-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QcO5QP0Ul/6Qdc1SFchqliU2wV4xD9AoOQvfjryfQbTWolTNrO4gMlk5KmVpiDSo RowlrPwAw25/f+5pSUdx+A== 0000950131-03-000362.txt : 20030204 0000950131-03-000362.hdr.sgml : 20030204 20030203215717 ACCESSION NUMBER: 0000950131-03-000362 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 46 CONFORMED PERIOD OF REPORT: 20011229 FILED AS OF DATE: 20030204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPIEGEL INC CENTRAL INDEX KEY: 0000276641 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 362593917 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16126 FILM NUMBER: 03537326 BUSINESS ADDRESS: STREET 1: 3500 LACEY RD CITY: DOWNERS GROVE STATE: IL ZIP: 60515-5432 BUSINESS PHONE: 7089868800 MAIL ADDRESS: STREET 1: 3500 LACEY ROAD CITY: DOWNERS GROVE STATE: IL ZIP: 60515-5432 10-K 1 d10k.txt FORM 10-K CONFORMED COPY ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ----------------- FORM 10-K ----------------- (Mark One) . ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 29, 2001 OR . TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-16126 SPIEGEL, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-2593917 (State of Incorporation) (I.R.S. Employer Identification No.) 3500 LACEY ROAD DOWNERS GROVE, ILLINOIS 60515-5432 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 986-8800 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Class A non-voting common stock, Par Value, $1.00 Per Share (Title of Class) ----------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [_] NO [X] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] On December 5, 2002, the aggregate market value of Class A non-voting common stock held by non-affiliates (based on the closing price reported by Pink Sheets LLC on that date) was $6,702,063. The number of shares outstanding of the issuer's Class A non-voting common stock at December 5, 2002 was 14,945,144. The Class B voting common stock is not publicly traded and is 100% held by affiliates. The number of shares outstanding of the issuer's Class B voting common stock at December 5, 2002 was 117,009,869. Documents Incorporated by Reference: None ================================================================================ PART I ITEM 1. Business General development of business Spiegel, Inc. ("The Spiegel Group" or "the Company") and its predecessors date from 1865. The Company was incorporated under the laws of Delaware in 1965. Spiegel Holdings, Inc., a Delaware corporation ("SHI"), currently holds 100% of the Company's Class B voting common stock, affording SHI control of the Company. In 1988, the Company acquired Eddie Bauer, Inc. and certain related Canadian assets (collectively, "Eddie Bauer"). In 1990, the Company acquired First Consumers National Bank ("FCNB"). FCNB is a special-purpose bank specializing in the issuance of credit cards. In 1993, the Company acquired New Hampton, Inc. ("New Hampton"). In 1995, New Hampton's name was changed to Newport News, Inc. ("Newport News"). In 1997, the Company incorporated its Spiegel Catalog division ("Spiegel") as a separate subsidiary parallel to Eddie Bauer and Newport News. This was done to provide greater clarity between the Spiegel brand name and the corporate entity. Narrative description of business ($000s omitted) The Spiegel Group is a leading, international specialty retailer that offers merchandise through catalogs, e-commerce sites and retail stores in addition to credit services to qualifying customers of Eddie Bauer, Spiegel and Newport News (the "merchant divisions"). Significant Events ($000s omitted) Historically, the operating results for the Company were reported for two segments: merchandising and bankcard. The merchandising segment included an aggregation of the Company's three merchant divisions and the private-label preferred credit operation. The bankcard segment included primarily the bankcard operations of First Consumers National Bank (FCNB), the Company's special-purpose bank, and Financial Services Acceptance Corporation (FSAC). In the fourth quarter of fiscal 2001, the Company formalized a plan to sell the bankcard segment. Accordingly, the information included herein reflects the bankcard segment as a discontinued operation for all periods presented. The Company anticipates the completion of a sale of its bankcard segment by April 2003. To the extent that the Company is unable to sell the bankcard segment, this segment will be liquidated as part of the liquidation of FCNB in its entirety, as required under the OCC agreement (see page 3). See Note 2 to the Company's Consolidated Financial Statements for further discussion. On April 4, 2002, MBIA Insurance Corporation ("MBIA") issued a notice asserting the occurrence of one "Pay Out Event" and the existence of circumstances which, if not cured within 45 days following the date of such notice, would result in the occurrence of a second "Pay Out Event," under two asset-backed securities offerings issued by the Spiegel Credit Card Master Note Trust (the "Trust") and known as Series 2000-A and Series 2001-A. Those transactions involve the public issuance of notes supported by private-label credit card receivables originated by FCNB and for which MBIA insures the payments to noteholders and The Bank of New York acts as indenture trustee. A "Pay Out Event" would divert monthly excess cash flow remaining after the payment of debt service and other expenses to repay principal to noteholders on an accelerated basis. This excess cash flow is otherwise paid to the Company and is utilized by the Company to fund its operations. The Company believes that no "Pay Out Event" has occurred as defined under the securitization documents. The Company and FCNB filed suit and obtained a temporary restraining order against MBIA and The Bank of 2 New York on April 11, 2002, in the Supreme Court of the State of New York, County of New York. On May 16, 2002, the Company and MBIA entered into a settlement agreement pursuant to which, among other things, MBIA agreed to withdraw its April 4, 2002 letter. In addition, the Company and FCNB agreed to dismiss the litigation and to obtain a backup servicer no later than December 1, 2002. Finally, the Company agreed to increase the amounts required to be on deposit in a reserve account established for the benefit of MBIA as insurer of the notes. Amounts in that reserve account are available to cover the shortfall in any period, if any, between available collections on the receivables and the amounts owing in respect of principal and interest on the notes, prior to a claim being made against the insurer for such amounts. Pursuant to the agreement, increases in the reserve account will be funded by diverting excess receivables collections that would otherwise be available to the Company; provided that during the first seven months following the date of the agreement such diversions were limited to a maximum of $9,000 per month and an incremental $60,000 in the aggregate for the seven month period. This diversion of excess cash is measured based upon certain receivable portfolio performance criteria. Accordingly, the actual reserve requirements may be lower than the dollar amounts disclosed above based upon actual receivable portfolio performance. The agreement with MBIA contained other requirements, including the requirement to file the Company's and FCNB's 2001 financial statements by December 6, 2002. In addition, the Company agreed to appoint a backup servicer for the servicing of its receivable portfolio and to execute a backup servicing agreement by December 1, 2002. An amendment to the MBIA agreement to extend the date of the requirements has not yet been finalized. Although the Company believes that it will obtain an amendment to the settlement agreement, there can be no guarantees that MBIA will not exercise its remedies under the settlement agreement, which would include a "Pay Out Event", as described above. See Note 3 to the Company's consolidated financial statements. On May 15, 2002, FCNB entered into an agreement with the Office of the Comptroller of the Currency ("OCC"), the primary federal regulator of FCNB. The agreement calls for FCNB to comply with certain requirements. The agreement, among other things: (i) contains restrictions on transactions between the bank and its affiliates and requires the bank to complete a review of all existing agreements with affiliated companies, and to make necessary and appropriate changes; (ii) requires the bank to obtain an aggregate of $198,000 in guarantees, which guarantees have been provided through the Company's majority shareholder; (iii) restricts the bank's ability to accept, renew or rollover deposits; (iv) places restriction on the bank's ability to issue new credit cards and make credit line increases; (v) requires the bank within 30 days of the agreement to file with the OCC a disposition plan to either sell, merge or liquidate the bank; (vi) requires the bank to maintain sufficient assets to meet daily liquidity requirements; (vii) requires the bank to complete a comprehensive risk management assessment; (viii) establishes minimum capital levels for the bank; (ix) provides for increased oversight by and reporting to the OCC; and (x) provides for the maintenance of certain asset growth restrictions. In October 2002, the Company submitted a revised disposition plan to the OCC. The disposition plan provides for the sale or liquidation of the bankcard portfolio by April 30, 2003. To the extent that the Company is unable to sell the bankcard portfolio, the portfolio will be liquidated as part of the liquidation of FCNB in its entirety. On November 27, 2002, the OCC approved the disposition plan. For the reporting period December 29, 2001, the Company was in violation of its financial covenants. The Company is working with its lending group to restructure the existing credit facilities. However, there can be no assurances that a new credit facility will be available to the Company. If the Company is not able to enter into a new credit facility, alternative sources of financing will be required to obtain the necessary liquidity to continue to operate the business. These matters raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. See Note 3 to the Company's consolidated financial statements included in Item 8 hereof. Otto Versand (GmbH & Co) ("Otto Versand"), a privately-held German partnership, acquired the Company in 1982. In April 1984, Otto Versand transferred its interest in the Company to its partners and designees. Otto Versand and the Company have entered into certain agreements seeking to benefit both parties by providing for the sharing of expertise. In October 2002, the German partnership changed its name from Otto Versand (GmbH & Co) to Otto (GmbH & Co KG), hereinafter referred to as "Otto Versand (GmbH & Co)" or "Otto Versand". 3 Principal products, services, and revenue sources The Company is comprised of its Eddie Bauer, Newport News and Spiegel subsidiaries, which distribute apparel, home furnishings and other merchandise through catalogs, e-commerce sites and retail stores. The marketing efforts of these businesses are supported by the proprietary credit cards offered to qualifying customers. There are two principal product categories: apparel and home furnishings and other merchandise. The components of net sales by product category for the last three years were:
2001 2000 1999 ---- ---- ---- Apparel............................... 78% 78% 79% Home furnishings and other merchandise 22 22 21 --- --- --- 100% 100% 100%
The apparel category includes a wide array of men's and women's private-label and branded merchandise in various styles, including seasonal product offerings. Home furnishings range from traditional to contemporary styles, including accent pieces, decorative accessories, bed and bath, kitchen accessories and small appliances, home electronics, window treatments and rugs. The other merchandise category includes items such as fitness and personal care equipment, toys, cameras and luggage. Credit services ($000s omitted) FCNB is the issuer of the FCNB bankcard charge cards. The accounts are serviced through FCNB's headquarters and call center operations located in Oregon in the cities of Beaverton and Albany, respectively. As previously discussed, the Company plans to sell the bankcard segment by April 2003. In an effort to build brand loyalty and to provide additional convenience for its customers, the Company offers credit programs to qualifying customers in the form of preferred credit cards imprinted with an Eddie Bauer, Newport News or Spiegel logo depending on the source of the original application for credit. This credit card allows a customer to purchase products from any Company affiliate, regardless of the imprint on the card. Historically, the Company's preferred credit programs have been serviced by FCNB. With the sale of the bankcard segment, these preferred credit programs will either be serviced internally by the Company or by a third party servicer. Both options will require approval from the parties associated with the Company's securitization agreements. At December 29, 2001, preferred credit card receivables serviced were $2,305,930, representing approximately three million active accounts. Approximately 41% of total net sales in 2001 were made with the Company's preferred credit cards. This includes approximately 21% of Eddie Bauer net sales, 73% of Spiegel net sales and 59% of Newport News net sales. The lower percentage of Eddie Bauer sales made on preferred credit cards is primarily attributable to the relatively higher percentage of retail store sales at Eddie Bauer. Retail stores generally have a lower percentage of sales made on credit compared to the direct channel, which is comprised of catalog and e-commerce sales. Deterioration in the credit market, increases in credit account charge-offs and interest rate fluctuations all represent risks to the profitability of the Company's preferred credit card programs. The Company also offers credit to its customers through FCNB's bankcard business. FCNB's bankcard business markets various national MasterCard/TM/ and Visa/TM/ programs. FCNB's bankcard portfolio includes secured cards, co-branded cards and affinity cards, such as the FCNB Mastercard, the FCNB Visa, the Spiegel MasterCard and the Eddie Bauer MasterCard. 4 The following is a discussion of the merchant divisions included in the merchandising segment that offer the products and credit programs described above: Eddie Bauer ($000s omitted) Eddie Bauer is a leading tri-channel specialty retailer serving the 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 $1,599,075, $1,748,665 and $1,789,096 for the years ended December 29, 2001, December 30, 2000 and January 1, 2000, respectively. Retail and outlet store sales comprised approximately 73% of total net sales in fiscal 2001, 2000 and 1999. A key strategy for Eddie Bauer is to leverage synergies between its multiple marketing channels, maximizing cross-promotional opportunities. This strategy includes: referring retail store customers to the catalog order desk within stores for additional merchandise and size options; utilizing the catalog customer database to help identify potential store locations; using catalog space to advertise the retail concept and e-commerce sites; utilizing retail store mailing lists to help build the catalog customer file; store locator on e-commerce site; and ability to order from the catalog on the Internet. Eddie Bauer's apparel category comprised approximately 86% of its total net sales in fiscal 2001, 2000 and 1999. Eddie Bauer presents its apparel and related accessories through its trademark Eddie Bauer apparel stores, outlet stores, catalogs and e-commerce sites including eddiebauer.com, eddiebaueroutlets.com and eddiebauerb2b.com. 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 eddiebauerhome.com e-commerce site. In 1993, Eddie Bauer entered into a joint-venture arrangement with Otto-Sumisho, Inc. (a joint venture company of Otto Versand, a related party, and Sumitomo Corporation) to sell its full line of Eddie Bauer sportswear products through retail stores and catalogs in Japan. At December 29, 2001, there were 38 such stores. During 1995, Eddie Bauer entered into an agreement with Heinrich Heine GmbH and Sport-Scheck GmbH (both subsidiaries of Otto Versand) to form a joint venture to sell Eddie Bauer products through retail stores and catalogs in Germany. At December 29, 2001, there were nine such stores. Eddie Bauer also has capitalized on selected licensing opportunities, including a rich history with Ford Motor Company, which uses the Eddie Bauer name and logo on special series Ford vehicles, as well as arrangements with Gold Bug, Inc., The Lane Company (a division of Furniture Brands International); American Recreation Products, Inc.; Cosco, Inc., a manufacturer of infant and juvenile car seats and strollers; Baby Boom Consumer Products, Inc., a manufacturer of infant products, and Imperial Wall Coverings. Eddie Bauer retail store business ($000s omitted) At December 29, 2001, Eddie Bauer operated a total of 575 stores: 476 retail stores and 99 outlets. There are 536 stores located in the United States and 39 stores in Canada. Of the stores open at December 29, 2001, 44 were Eddie Bauer HOME. The average Eddie Bauer store is approximately 7,404 gross square feet. Eddie Bauer's retail stores are generally located in upscale regional malls or in high traffic metropolitan areas. Eddie Bauer also opens stores in certain smaller markets where it believes a concentration of its target customers exists. Eddie Bauer outlet stores are located predominately in outlet malls and value strip centers and generally in areas not serviced by its core specialty retail stores. Eddie Bauer's outlet store strategy includes the liquidation of excess inventory while also offering products made exclusively for the outlet stores. In fiscal 2001, Eddie Bauer completed nine significant remodels of existing stores while decreasing its new store growth pace, opening a net of 12 stores in fiscal 2001 as compared to 31 new store openings in fiscal 2000. The average cost of opening a typical new Eddie Bauer store in fiscal 2001, including inventory, furniture and 5 fixtures, pre-opening expenses and leasehold improvements (net of landlord construction allowances) was approximately $393. Eddie Bauer's ability to open and operate new stores profitably is dependent on the availability of suitable store locations, the negotiation of acceptable lease terms, Eddie Bauer's financial resources and its ability to control the operational aspects and personnel requirements of its growth. Eddie Bauer direct business The Eddie Bauer direct business serves its customers through catalogs and four e-commerce sites. The Eddie Bauer direct business distributed 110 million catalogs in fiscal 2001 and at December 29, 2001 had approximately 3.7 million active customers (customers who have purchased within the last 18 months from either the catalogs or e-commerce sites.) As a corollary to its retail store operations, Eddie Bauer catalog concepts include its trademark Eddie Bauer apparel catalog and Eddie Bauer HOME catalogs, as well as its largest catalog, Eddie Bauer Resource. Eddie Bauer actively pursues new customers within its target market through initiatives such as list rentals, utilizing names of its store customers and e-commerce marketing programs. Newport News ($000s omitted) Newport News is a specialty direct marketer offering fashionable, moderately priced women's apparel and home furnishings through catalogs and its e-commerce site, newport-news.com. Total net sales were $448,933, $479,098 and $410,804 for the years ended December 29, 2001, December 30, 2000 and January 1, 2000, respectively. Newport News distributed 254 million catalogs in fiscal 2001 and at December 29, 2001 had approximately 4.2 million active customers (customers who have purchased within the last 18 months from either the catalogs or e-commerce site). The Newport News apparel category comprised approximately 90% of its sales in fiscal 2001, 2000 and 1999. Although Newport News specializes in swimwear and jeans, all women's apparel categories, including footwear, are well represented. The Newport News home furnishings category consists primarily of bed, bath and decorative accessories. Spiegel ($000s omitted) A direct marketer, Spiegel has developed its strong brand identity by working to understand and satisfy its customers with a broad assortment of sophisticated, high-quality apparel and home merchandise marketed through its semi-annual catalog, various specialty catalogs and e-commerce sites including spiegel.com. Spiegel offers overstock, end-of-season and other merchandise through its Ultimate Outlet stores, which are predominately located in outlet malls, and through catalogs and the ultimateoutlet.com e-commerce site. Total net sales were $734,045, $833,388 and $716,555 for the years ended December 29, 2001, December 30, 2000 and January 1, 2000, respectively. Sales through its direct channel comprised approximately 92%, 92% and 90% of total net sales in fiscal 2001, 2000 and 1999, respectively. Spiegel distributed 143 million catalogs in fiscal 2001 and at December 29, 2001 had approximately 3.4 million active customers (customers who have purchased within the last 18 months from either the catalogs or e-commerce sites). Spiegel's apparel merchandise, which represented approximately 52% of net sales in fiscal 2001, 2000 and 1999, includes private-label and branded merchandise. Private-label merchandise is developed by in-house product design teams based on emerging fashion trends and customer research. Spiegel's home furnishings and other merchandise, which represented 48% of net sales in fiscal 2001, are a mixture of private-label and branded merchandise ranging from traditional to contemporary styles, including accent pieces, decorative accessories, bed and bath, kitchen accessories and small appliances, home electronics, window treatments and rugs. Product development and sourcing The Company's product development and sourcing teams are a significant element of its private-label merchandise strategy. Manufacturers are selected based on their ability to produce high quality product on a cost- 6 effective basis. Product design teams select and source fabrics to be delivered to manufacturers along with product patterns, specifications and templates used for cutting fabric and other pre-production work. Prototype samples are submitted to the merchant divisions for final production approval to ensure manufacturer compliance with specifications. The Company does not have any manufacturing facilities; all production is done by third-party contractors. The product development and sourcing teams closely monitor the timeliness of manufacturers' delivery to the Company's distribution facilities and provide them with packaging information. The Company believes this strategy permits maximum flexibility, enhanced inventory management and consistent quality control without the risks associated with operating its own manufacturing facilities. Merchandise The merchant divisions sell domestically produced and imported merchandise, which is purchased in the open market from approximately 1,900 suppliers, none of which supplied as much as 5% of the merchandise purchased during fiscal 2001, 2000 and 1999. A significant amount of the dollar value of merchandise purchased is imported directly from the Far East and Europe. Consequently, the Company is subject to the risks generally associated with conducting business abroad. The Company's business could be affected by economic events or political instability that might impact imports, including duties, quotas and work stoppages. To date, these factors have not caused any material disruption to the Company's operations. As with other companies that denominate purchases in dollars, declines in the dollar relative to foreign currencies could over time increase the cost to the Company of merchandise purchased in foreign countries, which could adversely affect the Company's results of operations. The Company is unable to predict the effect, if any, of the above; however, the Company believes this risk exists for many other retailers. Licenses and trademarks The Company utilizes trademarks and tradenames including "Spiegel," "Eddie Bauer," "Newport News," "The Ultimate Outlet," "Jeanology" and "Easy Style." The Company also is licensed by a related party to sell goods under the "Together!" and "Apart" labels among others. The Company utilizes numerous other trademarks and tradenames, however, believes that the loss or abandonment of the above named trademarks, tradenames or licenses would have the most significant effect on its business. Seasonality of business The merchant divisions, like other retailers, have experienced and expect to continue to experience seasonal fluctuations in merchandise sales and net earnings. Historically, a significant amount of the merchandising segment's net sales and a majority of its net earnings have been realized during the fourth quarter. In the third quarter in order to prepare for peak sales that occur during the fourth quarter, the Company builds inventory levels, which results in higher liquidity needs as compared to the other quarters in the fiscal year. If sales were materially different from seasonal norms during the fourth quarter, the Company's annual operating results could be materially affected. Accordingly, results for the individual quarters are not necessarily indicative of the results to be expected for the entire year. Competition The markets in which the merchant divisions participate are highly competitive and are served by a significant number of retailers including direct marketers, traditional department stores, so-called "off-price" and discount retailers and specialty chains. Success is highly dependent upon the merchant division's ability to maintain its existing customers, solicit new customers, identify distinct fashion trends and continue to address the lifestyle needs and style preferences of its customers. The Company believes it is positioned to compete effectively in all marketing channels, including stores, catalog and e-commerce internet sites, supported by its strong infrastructure. 7 Employees During fiscal 2001, the Company employed between approximately 11,947 and 14,898 full-time equivalent employees, depending on the time of year, reflecting the seasonality of the Company's operations and the fluctuations in its workforce during the year. Spiegel is party to a collective bargaining agreement with the Warehouse, Mail Order, Office, Technical and Professional Employees Union, Local 743, affiliated with the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America ("Local 743"). Local 743 represents approximately 40 full-time and two part-time employees under an agreement that expires on February 28, 2005. In addition, Spiegel is party to a separate agreement with Local 743, which expires on May 31, 2003 that covers approximately 22 full-time and 21 part-time Chicago-area Spiegel Ultimate Outlet store employees. The Company considers its relations with its employees to be good and has not experienced any material interruption of operations due to labor disagreements with its employees. Properties The Company's corporate headquarters and Spiegel operations are located in leased office space in Downers Grove, Illinois. The Company owns its Westmont, Illinois corporate data center. The following information is specific to the subsidiaries of the Company: Eddie Bauer occupies office space in 10 buildings located in and around Redmond, Washington; three of which are owned and seven of which are under lease. Newport News leases office space in New York, New York and owns office space in Hampton, Virginia. The Company's subsidiary, Spiegel Group Teleservices, Inc. performs the customer order and customer service functions on behalf of the merchant divisions and leases facilities in Wichita, Kansas; Rapid City, South Dakota; Bothell, Washington; and Saint John, New Brunswick, Canada. All retail store locations are also leased. A typical store lease is for a term of 10 years, with options for renewal. The Eddie Bauer and Spiegel retail and catalog distribution functions are performed in two owned facilities in Groveport and Columbus, Ohio. An additional retail distribution facility is leased in Toronto, Canada to support the Eddie Bauer retail stores located in Canada. The Newport News distribution function is performed in an owned facility in Newport News, Virginia. Newport News also leases three warehouse facilities, two of which are located in Hampton, Virginia and another located in Williamsburg, Virginia. The Company considers its present space and facilities under development adequate for anticipated future requirements. ITEM 2. Properties Information regarding the principal properties of the Company is incorporated herein by reference to page 4 and 8 of Item 1 hereof. ITEM 3. Legal Proceedings ($000s omitted) On April 4, 2002, MBIA Insurance Corporation ("MBIA") issued a notice asserting the occurrence of one "Pay Out Event" and the existence of circumstances which, if not cured within 45 days following the date of such notice, would result in the occurrence of a second "Pay Out Event," under two asset-backed securities offerings issued by the Spiegel Credit Card Master Note Trust (the "Trust") and known as Series 2000-A and Series 2001-A. Those transactions involve the public issuance of notes supported by private-label credit card 8 receivables originated by FCNB and for which MBIA insures the payments to noteholders and The Bank of New York acts as indenture trustee. A "Pay Out Event" would divert monthly excess cash flow remaining after the payment of debt service and other expenses to repay principal to noteholders on an accelerated basis. This excess cash flow is otherwise paid to the Company and is utilized by the Company to fund its operations. The Company believes that no "Pay Out Event" has occurred as defined under the securitization documents. The Company and FCNB filed suit and obtained a temporary restraining order against MBIA and The Bank of New York on April 11, 2002, in the Supreme Court of the State of New York, County of New York. On May 16, 2002, the Company and MBIA entered into a settlement agreement pursuant to which, among other things, MBIA agreed to withdraw its April 4, 2002 letter. In addition, the Company and FCNB agreed to dismiss the litigation and to obtain a backup servicer no later than December 1, 2002. Finally, the Company agreed to increase the amounts required to be on deposit in a reserve account established for the benefit of MBIA as insurer of the notes. Amounts in that reserve account are available to cover the shortfall in any period, if any, between available collections on the receivables and the amounts owing in respect of principal and interest on the notes, prior to a claim being made against the insurer for such amounts. Pursuant to the agreement, increases in the reserve account will be funded by diverting excess receivables collections that would otherwise be available to the Company; provided that during the first seven months following the date of the agreement such diversions were limited to a maximum of $9,000 per month and an incremental $60,000 in the aggregate for the seven month period. This diversion of excess cash is measured based upon certain receivable portfolio performance criteria. Accordingly, the actual reserve requirements may be lower than the dollar amounts disclosed above based upon actual receivable portfolio performance. The agreement with MBIA contained other requirements, including the requirement to file the Company's and FCNB's 2001 financial statements by December 6, 2002. In addition, the Company agreed to appoint a backup servicer for the servicing of its receivable portfolio and to execute a backup servicing agreement by December 1, 2002. An amendment to the MBIA agreement to extend the date of the requirements has not yet been finalized. Although the Company believes that it will obtain an amendment to the settlement agreement, there can be no guarantees that MBIA will not exercise its remedies under the settlement agreement, which would include a "Pay Out Event", as described above. See Note 3. On May 15, 2002, FCNB entered into an agreement with the Office of the Comptroller of the Currency ("OCC"), the primary federal regulator of FCNB. The agreement calls for FCNB to comply with certain requirements. The agreement, among other things: (i) contains restrictions on transactions between the bank and its affiliates and requires the bank to complete a review of all existing agreements with affiliated companies, and to make necessary and appropriate changes; (ii) requires the bank to obtain an aggregate of $198,000 in guarantees, which guarantees have been provided through the Company's majority shareholder; (iii) restricts the bank's ability to accept, renew or rollover deposits; (iv) places restriction on the bank's ability to issue new credit cards and make credit line increases; (v) requires the bank within 30 days of the agreement to file with the OCC a disposition plan to either sell, merge or liquidate the bank; (vi) requires the bank to maintain sufficient assets to meet daily liquidity requirements; (vii) requires the bank to complete a comprehensive risk management assessment; (viii) establishes minimum capital levels for the bank; (ix) provides for increased oversight by and reporting to the OCC; and (x) provides for the maintenance of certain asset growth restrictions. In October 2002, the Company submitted a revised disposition plan to the OCC. The disposition plan provides for the sale or liquidation of the bankcard portfolio by April 30, 2003. To the extent that the Company is unable to sell the bankcard portfolio, the portfolio will be liquidated as part of the liquidation of FCNB in its entirety. On November 27, 2002, the OCC approved the disposition plan. In December 2002 and January 2003, four lawsuits were filed in the United States District Court for the Northern District of Illinois, Eastern Division, against the Company and certain current and former officers alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The plaintiffs purport to represent shareholders who purchased the Company's common stock between April 24, 2001 and April 19, 2002. The Company believes these claims lack merit and intends to defend against them vigorously. 9 The SEC is conducting an investigation concerning the Company's delinquent filing of its Form 10-K for 2001 and its Form 10-Q's for 2002. We are cooperating with the SEC in its investigation, but we cannot predict the duration, scope or outcome of, or potential sanctions resulting from the investigation. The Company is routinely involved in a number of legal proceedings and claims, which cover a wide range of matters. In the opinion of management these legal matters are not expected to have any material adverse effect on the consolidated financial position or results of operations of the Company. ITEM 4. Submission of Matters to a Vote of Security Holders None. 10 PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters Market information On April 17, 2002, the Company received a Nasdaq Staff Determination letter. The Staff Determination letter indicated that the Company did not comply with Marketplace Rule 4310(c)(14) by not filing its Form 10-K for the fiscal year ended December 29, 2001 by the required filing date. Accordingly, the Company's ticker symbol, SPGLA, was changed to SPGLE to signify the late filer status. On May 31, 2002, the Nasdaq Listing Qualifications Panel made a determination to delist the Company's Class A Common Stock on the Nasdaq National Market System effective with the open of business on June 3, 2002 based upon the Company's delinquency in filing this Form 10-K and other public interest concerns. On June 3, 2002, the Company's Class A Common Stock began trading on the over-the-counter market under the ticker symbol SPGLA. Stock quote information for SPGLA is being provided by Pink Sheets LLC and can be found on their web site at http://www.pinksheets.com. See Item 8. "Selected Quarterly Financial Data" for information on the high and low sale prices of the Class A non-voting common stock. The Class B voting common stock is not publicly traded. Therefore, no market value information is readily available on this class of stock. However, the Company believes the value of the Class B voting common stock approximates the market value of the Class A non-voting common stock as both classes of stock are equal in all respects, with the exception of voting rights. Holders There were approximately 6,628 Class A non-voting common stockholders as of December 5, 2002. The Company believes that certain of the outstanding shares of Class A non-voting common stock are held by nominees for an unknown number of beneficial stockholders. The Class B voting common stock of the Company is privately held. As of the date hereof, there was one Class B voting common stockholder. Dividends In fiscal 2001, the Company declared and paid four quarterly cash dividends to shareholders of record of both Class A non-voting common stock and Class B voting common stock at a rate of $0.04 per share. In fiscal 2000, the Company declared and paid three cash dividends to shareholders of record of both Class A non-voting common stock and Class B voting common stock at a rate of $0.04 per share. On November 13, 2001, the Company announced the discontinuance of its dividend payments to shareholders, effective December 30, 2001. Under the terms of the existing credit agreements, the Company is restricted from making dividend payments to shareholders. 11 ITEM 6. Five-Year Selected Financial Data
2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- ($000s omitted, except per share amounts) EARNINGS DATA Net sales and other revenue (1)................... $2,973,219 $3,529,307 $3,317,571 $2,984,424 $3,191,558 Earnings (loss) from continuing operations before cumulative effect of accounting change (1)...... (188,903) 73,516 77,043 (27,593) (45,263) Net earnings (loss) (2)(3)(4)..................... (587,474) 120,818 85,330 3,270 (33,021) Net earnings (loss) per common share from continuing operations before cumulative effect of accounting change Basic and diluted (1)...... $ (1.43) $ 0.56 $ 0.59 $ (0.21) $ (0.39) Net earnings (loss) per common share (2)(3)(4) Basic and diluted..................... $ (4.45) $ 0.92 $ 0.65 $ 0.03 $ (0.28) Cash dividends per common share................... $ 0.16 $ 0.12 $ -- $ -- $ -- BALANCE SHEET AND CASH FLOW DATA Current assets (1)................................ $1,238,869 $1,742,040 $1,561,291 $1,164,140 $1,235,202 Total assets (1).................................. 1,889,581 2,325,514 2,129,192 1,763,926 1,936,814 Current liabilities (1)........................... 1,674,978 722,628 762,548 587,663 629,845 Long-term debt excluding current maturities....... -- 686,857 566,572 523,036 713,750 Stockholders' equity.............................. 214,603 827,482 725,140 637,267 565,600 Continuing Operations: Net additions to property and equipment (1).... 64,025 64,000 34,024 28,414 54,662 Depreciation and amortization (1).............. $ 81,968 $ 75,921 $ 90,850 $ 86,999 $ 86,419
- -------- (1) Certain prior year amounts have been reclassified from amounts previously reported to conform with the fiscal 2001 presentation; see Notes 1 and 2 to the consolidated financial statements included in Item 8 hereof. (2) The fiscal 2001 net loss includes a charge of $319,297 or $2.42 per share, for the accrued estimated loss on disposal of the bankcard segment; see Note 2 to the consolidated financial statements included in Item 8 hereof. (3) The fiscal 2000 net earnings include a charge of $4,076 (net of tax benefit of $2,503), or $0.03 per share, for the cumulative effect of an accounting change related to the recognition of membership fee revenue; see Note 6 to the consolidated financial statements included in Item 8 hereof. (4) The fiscal 1998 net earnings include a charge of $8,535, (net of tax benefit of $5,231), or $0.06 per share, for the redemption of subsidiary preferred stock. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ($000s omitted, except per share amounts) GENERAL Historically, the operating results for the Company were reported for two segments: merchandising and bankcard. The merchandising segment included an aggregation of the Company's three merchant divisions and the private-label preferred credit operation. The bankcard segment included primarily the bankcard operations of 12 First Consumers National Bank (FCNB), the Company's special-purpose bank, and Financial Services Acceptance Corporation (FSAC). In the fourth quarter of fiscal 2001, the Company formalized a plan to sell the bankcard segment. Accordingly, the information included herein reflects the bankcard segment as a discontinued operation for all periods presented. The Company anticipates the completion of a sale of its bankcard segment by April 2003. To the extent that the Company is unable to sell the bankcard segment, this segment will be liquidated as part of the liquidation of FCNB in its entirety, as required under the OCC agreement (see page 3). As discussed below, the Company has been unable to successfully negotiate a new credit facility with its lending institutions, to obtain an amended settlement agreement with MBIA Insurance Corporation ("MBIA"), and to assure the future achievement of minimum performance requirements under its securitization transactions. These matters raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. On April 4, 2002, MBIA issued a notice asserting the occurrence of one "Pay Out Event" and the existence of circumstances which, if not cured within 45 days following the date of such notice, would result in the occurrence of a second "Pay Out Event," under two asset-backed securities offerings issued by the Spiegel Credit Card Master Note Trust (the "Trust") and known as Series 2000-A and Series 2001-A. Those transactions involve the public issuance of notes supported by private-label credit card receivables originated by FCNB and for which MBIA insures the payments to noteholders and The Bank of New York acts as indenture trustee. A "Pay Out Event" would divert monthly excess cash flow remaining after the payment of debt service and other expenses to repay principal to noteholders on an accelerated basis. This excess cash flow is otherwise paid to the Company and is utilized by the Company to fund its operations. The Company believes that no "Pay Out Event" has occurred as defined under the securitization documents. The Company and FCNB filed suit and obtained a temporary restraining order against MBIA and The Bank of New York on April 11, 2002, in the Supreme Court of the State of New York, County of New York. On May 16, 2002, the Company and MBIA entered into a settlement agreement pursuant to which, among other things, MBIA agreed to withdraw its April 4, 2002 letter. In addition, the Company and FCNB agreed to dismiss the litigation and to obtain a backup servicer no later than December 1, 2002. Finally, the Company agreed to increase the amounts required to be on deposit in a reserve account established for the benefit of MBIA as insurer of the notes. Amounts in that reserve account are available to cover the shortfall in any period, if any, between available collections on the receivables and the amounts owing in respect of principal and interest on the notes, prior to a claim being made against the insurer for such amounts. Pursuant to the agreement, increases in the reserve account will be funded by diverting excess receivables collections that would otherwise be available to the Company; provided that during the first seven months following the date of the agreement such diversions were limited to a maximum of $9,000 per month and an incremental $60,000 in the aggregate for the seven month period. This diversion of excess cash is measured based upon certain receivable portfolio performance criteria. Accordingly, the actual reserve requirements may be lower than the dollar amounts disclosed above based upon actual receivable portfolio performance. The agreement with MBIA contained other requirements, including the requirement to file the Company's and FCNB's 2001 financial statements by December 6, 2002. In addition, the Company agreed to appoint a backup servicer for the servicing of its receivable portfolio and to execute a backup servicing agreement by December 1, 2002. An amendment to the MBIA agreement to extend the date of these requirements has not yet been finalized. Although the Company believes that it will obtain an amendment to the settlement agreement, there can be no guarantees that MBIA will not exercise its remedies under the settlement agreement, which would include a "Pay Out Event", as described above. See Note 3 to the consolidated financial statements included in Item 8 hereof. On May 15, 2002, FCNB entered into an agreement with the Office of the Comptroller of the Currency ("OCC"), the primary federal regulator of FCNB. The agreement calls for FCNB to comply with certain requirements. The agreement, among other things: (i) contains restrictions on transactions between the bank and its affiliates and requires the bank to complete a review of all existing agreements with affiliated companies, and to make necessary and appropriate changes; (ii) requires the bank to obtain an aggregate of $198,000 in guarantees, which guarantees have been provided through the Company's majority shareholder; (iii) restricts the bank's ability to accept, renew or rollover deposits; (iv) places restriction on the bank's ability to issue new credit 13 cards and make credit line increases; (v) requires the bank within 30 days of the agreement to file with the OCC a disposition plan to either sell, merge or liquidate the bank; (vi) requires the bank to maintain sufficient assets to meet daily liquidity requirements; (vii) requires the bank to complete a comprehensive risk management assessment; (viii) establishes minimum capital levels for the bank; (ix) provides for increased oversight by and reporting to the OCC; and (x) provides for the maintenance of certain asset growth restrictions. In October 2002, the Company submitted a revised disposition plan to the OCC. The disposition plan provides for the sale or liquidation of the bankcard portfolio by April 30, 2003. To the extent that the Company is unable to sell the bankcard portfolio, the portfolio will be liquidated as part of the liquidation of FCNB in its entirety. On November 27, 2002, the OCC approved the disposition plan. RESULTS OF OPERATIONS The following table sets forth the statement of operations data for the years ended December 29, 2001, December 30, 2000, and January 1, 2000. Certain prior year amounts have been reclassified to conform with the fiscal 2001 presentation. See Notes 1 and 2 to the consolidated financial statements included in Item 8 hereof.
2001 2000 1999 ---------- ---------- ---------- Net sales............................... $2,782,053 $3,061,151 $2,916,455 Finance revenue......................... (112,287) 175,774 150,085 Other revenue........................... 303,453 292,382 251,031 Cost of sales........................... 1,752,986 1,889,630 1,821,234 Selling, general and administrative expenses.............................. 1,445,834 1,467,287 1,315,758 Operating income (loss)................. (225,601) 172,390 180,579 Interest expense........................ 59,068 60,587 57,026 Income tax expense (benefit)............ (95,101) 38,287 46,510 Minority interest in loss of consolidated subsidiary............... 665 -- -- Earnings (loss) from continuing operations before cumulative effect of accounting change.................. (188,903) 73,516 77,043 Discontinued operations: Earnings (loss) from operations (net of tax expense (benefit) of $(10,044), $32,844 and $5,287, respectively)...................... (79,274) 51,378 8,287 Loss on disposal..................... (319,297) -- -- Cumulative effect of accounting change (net of tax benefit of $ 2,503)....... -- (4,076) -- Net earnings (loss)..................... $ (587,474) $ 120,818 $ 85,330 Other Information: Gross profit margin (% of total net sales)............................. 37.0% 38.3% 37.6% SG&A expenses (% of total revenue)... 48.6% 41.6% 39.7%
YEAR ENDED DECEMBER 29, 2001 COMPARED TO YEAR ENDED DECEMBER 30, 2000 ($000s omitted) Net sales: Net sales decreased by $279,098 or 9.1% from $3.06 billion for the year ended December 30, 2000 to $2.78 billion for the year ended December 29, 2001. Eddie Bauer comparable-store sales decreased 15% as weak customer response to its apparel offer led to lower sales volume in the current year. In addition, net sales at Spiegel decreased 11.9% as catalog net sales were down 19.7%, which was partially offset by e-commerce increases of 42% over the comparable period last year. Finance revenue: Finance revenue decreased $288,061 or 163.9% from $175,774 for the year ended December 30, 2000 to $(112,287) for the year ended December 29, 2001. The decrease in finance revenue primarily resulted from a decrease in net pretax gains related to the securitization of credit card receivables. When the Company securitizes credit card receivables, it retains interest-only strips, subordinated investor certificates, receivables, servicing rights and cash reserve accounts, all of which are retained interests in the 14 securitized receivables. The Company estimates the fair value of these retained interests by using certain assumptions including portfolio yield, charge-offs, liquidation rates, interest rates and discount rates. Net pretax gains (losses) on the securitization of credit card receivables included in finance revenue totaled $(162,698) and $28,347 in 2001 and 2000, respectively. The decline in net pretax gains resulted primarily from an increase in expected charge-offs compared to the prior year. In addition, declines in finance revenue were also due to lower cash flows received from the securitization trust resulting from higher actual charge-off rates in the current year. Actual charge-off rates increased from approximately 9% in fiscal 2000 to approximately 16% in fiscal 2001. Other revenue: Other revenue increased by $11,701 or 3.8% from $292,382 for the year ended December 30, 2000 to $303,453 for the year ended December 29, 2001. The increase was driven by increases in royalty income and delivery income at Eddie Bauer and additional direct sales of third-party sourced magazines and other products at Spiegel. Cost of sales: Cost of sales decreased by $136,644 or 7.2% from $1.89 billion for the year ended December 30, 2000 to $1.75 billion for the year ended December 29, 2001. As a percentage of net sales, cost of sales increased from 61.7% to 63.0%. The increase in the cost of sales on a percentage basis was driven by higher markdowns at Eddie Bauer resulting from weak customer response to its apparel offer. Selling, general and administrative expenses ("SG&A"): SG&A expenses decreased $21,453 or 1.5% from $1.47 billion for the year ended December 30, 2000 to $1.45 billion for the year ended December 29, 2001. As a percentage of total revenue, SG&A expenses increased from 41.6% in fiscal 2000 to 48.6% in fiscal 2001. The increase as a percent of total revenue was due to higher catalog advertising expenses, which yielded lower sales productivity from catalog circulation and higher operating expenses in the current year for the preferred receivables portfolio. Non-recurring charges, which increased the SG&A ratio by approximately 60 basis points in 2000, included expenses related to organizational changes, as well as the disposition of certain impaired assets, including information technology-related assets. Operating income (loss): Operating income (loss) decreased by $397,991 or 230.9% from $172,390 for the year ended December 30, 2000 to $(225,601) for the year ended December 29, 2001. Lower net sales at each merchant company and lower finance revenue from the preferred credit card operation were the main drivers for the decrease in fiscal 2001. Interest expense: Interest expense decreased $1,519 or 2.5% from $60,587 for the year ended December 30, 2000 to $59,068 for the year ended December 29, 2001. Interest expense was favorably impacted by lower average interest rates throughout fiscal 2001, which was partially offset by higher debt levels in fiscal 2001. Income tax expense/(benefit): The effective tax rate was 33.4% in fiscal 2001 compared to 34.2% in fiscal 2000. In 2001, the Company recorded a valuation allowance of $8,840 due to substantial doubt about the Company's ability to continue as a going concern. See Notes 3 and 12 to the Company's consolidated financial statements included in Item 8 hereof. In addition, changes in earnings mix among the Company's various divisions affected the state tax rates for the comparable periods and differences in pretax income for the comparable periods resulted in a lower non-deductible goodwill rate in 2001 versus 2000. The Company assesses its effective tax rate on a continual basis. Earnings/(loss) from discontinued operations: The earnings (loss) from discontinued operations decreased $449,949 from $51,378 for the year ended December 30, 2000 to ($398,571) for the year ended December 29, 2001. The primary reason for the decrease relates to an estimated loss of $319,297 on the disposition of the bankcard segment, which was recorded in the fourth quarter of fiscal 2001. In addition to the estimated loss on disposition, the decrease in earnings is driven by higher charge-offs and a decrease in net pretax gains related to the securitization of credit card receivables. The decline in net pretax gains on the securitization of credit card receivables was a result of declines in the fair value of retained interests in the fourth quarter, primarily resulting from an increase in charge-offs compared to the prior year. Finally, earnings declines for discontinued operations 15 also resulted from the Company's recognition of a pretax servicing fee liability of approximately $50,000. On an ongoing basis, the Company performs a review to determine if a servicing fee liability must be recorded in accordance with Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". In the current year, the Company determined that the benefits received for servicing the receivables portfolio did not provide adequate compensation for servicing the receivables portfolio. YEAR ENDED DECEMBER 30, 2000 COMPARED TO YEAR ENDED JANUARY 1, 2000 ($000s omitted) Net sales: Net sales increased by $144,696 or 5.0% from $2.92 billion for the fiscal year ended January 1, 2000 to $3.06 billion for the fiscal year ended December 30, 2000. Positive sales growth at Newport News and Spiegel were partially offset by sales declines at Eddie Bauer. Newport News and Spiegel net sales increases were driven by positive customer response to merchandise offerings on increased catalog circulation. Comparable store sales at Eddie Bauer were down 8% in 2000 due to weak customer response to its apparel offer. The sales growth in 2000 was driven by the e-commerce results, which increased 199% in 2000 over the prior year. Finance revenue: Finance revenue increased $25,689 or 17.1% from $150,085 for the year ended January 1, 2000 to $175,774 for the year ended December 30, 2000. The increase in finance revenue resulted from an increase in average receivables owned and an increase in net pretax gains related to the securitization of credit card receivables. Average receivables owned increased 58%, reflecting sales growth at Newport News and Spiegel accompanied by an increase in customer utilization of the preferred credit card programs. Net pretax gains on the sale of receivables included in finance revenue totaled $28,347 and $18,918 in fiscal 2000 and fiscal 1999, respectively. Gains related to the sale of receivables in 2000 were slightly offset by declines in the fair value of retained interests, primarily resulting from an increase in charge-offs compared to the prior year. Other revenue: Other revenue increased by $41,351 or 16.5% from $251,031 for the fiscal year ended January 1, 2000 to $292,382 for the fiscal year ended December 30, 2000. The increase was due to higher shipping and handling income resulting from higher catalog sales at Spiegel and Newport News. Cost of sales: Cost of sales increased by $68,396 or 3.8% from $1.82 billion for the fiscal year ended January 1, 2000 to $1.89 billion for the fiscal year ended December 30, 2000. As a percentage of net sales, cost of sales decreased from 62.4% in 1999 to 61.7% in 2000. The favorable cost of sales ratio resulted from margin improvements at Spiegel and Newport News, which was partially offset by declines at Eddie Bauer. Declines at Eddie Bauer reflect higher markdowns taken to manage inventories compared to the prior year. Selling, general, and administrative expenses: SG&A expenses increased by $151,529 or 11.5% from $1.32 billion for the fiscal year ended January 1, 2000 to $1.47 billion for the fiscal year ended December 30, 2000. As a percentage of total revenue, SG&A expense increased 190 basis points from 39.7% in 1999 to 41.6% in the comparable period in 2000. Higher advertising expense on catalog circulation at Eddie Bauer and Spiegel drove the increase. Also contributing to the increase was lower operating expense leverage at Eddie Bauer due to lower sales, an increase in investments in e-commerce marketing initiatives and site enhancements, as well as the impact of certain non-recurring items. Non-recurring charges, which increased the SG&A ratio by approximately 60 basis points in 2000, included expenses related to organizational changes, as well as the disposition of certain impaired assets, including information technology-related assets. Non-recurring charges in 1999 increased the SG&A ratio by approximately 60 basis points, and included costs associated with the closure of seven Eddie Bauer stores in the United Kingdom as well as the write-off of certain impaired assets, primarily leasehold improvements, at Eddie Bauer and Spiegel. Operating income: Operating income decreased by $8,189 or 4.5% from $180,579 for the year ended January 1, 2000 to $172,390 for the year ended December 30, 2000. Weak customer response to the apparel offer led to lower sales volume and higher markdowns at Eddie Bauer, which drove results significantly below the prior year. 16 Interest expense: Interest expense increased $3,561 or 6.2% from $57,026 for the year ended January 1, 2000 to $60,587 for the year ended December 30, 2000. The increase in interest expense resulted primarily from higher average debt levels compared to the prior year, as well as a general increase in interest rates on the Company's outstanding borrowings. Somewhat offsetting the increase in interest expense in 2000 was a decrease in debt-related fees compared to 1999. Income taxes: The effective tax rate was 34.2% in 2000 compared to 37.6% in fiscal 1999. Changes in earnings mix among the Company's various divisions affected the state tax rates for the comparable periods and differences in pretax income for the comparable periods resulted in a lower non-deductible goodwill rate in 2000 versus 1999. The Company assesses its effective tax rate on a continual basis. Discontinued operations: Earnings from discontinued operations increased $43,091 or 520% from $8,287 for the year ended January 1, 2000 to $51,378 for the year ended December 30, 2000. The increase in income resulted from an increase in finance revenue from the bankcard segment. The increase in finance revenue resulted from an increase in average receivables owned and an increase in net pretax gains related to the sale of bankcard receivables and increases in the fair value of retained interests. Cumulative effect of accounting change: In 2000, the Company recorded a cumulative effect of accounting change of $(4,076) (net of income tax benefit of $2,503) in response to Staff Accounting Bulletin No. 101, "Revenue Recognition." Under the new accounting method, the Company will defer recognition of membership fee revenue, offset with direct costs that are incremental to the membership sale, over the 12-month term of the membership. LIQUIDITY AND CAPITAL RESOURCES ($000's omitted) The Company has historically met its operating and cash requirements through funds generated from operations, the securitization of credit card receivables and the issuance of debt and common stock. However, the Company has been unable to successfully negotiate a new credit facility with its lending institutions, to obtain an amended settlement agreement with MBIA Insurance Corporation ("MBIA"), and to assure the future achievement of minimum performance requirements under its securitization transactions. These matters raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. Net cash used in operating activities of continuing operations totaled $116,104 for fiscal 2001 compared to cash provided by operating activities of $112,234 for fiscal 2000. Negative cash flow from operations was primarily a result of lower earnings and reductions in accounts payable and accrued liabilities of $120,839. Customer accounts receivable increased $64,545 in fiscal 2001, which also increased the cash used in operating activities. Income taxes payable decreased in fiscal 2001 by $30,543 due to lower earnings and federal and state tax payments due in fiscal 2001 for the fiscal 2000 tax year. Partially offsetting the negative cash flow from operations was positive cash flows generated primarily through an inventory reduction of $85,174 in fiscal 2001 as the Company slowed inventory growth to correspond with the slow down in the economy and due to weak customer response seen primarily at Eddie Bauer. Total inventories at the end of fiscal 2001 were 15% lower than 2000 levels. Net cash used in investing activities of continuing operations totaled $145,750 for fiscal 2001 compared to $91,179 for the prior year. Expenditures in the current year were comprised primarily of Eddie Bauer retail store remodeling, distribution facility upgrades and information technology-related equipment and development. In addition, in fiscal 2001, the cash reserve requirements for receivable securitizations increased by $53,042 due to unfavorable credit card portfolio performance. The Company maintains cash reserve accounts as necessary, representing reserve funds used as credit enhancement for specific classes of investor certificates. 17 Net cash provided by discontinued operations totaled $18,730 for fiscal 2001 compared to net cash used in discontinued operations of $14,732 for the prior year. The positive cash flow in fiscal 2001 resulted from a decrease in bankcard accounts receivable offset in part by an increase in other assets due to an increase in cash reserve requirements in comparison to the prior year. As of December 29, 2001, total debt was $1,051,857 compared to $794,571 as of December 30, 2000. The increase in debt in fiscal 2001 was driven by a decline in operating results and increased funding requirements for the preferred credit card operation primarily to support credit card receivable growth as well as to support collateral requirements due to weak portfolio performance. The decline in operating performance and collateral requirements of the preferred and discontinued bankcard credit card operations also contributed to the increased debt levels in fiscal 2001. In addition, debt levels increased to fund capital expenditures of $64,025 for continuing operations. Borrowings under the Company's $600,000 long-term revolving credit agreement were $561,000 at December 29, 2001. No borrowings were outstanding under the Company's $150,000 364-day revolving credit agreement. The remaining availability under the total $750 million facility was $189,000 at December 29, 2001. However, the revolving credit agreement provides for restrictions on the availability of additional financing if a "material adverse change" in the Company's business has occurred. In February 2002, the Company determined, with its lending institutions, that a material adverse change had occurred due to the operating performance experienced in the fourth quarter of fiscal 2001 and due to the estimated loss recorded on the sale of the bankcard segment. Accordingly, on February 18, 2002, the borrowing capacity under the revolving credit facility was capped at $700,000, which represented the Company's borrowings outstanding on this date. The Company's debt agreements provide for restrictive covenants, including restrictions on the payment of dividends. Financial covenants of the revolving and term loan agreements establish minimum levels of tangible net worth and require the maintenance of certain ratios, including fixed charge coverage ("Coverage"), total debt to equity ("Leverage"), and adjusted debt to earnings before interest, taxes, depreciation and amortization, and rents ("Debt to EBITDAR"). Additionally, these agreements contain cross default provisions. For the reporting period December 29, 2001, the Company was in violation of its financial covenants. The Company is working with its lending group to restructure the existing credit facilities. However, there can be no assurances that a new credit facility will be available to the Company. If the Company is not able to enter into a new credit facility, alternative sources of financing will be required to obtain the necessary liquidity to continue to operate the business. These matters raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. See Note 3 to the Company's consolidated financial statements included in Item 8 hereof. In September 2001, the Company entered into a revolving credit agreement with Otto Versand (GmbH & Co), a related party. The initial availability under this credit agreement was $75,000. The credit agreement bears interest at a variable rate based on LIBOR plus a margin, comparable to the Company's other revolving credit agreements. The initial agreement extended through December 15, 2001. In November 2001, this revolving credit agreement with Otto Versand (GmbH & Co) was increased from $75,000 to $100,000 and the maturity date was extended from December 15, 2001 to June 15, 2002. At December 29, 2001, borrowings under this agreement totaled $50,000. As of February 2002, the balance outstanding under the revolving credit agreement with Otto Versand (GmbH & Co) was $100,000. This obligation was extinguished with the proceeds of new term loans in the aggregate amount of $100,000 from Otto-Spiegel Finance G.m.b.H. & Co. KG, a related party. These term loans had a maturity date of December 31, 2002 and bear interest at a rate of 4% per annum. As of January 2003, the $100,000 term loans are still outstanding and the Company borrowed an additional $60,000 senior unsecured loan from Otto Versand (GmbH & Co), which bears interest at a rate of LIBOR plus a margin. On November 13, 2001, the Company announced the discontinuance of its dividend payments to shareholders, effective December 30, 2001. The Company's debt agreements provide for restrictive covenants, including restrictions on the payment of dividends. Dividend payments totaled $21,106 in 2001. The majority of the Company's credit card receivables are sold to trusts that, in turn, sell certificates and notes representing undivided interests in the trusts to investors. The receivables are sold without recourse. The Company plans to continue to utilize asset-backed securities ("ABS") to fund the growth of receivables. Certain 18 minimum performance requirements must be maintained on each of the ABS transactions. In the event that the financial performance of an ABS transaction falls below the required minimum threshold, early amortization ("Pay out Event") of these transactions may occur. Early amortization under an ABS transaction would require the Company to obtain financing or sell these receivables through other sources. There is no guarantee that such financing or sale would be available to the Company. MBIA Insurance Corporation (MBIA) insures two of these ABS transactions. The off-balance sheet securitization structures include series with total facilities and maturities as follows:
2002 2003 2004 2005 2006 Thereafter ---- ---- -------- ---------- -------- ---------- First Consumers Master Trust Series 1999-A... $-- $-- $250,000 $ -- $ -- $-- First Consumers Credit Card Master Note Trust Series 2001-A.............................. -- -- -- -- 600,000 -- Spiegel Credit Card Master Note Trust & First Consumers Credit Card Master Note Trust Series2001-VFN............................. -- -- -- 1,500,000 -- -- Spiegel Credit Card Master Note Trust Series 2000-A..................................... -- -- -- 600,000 -- -- Spiegel Credit Card Master Note Trust Series 2001-A..................................... -- -- -- 600,000 -- -- --- --- -------- ---------- -------- --- Total Securitizations........................ $-- $-- $250,000 $2,700,000 $600,000 $-- === === ======== ========== ======== ===
The above table reflects the maturity dates of the securitization facilities. If the Company is not able to restructure its existing credit facilities or enter into new credit facilities with its lending institutions, the maturity dates of all of the facilities included in the above table would be accelerated to 2003. Finally, the Company has forecasted that, in the next several months, it will not meet certain minimum performance requirements related to the Company's securitization transactions. If the Company cannot achieve the minimum performance requirements, a "Pay Out Event" will occur. The Company maintains cash reserve accounts as necessary, representing reserve funds used as credit enhancement for specific classes of investor certificates issued in certain ABS transactions. Cash reserve requirements of the Company's preferred credit card receivables increased to $58,433 in fiscal 2001 (primarily in the fourth quarter of 2001) from $5,391 in fiscal 2000. Cash reserve requirements are determined based upon the actual performance of the credit card portfolio. The performance of the credit card portfolio is measured based primarily upon actual finance yield and charge-off rates. The increase in 2001 was due to unfavorable credit card portfolio performance driven by higher charge-offs. Additionally, the cash requirements of the discontinued bankcard receivables increased to $32,750 in fiscal 2001 from $0 in fiscal 2000 primarily due to unfavorable credit card performance driven by higher charge-offs in the bankcard portfolio. In fiscal 2002, the Company was informed by one of the rating agencies that it may downgrade the rating of the First Consumers Credit Card Master Note Trust Series 2001-VFN Class A Notes and the Spiegel Credit Card Master Note Trust Series 2001-VFN Class A Notes. Under the provisions of the existing securitization agreements, a rating agency downgrade would result in a "Pay Out Event" of the receivable securitizations. A "Pay Out Event" would divert monthly excess cash flows remaining after the payment of debt service and other expenses to repay principal to noteholders on an accelerated basis. In order to avoid such a "Pay Out Event", the Company agreed to increase its percentage of required collateral accordingly. This had the impact of increasing the receivables retained by the Company. The financing of these additional receivables will be generated from existing cash flows from operations and through the Company's existing credit facilities, if available. On April 4, 2002, MBIA Insurance Corporation ("MBIA") issued a notice asserting the occurrence of one "Pay Out Event" and the existence of circumstances which, if not cured within 45 days following the date of such 19 notice, would result in the occurrence of a second "Pay Out Event," under two asset-backed securities offerings issued by the Spiegel Credit Card Master Note Trust (the "Trust") and known as Series 2000-A and Series 2001-A. Those transactions involve the public issuance of notes supported by private-label credit card receivables originated by FCNB and for which MBIA insures the payments to noteholders and The Bank of New York acts as indenture trustee. A "Pay Out Event" would divert monthly excess cash flow remaining after the payment of debt service and other expenses to repay principal to noteholders on an accelerated basis. This excess cash flow is otherwise paid to the Company and is utilized by the Company to fund its operations. The Company believes that no "Pay Out Event" has occurred as defined under the securitization documents. The Company and FCNB filed suit and obtained a temporary restraining order against MBIA and The Bank of New York on April 11, 2002, in the Supreme Court of the State of New York, County of New York. On May 16, 2002, the Company and MBIA entered into a settlement agreement pursuant to which, among other things, MBIA agreed to withdraw its April 4, 2002 letter. In addition, the Company and FCNB agreed to dismiss the litigation and to obtain a backup servicer no later than December 1, 2002. Finally, the Company agreed to increase the amounts required to be on deposit in a reserve account established for the benefit of MBIA as insurer of the notes. Amounts in that reserve account are available to cover the shortfall in any period, if any, between available collections on the receivables and the amounts owing in respect of principal and interest on the notes, prior to a claim being made against the insurer for such amounts. Pursuant to the agreement, increases in the reserve account will be funded by diverting excess receivables collections that would otherwise be available to the Company; provided that during the first seven months following the date of the agreement such diversions were limited to a maximum of $9,000 per month and an incremental $60,000 in the aggregate for the seven month period. This diversion of excess cash is measured based upon certain receivable portfolio performance criteria. Accordingly, the actual reserve requirements may be lower than the dollar amounts disclosed above based upon actual receivable portfolio performance. The agreement with MBIA contained other requirements, including the requirement to file the Company's and FCNB's 2001 financial statements by December 6, 2002. In addition, the Company agreed to appoint a backup servicer for the servicing of its receivable portfolio and to execute a backup servicing agreement by December 1, 2002. An amendment to the MBIA agreement to extend the date of these requirements has not yet been finalized. Although the Company believes that it will obtain an amendment to the settlement agreement, there can be no guarantees that MBIA will not exercise its remedies under the settlement agreement, which would include a "Pay Out Event", as described above. See Note 3 to the Company's consolidated financial statements included in Item 8 hereof. On May 15, 2002, FCNB entered into an agreement with the Office of the Comptroller of the Currency ("OCC"), the primary federal regulator of FCNB. The agreement calls for FCNB to comply with certain requirements. The agreement among other things: (i) contains restrictions on transactions between the bank and its affiliates and requires the bank to complete a review of all existing agreements with affiliated companies, and to make necessary and appropriate changes; (ii) requires the bank to obtain an aggregate of $198,000 in guarantees, which guarantees have been provided through the Company's majority shareholder; (iii) restricts the bank's ability to accept, renew or rollover deposits; (iv) places restriction on the bank's ability to issue new credit cards and make credit line increases; (v) requires the bank within 30 days of the agreement to file with the OCC a disposition plan to either sell, merge or liquidate the bank; (vi) requires the bank to maintain sufficient assets to meet daily liquidity requirements; (vii) requires the bank to complete a comprehensive risk management assessment; (viii) establishes minimum capital levels for the bank; (ix) provides for increased oversight by and reporting to the OCC; and (x) provides for the maintenance of certain asset growth restrictions. In October 2002, the Company submitted a revised disposition plan to the OCC. The disposition plan provides for the sale or liquidation of the bankcard portfolio by April 30, 2003. To the extent that the Company is unable to sell the bankcard portfolio, the portfolio will be liquidated as part of the liquidation of FCNB in its entirety. On November 27, 2002, the OCC approved the disposition plan. 20 Overall, aggregate maturities under the Company's cash obligations as of December 29, 2001 are as follows:
2002 2003 2004 2005 2006 Thereafter -------- ---------- -------- -------- ------- ---------- ($000's omitted) Revolving credit agreement........ $ -- $ 561,000 $ -- $ -- $ -- $ -- Otto Versand (GmbH & Co) revolving credit agreement................ -- 50,000 -- -- -- -- Term loan agreements.............. -- 392,857 Secured notes..................... -- 48,000 -- -- -- -- Operating leases.................. 132,405 123,725 113,533 101,028 84,314 262,928 -------- ---------- -------- -------- ------- -------- Total cash obligations............ $132,405 $1,175,582 $113,533 $101,028 $84,314 $262,928 ======== ========== ======== ======== ======= ========
The Company was not in compliance with certain restrictive covenants in its debt agreements and, accordingly, substantially all of the Company's debt is currently due and payable. As no payments were made in 2002, the above table has reflected the Company's credit obligations with its lending institutions as payable in 2003. See Note 3 to the Company's consolidated financial statements included in Item 8 hereof. In addition, the Company has other commercial commitments as of December 29, 2001 as follows:
2002 2003 2004 2005 2006 Thereafter ------- ------ ---- ---- ---- ---------- Letter of credit facility... $77,500 $ -- $-- $-- $-- $-- Standby letters of credit... 2,500 3,500 -- -- -- -- ------- ------ --- --- --- --- Total commercial commitments $80,000 $3,500 $-- $-- $-- $-- ======= ====== === === === ===
At December 29, 2001, the Company had an interest rate swap agreement to hedge the underlying interest risks on a term loan agreement with Berliner Bank with effective and termination dates from March 1996 to December 2004. The notional amount of the interest rate swap agreement as of December 29, 2001 and December 30, 2000 was $30,000. The fair value of the swap agreement at December 29, 2001 and December 30, 2000 was $(2,710) and $(1,709), respectively, and was estimated by a financial institution and represents the estimated amount the Company would pay to terminate the agreement, taking into consideration current interest rates and risks of the transactions. At December 29, 2001, the Company also had an interest rate swap agreement (amended in April 2001) to hedge the underlying interest risks on a term loan agreement with Bank of America with effective and termination dates from March 1996 to March 2005 and on a portion of the outstanding balance of the revolving credit agreement with effective and termination dates from July 1999 to July 2003. The notional amount of the interest rate swap agreement as of December 29, 2001 and December 30, 2000 was $35,000 and $28,571, respectively. The fair value of this swap agreement at December 29, 2001 and December 30, 2000 was ($2,403) and $(1,096), respectively, and was estimated by a financial institution and represents the estimated amount the Company would pay to terminate the agreement, taking into consideration current interest rates and risks of the transactions. The counterparties are expected to fully perform under the terms of the agreements, thereby mitigating the risk from these transactions. These interest rate swaps in total increased interest expense by $945, $715 and $1,194 in fiscal 2001, 2000 and 1999, respectively. The total net derivative losses included in accumulated other comprehensive loss as of December 29, 2001, was $3,221 (net of tax benefit of $1,892) of which the Company estimates that $2,522 will be reclassified into earnings during the twelve months ended December 28, 2002. The Company maintains a $150,000 letter of credit facility in addition to off balance sheet stand by letters of credit, which are used for the purchase of inventories. The total letter of credit facility commitments 21 outstanding were $83,500 and $94,800 at December 29, 2001 and December 30, 2000, respectively. At December 29, 2001, there was an additional $72,500 of commitments available for the issuance of letters of credit. However, the letter of credit facilities provide for restrictions on the availability of additional financing if a "material adverse change" in the Company's business has occurred. In February 2002, the Company determined, with our lending institutions, that a material adverse change had occurred due to the operating performance experienced in the fourth quarter of fiscal 2001 and due to the estimated loss recorded on the sale of the bankcard segment. Accordingly, on February 18, 2002 no additional letter of credit facilities were available to the Company. In March 2002, the Company entered into a Vendor Payment Services Agreement with Otto International Hong Kong (OIHK), a related party. Under the terms of the agreement, the Company has open account terms with various vendors in certain countries in Asia. The duration of the agreement is for one year, automatically continuing unless terminated by either party with three months' written notice. OIHK will pay the vendors the purchase order value less a fee within seven days of the purchase order receipt. The Company will repay OIHK for 100% of the purchase order value for goods purchased by Spiegel and Newport News sixty days from the date of sea shipments and thirty days from the date of air shipments. Due to the larger volume of purchases made by Eddie Bauer in comparison to Spiegel and Newport News, the Company will make weekly advance payments to OIHK for 100% of the purchase order value of goods purchased by Eddie Bauer prior to shipment. The Company was not in compliance with certain restrictive covenants in its debt agreements and, accordingly, substantially all of the Company's debt is currently due and payable. The Company's ability to satisfy debt obligations and to pay principal and interest on debt, fund working capital, and make anticipated capital expenditures will depend on the Company's future performance, the outcome of its negotiations with its lenders, resolution of the uncertainty relating to the sale or liquidation of the bankcard segment, the occurrence of events that may result in an early amortization ("Pay Out Event") of the Company's asset-backed securities, the Company's ability to service preferred credit programs and any other changes in market conditions that are beyond the Company's control. There can be no assurances that any or all of these matters will be resolved satisfactorily, or if resolved satisfactorily, will provide resources sufficient to sustain the Company's operations. These matters raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. Accordingly, the Company cannot represent that its cash on hand, together with anticipated cash flows from operations, borrowings under its existing credit facilities, securitization of credit card receivables and other alternative sources of funds, will be adequate to fund the Company's capital and operating requirements for the foreseeable future. MARKET RISK The Company is exposed to market risk from changes in interest rates, the securitization of credit card receivables and, to a lesser extent, foreign currency exchange rate fluctuations. In seeking to minimize risk, the Company manages exposure through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company does not use financial instruments for trading or other speculative purposes and is not party to any leveraged financial instruments. Interest rates The Company manages interest rate exposure through a mix of fixed and variable-rate financings. The Company is generally able to meet certain targeted objectives through its direct borrowings. Substantially all of the Company's variable-rate exposure relates to changes in the one-month LIBOR rate. If the one-month LIBOR rate had changed by 50 basis points, the Company's interest expense in 2001 would have changed by approximately $3,148. Interest rate swaps may be used to minimize interest rate exposure when appropriate based on market conditions. The notional amounts of the Company's interest rate swap agreements totaled $65,000 at December 29, 2001. The Company believes that its interest rate exposure management policies, including the use of derivative financial instruments, are adequate to manage material market risk exposure. 22 Securitizations In conjunction with its asset-backed securitizations, the Company recognizes gains representing the present value of estimated future cash flows that the Company expects to receive over the liquidation period of the receivables. These future cash flows consist of an estimate of the excess of finance charges and fees over the sum of the interest paid to certificate holders, contractual servicing fees and charge-offs along with the future finance charges and principal collections related to retained interests in securitized receivables. Changes in interest rates and certain estimates inherent in determining the present value of these estimated future cash flows are influenced by factors outside the Company's control, and as a result, could materially change in the near term. Foreign currency exchange rates The Company is subject to foreign currency exchange rate risk related to its Canadian operations, as well as its joint venture investments in Germany and Japan. The Company is party to certain transactions with the Canadian operations and joint ventures that are denominated in foreign currencies. The Company monitors the exchange rates related to these currencies on a continual basis and will enter into forward derivative contracts for foreign currency when deemed advantageous based on current pricing and historical information. The Company believes that its foreign exchange rate risk and the effect of this hedging activity are not material due to the size and nature of the above operations. There were no foreign currency hedging contracts outstanding at December 29, 2001. CRITICAL ACCOUNTING POLICIES Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to product returns, bad debts, inventories, intangible assets, income taxes, retirement obligations, gains on sale of receivables and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its Consolidated Financial Statements included in Item 8 hereof. REVENUE RECOGNITION The Company records revenue at the point of sale for retail stores and at the time of shipment for catalog and e-commerce sales. Membership fee revenue related to discount clubs offered to retail customers is recognized in net sales over the term of the membership, which is 12 months. The Company provides for returns at the time of sale based upon projected merchandise returns or membership fee refunds. Amounts billed to customers for catalog and e-commerce shipping and handling are recorded as other revenue at the time of shipment. 23 Finance charge and fee revenue on credit card receivables owned is recorded as income when earned. Excess cash flows resulting from the Company's securitization activity are recorded as finance revenue when earned. Annual credit card fees are recognized as finance revenue over a 12-month period. Gains and losses recognized on the sale of credit card receivables are recorded as an increase or decrease in finance revenue. Finance charge and fee revenue as well as gains and losses on the sale of credit card receivables for the bankcard credit card operations of FCNB have been included in net earnings (loss) from discontinued operations. SALE OF RECEIVABLES The majority of the Company's credit card receivables are transferred to trusts that, in turn, sell certificates and notes representing undivided interests in the trusts to investors. The receivables are sold without recourse. Accordingly, no allowance for doubtful accounts related to the sold receivables is maintained by the Company. When the Company sells receivables in these securitizations, it retains interest-only strips, subordinated certificates, a sellers interest in receivables that are transferred to the trust but are not sold and cash reserve accounts, all of which are included in retained interests in securitized receivables, with the exception of cash reserve accounts which are included in other assets. Cash reserve accounts and retained interests in securitized bankcard receivables of FCNB are included in the Consolidated Balance Sheets in net assets of discontinued operations. For the receivables that are transferred to the trust but are retained by the Company, the Company accounts for these receivables at fair value, which represents the par value of the receivables less an allowance for doubtful accounts. This allowance is continually reviewed by management. Recognition of gain or loss on the sale of receivables depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer. In addition, gains are recognized based upon the present value of estimated future cash flows that the Company expects to receive over the liquidation period of the receivables. These future cash flows consist of an estimate of the excess of finance charges and fees over the sum of the interest paid to certificate holders, contractual servicing fees and charge-offs along with the future finance charges and principal collections related to retained interests in securitized receivables. These estimates are highly sensitive to changes in portfolio performance and inherently require management judgement on future portfolio performance. Cash reserve accounts are maintained as necessary, representing restricted funds used as credit enhancement for specific classes of investor certificates issued in certain securitization transactions. INVENTORIES Inventories, principally merchandise available for sale, are stated at the lower of cost or market. Cost is determined primarily by the average cost method or by the first-in, first-out method. The average cost or first-in, first-out method inherently requires management judgment and contains estimates such as the amount of markdowns necessary to clear unproductive or slow-moving inventory, which may impact the ending inventory valuation as well as gross margins. ADVERTISING COSTS Costs incurred for the production and distribution of direct response catalogs are capitalized and amortized over the expected lives of the catalogs, which are less than one year. All other advertising costs for catalog, e-commerce, retail and credit operations are expensed as incurred. LONG-LIVED ASSET IMPAIRMENT The carrying value of long-lived assets are periodically reviewed by the Company whenever events or changes in circumstances indicate that a potential impairment has occurred. For long-lived assets held for use, a potential impairment occurred if projected future undiscounted cash flows are less than the carrying value of the assets. The estimate of cash flows includes management's assumptions of cash inflows and outflows directly resulting from the use of that asset in operations. When a potential impairment has occurred, an impairment 24 write-down is recorded if the carrying value of the long-lived asset exceeds its fair value. The Company believes its estimated cash flows are sufficient to support the carrying value of its long-lived assets. If estimated cash flows significantly differ in the future, the Company may be required to record asset impairment write-downs. INCOME TAXES Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company has recorded a valuation allowance due to substantial doubt about the Company's ability to continue as a going concern. DISCONTINUED OPERATIONS Discontinued operations include management's best estimates of the amounts expected to be realized on the sale or liquidation of the bankcard segment by April 2003. The Company has recorded an estimate for the loss on the sale of the bankcard segment based upon the Company's assessment of the quality of the assets in the FCNB bankcard business. The estimated loss on disposition of the bankcard segment is highly sensitive to changes in the market conditions as well as changes in the bankcard receivable portfolio performance. These estimates may be revised in subsequent periods as new information becomes available. SERVICING FEE LIABILITY The Company's credit card receivables are serviced by FCNB. On an ongoing basis, management performs a review of the receivable portfolio to determine if a servicing fee liability must be recorded in accordance with Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". The servicing fee liability is calculated utilizing several assumptions including receivable liquidation rates, discount rates, and the costs to service the receivable portfolio. These estimates are highly sensitive to changes in portfolio performance and inherently require management judgment of future performance. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ($000s omitted) Otto Versand (GmbH & Co) ("Otto Versand"), a privately held German partnership, acquired the Company in 1982. In April 1984, Otto Versand transferred its interest in the Company to its partners and designees. Otto Versand and the Company have entered into certain agreements seeking to benefit both parties by providing for the sharing of expertise. In October 2002, the German partnership changed its name from Otto Versand (GmbH & Co) to Otto (GmbH & Co KG), hereinafter referred to as "Otto Versand (GmbH & Co)" or "Otto Versand". The following is a summary of such agreements and certain other transactions: The Company utilizes the services of Otto Versand International (GmbH) as a buying agent for the Company in Hong Kong, Taiwan, Korea, India, Italy, Indonesia, Singapore, Thailand, Poland, Brazil and Turkey. Otto Versand International (GmbH) is a wholly owned subsidiary of Otto Versand. Buying agents locate suppliers, inspect goods to maintain quality control, arrange for appropriate documentation and, in general, expedite the process of procuring merchandise in these areas. Under the terms of its arrangements, the Company paid $6,989, $6,786 and $4,994 in fiscal 2001, 2000 and 1999, respectively. The arrangements are indefinite in term but may generally be canceled by either party upon one year written notice. In March 2002, the Company entered into a Vendor Payment Services Agreement with Otto International Hong Kong (OIHK). Under the terms of the agreement, the Company has open account terms with various vendors in certain countries in Asia. The duration of the agreement is for one year, automatically continuing unless terminated by either party with three months written notice. OIHK will pay the vendors the purchase order 25 value less a fee within seven days of the purchase order receipt. The Company will repay OIHK for 100% of the purchase order value for goods purchased by Spiegel and Newport News sixty days from the date of sea shipments and thirty days from the date of air shipments. Due to the larger volume of purchases made by Eddie Bauer in comparison to Spiegel and Newport News, the Company will make weekly advance payments to OIHK for 100% of the purchase order value of goods purchased by Eddie Bauer prior to shipment. In September 2001, the Company entered into a revolving credit agreement with Otto Versand. The initial availability under this credit agreement was $75,000. The credit agreement bears interest at a variable rate based on LIBOR plus a margin, comparable to the Company's other revolving credit agreements. The initial agreement extended through December 15, 2001. In November 2001, this revolving credit agreement with Otto Versand was increased from $75,000 to $100,000 and the maturity date was extended from December 15, 2001 to June 15, 2002. At December 29, 2001, borrowings under this agreement totaled $50,000. As of February 2002, the balance outstanding under the revolving credit agreement with Otto Versand was $100,000. This obligation was extinguished with the proceeds of new term loans in the aggregate amount of $100,000 from Otto-Spiegel Finance G.m.b.H. & Co. KG. These term loans had a maturity date of December 31, 2002 and bear interest at a rate of 4% per annum. As of January 2003, the $100,000 term loans are still outstanding and the Company borrowed an additional $60,000 senior unsecured loan from Otto Versand (GmbH & Co), which bears interest at a rate of LIBOR plus a margin. The Company has an agreement with Together, Ltd., a United Kingdom company, which gives the Company the exclusive right to market "Together!" merchandise through the direct sales channels and retail stores. Otto Versand owns Together, Ltd. Commission expenses were $2,201, $3,161 and $2,949 in fiscal 2001, 2000 and 1999, respectively. These expenses include certain production services, the cost of which would normally be borne by the Company, including design of the product, color separation, catalog copy and layout, identification of suggested manufacturing sources and test marketing information. In 1993, the Company formed a joint venture with Otto-Sumisho, Inc. (a joint venture company of Otto Versand and Sumitomo Corporation) and entered into license agreements to sell Eddie Bauer products through retail stores and direct sales channels in Japan. The Company believes that the terms of the arrangement are no less favorable to Eddie Bauer than would be the case in an arrangement with an unrelated third party. There were 38 stores open in Japan as of December 29, 2001. As of December 29, 2001, Eddie Bauer has contributed $9,290 to the project and in 1994, received a $2,500 licensing fee for the use of its name. Eddie Bauer received $2,416, $3,790 and $5,007 in royalty income on retail and direct sales during fiscal 2001, 2000 and 1999, respectively, which is included in other revenue in the Consolidated Statements of Operations. Eddie Bauer recorded a loss of $497 and $706 in fiscal 2001 and 2000, respectively, and income of $553 in 1999 for its equity share of the joint venture, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. During 1995, Eddie Bauer formed a joint venture with Heinrich Heine GmbH and Sport-Scheck GmbH (both subsidiaries of Otto Versand) and entered into license agreements to sell Eddie Bauer products through retail stores and direct sales channels in Germany. The Company believes that the terms of the arrangement are no less favorable to Eddie Bauer than would be the case in an arrangement with an unrelated third party. There were nine stores open in Germany as of December 29, 2001. As of December 29, 2001, Eddie Bauer has contributed $13,123 to the project and has received $1,000 in licensing fees for the use of its name. Eddie Bauer received $1,249, $1,249 and $1,449 in royalty income on retail and direct sales during fiscal 2001, 2000 and 1999, respectively, which is included in other revenue in the Consolidated Statements of Operations. Eddie Bauer recorded approximately $1,211, $1,641 and $2,559 of losses for its equity share of the joint venture during fiscal 2001, 2000 and 1999, respectively, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. During 1996, Eddie Bauer formed a joint venture with Grattan plc (a subsidiary of Otto Versand) and entered into license agreements to sell Eddie Bauer products through retail stores and catalogs in the United 26 Kingdom. The Company believes that the terms of the arrangement were no less favorable to Eddie Bauer than would be the case in an arrangement with an unrelated third party. As of December 30, 2000, Eddie Bauer had contributed $4,585 to the project and had received a licensing fee of $667 in 1998 for the use of its name. In addition, Eddie Bauer received $116 and $481 in 2000 and 1999, respectively, in royalty income on retail and catalog sales, which is included in other revenue in the Consolidated Statement of Earnings. In October 1999, Eddie Bauer and Grattan plc agreed to terminate the Eddie Bauer UK operation. The closure was completed in the first quarter of 2000. Eddie Bauer recorded losses of approximately $3,166 in 1999 for its equity share of the joint venture, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. Additionally, a $5,000 charge was recorded in 1999 representing the Company's equity share of the costs estimated to discontinue the joint ventures, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. In 1993, Eddie Bauer entered into an agreement with Eddie Bauer International, Ltd. (EBI) (a subsidiary of Otto Versand) whereby the latter acts as buying agent in Asia (EBI-Hong Kong) and in 1997 Eddie Bauer entered into an agreement with Eddie Bauer International (Americas), Inc. (EBI-Miami). The buying agents contact suppliers, inspect goods and handle shipping documentation for Eddie Bauer. The Company believes that the terms of the arrangements are no less favorable to Eddie Bauer than would be the case in an arrangement with an unrelated third party. The Company paid $17,981, $19,535 and $20,030 to EBI-Hong Kong for these services in fiscal 2001, 2000 and 1999, respectively, which is included in selling, general and administrative expense in the Consolidated Statement of Earnings. The Company paid EBI-Miami $4,976, $4,482 and $4,151 for these services in fiscal 2001, 2000 and 1999, respectively, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. ACCOUNTING STANDARDS Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," supercedes "Accounting Principles Board" (APB) Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." All business combinations in the scope of SFAS No. 141 are to be accounted for using the purchase method. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001, as well as business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001 or later. The Company adopted SFAS No. 141 as required on July 1, 2001. SFAS No. 142, "Goodwill and Other Intangible Assets," which supercedes APB Opinion No 17, "Intangible Assets," establishes financial accounting and reporting standards for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and other intangible assets with indefinite lives are not amortized but rather tested for impairment annually, or more frequently if impairment indicators arise. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Company's intangible assets with indefinite lives represent principally goodwill and trademarks from businesses acquired. In assessing the recoverability of goodwill and other intangibles, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets. If it is determined that significant impairment has occurred, the Company would be required to write-off the impaired portion of the asset, which could have a material adverse effect on the operating results in the period in which the write-off occurs. Effective for fiscal 2002 the Company adopted SFAS No. 142 and ceased amortization of goodwill and trademarks. In the second quarter of fiscal 2002 the Company completed the required transitional impairment test, which resulted in no goodwill impairment. SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," and 27 the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" (for the disposal of a segment of a business) and amends APB Opinion No. 51, "Consolidated Financial Statements." The Company has accounted for the sale of the bankcard segment in accordance with APB Opinion No. 30 because the measurement date was in 2001. The Company adopted SFAS No. 144 as required on December 30, 2001. The adoption has not had a material impact on the Company's Consolidated Financial Statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002, with early application encouraged. The Company is evaluating the new provisions to assess the impact on its consolidated results of operations and financial position. FORWARD-LOOKING STATEMENTS This report contains statements that are forward-looking within the meaning of applicable federal securities laws and are based upon the Company's current expectations and assumptions. You should not place undue reliance on those statements because they speak only as of the date of this report. Forward-looking statements include information concerning the Company's possible or assumed future results of operations. These statements often include words such as "expect," "plan," "believe," "anticipate", "intend," "estimate," or similar expressions. As you read and consider this report, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions. Although the Company believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and actual results could differ materially from the forward-looking statements. These factors include, but are not limited to, the uncertainty regarding the Company's ability to enter into new credit facilities with its lending institutions, uncertainty regarding the Company's ability to amend its existing agreement with MBIA, the uncertainty relating to the sale or liquidation of the bankcard segment; increased oversight or restrictions by the OCC on the bankcard segment which could reduce the market value of the bankcard segment; the risk associated with fulfilling the obligations set forth in the Bank's disposition plan; the availability of future liquidity support from the Company's majority stockholder; reduction in cash available from the Company's securitization transactions; the financial strength and performance of the retail and direct marketing industry; changes in consumer spending patterns; dependence on the securitization of credit card receivables to fund operations; state and federal laws and regulations related to offering and extending credit; risks associated with collections on the Company's credit card portfolio; interest rate fluctuations; postal rate increases; paper or printing costs; the success of planned merchandising, advertising, marketing and promotional campaigns; and various other factors beyond the Company's control. All future written and oral forward-looking statements made by the Company or persons acting on the Company's behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except for the Company's ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligation or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events. ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk Information contained in Part II, Item 7. under the caption "Market Risk" on page 22 of this Form 10-K is incorporated herein by reference. 28 ITEM 8. Financial Statements and Supplementary Data CONSOLIDATED BALANCE SHEETS ($000s omitted, except per share amounts)
December 29, December 30, 2001 2000 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents.................................................... $ 29,528 $ 35,116 Receivables, net............................................................. 638,206 736,908 Inventories.................................................................. 476,903 562,863 Prepaid expenses............................................................. 88,434 99,739 Refundable income taxes...................................................... 5,798 -- Deferred income taxes........................................................ -- 36,985 Net assets of discontinued operations........................................ -- 270,429 ---------- ---------- Total current assets..................................................... 1,238,869 1,742,040 Property and equipment, net.................................................. 351,543 342,315 Intangible assets, net....................................................... 135,357 140,627 Other assets................................................................. 163,812 100,532 ---------- ---------- Total assets............................................................. $1,889,581 $2,325,514 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt............................................ $1,001,857 $ 107,714 Related party debt........................................................... 50,000 -- Accounts payable and accrued liabilities..................................... 476,249 588,277 Income taxes payable......................................................... -- 26,637 Net liabilities of discontinued operations................................... 146,872 -- ---------- ---------- Total current liabilities................................................ 1,674,978 722,628 Long-term debt, excluding current portion.................................... -- 686,857 Deferred income taxes........................................................ -- 88,547 ---------- ---------- Total liabilities........................................................ 1,674,978 1,498,032 ---------- ---------- STOCKHOLDERS' EQUITY: Class A non-voting common stock, $1.00 par value; authorized 16,000,000 shares; 14,945,144 shares issued and outstanding at December 29, 2001; 14,855,244 shares issued and outstanding at December 30, 2000.............. 14,945 14,855 Class B voting common stock, $1.00 par value; authorized 121,500,000 shares; 117,009,869 shares issued and outstanding.................................. 117,010 117,010 Additional paid-in capital................................................... 329,489 329,015 Accumulated other comprehensive loss: Foreign currency translation............................................. (6,941) (5,299) Unrealized loss on derivatives........................................... (3,221) -- Retained earnings (accumulated deficit)...................................... (236,679) 371,901 ---------- ---------- Total stockholders' equity............................................... 214,603 827,482 ---------- ---------- Total liabilities and stockholders' equity............................... $1,889,581 $2,325,514 ========== ==========
See accompanying notes to consolidated financial statements. 29 CONSOLIDATED STATEMENTS OF OPERATIONS
For years ended ---------------------------------------- December 29, December 30, January 1, 2001 2000 2000 ------------ ------------ ------------ ($000s omitted, except per share amounts) NET SALES AND OTHER REVENUE Net sales.......................................................... $ 2,782,053 $ 3,061,151 $ 2,916,455 Finance revenue.................................................... (112,287) 175,774 150,085 Other revenue...................................................... 303,453 292,382 251,031 ------------ ------------ ------------ 2,973,219 3,529,307 3,317,571 COST OF SALES AND OPERATING EXPENSES Cost of sales, including buying and occupancy expenses............. 1,752,986 1,889,630 1,821,234 Selling, general and administrative expenses....................... 1,445,834 1,467,287 1,315,758 ------------ ------------ ------------ 3,198,820 3,356,917 3,136,992 Operating income (loss)............................................ (225,601) 172,390 180,579 Interest expense................................................... 59,068 60,587 57,026 ------------ ------------ ------------ Earnings (loss) from continuing operations before income taxes, cumulative effect of accounting change and minority interest..... (284,669) 111,803 123,553 Income tax expense (benefit)....................................... (95,101) 38,287 46,510 Minority interest in loss of consolidated subsidiary............... 665 -- -- ------------ ------------ ------------ Earnings (loss) from continuing operations before cumulative effect of accounting change............................................. (188,903) 73,516 77,043 Discontinued operations--Earnings (loss) from operations (net of tax expense (benefit) of ($10,044), $32,844 and $5,287, respectively).................................................... (79,274) 51,378 8,287 Loss on disposal................................................... (319,297) -- -- Cumulative effect of accounting change (net of tax benefit of $2,503).......................................................... -- (4,076) -- ------------ ------------ ------------ Net earnings (loss)................................................ $ (587,474) $ 120,818 $ 85,330 ============ ============ ============ EARNINGS (LOSS) PER COMMON SHARE Earnings (loss) per common share from continuing operations before cumulative effect of accounting change Basic and diluted............................................... $ (1.43) $ 0.56 $ 0.59 Earnings (loss) from discontinued operations Basic and diluted............................................... (3.02) 0.39 0.06 Cumulative effect of accounting change Basic and diluted............................................... -- (0.03) -- ------------ ------------ ------------ Net earnings (loss) per common share Basic and diluted............................................... $ (4.45) $ 0.92 $ 0.65 ------------ ------------ ------------ Weighted average common shares outstanding Basic........................................................... 131,908,540 131,861,808 131,813,183 ============ ============ ============ Diluted......................................................... 131,908,540 131,944,900 131,990,542 ============ ============ ============
See accompanying notes to consolidated financial statements. 30 CONSOLIDATED STATEMENTS OF CASH FLOWS For years ended ($000s omitted)
December 29, December 30, January 1, 2001 2000 2000 ------------ ------------ ---------- CASH FLOWS FROM OPERATING ACTIVITIES Earnings (loss) from continuing operations, net of cumulative effect of accounting change and minority interest.............................. $(188,903) $ 69,440 $ 77,043 Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by (used in) operating activities: Cumulative effect of accounting change.............................. -- 4,076 -- Depreciation and amortization....................................... 81,968 75,921 90,850 Net pretax (gains) losses on sale of receivables.................... 162,698 (28,347) (18,918) Deferred income taxes............................................... (51,695) 13,695 43,216 Minority interest in loss of consolidated subsidiary................ (665) -- -- Changes in assets and liabilities: Increase in receivables, net........................................ (64,545) (17,588) (277,632) (Increase) decrease in inventories.................................. 85,174 (64,098) (7,468) (Increase) decrease in prepaid expenses............................. 11,246 (6,943) (5,178) Increase (decrease) in accounts payable and accrued liabilities..... (120,839) 35,697 46,331 Increase (decrease) in income taxes................................. (30,543) 30,381 6,194 --------- --------- --------- Net cash provided by (used in) operating activities of continuing operations........................................................... (116,104) 112,234 (45,562) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Net additions to property and equipment................................ (64,025) (64,000) (34,024) Net additions to other assets.......................................... (81,725) (27,179) (21,102) --------- --------- --------- Net cash used in investing activities of continuing operations......... (145,750) (91,179) (55,126) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of debt....................................................... 365,000 228,000 258,000 Payment of debt........................................................ (107,714) (214,465) (85,714) Payment of dividends................................................... (21,106) (15,822) -- Contribution from minority interest of consolidated subsidiary......... 4,877 -- -- Issuance of Class A common shares...................................... 564 37 596 Increase in deferred financing fees.................................... (4,324) (1,671) (4,205) --------- --------- --------- Net cash provided by (used in) financing activities of continuing operations........................................................... 237,297 (3,921) 168,677 --------- --------- --------- Net cash provided by (used in) discontinued operations................. 18,730 (14,732) (122,036) --------- --------- --------- Effect of exchange rate changes on cash................................ 239 332 577 --------- --------- --------- Net change in cash and cash equivalents................................ (5,588) 2,734 (53,470) Cash and cash equivalents at beginning of year......................... 35,116 32,382 85,852 --------- --------- --------- Cash and cash equivalents at end of year............................... $ 29,528 $ 35,116 $ 32,382 ========= ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for: Interest............................................................ $ 70,051 $ 73,622 $ 68,414 --------- --------- --------- Income taxes........................................................ $ 23,377 $ 29,868 $ 4,764 --------- --------- ---------
See accompanying notes to consolidated financial statements. 31 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ($000s omitted)
Class A Class B Retained Accumulated non-voting voting Additional earnings other common common paid-in (accumulated comprehensive Total stock stock capital deficit) loss --------- ---------- -------- ---------- ------------ ------------- Balances at January 2, 1999................. $ 637,267 $14,748 $117,010 $328,489 $ 181,575 $ (4,555) Comprehensive income: Net earnings................... 85,330 -- -- -- 85,330 -- Foreign currency translation... 1,947 -- -- -- -- 1,947 --------- ------- -------- -------- --------- -------- Total comprehensive income........ 87,277 Issuance of 101,400 Class A common shares................... 596 101 -- 495 -- -- --------- ------- -------- -------- --------- -------- Balances at January 1, 2000................. 725,140 14,849 117,010 328,984 266,905 (2,608) Comprehensive income (loss): Net earnings................... 120,818 -- -- -- 120,818 -- Foreign currency translation... (2,691) -- -- -- -- (2,691) --------- ------- -------- -------- --------- -------- Total comprehensive income........ 118,127 Dividends paid.................... (15,822) -- -- -- (15,822) -- Issuance of 6,000 Class A common shares.......................... 37 6 -- 31 -- -- --------- ------- -------- -------- --------- -------- Balances at December 30, 2000............... 827,482 14,855 117,010 329,015 371,901 (5,299) Comprehensive loss: Net loss....................... (587,474) -- -- -- (587,474) -- Cumulative effect of a change in accounting for derivative financial instruments........ (1,566) -- -- -- -- (1,566) Unrealized loss on derivatives. (1,655) -- -- -- -- (1,655) Foreign currency translation... (1,642) -- -- -- -- (1,642) --------- ------- -------- -------- --------- -------- Total comprehensive loss.......... (592,337) Dividends paid.................... (21,106) -- -- -- (21,106) -- Option exercises of 89,900 Class A common shares................... 564 90 -- 474 -- -- --------- ------- -------- -------- --------- -------- Balances at December 29, 2001............... $ 214,603 $14,945 $117,010 $329,489 $(236,679) $(10,162) ========= ======= ======== ======== ========= ========
See accompanying notes to consolidated financial statements. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000s omitted, except per share amounts) 1. Summary of Significant Accounting Policies NATURE OF OPERATIONS Spiegel, Inc. and its subsidiaries are referred to throughout this report as "The Spiegel Group," "the Group" or "the Company." The Spiegel Group is a leading international specialty retailer marketing fashionable apparel and home furnishings through catalogs, seven e-commerce sites and 607 specialty retail and outlet stores as of December 29, 2001. The Company operates a special-purpose bank that offers private-label preferred credit programs to customers of its merchant divisions and markets various bankcard credit programs nationwide. (See Note 2.) The Company was not in compliance with certain restrictive covenants in its debt agreements and, accordingly, substantially all of the Company's debt is currently due and payable. The Company has been unable to successfully negotiate a new credit facility with its lending institutions, to obtain an amended settlement agreement with MBIA Insurance Corporation ("MBIA"), or to assure the future achievement of minimum performance requirements under its securitization transactions. These matters raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. (See Note 3.) USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements, accompanying notes and financial statement schedule. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Spiegel, Inc. and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. The Company's private-label preferred credit card portfolio is serviced by FCNB. Costs for servicing the preferred portfolio are charged to the preferred credit card operation by FCNB. There can be no guarantees that upon sale or liquidation of the bankcard segment (as discussed in Note 2) the Company will be able to service the preferred portfolio under a similar cost structure internally or through a third party service provider. The Company's joint venture investments in Germany and Japan with affiliated companies of Otto Versand, a related party, are accounted for using the equity method. The operating results of these entities are not material to the Company. In 1999, a $5,000 charge was recorded representing the Company's proportionate share of the costs to discontinue a joint venture in the United Kingdom. In fiscal 2001, the Company entered into a 60 percent joint venture investment with Hermes General Service USA, Inc. ("HGS"), an affiliated company of Otto Versand, a related party, forming the limited liability company Spiegel-Hermes General Service, LLC ("SHGS"). This investment is accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 94, "Consolidation of All Majority-Owned Subsidiaries" which requires, with few exceptions, a parent company to consolidate all of its majority-owned subsidiaries. The minority interest in SHGS is not considered material, and is included in the other liabilities section of the Consolidated Balance Sheets. Under the terms of the joint venture agreement, HGS is obligated to make contributions for its share of the losses incurred by SHGS during the initial five years of the agreement. The 40 percent minority interest in the fiscal 2001 loss of SHGS has been reflected as "Minority interest in loss of consolidated subsidiary" in the accompanying Consolidated Statements of Operations. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) FISCAL YEAR The Company's fiscal year ends on the Saturday closest to December 31. Fiscal years 2001, 2000 and 1999 consisted of 52 weeks and ended on December 29, 2001, December 30, 2000 and January 1, 2000, respectively. REVENUE RECOGNITION The Company records revenue at the point of sale for retail stores and at the time of shipment for catalog and e-commerce sales. Membership fee revenue related to discount clubs offered to customers is recognized in net sales over the term of the membership, which is 12 months. The Company provides for returns at the time of sale based upon projected merchandise returns or membership fee refunds. Amounts billed to customers for catalog and e-commerce shipping and handling are recorded as other revenue at the time of shipment. Finance charge and fee revenue from preferred and bankcard receivables owned are recorded as finance revenue when earned. Excess cash flows resulting from the Company's securitization activity are recorded as finance revenue when earned. Annual credit card fees are recognized as finance revenue over a 12-month period. Gains and losses recognized on the sale of credit card receivables are recorded as an increase or decrease to finance revenue. Finance charge and fee revenue as well as gains and losses on the sale of bankcard receivables have been included in net earnings (loss) from discontinued operations in the Company's Consolidated Statements of Operations. (See Note 2.) SHIPPING AND HANDLING COSTS Shipping and handling costs incurred related to the movement, preparation and shipment of products, including certain overhead costs, are classified as selling, general and administrative expense. Shipping and handling expense was $228,425, $240,035 and $217,910 in fiscal 2001, 2000 and 1999, respectively. Buying and occupancy costs related to distribution facilities are classified as cost of sales. CASH AND CASH EQUIVALENTS Cash equivalents represent short-term, highly liquid investments with original maturities of three months or less. RECEIVABLES Receivables consist primarily of preferred credit card receivables and related finance charges generated in connection with the sale of the Company's merchandise. Receivable balances generated from the bankcard credit programs offered by the Company's special-purpose bank, First Consumers National Bank (FCNB), have been included in net assets of discontinued operations on the Company's Consolidated Balance Sheets. See Note 2. The Company's customer base is diverse in terms of both geographic and demographic coverage. The allowance for doubtful accounts is based upon management's evaluation of the collectability of credit card receivables after giving consideration to current delinquency data, historical loss experience and general economic conditions. This allowance is continually reviewed by management. SALE OF RECEIVABLES The majority of the Company's credit card receivables are transferred to trusts that, in turn, sell certificates and notes representing undivided interests in the trusts to investors. The receivables are sold without recourse. Accordingly, no allowance for doubtful accounts related to the sold receivables is maintained by the Company. When the Company sells receivables in these securitizations, it retains interest-only strips, subordinated 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) certificates, a sellers interest in receivables that are transferred to the trust but are not sold and cash reserve accounts, all of which are included in retained interests in securitized receivables, with the exception of cash reserve accounts which are included in other assets. Cash reserve accounts and retained interests in securitized receivables resulting from bankcard receivables of FCNB are included in net assets of discontinued operations in the Consolidated Balance Sheets. See Note 2. Recognition of gain or loss on the sale of receivables depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer. In addition, gains are recognized based upon the present value of estimated future cash flows that the Company expects to receive over the liquidation period of the receivables. These future cash flows consist of an estimate of the excess of finance charges and fees over the sum of the interest paid to certificate holders, contractual servicing fees and charge-offs along with the future finance charges and principal collections related to retained interests in securitized receivables. These estimates are highly sensitive to changes in portfolio performance and inherently require management's judgment on future portfolio performance. Cash reserve accounts are maintained as necessary, representing restricted funds used as credit enhancement for specific classes of investor certificates issued in certain securitization transactions. Cash reserve accounts resulting from the securitization of preferred credit card receivables are included in other assets. The discounted value of these cash reserve accounts totaled $58,433 and $5,391 at December 29, 2001 and December 30, 2000, respectively. Cash reserve accounts resulting from the securitization of FCNB bankcard receivables are included in net assets of discontinued operations. See Note 2. SERVICING FEE LIABILITY The Company's preferred and bankcard credit card receivables are serviced by FCNB. On an ongoing basis, management performs a review of the receivable portfolio to determine if a servicing fee liability must be recorded by FCNB in accordance with Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". The servicing fee liability is calculated utilizing several assumptions including receivable liquidation rates, discount rates, and the costs to service the receivable portfolio. These estimates are highly sensitive to changes in portfolio performance and inherently require management judgment of future performance. MARKETABLE SECURITIES Marketable securities consist of the retained certificates issued by the trusts in conjunction with the securitization of preferred credit card receivables. These debt securities, classified as trading and stated at fair market value, are included in net receivables. Retained certificates issued by the trusts in conjunction with the securitization of FCNB bankcard receivables are included in net assets of discontinued operations. See Note 2. INVENTORIES Inventories, principally merchandise available for sale, are stated at the lower of cost or market. Cost is determined primarily by the average cost method or by the first-in, first-out method. ADVERTISING COSTS Costs incurred for the production and distribution of direct response catalogs are capitalized and amortized over the expected lives of the catalogs, which are less than one year. Unamortized costs as of December 29, 2001 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) and December 30, 2000 were $38,897 and $48,433, respectively, and are included in prepaid expenses. All other advertising costs for catalog, e-commerce and retail operations are expensed as incurred. Total advertising expense was $490,471, $492,995 and $418,064 in fiscal 2001, 2000 and 1999, respectively. STORE PRE-OPENING COSTS Pre-opening costs for new stores are charged to operations as incurred. PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. Depreciable lives range from three to 40 years for buildings and improvements and two to 10 years for equipment, furniture and fixtures. Leasehold improvements are amortized over the lesser of the term of the lease or asset life. LONG-LIVED ASSETS The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. An impairment loss is recognized when estimated future cash flows expected to result from use of the assets are less than the carrying amount. Impairment losses resulting from these reviews have not been significant. INTANGIBLE ASSETS Intangible assets represent principally trademarks and the excess of cost over the fair market value of net assets of businesses acquired (goodwill). On an annual basis, the Company amortizes these intangibles in relation to the anticipated benefits to be derived from the businesses acquired, not to exceed 40 years. Management periodically considers whether there has been a permanent impairment in the value of goodwill and trademarks by evaluating various factors, including current and projected future operating results and cash flows. The Company does not believe there has been any material impairment in the carrying value of its goodwill and trademarks. Accumulated amortization relating to trademarks was $31,327 and $29,039 at December 29, 2001 and December 30, 2000, respectively. Accumulated amortization relating to goodwill was $40,841 and $37,859 at December 29, 2001 and December 30, 2000, respectively. FOREIGN CURRENCY TRANSLATION The financial statements of the Company's Canadian subsidiary and international joint ventures are translated into U.S. dollars using the exchange rate in effect at the end of the fiscal year for assets and liabilities and at the average exchange rates in effect during the period for results of operations and cash flows. The related unrealized gains or losses resulting from translation are reflected as a component of accumulated other comprehensive loss in stockholders' equity in the Consolidated Balance Sheets. Foreign currency transaction gains and losses are included in selling, general and administrative expense in the Consolidated Statements of Operations as incurred. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments involve elements of market and credit risk not recognized in the financial statements. The market risk that results from these instruments relates to changes in interest rates and foreign currency exchange rates. Credit risk relates to the risk of nonperformance of a counterparty to one of the 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Company's derivative transactions. The Company believes there is no significant credit risk associated with the potential failure of any counterparty to perform under the terms of any of its current derivative financial instruments. The Company selectively uses non-leveraged derivative instruments primarily to manage the risk that changes in interest rates will affect the amount of its future interest payments and to a lesser extent, to manage risk associated with future cash flows in foreign currencies. The Company does not enter into derivative financial instruments for any purpose other than cash flow hedging purposes. The Company does not use derivative financial instruments for trading or other speculative purposes. The Company assesses interest rate cash flow exposure by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate cash flow risk attributable to both the Company's outstanding and forecasted debt obligations as well as the Company's offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on the Company's future cash flows. The Company is subject to foreign currency exchange rate risk related to its Canadian operations, as well as its joint venture investments in Germany and Japan. The Company occasionally enters into foreign currency forward contracts to minimize the variability caused by foreign currency risk related to certain forecasted semi-annual transactions with the joint ventures that are denominated in foreign currencies. The principal currency hedged is the Japanese yen. As of December 29, 2001, the Company did not have any foreign currency forward contracts outstanding. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," established accounting and reporting standards for derivatives and for hedging activities. All derivative financial instruments, such as interest rate swap agreements and foreign currency forward contracts, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a cash flow hedge, the effective portion of changes in the fair value of the derivative are recorded in other comprehensive loss (OCL) and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. The Company adopted SFAS No. 133 and SFAS No. 138 on December 31, 2000. This resulted in a cumulative increase in OCL of $1,566 (net of income tax benefit of $919). The increase to OCL was attributable to losses of $1,768 (net of income tax benefit of $1,037) on interest rate swap agreements offset slightly by a $202 gain (net of income taxes of $118) on foreign currency forward contracts, which was recognized in income when the related foreign currency transaction occurred. As of December 31, 2000, interest rate swaps were reflected at a fair value of $2,805 in accrued liabilities and foreign currency forward contracts were reflected at a fair value of $320 in other assets. The adoption of the above standards did not have a material effect on the consolidated results of operations or financial position in fiscal 2001. The Company is party to interest rate swap agreements as of December 29, 2001, which are designated as cash flow hedges under SFAS No. 133 and are accounted for by recording the net interest paid as interest expense on a current basis. As of December 29, 2001, the cumulative increase in OCL was $3,221 (net of income tax benefit of $1,892) and corresponds to the interest rate swap reflected at fair value of $5,113 in accrued liabilities. See Note 9. There were no unrealized gains or losses included in OCL relating to foreign currency forward contracts as of December 29, 2001. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) FAIR VALUE OF FINANCIAL INSTRUMENTS Due to the revolving nature of the credit card portfolios, management believes that the current carrying value of receivables approximates fair value. The average interest rate collected on the receivables approximates the current market rates on new accounts. FCNB bankcard receivables are included in net assets of discontinued operations in the Consolidated Balance Sheets. See Note 2. In the absence of quoted market prices for retained interests in credit card securitizations, the Company estimates the fair value based on the present value of the future expected cash flows. These future cash flows consist of an estimate of the excess of finance charges and fees over the sum of the interest paid to certificate holders, contractual servicing fees and charge-offs, and also include the estimated future finance charges and principal collections related to interests in the credit card receivables retained by the Company. These estimates are calculated utilizing the current performance trends of the receivable portfolios, combined with management's best estimates of the key assumptions: portfolio yield, charge-offs, liquidation rates, interest rates and discount rates commensurate with the risks involved. Certain estimates inherent in determining the present value of these estimated future cash flows are influenced by factors outside the Company's control and, as a result, could materially change in the near term. The carrying amounts of other financial assets and liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The fair value of long-term debt and related derivative financial instruments is discussed in Note 9. SYSTEMS DEVELOPMENT COSTS Significant systems development costs are capitalized and amortized on a straight-line basis over the useful life of the asset, not to exceed three years. Costs, net of accumulated amortization, included in other assets as of December 29, 2001 and December 30, 2000 were $37,962 and $37,166 respectively. Related amortization expense recognized in fiscal 2001, 2000 and 1999 was $17,122, $12,400 and $12,837, respectively. EMPLOYEE PENSION PLANS Company policy is to, at a minimum, fund the pension plans to meet the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). CREDIT CARD ACQUISITION EXPENSES Credit card account acquisition expenses are deferred and recognized in selling, general and administrative expense on a straight-line basis over a 12-month period. Credit card acquisition expenses related to bankcard credit card accounts are included in discontinued operations under the caption "earnings (loss) from operations" in the Consolidated Statements of Operations. See Note 2. STOCK-BASED COMPENSATION The Company has elected to account for stock-based compensation using the intrinsic value method as discussed in Note 10. INCOME TAXES Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and net operating loss and tax credit carryforwards and are measured using the 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company is included in the consolidated federal income tax return of Spiegel, Inc.'s majority shareholder, Spiegel Holdings, Inc. (SHI). Pursuant to a tax reimbursement agreement with SHI, the Company records provisions for income tax expense (benefit) as if it were a separate taxpayer. EARNINGS (LOSS) PER COMMON SHARE Basic earnings (loss) per common share (EPS) is computed by dividing net earnings (loss) by the weighted average number of both classes of common shares outstanding during the year. Diluted EPS is computed in a manner consistent with that of basic EPS while giving effect to all potentially dilutive employee stock options that were outstanding during the period using the treasury stock method. The computation of diluted EPS excludes options to purchase 215,650, 373,875 and 350,570 shares of common stock that were outstanding at fiscal year-end 2001, 2000 and 1999, respectively, because the options' exercise prices were greater than the average market price of the common shares. The computation of diluted EPS for 2001 also excludes options to purchase 754,700 shares of common stock because their effect was anti-dilutive. RECLASSIFICATIONS Certain prior year amounts have been reclassified from amounts previously reported to conform with the fiscal 2001 presentation. See Note 2. 2. Discontinued Operations Historically, the operating results for the Company were reported for two segments: merchandising and bankcard. The merchandising segment included an aggregation of the Company's three merchant divisions and the private-label preferred credit operation. The bankcard segment included primarily the bankcard operations of FCNB, the Company's special-purpose bank and Financial Services Acceptance Corporation (FSAC). In the fourth quarter of fiscal 2001, the Company formalized a plan to sell the bankcard segment. The Company anticipates the completion of a sale of its bankcard segment by April 2003. To the extent that the Company is unable to sell the bankcard segment, this segment will be liquidated as part of the liquidation of FCNB in its entirety, as required under an agreement with the Office of the Comptroller of the Currency ("OCC"). The disposition of the bankcard segment is accounted for in accordance with APB No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Accordingly, results of this business have been classified as discontinued operations for all periods presented. Interest expense was allocated to discontinued operations based upon debt that could be specifically attributed to the bankcard segment. As a result of the Company's plan to sell the bankcard segment, the remaining business segment is the merchandising segment, which includes the preferred credit card operation related to the sale of the Company's merchandise. The merchandising segment is reflected in the Company's Consolidated Financial Statements as continuing operations. The Company recorded an estimated loss on disposal of the bankcard segment of $319 million This charge includes a pretax estimate of severance and fees of $8 million, and estimated pretax losses from the bankcard segment of $40 million from the measurement date to the disposal date. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Assets and liabilities of the discontinued operations are as follows:
2001 2000 --------- -------- Current assets..................................... $ 314,160 $510,702 Long-term assets................................... 51,607 17,332 Current liabilities, including estimated loss on disposal of $319 million......................... 512,639 225,376 Long-term liabilities.............................. -- 32,229 --------- -------- Net (liabilities)/assets of discontinued operations $(146,872) $270,429 ========= ========
Current assets consist primarily of FCNB bankcard and FSAC receivables, other trade accounts receivable and cash. Long-term assets consist primarily of other assets such as cash reserve balances resulting from the securitization of bankcard receivables and investments in government and municipal securities in addition to fixed assets. Current liabilities consist primarily of deposits relating to the issuance of jumbo certificates of deposits and secured deposits from customers under secured card programs. The balance in long-term liabilities reflects deferred tax liabilities of FCNB. Receivables, included above in current assets, consist of the following:
2001 2000 ----------- ---------- COMPOSITION OF CREDIT CARD RECEIVABLES: Receivables serviced................... $ 1,281,545 $1,143,278 Receivables securitized................ (1,200,949) (959,002) ----------- ---------- Receivables with no certificates issued 80,596 184,276 ----------- ---------- COMPOSITION OF RECEIVABLES, NET: Receivables with no certificates issued 80,596 184,276 Retained subordinated interests........ 104,932 115,002 ----------- ---------- Receivables owned...................... 185,528 299,278 Interest-only strips................... 39,974 85,227 Less allowance for doubtful accounts... (15,218) (13,399) Other receivables, net................. 87,475 5,437 ----------- ---------- Receivables, net....................... $ 297,759 $ 376,543 =========== ==========
The Company's customer base is diverse in terms of both geographic and demographic coverage. The allowance for doubtful accounts is based upon management's evaluation of the collectability of FCNB bankcard receivables after giving consideration to current delinquency data, historical loss experience and general economic conditions. This allowance is continually reviewed by management. The majority of the Company's bankcard receivables are transferred to off-balance sheet trusts that, in turn, sell certificates and notes representing undivided interests in such trusts to investors. The receivables are sold without recourse. Accordingly, no allowance for doubtful accounts related to the sold receivables is maintained by the Company. When the Company sells receivables in these securitizations, it retains interest-only strips, subordinated certificates, receivables and cash reserve accounts, all of which are included in net assets of discontinued operations under the caption "current assets", with the exception of the cash reserve accounts which are included in net assets of discontinued operations under the caption "long-term assets". FCNB maintains responsibility for servicing both the preferred and bankcard securitized credit card receivables and receives an annual servicing fee from the trusts. On an ongoing basis, the Company performs a review to determine if a servicing fee liability must be recorded in accordance with Statement of Financial Accounting Standard (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". In 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2001, the Company recorded a pretax servicing fee liability of approximately $50,000. This balance is reflected in net assets of discontinued operations under the caption "current liabilities". The asset-backed certificates and notes have been issued at either floating rates or at fixed rates. Amounts securitized by rate-type are as follows:
Rate Type 2001 2000 --------- ---------- -------- Floating rates................... $ 276,000 $594,000 Fixed rates...................... 811,000 250,000 Zero coupon retained certificates 113,949 115,002 ---------- -------- Receivables securitized.......... $1,200,949 $959,002 ========== ========
In certain transactions, the securitization trust has entered into interest rate swap arrangements to convert the interest payment obligation from floating rate certificates to fixed rate certificates. These derivative agreements have been entered into by third party off-balance sheet trusts and therefore are not reflected as part of the results of the Company. Changes to fair value of these off-balance sheet derivative transactions are not reflected in the Company's results. Cash reserve accounts are maintained as necessary, representing reserve funds used as credit enhancement for specific classes of investor certificates issued in certain securitization transactions. The discounted value of these funds was included in the net assets of discontinued operations under the caption "long-term assets" and totaled $32,750 and $0 at December 29, 2001 and December 30, 2000, respectively. Net pretax gains/(losses), including gains/(losses) on the sale of bankcard receivables and adjustments to fair value of the Company's retained interests in securitized bankcard receivables, were $(57,521), $42,627 and $(3,158) in fiscal 2001, 2000 and 1999, respectively, and have been included in discontinued operations under the caption "earnings (loss) from operations" in the Consolidated Statements of Operations. Net charge-offs for the serviced bankcard receivable portfolio were $166,980, $86,711 and $61,270 for the fiscal years ended December 29, 2001, December 30, 2000 and January 1, 1999, respectively. Delinquency amounts for the serviced bankcard receivable portfolio as of December 29, 2001 and December 30, 2000 are as follows:
2001 2000 ------- ------- Receivables (greater than)60 days past due: 177,317 136,340
On April 4, 2002, MBIA Insurance Corporation ("MBIA") issued a notice asserting the occurrence of one "Pay Out Event" and the existence of circumstances which, if not cured within 45 days following the date of such notice, would result in the occurrence of a second "Pay Out Event," under two asset-backed securities offerings issued by the Spiegel Credit Card Master Note Trust (the "Trust") and known as Series 2000-A and Series 2001-A. Those transactions involve the public issuance of notes supported by private-label credit card receivables originated by FCNB and for which MBIA insures the payments to noteholders and The Bank of New York acts as indenture trustee. A "Pay Out Event" would divert monthly excess cash flow remaining after the payment of debt service and other expenses to repay principal to noteholders on an accelerated basis. This excess cash flow is otherwise paid to the Company and is utilized by the Company to fund its operations. The Company believes that no "Pay Out Event" has occurred as defined under the securitization documents. The Company and FCNB filed suit and obtained a temporary restraining order against MBIA and The Bank of New York on April 11, 2002, in the Supreme Court of the State of New York, County of New York. On May 16, 2002, the Company and MBIA entered into a settlement agreement pursuant to which, among other things, 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) MBIA agreed to withdraw its April 4, 2002 letter. In addition, the Company and FCNB agreed to dismiss the litigation and to obtain a backup servicer no later than December 1, 2002. Finally, the Company agreed to increase the amounts required to be on deposit in a reserve account established for the benefit of MBIA as insurer of the notes. Amounts in that reserve account are available to cover the shortfall in any period, if any, between available collections on the receivables and the amounts owing in respect of principal and interest on the notes, prior to a claim being made against the insurer for such amounts. Pursuant to the agreement, increases in the reserve account will be funded by diverting excess receivables collections that would otherwise be available to the Company; provided that during the first seven months following the date of the agreement such diversions were limited to a maximum of $9,000 per month and an incremental $60,000 in the aggregate for the seven month period. This diversion of excess cash is measured based upon certain receivable portfolio performance criteria. Accordingly, the actual reserve requirements may be lower than the dollar amounts disclosed above based upon actual receivable portfolio performance. The agreement with MBIA contained other requirements, including the requirement to file the Company's and FCNB's 2001 financial statements by December 6, 2002. In addition, the Company agreed to appoint a backup servicer for the servicing of its receivable portfolio and to execute a backup servicing agreement by December 1, 2002. An amendment to the MBIA agreement to extend the date of these requirements has not yet been finalized. Although the Company believes that it will obtain an amendment to the settlement agreement, there can be no guarantees that MBIA will not exercise its remedies under the settlement agreement, which would include a "Pay Out Event", as described above. See Note 3. On May 15, 2002, FCNB entered into an agreement with the Office of the Comptroller of the Currency ("OCC"), the primary federal regulator of FCNB. The agreement calls for FCNB to comply with certain requirements. The agreement, among other things; (i) contains restrictions on transactions between the bank and its affiliates and requires the bank to complete a review of all existing agreements with affiliated companies, and to make necessary and appropriate changes; (ii) requires the bank to obtain an aggregate of $198,000 in guarantees, which guarantees have been provided through the Company's majority shareholder; (iii) restricts the bank's ability to accept, renew or rollover deposits; (iv) places restrictions on the bank's ability to issue new credit cards and make credit line increases; (v) requires the bank within 30 days of the agreement to file with the OCC a disposition plan to either sell, merge or liquidate the bank; (vi) requires the bank to maintain sufficient assets to meet daily liquidity requirements; (vii) requires the bank to complete a comprehensive risk management assessment; (viii) establishes minimum capital levels for the bank; (ix) provides for the increased oversight by and reporting to the OCC; and (x) provides for the maintenance of certain asset growth restrictions. In October 2002, the Company submitted a revised disposition plan to the OCC. The disposition plan provides for the sale or liquidation of the bankcard portfolio by April 30, 2003. To the extent that the Company is unable to sell the bankcard portfolio, the portfolio will be liquidated as part of the liquidation of FCNB in its entirety. On November 27, 2002, the OCC approved the disposition plan. In fiscal 2002, the Company was informed by one of the rating agencies that it may downgrade the rating of the First Consumers Credit Card Master Note Trust Series 2001-VFN Class A Notes and the Spiegel Credit Card Master Note Trust Series 2001-VFN Class A Notes. Under the provisions of the existing securitization agreements, a rating agency downgrade would result in a "Pay Out Event" of the receivable securitizations. A "Pay Out Event" would divert monthly excess cash flows remaining after the payment of debt service and other expenses to repay principal to noteholders on an accelerated basis. In order to avoid such a "Pay Out Event", the Company agreed to increase its percentage of required collateral accordingly. This had the impact of increasing the receivables retained by the Company. The financing of these additional receivables will be generated from existing cash flows from operations and through the Company's existing credit facilities. 3. Going Concern The Company's debt agreements contain restrictive covenants, including restrictions on the payment of dividends and financial covenants that require the Company to maintain minimum levels of tangible net worth 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) and certain ratios, including fixed charge coverage ("Coverage"), total debt to equity ("Leverage"), and adjusted debt to earnings before interest, taxes, depreciation and amortization, and rents ("Debt to EBITDAR"). For the Reporting period December 29, 2001, the Company was in violation of substantially all of the restrictive covenants in the Company's debt agreement and, accordingly, substantially all of the Company's long-term debt is currently due and payable. The Company is working with its lending group to restructure the existing credit facilities and to enter into new credit facilities. However, there can be no assurances that either a new credit facility or alternative sources of financing will be available to the Company. In addition, the Company has not complied with the provisions of the MBIA settlement agreement as of January 2003. The Company is working with MBIA to obtain amended settlement agreements. However, there can be no guarantees that MBIA will not exercise its remedies under the settlement agreement, which would include a "Pay Out Event". See Note 2. Finally, the Company has forecasted that, in the next several months, it will not meet certain minimum performance requirements related to the Company's securitization transactions. If the Company cannot achieve the minimum performance requirements, a "Pay Out Event" will occur. See Note 2. The Company was not in compliance with certain restrictive covenants in its debt agreements and, accordingly, substantially all of the Company's debt is currently due and payable. The Company has been unable to successfully negotiate a new credit facility with its lending institutions, to obtain an amended settlement agreement with MBIA Insurance Corporation ("MBIA"), or to assure the future achievement of minimum performance requirements under its securitization transactions. These matters, among others, raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company has taken actions to improve its cash flow through effective working capital management, most notably the management of inventory levels across each business unit. In addition, the Company is developing strategies to enhance its marketing and merchandising initiatives while at the same time lowering its cost structure. Finally, the Company continues to have productive discussions with its lending institutions as well as a commitment for further support from its majority shareholder upon completion of its new credit agreement. There can be no assurances that any or all of these matters will be resolved satisfactorily, or if resolved satisfactorily, will provide resources sufficient to sustain the Company's operations. 4. Receivables Receivables consist of the following:
2001 2000 ----------- ----------- COMPOSITION OF CREDIT CARD RECEIVABLES: Receivables serviced................................. $ 2,305,930 $ 2,180,227 Receivables securitized.............................. (2,200,428) (2,124,695) ----------- ----------- Receivables with no certificates issued.............. 105,502 55,532 ----------- ----------- COMPOSITION OF RECEIVABLES, NET: Receivables with no certificates issued.............. 105,502 55,532 Retained subordinated interests, at fair value....... 418,495 400,054 ----------- ----------- Receivables owned.................................... 523,997 455,586 Interest-only strips................................. 59,777 191,224 Less allowance for doubtful accounts................. (5,192) (965) Less allowance for returns on preferred credit sales. (24,562) (29,812) Other receivables, net............................... 84,186 120,875 ----------- ----------- Receivables, net..................................... $ 638,206 $ 736,908 =========== ===========
43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. Sale of Credit Card Accounts Receivable Effective April 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which superceded SFAS 125. SFAS No. 140 establishes new conditions for an entity to be a qualifying special-purpose entity and clarifies under what conditions a transferor has retained effective control over transferred assets. The updated rules for transfers of financial assets were effective for transfers occurring after March 31, 2001 and generally do not affect the accounting for previous transfers. The adoption of SFAS No. 140 did not have a material effect on the Company's consolidated results of operations or financial position. The Company has established trusts for the purpose of routinely securitizing credit card receivables. The Company retains interest-only strips, subordinated investor certificates, receivables and cash reserve accounts resulting from these securitizations. FCNB maintains responsibility for servicing both the preferred and bankcard securitized credit card receivables and receives an annual servicing fee from the trusts. With the sale of the bankcard segment, these preferred credit programs will either be serviced internally by the Company or by a third party servicer. Both options will require approval from the parties associated with the Company's securitization agreements. The investors and the securitization trusts have no recourse to the Company's other assets for failure of credit card debtors to meet payment obligations. Certain of the Company's retained interests are subordinate to investors' interests. The value of the retained interests is subject to credit, payment and interest rate risk on the transferred financial assets. RETAINED INTERESTS: Retained interests in securitized receivables consist of the following:
2001 2000 -------- -------- Retained subordinated certificates at fair value.. $418,495 $400,054 Interest-only strip............................... 59,777 191,224 Cash reserve accounts............................. 58,433 5,391 -------- -------- Total retained interests in securitized receivables..................................... $536,705 $596,669 ======== ========
Key economic assumptions used to value the retained interests resulting from the securitization of preferred credit card receivables were as follows (rates per annum):
Key Assumptions 2001 2000 --------------- ----- --------- Liquidation rates................................. 6.10% 1.26-5.90% Weighted average life (in months)................. 18.00 14.17 Expected charge-offs.............................. 18.22% 12.18% Servicing fee..................................... 2.00% 2.00% Discount rate..................................... 15.00% 15.00% Weighted average interest rate paid to investors.. 4.16% 6.54% Implied interest rate on non-interest-bearing retained subordinated interests................. 9.00% 9.00%
44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) SECURITIZATION STRUCTURE: The asset-backed certificates and notes have been issued by the securitization trust at either floating rates or at fixed rates. Amounts securitized by rate-type (at face value) are as follows:
Rate Type 2001 2000 --------- ---------- ---------- Floating rates............................... $ 512,000 $1,076,002 Fixed rates.................................. 1,200,000 600,000 Zero coupon retained certificates............ 488,428 448,693 ---------- ---------- Receivables securitized...................... $2,200,428 $2,124,695 ========== ==========
In certain transactions the securitization trusts have entered into interest rate swap arrangements to convert floating rate certificates to fixed rate certificates. These derivative agreements have been entered into by third party off-balance sheet trusts and therefore are not reflected as part of the results of the Company. Changes to fair value of these off-balance sheet derivative transactions are not reflected in the Company's results. Cash reserve accounts are maintained as necessary representing reserve funds used as credit enhancement for specific classes of investor certificates issued in certain securitization transactions. The discounted value of these funds was included in other assets and totaled $58,433 and $5,391 at December 29, 2001 and December 30, 2000, respectively. Net pretax gains/(losses), including gains/(losses) on the sale of preferred credit card receivables and adjustments to fair value of the Company's retained interests in securitized preferred credit card receivables, were $(162,698), $28,347 and $18,918 in fiscal 2001, 2000 and 1999, respectively and have been included in finance revenue in the Consolidated Statements of Operations. SENSITIVITY ANALYSIS: At December 29, 2001, key economic assumptions and the sensitivity of the current fair value of residual cash flows to immediate 10 percent and 20 percent adverse changes in those assumptions are as follows:
2001 2000 -------- -------- Fair value of retained interests.................. $536,705 $596,669 Weighted-average life (in months)................. 18.00 14.17 LIQUIDATION RATE ASSUMPTIONS Impact on fair value of 10% adverse change..... $ (1,501) $ (7,874) Impact on fair value of 20% adverse change..... $ (2,818) $(14,799) EXPECTED CHARGE-OFFS (ANNUAL RATE)................ 18.22% 12.18% Impact on fair value of 10% adverse change..... $(15,399) $(31,542) Impact on fair value of 20% adverse change..... $(31,618) $(62,300) RESIDUAL CASH FLOWS DISCOUNT RATE (ANNUAL RATE)... 15.00% 15.00% Impact on fair value of 10% adverse change..... $ (7,877) $ (3,001) Impact on fair value of 20% adverse change..... $(15,619) $ (5,912) WEIGHTED AVERAGE INTEREST PAID TO INVESTORS....... 4.16% 6.54% Impact on fair value of 10% adverse change..... $ (6,918) $ (8,263) Impact on fair value of 20% adverse change..... $(13,837) $(16,526) ======== ========
45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10 percent and 20 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market interest rates may lower liquidation rates and increase charge-offs), which might magnify or counteract the sensitivities. CASH FLOWS FROM SECURITIZATIONS: Cash flows received from preferred securitization trusts during 2001 and 2000 were as follows:
2001 2000 -------- ---------- Proceeds from new securitizations and gross proceeds from sale of certificates and notes......................................... $758,000 $1,309,200 Proceeds from collections reinvested in previous credit card securitizations................................................ 891,782 847,962 Servicing fees received.......................................... 40,965 34,019 Other cash flows received on retained interests.................. $ 68,181 $ 228,158 ======== ==========
Other cash flows represents the total cash flows received from retained interests by the transferor other than servicing fees. Other cash flows include, for example, all cash flows from interest-only strips and cash above the minimum required level in cash collateral accounts. CHARGE-OFFS: Actual and projected charge-offs on preferred credit card receivables are as follows:
Year Percent ---- ------- Projected: 2002...................................... 18.2% Historical: 2001...................................... 15.9% 2000...................................... 9.3% 1999...................................... 7.9%
December 29, December 30, 2001 2000 ------------ ------------ COMPOSITION OF RECEIVABLES SERVICED: Principal balances........................ $2,226,940 $2,108,302 Accrued finance charges and fees.......... 78,990 71,925 ---------- ---------- Receivables serviced...................... $2,305,930 $2,180,227 ---------- ---------- COMPOSITION OF RECEIVABLES HELD IN TRUSTS: Receivables sold to investors............. 1,712,000 1,676,002 Retained certificates..................... 488,428 448,693 Receivables owned and held in trusts...... 58,260 5,791 ---------- ---------- Receivables held in trusts................ 2,258,688 2,130,486 ---------- ---------- Receivables held in portfolio............. $ 47,242 $ 49,741 ========== ==========
Net charge-offs for preferred credit card receivables serviced were $345,376, $170,559 and $110,355 for the fiscal years ended December 29, 2001, December 30, 2000 and January 1, 1999, respectively. 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Delinquency amounts for preferred credit card receivables serviced as of December 29, 2001 and December 30, 2000 are as follows:
2001 2000 -------- -------- Receivables (greater than)60 days past due... $339,743 $334,562
Certain restrictions exist related to securitization transactions that protect certificate holders against declining performance of the preferred credit card receivables. In the event that the financial performance of an asset backed securities ("ABS") transaction falls below the required minimum threshold, early amortization ("Pay out Event") of this transaction may occur. MBIA Insurance Corporation (MBIA) insures two of these securitization transactions. (See Note 2.) At this time, it is uncertain that, in future periods, the Company will be able to achieve the required minimum performance requirements required under the securitization transactions. If the Company cannot achieve the minimum performance requirements, a "Pay Out Event" will occur. See Note 3. 6. Accounting Principle Change In fiscal 2000, after consideration of guidance issued by the Securities and Exchange Commission under Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," the Company changed its revenue recognition policy for a discount club membership program. Under the new accounting method, the Company defers recognition of membership fee revenue, offset with direct costs that are incremental to the membership sale, over the 12-month term of the membership. The Company recorded a non-cash charge of $4,076 (net of income tax benefit of $2,503) for the cumulative effect of the accounting change at the beginning of 2000. 7. Property and Equipment Property and equipment consist of the following:
2001 2000 --------- --------- Land.................................... $ 19,790 $ 19,790 Buildings and improvements.............. 157,933 153,340 Equipment, furniture and fixtures....... 305,572 265,763 Leasehold improvements.................. 175,582 177,710 --------- --------- 658,877 616,603 Less accumulated depreciation and amortization.......................... (333,764) (303,003) --------- --------- 325,113 313,600 Construction in process................. 26,430 28,715 --------- --------- Property and equipment, net............. $ 351,543 $ 342,315 ========= =========
8. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of the following:
2001 2000 -------- -------- Trade payables.......................... $178,496 $251,656 Gift certificates and other customer credits............................... 60,085 54,067 Salaries, wages and employee benefits... 55,475 102,648 General taxes........................... 78,704 71,961 Allowance for future returns............ 30,491 35,334 Other liabilities....................... 72,998 72,611 -------- -------- Total accounts payable and accrued liabilities........................... $476,249 $588,277 ======== ========
47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 9. Debt The following is a summary of the Company's debt:
2001 2000 ---------- -------- Revolving credit agreement.............. $ 561,000 $286,000 Otto Versand (GmbH & Co) revolving credit agreement...................... 50,000 -- Term loan agreements, 6.22% to 8.40%, due March 31, 2002 through July 31, 2007.................................. 392,857 448,571 Secured notes, 7.25% to 7.35%, due November 15, 2002 through November 15, 2005.............................. 48,000 60,000 ---------- -------- Total debt.............................. 1,051,857 794,571 ========== ========
The Company was not in compliance with certain restrictive covenants in its debt agreements and, accordingly, substantially all fo the Company's debt is currently due and payable. The Company has a $750,000 revolving credit agreement with a group of banks. The commitment is comprised of two components, including a $600,000 long-term agreement maturing in July 2003 and a $150,000 364-day agreement that matured in June 2002. Borrowings under the Company's $600,000 long-term revolving credit agreement were $561,000 at December 29, 2001. No borrowings were outstanding under the Company's $150,000 364-day revolving credit agreement at December 29, 2001. The remaining availability under the total $750,000 facility was $189,000 at December 29, 2001. However, the revolving credit agreement provides for restrictions on the availability of additional financing if a "material adverse change" in the Company's business has occurred. In February 2002, the Company determined, with its lending institutions, that a material adverse change had occurred due to the operating performance experienced in the fourth quarter of fiscal 2001 and due to the estimated loss recorded on the sale of the bankcard segment. Accordingly, on February 18, 2002 the borrowing capacity under the revolving credit facility was capped at $700,000, which represented the Company's borrowings outstanding on that date. The Company's debt agreements provide for restrictive covenants, including restrictions on the payment of dividends. Financial covenants of the revolving and term loan agreements establish minimum levels of tangible net worth and require the maintenance of certain ratios, including fixed charge coverage ("Coverage"), total debt to equity ("Leverage"), and adjusted debt to earnings before interest, taxes, depreciation and amortization, and rents ("Debt to EBITDAR"). Additionally, these debt agreements contain cross default provisions. For the reporting period December 29, 2001, the Company was in violation of its financial covenants. Accordingly, the financial statements reflect the Company's debt obligations under "current portion of long-term debt." The Company is working with its lending group to restructure the existing credit facilities and to enter into new credit facilities. However, there can be no assurances that either a new credit facility or alternative sources of financing will be available to the Company. In September 2001, the Company entered into a revolving credit agreement with Otto Versand (GmbH & Co), a related party. The initial availability under this credit agreement was $75,000. The credit agreement bears interest at a variable rate based on LIBOR plus a margin, comparable to the Company's other revolving credit agreements. The initial agreement extended through December 15, 2001. In November 2001, this revolving credit agreement with Otto Versand (GmbH & Co) was increased from $75,000 to $100,000 and the maturity date was extended from December 15, 2001 to June 15, 2002. At December 29, 2001, borrowings under this agreement totaled $50,000. As of February 2002, the balance outstanding under the revolving credit agreement with Otto Versand (GmbH & Co) was $100,000. This obligation was extinguished with the proceeds of new term loans in the aggregate amount of $100,000 from Otto-Spiegel Finance G.m.b.H. & Co. KG, a related party. These term loans had a maturity date of December 31, 2002 and bear interest at a rate of 4% per annum. As of January 2003, the $100,000 term loans are still outstanding and the Company borrowed an additional $60,000 senior unsecured loan from Otto Versand (GmbH & Co), which bears interest at a rate of LIBOR plus a margin. 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company's revolving credit agreement includes fees, which are variable and based on the total commitment of the revolving credit agreement. Commitment fees totaled $2,548, $1,295 and $1,678 in fiscal 2001, 2000 and 1999, respectively. Borrowings averaged $605,691 with a maximum of $810,737 during fiscal 2001. The effective annual interest rate was 4.9 percent in fiscal 2001, excluding the previously mentioned commitment fees. The Company uses a mix of fixed and variable-rate debt to finance its operations. Variable-rate debt obligations expose the Company to variability in interest payments due to changes in interest rates. To limit the variability of a portion of these interest payments, the Company will enter into receive-variable, pay-fixed interest rate swaps. Under these interest rate swaps, the Company receives variable interest rate payments and makes fixed interest rate payments; thereby creating fixed-rate debt. The variable-rate of interest received is based on the same terms, including interest rates, notional amounts and payment schedules, as the hedged interest payments on the variable-rate debt. These interest rate swaps are considered to be perfectly effective; therefore, changes in fair value are reflected in other comprehensive loss and are not recognized in earnings until the related interest payments are made. At December 29, 2001, the Company had an interest rate swap agreement to hedge the underlying interest risks on a term loan agreement with Berliner Bank with effective and termination dates from March 1996 to December 2004. The notional amount of the interest rate swap agreement as of December 29, 2001 and December 30, 2000 was $30,000. The fair value of the swap agreement at December 29, 2001 and December 30, 2000 was $(2,710) and $(1,709), respectively and was estimated by a financial institution and represents the estimated amount the Company would pay to terminate the agreement, taking into consideration current interest rates and risks of the transactions. At December 29, 2001, the Company also had an interest rate swap agreement (amended in April 2001) to hedge the underlying interest risks on a term loan agreement with Bank of America with effective and termination dates from March 1996 to March 2005 and on a portion of the outstanding balance of the revolving credit agreement with effective and termination dates from July 1999 to July 2003. The notional amount of the interest rate swap agreement as of December 29, 2001 and December 30, 2000 was $35,000 and $28,571, respectively. The fair value of this swap agreement at December 29, 2001 and December 30, 2000 was ($2,403) and $(1,096), respectively and was estimated by a financial institution and represents the estimated amount the Company would pay to terminate the agreement, taking into consideration current interest rates and risks of the transactions. The counterparties are expected to fully perform under the terms of the agreements, thereby mitigating the risk from these transactions. These interest rate swaps in total increased interest expense by $945, $715 and $1,194 in fiscal 2001, 2000 and 1999, respectively. The total net derivative losses included in accumulated other comprehensive loss as of December 29, 2001, was $3,221 (net of tax benefit of $1,892) of which the Company estimates that $2,522 will be reclassified into earnings during the twelve months ended December 28, 2002. The Company maintains a $150,000 letter of credit facility in addition to off balance sheet stand by letters of credit, which are used for the purchase of inventories. The total letter of credit facility commitments outstanding were $83,500 and $94,800 at December 29, 2001 and December 30, 2000, respectively. At December 29, 2001, there was an additional $72,500 of commitments available for the issuance of letters of credit. However, the letter of credit facilities provide for restrictions on the availability of additional financing if a "material adverse change" in the Company's business has occurred. In February 2002, the Company determined, with our lending institutions, that a material adverse change had occurred due to the operating performance experienced in the fourth quarter of fiscal 2001 and due to the estimated loss recorded on the sale of the bankcard segment. Accordingly, on February 18, 2002 no additional letter of credit facilities were available to the Company. In March 2002, the Company entered into a Vendor Payment Services Agreement with Otto 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) International Hong Kong (OIHK), a related party. Under the terms of the agreement, the Company has open account terms with various vendors in certain countries in Asia. The duration of the agreement is for one year, automatically continuing unless terminated by either party with three months' written notice. OIHK will pay the vendors the purchase order value less a fee within seven days of the purchase order receipt. The Company will repay OIHK for 100% of the purchase order value for goods purchased by Spiegel and Newport News sixty days from the date of sea shipments and thirty days from the date of air shipments. Due to the larger volume of purchases made by Eddie Bauer in comparison to Spiegel and Newport News, the Company will make weekly advance payments to OIHK for 100% of the purchase order value of goods purchased by Eddie Bauer prior to shipment. The fair value of the Company's total debt, based upon the discounting of future cash flows using the Company's borrowing rate for loans of comparable maturity, was approximately $1,061,127 at December 29, 2001. On November 13, 2001, the Company announced the discontinuance of its dividend payments to shareholders, effective December 30, 2001. The Company's debt agreements provide for restrictive covenants, including restrictions on the payment of dividends. Dividend payments totaled $21,106 in 2001. The Company was not in compliance with certain restrictive covenants in its debt agreements and, accordingly, substantially all of the Company's debt is currently due and payable. As no payments were made in 2002, the following table reflects the Company's credit obligations with its lending institutions as payable in 2003. See Note 3. Aggregate maturities of long-term debt as of December 29, 2001 are as follows:
Fiscal Year Amount ----------- ---------- 2002.......... $ -- 2003.......... 1,051,857 2004.......... -- 2005.......... -- 2006.......... -- and thereafter -- ---------- Total debt.... $1,051,857 ==========
10. Employee Benefit Plans STOCK OPTION PLAN: The Spiegel, Inc. Salaried Employee Incentive Stock Option Plan, established in 1998 to replace an expiring plan, provides for the issuance of options to purchase up to 1,000,000 shares of Class A non-voting common stock to certain salaried employees. Under the plan, participants are granted options to purchase shares of the specified stock at the fair market value at the date of grant. The options vest at the rate of 20 percent per year and expire 10 years after issuance. At December 29, 2001, December 30, 2000 and January 1, 2000 options outstanding under the current plan were 413,000, 614,000 and 389,500, respectively. At December 29, 2001, December 30, 2000 and January 1, 2000 options outstanding under the expired plan were 264,100, 484,080 and 501,580, respectively. The Company also has a non-qualified stock option plan in place for certain former employees. Options are transferred from the qualified plan to the non-qualified plan 90 days after the date of separation. Options outstanding under the non-qualified plan were 237,500 at December 29, 2001. The following presentations of total options outstanding include all aforementioned stock option plans. 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A summary of the changes in the options outstanding is as follows:
Average Shares Amount Price --------- ------- ------- Outstanding at January 2, 1999.. 1,203,460 9,741 8.09 Granted...................... 223,000 1,539 6.90 Exercised.................... (101,400) (596) 5.87 Canceled..................... (118,980) (1,121) 9.42 --------- ------- ----- Outstanding at January 1, 2000.. 1,206,080 9,563 7.93 Granted...................... 241,000 1,056 4.38 Exercised.................... (6,000) (38) 6.35 Canceled..................... (28,000) (198) 7.07 --------- ------- ----- Outstanding at December 30, 2000 1,413,080 $10,383 $7.35 Exercised.................... (89,900) (564) 6.27 Canceled..................... (408,580) (3,690) 7.77 --------- ------- ----- Outstanding at December 29, 2001 914,600 $ 6,129 $6.70 ========= ======= =====
Total stock options authorized but unissued at December 29, 2001 were 564,100. The following table summarizes information about options outstanding and exercisable at December 29, 2001:
OPTIONS OPTIONS OUTSTANDING EXERCISABLE -------------------------------- -------------------- Weighted Average Weighted Remaining Average Number Contractual Exercise Number Exercise Range of Exercise Prices Outstanding Life Price Exercisable Price ------------------------ ----------- ----------- -------- ----------- -------- $ 4.27 to $7.41..... 767,800 6.0 years $ 5.81 434,200 $ 6.05 $ 8.44 to $10.00.... 127,300 2.2 years $ 9.67 127,300 $ 9.67 $22.25 to $22.25.... 19,500 2.0 years $22.25 19,500 $22.25 ------- ------- 914,600 5.4 years $ 6.70 581,000 $ 7.38 ======= =======
The Company follows the disclosure provisions of SFAS No. 123. Accordingly, no compensation expense has been recognized for the stock option activity. If compensation expense had been determined based on the estimated fair value of the options at the grant date as prescribed by SFAS No. 123, the proforma effect on the Company's net earnings would have been a reduction of $238, $322 and $372 in fiscal 2001, 2000 and 1999, respectively. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The resulting compensation expense is amortized over the vesting period. The Company did not grant any options in fiscal 2001. The option grant fair values and assumptions used to determine such values in fiscal 2000 and 1999 are as follows:
Options granted during 2000 1999 ---------------------- ------ ------ Weighted average fair value at grant date $ 1.87 $ 3.66 Assumptions: Risk free interest rate............... 5.88% 6.42% Expected dividend yield............... 2.06% 1.58% Expected volatility................... 60.49% 63.14% Expected term (in years).............. 5 5
51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) RETIREMENT PLANS: The Company's retirement plans consist of noncontributory defined benefit pension plans and contributory defined post-retirement benefit health care and life insurance plans. The Company also sponsors a noncontributory supplemental retirement program for certain executives and other defined contribution plans, including 401(K) plans, a profit sharing plan and thrift plans. In fiscal 2001, the Company recognized additional costs associated with an early retirement offered at one of the Company's subsidiaries, which is shown in the table below as special termination benefits. The cost of these programs and the balances of plan assets and obligations are shown below:
Pension Benefits Other Benefits ---------------- ---------------- 2001 2000 2001 2000 ------- ------- ------- ------- ASSETS AND OBLIGATIONS CHANGE IN BENEFIT OBLIGATION: Beginning of year........................................ $54,276 $55,797 $ 9,340 $ 9,607 Service cost............................................. 89 190 353 312 Interest cost............................................ 3,992 4,118 676 687 Actuarial gain........................................... 1,631 (214) (573) (671) Benefits paid............................................ (5,448) (5,615) (559) (595) Special termination benefits............................. -- -- 226 -- ------- ------- ------- ------- End of year.............................................. 54,540 54,276 9,463 9,340 ------- ------- ------- ------- FAIR VALUE OF PLAN ASSETS: Beginning of year........................................ 61,346 61,352 -- -- Actual return (loss) on plan assets...................... (1,884) 5,609 -- -- Employer contributions................................... 375 -- 559 595 Benefits paid............................................ (5,448) (5,615) (559) (595) ------- ------- ------- ------- End of year.............................................. 54,389 61,346 -- -- ------- ------- ------- ------- NET AMOUNT RECOGNIZED: Funded status............................................ (151) 7,070 (9,463) (9,340) Unrecognized net actuarial loss.......................... 14,283 5,789 676 1,304 Unrecognized transition obligation and prior service cost 477 756 (716) (767) ------- ------- ------- ------- Prepaid (accrued) benefit cost........................... $14,609 $13,615 $(9,503) $(8,803) ======= ======= ======= =======
52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2001 2000 1999 ------- ------- ------- EXPENSE PENSION: Service cost......................... $ 89 $ 190 $ 253 Interest cost........................ 3,992 4,118 3,946 Expected return on plan assets....... (4,979) (5,282) (5,289) Amortization of transition obligation 212 212 212 Recognized net actuarial loss........ -- 24 489 Amortization of prior service cost... 67 67 -- ------- ------- ------- Total pension income................. (619) (671) (389) ------- ------- ------- HEALTH CARE AND LIFE INSURANCE: Service cost......................... 353 312 396 Interest cost........................ 676 687 681 Recognized net actuarial loss........ 54 71 162 Amortization of prior service cost... (50) (50) (81) Special termination benefits......... 226 -- -- ------- ------- ------- Total health care and life insurance. 1,259 1,020 1,158 ------- ------- ------- Defined contribution plans........... 15,399 27,437 24,367 ------- ------- ------- Total retirement plan expense........ $16,039 $27,786 $25,136 ======= ======= ======= ACTUARIAL ASSUMPTIONS Expected return on plan assets....... 9% 9% 9% Health care trend rate............... 6% 6% 7% Discount rate........................ 7.50% 7.75% 7.75%
For measurement purposes, a 6 percent annual rate of increase in the per capita cost of covered health care benefits (i.e., health care cost trend rate) was assumed for fiscal 2001 and thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point increase in assumed health care cost trend rates would increase the accumulated post-retirement benefit obligation by $440 and the related expense by $80. A one-percentage-point decrease in assumed health care cost trend rates would decrease the accumulated post-retirement benefit obligation by $406 and related expense by $71. 11. Commitments and Contingencies LITIGATION In December 2002 and January 2003, four lawsuits were filed in the United States District Court for the Northern District of Illinois, Eastern Division, against the Company and certain current and former officers alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The plaintiffs purport to represent shareholders who purchased the Company's common stock between April 24, 2001 and April 19, 2002. The Company believes these claims lack merit and intends to defend against them vigorously. The SEC is conducting an investigation concerning the Company's delinquent filing of its Form 10-K for 2001 and its Form 10-Q's for 2002. We are cooperating with the SEC in its investigation, but we cannot predict the duration, scope or outcome of, or potential sanctions resulting from the investigation. The Company is routinely involved in a number of legal proceedings and claims, which cover a wide range of matters. In the opinion of management, these legal matters are not expected to have any material adverse effect on the consolidated financial position or results of operations of the Company. 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) LEASE COMMITMENTS The Company leases office facilities, distribution centers, retail store space and data processing equipment. Lease terms are generally 10 years and many contain renewal options. Many of the retail store leases provide for minimum annual rentals plus additional rentals based upon percentages of sales, which range from 2 to 8 percent. The Company also sublets certain leased office space to unrelated third parties. Rent expense consisted of the following:
2001 2000 1999 -------- -------- -------- Minimum rentals..... $146,018 $148,955 $146,777 Percentage rentals.. 702 464 1,079 Less sublease income (4,735) (4,757) (3,680) -------- -------- -------- Net rental expense.. $141,985 $144,662 $144,176 ======== ======== ========
Future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 29, 2001 are as follows:
Fiscal Year Amount ----------- -------- 2002........................ $132,405 2003........................ 123,725 2004........................ 113,533 2005........................ 101,028 2006........................ 84,314 and thereafter.............. 262,928 -------- Total minimum lease payments 817,933 Less minimum sublease income (31,126) -------- Net minimum lease payments.. $786,807 ========
12. Income Taxes Earnings (loss) from continuing operations before income taxes, cumulative effect of accounting change and minority interest is composed of the following:
2001 2000 1999 --------- -------- -------- Domestic $(282,536) $110,807 $123,627 Foreign. (2,133) 996 (74) --------- -------- -------- Total... $(284,669) $111,803 $123,553 ========= ======== ========
The components of income tax expense (benefit) for continuing operations are as follows:
2001 2000 1999 -------- ------- ------- CURRENT: Federal.... $(39,921) $26,592 $ 1,130 State...... (2,978) (2,347) 1,924 Foreign.... (640) 347 240 -------- ------- ------- Total current. (43,539) 24,592 3,294 -------- ------- ------- DEFERRED: Federal.... (50,884) 13,966 40,434 State...... (383) (141) 3,017 Foreign.... (295) (130) (235) -------- ------- ------- Total deferred (51,562) 13,695 43,216 -------- ------- ------- $(95,101) $38,287 $46,510 ======== ======= =======
54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The differences between the income tax expense (benefit) related to continuing operations computed at the statutory rate and the amounts shown in the consolidated statements of operations are as follows:
2001 2000 1999 - - ---------------- --------------- --------------- Amount Percent Amount Percent Amount Percent -------- ------- ------- ------- ------- ------- Statutory rate.................................. $(99,634) (35.0)% $39,131 35.0% $43,244 35.0% State income tax (net of federal income tax benefit)...................................... (5,571) (1.9) (1,584) (1.4) 2,679 2.1 Amortization of nondeductible goodwill and other items......................................... 1,364 .4 1,489 1.3 1,438 1.2 Change in valuation allowance................... 8,840 3.1 -- -- -- -- Tax credits..................................... (100) 0.0 (749) (0.7) (851) (0.7) -------- ----- ------- ---- ------- ---- Effective tax rate.............................. $(95,101) (33.4)% $38,287 34.2% $46,510 37.6% ======== ===== ======= ==== ======= ====
Significant components of the Company's deferred tax assets and liabilities are as follows:
2001 2000 -------- -------- DEFERRED TAX ASSETS: Allowance for doubtful accounts........................... $ 4,466 $ 2,907 Other receivables......................................... 3,664 -- Allowance for the gross profit on estimated future returns 11,442 13,191 Reserve for separations................................... 1,262 3,931 Accruals for compensated absences......................... 4,663 4,627 Reserve for self insurance................................ 1,258 1,275 Reserve for inventory losses.............................. 18,522 16,753 Post-retirement benefit obligation........................ 3,906 3,576 Capitalized overhead in inventory......................... 1,544 1,809 Net operating loss carryforwards.......................... 78,843 -- Other..................................................... 7,916 3,825 Valuation allowance....................................... (8,840) -- -------- -------- 128,646 51,894 -------- -------- DEFERRED TAX LIABILITIES: Deferred revenue.......................................... 78,532 50,924 Property and equipment.................................... 31,978 34,998 Prepaid and deferred expenses............................. 9,319 6,768 Deferred rent obligations................................. 5,695 6,083 Earned but unbilled finance charges....................... 3,122 4,683 -------- -------- 128,646 103,456 -------- -------- Net deferred tax asset (liability)......................... $ -- $(51,562) ======== ========
The gross balance of net operating loss carry forwards on continuing operations and discontinued operations totaled $338,662 and has expiration dates beginning in 2017 and ending in 2021. The Company's consolidated net deferred tax position, with inclusion of deferred taxes reflected as part of discontinued operations, totals $0. In 2001, the Company recorded a valuation allowance of $8,840 in continuing operations and $133,761 in discontinued operations due to doubt about the Company's ability to continue as a going concern. See Note 3. 13. Stockholders' Equity In April 2000, the Company resumed quarterly dividend payments of $0.04 per share. On November 13, 2001, the Company announced the discontinuance of its dividend payments to shareholders' effective December 30, 2001. The Company's debt agreements provide for restrictive covenants, including restrictions on the payment of dividends. Dividend payments totaled $21,106 in 2001. 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 14. Related Party Transactions Otto Versand (GmbH & Co) ("Otto Versand"), a privately-held German partnership, acquired the Company in 1982. In April 1984, Otto Versand transferred its interest in the Company to its partners and designees. Otto Versand and the Company have entered into certain agreements seeking to benefit both parties by providing for the sharing of expertise. In October 2002, the German partnership changed its name from Otto Versand (GmbH & Co) to Otto (GmbH & Co KG), hereinafter referred to as "Otto Versand (GmbH & Co)" or "Otto Versand". The following is a summary of such agreements and certain other transactions: The Company utilizes the services of Otto Versand International (GmbH) as a buying agent for the Company in Hong Kong, Taiwan, Korea, India, Italy, Indonesia, Singapore, Thailand Poland, Brazil and Turkey. Otto Versand International (GmbH) is a wholly owned subsidiary of Otto Versand. Buying agents locate suppliers, inspect goods to maintain quality control, arrange for appropriate documentation and, in general, expedite the process of procuring merchandise in these areas. Under the terms of its arrangements, the Company paid $6,989, $6,786 and $4,994 in fiscal 2001, 2000 and 1999, respectively. The arrangements are indefinite in term but may generally be canceled by either party upon one year written notice. In March 2002, the Company entered into a Vendor Payment Services Agreement with Otto International Hong Kong (OIHK), a related party. Under the terms of the agreement, the Company has open account terms with various vendors in certain countries in Asia. The duration of the agreement is for one year, automatically continuing unless terminated by either party with three months written notice. OIHK will pay the vendors the purchase order value less a fee within seven days of the purchase order receipt. The Company will repay OIHK for 100% of the purchase order value for goods purchased by Spiegel and Newport News sixty days from the date of sea shipments and thirty days from the date of air shipments. Due to the larger volume of purchases made by Eddie Bauer in comparison to Spiegel and Newport News, the Company will make weekly advance payments to OIHK for 100% of the purchase order value of goods purchased by Eddie Bauer prior to shipment. In September 2001, the Company entered into a revolving credit agreement with Otto Versand. The initial availability under this credit agreement was $75,000. The credit agreement bears interest at a variable rate based on LIBOR plus a margin, comparable to the Company's other revolving credit agreements. The initial agreement extended through December 15, 2001. In November 2001, this revolving credit agreement with Otto Versand was increased from $75,000 to $100,000 and the maturity date was extended from December 15, 2001 to June 15, 2002. At December 29, 2001, borrowings under this agreement totaled $50,000. As of February 2002, the balance outstanding under the revolving credit agreement with Otto Versand was $100,000. This obligation was extinguished with the proceeds of new term loans in the aggregate amount of $100,000 from Otto-Spiegel Finance G.m.b.H. & Co. KG. These term loans had a maturity date of December 31, 2002 and bear interest at a rate of 4% per annum. As of January 2003, the $100,000 term loans are still outstanding and the Company borrowed an additional $60,000 senior unsecured loan from Otto Versand (GmbH & Co), which bears interest at a rate of LIBOR plus a margin. The Company has an agreement with Together, Ltd., a United Kingdom company, which gives the Company the exclusive right to market "Together!" merchandise through the direct sales channels and retail stores. Otto Versand owns Together, Ltd. Commission expenses were $2,201, $3,161 and $2,949 in fiscal 2001, 2000 and 1999, respectively. These expenses include certain production services, the cost of which would normally be borne by the Company, including design of the product, color separation, catalog copy and layout, identification of suggested manufacturing sources and test marketing information. In 1993, the Company formed a joint venture with Otto-Sumisho, Inc. (a joint venture company of Otto Versand and Sumitomo Corporation) and entered into license agreements to sell Eddie Bauer products through retail stores and direct sales channels in Japan. The Company believes that the terms of the arrangement are no 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) less favorable to Eddie Bauer than would be the case in an arrangement with an unrelated third party. There were 38 stores open in Japan as of December 29, 2001. As of December 29, 2001, Eddie Bauer has contributed $9,290 to the project and in 1994, received a $2,500 licensing fee for the use of its name. Eddie Bauer received $2,416, $3,790 and $5,007 in royalty income on retail and direct sales during fiscal 2001, 2000 and 1999, respectively, which is included in other revenue in the Consolidated Statements of Operations. Eddie Bauer recorded a loss of $497 and $706 in fiscal 2001 and 2000, respectively, and income of $553 in 1999 for its equity share of the joint venture, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. During 1995, Eddie Bauer formed a joint venture with Heinrich Heine GmbH and Sport-Scheck GmbH (both subsidiaries of Otto Versand) and entered into license agreements to sell Eddie Bauer products through retail stores and direct sales channels in Germany. The Company believes that the terms of the arrangement are no less favorable to Eddie Bauer than would be the case in an arrangement with an unrelated third party. There were nine stores open in Germany as of December 29, 2001. As of December 29, 2001, Eddie Bauer has contributed $13,123 to the project and received $1,000 in licensing fees in 1995 for the use of its name. Eddie Bauer received $1,249 $1,249 and $1,449 in royalty income on retail and direct sales during fiscal 2001, 2000 and 1999, respectively, which is included in other revenue in the Consolidated Statements of Operations. Eddie Bauer recorded approximately $1,211, $1,641 and $2,559 of losses for its equity share of the joint venture during fiscal 2001, 2000 and 1999, respectively, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. During 1996, Eddie Bauer formed a joint venture with Grattan plc (a subsidiary of Otto Versand) and entered into license agreements to sell Eddie Bauer products through retail stores and catalogs in the United Kingdom. The Company believes that the terms of the arrangement were no less favorable to Eddie Bauer than would be the case in an arrangement with an unrelated third party. As of December 30, 2000, Eddie Bauer had contributed $4,585 to the project and had received a licensing fee of $667 in 1998 for the use of its name. In addition, Eddie Bauer received $116 and $481 in 2000 and 1999, respectively, in royalty income on retail and catalog sales, which is included in other revenue in the Consolidated Statements of Operations. In October 1999, Eddie Bauer and Grattan plc agreed to terminate the Eddie Bauer UK operation. The closure was completed in the first quarter of 2000. Eddie Bauer recorded losses of approximately $3,166 in 1999 for its equity share of the joint venture, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. Additionally, a $5,000 charge was recorded in 1999 representing the Company's equity share of the costs estimated to discontinue the joint venture, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. In 1993, Eddie Bauer entered into an agreement with Eddie Bauer International, Ltd. (EBI) (a subsidiary of Otto Versand) whereby the latter acts as buying agent in Asia (EBI-Hong Kong) and in 1997 Eddie Bauer entered into an agreement with Eddie Bauer International (Americas), Inc. (EBI-Miami). The buying agents contact suppliers, inspect goods and handle shipping documentation for Eddie Bauer. The Company believes that the terms of the arrangements are no less favorable to Eddie Bauer than would be the case in an arrangement with an unrelated third party. The Company paid $17,981, $19,535 and $20,030 to EBI-Hong Kong for these services in fiscal 2001, 2000 and 1999, respectively, which are included in selling, general and administrative expense in the Consolidated Statements of Operations. The Company paid EBI-Miami $4,976, $4,482 and $4,151 for these services in fiscal 2001, 2000 and 1999, respectively, which are included in selling, general and administrative expense in the Consolidated Statements of Operations. Other revenue attributable to related party transactions included in the Consolidated Statements of Operations totaled $3,665, $5,155 and $6,937 for the fiscal years ended 2001, 2000 and 1999, respectively. Selling, general and administrative expenses attributable to related party transactions included in the Consolidated Statements of Operations totaled $33,855, $36,311 and $42,296 for the fiscal years ended 2001, 2000 and 1999, respectively. 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company is included in the consolidated federal income tax return of SHI. Pursuant to a tax reimbursement agreement with SHI, the Company records provisions for income tax expense as if it were a separate taxpayer. 15. Segment Reporting Historically, the operating results for the Company were reported for two segments: merchandising and bankcard. The merchandising segment included an aggregation of the Company's three merchant divisions and the private-label preferred credit operation. The bankcard segment included primarily the bankcard operations of First Consumers National Bank (FCNB), the Company's special-purpose bank, and Financial Services Acceptance Corporation (FSAC). In the fourth quarter of fiscal 2001, the Company formalized a plan to sell the bankcard segment. Accordingly, the accompanying Consolidated Financial Statements reflect the bankcard segment as a discontinued operation for all periods presented. The Company anticipates the completion of a sale of its bankcard segment by April 2003. To the extent that the Company is unable to sell the bankcard segment, this segment will be liquidated as part of the liquidation of FCNB in its entirety, as required under the OCC agreement. The remaining business segment is the merchandising segment, which includes the preferred credit card operation. The merchandising segment is reflected in the Company's Consolidated Financial Statements as continuing operations. Therefore, no additional segment reporting disclosure is provided herein. 58 STATEMENT OF MANAGEMENT RESPONSIBILITY We have prepared the accompanying consolidated financial statements and related information for the fiscal years 2001, 2000 and 1999. The opinion of the Company's independent auditors, KPMG LLP, on those financial statements follows. The primary responsibility for the integrity and objectivity of the financial information included in this annual report rests with management. Such information was prepared in accordance with accounting principles generally accepted in the United States of America and appropriate in the circumstances, based on our best estimates and judgments and giving due consideration to materiality. The Company maintains an internal control structure that is adequate to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, and that produces records adequate for preparation of financial information. There are limits inherent in all systems of internal control structures based on the recognition that the cost of such a structure should not exceed the benefits to be derived. In addition, the Company maintains an internal audit department to review the adequacy, application and compliance of the internal control structure. KPMG LLP, an independent auditing firm, has been engaged to audit the consolidated financial statements and to render an opinion as to their conformity with accounting principles generally accepted in the United States of America. They conducted their audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that they plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. KPMG LLP is a member of the SEC Practice Section of the American Institute of Certified Public Accountants. The Board of Directors pursues its responsibility for these financial statements through its audit committee, composed of directors who are not employees of Spiegel, Inc. or its subsidiaries, which meets periodically with both management and the independent auditors to ensure that each is carrying out its responsibilities. KPMG LLP and the internal audit department have free access to the audit committee, with and without the presence of management. 59 REPORT OF INDEPENDENT AUDITORS The Stockholders and Board of Directors of Spiegel, Inc.: We have audited the accompanying consolidated balance sheets of Spiegel, Inc. and subsidiaries as of December 29, 2001 and December 30, 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 29, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Spiegel, Inc. and subsidiaries as of December 29, 2001 and December 30, 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 29, 2001, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, at December 29, 2001, the Company was not in compliance with certain restrictive covenants in its debt agreements, and accordingly, substantially all of the Company's debt is currently due and payable. In addition the Company was not in compliance with certain provisions of agreements with the insurer of its asset-backed securitization transactions, and has been unable to negotiate amended agreements with its lenders. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 6 to the consolidated financial statements, the Company changed its method of recording revenue for discount club memberships in 2000. /s/ KPMG LLP Chicago, Illinois February 14, 2002, except for Notes 2, 3, 4, 5, 9, 11, 12 and 14 which are as of January 31, 2003 60 SELECTED QUARTERLY FINANCIAL DATA (Unaudited) ($000s omitted, except per share amounts)
2001 First Second Third Fourth Total Year - ---- ------------ ------------ ------------ ------------ ------------ Net sales and other revenue (1)......................... $ 706,311 $ 781,799 $ 653,370 $ 831,739 $ 2,973,219 Operating income (loss) (1)........... (22,633) 6,580 (34,925) (174,623) (225,601) Earnings (loss) from continuing operations (1)...................... (22,763) (4,595) (30,832) (130,713) (188,903) Earnings (loss) from discontinued operations (1),(2).................. 10,521 9,624 18,527 (437,243) (398,571) Net earnings (loss)................... $ (12,242) $ 5,029 $ (12,305) $ (567,956) $ (587,474) Earnings (loss) per common share: Earnings (loss) from continuing operations Basic and diluted (1).............. $ (0.17) $ (0.04) $ (0.23) $ (0.99) $ (1.43) Discontinued operations Basic and diluted (1),(2).......... $ 0.08 $ 0.07 $ 0.14 $ (3.31) $ (3.02) Net earnings (loss) Basic and diluted.................. $ (0.09) $ 0.03 $ (0.09) $ (4.30) $ (4.45) Weighted average common shares outstanding Basic.............................. 131,867,366 131,885,494 131,926,286 131,955,013 131,908,540 Diluted............................ 131,867,366 132,034,066 131,926,286 131,955,013 131,908,540 MARKET PRICE DATA High............................... $ 7.89 $ 9.67 $ 10.72 $ 7.35 $ 10.72 Low................................ $ 4.31 $ 5.22 $ 4.66 $ 4.15 $ 4.15 2000 First Second Third Fourth Total Year - ---- ------------ ------------ ------------ ------------ ------------ Net sales and other revenue (1)......................... $ 734,512 $ 832,700 $ 759,940 $ 1,202,155 $ 3,529,307 Operating income (loss) (1)........... 28,655 46,521 2,443 94,771 172,390 Earnings (loss) from continuing operations before cumulative effect of accounting change (1)............ 11,184 21,520 (8,802) 49,614 73,516 Earnings (loss) from discontinued operations (1)...................... 9,032 4,320 22,273 15,753 51,378 Cumulative effect of accounting change (net of income tax benefit of $2,503)............................. (4,076) -- -- -- (4,076) Net earnings.......................... $ 16,140 $ 25,840 $ 13,471 $ 65,367 $ 120,818 Earnings (loss) per common share:.... Earnings (loss) from continuing operations before cumulative effect of accounting change (1) Basic and diluted.................. $ 0.09 $ 0.16 $ (0.07) $ 0.38 $ 0.56 Discontinued operations (1) Basic and diluted.................. 0.07 0.03 0.17 0.12 0.39 Cumulative effect of accounting change Basic and diluted.................. (0.03) -- -- -- (0.03) Net earnings per common share Basic and diluted.................. $ 0.13 $ 0.19 $ 0.10 $ 0.50 $ 0.92
61
2000 First Second Third Fourth Total Year - ---- ------------ ------------ ------------ ------------ ------------ Weighted average common shares outstanding Basic...................... 131,859,113 131,859,388 131,864,113 131,864,618 131,861,808 Diluted.................... 131,985,828 131,981,831 131,974,593 131,886,357 131,944,900 MARKET PRICE DATA High....................... $ 9.50 $ 9.06 $ 8.75 $ 7.81 $ 9.50 Low........................ $ 6.31 $ 6.00 $ 6.50 $ 3.03 $ 3.03
- -------- (1) Certain prior year amounts have been reclassified from amounts previously reported to conform with the fiscal 2001 presentation; see Notes 1 and 2 to the consolidated financial statements. (2) The fourth quarter of fiscal 2001 includes a charge of $319,297 or $2.42 loss per share for the accrued estimated loss on disposal of the bankcard segment. See Note 2 to the consolidated financial statements. ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. 62 PART III ITEM 10. Directors and Executive Officers of the Registrant Directors The following persons are the directors of the Company:
Year Elected as Name Age Offices with Registrant or Other (4) Director - ---- --- ------------------------------------------------- ---------- Dr. Michael Otto (1).............. 58 Chairman of the Board of Directors and Chairman 1982 of the Executive Board of Otto Versand (GmbH & Co) (1981) Martin Zaepfel (1)(4)............. 58 Vice Chairman of the Board of Directors, 1996 President and Chief Executive Officer James R. Cannataro (3)(4)......... 50 Executive Vice President and Chief Financial 2001 Officer Dr. Michael E. Crusemann (1)(2)(3) 56 Member of the Executive Board and Director, 1994 Finance of Otto Versand (GmbH & Co) and Chief Financial Officer of Otto Versand Group (1994) Hans-Jorg Hammer.................. 62 Retired. Prior to October 1999 was a member of 1991 the Executive Board and Director, Personnel of Otto Versand (GmbH & Co) Horst R. A. Hansen (2)............ 67 Retired. Prior to March 1994 was a member of the 1982 Executive Board and Director, Finance of Otto Versand (GmbH & Co) and Chief Financial Officer of Otto Versand Group Dr. Rainer Hillebrand............. 47 Member of the Executive Board and Director, 2001 Marketing and Advertising of Otto Versand (GmbH & Co) (2001); Member of the Executive Board and Director, Sales and New Media of Otto Versand (GmbH & Co) (1999); Director, Sales of Otto Versand (GmbH & Co) (1997) George D. Ittner (4).............. 58 Chairman and Chief Executive Officer, Newport 1998 News, Inc. Dr. Wolfgang Linder............... 53 Member of the Executive Board and Director, 2000 Information Technology of Otto Versand (GmbH & Co) (2000); Managing Director of Handelsgesellschaft Heinrich Heine GmbH (1993) Dr. Peter Muller (2).............. 60 Retired. Prior to January 1998 was a member of 1985 the Executive Board and Director, Advertising and Marketing of Otto Versand (GmbH & Co) Melissa J. Payner (4)............. 43 President and Chief Executive Officer, Spiegel 2000 Catalog, Inc.
