reduced. See "Material Legal
Aspects of the Receivables -- Transfer of Receivables" and "Description of the
Notes --Representations and Warranties" in this prospectus.
2
<PAGE>
If a conservator or receiver were appointed for First Consumers National Bank,
or if we or Spiegel Acceptance became a debtor in a bankruptcy case, delays or
reductions in payment of your notes could occur.
The Federal Deposit Insurance Act, as amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 (the "FDIA"), provides that a
security interest granted by the bank to us or Spiegel Acceptance in the
receivables would be respected to the extent that --
. the applicable receivables purchase agreement complies with the
regulatory requirements of the FDIA;
. the security interest granted under the applicable receivables purchase
agreement was perfected before the Federal Deposit Insurance Corporation
(the "FDIC") is appointed as conservator or receiver for the bank; and
. the security interest was not taken in contemplation of the bank's
insolvency or with the intent to hinder, delay or defraud the bank or
its creditors.
Opinions and policy statements issued by the FDIC suggest that, because of the
manner in which these transactions are structured, the FDIC would respect the
security interest granted by the bank in the receivables. If the FDIC were to
assert a contrary position, however, payments of principal and interest on your
notes could be delayed and possibly reduced. Furthermore, the FDIC could--
. require the indenture trustee to go through the administrative claims
procedure established by the FDIC in order to obtain payments on the
notes;
. request a stay of any actions by the indenture trustee to enforce the
receivables purchase agreement or the notes against the bank; or
. repudiate the receivables purchase agreement and limit the claims of the
holders of the notes to their "actual direct compensatory damages."
3
<PAGE>
If the FDIC were to take any of these actions, the amount payable to you
could be lower than the outstanding principal and accrued interest on the notes,
thus resulting in losses to you.
We are a wholly-owned, bankruptcy remote subsidiary of Spiegel. Our
certificate of incorporation limits the nature of our business and restricts our
ability to commence a voluntary case under the bankruptcy code without the
unanimous consent of our board of directors.
If, however, we or Spiegel Acceptance became a debtor in a bankruptcy case,
and if Spiegel Acceptance's transfer of the receivables to us or our transfer of
the receivables to the trust were construed as the grant of a security interest
to secure a borrowing, your payments of outstanding principal and interest could
be delayed and possibly reduced. In addition, if we, Spiegel or Spiegel
Acceptance were to become a debtor in a bankruptcy case and our assets and
liabilities were substantively consolidated with those of Spiegel or Spiegel
Acceptance, your payments of outstanding principal and interest could be delayed
and possibly reduced.
If a conservator or receiver were appointed for the bank, or if we or
Spiegel Acceptance were to become a debtor in a bankruptcy case, an early
payment of principal on all outstanding series could result. Under the terms of
the agreement that governs the transfer of the receivables from us to the trust,
new principal receivables would not be transferred to the trust. However, the
bankruptcy court, the conservator or the receiver may have the power, regardless
of the terms of that agreement, (a) to delay any such procedure, (b) to prevent
the early payment of principal or (c) to require new principal receivables to
continue being transferred.
In addition, a conservator or receiver for the servicer may have the power
to prevent either the indenture trustee or the noteholders from appointing a new
servicer.
See "Material Legal Aspects of the Receivables -- Certain Matters Relating
to Conservatorship, Receivership and Bankruptcy" in this prospectus.
4
<PAGE>
The account owner may change the terms and conditions of the accounts in a way
that reduces collections.
As owner of the accounts, the bank retains the right to change various
account terms including finance charges, other fees and the required monthly
minimum payment. Such changes may be voluntary on the part of the bank or may be
forced by law or market conditions. Changes in interest and fees could decrease
the effective yield on the accounts and this could result in an early payment of
principal of your notes. Changes could also cause a reduction in the credit
ratings on your notes.
Changes to consumer protection laws may impede collection efforts or reduce
collections.
Federal and state consumer protection laws regulate the creation and
enforcement of consumer loans, including credit card accounts and receivables.
Changes or additions to those regulations could make it more difficult for the
servicer of the receivables to collect payments on the receivables or reduce the
finance charges and other fees that the originator can charge on credit card
account balances, resulting in reduced collections.
Receivables that do not comply with consumer protection laws may not be
valid or enforceable under their terms against the obligors on those
receivables.
If a cardholder sought protection under federal or state bankruptcy or
debtor relief laws, a court could reduce or discharge completely the
cardholder's obligations to repay amounts due on its account and, as a result,
the related receivables would be written off as uncollectible. See "Material
Legal Aspects of the Receivables -- Consumer Protection Laws" in this
prospectus.
Limited remedies for breaches of representations could reduce or delay payments.
When we transfer the receivables to the trust, we make representations and
warranties relating to the validity and enforceability of the receivables
arising under the accounts designated to the trust, and as to the perfection and
priority of the indenture trustee's interest in the receivables. However, none
of the trustee for Spiegel Master Trust, the owner trustee or the indenture
trustee will make any examination of the receivables or
5
<PAGE>
the related assets to determine the presence of defects, compliance with the
representations and warranties or for any other purpose.
A representation or warranty relating to the receivables may be violated if
the related obligors have defenses to payment or offset rights, or our creditors
or creditors of the bank claim rights to the trust assets. If a representation
or warranty is violated, we may have an opportunity to cure the violation. If
we are unable to cure the violation within the specified time period or if there
is no right to cure the violation, we must accept reassignment of the
receivables affected by the violation. These reassignments are the only remedy
for breaches of representations and warranties, even if your damages exceed your
share of the reassignment price. See "Description of the Notes --
Representations and Warranties" in this prospectus.
Payment patterns of receivables could reduce collections.
The receivables transferred to the trust may be paid at any time. We cannot
assure the creation of additional receivables in the accounts designated to the
trust or that any particular pattern of cardholder payments will occur. A
significant decline in the amount of new receivables generated could result in
the occurrence of a pay out event for one or more series and the commencement of
the rapid amortization period for each of those series. If a pay out event
occurs, you could receive payment of principal sooner than expected. The bank's
ability to compete in the current industry environment will affect its ability
to generate new receivables and might also affect payment patterns on the
receivables. In addition, changes in finance charges can alter the monthly
payment rates of cardholders. A significant decrease in monthly payment rates
could slow the return or accumulation of principal during an amortization period
or accumulation period. See "Maturity Considerations" in the accompanying
prospectus supplement.
Allocations of charged-off receivables or uncovered dilution could reduce
payments to you.
The servicer will write off the receivables arising in accounts designated
to the trust if the receivables become uncollectible. Your series will be
allocated a portion of these charged-off receivables. See "Description of Series
Provisions -- Allocation Percentages" and "The Bank's Credit Card Portfolio --
6
<PAGE>
Delinquency and Loss Experience" in the accompanying prospectus supplement.
Unlike charged-off receivables, reductions in the receivables due to returns of
merchandise, unauthorized charges and the like, called dilution, are typically
absorbed by reductions in our interest in the trust or reimbursed by the
servicer through cash deposits to the excess funding account and are not
intended to be allocated to investors. However, to the extent our interest is
insufficient to cover dilution for any calendar month and the servicer then
defaults in its obligation to compensate the trust for these reductions, your
series will be allocated a portion of the uncovered dilution. If the amount of
charged-off receivables and any uncovered dilution allocated to your series of
notes exceeds the amount of funds available to reimburse those amounts, you may
not receive the full amount of principal and interest due to you. See
"Description of Series Provisions -- Application of Collections" and "--Investor
Charge-Offs" in the accompanying prospectus supplement.
Subordinated classes bear losses before senior classes.
One or more classes of notes in a series may be subordinated to one or more
senior classes of notes in the same series. Principal allocations to the
subordinated class or classes may not begin until each of the more senior
classes has been paid in full. Additionally, if collections of finance charge
receivables allocated to a series are insufficient to cover amounts due for that
series' senior notes or to reimburse for that series' share of charged-off
receivables, the collateral amount for the series might be reduced. This would
reduce the amount of finance charge collections available to the subordinated
notes in future periods and could cause a possible delay or reduction in
principal and interest payments on the subordinated notes.
Recharacterization of principal receivables would reduce principal receivables
and may require addition of new receivables.
As described under "Description of the Notes -- Discount Option," we may
designate a percentage of the receivables that would otherwise be treated as
principal receivables to be treated as finance charge receivables. This
designation should decrease the likelihood of a pay out event occurring as a
result of a reduction of the average net portfolio yield for a given period.
However, this designation will also reduce the aggregate amount of principal
7
<PAGE>
receivables, which may increase the likelihood that the transferor will be
required to add receivables to the trust. If we were unable to add receivables
and could not make a sufficient cash deposit into the excess funding account,
one or more series of notes, including your series, could go into rapid
amortization.
The note interest rate and the receivables interest rate may re-set at different
times, resulting in reduced or early payments to you.
The accounts currently have finance charges assessed at a variable rate. A
series of notes may bear interest either at a fixed rate or at a floating rate
based on a different index. If the interest rate charged on the accounts
declines, collections of finance charge receivables may be reduced without a
corresponding reduction in the amounts of interest payable on your notes and
other amounts required to be paid out of collections of finance charge
receivables. If the interest rate on the accounts declines or the interest rate
on a series increases, this could decrease the spread, or difference, between
collections of finance charge receivables and those collections allocated to
make interest payments on your notes. This would increase the risk of early
repayment of your notes, as well as the risk that there may not be sufficient
collections to make all required payments on your notes.
The trust is dependent on Spiegel and its retail subsidiaries to generate new
receivables.
Because FCNB Preferred Charge accounts can be used for purchases of
merchandise and services only from Spiegel and its retailing subsidiaries, the
trust is completely dependent upon Spiegel and such subsidiaries for the
generation of receivables. Currently, Spiegel's primary retailing subsidiaries
are Spiegel Catalog, Inc., Eddie Bauer, Inc. and Newport News, Inc. The
business of catalog and retail store marketing of merchandise and services is
highly competitive. Although Spiegel is one of the largest retail catalog
merchandisers in the United States, it and its retailing subsidiaries have
several major competitors on a national level and many competitors with their
retail stores. Many considerations enter into the competition for the
consumer's patronage, including price, quality, style, service, product mix,
convenience and credit availability and terms. We cannot guarantee that Spiegel
and its retailing subsidiaries will continue to generate receivables at the same
rate as in prior years. See "The Bank's Credit Card Activities--Spiegel."
8
<PAGE>
Use of private label cards by customers of Spiegel and its retail subsidiaries
may decline.
Because Spiegel and its retailing subsidiaries accept other credit cards in
addition to the FCNB Preferred Charge, including American Express, MasterCard,
Discover and VISA, not all sales on credit by Spiegel and such subsidiaries will
generate receivables. In addition, the bank issues MasterCard and VISA credit
cards, some of which are issued to holders of FCNB Preferred Charge accounts. No
receivables arising under such other credit card accounts will be transferred to
the trust. We cannot guarantee that the FCNB Preferred Charge accounts will
continue to maintain their current percentage of Spiegel Catalog, Eddie Bauer
and Newport News sales against competition from such other credit sources. See
"The Bank's Credit Card Activities--Spiegel."
9
<PAGE>
Important Parties
The Issuer
The issuer of your notes will be Spiegel Credit Card Master Note Trust. The
issuer is a common law trust created under the laws of the State of Illinois. It
is operated under a trust agreement, dated as of [_________], 2000, between us
and [_______________], as owner trustee.
The activities of the issuer are limited to:
. acquiring, owning and managing the trust assets and the proceeds of
those assets;
. issuing and making payments on the notes; and
. engaging in related activities.
The issuer's principal offices are in Delaware, in care of
[_______________], as owner trustee, at the following address:
[_________________________________], Attention: [______________].
We will pay the fees of the owner trustee and will reimburse it for certain
liabilities and expenses.
Spiegel Master Trust
The notes are secured by a beneficial interest in a pool of receivables
that arise under private label retail credit card accounts owned by the bank and
designated by the bank as trust accounts. The receivables are currently held by
Spiegel Master Trust, an Illinois common law trust formed by us in September
1994 to securitize a portion of the bank's private label credit card
receivables. Spiegel Master Trust is operated pursuant to a "pooling and
servicing agreement," amended and restated in December 1994, among us, as
seller, the bank, as servicer, and BNY Midwest Trust Company, as trustee.
Spiegel Master Trust has issued a "collateral certificate" to us that
represents a beneficial interest in the receivables. We have transferred this
collateral certificate to the issuer under a "transfer and servicing agreement"
among us, as transferor, the bank, as servicer, and the issuer. The other
outstanding series of investor certificates issued by Spiegel Master Trust and
the notes are referred to in this prospectus, collectively, as the "securities"
and the holders of those securities are referred to as the "securityholders."
After all the outstanding series of investor certificates issued by Spiegel
Master Trust are retired, we may cause Spiegel Master Trust to terminate, at
which time the receivables will be transferred to the issuer under the transfer
and servicing agreement and held directly by the issuer.
10
<PAGE>
Spiegel, Inc. and its Retail Subsidiaries
Though not a party to the agreements governing the notes, the trust, the
issuer or the accounts, Spiegel is our parent and the parent of First Consumers
National Bank and Spiegel Acceptance. The receivables arise from sales by
Spiegel's retail operations and limited cash advances. Spiegel is a leading
international specialty retailer that offers merchandise through its
subsidiaries, including Eddie Bauer, Inc., Newport News, Inc. and Spiegel
Catalog, Inc. Spiegel and its retail subsidiaries distribute apparel, household
furnishings and other merchandise through catalogs, Internet sites and retail
stores.
Spiegel and its predecessors date from 1865. Spiegel has operated as a
catalog merchandiser since 1905 and was incorporated in Delaware in 1965. In
1988, Spiegel acquired Eddie Bauer. In August 1993, Spiegel acquired
substantially all of the assets of Newport News, which was formerly named New
Hampton, Inc. until 1995.
The retail businesses of Spiegel Catalog, Eddie Bauer and Newport News are
described under "Spiegel's Retail Operations" in the accompanying prospectus
supplement.
First Consumers National Bank
First Consumers National Bank, headquartered in Beaverton (suburban
Portland), Oregon, was organized as a national banking association on December
12, 1988, and operates as a "credit card bank." The bank was acquired by Spiegel
on November 1, 1990. As a credit card bank, the banks activities are limited
primarily to the issuance of credit cards, including MasterCard and VISA credit
cards, as well as the bank's private label credit card, the FCNB Preferred
Charge card. A portion of the bank's portfolio of private label credit card
accounts are designated as trust accounts. The bank continues to service the
receivables that are transferred to the trustee.
The bank, in its capacity as administrator under the administration
agreement, dated as of [_________], 2000, between the administrator and the
issuer, will provide the notices and perform on behalf of the issuer certain
other administrative obligations required by the transfer and servicing
agreement, the indenture and the indenture supplement for each series, and will
be compensated for acting as the administrator.
The bank is regulated, supervised, and examined by the Office of the
Comptroller of the Currency.
11
<PAGE>
Spiegel Credit Corporation III
We (Spiegel Credit Corporation III) were incorporated in Delaware on
September 13, 1994, and are a wholly-owned, direct subsidiary of Spiegel, Inc.
We were organized for the limited purpose of purchasing, holding, owning and
transferring receivables and related activities.
Spiegel Acceptance Corporation
Spiegel Acceptance was incorporated in Delaware on November 26, 1965. It
purchases all receivables arising in FCNB Preferred Charge accounts other than
those that have been charged-off and those required to be sold to us or other
parties.
The Bank's Credit Card Activities
General
Each of Spiegel Catalog, Eddie Bauer and Newport News offers a FCNB
Preferred Charge card that bears its company insignia. However, customers may
use FCNB Preferred Charge cards to purchase all types of goods or services
offered in catalogs, retail stores and e-commerce sites of Spiegel and its
subsidiaries. For example, an FCNB Preferred Charge card bearing the insignia of
Eddie Bauer may be used to purchase merchandise from Spiegel Catalog or Newport
News.
Credit Granting Procedure
FCNB Preferred Charge accounts are generated principally by (i) an instant
credit program at all retail locations, (ii) an instant credit program offered
to catalog customers when placing a telephone order, (iii) account applications
made available in Spiegel, Eddie Bauer and Newport News catalogs and (iv)
applications made available in direct mail solicitations by Spiegel, Eddie Bauer
and Newport News.
The bank solicits new accounts with both preapproved and non-preapproved
applications. Preapproved accounts constitute the majority of new account
originations. Prospect lists are prescreened by the major credit reporting
services to develop a list of preapproved prospects. The bank obtains a report
from the credit bureau providing a list of prospects who are preapproved based
on the bank's proprietary scoring models. The bank compares the preapproved
prospects against its own database, and excludes customers based on specified
criteria. For example, the bank excludes customers who have an existing account
with the bank, who are in bankruptcy, who are deceased or whose credit report
history contains an a/k/a name or history of fraud. Prescreened offers range
from $250 to $3,300. The initial credit lines are based on the information
contained in the credit bureau report obtained when the applicant responds to
the offer.
12
<PAGE>
All non-preapproved applications are processed through an empirically
derived, statistically validated scoring model that was developed based on
historical data from the bank's account base. The model is periodically re-
validated. A credit report is obtained for each non-preapproved application.
Credit lines are assigned based on credit score. Credit limits granted range
from $250 to $3,300.
FCNB revised their internal scoring models in 1996 to capture diversified
trends within each merchant portfolio. The new model is more predictive of risk
in each targeted portfolio.
A small portion of total applications processed through the internal
scoring model are routed by the system for manual verification handling. These
applications are so routed due to credit bureau alert messages, name or address
variations between applications and credit reports or an existing credit line
from the bank listed on the report. Only applications meeting the final credit
score requirement are referred for verification procedures. Once applications
are referred, they are approved only upon successful verification of the
information in question. Besides this manual verification process, no manual
overrides are possible on the system. Generally, all approvals are automated,
except for credit limits in excess of $7,590. The Senior Vice President/Credit
Operations Manager is authorized to approve limits ranging from $7,591 to
$25,000. Limits in excess of $25,000 and up to $50,000 must be approved by the
Executive Vice President/Director of Operations. Limits in excess of $50,000
must be approved by the bank's board of directors.
New purchases for existing accounts must fall within the authorized credit
limit plus an approval buffer determined by behavior scores and a set of
strategies, collectively referred to as "adaptive control software." All
existing account authorizations are approved if the account is in good credit
standing and the resulting balance is within the credit limit and the approval
buffer. The vast majority of existing account authorizations are handled by the
bank's system logic without manual interruption.
Each accountholder is subject to an agreement governing the terms and
conditions of the account. Pursuant to each such agreement, the bank reserves
the right to change or terminate any terms, conditions, services or features of
the account, including increasing or decreasing finance charges, other charges
or minimum payments.
The bank may change its credit standards or screening criteria and methods
at any time.
Billing and Payments
The bank assesses finance charges on an account based upon the average
daily balance outstanding on the account during a monthly billing cycle. If a
payment is not received by the payment due date, a finance charge is imposed on
all purchases from the date of the transaction to the date of repayment. A
finance charge is imposed on each cash advance from the day such advance is
made. The finance charge is currently assessed at an annual variable percentage
rate subject to a floor of 22.6% for purchases made with Spiegel Catalog and
Newport News cards
13
<PAGE>
and 18.9% for purchases made with Eddie Bauer cards. The finance charge is
applied to the average daily balance, which is the sum of the daily unpaid
balances of purchases and cash advances, finance charges and fees on each day of
the cycle divided by the number of days in the cycle. Such unpaid balances are
determined by deducting payments and credits and by adding new purchases, cash
advances and other charges, in each case, as of the date of the transaction. A
$.50 minimum finance charge is imposed for any billing cycle in which a finance
charge of less than $.50 would otherwise be imposed. Accountholders are given a
grace period averaging 30 days from the closing date of the cycle to the payment
due date. If the entire balance on the account is paid during the grace period,
a finance charge is not imposed.
Subject to applicable laws, accountholders are charged $29.00 if a check is
dishonored and a late charge of up to $25.00 each month the required payment is
not received within 10 days after the payment due date. The bank does not impose
overlimit fees, annual fees or other transaction-related service fees.
Currently accountholders must make a minimum monthly payment equal to
approximately 1/33 (or approximately 3.03%) of the account balance, but not less
than $15.00. Payments by accountholders are applied first to finance charges
and other charges or fees, and then to purchases in the order made, then to cash
advances in the order made.
From time to time the bank offers optional payment plans in connection with
an account. These options allow the accountholder to defer regular monthly
payments or delay the billing of the account for specific purchases. Under a
deferred payment option, the accountholder has the right not to make monthly
payments for a specified period of time. However, the accountholder will have to
pay regular finance charges during the period of deferral. Under a delayed
billing option, purchases are not billed to the account until the end of the
delayed billing period. As a result, the purchases are not reflected on the
account until billed and the accountholder does not pay finance charges for
these purchases during the delayed billing period.
Delinquency and Collections
The bank operates collection centers located in Beaverton, Oregon and
Trevose, Pennsylvania. Generally the Trevose collection center services accounts
with a billing address in the eastern half of the United States, with the
remaining accounts serviced from the Beaverton collection center. Both
collection centers are capable of collecting on accounts with any billing
address and delinquent accounts can be routed to either site in the case of
heavy call volume or a natural disaster at one collection center.
The bank classifies an account as delinquent when the minimum payment due
on the account is not received by the payment due date specified in the
cardholder's billing statement. The bank collections staff is segregated into
five separate collection departments, each of which is made up of six queues
based on severity of delinquency. The collections staff initiates collection
efforts as early as the third day of delinquency if no contact has been made
through the autodialer as discussed below. Accounts are placed in the collection
office at various levels of
14
<PAGE>
delinquency, with all accounts being placed no later than 60 days after the
first payment is missed. The majority of accounts are placed within the first 30
days of a missed payment. The bank uses behavioral scoring of all accounts to
adjust its collection efforts based on the potential risk of an account and the
dollars at risk. Collection efforts escalate in intensity as an account cycles
into a more advanced delinquency category.
The bank's collection strategy begins with an early delinquency calling
program using state of the art technology that includes predictive dialing for
accounts that are up to two payments past due. Statement messaging and
automatic letter dunning are also used on delinquent accounts up to two payments
past due. Accounts which are placed in the collections office are assigned to
specific members of the bank collections staff for accelerated collection
efforts, including demands for balance in full, correspondence from one or more
of the national credit bureaus describing the impact that the delinquent credit
obligation has on the cardholder's credit history and preparatory actions to
place accounts with attorneys for legal action. Additionally, beginning in
1999, the bank outsources a portion of pre-charge-off accounts to external
collection agencies for resolution.
Additional purchases are not permitted to be charged to accounts which are
two or more payments past due.
The bank recognizes losses six months from the date due on the last
"current" billing statement. Losses are recognized earlier upon notification
that a customer has filed bankruptcy. If a compromise settlement is reached and
a payment for less than the balance is accepted as payment in full, the
deficiency amount is charged off. The bank will automatically re-age delinquent
accounts which pay three consecutive minimum or greater monthly payments to a
current status.
The bank outsources collections for charged-off accounts to third party
collection agents based on where the defaulted accountholder resides. Once
outsourced to a third party collector, the charged-off account may be sent to a
second or third additional collection agency until resolution. All collection
agencies are reviewed by the bank on a six month audit cycle and the results of
the agencies in each region are compared against each other.
The bank's credit evaluation, servicing and charge-off policies and
collections practices may change at any time as dictated by the bank's business
judgment and applicable law.
Customer Service and Account Management
The bank's customer service department handles all credit related issues
pertaining to the accounts, while Spiegel maintains a separate customer service
group to address any customer service issues with respect to merchandise. An
automated voice response unit at the bank's headquarters in Beaverton handles a
substantial percentage of incoming calls and enables accountholders to receive
account information 24 hours a day, including balance, payment and
15
<PAGE>
credit information, and request documents without having to speak with a
customer service representative.
The bank will review accounts for potential credit line increases every
three to six months. All credit line increases are automated except as described
under "-Credit Granting Procedures" above. Using adaptive control software, the
bank is able to identify accountholders who have demonstrated good payment
history and high usage patterns with the bank. The amount of the credit line
increases depends on the score assigned by the adaptive control software and
available credit bureau information.
Description of First Data Resources
First Data Resources, Inc. provides new account processing, account
management, billing and new card production for the bank. The bank believes
that its relationship with First Data Resources allows it to achieve operational
efficiencies while remaining flexible enough to handle additional growth. If
First Data Resources were to fail to perform its services for the bank or become
insolvent, delays in processing could occur, and the replacement of the services
First Data Resources currently provides to the bank could be time consuming.
First Data Resources provides computer data processing services primarily
to the bankcard industry. First Data Resources is a subsidiary of First Data
Corp.
The Trust Portfolio
We refer to the accounts that have been designated as trust accounts as the
"trust portfolio." References to the "trustee" in this prospectus will refer to
(a) BNY Midwest Trust Company, as trustee of Spiegel Master Trust under the
pooling and servicing agreement for so long as Spiegel Master Trust holds the
receivables, or (b) BNY Midwest Trust Company, as indenture trustee, if the
issuer holds the receivables.
In addition to the receivables in the trust portfolio, the notes will be
secured by:
. all proceeds of these receivables and related recoveries;
. all proceeds of any credit insurance policies relating to these
receivables;
. all monies on deposit in specified trust accounts or investments made
with these monies, including any earned investment proceeds if the
prospectus supplement for your series of notes so indicates;
. proceeds of any credit enhancement or derivative contracts, as described
in the prospectus supplement for your series of notes.
Receivables in the trust consist of:
16
<PAGE>
. "principal receivables," which are amounts charged by trust account
cardholders for goods and services and cash advances; and
. "finance charge receivables," which are periodic finance charges and
other amounts charged to trust accounts, including late fees.
When we formed the Spiegel Master Trust in September 1994, we designated a
pool of then existing FCNB Preferred Charge card accounts in a specified set of
billing cycles to the trust, and since then we have designated all newly created
eligible FCNB Preferred Charge accounts in those billing cycles to the trust as
they are created. We have also made some bulk additions of accounts that were
designated to other Spiegel securitization trusts after the securities issued by
those trusts were retired.
We intend to continue to designate all newly created eligible FCNB
Preferred Charge accounts in the specified billing cycles to the trust as they
arise. However, our right to do so is subject to certain quantitative
limitations described in "Description of the Notes--Addition of Trust Assets" in
this prospectus. We may also elect to stop designating all new eligible accounts
in the specified billing cycles to the trust. If we do so, we have the right,
and in some cases the obligation, to designate from time to time additional
eligible accounts to the trust portfolio and to convey to the trust all
receivables in those additional accounts, whether such receivables are then
existing or thereafter created. The bank has a corresponding obligation to
transfer those receivables to us, either directly or indirectly through Spiegel
Acceptance, so that we can satisfy our obligations to transfer receivables to
the trust.
The accounts must be eligible accounts as of the date we designate them as
additional accounts. Once these accounts are designated, only the receivables
arising under these accounts, and not the accounts themselves, are sold. In
addition, as of the date on which any new receivables are created, the bank will
represent and warrant to us and we in turn will represent and warrant to the
trust that the receivables conveyed to the trust on that day meet the
eligibility requirements described under "Description of the Notes--
Representations and Warranties" in this prospectus. However, there can be no
assurance that all the accounts will continue to meet the applicable eligibility
requirements throughout the life of the trust.
Under some circumstances, we may also designate that some accounts will no
longer be trust accounts, and the receivables originated under these accounts
will be removed from the trust. Throughout the term of the trust, the trust
portfolio will consist of receivables originated in the initial accounts plus
receivables originated in any additional accounts and minus receivables
originated in any removed accounts.
We can designate accounts to the trust that are different from the current
accounts, if the rating agencies for each outstanding series of securities
confirm that doing so will not impair their ratings of any outstanding
securities. These additional accounts may include private label credit card
accounts offered by the bank for additional retailers that may or may not be
affiliated with Spiegel, as well as MasterCard and VISA credit card accounts.
In any case, there can be no
17
<PAGE>
assurance that additional accounts will be of the same credit quality as the
initial accounts. Moreover, additional accounts may contain receivables which
consist of fees, charges and amounts which are different from the fees, charges
and amounts described in this prospectus. Additional accounts may also have
different credit guidelines, balances and ages. Consequently, there can be no
assurance that the accounts will continue to have the characteristics described
in this prospectus as additional accounts are added. In addition, if we
designate additional accounts with lower periodic finance charges, that may have
the effect of reducing the portfolio yield.
The prospectus supplement relating to each series of notes will provide
certain information about the trust portfolio as of the date specified. This
information will include:
. the amount of principal receivables;
. the amount of finance charge receivables;
. the range and average of principal balances of the accounts;
. the range and average of credit limits of the accounts;
. the range and average of ages of the accounts;
. the geographic distribution of the accounts; and
. delinquency statistics relating to the accounts.
Use of Proceeds
We will receive the net proceeds from the sale of each series of notes
offered by this prospectus and will use those proceeds (a) to retire existing
series of investor certificates, and (b) to make payments to Spiegel Acceptance
in connection with its participation interest in the Transferor Amount.
Description of the Notes
The issuer will issue one or more series of notes pursuant to a master
indenture and an indenture supplement entered into by the issuer and the
indenture trustee. The following summaries describe certain provisions common
to each series of notes. The accompanying prospectus supplement gives you the
additional material terms specific to the notes of your series. The summaries
are not complete and are subject to, and are qualified by, all of the provisions
of the transfer and servicing agreement, the indenture and the related indenture
supplement and the pooling and servicing agreement. We have filed a copy of the
pooling and servicing agreement for Spiegel Master Trust and a form of each of
the transfer and servicing agreement, the indenture and an indenture supplement
with the SEC as exhibits to the registration statement relating to the notes.
18
<PAGE>
General
The notes will be secured by and paid from the assets of the issuer. The
amount of collateral allocated for any series of notes, called its "collateral
amount," will be specified in the related prospectus supplement. Each series of
notes will be allocated collections of principal receivables and finance
receivables based on its "allocation percentage," which will be based on the
collateral amount for that series and will be calculated as described in the
related prospectus supplement.
Each series of notes may consist of one or more classes, one or more of
which may be senior notes and one or more of which may be subordinated notes.
Each class of a series will evidence the right to receive a specified portion of
each distribution of principal or interest or both. Each class of a series may
differ from other classes in some aspects, including:
. amounts allocated to principal payments;
. maturity date;
. interest rate; and
. availability and amount of enhancement.
We will have the right to receive all cash flows from the assets of the
trust not required to make payments on the securities or to make payments to
credit enhancement providers for any series of securities. Our interest --
called the "Transferor Amount"-- will equal on any date, the difference between:
(1) The sum of
<TABLE>
<S> <C>
(i) the total amount of principal (ii) the excess funding account
receivables in the trust portfolio and balance at the end of the
at the end of the immediately prior immediately prior day (excluding
day any investment earnings)
</TABLE>
minus
(2) the aggregate of the collateral amounts of all outstanding series of
notes and the outstanding invested amounts (which are similar to
collateral amounts) of all outstanding series of investor
certificates--excluding the collateral certificates--issued by Spiegel
Master Trust.
The Transferor Amount will be represented by the "transferor certificate" issued
by the trust.
During the revolving period, the amount of collateral for a series will
remain constant unless:
19
<PAGE>
. reduced on account of defaulted receivables or dilution; or
. if specified in the related prospectus supplement, reduced on account of
the reallocation of principal collections to cover shortfalls in the
payment of interest or other specified amounts to be paid from finance
charge collections.
See "-- Defaulted Receivables; Dilution; Investor Charge-Offs" in this
prospectus. The amount of principal receivables in the trust, however, will
vary each day as new principal receivables are created and others are paid. The
Transferor Amount will fluctuate each day, therefore, to reflect the changes in
the amount of the principal receivables in the trust. When a series is
amortizing, the collateral amount of that series will decline as customer
payments of principal receivables are collected and distributed, or accumulated
for distribution, to the noteholders. As a result, the Transferor Amount will
generally increase to reflect reductions in the collateral amount for that
series and will also change to reflect the variations in the amount of principal
receivables in the trust. The Transferor Amount may also be reduced as the
result of new issuances by the issuer, see "-- New Issuances" in this
prospectus, or new issuances of investor certificates by Spiegel Master Trust,
see "Pooling and Servicing Agreement -- New Issuances of Investor Certificates"
in this prospectus.
Generally, notes offered under this prospectus and the accompanying
prospectus supplement:
. will be represented by notes registered in the name of a DTC nominee;
. will be available for purchase in minimum denominations of $1,000 and
multiples of $1,000 in excess of that amount; and
. will be available for purchase in book-entry form only.
The accompanying prospectus supplement will specify if your notes have
different characteristics from those listed above.
DTC has informed us that its nominee will be Cede & Co. Accordingly, Cede &
Co. is expected to be the holder of record of each series of notes. As an owner
of beneficial interests in the notes, you will generally not be entitled to a
definitive note representing your interest in the issued notes because you will
own notes through a book-entry record maintained by DTC. References in this
prospectus and the accompanying prospectus supplement to distributions, reports,
notices and statements to noteholders refer to DTC or Cede & Co., as registered
holder of the notes, for distribution to you in accordance with DTC procedures.
All references in this prospectus and the accompanying prospectus supplement to
actions by noteholders shall refer to actions taken by DTC upon instructions
from DTC Participants.
The accompanying prospectus supplement may state that application will be
made to list your series or class of notes on the Luxembourg Stock Exchange or
another exchange.
20
<PAGE>
Book-Entry Registration
Following is a description of the form your notes will take. We also
describe how your notes may be transferred and how payments will be made to you.
The information in this section concerning DTC and DTC's book-entry system
has been provided by DTC. We have not independently verified the accuracy of
this information.
You may hold your notes through DTC in the U.S., Clearstream or Euroclear
in Europe or in any other manner described in the accompanying prospectus
supplement. You may hold your notes directly with one of these systems if you
are a participant in the system, or indirectly through organizations which are
participants.
Cede & Co., as nominee for DTC, will hold the global notes. Clearstream and
Euroclear will hold omnibus positions on behalf of the Clearstream customers and
the Euroclear Participants, respectively, through customers' securities accounts
in Clearstream's and Euroclear's names on the books of their respective
depositaries collectively called 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 laws of the
State of New York, 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
Securities Exchange Act of 1934. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers (who may
include the underwriters of any series), banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system also is available to others such as banks, brokers, dealers and trust
companies, as indirect participants, that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Transfers between DTC participants will occur in accordance with DTC rules.
Transfers between Clearstream customers 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, on the one hand, and directly or indirectly through Clearstream
customers or Euroclear participants, on the other, will be effected through 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
21
<PAGE>
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. Clearstream customers and Euroclear participants may not
deliver instructions directly to the depositories.
Because of time-zone differences, credits of securities in Clearstream or
Euroclear as a result of a transaction with a 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
Clearstream customer or Euroclear participant on such business day. Cash
received in Clearstream or Euroclear as a result of sales of securities by or
through a Clearstream customer 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 Clearstream or Euroclear cash account only as of the business day
following settlement in DTC.
Note owners that are not participants or indirect participants but desire
to purchase, sell or otherwise transfer ownership of, or other interest in,
notes may do so only through participants and indirect participants. In
addition, note owners will receive all distributions of principal of and
interest on the notes from the indenture trustee through the participants who in
turn will receive them from DTC. Under a book-entry format, note owners may
experience some delay in their receipt of payments, since such payments will be
forwarded by the indenture trustee to Cede & Co., as nominee for DTC. DTC will
forward such payments to its participants, which thereafter will forward them to
indirect participants or note owners. It is anticipated that the only
"noteholder" will be Cede & Co., as nominee of DTC. Note owners will not be
recognized by the indenture trustee as noteholders, as such term is used in the
indenture, and note owners will only be permitted to exercise the rights of
noteholders indirectly through the participants who in turn will exercise the
rights of noteholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among participants
on whose behalf it acts with respect to the notes and is required to receive and
transmit distributions of principal and interest on the notes. Participants and
indirect participants with which note owners have accounts with respect to the
notes similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective note owners. Accordingly,
although note owners will not possess notes, note owners will receive payments
and will be able to transfer their interests.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of a note owner
to pledge notes to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of those notes, may be limited due
to the lack of a physical certificate for those notes.
22
<PAGE>
DTC has advised the transferor that it will take any action permitted to be
taken by a noteholder under the indenture only at the direction of one or more
participants to whose account with DTC the notes are credited. Additionally,
DTC has advised us that it will take such actions with respect to specified
percentages of the collateral amount only at the direction of and on behalf of
participants whose holdings include interests that satisfy such specified
percentages. DTC may take conflicting actions with respect to other interests to
the extent that such actions are taken on behalf of participants whose holdings
include such interests.
Clearstream is incorporated under the laws of Luxembourg. Clearstream holds
securities for its customers and facilitates the clearance and settlement of
securities transactions between Clearstream customers through electronic book-
entry changes in accounts of Clearstream customers, thereby eliminating the need
for physical movement of notes. Transactions may be settled in Clearstream in
any of 36 currencies, including United States dollars. Clearstream provides to
its Clearstream customers, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream also deals with domestic
securities markets in over 30 countries through established depository and
custodial relationships. Clearstream is registered as a bank in Luxembourg, and
as such is subject to regulation by the Commission de Surveillance du Secteur
Financier, which supervises Luxembourg banks. Clearstream's customers are
world-wide financial institutions, including underwriters, securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the underwriters of any series of notes.
Clearstream's U.S. customers are limited to securities brokers and dealers and
banks. Currently, Clearstream has approximately 2,000 customers located in over
80 countries, including all major European countries, Canada and the United
States. Indirect access to Clearstream is also available to other institutions
that clear through or maintain a custodial relationship with an account holder
of Clearstream. Clearstream has established an electronic bridge with Morgan
Guaranty Trust Company of New York as the operator of the Euroclear System in
Brussels to facilitate settlement of trades between Clearstream and Euroclear.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System 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 notes and any
risk from lack of simultaneous transfers of securities and cash. Transactions
may now be settled in any of 27 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 Morgan Guaranty Trust
Company of New York, Brussels, Belgium office as the Euroclear operator, under
contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation. 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
23
<PAGE>
other professional financial intermediaries and may include the underwriters of
any series of notes. 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.
These rules and laws 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 these rules and laws only on behalf of
Euroclear participants and has no record of or relationship with persons holding
through Euroclear participants.
Distributions with respect to notes held through Clearstream or Euroclear will
be credited to the cash accounts of Clearstream customers 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. See "Federal Income Tax Consequences" in this prospectus.
Clearstream or the Euroclear operator, as the case may be, will take any other
action permitted to be taken by a noteholder under the indenture on behalf of a
Clearstream customer or 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, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of notes among participants of DTC,
Clearstream 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 Notes
We refer to notes issued in fully registered, certificated form as "definitive
notes." The notes of each series will be issued as definitive notes to note
owners or their nominees, rather than to DTC or its nominee, only if:
. the issuer advises the indenture trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository
with respect to that series or class of notes, and the indenture trustee or
the issuer is unable to locate a qualified successor;
24
<PAGE>
. the issuer, at its option, advises the indenture trustee in writing that
it elects to terminate the book-entry system through DTC with respect to
that series or class of notes; or
. after the occurrence of a servicer default, note owners representing not
less than 50% (or another percentage specified in the accompanying
prospectus supplement) of the collateral amount advise the indenture
trustee and DTC through participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the
best interest of the note owners.
If any of these events occur, DTC must notify all participants of the
availability through DTC of definitive notes. Upon surrender by DTC of the
definitive instrument representing the notes and instructions for re-
registration, the issuer will execute and the indenture trustee will
authenticate the notes as definitive notes, and thereafter the indenture trustee
will recognize the registered holders of those definitive notes as noteholders
under the indenture.
Distribution of principal and interest on the notes will be made by the
indenture trustee directly to holders of definitive notes in accordance with the
procedures set forth in this prospectus and in the indenture. Interest payments
and any principal payments on each distribution date will be made to holders in
whose names the definitive notes were registered at the close of business on the
related record date. Distributions will be made by check mailed to the address
of the noteholders as it appears on the register maintained by the indenture
trustee. The final payment on any note (whether definitive notes or the notes
registered in the name of Cede & Co. representing the notes), however, will be
made only upon presentation and surrender of that note at the office or agency
specified in the notice of final distribution to noteholders. The indenture
trustee will provide this notice to registered noteholders not later than the
fifth day of the month of the final distributions.
Definitive notes will be transferable and exchangeable at the offices of the
transfer agent and registrar, which will initially be the indenture trustee. No
service charge will be imposed for any registration of transfer or exchange, but
the issuer and transfer agent and registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
with the transfer or exchange. The transfer agent and registrar will not be
required to register the transfer or exchange of definitive notes for a period
of twenty days preceding the due date for any payment on those definitive notes.
Interest Payments
Your class of notes will pay interest on the dates and at the interest rate
specified in the accompanying prospectus supplement. The interest rate on any
note may be a fixed, floating or any other type of rate as specified in the
accompanying prospectus supplement. If your notes bear interest at a floating
or variable rate, the accompanying prospectus supplement will describe how that
rate is calculated.
25
<PAGE>
Interest payments or deposits on any distribution date will be funded from:
. collections of finance charge receivables allocated to the series during
the preceding monthly period or periods;
. investment earnings, if any, on any funds held in trust accounts;
. any credit enhancement or derivative instrument, to the extent described
in the accompanying prospectus supplement; and
. collections of principal receivables treated as collections of finance
charge receivables as described under "-- Discount Option," to the extent
described in the accompanying prospectus supplement.
If interest payments will be made less frequently than monthly, an interest
funding account may be established to accumulate the required interest amount.
If a series has more than one class of notes, that series may have more than one
interest funding account.
Principal Payments
Each series will begin with a revolving period during which no principal
payments will be made to the noteholders of that series.
The revolving period for each series will be scheduled to end on (or no later
than) a specified date, at which time a new period will begin during which
principal collections available to that series will be set aside on daily basis
to repay the series. That new period is called an "amortization period" if
partial principal payments are made each month and an "accumulation period" if
the available principal is accumulated for a series over one or more months to
pay off a class in full. If the amount paid or accumulated each month is
limited to some specified figure then the period is called a "controlled
amortization period" or "controlled accumulation period."