63
Year Elected as Name Age Offices with Registrant or Other (4) Director - ---- --- --------------------------------------------- ---------- Gert Rietz............ 55 Member of the Executive Board and Director, 1997 Merchandise of Otto Versand (GmbH & Co) (1989) Hans-Otto Schrader.... 45 Member of the Executive Board and Director, 2000 Personnel of Otto Versand (GmbH & Co) (1999); Merchandising Manager of Otto Versand (GmbH & Co) (1993) Dr. Peer Witten....... 56 Member of the Executive Board and Director, 1991 Logistics of Otto Versand (GmbH & Co) (1984) Dr. Winfried Zimmerman 44 Member of the Executive Board and Director, 2000 Planning and Control of Otto Versand (GmbH & Co) (2000); From April 2000 to July 2000 was Managing Director of Handelsgesellschaft Heinrich Heine GmbH; Manager Planning and Control of Otto Versand (GmbH & Co)(1997)
- -------- (1) Member of Board Committee (Executive Committee) (2) Member of Audit Committee (3) Member of Finance Committee (4) The business experience during the last five years of directors who are executive officers of the Company is detailed in the listing of executive officers that follows. There is no family relationship between any of the directors. 64 EXECUTIVE OFFICERS The following persons are the executive officers and certain significant employees of the Company:
Positions and Offices Held (all positions and offices are of the Company Name Age unless otherwise indicated) - ---- --- --------------------------------------------- Martin Zaepfel.... 58 Vice Chairman, President and Chief Executive Officer (2001); Director (1996); Deputy Chairman of the Board of Directors of Otto Versand (GmbH & Co) and Director, Marketing and Advertising of Otto Versand (GmbH & Co) (1998); Board of Directors and Director, Merchandise of Otto Versand (GmbH & Co) (1988) James R. Cannataro 50 Executive Vice President, Chief Financial Officer and Director (2001); Executive Vice President and Chief Financial Officer (1996), Eddie Bauer; Vice President Finance (1990), Eddie Bauer Richard T. Fersch. 52 President (1992) and Chief Executive Officer (1997), Eddie Bauer; and Director (1994); Retired January 2002 George D. Ittner.. 58 President (1992) and Chief Executive Officer (1997), Newport News; and Director (1998) David Kardesh..... 47 Senior Vice President and Chief Information Officer (2001); Vice President Applications Development (1998); Divisional Vice President Applications Development (1997) Richard M. Lauer.. 47 Vice President of Operations (2001); President and Chief Executive Officer of DFS (1999); Senior Vice President of DFS (1999); Vice President, Operations of DFS (1998); Vice President, Engineering and Systems Services of DFS (1996) Anne Linsdau...... 48 Senior Vice President Human Resources (2002), Vice President of Human Resources, Fortune Brands Melissa J. Payner. 43 President and Chief Executive Officer Spiegel Catalog and Director (2000); Senior Vice President Merchandising/Advertising Creative (1998); Vice President Managing Director of Merchandising/ Advertising Creative (1997) James Pekarek..... 34 Vice President and Corporate Controller (2001); Vice President Finance of Montgomery Wards (2000); Vice President and Corporate Controller of OMC Robert H. Sorensen 55 Vice President General Counsel and Secretary (2001); Senior Vice President, General Counsel and Secretary of Midas, Inc. (1995) John R. Steele.... 50 Vice President (1995) and Treasurer (1993)
Beneficial Ownership Reporting Compliance Section 16(A) of the Securities Exchange Act of 1934 requires the Companies directors and officers, and other persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock of the Company. Officers, directors and greater than ten percent stockholders are required to furnish the Company with copies of all Section 16(A) forms they file. To the Company's knowledge, based solely on review of the copies of (i) Forms 3 and 4 and amendments thereto furnished to the Company during its most recent fiscal year, (ii) Forms 5 and amendments thereto 65 furnished to the Company with respect to its most recent fiscal year, and/or (iii) written representations made to the Company by its directors and officers, the Company believes that its directors, officers, and beneficial owners of more than ten percent of the Company's Common Stock complied with all Section 16(a) reporting requirements, except as follows: the late filing of Form 3 Initial Statements of Beneficial ownership for each of Dr. Rainer Hillebrand, Dr. Wolfgang Linder, Mr. Hans-Otto Schrader, and Dr. Winfried Zimmerman, all members of the Company's Board of Directors; one instance of late reporting by Dr. Hillebrand of one sale of common stock on a Form 4, Statement of Change in Beneficial Ownership; one instance of late reporting by Mr. Schrader of one sale of common stock on a Form 4, Statement of Change in Beneficial Ownership; and the late filing of Form 5 Statements for each of Dr. Hillebrand, Dr. Zimmerman and Mr. Schrader. The Company believes that all were inadvertent omissions. The required forms were promptly filed upon discovery of the oversight. ITEM 11. Executive Compensation Summary Compensation Table The following table and accompanying footnotes set forth all compensation paid or accrued by the Company for the years ended December 29, 2001, December 30, 2000 and January 1, 2000 to or on behalf of each of the five most highly compensated key policy-making executives currently serving as officers of the Company and includes two former officers not serving in their positions as of the end of the fiscal year.
Annual Compensation Stock All --------------------- Options LTIP Other Salary Bonus Granted Payout Compensation Name and Principal Position Year ($) ($) (#) ($)(1) ($)(2) - --------------------------- ---- ---------- ---------- ------- -------- ------------ Martin Zaepfel.......................... 2001 $ 600,000 $ 114,938 -- $ -- $ 116,945 Vice Chairman, President and Chief Executive Officer and Director James R. Cannataro...................... 2001 $ 395,208 $ 106,424 -- $ -- $ 338,209 Executive Vice President, Chief 2000 355,004 133,125 4,000 266,250 64,264 Financial Officer and Director 1999 318,266 298,374 4,000 -- 167,697 Richard T. Fersch....................... 2001 $1,000,012 $ -- -- $ -- $2,665,685 President and Chief Executive Officer 2000 1,000,012 500,000 20,000 375,000 285,940 of Eddie Bauer and Director 1999 796,156 1,114,185 20,000 -- 387,280 Melissa J. Payner....................... 2001 $ 542,889 $ 431,878 -- $ -- $ 142,223 President and Chief Executive Officer 2000 400,010 421,450 26,000 600,000 158,911 of Spiegel Catalog and Director 1999 367,890 406,300 4,000 -- 162,719 George D. Ittner........................ 2001 $ 466,157 $ -- -- $ -- $ 105,758 President and Chief Executive Officer 2000 448,281 606,250 20,000 675,000 114,232 of Newport News and Director 1999 423,346 428,313 20,000 -- 55,007 Michael R. Moran........................ 2001 $ 289,698 $ 713,649 -- $ -- $4,265,077 Chairman of the Office of the President 2000 425,022 360,450 20,000 637,500 211,361 and Chief Legal Officer 1999 400,006 466,650 20,000 -- 260,923 James W. Sievers........................ 2001 $ 279,096 $ 677,324 -- $ -- $4,375,727 Office of the President and Chief 2000 400,010 339,250 20,000 600,000 240,090 Financial Officer 1999 364,000 429,150 20,000 -- 253,609
- -------- (1) Certain executives of the Company earned long-term incentive bonuses in 2000. The long-term incentive plan for bonuses earned in 2000 covered the operating and financial performance of the individual divisions for 1999 and 2000, with the payout formula heavily weighted to the 2000 performance. (2) The following tables summarize all other compensation for the years ended December 29, 2001, December 30, 2000 and January 1, 2000: 66
Retirement Name Benefits Other Total - ---------------------- ---------- ---------- ---------- 2001 Martin Zaepfel (1) $ -- $ 116,945 $ 116,945 James R. Cannataro (1) 50,699 287,510 338,209 Richard T. Fersch (2) 121,786 2,543,899 2,665,685 Melissa J. Payner (3) 95,995 46,228 142,223 George D. Ittner (3) 70,054 35,704 105,758 Michael R. Moran (4) 219,268 4,045,809 4,265,077 James W. Sievers (4) 331,368 4,044,359 4,375,727 2000 James R. Cannataro $ 23,630 $ 40,634 $ 64,264 Richard T. Fersch 242,954 42,986 285,940 Melissa J. Payner 125,028 33,883 158,911 George D. Ittner 82,452 31,780 114,232 Michael R. Moran 161,411 49,950 211,361 James W. Sievers 192,261 47,829 240,090 1999 James R. Cannataro $115,632 $ 52,065 $ 167,697 Richard T. Fersch 333,322 53,958 387,280 Melissa J. Payner 112,203 50,516 162,719 George D. Ittner 43,013 11,994 55,007 Michael R. Moran 208,745 52,178 260,923 James W. Sievers 199,244 54,365 253,609
- -------- (1) Other compensation for Martin Zaepfel and James Cannataro primarily relate to relocation bonuses. (2) Richard T. Fersch retired from the company at the end of fiscal 2001. As part of his retirement agreement he will receive $2,500,000 in additional cash compensation, which has been reflected in "All Other Compensation" in the summary compensation table. (3) Other compensation for Melissa J. Payner and George D. Ittner primarily relate to car allowances. (4) Michael R. Moran and James W. Sievers retired from the Company effective July 1, 2001. As part of their retirement agreements, each received $4,000,000 in additional cash compensation, which has been reflected in "All Other Compensation" in the summary compensation table. Option Grants Table The Company did not grant stock options to any of the named executive officers during the year ended December 29, 2001. Aggregated Option Exercises in 2001 and December 29, 2001 Option Values The following table sets forth shares acquired on exercise and stock option values at December 29, 2001:
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Shares Options at at Acquired December 29, 2001 December 29, 2001 On Value ------------------------- ------------------------- Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---- -------- -------- ----------- ------------- ----------- ------------- Martin Zaepfel.... -- -- -- -- $ -- $ -- James R. Cannataro -- -- 21,400 10,600 $ 192 $ 768 Richard T. Fersch. -- -- 101,800 47,000 $ 960 $3,840 Melissa J. Payner. -- -- 9,200 27,800 $ 960 $3,840 George D. Ittner.. -- -- 43,000 52,000 $ 960 $3,840 Michael R. Moran.. -- -- 95,500 -- $4,800 $ -- James W. Sievers.. -- -- 92,000 -- $4,800 $ --
67 Compensation of Directors The Company pays an annual fee of $10,000 to its independent directors and reimburses any reasonable out-of-pocket expenses incurred by all directors in attending meetings. Employment and Separation Agreements The Company has an employment agreement with Martin Zaepfel, Vice Chairman, President and Chief Executive Officer, the terms of which extend through July 1, 2006. The current annual base salary under this agreement is $1,200,000. The agreement entitles Mr. Zaepfel to receive an annual bonus based on the financial performance of the Company. The Company has an employment agreement with James R. Cannataro, Executive Vice President, and Chief Financial Officer, the terms of which extend through March 25, 2004. The current annual base salary under this agreement is $410,000. The agreement entitles Mr. Cannataro to receive an annual bonus based on the financial performance of the Company. The Company had an employment agreement with Richard T. Fersch, the former President and Chief Executive Officer of Eddie Bauer, the terms of which extended through December 31, 2002. The annual base salary under this agreement was $1,000,000 per year. The agreement also entitled Mr. Fersch to receive an annual bonus based upon the financial performance of Eddie Bauer. At the end of fiscal 2001, Mr. Fersch elected to retire from the Company. Upon retirement, Mr. Fersch received $2,500,000 under the terms of his agreement. The Company entered a Separation Agreement with Richard T. Fersch at the end of fiscal 2001 pursuant to which Mr. Fersch's Employment Agreement with the Company was terminated. Under the terms of this Agreement Mr. Fersch agreed to release Eddie Bauer from any claims, which he might have against it and to continue working for Eddie Bauer during a transition period beginning January 1, 2002 and ending no earlier than May 31, 2002. In exchange for this consideration, Eddie Bauer agreed to provide Mr. Fersch: (i) severance pay in the amount of $2,000,000, (ii) a salary of $100,000 per month during the transition period, (iii) title to his company automobile, (iv) outplacement by a mutually agreed upon service provider for a period of up to 12 months, with the cost of such services not to exceed $15,000, (v) access to resources and personnel provided by Working Solutions for 12 months, and (vi) a 40% employee discount on all the Company's products. This agreement further obligates Eddie Bauer to pay a share of Mr. Fersch's split dollar insurance premiums until he reaches age 65 and to pay a share of Mr. Fersch and his family's medical coverage, should they elect coverage under Eddie Bauer's Retiree Medical Program. The Company has an employment agreement with Melissa J. Payner, President and Chief Executive Officer of Spiegel Catalog, the terms of which extend through December 31, 2003. The current annual base salary under this agreement is $550,000. The agreement entitles Ms. Payner to receive an annual bonus based on the financial performance of Spiegel Catalog. The Company has an employment agreement with George D. Ittner, President and Chief Executive Officer of Newport News, the terms of which extend through December 31, 2003. The current annual base salary under this agreement is $470,000. The agreement entitles Mr. Ittner to receive an annual bonus based on the financial performance of Newport News. The Company entered into a Separation Agreement with Michael R. Moran, effective December 30, 2000 pursuant to which Mr. Moran's Employment Agreement with the Company was terminated. Under the terms of this agreement, Mr. Moran agreed to continue working for the Company during a transitional period running from January 1, 2001 to June 30, 2001. In exchange for this consideration, the Company agreed to provide Mr. Moran: (i) severance pay in the amount of $4,000,000, (ii) a payment of $709,000 representing bonuses, incentive plan awards, and supplemental executive retirement plan payments for the first six months of 2001 and 68 (iii) salary (calculated based upon an annual salary of $445,000) and non-cash benefits for the duration of the transitional period. This agreement further obligates the Company to pay a share of Mr. Moran's life insurance premiums until he reaches age 65 and to provide medical, dental and vision insurance at regular retiree rates to Mr. Moran and his spouse until they both reach age 65. The Company entered into a Separation Agreement with James W. Sievers, effective December 30, 2000 pursuant to which Mr. Sievers' Employment Agreement with the Company was terminated. Under the terms of this agreement, Mr. Sievers agreed to continue working for the Company during a transitional period running from January 1, 2001 to June 30, 2001. In exchange for this consideration, the Company agreed to provide Mr. Sievers: (i) severance pay in the amount of $4,000,000, (ii) a payment of $671,000 representing bonuses, incentive plan awards, and supplemental executive retirement plan payments for the first six months of 2001 and (iii) salary (calculated based upon an annual salary of $420,000) and non-cash benefits for the duration of the transitional period. This agreement further obligates the Company to pay a share of Mr. Sievers' life insurance premiums until he reaches age 65 and to provide medical, dental and vision insurance at regular retiree rates to Mr. Sievers and his spouse until they both reach age 65. Compensation Committee Interlocks and Insider Participation The Board Committee, which determines executive officer compensation, consists of Dr. Michael Otto and Martin Zaepfel. Mr. Zaepfel also serves as the Vice Chairman, President and Chief Executive Officer of the Company. Employee Benefits Stock Option Plan The Spiegel, Inc. Salaried Employee Incentive Stock Option Plan is administered by a Stock Option Committee consisting of three members of the Company's Board of Directors who are not salaried employees of the Company or its participating subsidiaries and who are appointed to the Committee periodically. Certain salaried employees of the Company are eligible to participate in the plan. Options are granted to those eligible employees as determined by the Stock Option Committee. The Stock Option Committee also has authority to determine the number of shares and terms consistent with the plan with respect to each option. Options granted under the plan relate to the Class A non-voting common stock of the Company. The maximum number of shares which may be issued under the current plan is 1,000,000. The participants' options become exercisable at the rate of 20 percent per year. The options expire ten years after the date of grant of options. The option price upon exercise of the option is the fair market value of the shares on the date of grant of the option. Options granted under the plan are not transferable or assignable other than by will or by the laws of descent and distribution. Stock options outstanding under the above plan were 413,000 at December 29, 2001. In addition to the stock option plan discussed above, 264,100 shares were outstanding at December 29, 2001 under a plan that expired in 1998. These options were issued under the same terms as the plan currently in place. The Company also has a non-qualified stock option plan in place for certain former employees. Options are granted under this non-qualified plan at the discretion of the Board of Directors. Options outstanding under the non-qualified plan were 237,500 at December 29, 2001. No stock options were granted during the year ended December 29, 2001. Net cash realized with respect to the exercise of options during the year was approximately $564,000. Spiegel Group Value in Partnership Profit Sharing and 401(k) Savings Plan The Company maintains two consolidated Profit Sharing and 401(k) Savings Plans for its employees. Associates are immediately eligible for voluntary pre-tax and after-tax contributions upon starting employment, 69 but participation in any Company contributions commences on the beginning of a quarter following one year of continuous service. The Company and participating subsidiaries contribute annually to the accounts of eligible participants a percentage of considered compensation based on the Spiegel, Inc. consolidated earnings before income taxes plus any other amounts determined by the Company's Board of Directors. A minimum contribution of 4 percent of eligible considered compensation will be made, but in no event will the total contribution exceed the maximum amount deductible for Federal income tax purposes. Company contributions and forfeitures are allocated among eligible participants in proportion to considered compensation. Employees may also contribute up to 10 percent of their base compensation to the 401(k) plan through payroll deductions. Employee contributions are made on a pretax basis under Section 401(k) of the Internal Revenue Code. The Company matches salaried employee contributions dollar for dollar up to the first 3 percent of base compensation and 50 cents for each dollar contributed up to the next 3 percent. The Company matches hourly employee contributions 25 cents for each dollar contributed up to 6 percent of base compensation. The Company's matching contributions, however, may not exceed the amount deductible under the Internal Revenue Code. A participant can make nondeductible after-tax contributions to the plan of up to 5 percent of their considered compensation, subject to special limitations imposed by the Internal Revenue Code thereon. All contributions and investments are held in a trust for the benefit of plan participants. All employees who participate in the plan are 100 percent vested in their contributions and earnings thereon but become vested in the Company's contributions and earnings thereon at a rate based on years of service, with full vesting after a maximum of seven years. Participants are permitted to borrow from their account, but may have only one outstanding loan at a time. Repayment is made through payroll deductions. Participants who suffer a financial hardship as defined by the Internal Revenue Code and who are not eligible for a loan may withdraw amounts from the plan while still employed. In addition, participants may annually receive a distribution of their after-tax contributions. All participants may request a distribution of the full value of their accounts under the plan upon retirement after age 62 or permanent disability and the vested portion of their accounts on other termination of employment. The full value of a deceased participant's account is distributable to his beneficiaries. Distributions are made in a lump sum. Effective January 1, 2002, the following plan design changes will be implemented: . Company profit sharing contributions, if any, will be discretionary as determined by the Board of Directors of the Company. . Forfeitures will remain in the plan to offset expenses of and contributions to the plan. . Employees will be allowed to contribute up to 15% of their base compensation to the 401(K) plan through payroll deductions. . Certain employees will be allowed to make catch-up contributions to the plan in accordance with, and subject to the limitations of the Internal Revenue Code Section 414(v). . All participants who are active on payroll after January 1, 2002 will become vested in the Company's contributions and earnings thereon at a rate based on years of service, with full vesting after a maximum of five years. Spiegel, Inc., Supplemental Executive Retirement Plan The Company maintains an unfunded supplemental retirement plan for the benefit of certain employees covered by the retirement plans described above (the "profit sharing and thrift plans") whose benefits under the profit sharing and thrift plans are reduced by application of Sections 401(a)(17) and 402(g) of the Internal Revenue Code. If a participant's annual additions under the profit sharing and thrift plans are reduced by reason of special limitations of the Internal Revenue Code, the Company will make an annual contribution to a grantor trust in the amount of the reduction. The Plan also provides additional supplemental benefits to certain key 70 employees. An annual contribution to a grantor trust will be made on behalf of these participants equal to the sum of (1) an amount based on compensation limited by the Social Security Taxable Wage Base, plus (2) profit sharing contribution on annual incentive. Supplemental benefits under the supplemental retirement plan are payable in cash at the same time and in the same manner as the participant's employer account under the profit sharing and thrift plans except no payments are made prior to death, disability or termination of employment. Split Dollar Life Insurance Program The Company maintains a split dollar life insurance program covering certain executives of the Company. A covered employee may apply for an individual life insurance policy on his life in a face amount equal to three times his base salary. The employee portion of the annual premium is equal to the lowest allowable premium according to IRS regulations. The balance of the premium due (if any) is paid by the Company. The Company owns a part of the cash value equal to its payments and is beneficiary for that amount. The employee names his own beneficiary and collaterally assigns the policy to the Company to the extent of the Company's payments. Cash value and dividends accumulate tax-free and all amounts in excess of the Company's payments belong to the employee. On the death of the employee, any amounts due to the Company are paid with the balance of the proceeds distributed as directed by the employee. Executive Bonus and Incentive Plans The Company maintains various annual bonus plans for certain of its executives, designed to reward performance. The Company's annual payment of bonuses is based upon the attainment of pre-determined annual operating and financial performance objectives. In addition, the Company periodically offers a long-term incentive bonus plan. Payment of long-term incentive bonuses is based on the attainment of pre-determined operating and financial performance objectives that span more than one year. Expense related to the above bonus plans was approximately $1.7 million in fiscal 2001. ITEM 12. Security Ownership of Certain Beneficial Owners and Management a. Security Ownership of Certain Beneficial Owners Spiegel Holdings, Inc. (SHI) holds 100% of the Company's Class B voting common stock. The following table sets forth certain information with respect to the number of shares of Class B voting common stock owned by SHI, which is the only stockholder beneficially owning more than 5% of the Class B voting common stock. SHI is a holding company whose principal asset is stock of the Company. The total number of holders of the Company's Class B voting common stock as of December 5, 2002, was one.
Percentage of outstanding Number of Title of Class B voting Name and Address shares (1) class common stock ---------------- ----------- -------- -------------- Spiegel Holdings, Inc. (2).............. 117,009,869 Class B 100.0% The Corporation Trust Center voting 1209 Orange Street common Wilmington, DE 19801 stock
- -------- (1) The shares are owned of record and beneficially, with sole investment and voting power. However, see note (2) below. (2) In excess of 50% of the common stock of SHI is beneficially owned by Dr. Michael Otto, who controls the manner in which SHI votes its Class B voting common stock of the Company in all matters, including the election of directors. Dr. Otto is a director of the Company. No officers or other directors of the Company are Class B stockholders of record or beneficial stockholders thereof. 71 b. Security Ownership of Management As of December 5, 2002, certain members of the Company's Board of Directors, and the directors and officers of the Company as a group, owned shares of the Company's Class A non-voting common stock as indicated in the following table:
Amount and Nature of Title of Beneficial Acquirable Percent Class Name of Beneficial Owner Ownership (1) Within 60 Days of Class ----- ------------------------ ------------- -------------- -------- (I) (II) (III) Class A James R. Cannataro........................... 28,200 25,200 * Class A George D. Ittner............................. 74,400 72,000 * Class A David Kardesh................................ 4,500 4,500 * Class A Richard M. Lauer............................. 4,500 4,500 * Class A Melissa J. Payner............................ 18,800 18,800 * Class A Dr. Peter Muller............................. 10,000 -- * Class A Gert Rietz................................... 29,500 -- * Class A John R. Steele............................... 6,050 5,800 * Class A All directors and officers as a group (25 persons)................................... 204,270 152,600 1.4%
- -------- (1) As shown in Column II, in the case of Company officers, portions of the shares indicated as beneficially owned are actually shares attributable to unexercised and unexpired options for Class A non-voting common stock granted by the Company to such officers, which are exercisable as of, or first become exercisable within 60 days after, December 5, 2002. *Less than 1%. ITEM 13. Certain transactions ($000s omitted) Otto Versand (GmbH & Co) ("Otto Versand"), a privately-held German partnership, acquired the Company in 1982. In April 1984, Otto Versand transfered its interest in the Company to its partners and designees. Otto Versand and the Company have entered into certain agreements seeking to benefit both parties by providing for the sharing of expertise. In October 2002, the German partnership changed its name from Otto Versand (GmbH & Co) to Otto (GmbH & Co KG), hereinafter referred to as "Otto Versand (GmbH & Co)" or "Otto Versand". The following is a summary of such agreements and certain other transactions: The Company utilizes the services of Otto Versand International (GmbH) as a buying agent for the Company in Hong Kong, Taiwan, Korea, India, Italy, Indonesia, Singapore, Thailand Poland, Brazil and Turkey. Otto Versand International (GmbH) is a wholly owned subsidiary of Otto Versand. Buying agents locate suppliers, inspect goods to maintain quality control, arrange for appropriate documentation and, in general, expedite the process of procuring merchandise in these areas. Under the terms of its arrangements, the Company paid $6,989, $6,786 and $4,994 in fiscal 2001, 2000 and 1999, respectively. The arrangements are indefinite in term but may generally be canceled by either party upon one year written notice. In March 2002, the Company entered into a Vendor Payment Services Agreement with Otto International Hong Kong (OIHK), a related party. Under the terms of the agreement, the Company has open account terms with various vendors in certain countries in Asia. The duration of the agreement is for one year, automatically continuing unless terminated by either party with three months written notice. OIHK will pay the vendors the purchase order value less a fee within seven days of the purchase order receipt. The Company will repay OIHK for 100% of the purchase order value for goods purchased by Spiegel and Newport News sixty days from the date of sea shipments and thirty days from the date of air shipments. Due to the larger volume of purchases made by Eddie Bauer in comparison to Spiegel and Newport News, the Company will make weekly advance payments to OIHK for 100% of the purchase order value of goods purchased by Eddie Bauer prior to shipment. 72 In September 2001, the Company entered into a revolving credit agreement with Otto Versand. The initial availability under this credit agreement was $75,000. The credit agreement bears interest at a variable rate based on LIBOR plus a margin, comparable to the Company's other revolving credit agreements. The initial agreement extended through December 15, 2001. In November 2001, this revolving credit agreement with Otto Versand was increased from $75,000 to $100,000 and the maturity date was extended from December 15, 2001 to June 15, 2002. At December 29, 2001, borrowings under this agreement totaled $50,000. As of February 2002, the balance outstanding under the revolving credit agreement with Otto Versand (GmbH & Co) was $100,000. This obligation was extinguished with the proceeds of new term loans in the aggregate amount of $100,000 from Otto-Spiegel Finance G.m.b.H. & Co. KG. These term loans had a maturity date of December 31, 2002 and bear interest at a rate of 4% per annum. As of January 2003, the $100,000 term loans are still outstanding and the Company borrowed an additional $60,000 senior unsecured loan from Otto Versand (GmbH & Co), which bears interest at a rate of LIBOR plus a margin. The Company has an agreement with Together, Ltd., a United Kingdom company, which gives the Company the exclusive right to market "Together!" merchandise through the direct sales channels and retail stores. Otto Versand owns Together, Ltd. Commission expenses were $2,201, $3,161 and $2,949 in fiscal 2001, 2000 and 1999, respectively. These expenses include certain production services, the cost of which would normally be borne by the Company, including design of the product, color separation, catalog copy and layout, identification of suggested manufacturing sources and test marketing information. In 1993, the Company formed a joint venture with Otto-Sumisho, Inc. (a joint venture company of Otto Versand and Sumitomo Corporation) and entered into license agreements to sell Eddie Bauer products through retail stores and direct sales channels in Japan. The Company believes that the terms of the arrangement are no less favorable to Eddie Bauer than would be the case in an arrangement with an unrelated third party. There were 38 stores open in Japan as of December 29, 2001. As of December 29, 2001, Eddie Bauer has contributed $9,290 to the project and in 1994, received a $2,500 licensing fee for the use of its name. Eddie Bauer received $2,416, $3,790 and $5,007 in royalty income on retail and direct sales during fiscal 2001, 2000 and 1999, respectively, which is included in other revenue in the Consolidated Statements of Operations. Eddie Bauer recorded a loss of $497 and $706 in fiscal 2001 and 2000, respectively, and income of $553 in 1999 for its equity share of the joint venture, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. During 1995, Eddie Bauer formed a joint venture with Heinrich Heine GmbH and Sport-Scheck GmbH (both subsidiaries of Otto Versand) and entered into license agreements to sell Eddie Bauer products through retail stores and direct sales channels in Germany. The Company believes that the terms of the arrangement are no less favorable to Eddie Bauer than would be the case in an arrangement with an unrelated third party. There were nine stores open in Germany as of December 29, 2001. As of December 29, 2001, Eddie Bauer has contributed $13,123 to the project and received $1,000 in licensing fees in 1995 for the use of its name. Eddie Bauer received $1,249, $1,249 and $1,449 in royalty income on retail and direct sales during fiscal 2001, 2000 and 1999, respectively, which is included in other revenue in the Consolidated Statements of Operations. Eddie Bauer recorded approximately $1,211, $1,641 and $2,559 of losses for its equity share of the joint venture during fiscal 2001, 2000 and 1999, respectively, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. During 1996, Eddie Bauer formed a joint venture with Grattan plc (a subsidiary of Otto Versand) and entered into license agreements to sell Eddie Bauer products through retail stores and catalogs in the United Kingdom. The Company believes that the terms of the arrangement were no less favorable to Eddie Bauer than would be the case in an arrangement with an unrelated third party. As of December 30, 2000, Eddie Bauer had contributed $4,585 to the project and had received a licensing fee of $667 in 1998 for the use of its name. In addition, Eddie Bauer received $116 and $481 in 2000 and 1999, respectively, in royalty income on retail and catalog sales, which is included in other revenue in the Consolidated Statements of Operations. In October 1999, Eddie Bauer and Grattan plc agreed to terminate the Eddie Bauer UK operation. The closure was completed in 73 the first quarter of 2000. Eddie Bauer recorded losses of approximately $3,166 in 1999 for its equity share of the joint venture, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. Additionally, a $5,000 charge was recorded in 1999 representing the Company's equity share of the costs estimated to discontinue the joint venture, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. In 1993, Eddie Bauer entered into an agreement with Eddie Bauer International, Ltd. (EBI) (a subsidiary of Otto Versand) whereby the latter acts as buying agent in Asia (EBI-Hong Kong) and in 1997 Eddie Bauer entered into an agreement with Eddie Bauer International (Americas), Inc. (EBI-Miami). The buying agents contact suppliers, inspect goods and handle shipping documentation for Eddie Bauer. The Company believes that the terms of the arrangements are no less favorable to Eddie Bauer than would be the case in an arrangement with an unrelated third party. The Company paid $17,981, $19,535 and $20,030 to EBI-Hong Kong for these services in fiscal 2001, 2000 and 1999, respectively, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. The Company paid EBI-Miami $4,976, $4,482 and $4,151 for these services in fiscal 2001, 2000 and 1999, respectively, which is included in selling, general and administrative expense in the Consolidated Statements of Operations. The Company is included in the consolidated federal income tax return of SHI. Pursuant to a tax reimbursement agreement with SHI, the Company records provisions for income tax expense as if it were a separate taxpayer. 74 PART IV ITEM 14. Exhibits, financial statement schedule, and reports of Form 8-K
Page ----- A. 1. Financial Statements Consolidated Balance Sheets.................................................................... 29 Consolidated Statements of Operations.......................................................... 30 Consolidated Statements of Cash Flows.......................................................... 31 Consolidated Statements of Stockholders' Equity................................................ 32 Notes to Consolidated Financial Statements..................................................... 33-58 Report of Independent Auditors................................................................. 60 Selected Quarterly Financial Data.............................................................. 61 2. Financial Statements Schedule Independent Auditors' Report on Schedule....................................................... 80 Schedule II--Valuation and Qualifying Accounts................................................. 81 Schedules not listed above are omitted because of absence of conditions under which they are required or because the required information is included in the financial statements submitted.
75 3. Exhibits
Exhibit Number Description of Exhibit** - ------ ------------------------ 3.1 Restated Certificate of Incorporation of the Registrant (1) 3.2 By-Laws of the Spiegel, Inc. (1) 4 Revised Specimen Class A Non-Voting Common Stock Certificate (2) 10.1 Spiegel, Inc., Semi-Monthly Salaried Employees Incentive Stock Option Plan (File No. 33-69937) (3)* 10.2 Spiegel, Inc., Supplemental Retirement Benefit Plan (4)* 10.3 Spiegel, Inc. Executive Deferred Compensation Plan.* 10.4 Employment Agreement, dated as of July 1, 2001, by and between Spiegel, Inc. and Martin Zaepfel.* 10.5 Employment Agreement, dated as of July 1, 2001, by and between Spiegel, Inc. and James R. Cannataro.* 10.6 Employment Agreement, dated as of December 15, 2000, by and between Spiegel Catalog, Inc. and Melissa Payner-Gregor.* 10.7 Employment Agreement, dated as of September 1, 2000, by and between Newport News, Inc. and George D. Ittner.* 10.8 Separation Agreement, dated as of December 30, 2000, by and between Spiegel, Inc. and Michael R. Moran.* 10.9 Separation Agreement, dated as of December 30, 2000, by and between Spiegel, Inc. and James W. Sievers.* 10.10 Employment Agreement, dated as of January 15, 1998, by and between Eddie Bauer, Inc. and Richard T. Fersch.* 10.11 Separation Agreement, dated as of January 2, 2002, by and between Eddie Bauer, Inc. and Richard T. Fersch.* 10.12 Description of Spiegel Group Incentive and Bonus Plans.* 10.13 Form of Spiegel, Inc. Class A Non-Voting Common Stock Option Agreement.* 10.14 Form of Spiegel, Inc. Class A Non-Voting Common Stock Option Agreement, dated as of June 30, 2001, by and between Spiegel, Inc. and James W. Sievers.* 10.15 Form of Spiegel, Inc. Class A Non-Voting Common Stock Option Agreement, dated as of June 30, 2001, by and between Spiegel, Inc. and Michael R. Moran.* 10.16 364-Day Revolving Credit Agreement dated as of June 30, 2000, as amended by the First Amendment to the 364-Day Revolving Credit Agreement dated as of June 26, 2001 between Spiegel, Inc. and various lending institutions as the Lenders, Deutsche Bank Securities Inc. and J.P. Morgan Securities as the Joint Lead Arrangers and Book Runners, J.P. Morgan Securities Inc. as the Syndication Agent and Deutsche Bank AG New York Branch as the Administrative Agent. 10.17 Second Amended and Restated Revolving Credit Agreement dated as of June 30, 2000, as amended by First Amendment to Second Amended and Restated Credit Agreement dated as of June 26, 2001 between Spiegel, Inc. and various financial institutions as the Lenders, Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. as the Joint Lead Arrangers and Book Runners, J.P. Morgan Securities Inc. as the Syndication Agent and Deutsche Bank AG New York Branch as the Administrative Agent.
76
Exhibit Number Description of Exhibit** - ------ ------------------------ 10.18 Waiver to Second Amended and Restated Revolving Credit Agreement dated as of June 30, 2000, as amended (the "Second Amended Credit Agreement") and the 364-Day Revolving Credit Agreement dated as of June 30, 2000, as amended (the "364-Day Credit Agreement"). 10.19 Letter of Credit Facility Agreement dated as of September 27, 1996 among Spiegel, Inc. and various financial institutions and the Bank of America National Trust and Savings Association as Agent 10.20 First Amendment to Letter of Credit Facility Agreement dated as of March 7, 1997 between Spiegel, Inc. and various financial institutions and Bank of America National Trust and Savings Association as Agent. 10.21 Second Amendment to Letter of Credit Facility Agreement dated as of September 5, 1997 among Spiegel, Inc. and various financial institutions and Bank of America National Trust and Savings Association as Agent. 10.22 Third Amendment to Letter of Credit Facility Agreement dated as of September 25, 1998 among Spiegel, Inc. and various financial institutions and Bank of America National Trust and Savings Association as Agent. 10.23 Fourth Amendment to Letter of Credit Facility Agreement dated as of September 24, 1999 among Spiegel, Inc. and various financial institutions and Bank of America National Trust and Savings Association as Agent. 10.24 Fifth Amendment to Letter of Credit Facility Agreement dated as of September 22, 2000 among Spiegel, Inc. and various financial institutions and Bank of America, National Association (formerly known as Bank of America National Trust and Savings Association) as Agent. 10.25 Sixth Amendment to Letter of Credit Facility Agreement dated as of June 25, 2001 among Spiegel, Inc. and various financial institutions and Bank of America, National Association (formerly known as Bank of America National Trust and Savings Association) as Agent. 10.26 Waiver Agreement dated November 9, 2001 to Letter of Credit Facility Agreement dated as of September 27, 1996, as amended, among Spiegel, Inc. and Bank of America, National Association (formerly known as Bank of America National Trust and Savings Association) as Agent. 10.27 Second Amended and Restated Line of Credit Agreement dated as of September 17, 2001, between Spiegel, Inc. as borrower and Otto Versand (GmbH & Co) as lender. 10.28 Letter dated November 9, 2001 regarding Otto Versand (GmbH & Co) commitment to Spiegel, Inc. 10.29 Note dated as of February 28, 2002, between Spiegel, Inc. and Otto-Spiegel Finance G.m.b.H & Co. KG. 10.30 Note dated as of February 28, 2002, between Spiegel, Inc. and Otto-Spiegel Finance G.m.b.H & Co. KG. 10.31 Letter of Direction dated February 28, 2002 between Spiegel, Inc. and Otto-Spiegel Finance G.m.b.H & Co. KG. 10.32 Receivables Purchase Agreement, dated as of October 17, 2001, by and between Spiegel Credit Corporation III, as Buyer, and First Consumers National Bank and Spiegel Acceptance Corporation, RPA Sellers. 10.33 Transfer and Servicing Agreement, dated as of December 1, 2000, by and between Spiegel Credit Corporation III, as Seller, First Consumers National Bank, as Servicer, and Spiegel Credit Card Master Note Trust, as Issuer. (5) 10.34 Master Indenture, dated as of December 1, 2000, by and between Spiegel Credit Card Master Note Trust, as Issuer, and The Bank of New York, as Indenture Trustee, dated as of December 1, 2000. (5)
77
Exhibit Number Description of Exhibit** - ------ ------------------------ 10.35 Series 2000-A Indenture Supplement, dated as of December 1, 2000, by and between Spiegel Credit Card Master Note Trust, as Issuer, and The Bank of New York, as Indenture Trustee. (5) 10.36 Series 2001-A Indenture Supplement, dated as of July 19, 2001, by and between Spiegel Credit Card Master Note Trust, as Issuer, and The Bank of New York, as Indenture Trustee. 10.37 Series 2001-VFN Indenture Supplement, dated as of October 17, 2001, by and between Spiegel Credit Card Master Note Trust, as Issuer, and The Bank of New York, as Indenture Trustee. 10.38 Receivables Purchase Agreement, dated as of December 31, 2001, by and between First Consumers Credit Corporation, as Buyer, and First Consumers National Bank, as RPA Seller. 10.39 Pooling and Servicing Agreement, dated as of September 30, 1992, amended and restated February 1, 1999, and amended and restated a second time as of December 31, 2001, by and between First Consumers Credit Corporation, as Seller, First Consumers National Bank, as Servicer, and The Bank of New York, as Successor Trustee on behalf of the Certificateholders of First Consumers Master Note Trust. 10.40 Transfer and Servicing Agreement, dated as of March 1, 2001, amended and restated as of December 31, 2001, by and between First Consumers Credit Corporation, as Seller, First Consumers National Bank, as Servicer, and First Consumers Credit Card Master Note Trust, as Issuer. 10.41 Collateral Series Supplement to Amended and Restated Pooling and Servicing Agreement, dated as of March 1, 2001, by and between First Consumers National Bank, as Seller and Servicer, and The Bank of New York, as Trustee on behalf of the Collateral Certificateholder. 10.42 Series 1999-A Supplement to Amended and Restated Pooling and Servicing Agreement, dated as of February 1, 1999, by and between First Consumers National Bank, as Seller and Servicer, and Harris Trust and Savings Bank, as Trustee on behalf of the Series 1999-A Certificateholders. 10.43 Master Indenture, dated as of March 1, 2001, amended and restated as of December 31, 2001, by and between First Consumers Credit Card Master Note Trust, as Issuer, and The Bank of New York, as Indenture Trustee. 10.44 Series 2001-A Indenture Supplement, dated as of March 1, 2001, by and between First Consumers Credit Card Master Note Trust, as Issuer, and The Bank of New York, as Indenture Trustee. 10.45 Series 2001-VFN Indenture Supplement, dated as of October 17, 2001, by and between First Consumers Credit Card Master Note Trust, as Issuer, and The Bank of New York, as Indenture Trustee. 10.46 Consent Order dated as of May 15, 2002, between First Consumers National Bank and the Office of the Comptroller of the Currency. 10.47 Omnibus Amendment to Series 2000-A Indenture Supplement and Series 2001-A Indenture Supplement dates as of October 31, 2002 by and between Spiegel Credit Card Master Note Trust, as Issuer and The Bank of New York as Indenture Trustee. 10.48 Second Amendment to Transfer and Servicing Agreement dated as of October 31, 2002 by and among Spiegel Credit Corporation III, as Seller, First Consumers National Bank as Servicer and Spiegel Credit Card Master Note Trust, as Issuer. 21 List of subsidiaries of the Registrant 23 Consent of KPMG LLP 24 Powers of Attorney (4) 99.1 Certifications
78 - -------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this report. ** The Company is also party to several term loan agreements, pursuant to which the Company has issued long-term indebtedness. The indebtedness outstanding under each such agreement does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. A copy of such agreements will be furnished to the Securities and Exchange Commission upon request. (1) Filed as an Exhibit to or part of the Company's Registration Statement on Form S-3 (File No. 33-50739) and hereby incorporated by reference herein. (2) Filed as an Exhibit to the Company's 1988 Annual Report on Form 10-K. (3) Filed as an Exhibit to or part of the Company's Registration Statements on Form S-8 (File No. 33-69937, 33-19663, 33-32385, 33-38478, 33-44780, 33-56200 and 33-51755) and hereby incorporated by reference herein. (4) Filed as an Exhibit to or part of the Company's Registration Statement on Form S-1 (File No. 33-15936) and hereby incorporated by reference herein. (5) Filed as an Exhibit to or part of Spiegel Credit Corporation III Registration Statement on Form S-3, as amended from time to time (File No. 333-39062) and incorporated by reference herein. B. Reports on Form 8-K No reports on Form 8-K were filed by the Company during the fourth quarter of fiscal 2001. 79 INDEPENDENT AUDITORS' REPORT ON SCHEDULE The Board of Directors and Stockholders Spiegel, Inc.: Under date of February 14, 2002, except for Note 2, Note 3, Note 4, Note 5, Note 9, Note 11, Note 12 and Note 14, which are as of January 31, 2003, we reported on the consolidated balance sheets of Spiegel, Inc. and subsidiaries as of December 29, 2001 and December 30, 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 29, 2001, which are included elsewhere herein. In connection with our audits of the aforementioned consolidated financial statements, we also audited the accompanying related consolidated financial statement schedule. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. The audit report on the consolidated financial statements of Spiegel, Inc. and subsidiaries referred to above contains an explanatory paragraph that the Company was not in compliance with certain restrictive covenants in its debt agreements, and accordingly, substantially all of the Company's debt is currently due and payable. In addition, the Company was not in compliance with certain provisions of agreements with the insurer of its asset-backed securitization transactions, and has been unable to negotiate amended agreements with its lenders. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 3 to the consolidated financial statements. The consolidated financial statements and the accompanying financial statement schedule do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 6 to the consolidated financial statements, the Company changed its method of recording revenue for discount club memberships in 2000. /S/ KPMG LLP Chicago, Illinois February 14, 2002 80 Schedule II SPIEGEL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS For the Years Ended ($000s omitted)
December 29, December 30, January 1, 2001 2000 2000 ------------ ------------ ---------- Allowance for doubtful accounts Balance at beginning of year............... $ 5,074 $ 15,231 $ 5,613 Charged to earnings..................... 25,421 30,891 17,265 Reduction for receivables sold.......... (7,730) (39,274) (9,205) Accounts written off, net of recoveries. (13,130) (1,774) 1,558 -------- -------- ------- Balance at end of year..................... $ 9,635 $ 5,074 $15,231 ======== ======== =======
81 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Spiegel, Inc. has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on February 3, 2003. SPIEGEL, INC. By: /S/ MARTIN ZAEPFEL ----------------------------- Martin Zaepfel Vice Chairman, President and Chief Executive Officer (Principal Operating Executive Officer) By: /S/ JAMES R. CANNATARO ----------------------------- James R. Cannataro Executive Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) 82 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Spiegel, Inc. and in the capacities indicated on February 3, 2003. Signature Title --------- ----- /S/ DR. MICHAEL J. OTTO Chairman of the Board - ----------------------------- Dr. Michael J. Otto /S/ MARTIN ZAEPFEL Vice Chairman, President and - ----------------------------- Chief Executive Officer Martin Zaepfel (Principal Operating Executive Officer) and Director /S/ JAMES R. CANNATARO Executive Vice President, - ----------------------------- Chief Financial Officer James R. Cannataro (Principal Financial and Accounting Officer) and Director /S/ DR. MICHAEL E. CRUSEMANN Director - ----------------------------- Dr. Michael E. Crusemann /S/ HORST R. A. HANSEN Director - ----------------------------- Horst R. A. Hansen /S/ MELISSA J. PAYNER Director - ----------------------------- Melissa J. Payner /S/ DR. PEER WITTEN Director - ----------------------------- Dr. Peer Witten /S/ DR. WINFRIED ZIMMERMANN Director - ----------------------------- Dr. Winfried Zimmermann 83 CERTIFICATIONS I, Martin Zaepfel, certify that: 1. I have reviewed this annual report on Form 10-K of Spiegel, Inc; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present, in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; Date: February 3, 2003 /S/ MARTIN ZAEPFEL -------------------------------------- Martin Zaepfel Chief Executive Officer 84 CERTIFICATIONS I, James R. Cannataro, certify that: 1. I have reviewed this annual report on Form 10-K of Spiegel, Inc; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present, in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; Date: February 3, 2003 /S/ JAMES R. CANNATARO -------------------------------------- James R. Cannataro Chief Financial Officer 85 EX-10.3 3 dex103.txt EXECUTIVE DEFERRED COMPENSATION PLAN Exhibit 10.3 SPIEGEL, INC. EXECUTIVE DEFERRED COMPENSATION PLAN =============================== Effective January 1, 1999 SPIEGEL, INC. EXECUTIVE DEFERRED COMPENSATION PLAN TABLE OF CONTENTS
Page ---- 1. PURPOSE ............................................................. 1 2. DEFINITIONS AND CAPITALIZED TERMS ................................... 1 3. ELIGIBILITY ......................................................... 4 4. DEFERRAL OF COMPENSATION ............................................ 4 4.1 Election to Defer ........................................... 4 4.2 Date of Deferral ............................................ 5 4.3 Multiple Elections .......................................... 5 4.4 Annual Elections ............................................ 5 4.5 No Adjustments .............................................. 5 5. DEFERRED COMPENSATION ACCOUNTS ...................................... 6 5.1 Maintenance of Accounts ..................................... 6 5.2 Interest Accruals ........................................... 6 5.3 Investment of Unpaid Balances ............................... 6 5.4 Company Contributions ....................................... 6 5.5 Company's General Assets .................................... 7 6. EFFECT ON ASSOCIATE BENEFITS ........................................ 8 7. PAYMENT OF DEFERRED COMPENSATION ACCOUNTS ........................... 8 7.1 Income Tax Obligations ...................................... 8 7.2 In-Service Withdrawals ...................................... 8 7.3 Termination of Employment ................................... 9 7.4 Disability .................................................. 9 7.5 Retirement .................................................. 10 7.6 Death Prior to Commencement of Distributions ................ 10 7.7 Death After Commencement of Distributions ................... 10 7.8 Withholding and Other Tax Consequences ...................... 10 8. FUNDING ............................................................. 11 9. NON-ALIENATION OF BENEFITS .......................................... 11 10. LIMITATION OF RIGHTS ............................................... 11 11. BEST PAYMENTS ...................................................... 12 12. NOTICE UNDER WARN .................................................. 12
2 13. AMENDMENT OR TERMINATION OF PLAN ................................... 13 14. ADMINISTRATIVE PROCEDURES AND DISPUTE RESOLUTION ................... 13 14.1 Administrative Committee ................................... 13 14.2 Committee Organization and Procedures ...................... 13 14.3 Administrative Authority ................................... 14 14.4 Expenses ................................................... 14 14.5 Insurance .................................................. 14 14.6 Claims Procedure ........................................... 15 14.7 Appeal Procedures .......................................... 15 14.8 Arbitration ................................................ 15 14.9 Notices .................................................... 16 14.10 Indemnification ........................................... 17 15. MISCELLANEOUS ...................................................... 17 15.1 Alternative Acts and Times ................................. 17 15.2 Masculine and Feminine, Singular and Plural ................ 17 15.3 Governing Law and Severability ............................. 18 15.4 Facility of Payment ........................................ 18 15.5 Correction of Errors ....................................... 19 15.6 Missing Persons ............................................ 19 15.7 Status of Participants ..................................... 19 15.8 Associate and Spouse Acknowledgement ....................... 20 EXECUTION ......................................................... 21
3 SPIEGEL, INC. EXECUTIVE DEFERRED COMPENSATION PLAN The Board of Directors of Spiegel, Inc., a corporation, ("Company") has adopted this Executive Deferred Compensation Plan ("Plan") effective January 1, 1999. 1. PURPOSE ------- The primary purpose of the Plan is to provide deferred compensation to a select group of management and highly compensated Associates through an unfunded "top hat" arrangement exempt from the fiduciary, funding, vesting, and plan termination insurance provisions of Title I and Title IV of the Associate Retirement Income Security Act ("ERISA"). More specifically, the Company has adopted this Plan to provide Associates with the opportunity to defer Compensation. 2. DEFINITIONS AND CAPITALIZED TERMS --------------------------------- The capitalized terms, set forth in alphabetical order defined below, are used throughout the Plan. (a) "Account" refers to the bookkeeping entries established and maintained by the Company or the Administrative Committee for the purpose of recording (i) the amounts of Compensation deferred by an Associate and Company Contributions made by the Company under this Plan, (ii) any interest earnings or losses with respect to those amounts, and (iii) any distributions to an Associate or Beneficiary. (b) "Associate" refers to any Associate, within the meaning of Section 3121(d) of the Code, who is highly compensated or who is a member of management selected by the Administrative Committee to participate in this Plan. The Administrative Committee shall determine whether an Associate is to be considered highly compensated. Where the Administrative Committee considers appropriate in applying the provisions of this Plan, the term Associate shall include only persons who are Participants or Inactive Participants under Plan. (c) "Beneficiary" refers to the person or entity selected to receive any portion of an Associate's Account that has not been distributed from the Plan at the time of the Associate's death. Such designation shall be on a form provided or approved by the Administrative Committee. In the event a married Associate designates someone other than his or her spouse as sole, primary Beneficiary, such initial designation or subsequent change shall be invalid unless the spouse consents in a writing which names the designated Beneficiary. If an 1 Associate fails to designate a Beneficiary or no designated Beneficiary survives the Associate, the Administrative Committee may direct payment of benefits to the following person or persons in the order given below: the Associate's: (i) spouse, (ii) descendants, per stirpes, (iii) parents, (iv) brothers and sisters, or (v) estate of the Participant. (d) "Board" or "Board of Directors" refers to the Board of Directors of the Company. (e) "Change in Control" has the meaning specified in Section 280G of the Code and the regulations thereunder. (f) "Code" refers to the Internal Revenue Code of 1986, as amended from time to time. (g) "Committee" or "Administrative Committee" refers to the officers of the Company who act on behalf of the Company in discharging the Company's duties as the Administrative Committee. Notwithstanding any other provision of the Plan document, any member of the Administrative Committee or any other officer or Associate of the Company who exercises discretion or authority on behalf of the Company shall not be a fiduciary of the Plan merely by virtue of his or her exercise of such discretion or authority. The Board of Directors shall identify the Company officers who shall serve as members of the Administrative Committee. Absent a designation to the contrary, the Board of Directors shall act as the Administrative Committee. Because this Plan is a "top hat" arrangement, the Administrative Committee shall not be subject to the duties imposed by the provisions of Part 4 of Title I of ERISA. (h) "Company," "Corporation" or "Employer" refers to Spiegel, Inc., a Delaware corporation. (i) "Company Contributions" refers to amounts described in Section 5.4(a) below. (j) "Compensation" refers to an Associate's gross salary, including any 2 commissions, annual incentives, or long-term incentive payments, payable by the Company after an Associate first becomes eligible to participate in the Plan and during the period through which such participation continues. (k) "Disabled" or "Disability" refers to a physical or mental condition of an Associate which (i) occurs after an Associate first defers Compensation under this Plan, (ii) results from an injury, disease or disorder, and (iii) renders the Associate totally and permanently incapable of continuing in his or her customary employment with the Company. In determining whether an Associate is disabled, the Administrative Committee may rely upon the conclusions of any insurance carrier that has issued a policy of disability income insurance covering the Associate or upon the conclusions of any physician acceptable to the Administrative Committee. An Associate automatically will satisfy the requirements under this Plan, with respect to submission of evidence of disability, throughout the period that he or she remains qualified for Social Security disability benefits. Any Associate who believes that he or she is entitled to any advantage, benefit, or other consideration under the Plan as a result of being Disabled shall apply to the Administrative Committee for such consideration and shall provide any evidence of Disability which the Administrative Committee in its discretion may request in a manner consistent with the Americans with Disabilities Act of 1990 and other relevant laws. (l) "Effective Date" refers to January 1, 1999 with respect to Compensation first earned, determined or payable after that date. (m) "ERISA" refers to the Employee Retirement Income Security Act of 1974, as amended from time to time. (n) "Hardship" refers to an Associate's immediate and heavy financial need caused by an unforeseeable emergency, as described in Treasury Regulations Section 1.455-2(h)(4) and (5). In general, but without limitation, the Plan Administrator shall approve a Hardship withdrawal from an Associate's Account if the reduction does not exceed the amount needed to pay for the following unreimbursed expenses: (i) medical expenses defined in Code Section 213(d) and incurred (or to be incurred) during the calendar year by the Associate, or his or her spouse or dependents (as described in Code Section 152) as a result of a sudden or unexpected illness or accident; (ii) loss of a participant's property as a result of a casualty or other extraordinary, unforeseeable circumstances attributable to forces beyond the participant's control; and (iii) other costs recognized by the Plan Administrator to pose an immediate and heavy financial need on the Associate as a result of an unforeseeable emergency or other factors beyond an Associate's control. (o) "Inactive Participant" refers to an Associate who deferred Compensation under the Plan during a previous Plan Year but who does not defer any Compensation payable during the current Plan Year. (p) "Participant" refers to an eligible Associate who elects to defer 3 under the Plan part of his or her Compensation payable during the current Plan Year. (q) "Plan Year" refers to the period of 12 consecutive months commencing on the first day of January of each year. The initial plan year shall commence on the Effective Date of the Plan and end on the final day of December. (r) "Qualified Plan" refers to the Company's tax qualified individual account cash or deferred compensation plan subject to the limits imposed by Code Sections 401(a)(4), 401(k), 401(m), 402(g) and 415. (s) "Retirement" refers to the retirement eligibility rules in effect at the time. Such rules shall be determined at the sole discretion of the Administrative Committee. (t) "Service" and "Years of Service" have the meanings specified in Code Section 411(a)(4) and (5)(a) and the regulations thereunder. (u) "Termination of Employment" refers to an Associate's separation from service with the Company. This definition does not imply retirement from service. 3. ELIGIBILITY ----------- The Administrative Committee may, from time to time, designate by name those Associates of the Company who are eligible to participate in the Plan for one or more Plan Years and the date upon which each such Associate's participation may commence. All designated Associates shall be notified by the Board or the Administrative Committee of their eligibility to participate. An Associate shall not be eligible to participate in the Plan during the Plan Year immediately following the Plan Year in which the Associate takes a Hardship withdrawal from the Plan. The effective date of any such ineligibility under the preceding two sentences shall be the first day of the Plan Year coinciding with or next following the date on which the Board of Directors or Administrative Committee provides the Associate with written notice of revocation of eligibility. An Associate's eligibility to participate in the Plan does not confer upon the Associate any right to any award, incentive or other remuneration of any kind. 4. DEFERRAL OF COMPENSATION ------------------------ 4.1 Election to Defer ----------------- An Associate who is eligible to participate in the Plan may elect to defer the receipt of Compensation by completing an Election of Deferral in the form set forth in Exhibit A, Part 1, Page 1 or otherwise approved by the Administrative Committee. Pursuant to the Election of Deferral form, an eligible Associate may elect to defer any whole percentage or 4 fixed dollar amount of his or her Compensation. An Associate who elects to participate in the Plan must defer at least five thousand dollars ($5,000) of total Compensation but no more than fifty percent (50%) of salary Compensation and one hundred percent (100%) of annual incentives and long-term incentive Compensation for each Plan Year in which he or she remains eligible to participate. 4.2 Date of Deferral ---------------- An eligible Associate must submit his or her deferral election form to the Administrative Committee no later than the last day of the deferral election period. The last day of the deferral election period shall be (a) the last day preceding the calendar year in which the eligible Associate will render the services for which he or she will receive any part of the Compensation payable to the Associate during that year or (b) in the first year in which the Company implements the Plan or in which an Associate first becomes eligible to participate, the Associate may make his or her election within the first 14 days after the later of (i) the date the Plan becomes effective or (ii) the date the Associate becomes eligible to participate. 4.3 Multiple Elections ------------------ An election to defer Compensation shall be effective on the date an eligible Associate delivers a completed deferral election form to the Administrative Committee; provided, however, that, if the eligible Associate delivers another properly completed Election of Deferral form to the Administrative Committee prior to the close of the deferral election period described in Section 4.2, the deferral election on the form bearing the latest date shall control. After the last day of the election period, the controlling election made prior to the close of the period shall be irrevocable. 4.4 Annual Elections ---------------- In order to defer any portion of Compensation earned in any calendar year, an eligible Associate must submit at least one completed Election of Deferral form during the one-month period immediately preceding the start of that calendar year. If an Associate fails to make such a submission, the Associate will be deemed to have elected to continue deferring the same percentage of Compensation that the Associate deferred in the preceding calendar year. The Associate also will be considered to have selected the same method of distribution chosen the preceding calendar year. 4.5 No Adjustments -------------- After an annual election has taken effect for any Plan Year, a Participant may not increase or decrease the percentage or amount of Compensation to be deferred during that Plan Year. 5 5. DEFERRED COMPENSATION ACCOUNTS ------------------------------ 5.1 Maintenance of Accounts ----------------------- The Administrative Committee shall maintain one or more Accounts with respect to any Compensation deferred by an eligible Associate under Section 4 above. The Administrative Committee shall credit the Account with the full amount of Compensation deferred in any monthly period. If the Compensation deferred is subject to federal or state employment taxes (e.g. taxes under the Federal Insurance Contributions Act or Federal Unemployment Tax Act), said taxes shall be withheld and deducted from a portion of the Associate's Compensation not deferred under this Plan. A Participant or Inactive Participant shall be fully vested at all times in amounts deferred under Section 4 above, as adjusted for any earnings, losses, interest accruals, administrative expenses or distributions as described below. 5.2 Interest Accruals ----------------- Prior to the start of any Plan Year, the Company shall inform Participants and Inactive Participants, in the form set forth in Schedule 1 or a similar form as approved by the Administrative Committee, that, during the Plan Year, the Company shall accrue interest compounded monthly, as consideration for the use or forbearance of money. The accrual of interest begins and the compounding of interest occurs on the first day of each Plan Year or, if later, the date on which an eligible Associate first defers Compensation under the Plan. The rate at which interest accrues shall be declared by the Administrative Committee and issued in writing to each Participant and Inactive Participant prior to the start of each Plan Year. At the sole discretion of the Administrative Committee, for any Plan Year (i) the full amount of such accrued interest may be allocated to a Participant's Account or (ii) adjusted for any federal, state or local income or employment tax consequences attributable to such interest, prior to allocating such interest to a Participant's Account. If the full amount of such interest accruals are allocated to a Participant's Account, any federal, state or local income or employment tax consequences attributable to interest accruals under this Section 5.2 shall be borne by or inure to the benefit of the Company. 5.3 Investment of Unpaid Balances ----------------------------- The unpaid balance of all Accounts payable under the Plan shall continue to be credited with the continued accruals of interest as described in Section 5.2 above. 5.4 Company Contributions --------------------- a. Company Discretionary Contributions ----------------------------------- Apart from Compensation deferrals, the Company shall retain the right to make discretionary contributions for any Participant under this Plan. 6 b. Adjustments to Company Contributions ------------------------------------ Once credited to an Associate's Accounts under this Plan, the amounts described in Section 5.4(a) shall accrue the interest described in Section 5.2 above, and shall be paid in accord with Section 7 below. c. Vesting in Company Contributions -------------------------------- Subject to the provisions of Section 5.4(d) below, an Associate shall vest in amounts allocated to his or her Account as described in Sections 5.4(a) and 5.4(b) above. The below vesting percentage shall apply to each Company Contribution and shall be initiated beginning with the effective date of full-time hire with the Company. Years of Service Vested Percentage ---------------- ----------------- Less than 1 0% 1 but less than 2 10% 2 but less than 3 20% 3 but less than 4 30% 4 but less than 5 40% 5 but less than 6 60% 6 but less than 7 80% 7 or more 100% Additionally, except as provided in Section 5.4(d) below, an Associate shall be 100% vested if, prior to his or her Termination of Employment, the Associate becomes eligible for retirement, dies, becomes Disabled, or a Change in Control occurs. d. Forfeitures for Misconduct -------------------------- Without regard to the number of Years of Service an Associate has completed with the Company and without regard to an Associate's age, Disability or death, if an Associate separates from service with the Company as a result of the Associate's gross misconduct, within the meaning of Part 6 of Title I of ERISA, regarding group health continuation coverage, or if the Associate engages in unlawful business competition with the Company, the Associate shall forfeit all amounts allocated to his or her Accounts under Sections 5.4(a) and 5.4(b) above. Such forfeitures shall be retained by the Company. 5.5 Company's General Assets ------------------------ 7 Participant understands and agrees that all Compensation deferred under the Plan and all amounts credited to a Participant's Account under the Plan (a) are the general assets of the Company, (b) may be used in the operation of the Company's business or in any other manner permitted by law, and (c) remain subject to the claims of the Company's general unsecured creditors. Participant agrees, on behalf of Participant and his or her Beneficiary, that (i) title to any amounts deferred under the Plan or credited to a Participant's Account remains in the Company and (ii) neither Participant nor his or her Beneficiary has any property interests whatsoever in said amounts, except as general creditors of the Company. 6. EFFECT ON ASSOCIATE BENEFITS ---------------------------- Amounts deferred under this Plan or distributed pursuant to the terms of this Plan are not taken into account in the calculation of an Associate's benefits under any Associate pension or welfare benefit program or under any other compensation practice maintained by the Company, except to the extent provided in such program or practice. 7. PAYMENT OF DEFERRED COMPENSATION ACCOUNTS ----------------------------------------- 7.1 Income Tax Obligations ---------------------- If an Associate is assessed federal, state or local income taxes by reason of, and computed on the basis of, his or her undistributed deferred Compensation or undistributed interest accrued on his or her Account, the Associate shall notify the Administrative Committee in writing of such assessment and there shall be distributed from the Associate's Account deferred Compensation or accrued interest in an amount equal to such tax assessment, together with any interest due and penalties assessed thereupon within 30 days following such notice; provided however, that if the Administrative Committee determines that such assessment is improper, it may request that the Associate contest the assessment, at the expense of the Company (which expense shall include all costs of appeal and litigation, including legal and accounting fees, and any additional interest assessed on the deficiency from and after the date of the Associate's notice to the Administrative Committee); and during the period such contest is pending, the sums otherwise distributable pursuant to this Section 7.1 shall not be distributed. 7.2 In-Service Withdrawals ---------------------- a. Withdrawals to Meet Hardships ----------------------------- If at any time following the first anniversary of initial participation in the Plan, an Associate incurs a Hardship, as described in Section 2(n) above, the Associate may, by written notice to the Administrative Committee, request that all or any specified part of 8 his or her Account but not less than $1,000 per withdrawal be paid to the Associate; and such distribution, if approved by the Administrative Committee, shall be made in a lump sum within 30 days following the Administrative Committee's receipt of such notice. The Administrative Committee shall have exclusive authority to determine whether to make a Hardship distribution from an Associate's Account but shall not unreasonably deny a request for such a distribution. The Administrative Committee's decision shall be final and binding on all parties. Any Hardship withdrawals from an Account shall reduce the amount available for subsequent distributions from the Account, as the Administrative Committee in good faith may determine. b. Other Withdrawals ----------------- The lesser of either: (a) the In-Service Withdrawal amount designated by the Associate on a validly submitted Election of Deferral in the form set forth at Exhibit A, Part 3, or (b) the Accrued Benefit, shall be distributed in a lump sum on the In-Service Withdrawal Date. The In-Service Withdrawal Date shall be the later of either: (a) the In-Service Withdrawal Date set forth at Exhibit A, Part 3, or (b) a date twelve (12) months after the Election Date as defined in this Agreement. No In-Service Withdrawal shall be effective unless it is elected on an Election of Deferral submitted and dated as provided at Exhibit A, Part 3. Prior to Termination of Employment, a Participant may not withdraw any funds from his or her Account, except as provided in this Section 7.2. 7.3 Termination of Employment ------------------------- Upon Termination of Employment of a Participant or Inactive Participant for reasons other than Retirement, the Administrative Committee shall distribute his or her Account under the Plan in a lump sum. The payment from the Account shall occur or commence within 90 days following the date in which the Termination of Employment occurs. 7.4 Disability ---------- Upon the Disability of a Participant or Inactive Participant prior to termination of employment, the Administrative Committee shall distribute his or her Account under the Plan, as elected by the Participant or Inactive Participant in the form set forth in Exhibit A, Part 1, Page 2, in a lump sum or in 120 substantially equal monthly installments. In the absence of such election, the Participant or Inactive Participant shall be distributed his or her Account under the plan in 120 equal monthly installments such that the Account depletes. The initial payment from the Account shall occur or commence on the first day of the second month following the date in which the Disability results in the Associate's Termination of Employment. Prior to the death of the Participant or Inactive Participant, during any period in which a Participant or Inactive Participant remains Disabled, he or she (or his or her legal representative) may request Hardship withdrawals from any undistributed portion of his or her Account. Any such Hardship withdrawals shall reduce the amount available for subsequent distributions from 9 the Account, as the Administrative Committee in good faith may determine. 7.5 Retirement ---------- Upon Retirement of a Participant or Inactive Participant, the Administrative Committee shall distribute his or her Account under the Plan, as elected by the Participant or Inactive Participant in the form set forth in Exhibit A, Part 1, Page 2, in a lump sum or in 120 substantially equal monthly installments. In the absence of such election, the Participant or Inactive Participant shall be distributed his or her Account under the plan in 120 equal monthly installments such that the Account depletes. The initial payment from the Account shall occur or commence on the first day of the second month following the Associate's date of Retirement. 7.6 Death Prior to Commencement of Distributions -------------------------------------------- Upon the death of a Participant or Inactive Participant prior to the commencement of any distribution under Sections 7.4 or 7.5 above, the vested Account balance of such Participant or Inactive Participant shall be distributed to his or her Beneficiary, in a lump sum. The payment from the Account shall occur or commence on the first day of the month following the date in which the death of the Participant or Inactive Participant occurs. During the period between the death of the Participant or Inactive Participant and the commencement of distributions to the Beneficiary, the Beneficiary may request Hardship withdrawals from any undistributed portion of his or her Account. Any such Hardship withdrawals shall reduce the amount available for subsequent distributions from the Plan, as the Administrative Committee in good faith may determine. 7.7 Death After Commencement of Distributions ----------------------------------------- Upon the death of a Participant or Inactive Participant after the commencement of any distribution in accordance with Sections 7.4 or 7.5 above, the balance remaining in the Account of such Participant or Inactive Participant shall be distributed to his or her Beneficiary in accordance with the terms elected by the Participant or Inactive Participant under Sections 7.4 or 7.5. 7.8 Withholding and Other Tax Consequences -------------------------------------- From any payments made under this Plan, the Company shall withhold any taxes or other amounts which federal, state or local law requires the Company to deduct, withhold and deposit. The Company's determination of the type and amount of taxes to be withheld from any payment shall be final and binding on all persons having or claiming to have an interest in this Plan or in any Account under this Plan. 10 8. FUNDING ------- All amounts deferred under this Plan remain or become general assets of the Company. All payments under this Plan shall come from the general assets of the Company. The amounts credited to an Associate's Account are not secured by any specific assets of the Company. This Plan shall not be construed to require the Company to fund any of the benefits provided hereunder or to establish a trust or purchase an insurance policy or other product for such purpose. The Company may make such arrangements as it desires to provide for the payment of benefits. Neither an Associate, Participant or Inactive Participant nor his or her Beneficiary or estate shall have any rights against the Company with respect to any portion of any Account under the Plan except as general unsecured creditors. No Associate, Participant, Inactive Participant, Beneficiary or estate has an interest in any Account under this Plan until the Associate, Participant, Inactive Participant, Beneficiary or estate actually receives payment from the Account. 9. NON-ALIENATION OF BENEFITS -------------------------- The interest of any Associate, Participant, Inactive Participant or Beneficiary shall not be subject to sale, assignment, transfer, conveyance, hypothecation, encumbrance, garnishment, attachment, anticipation, pledge, alienation or other disposition prior to actual distribution from the Plan; and any attempt to effect such disposition shall be void. No portion of any Account shall, prior to receipt thereof, be subject to the debts, contracts, liabilities, or engagements of any Associate, Participant, Inactive Participant or Beneficiary. Nothing in the preceding sentence shall prohibit the Company from recovering from an Associate, Participant, Inactive Participant or Beneficiary any payments to which he or she was not entitled under the Plan. 10. LIMITATION OF RIGHTS -------------------- Nothing in this Plan document or in any related instrument shall cause this Plan to be treated as a contract of employment within the meaning of the Federal Arbitration Act, 9 U.S.C. 1 et seq., or shall be construed as evidence of any agreement or understanding, express or implied, that the Company (a) will employ any person in any particular position or level of Compensation, (b) will offer any person initial or continued participation or awards in any commission, incentive or other compensation program, or (c) will continue any person's employment with the Company. 11 11. BEST PAYMENTS ------------- (a) If the gross amount of any payment or benefit under this Plan, either separately or in combination with any other payment or benefit payable by the Company or any of its affiliates or pursuant to a plan of the Company or an affiliate, would constitute a parachute payment within the meaning of the Code Section 280G, then the total payments and benefits accrued and payable under this Plan shall not exceed the amount necessary to maximize the amount receivable by the Associate after payment of all employment, income and excise taxes imposed on the Associate with respect to such payments or benefits. (b) The Associate may elect by written notice which items of compensation, if any, shall be reduced so as to meet the requirements of Section 12(a) above. If there is a dispute between the Company and the Associate regarding (i) the extent, if any, to which any payments or benefits to the Associate are parachute payments or excess parachute payments, under Code Section 280G, or (ii) the base amount of such Associate's Compensation under Code Section 280G, or (iii) the status of such Associate as a disqualified individual, under Code Section 280G, such dispute shall be resolved in the same manner as a claim for benefits under this Plan. (c) Within 60 days of a Change in Control or, if later, within 30 days of the Associate's receiving notice of termination of employment from the Company or the Company's receiving notice of termination of employment from the Associate, either the Associate or the Company may request (i) a determination of the amount of any parachute payment, excess parachute payment, or base amount of compensation, or (ii) a determination of the reduction necessary to maximize the net receipts of the Associate as described in Section 12(a) above. Any fees, costs or expenses incurred by the Associate in connection with such determinations shall be paid equally by the Associate and the Company. 12. NOTICE UNDER WARN ----------------- (a) Any amounts paid (i) to any Associate under the Worker Adjustment and Retraining Notification Act of 1988 ("WARN") or under any other laws regarding termination of employment, or (ii) to any third party for the benefit of said Associate or for the benefit of his or her dependents shall not be offset or reduced by any amounts paid or determined to be payable by the Company to said Associate or to his or her dependents under this Plan. (b) Subsequent to a Change in Control, the Administrative Committee may amend, modify or terminate the Plan; provided, however, that no such amendment, modification or termination of the Plan will affect the right of a Participant or Beneficiary with respect to his or her Account as of the day prior to the date of the amendment, modification or termination. Such Account will continue to be subject to and governed by the terms of the Plan as set forth in the Plan document on the day prior to the date of the amendment, modification or termination. Subsequent to a Change in Control, the Company may distribute the entire value of all Accounts in lump sum payments to all Participants and Beneficiaries. 12 13. AMENDMENT OR TERMINATION OF PLAN -------------------------------- (a) Prior to a Change in Control, the Administrative Committee may modify, suspend or terminate the Plan in any manner that does not (i) reduce any benefits accrued under this Plan or (ii) constitute a forfeiture of any benefits vested under this Plan. (b) In modifying, suspending or terminating the Plan, or in taking any other action with respect to the implementation, operation, maintenance or administration of the Plan, the Board of Directors may act by a resolution of the full Board or by a resolution of the Administrative Committee. (c) This Plan shall terminate immediately if a court of competent jurisdiction determines that this Plan is not exempt from the fiduciary provisions of Part 4 of Title I of ERISA. The Plan shall terminate as of the date it ceased to be exempt. (d) Upon termination of the Plan, the Administrative Committee shall distribute all Accounts, as determined by the Administrative Committee (i) in a lump sum to all Participants or (ii) in accordance with the method designated by Participants at the time of their deferrals. 14. ADMINISTRATIVE PROCEDURES AND DISPUTE RESOLUTION ------------------------------------------------ 14.1 Administrative Committee ------------------------ The Board of Directors may establish an Administrative Committee composed of any persons, including officers or Associates of the Company, who act on behalf of the Company in discharging the duties of the Company in administering the Plan. No Administrative Committee member who is a full-time officer or Associate of the Company shall receive compensation with respect to his or her service on the Administrative Committee. Any member of the Administrative Committee may resign by delivering his or her written resignation to the Administrative Committee. The Board of Directors may remove any Committee member by providing him or her with written notice of the removal. 14.2 Committee Organization and Procedures ------------------------------------- (a) The Board of Directors may designate a chairperson from the members of the Administrative Committee. The Administrative Committee may appoint a secretary, who may or may not be a member of the Administrative Committee. The secretary shall have the primary responsibility for keeping a record of all meetings and acts of the Administrative Committee and shall have custody of all documents, the preservation of which shall be necessary or convenient to the efficient functioning of the Administrative Committee. 13 All reports required by law may be signed by the Chairperson or another member of the Administrative Committee, as designated by the Chairperson, on behalf of the Company. (b) The Administrative Committee shall act by a majority of its members in office and may adopt such rules and regulations as it deems desirable for the conduct of its affairs. If the Company, the Plan, any Participant or Inactive Participant is or becomes subject to any rules of the Securities and Exchange Commission or any national or regional securities exchange, the Company and the members of the Administrative Committee shall take any actions which are necessary or desirable for the maintenance, modification or operation of the Plan in accordance with those rules. 14.3 Administrative Authority ------------------------ The Company and the Administrative Committee have discretionary authority to perform all functions necessary or appropriate to the operation of the Plan, including without limitation authority to (a) construe and interpret the provisions of the Plan document and any related instrument and determine any question arising under the Plan document or related instrument, or in connection with the administration or operation thereof; (b) determine in its sole discretion all facts and relevant considerations affecting the eligibility of any Associate to be or become a Participant; (c) decide eligibility for, and the amount of, benefits for any Participant, Inactive Participant or Beneficiary; (d) authorize and direct all disbursements under the Plan; and (e) employ and engage such persons, counsel and agents and to obtain such administrative, clerical, medical, legal, audit and actuarial services as it may deem necessary in carrying out the provisions of the Plan. The Company shall be the "administrator" as defined in Section 3(16)(A) of ERISA for purposes of the reporting and disclosure requirements of ERISA and the Code. The Administrative Committee of the Company shall be the agent for service of process on the Plan. 14.4 Expenses -------- All reasonable expenses which are necessary to operate and administer the Plan shall be paid directly by the Company. All reasonable costs incurred by a Committee member in the discharge of the Company's or his or her duties under the Plan shall be paid or reimbursed by the Company. Such costs shall include fees or expenses arising from the Administrative Committee's retention, with the consent of the Company, of any attorneys, accountants, actuaries, consultants or recordkeepers required by the Administrative Committee to discharge its duties under the Plan. Nothing in the preceding two sentences or in any other provisions of the Plan shall require the Company to pay or reimburse any Committee member or any other person for any cost, liability, loss, fee or expense incurred by the Administrative Committee member or other person in any dispute with the Company; nor may any Administrative Committee member or other person reimburse himself, herself or itself from any Plan contributions or from the principal or income of investment or funding vehicle for the Plan for any such cost, liability, loss, fee or expense. 14.5 Insurance --------- 14 The Company may, but need not, obtain liability insurance to protect its directors, officers, Associates or representatives against loss in the discharge of their responsibility in the operation of the Plan. 14.6 Claims Procedure ---------------- (a) A claim for benefits shall be considered filed only when actually received by the Administrative Committee or its designee. (b) Any time a claim for benefits is wholly or partially denied, the Participant, Inactive Participant or Beneficiary (hereinafter "Claimant") shall be given written notice of such denial within 30 days after the claim is filed, unless special circumstances require an extension of time for processing the claim. If there is an extension, the Claimant shall be notified of the extension and the reason for the extension within the initial 30 day period. The extension shall expire within 60 days after the claim is filed. Such notice will indicate the reason for denial, the pertinent provisions of the Plan on which the denial is based, an explanation of the claims appeal procedure set forth herein, and a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary. 14.7 Appeal Procedures ----------------- (a) Any person who has had a claim for benefits denied by the Administrative Committee, or is otherwise adversely affected by the action or inaction of the Administrative Committee, shall have the right to request review by the Administrative Committee. Such request must be in writing, and must be received by the Administrative Committee within 60 days after such person receives notice of the Administrative Committee's action. If written request for review is not made within such 60-day period, the Claimant shall forfeit his or her right to review. The Claimant or a duly authorized representative of the Claimant may review all pertinent documents and submit issues and comments in writing. (b) The Administrative Committee shall then review the claim. The Administrative Committee may issue a written decision reaffirming, modifying or setting aside its former action within 30 days after receipt of the written request for review, or 60 days if special circumstances require an extension. The Claimant shall be notified in writing of any such extension within 30 days following the request for review. An original or copy of the decision shall be furnished to the Claimant. The decision shall set forth the reasons and pertinent plan provisions or relevant laws on which the decision rests. The decision shall be final and binding upon the Claimant and the Administrative Committee and all other persons having or claiming to have an interest in the Plan or in any Account established under the Plan. 14.8 Arbitration ----------- 15 (a) Any Participant's, Inactive Participant's or Beneficiary's claim remaining unresolved after exhaustion of the procedures in Section 14.6 and 14.7 (and to the extent permitted by law any dispute concerning any breach or claimed breach of duty regarding the Plan) shall be settled solely by binding arbitration at the Employer's principal place of business at the time of the arbitration, in accordance with the Employment Claims Rules of the American Arbitration Association. Judgment on any award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Each party to any dispute regarding the Plan shall pay the fees and costs of presenting his, her or its case in arbitration. All other costs of arbitration, including the costs of any transcript of the proceedings, administrative fees, and the arbitrator's fees shall be borne equally by the parties. (b) Except as otherwise specifically provided in this Plan, the provisions of this Section 14.8 shall be absolutely exclusive for any and all purposes and fully applicable to each and every dispute regarding the Plan including any claim which, if pursued through any state or federal court or administrative proceeding, would arise at law, in equity or pursuant to statutory, regulatory or common law rules, regardless of whether such claim would arise in contract, tort or under any other legal or equitable theory or basis. The arbitrator who hears or decides any claim under the Plan shall have jurisdiction and authority to award only Plan benefits and prejudgment interest; and apart from such benefits and interest, the arbitrator shall not have any authority or jurisdiction to make any award of any kind including, without limitation, compensatory damages, punitive damages, foreseeable or unforeseeable economic damages, damages for pain and suffering or emotional distress, adverse tax consequences or any other kind or form of damages. The remedy, if any, awarded by such arbitrator shall be the sole and exclusive remedy for each and every claim which is subject to arbitration pursuant to this Section 14.8. Any limitations on the relief that can be awarded by the arbitrator are in no way intended (i) to create rights or claims that can be asserted outside arbitration or (ii) in any other way to reduce the exclusivity of arbitration as the sole dispute resolution mechanism with respect to this Plan. (c) The Plan and the Company will be the necessary parties to any action or proceeding involving the Plan. No person employed by the Company, no Participant, Inactive Participant or Beneficiary or any other person having or claiming to have an interest in the Plan will be entitled to any notice or process, unless such person is a named party to the action or proceeding. In any arbitration proceeding all relevant statutes of limitation shall apply. Any final judgment or decision that may be entered in any such action or proceeding will be binding and conclusive on all persons having or claiming to have any interest in the Plan. 14.9 Notices ------- Any notice from the Company or the Administrative Committee to an Associate, Participant, Inactive Participant or Beneficiary regarding this Plan may be addressed to the last known residence of said person as indicated in the records of the Company. Any notice to, or any service of process upon, the Company or the Administrative Committee with respect to this Plan may addressed as follows: 16 Plan Administrative Committee -------------------------------------- c/o Spiegel, Inc. Benefits Department -------------------------------------- 3500 Lacey Road -------------------------------------- Downers Grove, IL 60515 -------------------------------------- 14.10 Indemnification --------------- To the extent permitted by law, the Company shall, and hereby does, indemnify and hold harmless any director, officer or Associate of the Company who is or may be deemed to be responsible for the operation of the Plan, from and against any and all losses, claims, damages or liabilities (including attorneys' fees and amounts paid, with the approval of the Board, in settlement of any claim) arising out of or resulting from a duty, act, omission or decision with respect to the Plan, so long as such duty, act, omission or decision does not involve gross negligence or willful misconduct on the part of such director, officer or Associate. Any individual so indemnified shall, within 10 days after receipt of notice of any action, suit or proceeding, notify the Administrative Committee and offer in writing to the Administrative Committee the opportunity, at the Company's expense, to handle and defend such action, suit or proceeding, and the Company shall have the right, but not the obligation, to conduct the defense in any such action, suit or proceeding. An individual's failure to give the Administrative Committee such notice and opportunity shall relieve the Company of any liability to said individual under this Section 14.10. The Company may satisfy its obligations under this provision (in whole or in part) by the purchase of insurance. Any payment by an insurance carrier to or on behalf of such individual shall, to the extent of such payment, discharge any obligation of the Company to the individual under this indemnification. 15. MISCELLANEOUS ------------- 15.1 Alternative Acts and Times -------------------------- If it becomes impossible or burdensome for the Company or the Administrative Committee to perform a specific act at a specific time required by this Plan, the Company or Committee may perform such alternative act which most nearly carries out the intent and purpose of this Plan and may perform such required or alternative act at a time as close as administratively feasible to the time specified in this Plan for such performance. Nothing in the preceding sentence shall allow the Company or Committee to accelerate or defer any payments to Participants or Inactive Participants under this Plan, except as otherwise expressly permitted herein. 15.2 Masculine and Feminine, Singular and Plural ------------------------------------------- 17 Whenever used herein, pronouns shall include both genders, and the singular shall include the plural, and the plural shall include the singular, whenever the context shall plainly so require. 15.3 Governing Law and Severability ------------------------------ This Plan shall be construed in accordance with the laws of the State of Delaware(exclusive of its rules regarding conflicts of law) to the extent that such laws are not preempted by ERISA or other federal laws. If any provision of this Plan shall be held illegal or invalid for any reason, such determination shall not affect the remaining provisions of this Plan which shall be construed as if said illegal or invalid provision had never been included. 15.4 Facility of Payment ------------------- If the Administrative Committee, in its sole discretion, determines that any Associate, Participant, Inactive Participant or Beneficiary by reason of infirmity, minority or other disability, is physically, mentally or legally incapable of giving a valid receipt for any payment due him or her or is incapable of handling his or her own affairs and if the Administrative Committee is not aware of any legal representative appointed on his or her behalf, then the Administrative Committee, in its sole discretion, may direct (a) payment to or for the benefit of the Associate, Participant, Inactive Participant or Beneficiary; (b) payment to any person or institution maintaining custody of the Associate, Participant, Inactive Participant or Beneficiary; or (c) payment to any other person selected by the Administrative Committee to receive, manage and disburse such payment for the benefit of the Associate, Participant, Inactive Participant or Beneficiary. The receipt by any such person of any such payment shall be a complete acquittance therefor; and any such payment, to the extent thereof, shall discharge the liability of the Company, the Administrative Committee, and the Plan for any amounts owed to the Associate, Participant, Inactive Participant or Beneficiary hereunder. In the event of any controversy or uncertainty regarding who should receive or whom the Administrative Committee should select to receive any payment under this Plan, the Administrative Committee may seek instruction from a court of proper jurisdiction or may place the payment (or entire Account) into such court with final distribution to be determined by such court. 18 15.5 Correction of Errors -------------------- Any crediting of Compensation or interest accruals to the Account of any Associate, Participant, Inactive Participant or Beneficiary under a mistake of fact or law shall be returned to the Company. If an Associate, Participant, Inactive Participant or Beneficiary in an application for a benefit or in response to any request by the Company or the Administrative Committee for information, makes any erroneous statement, omits any material fact, or fails to correct any information previously furnished incorrectly to the Company or the Administrative Committee, or if the Administrative Committee makes an error in determining the amount payable to an Associate, Participant, Inactive Participant or Beneficiary, the Company or the Administrative Committee may correct its error and adjust any payment on the basis of correct facts. The amount of any overpayment or underpayment may be deducted from or added to the next succeeding payments, as directed by the Administrative Committee. The Administrative Committee and the Company reserve the right to maintain any action, suit or proceeding to recover any amounts improperly or incorrectly paid to any person under the Plan or in settlement of a claim or satisfaction of a judgment involving the Plan. 15.6 Missing Persons --------------- In the event a distribution of part or all of an Account is required to be made from the Plan to an Associate, Participant, Inactive Participant or Beneficiary, and such person cannot be located, the relevant portion of the Account shall escheat in accordance with the laws of the State of Delaware. If the affected Associate, Participant, Inactive Participant or Beneficiary later contacts the Administrative Committee, his or her portion of the Account shall be reinstated and distributed as soon as administratively feasible. The Company shall reinstate the amount forfeited by reclaiming such amount from the State of Delaware, and allocating it to the Account of the affected Associate, Participant, Inactive Participant or Beneficiary. Prior to forfeiting any Account, the Administrative Committee shall attempt to contact the Associate, Participant, Inactive Participant or Beneficiary by return receipt mail (or other carrier) at his or her last known address according to the Company's records, and, where practical, by letter-forwarding services offered through the Internal Revenue Service, or the Social Security Administration, or such other means as the Administrative Committee deems appropriate. 15.7 Status of Participants ---------------------- In accordance with Revenue Procedure 92-65 Section 3.01(d), this Plan hereby provides: a. Associates, Participants and Inactive Participants under this Plan shall have the status of general unsecured creditors of the Company; b. This Plan constitutes a mere promise by the Company to make benefit payments in the future; and 19 c. It is the intention of the parties that the arrangements under this Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. 15.8 Associate and Spouse Acknowledgement ------------------------------------ By executing this Plan document or related enrollment or election form, the undersigned Associate and, if Associate is married, Associate's spouse hereby acknowledge that each of them has read and understood this Plan document. Associate and his or her spouse also acknowledge that they knowingly and voluntarily agree to be bound by the provisions of the Plan, as amended from time to time, including those Plan provisions which require the resolution of disputes by binding out-of-court arbitration. Associate and his or her spouse further acknowledge that they have had the opportunity to consult with counsel of their own choosing with respect to all of the financial, tax and legal consequences of participating in this Plan, including in particular the effects of participation on any community property or other interest which the Associate's spouse may have in the Compensation deferred under this Executive Deferred Compensation Plan. 20 IN WITNESS WHEREOF, each of the undersigned has executed this document on the date set forth adjacent to his or her signature below. SPIEGEL, INC. A Delaware Corporation Dated: _________ By Title________________________ ASSOCIATE Dated: _________ ______________________________ Associate's Signature ______________________________ Associate's Printed Name ASSOCIATE'S SPOUSE Dated: _________ ______________________________ Spouse's Signature ______________________________ Spouse's Printed Name 21 Spiegel, Inc. Executive Deferred Compensation Plan Schedule 1, Interest Crediting Declaration --------------------------------------------------------------------------- The Company agrees that it will credit deferred Compensation and Company Contributions to the Accounts of all Participants and Inactive Participants in the Spiegel, Inc. Executive Deferred Compensation Plan with an annualized rate of return equal to 5.47% for the 2002 Plan Year. This rate of return is subject to change each subsequent Plan Year at the discretion of the Company and shall be credited under the provisions of the Plan. Participant Signature_____________________________ Printed Name__________________________ Title_________________________________ Date____________________ - -------------------------------------------------------------------------------- SPIEGEL, INC. EXECUTIVE DEFERRED COMPENSATION PLAN EXHIBIT A (Part 1, page 1 of 2) - ELECTION OF DEFERRAL - -------------------------------------------------------------------------------- 1. I acknowledge that the terms and conditions of the Spiegel, Inc. EXECUTIVE DEFERRED COMPENSATION PLAN have been explained to me, including the tax consequences of my decision to participate in the Plan. 2. I agree to defer a portion of my current compensation, and to have that income paid to me at a later date pursuant to the terms and conditions of the Plan, which is incorporated by reference, in its entirety, in this Election of Deferral Form. 3. I understand that this Election Form is not an employment agreement, does not guarantee that I will receive any predetermined amount of compensation, and does not guarantee that I will receive any incentive compensation. 4. I understand that any compensation I defer will be held as an asset of Spiegel, Inc., and will remain subject to the claims of the general creditors of Spiegel, Inc. ELECTION TO DEFER COMPENSATION I hereby elect to defer the following amount from each of my paychecks: _____% and/or $_______ of my salary paid in calendar year 2002. _____% and/or $_______ of my annual incentive paid in calendar year 2003. _____% and/or $_______ of my long-term incentive paid in calendar year 2003. The foregoing Election is voluntarily made by me after reviewing the terms of the Plan and with knowledge that this Election is irrevocable until changed in accordance with the terms of the Plan. - -------------------------------------------------------------------------------- SPIEGEL, INC. EXHIBIT A (Part 1, page 2 of 2) - ELECTION OF DEFERRAL - -------------------------------------------------------------------------------- RETIREMENT BENEFIT DISTRIBUTION REQUEST The following supersedes any previous distribution request and applies to all amounts deferred and Company Discretionary Contributions during the current and future calendar years, adjusted for earnings, losses, and administrative expenses credited to or charged against the Associate's Account. This election cannot be changed retroactively as to prior deferrals, without the consent of the Corporation which may be withheld at its sole discretion. In the event of either: 1. Retirement, or 2. Disability. I wish to receive my current and future deferrals in the following form: If neither of the following two requests apply, the Retirement Benefit will be payable, as described at paragraph 7.4 or 7.5, in 120 monthly installments beginning upon the later of the Retirement Date or actual Termination of Employment. ____ (i) lump sum; or ____ (ii) in 120 substantially equal monthly installments. This Election of Deferral is executed and agreed: __________________________________ _________________________(Election Date) Signature Date __________________________________ _________________________ Print Name Social Security Number Agreed: Spiegel, Inc. __________________________________ _________________________ Signature Date EXHIBIT A (Part 2) - ELECTION OF COMPANY DISCRETIONARY CONTRIBUTION TO: _________________________ (NAME OF ASSOCIATE) FROM: SPIEGEL, INC. The Company hereby elects to contribute the amount of _______________, and does credit such amount under the terms of the Spiegel, Inc., Executive Deferred Compensation Plan (the "Plan"), as of the _______ day of ______________, 20__, on behalf of the Account of the above named Associate. This contribution is subject to the terms of the Plan. Spiegel, Inc. BY:___________________ EXHIBIT A (Part 3) - IN-SERVICE WITHDRAWAL IN-SERVICE WITHDRAWAL I hereby elect to receive an In-Service Withdrawal on the In- Service Withdrawal Date specified below in the amount of the lesser of the Accrued Benefit, or the following amount: AMOUNT: ____________________ (Insert Amount) IN-SERVICE WITHDRAWAL DATE:__________________ (At least 12 months after Effective Date) IN-SERVICE WITHDRAWAL. The lesser of either: (a) the In-Service Withdrawal amount designated by the Associate or (b) the Accrued Benefit, shall be distributed in a lump sum on the In-Service Withdrawal Date. The In-Service Withdrawal Date shall be the later of either: (a) the In-Service Withdrawal Date set forth, or (b) a date 12 months after the Election Date defined by this Agreement. No In-Service Withdrawal shall be effective unless it is elected on this form submitted as required by this Agreement. Spiegel, Inc. EXECUTIVE DEFERRED COMPENSATION PLAN EXHIBIT B- BENEFICIARY DESIGNATION - ---------------------------------- I. _________________________ (Insert Associate's name as it appears in the Agreement.) ================================================================================ II. The above-named Associate's Revocable Beneficiary under the EXECUTIVE DEFERRED COMPENSATION PLAN is set forth below: Primary Beneficiary(ies): ____________________ ____________________ Relationship: ____________________ ____________________ Address: ____________________ ____________________ ____________________ ___________________ Social Security Number: ____________________ ____________________ Contingent Beneficiary(ies): ____________________ ____________________ Relationship: ____________________ ____________________ Address: ____________________ ____________________ ____________________ ____________________ Social Security Number: ____________________ ____________________ ================================================================================ III. If no individual beneficiary named is living at the Associate's death, the Beneficiary shall be the executor(s) or administrator(s) of the Associate. IV. This Designation of Beneficiary revokes all prior designations and shall be effective as of the date it is filed with the Company. The Associate retains the right to revoke this Designation of Beneficiary. Dated at _______________, State of _______________, on _______________, 20__. _________________________________ _________________________________ Signature of Associate Witness CONSENT OF SPOUSE (Required in Community Property States) I hereby consent to the designation of the above beneficiary (ies) to receive the benefits payable under the SPIEGEL, INC., EXECUTIVE DEFERRED COMPENSATION PLAN as the result of the death of the above Associate and waive any and all rights necessary to provide the payment of such benefits to such beneficiary (ies). Dated at ____________, State of__________, on _______________, 20____. _______________________________ (Signature of Spouse) Witness: _______________________________ FILING ACKNOWLEDGEMENT Filed with the records of the Company this ___ day of _______________, 20____. By___________________________ _____________________________ Title EXHIBIT C Spiegel, Inc. EXECUTIVE DEFERRED COMPENSATION PLAN SUPPLEMENTAL CONTRIBUTION - ------------------------- Vesting Schedule The Vesting Percentage set forth below represents the portion of the Company Discretionary Contribution which is payable under the terms of this Agreement, based on Years of Service from effective date of full-time hire with the Company. ---------------------------------------------------------------------------- Years of Service Cumulative Vesting Percentage ---------------------------------------------------------------------------- Less than 1 0% 1 but less than 2 10% 2 but less than 3 20% 3 but less than 4 30% 4 but less than 5 40% 5 but less than 6 60% 6 but less than 7 80% 7 or more 100% Any unvested portion of the Company Contributions will be forfeited effective as of the date of the Associate's termination of employment. In addition, if an Associate's employment is terminated due to the Associate's gross misconduct, the Associate shall forfeit all Company Contributions and corresponding interest accruals as of the date of the Associate's termination of employment. EX-10.4 4 dex104.txt EMPLOYMENT AGREEMENT Exhibit 10.4 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is made as of July 1, 2001 between Spiegel, Inc., a Delaware corporation ("Spiegel") and Martin Zaepfel, of Burr Ridge, Illinois ("Zaepfel"). Spiegel and Zaepfel hereby agree as follows: 1. EMPLOYMENT - ------------- Spiegel agrees to employ Zaepfel in the greater Chicago metropolitan area until the effective date of the termination of the employment period, as hereinafter provided, and Zaepfel agrees to continue such employment. Zaepfel will serve faithfully and to the best of his ability as Vice Chairman, President, and Chief Executive Officer of Spiegel reporting to the Chairman of the Board of Directors of Spiegel/Chairman of Otto Versand Executive Board. Zaepfel will have managerial responsibility for Spiegel and its assigned activities. Notwithstanding anything herein to the contrary, there are certain transactions, a list of which has been provided to Zaepfel, that require the approval of the Board of Directors of Spiegel. 2. BEST EFFORTS - --------------- During the employment period, Zaepfel will devote his best efforts and all his business time and attention to the business of Spiegel and will faithfully perform his duties subject to the direction of the Board of Directors or its designee and generally subject to the employment policies of Spiegel as may be promulgated from time to time. 3. TERM OF EMPLOYMENT - --------------------- The term of this Employment Agreement shall be a period of five (5) years (Initial Term) commencing July 1, 2001, and terminating June 30, 2006, subject, however, to prior termination as in after provided Section 8 (Termination for Cause) below. 1 If Spiegel elects to terminate this Employment Agreement prior to June 30, 2006, then Spiegel will pay Zaepfel at time of termination an amount equal to Zaepfel's entire compensation and benefit package (including pro-rated Annual and Long Term Incentives) then in effect as provided on Schedule A and Schedule B and Paragraph 6 herein calculated for a period of twenty-four (24) months but shall not exceed Five Million Dollars ($5,000,000.00). This Employment Agreement shall be automatically renewed and continue in full force and effect for additional one year terms without limitation, unless either party gives the other party six (6) months' written notice of its or his election to terminate this Employment Agreement at the end of the then current calendar year. No severance payment shall be due if termination is after June 30, 2006. 4. COMPENSATION - --------------- Spiegel shall pay Zaepfel an annual base salary in accordance with Schedule A payable in the manner as is done in the ordinary course of business for upper level executives of Spiegel. The Board of Directors or its designee shall review this base salary annually and shall have the right to increase it at any time during the employment period. An increase in base salary shall be evidenced by the Board of Directors or its designee approving an amended Schedule A to this Employment Agreement, which shall give the amount of the increase in base salary, the new total base salary and the period for which the increase shall be effective. 5. BONUS - -------- Zaepfel shall be entitled to an annual cash bonus no later than February 28th of each year based upon the performance of Spiegel for the most recently ended calendar year. The bonus will be in accordance with Schedule A. The bonus opportunity shall be determined based upon performance criteria mutually and reasonably developed by Spiegel or its designee and Zaepfel and agreed to by the Board of Directors with the understanding that such criteria will 2 provide a fair and professionally challenging achievement rewarding good performance. The predetermined performance criteria, and any changes mutually agreed upon by Spiegel or its designee and Zaepfel and agreed to by the Board of Directors. 6. BENEFITS - ----------- Zaepfel shall be eligible for all medical and dental benefits, disability benefits, long term incentive plans, stock options, profit sharing, savings plans, automobile allowance, paid vacation, paid-up split dollar and whole life insurance policies then in effect, a membership at a country club and other benefits which are or shall be adopted by Spiegel covering its senior executive management staff, provided he meets the qualification requirements for such benefits. Additional benefits may be added during the term of this Agreement by Spiegel. 7. DISABILITY OF ZAEPFEL - ------------------------ If, during the term of this Employment Agreement, Zaepfel shall become disabled by accident, illness, or otherwise, and such disability shall continue for a period of six (6) successive months following which he is unable to resume his duties hereunder, Spiegel shall have the right to terminate the employment period by giving written notice to Zaepfel of its intention to do so at least thirty (30) days prior to the effective date of such termination, provided, however, Spiegel agrees to pay a lump sum at the time of termination in an amount equal to the fair value of his entire compensation and benefits package in place at that time calculated for a period of six (6) months commencing from the effective date of such termination in lieu of continuing to provide such benefits in periodic amounts. Any dispute as to whether such a disability has occurred shall be resolved by a physician reasonably satisfactory to both parties, whose determination shall be final and binding on both parties, 8. TERMINATION FOR CAUSE - ------------------------ Spiegel may terminate the employment period for cause for the following reasons other than innocent acts: repetitive and offensive public intoxication, a felony conviction, the 3 intentional perpetration of a dishonest act of fraud against Spiegel or an affiliate or subsidiary thereof, which is significantly injurious in a material respect to the financial condition, business, or reputation of Spiegel or any of its affiliates or subsidiaries. Spiegel shall have the right to terminate the employment period for any above reason by giving written notice to Zaepfel of its intention to do so and specifying therein the reason and the effective date of termination. In this case a severance payment will be reasonably appropriate to the reason for termination, and this Agreement will have no further effect. 9. OTHER EMPLOYMENT - ------------------- Zaepfel covenants and agrees that during the employment period, he will not directly or indirectly (except with the written consent of Spiegel) become engaged in, be employed by, render services to or for, or permit his name to be used in connection with any business other than the business of Spiegel and its subsidiaries and affiliates, whether such other business is or is not competitive with that business. After termination of this Agreement, Zaepfel agrees that for a period of one year he will not solicit for engagement or as an employee any person who has been employed by the Company within the preceding twelve months as a senior level executive. 10. TRADE SECRETS - ----------------- Zaepfel shall not at any time while this Employment Agreement is in force, and for a period of two (2) years after its termination, unless authorized by Spiegel, divulge or disclose to any person or corporation any confidential or proprietary information relating to the business of Spiegel or its subsidiaries and affiliates including, but not in limitation, customer list, supplier lists, prices of products, services or operational processes. A breach of this confidentiality clause will result in no compensation and benefits being paid at the time of termination. 4 11. TOTAL AGREEMENT - ------------------- This contract contains the complete agreement concerning the employment arrangement between the parties and, as of the effective date of this agreement, supersedes all other agreements, whether oral or in writing, between the parties. This agreement may be modified or added to only if evidenced in writing signed by the party to be liable. 12. GENERAL - ----------- The headings of all the sections are inserted for convenience of reference only and will not affect the construction or interpretation of this agreement. 13. GOVERNING LAW - ----------------- This agreement shall be governed by the laws of the State of Illinois without regard to principles of conflicts of laws. IN WITNESS WHEREOF, the parties have executed this Agreement as of July 1,2001. Spiegel, Inc. ____________________ ____________________________ Director Martin Zaepfel 5 EMPLOYMENT AGREEMENT SCHEDULE A ---------- This Schedule A is made a part of the Employment Agreement between Spiegel, Inc. and Martin Zaepfel dated July 1, 2001. Annual compensation effective July 1, 2001 will be One Million Two Hundred Thousand Dollars ($1,200,000.00) Bonus opportunity for each year of this contract shall be 80% of base salary. Dated: July 1, 2001 ________________________ ______________________________ Spiegel, Inc. Martin Zaepfel EMPLOYMENT AGREEMENT SCHEDULE B ---------- This Schedule B is made part of the Employment Agreement between Spiegel, Inc. and Martin Zaepfel dated ______________________ Bonus is determined by the Executive Committee and the Board of Directors each year. The bonus opportunity will be calculated on the weighted average of bonus achievement of the Company's major businesses as follows: Eddie Bauer 30% Spiegel Catalog 25% FCNB 25% Newport News 20% --- 100% Dated:__________________________ ___________________________________ __________________________ Spiegel, Inc. Martin Zaepfel EX-10.5 5 dex105.txt EMPLOYMENT AGREEMENT AS OF JULY 1, 2001 Exhibit 10.5 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is made as of July 1, 2001, between Spiegel, Inc., a Delaware corporation ("Spiegel") and James R. Cannataro, of _______________ , Illinois ("Cannataro"). Spiegel and Cannataro hereby agree as follows: 1. EMPLOYMENT - ------------- Spiegel agrees to employ Cannataro in the greater Chicago metropolitan area until the effective date of the termination of the employment period, as hereinafter provided, and Cannataro agrees to continue such employment. Cannataro will serve faithfully and to the best of his ability as Executive Vice President and Chief Financial Officer of Spiegel, reporting to and directed by the Chief Executive Officer of Spiegel. Cannataro will have financial management responsibility for Spiegel. 2. BEST EFFORTS - --------------- During the employment period, Cannataro will devote his best efforts and all his business time and attention to the business of Spiegel and will faithfully perform his duties subject to the direction of the Chief Executive Officer of Spiegel and generally subject to the employment policies of Spiegel as may be promulgated from time to time. 3. TERM OF EMPLOYMENT - --------------------- The term of this Employment Agreement shall be a period of three (3) years (Initial Term) commencing July 1, 2001, and terminating June 30, 2004, subject, however, to prior termination as in after provided Section 8 (Termination for Cause) below. This Employment Agreement shall be automatically renewed and continue in full force and effect for additional one year terms without limitation, unless either party gives the other party six (6) months' written notice of its or his election to terminate this Employment Agreement at the end of the 1 then current calendar year. If Spiegel elects to terminate this Employment Agreement in accordance with this Paragraph 3, then Spiegel will pay Cannataro at time of termination an amount equal to Cannataro's entire compensation and benefit package (including pro-rated Annual and Long Term Incentives) then in effect as provided on Schedule A and Schedule B and Paragraph 6 herein calculated for a period of twenty-four (24) months but shall not exceed Three Million and 00/100 Dollars ($3,000,000.00). No payment under this paragraph shall be due if termination is after Cannataro's 62nd birthday. 4. COMPENSATION - --------------- Spiegel shall pay Cannataro an annual base salary in accordance with Schedule A payable in the manner as is done in the ordinary course of business for upper level executives of Spiegel. The Board of Directors or its designee shall review this base salary annually and shall have the right to increase it at any time during the employment period. An increase in base salary shall be evidenced by the Board of Directors or its designee approving an amended Schedule A to this Employment Agreement, which shall give the amount of the increase in base salary, the new total base salary and the period for which the increase shall be effective. 5. BONUS - --------- Cannataro shall be entitled to an annual cash bonus no later than February 28th of each year based upon the performance of Spiegel for the most recently ended calendar year. The bonus will be in accordance with Schedule A. The bonus opportunity shall be determined based upon performance criteria mutually and reasonably developed by Spiegel or its designee and Cannataro and agreed to by the Board of Directors with the understanding that such criteria will provide a fair and professionally challenging achievement rewarding good performance. The predetermined performance criteria, and any changes mutually agreed upon by Spiegel or its designee and Cannataro and agreed to by the Board of Directors shall be as set forth in Schedule B, attached to this Agreement. 2 6. BENEFITS - ----------- Cannataro shall be eligible for all medical and dental benefits, disability benefits, long term incentive plans, stock options, profit sharing, savings plans, automobile allowance, paid vacation, split dollar life insurance policies then in effect, and other benefits which are or shall be adopted by Spiegel covering its senior executive management staff, provided he meets the qualification requirements for such benefits. Additional benefits may be added during the term of this Agreement by Spiegel. 7. DISABILITY OF CANNATARO. - --------------------------- If, during the term of this Employment Agreement, Cannataro shall become disabled by accident, illness, or otherwise, and such disability shall continue for a period of six (6) successive months following which he is unable to resume his duties hereunder, Spiegel shall have the right to terminate the employment period by giving written notice to Cannataro of its intention to do so at least thirty (30) days prior to the effective date of such termination, provided, however, Spiegel agrees to pay a lump sum at the time of termination in an amount equal to the fair value of his entire compensation and benefits package in place at that time calculated for a period of six (6) months commencing from the effective date of such termination in lieu of continuing to provide such benefits in periodic amounts. Any dispute as to whether such a disability has occurred shall be resolved by a physician reasonably satisfactory to both parties, whose determination shall be final and binding on both parties. 8. TERMINATION FOR CAUSE - ------------------------ Spiegel may terminate the employment period for cause for the following reasons other than innocent acts: repetitive and offensive public intoxication, a felony conviction, the intentional perpetration of a dishonest act or fraud against Spiegel or an affiliate or subsidiary thereof, which is significantly injurious in a material respect to the financial condition, business or reputation of Spiegel or any of its affiliates or subsidiaries. Spiegel shall have the right to terminate the employment period for any above reason by giving written notice to Cannataro of its intention to do so and specifying therein the reason and the effective date of 3 termination. In this case a severance payment will be reasonably appropriate to the reason for termination, and this Agreement will have no further effect. 9. OTHER EMPLOYMENT - ------------------- Cannataro covenants and agrees that during the employment period, he will not directly or indirectly (except with the written consent of Spiegel) become engaged in, be employed by, render services to or for, or permit his name to be used in connection with any business other than the business of Spiegel and its subsidiaries and affiliates, whether such other business is or is not competitive with that business. After termination of this Agreement, Cannataro agrees that for a period of one year he will not solicit for engagement or as an employee any person who has been employed by the Company within the preceding twelve months as a senior level executive. 10. TRADE SECRETS - ----------------- Cannataro shall not at any time while this Employment Agreement is in force, and for a period of two (2) years after its termination, unless authorized by Spiegel, divulge or disclose to any person or corporation any confidential or proprietary information relating to the business of Spiegel or its subsidiaries and affiliates including, but not in limitation, customer list, supplier lists, prices of products, services or operational processes. A breach of this confidentiality clause will result in no compensation and benefits being paid at the time of termination. 11. TOTAL AGREEMENT - ------------------- This contract contains the complete agreement concerning the employment arrangement between the parties and, as of the effective date of this agreement, supersedes all other agreements, whether oral or in writing, between the parties. This agreement may be modified or added to only if evidenced in writing signed by the party to be liable. 4 12. GENERAL - ----------- The headings of all the sections are inserted for convenience of reference only and will not affect the construction or interpretation of this agreement. 13. GOVERNING LAW - ----------------- This agreement shall be governed by the laws of the State of Illinois without regard to principles of conflicts of laws. IN WITNESS WHEREOF, the parties have executed this Agreement as of ______________ SPIEGEL, INC. _________________________ __________________________ President, CEO James R. Cannataro 5 EMPLOYMENT AGREEMENT SCHEDULE B ---------- This Schedule B is made part of the Employment Agreement between Spiegel, Inc. and James R. Cannataro dated ___________________ Bonus is determined by the Executive Committee and the Board of Directors each year. The bonus opportunity will be calculated on the weighted average of bonus achievement of the Company's major businesses as follows: Eddie Bauer 30% Spiegel Catalog 25% FCNB 25% Newport News 20% -- 100% Dated: _________________________ __________________________________ __________________________ Spiegel, Inc. James R. Cannataro EMPLOYMENT AGREEMENT SCHEDULE A ---------- This Schedule A is made a part of the Employment Agreement between Spiegel, Inc. and James R. Cannataro dated ________________________. Annual compensation effective ______________________will be Four Hundred Ten Thousand Dollars ($410,000.00). Bonus opportunity for each year of this contract shall be 75 % of base salary. --- Dated: ______________________ _____________________________ __________________________ Spiegel, Inc. James R. Cannataro EX-10.6 6 dex106.txt EMPLOYMENT AGREEMENT AS OF DECEMBER 15, 2000 Exhibit 10.6 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is made as of December 15, 2000 between Spiegel Catalog, Inc., a Delaware corporation ("Spiegel") and Melissa Payner-Gregor, of Oak Brook, Illinois ("Payner"). Spiegel and Payner hereby agree as follows: 1. EMPLOYMENT - ------------- Spiegel Catalog agrees to employ Payner in the greater Chicago metropolitan area until the effective date of the termination of the employment period, as hereinafter provided, and Payner agrees to continue such employment. Payner will serve faithfully and to the best of her ability as President and Chief Executive Officer of Spiegel Catalog, reporting to the Board of Directors of Spiegel or its designee. Payner will have managerial responsibility for Spiegel Catalog and its assigned activities. Notwithstanding anything herein to the contrary, there are certain transactions, a list of which has been provided to Payner, that require the approval of the Board of Directors of Spiegel. For purposes of this contract, anywhere herein where a designee of the Board of Directors is permissible, Spiegel hereby so designates the Office of the President of Spiegel, Inc. 2. BEST EFFORTS - --------------- During the employment period, Payner will devote her best efforts and all her business time and attention to the business of Spiegel and will faithfully perform her duties subject to the direction of the Board of Directors or its designee and generally subject to the employment policies of Spiegel as may be promulgated from time to time, 3. TERM OF EMPLOYMENT - --------------------- The term of this Employment Agreement shall be a period of three (3) years (Initial Term) commencing December 15, 2000, and terminating December 31, 2003, subject, however, to 1 prior termination as in after provided Section 8 (Termination for Cause) below. This Employment Agreement shall be automatically renewed and continue in full force and effect for additional one year terms without limitation, unless either party gives the other party six (6) months' written notice of its or her election to terminate this Employment Agreement at the end of the then current calendar year. If Spiegel elects to terminate this Employment Agreement in accordance with this Paragraph 3, then Spiegel will pay Payner at time of termination an amount equal to Payner's entire compensation and benefit package (including pro-rated Annual and Long Term Incentives) then in effect as provided on Schedule A and Schedule B and Paragraph 6 herein calculated for a period of twenty-four (24) months but shall not exceed Three Million and 00/100 Dollars ($3,000,000.00). No payment under this paragraph shall be due if termination is after Payner's 62nd birthday. 4. COMPENSATION - --------------- Spiegel shall pay Payner an annual base salary in accordance with Schedule A payable in the manner as is done in the ordinary course of business for upper level executives of Spiegel. The Board of Directors or its designee shall review this base salary annually and shall have the right to increase it at any time during the employment period. An increase in base salary shall be evidenced by the Board of Directors or its designee approving an amended Schedule A to this Employment Agreement, which shall give the amount of the increase in base salary, the new total base salary and the period for which the increase shall be effective. 5. BONUS - -------- Payner shall be entitled to an annual cash bonus no later than February 28th of each year based upon the performance of Spiegel for the most recently ended calendar year. The bonus will be in accordance with Schedule A. The bonus opportunity shall be determined based upon performance criteria mutually and reasonably developed by Spiegel or its designee and Payner and agreed to by the Board of Directors with the understanding that such criteria will provide a fair and professionally challenging achievement rewarding good performance. The predetermined performance criteria, and any changes mutually agreed upon by Spiegel or its 2 designee and Payner and agreed to by the Board of Directors shall be as set forth in Schedule B, attached to this Agreement. 6. BENEFITS - ----------- Payner shall be eligible for all medical and dental benefits, disability benefits, long term incentive plans, stock options, profit sharing, savings plans, automobile allowance, paid vacation, paid-up split dollar and whole life insurance policies then in effect, a membership at a country club and other benefits which are or shall be adopted by Spiegel covering its senior executive management staff, provided she meets the qualification requirements for such benefits. Additional benefits may be added during the term of this Agreement by Spiegel. 7. DISABILITY OF PAYNER - ----------------------- If, during the term of this Employment Agreement, Payner shall become disabled by accident, illness, or otherwise, and such disability shall continue for a period of six (6) successive months following which she is unable to resume her duties hereunder, Spiegel shall have the right to terminate the employment period by giving written notice to Payner of its intention to do so at least thirty (30) days prior to the effective date of such termination, provided, however, Spiegel agrees to pay a lump sum at the time of termination in an amount equal to the fair value of her entire compensation and benefits package in place at that time calculated for a period of six (6) months commencing from the effective date of such termination in lieu of continuing to provide such benefits in periodic amounts. Any dispute as to whether such a disability has occurred shall be resolved by a physician reasonably satisfactory to both parties, whose determination shall be final and binding on both parties. 8. TERMINATION FOR CAUSE - ------------------------ Spiegel may terminate the employment period for cause for the following reasons other than innocent acts: repetitive and offensive public intoxication, a felony conviction, the intentional perpetration of a dishonest act or fraud against Spiegel or an affiliate or subsidiary 3 thereof, which is significantly injurious in a material respect to the financial condition, business or reputation of Spiegel or any of its affiliates or subsidiaries. Spiegel shall have the right to terminate the employment period for any above reason by giving written notice to Payner of its intention to do so and specifying therein the reason and the effective date of termination. In this case a severance payment will be reasonably appropriate to the reason for termination, and this Agreement will have no further effect. 9. OTHER EMPLOYMENT - ------------------- Payner covenants and agrees that during the employment period, she will not directly or indirectly (except with the written consent of Spiegel) become engaged in, be employed by, render services to or for, or permit her name to be used in connection with any business other than the business of Spiegel and its subsidiaries and affiliates, whether such other business is or is not competitive with that business. After termination of this Agreement, Payner agrees that for a period of one year she will not solicit for engagement or as an employee any person who has been employed by the Company within the preceding twelve months as a senior level executive. 10. TRADE SECRETS - ----------------- Payner shall not at any time while this Employment Agreement is in force, and for a period of two (2) years after its termination, unless authorized by Spiegel, divulge or disclose to any person or corporation any confidential or proprietary information relating to the business of Spiegel or its subsidiaries and affiliates including, but not in limitation, customer list, supplier lists, prices of products, services or operational processes. A breach of this confidentiality clause will result in no compensation and benefits being paid at the time of termination. 11. TOTAL AGREEMENT - ------------------- This contract contains the complete agreement concerning the employment arrangement between the parties and, as of the effective date of this agreement, supersedes all other 4 agreements, whether oral or in writing, between the parties. This agreement may be modified or added to only if evidenced in writing signed by the party to be liable. 12. GENERAL - ----------- The headings of all the sections are inserted for convenience of reference only and will not affect the construction or interpretation of this agreement. 13. GOVERNING LAW - ----------------- This agreement shall be governed by the laws of the State of Illinois without regard to principles of conflicts of laws. IN WITNESS WHEREOF, the parties have executed this Agreement as of December 15, 2000. SPIEGEL CATALOG, INC. /s/ /s/ Melissa Payner-Gregor - --------------------------------- -------------------------------------- Director Melissa Payner-Gregor 5 EMPLOYMENT AGREEMENT SCHEDULE A ---------- This Schedule A is made a part of the Employment Agreement between Spiegel Catalog, Inc. and Melissa Payner-Gregor dated December 15, 2000. Annual compensation effective December 15, 2000 will be Five Hundred Fifty Thousand Dollars ($550,000.00). Bonus opportunity for each year of this contract shall be 75% of base salary. Dated: December 15, 2000 /s/ /s/ Melissa Payner-Gregor - --------------------------------- -------------------------------------- Spiegel Catalog, Inc. Melissa Payner-Gregor EMPLOYMENT AGREEMENT SCHEDULE B ---------- This Schedule B is made part of the Employment Agreement between Spiegel Catalog and Melissa Payner-Gregor dated December 15, 2000. Bonus is determined by the Executive Committee and the Board of Directors each year. Historically the criteria has been a pre-tax profit range stating the amount of pre-tax profit that Spiegel has to reach. For the year 2001, the pre-tax profit range is as follows: 50% of Bonus Opportunity: $19.8 million EBT 100% of Bonus Opportunity: $28.3 million EBT 150% of Bonus Opportunity: $36.8 million EBT Dated: December 15, 2000 /s/ /s/ Melissa Payner-Gregor - --------------------------------- -------------------------------------- Spiegel Catalog, Inc. Melissa Payner-Gregor EX-10.7 7 dex107.txt EMPLOYMENT AGREEMENT AS OF SEPTEMBER 1, 2000 Exhibit 10.7 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is made as of September 1, 2000, between Newport News, Inc., a Delaware corporation ("Newport News") and George D. Ittner, of Darien, Connecticut ("Ittner"). Newport News and Ittner hereby agree as follows: 1. EMPLOYMENT - ------------- Newport News agrees to continue to employ Ittner in the greater New York City metropolitan area until the effective date of the termination of the employment period, as hereinafter provided, and Ittner agrees to continue such employment. Ittner will serve faithfully and to the best of his ability as President and Chief Executive Officer (CEO) of Newport News, reporting to the Board of Directors of Newport News or its designee. Ittner will have managerial responsibility for Newport News and its assigned activities. Notwithstanding anything herein to the contrary, there are certain transactions, a list of which has been provided to Ittner, that require the approval of the Board of Directors of Newport News. For purposes of this contract, anywhere herein where a designee of the Board of Directors is permissible, Newport News hereby so designates the Office of the President of Spiegel, Inc. 2. BEST EFFORTS - --------------- During the employment period, Ittner will devote his best efforts and all his business time and attention to the business of Newport News and will faithfully perform his duties subject to the direction of the Board of Directors or its designee and generally subject to the employment policies of Newport News as may be promulgated from time to time. 3. TERM OF EMPLOYMENT - --------------------- The term of this Employment Agreement shall be a period of three (3) years (Initial Term) commencing September 1, 2000, and terminating December 31,2003, subject, however, to prior termination as in after provided Section 8 (Termination for Cause) below. This Employment Agreement shall be automatically renewed and continue in full force and effect for additional one year terms without limitation, unless either party gives the other party six (6) months' written notice of its or his election to terminate this Employment Agreement at the end of the then current calendar year. If Newport News elects to terminate this Employment Agreement in accordance with this Paragraph 3, then Newport News will pay Ittner at time of termination an amount equal to Itter's entire compensation and benefit package (including pro-rated Annual and Long Term Incentives) then in effect as provided on Schedule A and Schedule B and Paragraph 6 herein calculated for a period of twenty-four (24) months unless termination is after Ittner's 62nd birthday. 4. COMPENSATION - --------------- Newport News shall pay Ittner an annual base salary in accordance with Schedule A payable in the manner as is done in the ordinary course of business for upper level executives of Newport News. The Board of Directors or its designee shall review this base salary annually and shall have the right to increase it at any time during the employment period. An increase in base salary shall be evidenced by the Board of Directors or its designee approving an amended Schedule A to this Employment Agreement, which shall give the amount of the increase in base salary, the new total base salary and the period for which the increase shall be effective. 5. BONUS - -------- Ittner shall be entitled to an annual cash bonus no later than February 28th of each year based upon the performance of Newport News for the most recently ended calendar year. The bonus will be in accordance with Schedule A. The bonus opportunity shall be determined based upon performance criteria mutually and reasonably developed by Newport News or its designee and Ittner and agreed to by the Board of Directors with the understanding that such criteria will provide a fair and professionally challenging achievement rewarding good performance. The predetermined performance criteria, and any changes mutually agreed upon by Newport News or its designee and Ittner and agreed to by the Board of Directors, shall be as set forth on Schedule B, attached to this Agreement. 6. BENEFITS - ----------- Ittner shall be eligible for all medical and dental benefits, disability benefits, long term incentive plans, stock options, profit sharing, savings plans, automobile allowance, paid vacation, paid-up split dollar and whole life insurance policies then in effect, a membership at a country club and other benefits which are or shall be adopted by Newport News covering its senior executive management staff, provided he meets the qualification requirements for such benefits. Additional benefits may be added during the term of this Agreement by Newport News. 7. DISABILITY OF ITTNER - ----------------------- If, during the term of this Employment Agreement, Ittner shall become disabled by accident, illness, or otherwise, and such disability shall continue for a period of six (6) successive months following which he is unable to resume his duties hereunder, Newport News shall have the right to terminate the employment period by giving written notice to Ittner of its intention to do so at least thirty (30) days prior to the effective date of such termination, provided however, Newport News agrees to pay a lump sum at the time of termination in an amount equal to the fair value of his entire compensation and benefits package in place at that time calculated for a period of six (6) months commencing from the effective date of such termination in lieu of continuing to provide such benefits in periodic amounts. Any dispute as to whether such a disability has 2 occurred shall be resolved by a physician reasonably satisfactory to both parties, whose determination shall be final and binding on both parties. 8. TERMINATION FOR CAUSE - ------------------------ Newport News may terminate the employment period for cause for the following reasons other than innocent acts: repetitive and offensive public intoxication, a felony conviction, the intentional perpetration of a dishonest act or fraud against Newport News or an affiliate or subsidiary thereof, which is significantly injurious in a material respect to the financial condition, business or reputation of Newport News or any of its affiliates or subsidiaries. Newport News shall have the right to terminate the employment period for any above reason by giving written notice to Ittner of its intention to do so and specifying therein the reason and the effective date of termination. In this case a severance payment will be paid in accordance with Paragraph 3 above, and this Agreement will have no further effect. 9. OTHER EMPLOYMENT - ------------------- Ittner covenants and agrees that during the employment period, he will not directly or indirectly (except with the written consent of Newport News) become engaged in, be employed by, render services to or for, or permit his name to be used in connection with any business other than the business of Newport News and its subsidiaries and affiliates, whether such other business is or is not competitive with that business. After termination of this Agreement, Ittner agrees that for a period of one year he will not solicit for engagement or as an employee any person who has been employed by the Company within the preceding twelve months as a senior level executive. 10. TRADE SECRETS - ----------------- Ittner shall not at any time while this Employment Agreement is in force, and for a period of two (2) years after its termination, unless authorized by Newport News, divulge or disclose to any person or corporation any confidential or proprietary information relating to the business of Newport News or its subsidiaries and affiliates including, but not in limitation, customer list, supplier lists, prices of products, services or operational processes. A breach of this confidentiality clause will result in no compensation and benefits being paid at the time of termination. 11. TOTAL AGREEMENT - ------------------- This contract contains the complete agreement concerning the employment arrangement between the parties and, as of the effective date of this agreement, supersedes all other agreements, whether oral or in writing, between the parties. This agreement may be modified or added to only if evidenced in writing signed by the party to be liable. 3 12. GENERAL - ----------- The headings of all the sections are inserted for convenience of reference only and will not affect the construction or interpretation of this agreement. 13. GOVERNING LAW - ----------------- This agreement shall be governed by the laws of the State of New York without regard to principles of conflicts of laws. IN WITNESS WHEREOF, the parties have executed this Agreement as of SEPTEMBER 20, ------------- 2000 - ---- NEWPORT NEWS, INC. By: /s/ Michael R. Moran /s/ George D. Ittner ------------------------------ ----------------------- Michael R. Moran, Director George D. Ittner OTTO VERSAND GmbH By: /s/ Martin Zaepfel -------------------------- Martin Zaepfel, Deputy Chairman 4 EMPLOYMENT AGREEMENT SCHEDULE A ---------- Annual compensation for 2000 will be Four Hundred Fifty Thousand Dollars ($450,000.00). Bonus opportunity for each year of this contract shall be 75% of base salary. Dated: September 1, 2000 /s/ /s/ George D. Ittner - ------------------------------ ----------------------- Newport News, Inc. Director George D. Ittner 5 EMPLOYMENT AGREEMENT SCHEDULE B ---------- This Schedule B is made part of the Employment Agreement between Newport News and George Ittner dated September 1,2000. Bonus is determined by the Executive Committee and the Board of Directors each year. Historically the criteria has been a pre-tax profit range stating the amount of pre-tax profit that Spiegel has to reach. For the year 2000, the pre-tax profit range is as follows: 50% of Bonus Opportunity at an EBT of $12.0 million 100% of Bonus Opportunity at an EBT of $18.0 million 150% of Bonus Opportunity at an EBT of $24.0 million Dated: September 1, 2000 /s/ /s/ George D. Ittner - ------------------------------ ----------------------- Newport News, Inc. Director George D. Ittner 6 EMPLOYMENT AGREEMENT SCHEDULE B ---------- This Schedule B is made part of the Employment Agreement between Newport News and George lttner dated September 1,2000. Bonus is determined by the Executive Committee and the Board of Directors each year. Historically the criteria has been a pre-tax profit range stating the amount of pre-tax profit that Spiegel has to reach. For the year 2001, the pre-tax profit range is as follows: 50% of Bonus Opportunity at an EBT of $14.1 million 100% of Bonus Opportunity at an EBT of $20.2 million 150% of Bonus Opportunity at an EBT of $26.2 million Dated: January 1, 2001 /s/ /s/ George D. Ittner - ------------------------------ ----------------------- Newport News, Inc. Director George D. Ittner SCHEDULE A ---------- Annual compensation effective March 1, 2001 will be Four Hundred Seventy Thousand Dollars ($470,000.00). Dated: January 1, 2001 /s/ /s/ George D. Ittner - ------------------------------ ----------------------- Newport News, Inc. Director George D. Ittner EX-10.8 8 dex108.txt TERMS OF SEPARATION MICHAEL R. MORAN Exhibit 10.8 Terms of Separation ------------------- Spiegel, INC. agrees to pay Michael R. Moran severance pay in the amount of Four Million Dollars ($4,000,000). This severance pay will be paid to Moran in a lump sum no later than July 6, 2001. In addition, Spiegel, INC will further pay Moran at the same time an amount of seven Hundred and Nine Thousand Dollars ($709,000) in a lump sum which represents bonuses, incentive plan award and SERP for the first six months of 2001. Further Moran will receive as salary for the period January 1, 2001, to and including June 30, 2001, compensation calculated based on $445,000 per year as well as other non cash benefits which are or shall be adopted by Spiegel covering its senior management staff. Further, Spiegel agrees to the terms of separation (12/$ attached hereto as an addendum to this agreement to the extent they are not inconsistent but rather additive to the overall agreement. Moran shall perform his current duties and responsibilities and assist with the transition for the transition period from January 1, 2001, to June 30, 2001. This agreement is contained in this document and the addendum attached hereto. Acknowledged, Agreed, and Accepted as of December 30, 2000: Spiegel, Inc. /s/ Martin Zaepfel /s/ Michael R. Moran - ------------------ -------------------- Michael R. Moran ADDENDUM This addendum made a part of an agreement dated December 30, 2000, between spiegel, INC. and Michael R. Moran Terms of Separation ------------------- Compensation for Year 2000 - -------------------------- My normal salary for 2000 shall continue to be paid on its current schedule. In addition, no later than February 28, 2001, Spiegel shall pay me my annual bonus, my long term incentive bonuses for 2000, and profit-sharing, SERP, and other regular benefits earned through calendar year 2000 in accordance with the formulas, policies and practices currently in effect for such matters. Severance Pay - ------------- In accordance with paragraph 3 of my Employment Agreement, Spiegel shall pay me severance pay equal to the economic value of my entire annual compensation and benefit package for the remaining term of my Employment Agreement and for an additional period of twenty-four (24) months. Such severance pay shall be based on the following: . my present salary; . my annual and long-term incentive bonuses at 2000 levels; . my profit-sharing, 401 (k), and SERP contributions for 2000; and . my automobile, club, financial, tax, insurance allowances for 2000. Retirement Package - ------------------ In accordance with my Employment Agreement and with the normal retirement policies and practices for senior level executives, Spiegel shall provide me with a retirement package that consists of the following: . Spiegel shall continue to pay, on the same basis that it currently does, the company share of premium for my individual, paid-up split dollar and executive life insurance policies until I attain age 65; . Spiegel shall provide medical, dental and vision insurance coverage at regular retiree rates to me and my wife until we both reach age 65; Page 1 of addendum . All of my unexpired stock options will be extended until December 31, 2003 as non-qualified, fully vested options; . In the event of any claim, lawsuit or other legal proceeding against me or otherwise involving me which arises from my involvement as an officer, director, employee or agent of Spiegel, any of its parent, subsidiary or affiliated companies or any company owned or otherwise associated with Otto Versand, Spiegel will indemnify me, hold me harmless, and pay my attorneys' fees and other legal expenses. Spiegel also will maintain appropriate insurance coverage for any liabilities that might potentially arise from such matters; and . in addition to the above, Spiegel shall provide me with all other benefits usually afforded to its retired executive officers. Compensation During Transition Period - -------------------------------------- For the transition period from January 1, 2001 to and including June 30, 2001, I shall perform my current duties and responsibilities and assist with the transition, and Spiegel shall compensate me on my current compensation and benefit terms except that my base salary shall be increased to $445,000 per year. Thus, my compensation shall include but not be limited to: . annual base salary of $445,000; . annual and long-term incentive bonuses; and . full vacation, savings, 401(k), profit-sharing, health insurance, life insurance, disability insurance, club, automobile and other benefits which are or shall be adopted by Spiegel covering its senior executive management staff. Acknowledged and Accepted as of December 6, 2000: Spiegel, Inc. /s/ Martin Zaepfel /s/ Michael R. Moran - ------------------------- ---------------------- By: Martin Zaepfel, Director Michael R. Moran Page 2 of addendum EX-10.9 9 dex109.txt TERMS OF SEPARATION JAMES W. SIEVERS Exhibit 10.9 TERMS OF SEPARATION Spiegel, Inc. agrees to pay James W. Sievers severance pay in the amount of four million dollars ($ 4,000,000). This severance pay will be paid to Sievers in a lump sum no later than July 6, 2001. In addition Spiegel, Inc. will further pay Sievers at the same time an amount of six hundred and seventy-one thousand dollars ($ 671,000) in a lump sum which represents bonuses, incentive plan award and salary for the first six months of 2001. Further Sievers will receive as salary for the period January 1, 2001 to and including June 30, 2001, compensation calculated based on $420,000 per year as well as other non cash benefits which are or shall be adopted by Spiegel Inc. covering its senior management staff. Further, Spiegel agrees to the terms of separation (12/6/00) attached here to as an addendum to this agreement to the extent they page 1 of 4 are not inconsistent but rather additive to the overall agreement. Sievers shall perform his current duties and responsibilities and assist with the transition for the transition period from January 1, 2001 to June 30, 2001. This agreement is contained in this document and the addendum attached. Acknowledged, agreed, and accepted as of 12/30/2000. Spiegel, Inc. /s/ James W. Sievers -------------------------- By: James W. Sievers page 2 of 4 ADDENDUM This Addendum made a part of an agreement dated December 30, 2000 between Spiegel Inc. and James W. Sievers. TERMS OF SEPARATION ------------------- COMPENSATION FOR YEAR 2000 - -------------------------- My normal salary for 2000 shall continue to be paid on its current schedule. In addition, no later than February 28, 2001, Spiegel shall pay me my annual bonus, my long term incentive bonuses for 2000, and profit-sharing, SERP, and other regular benefits earned through calendar year 2000 in accordance with the formulas, policies and practices currently in effect for such matters. SEVERANCE PAY - ------------- In accordance with paragraph 3 of my Employment Agreement, Spiegel shall pay me severance pay equal to the economic value of my entire annual compensation and benefit package for the remaining term of my Employment Agreement and for an additional period of twenty-four (24) months. Such severance pay shall be based on the following: . my present salary; . my annual and long-term incentive bonuses at 2000 levels; . my profit-sharing, 401(k), and SERP contributions for 2000; and . my automobile, club, financial, tax, insurance allowances for 2000. RETIREMENT PACKAGE - ------------------ In accordance with my Employment Agreement and with the normal retirement policies and practices for senior level executives, Spiegel shall provide me with a retirement package that consists of the following: . Spiegel shall continue to pay, on the same basis that it currently does, the company share of premium for my individual, paid-up split dollar and executive life insurance policies until I attain age 65; . Spiegel shall provide medical, dental and vision insurance coverage at regular retiree rates to me and my wife until we both reach age 65; Page 1 of Addendum Page 3 of 4 . All of my unexpired stock options will be extended until December 31, 2003 as non-qualified, fully vested options; . In the event of any claim, lawsuit or other legal proceeding against me or otherwise involving me which arises from my involvement as an officer, director, employee or agent of Spiegel, any of its parent, subsidiary or affiliated companies or any company owned or otherwise associated with Otto Versand, Spiegel will indemnify me, hold me harmless, and pay my attorneys' fees and other legal expenses. Spiegel also will maintain appropriate insurance coverage for any liabilities that might potentially arise from such matters; and . in addition to the above, Spiegel shall provide me with all other benefits usually afforded to its retired executive officers. COMPENSATION DURING TRANSITION PERIOD - ------------------------------------- For the transition period from January 1, 2001 to and including June 30, 2001, I shall perform my current duties and responsibilities and assist with the transition, and Spiegel shall compensate me on my current compensation and benefit terms except that my base salary shall be increased to $420,000 per year. Thus, my compensation shall include but not be limited to: . annual base salary of $420,000; . annual and long-term incentive bonuses; and . full vacation, savings, 401(k), profit-sharing, health insurance, life insurance, disability insurance, club, automobile and other benefits which are or shall be adopted by Spiegel covering its senior executive management staff. Acknowledged and Accepted as of December 6, 2000: Spiegel, Inc. /s/ Martin Zaepfel /s/ James W. Sievers - ----------------------- ---------------------------- By: Martin Zaepfel, Director James W. Sievers Page 2 of Addendum Page 4 of 4 EX-10.10 10 dex1010.txt EMPLOYMENT AGREEMENT DATED JANUARY 15, 1998 Exhibit 10.10 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is made this 15th day of January, 1998, effective ---- ------- January 1, 1998, between Eddie Bauer, Inc., a Delaware corporation ("Eddie Bauer") and Richard T. Fersch, of Mercer Island, Washington ("Fersch"). Eddie Bauer and Fersch hereby agree as follows: 1. EMPLOYMENT - ------------- Eddie Bauer agrees to continue to employ Fersch in the greater Seattle metropolitan area until the effective date of the termination of the employment period, as hereinafter provided, and Fersch agrees to continue such employment. Fersch will serve as President and Chief Executive Officer (CEO) of Eddie Bauer, reporting to the Board of Directors of Eddie Bauer or its designee. Fersch will have managerial responsibility for Eddie Bauer and its assigned activities. Notwithstanding anything herein to the contrary, there are certain transactions, a list of which has been provided to Fersch, that require the approval of the Board of Directors of Eddie Bauer. For purposes of this contract the Office of the President of Spiegel, Inc. shall be the designee of the Board of Directors of Eddie Bauer. 2. BEST EFFORTS - --------------- During the employment period, Fersch will devote his best efforts and all his business time and attention to the business of Eddie Bauer and will faithfully perform his duties subject to the direction of the Board of Directors or its designee and generally subject to the employment policies of Eddie Bauer as may be promulgated from time to time by Eddie Bauer. 3. TERM OF EMPLOYMENT - --------------------- The term of this Employment Agreement shall be a period of five (5) years (Initial Term) commencing January 1, 1998, and terminating December 31, 2002, subject, however, to prior termination as herinafter provided Section 9 (Termination for Cause) below. This Employment Agreement shall be automatically renewed and continue in full force and effect for additional consecutive three (3) year periods (Extended Term(s)) commencing the next January 1, following the expiration of the then current term, and terminating the third December 31, following the start of the then new term, unless either party gives the other party three (3) month's ------ written notice of its or his election to terminate this Employment Agreement. If Eddie Bauer elects to terminate this Employment Agreement by giving Fersch three (3) months written notice of termination at the expiration of the Initial Term or any Extended Term except if the date of termination is after Fersch has reached the age of 62, Eddie Bauer agrees to pay Fersch in a lump sum his entire compensation and benefits package in place at the time of termination, as indicated on Schedule A calculated for a period of twenty-four (24) months. 4. COMPENSATION - --------------- Eddie Bauer shall pay Fersch an annual base salary in accordance with Schedule A payable in the ordinary course of business for like executives of Eddie Bauer. The Board of Directors or its designee shall review this base salary annually and shall have the right in its sole discretion to ---------------------- increase it at any time during the employment period. The increase in base salary shall be evidenced by the Board of Directors or its designee preparing an amended Schedule A to this Employment Agreement, which shall give the amount of the increase in base salary, the new total base salary and the period for which the increase shall be effective. 5. BONUS - -------- Eddie Bauer shall pay Fersch an annual cash bonus no later than February 28th of each year based upon the performance of Eddie Bauer for the most recently ended calendar year. The bonus will be in accordance with Schedule A. The bonus opportunity shall be determined based upon performance criteria mutually, and reasonably developed by Eddie Bauer or its designee and Fersch and agreed to by the Board of Directors with the understanding that such criteria will provide a fair and professionally challenging achievement rewarding good performance. The predetermined performanace criteria, and any changes mutually agreed upon by Eddie Bauer or its designee and Fersch and agreed to by the Board of Directors, shall be listed to this Employment Agreement to be known as Schedule B. 2 6. BENEFITS - ----------- Fersch shall be eligible for all medical and dental benefits, disability benefits, profit sharing, savings plans, and automobile allowance as determined by the Board of Directors., paid vacation, paid up split dollar life insurance, paid membership at the Bellevue Athletic Club and other benefits which may be or currently are adopted by Eddie Bauer covering its senior executive management staff, provided he meets the qualification requirements for such benefits. Additional benefits may be added during the term of this Agreement by Eddie Bauer. 7. INCAPACITY OF FERSCH - ----------------------- If, during the term of this Employment Agreement, Fersch shall become incapacitated by accident or illness and such incapacity shall continue for a period of six (6) successive months, and he is unable to resume his duties as provided herein, Eddie Bauer shall have the right to terminate the employment period by giving written notice to Fersch of its intention to do so at least thirty (30) days prior to the effective date of such termination; provided, however, Eddie Bauer agrees to maintain Fersch's entire compensation and benefits package in place at that time for a period of two (2) years commencing from the effective date of such termination. 8. DEATH OF FERSCH - ------------------ If, during the term of this Employment Agreement, Fersch should die, Eddie Bauer agrees to maintain Fersch's entire compensation package in place as of the date of his death as indicated on Schedule A for a period of one(1) year from the date of his death. The compensation which is due Fersch under this paragraph shall be paid to the duly appointed Personal Representative for the estate of Fersch. 3 9. TERMINATION FOR CAUSE - ------------------------ Eddie Bauer may terminate the employment period for the following reasons: repetitive intoxication, illegal or abusive use of drugs, illegal conduct, or theft which significantly affect the ability of Fersch to lead Eddie Bauer or significantly damages Eddie Bauer's public image. If any of the above-identified reasons are present, Eddie Bauer shall have the right to terminate the employment period by giving written notice to Fersch of its intention to do so at least thirty (30) days prior to the effective date of such termination. 10. OTHER EMPLOYMENT - -------------------- Fersch covenants and agrees that during the employment period, he will not directly (except with the written consent of Eddie Bauer) become engaged in, be employed by, render services to or for, or permit his name to be used in connection with any business other than the business of Eddie Bauer, whether such other business is or is not competitive with that of Eddie Bauer. 11. TRADE SECRETS - ----------------- Fersch shall not at any time while this Employment Agreement is in force, and for a period of one (1) year after its termination ,unless authorized by Eddie Bauer, divulge or disclose to any person or corporation any confidential or proprietary information relating to the business of Eddie Bauer, such as prices of products, services or operational processes, the disclosure of which may have a materially adverse financial impact on Eddie Bauer. Any breach of this confidentiality clause would cancel any compensation or benefits paid at time of termination. 4 12. TOTAL AGREEMENT - ------------------- This contract contains the complete agreement concerning the employment arrangement between the parties and, as of the effective date, Supersedes all other agreements, whether oral or in writing, between the parties. 13. GENERAL - ----------- The headings of all the sections are inserted for convenience of reference only and will not affect the construction or interpretation of this agreement. 14. COVERING LAW - ---------------- This agreement shall be governed by the laws of the state of Illinois. IN WITNESS WHEREOF, the parties have executed this Agreement as of this 15th ---- day of, January, 1998. ------- EDDIE BAUER, 1NC. /s/ Michael R. Moran /s/ Richard T. Fersch - ---------------------------------- --------------------------- Michael R. Moran Richard T. Fersch Director SPIEGEL, INC. /s/ Harold S. Dahlstrand - ---------------------------------- Harold S. Dahlstrand Chairman, Office of the President 5 EMPLOYMENT AGREEMENT SCHEDULE A ---------- This Schedule A is made a part of the Employment Agreement between Eddie Bauer, Inc. and Richard T. Fersch dated January 15, 1998. COMPENSATION - ------------ Year Base Salary Bonus Opportunity Guaranteed Bonus - ---- ----------- ----------------- ---------------- 1998 $ 750,000 90% of base salary 45% of base salary 1999 $ 850,000 95% of base salary 47.5% of base salary 2000 $1,000,000 100% of base salary 50% of base salary 2001 $1,000,000 100% of base salary 50% of base salary 2002 $1,000,000 100% of base salary 50% of base salary /s/ Michael R. Moran /s/ Richard T. Fersch - ----------------------- ----------------------------- Eddie Bauer Richard T. Fersch EMPLOYMENT AGREEMENT SCHEDULE B ---------- This Schedule B is made part of the Employment Agreement between Eddie Bauer, Inc. and Richard T. Fersch dated January 15, 1998. Bonus is determined by the Executive Committee and the Board of Directors each year. Historically the criteria has been a pre-tax profit range stating the amount of pre-tax profit that Eddie Bauer has to reach. For year 1998 the pre-tax profit range is as follows: 50% of Bonus Opportunity at an EBT of $100 million 100% of Bonus Opportunity at an EBT of $116 million 150% of Bonus Opportunity at an EBT of $136 million /s/ Michael R. Moran /s/ Richard T. Fersch - ----------------------- ------------------------- Eddie Bauer Richard T. Fersch EMPLOYMENT AGREEMENT SCHEDULE B ---------- This Schedule B is made part of the Employment Agreement between Eddie Bauer, Inc. and Richard T. Fersch dated January 15, 1998. Bonus is determined by the Compensation Committee and the Board of Directors each year. Historically the criteria has been a pre-tax profit range stating the amount of pre-tax profit that Eddie Bauer has to reach. For the year 1999, the pre-tax profit range is as follows: 50% of Bonus Opportunity at an EBT of $60 million 100% of Bonus Opportunity at an EBT of $90 million 150% of Bonus Opportunity at an EBT of $120 million /s/ Michael R. Moran /s/ Richard T. Fersch - ----------------------------------- ------------------------------------ Michael R. Moran Richard T. Fersch Eddie Bauer, Inc. Effective: January 1, 1999. ------------------------ EX-10.11 11 dex1011.txt SEPARATION AGMT & GENERAL WAIVER RELEASE CLAIMS Exhibit 10.11 SEPARATION AGREEMENT AND GENERAL WAIVER AND RELEASE OF CLAIMS This Separation Agreement and General Waiver and Release of Claims (hereinafter the "Agreement") is entered into by and between Eddie Bauer, Inc. (the "Company") and Richard Fersch ("Employee"). In consideration of the mutual covenants and obligations set forth below, the parties agree as follows: 1. Payment to Employee. Provided that Employee and the Company elect -------------------- to enter into this Agreement and it has become final and irrevocable pursuant to paragraph 5 below, Employee shall receive the benefits described on Exhibit A hereto. 2. Release by Employee. In consideration of this Agreement, Employee for -------------------- himself, his attorneys, heirs, executors, administrators, and assigns does hereby fully, finally, and forever release and discharge the Company, its parent corporations, subsidiaries, related companies, and their successors, assigns, officers, employees, directors, agents, and representatives (the "Released Parties"), of and from all claims, demands, actions, causes of actions, suits, damages, losses, expenses, attorneys' fees and controversies of any and every nature whatsoever arising from the beginning of time until the date of this Agreement including, but not limited to, any claims arising from, or relating in any way to, Employee's employment as well as Employee's termination of employment from the Company, or other circumstance arising from or related to Employee's termination of employment with the Company. Employee agrees not to sue or otherwise pursue any claim against the Company or the Released Parties for any matter arising under the Age Discrimination in Employment Act, the Fair Labor Standards Act, the Worker Adjustment and Retraining Notification Act of 1988, Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay Act, the Americans With Disabilities Act, the Family and Medical Leave Act, the Washington Law Against Discrimination in Employment and any other federal, state, or local statute/ordinance/regulation or common law, excepting only claims under the Workers' Compensation laws. This release shall not apply to claims, demands, actions or causes of action arising out of the performance or non-performance by any person of any term, covenant or condition of this Agreement. 3. Additional Representations and Warranties of Employee. Employee hereby ------------------------------------------------------ further agrees, represents and warrants: a. That as of the date of his termination of employment, Employee will return to the Company all Company property, including without limiting the generality of the foregoing, any keys, computerized access cards, records, reports, proposals, lists, correspondence, computer disks, Company documents (except for a copy of Employee's performance reviews), nor does Employee have knowledge of any Company property having been misappropriated by Employee or any other party. b. He shall not seek employment with the Company or any of its subsidiaries or affiliates at any time in the future. However, the Company may, in its sole discretion, elect to waive this provision if it so chooses; such a waiver shall be effective only if it is in writing and signed by the CEO & President of the Spiegel Group. c. That all cash and excess travel advances and other overpayments Employee has received which have not been repaid in full to the Company may be deducted from the consideration described in Section 1. d. That he will cooperate fully, subject to reimbursement by the Company of reasonable out-of-pocket costs and expenses, with the Company and its counsel with respect to any legal matter (including any litigation, investigation or governmental proceeding) which relates to matters with which Employee was involved or acquired knowledge during his employment with the Company. Such cooperation includes appearing from time to time at meetings for conferences and interviews and in general providing the Company, its officers and its counsel with the full benefit of Employee's knowledge with respect to any matter related to the Company. Employee agrees to render such cooperation in a timely fashion and at such times as requested by the Company. e. That he will not disparage, publicly or privately, the Company or its subsidiary or affiliated companies or any of their respective employees or products. f. Agrees that during his employment and for the one year (1) year period commencing with the date of his termination of employment with the Company, not to cause, induce, or assist, either directly or indirectly, any exempt (as defined under the Fair Labor Standards Act) level, supervisory and/or management employee who was employed by the Company during a twelve month period either before or after the date of Employee's execution of this Agreement ("Prohibited Employee") to become employed, either directly or indirectly, by Employee or any entity which either directly or indirectly employs him/her. For each breach of this provision by Employee during said one (1) year period, in addition to the other rights and remedies available to the Company as provided in this Agreement, Employee hereby agrees to pay the Company, not as a penalty but as liquidated damages to reimburse the Company for training and recruiting costs incurred in replacing such Prohibited Employee, a sum equal to fifty percent (50%) of the employee's annual salary as of the date of the Prohibited Employee's termination of employment with the Company. Employee hereby agrees that in the event a Prohibited Employee becomes employed by Employee or his/her employer and is within the chain of Employee's reporting structure (i.e., reports either directly or indirectly to him/her or the person to whom he/she reports), shall be deemed to be a breach of this Agreement and the Company shall be entitled to all of the rights and remedies at law, equity and/or as provided in this Agreement. Employee further agrees that during his employment and for the one (1) year period commencing with his date of termination of employment from the Company, to refer all requests for references for current (as of the date of such 2 request) or former employees of the Company to the Human Resources Department of Company and to provide no information whatsoever regarding any current or former employee, unless the Vice President for Human Resources of the Company specifically authorizes Employee in writing to respond to such request. As used in this sentence, "former employees" shall mean persons who were employed by the Company within two (2) years of the date of such request for information. g. That Employee has voluntarily resigned his employment with the Company. h. Any breach of Employee's obligations, representations or warranties under any provision of this Section 3 of the Agreement will cause irreparable damage to the Company and therefore, in addition to any other remedies at law or in equity or under this Agreement available to the Company for his/her breach or threatened breach of this Agreement, the Company is entitled to specific performance or injunctive relief against Employee to prevent such damage or breach. Employee further agrees that in addition to any rights of the Company at law or in equity, he will reimburse the Company for all costs and expenses incurred by the Company in connection with collecting any amounts due from him under this Section 3 and that as of the date of any breach whatsoever by him of any of his obligations under this Agreement, the Company shall have no further obligation and is hereby released by Employee from any obligations to continue to make any future payments or provide any part of the consideration described in Section 1. Employee agrees that the consideration paid to him through the date that the breach occurred shall be deemed to be sufficient consideration for Employee in exchange for his obligations, representations and promises made under this Agreement. Failure of Employee to continue to perform his obligations under this Section 3 shall be deemed to be a breach and entitle the Company to the remedies set forth in this Agreement in addition to any other rights or remedies available at law or in equity, 4. CONFIDENTIALITY. Employee agrees not to disclose to any person any ---------------- confidential and/or proprietary information learned during the course of his/her employment with the Company. "Confidential and proprietary information" includes any information or materials concerning the Company's business, technical or otherwise, which is not known to the public at large or not generally known to the employees of the Company except on a need to know basis based on Employee's specific job duties for which such information is required in order to accomplish their specific job objectives as designated by the Company. It includes, but is not limited to information and materials developed, collected or used by Company personnel and information disclosed to the Company by its employees, agents or representatives. Confidential and proprietary information may relate to the past, present or future and may concern, but is not limited to, business strategies, financial data, business plans, technology, contract provisions, client lists or personnel data or information and need not necessarily be reduced to a tangible form. Employee hereby further warrants and represents that as of the date of his execution of this Agreement, he has returned to Martin Zaepfel and/or Michelle 3 Clements, all Company materials and information including all copies thereof, including without limiting the generality of the foregoing, any records or documents he prepared or received while employed by the Company and all confidential and proprietary information or other information of or related to the Company which Employee acquired during his employment (other than copies of Employee's own performance review or other materials which as of the date of this Agreement have been widely disseminated by the Company to the public-at-large). Employee hereby further represents that as of the date of his execution of this Agreement, he has not disclosed to any person, other than any employee of the Company (on a need to know basis) any confidential or proprietary information to which Employee has had access during his employment. Employee further agrees not to disclose the settlement amount, any term of this Agreement to any other person or entity except to his spouse, his attorney retained in connection with this matter, his financial planner and such disclosure as is necessary for tax purposes, or as otherwise required by law. Employees agree that each of the foregoing parties shall also be bound by this commitment of Confidentiality and Employee shall be responsible for any disclosure by them. Employee hereby warrants and represents that he has not made any disclosures to date prohibited by this Agreement. Upon request from time to time based upon the Company's reasonable belief that a breach of this Agreement has occurred, Employee agrees to respond to any inquiry related to such suspected breach within ten (10) days of receipt of such inquiry, including providing verification whether a breach of this Agreement has occurred. Failure to timely furnish such verification shall be deemed to be prima facie evidence of a breach of Employee's obligations under this Section 4. This confidentiality provision is a material term of this Agreement. In the event of any breach of Employee's obligations under this Section 4, including any misrepresentation of the representations and warranties contained herein, Employee hereby agrees to pay the Company, not as a penalty, but as liquidated damages an amount equal to the Additional Compensation described in Section 1 and to reimburse the Company for all costs and expenses incurred by the Company as a result of such breach including reasonable attorney fees and other costs incurred in connection with or related to the collection of any amounts due. 5. Employee acknowledges and understands that: a. he is advised to consult with an attorney before signing this Agreement which contains a general release and waiver of claims; b. he has been given a period of at least 21 days from the date of presentment of this Agreement within which to review and consider this Agreement before signing it. Employee further understands that if he elects to accept the conditions of this Agreement, he will advise the Company accordingly by delivering three (3) executed copies of this Agreement to the Company on or prior to the close of business on January 11, 2002. A copy of this Agreement was originally delivered to Employee on or about December 20,2001; 4 c. he may revoke this Agreement by providing written notice to the Company within seven (7) days following its execution. Any notice of revocation of this Agreement shall not be effective unless given in writing and received by the Company via personal delivery, overnight courier or U .S. Mail, postage prepaid, to the following address: Al Kearney Spiegel Management Group, Inc. 3500 Lacey Road Downers Grove, IL 60515 d. This Agreement shall become effective and enforceable after expiration of the revocation period described in c. above and execution of this Agreement by the Company. 6. Employee represents and warrants that, in connection with his/her decisions to accept the severance benefits and execute this Agreement, he/she has not relied on any representations, promises, or agreements of any kind except for those set forth in this Agreement. 7. Employee represents and warrants that his/her decision to enter into this Agreement is completely voluntary and uncoerced, and that he/she is entering into this Agreement with a full understanding of its terms and effect. 8. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Washington, the state and/or federal courts of which shall have sole jurisdiction over any dispute arising hereunder. 9. This Agreement constitutes the entire Agreement between the parties and supersedes all previous understandings, communications, representations and agreements whether oral or written, with respect to the subject matter of this Agreement including without limiting the generality of the foregoing, that certain Employment Agreement dated as of January 15,1998 between Employee and Company (the "Employment Agreement"). Employee hereby waives any right to claim any benefits under the Employment Agreement and by executing this Agreement, the Employment Agreement is hereby declared null and void. There are no oral or written conditions, representations, warranties, undertakings or agreements between the parties except as expressly provided in this Agreement. This Agreement may not be modified except in writing signed by both parties. 5 10. If any terms or provisions of this Agreement shall, to any extent and under any circumstance, be illegal, invalid or unenforceable, the remainder of this Agreement shall not be affected thereby and shall be valid and enforceable to the extent permitted by law. EDDIE BAUER, INC. /s/ Richard Fersch By: - ---------------------- ----------------------------------- RICHARD FERSCH Title: CEO -------------------------------- Date:12/21/01 Date: Jan 2, 2002 - ----------------------- --------------------------------- 6 EXHIBIT A For and in consideration of Employee's execution of the attached SEPARATION AGREEMENT AND GENERAL WAIVER AND RELEASE OF CLAIMS, the following additional benefits will be provided by the Company, less applicable deductions: .. A lump sum payment of Two Million Dollars ($2,000,000). Payment to be made on or before the thirtieth (30) day of the month in the calendar month immediately following Employee's termination date (i.e., the last day of the transition period). .. Commencing Jan 1, 2002, Company agrees to pay Employee One Hundred Thousand ----- -- .. Dollars ($100,000) per month (with a minimum guarantee of five (5) months) in lieu of Employee's base salary during a transition period to be determined by the Company in its sole discretion. The Company agrees to provide Employee with at least fourteen (14) days notice of the last day of the transition period. Employee's date of termination of employment with Company will be the last day of the transition period. .. The Company will buy out the lease of Employee's current company automobile and will purchase and assign the title of that automobile to Employee. .. Employee and his eligible family members will be immediately eligible to participate in and receive their current level of medical coverage through the Retiree Medical Program. If Employee elects this option, Employee will be responsible for paying the premiums for coverage under the Retiree Program. .. Employee and his eligible (as defined in the Company's discount policy) family members will receive a forty-percent (40%) employee discount on products sold by The Spiegel Group subject to the other terms of the Company's discount policy. .. Employee will be eligible for Executive Service Level of outplacement for a period of up to twelve (12) months provided by a service provider mutually agreed to by Company and Employee. Employee must commence such service within six (6) months after his date of termination of employment with the Company and the cost of such service may not exceed Fifteen Thousand Dollars ($15,000.00). .. Employee will be eligible to continue to access resources and personnel provided through Working Solutions through twelve (12 months) following his date of termination. 7 Employee will be eligible to continue to be covered under the Company's split dollar insurance program at your current level (based upon three times a base compensation of $1,000,000) until the postretirement death benefit funding objectives of the policy have been achieved (i.e., there is enough cash value in the policy to allow The Spiegel Group to recover its premiums and to permit Employee to continue his policy). Though the program is funded assuming a decrease in the level of death benefit of 50% at plan maturity, under the current plan design, Employee may choose the amount of death benefit he wishes to maintain when he takes over the policy. The Company will continue to pay, on the same basis that it currently does, the Company share of the premium for Employee until he reaches age 65. Employee will continue to be responsible for payment of the Employee portion of the premiums. At plan maturity, all Company premiums will be returned to The Spiegel Group. EDDIE BAUER, INC. /s/ Richard Fersch -------------------------------- RICHARD FERSCH By: Date: 12/21/01 -------------------------- ----------------------------- Title: CEO ----------------------- Date: Jan 2, 2002 ------------------------ 8 EX-10.12 12 dex1012.txt ANNUAL INCENTIVE PLANS SUMMARY Exhibit 10.12 Annual Incentive Plans Summary The Spiegel Group The Spiegel Group annual incentive plan is designed to provide compensation in addition to base pay for certain eligible associates based upon The Spiegel Group financial results. Payment under the plan is based consolidated Earnings Before Taxes (EBT) results on a blended basis as follows: Spiegel Group Component Relative Weighting Eddie Bauer 30% Spiegel Catalog 25% First Consumers National Bank 25% Newport News, Inc. 20% The plan establishes a minimum, target and maximum EBT goals the achievement of which results in a payout ranging from 50% to 150% of the participant's incentive percentage. Each division's EBT is calculated independently and may provide payment despite other divisions not meeting their designated targets. Executives eligible for payout under this plan include but are not limited to Mr. Zoepfell, Vice Chairman, President and Chief Executive Officer of The Spiegel Group and Mr. Cannaturo, Executive Vice President, Chief Financial Officer of The Spiegel Group. Spiegel Catalog The Spiegel Catalog annual incentive plan is designed to provide compensation in addition to base pay for certain eligible associates based solely upon Spiegel Catalog financial performance. Payment under the plan occurs when the Company reaches designated Earnings Before Taxes (EBT) targets. The plan establishes a minimum, target and maximum EBT goals the achievement of which results in a payout ranging from 50% to 150% of the participant's incentive percentage. Executives eligible for a payment under this plan include but are not limited to Ms. Payner, President and Chief Executive Officer of Spiegel Catalog. Eddie Bauer Eddie Bauer's annual incentive plan is designed to provide compensation in addition to base salary for certain eligible associates. Both individual performance and company results impact payment under the plan. The company must meet their threshold EBT performance before eligible associates may receive payment under the portion of the plan that relates to company performance. Increased payment of up to 150% occurs if the company meets target or maximum EBT performance levels. Participant's performance is measured against the deliverables and key objectives established in the participants annual performance plan. The individual performance component provides increasing payment using a rating scale of 0-5 to evaluate performance results achieved against a participants performance plan. Distribution Fulfillment Services (DFS) The DFS Management Bonus plan is designed to provide compensation in addition to base salary for certain eligible associates. Payout is based on a combination of the financial results for Operating and Transportation. Operating financial results account for 75% of the bonus and are measured by EBT targets established annually. Transportation earnings account for the remaining 25% of the bonus payout. The plan establishes a minimum, target and maximum EBT goals the achievement of which results in a payout ranging from 50% to 150% of the participant's incentive percentage. Long Term Incentive Plan Summary The Spiegel Group Long-Term Incentive Plan (LTIP) is intended to emphasize and reward total corporate performance over the long term. Participants are assigned a Target Opportunity Value expressed as a percentage of their base salary. The Target Opportunity Value is allocated between two separate but related components: stock option grants and a cash based Long-Term Incentive Plan. Approximately 80% is allocated to cash with the remaining 20% allocated through a fixed number of stock options based on level. The current plan covers the financial periods, 2000-2001 and 2000-2002. The plan cycles overlap, providing financial targets and award opportunities each year. The cash component is based on a measurement of adjusted Earnings Before Taxes (EBT) for The Spiegel Group. EX-10.13 13 dex1013.txt CLASS A NON-VOTING COMMON STOCK OPTION PLAN Exhibit 10.13 SPIEGEL, INC. CLASS A NON-VOTING COMMON STOCK OPTION AGREEMENT SPIEGEL, INC. CLASS A NON-VOTING COMMON STOCK OPTION AGREEMENT NO.