However, each series will also be subject to pay out events, which could cause
the revolving period to end earlier than scheduled or could terminate an
existing amortization period or accumulation period. Upon a pay out event, a
"rapid amortization period" will begin, during which available principal will be
distributed monthly and will not be subject to any controlled amount or
accumulation provision. Finally, a series with an accumulation period may
specify some adverse events as "accumulation events," rather than pay out
events, resulting in an early start to an accumulation period or removing any
limitation based on a controlled accumulation amount.
Principal payments for any series or the related class will be funded from
collections of principal receivables allocated to that series or class and from
certain other sources specified in the accompanying prospectus supplement. In
the case of a series with more than one class of
26
<PAGE>
notes, the noteholders of one or more classes may receive payments of principal
at different times. The accompanying prospectus supplement will describe the
manner, timing and priority of payments of principal to noteholders of each
class.
Funds on deposit in any principal accumulation account for a series may be
subject to a guaranteed rate agreement or guaranteed investment contract or
other arrangement specified in the accompanying prospectus supplement intended
to assure a minimum rate of return on the investment of such funds. In order to
enhance the likelihood of the payment in full of the principal amount of a
series or a related class of notes at the end of an accumulation period, that
series or class of notes may be subject to a principal guaranty or other similar
arrangement specified in the accompanying prospectus supplement.
Suspension and Postponement of Controlled Accumulation Period
The prospectus supplement for any series having a controlled accumulation
period will specify the date on which that period is scheduled to commence and
the scheduled length of that period. However, if specified in the prospectus
supplement for any series, upon notice to the indenture trustee, the servicer
may extend the revolving period and postpone the controlled accumulation period,
or may elect to suspend the controlled accumulation, subject to certain
conditions, including those described below.
On each determination date until the controlled accumulation period begins for
any series, the servicer will review the amount of expected principal
collections and determine the number of months expected to be required to fully
fund the principal accumulation account by the related expected principal
payment date for each class of notes in that series. If the number of months
needed to fully fund the principal accumulation account by the related expected
principal payment date for each class is less than the number of months in the
scheduled controlled accumulation period, the servicer may then elect to
postpone the controlled accumulation period. In making its decision, the
servicer is required to assume that the principal payment rate will be no
greater than the lowest monthly principal payment rate for the prior 12 months
and will consider the amount of principal expected to be allocable to
noteholders of all other series and certificateholders of all other series of
investor certificates issued by Spiegel Master Trust, which are expected to be
amortizing or accumulating principal during the controlled accumulation period
for that series. In no case will the controlled accumulation period for any
series be reduced to less than one month.
The method for determining the number of months required to fully fund the
principal accumulation account may be changed if each rating agency confirms
that the change will not impair its rating of any outstanding series or class.
If specified in the prospectus supplement for any series having a controlled
accumulation period, the servicer may also elect to suspend the controlled
accumulation period if it:
27
<PAGE>
. obtains a "qualified maturity agreement" in which a qualified institution
agrees to deposit in the related principal accumulation account on the
expected principal payment date for each class of notes of that series an
amount equal to the outstanding principal amount of those notes as of their
respective expected principal payment date; and
. delivers an opinion of counsel to the indenture trustee to the effect that
the qualified maturity agreement is enforceable against the provider of
that agreement.
The servicer will pledge to the indenture trustee for the benefit of the
noteholders of the related series, all right, title and interest in any
qualified maturity agreement.
If the servicer obtains a qualified maturity agreement, the servicer will
cause the provider of that agreement to deposit in the principal accumulation
account for the related series or class on or before its expected principal
payment date an amount equal to the outstanding principal amount of that series
or class. However, on the expected principal payment date for any series or
class, we may instead elect to fund all or a portion of the required deposit
from either the proceeds of a new series or collections of principal receivables
and certain other amounts allocated to that series or class.
A qualified maturity agreement for any series or class will terminate at the
close of business on the related expected principal payment date. However,
(1) the servicer may terminate a qualified maturity agreement earlier than the
expected principal payment date if:
(a) the servicer obtains a substitute qualified maturity agreement,
(b) the institution providing the qualified maturity agreement ceases to
be a qualified institution and the servicer is unable to obtain a
substitute qualified maturity agreement; or
(c) a pay out event occurs for the related series; and
(2) the servicer may terminate a qualified maturity agreement prior to the
later of:
(a) the date on which the controlled accumulation period was scheduled to
begin, before giving effect to the suspension of the controlled
accumulation period,
(b) and the date to which the commencement of the controlled accumulation
period may be postponed, as determined on the determination date
preceding the termination of the qualified maturity agreement.
If the institution providing a qualified maturity agreement ceases to be a
qualified institution, the servicer will use its best efforts to obtain a
substitute qualified maturity agreement, unless the
28
<PAGE>
servicer elects to terminate the qualified maturity agreement and is not
required to obtain a substitute qualified maturity agreement for any of the
reasons described above.
If a qualified maturity agreement is terminated prior to the earlier of the
expected principal payment date for the related series or class and the
commencement of the rapid amortization period for that series and the servicer
does not obtain a substitute qualified maturity agreement, the controlled
accumulation period will begin on the latest of:
. the date on which the controlled accumulation period was scheduled to
begin, before giving effect to the suspension of the controlled
accumulation period;
. at the servicer's election, the date to which the controlled accumulation
period may be postponed, as determined on the determination date preceding
the termination of the qualified maturity agreement; and
. the first day of the calendar month following the termination of the
qualified maturity agreement.
Transfer and Assignment of Receivables
The bank has transferred and assigned to us, either directly or indirectly
through Spiegel Acceptance, and we have, in turn, transferred and assigned to
the trust, the receivables in the accounts designated as accounts of the trust
and future receivables created in these accounts.
We, Spiegel Acceptance and the bank have indicated and, in connection with
each future transfer of receivables to the trust, will indicate in our computer
files or books and records that the receivables have been conveyed to the trust.
In addition, we and the bank have provided or caused to be provided to the
trustee and the owner trustee computer files or microfiche lists, containing a
true and complete list showing each account, identified by account number and by
total outstanding balance on the date of transfer. Neither the bank nor we will
deliver to the trustee or the owner trustee any other records or agreements
relating to the accounts or the receivables, except in connection with additions
or removals of accounts. Except as stated above, the records and agreements
relating to the accounts and the receivables maintained by the bank are not and
will not be segregated from other documents and agreements relating to other
credit card accounts and receivables and are not and will not be stamped or
marked to reflect the transfers described above, but our computer records and
the bank's computer records are and will be required to be marked to evidence
these transfers. We, Spiegel Acceptance and the bank have filed in all
appropriate jurisdictions Uniform Commercial Code financing statements with
respect to the receivables meeting the requirements of applicable law. See
"Risk Factors -- Some liens would be given priority over your notes which could
cause delayed or reduced payments" and "Material Legal Aspects of the
Receivables" in this prospectus.
29
<PAGE>
New Issuances of Notes
We may cause the owner trustee, on behalf of the issuer, to issue one or more
new series of notes. We will define all principal terms of each new series in
an indenture supplement. Each series issued may have terms and enhancements
that are different than those for any other series. Upon the issuance of an
additional series of notes, neither we nor any of the servicer, the indenture
trustee or the issuer will be required or will intend to obtain the consent of
any noteholder of any other series previously issued by the issuer. The issuer
may offer any series under a prospectus or other disclosure document in
offerings pursuant to this prospectus or in transactions either registered under
the Securities Act, or exempt from registration under the Securities Act
directly, through one or more other underwriters or placement agents, in fixed-
price offerings or in negotiated transactions or otherwise.
Unless Spiegel Master Trust has been terminated, the interests of all series
of notes in the receivables and the other trust assets will be evidenced by a
single collateral certificate held by the issuer. A new collateral certificate
will be deemed to be issued upon the issuance of each series of notes.
No new series may be issued unless we satisfy various conditions, including
that:
(1) each rating agency confirms that the new issuance will not impair its
rating of any outstanding series or class;
(2) the servicer certifies that, based on the facts known to the certifying
officer, the new issuance will not:
(a) cause a pay out event or an event of default; or
(b) materially and adversely affect the amount or timing of payments to be
made to the noteholders of any series or class;
(3) after giving effect to the new issuance, (i) the total amount of principal
receivables exceeds the Required Minimum Principal Balance and (ii) the
Transferor Amount exceeds the Required Transferor Amount;
(4) we deliver an opinion of counsel to the effect that, for federal income
tax purposes:
(a) the issuance will not adversely affect the tax characterization as
debt of notes of any outstanding series or class that were
characterized as debt at the time of their issuance;
(b) the new issuance will not cause the issuer to be deemed to be an
association or publicly traded partnership taxable as a corporation;
and
30
<PAGE>
(c) the new issuance will not cause or constitute an event in which gain
or loss would be recognized by any noteholder; and
(5) unless Spiegel Master Trust has been terminated, all of the conditions
required for it to issue a new series of investor certificates are
satisfied, as described under "Pooling and Servicing Agreement -- New
Issuances of Investor Certificates."
The "Required Transferor Amount" will be calculated as follows:
(i) Average Required Transferor Percentage times (ii) the aggregate of the
collateral and
invested amounts of
all outstanding series
of securities
The "Average Required Transferor Percentage" is the weighted average (by
collateral amount) of the Required Transferor Percentages for all outstanding
series of securities. The "Required Transferor Percentage" for each series of
notes, if greater than zero, will be specified in the prospectus supplement for
that series.
The "Required Minimum Principal Balance" at any time is equal to the sum of
the numerators used to calculate the allocation percentages with respect to
principal collections for all outstanding series of securities.
Representations and Warranties
As of the date each receivable is transferred to the trust, we represent to
the trust that:
(1) each receivable is an eligible receivable;
(2) each receivable has been transferred to the trust free and clear of
any liens (other than liens permitted by the pooling and servicing
agreement and the transfer and servicing agreement) and in compliance
with all applicable laws;
(3) all required governmental approvals in connection with the transfer of
each receivable to the trust have been obtained and remain in full
force and effect; and
(4) the trust has all right, title and interest in each receivable or has
a first priority perfected security interest in that receivable.
If any of these representations is not true with respect to any receivable
as of the date that receivable is transferred to the trust, we are required to
accept reassignment of the affected receivable. Before doing so, we will be
permitted 60 days to cure the breach or a longer period not to exceed 120 days
agreed to by the trustee. Notwithstanding the foregoing, if, with respect
31
<PAGE>
to any receivable, there has been a breach of the representation set forth in
clause (2) above, we will be obligated to immediately accept retransfer of that
receivable.
We will accept retransfer of a receivable by directing the servicer to
deduct the principal amount of the ineligible receivable from the Transferor
Amount. If this would reduce the Transferor Amount below the Required
Transferor Amount, we will make a cash deposit in the excess funding account in
the amount by which the Transferor Amount would have been reduced below the
Required Transferor Amount. Any deduction or deposit is considered a repayment
in full of the ineligible receivable.
We will also make representations and warranties to the trust as to
enforceability against us of the agreement that governs the transfer of the
receivables to the trust -- either the pooling and servicing agreement or the
transfer and servicing agreement -- and the effectiveness of that agreement as
an absolute assignment of, or a grant of a security interest in, the
receivables. If any of these representations and warranties is false, then
either (1) the trustee or (2) securityholders representing more than 50% of the
then-outstanding principal amount of all outstanding series of securities may
direct us to accept retransfer of the entire trust portfolio within 60 days
after notice is given (or within a longer period, not to exceed 120 days, as may
be specified in such notice).
The reassignment price would equal the aggregate collateral or invested
amount for all series of securities, in each case as of the distribution date on
which the reassignment is scheduled to be made, plus accrued and unpaid interest
on the securities through the distribution date, plus outstanding amounts
payable to credit enhancement providers to the extent specified in any
prospectus supplement.
Reassignment of any affected receivables or the entire trust portfolio to
us, as the case may be, is the sole remedy respecting any breach of the
representations and warranties described above.
An "eligible account" means an account:
. that is payable in United States dollars;
. the cardholder of which has provided, as his or her most recent
billing address, an address located in the United States or its
territories or possessions;
. that the servicer has not finally determined to be counterfeit or
fraudulent;
. that does not have any receivables that have been charged off as
uncollectible by the servicer in accordance with its charge account
guidelines or its customary and usual servicing procedures;
. that was originated by the bank or us in the ordinary course of
business;
32
<PAGE>
. as to which we have good title, and which has not been sold or
pledged to any other party; and
. that does not have receivables that have been sold or pledged to any
other party other than us pursuant to the receivables purchase
agreement.
An "eligible receivable" means each receivable:
. that has arisen under an eligible account;
. that was created in compliance, in all material respects, with all
requirements of law applicable to the bank or us and under the terms
of a credit card agreement which complies in all material respects
with all requirements of law applicable to the bank or us;
. for which all consents, licenses, approvals or authorizations of, or
registrations with, any governmental authority required to be obtained
or given by the bank or us in connection with the creation of the
receivable or the execution, delivery and performance by the bank of
the related credit card agreement have been duly obtained or given and
are in full force and effect as of the date of the creation of that
receivable;
. as to which, either we or the trust will have good title free and
clear of all liens and security interests, other than any lien for
municipal or other local taxes if those taxes are not then due and
payable or if we are then contesting the validity of those taxes in
good faith by appropriate proceedings and we have set aside on our
books adequate reserves with respect to those taxes;
. that is the legal, valid and binding payment obligation of the
related cardholder, enforceable against that cardholder in accordance
with its terms, subject to certain bankruptcy- and equity-related
exceptions;
. that constitutes either an "account" or a "general intangible" or
"chattel paper" under Article 9 of the Uniform Commercial Code;
. that, at the time of transfer to the trust, has not been waived or
modified except as permitted by the bank's charge account guidelines
and which waiver or modification has been reflected in the servicer's
computer files;
. that, at the time of transfer to the trust, is not subject to any
right of recision, setoff, counterclaim or defense, including usury,
that would require that receivable to be charged off in accordance
with the bank's charge account guidelines, other than some bankruptcy-
and equity-related defenses; and
33
<PAGE>
. as to which we and the bank have satisfied all obligations required to
be satisfied at the time it is transferred to the trust.
Addition of Trust Assets
We may, at our option, designate additional accounts, which may be from any
billing cycle, to the trust, the receivables in which will be sold and assigned
to the trust. As described above under "The Trust Portfolio," we currently
designate all new eligible accounts included in certain specified billing cycles
to the trust upon their establishment, and we expect to continue to do so. We
call accounts regularly designated in this manner "automatic additional
accounts." We are permitted to continue designating automatic additional
accounts so long as the number of accounts that we designate does not exceed the
following limits:
(1) For any twelve-month period, the new accounts designated during that
twelve-month period minus any accounts removed during that twelve-
month period may not exceed:
. 20% of the number of accounts as of the first day of that twelve-
month period; or
. if specified in the prospectus supplement for any series, 30% of
the number of accounts as of the first day of that twelve-month
period, subject to the satisfaction of any conditions specified
in that prospectus supplement; and
(2) For any calendar quarter, the new accounts designated during that
calendar quarter minus any accounts removed during that calendar
quarter may not exceed 15% of the number of accounts as of the first
day of that calendar quarter.
We may exceed these limitations if each rating agency confirms that doing
so will not impair its rating of any outstanding series or class of securities.
In addition, we will be required to designate additional accounts, to the
extent available:
. to maintain an aggregate amount of principal receivables in the trust,
so that, during any period of thirty consecutive days, the average
aggregate amount of principal receivables in the trust is not less
than the Required Minimum Principal Balance averaged for the same
period; and
. to maintain the Transferor Amount so that during any period of thirty
consecutive days, the Transferor Amount averaged over that period
equals or exceeds the Required Transferor Amount averaged for the same
period.
34
<PAGE>
When we transfer receivables in additional accounts to the trust in our
discretion, we must satisfy several conditions, including:
. each rating agency and each credit enhancement provider must receive
prior notice of each addition;
. we must certify that any additional accounts are eligible accounts
and that:
. no selection procedures adverse to the securityholders were used
in selecting the additional accounts;
. as of the addition date, we are not insolvent and would not
become insolvent by the addition of the accounts; and
. the transfer of the additional receivables constitutes a valid
transfer to the trust of all our right, title and interest in the
receivables in the additional accounts or the grant to the trust
of a first priority perfected security interest in those
receivables; and
. we must deliver an opinion of counsel with respect to the perfection
of the transfer and related matters.
In addition to the periodic reports otherwise required to be filed by the
servicer with the SEC pursuant to the Securities Exchange Act of 1934, we will
file a Report on Form 8-K with respect to any addition to the trust of
receivables in additional accounts that would have a material effect on the
composition of the trust assets.
Removal of Accounts
We also have the right to remove accounts from the list of designated
accounts and to require the reassignment to us of all receivables in the removed
accounts, whether the receivables already exist or arise after the designation.
However, we may not designate removed accounts more than once during any
calendar month. Our right to remove accounts is subject to the satisfaction of
several conditions, including that:
(1) each rating agency confirms that the removal will not impair its
rating of any outstanding series or class of securities;
(2) we certify that:
(a) no selection procedures adverse to the securityholders were used
in selecting the removed accounts;
35
<PAGE>
(b) in our reasonable belief, the removal will not cause a pay out
event, or an event that with notice or lapse of time or both,
would constitute a pay out event to occur; and
(c) as of the removal date, we are not insolvent and have no
intention of seeking protection under any federal or state
bankruptcy or debtor relief laws;
(3) at any time that Spiegel Master Trust holds the receivables, the
removal will not cause the Transferor Amount to be less than 105% of
the Required Transferor Amount (or if the required transferor amount
is zero, 5% of the Required Minimum Principal Balance) after giving
effect to the removal;
(4) at any time the issuer holds the receivables, the removal will not
cause the Transferor Amount to be less than the Required Transferor
Amount; and
(5) the removal will not cause the aggregate amount of principal
receivables in the trust to be less than the Required Minimum
Principal Balance.
Collection and Other Servicing Procedures
The servicer will be responsible for servicing and administering the
receivables in the trust portfolio in accordance with the servicer's policies
and procedures for servicing credit card receivables comparable to the
receivables in the trust portfolio. The servicer will be required to maintain
fidelity bond coverage insuring against losses through wrongdoing of its
officers and employees who are involved in the servicing of credit card
receivables covering such actions and in such amounts as the servicer believes
to be reasonable from time to time.
Discount Option
We have the option to reclassify a percentage, called the "Discount
Percentage," of collections of principal receivables in the trust portfolio as
collections of finance charge receivables. This option is referred to as the
"Discount Option." We may use the Discount Option to compensate for a decline in
the portfolio yield, but only if there would be sufficient principal receivables
to allow for that discounting. Exercise of the Discount Option would result in a
larger amount of collections of finance charge receivables and a smaller amount
of collections of principal receivables. By doing so, we would reduce the
likelihood that a pay out event would occur as a result of a decreased portfolio
yield and, at the same time, would increase the likelihood that we will have to
add principal receivables to the trust. We may not use the Discount Option if we
reasonably believe that doing so would cause a pay out event, or any event that
with notice or lapse of time or both, would constitute a pay out event for any
series of securities.
36
<PAGE>
If the Discount Percentage is greater than zero, an amount of collections
of principal receivables in the trust portfolio for each monthly period equal to
the product of:
. the Discount Percentage times
. total collections of principal receivables in the trust portfolio
will be considered collections of finance charge receivables in the trust
portfolio and allocated with all other collections of finance charge receivables
in the trust portfolio.
We may exercise the Discount Option only if each rating agency confirms
that use of the Discount Option will not impair its rating of any outstanding
series or class of securities.
Trust Accounts
The servicer has established and maintains in the name of the trustee, for
the benefit of the securityholders, a "collection account," which is a non-
interest bearing segregated corporate trust account established with a qualified
institution (a "qualified account"). The servicer will also establish and
maintain with a securities intermediary in the name of the trustee an "excess
funding account," which also is required to be a qualified account. A "qualified
institution" is defined as a depository institution or trust company, which may
include the trustee, that:
(1) is organized under the laws of the United States or any one of its
states;
(2) has FDIC deposit insurance; and
(3) has:
(a) a rating of its certificates of deposit, short-term deposits or
commercial paper of at least P-1 and A-1+ from Moody's and
Standard & Poor's, respectively, or
(b) a rating of its long-term unsecured debt obligations of at least
Aa2 and AAA from Moody's and Standard & Poor's, respectively.
The funds on deposit in these accounts may only be invested, at the
direction of the servicer, in highly rated liquid investments that meet the
criteria described in the indenture or the related indenture supplement for that
series.
The indenture trustee, acting as the initial paying agent--or any entity
then acting as paying agent--will have the revocable power to withdraw funds
from the collection account and the excess funding account for the purpose of
making payments to the noteholders of any series pursuant to the related
indenture supplement.
37
<PAGE>
Funding Period
On the closing date for any series of notes, the total amount of principal
receivables in the trust available to that series may be less than the total
principal amount of the notes of that series. If this occurs, the initial
collateral amount for that series of notes will be less than the principal
amount of that series of notes. In this case, the related prospectus supplement
will set forth the terms of the "funding period," which is the period from that
series' closing date to the earlier of:
. the date that series' collateral amount equals the principal amount
of that series of notes; and
. the date specified in the related prospectus supplement, which will
be no later than one year after that series' closing date.
During the funding period, the portion of the collateral amount not
invested in receivables will be maintained in a "prefunding account," which is a
trust account established with the indenture trustee for the benefit of the
noteholders of that series. On the closing date for that series of notes, this
amount may be up to 100% of the principal balance of that series of notes. The
collateral amount for that series will increase as new receivables are
transferred to the trust or as the collateral amounts of other outstanding
series of securities are reduced. The collateral amount may decrease due to
investor charge-offs allocated to the series.
During the funding period, funds on deposit in the prefunding account will
be paid to us as the collateral amount increases. If the collateral amount for
that series is not increased so that it equals the principal balance of the
notes of that series by the end of the funding period, any amount remaining in
the prefunding account will be repaid to noteholders.
The prospectus supplement for a series with a funding period will set
forth:
. the series' initial collateral amount;
. the series' full collateral amount, which is the initial principal
balance of the series of notes plus any initial excess collateral
amount;
. the date on which the series' collateral amount is expected to equal
the full collateral amount;
. the date by which the funding period will end; and
. what other events, if any, will occur if the end of the funding
period is reached before the full collateral amount is funded.
38
<PAGE>
Application of Collections
The servicer must deposit into the collection account, no later than two
business days after processing, all payments made on receivables in the trust
portfolio. However, the servicer will be able to make these deposits on a
monthly or other periodic basis if:
(1) the bank remains the servicer and no servicer default has occurred and
is continuing; and
(2) either
(a) (i) the servicer provides to the trustee a letter of credit or
other arrangement covering risk of collection of the
servicer; and
(ii) written confirmation is received from each rating agency
that such arrangement will not impair its rating of any
outstanding series or class of securities; or
(b) the servicer has and maintains a certificate of deposit or short-
term deposit rating of at least A-1+ by Standard & Poor's and P-1
by Moody's and has deposit insurance as required by law and by
the FDIC, unless any rating agency then rating any class or
series of securities, has notified the servicer that making
monthly deposits will impair its rating of any outstanding series
or class of securities.
For purposes of allocating collections on a daily basis, the servicer may
estimate the portion of collections on the entire Spiegel private label credit
card portfolio that is allocable to the trust portfolio. The servicer may also
estimate for each business day the amount of collections that are attributable
to finance charge receivables and principal receivables. The servicer may change
the method for determining the amount of collections that are attributable to
the trust portfolio and the allocation of those collections as finance charge
collections or principal collections from time to time to more accurately
reflect the amounts being collected in respect of the principal receivables and
finance charge receivables in the trust portfolio. However, the servicer must
give each rating agency written notice of any change in its method for
estimating the amount of collections from the entire Spiegel private label
credit card portfolio that are allocable to the trust portfolio.
The servicer will also deposit into the collection account on the business
day before each distribution date, the excess of (i) all of the recoveries by
the servicer during the preceding calendar month on receivables that have
previously been charged-off as uncollectible over (ii) the aggregate amount of
receivables in accounts that have been charged-off as uncollectible during that
calendar month. The servicer will treat these net recoveries as collections of
finance charge receivables.
39
<PAGE>
The servicer will then allocate all collections of finance charge
receivables and principal receivables among each series of securities and the
Transferor Amount based on the respective allocation percentages for each series
and the Transferor Percentage. The "Transferor Percentage" at any time will
equal 100% minus the total of the applicable allocation percentages for all
outstanding series. The Transferor Percentage of finance charge collections will
be paid to us or our assigns. The Transferor Percentage of principal collections
will first be deposited in the excess funding account to the extent required to
maintain the Required Transferor Amount or treated as shared principal
collections to the extent needed to cover principal shortfalls, as described
below under "-- Shared Principal Collections; Excess Funding Account," and any
remaining principal collections will then be paid to us or our assigns. The
collections allocated to each series will be retained in the collection account
or applied as described in the related prospectus supplement.
Shared Excess Finance Charge Collections
If a series is identified in the prospectus supplement for that series as
included in a group, collections of finance charge receivables allocated to that
series in excess of the amount needed to make deposits or payments for the
benefit of that series may be shared with other series of securities that have
been designated for inclusion in the same group. The servicer will allocate the
aggregate of the excess finance charge collections for all series in the same
group to cover any payments required to be made out of finance charge
collections for any series in that group that have not been covered out of the
finance charge collections allocable to those series. If the finance charge
shortfalls exceed the excess finance charge collections for any group for any
calendar month, excess finance charge collections will be allocated pro rata
among the applicable series based on the relative amounts of finance charge
shortfalls.
Shared Principal Collections; Excess Funding Account
Each series of notes will share excess principal collections with each
other series of securities unless the related prospectus supplement excludes
that series from this sharing arrangement. If a principal sharing series--
including any series of investor certificates designated as a principal sharing
series--is allocated principal in excess of the amount needed for deposits or
distributions of principal collections, the amount of such excess will be shared
with other principal sharing series. The servicer will allocate the aggregate
of:
. the shared principal collections for all principal sharing series,
plus
. all principal collections allocated to the Transferor Amount that are
not required to be deposited in the excess funding account to maintain
the Required Transferor Amount as described below,
to cover any scheduled or permitted principal distributions to securityholders
and deposits to principal accumulation accounts, if any, for any series that
have not been covered out of the collections of principal receivables allocable
to those series. Shared principal collections will
40
<PAGE>
not be used to cover investor charge-offs for any series of securities. If
principal collections for one series are shared with another series, the
collateral amount or invested amount for the series from which collections were
shared will not be reduced.
If the principal shortfalls exceed the amount of shared principal
collections for any calendar month, shared principal collections for all series
will be allocated pro rata among the applicable series based on the relative
amounts of principal shortfalls. If shared principal collections exceed
principal shortfalls, the balance will be paid to us or our assigns or deposited
in the excess funding account under the circumstances described in the following
paragraph.
On each business day on which the Transferor Amount is less than the
Required Transferor Amount, the servicer will deposit collections of principal
receivables allocable to us or our assigns, as described in "--Application of
Collections" above, and excess shared principal collections, into the excess
funding account until the Transferor Amount equals the Required Transferor
Amount. Funds on deposit in the excess funding account will be withdrawn and
paid to us to the extent that on each day the Transferor Amount exceeds the
Required Transferor Amount. In addition, when any series of securities is in an
amortization period or accumulation period, the principal balance in the excess
funding account will be applied like shared principal collections.
Investment earnings on amounts on deposit in the excess funding account
will be treated as finance charge collections and allocated to each series of
securities based on the respective allocation percentages for each series.
Defaulted Receivables; Dilution; Investor Charge-Offs
Receivables in any account will be charged-off as uncollectible in
accordance with the servicer's credit card guidelines and the servicer's
customary and usual policies and procedures for servicing revolving credit card
receivables and other revolving credit account receivables comparable to the
receivables. The servicer's current policy is to charge off the receivables in
an account when that account becomes 180 days delinquent. On the date on which
an account is charged-off, the trust will automatically be deemed to transfer
all receivables in the charged-off account to us and the charged-off account
will cease to be a trust account.
Each series will be allocated a portion of the excess, if any, of (i)
defaulted receivables for each calendar month over (ii) all of the recoveries
received during that calendar month, as specified in the accompanying prospectus
supplement. For this purpose, defaulted receivables for any monthly period are
principal receivables that were charged-off as uncollectible in that monthly
period.
Unlike defaulted receivables, reductions in principal receivables as a
result of returns, unauthorized charges and the like (which we refer to
generally as "dilution") are not intended to be allocated to investors. Instead,
they are applied to reduce our interest in the trust, and to the extent they
would reduce our interest in the trust below the Required Transferor Amount, the
41
<PAGE>
servicer is required to deposit the amount of any such reduction into the
trust's excess funding account. However, if the servicer defaults in its
obligation to make such a payment, then a portion of any resulting shortfall in
receivables will be allocated to your series as specified in the accompanying
prospectus supplement.
On each distribution date, if the sum of the defaulted receivables and any
dilution allocated to any series is greater than the finance charge collections
and other funds available to cover those amounts as described in the related
prospectus supplement, then the collateral amount for that series will be
reduced by the amount of the excess. Any such reductions in the collateral
amount for any series will be reinstated to the extent that finance charge
collections and certain other amounts on deposit in the collection account are
available for that purpose on any subsequent distribution date as described in
the related prospectus.
Defeasance
If so specified in the prospectus supplement relating to a series, the
issuer may, at our direction, terminate its substantive obligations in respect
of that series or the trust by depositing with the indenture trustee, from
amounts representing, or acquired with, collections of receivables, money or
eligible investments sufficient to make all remaining scheduled interest and
principal payments on that series on the dates scheduled for those payments and
to pay all amounts owing to any credit enhancement provider with respect to that
series or all outstanding series, as the case may be, if that action would not
result in a pay out event for any series. Prior to its first exercise of its
right to substitute money or eligible investments for receivables, the issuer
will deliver to the indenture trustee an opinion of counsel to the effect that:
. for federal income tax purposes, the deposit and termination of
obligations will not cause the trust, or any portion of the trust, to
be deemed to be an association (or publicly traded partnership)
taxable as a corporation; and
. the 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 of 1940, as amended.
Final Payment of Principal
For each series, the servicer has the option to purchase the notes at any
time after the remaining outstanding principal amount of that series is 10% or
less of the initial principal amount of that series. The purchase price will
equal:
. the outstanding principal amount of the notes of that series, plus
. any accrued and unpaid interest through the day preceding the
distribution date on which the repurchase occurs or, if the repurchase
occurs on any other date,
42
<PAGE>
through the day preceding the distribution date immediately following
the repurchase date.
For any series of notes, the related prospectus supplement may specify
additional conditions to the servicer's purchase option.
Each prospectus supplement will specify the final maturity date for the
related series of notes, which will generally be a date falling substantially
later than the expected principal payment date. For any series, the failure to
pay principal in full not later than the final maturity date will be an event of
default and the indenture trustee or holders of a specified percentage of the
notes of that series will have certain rights described under "The Indenture --
Events of Default; Rights upon Event of Default" in this prospectus.
Paired Series
The prospectus supplement for a series of notes will specify whether that
series may be paired with a previously or later issued series so that a decrease
in the collateral amount of the previously issued series results in a
corresponding increase in the collateral amount of the later issued series. We
call each of these series a "paired series." In general, a series may be issued
as a paired series so the trust can fund the amount by which the previously
issued series either has amortized or has accumulated funds for a principal
payment.
The later issued series will either be prefunded with an initial deposit to
a prefunding account in an amount up to the initial principal balance of that
paired series or will have a variable principal amount.
During the controlled amortization period or controlled accumulation period
for any series that is paired with a later issued series, as principal payments
are made on that previously issued series or deposits are made to the principal
accumulation account for that previously issued series, as applicable,
(a) in the case of a prefunded paired series, an equal amount of funds on
deposit in any prefunding account for that prefunded paired series
will be released, which funds will be distributed to us;
(b) in the case of a paired series having a variable principal amount, an
interest in that variable paired series in an equal or lesser amount
may be sold by the issuer, and the proceeds from the issuance will be
distributed to us;
(c) and, in either case, the collateral amount of the later issued series
will increase by up to a corresponding amount.
If a pay out event occurs for the previously issued series or its paired
series when the previously issued series is amortizing, the allocation
percentage for the allocation of collections
43
<PAGE>
of principal receivables for the previously issued series may be reset to a
lower percentage as described in the prospectus supplement for that series and
the period over which it will amortize may be lengthened as a result. The extent
to which the period over which it amortizes is lengthened will depend on many
factors, only one of which is the reduction of its allocation percentage. For a
discussion of these factors, see "Risk Factors -- Issuance of additional series
by the trust may affect the timing of payments to you" in this prospectus and
"Maturity Considerations" in the accompanying prospectus supplement.
Pay Out Events
The revolving period for your series of notes will continue through the
date specified in the accompanying prospectus supplement unless a pay out event
occurs prior to that date. A "pay out event" occurs with respect to all series
issued by the issuer upon the occurrence of any of the following events:
(a) certain bankruptcy, insolvency, liquidation, conservatorship,
receivership or similar events relating to us or the bank;
(b) we are unable for any reason to transfer receivables to the trust; or
(c) Spiegel Master Trust or the issuer becomes subject to regulation as an
"investment company" within the meaning of the Investment Company Act
of 1940.
In addition, a pay out event may occur with respect to any series upon the
occurrence of any other event specified in the accompanying prospectus
supplement. On the date on which a pay out event is deemed to have occurred,
the rapid amortization period or, if so specified in the accompanying prospectus
supplement, the early accumulation period will commence. If, because of the
occurrence of a pay out event, the rapid amortization period begins earlier than
the scheduled commencement of an amortization period or prior to an expected
principal payment date, noteholders will begin receiving distributions of
principal earlier than they otherwise would have, which may shorten the average
life of the notes.
In addition to the consequences of a pay out event discussed above, unless
otherwise specified in the accompanying prospectus supplement, if certain
bankruptcy, insolvency or similar proceedings under the Bankruptcy Code or
similar laws occur with respect to us, on the day of that event we will
immediately cease to transfer principal receivables to the trust and promptly
give notice to the trustee for Spiegel Master Trust, the indenture trustee and
the owner trustee of this event. Any principal receivables transferred to the
trust prior to the event, as well as collections on those principal receivables
and finance charge receivables accrued at any time with respect to those
principal receivables, will continue to be part of the trust assets. Unless
Spiegel Master Trust has terminated and the issuer holds the receivables
directly, upon the occurrence of an event of this type, the trustee for Spiegel
Master Trust will sell the receivables held by Spiegel Master Trust in a
commercially reasonable manner and on commercially
44
<PAGE>
reasonable terms. However, the holders of 50% of the unpaid principal amount of
any series of securities may prevent the sale by giving the trustee other
instructions within 90 days of publication of notice of the event. The proceeds
of that sale or liquidation will be applied to payments on the outstanding
series of securities as specified above in "-- Application of Collections" and
in the accompanying prospectus supplement.
If the only pay out event to occur is either our insolvency or the
commencement of a bankruptcy case by or against us, the bankruptcy court may
have the power to require the continued transfer of principal receivables to the
trust. See "Risk Factors -- If a conservator or receiver were appointed for
First Consumers National Bank, or if we or Spiegel Acceptance Corporation became
a debtor in a bankruptcy case, delays or reductions in payment of your notes
could occur" in this prospectus.
Servicing Compensation and Payment of Expenses
The servicer receives a fee for its servicing activities and reimbursement
of expenses incurred in administering the issuer. The share of the servicing fee
allocable to each series of notes for any distribution date will be equal to
one-twelfth of the product of (a) the servicing fee rate specified in the
related prospectus supplement and (b) (i) the collateral amount for that series
as of the last day of the calendar period preceding that distribution date,
minus (ii) for any series during an accumulation period, the amount on deposit
in the principal funding account for that series as of the last day of the
calendar month preceding that distribution date, minus (iii) the product of the
amount, if any, on deposit in the excess funding account as of the last day of
the calendar month preceding that distribution date and the allocation
percentage for that series with respect to finance charge collections for that
calendar month.
The servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the receivables, including payment of the
fees and disbursements of the indenture trustee, the trustee for Spiegel Master
Trust, the owner trustee and independent certified public accountants and other
fees which are not expressly stated in the transfer and servicing agreement, the
indenture, any indenture supplement or the pooling and servicing agreement for
Spiegel Master Trust to be payable by the issuer or the securityholders, other
than federal, state and local income and franchise taxes, if any, of the issuer
or Spiegel Master Trust.
Each series' servicing fee is payable each period from collections of
finance charge receivables allocated to the series. Neither the issuer nor the
noteholders are responsible for any servicing fee allocable to the Transferor
Amount.
Certain Matters Regarding the Transferor and the Servicer
The servicer may not resign from its obligations and duties, except upon a
determination that:
45
<PAGE>
. performance of its duties is no longer permissible under applicable
law, as evidenced by an opinion of counsel to that effect delivered to
the trustee; and
. there is no reasonable action that the servicer could take to make the
performance of its duties permissible under applicable law.
If within 120 days of the determination that the servicer is no longer
permitted to act as servicer, the indenture trustee is unable to appoint a
successor, then the indenture trustee will act as servicer. If the indenture
trustee is unable to act as servicer, it will petition an appropriate court to
appoint an eligible successor.
The servicer's resignation will not become effective until the indenture
trustee or another successor has assumed the servicer's obligations and duties.
The servicer may delegate any of its servicing duties to any entity, including
Spiegel, that agrees to conduct those duties in accordance with the charge
account guidelines for the bank. However, the servicer's delegation of its
duties will not relieve it of its liability and responsibility with respect to
the delegated duties.
The servicer will indemnify Spiegel Master Trust, the issuer, the owner
trustee, the trustee for Spiegel Master Trust and the indenture trustee for any
losses suffered as a result of (a) actions or omissions arising out of the
activities of Spiegel Master Trust, the issuer, the owner trustee, the trustee
for Spiegel Master Trust and the indenture trustee under the pooling and
servicing agreement and the transfer and servicing agreement, including its
actions or omissions as servicer or (b) the administration by the owner trustee
of the issuer, except in each case, for losses resulting from the fraud,
negligence or breach of fiduciary duty by the owner trustee, the trustee for
Spiegel Master Trust or the indenture trustee, as applicable. The indemnity
also does not include:
. any liabilities, costs or expenses of Spiegel Master Trust or the
issuer arising from any action taken by the trustee for Spiegel Master
Trust or the indenture trustee at the direction of the
securityholders;
. any losses, liabilities, expenses, damages or injuries that are
incurred by any noteholder in the capacity of an investor, including
losses incurred as a result of the performance of the receivables; and
. any federal, state or local income or franchise taxes or any other tax
imposed on or measured by income or any penalties under any related
tax laws required to be paid by Spiegel Master Trust, the issuer or
any securityholder.
Neither the servicer nor any of its directors, officers, employees or
agents will be under any other liability to the Spiegel Master Trust, the
issuer, the owner trustee, the indenture trustee, the trustee for Spiegel Master
Trust, the securityholders, any credit enhancement provider or any other person
for any action taken, or for refraining from taking any action, in good faith
under the
46
<PAGE>
pooling and servicing agreement or the transfer and servicing agreement.
However, none of them will be protected against any liability resulting from
willful wrongdoing, bad faith or gross negligence in the performance of its
duties or by reason of its willful misconduct under the pooling and servicing
agreement or the transfer and servicing agreement. In addition, the servicer is
not under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its servicing responsibilities under the pooling and
servicing agreement and the transfer and servicing agreement and which in its
opinion may expose it to any expense or liability.
Neither we nor any of our directors, officers, employees, incorporators or
agents will be liable to Spiegel Master Trust, the issuer, the owner trustee,
the indenture trustee, the trustee for Spiegel Master Trust, the
securityholders, any credit enhancement provider or any other person for any
action taken, or for refraining from taking any action, in good faith under the
pooling and servicing agreement or the transfer and servicing agreement.
However, neither we nor any of the foregoing persons will be protected against
any liability resulting from willful wrongdoing, bad faith or gross negligence
in the performance of its duties or by reason of its willful misconduct under
the pooling and servicing agreement or the transfer and servicing agreement.
The trust agreement provides that we may transfer our interest in all or a
portion of our beneficial interest in the issuer by exchanging the ownership
certificate representing our interest in the issuer for a newly issued ownership
certificate representing our remaining interest and a second ownership
certificate representing the transferred interest. The terms of the ownership
certificate representing the transferred interest must be defined in a
supplement to the trust agreement. Before a new ownership certificate is issued,
the following must occur:
(1) each rating agency confirms that the exchange will not impair its
rating of any outstanding series or class of notes;
(2) we certify to the owner trustee and the indenture trustee that, based
on the facts known to the certifying officer, the new issuance will
not:
(a) cause a pay out event or an event of default; or
(b) materially and adversely affect the amount or timing of payments
to be made to the noteholders of any series or class;
(3) after giving effect to the exchange, the total amount of principal
receivables exceeds the Required Minimum Principal Balance;
(4) we deliver an opinion of counsel to the effect that, for federal
income tax purposes:
47
<PAGE>
(a) the exchange will not adversely affect the tax characterization
as debt of notes of any outstanding series or class that were
characterized as debt at the time of their issuance;
(b) the exchange will not cause the issuer to be deemed to be an
association or publicly traded partnership taxable as a
corporation; and
(c) the exchange will not cause or constitute an event in which gain
or loss would be recognized by any noteholder.
No ownership certificate may be transferred or exchanged unless an opinion
of the type described in clause (4) above is delivered to the owner trustee and
the indenture trustee regarding the exchange.
We or the servicer may consolidate with, merge into, or sell our or its
respective businesses to, another entity, in accordance with the pooling and
servicing agreement and the transfer and servicing agreement on the following
conditions:
(1) the entity (if other than us or the servicer, as applicable) formed by
such consolidation or merger or that acquires our property or assets
or the servicer's property or assets, as the case may be:
(a) is organized under the laws of the United States or any one of
its states;
(b) expressly assumes, by a supplemental agreement, to perform every
covenant and obligation of us or the servicer, as applicable;
(2) delivery to the trustee for Spiegel Master Trust, the indenture
trustee and each credit enhancement provider, of an officer's
certificate and an opinion of counsel stating that the merger,
consolidation or transfer and the related supplemental agreement
comply with the pooling and servicing agreement and the transfer and
servicing agreement and that all conditions precedent relating to the
applicable transaction have been complied with and, in the case of the
opinion of counsel, the related supplemental agreement is legal, valid
and binding with respect to us or the servicer, as applicable; and
(3) delivery of notice of the applicable transaction to each rating
agency.