______________ This Option Agreement No._________entered into this_____________day of__________,20____, by and between Spiegel, Inc., a Delaware corporation ("Spiegel"), and____________________________________________("Optionee"). WHEREAS, Spiegel desires to grant the Optionee an Option to purchase shares of its $1.00 par value per share Class A Non-Voting Common Stock ("Class A Stock") subject to the terms and conditions hereinafter set forth, pursuant to the provisions of the Spiegel Group Incentive Stock Option Plan (the "Plan") which was adopted by Spiegel on November 17, 1998 and which was subsequently approved by the Class B Voting Common Stockholders of Spiegel. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows: 1. Grant of Option. --------------- Spiegel, pursuant to the Plan, hereby grants to the Optionee the option ("Option") to purchase--------shares of Class A Stock, subject to the terms and conditions hereinafter set forth. The date of the grant of the Option is the date of this Stock Option Agreement. 2. Purchase Price. -------------- The purchase price of the Class A Stock covered by the Option shall be_____________________________ ($______________) per share. 3. Period of Exercise and Terms and Conditions of Option. ----------------------------------------------------- This Option may be exercised between the date hereof and the date ten (10) years after the date hereof from time to time, in whole or in part as to one or more whole shares of Class A Stock covered by the Option, subject to the terms and conditions set forth below. Anything contained herein to the contrary notwithstanding, the Option granted hereunder shall not be exercisable in whole or in part after the expiration of ten (10) years after the date of grant thereof. The Option granted hereby shall be subject to the following terms and conditions: (a) Period of Exercise of Options. ------------------------------ Except as otherwise specifically provided herein: (1) No portion of the Option granted hereby shall be exercisable until the first anniversary of the grant thereof, when the Option shall become and remain exercisable for 20% of the shares covered thereby. The Option granted hereby shall become and remain exercisable for an additional 20% of the shares covered thereby on the second, third, fourth and fifth anniversaries of the grant thereof; (2) An Optionee may exercise a portion of the Option from the date that portion first becomes exercisable until the Option expires or is otherwise terminated; (3) In the case of any fractional share resulting from any calculation under the Plan, the shares available for exercise shall be determined to the nearest lower number of whole shares. (b) Maximum Value of Stock with Respect to Which Incentive Stock ------------------------------------------------------------ Options are Exercisable for First Time in Any Calendar Year ----------------------------------------------------------- Anything contained herein to the contrary notwithstanding, to the extent the aggregate fair market value (determined at the time the option is granted) of stock with respect to which options are exercisable for the first time by Optionee during any one calendar year (under this Plan and all other incentive stock option plans of Spiegel or any parent or subsidiary corporations of Spiegel) shall exceed One Hundred Thousand Dollars ($100,000.00), such excess options shall be treated as options which are not incentive stock options as determined under the Plan. (c) Transfer of Option. ------------------ Neither the whole nor any part of this Option shall be transferable by the Optionee or by operation of law during the Optionee's -2- lifetime and at the Optionee's death this Option or any part thereof shall only be transferable by the Optionee's will or by the laws of descent and distribution. This Option may be exercised during the lifetime of the Optionee only by the Optionee. This Option, and any and all rights granted to the Optionee hereby, to the extent not therefore effectively exercised shall automatically terminate and expire upon any sale, transfer or hypothecation or any attempted sale, transfer or hypothecation of the Option or such rights, or upon the bankruptcy or insolvency of the Optionee. (d) Termination of Employment. ------------------------- This Option may not be exercised after the termination of the employment of the Optionee with Spiegel and its "subsidiary corporations" as that term is defined in the Plan (collectively, the "Corporation") except as hereinafter provided, specifically subject, however, to the provisions of the second sentence of the first paragraph of this Section 3: (1) Retirement. ---------- This Option may be exercised within three (3) months after the retirement (as hereinafter defined) of the Optionee and the Option shall be exercisable for all of the shares covered thereby, notwithstanding the provisions of paragraph (a)(1) of this Section 3. For purposes of this Option Agreement, "Retirement" shall mean any termination of employment with the Corporation occurring after (i) the completion of ten (10) years of service with the Corporation, and (ii) the date on which the Optionee's age and years of service with the Corporation add up to seventy (70). (2) Disability. ---------- This Option may be exercised within three (3) months after the termination of the employment of the Optionee by reason of the Disability (as hereinafter defined) of the Optionee and the Option shall be exercisable for all of the shares covered thereby, notwithstanding the provisions of paragraph (a)(1) of this Section 3. For purposes of this Option Agreement, the Optionee shall be deemed to have incurred a "Disability" if a disinterested duly licensed medical doctor appointed by the Corporation determines that the Optionee is totally and permanently prevented, as a result of physical or mental infirmity, injury, or disease, either occupational or nonoccupational in cause, from holding the job or position with the Corporation or engaging in the employment activity, or a comparable job or employment activity with the Corporation, which the Optionee held or customarily engaged in prior to the occurrence of the disability (provided, however, that disability hereunder shall not include any -3- disability incurred or resulting from the Optionee's having engaged in a criminal act or enterprise, or any disability consisting of or resulting from the Optionee's chronic alcoholism, addiction to narcotics or an intentionally self-inflicted injury). (3) Death. ----- (i) If the Optionee shall die while employed by the Corporation or within three (3) months after termination of employment with the Corporation by reason of Retirement or Disability, the Option granted hereby to such deceased Optionee shall be exercisable within one (1) year after the date of the Optionee's death and the Option shall be exercisable for all of the shares covered hereby, notwithstanding the provisions of paragraph (a)(1) of this Section 3. (ii) If the Optionee shall die within three (3) months after termination of employment with the Corporation for a reason other than Retirement or Disability, the Option granted hereby to such deceased Optionee shall be exercisable within one (1) year after the date of the Optionee's death but the Option may not be exercised for more than the number of shares, if any, as to which the Option was exercisable by the Optionee immediately prior to his death. (iii) The legal representative, if any, of the deceased Optionee's estate, or the appropriate legatees or distributees of the deceased Optionee's estate may exercise this Option on behalf of the Optionee. (4) Involuntary Termination of Employment. ------------------------------------- This Option may be exercised within three (3) months after the Involuntary Termination of Employment (as hereinafter defined) of the Optionee with the Corporation and the Option shall be exercisable for all of the shares covered thereby, notwithstanding the provisions of paragraph (a)(1) of this Section 3. For purposes of this Option Agreement, "Involuntary Termination of Employment" shall mean any termination of the Optionee's employment with the Corporation by reason of the discharge, firing or other involuntary termination of the Optionee's employment by action of the Corporation other than an involuntary termination for cause as described in subparagraph (6) of this paragraph (d). (5) Voluntary Termination of Employment. ----------------------------------- This Option may be exercised, if otherwise timely, within three (3) months after the Voluntary Termination of Employment (as hereinafter defined) of the Optionee with -4- the Corporation but the Option may not be exercised for more than the number of shares, if any, as to which the Option was exercisable by the Optionee immediately prior to such termination of employment as determined under the provisions of paragraph (a)(1) of this Section 3. For purposes of this Option Agreement, "Voluntary Termination of Employment" shall mean any voluntary termination of employment with the Corporation by reason of the Optionee's quitting or otherwise voluntarily leaving the Corporation's employ other than a voluntary termination of employment by reason of Retirement or a voluntary termination of employment constituting a termination for cause as described in subparagraph (6) of this paragraph (d). (6) Termination For Cause. --------------------- Anything contained herein to the contrary notwithstanding, if the termination of the Optionee's employment with the Corporation is as a result of or caused by the Optionee's theft or embezzlement from the Corporation, the violation of a material term or condition of his employment, the disclosure by the Optionee of confidential information of the Corporation, conviction of the Optionee of a crime of moral turpitude, the Optionee's stealing trade secrets or intellectual property owned by the Corporation, any act by the Optionee in competition with the Corporation or any other act, activity or conduct of the Optionee which in the opinion of the Board Committee of the Board of Directors of Spiegel is adverse to the best interests of the Corporation, then this Option and any and all rights granted to such Optionee hereunder, to the extent not yet effectively exercised, shall become null and void effective as of the date of the occurrence of the event which results in the Optionee ceasing to be an employee of the Corporation and any purported exercise of the Option by or on behalf of the Optionee following such date shall be of no effect. (e) Acceleration. ------------ The Stock Option Committee (the "Committee"), which administers the Plan, may, subject to the provisions of paragraph (b) of this Section 5, in the case of merger, consolidation, dissolution or liquidation of Spiegel, accelerate the expiration date of this Option for any or all of the shares covered thereby (but still giving the Optionee a reasonable period of time to exercise the Option with respect to any portion thereof outstanding prior to the accelerated expiration date) and may, in the case of merger, consolidation, dissolution or liquidation of Spiegel, or in any other case in which it feels it is in the Corporation's best interest, -5- the date or dates on which this Option or any part this Option shall be exercisable for any or all of the shares covered thereby. (f) Rights as a Stockholder. ----------------------- The Optionee shall have no rights as a stockholder with respect to any shares covered by this Option until the date that Spiegel receives payment in full for the purchase of said shares pursuant to the effective exercise of this Option. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such payment is received by Spiegel, except as provided in Section 7 of the Plan. Spiegel shall not be required to issue or deliver any certificate for shares of its Class A Stock purchased upon the exercise of all or any part of this Option before (1) the admission of such shares to listing on any stock exchange on which such stock may then be listed, or, if applicable, approved for inclusion on the National Market System of the NASD and (2) completion of any registration or other qualification of such shares under any state or federal law or ruling or regulation of any governmental regulatory body that Spiegel shall, in its sole discretion, determine is necessary or advisable. (g) Compliance with Securities Exchange Act. --------------------------------------- Notwithstanding anything herein to the contrary, this Option shall always be exercised in such a manner as to conform to the provisions of Rule 16b-3, or any replacement rule, adopted pursuant to the provisions of the Securities Exchange Act of 1934 as the same now exists or may, from time to time, be amended. (h) Option Subject to Terms of Plan. ------------------------------- The exercise of this Option shall be additionally conditioned and limited as provided in the Plan. 4. Method of Exercise. ------------------ Subject to the terms and conditions of this Stock Option Agreement and the Plan, the Optionee, in order to exercise the Option, must notify the Committee in writing in a form acceptable to the Committee to that effect at Spiegel, Inc., Stock Option Committee, c/o Robert H. Sorensen, 3500 Lacey Road, Downers Grove, Illinois 60515-5432. Such written notice must state the election to exercise the Option granted under this Stock Option Agreement, and specify the number of shares of Class A Stock to be purchased. Such notice must be accompanied by cash, or a check payable to Spiegel, Inc. in the amount of the full purchase price in United States Dollars for the shares of Class A Stock to be purchased. The Option shall be considered as having been effectively exercised only upon the receipt by the Committee of the written notice of the exercise of the Option and the payment of the full purchase price for the shares of Class A Stock to be purchased in accordance with the preceding provisions of this Section 4. -6- 5. General Provisions. ------------------ (a) Spiegel shall make available such number of shares of Class A Stock as will be sufficient to satisfy the requirements of this Option Agreement, shall pay any original issue and transfer taxes with respect to the issue and transfer of shares pursuant hereto and all other fees and expenses necessarily incurred by Spiegel in connection herewith, and will from time to time use its best efforts to comply with all laws and regulations which, in the opinion of independent counsel for Spiegel shall be applicable thereto. (b) This Option Agreement shall be subject to such amendment and modification from time to time as the Committee shall deem necessary to comply with applicable law or regulation. (c) The Optionee, in executing this Stock Option Agreement, acknowledges that he has received from the Committee a copy of the provisions of the Plan and the prospectus describing the Option granted hereby and the Class A Stock covered by the Option. IN WITNESS THEREOF, Spiegel, Inc., and the Optionee have caused this Option Agreement as first numbered above to be duly executed, all on the day and year first above written. SPIEGEL, INC. BY: _______________________________________ Chairman of Spiegel, Inc., Stock Option Committee _______________________________________ Optionee EX-10.14 14 dex1014.txt NON-STATUTORY OPTION AGREEMENT Exhibit 10.14 SPIEGEL, INC. CLASS A NON-VOTING COMMON STOCK NON-STATUTORY OPTION AGREEMENT NO. _ 1 SPIEGEL, INC. CLASS A NON-VOTING COMMON STOCK NON-STATUTORY OPTION AGREEMENT NO. This Non-Statutory Option Agreement No. is entered into this 30th day of June, 2001, by Spiegel, Inc., a Delaware corporation ("Spiegel") and James W. Sievers ("Optionee"). WHEREAS, Spiegel desires to grant the Optionee a non-statutory Option to purchase shares of its $1.00 par value per share Class A Non-Voting Common Stock ("Class A Stock") subject to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows: 1. Grant of Option. --------------- Spiegel hereby grants to the Optionee the option ("Option") to purchase ________ shares of Class A Stock, subject to the terms and conditions hereinafter set forth. The date of the grant of the Option is the date of this Stock Option Agreement. 2. Purchase Price. --------------- The purchase price of the Class A Stock covered by the Option shall be per share. 3. Period of Exercise and Terms and Conditions of Option. ----------------------------------------------------- This Option maybe exercised between the date hereof and December 31, 2003, from time to time, in whole or in part as to one or more whole shares of Class A Stock covered by the Option, 2 subject to the terms and conditions set forth below. The Option granted hereby shall be subject to following terms and conditions: (a) Transfer of Option. ------------------ Neither the whole nor any part of this Option shall be transferable by the Optionee or by operation of law during the Optionee's lifetime, and at the Optionee's death this Option or any part thereof shall only be transferable by the Optionee's will or by the laws of descent and distribution. This Option may be exercised during the lifetime of the Optionee only by the Optionee. This Option, and any and all rights granted to the Optionee hereby, to the extent not therefore effectively exercised shall automatically terminate and expire upon any sale, transfer or hypothecation or any attempted sale, transfer or hypothecation of the Option or such rights, or upon the bankruptcy or insolvency of the Optionee. (b) Death. ----- (i) If the Optionee shall die, the Option granted hereby to such deceased Optionee shall be exercisable within one (1) year after the date of the Optionee's death, and the Option shall be exercisable for all of the shares covered hereby. (ii) The legal representative, if any, of the deceased Optionee's estate, otherwise the appropriate legatees or distributees of the deceased Optionee's estate may exercise this Option on behalf of the Optionee. (c) Termination of Option Rights for Cause. -------------------------------------- Anything contained herein notwithstanding, if harm to the Corporation is caused as a result of or caused by the Optionee's theft or embezzlement from the Corporation, the violation of a material term or condition of any agreement between Optionee and the 3 Corporation, the disclosure by the Optionee of confidential information of the Corporation, the Optionee's stealing trade secrets or intellectual property owned by the Corporation, any act by the Optionee in competition with the Corporation or any other act, activity or conduct of the Optionee which in the opinion of the Board Committee of the Board of Directors is adverse to the best interests of the Corporation, then this Option and any and all rights granted to such Optionee hereunder, to the extent not yet effectively exercised, shall become null and void effective as of the date of the occurrence of such event, and any purported exercise of the Option by or on behalf of the Optionee following such date shall be of no effect. (d) Acceleration. ------------ The Corporation may, in the case of merger, consolidation, dissolution or liquidation of Spiegel, accelerate the expiration date of this Option for any or all of the shares covered thereby (but still giving the Optionee a reasonable period of time to exercise the Option with respect to any portion thereof outstanding prior to the accelerated expiration date) and may, in the case of merger, consolidation, dissolution or liquidation of Spiegel, or in any other case in which it feels it is in the Corporation's best interest, accelerate the date or dates on which this Option or any part of this Option shall be exercisable for any or all of the shares covered thereby, (e) Rights as a Stockholder. ----------------------- The Optionee shall have no rights as a stockholder with respect to any shares covered by this Option until the date that Spiegel receives payment in full for the purchase of said shares pursuant to the effective exercise of this Option. No adjustment shall be made for 4 dividends or distributions or other rights for which the record date is prior to the date such payment is received by Spiegel except as provided in paragraph (f) below. Spiegel shall not be required to issue or deliver any certificate for shares of its Class A Stock purchased upon the exercise of all or any part of this Option before (1) the admission of such shares to listing on any stock exchange on which such stock may then be listed, or, if applicable, approved for inclusion on the National Market System of the NASD and (2) completion of any registration or other qualification of such shares under any state or federal law or ruling or regulation of any governmental regulatory body that Spiegel shall, in its sole discretion, determine is necessary or advisable. (f) Stock Dividend; Recapitalization; Consolidation. ----------------------------------------------- If any stock dividend shall be declared upon the Class A Stock or if the Class A Stock shall hereafter be subdivided, consolidated, or changed into other securities of Spiegel, or a successor corporation to Spiegel, then in each event, shares of Class A Stock which would be delivered pursuant to exercise of any option hereunder shall, for the purpose of adjusting the number and kind thereof, be treated as though outstanding immediately prior to the occurrence of such event, and the purchase price to be paid therefore shall be appropriately adjusted to give effect thereto. The grant of an option hereunder shall not affect in any way the right or power of Spiegel to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business assets. 5 4. Method of Exercise. ------------------ Subject to the terms and conditions of this Stock Option Agreement, the Optionee, in order to exercise the Option, must notify the Corporation in writing in a form acceptable to the Corporation to that effect at Spiegel, Inc., c/o Sue Slezak, 3500 Lacey Road, Downers Grove, Illinois 60515-5432. Such written notice must state the election to exercise the Option granted under this Stock Option Agreement and specify the number of shares of Class A Stock to be purchased. Such notice must be accompanied by cash, or a check payable to Spiegel, Inc. in the amount of the full purchase price in U.S. dollars for the shares of Class A Stock to be purchased. The Option shall be considered as having been effectively exercised only upon the receipt by the Corporation of the written notice of the exercise of the Option and the payment of the full purchase price for the shares of Class A Stock to be purchased in accordance with the preceding provisions of this Section 4. 5. General Provisions. ------------------ (a) Spiegel shall make available such number of shares of Class A Stock as will be sufficient to satisfy the requirements of this Option Agreement, shall pay any original issue and transfer taxes with respect to the issue and transfer of shares pursuant hereto and all other fees and expenses necessarily incurred by Spiegel in connection herewith, and will from time to time use its best efforts to comply with all laws and regulations which, in the opinion of independent counsel for Spiegel, shall be applicable thereto. (b) This Option Agreement shall be subject to such amendment and modification from time to time as the Corporation shall deem necessary to comply with applicable law or regulation. 6 (c) The Optionee, in executing this Stock Option Agreement, acknowledges that he has received from the Corporation a copy of the Stock Option Agreement and Spiegel's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. (d) It is specifically intended that the Options granted hereunder shall not constitute "Incentive Stock Options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. (e) The granting and exercise of any option hereunder and the obligations of Spiegel to sell and deliver shares under any such option shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies as may be required. Spiegel shall furnish each Optionee hereunder with such information relating to the exercise of any option granted hereunder to said Optionee as is required under the Internal Revenue Code and applicable state and federal security laws. IN WITNESS WHEREOF, Spiegel, Inc. and the Optionee have caused this Option Agreement as first numbered above to be duly executed, all on the day and year first above written. SPIEGEL, INC. By ________________________________ ______________________________ Optionee 7 EX-10.15 15 dex1015.txt CLASS A NON-VOTING COMMON STOCK NON-STATUTORY Exhibit 10.15 SPIEGEL, INC. CLASS A NON-VOTING COMMON STOCK NON-STATUTORY OPTION AGREEMENT NO. ___ 1 SPIEGEL, INC. CLASS A NON-VOTING COMMON STOCK NON-STATUTORY OPTION AGREEMENT NO. ___ This Non-Statutory Option Agreement No. ___ is entered into this 30th day of June, 2001, by and between Spiegel, Inc., a Delaware corporation ("Spiegel") and Michael R. Moran ("Optionee"). WHEREAS, Spiegel desires to grant the Optionee a non-statutory Option to purchase shares of its $1.00 par value per share Class A Non-Voting Common Stock ("Class A Stock") subject to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows: 1. Grant of Option. --------------- Spiegel hereby grants to the Optionee the option ("Option") to purchase _____ shares of Class A Stock, subject to the terms and conditions hereinafter set forth. The date of the grant of the Option is the date of this Stock Option Agreement. 2. Purchase Price. -------------- The purchase price of the Class A Stock covered by the Option shall be ____ per share. 3. Period of Exercise and Terms and Conditions of Option. ----------------------------------------------------- This Option may be exercised between the date hereof and December 31, 2003, from time to time, in whole or in part as to one or more whole shares of Class A Stock covered by the Option, 2 subject to the terms and conditions set forth below. The Option granted hereby shall be subject to the following terms and conditions: (a) Transfer of Option. ------------------ Neither the whole nor any part of this Option shall be transferable by the Optionee or by operation of law during the Optionee's lifetime, and at the Optionee's death this Option or any part thereof shall only be transferable by the Optionee's will or by the laws of descent and distribution. This Option may be exercised during the lifetime of the Optionee only by the Optionee. This Option, and any and all rights granted to the Optionee hereby, to the extent not theretofore effectively exercised shall automatically terminate and expire upon any sale, transfer or hypothecation or any attempted sale, transfer or hypothecation of the Option or such rights, or upon the bankruptcy or insolvency of the Optionee. (b) Death. ----- (i) If the Optionee shall die, the Option granted hereby to such deceased Optionee shall be exercisable within one (1) year after the date of the Optionee's death, and the Option shall be exercisable for all of the shares covered hereby. (ii) The legal representative, if any, of the deceased Optionee's estate, otherwise the appropriate legatees or distributees of the deceased Optionee's estate may exercise this Option on behalf of the Optionee. (c) Termination of Option Rights for Cause. -------------------------------------- Anything contained herein notwithstanding, if harm to the Corporation is caused as a result of or caused by the Optionee's theft or embezzlement from the Corporation, the violation of a material term or condition of any agreement between Optionee and the 3 Corporation, the disclosure by the Optionee of confidential information of the Corporation, the Optionee's stealing trade secrets or intellectual property owned by the Corporation, any act by the Optionee in competition with the Corporation or any other act, activity or conduct of the Optionee which in the opinion of the Board Committee of the Board of Directors is adverse to the best interests of the Corporation, then this Option and any and all rights granted to such Optionee hereunder, to the extent not yet effectively exercised, shall become null and void effective as of the date of the occurrence of such event, and any purported exercise of the Option by or on behalf of the Optionee following such date shall be of no effect. (d) Acceleration. ------------ The Corporation may, in the case of merger, consolidation, dissolution or liquidation of Spiegel, accelerate the expiration date of this Option for any or all of the shares covered thereby (but still giving the Optionee a reasonable period of time to exercise the Option with respect to any portion thereof outstanding prior to the accelerated expiration date) and may, in the case of merger, consolidation, dissolution or liquidation of Spiegel, or in any other case in which it feels it is in the Corporation's best interest, accelerate the date or dates on which this Option or any part of this Option shall be exercisable for any or all of the shares covered thereby. (e) Rights as a Stockholder. ----------------------- The Optionee shall have no rights as a stockholder with respect to any shares covered by this Option until the date that Spiegel receives payment in full for the purchase of said shares pursuant to the effective exercise of this Option. No adjustment shall be made for 4 dividends or distributions or other rights for which the record date is prior to the date such payment is received by Spiegel except as provided in paragraph (f) below. Spiegel shall not be required to issue or deliver any certificate for shares of its Class A Stock purchased upon the exercise of all or any part of this Option before (1) the admission of such shares to listing on any stock exchange on which such stock may then be listed, or, if applicable, approved for inclusion on the National Market System of the NASD and (2) completion of any registration or other qualification of such shares under any state or federal law or ruling or regulation of any governmental regulatory body that Spiegel shall, in its sole discretion, determine is necessary or advisable. (f) Stock Dividend; Recapitalization; Consolidation. ----------------------------------------------- If any stock dividend shall be declared upon the Class A Stock or if the Class A Stock shall hereafter be subdivided, consolidated, or changed into other securities of Spiegel, or a successor corporation to Spiegel, then in each event, shares of Class A Stock which would be delivered pursuant to exercise of any option hereunder shall, for the purpose of adjusting the number and kind thereof, be treated as though outstanding immediately prior to the occurrence of such event, and the purchase price to be paid therefore shall be appropriately adjusted to give effect thereto. The grant of an option hereunder shall not affect in any way the right or power of Spiegel to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business assets. 5 4. METHOD OF EXERCISE. ------------------ Subject to the terms and conditions of this Stock Option Agreement, the Optionee, in order to exercise the Option, must notify the Corporation in writing in a form acceptable to the Corporation to that effect at Spiegel, Inc., c/o Sue Slezak, 3500 Lacey Road, Downers Grove, Illinois 60515-5432. Such written notice must state the election to exercise the Option granted under this Stock Option Agreement and specify the number of shares of Class A Stock to be purchased. Such notice must be accompanied by cash, or a check payable to Spiegel, Inc., in the amount of the full purchase price in U.S. dollars for the shares of Class A Stock to be purchased. The Option shall be considered as having been effectively exercised only upon the receipt by the Corporation of the written notice of the exercise of the Option and the payment of the full purchase price for the shares of Class A Stock to be purchased in accordance with the preceding provisions of this Section 4. 5. GENERAL PROVISIONS. ------------------ (a) Spiegel shall make available such number of shares of Class A Stock as will be sufficient to satisfy the requirements of this Option Agreement, shall pay any original issue and transfer taxes with respect to the issue and transfer of shares pursuant hereto and all other fees and expenses necessarily incurred by Spiegel in connection herewith, and will from time to time use its best efforts to comply with all laws and regulations which, in the opinion of independent counsel for Spiegel, shall be applicable thereto. (b) This Option Agreement shall be subject to such amendment and modification from time to time as the Corporation shall deem necessary to comply with applicable law or regulation. 6 (c) The Optionee, in executing this Stock Option Agreement, acknowledges that he has received from the Corporation a copy of the Stock Option Agreement and Spiegel's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. (d) It is specifically intended that the Options granted hereunder shall not constitute "Incentive Stock Options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. (e) The granting and exercise of any option hereunder and the obligations of Spiegel to sell and deliver shares under any such option shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies as may be required. Spiegel shall furnish each Optionee hereunder with such information relating to the exercise of any option granted hereunder to said Optionee as is required under the Internal Revenue Code and applicable state and federal security laws. IN WITNESS WHEREOF, Spiegel, Inc. and the Optionee have caused this Option Agreement as first numbered above to be duly executed, all on the day and year first above written. SPIEGEL, INC. By_________________________________ ________________________________________ Optionee 7 EX-10.16 16 dex1016.txt 364-DAY REVOLVING CREDIT AGREEMENT DATED 6/26/2001 ================================================================================ Exhibit 10.16 CONFORMED COPY of the 364-DAY REVOLVING CREDIT AGREEMENT dated as of June 30, 2000 as amended by THE FIRST AMENDMENT TO 364-DAY REVOLVING CREDIT AGREEMENT dated as of June 26, 2001 among SPIEGEL, INC. as the Borrower, VARIOUS FINANCIAL INSTITUTIONS as the Lenders, DEUTSCHE BANK SECURITIES INC. and J.P. MORGAN SECURITIES INC. as the Joint Lead Arrangers and Book Runners, J.P. MORGAN SECURITIES INC. as the Syndication Agent and DEUTSCHE BANK AG New York Branch as the Administrative Agent ================================================================================ TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS .............................................................. 1 SECTION 1.1. Defined Terms ......................................................................... 1 SECTION 1.2. Use of Defined Terms .................................................................. 20 SECTION 1.3. Cross-References ...................................................................... 20 SECTION 1.4. Accounting and Financial Determinations ............................................... 20 ARTICLE II COMMITMENTS, LOANS, BORROWING AND ISSUANCE PROCEDURES AND NOTES AND LETTERS OF CREDIT .................................................... 20 SECTION 2.1. Commitments ........................................................................... 20 SECTION 2.1.2. Loan Commitment of Each Lender ........................................................ 21 SECTION 2.1.3. Letter of Credit Commitment ........................................................... 21 SECTION 2.1.4. Lenders Not Permitted or Required To Make Revolving Loans ............................. 21 SECTION 2.1.5. Issuer Not Permitted or Required to Issue Letters of Credit ........................... 21 SECTION 2.2. Reduction of Commitment Amount or Availability ........................................ 21 SECTION 2.2.1. Mandatory Reductions .................................................................. 21 SECTION 2.2.2. Optional Reduction of Commitment Amount ............................................... 22 SECTION 2.2.3. Reduction Due to External Letters of Credit ........................................... 22 SECTION 2.3. Revolving Loan Borrowing Procedure .................................................... 22 SECTION 2.4. Continuation and Conversion Elections ................................................. 23 SECTION 2.5. Funding ............................................................................... 23 SECTION 2.6. Issuance Procedures ................................................................... 23 SECTION 2.6.1. Other Lenders' Participation .......................................................... 24 SECTION 2.6.2. Disbursements ......................................................................... 24 SECTION 2.6.3. Reimbursement ......................................................................... 24 SECTION 2.6.4. Deemed Disbursements .................................................................. 25 SECTION 2.6.5. Nature of Reimbursement Obligations ................................................... 25 SECTION 2.7. Notes ................................................................................. 26 SECTION 2.8. Competitive Bid Loans ................................................................. 26 SECTION 2.9. Termination; Extension of Commitment Termination Date ................................. 31 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES .................................................... 33 SECTION 3.1. Repayment ............................................................................. 33 SECTION 3.2. Prepayments ........................................................................... 33 SECTION 3.3. Interest Provisions ................................................................... 34 SECTION 3.3.1. Rates ................................................................................. 34 SECTION 3.3.2. Post-Maturity Rates ................................................................... 34 SECTION 3.3.3. Payment Dates ......................................................................... 35 SECTION 3.4. Fees .................................................................................. 35 SECTION 3.4.1. Front-End Fee ......................................................................... 35 SECTION 3.4.2. Facility Fee .......................................................................... 35 SECTION 3.4.3. Administrative Agent's Fee ............................................................ 36 SECTION 3.4.4. Letter of Credit Fee .................................................................. 36 SECTION 3.4.5. Auction Fee ........................................................................... 36 SECTION 3.4.6. Arranger Fee .......................................................................... 36
-i- TABLE OF CONTENTS (continued) Page ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS ........................................................ 36 SECTION 4.1. Fixed Rate Lending Unlawful ........................................................... 36 SECTION 4.2. Deposits Unavailable .................................................................. 36 SECTION 4.2.1. Dollar certificates of deposit or Dollar deposits, as the case may be, in the relevant amount and for the relevant Interest Period are not available to it in its relevant market; or ............................................................................ 36 SECTION 4.3. Increased Loan Costs, etc ............................................................. 37 SECTION 4.4. Funding Losses ........................................................................ 37 SECTION 4.5. Increased Capital Costs ............................................................... 38 SECTION 4.6. Taxes ................................................................................. 38 SECTION 4.7. Payments, Computations, etc ........................................................... 39 SECTION 4.8. Sharing of Payments ................................................................... 40 SECTION 4.9. Setoff ................................................................................ 40 SECTION 4.10. Use of Proceeds ....................................................................... 41 SECTION 4.11. Reserves .............................................................................. 41 SECTION 4.12. Change in Applicable Lending Office ................................................... 41 ARTICLE V CONDITIONS TO CREDIT EXTENSIONS ............................................................... 41 SECTION 5.1. Initial Credit Extension .............................................................. 41 SECTION 5.1.1. Resolutions, etc ...................................................................... 42 SECTION 5.1.2. Delivery of Certain Documents ......................................................... 42 SECTION 5.1.3. Delivery of Notes ..................................................................... 42 SECTION 5.1.4. Payment of Outstanding Indebtedness, etc .............................................. 42 SECTION 5.1.5. Assumption of Outstanding Indebtedness, etc ........................................... 42 SECTION 5.1.6. Closing Date Certificate .............................................................. 42 SECTION 5.1.7. Opinions of Counsel ................................................................... 43 SECTION 5.1.8. Guaranty .............................................................................. 43 SECTION 5.1.9. Insurance ............................................................................. 43 SECTION 5.1.10. Pro Forma Compliance Certificate and Auditor's Reliance Letter ........................ 43 SECTION 5.1.11. Closing Fees, Expenses, etc ........................................................... 43 SECTION 5.1.12. Document Review ....................................................................... 43 SECTION 5.1.13. Simultaneous Closing of Long-Term Credit Agreement .................................... 44 SECTION 5.1.14. Support Letter ........................................................................ 44 SECTION 5.2. All Credit Extensions ................................................................. 44 SECTION 5.2.1. Compliance with Warranties, No Default, etc ........................................... 44 SECTION 5.2.2. Credit Extension Request .............................................................. 44 SECTION 5.2.3. Satisfactory Legal Form ............................................................... 44 SECTION 5.2.4. Acquisition Funding ................................................................... 44 ARTICLE VI REPRESENTATIONS AND WARRANTIES ................................................................ 45 SECTION 6.1. Organization, etc ..................................................................... 45 SECTION 6.2. Due Authorization, Non-Contravention, etc ............................................. 45 SECTION 6.3. Government Approval, Regulation, etc.; Investment Company Act; Public Utility Holding Company Act ............................................... 45
-ii- TABLE OF CONTENTS (continued) Page SECTION 6.4. Validity, etc ....................................................................... 46 SECTION 6.5. Financial Information ............................................................... 46 SECTION 6.6. No Material Adverse Change .......................................................... 46 SECTION 6.7. Litigation, Labor Controversies, etc ................................................ 46 SECTION 6.8. Compliance With Laws: Authorizations ................................................ 46 SECTION 6.9. Taxes ............................................................................... 47 SECTION 6.10. Pension and Welfare Plans ........................................................... 47 SECTION 6.11. Environmental Warranties ............................................................ 47 SECTION 6.12. Regulations U and X ................................................................. 47 SECTION 6.13. Subsidiaries ........................................................................ 48 SECTION 6.14. Ownership of Properties ............................................................. 48 SECTION 6.15. Absence of Default .................................................................. 48 SECTION 6.16. Accuracy of Information ............................................................. 48 ARTICLE VII COVENANTS ................................................................................... 48 SECTION 7.1. Affirmative Covenants ............................................................... 48 SECTION 7.1.1. Financial Information, Reports, Notices, etc ........................................ 48 SECTION 7.1.2. Performance of Obligations .......................................................... 50 SECTION 7.1.3. Maintenance of Properties ........................................................... 51 SECTION 7.1.4. Insurance ........................................................................... 51 SECTION 7.1.5. Conduct of Business; Separate Existence ............................................. 51 SECTION 7.1.6. Compliance with Laws, etc ........................................................... 51 SECTION 7.1.7. ERISA ............................................................................... 51 SECTION 7.1.8. Environmental Covenant .............................................................. 52 SECTION 7.1.9. Books and Records ................................................................... 52 SECTION 7.1.10. New Subsidiaries .................................................................... 53 SECTION 7.2. Negative Covenants .................................................................. 53 SECTION 7.2.1. Indebtedness ........................................................................ 53 SECTION 7.2.2. Liens ............................................................................... 55 SECTION 7.2.3. Consolidation, Merger, etc .......................................................... 56 SECTION 7.2.4. Asset Dispositions, etc ............................................................. 57 SECTION 7.2.5. Use of Proceeds ..................................................................... 57 SECTION 7.2.6. Financial Condition ................................................................. 57 SECTION 7.2.7. Investments ......................................................................... 58 SECTION 7.2.8. Restricted Payments, etc ............................................................ 58 SECTION 7.2.9. Fiscal Year ......................................................................... 59 SECTION 7.2.10. Transactions with Affiliates ........................................................ 59 SECTION 7.2.11. Modification, etc. of Subordinated Debt ............................................. 59 SECTION 7.2.12. Negative Pledges, Restrictive Agreements, etc ....................................... 59 SECTION 7.2.13. Spiegel Acceptance Corporation ...................................................... 60 ARTICLE VIII EVENTS OF DEFAULT ........................................................................... 60 SECTION 8.1. Listing of Events of Default ........................................................ 60 SECTION 8.1.1. Non-Payment of Obligations .......................................................... 60 SECTION 8.1.2. Non-Performance of Certain Covenants and Obligations ................................ 60
-iii- TABLE OF CONTENTS (continued) Page SECTION 8.1.3. Non-Performance of Other Covenants and Obligations ................................... 60 SECTION 8.1.4. Breach of Representation or Warranty ................................................. 60 SECTION 8.1.5. Default on Other Indebtedness ........................................................ 60 SECTION 8.1.6. Control of the Borrower .............................................................. 61 SECTION 8.1.7. Pension Plans ........................................................................ 61 SECTION 8.1.8. Judgments ............................................................................ 61 SECTION 8.1.9. Bankruptcy, Insolvency, etc .......................................................... 61 SECTION 8.2. Action if Bankruptcy ................................................................. 62 SECTION 8.3. Action if Other Event of Default ..................................................... 62 ARTICLE IX THE AGENTS .................................................................................... 62 SECTION 9.1. Actions .............................................................................. 62 SECTION 9.2. Funding Reliance, etc ................................................................ 63 SECTION 9.3. Exculpation .......................................................................... 63 SECTION 9.4. Successor ............................................................................ 63 SECTION 9.5. Loans by Each Agent .................................................................. 64 SECTION 9.6. Credit Decisions ..................................................................... 64 SECTION 9.7. Copies, etc .......................................................................... 64 ARTICLE X MISCELLANEOUS PROVISIONS ...................................................................... 65 SECTION 10.1. Waivers, Amendments, etc ............................................................. 65 SECTION 10.2. Notices .............................................................................. 66 SECTION 10.3. Payment of Costs and Expenses ........................................................ 66 SECTION 10.4. Indemnification ...................................................................... 67 SECTION 10.5. Survival ............................................................................. 67 SECTION 10.6. Severability ......................................................................... 68 SECTION 10.7. Headings ............................................................................. 68 SECTION 10.8. Execution in Counterparts; Effectiveness ............................................. 68 SECTION 10.9. Governing Law; Entire Agreement ...................................................... 68 SECTION 10.10. Successors and Assigns ............................................................... 68 SECTION 10.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes ...................................................................... 68 SECTION 10.11.1. Assignments .......................................................................... 68 SECTION 10.11.2. Participations ....................................................................... 70 SECTION 10.11.3. Confidentiality ...................................................................... 71 SECTION 10.12. Other Transactions ................................................................... 71 SECTION 10.13. Forum Selection and Consent to Jurisdiction .......................................... 71 SECTION 10.14. Waiver of Jury Trial ................................................................. 72 SCHEDULE I Names, Addresses, Commitments and Percentages for the Lenders and the Issuer SCHEDULE II Disclosure Schedule SCHEDULE III Pricing Grid
-iv- TABLE OF CONTENTS (continued) Page EXHIBIT A Form of Revolving Loan Note EXHIBIT B Form of Competitive Bid Loan Note EXHIBIT C Form of Revolving Loan Borrowing Request EXHIBIT D Form of Issuance Request EXHIBIT E Form of Continuation/Conversion Notice EXHIBIT F Form of Lender Assignment Agreement EXHIBIT G Form of Compliance Certificate EXHIBIT H Form of Closing Date Certificate EXHIBIT I Form of Competitive Bid Loan Borrowing Request EXHIBIT J Form of Invitation for Competitive Bid Loan Offers EXHIBIT K Form of Competitive Bid Loan Offer EXHIBIT L Form of Competitive Bid Loan Acceptance EXHIBIT M-1 Form of Opinion of Counsel to the Borrower EXHIBIT M-2 Form of Opinion of Counsel to the Borrower EXHIBIT N Form of Guaranty EXHIBIT O Form of Subordination Provisions EXHIBIT P Form of Letter to Independent Public Accountants EXHIBIT Q Form of Letter of Support EXHIBIT R Form of Confidentiality Agreement
-iv- 364-DAY REVOLVING CREDIT AGREEMENT THIS 364-DAY REVOLVING CREDIT AGREEMENT, dated as of June 30, 2000, as amended by THE FIRST AMENDMENT TO 364-DAY REVOLVING CREDIT AGREEMENT dated as of June 26, 2001, among SPIEGEL, INC., a Delaware corporation (the "Borrower"), the -------- various financial institutions as are or may become parties hereto (collectively, the "Lenders"), DEUTSCHE BANC ALEX. BROWN INC. (formerly known as ------- Deutsche Bank Securities Inc.) and J.P. MORGAN SECURITIES INC. as joint lead arrangers and book runners (collectively, the "Arrangers"), MORGAN GUARANTY --------- TRUST COMPANY OF NEW YORK as syndication agent (the "Syndication Agent"), ----------------- DEUTSCHE BANK AG New York Branch ("DBNY") as the administrative agent (the ---- "Administrative Agent") (together, the Arrangers, the Syndication Agent and the -------------------- Administrative Agent are collectively the "Agents") and THE HONGKONG AND ------ SHANGHAI BANKING CORPORATION LIMITED as letter of credit issuer (the "Issuer"). ------ W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Borrower is primarily engaged in the business of catalog, e-commerce and retail merchandising; WHEREAS, the Borrower, the Agents, the Issuer and the financial institutions party hereto desire to enter into this Agreement; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms (whether or not ------------- underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Absolute Rate" means, with respect to an Absolute Rate Loan made by a ------------- given Lender, a fixed rate of interest per annum (rounded to the nearest 1/100th of 1%) offered by such Lender and accepted by the Borrower. "Absolute Rate Auction" means a solicitation of Competitive Bid Loan --------------------- quotes at an Absolute Rate pursuant to Section 2.8. ----------- "Absolute Rate Loan" means a Competitive Bid Loan which bears interest ------------------ at an Absolute Rate. "Acquisition" means any transaction, or any series of related ----------- transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (i) acquires any business (whether through purchase of assets, equity interests, merger or otherwise) or all or substantially all of the assets of any firm, corporation or division thereof or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding equity interests of a Person (other than a corporation or a natural person). "Administrative Agent" is defined in the preamble and includes each -------------------- other Person as shall have subsequently been appointed as the successor Administrative Agent pursuant to Section 9.4. ----------- "Affiliate" of any Person means any other Person which, directly or --------- indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agents" is defined in the preamble to this Agreement. ------ -------- "Agreement" means, on any date, this 364-Day Revolving Credit Agreement --------- as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "Alternate Base Rate" means, on any date and with respect to all Base ------------------- Rate Loans, a fluctuating rate of interest per annum equal to the higher of (a) the rate of interest most recently announced or established, as applicable, by DBNY at its Domestic Office as its prime or base rate for Dollar loans; and (b) the Federal Funds Rate most recently determined by the Administrative Agent plus 0.50%. ---- The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by DBNY in connection with extensions of credit. Changes in the rate of interest with respect to any Loans maintained as Base Rate Loans will take effect simultaneously with each change in the Alternate Base Rate. DBNY will give notice promptly to the Borrower and to the Administrative Agent, which will promptly notify the Lenders, of changes in the Alternate Base Rate. "Applicable Base Rate Margin" means, with respect to any Base Rate Loan --------------------------- for any Pricing Period, the then applicable per annum rate set forth in the Pricing Grid. "Applicable LIBO Rate Margin" means, with respect to any LIBO Rate Loan --------------------------- for any Pricing Period, the then applicable per annum rate set forth in the Pricing Grid. 2 "Arrangers" is defined in the preamble. --------- -------- "Assignee Lender" is defined in Section 10.11.1. --------------- --------------- "Authorizations" means all filings, recordings and registrations with, -------------- and all validations or exemptions, approvals, orders, authorizations, consents, licenses, certificates and permits from, federal, state and local regulatory or governmental bodies and authorities or any subdivision thereof. "Authorized Officer" means, relative to the Borrower or any other ------------------ Obligor, those of its officers whose signature and incumbency have been certified to the Agents and the Lenders pursuant to Section 5.1.1. "Base Rate Loan" means a Loan bearing interest at a fluctuating rate -------------- determined by reference to the Alternate Base Rate. "Borrower" is defined in the preamble. -------- -------- "Borrowing" means a Revolving Loan Borrowing or a Competitive Bid Loan --------- Borrowing, as the case may be. "Business Day" means ------------ (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York or Chicago, Illinois; (b) relative to the making, continuing, prepaying or repaying of any LIBO Rate Loans or Competitive Bid Loan based on the LIBO Rate, any day which satisfies the requirements of clause (a) above and on which dealings in Dollars are carried on in the London interbank market; and (c) relative to the Letter of Credit Commitment of the Issuer, any day which satisfies the requirements of clause (a) above and is not a legal holiday in Hong Kong S.A.R. "Capitalized Lease Liabilities" means all monetary obligations of the ----------------------------- Borrower or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, would be classified as capitalized leases, and, for purposes of this Agreement and each other Loan Document, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Cash Equivalent Investment" means, at any time: -------------------------- (a) any evidence of Indebtedness, maturing not more than one year after such time, issued or guaranteed by the United States Government; 3 (b) commercial paper, maturing not more than nine months from the date of issue, which is issued by (i) a corporation (other than an Affiliate of any Obligor) organized under the laws of any state of the United States or of the District of Columbia and rated A-l by Standard & Poor's Ratings Group or P-l by Moody's Investors Service, Inc., or (ii) any Lender (or its holding company); (c) any certificate of deposit or bankers acceptance, maturing not more than one year after such time, which is issued by either (i) a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000, or (ii) any Lender; or (d) any repurchase agreement entered into with any Lender (or other commercial banking institution satisfying the requirements of clause (c)(i)) which ------------- (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c); and ----------- --- (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such Lender (or other commercial banking institution) thereunder. "CERCLA" means the Comprehensive Environmental Response, Compensation ------ and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation ------- Liability Information System List. "Change of Control" means any event the result of which is the failure ----------------- of the Otto Interests to own, directly or indirectly, free and clear of all Liens at least 67% of the ownership interest in the Borrower. "Closing Date" means June 30, 2000. ------------ "Closing Date Certificate" means a certificate of a duly Authorized ------------------------ Officer of the Borrower executed and delivered pursuant to Section 5.1.6, ------------- substantially in the form of Exhibit H. --------- "Code" means the Internal Revenue Code of 1986, as amended, reformed or ---- otherwise modified from time to time. 4 "Commitment" means, as the context may require, a Lender's Loan ---------- Commitment or the Issuer's (or a Lender's) Letter of Credit Commitment. "Commitment Amount" means, on any date, $150,000,000, as such amount ----------------- may be temporarily or permanently reduced from time to time pursuant to Section ------- 2.2. - --- "Commitment Termination Date" means the earliest of --------------------------- (a) June 25, 2002 (the "Stated Maturity Date"); -------------------- (b) the date on which the Commitment Amount is terminated in full or reduced to zero pursuant to Section 2.2; and ----------- (c) the date on which any Commitment Termination Event occurs. "Commitment Termination Event" means ---------------------------- (a) the occurrence of any Event of Default described in clauses (a) through (d) of Section 8.1.9; or ----------- --- ------------- (b) the occurrence and continuance of any other Event of Default and either (i) the declaration of the Loans to be due and payable pursuant to Section 8.3, or ----------- (ii) in the absence of such declaration, the giving of notice by the Administrative Agent, acting at the direction of the Required Lenders, to the Borrower that the Commitments have been terminated. "Competitive Bid Loan" means a loan made by a Lender to the Borrower -------------------- based on the LIBO Rate or the Absolute Rate as part of a Competitive Bid Loan Borrowing resulting from the procedure described in Section 2.8. ----------- "Competitive Bid Loan Acceptance" means an acceptance by the Borrower ------------------------------- of a Competitive Bid Loan Offer pursuant to clause (e) of Section 2.8, ---------- ----------- substantially in the form of Exhibit L attached hereto. --------- "Competitive Bid Loan Borrowing" means Competitive Bid Loans made ------------------------------ pursuant to the same Competitive Bid Loan Borrowing Request by the Lender or each of the Lenders whose offer to make such Competitive Bid Loans as part of such requested Borrowing has been accepted by the Borrower pursuant to clause ------ (e) of Section 2.8. - --- ----------- "Competitive Bid Loan Borrowing Request" means a certificate requesting -------------------------------------- that the Lenders extend offers to make Competitive Bid Loans, duly executed by an Authorized Officer substantially in the form of Exhibit I attached hereto. --------- "Competitive Bid Loan Maturity Date" is defined in clause (a)(iii) of ---------------------------------- --------------- Section 2.8. - ----------- 5 "Competitive Bid Loan Note" means any promissory note of the Borrower, ------------------------- in the form of Exhibit B hereto (as such promissory note may be amended, --------- endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from Competitive Bid Loans outstanding from such Lender, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Competitive Bid Loan Offer" means an offer by a Lender to make a -------------------------- Competitive Bid Loan pursuant to clause (c) of Section 2.8, substantially in the ---------- ----------- form of Exhibit K attached hereto. --------- "Competitive Bid Rate" means, as the context may require, either the -------------------- Absolute Rate or the LIBO Rate (plus the LIBO Rate Bid Margin) offered by a ---- Lender in a Competitive Bid Loan Offer in respect of a Competitive Bid Loan proposed pursuant to Section 2.8. ----------- "Compliance Certificate" means a certificate duly executed by a ---------------------- financial Authorized Officer of the Borrower, in the form of Exhibit G attached --------- hereto. "Contingent Liability" means any agreement, undertaking or arrangement -------------------- by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth in the document evidencing such Contingent Liability) be deemed to be the outstanding principal amount (or maximum principal amount, if larger) of the debt, obligation or other liability guaranteed thereby. "Continuation/Conversion Notice" means a notice of continuation or ------------------------------ conversion and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit E hereto. --------- "Controlled Group" means all members of a controlled group of ---------------- corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Credit Extension" means, as the context may require, ---------------- (a) the making of a Loan by a Lender; or (b) the issuance of any Letter of Credit, or the extension of any Stated Expiry Date of any existing Letter of Credit, by the Issuer and participation in such Letter of Credit by the Lenders pursuant to the terms of this Agreement. "Credit Extension Request" means, as the context may require, any ------------------------ Revolving Loan Borrowing Request, Competitive Bid Loan Borrowing Request or Issuance Request. 6 "Debt to EBITDAR Ratio" means for the period consisting of the Fiscal --------------------- Year then ended, the ratio of: (a) the result of (i) Debt; plus ---- (ii) the product of eight (8) times annual Rent Expense for such Fiscal Year; to -- (b) EBITDAR for such Fiscal Year. "DBNY" is defined in the preamble. ---- "Debt" means, without duplication, all indebtedness of the Borrower and ---- its Subsidiaries for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, including Subordinated Debt. "Default" means any Event of Default or any condition, occurrence or ------- event which, after notice or lapse of time or both, would constitute an Event of Default. "Disbursement" is defined in Section 2.6.2. ------------ ------------- "Disbursement Date" is defined in Section 2.6.2. ----------------- ------------- "Disclosure Schedule" means the Disclosure Schedule attached hereto as ------------------- Schedule II, as it may be amended, supplemented or otherwise modified from time - ----------- to time by the Borrower with the written consent of the Required Lenders. "Dollar" and the sign "$" mean lawful money of the United States. ------ - "Domestic Office" means, relative to any Lender, the office of such --------------- Lender designated on Schedule I hereto or designated in the Lender Assignment ---------- Agreement, if any, executed by such Lender or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by notice from such Lender, as the case may be, to each other Person party hereto. A Lender may have separate Domestic Offices for purposes of making, maintaining or continuing, as the case may be, Base Rate Loans, LIBO Rate Loans and Competitive Bid Loans. "EBITDAR" means Net Income plus all amounts deducted in determining ------- such Net Income for Income Taxes, Interest Expense, depreciation, amortization and Rent Expense. "Effective Date" means the date this Agreement becomes effective -------------- pursuant to Section 10.8. ------------ 7 "Environmental Laws" means all applicable federal, state or local ------------------ statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "ERISA Affiliate" means each person (as defined in Section 3(9) of --------------- ERISA) which together with the Borrower, any Subsidiary of the Borrower would be deemed to be a member of the same Controlled Group. "Event of Default" is defined in Section 8.1. ---------------- ----------- "Excluded Receivables" means those consumer credit card accounts -------------------- receivable sold or transferred or to be sold or transferred from time to time to (a) the Spiegel Master Trust in accordance with that certain Receivables Purchase Agreement, dated as of September 20, 1994, among Spiegel Credit Corporation III and First Consumers National Bank, as amended, and that certain Amended and Restated Pooling and Servicing Agreement, dated as of December 13, 1994, among Spiegel Credit Corporation III, First Consumers National Bank and Harris Trust and Savings Bank, as Trustee, as supplemented from time to time, (b) First Consumers Master Trust in accordance with that certain Amended and Restated Pooling and Servicing Agreement, dated as of February 1, 1999, between First Consumers National Bank and Harris Trust and Savings Bank, as Trustee, as supplemented from time to time, in each case described in clause (a) or clause ---------- ------ (b) so long as at the time of such sale or transfer, in the reasonable - --- determination of the Administrative Agent, the terms or the effect on the Lenders of such agreements and the related securitization programs have not changed substantially since the Effective Date, (c) to a special-purpose trust or entity formed for the purpose of one or more securitizations, so long as the terms or the effect on the Lenders of the agreements governing such entity and securitizations do not, in the reasonable determination of the Administrative Agent, differ substantially from the terms or the effect on the Lenders of the agreements and securitization programs referred to in clause (a) or clause (b) ---------- ---------- in any manner that is material to the Lenders or (d) a Person for purposes of any securitization; provided, however that in the case of this clause (d) such -------- ------- ---------- consumer credit card accounts receivable shall be limited to consumer credit card accounts receivable that have previously been transferred (or arise in accounts the receivables from which have previously been transferred) in a transaction described in clause (a), (b), or (c). ---------- --- --- "External L.O.C. Amount" is defined in Section 2.2.3. ---------------------- ------------- "FDIC" means the Federal Deposit Insurance Corporation and any ---- successor agency thereto. "Federal Funds Rate" means, for any period, a fluctuating interest rate ------------------ per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as 8 published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by The Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "Fiscal Quarter" means any quarter of a Fiscal Year. -------------- "Fiscal Year" means the period of 52 or 53 consecutive weeks which make ----------- up the fiscal year of the Borrower, except for any shorter or longer period resulting from the change of the Borrower's fiscal year permitted by Section ------- 7.2.9. - ----- "Fixed Asset Expenditures" means, for any period, the sum of ------------------------ (a) the aggregate amount of all expenditures of the Borrower and its Subsidiaries for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as fixed asset expenditures net of any such assets that are disposed of during such period; and (b) the aggregate amount of all Capitalized Lease Liabilities incurred by the Borrower and its Subsidiaries during such period. "Fixed Charge Coverage Ratio" means, for the period consisting of the --------------------------- twelve months then ended, the ratio of: (c) the result of (i) EBITDAR for such period; minus ----- (ii) Fixed Asset Expenditures for such period; to -- (d) the sum of (i) Interest Expense for such period; plus ---- (ii) Rent Expense for such period; plus ---- (iii) Restricted Payments for such period. 9 "F.R.S. Board" means the Board of Governors of the Federal Reserve System ------------ or any successor thereto. "GAAP" is defined in Section 1.4. ---- ----------- "Guaranty" means the Guaranty executed and delivered pursuant to Section -------- ------- 5.1.8 or Section 7.1.10, substantially in the form of Exhibit N attached hereto, - ----- -------------- --------- as amended, supplemented, restated or otherwise modified from time to time. "Hazardous Material" means ------------------ (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended or hereafter amended. "Hedging Obligations" means, with respect to any Person, all liabilities of ------------------- such Person under interest rate or currency swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. "herein", "hereof", "hereto", "hereunder" and similar terms contained in ------ ------ ------ --------- this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph or provision of this Agreement or such other Loan Document. "Impermissible Qualification" means, relative to the opinion or --------------------------- certification of any independent public accountant as to any financial statement of the Borrower, any qualification or exception to such opinion or certification (a) which is of a "going concern" or similar nature; (b) which reflects the limited scope of examination of matters relevant to such financial statement; or (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause the Borrower to be in default of any of its obligations under Section ------- 7.2.6. ----- 10 "including" means including without limiting the generality of any --------- description preceding such term. "Income Taxes" means, for any period, all income taxes of the Borrower ------------ and its Subsidiaries, on a consolidated basis, paid or accrued in accordance with GAAP for such period. "Indebtedness" of any Person means without duplication: ------------ (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations, contingent or otherwise, relative to the stated amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all obligations relative to then mandatorily redeemable capital stock; (d) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities; (e) all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (f) net liabilities of such Person under all Hedging Obligations; (g) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse (but only to the extent of the exposure of such Person); and (h) all Contingent Liabilities of such Person in respect of any of the foregoing. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer and is liable for any such Indebtedness. "Indemnified Liabilities" is defined in Section 10.4. ----------------------- ------------ "Indemnified Parties" is defined in Section 10.4. ------------------- ------------ "Interest Expense" means, for any period, the total cash and non-cash ---------------- interest expense (including facility fees payable under this Agreement), in accordance with GAAP that is payable by the Borrower and its Subsidiaries, on a consolidated basis, for such period. 11 "Interest Period" means, (i) relative to any Competitive Bid Loan based --------------- on the LIBO Rate or any LIBO Rate Loan, the period beginning on (and including) the date on which such Competitive Bid Loan was made or such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section ------- 2.3 or 2.4 and shall end on (but exclude) the day which numerically corresponds - --- --- to such date one week or two weeks (8 to 14 days) or one, two, three or, subject to general availability as determined by the Administrative Agent, six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month) and (ii) relative to any Absolute Rate Loan, the period beginning on (and including) the date on which such Absolute Rate Loan is made and ending on (but excluding) the day which is a minimum of seven and a maximum of one hundred eighty days thereafter, in any of the foregoing cases, as the Borrower may select in its relevant notice pursuant to Sections 2.3, 2.4 or ------------ --- 2.8; provided, however, that - --- -------- ------- (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than 5 different dates; (b) Interest Periods commencing on the same date for Loans comprising part of the same Borrowing shall be of the same duration; (c) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless, if such Interest Period applies to LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate, such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (d) no Interest Period may end later than the Stated Maturity Date (or, if earlier, the date on which all Loans are scheduled to be repaid and the Commitments permanently terminated as a result of reductions to the Commitment Amount pursuant to Section 2.2). ----------- "Investment" means, relative to any Person, ---------- (e) any loan or advance made by such Person to any other Person (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business); (f) any Contingent Liability of such Person; and (g) any ownership or similar interest held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property. 12 "Invitation for Competitive Bid Loan Offers" means an Invitation for ------------------------------------------ Competitive Bid Loan Offers delivered by the Administrative Agent to the Lenders pursuant to clause (b) of Section 2.8, in substantially the form of Exhibit J ---------- ----------- --------- hereto. "Issuance Request" means a Letter of Credit request and certificate ---------------- duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit D hereto and any additional forms that may be requested by the --------- Issuer. "Issuer" is defined in the preamble. ------ -------- "Legal Requirement" shall mean any requirement imposed upon any Lender ----------------- by any law of the United States of America or by any regulation, order, interpretation, ruling or official directive (whether or not having the force of law) of the Board of Governors of the Federal Reserve System, the FDIC, or any other board or governmental or administrative agency of the United States of America, or any political subdivision of any thereof. "Lender Assignment Agreement" means a Lender Assignment Agreement --------------------------- substantially in the form of Exhibit F hereto. --------- "Lenders" is defined in the preamble, and shall include any of their ------- -------- Affiliates pursuant to clause (b) of Section 10.11.1. ---------- --------------- "Letter of Credit" is defined in Section 2.1.2. ---------------- ------------- "Letter of Credit Commitment" means the Issuer's obligation to issue --------------------------- Letters of Credit pursuant to Section 2.1.2 and, with respect to each Lender, ------------- the obligations of such Lender to participate in such Letters of Credit pursuant to Section 2.6.1. ------------- "Letter of Credit Outstandings" means, on any date, an amount equal to ----------------------------- the sum of (a) the then aggregate amount which is undrawn and available under all issued and outstanding Letters of Credit, plus ---- (b) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations. "Level" means Level I, II, III or IV, as the case may be, set forth on ----- the Pricing Grid. "LIBO Rate" means the rate of interest per annum determined on the --------- basis of the rate for deposits in Dollars in minimum amounts of at least $2,500,000 for a period equal to the applicable Interest Period which appears on the Telerate Page 3750 at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period (rounded upward, if necessary, to the nearest one-sixteenth of one percent (1/16%)). If, for any reason, such rate does not appear on Telerate Page 3750, then LIBO Rate shall be determined by the Administrative Agent to be the arithmetic average (rounded upward, if necessary, to the nearest one-sixteenth of one percent (1/16%)) of the rate per annum at which deposits in Dollars 13 would be offered by first class banks in the London interbank market to the Administrative Agent approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period and in an amount substantially equal to the amount of the Administrative Agent's applicable LIBO Rate Loan. "LIBO Rate Bid Margin" means, in respect of Competitive Bid Loans based -------------------- on the LIBO Rate, the margin above or below the applicable LIBO Rate offered for each such Competitive Bid Loan, expressed as a percentage (rounded to the nearest 1/10,000th of 1%) to be added to (or subtracted from) such LIBO Rate. "LIBO Rate Loan" means a Revolving Loan bearing interest, at all times -------------- during the Interest Period applicable to such Loan, at a fixed rate of interest determined by reference to the LIBO Rate. "LIBOR Auction" means a solicitation of Competitive Bid Loan quotes ------------- pursuant to Section 2.8 hereof based on the LIBO Rate. ----------- "LIBOR Office" means, relative to any Lender, the office of such Lender ------------ designated as such on Schedule I hereto or designated in the Lender Assignment ---------- Agreement or such other office of a Lender as designated from time to time by notice from such Lender to the Borrower and the Administrative Agent, whether or not outside the United States, which shall be making or maintaining LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate of such Lender hereunder. "Lien" means any security interest, mortgage, pledge, hypothecation, ---- assignment, asset-deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. "Loan" means, as the context may require, either a Competitive Bid Loan ---- or a Revolving Loan. "Loan Commitment" means, relative to any Lender, such Lender's --------------- obligation to make Revolving Loans pursuant to Section 2.1.1. ------------- "Loan Documents" means this Agreement, the Notes, the Letters of -------------- Credit, the Guaranty and each other relevant agreement, document or instrument delivered in connection with this Agreement and the Notes, whether or not specifically mentioned herein or therein. "Long-Term Credit Agreement" means that certain Second Amended and -------------------------- Restated Revolving Credit Agreement, dated as of the date hereof, by and among the Borrower, the Agents and the financial institutions party thereto, as amended, supplemented, restated or otherwise modified from time to time. "Material Adverse Effect" means a material adverse effect on (i) the ----------------------- business, properties, condition (financial or otherwise), or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower or any other Obligor to perform its obligations under any 14 of the Loan Documents, (iii) the validity or enforceability of any of the Loan Documents or (iv) the rights or remedies of the Agents or the Lenders under the Loan Documents. "Material Subsidiary" means Eddie Bauer, Inc., Newport News, Inc., ------------------- First Consumers National Bank, Distribution Fulfillment Services, Inc., Spiegel Catalog, Inc., Ultimate Outlet Inc., Spiegel Publishing Company, Spiegel Acceptance Corporation and any other Subsidiary (excluding Spiegel Credit Corporation III) whose assets, income or sales exceed 5% of the consolidated assets, income or sales, respectively, of the Borrower and its consolidated Subsidiaries or any other Subsidiary so designated by the Borrower after the Effective Date. "Monthly Payment Date" means the last day of each month or, if any such -------------------- day is not a Business Day, the next succeeding Business Day. "Net Income" means, for any period, the net income of the Borrower and ---------- its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP including non-recurring income or loss but excluding extraordinary gain. "Net Proceeds" means the gross proceeds received by the Borrower or any ------------ of its Subsidiaries from a sale of their respective assets, less reasonable selling expenses and attorneys' fees incurred in connection therewith and taxes estimated in good faith to be payable as a result thereof, and other reasonable amounts agreed to by the Lenders that are incurred in connection with such sale; provided, that in the event that the actual taxes paid in respect of any such - -------- sale or other disposition are less than such estimated taxes at the time of such sale, "Net Proceeds" shall be deemed to include such difference on the date payment of such taxes is due. "Net Worth" means, on any date, the consolidated stockholders' equity --------- of the Borrower and its Subsidiaries on such date, as calculated in accordance with GAAP plus any Subordinated Debt with a maturity date subsequent to the ---- Stated Maturity Date. "Note" means, as the context may require, a Competitive Bid Loan Note ---- or a Revolving Loan Note. "Obligations" means all obligations (monetary or otherwise) of the ----------- Borrower and each other Obligor arising under or in connection with this Agreement, the Notes, the Letters of Credit and each other Loan Document, including, without limitation, principal, interest, fees, expenses, indemnities and reimbursement obligations. "Obligor" means the Borrower or any other Person (other than any Agent, ------- the Issuer or any Lender) obligated under any Loan Document. "Organic Document" means, relative to the Borrower and any Obligor, as ---------------- applicable, its certificate of incorporation, its by-laws, its partnership certificate or its partnership agreement, operating agreement or its limited liability company certificate and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock or partnership interests, as the case may be. "Otto Family" is defined in the definition of "Otto Interest". ----------- 15 "Otto Interests" means (i) Werner Otto of Hamburg, Germany, his spouse -------------- and any of his lineal descendants and their respective spouses (collectively, the "Otto Family"), any Subsidiary of any members of the Otto Family, and any ----------- personal representative, trustee or other fiduciary acting in respect of the estate of any member of the Otto Family, and (ii) any trust which is solely for the benefit of one or more members of the Otto Family (whether or not any member of the Otto Family is a trustee of such trust) or principally for the benefit of one or more members of the Otto Family (provided that a member of the Otto Family is a trustee of such trust). "Participant" is defined in Section 10.11. ----------- ------------- "PBGC" means the Pension Benefit Guaranty Corporation and any entity ---- succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in ------------ section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Percentage" means, relative to any Lender, the percentage set forth on ---------- Schedule I hereto or set forth in a Lender Assignment Agreement, as such - ---------- percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 10.11. ------------- "Permitted Acquisition" means, at any time of determination, any --------------------- Acquisition by the Borrower or any of its Subsidiaries with respect to which each of the following requirements are met: (i) such Acquisition has been approved and recommended by the board of directors or general partner (or similar entity) of the Person to be acquired; (ii) the Required Lenders shall have given their prior written consent to such Acquisition if it is a hostile Acquisition or if the subject of the Acquisition is not in the same or related businesses as those conducted by the Borrower and its Subsidiaries on the Effective Date; (iii) the Borrower or such Subsidiary and/or the Person to be acquired, as appropriate, shall have furnished to the Administrative Agent, concurrently with the consummation of such Acquisition, such documents as the Administrative Agent or any Lender shall reasonably request; (iv) the Borrower or such Subsidiary shall be the surviving person; and 16 (v) prior to and after giving effect to such Acquisition, no Default (including under the provisions of Section 7.1.10) -------------- shall have occurred and be continuing, or would result therefrom. "Person" means any natural person, corporation, partnership, firm, ------ limited liability company, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Plan" means any Pension Plan or Welfare Plan. ---- "Pricing Grid" means the Pricing Grid attached hereto as Schedule III. ------------ ------------ "Pricing Period" means that period beginning on the 55th day after the -------------- last day of a Fiscal Quarter and ending on the 54th day after the last day of the succeeding Fiscal Quarter. "Purchasing Lender" is defined in Section 2.9(b). ----------------- -------------- "Quarterly Payment Date" means the day that is two Business Days after ---------------------- the end of the applicable Pricing Period. "Reimbursement Obligations" is defined in Section 2.6.3. ------------------------- ------------- "Release" means a "release", as such term is defined in CERCLA. ------- "Rent Expense" means, for any period, the total cash and non-cash ------------ rental expense that is payable by the Borrower and its Subsidiaries, on a consolidated basis for the retail and outlet store properties leased by the Borrower or any of its Subsidiaries. "Required Lenders" means, at any time, ---------------- (a) with respect to any provision of this Agreement other than the declaration of the acceleration of the maturity of all or any portion of the outstanding principal amount of the Loans and other Obligations to be due and payable pursuant to Section 8.3, Lenders ----------- whose Percentages equal or exceed 66 2/3%; or (b) with respect to the declaration of the acceleration of the maturity of all or any portion of the outstanding principal amount of the Loans and other Obligations to be due and payable pursuant to Section 8.3, Lenders holding 66 2/3% or more of the aggregate ----------- principal amount of the outstanding Loans and Letter of Credit Outstandings (excluding Competitive Bid Loans). "Reserves" means, in relation to any Lender, any reserve (including all -------- basic, emergency, supplemental, marginal and other reserves), reserve asset, capital reserve, minimum capital requirement, special deposit, insurance premium or assessment required by any Legal Requirement to be maintained or paid by such Lender for or with respect to (i) any deposit purchase in the London interbank foreign currency deposits market, (ii) any deposit represented by a certificate of deposit issued by any Lender, (iii) Loans made with the proceeds of any such deposits, (iv) the principal amount of or interest on any LIBO Rate Loan, or (v) any portion of 17 the Commitment, including any reserves imposed under Regulation D and any amounts payable to the FDIC for insurance by the FDIC for time deposits made in Dollars. "Resource Conservation and Recovery Act" means the Resource Conservation -------------------------------------- and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect from time to time. -- --- "Restricted Payments" is defined in Section 7.2.8. ------------------- ------------- "Revolving Loan" is defined in Section 2.1. -------------- ----------- "Revolving Loan Borrowing" means Revolving Loans of the same type and, ------------------------ in the case of LIBO Rate Loans, having the same Interest Period, made by all Lenders on the same Business Day and pursuant to the same Revolving Loan Borrowing Request in accordance with Section 2.1. ----------- "Revolving Loan Borrowing Request" means a loan request and certificate -------------------------------- duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit C hereto. --------- "Revolving Loan Note" means any promissory note of the Borrower in the ------------------- form of Exhibit A hereto (as such promissory note may be amended, endorsed or --------- otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from Revolving Loans outstanding from such Lender, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Stated Amount" of each Letter of Credit means the total amount ------------- available to be drawn under such Letter of Credit upon the issuance thereof. "Stated Expiry Date" is defined in Section 2.6. ------------------ ----------- "Stated Maturity Date" is defined in clause (a) of the definition of -------------------- ---------- "Commitment Termination Date". "Subordinated Debt" means indebtedness of the Borrower that is ----------------- subordinate to the Credit Extensions on terms that satisfy the provisions of Exhibit O hereto. - --------- "Subsidiary" of a Person means (i) any corporation more than 50% of the ---------- outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, joint venture, limited liability company or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "Syndication Agent" is defined in the preamble. ----------------- -------- "Tangible Net Worth" means the consolidated stockholders' equity of the ------------------ Borrower and its Subsidiaries as calculated in accordance with GAAP, minus the ----- aggregate amount of 18 intangible assets, including, without limitation, goodwill, franchises, licenses, patents, trademarks, trade names, copyrights, service marks and brand names. "Taxes" is defined in Section 4.6. ----- ----------- "Terminating Lender" is defined in Section 2.9(b). ------------------ -------------- "Termination Notice" is defined in Section 2.9(b). ------------------ -------------- "Total Borrowed Funds" means, as of any date, without duplication, an -------------------- amount equal to the consolidated Indebtedness of the Borrower and its Subsidiaries comprising borrowed money, drawn trade letters of credit, standby letters of credit, mandatorily redeemable stock, Capitalized Lease Liabilities, and Subordinated Debt with a maturity date on or prior to the "Stated Maturity Date" (as defined in the Long-Term Credit Agreement), and all Contingent Liabilities with respect to the foregoing. "Total Leverage Ratio" means, as of the last day of any Fiscal Quarter, the -------------------- ratio of (a) Total Borrowed Funds as of such date to -- (b) Net Worth as of such date. "type" means, relative to any Revolving Loan, the portion thereof, if ---- any, being maintained as a Base Rate Loan or a LIBO Rate Loan. "United States" or "U.S." means the United States of America, its fifty ------------- --- States and the District of Columbia. "Weighted Life to Maturity" means, with respect to any loan, as at the ------------------------- time of determination, the number of years obtained by dividing the then Remaining Dollar-years of such loan by the outstanding principal amount of such loan. The term "Remaining Dollar-years" of such loan means the product obtained by (i) multiplying (1) the amount of each then remaining required principal payment (including repayment at final maturity, by (2) the number of years (calculated to the nearest one-twelfth) which will elapse between the time of determination and the date such required repayment is due, and (ii) totaling all the products obtained in (i). "Welfare Plan" means a "welfare plan", as such term is defined in ------------ section 3(1) of ERISA. "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of ----------------------- the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, association, limited liability company, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. 19 SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context -------------------- otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Disclosure Schedule and in each Note, Revolving Loan Borrowing Request, Continuation/Conversion Notice, Loan Document, notice and other communication delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3. Cross-References. Unless otherwise specified, references in ---------------- this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations. Unless otherwise --------------------------------------- specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder (including under Section 7.2.6) shall be made, and all financial ------------- statements required to be delivered hereunder or thereunder shall be prepared in accordance with, those generally accepted accounting principles ("GAAP") in ---- existence on the date hereof. If any changes in accounting principles from those used in the preparation of the financial statements referred to in Section 6.5 ----------- hereafter occur as a result of the promulgation of rules, regulations, pronouncements, or opinions by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions), and the application thereof result in a change in the method of calculation of financial covenants, standards, or terms found in this Agreement, the Borrower and the Lenders agree to enter into good faith negotiations in order to amend such financial covenants, standards, or terms so as to equitably reflect such changes with the desired result that the evaluations of the Borrower's financial condition shall be the same after such changes as if such changes had not been made; provided, however, that until the -------- ------- parties hereto have reached a definitive agreement on such amendments, the Borrower's financial condition shall continue to be evaluated (with respect to other than the audited financial statements) on the same principles as those used in the preparation of the financial statements referred to in Section 6.5. ----------- ARTICLE II COMMITMENTS, LOANS, BORROWING AND ISSUANCE PROCEDURES AND NOTES AND LETTERS OF CREDIT SECTION 2.1. Commitments. On the terms and subject to the conditions of ----------- this Agreement (including Article V), --------- (a) each Lender severally agrees to make Revolving Loans pursuant to the Commitments described in this Section 2.1; and ----------- (b) the Issuer agrees that it will issue Letters of Credit pursuant to Section 2.1.2, and each Lender severally agrees that it will participate ------------- in such Letters of Credit in accordance with Section 2.6.1. ------------- 20 SECTION 2.1.2. Loan Commitment of Each Lender. From time to time on any ------------------------------ Business Day occurring prior to the Commitment Termination Date, each Lender will make loans (relative to such Lender, and of any type, its "Revolving --------- Loans") to the Borrower equal to such Lender's Percentage of the aggregate - ----- amount of the Revolving Loan Borrowing requested by the Borrower to be made on such day. On the terms and subject to the conditions hereof, the Borrower may, prior to the Commitment Termination Date, from time to time borrow, prepay, repay and reborrow Revolving Loans. SECTION 2.1.3. Letter of Credit Commitment. From time to time on any --------------------------- Business Day occurring prior to the Commitment Termination Date, the Issuer will, subject to Section 2.6.1, ------------- (a) issue one or more letters of credit (a "Letter of Credit") for ---------------- the account of the Borrower in the Stated Amount requested by the Borrower on such day; provided that the Stated Expiry Date of any Letter of Credit shall be no later than the Commitment Termination Date; or (b) extend the Stated Expiry Date of an existing Letter of Credit previously issued hereunder to a date not later than the Commitment Termination Date. SECTION 2.1.4. Lenders Not Permitted or Required To Make Revolving Loans. --------------------------------------------------------- No Lender shall be permitted or required to make any Revolving Loan if, after giving effect thereto, the aggregate outstanding principal amount of (a) all Loans and Letter of Credit Outstandings of all Lenders would exceed the Commitment Amount, or (b) the Revolving Loans and Percentage of Letter of Credit Outstandings of such Lender would exceed such Lender's Percentage of the Commitment Amount. SECTION 2.1.5. Issuer Not Permitted or Required to Issue Letters of Credit. ----------------------------------------------------------- The Issuer shall not be permitted or required to issue any Letter of Credit if, after giving effect thereto, the sum of the aggregate amount of all Letter of Credit Outstandings plus the aggregate principal amount of all Loans then ---- outstanding would exceed the Commitment Amount. The Administrative Agent shall notify the Issuer if, after giving effect to the issuance of any such Letter of Credit, the sum referred to in the previous sentence would exceed the Commitment Amount. SECTION 2.2. Reduction of Commitment Amount or Availability. The ---------------------------------------------- Commitment Amount is subject to reduction from time to time pursuant to this Section 2.2. - ----------- SECTION 2.2.1. Mandatory Reductions. -------------------- (a) INTENTIONALLY OMITTED. (b) For so long as the Borrower is at Level II, III or IV, the Commitment Amount (along with the "Commitment Amount" as defined in the Long-Term Credit Agreement) on a pro rata basis will be permanently reduced by: 21 (i) except as specified in items (ii) and (iii) of this section and in Section 7.2.4(d), 100% of the Net Proceeds from the sale of assets of the Borrower or any of its Subsidiaries in excess of $15,000,000 in the aggregate since the Closing Date during the term of this Agreement (excluding Excluded Receivables); (ii) 50% of the Net Proceeds from the issuance of the Borrower's capital stock in excess of $15,000,000 in the aggregate during the term of this Agreement; provided, however, that such amount shall not include any issuance of the Borrower's capital stock to be 100% owned directly or indirectly by the Otto Interests on, immediately prior to, or after the Effective Date. (iii) 75% of the proceeds (net of any reasonable expenses) from the issuance of Subordinated Debt in excess of $25,000,000 in the aggregate during the term of this Agreement; provided, however, that such amount shall not include any indebtedness issued to the Otto Interests that is junior to Subordinated Debt, nor indebtedness issued as a replacement or pay-off for currently existing Subordinated Debt. In so reducing the Commitment Amount the Borrower shall comply with the provisions of clause (b) of Section 3.2. SECTION 2.2.2. Optional Reduction of Commitment Amount. Subject to --------------------------------------- compliance with the provisions of clause (b) of Section 3.2, the Borrower may, from time to time on any Business Day occurring after the Closing Date, voluntarily reduce the Commitment Amount; provided, however, that all such reductions shall require at least three Business Days' prior notice to the Administrative Agent and be permanent, and any partial reduction of the Commitment Amount shall be in a minimum amount of $25,000,000 and in an integral multiple of $5,000,000 in excess thereof. SECTION 2.2.3. Reduction Due to External Letters of Credit. The Borrower ------------------------------------------- may have letters of credit outstanding which are not issued pursuant to this Agreement or the Long-Term Credit Agreement (the aggregate amount which is undrawn and available under all such letters of credit (plus the then aggregate amount of all unpaid and outstanding reimbursement obligations with respect thereto) at any time outstanding being referred to herein as the "External L.O.C. Amount"). For so long as the Borrower is at Level II, III or IV, the aggregate Commitment Amount plus the "Commitment Amount" as defined in the Long-Term Credit Agreement shall be unavailable by the amount by which the External L.O.C. Amount exceeds $200,000,000. SECTION 2.3. Revolving Loan Borrowing Procedure. By delivering a ---------------------------------- Revolving Loan Borrowing Request to the Administrative Agent (which shall promptly give notice thereof to each Lender) on or before 11:00 a.m., New York City time, on a Business Day, the Borrower may from time to time irrevocably request, on the same day (in the case of Base Rate Loans), and on not less than three Business Days' notice (in the case of LIBO Rate Loans) nor in any case on more than five Business Days' notice, that a Borrowing be made in a minimum amount of $10,000,000 (or $5,000,000, in the case of Base Rate Loans) and an integral multiple of 22 $1,000,000, or in the unused amount of the Commitment Amount. On the terms and subject to the conditions of this Agreement, each Revolving Loan Borrowing shall be comprised of the type of Revolving Loans, and shall be made on the Business Day, specified in such Revolving Loan Borrowing Request. On or before 12:00 noon New York City time (or as soon thereafter as is practicably possible in the case of Base Rate Loans), on such Business Day each Lender shall deposit with the Administrative Agent same day funds in an amount equal to such Lender's Percentage of the requested Revolving Loan Borrowing. Such deposit will be made to an account which the Administrative Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders, the Administrative Agent promptly upon receipt shall make such funds available to the Borrower by wire transfer to the accounts the Borrower shall have specified in its Revolving Loan Borrowing Request. SECTION 2.4. Continuation and Conversion Elections. By delivering a ------------------------------------- Continuation/Conversion Notice to the Administrative Agent on or before 11:00 a.m., New York City time, on a Business Day, the Borrower may from time to time irrevocably elect, on not less than three nor more than five Business Days' notice that all, or any portion in an aggregate minimum amount of $10,000,000 and an integral multiple of $1,000,000, of any Base Rate Loans or any LIBO Rate Loans be, in the case of Base Rate Loans, converted into LIBO Rate Loans or, in the case of LIBO Rate Loans, be converted into a Base Rate Loan or continued as a LIBO Rate Loan (in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan); provided, however, that each such conversion or continuation shall be pro rated among the applicable outstanding Revolving Loans of all Lenders to which such conversion or continuation is applicable, and no portion of the outstanding principal amount of any Revolving Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its ------- obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, however, that such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility. In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of Section 4.1, 4.2, 4.3 or 4.4, it shall be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by purchasing, as the case may be, Dollar certificates of deposit in the U.S. or Dollar deposits in its LIBOR Office's interbank eurodollar market. The failure of any Lender to fund its obligation hereunder shall not excuse any other Lender from funding its obligation hereunder and no Lender shall be responsible for the failure of any other Lender to fund its obligation hereunder. SECTION 2.6. Issuance Procedures. By delivering to the Issuer an Issuance ------------------- Request on a Business Day, the Borrower may, from time to time irrevocably request, on not less than two nor more than ten Business Days' notice, in the case of an initial issuance of a Letter of Credit, and not less than five Business Days' notice prior to the existing Stated Expiry Date (or, if a Letter of Credit has an automatic extension provision, at least five Business Days' notice 23 prior to the date that such Letter of Credit will, by its terms, be extended or, if earlier, the date on which a notice from the Issuer is required to be delivered to the beneficiary of the Letter of Credit informing the beneficiary that the Letter of Credit will not be extended), in the case of a request for the extension of the Stated Expiry Date of a Letter of Credit, that the Issuer issue, or extend the Stated Expiry Date of, as the case may be, a Letter of Credit in such form as may be requested by the Borrower and approved by the Issuer, solely in support of obligations for the payment of goods and services and in support of financial obligations (including surety, bonding and performance obligations) arising in the ordinary course of the Borrower's and its Subsidiaries' business. Each Letter of Credit shall by its terms be stated to expire on a date (its "Stated Expiry Date") no later than the Stated Maturity Date. The Issuer will make available to the beneficiary thereof the original of each Letter of Credit which it issues hereunder. SECTION 2.6.1. Other Lenders' Participation. Upon the issuance of each ---------------------------- Letter of Credit issued by the Issuer pursuant hereto, and without further action, each Lender shall be deemed to have severally and irrevocably purchased, to the extent of its Percentage, a participation interest in such Letter of Credit (including the Contingent Liability of the Issuer with respect thereto and the obligation to pay to the Issuer the amount of any unreimbursed Disbursement thereunder), and such Lender shall, to the extent of its Percentage, be responsible for promptly paying to the Issuer such Lender's Percentage of any unreimbursed Disbursements under the Letter of Credit issued by the Issuer which have not been reimbursed by the Borrower in accordance with Sections 2.6.2 and 2.6.3. In addition, such Lender shall, to the extent of its Percentage, be entitled to receive a ratable portion of the Letter of Credit fees payable pursuant to Section 3.4.4 with respect to each Letter of Credit (other than the issuance and other fees payable to the Issuer of such Letter of Credit pursuant to the last sentence of Section 3.4.4), the interest payable pursuant to Section 2.6.2 and, if applicable, the interest payable pursuant to Section 3.3.2 with respect to any Reimbursement Obligation not paid when due. To the extent that any Lender has reimbursed the Issuer for a Disbursement as required by this Section, such Lender shall be entitled to receive its ratable portion of any amounts subsequently received (from the Borrower or otherwise) in respect of such Disbursement. The Issuer shall notify each Lender on each Quarterly Payment Date of the outstanding amount of all Letters of Credit issued and outstanding hereunder. SECTION 2.6.2. Disbursements. The Issuer will notify the Borrower and the ------------- Administrative Agent promptly of the presentment for payment of any Letter of Credit issued by the Issuer, together with notice of the date (the "Disbursement Date") such payment shall be made (each such payment, a "Disbursement"). Subject to the terms and provisions of such Letter of Credit and this Agreement, the Issuer shall make such payment to the beneficiary (or its designee) of such Letter of Credit pursuant to the terms of such Letter of Credit. Prior to 12:00 noon, New York City time, on the first Business Day following the Disbursement Date, the Borrower will reimburse the Administrative Agent, for the account of the Issuer, for all amounts which the Issuer has disbursed under such Letter of Credit, together with interest thereon at a rate per annum equal to the rate then in effect for Base Rate Loans for the period from the Disbursement Date through the date of such reimbursement. SECTION 2.6.3. Reimbursement. The obligation (a "Reimbursement Obligation") ------------- of the Borrower under Section 2.6.2 to reimburse the Issuer with respect to each Disbursement (including interest thereon), and, upon the failure of the Borrower to reimburse the Issuer, each 24 Lender's obligation under Section 2.6.1 to reimburse the Issuer, shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower or such Lender, as the case may be, may have or have had against the Issuer or any such Lender, including any defense based upon the failure of any Disbursement to conform to the terms of the applicable Letter of Credit (but only if, in the Issuer's good faith opinion, such Disbursement is determined to be appropriate) or any non-application or misapplication by the beneficiary of the proceeds of such Letter of Credit; provided, however, that after paying in full its Reimbursement Obligation or its participation obligation, as the case may be, nothing herein shall adversely affect the right of the Borrower or such Lender, as the case may be, to commence any proceeding against the Issuer for any wrongful Disbursement made by the Issuer under a Letter of Credit as a result of acts or omissions constituting gross negligence or wilful misconduct on the part of the Issuer. SECTION 2.6.4. Deemed Disbursements. Upon the occurrence and during the -------------------- continuation of any Default of the type described in Section 8.1.9 (other than any default of the type described in Section 8.1.9(e)) or, with notice from the Administrative Agent with the approval of the Required Lenders, upon the occurrence and during the continuation of any other Event of Default, (a) an amount equal to that portion of all Letter of Credit Outstandings attributable to the then aggregate amount which is undrawn and available under all Letters of Credit issued and outstanding hereunder shall, without demand upon or notice to the Borrower, be deemed to have been paid or disbursed by the Issuer under such Letters of Credit (notwithstanding that such amount may not in fact have been so paid or disbursed); and (b) upon notification by the Administrative Agent to the Borrower of its obligations under this Section, the Borrower shall be immediately obligated to reimburse the Issuer for the amount deemed to have been so paid or disbursed by the Issuer. Any amounts so payable by the Borrower pursuant to this Section shall be deposited in cash with the Administrative Agent and held as collateral security for the Obligations in connection with the Letters of Credit issued by the Issuer and in connection therewith the Borrower hereby grants to the Administrative Agent for the benefit of the Lenders a security interest in such cash to secure the Obligations. The Administrative Agent shall have the right to apply any such cash collateral to such Obligations as they become due and payable. At such time when the Defaults or Events of Default giving rise to the deemed disbursements hereunder shall have been cured or waived, the Administrative Agent shall return to the Borrower all amounts then on deposit with the Administrative Agent pursuant to this Section which have not been applied to the partial satisfaction of such Obligations. SECTION 2.6.5. Nature of Reimbursement Obligations. The Borrower and, to ----------------------------------- the extent set forth in Section 2.6.1, each Lender shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. The Issuer (except to the extent of its own gross negligence or wilful misconduct) shall not be responsible for: 25 (a) the form, validity, sufficiency, accuracy, genuineness or legal effect of any Letter of Credit or any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (b) the form, validity, sufficiency, accuracy, genuineness or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or the proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (c) the failure of the beneficiary of a Letter of Credit to comply fully with conditions required in order to demand payment under a Letter of Credit; (d) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; or (e) any loss or delay in the transmission or otherwise of any document or draft required in order to make a Disbursement under a Letter of Credit. None of the foregoing shall affect, impair or prevent the vesting of any of the rights or powers granted to the Issuer or any Lender. In furtherance and extension and not in limitation or derogation of any of the foregoing, any action taken or omitted to be taken by the Issuer in good faith (and not constituting gross negligence or wilful misconduct) shall be binding upon the Borrower and each such Lender, and shall not put the Issuer under any resulting liability to the Borrower or any such Lender, as the case may be. SECTION 2.7. Notes. Each Lender's Revolving Loans under its Commitment ----- shall be evidenced by a Revolving Loan Note payable to the order of such Lender in a maximum principal amount equal to such Lender's Percentage of the original Commitment Amount. Each Lender's Competitive Bid Loans under this Agreement shall be evidenced by a Competitive Bid Loan Note payable to the order of such Lender in a maximum principal amount equal to the original Commitment Amount. The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Notes (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal of, and the interest rate and Interest Period, if any, applicable to the Loans evidenced thereby. Such notations shall be conclusive and binding on the Borrower absent manifest error; provided, however, that the failure of any Lender to make any such notations shall not limit or otherwise affect any Obligations of the Borrower or any other Obligor. SECTION 2.8. Competitive Bid Loans. Subject to the terms and conditions of --------------------- this Agreement (including Article V), each Lender severally agrees that the Borrower may request that Competitive Bid Loan Borrowings under this Section 2.8 be made from time to time on any Business Day prior to the date occurring fifteen Business Days prior to the Commitment Termination Date in the manner set forth below; provided, however, and subject to the following proviso, that following the making of each Competitive Bid Loan Borrowing, the aggregate amount of all Loans and Letter of Credit Outstandings then outstanding shall not exceed the 26 Commitment Amount; and provided, further, that the Borrower hereby agrees to make a mandatory prepayment of Loans on the date of each Competitive Bid Loan Borrowing with the proceeds of Competitive Bid Loans to the extent necessary to reduce the outstanding principal amount of all Loans (after giving effect to such Competitive Bid Loan Borrowing) plus all Letter of Credit Outstandings to an amount not in excess of the Commitment Amount. (a) Competitive Bid Loan Borrowing Request. The Borrower may request Competitive Bid Loan Borrowings under this Section 2.8 by delivering to the Administrative Agent, not later than 11:00 a.m., New York City time, on a Business Day, at least (x) five Business Days prior to the date of the proposed Competitive Bid Loan Borrowing (in the case of LIBOR Auctions) or (y) one Business Day prior to the date of the proposed Competitive Bid Loan Borrowing (in the case of an Absolute Rate Auction), a revocable Competitive Bid Loan Borrowing Request (which shall constitute an invitation to the Lenders to extend Competitive Bid Loan quotes to the Borrower, and which may contain requests for up to three different Competitive Bid Loan Borrowings), specifying (i) the proposed date (which shall be a Business Day) and aggregate principal amount or amounts of each Competitive Bid Loan to be made as part of such proposed Competitive Bid Loan Borrowing (each of which such Competitive Bid Loan shall be in a minimum principal amount of $10,000,000 and in an integral multiple of $1,000,000) (and, subject to the proviso contained in the first sentence of this Section, which principal amount may exceed the Commitment Amount then available to be borrowed), (ii) whether the Competitive Bid Loan quotes requested are to set forth a LIBO Rate Bid Margin or an Absolute Rate (or a combination thereof), (iii) the proposed maturity date or dates (each a "Competitive Bid Loan Maturity Date") for repayment of each Competitive Bid Loan to be made as part of such Competitive Bid Loan Borrowing (which maturity date or dates may not be earlier than 7 days (in the case of an Absolute Rate Auction) nor later than the earlier of the date occurring (A) six months after the date of such Competitive Bid Loan Borrowing in the case of a Competitive Bid Loan based on the LIBO Rate, (B) 180 days after the date of such Competitive Bid Loan Borrowing in the case of an Absolute Rate Loan, or (C) the Commitment Termination Date), and (iv) the proposed duration of the Interest Period applicable thereto. (b) Invitation for Competitive Bid Loan Offers. Promptly upon receipt of a Competitive Bid Loan Borrowing Request but in no event later than 2:30 p.m., New York City time, on the date of such receipt, the Administrative Agent shall send to the Lenders by facsimile an Invitation for Competitive Bid Loan Offers substantially in the form of Exhibit J attached hereto containing the information contained in the applicable Competitive Bid Loan Request and which shall constitute an invitation by the Borrower to each Lender to submit Competitive Bid Loan quotes in response thereto. 27 (c) Submission and Contents of Competitive Bid Loan Offers. (i) If any Lender, in its sole discretion, elects to offer to make a Competitive Bid Loan to the Borrower as part of such proposed Competitive Bid Loan Borrowing at a rate of interest specified by such Lender in its sole discretion, it shall deliver to the Administrative Agent not later than (x) 11:00 a.m., New York City time, on the fourth Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 a.m., New York City time, on the proposed date of Borrowing, in the case of an Absolute Rate Auction, a Competitive Bid Loan Offer, which must comply with the requirements of this clause, in the form of Exhibit K hereto; provided, that Competitive Bid Loan quotes submitted by the Administrative Agent (or any affiliate of the Administrative Agent) in the capacity of a Lender may be submitted, and may only be submitted, if the Administrative Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) 10:45 a.m., New York City time, on the fourth Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:15 a.m., New York City time, on the proposed date of Borrowing, in the case of an Absolute Rate Auction. Subject to Articles V and VIII, such Competitive Bid Loan Offer shall be irrevocable, and shall specify (A) the proposed date of Borrowing, which shall be the same as that set forth in the applicable Invitation for Competitive Bid Loan Offers, (B) the principal amount of the Competitive Bid Loan which such Lender would be willing to make as part of such proposed Competitive Bid Loan Borrowing, which principal amount may be greater than, less than or equal to such Lender's Percentage of the Commitment Amount, but which amount shall be in a minimum principal amount of $10,000,000 and in an integral multiple of $1,000,000, (C) in the case of a LIBOR Auction, the LIBO Rate Bid Margin, and in the case of an Absolute Rate Auction, the Absolute Rate therefor, and (D) the identity of the quoting Lender. (ii) Any Competitive Bid Loan Offer that: (A) is not substantially in the form of Exhibit K hereto or does not specify all of the information required in clause (c) of this Section; (B) contains qualifying, conditional or similar language; (C) contains proposed terms other than or in addition to those set forth in the applicable Invitation for Competitive Bid Loan Offers; or 28 (D) arrives after the time set forth in clause (c) of this Section shall be disregarded by the Administrative Agent. (d) Notice to the Borrower. The Administrative Agent shall (by telephone confirmed by telecopy), by 1:00 p.m., New York City time (on the fourth Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction), and 10:30 a.m., New York City time (on the proposed date of Borrowing, in the case of an Absolute Rate Auction), notify the Borrower of the terms of any Competitive Bid Loan Offer submitted by a Lender that is in accordance with clause (c) of this Section. Any subsequent Competitive Bid Loan Offer of a Lender shall be disregarded by the Administrative Agent unless such subsequent Competitive Bid Loan Offer is submitted solely to correct a manifest error in such earlier Competitive Bid Loan Offer. The Administrative Agent's notice to the Borrower shall specify (i) the aggregate principal amount of Competitive Bid Loans for which offers have been received in respect of the related Invitation for Competitive Bid Loan Offers, (ii) the respective principal amounts and Competitive Bid Rates so offered, and (iii) the identity of such quoting Lenders. (e) Competitive Bid Loan Acceptance. The Borrower shall, in turn, before (x) 4:00 p.m., New York City time, on the fourth Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction, or (y) 12:00 (noon), New York City time, on the date of such proposed Competitive Bid Loan Borrowing, in the case of an Absolute Rate Auction, either (i) irrevocably cancel the Competitive Bid Loan Borrowing Request that requested such Competitive Bid Loan Borrowing by giving the Administrative Agent (which shall promptly notify each Lender) telephonic notice (promptly confirmed in writing) to that effect (and, for purposes of this Section, a failure on the part of the Borrower to timely notify the Administrative Agent under the terms of this clause shall be deemed to be non-acceptance of all offers so notified to it pursuant to clause (d) above), or (ii) irrevocably accept, in its sole discretion, but subject to the other provisions of this Section 2.8, any one or more of the offers made by any Lender or Lenders pursuant to clause (d) above, in its sole discretion, by giving the Administrative Agent telephonic notice (and the Administrative Agent shall, promptly upon receiving such telephonic notice from the Borrower, notify each Lender whose Competitive Bid Loan Offer has been accepted) (promptly confirmed in writing by delivery to the Administrative Agent of a Competitive Bid Loan Acceptance in the form of Exhibit L, copies of which shall thereafter be forwarded to each of the Lenders) of (A) the amount of the Competitive Bid Loan Borrowing to be made on such date, and 29 (B) the amount of the Competitive Bid Loan (which amount shall not be greater than, but which may be less than, the amount offered by such Lender for such Competitive Bid Loan pursuant to clause (d) above) to be made by such Lender as part of such Competitive Bid Loan Borrowing, and reject any remaining offers made by Lenders pursuant to clause (d) above by giving the Administrative Agent (which shall promptly give to the Lenders) notice to that effect; provided, however, that (C) if the Borrower accepts any Competitive Bid Loan Offer, the Borrower must accept Competitive Bid Loan Offers based exclusively upon the successively lowest interest rate and no other criteria. If two or more Lenders submit Competitive Bid Loan Offers with identical interest rates for the same Interest Period and the Borrower accepts any thereof, the Borrower shall, subject to the first three sentences of this paragraph (C), accept all such Competitive Bid Loan Offers as nearly as possible in proportion to the amounts of such Competitive Bid Loan Offers; provided, that if the amount of Competitive Bid Loan Offers to be so allocated is not sufficient to enable each such Lender to make such Competitive Bid Loan Offer (or portions thereof) in an aggregate principal amount of $10,000,000 or, for amounts in excess thereof, an integral multiple of $1,000,000, the Borrower shall round the Competitive Bid Loan Offers (or portions thereof) allocated to such Lender or Lenders as the Borrower shall select as necessary to the nearest multiple of $1,000,000. (D) the aggregate amount of the Competitive Bid Loan Offers accepted by the Borrower shall not exceed the principal amount specified in the applicable Competitive Bid Loan Borrowing Request, (E) no Lender shall, without its prior written consent (in its sole discretion), be required to make a Competitive Bid Loan in a principal amount of less than $10,000,000 and larger integral multiples of $1,000,000; (F) no bid shall be accepted for a Competitive Bid Loan unless such Competitive Bid Loan is in a minimum principal amount of $10,000,000 (except as provided in clause (D) above) and an integral multiple of $1,000,000 and is part of a Competitive Bid Loan Borrowing in a minimum principal amount of $25,000,000, and (G) the Borrower may not accept any offer that is described in clause (c)(ii) of this Section, or that otherwise fails to comply with the requirements of this Agreement. (f) Funding of Competitive Bid Loans. Not later than 11:00 a.m., New York City time (in the case of a Borrowing based on a LIBOR Auction), and 1:00 p.m., New 30 York City time (in the case of a Borrowing based on an Absolute Rate Auction), in each case on the date specified for each Competitive Bid Loan hereunder, each Lender participating therein shall make available the amount of the Competitive Bid Loan to be made by it on such date to the Administrative Agent in immediately available funds, for the account of the Borrower, such deposit to be made to an account maintained by the Administrative Agent, as the Administrative Agent shall specify from time to time by notice to the Lenders or as otherwise agreed to in writing by the Administrative Agent and the Borrower. The amount so received by the Administrative Agent shall promptly be made available to the Borrower by depositing the same in immediately available funds in an account of the Borrower notified to the Administrative Agent in writing. SECTION 2.9. Termination; Extension of Commitment Termination Date. The ----------------------------------------------------- Commitments shall terminate and each Lender shall be relieved of its obligations to make any Loan or issue or risk-participate in any Letter of Credit on the Commitment Termination Date subject to the following: (a) Provided that no Default shall have occurred and be continuing, and if all of the representations and warranties contained in the Loan Documents shall be true and correct as of the date of such request, at least thirty (30) but not more than sixty (60) days before the existing Commitment Termination Date, the Borrower may provide the Administrative Agent with written notice that it desires to extend the Commitment Termination Date for an additional 364 days. (b) Upon receipt of the notice requesting extension of the Commitment Termination Date from the Borrower, the Administrative Agent will promptly provide copies of such notice to the Lenders. Each Lender shall notify the Administrative Agent of its consent to or rejection (such notice of rejection being a "Termination Notice") of the extension of the Commitment Termination Date (by telecopier or by telephone (confirmed in writing promptly thereafter)) on or before one (1) Business Day prior to the earlier to occur of (i) ten (10) days before the existing Commitment Termination Date and (ii) thirty (30) days after being notified by the Administrative Agent of such request. The failure of any Lender to timely notify the Administrative Agent of its consent or rejection pursuant to this clause (b) shall be deemed to be a rejection by such Lender of such extension request, and such Lender shall be a "Terminating Lender" hereunder and such Lender shall be deemed to have given (and the Administrative Agent deemed to have received) a Termination Notice hereunder. Promptly after the applicable response date, the Administrative Agent shall give each non-Terminating Lender and the Borrower notice of its receipt (or deemed receipt) or non-receipt of Termination Notices. If the Administrative Agent has notified the Borrower of its receipt (or deemed receipt) of Termination Notices, the Borrower shall then have the right to have each Terminating Lender's Commitment assigned to and assumed by, one or more eligible Assignee Lenders (which are not Terminating Lenders and may be non-Terminating Lenders) as purchasing lenders under this Agreement (in such capacity, each a "Purchasing Lender") to replace such Terminating Lender. (c) On any Commitment Termination Date if (i) the aggregate amount of the Commitments which have not been the subject of a Termination Notice given or deemed 31 given pursuant to Section 2.9(b) plus any Commitments to be assumed by Purchasing Lender(s) equals at least 90% of the Commitment Amount existing as of the date the Borrower provided written notice to the Administrative Agent under Section 2.9(a), (ii) no Default has occurred and is continuing on and as of such Commitment Termination Date, and (iii) the representations and warranties contained in the Loan Documents are true and correct on and as of such Commitment Termination Date, then the Administrative Agent shall so notify the Borrower, and the following shall occur: (1) the Commitment Termination Date shall be automatically extended for 364 days for all of the Lenders other than the Terminating Lenders, (2) the Terminating Lender(s) (upon payment in full of all of the Obligations owed to them on and as of such date by the Borrower and/or the Purchasing Lenders) shall cease to be Lenders hereunder on the existing Commitment Termination Date, (3) the Purchasing Lenders shall become Lenders hereunder on such Commitment Termination Date, (4) the Commitment Amount shall be automatically reduced on such Commitment Termination Date by the amount, if any, that the Commitment Amount exceeds the aggregate Commitments of the Lenders (after giving effect to any Commitments to be assumed by Purchasing Lender(s)) and (5) the aggregate outstanding Loans and Letter of Credit Outstandings shall not exceed the resulting Commitment Amount. The transfer of Commitments and/or outstanding Obligations from Terminating Lenders to Purchasing Lenders shall take place as of the applicable Commitment Termination Date, and pursuant to the execution, delivery, acceptance and recording of, a Lender Assignment Agreement in accordance with the procedures set forth in Section 10.11.1; provided, that either the Borrower or the Purchasing Lender shall pay the fee required by Section 10.11.1. (d) On any applicable Commitment Termination Date if (i) the aggregate amount of the Commitments which have not been the subject of a Termination Notice given or deemed given pursuant to Section 2.9(b) plus any Commitments to be assumed by Purchasing Lender(s) is less than 90% of the Commitment Amount existing as of the date the Borrower provided written notice to the Administrative Agent under Section 2.9(a), (ii) a Default has occurred and is continuing on and as of such Commitment Termination Date, (iii) the representations and warranties contained in the Loan Documents are not true and correct on and as of such Commitment Termination Date, or (iv) each Terminating Lender shall not have been fully paid all of the Obligations owed to it on and as of such Commitment Termination Date, then the Commitment Termination Date shall not be extended and, irrespective of whether a Lender has sent or has not sent a Termination Notice as provided in Section 2.9(b), the Commitment Termination Date shall not be extended and no Purchasing Lender shall assume a Commitment pursuant to this Section 2.9. (e) Each Terminating Lender shall have no further obligation or Commitment hereunder following the date on which it is terminated as a Lender under this Agreement as provided herein other than any obligations accruing on or prior to such date on which it is terminated as a Lender under this Agreement as provided herein and its rights under Section 10.5 shall continue. 32 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. Repayment. The Borrower shall make the following repayments of --------- the Loans: (a) Subject to clause (b) of Section 3.2, the Borrower shall repay in full the entire unpaid principal amount of each Revolving Loan upon the Commitment Termination Date and each Competitive Bid Loan upon the Competitive Bid Loan Maturity Date therefor. (b) The Borrower shall, immediately upon the acceleration pursuant to Section 8.2 or Section 8.3, repay the aggregate unpaid principal amount of all Loans then accelerated. SECTION 3.2. Prepayments. The Borrower may (in the case of clause (a)) and ----------- shall (in the case of each other clause) make the following prepayments of the Revolving Loans (Competitive Bid Loans may not be voluntarily prepaid): (a) The Borrower may, from time to time on any Business Day, make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Revolving Loans; provided, however, that (i) any such prepayment shall be made among Revolving Loans pro rata to each Lender (according to the respective Percentages of the Lenders) as directed by the Borrower and absent such direction shall be made pro rata among Revolving Loans of the same type and, if applicable, having the same Interest Period, of all Lenders; (ii) all such voluntary prepayments shall require at least same day prior written notice to the Administrative Agent (in the case of Base Rate Loans) and at least two (in the case of LIBO Rate Loans, provided the Borrower pays all related break funding costs) but no more than five (in the case of Base Rate or LIBO Rate Loans) Business Days' prior written notice to the Administrative Agent; and (iii) all such voluntary partial prepayments shall be in an aggregate minimum amount of $20,000,000 (or $5,000,000, in the case of Base Rate Loans) and an integral multiple of $5,000,000. (b) The Borrower shall, on each date when any reduction in the Commitment Amount (or the availability thereof) shall become effective, including pursuant to Section 2.2, make a mandatory prepayment of all Loans, and if required, deliver cash collateral for Letter of Credit Outstandings, equal to the excess, if any, of the aggregate outstanding principal amount of all Loans and Letter of Credit Outstandings over the Commitment Amount as so reduced (or as so available). The Borrower shall also make a mandatory prepayment of all Loans equal to the Net Proceeds received from the sale of the Fisher Road warehouse facility, located in Columbus, Ohio, in accordance with Section 7.2.4(d) 33 hereof; provided, that such mandatory prepayment shall be allocated between the Loans hereunder and the "Loans" as defined in the Long-Term Credit Agreement on a pro rata basis based on the Commitment Amount hereunder and the "Commitment Amount" under the Long-Term Credit Agreement. (c) Each prepayment of any Loans made pursuant to this Section shall be without premium or penalty, but shall be subject to Section 4.4. No voluntary prepayment of principal of any Loans prior to the Commitment Termination Date pursuant to clause (a) shall cause a reduction in the Commitment Amount. SECTION 3.3. Interest Provisions. Interest on the outstanding principal ------------------- amount of Loans shall accrue and be payable in accordance with this Section 3.3. SECTION 3.3.1. Rates. Pursuant to an appropriately delivered Revolving Loan ----- Borrowing Request, Competitive Bid Loan Borrowing Request or Continuation/Conversion Notice, the Borrower may elect that Loans comprising a Borrowing accrue interest at the rate per annum: (a) on that portion maintained from time to time as a Base Rate Loan, equal to the sum of the Alternate Base Rate from time to time in effect plus the Applicable Base Rate Margin; (b) on that portion maintained as a LIBO Rate Loan, during each Interest Period applicable thereto, equal to the sum of the LIBO Rate for such Interest Period plus the Applicable LIBO Rate Margin plus any additional amount requested by any Lender to reflect all additional amounts to be incurred by such Lender in respect of such LIBO Rate Loan in obtaining and holding any deposit so acquired in providing such LIBO Rate Loans and in maintaining or paying any Reserves existing as of the first day of such interest period to the extent not otherwise included in the definition of "LIBO Rate"; (c) on that portion maintained as a Competitive Bid Loan, during each Interest Period applicable thereto, equal to the applicable Competitive Bid Rate specified by the Lender making such Competitive Bid Loan in the Competitive Bid Loan Offer delivered by such Lender and accepted by the Borrower pursuant to Section 2.8. All LIBO Rate Loans and Competitive Bid Loans shall bear interest from and including the first day of the applicable Interest Period to (but excluding) the last day of such Interest Period at the interest rate determined as applicable to such Loan. SECTION 3.3.2. Post-Maturity Rates. After the date any principal amount of ------------------- any Loan is due and payable (whether on the Commitment Termination Date, Competitive Bid Loan Maturity Dates, upon acceleration or otherwise), or after any other monetary Obligation of the Borrower shall have become due and payable, the Borrower shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on such amounts at a rate per annum equal to the Alternate Base Rate plus the Applicable Base Rate Margin, the LIBO Rate plus the Applicable LIBO Rate Margin or the applicable Competitive Bid Rate as then accruing on the Loans outstanding plus a margin of 2% in each case. The Administrative Agent agrees to 34 promptly notify the Borrower of such post-maturity rates but the failure to so notify shall not affect such rates. SECTION 3.3.3. Payment Dates. Interest accrued on each Loan shall be ------------- payable, without duplication: (a) on the Commitment Termination Date; (b) on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Loan, with respect to the amount so paid or prepaid; (c) with respect to Base Rate Loans, on each Monthly Payment Date occurring after the date of the initial Borrowing hereunder; (d) with respect to LIBO Rate Loans or Competitive Bid Loans, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed 90 days (in the case of Absolute Rate Loans) or three months (in the case of LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate), on each 90th day (in the case of Absolute Rate Loans) or three month (in the case of LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate) anniversary of the first day of the applicable Interest Period for such Loan occurring during such Interest Period); (e) with respect to any Base Rate Loans converted into LIBO Rate Loans on a day when interest would not otherwise have been payable pursuant to clause (c), on the date of such conversion; and (f) on that portion of any Loans which is accelerated pursuant to Section 8.2 or Section 8.3, immediately upon such acceleration. Interest accrued on Loans or other monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable (whether on the Commitment Termination Date, Competitive Bid Loan Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION 3.4. Fees. The Borrower agrees to pay the fees set forth in this ---- Section 3.4. All such fees shall be non-refundable. SECTION 3.4.1. Front-End Fee. The Borrower agrees to pay to the ------------- Administrative Agent on the Effective Date for the account of each Lender a one-time fee calculated and paid on each Lender's initial Commitment in an amount as agreed between the Borrower and each Lender. SECTION 3.4.2. Facility Fee. The Borrower agrees to pay to the ------------ Administrative Agent for the account of each Lender, for the period (including any portion thereof when its Commitment is suspended by reason of the Borrower's inability to satisfy any condition of Article V or partially unavailable because of the provisions of Sections 2.2.1(a) and 2.2.3) commencing on the Effective Date and continuing through the Commitment Termination Date, a facility fee at the then applicable rate set forth in the Pricing Grid on such Lender's Percentage of 35 the Commitment Amount. Such facility fees shall be payable by the Borrower in arrears, on each Quarterly Payment Date, commencing with the first such day following the Effective Date, and on the Commitment Termination Date. SECTION 3.4.3. Administrative Agent's Fee. The Borrower agrees to pay to -------------------------- the Administrative Agent, for its own account, an administrative agent's fee in an annual amount and on the dates agreed to between the Borrower and the Administrative Agent. SECTION 3.4.4. Letter of Credit Fee. The Borrower agrees to pay to the -------------------- Issuer, for the pro rata account of the Issuer and each other Lender, a Letter of Credit fee on the average Letter of Credit Outstandings set forth in clause (a) of the definition thereof during the applicable Pricing Period in an amount equal to the then applicable rate set forth in the Pricing Grid, such fees to be payable on each Quarterly Payment Date in arrears. The Borrower agrees to pay the Issuer for its own account, an issuance fee, an administrative fee, amendment fee and extension fee in such amounts and on dates agreed to between the Borrower and the Issuer. SECTION 3.4.5. Auction Fee. The Borrower agrees to pay to the ----------- Administrative Agent, for its own account, an auction fee for administering each Competitive Bid Loan auction under Section 2.8 in an amount and to be paid on such dates as agreed between the Borrower and the Administrative Agent. SECTION 3.4.6. Arranger Fee. The Borrower agrees to pay to each of the ------------ Arrangers, for their own respective accounts, an up-front arranger fee on the Effective Date in an amount agreed to by the Borrower and each Arranger. ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. Fixed Rate Lending Unlawful. If any Lender shall determine --------------------------- in good faith (which determination shall, upon notice thereof to the Borrower and the Lenders, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to make, continue or maintain any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of all Lenders to make, continue, maintain or convert any such Loans shall, upon such determination, forthwith be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and all LIBO Rate Loans shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. SECTION 4.2. Deposits Unavailable. If the Administrative Agent, or any -------------------- Lenders whose Percentages equal or exceed 35% upon notice to the Administrative Agent, shall have determined in good faith that SECTION 4.2.1. Dollar certificates of deposit or Dollar deposits, as the --------------------------------------------------------- case may be, in the relevant amount and for the relevant Interest Period are not - -------------------------------------------------------------------------------- available to it in its relevant market; or - ------------------------------------------ 36 (a) adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate, then, upon notice from the Administrative Agent to the Borrower and the Lenders, the obligations of all Lenders under Sections 2.3 and 2.4 and 2.8 to make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate shall forthwith be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. SECTION 4.3. Increased Loan Costs, etc. The Borrower agrees to reimburse ------------------------- each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans. Such Lender shall promptly notify the Administrative Agent and the Borrower in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Lender for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower directly to such Lender within five days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.4. Funding Losses. In the event any Lender shall incur any loss -------------- or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan or Competitive Bid Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loans or any Competitive Bid Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 2.2.2, 3.1, 3.2 or otherwise; (b) any Loans not being made as LIBO Rate Loans in accordance with the Revolving Loan Borrowing Request therefor other than by reason of the fault of any such Lender; or (c) any Loans not being made as Competitive Bid Loans in accordance with the Competitive Bid Loan Borrowing Request therefor other than by reason of the fault of any such Lender; or (d) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/ Conversion Notice therefor other than by reason of the fault of any such Lender, then, upon the written notice of such Lender to the Borrower (with a copy to the Administrative Agent), the Borrower shall, within five days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for 37 such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.5. Increased Capital Costs. If any change in, or the ----------------------- introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline or decision (whether or not having the force of law) of any court, central bank, regulator or other governmental authority affects or would affect the amount of capital required or expected to be maintained by any Lender or any Person controlling such Lender, and such Lender determines (in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of its Commitment or the Loans made, or the Letters of Credit issued or participated in, by such Lender is reduced to a level below that which such Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Lender to the Borrower, the Borrower shall immediately pay directly to such Lender additional amounts sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. In determining such amount, such Lender may use any method of averaging and attribution that it uses with other customers which have similar arrangements, and, if done in good faith, shall, in the absence of manifest error, be conclusive. SECTION 4.6. Taxes. All payments by the Borrower of principal of, and ----- interest on, the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender's income or receipts by the jurisdictions where such Lender is organized or maintains a place of business (such non-excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Administrative Agent an official receipt or other documentation reasonably satisfactory to the Administrative Agent (with copies to each of the affected Lenders) evidencing such payment to such authority; and (c) pay to the Administrative Agent for the account of the Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against any Agent or any Lender with respect to any payment received by such Agent or such Lender hereunder, such Agent or such Lender may pay such Taxes and the Borrower will promptly pay such additional amounts (including any penalties, interest or expenses resulting from the Borrower's omission in reimbursing such Agent 38 or such Lender sooner) as is necessary in order that the net amount received by such person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such person would have received had not such Taxes been asserted. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent, for the account of the applicable Lender, the required receipts or other required documentary evidence, the Borrower shall indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 4.6, a distribution hereunder by the Administrative Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower. The Administrative Agent shall request that each Lender that is organized under the laws of a jurisdiction other than the United States, prior to the date of the initial Credit Extension and annually thereafter, execute and deliver to the Borrower and the Administrative Agent, one or more copies (as the Borrower or the Administrative Agent may reasonably request) of United States Internal Revenue Service Form W-8BEN or Form W-8ECI or such other forms or documents (or successor forms or documents), appropriately completed, as may be applicable to establish the extent, if any, to which a payment to such Lender is exempt from withholding or deduction of Taxes. SECTION 4.7. Payments, Computations, etc. (a) Unless otherwise expressly --------------------------- provided, all payments by the Borrower pursuant to this Agreement, the Notes, each Letter of Credit or any other Loan Document shall be made by the Borrower to the Administrative Agent for the pro rata account of the Lenders entitled to receive such payment. (a) All such payments required to be made to the Administrative Agent shall be made, without setoff, deduction or counterclaim, not later than 2:00 p.m., New York City time, on the date due, in same day or immediately available funds, to such account as the Administrative Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Administrative Agent on the next succeeding Business Day. The Administrative Agent shall promptly remit in same day funds to each Lender its share, if any, of such payments received by the Administrative Agent for the account of such Lender; provided, that if the Administrative Agent receives such funds after 3:00 p.m., New York City time, it may remit such payments to the Lenders on the next Business Day (with accrued interest on such amount, to the extent the Administrative Agent has received interest on such amount from the Borrower). (b) All interest and fees (including the fees payable in accordance with Section 3.4) shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan (i) determined in accordance with clause (a) of the definition of Alternate Base Rate, 365 days or, if appropriate, 366 days or (ii) determined in accordance with clause (b) of the definition of Alternate Base Rate, 360 days). 39 (c) Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause (c) of the definition of the term "Interest Period" with respect to LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate) be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. SECTION 4.8. Sharing of Payments. If any Lender shall obtain any payment ------------------- or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Loan or Reimbursement Obligation (other than pursuant to the terms of Sections 4.3, 4.4, 4.5 and 4.6) in excess of its pro rata share of payments then or therewith obtained by all Lenders, such Lender shall purchase from the other Lenders such participations in Credit Extensions made by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (a) the amount of such selling Lender's required repayment to the purchasing Lender to (b) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 4.9) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 4.9. Setoff. Each Lender shall, upon the occurrence of any Default ------ described in clauses (a) through (d) of Section 8.1.9, or upon the occurrence of any other Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due), and (as security for such Obligations) the Borrower hereby grants to each Lender a continuing security interest in, any and all balances, credits, deposits (general or special), accounts or moneys of the Borrower then or thereafter maintained with such Lender; provided, however, that any such appropriation and application shall be subject to the provisions of Section 4.8. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender; provided, however, that the 40 failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Lender may have. SECTION 4.10. Use of Proceeds. The Borrower shall apply the proceeds of --------------- each Borrowing (i) for working capital for the Borrower and its Subsidiaries, (ii) to refinance certain existing Indebtedness of the Borrower and its Subsidiaries, (iii) for other general corporate purposes of the Borrower and its Subsidiaries and (iv) to pay fees and expenses in connection with the financing under this Agreement; without limiting the foregoing, no proceeds of any Loan will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934 or any "margin stock", as defined in F.R.S. Board Regulation U. SECTION 4.11. Reserves. If at any time during the term of this Agreement, -------- any Lender shall be required by any Legal Requirement to maintain any Reserves in respect of any LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate, other than Reserves existing as of the date of the making of such Loans and included in the calculation of LIBO Rate, the LIBO Rate or LIBO Rate Bid Margin, as applicable, shall be adjusted to reflect all additional costs incurred or to be incurred by such Lender in maintaining such Reserves. Such costs shall be computed by determining the amount by which such Legal Requirement effectively increases the cost to such Lender of obtaining deposits of Dollars in the London interbank foreign currency deposits market or certificate of deposit market in an amount approximately equal to the LIBO Rate Loan or the Competitive Bid Loan based on the LIBO Rate, as applicable. The determination by any Lender of the amount of such costs and the allocations, if any, of such costs among the Borrower and other customers which have arrangements with such Lender similar to the making of the LIBO Rate Loans and Competitive Bid Loans based on the LIBO Rate hereunder, if done in good faith and, with respect to such allocation, on an equitable basis, shall, in the absence of manifest error, be conclusive and shall be provided to the Borrower in a notice from any such Lender. SECTION 4.12. Change in Applicable Lending Office. Each Lender agrees that, ----------------------------------- upon the occurrence of any event giving rise to the operation of Section 4.1, 4.3, 4.5 or 4.6 with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no economic, legal, regulatory or other disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such Section. Nothing in this Section 4.12 shall affect or postpone any of the Obligations of the Borrower or the right of any Lender provided in any of Sections 4.1, 4.3, 4.5 or 4.6. ARTICLE V CONDITIONS TO CREDIT EXTENSIONS SECTION 5.1. Initial Credit Extension. The obligations of the Lenders and ------------------------ the Issuer to fund the initial Credit Extension shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 5.1. 41 SECTION 5.1.1. Resolutions, etc. The Administrative Agent shall have ---------------- received from the Borrower with sufficient copies for each Lender a certificate, dated the date of the initial Credit Extension, of an Authorized Officer of the Borrower certifying the following: (a) resolutions of the Board Committee of the Borrower then in full force and effect authorizing the execution, delivery and performance of this Agreement, the Notes and each other Loan Document to be executed by or on behalf of the Borrower, (b) true, correct and complete copies of the Articles of Incorporation and the By-Laws of the Borrower, which documents shall be in form and substance satisfactory to the Administrative Agent, and (c) the incumbency and signatures of those officers of the Borrower authorized to act on behalf of the Borrower with respect to this Agreement, the Notes and each other Loan Document executed by the Borrower, upon which certificate each Lender may conclusively rely until it shall have received a further certificate of an Authorized Officer of the Borrower canceling or amending such prior certificate. SECTION 5.1.2. Delivery of Certain Documents. The Administrative Agent ----------------------------- shall have received with sufficient copies for each Lender the following documents, agreements or instruments: (a) a certificate of good standing of the Borrower, certified as of a recent date by the appropriate governmental officer in Delaware; and (b) copies of the Organic Documents of each Obligor other than the Borrower, together with all amendments thereto, and a certificate of good standing, in each case certified as of a recent date by the appropriate governmental officer in its jurisdiction of incorporation for certain Subsidiaries. SECTION 5.1.3. Delivery of Notes. Each Lender shall have received, for its ----------------- own account, its Revolving Loan Note and its Competitive Bid Loan Note duly executed and delivered by and on behalf of the Borrower. SECTION 5.1.4. Payment of Outstanding Indebtedness, etc. All Indebtedness ---------------------------------------- identified in Item 7.2.1(b) ("Indebtedness to be Paid") of the Disclosure Schedule, together with all interest, all prepayment premiums and other amounts due and payable with respect thereto, shall have been paid in full (including, to the extent necessary, from proceeds of the initial Borrowing), and the Administrative Agent shall have received payoff letters for the Indebtedness identified in Item 7.2.1(b) ("Indebtedness to be Paid") of the Disclosure Schedule. SECTION 5.1.5. Assumption of Outstanding Indebtedness, etc. All ------------------------------------------- Indebtedness identified in Item 7.2.1(c) ("Ongoing Indebtedness") of the Disclosure Schedule as Indebtedness to be assumed shall have been assumed by the Borrower. SECTION 5.1.6. Closing Date Certificate. The Administrative Agent shall ------------------------ have received with sufficient copies for each Lender the Closing Date Certificate, dated the date of the 42 initial Credit Extension and duly executed by an Authorized Officer of the Borrower, in which the Borrower shall agree and acknowledge that the statements made therein shall be deemed to be true and correct representations and warranties made as of such date under this Agreement, and, at the time such certificate is delivered, such statements shall in fact be true and correct. All documents and agreements required to be appended to the Closing Date Certificate shall be in form and substance satisfactory to the Lenders. SECTION 5.1.7. Opinions of Counsel. The Administrative Agent shall have ------------------- received with sufficient copies for each Lender opinions, dated the date of the initial Credit Extension and addressed to the Arrangers and all Lenders, from (a) the following counsel: (i) Michael R. Moran, General Counsel of the Borrower, in substantially the form of Exhibit M-1 hereto; and (ii) Rooks, Pitts and Poust, counsel to the Borrower and the other Obligors, in substantially the form of Exhibit M-2 hereto. SECTION 5.1.8. Guaranty. The Administrative Agent shall have received the -------- Guaranty in substantially the form of Exhibit N, dated the date hereof, duly executed by each Material Subsidiary other than First Consumers National Bank and Spiegel Acceptance Corporation. SECTION 5.1.9. Insurance. The Administrative Agent shall have received --------- with sufficient copies for each Lender a schedule of the policies of insurance maintained and in effect on the Effective Date as required pursuant to Section 7.1.4, certified by an Authorized Officer of the Borrower. SECTION 5.1.10. Pro Forma Compliance Certificate and Auditor's Reliance ------------------------------------------------------- Letter. The Administrative Agent shall have received, with counterparts for each - ------ Lender, an initial Compliance Certificate as of April 1, 2000, duly executed (and with all schedules thereto duly completed) and a letter from the Borrower to the Borrower's independent public accountants substantially in the form of Exhibit P, all delivered by a financial or accounting Authorized Officer of the Borrower. SECTION 5.1.11. Closing Fees, Expenses, etc. The Administrative Agent shall --------------------------- have received for its own account, or for the account of each Lender entitled thereto, as the case may be, all fees, costs and expenses due and payable pursuant to Sections 3.4 and 10.3, and the Administrative Agent shall have received all fees, costs and expenses due and payable pursuant to Section 10.3 and the Lenders shall have received all amounts then due as prescribed by Schedule IV. SECTION 5.1.12. Document Review. The Administrative Agent shall have --------------- received and reviewed to its satisfaction all documents, instruments, information, approvals, and opinions relating to the Borrower as the Administrative Agent may reasonably request. 43 SECTION 5.1.13. Simultaneous Closing of Long-Term Credit Agreement. The -------------------------------------------------- Long-Term Credit Agreement shall close on or concurrently with the satisfaction of each condition under this Section 5.1. SECTION 5.1.14. Support Letter. The Administrative Agent shall have -------------- received from Otto Versand (GmbH & Co) a signed Letter of Support to be in the form of Exhibit Q hereto. SECTION 5.2. All Credit Extensions. The obligation of each Lender to --------------------- fund any Loan on the occasion of any Credit Extensions (including the initial Credit Extensions) shall be subject to the satisfaction of each of the conditions precedent set forth in this Section 5.2. SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both before ------------------------------------------- and after giving effect to any Credit Extensions the following statements shall be true and correct: (a) the representations and warranties set forth in Article VI (excluding, in the case of any Loan the proceeds of which are used entirely to repay outstanding Loans, those contained in Sections 6.6 and 6.7) and those contained in each other Loan Document shall be true and correct with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date); and (b) no Default shall have then occurred and be continuing or would result from the transactions contemplated by this Agreement and the Loan Documents, and none of the Borrower, the other Obligors, or any of their respective Subsidiaries are in material violation of any law, governmental regulation, court order or decree, which violation would reasonably be expected to have a Material Adverse Effect. SECTION 5.2.2. Credit Extension Request. The Administrative Agent shall ------------------------ have received a Revolving Loan Borrowing Request or a Competitive Bid Loan Borrowing Request if Loans are being requested, or the Issuer shall have received an Issuance Request if a Letter of Credit is being requested or extended. Each of the delivery of a Revolving Loan Borrowing Request, a Competitive Bid Loan Borrowing Request or an Issuance Request and the acceptance by the Borrower of the proceeds of such Credit Extension shall constitute a representation and warranty by the Borrower that on the date of such Credit Extension (both immediately before and after giving effect to such Credit Extension and the application of the proceeds thereof) the statements made in Section 5.2.1 are true and correct. SECTION 5.2.3. Satisfactory Legal Form. All documents executed or ----------------------- submitted pursuant hereto by or on behalf of the Borrower or any of its Subsidiaries or any other Obligors shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel; and the Administrative Agent shall have received all information, approvals, opinions, documents or instruments as the Administrative Agent may reasonably request. SECTION 5.2.4. Acquisition Funding. To the extent that any Credit ------------------- Extension will be used in connection with any Acquisition, such Acquisition shall satisfy the terms of a "Permitted Acquisition" and the Borrower shall deliver to the Lenders a Compliance Certificate, attaching such pro forma financial and other information (after giving effect to the applicable 44 Acquisition and the making of the requested Loans) as shall be necessary to evidence that no Event of Default or Default will occur. ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Lenders, the Issuer and the Agents to enter into this Agreement and to make Credit Extensions hereunder, the Borrower represents and warrants as set forth in this Article VI. SECTION 6.1. Organization, etc. The Borrower is a corporation and each of ----------------- its Subsidiaries (if any) is validly organized and existing and in good standing under the laws of the state of its organization or incorporation, as applicable, is duly qualified to do business and is in good standing as a foreign partnership or corporation, as applicable, in each jurisdiction where the failure to be so qualified could have a Material Adverse Effect and has full partnership or corporate power and authority, as applicable, and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under this Agreement, the Notes and each other Loan Document to which it is a party and to own and hold under lease its property and to conduct its business substantially as currently conducted by it. SECTION 6.2. Due Authorization, Non-Contravention, etc. The execution, ----------------------------------------- delivery and performance by the Borrower of this Agreement, the Notes and each other Loan Document executed or to be executed by it, and the execution, delivery and performance by each other Obligor of each Loan Document executed or to be executed by it, are within the Borrower's and each such Obligor's partnership or corporate powers, as applicable, have been duly authorized by all necessary partnership or corporate action, as applicable, and do not (a) contravene the Borrower's or any such Obligor's Organic Documents; (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting the Borrower or any such Obligor; or (c) result in, or require the creation or imposition of, any Lien on any of the Borrower's or any Obligor's properties, except pursuant to the terms of a Loan Document. SECTION 6.3. Government Approval, Regulation, etc.; Investment Company Act; ------------------------------------------------------------- Public Utility Holding Company Act. Except as disclosed in Item 6.3 - ---------------------------------- ("Approvals") of the Disclosure Schedule, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by the Borrower or any other Obligor of this Agreement, the Notes or any other Loan Document. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 45 SECTION 6.4. Validity, etc. This Agreement constitutes, and the Notes and ------------- each other Loan Document executed by the Borrower will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms except as such enforceability may be limited by bankruptcy, insolvency or similar laws from time to time in effect that affect creditors rights generally; and each Loan Document executed pursuant hereto by each other Obligor will, on the due execution and delivery thereof by such Obligor, be the legal, valid and binding obligation of such Obligor enforceable in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency or similar laws from time to time in effect that affect creditors rights generally. SECTION 6.5. Financial Information. The (a) audited balance sheet of the --------------------- Borrower as at January 1, 2000, and the related statements of operations and cash flow of the Borrower, and (b) unaudited balance sheet of the Borrower for the Fiscal Quarter ended April 1, 2000 and the related statements of income and cash flow of the Borrower, copies of which have been furnished to each Lender, have in each case been prepared in accordance with GAAP consistently applied, and present fairly the consolidated financial condition of the Borrower as at the dates thereof and the results of its operations for the periods then ended. SECTION 6.6. No Material Adverse Change. Since January 1, 2000, there has -------------------------- been no material adverse change in the financial condition, operations, assets, business, properties or prospects of the Borrower and its Subsidiaries. SECTION 6.7. Litigation, Labor Controversies, etc. There is no pending or, ------------------------------------ to the knowledge of the Borrower, threatened litigation, arbitration, governmental investigation, action, proceeding, or labor controversy affecting the Borrower or any of its Subsidiaries, or any of their respective properties, businesses, assets or revenues, which would reasonably be expected to have a Material Adverse Effect except as disclosed in Item 6.7 ("Litigation") of the Disclosure Schedule. SECTION 6.8. Compliance With Laws: Authorizations. The Borrower and its ------------------------------------ Subsidiaries have complied in all material respects with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government, or any instrumentality or agency thereof, having jurisdiction over the conduct of its businesses or the ownership of its properties, including, without limitation, those relating to public health and safety and protection of the environment, except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable federal, state and local environmental, health and safety statutes and regulations or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could have a Material Adverse Effect. The Borrower and its Subsidiaries have obtained all Authorizations necessary and appropriate to own and operate their respective properties and all such Authorizations are in full force and effect, except where the failure to so obtain such Authorizations or to so keep such Authorizations in full force and effect would not reasonably be expected to have a Material Adverse Effect. 46 SECTION 6.9. Taxes. Each of the Borrower and its Subsidiaries has filed ----- all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except, in each case, any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 6.10. Pension and Welfare Plans. During the ------------------------- twelve-consecutive-month period prior to the date of the execution and delivery of this Agreement and prior to the date of any Credit Extension hereunder, no steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which might result in the incurrence by the Borrower or any member of the Controlled Group of any material liability, fine or penalty. Except as disclosed in Item 6.10 ("Employee Benefit Plans") of the Disclosure Schedule, neither the Borrower nor any member of the Controlled Group has any contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Title I of ERISA. SECTION 6.11. Environmental Warranties. Except as set forth in Item 6.11 ------------------------ ("Environmental Matters") of the Disclosure Schedule, (a) neither the Borrower nor any Subsidiary has in the past or is presently operating its business in such a manner as to violate any Environmental Law, except for such violations that would not reasonably be expected to have a Material Adverse Effect; (b) there are no pending nor, to the best of Borrower's knowledge, threatened lawsuits, administrative proceedings, or investigations against the Borrower or any Subsidiary that allege violations of Environmental Laws, except for such lawsuits, administrative proceedings, or investigations as would not reasonably be expected to have a Material Adverse Effect; (c) to the best of Borrower's knowledge, no Hazardous Materials have been placed, deposited or disposed of on any real property which the Borrower or any Subsidiary owned or operated in the past or owns or operates at present in such concentrations, quantities, or circumstances which are reasonably likely to result in material expenditures in connection with removal or response costs pursuant to any Environmental Law; and (d) to the best of the Borrower's knowledge, no Hazardous Materials generated in the course of Borrower's or any Subsidiaries' business have been placed, deposited or disposed of on the real property of any other Person in circumstances which are reasonably likely to result in the expenditure of material removal or response costs pursuant to any Environmental Laws. SECTION 6.12. Regulations U and X. The Borrower is not engaged in the ------------------- business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Credit Extensions will be used for a purpose which violates, or would be inconsistent with, 47 F.R.S. Board Regulation U or X. Terms for which meanings are provided in F.R.S. Board Regulation U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 6.13. Subsidiaries. The Borrower has no Subsidiaries, except those ------------ Subsidiaries (a) which are identified in Item 6.13 ("Existing Subsidiaries") of the Disclosure Schedule; or (b) which are permitted to have been acquired in accordance with Section 7.1.10 or 7.2.3. SECTION 6.14. Ownership of Properties. The Borrower and each of its ----------------------- Subsidiaries owns good and defensible title to all of their respective properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights), in each case, free and clear of all Liens, charges or claims (including infringement claims with respect to patents, trademarks, copyrights and the like) except as permitted pursuant to Section 7.2.2. SECTION 6.15. Absence of Default. Neither the Borrower nor any of its ------------------ Subsidiaries is in default in the payment of or in the performance of any obligation applicable to any outstanding Indebtedness including, without limitation, any Default hereunder. SECTION 6.16. Accuracy of Information. All factual information heretofore ----------------------- or contemporaneously furnished by the Borrower or the Otto Interests in writing to any Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of the Borrower to any Agent or any Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Agreement by the Agents and such Lender, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading. ARTICLE VII COVENANTS SECTION 7.1. Affirmative Covenants. The Borrower agrees with the Agents, --------------------- the Issuer and each Lender that, until all Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 7.1. SECTION 7.1.1. Financial Information, Reports, Notices, etc. The Borrower -------------------------------------------- will furnish, or will cause to be furnished, to each Lender, the Issuer and the Administrative Agent copies of the following financial statements, reports, notices and information: 48 (a) as soon as available and in any event within 55 days after the end of each Fiscal Quarter, a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter and a consolidated statement of income and cash flows of the Borrower and its Subsidiaries for such Fiscal Quarter, with a comparison to budget for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, in each case certified by a financial Authorized Officer of the Borrower; provided, that any such information for the final Fiscal Quarter of a Fiscal Year may be preliminary and subject to final adjustment no later than 100 days after the end of such Fiscal Year and, if such final adjustment results in a Level change for the Pricing Period, interest and fees will be retroactively adjusted for the corresponding Pricing Period; (b) as soon as available and in any event within 100 days after the end of each Fiscal Year of the Borrower, a copy of the annual audit report for such Fiscal Year for the Borrower and its Subsidiaries, including therein a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Year and a consolidated statement of retained earnings, income and shareholders' equity and cash flows of the Borrower and its Subsidiaries for such Fiscal Year, and changes in financial position as of the end of such Fiscal Year, in each case certified (without any Impermissible Qualification) in a manner acceptable to the Required Lenders by KPMG Peat Marwick or other independent public accountants acceptable to the Required Lenders, together with a certificate from such accountants to the effect that, in making the examination necessary for the signing of such annual report by such accountants, they have not become aware of any Default that has occurred and is continuing, or, if they have become aware of such Default, describing such Default and the steps, if any, being taken to cure it, and a letter from the Borrower to such accountants substantially in the form of Exhibit P; (c) within three Business Days after becoming aware of the occurrence of any development, voluntary, financial or otherwise, which would reasonably be expected to have a Material Adverse Effect, a report in reasonable detail; (d) as soon as possible and in any event within three Business Days after any executive officer of the Borrower has knowledge, notice to the Administrative Agent of the issuance or adoption after the date of this Agreement of any federal, state or local statute, regulation or ordinance or judicial or administrative order limiting or controlling the operations of the Borrower or any of its Subsidiaries which would reasonably be expected to have a Material Adverse Effect, together with a copy of such statute, regulation, ordinance or judicial or administrative order; (e) as soon as available and in any event within 55 days after the end of each Fiscal Quarter, a Compliance Certificate, executed by a financial Authorized Officer of the Borrower, showing compliance with the financial covenants set forth in Section 7.2.6, and certifying as to the absence of any Default; provided, that any such Compliance Certificate for the final Fiscal Quarter of a Fiscal Year may be subject to a final adjustment in a similar manner as set forth in the proviso of Section 7.1.1(a); 49 (f) as soon as possible and in any event within three Business Days after any executive officer of the Borrower has knowledge, notice of the occurrence of each Default, and a statement of an Authorized Officer of the Borrower setting forth details of such Default and the action which the Borrower has taken and proposes to take, if any, with respect thereto; the occurrence of any material adverse development with respect to any litigation, action, proceeding, or labor controversy described in Section 6.7; and the commencement of any labor controversy, litigation, action, proceeding of the type described in Section 6.7, notice thereof and copies of all documentation relating thereto; (g) promptly after the sending or filing thereof, copies of all reports which the Borrower sends to its public shareholders; (h) within three Business Days after becoming aware of the institution of any steps by the Borrower or any other Person to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Borrower furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Borrower of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto; (i) promptly, and in any event within 90 days after the end of each Fiscal Year, quarterly cash flow, balance sheet, income statement and fixed asset expenditure budgets, in addition to a calculation of projected compliance with the financial covenants set forth in Section 7.2.6, in each case for the current Fiscal Year, each in reasonable detail satisfactory to the Administrative Agent and signed by an Authorized Officer of the Borrower; (j) promptly, and in any event within 90 days after the end of each Fiscal Year, annual financial projections for the Borrower and its Subsidiaries covering the period until the Stated Maturity Date; (k) promptly after the occurrence thereof, notice to the Administrative Agent that the External L.O.C. Amount exceeds $200,000,000 and the amount by which the External L.O.C. Amount exceeds $200,000,000 (such notice to be promptly updated upon any change in such excess); and (l) such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as any Lender through the Administrative Agent may from time to time reasonably request. SECTION 7.1.2. Performance of Obligations. The Borrower and each other -------------------------- Obligor will perform in all material respects all of their obligations under the terms of the Loan Documents. 50 SECTION 7.1.3. Maintenance of Properties. The Borrower will, and will cause ------------------------- each of its Subsidiaries to, maintain, preserve, protect and keep its properties in good repair, working order and condition, and make necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times, unless the Borrower or such Subsidiary determines in good faith that the continued maintenance of any of its properties is no longer economically desirable. SECTION 7.1.4. Insurance. The Borrower will, and will cause each of its --------- Subsidiaries to, maintain or cause to be maintained with responsible insurance companies insurance with respect to its properties and business against such casualties and contingencies and of such types and in such amounts as is customary in the case of similar businesses and will, by December 31 of each year, furnish to each Lender a certificate of an Authorized Officer of the Borrower setting forth a schedule of all insurance maintained by the Borrower and its Subsidiaries in accordance with this Section. SECTION 7.1.5. Conduct of Business; Separate Existence. The Borrower will, --------------------------------------- and will cause each of its Subsidiaries to (a) carry on and conduct its business in substantially the same fields of enterprise as it is presently conducted; and (b) do all things necessary to remain duly organized, validly existing and in good standing in its jurisdiction of organization and maintain all requisite authority to conduct its business in each jurisdiction where the failure to be so qualified could have a Material Adverse Effect. The Borrower will cause First Consumers National Bank to limit its business activities to those conducted as of the Closing Date and to those permitted by its Articles of Association and By-Laws as in effect on the Second Restatement Date. The Borrower will cause Spiegel Acceptance Corporation to limit its business activities to those conducted as of the Closing Date, specifically, acquiring, holding and transferring interests in securitization trusts which hold Excluded Receivables, and obtaining and repaying intercompany advances received from the Borrower from time to time in connection therewith as permitted by Sections 7.2.1(l) and 7.2.7(c). SECTION 7.1.6. Compliance with Laws, etc. The Borrower will, and will cause ------------------------- each of its Subsidiaries to, comply in all material respects with all applicable laws, rules, regulations and orders except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect, such compliance to include (without limitation): (a) the maintenance and preservation of its partnership or corporate existence, as applicable, and qualification as a foreign partnership or corporation, as applicable except where the failure to so qualify would not reasonably be expected to have a Material Adverse Effect; and (b) payment of all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 7.1.7. ERISA. The Borrower and each ERISA Affiliate will (a) at all ----- times make prompt payment of all contributions required under all Pension Plans and required to meet the minimum funding standard set forth in ERISA with respect to each Plan; (b) promptly 51 upon request, furnish the Administrative Agent and the Lenders copies of each annual report/return (Form 5500 Series), as well as all schedules and attachments required to be filed with the department of Labor and/or the Internal Revenue Service pursuant to ERISA, and the regulations promulgated thereunder, in connection with each of its Pension Plans for each Plan Year (as defined in ERISA); (c) notify the Administrative Agent immediately of any fact, including, but not limited to, any Reportable Event (as defined in ERISA) arising in connection with any Plan, which might constitute grounds for termination thereof by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such Plan, together with a statement if requested by the Administrative Agent, as to the reason therefor and the action, if any, proposed to be taken with respect thereof; and (d) furnish to the Administrative Agent, upon its request, such additional information concerning any of the Pension Plans as may be reasonably requested. The Borrower will not, nor will it permit any of its Subsidiaries or ERISA Affiliates to (I) terminate a Plan if any such termination would reasonably be expected to have a Material Adverse Effect, or (II) cause or permit to exist any Reportable Event (as defined in ERISA) or other event or condition which presents a material risk of termination at the request of the PBGC. SECTION 7.1.8. Environmental Covenant. The Borrower will, and will cause ---------------------- each of its Subsidiaries to, (a) use and operate all of its facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws, in each case, except where failure to so comply would not reasonably be expected to have a Material Adverse Effect; (b) immediately notify the Administrative Agent and provide copies upon receipt of all written claims, complaints, notices or inquiries of an environmental nature that relate to the condition of its facilities and properties or compliance with Environmental Laws, in each case, except where failure to so comply would not reasonably be expected to have a Material Adverse Effect; and (c) provide such information and certifications which the Administrative Agent may reasonably request from time to time to evidence compliance with this Section. SECTION 7.1.9. Books and Records. The Borrower will, and will cause each of ----------------- its Subsidiaries to, keep books and records which accurately reflect all of its business affairs and transactions, and the Borrower will permit the Administrative Agent, and each Lender or any of their respective representatives, at reasonable times and intervals, to visit all of its offices, to discuss the financial matters of the Borrower and such Subsidiary with its officers and its independent public accountant (and the Borrower hereby authorizes such independent public accountant to discuss the Borrower's or such Subsidiary's financial matters with each Lender or its representatives in the presence of a representative of the Borrower) and to examine any of its books or other corporate records. Any visits to, or with officers of, any Subsidiary of the Borrower and any discussions with the Borrower's independent public accountants shall be 52 coordinated through the Borrower. The Borrower shall pay any fees of such independent public accountant incurred in connection with the Administrative Agent's or any Lender's exercise of its rights pursuant to this Section. SECTION 7.1.10. New Subsidiaries. ---------------- (a) If the Borrower is at Level II, III or IV, promptly after the date the Borrower acquires or creates a new Material Subsidiary (or an existing Subsidiary becomes a Material Subsidiary) and, in any event, within three Business Days following receipt by the Borrower from the Administrative Agent of a counterpart of the Guaranty, or if the Borrower changes from Level I to Level II, III or IV, promptly after the date of such change in Levels, the Borrower will cause each Material Subsidiary other than First Consumers National Bank and Spiegel Acceptance Corporation (which has not previously executed the Guaranty) to execute and deliver the Guaranty to the Administrative Agent and the Administrative Agent will send a copy to each Lender; (b) If the Borrower is at Level II, III or IV, within thirty days after the date such Subsidiary becomes a Material Subsidiary, or if the Borrower changes from Level I to Level II, III or IV, within thirty days of such change in Levels, the Borrower and such Material Subsidiary other than First Consumers National Bank and Spiegel Acceptance Corporation shall have executed and delivered to the Administrative Agent, such other items as reasonably requested by the Administrative Agent in connection with the foregoing, including, without limitation, resolutions, incumbency and officer's certificates, opinions of counsel, search reports and other certificates and documents. SECTION 7.2. Negative Covenants. The Borrower agrees with the Agents, ------------------ the Issuer and each Lender that, until all Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will comply with the restrictions set forth in this Section 7.2. SECTION 7.2.1. Indebtedness. The Borrower will not, and will not permit ------------ any of its Subsidiaries to, create, incur, assume or suffer to exist or otherwise become or be liable in respect of any Indebtedness, other than, without duplication, the following: (a) Indebtedness in respect of the Credit Extensions and other Obligations; (b) until the Closing Date, Indebtedness identified in Item 7.2.1(b) ("Indebtedness to be Paid") of the Disclosure Schedule; (c) Indebtedness of the Borrower and its Subsidiaries existing as of the Effective Date which is identified in Item 7.2.1(c) ("Ongoing Indebtedness") of the Disclosure Schedule; provided that such Ongoing Indebtedness may not be replaced except to the extent repaid or extended by (i) Loans made hereunder at the stated maturity of such Ongoing Indebtedness or (ii) loans which have a Weighted Life to Maturity at least as long as the lesser of (x) such Ongoing Indebtedness and (y) the Commitment Termination Date and which are on a pari passu unsecured basis with Indebtedness of the Borrower in respect of the Credit Extensions; 53 (d) term loans that are Subordinated Debt; provided that the subordination provisions in the agreements governing such loans (x) are approved by the Required Lenders or (y) conform to the subordination provisions attached hereto as Exhibit O; (e) Indebtedness (other than accounts payable to suppliers to the extent permitted by clause (g) of Section 7.2.1) (i) in an aggregate principal amount not to exceed $5,000,000 at any time outstanding which is incurred by the Borrower or any of its Subsidiaries (other than Spiegel Acceptance Corporation) to a vendor of any assets to finance its acquisition of such assets, and (ii) in respect of Capitalized Lease Liabilities to the extent permitted by Section 7.2.6; and (f) Normal limited recourse indebtedness for breaches of representations and warranties or for reductions or cancellations of receivables in respect of Excluded Receivables; (g) unsecured Indebtedness incurred in the ordinary course of business (including (i) salaries to employees and (ii) open accounts extended by suppliers on customary trade terms in connection with purchases of goods and services, but excluding Indebtedness incurred through the borrowing of money or Contingent Liabilities), provided, however, that no Indebtedness otherwise permitted by this clause (g) (other than salaries to employees) shall be permitted if any Default shall result from the incurrence thereof; (h) other Indebtedness of the Borrower's Subsidiaries (other than Spiegel Acceptance Corporation, and excluding intercompany Indebtedness) in an aggregate amount not to exceed $10,000,000 at any time outstanding; (i) other secured Indebtedness of the Borrower (excluding intercompany Indebtedness) in an aggregate amount not to exceed $10,000,000 at any time outstanding; (j) Indebtedness of the Borrower in connection with Hedging Obligations; (k) Indebtedness of the Borrower in connection with letters of credit but subject, however, to Section 2.2.3; (l) Indebtedness in respect of intercompany loans from the Borrower to: (i) Eddie Bauer, Inc., provided that the total amount of such loans at any time does not exceed the amount of the total assets of Eddie Bauer, Inc. less its cash at such time, all determined in accordance with GAAP; (ii) First Consumers National Bank, provided that the total amount of such loans at any time does not exceed the lesser of (x) 92% of the total assets of First Consumers National Bank, determined in accordance with GAAP, and (y) $300,000,000; (iii) Spiegel Acceptance Corporation, provided that the total amount of such loans at any time does not exceed 90% of Spiegel Acceptance Corporation's 54 Investments in securitization trusts which hold Excluded Receivables, all determined in accordance with GAAP; (iv) Any Material Subsidiary (other than Eddie Bauer, Inc., First Consumers National Bank and Spiegel Acceptance Corporation), provided that the total amount of such loans at any time to each Material Subsidiary does not exceed the amount of the total tangible assets of such Material Subsidiary less its cash at such time, all determined in accordance with GAAP; and (v) Any other Wholly-Owned Subsidiary of the Borrower, provided that (x) the total amount of such loans to each such Wholly-Owned Subsidiary at any time, does not exceed the total tangible assets of such Wholly-Owned Subsidiary less its cash at such time, all determined in accordance with GAAP, and (y) the total amount of all such loans to such Wholly-Owned Subsidiaries at any time does not exceed $25,000,000; (m) Indebtedness in respect of intercompany loans from any of the Borrower's Subsidiaries to the Borrower on a subordinated basis (such subordination terms to be approved by the Administrative Agent); (n) unsecured Indebtedness of the Borrower within the limitations of Section 7.2.6 and subject to Section 2.2.1(b)(v); (o) any guaranty by any Subsidiary of the Borrower now or hereafter guarantying the Obligations pursuant to the Guaranty which (i) guaranty is in substantially the same form as the Guaranty and is for the benefit of the holders of Indebtedness permitted by Section 7.2.1(c) or Section 7.2.1(j) or (ii) guaranty is in substantially the same form as the Guaranty and is for the benefit of each Person participating in that certain Letter of Credit Facility Agreement, dated as of September 27, 1996, as amended from time to time, by and among the Borrower, the financial institutions party thereto and Bank of America, N. A. (formerly known as Bank of America National Trust and Savings Association), as the Agent; (p) any guaranty by any Subsidiary of the Borrower now or hereafter guarantying the Obligations pursuant to the Guaranty which guaranty, in the reasonable determination of the Administrative Agent, is in a form permitted by clause (o) of Exhibit O and is for the benefit of the holders of Subordinated Debt; and (q) Indebtedness under the Long-Term Credit Agreement. SECTION 7.2.2. Liens. The Borrower will not, and will not permit any of ----- its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its capital stock, property, revenues or assets, whether now owned or hereafter acquired, except: (a) Liens securing payment of the Obligations, granted pursuant to any Loan Document; 55 (b) Liens securing payment of Indebtedness of the type permitted and described in clause (b) of Section 7.2.1; (c) Liens granted prior to the Effective Date to secure payment of Indebtedness of the type permitted and described in clause (c) of Section 7.2.1; (d) Liens securing payment of Indebtedness of the type permitted and described in clause (i) of Section 7.2.1; (e) Liens securing payment of Indebtedness of the type permitted and described in clause (e) of Section 7.2.1; (f) Liens attaching to Excluded Receivables; (g) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (h) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (i) Liens incurred in the ordinary course of business in connection with workmen's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds; and (j) judgment Liens in existence less than 30 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance maintained with responsible insurance companies. SECTION 7.2.3. Consolidation, Merger, etc. The Borrower will not, and will -------------------------- not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other Person, purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof) or make any Acquisition except (a) any such Subsidiary may liquidate or dissolve voluntarily into, and may merge with and into, the Borrower or any Wholly-Owned Subsidiary, and the assets or stock of any Subsidiary may be purchased or otherwise acquired by the Borrower or any other Subsidiary; (b) so long as no Default has occurred and is continuing or would result therefrom, the Borrower may consolidate with or merge with or into any other Person organized or incorporated under the laws of a state of the United States but only if the 56 Borrower is the surviving Person and the Borrower has executed such agreements and instruments as requested by the Administrative Agent to evidence the continued compliance with and obligations of the Borrower under this Agreement and the Loan Documents to which it is a party; and (c) the Borrower or any of its Subsidiaries may purchase all or substantially all of the assets of any Person, acquire such Person by merger, or make an Acquisition so long as such transaction qualifies as a Permitted Acquisition. SECTION 7.2.4. Asset Dispositions, etc. The Borrower will not, and will ----------------------- not permit any of its Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or grant options, warrants or other equity rights in the Borrower or its Subsidiaries, or do any of the foregoing with respect to all or any material part of its assets to any Person, except (a) if such sale, transfer, lease, contribution or conveyance is in the ordinary course of its business or is permitted by Section 7.2.3; (b) the Borrower and its Subsidiaries may sell or otherwise transfer Excluded Receivables; (c) the Borrower and its Subsidiaries may sell or otherwise transfer interests in master trusts held by the Borrower or its Subsidiaries that are established as part of securitizations; and (d) the Borrower or any Subsidiary may sell the Fisher Road warehouse facility, located in Columbus, Ohio, for a sale price of at least $60,000,000 and lease back such warehouse facility on terms reasonably satisfactory to and approved by the Administrative Agent; provided that the Net Proceeds from such sale shall be used to make a mandatory prepayment of all Loans pursuant to Section 3.2(b) but shall not reduce the Commitment Amount pursuant to Section 2.2.1(b)(i). SECTION 7.2.5. Use of Proceeds. The Borrower will use the proceeds of the --------------- Credit Extensions solely for the purposes set forth in the recitals to this Agreement; and not use or permit any proceeds of the Credit Extensions to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying any margin stock" within the meaning of Regulation U of the Federal Reserve Board, as amended from time to time. SECTION 7.2.6. Financial Condition. The Borrower will not permit: ------------------- (a) the Total Leverage Ratio as of the last day of any Fiscal Quarter to exceed 200%; (b) the Tangible Net Worth to be less than $365,000,000 plus 70% of positive Net Income for each Fiscal Year ending after January 2, 1999; (c) the Fixed Charge Coverage Ratio as of the last day of any Fiscal Quarter to be less than 1.15 to 1.00; and 57 (d) the Debt to EBITDAR Ratio as of the last day of Fiscal Year 2001 to be greater than 4.00 to 1.00. SECTION 7.2.7. Investments. For so long as the Borrower is at Level II, ----------- III or IV, the Borrower will not, and will not permit any of its Subsidiaries to, make, incur, assume or suffer to exist any Investment in any other Person, except: (a) Investments existing on the Effective Date and identified in Item 7.2.7(a) ("Ongoing Investments") of the Disclosure Schedule; (b) Cash Equivalent Investments; (c) without duplication, Investments permitted as Indebtedness pursuant to Section 7.2.1; (d) without duplication, Investments in any Obligor not to exceed $20,000,000 in the aggregate at any time outstanding; (e) other Investments of the Borrower and its Subsidiaries (including equity, loans and advances) in joint ventures and other enterprises in which the Borrower or its Subsidiaries hold less than a 51% common equity voting interest, in the aggregate, not to exceed $30,000,000 in each Fiscal Year so long as the Borrower is at Level II, III or IV of the Pricing Grid attached hereto as Schedule III; (f) Permitted Acquisitions; and (g) Investments by Spiegel Acceptance Corporation in securitization trusts which hold Excluded Receivables; provided, however, that any Investment which when made complies with the requirements of the definition of the term "Cash Equivalent Investment" may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements. SECTION 7.2.8. Restricted Payments, etc. On and after the Effective Date, ------------------------ the Borrower will not and will not permit any Subsidiary to declare or pay any dividends or make any other distributions on its capital stock or other equity interests or redeem, repurchase, defease or otherwise acquire or retire any of its capital stock or other equity interests at any time outstanding, or make any deposit for any of the foregoing purposes (each such action being a "Restricted Payment"), except that (a) any Subsidiary may declare and pay distributions or dividends to the Borrower or to a Wholly-Owned Subsidiary of the Borrower; (b) the following conditions must be satisfied to enable the Borrower to declare or make Restricted Payments: 58 (i) the Fixed Charge Coverage Ratio must have been equal to or greater than 1.15 to 1.0 as of the end of each of the then most recent four consecutive Fiscal Quarters; and (ii) before making a Restricted Payment, the amount proposed to be declared or paid shall be added to the denominator of the Fixed Charge Coverage Ratio for the most recently completed Fiscal Quarter and the Fixed Charge Coverage Ratio recalculated. The proposed Restricted Payment may only be declared or paid if, after such recalculation, such Fixed Charge Coverage Ratio is equal to or greater than 1.15 to 1.0; (c) the Borrower may only declare and make Restricted Payments under Section 7.2.8(b) if (i) after accounting for any such Restricted Payments, the Borrower is still able to meet its debt obligations and (ii) no Default has occurred and is continuing or would result from such Restricted Payment. SECTION 7.2.9. Fiscal Year. Neither the Borrower nor any of its ----------- Subsidiaries shall change its Fiscal Year except (i) for a one-time change after the date hereof to a Fiscal Year ending the Saturday closest to January 31 or (ii) with the consent of the Required Lenders. SECTION 7.2.10. Transactions with Affiliates. The Borrower will not, and ---------------------------- will not permit any of its Subsidiaries to, enter into, or cause, suffer or permit to exist any arrangement or contract with any of its other Affiliates unless such arrangement or contract is fair and equitable to the Borrower or such Subsidiary and is an arrangement or contract of a nature which would be entered into by a prudent Person in the position of the Borrower or such Subsidiary with a Person which is not one of its Affiliates. SECTION 7.2.11. Modification, etc. of Subordinated Debt. The Borrower --------------------------------------- will not amend, modify, restate, supplement or replace any term or provision, including any subordination provision, covenant, event of default or right of acceleration or any sinking fund provision or term of required repayment or redemption (except any change which extends the date or reduces the amount of any required repayment or redemption or otherwise is not disadvantageous to the Lenders), contained in or applicable to any instrument or agreement evidencing or applicable to any Subordinated Debt of the Borrower. SECTION 7.2.12. Negative Pledges, Restrictive Agreements, etc. The --------------------------------------------- Borrower will not, and will not permit any of its Subsidiaries to, enter into any agreement (excluding this Agreement, any other Loan Document and any agreement governing any Indebtedness permitted either by clause (c) of Section 7.2.1 as in effect on the Effective Date or by clause (e) of Section 7.2.1 as to the assets financed with the proceeds of such Indebtedness) (a) prohibiting the creation or assumption of any Lien upon its properties, revenues or assets, whether now owned or hereafter acquired other than in connection with Excluded Receivables and Excluded Mastercard Receivables, or limiting the ability of the Borrower or any other Obligor to amend or otherwise modify this Agreement or any other Loan Document; or 59 (b) limiting the ability of any Subsidiary to make any payments, directly or indirectly, to the Borrower by way of dividends, advances, repayments of loans or advances, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments, or any other agreement or arrangement which restricts the ability of any such Subsidiary to make any payment, directly or indirectly, to the Borrower. SECTION 7.2.13. Spiegel Acceptance Corporation. The Borrower will not ------------------------------ permit Spiegel Acceptance Corporation to amend, modify, restate, supplement or replace any term or provision of Spiegel Acceptance Corporation's Certificate of Incorporation or By-Laws. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. Listing of Events of Default. Each of the following events ---------------------------- or occurrences described in this Section 8.1 shall constitute an "Event of Default". SECTION 8.1.1. Non-Payment of Obligations. The Borrower shall default (a) -------------------------- in the payment or prepayment when due of any principal of any Loan; (b) in the payment when due of any Reimbursement Obligations or any deposit of cash for collateral purposes pursuant to Section 2.6.2 or Section 2.6.4, as the case may be; or (c) in the payment when due of any interest on any Loan, of any commitment fee or of any other monetary Obligation, and such default shall continue unremedied, in the case of this clause (c) only, for a period of three days. SECTION 8.1.2. Non-Performance of Certain Covenants and Obligations. The ---------------------------------------------------- Borrower shall default in the due performance and observance of any of its obligations under Section 7.2. SECTION 8.1.3. Non-Performance of Other Covenants and Obligations. Any -------------------------------------------------- Obligor shall default in the due performance and observance of any covenant (other than as provided above) contained herein or in any other Loan Document executed by it, and such default shall continue unremedied for a period of thirty days after written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender. SECTION 8.1.4. Breach of Representation or Warranty. Any representation or ------------------------------------ warranty of the Borrower or any other Obligor made or deemed to be made hereunder or in any other Loan Document executed by it or any other writing or certificate furnished by or on behalf of the Borrower or any other Obligor to any Agent, the Issuer or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article V) is or shall be incorrect when made in any material respect. SECTION 8.1.5. Default on Other Indebtedness. A default shall occur in the ----------------------------- payment when due (after the expiration of any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 8.1.1) of the Borrower or any of its Subsidiaries or any other Obligor having a principal amount, individually or in the aggregate, in excess of $5,000,000 (excluding trade payables (i) arising in the ordinary 60 course of business that are not more than sixty days overdue and on which no interest is being charged or which do not otherwise comprise "Total Borrowed Funds" or (ii) that are the subject of dispute, provided that adequate reserves have been established in accordance with GAAP), or a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity. SECTION 8.1.6. Control of the Borrower. Any Change of Control shall occur. ----------------------- SECTION 8.1.7. Pension Plans. Any of the following events shall occur with ------------- respect to any Pension Plan. (a) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of the aggregate amount of $5,000,000 or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. SECTION 8.1.8. Judgments. Any judgment or order for the payment of money --------- not covered by insurance (net of deductibles) issued by a solvent insurance company in excess of the aggregate amount of $5,000,000 shall be rendered against the Borrower or any of its Subsidiaries or any Material Subsidiary and there shall be any period of thirty consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. SECTION 8.1.9. Bankruptcy, Insolvency, etc. The Borrower or any Material --------------------------- Subsidiary shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; (b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or any Material Subsidiary or any property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or any Material Subsidiary or for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within sixty days, provided that the Borrower hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any relevant proceeding during such sixty-day period to preserve, protect and defend its rights under the Loan Documents; 61 (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding in respect of the Borrower or any Material Subsidiary and, if any such case or proceeding is not commenced by the Borrower or such Material Subsidiary, such case or proceeding shall be consented to or acquiesced in by the Borrower or such Material Subsidiary or shall result in the entry of an order for relief or shall remain for sixty days undismissed, provided that the Borrower hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any such case or proceeding during such sixty-day period to preserve, protect and defend its rights under the Loan Documents; or (e) take any action authorizing, or in furtherance of, any of the foregoing. SECTION 8.2. Action if Bankruptcy. If any Event of Default described in -------------------- clauses (a) through (d) of Section 8.1.9 shall occur, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other Obligations shall automatically be and become immediately due and payable, without notice or demand. SECTION 8.3. Action if Other Event of Default. If any Event of Default -------------------------------- (other than any Event of Default described in clauses (a) through (d) of Section 8.1.9) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Administrative Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare all or any portion of the outstanding principal amount of the Loans and other Obligations to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments shall terminate and the Borrower shall comply with the provisions of Section 2.6.4. ARTICLE IX THE AGENTS SECTION 9.1. Actions. Each Lender, the Issuer and each other Agent hereby ------- appoints DBNY as the Administrative Agent, under and for purposes of this Agreement, the Notes and each other Loan Document. Each Lender authorizes the Issuer and the Administrative Agent to act on behalf of such Lender under this Agreement, the Notes and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by such Agent (with respect to which each Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of such Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) each Agent, pro rata according to such Lender's Percentage, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, such Agent 62 in any way relating to or arising out of this Agreement, the Notes and any other Loan Document, including reasonable attorneys' fees, and as to which such Agent is not reimbursed by the Borrower; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses to the extent such are determined by a court of competent jurisdiction in a final proceeding to have resulted from such Agent's gross negligence or wilful misconduct. No Agent shall be required to take any action hereunder, under the Notes or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement, the Notes or any other Loan Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of any Agent shall be or become, in such Agent's determination, inadequate, such Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION 9.2. Funding Reliance, etc. Unless the Administrative Agent shall --------------------- have been notified by telephone, confirmed in writing, by any Lender by 5:00 p.m., New York City time, on the day prior to a Borrowing that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent and, in reliance upon such assumption, make available to the Borrower a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Administrative Agent, such Lender and the Borrower severally agree to repay the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Administrative Agent made such amount available to the Borrower to the date such amount is repaid to the Administrative Agent, at the interest rate applicable at the time to Loans comprising such Borrowing, in the case of the Borrower, and at the Federal Funds Rate, in the case of the Lender. SECTION 9.3. Exculpation. No Agent nor any of its directors, officers, ----------- employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for its own wilful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Agreement or any other Loan Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by the Borrower of its obligations hereunder or under any other Loan Document. Any such inquiry which may be made by any Agent shall not obligate it to make any further inquiry or to take any action. Each Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which such Agent believes to be genuine and to have been presented by a proper Person. SECTION 9.4. Successor. Any Agent may resign as such at any time upon at --------- least 30 days' prior notice to the Borrower and all Lenders. If the Administrative Agent at any time shall resign, the Required Lenders may appoint, and, except during the existence of an Event of Default, with the Borrower's consent, which consent shall not be unreasonably withheld, another Lender as a successor Administrative Agent which shall thereupon assume the resigning Administrative Agent's position hereunder. If no successor Administrative Agent shall have 63 been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be one of the Lenders or a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall be entitled to receive from the retiring Administrative Agent such documents of transfer and assignment as such successor Administrative Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After the retiring Administrative Agent's resignation hereunder, the provisions of (a) this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement; and (b) Section 10.3 and Section 10.4 shall continue to inure to its benefit. Any Agent, other than the Administrative Agent, that resigns shall not be replaced. SECTION 9.5. Loans by Each Agent. Each Agent shall have the same rights and ------------------- powers with respect to (x) the Credit Extensions made by it or any of its Affiliates, and (y) the Notes held by it or any of its Affiliates as any other Lender and may exercise the same as if it were not the Agent. Each Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if such Agent were not the Agent hereunder. SECTION 9.6. Credit Decisions. Each Lender acknowledges that it has, ---------------- independently of each Agent and each other Lender, and based on such Lender's review of the financial information of the Borrower, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitment. Each Lender also acknowledges that it will, independently of each Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. SECTION 9.7. Copies, etc. The Administrative Agent shall give prompt notice ----------- to each Lender of each notice or request required or permitted to be given to the Administrative Agent by the Borrower pursuant to the terms of this Agreement (unless concurrently delivered to the Lenders by the Borrower). The Administrative Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Administrative Agent from the Borrower for distribution to the Lenders by the Administrative Agent in accordance with the terms of this Agreement. 64 ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.1. Waivers, Amendments, etc. The provisions of this Agreement ------------------------ and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no such amendment, modification or waiver which would: (a) modify any requirement hereunder that any particular action required to be taken by all the Lenders or by the Required Lenders shall be effective unless consented to by each Lender or the Required Lenders, as applicable; (b) modify this Section 10.1, change the definition of "Required Lenders", increase the Commitment Amount or the Percentage of any Lender, release all or substantially all collateral security or the Guaranty, except as otherwise specifically provided in any Loan Document, or extend the Commitment Termination Date shall be made without the consent of each Lender; (c) extend the Commitment Termination Date or increase the Commitment Amount shall be made without the consent of each Lender; (d) decrease the fees payable pursuant to this Agreement shall be made without the consent of each affected Lender; (e) release any Obligor from its Obligations shall be made without the consent of each Lender; (f) extend the due date for, or reduce the amount of, any scheduled repayment or prepayment of principal of or interest on any Loan (or reduce the principal amount of or rate of interest on any Loan) shall be made without the consent of the holder of that Note evidencing such Loan; (g) increase the Stated Amount of any Letter of Credit shall be made unless consented to by the Issuer of such Letter of Credit; or (h) affect adversely the interests, rights or obligations of any Agent qua Agent or the Issuer, shall be made unless consented to by such Agent or the Issuer, as the case may be. No failure or delay on the part of any Agent, the Issuer, any Lender or the holder of any Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances (unless such notice or demand is required hereby). No waiver or approval by any Agent, the Issuer, any Lender or the holder of any Note under this Agreement or any other Loan 65 Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 10.2. Notices. All notices and other communications provided to any ------- party hereto under this Agreement or any other Loan Document shall be in writing (including facsimile) and addressed, delivered or transmitted to such party at its address or facsimile number set forth on Schedule I hereto or set forth in the Lender Assignment Agreement or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted. SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to pay on ----------------------------- demand all reasonable expenses of the Arrangers and the Administrative Agent (including the fees and reasonable out-of-pocket expenses of counsel to the Arrangers and the Administrative Agent, and of local counsel, if any, who may be retained by counsel to the Arrangers or the Administrative Agent in connection with clauses (b) and (c) below) in connection with (a) the negotiation, preparation, execution and delivery of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document (to the extent that such amendments, waivers, consents, supplements or modifications do not relate solely to inter-Lender matters) as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated, (b) the filing, recording, refiling or rerecording of any Loan Document and/or any Uniform Commercial Code financing statements relating thereto and all amendments, supplements and modifications to any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms hereof, and (c) the preparation and review of the form of any other document or instrument relevant to this Agreement or any other Loan Document. The Borrower further agrees to pay, and to save the Agents, the Issuer and the Lenders harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Agreement, the Credit Extensions hereunder, or the issuance of the Notes, Letters of Credit or any other Loan Documents. The Borrower also agrees to reimburse the Agents, the Issuer and each Lender upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses and including, without duplication, the allocated costs of internal counsel) incurred by such Agent, the Issuer or such Lender in connection with (x) the negotiation of any restructuring or "work-out", whether or not consummated, of any Obligations and (y) the enforcement of any Obligations. 66 SECTION 10.4. Indemnification. In consideration of the execution and --------------- delivery of this Agreement by each Lender and the extension of the Commitments, the Borrower hereby indemnifies, exonerates and holds each Agent, the Issuer and each Lender and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements and including, without duplication, the allocated costs of internal counsel (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Credit Extension; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of any determination by the Required Lenders pursuant to Article V not to fund any Credit Extension); (c) any investigation, litigation or proceeding related to any Acquisition or proposed Acquisition by the Borrower or any of its Subsidiaries of all or any portion of the stock or assets of any Person, whether or not such Agent, the Issuer or such Lender is party thereto; (d) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by the Borrower or any of its Subsidiaries of any Hazardous Material; or (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the Borrower or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower or such Subsidiary, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or wilful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 10.5. Survival. The obligations of the Borrower under Sections 4.3, -------- 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders under Section 9.1, shall in each case survive any termination of this Agreement, the payment in full of all Obligations and the termination of all Commitments. The representations and warranties made by each Obligor in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. 67 SECTION 10.6. Severability. Any provision of this Agreement or any other ------------ Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 10.7. Headings. The various headings of this Agreement and of -------- each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION 10.8. Execution in Counterparts; Effectiveness. This Agreement ---------------------------------------- may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower and each Lender (or notice thereof satisfactory to the Administrative Agent) shall have been received by the Administrative Agent and notice thereof shall have been given by the Administrative Agent to the Borrower and each Lender. SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES ------------------------------- AND EACH OTHER LOAN DOCUMENT (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO ANY LENDER. This Agreement, the Notes and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 10.10. Successors and Assigns. This Agreement shall be binding ---------------------- upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: (a) the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Agents and all Lenders; and (b) the rights of sale, assignment and transfer of the Lenders are subject to Section 10.11. SECTION 10.11. Sale and Transfer of Loans and Notes; Participations in ------------------------------------------------------- Loans and Notes. Each Lender may assign, or sell participations in, its Loans, - --------------- Letters of Credit participations and Commitment to one or more other Persons in accordance with this Section 10.11. SECTION 10.11.1. Assignments. Any Lender, ----------- (a) with the written consent of (i) the Borrower (which consent shall not be unreasonably delayed or withheld at any time during which an Event of Default has occurred and is continuing for a period of 45 days or more), it being understood that, in 68 the event of the Borrower's objection or failure to consent, the Borrower is committed to working with the assigning Lender to find a solution acceptable to both parties, (ii) the Administrative Agent (which consent shall not be unreasonably delayed or withheld), and (iii) the Issuer (which consent shall not be unreasonably delayed or withheld), may at any time assign and delegate to one or more commercial banks or other financial institutions; (b) with notice to the Borrower and the Agents, but without the consent of the Borrower or the Agents, may assign and delegate to any of its Affiliates (but for this purpose the reference to 10% in clause (a) in the definition thereof shall be to 51%); and (c) with the written consent of the Borrower, it being understood that, in the event of the Borrower's objection or failure to consent, the Borrower is committed to working with the assigning Lender to find a solution acceptable to both parties, and the Agents (such consent not to be unreasonably withheld or delayed), may at any time assign and delegate to any other Lender; all or any fraction of a Lender's total Loans, Letter of Credit Outstandings and Commitments (which assignment and delegation shall be of a constant, and not a varying, percentage of all the assigning Lender's Loans, Loan Commitment, Letter of Credit Commitment and participation in the Letters of Credit issued hereunder) in a minimum aggregate amount of $5,000,000 (or the then remaining amount of such Lender's Loans, Letter of Credit Outstandings and Commitments) unless otherwise agreed to by the Borrower and the Administrative Agent. Each Person described in either of the foregoing clauses (a) and (b) as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender." Confidential information may be provided to a potential Assignee Lender if the potential Assignee Lender agrees to hold all non-public information identified as such by the Borrower in accordance with its customary procedures for handling confidential information, after obtaining the Borrower's consent (if the Borrower's consent is required for any such assignment). Each Assignee Lender will comply, if applicable, with the provisions contained in the last sentence of Section 4.6 and the Borrower, each other Obligor and the Agents shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned and delegated to an Assignee Lender until (i) written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been given to the Borrower and the Administrative Agent by such Lender and such Assignee Lender; (ii) such Assignee Lender shall have executed and delivered to the Borrower and the Administrative Agent a Lender Assignment Agreement, accepted by the Administrative Agent; and (iii) the processing fees described below shall have been paid. From and after the date that the Administrative Agent accepts such Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and 69 delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (y) the assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Within five Business Days after its receipt of notice that the Administrative Agent has received an executed Lender Assignment Agreement, the Borrower shall execute and deliver to the Administrative Agent (for delivery to the relevant Assignee Lender) new Notes evidencing such Assignee Lender's assigned Loans and Loan Commitment and, if the assignor Lender has retained Loans and a Loan Commitment hereunder, replacement Notes in the principal amount of the Loans and Loan Commitment retained by the assignor Lender hereunder (each such Note to be in exchange for, but not in payment of, each Note then held by such assignor Lender). Each such Note shall be dated the earliest date for which interest has not yet been paid. The assignor Lender shall mark any predecessor Note "exchanged" and deliver it to the Borrower. Accrued interest on that part of a predecessor Note evidenced by the new Note, and accrued fees, shall be paid as provided in the Lender Assignment Agreement. Accrued interest on that part of the predecessor Note evidenced by a replacement Note shall be paid to the assignor Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Notes and in this Agreement. Such Lender or such Assignee Lender must also pay a processing fee to the Administrative Agent upon delivery of any Lender Assignment Agreement in the amount of $3,000. Notwithstanding anything contained in this Section 10.11.1 to the contrary, each Lender shall have the unrestricted right to assign its rights hereunder to any Federal Reserve Bank to secure such Lender's borrowing from such Federal Reserve Bank. Any attempted assignment and delegation not made in accordance with this Section 10.11.1 shall be null and void. SECTION 10.11.2. Participations. Any Lender at any time may sell to one or -------------- more commercial banks or other Persons, excluding any competitor of the Borrower or its Subsidiaries, (each of such commercial banks and other Persons being herein called a "Participant") participating interests in any of its Loans, Loan Commitment, Letter of Credit Commitment and Letter of Credit Outstandings participated in by it, or other interests of such Lender hereunder; provided, however, that (a) no participation contemplated in this Section 10.11.2 shall relieve such Lender from its Commitments or its other obligations hereunder or under any other Loan Document; (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations; (c) the Borrower and each other Obligor and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents; (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, take 70 any actions of the type described in clauses (b) through (h) of Section 10.1 provided that such Lender has the option (but not the obligation) to repurchase such participation if the Participant fails to give any such consent; and (e) the Borrower shall not be required to pay any amount under Section 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4 that is greater than the amount which it would have been required to pay had no participating interest been sold. The Borrower acknowledges and agrees that each Participant, for purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4, shall be considered a Lender. Confidential information may be provided to the potential Participant with advance written notice to the Borrower, if such potential Participant agrees to hold all non-public information identified as such by the Borrower in accordance with its customary procedures for handling confidential information. SECTION 10.11.3. Confidentiality. No Assignment or Participation hereunder --------------- shall be effective unless such Assignee or such Participant shall have executed a Confidentiality Agreement substantially in the form of Exhibit R prior to the receipt of any Information (as defined in the Confidentiality Agreement). SECTION 10.12. Other Transactions. Nothing contained herein shall preclude ------------------ the Agents, the Issuer or any other Lender from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 10.13. Forum Selection and Consent to Jurisdiction. ANY LITIGATION ------------------------------------------- BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS, THE ISSUER OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY 71 IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 10.14. Waiver of Jury Trial. EACH AGENT, THE LENDERS, THE ISSUER -------------------- AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SUCH AGENT, THE LENDERS, THE ISSUER OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS, THE ISSUER AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 72 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. BORROWER SPIEGEL, INC. By: /s/ John R. Steele ------------------ Name: John R. Steele Title: Treasurer AGREED AND CONSENTED: EDDIE BAUER, INC. By: /s/ John R. Steele - ---------------------- Name: John R. Steele Title: Treasurer ULTIMATE OUTLET INC. By: /s/ John R. Steele - ---------------------- Name: John R. Steele Title: Treasurer S-1 NEWPORT NEWS, INC. By: /s/ John R. Steele - ---------------------- Name: John R. Steele Title: Treasurer S-2 DISTRIBUTION FULFILLMENT SERVICES, INC. (DFS) By:/s/ John R. Steele - --------------------- Name: John R. Steele Title: Treasurer SPIEGEL PUBLISHING COMPANY By:/s/ John R. Steele - --------------------- Name: John R. Steele Title: Treasurer SPIEGEL CATALOG, INC. By:/s/ John R. Steele - --------------------- Name: John R. Steele Title: Treasurer S-3 DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative Agent By: /s/ Hans-Josef Thiele ------------------------- Name Printed: Hans-Josef Thiele Title: Director By: /s/Oliver Schwarz --------------------- Name Printed: Oliver Schwarz Title: Vice President S-4 DEUTSCHE BANC ALEX. BROWN INC., as Arranger By: /s/Hans-Josef Thiele ------------------------ Name Printed: Hans-Josef Thiele Title: Director By: /s/Oliver Schwarz --------------------- Name Printed: Oliver Schwarz Title: Vice President S-5 **J.P. MORGAN SECURITIES INC., as Arranger By:/s/Beverly Israely --------------------- Name Printed: Beverly Israely Title: Vice President S-6 ABN AMRO BANK N.V., as a Lender By:/s/W. Stephen Jones ---------------------- Name Printed: W. Stephen Jones Title: Senior Vice President By: /s/ Peter J. Hallan ----------------------- Name Printed: Peter J. Hallan Title: Assistant Vice President S-7 INTESABCI, NEW YORK BRANCH, as a Lender By:/s/ Frank Maffei ------------------- Name Printed: Frank Maffei Title: Vice President By:/s/ J. Dickerhof ------------------- Name Printed: J. Dickerhof Title: Vice President S-8 BANK OF AMERICA, N.A., as a Lender By:/s/ Timothy H. Spanos ------------------------ Name Printed: Timothy H. Spanos Title: Managing Director S-9 THE BANK OF NEW YORK, as a Lender By:/s/ Charlotte Sohn Fuiks --------------------------- Name Printed: Charlotte Sohn Fuiks Title: Vice President S-10 BANKGESELLSCHAFT BERLIN AG, as a Lender By: /s/ Schutt_________________________ Name Printed: Schutt Title: Director By: /s/ Jurgen Japke -------------------- Name Printed: Jurgen Japke Title: Director S-11 COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender By: /s/ Mark Monson ------------------- Name Printed: Mark Monson Title: Vice President By: /s/ Albert Morrow --------------------- Name Printed: Albert Morrow Title: Assistant Treasurer S-12 CREDIT LYONNAIS AMERICAS, as a Lender By: /s/ Genevieve Leruth ------------------------------------- Name Printed: Genevieve Leruth Title: Vice President S-13 DEUTSCHE BANK AG NEW YORK BRANCH, as a Lender By: /s/ Hans-Josef Thiele ------------------------- Name Printed: Hans-Josef Thiele Title: Director By: /s/ Oliver Schwarz ---------------------- Name Printed: Oliver Schwarz Title: Vice President S-14 DANSKE BANK, as a Lender By: /s/ Bo Anderson ------------------- Name Printed: Bo Andersen Title: Vice President By: /s/ Lars Emmery ------------------- Name Printed: Lars Emmery Title: Vice President S-15 DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG, as a Lender By: /s/ Jochen Breiltgens ------------------------- Name Printed: Jochen Breiltgens Title: Vice President By: /s/ Wolfgang Haugk ---------------------- Name Printed: Wolfgang Haugk Title: Vice President S-16 DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender By: /s/ Gabriela E. Fields -------------------------- Name Printed: Gabriela E. Fields Title:Associate By: /s/ Faraaz Kamran --------------------- Name Printed: Faraaz Kamran Title:Associate S-17 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, as Issuer By:/s/Dominic O'Hagan --------------------- Name Printed: Dominic O'Hagan Title:Regional Relationship Manager S-18 HSBC BANK USA, as a Lender By: /s/ Michael C. Cutlip ------------------------- Name Printed: Michael C. Cutlip Title:Senior Vice President S-19 LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Lender By: /s/ Fred Musch ------------------ Name Printed: Fred Musch Title: Senior Vice President By: /s/ Bernd Haeger -------------------- Name Printed: Bernd Haeger Title: Senior Vice President S-20 MORGAN GUARANTY TRUST CO. OF NEW YORK, as a Lender By: /s/ Barry K. Bergman ------------------------ Name Printed: Barry K. Bergman Title: Vice President S-21 NORDDEUTSCHE LANDESBANK GIROZENTRALE NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH, as a Lender By: /s/Stephen K. Hunter ------------------------ Name Printed: Stephen K. Hunter Title:Senior Vice President By: /s/Hinrich Holm -------------------- Name Printed: Hinrich Holm Title:Vice President S-22 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH, as a Lender By: /s/ Martin Clements ----------------------- Name Printed: Martin Clements Title: Director By: /s/ Lars Kickstein ---------------------- Name Printed: Lars Kickstein Title: Manager S-23 BAYERISCHE HYPO UND VEREINSBANK AG, NEW YORK BRANCH, as a Lender By: /s/ Curt Schade ------------------- Name Printed: Curt Schade Title: Managing Director By: /s/Thomas Taylor -------------------- Name Printed: Thomas Taylor Title: Director S-24 AGREED AND CONSENTED: CREDIT SUISSE FIRST BOSTON, as a Terminating Bank By: /s/ Bill O'Daly ------------------------------------ Name Printed: Bill O'Daly Title: Vice President By: /s/ Jay Chall ------------------------------------ Name Printed: Jay Chall Title: Director S-25 SCHEDULE I LENDERS COMMITMENTS AND PERCENTAGES -----------------------------------
- -------------------------------------------------------------------------------------------------------------- LENDERS COMMITMENT PERCENTAGE - -------------------------------------------------------------------------------------------------------------- DEUTSCHE BANK AG NEW YORK BRANCH $ 18,750,000 12.50% - -------------------------------------------------------------------------------------------------------------- MORGAN GUARANTY TRUST CO. OF NEW YORK $ 18,750,000 12.50% - -------------------------------------------------------------------------------------------------------------- BANK OF AMERICA, N.A. $ 13,500,000 9.00% - -------------------------------------------------------------------------------------------------------------- COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES $ 13,500,000 9.00% - -------------------------------------------------------------------------------------------------------------- ABN AMRO BANK N.V. $ 11,250,000 7.50% - -------------------------------------------------------------------------------------------------------------- DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES $ 11,250,000 7.50% - -------------------------------------------------------------------------------------------------------------- HSBC BANK USA $ 11,250,000 7.50% - -------------------------------------------------------------------------------------------------------------- THE BANK OF NEW YORK $ 11,250,000 7.50% - -------------------------------------------------------------------------------------------------------------- BAYERISCHE HYPO UND VEREINSBANK AG, NEW YORK BRANCH $ 4,500,000 3.00% - -------------------------------------------------------------------------------------------------------------- DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG $ 4,500,000 3.00% - -------------------------------------------------------------------------------------------------------------- NORDDEUTSCHE LANDESBANK GIROZENTRALE NEW YORK BRANCH AND/OR CAYMAN $ 4,500,000 3.00% ISLANDS BRANCH - -------------------------------------------------------------------------------------------------------------- INTESABCI $ 4,500,000 3.00% - -------------------------------------------------------------------------------------------------------------- BANKGESELLSCHAFT BERLIN AG $ 4,500,000 3.00% - -------------------------------------------------------------------------------------------------------------- CREDIT LYONNAIS AMERICAS $ 4,500,000 3.00% - -------------------------------------------------------------------------------------------------------------- LANDESBANK HESSEN-THURINGEN GIROZENTRALE $ 4,500,000 3.00% - -------------------------------------------------------------------------------------------------------------- WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH $ 4,500,000 3.00% - -------------------------------------------------------------------------------------------------------------- DANSKE BANK $ 4,500,000 3.00% - -------------------------------------------------------------------------------------------------------------- TOTAL $150,000,000 100% - --------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS Page SCHEDULE III 364-DAY CREDIT AGREEMENT PRICING GRID
- ------------------------------------------------------------------------------------------------------------------------------------ Fixed Charge Applicable Applicable All in Standby Commercial Coverage Total Base Rate LIBOR Rate LIBOR Letters of Letters of Credit Level Ratio LeverageRatio Margin Margin Facility Fee Drawn Cost Credit Fee Fee - ------------------------------------------------------------------------------------------------------------------------------------ I * 2.25 ** 1.30 0% p.a. 0.625% p.a. 0.125% p.a. 0.75% p.a. 0.625% p.a. 0.36% p.a. - ------------------------------------------------------------------------------------------------------------------------------------ II * 2.00 ** 2.25 * 1.30 ** 1.50 0% p.a. 0.775% p.a. 0.225% p.a. 1.00% p.a. 0.775% p.a. 0.45% p.a. - ------------------------------------------------------------------------------------------------------------------------------------ III * 1.20 ** 2.00 * 1.50 ** 1.80 0% p.a. 0.925% p.a. 0.325% p.a. 1.25% p.a. 0.925% p.a. 0.525% p.a. - ------------------------------------------------------------------------------------------------------------------------------------ IV ** 1.20 * 1.80 0.875% p.a. 1.925% p.a. 0.450% p.a. 2.375% p.a. 1.925% p.a. 1.125% p.a. ====================================================================================================================================
* Greater than ** Less than For each Pricing Period, Level calculations shall be determined by reference to the Fixed Charge Coverage Ratio and Total Leverage Ratio. In the event that the Fixed Charge Coverage Ratio and the Total Leverage Ratio as of the previous Fiscal Quarter do not fall within the same Level, the Applicable Base Rate Margin, Applicable LIBO Rate Margin, Facility Fee, All in LIBOR Drawn Cost and Letter of Credit fees will be determined by the lower of the two Levels (with Level IV being the lowest Level). As of the Closing Date, the Borrower is at Level I. -i- EX-10.17 17 dex1017.txt RESTATED REVOLVING CREDIT AGREEMENT DATED 6/30/01 ================================================================================ Exhibit 10.17 CONFORMED COPY of the SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT dated as of June 30, 2000 as amended by THE FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT dated as of June 26, 2001 among SPIEGEL, INC. as the Borrower, VARIOUS FINANCIAL INSTITUTIONS as the Lenders, DEUTSCHE BANK SECURITIES INC. and J.P. MORGAN SECURITIES INC. as the Joint Lead Arrangers and Book Runners, J.P. MORGAN SECURITIES INC. as the Syndication Agent and DEUTSCHE BANK AG New York Branch as the Administrative Agent TABLE OF CONTENTS
Section Page - ------- ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS ......................................................... 1 SECTION 1.1. Defined Terms ........................................................... 1 SECTION 1.2. Use of Defined Terms .................................................... 20 SECTION 1.3. Cross-References ........................................................ 21 SECTION 1.4. Accounting and Financial Determinations ................................. 21 ARTICLE II COMMITMENTS, LOANS, BORROWING AND ISSUANCE PROCEDURES AND NOTES AND LETTERS OF CREDIT .... 21 SECTION 2.1. Commitments ............................................................. 21 SECTION 2.1.1. Loan Commitment of Each Lender .......................................... 22 SECTION 2.1.2. Letter of Credit Commitment ............................................. 22 SECTION 2.1.3. Lenders Not Permitted or Required To Make Revolving Loans ............... 22 SECTION 2.1.4. Issuer Not Permitted or Required to Issue Letters of Credit ............. 22 SECTION 2.2. Reduction of Commitment Amount or Availability .......................... 22 SECTION 2.2.1. Mandatory Reductions .................................................... 23 SECTION 2.2.2. Optional Reduction of Commitment Amount ................................. 23 SECTION 2.2.3. Reduction Due to External Letters of Credit ............................. 23 SECTION 2.3. Revolving Loan Borrowing Procedure ...................................... 24 SECTION 2.4. Continuation and Conversion Elections ................................... 24 SECTION 2.5. Funding ................................................................. 24 SECTION 2.6. Issuance Procedures ..................................................... 25 SECTION 2.6.1. Other Lenders' Participation ............................................ 25 SECTION 2.6.2. Disbursements ........................................................... 26 SECTION 2.6.3. Reimbursement ........................................................... 26 SECTION 2.6.4. Deemed Disbursements .................................................... 26 SECTION 2.6.5. Nature of Reimbursement Obligations ..................................... 27 SECTION 2.7. Notes ................................................................... 28 SECTION 2.8. Competitive Bid Loans ................................................... 28 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES ............................................... 33 SECTION 3.1. Repayment ............................................................... 33 SECTION 3.2. Prepayments ............................................................. 33 SECTION 3.3. Interest Provisions ..................................................... 34 SECTION 3.3.1. Rates ................................................................... 34 SECTION 3.3.2. Post-Maturity Rates ..................................................... 35 SECTION 3.3.3. Payment Dates ........................................................... 35 SECTION 3.4. Fees .................................................................... 36 SECTION 3.4.1. Front-End Fee ........................................................... 36 SECTION 3.4.2. Facility Fee ............................................................ 36 SECTION 3.4.3. Administrative Agent's Fee .............................................. 36
i SECTION 3.4.4. Letter of Credit Fee .................................................... 36 SECTION 3.4.5. Auction Fee ............................................................. 37 SECTION 3.4.6. Arranger Fee ............................................................ 37 ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS .................................................... 37 SECTION 4.1. Fixed Rate Lending Unlawful ............................................. 37 SECTION 4.2. Deposits Unavailable .................................................... 37 SECTION 4.3. Increased Loan Costs, etc ............................................... 38 SECTION 4.4. Funding Losses .......................................................... 38 SECTION 4.5. Increased Capital Costs ................................................. 38 SECTION 4.6. Taxes ................................................................... 39 SECTION 4.7. Payments, Computations, etc ............................................. 40 SECTION 4.8. Sharing of Payments ..................................................... 41 SECTION 4.9. Setoff .................................................................. 41 SECTION 4.10. Use of Proceeds ......................................................... 42 SECTION 4.11. Reserves ................................................................ 42 SECTION 4.12. Change in Applicable Lending Office ..................................... 42 ARTICLE V CONDITIONS TO CREDIT EXTENSIONS ........................................................... 42 SECTION 5.1. Initial Credit Extension ................................................ 43 SECTION 5.1.1. Resolutions, etc ........................................................ 43 SECTION 5.1.2. Delivery of Certain Documents ........................................... 43 SECTION 5.1.3. Delivery of Notes ....................................................... 43 SECTION 5.1.4. Payment of Outstanding Indebtedness, etc ................................ 43 SECTION 5.1.5. Assumption of Outstanding Indebtedness, etc ............................. 44 SECTION 5.1.6. Closing Date Certificate ................................................ 44 SECTION 5.1.7. Opinions of Counsel ..................................................... 44 SECTION 5.1.8. Guaranty ................................................................ 44 SECTION 5.1.9. Insurance ............................................................... 44 SECTION 5.1.10. Pro Forma Compliance Certificate and Auditor's Reliance Letter .......... 45 SECTION 5.1.11. Closing Fees, Expenses, etc ............................................. 45 SECTION 5.1.12. Document Review ......................................................... 45 SECTION 5.1.13. Simultaneous Closing of Liquidity Facility .............................. 45 SECTION 5.1.14. Subordinated Debt ....................................................... 45 SECTION 5.2. All Credit Extensions ................................................... 45 SECTION 5.2.1. Compliance with Warranties, No Default, etc ............................. 45 SECTION 5.2.2. Credit Extension Request ................................................ 46 SECTION 5.2.3. Satisfactory Legal Form ................................................. 46 SECTION 5.2.4. Acquisition Funding ..................................................... 46 SECTION 5.3. Second Restatement Date ................................................. 46 SECTION 5.3.1. Resolutions, etc ........................................................ 46 SECTION 5.3.2. Delivery of Certain Documents ........................................... 47 SECTION 5.3.3. Delivery of Notes ....................................................... 47 SECTION 5.3.4. Opinions of Counsel ..................................................... 47
ii SECTION 5.3.5. Guaranty Affirmation ................................................... 48 SECTION 5.3.6. Second Restatement Date Certificate .................................... 48 SECTION 5.3.7. Closing Fees, Expenses, etc ............................................ 48 SECTION 5.3.8. Document Review ........................................................ 48 SECTION 5.3.9. Support Letter ......................................................... 48 SECTION 5.3.10. Simultaneous Closing of 364-Day Credit Agreement ....................... 48 ARTICLE VI REPRESENTATIONS AND WARRANTIES ........................................................... 48 SECTION 6.1. Organization, etc ...................................................... 48 SECTION 6.2. Due Authorization, Non-Contravention, etc .............................. 49 SECTION 6.3. Government Approval, Regulation, etc.; Investment Company Act; Public Utility Holding Company Act ............................................ 49 SECTION 6.4. Validity, etc .......................................................... 49 SECTION 6.5. Financial Information .................................................. 50 SECTION 6.6. No Material Adverse Change ............................................. 50 SECTION 6.7. Litigation, Labor Controversies, etc ................................... 50 SECTION 6.8. Compliance With Laws: Authorizations ................................... 50 SECTION 6.9. Taxes .................................................................. 50 SECTION 6.10. Pension and Welfare Plans .............................................. 51 SECTION 6.11. Environmental Warranties ............................................... 51 SECTION 6.12. Regulations U and X .................................................... 51 SECTION 6.13. Subsidiaries ........................................................... 52 SECTION 6.14. Ownership of Properties ................................................ 52 SECTION 6.15. Absence of Default ..................................................... 52 SECTION 6.16. Accuracy of Information ................................................ 52 ARTICLE VII COVENANTS ................................................................................ 52 SECTION 7.1. Affirmative Covenants .................................................. 52 SECTION 7.1.1. Financial Information, Reports, Notices, etc ........................... 53 SECTION 7.1.2. Performance of Obligations ............................................. 55 SECTION 7.1.3. Maintenance of Properties .............................................. 55 SECTION 7.1.4. Insurance .............................................................. 55 SECTION 7.1.5. Conduct of Business; Separate Existence ................................ 55 SECTION 7.1.6. Compliance with Laws, etc .............................................. 55 SECTION 7.1.7. ERISA .................................................................. 56 SECTION 7.1.8. Environmental Covenant ................................................. 56 SECTION 7.1.9. Books and Records ...................................................... 57 SECTION 7.1.10. New Subsidiaries ....................................................... 57 SECTION 7.2. Negative Covenants ..................................................... 58 SECTION 7.2.1. Indebtedness ........................................................... 58 SECTION 7.2.2. Liens .................................................................. 60 SECTION 7.2.3. Consolidation, Merger, etc ............................................. 61 SECTION 7.2.4. Asset Dispositions, etc ................................................ 62 SECTION 7.2.5. Use of Proceeds ........................................................ 62
iii SECTION 7.2.6. Financial Condition .................................................... 62 SECTION 7.2.7. Investments ............................................................ 63 SECTION 7.2.8. Restricted Payments, etc ............................................... 63 SECTION 7.2.9. Fiscal Year ............................................................ 64 SECTION 7.2.10. Transactions with Affiliates ........................................... 64 SECTION 7.2.11. Modification, etc. of Subordinated Debt ................................ 64 SECTION 7.2.12. Negative Pledges, Restrictive Agreements, etc .......................... 65 SECTION 7.2.13. Spiegel Acceptance Corporation ......................................... 65 ARTICLE VIII EVENTS OF DEFAULT ....................................................................... 65 SECTION 8.1. Listing of Events of Default ........................................... 65 SECTION 8.1.1. Non-Payment of Obligations ............................................. 65 SECTION 8.1.2. Non-Performance of Certain Covenants and Obligations ................... 65 SECTION 8.1.3. Non-Performance of Other Covenants and Obligations ..................... 66 SECTION 8.1.4. Breach of Representation or Warranty ................................... 66 SECTION 8.1.5. Default on Other Indebtedness .......................................... 66 SECTION 8.1.6. Control of the Borrower ................................................ 66 SECTION 8.1.7. Pension Plans .......................................................... 66 SECTION 8.1.8. Judgments .............................................................. 67 SECTION 8.1.9. Bankruptcy, Insolvency, etc ............................................ 67 SECTION 8.2. Action if Bankruptcy ................................................... 67 SECTION 8.3. Action if Other Event of Default ....................................... 68 ARTICLE IX THE AGENTS .............................................................................. 68 SECTION 9.1. Actions ................................................................ 68 SECTION 9.2. Funding Reliance, etc .................................................. 69 SECTION 9.3. Exculpation ............................................................ 69 SECTION 9.4. Successor .............................................................. 69 SECTION 9.5. Loans by Each Agent .................................................... 70 SECTION 9.6. Credit Decisions ....................................................... 70 SECTION 9.7. Copies, etc ............................................................ 70 ARTICLE X MISCELLANEOUS PROVISIONS ................................................................ 70 SECTION 10.1. Waivers, Amendments, etc ............................................... 71 SECTION 10.2. Notices ................................................................ 72 SECTION 10.3. Payment of Costs and Expenses .......................................... 72 SECTION 10.4. Indemnification ........................................................ 73 SECTION 10.5. Survival ............................................................... 73 SECTION 10.6. Severability ........................................................... 74 SECTION 10.7. Headings ............................................................... 74 SECTION 10.8. Execution in Counterparts; Effectiveness ............................... 74 SECTION 10.9. Governing Law; Entire Agreement ........................................ 74
iv SECTION 10.10. Successors and Assigns ........................................................ 74 SECTION 10.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes ....... 75 SECTION 10.11.1. Assignments ................................................................... 75 SECTION 10.11.2. Participations ................................................................ 76 SECTION 10.11.3. Confidentiality ............................................................... 77 SECTION 10.12. Other Transactions ............................................................ 77 SECTION 10.13. INTENTIONALLY OMITTED ......................................................... 78 SECTION 10.14. Forum Selection and Consent to Jurisdiction ................................... 78 SECTION 10.15. Waiver of Jury Trial .......................................................... 78
SCHEDULE I -- Names, Addresses, Commitments and Percentages for the Lenders and the Issuer SCHEDULE II -- Disclosure Schedule SCHEDULE III -- Pricing Grid EXHIBIT A -- Form of Revolving Loan Note EXHIBIT B -- Form of Competitive Bid Loan Note EXHIBIT C -- Form of Revolving Loan Borrowing Request EXHIBIT D -- Form of Issuance Request EXHIBIT E -- Form of Continuation/Conversion Notice EXHIBIT F -- Form of Lender Assignment Agreement EXHIBIT G -- Form of Compliance Certificate EXHIBIT H -- Form of Second Restatement Date Certificate EXHIBIT I -- Form of Competitive Bid Loan Borrowing Request EXHIBIT J -- Form of Invitation for Competitive Bid Loan Offers EXHIBIT K -- Form of Competitive Bid Loan Offer EXHIBIT L -- Form of Competitive Bid Loan Acceptance EXHIBIT M-1 -- Form of Opinion of Counsel to the Borrower EXHIBIT M-2 -- Form of Opinion of Counsel to the Borrower EXHIBIT N -- Form of Guaranty EXHIBIT O -- Form of Subordination Provisions EXHIBIT P -- Form of Letter to Independent Public Accountants EXHIBIT Q -- Form of Letter of Support EXHIBIT R -- Form of Confidentiality Agreement EXHIBIT S -- Form of Guaranty Affirmation v SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT THIS SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, dated as of June 30, 2000, as amended by the FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, dated as of June 26, 2001, among SPIEGEL, INC., a Delaware corporation (the "Borrower"), the various financial -------- institutions as are or may become parties hereto (collectively, the "Lenders"), ------- DEUTSCHE BANC ALEX. BROWN INC. (formerly known as Deutsche Bank Securities Inc.) and J.P. MORGAN SECURITIES INC. as joint lead arrangers and book runners (collectively, the "Arrangers"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as --------- the Syndication Agent (the "Syndication Agent"), DEUTSCHE BANK AG New York Branch ("DBNY"), as the administrative agent (the "Administrative Agent") ---- -------------------- (together, the Arrangers, the Syndication Agent and the Administrative Agent are collectively the "Agents") and THE HONGKONG AND SHANGHAI BANKING CORPORATION ------ LIMITED, as letter of credit issuer (the "Issuer"). ------ W I T N E S S E T H : ------------------- WHEREAS, the Borrower is primarily engaged in the business of catalog, e-commerce and retail merchandising; WHEREAS, the Borrower, the Agents, the Issuer and the financial institutions party thereto are all parties to the Existing Agreement; WHEREAS, the parties to the Existing Agreement desire to amend and restate the Existing Agreement; WHEREAS, as of the Second Restatement Date, the Existing Agreement is amended and restated in its entirety hereby. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms (whether or not ------------- underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Absolute Rate" means, with respect to an Absolute Rate Loan made by a ------------- given Lender, a fixed rate of interest per annum (rounded to the nearest 1/100th of 1%) offered by such Lender and accepted by the Borrower. "Absolute Rate Auction" means a solicitation of Competitive Bid Loan --------------------- quotes at an Absolute Rate pursuant to Section 2.8. ----------- "Absolute Rate Loan" means a Competitive Bid Loan which bears interest ------------------ at an Absolute Rate. "Acquisition" means any transaction, or any series of related ----------- transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (i) acquires any business (whether through purchase of assets, equity interests, merger or otherwise) or all or substantially all of the assets of any firm, corporation or division thereof or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding equity interests of a Person (other than a corporation or a natural person). "Administrative Agent" is defined in the preamble and includes each -------------------- -------- other Person as shall have subsequently been appointed as the successor Administrative Agent pursuant to Section 9.4. ----------- "Affiliate" of any Person means any other Person which, directly or --------- indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agents" is defined in the preamble to this Agreement. ------ -------- "Agreement" means, on any date, this Second Amended and Restated --------- Revolving Credit Agreement as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "Alternate Base Rate" means, on any date and with respect to all Base ------------------- Rate Loans, a fluctuating rate of interest per annum equal to the higher of (a) the rate of interest most recently announced or established, as applicable, by DBNY at its Domestic Office as its prime or base rate for Dollar loans; and (b) the Federal Funds Rate most recently determined by the Administrative Agent plus 0.50%. ---- The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by DBNY in connection with extensions of credit. Changes in the rate of interest with respect to any Loans maintained as Base Rate Loans will take effect simultaneously with each change in the Alternate Base Rate. DBNY will give notice promptly to the Borrower and to the 2 Administrative Agent, which will promptly notify the Lenders, of changes in the Alternate Base Rate. "Applicable Base Rate Margin" means, with respect to any Base Rate Loan --------------------------- for any Pricing Period, the then applicable per annum rate set forth in the Pricing Grid. "Applicable LIBO Rate Margin" means, with respect to any LIBO Rate Loan --------------------------- for any Pricing Period, the then applicable per annum rate set forth in the Pricing Grid. "Arrangers" is defined in the preamble. --------- -------- "Assignee Lender" is defined in Section 10.11.1. --------------- --------------- "Authorizations" means all filings, recordings and registrations with, -------------- and all validations or exemptions, approvals, orders, authorizations, consents, licenses, certificates and permits from, federal, state and local regulatory or governmental bodies and authorities or any subdivision thereof. "Authorized Officer" means, relative to the Borrower or any other ------------------ Obligor, those of its officers whose signature and incumbency have been certified to the Agents and the Lenders pursuant to Section 5.1.1. ------------- "Base Rate Loan" means a Loan bearing interest at a fluctuating rate -------------- determined by reference to the Alternate Base Rate. "Borrower" is defined in the preamble. -------- -------- "Borrowing" means a Revolving Loan Borrowing or a Competitive Bid Loan --------- Borrowing, as the case may be. "Business Day" means ------------ (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York or Chicago, Illinois; (b) relative to the making, continuing, prepaying or repaying of any LIBO Rate Loans or Competitive Bid Loan based on the LIBO Rate, any day which satisfies the requirements of clause (a) above and on which dealings in Dollars are carried on in the London interbank market; and (c) relative to the Letter of Credit Commitment of the Issuer, any day which satisfies the requirements of clause (a) above and is not a legal holiday in Hong Kong S.A.R. "Capitalized Lease Liabilities" means all monetary obligations of the ----------------------------- Borrower or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, would be classified as capitalized leases, and, for purposes of this Agreement and each other 3 Loan Document, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Cash Equivalent Investment" means, at any time: -------------------------- (a) any evidence of Indebtedness, maturing not more than one year after such time, issued or guaranteed by the United States Government; (b) commercial paper, maturing not more than nine months from the date of issue, which is issued by (i) a corporation (other than an Affiliate of any Obligor) organized under the laws of any state of the United States or of the District of Columbia and rated A-l by Standard & Poor's Ratings Group or P-l by Moody's Investors Service, Inc., or (ii) any Lender (or its holding company); (c) any certificate of deposit or bankers acceptance, maturing not more than one year after such time, which is issued by either (i) a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000, or (ii) any Lender; or (d) any repurchase agreement entered into with any Lender (or other commercial banking institution satisfying the requirements of clause (c)(i)) which ------------- (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) ----------- through (c); and --- (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such Lender (or other commercial banking institution) thereunder. "CERCLA" means the Comprehensive Environmental Response, Compensation ------ and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation ------- Liability Information System List. "Change of Control" means any event the result of which is the failure ----------------- of the Otto Interests to own, directly or indirectly, free and clear of all Liens at least 67% of the ownership interest in the Borrower. 4 "Closing Date" means March 27, 1996. ------------ "Code" means the Internal Revenue Code of 1986, as amended, reformed or ---- otherwise modified from time to time. "Commitment" means, as the context may require, a Lender's Loan ---------- Commitment or the Issuer's (or a Lender's) Letter of Credit Commitment. "Commitment Amount" means, on any date, $600,000,000, as such amount ----------------- may be temporarily or permanently reduced from time to time pursuant to Section ------- 2.2. - --- "Commitment Termination Date" means the earliest of --------------------------- (a) July 27, 2003 (the "Stated Maturity Date"); -------------------- (b) the date on which the Commitment Amount is terminated in full or reduced to zero pursuant to Section 2.2; and ----------- (c) the date on which any Commitment Termination Event occurs. "Commitment Termination Event" means ---------------------------- (a) the occurrence of any Event of Default described in clauses (a) through (d) of Section 8.1.9; or ----------- --- ------------- (b) the occurrence and continuance of any other Event of Default and either (i) the declaration of the Loans to be due and payable pursuant to Section 8.3, or ----------- (ii) in the absence of such declaration, the giving of notice by the Administrative Agent, acting at the direction of the Required Lenders, to the Borrower that the Commitments have been terminated. "Competitive Bid Loan" means a loan made by a Lender to the Borrower -------------------- based on the LIBO Rate or the Absolute Rate as part of a Competitive Bid Loan Borrowing resulting from the procedure described in Section 2.8. ----------- "Competitive Bid Loan Acceptance" means an acceptance by the Borrower ------------------------------- of a Competitive Bid Loan Offer pursuant to clause (e) of Section 2.8, ---------- ----------- substantially in the form of Exhibit L attached hereto. --------- "Competitive Bid Loan Borrowing" means Competitive Bid Loans made ------------------------------ pursuant to the same Competitive Bid Loan Borrowing Request by the Lender or each of the Lenders whose offer to make such Competitive Bid Loans as part of such requested Borrowing has been accepted by the Borrower pursuant to clause (e) of Section 2.8 ----------- 5 "Competitive Bid Loan Borrowing Request" means a certificate requesting -------------------------------------- that the Lenders extend offers to make Competitive Bid Loans, duly executed by an Authorized Officer substantially in the form of Exhibit I attached hereto. --------- "Competitive Bid Loan Maturity Date" is defined in clause (a)(iii) of ---------------------------------- --------------- Section 2.8. - ----------- "Competitive Bid Loan Note" means any promissory note of the Borrower, ------------------------- in the form of Exhibit B hereto (as such promissory note may be amended, --------- endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from Competitive Bid Loans outstanding from such Lender, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Competitive Bid Loan Offer" means an offer by a Lender to make a -------------------------- Competitive Bid Loan pursuant to clause (c) of Section 2.8, substantially in the ---------- ----------- form of Exhibit K attached hereto. --------- "Competitive Bid Rate" means, as the context may require, either the -------------------- Absolute Rate or the LIBO Rate (plus the LIBO Rate Bid Margin) offered by a ---- Lender in a Competitive Bid Loan Offer in respect of a Competitive Bid Loan proposed pursuant to Section 2.8. ----------- "Compliance Certificate" means a certificate duly executed by a ---------------------- financial Authorized Officer of the Borrower, in the form of Exhibit G attached --------- hereto. "Contingent Liability" means any agreement, undertaking or arrangement -------------------- by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth in the document evidencing such Contingent Liability) be deemed to be the outstanding principal amount (or maximum principal amount, if larger) of the debt, obligation or other liability guaranteed thereby. "Continuation/Conversion Notice" means a notice of continuation or ------------------------------ conversion and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit E hereto. --------- "Controlled Group" means all members of a controlled group of ---------------- corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Credit Extension" means, as the context may require, ---------------- (a) the making of a Loan by a Lender; or 6 (b) the issuance of any Letter of Credit, or the extension of any Stated Expiry Date of any existing Letter of Credit, by the Issuer and participation in such Letter of Credit by the Lenders pursuant to the terms of this Agreement. "Credit Extension Request" means, as the context may require, any ------------------------ Revolving Loan Borrowing Request, Competitive Bid Loan Borrowing Request or Issuance Request. "Debt to EBITDAR Ratio" means for the period consisting of the Fiscal --------------------- Year then ended, the ratio of: (a) the result of (i) Debt; plus ---- (ii) the product of eight (8) times annual Rent Expense for such Fiscal Year; to -- (b) EBITDAR for such Fiscal Year. "DBNY" is defined in the preamble. ---- "Debt" means, without duplication, all indebtedness of the Borrower and ---- its Subsidiaries for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, including Subordinated Debt. "Default" means any Event of Default or any condition, occurrence or ------- event which, after notice or lapse of time or both, would constitute an Event of Default. "Disbursement" is defined in Section 2.6.2. ------------ ------------- "Disbursement Date" is defined in Section 2.6.2. ----------------- -------------- "Disclosure Schedule" means the Disclosure Schedule attached hereto as ------------------- Schedule II, as it may be amended, supplemented or otherwise modified from time - ----------- to time by the Borrower with the written consent of the Required Lenders. "Dollar" and the sign "$" mean lawful money of the United States. ------ - "Domestic Office" means, relative to any Lender, the office of such --------------- Lender designated on Schedule I hereto or designated in the Lender Assignment ---------- Agreement, if any, executed by such Lender or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by notice from such Lender, as the case may be, to each other Person party hereto. A Lender may have separate Domestic Offices for purposes of making, maintaining or continuing, as the case may be, Base Rate Loans, LIBO Rate Loans and Competitive Bid Loans. 7 "EBITDAR" means Net Income plus all amounts deducted in determining ------- ---- such Net Income for Income Taxes, Interest Expense, depreciation, amortization and Rent Expense. "Effective Date" means the date this Agreement becomes effective -------------- pursuant to Section 10.8. ------------ "Environmental Laws" means all applicable federal, state or local ------------------ statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "ERISA Affiliate" means each person (as defined in Section 3(9) of --------------- ERISA) which together with the Borrower, any Subsidiary of the Borrower would be deemed to be a member of the same Controlled Group. "Event of Default" is defined in Section 8.1. ---------------- ----------- "Excluded Receivables" means those consumer credit card accounts -------------------- receivable sold or transferred or to be sold or transferred from time to time to (a) the Spiegel Master Trust in accordance with that certain Receivables Purchase Agreement, dated as of September 20, 1994, among Spiegel Credit Corporation III and First Consumers National Bank, as amended, and that certain Amended and Restated Pooling and Servicing Agreement, dated as of December 13, 1994, among Spiegel Credit Corporation III, First Consumers National Bank and Harris Trust and Savings Bank, as Trustee, as supplemented from time to time, (b) First Consumers Master Trust in accordance with that certain Amended and Restated Pooling and Servicing Agreement, dated as of February 1, 1999, between First Consumers National Bank and Harris Trust and Savings Bank, as Trustee, as supplemented from time to time, in each case described in clause (a) or clause ---------- ------ (b) so long as at the time of such sale or transfer, in the reasonable - --- determination of the Administrative Agent, the terms or the effect on the Lenders of such agreements and the related securitization programs have not changed substantially since the Effective Date, (c) to a special-purpose trust or entity formed for the purpose of one or more securitizations, so long as the terms or the effect on the Lenders of the agreements governing such entity and securitizations do not, in the reasonable determination of the Administrative Agent, differ substantially from the terms or the effect on the Lenders of the agreements and securitization programs referred to in clause (a) or clause (b) ---------- ---------- in any manner that is material to the Lenders or (d) a Person for purposes of any securitization; provided, however that in the case of this clause (d) such -------- ------- ---------- consumer credit card accounts receivable shall be limited to consumer credit card accounts receivable that have previously been transferred (or arise in accounts the receivables from which have previously been transferred) in a transaction described in clause (a), (b), or (c). ---------- --- --- "Existing Agreement" means that certain Revolving Credit Agreement, ------------------ dated as of March 27, 1996, as amended by that certain First Amended and Restated Revolving Credit 8 Agreement, dated as of July 27, 1999, by and among the Borrower, the Agents and the Issuer and the financial institutions party thereto, and as in effect on the Second Restatement Date. "External L.O.C. Amount" is defined in Section 2.2.3. ---------------------- ------------- "FDIC" means the Federal Deposit Insurance Corporation and any ---- successor agency thereto. "Federal Funds Rate" means, for any period, a fluctuating interest rate ------------------ per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by The Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "Fiscal Quarter" means any quarter of a Fiscal Year. -------------- "Fiscal Year" means the period of 52 or 53 consecutive weeks which make ----------- up the fiscal year of the Borrower, except for any shorter or longer period resulting from the change of the Borrower's fiscal year permitted by Section ------- 7.2.9. - ----- "Fixed Asset Expenditures" means, for any period, the sum of ------------------------ (a) the aggregate amount of all expenditures of the Borrower and its Subsidiaries for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as fixed asset expenditures net of any such assets that are disposed of during such period; and (b) the aggregate amount of all Capitalized Lease Liabilities incurred by the Borrower and its Subsidiaries during such period. "Fixed Charge Coverage Ratio" means, for the period consisting of the --------------------------- twelve months then ended, the ratio of: (a) the result of (i) EBITDAR for such period; minus ----- (ii) Fixed Asset Expenditures for such period; to -- 9 (b) the sum of (i) Interest Expense for such period; plus ---- (ii) Rent Expense for such period; plus ---- (iii) Restricted Payments for such period. "F.R.S. Board" means the Board of Governors of the Federal Reserve ------------ System or any successor thereto. "GAAP" is defined in Section 1.4. ---- ----------- "Guaranty" means the Guaranty executed and delivered pursuant to -------- Section 5.1.8 or Section 7.1.10, substantially in the form of Exhibit N attached - ------------- -------------- --------- hereto, as amended, supplemented, restated or otherwise modified from time to time. "Hazardous Material" means ------------------ (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended or hereafter amended. "Hedging Obligations" means, with respect to any Person, all ------------------- liabilities of such Person under interest rate or currency swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. "herein", "hereof", "hereto", "hereunder" and similar terms contained ------ ------ ------ --------- in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph or provision of this Agreement or such other Loan Document. 10 "Impermissible Qualification" means, relative to the opinion or --------------------------- certification of any independent public accountant as to any financial statement of the Borrower, any qualification or exception to such opinion or certification (a) which is of a "going concern" or similar nature; (b) which reflects the limited scope of examination of matters relevant to such financial statement; or (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause the Borrower to be in default of any of its obligations under Section 7.2.6. ------------- "including" means including without limiting the generality of any --------- description preceding such term. "Income Taxes" means, for any period, all income taxes of the Borrower ------------ and its Subsidiaries, on a consolidated basis, paid or accrued in accordance with GAAP for such period. "Indebtedness" of any Person means without duplication: ------------ (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations, contingent or otherwise, relative to the stated amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all obligations relative to then mandatorily redeemable capital stock; (d) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities; (e) all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (f) net liabilities of such Person under all Hedging Obligations; (g) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse (but only to the extent of the exposure of such Person); and 11 (h) all Contingent Liabilities of such Person in respect of any of the foregoing. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer and is liable for any such Indebtedness. "Indemnified Liabilities" is defined in Section 10.4. ----------------------- ------------ "Indemnified Parties" is defined in Section 10.4. ------------------- ------------ "Interest Expense" means, for any period, the total cash and non-cash ---------------- interest expense (including facility fees payable under this Agreement), in accordance with GAAP that is payable by the Borrower and its Subsidiaries, on a consolidated basis, for such period. "Interest Period" means, (i) relative to any Competitive Bid Loan based --------------- on the LIBO Rate or any LIBO Rate Loan, the period beginning on (and including) the date on which such Competitive Bid Loan was made or such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section ------- 2.3 or 2.4 and shall end on (but exclude) the day which numerically corresponds - --- --- to such date one week or two weeks (8 to 14 days) or one, two, three or, subject to general availability as determined by the Administrative Agent, six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month) and (ii) relative to any Absolute Rate Loan, the period beginning on (and including) the date on which such Absolute Rate Loan is made and ending on (but excluding) the day which is a minimum of seven and a maximum of one hundred eighty days thereafter, in any of the foregoing cases, as the Borrower may select in its relevant notice pursuant to Sections 2.3, 2.4 or ------------ --- 2.8; provided, however, that - --- -------- ------- (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than 20 different dates; (b) Interest Periods commencing on the same date for Loans comprising part of the same Borrowing shall be of the same duration; (c) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless, if such Interest Period applies to LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate, such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (d) no Interest Period may end later than the Stated Maturity Date (or, if earlier, the date on which all Loans are scheduled to be repaid and the Commitments permanently terminated as a result of reductions to the Commitment Amount pursuant to Section 2.2). ----------- "Investment" means, relative to any Person, ---------- 12 (a) any loan or advance made by such Person to any other Person (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business); (b) any Contingent Liability of such Person; and (c) any ownership or similar interest held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property. "Invitation for Competitive Bid Loan Offers" means an Invitation for ------------------------------------------ Competitive Bid Loan Offers delivered by the Administrative Agent to the Lenders pursuant to clause (b) of Section 2.8, in substantially the form of Exhibit J ---------- ----------- --------- hereto. "Issuance Request" means a Letter of Credit request and certificate ---------------- duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit D hereto and any additional forms that may be requested by the --------- Issuer. "Issuer" is defined in the preamble. ------ -------- "Legal Requirement" shall mean any requirement imposed upon any Lender ----------------- by any law of the United States of America or by any regulation, order, interpretation, ruling or official directive (whether or not having the force of law) of the Board of Governors of the Federal Reserve System, the FDIC, or any other board or governmental or administrative agency of the United States of America, or any political subdivision of any thereof. "Lender Assignment Agreement" means a Lender Assignment Agreement --------------------------- substantially in the form of Exhibit F hereto. --------- "Lenders" is defined in the preamble, and shall include any of their ------- -------- Affiliates pursuant to clause (b) of Section 10.11.1. ---------- --------------- "Letter of Credit" is defined in Section 2.1.2. ---------------- ------------- "Letter of Credit Commitment" means the Issuer's obligation to issue --------------------------- Letters of Credit pursuant to Section 2.1.2 and, with respect to each Lender, ------------- the obligations of such Lender to participate in such Letters of Credit pursuant to Section 2.6.1. ------------- "Letter of Credit Outstandings" means, on any date, an amount equal to ----------------------------- the sum of (a) the then aggregate amount which is undrawn and available under all issued and outstanding Letters of Credit, plus - ---- 13 (b) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations. "Level" means Level I, II, III or IV, as the case may be, set forth on ----- the Pricing Grid. "LIBO Rate" means the rate of interest per annum determined on the --------- basis of the rate for deposits in Dollars in minimum amounts of at least $2,500,000 for a period equal to the applicable Interest Period which appears on the Telerate Page 3750 at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period (rounded upward, if necessary, to the nearest one-sixteenth of one percent (1/16%)). If, for any reason, such rate does not appear on Telerate Page 3750, then LIBO Rate shall be determined by the Administrative Agent to be the arithmetic average (rounded upward, if necessary, to the nearest one-sixteenth of one percent (1/16%)) of the rate per annum at which deposits in Dollars would be offered by first class banks in the London interbank market to the Administrative Agent approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period and in an amount substantially equal to the amount of the Administrative Agent's applicable LIBO Rate Loan. "LIBO Rate Bid Margin" means, in respect of Competitive Bid Loans based -------------------- on the LIBO Rate, the margin above or below the applicable LIBO Rate offered for each such Competitive Bid Loan, expressed as a percentage (rounded to the nearest 1/10,000th of 1%) to be added to (or subtracted from) such LIBO Rate. "LIBO Rate Loan" means a Revolving Loan bearing interest, at all times -------------- during the Interest Period applicable to such Loan, at a fixed rate of interest determined by reference to the LIBO Rate. "LIBOR Auction" means a solicitation of Competitive Bid Loan quotes ------------- pursuant to Section 2.8 hereof based on the LIBO Rate. ----------- "LIBOR Office" means, relative to any Lender, the office of such Lender ------------ designated as such on Schedule I hereto or designated in the Lender Assignment ---------- Agreement or such other office of a Lender as designated from time to time by notice from such Lender to the Borrower and the Administrative Agent, whether or not outside the United States, which shall be making or maintaining LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate of such Lender hereunder. "Lien" means any security interest, mortgage, pledge, hypothecation, ---- assignment, asset-deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. "Loan" means, as the context may require, either a Competitive Bid Loan ---- or a Revolving Loan. "Loan Commitment" means, relative to any Lender, such Lender's --------------- obligation to make Revolving Loans pursuant to Section 2.1.1. ------------- 14 "Loan Documents" means this Agreement, the Notes, the Letters of -------------- Credit, the Guaranty and each other relevant agreement, document or instrument delivered in connection with this Agreement and the Notes, whether or not specifically mentioned herein or therein. "Material Adverse Effect" means a material adverse effect on (i) the ----------------------- business, properties, condition (financial or otherwise), or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower or any other Obligor to perform its obligations under any of the Loan Documents, (iii) the validity or enforceability of any of the Loan Documents or (iv) the rights or remedies of the Agents or the Lenders under the Loan Documents. "Material Subsidiary" means Eddie Bauer, Inc., Newport News, Inc., ------------------- First Consumers National Bank, Distribution Fulfillment Services, Inc., Spiegel Catalog, Inc., Ultimate Outlet Inc., Spiegel Publishing Company, Spiegel Acceptance Corporation and any other Subsidiary (excluding Spiegel Credit Corporation III) whose assets, income or sales exceed 5% of the consolidated assets, income or sales, respectively, of the Borrower and its consolidated Subsidiaries or any other Subsidiary so designated by the Borrower after the Effective Date. "Monthly Payment Date" means the last day of each month or, if any such -------------------- day is not a Business Day, the next succeeding Business Day. "Net Income" means, for any period, the net income of the Borrower and ---------- its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP including non-recurring income or loss but excluding extraordinary gain. "Net Proceeds" means the gross proceeds received by the Borrower or any ------------ of its Subsidiaries from a sale of their respective assets, less reasonable selling expenses and attorneys' fees incurred in connection therewith and taxes estimated in good faith to be payable as a result thereof, and other reasonable amounts agreed to by the Lenders that are incurred in connection with such sale; provided, that in the event that the actual taxes paid in respect of any such - -------- sale or other disposition are less than such estimated taxes at the time of such sale, "Net Proceeds" shall be deemed to include such difference on the date payment of such taxes is due. "Net Worth" means, on any date, the consolidated stockholders' equity --------- of the Borrower and its Subsidiaries on such date, as calculated in accordance with GAAP plus any Subordinated Debt with a maturity date subsequent to the ---- Stated Maturity Date. "Note" means, as the context may require, a Competitive Bid Loan Note ---- or a Revolving Loan Note. "Obligations" means all obligations (monetary or otherwise) of the ----------- Borrower and each other Obligor arising under or in connection with this Agreement, the Notes, the Letters of Credit and each other Loan Document, including, without limitation, principal, interest, fees, expenses, indemnities and reimbursement obligations. "Obligor" means the Borrower or any other Person (other than any Agent, ------- the Issuer or any Lender) obligated under any Loan Document. 15 "Organic Document" means, relative to the Borrower and any Obligor, as ---------------- applicable, its certificate of incorporation, its by-laws, its partnership certificate or its partnership agreement, operating agreement or its limited liability company certificate and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock or partnership interests, as the case may be. "Otto Family" is defined in the definition of "Otto Interests". ----------- "Otto Interests" means (i) Werner Otto of Hamburg, Germany, his spouse -------------- and any of his lineal descendants and their respective spouses (collectively, the "Otto Family"), any Subsidiary of any members of the Otto Family, and any ----------- personal representative, trustee or other fiduciary acting in respect of the estate of any member of the Otto Family, and (ii) any trust which is solely for the benefit of one or more members of the Otto Family (whether or not any member of the Otto Family is a trustee of such trust) or principally for the benefit of one or more members of the Otto Family (provided that a member of the Otto Family is a trustee of such trust). "Participant" is defined in Section 10.11. ----------- ------------- "PBGC" means the Pension Benefit Guaranty Corporation and any entity ---- succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in ------------ section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Percentage" means, relative to any Lender, the percentage set forth on ---------- Schedule I hereto or set forth in a Lender Assignment Agreement, as such - ---------- percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 10.11. ------------- "Permitted Acquisition" means, at any time of determination, any --------------------- Acquisition by the Borrower or any of its Subsidiaries with respect to which each of the following requirements are met: (i) such Acquisition has been approved and recommended by the board of directors or general partner (or similar entity) of the Person to be acquired; (ii) the Required Lenders shall have given their prior written consent to such Acquisition if it is a hostile Acquisition or if the subject of the Acquisition is not in the same or related businesses as those conducted by the Borrower and its Subsidiaries on the Effective Date; (iii) the Borrower or such Subsidiary and/or the Person to be acquired, as appropriate, shall have furnished to the Administrative Agent, concurrently with 16 the consummation of such Acquisition, such documents as the Administrative Agent or any Lender shall reasonably request; (iv) the Borrower or such Subsidiary shall be the surviving person; and (v) prior to and after giving effect to such Acquisition, no Default (including under the provisions of Section 7.1.10) shall have occurred and be continuing, or -------------- would result therefrom. "Person" means any natural person, corporation, partnership, firm, ------ limited liability company, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Plan" means any Pension Plan or Welfare Plan. ---- "Pricing Grid" means the Pricing Grid attached hereto as Schedule III. ------------ ------------ "Pricing Period" means that period beginning on the 55th day after the -------------- last day of a Fiscal Quarter and ending on the 54th day after the last day of the succeeding Fiscal Quarter. "Quarterly Payment Date" means the day that is two Business Days after ---------------------- the end of the applicable Pricing Period. "Reimbursement Obligations" is defined in Section 2.6.3. ------------------------- ------------- "Release" means a "release", as such term is defined in CERCLA. ------- "Rent Expense" means, for any period, the total cash and non-cash ------------ rental expense that is payable by the Borrower and its Subsidiaries, on a consolidated basis for the retail and outlet store properties leased by the Borrower or any of its Subsidiaries. "Required Lenders" means, at any time, ---------------- (a) with respect to any provision of this Agreement other than the declaration of the acceleration of the maturity of all or any portion of the outstanding principal amount of the Loans and other Obligations to be due and payable pursuant to Section 8.3, Lenders ----------- whose Percentages equal or exceed 66K%; or (b) with respect to the declaration of the acceleration of the maturity of all or any portion of the outstanding principal amount of the Loans and other Obligations to be due and payable pursuant to Section 8.3, Lenders holding 66K% or more of the aggregate principal ----------- amount of the outstanding Loans and Letter of Credit Outstandings (excluding Competitive Bid Loans). "Reserves" means, in relation to any Lender, any reserve (including all -------- basic, emergency, supplemental, marginal and other reserves), reserve asset, capital reserve, minimum capital requirement, special deposit, insurance premium or assessment required by any Legal Requirement to be maintained or paid by such Lender for or with respect to (i) any deposit 17 purchase in the London interbank foreign currency deposits market, (ii) any deposit represented by a certificate of deposit issued by any Lender, (iii) Loans made with the proceeds of any such deposits, (iv) the principal amount of or interest on any LIBO Rate Loan, or (v) any portion of the Commitment, including any reserves imposed under Regulation D and any amounts payable to the FDIC for insurance by the FDIC for time deposits made in Dollars. "Resource Conservation and Recovery Act" means the Resource -------------------------------------- Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect -- --- from time to time. "Restricted Payments" is defined in Section 7.2.8. ------------------- ------------- "Revolving Loan" is defined in Section 2.1. -------------- ----------- "Revolving Loan Borrowing" means Revolving Loans of the same type and, ------------------------ in the case of LIBO Rate Loans, having the same Interest Period, made by all Lenders on the same Business Day and pursuant to the same Revolving Loan Borrowing Request in accordance with Section 2.1. ----------- "Revolving Loan Borrowing Request" means a loan request and certificate -------------------------------- duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit C hereto. --------- "Revolving Loan Note" means any promissory note of the Borrower in the ------------------- form of Exhibit A hereto (as such promissory note may be amended, endorsed or --------- otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from Revolving Loans outstanding from such Lender, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Second Restatement Date" means June 30, 2000. ----------------------- "Second Restatement Date Certificate" means a certificate of a duly ----------------------------------- Authorized Officer of the Borrower executed and delivered pursuant to Section ------- 5.3.6, substantially in the form of Exhibit H. - ----- --------- "Stated Amount" of each Letter of Credit means the total amount ------------- available to be drawn under such Letter of Credit upon the issuance thereof. "Stated Expiry Date" is defined in Section 2.6. ------------------ ----------- "Stated Maturity Date" is defined in clause (a) of the definition of -------------------- ---------- "Commitment Termination Date". "Subordinated Debt" means indebtedness of the Borrower that is ----------------- subordinate to the Credit Extensions on terms that satisfy the provisions of Exhibit O hereto. - --------- "Subsidiary" of a Person means (i) any corporation more than 50% of the ---------- outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, joint venture, limited liability 18 company or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "Syndication Agent" is defined in the preamble ----------------- "Tangible Net Worth" means the consolidated stockholders' equity of the ------------------ Borrower and its Subsidiaries as calculated in accordance with GAAP, minus the ----- aggregate amount of intangible assets, including, without limitation, goodwill, franchises, licenses, patents, trademarks, trade names, copyrights, service marks and brand names. "Taxes" is defined in Section 4.6. ----- ----------- "364-Day Credit Agreement" means that certain 364-Day Revolving Credit ------------------------ Agreement, dated as of the date hereof, by and among the Borrower, the Agents and the financial institutions party thereto, as amended, supplemented, restated or otherwise modified from time to time. "Total Borrowed Funds" means, as of any date, without duplication, an -------------------- amount equal to the consolidated Indebtedness of the Borrower and its Subsidiaries comprising borrowed money, drawn trade letters of credit, standby letters of credit, mandatorily redeemable stock, Capitalized Lease Liabilities, and Subordinated Debt with a maturity date on or prior to the Stated Maturity Date, and all Contingent Liabilities with respect to the foregoing. "Total Leverage Ratio" means, as of the last day of any Fiscal Quarter, -------------------- the ratio of (a) Total Borrowed Funds as of such date to - -- (b) Net Worth as of such date. "type" means, relative to any Revolving Loan, the portion thereof, if ---- any, being maintained as a Base Rate Loan or a LIBO Rate Loan. "United States" or "U.S." means the United States of America, its fifty ------------- ---- States and the District of Columbia. "Weighted Life to Maturity" means, with respect to any loan, as at the ------------------------- time of determination, the number of years obtained by dividing the then Remaining Dollar-years of such loan by the outstanding principal amount of such loan. The term "Remaining Dollar-years" of such loan means the product obtained by (i) multiplying (1) the amount of each then remaining required principal payment (including repayment at final maturity, by (2) the number of years (calculated to the nearest one-twelfth) which will elapse between the time of determination and the date such required repayment is due, and (ii) totaling all the products obtained in (i). "Welfare Plan" means a "welfare plan", as such term is defined in ------------ section 3(1) of ERISA. 19 "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of ----------------------- the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, association, limited liability company, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the -------------------- context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Disclosure Schedule and in each Note, Revolving Loan Borrowing Request, Continuation/Conversion Notice, Loan Document, notice and other communication delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3. Cross-References. Unless otherwise specified, references ---------------- in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations. Unless otherwise --------------------------------------- specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder (including under Section 7.2.6) shall be made, and all financial ------------- statements required to be delivered hereunder or thereunder shall be prepared in accordance with, those generally accepted accounting principles ("GAAP") in ---- existence on the date hereof. If any changes in accounting principles from those used in the preparation of the financial statements referred to in Section 6.5 ----------- hereafter occur as a result of the promulgation of rules, regulations, pronouncements, or opinions by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions), and the application thereof result in a change in the method of calculation of financial covenants, standards, or terms found in this Agreement, the Borrower and the Lenders agree to enter into good faith negotiations in order to amend such financial covenants, standards, or terms so as to equitably reflect such changes with the desired result that the evaluations of the Borrower's financial condition shall be the same after such changes as if such changes had not been made; provided, however, that until the -------- ------- parties hereto have reached a definitive agreement on such amendments, the Borrower's financial condition shall continue to be evaluated (with respect to other than the audited financial statements) on the same principles as those used in the preparation of the financial statements referred to in Section 6.5. ----------- 20 ARTICLE II COMMITMENTS, LOANS, BORROWING AND ISSUANCE PROCEDURES AND NOTES AND LETTERS OF CREDIT SECTION 2.1. Commitments. On the terms and subject to the conditions ----------- of this Agreement (including Article V), --------- (a) each Lender severally agrees to make Revolving Loans pursuant to the Commitments described in this Section 2.1; and ----------- (b) the Issuer agrees that it will issue Letters of Credit pursuant to Section 2.1.2, and each Lender severally agrees that it ------------- will participate in such Letters of Credit in accordance with Section ------- 2.6.1. ----- SECTION 2.1.1. Loan Commitment of Each Lender. From time to time on any ------------------------------ Business Day occurring prior to the Commitment Termination Date, each Lender will make loans (relative to such Lender, and of any type, its "Revolving --------- Loans") to the Borrower equal to such Lender's Percentage of the aggregate - ----- amount of the Revolving Loan Borrowing requested by the Borrower to be made on such day. On the terms and subject to the conditions hereof, the Borrower may, prior to the Commitment Termination Date, from time to time borrow, prepay, repay and reborrow Revolving Loans. SECTION 2.1.2. Letter of Credit Commitment. From time to time on any --------------------------- Business Day occurring prior to the Commitment Termination Date, the Issuer will, subject to Section 2.6.1, ------------- (a) issue one or more letters of credit (a "Letter of Credit") ---------------- for the account of the Borrower in the Stated Amount requested by the Borrower on such day for a maximum term of one year, provided that the Stated Expiry Date of any Letter of Credit shall be no later than the Commitment Termination Date; or (b) extend the Stated Expiry Date of an existing Letter of Credit previously issued hereunder to a date not later than the earlier of (i) the Commitment Termination Date and (ii) one year from the date of such extension. SECTION 2.1.3. Lenders Not Permitted or Required To Make Revolving --------------------------------------------------- Loans. No Lender shall be permitted or required to make any Revolving Loan if, - ----- after giving effect thereto, the aggregate outstanding principal amount of (a) all Loans and Letter of Credit Outstandings of all Lenders would exceed the Commitment Amount, or (b) the Revolving Loans and Percentage of Letter of Credit Outstandings of such Lender would exceed such Lender's Percentage of the Commitment Amount. SECTION 2.1.4. Issuer Not Permitted or Required to Issue Letters of ---------------------------------------------------- Credit. The Issuer shall not be permitted or required to issue any Letter of - ------ Credit if, after giving effect 21 thereto, the sum of the aggregate amount of all Letter of Credit Outstandings plus the aggregate principal amount of all Loans then outstanding would exceed the Commitment Amount. The Administrative Agent shall notify the Issuer if, after giving effect to the issuance of any such Letter of Credit, the sum referred to in the previous sentence would exceed the Commitment Amount. SECTION 2.2. Reduction of Commitment Amount or Availability. The ---------------------------------------------- Commitment Amount is subject to reduction from time to time pursuant to this Section 2.2. - ----------- SECTION 2.2.1. Mandatory Reductions. -------------------- (a) INTENTIONALLY OMITTED. (b) For so long as the Borrower is at Level II, III or IV, the Commitment Amount (along with the "Commitment Amount" as defined in the 364-Day Credit Agreement) on a pro rata basis will be permanently --- ---- reduced by: (i) except as specified in items (ii) and (iii) of this section and in Section 7.2.4(d), 100% of the Net Proceeds ---------------- from the sale of assets of the Borrower or any of its Subsidiaries in excess of $15,000,000 in the aggregate since the Second Restatement Date during the term of this Agreement (excluding Excluded Receivables); (ii) 50% of the Net Proceeds from the issuance of the Borrower's capital stock in excess of $15,000,000 in the aggregate during the term of this Agreement; provided, -------- however, that such amount shall not include any issuance of ------- the Borrower's capital stock to be 100% owned directly or indirectly by the Otto Interests on, immediately prior to, or after the Effective Date. (iii) 75% of the proceeds (net of any reasonable expenses) from the issuance of Subordinated Debt in excess of $25,000,000 in the aggregate during the term of this Agreement; provided, however, that such amount shall not -------- ------- include any indebtedness issued to the Otto Interests that is junior to Subordinated Debt, nor indebtedness issued as a replacement or pay-off for currently existing Subordinated Debt. In so reducing the Commitment Amount the Borrower shall comply with the provisions of clause (b) of Section 3.2. ---------- ----------- SECTION 2.2.2. Optional Reduction of Commitment Amount. Subject to --------------------------------------- compliance with the provisions of clause (b) of Section 3.2, the Borrower may, ---------- ----------- from time to time on any Business Day occurring after the Closing Date, voluntarily reduce the Commitment Amount; provided, however, that all such -------- ------- reductions shall require at least three Business Days' prior notice to the Administrative Agent and be permanent, and any partial reduction of the Commitment Amount shall be in a minimum amount of $25,000,000 and in an integral multiple of $5,000,000 in excess thereof. 22 SECTION 2.2.3. Reduction Due to External Letters of Credit. The ------------------------------------------- Borrower may have letters of credit outstanding which are not issued pursuant to this Agreement or the 364-Day Credit Agreement (the aggregate amount which is undrawn and available under all such letters of credit (plus the then aggregate amount of all unpaid and outstanding reimbursement obligations with respect thereto) at any time outstanding being referred to herein as the "External -------- L.O.C. Amount"). For so long as the Borrower is at Level II, III or IV, the - ------------- aggregate Commitment Amount plus the "Commitment Amount" as defined in the 364-Day Credit Agreement shall be unavailable by the amount by which the External L.O.C. Amount exceeds $200,000,000. SECTION 2.3. Revolving Loan Borrowing Procedure. By delivering a ---------------------------------- Revolving Loan Borrowing Request to the Administrative Agent (which shall promptly give notice thereof to each Lender) on or before 11:00 a.m., New York City time, on a Business Day, the Borrower may from time to time irrevocably request, on the same day (in the case of Base Rate Loans), and on not less than three Business Days' notice (in the case of LIBO Rate Loans) nor in any case on more than five Business Days' notice, that a Borrowing be made in a minimum amount of $10,000,000 (or $5,000,000, in the case of Base Rate Loans) and an integral multiple of $1,000,000, or in the unused amount of the Commitment Amount. On the terms and subject to the conditions of this Agreement, each Revolving Loan Borrowing shall be comprised of the type of Revolving Loans, and shall be made on the Business Day, specified in such Revolving Loan Borrowing Request. On or before 12:00 noon New York City time (or as soon thereafter as is practicably possible in the case of Base Rate Loans), on such Business Day each Lender shall deposit with the Administrative Agent same day funds in an amount equal to such Lender's Percentage of the requested Revolving Loan Borrowing. Such deposit will be made to an account which the Administrative Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders, the Administrative Agent promptly upon receipt shall make such funds available to the Borrower by wire transfer to the accounts the Borrower shall have specified in its Revolving Loan Borrowing Request. SECTION 2.4. Continuation and Conversion Elections. By delivering a ------------------------------------- Continuation/Conversion Notice to the Administrative Agent on or before 11:00 a.m., New York City time, on a Business Day, the Borrower may from time to time irrevocably elect, on not less than three nor more than five Business Days' notice that all, or any portion in an aggregate minimum amount of $10,000,000 and an integral multiple of $1,000,000, of any Base Rate Loans or any LIBO Rate Loans be, in the case of Base Rate Loans, converted into LIBO Rate Loans or, in the case of LIBO Rate Loans, be converted into a Base Rate Loan or continued as a LIBO Rate Loan (in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan); provided, however, that each such conversion or continuation shall be pro rated - -------- ------- among the applicable outstanding Revolving Loans of all Lenders to which such conversion or continuation is applicable, and no portion of the outstanding principal amount of any Revolving Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its ------- obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such 23 LIBO Rate Loan; provided, however, that such LIBO Rate Loan shall nonetheless be -------- ------- deemed to have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility. In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of Section 4.1, 4.2, 4.3 ----------- --- --- or 4.4, it shall be conclusively assumed that each Lender elected to fund all --- LIBO Rate Loans by purchasing, as the case may be, Dollar certificates of deposit in the U.S. or Dollar deposits in its LIBOR Office's interbank eurodollar market. The failure of any Lender to fund its obligation hereunder shall not excuse any other Lender from funding its obligation hereunder and no Lender shall be responsible for the failure of any other Lender to fund its obligation hereunder. SECTION 2.6. Issuance Procedures. By delivering to the Issuer an ------------------- Issuance Request on a Business Day, the Borrower may, from time to time irrevocably request, on not less than two nor more than ten Business Days' notice, in the case of an initial issuance of a Letter of Credit, and not less than five Business Days' notice prior to the existing Stated Expiry Date (or, if a Letter of Credit has an automatic extension provision, at least five Business Days' notice prior to the date that such Letter of Credit will, by its terms, be extended or, if earlier, the date on which a notice from the Issuer is required to be delivered to the beneficiary of the Letter of Credit informing the beneficiary that the Letter of Credit will not be extended), in the case of a request for the extension of the Stated Expiry Date of a Letter of Credit, that the Issuer issue, or extend the Stated Expiry Date of, as the case may be, a Letter of Credit in such form as may be requested by the Borrower and approved by the Issuer, solely in support of obligations for the payment of goods and services and in support of financial obligations (including surety, bonding and performance obligations) arising in the ordinary course of the Borrower's and its Subsidiaries' business. Each Letter of Credit shall by its terms be stated to expire on a date (its "Stated Expiry Date") no later than the earlier to ------------------ occur of the Stated Maturity Date or one year from the date of its issuance. The Issuer will make available to the beneficiary thereof the original of each Letter of Credit which it issues hereunder. SECTION 2.6.1. Other Lenders' Participation. Upon the issuance of each ---------------------------- Letter of Credit issued by the Issuer pursuant hereto, and without further action, each Lender shall be deemed to have severally and irrevocably purchased, to the extent of its Percentage, a participation interest in such Letter of Credit (including the Contingent Liability of the Issuer with respect thereto and the obligation to pay to the Issuer the amount of any unreimbursed Disbursement thereunder), and such Lender shall, to the extent of its Percentage, be responsible for promptly paying to the Issuer such Lender's Percentage of any unreimbursed Disbursements under the Letter of Credit issued by the Issuer which have not been reimbursed by the Borrower in accordance with Sections 2.6.2 and 2.6.3. In addition, such Lender shall, to the extent of its - -------------- ----- Percentage, be entitled to receive a ratable portion of the Letter of Credit fees payable pursuant to Section 3.4.4 with respect to each Letter of Credit ------------- (other than the issuance and other fees payable to the Issuer of such Letter of Credit pursuant to the last sentence of Section 3.4.4), the interest payable ------------- pursuant to Section 2.6.2 and, if applicable, the interest payable pursuant to ------------- Section 3.3.2 with respect to any Reimbursement Obligation not paid when due. To - ------------- the extent that any Lender has reimbursed the Issuer for a Disbursement as required by this Section, such Lender shall be entitled to receive its ratable portion of any amounts subsequently received (from the Borrower or otherwise) in respect of such Disbursement. The Issuer shall notify each Lender 24 on each Quarterly Payment Date of the outstanding amount of all Letters of Credit issued and outstanding hereunder. SECTION 2.6.2. Disbursements. The Issuer will notify the Borrower and ------------- the Administrative Agent promptly of the presentment for payment of any Letter of Credit issued by the Issuer, together with notice of the date (the "Disbursement Date") such payment shall be made (each such payment, a ----------------- "Disbursement"). Subject to the terms and provisions of such Letter of Credit ------------ and this Agreement, the Issuer shall make such payment to the beneficiary (or its designee) of such Letter of Credit pursuant to the terms of such Letter of Credit. Prior to 12:00 noon, New York City time, on the first Business Day following the Disbursement Date, the Borrower will reimburse the Administrative Agent, for the account of the Issuer, for all amounts which the Issuer has disbursed under such Letter of Credit, together with interest thereon at a rate per annum equal to the rate then in effect for Base Rate Loans for the period from the Disbursement Date through the date of such reimbursement. SECTION 2.6.3. Reimbursement. The obligation (a "Reimbursement ------------- ------------- Obligation") of the Borrower under Section 2.6.2 to reimburse the Issuer with - ---------- ------------- respect to each Disbursement (including interest thereon), and, upon the failure of the Borrower to reimburse the Issuer, each Lender's obligation under Section ------- 2.6.1 to reimburse the Issuer, shall be absolute and unconditional under any and - ----- all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower or such Lender, as the case may be, may have or have had against the Issuer or any such Lender, including any defense based upon the failure of any Disbursement to conform to the terms of the applicable Letter of Credit (but only if, in the Issuer's good faith opinion, such Disbursement is determined to be appropriate) or any non-application or misapplication by the beneficiary of the proceeds of such Letter of Credit; provided, however, that -------- ------- after paying in full its Reimbursement Obligation or its participation obligation, as the case may be, nothing herein shall adversely affect the right of the Borrower or such Lender, as the case may be, to commence any proceeding against the Issuer for any wrongful Disbursement made by the Issuer under a Letter of Credit as a result of acts or omissions constituting gross negligence or wilful misconduct on the part of the Issuer. SECTION 2.6.4. Deemed Disbursements. Upon the occurrence and during the -------------------- continuation of any Default of the type described in Section 8.1.9 (other than ------------- any default of the type described in Section 8.1.9(e)) or, with notice from the ---------------- Administrative Agent with the approval of the Required Lenders, upon the occurrence and during the continuation of any other Event of Default, (a) an amount equal to that portion of all Letter of Credit Outstandings attributable to the then aggregate amount which is undrawn and available under all Letters of Credit issued and outstanding hereunder shall, without demand upon or notice to the Borrower, be deemed to have been paid or disbursed by the Issuer under such Letters of Credit (notwithstanding that such amount may not in fact have been so paid or disbursed); and (b) upon notification by the Administrative Agent to the Borrower of its obligations under this Section, the Borrower shall be immediately obligated to reimburse the Issuer for the amount deemed to have been so paid or disbursed by the Issuer. 25 Any amounts so payable by the Borrower pursuant to this Section shall be deposited in cash with the Administrative Agent and held as collateral security for the Obligations in connection with the Letters of Credit issued by the Issuer and in connection therewith the Borrower hereby grants to the Administrative Agent for the benefit of the Lenders a security interest in such cash to secure the Obligations. The Administrative Agent shall have the right to apply any such cash collateral to such Obligations as they become due and payable. At such time when the Defaults or Events of Default giving rise to the deemed disbursements hereunder shall have been cured or waived, the Administrative Agent shall return to the Borrower all amounts then on deposit with the Administrative Agent pursuant to this Section which have not been applied to the partial satisfaction of such Obligations. SECTION 2.6.5. Nature of Reimbursement Obligations. The Borrower and, to ----------------------------------- the extent set forth in Section 2.6.1, each Lender shall assume all risks of the ------------- acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. The Issuer (except to the extent of its own gross negligence or wilful misconduct) shall not be responsible for: (a) the form, validity, sufficiency, accuracy, genuineness or legal effect of any Letter of Credit or any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (b) the form, validity, sufficiency, accuracy, genuineness or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or the proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (c) the failure of the beneficiary of a Letter of Credit to comply fully with conditions required in order to demand payment under a Letter of Credit; (d) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; or (e) any loss or delay in the transmission or otherwise of any document or draft required in order to make a Disbursement under a Letter of Credit. None of the foregoing shall affect, impair or prevent the vesting of any of the rights or powers granted to the Issuer or any Lender. In furtherance and extension and not in limitation or derogation of any of the foregoing, any action taken or omitted to be taken by the Issuer in good faith (and not constituting gross negligence or willful misconduct) shall be binding upon the Borrower and each such Lender, and shall not put the Issuer under any resulting liability to the Borrower or any such Lender, as the case may be. SECTION 2.7. Notes. Each Lender's Revolving Loans under its Commitment ----- shall be evidenced by a Revolving Loan Note payable to the order of such Lender in a maximum principal amount equal to such Lender's Percentage of the Commitment Amount on the Second Restatement Date. Each Lender's Competitive Bid Loans under this Agreement shall be evidenced by a Competitive Bid Loan Note payable to the order of such Lender in a maximum principal amount equal to the Commitment Amount on the Second Restatement Date. The 26 Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Notes (or on any continuation of such grid), which notations, if made, shall evidence, inter ----- alia, the date of, the outstanding principal of, and the interest rate and - ---- Interest Period, if any, applicable to the Loans evidenced thereby. Such notations shall be conclusive and binding on the Borrower absent manifest error; provided, however, that the failure of any Lender to make any such notations - -------- ------- shall not limit or otherwise affect any Obligations of the Borrower or any other Obligor. SECTION 2.8. Competitive Bid Loans. Subject to the terms and conditions --------------------- of this Agreement (including Article V), each Lender severally agrees that the --------- Borrower may request that Competitive Bid Loan Borrowings under this Section 2.8 ----------- be made from time to time on any Business Day prior to the date occurring fifteen Business Days prior to the Commitment Termination Date in the manner set forth below; provided, however, and subject to the following proviso, that -------- ------- following the making of each Competitive Bid Loan Borrowing, the aggregate amount of all Loans and Letter of Credit Outstandings then outstanding shall not exceed the Commitment Amount; and provided, further, that the Borrower hereby -------- ------- agrees to make a mandatory prepayment of Loans on the date of each Competitive Bid Loan Borrowing with the proceeds of Competitive Bid Loans to the extent necessary to reduce the outstanding principal amount of all Loans (after giving effect to such Competitive Bid Loan Borrowing) plus all Letter of Credit Outstandings to an amount not in excess of the Commitment Amount. (a) Competitive Bid Loan Borrowing Request. The Borrower may request -------------------------------------- Competitive Bid Loan Borrowings under this Section 2.8 by delivering to the ----------- Administrative Agent, not later than 11:00 a.m., New York City time, on a Business Day, at least (x) five Business Days prior to the date of the proposed Competitive Bid Loan Borrowing (in the case of LIBOR Auctions) or (y) one Business Day prior to the date of the proposed Competitive Bid Loan Borrowing (in the case of an Absolute Rate Auction), a revocable Competitive Bid Loan Borrowing Request (which shall constitute an invitation to the Lenders to extend Competitive Bid Loan quotes to the Borrower, and which may contain requests for up to three different Competitive Bid Loan Borrowings), specifying (i) the proposed date (which shall be a Business Day) and aggregate principal amount or amounts of each Competitive Bid Loan to be made as part of such proposed Competitive Bid Loan Borrowing (each of which such Competitive Bid Loan shall be in a minimum principal amount of $10,000,000 and in an integral multiple of $1,000,000) (and, subject to the proviso contained in the first sentence of this Section, which principal amount may exceed the Commitment Amount then available to be borrowed), (ii) whether the Competitive Bid Loan quotes requested are to set forth a LIBO Rate Bid Margin or an Absolute Rate (or a combination thereof), (iii) the proposed maturity date or dates (each a "Competitive ----------- Bid Loan Maturity Date") for repayment of each Competitive Bid Loan to ---------------------- be made as part of such Competitive Bid Loan Borrowing (which maturity date or dates may not be earlier than 7 days (in the case of an Absolute Rate Auction) nor later than the 27 earlier of the date occurring (A) six months after the date of such Competitive Bid Loan Borrowing in the case of a Competitive Bid Loan based on the LIBO Rate, (B) 180 days after the date of such Competitive Bid Loan Borrowing in the case of an Absolute Rate Loan, or (C) the Commitment Termination Date), and (iv) the proposed duration of the Interest Period applicable thereto. (b) Invitation for Competitive Bid Loan Offers. Promptly upon receipt ------------------------------------------ of a Competitive Bid Loan Borrowing Request but in no event later than 2:30 p.m., New York City time, on the date of such receipt, the Administrative Agent shall send to the Lenders by facsimile an Invitation for Competitive Bid Loan Offers substantially in the form of Exhibit J attached hereto --------- containing the information contained in the applicable Competitive Bid Loan Request and which shall constitute an invitation by the Borrower to each Lender to submit Competitive Bid Loan quotes in response thereto. (c) Submission and Contents of Competitive Bid Loan Offers. ------------------------------------------------------ (i) If any Lender, in its sole discretion, elects to offer to make a Competitive Bid Loan to the Borrower as part of such proposed Competitive Bid Loan Borrowing at a rate of interest specified by such Lender in its sole discretion, it shall deliver to the Administrative Agent not later than (x) 11:00 a.m., New York City time, on the fourth Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 a.m., New York City time, on the proposed date of Borrowing, in the case of an Absolute Rate Auction, a Competitive Bid Loan Offer, which must comply with the requirements of this clause, in the form of Exhibit K hereto; provided, that --------- -------- Competitive Bid Loan quotes submitted by the Administrative Agent (or any affiliate of the Administrative Agent) in the capacity of a Lender may be submitted, and may only be submitted, if the Administrative Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) 10:45 a.m., New York City time, on the fourth Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:15 a.m., New York City time, on the proposed date of Borrowing, in the case of an Absolute Rate Auction. Subject to Articles V and VIII, such ---------- ---- Competitive Bid Loan Offer shall be irrevocable, and shall specify (A) the proposed date of Borrowing, which shall be the same as that set forth in the applicable Invitation for Competitive Bid Loan Offers, (B) the principal amount of the Competitive Bid Loan which such Lender would be willing to make as part of such proposed Competitive Bid Loan Borrowing, which principal amount may be greater than, less than or equal to such Lender's Percentage of the Commitment Amount, but which amount shall be in a minimum principal amount of $10,000,000 and in an integral multiple of $1,000,000, 28 (C) in the case of a LIBOR Auction, the LIBO Rate Bid Margin, and in the case of an Absolute Rate Auction, the Absolute Rate therefor, and (D) the identity of the quoting Lender. (ii) Any Competitive Bid Loan Offer that: (A) is not substantially in the form of Exhibit K hereto or --------- does not specify all of the information required in clause (c) of ---------- this Section; (B) contains qualifying, conditional or similar language; (C) contains proposed terms other than or in addition to those set forth in the applicable Invitation for Competitive Bid Loan Offers; or (D) arrives after the time set forth in clause (c) of this Section shall be disregarded by the Administrative Agent. (d) Notice to the Borrower. The Administrative Agent shall (by ---------------------- telephone confirmed by telecopy), by 1:00 p.m., New York City time (on the fourth Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction), and 10:30 a.m., New York City time (on the proposed date of Borrowing, in the case of an Absolute Rate Auction), notify the Borrower of the terms of any Competitive Bid Loan Offer submitted by a Lender that is in accordance with clause (c) of this Section. Any subsequent ---------- Competitive Bid Loan Offer of a Lender shall be disregarded by the Administrative Agent unless such subsequent Competitive Bid Loan Offer is submitted solely to correct a manifest error in such earlier Competitive Bid Loan Offer. The Administrative Agent's notice to the Borrower shall specify (i) the aggregate principal amount of Competitive Bid Loans for which offers have been received in respect of the related Invitation for Competitive Bid Loan Offers, (ii) the respective principal amounts and Competitive Bid Rates so offered, and (iii) the identity of such quoting Lenders. (e) Competitive Bid Loan Acceptance. The Borrower shall, in turn, ------------------------------- before (x) 4:00 p.m., New York City time, on the fourth Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction, or (y) 12:00 (noon), New York City time, on the date of such proposed Competitive Bid Loan Borrowing, in the case of an Absolute Rate Auction, either (i) irrevocably cancel the Competitive Bid Loan Borrowing Request that requested such Competitive Bid Loan Borrowing by giving the Administrative Agent (which shall promptly notify each Lender) telephonic notice (promptly confirmed in writing) to that effect (and, for purposes of this Section, a failure on the part of the Borrower to timely notify the Administrative Agent under the terms of this clause shall be deemed to be non-acceptance of all offers so notified to it pursuant to clause (d) above), or ---------- 29 (ii) irrevocably accept, in its sole discretion, but subject to the other provisions of this Section 2.8, any one or more of the ----------- offers made by any Lender or Lenders pursuant to clause (d) above, in ---------- its sole discretion, by giving the Administrative Agent telephonic notice (and the Administrative Agent shall, promptly upon receiving such telephonic notice from the Borrower, notify each Lender whose Competitive Bid Loan Offer has been accepted) (promptly confirmed in writing by delivery to the Administrative Agent of a Competitive Bid Loan Acceptance in the form of Exhibit L, copies of which shall --------- thereafter be forwarded to each of the Lenders) of (A) the amount of the Competitive Bid Loan Borrowing to be made on such date, and --- (B) the amount of the Competitive Bid Loan (which amount shall not be greater than, but which may be less than, the amount offered by such Lender for such Competitive Bid Loan pursuant to clause (d) above) to be made by such Lender as part of such ---------- Competitive Bid Loan Borrowing, and reject any remaining offers made by Lenders pursuant to clause (d) above by giving the ---------- Administrative Agent (which shall promptly give to the Lenders) notice to that effect; provided, however, that -------- ------- (C) if the Borrower accepts any Competitive Bid Loan Offer, the Borrower must accept Competitive Bid Loan Offers based exclusively upon the successively lowest interest rate and no other criteria. If two or more Lenders submit Competitive Bid Loan Offers with identical interest rates for the same Interest Period and the Borrower accepts any thereof, the Borrower shall, subject to the first three sentences of this paragraph (C), ------------- accept all such Competitive Bid Loan Offers as nearly as possible in proportion to the amounts of such Competitive Bid Loan Offers; provided, that if the amount of Competitive Bid Loan Offers to be -------- so allocated is not sufficient to enable each such Lender to make such Competitive Bid Loan Offer (or portions thereof) in an aggregate principal amount of $10,000,000 or, for amounts in excess thereof, an integral multiple of $1,000,000, the Borrower shall round the Competitive Bid Loan Offers (or portions thereof) allocated to such Lender or Lenders as the Borrower shall select as necessary to the nearest multiple of $1,000,000. (D) the aggregate amount of the Competitive Bid Loan Offers accepted by the Borrower shall not exceed the principal amount specified in the applicable Competitive Bid Loan Borrowing Request, (E) no Lender shall, without its prior written consent (in its sole discretion), be required to make a Competitive Bid Loan in a principal 30 amount of less than $10,000,000 and larger integral multiples of $1,000,000; (F) no bid shall be accepted for a Competitive Bid Loan unless such Competitive Bid Loan is in a minimum principal amount of $10,000,000 (except as provided in clause (D) --------- above) and an integral multiple of $1,000,000 and is part of a Competitive Bid Loan Borrowing in a minimum principal amount of $25,000,000, and (G) the Borrower may not accept any offer that is described in clause (c)(ii) of this Section, or that -------------- otherwise fails to comply with the requirements of this Agreement. (f) Funding of Competitive Bid Loans. Not later than 11:00 a.m., New -------------------------------- York City time (in the case of a Borrowing based on a LIBOR Auction), and 1:00 p.m., New York City time (in the case of a Borrowing based on an Absolute Rate Auction), in each case on the date specified for each Competitive Bid Loan hereunder, each Lender participating therein shall make available the amount of the Competitive Bid Loan to be made by it on such date to the Administrative Agent in immediately available funds, for the account of the Borrower, such deposit to be made to an account maintained by the Administrative Agent, as the Administrative Agent shall specify from time to time by notice to the Lenders or as otherwise agreed to in writing by the Administrative Agent and the Borrower. The amount so received by the Administrative Agent shall promptly be made available to the Borrower by depositing the same in immediately available funds in an account of the Borrower notified to the Administrative Agent in writing. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. Repayment. The Borrower shall make the following repayments --------- of the Loans: (a) Subject to clause (b) of Section 3.2, the Borrower shall repay in ---------- ----------- full the entire unpaid principal amount of each Revolving Loan upon the Commitment Termination Date and each Competitive Bid Loan upon the Competitive Bid Loan Maturity Date therefor. (b) The Borrower shall, immediately upon the acceleration pursuant to Section 8.2 or Section 8.3, repay the aggregate unpaid principal amount of ----------- ----------- all Loans then accelerated. SECTION 3.2. Prepayments. The Borrower may (in the case of clause (a)) ----------- ---------- and shall (in the case of each other clause) make the following prepayments of the Revolving Loans (Competitive Bid Loans may not be voluntarily prepaid): 31 (a) The Borrower may, from time to time on any Business Day, make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Revolving Loans; provided, however, that -------- ------- (i) any such prepayment shall be made among Revolving Loans pro --- rata to each Lender (according to the respective Percentages of the ---- Lenders) as directed by the Borrower and absent such direction shall be made pro rata among Revolving Loans of the same type and, if --- ---- applicable, having the same Interest Period, of all Lenders; (ii) all such voluntary prepayments shall require at least same day prior written notice to the Administrative Agent (in the case of Base Rate Loans) and at least two (in the case of LIBO Rate Loans, provided the Borrower pays all related break funding costs) but no more than five (in the case of Base Rate or LIBO Rate Loans) Business Days' prior written notice to the Administrative Agent; and (iii) all such voluntary partial prepayments shall be in an aggregate minimum amount of $20,000,000 (or $5,000,000, in the case of Base Rate Loans) and an integral multiple of $5,000,000. (b) The Borrower shall, on each date when any reduction in the Commitment Amount (or the availability thereof) shall become effective, including pursuant to Section 2.2, make a mandatory prepayment of all ----------- Loans, and if required, deliver cash collateral for Letter of Credit Outstandings, equal to the excess, if any, of the aggregate outstanding principal amount of all Loans and Letter of Credit Outstandings over the Commitment Amount as so reduced (or as so available). The Borrower shall also make a mandatory prepayment of all Loans equal to the Net Proceeds received from the sale of the Fisher Road warehouse facility, located in Columbus, Ohio, in accordance with Section 7.2.4(d) hereof; provided, that ---------------- -------- such mandatory prepayment shall be allocated between the Loans hereunder and the "Loans" as defined in the 364-Day Credit Agreement on a pro rata basis based on the Commitment Amount hereunder and the "Commitment Amount" under the 364-Day Credit Agreement. (c) Each prepayment of any Loans made pursuant to this Section shall be without premium or penalty, but shall be subject to Section 4.4. No ----------- voluntary prepayment of principal of any Loans prior to the Commitment Termination Date pursuant to clause (a) shall cause a reduction in the ---------- Commitment Amount. SECTION 3.3. Interest Provisions. Interest on the outstanding principal ------------------- amount of Loans shall accrue and be payable in accordance with this Section 3.3. ----------- SECTION 3.3.1. Rates. Pursuant to an appropriately delivered Revolving Loan ----- Borrowing Request, Competitive Bid Loan Borrowing Request or Continuation/Conversion Notice, the Borrower may elect that Loans comprising a Borrowing accrue interest at the rate per annum: 32 (a) on that portion maintained from time to time as a Base Rate Loan, equal to the sum of the Alternate Base Rate from time to time in effect plus the Applicable Base Rate Margin; ---- (b) on that portion maintained as a LIBO Rate Loan, during each Interest Period applicable thereto, equal to the sum of the LIBO Rate for such Interest Period plus the Applicable LIBO Rate Margin plus any ---- ---- additional amount requested by any Lender to reflect all additional amounts to be incurred by such Lender in respect of such LIBO Rate Loan in obtaining and holding any deposit so acquired in providing such LIBO Rate Loans and in maintaining or paying any Reserves existing as of the first day of such interest period to the extent not otherwise included in the definition of "LIBO Rate"; (c) on that portion maintained as a Competitive Bid Loan, during each Interest Period applicable thereto, equal to the applicable Competitive Bid Rate specified by the Lender making such Competitive Bid Loan in the Competitive Bid Loan Offer delivered by such Lender and accepted by the Borrower pursuant to Section 2.8. ----------- All LIBO Rate Loans and Competitive Bid Loans shall bear interest from and including the first day of the applicable Interest Period to (but excluding) the last day of such Interest Period at the interest rate determined as applicable to such Loan. SECTION 3.3.2. Post-Maturity Rates. After the date any principal amount of ------------------- any Loan is due and payable (whether on the Commitment Termination Date, Competitive Bid Loan Maturity Dates, upon acceleration or otherwise), or after any other monetary Obligation of the Borrower shall have become due and payable, the Borrower shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on such amounts at a rate per annum equal to the Alternate Base Rate plus the Applicable Base Rate Margin, the LIBO Rate plus the ---- ---- Applicable LIBO Rate Margin or the applicable Competitive Bid Rate as then accruing on the Loans outstanding plus a margin of 2% in each case. The ---- Administrative Agent agrees to promptly notify the Borrower of such post-maturity rates but the failure to so notify shall not affect such rates. SECTION 3.3.3. Payment Dates. Interest accrued on each Loan shall be ------------- payable, without duplication: (a) on the Commitment Termination Date; (b) on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Loan, with respect to the amount so paid or prepaid; (c) with respect to Base Rate Loans, on each Monthly Payment Date occurring after the date of the initial Borrowing hereunder; (d) with respect to LIBO Rate Loans or Competitive Bid Loans, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed 90 days (in the case of Absolute Rate Loans) or three months (in the case of LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate), on each 90th day (in the case of Absolute Rate Loans) or three month (in the case of LIBO Rate Loans or Competitive 33 Bid Loans based on the LIBO Rate) anniversary of the first day of the applicable Interest Period for such Loan occurring during such Interest Period); (e) with respect to any Base Rate Loans converted into LIBO Rate Loans on a day when interest would not otherwise have been payable pursuant to clause (c), on the date of such conversion; and ---------- (f) on that portion of any Loans which is accelerated pursuant to Section 8.2 or Section 8.3, immediately upon such acceleration. ----------- ----------- Interest accrued on Loans or other monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable (whether on the Commitment Termination Date, Competitive Bid Loan Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION 3.4. Fees. The Borrower agrees to pay the fees set forth in this ---- Section 3.4. All such fees shall be non-refundable. - ----------- SECTION 3.4.1. Front-End Fee. The Borrower agrees to pay to the ------------- Administrative Agent on the Second Restatement Date for the account of each Lender a one-time fee calculated and paid on the increase in each Lender's Commitment made on the Second Restatement Date in an amount as agreed between the Borrower and each Lender. SECTION 3.4.2. Facility Fee. The Borrower agrees to pay to the ------------ Administrative Agent for the account of each Lender, for the period (including any portion thereof when its Commitment is suspended by reason of the Borrower's inability to satisfy any condition of Article V or partially unavailable because --------- of the provisions of Sections 2.2.1(a) and 2.2.3) commencing on the Effective ----------------- ----- Date and continuing through the Commitment Termination Date, a facility fee at the then applicable rate set forth in the Pricing Grid on such Lender's Percentage of the Commitment Amount. Such facility fees shall be payable by the Borrower in arrears, on each Quarterly Payment Date, commencing with the first such day following the Effective Date, and on the Commitment Termination Date. SECTION 3.4.3. Administrative Agent's Fee. The Borrower agrees to pay to -------------------------- the Administrative Agent, for its own account, an administrative agent's fee in an annual amount and on the dates agreed to between the Borrower and the Administrative Agent. SECTION 3.4.4. Letter of Credit Fee. The Borrower agrees to pay to the -------------------- Issuer, for the pro rata account of the Issuer and each other Lender, a Letter of Credit fee on the average Letter of Credit Outstandings set forth in clause ------ (a) of the definition thereof during the applicable Pricing Period in an amount - --- equal to the then applicable rate set forth in the Pricing Grid, such fees to be payable on each Quarterly Payment Date in arrears. The Borrower agrees to pay the Issuer for its own account, an issuance fee, an administrative fee, amendment fee and extension fee in such amounts and on dates agreed to between the Borrower and the Issuer. SECTION 3.4.5. Auction Fee. The Borrower agrees to pay to the ----------- Administrative Agent, for its own account, an auction fee for administering each Competitive Bid Loan auction 34 under Section 2.8 in an amount and to be paid on such dates as agreed between ----------- the Borrower and the Administrative Agent. SECTION 3.4.6. Arranger Fee. The Borrower agrees to pay to each of the ------------ Arrangers, for their own respective accounts, an up-front arranger fee on the Second Restatement Date in an amount agreed to by the Borrower and each Arranger. ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. Fixed Rate Lending Unlawful. If any Lender shall determine --------------------------- in good faith (which determination shall, upon notice thereof to the Borrower and the Lenders, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to make, continue or maintain any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of all Lenders to make, continue, maintain or convert any such Loans shall, upon such determination, forthwith be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and all LIBO Rate Loans shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. SECTION 4.2. Deposits Unavailable. If the Administrative Agent, or any -------------------- Lenders whose Percentages equal or exceed 35% upon notice to the Administrative Agent, shall have determined in good faith that (a) Dollar certificates of deposit or Dollar deposits, as the case may be, in the relevant amount and for the relevant Interest Period are not available to it in its relevant market; or (b) adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate, then, upon notice from the Administrative Agent to the Borrower and the Lenders, the obligations of all Lenders under Sections 2.3 and 2.4 and 2.8 to make or ------------ --- --- continue any Loans as, or to convert any Loans into, LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate shall forthwith be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. SECTION 4.3. Increased Loan Costs, etc. The Borrower agrees to reimburse ------------------------- each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans. Such Lender shall promptly notify the Administrative Agent and the Borrower in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Lender for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower directly to such Lender within five days of its receipt of such notice, 35 and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.4. Funding Losses. In the event any Lender shall incur any loss -------------- or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan or Competitive Bid Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loans or any Competitive Bid Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 2.2.2, 3.1, 3.2 or otherwise; -------------- --- --- (b) any Loans not being made as LIBO Rate Loans in accordance with the Revolving Loan Borrowing Request therefor other than by reason of the fault of any such Lender; or (c) any Loans not being made as Competitive Bid Loans in accordance with the Competitive Bid Loan Borrowing Request therefor other than by reason of the fault of any such Lender; or (d) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/ Conversion Notice therefor other than by reason of the fault of any such Lender, then, upon the written notice of such Lender to the Borrower (with a copy to the Administrative Agent), the Borrower shall, within five days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.5. Increased Capital Costs. If any change in, or the introduction, ----------------------- adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline or decision (whether or not having the force of law) of any court, central bank, regulator or other governmental authority affects or would affect the amount of capital required or expected to be maintained by any Lender or any Person controlling such Lender, and such Lender determines (in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of its Commitment or the Loans made, or the Letters of Credit issued or participated in, by such Lender is reduced to a level below that which such Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Lender to the Borrower, the Borrower shall immediately pay directly to such Lender additional amounts sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. In determining such amount, such Lender may use any method of 36 averaging and attribution that it uses with other customers which have similar arrangements, and, if done in good faith, shall, in the absence of manifest error, be conclusive. SECTION 4.6. Taxes. All payments by the Borrower of principal of, and ----- interest on, the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender's income or receipts by the jurisdictions where such Lender is organized or maintains a place of business (such non-excluded items being called "Taxes"). In ----- the event that any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Administrative Agent an official receipt or other documentation reasonably satisfactory to the Administrative Agent (with copies to each of the affected Lenders) evidencing such payment to such authority; and (c) pay to the Administrative Agent for the account of the Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against any Agent or any Lender with respect to any payment received by such Agent or such Lender hereunder, such Agent or such Lender may pay such Taxes and the Borrower will promptly pay such additional amounts (including any penalties, interest or expenses resulting from the Borrower's omission in reimbursing such Agent or such Lender sooner) as is necessary in order that the net amount received by such person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such person would have received had not such Taxes been asserted. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent, for the account of the applicable Lender, the required receipts or other required documentary evidence, the Borrower shall indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 4.6, a distribution hereunder by the Administrative ----------- Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower. The Administrative Agent shall request that each Lender that is organized under the laws of a jurisdiction other than the United States, prior to the date of the initial Credit Extension and annually thereafter, execute and deliver to the Borrower and the Administrative Agent, one or more copies (as the Borrower or the Administrative Agent may reasonably request) of United States Internal Revenue Service Form W-8BEN or Form W-8ECI or such other forms or documents (or successor forms or documents), appropriately completed, as may be applicable to 37 establish the extent, if any, to which a payment to such Lender is exempt from withholding or deduction of Taxes. SECTION 4.7. Payments, Computations, etc. (a) Unless otherwise expressly --------------------------- provided, all payments by the Borrower pursuant to this Agreement, the Notes, each Letter of Credit or any other Loan Document shall be made by the Borrower to the Administrative Agent for the pro rata account of the Lenders entitled to --- ---- receive such payment. (b) All such payments required to be made to the Administrative Agent shall be made, without setoff, deduction or counterclaim, not later than 2:00 p.m., New York City time, on the date due, in same day or immediately available funds, to such account as the Administrative Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Administrative Agent on the next succeeding Business Day. The Administrative Agent shall promptly remit in same day funds to each Lender its share, if any, of such payments received by the Administrative Agent for the account of such Lender; provided, that if the Administrative Agent receives such funds after 3:00 -------- p.m., New York City time, it may remit such payments to the Lenders on the next Business Day (with accrued interest on such amount, to the extent the Administrative Agent has received interest on such amount from the Borrower). (c) All interest and fees (including the fees payable in accordance with Section 3.4) shall be computed on the basis of the actual number of ----------- days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan (i) determined in accordance with clause (a) of the definition of Alternate Base Rate, 365 ---------- days or, if appropriate, 366 days or (ii) determined in accordance with clause (b) of the definition of Alternate Base Rate, 360 days). ---------- (d) Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause (c) of the definition of the term "Interest Period" with ---------- --------------- respect to LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate) be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. SECTION 4.8. Sharing of Payments. If any Lender shall obtain any payment or ------------------- other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Loan or Reimbursement Obligation (other than pursuant to the terms of Sections 4.3, 4.4, 4.5 and 4.6) in excess of its pro -------- --- --- --- --- --- rata share of payments then or therewith obtained by all Lenders, such Lender - ---- shall purchase from the other Lenders such participations in Credit Extensions made by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, -------- ------- that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such 38 recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (a) the amount of such selling Lender's required repayment to the purchasing Lender to - -- (b) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 4.9) with respect to such participation as fully ----------- as if such Lender were the direct creditor of the Borrower in the amount of such participation. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 4.9. Setoff. Each Lender shall, upon the occurrence of any Default ------ described in clauses (a) through (d) of Section 8.1.9, or upon the occurrence of ----------- --- ------------- any other Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due), and (as security for such Obligations) the Borrower hereby grants to each Lender a continuing security interest in, any and all balances, credits, deposits (general or special), accounts or moneys of the Borrower then or thereafter maintained with such Lender; provided, however, that any such appropriation and -------- ------- application shall be subject to the provisions of Section 4.8. Each Lender ----------- agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender; provided, however, that the -------- ------- failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Lender may have. SECTION 4.10. Use of Proceeds. The Borrower shall apply the proceeds of --------------- each Borrowing (i) for working capital for the Borrower and its Subsidiaries, (ii) to refinance certain existing Indebtedness of the Borrower and its Subsidiaries, (iii) for other general corporate purposes of the Borrower and its Subsidiaries and (iv) to pay fees and expenses in connection with the financing under this Agreement; without limiting the foregoing, no proceeds of any Loan will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934 or any "margin stock", as defined in F.R.S. Board Regulation U. SECTION 4.11. Reserves. If at any time during the term of this Agreement, -------- any Lender shall be required by any Legal Requirement to maintain any Reserves in respect of any LIBO Rate Loans or Competitive Bid Loans based on the LIBO Rate, other than Reserves existing as of the date of the making of such Loans and included in the calculation of LIBO Rate, 39 the LIBO Rate or LIBO Rate Bid Margin, as applicable, shall be adjusted to reflect all additional costs incurred or to be incurred by such Lender in maintaining such Reserves. Such costs shall be computed by determining the amount by which such Legal Requirement effectively increases the cost to such Lender of obtaining deposits of Dollars in the London interbank foreign currency deposits market or certificate of deposit market in an amount approximately equal to the LIBO Rate Loan or the Competitive Bid Loan based on the LIBO Rate, as applicable. The determination by any Lender of the amount of such costs and the allocations, if any, of such costs among the Borrower and other customers which have arrangements with such Lender similar to the making of the LIBO Rate Loans and Competitive Bid Loans based on the LIBO Rate hereunder, if done in good faith and, with respect to such allocation, on an equitable basis, shall, in the absence of manifest error, be conclusive and shall be provided to the Borrower in a notice from any such Lender. SECTION 4.12. Change in Applicable Lending Office. Each Lender agrees ----------------------------------- that, upon the occurrence of any event giving rise to the operation of Section ------- 4.1, 4.3, 4.5 or 4.6 with respect to such Lender, it will, if requested by the - --- --- --- --- Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no economic, legal, regulatory or other disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such Section. Nothing in this Section 4.12 shall affect or ------------ postpone any of the Obligations of the Borrower or the right of any Lender provided in any of Sections 4.1, 4.3, 4.5 or 4.6. ----------------------------- ARTICLE V CONDITIONS TO CREDIT EXTENSIONS SECTION 5.1. Initial Credit Extension. The obligations of the Lenders and ------------------------ the Issuer to fund the initial Credit Extension shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 5.1. - ----------- SECTION 5.1.1. Resolutions, etc. The Administrative Agent shall have ---------------- received from the Borrower with sufficient copies for each Lender a certificate, dated the date of the initial Credit Extension, of an Authorized Officer of the Borrower certifying the following: (a) resolutions of the Board Committee of the Borrower then in full force and effect authorizing the execution, delivery and performance of this Agreement, the Notes and each other Loan Document to be executed by or on behalf of the Borrower, (b) true, correct and complete copies of the Articles of Incorporation and the By-Laws of the Borrower, which documents shall be in form and substance satisfactory to the Administrative Agent, and (c) the incumbency and signatures of those officers of the Borrower authorized to act on behalf of the Borrower with respect to this Agreement, the Notes and each other Loan Document executed by the Borrower, 40 upon which certificate each Lender may conclusively rely until it shall have received a further certificate of an Authorized Officer of the Borrower canceling or amending such prior certificate. SECTION 5.1.2. Delivery of Certain Documents. The Administrative Agent ----------------------------- shall have received with sufficient copies for each Lender the following documents, agreements or instruments: (a) a certificate of good standing of the Borrower, certified as of a recent date by the appropriate governmental officer in Delaware; and (b) copies of the Organic Documents of each Obligor other than the Borrower, together with all amendments thereto, and a certificate of good standing, in each case certified as of a recent date by the appropriate governmental officer in its jurisdiction of incorporation for certain Subsidiaries. SECTION 5.1.3. Delivery of Notes. Each Lender shall have received, for its ----------------- own account, its Revolving Loan Note and its Competitive Bid Loan Note duly executed and delivered by and on behalf of the Borrower. SECTION 5.1.4. Payment of Outstanding Indebtedness, etc. All Indebtedness ---------------------------------------- identified in Item 7.2.1(b) ("Indebtedness to be Paid") of the Disclosure ------------- Schedule, together with all interest, all prepayment premiums and other amounts due and payable with respect thereto, shall have been paid in full (including, to the extent necessary, from proceeds of the initial Borrowing), and the Administrative Agent shall have received payoff letters for the Indebtedness identified in Item 7.2.1(b) ("Indebtedness to be Paid") of the Disclosure ------------- Schedule. SECTION 5.1.5. Assumption of Outstanding Indebtedness, etc. All ------------------------------------------- Indebtedness identified in Item 7.2.1(c) ("Ongoing Indebtedness") of the ------------- Disclosure Schedule as Indebtedness to be assumed shall have been assumed by the Borrower. SECTION 5.1.6. Closing Date Certificate. The Administrative Agent shall ------------------------ have received with sufficient copies for each Lender the Closing Date Certificate, dated the date of the initial Credit Extension and duly executed by an Authorized Officer of the Borrower, in which the Borrower shall agree and acknowledge that the statements made therein shall be deemed to be true and correct representations and warranties made as of such date under this Agreement, and, at the time such certificate is delivered, such statements shall in fact be true and correct. All documents and agreements required to be appended to the Closing Date Certificate shall be in form and substance satisfactory to the Lenders. SECTION 5.1.7. Opinions of Counsel. The Administrative Agent shall have ------------------- received with sufficient copies for each Lender opinions, dated the date of the initial Credit Extension and addressed to the Arrangers and all Lenders, from (a) the following counsel: (i) Michael R. Moran, General Counsel of the Borrower, in substantially the form of Exhibit M-1 hereto; and ----------- 41 (ii) Rooks, Pitts and Poust, counsel to the Borrower and the other Obligors, in substantially the form of Exhibit M-2 hereto. ----------- SECTION 5.1.8. Guaranty. The Administrative Agent shall have received the -------- Guaranty in substantially the form of Exhibit N, dated the date hereof, duly --------- executed by each Material Subsidiary other than First Consumers National Bank and Spiegel Acceptance Corporation. SECTION 5.1.9. Insurance. The Administrative Agent shall have received --------- with sufficient copies for each Lender a schedule of the policies of insurance maintained and in effect on the Effective Date as required pursuant to Section ------- 7.1.4, certified by an Authorized Officer of the Borrower. - ----- SECTION 5.1.10. Pro Forma Compliance Certificate and Auditor's Reliance ------------------------------------------------------- Letter. The Administrative Agent shall have received, with counterparts for each - ------ Lender, an initial Compliance Certificate computed on a pro forma basis as if --- ----- the initial Credit Extension had been made, which shall also include a calculation of the Total Leverage Ratio as of December 30, 1995, duly executed (and with all schedules thereto duly completed) and a letter from the Borrower to the Borrower's independent public accountants substantially in the form of Exhibit P, all delivered by a financial or accounting Authorized Officer of the - --------- Borrower. SECTION 5.1.11. Closing Fees, Expenses, etc. The Administrative Agent shall --------------------------- have received for its own account, or for the account of each Lender entitled thereto, as the case may be, all fees, costs and expenses due and payable pursuant to Sections 3.4 and 10.3, and the Administrative Agent shall have ------------ ---- received all fees, costs and expenses due and payable pursuant to Section 10.3 ------------ and the Lenders shall have received all amounts then due as prescribed by Schedule IV. - ----------- SECTION 5.1.12. Document Review. The Administrative Agent shall have --------------- received and reviewed to its satisfaction all documents, instruments, information, approvals, and opinions relating to the Borrower as the Administrative Agent may reasonably request. SECTION 5.1.13. Simultaneous Closing of Liquidity Facility. The Liquidity ------------------------------------------ Facility shall close on or concurrently with the satisfaction of each condition under this Section 5.1. ----------- SECTION 5.1.14. Subordinated Debt. The Administrative Agent shall have ----------------- confirmed that the maturity of all Subordinated Debt has been extended beyond the Stated Maturity Date and shall have reviewed and have been satisfied with the agreements evidencing such Subordinated Debt. SECTION 5.2. All Credit Extensions. The obligation of each Lender to --------------------- fund any Loan on the occasion of any Credit Extensions (including the initial Credit Extensions) shall be subject to the satisfaction of each of the conditions precedent set forth in this Section 5.2. ----------- 42 SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both before ------------------------------------------- and after giving effect to any Credit Extensions the following statements shall be true and correct: (a) the representations and warranties set forth in Article VI ---------- (excluding, in the case of any Loan the proceeds of which are used entirely to repay outstanding Loans, those contained in Sections 6.6 and 6.7) and ------------ --- those contained in each other Loan Document shall be true and correct with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date); and (b) no Default shall have then occurred and be continuing or would result from the transactions contemplated by this Agreement and the Loan Documents, and none of the Borrower, the other Obligors, or any of their respective Subsidiaries are in material violation of any law, governmental regulation, court order or decree, which violation would reasonably be expected to have a Material Adverse Effect. SECTION 5.2.2. Credit Extension Request. The Administrative Agent shall ------------------------ have received a Revolving Loan Borrowing Request or a Competitive Bid Loan Borrowing Request if Loans are being requested, or the Issuer shall have received an Issuance Request if a Letter of Credit is being requested or extended. Each of the delivery of a Revolving Loan Borrowing Request, a Competitive Bid Loan Borrowing Request or an Issuance Request and the acceptance by the Borrower of the proceeds of such Credit Extension shall constitute a representation and warranty by the Borrower that on the date of such Credit Extension (both immediately before and after giving effect to such Credit Extension and the application of the proceeds thereof) the statements made in Section 5.2.1 are true and correct. - ------------- SECTION 5.2.3. Satisfactory Legal Form. All documents executed or ----------------------- submitted pursuant hereto by or on behalf of the Borrower or any of its Subsidiaries or any other Obligors shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel; and the Administrative Agent shall have received all information, approvals, opinions, documents or instruments as the Administrative Agent may reasonably request. SECTION 5.2.4. Acquisition Funding. To the extent that any Credit ------------------- Extension will be used in connection with any Acquisition, such Acquisition shall satisfy the terms of a "Permitted Acquisition" and the Borrower shall deliver to the Lenders a Compliance Certificate, attaching such pro forma --- ----- financial and other information (after giving effect to the applicable Acquisition and the making of the requested Loans) as shall be necessary to evidence that no Event of Default or Default will occur. SECTION 5.3. Second Restatement Date. The occurrence of the Second ----------------------- Restatement Date shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 5.3. ----------- 43 SECTION 5.3.1. Resolutions, etc. The Administrative Agent shall have ---------------- received from the Borrower with sufficient copies for each Lender a certificate, dated the date of the Second Restatement Date, of an Authorized Officer of the Borrower certifying the following: (a) resolutions of the Board Committee of the Borrower then in full force and effect authorizing the execution, delivery and performance of this Agreement, the Notes and each other Loan Document to be executed by or on behalf of the Borrower, (b) true, correct and complete copies of the Articles of Incorporation and the By-Laws of the Borrower (or a statement that such have not been amended since the Closing Date), which documents shall be in form and substance satisfactory to the Administrative Agent, and (c) the incumbency and signatures of those officers of the Borrower authorized to act on behalf of the Borrower with respect to this Agreement, the Notes and each other Loan Document executed by the Borrower, upon which certificate each Lender may conclusively rely until it shall have received a further certificate of an Authorized Officer of the Borrower canceling or amending such prior certificate. SECTION 5.3.2. Delivery of Certain Documents. The Administrative Agent ----------------------------- shall have received with sufficient copies for each Lender the following documents, agreements or instruments: (a) a certificate of good standing of the Borrower, certified as of a recent date by the appropriate governmental officer in Delaware; and (b) copies of the Organic Documents of each Obligor other than the Borrower (or a statement that such have not been amended since the Closing Date), together with all amendments thereto, and a certificate of good standing, in each case certified as of a recent date by the appropriate governmental officer in its jurisdiction of incorporation for certain Subsidiaries. SECTION 5.3.3. Delivery of Notes. Each Lender shall have received, for its ----------------- own account, its Revolving Loan Note and its Competitive Bid Loan Note duly executed and delivered by and on behalf of the Borrower. Upon receipt of such Notes, each Lender then holding any Notes received under the Existing Agreement will return such Notes (marked "cancelled upon replacement") to the Agent to forward to the Borrower. SECTION 5.3.4. Opinions of Counsel. The Administrative Agent shall have ------------------- received with sufficient copies for each Lender opinions, dated the Second Restatement Date and addressed to the Arrangers and all Lenders, from (a) the following counsel: (i) Michael R. Moran, General Counsel of the Borrower, in substantially the form of Exhibit M-1 hereto; and ----------- 44 (ii) Rooks, Pitts and Poust, counsel to the Borrower and the other Obligors, in substantially the form of Exhibit M-2 hereto. ----------- SECTION 5.3.5. Guaranty Affirmation. The Administrative Agent shall have -------------------- received the Guaranty Affirmation in substantially the form of Exhibit S, dated --------- the date hereof, duly executed by each Material Subsidiary other than First Consumers National Bank and Spiegel Acceptance Corporation. SECTION 5.3.6. Second Restatement Date Certificate. The Administrative ----------------------------------- Agent shall have received with sufficient copies for each Lender the Second Restatement Date Certificate, dated the Second Restatement Date and duly executed by an Authorized Officer of the Borrower, in which the Borrower shall agree and acknowledge that the statements made therein shall be deemed to be true and correct representations and warranties made as of such date under this Agreement, and, at the time such certificate is delivered, such statements shall in fact be true and correct. All documents and agreements required to be appended to the Second Restatement Date Certificate shall be in form and substance satisfactory to the Lenders. SECTION 5.3.7. Closing Fees, Expenses, etc. The Administrative Agent shall --------------------------- have received for its own account, or for the account of each Lender entitled thereto, as the case may be, all accrued fees, costs and expenses due and payable pursuant to Sections 3.4 and 10.3, including the Facility Fee, and the ------------ ---- Administrative Agent shall have received all fees, costs and expenses due and payable pursuant to Section 10.3. ------------ SECTION 5.3.8. Document Review. The Administrative Agent shall have --------------- received and reviewed to its satisfaction all documents, instruments, information, approvals, and opinions relating to the Borrower as the Administrative Agent may reasonably request. SECTION 5.3.9. Support Letter. The Administrative Agent shall have -------------- received from Otto Versand (GmbH & Co) a signed Letter of Support to be in the form of Exhibit Q hereto. --------- SECTION 5.3.10. Simultaneous Closing of 364-Day Credit Agreement. The ------------------------------------------------ "Closing Date" under the 364-Day Credit Agreement shall have occurred simultaneously. ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Lenders, the Issuer and the Agents to enter into this Agreement and to make Credit Extensions hereunder, the Borrower represents and warrants as set forth in this Article VI. ---------- SECTION 6.1. Organization, etc. The Borrower is a corporation and each ----------------- of its Subsidiaries (if any) is validly organized and existing and in good standing under the laws of the state of its organization or incorporation, as applicable, is duly qualified to do business and is in good standing as a foreign partnership or corporation, as applicable, in each jurisdiction where the failure to be so qualified could have a Material Adverse Effect and has full partnership or corporate power and authority, as applicable, and holds all requisite governmental licenses, 45 permits and other approvals to enter into and perform its Obligations under this Agreement, the Notes and each other Loan Document to which it is a party and to own and hold under lease its property and to conduct its business substantially as currently conducted by it. SECTION 6.2. Due Authorization, Non-Contravention, etc. The execution, ----------------------------------------- delivery and performance by the Borrower of this Agreement, the Notes and each other Loan Document executed or to be executed by it, and the execution, delivery and performance by each other Obligor of each Loan Document executed or to be executed by it, are within the Borrower's and each such Obligor's partnership or corporate powers, as applicable, have been duly authorized by all necessary partnership or corporate action, as applicable, and do not (a) contravene the Borrower's or any such Obligor's Organic Documents; (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting the Borrower or any such Obligor; or (c) result in, or require the creation or imposition of, any Lien on any of the Borrower's or any Obligor's properties, except pursuant to the terms of a Loan Document. SECTION 6.3. Government Approval, Regulation, etc.; Investment Company Act; -------------------------------------------------------------- Public Utility Holding Company Act. Except as disclosed in Item 6.3 - ---------------------------------- -------- ("Approvals") of the Disclosure Schedule, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by the Borrower or any other Obligor of this Agreement, the Notes or any other Loan Document. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 6.4. Validity, etc. This Agreement constitutes, and the Notes and ------------- each other Loan Document executed by the Borrower will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms except as such enforceability may be limited by bankruptcy, insolvency or similar laws from time to time in effect that affect creditors rights generally; and each Loan Document executed pursuant hereto by each other Obligor will, on the due execution and delivery thereof by such Obligor, be the legal, valid and binding obligation of such Obligor enforceable in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency or similar laws from time to time in effect that affect creditors rights generally. SECTION 6.5. Financial Information. The (a) audited balance sheet of the --------------------- Borrower as at January 1, 2000, and the related statements of operations and cash flow of the Borrower, and (b) unaudited balance sheet of the Borrower for the Fiscal Quarter ended April 1, 2000 and the related statements of income and cash flow of the Borrower, copies of which have been furnished to each Lender, have in each case been prepared in accordance with GAAP 46 consistently applied, and present fairly the consolidated financial condition of the Borrower as at the dates thereof and the results of its operations for the periods then ended. SECTION 6.6. No Material Adverse Change. Since January 1, 2000, there has -------------------------- been no material adverse change in the financial condition, operations, assets, business, properties or prospects of the Borrower and its Subsidiaries. SECTION 6.7. Litigation, Labor Controversies, etc. There is no pending or, ------------------------------- to the knowledge of the Borrower, threatened litigation, arbitration, governmental investigation, action, proceeding, or labor controversy affecting the Borrower or any of its Subsidiaries, or any of their respective properties, businesses, assets or revenues, which would reasonably be expected to have a Material Adverse Effect except as disclosed in Item 6.7 ("Litigation") of the -------- Disclosure Schedule. SECTION 6.8. Compliance With Laws: Authorizations. The Borrower and its ------------------------------------ Subsidiaries have complied in all material respects with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government, or any instrumentality or agency thereof, having jurisdiction over the conduct of its businesses or the ownership of its properties, including, without limitation, those relating to public health and safety and protection of the environment, except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable federal, state and local environmental, health and safety statutes and regulations or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could have a Material Adverse Effect. The Borrower and its Subsidiaries have obtained all Authorizations necessary and appropriate to own and operate their respective properties and all such Authorizations are in full force and effect, except where the failure to so obtain such Authorizations or to so keep such Authorizations in full force and effect would not reasonably be expected to have a Material Adverse Effect. SECTION 6.9. Taxes. Each of the Borrower and its Subsidiaries has filed ----- all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except, in each case, any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 6.10. Pension and Welfare Plans. During the twelve-consecutive- ------------------------- month period prior to the date of the execution and delivery of this Agreement and prior to the date of any Credit Extension hereunder, no steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which might result in the incurrence by the Borrower or any member of the Controlled Group of any material liability, fine or penalty. Except as disclosed in Item 6.10 ("Employee Benefit Plans") of the --------- Disclosure Schedule, neither the Borrower nor any member of the Controlled Group has any contingent liability with respect to any post-retirement 47 benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Title I of ERISA. SECTION 6.11. Environmental Warranties. Except as set forth in Item 6.11 ------------------------ --------- ("Environmental Matters") of the Disclosure Schedule, (a) neither the Borrower nor any Subsidiary has in the past or is presently operating its business in such a manner as to violate any Environmental Law, except for such violations that would not reasonably be expected to have a Material Adverse Effect; (b) there are no pending nor, to the best of Borrower's knowledge, threatened lawsuits, administrative proceedings, or investigations against the Borrower or any Subsidiary that allege violations of Environmental Laws, except for such lawsuits, administrative proceedings, or investigations as would not reasonably be expected to have a Material Adverse Effect; (c) to the best of Borrower's knowledge, no Hazardous Materials have been placed, deposited or disposed of on any real property which the Borrower or any Subsidiary owned or operated in the past or owns or operates at present in such concentrations, quantities, or circumstances which are reasonably likely to result in material expenditures in connection with removal or response costs pursuant to any Environmental Law; and (d) to the best of the Borrower's knowledge, no Hazardous Materials generated in the course of Borrower's or any Subsidiaries' business have been placed, deposited or disposed of on the real property of any other Person in circumstances which are reasonably likely to result in the expenditure of material removal or response costs pursuant to any Environmental Laws. SECTION 6.12. Regulations U and X. The Borrower is not engaged in the ------------------- business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Credit Extensions will be used for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation U or X. Terms for which meanings are provided in F.R.S. Board Regulation U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 6.13. Subsidiaries. The Borrower has no Subsidiaries, except those ------------ Subsidiaries (a) which are identified in Item 6.13 ("Existing Subsidiaries") of the --------- Disclosure Schedule; or (b) which are permitted to have been acquired in accordance with Section 7.1.10 or 7.2.3. -------------- ----- SECTION 6.14. Ownership of Properties. The Borrower and each of its ----------------------- Subsidiaries owns good and defensible title to all of their respective properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, 48 trade names, service marks and copyrights), in each case, free and clear of all Liens, charges or claims (including infringement claims with respect to patents, trademarks, copyrights and the like) except as permitted pursuant to Section ------- 7.2.2. - ----- SECTION 6.15. Absence of Default. Neither the Borrower nor any of its ------------------ Subsidiaries is in default in the payment of or in the performance of any obligation applicable to any outstanding Indebtedness including, without limitation, any Default hereunder. SECTION 6.16. Accuracy of Information. All factual information heretofore ----------------------- or contemporaneously furnished by the Borrower or the Otto Interests in writing to any Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of the Borrower to any Agent or any Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Agreement by the Agents and such Lender, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading. ARTICLE VII COVENANTS SECTION 7.1. Affirmative Covenants. The Borrower agrees with the Agents, --------------------- the Issuer and each Lender that, until all Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 7.1. ----------- SECTION 7.1.1. Financial Information, Reports, Notices, etc. The Borrower -------------------------------------------- will furnish, or will cause to be furnished, to each Lender, the Issuer and the Administrative Agent copies of the following financial statements, reports, notices and information: (a) as soon as available and in any event within 55 days after the end of each Fiscal Quarter, a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter and a consolidated statement of income and cash flows of the Borrower and its Subsidiaries for such Fiscal Quarter, with a comparison to budget for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, in each case certified by a financial Authorized Officer of the Borrower; provided, that any such -------- information for the final Fiscal Quarter of a Fiscal Year may be preliminary and subject to final adjustment no later than 100 days after the end of such Fiscal Year and, if such final adjustment results in a Level change for the Pricing Period, interest and fees will be retroactively adjusted for the corresponding Pricing Period; (b) as soon as available and in any event within 100 days after the end of each Fiscal Year of the Borrower, a copy of the annual audit report for such Fiscal Year for the Borrower and its Subsidiaries, including therein a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Year and a consolidated statement of retained earnings, income and shareholders' equity and cash flows of the 49 Borrower and its Subsidiaries for such Fiscal Year, and changes in financial position as of the end of such Fiscal Year, in each case certified (without any Impermissible Qualification) in a manner acceptable to the Required Lenders by KPMG Peat Marwick or other independent public accountants acceptable to the Required Lenders, together with a certificate from such accountants to the effect that, in making the examination necessary for the signing of such annual report by such accountants, they have not become aware of any Default that has occurred and is continuing, or, if they have become aware of such Default, describing such Default and the steps, if any, being taken to cure it, and a letter from the Borrower to such accountants substantially in the form of Exhibit P; --------- (c) within three Business Days after becoming aware of the occurrence of any development, voluntary, financial or otherwise, which would reasonably be expected to have a Material Adverse Effect, a report in reasonable detail; (d) as soon as possible and in any event within three Business Days after any executive officer of the Borrower has knowledge, notice to the Administrative Agent of the issuance or adoption after the date of this Agreement of any federal, state or local statute, regulation or ordinance or judicial or administrative order limiting or controlling the operations of the Borrower or any of its Subsidiaries which would reasonably be expected to have a Material Adverse Effect, together with a copy of such statute, regulation, ordinance or judicial or administrative order; (e) as soon as available and in any event within 55 days after the end of each Fiscal Quarter, a Compliance Certificate, executed by a financial Authorized Officer of the Borrower, showing compliance with the financial covenants set forth in Section 7.2.6, and certifying as to the absence of ------------- any Default; provided, that any such Compliance Certificate for the final -------- Fiscal Quarter of a Fiscal Year may be subject to a final adjustment in a similar manner as set forth in the proviso of Section 7.1.1(a); -------- (f) as soon as possible and in any event within three Business Days after any executive officer of the Borrower has knowledge, notice of the occurrence of each Default, and a statement of an Authorized Officer of the Borrower setting forth details of such Default and the action which the Borrower has taken and proposes to take, if any, with respect thereto; the occurrence of any material adverse development with respect to any litigation, action, proceeding, or labor controversy described in Section ------- 6.7; and the commencement of any labor controversy, litigation, action, --- proceeding of the type described in Section 6.7, notice thereof and copies ----------- of all documentation relating thereto; (g) promptly after the sending or filing thereof, copies of all reports which the Borrower sends to its public shareholders; (h) within three Business Days after becoming aware of the institution of any steps by the Borrower or any other Person to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Borrower furnish a bond or 50 other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Borrower of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto; (i) promptly, and in any event within 90 days after the end of each Fiscal Year, quarterly cash flow, balance sheet, income statement and fixed asset expenditure budgets, in addition to a calculation of projected compliance with the financial covenants set forth in Section 7.2.6, in each ------------- case for the current Fiscal Year, each in reasonable detail satisfactory to the Administrative Agent and signed by an Authorized Officer of the Borrower; (j) promptly, and in any event within 90 days after the end of each Fiscal Year, annual financial projections for the Borrower and its Subsidiaries covering the period until the Stated Maturity Date; (k) promptly after the occurrence thereof, notice to the Administrative Agent that the External L.O.C. Amount exceeds $200,000,000 and the amount by which the External L.O.C. Amount exceeds $200,000,000 (such notice to be promptly updated upon any change in such excess); and (l) such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as any Lender through the Administrative Agent may from time to time reasonably request. SECTION 7.1.2. Performance of Obligations. The Borrower and each other -------------------------- Obligor will perform in all material respects all of their obligations under the terms of the Loan Documents. SECTION 7.1.3. Maintenance of Properties. The Borrower will, and will ------------------------- cause each of its Subsidiaries to, maintain, preserve, protect and keep its properties in good repair, working order and condition, and make necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times, unless the Borrower or such Subsidiary determines in good faith that the continued maintenance of any of its properties is no longer economically desirable. SECTION 7.1.4. Insurance. The Borrower will, and will cause each of its --------- Subsidiaries to, maintain or cause to be maintained with responsible insurance companies insurance with respect to its properties and business against such casualties and contingencies and of such types and in such amounts as is customary in the case of similar businesses and will, by December 31 of each year, furnish to each Lender a certificate of an Authorized Officer of the Borrower setting forth a schedule of all insurance maintained by the Borrower and its Subsidiaries in accordance with this Section. SECTION 7.1.5. Conduct of Business; Separate Existence. The Borrower will, --------------------------------------- and will cause each of its Subsidiaries to (a) carry on and conduct its business in substantially the same fields of enterprise as it is presently conducted; and (b) do all things necessary to remain 51 duly organized, validly existing and in good standing in its jurisdiction of organization and maintain all requisite authority to conduct its business in each jurisdiction where the failure to be so qualified could have a Material Adverse Effect. The Borrower will cause First Consumers National Bank to limit its business activities to those conducted as of the Second Restatement Date and to those permitted by its Articles of Association and By-Laws as in effect on the Second Restatement Date. The Borrower will cause Spiegel Acceptance Corporation to limit its business activities to those conducted as of the Second Restatement Date, specifically, acquiring, holding and transferring interests in securitization trusts which hold Excluded Receivables, and obtaining and repaying intercompany advances received from the Borrower from time to time in connection therewith as permitted by Sections 7.2.1(l) and 7.2.7(c). ----------------- -------- SECTION 7.1.6. Compliance with Laws, etc. The Borrower will, and will cause ------------------------- each of its Subsidiaries to, comply in all material respects with all applicable laws, rules, regulations and orders except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect, such compliance to include (without limitation): (a) the maintenance and preservation of its partnership or corporate existence, as applicable, and qualification as a foreign partnership or corporation, as applicable except where the failure to so qualify would not reasonably be expected to have a Material Adverse Effect; and (b) payment of all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 7.1.7. ERISA. The Borrower and each ERISA Affiliate will (a) at all ----- times make prompt payment of all contributions required under all Pension Plans and required to meet the minimum funding standard set forth in ERISA with respect to each Plan; (b) promptly upon request, furnish the Administrative Agent and the Lenders copies of each annual report/return (Form 5500 Series), as well as all schedules and attachments required to be filed with the department of Labor and/or the Internal Revenue Service pursuant to ERISA, and the regulations promulgated thereunder, in connection with each of its Pension Plans for each Plan Year (as defined in ERISA); (c) notify the Administrative Agent immediately of any fact, including, but not limited to, any Reportable Event (as defined in ERISA) arising in connection with any Plan, which might constitute grounds for termination thereof by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such Plan, together with a statement if requested by the Administrative Agent, as to the reason therefor and the action, if any, proposed to be taken with respect thereof; and (d) furnish to the Administrative Agent, upon its request, such additional information concerning any of the Pension Plans as may be reasonably requested. The Borrower will not, nor will it permit any of its Subsidiaries or ERISA Affiliates to (I) terminate a Plan if any such termination would reasonably be expected to have a Material Adverse Effect, or (II) cause or permit to exist any Reportable Event (as defined in ERISA) or other event or condition which presents a material risk of termination at the request of the PBGC. 52 SECTION 7.1.8. Environmental Covenant. The Borrower will, and will cause ---------------------- each of its Subsidiaries to, (a) use and operate all of its facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws, in each case, except where failure to so comply would not reasonably be expected to have a Material Adverse Effect; (b) immediately notify the Administrative Agent and provide copies upon receipt of all written claims, complaints, notices or inquiries of an environmental nature that relate to the condition of its facilities and properties or compliance with Environmental Laws, in each case, except where failure to so comply would not reasonably be expected to have a Material Adverse Effect; and (c) provide such information and certifications which the Administrative Agent may reasonably request from time to time to evidence compliance with this Section. SECTION 7.1.9. Books and Records. The Borrower will, and will cause each ----------------- of its Subsidiaries to, keep books and records which accurately reflect all of its business affairs and transactions, and the Borrower will permit the Administrative Agent, and each Lender or any of their respective representatives, at reasonable times and intervals, to visit all of its offices, to discuss the financial matters of the Borrower and such Subsidiary with its officers and its independent public accountant (and the Borrower hereby authorizes such independent public accountant to discuss the Borrower's or such Subsidiary's financial matters with each Lender or its representatives in the presence of a representative of the Borrower) and to examine any of its books or other corporate records. Any visits to, or with officers of, any Subsidiary of the Borrower and any discussions with the Borrower's independent public accountants shall be coordinated through the Borrower. The Borrower shall pay any fees of such independent public accountant incurred in connection with the Administrative Agent's or any Lender's exercise of its rights pursuant to this Section. SECTION 7.1.10. New Subsidiaries. ---------------- (a) If the Borrower is at Level II, III or IV, promptly after the date the Borrower acquires or creates a new Material Subsidiary (or an existing Subsidiary becomes a Material Subsidiary) and, in any event, within three Business Days following receipt by the Borrower from the Administrative Agent of a counterpart of the Guaranty, or if the Borrower changes from Level I to Level II, III or IV, promptly after the date of such change in Levels, the Borrower will cause each Material Subsidiary other than First Consumers National Bank and Spiegel Acceptance Corporation (which has not previously executed the Guaranty) to execute and deliver the Guaranty to the Administrative Agent and the Administrative Agent will send a copy to each Lender; (b) If the Borrower is at Level II, III or IV, within thirty days after the date such Subsidiary becomes a Material Subsidiary, or if the Borrower changes from Level I to 53 Level II, III or IV, within thirty days of such change in Levels, the Borrower and such Material Subsidiary other than First Consumers National Bank and Spiegel Acceptance Corporation shall have executed and delivered to the Administrative Agent, such other items as reasonably requested by the Administrative Agent in connection with the foregoing, including, without limitation, resolutions, incumbency and officer's certificates, opinions of counsel, search reports and other certificates and documents. SECTION 7.2. Negative Covenants. The Borrower agrees with the Agents, ------------------ the Issuer and each Lender that, until all Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will comply with the restrictions set forth in this Section 7.2. ----------- SECTION 7.2.1. Indebtedness. The Borrower will not, and will not permit ------------ any of its Subsidiaries to, create, incur, assume or suffer to exist or otherwise become or be liable in respect of any Indebtedness, other than, without duplication, the following: (a) Indebtedness in respect of the Credit Extensions and other Obligations; (b) until the Closing Date, Indebtedness identified in Item 7.2.1(b) ("Indebtedness to be Paid") of the Disclosure Schedule; (c) Indebtedness of the Borrower and its Subsidiaries existing as of the Effective Date which is identified in Item 7.2.1(c) ("Ongoing ------------- Indebtedness") of the Disclosure Schedule; provided that such Ongoing Indebtedness may not be replaced except to the extent repaid or extended by (i) Loans made hereunder at the stated maturity of such Ongoing Indebtedness or (ii) loans which have a Weighted Life to Maturity at least as long as the lesser of (x) such Ongoing Indebtedness and (y) the Commitment Termination Date and which are on a pari passu unsecured basis ---- ----- with Indebtedness of the Borrower in respect of the Credit Extensions; (d) term loans that are Subordinated Debt; provided that the subordination provisions in the agreements governing such loans (x) are approved by the Required Lenders or (y) conform to the subordination provisions attached hereto as Exhibit O; --------- (e) Indebtedness (other than accounts payable to suppliers to the extent permitted by clause (g) of Section 7.2.1) (i) in an aggregate ---------- ------------- principal amount not to exceed $5,000,000 at any time outstanding which is incurred by the Borrower or any of its Subsidiaries (other than Spiegel Acceptance Corporation) to a vendor of any assets to finance its acquisition of such assets, and (ii) in respect of Capitalized Lease Liabilities to the extent permitted by Section 7.2.6; and ------------- (f) Normal limited recourse indebtedness for breaches of representations and warranties or for reductions or cancellations of receivables in respect of Excluded Receivables; (g) unsecured Indebtedness incurred in the ordinary course of business (including (i) salaries to employees and (ii) open accounts extended by suppliers on customary trade terms in connection with purchases of goods and services, but excluding Indebtedness incurred through the borrowing of money or Contingent Liabilities), provided, however, 54 (g) that no Indebtedness otherwise permitted by this clause (g) ---------- (other than salaries to employees) shall be permitted if any Default shall result from the incurrence thereof; (h) other Indebtedness of the Borrower's Subsidiaries (other than Spiegel Acceptance Corporation, and excluding intercompany Indebtedness) in an aggregate amount not to exceed $10,000,000 at any time outstanding; (i) other secured Indebtedness of the Borrower (excluding intercompany Indebtedness) in an aggregate amount not to exceed $10,000,000 at any time outstanding; (j) Indebtedness of the Borrower in connection with Hedging Obligations; (k) Indebtedness of the Borrower in connection with letters of credit but subject, however, to Section 2.2.3; ------------- (l) Indebtedness in respect of intercompany loans from the Borrower to: (i) Eddie Bauer, Inc., provided that the total amount of such loans at any time does not exceed the amount of the total assets of Eddie Bauer, Inc. less its cash at such time, all determined in accordance with GAAP; (ii) First Consumers National Bank, provided that the total amount of such loans at any time does not exceed the lesser of (x) 92% of the total assets of First Consumers National Bank, determined in accordance with GAAP, and (y) $300,000,000; (iii) Spiegel Acceptance Corporation, provided that the total amount of such loans at any time does not exceed 90% of Spiegel Acceptance Corporation's Investments in securitization trusts which hold Excluded Receivables, all determined in accordance with GAAP; (iv) Any Material Subsidiary (other than Eddie Bauer, Inc., First Consumers National Bank and Spiegel Acceptance Corporation), provided that the total amount of such loans at any time to each Material Subsidiary does not exceed the amount of the total tangible assets of such Material Subsidiary less its cash at such time, all determined in accordance with GAAP; and (v) Any other Wholly-Owned Subsidiary of the Borrower, provided that (x) the total amount of such loans to each such Wholly-Owned Subsidiary at any time, does not exceed the total tangible assets of such Wholly-Owned Subsidiary less its cash at such time, all determined in accordance with GAAP, and (y) the total amount of all such loans to such Wholly-Owned Subsidiaries at any time does not exceed $25,000,000; (m) Indebtedness in respect of intercompany loans from any of the Borrower's Subsidiaries to the Borrower on a subordinated basis (such subordination terms to be approved by the Administrative Agent); 55 (n) unsecured Indebtedness of the Borrower within the limitations of Section 7.2.6 and subject to Section 2.2.1(b)(v); ------------- ------------------- (o) any guaranty by any Subsidiary of the Borrower now or hereafter guarantying the Obligations pursuant to the Guaranty which (i) guaranty is in substantially the same form as the Guaranty and is for the benefit of the holders of Indebtedness permitted by Section 7.2.1(c) or Section ---------------- ------- 7.2.1(j) or (ii) guaranty is in substantially the same form as the Guaranty -------- and is for the benefit of each Person participating in that certain Letter of Credit Facility Agreement, dated as of September 27, 1996, as amended from time to time, by and among the Borrower, the financial institutions party thereto and Bank of America, N.A. (formerly known as Bank of America National Trust and Savings Association), as the Agent; (p) any guaranty by any Subsidiary of the Borrower now or hereafter guarantying the Obligations pursuant to the Guaranty which guaranty, in the reasonable determination of the Administrative Agent, is in a form permitted by clause (o) of Exhibit O and is for the benefit of the holders --------- of Subordinated Debt; and (q) Indebtedness under the 364-Day Credit Agreement. SECTION 7.2.2. Liens. The Borrower will not, and will not permit any of its ----- Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its capital stock, property, revenues or assets, whether now owned or hereafter acquired, except: (a) Liens securing payment of the Obligations, granted pursuant to any Loan Document; (b) Liens securing payment of Indebtedness of the type permitted and described in clause (b) of Section 7.2.1; ---------- ------------- (c) Liens granted prior to the Effective Date to secure payment of Indebtedness of the type permitted and described in clause (c) of Section ---------- ------- 7.2.1; ----- (d) Liens securing payment of Indebtedness of the type permitted and described in clause (i) of Section 7.2.1; ---------- ------------- (e) Liens securing payment of Indebtedness of the type permitted and described in clause (e) of Section 7.2.1; ---------- ------------- (f) Liens attaching to Excluded Receivables; (g) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (h) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being diligently 56 contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (i) Liens incurred in the ordinary course of business in connection with workmen's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds; and (j) judgment Liens in existence less than 30 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance maintained with responsible insurance companies. SECTION 7.2.3. Consolidation, Merger, etc. The Borrower will not, and will -------------------------- not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other Person, purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof) or make any Acquisition except (a) any such Subsidiary may liquidate or dissolve voluntarily into, and may merge with and into, the Borrower or any Wholly-Owned Subsidiary, and the assets or stock of any Subsidiary may be purchased or otherwise acquired by the Borrower or any other Subsidiary; (b) so long as no Default has occurred and is continuing or would result therefrom, the Borrower may consolidate with or merge with or into any other Person organized or incorporated under the laws of a state of the United States but only if the Borrower is the surviving Person and the Borrower has executed such agreements and instruments as requested by the Administrative Agent to evidence the continued compliance with and obligations of the Borrower under this Agreement and the Loan Documents to which it is a party; and (c) the Borrower or any of its Subsidiaries may purchase all or substantially all of the assets of any Person, acquire such Person by merger, or make an Acquisition so long as such transaction qualifies as a Permitted Acquisition. SECTION 7.2.4. Asset Dispositions, etc. The Borrower will not, and will not ----------------------- permit any of its Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or grant options, warrants or other equity rights in the Borrower or its Subsidiaries, or do any of the foregoing with respect to all or any material part of its assets to any Person, except (a) if such sale, transfer, lease, contribution or conveyance is in the ordinary course of its business or is permitted by Section 7.2.3; ------------- (b) the Borrower and its Subsidiaries may sell or otherwise transfer Excluded Receivables; 57 (c) the Borrower and its Subsidiaries may sell or otherwise transfer interests in master trusts held by the Borrower or its Subsidiaries that are established as part of securitizations; and (d) the Borrower or any Subsidiary may sell the Fisher Road warehouse facility, located in Columbus, Ohio, for a sale price of at least $60,000,000 and lease back such warehouse facility on terms reasonably satisfactory to and approved by the Administrative Agent; provided that the -------- Net Proceeds from such sale shall be used to make a mandatory prepayment of all Loans pursuant to Section 3.2(b) but shall not reduce the Commitment -------------- Amount pursuant to Section 2.2.1(b)(i). ------------------- SECTION 7.2.5. Use of Proceeds. The Borrower will use the proceeds of the --------------- Credit Extensions solely for the purposes set forth in the recitals to this Agreement; and not use or permit any proceeds of the Credit Extensions to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying any margin stock" within the meaning of Regulation U of the Federal Reserve Board, as amended from time to time. SECTION 7.2.6. Financial Condition. The Borrower will not permit: ------------------- (a) the Total Leverage Ratio as of the last day of any Fiscal Quarter to exceed 200%; (b) the Tangible Net Worth to be less than $365,000,000 plus 70% of ---- positive Net Income for each Fiscal Year ending after January 2, 1999; (c) the Fixed Charge Coverage Ratio as of the last day of any Fiscal Quarter to be less than 1.15 to 1.00; and (d) the Debt to EBITDAR Ratio to be greater than 4.00 to 1.00 as of the last day of each of the 2000, 2001 and 2002 Fiscal Years. SECTION 7.2.7. Investments. For so long as the Borrower is at Level II, III ----------- or IV, the Borrower will not, and will not permit any of its Subsidiaries to, make, incur, assume or suffer to exist any Investment in any other Person, except: (a) Investments existing on the Effective Date and identified in Item ---- 7.2.7(a) ("Ongoing Investments") of the Disclosure Schedule; -------- (b) Cash Equivalent Investments; (c) without duplication, Investments permitted as Indebtedness pursuant to Section 7.2.1; ------------- (d) without duplication, Investments in any Obligor not to exceed $20,000,000 in the aggregate at any time outstanding; 58 (e) other Investments of the Borrower and its Subsidiaries (including equity, loans and advances) in joint ventures and other enterprises in which the Borrower or its Subsidiaries hold less than a 51% common equity voting interest, in the aggregate, not to exceed $30,000,000 in each Fiscal Year so long as the Borrower is at Level II, III or IV of the Pricing Grid attached hereto as Schedule III; ------------ (f) Permitted Acquisitions; and (g) Investments by Spiegel Acceptance Corporation in securitization trusts which hold Excluded Receivables; provided, however, that any Investment which when made complies with the - -------- ------- requirements of the definition of the term "Cash Equivalent Investment" may -------------------------- continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements. SECTION 7.2.8. Restricted Payments, etc. On and after the Effective Date, ------------------------ the Borrower will not and will not permit any Subsidiary to declare or pay any dividends or make any other distributions on its capital stock or other equity interests or redeem, repurchase, defease or otherwise acquire or retire any of its capital stock or other equity interests at any time outstanding, or make any deposit for any of the foregoing purposes (each such action being a "Restricted Payment"), except that (a) any Subsidiary may declare and pay distributions or dividends to the Borrower or to a Wholly-Owned Subsidiary of the Borrower; (b) the following conditions must be satisfied to enable the Borrower to declare or make Restricted Payments: (i) the Fixed Charge Coverage Ratio must have been equal to or greater than 1.15 to 1.0 as of the end of each of the then most recent four consecutive Fiscal Quarters; and (ii) before making a Restricted Payment, the amount proposed to be declared or paid shall be added to the denominator of the Fixed Charge Coverage Ratio for the most recently completed Fiscal Quarter and the Fixed Charge Coverage Ratio recalculated. The proposed Restricted Payment may only be declared or paid if, after such recalculation, such Fixed Charge Coverage Ratio is equal to or greater than 1.15 to 1.0; (c) the Borrower may only declare and make Restricted Payments under Section 7.2.8(b) if (i) after accounting for any such Restricted Payments, ---------------- the Borrower is still able to meet its debt obligations and (ii) no Default has occurred and is continuing or would result from such Restricted Payment. SECTION 7.2.9. Fiscal Year. Neither the Borrower nor any of its ----------- Subsidiaries shall change its Fiscal Year except (i) for a one-time change after the date hereof to a Fiscal Year ending the Saturday closest to January 31 or (ii) with the consent of the Required Lenders. 