Servicer Default
A "servicer default" refers to any of the following events:
(1) failure by the servicer to make any payment, transfer or deposit, or
to give instructions or to give notice to the trustee to do so, on the
required date under the
48
<PAGE>
pooling and servicing agreement, any series supplement to the pooling
and servicing agreement with respect to a series of investor
certificates, the transfer and servicing agreement, the indenture or
any indenture supplement, in each case on or before the date occurring
5 business days after the date that payment, transfer or deposit or
that instruction or notice is required to be made or given under the
applicable document;
(2) failure on the part of the servicer to observe or perform in any
material respect any of its other covenants or agreements if the
failure:
(a) has a material adverse effect on the securityholders;
(b) continues unremedied for a period of 60 days after notice to (i)
the servicer by the trustee for Spiegel Master Trust, the owner
trustee or the indenture trustee, (ii) the servicer, the owner
trustee and the indenture trustee by noteholders of 50% or more
of the then-outstanding principal amount of the notes of any
adversely affected series or (iii) the servicer and the trustee
for Spiegel Master Trust by investor certificateholders of 50% or
more of the then-outstanding principal amount of the investor
certificates of any adversely affected series; or
(3) the servicer assigns or delegates its duties, except as specifically
permitted under the pooling and servicing agreement and the transfer
and servicing agreement;
(4) any representation, warranty or certification made by the servicer in
the pooling and servicing agreement or the transfer and servicing
agreement, or in any certificate delivered pursuant to either
agreement, proves to have been incorrect when made if it:
(a) has a material adverse effect on the rights of the
securityholders of any series;
(b) continues to be incorrect and to have a material adverse effect
on those securityholders for a period of 60 days after notice to
(i) the servicer by the trustee for Spiegel Master Trust, the
owner trustee or the indenture trustee, (ii) the servicer, the
owner trustee and the indenture trustee by noteholders of 50% or
more of the then-outstanding principal amount of the notes of any
adversely affected series or (iii) the servicer and the trustee
for Spiegel Master Trust by investor Certificateholders of 50% or
more of the then-outstanding principal amount of the investor
certificates of any adversely affected series, or if such failure
cannot be cured within the applicable 60-day period due to causes
beyond the control of the servicer, if the servicer fails to
proceed promptly to cure the failure with diligence and
continuity;
49
<PAGE>
(5) specific bankruptcy, insolvency, liquidation, conservatorship,
receivership or similar events relating to the servicer; or
(6) any other event specified in the accompanying prospectus supplement.
If a servicer default occurs, for as long as it has not been remedied, the
trustee or securityholders representing a majority of the then-outstanding
principal amount of all outstanding series of securities may give notice to the
servicer and the owner trustee (and to the trustee for Spiegel Master Trust and
the indenture trustee if given by the securityholders) terminating all of the
rights and obligations of the servicer under the pooling and servicing agreement
and the transfer and servicing agreement and the trustee may appoint a new
servicer. The trustee will as promptly as possible appoint an eligible successor
to the servicer. If no successor has been appointed or has accepted the
appointment by the time the servicer ceases to act as servicer, the trustee will
automatically become the successor. If the trustee is unable to obtain bids
from eligible servicers within 60 days of notice of termination of the servicer
and the servicer delivers a certificate of an authorized officer to the effect
that it cannot in good faith cure the servicer default which gave rise to a
transfer of servicing, and if the trustee is legally unable to act as successor,
then the trustee will offer us the right to accept retransfer of all of the
receivables. However, if our long-term unsecured debt obligations are not rated
at least Baa-3 by Moody's and BBB- by Standard & Poor's at the time of the
proposed retransfer, no retransfer will occur unless we have delivered an
opinion of counsel reasonably acceptable to the trustee that the retransfer
would not constitute a fraudulent conveyance by us.
The retransfer price to be received by each series of notes will be equal
to the higher of:
(1) the outstanding principal balance of the notes of that series, plus
accrued interest at the applicable interest rate, through the date of
retransfer; and
(2) the average bid price quoted by two recognized dealers for a similar
security rated in the highest rating category by Moody's and Standard
& Poor's and having a remaining maturity similar to the remaining
maturity of those notes.
The securityholders of 50% or more of the then-outstanding principal amount
of the securities of any series affected by any default by the servicer or us in
the performance of its or our obligations under the pooling and servicing
agreement and the transfer and servicing agreement may waive, on behalf of all
securityholders, that default unless the default relates to a failure to make
any required deposits or payments with respect to any series. In addition, no
waiver by the securityholders will affect the rights of any credit enhancement
providers for any series.
Our rights and obligations under the pooling and servicing agreement and
the transfer and servicing agreement will be unaffected by any change in
servicer.
50
<PAGE>
If a conservator or receiver is appointed for the servicer, the conservator
or receiver may have the power to prevent either the trustee or the
securityholders from appointing a successor servicer.
Reports to Noteholders
Noteholders of each series issued by the issuer will receive reports with
information on the series and the trust. The paying agent will forward to each
noteholder of record a report, prepared by the servicer, for its series on the
distribution dates for that series. The report will contain the information
specified in the related prospectus supplement. If a series has multiple
classes, information will be provided for each class, as specified in the
related prospectus supplement.
Periodic information to noteholders generally will include:
. the total amount distributed;
. the amount of principal and interest for distribution;
. collections of principal receivables and finance charge receivables
allocated to the series;
. the aggregate amount of principal receivables, the collateral amount
and the collateral amount as a percentage of the aggregate amount of
the principal receivables in the trust portfolio;
. the aggregate outstanding balance of accounts broken out by
delinquency status;
. the aggregate defaults and dilution allocated to the series;
. the amount of reductions, if any, to the collateral amount due to
defaulted receivables and dilution allocated to the series and any
reimbursements of previous reductions to the collateral amount;
. the monthly servicing fee for that series;
. the amount available under the credit enhancement, if any, for the
series or each class of the series;
. the "pool factor," which is the ratio of the current collateral amount
to the initial collateral amount;
. the Base Rate and Portfolio Yield (each as defined in the accompanying
prospectus supplement) for the series;
51
<PAGE>
. if the series or a class of the series bears interest at a floating
or variable rate, information relating to that rate;
. for any distribution date during a funding period, the remaining
balance in the prefunding account; and
. for the first distribution date that is on or immediately following
the end of a funding period, the amount of any remaining balance in
the prefunding account that has not been used to fund the purchase of
receivables and is being paid as principal on the notes.
By January 31 of each calendar year, the paying agent will also provide to
each person who at any time during the preceding calendar year was a noteholder
of record a statement, prepared by the servicer, containing the type of
information presented in the periodic reports, aggregated for that calendar year
or the portion of that calendar year that the person was a noteholder, together
with other information that is customarily provided to holders of debt, to
assist noteholders in preparing their United States tax returns.
Evidence as to Compliance
The pooling and servicing agreement and the transfer and servicing
agreement provide that on or before April 30 of each calendar year, the servicer
will have a firm of independent certified public accountants furnish a report
showing that, for the prior calendar year:
. the accounting firm has applied certain procedures to certain
documents and records relating to the servicing of the accounts,
compared certain information contained in the servicer's certificates
delivered during the prior calendar year with such documents and
records, and that based upon those procedures, no matters came to the
attention of such accountants that caused them to believe that
servicing was not conducted in compliance with specified sections of
the pooling and servicing agreement and the transfer and servicing
agreement, and
. the accounting firm has compared certain amounts set forth in the
periodic reports prepared by the servicer for the prior calendar year
with the servicer's computer reports and that, in the accounting
firm's opinion, the amounts are in agreement, except for any
discrepancies they consider immaterial or that are otherwise
disclosed.
The pooling and servicing agreement and the transfer and servicing
agreement also provide that by April 30 of each calendar year, the servicer will
deliver to the trustee for Spiegel Master Trust, the owner trustee, the
indenture trustee, each credit enhancement provider and each rating agency a
certificate of an authorized officer to the effect that the servicer has fully
performed its obligations under the pooling and servicing agreement and the
transfer and
52
<PAGE>
servicing agreement during the preceding year, or, if there has been a default
in the performance of any of its obligations, specifying the nature and status
of the default.
Amendments
The transfer and servicing agreement may be amended by us, the servicer and
the owner trustee, without the consent of the indenture trustee or the
noteholders of any series, on the following conditions:
(1) we deliver to the owner trustee and the indenture trustee a
certificate of an authorized officer stating that, in our reasonable
belief, the amendment will not:
(a) result in the occurrence of a pay out event or an event of
default; or
(b) materially and adversely affect the amount or timing of
distributions to be made to noteholders of any series or class;
and
(2) each rating agency confirms that the amendment will not impair its
rating of any outstanding series or class of notes.
The transfer and servicing agreement may also be amended by us, the
servicer and the owner trustee at our direction, without the consent of the
indenture trustee, the noteholders of any series or the credit enhancement
providers for any series to add, modify or eliminate any provisions necessary or
advisable in order to enable the issuer or any portion of the issuer to (i)
qualify as, and to permit an election to be made for the issuer to be treated
as, a "financial asset securitization investment trust" under the Code and (ii)
avoid the imposition of state or local income or franchise taxes on the issuer's
property or its income. However, we may not amend the transfer and servicing
agreement as described in this paragraph unless each rating agency confirms that
the amendment will not impair its rating of any outstanding series or class of
notes. In addition, the amendment must not affect the rights, duties or
obligations of the indenture trustee or the owner trustee under the transfer and
servicing agreement.
The amendments that we may make without the consent of the noteholders of
any series or the credit enhancement providers for any series may include the
addition or sale of receivables in the trust portfolio.
The transfer and servicing agreement may also be amended by us, the
servicer and the owner trustee with the consent of noteholders representing at
least 66 2/3% of the then-outstanding principal balance of the notes of all
series adversely affected by the amendment, except that no amendment may occur
if it:
53
<PAGE>
(1) reduces the amount of, or delays the timing of:
(a) any distributions to be made to noteholders of any series
(changes in pay out events or events of default that decrease the
likelihood of the occurrence of those events will not be
considered delays in the timing of distributions for purposes of
this clause) or deposits of amounts to be distributed; or
(b) the amount available under any credit enhancement,
in each case, without the consent of each affected noteholder;
(2) changes the manner of calculating the interests of any noteholder
without the consent of each affected noteholder;
(3) reduces the percentage of the outstanding principal balance of the
notes required to consent to any amendment, without the consent of
each affected noteholder; or
(4) adversely affects the rating of any series or class by each rating
agency, without the consent of noteholders representing at least 66
2/3% of the then-outstanding principal balance of the notes of each
affected series or class.
The Indenture
We have summarized the material terms of the indenture below. The summary
is not complete and is qualified in its entirety by reference to the indenture.
Events of Default; Rights upon Event of Default
An "event of default" will occur under the indenture for any series of
notes upon the occurrence of any of the following events:
(1) the issuer fails to pay principal when it becomes due and payable on
the final maturity date for that series of notes;
(2) the issuer fails to pay interest when it becomes due and payable and
the default continues for a period of 35 days;
(3) certain bankruptcy, insolvency, conservatorship, receivership,
liquidation or similar events relating to the issuer; or
(4) the issuer fails to observe or perform covenants or agreements made in
the indenture, and:
54
<PAGE>
(a) the failure continues, or is not cured, for 60 days after notice
to the issuer by the indenture trustee or to the issuer and the
indenture trustee by noteholders representing 50% or more of the
then-outstanding principal amount of all outstanding series of
notes; and
(b) as a result, the interests of the noteholders are materially and
adversely affected, and continue to be materially and adversely
affected during the 60-day period.
An event of default will not occur if the issuer fails to pay the full
principal amount of a note on its expected principal payment date.
An event of default with respect to one series of notes will not
necessarily be an event of default with respect to any other series of notes.
If an event of default referred to in clause (1), (2) or (4) above occurs
and is continuing with respect to any series of notes, the indenture trustee or
noteholders holding more than 50% of the then-outstanding principal balance of
the notes of the affected series may declare the principal of the notes of that
series to be immediately due and payable. If an event of default referred to in
clause (3) above occurs and is continuing, the unpaid principal and interest due
on the notes automatically will be deemed to be declared due and payable. These
declarations may, under certain circumstances, be rescinded by noteholders
holding more than 50% of the then-outstanding principal balance of the notes of
that series.
If an event of default occurs, the indenture trustee will be under no
obligation to exercise any of the rights or powers under the indenture if
requested or directed by any of the holders of the notes of the affected series
if the indenture trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which might be incurred
by it in complying with that request. Subject to those provisions for
indemnification and certain limitations contained in the indenture, noteholders
holding more than 50% of the then-outstanding principal balance of the notes of
the affected series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the indenture trustee if
an event of default has occurred and is continuing. The noteholders holding more
than 50% of the then-outstanding principal balance of the notes of the affected
series may also, in certain cases, waive any default with respect to the notes,
except a default in the payment of principal or interest or a default relating
to a covenant or provision of the indenture that cannot be modified without the
waiver or consent of all noteholders of the affected series.
After acceleration of a series of notes, principal collections and finance
charge collections allocated to those notes will be applied to make monthly
principal and interest payments on the notes until the earlier of the date the
notes are paid in full or the final maturity date of the notes. Funds in the
collection account, the excess funding account and the other trust
55
<PAGE>
accounts for an accelerated series of notes will be applied immediately to pay
principal of and interest on those notes.
Upon acceleration of the maturity of a series of notes following an event
of default, the indenture trustee will have a lien on the collateral for those
notes for its unpaid fees and expenses that ranks senior to the lien of those
notes on the collateral.
In general, the indenture trustee will enforce the rights and remedies of
the holders of accelerated notes. However, noteholders will have the right to
institute any proceeding with respect to the indenture if the following
conditions are met:
. the noteholder gives the indenture trustee written notice of a
continuing event of default;
. the noteholders of at least 25% of the collateral amount of the
affected series make a written request of the indenture trustee to
institute a proceeding as indenture trustee;
. the noteholders offer reasonable indemnification to the indenture
trustee against the costs, expenses and liabilities of instituting a
proceeding;
. the indenture trustee has not instituted a proceeding within 60 days
after receipt of the request and offer of indemnification; and
. the indenture trustee has not received from noteholders holding more
than 50% of the then-outstanding principal balance of the notes of
that series a direction inconsistent with the request.
If any series of notes has been accelerated following an event of default,
and the indenture trustee has not received any valid directions from those
noteholders, the indenture trustee may elect to continue to hold the portion of
the trust assets that secures those notes and apply distributions on the trust
assets to make payments on those notes to the extent funds are available.
Subject to the provisions of the indenture relating to the duties of the
indenture trustee, if any series of notes has been accelerated following an
event of default, the indenture trustee may:
. institute proceedings in its own name for the collection of all
amounts then payable on the notes of the affected series; or
. take any other appropriate action to protect and enforce the rights
and remedies of the indenture trustee and the noteholders of the
affected series.
56
<PAGE>
Subject to the conditions described below, the indenture trustee also may
cause the trust to sell principal receivables in an amount equal to the
collateral amount for the series of accelerated notes and the related finance
charge receivables. One of the following conditions must be satisfied for the
indenture trustee to exercise this remedy:
. receipt by the indenture trustee of the consent of all noteholders of
the affected series;
. determination by the indenture trustee that any proceeds from
exercising the remedy will be sufficient to discharge in full all
principal and interest due on the accelerated notes, and the indenture
trustee obtains the consent of noteholders holding more than 50% of
the then-outstanding principal balance of the affected series; or
. determination by the indenture trustee that the assets may not
continue to provide sufficient funds for the payment of principal of
and interest on those notes as they would have become due if the notes
had not been accelerated, and the indenture trustee obtains the
consent of noteholders holding at least 66 2/3% of the then-
outstanding principal balance of each class of the notes of the
affected series.
The indenture trustee and the noteholders will covenant that they will not
at any time institute against the issuer, Spiegel Master Trust or us any
bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
None of us, the administrator, the owner trustee, the indenture trustee,
the servicer, the bank or Spiegel Master Trust, nor any holder of an ownership
interest in the issuer, nor any of their respective owners, beneficiaries,
agents, officers, directors, employees, successors or assigns shall, in the
absence of an express agreement to the contrary, be personally liable for the
payment of the principal of or interest on the notes or for the agreements of
the issuer contained in the indenture. The notes will represent obligations
solely of the issuer, and the notes will not be insured or guaranteed by us, the
servicer, the administrator, the owner trustee, the indenture trustee, the bank
or any other person or entity.
Certain Covenants
The indenture provides that the issuer may not consolidate with, merge into
or sell its business to, another entity, unless:
(1) the entity (if other than the issuer) formed by or surviving the
consolidation or merger, or that acquires the issuer's business:
(a) is organized under the laws of the United States or any one of
its states;
57
<PAGE>
(b) is not subject to regulation as an "investment company" under the
Investment Company Act of 1940;
(c) expressly assumes, by supplemental indenture, the issuer's
obligation to make due and punctual payments upon the notes and
the performance of every covenant of the issuer under the
indenture; and
(d) in the case of a sale of the issuer's business, expressly agrees,
by supplemental indenture that (i) all right, title and interest
so conveyed or transferred by the issuer will be subject and
subordinate to the rights of the noteholders and (ii) it will
make all filings with the Securities and Exchange Commission
required by the Securities Exchange Act of 1934 in connection
with the notes;
(2) no pay out event or event of default will exist immediately after the
merger, consolidation or sale;
(3) each rating agency confirms that the transaction will not impair its
rating of any outstanding series or class of notes;
(4) the issuer will have received an opinion of counsel to the effect that
the transaction will not have any material adverse tax consequences to
any noteholders, and for federal income tax purposes:
(a) the transaction will not adversely affect the tax
characterization as debt of notes of any outstanding series or
class that were characterized as debt at the time of their
issuance;
(b) the transaction will not cause the issuer to be deemed to be an
association or publicly traded partnership taxable as a
corporation; and
(c) the transaction will not cause or constitute an event in which
gain or loss would be recognized by an noteholder;
(5) any action necessary to maintain the lien and security interest
created by the indenture will have been taken; and
(6) the issuer has delivered to the indenture trustee an opinion of
counsel and officer's certificate each stating that the consolidation,
merger or sale satisfies all requirements under the indenture and that
the supplemental indenture is duly authorized, executed and delivered
and is valid, binding and enforceable.
58
<PAGE>
As long as the notes are outstanding, the issuer will not, among other
things:
. except as expressly permitted by the indenture, the transfer and
servicing agreement or certain related documents, sell, transfer,
exchange or otherwise dispose of any of the assets of the issuer that
secure the notes;
. claim any credit on or make any deduction from payments in respect of
the principal of and interest on the notes (other than amounts
withheld under the Code or applicable state law) or assert any claim
against any present or former noteholders because of the payment of
taxes levied or assessed upon the assets of the issuer that secure the
notes;
. voluntarily dissolve or liquidate in whole or in part; or
. permit (A) the validity or effectiveness of the indenture or the lien
under the indenture to be impaired, or permit any person to be
released from any covenants or obligations with respect to the notes
under the indenture except as may be expressly permitted by the
indenture, (B) any lien or other claim of a third party to be created
with respect to the assets of the issuer, or (C) the lien of the
indenture not to constitute a valid first priority perfected security
interest in the assets of the issuer that secure the notes.
The issuer may not engage in any activity other than as specified under
"The Issuer" in this prospectus. The issuer will not incur, assume or guarantee
any indebtedness other than indebtedness incurred pursuant to the notes and the
indenture.
Modification of the Indenture
The issuer and the indenture trustee may, without the consent of any
noteholders but with prior written notice to each rating agency, enter into one
or more supplemental indentures for any of the following purposes:
. to correct or enhance the description of any property subject to the
lien of the indenture, or to take any action that will enhance the
indenture trustee's lien under the indenture, or to add to the
property pledged to secure the notes;
. to reflect the agreement of another person to assume the role of the
issuer;
. to add to the covenants of the issuer, for the benefit of the
noteholders, or to surrender any right or power of the issuer;
. to transfer or pledge any property to the indenture trustee;
59
<PAGE>
. to cure any ambiguity, to correct or supplement any provision in the
indenture or in any supplemental indenture that may be inconsistent
with any other provision in the indenture or in any supplemental
indenture as long as that action would not adversely affect the
interests of the noteholders;
. to appoint a successor to the indenture trustee with respect to the
notes and to add to or change any of the provisions of the indenture
to allow more than one indenture trustee to act under the indenture;
. to modify, eliminate or add to the provisions of the indenture as
necessary to qualify the indenture under the Trust Indenture Act of
1939, or any similar federal statute later enacted;
. to permit the issuance of one or more new series of notes under the
indenture; or
. to terminate any interest rate swap agreement or other credit
enhancement in accordance with the related indenture supplement.
The issuer and the indenture trustee may also, without the consent of any
noteholders, enter into one or more supplemental indentures to amend the
indenture, upon:
(1) receipt of written confirmation from each rating agency that the
action will not impair its rating of any outstanding series or class
of notes;
(2) our certification to the effect that, in the reasonable belief of the
certifying officer, the action will not (i) cause a pay out event or
an event of default or (ii) materially and adversely affect the amount
or timing of payments to be made to the noteholders of any series or
class; and
(3) delivery of an opinion of counsel to each rating agency to the effect
that for federal income tax purposes:
(a) the action will not adversely affect the tax characterization as
debt of notes of any outstanding series or class that were
characterized as debt at the time of their issuance;
(b) the action will not cause the issuer to be deemed to be an
association or publicly traded partnership taxable as a
corporation; and
(c) the action will not cause or constitute an event in which gain or
loss would be recognized by an noteholder.
The issuer and the indenture trustee may also, without the consent of the
noteholders of any series or the credit enhancement providers for any series,
enter into one or more
60
<PAGE>
supplemental indentures to add, modify or eliminate any provisions necessary or
advisable in order to enable the issuer or any portion of the issuer to (i)
qualify as, and to permit an election to be made for the issuer to be treated
as, a "financial asset securitization investment trust" under the Code and (ii)
to avoid the imposition of state or local income or franchise taxes on the
issuer's property or its income. Prior to any amendment described in this
paragraph, each rating agency must confirm that the amendment will not impair
its rating of any outstanding series or class of notes. In addition, no
amendment described in this paragraph may affect the rights, duties or
obligations of the indenture trustee or the owner trustee under the indenture.
The issuer and the indenture trustee will not, without prior notice to each
rating agency and the consent of each noteholder affected, enter into any
supplemental indenture to:
. change the date of payment of any installment of principal of or
interest on any note or reduce the principal amount of a note, the
note interest rate or the redemption price of the note or change any
place of payment where, or the currency in which, any note is payable;
. impair the right to institute suit for the enforcement of specified
payment provisions of the indenture;
. reduce the percentage of the aggregate principal amount of the notes
of any series, whose consent is required (a) for execution of any
supplemental indenture or (b) for any waiver of compliance with
specified provisions of the indenture or of some defaults under the
indenture and their consequences provided in the indenture;
. reduce the percentage of the aggregate outstanding amount of the
notes required to direct the indenture trustee to sell or liquidate
the trust assets if the proceeds of the sale would be insufficient to
pay the principal amount and interest due on those notes;
. decrease the percentage of the aggregate principal amount of the
notes required to amend the sections of the indenture that specify the
percentage of the principal amount of the notes of a series necessary
to amend the indenture or other related agreements;
. modify provisions of the indenture prohibiting the voting of notes
held by the issuer, any other party obligated on the notes, the bank,
or any of their affiliates; or
. permit the creation of any lien superior or equal to the lien of the
indenture with respect to any of the collateral for any notes or,
except as otherwise permitted or contemplated in the indenture,
terminate the lien of the indenture on the collateral or deprive any
noteholder of the security provided by the lien of the indenture.
61
<PAGE>
The issuer and the indenture trustee may otherwise, with receipt of written
confirmation from each rating agency that the action will not impair its rating
of any outstanding series or class and with the consent of noteholders holding
more than 50% of the then-outstanding principal balance of the notes of each
series adversely affected, enter into one or more supplemental indentures to add
provisions to or change in any manner or eliminate any provision of the
indenture or to change the rights of the noteholders under the indenture.
Annual Compliance Statement
The issuer will be required to present to the indenture trustee each year a
written statement as to the performance of its obligations under the indenture.
Indenture Trustee's Annual Report
The indenture trustee will be required to mail to the noteholders each year
a brief report relating to its eligibility and qualification to continue as
indenture trustee under the indenture, the property and funds physically held by
the indenture trustee and any action it took that materially affects the notes
and that has not been previously reported.
List of Noteholders
Upon the issuance of definitive notes, three or more holders of the notes
who have each owned a note for at least six months may obtain access to the list
of noteholders the indenture trustee maintains for the purpose of communicating
with other noteholders. The indenture trustee may elect not to allow the
requesting noteholders access to the list of noteholders if it agrees to mail
the requested communication or proxy, on behalf and at the expense of the
requesting noteholders, to all noteholders of record.
Satisfaction and Discharge of Indenture
The indenture will be discharged with respect to the notes upon the
delivery to the indenture trustee for cancellation of all the notes or, with
specific limitations, upon deposit with the indenture trustee of funds
sufficient for the payment in full of all the notes.
The Indenture Trustee
The indenture trustee may resign at any time. The administrator may also
remove the indenture trustee if it ceases to be eligible to continue as an
indenture trustee under the indenture or if the indenture trustee becomes
insolvent or otherwise becomes legally unable to act as indenture trustee. In
either case, the administrator will then be obligated to appoint a successor
indenture trustee for your series. If an event of default occurs under the
indenture, under the Trust Indenture Act of 1939, the indenture trustee may be
deemed to have a conflict of interest and be required to resign as indenture
trustee for one or more classes of each series of notes. In that case, a
successor indenture trustee will be appointed for one or more of those classes
of
62
<PAGE>
notes and may provide for rights of senior noteholders to consent to or direct
actions by the indenture trustee which are different from those of subordinated
noteholders. Any resignation or removal of the indenture trustee and appointment
of a successor indenture trustee for any class or series of notes will not
become effective until the successor indenture trustee accepts its appointment.
Certain Matters Regarding the Administrator
The administrator will, to the extent provided in the administration
agreement, provide the notices and perform on behalf of the issuer other
administrative obligations required by the indenture.
Pooling and Servicing Agreement
New Issuances of Investor Certificates
The pooling and servicing agreement provides that, pursuant to any one or
more series supplements to the pooling and servicing agreement, we may direct
the trustee for Spiegel Master Trust to issue one or more new series of investor
certificates and may define all principal terms of those series. A series
supplement may only modify or amend the terms of the pooling and servicing
agreement as applied to the new series. There is no limit to the number of new
issuances we may cause under the pooling and servicing agreement.
No new series may be issued unless we satisfy various conditions, including
that:
(1) each rating agency confirms that the issuance of the new series will
not impair its rating of any outstanding series or class of
securities;
(2) we certify that, after giving effect to the issuance of the new
series:
(i) we would not be required to add additional accounts; and
(ii) the Transferor Amount would exceed the Required Transferor
Amount; and
(3) each person who previously delivered the federal income tax opinions
in connection with the issuance of any existing series of securities
reissues those opinions and confirms that the issuance of the new
series will not affect those opinions.
63
<PAGE>
Amendments
The pooling and servicing agreement and any series supplement to the
pooling and servicing agreement may be amended by us, the servicer and the
trustee for Spiegel Master Trust, without the consent of certificateholders of
any series, to cure any ambiguity, to correct or supplement any provisions which
may be inconsistent with any other provisions of the pooling and servicing
agreement or to add any other provisions which would not be inconsistent with
the pooling and servicing agreement if the amendment would not adversely effect
the interests of the certificateholders in any material respect and we deliver
an opinion of counsel to that effect to the rating agencies.
The amendments that we may make without the consent of the
certificateholders of any series or the credit enhancement providers for any
series may include the addition or sale of receivables in the trust portfolio.
The pooling and servicing agreement may also be amended by us, the servicer
and the trustee for Spiegel Master Trust with the consent of certificateholders
representing at least 50% of the then-outstanding principal balance of the
investor certificates of all series adversely affected by the amendment. Even
with consent, no amendment may occur if it:
(1) reduces the amount of, or delays the timing of any distributions to be
made to certificateholders of any series without the consent of each
affected certificateholder;
(2) changes the manner of calculating the invested amounts and allocation
percentages for any series or changes the manner of allocating
defaulted receivables to any series without the consent of each
affected certificateholder; or
(3) reduces the percentage of undivided interests the holders of which are
required to consent to any amendment, without the consent of each
affected noteholder.
Credit Enhancement
General
For any series, credit enhancement may be provided with respect to one or
more of the related classes. Credit enhancement may be in the form of setting
the collateral amount for that series at an amount greater than the initial
principal amount of the notes in that series, the subordination of one or more
classes of the notes of that series, a letter of credit, the establishment of a
cash collateral guaranty or account, a surety bond, an insurance policy, a
spread account, a reserve account, the use of cross support features or another
method of credit enhancement described in the accompanying prospectus
supplement, or any combination of these. If so specified in the accompanying
prospectus supplement, any form of credit
64
<PAGE>
enhancement may be structured so as to be drawn upon by more than one class to
the extent described in that accompanying prospectus supplement. Any credit
enhancement that constitutes a guarantee of the applicable notes will be
separately registered under the Securities Act unless exempt from such
registration.
In the prospectus supplement for each series, we will describe the amount
and the material terms of the related credit enhancement. Often, the credit
enhancement will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance of the notes and interest
thereon. If losses occur which exceed the amount covered by the credit
enhancement or which are not covered by the credit enhancement, noteholders will
bear their allocable share of deficiencies.
If credit enhancement is provided with respect to a series, the
accompanying prospectus supplement will include a description of:
. the amount payable under that credit enhancement;
. any conditions to payment not described here;
. the conditions, if any, under which the amount payable under that
credit enhancement may be reduced and under which that credit
enhancement may be terminated or replaced; and
. any material provision of any agreement relating to that credit
enhancement.
Additionally, the accompanying prospectus supplement may set forth certain
information with respect to any credit enhancement provider, including:
. a brief description of its principal business activities;
. its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business;
. if applicable, the identity of regulatory agencies which exercise
primary jurisdiction over the conduct of its business; and
. its total assets, and its stockholders' or policy holders' surplus,
if applicable, and other appropriate financial information as of the
date specified in the prospectus supplement.
If so specified in the accompanying prospectus supplement, credit
enhancement with respect to a series may be available to pay principal of the
notes of that series following the occurrence of certain pay out events with
respect to that series. In this event, the credit
65
<PAGE>
enhancement provider will have an interest in certain cash flows in respect of
the receivables to the extent described in that prospectus supplement.
Excess Collateral Amount
If specified in the accompanying prospectus supplement, support for a
series may be provided by an excess collateral amount. The excess collateral
amount for any series will equal the collateral amount for that series, minus
the aggregate outstanding principal amount of the notes of that series (after
giving effect to all other reductions through the date of determination).
Because the collateral amount of a series having an excess collateral amount
will be higher than the outstanding principal amount of the notes of that
series, a greater amount of finance charge collections and principal collections
will be allocated to that series. In addition, losses from defaulted
receivables and uncovered dilution amounts allocated to that series will first
reduce the excess collateral amount before reducing the outstanding principal
amount of the notes. The excess collateral amount for any series will be
reduced by the amount of reallocated principal collections applied to make
payments for that series.
If your series is supported by an excess collateral amount, the
accompanying prospectus supplement will specify the required excess collateral
amount for your series. The required excess collateral amount for any series
may be decreased at any time with the consent of the rating agencies then rating
that series. During the controlled accumulation period or controlled
amortization period for a series, the portion of Available Principal Collections
for any series on any distribution date not applied to make deposits to the
principal accumulation account or to make principal payments to noteholders, as
the case may be, may be applied to make payments to us that will reduce the
excess collateral amount for that series, but only to the extent that the excess
collateral amount exceeds the required excess collateral amount.
The excess collateral amount for a series may also be increased under the
circumstances described in the related prospectus supplement.
Subordination
If so specified in the accompanying prospectus supplement, one or more
classes of any series will be subordinated as described in the accompanying
prospectus supplement to the extent necessary to fund payments with respect to
the senior notes. The rights of the holders of these subordinated notes to
receive distributions of principal and/or interest on any distribution date for
that series will be subordinate in right and priority to the rights of the
holders of senior notes, but only to the extent set forth in the accompanying
prospectus supplement. If so specified in the accompanying prospectus
supplement, subordination may apply only in the event of certain types of losses
not covered by another credit enhancement.
66
<PAGE>
The accompanying prospectus supplement will also set forth information
concerning:
. the amount of subordination of a class or classes of subordinated
notes in a series;
. the circumstances in which that subordination will be applicable;
. the manner, if any, in which the amount of subordination will
decrease over time; and
. the conditions under which amounts available from payments that would
otherwise be made to holders of those subordinated notes will be
distributed to holders of senior notes.
If collections of receivables otherwise distributable to holders of a
subordinated class of a series will be used as support for a class of another
series, the accompanying prospectus supplement will specify the manner and
conditions for applying that cross-support feature.
Letter of Credit
If so specified in the accompanying prospectus supplement, support for a
series or one or more of the related classes will be provided by one or more
letters of credit. A letter of credit may provide limited protection against
certain losses in addition to or in lieu of other credit enhancement. The
issuer of the letter of credit, referred to as the "L/C bank," will be obligated
to honor demands with respect to that letter of credit, to the extent of the
amount available thereunder, to provide funds under the circumstances and
subject to any conditions as are specified in the accompanying prospectus
supplement.
The maximum liability of an L/C bank under its letter of credit will
generally be an amount equal to a percentage specified in the accompanying
prospectus supplement of the initial collateral amount of a series or a class of
that series. The maximum amount available at any time to be paid under a letter
of credit will be set forth in the accompanying prospectus supplement.
Cash Collateral Guaranty or Account
If so specified in the accompanying prospectus supplement, support for a
series or one or more of the related classes will be provided by a guaranty,
referred to as the "cash collateral guaranty" secured by the deposit of cash or
certain permitted investments in an account, referred to as the "cash collateral
account," reserved for the beneficiaries of the cash collateral guaranty or by a
cash collateral account alone. The amount available pursuant to the cash
collateral guaranty or the cash collateral account will be the lesser of amounts
on deposit in the cash collateral account and an amount specified in the
accompanying prospectus supplement. The accompanying prospectus supplement will
set forth the circumstances under which
67
<PAGE>
payments are made to beneficiaries of the cash collateral guaranty from the cash
collateral account or from the cash collateral account directly.
Surety Bond or Insurance Policy
If so specified in the accompanying prospectus supplement, insurance with
respect to a series or one or more of the related classes will be provided by
one or more insurance companies. Such insurance will guarantee, with respect to
one or more classes of the related series, distributions of interest or
principal in the manner and amount specified in the accompanying prospectus
supplement.
If so specified in the accompanying prospectus supplement, a surety bond
will be purchased for the benefit of the holders of any series or class of that
series to assure distributions of interest or principal with respect to that
series or class of notes in the manner and amount specified in the accompanying
prospectus supplement.
Spread Account
If so specified in the accompanying prospectus supplement, support for a
series or one or more of the related classes will be provided by the periodic
deposit of certain available excess cash flow from the trust assets into an
account, referred to as the "spread account," intended to assist with subsequent
distribution of interest and principal on the notes of that class or series in
the manner specified in the accompanying prospectus supplement.
Reserve Account
If so specified in the accompanying prospectus supplement, support for a
series or one or more of the related classes or any related enhancement will be
provided by the establishment of an account, referred to as the "reserve
account." The reserve account may be funded, to the extent provided in the
accompanying prospectus supplement, by an initial cash deposit, the retention of
certain periodic distributions of principal or interest or both otherwise
payable to one or more classes of notes, including the subordinated notes, or
the provision of a letter of credit, guarantee, insurance policy or other form
of credit or any combination of these arrangements. The reserve account will be
established to assist with the subsequent distribution of principal or interest
on the notes of that series or the related class or any other amount owing on
any related enhancement in the manner provided in the accompanying prospectus
supplement.
Description of the Receivables Purchase Agreement
The following summary is qualified in its entirety by the receivables
purchase agreement entered into by the bank, Spiegel Acceptance and us (the
"receivables purchase agreement"). This agreement is filed as an exhibit to the
registration statement of which this prospectus is a part.
68
<PAGE>
Sale of Receivables
Pursuant to the receivables purchase agreement, the bank and Spiegel
Acceptance sold and, in the future, may sell to us all of their right, title and
interest in and to (i) all of the receivables existing in the initial accounts
as of the initial cut-off date and in additional accounts as of the related
addition dates and (ii) recoveries allocable to those receivables and certain
other property.
All eligible receivables arising in the initial accounts had been
previously transferred by the bank to Spiegel Acceptance prior to the formation
of Spiegel Master Trust. Concurrently with the formation of Spiegel Master
Trust, those receivables were transferred to us under the receivables purchase
agreement. Since then, all eligible receivables arising in the initial accounts
have been transferred directly from the bank to us.
In addition, pursuant to an operating agreement between the bank and
Spiegel Acceptance, Spiegel Acceptance has agreed to purchase and the bank has
agreed to sell, on an ongoing basis, all receivables arising in the FCNB
Preferred Charge accounts, other than receivables that have been charged-off and
receivables that the bank is obligated to transfer to the trust or other third-
parties. Therefore, prior to the designation of any account in the Spiegel
private label portfolio to the trust portfolio, the bank will sell the
receivables in that account to Spiegel Acceptance. Upon designation of
additional accounts to the trust portfolio, either the bank, or, if the bank has
transferred the receivables in those accounts to Spiegel Acceptance, Spiegel
Acceptance will transfer all receivables in the designated additional accounts
to us on the addition date. However, after the applicable addition date,
receivables in all designated additional accounts will be transferred directly
from the bank to us.
In connection with the sale of receivables to us, the bank and Spiegel
Acceptance will each indicate in their files that those receivables have been
sold to us for further transfer to the trust. The records and agreements
relating to the accounts and receivables for the trust portfolio may not be
segregated by the bank, Spiegel Acceptance or us from other documents and
agreements relating to other credit accounts and receivables. We, Spiegel
Acceptance and the bank will each file UCC financing statements meeting the
requirements of applicable law in each of the jurisdictions necessary to perfect
the ownership or security interest of the trust in those receivables. See "Risk
Factors -- Some liens would be given priority over your notes which would cause
delayed or reduced payments" and "Material Legal Aspects of the Receivables" in
this prospectus.
Representations and Warranties
In the receivables purchase agreement, each of the bank and Spiegel
Acceptance represents and warrants as to itself to us to the effect that, among
other things, as of the date of the receivables purchase agreement and, with
respect to any receivables transferred by it in any designated additional
accounts, as of the related addition date, it is duly organized and in good
standing and has the authority to consummate the transactions contemplated by
the receivables
69
<PAGE>
purchase agreement. In the receivables purchase agreement, each of the bank and
Spiegel Acceptance additionally represents and warrants that any receivable
transferred by it under the receivables purchase agreement is an eligible
receivable as of the applicable cut-off date for that receivable. In the event
of a breach of any representation and warranty set forth in the receivables
purchase agreement which results in the requirement that we accept retransfer of
an ineligible receivable under the pooling and servicing agreement or the
transfer and servicing agreement, then the bank or Spiegel Acceptance, as the
case may be, will repurchase that ineligible receivable on the date of the
retransfer. The purchase price for the ineligible receivables will be the
principal amount of those receivables plus applicable finance charges.
In the receivables purchase agreement, each of the bank and Spiegel
Acceptance also represents and warrants that, among other things, as of the date
of the receivables purchase agreement and, with respect to itself and any
receivables transferred by it in any designated additional accounts, as of each
addition date (a) the receivables purchase agreement constitutes a valid and
binding obligation of the bank or Spiegel Acceptance, as the case may be, and
(b) the receivables purchase agreement constitutes a valid sale to us of all
right, title and interest of the bank or Spiegel Acceptance, as the case may be,
in and to the receivables then-existing and thereafter created in the accounts
and in the proceeds thereof free and clear of any liens (other than certain
liens permitted under the receivables purchase agreement). If the breach of any
of the representations or warranties described in this paragraph results in our
obligation under the pooling and servicing agreement or the transfer and
servicing agreement to accept retransfer of the receivables, the bank or Spiegel
Acceptance, as the case may be, will repurchase the receivables retransferred to
us, for an amount of cash at least equal to the amount of cash we are required
to deposit under the pooling and servicing agreement or the transfer and
servicing agreement in connection with the retransfer.
Certain Covenants
In the receivables purchase agreement, the bank covenants that it will
comply with and perform its obligations under the charge agreements relating to
the accounts and its policies and procedures relating to the accounts unless the
failure to do so would not have a material adverse effect on the rights of the
trustee and the rights of the securityholders. The bank may change the terms
and provisions of the charge agreements or policies and procedures in any
respect, including the calculation of the amount, or the timing of, charge-offs,
so long as any changes made are also made to comparable accounts in the Spiegel
private label credit card portfolio.
The bank also covenants that it will not reduce the finance charges and
other fees on the accounts, if as a result of the reduction, its reasonable
expectation of the Portfolio Yield as of the time of the reduction would be less
than the highest of the base rates of all outstanding series, except as required
by law or as is consistent with the pooling and servicing agreement and the
transfer and servicing agreement and as the bank deems advisable for its private
label program based on a good faith assessment of various factors impacting the
use of its private label credit cards.
70
<PAGE>
Amendments
The receivables purchase agreement(s) may be amended without the consent of
the noteholders. No amendment, however, may, as evidenced by an opinion of
counsel reasonably acceptable to the rating agencies, adversely affect in any
material respect the interests of the securityholders.
Termination
The receivables purchase agreement will terminate immediately after the
trust terminates. In addition, if a receiver or conservator is appointed for the
bank or either we or Spiegel Acceptance becomes a debtor in a bankruptcy case or
certain other liquidation, bankruptcy, insolvency or similar events occur or the
bank or Spiegel Acceptance becomes unable for any reason to transfer receivables
to us in accordance with the receivables purchase agreement, we will immediately
cease to purchase receivables under the receivables purchase agreement.
Note Ratings
Any rating of the notes by a rating agency will indicate:
. its view on the likelihood that noteholders will receive required
interest and principal payments; and
. its evaluation of the receivables and the availability of any credit
enhancement for the notes.
Among the things a rating will not indicate are:
. the likelihood that interest or principal payments will be paid on a
scheduled date;
. the likelihood that a pay out event will occur;
. the likelihood that a U.S. withholding tax will be imposed on non-
U.S. noteholders;
. the marketability of the notes;
. the market price of the notes; or
. whether the notes are an appropriate investment for any purchaser.