59 SECTION 7.2.10. Transactions with Affiliates. The Borrower will not, and ---------------------------- will not permit any of its Subsidiaries to, enter into, or cause, suffer or permit to exist any arrangement or contract with any of its other Affiliates unless such arrangement or contract is fair and equitable to the Borrower or such Subsidiary and is an arrangement or contract of a nature which would be entered into by a prudent Person in the position of the Borrower or such Subsidiary with a Person which is not one of its Affiliates. SECTION 7.2.11. Modification, etc. of Subordinated Debt. The Borrower will --------------------------------------- not amend, modify, restate, supplement or replace any term or provision, including any subordination provision, covenant, event of default or right of acceleration or any sinking fund provision or term of required repayment or redemption (except any change which extends the date or reduces the amount of any required repayment or redemption or otherwise is not disadvantageous to the Lenders), contained in or applicable to any instrument or agreement evidencing or applicable to any Subordinated Debt of the Borrower. SECTION 7.2.12. Negative Pledges, Restrictive Agreements, etc. The Borrower --------------------------------------------- will not, and will not permit any of its Subsidiaries to, enter into any agreement (excluding this Agreement, any other Loan Document and any agreement governing any Indebtedness permitted either by clause (c) of Section 7.2.1 as in ---------- ------------- effect on the Effective Date or by clause (e) of Section 7.2.1 as to the assets ---------- ------------- financed with the proceeds of such Indebtedness) (a) prohibiting the creation or assumption of any Lien upon its properties, revenues or assets, whether now owned or hereafter acquired other than in connection with Excluded Receivables and Excluded Mastercard Receivables, or limiting the ability of the Borrower or any other Obligor to amend or otherwise modify this Agreement or any other Loan Document; or (b) limiting the ability of any Subsidiary to make any payments, directly or indirectly, to the Borrower by way of dividends, advances, repayments of loans or advances, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments, or any other agreement or arrangement which restricts the ability of any such Subsidiary to make any payment, directly or indirectly, to the Borrower. SECTION 7.2.13. Spiegel Acceptance Corporation. The Borrower will not ------------------------------ permit Spiegel Acceptance Corporation to amend, modify, restate, supplement or replace any term or provision of Spiegel Acceptance Corporation's Certificate of Incorporation or By-Laws. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. Listing of Events of Default. Each of the following events ---------------------------- or occurrences described in this Section 8.1 shall constitute an "Event of ----------- -------- Default". - ------- SECTION 8.1.1. Non-Payment of Obligations. The Borrower shall default (a) -------------------------- in the payment or prepayment when due of any principal of any Loan; (b) in the payment when due of any Reimbursement Obligations or any deposit of cash for collateral purposes pursuant to 60 Section 2.6.2 or Section 2.6.4, as the case may be; or (c) in the - ------------- ------------- payment when due of any interest on any Loan, of any commitment fee or of any other monetary Obligation, and such default shall continue unremedied, in the case of this clause (c) only, for a period of three days. ---------- SECTION 8.1.2. Non-Performance of Certain Covenants and Obligations. The ---------------------------------------------------- Borrower shall default in the due performance and observance of any of its obligations under Section 7.2. ----------- SECTION 8.1.3. Non-Performance of Other Covenants and Obligations. Any -------------------------------------------------- Obligor shall default in the due performance and observance of any covenant (other than as provided above) contained herein or in any other Loan Document executed by it, and such default shall continue unremedied for a period of thirty days after written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender. SECTION 8.1.4. Breach of Representation or Warranty. Any representation ------------------------------------ or warranty of the Borrower or any other Obligor made or deemed to be made hereunder or in any other Loan Document executed by it or any other writing or certificate furnished by or on behalf of the Borrower or any other Obligor to any Agent, the Issuer or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article V) is or shall be incorrect when made in any --------- material respect. SECTION 8.1.5. Default on Other Indebtedness. A default shall occur in ----------------------------- the payment when due (after the expiration of any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 8.1.1) of the Borrower or any of its ------------- Subsidiaries or any other Obligor having a principal amount, individually or in the aggregate, in excess of $5,000,000 (excluding trade payables (i) arising in the ordinary course of business that are not more than sixty days overdue and on which no interest is being charged or which do not otherwise comprise "Total Borrowed Funds" or (ii) that are the subject of dispute, provided that adequate reserves have been established in accordance with GAAP), or a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity. SECTION 8.1.6. Control of the Borrower. Any Change of Control shall occur. ----------------------- SECTION 8.1.7. Pension Plans. Any of the following events shall occur ------------- with respect to any Pension Plan. (a) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of the aggregate amount of $5,000,000 or 61 (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. SECTION 8.1.8. Judgments. Any judgment or order for the payment of money --------- not covered by insurance (net of deductibles) issued by a solvent insurance company in excess of the aggregate amount of $5,000,000 shall be rendered against the Borrower or any of its Subsidiaries or any Material Subsidiary and there shall be any period of thirty consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. SECTION 8.1.9. Bankruptcy, Insolvency, etc. The Borrower or any Material --------------------------- Subsidiary shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; (b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or any Material Subsidiary or any property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or any Material Subsidiary or for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within sixty days, provided that the Borrower hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any relevant proceeding during such sixty-day period to preserve, protect and defend its rights under the Loan Documents; (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding in respect of the Borrower or any Material Subsidiary and, if any such case or proceeding is not commenced by the Borrower or such Material Subsidiary, such case or proceeding shall be consented to or acquiesced in by the Borrower or such Material Subsidiary or shall result in the entry of an order for relief or shall remain for sixty days undismissed, provided that the Borrower hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any such case or proceeding during such sixty-day period to preserve, protect and defend its rights under the Loan Documents; or (e) take any action authorizing, or in furtherance of, any of the foregoing. SECTION 8.2. Action if Bankruptcy. If any Event of Default described in -------------------- clauses (a) through (d) of Section 8.1.9 shall occur, the Commitments (if not - ----------- --- ------------- theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other Obligations shall automatically be and become immediately due and payable, without notice or demand. 62 SECTION 8.3. Action if Other Event of Default. If any Event of Default -------------------------------- (other than any Event of Default described in clauses (a) through (d) of Section ----------- --- ------- 8.1.9) shall occur for any reason, whether voluntary or involuntary, and be - ------ continuing, the Administrative Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare all or any portion of the outstanding principal amount of the Loans and other Obligations to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments shall terminate and the Borrower shall comply with the provisions of Section 2.6.4. - ------------- ARTICLE IX THE AGENTS SECTION 9.1. Actions. Each Lender, the Issuer and each other Agent hereby ------- appoints DBNY as the Administrative Agent, under and for purposes of this Agreement, the Notes and each other Loan Document. Each Lender authorizes the Issuer and the Administrative Agent to act on behalf of such Lender under this Agreement, the Notes and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by such Agent (with respect to which each Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of such Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) each Agent, pro rata according to such Lender's Percentage, from and against any and all - --- ---- liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, such Agent in any way relating to or arising out of this Agreement, the Notes and any other Loan Document, including reasonable attorneys' fees, and as to which such Agent is not reimbursed by the Borrower; provided, however, that no Lender shall be liable for the payment of any portion - -------- ------- of such liabilities, obligations, losses, damages, claims, costs or expenses to the extent such are determined by a court of competent jurisdiction in a final proceeding to have resulted from such Agent's gross negligence or wilful misconduct. No Agent shall be required to take any action hereunder, under the Notes or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement, the Notes or any other Loan Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of any Agent shall be or become, in such Agent's determination, inadequate, such Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION 9.2. Funding Reliance, etc. Unless the Administrative Agent shall --------------------- have been notified by telephone, confirmed in writing, by any Lender by 5:00 p.m., New York City time, on the day prior to a Borrowing that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent and, in reliance upon such assumption, make available to the Borrower a 63 corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Administrative Agent, such Lender and the Borrower severally agree to repay the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Administrative Agent made such amount available to the Borrower to the date such amount is repaid to the Administrative Agent, at the interest rate applicable at the time to Loans comprising such Borrowing, in the case of the Borrower, and at the Federal Funds Rate, in the case of the Lender. SECTION 9.3. Exculpation. No Agent nor any of its directors, officers, ----------- employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for its own wilful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Agreement or any other Loan Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by the Borrower of its obligations hereunder or under any other Loan Document. Any such inquiry which may be made by any Agent shall not obligate it to make any further inquiry or to take any action. Each Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which such Agent believes to be genuine and to have been presented by a proper Person. SECTION 9.4. Successor. Any Agent may resign as such at any time upon at --------- least 30 days' prior notice to the Borrower and all Lenders. If the Administrative Agent at any time shall resign, the Required Lenders may appoint, and, except during the existence of an Event of Default, with the Borrower's consent, which consent shall not be unreasonably withheld, another Lender as a successor Administrative Agent which shall thereupon assume the resigning Administrative Agent's position hereunder. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be one of the Lenders or a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall be entitled to receive from the retiring Administrative Agent such documents of transfer and assignment as such successor Administrative Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After the retiring Administrative Agent's resignation hereunder, the provisions of (a) this Article IX shall inure to its benefit as to any actions taken ---------- or omitted to be taken by it while it was Administrative Agent under this Agreement; and (b) Section 10.3 and Section 10.4 shall continue to inure to its ------------ ------------ benefit. 64 Any Agent, other than the Administrative Agent, that resigns shall not be replaced. SECTION 9.5. Loans by Each Agent. Each Agent shall have the same rights ------------------- and powers with respect to (x) the Credit Extensions made by it or any of its Affiliates, and (y) the Notes held by it or any of its Affiliates as any other Lender and may exercise the same as if it were not the Agent. Each Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if such Agent were not the Agent hereunder. SECTION 9.6. Credit Decisions. Each Lender acknowledges that it has, ---------------- independently of each Agent and each other Lender, and based on such Lender's review of the financial information of the Borrower, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitment. Each Lender also acknowledges that it will, independently of each Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. SECTION 9.7. Copies, etc. The Administrative Agent shall give prompt ----------- notice to each Lender of each notice or request required or permitted to be given to the Administrative Agent by the Borrower pursuant to the terms of this Agreement (unless concurrently delivered to the Lenders by the Borrower). The Administrative Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Administrative Agent from the Borrower for distribution to the Lenders by the Administrative Agent in accordance with the terms of this Agreement. ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.1. Waivers, Amendments, etc. The provisions of this Agreement ------------------------ and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no such -------- ------- amendment, modification or waiver which would: (a) modify any requirement hereunder that any particular action required to be taken by all the Lenders or by the Required Lenders shall be effective unless consented to by each Lender or the Required Lenders, as applicable; (b) modify this Section 10.1, change the definition of "Required ------------ -------- Lenders", increase the Commitment Amount or the Percentage of any Lender, ------- release all or substantially all collateral security or the Guaranty, except as otherwise specifically provided in any Loan Document, or extend the Commitment Termination Date shall be made without the consent of each Lender; 65 (c) extend the Commitment Termination Date or increase the Commitment Amount shall be made without the consent of each Lender; (d) decrease the fees payable pursuant to this Agreement shall be made without the consent of each affected Lender; (e) release any Obligor from its Obligations shall be made without the consent of each Lender; (f) extend the due date for, or reduce the amount of, any scheduled repayment or prepayment of principal of or interest on any Loan (or reduce the principal amount of or rate of interest on any Loan) shall be made without the consent of the holder of that Note evidencing such Loan; (g) increase the Stated Amount of any Letter of Credit shall be made unless consented to by the Issuer of such Letter of Credit; or (h) affect adversely the interests, rights or obligations of any Agent qua Agent or the Issuer, shall be made unless consented to by --- such Agent or the Issuer, as the case may be. No failure or delay on the part of any Agent, the Issuer, any Lender or the holder of any Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances (unless such notice or demand is required hereby). No waiver or approval by any Agent, the Issuer, any Lender or the holder of any Note under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 10.2. Notices. All notices and other communications provided to ------- any party hereto under this Agreement or any other Loan Document shall be in writing (including facsimile) and addressed, delivered or transmitted to such party at its address or facsimile number set forth on Schedule I hereto or set ---------- forth in the Lender Assignment Agreement or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted. SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to pay ----------------------------- on demand all reasonable expenses of the Arrangers and the Administrative Agent (including the fees and reasonable out-of-pocket expenses of counsel to the Arrangers and the Administrative Agent, and of local counsel, if any, who may be retained by counsel to the Arrangers or the Administrative Agent in connection with clauses (b) and (c) below) in connection with ----------- 66 (a) the negotiation, preparation, execution and delivery of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document (to the extent that such amendments, waivers, consents, supplements or modifications do not relate solely to inter-Lender matters) as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated, (b) the filing, recording, refiling or rerecording of any Loan Document and/or any Uniform Commercial Code financing statements relating thereto and all amendments, supplements and modifications to any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms hereof, and (c) the preparation and review of the form of any other document or instrument relevant to this Agreement or any other Loan Document. The Borrower further agrees to pay, and to save the Agents, the Issuer and the Lenders harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Agreement, the Credit Extensions hereunder, or the issuance of the Notes, Letters of Credit or any other Loan Documents. The Borrower also agrees to reimburse the Agents, the Issuer and each Lender upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses and including, without duplication, the allocated costs of internal counsel) incurred by such Agent, the Issuer or such Lender in connection with (x) the negotiation of any restructuring or "work-out", whether or not consummated, of any Obligations and (y) the enforcement of any Obligations. SECTION 10.4. Indemnification. In consideration of the execution and --------------- delivery of this Agreement by each Lender and the extension of the Commitments, the Borrower hereby indemnifies, exonerates and holds each Agent, the Issuer and each Lender and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and ------------------- against any and all actions, causes of action, suits, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements and including, without duplication, the allocated costs of internal counsel (collectively, the "Indemnified Liabilities"), incurred by the Indemnified ----------------------- Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Credit Extension; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of any determination by the Required Lenders pursuant to Article V not to fund --------- any Credit Extension); 67 (c) any investigation, litigation or proceeding related to any Acquisition or proposed Acquisition by the Borrower or any of its Subsidiaries of all or any portion of the stock or assets of any Person, whether or not such Agent, the Issuer or such Lender is party thereto; (d) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by the Borrower or any of its Subsidiaries of any Hazardous Material; or (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the Borrower or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower or such Subsidiary, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or wilful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 10.5. Survival. The obligations of the Borrower under Sections -------- -------- 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders under - --- --- --- --- ---- ---- Section 9.1, shall in each case survive any termination of this Agreement, the - ----------- payment in full of all Obligations and the termination of all Commitments. The representations and warranties made by each Obligor in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION 10.6. Severability. Any provision of this Agreement or any ------------ other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 10.7. Headings. The various headings of this Agreement and of -------- each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION 10.8. Execution in Counterparts; Effectiveness. This Agreement ---------------------------------------- may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower and each Lender (or notice thereof satisfactory to the Administrative Agent) shall have been received by the Administrative Agent and notice thereof shall have been given by the Administrative Agent to the Borrower and each Lender. 68 SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE ------------------------------- NOTES AND EACH OTHER LOAN DOCUMENT (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO ANY LENDER. This Agreement, the Notes and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 10.10. Successors and Assigns. This Agreement shall be binding ---------------------- upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: -------- ------- (a) the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Agents and all Lenders; and (b) the rights of sale, assignment and transfer of the Lenders are subject to Section 10.11. ------------- SECTION 10.11. Sale and Transfer of Loans and Notes; Participations ---------------------------------------------------- in Loans and Notes. Each Lender may assign, or sell participations in, its - ------------------ Loans, Letters of Credit participations and Commitment to one or more other Persons in accordance with this Section 10.11. ------------- SECTION 10.11.1. Assignments. Any Lender, ----------- (a) with the written consent of (i) the Borrower (which consent shall not be unreasonably delayed or withheld at any time during which an Event of Default has occurred and is continuing for a period of 45 days or more), it being understood that, in the event of the Borrower's objection or failure to consent, the Borrower is committed to working with the assigning Lender to find a solution acceptable to both parties, (ii) the Administrative Agent (which consent shall not be unreasonably delayed or withheld), and (iii) the Issuer (which consent shall not be unreasonably delayed or withheld), may at any time assign and delegate to one or more commercial banks or other financial institutions; (b) with notice to the Borrower and the Agents, but without the consent of the Borrower or the Agents, may assign and delegate to any of its Affiliates (but for this purpose the reference to 10% in clause (a) in the definition thereof shall be to 51%); and (c) with the written consent of the Borrower, it being understood that, in the event of the Borrower's objection or failure to consent, the Borrower is committed to working with the assigning Lender to find a solution acceptable to both parties, and the Agents (such consent not to be unreasonably withheld or delayed), may at any time assign and delegate to any other Lender; all or any fraction of a Lender's total Loans, Letter of Credit Outstandings and Commitments (which assignment and delegation shall be of a constant, and not a varying, percentage of all the 69 assigning Lender's Loans, Loan Commitment, Letter of Credit Commitment and participation in the Letters of Credit issued hereunder) in a minimum aggregate amount of $5,000,000 (or the then remaining amount of such Lender's Loans, Letter of Credit Outstandings and Commitments) unless otherwise agreed to by the Borrower and the Administrative Agent. Each Person described in either of the foregoing clauses (a) and (b) as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender." --------------- Confidential information may be provided to a potential Assignee Lender if the potential Assignee Lender agrees to hold all non-public information identified as such by the Borrower in accordance with its customary procedures for handling confidential information, after obtaining the Borrower's consent (if the Borrower's consent is required for any such assignment). Each Assignee Lender will comply, if applicable, with the provisions contained in the last sentence of Section 4.6 and the Borrower, each other Obligor and the Agents shall be ----------- entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned and delegated to an Assignee Lender until (i) written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been given to the Borrower and the Administrative Agent by such Lender and such Assignee Lender; (ii) such Assignee Lender shall have executed and delivered to the Borrower and the Administrative Agent a Lender Assignment Agreement, accepted by the Administrative Agent; and (iii) the processing fees described below shall have been paid. From and after the date that the Administrative Agent accepts such Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (y) the assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Within five Business Days after its receipt of notice that the Administrative Agent has received an executed Lender Assignment Agreement, the Borrower shall execute and deliver to the Administrative Agent (for delivery to the relevant Assignee Lender) new Notes evidencing such Assignee Lender's assigned Loans and Loan Commitment and, if the assignor Lender has retained Loans and a Loan Commitment hereunder, replacement Notes in the principal amount of the Loans and Loan Commitment retained by the assignor Lender hereunder (each such Note to be in exchange for, but not in payment of, each Note then held by such assignor Lender). Each such Note shall be dated the earliest date for which interest has not yet been paid. The assignor Lender shall mark any predecessor Note "exchanged" and deliver it to the Borrower. Accrued interest on that part of a predecessor Note evidenced by the new Note, and accrued fees, shall be paid as provided in the Lender Assignment Agreement. Accrued interest on that part of the predecessor Note evidenced by a replacement Note shall be paid to the assignor Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Notes and in this 70 Agreement. Such Lender or such Assignee Lender must also pay a processing fee to the Administrative Agent upon delivery of any Lender Assignment Agreement in the amount of $3,000. Notwithstanding anything contained in this Section 10.11.1 to --------------- the contrary, each Lender shall have the unrestricted right to assign its rights hereunder to any Federal Reserve Bank to secure such Lender's borrowing from such Federal Reserve Bank. Any attempted assignment and delegation not made in accordance with this Section 10.11.1 shall be null and void. --------------- SECTION 10.11.2. Participations. Any Lender at any time may sell to one or -------------- more commercial banks or other Persons, excluding any competitor of the Borrower or its Subsidiaries, (each of such commercial banks and other Persons being herein called a "Participant") participating interests in any of its Loans, Loan ----------- Commitment, Letter of Credit Commitment and Letter of Credit Outstandings participated in by it, or other interests of such Lender hereunder; provided, -------- however, that - ------- (a) no participation contemplated in this Section 10.11.2 shall --------------- relieve such Lender from its Commitments or its other obligations hereunder or under any other Loan Document; (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations; (c) the Borrower and each other Obligor and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents; (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, take any actions of the type described in clauses (b) through (h) of Section 10.1 provided that ----------- --- ------------ -------- such Lender has the option (but not the obligation) to repurchase such participation if the Participant fails to give any such consent; and (e) the Borrower shall not be required to pay any amount under Section ------- 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4 that is greater than the amount --- --- --- --- --- --- ---- ---- which it would have been required to pay had no participating interest been sold. The Borrower acknowledges and agrees that each Participant, for purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4, shall be considered a - ------------ --- --- --- --- --- ---- ---- Lender. Confidential information may be provided to the potential Participant with advance written notice to the Borrower, if such potential Participant agrees to hold all non-public information identified as such by the Borrower in accordance with its customary procedures for handling confidential information. SECTION 10.11.3. Confidentiality. No Assignment or Participation hereunder --------------- shall be effective unless such Assignee or such Participant shall have executed a Confidentiality Agreement substantially in the form of Exhibit R prior to the --------- receipt of any Information (as defined in the Confidentiality Agreement). 71 SECTION 10.12. Other Transactions. Nothing contained herein shall preclude ------------------ the Agents, the Issuer or any other Lender from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 10.13. INTENTIONALLY OMITTED. SECTION 10.14. Forum Selection and Consent to Jurisdiction. ANY LITIGATION ------------------------------------------- BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS, THE ISSUER OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT -------- ------- AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 10.15 Waiver of Jury Trial. EACH AGENT, THE LENDERS, THE ISSUER AND -------------------- THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SUCH AGENT, 72 THE LENDERS, THE ISSUER OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS, THE ISSUER AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 73 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. BORROWER -------- SPIEGEL, INC. By: /s/ --------------------------- Name: John R. Steele Title: Treasurer AGREED AND CONSENTED: EDDIE BAUER, INC. By: /s/ - --------------------------- Name: John R. Steele Title: Treasurer ULTIMATE OUTLET INC. By: /s/ - --------------------------- Name: John R. Steele Title: Treasurer NEWPORT NEWS, INC. By: /s/ - --------------------------- Name: John R. Steele Title: Treasurer S-1 DISTRIBUTION FULFILLMENT SERVICES, INC. (DFS) By: /s/ - ---------------------------- Name: John R. Steele Title: Treasurer SPIEGEL PUBLISHING COMPANY By: /s/ - ---------------------------- Name: John R. Steele Title: Treasurer SPIEGEL CATALOG, INC. By: /s/ - ---------------------------- Name: John R. Steele Title: Treasurer S-2 DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative Agent By: /s/ ------------------------------------ Name Printed: Hans-Josef Thiele Title: Director By: /s/ ------------------------------------ Name Printed: Oliver Schwarz Title: Vice President S-3 DEUTSCHE BANC ALEX. BROWN INC., as Arranger By: /s/ ---------------------------------------- Name Printed: Hans-Josef Thiele Title: Director By: /s/ ---------------------------------------- Name Printed: Oliver Schwarz Title: Vice President S-4 J.P. MORGAN SECURITIES INC., as Arranger By: /s/ -------------------------------------- Name Printed: Beverly Israely Title: Vice President S-5 ABN AMRO BANK N.V., as a Lender By: /s/ -------------------------------------- Name Printed: Darin P. Fischer Title: Vice President By: /s/ -------------------------------------- Name Printed: Peter J. Hallan Title: Vice President S-6 INTESABCI, NEW YORK BRANCH, as a Lender By: /s/ -------------------------------------- Name Printed: Frank Maffei Title: Vice President By: /s/ -------------------------------------- Name Printed: J. Dickerhof Title: Vice President S-7 BANK OF AMERICA, N.A., as a Lender By: /s/ ---------------------------------- Name Printed: Timothy H. Spanos Title: Managing Director S-8 THE BANK OF NEW YORK, as a Lender By: /s/ ------------------------------------- Name Printed: Charlotte Sohn Fuiks Title: Vice President S-9 BAYERISCHE HYPO UND VEREINSBANK AG, as a Lender By: /s/ -------------------------------------- Name Printed: Curt Schade Title: Vice President By: /s/ -------------------------------------- Name Printed: Thomas Taylor Title: Director S-10 BANKGESELLSCHAFT BERLIN AG, as a Lender By: /s/ -------------------------------------- Name Printed: Schutt Title: Director By: /s/ ------------------------------------- Name Printed: Jurgen Japke Title: Director S-11 COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender By: /s/ -------------------------------------- Name Printed: Mark Monson Title: Vice President By: /s/ -------------------------------------- Name Printed: Albert Morrow Title: Assistant Treasurer S-12 CREDIT LYONNAIS AMERICAS, as a Lender By: /s/ -------------------------------------- Name Printed: Genevieve Leruth Title: Vice President S-13 CREDIT SUISSE FIRST BOSTON, as a Lender By: /s/ ------------------------------------------ Name Printed: Bill O'Daly Title: Vice President By: /s/ ------------------------------------------ Name Printed: Jay Chall Title: Director S-14 DEUTSCHE BANK AG NEW YORK BRANCH, as a Lender By: /s/ -------------------------------------- Name Printed: Hans-Josef Thiele Title: Director By: /s/ -------------------------------------- Name Printed: Oliver Schwarz Title: Vice President S-15 DANSKE BANK, as a Lender By: /s/ ------------------------------------ Name Printed: Bo Andersen Title: Vice President By: /s/ ------------------------------------ Name Printed: Lars Emmery Title: Vice President S-16 DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG, as a Lender By: /s/ ---------------------------------------- Name Printed: Jochen Breiltgens Title: Vice President By: /s/ ---------------------------------------- Name Printed: Wolfgang Haugk Title: Vice President S-17 DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender By: /s/ ------------------------------- Name Printed: Gabriela E. Fields Title: Associate By: /s/ ------------------------------- Name Printed: Faraaz Kamran Title: Associate S-18 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, as Issuer By: /s/ --------------------------------- Name Printed: Dominic O'Hagan Title: Regional Relationship Manager S-19 HSBC BANK USA, as a Lender By: /s/ --------------------------------- Name Printed: Michael C. Cutlip Title: Senior Vice President S-20 LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Lender By: /s/ --------------------------------- Name Printed: Fred Musch Title: Senior Vice President By: /s/ --------------------------------- Name Printed: Bernd Haeger Title: Vice President S-21 JPMORGAN CHASE BANK, as a Lender By: /s/ --------------------------------- Name Printed: Barry K. Bergman Title: Vice President S-22 NORDDEUTSCHE LANDESBANK GIROZENTRALE NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH, as a Lender By: /s/ ---------------------------------- Name Printed: Stephen K. Hunter Title: Senior Vice President By: /s/ ---------------------------------- Name Printed: Hinrich Holm Title: Vice President S-23 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH, as a Lender By: /s/ ------------------------------------------- Name Printed: Martin Clements Title: Director By: /s/ ------------------------------------------- Name Printed: Lars Kickstein Title: Manager S-24 SCHEDULE III PRICING GRID
==================================================================================================================================== Applicable Applicable Standby Fixed Charge Total Leverage Base Rate LIBO Rate All in LIBOR Letters of Commercial Letters of Level Coverage Ratio Ratio Margin Margin Facility Fee Drawn Cost Credit Fee Credit Fee - ------------------------------------------------------------------------------------------------------------------------------------ I * 2.25 ** 1.30 0% p.a. 0.60% p.a. 0.150% p.a. 0.75% p.a. 0.60% p.a. 0.36% p.a. - ------------------------------------------------------------------------------------------------------------------------------------ II * 2.00 **** 2.25 *** 1.30 ** 1.50 0% p.a. 0.75% p.a. 0.250% p.a. 1.00% p.a. 0.75% p.a. 0.45% p.a. - ------------------------------------------------------------------------------------------------------------------------------------ III * 1.20 **** 2.00 *** 1.50 ** 1.80 0% p.a. 0.875% p.a. 0.375% p.a. 1.25% p.a. 0.875% p.a. 0.525% p.a. - ------------------------------------------------------------------------------------------------------------------------------------ IV **** 1.20 *** 1.80 0.875% p.a. 1.875% p.a. 0.500% p.a. 2.375% p.a. 1.875% p.a. 1.125% p.a. ====================================================================================================================================
* Greater than ** Less than *** Greater than equal **** Less than equal For each Pricing Period, Level calculations shall be determined by reference to the Fixed Charge Coverage Ratio and Total Leverage Ratio. In the event that the Fixed Charge Coverage Ratio and the Total Leverage Ratio as of the previous Fiscal Quarter do not fall within the same Level, the Applicable Base Rate Margin, Applicable LIBO Rate Margin, Facility Fee, All in LIBOR Drawn Cost and Letter of Credit fees will be determined by the lower of the two Levels (with Level IV being the lowest Level). ----- As of the Second Restatement Date, the Borrower is at Level I. S-25 EX-10.18 18 dex1018.txt CONTRACT WAIVER LETTER DATED NOVEMBER 9, 2001 Exhibit 10.18 November 9, 2001 Spiegel, Inc. 3500 Lacey Road Downers Grove, Illinois 60515 Attn: John R. Steele Re: Waiver ------ Ladies and Gentlemen: Please refer to the Second Amended and Restated Revolving Credit Agreement, dated as of June 30, 2000, as amended (the "Second Amended Credit --------------------- Agreement"), and the 364-Day Revolving Credit Agreement, dated as of June 30, - --------- 2000, as amended (the "364-Day Credit Agreement" and together with the Second ------------------------ Amended Credit Agreement, individually a "Credit Agreement" and, collectively, ---------------- the "Credit Agreements"), each among Spiegel, Inc. (the "Borrower"), various ----------------- ------------- financial institutions as the Lenders, the Arrangers, the Syndication Agent and Deutsche Bank AG, New York Branch, as the Administrative Agent. Capitalized terms used but not otherwise defined herein have the respective meanings assigned thereto in the Credit Agreements. At the Borrower's request, the Required Lenders under each Credit Agreement hereby waive: (a) any failure by the Borrower to comply with Section 7.2.6(c) of the Credit Agreements (minimum Fixed Charge Coverage Ratio) for the Fiscal Quarters ended December 29, 2001 and March 30, 2002 and (b) any failure by the Borrower to comply with Section 7.2.6(d) of the Credit Agreements (maximum Debt to EBITDAR Ratio) as of the last day of the 2001 Fiscal Year; provided, that such waivers shall be in effect from the date hereof through June - -------- 15, 2002 (such period being the "Waiver Period"). Upon the expiration of the ------------- Waiver Period, unless extended, if the Borrower were not in compliance with each of the foregoing covenants as of the end of each of the foregoing covenant periods, it shall constitute an Event of Default. In consideration of the foregoing waivers during the Waiver Period, the Borrower agrees with the Agent and the Required Lenders that: (a) The Borrower shall not be permitted to declare or make any Restricted Payment until it is once again in compliance with all the financial covenants of Section 7.2.6 (including Section 7.2.6(c) and without regard to any waiver thereof provided for in this Waiver Letter) on and after March 31, 2002 and it is otherwise in compliance with Section 7.2.8 of the Credit Agreements. (b) Otto Versand (GmbH & Co) shall provide up to a $100,000,000 loan (the "Loan") to the Borrower (as more fully described ---- in the letter agreement dated of even Spiegel, Inc. November 9, 2001 Page 2 date herewith); the Borrower agrees that any interest on the Loan may accrue, but shall not be paid, during the Waiver Period. (c) The Borrower agrees to pay to the Administrative Agent for the account of each consenting Lender a waiver fee equal to 0.25% of the amount of such Lender's Commitment under each Credit Agreement concurrently with the effectiveness hereof. (d) The Borrower will not, and will not permit any Subsidiary to, make any Permitted Acquisition without the prior written consent of the Required Lenders under each Credit Agreement. This Waiver Letter is limited to the matters specifically set forth herein and shall not be deemed to constitute a waiver or consent with respect to any other matter whatsoever. The Administrative Agent and the Lenders hereby reserve all of their rights, powers and remedies under the Credit Agreements and applicable law. This Waiver Letter may be executed in counterparts and by the parties hereto on separate counterparts. This Waiver Letter shall become effective upon receipt by the Administrative Agent of (i) counterparts hereof (or facsimiles thereof) executed by the Borrower, the Subsidiaries listed below and the Required Lenders, (ii) the amendment fee referred to in clause (c) above and ------ --- (iii) a letter agreement executed by Otto Versand (GmbH & Co) and the Administrative Agent evidencing the obligations referred to in clause (b) above. ---------- The Borrower agrees to pay on demand all reasonable expenses of the Arrangers and the Administrative Agent (including the fees and reasonable out-of-pocket expenses of counsel to the Arrangers and the Administrative Agent), in connection with the negotiation, preparation, execution and delivery of this Waiver Letter and of each other Loan Document executed in connection with this Waiver Letter as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated. This Waiver Letter shall be governed by the laws of the State of Illinois applicable to contracts made and to be performed entirely within such State. Spiegel, Inc. November 9, 2001 Page 3 Please acknowledge your agreement to the foregoing by signing and returning a counterpart hereof to the Administrative Agent. DEUTSCHE BANK AG, NEW YORK BRANCH, Individually and as Administrative Agent By:/s/ Hans-Josef Thiele -------------------------------------- Name: Hans-Josef Thiele ---------------------------------- Title: Director --------------------------------- By: /s/ Stephan G. Peetzen ------------------------------------ Name:Stephan G. Peetzen ----------------------------------- Title: Director --------------------------------- ABN AMRO BANK N.V., as a Lender By:/s/ John E. Robertson ------------------------------------- Name: John E. Robertson ---------------------------------- Title: Group Vice President --------------------------------- By:/s/ Peter J. Hallan ------------------------------------- Name: Peter J. Hallan ---------------------------------- Title: Vice President --------------------------------- BANCA COMMERCIALE ITALIANA, NEW YORK BRANCH, as a Lender By: /s/ Charles Dougherty ------------------------------------ Name: Charles Dougherty ---------------------------------- Title: Vice President --------------------------------- By: /s/ J. Dickerhof ------------------------------------ Name: J. Dickerhof ---------------------------------- Title: Vice President --------------------------------- Spiegel, Inc. November 9, 2001 Page 4 BANK OF AMERICA, N.A., as a Lender By:/s/Timothy H. Spanos ------------------------------------ Name: Timothy H. Spanos ------------------------------------ Title:Managing Director ------------------------------------ Spiegel, Inc. November 9, 2001 Page 5 THE BANK OF NEW YORK, as a Lender By:/s/ Charlotte Sohn Fuiks ---------------------------------------- Name: Charlotte Sohn Fuiks ------------------------------------ Title: Vice President ----------------------------------- BAYERISCHE HYPO UND VEREINSBANK AG, as a Lender By:/s/ A. von der Lahr ------------------------------------------ Name: A. von der Lahr ------------------------------------ Title: Senior Vice President ----------------------------------- By:/s/ A. Neuheuser ------------------- Name: A. Neuheuser ------------ Title: Vice President -------------- BANKGESELLSCHAFT BERLIN AG, as a Lender By: ______________________________________ Name: ____________________________________ Title: ___________________________________ COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender By:/s/ Albert Morrow ------------------------------------------ Name: Albert Morrow ------------------------------------------ Title: Assistant Treasurer ------------------------------------------ By:/s/ Mark Monson ----------------------------------- Name: Mark Monson ------------------------------------ Title: Vice President ----------------------------------- Spiegel, Inc. November 9, 2001 Page 6 CREDIT LYONNAIS NEW YORK BRANCH, as a Lender By: /s/ Genevieve Leruth ------------------------------------ Name: Genevieve Leruth -------------------------------- Title: Vice President -------------------------------- CREDIT SUISSE FIRST BOSTON, as a Lender By: /s/ Bill O' Daly ------------------------------------ Name: Bill O'Daly -------------------------------- Title: Vice President -------------------------------- By: /s/ Cassandra Droogan ------------------------------------ Name: Cassandra Droogan -------------------------------- Title: Associate -------------------------------- DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLAND BRANCHES, as a Lender By: /s/ Hans-Josef Thiele ------------------------------------ Name: Hans-Josef Thiele -------------------------------- Title: Director -------------------------------- By: /s/ Stephan G. Peetzen ------------------------------------ Name: Stephan G. Peetzen -------------------------------- Title: Director -------------------------------- DEN DANSKE BANK, as a Lender By: /s/ Bo Anderson /s/ Lars Emmery ------------------------------------ Name: Bo Anderson Lars Emmery -------------------------------- Title: Vice President Vice President -------------------------------- Spiegel, Inc. November 9, 2001 Page 7 DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG, as a Lender By: /s/ Jochen Breitgens --------------------------------- Name: Jochen Breitgens ------------------------------ Title: Vice President ----------------------------- By: /s/ Dagmar Werner -------------------------------- Name: Dagmar Werner ------------------------------ Title: Vice President ----------------------------- DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender By: /s/ Gerd Lengfeld -------------------------------- Name: Gerd Lengfeld ------------------------------ Title: Director ----------------------------- By: /s/ Ulrich Kahlow -------------------------------- Name: Ulrich Kahlow ----------------------------- Title: Vice President ----------------------------- THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, as Issuer By: /s/ Jeremy P. Bollington -------------------------------- Name: Jeremy P. Bollington ------------------------------ Title: Senior Vice President ----------------------------- Spiegel, Inc. November 9, 2001 Page 8 HSBC BANK USA, as a Lender By: /s/ Anne Serewicz ------------------------------------------------- Name: Anne Serewicz --------------------------------------------- Title: Senior Vice President --------------------------------------------- LANDESBANK HESSEN-THURINGEN, as a Lender By: /s/ Fred Musch /s/ Bernd Haeger --------------------- -------------------------- Name: Fred Musch Bernd Haeger ----------------- -------------------------- Title: Vice President Senior Vice President ----------------- -------------------------- MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as a Lender By: /s/ Barry K. Bergman --------------------- -------------------------- Name: Barry K. Bergman --------------------- -------------------------- Title: Vice President --------------------- -------------------------- NORDDEUTSCHE LANDESBANK GIROZENTRALE NEW YORK BRANCH AND/OR CAYMAN ISLAND BRANCH, as a Lender By: /s/ Stephanie Finnen /s/ Stephen K. Hunter --------------------- -------------------------- Name: Stephanie Finnen Stephen K. Hunter ------------------- ---------------------- Title: Vice President Senior Vice President ------------------ ---------------------- Spiegel, Inc. November 9, 2001 Page 9 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH, as a Lender By: /s/ Martin Clements /s/ Lars Kickstein --------------------- ----------------------------- Name: Martin Clements Lars Kickstein ------------- ------------------------- Title: Director Manager -------- -------------------------
ACCEPTED AND AGREED as of November 9, 2001 SPIEGEL, INC. By: /s/ John R. Steele - --------------------------------- Title: Vice President, Treasurer - --------------------------------- EDDIE BAUER, INC. By: /s/ John R. Steele - --------------------------------- Name: John R. Steele Title: Treasurer ULTIMATE OUTLET INC. By: /s/ John R. Steele - --------------------------------- Name: John R. Steele Title: Treasurer NEWPORT NEWS, INC. By: /s/ John R. Steele - --------------------------------- Name: John R. Steele Title: Treasurer Spiegel, Inc. November 9, 2001 Page 10 DISTRIBUTION FULFILLMENT SERVICES, INC. (DFS) By: /s/ John R. Steele - ---------------------- Name: John R. Steele Title: Treasurer SPIEGEL PUBLISHING COMPANY By: /s/ John R. Steele - ---------------------- Name: John R. Steele Title: Treasurer SPIEGEL CATALOG, INC. By: /s/ John R. Steele - ---------------------- Name: John R. Steele Title: Treasurer EX-10.19 19 dex1019.txt LETTER OF CREDIT FACILITY AGREEMENT 9/27/1999 ================================================================================ - -------------------------------------------------------------------------------- EXHIBIT 10.19 $200,000,000 LETTER OF CREDIT FACILITY AGREEMENT Dated as of September 27, 1996 among SPIEGEL, INC., BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent, and VARIOUS FINANCING INSTITUTIONS - -------------------------------------------------------------------------------- ================================================================================ INDEX TO CLOSING DOCUMENTS FOR $200,000,000 LETTER OF CREDIT FACILITY AGREEMENT dated as of September 27, 1996 among SPIEGEL, INC., BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent, and VARIOUS FINANCIAL INSTITUTIONS 1. Letter of Credit Agreement Facility Agreement ("Credit Agreement") among Spiegel, Inc., Bank of America National Trust and Savings Association ("BofA"), The Bank of New York, The Hongkong and Shanghai Banking Corporation Limited and ABN AMRO Bank N.V., acting through its Chicago branch, and BofA as Agent, dated as of September 27, 1996 2. Resolution of the Board Committee of Spiegel, Inc. authorizing the Credit Agreement, together with an Incumbency Certificate, both certified by the Secretary of Spiegel, Inc. 3. Good Standing Certificates from the Secretaries of State of Delaware, Pennsylvania, Ohio and Illinois 4. Opinion of counsel of general counsel to Spiegel, Inc. 5. Letters terminating the Risk Participation Agreements among Bank of America Illinois, Bank of America NW, N.A. (d/b/a Seafirst Bank), BofA and The Hongkong and Shanghai Banking Corporation Limited 6. Letters terminating the Risk Participation Agreements among Bank of America Illinois, Bank of America NW, N.A. (d/b/a Seafirst Bank), BofA and The Bank of New York 7. Letters directing cancellation of $40,000,000 Standby Letter of Credit issued by The Hongkong and Shanghai Banking Corporation Limited TABLE OF CONTENTS
Section Page ARTICLE I DEFINITIONS ----------- 1.01 Certain Defined Terms ........................................... 2 1.02 Interpretive Provisions ......................................... 11 ARTICLE II THE LETTERS OF CREDIT --------------------- 2.01 The Letter of Credit Facility ................................... 11 2.02 Issuance, Amendment and Renewal of Letters of Credit ............ 13 2.03 Existing Letters of Credit; Risk Participations, Drawings and Reimbursements .................................................. 14 2.04 Repayment of Participations ..................................... 16 2.05 Role of the Issuing Banks ....................................... 17 2.06 Voluntary Termination or Reduction of Commitments ............... 18 2.07 Fees ............................................................ 18 (a) Agent Fees .................................................. 18 (b) Facility Fee ................................................ 18 2.08 Letter of Credit Fees; computations ............................. 18 2.09 Payments by the Company ......................................... 19 2.10 Sharing of Payments, Etc. ....................................... 19 2.11 Obligations Absolute ............................................ 19 2.12 Uniform Customs and Practice .................................... 21 2.13 Issuance Allocations and Tenor Allocations ...................... 21 2.14 Reports on Letters of Credit .................................... 22 ARTICLE III YIELD PROTECTION ---------------- 3.01 Increased Costs and Reduction of Return ......................... 22 3.02 Certificates of Banks ........................................... 23 3.03 Survival ........................................................ 23 ARTICLE IV CONDITIONS PRECEDENT -------------------- 4.01 Conditions of Initial Credit Extensions ......................... 23 (a) Credit Agreement ............................................ 23 (b) Resolutions; Incumbency ..................................... 23 (c) Good Standing ............................................... 24 (d) Legal Opinions .............................................. 24 (e) Payment of Fees ............................................. 24 (f) Termination of Risk Participation Agreements and Cancellation of Standby Letter of credit .................... 24 (g) Existing L/C Report ......................................... 24 (h) Other Documents ............................................. 24 4.02 Conditions to All Credit Extensions ............................. 24
Section Page (a) Notice, Application ......................................... 24 (b) Other Conditions ............................................ 24 (c) Continuation of Representations and Warranties .............. 24 (d) No Existing Default ......................................... 25 ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ 5.01 Corporate Existence and Power ................................... 25 5.02 Corporate Authorization; No Contravention ....................... 25 5.03 Governmental Authorization ...................................... 26 5.04 Binding Effect .................................................. 26 5.05 Litigation ...................................................... 26 5.06 No Default ...................................................... 26 5.07 Taxes ........................................................... 26 5.08 Financial Information ........................................... 27 ARTICLE VI COVENANTS --------- 6.01 Financial Statements ............................................ 27 6.02 Certificates; Other Information ................................. 28 6.03 Notices ......................................................... 28 6.04 Preservation of Corporate Existence, Etc. ....................... 29 6.05 Inspection of Property and Books and Records .................... 29 ARTICLE VII EVENTS OF DEFAULT ----------------- 7.01 Event of Default ................................................ 30 (a) Non-Payment ................................................. 30 (b) Representation or Warranty .................................. 30 (c) Other Defaults .............................................. 30 (d) Cross-Default ............................................... 30 (e) Insolvency; Voluntary Proceedings ........................... 30 (f) Involuntary Proceedings ..................................... 31 (c) Change of Control ........................................... 31 7.02 Remedies ........................................................ 31 7.03 Rights Not Exclusive ............................................ 32 ARTICLE VIII RELATIONS OF BANKS ------------------ 8.01 Appointment and Authorization; "Agent" .......................... 32 8.02 Delegation of Duties ............................................ 32 8.03 Liability of Agent .............................................. 33 8.04 Reliance by Agent ............................................... 33 8.05 Notice of Default ............................................... 34
-ii-
Section Page 8.06 Credit Decision ................................................. 34 8.07 Indemnification of Agent ........................................ 35 8.08 Agent in Individual Capacity .................................... 35 8.09 Successor Agent ................................................. 35 8.10 Withholding Tax ................................................. 36 ARTICLE IX MISCELLANEOUS ------------- 9.01 Amendments and Waivers .......................................... 36 9.02 Notices ......................................................... 37 9.03 No Waiver; Cumulative Remedies .................................. 38 9.04 Costs and Expenses .............................................. 38 9.05 Company Indemnification ......................................... 38 9.06 Successors and Assigns .......................................... 39 9.07 Assignments ..................................................... 39 9.08 Set-off ......................................................... 40 9.09 Automatic Debits of Fees ........................................ 40 9.10 Notification of Addresses, Offices, Etc. ........................ 41 9.11 Counterparts .................................................... 41 9.12 Severability .................................................... 41 9.13 GOVERNING LAW AND JURISDICTION .................................. 41 9.14 WAIVER OF JURY TRIAL ............................................ 41 9.15 Entire Agreement ................................................ 42
SCHEDULES Schedule 1.01 Letter of Credit Offices; Addresses; Payment Information Schedule 2.01 Commitments Schedule 5.05 Litigation Schedule 9.02 Offices; Addresses for Notices EXHIBITS Exhibit A Notice of Change in Issuance Allocations and Tenor Allocations Exhibit B Form of Legal Opinion -iii- CREDIT AGREEMENT ---------------- This LETTER OF CREDIT FACILITY AGREEMENT (the "Agreement") is entered into --------- as of September 27, 1996, among Spiegel, Inc., a Delaware corporation (the "Company"); Bank of America National Trust and Savings Association ("NT&SA"); ------- ----- The Bank of New York ("BONY"); The Hongkong and Shanghai Banking Corporation ---- Limited ("HKSB"); ABN AFRO Bank N.V., acting through its Chicago Branch ("ABN") ---- --- and any other financial institutions from time to time party to this Agreement (collectively, the "Banks" and, individually, a "Bank"), and NT&SA, as agent for ----- ---- the Banks (in such capacity, the "Agent"). ----- PRELIMINARY STATEMENT --------------------- A. Certain of the Banks have issued commercial letters of credit for the account of the Company from time to time to finance purchases of inventory for itself and certain Material Subsidiaries. To facilitate such arrangement, the Company is the account party on all such letters of credit even though some commercial letters of credit have been or may be requested to be issued in the name of Material Subsidiary (as defined herein). B. The Company has requested those Banks which are currently issuing such commercial letters of credit to consolidate a large portion of the various commercial letter of credit issuance arrangements into one agreement. C. The Banks party thereto have agreed to terminate the Risk Participation Agreements, NT&SA has agreed to a cancellation of the Revolver Standby and the Banks have agreed to make available to the Company a revolving commercial letter of credit facility on the terms and conditions set forth herein. Commercial letters of credit issued by such Banks which are outstanding on the date hereof are defined as "Existing Letters of Credit" herein and will become part of this facility and be counted as utilization of this facility. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: -1- ARTICLE I DEFINITIONS ----------- 1.01 Certain Defined Terms. The following terms have the following --------------------- meanings: "Affiliate" means, as to any Person, any other Person which, directly --------- or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, membership interests, by contract, or otherwise. "Aqent-Related Persons" means NT&SA and any successor agent arising --------------------- under Section 8.09, together with their respective Affiliates and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Assignee" has the meaning specified in subsection 9.07(a). -------- "Attorney Costs" means, all fees and disbursements of any law firm or -------------- other external counsel and, without duplication, the allocated cost of internal legal services and all disbursements of internal counsel. "Bank" has the meaning specified in the introductory paragraph. ---- "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 --------------- U.S.C.(S)101, et seq.), as amended from time to time.. -- --- "Base Rate" means, for any day, the higher of: (a) 0.50% per annum --------- above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by NT&SA in San Francisco, California, as its "reference rate." (The "reference rate" is a rate set by NT&SA based upon various factors including NT&SA's costs and- desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the reference rate announced by NT&SA shall take effect at the opening of business on the day specified in the public announcement of such change. -2- "Business Day" means any day other than a Saturday, Sunday or other ------------ day on which commercial banks in Chicago, Illinois or San Francisco, California are authorized or required by law to close and, with respect to Letter of Credit Offices(s) of each Issuing Bank, also means a day on which banks are open for business in the city in which such Letter of Credit Office is located. "Capital Adequacy Regulation" means any guideline, request or --------------------------- directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Change of Control" means any event the result of which is the ----------------- failure of the Otto Interests to own, directly or indirectly, free and clear of all Liens, at least 67% of the ownership interests in the Company. "Closing Date" means the date on which all conditions precedent set ------------ forth in Section 4.01 are satisfied or waived by all Banks (or, in the case of subsection 4.01(e), waived by the Person entitled to receive such payment). "Commitment" means, with respect to each Bank, the commitment of such ---------- Bank to participate in Letters of Credit from time to time Issued or outstanding hereunder in the dollar amount set forth on Schedule 2.01 with ------------- respect to such Bank, as such schedule may be modified from time to time. "Contractual Obligation" means, as to any Person, any provision of ---------------------- any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Credit Documents" means this Agreement, the Fee Letters, the ---------------- L/C-Related Documents, and all other documents delivered to the Agent or any Bank in connection herewith. "Default" means any event or circumstance which, with the giving of ------- notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Dollars", "dollars" and "$" each mean lawful money of the United ------- ------- - States. "Effective Amount" means the outstanding amount of L/C Obligations on ---------------- any date of determination after giving effect -3- to any Issuances of Letters of Credit occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including changes resulting from reimbursements of outstanding unpaid drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit issued on such date. For purposes of determining the Effective Amount of L/C Obligations on any date of determination, each outstanding Letter of Credit shall be deemed to be outstanding in the undrawn face amount thereof for the 30-day period following its expiry date unless previously cancelled, but in no event shall any Letter of Credit constitute an L/C Obligation more than 30 days after its expiry date. "Eligible Assignee" means (a) a commercial bank organized under the ----------------- laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a ---- political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States; and (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank is a Subsidiary, or (iii) a Person of which a Bank is a Subsidiary. "Event of Default" means any of the events or circumstances specified ---------------- in Section 7.01. "Existing Letters of Credit" means the commercial letters of credit -------------------------- listed on the Existing L/C Report, issued by one or more of the Issuing Banks for the account of the Company prior to the Closing Date. "Existing L/C Report" means, collectively, the various reports ------------------- delivered by one or more of the Issuing Banks on the Closing Date pursuant to Section 2.14(a). "Facility Fee" means the fee described in Section 2.07(b). ------------ "Federal Funds Rate" means, for any day, the rate set forth in the ------------------ weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.l5(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such -4- preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Agent. "Fee Letters" means, collectively, the Agent Fee Letter (defined in ----------- Section 2.07(a)) and the L/C Fee Letters (defined in Section 2.08). "FRB" means the Board of Governors of the Federal Reserve System, and --- any Governmental Authority succeeding to any of its principal functions. "GAAP " means generally accepted accounting principles set forth from ---- time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "Governmental Authority" means any nation or government, any state or ---------------------- other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Honor Date" has the meaning specified in subsection 2.03(c). ---------- "Indebtedness" of any Person means, without duplication, (a) all ------------ indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations with respect to surety instruments; (d) all obligations in respect of letters of credit or banker's acceptances; (e) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (f) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to -5- property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (g) all obligations with respect to capital leases; (h) all obligations related to capital stock which is mandatorily redeemable; (i) all other items which in accordance with GAAP would be included as liabilities on the balance sheet of such Person; (j) the net liabilities of such Person under all interest rates swap or other similar transactions entered into by such Person to manage risk; (k) all indebtedness referred to in clauses (a) through (j) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (1) all guarantees or other contingent obligations incurred in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (k) above. "Indemnified Liabilities" has the meaning specified in Section 9.05. ----------------------- "Indemnified Person" has the meaning specified in Section 9.05. ------------------ "Independent Auditor" has the meaning specified in subsection 6.01(a). ------------------- "Insolvency Proceeding" means, with respect to any Person, (a) any --------------------- case, action or proceeding with respect to such Person before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. -6- "Issuance Allocation" means the commitment of each Issuing Bank to ------------------- issue Letters of Credit, subject to the terms hereof, initially in the amounts set forth below, and subsequently in such amounts as are agreed to pursuant to the provisions of Section 2.13: Initial Issuance ---------------- Name of Issuinq Bank Allocation -------------------- ---------- Bank of America National Trust and Savings Association $170,000,000 The Hongkong and Shanghai Banking Corporation Limited $ -0- The Bank of New York $ 30,000,000 ABN AMRO Bank, N.V., acting through its Chicago Branch $ -0- ------------ $200,000,000 The Issuance Allocations need not be allocated on a pro rata basis among the Issuing Banks. Revised Issuance Allocations will be set forth in the notification letters sent by the Company to the Agent from time to time and confirmed by the Banks pursuant to subsection 2.13(b). "Issuance Date" has the meaning specified in subsection 2.01(a). ------------- "Issue" means, with respect to any Letter of Credit, to incorporate ----- the Existing Letters of Credit into this Agreement, or to issue or extend the expiry of, or to renew or increase the amount of, any Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have corresponding ------ ------- -------- meanings. "Issuing Bank" means any Bank in its capacity as an issuer of Letters ------------ of Credit hereunder, as set forth on Schedule 1.01 as such, schedule may -------------- change from time to time. "L/C Advance" means each Bank's participation in any L/C Borrowing in ----------- accordance with its Pro Rata Share. "L/C Amendment Application" means an application form for amendment of ------------------------- outstanding commercial letters of credit as shall at any time be in use at an Issuing Bank, as such Issuing Bank shall request. "L/C Application" means an application form and/or reimbursement for --------------- issuance of commercial letters of credit -7- as shall at any time be in use at an Issuing Bank, as each such Issuing Bank shall request. "L/C Borrowing" means an extension of credit resulting from a drawing under ------------- any Letter of Credit which is not reimbursed on the Honor Date at the time agreed to pursuant to Section 2.03(c). "L/C Obligations" means at any time the sum of (a) the aggregate undrawn --------------- amount of all Letters of Credit then outstanding, plus (b) the amount of all unreimbursed drawings under all Letters of Credit, including all outstanding L/C Borrowings. "L/C-Related Documents" means the Letters of Credit, the L/C Applications, --------------------- the L/C Amendment Applications and any other document relating to any Letter of Credit, including any of the Issuing Banks' standard form documents for commercial letter of credit issuance. "Letter of Credit Office" means any office of an Issuing Bank through which ----------------------- it Issues Letters of Credit and also includes any office of an Affiliate of such Issuing Bank through which such Affiliate Issues Letters of Credit to fulfill the related Issuing Bank's Issuance Allocation. The Letter of Credit Offices are set forth on Schedule 1.01, as such schedule may be modified from time to time. ------------- "Letters of Credit" means the Existing Letters of Credit and any commercial ----------------- letters of credit payable at sight Issued by an Issuing Bank pursuant hereto. "Lien" means any security interest, mortgage, pledge, hypothecation, ---- assignment, asset-deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. "Material Adverse Effect" means a material adverse effect on (i) the ----------------------- business, properties, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole, (ii) the ability of the Company to perform its obligations under any of the Credit Documents, (iii) the validity or enforceability of any of the Credit Documents or (iv) the rights or remedies of the Agent or the Banks under the Credit Documents. "Material Subsidiary" means Eddie Bauer, Inc., Newport News, Inc., First ------------------- Consumers National Bank, Distribution Fulfillment Services, Inc., Ultimate Outlet Inc., Spiegel Publishing Company, Spiegel Acceptance Corporation and any other subsidiary (excluding Spiegel Credit Corporation II -8- and Spiegel Credit Corporation III) whose assets, income or sales exceed 5% of the consolidated assets, income or sales, respectively, of the Company and its consolidated Subsidiaries, or any other Subsidiaries so designated by the Company after the Closing Date. "Obligations" means all advances, debts, liabilities, obligations, ----------- covenants and duties arising hereunder and under any L/C-Related Document owing by the Company to any Bank, the Agent, or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "Office" means, as to any Bank, the office or offices of such Bank ------ specified as its "Office" on Schedule 9.02, or such other office as such ------------- Bank may from time to time notify the Company and the Agent. "Otto Interests" means (i) Werner Otto of Hamburg, Germany, his spouse -------------- and any of his lineal descendants and their respective spouses (collectively, the "Otto Family"), and any Subsidiary of any members of the ----------- Otto Family, and any personal representative, trustee or other fiduciary acting in respect of the estate of any member of the Otto Family, and (ii) any trust which is solely for the benefit of one or more members of the Otto Family (whether or not any member of the Otto Family is a trustee of such trust) or principally for the benefit of one or more members of the Otto Family (provided that a member of the Otto Family is a trustee of such trust). "Other Letters of Credit" means letters of credit issued by a Bank ----------------------- for the account of the Company pursuant to any arrangement (other than pursuant to this Agreement) between the Company and such Bank, but does not include Existing Letters of Credit. "Person" means an individual, partnership, corporation, limited ------ liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Pro Rata Share" means, as to any Bank at any time, the percentage -------------- equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Bank's Commitment divided by the combined Commitments of all Banks. "Report" has the meaning specified in Section 2.14. ------ "Required Banks" means at any time Banks then holding at least 66-2/3% -------------- of the L/C Obligations, or, if no amounts -9- are outstanding, Banks then having at least 66-2/3% of the aggregate amount of the Commitments. "Requirement of Law" means, as to any Person, any law (statutory or ------------------ common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Officer" means the chief executive officer or the ------------------- president of the Company, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer or the treasurer of the Company, or any other officer having substantially the same authority and responsibility. "Revolver Standby" means that certain standby letter of credit issued ---------------- by HKSB as the issuing bank under the Revolving Credit Agreement, in favor of NT&SA as beneficiary, in the face amount of $40,000,000. "Revolving Credit Aqreement" means that certain Revolving Credit -------------------------- Agreement, dated as of March 27, 1996, as amended from time to time, among the Company, various financial institutions as lenders and Deutsche Bank AG Chicago Branch as administrative agent. "Risk Participation Agreements" means (i) that certain Participation ----------------------------- Agreement, dated as of June 27, 1996, among Bank of America Illinois ("BAI"), Bank of America North West, N.A. ("Seafirst"), NT&SA and HKSB and (ii) that certain Participation Agreement, dated as of June 27, 1996, among BAI, Seafirst, NT&SA and BONY. "SEC" means the Securities and Exchange Commission, or any --- Governmental Authority succeeding to any of its principal functions. "Subsidiary" of a Person means any corporation, association, ---------- partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. -10- "Tenor Allocation" means the undrawn face amount of Letters of Credit ---------------- which have a tenor of up to 364 days which an Issuing Bank has agreed to issue within its Issuance Allocation. The initial Tenor Allocations are as set forth below: Initial 364-day --------------- Name of Issuing Bank Tenor Allocations -------------------- ----------------- Bank of America National Trust and Savings Association $ -0- The Hongkong and Shanghai Banking Corporation Limited $ -0- The Bank of New York $20,000,000 ABN AMRO Bank, N.V., acting through its Chicago Branch $ -0- ------------------ $20,000,000 The Tenor Allocations need not be allocated on a pro rata basis among the Issuing Banks. Revised Tenor Allocations will be set forth in the notification letters sent by the Company to the Agent from time to time and confirmed by the Banks pursuant to Section 2.13(b). "Termination Date" means September 26, 1997. ---------------- "Wholly-Owned Subsidiary" means any corporation in which (other than ----------------------- directors' qualifying shares required by law) 100% of the capital stock of each class having ordinary voting power, and 100% of the capital stock of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by the Company, or by one or more of the other Wholly-Owned Subsidiaries, or both. 1.02 Interpretive Provisions. This Agreement and the L/C-Related Documents ----------------------- are the result of negotiations among and have been reviewed by counsel to the Agent, the Company and the Banks, and are the products of all parties. Accordingly, they shall not be construed against the Banks or the Agent merely because of the Agent's or Banks' involvement in their preparation. ARTICLE II THE LETTERS OF CREDIT --------------------- 2.01 The Letter of Credit Facility. (a) On the terms and conditions set ----------------------------- forth herein, (i) each Issuing Bank agrees, from -11- time to time on any Business Day during the period from the Closing Date to the Termination Date to issue Letters of Credit for the account of the Company and to amend or renew Letters of Credit previously issued by it and (ii) the Banks severally agree to participate in Letters of Credit Issued for the account of the Company; provided, however, that (A) no Issuing Bank shall be obligated to -------- ------- Issue Letters of Credit (x) in excess of its Issuance Allocation or, if an Issuing Bank has received a Tenor Allocation, for a period of time longer than its Tenor Allocation or (y) if the L/C Obligations owed to such Issuing Bank would exceed its Issuance Allocation and (B) no Bank shall be obligated to participate in any Letter of Credit if as of the date of Issuance of such Letter of Credit (the "Issuance Date") the participation of such Bank in the Effective ------------- Amount of all L/C Obligations would exceed such Bank's Commitment. Within the foregoing limits, and subject to the other terms and conditions hereof, the Company's ability to obtain Letters of Credit shall be fully revolving, and, accordingly, the Company may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit which have expired or which have been drawn upon and reimbursed. An Issuing Bank may Issue Letters of Credit itself or may cause one of its Affiliates to Issue Letters of Credit. Any such Affiliate Issuing Letters of Credit shall have all of the rights of an Issuing Bank hereunder and may exercise any of the remedies available to an Issuing Bank hereunder even though such Affiliate is not a signatory to this Agreement or to the L/C-Related Documents (other than Letters of Credit), and any Affiliate of an Issuing Bank so Issuing Letters of Credit shall be an express third party beneficiary of this Agreement and the L/C-Related Documents between the Issuing Bank with respect to which it is an Affiliate and the Company. The Letter of Credit Offices of each Issuing Bank and any Affiliate of such Issuing Bank through which such Issuing Bank Issues Letters of Credit are set forth on Schedule 1.01, as such ------------- schedule may change from time to time. Promptly after receipt by the Agent of information from an Issuing Bank as to changes in its Letter of Credit Offices, the Agent shall deliver an updated Schedule 1.01 to the Company and each Bank. ------------- (b) No Issuing Bank has an obligation to Issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator purports by its terms to enjoin or restrain such Issuing Bank from Issuing such Letter of Credit or any Requirement of Law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank prohibits, or requests that the Issuing Bank refrain from, the Issuance of commercial letters of credit generally or such Letter of -12- Credit in particular or imposes upon such Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such Issuing Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or imposes upon such Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which such Issuing Bank in good faith deems material to it; (ii) such Issuing Bank has received written notice from any Bank, the Agent or the Company, on or prior to the Business Day prior to the requested date of Issuance of such Letter of Credit, that one or more of the applicable conditions contained in Article IV is not then satisfied; (iii) the expiry date of any requested Letter of Credit is more than 180 days after the date of Issuance; provided, however, that up -------- ------- to $20,000,000 of Letters of Credit may expire up to 364 days after the date of Issuance but in no event later than June 23, 1998; or (iv) any requested Letter of Credit is not in form and substance acceptable to the relevant Issuing Bank, or the Issuance of a Letter of Credit violates any applicable policies of the Issuing Bank. (c) If any Issuing Bank Issues a Letter of Credit which (i) causes the aggregate amount of outstanding Letters of Credit Issued by such Bank to exceed its Issuance Allocation, (ii) causes the outstanding L/C Obligations to exceed the Commitments or (iii) does not comply with Section 2.0l(b)(iii) or such Issuing Bank's Tenor Allocation, if any, such Issuing Bank shall be solely responsible for collecting payment therefor from the Company, and the Banks shall not be required to participate in the L/C Obligations relating thereto. For purposes of determining the outstanding L/C Obligations and a Bank's Issuance Allocation and Tenor Allocation on any date of determination, each outstanding Letter of credit shall be deemed to be outstanding in the undrawn face amount thereof for the thirty day period following its expiry date unless previously cancelled, but in no event shall any Letter of Credit constitute an L/C Obligation more than 30 days after its expiry date. (d) Issuance of Letters of Credit by`an Issuing Bank under this Agreement does not preclude an Issuing Bank from issuing Other Letters of Credit; provided, however, that (i) Other Letters of Credit shall not be counted -------- ------- as utilization of an Issuing Bank's Issuance Allocation and (ii) the Banks shall not be required to purchase risk participations pursuant to Section 2.03(b) in such Other Letters of Credit. 2.02 Issuance, Amendment and Renewal of Letters of Credit. (a) Each Letter ---------------------------------------------------- of Credit shall be issued, amended or renewed -13- upon the request of the Company (which request shall be irrevocable) received by an Issuing Bank in accordance with arrangements between each Issuing Bank and the Company to provide each Issuing Bank electronically with the information necessary to issue, amend or renew Letters of Credit. The arrangements between the Company and the various Issuing Banks are set forth in the L/C-Related Documents (other than the Letters of Credit) between each Issuing Bank and the Company. To the extent any term in any such L/C-Related Documents (other than a Letter of Credit) conflicts with or is inconsistent with the terms of this Agreement, the term most favorable to the Issuing Bank shall apply, and an Issuing Bank may exercise its rights under either such L/C-Related Document or this Agreement vis-a-vis the Company, but subject in any event to the provisions herein with respect to sharing and notification. If any such inconsistency exists, the Agent and the Banks shall not be deemed to have waived any rights hereunder, nor shall any Issuing Bank be deemed to have waived any rights under such L/C-Related Document, by reason of such inconsistency. (b) No Issuing Bank shall be under an obligation to amend any Letter of Credit if: (i) such Issuing Bank would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement or (ii) the beneficiary of any such Letter of Credit does not accept the proposed amendment to the Letter of Credit. For purposes of determining the tenor of a Letter of Credit which is to be amended or renewed, the periods of 180 days and 364 days referred to in Section 2.0l(b)(iii) shall be calculated from the date of amendment or renewal of such Letter of Credit prior to or as of the expiry date thereof. (c) No Issuing Bank shall be under an obligation to renew any Letter of Credit if such Issuing Bank would have no obligation at such time to issue such Letter of Credit under the terms of this Agreement. 2.03 Existing Letters of Credit; Risk Participations, Drawings and ------------------------------------------------------------- Reimbursements. (a) The Existing Letters of Credit shall be deemed for all - -------------- purposes, including for purposes of the fees to be collected pursuant to Section 2.08 and reimbursement of costs and expenses hereunder (but without duplication of fees already paid under any other agreement with respect to any Existing Letter of Credit), Letters of Credit outstanding under this Agreement and entitled to the benefits of this Agreement and the L/C-Related Documents, and shall be governed by the applications and agreements pertaining thereto and by this Agreement. Each Bank shall be deemed to irrevocably and unconditionally purchase from the Issuing Banks of Existing Letters of Credit on the Closing Date a participation in each such Existing Letter of Credit and each drawing thereunder in an amount equal to the product of (i) such Bank's Pro Rata Share times (ii) the maximum amount available to be drawn under such -14- Letter of Credit and the amount of such drawing, respectively. The Existing Letters of Credit shall be deemed to utilize pro rata the Commitment of each Bank, and each Issuing Bank's Issuance Allocation shall be deemed utilized by outstanding Existing Letters of Credit and unpaid drawings in respect thereof. (b) Immediately upon the Issuance of each Letter of Credit in addition to those described in subsection 2.03(a), each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from each Issuing Bank a participation in such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) the Pro Rata Share of such Bank, times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. Each Issuance of a Letter of Credit shall be deemed to utilize the Commitment of each Bank by an amount equal to the amount of such participation. (c) Each Issuing Bank will promptly notify the Company of any drawing under a Letter of Credit. The Company shall reimburse the Issuing Bank on each date that any amount is paid by the Issuing Bank under any Letter of Credit (each such date, an "Honor Date") at such time(s) as are agreed upon by the ---------- Company and the Issuing Bank's Letter of Credit Offices, in an amount equal to the amount so paid by such Issuing Bank. If the Company fails to reimburse any Issuing Bank for the full amount of any drawing under any Letter of Credit at such agreed upon time on the.Honor Date, such Issuing Bank will promptly notify the Agent and the Agent will promptly notify each Bank thereof, and the Company shall be deemed to have incurred from the affected Issuing Bank an L/C Borrowing in the amount of such drawing, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at a rate per annum equal to the Base Rate plus 2% per annum. (d) Upon receipt of any notice from the Agent of any failure by the Company to reimburse an Issuing Bank, each Bank shall make available to the Agent for the account of the relevant Issuing Bank its Pro Rata Share of the amount of such L/C Borrowing. If any Bank fails to transfer its Pro Rata Share of the amount of-such L/C Borrowing to the Agent, interest shall accrue on such Bank's obligation to make such payment from the Honor Date to the date such Bank makes such payment, at a rate per annum equal to the Federal Funds Rate in effect from time to time during such period. Any failure of the Agent to give notice to the Banks on an Honor Date or in sufficient time to enable any Bank to effect such payment on such date shall not relieve such Bank from its obligations under this subsection (d). (e) Each Bank's payment to the Issuing Bank pursuant to subsection 2.03(d) shall, be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C -15- Advance from such Bank in satisfaction of its participation obligation. (f) The Company hereby promises to pay all L/C Borrowings in accordance with the terms set forth herein. The accounts or records maintained by the Agent, each Issuing Bank and each Bank shall be conclusive absent manifest error of the amount of Letters of Credit Issued for the account of the Company, any L/C Borrowings and the interest and payments thereon. Any failure to record or any error in recording such amounts shall. not limit or otherwise affect the obligation of the Company hereunder to pay any amount owing in respect thereof. To the extent that the records of the Agent conflict with the records of any Bank or any Issuing Bank, the records of the Bank or the Issuing Bank, as the case may be, shall be conclusive absent manifest error. (g) Each Bank's obligation to make L/C Advances as a result of a drawing under a Letter of Credit, shall be absolute and unconditional and without recourse to the Issuing Banks and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Issuing Banks, the Company or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default, an Pvent of Default or a Material Adverse Effect; or (iii) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided, however, that after paying in full its reimbursement -------- ------- obligation hereunder, nothing herein shall adversely affect the right of the company or such Bank, as the case may be, to commence any proceeding against an Issuer for any wrongful disbursement made by such. Issuer under a Letter of Credit as a result of acts or omissions constituting gross negligence or willful misconduct on the part of such Issuer. 2.04 Repayment of Participations. (a) Upon receipt by an Issuing Bank of --------------------------- (i) reimbursement from the company for any payment made by such Issuing Bank under a Letter of Credit with respect to which any Bank has paid for its participation in such Letter of Credit or (ii) payment of interest thereon, such Issuing Bank will pay such amounts to the Agent, in the same funds as those received by such Issuing Bank. The Agent shall promptly distribute to each Bank its Pro Rata Share thereof. (b) If the Agent or any Issuing Bank is required at any time to return to the Company, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Froceeding, any portion of the payments made by the Company to izhe Agent or to an Issuing Bank pursuant to subsection 2.04(a) in reimbursement of a payment made under a Letter of Credit or interest thereon or fees relating thereto or as a result of a set-off, each Dank shall, on demand of the Agent or such Issuing Bank, as the case may be, forthwith return to the Agent or the -16- Issuing Bank the amount of its Pro Rata Share of any amounts so returned by the Agent or the Issuing Bank plus interest thereon from the date such demand is made to the date such amounts are returned by such Bank to the Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds Rate in effect from time to time. (c) If any event described in subsection (b) above occurs, the obligation of the Company in respect of the payment or set-off required to be returned shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not been effected. 2.05 Role of the Issuing Banks. (a) No Issuing Bank shall have any ------------------------- responsibility to obtain any document in connection with paying any drawing under a Letter of Credit (other than any sight draft, certificates and other documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. (b) No Issuing Bank or any of its correspondents or assignees shall be liable to any Bank for: (i) any action taken or omitted in connection herewith atlthe request or with the approval of the Banks (including the Required Banks, as applicable); (ii) any action taken or omitted in the absence of gross negligence or willful misconduct or (iii) the due execution, effectiveness, validity or enforceability of any L/C-Related Document. (c) The company hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, - -------- ------- preclude the Company's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. No Agent-Related Person, nor any of the respective correspondents, participants or assignees of any Issuing Bank, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 2.11; provided, -------- however, that the Company may have a claim against an Issuing Bank, and an - ------- Issuing Bank may be liable to the Company, to the extent of any direct, as opposed to consequential or exemplary, damages suffered by the Company which the Company proves were caused by such Issuing Bank's willful misconduct or gross negligence or such Issuing Bank's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing: (i) each Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (ii) no Issuing Bank -17- shall be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 2.06 Voluntary Termination or Reduction of Commitments. The Company may, ------------------------------------------------- upon not less than five Business Days' prior notice to the Agent, terminate the Commitments, or permanently reduce the Commitments by an aggregate minimum amount of $5,000,000 or any multiple of $5,000,000 in excess thereof; unless, ------ after giving effect thereto, the Effective Amount of all L/C Obligations then outstanding would exceed the Commitments. Once reduced in accordance with this section, the Commitments may not be increased. Any reduction of the Commitments shall be applied to each Bank according to its Pro Rata Share. All accrued Facility Fee and letter of credit fees to, but not including, the effective date of any reduction or termination of Commitments, shall be paid on the effective date of such reduction or termination. 2.07 Fees. ---- (a) Agent Fees. The Company shall pay fees to the Agent for the ---------- Agent's own account, as required by the letter agreement ("Agent Fee Letter") ---------------- between the Company and the Agent, dated August 27, 1996. (b) Facility Fee. The Company shall pay to the Agent for the ------------ account of each Bank a fee on the amount of such Bank's Commitment equal to .20 percent per annum. Such Facility Fee shall accrue from the Closing Date to the Termination Date and shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter, commencing on December 31, 1996, with the final payment to be made on the Termination Date; provided that, in -------- connection with any reduction or termination of Commitments under Section 2.06, the accrued Facility Fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date. The Facility Fees provided in this subsection shall accrue at all times after the above-mentioned commencement date, including at any time during which one or more conditions in Article IV are not met. 2.08 Letter of Credit Fees; Computations. The Company shall pay to each ----------------------------------- Issuing Bank from time to time in accordance with a letter agreement entered into between the Company and each Issuing Bank (each an "L/C Fee Letter") the -------------- issuance, presentation, amendment, negotiation and other processing fees, and &her standard costs and charges, of the Issuing Bank relating to commercial letters of credit. All computations of -18- interest on past due L/C Obligations and all computations of fees shall be made on the basis of a 365-day year and actual days elapsed. Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. 2.09 Payments by the Company. All payments to be made by the Company shall ----------------------- be made without set-off, recoupment or counterclaim and free and clear of all taxes. Payments by the Company to an Issuing Bank in respect of L/C Obligations and the fees described in Section 2.08 shall be made directly to each Issuing Bank by the Company at the,times agreed upon by the Company and the Issuing Banks. Payments by the Company of Facility Fees and amounts payable pursuant to Section 9.04 and 9.05 for all the Banks shall be made to the Agent for the account of the Banks at the Agent's Office set forth on Schedule 9.02, and shall ------------- be made in dollars in immediately available funds, no later than 11:00 a.m. (Chicago time) on the date specified herein. The Agent will promptly distribute to each Bank its Pro Rata Share (or other applicable share as expressly provided herein) of such payment in like funds as received. Any payment received by the Agent later than 11:00 a.m. (Chicago time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. 2.10 Sharing of Payments, Etc. Except for payments made pursuant to Article ------------------------ III, if any Bank obtains payment (whether voluntary, involuntary, in respect of the L/C Obligations or the Facility Fee through the exercise of any right of set-off, or otherwise) in excess of its Pro Rata Share, such Bank shall immediately (a) notify the Agent of such fact, and (b) purchase from the other Banks such participations as is necessary to cause such purchasing Bank to share the excess payment pro rata with each of them; provided, however, that if all or -------- ------- any portion of such excess payment is thereafter recovered from the purchasing Bank, such purchase shall be rescinded to that extent, and each other Bank shall repay to the purchasing Bank an amount equal to such paying Bank's ratable share of such recovered payment (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing'Bank). The Company agrees that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 9.08) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. The Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this section and will in each case notify the Banks following any such purchases or repayments. 2.11 Obligations Absolute: The obligations of the Company under this ------------------- Agreement and any L/C-Related Document to reimburse -19- any Issuing Bank for a drawing under a Letter of Credit, and to repay any L/C Borrowing shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement and each such other L/C-Related Document under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any L/C-Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Company in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the L/C-Related Documents; (iii) the existence of any claim, set-off, defense or other right that the Company may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or such transferee may be acting), any Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C-Related Documents or any unrelated transaction; (iv) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) any payment by an Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit; or any payment made by an Issuing Bank under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the obligations' of the Company in respect of any Letter of Credit; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise -20- constitute a defense available to, or a discharge of, the Company. 2.12 Uniform Customs and Practice. The Uniform Customs and Practice for ---------------------------- Documentary Credits as published by the International Chamber of Commerce most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letters of Credit) apply to the Letters of Credit. 2.13 Issuance Allocations and Tenor Allocations. (a) From the Closing Date ------------------------------------------ until such time as the Company delivers a notification to the Agent pursuant to subsection (b), NT&SA's Issuance Allocation shall be $170,000,000 and BONY's Issuance Allocation shall be $30,000,000. In addition, BONY's Tenor Allocation shall be $20,000,000. (b) From time to time the Company may replace one or more Issuing Banks or may designate new or additional Issuing Banks and may change the Issuance Allocations and the Tenor Allocations of the Issuing Banks by providing to the Agent at least two Business Days' notice of such changes. Such notice by the Company may be by telephone and shall be followed immediately by a written notification in the form attached hereto as Exhibit A. Upon receipt of such notification from the Company, the Agent shall notify each Bank by telephone of any changed Issuance Allocations or Tenor Allocations and shall deliver to each Bank on the date received from the Company a facsimile copy of such notification. If the Issuance Allocation or the Tenor Allocation of an Issuing Bank is being modified, such change shall not be effective until all Banks have returned to the Agent, within twenty-four (24) hours of such notification, signed copies of such notification, acknowledging the modifications, and the Agent has delivered copies of same to the Company. The aggregate Issuance Allocations shall at all times equal the amount of the aggregate Commitments, arid no notification by the Company of changed Issuance Allocations shall affect any outstanding L/C Obligations. At no time shall any Bank's Issuance Allocation be less than the L/C Obligations owed to such Issuing Bank. On and after the effective date of any change in the Issuance Allocations and/or Tenor Allocations, each Issuing Bank shall Issue Letters of Credit in an amount not in excess of its new Issuance Allocation, and each such Letter of Credit shall comply with the Tenor Allocation, if any, applicable to such Issuing Bank. (c) After the effective date of each change in Issuing Banks, Issuance Allocations or Tenor Allocations, the Agent shall deliver a revised schedule of same to each Bank and the Company, together with a revised Schedule -------- 1.01, if necessary, to reflect any such changes. - ---- -21- 2.14 Reports on Letters of Credit. (a) Prior to the Closing Date, each ---------------------------- Issuing Bank which has Issued Existing Letters of Credit shall deliver to the Agent a list of all Existing Letters of Credit, showing the Bank issuing each Letter of Credit, the date of issuance thereof, the letter of credit issuance number, the name of the beneficiary of each Existing Letter of Credit, the outstanding amount of each Existing Letter of Credit, the expiry date thereof and the aggregate amount of all Existing Letters of Credit Issued by such Issuing Bank and outstanding as of September 20, 1996 (the "Existing L/C ------------ Report"). On the Closing Date, each Issuing Bank with Letters of Credit - ------ outstanding shall deliver to the Agent a statement of all L/C Obligations owed to such Issuing Bank as of the Closing Date. Within five (5) Business Days after the Closing Date, each Issuing Bank which delivered an Existing L/C Report shall deliver to the Agent a report containing the information listed in the first sentence of this subsection (a) (the "Report"), accurate as of the close of business on the day prior to the Closing Date. (b) Each Monday during the term of this Agreement, each Issuing Bank shall deliver to the Agent a statement showing such Issuing Bank's Issuance Allocation and the total L/C Obligations shown on its records as of the close of business the preceding week. (c) On the fifth Business Day of each month during the term of this Agreement, each Issuing Bank shall deliver to the Agent a Report relating to L/C Obligations owed to such Bank as of the last Business Day of the preceding month. (d) The Agent shall deliver to the Company and the Banks, on the date it receives each such report described in this Section 2.14, a copy of each such report. ARTICLE III YIELD PROTECTION ---------------- 3.01 Increased hosts and Reduction of Return. (a) If any Bank determines --------------------------------------- that, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance by that Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Bank of participating in Letters of Credit, or, in the case of an Issuing Bank, any increase in the cost to such Issuing Bank of agreeing to issue, issuing or maintaining any Letter of Credit or of agreeing to make or making, funding or maintaining any unpaid drawing under any Letter of Credit, then the Company shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Bank, additional amounts -22- as are sufficient to compensate such Bank for such increased costs. (b) If any Bank determines that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment or obligations under this Agreement, then, upon demand of such Bank to the Company through the Agent, the Company shall pay to such Bank, from time to time as specified by such Bank, additional amounts sufficient to compensate such Bank for such increase. 3.02 Certificates of Banks. Any Bank claiming reimbursement or --------------------- compensation under this Article III shall deliver to the Company (with a copy to the Agent) a certificate setting forth in reasonable detail the amount payable to the Bank hereunder and such certificate shall be conclusive and binding on the Company in the absence of manifest error. 3.03 Survival. The agreements and obligations of the Company in this -------- Article III shall survive the payment of all other Obligations. ARTICLE IV CONDITIONS PRECEDENT -------------------- 4.01 Conditions of Initial Credit Extensions. The obligation of each --------------------------------------- Issuing Bank to issue a Letter of Credit or of any Bank to participate in any Letter of Credit is subject to the condition that the Agent shall have received on or before the Closing Date all of the following, in form and substance satisfactory to the Agent and each Bank, and with respect to subsections (a) through (d), (f) and (g) in sufficient copies for each Bank: (a) Credit Agreement. This Agreement executed by each party thereto; ---------------- (b) Resolutions; Incumbency. ----------------------- -23- (i) Copies of the resolutions of the Board Committee of the Company, authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; and (ii) A certificate of the Secretary or Assistant Secretary of the Company, certifying the names and true signatures of the officers of the Company authorized to execute, deliver and perform this Agreement; (c) Good Standing. A good standing certificate for the Company from ------------- the Secretary of State {or similar, applicable Governmental Authority) of its state of incorporation and each state where the Company is qualified to do business as a foreign corporation as of a recent date; (d) Legal Opinions. An opinion of Michael R. Moran, General Counsel -------------- to the Company, addressed to the Agent and the Banks, substantially in the form of Exhibit B; --------- (e) Payment of Fees. The Agent Fee due on the Closing Date, together --------------- with Attorney Costs of NT&SA to the extent invoiced prior to or on the Closing Date; (f) Termination of Risk Participation Agreements and Cancellation of ---------------------------------------------------------------- Standby Letter of Credit. A written statement from (i) each party to each Risk - ------------------------ Participation Agreement that such agreement will be terminated by the closing of this transaction and (ii) NT&SA that it authorizes the cancellation of the Revolver Standby upon the closing of this transaction. (g) Existing L/C Report. The Existing L/C Report described in Section ------------------- 2.14(a) from each Bank that has Existing Letters of Credit outstanding on the Closing Date; and (h) Other Documents. Such other approvals, opinions, documents or --------------- materials as the Agent or any Bank may request. 4.02 Conditions to All Credit Extensions. The obligation of each Issuing ----------------------------------- Bank to Issue any Letter of Credit (including the initial Letter of Credit) is subject to the satisfaction of the following conditions precedent on the relevant Issuance Date: (a) Notice, Application. Each Issuing Bank shall have received an L/C ------------------- Application or L/C Amendment Application, as required under Section 2.02; (b) Other Conditions. No event described in Section 2.32(b)(i), (ii) ---------------- or (iv) shall have occurred or shall exist. (c) Continuation of Representations and Warranties. The ---------------------------------------------- representations and warranties in Article V and the -24- representations and warranties in the Revolving Credit Agreement shall be true and correct on and as of such Issuance Date; and (d) No Existing Default. No Default or Event of Default shall exist ------------------- or shall result from such Issuance. Each L/C Application or L/C Amendment Application submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of each such Issuance Date that the conditions in this Section 4.02 are satisfied. ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ The Company represents and warrants to the Agent and each Bank that: 5.01 Corporate Existence and Power. The Company and each of its ----------------------------- Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations hereunder and under the L/C Related Documents; (c) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where the failure to be so qualified could have a Material Adverse Effect; and (d) is in compliance with all Requirements of Law, where the failure to comply could have a Material Adverse Effect. 5.02 Corporate Authorization; No Contravention. The execution, delivery and ----------------------------------------- performance by the Company of this Agreement and the L/C-Related Documents have been duly authorized by all necessary corporate action, and do not and will not: (a) contravene the terms of the Company's certificate or articles of incorporation and by-laws; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which the Company is a party or any order, injunction, writ or decree of any -25- Governmental Authority to which the Company or its property is subject; or (c) violate any Requirement of Law. 5.03 Governmental Authorization. No approval, consent, exemption, -------------------------- authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company of this Agreement or any L/C-Related Document. 5.04 Binding Effect. This Agreement and the L/C-Related Documents -------------- constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 5.05 Litigation. Except as specifically disclosed in Schedule 5.05, there ---------- ------------- are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, or its Subsidiaries, or any of their respective properties which: (a) purport to affect or pertain to this Agreement or any L/C-Related Document, or any of the transactions contemplated hereby or thereby; or (b) if determined adversely to the Company or its Subsidiaries, could reasonably be expected to have a Material Adverse Effect. 5.06. No Default. No Default or Event of Default exists or would result ---------- from the incurring of any Obligations by the Company. As of the Closing Date, neither the Company nor any Subsidiary is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect, or that would, if such default had occurred after the Closing Date, create an Event of Default under subsection 7.01(d). 5.07 Taxes. The Company and its Subsidiaries have filed all Federal and ----- other material tax returns and reports required to be filed, and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed -26- tax assessment against the Company or any Subsidiary that would, if made, have a Material Adverse Effect. 5.08 Financial Information. (a) The (i) audited financial statements of the ---------------------- Company as at December 30, 1995 and (ii) unaudited financial statements of the Company for the fiscal quarters ended on March 30, 1996 and June 29, 1996, copies of which have been furnished to each Bank, have been prepared in accordance with GAAP consistently applied and present fairly the consolidated financial condition of the Company as at the dates thereof and the results of its operations for the periods then ended. (b) Since December 31, 1995, there has been no Material Adverse Effect. ARTICLE VI COVENANTS --------- So long as any Bank shall have any Commitment hereunder, or any L/C Borrowing or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Required Banks waive compliance in writing: 6.01 Financial Statements. The Company shall deliver to each Bank and the -------------------- Agent: (a) as soon as available, but not later than 100 days after the end of each fiscal year (commencing with the fiscal year ended on or near December 28, 1996), a copy of the audited consolidated balance sheet of the Company and its Subsidiaries at the end of such year and the related consolidated statements of income or operations, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of KPMG Peat Marwick or another nationally-recognized independent public accounting firm ("Independent Auditor") ------------------- which report shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any Subsidiary's records; and (b) as soon as available, but not later than 55 days after the end of each quarter of each fiscal year, a copy of the unaudited consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter and the related consolidated statements of income, shareholders' equity and cash flows for the period commencing on the first day and ending on -27- the last day of such quarter, and certified by a Responsible Officer as fairly presenting, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Company and the Subsidiaries; provided, that any such information for the final -------- fiscal quarter of the fiscal year may be preliminary and subject to final adjustment no later than 100 days after the end of the fiscal year. 6.02 Certificates; Other Information. The Company shall furnish to each ------------------------------- Bank and the Agent: (a) concurrently with the delivery of the financial statements referred to in subsection 6.01(a), a certificate of the Independent Auditor stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in subsections 6.01(a) and (b), a certificate executed by a Responsible Officer stating that no Default or Event of Default exists as of the date of such financial statements; provided, that any such certificate for the -------- final fiscal quarter may be subject to a final adjustment in a similar manner as set forth in the proviso to Subsection 6.01(b). (c) promptly, copies of all financial statements and reports that the Company sends to its shareholders, and copies of all financial statements and regular, periodical or special reports (including Forms lOK, 1OQ and 8K) that the Company or any Subsidiary may make to, or file with, the SEC; (d) from time to time, a certificate of a Responsible Officer certifying the names and true signatures of the officers and employees of the Company and its Material Subsidiaries authorized to execute L/C-Related Documents and to request the issuance and amendment of Letters of Credit; and (e) promptly, such additional information regarding the business, financial or corporate affairs of the Company or any Subsidiary as the Agent, at the reasonable request of any Bank, may from time to time request. 6.03 Notices. The Company shall promptly notify the Agent and each Bank: ------- (a) of the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default; and (b) of any matter that has resulted or may result in a Material Adverse Effect. -28- Each notice under this section shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under subsection 6.03(a) shall describe with particularity any and all clauses or provisions of this Agreement or L/C-Related Document that have been (or foreseeably will be) breached or violated. 6.04 Preservation of Corporate Existence, Etc. The Company shall, and shall ----------------------------------------- cause each Subsidiary to: (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation; (b) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business; (c) use reasonable efforts, in the ordinary course of business, to preserve its business organization and goodwill; and (d) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. 6.05 Inspection of Property and Books and Records. The Company shall -------------------------------------------- maintain and shall cause each Subsidiary to maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiary. The Company shall permit, and shall cause each Subsidiary to permit, representatives and independent contractors of the Agent or any Bank to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided, however, when an Event -------- ------- of Default exists the Agent or any Bank may do any of the foregoing at the expense of the Company at any time during normal business hours and without advance notice. Any visits to, or with officers of, any Subsidiary of the Company and any discussions with the Company's independent public accountants shall be coordinated through the Company. -29- ARTICLE VII EVENTS OF DEFAULT ----------------- 7.01 Event of Default. Any of the following shall constitute an "Event ---------------- ----- of Default": - ----------- (a) Non-Payment: The Company fails to pay, (i) when and as ----------- required to be paid herein, any L/C Obligation, or (ii) within 3 days after the same becomes due, any interest, fee or any other amount payable hereunder or under any Credit Document; or (b) Representation or Warranty. Any representation or warranty by -------------------------- the Company or any Material Subsidiary made or deemed made herein, in any Credit Document, or which is contained in any certificate, document or financial or other statement issued by the Company or any Responsible Officer, furnished at any time under this Agreement, or in or under any L/C-Related Document, is incorrect in any material respect on or as of the date made or deemed made; or (c) Other Defaults. The Company fails to perform or observe any -------------- other term or covenant contained in this Agreement or any L/C-Related Document, and such default continues unremedied for a period of 30 days after written notice thereof has been given to the Company by the Agent or any Bank; or (d) Cross-Default. An event occurs under any agreement relating to ------------- Indebtedness of the Company and its Subsidiaries in excess of $5,000,000 (other than Indebtedness hereunder), the occurrence of which, with notice or lapse of time or both, would permit the holders of such Indebtedness or a trustee or agent for such holders to cause such Indebtedness to become due and payable prior to its expressed maturity, notwithstanding that such holders, trustee or agent fail to accelerate the maturity of such Indebtedness or vote to waive the effect of such event; or the maturity date of any Indebtedness of the Company and its Subsidiaries in excess of $5,000,000 (other than Indebtedness hereunder) is accelerated by the holders thereof or by a trustee or agent on their behalf. (e) Insolvency: Voluntary Proceedings. The Company or any Material --------------------------------- Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or -30- (f) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is ----------------------- commenced or filed against the Company or any Material Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or any Material Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company or any Material Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or any Material Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion or its property or business; or (g) Change of Control. There occurs any Change of Control. ----------------- 7.02 Remedies. If any Event of Default occurs, the Agent shall, at the -------- request of, or may, with the consent of, the Required Banks, (a) declare the commitment of each Issuing Bank to Issue Letters of Credit to be terminated, whereupon such commitment shall be terminated; (b) declare an amount equal to the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary has presented or is entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit) to be immediately due and payable, and all other amounts owing or payable hereunder or under any Credit Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; (c) require the Company to deposit with the Agent cash collateral in the amount of the L/C Obligations; and (d) exercise on behalf of itself and the Banks all rights and remedies available to it and the Banks hereunder and under the Credit Documents or applicable law; provided, however, that upon the occurrence of any event specified in subsection - -------- ------- (e) or (f) of Section 7.01 (in the case of clause (i) of subsection (f) upon the expiration of the 60-day period mentioned therein), the obligation of each Issuing Bank to Issue Letters of Credit shall automatically terminate and all -31- amounts as aforesaid shall automatically become due and payable without further act of the Agent or the Issuing Banks. 7.03 Rights Not Exclusive. The rights provided for in this Agreement and -------------------- the Credit Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law orin equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE VIII RELATIONS OF BANKS ------------------ 8.01 Appointment and Authorization; "Agent". (a) Each Bank hereby ------------------------------------- irrevocably (subject to Section 8.09) appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each L/C-Related Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any L/C-Related Document, together with such powers as are reasonably incidenta. thereto. Notwithstanding any provision to the contrary contained elsewhqre in this Agreement or in any L/C-Related Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any L/C-Related Document or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. (b) Each Issuing Bank shall have all of the benefits and immunities provided to the Agent in this Article VIII with respect to any acts taken or omissions suffered by such Issuing Bank in connection with Letters'of Credit Issued by it or proposed to be Issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term "Agent", as used in this Article VIII, included the Issuing Bank with respect to such acts or omissions. 9.02 Delegation of Duties. The Agent may execute any of its duties tinder -------------------- this Agreement or any L/C-Related Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall-not be responsible for the -32- negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 8.03 Liability of Agent. None of the Agent-Related Persons acting in the ------------------ capacity of Agent shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with thisAgreement or any L/C-Related Document or the. transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any L/C-Related Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any L/C-Related Document, or the validity,, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any L/C-Related Document, or for any failure of the Company or any other party to any Credit Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any L/C-Related Document, or to inspect the properties,- books or records of the Company or any of the Company's Subsidiaries or Affiliates. 8.04 Reliance by Agent. (a) The Agent shall be entitled to rely, and shall ----------------- be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any L/C-Related Document unless it first receives such advice or concurrence of the Required Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any L/C-Related Document in accordance with a request or consent of the Required Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Section 4.01, each Bank that ha's executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter -33- either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 8.05 Notice of Default. The Agent shall not be deemed to have knowledge or ----------------- notice of the occurrence of any Default or Event of Default, except with respect to (a) defaults in the payment of amounts owed in respect of Letters of Credit issued by NT&SA as an Issuing Bank and (b) fees required to be paid to the Agent for the account of the Banks, unless the Agent has received written notice from a Bank or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". The Agent will notify the Banks of its receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Banks in accordance with Article VII; provided, -------- however, that until the Agent has received any such request, the Agent may (but - ------- shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Banks. 8.06 Credit Decision. Each Bank acknowledges that none of the --------------- Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Company hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the L/C-Related Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Agent, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. -34- 8.07 Indemnification of Agent. Whether or not the transactions contemplated ------------------------ hereby are consummated, the Banks shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), pro rata, from and against any and all Indemnified Liabilities; provided, however, that no Bank shall be -------- ------- liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any L/C-Related Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Company. The undertaking in this section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent. 8.08 Agent in Individual Capacity. NT&SA and its Affiliates may make loans ---------------------------- to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though NT&SA were not the Agent or an Issuing Bank hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, NT&SA or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to its L/C Obligations, NT&&A shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent or an Issuing Bank. 8.09 Successor Asent. The Agent may, and at the request of the Required --------------- Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent resigns under this Agreement, the Required Banks shall appoint from among the Banks a successor agent for the Banks, which successor agent shall be approved by the Company. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Banks and the Company, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as -35- Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article VIII and Sections 9.04 and 9.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder until such time, if any, as the Required Banks appoint a successor agent as provided for above. 8.10 Withholding Tax. Each Bank organized under the laws of a jurisdiction --------------- other than the United States of America shall, prior to the first Issuance Date, execute and deliver to the Agent and the Company one or more copies (as the Company or the Agent may reasonably request) of United States Internal Revenue Service Form 4224 or Form 1001 or such other forms or documents, appropriately completed, as may be applicable to establish the extent, if any, to which a payment to such Bank is exempt from withholding or deduction of taxes. ARTICLE IX MISCELLANEOUS ------------- 9.01 Amendments and Waivers. No amendment or waiver of any provision of ---------------------- this Agreement, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Required Banks (or by the Agent at the written request of the Required Banks) and the Company and acknowledged by the Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or -------- ------- consent shall, unless in writing and signed by all the Banks and the Company and acknowledged by the Agent, do any of the following: (a) increase or extend the Commitment of any Bank; (b) postpone or delay any date fixed by this Agreement for any payment of amounts due to the Banks (or any of them) hereunder; c) reduce the rate of interest specified herein on any late payment of unreimbursed amounts drawn under Letters of Credit or any L/C Borrowings or reduce any fees or other amounts payable hereunder; (d) change the definition of Required Banks; or - 36 - (e) amend this Section, or Section 2.10, or any provision herein providing for consent or other action by all Banks; and, provided further, that (i) no amendment, waiver or consent, unless in -------- ------- writing and signed by all Issuing Banks in addition to the Required Banks, shall affect the rights or duties of any Issuing Bank under this Agreement relating to any Letter of Credit Issued or to be Issued by it, (ii) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Required Banks, affect the rights or duties of the Agent under this Agreement and (iii) the Fee Letters may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto. 9.02 Notices. (a) All notices, requests, consents, approvals, waivers and ------- other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Company by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 9.02 (or on Schedule 1.01, if such notice relates to Issuance of - ------------- ------------- Letters of Credit), and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered to the address or facsimile number specified for notices on Schedule 9.02 (or on Schedule 1.01, if ------------- ------------- such notice relates to Issuance of Letters of Credit); or, as directed to the Company or the Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or.faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to Article II or VIII to the Agent shall not be effective until actually received by the Agent, and notices pursuant to Article II to the Issuing Banks shall not be effective until actually received by an Issuing Bank at its address specified on Schedule 1.01. ------------- (c) Any agreement of the Agent and the Banks herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice, and the Agent and the Issuing Banks shall not have any liability to the Company or other Person on account of any action taken or not taken.by the Agent or the Issuing Banks -37- in reliance upon such telephonic or facsimile notice. The obligation of the Company to pay L/c Obligations shall not be affected in any way or to any extent by any failure by the Agent and the Issuing Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent and the Issuing Banks of a confirmation which is at variance with the terms understood by the Agent and the Banks to be contained in the telephonic or facsimile notice. 9.03 No Waiver; Cumulative Remedies. No failure to exercise and no delay in ------------------------------ exercising, on the part of the Agent or any Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 9.04 Costs and Expenses. The Company shall: ------------------ (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse NT&SA (as Agent) within five Business Days after demand (subject to subsection 4.01(e)) for all reasonable costs and expenses incurred by NT&SA as Agent in connection with the preparation, delivery, negotiation and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by NT&SA in its capacity as Agent with respect thereto; and (b) pay or reimburse the Agent and each Bank within five Business Days after demand (subject to subsection 4.0.1(e)) for all reasonable costs and expenses (including reasonable Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any L/C-Related Document during the existence of an Event of Default or after termination of the Commitments (including in connection with any "workout" or restructuring regarding the Obligations, and including in any Insolvency Proceeding or appellate proceeding). 9.05 Company Indemnification. Whether or not the transactions contemplated ----------------------- hereby are consummated, the Company shall indemnify, defend and hold the Agent-Related Persons, each Bank and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person" harmless from and against any and all withholding taxes ------------------ levied by any taxing jurisdiction in respect of payments made hereunder or pursuant to any L/C-Related Document and any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements -38- (including reasonable Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following payment of the Obligations, the termination of the Letters of Credit and the termination, resignation or replacement of the Agent or replacement of any Issuing Bank) be imposed on, incurred by or asserted against any such Person in any way relating to activities of the Company resulting in environmental liabilities or the use, transportation or storage by the Company of hazardous substances or relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement, the Letters of Credit or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the Company shall have no ----------------------- -------- obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities to the extent resulting from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this section shall survive payment of all other Obligations. 9.06 Successors and Assigns. The provisions of this Agreement shall be ---------------------- binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent and each Bank. 9.07 Assignments. (a) Any Bank may, with the written consent of the Company ----------- and the Agent, at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Company or the Agent shall be required in connection with any assignment and delegation by a Bank to an Eligible Assignee that is an Affiliate of such Bank) (each an "Assignee") all, or any -------- ratable part of all, of such Bank's Commitment, L/C Obligations and its other rights and obligations hereunder, in a minimum amount of $10,000,000; provided, -------- however, that (i) any Bank making an assignment shall have notified the Agent in - ------- writing, prior to making such assignment, of the name and address of the Assignee, the amount of the assignment and the effective date thereof and (ii) the Company and the Agent may continue to deal solely and directly with such Bank in connection with the interest so assigned to an Assignee until (A) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Agent by such Bank and the Assignee; (B) such Bank and its Assignee shall have delivered to the Company and the Agent an assignment and acceptance agreement acceptable to the Agent and the Company; and (C) the assignor Bank or Assignee has paid to the Agent a -39- processing fee in the amount of $3,000. Upon receipt by the Agent of all of the foregoing, the Agent shall modify Schedules 1.01, 2.01 and 9.02 to reflect such -------------- ---- ---- assignment and shall deliver such revised schedules to all parties hereto.The Agent shall not unreasonably withhold its consent to an assignment. The Issuance of Letters of Credit by an Affiliate of an Issuing Bank to fulfill an Issuing Banks' s Issuance Allocation shall not constitute an assignment. (b) Upon compliance with the provisions of Section 9.07(a), the Assignee shall be a party hereto and shall have the rights and obligations of a Bank or an Issuing Bank, as the case may be, under the Credit Documents. Thereupon, the Assignor Bank shall be released from its obligations under the Credit Documents to the extent of such assignment. If the Assignee is to be an Issuing Bank, the Assignee and the Company shall execute such L/C-Related Documents as requested by the Assignee and agreed to by the Company as such parties determine are necessary. (c) Notwithstanding any other provision in this Agreement, any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR (S)203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 9.08 Set-off. In addition to any rights and remedies of the Banks provided ------- by law, if an Event of Default exists or the Commitments have been terminated, each Bank is authorized at,any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Bank to or for the credit or the account of the Company against any and all Obligations owing to such Bank, now or hereafter existing, irrespective of whether or not the Agent or such Bank shall have made demand under this Agreement or any L/C-Related Document and although such Obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Company and the Agent after any Such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not -------- ------- affect the validity of such set-off and application. 9.09 Automatic Debits of Fees. The Company hereby irrevocably authorizes ------------------------ the Agent and each Issuing Bank to debit the Company's account with such Bank for all amounts drawn under Letters of Credit and all fees and other costs and expenses due and payable to each such Bank. The Agent and each Issuing Bank shall deliver an invoice to the Company showing the amount to be debited prior to effecting such debit. If there are insufficient -40- funds in such deposit accounts to cover the amount of the fee or other cost or expense then due, such debits will be reversed (in whole or in part, in such Bank's sole discretion) and such amount not debited shall be deemed to be unpaid. No such debit under this section shall be deemed a set-off. 9.10 Notification of Addresses, Offices, Etc. Each Bank shall notify the --------------------------------------- Agent in writing of any changes in the address to which notices to the Bank should be directed, of addresses of any Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 9.11 Counterparts. This Agreement may be executed in any number of separate ------------ counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 9.12 Severability. The illegality or unenforceability of any provision ------------ of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 9.13 GOVERNING LAW AND JURISDICTION. (A) THIS AGREEMENT SHALL BE GOVERNED ------------------------------ BY, AND CONSTRUED IN,ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY L/C-RELATED DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANXS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY -------------------- NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW. 9.14 WAIVER OF JURY TRIAL. THE COMPANY, THE BANKS AND THE AGENT EACH WAIVE -------------------- THEIR RESPECT,IVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS'AGREEMENT, THE L/C-RELATED DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE P,ARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, -41- PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY ARE WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE L/C-RELATED DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE L/C-RELATED DOCUMENTS. 9.15 Entire Agreement. This Agreement, together with the L/C-Related ---------------- Documents and the Fee Letters, embodies the entire agreement and understanding among the Company, the Banks and the Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in Chicago, Illinois by their proper and duly authorized officers as of the day and year first above written. SPIEGEL, INC. By: [ILLEGIBLE] ------------------------------------- Title: Treasurer ---------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: [ILLEGIBLE] ------------------------------------- Title: Vice President ---------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: [ILLEGIBLE] ------------------------------------- Title: Vice President ---------------------------------- -42- This is the final signature page to the $200,000,000 Letter of Credit Facility Agreement. THE BANK OF NEW YORK By: /s/ [ILLEGIBLE] ------------------------------------- Title: Vice President ---------------------------------- THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, CHICAGO BRANCH By: /s/ Michael C. Cutlip ------------------------------------- Michael c. Cutlip Title: Vice President --------------------------------- ABN AMRO BANK N.V., CHICAGO BRANCH By: ABN AMRO NORTH AMERICA, INC., as agent By: /s/ Thomas M. Toerpe -------------------------------- THOMAS M. TOERPE Title: VICE PRESIDENT ----------------------------- By: /s/ David C. Sagers -------------------------------- DAVID C. SAGERS Title: Vice President ----------------------------- -43- SCHEDULE 1.01 ------------- LETTER OF CREDIT OFFICES; ADDRESSES: ------------------------------------ PAYMENT INSTRUCTIONS FOR AFFILIATES ----------------------------------- BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION - ----------------------- Letter of Credit Issuance Office: - --------------------------------- Bank of America Illinois 231 S. LaSalle Street Chicago, Illinois 60697 Attention: Letters of Credit #1580 Payment Instructions: --------------------- Via FED Wire: City/St.: Chicago, Illinois ABA #: 0710-00039 In Favor Of: Bank of America Illinois Attn: L/C Department, Dorothy Smith Ref: L/C number Letter of Credit Issuance Office: - --------------------------------- Bank of America, NT&SA Hong Kong Devon House 9th Floor 979 King's Road Hong Kong Via FED Wire: City/St.: San Francisco, California A/C #: 62900-90356 In Favor Of: Bank of America NTtSA, San Francisco Bank of America NTSA, Hong Kong Ref: EBI - L/C number Letter of Credit Issuance Office: - --------------------------------- Seafirst Bank 800 - 5th Avenue 31st Floor Seattle, Washington 98104 Payment Instructions: --------------------- Via FED Wire: City/St.: Seattle, Washington ABA #: 1250-00024 In Favor Of: Federal Reserve Bank, Seattle, WA Seafirst Bank Attn: International Trade Operations, Bob Berg SCHEDULE 1.01 (continued) THE BANK OF NEW YORK - -------------------- Letter of credit Issuance office: - --------------------------------- The Bank of New York 101 Barclay Street New York, New York 10286 Payment Instructions: --------------------- Via FED Wire: City/St.: New York, New York ABA #: 021000018 In Favor Of: The Bank of New York Attn: Trade Services Division GLA #111115 Ref: Borrowers Name L/C # ie: fee period THE HONGKONG AND SHANGHAI - ------------------------- BANKING CORPORATION LIMITED - --------------------------- U.S. Letter of Credit Issuance Office: - -------------------------------------- The Hongkong and Shanghai Banking Corporation Limited 140 Broadway New York, New York 10005 Attention: TBA Telephone: ______________________ Facsimile: ______________________ Payment Instructions - U.S. [To Be Provided] -------------------- Hong Kong Letter of Credit Issuance Office: - ------------------------------------------ The Hongkong and Shanghai Banking Corporation Limited Import/Export Department, Division 7 One Queen's Road Central, Level 19 Hong Kong Attention: Bill Susinski, Division Manager, Division 7 Telephone: 2822-4335 Facsimile: 2877-0565 Payment Instructions: - --------------------- Via FED Wire: City/St.: In Favor Of: [To Be Provided] -2- SCHEDULE 1.01 (continued) ABN AMRO BANK N.V., - -------------------- actinq through its - ------------------- Chicago Branch - -------------- Letter of Credit Issuance Office: - -------------------------------- Trade Services Department ABN AMRO Bank N.V. Chicago Branch 135 S. LaSalle Street Suite 625 Chicago, Illinois 60674-9135 Attention: Irene Pazik Telephone: (312) 904-6323 Facsimile: (312) 606-8435 Payment Instructions: -------------------- Via FED Wire: City/St.: New York, New York ABA #: 026009580 In Favor Of: ABN AMRO Bank N.V. - Chicago Branch Account No.: 651-0-010111-42 Ref: Spiegel, Inc. & type of payment being made: fees, interest, etc. -3- SCHEDULE 2.01 ------------- COMMITMENTS ----------- AND PRO RATA SHARES ------------------- Pro Rata Bank Commitment Share ---- ---------- ----- Bank of America National Trust and Savings Association $ 50,000,000 25% The Bank of New York $ 50,000,000 25% The Hongkong and Shanghai Banking Corporation Limited $ 50,000,000 25% ABN AMRO Bank N.V., acting through its Chicago Branch $ 50,000,000 25% ------------ TOTAL $200,000,000 100% SCHEDULE 5.05 ------------- LITIGATION ---------- None SCHEDULE 9.02 ------------- OFFICES OF BANKS, ADDRESSES FOR NOTICES --------------------------------------- BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION, - ----------------------- as Agent Bank of America National Trust and Savings Association Agency Administrative Services #5596 1455 Market Street, 13th Floor San Francisco, California 94103 Attention: Agency Manager, Vice President Telephone: (415) 436-2788 Facsimile: (415) 436-2700 AGENT'S OFFICE TO RECEIVE PAYMENTS: - ---------------------------------- Bank of America National Trust and Savings Association San Francisco, California 94103 ABA Routing No.: 121-000-358 Bancontrol Acct. No.: 12335-15205 Reference: Spiegel, Inc. BANK OF AMERICA NATIONAL TRUST - ------------------------------- AND SAVINGS ASSOCIATION - ----------------------- Bank of America National Trust and Savings Association 231 South LaSalle Street Chicago, Illinois 60697 Attention: M.A. Detrick USCG CP-Mideast Telephone: (312) 828-5201 Facsimile: (312) 987-1276 with a copy of any notices to: Bank of America National Trust and Savings Association International Trade Bank 231 South LaSalle Street Chicago, Illinois 60697 Attention: Mela Maggi Telephone: (312) 828-3183 Facsimile: (312) 987-3362 SCHEDULE 9.02 (continued) THE BANK OF NEW YORK - -------------------- The Bank of New York One Wall Street, 8th Floor New York, New York 10286 Retailing Industry Division Attention: Michael Flannery Telephone: (212) 635-7885 Facsimile: (212) 635-1481/1483 Nancy Loiacono Telephone: (212) 635-7879 Facsimile: (212) 635-1481/1483 Diane Burgess Telephone: (212) 635-1366 Facsimile: (212) 635-1481/1483 Madlyn Myrick Telephone: (212) 635-1311 Facsimile: (212) 635-1481/1483 Payment Instructions: - -------------------- Via FED Wire: City/St.: New York, New York ABA #: 021000018 In Favor Of: The Bank of New York Commercial Loans Servicing Department GLA #111556 Ref: Borrowers Name ie: principal, interest, fees -2- SCHEDULE 9.02 (continued) THE HONGKONG AND SHANGHAI BANKING - --------------------------------- BANKING CORPORATION LIMITED - --------------------------- Payment Instructions: - -------------------- Via FED Wire: City/St.: Chicago, Illinois. ABA #: 0710-0205-3 In Favor Of: The Hongkong and Shanghai Banking Corporation Limited Reference: Spiegel LC Facility Address for Notices: - ------------------- The Hongkong and Shanghai Banking Corporation Limited 190 S. LaSalle Street, Suite 1100 Chicago, Illinois 60603' Attention: Michael C. Cutlip, Vice President Telephone: (312) 853-3852 Facsimile: (312) 853-3855 ABN AMRO BANK N-V., - ------------------- acting through its Chicago Branch ABN AMRO Bank N.V. 135 S. LaSalle Street Suite 625 Chicago, Illinois 60674-9135 Attention: Laurie D. Flom Telephone: (312) 904-2682 Facsimile: (312) 606-9425 with a copy of any notices to: ABN AMRO Bank N.V. 135 S. LaSalle Street Suite 625 Chicago, Illinois 60674-9135 Attention: Loan Administration Telephone: (312) 904-2691 Facsimile: (312) 606-8435 -3- NOTICE OF CHANGE IN ISSUING BANKS, ISSUANCE ALLOCATIONS AND/OR TENOR ALLOCATIONS [Date] [Agent] [Agent's Address] Ladies and Gentlemen: Reference is made to that certain Letter of Credit Facility Agreement, dated as September 27, 1996 (as amended from time the time the "Agreement"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Agreement. Pursuant to Section 2.13. of the Agreement, the undersigned hereby notifies you that as of _______________, 19__ [which date must be not less than two Business Days prior to the effective date of the change], (1) the Banks listed below are being added as Issuing Banks or are ceasing to be issuing Banks and (2) the Issuance Allocations and the Tenor Allocations of the Issuing Banks under the Agreement shall be changed as set forth below: Change in Issuing Banks ----------------------- Banks Being Added Banks Ceasing to as Issuing Banks be Issuing Banks - ----------------- ---------------- Issuance Allocation ------------------- Names of Issuing Banks New Issuance Allocation - ---------------------- ----------------------- Tenor Allocation ---------------- Names of Issuing Banks New Tenor Allocation - ---------------------- -------------------- EXHIBIT A Page 1 of 2 [Agent] [Date] Each Bank should sign where indicated below and return a signed copy of this notification to the Agent within 24 hours, after notifying the Agent by telephone (within 24 hours) of its intent to so deliver such signed copy. Yours very truly, SPIEGEL, INC. By:_______________________ Title:____________________ * * * * * * * * _______________________________________ an Issuing Bank named above as having a changed Issuance Allocation and/or Tenor Allocation, hereby confirms its modified Issuance Allocation and/or Tenor Allocation as set forth above. ____________________________ [NAME OF ISSUING BANK] By:_________________________ Title:______________________ _______________________________________, a Bank party to the Agreement, hereby [agrees to become an Issuing Bank and] confirms the modified Issuance Allocations and Tenor Allocations set forth above. ____________________________ [NAME OF BANK] By:_________________________ Title:______________________ EXHIBIT A Page 2 of 2 To each of the Banks parties to the Letter of Credit Facility Agreement hereinafter referred to and to Bank of America National Trust and Savings Association as Agent for the Banks September ____, 1996 Re: Letter of Credit Facility Agreement, dated as of September 26, 1996 Ladies and Gentlemen: I am the General counsel of Spiegel, Inc., a Delaware corporation (the, "Company"), and have acted as counsel to the Company in connection with the ------- negotiation, execution and de1ivery of the Letter of Credit Facility Agreement, dated as of September 26, 1996 (the "Agreement"), among the Company, --------- the various financial institutions which are or may become parties thereto (collectively, the "Banks"), and Bank of America National Trust and Savings ----- Association, the Agent. Unless otherwise defined herein, capitalized terms used herein shall have the meanings assigned to such terms in the Agreement. I am familiar with the corporate proceedings taken by the Company in connection with the foregoing agreements and documents and the transactions contemplated thereby. In addition, I have examined such corporate records, certificates and other documents and such questions of law as I have considered necessary or appropriate for the basis of the opinions hereinafter expressed. As to certain factual matters, I have relied, where I deemed appropriate, upon information provided to me by other officers and employees of the Company. In making the examination of all documents and agreements in connection with the opinions pressed herein, I have assumed the genuineness of all signatures and authenticity of all documents submitted to me as originals and the conformity with the originals of all documents submitted to me as copies. I have further assumed that the documents which are the subject of this opinion letter constitute legal, valid and binding obligations of the parties thereto other than the Company, and that all such other parties have taken or obtained EXHIBIT B Page 1 of 3 all actions, consents and approvals required in connection with their execution, delivery and performance of such documents. Based upon, and subject to, the foregoing, I am of the opinion that: 1. The Company is a corporation validly existing and in good standing under the laws of the State of Delaware. The Company is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction where its ownership or leasing of real estate, ownership of substantial assets other than real estate, conduct of substantial business, or location of employees require it to be so qualified and where the failure so to qualify would reasonably be expected to have a Material Adverse Effect. 2. Each Subsidiary is a corporation validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each Subsidiary is duly qualified in good standing as a foreign corporation authorized to do business in each jurisdiction where its ownership or leasing of real estate, ownership of substantial assets other than real estate, conduct of substantial business, or location of employees require it to be so qualified and where the failure so to qualify would reasonably be expected to have a Material Adverse Effect. 3. The Company has full corporate power and authority to own and operate its properties and assets, carry on its business as currently conducted, and enter into and perform its obligations under the Agreement and each other L/C Related Document executed by it. 4. Each Subsidiary has full corporate power and authority to own and operate its properties and assets, carry on its business as currently conducted, and enter into and perform its obligations under the L/C Related Documents. 5. There is no provision in the articles or certificate of incorporation or the by-laws of the Company, nor any provision in any document evidencing any Contractual Obligation known to me after due inquiry to which the Company is a party or by which it or any of its properties may be bound, nor any writ, order or decision known to me after due inquiry of any court or governmental instrumentality binding on the Company which would be contravened by the execution and delivery by the Company of the Agreement or the other L/C Related Documents to which the Company is a party, nor do any of the foregoing prohibit performance by the Company of any term, provision, condition, covenant or EXHIBIT B Page 2 of 3 my other obligation of the Company contained therein. To the best of my knowledge after due inquiry, the execution and delivery by the Company of the Agreement and each such other L/C Related Document and the performance thereof and borrowing thereunder by the Company will not i) result in or require the creation or imposition of any Lien in any of its properties pursuant to the provisions of any document evidencing any Contractual Obligation binding on the Company, nor ii) violate any Requirement of Law. 6. Except as described in Schedule 5.05 of the Agreement, to the best of my knowledge after due inquiry, there are no actions, suits, claims, disputes or proceedings pending, or to the best of my knowledge, threatened against the Company or any Subsidiary before any court, arbitrator or Governmental Authority which i) purport to affect or pertain to the Agreement or any L/C Related Document or the transactions contemplated thereby, or ii) if determined adversely to the Company or its Subsidiaries would reasonably be expected to have a Material Adverse Effect. 7. Neither the making nor the performance of the Aqreement or any L/C Related Document by the Company requires any authorization, exemption, action, consent or approval of any Governmental Authority known to me after due inquiry. I am licensed to practice law only in the State of Illinois and, accordingly, the foregoing opinions are limited solely to the laws of the State of Illinois (other than the laws, regulations and ordinances of political subdivisions thereof, as to which no opinion is given), the Delaware General Corporation Law, and applicable federal laws of the United States. This opinion letter is being furnished to the Agent and the Banks and their respective permitted assignees and participants for their use and the use of their respective counsel, solely in connection with the transactions occurring on the date hereof under the Agreement. No other use of this opinion may be made without my prior written consent. I undertake no obligation to update any matter herein. Very truly yours, Michael R. Moran EXHIBIT B Page 3 of 3 EX-10.20 20 dex1020.txt LETTER OF CREDIT FACILITY AGREEMENT 3/27/1999 Exhibit 10.20 FIRST AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT dated as of March 7, 1997 between SPIEGEL, INC. and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent, and VARIOUS FINANCIAL INSTITUTIONS FIRST AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT THIS FIRST AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT, dated as of March 7, 1997 (this "Amendment"), among SPIEGEL, INC., a Delaware corporation (the "Company"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("NT&SA"); THE BANK OF NEW YORK ("BONY"); THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED ("HKSB"); ABN AMRO BANK N.V., acting through its Chicago Branch ("ABN") and any other financial institutions from time to time party thereto (collectively, the "banks" and, individually, a "bank"), and NT&SA, as agent, for the Banks (in such capacity, the "Agent"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Company, the Agent and the Banks entered into that certain Letter of Credit Facility Agreement, dated as of September 27, 1996 (the "Existing Agreement"); and WHEREAS, the parties to the Existing Agreement wish to amend the Existing Agreement (the Existing Agreement as amended by this Amendment being the "Amended Agreement") as provided in this Amendment. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 AMENDMENT. effective on (and subject to the occurrence of) the Amendment Effective Date (as defined in Section 2 of this Amendment), the --------- Existing Agreement shall be amended in accordance with this Section 1. --------- SECTION 1.1 Article VI. Article VI of the Existing Agreement is amended by ---------- inserting the following clause as section 6.06: 6.06 Subsidiary L/C Guaranty. The Obligations (as defined herein) ------------------------ shall be guaranteed by the same Subsidiaries of the Company that, as of March 7, 1997 or at any time in certain Revolving Credit Agreement, dated as of March 27, 1996, as amended as of December 27, 1996 and as of March 7, 1997, among the Company, the various financial institutions thereto and Deutsche Bank AG New York Branch, as Administrative Agent (the "Revolving Credit Agreement")) under such Revolving Credit Agreement pursuant to the Guaranty (as defined in such Revolving Credit Agreement); provided, that -------- the terms of the guaranty required hereby shall be substantially the same as the Guaranty. The guaranty required hereby (the "Subsidiary L/C Guaranty") shall be a Credit Document. 1 SECTION 2 EFFECTIVENESS. The amendment set forth in Section 1 above shall --------- become effective, as of the day and year first above written, on such date (the "Amendment Effective Date") when the Agent and the Company shall have received ------------------------ counterparts of this Amendment executed on behalf of the Company and the Required Banks and when each of the following conditions precedent shall have been satisfied: SECTION 2.1 Resolutions, etc. The Agent shall have received certificates, ---------------- dated the Amendment Effective Date, of an authorized officer of: (a) the Company certifying the resolutions of the Board Committee of the Company then in full force and effect authorizing the execution, delivery and performance of this Amendment, (b) the Company certifying the incumbency and signatures of those officers of the Company authorized to act on behalf of the Company with respect to this Amendment, (c) each Subsidiary, as referred to in Section 2.2 below, certifying the resolutions of the Board of Directors of the Subsidiary then in full force and effect authorizing the execution, delivery and performance of the Subsidiary L/C Guaranty, as defined in Section 2.2 below, and (d) each Subsidiary, as referred to in Section 2.2 below, certifying the incumbency and signatures of those officers of the Subsidiary authorized to act on behalf of the Subsidiary with respect to the Subsidiary L/C Guaranty. SECTION 2.2 Subsidiary L/C Guaranty. The Agent, on behalf of the Banks, ----------------------- shall have received a Subsidiary L/C Guaranty by any Subsidiary, previously or as of the Amendment Effective Date, guarantying the obligations (as defined in the Revolving Credit Agreement) under such Revolving Credit Agreement, which Subsidiary L/C Guaranty required hereby is in the form attached hereto as Exhibit A and dated the date hereof. SECTION 2.3 Effectiveness of Amendment to Revolving Credit Agreement. The -------------------------------------------------------- Agent shall have received evidence satisfactory to the Agent that the Second Amendment to the Revolving Credit Agreement is effective. SECTION 3 REPRESENTATIONS AND WARRANTIES SECTION 3.1 In order to further induce the Banks to agree to amend the Existing Agreement, the Company makes the following representations and warranties, which shall survive the execution and delivery of this Amendment: 2 (a) No Event of Default has occurred and is continuing; and (b) Each of the representations and warranties set forth in Article V of the Existing Agreement are true and correct as though such representations and warranties were made at and as of the Amendment Effective Date (as defined in Section 2 above) except to the extent that any such representations or warranties are made as of a specified date or with respect to a specified period of time, in which case, such representations and warranties shall be made as of such specified date or with respect to such specified period. Each of the representations and warranties made under the Existing Agreement shall survive to the extent provided therein and not be waived by the execution and delivery of this Amendment. SECTION 4 MISCELLANEOUS PROVISIONS SECTION 4.1 Severability. Any provision of this Amendment or any other ------------ Credit Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or such Credit Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 4.2 Execution in Counterparts; Notice. This Amendment may be --------------------------------- executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SECTION 4.3 Governing Law; Entire Agreement. THIS AMENDMENT SHALL BE ------------------------------- CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO THE BANK. This Amendment, the Amended Agreement, the Subsidiary L/C Guaranty and the other Credit Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto and except as amended hereby remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 4.4 Reference to Existing Agreement. On and after the Amendment ------------------------------- Effective Date, each reference in the "herein" or words of like import, and each reference to the Existing Agreement in any subsidiary L/C Guaranty, L/C-Related Document or in any other Credit Document, or other agreements, documents or instruments executed and delivered pursuant to the Existing Agreement, shall be deemed a reference to the Amended Agreement. 3 SECTION 4.5 Successors and Assigns. This Amendment shall be binding upon ---------------------- and shall insure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Company may not assign or -------- ------- transfer its rights or obligations hereunder without the prior written consent of the Agent and each Bank. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. SPIEGEL, INC. By: /s/ John R. Steele ---------------------------------- Name Printed: John R. Steele Title: Treasurer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATIONS, as Agent By: /s/ M A Detrick ---------------------------------- Name Printed: M A Detrick --------------------- Title: Vice President ---------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: /s/ M A Detrick ---------------------------------- Name Printed: M A Detrick --------------------- Title: Vice President ---------------------------- THE BANK OF NEW YORK By: ---------------------------------- Name Printed: --------------------- Title: ---------------------------- 4 SECTION 4.5 Successors and Assigns. This Amendment shall be binding upon ---------------------- and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Company may not assign or -------- ------- transfer its rights or obligations hereunder without the prior written consent of the Agent and each Bank. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. SPIEGEL, INC. By: /s/ John R. Steele ---------------------------------- Name Printed: John R. Steele Title: Treasurer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: ---------------------------------- Name Printed: --------------------- Title: ---------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: ---------------------------------- Name Printed: --------------------- Title: ---------------------------- THE BANK OF NEW YORK By: /s/ Michael V. Flannery ---------------------------------- Name Printed: Michael V. Flannery --------------------- Title: Vice President ---------------------------- 4 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, CHICAGO BRANCH By: /s/ Michael C. Cutlip ---------------------------------- Name Printed: Michael C. Cutlip --------------------- Title: Vice President ---------------------------- ABN AMRO BANK N.V., CHICAGO BRANCH BY: ABN AMRO NORTH AMERICA, INC., as Agent By: ---------------------------------- Name Printed: --------------------- Title: ---------------------------- By: ---------------------------------- Name Printed: --------------------- Title: ---------------------------- Attachment: Exhibit A - Subsidiary L/C Guaranty 5 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, CHICAGO BRANCH By: ---------------------------------- Name Printed: --------------------- Title: ---------------------------- ABN AMRO BANK N.V., CHICAGO BRANCH BY: ABN AMRO NORTH AMERICA INC., as Agent By: /s/ Laurie D. Flom ---------------------------------- Name Printed: Laurie D. Flom --------------------- Title: Vice President ---------------------------- By: /s/ Nancy L. Capeco ---------------------------------- Name Printed: Nancy L. Capeco --------------------- Title: Assistant Vice President ---------------------------- Attachment: Exhibit A - Subsidiary L/C Guaranty 5 EX-10.21 21 dex1021.txt 2ND AMENDMENT TO LTR OF CREDIT FACILITY AGREEMENT Exhibit 10.21 SECOND AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT THIS SECOND AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT, dated as of September 5, 1997 (this "Amendment"), among SPIEGEL, INC., a Delaware corporation (the "Company"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("NT&SA") THE BANK OF NEW YORK ("BONY"); THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED ("HKSB"); ABN AMRO BANK N. V., acting through its Chicago Branch ("ABN") and any other financial institutions from time to time party thereto (collectively, the "Banks" and, individually, a "Bank"), and NT&SA, as agent, for the Banks (in such capacity, the "Agent"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Company, the Agent and the Banks entered into that certain Letter of Credit Facility Agreement, dated as of September 27, 1996 and amended on March 7, 1997 (the "Existing Agreement"); and WHEREAS, the parties to the Existing Agreement wish to amend the Existing Agreement (the Existing Agreement as amended by this Amendment being the "Amended Agreement") as provided in this Amendment. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 AMENDMENT. Effective on (and subject to the occurrence of) the Amendment Effective Date (as defined in Section 2 of this Amendment), the --------- Existing Agreement shall be amended in accordance with this Section 1. --------- SECTION 1.1. Section 1.01 of the Existing Agreement is hereby amended by inserting the following sentence at the end of the definition of "Issuance Allocation" and "Tenor Allocation": "It is understood and agreed that any modifications or changes to the Issuance Allocations and Tenor Allocations shall be made only once every fourteen calendar days." SECTION 1.2. Section 1.01 of the Existing Agreement is amended by deleting "September 26, 1997" where it appears in the definition of "Termination Date" and inserting "September 25, 1998". SECTION 1.3. Section 2.01 (b) (iii) of the Existing Agreement is amended by deleting "June 23, 1998" and inserting in its place "June 22 following the Termination Date". -1- SECTION 2 EFFECTIVENESS. The amendment set forth in Section 1 above shall --------- become effective, as of the day and year first above written, on such date (the "Amendment Effective Date") when the Agent and the Company shall have received - --------------------------- counterparts of this Amendment executed on behalf of the Company and the Required Banks. SECTION 3 REPRESENTATIONS AND WARRANTIES. SECTION 3.1. In order to further induce the Banks to agree to amend the Existing Agreement, the Company makes the following representations and warranties, which shall survive the execution and delivery of this Amendment: (a) No Event of Default has occurred and is continuing; and (b) Each of the representations and warranties set forth in Article V of the Existing Agreement are true and correct as though such representations and warranties were made at and as of the Amendment Effective Date (as defined in Section 2 above) except to the extent that any such representations or warranties are made as of a specified date or with respect to a specified period of time, in which case, such representations and warranties shall be made as of such specified date or with respect to such specified period. Each of the representations and warranties made under the Existing Agreement shall survive to the extent provided therein and not be waived by the execution and delivery of this Amendment. SECTION 4 MISCELLANEOUS PROVISIONS. SECTION 4.1 Severability. Any provision of this Amendment or any other ------------ Credit Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or such Credit Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 4.2 Execution in Counterparts; Notice. This Amendment may be --------------------------------- executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SECTION 4.3 Governing Law; Entire Agreement. THIS AMENDMENT SHALL BE ------------------------------- CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO THE BANK. This Amendment, the Amended Agreement, the Subsidiary L/C Guaranty and the other Credit Documents constitute the entire understanding among the parties hereto with respect to the subject matter of hereof and supersede any prior agreements, written or oral, with respect thereto and except as amended hereby remain in full force and effect and are hereby ratified and confirmed in all respects. -2- SECTION 4.4 Reference to Existing Agreement. On and after the Amendment ----------------------------------- Effective Date, each reference in the "herein" or words of like import, and each reference to the Existing Agreement in any Subsidiary L/C Guaranty, L/C-Related Document or in any other Credit Document, or other agreements, documents or instruments executed and delivered pursuant to the Existing Agreement, shall be deemed a reference to the Amended Agreement. SECTION 4.5 Successors and Assigns. This Amendment shall be binding upon ---------------------- and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Company may not assign or -------- ------- transfer its rights or obligations hereunder without the prior written consent of the Agent and each Bank. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. SPIEGEL, INC. By: /S/ JOHN R. STEELE -------------------------------------- Name Printed: JOHN R. STEELE -------------- Title: ______________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: _____________________________________ Name Printed: _______________________ Title: ______________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: _____________________________________ Name Printed: _______________________ Title: ______________________________ THE BANK OF NEW YORK By: _____________________________________ Name Printed: _______________________ Title: ______________________________ -3- SECTION 4.4 Reference to Existing Agreement. On and after the Amendment ------------------------------- Effective Date, each reference in the "herein" or words of like import, and each reference to the Existing Agreement in any Subsidiary L/C Guaranty, L/C-Related Document or in any other Credit Document, or other agreements, documents or instruments executed and delivered pursuant to the Existing Agreement, shall be deemed a reference to the Amended Agreement. SECTION 4.5 Successors and Assigns. This Amendment shall be binding upon ---------------------- and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Company may not assign or -------- ------- transfer its rights or obligations hereunder without the prior written consent of the Agent and each Bank. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. SPIEGEL, INC. By: _____________________________________ Name Printed: _______________________ Title: ______________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: /s/ Sandra S. Ober ------------------------------------- Name Printed: Sandra S. Ober ----------------------- Title: Vice President ------------------------------ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: /s/ Sandra S. Ober ------------------------------------- Name Printed: Sandra S. Ober ----------------------- Title: Vice President ------------------------------ THE BANK OF NEW YORK By: _____________________________________ Name Printed: _______________________ Title: ______________________________ -3- SECTION 4.4 Reference to Existing Agreement. On and after the Amendment ------------------------------- Effective Date, each reference in the "herein" or words of like import, and each reference to the Existing Agreement in any Subsidiary L/C Guaranty, L/C-Related Document or in any other Credit Document, or other agreements, documents or instruments executed and delivered pursuant to the Existing Agreement, shall be deemed a reference to the Amended Agreement. SECTION 4.5 Successors and Assigns. This Amendment shall be binding upon ---------------------- and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Company may not assign or -------- ------- transfer its rights or obligations hereunder without the prior written consent of the Agent and each Bank. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. SPIEGEL, INC. By: _____________________________________ Name Printed: _______________________ Title: ______________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: _____________________________________ Name Printed: _______________________ Title: ______________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: _____________________________________ Name Printed: _______________________ Title: ______________________________ THE BANK OF NEW YORK By: /S/ Michael Flanhcy ------------------------------------- Name Printed: Michael Flanhcy ----------------------- Title: Vice President ------------------------------ -3- THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By: /S/ MICHAEL C CUZIP ------------------------------------- Name Printed: MICHAEL C CUZIP ----------------------- Title: VICE PRESIDENT ------------------------------ ABN AMRO BANK N. V., CHICAGO BRANCH By: ABN AMRO NORTH AMERICA, INC., as agent By: _____________________________________ Name Printed: _______________________ Title: ______________________________ By: _____________________________________ Name Printed: _______________________ Title: ______________________________ -4- THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By: _____________________________________ Name Printed: _______________________ Title: ______________________________ ABN AMRO BANK N. V., CHICAGO BRANCH By: ABN AMRO NORTH AMERICA, INC., as agent By: /S/ LAURIE D. FLOM ------------------------------------- Name Printed: LAURIE D. FLOM ----------------------- Title: VICE PRESIDENT ------------------------------ By: /S/ John M. Ellenwood ------------------------------------- Name Printed: John M. Ellenwood ----------------------- Title: Group Vice President ------------------------------ -4- EX-10.22 22 dex1022.txt 3RD AMENDMENT TO LTR OF CREDIT FACILITY AGREEMENT Exhibit 10.22 THIRD AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT THIS THIRD AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT, dated as of September 25, 1998 (this "Amendment"), among SPIEGEL, INC., a Delaware corporation (the "Company"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("NT&SA"); THE BANK OF NEW YORK ("BONY"); THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED ("HKSB"); ABN AMRO BANK N.V., acting through its Chicago Branch ("ABN") and any other financial institutions from time to time party thereto (collectively, the "Banks" and, individually, a "Bank"), and NT&SA, as agent, for the Banks (in such capacity, the "Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company, the Agent and the Banks entered into that certain Letter of Credit Facility Agreement, dated as of September 27, 1996 as amended from time to time (the "Existing Agreement"); and WHEREAS, the parties to the Existing Agreement wish to amend the Existing Agreement (the Existing Agreement as amended by this Amendment being the "Amended Agreement") as provided in this Amendment. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 AMENDMENT. Effective on (and subject to the occurrence of) the Amendment Effective Date (as defined in Section 2 of this Amendment), the --------- Existing Agreement shall be amended in accordance with this Section 1. --------- SECTION 1.1. Section 1.01 of the Existing Agreement is amended by deleting "September 25, 1998" where it appears in the definition of "Termination Date" and inserting "September 24, 1999". SECTION 2 EFFECTIVENESS. The amendment set forth in Section 1 above shall --------- become effective, as of the day and year first above written, on such date (the "Amendment Effective Date") when the Agent and the Company shall have received - --------------------------- counterparts of this Amendment executed on behalf of the Company and the Required Banks. SECTION 3 REPRESENTATIONS AND WARRANTIES. SECTION 3.1. In order to further induce the Banks to agree to amend the Existing Agreement, the Company makes the following representations and warranties, which shall survive the execution and delivery of this Amendment: (a) No Event of Default has occurred and is continuing; and (b) Each of the representations and warranties set forth in Article V of the Existing Agreement are true and correct as though -1- such representations and warranties were made at and as of the Amendment Effective Date (as defined in Section 2 above) except to the extent that any such representations or warranties are made as of a specified date or with respect to a specified period of time, in which case, such representations and warranties shall be made as of such specified date or with respect to such specified period. Each of the representations and warranties made under the Existing Agreement shall survive to the extent provided therein and not be waived by the execution and delivery of this Amendment. SECTION 4 MISCELLANEOUS PROVISIONS. SECTION 4.1 Severability. Any provision of this Amendment or any other ------------ Credit Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or such Credit Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 4.2 Execution in Counterparts; Notice. This Amendment may be --------------------------------- executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SECTION 4.3 Governing Law: Entire Agreement. THIS AMENDMENT SHALL BE ------------------------------- CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO THE BANK. This Amendment, the Amended Agreement, the Subsidiary L/C Guaranty and the other Credit Documents constitute the entire understanding among the parties hereto with respect to the subject matter of hereof and supersede any prior agreements, written or oral, with respect thereto and except as amended hereby remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 4.4 Reference to Existing Agreement. On and after the Amendment ------------------------------- Effective Date, each reference in the "herein" or words of like import, and each reference to the Existing Agreement in any Subsidiary L/C Guaranty, L/C-Related Document or in any other Credit Document, or other agreements, documents or instruments executed and delivered pursuant to the Existing Agreement, shall be deemed a reference to the Amended Agreement. SECTION 4.5 Successors and Assigns. This Amendment shall be binding upon ---------------------- and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided however, that the Company may not assign or -------- ------- transfer its rights or obligations hereunder without the prior written consent of the Agent and each Bank. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. -2- SPIEGEL, INC. By: /S/ _______________________________________ Name Printed: JOHN R. STEELE _____________________ Title: Treasure: ____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: _______________________________________ Name Printed: ______________________ Title: _____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: _______________________________________ Name Printed: ______________________ Title: _____________________________ THE BANK OF NEW YORK By: _______________________________________ Name Printed: ______________________ Title: _____________________________ THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By: _______________________________________ Name Printed: ______________________ Title: _____________________________ ABN AMRO BANK N.V., CHICAGO BRANCH By: ABN AMRO NORTH AMERICA, INC., as agent By: _______________________________________ Name Printed: ______________________ Title: _____________________________ By: _______________________________________ Name Printed: ______________________ Title: _____________________________ -3- SPIEGEL, INC. By: _______________________________________ Name Printed: ______________________ Title: _____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: /s/ Sandra S. Ober _______________________________________ Name Printed: /s/ Sandra S. Ober _______________________ Title: Managing Director _____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: /s/ Sandra S. Ober _______________________________________ Name Printed: /s/ Sandra S. Ober _______________________ Title: Managing Director _____________________________ THE BANK OF NEW YORK By: _______________________________________ Name Printed: ______________________ Title: _____________________________ THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By: _______________________________________ Name Printed: ______________________ Title: _____________________________ ABN AMRO BANK N.V., CHICAGO BRANCH By: ABN AMRO NORTH AMERICA, INC., as agent By: _______________________________________ Name Printed: ______________________ Title: _____________________________ By: _______________________________________ Name Printed: ______________________ Title: _____________________________ -3- SPIEGEL, INC. By: _______________________________________ Name Printed: ______________________ Title: _____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: _______________________________________ Name Printed: ______________________ Title: _____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: _______________________________________ Name Printed: ______________________ Title: _____________________________ THE BANK OF NEW YORK By: /S/ XXXXXX _______________________________________ Name Printed: XXXXXX _______________________ Title: XXXXXX _____________________________ THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By: _______________________________________ Name Printed: ______________________ Title: _____________________________ ABN AMRO BANK N.V., CHICAGO BRANCH By: ABN AMRO NORTH AMERICA, INC., as agent By: _______________________________________ Name Printed: ______________________ Title: _____________________________ By: _______________________________________ Name Printed: ______________________ Title: _____________________________ -3- SPIEGEL, INC. By: _______________________________________ Name Printed: ______________________ Title: _____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: _______________________________________ Name Printed: ______________________ Title: _____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: _______________________________________ Name Printed: ______________________ Title: _____________________________ THE BANK OF NEW YORK By: _______________________________________ Name Printed: ______________________ Title: _____________________________ THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By: /S/ XXXXXX _______________________________________ Name Printed: Michael C Cutlip _____________________ Title: VP ____________________________ ABN AMRO BANK N.V., CHICAGO BRANCH By: ABN AMRO NORTH AMERICA, INC., as agent By: _______________________________________ Name Printed: ______________________ Title: _____________________________ By: _______________________________________ Name Printed: ______________________ Title: _____________________________ -3- SPIEGEL, INC. By: _______________________________________ Name Printed: ______________________ Title: _____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: _______________________________________ Name Printed: ______________________ Title: _____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: _______________________________________ Name Printed: ______________________ Title: _____________________________ THE BANK OF NEW YORK By: _______________________________________ Name Printed: ______________________ Title: _____________________________ THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By: _______________________________________ Name Printed: ______________________ Title: _____________________________ ABN AMRO BANK N.V., CHICAGO BRANCH By: ABN AMRO NORTH AMERICA, INC., as agent By: /s/ XXXXXX _______________________________________ Name Printed: FREDERICK P ENGIER _____________________ Title: GROUP VICE PRESIDENT ___________________________ By: /s/ XXXXXX _______________________________________ Name Printed: /s/ XXXXXX _____________________ Title: MARY L. HONDA ____________________________ VICE PRESIDENT -3- EX-10.23 23 dex1023.txt 4TH AMENDMENT TO LTR OF CREDIT FACILITY AGREEMENT Exhibit 10.23 FOURTH AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT THIS FOURTH AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT, dated as of September 24, 1999 (this "Amendment"), among SPIEGEL, INC., a Delaware corporation (the "Company"), Bank of America, National Association (formerly known as Bank of America National Trust and Savings Association) ("Bank of America"); THE BANK OF NEW YORK ("BONY"); THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED ("HKSB"); ABN AMRO BANK N.V., acting through its Chicago Branch ("ABN") and any other financial institution from time to time party thereto (collectively, the "Banks" and, individually, a "Bank"), and NT&SA, as agent, for the Banks (in such capacity, the "Agent"). W I T N E S S E T H - - - - - - - - - - WHEREAS, the Company, the Agent and the Banks entered into that certain Letter of Credit Facility Agreement, dated as of September 27, 1996 as amended from time to time (the "Existing Agreement"); and WHEREAS, the parties to the Existing Agreement wish to amend the Existing Agreement (the Existing Agreement as amended by this Amendment being the "Amended Agreement") as provided in this Amendment. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 AMENDMENT. Effective on (and subject to the occurrence of) the Amendment Effective Date (as defined in Section 2 of this Amendment), the --------- Existing Agreement shall be amended in accordance with this Section 1. --------- SECTION 1.1 Section 1.01 is hereby amended by deleting the definition of the "Revolving Credit Agreement" and substituting: "Revolving Credit Agreement" means that certain First Amended -------------------------- and Restated Revolving Credit Agreement, dated July 27, 1999 as may be amended from time to time, among the Company, various financial institutions as lenders and Deutsche Bank AG New York Branch as the Administrative Agent." SECTION 1.2. Section 1.01 of the Existing Agreement is amended by deleting "September 24, 1999" where it appears in the definition of "Termination Date" and inserting "September 22, 2000". SECTION 1.3 Section 2.01(b)(iii) is hereby deleted and the following Section 2.01(b)(iii) shall be substituted: "(iii) the expiry date of any requested Letter of Credit is more than 180 days after the date of Issuance, provided, however, that up to $20,000,000 of Letters of Credit may expire up to 364 days after the date of Issuance; or" SECTION 2 EFFECTIVENESS. The amendment set forth in Section 1 above shall --------- become effective, as of the day and year first above written, on such date (the "Amendment Effective Date") when the Agent and the Company shall have ------------------------ received counterparts of this Amendment executed on behalf of the Company and the Required Banks. SECTION 3 REPRESENTATIONS AND WARRANTIES. SECTION 3.1. In order to further induce the Banks to agree to amend the Existing Agreement, the Company makes the following representations and warranties, which shall survive the execution and delivery of this Amendment: (a) No event of Default has occurred and is continuing; and (b) Each of the representations and warranties set forth in Article V of the Existing Agreement are true and correct as though such representations and warranties were made at and as of the Amendment Effective Date (as defined in Section 2 above) except to the extent that any such representations or warranties are made as of a specified date or with respect to a specified period of time, in which case, such representations and warranties shall be made as of such specified date or with respect to such specified period. Each of the representations and warranties made under the Existing Agreement shall survive to the extent provided therein and not be waived by the execution and delivery of this Amendment. SECTION 4 MISCELLANEOUS PROVISIONS. SECTION 4.1 Severability. Any provision of this Amendment or any other ------------ Credit Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or such Credit Document or affecting the validity or enforceability of such provision in any other jurisdiction SECTION 4.2 Execution in Counterparts; Notice. This Amendment may be --------------------------------- executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SECTION 4.3 Governing Law; Entire Agreement. THIS AMENDMENT SHALL BE ------------------------------- CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO THE BANK. This Amendment, the Amended Agreement, the Subsidiary L/C Guaranty and the other Credit Documents constitute the entire understanding among the parties hereto with respect to the subject matter of hereof and supersede any prior agreements, written or oral, with respect thereto and except as amended hereby remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 4.4 Reference to Existing Agreement. On and after the Amendment ------------------------------- Effective Date, each reference in the "herein" or words of like import, and each reference to the Existing Agreement in any Subsidiary L/C Guaranty, L/C-Related Document or in any other Credit Document, or other agreements, documents or instruments executed and delivered pursuant to the Existing Agreement, shall be deeded a reference to the Amended Agreement. SECTION 4.5 Successor and Assigns. This Amendment shall be binding upon --------------------- and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Company may not assign or -------- ------- transfer its rights or obligations hereunder without the prior written consent of the Agent and each Bank. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereto duly authorized as of the day and year first above written. SPIEGEL, INC. By: /s/ JOHN R. STEELE ------------------------------------- Name Printed: JOHN R. STEELE ------------------------------------- Title: Treasurer ------------------------------------- BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: _____________________________________ Name Printed: _____________________________________ Title: _____________________________________ BANK OF AMERICA, NATIONAL ASSOCIATION, as a Bank By:_____________________________________ Name Printed: _____________________________________ Title: _____________________________________ THE BANK OF NEW YORK By: _____________________________________ Name Printed:_____________________________________ Title: _____________________________________ THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By: _____________________________________ Name Printed: _____________________________________ Title: _____________________________________ ABN AMRO BANK N.V. By: _____________________________________ Name Printed: _____________________________________ Title: _____________________________________ By: _____________________________________ Name Printed: _____________________________________ Title: _____________________________________ SPIEGEL, INC. By: _____________________________________ Name Printed: ________________________ Title: _______________________________ BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: /s/ BRIDGET A. GARAVALIA ------------------------------------- Name Printed: BRIDGET A. GARAVALIA ------------------------ Title: Managing Director ------------------------------- BANK OF AMERICA, NATIONAL ASSOCIATION, as a Bank By: /s/ BRIDGET A. GARAVALIA ------------------------------------- Name Printed: ________________________ Title: _______________________________ THE BANK OF NEW YORK By: _____________________________________ Name Printed: ________________________ Title: _______________________________ THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By: _____________________________________ Name Printed: ________________________ Title: _______________________________ ABN AMRO BANK N.V., CHICAGO BRANCH BY: ABN AMRO NORTH AMERICA, INC., as Agent By: _____________________________________ Name Printed: ________________________ Title: _______________________________ By: _____________________________________ Name Printed: ________________________ Title: _______________________________ SPIEGEL, INC. By: _____________________________________ Name Printed: ________________________ Title: _______________________________ BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: _____________________________________ Name Printed: ________________________ Title: _______________________________ BANK OF AMERICA, NATIONAL ASSOCIATION, as a Bank By: _____________________________________ Name Printed: ________________________ Title: _______________________________ THE BANK OF NEW YORK By: /s/ Michael XXXXXX ------------------------------------- Name Printed: Michael XXXXXX --------------------------- Title: [6X] President ------------------------------- THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By: ____________________________________ Name Printed: _______________________ Title: ______________________________ ABN AMRO BANK N.V., CHICAGO BRANCH BY: ABN AMRO NORTH AMERICA, INC., as Agent By: _____________________________________ Name Printed: ________________________ Title: _______________________________ By: _____________________________________ Name Printed: ________________________ Title: _______________________________ SPIEGEL. INC. By: _____________________________________ Name Printed: ________________________ Title: _______________________________ BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: _____________________________________ Name Printed: ________________________ Title: _______________________________ BANK OF AMERICA, NATIONAL ASSOCIATION, as a Bank By: _____________________________________ Name Printed: ________________________ Title: _______________________________ THE BANK OF NEW YORK By: _____________________________________ Name Printed: ________________________ Title: _______________________________ THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By: /s/ Simon H Vaughan-Johnson ------------------------------------- Name Printed: Simon H Vaughan-Johnson ------------------------ Title: Senior Corporate Relationship ------------------------------- Manager ABN AMRO BANK N.V., CHICAGO BRANCH BY: ABN AMRO NORTH AMERICA, INC., as Agent By: _______________________________________ Name Printed: __________________________ Title: _________________________________ By: _______________________________________ Name Printed: __________________________ Title: _________________________________ SPIEGEL, INC. By: _____________________________________ Name Printed: ________________________ Title: _______________________________ BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: _____________________________________ Name Printed: ________________________ Title: _______________________________ BANK OF AMERICA, NATIONAL ASSOCIATION, as a Bank By: _____________________________________ Name Printed: ________________________ Title: _______________________________ THE BANK OF NEW YORK By: ______________________________________ Name Printed: _________________________ Title: ________________________________ THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED By: ______________________________________ Name Printed: _________________________ Title: ________________________________ ABN AMRO BANK N.V. By: /s/ BRIAN M. SHARPE -------------------------------------- Name Printed: BRIAN M. SHARPE ------------------------- Title: Vice President -------------------------------- By: /s/ JOHN E. ROBERTSON -------------------------------------- Name Printed: JOHN E. ROBERTSON ------------------------- Title: VICE PRESIDENT -------------------------------- EX-10.24 24 dex1024.txt 5TH AMENDMENT TO LTR OF CREDIT FACILITY AGREEMENT Exhibit 10.24 FIFTH AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT THIS FIFTH AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT, dated as of September 22, 2000 (this "Amendment"), among SPIEGEL, INC., a Delaware corporation (the "Company"), BANK OF AMERICA, NATIONAL ASSOCIATION (formerly known as Bank of America National Trust and Savings Association) ("Bank of America"); THE BANK OF NEW YORK ("BONY"); THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED ("HKSB"); ABN AMRO BANK N.V., acting through its Chicago Branch ("ABN") and any other financial instantiation from time to time party thereto (collectively, the "Banks" and, individually, a "Bank"), and Bank of America, as agent, for the Banks (in such capacity, the "Agent"). WITNESSETH WHEREAS, the Company, the Agent and the Banks entered into that certain Letter of Credit Facility Agreement, dated as of September 27, 1996 as amended from time to time (the "Existing Agreement"); and WHEREAS, the parties to the Existing Agreement wish to amend the Existing Agreement (the Existing Agreement as amended by this Amendment being the "Amended Agreement") as provided in this Amendment. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 AMENDMENT. Effective on (and subject to the occurrence of) the Amendment Effective Date (as defined in Section 2 of this Amendment), the Existing Agreement shall be amended in accordance with this Section 1. SECTION 1.1 Section 1.01 is hereby amended by deleting the definition of "Revolving Credit Agreement" in its entirety and replacing such definition with the following: "Revolving Credit Agreement" means that certain Second Amended and Restated Revolving Credit Agreement, dated June 30, 2000 as may be amended or restated from time to time, among the Company, various financial institutions as lenders and Deutsche Bank AG New York Branch as the Administrative Agent." SECTION 1.2 Section 1.01 is amended by deleting "September 22, 2000" where it appears in the definition of "Termination Date" and replacing it with "September 21, 2001". SECTION 1.3 Section 2.07(b) is amended by deleting ".20" where it appears in such subsection and replacing it with ".15". SECTION 1.4 Schedule 2.01 is amended by deleting such Schedule in its entirety and replacing it with the following: "SCHEDULE 2.01 -------------- COMMITMENTS ----------- AND PRO RATA SHARES ------------------- Pro Rata Bank Commitment Share ---- ---------- -------- Bank of America National Association $37,500,000 25% The Bank of New York $37,500,000 25% The Hongkong and Shanghai Banking $37,500,000 25% Corporation Limited ABN AMRO Bank N.V., acting $37,500,000 25% through its Chicago Branch ------------ TOTAL $150,000,000 100%" SECTION 2 EFFECTIVENESS. The amendment set forth in Section 1 above shall become effective on such date (the "Amendment Effective Date") and (i) the Agent and the Company shall have received counterparts of this Amendment executed on behalf of the Company and all of the Banks, (ii) the Agent shall have received executed counterparts of an Affirmation of Guaranty in the form of Exhibit A hereto on behalf of all the Guarantors, and (iii) the Agent shall have received from the Company a notice of change in Issuing Banks Issuance Allocations and/or Tenor Allocations, which notice complies with Section 2.13 of the Amended Agreement and which reflects the reduction in the Commitments hereunder. SECTION 3 REPRESENTATIONS AND WARRANTIES. SECTION 3.1. In order to further induce the Banks to agree to amend the Existing Agreement, the Company makes the following representations and warranties, which shall survive the execution and delivery of this Amendment: (a) No event of Default has occurred and is continuing; and (b) Each of the representations and warranties set forth in Article V of the Existing Agreement are true and correct as though such representations and warranties were made at and as of the Amendment Effective Date (as defined in Section 2 above) except to the extent that any such representations or warranties are made as of a specified date or with respect to a specified period of time, in which case, such representations and warranties shall be made as of such specified date or with respect to such specified period. Each of the representations and warranties made under the Existing Agreement shall survive to the extent provided therein and not be waived by the execution and delivery of this Amendment. SECTION 4 MISCELLANEOUS PROVISIONS. SECTION 4.1 Severability. Any provision of this Amendment or any other Credit Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or such Credit Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 4.2 Execution in Counterparts; Notice. This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SECTION 4.3 Governing Law; Entire Agreement. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO THE BANK. This Amendment, the Amended Agreement, the Subsidiary L/C Guaranty and the other Credit Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto and except as amended hereby remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 4.4 Reference to Existing Agreement. On and after the Amendment Effective Date, each reference in the "herein" or words of like import, and each reference to the Existing Agreement in any Subsidiary L/C Guaranty, L/C-Related Document or in any other Credit Document or other agreements, documents or instruments executed and delivered pursuant to the Existing Agreement, shall be deemed a reference to the Amended Agreement. SECTION 4.5 Successor and Assigns. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Company may not assign or transfer its rights or obligations hereunder without the prior written consent of the Agent and each Bank. [signature page follows] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereto duly authorized as of the day and year first above written. SPIEGEL, INC. By: /s/ John R. Steele -------------------------- Name Printed: John R. Steele -------------------------- Title: Treasurer -------------------------- BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: -------------------------- Name Printed: -------------------------- Title: -------------------------- BANK OF AMERICA, NATIONAL ASSOCIATION, as Bank By: -------------------------- Name Printed: -------------------------- Title: -------------------------- THE BANK OF NEW YORK By: -------------------------- Name Printed: -------------------------- Title: -------------------------- THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED By: -------------------------- Name Printed: -------------------------- Title: -------------------------- ABN AMRO BANK N.V. By: -------------------------- Name Printed: -------------------------- Title: -------------------------- By: -------------------------- Name Printed: -------------------------- Title: -------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereto duly authorized as of the day and year first above written. SPIEGEL, INC. By: __________________________________ Name Printed: John R. Steele Title: Treasurer BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: Bridget Garavalia Name Printed: Bridget Garavalia Title: Managing Director BANK OF AMERICA, NATIONAL ASSOCIATION, as a Bank By: Bridget Garavalia Name Printed: Bridget Garavalia Title: Managing Director THE BANK OF NEW YORK By: __________________________________ Name Printed: __________________________________ Title: __________________________________ THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED By: __________________________________ Name Printed: __________________________________ Title: __________________________________ ABN AMRO BANK N.V. By: __________________________________ Name Printed: __________________________________ Title: __________________________________ By: __________________________________ Name Printed: __________________________________ Title: __________________________________ IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereto duly authorized as of the day and year first above written. SPIEGEL, INC. By: ------------------------------------- Name Printed: John R. Steele Title: Treasurer BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: ------------------------------------- Name Printed: ------------------------------------- Title: ------------------------------------- BANK OF AMERICA, NATIONAL ASSOCIATION, as a Bank By: ------------------------------------- Name Printed: ------------------------------------- Title: ------------------------------------- THE BANK OF NEW YORK By: /s/ Charlotte Sohn Fuiks ------------------------------------- Name Printed: Charlotte Sohn Fuiks ------------------------------------- Title: VP ------------------------------------- THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED By: ------------------------------------- Name Printed: ------------------------------------- Title: ------------------------------------- ABN AMRO BANK N.V. By: ------------------------------------- Name Printed: ------------------------------------- Title: ------------------------------------- By: ------------------------------------- Name Printed: ------------------------------------- Title: ------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereto duly authorized as of the day and year first above written. SPIEGEL, INC. By: ------------------------------- Name Printed: John R. Steele Title: Treasurer BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: ------------------------------- Name Printed: ------------------------------- Title: ------------------------------- BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: ------------------------------- Name Printed: ------------------------------- Title: ------------------------------- THE BANK OF NEW YORK By: ------------------------------- Name Printed: ------------------------------- Title: ------------------------------- THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED By: /s/ Dominic J. O'Hagan ------------------------------- Name Printed: Dominic J. O'Hagan ------------------------------- Title: Regional Relationship Manager ------------------------------- ABN AMRO BANK N.V. By: ------------------------------- Name Printed: ------------------------------- Title: ------------------------------- By: ------------------------------- Name Printed: ------------------------------- Title: ------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereto duly authorized as of the day and year first above written. SPIEGEL, INC. By: ------------------------------ Name Printed: John R. Steele Title: Treasurer BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: ------------------------------ Name Printed: ------------------------------ Title: ------------------------------ BANK OF AMERICA, NATIONAL ASSOCIATION, as Agent By: ------------------------------ Name Printed: ------------------------------ Title: ------------------------------ THE BANK OF NEW YORK By: ------------------------------ Name Printed: ------------------------------ Title: ------------------------------ THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED By: ------------------------------ Name Printed: ------------------------------ Title: ------------------------------ ABN AMRO BANK N.V. By: /s/ W. Stephen Jones ------------------------------ Name Printed: W. Stephen Jones ------------------------------ Title: Senior Vice President ------------------------------ By: /s/ Peter J. Hallan ------------------------------ Name Printed: Peter J. Hallan ------------------------------ Title: Asst. Vice President ------------------------------ EXHIBIT A --------- REAFFIRMATION OF GUARANTY ------------------------- Each of the undersigned acknowledges receipt of a copy of the Fifth Amendment to the Letter of Credit Facility Agreement (the "Fifth Amendment") dated as of September __, 2000, consents to such amendment and each of the transactions referenced therein and hereby reaffirms its obligations under the Subsidiary Guaranty for Letter of Credit Facility Agreement in favor of Bank of America as Agent, and the Banks (as defined in the Fifth Amendment). Dated as of September 22, 2000 SPIEGEL PUBLISHING COMPANY EDDIE BAUER, INC. John R. Steele John R. Steele By: ____________________________ By: ________________________________ Name: John R. Steele Name: John R. Steele Title: Treasurer Title: Treasurer SPIEGEL CATALOG, INC. ULTIMATE OUTLET INC. John R. Steele John R. Steele By: ____________________________ By: ________________________________ Name: John R. Steele Name: John R. Steele Title: Treasurer Title: Treasurer DISTRIBUTION FULFILLMENT SERVICES, INC. NEWPORT NEWS, INC. John R. Steele John R. Steele By: ____________________________ By: ________________________________ Name: John R. Steele Name: John R. Steele Title: Treasurer Title: Treasurer EX-10.25 25 dex1025.txt 6TH AMENDMENT TO LTR OF CREDIT FACILITY AGREEMENT Exhibit 10.25 SIXTH AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT THIS SIXTH AMENDMENT TO LETTER OF CREDIT FACILITY AGREEMENT, dated as of June 25, 2001 (this "Amendment"), among SPIEGEL, INC., a Delaware corporation --------- (the "company"), BANK OF AMERICA, N.A. (formerly known as Bank of America ------- National Trust and Savings Association) ("Bank of America"), as a Bank (as --------------- defined below) and as Administrative Agent (in such capacity, the "Administrative Agent"), THE BANK OF NEW YORK ("BONY"), THE HONG KONG AND -------------------- ---- SHANGHAI BANKING CORPORATION LIMITED ("HKSB"); ABN AMRO BANK N.V., acting ---- through its Chicago Branch ("ABN") and any other financial institutions from --- time to time party thereto (collectively, the "Banks" and, individually, a ----- "Bank"). Terms used but not otherwise defined herein shall have the meanings ---- provided in the Amended Agreement referred to below. WITNESSETH WHEREAS, the Company, the Administrative Agent and the Banks entered into that certain Letter of Credit Facility Agreement, dated as of September 27, 1996 as amended from time to time (the "Existing Agreement"); and ------------------ WHEREAS, the parties to the Existing Agreement wish to amend the Existing Agreement (the Existing Agreement as amended by this Amendment being the "Amended Agreement") as provided in this Amendment. ----------------- NOW, THEREFORE, in consideration of the agreements herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENT. Effective on (and subject to the occurrence of) --------- the Amendment Effective Date (as defined in Section 2 of this Amendment), the Existing Agreement shall be amended in accordance with this Section 1. Section 1.1 Section 1.01 is amended by deleting "September 21, 2001" ------------ where it appears in the definition of "Termination Date" and replacing it with "June 24, 2002". SECTION 2 EFFECTIVENESS. The amendment set forth in Section 1 above shall become effective on such date (the "Amendment Effective Date") when (i) the ------------------------ Administrative Agent and the Company shall have received counterparts of this Amendment executed on behalf of the Company and all of the Banks, (ii) the Administrative Agent shall have received executed counterparts of an Affirmation of Guaranty in the form of Exhibit A hereto on behalf of all the Guarantors and (iii) the Administrative Agent shall have received evidence (in form and substance satisfactory to the Administrative Agent) that the maturity date of Company's syndicated 364-day revolving credit facility has been extended to June 24,2002. SECTION 3 REPRESENTATIONS AND WARRANTIES. Section 3.1. In order to further induce the Banks to agree to amend the Existing Agreement, the Company makes the following representations and warranties, which shall survive the execution and delivery of this Amendment: (a) No event of Default has occurred and is continuing; and (b) Each of the representations and warranties set forth in Article V of the Existing Agreement are true and correct as though such representations and warranties were made at and as of the Amendment Effective Date (as defined in Section 2 above) except to the extent that any such representations or warranties are made as of a specified date or with respect to a specified period of time, in which case, such representations and warranties shall be made as of such specified date or with respect to such specified period. Each of the representations and warranties made under the Existing Agreement shall survive to the extent provided therein and not be waived by the execution and delivery of this Amendment. SECTION 4. MISCELLANEOUS PROVISIONS. Section 4.1 Severability. Any provision of this Amendment or any other ------------ Credit Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or such Credit Document or affecting the validity or enforceability of such provision in any other jurisdiction Section 4.2 Execution in Counterparts; Telecopy. This Amendment may be ----------------------------------- executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. Delivery of an executed counterpart by telecopy shall be as effective as an original and shall constitute that an original will be delivered. Section 4.3 Governing Law; Entire Agreement. THIS AMENDMENT SHALL BE ------------------------------- CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO THE BANK. This Amendment, the Amended Agreement, the Subsidiary L/C Guaranty and the other Credit Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto and except as mended hereby remain in full force and effect and are hereby ratified and confirmed in all respects. Section 4.4 Reference to Existing Agreement. On and after the Amendment ------------------------------- Effective Date, each reference in the Existing Agreement to "herein" or words of like import, and each reference to the Existing Agreement in any Subsidiary L/C Guaranty, L/C Related Document or in any other Credit Document or other agreements, documents or instruments executed and 2 delivered pursuant to the Existing Agreement, shall be deemed a reference to the Amended Agreement. Section 4.5 Successor and Assigns. This Amendment shall be binding upon --------------------- and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Company may not assign or -------- ------- transfer its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Bank. [signature pages follow] 3 Signature Page to Sixth Amendment to Letter of Credit Facility Agreement June 2001 IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment to Letter of Credit Facility Agreement to be executed by their respective officers thereto duly authorized as of the day and year first above written. SPIEGEL, INC. By :/s/ John R. Steele -------------------------- Name: John R. Steele Title: Treasurer 4 Signature Page to Sixth Amendment to Letter of Credit Facility Agreement June 2001 BANKS: BANK OF AMERICA, N.A., ----- individually in its capacity as a Bank and in its capacity as Administrative Agent By :/s/ CHITT SWAMIDASAN -------------------------- Name: CHITT SWAMIDASAN ------------------------- Title: Principal ------------------------ 5 Signature Page to Sixth Amendment to Letter of Credit Facility Agreement June 2001 BANKS: BANK OF AMERICA, N.A., ----- individually in its capacity as a Bank and in its capacity as Administrative Agent By:____________________________ Name:__________________________ Title:_________________________ THE BANK OF NEW YORK By: /s/ Charlotte Sohn Fuiks ---------------------------- Name: Charlotte Sohn Fuiks -------------------------- Title: Vice President -------------------------- THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED By:____________________________ Name:__________________________ Title:_________________________ ABN AMRO BANK N.V. By:____________________________ Name:__________________________ Title:_________________________ 6 Signature Page to Sixth Amendment to Letter of Credit Facility Agreement June 2001 BANKS: BANK OF AMERICA, N.A., ----- individually in its capacity as a Bank and in its capacity as Administrative Agent By:____________________________ Name:__________________________ Title:_________________________ THE BANK OF NEW YORK By:____________________________ Name:__________________________ Title:_________________________ THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED By:/s/ Dominic J O'Hagan ---------------------------- Name: Dominic J O'Hagan -------------------------- Title: Global Relationship Manager ------------------------- ABN AMRO BANK N.V. By:____________________________ Name:__________________________ Title:_________________________ 7 Signature Page to Sixth Amendment to Letter of Credit Facility Agreement June 2001 ABN AMRO BANK N.V. By:/s/ John E. Robertson ---------------------------- Name: John E. Robertson -------------------------- Title: Group Vice President ------------------------- By:/s/ Peter J. Hallan ---------------------------- Name: Peter J. Hallan -------------------------- Title: Assistant Vice President ------------------------- 8 REAFFIRMATION OF GUARANTY ------------------------- Each of the undersigned acknowledges receipt of a copy of the Sixth Amendment to the Letter of Credit Facility Agreement (the "Sixth Amendment") dated as of June 25, 2001, consents to such amendment and each of the transactions referenced therein and hereby reaffirms its obligations under the Subsidiary Guaranty for Letter of Credit Facility Agreement in favor of Bank of America as Administrative Agent, and the Banks (as defined in the Sixth Amendment). Dated as of June 25, 2001 -- SPIEGEL PUBLISHING COMPANY EDDIE BAUER,.INC. By:/s/ John R. Steele By:/s/ John R. Steele --------------------- ---------------------- Name: John R. Steele Name: John R. Steele Title: Treasurer Title: Treasurer SPIEGEL CATALOG, INC. ULTIMATE OUTLET INC. By:/s/ John R. Steele By:/s/ John R. Steele --------------------- ---------------------- Name: John R. Steele Name: John R. Steele Title: Treasurer Title: Treasurer DISTRIBUTION FULFILLMENT SERVICES, INC. NEWPORT NEWS. INC. By:/s/ John R. Steele By:/s/ John R. Steele --------------------- ---------------------- Name: John R. Steele Name: John R. Steele Title: Treasurer Title: Treasurer EX-10.26 26 dex1026.txt WAIVER AGREEMENT Exhibit 10.26 WAIVER AGREEMENT THIS WAIVER AGREEMENT, dated as of November 9, 2001 (this "Agreement"), is --------- by and among SPIEGEL. INC., a Delaware corporation (the "Company"), BANK OF ------- AMERICA, N.A. (formerly known as Bank of America National Trust and Savings Association) ("Bank of America"), as Administrative Agent (in such capacity, the --------------- "Administrative Agent"). and the Banks party hereto. Terms used but not -------------------- otherwise defined herein shall have the meanings provided in the L/C Facility Agreement referred to below. WITNESSETH WHEREAS, the Company, the Administrative Agent and the Banks from time to time party thereto entered into that certain Letter of Credit Facility Agreement, dated as of September 27, 1996 (as amended from time to time, the "L/C Facility Agreement"); and ---------------------- WHEREAS, the Required Banks have agreed to waive certain provisions of the L/C Facility Agreement as provided in this Agreement. NOW, THEREFORE, in consideration of the agreements herein contained, the parties hereto agree as follows: SECTION 1. WAIVER. Effective on (and subject to the occurrence of) the ------ Agreement Effective Date (as defined in Section 2 of this Agreement), the Required Banks hereby waive any Default or Event of Default under Section 7.01(d) of the L/C Facility Agreement arising solely as a result of the Company failing to be in compliance with (a) the fixed charge coverage ratio under any of the Company's other debt agreements as of (i) the Company's 2001 fiscal year-end and (ii) the end of the first quarter of the Company's 2002 fiscal year and (b) the debt/EBITDAR leverage ratio under any of the Company's other debt agreements as of the Company's 2001 fiscal year-end. The waiver set forth in this Section 1 is a one-time waiver that will expire on June 15, 2002 (unless extended in writing by the Required Banks) and such Waiver shall not be construed to be (x) a waiver of any other Default or Event of Default that may exist or (y) an amendment of or modification to the L/C Facility Agreement. Notwithstanding the foregoing, the waiver in this Section 1 shall expire on November 30, 2001 unless the Administrative Agent shall have received evidence (in form and substance satisfactory to the Administrative Agent) that the Company has obtained waiver agreements waiving compliance with the financial covenants referenced in clauses (a) and (b) of this Section 1, for the respective periods referenced in such clauses, under its term loan agreements. SECTION 2 EFFECTIVENESS. The waiver set forth in Section 1 above shall become effective on such date (the "Agreement Effective Date") when (a) the ------------------------ Administrative Agent and the Company shall have received counterparts of this Agreement executed on behalf of the Company and the Required Banks, (b) the Administrative Agent shall have received executed counterparts of a Reaffirmation of Guaranty in the form of Exhibit A hereto on behalf of all the --------- Guarantors, (c) the Administrative Agent shall have received evidence (in form and substance satisfactory to the Administrative Agent) that the Company has obtained waiver agreements waiving compliance with the financial covenants referenced in clauses (a) and (b) of Section 1 above, for the respective periods referenced in such clauses, under its revolving credit agreements and (d) the Administrative Agent shall have received, for the pro rata benefit of the Banks consenting to this Agreement on or before November 9, 2001, a waiver fee equal to 25 basis points on the aggregate commitment amounts of such consenting Banks. SECTION 3 REPRESENTATIONS AND WARRANTIES. Section 3.1. In order to further induce the Required Banks to agree to the waiver set forth in Section 1 above, the Company makes the following representations and warranties, which shall survive the execution and delivery of this Agreement: (a) No Event of Default has occurred and is continuing; (b) Each of the representations and warranties set forth in Article V of the L/C Facility Agreement are true and correct as though such representations and warranties were made at and as of the Agreement Effective Date (as defined in Section 2 above) except to the extent that any such representations or warranties are made as of a specified date or with respect to a specified period of time, in which case, such representations and warranties shall be made as of such specified date or with respect to such specified period Each of the representations and warranties made under the L/C Facility Agreement shall survive to the extent provided therein and not be waived by the execution and delivery of this Agreement; (c) The Company has no claims, counterclaims, offsets, or defenses to the Credit Documents and the performance of its obligations thereunder, or if it has any such claims, counterclaims, offsets, or defenses to the Credit Documents or any transaction related to the Credit Documents, the same are hereby waived, relinquished and released in consideration of the Required Banks' execution and delivery of this Agreement. SECTION 4. MISCELLANEOUS PROVISIONS. Section 4.1 Severability. Any provision of this Agreement or any other ------------ Credit Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Credit Document or affecting the validity or enforceability of such provision in any other jurisdiction Section 4.2 Execution in Counterparts; Telecopy. This Agreement may be ----------------------------------- executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. Delivery of an executed counterpart by telecopy shall be as effective as an original and shall constitute that an original will be delivered. Section 4.3 Governing Law; Entire Agreement. THIS AMENDMENT SHALL BE ------------------------------- CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO THE BANKS. This Agreement, the L/C Facility Agreement, the Subsidiary L/C Guaranty and the other Credit Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto and except as mended hereby remain in full force and effect and are hereby ratified and confirmed in all respects. Section 4.4 Expenses. The Company agrees to pay all reasonable costs and -------- expenses incurred in connection with the preparation, execution and delivery of this Agreement, including the reasonable fees and expenses of the Administrative Agent's legal counsel. Section 4.5 Successor and Assigns. This Agreement shall be binding upon --------------------- and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Company may not assign or ----------------- transfer its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Bank. [signature pages follow] Signature Page to Waiver Agreement under Spiegel, Inc. Letter of Credit Facility Agreement November 2001 IN WITNESS WHEREOF, the parties hereto have caused this Waiver Agreement to be executed by their respective officers thereto duly authorized as of the day and year first above written. COMPANY: SPIEGEL, INC. - ------- By:/s/ John R. Steele ------------------ Name: John R. Steele Title: Vice President and Treasurer Signature Page to Waiver Agreement under Spiegel, Inc. Letter of Credit Facility Agreement November 2001 BANKS: BANK OF AMERICA, N.A., - ----- individually in its capacity as a Bank and in its capacity as Administrative Agent By:/s/ Timothy H. Spanos --------------------- Name: Timothy H. Spanos -------------------- Title: Managing Director ------------------- Signature Page to Waiver Agreement under Spiegel, Inc. Letter of Credit Facility Agreement November 2001 THE BANK OF NEW YORK By:/s/ Charlotte Sohn Fuiks ------------------------ Name: Charlotte Sohn Fuiks ---------------------- Title: Vice President --------------------- Signature Page to Waiver Agreement under Spiegel, Inc. Letter of Credit Facility Agreement November 2001 HSBC BANK USA By:/s/ Anne Serewicz ----------------- Name: Anne Serewicz --------------- Title: Senior Vice President ---------------------- Signature Page to Waiver Agreement under Spiegel, Inc. Letter of Credit Facility Agreement November 2001 ABN AMRO BANK N.V. By:/s/ John E. Robertson ----------------------------- Name: John E. Robertson --------------------------- Title: Group Vice President -------------------------- /s/ Peter J. Hallan Peter J. Hallan Vice President EXHIBIT A --------- REAFFIRMATION OF GUARANTY ------------------------- Each of the undersigned (i) acknowledges receipt of a copy of the Waiver Agreement dated as of November 9, 2001 among Spiegel, Inc., Bank of America, N.A., as Administrative Agent, and the Banks party thereto (the "Waiver ------ Agreement"), (ii) consents to such agreement and each of the transactions - --------- referenced therein and (iii) hereby reaffirms its obligations under the Subsidiary L/C Guaranty in favor of the Administrative Agent and the Banks. Terms used but not otherwise defined herein shall have the meanings provided in the L/C Facility Agreement referred to in the Waiver Agreement. Dated as of November 9.2001 SPIEGEL PUBLISHING COMPANY EDDIE BAUER,.INC. By:/s/ John R. Steele By:/s/ John R. Steele ------------------ ------------------ Name: John R. Steele Name: John R. Steele Title: Treasurer Title: Treasurer SPIEGEL CATALOG, INC. ULTIMATE OUTLET INC. By:/s/ John R. Steele By:/s/ John R. Steele ------------------ ------------------ Name: John R. Steele Name: John R. Steele Title: Treasurer Title: Treasurer DISTRIBUTION FULFILLMENT SERVICES, INC. NEWPORT NEWS, INC. By:/s/ John R. Steele By:/s/ John R. Steele ------------------ ------------------ Name: John R. Steele Name: John R. Steele Title: Treasurer Title: Treasurer EX-10.27 27 dex1027.txt LINE OF CREDIT AGREEMENT Exhibit 10.27 LINE OF CREDIT AGREEMENT Between Otto Versand (GmBH & Co) -lender- and Spiegel, Inc. -borrower- This Line of Credit Agreement amends and restates that certain Line of Credit Agreement entered into by lender and borrower, dated September 17, 2001. 1. LINE OF CREDIT AMOUNT The lender shall make available a line of credit, until the earlier of (a) June 15, 2002, and (b) the date of borrower's refinancing or, repayment of the Second Amended and Restated Revolving Credit Agreement, dated as of June 30, 2000, as amended, between borrower and Deutsche Bank AG New York Branch, as Administrative Agent (the "Revolver"), (the "Line of Credit Period"), to the borrower for periodic drawdown borrowings (each a "loan") in increments of US$5 million. Each loan shall be requested in writing at least three days prior to the funding date. The total aggregate of all loans (exclusive of any accrued interest) shall not exceed the maximum line of credit amount of: US $100,000,000 2. PERIOD OF INTEREST The value date for the period of interest begins on the actual date of funding for each loan transmitted to the borrower. 3. INTEREST RATE Each loan will be charged at an interest rate based upon those rates specified under Schedule III, Pricing Grid, to the Revolver. Interest will be calculated on the basis of a 360 day year. 4. COST PAYMENT All the costs of transmission both ways are to be paid by borrower. 5. REPAYMENT The maturity date for repayment of the first $5O million of any principal balance outstanding for all loans hereunder shall not be due and payable until such time that a capital restructuring including the refinancing or repayment of the Revolver is finalized by the borrower. Any principal amount above $50 million may be repaid anytime during the Line of Credit Period. Payment of interest on any outstanding balance shall accrue, but shall not be payable or be repaid, until the expiration of the Line of Credit Period. Hamburg, the 9th of November, 2001 Downers Grove, the 9th of November, 2001 Otto Versand (GmbH & Co) Spiegel, Inc. /s/ Dr. Crusemann /s/ Siedel /s/ Cannataro /s/ Steele (Dr. Crusemann (Siedel) (Cannataro) (Steele) PROMISSORY NOTE --------------- US $100,000,000.00 November 9, 2001 For Value Received, SPIEGEL, INC. ("Maker") promises to pay to the order of Otto Versand (GmbH & Co) ("Lender") the principal sum of up to One Hundred Million Dollars (US $100,000,000.00), or such lesser amount as shall equal the aggregate unpaid principal amount of loans advanced by Lender to Maker, plus interest at a rate based upon such rates as referred to in the Line of Credit Agreement between Maker and Lender, dated as the date hereof, on the outstanding principal balance of any loans made by Lender pursuant to said Line of Credit Agreement, payable in accordance with the terms stipulated in said Line of Credit Agreement. Such interest shall be calculated on the basis of a 360 day year for the actual days elapsed. Maker waives presentment, demand, protest, notice of protest and any other notices of any kind in connection with this Note. SPIEGEL, INC. By: /s/ __________________________ Title: Treasurer EX-10.28 28 dex1028.txt LETTER TO HANS-JOSEF THIELE DEUTSCHE BANK AG [logo] OTTO Exhibit 10.28 - -------------------------------------------------------------------------------- Vorstand November 9, 2001 To the Lenders Referred to Below c/o Mr. Hans-Josef Thiele Deutsche Bank AG, New York Branch As Administrative Agent 31 West 52/nd/ Street, 24/th/ Floor New York, New York 10019 Ladies and Gentlemen: We refer to the following: (x) that certain Second Amended and Restated Revolving Credit Agreement dated as of June 30, 2000, as amended (the "Second Amended Agreement") by and among Spiegel, Inc. (the "Borrower"), the Lenders party thereto, the Agents, the Joint Lead Arrangers and Book Runners and the Issuer; (y) that certain 364- Day Revolving Credit Agreement dated as of June 30, 2000, as amended (together with the Second Amended Agreement referred to herein as, the "Credit Agreements") by and among the Borrower, the Lenders party thereto, the Agents, the Joint Lead Arrangers and Book Runners and the Issuer; and (z) to the letter of support provided previously by Otto Versand (GmbH 62 Co) with respect to the Credit Agreements. This letter supplements and is in addition to that prior letter of support, and represents our continued commitment to the Borrower as an essential component of Otto's retail presence in the United States of America. In view of this continued commitment and in consideration of the Waiver Letter being provided by the Lenders to the Borrower, from the date hereof until the earlier of (1) June 15,2002 and (2) the Borrower's refinancing or repayment of the Credit Agreements, we are willing to provide to the Borrower up to $100 million of liquidity support (the "Loan"), with the understanding that the first $50 million of any such Loan (which has already been provided) will not be due and payable or be repaid by the Borrower until such time that a capital restructuring including the refinancing or repayment of the Credit Agreements is finalized by the Borrower and the Lenders. Another understanding would be that any accrued interest on any such support shall not be payable until after such capital restructuring occurs. The basic terms of the Loan, incIuding interest rate, term and maturity, shall be as set forth on the attached Exhibit A. This letter shall be governed by the laws of the State of Illinois applicable to contracts made and to be performed entirely within such State. Very truly yours, Otto Versand (GmbH & Co) By: /s/ Dr. Otto By: /s/ Dr. Crusemann -------------------------- -------------------------- (Dr. Otto) (Dr. Crusemann) 2 [logo] OTTO - -------------------------------------------------------------------------------- Vorstand AGREED AND ACCEPTED: DEUTSCHE BANK AG, New York Branch, as Administrative Agent on behalf of the Lenders By: /s/ Hans-Josef Thiefe -------------------------- Hans-Josef Thiefe Director By: /s/ Christian Dallwitz -------------------------- Christian Dallwitz Vice President 3 Exhibit A --------- General Terms of Otto Versand (GmbH & Co) Line of Credit to Spiegel, Inc. 1. Liquidity support line of credit of up to $100 million to be made available by Otto Versand to Spiegel 2. Line available until earlier of June 15,2002 or when Spiegel refinances or repays the Credit Agreements 3. Interest rate set per Schedule III Pricing Grid to Credit Agreements 4. Interest accrues from funding date, but cannot be repaid until earlier of June 15,2002 or when Spiegel refinances or repays the Credit Agreements 5. First $50 million of outstanding principal cannot be repaid until capital restructuring of Spiegel including the refinancing or repayment of the Credit Agreements occurs EX-10.29 29 dex1029.txt NOTE Exhibit 10.29 NOTE ---- US $31,300,000 Hamburg, Germany February 28, 2002 FOR VALUE RECEIVED, the undersigned, SPIEGEL, INC., a Delaware corporation (the "Maker") hereby promises to pay Otto-Spiegel finance G.m.b.H. & Co. KG ("Payee"), at the time or times set forth herein and subject to the terms and conditions hereof, the principal sum of Thirty-One Million Three Hundred Thousand Dollars and no cents (US $31,300,000) on or before November 29, 2002 (the "Maturity Date"). The Maker further promises to pay simple interest at the rate of four percent (4%) per annum on the principal balance outstanding hereunder at the end of each day computed as of the close of each business day (hereinafter defined). Such interest accrued to date shall be paid monthly, in arrears, on the last business day of each month and on the Maturity Date. For purposes hereof, the term "business day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks are authorized or required to close under the laws of the Federal Republic of Germany. No portion of any principal payment made pursuant to this Note shall be applied in respect of any interest due hereunder and no portion of any interest payment made pursuant to this Note shall be applied in respect of any principal payment due hereunder. The Maker may prepay this Note at any time Without premium or penalty and in whole or in part (but if in part, in whole multiples of $100,000). If prior to the Maturity Date, the Maker fails to make any payment due hereunder and such failure shall continue uncured for a period of three (3) business days, the Payee, at its option, may, by written notice delivered to the Maker, accelerate the payment of principal hereunder and declare all amounts due hereunder immediately due and payable. The Payee shall not be deemed to have modified or waived any of its rights or remedies hereunder unless such modifications or waiver is in writing and signed by the Payee, and then only to the extend Specifically set forth therein. A waiver in one event shall not be construed as continuing or as a waiver of or bar to such right or remedy on a subsequent event. This Note may not be supplemented, extended, modified or terminated except by an agreement in writing and signed by the party against whom enforcement of any such waiver, change, modification or discharge is sought. This Note shall be governed by and construed in accordance with the laws of the Federal Republic of Germany without reference to conflicts of law or choice of law principles. Spiegel, Inc. By: /s/ ---------------------- Its: CEO ---------------------- EX-10.30 30 dex1030.txt NOTE HAMBURG GERMANY FEBUARY 28, 2002 Exhibit 10.30 NOTE ---- US $68,700,000 Hamburg, Germany February 28, 2002 FOR VALUE RECEIVED, the undersigned, SPIEGEL, INC., a Delaware corporation (the "Maker") hereby promises to pay Otto-Spiegel finance G.m.b.H. & Co. KG ("Payee"), at the time or times set forth herein and subject to the terms and conditions hereof, the principal sum of Sixty-Eight Million Seven Hundred Thousand Dollars and no cents (US $68,700,000) on or before November 29, 2002 (the "Maturity Date"). The Maker further promises to pay simple interest at the rate of four percent (4%) per annum on the principal balance outstanding hereunder at the end of each day computed as of the close of each business day (hereinafter defined). Such interest accrued to date shall be paid monthly, in arrears, on the last business day of each month and on the Maturity Date. For purposes hereof, the term "business day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks are authorized or required to close under the laws of the Federal Republic of Germany. No portion of any principal payment made pursuant to this Note shall be applied in respect of any interest due hereunder and no portion of any interest payment made pursuant to this Note shall be applied in respect of any principal payment due hereunder. The Maker may prepay this Note at any time Without premium or penalty and in whole or in part (but if in part, in whole multiples of $100,000). If prior to the Maturity Date, the Maker fails to make any payment due hereunder and such failure shall continue uncured for a period of three (3) business days, the Payee, at its option, may, by written notice delivered to the Maker, accelerate the payment of principal hereunder and declare all amounts due hereunder immediately due and payable. The Payee shall not be deemed to have modified or waived any of its rights or remedies hereunder unless such modifications or waiver is in writing and signed by the Payee, and then only to the extend Specifically set forth therein. A waiver in one event shall not be construed as continuing or as a waiver of or bar to such right or remedy on a subsequent event. This Note may not be supplemented, extended, modified or terminated except by an agreement in writing and signed by the party against whom enforcement of any such waiver, change, modification or discharge is sought. This Note shall be governed by and construed in accordance with the laws of the Federal Republic of Germany without reference to conflicts of law or choice of law principles. Spiegel, Inc. By: /s/ ---------------------- Its: CEO ---------------------- EX-10.31 31 dex1031.txt LETTER OF DIRECTION DATED FEBRUARY 28, 2002 Exhibit 10.31 Letter of Direction ------------------- February 28, 2002 Otto-Spiegel Finance G.m.b.H. & Co. KG CURA Vermogensverwaltung GmbH Wandsbeker Strasse 3-7 22172 Hamburg GERMANY Re: Line of Credit Agreement dated September 17, 2003, as amended November 9, 2001, between Spiegel, Inc, and Otto Versand (GmbH & Co) in the principal amount of US $100,000,000 (the "Credit Agreement") Gentlemen: Reference is made to the Cradit Agreement. The undersigned has executed and delivered as of the date of this letter, two notes made payable to you In the total principal amount of US $100,000,000. You are hereby authorized and directed to disburse the proceeds of the loan evidenced by said notes in the amount of US $100,000,000 directly to Otto Versand (GmbH & Co) as payment in full of the outstanding principal balance under the Credit Agreement. The undersigned will pay directly to Otto Versand (GmbH & Co) all accrued and unpaid interest due Under the Credit Agreement. Spiegel, Inc. By: /s/ ---------------------- Its: CEO ---------------------- EX-10.32 32 dex1032.txt RECEIVABLES PURCHASE AGREEMENT DATED 10/17/2001 Exhibit 10.32 RECEIVABLES PURCHASE AGREEMENT among SPIEGEL CREDIT CORPORATION III, Buyer, and FIRST CONSUMERS NATIONAL BANK and SPIEGEL ACCEPTANCE CORPORATION, RPA Sellers, Dated as of October 17, 2001 Table of Contents Page ARTICLE I DEFINITIONS....................................................1 Section 1.1 Definitions...............................................1 Section 1.2 Other Definitional Provisions.............................1 ARTICLE II PURCHASE AND CONVEYANCE OF RECEIVABLES.........................2 Section 2.1 Purchase..................................................2 Section 2.2 Addition of Additional Accounts...........................3 Section 2.3 Sellers of Receivables....................................4 ARTICLE III CONSIDERATION AND PAYMENT......................................4 Section 3.1 Purchase Price............................................4 Section 3.2 Payment of Purchase Price.................................4 Section 3.3 Adjustments to Purchase Price.............................5 Section 3.4 Settlement................................................5 ARTICLE IV REPRESENTATIONS AND WARRANTIES.................................5 Section 4.1 RPA Seller's Representations and Warranties...............5 Section 4.2 RPA Sellers' Representations and Warranties Regarding Additional Accounts.......................................8 Section 4.3 Representations and Warranties of Buyer...................9 Section 4.4 Other Matters............................................10 ARTICLE V COVENANTS OF RPA SELLERS AND BUYER............................10 Section 5.1 RPA Seller Covenants.....................................10 Section 5.2 Buyer Covenants Regarding Nondisclosure; Inspection......13 ARTICLE VI REPURCHASE OBLIGATION.........................................14 Section 6.1 Mandatory Repurchase.....................................14 Section 6.2 Optional Repurchases.....................................15 Section 6.3 Conveyance of Repurchased Receivables....................16 Section 6.4 Sole Remedy..............................................16 Section 6.5 Selection of Removed Accounts............................16 Section 6.6 Assignment of Repurchase Rights and Obligations..........16 ARTICLE VII CONDITIONS PRECEDENT..........................................17 Section 7.1 Conditions to Buyer's Obligations Regarding Initial Receivables..............................................17 Section 7.2 Conditions to Buyer's Obligations Regarding Supplemental Conveyances..............................................17 Section 7.3 Conditions Precedent to RPA Sellers' Obligations.........18 -i- Table of Contents (continued) Page ARTICLE VIII TERM & TERMINATION............................................19 Section 8.1 Term.....................................................19 Section 8.2 Effect of Termination....................................19 ARTICLE IX MISCELLANEOUS PROVISIONS......................................20 Section 9.1 Amendment................................................20 Section 9.2 Governing Law............................................20 Section 9.3 Notices..................................................20 Section 9.4 Severability of Provisions...............................20 Section 9.5 Assignment...............................................20 Section 9.6 Acknowledgment and Agreement of RPA Sellers..............21 Section 9.7 Further Assurances.......................................21 Section 9.8 No Waiver; Cumulative Remedies...........................21 Section 9.9 Counterparts.............................................21 Section 9.10 Binding Effect; Third-Party Beneficiaries................21 Section 9.11 Merger and Integration...................................21 Section 9.12 Headings.................................................22 Section 9.13 Schedules and Exhibits...................................22 -ii- RECEIVABLES PURCHASE AGREEMENT, dated as of October 17, 2001, (this "Agreement") among FIRST CONSUMERS NATIONAL BANK, a national banking association --------- ("FCNB"), SPIEGEL ACCEPTANCE CORPORATION, a Delaware corporation ("SAC"; FCNB ---- --- and SAC are collectively referred to herein as the "RPA Sellers"), and SPIEGEL ----------- CREDIT CORPORATION III, a Delaware corporation ("Buyer"). ----- W I T N E S S E T H: - - - - - - - - - - WHEREAS, Buyer desires to purchase from time to time certain Receivables arising under certain specified preferred charge accounts of FCNB; and WHEREAS, RPA Sellers desire to sell from time to time and assign such Receivables to Buyer upon the terms and conditions hereinafter set forth; and WHEREAS, it is contemplated that the Receivables purchased hereunder will be transferred by Buyer to the Issuer in connection with the issuance of certain Notes; and WHEREAS, Buyer will grant to the Indenture Trustee a security interest in Buyer's rights relating to the Receivables under this Agreement, and RPA Sellers agree that the covenants and agreements made by RPA Sellers herein shall also be for the benefit of the Owner Trustee, the Indenture Trustee and all holders of the Notes; NOW, THEREFORE, it is hereby agreed among the parties hereto as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. Capitalized terms used herein and not otherwise ----------- defined herein are defined in Annex A to the Master Indenture, dated as of ------- December 1, 2000, between Spiegel Credit Card Master Note Trust and The Bank of New York (the "Indenture"). --------- Section 1.2 Other Definitional Provisions. All terms defined directly or by ----------------------------- reference in this Agreement shall have the defined meanings when used in any certificate or other document delivered pursuant hereto unless otherwise defined therein. For purposes of this Agreement and all such certificates and other documents, unless the context otherwise requires: (a) accounting terms not otherwise defined in this Agreement, and accounting terms partly defined in this Agreement to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles; (b) terms defined in Article 9 of the UCC as in effect in the State of Illinois and not otherwise defined in this Agreement are used as defined in that Article; (c) any reference to each Rating Agency shall only apply to any specific rating agency if such rating agency is then rating any outstanding Series; (d) references to any amount as on deposit or outstanding on any particular date means such amount at the close of business on such day; (e) the words "hereof," "herein" and "hereunder" and words of similar import refer to this Agreement (or the certificate or other document in which they are used) as a whole and not to any particular provision of this Agreement (or such certificate or document); (f) references to any Section, Schedule or Exhibit are references to Sections, Schedules and Exhibits in or to this Agreement (or the certificate or other document in which the reference is made), and references to any paragraph, Section, clause or other subdivision within any Section or definition refer to such paragraph, subsection, clause or other subdivision of such Section or definition; (g) the term "including" means "including without limitation"; (h) references to any law or regulation refer to that law or regulation as amended from time to time and include any successor law or regulation; (i) references to any Person include that Person's successors and assigns; and (j) headings are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. ARTICLE II PURCHASE AND CONVEYANCE OF RECEIVABLES Section 2.1 Purchase. (a) Subject to and upon the terms and conditions -------- hereinafter set forth, each RPA Seller (i) hereby sells, transfers, conveys, and assigns to Buyer, without recourse, all of such RPA Seller's right, title, and interest in, to, and under the Receivables existing at the opening of business on the SMT Termination Date (excluding Receivables in respect of Defaulted Accounts), and thereafter created in respect of each Account listed on Schedule 1 identified by account number and by Receivable balance as of the SMT - ---------- Termination Date (the "Accounts"), together with all monies due or to become due -------- with respect thereto (including all Finance Charge Receivables), all Collections, Recoveries and other proceeds thereof and Insurance Proceeds relating thereto, and (ii) subject to the provisions of Section 2.2, on each ----------- Addition Date each RPA Seller shall sell, transfer, convey and assign to Buyer, without recourse, all of such RPA Seller's rights, titles, and interests in, to, and under the Receivables then existing or thereafter created in respect of each Additional Account designated in a Supplemental Conveyance effective on the Addition Date therefor, together with all monies due or to become due with respect thereto (including all Finance Charge Receivables), all Collections, Recoveries and other proceeds thereof and Insurance Proceeds relating thereto. (b) In connection with such sale and conveyance, each RPA Seller shall, at its own expense, on or prior to the SMT Termination Date (i) indicate or cause to be indicated in its computer files relating to the Receivables that Receivables created in connection with the Accounts have been sold to Buyer in accordance with this Agreement and transferred to the Issuer pursuant to the Transfer and Servicing Agreement for the benefit of the Noteholders and (ii) deliver or cause to be delivered to Buyer (or to the Owner Trustee, if Buyer so directs) a computer file or microfiche list containing a true and complete list of all such Accounts, identified by account number and by the Receivables balance as of the SMT Termination Date. (c) In connection with such sale and conveyance, each RPA Seller agrees (i) to record and file, at its own expense, any financing statement for the purchase of accounts (as defined in Section 9-102 of the UCC as in effect in any state where such RPA Seller's chief executive offices or books and records relating to the Receivables are located) with respect to the Receivables now existing and hereafter created in respect of each Account (including Receivables in Additional Accounts), meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the sale of the Receivables from such RPA Seller to Buyer, and (ii) to deliver a file-stamped copy of such financing statements or other evidence of such filings (which may, for purposes of this Section 2.1, consist of telephone ----------- 2 confirmations of such filings) to Buyer (or to the Owner Trustee, if Buyer so directs) on or prior to the SMT Termination Date. (d) On the SMT Termination Date, RPA Sellers shall deposit in the Collection Account an amount equal to the amount that Buyer is required to deposit therein pursuant to Section 8.4 of the Indenture. ----------- (e) If the arrangements with respect to the Receivables hereunder shall constitute a loan and not a purchase and sale of such Receivables, it is the intention of the parties hereto that this Agreement shall constitute a security agreement under applicable law, and that each RPA Seller shall be deemed to have granted to Buyer a first priority perfected security interest in all of such RPA Seller's right, title, and interest, whether owned on the SMT Termination Date or thereafter acquired, in, to and under the Receivables conveyed by such RPA Seller, and all money, accounts, general intangibles, chattel paper, instruments, documents, goods, investment property, deposit accounts, certificates of deposit, letters of credit, and advices of credit consisting of, arising from or related to the Receivables, to secure its obligations hereunder. Section 2.2 Addition of Additional Accounts. (a) If from time to time, ------------------------------- Buyer becomes obligated to designate Additional Accounts pursuant to Section ------- 2.6(a) of the Transfer and Servicing Agreement (or any other provision thereof - ------ calling for compliance with the procedures set forth in such Section 2.6(a)), --------------- then Buyer shall give RPA Sellers written notice thereof on or before the Notice Date prior to the Addition Date therefor and RPA Sellers shall on or before the Addition Date designate sufficient Eligible Accounts to be included as Additional Accounts so that after the inclusion thereof Buyer will be in compliance with the requirements of said Section 2.6(a). Additionally, subject -------------- to the limitations, if any, on Buyer's ability to add Additional Accounts under Section 2.6(b) of the Transfer and Servicing Agreement, from time to time - -------------- Eligible Accounts may be designated to be included as Additional Accounts, upon the mutual agreement of Buyer and RPA Sellers. In either event, RPA Sellers shall have responsibility for selecting the Additional Accounts and shall on or prior to the Addition Date therefore execute and deliver a Supplemental Conveyance identifying the Additional Accounts by account number and Receivables balance and Principal Receivables balance as of the Addition Date, which Supplemental Conveyance shall be effective upon receipt by Buyer. (b) On or before each Addition Date with respect to Additional Accounts added pursuant to Section 2.2(a), FCNB (i) shall indicate or cause to be -------------- indicated in its books and records and in the computer files of the Receivables that the Receivables created in connection with such Additional Accounts have been sold to Buyer in accordance with this Agreement and transferred by Buyer to the Issuer pursuant to the Transfer and Servicing Agreement, and (ii) shall deliver or cause to be delivered to Buyer a computer file or microfiche list containing a true and complete list of all Additional Accounts designated in the respective Supplemental Conveyance or, if Buyer shall so direct, such computer file or microfiche list shall be delivered to the Owner Trustee pursuant to the Transfer and Servicing Agreement. FCNB's failure to deliver or cause to be delivered the list prior to termination shall not be deemed to render such transfer executory or uncompleted. (c) At any time that Receivables in an Eligible Account are required to be transferred to the Issuer pursuant to Section 2.6(e) of the Transfer and -------------- Servicing Agreement, such Eligible 3 Account shall, until notice from FCNB or Buyer to the other parties hereto to the contrary, automatically be designated to be included as an Account effective as of the date specified in Section 2.6(e) of the Transfer and Servicing -------------- Agreement. FCNB shall on or before five Business Days after the first day of each calendar month next succeeding the Monthly Period of such conveyance execute a Supplemental Conveyance solely for the purposes of confirming the transfer and assignment of such included Accounts under this Section 2.2(c) and -------------- identifying all such included Accounts so designated during the preceding Monthly Period, by account number and the aggregate amount of the Receivables and the aggregate amount of Principal Receivables in such included Accounts as of such fifth Business Day. (d) On or before five Business Days after the first day of the Monthly Period next succeeding the calendar month in which Accounts were included pursuant to Section 2.2(c), FCNB (i) shall indicate or cause to be indicated in -------------- its books and records and in the computer files of the Receivables that the Receivables created in connection with such included Accounts have been sold to Buyer in accordance with this Agreement and transferred by Buyer to the Issuer pursuant to the Transfer and Servicing Agreement and (ii) shall deliver or cause to be delivered to Buyer a computer file or microfiche list containing a true and complete list of all such included Accounts identified in the respective Supplemental Conveyance, or, if Buyer shall so direct, such computer file or microfiche list shall be delivered to the Owner Trustee pursuant to the Transfer and Servicing Agreement. Section 2.3 Sellers of Receivables. The parties acknowledge and agree that ---------------------- Eligible Receivables arising under Additional Accounts prior to the applicable Addition Date may on each Addition Date be transferred to Buyer hereunder by either RPA Seller, as the RPA Sellers may agree between themselves without the necessity of any consent or approval of any other Person, but that in any event Eligible Receivables arising under Additional Accounts on or after the applicable Addition Date and which are to be transferred to Buyer hereunder shall be so transferred by FCNB. ARTICLE III CONSIDERATION AND PAYMENT Section 3.1 Purchase Price. Except as provided in Section 3.2, the Purchase -------------- ----------- Price for all Receivables (including Receivables in Additional Accounts) conveyed to the Buyer under this Agreement shall be a dollar amount equal to the total recorded unpaid balance of such Receivables (including Principal Receivables and Finance Charge Receivables) on the date conveyed to Buyer hereunder. Section 3.2 Payment of Purchase Price. The Purchase Price for Receivables ------------------------- shall be paid or provided for on the SMT Termination Date, each Addition Date and each Settlement Date, as the case may be, in either of the following ways (or any combination thereof) as Buyer and the appropriate RPA Seller may mutually agree from time to time: (i) by payment in cash in immediately available funds; or (ii) by the sale, transfer, and assignment from Buyer to the appropriate RPA Seller of an undivided participation in the Seller Interest, entitling such seller to receive a portion of all payments made to the holder of the Seller Interest in the proportion that the principal amount of the purchased Receivables not paid for in cash as provided in clause (i) ---------- 4 above bears to the Principal Receivables evidenced by the Seller Interest. In the absence of any agreement to the contrary, any portion of the Purchase Price not paid in cash on the SMT Termination Date, any Addition Date (other than Addition Dates arising under Section 2.2), or Settlement Date shall ----------- automatically be deemed the purchase of a participation in the Seller Interest in accordance with the terms of this Section 3.2 in an amount equal to the ----------- unpaid portion of the Purchase Price payable on such date, which participation interest shall be evidenced by the Settlement Statement as provided in Section 3.4. - ----------- Section 3.3 Adjustments to Purchase Price. The Purchase Price payable to ----------------------------- each RPA Seller shall be adjusted on a monthly basis to reflect any Credit Adjustment. Section 3.4 Settlement. On each Determination Date under the Transfer and ---------- Servicing Agreement (herein, a "Settlement Date"), FCNB shall deliver or cause ---------------- to be delivered to Buyer a Settlement Statement in substantially the form of Exhibit C, showing the aggregate amount of Receivables conveyed by each RPA - --------- Seller from the previous Settlement Date (or from the SMT Termination Date in the case of the first Settlement Date) to such date, the amount of all payments of the Purchase Price received by each RPA Seller prior to such Settlement Date in respect of such Receivables, any Credit Adjustments to be made pursuant to Section 3.4, and the settlements of the remaining Purchase Price for such - ----------- Receivables to be made as of such Settlement Date between Buyer and each RPA Seller in accordance with Section 3.3. The balance due, if any, from Buyer to an ----------- RPA Seller as reflected in immediately available funds, or, unless otherwise agreed, shall automatically be deemed an assignment of an interest in the Seller Interest in accordance with Section 3.3 in an amount equal to the unpaid portion ----------- of the Purchase Price then due and payable, which participation shall be evidenced by the Settlement Statement. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1 RPA Seller's Representations and Warranties. Each RPA Seller, ------------------------------------------- but only as to itself and as to those Receivables, if any, transferred by it hereunder, hereby severally (and not jointly) represents and warrants to, and agrees with, Buyer as of the SMT Termination Date that: (a) Organization, Good Standing, and Qualification. SAC is a corporation ---------------------------------------------- duly organized and validly existing in good standing under the laws of the State of Delaware, and has full corporate power, authority, and right to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement. FCNB is a national banking association duly organized and validly existing and in good standing under the laws of the United States of America, and has full corporate power, authority, and right to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement. Such RPA Seller is duly qualified to do business and is in good standing in each State of the United States where the nature of its business requires it to be so qualified. 5 (b) Due Authorization. The execution and delivery of this Agreement, any ----------------- Supplemental Conveyance, the Transfer and Servicing Agreement, or any other document or instrument delivered pursuant hereto or thereto (the "Conveyance ---------- Papers"), to the extent that such RPA Seller is party thereto, and the - ------ consummation of the transactions provided for in this Agreement or any such other Conveyance Paper, have been duly authorized by all necessary corporate action on the part of such RPA Seller. (c) No Conflict. The execution and delivery of the Conveyance Papers, the ----------- performance of the transactions contemplated by the Conveyance Papers, and the fulfillment of the terms of the Conveyance Papers will not conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a material default under, any Indenture, contract, agreement, mortgage, deed of trust, or other instrument to which such RPA Seller is a party or by which it or any of its properties are bound. (d) No Violation. The execution and delivery of the Conveyance Papers, the ------------ performance of the transactions contemplated by the Conveyance Papers, and the fulfillment of the terms of the Conveyance Papers will not conflict with or violate any material Requirements of Law applicable to such RPA Seller. (e) No Proceedings. There are no proceedings or investigations pending or, -------------- to the best knowledge of such RPA Seller, threatened against such RPA Seller, before any Governmental Authority (i) asserting the invalidity of the Conveyance Papers, (ii) seeking to prevent the consummation of any of the transactions contemplated by the Conveyance Papers, (iii) seeking any determination or ruling that, in the reasonable judgment of such RPA Seller, would materially and adversely affect the performance by such RPA Seller of its obligations under the Conveyance Papers, or (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of the Conveyance Papers. (f) All Consents Required. All approvals, licenses, authorizations, --------------------- consents, orders, or other actions of any Person or of any Governmental Authority required in connection with the execution and delivery of the Conveyance Papers by such RPA Seller, the performance by such RPA Seller of the transactions contemplated by the Conveyance Papers, and the fulfillment by such RPA Seller of the terms of the Conveyance Papers, have been obtained. (g) Identification of Accounts and Receivables. As of the SMT Termination ------------------------------------------ Date, FCNB or SAC, as appropriate, has (i) indicated or caused to be indicated in its books and records and in the computer files of the Receivables that Receivables created in respect of the Accounts have been sold to Buyer in accordance with this Agreement and transferred to the Issuer pursuant to the Transfer and Servicing Agreement for the benefit of Noteholders and (ii) has delivered or caused to be delivered to Buyer (or to the Owner Trustee, if so directed by Buyer) a computer file or microfiche list containing a true and complete list of all such Accounts, identified by account number and by the Receivable balance as of the SMT Termination Date. (h) Existing Financing Statements. There is no financing statement or ----------------------------- similar statement or instrument of registration naming such RPA Seller as "debtor", "transferor" or similar party (other than those, if any, which have been released or terminated or the scope of which has otherwise been effectively limited) under the law of any jurisdiction now on file or 6 registered in any public office covering any interest of any kind in the Accounts or Receivables, or intended so to be, and such RPA Seller will not execute or authorize there to be on file in any public office any financing statement or similar statement or instrument of registration under the laws of any jurisdiction relating to the Accounts or Receivables, except (i) any financing statements or assignments to be filed in respect of and covering any security or other interest of Buyer or the Indenture Trustee pursuant to this Agreement or the Transfer and Servicing Agreement, and (ii) any financing statements filed against FCNB with respect to its regular transfers of receivables to SAC. (i) Filings. All filings and recordings required to perfect the title of ------- Buyer to the Receivables purchased hereunder have been or will have been accomplished by the SMT Termination Date and each Addition Date and are in full force and effect, and such RPA Seller shall at its expense perform all acts and execute all documents reasonably requested by Buyer at any time to evidence, perfect, maintain, and enforce the title of Buyer in such Receivables and the transfer thereof to the Issuer. Such RPA Seller will, at the reasonable request of Borrower, execute and file additional financing statements reasonably satisfactory in form and substance to Buyer. All filings and recordings required to perfect the title of SAC the Receivables to be transferred by it to Buyer pursuant to Sections 2.3(a)(i) and 2.3(b) have been accomplished and are in full ------------------ ------ force and effect. (j) Binding Obligations. The Conveyance Papers to which such RPA Seller is ------------------- party constitute legal, valid and binding obligations of such RPA Seller, enforceable against such RPA Seller in accordance with their terms, except as such enforceability may be limited by Debtor Relief Laws and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). (k) Valid Conveyance. As of the SMT Termination Date, the Conveyance Papers ---------------- then in existence constitute a valid sale, assignment, and conveyance to Buyer of all right, title and interest of such seller in, to, and under the Receivables then existing and thereafter created in the Accounts (other than Receivables in the Additional Accounts), all monies due or to become due with respect thereto (including all Finance Charge Receivables), together with all Collections, Recoveries and other proceeds of such Receivables and Insurance Proceeds relating thereto, and such property will be owned free and clear of any Lien of any Person claiming through or under such RPA Seller and its Affiliates, except for Liens permitted under Section 5.1(d). -------------- (l) Eligibility of Receivables. Such RPA Seller hereby represents and -------------------------- warrants to Buyer as of the SMT Termination Date that (i) as of the SMT Termination Date, Schedule 1 to this Agreement and the computer file or ---------- microfiche list delivered pursuant to Section 2.1(b) is an accurate and complete -------------- listing in all material respects of all the Accounts as of the SMT Termination Date and the information contained therein with respect to the identity of such Accounts and the Receivables existing thereunder is true and correct in all material respects as of the SMT Termination Date, (ii) each Receivable then existing is an Eligible Receivable, (iii) each Receivable then existing has been conveyed to Buyer free and clear of any Lien of any Person and in compliance, in all material respects, with all Requirements of Law applicable to such RPA Seller and (iv) with respect to each Receivable then existing, all consents, licenses, approvals, or authorizations of or registrations or declarations with any Governmental Approval 7 required to be obtained, effected or given by such RPA Seller in connection with the transfer of such Receivable to Buyer have been duly obtained, effected, or given and are in full force and effect. On each day on which any new Receivable is conveyed by such RPA Seller to Buyer hereunder, such RPA Seller shall be deemed to represent and warrant to Buyer that (i) each Receivable conveyed on such day is an Eligible Receivable, (ii) each Receivable conveyed on such day has been conveyed to Buyer free and clear of any Lien of any Person and in compliance, in all material respects, with all Requirements of Law applicable to such RPA Seller, (iii) with respect to each such Receivable, all consents, licenses, approvals or authorizations of or registrations or declarations with, any Governmental Authority required to be obtained, effected, or given by such RPA Seller in connection with the conveyance of such Receivable to the Issuer have been duly obtained, effected or given and are in full force and effect, and (iv) the representations and warranties set forth in Sections 4.1(j) and (k) are --------------- --- true and correct with respect to each Receivable transferred on such day as if made on such day. (m) Security Interest Receivables. The representations, warranties and ----------------------------- covenants contained in Schedule 3 to this Agreement are true and correct as of ---------- the date hereof. (n) Eligible Accounts. As of the SMT Termination Date, each Account (other ----------------- than Additional Accounts) is an Eligible Account. (o) Selection Procedures. No selection procedures believed by such RPA -------------------- Seller to be materially adverse to the interests of Buyer or its successors and assigns were utilized by such RPA Seller in selecting the Accounts. (p) FDIC Insurance. FCNB's deposits are insured by the Federal Deposit -------------- Insurance Corporation ("FDIC"). ---- Section 4.2 RPA Sellers' Representations and Warranties Regarding ----------------------------------------------------- Additional Accounts. Each RPA Seller, but only as to itself and as to those - ------------------- Receivables, if any, transferred by it hereunder, hereby severally (and not jointly) represents and warrants, and agrees with Buyer, as of each Addition Date, that: (a) Reconfirmation of Representations and Warranties. All representations ------------------------------------------------ and warranties made by such RPA Seller pursuant to Section 4.1 remain true and ----------- correct in all respects as of such Addition Date as if made on such date. (b) Identification of Accounts and Receivables. FCNB has, as of the ------------------------------------------ Addition Date with respect to Additional Accounts added pursuant Section 2.2(a), -------------- and will have, as of the fifth Business Day after the first day of the calendar month occurring after any Addition Date occurring under Section 2.2(c), (i) -------------- indicated or caused to be indicated in its books and records and in the computer files of the Receivables that Receivables created in respect of the Additional Accounts have been sold to Buyer in accordance with this Agreement and transferred to the Issuer pursuant to the Transfer and Servicing Agreement for the benefit of the Noteholders and (ii) delivered or caused to be delivered to Buyer (or to the Owner Trustee, if so directed by Buyer) a computer file or microfiche list containing a true and correct list of all such Additional Accounts, identified by account number and by the Receivable balance as of the Addition Date for Additional Accounts added pursuant to Section 2.2(a) and as of -------------- such fifth Business Day of a 8 calendar month with respect to Additional Accounts added pursuant to Section ------- 2.2(b) and any such computer file or microfiche list is or will be an accurate - ------ and complete listing in all material respects of all the Additional Accounts as of the Addition Date or as of such fifth Business Day and the information contained therein with respect to the identity of such Additional Accounts and the Receivables existing thereunder is true and correct in all material respects as of such date. (c) Eligibility of Accounts. Each Additional Account is, as of the Addition ----------------------- Date, an Eligible Account. (d) Selection Procedures. The Additional Accounts were assigned randomly to -------------------- Cycles by FCNB. No selection procedures believed by such RPA Seller to be materially adverse to the interests of Buyer or its successors and assigns were utilized by such RPA Seller in selecting the Additional Accounts from available Eligible Accounts. (e) Insolvency. Such RPA Seller is not insolvent as of the Addition Date. ---------- (f) Bankruptcy Proceeding. Such RPA Seller has not filed a voluntary --------------------- proceeding under the Debtor Relief Laws and has no knowledge of the filing of any involuntary proceeding against it under such laws. (g) Valid Conveyance. As of each Addition Date, a valid sale, assignment ---------------- and conveyance to Buyer of all right, title, and interest of such RPA Seller in, to, and under the Receivables then existing and thereafter created in respect of the Additional Accounts, all monies due or to become due with respect thereto (including all Finance Charge Receivables), together with all proceeds of such Receivables and Insurance Proceeds relating thereto, has been consummated and such property will be held free and clear of any Lien of any Person claiming through or under such RPA Seller and its Affiliates, except for Liens permitted under Section 5.1(d). -------------- Section 4.3 Representations and Warranties of Buyer. As of the SMT --------------------------------------- Termination Date, and each Addition Date, Buyer hereby represents and warrants to, and agrees with, the RPA Sellers that: (a) Organization and Good Standing. Buyer is a corporation duly organized ------------------------------ and validly existing in good standing under the laws of the State of Delaware and has full corporate power, authority, and right to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver, and perform its obligations under the Conveyance Papers. (b) Due Qualification. Buyer is neither required to qualify, nor to ----------------- register, as a foreign corporation in any state in order to conduct its business, and has obtained all necessary licenses and approvals with respect to Buyer required under federal and Delaware law. (c) Due Authorization. The execution and delivery of the Conveyance Papers ----------------- and the consummation of the transactions provided for in the Conveyance Papers have been duly authorized by Buyer by all necessary corporate action on the part of Buyer. 9 (d) No Conflict. The execution and delivery of the Conveyance Papers, the ----------- performance of the transactions contemplated by the Conveyance Papers and the fulfillment of the terms of the Conveyance Papers will not conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a material default under, any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which Buyer is a party or by which it or any of its properties are bound. (e) No Violation. The execution and delivery of the Conveyance Papers, the ------------ performance of the transactions contemplated by the Conveyance Papers, and the fulfillment of the terms of the Conveyance Papers will not conflict with or violate any Requirements of Law applicable to Buyer. (f) No Proceedings. There are no proceedings or investigations pending or, -------------- to the best knowledge of Buyer, threatened against Buyer, before any Governmental Authority (i) asserting the invalidity of the Conveyance Papers, (ii) seeking to prevent the consummation of any of the transactions contemplated by the Conveyance Papers, (iii) seeking any determination or ruling that, in the reasonable judgment of Buyer, would materially and adversely affect the Papers, or (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of the Conveyance Papers. (g) All Consents Required. All approvals, authorizations, licenses, --------------------- consents, orders, or other actions of any Person or of any Governmental Authority required in connection with the execution and delivery of the Conveyance Papers, the performance of the transactions contemplated by the Conveyance Papers, and the fulfillment of the terms of the Conveyance Papers have been obtained. Section 4.4 Other Matters. ------------- (a) The representations and warranties set forth in this Article IV shall ---------- survive the conveyance of the Receivables to Buyer, and termination of the rights and obligations of the Buyer and RPA Sellers under this Agreement. Upon discovery by Buyer or an RPA Seller of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the others. (b) In no event shall Buyer be liable to either RPA Seller on account of breach of any representation or warranty of Buyer set forth herein. ARTICLE V COVENANTS OF RPA SELLERS AND BUYER Section 5.1 RPA Seller Covenants. Each RPA Seller, but only as to itself -------------------- and as to those Receivables, if any, transferred by it hereunder, hereby severally (and not jointly) covenants and agrees with Buyer as follows: (a) Charge Account Agreements and Charge Account Guidelines. FCNB shall ------------------------------------------------------- comply with and perform its obligations under the Charge Account Guidelines, except insofar as 10 any failure to so comply or conform would not materially and adversely affect the rights of the Indenture Trustee and Noteholders under the Transfer and Servicing Agreement or under the Notes. In that regard, except as aforesaid, and so long as such changes are made applicable to comparable segments of the charge accounts originated by FCNB which have characteristics the same as, or substantially similar to, the Accounts pursuant to which the Receivables were created, FCNB shall be free to change the terms and provisions of such Charge Account Agreements or the Charge Account Guidelines in any respect (including the calculation of the amount, the timing, or charge-offs), and shall notify the Rating Agencies for changes that lower minimum payment terms, lower Finance Charge rates, change terms from fixed- to floating-rate, and any changes to delinquency and charge-off policies. (b) Finance Charges and Other Fees. Except (i) as otherwise required by any ------------------------------ Requirements of Law or (ii) as is consistent with the provisions of the Transfer and Servicing Agreement and all Supplements thereto and as is deemed by FCNB to be advisable for the charge account program based on a good faith assessment by FCNB of the various factors impacting the use of FCNB charge accounts, FCNB shall not reduce at any time (x) the Finance Charges assessed in respect of any Accounts or (y) any other fees charged on any of the Accounts, if as a result of any such reduction, FCNB's reasonable expectation of the Portfolio Yield as of such date would be less than the highest of the Base Rates for the Notes then outstanding. (c) Receivables Not to be Evidenced by Promissory Notes. FCNB will take no --------------------------------------------------- action to cause any Receivable to be evidenced by any instrument. (d) Security Interests. Except for the conveyances hereunder, (i) such RPA ------------------ Seller will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Receivable, whether now existing or hereafter created, or any interest therein; (ii) such RPA Seller will immediately notify Buyer and the Indenture Trustee of the existence of any Lien on any Receivable; and (iii) such RPA Seller shall defend the right, title, and interest of Buyer and its successors and assigns in, to, and under the Receivables, whether now existing or hereafter created, against all claims of third parties claiming through or under such RPA Seller; provided, however, that -------- ------- nothing in this Section 5.1(d) shall prevent or be deemed to prohibit such RPA -------------- Seller from suffering to exist upon any of the Accounts or Receivables any Liens for municipal or other local taxes if such taxes shall not at the time be due and payable or if such RPA Seller shall concurrently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. (e) Chief Executive Office; State of Organization. Each RPA Seller's chief --------------------------------------------- executive office and state of organization is identified on Schedule 2. Neither ---------- RPA Seller will relocate its chief executive office or state of organization, unless such RPA Seller shall have given to Buyer not less than 15 days' written notice of its intention to do so, clearly describing the new location or state of organization. If as a result of such relocation, the applicable provisions of the UCC or any other applicable law require the filing of any amendment to any previously-filed financing or continuation statement or the filing of a new financing statement, the appropriate RPA Seller shall file such financing statement or amendment as may be necessary with respect to the transfer of accounts (as defined in Section 9-102 of the UCC in effect in the State of Illinois). 11 Additionally, FCNB shall clearly and unambiguously identify or cause to be identified each Account (including any Additional Account designated pursuant to Section 2.2) in its computer records relating to the Receivables, to reflect - ----------- that the Receivables arising in such Account have been sold to Buyer and transferred by Buyer to the Issuer pursuant to the Transfer and Servicing Agreement. Such RPA Seller shall, prior to the sale or transfer to a third party of any receivable owned by such RPA Seller or held in its custody, examine its books and records, including any computer records, to determine that such receivable is not a Receivable. (f) Change of Name or Corporate Structure. Within 30 days after such RPA ------------------------------------- Seller makes any change in its name, identity, or corporate structure which would make any financing statement or continuation statement filed in accordance with Section 2.1 above seriously misleading within the meaning of Section 9-508 ----------- of the UCC as in effect in the state where such financing statement or continuation statement was filed, such RPA Seller shall file such financing statements or amendments as may be necessary with respect to the transfer of Accounts. (g) Further Assurances. Such RPA Seller will make, execute or endorse, ------------------ acknowledge, and file or deliver to Buyer from time to time such schedules, confirmatory assignments, conveyances, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Receivables and other rights covered by this Agreement, as Buyer may request and reasonably require. (h) Indemnification. Such RPA Seller agrees to indemnify, defend and hold --------------- Buyer harmless from and against any and all loss, liability, damage, judgment, claim, deficiency, or expense (including interest, penalties, reasonable attorneys' fees and amounts paid in settlement) to which Buyer may become subject insofar as such loss, liability, damage, judgment, claim, deficiency, or expense arises out of or is based upon (i) a breach by such RPA Seller of its warranties and covenants contained in Section 4.1 (provided, however, with ----------- -------- ------- respect to the representations and warranties contained in Sections 4.1(1) and --------------- (m) above the indemnification provided for herein shall apply only to a breach - --- involving a material amount of Accounts or Receivables) or (ii) the representations of such RPA Seller contained in Section 4.2, or any information ----------- certified in any Schedule delivered by such RPA Seller hereunder, being untrue in any material respect at any time. The obligations of the RPA Sellers under this Section 5.1(h) shall be considered to have been relied upon by Buyer and -------------- shall survive the execution, delivery, and performance of this Agreement regardless of any investigation made by Buyer or on its behalf. (i) Municipal and Local Taxes. FCNB or the Servicer shall be responsible ------------------------- for collecting all state, local, and municipal taxes associated with the Accounts and Receivables and for remitting the same to the appropriate Governmental Authority, together with all tax returns, reports, or affidavits required by such Governmental Authority in connection therewith. (j) Conveyance of Accounts. Such RPA Seller shall not convey, assign, ---------------------- exchange, or otherwise transfer the Accounts to any Person prior to termination of this Agreement, and the Transfer and Servicing Agreement. 12 (k) Non-Petition. Each RPA Seller hereby covenants and agrees that prior to ------------ the date which is one year and one day after the Scheduled Trust Termination Date, it will not institute against, or join any other person in instituting against, Buyer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under any federal or state bankruptcy or similar law; provided, however, that, while the Notes are outstanding, the agreement of the - -------- ------- RPA Sellers set forth in this sentence will terminate and be of no force and effect if the absence of such agreement would not in and of itself result in the lowering, suspension or withdrawal by Standard and Poor's, if such rating agency then rates the Notes, or by Moody's, if such rating agency then rates the Notes, of their respective ratings of the Notes. Nothing in this Section 5.1(1) shall -------------- preclude, or be deemed to estop, either RPA Seller (a) from taking or omitting to take any action prior to such date (i) in any case or proceeding voluntarily filed or commenced by or on behalf of Buyer under or pursuant to any such law or (ii) except for joining in the involuntary petition, in any involuntary case or proceeding pertaining to Buyer which is filed or commenced by or on behalf of a Person other than an RPA Seller (or any Person to which an RPA Seller shall have assigned, transferred or otherwise conveyed any part of its obligations hereunder) under or pursuant to any such law or (b) from commencing or prosecuting any legal action which is not an involuntary case or proceeding under or pursuant to any such law against Buyer or any of its properties. (l) Merger; Consolidation. FCNB shall not consolidate with or merge into --------------------- any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (i) the Person formed by such consolidation or into which FCNB is merged or the Person which acquires by conveyance or transfer the properties and assets of FCNB substantially as an entirety shall be, if FCNB is not the surviving entity, organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall be a national banking association, federal savings association, state banking corporation or state savings association which is not subject to the bankruptcy laws of the United States of America and shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Buyer, in form satisfactory to the Buyer, the performance of every covenant and obligation of FCNB, as applicable hereunder, and shall benefit from all the rights granted to FCNB, as applicable hereunder. To the extent that any right, covenant or obligation of FCNB, as applicable hereunder, is inapplicable to the successor entity, such successor entity shall be subject to such covenant or obligation, or benefit from such right, as would apply to the extent practicable, to such successor entity; (ii) FCNB shall have delivered to the Buyer an Officer's Certificate and an Opinion of Counsel, each, in form and substance reasonably acceptable to the Buyer, stating that such consolidation, merger, conveyance or transfer and such supplemental agreement comply with this Agreement and that all conditions precedent herein provided for relating to such transaction have been complied with and, in the case of the Opinion of Counsel, that such supplemental agreement is legal, valid and binding with respect to FCNB; and 13 (iii) FCNB shall have notified the Rating Agencies of such actions in writing. Section 5.2 Buyer Covenants Regarding Nondisclosure; Inspection. Buyer --------------------------------------------------- hereby covenants and agrees with the RPA Sellers (and agrees to cause the Owner Trustee) not to disclose to any Person any of the account numbers or other information contained in the computer files or microfiche lists delivered to Buyer (or to Owner Trustee if buyer so directs) pursuant to Sections 2.1 and ------------ 2.2, and Section 4.2(b), 7.1(c) and 7.2(c), except (i) as is required in - --- -------------- ------ ------ connection with the performance of the Owner Trustee's duties under the Transfer and Servicing Agreement or in enforcing the rights of the Noteholders and (ii) such disclosures as are required upon appointment of a successor Servicer under the Transfer and Servicing Agreement. Buyer agrees (and shall cause the Owner Trustee) to take such measures as shall be reasonably requested by either RPA Seller to protect and maintain the security and confidentiality of such information, and in connection therewith, shall allow the RPA Sellers to inspect the applicable security and confidentiality arrangements from time to time in normal business hours. Buyer shall (and shall cause the Owner Trustee to) give the RPA Sellers five days prior written notice of any disclosure pursuant to this Section 5.2. ----------- ARTICLE VI REPURCHASE OBLIGATION Section 6.1 Mandatory Repurchase. -------------------- (a) Ineligible Receivables. Each RPA Seller agrees that all representations ---------------------- and warranties made by it with respect to any Account or Receivable pursuant to Section 4.1 and 4.2 of the Amended and Restated Receivables Purchase Agreement - ----------- --- dated as of December 13, 1994 shall be deemed for all purposes to have been made pursuant to this Agreement as of the day when each was made or deemed made, as if this Agreement had been in effect on that day. Except as hereinafter provided, in the event of a breach by an RPA Seller of any representation and warranty of such RPA Seller set forth in Section 4.1(1), within 60 days (or with -------------- the prior written consent of Buyer, such longer period specified in such consent) of the earlier to occur of the discovery of such breach by such RPA Seller, or receipt by such RPA Seller of written notice of such breach given by Buyer, such RPA Seller shall repurchase and Buyer shall convey, without recourse, representation, or warranty, all of Buyer's right, title, and interest in each Principal Receivable to which such breach relates (an "Ineligible ---------- Receivable") on the terms and conditions set forth below; provided, however, - ---------- -------- ------- that no such repurchase shall be required to be made with respect to such Ineligible Receivable if, on any day within such 60-day period (or such longer period as may be specified in the consent), either (i) the representations and warranties of such RPA Seller in the second sentence of Section 4.1(1) with -------------- respect to such Ineligible Receivable shall then be true and correct in all material respects with respect to such Ineligible Receivable as if such Ineligible Receivable had been conveyed to Buyer on such day, or (ii) the aggregate amount of Ineligible Receivables outstanding at any time and with respect to which such representations and warranties continue to be incorrect in any material respect does not in the sole reasonable judgment of an officer of Buyer have a material adverse effect on the interest of the Issuer in the Receivables as a whole, including the ability of the Servicer in its sole reasonable judgment to collect the Receivables. Notwithstanding anything contained in this 14 Section 6.1(a) to the contrary, in the event of breach of any representation and - -------------- warranty of an RPA Seller set forth in Section 4.1(1) with respect to (x) each -------------- Receivable existing as of the SMT Termination Date or an Addition Date, as applicable, and (y) each new Receivable acquired by Buyer hereunder, having been conveyed to Buyer free and clear of any Lien of any Person claiming through or under such RPA Seller and its Affiliates and in compliance in all material respects with all Requirements of Law applicable to such RPA Seller, immediately upon the earlier to occur of the discovery of such breach by such RPA Seller, or receipt by such RPA Seller of written notice of such breach given by Buyer, such RPA Seller shall repurchase and Buyer shall convey, without recourse, representation or warranty, all of Buyer's right, title and interest in each Ineligible Receivable affected by such breach. (b) Breach. In the event of a breach of the representations and warranties ------ of an RPA Seller set forth in Sections 4.1(j) and (k), Buyer may give such RPA --------------- --- Seller written notice directing such RPA Seller to repurchase all of the Principal Receivables transferred by such RPA Seller hereunder within 45 days after such notice (or within such longer period as may be specified in such notice); whereupon, such RPA Seller shall repurchase and Buyer shall convey to such RPA Seller, without recourse, representation, or warranty, all of Buyer's right, title and interest in all of the Principal Receivables transferred by such RPA Seller, on a Settlement Date first occurring after such applicable period on the terms and conditions set forth below; provided, however, that no -------- ------- such repurchase by an RPA Seller shall be required to be made if, at any time during such applicable period the representations and warranties of such RPA Seller contained in Sections 4.1(j) and (k) shall then be true and correct in --------------- --- all material respects. (c) Repurchase Price. The Repurchase Price for the Principal Receivables ---------------- shall be an amount equal to: (i) for Ineligible Receivables repurchased pursuant to Section 6.1(a), the aggregate face amount of each such Ineligible Receivable -------------- on the date of repurchase, and (ii) for Principal Receivables repurchased pursuant to Section 6.1(b), an amount equal to the "deposit amount" paid -------------- pursuant to Section 2.4(e) of the Transfer and Servicing Agreement. Payment of -------------- the Repurchase Price may be made, at the option of the repurchasing RPA Seller: (i) in immediately available funds; (ii) as a reduction in such RPA Seller's interest in and to any participation interest in the Seller Interest in an amount equal to the unpaid portion of the Repurchase Price; or (iii) any combination of the foregoing; provided, however, that such RPA Seller must make -------- ------- payment of a sufficient portion of the Repurchase Price in immediately available funds to enable Buyer to make any cash payment to the Issuer then required under the Transfer and Servicing Agreement. Section 6.2 Optional Repurchases. (a) Buyer shall have the option to -------------------- require either RPA Seller to repurchase all of Buyer's rights, titles, and interests in, to, and under all Receivables transferred by such RPA Seller hereunder and created pursuant to certain Accounts designated by Buyer (the "Removed Accounts"); provided that, Buyer shall only be entitled to require such ---------------- -------- ---- repurchase (i) if Buyer is able to effect a retransfer of such Receivables from the Issuer in compliance with Section 2.7 of the Transfer and Servicing ----------- Agreement, (ii) if Buyer and both RPA Sellers mutually agree as to the designation of the Removed Accounts, and (iii) the repurchasing RPA Seller shall deliver an Opinion of Counsel reasonably acceptable to Buyer and the Indenture Trustee that such repurchase would not constitute a fraudulent conveyance by such RPA Seller. On or before the fifth Business Day (the "Repurchase Notice ----------------- Date") prior to the date on which the Removed Accounts will be designated by - ---- Buyer, Buyer shall give the repurchasing 15 RPA Seller or RPA Sellers (as the case may be) written notice of its election to require such RPA Seller or RPA Sellers to so repurchase the Receivables of the Removed Accounts on the date specified in such notice (the "Repurchase Date"). --------------- The Repurchase Price for an optional repurchase effected pursuant to this Section 6.2(a) shall be for Receivables purchased pursuant to Section 2.7 of the - -------------- ----------- Transfer and Servicing Agreement, an amount equal to the total recorded unpaid balance of such repurchased Receivables (including Principal Receivables and Finance Charge Receivables) on the Repurchase Date. Upon execution and delivery of any Reconveyance effecting any repurchase as contemplated in this Section ------- 6.2(a), Buyer shall have no further right, title, or interest in any Receivables - ----- from the Removed Accounts. (b) Payment of the Repurchase Price as specified in Section 6.2(a) above -------------- shall be made in any manner provided for in Section 6.1; provided, however, that ----------- -------- ------- the repurchasing RPA Seller must make payment of a sufficient portion of the Repurchase Price in immediately available funds to enable Buyer to make any cash payment to the Issuer then required under the Transfer and Servicing Agreement. Section 6.3 Conveyance of Repurchased Receivables. On or prior to the date ------------------------------------- that an RPA Seller is required to repurchase Receivables under Section 6.1, or ----------- on the date an RPA Seller is permitted to purchase any Receivables under Section ------- 6.2, or on any Repurchase Date, as the case may be, Buyer shall execute and - --- deliver to the repurchasing RPA Seller a Reconveyance substantially in the form and upon the terms of Exhibit B, pursuant to which Buyer conveys to such RPA --------- Seller all of Buyer's right, title, and interest in the Receivables to be repurchased by such seller and, with respect to repurchases effected pursuant to Section 6.2, within three Business Days thereafter, a computer file or - ----------- microfiche list containing a true and complete list of all Removed Accounts identified by account number and the aggregate Receivable balances to be repurchased by such RPA Seller in such Removed Accounts as of the Repurchase Notice Date. Buyer shall (and shall cause the Indenture Trustee to) execute such other documents or instruments of conveyance or take such other actions as the repurchasing RPA Seller may reasonably require to effect any repurchase of Receivables pursuant to this Article VI. ---------- Section 6.4 Sole Remedy. The obligation of an RPA Seller to repurchase ----------- Ineligible Receivables pursuant to Section 6.1 shall constitute the sole remedy ----------- available to Buyer, the Indenture Trustee, any Noteholder, any Servicer, any Enhancement Provider or any other Person respecting any breach of the representations and warranties set forth in Sections 4.1(j), (k), (l) and (m) --------------- --- --- --- with respect to such Receivables. Section 6.5 Selection of Removed Accounts. By giving the written notice on ----------------------------- the Repurchase Notice Date as required in Section 6.2 and by acceptance of the ----------- Reconveyance, an RPA Seller represents and warrants that no selection procedures believed by such RPA Seller to be materially adverse to the interests of Buyer or the holders of the Notes were utilized in selecting the Removed Accounts. Section 6.6 Assignment of Repurchase Rights and Obligations. The RPA ----------------------------------------------- Sellers may elect (between themselves, and without the necessity of any consent or approval of any other Person) that any repurchase of Receivables required or permitted to be effected by an RPA Seller (the "Assignor RPA Seller") under ------------------- Section 6.1 or Section 6.2 may be effected by the other RPA Seller (the - ----------- ----------- "Assignee RPA Seller"), with such election to be made by the RPA Sellers' ------------------- delivery 16 to Buyer of notice, not more than two Business Days prior to the date of such repurchase (or such later time as to which Buyer may consent) of such election, which notice shall identify the Receivables subject to such election. Upon delivery of such notice all rights and obligations of the Assigner RPA Seller in respect of such repurchase shall be automatically assigned to the Assignee RPA Seller, the Assignor RPA Seller shall have no rights, liabilities or obligations in respect of such repurchase, and such repurchase shall thereupon be consummated by and in the name of the Assignee RPA Seller. ARTICLE VII CONDITIONS PRECEDENT Section 7.1 Conditions to Buyer's Obligations Regarding Initial --------------------------------------------------- Receivables. The obligations of Buyer to purchase the Receivables in Accounts on - ----------- the SMT Termination Date shall be subject to the satisfaction of the following conditions: (a) All representations and warranties of the RPA Sellers contained in this Agreement shall be true and correct on the SMT Termination Date with the same effect as though such representations and warranties had been made on such date; (b) All information concerning the Accounts provided to Buyer shall be true and correct as of the SMT Termination Date in all material respects; (c) FCNB shall have delivered or caused to be delivered to Buyer a computer file or microfiche list containing a true and complete list of all Accounts identified by account number and by the Receivables balance as of the SMT Termination Date, and the RPA Sellers shall have substantially performed all other obligations required to be performed by the provisions of this Agreement; (d) Each RPA Seller shall have recorded and filed, at its expense, any financing statement with respect to the Receivables (other than Receivables in Additional Accounts) now existing and hereafter created for the transfer of accounts (as defined in Section 9-102 of the UCC as in effect in the State of Illinois) meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the sale of the Receivables to Buyer, and shall have delivered a file-stamped copy of such financing statements or other evidence of such filings (which may, for purposes of this paragraph, consist of telephone confirmations of such filings) to Buyer; (e) On or before the SMT Termination Date, the Transfer and Servicing Agreement shall have been duly executed and delivered by the parties thereto and the initial closing under the Transfer and Servicing Agreement shall take place simultaneously with the initial closing hereunder; and (f) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to Buyer, and Buyer shall have received from the RPA Sellers copies of all documents (including records of corporate proceedings) relevant to the transactions herein contemplated as Buyer may reasonably have requested. 17 Section 7.2 Conditions to Buyer's Obligations Regarding Supplemental -------------------------------------------------------- Conveyances. The obligations of Buyer to purchase any Receivables created under - ----------- any Additional Accounts shall be subject to the satisfaction of the following conditions: (a) All representations and warranties of the RPA Sellers contained in this Agreement shall be true and correct on the Addition Date with the same effect as though such representations and warranties had been made on such date; (b) All information concerning the Additional Accounts provided or to be provided to Buyer shall be true and correct in all material respects as of the Addition Date with respect to Additional Accounts added pursuant to Section ------- 2.2(a) and as of the fifth Business Day after the first day of the calendar - ----- month occurring after any Addition Date arising under Section 2.2(c); -------------- (c) On or before each Addition Date with respect to Additional Accounts added pursuant to Section 2.2(a) and on or before the fifth Business Day after -------------- the first day of the Monthly Period occurring after any Addition Date arising under Section 2.2(c): (i) FCNB shall have indicated or caused to be indicated in -------------- the computer files of the Receivables that Receivables created in respect of the Additional Accounts have been sold to Buyer in accordance with this Agreement and transferred to the Issuer pursuant to the Transfer and Servicing Agreement for the benefit of the Noteholders; (ii) FCNB shall have delivered or caused to be delivered to Buyer (or to the Owner Trustee, if so directed by Buyer) a computer file or microfiche list containing a true and correct list of all such Additional Accounts, identified by account number and by the Receivable balance as of the Addition Date for Additional Accounts added pursuant to Section 2.2(a) -------------- or as of such fifth Business Day of a Monthly Period with respect to Additional Accounts added pursuant to Section 2.2(c); and (iii) the RPA Seller shall have -------------- substantially performed all other obligations required to be performed by the provisions of this Agreement; (d) The appropriate RPA Seller or RPA Sellers shall have executed and delivered a Supplemental Conveyance in conform with the requirement of Section ------- 2.2; and - --- (e) Each RPA Seller shall have recorded and filed, at its expense, any financing statement with respect to the Receivables in such Additional Accounts now existing and hereafter created in connection with the transfer of accounts (as defined in Section 9-102 of the UCC as in effect in the State of Illinois) meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the sale of the Receivables to Buyer, and shall have delivered a file-stamped copy of such financing statements or other evidence of such filings (which may, for purposes of this paragraph, consist of telephone confirmations of such filings) to Buyer. Section 7.3 Conditions Precedent to RPA Sellers' Obligations. The ------------------------------------------------ obligations of an RPA Seller to sell Receivables on the SMT Termination Date and on any Addition Date shall be subject to the satisfaction of the following conditions: (a) All representations and warranties of Buyer contained in this Agreement shall be true and correct with the same effect as though such representations and warranties had been made on such date; 18 (b) Payment or provision for payment of the Purchase Price shall have been made in accordance with the provisions of Sections 3.3 and 3.4. ------------- --- (c) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the RPA Sellers, and the RPA Sellers shall have received from Buyer copies of all documents (including records of corporate proceedings) relevant to the transactions herein contemplated as the sellers may reasonably have requested. ARTICLE VIII TERM & TERMINATION Section 8.1 Term. This Agreement shall commence as of the date of execution ---- and delivery hereof and shall continue in full force and effect until: (a) the Issuer terminates; or (b) upon the occurrence of any of the following events: Buyer or either RPA Seller shall (i) become insolvent, (ii) fail to pay its debts generally as they become due, (iii) voluntarily seek, consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law, (iv) become a party to (or be made the subject of) any proceeding provided for by any Debtor Relief Law, other than as a creditor or claimant, and, in the event such proceeding is involuntary, (1) within 10 Business Days after Buyer or such RPA Seller, as applicable, has knowledge of such proceeding or the filing thereof either (x) the petition instituting same has not been dismissed or (y) an order has not been entered by the court having jurisdiction which allows continued transfer to the Issuer or Buyer, as applicable, of Principal Receivables, in the case of an RPA Seller's involuntary petition with no adverse effect to either Buyer, the Issuer or the Noteholders, and in the case of Buyer's involuntary petition with no adverse effect to either the Issuer or the Noteholders, or (2) an order as contemplated in (1)(y) above having previously been entered, is no longer in effect other than by reason of the termination of such proceeding; provided, however, that Buyer shall have no duty to continue to purchase - -------- ------- Receivables or accept designation of Additional Accounts from and after the filing of an involuntary petition but prior to dismissal; or (v) become unable for any reason to convey or reconvey Receivables in accordance with the provisions of this Agreement; provided, however, that the termination of this --------- ------ Agreement pursuant to this Section 8.1(b) shall not discharge any Person from -------------- any obligations incurred prior to such termination, including any obligations with respect to Receivables sold prior to such termination. Notwithstanding anything contained herein to the contrary, upon any termination of this Agreement, Buyer shall not purchase Receivables created or accept Additional Accounts designated on or after the date of such termination. Section 8.2 Effect of Termination. No termination or rejection or failure --------------------- to assume the executory obligations of this Agreement upon the bankruptcy of either RPA Seller or Buyer shall be deemed to impair or affect the obligations pertaining to any executed sale or executed obligations, including pre-termination breaches of representations and warranties by either RPA Seller or Buyer. Without limiting the foregoing, prior to termination, neither the failure of FCNB to deliver or cause to be delivered computer records of Additional Accounts or Settlement Statements, nor the failure of Buyer to pay a Settlement Statement shall render such transfer or obligation executory, nor shall the continued duties of the parties pursuant to Section 5 or Section 9.1 --------- ----------- of this Agreement render an executed sale executory. 19 ARTICLE IX MISCELLANEOUS PROVISIONS Section 9.1 Amendment. This Agreement and the other Conveyance Papers and --------- the rights and obligations of the parties hereunder may not be changed orally, but only by an instrument in writing signed by Buyer and the RPA Sellers, with prior notice to the Rating Agencies, in accordance with this Section 9.1. This ----------- Agreement and any other Conveyance Papers may be amended from time to time by Buyer and the RPA Sellers to correct or supplement any provisions herein or in any other Conveyance Papers which may be inconsistent with any other provisions herein or to add any other provisions with respect to matters or questions arising under this Agreement or any other Conveyance Papers which shall not be inconsistent with the provisions of this Agreement or any other Conveyance Papers; provided, however, that such action shall not adversely affect in any -------- ------- material respect the interests of the Indenture Trustee for the benefit of the Notes, unless the Indenture Trustee shall consent thereto. Any Supplemental Conveyance or Reconveyance executed in accordance with the provisions hereof shall not be considered amendments to this Agreement. Any amendment that modifies the Purchase Price or any obligation of Buyer or RPA Sellers must satisfy the Rating Agency Condition. Section 9.2 Governing Law. This Agreement and the other Conveyance Papers ------------- shall be construed in accordance with the laws of the State of Illinois, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. Section 9.3 Notices. All demands, notices and communications hereunder ------- shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by registered mail, return receipt requested, to (a) in the case of FCNB, First Consumers National Bank, 9300 S.W. Gemini Drive, Beaverton, Oregon 97005, Attn: President, (b) in the case of SAC, Spiegel Acceptance Corporation, 400 West 9th Street, Suite 101A, Wilmington, Delaware 19801 Attn: President, and (c) in the case of Buyer, Spiegel Credit Corporation III, 400 West 9th Street, Suite 101B, Wilmington, Delaware 19801 Attn: John Steele, Treasurer; or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. Section 9.4 Severability of Provisions. If any one or more of the -------------------------- covenants, agreements, provisions or terms of this Agreement or any other Conveyance Paper shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions, or terms of this Agreement or any other Conveyance Paper and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of any other Conveyance Paper. Section 9.5 Assignment. Notwithstanding anything to the contrary contained ---------- herein, other than Buyer's assignment of its rights, title, and interests in, to, and under this Agreement to the Indenture Trustee for the benefit of the Noteholders as contemplated by the Transfer and Servicing Agreement and Section ------- 9.6, and the RPA Sellers' limited assignment rights set forth in Section 6.6, - --- ----------- this Agreement and all other Conveyance Papers may not be assigned by the parties hereto. 20 Section 9.6 Acknowledgment and Agreement of RPA Sellers. By execution ------------------------------------------- below, the RPA Sellers expressly acknowledge and agree that all of Buyer's rights, titles and interest in, to and under this Agreement, including all of Buyer's rights, titles and interests in and to the Receivables purchased pursuant to this Agreement, shall be assigned by Buyer to the Indenture Trustee for the benefit of the Noteholders, and the RPA Sellers consent to such assent. Section 9.7 Further Assurances. Buyer and the RPA Sellers agree to do and ------------------ perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the other party more fully to effect the purposes of this Agreement and the other Conveyance Papers, including the execution of any financing statements or continuation statements or equivalent documents relating to the Receivables for filing under the provisions of the UCC or other law of any applicable jurisdiction. Section 9.8 No Waiver; Cumulative Remedies. No failure to exercise and no ------------------------------ delay in exercising, on the part of Buyer and either RPA Seller, any right, remedy, power or privilege hereunder, shall operate a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. Section 9.9 Counterparts. This Agreement and all other Conveyance Papers ------------ may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. Section 9.10 Binding Effect; Third-Party Beneficiaries. This Agreement and ----------------------------------------- the other Conveyance Papers will inure to the benefit of and be binding upon the parties hereto, and their respective successors and permitted assigns. The Indenture Trustee shall be considered a third-party beneficiary of this Agreement. Section 9.11 Merger and Integration. Except as specifically stated ---------------------- otherwise herein, this Agreement and all the other Conveyance Papers set forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement and all the other Conveyance Papers. This Agreement and the other Conveyance Papers may not be modified, amended, waived or supplemented except as provided herein. Section 9.12 Headings. The headings herein are for purposes of reference -------- only and shall not otherwise affect the meaning or interpretation of any provision hereof. Section 9.13 Schedules and Exhibits. The schedules and exhibits attached ---------------------- hereto and referred to herein shall constitute a part of this Agreement and are incorporated into this Agreement for all purposes. 21 IN WITNESS WHEREOF, Buyer and RPA Sellers have caused this Agreement to be duly executed by their respective officers as of the day and year first written above. SPIEGEL CREDIT CORPORATION III Name: /s/ John R. Steele Title: Treasurer FIRST CONSUMERS NATIONAL BANK Name: /s/ John R. Steele Title: Treasurer SPIEGEL ACCEPTANCE CORPORATION Name: /s/ John R. Steele Title: Treasurer S-1 2 SCHEDULE ONE TO RECEIVABLES PURCHASE AGREEMENT Accounts - -------- As contained on an appropriately Labeled Computer Record Delivered Contemporaneously with this Agreement. Aggregate Receivables as of the SMT Termination Date: $ ------------------- Aggregate Principal Balance as of the SMT Termination Date: $ ------------------- SCHEDULE TWO TO RECEIVABLES PURCHASE AGREEMENT SAC's Chief Executive Office: 400 West 9th Street Suite 101A Wilmington, Delaware 19801 FCNB's Chief Executive Office: 9300 S.W. Gemini Drive Beaverton Oregon 97005 Locations Of Books And Records: 9300 S.W. Gemini Drive Beaverton, Oregon 97005 800 Pasquinelli Drive Westmont, Illinois 60522 3500 Lacey Road Downers Grove, Illinois 60515 SCHEDULE THREE to RECEIVABLES PURCHASE AGREEMENT PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS (a) In addition to the representations, warranties and covenants contained in the Receivables Purchase Agreement, each RPA Seller, but only as to itself and as to those Receivables, if any, transferred by it under the Receivables Purchase Agreement, hereby represents, warrants and covenants to Buyer as follows as of October 17, 2001: (i) The Receivables Purchase Agreement creates either (A) a valid transfer to Buyer of all right, title and interest of RPA Seller in, to and under the Receivables conveyed to Buyer pursuant to Section 2.1 of the Receivables Purchase Agreement, and such property will be held by Buyer free and clear of any Lien, except for Liens permitted pursuant to paragraph (a) (iii) below, or (B) a valid and continuing security interest ------------------- (as defined in the applicable Uniform Commercial Code) in the Receivables in favor of Buyer, which is enforceable with respect to existing Receivables in the Accounts on October 17, 2001, and, with respect to Receivables thereafter arising in the Accounts at the time such Receivables arise. If the Receivables Purchase Agreement constitutes the grant of a security interest to Buyer in the Receivables, such security interest is, and in the case of Receivables created after October 17, 2001, upon the creation thereof will be, prior to all other Liens (other than Liens permitted pursuant to paragraph (a) (iii) below). ------------------- (ii) The Receivables constitute "accounts" within the meaning of the applicable Uniform Commercial Code. (iii) Immediately prior to the conveyance of the Receivables pursuant to the Receivables Purchase Agreement, RPA Seller owns and has good and marketable title to, or has a valid security interest in, the Receivables free and clear of any Lien, claim or encumbrance of any Person; provided -------- that nothing in this paragraph (a) (iii) shall prevent or be deemed to ------------------- prohibit RPA Seller from suffering to exist upon any of the Receivables any Liens for any taxes if such taxes shall not at the time be due and payable or if RPA Seller shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. (iv) RPA Seller has caused the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest granted to Buyer under the Receivables Purchase Agreement in the Receivables arising in the Accounts. (v) Other than the transfer of the Receivables to Buyer pursuant to the Receivables Purchase Agreement, RPA Seller has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Receivables. RPA Seller has not authorized the filing of and is not aware of any financing statements against RPA Seller that include a description of collateral covering the Receivables, except for any financing statements or assignments filed pursuant to the Receivables Purchase Agreement or the Transfer and Servicing Agreement. (vi) RPA Seller is not aware of any judgment, ERISA or tax lien filings against Seller. (vii) Notwithstanding any other provision of the Receivables Purchase Agreement, the representations and warranties set forth in this Schedule 3 ---------- shall be continuing, and remain in full force and effect, until such time as all Notes have been finally and fully paid. Buyer shall not, without satisfying the Rating Agency Condition, waive a breach of any representation or warranty set forth in this Schedule 3. ---------- (b) RPA Seller and Servicer covenant that, in order to evidence the interests of RPA Seller and Buyer under the Receivables Purchase Agreement, RPA Seller and Servicer shall take such action, or execute and deliver such instruments (other than effecting a Filing (as defined below), unless such Filing is effected by Servicer in accordance with this paragraph (b)) as may be necessary or advisable (including, without limitation, such actions as are requested by Indenture Trustee) to maintain and perfect, as a first priority interest, Buyer's security interest in the Receivables. Servicer shall, from time to time and within the time limits established by law, prepare and present to Indenture Trustee for Indenture Trustee to authorize (based in reliance on the Opinion of Counsel hereinafter provided for) the Servicer to file, all financing statements, amendments, continuations, initial financing statements in lieu of a continuation statement, terminations, partial terminations, releases or partial releases or any other filings necessary or advisable to continue, maintain and perfect as a first-priority interest (each a "Filing"). The ------ Servicer shall present each such Filing to the Indenture Trustee together with (x) an Opinion of Counsel to the effect that such Filing (i) is consistent with the grant of the security interest to the Buyer pursuant to the Receivables Purchase Agreement, (ii) satisfies all requirements and conditions to such Filing in the Receivables Purchase Agreement and (iii) satisfies the requirements for a Filing of such type under the Uniform Commercial Code in the applicable jurisdiction (or if the Uniform Commercial Code does not apply, the applicable statute governing the perfection of security interests), and (y) a form of authorization for Indenture Trustee's signature. Upon receipt of such Opinion of Counsel and form of authorization, Indenture Trustee shall promptly authorize in writing Servicer to, and Servicer shall, effect such Filing under the Uniform Commercial Code without the signature of RPA Seller or Buyer where allowed by applicable law. Notwithstanding anything else in the Receivables Purchase Agreement to the contrary, the Servicer shall not have any authority to effect a Filing without obtaining written authorization from the Indenture Trustee in accordance with this paragraph (b). ------------- (c) Notwithstanding paragraph (b) of this Schedule Three, the Indenture Trustee hereby consents to, and no further authorization or approval from the Indenture Trustee is necessary with respect to, the following Filings made in connection with the execution of this Agreement: New Financing Statements: ------------------------ 1. Financing statements naming Buyer as secured party and FCNB as debtor, in Oregon and the District of Columbia, covering receivables sold by FCNB to Buyer pursuant to this Agreement. 2. Financing statement naming Buyer as secured party and SAC as debtor, in Delaware, covering receivables sold by SAC to Buyer pursuant to this Agreement. Termination Statements: ---------------------- 3. Financing statement naming Buyer as secured party and FCNB as debtor, in Oregon, and in lieu of continuation statement, in the District of Columbia covering receivables sold by FCNB to Buyer pursuant to the Amended and Restated Receivables Purchase Agreement dated as of December 13, 1994. 4. Financing statements naming Buyer as secured party and SAC as debtor, in Delaware and Illinois, covering receivables sold by SAC to Buyer pursuant to the Amended and Restated Receivables Purchase Agreement dated as of December 13, 1994. EXHIBIT A TO RECEIVABLES PURCHASE AGREEMENT FORM OF SUPPLEMENTAL CONVEYANCE ------------------------------- SUPPLEMENTAL CONVEYANCE No. OF RECEIVABLES IN ADDITIONAL ACCOUNTS (the --- "Supplemental Conveyance"), dated as of , 20 , by and among ----------------------- --------------- -- FIRST CONSUMERS NATIONAL BANK, a national banking association ("FCNB"), SPIEGEL ---- ACCEPTANCE CORPORATION III, a Delaware corporation ("SAC"; FCNB and SAC are --- collectively referred to herein as the "RPA Sellers"), and SPIEGEL CREDIT ----------- CORPORATION III, a Delaware corporation ("Buyer"), pursuant to the Receivables ----- Purchase Agreement referred to below. W I T N E S S E T H : - - - - - - - - - - WHEREAS, Buyer and RPA Sellers are parties to the Receivables Purchase Agreement, dated as of October 17, 2001 ( the "Purchase Agreement"); -------- --------- WHEREAS, pursuant to Section 2.2 of the Purchase Agreement, (i) under ------- --- certain conditions, RPA Sellers are required to sell Receivables in Additional Accounts; or (ii) RPA Sellers may designate and sell Additional Accounts to be included as Accounts; or (iii) under certain circumstances, an Eligible Account is to be automatically included as an Additional Account; WHEREAS, RPA Sellers now wish to sell the Receivables in the Additional Accounts described on Schedule 1, whether now existing or hereafter created, to ---------- Buyer; and WHEREAS, Buyer is willing to accept such sale and conveyance subject to the terms and conditions hereof; NOW THEREFORE, RPA Sellers and Buyer hereby agree as follows: 1. Defined Terms. Capitalized terms used in this Supplemental Conveyance have their respective meanings set forth in the Purchase Agreement, except that "Addition Date" means, with respect to the Additional Accounts added pursuant to Section 2.2(a) of the Purchase Agreement and designated hereby, , 20 . ---------- -- "Notice Date" means, with respect to the Additional Accounts added pursuant ----------- to Section 2.2 of the Purchase Agreement and designated hereby, , 20 ----------- -------- -- (which shall be a date on or before the fifth Business Day prior to the Addition Date). 2. Designation of Additional Accounts. On or prior to the Addition Date, in respect of Additional Accounts added pursuant to Section 2.2 of the Purchase Agreement and on or before five Business Days after the first day of the calendar month next succeeding the calendar month in which Additional Accounts were added pursuant to Section 2.2(c), FCNB shall have delivered or caused to be delivered to Buyer (or to the Owner Trustee, if Buyer so directs) a A-1 computer file or microfiche list containing a true and complete list of all charge accounts which as of the Addition Date shall be deemed to be Additional Accounts, such Additional Accounts being identified by account number and by Receivable balance as of the Addition Date in respect of Additional Accounts added pursuant to Section 2.2(a) of the Purchase Agreement or as of such fifth Business Day of the month in respect of Additional Accounts added during the preceding month pursuant to Section 2.2(c) of the Purchase Agreement. Such list shall be marked as Schedule 1 to this Supplemental Conveyance, delivered to Buyer as confidential and proprietary and, as of the Addition Date, shall be incorporated into and made a part of this Supplemental Conveyance, the Purchase Agreement, and any other Conveyance Paper. 3. Sale of Receivables. (a) For value received, each RPA Seller does hereby sell, transfer, convey and assign to Buyer, without recourse, on and after the Addition Date, all of such RPA Seller's right, title and interest in, to and under the Receivables now existing or hereafter created in the Additional Accounts designated on Schedule 1, all monies due or to become due with respect thereto (including all Finance Charge Receivables), all Collections, Recoveries and other proceeds hereof and Insurance Proceeds relating thereto. (b) In connection with such sale and conveyance, each RPA Seller agrees (i) to record and file at its own expense, any financing statement for the purchase of accounts (as defined in Section 9-102 of the UCC as in effect in the State of Illinois), with respect to the Receivables now existing and hereafter created in the Additional Accounts designated hereby, meeting the requirements of applicable state law and in such jurisdictions as are necessary to perfect the sale of the Receivables from such RPA Seller to Buyer and the transfer of such Receivables from Buyer to the Issuer, and (ii) to deliver a file-stamped copy of such financing statements or other evidence of such filings (which may, for purposes of this Section 3, consist of telephone confirmations of such filings) --------- to Buyer (or to the Owner Trustee, if Buyer so directs) on or prior to the date of this Supplemental Conveyance. (c) In connection with such sale and conveyance, FCNB agrees, at its own expense, on or prior to the date of this Supplemental Conveyance to indicate or cause to be indicated in its books and records and in the computer files of the Receivables as required by the Purchase Agreement that Receivables created in connection with the Additional Accounts designated hereby have been sold to Buyer in accordance with the Purchase Agreement and transferred by Buyer to the Issuer for the benefit of the Noteholders. (d) The parties acknowledge and agree that, as contemplated by Section 2.3 ----------- of the Purchase Agreement, the Receivables to be transferred hereunder to Buyer on the Addition Date shall be so transferred to Buyer by [FCNB] [SAC], and that Receivables in the Additional Accounts designated hereby which are to be transferred to Buyer after the Addition Date, shall be so transferred by FCNB. 4. Acceptance by Buyer. Buyer hereby acknowledges its acceptance of all right, title and interest previously held by RPA Sellers in, to and under the Receivables sold and conveyed hereby. Buyer further acknowledges that, prior to or simultaneously with the execution and delivery of this Supplemental Conveyance, FCNB delivered or caused to be delivered to Buyer or to the Owner Trustee the computer file or microfiche list described in Section 2 of this Supplemental Conveyance. A-2 5. Representations and Warranties of RPA Seller. Each RPA Seller, but only as to itself and as to those Receivables, if any, transferred by it hereunder, hereby severally (and not jointly) represents and warrants to Buyer as of the Addition Date that: (a) Legal, Valid and Binding Obligation. This Supplemental conveyance ----------------------------------- constitutes a legal, valid, and binding obligation of such RPA Seller, enforceable against such RPA Seller in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws and except as such enforceability may be limited by general principles of equity (whether considered in a suit or law or in equity); (b) Schedule 1. Schedule 1 to this Supplemental Conveyance and the computer ----------- ---------- file or microfiche list delivered pursuant to Section 2 of this Supplemental --------- Conveyance is an accurate and complete listing in all material respects of all the Additional Accounts as of the Addition Date and the information contained therein with respect to the identify of such Additional Accounts and the Receivables existing thereunder is true and correct in all material respects as of the Addition Date; (c) Eligibility of Accounts. Each Additional Account designated hereby is ----------------------- an Eligible Account; (d) Selection Procedures. The Additional Accounts were assigned randomly to -------------------- Cycles by FCNB and no selection procedures believed by such RPA Seller to be materially adverse to the interests of Buyer or its successors and assigns were utilized in selecting the Additional Accounts designated hereby from available Eligible Accounts; (e) Insolvency. Such RPA Seller is not insolvent; and, after giving effect ---------- to the conveyance set forth in Section 3 of this Supplemental Conveyance, will --------- not be insolvent; (f) Security Interest. This Supplemental Conveyance constitutes either (i) ----------------- a valid sale, assignment, and conveyance or, in the case of Accounts added pursuant to Section 2.2(c) of the Purchase Agreement, confirmation of a valid -------------- sale, assignment, and conveyance to Buyer of all rights, title and assignment, and conveyance to Buyer of all right, title and interest of such RPA Seller in, to, and under the Receivables now existing and hereafter created in respect of the Additional Accounts designated hereby, all monies due or to become due with respect thereto (including all Finance Charge Receivables) together with all Recoveries, Collections and other proceeds of such Receivables and Insurance Proceeds relating thereto, or (ii) a grant of a security interest in such Receivables, and such property will be held free and clear of any Lien of any Person claiming through or under such RPA Seller except for Liens permitted under Section 5.1(d) of the Purchase Agreement. -------------- (g) Reconfirmation of Representations and Warranties. All representations ------------------------------------------------ and warranties made by such RPA Seller pursuant to Section 4.1 of the Purchase ----------- Agreement remain true and correct in all respects as of the Addition Date as if made on such date. 6. Conditions Precedent. (a) The acceptance of Buyer set forth in Section 4 ------------------- --------- above and the amendment of the Purchase Agreement set forth in Section 8 below --------- are subject to the satisfaction by the RPA Sellers, on or prior to the Addition Date, of the following conditions precedent: A-3 (i) All information concerning the Additional Accounts provided or to be provided to Buyer shall be true and correct in all material respects as of the Addition Date with respect to Additional Accounts added pursuant to Section 2.2 (a) of the Purchase Agreement and as of the fifth Business Day --------------- after the first day of the calendar month occurring after any Additional Date arising under Section 2.2(c) of the Purchase Agreement; -------------- (ii) On or before each Addition Date with respect to Additional Accounts added pursuant to Section 2.2(a) of the Purchase Agreement: (i) -------------- FCNB shall have indicated or caused to be indicated in its books and records and in the computer files of the Receivables that Receivables created in respect of the Additional Accounts have been sold to Buyer in accordance with this Agreement for the benefit of the Noteholders, (ii) FCNB shall have delivered or caused to be delivered to Buyer (or to the Owner Trustee, if so directed by Buyer) a computer file or microfiche list containing a true and correct list of all such Additional Accounts, identified by account number and by Receivable balance as of the Addition Date, and (iii) the RPA Sellers shall have substantially performed all other obligations required to be performed by the provisions of the Purchase Agreement and this Supplemental Conveyance; (iii) Each RPA Seller shall have recorded and filed, at its expense, all financing statements required to comply with Section 3(b) of this ------------ Supplemental Conveyance. (b) The sale by the RPA Sellers set forth in Section 3 and the amendment of --------- the Purchase Agreement set forth in Section 8 are subject to the satisfaction by --------- Buyer, on or prior to the Addition Date, of the following: (i) All representations and warranties of Buyer contained in the Purchase Agreement shall be true and correct with the same effect as though such representations and warranties had been made on such date; (ii) Payment or provisions for payment of the Purchase Price by Buyer in accordance with the provisions of Section 3 of the Purchase Agreement; --------- and (iii) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Supplemental Conveyance shall be satisfactory in form and substance to the RPA Sellers, and the RPA Sellers shall have received from Buyer copies of all documents (including records of corporate proceedings) relevant to the transactions herein contemplated as the RPA Sellers may reasonably have requested. 7. Additional Information. Each RPA Seller shall have delivered to Buyer such information as was reasonably requested by Buyer to satisfy itself as to the accuracy of the representation and warranty set forth in Section 5(e) of this Supplemental Conveyance. 8. Amendment of the Purchase Agreement. The Purchase Agreement is hereby amended to provide that al references therein to the "Receivables Purchase Agreement", to "this Agreement", and "herein" shall be deemed from and after the Addition Date to be a dual reference to the Purchase Agreement a supplemented by this Supplemental Conveyance. Except as expressly amended hereby, all of the representations, warranties, terms, covenants, and A-4 conditions of the Purchase Agreement shall remain unamended and shall continue to be, and shall remain, in full force and effect in accordance with its terms and except as expressly provided herein shall not constitute or be deemed to constitute a waiver of compliance with or a consent to noncompliance with any term or provision of the Purchase Agreement. 9. Counterparts. This Supplemental Conveyance may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. 10. Governing Law. This Supplemental Conveyance shall be construed in accordance with the laws of the State of Illinois, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. A-5 IN WITNESS WHEREOF, the undersigned have caused this Supplemental Conveyance to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. SPIEGEL CREDIT CORPORATION III By: ------------------------------- Title: FIRST CONSUMERS NATIONAL BANK By: ------------------------------- Title: SPIEGEL ACCEPTANCE CORPORATION By: ------------------------------- Title: A-6 SCHEDULE 1 ADDITIONAL ACCOUNTS A-7 SCHEDULE 2 A-8 EXHIBIT B TO RECEIVABLES PURCHASE AGREEMENT FORM OF RECONVEYANCE -------------------- RECONVEYANCE No. OF RECEIVABLES (this "Reconveyance"), dated as of ---- ------------ , 20 , by and between SPIEGEL CREDIT CORPORATION III, a - ---------------- -- Delaware corporation, ("SCCIII") and , a ("RPA Seller"), ------ ---------- ----------- ---------- pursuant to the Receivables Purchase Agreement referred to below. W I T N E S S E T H: - - - - - - - - - - WHEREAS, SCCIII, RPA Seller, [First Consumers National Bank] and [Spiegel Acceptance Corporation] are parties to the Receivables Purchase Agreement, dated as of October 17, 2001 (the "Purchase Agreement"); ------------------ WHEREAS, pursuant to Section 6 of the Purchase Agreement (i) under certain --------- conditions, RPA Seller is required to repurchase Receivables in certain Accounts, or (ii) SCCIII may designate from time to time certain Accounts for repurchase; WHEREAS, pursuant to Section 6 of the Purchase Agreement SCIII wishes to --------- sell and convey to RPA Seller the Receivables from the Accounts listed on Schedule 1 (the "Removed Accounts"); and - ---------- ---------------- WHEREAS, RPA Seller is willing to repurchase Receivables under the Removed Accounts by payment, or provision for the payment, of the Repurchase Price therefor pursuant to Section 6 of the Purchase Agreement; --------- NOW THEREFORE, SCCIII and RPA Seller hereby agree as follows: 1. Defined Terms. Capitalized terms used in this Reconveyance have their ------------- respective meanings set forth in the Purchase Agreement, except that "Repurchase Date" means, with respect to the Removed Accounts designated hereby, , 20 - ------------ -- 2. Designation of Removed Accounts. Within three Business Days after the ------------------------------- Repurchase Date, RPA Seller shall deliver or cause to be delivered to SCCIII a computer file, microfiche or written list containing a true and complete list of all Removed Accounts identified by account number and Receivable balance of such Removed Accounts. Such list shall be marked as Schedule 1 to this Reconveyance and shall be incorporated into and made a part of this Reconveyance as of the Repurchase Date and of the Purchase Agreement and other Conveyance Papers. 3. Conveyance of Receivables. (a) For value received, SCCIII does hereby ------------------------- sell, transfer, assign, and set-over to RPA Seller, without recourse, on and after the Repurchase Date, all right, title and interest of SCCIII in, to, and under the Receivables now existing and hereafter created in the Removed Accounts designated hereby, all monies due or to become due with B-1 respect thereto (including all Finance Charge Receivables), all proceeds thereof and Insurance Proceeds relating thereto. (b) In connection with such transfer, SCCIII agrees to (and agrees to cause Indenture Trustee to) execute and deliver to RPA Seller on or prior to the date of this Reconveyance, a termination statement or partial release with respect to the Receivables now existing and hereafter created in the Removed Accounts designated hereby evidencing the sale and conveyance of the Receivables in the Removed Accounts and the release of all liens or security interests thereon, which shall meet the requirements of applicable state law and shall be filed in such manner and in such jurisdictions as are necessary to evidence such sale and conveyance and remove such lien. 4. Acceptance by RPA Seller. RPA Seller hereby acknowledges that, prior to ------------------------ or simultaneously with the execution and delivery of this Reconveyance, SCCIII delivered or caused to be delivered to RPA Seller the computer file or microfiche list described in Section 2 of this Reconveyance. 5. Representations and Warranties of SCCIII. SCCIII hereby represents and ---------------------------------------- warrants to RPA Seller as of the Repurchase Date: (a) Legal, Valid and Binding Obligation. This Reconveyance constitutes a ----------------------------------- legal, valid, and binding obligation of SCCIII, enforceable against SCCIII in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); and (b) Schedule 1. Schedule 1 to this Reconveyance and the computer file or ---------- microfiche list delivered pursuant to Section 2 of this Reconveyance is an accurate and complete listing in all material respects of all the Removed Accounts as of the Repurchase Date and the information contained therein with respect to the identity of such Removed Accounts and the Receivables existing thereunder is true and correct in all material respects as of the Repurchase Date; (c) Compliance with Transfer and Servicing Agreement. SCCIII has effected a ------------------------------------------------ retransfer from the Issuer of the Receivables now existing or hereafter arising under the Removed Accounts in compliance with the provisions of the Transfer and Servicing Agreement. (d) Selection Procedures. In respect of Removed Accounts designated -------------------- pursuant to Section 6.2 of the Purchase Agreement, SCCIII and RPA Seller have ----------- mutually agreed as to the designation of the Removed Accounts. (e) Insolvency. As of the Repurchase Notice Date and as of the Repurchase ---------- Date, SCCIII is not insolvent and, after giving effect to the conveyance set forth in Section 3 of this Reconveyance, SCCIII will not be insolvent. --------- 6. Conditions Precedent. (a) The amendment of the Purchase Agreement set forth in Section 7 is subject to the satisfaction by SCCIII, on or prior to the Repurchase Date, of the following conditions precedent: B-2 (i) All information concerning the Removed Accounts provided or to be provided to RPA Seller shall be true and correct in all material respects as of the Repurchase Date; (ii) SCCIII shall have, and on or before the third Business Day after the Repurchase Date: (i) delivered to RPA Seller a computer file or microfiche list containing a true and correct list of all such Removed Accounts, identified by account number and by Receivable balance as of the Repurchase Date; and (ii) substantially performed all other obligations required to be performed by the provisions of this Reconveyance. (iii) SCCIII shall have delivered to RPA Seller the termination statements and partial releases required to be delivered in Section 3(b) of ------------ this Reconveyance. (b) The amendment of the Purchase Agreement set forth in Section 7 is subject to payment or provision for payment of the Repurchase Price in accordance with the provisions of Section 6 of the Purchase Agreement on or prior to the Repurchase Date. 7. Amendment of the Purchase Agreement. The Purchase Agreement is hereby ----------------------------------- amended to provide that all references therein to the "Receivables Purchase Agreement", to "this Agreement" and "herein" shall be deemed from and after the Repurchase Date to be a dual reference to the Purchase Agreement as supplemented by this Reconveyance. Except as expressly amended hereby, all of the representations, warranties, terms, covenants and conditions of the Purchase Agreement shall remain unamended and shall continue to be, and shall remain, in full force and effect in accordance with its terms and except as expressly provided herein shall not constitute or be deemed to constitute a waiver of compliance with or a consent to non-compliance with any term or provision of the Purchase Agreement. 8. Counterparts. This Reconveyance may be executed in two or more ------------ counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. 9. Governing Law. This Reconveyance shall be construed in accordance with ------------- the laws of the State of Illinois, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. B-3 IN WITNESS WHEREOF, the undersigned have caused this Reconveyance to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. SPIEGEL CREDIT CORPORATION III By: ------------------------------- Title: [FIRST CONSUMERS NATIONAL BANK] By: ------------------------------- Title: [SPIEGEL ACCEPTANCE CORPORATION] By: ------------------------------- Title: B-4 SCHEDULE 1 REMOVED ACCOUNTS ---------------- B-5 EXHIBIT C TO RECEIVABLES PURCHASE AGREEMENT FORM OF SETTLEMENT STATEMENT SPIEGEL CREDIT CORPORATION III RECEIVABLES PURCHASE AGREEMENT Current Settlement Date: , 20 --------------- -- First Consumers National Bank ("FCNB"), Spiegel Acceptance Corporation ("SAC") ---- --- and Spiegel Credit Corporation III ("Buyer"), pursuant to the Receivables ----- Purchase Agreement (the "Purchase Agreement") dated as of October 17, 2001, by ------------------ and among FCNB, SAC and Buyer, do hereby agree and certify as follows: 1. Capitalized terms used in this Settlement Statement have their respective meanings in the Purchase Agreement. As used herein, the term "Subject Period" means the Monthly Period immediately preceding the calendar month in which this Settlement Statement is delivered. This Settlement Statement is being delivered pursuant to Section 3.5 of the Purchase Agreement. References hereto to certain sections are references to the respective sections in the Purchase Agreement. 2. The date of this Settlement Statement is a Settlement Date under the Purchase Agreement A. RECEIVABLES PURCHASED FROM FCNB AND PURCHASE PRICE FOR SUBJECT PERIOD 3. The aggregate unpaid balance of Receivables conveyed to Buyer by FCNB and balance of Receivables created in Accounts pursuant to the Purchase Agreement during the Subject Period was equal to..............................................$ ----------- 4. The portion of the amount shown in item 3 paid in cash during the Subject Period was equal to...........$ ----------- 5. The portion of the amount shown in item 3 not paid in cash during the Subject Period (item 3 minus item 4) is equal to...................................$ ----------- B. RECEIVABLES PURCHASED FROM SAC AND PURCHASE PRICE FOR SUBJECT PERIOD C-1 6. The aggregate unpaid balance of Receivables conveyed to Buyer by SAC pursuant to the Purchase Agreement during the Subject Period was equal to......$ ----------- 7. The portion of the amount shown in item 6 paid in cash during the Subject Period was equal to...........$ ----------- 8. The portion of the amount shown in item 6 not paid in cash during the Subject Period (item 6 minus item 7) is equal to...................................$ ----------- C. RECEIVABLES REPURCHASED BY FCNB AND REPURCHASE PRICE FOR SUBJECT PERIOD 9. The aggregate Repurchase Price of Receivables repurchased by FCNB pursuant to Section 6.1 or 6.2 ----------- --- of the Purchase Agreement during the Subject Period (the "FCNB Repurchased Receivables") was ---------------------------- equal to..............................................$ ----------- 10. The portion of the Repurchase Price for the FCNB Repurchased Receivables paid in cash during the Subject Period was equal to...........................$ ----------- 11. The portion of the Repurchase Price for the FCNB Repurchased Receivables not paid in cash during the Subject Period (item 9 minus item 10) is equal to....................................................$ ----------- D. RECEIVABLES REPURCHASED BY SAC AND REPURCHASE PRICE FOR SUBJECT PERIOD 12. The aggregate Repurchase Price of Receivables repurchased by SAC pursuant to Section 6.1 or 6.2 ----------- --- of the Purchase Agreement during the Subject Period (the "SAC Repurchased Receivables") was --------------------------- equal to..............................................$ ----------- 13. The portion of the Repurchase Price for the SAC Repurchased Receivables paid in cash during the Subject Period was equal to...........................$ ----------- 14. The portion of the Repurchase Price for the SAC Repurchased Receivables not paid in cash during the Subject Period (item 12 minus item 13) is equal to..............................................$ ----------- C-2 In witness whereof, the undersigned have duly executed and delivered this Settlement Statement this day of 20 . -------- --- SPIEGEL CREDIT CORPORATION III By: ------------------------------- Title: FIRST CONSUMERS NATIONAL BANK By: ------------------------------- Title: SPIEGEL ACCEPTANCE CORPORATION By: ------------------------------- Title: C-3 EX-10.36 33 dex1036.txt SERIES 2001-A INDENTURE SUPPLEMENT Exhibit 10.36 SPIEGEL CREDIT CARD MASTER NOTE TRUST Issuer, and THE BANK OF NEW YORK Indenture Trustee SERIES 2001-A INDENTURE SUPPLEMENT Dated as of July 19, 2001 TABLE OF CONTENTS ARTICLE I Creation of the Series 2001-A Notes.............................1 Section 1.1 Designation.....................................1 ARTICLE II Definitions.....................................................1 Section 2.1 Definitions.....................................1 ARTICLE III Servicing Fee..................................................12 Section 3.1 Servicing Compensation.........................12 ARTICLE IV Rights of Series 2001-A Noteholders and Allocation and Application of Collections.....................................13 Section 4.1 Collections and Allocations....................13 Section 4.2 Determination of Monthly Interest..............15 Section 4.3 Determination of Monthly Principal.............16 Section 4.4 Application of Available Finance Charge Collections and Available Principal Collections....................................16 Section 4.5 Investor Charge-Offs...........................18 Section 4.6 Reallocated Principal Collections..............19 Section 4.7 Excess Finance Charge Collections..............19 Section 4.8 Shared Principal Collections...................19 Section 4.9 Principal Accumulation Account.................20 Section 4.10 Reserve Account................................21 Section 4.11 [Reserved].....................................23 Section 4.12 Determination of LIBOR.........................24 Section 4.13 Investment Instructions........................24 Section 4.14 Controlled Accumulation Period.................24 Section 4.15 Suspension of Controlled Accumulation Period.........................................25 Section 4.16 Insurance Policies.............................27 Section 4.17 Swap...........................................27 ARTICLE V Delivery of Series 2001-A Notes; Distributions; Reports to Series 2001-A Noteholders......................................28 Section 5.1 Delivery and Payment for the Series 2001-A Notes..........................................28 Section 5.2 Distributions..................................28 Section 5.3 Reports and Statements to Series 2001-A Noteholders....................................29 i ARTICLE VI Series 2001-A Pay Out Events and Events of Default.............30 Section 6.1 Series 2001-A Pay Out Events...................30 Section 6.2 Series 2001-A Events of Default................31 Section 6.3 Declarations of Default........................32 ARTICLE VII Redemption of Series 2001-A Notes; Final Distributions; Series Termination.............................................33 Section 7.1 Optional Redemption of Series 2001-A Notes; Final Distributions.....................33 Section 7.2 Series Termination.............................34 ARTICLE VIII Miscellaneous Provisions.......................................34 Section 8.1 Ratification of Indenture; Amendments..........34 Section 8.2 Form of Delivery of the Series 2001-A Notes..........................................34 Section 8.3 Counterparts...................................34 Section 8.4 GOVERNING LAW..................................35 Section 8.5 Limitation of Liability........................35 Section 8.6 Rights of the Indenture Trustee................35 Section 8.7 Third Party Beneficiary........................35 Section 8.8 Inconsistency..................................35 Section 8.9 Collateral Series Supplement...................35 Section 8.10 Increase of Collateral Amount..................35 Section 8.11 Additional Representations and Warranties......36 ii EXHIBITS EXHIBIT A FORM OF CLASS A NOTE EXHIBIT B FORM OF MONTHLY PAYMENT INSTRUCTIONS AND NOTIFICATION TO THE INDENTURE TRUSTEE EXHIBIT C FORM OF MONTHLY STATEMENT EXHIBIT D FORM OF MONTHLY SERVICER'S CERTIFICATE EXHIBIT E FORM OF SWAP EXHIBIT F INSURANCE AGREEMENT DEFINITIONS EXHIBIT G SECTION 2.05 OF INSURANCE AGREEMENT (SPREAD ACCOUNT) EXHIBIT H SECTION 5.01 OF INSURANCE AGREEMENT (INSURANCE AGREEMENT PAY OUT EVENTS) SCHEDULES SCHEDULE I PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS iii SERIES 2001-A INDENTURE SUPPLEMENT, dated as of July 19, 2001 (the "Indenture Supplement"), between SPIEGEL CREDIT CARD MASTER NOTE TRUST, a -------------------- trust organized and existing under the laws of the State of Illinois (herein, the "Issuer" or the "Trust"), and THE BANK OF NEW YORK, a banking ------ ----- corporation organized and existing under the laws of the State of New York, not in its individual capacity, but solely as indenture trustee (herein, together with its successors in the trusts thereunder as provided in the Master Indenture referred to below, the "Indenture Trustee") under the ----------------- Master Indenture, dated as of December 1, 2000 (the "Indenture") between --------- the Issuer and the Indenture Trustee (the Indenture, together with this Indenture Supplement, the "Agreement"). --------- Pursuant to Section 2.12 of the Indenture, the Seller may direct the ------------ Issuer to issue one or more Series of Notes. The Principal Terms of this Series are set forth in this Indenture Supplement to the Indenture. ARTICLE I Creation of the Series 2001-A Notes ----------------------------------- Section 1.1 Designation. ----------- (a) There is hereby created and designated a Series of Notes to be issued pursuant to the Indenture and this Indenture Supplement to be known as "Spiegel Credit Card Master Note Trust, Series 2001-A" or the "Series ---------------------------------------------------- ------ 2001-A Notes." The Series 2001-A Notes shall be issued in a single Class, ------------ known as the "Class A Series 2001-A Floating Rate Asset Backed Notes." ------------------------------------------------------ (b) Series 2001-A shall be included in Group One and shall be a Principal Sharing Series. Series 2001-A shall be an Excess Allocation Series with respect to Group One only. Series 2001-A shall not be subordinated to any other Series. ARTICLE II Definitions ----------- Section 2.1 Definitions. ----------- (a) Whenever used in this Indenture Supplement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and the masculine as well as the feminine and neuter genders of such terms. "Accumulation Period Factor" means, for any Monthly Period, a -------------------------- fraction, the numerator of which is equal to the sum of the Initial Collateral Amounts of all outstanding Series designated as Principal Sharing Series, and the denominator of which is equal to the sum of (a) the Initial Collateral Amount and (b) the Initial 1 Collateral Amounts of all outstanding Series designated as Principal Sharing Series (other than Series 2001-A) which are not expected to be in their revolving periods; provided, however, that this definition may be -------- ------- changed at any time if the Rating Agency Condition is satisfied. "Accumulation Period Length" is defined in subsection 4.14. -------------------------- --------------- "Accumulation Shortfall" means: (a) for the first Distribution Date ---------------------- during the Controlled Accumulation Period, zero; and (b) thereafter, for any Distribution Date during the Controlled Accumulation Period, the excess, if any, of the Controlled Deposit Amount for the previous Distribution Date over the amount deposited into the Principal Accumulation Account pursuant to subsection 4.4(c)(i) for the previous Distribution -------------------- Date. "Additional Interest" is defined in Section 4.2. ------------------- ----------- "Allocation Percentage" means, on any date of determination, the --------------------- percentage equivalent of a fraction: (a) the numerator of which shall be the Collateral Amount, determined: (i) for Principal Collections during the Revolving Period and for Finance Charge Collections and Default Amounts at any time, at the end of the last day of the prior Monthly Period (or, in the case of the Monthly Period in which the Closing Date occurs, on the Closing Date); provided, however, that if the -------- ------- Rapid Amortization Period is extended past the Series 2001-A Final Maturity Date as a result of there being amounts owed to the Insurer or the Counterparty, then during that extended period the numerator for Finance Charge Collections and Default Amounts shall equal the numerator in effect for the last Monthly Period prior to the Series 2001-A Final Maturity Date; (ii) for Principal Collections during the Rapid Amortization Period and the Controlled Accumulation Period, on the last day of the Revolving Period; provided, however, that if Series 2001-A is -------- ------- paired with a Paired Series and a Rapid Amortization Period commences for such Paired Series, the Seller may, by written notice to the Indenture Trustee, the Servicer and the Rating Agencies, but only after satisfying the Rating Agency Condition, designate a different numerator for such fraction, which numerator shall not be less than the Collateral Amount as of the last day of the Revolving Period for the Paired Series; and (b) the denominator of which shall be the greater of (x) the sum of the Aggregate Principal Receivables and the amount on deposit in the Excess 2 Funding Account (exclusive of any investment earnings on such amount) in each case as of the end of the Business Day preceding such date of determination and (y) the sum of the numerators used to calculate the Allocation Percentages for allocations with respect to Finance Charge Collections, Principal Collections or Default Amounts, as applicable, for all outstanding Series or "Series" under (and as defined in) the Pooling and Servicing Agreement (other than Series represented by the Collateral Certificate) on such date of determination. "Available Finance Charge Collections" means, for any Monthly Period, ------------------------------------ an amount equal to the sum of (a) the Investor Finance Charge Collections for such Monthly Period, plus (b) any Net Swap Receipts for the related Distribution Date, plus (c) the Excess Finance Charge Collections allocated to Series 2001-A for such Monthly Period, plus (d) Principal Accumulation Investment Proceeds, if any, with respect to the related Distribution Date, plus (e) amounts, if any, to be withdrawn from the Reserve Account which will be deposited into the Collection Account on the related Distribution Date to be treated as Available Finance Charge Collections pursuant to subsection 4.10(d). ------------------ "Available Principal Collections" means, for any Monthly Period, an ------------------------------- amount equal to the sum of (a) the Investor Principal Collections for such Monthly Period minus (b) the amount of Reallocated Principal Collections with respect to such Monthly Period which pursuant to Section 4.6 are ----------- required to be applied on the related Distribution Date, plus (c) any Shared Principal Collections with respect to other Principal Sharing Series (including any amounts on deposit in the Excess Funding Account that are allocated to Series 2001-A pursuant to the Agreement for application as Shared Principal Collections), plus (d) the aggregate amount to be treated as Available Principal Collections pursuant to subsections 4.4(a)(iii), ----------------------- (iv) and (viii) for the related Distribution Date. ---- ------ "Available Reserve Account Amount" means, for any Distribution Date, -------------------------------- the lesser of (a) the amount on deposit in the Reserve Account on such date (after taking into account any interest and earnings retained in the Reserve Account pursuant to subsection 4.10(b) on such date, but before ------------------ giving effect to any deposit made or to be made pursuant to subsection ---------- 4.4(a)(vi) to the Reserve Account on such date) and (b) the Required ---------- Reserve Account Amount. "Available Spread Account Amount" is defined in the Insurance ------------------------------- Agreement. "Base Rate" is defined in the Insurance Agreement. --------- "Class A Noteholder" means the Person in whose name a Class A Note is ------------------ registered in the Note Register. 3 "Class A Notes" means any one of the Notes executed by the Issuer and ------------- authenticated by or on behalf of the Indenture Trustee, substantially in the form of Exhibit A. --------- "Closing Date" means July 19, 2001. ------------ "Collateral Amount" means, as of any date of determination, an amount ----------------- equal to the result of (a) the Initial Collateral Amount, minus (b) the amount of principal previously paid to the Series 2001-A Noteholders, minus (c) the balance on deposit in the Principal Accumulation Account, minus (d) the aggregate reductions to the Collateral Amount made pursuant to Section ------- 4.4(c) on or prior to such date of determination, minus (e) the excess, if ------ any, of the aggregate amount of Investor Charge-Offs and Reallocated Principal Collections over the reimbursements of such amounts pursuant to subsection 4.4(a)(iv) prior to such date, plus (f) any additional amount --------------------- designated by the Seller pursuant to Section 8.10. "Control Transfer Event" means either of the following events: (a) the ---------------------- Insurer shall fail to timely make any payment required to be made by it pursuant to any Policy or otherwise default in any of its obligations under the Insurance Agreement; or (b) the Insurer shall (i) become insolvent, (ii) fail to pay its debts generally as they become due, (iii) voluntarily seek, consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law, or (iv) become a party to (or be made the subject of) any proceeding provided for by any Debtor Relief Law, other than as a creditor or claimant, and, in the event such proceeding is involuntary, the petition instituting same is not dismissed within 60 days after its filing. "Controlled Accumulation Amount" means, for any Distribution Date with ------------------------------ respect to the Controlled Accumulation Period, $50,000,000; provided, -------- however, that if the Accumulation Period Length is determined to be less ------- than 12 months pursuant to Section 4.14 or 4.15, the Controlled ------------ ---- Accumulation Amount for each Distribution Date with respect to the Controlled Accumulation Period will be equal to (i) the product of (x) the aggregate initial principal amount of the Series 2001-A Notes and (y) the Accumulation Period Factor for such Monthly Period divided by (ii) the Required Accumulation Factor Number. "Controlled Accumulation Period" means, unless a Pay Out Event shall ------------------------------ have occurred prior thereto, the period commencing at the opening of business on March 1, 2004 or such later date as is determined in accordance with Section 4.14 and 4.15, and ending on the first to occur of (a) the ------------ ---- commencement of the Rapid Amortization Period, (b) the payment in full of the Note Principal Balance and (c) the Series 2001-A Final Maturity Date. "Controlled Deposit Amount" means, for any Distribution Date with ------------------------- respect to the Controlled Accumulation Period, an amount equal to the sum of the Controlled Accumulation Amount for such Distribution Date and any existing Accumulation Shortfall. 4 "Counterparty" means Morgan Guaranty Trust Company of New York or the ------------ counterparty under any replacement interest rate swap obtained pursuant to Section 4.17. ------------ "Covered Amount" means an amount, determined as of each Distribution -------------- Date for any Interest Period, equal to the sum of (a) the product of (i) a fraction, the numerator of which is the actual number of days in such Interest Period and the denominator of which is 360, times (ii) the Note Interest Rate in effect with respect to such Interest Period, times (iii) the aggregate amount on deposit in the Principal Accumulation Account as of the Record Date preceding such Distribution Date. "Default Amount Rate" is defined in the Insurance Agreement. ------------------- "Default Estimate" means, for any Monthly Period, an amount equal to ---------------- the product of (i) 1.5, multiplied by (ii) the arithmetic mean of the Investor Default Amounts for the prior three Monthly Periods. For this purpose, the April, May, June and July Investor Default Amounts shall be deemed to have equaled $9,300,000. "Deficiency Amount" means (a) for any Distribution Date other than the ----------------- Series 2001-A Final Maturity Date, the excess of the amounts payable pursuant to Sections 4.4(a)(i) and (ii) for such Distribution Date over the ------------------ ---- Available Finance Charge Collections, Reallocated Principal Collections and Available Spread Account Amount that are available to cover such amounts, and (b) for the Series 2001-A Final Maturity Date, the sum of (i) the amount determined pursuant to clause (a) for the Series 2001-A Final ---------- Maturity Date and (ii) the excess of the Note Principal Balance over the Available Principal Collections and Available Spread Account Amount that are available to cover such amount. "Distribution Date" means August 15, 2001 and the 15th day of each ----------------- calendar month thereafter, or if such 15th day is not a Business Day, the next succeeding Business Day. "Enhancement Provider" means each of the Insurer and the Counterparty. -------------------- "Excess Collateral Amount" means, at any time, the result of the ------------------------ Collateral Amount, plus the Principal Accumulation Account Balance, minus the Note Principal Balance. "Excess Spread Percentage" is defined in the Insurance Agreement. ------------------------ "Expected Principal Distribution Date" means the March 2005 ------------------------------------ Distribution Date. "Finance Charge Shortfall" is defined in Section 4.7. ------------------------ ----------- 5 "Group One" means Series 2001-A, the outstanding Series under (and as --------- defined in) the Pooling and Servicing Agreement (other than Series represented by the Collateral Certificate) and each other Series hereafter specified in the related Indenture Supplement to be included in Group One. "Initial Collateral Amount" means the sum of (a) $685,800,000, which ------------------------- equals the sum of (i) the initial principal amount of the Series 2001-A Notes plus (ii) the Initial Excess Collateral Amount (excluding the Supplemental Enhancement), plus (b) the Supplemental Enhancement. "Initial Excess Collateral Amount" means, at any time, the sum of (a) -------------------------------- $85,800,000, plus (b) the Supplemental Enhancement. "Insurance Agreement" means the Insurance and Reimbursement Agreement ------------------- dated as of the Closing Date between the Seller, the Servicer, Spiegel, Spiegel Acceptance Corporation, the Issuer, the Indenture Trustee and the Insurer. "Insured Obligation" means, with respect to any Policy, the "Insured ------------------ Obligation" as defined in such Policy. "Insurer" means MBIA Insurance Corporation, a New York stock insurance ------- corporation. "Interest Period" means, for any Distribution Date, the period from --------------- and including the Distribution Date immediately preceding such Distribution Date (or, in the case of the first Distribution Date, from and including the Closing Date) to but excluding such Distribution Date. "Interest Shortfall" is defined in Section 4.2. ------------------ ----------- "Investor Charge-Offs" is defined in Section 4.5. -------------------- ----------- "Investor Default Amount" means, for any Distribution Date, an amount ----------------------- equal to the product of (a) the Default Amount for the related Monthly Period and (b) the daily average Allocation Percentage for such Monthly Period; provided that the Investor Default Amount for the August 15, 2001 -------- Distribution Date shall be equal to the product of (a) the Default Amount for the calendar month of July 2001, (b) the daily average Allocation Percentage for the first Monthly Period and (c) a fraction equal to the number of days in the first Monthly Period, divided by 31. "Investor Finance Charge Collections" means, for any Monthly Period, ----------------------------------- an amount equal to the aggregate amount of Finance Charge Collections (including Net Recoveries treated as Finance Charge Collections) retained or deposited in the Finance Charge Subaccount for Series 2001-A pursuant to subsection 4.1(b)(i) for such Monthly Period. -------------------- 6 "Investor Principal Collections" means, for any Monthly Period, the ------------------------------ aggregate amount of Principal Collections retained or deposited in the Principal Collections Subaccount for Series 2001-A pursuant to subsection ---------- 4.1(b)(ii) for such Monthly Period. ---------- "Investor Uncovered Dilution Amount" means, for any Distribution Date, ---------------------------------- an amount equal to the Series Share of shortfalls in Deposit Obligations that is allocated to Series 2001-A pursuant to Section 8.4(h) of the -------------- Indenture. "LIBOR" means, for any Interest Period, the London interbank offered ----- rate for one-month United States dollar deposits determined by the Indenture Trustee for each Interest Period in accordance with the provisions of Section 4.12. ------------ "LIBOR Determination Date" means the second London Banking Day prior ------------------------ to the commencement of each Interest Period. "London Banking Day" means any day on which commercial banks are open ------------------ for general business (including dealings in foreign exchange and foreign currency deposits) in London, England. "Minimum Seller Percentage" means zero for Series 2001-A. ------------------------- "Modified Excess Spread Percentage" is defined in the Insurance --------------------------------- Agreement. "Monthly Insurance Premium" means the Premium (as defined in the ------------------------- Premium and Fee Letter) for any Monthly Period. "Monthly Interest" is defined in Section 4.2. ---------------- ----------- "Monthly Period" means the period from and including the first day of -------------- the calendar month preceding a related Determination Date to and including the last day of such calendar month; provided that the first Monthly Period shall begin on and include the Closing Date and end on and include July 31, 2001. "Monthly Principal" means the monthly principal distributable in ----------------- respect of the Notes as calculated in accordance with Section 4.3. ----------- "Monthly Principal Reallocation Amount" means, for any Monthly Period, ------------------------------------- an amount equal to the lower of: (a) the excess of the Required Amount, over the amount of Available Finance Charge Collections applied to pay the Required Amount pursuant to subsection 4.4(a); and ----------------- (b) the Excess Collateral Amount (after giving effect to Investor Charge-Offs for the related Monthly Period). 7 "Monthly Servicing Fee" is defined in subsection 3.1(a). --------------------- ----------------- "Net Interest Obligation" means, for any Distribution Date: (a) if ----------------------- there is a Net Swap Payment due on that Distribution Date, the sum of the Net Swap Payment and the Monthly Interest for that Distribution Date; (b) if there is a Net Swap Receipt due on that Distribution Date, the result of the Monthly Interest for that Distribution Date minus the Net Swap Receipt; and (c) if the Swap has terminated for any reason, the Monthly Interest for that Distribution Date. "Net Swap Payment" means any net amount payable by the Issuer under ---------------- the Swap as a result of LIBOR being less than the Swap Rate. For the avoidance of doubt, (i) Net Swap Payments do not include early termination payments or payment of breakage or other miscellaneous costs, and (ii) for any Distribution Date, the Monthly Interest, less the Net Swap Receipt, if any, plus, the Net Swap Payment, if any, will never exceed what Monthly Interest would have been if the Note Interest Rate were 5.485%. "Net Swap Receipt" means any net amount payable by the Counterparty as ---------------- a result of LIBOR being greater than the Swap Rate. For the avoidance of doubt, Net Swap Receipts do not include early termination payments. "Note Initial Principal Balance" means $600,000,000. ------------------------------ "Note Interest Rate" means a per annum rate of 0.28% in excess of ------------------ LIBOR as determined on the LIBOR Determination Date for the applicable Interest Period. "Note Principal Balance" means, on any date of determination, an ---------------------- amount equal to (a) the Note Initial Principal Balance, minus (b) the aggregate amount of principal payments made to the Class A Noteholders on or prior to such date. "Percentage Allocation" is defined in subsection 4.1(b)(ii)(y). --------------------- ------------------------ "Policy" means the Financial Guaranty Insurance Policy No. 35738(1) or ------ the Financial Guaranty Insurance Policy No. 35738(2), each issued by MBIA Insurance Corporation pursuant to the Insurance Agreement, and, collectively, referred to herein as the "Policies." "Portfolio Adjusted Yield" means, for any Distribution Date, the ------------------------ average of the percentages obtained for each of the three preceding Monthly Periods by subtracting the Base Rate and the Default Amount Rate for each such Monthly Period from the Portfolio Yield for each such Monthly Period. "Portfolio Yield" is defined in the Insurance Agreement. --------------- "Premium and Fee Letter" is defined in the Insurance Agreement. ---------------------- 8 "Principal Accumulation Account" shall have the meaning set forth in ------------------------------ subsection 4.9(a). ----------------- "Principal Accumulation Account Balance" means, for any date of -------------------------------------- determination, the principal amount, if any, on deposit in the Principal Accumulation Account on such date of determination. "Principal Accumulation Investment Proceeds" means, with respect to ------------------------------------------ each Distribution Date, the investment earnings on funds in the Principal Accumulation Account (net of investment expenses and losses) for the period from and including the immediately preceding Distribution Date to but excluding such Distribution Date. "Principal Payment Rate" means, for any Monthly Period, (a) the ---------------------- aggregate amount of Principal Collections deposited in the Collection Account during that Monthly Period, divided by (b) the Aggregate Principal ------- -- Receivables as of the close of business on the last day of the prior Monthly Period. "Principal Shortfall" is defined in subsection 4.8(a). ------------------- ----------------- "Qualified Maturity Agreement" means an agreement, meeting the ---------------------------- requirements described in the definition of "Qualified Maturity Agreement" set forth in the Policies, whereby an Eligible Institution agrees to make a deposit into the Principal Accumulation Account on the Expected Principal Distribution Date in an amount equal to the Note Principal Balance on such date; provided that for purposes of this definition, references in the definition of "Eligible Institution" to ratings of "A-1+" and "AAA" by Standard & Poor's shall be modified to require ratings of "A-1" and "A+" from Standard & Poor's. "Rapid Amortization Period" means the period commencing on the ------------------------- Business Day immediately preceding the day on which a Pay Out Event with respect to Series 2001-A is deemed to have occurred, and ending on the first to occur of (i) the payment in full of the Collateral Amount and (ii) the Series 2001-A Final Maturity Date; provided, that if any amounts are -------- owing to the Insurer under the Insurance Agreement or the Counterparty under the Swap at the Series 2001-A Final Maturity Date, the Rapid Amortization Period shall continue, solely for purposes of repaying such amounts, but in no event shall the Rapid Amortization Period continue after the earliest of (x) the date on which no further amounts are owed to the Insurer under the Insurance Agreement and the Counterparty under the Swap, (y) the March 2010 Distribution Date and (z) the date on which the Collateral Amount has been reduced to zero; provided, further, that if the -------- ------- Rapid Amortization Period is extended in accordance with the immediately preceding proviso, for purposes of calculating the Minimum Aggregate Principal Balance, for so long as the Rapid Amortization Period is so extended, (i) Series 2001-A shall be deemed to be outstanding, (ii) the Collateral Amount shall be included in the sum of the collateral amounts of all outstanding series for purposes of clause (a) of the definition of Minimum Aggregate Principal Balance and (iii) the numerator used for purposes of the Allocation 9 Percentage with respect to Principal Collections for Series 2001-A shall be included in the calculation described in clause (b) of the definition of Minimum Aggregate Principal Balance.. "Rating Agency" means each of Fitch, Moody's and Standard & Poor's. ------------- "Rating Agency Condition" means, with respect to Series 2001-A, the ----------------------- Rating Agency Condition, as defined in the Insurance Agreement. "Reallocated Principal Collections" means, for any Distribution Date, --------------------------------- Investor Principal Collections applied in accordance with Section 4.6 in an ----------- amount not to exceed the Monthly Principal Reallocation Amount for the related Monthly Period. "Reassignment Amount" means, for any Distribution Date, after giving ------------------- effect to any deposits and distributions otherwise to be made on such Distribution Date, the sum of (i) the outstanding principal balance of the Series 2001-A Notes on such Distribution Date, plus (ii) Monthly Interest for such Distribution Date and any Monthly Interest previously due but not distributed to the Series 2001-A Noteholders, plus (iii) the amount of Additional Interest, if any, for such Distribution Date and any Additional Interest previously due but not distributed to the Series 2001-A Noteholders on a prior Distribution Date. "Reference Banks" means four major banks in the London interbank --------------- market selected by the Servicer or the Counterparty as calculation agent under the Swap. "Reimbursement Amounts" is defined in the Insurance Agreement. --------------------- "Required Accumulation Factor Number" shall be equal to a fraction, ----------------------------------- rounded upwards to the nearest whole number, the numerator of which is one and the denominator of which is equal to the lowest monthly Principal Payment Rate on the Accounts, expressed as a decimal, for the 12 months preceding the date of such calculation; provided, however, that this -------- ------- definition may be changed at any time if the Rating Agency Condition is satisfied. "Required Amount" is defined in the Insurance Agreement. --------------- "Required Excess Collateral Amount" is defined in the Insurance --------------------------------- Agreement. "Required Reserve Account Amount" means, for any Distribution Date on ------------------------------- or after the Reserve Account Funding Date, an amount equal to (a) 0.5% of the Note Principal Balance or (b) any other amount designated by the Seller; provided, however, that if such designation is of a lesser amount, -------- ------- the Seller shall (i) provide the Servicer and the Indenture Trustee with evidence that the Rating Agency Condition shall have been satisfied and (ii) deliver to the Indenture Trustee a certificate of an Authorized Officer to the effect that, based on the facts known to such officer at such time, in the reasonable belief of the Seller, such designation will not cause a Pay Out 10 Event or an event that, after the giving of notice or the lapse of time, would cause a Pay Out Event to occur with respect to Series 2001-A. "Reserve Account" is defined in subsection 4.10(a). --------------- ------------------ "Reserve Account Funding Date" means the Distribution Date designated ---------------------------- by the Servicer which occurs not later than the earliest of (a) the Distribution Date with respect to the Monthly Period which commences 3 months prior to the commencement of the Controlled Accumulation Period; (b) the first Distribution Date for which the Portfolio Adjusted Yield is less than 2%, but in such event the Reserve Account Funding Date shall not be required to occur earlier than the Distribution Date with respect to the Monthly Period which commences 12 months prior to the commencement of the Controlled Accumulation Period; (c) the first Distribution Date for which the Portfolio Adjusted Yield is less than 3%, but in such event the Reserve Account Funding Date shall not be required to occur earlier than the Distribution Date with respect to the Monthly Period which commences 6 months prior to the commencement of the Controlled Accumulation Period; and (d) the first Distribution Date for which the Portfolio Adjusted Yield is less than 4%, but in such event the Reserve Account Funding Date shall not be required to occur earlier than the Distribution Date with respect to the Monthly Period which commences 4 months prior to the commencement of the Controlled Accumulation Period. "Reserve Account Surplus" means, as of any Distribution Date following ----------------------- the Reserve Account Funding Date, the amount, if any, by which the amount on deposit in the Reserve Account exceeds the Required Reserve Account Amount. "Reserve Draw Amount" means, with respect to each Distribution Date ------------------- relating to the Controlled Accumulation Period or the first Distribution Date relating to the Rapid Amortization Period, the amount, if any, by which the Principal Accumulation Investment Proceeds for such Distribution Date are less than the Covered Amount determined as of such Distribution Date. "Revolving Period" means the period beginning on the Closing Date and ---------------- ending on the earlier of the close of business on the day immediately preceding the day the Controlled Accumulation Period commences or the Rapid Amortization Period commences. "Series 2001-A" means the Series of Notes the terms of which are -------------- specified in this Indenture Supplement. "Series 2001-A Final Maturity Date" means the earlier to occur of (a) --------------------------------- the Distribution Date on which the Note Principal Balance is paid in full and (b) the March 2010 Distribution Date. "Series 2001-A Note" means a Class A Note. ------------------ "Series 2001-A Noteholder" means a Class A Noteholder. ------------------------ 11 "Series 2001-A Pay Out Event" is defined in Section 6.1. --------------------------- ----------- "Series Servicing Fee Percentage" means 2% per annum. ------------------------------- "Spread Account" means the segregated trust account required to be -------------- established pursuant to Section 2.05 of the Insurance Agreement, which section is set forth in its entirety in Exhibit G. --------- "Supplemental Enhancement" is defined in the Insurance Agreement. ------------------------ "Surplus Collateral Amount" means, at any time, the excess, if any, of ------------------------- the Excess Collateral Amount over the sum of the Required Excess Collateral Amount and the Supplemental Enhancement. "Swap" means an interest rate swap agreement between the Owner ---- Trustee, on behalf of the Trust, and the Counterparty substantially in the form of Exhibit E to this Indenture Supplement, or such other form as shall --------- have satisfied the Rating Agency Condition. "Swap Rate" means 5.205% per annum. --------- "Telerate Page 3750" means the display page currently so designated on ------------------ the Bridge Telerate Capital Markets Report (or such other page as may replace that page in that service for the purpose of displaying comparable rates or prices). (b) Each capitalized term defined herein shall relate to the Series 2001-A Notes and no other Series of Notes issued by the Trust, unless the context otherwise requires. All capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Indenture or the Transfer and Servicing Agreement. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture or the Transfer and Servicing Agreement, the terms and provisions of this Indenture Supplement shall govern. (c) The interpretive rules specified in Section 1.2 of the Master ----------- Indenture also apply to this Indenture Supplement. (d) The definitions of all capitalized terms defined herein by reference to the respective definitions of those terms in the Insurance Agreement can be found in Exhibit F. --------- ARTICLE III Servicing Fee ------------- Section 3.1 Servicing Compensation. The share of the Servicing Fee ---------------------- allocable to Series 2001-A for any Distribution Date (the "Monthly ------- Servicing Fee") ------------- 12 shall be equal to one-twelfth of the product of (a) the Series Servicing Fee Percentage and (b) (i) the Collateral Amount as of the last day of the Monthly Period preceding such Distribution Date, minus (ii) the product of the amount, if any, on deposit in the Excess Funding Account as of the last day of the Monthly Period preceding such Distribution Date and the Allocation Percentage for Finance Charge Collections with respect to such Monthly Period; provided, however, that with respect to the first -------- ------- Distribution Date, the Monthly Servicing Fee shall be equal to $495,300. The remainder of the Servicing Fee shall be paid by the holders of the Seller Interest or the noteholders of other Series (as provided in the related Indenture Supplements) and in no event shall the Trust, the Indenture Trustee or the Series 2001-A Noteholders be liable for the share of the Servicing Fee to be paid by the holders of the Seller Interest or the noteholders of any other Series. To the extent that the Monthly Servicing Fee is not paid in full pursuant to the preceding provisions of this Section 3.1 and Section 4.4, it shall be paid by the holders of the ----------- ----------- Seller Interest. ARTICLE IV Rights of Series 2001-A Noteholders and Allocation and Application of Collections --------------------------------------------- Section 4.1 Collections and Allocations. --------------------------- (a) Allocations. Finance Charge Collections, Principal Collections and ----------- Defaulted Receivables allocated to Series 2001-A pursuant to Article VIII ------------ of the Indenture shall be allocated and distributed as set forth in this Article. (b) Allocations to the Series 2001-A Noteholders. The Servicer shall, -------------------------------------------- prior to the close of business on any Deposit Date, allocate to the Series 2001-A Noteholders the following amounts as set forth below: (i) Allocations of Finance Charge Collections. The Servicer shall ----------------------------------------- allocate to the Series 2001-A Noteholders and transfer to the Finance Charge Subaccount for application as provided herein an amount equal to the product of (A) the Allocation Percentage and (B) the aggregate Finance Charge Collections deposited in the Collection Account on such Deposit Date; provided, however, that with respect to the portion of -------- ------- each Monthly Period falling in the Revolving Period or the Controlled Accumulation Period, such allocation shall be transferred to the Finance Charge Subaccount only until such time as the amount transferred to the Finance Charge Subaccount pursuant to this subsection during that Monthly Period equals the sum of (1) the Net Interest Obligation with respect to the Distribution Date relating to that Monthly Period, (2) at any time that FCNB is not the Servicer, the Monthly Servicing Fee payable on the Distribution Date relating to that Monthly Period and all accrued and unpaid Investor Monthly Servicing Fees with respect to any prior Monthly Periods, (3) the Default Estimate for that 13 Monthly Period and (4) the Monthly Insurance Premium with respect to that Monthly Period; provided further, however, that notwithstanding -------- ------- ------- the foregoing proviso, (1) the entire Allocation Percentage of Finance ------- Charge Collections shall be transferred to the Finance Charge Subaccount on a daily basis if (x) the Excess Spread Percentage for the preceding Monthly Period is less than 3.00%, or (y) the Available Spread Account Amount is less than the Required Spread Account Amount; and (2) subject to Section 8.4(a) of the Indenture, on each -------------- Determination Date, the Servicer shall deposit in the Finance Charge Subaccount any amounts not retained on a daily basis pursuant to the preceding proviso. Any portion of such allocation not required to be ------- transferred to the Finance Charge Subaccount pursuant to the preceding sentence shall be (x) first, deposited in the Excess Funding Account to the extent that the Seller Amount is less than the Minimum Seller Amount and (y) thereafter paid to the Holders of the Seller Interest. (ii) Allocations of Principal Collections. The Servicer shall ------------------------------------ allocate to the Series 2001-A Noteholders the following amounts as set forth below: (x) Allocations During the Revolving Period. During the --------------------------------------- Revolving Period an amount equal to the product of the Allocation Percentage and the aggregate amount of Principal Collections deposited in the Collection Account on such Deposit Date, shall be allocated to the Series 2001-A Noteholders and shall be first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, retained in the Collection Account for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount and third paid to the holders of the Seller Interest. (y) Allocations During the Controlled Accumulation Period. ----------------------------------------------------- During the Controlled Accumulation Period an amount equal to the product of (I) the Allocation Percentage and (II) the aggregate amount of Principal Collections deposited in the Collection Account on such Deposit Date (the product for any such date is hereinafter referred to as a "Percentage Allocation") shall be --------------------- allocated to the Series 2001-A Noteholders and transferred to the Principal Collections Subaccount until applied as provided herein; provided, however, that if the sum of such Percentage -------- ------- Allocation and all preceding Percentage Allocations with respect to the same Monthly Period exceeds the Controlled Deposit Amount during the Controlled Accumulation Period for the related Distribution Date, then such excess shall not be treated as a Percentage Allocation and shall be first, if any other Principal Sharing Series is outstanding and in its 14 amortization period or accumulation period, transferred to the Principal Collections Subaccount for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount and third paid to the holders of the Seller Interest. (z) Allocations During the Rapid Amortization Period. During ------------------------------------------------ the Rapid Amortization Period, an amount equal to the product of (I) the Allocation Percentage and (II) the aggregate amount of Principal Collections deposited in the Collection Account on such Deposit Date, shall be allocated to the Series 2001-A Noteholders and transferred to the Principal Collections Subaccount until applied as provided herein; provided, however, that after the -------- ------- date on which an amount of such Collections equal to the Note Principal Balance plus any amounts owing to the Counterparty under the Swap and the Insurer under the Insurance Agreement has been deposited into the Collection Account and allocated to the Series 2001-A Noteholders, such amount shall be first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, transferred to the Principal Collections Subaccount for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount and third paid to the holders of the Seller Interest. Section 4.2 Determination of Monthly Interest. The amount of monthly --------------------------------- interest (" Monthly Interest") distributable from the Collection Account ---------------- with respect to the Class A Notes on any Distribution Date shall be an amount equal to the product of (i) (A) a fraction, the numerator of which is the actual number of days in the related Interest Period and the denominator of which is 360, times (B) the Note Interest Rate in effect with respect to the related Interest Period and (ii) the Note Principal Balance as of the close of business on the last day of the preceding Monthly Period (or, with respect to the initial Distribution Date, the Note Initial Principal Balance). On the Determination Date preceding each Distribution Date, the Servicer shall determine the excess, if any (the "Interest Shortfall"), of ------------------ (x) the Monthly Interest for such Distribution Date over (y) the aggregate amount of funds allocated and available to pay such Monthly Interest on such Distribution Date. If the Interest Shortfall for any Distribution Date is greater than zero and the Insurer fails to pay such Interest Shortfall in accordance with the terms of the related Policy, on each subsequent Distribution Date until such Interest Shortfall is fully paid, an additional 15 amount ("Additional Interest") equal to the product of (i) (A) a fraction, ------------------- the numerator of which is the actual number of days in the related Interest Period and the denominator of which is 360, times (B) the Note Interest Rate in effect with respect to the related Interest Period and (ii) such Interest Shortfall (or the portion thereof which has not been paid to the Class A Noteholders) shall be payable as provided herein with respect to the Class A Notes. Notwithstanding anything to the contrary herein, Additional Interest shall be payable or distributed to the Class A Noteholders only to the extent permitted by applicable law. Section 4.3 Determination of Monthly Principal. The amount of monthly ---------------------------------- principal distributable from the Collection Account with respect to the Notes on each Distribution Date (the "Monthly Principal"), beginning with ----------------- the Distribution Date in the month following the month in which the Controlled Accumulation Period or, if earlier, the Rapid Amortization Period, begins, shall be equal to the least of (i) the Available Principal Collections on deposit in the Collection Account with respect to such Distribution Date, (ii) for each Distribution Date with respect to the Controlled Accumulation Period, the Controlled Deposit Amount for such Distribution Date, (iii) the Note Principal Balance, minus any amount already on deposit in the Principal Accumulation Account on such Distribution Date and (iv) the Collateral Amount (after taking into account any adjustments to be made pursuant to Sections 4.5 and 4.6) prior to any ------------ --- deposit into the Principal Accumulation Account on such Distribution Date. Section 4.4 Application of Available Finance Charge Collections and ------------------------------------------------------- Available Principal Collections. The Servicer shall apply, or shall cause ------------------------------- the Indenture Trustee to apply by written instruction to the Indenture Trustee, on each Distribution Date, Available Finance Charge Collections and Available Principal Collections on deposit in the Collection Account with respect to such Distribution Date to make the following distributions: (a) On each Distribution Date, an amount equal to the Available Finance Charge Collections with respect to such Distribution Date will be distributed or deposited in the following priority: (i) on a pari passu basis (A) an amount equal to Monthly Interest for such Distribution Date, plus the amount of any Monthly Interest previously due but not distributed to Class A Noteholders on a prior Distribution Date, plus the amount of any Additional Interest for such Distribution Date, plus the amount of any Additional Interest previously due but not distributed to Class A Noteholders on a prior Distribution Date, shall be distributed to the Paying Agent for payment to Class A Noteholders on such Distribution Date and (B) any Net Swap Payment for that Distribution Date shall be distributed to the Counterparty; (ii) if neither FCNB nor any affiliate of the Seller is the Servicer, an amount equal to the Monthly Servicing Fee for such Distribution Date, 16 plus the amount of any Monthly Servicing Fee previously due but not distributed to the Servicer on a prior Distribution Date, shall be distributed to the Servicer; (iii) an amount equal to the Investor Default Amount and any Investor Uncovered Dilution Amount for such Distribution Date shall be treated as a portion of Available Principal Collections for such Distribution Date; (iv) an amount equal to the sum of the aggregate amount of Investor Charge-Offs and the amount of Reallocated Principal Collections which have not been previously reimbursed pursuant to this subsection (iv) shall be treated as a portion of Available Principal --------------- Collections for such Distribution Date; (v) an amount equal to the Monthly Insurance Premium for the related Monthly Period and any unpaid Monthly Insurance Premiums for prior Monthly Periods shall be paid to the Insurer; (vi) on each Distribution Date from and after the Reserve Account Funding Date, but prior to the date on which the Reserve Account terminates as described in subsection 4.10(f), an amount up to the ------------------ excess, if any, of the Required Reserve Account Amount over the Available Reserve Account Amount shall be deposited into the Reserve Account; (vii) an amount equal to the amounts required to be deposited in the Spread Account pursuant to Section 2.05(f) of the Insurance Agreement shall be deposited into the Spread Account as provided in Section 2.05(f) of the Insurance Agreement; (viii) during the Rapid Amortization Period, any amount remaining shall be applied as Available Principal Collections for such Distribution Date to the extent that the other Available Principal Collections (excluding any amounts drawn under the Policies) are not sufficient to repay the Class A Notes in full; (ix) an amount equal to any Reimbursement Amounts and interest thereon owed under the Insurance Agreement shall be paid to the Insurer; (x) an amount equal to any other amounts owing to the Insurer under the Insurance Agreement shall be paid to the Insurer; (xi) if the Rapid Amortization Period is extended past the Distribution Date on which the Note Principal Balance is paid in full as a result of there being amounts owed to the Counterparty, on each Distribution Date after the Note Principal Balance is paid in full, an amount equal to any 17 partial or early termination payments or other additional payments owed to the Counterparty under the Swap shall be paid to the Counterparty; (xii) any Monthly Servicing Fee for such Distribution Date or prior Distribution Dates not paid pursuant to subsection 4.4(a)(ii) --------------------- (unless such amount has been netted against deposits to the Collection Account in accordance with Section 8.4 of the Indenture) shall be ----------- distributed to the Servicer; and (xiii) the balance, if any, will constitute a portion of Excess Finance Charge Collections for such Distribution Date and first will be available for allocation to other Series in Group One, second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount and third paid to the Holders of the Seller Interest as described in Section 8.6 of the Indenture. ----------- (b) On each Distribution Date with respect to the Revolving Period, an amount equal to the Available Principal Collections deposited in the Collection Account for the related Monthly Period shall be treated as Shared Principal Collections and applied in accordance with Section 8.5 of ----------- the Indenture. (c) On each Distribution Date with respect to the Controlled Accumulation Period or the Rapid Amortization Period, an amount equal to the Available Principal Collections deposited in the Collection Account for the related Monthly Period shall be distributed or deposited in the following order of priority: (i) during the Controlled Accumulation Period, an amount equal to the Monthly Principal for such Distribution Date shall be deposited into the Principal Accumulation Account, and any remaining Available Principal Collections shall be treated as Shared Principal Collections and applied in accordance with Section 8.5 of the Indenture; and ----------- (ii) during the Rapid Amortization Period, an amount equal to the Monthly Principal for such Distribution Date shall be distributed to the Paying Agent for payment to the Class A Noteholders on such Distribution Date until the Note Principal Balance has been paid in full, and any remaining Available Principal Collections shall be treated as Shared Principal Collections and applied in accordance with Section 8.5 of the Indenture. ----------- As of any Distribution Date on which any Available Principal Collections are treated as Shared Principal Collections as provided above, the Collateral Amount shall be reduced by an amount equal to the lesser of (x) the amount of Available Principal Collections applied as Shared Principal Collections and (y) the Surplus Collateral Amount. 18 (d) On the earlier to occur of (i) the first Distribution Date with respect to the Rapid Amortization Period and (ii) the Expected Principal Distribution Date, the Indenture Trustee, acting in accordance with instructions from the Servicer, shall withdraw from the Principal Accumulation Account and distribute to the Paying Agent for payment to the Class A Noteholders the amounts deposited into the Principal Accumulation Account pursuant to subsection 4.4(c)(i). -------------------- Section 4.5 Investor Charge-Offs. On each Determination Date, the -------------------- Servicer shall calculate the Investor Default Amount and any Investor Uncovered Dilution Amount for the related Distribution Date. If, on any Distribution Date, the sum of the Investor Default Amount and any Investor Uncovered Dilution Amount for such Distribution Date exceeds the amount of Available Finance Charge Collections allocated with respect thereto pursuant to subsection 4.4(a)(iii) with respect to such Distribution Date, ---------------------- the Collateral Amount will be reduced (but not below zero) by the amount of such excess (such reduction, an "Investor Charge-Off"). ------------------- Section 4.6 Reallocated Principal Collections. On each Distribution --------------------------------- Date, the Servicer shall apply, or shall instruct the Indenture Trustee in writing to apply, Reallocated Principal Collections with respect to such Distribution Date, to fund any deficiency pursuant to and in the priority set forth in subsections 4.4(a)(i), (ii), (v), (ix), (x) and (xi); provided --------------------- ---- --- ---- --- ---- that in no event will Reallocated Principal Collections be applied pursuant to subsections 4.4(a)(v), (ix), (x) and (xi) until the Series 2001-A Final --------------------- ---- --- ---- Maturity Date. On each Distribution Date, the Collateral Amount shall be reduced by the amount of Reallocated Principal Collections for such Distribution Date. Section 4.7 Excess Finance Charge Collections. Series 2001-A shall be --------------------------------- an Excess Allocation Series with respect to Group One only. For this purpose, each outstanding series of certificates issued by Spiegel Master Trust (other than series represented by the Collateral Certificate) shall be deemed to be a Series in Group One. Subject to Section 8.6 of the ----------- Indenture, Excess Finance Charge Collections with respect to the Excess Allocation Series in Group One for any Distribution Date will be allocated to Series 2001-A in an amount equal to the product of (x) the aggregate amount of Excess Finance Charge Collections with respect to all the Excess Allocation Series in Group One for such Distribution Date and (y) a fraction, the numerator of which is the Finance Charge Shortfall for Series 2001-A for such Distribution Date and the denominator of which is the aggregate amount of Finance Charge Shortfalls for all the Excess Allocation Series in Group One for such Distribution Date. The "Finance Charge -------------- Shortfall" for Series 2001-A for any Distribution Date will be equal to the --------- excess, if any, of (a) the full amount required to be paid, without duplication, pursuant to subsections 4.4(a)(i) through (xii) on such --------------------- ----- Distribution Date over (b) the Available Finance Charge Collections with respect to such Distribution Date (excluding any portion thereof attributable to Excess Finance Charge Collections). 19 Section 4.8 Shared Principal Collections. Subject to Section 8.5 of ---------------------------- ----------- the Indenture, Shared Principal Collections for any Distribution Date will be allocated to Series 2001-A in an amount equal to the product of (x) the aggregate amount of Shared Principal Collections with respect to all Principal Sharing Series for such Distribution Date and (y) a fraction, the numerator of which is the Principal Shortfall for Series 2001-A for such Distribution Date and the denominator of which is the aggregate amount of Principal Shortfalls for all the Series which are Principal Sharing Series for such Distribution Date. For this purpose, each outstanding series of certificates issued by Spiegel Master Trust (other than series represented by the Collateral Certificate) shall be deemed to be a Principal Sharing Series. The "Principal Shortfall" for Series 2001-A will be equal to (a) ------------------- for any Distribution Date with respect to the Revolving Period, zero, (b) for any Distribution Date with respect to the Controlled Accumulation Period, the excess, if any, of the Controlled Deposit Amount with respect to such Distribution Date over the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections), and (c) for any Distribution Date with respect to the Rapid Amortization Period, the excess, if any, of the Note Principal Balance (less the balance in the Principal Accumulation Account) over the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections). Section 4.9 Principal Accumulation Account. ------------------------------ (a) The Indenture Trustee shall establish and maintain with an Eligible Institution, which may be the Indenture Trustee in the name of the Trust, on behalf of the Trust, for the benefit of the Series 2001-A Noteholders, a non-interest bearing segregated trust account with the corporate trust department of such Eligible Institution (the "Principal --------- Accumulation Account"), bearing a designation clearly indicating that the -------------------- funds deposited therein are held for the benefit of the Series 2001-A Noteholders. The Indenture Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Principal Accumulation Account and in all proceeds thereof. The Principal Accumulation Account shall be under the sole dominion and control of the Indenture Trustee for the benefit of the Series 2001-A Noteholders. If at any time the institution holding the Principal Accumulation Account ceases to be an Eligible Institution, the Servicer shall notify the Indenture Trustee in writing, and the Indenture Trustee upon being notified (or the Servicer on its behalf) shall, within ten (10) Business Days, establish a new Principal Accumulation Account meeting the conditions specified above with an Eligible Institution, and shall transfer any cash or any investments to such new Principal Accumulation Account. The Indenture Trustee, at the written direction of the Servicer, shall (i) make withdrawals from the Principal Accumulation Account from time to time, in the amounts and for the purposes set forth in this Indenture Supplement, and (ii) on each Distribution Date (from and after the commencement of the Controlled Accumulation Period) prior to the termination of the Principal Accumulation Account, make deposits into the Principal Accumulation Account in the amounts specified in, and otherwise in accordance with, subsection ---------- 4.4(c)(i). --------- 20 (b) Funds on deposit in the Principal Accumulation Account shall be invested at the written direction of the Servicer by the Indenture Trustee in Permitted Investments. Funds on deposit in the Principal Accumulation Account on any Distribution Date, after giving effect to any withdrawals from the Principal Accumulation Account on such Distribution Date, shall be invested in such investments that will mature so that such funds will be available for withdrawal on or prior to the following Distribution Date. The Indenture Trustee shall hold such of the Permitted Investments as consists of instruments, deposit accounts, negotiable documents, money, goods, letters of credit, and advices of credit in the State of New York and/or Illinois. The Indenture Trustee shall hold such of the Permitted Investments as constitutes investment property through a securities intermediary, which securities intermediary shall agree with the Indenture Trustee that (a) such investment property shall at all times be credited to a securities account of the Indenture Trustee, (b) such securities intermediary shall treat the Indenture Trustee as entitled to exercise the rights that comprise each financial asset credited to such securities account, (c) all property credited to such securities account shall be treated as a financial asset, (d) such securities intermediary shall comply with entitlement orders originated by the Indenture Trustee without the further consent of any other person or entity, (e) such securities intermediary will not agree with any person or entity other than the Indenture Trustee to comply with entitlement orders originated by such other person or entity, (f) such securities accounts and the property credited thereto shall not be subject to any lien, security interest or right of set-off in favor of such securities intermediary or anyone claiming through it (other than the Indenture Trustee), and (g) such agreement shall be governed by the laws of the State of Illinois. Terms used in the preceding sentence that are defined in the New York UCC and not otherwise defined herein shall have the meaning set forth in the New York UCC. On each Distribution Date with respect to the Controlled Accumulation Period and on the first Distribution Date with respect to the Rapid Amortization Period, the Indenture Trustee, acting at the Servicer's written direction given on or before such Distribution Date, shall transfer from the Principal Accumulation Account to the Collection Account the Principal Accumulation Investment Proceeds on deposit in the Principal Accumulation Account for application as Available Finance Charge Collections in accordance with Section 4.4. ----------- Principal Accumulation Investment Proceeds (including reinvested interest) shall not be considered part of the amounts on deposit in the Principal Accumulation Account for purposes of this Indenture Supplement. Section 4.10 Reserve Account. --------------- (a) The Indenture Trustee shall establish and maintain with an Eligible Institution, which may be the Indenture Trustee in the name of the Trust, on behalf of the Trust, for the benefit of the Series 2001-A Noteholders, a non-interest bearing 21 segregated trust account with the corporate trust department of such Eligible Institution (the "Reserve Account"), bearing a designation clearly --------------- indicating that the funds deposited therein are held for the benefit of the Series 2001-A Noteholders. The Indenture Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Reserve Account and in all proceeds thereof. The Reserve Account shall be under the sole dominion and control of the Indenture Trustee for the benefit of the Series 2001-A Noteholders. If at any time the institution holding the Reserve Account ceases to be an Eligible Institution, the Servicer shall notify the Indenture Trustee in writing, and the Indenture Trustee upon being notified (or the Servicer on its behalf) shall, within ten (10) Business Days, establish a new Reserve Account meeting the conditions specified above with an Eligible Institution, and shall transfer any cash or any investments to such new Reserve Account. The Indenture Trustee, at the written direction of the Servicer, shall (i) make withdrawals from the Reserve Account from time to time in an amount up to the Available Reserve Account Amount at such time, for the purposes set forth in this Indenture Supplement, and (ii) on each Distribution Date (from and after the Reserve Account Funding Date) prior to termination of the Reserve Account, make a deposit into the Reserve Account in the amount specified in, and otherwise in accordance with, subsection 4.4(a)(vi). --------------------- (b) Funds on deposit in the Reserve Account shall be invested at the written direction of the Servicer by the Indenture Trustee in Permitted Investments. Funds on deposit in the Reserve Account on any Distribution Date, after giving effect to any withdrawals from the Reserve Account on such Distribution Date, shall be invested in such investments that will mature so that such funds will be available for withdrawal on or prior to the following Distribution Date. The Indenture Trustee shall hold such of the Permitted Investments as consists of instruments, deposit accounts, negotiable documents, money, goods, letters of credit, and advices of credit in the State of New York. The Indenture Trustee shall hold such of the Permitted Investments as constitutes investment property through a securities intermediary, which securities intermediary shall agree with the Indenture Trustee that (a) such investment property shall at all times be credited to a securities account of the Indenture Trustee, (b) such securities intermediary shall treat the Indenture Trustee as entitled to exercise the rights that comprise each financial asset credited to such securities account, (c) all property credited to such securities account shall be treated as a financial asset, (d) such securities intermediary shall comply with entitlement orders originated by the Indenture Trustee without the further consent of any other person or entity, (e) such securities intermediary will not agree with any person or entity other than the Indenture Trustee to comply with entitlement orders originated by such other person or entity, (f) such securities accounts and the property credited thereto shall not be subject to any lien, security interest, or right of set-off in favor of such securities intermediary or anyone claiming through it (other than the Indenture Trustee), and (g) such agreement shall be governed by the laws of the State of New York. Terms 22 used in the preceding sentence that are defined in the New York UCC and not otherwise defined herein shall have the meaning set forth in the New York UCC. On each Distribution Date, all interest and earnings (net of losses and investment expenses) accrued since the preceding Distribution Date on funds on deposit in the Reserve Account shall be retained in the Reserve Account (to the extent that the Available Reserve Account Amount is less than the Required Reserve Account Amount) and the balance, if any, shall be deposited into the Collection Account and included in Available Finance Charge Collections for such Distribution Date. For purposes of determining the availability of funds or the balance in the Reserve Account for any reason under this Indenture Supplement, except as otherwise provided in the preceding sentence, investment earnings on such funds shall be deemed not to be available or on deposit. (c) 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 Servicer shall calculate the Reserve Draw Amount; provided, however, that such amount will be reduced to -------- ------- the extent that funds otherwise would be available for deposit in the Reserve Account under Section 4.4(a)(vi) with respect to such Distribution ------------------ Date. (d) If for any Distribution Date the Reserve Draw Amount is greater than zero, the Reserve Draw Amount, up to the Available Reserve Account Amount, shall be withdrawn from the Reserve Account on such Distribution Date by the Indenture Trustee (acting in accordance with the written instructions of the Servicer) and deposited into the Collection Account for application as Available Finance Charge Collections for such Distribution Date. (e) If the Reserve Account Surplus on any Distribution Date, after giving effect to all deposits to and withdrawals from the Reserve Account with respect to such Distribution Date, is greater than zero, the Indenture Trustee, acting in accordance with the written instructions of the Servicer, shall withdraw from the Reserve Account an amount equal to such Reserve Account Surplus and (i) deposit such amounts in the Spread Account, to the extent that funds on deposit in the Spread Account are less than the Required Spread Account Amount, and (ii) distribute any such amounts remaining after application pursuant to subsection 4.10(e)(i) to the --------------------- holders of the Seller Interest. (f) Upon the earliest to occur of (i) the termination of the Trust pursuant to Article VIII of the Trust Agreement, (ii) the first ------------ Distribution Date relating to the Rapid Amortization Period and (iii) the Expected Principal Distribution Date, the Indenture Trustee, acting in accordance with the instructions of the Servicer, after the prior payment of all amounts owing to the Series 2001-A Noteholders that are payable from the Reserve Account as provided herein, shall withdraw from the Reserve Account all amounts, if any, on deposit in the Reserve Account and (i) deposit such amounts in the Spread Account, to the extent that funds on deposit in 23 the Spread Account are less than the Required Spread Account Amount, and (ii) distribute any such amounts remaining after application pursuant to subsection 4.10(f)(i) to the holders of the Seller Interest. The Reserve --------------------- Account shall thereafter be deemed to have terminated for purposes of this Indenture Supplement. Funds on deposit in the Reserve Account at any time that the Controlled Accumulation Period is suspended pursuant to Section ------- 4.15, shall remain on deposit until applied in accordance with subsection ---- ---------- 4.10(d), (e) or (f). ------- --- --- Section 4.11 [Reserved]. ---------- Section 1.14 Determination of LIBOR. ---------------------- (a) On each LIBOR Determination Date in respect of an Interest Period, the Indenture Trustee, utilizing the services of the Counterparty as calculation agent under the Swap (or the Servicer if the Swap is terminated), shall determine LIBOR on the basis of 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 such date. If such rate does not appear on Telerate Page 3750, the rate for that Interest Period shall be determined on the basis of the rates at which deposits in United States dollars are offered by the Reference Banks 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 shall request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two (2) such quotations are provided, the rate for that Interest Period shall be the arithmetic mean of the quotations. If fewer than two (2) quotations are provided as requested, the rate for that Interest Period will be the arithmetic mean of the rates quoted by major banks in New York City, selected by the Counterparty or, if the Swap is terminated, 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. (b) The Note Interest Rate applicable to the then current and the immediately preceding Interest Periods may be obtained by telephoning the Indenture Trustee at its corporate trust office at (312) 827-8500 or such other telephone number as shall be designated by the Indenture Trustee for such purpose by prior written notice by the Indenture Trustee to each Series 2001-A Noteholder from time to time. (c) On each LIBOR Determination Date, the Indenture Trustee shall send to the Servicer by facsimile transmission, notification of LIBOR for the following Interest Period. Section 4.13 Investment Instructions. Any investment instructions ----------------------- required to be given to the Indenture Trustee pursuant to the terms hereof must be given to the Indenture Trustee no later than 11:00 a.m., New York City time, on the date such investment is to be made. In the event the Indenture Trustee receives such investment instruction later than such time, the Indenture Trustee may, but shall have 24 no obligation to, make such investment. In the event the Indenture Trustee is unable to make an investment required in an investment instruction received by the Indenture Trustee after 11:00 a.m., New York City time, on such day, such investment shall be made by the Indenture Trustee on the next succeeding Business Day. In no event shall the Indenture Trustee be liable for any investment not made pursuant to investment instructions received after 11:00 a.m., New York City time, on the day such investment is requested to be made. Section 4.14 Controlled Accumulation Period. The Controlled ------------------------------ Accumulation Period is scheduled to commence at the opening of business March 1, 2004. However, if the Accumulation Period Length (determined as described below) is less than 12 months, the date on which the Controlled Accumulation Period actually commences will be delayed to the first Business Day of the month that is the number of whole months prior to the Expected Principal Distribution Date at least equal to the Accumulation Period Length and, as a result, the number of Monthly Periods in the Controlled Accumulation Period will at least equal the Accumulation Period Length. On the Determination Date immediately preceding the February 2004 Distribution Date, and each Determination Date thereafter until the Controlled Accumulation Period begins, the Servicer will determine the "Accumulation Period Length" which will equal the number of whole months -------------------------- such that the sum of the Accumulation Period Factors for each month during such period will be equal to or greater than the Required Accumulation Factor Number; provided, however, that the Accumulation Period Length will -------- ------- not be determined to be less than one month; provided further, however, -------- ------- ------- that the determination of the Accumulation Period Length may be changed at any time if the Rating Agency Condition is satisfied. Section 4.15 Suspension of Controlled Accumulation Period. (a) The -------------------------------------------- Issuer may, in its sole discretion, elect to suspend the commencement of the Controlled Accumulation Period with prior notice to the Rating Agencies. The commencement of the Controlled Accumulation Period shall be suspended upon delivery by the Issuer to the Indenture Trustee of (i) an Officer's Certificate stating that the Issuer has elected to suspend the commencement of the Controlled Accumulation Period and that all conditions precedent to such suspension set forth in this Section 4.15 have been ------------ satisfied, (ii) a copy of an executed Qualified Maturity Agreement and (iii) an Opinion of Counsel addressed to the Indenture Trustee as to the due authorization, execution and delivery and the validity and enforceability of such Qualified Maturity Agreement. The Issuer does hereby transfer, assign, set-over, and otherwise convey to the Indenture Trustee for the benefit of the Class A Noteholders, without recourse, all of its rights under any Qualified Maturity Agreement obtained in accordance with this Section 4.15 and all proceeds thereof. Such property shall constitute ------------ part of the Trust Estate for all purposes of the Indenture. The foregoing transfer, assignment, set-over and conveyance does not constitute and is not intended to result in a creation or an assumption by the Indenture Trustee or any Noteholder of any obligation of the Issuer or any other 25 Person in connection with a Qualified Maturity Agreement or under any agreement or instrument relating thereto. The Indenture Trustee hereby acknowledges its acceptance, to the extent validly transferred, assigned, set-over or otherwise conveyed to the Indenture Trustee, for the benefit of the Class A Noteholders, of all of the rights previously held by the Issuer under any Qualified Maturity Agreement obtained by the Issuer and all proceeds thereof, and declares that it shall hold such rights upon the trust set forth herein and in the Agreement, and subject to the terms hereof and thereof, for the benefit of the Class A Noteholders. (b) The Issuer shall cause the provider of each Qualified Maturity Agreement to deposit into the Principal Accumulation Account on or before the Expected Principal Distribution Date an amount equal to the aggregate outstanding principal balance of the Class A Notes on such Distribution Date; provided, however, that the Issuer may instead elect to fund all or a -------- ------- portion of such deposit with the proceeds of the issuance of a new Series or with the Available Principal Collections with respect to such Distribution Date; and provided, further, that the Issuer shall in no event -------- ------- cause or permit the provider of any Qualified Maturity Agreement to fund under such Qualified Maturity Agreement unless there are sufficient funds on deposit in the Collection Account allocated to make required payments pursuant to Sections 4.4(a)(i) and (ii) for any Distribution Date falling ------------------ ---- on or after the funding under such Qualified Maturity Agreement. The amount deposited shall be applied on the Expected Principal Distribution Date pursuant to Section 4.4(d) as if the commencement of the Controlled -------------- Accumulation Period had not been suspended. (c) Each Qualified Maturity Agreement shall terminate at the close of business on the Expected Principal Distribution Date; provided, however, -------- ------- that the Issuer may terminate a Qualified Maturity Agreement prior to such Distribution Date, with notice to each Rating Agency, if (i) the Available Reserve Account Amount equals the Required Reserve Account Amount and (ii) one of the following events occurs: (A) the Issuer obtains a substitute Qualified Maturity Agreement, (B) the provider of the Qualified Maturity Agreement ceases to qualify as an Eligible Institution and the Issuer is unable to obtain a substitute Qualified Maturity Agreement or (C) a Pay Out Event occurs. In addition, the Issuer may terminate a Qualified Maturity Agreement prior to the later of (i) the date on which the Controlled Accumulation Period was scheduled to begin, before giving effect to the suspension of the Controlled Accumulation Period, and (b) the date to which the commencement of the Controlled Accumulation Period may be postponed pursuant to Section 4.15 (as determined on the Determination Date preceding ------------ the date of such termination), in which case the commencement of the Controlled Accumulation Period shall be determined as if the Issuer had not elected to suspend such commencement. In the event that the provider of a Qualified Maturity Agreement ceases to qualify as an Eligible Institution, the Issuer shall use its best efforts to obtain a substitute Qualified Maturity Agreement. 26 (d) If a Qualified Maturity Agreement is terminated prior to the earlier of the Expected Principal Distribution Date and the commencement of the Rapid Amortization Period and the Issuer does not obtain a substitute Qualified Maturity Agreement, the Controlled Accumulation Period shall commence on the latest of (i) March 1, 2004, (ii) at the election of the Issuer, the date to which the commencement of the Controlled Accumulation Period may be postponed pursuant to Section 4.14 (as determined on the date ------------ of such termination) and (iii) the first day of the Monthly Period following the date of such termination. Section 4.16 Insurance Policies. (a) On the Closing Date, the Issuer ------------------ shall enter into the Insurance Agreement, pursuant to which the Policies will be issued for the benefit of the Series 2001-A Noteholders and the Counterparty. (b) Prior to 12:00 noon, New York City time, on the third Business Day preceding each Distribution Date, the Servicer shall determine whether there will be a Deficiency Amount on the following Distribution Date. If the Servicer determines that there will be a Deficiency Amount on the following Distribution Date, the Servicer shall complete the notice in the form set forth as an exhibit to the related Policy (the "Notice") and submit such Notice in accordance with the related Policy to the Insurer no later than 3:00 p.m., New York time, on such Business Day, as a claim for an Insured Obligation in an amount equal to such Deficiency Amount. The Insurer shall remit or cause to be remitted to the Trustee such Deficiency Amount in accordance with the terms of the related Policy. (c) The Indenture Trustee shall (i) receive as attorney-in-fact of the applicable owners an Insured Obligation from the Insurer and (ii) distribute the same to (a) the Class A Noteholders as provided in subsections 5.2(a) and (b) to the extent that such amounts relate to ------------------ --- Monthly Interest or principal of the Class A Notes, respectively, and (b) the Counterparty or the Servicer to the extent that such amounts relate to Net Swap Payments or Monthly Servicing Fees, respectively. Any and all Insured Obligations disbursed by the Indenture Trustee from claims made under the Policies shall not be considered payment by the Issuer with respect to the Class A Notes or other applicable obligations, nor shall such payments discharge the obligation of the Issuer with respect to the Class A Notes or other obligations, and the Insurer shall become the owner of such unpaid amounts due from the Issuer in respect of Insured Obligations. If on any Distribution Date, the Indenture Trustee or the Servicer determines that the Insurer has paid more under any Policy than is required by the terms hereof, the Indenture Trustee shall promptly return such excess to the Insurer. The Indenture Trustee shall keep a complete and accurate record of the amount of the Insured Obligations paid. The Insurer shall have the right to inspect such record during normal business hours upon prior notice to the Indenture Trustee. 27 (d) So long as no Control Transfer Event shall have occurred and be continuing, the Insurer shall be deemed to be the sole Holder of the Series 2001-A Notes for the purpose of exercising voting rights and the giving of any consents, approvals, instructions, directions, declarations and notices relating to the Series 2001-A Notes. However, for any amendment or waiver requiring the consent of all affected Noteholders, the consent of the Insurer and all affected Noteholders will be required. Section 4.17 Swap. (a) On or prior to the Closing Date, the Owner ---- Trustee shall, on behalf of the Issuer, enter into the Swap with the Counterparty for the benefit of the Noteholders. The aggregate notional amount under the Swap shall, at any time, be equal to the Note Principal Balance at such time. Net Swap Receipts and early termination payments payable by the Counterparty shall be deposited by the Indenture Trustee in the Collection Account on the day received and treated as Available Finance Charge Collections. On any Distribution Date when there shall be a Net Swap Payment, such Net Swap Payments shall be paid as provided in Section ------- 4.4(a)(i). On any Distribution Date when there shall be an early --------- termination payment or any other miscellaneous payment payable by the Issuer to the Counterparty, such amount shall be paid as provided in Section 4.4(a)(xi). ------------------ (b) Each Swap shall be in substantially the same form as the initial Swap attached hereto as Exhibit E. --------- (c) The Servicer may, upon (i) satisfaction of the Rating Agency Condition and, (ii) unless a Control Transfer Event has occurred, receipt of written consent from the Insurer (which consent shall not be unreasonably withheld), and, when required under the terms of the existing Swap, shall, obtain a replacement Swap. ARTICLE V Delivery of Series 2001-A Notes; Distributions; Reports to Series 2001-A Noteholders --------------------------------------------------- Section 5.1 Delivery and Payment for the Series 2001-A Notes. ------------------------------------------------ The Issuer shall execute and issue, and the Indenture Trustee shall authenticate, the Series 2001-A Notes in accordance with Section 2.3 of the ----------- Indenture. The Indenture Trustee shall deliver the Series 2001-A Notes to or upon the written order of the Trust when so authenticated. Section 5.2 Distributions. ------------- (a) On each Distribution Date, the Paying Agent shall distribute to each Class A Noteholder of record on the related Record Date (other than as provided in Section 11.2 of the Indenture) such Class A Noteholder's pro ------------ rata share of the amounts held by the Paying Agent that are allocated and available on such 28 Distribution Date to pay interest on the Class A Notes pursuant to this Indenture Supplement, including amounts made available as a result of any draw on the Policies. (b) On each Distribution Date, the Paying Agent shall distribute to each Class A Noteholder of record on the related Record Date such Class A Noteholder's pro rata share of the amounts held by the Paying Agent that are allocated and available on such Distribution Date to pay principal of the Class A Notes pursuant to this Indenture Supplement, including amounts made available as a result of any draw on the Policies. (c) The distributions to be made pursuant to this Section 5.2 are ----------- subject to the provisions of Sections 2.6, 6.1 and 7.1 of the Transfer and ------------ --- --- Servicing Agreement, Section 11.2 of the Indenture and Section 7.1 of this ------------ ----------- Indenture Supplement. (d) Except as provided in Section 11.2 of the Indenture with respect ------------ to a final distribution, distributions to Series 2001-A Noteholders hereunder shall be made by (i) check mailed to each Series 2001-A Noteholder (at such Noteholder's address as it appears in the Note Register), except that for any Series 2001-A Notes registered in the name of the nominee of a Clearing Agency, such distribution shall be made by wire transfer of immediately available funds and (ii) without presentation or surrender of any Series 2001-A Note or the making of any notation thereon. Section 5.3 Reports and Statements to Series 2001-A Noteholders. --------------------------------------------------- (a) On each Distribution Date, the Paying Agent, on behalf of the Indenture Trustee, shall forward to each Series 2001-A Noteholder a statement substantially in the form of Exhibit C prepared by the Servicer. --------- (b) Not later than the second Business Day preceding each Distribution Date, the Servicer shall deliver to the Owner Trustee, the Indenture Trustee, the Paying Agent, the Insurer, the Counterparty and each Rating Agency (i) a statement substantially in the form of Exhibit C prepared by --------- the Servicer and (ii) a certificate of an Authorized Officer substantially in the form of Exhibit D; provided that the Servicer may amend the form of --------- -------- Exhibit C and Exhibit D, from time to time, with the prior written consent --------- --------- of the Indenture Trustee. (c) A copy of each statement or certificate provided pursuant to paragraph (a) or (b) may be obtained by any Series 2001-A Noteholder by a request in writing to the Servicer. (d) On or before January 31 of each calendar year, beginning with January 31, 2002, the Paying Agent, on behalf of the Indenture Trustee, shall furnish or cause to be furnished to each Person who at any time during the preceding calendar year was a Series 2001-A Noteholder, a statement prepared by the Servicer 29 containing the information which is required to be contained in the statement to Series 2001-A Noteholders, as set forth in paragraph (a) above, aggregated for such calendar year or the applicable portion thereof during which such Person was a Series 2001-A Noteholder, together with other information as is required to be provided by an issuer of indebtedness under the Code. Such obligation of the Paying Agent shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Servicer pursuant to any requirements of the Code as from time to time in effect. ARTICLE VI Series 2001-A Pay Out Events and Events of Default -------------------------------------------------- Section 6.1 Series 2001-A Pay Out Events. If any one of the following ---------------------------- events shall occur with respect to the Series 2001-A Notes: (a) failure on the part of the Seller or the "Seller" under the Pooling and Servicing Agreement (i) to make any payment or deposit required to be made by the Seller by the terms of the Transfer and Servicing Agreement, the Pooling and Servicing Agreement, the Indenture or this Indenture Supplement on or before the date occurring five (5) Business Days after the date such payment or deposit is required to be made therein or herein or (ii) duly to observe or perform in any material respect any other covenants or agreements of the Seller set forth in the Transfer and Servicing Agreement, the Pooling and Servicing Agreement, the Indenture or this Indenture Supplement, which failure has a material adverse effect on the Series 2001-A Noteholders and which continues unremedied for a period of forty-five (45) days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Indenture Trustee, or to the Seller and the Indenture Trustee by any Holder of the Series 2001-A Notes; (b) any representation or warranty made by the Seller in the Transfer and Servicing Agreement or, prior to the SMT Termination Date, by the "Seller" under the Pooling and Servicing Agreement in the Pooling and Servicing Agreement, or any information contained in a computer file or microfiche list required to be delivered by the Seller pursuant to Section 2.1 or subsection 2.6(c) of the Transfer and Servicing Agreement or Section ------- 2.1 or subsection 2.6(c) of the Pooling and Servicing Agreement shall prove --- ----------------- to have been incorrect in any material respect when made or when delivered, which continues to be incorrect in any material respect for a period of forty-five (45) days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Indenture Trustee, or to the Seller and the Indenture Trustee by any Holder of the Series 2001-A Notes and as a result of which the interests of the Series 2001-A Noteholders are materially and adversely affected for such period; provided, however, that a Series 2001-A Pay Out -------- ------- Event pursuant to this subsection 6.1(b) shall ----------------- 30 not be deemed to have occurred hereunder if the Seller has accepted reassignment of the related Receivable, or all of such Receivables, if applicable, during such period in accordance with the provisions of the Transfer and Servicing Agreement or the Pooling and Servicing Agreement; (c) a failure by the Seller or the "Seller" under the Pooling and Servicing Agreement to convey Receivables in Additional Accounts to the Trust within ten (10) days after the day on which it is required to convey such Receivables pursuant to subsection 2.6(a) of the Transfer and Servicing Agreement or subsection 2.6(a) of the Pooling and Servicing Agreement; (d) any Servicer Default shall occur; (e) the average of the Portfolio Yields for any three consecutive Monthly Periods is reduced to a rate which is less than the sum of the average of the Base Rates for such period and the average of the Default Amount Rates for such period; it being understood that, for purposes of such calculation, the result of the Portfolio Yield for the first Monthly Period, minus the sum of the Base Rate and the Default Amount Rate for the first Monthly Period shall be equal to the Modified Excess Spread Percentage for the first Monthly Period; (f) the Note Principal Balance shall not be paid in full on the Expected Principal Distribution Date; (g) prior to the SMT Termination Date, a Trust Pay Out Event shall occur under (and as defined in) the Pooling and Servicing Agreement; (h) any draw shall be made on any Policy in accordance with the terms thereof; (i) Insurer shall by notice to the Seller, the Servicer and the Indenture Trustee declare a Pay Out Event in accordance with Section 5.01 ------------ of the Insurance Agreement (which section is set forth in its entirety in Exhibit H) at any time prior to a Control Transfer Event; --------- (j) the Counterparty shall fail to make any net payment required to be made by it under the Swap, and such failure is not cured within five Business Days, or the Swap shall terminate prior to the Series 2001-A Final Maturity Date and the Issuer shall fail to enter into a replacement Swap in accordance with subsection 4.17(c); ------------------ (k) without limiting the foregoing, the occurrence of an Event of Default with respect to Series 2001-A; or (l) the occurrence of an Insolvency Event relating to the Insurer; 31 then, in the case of any event described in subsection (a), (b) or (d), -------------- --- --- after the applicable grace period, if any, set forth in such subparagraphs, either the Indenture Trustee or the Holders of Series 2001-A Notes evidencing more than 50% of the aggregate unpaid principal amount of Series 2001-A Notes by notice then given in writing to the Seller and the Servicer (and to the Indenture Trustee if given by the Series 2001-A Noteholders) may declare that a "Series Pay Out Event" with respect to Series 2001-A (a "Series 2001-A Pay Out Event") has occurred as of the date of such notice, --------------------------- and, in the case of any event described in subsection(c), (e), (f), (g), ------------- --- --- --- (h), (i), (j), (k) or (l), a Series 2001-A Pay Out Event shall occur --- --- --- --- --- without any notice or other action on the part of the Indenture Trustee or the Series 2001-A Noteholders immediately upon the occurrence of such event. Section 6.2 Series 2001-A Events of Default. (a) For so long as no ------------------------------- Control Transfer Event has occurred, the Events of Default for Series 2001-A shall include, in addition to the Events of Default specified in the Indenture, any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) default in the payment of interest on the Series 2001-A Notes when the same becomes due and payable, and such default shall continue for a period of twenty-eight (28) days; (ii) default in the observance or performance of any covenant or agreement of the Issuer made in the Indenture made in respect of the Series 2001-A Notes (other than a covenant or agreement, a default in the observance or performance of which is elsewhere in this Section ------- 6.2 or in Section 5.2 of the Indenture specifically dealt with) (all --- ----------- of such covenants and agreements in the Indenture which are not expressly stated to be for the benefit of a particular Series being deemed to be in respect of the Notes of Series 2001-A for this purpose) in any material respect and such default shall continue or not be cured for a period of forty-five (45) days after there shall have been given, by registered or certified mail, return receipt requested to the Issuer and the Indenture Trustee by the Insurer, a written notice specifying such default and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or ----------------- (iii) any Servicer Default. (b) If an Event of Default for Series 2001-A shall have occurred and be continuing and the Series 2001-A Notes have been accelerated pursuant to Section 5.3, so long as no Control Transfer Event has occurred, the Insurer ----------- shall have the right, but not the obligation, to (i) exercise the rights of the Series 2001-A Noteholders described in Section 5.5 of the Indenture, ----------- and (ii) to pay all or any portion of the outstanding principal balance of the Series 2001-A Notes prior to the 32 Series 2001-A Final Maturity Date. Following the occurrence of an Event of Default for Series 2001-A, the Indenture Trustee shall continue to submit claims under the Policies as necessary to enable the Issuer to continue to make payments on each Distribution Date in accordance with the terms of this Indenture Supplement. Section 6.3 Declarations of Default. So long as no Control Transfer ----------------------- Event shall have occurred and be continuing, neither the Indenture Trustee nor the Class A Noteholders may declare an Event of Default with respect to the Series 2001-A Notes. So long as no Control Transfer Event shall have occurred and be continuing, an Event of Default with respect to the Series 2001-A Notes shall occur only upon delivery by the Insurer to the Indenture Trustee of notice of the occurrence of an Event of Default. ARTICLE VII Redemption of Series 2001-A Notes; Final Distributions; Series Termination -------------------------------------------------------------------------- Section 7.1 Optional Redemption of Series 2001-A Notes; Final ------------------------------------------------- Distributions. ------------- (a) On any day occurring on or after the date on which the outstanding principal balance of the Series 2001-A Notes is reduced to 10% or less of the initial outstanding principal balance of Series 2001-A Notes, the Servicer shall have the option to redeem the Series 2001-A Notes, at a purchase price equal to (i) if such day is a Distribution Date, the Reassignment Amount for such Distribution Date or (ii) if such day is not a Distribution Date, the Reassignment Amount for the Distribution Date following such day; provided that all amounts due and owing to the Insurer pursuant to the Insurance Agreement shall have been paid to the Insurer. (b) The Issuer shall give the Servicer and the Indenture Trustee at least thirty (30) days prior written notice of the date on which the Issuer intends to exercise such optional redemption. Not later than 12:00 noon, New York City time, on such day the Issuer shall deposit into the Collection Account in immediately available funds the excess of the Reassignment Amount over the amount, if any, on deposit in the Principal Accumulation Account. Such redemption option is subject to payment in full of the Reassignment Amount. Following such deposit into the Collection Account in accordance with the foregoing, the Collateral Amount for Series 2001-A shall be reduced to zero and the Series 2001-A Noteholders shall have no further security interest in the Receivables. The Reassignment Amount shall be distributed as set forth in subsection 7.1(d). ----------------- (c) (i) The amount to be paid by the Seller with respect to Series 2001-A in connection with a reassignment of Receivables to the Seller pursuant to Section 2.4(e) of the Transfer and Servicing Agreement shall -------------- equal the Reassignment 33 Amount for the first Distribution Date following the Monthly Period in which the reassignment obligation arises under the Transfer and Servicing Agreement. (ii) The amount to be paid by the Seller with respect to Series 2001-A in connection with a repurchase of the Notes pursuant to Section 7.1 ----------- of the Transfer and Servicing Agreement shall equal the Reassignment Amount for the Distribution Date of such repurchase. (d) With respect to the Reassignment Amount deposited into the Collection Account pursuant to Section 7.1, the Indenture Trustee shall, in ----------- accordance with the written direction of the Servicer, not later than 12:00 noon, New York City time, on the related Distribution Date, make deposits or distributions of the following amounts (in the priority set forth below and, in each case, after giving effect to any deposits and distributions otherwise to be made on such date) in immediately available funds: (i) (x) the Note Principal Balance on such Distribution Date will be distributed to the Paying Agent for payment to the Class A Noteholders and (y) an amount equal to the sum of (A) Monthly Interest for such Distribution Date, (B) any Monthly Interest previously due but not distributed to the Class A Noteholders on a prior Distribution Date and (C) the amount of Additional Interest, if any, for such Distribution Date and any Additional Interest previously due but not distributed to the Class A Noteholders on any prior Distribution Date, will be distributed to the Paying Agent for payment to the Class A Noteholders, (ii) any unpaid Monthly Insurance Premiums, Reimbursement Amounts, interest thereon and other amounts payable to the Insurer under the Insurance Agreement will be distributed to the Insurer (iii) any amounts owed to the Counterparty under the Swap shall be distributed to the Counterparty and (iv) any excess shall be released to the Issuer. (e) Notwithstanding anything to the contrary in this Indenture Supplement, the Indenture or the Transfer and Servicing Agreement, all amounts distributed to the Paying Agent pursuant to subsection 7.1(d) for ----------------- payment to the Series 2001-A Noteholders shall be deemed distributed in full to the Series 2001-A Noteholders on the date on which such funds are distributed to the Paying Agent pursuant to this Section 7.1 and shall be ----------- deemed to be a final distribution pursuant to Section 11.2 of the ------------ Indenture. Section 7.2 Series Termination. On the Series 2001-A Final Maturity ------------------ Date, the right of the Series 2001-A Noteholders to receive payments from the Issuer will be limited solely to the right to receive payments pursuant to Section 5.5 of the Indenture. ----------- 34 ARTICLE VIII Miscellaneous Provisions ------------------------ Section 8.1 Ratification of Indenture; Amendments. As supplemented by ------------------------------------- this Indenture Supplement, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented by this Indenture Supplement shall be read, taken and construed as one and the same instrument. This Indenture Supplement may be amended only by a Supplemental Indenture entered in accordance with the terms of Section 10.1 or 10.2 of the ------------ ---- Indenture. For purposes of the application of Section 10.2 to any amendment ------------ of this Indenture Supplement, only the vote of the Series 2001-A Noteholders shall be required. The Issuer and Indenture Trustee shall not enter into any amendment to this Indenture Supplement to provide for the termination of the Swap, any Policy or any Qualified Maturity Agreement unless the Rating Agency Condition is satisfied with respect to such amendment; it being understood that (i) the Servicer may obtain a ------------------- replacement Swap in accordance with Section 4.17 and (ii) the Issuer may ------------ terminate a Qualified Maturity Agreement in accordance with Section 4.15, ------------ so long as such replacement or termination is not affected through the amendment of this Indenture Supplement. Section 8.2 Form of Delivery of the Series 2001-A Notes. The Series ------------------------------------------- 2001-A Notes shall be Book-Entry Notes and shall be delivered as Registered Notes as provided in Section 2.1 of the Indenture. ----------- Section 8.3 Counterparts. This Indenture Supplement may be executed in ------------ two or more counterparts, and by different parties on separate counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. Section 8.4 GOVERNING LAW. THIS INDENTURE SUPPLEMENT SHALL BE ------------- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, PROVIDED, HOWEVER, THAT THE DUTIES AND OBLIGATIONS OF THE INDENTURE TRUSTEE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS. Section 8.5 Limitation of Liability. Notwithstanding any other ----------------------- provision herein or elsewhere, this Agreement has been executed and delivered by Bankers Trust Company, not in its individual capacity, but solely in its capacity as Owner Trustee of the Trust, in no event shall Bankers Trust Company in its individual capacity have any liability in respect of the representations, warranties, or obligations of the Trust hereunder or under any other document, as to all of which recourse shall be had solely to the assets of the Trust, and for all purposes of this Agreement and 35 each other document, the Owner Trustee (as such or in its individual capacity) shall be subject to, and entitled to the benefits of, the terms and provisions of the Trust Agreement. Section 8.6 Rights of the Indenture Trustee. The Indenture Trustee ------------------------------- shall have herein the same rights, protections, indemnities and immunities as specified in the Master Indenture. Section 8.7 Third Party Beneficiary. This Indenture Supplement and the ----------------------- Indenture will inure to the benefit of the Insurer. Section 8.8 Inconsistency. In the event of any inconsistency between ------------- (a) the provisions of the Insurance Agreement set forth in Exhibits F, G ---------- - and H and (b) the Insurance Agreement, the provisions of the Insurance - Agreement shall prevail. Section 8.9 Collateral Series Supplement. Section 10(h) of the ---------------------------- ------------- Collateral Series Supplement, dated as of December 1, 2000 (the "Collateral ---------- Series Supplement"), to the Pooling and Servicing Agreement shall not apply ----------------- to the Collateral Series (as defined in the Collateral Series Supplement) related to the Series 2001-A Notes. Section 8.10 Increase of Collateral Amount. The Seller may, in its ----------------------------- sole discretion, increase the Collateral Amount to cure any breach set forth in Section 4.02(g)(i) of the Insurance Agreement; provided that, -------- after giving effect to any such increase, the Aggregate Principal Balance shall not be less than the Minimum Aggregate Principal Balance; and provided, further that the Servicer may, at the direction of the Seller, -------- ------- retain Principal Collections otherwise distributable to the holders of the Seller Interest in the Excess Funding Account for the purpose of increasing the Aggregate Principal Balance so that the Aggregate Principal Balance shall at least equal the Minimum Aggregate Principal Balance after giving effect to such increase; and provided further that the Seller may, in its -------- ------- sole discretion, decrease the Collateral Amount if such decrease would not cause a breach of the covenant set forth in Section 4.02(g)(i) of the Insurance Agreement. Section 8.11 Perfection Representations and Warranties. The parties ----------------------------------------- hereto agree that the representations, warranties and covenants set forth in Schedule I shall be a part of this Indenture Supplement for all purposes. [SIGNATURE PAGES FOLLOW] 36 IN WITNESS WHEREOF, the undersigned have caused this Indenture Supplement to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. SPIEGEL CREDIT CARD MASTER NOTE TRUST, as Issuer By: BANKERS TRUST COMPANY, not in its individual capacity but solely as Owner Trustee Name: /s/ Eileen M. Hughes -------------------------- Title: Vice President THE BANK OF NEW YORK, as Indenture Trustee Name: /s/ Robert D. Foltz -------------------------- Title: Agent Signature page to Indenture Supplement 37 Acknowledged and Accepted: FIRST CONSUMERS NATIONAL BANK, as Servicer Name: /s/ John R. Steele -------------------------- Title: Acknowledged and Accepted: SPIEGEL CREDIT CORPORATION III, as Seller Name: /s/ John R. Steele -------------------------- Title: Signature page to Indenture Supplement 38 EX-10.37 34 dex1037.txt SERIES 2001-VFN INDENTURE SUPPLEMENT 10/17/2001 Exhibit 10.37 Execution Copy -------------- SPIEGEL CREDIT CARD MASTER NOTE TRUST Issuer, and THE BANK OF NEW YORK Indenture Trustee SERIES 2001-VFN INDENTURE SUPPLEMENT Dated as of October 17, 2001 Table of Contents
Page ARTICLE I CREATION OF THE SERIES 2001-VFN NOTES.............................................1 Section 1.1 Designation.................................................................1 ARTICLE II DEFINITIONS.......................................................................1 Section 2.1 Definitions.................................................................1 Section 2.2 Terms......................................................................13 Section 2.3 Interpretive Rules.........................................................14 Section 2.4 Calculations...............................................................14 ARTICLE III Optional Redemption of Notes; Final Distributions................................14 Section 3.1 Optional Redemption........................................................14 Section 3.2 Delivery and Payment for the Series 2001-VFN Notes.........................15 Section 3.3 Private Placement of Class A Notes; Form of Delivery of Series 2001-VFN Notes......................................................15 ARTICLE IV RIGHTS OF NOTEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS.......................................................16 Section 4.1 [Reserved].................................................................16 Section 4.2 [Reserved].................................................................16 Section 4.3 Allocations................................................................16 Section 4.4 Investor Charge-offs.......................................................19 Section 4.5 Monthly Payments...........................................................19 Section 4.6 Payment of Note Interest...................................................22 Section 4.7 Payment of Note Principal..................................................22 Section 4.8 Increase and Decrease of the Excess Collateral Amount......................23 Section 4.9 Seller's or Servicer's Failure to Make a Deposit or Payment................24 Section 4.10 Reallocated Principal Collections..........................................24 Section 4.11 Class A Increases..........................................................25 Section 4.12 Notice of Note Rate........................................................25 Section 4.13 Suspension of the Revolving Period.........................................25 Section 4.14 Maximum Class A Collateral Amount..........................................26 Section 4.15 Shared Principal Collections...............................................27 Section 4.16 Excess Finance Charge Collections..........................................27 ARTICLE V DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS.........................................28 Section 5.1 Distributions..............................................................28
-i- Table of Contents (continued)
Page Section 5.2 Reports to Investors.......................................................28 ARTICLE VI SERIES PAY-OUT EVENTS............................................................29 Section 6.1 Series Pay-Out Events......................................................29 ARTICLE VII MISCELLANEOUS....................................................................31 Section 7.1 Terms Change Condition.....................................................31 Section 7.2 Permitted Successor Servicer...............................................32 Section 7.3 Successors and Assigns.....................................................32 Section 7.4 Final Distribution.........................................................32 Section 7.5 Amendments.................................................................32 Section 7.6 Effectiveness..............................................................33 Section 7.7 Ratification of Indenture..................................................33 Section 7.8 Counterparts...............................................................33 Section 7.9 GOVERNING LAW..............................................................33 Section 7.10 Consents...................................................................33 Section 7.11 Certain Calculations.......................................................33 Section 7.12 Repurchase Requests........................................................34 Section 7.13 Perfection Representations, Warranties and Covenants. .....................35 Section 7.14 Rights of the Indenture Trustee............................................35 Section 7.15 Limitation of Liability....................................................35
Exhibit A Form of Class A Note Exhibit B Form of Monthly Payment Instructions and Notice Exhibit C Form of Investor Report Schedule 1 Perfection Representation, Warranties and Covenants -ii- SERIES 2001-VFN INDENTURE SUPPLEMENT, dated as of October 17, 2001 (the "Indenture Supplement"), between SPIEGEL CREDIT CARD MASTER NOTE TRUST, a trust -------------------- organized and existing under the laws of the State of Illinois (herein, the "Issuer" or the "Trust"), and THE BANK OF NEW YORK, a banking corporation ------ ----- organized and existing under the laws of the State of New York, not in its individual capacity, but solely as indenture trustee (herein, together with its successors in the trusts thereunder as provided in the Master Indenture referred to below, the "Indenture Trustee") under the Master Indenture, dated as of ----------------- December 1, 2000 (the "Master Indenture") between the Issuer and the Indenture ---------------- Trustee (the Master Indenture, together with this Indenture Supplement, the "Indenture"). --------- Pursuant to Section 2.12 of the Indenture, the Seller may direct the Issuer ------------ to issue one or more Series of Notes. The Principal Terms of this Series are set forth in this Indenture Supplement to the Indenture. ARTICLE I CREATION OF THE SERIES 2001-VFN NOTES Section 1.1 Designation. There is hereby created a Series of Notes to be ----------- issued pursuant to the Indenture to be known as the "Series 2001-VFN Notes." The --------------------- Series 2001-VFN Notes shall consist of the "Series 2001-VFN Class A Variable Funding Asset Backed Notes" (the "Class A Notes"). The Class A Notes shall be ------------- substantially in the form of Exhibit A to this Indenture Supplement. --------- ARTICLE II DEFINITIONS Section 2.1 Definitions. ----------- Whenever used in this Indenture Supplement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and the masculine as well as the feminine and neuter genders of such terms. "Accrual Period" means the period from and including a Distribution Date -------------- (or in the case of the initial Accrual Period, the Closing Date) to but excluding the succeeding Distribution Date. "Administrative Agent" means MGT or any successor in that capacity pursuant -------------------- to the Note Purchase Agreement. "Aggregate Class A Increase Amount" means the cumulative amount of Class A --------------------------------- Increase Amounts. "Aggregate Excess Collateral Amount Increase Amount" means the cumulative -------------------------------------------------- amount of Excess Collateral Amount Increase Amounts. "Allocation Percentage" means, on any date of determination: --------------------- (a) when used with respect to Principal Receivables during the Revolving Period, the percentage equivalent of a fraction the numerator of which shall be the Collateral Amount on the preceding Business Day (taking into account all Class A Increases and Excess Collateral Amount Increases effected on such date of determination or any reduction in the Collateral Amount on such date of determination) and the denominator of which shall be the greater of (i) the Aggregate Principal Receivables as of the end of such day and (ii) the sum of the numerators used to calculate the Allocation Percentages with respect to Principal Receivables on such day for all Series outstanding; (b) when used with respect to Principal Receivables during an Amortization Period, the percentage equivalent of a fraction the numerator of which shall be the Collateral Amount as of the end of the day on the last day of the Revolving Period and the denominator of which shall be the greater of (i) the Aggregate Principal Receivables as of the end of the Business Day preceding such date of determination and (ii) the sum of the numerators used to calculate the Allocation Percentages for allocations with respect to Principal Receivables for all outstanding Series on such date of determination; (c) when used with respect to Finance Charge Receivables during the Revolving Period, any Limited Amortization Period and the Controlled Amortization Period and with respect to Receivables in Defaulted Accounts at any time, the percentage equivalent of a fraction the numerator of which shall be the Collateral Amount as of the end of the day on the preceding Business Day (taking into account all Class A Increases and Excess Collateral Amount Increases effected on such date of determination or any reduction in the Collateral Amount on such date of determination) and the denominator of which shall be the greater of (i) the Aggregate Principal Receivables as of the end of the Business Day preceding such date of determination and (ii) the sum of the numerators used to calculate the Allocation Percentages for allocations with respect to Finance Charge Receivables or Defaulted Accounts, as applicable, for all outstanding Series on such date of determination; (d) when used with respect to Finance Charge Receivables during the Rapid Amortization Period, the percentage equivalent of a fraction the numerator of which shall be the Collateral Amount as of the end of the day on the last day of the Revolving Period and the denominator of which shall be the greater of (i) the Aggregate Principal Receivables as of the end of the day on the Business Day preceding such date of determination and (ii) the sum of the numerators used to calculate the Allocation Percentages for allocations with respect to Finance Charge Receivables for all outstanding Series on such date of determination. 2 "Amortization Period" means the Controlled Amortization Period, the Limited ------------------- Amortization Period or the Rapid Amortization Period. "Average Allocation Percentage" means with respect to any Allocation ----------------------------- Percentage for any Monthly Period the sum of the Allocation Percentages as of the close of business for each day in such Monthly Period divided by the number of days in such Monthly Period. "Average Class A Collateral Amount" means for any Monthly Period the sum of --------------------------------- the Class A Collateral Amounts as of the close of business for each day in such Monthly Period, divided by the number of days in such Monthly Period. "Average Collateral Amount" means for any Monthly Period the sum of the ------------------------- Collateral Amounts as of the close of business for each day in such Monthly Period, divided by the number of days in such Monthly Period. "Base Excess Collateral Amount Percentage" means, with respect to any date ---------------------------------------- of determination, 36.00%; provided, that the Seller may reduce the Base Excess -------- Collateral Amount Percentage from time to time so long as (a) the Rating Agency Condition has been satisfied with respect to such reduction, (b) the Seller shall have obtained the prior written consent of the Administrative Agent and the Conduit Managing Agents, and (c) the Indenture Trustee and the Seller shall have received an opinion of Rooks, Pitts and Poust or other outside tax counsel to the effect that for federal income tax purposes such reduction will not cause (i) the outstanding Class A Notes to be characterized other than as indebtedness or an interest in a partnership or (ii) the Trust to be taxable as a corporation or publicly traded partnership. "Base Rate" means, with respect to any Monthly Period, (a) the sum of (i) --------- the Note Interest for the Accrual Period ending in the month following the end of such Monthly Period and (ii) the amount of the Investor Monthly Servicing Fee allocable to the Series 2001-VFN Notes in respect of such Monthly Period, divided by (b) the Average Collateral Amount for the preceding Monthly Period, multiplied by (c) 12. "Breakage Payments" is defined in the Note Purchase Agreement. ----------------- "Change of Control" means that: ----------------- (i) Spiegel shall fail to own, directly or indirectly, free and clear of all liens, security interests or other encumbrances, at least 51% of the outstanding shares of capital stock of FCNB, on a fully diluted basis; or (ii) the Otto family related investment entities shall fail to own or control at least 67% of the outstanding voting stock of Spiegel; or 3 (iii) Spiegel shall fail to own, directly or indirectly, free and clear of all liens, security interests or other encumbrances, at least 100% of the outstanding shares of capital stock of the Seller; or (iv) Spiegel shall fail to own, directly or indirectly, free and clear of all liens, security interests or other encumbrances, at least 100% of the outstanding shares of capital stock, if any, of Spiegel Acceptance Corporation, but only if at the time of such failure Spiegel Acceptance Corporation continues to be a party to any of the Transaction Documents. "Class A Allocation Percentage" means, with respect to any date of ----------------------------- determination, (a) during the Revolving Period, the percentage equivalent of a fraction, the numerator of which is the Class A Collateral Amount determined as of the close of business on the Business Day immediately preceding such date of determination and the denominator of which is the Collateral Amount determined as of the close of business on such day and (b) during an Amortization Period, the percentage equivalent of a fraction, the numerator of which is the Class A Collateral Amount as of the close of business on the last day of the Revolving Period and the denominator of which is the Collateral Amount as of the close of business on such last day. "Class A Collateral Amount" means, on any date of determination, an amount ------------------------- equal to (a) the Initial Class A Collateral Amount, plus (b) the Aggregate Class A Increase Amount, minus (c) the aggregate amount of payments of principal paid to the Class A Noteholders pursuant to Section 4.7 or from the proceeds of ----------- issuance of a new Series pursuant to the final paragraph of Section 4.13 prior ------------ to such date of determination, minus (d) the excess, if any, of the aggregate amount of Class A Investor Charge Offs over Class A Investor Charge Offs reimbursed pursuant to Section 4.5(d) prior to such date of determination. -------------- "Class A Expected Final Payment Date" means the January 2004 Distribution ----------------------------------- Date. "Class A Increase" means an increase in the Class A Collateral Amount ---------------- pursuant to Section 4.11. ------------ "Class A Increase Amount" is defined in Section 4.11. ----------------------- ------------ "Class A Increase Conditions" are set forth in Section 4.2 of the Note --------------------------- ----------- Purchase Agreement. "Class A Investor Charge Off" is defined in Section 4.4. --------------------------- ----------- "Class A Monthly Total Principal Allocation" is defined in Section 4.7. ------------------------------------------ ----------- "Class A Note Rate" means, with respect to any Accrual Period, the per ----------------- --- annum rate equal to the percentage equivalent of a fraction (a) the numerator of - ----- which is the Note Interest for that Accrual Period, multiplied by a fraction the 4 numerator of which is 365 (or 366, in a leap year) and the denominator of which is the number of days in that Accrual Period and (b) the denominator of which is the Average Class A Collateral Amount during that Accrual Period. "Class A Noteholder" means the holder of record of any Class A Note. ------------------ "Class A Notes" means any one of the Notes executed by the Seller and ------------- authenticated by or on behalf of the Indenture Trustee, substantially in the form of Exhibit A. --------- "Class A Principal Allocation" means, with respect to any Deposit Date, an ---------------------------- amount equal to the product of (A) the Class A Allocation Percentage on the Deposit Date for Principal Collections (or, during a Non-Renewal Amortization Period, the Non-Renewing Allocation Percentage), (B) the Allocation Percentage on the Deposit Date for Principal Collections and (C) the aggregate amount of Principal Collections processed on such Deposit Date, all as pursuant to Section ------- 4.3(b)(ii). - ---------- "Class Note Interest" is defined in the Note Purchase Agreement. ------------------- "Closing Date" means the date of this Indenture Supplement. ------------ "Collateral Amount" means, on any date of determination, the sum of (a) the ----------------- Class A Collateral Amount, plus (b) the Excess Collateral Amount on such date of determination. "Commercial Paper" means commercial paper notes issued by any Conduit ---------------- Purchaser to fund or maintain its initial purchase of the Class A Notes and any Class A Increase Amount. "Conduit Downgrade Event" means any action or other event related to the ----------------------- Trust that causes a Rating Agency to reduce, or withdraw, its rating of the Commercial Paper issued by any Conduit Purchaser below the then current ratings of the Commercial Paper issued by such Conduit Purchaser. "Conduit Managing Agent" is defined in the Note Purchase Agreement. ---------------------- "Conduit Purchaser" is defined in the Note Purchase Agreement. ----------------- "Controlled Amortization Period" means an Amortization Period commencing on ------------------------------ the day following the last day of the Revolving Period and continuing (a) to, but not including, the commencement of the Rapid Amortization Period or (b) to, and including, the earlier of (i) the Trust Termination Date and (ii) the Series Termination Date. "Controlled Distribution Amount" means, for each Monthly Period which ------------------------------ commences during the Controlled Amortization Period, the sum of (a) one-twelfth of the Class A Collateral Amount as of the last day of the Revolving Period, plus 5 (b) the Deficit Controlled Distribution Amount for the preceding Monthly Period; provided, that the Seller may, by written notice to the Administrative Agent - -------- delivered not less than five (5) Business Days prior to the related Distribution Date, specify a greater Controlled Distribution Amount for that Distribution Date (which shall be an integral multiple of $1,000,000). "Cycle" means, with respect to any Account, the monthly billing cycle for ----- such Account as determined in accordance with the Charge Account Guidelines as in effect on the date of this Agreement. "Cycle Billing Date" means, with respect to any Account, each date on which ------------------ bills are processed for the Cycle which includes such Account. "Default Estimate" means, for any Monthly Period, an amount equal to the ---------------- product of (i) 1.5, multiplied by (ii) the arithmetic mean of the Investor Default Amounts for the prior three Monthly Periods. "Deficit Controlled Distribution Amount" means, for each Monthly Period -------------------------------------- during the Controlled Amortization Period, the excess, if any, of the Controlled Distribution Amount for such Monthly Period over the amount of principal actually distributed with respect to the Class A Notes on the related Distribution Date. "Delinquency Amount" means, with respect to any Monthly Period, the ------------------ aggregate amount of Receivables that were 31 or more days past due at the end of such Monthly Period. "Determination Date" means with respect to any Monthly Period, the last ------------------ Business Day occurring in the first ten days of the succeeding calendar month. "Dilution" means, for any Monthly Period, the aggregate reduction in the -------- outstanding balance of receivables in the entire portfolio of FCNB Preferred Charge accounts during such Monthly Period that are due to, without duplication, (a) merchandise refused or returned by the obligor thereunder, (b) any rebate, refund, chargeback or adjustment, (c) the assertion of a counterclaim or defense by the obligor thereunder and either (i) the Servicer has agreed that such counterclaim or defense is valid or (ii) a final nonappealable judgment or decree has been entered in favor of such obligor in respect of such counterclaim or defense by a court or arbitral body having jurisdiction thereof, and (d) fraudulent or counterfeit charges, but only if and to the extent such fraudulent or counterfeit charges are not included as charge-offs under the Charge Account Guidelines. "Distribution Date" means the fifteenth day of each month, or, if such ----------------- fifteenth day is not a Business Day, the next succeeding Business Day. "Enhancement Increase Amount" means, --------------------------- (a) with respect to any Class A Increase Condition: 6 after giving effect to the related Class A Increase Amount and the resulting increase in the Collateral Amount, the amount, if any, that when added to the Excess Collateral Amount will cause the Excess Collateral Amount Allocation Percentage (after giving effect to such increase) to equal the Required Excess Collateral Amount Percentage then in effect; and (b) with respect to any Terms Change Enhancement Increase Condition: if the resulting minimum payment is less than $15 but greater than or equal to $12.50, the amount, if any, that when added to the Excess Collateral Amount will cause the Excess Collateral Amount Allocation Percentage (after giving effect to such increase) to equal the sum of 1.5% and the Base Excess Collateral Amount Allocation Percentage then in effect; if the resulting minimum payment is less than $12.50, the amount, if any, that when added to the Excess Collateral Amount will cause the Excess Collateral Amount Allocation Percentage (after giving effect to such increase) to equal the sum of 3% and the Base Excess Collateral Amount Percentage then in effect. "Enhancement Increase Condition" means either a Class A Increase Condition ------------------------------ or a Terms Change Enhancement Increase Condition to the extent then continuing in accordance with the terms thereof. "Excess Collateral Amount" means, on any date of determination, an amount ------------------------ equal to (a) the sum of (i) the Initial Excess Collateral Amount and (ii) the Aggregate Excess Collateral Amount Increase Amount, minus (b) the aggregate amount of payments of principal paid to the Excess Collateral Amount Holders pursuant to Section 4.7 prior to such date of determination, minus (c) the ----------- excess, if any, of the sum of the aggregate amount of Excess Collateral Amount Investor Charge Offs and Excess Collateral Amount Reallocated Amounts over Excess Collateral Amount Investor Charge Offs and Excess Collateral Amount Reallocated Amounts reimbursed pursuant to Section 4.5(d) prior to such date of -------------- determination. "Excess Collateral Amount Allocation Percentage" means, with respect to any ---------------------------------------------- date of determination, the percentage equivalent of a fraction, the numerator of which is the Excess Collateral Amount determined as of the close of business on the immediately preceding Business Day and the denominator of which is the Collateral Amount determined as of the close of business on such Business Day. "Excess Collateral Amount Holder" means the holders of the Seller Interest. ------------------------------- "Excess Collateral Amount Increase" means any increase in the Excess --------------------------------- Collateral Amount as provided in Section 4.8. ----------- 7 "Excess Collateral Amount Increase Amount" means the amount of any Excess ---------------------------------------- Collateral Amount Increase pursuant to Section 4.8. ----------- "Excess Collateral Amount Investor Charge Off" is defined in Section 4.4. -------------------------------------------- ----------- "Excess Collateral Amount Percentage" means, for any date of determination, ----------------------------------- 100%, minus the Class A Allocation Percentage on that date. "Excess Collateral Amount Reallocated Amounts" is defined in Section 4.10. -------------------------------------------- ------------ "Excess Spread" is defined in Section 4.5(f). ------------- -------------- "Excess Spread Percentage" means, for any Monthly Period, the difference ------------------------ between the Portfolio Yield and the Base Rate for such Monthly Period. "FCCCMNT Indenture Supplement" is defined in the Note Purchase Agreement. ---------------------------- "Finance Charge Shortfall" is defined in Section 4.16. ------------------------ ------------ "Funding Costs" means any Breakage Payments and any additional costs ------------- payable pursuant to Section 13.4 or 13.5 of the Note Purchase Agreement, to the ------------ ---- extent not paid pursuant to the Note Purchase Agreement. "Initial Class A Collateral Amount" means $426,000,000. --------------------------------- "Initial Collateral Amount" means the sum of the Initial Class A Collateral ------------------------- Amount and the Initial Excess Collateral Amount. "Initial Excess Collateral Amount" means $239,625,000. -------------------------------- "Investor Charge Off" means a Class A Investor Charge Off or an Excess ------------------- Collateral Amount Investor Charge Off. "Investor Default Amount" means, for any Monthly Period, an amount equal to ----------------------- the product of (a) the Default Amount for such Monthly Period and (b) the Average Allocation Percentage for such Monthly Period. "Investor Monthly Servicing Fee" means, for any Monthly Period, an amount ------------------------------ equal to the product of (a) the Average Collateral Amount for that Monthly Period, (b) the applicable Series Servicing Fee Percentage and (c) a fraction, the numerator of which is the number of days in that Monthly Period and the denominator which is 365 (or 366, when applicable). 8 "Investor Uncovered Dilution Amount" means, for any Distribution Date, an ---------------------------------- amount equal to the Series Share of shortfalls in Deposit Obligations that is allocated to Series 2001-VFN pursuant to Section 8.4(h) of the Indenture. -------------- "Limited Amortization Amount" means (a) for any Distribution Date relating --------------------------- to a Non-Renewal Amortization Period, the Class A Collateral Amount with respect to all Non-Renewing Ownership Groups, (b) for any Distribution Date relating to any other Limited Amortization Period, the excess, if any, of (i) the amount specified in the effective notice delivered by the Seller in accordance with Section 4.13, over (ii) the aggregate amount of principal distributed to the - ------------ ---- Series 2001-VFN Noteholders on all prior Distribution Dates, if any, related to any Monthly Period in such Limited Amortization Period and (c) for any other Distribution Date, any amount (which shall be in an amount satisfying the requirements of the second grammatical paragraph of Section 4.13) selected by ------------ the Seller with respect to that Distribution Date with not less than five Business Days' prior written notification by the Seller to the Administrative Agent. "Limited Amortization Period" means, unless the Controlled Amortization --------------------------- Period or the Rapid Amortization Period shall have occurred prior thereto, a period beginning on the first day of any Monthly Period (a) specified in the effective notice delivered by the Seller in accordance with Section 4.13 or (b) ------------ following any Purchase Commitment Expiration Date as to which there is any Non-Renewing Ownership Group, if none of or less than all of the related Purchase Commitments have been assigned to other Persons pursuant to Section ------- 15.4 of the Note Purchase Agreement, and ending upon the first to occur of (i) - ---- the commencement of the Controlled Amortization Period or the Rapid Amortization Period, and (ii) the last day of the Monthly Period related to the Distribution Date on which the Limited Amortization Amount is reduced to zero. "Liquidation Rate" means, for any Monthly Period, the percentage equivalent ---------------- of a fraction, the numerator of which is the aggregate amount of Collections of Receivables during such Monthly Period and the denominator of which is the aggregate amount of Receivables (other than Receivables in a billing option plan) outstanding as of the first day of such Monthly Period. "Maximum Class A Collateral Amount" is defined in Section 4.14. --------------------------------- ------------ "Maximum Reallocated Principal Reserves Amount" means, with respect to any --------------------------------------------- Monthly Period, the sum of (a) the aggregate amount of Note Interest payable on the Distribution Date following such Monthly Period (such amount to be estimated by the Servicer in good faith after consultation with the Administrative Agent) and (b) the Monthly Servicing Fee payable on the Distribution Date following such Monthly Period. "MGT" means Morgan Guaranty Trust Company of New York and it successors and --- assigns. 9 "Minimum Seller Percentage" means, with respect to Series 2001-VFN, 0.00%. ------------------------- "Monthly Finance Charge Allocation" is defined in Section 4.3(c). --------------------------------- -------------- "Monthly Period Finance Charge Subaccount Allocation" is defined in Section --------------------------------------------------- ------- 4.5. - --- "Non-Renewal Amortization Period" means a Limited Amortization Period which ------------------------------- begins pursuant to clause (b) of the definition thereof. ---------- "Non-Renewing Allocation Percentage" means, with respect to any date of ---------------------------------- determination, during a Non-Renewal Amortization Period, the percentage equivalent of a fraction, the numerator of which is the portion of the Class A Collateral Amount represented by the Class A Notes held by the Conduit Managing Agent for each Non-Renewing Ownership Group as of the close of business on the last day of the Revolving Period and the denominator of which is the Collateral Amount as of the close of business on such last day. "Non-Renewing Ownership Group" is defined in the Note Purchase Agreement. ---------------------------- "Note Interest" is defined in the Note Purchase Agreement. ------------- "Note Purchase Agreement" means the Note Purchase Agreement dated as of ----------------------- October , 2001 among the Seller, First Consumers National Bank, the Servicer, -- Spiegel, MGT, as the Administrative Agent and Conduit Managing Agent and the Conduit Purchasers, the other Conduit Managing Agents, and the Bank Purchasers identified therein, as amended and in effect from time to time. "Noteholder" means the holder of record of any Note. ---------- "Notes" means the Class A Notes. ----- "Official Body" means any government or political subdivision or any ------------- agency, authority, bureau, central bank, commission, department or instrumentality thereof, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Ownership Group" is defined in the Note Purchase Agreement. --------------- "Pay Out Commencement Date" means the earliest of the day a Trust Pay Out ------------------------- Event is deemed to occur pursuant to Section 5.1 of the Indenture or a Series ----------- Pay Out Event or Event of Default is deemed to occur pursuant to Section 6.1 or ----------- 6.2 of this Indenture Supplement. - --- "Pay Out Event" means a Trust Pay Out Event, a Series Pay Out Event or an ------------- Event of Default. 10 "Portfolio Yield" means, with respect to any Monthly Period, the annualized --------------- percentage equivalent of a fraction, the numerator of which is an amount equal to the Allocation Percentage of Finance Charge Collections for such Monthly Period, such sum to be calculated on a cash basis after subtracting an amount equal to the Investor Default Amount and any Investor Uncovered Dilution Amounts for such Monthly Period, and the denominator of which is the Average Collateral Amount for such Monthly Period. "Principal Collections Subaccount" is defined in the Indenture. -------------------------------- "Principal Shortfall" means, with respect to the Series 2001-VFN Notes, on ------------------- any Deposit Date during a Monthly Period: (a) if such Monthly Period falls in the Controlled Amortization Period, the excess of the applicable Controlled Distribution Amount over the Class A Principal Allocation for such Deposit Date and for each prior Deposit Date during such Monthly Period; (b) if such Monthly Period falls in the Rapid Amortization Period, the excess of the Class A Collateral Amount over the aggregate amount deposited into the Principal Collections Subaccount pursuant to Section 4.3(b)(ii)(z) for such --------------------- Deposit Date and for each prior Deposit Date during such Monthly Period; (c) if such Monthly Period falls in a Limited Amortization Period, the excess of the applicable Limited Amortization Amount over the Class A Principal Allocation for such Deposit Date and for each prior Deposit Date during such Monthly Period; and (d) if such Monthly Period falls in the Revolving Period, the excess of any applicable Limited Amortization Amount over the aggregate amount deposited into the Principal Collections Subaccount pursuant to Section 4.3(b)(ii)(x) for such --------------------- Deposit Date and for each prior Deposit Date during such Monthly Period. "Purchase Commitment Expiration Date" is defined in the Note Purchase ----------------------------------- Agreement. "Purchase Commitments" is defined in the Note Purchase Agreement. -------------------- "Rapid Amortization Period" means an Amortization Period commencing on the ------------------------- Pay Out Commencement Date and ending on the earlier to occur of (a) the Trust Termination Date or (b) the Series Termination Date. "Rating Agency" means the rating agency or agencies providing ratings for ------------- the Notes issued by any Conduit Purchaser. "Rating Agency Condition" means, with respect to any action or series of ----------------------- related actions or proposed transactions in the Note Purchase Agreement, the 11 Indenture or this Indenture Supplement, that the Rating Agency or Agencies for the respective Notes shall have notified the related Conduit Managing Agent that such action or series of related actions or the consummation of such proposed transaction or series of related transactions will not result in a reduction or withdrawal of the rating or ratings of the Class A Notes. "Reallocated Principal Collections" is defined in Section 4.10. --------------------------------- ------------ "Reallocated Principal Reserves" is defined in subsection 4.3(b)(ii)(x). ------------------------------ ------------------------ "Reassignment Amount" means, for any Distribution Date, after giving effect ------------------- to any deposits and distributions otherwise to be made on such Distribution Date, the sum of (i) the outstanding principal balance of the Series 2001-VFN Notes on such Distribution Date, plus (ii) Note Interest for such Distribution Date and any Note Interest previously due but not distributed to the Series 2001-VFN Noteholders plus (iii) fees and other amounts owed pursuant to the Note Purchase Agreement or Fee Letter. "Record Date" means, with respect to any Distribution Date, the close of ----------- business on the last Business Day of the preceding month. "Required Conduit Managing Agents" is defined in the Note Purchase -------------------------------- Agreement. "Required Excess Collateral Amount" means, as of any date of determination, --------------------------------- an amount that if equal to the Excess Collateral Amount on such date of determination would cause the Excess Collateral Amount Allocation Percentage to be equal to the Required Excess Collateral Amount Percentage on such date of determination. "Required Excess Collateral Amount Percentage" means, with respect to any -------------------------------------------- date of determination other than during the continuance of a Terms Change Enhancement Increase Condition, the Base Excess Collateral Amount Percentage, and during the continuance of a Terms Change Enhancement Increase Condition, the highest then applicable percentage specified in the definition of Enhancement Increase Amount with respect to such Terms Change Enhancement Condition. "Revolving Period" means the period from and including the Closing Date to ---------------- and including the earlier of (a) the close of business on the Scheduled Pay Out Commencement Date or (b) the Pay Out Commencement Date; provided, however, that -------- ------- the Revolving Period will be temporarily suspended for the duration of any Limited Amortization Period. "Scheduled Pay Out Commencement Date" is defined in the Note Purchase ----------------------------------- Agreement. "Scheduled Series 2001-VFN Termination Date" means the Distribution Date ------------------------------------------ which occurs in the Monthly Period occurring 60 months after the earlier to 12 occur of the commencement of the Controlled Amortization Period or the Rapid Amortization Period. "Series 2001-VFN" means the Series of the Spiegel Credit Card Master Note --------------- Trust represented by the Series 2001-VFN Notes. "Series Accounts" means the Finance Charge Subaccount, the Principal --------------- Collections Subaccount, the Excess Spread Account and the Excess Funding Account with respect to Series 2001-VFN. "Series Pay Out Event" is defined in Section 6.1 of this Indenture -------------------- ----------- Supplement. "Series Servicing Fee Percentage" means (a) at any time when FCNB is ------------------------------- Servicer, two percent (2.00%) per annum or such lesser percentage as FCNB may --- ----- from time to time designate by written notice to the Indenture Trustee and the Administrative Agent (which lesser percentage shall be based on a good faith determination by FCNB that such percentage will result in payment of a Servicing Fee with respect to Series 2001-VFN at least adequate to cover FCNB's estimated costs of servicing the portion of the Receivables allocable to Series 2001-VFN), and (b) at any other time, two percent (2.00%) per annum. --- ----- "Series Termination Date" means the earlier to occur of (a) the day after ----------------------- the Distribution Date on which the Series 2001-VFN Notes are paid in full, or (b) the Scheduled Series 2001-VFN Termination Date. "Terms Change Condition" is defined in Section 7.1. ---------------------- ----------- "Terms Change Enhancement Increase Condition" means the condition that, ------------------------------------------- after giving effect to any terms change that is restricted by Section 7.1 and ----------- with respect to which the Rating Agency Condition has not been satisfied, the Excess Collateral Amount Allocation Percentage shall equal or exceed the applicable amount specified in the definition of Enhancement Increase Amount. Such condition shall be deemed to be continuing until the Rating Agency Condition has been satisfied subsequent to and taking into consideration the terms change that gave rise to such condition. "Total Deficiency Amount" is defined in Section 4.5. ----------------------- ----------- Section 2.2 Terms. Each capitalized term defined herein shall relate to the ----- Series 2001-VFN Notes and no other Series of Notes issued by the Trust, unless the context otherwise requires. All capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Indenture or the Transfer and Servicing Agreement. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture or the Transfer and Servicing Agreement, the terms and provisions of this Indenture Supplement shall govern. 13 Section 2.3 Interpretive Rules. The interpretive rules specified in Section ------------------ ------- 1.2 of the Indenture also apply to this Indenture Supplement. - --- Section 2.4 Calculations. The Series 2001-VFN Notes are replacing and ------------ refinancing the Series 1999-B Certificates issued by the SMT Trust that had substantially similar economic terms. For any Monthly Period commencing prior to the Closing Date and the portion of the October 2001 Monthly Period falling prior to the Closing Date, "Base Rate", "Delinquency Amount", "Dilution", "Excess Spread Percentage" and any other related calculations shall be calculated in accordance with the Series 1999-B transaction documents for purposes of this document, and for purposes of calculations required by this Indenture Supplement, the "Collateral Amount" and "Allocation Percentage" on each day falling in the October 2001 Monthly Period and prior to the Closing Date shall be deemed to have equaled the "Investor Amount" and the "Investor Percentage," respectively, under the Series Supplement for that Series on that day. ARTICLE III Optional Redemption of Notes; Final Distributions Section 3.1 Optional Redemption. On any day occurring after the end of the ------------------- Revolving Period and on or after the date on which the outstanding principal balance of the Series 2001-VFN Notes is reduced to 10% or less of the highest outstanding principal balance of Series 2001-VFN Notes since the Closing Date, the Servicer shall have the option to redeem the Series 2001-VFN Notes, at a purchase price equal to (i) if such day is a Distribution Date, the Reassignment Amount for such Distribution Date or (ii) if such day is not a Distribution Date, the Reassignment Amount for the Distribution Date following such day. (a) The Servicer shall give the Indenture Trustee at least thirty (30) days prior written notice of the date on which the Servicer intends to exercise such optional redemption. Not later than 12:00 noon, New York City time, on such day the Servicer shall deposit the Reassignment Amount into the Collection Account in immediately available funds. Such redemption option is subject to payment in full of the Reassignment Amount. Following such deposit into the Collection Account in accordance with the foregoing, the Collateral Amount for Series 2001-VFN shall be reduced to zero and the Series 2001-VFN Noteholders shall have no further security interest in the Receivables. The Reassignment Amount shall be distributed as set forth in Section 3.1(c). -------------- (b) (i) The amount to be paid by the Seller with respect to Series 2001-VFN in connection with a reassignment of Receivables to the Seller pursuant to Section 2.4(e) of the Transfer and Servicing Agreement shall equal the - -------------- Reassignment Amount for the first Distribution Date following the Monthly Period in which the reassignment obligation arises under the Transfer and Servicing Agreement. 14 (ii) The amount to be paid by the Seller with respect to Series 2001-VFN in connection with a repurchase of the Notes pursuant to Section 7.1 of the Transfer and Servicing Agreement shall equal the ----------- Reassignment Amount for the Distribution Date of such repurchase. (c) With respect to the Reassignment Amount deposited into the Collection Account, the Indenture Trustee shall, in accordance with the written direction of the Servicer, not later than 12:00 noon, New York City time, on the related Distribution Date, make distributions of the following amounts (in the priority set forth below and, in each case, after giving effect to any deposits and distributions otherwise to be made on such date) in immediately available funds: (x) the Note Principal Balance on such Distribution Date will be distributed to the Paying Agent for payment to the Class A Noteholders and (y) an amount equal to the sum of (A) Monthly Interest for such Distribution Date, and (B) any Monthly Interest previously due but not distributed to the Class A Noteholders on a prior Distribution Date and (C) any fees or amounts due and owing under the Note Purchase Agreement or Fee Letter will be distributed to the parties to which each such item is owed. (d) Notwithstanding anything to the contrary in this Indenture Supplement, the Indenture or the Transfer and Servicing Agreement, all amounts distributed to the Paying Agent pursuant to this Section 3.1 for payment to the Series ----------- 2001-VFN Noteholders shall be deemed distributed in full to the Series 2001-VFN Noteholders on the date on which such funds are distributed to the Paying Agent pursuant to this Section 3.1 and shall be deemed to be a final distribution ----------- pursuant to Section 11.2 of the Indenture. ------------ (e) On the Series 2001-VFN Final Maturity Date, the right of the Series 2001-VFN Noteholders to receive payments from the Issuer will be limited solely to the right to receive payments pursuant to Section 5.5 of the Indenture. ----------- Section 3.2 Delivery and Payment for the Series 2001-VFN Notes. The -------------------------------------------------- Indenture Trustee shall deliver the initial Series 2001-VFN Notes on the Closing Date when authenticated in accordance with Section 2.3 of the Indenture. In ----------- addition, from time to time, within five Business Days of receipt of written instructions from the Seller, the Indenture Trustee shall authenticate and deliver additional Series 2001-VFN Notes to the Conduit Managing Agent for any additional Ownership Group. Section 3.3 Private Placement of Class A Notes; Form of Delivery of Series -------------------------------------------------------------- 2001-VFN Notes. - -------------- (a) The Class A Notes have not been registered under the Securities Act of 1933, as amended, (the "Securities Act"), or any state securities law. No -------------- transfer of any Class A Note shall be made except in accordance with the terms of the Note Purchase Agreement and either (i) pursuant to an effective registration under the Securities Act and applicable state securities or "blue ---- sky" laws or (ii) - --- 15 in a transaction exempt from the registration requirements of the Securities Act and applicable state securities or "blue sky" laws, to (A) a person who the transferor reasonably believes is a Qualified Institutional Buyer within the meaning thereof in Rule 144A under the Securities Act that is aware that the resale or other transfer is being made in reliance on Rule 144A, (2) a person who is an accredited investor as defined in Rule 501(a) under the Securities Act or (3) an institution which has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment therein. The Class A Notes shall bear a legend to the effect set forth in Exhibit A. None of the Seller, the Transfer Agent and Registrar or the --------- Indenture Trustee is obligated to register the Class A Notes under the Securities Act or any other securities or "blue sky" law or to take any other action not otherwise required under this Indenture Supplement or the Indenture to permit the transfer of Class A Notes without registration or as described above. (b) The Series 2001-VFN Notes shall not be delivered as Book-Entry Notes. The Series 2001-VFN Notes shall be delivered as Registered Notes as provided in Section 6.1 of the Indenture. The Class A Notes shall be substantially in the - ----------- form of Exhibit A. --------- ARTICLE IV RIGHTS OF NOTEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.1 [Reserved] ------- Section 4.2 [Reserved]. -------- Section 4.3 Allocations. ----------- (a) Allocations. Finance Charge Collections, Principal Collections and ----------- Defaulted Receivables allocated to Series 2001-VFN pursuant to Article VIII of ------------ the Indenture shall be allocated and distributed as set forth in this Article. (b) Allocations to the Series 2001-VFN Noteholders. The Servicer shall, ---------------------------------------------- prior to the close of business on any Deposit Date, allocate to the Series 2001-VFN Noteholders the following amounts as set forth below: (i) Allocation of Finance Charge Collections. The Servicer shall ---------------------------------------- allocate to the Series 2001-VFN Noteholders and transfer to the Finance Charge Subaccount for application as provided herein an amount equal to the product of (A) the Allocation Percentage on the Deposit Date of such Collections and (B) the aggregate amount of Finance Charge Collections for such Deposit Date; provided, however, that with respect to each Monthly -------- ------- Period falling in the Revolving Period or the Controlled Amortization Period, such amount shall be deposited in the Collection Account and allocated to the Finance Charge Subaccount only until such 16 time as the amount retained in the Collection Account and allocated to the Finance Charge Subaccount pursuant to this Section equals the sum of (1) the aggregate amount of Note Interest with respect to the Distribution Date in the immediately succeeding Monthly Period (such amount to be estimated by the Servicer in good faith after consultation with the Administrative Agent), (2) at any time that FCNB is not the Servicer, the Investor Monthly Servicing Fee payable on the Transfer Date in the immediately succeeding Monthly Period and all accrued and unpaid Investor Monthly Servicing Fees with respect to prior Monthly Periods and (3) the Default Estimate and any Investor Uncovered Dilution Amounts for that Monthly Period; provided -------- further, however, that notwithstanding the foregoing proviso, (1) the ------- ------- ------- entire Allocation Percentage of Finance Charge Collections shall be deposited in the Collection Account and allocated to the Finance Charge Subaccount on a daily basis if the Excess Spread Percentage for the preceding Monthly Period is less than 3.00% and (2) subject to Section ------- 8.4(a) of the Indenture, on each Determination Date, the Servicer shall ------ deposit in the Finance Charge Subaccount any amounts not retained on a daily basis pursuant to the preceding proviso. Any portion of such ------- allocation not required to be transferred to the Finance Charge Subaccount pursuant to the preceding sentence shall be (x) first, deposited in the Excess Funding Account to the extent that the Seller Amount is less than the Minimum Seller Amount and (y) thereafter paid to the holders of the Seller Interest. (ii) Allocations of Principal Collections. The Servicer shall allocate ------------------------------------ to the Series 2001-VFN Noteholders the following amounts as set forth below: (x) Allocations During the Revolving Period. During the Revolving --------------------------------------- Period an amount equal to the product of the Allocation Percentage and the aggregate amount of Principal Collections deposited in the Collection Account on such Deposit Date, shall be allocated to the Series 2001-VFN Noteholders and transferred to the Principal Collections Subaccount for application as Reallocated Principal Collections on the related Distribution Date pursuant to Section ------- 4.10(a) (all such amounts retained in the Collection Account for ------- application as Reallocated Principal Collections pursuant to this subsection 4.3(b)(ii)(x) being hereinafter referred to as "Reallocated ------------------------ ----------- Principal Reserves"); provided, however, that if the sum of (i) such ------------------ -------- ------- Reallocated Principal Reserves for any Deposit Date, (ii) all Reallocated Principal Reserves previously deposited in the Principal Collections Subaccount pursuant to this subsection 4.3(b)(ii)(x) on ------------------------ Deposit Dates occurring during the same Monthly Period and (iii) the aggregate amount of Finance Charge Collections deposited in the Finance Charge Subaccount pursuant to subsection 4.3(b)(i) on Deposit -------------------- Dates occurring in the same Monthly Period, exceeds the 17 Maximum Reallocated Principal Reserves Amount for such Monthly Period, then such excess shall not be treated as Reallocated Principal Reserves and shall be (A) first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, retained in the Collection Account for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, (B) second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount, and (C) third paid to the holders of the Seller Interest. (y) Allocations During the Controlled Amortization Period and any ------------------------------------------------------------- Limited Amortization Period. During the Controlled Amortization Period --------------------------- and any Limited Amortization Period an amount equal to the product of (I) the Allocation Percentage and (II) the aggregate amount of Principal Collections deposited in the Collection Account on such Deposit Date (the product for any such date is hereinafter referred to as a "Percentage Allocation") shall be allocated to the Series ---------------------- 2001-VFN Noteholders and transferred to the Principal Collections Subaccount; provided, however, that if the sum of such Percentage -------- ------- Allocation and all preceding Percentage Allocations with respect to the same Monthly Period exceeds (1) the Controlled Distribution Amount during the Controlled Amortization Period or (2) the Limited Amortization Amount during a Limited Amortization Period, in each case for the related Distribution Date, then such excess shall not be treated as a Percentage Allocation and shall be (A) first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, transferred to the Principal Collections Subaccount for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, (B) second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount, and (C) third paid to the holders of the Seller Interest. (z) Allocations During the Rapid Amortization Period. During the ------------------------------------------------ Rapid Amortization Period, an amount equal to the product of (I) the Allocation Percentage and (II) the aggregate amount of Principal Collections deposited in the Collection Account on such Deposit Date shall be allocated to the Series 2001-VFN Noteholders and transferred to the Principal Collections Subaccount; provided, however, that after -------- ------- the date on which an amount of such Collections equal to the Note Principal Balance has been deposited into the Collection Account and allocated to the Series 2001-VFN Noteholders, such amount shall be (A) first, if 18 any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, transferred to the Principal Collections Subaccount for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, (B) second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount, and (C) third paid to the Holders of the Seller Interest. (c) Monthly Allocations During the Revolving Period, Limited Amortization --------------------------------------------------------------------- Period and Controlled Amortization Period. Prior to the commencement of the - ----------------------------------------- Rapid Amortization Period, on each Determination Date with respect to a Monthly Period, the Servicer shall deposit in the Collection Account and allocate to the Finance Charge Subaccount an amount equal to the excess, if any, of the aggregate amount of Collections that would have been deposited in the Collection Account and allocated to the Finance Charge Subaccount pursuant to Section ------- 4.3(b)(i) but for the proviso thereto, over the aggregate amount of Collections - --------- ------- ---- that were deposited in the Collection Account and allocated to the Finance Charge Subaccount pursuant to Section 4.3(b)(i) during such Monthly Period (the ----------------- "Monthly Finance Charge Allocation"); provided, however, that so long as FCNB is ---------------------------------- -------- ------- the Servicer and is affiliated with the holders of the Seller Interest, FCNB, as Servicer, and as agent for the holder of the Seller Interest, may make a net deposit to the Collection Account on each Determination Date in an amount equal to the Monthly Finance Charge Allocation, minus all amounts payable or distributable to FCNB, as Servicer, or the holders of the Seller Interest pursuant to Section 4.5 on the related Transfer Date. ----------- Section 4.4 Investor Charge-offs. On each Determination Date, the Servicer -------------------- shall calculate the Investor Default Amount for the preceding Monthly Period and the Total Deficiency Amount for the related Distribution Date. If on such date the Total Deficiency Amount exceeds zero (such deficiency, the "Shortfall"), the --------- Excess Collateral Amount (after being reduced by any Excess Collateral Amount Reallocated Amounts) will be reduced by the lesser of (a) the Investor Default Amount plus any Investor Uncovered Dilution Amount for the preceding Monthly Period and (b) such Shortfall (a "Excess Collateral Amount Investor Charge ---------------------------------------- Off"). In the event that such reduction would cause the Excess Collateral Amount - ---- to be a negative number, the Excess Collateral Amount shall be reduced to zero, and the Class A Collateral Amount will be reduced by an amount equal to the excess of such reduction over the Excess Collateral Amount prior to such reduction (a "Class A Investor Charge Off"). ---------------------------- Section 4.5 Monthly Payments. On each Determination Date, the Servicer, ---------------- pursuant to a Monthly Payment Instructions and Notification substantially in the form of Exhibit B to this Indenture Supplement, shall instruct the Indenture --------- Trustee in writing to withdraw, and on the succeeding Transfer Date the Indenture Trustee acting in accordance with such written instructions shall 19 withdraw, the amounts required to be withdrawn from the Finance Charge Subaccount pursuant to Sections 4.5(a), (b), (c), (d), (e), and (f) and the --------------- --- --- --- --- --- amounts required to be withdrawn from the Principal Collection Subaccount pursuant to Section 4.10; provided that the Servicer may amend the form of ------------ -------- Exhibit B from time to time, with the prior written consent of the Indenture - --------- Trustee. On each Determination Date, the Servicer shall also determine the amount (the "Total Deficiency Amount"), if any, by which the sum of (a) Note ------------------------ Interest for the following Distribution Date, plus (b) the Investor Monthly Servicing Fee accrued in respect of the preceding Monthly Period and any unpaid Monthly Servicing Fees from prior Monthly Periods, plus (c) the Investor Default Amount and any Investor Uncovered Dilution Amounts for the preceding Monthly Period, exceeds the aggregate of (i) amounts allocated to the Finance Charge Subaccount in respect of the preceding Monthly Period, (ii) any amounts deposited or to be deposited in the Finance Charge Subaccount for the preceding Monthly Period, with respect to the portion of Ineligible Receivables constituting Finance Charge Receivables reassigned pursuant to Section 2.4(d) of -------------- the Indenture, (iii) any amounts deposited or to be deposited in the Finance Charge Subaccount for the preceding Monthly Period, with respect to Investor Net Recoveries, and (iv) any amounts allocable to the Series 2001-VFN Notes in respect of Shared Finance Charge Collections in respect of the preceding Monthly Period (such sum, the "Monthly Period Finance Charge Subaccount Allocation"). ---------------------------------------------------- (a) Note Interest. On each Transfer Date, the Indenture Trustee, acting in ------------- accordance with written instructions from the Servicer, shall withdraw from the Finance Charge Subaccount an amount equal to the Monthly Period Finance Charge Subaccount Allocation, to the extent necessary to pay the Note Interest for the related Distribution Date. (b) Servicing Fee. On each Transfer Date, the Indenture Trustee, acting in ------------- accordance with written instructions from the Servicer, shall withdraw from the Finance Charge Subaccount an amount equal to the lesser of (i) the Monthly Period Finance Charge Subaccount Allocation less any amounts withdrawn from the Finance Charge Subaccount pursuant to Section 4.5(a) and (ii) the Investor -------------- Monthly Servicing Fee accrued in respect of the preceding Monthly Period plus all accrued and unpaid Investor Monthly Servicing Fees in respect of previous Monthly Periods, and the Indenture Trustee shall in accordance with such written instructions pay such amount to the Servicer. (c) Defaults and Uncovered Dilution. On each Transfer Date, the Indenture ------------------------------- Trustee, acting in accordance with written instructions from the Servicer, shall withdraw from the Finance Charge Subaccount an amount equal to the lesser of (i) the Monthly Period Finance Charge Subaccount Allocation less any amounts withdrawn from the Finance Charge Subaccount pursuant to Sections 4.5(a) and (b) --------------- --- and (ii) the Investor Default Amount and any Investor Uncovered Dilution Amount for the preceding Monthly Period, and the Indenture Trustee shall in accordance with such written instructions (A) during the Revolving Period, apply such amount in accordance with Section 4.3(b)(ii)(x), --------------------- 20 (B) during the Controlled Amortization Period or any Limited Amortization Period, deposit such amount in accordance with Section 4.3(b)(ii)(y) and (C) --------------------- during the Rapid Amortization Period, deposit such amount in accordance with Section 4.3(b)(ii)(z) in each case as if such amounts were Collections of - --------------------- Principal Receivables allocable to the Series 2001-VFN Notes received during the Monthly Period related to such Transfer Date. (d) Reimbursement of Investor Charge Offs and Excess Collateral Amount ------------------------------------------------------------------ Reallocated Amounts. On each Transfer Date, the Indenture Trustee, acting in - ------------------- accordance with written instructions of the Servicer, shall withdraw from the Finance Charge Subaccount an amount equal to the lesser of (i) the Monthly Period Finance Charge Subaccount Allocation less any amounts withdrawn from the Finance Charge Subaccount pursuant to Sections 4.5(a), (b) and (c) and (ii) an ---------------- --- --- amount equal to the aggregate amount of Investor Charge Offs, if any, Excess Collateral Amount Reallocated Amounts which have not theretofore been reimbursed pursuant to this Section 4.5(d), if any, and shall in accordance with such -------------- written instructions (A) during the Revolving Period, apply such amount in accordance with Section 4.3(b)(ii)(x), (B) during the Controlled Amortization --------------------- Period or any Limited Amortization Period, deposit such amounts in accordance with Section 4.3(b)(ii)(y) and (C) during the Rapid Amortization Period, deposit --------------------- such amounts in accordance with Section 4.3(b)(ii)(z) in each case, as if such --------------------- amounts were Collections of Principal Receivables allocable to the Series 2001-VFN Notes received during the Monthly Period related to such Transfer Date. On the date of any such reimbursement, the Collateral Amount shall be increased by the amount of such reimbursement of Investor Charge Offs and Excess Collateral Amount Reallocated Amounts. Reimbursements pursuant to this Section 4.5(d) shall be applied first to -------------- ----- reimburse the Class A Notes for Class A Investor Charge Offs, second, to the ------ extent amounts are available following the reimbursement of the Class A Notes, to reimburse the Excess Collateral Amount for Excess Collateral Amount Reallocated Amounts and third, to the extent amounts are available following the ----- reimbursement of the Excess Collateral Amount for Excess Collateral Amount Reallocated Amounts, to reimburse the Excess Collateral Amount for Excess Collateral Amount Investor Charge Offs. (e) Funding Costs. On each Transfer Date, the Indenture Trustee, acting in ------------- accordance with written instructions from the Servicer, shall withdraw from the Finance Charge Subaccount an amount equal to the lesser of (i) the Monthly Period Finance Charge Subaccount Allocation, and (ii) the aggregate amount of Funding Costs owed to any Class A Noteholder and deposit the same into the Collection Account. (f) Excess Spread. On each Transfer Date, the Indenture Trustee, acting in ------------- accordance with written instructions from the Servicer, shall withdraw from the Finance Charge Subaccount and deposit to the Collection Account an amount equal to excess, if any, of (i) the Monthly Period Finance Charge 21 Subaccount Allocation, over (ii) all amounts withdrawn from the Finance Charge ---- Subaccount pursuant to Sections 4.5(a), (b), (c), (d) and (e) (such excess, the --------------- --- --- --- --- "Excess Spread"). -------------- Section 4.6 Payment of Note Interest. On each Distribution Date, the Paying ------------------------ Agent shall pay in accordance with Section 5.1: (a) to each Conduit Managing ----------- Agent from amounts available for that purpose pursuant to Section 4.5(a) in -------------- respect of the Class A Notes on the related Transfer Date an amount equal to the Class Note Interest for the related Ownership Group for the Accrual Period ending on that Distribution Date; and (b) to the Excess Collateral Amount Holders from amounts available for that purpose pursuant to Section 4.5(f) on -------------- the related Transfer Date. If the amount of funds available for that purpose pursuant to Section 4.5(a) is less than the Note Interest for the Accrual Period -------------- ending on that Distribution Date, then the distribution pursuant to clause (a) ---------- above shall be made to the Conduit Managing Agents pro rata based upon the Class Note Interest for their respective Ownership Groups. Section 4.7 Payment of Note Principal. ------------------------- (a) (i) On any Determination Date with respect to the Revolving Period following five (5) Business Days' prior written notification by the Seller to the Administrative Agent, and (ii) on the Determination Date in the calendar month following the Monthly Period in which an Amortization Period commences and on each Determination Date thereafter until the end of such Amortization Period, the Servicer shall instruct the Indenture Trustee in writing to withdraw, and on the next succeeding Transfer Date the Indenture Trustee shall, subject to the following paragraph, withdraw, from the Principal Collections Subaccount (A) the amount deposited in the Principal Collection Subaccount pursuant to Section ------- 4.3(b)(ii)(x) (or such lesser amount as may be specified in the notification - ------------- referred to above), 4.3(b)(ii)(y) or 4.3(b)(ii)(z) during the preceding Monthly ------------- ------------- Period, (B) any Shared Principal Collections from other Series allocated to the Series 2001-VFN Notes including funds in the Excess Funding Account that are treated as Shared Principal Collections pursuant to Section 8.5 of the ----------- Indenture, and (C) the amount to be deposited in the Principal Collection Subaccount on such Transfer Date pursuant to Section 4.5(c) or 4.5(d) in each -------------- ------ case after giving effect to any reallocation of Collections pursuant to Section ------- 4.10. - ---- On the Determination Date preceding the final Transfer Date, the Servicer shall determine the amounts to be deposited pursuant to this sentence and on the final Transfer Date: (x) the Servicer shall, or shall instruct the Indenture Trustee in writing to, and the Indenture Trustee shall, withdraw from the Principal Collection Subaccount an amount which is no greater than the Collateral Amount as of the end of the day on the preceding Record Date; and (y) the Servicer shall, or shall instruct the Indenture Trustee in writing to, and the Indenture Trustee shall, withdraw from the Principal Collection Subaccount for allocation as Collections of Principal Receivables pursuant to Article IV, ---------- the amount, if any, 22 remaining in the Principal Collection Subaccount after giving effect to the withdrawals made pursuant to clause (x). ---------- (b) On each Distribution Date occurring after a deposit is made pursuant to Section 4.7(a) of this Indenture Supplement, the Paying Agent shall pay in - -------------- accordance with Section 5.1 of the Indenture, (A) to the Conduit Managing Agents ----------- (pro rata based upon the portions of the Class A Collateral Amount held by their respective Ownership Groups) from the Collection Account the lesser of (1) the amount available for this purpose pursuant to Section 4.7(a) of this Indenture -------------- Supplement on the related Transfer Date and (2) the Class A Collateral Amount on such date (provided that during any Non-Renewal Amortization Period, the amount -------- so withdrawn shall be paid only to the Conduit Managing Agents for Non-Renewing Ownership Groups (pro rata based upon the portions of the Class A Collateral Amount held by their respective Ownership Groups) and shall be limited to the aggregate portion of the Class A Collateral Amount held by their respective Ownership Groups), and (B) to the Excess Collateral Amount Holders from the Collection Account the lesser of (1) the amount available for this purpose pursuant to Section 4.7(a) of this Indenture Supplement on the related Transfer -------------- Date less any amounts withdrawn from the Collection Account pursuant to clause ------ (A) of this Section 4.7(b)(i) and (2) the Excess Collateral Amount on such date. - --- ----------------- (c) On each Determination Date in respect of any Monthly Period in respect of which amounts have been deposited in the Principal Collections Subaccount pursuant to Section 4.8(b), the Servicer shall instruct the Indenture Trustee in -------------- writing to withdraw, and on the next succeeding Transfer Date the Indenture Trustee shall withdraw, from the Principal Collections Subaccount the amount deposited in the Principal Collection Subaccount pursuant to Section 4.8(b) -------------- during the preceding Monthly Period. On each Distribution Date occurring after a deposit is made pursuant to this Section 4.7(c), the Paying Agent shall pay in -------------- accordance with Section 5.1 of the Indenture, to the Excess Collateral Amount ----------- Holders from the Collection Account the amount deposited into the Collection Account pursuant to this Section 4.7(c) on the related Transfer Date. -------------- Section 4.8 Increase and Decrease of the Excess Collateral Amount. ----------------------------------------------------- (a) Whenever an Enhancement Increase Condition exists and the Excess Collateral Amount Allocation Percentage is less than the Required Excess Collateral Amount Percentage, the Seller shall increase the Excess Collateral Amount by the applicable Enhancement Increase Amount. Such increase shall be effected by reducing the Seller Amount, if any, by the lesser of such Enhancement Increase Amount and the amount, if any, by which the Seller Amount exceeds the Minimum Seller Amount immediately prior to such increase and by reallocating such amount to the Excess Collateral Amount. If, after giving effect to the preceding sentence, the Excess Collateral Amount Allocation Percentage is less than the Required Excess Collateral Amount Percentage, the Seller shall immediately make a deposit in the Excess Funding Account in immediately 23 available funds in the amount necessary to cure such deficiency. Concurrently with the decrease in the Seller Amount and any required deposit to the Excess Funding Account, the Excess Collateral Amount shall be increased by the aggregate amount of such decrease and of such deposit. If the Seller makes a deposit to the Excess Funding Account as described above, and the balance on deposit in the Excess Funding Account as a result of such deposit exceeds 20% of the Portfolio Sub-Limit and is not reduced below that level for a period of 60 consecutive days, then the Seller shall give notice commencing a Limited Amortization Period with a Limited Amortization Amount of not less than the balance on deposit on the Excess Funding Account at the time such notice is given. (b) Unless the Pay-Out Commencement Date shall have occurred, on any Distribution Date when the Excess Collateral Amount Allocation Percentage exceeds the Required Excess Collateral Amount Percentage (giving effect to any permitted reduction thereof) (including when a Terms Change Enhancement Increase Condition is no longer continuing), the Servicer shall allocate to the Excess Collateral Amount Holders from the Principal Collections Subaccount an amount equal to the lesser of (i) the excess of the amount of Collections of Principal Receivables allocated to the Principal Collections Subaccount pursuant to Section 4.3(b)(ii) over the amount of Excess Collateral Amount Reallocated - ------------------ Amounts with respect to such Distribution Date and (ii) the amount that when subtracted from the Excess Collateral Amount (after giving effect to amounts previously allocated from the Principal Collections Subaccount pursuant to this Section 4.8(b)) will cause the Excess Collateral Amount Allocation Percentage to - -------------- equal the Required Excess Collateral Amount Percentage (taking into account any other Enhancement Increase Condition that is still continuing); provided, -------- however, that in no event shall the Excess Collateral Amount be reduced below 3 - ------- percent of the result of (x) the Portfolio Sub-limit (as defined in the Note Purchase Agreement), divided by (y) one minus the Required Excess Collateral Amount Percentage. Section 4.9 Seller's or Servicer's Failure to Make a Deposit or Payment. If ----------------------------------------------------------- the Servicer or Seller fails to make, or give instructions to make, any payment or deposit (other than as required by Section 2.4(d), 2.4(e), 8.4, 9.2 or 12.2 -------------- ------ --- --- ---- of the Indenture) required to be made or given by the Servicer or Seller, respectively, at the time specified in the Indenture (including applicable grace periods), the Indenture Trustee shall make such payment or deposit from the applicable Series Account or from amounts otherwise owing to the Seller or the Servicer pursuant hereto without instruction from the Servicer or Seller. The Indenture Trustee shall be required to make any such payment, deposit or withdrawal hereunder only to the extent that the Indenture Trustee has sufficient information to allow it to determine the amount thereof. The Servicer shall, upon request of the Indenture Trustee, promptly provide the Indenture Trustee with all information necessary to allow the Indenture Trustee to make such payment, deposit or withdrawal. Such funds or the proceeds of such withdrawal shall be applied by 24 the Indenture Trustee in the manner in which such payment or deposit should have been made by Seller or the Servicer, as the case may be. Section 4.10 Reallocated Principal Collections. (a) The Servicer shall --------------------------------- apply or shall direct the Indenture Trustee in writing to apply on each Distribution Date the Collections in respect of the preceding Monthly Period allocated pursuant to Section 4.3(b)(ii)(x), 4.3(b)(ii)(y) or 4.3(b)(ii)(z) --------------------- ------------- ------------- equal to the lesser of (a) the Excess Collateral Amount Percentage of such amounts allocated pursuant to Section 4.3(b)(ii)(x), 4.3(b)(ii)(y) or Section --------------------- ------------- 4.3(b)(ii)(z) and (b) the Total Deficiency Amount for such Distribution Date - ------------- --- (such amounts applied, the "Excess Collateral Amount Reallocated Amounts") to -------------------------------------------- pay the amounts specified in Sections 4.5(a), (b) and (c) in the order of --------------- --- --- priority specified in Section 4.5. On each Distribution Date with respect to the ----------- Revolving Period, the Limited Amortization Period or the Controlled Amortization Period, the Servicer shall (or shall direct the Indenture Trustee in writing to) withdraw from the Principal Collections Subaccount and pay to the holder of the Seller Interest an amount equal to the excess of (i) the Collections in respect of the preceding Monthly Period allocated pursuant to Section 4.3(b)(ii) over ------------------ (ii) the sum of (A) the amount of Excess Collateral Amount Reallocated Amounts and (B) the amount allocated to the Excess Collateral Amount Holders pursuant to Section 4.8(b). - -------------- (b) On any Deposit Date on which the sum of (i) all Reallocated Principal Reserves previously deposited in the Principal Collections Subaccount pursuant to subsection 4.3(b)(ii)(x) on Deposit Dates occurring in the same Monthly ------------------------ Period, plus (ii) the aggregate amount of Finance Charge Collections deposited in the Finance Charge Subaccount pursuant to subsection 4.3(b)(i) on Deposit -------------------- Dates occurring in the same Monthly Period, exceeds the Maximum Reallocated Principal Reserves Amount, then the Servicer shall allocate, or cause the Indenture Trustee to allocate, Reallocated Principal Reserves in the amount of such excess, first, if any other Principal Sharing Series is outstanding and in its accumulation period to amortization period, to be retained in the Collection Account for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, second to be deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount and third to be paid to the holders of the Seller Interest. Section 4.11 Class A Increases. Subject to the satisfaction of the Class A ----------------- Increase Conditions, and subject to the terms and conditions of the Indenture, this Indenture Supplement and the Note Purchase Agreement, the Seller may, during the Revolving Period, request an increase in the outstanding principal balance of the Class A Notes to an amount not to exceed the Maximum Class A Collateral Amount (any such increase being referred to herein as a "Class A ------- Increase" and the amount of such increase as the "Class A Increase Amount") in - -------- ----------------------- the manner specified in the Note Purchase Agreement. 25 Section 4.12 Notice of Note Rate. On or prior to each Determination Date ------------------- and each Transfer Date, each Conduit Managing Agent shall during the Revolving Period provide the Servicer with certain information relating to the Class Note Interest (as defined in the Note Purchase Agreement) pursuant to Section 2.6 of ----------- the Note Purchase Agreement. Section 4.13 Suspension of the Revolving Period. The Seller may from time ---------------------------------- to time at its sole discretion and without the consent of any Series 2001-VFN Noteholder or any other Person, unless a Trust Pay Out Event or a Series Pay Out Event shall have occurred prior thereto, suspend the Revolving Period and cause a Limited Amortization Period to commence for one or more Monthly Periods by delivering to the Servicer, the Indenture Trustee and the Administrative Agent, a written notice at least five days prior to the first day of the Monthly Period in which such Limited Amortization Period is scheduled to commence, which notice shall specify the Limited Amortization Amount for such Limited Amortization Period and the number of Monthly Periods in such Limited Amortization Period; provided, however, that any Limited Amortization Amount shall be in an amount of - -------- ------- not less than $1,000,000 per Conduit Purchaser; provided further that the Seller -------- ------- may not cause a Limited Amortization Period to commence unless, in the reasonable belief of the Seller, such Limited Amortization Period would not result in the occurrence of a Trust Pay Out Event or a Series Pay Out Event. During the Revolving Period, the Seller may also, subject to providing the prior written notification referred to in clause (x) of Section 4.7(a), from ---------- -------------- time to time cause a Limited Amortization Amount to be distributed to the Class A Noteholders on any Distribution Date from funds deposited for that purpose pursuant to Section 4.3(b)(ii), provided, that (a) except as permitted by the ------------------ -------- following clause (b), any such Limited Amortization Amount shall be in an amount ---------- of not less than $1,000,000 per Conduit Purchaser, (b) the Limited Amortization Amount may be less than $1,000,000 per Conduit Purchaser if the aggregate amount available in the Principal Collections Subaccount to pay such Limited Amortization Amount is less than $1,000,000 per Conduit Purchaser and the Seller Amount would be less than zero if the Limited Amortization Amount is not distributed and (c) when a Limited Amortization Amount of less than $1,000,000 per Conduit Purchaser is permitted by clause (b), the Limited Amortization ---------- Amount shall nevertheless be in an amount that is an integral multiple of $500,000 unless the aggregate amount available in the Principal Collections Subaccount to pay such Limited Amortization Amount is less than the lowest integral multiple of $500,000 that is greater than or equal to the amount by which the Seller Amount is less than the Minimum Seller Amount. In addition, the Seller may from time to time cause the Class A Notes to be repaid in full or in part from the proceeds of issuance of another Series of Notes, provided that (i) the Administrative Agent shall receive not less than -------- five Business Days' prior written notice of any such prepayment, and (ii) together with any such prepayment, the Seller shall be required to pay Note Interest accrued on 26 the prepaid amount through the date of prepayment, plus any Breakage Payment resulting from such prepayment. Section 4.14 Maximum Class A Collateral Amount. The Class A Notes will have --------------------------------- a maximum aggregate principal amount equal to the Portfolio Sublimit (as defined in the Note Purchase Agreement) (the "Maximum Class A Collateral Amount"), which --------------------------------- represents the maximum Class A Collateral Amount pursuant to this Indenture Supplement. The Class A Collateral Amount shall at no time exceed the Maximum Class A Collateral Amount. Section 4.15 Shared Principal Collections. Subject to Section 8.5 of the ---------------------------- ----------- Indenture, Shared Principal Collections for any Distribution Date will be allocated to Series 2001-VFN in an amount equal to the product of (x) the aggregate amount of Shared Principal Collections with respect to all Principal Sharing Series for such Distribution Date and (y) a fraction, the numerator of which is the Principal Shortfall for Series 2001-VFN for such Distribution Date and the denominator of which is the aggregate amount of Principal Shortfalls for all the Series which are Principal Sharing Series for such Distribution Date. For this purpose, each outstanding series of certificates issued by Spiegel Master Trust (other than series represented by the Collateral Certificate) shall be deemed to be a Principal Sharing Series. Section 4.16 Excess Finance Charge Collections. Series 2001-VFN shall be an --------------------------------- --------------------------- Excess Allocation Series with respect to Group One only. For this purpose, each - ------------------------------------------------------- outstanding series of certificates issued by Spiegel Master Trust (other than series represented by the Collateral Certificate) shall be deemed to be a Series in Group One. Subject to Section 8.6 of the Indenture, Excess Finance Charge ----------- Collections with respect to the Excess Allocation Series in Group One for any Distribution Date will be allocated to Series 2001-VFN in an amount equal to the product of (x) the aggregate amount of Excess Finance Charge Collections with respect to all the Excess Allocation Series in Group One for such Distribution Date and (y) a fraction, the numerator of which is the Finance Charge Shortfall for Series 2001-VFN for such Distribution Date and the denominator of which is the aggregate amount of Finance Charge Shortfalls for all the Excess Allocation Series in Group One for such Distribution Date. The "Finance Charge Shortfall" ------------------------ for Series 2001-VFN for any Distribution Date will be equal to the excess, if any, of (a) the full amount required to be paid, without duplication, pursuant to Sections 4.5(a) through (e) on such Distribution Date over (b) the Monthly --------------- --- Period Finance Charge Subaccount Allocation with respect to such Distribution Date (excluding any portion thereof attributable to Excess Finance Charge Collections). 27 ARTICLE V DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS Section 5.1 Distributions. (a) On each Distribution Date, the Paying Agent ------------- shall distribute (in accordance with the certificate delivered by the Servicer to the Indenture Trustee pursuant to Section 3.4(b) of the Indenture) to each -------------- Conduit Managing Agent the amounts specified in Sections 4.6 and 4.7 for such ------------ --- Distribution Date, together with any Funding Costs payable to members of the related Ownership Group (but only from funds available for that purpose pursuant to Section 4.5(e)), by wire transfer of immediately available funds. If the -------------- total Funding Costs owed on any Distribution Date exceed the amounts available for that purpose pursuant to Section 4.5(e) on the related Transfer Date, then -------------- such amounts shall be applied to pay Funding Costs to each Conduit Managing Agent pro rata based upon the aggregate Funding Costs owed to each member of their respective Ownership Groups. (b) On each Distribution Date, the Paying Agent shall distribute (in accordance with the certificate delivered by the Servicer to the Indenture Trustee pursuant to Section 3.4(b) of the Indenture) to each Excess Collateral -------------- Amount Holder of record on the immediately preceding Record Date (other than as provided in Section 2.4(e) of the Indenture or Section 12.3 of the Indenture -------------- ------------ respecting a final distribution) such Excess Collateral Amount Holder's pro rata --- ---- share (based on the aggregate Undivided Interests represented by the Excess Collateral Amount held by such Excess Collateral Amount Holder) of amounts available for that purpose as are payable to the Excess Collateral Amount pursuant to Sections 4.6 and 4.7 by wire transfer of immediately available ------------ --- funds. Section 5.2 Reports to Investors. (a) Monthly Noteholders' Statement. On or -------------------- ------------------------------ before each Distribution Date, the Paying Agent shall forward to each Series 2001-VFN Noteholder and each Rating Agency a statement substantially in the form of Exhibit C to this Indenture Supplement prepared by the Servicer. --------- (b) Annual Noteholders' Tax Statement. On or before January 21 of each --------------------------------- calendar year, beginning with calendar year 2002, the Seller shall deliver to the Indenture Trustee a statement containing (i) the total amount distributed with respect to the Notes, (ii) the amount of such distribution allocable to principal and (iii) the amount of such distribution allocable to Note Interest, each aggregated for the preceding calendar year. On or before January 31 of each calendar year, beginning with calendar year 2002, the Indenture Trustee shall, at the written direction of the Servicer, distribute on behalf of the Seller, to each Person who at any time during the preceding calendar year was a Series 2001-VFN Noteholder, a statement containing such customary information (consistent with the treatment of the Series 2001-VFN Notes as debt) as necessary or desirable to enable the Series 2001-VFN Noteholders to prepare their tax returns consistent with the treatment of the Series 2001-VFN Notes as debt instruments. Such obligations of 28 the Indenture Trustee shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Indenture Trustee pursuant to any requirements of the Internal Revenue Code as from time to time in effect. ARTICLE VI SERIES PAY-OUT EVENTS Section 6.1 Series Pay-Out Events. If any one of the following events shall --------------------- occur with respect to the Series 2001-VFN Notes: (a) failure on the part of the Seller or the Servicer (i) to make any payment, transfer or deposit required by the terms of the Indenture or this Indenture Supplement or to give written instructions or to give written notice to the Indenture Trustee to make such payment, transfer or deposit (A) in the case of any payment, transfer or deposit of principal, or any instruction or notice with respect thereto, within five days after the date on which such payment, transfer, deposit, notice or instruction is required to be made or given, (B) in the case of any payment, transfer or deposit of interest, or any instruction or notice with respect thereto, on the date on which such payment, transfer, deposit, notice or instruction is required to be made or given and (C) in the case of any other payment, transfer or deposit, or any instruction or notice with respect thereto, within five Business Days after the date on which such payment, transfer, deposit, notice or instruction is required to be made or given or (ii) duly to observe or perform in any material respect any covenants or agreements applicable to it set forth in the Indenture or this Indenture Supplement, which failure has a material adverse effect on the Class A Noteholders and which continues unremedied for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Indenture Trustee, or to the Seller and the Indenture Trustee by the Administrative Agent at the direction of one or more Conduit Managing Agents and continues to affect materially and adversely the interests of the Class A Noteholders for such period; (b) any representation or warranty made by Seller in the Indenture or this Indenture Supplement, or any information contained in a computer file or microfiche list required to be delivered by Seller pursuant to Section 2.1 or ----------- 2.6 of the Transfer and Servicing Agreement, shall prove to have been incorrect - --- in any material respect when made or when delivered, which continues to be incorrect in any material respect for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Indenture Trustee, or to the Seller and the Indenture Trustee by the Administrative Agent, and as a result of which the interests of the Class A Noteholders are materially and adversely affected and continue to be materially and adversely affected for such period; provided, -------- however, that a Series Pay Out Event pursuant to this Section 6.1 shall not be - ------- ----------- deemed to have occurred hereunder if the Seller has accepted reassignment of the related Receivable, or all of such 29 Receivables, if applicable, and deposited any amounts required to be deposited in connection therewith during such period in accordance with the provisions of the Indenture; (c) (i) the Seller shall fail to designate Additional Accounts the Receivables of which will be Eligible Receivables, as required by Section 2.6(a) -------------- of the Transfer and Servicing Agreement, and such failure shall continue for a period of five Business Days, or (ii) the Aggregate Principal Balance shall be less than the sum of the numerators used to determine the respective Allocation Percentages with respect to Principal Receivables for each outstanding Series for a period of ten (10) Business Days (or such longer period as the Required Conduit Managing Agents shall allow, but in no event longer than the number of days remaining in the Monthly Period in which such deficiency is reported); (d) any Servicer Default shall occur which would have a material adverse effect on the Holders of the Class A Notes; an event described in Section 6.1(d) -------------- of the FCCCMNT Indenture Supplement shall occur; or an event described in clause ------ (ii) of Section 6.1(a) of the FCCCMNT Indenture Supplement relating to the - ---- -------------- Servicer shall occur (and the applicable grace period lapses without cure); (e) the Administrative Agent shall notify the Servicer and the Indenture Trustee in writing that the Purchase Commitment Expiration Date has occurred; (f) the average of the ratio for any three consecutive Monthly Periods of Dilution for each such Monthly Period to the aggregate amount of receivables in the entire portfolio of FCNB Preferred Charge accounts generated during the prior Monthly Period shall exceed 28.00%; (g) a Conduit Downgrade Event shall have occurred; or an event described in Section 6.1(h) of the FCMT Indenture Supplement shall occur; - -------------- (h) the average of the Liquidation Rates for any three consecutive Monthly Periods shall be less than 4.75%; (i) the average of the Excess Spread Percentages for any three consecutive Monthly Periods shall be less than 2.00%; (j) 60 days following the date on which (A) the Securities and Exchange Commission, any banking regulatory authority or any other Official Body having jurisdiction over any Conduit Managing Agent or any of its subsidiaries (including, if applicable, the Administrative Agent) shall require the consolidation of the assets and liabilities of the related Conduit Purchaser on the balance sheet of such Conduit Managing Agent or any of its subsidiaries or shall require that capital be maintained with respect thereto under any capital requirements as if such assets were owned by such Conduit Managing Agent or any of its subsidiaries, or (B) the independent auditors for such Conduit Managing Agent shall have advised such Conduit Managing Agent or any of its subsidiaries 30 in writing that in their opinion such consolidation is required by GAAP or applicable Law, rule or regulations; (k) a Change of Control shall occur; (l) Spiegel shall (A) voluntarily seek, consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law, or (B) become a party to (or be made the subject of) any proceeding provided for by any Debtor Relief Law, other than as a creditor or claimant, and, in the event such proceeding is involuntary, within 10 Business Days after Spiegel has knowledge of such proceeding or the filing thereof, the petition instituting same has not been dismissed; (m) the Pension Benefit Guaranty Corporation shall file notice of a lien pursuant to Section 4068 of the Employee Retirement Income Security Act of 1974 with regard to any of the assets of SCCIII or FCNB which lien relates to an unpaid liability of at least $1,000,000, in the case of SCCIII, and $10,000,000, in the case of FCNB, and shall not have been released within 40 days; (n) if at any time any Rating Agency withdraws or lowers its rating on the Notes below A2 for Moody's or A for S & P; (o) without limiting the foregoing, the occurrence of an Event of Default with respect to Series 2001-VFN and acceleration of the maturity of the Series 2001-VFN Notes pursuant to Section 5.3 of the Indenture; or ----------- (p) prior to the SMT Termination Date, a Trust Pay Out Event shall occur under (and as defined in) the Pooling and Servicing Agreement; then, and in any such event described in subparagraph (a), (b), (d), (f), (h), ------------ --- --- --- --- --- (k) or (m) after the applicable grace period set forth in such subparagraphs, - --- --- either the Indenture Trustee or the Administrative Agent at the direction of the Required Conduit Managing Agents by notice then given in writing to the Seller and the Servicer (and to the Indenture Trustee if given by the Administrative Agent) may declare that a pay out event (a "Series Pay Out Event") has occurred -------------------- as of the date of such notice and in the case of any event described in subparagraph (c), (e), (g), (i), (j), (l), (n), (o) or (p) a Series Pay Out - ------------ --- --- --- --- --- --- --- --- --- Event shall occur without any notice or other action on the part of the Indenture Trustee, the Administrative Agent or the Noteholders immediately upon the occurrence of such event. Upon the occurrence of a Pay Out Event, the Seller shall give prompt written notice to the Rating Agencies. ARTICLE VII MISCELLANEOUS Section 7.1 Terms Change Condition. FCNB will not make any change in the ---------------------- basic terms of the Charge Account Agreements in respect of the Accounts that would cause the minimum monthly payment specified therein (i) to be less 31 than $12.50 (or the remaining balance, if less) unless the Required Conduit Managing Agents shall have given their prior written consent with respect thereto or (ii) to be less than $15 (or the remaining balance, if less) unless either the Required Conduit Managing Agents shall have given their prior written consent with respect thereto or the Terms Change Enhancement Increase Condition is satisfied with respect thereto (the "Terms Change Condition"). For purposes ---------------------- of this Section 7.1, credit based promotions, including deferred billing ----------- arrangements, skip payment programs and payment holidays shall not be deemed to be a change in the basic terms of the Charge Account Agreements so long as (i) the terms on which FCNB provides such promotions to the relevant merchant are at least as favorable to FCNB (as determined in good faith by FCNB) as FCNB would obtain in a comparable arm's length transaction with a merchant that is not an Affiliate of FCNB and (ii) the allocable share of any related merchant subsidy payments for any Monthly Period are paid by FCNB to the Trust on an "as earned" basis. For purposes of the preceding sentence, the share of such subsidy payments allocable to the Trust during any Monthly Period shall be based upon FCNB's good faith estimate (which shall be final and binding for all purposes of the Indenture) of the portion thereof allocable to the Accounts for such period. Any such payment shall be made by FCNB on the Determination Date following the Monthly Period in which such payments are earned and shall be treated for all purposes of the Indenture (including for purposes of calculating Portfolio Yield) as Finance Charge Collections for such Monthly Period. Section 7.2 Permitted Successor Servicer. With respect to Series 2001-VFN, ---------------------------- any financial institution which does not qualify as a permitted Successor Servicer under Section 10.2 of the Indenture shall qualify as a permitted ------------ Successor Servicer if approved in writing by each Conduit Managing Agent and written notice is given thereof by the Seller to the Administrative Agent and each Rating Agency. Section 7.3 Successors and Assigns. This Indenture Supplement shall be ---------------------- binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns, except that the Seller may not assign or transfer any of its rights under this Indenture Supplement (except for transfers to Affiliates) without the prior written consent of each Conduit Managing Agent and written notice is given thereof by the Seller to Administrative Agent. Section 7.4 Final Distribution. Written notice of any termination, ------------------ specifying the Distribution Date upon which the Series 2001-VFN Noteholders may surrender their Series 2001-VFN Notes for payment of the final distribution and cancellation shall be given by the Indenture Trustee not later than the 30th day immediately preceding the Distribution Date on which final payment of the Series 2001-VFN Notes shall be made. Section 7.5 Amendments. No amendment or waiver of any provision of the ---------- Indenture or this Indenture Supplement and no consent to any departure by the Seller, or the Servicer herefrom, shall be effective unless in writing signed by (x) 32 the Required Conduit Managing Agents and (y) in the case of any amendment, the Seller and the Servicer, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall, -------- ------- unless in writing signed by all the Conduit Managing Agents, do any of the following: (a) subject the Administrative Agent, the Conduit Purchasers or the Conduit Managing Agents to any additional obligations, (b) reduce the amount of Note Interest, principal or any fees payable hereunder, (c) postpone any date scheduled for any reduction of Class A Collateral Amount or for any payment of Note Interest or any fees payable hereunder, (d) amend any Pay Out Event or waive any automatic Pay Out Event, (e) amend the definition of "Base Rate," "Base Excess Collateral Amount Percentage," "Delinquency Amount," "Dilution," "Excess Spread Percentage," "Minimum Seller Percentage," "Liquidation Rate," "Portfolio Yield" or "Required Excess Collateral Amount Percentage," (f) change the percentage of, or the numbers of, Conduit Managing Agents, which shall be required for any amendment, waiver or consent or for any other action hereunder, or (g) amend this Section 13. The Servicer shall give each Rating Agency prior ---------- written notice of each amendment to this Indenture Supplement. No amendment described in clause (b) through (g) above shall be effective unless the Rating ---------- --- Agency Condition has been satisfied. Section 7.6 Effectiveness. This Indenture Supplement shall become effective ------------- as of the day and year first above written. Section 7.7 Ratification of Indenture. As supplemented by this Indenture ------------------------- Supplement, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented by this Indenture Supplement shall be read, taken and construed as one and the same instrument. Section 7.8 Counterparts. This Indenture Supplement may be executed in any ------------ number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. Section 7.9 GOVERNING LAW. THIS INDENTURE SUPPLEMENT SHALL BE CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, PROVIDED, HOWEVER, THAT THE DUTIES AND OBLIGATIONS OF THE INDENTURE TRUSTEE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CHOICE OF LAW. Section 7.10 Consents. [Reserved.] -------- 33 Section 7.11 Certain Calculations. In accordance with Section 1.3 of the -------------------- ----------- Indenture, the Servicer has adopted the following method of determining the amount of Finance Charge Receivables: (i) At the close of business on each Cycle Billing Date for any Cycle of which any Accounts are included in the Trust, the amount of Finance Charge Receivables of all Accounts in such Cycle shall be equal to the result of (A) the amount of Finance Charges charged to all Accounts in such Cycle on such date minus (B) the amount of Finance Charge Receivables on all Accounts in such Cycle that have been charged off since the close of business on the preceding Cycle Billing Date. As of the end of each Monthly Period, the amount of Finance Charge Receivables for all Accounts shall equal (X) the sum of the amounts calculated pursuant to the preceding sentence for each Cycle of which Accounts are included in the Trust during that Monthly Period plus (Y) the Carry-Over Finance Charge Amount. (ii) For each Business Day in each Monthly Period, the amount of Collections allocated to Finance Charge Receivables for all Accounts shall be all Collections available for allocation on that Business Day up to an amount equal to the quotient of the result determined pursuant to clause (i) above as of the end of the immediately preceding Monthly Period divided by the number of Business Days in such present Monthly Period; provided, -------- however, that (A) the amount of Collections allocated to Finance Charge ------- Receivables for all Accounts on the first Business Day of each Monthly Period shall equal the product of two times such quotient, (B) the amount of Collections allocated to Finance Charge Receivables for all Accounts on the last Business Day of each Monthly Period shall equal zero and (C) to the extent that the total Collections available for allocation on any Business Day (other than the last Business Day of a Monthly Period) is less than the amount that is to be allocated to Collections of Finance Charge Receivables on that Business Day, then the deficit shall be added to the amount of Collections that will be allocated to Finance Charge Receivables on the next Business Day. (iii) If, at the close of business on the last Business Day of any Monthly Period, the amount of Collections allocated to Finance Charge Receivables for all Accounts during such Monthly Period is less than the amount of Finance Charge Receivables for all Accounts calculated pursuant to clause (i) as of the end of the next preceding Monthly Period, then such deficit shall be the "Carry-Over Finance Charge Amount" and shall be added -------------------------------- to the amount of Finance Charges Receivables as of the end of the then current Monthly Period pursuant to clause (i). Notwithstanding the terms of Section 1.3 of the Indenture, the Servicer ----------- shall not adopt a method of determining the amount of Finance Charge 34 Receivables different from the method described above without the consent of each Conduit Managing Agent. Section 7.12 Repurchase Requests. On any Business Day, Seller may make a ------------------- written offer (a "Repurchase Offer") to each Conduit Managing Agent to redeem ---------------- all or a portion of the principal balance of the Class A Notes. Each Conduit Managing Agent may accept or reject such offer. If all of the Conduit Managing Agents accept the offer, then on the day that the repurchase is consummated the purchase price agreed upon between Seller and the Conduit Managing Agents shall be deposited in the Collection Account and shall be distributed to the Conduit Managing Agents on the date of the repurchase. Upon such payment, the Class A Collateral Amount shall decrease by an amount equal to the principal amount of the interest conveyed, and the Excess Collateral Amount shall automatically decrease to an amount so that the Excess Collateral Amount (after such decrease) shall equal the Required Excess Collateral Amount Percentage of the Collateral Amount (after such decrease). To the extent agreed upon between Seller and the Conduit Managing Agents, a portion of the purchase price paid shall decrease the amount of Class Note Interest and Program Commitment Fee payable on the next Distribution Date. Section 7.13 Perfection Representations, Warranties and Covenants. The ---------------------------------------------------- parties hereto agree that the representations, warranties and covenants set forth in Schedule I shall be a part of this Indenture Supplement for all ---------- purposes. Section 7.14 Rights of the Indenture Trustee. The Indenture Trustee shall ------------------------------- be entitled to the same rights, protections, immunities and indemnities set forth in the Master Indenture as if specifically set forth herein. Section 7.15 Limitation of Liability. Notwithstanding any other provision ----------------------- herein or elsewhere, this Indenture Supplement has been executed and delivered by Bankers Trust Company, not in its individual capacity, but solely in its capacity as Owner Trustee of the Trust, in no event shall Bankers Trust Company in its individual capacity have any liability in respect of the representations, warranties, or obligations of the Trust hereunder or under any other document, as to all of which recourse shall be had solely to the assets of the Trust, and for all purposes of this Indenture Supplement and each other document, the Owner Trustee (as such or in its individual capacity) shall be subject to, and entitled to the benefits of, the terms and provisions of the Trust Agreement. [Signatures follow] 35 IN WITNESS WHEREOF, the undersigned have caused this Indenture Supplement to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. SPIEGEL CREDIT CARD MASTER NOTE TRUST, as Issuer By: BANKERS TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- THE BANK OF NEW YORK, as Indenture Trustee Name: --------------------------------- Title: -------------------------------- 36 Acknowledged and Accepted: FIRST CONSUMERS NATIONAL BANK, as Servicer Name: ---------------------------- Title: --------------------------- Acknowledged and Accepted: SPIEGEL CREDIT CORPORATION III, as Seller Name: --------------------------- Title: --------------------------- 37 EXHIBIT A to SERIES 2001-VFN INDENTURE SUPPLEMENT FORM OF SERIES 2001-VFN CLASS A VARIABLE FUNDING NOTE THIS CLASS A NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NO RESALE OR -------------- OTHER TRANSFER OF THIS CLASS A NOTE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE TERMS OF THE NOTE PURCHASE AGREEMENT AND EITHER (A) PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS OR (B) IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS TO (I) A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER ("QIB") WITHIN THE MEANING THEREOF IN RULE 144A UNDER THE SECURITIES ACT THAT IS AWARE THAT THE RESALE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (II) A PERSON WHO IS AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT OR (III) AN INSTITUTION WHICH HAS SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS AS TO BE CAPABLE OF EVALUATING THE MERITS AND RISKS OF THE INVESTMENT THEREIN. NONE OF THE SELLER, THE TRANSFER AGENT AND REGISTRAR OR THE INDENTURE TRUSTEE IS OBLIGATED TO REGISTER THE NOTES UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES OR "BLUE SKY" LAW. EACH CLASS A NOTEHOLDER AND EACH BENEFICIAL OWNER OF A CLASS A NOTE, BY ITS ACCEPTANCE THEREOF OR OF SUCH BENEFICIAL INTEREST, WILL BE DEEMED TO HAVE REPRESENTED AND AGREED AS FOLLOW: (i) SUCH HOLDER OR OWNER UNDERSTANDS THAT THE CLASS A NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR ANY STATE OR OTHER APPLICABLE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO, OR EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND ANY OTHER APPLICABLE SECURITIES LAWS, (ii) SUCH HOLDER OR OWNER WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER SUCH CLASS A NOTE OR ANY INTEREST THEREIN AT ANY TIME EXCEPT TO THE SELLER OR TO A PERSON WHOM SUCH TRANSFEROR OF THE CLASS A NOTE REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT IN ACCORDANCE WITH RULE 144A TO WHOM NOTICE IS GIVEN THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A AND AFTER DELIVERY OF THE DOCUMENTATION REQUIRED BY THE INDENTURE AND THIS SUPPLEMENTAL INDENTURE, AND (iii) SUCH HOLDER OR OWNER IS A QIB PURCHASING FOR ITS OWN ACCOUNT IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT AND HAS RECEIVED A-1 NOTICE THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A. NEITHER THIS CLASS A NOTE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED, ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED, EXCEPT IN ACCORDANCE WITH SECTION 2.5 OF THE INDENTURE REFERRED TO HEREIN. THE CLASS A NOTEHOLDER MAY NOT - ----------- SELL OR OTHERWISE TRANSFER ALL OR ANY PORTION OF THIS CLASS A NOTE, EXCEPT IN ACCORDANCE WITH THE NOTE PURCHASE AGREEMENT. THE PRINCIPAL AMOUNT OF THIS CLASS A NOTE WILL BE REDUCED FROM TIME TO TIME BY DISTRIBUTIONS ON THIS CLASS A NOTE ALLOCABLE TO PRINCIPAL. IN ADDITION, THIS CLASS A NOTE MAY BE INCREASED AT THE REQUEST OF THE SELLER SUBJECT TO CERTAIN TERMS AND CONDITIONS SET FORTH IN THE SERIES 2001-VFN INDENTURE SUPPLEMENT REFERRED TO HEREIN. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE CLASS A NOTES, THE PRINCIPAL AMOUNT OF THIS CLASS A NOTE MAY VARY FROM TIME TO TIME. ANYONE ACQUIRING THIS CLASS A NOTE MAY ASCERTAIN THE CURRENT PRINCIPAL AMOUNT OF THIS CLASS A NOTE BY INQUIRY OF THE INDENTURE TRUSTEE. ON THE DATE OF THE INITIAL ISSUANCE OF THE CLASS A NOTES, THE INDENTURE TRUSTEE IS THE BANK OF NEW YORK. A-2 MAXIMUM PRINCIPAL AMOUNT No. $ ---------- ---------------------- SPIEGEL CREDIT CARD MASTER NOTE TRUST SERIES 2001-VFN CLASS A VARIABLE FUNDING ASSET BACKED NOTE Spiegel Credit Card Master Note Trust (herein referred to as the "Issuer" or the "Trust"), an Illinois common law trust governed by a Trust Agreement dated as of December 1, 2000, for value received, hereby promises to pay to [_], or registered assigns, subject to the following provisions, the principal sum of [____] DOLLARS ($[______]), or such greater or lesser amount as determined in accordance with the Indenture, on the Scheduled Series 2001-VFN Termination Date, except as otherwise provided below or in the Indenture. The Issuer will pay interest on the unpaid principal amount of this Note at the Note Interest Rate on each Distribution Date until the principal amount of this Note is paid in full. Interest on this Note will accrue for each Distribution Date from and including the most recent Distribution Date on which interest has been paid to but excluding such Distribution Date or, for the initial Distribution Date, from and including the Closing Date to but excluding such Distribution Date. Interest will be computed as provided in the Indenture. Principal of this Note shall be paid in the manner specified on the reverse hereof. The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note. Unless the certificate of authentication hereon has been executed by or on behalf of the Indenture Trustee, by manual signature, this Note shall not be entitled to any benefit under the Indenture or the Indenture Supplement referred to on the reverse hereof, or be valid for any purpose. A-3 IN WITNESS WHEREOF, the Issuer has caused this Class A Series 2001-VFN Asset Backed Note to be duly executed. SPIEGEL CREDIT CARD MASTER NOTE TRUST, as Issuer By: Bankers Trust Company, not in its individual capacity but solely as Owner Trustee under the Trust Agreement By: ------------------------------------------ Name: Title: Dated: A-4 GRID TO CLASS A NOTE NO. -- - -------------------------------------------------------------------------------- Date of Principal Class A Increase Amount of Notation Transaction Amount for this Amount Principal Payment Made By Series before giving effect to the Transaction on such Date - -------------------------------------------------------------------------------- $ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-5 Trustee's Note of Authentication This is one of the Series 2001-VFN Class A Variable Funding Asset Backed Notes referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Indenture Trustee By: ------------------------------ Name ------------------------- Title ------------------------ A-6 EXHIBIT B FORM OF MONTHLY PAYMENT INSTRUCTIONS AND NOTIFICATION TO INDENTURE TRUSTEE SPIEGEL CREDIT CARD MASTER NOTE TRUST SERIES 2001-VFN The undersigned, a duly authorized representative of First Consumers National Bank ("FCNB"), as Servicer pursuant to the Master Indenture, dated as of December 1, 2000 (the "Master Indenture") between the Issuer and The Bank of New ---------------- York, as indenture trustee (the "Indenture Trustee"), as supplemented by the ----------------- Indenture Supplement, dated as of October 17, 2001 (the "Indenture Supplement" -------------------- and together with the Master Indenture, the "Indenture"), does hereby certify as --------- follows: A. Capitalized terms used in this Certificate have their respective meanings set forth in the Indenture, as amended by the Series 2001-VFN Indenture Supplement thereto; provided, that the "preceding Monthly Period" means the monthly Period immediately preceding the calendar month in which this Certificate is delivered. References herein to certain sections and Sections are references to the respective sections and Sections of the Indenture. B. FCNB is the Servicer under the Indenture. C. The undersigned is a Servicing Officer. D. The date of this notice is a Determination Date under the Indenture. B-1 I. INSTRUCTION TO MAKE A WITHDRAWAL Pursuant to Section 4.5, the Servicer does hereby instruct the Indenture ----------- Trustee (i) to make a withdrawal from the Finance Charge Subaccount on , , which date is a Transfer Date under the Indenture, in an - ---------- ---- aggregate amount as set forth below [, including $ to be withdrawn ---------- from the Principal Subaccount pursuant to Section 4.10,] in respect of the --------- -- following amounts and (ii) to apply the proceeds of such withdrawal in accordance with Section 4.5: --------- - A. Pursuant to Section 4.5(a): --------------------- ---- Note Interest for the preceding Accrual Period $ ---------- B. Pursuant to Section 4.5(b): --------------------- ---- Investor Monthly Servicing Fee for the preceding $ ---------- Monthly Period C. Pursuant to Section 4.5(c): --------------------- ---- Investor Default Amount and any Investor Uncovered $ ---------- Dilution Amounts for the preceding Monthly Period (less the aggregate amount of Investor Charge Offs in respect of such Monthly Period) D. Pursuant to Section 4.5(d): --------------------- ---- Aggregate reimbursed Investor Charge Off and Excess $ ---------- Collateral Amount Reallocated Amounts E. Funding Costs for the Preceding Monthly Period $ ---------- F. Pursuant to Section 4.5(f): --------------------- ---- Excess Spread payable to the Excess Collateral $ ---------- Amount Holders II. INSTRUCTION TO MAKE A WITHDRAWAL Pursuant to Section 4.7, the Servicer does hereby instruct the Indenture --------- - Trustee (i) to make a withdrawal from the Principal Collection Subaccount on , , which date is a Transfer Date under the Indenture, and (ii) - ---------- ---- apply such amount in accordance with Section 4.7: --------- - A. Amounts to be distributed to the Conduit Managing $ ---------- Agents in accordance with Section 4.7(b)(A) and Section 5.1(a) B-2 B. Amounts to be distributed to the Noteholders in $ ---------- accordance with Section 4.7(c) and Section 5.1(c) C. Amount to be distributed to the holder of the Seller Interest $ ---------- IN WITNESS WHEREOF, the undersigned has duly executed this Certificate this day of , 200 . - ---- ---------- -- FIRST CONSUMERS NATIONAL BANK, as Servicer By: -------------------------- Title B-3 EXHIBIT C to SERIES 2001-VFN INDENTURE SUPPLEMENT [TO COME] SCHEDULE 1 TO SERIES 2001-VFN INDENTURE SUPPLEMENT PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS (a) In addition to the representations, warranties and covenants contained in the Indenture, the Issuer hereby represents, warrants and covenants to the Indenture Trustee as follows as of October , 2001: -- (1) The Indenture creates a valid and continuing security interest (as defined in the applicable Uniform Commercial Code) in the Collateral Certificate in favor of the Indenture Trustee, which security interest is prior to all other Liens, and is enforceable as such against creditors of and purchasers from Issuer. (2) The Collateral Certificate constitutes an "instrument," a "general intangible" or a "certificated security" within the meaning of the applicable Uniform Commercial Code. (3) Issuer owns and has good and marketable title to the Collateral Certificate free and clear of any Lien, claim or encumbrance of any Person; provided that nothing in this paragraph (a) (3) shall prevent or be deemed to - -------- ----------------- prohibit Issuer from suffering to exist upon any of the Receivables any Liens for any taxes if such taxes shall not at the time be due and payable or if FCNB, Seller or Issuer, as applicable, shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. (4) There are no consents or approvals required by the terms of the Collateral Certificate for the pledge of the Collateral Certificate to the Indenture Trustee pursuant to the Indenture. (5) Issuer (or the Administrator on behalf of the Issuer) has caused the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest granted to the Indenture Trustee under the Indenture in the Collateral Certificate. (6) There is only one executed copy of the Collateral Certificate and such copy has been delivered to the Indenture Trustee. The Collateral Certificate is registered in the name of the Indenture Trustee, upon original issue or registration of transfer by the Issuer. (7) Other than the pledge of the Collateral Certificate to Indenture Trustee pursuant to the Indenture, Issuer has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed the Collateral Certificate. Issuer has not authorized the filing of and is not aware of any financing statements against Issuer that include a description of collateral covering the Collateral Certificate, except for the financing statement filed pursuant to the Indenture. (8) The Issuer is not aware of any judgment, ERISA or tax lien filings against the Issuer. (9) The Collateral Certificate does not have any marks or notations indicating that it has been pledged, assigned or otherwise conveyed to any Person other than the Indenture Trustee. (10) Notwithstanding any other provision of the Indenture, the representations and warranties set forth in this Schedule 1 shall be continuing, ---------- and remain in full force and effect, until such time as the Collateral Certificate is retired. (b) Indenture Trustee covenants that it shall not, without satisfying the Rating Agency Condition, waive a breach of any representation or warranty set forth in this Schedule 1. ---------- (c) The Servicer covenants that, in order to evidence the interests of Issuer and Indenture Trustee under the Indenture, Servicer shall take such action, or execute and deliver such instruments (other than effecting a Filing (as defined below), unless such Filing is effected in accordance with this paragraph (c)) as may be necessary or advisable (including, without limitation, - ------------- such actions as are requested by Indenture Trustee) to maintain and perfect, as a first priority interest, Indenture Trustee's security interest in the Collateral Certificate. Servicer shall, from time to time and within the time limits established by law, prepare and present to Indenture Trustee for Indenture Trustee to authorize (based in reliance on the Opinion of Counsel hereinafter provided for) the Servicer to file, all financing statements, amendments, continuations, initial financing statements in lieu of a continuation statement, terminations, partial terminations, releases or partial releases, or any other filings necessary or advisable to continue, maintain and perfect the Indenture Trustee's security interest in the Collateral Certificate as a first-priority interest (each a "Filing"). Servicer shall present each such ------ Filing to the Indenture Trustee together with (x) an Opinion of Counsel to the effect that such Filing is (i) consistent with grant of the security interest to the Indenture Trustee pursuant to the Granting Clause of the Indenture, (ii) satisfies all requirements and conditions to such Filing in the Indenture and (iii) satisfies the requirements for a Filing of such type under the Uniform Commercial Code in the applicable jurisdiction (or if the Uniform Commercial Code does not apply, the applicable statute governing the perfection of security interests), and (y) a form of authorization for Indenture Trustee's signature. Upon receipt of such Opinion of Counsel and form of authorization, Indenture Trustee shall promptly authorize in writing Servicer to, and Servicer shall, effect such Filing under the Uniform Commercial Code without the signature of Issuer or Indenture Trustee where allowed by applicable law. Notwithstanding anything else in the Indenture to the contrary, the Servicer shall not have any authority to effect a Filing without obtaining written authorization from the Trustee in accordance with this paragraph (c). ------------- EX-10.38 35 dex1038.txt RECEIVABLES PURCHASE AGREEMENT DATED 12/31/2001 Exhibit 10.38 RECEIVABLES PURCHASE AGREEMENT between FIRST CONSUMERS CREDIT CORPORATION, Buyer, and FIRST CONSUMERS NATIONAL BANK, RPA Seller, Dated as of December 31, 2001 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS ................................................................ -1- Section 1.1. Definitions ............................................. -1- Section 1.2. Other Definitional Provisions ........................... -3- ARTICLE II PURCHASE AND CONVEYANCE OF RECEIVABLES ..................................... -3- Section 2.1. Purchase ................................................ -3- Section 2.2. Addition of Additional Accounts ......................... -5- ARTICLE III CONSIDERATION AND PAYMENT .................................................. -6- Section 3.1. Purchase Price .......................................... -6- Section 3.2. Payment of Purchase Price ............................... -6- Section 3.3. Adjustments to Purchase Price ........................... -7- Section 3.4. Settlement .............................................. -7- ARTICLE IV REPRESENTATIONS AND WARRANTIES ............................................. -7- Section 4.1. RPA Seller's Representations and Warranties ............. -7- Section 4.2. RPA Seller's Representations and Warranties Regarding Additional Accounts ...........................-11- Section 4.3. Representations and Warranties of Buyer .................-12- Section 4.4. Other Matters ...........................................-13- ARTICLE V COVENANTS OF RPA SELLER AND BUYER ..........................................-13- Section 5.1. RPA Seller Covenants ....................................-13- Section 5.2. Buyer Covenants Regarding Nondisclosure; Inspection .....-18- ARTICLE VI REPURCHASE OBLIGATION ......................................................-18- Section 6.1. Mandatory Repurchase ....................................-18- Section 6.2. Optional Repurchases ....................................-20- i Section 6.3. Conveyance of Repurchased Receivables ...................-20- Section 6.4. Sole Remedy .............................................-21- Section 6.5. Selection of Removed Accounts ...........................-21- ARTICLE VII CONDITIONS PRECEDENT .......................................................-21- Section 7.1. Conditions to Buyer's Obligations Regarding Initial Receivables .....................................-21- Section 7.2. Conditions to Buyer's Obligations Regarding Supplemental Conveyances ................................-22- Section 7.3. Conditions Precedent to RPA Seller's Obligations ........-23- ARTICLE VIII TERM & TERMINATION .........................................................-23- Section 8.1. Term ....................................................-23- Section 8.2. Effect of Termination ...................................-24- ARTICLE IX MISCELLANEOUS PROVISIONS ...................................................-24- Section 9.1. Amendment ...............................................-24- Section 9.2. Governing Law ...........................................-25- Section 9.3. Notices .................................................-25- Section 9.4. Severability of Provisions ..............................-25- Section 9.5. Assignment ..............................................-25- Section 9.6. Acknowledgment and Agreement of RPA Seller ..............-25- Section 9.7. Further Assurances ......................................-25- Section 9.8. No Waiver; Cumulative Remedies ..........................-26- Section 9.9. Counterparts ............................................-26- Section 9.10. Binding Effect; Third-Party Beneficiaries ...............-26- Section 9.11. Merger and Integration ..................................-26- Section 9.12. Headings ................................................-26- Section 9.13. Schedules and Exhibits ..................................