A rating will not be a recommendation to buy, sell or hold the notes. A
rating may be lowered or withdrawn at any time by a rating agency.
71
<PAGE>
We will request a rating of the notes offered by this prospectus and the
accompanying prospectus supplement from at least one rating agency. Rating
agencies other than those requested could assign a rating to the notes and, if
so, that rating could be lower than any rating assigned by a rating agency
chosen by us. Except as otherwise expressly stated, any reference in this
prospectus or the accompanying prospectus supplement to a "rating agency" refers
to a rating agency selected by us to rate the securities issued by the issuer or
Spiegel Master Trust.
Material Legal Aspects of the Receivables
Transfer of Receivables
Each of the bank and Spiegel Acceptance in the receivables purchase
agreement will represent and warrant that its transfer of receivables
constitutes a valid sale and assignment of all of its right, title and interest
in and to the receivables. In the pooling and servicing agreement and the
transfer and servicing agreement, we will represent and warrant that our
transfer of receivables constitutes a valid sale and assignment of all of our
right, title and interest in and to the receivables, except for our interest as
the holder of the transferor certificate, or creates in favor of the issuer a
valid first-priority perfected security interest in our rights in the
receivables in existence at the time that the trust is formed or at the time
that receivables in additional accounts are transferred, as the case may be, and
a valid first-priority perfected security interest in our rights in the
receivables arising in accounts already designated for the trust portfolio on
and after their creation, in each case until termination of the trust. For a
discussion of the issuer's rights arising from these representations and
warranties not being satisfied, see "Description of the Notes -- Representations
and Warranties" in this prospectus.
We will represent in the pooling and servicing agreement and the transfer
and servicing agreement, and the bank and Spiegel Acceptance will represent in
the receivables purchase agreement that the receivables are "accounts" or
"general intangibles" for purposes of the UCC. Both the sale of accounts and the
transfer of accounts as security for an obligation are subject to the provisions
of Article 9 of the UCC. In addition, a transfer of general intangibles as
security for an obligation is subject to the provisions of Article 9 of the UCC.
Therefore, we, the bank and Spiegel Acceptance will file appropriate UCC
financing statements to perfect the respective transferee's security interest in
the receivables.
There are certain limited circumstances in which prior or subsequent
transferees of receivables coming into existence after a series closing date
could have an interest in such receivables with priority over the trust's
interest. Under the receivables purchase agreement, however, each of the bank
and Spiegel Acceptance will represent and warrant, as to itself and the
receivables transferred by it, that it has transferred the receivables to us
free and clear of the lien of any third party (other than the indenture
trustee). In addition, each of the bank and Spiegel Acceptance will covenant
that it will not sell, pledge, assign, transfer or grant any lien on any
receivable (or any interest in any receivable) other than to us or the indenture
trustee. Similarly, under the pooling and servicing agreement and the transfer
and servicing agreement, we will
72
<PAGE>
represent and warrant that we have transferred the receivables to the trust free
and clear of the lien of any third party (other than the indenture trustee), and
we will covenant that we will not sell, pledge, assign, transfer, or grant any
lien on any receivable (or any interest in any receivable) other than to the
trust. Nevertheless, a tax, governmental or other nonconsensual lien on our or
the property of the bank or Spiegel Acceptance arising prior to the time a
receivable comes into existence may have priority over the interest of the trust
in such receivable. Furthermore, if the FDIC were appointed as a receiver or
conservator of the bank, certain administrative expenses of the receiver or
conservator may have priority over the interest of the trust in the receivables.
As discussed in "Description of the Notes--Application of Collections" in
this prospectus, if certain conditions are satisfied by the servicer, the
servicer will be permitted to make deposits of collections on a monthly or other
periodic basis. In that event, cash collections held by the servicer may be
commingled and used for the benefit of the servicer prior to each distribution
date and, in the event of the insolvency of the servicer or, in certain
circumstances, the lapse of certain time periods, the trust may not have a
first-priority perfected security interest in such collections. In such an
event, the amount payable to you could be lower than the outstanding principal
and accrued interest on the notes, thus resulting in losses to you.
Certain Matters Relating to Conservatorship, Receivership and Bankruptcy
The bank is chartered as a national banking association and is regulated
and supervised by the Office of the Comptroller of the Currency, which is
authorized to appoint the FDIC as conservator or receiver for the bank if
certain events occur relating to the bank's financial condition or the propriety
of its actions. In addition, the FDIC could appoint itself as conservator or
receiver for the bank.
The transfers of receivables by the bank to Spiegel Acceptance and us are
intended to be absolute conveyances and not pledges of those receivables.
However, it is possible that a receiver or conservator of the bank could take a
contrary position at some time. To the extent that (i) each of the receivables
purchase agreement and the purchase agreement between the bank and Spiegel
Acceptance complies with the regulatory requirements of the FDIA, (ii) the
security interests granted under those agreements were perfected before the FDIC
is appointed as conservator or receiver for the bank, and (iii) the security
interests were not taken in contemplation of the bank's insolvency or with the
intent to hinder, delay or defraud the bank or its creditors, the FDIA provides
that the security interests should be respected. In addition, opinions and
policy statements issued by the FDIC suggest that, because of the manner in
which these transactions are structured, the FDIC would respect the security
interest granted by the bank in the receivables. Nevertheless, if the FDIC were
to assert a contrary position, or were to require the indenture trustee to go
through the administrative claims procedure established by the FDIC in order to
obtain payments on the notes, or were to request a stay of any actions by the
indenture trustee to enforce the receivables purchase agreement, the purchase
agreement between the bank and Spiegel Acceptance or the notes against the bank,
delays in payments on outstanding series of notes and possible reductions in the
amount of those payments could occur.
73
<PAGE>
In addition, the FDIC as conservator or receiver for the bank could
repudiate the receivables purchase agreement and the purchase agreement between
the bank and Spiegel Acceptance. The FDIA would limit the damages for any such
repudiation to the trust's "actual direct compensatory damages" determined as of
the date that the FDIC were appointed as conservator or receiver for the bank.
The FDIC, moreover, could delay its decision whether to repudiate the
receivables purchase agreement for a reasonable period following its appointment
as conservator or receiver for the bank. Therefore, if the FDIC as conservator
or receiver for the bank were to repudiate the receivables purchase agreement,
the amount payable to you could be lower than the outstanding principal and
accrued interest on the notes, thus resulting in losses to you.
In addition, regardless of the terms of the indenture, the FDIC as
conservator or receiver for the bank may have the power to prevent the
commencement of a rapid amortization period, to prevent or limit the early
liquidation of the receivables and termination of the trust, or to require the
continued transfer of new principal receivables. Regardless of the instructions
of those authorized to direct the indenture trustee's action, moreover, the FDIC
as conservator or receiver for the bank may have the power to require the early
liquidation of the receivables, to require the early termination of the trust
and the retirement of the notes, or to prohibit or limit the continued transfer
of new principal receivables.
In the event of the conservatorship or receivership of the servicer, the
conservator or receiver may have the power to prevent either the indenture
trustee or the noteholders from appointing a successor servicer. See
"Description of the Notes -- Servicer Default" in this prospectus.
We and Spiegel Acceptance treat the initial transfer of receivables in the
initial accounts to us, as well as Spiegel Acceptance's supplemental conveyance
of certain receivables in additional accounts, as absolute conveyances and not
pledges of those receivables. After these sales the receivables are not part of
Spiegel Acceptance's bankruptcy estate and therefore should not be available to
Spiegel Acceptance's creditors. However, if a bankruptcy trustee for Spiegel or
Spiegel Acceptance, Spiegel or Spiegel Acceptance as debtor-in-possession or a
creditor of Spiegel or Spiegel Acceptance were to take the view that our assets
and liabilities should be substantively consolidated with either Spiegel and/or
Spiegel Acceptance or that the transfer of the receivables from Spiegel
Acceptance to us should be characterized as a pledge of those receivables, then
delays in payments on the notes and possible reductions in the amount of those
payments could result.
Our organizational documents and corporate structure have been designed
such that (i) the filing of a voluntary or involuntary petition for relief by or
against us under the Bankruptcy Code and (ii) the substantive consolidation of
our assets and liabilities with those of Spiegel or Spiegel Acceptance is
unlikely. We are a separate, limited purpose corporation, and our certificate
of incorporation contains limitations on the nature of our business and
restrictions on our ability to commence a voluntary case or proceeding under the
Bankruptcy Code or similar laws without the prior unanimous consent of all of
our directors. In addition, the indenture
74
<PAGE>
trustee will covenant in the indenture and the trustee for Spiegel Master Trust
has covenanted in the pooling and servicing agreement that it will not at any
time institute against us any bankruptcy, insolvency or similar proceedings
under the Bankruptcy Code or similar laws. Nevertheless, if we were to become a
debtor in a bankruptcy case and if a bankruptcy trustee or one of our creditors
or we as debtor-in-possession were to take the position that the transfer of the
receivables by us to the trust should be characterized as a pledge of those
receivables, or if our assets and liabilities were substantively consolidated
with those of an entity in bankruptcy, then delays in payments on the notes and
possible reductions in the amount of those payments could result.
If bankruptcy, insolvency or similar proceedings under the Bankruptcy Code
or similar laws occur with respect to us, we will promptly notify the indenture
trustee and a pay out event will occur with respect to each series. Pursuant to
the pooling and servicing agreement and the transfer and servicing agreement,
newly created receivables will not be transferred to the trust on and after any
such event. Any principal receivables transferred to the trust prior to the
event, as well as collections on those principal receivables and finance charge
receivables accrued at any time with respect to those principal receivables,
will continue to be part of the trust assets and will be applied as specified
above in "Description of the Notes -- Application of Collections" and in the
accompanying prospectus supplement.
A conservator or receiver or a bankruptcy court, however, may have the
power to delay any such procedure or to require the continued transfer of
principal receivables to the trust. See "Risk Factors -- If a conservator or
receiver were appointed for First Consumers National Bank, or if we became a
debtor in a bankruptcy case, delays or reductions in payment of your notes could
occur" in this prospectus.
Consumer Protection Laws
The relationship of the consumer and the provider of consumer credit is
extensively regulated by federal and state consumer protection laws. With
respect to credit accounts issued by the bank, the most significant federal laws
include the Federal Truth-in-Lending, Equal Credit Opportunity, Fair Credit
Reporting and Fair Debt Collection Practices Acts. These statutes impose
various disclosure requirements either before or when an account is opened, or
both, and at the end of monthly billing cycles, and, in addition, limit account
holder liability for unauthorized use, prohibit certain discriminatory practices
in extending credit and regulate practices followed in collections. In
addition, account holders are entitled under these laws to have payments and
credits applied to the revolving credit account promptly and to request prompt
resolution of billing errors. Congress and the states may enact new laws and
amendments to existing laws to regulate further the consumer revolving credit
industry. The trust may be liable for certain violations of consumer protection
laws that apply to the receivables, either as assignee from us with respect to
obligations arising before transfer of the receivables to the trust or as the
party directly responsible for obligations arising after the transfer. In
addition, an account holder may be entitled to assert such violations by way of
set-off against the obligation to pay the amount of receivables owing. All
receivables that were not
75
<PAGE>
created in compliance in all material respects with the requirements of such
laws (if such noncompliance has a material adverse effect on the noteholders'
interest therein) will be reassigned to us. The servicer has also agreed in the
pooling and servicing agreement and the transfer and servicing agreement to
indemnify the trust, among other things, for any liability arising from such
violations. For a discussion of the trust's rights if the receivables were not
created in compliance in all material respects with applicable laws, see
"Description of the Notes -- Representations and Warranties" in this prospectus.
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the noteholders if such laws result in any receivables
being charged-off as uncollectible. See "Description of the Notes -- Defaulted
Receivables; Rebates and Fraudulent Charges Investor Charge-Offs" in this
prospectus.
Federal Income Tax Consequences
General
The following summary describes generally the material United States
federal income tax consequences of an investment in the notes. Additional
federal income tax considerations relevant to a particular series may be set
forth in the accompanying prospectus supplement. The following summary has been
prepared and reviewed by Rooks, Pitts and Poust as special tax counsel to the
Issuer ("Special Tax Counsel"). The summary is based on the Internal Revenue
Code of 1986, as amended (the "Code") as of the date hereof, and existing final,
temporary and proposed Treasury regulations, revenue rulings and judicial
decisions, all of which are subject to prospective and retroactive changes. The
summary is addressed only to original purchasers of the notes, deals only with
notes held as capital assets within the meaning of Section 1221 of the Code and,
except as specifically set forth below, does not address tax consequences of
holding notes that may be relevant to investors in light of their own investment
circumstances or their special tax situations, such as:
. banks and thrifts,
. insurance companies,
. regulated investment companies,
. dealers in securities,
. holders that will hold the offered notes as a position in a
"straddle" for tax purposes or as a part of a "synthetic security,"
"conversion transaction" or other integrated investment comprised of
the offered notes, and one or more other investments,
76
<PAGE>
. foreign investors,
. trusts and estates, and
. pass-through entities, the equity holders of which are any of the
foregoing.
Further, this discussion does not address alternative minimum tax
consequences or any tax consequences to holders of interests in a noteholder.
Special Tax Counsel is of the opinion that the following summary of federal
income tax consequences is correct in all material respects. An opinion of
Special Tax Counsel, however, is not binding on the Internal Revenue Service
("IRS") or the courts, and no ruling on any of the issues discussed below will
be sought from the IRS. Moreover, there are no authorities on similar
transactions involving interests issued by an entity with terms similar to those
of the notes described in this prospectus. Accordingly, persons considering the
purchase of notes should consult their own tax advisors with regard to the
United States federal income tax consequences of an investment in the notes and
the application of United States federal income tax laws, as well as the laws of
any state, local or foreign taxing jurisdictions, to their particular
situations.
Tax Characterization of the Issuer and the Notes
Treatment of the Issuer as an Entity, Not Subject to Tax. Special Tax
Counsel is of the opinion that, although no transaction closely comparable to
that contemplated herein has been the subject of any Treasury Regulation,
revenue ruling or judicial decision, the trust will not be classified as an
association or as a publicly traded partnership taxable as a corporation for
federal income tax purposes. As a result, the issuer will not be subject to
federal income tax. However, as discussed above, this opinion is not binding on
the IRS and no assurance can be given that this characterization will prevail.
The precise tax characterization of the issuer for federal income tax
purposes is not certain. It might be viewed as merely holding assets on our
behalf as collateral for notes issued by the us. On the other hand, the issuer
could be viewed as a separate entity for tax purposes issuing its own notes.
This distinction may have a significant tax effect on noteholders as stated
below under "Possible Alternative Characterizations."
Treatment of the Notes as Debt. Special Tax Counsel is of the opinion
that, although no transaction closely comparable to that contemplated herein has
been the subject of any Treasury regulation, revenue ruling or judicial
decision, the notes will be characterized as debt for United States federal
income tax purposes. Additionally, the issuer will agree by entering into the
Indenture, and the noteholders will agree by their purchase and holding of
notes, to treat the notes as debt for United States federal income tax purposes.
Possible Alternative Characterizations. If, contrary to the opinion of
Special Tax Counsel, the IRS successfully asserted that a series or class of
notes did not represent debt for United States federal income tax purposes,
those notes might be treated as equity interests in the
77
<PAGE>
issuer or some other entity for such purposes. If so treated, investors could be
treated for such purposes either as partners in a partnership or, alternatively,
as shareholders in a taxable corporation. Treatment of a noteholder as a partner
could have adverse tax consequences to certain holders; for example, income to
foreign persons generally would be subject to United States tax and United
States tax return filing and withholding requirements, and individual holders
might be subject to certain limitations on their ability to deduct their share
of partnership expenses. If notes instead were treated as corporate stock, the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on notes recharacterized as equity, and any increase in the
corporate tax imposed with respect to such corporation could materially reduce
cash available to make payments on the notes; further, noteholders might not be
entitled to any dividends received deduction in respect of payments of interest
on notes treated as dividends. In addition, even if the notes are treated as
debt, the issuer is also able to issue other securities which may be treated as
debt or as equity interests in the issuer. The issuance of such securities
requires the delivery of a new opinion of counsel generally to the effect that
such issuance will not cause the issuer to become taxable as a separate entity
for federal income tax purposes; however, any such new opinion would not bind
the IRS, and the issuer could become taxable as a corporation as a result of
such issuance, potentially diminishing cash available to make payments on the
notes. Prospective investors should consult with their own tax advisors with
regard to the consequences of each such possible alternative characterization to
them in their particular circumstances; the following discussion assumes that
the characterization of the notes as debt is correct.
Consequences to Holders of the Offered Notes
Interest and Original Issue Discount. In general, stated interest on a
note will be includible in gross income as it accrues or is received in
accordance with an noteholder's usual method of tax accounting. If a class of
notes is issued with original issue discount ("OID"), the provisions of Sections
1271 through 1273 and 1275 of the Code will apply to those notes. Under those
provisions, a holder of such a note (including a cash basis holder) generally
would be required to include the OID on a note in income for federal income tax
purposes on a constant yield basis, resulting in the inclusion of OID in income
in advance of the receipt of cash attributable to that income. In general, a
note will be treated as having OID to the extent that its "stated redemption
price" exceeds its "issue price," if such excess equals or exceeds 0.25 percent
multiplied by the weighted average life of the note (determined by taking into
account the number of complete years following issuance until payment is made
for each partial principal payment). Under Section 1272(a)(6) of the Code,
special provisions apply to debt instruments on which payments may be
accelerated due to prepayments of other obligations securing those debt
instruments. However, no regulations have been issued interpreting those
provisions, and the manner in which those provisions would apply to the notes is
unclear, but the application of Section 1272(a)(6) could affect the rate of
accrual of OID and could have other consequences to holders of the notes.
Additionally, the IRS could take the position based on Treasury regulations that
none of the interest payable on a note is "unconditionally payable" and hence
that all of such interest should be included in the note's stated redemption
price at maturity. If sustained, such treatment should not significantly affect
tax liabilities for most holders of the notes, but
78
<PAGE>
prospective noteholders should consult their own tax advisors concerning the
impact to them in their particular circumstances. The issuer intends to take the
position that interest on the notes constitutes "qualified stated interest" and
that the above consequences do not apply.
Market Discount. A holder of a note who purchases an interest in a note at
a discount that exceeds any OID not previously includible in income may be
subject to the "market discount" rules of Sections 1276 through 1278 of the
Code. These rules provide, in part, that gain on the sale or other disposition
of a note and partial principal payments on a note are treated as ordinary
income to the extent of accrued market discount. The market discount rules also
provide for deferral of interest deductions with respect to debt incurred to
purchase or carry a note that has market discount.
Market Premium. A holder of a note who purchases an interest in a note at
a premium may elect to amortize the premium against interest income over the
remaining term of the note in accordance with the provisions of Section 171 of
the Code.
Disposition of the Notes: Defeasance. Upon the sale, exchange or
retirement of a note, the holder of the note generally will recognize taxable
gain or loss in an amount equal to the difference between the amount realized on
the disposition (other than amounts attributable to accrued interest) and the
holder's adjusted tax basis in the note. A taxable exchange of a note could
also occur as a result of our substitution of money or investments for the
receivables in the trust portfolio. See "Description of the Notes --
Defeasance" in this prospectus. The holder's adjusted tax basis in the note
generally will equal the cost of the note to such holder, increased by any
market or original issue discount previously included in income by such holder
with respect to the note, and decreased by the amount of any bond premium
previously amortized and any payments of principal or OID previously received by
such holder with respect to such note. Any such gain or loss generally will be
capital gain or loss, except to the extent of accrued market discount not
previously included in income, and will be long-term capital gain or loss if at
the time of sale the note has been held for more than one year.
Foreign Holders. Under United States federal income tax law now in effect,
payments of interest by the issuer to a holder of a note who, as to the United
States, is a nonresident alien individual or a foreign corporation (a "foreign
person") generally will be considered "portfolio interest," and generally will
not be subject to United States federal income tax and withholding tax, provided
the interest is not effectively connected with the conduct of a trade or
business within the United States by the foreign person and the foreign person
(i) is not for United States federal income tax purposes (a) actually or
constructively a "10 percent shareholder" of us or the issuer, (b) a "controlled
foreign corporation" with respect to which the we or the issuer is a "related
person" within the meaning of the Code, or (c) a bank extending credit pursuant
to a loan agreement entered into in the ordinary course of its trade or
business, and (ii) provides the person who is otherwise required to withhold
United States tax with respect to the notes with an appropriate statement (on
IRS Form W-8 or a substitute form), signed under penalties of perjury,
certifying that the beneficial owner of the note is a foreign person and
providing the foreign person's name and address. If a note is held through a
securities clearing organization or certain
79
<PAGE>
other financial institutions (as is expected to be the case unless definitive
notes are issued), the organization or institution may provide the relevant
signed statement generally to the withholding agent; in that case, however, the
signed statement generally must be accompanied by an IRS Form W-8 or substitute
form provided by the foreign person that owns the note. If such interest is not
portfolio interest, then it will be subject to United States federal income and
withholding tax at a rate of 30%, unless reduced or eliminated pursuant to an
applicable tax treaty or such interest is effectively connected with the conduct
of a trade or business within the United States and, in either case, the
appropriate statement has been provided. The U.S. Treasury Department recently
issued final Treasury regulations which will revise some of the foregoing
procedures whereby a foreign person may establish an exemption from withholding
generally beginning January 1, 2001; foreign persons should consult their tax
advisors concerning the impact to them, if any, of such revised procedures.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a foreign person will be exempt from United
States federal income tax and withholding tax, provided that (i) such 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, such individual is not present in the United States for 183 days or more
in the taxable year.
Backup Withholding. Payments of principal and interest, as well as
payments of proceeds from the sale, retirement or disposition of a note, may be
subject to "backup withholding" tax under Section 3406 of the Code at a rate of
31% if a recipient of such payments fails to furnish to the payor certain
identifying information. Any amounts deducted and withheld would be allowed as
a credit against such recipient's United States federal income tax, provided
appropriate proof is provided under rules established by the IRS. Furthermore,
certain penalties may be imposed by the IRS on a recipient of payments that is
required to supply information but that does not do so in the proper manner.
Backup withholding will not apply with respect to payments made to certain
exempt recipients, such as corporations and financial institutions. Holders of
the notes should consult their tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption.
The United States federal income tax discussion set forth above is included
for general information only, may not be applicable depending upon a holder's
particular tax situation, and does not purport to address the issues described
with the degree of specificity that would be provided by a taxpayer's own tax
advisor. Prospective purchasers should consult their own tax advisors with
respect to the tax consequences to them of the purchase, ownership and
disposition of the notes and the possible effects of changes in federal tax
laws.
80
<PAGE>
State and Local Tax Consequences
The discussion above does not address the taxation of the trust or the tax
consequences of the purchase, ownership or disposition of an interest in the
notes under any state or local tax law. Each investor should consult its own tax
adviser regarding state and local tax consequences.
ERISA Considerations
The prospectus supplement for each series of notes will specify whether the
notes offered by that prospectus supplement are eligible for purchase by
employee benefit plans. Subject to the considerations discussed below, unless
otherwise specified in the accompanying prospectus supplement the notes offered
under this registration statement are eligible for purchase by employee benefit
plans.
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Code prohibit a pension, profit-
sharing or other employee benefit plan, as well as an individual retirement
account or keogh plan, from engaging in certain transactions with persons that
are "parties in interest" under ERISA or "disqualified persons" under the Code
with respect to these benefit plans. A violation of these "prohibited
transaction" rules may result in an excise tax or other penalties and
liabilities under ERISA and the Code for these persons. Title I of ERISA also
requires that fiduciaries of a benefit plan subject to ERISA make investments
that are prudent, diversified (unless clearly prudent not to do so), and in
accordance with governing plan documents.
Some transactions involving the purchase, holding or transfer of the notes
might be deemed to constitute prohibited transactions under ERISA and the Code
if assets of the trust were deemed to be assets of a benefit plan. Under a
regulation issued by the United States Department of Labor, the assets of the
trust would be treated as plan assets of a benefit plan for the purposes of
ERISA and the Code only if the benefit plan acquires an "equity interest" in the
trust and none of the exceptions contained in the regulation is applicable. An
equity interest is defined under the regulation as an interest in an entity
other than an instrument which is treated as indebtedness under applicable local
law and which has no substantial equity features. Although there can be no
assurances in this regard, it appears that, at the time of their initial
issuance, the notes should be treated as debt without substantial equity
features for purposes of the regulation. The debt characterization of the notes
could change after their initial issuance if the trust incurs losses.
However, without regard to whether the notes are treated as an equity
interest for these purposes, the acquisition or holding of the notes by or on
behalf of a benefit plan could be considered to give rise to a prohibited
transaction if we, the issuer, the owner trustee, the servicer, the
administrator or the indenture trustee, is or becomes a party in interest or a
disqualified person with respect to these benefit plans. In such case, certain
exemptions from the
81
<PAGE>
prohibited transaction rules could be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a note.
Included among these exemptions are:
. Prohibited Transaction Class Exemption 96-23, regarding transactions
effected by "in-house asset managers";
. Prohibited Transaction Class Exemption 90-1, regarding investments by
insurance company pooled separate accounts;
. Prohibited Transaction Class Exemption 95-60, regarding transactions
effected by "insurance company general accounts";
. Prohibited Transaction Class Exemption 91-38, regarding investments by
bank collective investment funds; and
. Prohibited Transaction Class Exemption 84-14, regarding transactions
effected by "qualified professional asset managers."
By your acquisition of a note, you will be deemed to represent and warrant
that your purchase and holding of the note will not result in a non-exempt
prohibited transaction under ERISA or the Code.
Employee benefit plans that are 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 ERISA requirements, but may be subject to state or other
federal law requirements which may impose restrictions similar to those under
ERISA and the Code discussed above.
If you are a plan fiduciary considering the purchase of any of the notes,
you should consult your tax and legal advisors regarding whether the assets of
the trust would be considered plan assets, the possibility of exemptive relief
from the prohibited transaction rules and other issues and their potential
consequences.
Plan of Distribution
Subject to the terms and conditions set forth in an underwriting agreement
to be entered into with respect to each series of notes, we will cause the notes
to be sold by the issuer to each of the underwriters named in that underwriting
agreement and in the accompanying prospectus supplement, and each of those
underwriters will severally agree to purchase from the issuer, the principal
amount of notes set forth in that underwriting agreement and in the accompanying
prospectus supplement (subject to proportional adjustment on the terms and
conditions set forth in the related underwriting agreement in the event of an
increase or decrease in the aggregate amount of notes offered by this prospectus
and by the accompanying prospectus supplement).
82
<PAGE>
In each underwriting agreement, the several underwriters will agree,
subject to the terms and conditions set forth in that underwriting agreement, to
purchase all the notes offered by this prospectus and by the accompanying
prospectus supplement if any of those notes are purchased. In the event of a
default by any underwriter, each underwriting agreement will provide that, in
certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased or the underwriting agreement may be terminated.
Each prospectus supplement will set forth the price at which each series of
notes or class being offered initially will be offered to the public and any
concessions that may be offered to certain dealers participating in the offering
of those notes. After the initial public offering, the public offering price
and such concessions may be changed.
Each underwriting agreement will provide that the transferor will indemnify
the related underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
The place and time of delivery for any series of notes in respect of which
this prospectus is delivered will be set forth in the accompanying prospectus
supplement.
Reports to Noteholders
The servicer will prepare monthly and annual reports that will contain
information about the issuer. The financial information contained in the
reports will not be prepared in accordance with generally accepted accounting
principles. Unless and until definitive notes are issued, the reports will be
sent to Cede & Co. which is the nominee of The Depository Trust Company and the
registered holder of the notes. No financial reports will be sent to you. See
"Description of the Notes -- Book-Entry Registration," " -- Reports to
Noteholders" and " -- Evidence as to Compliance" in this prospectus.
Where You Can Find More Information
We filed a registration statement relating to the notes with the SEC. This
prospectus is part of the registration statement, but the registration statement
includes additional information.
The servicer will file with the SEC all required annual, monthly and
special SEC reports and other information about the trust.
You may read and copy any reports, statements or other information we file
at the SEC's public reference room in Washington, D.C. You can request copies of
these documents, upon payment of a duplicating fee, by writing to the SEC.
Please call the SEC at (800) SEC-0330 for further information on the operation
of the public reference rooms. Our SEC filings are also available to the public
on the SEC Internet site (http://www.sec.gov.).
83
<PAGE>
The SEC allows us to "incorporate by reference" information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus. Information that we file later with the SEC will
automatically update the information in this prospectus. In all cases, you
should rely on the later information over different information included in this
prospectus or the accompanying prospectus supplement. We incorporate by
reference any future annual, monthly and special SEC reports and proxy materials
filed by or on behalf of the issuer and Spiegel Master Trust until we terminate
our offering of the notes.
As a recipient of this prospectus, you may request a copy of any document
we incorporate by reference, except exhibits to the documents (unless the
exhibits are specifically incorporated by reference), at no cost, by writing or
calling us at: [____________________], [______________________], Attention:
[__________], Telephone: (____) _______.
84
<PAGE>
Index of Terms for Prospectus
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
accumulation events............................................... 26
accumulation period............................................... 26
amortization period............................................... 26
automatic additional accounts..................................... 34
cash collateral guaranty.......................................... 67
Code.............................................................. 76
collection account................................................ 37
controlled accumulation period.................................... 26
controlled amortization period.................................... 26
definitive notes.................................................. 24
depositaries...................................................... 21
dilution.......................................................... 41
Discount Option................................................... 36
Discount Percentage............................................... 36
eligible account.................................................. 32
eligible receivable............................................... 33
event of default.................................................. 54
excess funding account............................................ 37
FDIA.............................................................. 3
FDIC.............................................................. 3
finance charge receivables........................................ 17
funding period.................................................... 38
IRS............................................................... 77
L/C bank.......................................................... 67
OID............................................................... 78
paired series..................................................... 43
pay out event..................................................... 44
prefunding account................................................ 38
principal receivables............................................. 17
qualified account................................................. 37
qualified institution............................................. 37
rapid amortization period......................................... 26
rating agency..................................................... 72
receivables purchase agreement.................................... 68
Required Minimum Principal Balance................................ 31
Required Transferor Amount........................................ 31
Required Transferor Percentage.................................... 31
reserve account................................................... 68
servicer default.................................................. 48
Special Tax Counsel............................................... 76
</TABLE>
85
<PAGE>
<TABLE>
<S> <C>
spread account.................................................... 68
Transferor Amount................................................. 19
</TABLE>
86
<PAGE>
Annex I
Global Clearance, Settlement and Tax Documentation Procedures
Except in certain limited circumstances, the globally offered Spiegel
Credit Card Master Note Trust Asset Backed Notes (the "global securities") to be
issued in series from time to time (each, a "series") will be available only in
book-entry form. Investors in the global securities may hold those global
securities through any of The Depository Trust Company ("DTC"), Clearstream or
Euroclear. The global securities will be tradable 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 Clearstream 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 Clearstream or Euroclear and DTC
participants holding notes will be effected on a delivery-against-payment basis
through the respective depositories of Clearstream 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, Clearstream and Euroclear
will hold positions on behalf of their participants through their respective
depositories, which in turn will hold such positions in accounts as DTC
participants.
Investors electing to hold their global securities through DTC (other than
through accounts at Clearstream or Euroclear) will follow the settlement
practices applicable to U.S. corporate debt obligations. 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 Clearstream or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds in
A-1
<PAGE>
registered form. Global securities will be credited to the securities custody
accounts on the settlement date against payment for value on the settlement
date.
Secondary Market Trading
Because 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 (other than Citibank, N.A. ("Citibank") and Morgan Guaranty Trust
Company of New York ("Morgan") as depositories for Clearstream and Euroclear,
respectively) will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Clearstream customers and/or Euroclear participants.
Secondary market trading between Clearstream customers or Euroclear participants
will be settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and Clearstream customer or Euroclear purchaser.
When global securities are to be transferred from the account of a DTC
participant (other than Citibank and Morgan as depositories for Clearstream and
Euroclear, respectively) to the account of a Clearstream customer or a Euroclear
participant, the purchaser must send instructions to Clearstream prior to
settlement date 12:30. Clearstream or Euroclear, as the case may be, will
instruct Citibank or Morgan, respectively, to receive the global securities for
payment. Payment will then be made by Citibank or Morgan, as the case may be,
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 Clearstream customer's or Euroclear participant's
account. Credit for the global securities 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 Clearstream or Euroclear cash
debit will be valued instead as of the actual settlement date.
Clearstream customers 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 Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the global securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream customers 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, Clearstream
A-2
<PAGE>
customers 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 Clearstream customer'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
Citibank or Morgan for the benefit of Clearstream customers or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently from a trade between two DTC participants.
Trading between Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream customers and Euroclear
participants may employ their customary procedures for transactions in which
global securities are to be transferred by the respective clearing system,
through Citibank or Morgan, to another DTC participant. The seller will send
instructions to Clearstream before settlement date 12:30. In these cases,
Clearstream or Euroclear will instruct Citibank or Morgan, as appropriate, to
credit the global securities to the DTC participant's account against payment.
The payment will then be reflected in the account of the Clearstream customer or
Euroclear participant the following day, and receipt of the cash proceeds in the
Clearstream customer'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). If the Clearstream customer or Euroclear participant has a line of
credit with its respective clearing system and elects to draw on such line of
credit in anticipation of receipt of the sale proceeds in its account, the back-
valuation may substantially reduce or offset 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 Clearstream
customer's or Euroclear participant's account would instead be valued as of the
actual settlement date.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global securities holding securities through
Clearstream 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, under Currently applicable law, (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 (it) such
beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate:
A-3
<PAGE>
Exception for non-U.S. Persons (Form W-8 or new Form W-8BEN). Beneficial
owners of notes that are non-U.S. Persons generally can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form 4224
or new Form W-8ECI). A non-U.S. Person, including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty,
countries (Form 1001 or new Form W-8BEN). Non-U.S. Persons that are note 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 note owner or
his 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 note owner of a global
security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
A new Form W-8BEN, if furnished with a taxpayer identification number, will
remain in effect until the status of the beneficial owner changes, or a change
in circumstances makes any information on the form incorrect. A new Form W-
8BEN, if furnished without a taxpayer identification number, and a new Form W-
8ECI will remain in effect for a period starting on the date the form is signed
and ending on the last day of the third succeeding calender year, unless a
change in circumstances makes any information on the form incorrect.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States, any state thereof, or any political subdivision of either
(including the District of Columbia), or (iii) an estate or trust the income of
which is includible in gross income for United States tax purposes regardless of
its source. 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. Further, the U.S. Treasury Department has recently finalized
A-4
<PAGE>
new regulations that will revise some aspects of the current system for
withholding on amounts paid to foreign persons. Under these regulations,
interest or OID paid to a nonresident alien would continue to be exempt from
U.S. withholding taxes (including backup withholding) provided that the holder
complies with the new certification procedures.
A-5
<PAGE>
================================================================================
Spiegel Credit Card Master Note Trust
Issuer
Spiegel Credit Corporation III
Transferor
First Consumers National Bank
Originator of the Trust
Series 2000-__
$
Class A [Floating Rate] [___]% Asset Backed Notes
$
Class B [Floating Rate] [___]% Asset Backed Notes
$
Class C [Floating Rate] [___]% Asset Backed Notes
__________
PROSPECTUS SUPPLEMENT
___________
Underwriters of the Class A Notes
Underwriters of the Class B Notes
Underwriters of the Class C Notes
You should rely on the information contained or incorporated by reference in
this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the notes in any state where the offer is not permitted.
We do not claim the accuracy of the information in this prospectus supplement
and the accompanying prospectus as of any date other than the dates stated on
their respective covers.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the notes and with respect to their unsold allotments or
subscriptions. In addition, all dealers selling the notes will deliver a
prospectus supplement and prospectus until _________ , 2000.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Estimated expenses in connection with the offering of the Securities being
registered herein are as follows:
Registration Statement fee.............................. $ 264**/
--
Legal fees and expenses................................. __________ */
-
Accounting fees and expenses............................ __________ */
-
Rating agency fees...................................... __________ */
-
Trustee fees and expenses............................... __________ */
-
Indenture Trustee fees and expenses..................... __________ */
-
Blue Sky expenses....................................... __________ */
-
Printing and engraving.................................. __________ */
-
Miscellaneous........................................... __________ */
-
Total......................................... $ */
========== -
______________________
* To be filed by amendment.
** Actual.
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his or her conduct was illegal. A Delaware
corporation may indemnify officers and directors against expenses (including
attorneys' fees) in connection with the defense or settlement of an action by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against the
expenses which such officer or director actually and reasonably incurred.
The Certificate of Incorporation of Spiegel Credit Corporation III (the
"Corporation") provides for indemnification of the directors of the company to
the full extent permitted by applicable law.
The bylaws of the Company include the following provisions:
ARTICLE XI
Indemnification of Officers, Directors,
Employees and Agents; Insurance
(a) The Corporation shall indemnify subject to the requirements of
Subsection (d) any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee, fiduciary or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorney's fees), judgments, fines, penalties, taxes and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he
<PAGE>
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 his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he 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 reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify subject to the requirements of
Subsection (d) any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation
and except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation, or a director, officer, employee, fiduciary or agent of any
other enterprise serving at the request of the Corporation, has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Subsections (a) and (b), or in defense of any
claim, issue or matter therein, the Corporation shall indemnify him against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
(d) Any indemnification under Subsections (a) and (b) (unless ordered
by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee, fiduciary or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
Subsections (a) and (b). Such determination shall be made (1) by the board
of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such quorum
is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or
(3) by the stockholders.
(e) Expenses incurred by a director, officer, employee, fiduciary or
agent in defending a civil or criminal action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors in the specific
case upon receipt of an undertaking by or on behalf of the director,
officer, employee, fiduciary or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Section.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other Subsections of this Section shall not limit
the Corporation from providing any other indemnification permitted by law
nor shall it be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any by-
law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
(g) The provisions of this Section shall be applicable to all
actions, suits or proceedings pending at the time or commenced after the
adoption of this Section, whether arising from acts or omissions to act
occurring, or based on claims asserted, before or after the adoption of
this Section. A finding that any provision of this Section is invalid or of
limited application shall not affect any other provision of this Section
nor shall a finding that any portion of any provision of this Section is
invalid or of limited application affect the balance of such provision.
(h) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee, fiduciary or agent of
another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him
against such liability
II-2
<PAGE>
under the provisions of this Section.
(i) All terms contained in this Section shall have the meaning given
to them by Section 145 of the Delaware General Corporation Law.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Directors and officers of the Corporation are entitled to the benefits of
directors' and officers' insurance obtained by Spiegel for itself and its
subsidiaries which insures directors and officers of the registrants against
wrongful acts as a director or officer, including civil liabilities pursuant to
the Securities Act of 1933.
Item 16. Exhibits.
1.1 --Form of Underwriting Agreement*/
-
4.1 --Form of Master Indenture*/
-
4.2 --Form of Indenture Supplement, including form of Notes*/
-
4.3 --Form of Transfer and Servicing Agreement*/
-
4.4 --Form of Trust Agreement of Spiegel Credit Card Master Note
Trust*/
-
4.5 --Form of Administration Agreement*/
-
4.6 --Amended and Restated Pooling and Servicing Agreement
4.7 --Amendment No. 1 to Amended and Restated Pooling and Servicing
Agreement
4.8 --Amendment No. 2 to Amended and Restated Pooling and Servicing
Agreement*/
4.9 --Receivables Purchase Agreement*/
-
4.10 --Amendment No. 1 to Receivables Purchase Agreement*/
-
4.11 --Amendment No. 2 to Receivables Purchase Agreement*/
-
5.1 --Opinion of Rooks, Pitts and Poust with respect to legality*/
-
8.1 --Opinion of Rooks, Pitts and Poust with respect to tax matters*/
-
23.1 --Consent of Rooks, Pitts and Poust (included in Exhibit 5.1)*/
-
24.1 --Powers of Attorney (included on page II-5)
25.1 --Form T-1 Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939, as amended, of BNY Midwest Trust
Company, as indenture trustee under the Indenture*/
-
_______________________
* To be filed by amendment.
Item 17. Undertakings
(a) As to Rule 415: The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made of the securities registered hereby, a post-effective amendment to
this registration statement;
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of this registration statement (or the most
recent post-effective amendment hereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in this registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar volume of securities offered would not exceed that
which was registered) and any deviation from the low or high end
II-3
<PAGE>
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in this
registration statement or any material change to such information
in this registration statement;
provided, however, that the undertakings set forth in clauses (i) and (ii)
above do not apply if the information required to be included in a post-
effective amendment by those clauses is contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934, as amended,
that are incorporated by reference in this registration statement.
(2) 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) As to documents subsequently filed that are incorporated by
reference: The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, as amended,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as amended, that is
incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered herein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) As to indemnification: Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended, may be permitted to
directors, officers and controlling persons of the registrant pursuant to
the provisions described in Item 15 herein, 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 Securities Act of 1933, as amended, 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 the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933, as
amended, and will be governed by the final adjudication of such issue.
(d) As to qualification of Trust Indentures under Trust Indenture Act
of 1939 for delayed offerings:
The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section 305(b)
of the Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, reasonably believes that the security
rating requirement for the asset-backed securities being registered on this form
will be met by the time of the sale and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, Illinois, on the date of June 9, 2000.
SPIEGEL CREDIT CORPORATION III
By: /s/ James W. Sievers
------------------------------
James W. Sievers
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints James W. Sievers and John R. Steele and, and
either of them, such person's true and lawful attorneys-in-fact and agents, with
full power of substitution and revocation, for such person and in such person's
name, place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments to this Registration Statement) and to file
the same with all exhibits thereto, and the other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on June 9, 2000 by the following persons
in the capacities and on the dates indicated.
Signature Title
--------- -----
/s/ James W. Sievers President and Director
------------------------------- (Principal Executive Officer)
James W. Sievers
/s/ Michael R. Moran Vice President, Secretary and Director
------------------------------- (Principal Financial Officer)
Michael R. Moran
/s/ John R/ Steele Treasurer and Director
------------------------------- (Principal Accounting Officer)
John R. Steele
/s/ Mark W. Weisbard Director
-------------------------------
Mark W. Weisbard
/s/ Ian M. Sherman Director
-------------------------------
Ian M. Sherman
II-5