-26- SCHEDULE ONE Accounts SCHEDULE TWO Offices; Location of Records EXHIBIT A Form of Supplemental Conveyance EXHIBIT B Form of Reconveyance EXHIBIT C Form of Settlement Statement EXHIBIT D Additional Representations, Warranties and Covenants EXHIBIT E Form of Opinion of Counsel EXHIBIT F Form of Subordinated Note ii RECEIVABLES PURCHASE AGREEMENT, dated as of December 31, 2001 (the "RPA Closing Date") between FIRST CONSUMERS NATIONAL BANK, a national ---------------- banking association ("RPA Seller"), and FIRST CONSUMERS CREDIT CORPORATION, ---------- a Delaware Corporation ("Buyer") (this "Agreement"). ----- --------- W I T N E S S E T H: - - - - - - - - - - WHEREAS, Buyer desires to purchase from time to time certain Receivables arising under certain MasterCard and VISA accounts of RPA Seller; and WHEREAS, RPA Seller desires to sell from time to time and assign such Receivables to Buyer upon the terms and conditions hereinafter set forth; and WHEREAS, it is contemplated that the Receivables purchased hereunder will be transferred by Buyer to the Receivables Trust in connection with the issuance of certain Securities; WHEREAS, on the FCMT Termination Date, the Receivables Trust will grant to the Receivables Trustee a security interest in the Receivables Trust's rights relating to the Receivables under this Agreement; and WHEREAS, RPA Seller agrees that the covenants and agreements made by RPA Seller herein shall also be for the benefit of the Receivables Trust, the Receivables Trustee and all holders of the Securities; NOW, THEREFORE, it is hereby agreed among the parties hereto as follows: ARTICLE I DEFINITIONS Section 1.1. Definitions. Capitalized terms used herein and not ----------- otherwise defined herein are defined (i) before the FCMT Termination Date (as defined in the Indenture), in the Pooling and Servicing Agreement, dated as of September 30, 1992, amended and restated as of February 1, 1999, and amended and restated a second time as of December 31, 2001, among First Consumers Credit Corporation, FCNB and The Bank of New York (such agreement, as amended from time to time, the "Pooling and Servicing --------------------- Agreement"), and (ii) on and after the FCMT Termination Date, in Annex A to ---------- -------- the Master Indenture, dated as of December 31, 2001, between First Consumers Credit Card Master Note Trust and The Bank of New York (the "Indenture"). --------- Additionally, the following terms have the following definitions: "Existing Assets" means (a)(i) the Seller Interest (as defined in the --------------- Existing Pooling Agreement), (ii) all right, title and interest of RPA Seller in, to and under the Receivables existing prior to the opening of business on the RPA Closing Date and arising in connection with the Accounts, all monies due or to become due with respect thereto (including all Finance Charge Receivables), all Recoveries, Collections and other proceeds thereof and Insurance Proceeds relating thereto, the rights to receive certain amounts paid or payable as Interchange (if and to the extent provided for in any Supplement to the Existing Pooling Agreement), all rights to security for such Receivables (including without limitation rights to bank accounts or certificates of deposit pledged as collateral), the right to any Enhancement with respect to any Series existing prior to the opening of business on the RPA Closing Date and all proceeds and products of all of the foregoing, including any rights retained in the Receivables transferred to the Trust under the Existing Pooling Agreement and any rights under the equitable right of redemption (if any of the foregoing terms under this clause (a)(ii) is defined in the Existing -------------- Pooling Agreement, they have the meanings given them therein for the purpose of this clause (a)(ii)), (iii) to the extent not included under -------------- clause (a)(ii), all right, title and interest of RPA Seller (in its -------------- capacity as Seller (as defined in the Existing Pooling Agreement) but not as Servicer (as defined in the Existing Pooling Agreement)) under the Existing Pooling Agreement (including any Supplements executed in connection with any Series of Investor Certificates), including rights to any funds on deposit in any Series Account (as defined in the Existing Pooling Agreement) maintained for the benefit of any Series or Class of Investor Certificates, and (b)(i) the Seller Interest (as defined in the Indenture) (ii) to the extent not included under clause (a)(ii), all right, -------------- title and interest of RPA Seller (in its capacity as Seller (as defined in the Indenture) but not as Servicer (as defined in the Indenture)) under the Indenture (including any Indenture Supplements executed in connection with any Series of Notes) and the other Transaction Documents (as defined in the Indenture), including rights to any funds on deposit in any Series Account (as defined in the Indenture) maintained for the benefit of any Series or Class of Notes. "Existing Pooling Agreement" means the Pooling and Servicing Agreement -------------------------- prior to its amendment and restatement on the RPA Closing Date. "Receivables Trust" means (a) prior to the FCMT Termination Date, ----------------- First Consumers Master Trust and (b) on and after the FCMT Termination Date, the Issuer. "Receivables Trustee" means (i) prior to the FCMT termination date, ------------------- the Trustee, and (ii) after the FCMT termination date, the Indenture Trustee. "Scheduled Trust Termination Date" means December 31, 2050. --------------------------------- -2- "Securities" means all Series of Investor Certificates of any Series ---------- (as defined in the Pooling and Servicing Agreement) and all Series of Notes issued by the Issuer pursuant to the Indenture and the applicable Indenture Supplements (as defined in the Indenture). "Securityholder" or "Holder" means the Person in whose name a -------------- ------ Certificate is registered on the Certificate Register or such other Person deemed to be a "Certificateholder" or "Holder" in the related Series Supplement (all as defined in the Pooling and Servicing Agreement), and the Person in whose name a Note is registered on the Note Register and, if applicable, the holder of any Global Note, or Coupon, as the case may be, or such other Person deemed to be a "Noteholder" or "Holder" in any related Indenture Supplement (all as defined in the Indenture). "Servicing Agreement" means (i) before the FCMT Termination Date, the ------------------- Pooling and Servicing Agreement, and (ii) on and after the FCMT Termination Date, the Transfer and Servicing Agreement. Section 1.2. Other Definitional Provisions. All terms defined directly ----------------------------- or by reference in this Agreement shall have the defined meanings when used in any certificate or other document delivered pursuant hereto unless otherwise defined therein. For purposes of this Agreement and all such certificates and other documents, unless the context otherwise requires: (a) accounting terms not otherwise defined in this Agreement, and accounting terms partly defined in this Agreement to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles; (b) terms defined in Article 9 of the UCC and not otherwise defined in this Agreement are used as defined in that Article as in effect in the applicable jurisdiction; (c) any reference to each Rating Agency shall only apply to any specific rating agency if such rating agency is then rating any outstanding Series; (d) references to any amount as on deposit or outstanding on any particular date means such amount at the close of business on such day; (e) the words "hereof," "herein" and "hereunder" and words of similar import refer to this Agreement (or the certificate or other document in which they are used) as a whole and not to any particular provision of this Agreement (or such certificate or document); (f) references to any Section, Schedule or Exhibit are references to Sections, Schedules and Exhibits in or to this Agreement (or the certificate or other document in which the reference is made), and references to any paragraph, Section, clause or other subdivision within any Section or definition refer to such paragraph, subsection, clause or other subdivision of such Section or definition; (g) the term "including" means "including without limitation"; (h) references to any law or regulation refer to that law or regulation as amended from time to time and include any successor law or regulation; (i) references to any Person include that Person's successors and assigns; and (j) headings are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. -3- ARTICLE II PURCHASE AND CONVEYANCE OF RECEIVABLES Section 2.1. Purchase. (a) RPA Seller agrees to contribute, and does -------- hereby contribute to Buyer, and Buyer agrees to accept, and does hereby accept, from RPA Seller on the RPA Closing Date, all of the Existing Assets. The contribution and sales of the Existing Assets from RPA Seller to Buyer are subject in each case to any rights in the Existing Assets transferred, assigned, set over or otherwise conveyed to the FCMT Trustee pursuant to the Existing Pooling Agreement. It is understood and agreed that the obligations of RPA Seller specified herein with respect to the Receivables, including its repurchase obligations under Article VI of this Agreement, shall apply to all Receivables, whether originated before, on or after the RPA Closing Date. RPA Seller and Buyer hereby agree that each existing Receivable sold by RPA Seller to First Consumers Master Trust pursuant to the Existing Pooling Agreement before the RPA Closing Date shall be deemed for all purposes (including the representations and warranties in the second sentence of Section 4.1(l) and RPA Seller's -------------- repurchase obligations under Section 6.1) to have been sold by RPA Seller ------------ to Buyer on the date on which it was so sold to First Consumers Master Trust. RPA Seller acknowledges that all instruments (including certificates of deposit) and bank accounts the security interest in which has been transferred to Buyer hereby and which are maintained with RPA Seller or of which RPA Seller has possession, shall be so maintained and held by RPA Seller on behalf and for the benefit of Buyer, in accordance with the terms of this Agreement. Additionally, for purposes of perfecting Buyer's security interest in bank accounts pledged to RPA Seller, which security interest RPA Seller has transferred to Buyer hereunder, this Agreement constitutes and shall be deemed (i) notice to RPA Seller by Buyer of Buyer's security interest in such bank accounts, and (ii) RPA Seller's acknowledgment of and consent to Buyer's notice and Buyer's security interest in such bank accounts. (b) Subject to and upon the terms and conditions hereinafter set forth, RPA Seller (i) hereby sells, transfers, conveys, and assigns to Buyer, without recourse, all of RPA Seller's right, title, and interest in, to, and under the Receivables existing at the opening of business on the RPA Closing Date (excluding Receivables in respect of Defaulted Accounts), and thereafter created in respect of each Account listed on Schedule One ------------- identified by account number and by Receivable balance as of the RPA Closing Date and each Account automatically designated pursuant to Section -------- 2.2(c), together with all monies due or to become due with respect thereto ------ (including all Finance Charge Receivables), all Collections, Recoveries thereof and Insurance Proceeds relating thereto, the rights to receive amounts paid or payable as -4- Interchange with respect to such Accounts, all rights to security for such Receivables (including rights to bank accounts or certificates of deposit pledged as collateral) and proceeds of all the foregoing (the "Transferred ----------- Assets"), and (ii) subject to the provisions of Section 2.2, on each ------ ----------- Addition Date RPA Seller shall sell, transfer, convey and assign to Buyer, without recourse, all of RPA Seller's rights, titles, and interests in, to, and under the Receivables then existing or thereafter created in respect of each Additional Account designated in a Supplemental Conveyance (excluding those referred to in clause (i) above) effective on the Addition Date ---------- therefore, together with all monies due or to become due with respect thereto (including all Finance Charge Receivables), all Collections, Recoveries thereof and Insurance Proceeds relating thereto, the rights to receive amounts paid or payable as Interchange with respect to such Additional Accounts, all rights to security for such Receivables (including rights to bank accounts or certificates of deposit pledged as collateral) and proceeds of all of the foregoing (all of which, upon any such conveyance, shall be included in the Transferred Assets). (c) In connection with such sale and conveyance, RPA Seller shall, at its own expense, on or prior to the RPA Closing Date (i) indicate or cause to be indicated in its computer files relating to the Receivables that Receivables created in connection with the Accounts have been sold to Buyer in accordance with this Agreement and transferred to the Receivables Trust pursuant to the Servicing Agreement for the benefit of the Securityholders and (ii) deliver or cause to be delivered to Buyer (or to the Receivables Trustee, if Buyer so directs) a computer file or microfiche list containing a true and complete list of all such Accounts, identified by account number and by the Receivables balance as of the RPA Closing Date. (d) In connection with such sale and conveyance, including such sale and conveyance made pursuant to Section 2.1(a), RPA Seller agrees (i) to -------------- record and file, at its own expense, any financing statement for the purchase of accounts with respect to the Existing Assets and the Transferred Assets, including the Receivables now existing and hereafter created in respect of each Account (including Receivables in Additional Accounts), meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the sale of the Existing Assets and the Transferred Assets from RPA Seller to Buyer, and (ii) to deliver a file-stamped copy of such financing statements or other evidence of such filings (which may, for purposes of this Section 2.1, ----------- consist of telephone confirmations of such filings) to Buyer (or to the Receivables Trustee, if Buyer so directs) on or prior to the RPA Closing Date. Section 2.2. Addition of Additional Accounts. (a) If from time to ------------------------------- time, Buyer becomes obligated to designate Additional Accounts pursuant to Section 2.6(a) of the Servicing Agreement (or any other provision thereof --------------- calling for compliance with the procedures set forth in such Section ------- 2.6(a)), then Buyer shall give RPA Seller written notice thereof on or ------- before the Notice Date prior to the -5- Addition Date therefor and RPA Seller shall on or before the Addition Date designate sufficient Eligible Accounts to be included as Additional Accounts so that after the inclusion thereof Buyer will be in compliance with the requirements of said Section 2.6(a). Additionally, subject to the ------------- limitations, if any, on Buyer's ability to add Additional Accounts under Section 2.6(b) of the Servicing Agreement, from time to time Eligible ------------- Accounts may be designated to be included as Additional Accounts, upon the mutual agreement of Buyer and RPA Seller. In either event, RPA Seller shall have responsibility for selecting the Additional Accounts and shall on or prior to the Addition Date therefore execute and deliver a Supplemental Conveyance identifying the Additional Accounts by account number and Receivables balance and Principal Receivables balance as of the Addition Date, which Supplemental Conveyance shall be effective upon receipt by Buyer. (b) On or before each Addition Date with respect to Additional Accounts added pursuant to Section 2.2(a), RPA Seller (i) shall indicate or ------------- cause to be indicated in its books and records and in the computer files of the Receivables that the Receivables created in connection with such Additional Accounts have been sold to Buyer in accordance with this Agreement and transferred by Buyer to the Receivables Trust pursuant to the Servicing Agreement, (ii) shall deliver to Buyer, the Receivables Trustee and each Rating Agency an opinion of counsel as to the matters specified in Exhibit E, and which shall be reasonably acceptable to the Rating Agencies, --------- and (iii) shall deliver or cause to be delivered to Buyer a computer file or microfiche list containing a true and complete list of all Additional Accounts designated in the respective Supplemental Conveyance or, if Buyer shall so direct, such computer file or microfiche list shall be delivered to the Receivables Trustee pursuant to the Servicing Agreement. RPA Seller's failure to deliver or cause to be delivered the list prior to termination shall not be deemed to render such transfer executory or uncompleted. (c) At any time that Receivables in an Eligible Account are required to be transferred to the Receivables Trust pursuant to Section 2.6(e) of -------------- the Servicing Agreement, such Eligible Account shall, until notice from RPA Seller or Buyer to the other party hereto to the contrary, automatically be designated to be included as an Account (and the Transferred Assets arising therein are hereby conveyed) effective as of the date specified in Section ------- 2.6(e) of the Servicing Agreement. ------ (d) On or before five Business Days after the first day of the Monthly Period next succeeding the calendar month in which Accounts were included pursuant to Section 2.2(c), RPA Seller (i) shall indicate or cause to be -------------- indicated in its books and records and in the computer files of the Receivables that the Receivables created in connection with such included Accounts have been sold to Buyer in accordance with this Agreement and transferred by Buyer to the Receivables Trust pursuant to the Servicing Agreement and (ii) shall deliver or cause to be delivered to Buyer a computer file or microfiche list containing a true and -6- complete list of all such included Accounts identified by account number and by the Receivables balance and Principal Receivables balance as of the end of such calendar month, or, if Buyer shall so direct, such computer file or microfiche list shall be delivered to the Receivables Trustee pursuant to the Servicing Agreement. ARTICLE III CONSIDERATION AND PAYMENT Section 3.1. Purchase Price. Except as provided in Section 3.2, the -------------- ----------- Purchase Price for all Transferred Assets conveyed to the Buyer under this Agreement shall be a dollar amount equal to the total recorded unpaid balance of the Receivables (including Principal Receivables and Finance Charge Receivables) on the date conveyed to Buyer hereunder. Section 3.2. Payment of Purchase Price. The Purchase Price for the ------------------------- Transferred Assets shall be paid or provided for on the RPA Closing Date, each Addition Date and each Settlement Date, as the case may be, in either of the following ways (or any combination thereof) as Buyer and RPA Seller may mutually agree from time to time: (i) by payment in cash in immediately available funds to the extent that Buyer has funds available for this purpose; (ii) by a borrowing by Buyer from RPA Seller evidenced by a Subordinated Note (as defined in the Indenture) or with the proceeds of a borrowing by Buyer from Spiegel, Inc. evidenced by a Subordinated Note; or (iii) by the sale, transfer, and assignment from Buyer to RPA Seller of an undivided participation in the Seller Interest, entitling RPA Seller to receive a portion of all payments made to the holder of the Seller Interest in the proportion that the principal amount of the purchased Transferred Assets not paid for in cash as provided in clause (i) above or by a note as --------- provided in clause (ii) above bears to the Principal Receivables evidenced ---------- by the Seller Interest. In the absence of any agreement to the contrary, any portion of the Purchase Price not paid in cash or through a borrowing under a Subordinated Note on the RPA Closing Date, any Addition Date or Settlement Date shall automatically be deemed the purchase of a participation in the Seller Interest in accordance with the terms of this Section 3.2 in an amount equal to the unpaid portion of the Purchase Price ----------- payable on such date, which participation interest shall be evidenced by the Settlement Statement as provided in Section 3.4. ----------- Section 3.3. Adjustments to Purchase Price. The Purchase Price payable ----------------------------- to RPA Seller shall be adjusted on a monthly basis to reflect any Credit Adjustments during the prior month, except to the extent that RPA Seller has made a payment to Buyer with respect to any such Credit Adjustment pursuant to Section 5.1(o). ------------- Section 3.4. Settlement. On each Determination Date under the ---------- Servicing Agreement (herein, a "Settlement Date"), RPA Seller shall deliver --------------- or cause to be -7- delivered to Buyer a Settlement Statement in substantially the form of Exhibit C, showing the aggregate amount of Receivables conveyed by RPA --------- Seller from the previous Settlement Date (or from the RPA Closing Date in the case of the first Settlement Date) to such date, the amount of all payments of the Purchase Price received by RPA Seller prior to such Settlement Date in respect of such Receivables, any adjustment on account of Credit Adjustments to be made pursuant to Section 3.3, and the ----------- settlements of the remaining Purchase Price for such Receivables to be made as of such Settlement Date between Buyer and RPA Seller in accordance with Section 3.2. ----------- ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1. RPA Seller's Representations and Warranties. RPA Seller ------------------------------------------- hereby represents and warrants to, and agrees with, Buyer as of the RPA Closing Date and the Closing Date for any Series of Securities (other than the representations and warranties in the first sentence of Section 4.1(l) ------------- and the representations and warranties in Sections 4.1(r) and 4.1(s) which -------------- ----- are made as of each day the corresponding representations of the Pooling and Servicing Agreement or the Transfer and Servicing Agreement, as the case may be, are made or deemed made) that: (a) Organization, Good Standing, and Qualification. RPA Seller is a ---------------------------------------------- national banking association duly organized and validly existing and in good standing under the laws of the United States of America, and has full corporate power, authority, and right to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement. RPA Seller is duly qualified to do business and is in good standing in each State of the United States where the nature of its business requires it to be so qualified. (b) Due Authorization. The execution and delivery of this Agreement, ----------------- any Supplemental Conveyance, the Servicing Agreement, or any other document or instrument delivered pursuant hereto or thereto (the "Conveyance ---------- Papers"), to the extent that RPA Seller is party thereto, and the ------ consummation of the transactions provided for in this Agreement or any such other Conveyance Paper, have been duly authorized by all necessary corporate action on the part of RPA Seller. This Agreement from the time of its execution shall remain an official record of the RPA Seller. (c) No Conflict. The execution and delivery of the Conveyance Papers, ----------- the performance of the transactions contemplated by the Conveyance Papers, and the fulfillment of the terms of the Conveyance Papers will not conflict with, result in any -8- breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which RPA Seller is a party or by which it or any of its properties are bound. (d) No Violation. The execution and delivery of the Conveyance Papers, ------------ the performance of the transactions contemplated by the Conveyance Papers, and the fulfillment of the terms of the Conveyance Papers will not conflict with or violate any Requirements of Law applicable to RPA Seller. (e) No Proceedings. RPA Seller hereby represents and warrants that -------------- there are no proceedings or investigations pending or, to the best knowledge of RPA Seller, threatened against RPA Seller or Buyer, before any Governmental Authority (i) asserting the invalidity of the Conveyance Papers, (ii) seeking to prevent the consummation of any of the transactions contemplated by the Conveyance Papers, (iii) seeking any determination or ruling that, in the reasonable judgment of RPA Seller, would materially and adversely affect the performance by RPA Seller or Buyer of its obligations under the Conveyance Papers, (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of the Conveyance Papers, or (v) seeking to impose income taxes on the Receivables Trust (other than as a wholly-owned subsidiary of the Buyer). RPA Seller has disclosed all material information regarding the case of Brenda M. Sims and Charles Hogencamp v. First Consumers National Bank and Spiegel, Inc. to Buyer and Buyer retains all of its rights under this Agreement with respect to such litigation. (f) All Consents Required. All approvals, licenses, authorizations, --------------------- consents, orders, or other actions of any Person or of any Governmental Authority required in connection with the execution and delivery of the Conveyance Papers by RPA Seller, the performance by RPA Seller of the transactions contemplated by the Conveyance Papers, and the fulfillment by RPA Seller of the terms of the Conveyance Papers, have been obtained. (g) Identification of Accounts and Receivables. As of the RPA Closing ------------------------------------------ Date, RPA Seller has (i) indicated or caused to be indicated in its books and records and in the computer files of the Receivables that Receivables created in respect of the Accounts have been sold to Buyer in accordance with this Agreement and transferred to the Receivables Trust pursuant to the Servicing Agreement for the benefit of Securityholders and (ii) has delivered or caused to be delivered to Buyer (or to the Receivables Trustee, if so directed by Buyer) a computer file or microfiche list containing a true and complete list of all such Accounts, identified by account number and by the Receivable balance as of the RPA Closing Date. -9- (h) Existing Financing Statements. There is no financing statement or ----------------------------- similar statement or instrument of registration naming RPA Seller as "debtor", "transferor" or similar party (other than those, if any, which have been released or terminated or the scope of which has otherwise been effectively limited) under the law of any jurisdiction now on file or registered in any public office covering any interest of any kind in the Accounts or Receivables, or intended so to be, and RPA Seller will not execute or authorize there to be on file in any public office any financing statement or similar statement or instrument of registration under the laws of any jurisdiction relating to the Accounts or Receivables, except any financing statements or assignments to be filed in respect of and covering any security or other interest of Buyer or the Receivables Trustee pursuant to this Agreement or the Servicing Agreement. (i) Filings. All filings and recordings required to perfect the title ------- of Buyer to the Receivables purchased hereunder have been or will have been accomplished prior to the RPA Closing Date and each Addition Date and are in full force and effect, and RPA Seller shall at its expense perform all acts and execute all documents reasonably requested by Buyer at any time to evidence, perfect, maintain, and enforce the title of Buyer in such Receivables and the transfer thereof to the Receivables Trust. RPA Seller will, at the reasonable request of Borrower, execute and file additional financing statements reasonably satisfactory in form and substance to Buyer. (j) Binding Obligations. The Conveyance Papers to which RPA Seller is ------------------- party constitute legal, valid and binding obligations of RPA Seller, enforceable against RPA Seller in accordance with their terms, except as such enforceability may be limited by Debtor Relief Laws and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). (k) Valid Conveyance. The representations and warranties set out in ---------------- Exhibit D are true and correct. Without limiting the generality of the --------- foregoing, as of the RPA Closing Date, the Conveyance Papers then in existence constitute a valid sale, assignment, and conveyance to Buyer of all right, title and interest of such seller in, to, and under the Transferred Assets, and such property will be owned free and clear of any Lien of any Person claiming through or under RPA Seller and its Affiliates, except for Liens permitted under Section 5.1(d). ------------- (l) Eligibility of Receivables. RPA Seller hereby represents and -------------------------- warrants as of each date the representations are made or deemed made in Section 2.4(b) of the Pooling and Servicing Agreement and Section 2.4(b) of ------------- ------------- the Transfer and Servicing Agreement (other than the first sentences thereof) that such representations are true and correct. RPA Seller hereby represents and warrants as of the RPA Closing Date that (i) as of the RPA Closing Date, Schedule One to this Agreement and the computer file or ------------ microfiche list delivered pursuant to Section 2.1(c) is an accurate ------------- -10- and complete listing in all material respects of all the Accounts as of the RPA Closing Date and the information contained therein with respect to the identity of such Accounts and the Receivables existing thereunder is true and correct in all material respects as of the RPA Closing Date, (ii) each Receivable then existing is an Eligible Receivable, (iii) each Receivable then existing has been conveyed to Buyer free and clear of any Lien of any Person and in compliance, in all material respects, with all Requirements of Law applicable to RPA Seller and (iv) with respect to each Receivable then existing, all consents, licenses, approvals, or authorizations of or registrations or declarations with any Governmental Approval required to be obtained, effected or given by RPA Seller in connection with the transfer of such Receivable to Buyer have been duly obtained, effected, or given and are in full force and effect. On each day on which any new Receivable is conveyed by RPA Seller to Buyer hereunder, RPA Seller shall be deemed to represent and warrant to Buyer that (i) each Receivable conveyed on such day is an Eligible Receivable, (ii) each Receivable conveyed on such day has been conveyed to Buyer free and clear of any Lien of any Person and in compliance, in all material respects, with all Requirements of Law applicable to RPA Seller, (iii) with respect to each such Receivable, all consents, licenses, approvals or authorizations of or registrations or declarations with, any Governmental Authority required to be obtained, effected, or given by RPA Seller in connection with the conveyance of such Receivable to the Receivables Trust have been duly obtained, effected or given and are in full force and effect, and (iv) the representations and warranties set forth in Sections 4.1(j) and (k) are true and correct with --------------- --- respect to each Receivable transferred on such day as if made on such day. (m) Eligible Accounts. As of the RPA Closing Date, each Account (other ----------------- than Additional Accounts) is an Eligible Account. (n) Selection Procedures. No selection procedures reasonably believed -------------------- by RPA Seller to be materially adverse to the interests of Buyer or its successors and assigns were utilized by RPA Seller in selecting the Accounts. (o) FDIC Insurance. RPA Seller's deposits are insured by the Federal -------------- Deposit Insurance Corporation ("FDIC"). ---- (p) Bulk Sales. The execution, delivery and performance of this ---------- Agreement do not require compliance with any "bulk sales" law by RPA Seller. (q) Solvency. The transactions under this Agreement do not and will -------- not render RPA Seller insolvent, nor have such transactions been entered into in contemplation of RPA Seller's insolvency. -11- (r) Pooling and Servicing Agreement. The representations made in -------------------------------- Section 2.4(a) under the Pooling and Servicing Agreement (other than the -------------- first sentence thereof) are true and correct on the dates made. (s) Transfer and Servicing Agreement. The representations made in -------------------------------- Section 2.4(a) under the Transfer and Servicing Agreement (other than the -------------- first sentence thereof) are true and correct on the dates made. Section 4.2. RPA Seller's Representations and Warranties Regarding ----------------------------------------------------- Additional Accounts. RPA Seller hereby represents and warrants, and agrees ------------------- with Buyer, as of each Addition Date, that: (a) Reconfirmation of Representations and Warranties. All ------------------------------------------------ representations and warranties made by RPA Seller pursuant to Section 4.1 ----------- remain true and correct in all respects as of such Addition Date as if made on such date. (b) Identification of Accounts and Receivables. RPA Seller has, as of ------------------------------------------ the Addition Date with respect to Additional Accounts added pursuant Section 2.2(a), and will have, as of the fifth Business Day after the first -------------- day of the calendar month occurring after any Addition Date occurring under Section 2.2(c), (i) indicated or caused to be indicated in its books and -------------- records and in the computer files of the Receivables that Receivables created in respect of the Additional Accounts have been sold to Buyer in accordance with this Agreement and transferred to the Receivables Trust pursuant to the Servicing Agreement for the benefit of the Securityholders and (ii) delivered or caused to be delivered to Buyer (or to the Receivables Trustee, if so directed by Buyer) a computer file or microfiche list containing a true and correct list of all such Additional Accounts, identified by account number, and the aggregate amount of the Receivables and the aggregate amount of Principal Receivables in such Additional Accounts, as of the Addition Date for Additional Accounts added pursuant to Section 2.2(a) and as of such fifth Business Day of a calendar month with -------------- respect to Additional Accounts added pursuant to Section 2.2(b) and any -------------- such computer file or microfiche list is or will be an accurate and complete listing in all material respects of all the Additional Accounts as of the Addition Date or as of such fifth Business Day and the information contained therein with respect to the identity of such Additional Accounts and the Receivables existing thereunder is true and correct in all material respects as of such date. (c) Eligibility of Accounts. Each Additional Account is, as of the ----------------------- Addition Date, an Eligible Account. (d) Selection Procedures. The Additional Accounts were assigned -------------------- randomly to Cycles by RPA Seller. No selection procedures reasonably believed by RPA Seller to be materially adverse to the interests of Buyer or its successors and -12- assigns were utilized by RPA Seller in selecting the Additional Accounts from available Eligible Accounts. (e) Insolvency. RPA Seller is not insolvent as of the Addition Date ---------- and will not be rendered insolvent by adding any such Additional Account to any Cycle. (f) Bankruptcy Proceeding. RPA Seller has not filed a voluntary ---------------------- proceeding under the Debtor Relief Laws and has no knowledge of the filing of any involuntary proceeding against it under such laws. (g) Valid Conveyance. The representations and warranties set out in ---------------- Exhibit D are true and correct. Without limiting the generality of the --------- foregoing, as of each Addition Date, a valid sale, assignment and conveyance to Buyer of all right, title, and interest of RPA Seller in, to, and under the Transferred Assets, has been consummated and such property will be held free and clear of any Lien of any Person claiming through or under RPA Seller and its Affiliates, except for Liens permitted under Section 5.1(d). -------------- Section 4.3. Representations and Warranties of Buyer. As of the RPA --------------------------------------- Closing Date, and each Addition Date, Buyer hereby represents and warrants to, and agrees with, RPA Seller that: (a) Organization and Good Standing. Buyer is a corporation duly ------------------------------ organized and validly existing in good standing under the laws of the State of Delaware and has full corporate power, authority, and right to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver, and perform its obligations under the Conveyance Papers. (b) Due Qualification. Buyer is neither required to qualify, nor to ----------------- register, as a foreign corporation in any state in order to conduct its business, and has obtained all necessary licenses and approvals with respect to Buyer required under federal and Delaware law. (c) Due Authorization. The execution and delivery of the Conveyance ----------------- Papers and the consummation of the transactions provided for in the Conveyance Papers have been duly authorized by Buyer by all necessary corporate action on the part of Buyer. (d) No Conflict. The execution and delivery of the Conveyance Papers, ----------- the performance of the transactions contemplated by the Conveyance Papers and the fulfillment of the terms of the Conveyance Papers will not conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a material default under, any indenture, contract, -13- agreement, mortgage, deed of trust, or other instrument to which Buyer is a party or by which it or any of its properties are bound. (e) No Violation. The execution and delivery of the Conveyance Papers, ------------ the performance of the transactions contemplated by the Conveyance Papers, and the fulfillment of the terms of the Conveyance Papers will not conflict with or violate any Requirements of Law applicable to Buyer. (f) No Proceedings. There are no proceedings or investigations pending -------------- or, to the best knowledge of Buyer, threatened against Buyer, before any Governmental Authority (i) asserting the invalidity of the Conveyance Papers, (ii) seeking to prevent the consummation of any of the transactions contemplated by the Conveyance Papers, (iii) seeking any determination or ruling that, in the reasonable judgment of Buyer, would materially and adversely affect the Papers, or (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of the Conveyance Papers. (g) All Consents Required. All approvals, authorizations, licenses, --------------------- consents, orders, or other actions of any Person or of any Governmental Authority required in connection with the execution and delivery of the Conveyance Papers, the performance of the transactions contemplated by the Conveyance Papers, and the fulfillment of the terms of the Conveyance Papers have been obtained. Section 4.4. Other Matters. ------------- (a) The representations and warranties set forth in this Article IV ---------- shall survive the conveyance of the Transferred Assets to Buyer, and termination of the rights and obligations of the Buyer and RPA Seller under this Agreement. Upon discovery by Buyer or RPA Seller of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the others. (b) In no event shall Buyer be liable to RPA Seller on account of breach of any representation or warranty of Buyer set forth herein. ARTICLE V COVENANTS OF RPA SELLER AND BUYER Section 5.1. RPA Seller Covenants. RPA Seller hereby covenants and -------------------- agrees with Buyer as follows: (a) Cardholder Agreements and Cardholder Guidelines. RPA Seller shall ----------------------------------------------- comply with and perform its obligations under the Cardholder Agreements relating -14- to the Accounts and the Cardholder Guidelines, except insofar as any failure to so comply or conform would not materially and adversely affect the rights of the Receivables Trust, the Receivables Trustee and Securityholders under the Transaction Documents. In that regard, except as aforesaid, and so long as such changes are made applicable to the comparable segments of those MasterCard and VISA accounts owned and serviced by RPA Seller which have characteristics the same as, or substantially similar to, the Accounts pursuant to which the Receivables were created (if any), RPA Seller shall be free to change the terms and provisions of such Cardholder Agreements or the Cardholder Guidelines in any respect (including the calculation of the amount, the timing, of charge-offs). RPA Seller shall provide to each Rating Agency written notice of any such change that (1) lowers the periodic finance charge rate used to calculate Finance Charges on any Account or changes the minimum monthly payment applicable to any Account; (2) changes any periodic finance charge rate used to calculate Finance Charges on any Account from a floating rate to a fixed rate or from a fixed rate to a floating rate; (3) reduces any Cardholder Fees, Cash Advance Fees or other fees applicable to any Account or (4) changes the calculation of the amount, or the timing, of charge offs. (b) Finance Charges and Other Fees. Except (i) as otherwise required ------------------------------ by any Requirements of Law or (ii) as is consistent with the provisions of the Servicing Agreement and all Supplements thereto and as is deemed by RPA Seller to be advisable for its MasterCard and VISA program based on a good faith assessment by RPA Seller of the various factors impacting the use of its MasterCard and VISA cards, RPA Seller shall not reduce at any time (x) the Finance Charges assessed in respect of any Accounts or (y) any other fees charged on any of the Accounts, if as a result of any such reduction, RPA Seller's reasonable expectation of the Portfolio Yield in respect of any Series as of such date would be less than the current Base Rate applicable to such Series. (c) Receivables Not to be Evidenced by Promissory Securities. RPA -------------------------------------------------------- Seller will take no action to cause any Receivable to be evidenced by any instrument. (d) Security Interests. Except for the conveyances hereunder, (i) RPA ------------------ Seller will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Receivable, whether now existing or hereafter created, or any interest therein; (ii) RPA Seller will immediately notify Buyer and the Receivables Trustee of the existence of any Lien on any Receivable; and (iii) RPA Seller shall defend the right, title, and interest of Buyer and its successors and assigns in, to, and under the Receivables, whether now existing or hereafter created, against all claims of third parties claiming through or under RPA Seller; provided, however, that nothing in this Section 5.1(d) shall prevent or be -------- ------- -------------- deemed to prohibit RPA Seller from suffering to exist upon any of the Accounts or Receivables any Liens for state, municipal or other local taxes if such taxes shall not at the time be due and payable or if RPA Seller shall concurrently be contesting the -15- validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. (e) Chief Executive Office; State of Organization. RPA Seller's chief --------------------------------------------- executive office and state of organization are identified on Schedule Two. ------------ RPA Seller will not relocate its chief executive office or state of organization, unless RPA Seller shall have given to Buyer not less than 15 days' written notice of its intention to do so, clearly describing the new location or state of organization. If as a result of such relocation, the applicable provisions of the UCC or any other applicable law require the filing of any amendment to any previously-filed financing or continuation statement or the filing of a new financing statement, RPA Seller shall file such financing statement or amendment as may be necessary with respect to the transfer of accounts. Additionally, RPA Seller shall clearly and unambiguously identify or cause to be identified each Account (including any Additional Account designated pursuant to Section 2.2) in its computer ----------- records relating to the Receivables, to reflect that the Receivables arising in such Account have been sold to Buyer and transferred by Buyer to the Receivables Trust pursuant to the Servicing Agreement. RPA Seller shall, prior to the sale or transfer to a third party of any receivable owned by RPA Seller or held in its custody, examine its books and records, including any computer records, to determine that such receivable is not a Receivable. (f) Change of Name or Corporate Structure. Within 30 days after RPA ------------------------------------- Seller makes any change in its name, identity, or corporate structure which would make any financing statement or continuation statement filed in accordance with Section 2.1 above seriously misleading within the meaning ----------- of Section 9-508 of the UCC as in effect in the state where such financing statement or continuation statement was filed, RPA Seller shall file such financing statements or amendments as may be necessary to perfect or maintain the perfection of the transfer of the Receivables. (g) Further Assurances. RPA Seller will make, execute or endorse, ------------------ acknowledge, and file or deliver to Buyer from time to time such schedules, confirmatory assignments, conveyances, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Receivables and other rights covered by this Agreement, as Buyer may request and reasonably require. (h) Indemnification. RPA Seller agrees to indemnify, defend and hold --------------- Buyer harmless from and against any and all loss, liability, damage, judgment, claim, deficiency, or expense (including interest, penalties, reasonable attorneys' fees and amounts paid in settlement) to which Buyer may become subject insofar as such loss, liability, damage, judgment, claim, deficiency, or expense arises out of or is based upon (i) a breach by RPA Seller of its warranties and covenants contained in Section 4.1 ----------- (provided, however, with respect to the representations and warranties -------- ------- -16- contained in Sections 4.1(1) and (m) above the indemnification provided for --------------- --- herein shall apply only to a breach involving a material amount of Accounts or Receivables) or (ii) the representations of RPA Seller contained in Section 4.2, or any information certified in any Schedule delivered by RPA ----------- Seller hereunder, being untrue in any material respect at any time. The obligations of RPA Seller under this Section 5.1(h) shall be considered to -------------- have been relied upon by Buyer and shall survive the execution, delivery, and performance of this Agreement regardless of any investigation made by Buyer or on its behalf. (i) Municipal and Local Taxes. Servicer shall be responsible for ------------------------- collecting all state, local, and municipal taxes associated with the Accounts and Receivables and for remitting the same to the appropriate Governmental Authority, together with all tax returns, reports, or affidavits required by such Governmental Authority in connection therewith. (j) Conveyance of Accounts. RPA Seller shall not convey, assign, ---------------------- exchange, or otherwise transfer the Accounts to any Person prior to termination of this Agreement, and the Servicing Agreement. (k) Non-Petition. RPA Seller hereby covenants and agrees that prior to ------------ the date which is one year and one day after the Scheduled Trust Termination Date, it will not institute against, or join any other person in instituting against, Buyer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under any federal or state bankruptcy or similar law. (l) Merger; Consolidation. RPA Seller shall not consolidate with or --------------------- merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (i) the Person formed by such consolidation or into which RPA Seller is merged or the Person which acquires by conveyance or transfer the properties and assets of RPA Seller substantially as an entirety shall be, if RPA Seller is not the surviving entity, organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall be a national banking association, federal savings association, state banking corporation or state savings association which is not subject to the bankruptcy laws of the United States of America and shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Buyer, in form satisfactory to the Buyer, the performance of every covenant and obligation of RPA Seller, as applicable hereunder, and shall benefit from all the rights granted to RPA Seller, as applicable hereunder. To the extent that any right, covenant or obligation of RPA Seller, as applicable hereunder, is inapplicable to the successor entity, such successor entity shall be subject to -17- such covenant or obligation, or benefit from such right, as would apply to the extent practicable, to such successor entity; (ii) RPA Seller shall have delivered to the Buyer an Officer's Certificate and an Opinion of Counsel, each, in form and substance reasonably acceptable to the Buyer, stating that such consolidation, merger, conveyance or transfer and such supplemental agreement comply with this Agreement and that all conditions precedent herein provided for relating to such transaction have been complied with and, in the case of the Opinion of Counsel, that such supplemental agreement is legal, valid and binding with respect to RPA Seller; and (iii) RPA Seller shall have notified the Rating Agencies of such actions in writing prior to completing such transaction. (m) Receivables to be Accounts. RPA Seller will take no action to -------------------------- cause any Receivable to be characterized as anything other than an "account" (as defined in the UCC as in effect in the applicable jurisdiction). Each Receivable shall be payable pursuant to a contract which does not create a Lien on any goods purchased thereunder. (n) Account Allocations. ------------------- (i) In the event that RPA Seller is unable for any reason to transfer Receivables to Buyer in accordance with the provisions of this Agreement (including, without limitation, by reason of the occurrence of an Insolvency Event) then, in any such event, RPA Seller agrees to instruct the Servicer to allocate and pay in accordance with the Servicing Agreement, after the date of such inability, payments received in respect of the Accounts giving rise to such Receivables first to the total amount of Principal Receivables from such Accounts transferred to Buyer. The parties hereto agree that Finance Charge Receivables, whenever created, with respect to Principal Receivables which have been transferred to Buyer shall continue to be property of Buyer or its assigns notwithstanding any cessation of the transfer of additional Principal Receivables to Buyer and Collections with respect thereto shall continue to be allocated and paid in accordance with the Transaction Documents. (ii) In the event that pursuant to Section 6.1(a), RPA Seller -------------- accepts a retransfer of an Ineligible Receivable as a result of a breach of the representations and warranties relating to such Receivable, then, in any such event, RPA Seller agrees to instruct the Servicer to allocate payments received in respect of the Account giving rise to such Receivable first to the total amount of Principal Receivables of the appropriate Obligor retained by -18- Buyer or its assigns and thereafter to the total amount owing by such Obligor on any Ineligible Receivable retransferred to RPA Seller. (o) Delivery of Collections. RPA Seller agrees to pay to the Servicer ----------------------- (if the Servicer is not then FCNB) promptly (but in no event later than two Business Days after receipt) all Collections received by RPA Seller in respect of the Receivables. (p) Credit Adjustments. If at any time Buyer is required to make a ------------------ deposit to the Excess Funding Account on account of a Credit Adjustment, and Buyer notifies RPA Seller that Buyer does not have funds available to make such deposit, then RPA Seller shall promptly provide the amount of the required deposit to Buyer. (q) Assignment. The obligations of RPA Seller hereunder shall not be ---------- assignable nor shall any Person succeed to the obligations of RPA Seller hereunder except for mergers, consolidations, assumptions or transfers in accordance with Section 5.1(l). -------------- (r) Trust Agreement. Upon notice from the Buyer, FCNB agrees to --------------- promptly pay Buyer amounts necessary for Buyer to make its payment obligations in time pursuant to Article VII of the Trust Agreement. ----------- Section 5.2. Buyer Covenants Regarding Nondisclosure; Inspection. --------------------------------------------------- Buyer hereby covenants and agrees with RPA Seller (and agrees to cause the Receivables Trustee) not to disclose to any Person any of the account numbers or other information contained in the computer files or microfiche lists delivered to Buyer (or to Receivables Trustee if buyer so directs) pursuant to Sections 2.1 and 2.2, and Section 4.2(b), 7.1(c) and 7.2(c), ------------ --- -------------- ------ ------ except (i) as is required in connection with the performance of the Receivables Trustee's duties under the Servicing Agreement or in enforcing the rights of the Securityholders and (ii) such disclosures as are required upon appointment of a successor Servicer under the Servicing Agreement. Buyer agrees (and shall cause the Receivables Trustee) to take such measures as shall be reasonably requested by RPA Seller to protect and maintain the security and confidentiality of such information, and in connection therewith, shall allow RPA Seller to inspect the applicable security and confidentiality arrangements from time to time in normal business hours. Buyer shall (and shall cause the Receivables Trustee to) give RPA Seller five days prior written notice of any disclosure pursuant to this Section 5.2. ----------- -19- ARTICLE VI REPURCHASE OBLIGATION Section 6.1. Mandatory Repurchase. (a) In the event of a breach of any -------------------- representation and warranty set forth in Section 4.1(l) before the FCMT -------------- Termination Date RPA Seller shall accept a retransfer of each Principal Receivable to which such breach relates (an "Ineligible Receivable") on the --------------------- date on which such Ineligible Receivable is retransferred to Buyer under Section 2.4(d) of the Pooling and Servicing Agreement on the terms and -------------- conditions set forth below. In the event that the exclusion of an Ineligible Receivable from the calculation of the Seller Amount would cause the Seller Amount to be less than the Minimum Seller Amount, RPA Seller shall pay Buyer a sufficient amount in immediately available funds in time to enable Buyer to make a deposit in the Collection Account in an amount equal to the Shortfall Amount as required under Section 2.4(d) of the -------------- Pooling and Servicing Agreement. Upon each retransfer to RPA Seller of such Ineligible Receivable, the Buyer shall automatically and without further action be deemed to transfer, assign and set-over to RPA Seller, without recourse, representation or warranty, all the right, title and interest of the Buyer in, to and under such Ineligible Receivable, all monies due or to become due with respect thereto, all proceeds thereof and Insurance Proceeds relating thereto. The Buyer shall execute such documents and instruments of transfer and take such other actions as shall reasonably be requested by RPA Seller to effect the transfer of such Ineligible Receivable pursuant to this subsection. The obligation of RPA Seller to accept retransfer of any Ineligible Receivable shall constitute the sole remedy respecting any breach of the representations and warranties set forth in Section 4.1(l)) with respect to such Receivable available to the --------------- Buyer, Certificateholders or the Trustee on behalf of Certificateholders (as defined in the Pooling and Servicing Agreement). (b) In the event of a breach of any representation and warranty set forth in Section 4.1(l) on and after the FCMT Termination Date, then RPA -------------- Seller shall accept reassignment of all Receivables in the related Account ("Ineligible Receivables") on the terms and conditions set forth in this ---------------------- paragraph on the date on which such Ineligible Receivables are reassigned to Buyer under Section 2.4(d) of the Transfer and Servicing Agreement. If -------------- the exclusion of an Ineligible Receivable from the calculation of the Seller Amount would cause the Seller Amount to be less than the Minimum Seller Amount, then RPA Seller shall pay Buyer a sufficient amount in immediately available funds in time to enable Buyer, on the date of retransfer of such Ineligible Receivable, to make a deposit in the Collection Account in an amount equal to the Shortfall Amount as required under Section 2.4(d) of the Transfer and Servicing Agreement. The amounts -------------- so deposited are to be treated for all purposes hereof as Collections on such Ineligible Receivables. -20- Upon reassignment of any Ineligible Receivable, the Buyer shall automatically and without further action be deemed to transfer, assign, set over and otherwise convey to RPA Seller or its designee, without recourse, representation or warranty, all the right, title and interest of the Buyer in and to such Ineligible Receivable, all Recoveries related thereto, all monies and amounts due or to become due and all proceeds thereof and such reassigned Ineligible Receivable shall be treated by the Buyer as collected in full as of the date on which it was transferred. The obligation of RPA Seller to accept reassignment of any Ineligible Receivables conveyed to the Buyer by RPA Seller, and to make payments to Buyer to enable Buyer to make the deposits, if any, required to be made to the Collection Account as provided in Section 2.4(d) of the Transfer and Servicing Agreement, shall -------------- constitute the sole remedy respecting the event giving rise to such obligation available to the Buyer. The Buyer shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested and provided by the RPA Seller to effect the conveyance of such Ineligible Receivables pursuant to this Section 6.1(b), -------------- but only upon receipt of an Officer's Certificate from RPA Seller that states that all conditions set forth in Section 5.1 have been satisfied. ----------- (c) In the event of a breach of any representation and warranty set forth in Section 4.1(e), (j), (k) or (r) before the FCMT Termination Date, ------------- --- --- --- RPA Seller shall be obligated to accept retransfer of all of the Principal Receivables on the date on which the Receivables are retransferred to Buyer under Section 2.4(e) of the Pooling and Servicing Agreement. RPA Seller -------------- shall pay Buyer a sufficient amount in immediately available funds in time to enable Buyer to deposit on the Transfer Date (as defined in the Pooling and Servcing Agreement) (in next day funds) for the related Distribution Date (as defined in the Pooling and Servcing Agreement) an amount equal to the deposit amount as required under Section 2.4(e) of the Pooling and Servcing Agreement on the terms and conditions set forth below. On the Distribution Date following the Transfer Date on which such amount has been deposited by Buyer in full into the Distribution Account, the Receivables and all monies due or to become due with respect thereto and all proceeds of the Receivables and Insurance Proceeds relating thereto shall be transferred to RPA Seller, and the Buyer shall execute and deliver such instruments of transfer, in each case without recourse, representation or warranty, as shall be reasonably requested by RPA Seller to vest in RPA Seller, or its designee or assignee, all right, title and interest of the Buyer in, to and under the Receivables, all monies due or to become due with respect thereto (including all Finance Charge Receivables) and all proceeds thereof and Insurance Proceeds relating thereto. If RPA Seller is obligated to accept a retransfer as provided above, the obligation of RPA Seller to accept a retransfer of the Receivables pursuant to Section 6.1(c) -------------- shall constitute the sole remedy respecting a breach of the representations and warranties contained in Section 4.1(e) available to the Buyer. -------------- -21- (d) On and after the FCMT Termination Date, if any representation or warranty of a RPA Seller set forth in Section 4.1(e), (j), (k) or (s) is -------------- --- --- --- not true and correct in any material respect, RPA Seller shall be obligated to accept such reassignment on the date on which the Receivables are reassigned to Buyer under Section 2.4(e) of the Transfer and Servicing -------------- Agreement on the terms set forth in this paragraph. RPA Seller shall pay Buyer a sufficient amount in immediately available funds in time to enable Buyer to deposit in the Collection Account in immediately available funds not later than 1:00 p.m., New York City time, on the Transfer Date for the first Distribution Date following the Monthly Period in which the reassignment obligation arises under Section 2.4(e) of the Transfer and -------------- Servicing Agreement, in payment for such reassignment, an amount equal to the deposit amount for the reassignment as required under Section 2.4(e) of -------------- the Transfer and Servicing Agreement. If RPA Seller is obligated to accept a reassignment of the Receivables as provided above, the obligation of RPA Seller to accept such reassignment pursuant to this Section 6.1(d) and to -------------- make payments to Buyer to enable Buyer to make the deposit required to be made to the Collection Account as provided in Section 2.4(e) of the Transfer and Servicing Agreement shall constitute the sole remedy respecting an event of the type specified in the first sentence of this Section 6.1(d) available to the Buyer. Upon reassignment of the Receivables -------------- on such Distribution Date, the Buyer shall automatically and without further action be deemed to sell, transfer, assign, set-over and otherwise convey to the RPA Seller, without recourse, representation or warranty, all the right, title and interest of the Buyer in and to the Receivables and Recoveries allocable to the Buyer, and all monies and amounts due or to become due with respect thereto and all proceeds thereof. The Buyer shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the RPA Seller to effect the conveyance of such property pursuant to this Section. Section 6.2. Optional Repurchases. (a) Buyer shall have the option to -------------------- require RPA Seller to repurchase all of Buyer's rights, titles, and interests in, to, and under all Receivables transferred by RPA Seller hereunder and created pursuant to certain Accounts designated by Buyer (the "Removed Accounts"); provided that, Buyer shall only be entitled to require ---------------- -------- ---- such repurchase (i) if Buyer is able to effect a retransfer of such Receivables from the Receivables Trust in compliance with Section 2.7 of ----------- the Servicing Agreement, and (ii) if Buyer and both RPA Seller mutually agree as to the designation of the Removed Accounts. On or before the fifth Business Day (the "Repurchase Notice Date") prior to the date on which the ---------------------- Removed Accounts will be designated by Buyer, Buyer shall give RPA Seller written notice of its election to require RPA Seller to so repurchase the Receivables of the Removed Accounts on the date specified in such notice (the "Repurchase Date"). The Repurchase Price for an optional repurchase --------------- effected pursuant to this Section 6.2(a) shall be for Receivables purchased -------------- pursuant to Section 2.7 of the Servicing Agreement, an amount equal to the ----------- total recorded unpaid balance of such repurchased Receivables (including Principal Receivables and Finance Charge -22- Receivables) on the Repurchase Date. Upon execution and delivery of any Reconveyance effecting any repurchase as contemplated in this Section ------- 6.2(a), Buyer shall have no further right, title, or interest in any ------ Receivables from the Removed Accounts. (b) Payment of the Repurchase Price as specified in Section 6.2(a) -------------- above may be made, at the option of the RPA Seller: (i) in immediately available funds; (ii) as a reduction in RPA Seller's interest in and to any participation interest in the Seller Interest in an amount equal to the unpaid portion of the Repurchase Price; or (iii) any combination of the foregoing; provided, however, that RPA Seller must make payment of a -------- ------- sufficient portion of the Repurchase Price in immediately available funds in time to enable Buyer to make any cash payment to the Receivables Trust then required under the Servicing Agreement. Section 6.3. Conveyance of Repurchased Receivables. On or prior to the ------------------------------------- date that RPA Seller is required to repurchase Receivables under Section ------- 6.1, or on the date RPA Seller is permitted to purchase any Receivables --- under Section 6.2, or on any Repurchase Date, as the case may be, Buyer ----------- shall execute and deliver to RPA Seller a Reconveyance substantially in the form and upon the terms of Exhibit B, pursuant to which Buyer conveys to --------- RPA Seller all of Buyer's right, title, and interest in the Receivables to be repurchased by such seller and, with respect to repurchases effected pursuant to Section 6.2, within three Business Days thereafter, Buyer shall ----------- deliver to RPA Seller a computer file or microfiche list containing a true and complete list of all Removed Accounts identified by account number and the aggregate Receivable balances to be repurchased by RPA Seller in such Removed Accounts as of the Repurchase Notice Date. Buyer shall (and shall cause the Receivables Trustee to) execute such other documents or instruments of conveyance or take such other actions as RPA Seller may reasonably require to effect any repurchase of Receivables pursuant to this Article VI. ---------- Section 6.4. Selection of Removed Accounts. By giving the written ----------------------------- notice on the Repurchase Notice Date as required in Section 6.2 and by ----------- acceptance of the Reconveyance, RPA Seller represents and warrants that no selection procedures reasonably believed by RPA Seller to be materially adverse to the interests of Buyer or the holders of the Securities were utilized in selecting the Removed Accounts. ARTICLE VII CONDITIONS PRECEDENT Section 7.1. Conditions to Buyer's Obligations Regarding Initial --------------------------------------------------- Receivables. The obligations of Buyer to purchase the Transferred Assets on ----------- the RPA Closing Date shall be subject to the satisfaction of the following conditions: -23- (a) All representations and warranties of RPA Seller contained in this Agreement shall be true and correct on the RPA Closing Date with the same effect as though such representations and warranties had been made on such date; (b) All information concerning the Accounts provided to Buyer shall be true and correct as of the RPA Closing Date in all material respects; (c) RPA Seller shall have delivered or caused to be delivered to Buyer a computer file or microfiche list containing a true and complete list of all Accounts identified by account number and by the Receivables balance as of the RPA Closing Date, and RPA Seller shall have substantially performed all other obligations required to be performed by the provisions of this Agreement; (d) RPA Seller shall have recorded and filed, at its expense, any financing statement with respect to the Receivables (other than Receivables in Additional Accounts) now existing and hereafter created for the transfer of accounts meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the sale of the Receivables to Buyer, and shall have delivered a file-stamped copy of such financing statements or other evidence of such filings (which may, for purposes of this paragraph, consist of telephone confirmations of such filings) to Buyer; (e) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to Buyer, and Buyer shall have received from RPA Seller copies of all documents (including records of corporate proceedings) relevant to the transactions herein contemplated as Buyer may reasonably have requested. Section 7.2. Conditions to Buyer's Obligations Regarding Supplemental -------------------------------------------------------- Conveyances. The obligations of Buyer to purchase any Receivables created ----------- under any Additional Accounts shall be subject to the satisfaction of the following conditions: (a) All representations and warranties of RPA Seller contained in this Agreement shall be true and correct on the Addition Date with the same effect as though such representations and warranties had been made on such date; (b) All information concerning the Additional Accounts provided or to be provided to Buyer shall be true and correct in all material respects as of the Addition Date with respect to Additional Accounts added pursuant to Section 2.2(a) and as of the fifth Business Day after the first day of the -------------- calendar month occurring after any Addition Date arising under Section ------- 2.2(c); ------ -24- (c) On or before each Addition Date with respect to Additional Accounts added pursuant to Section 2.2(a) and on or before the fifth -------------- Business Day after the first day of the Monthly Period occurring after any Addition Date arising under Section 2.2(c): (i) RPA Seller shall have -------------- indicated or caused to be indicated in the computer files of the Receivables that Receivables created in respect of the Additional Accounts have been sold to Buyer in accordance with this Agreement and transferred to the Receivables Trust pursuant to the Servicing Agreement for the benefit of the Securityholders; (ii) RPA Seller shall have delivered or caused to be delivered to Buyer (or to the Receivables Trustee, if so directed by Buyer) a computer file or microfiche list containing a true and correct list of all such Additional Accounts, identified by account number and by the Receivable balance as of the Addition Date for Additional Accounts added pursuant to Section 2.2(a) or as of such fifth Business Day ------------- of a Monthly Period with respect to Additional Accounts added pursuant to Section 2.2(c); and (iii) RPA Seller shall have substantially performed all -------------- other obligations required to be performed by the provisions of this Agreement; (d) RPA Seller shall have executed and delivered a Supplemental Conveyance in conformance with the requirement of Section 2.2; and ----------- (e) RPA Seller shall have recorded and filed, at its expense, any financing statement with respect to the Receivables in such Additional Accounts now existing and hereafter created in connection with the transfer of accounts meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the sale of the Receivables to Buyer, and shall have delivered a file-stamped copy of such financing statements or other evidence of such filings (which may, for purposes of this paragraph, consist of telephone confirmations of such filings) to Buyer. Section 7.3. Conditions Precedent to RPA Seller's Obligations. The ------------------------------------------------ obligations of RPA Seller to sell the Transferred Assets on the RPA Closing Date and on any Addition Date shall be subject to the satisfaction of the following conditions: (a) All representations and warranties of Buyer contained in this Agreement shall be true and correct with the same effect as though such representations and warranties had been made on such date; (b) Payment or provision for payment of the Purchase Price shall have been made in accordance with the provisions of Sections 3.3 and 3.4. ------------ ---- (c) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to RPA Seller, and RPA Seller shall have received from Buyer copies -25- of all documents (including records of corporate proceedings) relevant to the transactions herein contemplated as the sellers may reasonably have requested. ARTICLE VIII TERM & TERMINATION Section 8.1. Term. This Agreement shall commence as of the date of ---- execution and delivery hereof and shall continue in full force and effect until: (a) the Receivables Trust terminates; or (b) upon the occurrence of any of the following events: Buyer or RPA Seller shall (i) become insolvent, (ii) fail to pay its debts generally as they become due, (iii) voluntarily seek, consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law, (iv) become a party to (or be made the subject of) any proceeding provided for by any Debtor Relief Law, other than as a creditor or claimant, and, in the event such proceeding is involuntary, (1) within 10 Business Days after Buyer or RPA Seller, as applicable, has knowledge of such proceeding or the filing thereof either (x) the petition instituting same has not been dismissed or (y) an order has not been entered by the court having jurisdiction which allows continued transfer to the Receivables Trust or Buyer, as applicable, of Principal Receivables, in the case of RPA Seller's involuntary petition with no adverse effect to either Buyer, the Receivables Trust or the Securityholders, and in the case of Buyer's involuntary petition with no adverse effect to either the Receivables Trust or the Securityholders, or (2) an order as contemplated in (1)(y) above having previously been entered, is no longer in effect other than by reason of the termination of such proceeding; provided, -------- however, that Buyer shall have no duty to continue to purchase Receivables ------- or accept designation of Additional Accounts from and after the filing of an involuntary petition but prior to dismissal; or (v) become unable for any reason to convey or reconvey Receivables in accordance with the provisions of this Agreement; provided, however, that the termination of -------- ------- this Agreement pursuant to this Section 8.1(b) shall not discharge any -------------- Person from any obligations incurred prior to such termination, including any obligations with respect to Receivables sold prior to such termination. Notwithstanding anything contained herein to the contrary, upon any termination of this Agreement, Buyer shall not purchase Receivables created or accept Additional Accounts designated on or after the date of such termination. Section 8.2. Effect of Termination. No termination or rejection or --------------------- failure to assume the executory obligations of this Agreement upon the bankruptcy of RPA Seller or Buyer shall be deemed to impair or affect the obligations pertaining to any executed sale or executed obligations, including pre-termination breaches of representations and warranties by RPA Seller or Buyer. Without limiting the foregoing, prior to termination, neither the failure of RPA Seller to deliver or cause to be delivered computer records of Additional Accounts or Settlement Statements, nor the failure of Buyer to pay a Settlement Statement shall render such transfer or -26- obligation executory, nor shall the continued duties of the parties pursuant to Section 5 or Section 9.1 of this Agreement render an executed --------- ----------- sale executory. ARTICLE IX MISCELLANEOUS PROVISIONS Section 9.1. Amendment. This Agreement and the other Conveyance Papers --------- and the rights and obligations of the parties hereunder may not be changed orally, but only by an instrument in writing signed by Buyer and RPA Seller, with prior notice to the Rating Agencies, in accordance with this Section 9.1. This Agreement and any other Conveyance Papers may be amended ----------- from time to time by Buyer and RPA Seller to correct or supplement any provisions herein or in any other Conveyance Papers which may be inconsistent with any other provisions herein or to add any other provisions with respect to matters or questions arising under this Agreement or any other Conveyance Papers which shall not be inconsistent with the provisions of this Agreement or any other Conveyance Papers; provided, however, that such action shall not adversely affect in any -------- ------- material respect the interests of the Receivables Trustee for the benefit of the Securities, unless the Receivables Trustee shall consent thereto. Any Supplemental Conveyance or Reconveyance executed in accordance with the provisions hereof shall not be considered amendments to this Agreement. Any amendment that modifies the Purchase Price or any right or obligation of Buyer or RPA Seller must satisfy the Rating Agency Condition. Section 9.2. Governing Law. This Agreement and the other Conveyance ------------- Papers shall be construed in accordance with the laws of the State of Illinois, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. Section 9.3. Notices. All demands, notices and communications ------- hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by registered mail, return receipt requested, to (a) in the case of RPA Seller, First Consumers National Bank, 9300 S.W. Gemini Drive, Beaverton, Oregon 97005, Attn: President, or (b) in the case of Buyer, First Consumers Credit Corporation 400 West 9th Street, Suite 302D, Wilmington, Delaware, 19801, Attn.: Treasurer; or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. Section 9.4. Severability of Provisions. If any one or more of the -------------------------- covenants, agreements, provisions or terms of this Agreement or any other Conveyance Paper shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions, or terms of this Agreement or any -27- other Conveyance Paper and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of any other Conveyance Paper. Section 9.5. Assignment. Notwithstanding anything to the contrary ---------- contained herein, other than the assignments referred to in Section 9.6, ----------- this Agreement and all other Conveyance Papers may not be assigned by the parties hereto. Section 9.6. Acknowledgment and Agreement of RPA Seller. By execution ------------------------------------------ below, RPA Seller expressly acknowledge and agree that all of Buyer's rights under this Agreement relating to Transferred Assets purchased pursuant to this Agreement shall be assigned by Buyer to the Receivables Trust and, after the FCMT Termination Date, shall be collaterally assigned by the Receivables Trust to the Indenture Trustee, in each case for the benefit of the Securityholders, and RPA Seller consents to such assignments. Section 9.7. Further Assurances. Buyer and RPA Seller agree to do and ------------------ perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the other party more fully to effect the purposes of this Agreement and the other Conveyance Papers, including the execution of any financing statements or continuation statements or equivalent documents relating to the Receivables for filing under the provisions of the applicable UCC or other law of any applicable jurisdiction. Section 9.8. No Waiver; Cumulative Remedies. No failure to exercise ------------------------------ and no delay in exercising, on the part of Buyer and RPA Seller, any right, remedy, power or privilege hereunder, shall operate a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. Section 9.9. Counterparts. This Agreement and all other Conveyance ------------ Papers may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. Section 9.10. Binding Effect; Third-Party Beneficiaries. This ----------------------------------------- Agreement and the other Conveyance Papers will inure to the benefit of and be binding upon the parties hereto, and their respective successors and permitted assigns. The Receivables Trust, the Receivables Trustee and all holders of the Securities shall be considered third-party beneficiaries of this Agreement. -28- Section 9.11. Merger and Integration. Except as specifically stated ---------------------- otherwise herein, this Agreement and all the other Conveyance Papers set forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement and all the other Conveyance Papers. This Agreement and the other Conveyance Papers may not be modified, amended, waived or supplemented except as provided herein. Section 9.12. Headings. The headings herein are for purposes of -------- reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. Section 9.13. Schedules and Exhibits. The schedules and exhibits ---------------------- attached hereto and referred to herein shall constitute a part of this Agreement and are incorporated into this Agreement for all purposes. -29- IN WITNESS WHEREOF, Buyer and RPA Seller have caused this Agreement to be duly executed by their respective officers as of the day and year first written above. FIRST CONSUMERS CREDIT CORPORATION Name: --------------------------- Name: John R. Steele Title: Treasurer FIRST CONSUMERS NATIONAL BANK Name: --------------------------- Name: John R. Steele Title: Treasurer Signature page to Receivables Purchase Agreement -30- SCHEDULE ONE to RECEIVABLES PURCHASE AGREEMENT Accounts -------- As contained on an appropriately Labeled Computer Record Delivered Contemporaneously with this Agreement. Aggregate Receivables as of the RPA Closing Date: $ ------- Aggregate Principal Balance as of the RPA Closing Date: $ ------- SCHEDULE TWO to RECEIVABLES PURCHASE AGREEMENT Buyer's Chief Executive Office: 400 West 9th Street Suite 302D Wilmington, Delaware 19801 State of organization: Delaware RPA Seller's Chief Executive Office: 9300 S.W. Gemini Drive Beaverton Oregon 97005 Organized as a national bank Locations Of Books And Records: 9300 S.W. Gemini Drive Beaverton, Oregon 97005 800 Pasquinelli Drive Westmont, Illinois 60522 3500 Lacey Road Downers Grove, Illinois 60515 EXHIBIT A to RECEIVABLES PURCHASE AGREEMENT FORM OF SUPPLEMENTAL CONVEYANCE ------------------------------- SUPPLEMENTAL CONVEYANCE No. OF RECEIVABLES IN ADDITIONAL ACCOUNTS --- (the "Supplemental Conveyance"), dated as of , 200 , by and ------------------------ ------------- - between FIRST CONSUMERS NATIONAL BANK, a national banking association ("RPA Seller"), and FIRST CONSUMERS CREDIT CORPORATION, a Delaware corporation ------ ("Buyer"), pursuant to the Receivables Purchase Agreement referred to ----- below. W I T N E S S E T H : - - - - - - - - - - WHEREAS, Buyer and RPA Seller are parties to the Receivables Purchase Agreement, dated as of December 31, 2001 ( the "Purchase Agreement"); -------- --------- WHEREAS, pursuant to Section 2.2 of the Purchase Agreement, (i) under ------- --- certain conditions, RPA Seller is required to sell Receivables in Additional Accounts; or (ii) RPA Seller may designate and sell Additional Accounts to be included as Accounts; or (iii) under certain circumstances, an Eligible Account is to be automatically included as an Additional Account; WHEREAS, RPA Seller now wishes to sell the Receivables in the Additional Accounts described on Schedule 1, whether now existing or -------- - hereafter created, to Buyer; and WHEREAS, Buyer is willing to accept such sale and conveyance subject to the terms and conditions hereof; NOW THEREFORE, RPA Seller and Buyer hereby agree as follows: 1. Defined Terms. Terms used in this Supplemental Conveyance have ------------- their respective meanings set forth in the Purchase Agreement, except that "Addition Date" means, with respect to the Additional Accounts added ------------- pursuant to Section 2.2(a) of the Purchase Agreement and designated hereby, ------------- , 200 . -------- - "Notice Date" means, with respect to the Additional Accounts added ----------- pursuant to Section 2.2 of the Purchase Agreement and designated hereby, ----------- , ---------- A-1 200 (which shall be a date on or before the fifth Business Day prior to - the Addition Date). 2. Designation of Additional Accounts. On or prior to the Addition ---------------------------------- Date, in respect of Additional Accounts added pursuant to Section 2.2 of the Purchase Agreement and on or before five Business Days after the first day of the calendar month next succeeding the calendar month in which Additional Accounts were added pursuant to Section 2.2(c), RPA Seller shall ------------- have delivered or caused to be delivered to Buyer (or to the Receivables Trustee, if Buyer so directs) a computer file or microfiche list containing a true and complete list of all charge accounts which as of the Addition Date shall be deemed to be Additional Accounts, such Additional Accounts being identified by account number and by Receivable balance as of the Addition Date in respect of Additional Accounts added pursuant to Section ------- 2.2(a) of the Purchase Agreement. Such list shall be marked as Schedule 1 ------ ---------- to this Supplemental Conveyance, delivered to Buyer as confidential and proprietary and, as of the Addition Date, shall be incorporated into and made a part of this Supplemental Conveyance, the Purchase Agreement, and any other Conveyance Paper. 3. Sale of Receivables. (a) For value received, RPA Seller does hereby ------------------- sell, transfer, convey and assign to Buyer, without recourse, on and after the Addition Date, all of RPA Seller's right, title and interest in, to and under the Receivables now existing or hereafter created in the Additional Accounts designated on Schedule 1, all monies due or to become due with ---------- respect thereto (including all Finance Charge Receivables), all Collections, Recoveries and other proceeds hereof and Insurance Proceeds relating thereto. (b) In connection with such sale and conveyance, RPA Seller agrees (i) to record and file at its own expense, any financing statement for the purchase of accounts, with respect to the Receivables now existing and hereafter created in the Additional Accounts designated hereby, meeting the requirements of applicable state law and in such jurisdictions as are necessary to perfect the sale of the Receivables from RPA Seller to Buyer and the transfer of such Receivables from Buyer to the Receivables Trust, and (ii) to deliver a file-stamped copy of such financing statements or other evidence of such filings (which may, for purposes of this Section 3, consist of telephone confirmations of such filings) to Buyer (or to the Receivables Trustee, if Buyer so directs) on or prior to the date of this Supplemental Conveyance. (c) In connection with such sale and conveyance, RPA Seller agrees, at its own expense, on or prior to the date of this Supplemental Conveyance to indicate or cause to be indicated in its books and records and in the computer files of the Receivables as required by the Purchase Agreement that Receivables created in connection with the Additional Accounts designated hereby have been sold to Buyer A-2 in accordance with the Purchase Agreement and transferred by Buyer to the Receivables Trust for the benefit of the Securityholders. 4. Acceptance by Buyer. Buyer hereby acknowledges its acceptance of ------------------- all right, title and interest previously held by RPA Seller in, to and under the Receivables sold and conveyed hereby. Buyer further acknowledges that, prior to or simultaneously with the execution and delivery of this Supplemental Conveyance, RPA Seller delivered or caused to be delivered to Buyer or to the Receivables Trustee the computer file or microfiche list described in Section 2 of this Supplemental Conveyance. --------- 5. Representations and Warranties of RPA Seller. RPA Seller represents -------------------------------------------- and warrants to Buyer as of the Addition Date that: (a) Legal, Valid and Binding Obligation. This Supplemental Conveyance ----------------------------------- constitutes a legal, valid, and binding obligation of RPA Seller, enforceable against RPA Seller in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws and except as such enforceability may be limited by general principles of equity (whether considered in a suit or law or in equity); (b) Schedule 1. Schedule 1 to this Supplemental Conveyance and the ---------- ---------- computer file or microfiche list delivered pursuant to Section 2 of this Supplemental Conveyance is an accurate and complete listing in all material respects of all the Additional Accounts as of the Addition Date and the information contained therein with respect to the identify of such Additional Accounts and the Receivables existing thereunder is true and correct in all material respects as of the Addition Date; (c) Eligibility of Accounts. Each Additional Account designated hereby ----------------------- is an Eligible Account; (d) Selection Procedures. The Additional Accounts were assigned -------------------- randomly to Cycles by RPA Seller and no selection procedures reasonably believed by RPA Seller to be materially adverse to the interests of Buyer or its successors and assigns were utilized in selecting the Additional Accounts designated hereby from available Eligible Accounts; (e) Insolvency. RPA Seller is not insolvent; and, after giving effect ---------- to the conveyance set forth in Section 3 of this Supplemental Conveyance, will not be insolvent; (f) Valid Sale. This Supplemental Conveyance constitutes a valid sale, ---------- assignment, and conveyance or, in the case of Accounts added pursuant to Section 2.2(c) of the Purchase Agreement, confirmation of a valid sale, -------------- assignment, and conveyance to Buyer of all rights, title and assignment, and conveyance to Buyer of A-3 all right, title and interest of RPA Seller in, to, and under the Receivables now existing and hereafter created in respect of the Additional Accounts designated hereby, all monies due or to become due with respect thereto (including all Finance Charge Receivables) together with all Recoveries, Collections and other proceeds of such Receivables and Insurance Proceeds relating thereto. (g) Reconfirmation of Representations and Warranties. All ------------------------------------------------ representations and warranties made by RPA Seller pursuant to Section 4.1 ----------- of the Purchase Agreement remain true and correct in all respects as of the Addition Date as if made on such date. 6. Conditions Precedent. (a) The acceptance of Buyer set forth in -------------------- Section 4 above and the amendment of the Purchase Agreement set forth in --------- Section 8 below are subject to the satisfaction by RPA Seller, on or prior --------- to the Addition Date, of the following conditions precedent: (i) All information concerning the Additional Accounts provided or to be provided to Buyer shall be true and correct in all material respects as of the Addition Date with respect to Additional Accounts added pursuant to Section 2.2 (a) of the Purchase Agreement and as of --------------- the fifth Business Day after the first day of the calendar month occurring after any Additional Date arising under Section 2.2(c) of -------------- the Purchase Agreement; (ii) On or before each Addition Date with respect to Additional Accounts added pursuant to Section 2.2(a) of the Purchase Agreement: -------------- (i) RPA Seller shall have indicated or caused to be indicated in its books and records and in the computer files of the Receivables that Receivables created in respect of the Additional Accounts have been sold to Buyer in accordance with this Agreement for the benefit of the Securityholders, (ii) RPA Seller shall have delivered or caused to be delivered to Buyer (or to the Receivables Trustee, if so directed by Buyer) a computer file or microfiche list containing a true and correct list of all such Additional Accounts, identified by account number and by Receivable balance as of the Addition Date, (iii) RPA Seller shall have substantially performed all other obligations required to be performed by the provisions of the Purchase Agreement and this Supplemental Conveyance and (iv) RPA Seller shall have delivered to Buyer a certificate of a Vice President or more senior officer, certifying that (i) all requirements set forth in Section 2.6 ----------- of the Servicing Agreement for designating Additional Accounts and conveying the Principal Receivables of such Accounts, whether now existing or hereafter created, have been satisfied, and (ii) each of the representations and warranties made by the RPA Seller in Section 5 is true and correct as of the Addition Date. The Buyer may conclusively rely on such Officer's Certificate, shall have no duty A-4 to make inquiries with regard to the matters set forth therein, and shall incur no liability in so relying; (iii) RPA Seller shall have recorded and filed, at its expense, all financing statements required to comply with Section 3(b) of this ----------- Supplemental Conveyance. (b) The sale by RPA Seller set forth in Section 3 and the amendment of --------- the Purchase Agreement set forth in Section 8 are subject to the --------- satisfaction by Buyer, on or prior to the Addition Date, of the following: (i) All representations and warranties of Buyer contained in the Purchase Agreement shall be true and correct with the same effect as though such representations and warranties had been made on such date; (ii) Payment or provisions for payment of the Purchase Price by Buyer in accordance with the provisions of Section 3 of the Purchase --------- Agreement; and (iii) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Supplemental Conveyance shall be satisfactory in form and substance to RPA Seller, and RPA Seller shall have received from Buyer copies of all documents (including records of corporate proceedings) relevant to the transactions herein contemplated as RPA Seller may reasonably have requested. 7. Additional Information. RPA Seller shall have delivered to Buyer ---------------------- such information as was reasonably requested by Buyer to satisfy itself as to the accuracy of the representation and warranty set forth in Section ------- 5(e) of this Supplemental Conveyance. ---- 8. Amendment of the Purchase Agreement. The Purchase Agreement is ----------------------------------- hereby amended to provide that all references therein to the "Receivables Purchase Agreement", to "this Agreement", and "herein" shall be deemed from and after the Addition Date to be a dual reference to the Purchase Agreement a supplemented by this Supplemental Conveyance. Except as expressly amended hereby, all of the representations, warranties, terms, covenants, and conditions of the Purchase Agreement shall remain unamended and shall continue to be, and shall remain, in full force and effect in accordance with its terms and except as expressly provided herein shall not constitute or be deemed to constitute a waiver of compliance with or a consent to noncompliance with any term or provision of the Purchase Agreement. A-5 9. Counterparts. This Supplemental Conveyance may be executed in two ------------ or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. 10. Governing Law. This Supplemental Conveyance shall be construed in ------------- accordance with the laws of the State of Illinois, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. 11. Non-Petition. RPA Seller hereby covenants and agrees that prior to ------------ the date which is one year and one day after the Scheduled Trust Termination Date, it will not institute against, or join any other person in instituting against, Buyer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under any federal or state bankruptcy or similar law. A-6 IN WITNESS WHEREOF, the undersigned have caused this Supplemental Conveyance to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. FIRST CONSUMERS NATIONAL BANK By: -------------------------- Title: FIRST CONSUMERS CREDIT CORPORATION By: -------------------------- Title: A-7 SCHEDULE 1 ---------- TO SUPPLEMENTAL CONVEYANCE ADDITIONAL ACCOUNTS ------------------- EXHIBIT B to RECEIVABLES PURCHASE AGREEMENT FORM OF RECONVEYANCE -------------------- RECONVEYANCE No. OF RECEIVABLES (this "Reconveyance"), dated as of ------ ------------ , 200 , by and between FIRST CONSUMERS CREDIT CORPORATION, a - ------------- -- Delaware corporation, ("Buyer") and FIRST CONSUMERS NATIONAL BANK, a national ----- banking association ("RPA Seller"), pursuant to the Receivables Purchase ---------- Agreement referred to below. W I T N E S S E T H: - - - - - - - - - - WHEREAS, Buyer and RPA Seller are parties to the Receivables Purchase Agreement, dated as of December 31, 2001 (the "Purchase Agreement"); ------------------ WHEREAS, pursuant to Section 6 of the Purchase Agreement (i) under certain --------- conditions, RPA Seller is required to repurchase Receivables in certain Accounts, or (ii) Buyer may designate from time to time certain Accounts for repurchase; WHEREAS, pursuant to Section 6 of the Purchase Agreement, Buyer wishes to --------- sell and convey to RPA Seller the Receivables from the Accounts listed on Schedule 1 (the "Removed Accounts"); and - ---------- ---------------- WHEREAS, RPA Seller is willing to repurchase Receivables under the Removed Accounts by payment, or provision for the payment, of the Repurchase Price therefor pursuant to Section 6 of the Purchase Agreement; NOW THEREFORE, Buyer and RPA Seller hereby agree as follows: 1. Defined Terms. Capitalized terms used in this Reconveyance have their ------------- respective meanings set forth in the Purchase Agreement, except that "Repurchase ---------- Date" means, with respect to the Removed Accounts designated hereby, - ---- , 200 . - ------------ -- 2. Designation of Removed Accounts. Within three Business Days after the ------------------------------- Repurchase Date, RPA Seller shall deliver or cause to be delivered to Buyer a computer file, microfiche or written list containing a true and complete list of all Removed Accounts identified by account number and Receivable balance of such Removed Accounts as of the Repurchase Date. Such list shall be marked as Schedule 1 to this Reconveyance and shall be incorporated into and made a part - ---------- of this Reconveyance as of the Repurchase Date and of the Purchase Agreement and other Conveyance Papers. B-1 3. Conveyance of Receivables. (a) For value received, Buyer does hereby ------------------------- sell, transfer, assign, and set-over to RPA Seller, without recourse, on and after the Repurchase Date, all right, title and interest of Buyer in, to, and under the Receivables now existing and hereafter created in the Removed Accounts designated hereby, all monies due or to become due with respect thereto (including all Finance Charge Receivables), all proceeds thereof and Insurance Proceeds relating thereto. (b) In connection with such transfer, Buyer agrees to (and agrees to cause Receivables Trustee to) execute and deliver to RPA Seller on or prior to the date of this Reconveyance, a termination statement or partial release with respect to the Receivables now existing and hereafter created in the Removed Accounts designated hereby evidencing the sale and conveyance of the Receivables in the Removed Accounts and the release of all liens or security interests thereon, which shall meet the requirements of applicable state law and shall be filed in such manner and in such jurisdictions as are necessary to evidence such sale and conveyance and remove such lien. 4. Acceptance by RPA Seller. RPA Seller hereby acknowledges that, prior to ------------------------ or simultaneously with the execution and delivery of this Reconveyance, Buyer delivered or caused to be delivered to RPA Seller the computer file or microfiche list described in Section 2 of this Reconveyance. --------- 5. Representations and Warranties of Buyer. Buyer hereby represents and --------------------------------------- warrants to RPA Seller as of the Repurchase Date: (a) Legal, Valid and Binding Obligation. This Reconveyance constitutes a ----------------------------------- legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); and (b) Schedule 1. Schedule 1 to this Reconveyance and the computer file or ---------- ---------- microfiche list delivered pursuant to Section 2 of this Reconveyance is an --------- accurate and complete listing in all material respects of all the Removed Accounts as of the Repurchase Notice Date and the information contained therein with respect to the identity of such Removed Accounts and the Receivables existing thereunder is true and correct in all material respects as of the Repurchase Notice Date; (c) Compliance with Servicing Agreement. Buyer has effected a retransfer ----------------------------------- from the Receivables Trust of the Receivables now existing or hereafter arising under the Removed Accounts in compliance with the provisions of the Servicing Agreement. (d) Selection Procedures. In respect of Removed Accounts designated -------------------- pursuant to Section 6.2 of the Purchase Agreement, Buyer and RPA Seller have ----------- mutually agreed as to the designation of the Removed Accounts. B-2 (e) Insolvency. As of the Repurchase Notice Date and as of the Repurchase ---------- Date, Buyer is not insolvent and the removal being made pursuant to this Reconveyance is not being made in contemplation of the Seller's insolvency. 6. Conditions Precedent. (a) The amendment of the Purchase Agreement set -------------------- forth in Section 7 is subject to the satisfaction by Buyer, on or prior to the --------- Repurchase Date, of the following conditions precedent: (i) All information concerning the Removed Accounts provided or to be provided to RPA Seller shall be true and correct in all material respects as of the Repurchase Date; (ii) Buyer shall have, and on or before the third Business Day after the Repurchase Date: (i) delivered to RPA Seller a computer file or microfiche list containing a true and correct list of all such Removed Accounts, identified by account number and by Receivable balance as of the Repurchase Date; and (ii) substantially performed all other obligations required to be performed by the provisions of this Reconveyance. (iii) Buyer shall have delivered to RPA Seller the termination statements and partial releases required to be delivered in Section 3(b) of ----------- this Reconveyance. (b) The amendment of the Purchase Agreement set forth in Section 7 is --------- subject to payment or provision for payment of the Repurchase Price in accordance with the provisions of Section 6 of the Purchase Agreement on or --------- prior to the Repurchase Date. 7. Amendment of the Purchase Agreement. The Purchase Agreement is hereby ----------------------------------- amended to provide that all references therein to the "Receivables Purchase Agreement", to "this Agreement" and "herein" shall be deemed from and after the Repurchase Date to be a dual reference to the Purchase Agreement as supplemented by this Reconveyance. Except as expressly amended hereby, all of the representations, warranties, terms, covenants and conditions of the Purchase Agreement shall remain unamended and shall continue to be, and shall remain, in full force and effect in accordance with its terms and except as expressly provided herein shall not constitute or be deemed to constitute a waiver of compliance with or a consent to non-compliance with any term or provision of the Purchase Agreement. 8. Counterparts. This Reconveyance may be executed in two or more ------------ counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. 9. Governing Law. This Reconveyance shall be construed in accordance with ------------- the laws of the State of Illinois, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. B-3 10. Non-Petition. RPA Seller hereby covenants and agrees that prior to the ------------ date which is one year and one day after the Scheduled Trust Termination Date, it will not institute against, or join any other person in instituting against, Buyer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under any federal or state bankruptcy or similar law. IN WITNESS WHEREOF, the undersigned have caused this Reconveyance to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. FIRST CONSUMERS CREDIT CORPORATION By: -------------------------- Title: FIRST CONSUMERS NATIONAL BANK By: -------------------------- Title: B-4 SCHEDULE 1 ---------- TO RECONVEYANCE REMOVED ACCOUNTS ---------------- EXHIBIT C to RECEIVABLES PURCHASE AGREEMENT FORM OF SETTLEMENT STATEMENT FIRST CONSUMERS CREDIT CORPORATION RECEIVABLES PURCHASE AGREEMENT Current Settlement Date: , 200 --------------- - Subject Period: , 200 --------------- - First Consumers National Bank ("FCNB") and First Consumers Credit ---- Corporation ("Buyer"), pursuant to the Receivables Purchase Agreement (the ----- "Purchase Agreement") dated as of December 31, 2001, between FCNB and Buyer, do ------------------ hereby agree and certify as follows: 1. Capitalized terms used in this Settlement Statement have their respective meanings in the Purchase Agreement. As used herein, the term "Subject Period" means the Monthly Period immediately preceding -------------- the calendar month in which this Settlement Statement is delivered. This Settlement Statement is being delivered pursuant to Section 3.5 ----------- of the Purchase Agreement. References hereto to certain sections are references to the respective sections in the Purchase Agreement. 2. The date of this Settlement Statement is a Settlement Date under the Purchase Agreement. A. RECEIVABLES PURCHASED FROM FCNB AND PURCHASE PRICE FOR SUBJECT PERIOD 3. The aggregate unpaid balance of Receivables conveyed to Buyer by FCNB and balance of Receivables created in Accounts pursuant to the Purchase Agreement during the Subject Period was equal to............................................... $ . ----------- 4. The portion of the amount shown in item 3 paid in cash during the Subject Period was equal to............ $ . ----------- 5. The portion of the amount shown in item 3 paid by note during the Subject Period was equal to............ $ . ----------- C-1 6. The portion of the amount shown in item 3 not paid in cash or by note during the Subject Period (item 3 minus item 4 minus item 5) is equal to............... $ . ----------- B. RECEIVABLES REPURCHASED BY FCNB AND REPURCHASE PRICE FOR SUBJECT PERIOD 7. The aggregate Repurchase Price of Receivables repurchased by FCNB pursuant to Section 6.1 or 6.2 ----------- --- of the Purchase Agreement during the Subject Period (the "FCNB Repurchased Receivables") was ---------------------------- equal to............................................... $ . ----------- 8. The portion of the Repurchase Price for the FCNB Repurchased Receivables paid in cash during the Subject Period was equal to............................ $ . ----------- 9. The portion of the Repurchase Price for the FCNB Repurchased Receivables not paid in cash during the Subject Period (item 9 minus item 10) is equal to..................................................... $ . ----------- In witness whereof, the undersigned have duly executed and delivered this Settlement Statement this day of 200 . -------- --- FIRST CONSUMERS CREDIT CORPORATION By: -------------------------- Title: FIRST CONSUMERS NATIONAL BANK By: -------------------------- Title: C-2 EXHIBIT D ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS In addition to the representations, warranties and covenants contained in the Receivables Purchase Agreement, RPA Seller hereby represents, warrants and covenants to Buyer as follows: (1) The Receivables Purchase Agreement creates a valid transfer to Buyer of all right, title and interest of RPA Seller in, to and under the Receivables conveyed to Buyer pursuant to the Receivables Purchase Agreement, and such property will be held by Buyer free and clear of any Lien, except for Liens permitted pursuant to paragraph (2) below. ------------- (2) Immediately prior to the conveyance of the Receivables pursuant to the Receivables Purchase Agreement, RPA Seller owns and has good and marketable title to the Receivables free and clear of any Lien, claim or encumbrance of any Person; provided that nothing in this paragraph (2) shall prevent or be deemed -------- ------------- to prohibit RPA Seller from suffering to exist upon any of the Receivables any Liens for any taxes if such taxes shall not at the time be due and payable or if RPA Seller shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. D-1 EXHIBIT E PROVISIONS TO BE INCLUDED IN OPINION OF COUNSEL TO BE DELIVERED PURSUANT TO SUBSECTION 2.2(b) OF THE RECEIVABLES PURCHASE AGREEMENT ------------------------------ The opinions set forth below may be subject to certain qualifications, assumptions, limitations and exceptions taken or made in the opinion of RPA Seller's counsel with respect to similar matters delivered on the RPA Closing Date. 1. The Supplemental Conveyance has been duly authorized, executed and delivered by RPA Seller and constitutes the legal, valid and binding agreement of RPA Seller, enforceable against RPA Seller in accordance with its terms. 2. We have opined in a letter of even date that the Supplemental Conveyance constitutes a valid assignment of the RPA Seller's right, title and interest in, to and under the Receivables in the Additional Accounts and the related Transferred Assets. [Such opinion letter shall be substantially similar to the similar letter delivered on the RPA Closing Date.] Financing Statements having been filed in the office of the Secretary of State of Oregon, and in Washington, D.C., Buyer has acquired (based upon certificates of RPA Seller to the effect that RPA Seller has not transferred any interest in the Receivables other than to the Trustee or caused any lien to be imposed upon the Receivables) all rights, title and interest of the RPA Seller in the Transferred Assets free and clear of any Lien or interest of any Person except for Liens permitted under subsection 5.1(d) of the Receivables Purchase Agreement. 3. No filings or other action, other than the filing of the financing statement(s) referred to in such opinion (the "Financing Statements") with respect to the Buyer's security interest in such Transferred Assets, in the office of the Secretary of State of Oregon, and in Washington, D.C., are necessary to perfect or continue the perfected status of the security or other interest of the Buyer in the Transferred Assets designated by the Supplemental Conveyance, and the proceeds thereof, against third parties, except that appropriate continuation statements with respect to the Financing Statements be filed at five-year intervals to continue the perfection of such security interest. 4. The transfer of the Receivables in the Additional Accounts to the Buyer would not constitute a fraudulent conveyance of RPA Seller; provided, that this opinion numbered 4 need not be delivered if the short-term unsecured debt obligations of RPA Seller are rated at the time of such transfer at least P-3 by Moody's. E-1 EXHIBIT F FORM OF SUBORDINATED NOTE ------------------------- E-2 EX-10.39 36 dex1039.txt POOLING AND SERVICING AGREEMENT DATED 9/30/1992 Exhibit 10.39 ================================================================================ FIRST CONSUMERS CREDIT CORPORATION Seller, FIRST CONSUMERS NATIONAL BANK Servicer and THE BANK OF NEW YORK Successor Trustee on behalf of the Certificateholders of the First Consumers Master Trust ---------- POOLING AND SERVICING AGREEMENT Dated as of September 30, 1992, amended and restated February 1, 1999 and amended and restated a second time as of December 31, 2001 ================================================================================ TABLE OF CONTENTS ----------------- Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions..................................................1 Section 1.2 Other Definitional Provisions...............................21 Section 1.3 Monthly Allocation of Finance Charge Receivables..................................21 ARTICLE II TRANSFER OF RECEIVABLES; ISSUANCE OF CERTIFICATES Section 2.1 Transfer of Receivables.....................................22 Section 2.2 Acceptance by Trustee.......................................23 Section 2.3 Representations and Warranties of Seller Relating to Seller...................................................24 Section 2.4 Representations and Warranties of Seller Relating to the Agreement and the Receivables........................26 Section 2.5 Covenants of Seller.........................................30 Section 2.6 Addition of Accounts........................................32 Section 2.7 Removal of Accounts.........................................35 Section 2.8 Discount Option.............................................37 ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES Section 3.1 Acceptance of Appointment and Other Matters Relating to the Servicer....................................37 Section 3.2 Servicing Compensation......................................39 Section 3.3 Representations, Warranties and Covenants of the Servicer....................................................40 Section 3.4 Reports and Records for the Trustee; Bank Account Statements..................................................41 Section 3.5 Annual Servicer's Certificate...............................42 Section 3.6 Annual Independent Public Accountants' Servicing Report............................................42 Section 3.7 Tax Treatment...............................................43 i ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.1 Rights of Certificateholders................................43 Section 4.2 Establishment of Investor Accounts..........................44 Section 4.3 Collections and Allocations.................................46 [THE REMAINDER OF ARTICLE IV IS RESERVED AND SHALL BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES]....................................................................49 ARTICLE V [ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES]......................................................49 ARTICLE VI THE CERTIFICATES Section 6.1 The Certificates............................................50 Section 6.2 Authentication of Certificates..............................50 Section 6.3 Registration of Transfer and Exchange of Certificates................................................50 Section 6.4 Mutilated, Destroyed, Lost or Stolen Certificates......................................52 Section 6.5 Persons Deemed Owners.......................................52 Section 6.6 Appointment of Paying Agent.................................53 Section 6.7 Access to List of Certificateholders' Names and Addresses...................................................53 Section 6.8 Authenticating Agent........................................54 Section 6.9 Book-Entry Certificates.....................................55 Section 6.10 Notices to Clearing Agency..................................56 Section 6.11 Definitive Certificates Initially Issued as Book-Entry Certificates................................................56 Section 6.12 New Issuances...............................................57 ARTICLE VII OTHER MATTERS RELATING TO SELLER Section 7.1 Liability of Seller.........................................59 Section 7.2 Merger or Consolidation of, or Assumption of the Obligations of, Seller......................................59 Section 7.3 Limitation on Liability of Seller...........................60 ARTICLE VIII OTHER MATTERS RELATING TO THE SERVICER Section 8.1 Liability of the Servicer...................................61 Section 8.2 Merger or Consolidation of, or Assumption of the Obligations of, the Servicer................................61 ii Section 8.3 Limitation on Liability of the Servicer and Others..........61 Section 8.4 Indemnification of the Trust and the Trustee................62 Section 8.5 The Servicer Not to Resign..................................62 Section 8.6 Access to Certain Documentation and Information Regarding the Receivables...................................63 Section 8.7 Delegation of Duties........................................63 Section 8.8 Examination of Records......................................63 ARTICLE IX PAY OUT EVENTS Section 9.1 Pay Out Events..............................................64 Section 9.2 Additional Rights Upon the Occurrence of Certain Events..............................................64 ARTICLE X SERVICER DEFAULTS Section 10.1 Servicer Defaults...........................................65 Section 10.2 Trustee to Act; Appointment of Successor....................67 Section 10.3 Notification to Certificateholders..........................68 Section 10.4 Waiver of Past Defaults.....................................68 ARTICLE XI THE TRUSTEE Section 11.1 Duties of Trustee...........................................69 Section 11.2 Certain Matters Affecting the Trustee.......................71 Section 11.3 Trustee Not Liable for Recitals in Certificates.............72 Section 11.4 Trustee May Own Certificates................................72 Section 11.5 Seller to Pay Trustee's Fees and Expenses...................72 Section 11.6 Eligibility Requirements for Trustee........................73 Section 11.7 Resignation or Removal of Trustee...........................73 Section 11.8 Successor Trustee...........................................74 Section 11.9 Merger or Consolidation of Trustee..........................74 Section 11.10 Appointment of Co-Trustee or Separate Trustee...............75 Section 11.11 Tax Returns.................................................76 Section 11.12 Trustee May Enforce Claims Without Possession of Certificates................................................76 Section 11.13 Suits for Enforcement.......................................77 Section 11.14 Rights of Certificateholders to Direct Trustee..............77 Section 11.15 Representations and Warranties of Trustee...................77 Section 11.16 Maintenance of Office or Agency.............................77 Section 11.17 Requests for Agreement......................................78 iii ARTICLE XII TERMINATION Section 12.1 Termination of Trust........................................78 Section 12.2 Optional Purchase and Final Maturity Date of Investor Certificates.......................................78 Section 12.3 Final Distributions.........................................80 Section 12.4 Termination Rights of the Holder of the Seller Interest....................................................81 ARTICLE XIII MISCELLANEOUS PROVISIONS Section 13.1 Amendment...................................................81 Section 13.2 Protection of Right, Title and Interest to Trust............83 Section 13.3 Limitation on Rights of Certificateholders..................84 Section 13.4 Governing Law...............................................85 Section 13.5 Notices.....................................................85 Section 13.6 Severability of Provisions..................................85 Section 13.7 Assignment..................................................85 Section 13.8 Certificates Nonassessable and Fully Paid ..................86 Section 13.9 Further Assurances..........................................86 Section 13.10 No Waiver; Cumulative Remedies..............................86 Section 13.11 Counterparts................................................86 Section 13.12 Third-Party Beneficiaries...................................86 Section 13.13 Actions by Certificateholders...............................86 Section 13.14 Merger and Integration......................................87 Section 13.15 Headings....................................................87 Section 13.16 Effect on Existing Pooling Agreement........................87 Section 13.17 No Petition.................................................87 iv EXHIBITS Exhibit A: Form of Transfer Agreement of Receivables in Additional Accounts Exhibit B: Provisions to be Included in Opinion of Counsel with Respect to Additional Accounts Exhibit C: Form of Retransfer Agreement Exhibit D: Form of Monthly Servicer's Certificate Exhibit E: Form of Annual Servicer's Certificate Exhibit F: Provisions to be Included in Opinion with Respect to Amendments Exhibit G: Provisions to be Included in Annual Opinion of Counsel SCHEDULE Schedule 1 List of Accounts Schedule 2 Perfection Representations and Warranties v POOLING AND SERVICING AGREEMENT, dated as of September 30, 1992, amended and restated as of February 1, 1999, and amended and restated a second time as of December 31, 2001, by and among FIRST CONSUMERS CREDIT CORPORATION, a Delaware corporation, as Seller, FIRST CONSUMERS NATIONAL BANK, a national banking association, as Servicer, and THE BANK OF NEW YORK, a banking corporation organized and existing under the laws of New York, as Trustee. This Agreement amends and restates the Pooling and Servicing Agreement dated as of September 30, 1992, as amended and restated February 1, 1999, by and between the parties hereto (the "Existing Pooling ---------------- Agreement"). --------- In consideration of the mutual agreements herein contained, each party agrees as follows for the benefit of the other parties and for the benefit of the Certificateholders: ARTICLE I DEFINITIONS Section 1.1 Definitions. Whenever used in this Agreement, the ----------- following words and phrases shall have the following meanings: "Account" shall mean each MasterCard(R)* or VISA(R)* credit card ------- account established pursuant to a Cardholder Agreement, and which is identified in Schedule 1 by account number and by Receivable balance as of ---------- the Cut Off Date, or identified as of each Addition Date in each computer file or microfiche list delivered to the Trustee by Seller pursuant to Section 2.6. The term "Account" shall also be deemed to refer to an ------------ Additional Account, but only from and after the Addition Date with respect thereto, and the term "Account" shall be deemed to refer to any Removed Account prior to but not after the Removal Date with respect thereto. "Addition Date" shall mean, with respect to any Additional Accounts, ------------- either the date five Business Days after the period or date when such Additional Accounts are required or permitted to be added as Accounts pursuant to subsections 2.6(a) or (b), or the date on which such Additional ------------------ --- Accounts are automatically added as Accounts pursuant to subsection 2.6(e). ----------------- ---------- MasterCard is a registered trademark of MasterCard International Incorporated and VISA is a registered trademark of VISA U.S.A., Inc. "Additional Accounts" shall mean the Accounts the receivables arising ------------------- under which are transferred to the Trust in accordance with the procedures set forth in Section 2.6. ------------ "Adjusted Investor Amount" shall have, with respect to any Series, the ------------------------ meaning specified in the related Supplement, or if no meaning for such term is specified in such Supplement, shall mean the Investor Amount for such Series. "Affiliate" of any specified Person, shall mean any other Person --------- directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Aggregate Investor Amount" shall mean, as of any date of ------------------------- determination, the sum of the Adjusted Investor Amounts of all Series issued and outstanding on such date of determination. "Aggregate Investor Percentage" with respect to Principal Receivables, ----------------------------- Finance Charge Receivables and Receivables in Defaulted Accounts, as the case may be, shall mean, as of any date of determination, the sum of such Investor Percentages of all Series issued and outstanding on such date of determination; provided, however, that the Aggregate Investor Percentage shall not exceed 100%. "Aggregate Principal Balance" shall mean, as of any time of determination, the sum of (a) the Aggregate Principal Receivables, (b) the amount on deposit in the Excess Funding Account (exclusive of any investment earnings on such amount) and (c) the amounts on deposit in the Principal Accounts (exclusive of any investment earnings on such amounts), in each case as of such time. "Aggregate Principal Receivables" shall mean, as of any time of ------------------------------- determination, the aggregate amount of Principal Receivables (excluding any Discount Option Receivables) as of the end of the prior day. "Aging Date" shall mean that date on which an Account is classified by ---------- the processor as past due according to a predetermined aging schedule. "Agreement" shall mean this Pooling and Servicing Agreement and all --------- amendments hereof and supplements hereto, including any Supplement. "Amortization Period" shall mean, with respect to any Series, the ------------------- period following the related Revolving Period, which shall be either the Controlled 2 Amortization Period or the Rapid Amortization Period or any other amortization period, in each case as defined with respect to such Series in the related Supplement. "Annual Account Additions" shall mean on any date of determination, ------------------------ the number of Accounts the Receivables of which have been added to the Trust pursuant to subsections 2.6(a), (b) and (e) from and including the ------------------ --- --- first day of the eleventh Monthly Period preceding such date of determination. "Annual Quotient" shall have the meaning specified in subsection --------------- ---------- 2.6(c)(ii). ---------- "Applicants" shall have the meaning specified in Section 6.7. ---------- ----------- "Authorized Newspapers" shall mean each newspaper of general --------------------- circulation in New York, New York, or in any other place specified by Seller, printed in the English language and customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays. "Base Amount" shall mean, at any date of determination, with reference ----------- to Annual Account Additions or Quarterly Account Additions, the number of Accounts included in the Trust on the first day of the relevant measurement period before giving effect to any Accounts added to the Trust on such first day. "Base Rate" shall have, with respect to any Series, the meaning --------- specified in the related Supplement. "Book-Entry Certificates" shall mean certificates evidencing a ----------------------- beneficial interest in any Investor Certificates, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 6.9; provided, that after the occurrence of a ----------- -------- condition whereupon book-entry registration and transfer are no longer permitted and Definitive Certificates are to be issued to the Certificate Owners, such Certificates shall no longer be "Book-Entry Certificates". "Business Day" shall mean each day which is neither a Saturday, a ------------ Sunday nor any other day on which banking institutions in New York, New York, Portland, Oregon or Chicago, Illinois (or, with respect to any Series, any additional city specified in the related Supplement) are authorized or obligated by law or required by executive order to be closed. "Cardholder Agreement" shall mean the agreement (and the related -------------------- application) for a MasterCard or VISA credit card account between any Obligor and Seller, as the same may be amended, modified or otherwise changed from time to time. 3 "Cardholder Fees" shall mean, with respect to any Account, any fees --------------- specified in the Cardholder Agreement applicable to such Account, including without limitation, annual fees, over limit charges, late charges, returned check fees, and reinstatement charges. "Cardholder Guidelines" shall mean Seller's policies and procedures --------------------- relating to the operation of its credit card business, including, without limitation, the FCNB Credit Policy and Operations Manual or such other of its policies and procedures for determining the creditworthiness of credit card customers, the extension of credit to credit card customers, the terms on which repayments are required to be made, and relating to the maintenance of credit card accounts and collection of credit card account receivables, as said manual and such policies and procedures, as applicable, may be amended from time to time. "Carry-over Finance Charge Amount" shall have the meaning specified in -------------------------------- Section 1.3. ----------- "Cash Advance Fees" shall mean, with respect to any Account, any fees ----------------- specified in the Cardholder Agreement applicable to such Account as cash advance fees or any similar term. "Certificate" shall mean any one of the Investor Certificates of any ----------- Series. "Certificateholder" or "Holder" shall mean the Person in whose name a ----------------- ------ Certificate is registered in the Certificate Register. "Certificate Interest" shall mean interest payable in respect of the -------------------- Investor Certificates of any Series pursuant to Article IV as set forth in ---------- the Supplement related to such Series. "Certificate Owner" shall mean, with respect to a Book-Entry ----------------- Certificate, the Person who is the owner of such Book-Entry Certificate, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly or as an indirect participant, in accordance with the rules of such Clearing Agency). "Certificate Principal" shall mean principal payable in respect of the --------------------- Investor Certificates of any Series pursuant to Article IV as set forth in ---------- the Supplement related to such Series. "Certificate Rate" shall mean, with respect to any Series of ---------------- Certificates, the rate (or formula on the basis of which such rate shall be determined) per annum stated for such Series in the related Supplement, which rate shall, unless otherwise provided in such Supplement, be calculated in each case on the basis of a 360-day 4 year consisting of twelve 30-day months, provided that, in the case of the Monthly Period in which the Certificates of a Series are first issued, such rate shall be calculated for the number of actual days from the date of issuance. "Certificate Register" shall mean the register maintained pursuant to -------------------- Section 6.3, providing for the registration of the Certificates and ----------- transfers and exchanges thereof. "Class" shall mean, with respect to any Series, any one or more of the ----- classes of Certificates of such Series as specified in the related Supplement. "Clearing Agency" shall mean an organization registered as a "clearing --------------- agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. "Clearing Agency Participant" shall mean a broker, dealer, bank, other --------------------------- financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" shall mean, with respect to any Series, the date ------------ specified as such in the related Supplement. "Collection Account" shall have the meaning specified in subsection ------------------ ---------- 4.2(a). ------ "Collection Subaccount" shall have the meaning specified in subsection --------------------- ---------- 4.2(a). ------ "Collections" shall mean all payments (including Insurance Proceeds ----------- and Recoveries) received by the Servicer in respect of the Receivables, in the form of cash, checks, wire transfers, Automated Teller Machine transfers, net proceeds of redemption of certificates of deposit or liquidation of bank accounts or other form of payment in accordance with the Cardholder Agreement in effect from time to time on any Receivable. A Collection processed in respect of an Account (other than a Defaulted Account) in excess of the aggregate amount of Receivables in such Account as of the Date of Processing of such Collection shall be deemed to be a payment in respect of Principal Receivables to the extent of such excess. Collections with respect to any Monthly Period shall also include the amount of Interchange (if any) allocable to any Series of Certificates pursuant to any Supplement with respect to such Monthly Period (to the extent received by the Trust and deposited into each Series Finance Charge Account or any other Series Account, as the case may be, on the Transfer Date following such Monthly Period), to be applied as if such Collections were Finance Charge Receivables for all purposes. 5 "Collections Deposit Day" shall mean the Business Day next preceding a ----------------------- Transfer Date. "Controlled Amortization Amount" for any Series shall have the meaning ------------------------------ specified in the related Supplement. "Controlled Amortization Period" for any Series shall have the meaning ------------------------------ specified in the related Supplement. "Controlled Distribution Amount" for any Series shall have the meaning ------------------------------ specified in the related Supplement. "Corporate Trust Office" shall mean the principal office of the ---------------------- Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of the execution of this Agreement is located at 2 North LaSalle Street, Suite 1020, Chicago, IL 60602. "Credit Adjustment" shall have the meaning specified in subsection ----------------- ---------- 4.3(e). ------ "Credit Insurance" shall mean life, accident, health, disability, ---------------- involuntary unemployment or other insurance of an Obligor to Seller to insure payment of any amount owing by such Obligor under an Account and which proceeds of such insurance are payable to Seller upon such Obligor's death, disability or involuntary unemployment. "Cut Off Date" shall mean September 22, 1992. ------------ "Cycle" shall mean, with respect to any Account, the monthly billing ----- cycle for such Account as determined in accordance with the Cardholder Guidelines as in effect on the date of this Agreement. "Cycle Billing Date" shall mean, with respect to any Account, each ------------------ date on which bills are processed for the Cycle which includes such Account. "Date of Collection" shall mean any date during any Monthly Period ------------------ that Collections are processed by the Servicer. "Date of Processing" shall mean, with respect to any transaction, the ------------------ date on which such transaction is first recorded on the Servicer's computer master file of accounts (without regard to the effective date of such recordation). "Debtor Relief Laws" shall mean the Bankruptcy Code of the United ------------------ States of America and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of 6 payments, or similar debtor relief laws from time to time in effect affecting the enforcement rights of creditors (including creditors of national banking associations) generally. "Default Amount" shall mean, with respect to any Monthly Period, the -------------- result of multiplying (i) the excess, if any, of the aggregate amount of Receivables in Defaulted Accounts charged off during such Monthly Period over Recoveries collected during such Monthly Period, times (ii) 1.00, ----- minus the percentage (expressed as a decimal) of Receivables (other than ----- Receivables in Defaulted Accounts) constituting Finance Charge Receivables determined in accordance with Section 1.3. ----------- "Defaulted Account" shall mean each Account with respect to which, in ----------------- accordance with the Cardholder Guidelines or the Servicer's customary and usual servicing procedures for servicing credit card receivables comparable to the Receivables (which shall in any event provide for charge-off in the event of delinquency of 180 days or more), the Servicer has charged off the Receivables in such Account as uncollectible; an Account shall become a Defaulted Account on the day on which such Receivables are recorded as charged off on the Servicer's computer master file of accounts (regardless of whether such Receivables are charged off before or after the Cut Off Date or Addition Date of such Account, as the case may be). "Deficit Controlled Amortization Amount" for any Series shall have the -------------------------------------- meaning specified in the related Supplement. "Definitive Certificates" shall have the meaning specified in Section ----------------------- ------- 6.9. --- "Deposit Obligation" shall mean the obligation of the Seller to make ------------------ any deposit to the Excess Funding Account pursuant to subsections 2.4(d) or ------------------ 4.3(e), and the obligation of the Servicer to make any payment or transfer ------ of Collections to the Collection Account or Distribution Account pursuant to this Agreement. "Depository Agreement" shall mean, with respect to any Series, the -------------------- agreement (if any) among the Seller, the Trustee and the initial Clearing Agency (if any) with respect to such Series. "Determination Date" shall mean the seventh calendar day prior to each ------------------ Transfer Date. "Discount Option Date" shall mean each date on which a Discount -------------------- Percentage designated by the Seller pursuant to Section 2.8 takes effect. ----------- 7 "Discount Option Receivable Collections" shall mean on any Date of -------------------------------------- Processing occurring in any Monthly Period succeeding the Monthly Period in which the Discount Option Date occurs, the product of (a) a fraction (i) the numerator of which is the Discount Option Receivables and (ii) the denominator of which is the Principal Receivables (including the Discount Option Receivables) in each case (for both the numerator and the denominator) at the end of the prior Date of Processing and (b) Collections of Original Principal Receivables on such Date of Processing. "Discount Option Receivables" shall have the meaning specified in --------------------------- Section 2.8. The aggregate amount of Discount Option Receivables ----------- outstanding on any Date of Processing occurring on or after the Discount Option Date shall equal the result of (a) the aggregate Discount Option Receivables at the end of the prior Date of Processing (which amount, prior to the Discount Option Date, shall be zero), plus (b) any new Discount Option Receivables created on such Date of Processing, minus (c) any Discount Option Receivables Collections received on such Date of Processing. Discount Option Receivables created on any Date of Processing shall mean the product of the amount of any Original Principal Receivables created on such Date of Processing and the Discount Percentage. "Discount Percentage" shall have the meaning specified in Section 2.8. ------------------- ----------- "Distribution Account" shall have the meaning specified in subsection -------------------- ---------- 4.2(c). ------ "Distribution Date" shall mean the fifteenth day of the month after ----------------- the month the Certificates are first issued and the fifteenth day of each calendar month thereafter, or, if any such fifteenth-day is not a Business Day, the next succeeding Business Day. "Eligible Account" shall mean, as of the Cut Off Date (or, with ---------------- respect to Additional Accounts, as of the relevant Notice Date in respect of Additional Accounts added pursuant to subsection 2.6 (a) or (b) or the ----------------- --- fifth Business Day prior to the relevant Addition Date in respect of Additional Accounts added pursuant to subsection 2.6(e)) each Account: ------------------ (a) which is payable in United States dollars; (b) which is serviced in any credit service center of Seller which is located in the United States; (c) the Obligor on which has provided, as its initial billing address, an address which is located in the United States or its territories or possessions; (d) which the Seller has not finally determined to be counterfeit or fraudulent; 8 (e) which the Seller has not charged off in its customary and usual manner for charging off such Accounts as of the Cut Off Date (or, with respect to Additional Accounts as of the relevant Notice Date or Addition Date); (f) which was originated by FCNB in the ordinary course of business, unless the Rating Agency Condition has otherwise been satisfied with respect to such Account; (g) as to which the Seller has good title, and which has not been sold or pledged to any other party; (h) which does not have receivables which have been sold or pledged to any other party other than Seller pursuant to the Receivables Purchase Agreement; and (i) is a "VISA" or "MasterCard" revolving credit card account. "Eligible Deposit Account" shall mean either (a) a segregated account ------------------------ with a Qualified Institution or (b) a segregated trust account with the corporate trust department of a depository institution organized under the laws of the United States or any one of the states thereof, including the District of Columbia (or any domestic branch of a foreign bank), and acting as a trustee for funds deposited in such account, so long as any of the securities of such depository institution shall have a credit rating from each Rating Agency in one of its short-term credit rating categories which signifies investment grade. "Eligible Receivable" shall mean each Receivable: ------------------- (a) which has arisen under an Eligible Account; (b) which was created in compliance, in all material respects, with all Requirements of Law applicable to FCNB or the originator of the related Account pursuant to a Cardholder Agreement which complies, in all material respects, with all Requirements of Law applicable to FCNB or the originator of the related Account; (c) with respect to which all consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given by FCNB or the originator of the related Account in connection with the creation of such Receivable or the execution, delivery and performance by FCNB or the originator of the related Account, as applicable, of the Cardholder Agreement pursuant to which such Receivable was created, have been duly obtained, effected or given and are in full force and effect as of such date of creation; 9 (d) as to which, immediately prior to the transfer of same to the Trust by Seller, Seller had good and marketable title thereto free and clear of all Liens arising under or through FCNB, Seller or their respective Affiliates (other than Liens permitted pursuant to subsection ---------- 2.5(b)); ------- (e) which is the legal, valid and binding payment obligation of the Obligor thereon, enforceable against such Obligor in accordance with its terms, except as such enforceability may be limited by applicable Debtor Relief Laws, and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); (f) which constitutes an "account" under and as defined in Article 9 of the UCC as then in effect in the applicable jurisdiction; (g) which, at the time of transfer to the Trust, has not been waived or modified except for a Receivable which has been waived or modified as permitted in accordance with the Cardholder Guidelines and which waiver or modification is reflected in the Servicer's computer file of revolving credit card accounts; (h) which, at the time of transfer to the Trust, is not (to the knowledge of Seller or Servicer) subject to any right of rescission, setoff, counterclaim or any other defense (including defenses arising out of violations or usury laws) of the Obligor, which requires that such Receivable be charged off in accordance with the Cardholder Guidelines, other than defenses arising out of applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights in general; and (i) as to which, at the time of transfer to the Trust, each of the Seller and FCNB has satisfied all its obligations required to be satisfied by such time. "Enhancement" shall mean, with respect to any Series, the cash ----------- collateral account, letter of credit, guaranteed rate agreement, maturity guaranty facility, tax protection agreement, interest rate swap or any other contract, arrangement or agreement for the benefit of the Certificateholders of such Series (or Certificateholders of a Class within such Series), as designated in the applicable Supplement. "Enhancement Provider" shall mean, with respect to any Series, the -------------------- Person, if any, designated as such in the related Supplement. "Excess Funding Account" shall have the meaning specified in ---------------------- subsection 4.2(d). ----------------- 10 "Exchange" shall have the meaning specified in subsection 6.12(b). -------- ------------------ "Exchangeable Seller Certificate" shall mean the certificate in favor ------------------------------- of the Seller and authenticated by the Trustee, issued pursuant to this Agreement. "Exchange Date" shall have the meaning specified in Section 6.12. ------------- ------------ "Exchange Notice" shall have the meaning specified in subsection --------------- ---------- 6.12(b). ------- "Existing Pooling Agreement" shall have the meaning specified in the -------------------------- introductory paragraph hereto. "FASIT" shall have the meaning specified in subsection 13.1(d). ----- ------------------ "FCNB" shall mean First Consumers National Bank, a national banking ---- association. "FDIC" shall mean the Federal Deposit Insurance Corporation. ---- "Final Trust Termination Date" shall mean December 31, 2032. ---------------------------- "Finance Charge Accounts" shall have the meaning specified in ----------------------- subsection 4.2(b). ----------------- "Finance Charge Collections" shall mean, for any period, the amount of -------------------------- Collections allocated to Finance Charge Receivables during such period in accordance with subsection 1.3, plus Discount Option Receivables -------------- ---- Collections for such period. "Finance Charge Receivables" shall mean, with respect to any Monthly -------------------------- Period, (a) all amounts billed to Obligors on any Account during such Monthly Period in respect of Finance Charges, Cash Advance Fees and Cardholder Fees, and (b) the amount of Interchange (if any) allocable to any Series of Certificates pursuant to any Supplement with respect to such Monthly Period. "Finance Charges" shall mean, as of any day, the amount of interest as --------------- determined by the periodic finance charge rate assessed on the Cycle Billing Date on or next preceding such day pursuant to the Cardholder Agreements. "Governmental Authority" shall mean the United States of America, any ---------------------- state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 11 "Indebtedness" means with respect to any Person at any date, (a) all ------------ indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current liabilities incurred in the ordinary course of business and payable in accordance with customary trade practices) or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of such Person under capital leases, (c) all obligations of such Person in respect of acceptances issued or created for the account of such Person and (d) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Ineligible Receivable" shall have the meaning specified in subsection --------------------- ---------- 2.4(d). ------ "Initial Closing Date" shall mean September 30, 1992. -------------------- "Initial Investor Amount" with respect to any Series, shall have the ----------------------- meaning specified in the related Supplement. "Insolvency Event" shall have the meaning specified in Section 9.2. ---------------- ----------- "Insurance Proceeds" shall mean any amounts paid to the Servicer or to ------------------ Seller pursuant to any Credit Insurance policies covering any Obligor with respect to Receivables under such Obligor's Account. "Interchange" shall mean interchange fees paid or payable to the ----------- Seller, in its capacity as credit card issuer, through MasterCard International Incorporated and/or VISA U.S.A., Inc. in connection with cardholder charges for goods and services. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, --------------------- as amended from time to time. "Investor Account" shall mean each of the Finance Charge Accounts, the ---------------- Principal Accounts, the Excess Funding Account and the Distribution Account. "Investor Amount" shall have, with respect to any Series, the meaning --------------- specified in the related Supplement. "Investor Certificate" shall mean any one of the certificates executed -------------------- and authenticated by the Trustee substantially in the form (or forms, in the case of a Series with multiple Classes) of the investor certificate attached to the related Supplement. "Investor Certificateholder" shall mean the Holder of record of an -------------------------- Investor Certificate. 12 "Investor Charge Off" shall have, with respect to any Series, the ------------------- meaning specified in the related Supplement. "Investor Default Amount" shall have, with respect to any Series, the ----------------------- meaning specified in the related Supplement. "Investor Exchange" shall have the meaning specified in subsection ----------------- ---------- 6.12(b). ------- "Investor Monthly Servicing Fee" shall have the meaning specified in ------------------------------ Section 3.2. "Investor Net Recoveries" shall mean, for any Monthly Period, an ----------------------- amount equal to the product of (i) the Net Recoveries for such Monthly Period and (ii) the applicable Investor Percentage at the end of the last day of such Monthly Period. "Investor Percentage" shall have, for any Series, with respect to ------------------- Principal Collections, Finance Charge Collections and Receivables in Defaulted Accounts, the meaning specified in the related Supplement. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, ---- assignment, deposit arrangement, encumbrance, lien (statutory or other), equity interest, participation interest, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the Uniform Commercial Code (other than any such financing statement filed for informational purposes only) or comparable law of any jurisdiction to evidence any of the foregoing; provided, -------- however, that any assignment pursuant to Section 7.2 shall not be deemed to ------- ----------- constitute a Lien. "Minimum Aggregate Principal Balance" shall mean, on any date of ----------------------------------- determination, the greater of (a) the sum of the Aggregate Investor Amount, plus the Minimum Seller Amount, in each case as of such date and (b) the sum of the Initial Investor Amounts of all Series outstanding on such date. "Minimum Average Seller Percentage" shall mean the weighted average --------------------------------- (by Adjusted Investor Amount) Minimum Seller Percentages for all Series then outstanding. "Minimum Seller Amount" shall mean, on any date of determination, the --------------------- Aggregate Investor Amount at the end of the day prior to such date of determination, times the Minimum Average Seller Percentage; provided that -------- if such percentage is zero, the Minimum Seller Amount shall be zero. FCNB may reduce the Minimum Seller Amount by written notice to the Trustee, provided that (a) the Rating Agency 13 Condition is satisfied with respect to such reduction and (b) FCNB delivers to the Trustee an Opinion of Counsel to the effect that such reduction will not have a material adverse effect on the Federal income tax characterization of any outstanding Series. "Minimum Seller Percentage" shall have, for any Series, the meaning ------------------------- specified in the related Supplement. "Monthly Period" shall mean the period from and including the first -------------- day of the calendar month preceding a related Determination Date to and including the last day of such calendar month. "Monthly Servicing Fee" shall have the meaning specified in Section ---------------------- ------- 3.2. ---- "Monthly Total Percentage Allocation" shall have, with respect to any ----------------------------------- Series, the meaning specified in the related Supplement. "Moody's" shall mean Moody's Investors Service, Inc. ------- "Net Recoveries" shall mean, with respect to any Monthly Period, the -------------- excess, if any, of Recoveries collected during such Monthly Period over the ---- aggregate amount of Receivables in Defaulted Accounts charged off during such Monthly Period. "Notice Date" shall have the meaning specified in subsection 2.6(c). ----------- ----------------- "Obligor" shall mean, with respect to any Account, the Person or ------- Persons obligated to make payments with respect to such Account, including any guarantor thereof. "Officer's Certificate" shall mean a certificate signed by any officer --------------------- of Seller or the Servicer and delivered to the Trustee. "Opinion of Counsel" shall mean a written opinion of counsel, who may ------------------ be counsel for Seller or the Servicer and who shall be reasonably acceptable to the Trustee. "Optional Repurchase Percentage" shall have, with respect to any ------------------------------ Series, the meaning specified in the related Supplement. "Original Principal Receivables" shall mean Principal Receivables ------------------------------ determined without giving effect to any reduction thereof attributable to Discount Option Receivables. 14 "Paying Agent" shall mean any paying agent appointed pursuant to ------------ Section 6.6 and shall initially be the Corporate Trust Office of the ----------- Trustee. "Pay Out Commencement Date" shall mean, with respect to each Series, ------------------------- (a) the date on which a Trust Pay Out Event is deemed to occur pursuant to Section 9.1, or (b) the date on which a Series Pay Out Event is deemed to ----------- occur pursuant to the Supplement for such Series. "Pay Out Event" shall mean either a Trust Pay Out Event or a Series ------------- Pay Out Event. "Permitted Investments" shall mean (a) negotiable instruments or --------------------- securities represented by instruments in bearer or registered form which evidence (i) obligations of or guaranteed by the United States of America, (ii) time deposits in, certificates of deposit of, or bankers' acceptances issued by, any depositary institution or trust company (other than Seller or an Affiliate of Seller) incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by federal or state banking or depositary institution authorities, provided, however, that at the time of the Trust's investment or -------- ------- contractual commitment to invest therein, the certificates of deposit or short-term deposits, if any, or long-term unsecured debt obligations (other than such obligation whose rating is based on collateral or on the credit of a Person other than such institution or trust company) of such depositary institution or trust company shall have a credit rating from Moody's and Standard & Poor's of P-1 and A-1+, respectively, in the case of the certificates of deposit or short-term deposits, or a rating from Moody's of Aaa and from Standard & Poor's of AAA in the case of the long-term unsecured debt obligations, or such time deposits are fully insured by the FDIC, (iii) certificates of deposit (other than those of Seller or an Affiliate of Seller) having, at the time of the Trust's investment or contractual commitment to invest therein, a rating from Moody's and Standard & Poor's of P-1 and A-1+, respectively, and (iv) investments in money market funds rated in the highest investment category or otherwise approved in writing by Moody's and Standard & Poor's; (b) demand deposits in the name of the Trust or the Trustee in any depositary institution or trust company referred to in (a) (ii) above; and (c) securities not represented by an instrument, which are registered in the name of the Trustee upon books maintained for that purpose by or on behalf of the issuer thereof and identified on books maintained for that purpose by the Trustee as held for the benefit of the Trust or the Certificateholders, and consisting of shares of an open end diversified investment company which is registered under the Investment Company Act of 1940, as amended, and which (i) invests its assets exclusively in obligations of or guaranteed by the United States of America or any instrumentality or agency thereof having in each instance a final maturity date of less than one year from their date of purchase or other Permitted Investments, (ii) seeks to maintain a constant net asset value per share and (iii) has aggregate net assets of not less than $100,000,000 on the date of 15 purchase of such shares, and which satisfies the Rating Agency Condition; provided, however, that only those investments described above which are -------- ------- permitted to be made by a national banking association shall be deemed to be "Permitted Investments" hereunder. "Permitted Transaction" shall mean any transaction or series of --------------------- related transactions pursuant to which the Seller finances an interest in the Trust Assets and (i) as to which the Rating Agency Condition is satisfied and (ii) which in the reasonable judgment of the Seller as evidenced by an Officer's Certificate, will not have a material adverse effect on the interests of the Investor Certificateholders. "Person" shall mean any legal person, including any individual, ------ corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, governmental entity or other entity of similar nature. "Pool Factor" with respect to any Series issued in only one Class, as ----------- of any Record Date, shall mean a number rounded to seven decimals representing the ratio of the Investor Amount of such Series as of such Record Date (determined after taking into account any reduction in such Investor Amount which will occur on the following Distribution Date) to the Initial Investor Amount of such Series, and with respect to any Series issued in more than one Class, shall have the meaning stated in the related Series Supplement. "Portfolio Yield" shall have, with respect to any Series, the meaning --------------- specified in the related Supplement. "Principal Accounts" shall have the meaning specified in subsection ------------------ ---------- 4.2(b). ------ "Principal Collections" shall mean, for any period, all Collections --------------------- during such period other than Finance Charge Collections. "Principal Receivable" shall mean each Receivable other than Finance -------------------- Charge Receivables and Receivables in Defaulted Accounts. A Principal Receivable shall be deemed to have been created at the end of the day on the Date of Processing of such Receivable. In calculating the aggregate amount of Principal Receivables on any day, the amount of Principal Receivables shall be reduced by the aggregate amount of credit balances in the Accounts on such day. Any Principal Receivables which Seller is unable to transfer as provided in subsection 2.5(c) shall not be included in ----------------- calculating the aggregate amount of Principal Receivables. "Principal Sharing Series" shall mean a Series that provides for ------------------------ sharing of Principal Collections in the related Supplement. 16 "Principal Shortfalls" shall mean, with respect to a Distribution -------------------- Date, the aggregate amount for all outstanding Principal Sharing Series which the related Supplements specify are "Principal Shortfalls" for such Distribution Date. "Principal Terms" shall have the meaning, with respect to any Series --------------- issued pursuant to an Exchange, specified in subsection 6.12(c). ------------------ "Qualified Institution" shall have the meaning specified in subsection --------------------- ---------- 4.2(a). ------ "Quarterly Account Additions" shall mean on any date of determination, --------------------------- the number of Accounts the Receivables of which have been added to the Trust pursuant to subsection 2.6(a), (b) or (e) during the current calendar ----------------- --- --- quarter. "Quarterly Quotient" shall have the meaning specified in subsection ------------------ ---------- 2.6(c)(ii). ---------- "Rapid Amortization Period" for any Series shall have the meaning ------------------------- specified in the Supplement for such Series. "Rating Agency" shall mean, with respect to each Series, the rating ------------- agency or agencies, if any, that initially rated the Investor Certificates of such Series, as specified in the related Supplement. "Rating Agency Condition" shall mean, with respect to any Series and ----------------------- any action or series of related actions or proposed transactions affecting such Series, that each of the Rating Agencies shall have notified the Servicer in writing that such action or series of related actions or the consummation of such proposed transaction or series of related transactions will not result in a reduction or withdrawal of such Rating Agency's rating of any Class of Certificates included in such Series. "Receivable" shall mean any amount owing by an Obligor under an ---------- Account (including amounts in Defaulted Accounts) from time to time, including, without limitation, amounts owing for the purchase of goods and services, Finance Charges, Cash Advance Fees, Cardholder Fees, Special Fees, and premiums for Credit Insurance, if any. "Receivables Purchase Agreement" shall mean the Receivables Purchase ------------------------------ Agreement, dated as of December 31, 2001, between Seller and FCNB, as amended from time to time. "Record Date" shall mean with respect to any Distribution Date the ----------- last Business Day of the preceding Monthly Period. 17 "Recoveries" shall mean all amounts received, including Insurance ---------- Proceeds and net proceeds from the liquidation of certificates of deposit or bank accounts, by the Servicer with respect to Receivables which have previously been charged off as uncollectible, after deducting, in the case of each such amount received, a percentage of such amount which in the good faith judgment of the Servicer represents the amount of out-of-pocket costs incurred by the Servicer during the preceding fiscal year (or other, more recent period deemed appropriate by the Servicer) as a percentage of collections during such period in respect of charged off receivables in all credit card accounts (including the Accounts) serviced by the Servicer. "Removal Date" shall have the meaning specified in Section 2.7. ------------ ----------- "Removal Notice Date" shall mean the fifth Business Day prior to a ------------------- Removal Date. "Removed Accounts" shall have the meaning specified in Section 2.7. ---------------- ----------- "Requirements of Law" for any Person shall mean the certificate of ------------------- incorporation or articles of association and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or order or determination of an arbitrator or Governmental Authority, in each case applicable to or binding upon such Person or to which such Person is subject, whether Federal, state or local (including, without limitation, usury laws, the Federal Truth in Lending Act and Regulation Z and Regulation B of the Board of Governors of the Federal Reserve System). "Responsible Officer" shall mean the Chairman or any Vice Chairman of ------------------- the Board of Directors or Trustees of the Trustee, the Chairman or Vice Chairman of the Executive or Standing Committee of the Board of Directors or Trustees of the Trustee, the President, any Executive Vice President, Senior Vice President, Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary , the Treasurer, any Assistant Treasurer, the Cashier, any Assistant or Deputy Cashier, any Trust Officer or Assistant Trust Officer, the Controller and any Assistant Controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above-designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. The term "Responsible Officer," when used herein with respect to any Person other than the Trustee, means an officer or employee of such Person corresponding to any officer or employee described in the preceding sentence. "Retransfer Agreement" shall have the meaning specified in subsection -------------------- ---------- 2.7(b)(ii). ---------- 18 "Revolving Period" shall have, with respect to any Series, the meaning ---------------- specified in the related Supplement. "RPA Closing Date" shall mean December 31, 2001. ---------------- "Seller" shall mean (i) before the RPA Closing Date, FCNB, and (ii) on ------ and after the RPA Closing Date, First Consumers Credit Corporation, a Delaware corporation. "Seller Amount" shall mean, on any date of determination, the ------------- Aggregate Principal Balance at the end of the day immediately prior to such date of determination, minus the Aggregate Investor Amount at the end of such day. "Seller Exchange" shall have the meaning specified in subsection --------------- ---------- 6.12(b). ------- "Seller Interest" shall mean the interest of the Seller in the Trust, --------------- which shall be in an amount from time to time equal to the Seller Amount. "Seller Percentage" shall mean, on any date of determination, when ----------------- used with respect to Principal Collections, Finance Charge Collections and Receivables in Defaulted Accounts, the percentage equivalent of a fraction equal to 1.0, minus the fraction calculated on such date with respect to ----- such categories of Receivables in accordance with the definition of Aggregate Investor Percentage; provided, however, that the Seller -------- ------- Percentage shall never be less than zero. "Series" shall mean any series of Investor Certificates, which may ------ include within any such Series a Class or Classes of Investor Certificates subordinate to another such Class or Classes of Investor Certificates. "Series Account" shall mean, with respect to any Series, each of the -------------- accounts established and designated as such pursuant to the related Supplement. "Series Finance Charge Account" shall mean, with respect to any ----------------------------- Series, the account established and maintained by the Trustee pursuant to subsection 4.2(b) with respect to such Series. ----------------- "Series Pay Out Event" shall have, with respect to any Series, the -------------------- meaning specified in the related Supplement. "Series Principal Account" shall mean, with respect to any Series, the ------------------------ account established and maintained by the Trustee pursuant to subsection ---------- 4.2(b) with respect to such Series. ------ 19 "Series Servicing Fee Percentage" shall mean, with respect to any ------------------------------- Series, the amount specified as such in the related Supplement. "Series Share" shall have the meaning specified in subsection 4.3(i). ------------ ----------------- "Series Termination Date" shall mean, with respect to any Series, the ----------------------- date, if any, specified as such in the related Supplement. "Servicer" shall mean initially FCNB and its permitted successors and -------- assigns, and thereafter any Person appointed as successor as herein provided to service the Receivables. "Servicer Default" shall have the meaning specified in Section 10.1. ---------------- ------------ "Servicing Officer" shall mean any employee of the Servicer involved ----------------- in, or responsible for, the administration and servicing of the Receivables whose name appears on a list of servicing officers furnished to the Trustee by the Servicer, as such list may from time to time be amended. "Shared Finance Charge Collections" shall mean, with respect to any --------------------------------- period, the aggregate amount of Finance Charge Collections allocable to each Series which the related Supplements specify are to be treated as "Shared Finance Charge Collections" for such period. "Shared Principal Collections" shall mean, with respect to a ---------------------------- Distribution Date, the aggregate amount of Principal Collections for all outstanding Series which the related Supplements specify are to be treated as "Shared Principal Collections" for such Distribution Date. "Shortfall Amount" shall mean, on any date of determination, the ---------------- amount, if any, by which the Minimum Aggregate Principal Balance exceeds the Aggregate Principal Balance. "Special Fees" shall mean Receivables consisting of fees which are not ------------ now but may from time to time be assessed on the Accounts. "Standard & Poor's" shall mean Standard & Poor's Corporation. ----------------- "Successor Servicer" shall have the meaning specified in Section 10.2. ------------------ ------------ "Supplement" shall mean, with respect to any Series, a supplement to ---------- this Agreement complying with the terms of Section 6.12, executed in ------------ conjunction with the issuance of any Series (or, in the case of the issuance of Certificates on the Initial 20 Closing Date, the supplement executed in connection with the issuance of such Certificates). "Termination Notice" shall have the meaning specified in Section 10.1. ------------------ ------------ "Transfer Agent and Registrar" shall have the meaning specified in ---------------------------- Section 6.3 and shall initially be the Trustee's Corporate Trust Office. ----------- "Transfer Agreement" shall have the meaning specified in subsection ------------------ ---------- 2.6(d)(iii). ----------- "Transfer Date" shall mean the Business Day immediately preceding each ------------- Distribution Date. "Trust" shall mean the trust created by this Agreement and known as ----- the "First Consumers Master Trust", the corpus of which shall consist of the Receivables now existing or hereafter transferred thereto in accordance herewith and all monies due or to become due with respect thereto, all proceeds (as defined in Section 9-102 of the UCC as in effect in the applicable jurisdiction) of the Receivables and Recoveries and Insurance Proceeds relating thereto and such funds and investments as from time to time are deposited or held in the Collection Account, the Collection, the Finance Charge Accounts, the Principal Accounts, the Distribution Account, the Excess Funding Account and any other Series Account, and the rights to any Enhancement with respect to any Series. "Trust Assets" shall have the meaning specified in Section 2.1. ------------ "Trust Pay Out Event" shall have, with respect to each Series, the ------------------- meaning specified in Section 9.1. ----------- "Trust Termination Date" shall have the meaning specified in ---------------------- subsection 12.1(a). ------------------ "Trustee" shall mean the institution executing this Agreement as ------- Trustee, or its successor in interest, or any successor trustee appointed as herein provided. "UCC" shall mean the Uniform Commercial Code, as amended from time to --- time, as in effect in any specified jurisdiction. "Undivided Interest" shall mean the undivided interest in the Trust ------------------ evidenced by a Certificate. 21 Section 1.2 Other Definitional Provisions. ------------------------------ (a) All terms defined in this Agreement or in any Supplement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto or thereto unless otherwise defined therein. (b) As used in this Agreement or in any Supplement and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.1, and accounting terms partially ----------- defined in Section 1.1 to the extent not defined, shall have the respective ----------- meanings given to them under generally accepted accounting principles or regulatory accounting principles, as applicable. To the extent that the definitions of accounting terms herein are inconsistent with the meaning of such terms under generally accepted accounting principles or regulatory accounting principles, the definitions contained herein shall control. (c) The agreements, representations and warranties of FCNB in this Agreement and in any Supplement in its capacity as Servicer shall be deemed to be the agreements, representations and warranties of FCNB solely in such capacity for so long as it acts in each such capacity under this Agreement. (d) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement or any Supplement shall refer to this Agreement or any Supplement as a whole and not to any particular provision of this Agreement or any Supplement; and Section, subsection, Schedule and Exhibit references contained in this Agreement or any Supplement are references to Sections, subsections, Schedules and Exhibits in or to this Agreement or any Supplement unless otherwise specified. (e) Any reference herein to any particular Rating Agency shall only be effective for so long as a Series of Certificates rated by such Rating Agency at FCNB's request is outstanding. Section 1.3 Monthly Allocation of Finance Charge Receivables. The ------------------------------------------------ amount of Finance Charge Receivables in all Accounts shall be determined as follows: (i) At the close of business on each Cycle Billing Date for any Cycle of which any Accounts are included in the Trust, the amount of Finance Charge Receivables of all Accounts in such Cycle shall be equal to (A) the amount of Finance Charges charged to all Accounts in such Cycle on such date, plus (B) the Carry-Over Finance Charge Amount ---- for such Cycle. 22 (ii) For each Monthly Period, the amount of Collections allocated to Finance Charge Receivables for all Accounts in such Cycle shall be an amount equal to the amount of Finance Charges actually assessed on all Accounts, in accordance with the Charge Account Guidelines, on the Cycle Billing Date for such Cycle in the immediately preceding Monthly Period. (iii) If, at the close of business on the last Business Day of any Monthly Period, the amount of Collections allocated to Finance Charge Receivables for all Accounts in such Cycle during such Monthly Period is less than the amount of Finance Charge Receivables for all Accounts in such Cycle on the Cycle Billing Date for such Cycle next preceding such Monthly Period, then such deficit shall be the "Carry-Over Finance Charge Amount" for such Cycle and shall be added to the amount of Finance Charges assessed on such Billing Cycle Date pursuant to clause (i)(B) above. The Carry-Over Finance Charge Amount ------------- with respect to any Accounts shall be zero as of the Cycle Billing Date next preceding (A) the Closing Date, in the case of Accounts which are not Additional Accounts and (B) the applicable Addition Date, in the case of Additional Accounts. Notwithstanding the foregoing, the Servicer may adopt a different method of determining the amount of Finance Charge Receivables which in the good faith judgment of the Servicer is designed to more accurately reflect the portions of Receivables and Collections constituting Finance Charge Receivables. ARTICLE II TRANSFER OF RECEIVABLES; ISSUANCE OF CERTIFICATES Section 2.1 Transfer of Receivables. Seller does hereby transfer, ----------------------- assign and set-over to the Trust for the benefit of the Certificateholders, without recourse, all right, title and interest of Seller in, to and under the Receivables now existing and hereafter created and arising in connection with the Accounts, all monies due or to become due with respect thereto (including all Finance Charge Receivables), all Recoveries, Collections and other proceeds thereof and Insurance Proceeds relating thereto, the rights to receive certain amounts paid or payable as Interchange (if and to the extent provided for in any Supplement), all rights to security for any Receivables (including without limitation rights to bank accounts or certificates of deposit pledged as collateral), the right to any Enhancement with respect to any Series, Transferred Assets acquired by Seller under the Receivables Purchase Agreement, rights described in clause (a)(ii) of the definition of "Existing Assets" in the -------------- Receivables Purchase Agreement, rights under the Receivables Purchase Agreement relating to assets that have been transferred or contributed under the Receivables Purchase Agreement (other than the right to acquire such assets under 23 Sections 2.1(a) and 2.1(b) thereof) and all proceeds and products of all of --------------- ------ the foregoing (collectively, the "Trust Assets"). ------------ In connection with such transfer, Seller agrees to record and file, at its own expense, financing statements with respect to the Trust Assets, including the Receivables now existing and hereafter created for the transfer of accounts (as defined in Section 9-102 of the UCC as in effect in the applicable jurisdiction) meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the transfer of the Trust Assets from Seller to the Trust, and to deliver file-stamped copies of such financing statements or other evidence of such filings (which may, for purposes of this Section 2.1, consist of ----------- telephone confirmations of such filings) to the Trustee on or prior to the date of initial issuance of the Certificates. In connection with such transfer, Seller further agrees, at its own expense, on or prior to the Initial Closing Date (i) to indicate in its books and records, including the computer files of the Receivables, that Receivables created in connection with the Accounts have been transferred to the Trust pursuant to this Agreement for the benefit of the Certificateholders and (ii) to deliver to the Trustee a computer file or microfiche list containing a true and complete list of all such Accounts, identified by account number and by the Receivables balance and Principal Receivables balance as of the Cut Off Date. Such file or list shall be marked as Schedule 1 to this Agreement, delivered to the Trustee as ---------- confidential and proprietary, and is hereby incorporated into and made a part of this Agreement. The parties intend that, in the event this Agreement shall not be effective to transfer, assign and set over to the Trustee the Trust Assets, Seller shall be deemed hereunder to have granted to the Trustee a first perfected security interest in all of the property described in the first paragraph of this Section 2.1, and that this Agreement shall constitute a ----------- security agreement under applicable law. Seller and Servicer acknowledge that all instruments (including certificates of deposit) and bank accounts the security interest in which has been transferred to the Trust hereby and which are maintained with Servicer or of which Servicer has possession, shall be so maintained and held by Servicer on behalf and for the benefit of the Trust, in accordance with the terms of this Agreement. Additionally, for purposes of perfecting the Trustee's security interest in bank accounts pledged to Seller, which security interest Seller has transferred to the Trustee hereunder, this Agreement constitutes and shall be deemed (i) notice to Seller and Servicer by the Trustee of the Trustee's security interest in such bank accounts, and (ii) Seller and Servicer's acknowledgment of and consent to the Trustee's notice and the Trustee's security interest in such bank accounts. 24 By executing this Agreement and the Receivables Purchase Agreement, the parties hereto and thereto do not intend to cancel, release or in any way impair the conveyance made by FCNB, in its capacity as "Seller" under the Existing Pooling Agreement. Without limiting the foregoing, the parties hereto acknowledge and agree as follows: (i) Any transfer, assignment or other conveyance by FCNB to the Seller of assets under the Receivables Purchase Agreement shall be subject to any rights in such assets granted by FCNB, as "Seller" under the Existing Pooling Agreement, to the Trustee pursuant to the Existing Pooling Agreement. (ii) The trust created by and maintained under the Existing Pooling Agreement shall continue to exist and be maintained under this Agreement. (iii) All series of investor certificates issued under the Existing Pooling Agreement shall constitute Series issued and outstanding under this Agreement, and any supplement executed in connection with such series shall constitute a Supplement executed hereunder. (iv) All references to the Existing Pooling Agreement in any other instruments or documents shall be deemed to constitute references to this Agreement. All references in such instruments or documents to FCNB in its capacity as the "Seller" of receivables and related assets under the Existing Pooling Agreement shall be deemed to include reference to the Seller in such capacity hereunder. (v) The Seller hereby assumes and agrees to perform all obligations of FCNB, in its capacity as "Seller" (but not as "Servicer"), under or in connection with the Existing Pooling Agreement (as amended and restated by this Agreement) and any supplements to the Existing Pooling Agreement, specifically including obligations under Section 2.4(d) and Section 2.4(e). -------------- -------------- For the avoidance of doubt, FCNB shall continue to be liable for all representations, warranties and covenants made by it as "Seller" under the Existing Pooling Agreement. (vi) To the extent this Agreement requires that certain actions are to be taken as of the RPA Closing Date, FCNB's execution of such action under the Existing Pooling Agreement shall constitute satisfaction of such requirement. Section 2.2 Acceptance by Trustee. --------------------- (a) The Trustee hereby acknowledges its acceptance, on behalf of the Trust, of all the property described in the first paragraph of Section 2.1, ----------- and declares that it shall maintain such right, title and interest, upon the trust herein set forth, for the benefit of all Certificateholders. The Trustee further acknowledges that, prior to 25 or contemporaneously with the execution and delivery of this Agreement, Seller delivered to the Trustee the computer file or microfiche list described in the third paragraph of Section 2.1. ------------ (b) The Trustee hereby agrees not to disclose to any Person any of the account numbers or other information contained in the computer files or microfiche lists delivered to the Trustee by Seller pursuant to Sections -------- 2.1 and 2.6, except as is required in connection with the performance of --- --- its duties hereunder or in enforcing the rights of the Certificateholders, or to a Successor Servicer appointed pursuant to Section 10.2. The Trustee ------------ agrees to take such measures as shall be reasonably requested by Seller to protect and maintain the security and confidentiality of such information, and, in connection therewith, shall allow Seller to inspect the Trustee's security and confidentiality arrangements from time to time during normal business hours. The Trustee shall provide Seller with written notice five days prior to any disclosure pursuant to this subsection 2.2(b). ----------------- (c) The Trustee shall have no power to create, assume or incur indebtedness or other liabilities in the name of the Trust other than as contemplated in this Agreement. Section 2.3 Representations and Warranties of Seller Relating to ---------------------------------------------------- Seller. Seller hereby represents and warrants as of the Initial Closing ------ Date that: (a) Organization and Good Standing. Seller is a corporation duly ------------------------------ organized and validly existing in good standing under the laws of the State of Delaware, and has full corporate power, authority and legal right to own its property and conduct its business as such property is presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement and the Receivables Purchase Agreement and to execute and deliver to the Trustee each Series of Certificates issued hereunder. (b) Due Qualification. The Seller is not required to qualify to do ----------------- business as a foreign corporation in any state or to obtain any licenses or approvals in any jurisdiction in order to conduct its business. (c) Due Authorization. The execution and delivery of this Agreement ----------------- and the Receivables Purchase Agreement and the consummation of the transactions provided for herein and therein have been duly authorized by Seller by all necessary corporate action on the part of Seller. (d) No Conflict. The execution and delivery of this Agreement and the ----------- Receivables Purchase Agreement, the performance of the transactions contemplated hereby and thereby and the fulfillment of the terms hereof and thereof will not conflict with, result in any breach of any of the terms and provisions of, or constitute 26 (with or without notice or lapse of time or both) a default under, any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which Seller is a party or by which it or any of its property is bound. (e) No Violation. The execution and delivery of this Agreement and the ------------ Receivables Purchase Agreement, the performance of the transactions contemplated hereby and thereby and the fulfillment of the terms hereof and thereof will not conflict with or violate any Requirements of Law applicable to Seller. (f) No Proceedings. There are no proceedings or investigations pending -------------- or, to the best knowledge of Seller, threatened against Seller, before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement, the Receivables Purchase Agreement or the Certificates, (ii) seeking to prevent the issuance of the Certificates or the consummation of any of the transactions contemplated by this Agreement, the Receivables Purchase Agreement or the Certificates, (iii) seeking any determination or ruling that, in the reasonable judgment of the Seller, would materially and adversely affect the performance by the Seller of its obligations under this Agreement or the Receivables Purchase Agreement, (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement, the Receivables Purchase Agreement or the Certificates or (v) seeking to impose income taxes on the Trust (other than as a wholly-owned subsidiary of the Seller). (g) Eligibility of Accounts. As of the Cut Off Date, each Account was ----------------------- an Eligible Account. (h) All Consents Required. All approvals, authorizations, consents, --------------------- orders or other actions of any Person or of any governmental body or official required in connection with the execution and delivery of this Agreement, and the Certificates, the performance of the transactions contemplated by this Agreement, and the fulfillment of or terms hereof, have been obtained. (i) Bulk Sales. The execution, delivery and performance of this ---------- Agreement do not require compliance with any "bulk sales" law by Seller. (j) Solvency. The transactions under this Agreement do not and will -------- not render Seller insolvent, nor have such transactions been entered into in contemplation of the Seller's insolvency. (k) Selection Procedures. No selection procedures believed by Seller -------------------- to be materially adverse to the interests of the Trust or the Certificateholders were utilized by FCNB in selecting the Accounts. 27 The representations and warranties set forth in this Section 2.3 shall ----------- survive the transfer of the respective Receivables to the Trust and termination of the rights and obligations of the Servicer pursuant to Section 10.1. Upon discovery by Seller, the Servicer or the Trustee of a ------------ breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the others and any Enhancement Provider. For the purposes of the representations and warranties contained in this Section 2.3 and made by Seller on the Initial ----------- Closing Date, "Certificates" shall mean the Certificates issued on the Initial Closing Date. The Seller hereby represents and warrants, with respect to any Series, as of its Closing Date, unless otherwise stated in the related Supplement, that the representations and warranties of the Seller set forth in this Section 2.3 will be true and correct as of such ----------- date (for the purposes of such representations and warranties, "Certificates" shall mean the Certificates issued on the related Closing Date). Section 2.4 Representations and Warranties of Seller Relating to the -------------------------------------------------------- Agreement and the Receivables. ----------------------------- (a) Binding Obligation; Valid Transfer and Security Interest. Seller -------------------------------------------------------- hereby represents and warrants as of each date the representations are made or deemed made in Sections 4.1(e), (j) and (k) of the Receivables Purchase --------------- --- --- Agreement that such representations are true and correct. Seller hereby represents and warrants to the Trust that, as of the Initial Closing Date and the RPA Closing Date and, with respect to any Series issued after the Initial Closing Date, unless otherwise stated in the related Supplement, as of the Closing Date for such Series: (i) This Agreement constitutes a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). (ii) The representations and warranties set out in Schedule 2 are ---------- true and correct. Without limiting the generality of the foregoing, this Agreement constitutes either (A) a valid transfer to the Trust of all right, title and interest of Seller in, to and under the property described in the first paragraph of Section 2.1, and such property ----------- will be held by the Trust free and clear of any Lien of any Person claiming through or under Seller or its Affiliates, except for (x) Liens permitted under subsection 2.5(b), (y) the Seller Interest and ----------------- (z) Seller's right to receive interest accruing on, and investment earnings in respect of, the Finance Charge Accounts, the Principal Accounts and any other Investor Accounts as provided in this Agreement and any Supplement or (B) a grant of a security interest (as defined in the UCC as in effect in the applicable jurisdiction) in such property to the Trust, which is enforceable with respect to existing Receivables in the Accounts, all 28 monies due or to become due with respect thereto, the Collections, Recoveries and other proceeds thereof, and Insurance Proceeds relating thereto upon execution and delivery of this Agreement, and which will be enforceable with respect to such Receivables hereafter arising in the Accounts, all monies due or to become due with respect thereto, the Collections, Recoveries and other proceeds thereof and Insurance Proceeds relating thereto, at the time such Receivables arise. If this Agreement constitutes the grant of a security interest to the Trust in such property, upon the filing of the financing statement described in Section 2.1 and in the case of the Receivables hereafter arising in ----------- the Accounts and proceeds thereof and Insurance Proceeds relating to such Receivables, as the same arise, the Trust shall have a first priority perfected security interest in such property, except for Liens permitted under subsection 2.5(b). Neither Seller nor any Person ----------------- claiming through or under Seller shall have any claim to or interest in the Principal Accounts, the Finance Charge Accounts or the Distribution Accounts or any other Investor Accounts, except for Seller's right to receive interest accruing on, and investment earnings in respect of, the Finance Charge Accounts, Principal Accounts and any other Investor Accounts as provided in this Agreement and any Supplement, Seller's right to receive payments from the Finance Charge Accounts and Principal Accounts in accordance with the provisions of Article IV, and, if this Agreement constitutes the grant ---------- of a security interest in such property, except for the interest of Seller in such property as a debtor for purposes of the UCC as in effect in the applicable jurisdiction. (b) Eligibility of Receivables. Seller hereby represents and warrants -------------------------- as of each date the representations are made or deemed made in Section ------- 4.1(l) of the Receivables Purchase Agreement (other than the first sentence ------ thereof) that such representations are true and correct. Seller hereby represents and warrants to the Trust as of the Initial Closing Date that (i) each Receivable then existing is an Eligible Receivable, (ii) each Receivable then existing has been transferred to the Trust free and clear of any Lien of any Person (other than Liens permitted under subsection ---------- 2.5(b), the Seller Interest and Seller's right to receive interest accruing ------ on, and investment earnings in respect of, the Finance Charge Accounts, the Principal Accounts, the Excess Funding Account and any other Investor Accounts as provided in this Agreement and any Supplement) and in compliance, in all material respects, with all Requirements of Law applicable to Seller and (iii) with respect to each Receivable then existing, all consents, licenses, approvals or authorizations of or registrations or declarations with any Governmental Authority required to be obtained, effected or given by Seller in connection with the transfer of such Receivable to the Trust have been duly obtained, effected or given and are in full force and effect. On each day on which any new Receivable is transferred by Seller to the Trust, Seller shall be deemed to represent and warrant to the Trust that (i) each Receivable transferred on such day is an Eligible Receivable, (ii) each Receivable 29 transferred on such day has been transferred to the Trust free and clear of any Lien of any Person (other than Liens permitted under subsection 2.5(b), ----------------- the Seller Interest and Seller's right to receive interest accruing on, and investment earnings in respect of, the Finance Charge Accounts, the Principal Accounts and the other Investor Accounts, as provided in this Agreement and any Supplement) and in compliance, in all material respects, with all Requirements of Law applicable to Seller, (iii) with respect to each such Receivable, all consents, licenses, approvals or authorizations of or registrations or declarations with any Governmental Authority required to be obtained, effected or given by Seller or FCNB in connection with the transfer of such Receivable to the Trust have been duly obtained, effected or given and are in full force and effect and (iv) the representations and warranties set forth in subsection 2.4(a) are true and ----------------- correct with respect to each Receivable transferred on such day as if made on such day. (c) Notice of Breach. The representations and warranties set forth in ---------------- this Section 2.4 shall survive the transfer of the respective Receivables ----------- to the Trust and termination of the rights and obligations of the Servicer pursuant to Section 10.1. Upon discovery by Seller, the Servicer or the ------------ Trustee of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the others and any Enhancement Provider. (d) Transfer of Ineligible Receivables. In the event of a breach of ---------------------------------- any representation and warranty set forth in subsection 2.4(b), upon the ----------------- expiration of 30 days (or with the prior written consent of a Responsible Officer of the Trustee, such longer period, not to exceed 60 days, specified in such consent) of the earlier to occur of the discovery of such breach by Seller or receipt by Seller of written notice of such breach given by the Trustee or Servicer, Seller shall accept a retransfer of each Principal Receivable to which such breach relates (an "Ineligible ---------- Receivable") on the terms and conditions set forth below; provided, ---------- -------- however, that no such retransfer shall be required to be made with respect ------- to such Ineligible Receivable if, on any day within such 30-day period (or such longer period as may be specified in the consent) the representations and warranties in subsection 2.4(b) of this Agreement with respect to such ----------------- Ineligible Receivable shall then be true and correct in all material respects with respect to such Ineligible Receivable as if such Ineligible Receivable had been transferred to the Seller or the Trust on such day. Notwithstanding anything contained in this subsection 2.4(d) to the ----------------- contrary, in the event of breach of any representation and warranty set forth in subsection 2.4(b), with respect to (x) each Receivable existing as ----------------- of the Closing Date or an Addition Date, as applicable, and (y) each new Receivable thereafter arising, having been conveyed to the Seller or the Trust free and clear of any Lien of any Person claiming through or under Seller and its Affiliates and in compliance in all material respects, with all Requirements of Law applicable to FCNB or Seller, immediately upon the earliest to occur of the discovery of such breach by Seller or receipt by Seller of written notice of such breach given by the Trustee or the Servicer, Seller shall 30 repurchase and the Trustee shall convey, without recourse, representation or warranty, all of the Trustee's right, title and interest in each Ineligible Receivable, and the Servicer shall promptly notify Moody's of such event. Seller shall accept a retransfer of each such Ineligible Receivable and there shall be deducted from the aggregate amount of Principal Receivables used to calculate the Seller Amount the face amount of each such Ineligible Receivable. On and after the date of such retransfer, each Ineligible Receivable so retransferred shall not be included in the calculation of the Investor Percentage, the Seller Percentage or the Seller Amount. In the event that the exclusion of an Ineligible Receivable from the calculation of the Seller Amount would cause the Seller Amount to be less than the Minimum Seller Amount, Seller shall make a deposit in the Collection Account in immediately available funds in an amount equal to the Shortfall Amount to the extent the Seller has received such funds from FCNB under the Receivables Purchase Agreement, and, if Seller has not received such funds, to the extent Seller has funds available for such purpose after amounts payable to Securityholders (as defined in the Receivables Purchase Agreement) have been paid in full. The amounts so deposited are to be treated for all purposes hereof as Collections on such Ineligible Receivables. Such deposit shall be considered a prepayment in full of the Ineligible Receivable and shall be applied in accordance with Article IV. Upon each retransfer to Seller of ---------- such Ineligible Receivable, the Trust shall automatically and without further action be deemed to transfer, assign and set-over to Seller, without recourse, representation or warranty, all the right, title and interest of the Trust in, to and under such Ineligible Receivable, all monies due or to become due with respect thereto, all proceeds thereof and Insurance Proceeds relating thereto. The Trustee shall execute such documents and instruments of transfer and take such other actions as shall reasonably be requested by Seller to effect the transfer of such Ineligible Receivable pursuant to this subsection. The obligation of Seller to accept retransfer of any Ineligible Receivable shall constitute the sole remedy respecting any breach of the representations and warranties set forth in subsection 2.4(b) with respect to such Receivable available to ----------------- Certificateholders or the Trustee on behalf of Certificateholders. Each party hereto agrees that the failure by the Seller to make the deposit in accordance with this Section 2.4(d) shall not give rise to any claim -------------- against the Seller. (e) Retransfer of Trust Portfolio. In the event of a breach of any of ----------------------------- the representations and warranties set forth in subsection 2.4(a), either ----------------- the Trustee, or the Holders of Investor Certificates evidencing Undivided Interests aggregating not less than 25% of the Investor Amount of any Series, by notice then given in writing to Seller (and to the Trustee and the Servicer, if given by the Investor Certificateholders), may direct Seller to accept retransfer of all of the Principal Receivables following the period of 45 days after such notice, or within such longer period as may be specified in such notice, and Seller shall be obligated to accept retransfer of such Receivables on a Distribution Date first occurring after such applicable period on the terms and conditions set forth below; provided, however, -------- ------- 31 that no such retransfer shall be required to be made if, at any time during such applicable period the representations and warranties contained in subsection 2.4(a) shall then be true and correct in all material respects. ----------------- Seller shall deposit on the Transfer Date (in next day funds) for the related Distribution Date an amount equal to the deposit amount provided in the next sentence for such Receivables in the Distribution Account for distribution to the Investor Certificateholders pursuant to Section 12.3 to ------------ the extent the Seller has received such funds from FCNB under the Receivables Purchase Agreement, and, if Seller has not received such funds, to the extent Seller has funds available for such purpose after amounts payable to Securityholders (as defined in the Receivables Purchase Agreement) have been paid in full. The deposit amount for such retransfer will be equal to (i) the Aggregate Investor Amount at the end of the day on the last day of the Monthly Period preceding the Distribution Date on which the retransfer is scheduled to be made, less the amount, if any, transferred to the Distribution Account on such Transfer Date for application to principal payments in respect of Investor Certificates, plus (ii) an amount equal to all interest accrued but unpaid on the Investor Certificates at the Certificate Rate through such last day, less the amount transferred to the Distribution Account from the Finance Charge Account on such Transfer Date in respect of Certificate Interest. Payment of the deposit amount and all other amounts in the Distribution Account in respect of the preceding Monthly Period shall be considered a prepayment in full of the Receivables represented by the Investor Certificates. On the Distribution Date following the Transfer Date on which such amount has been deposited in full into the Distribution Account, the Receivables and all monies due or to become due with respect thereto and all proceeds of the Receivables and Insurance Proceeds relating thereto shall be transferred to Seller, and the Trustee shall execute and deliver such instruments of transfer, in each case without recourse, representation or warranty, as shall be reasonably requested by Seller to vest in Seller, or its designee or assignee, all right, title and interest of the Trust in, to and under the Receivables, all monies due or to become due with respect thereto (including all Finance Charge Receivables) and all proceeds thereof and Insurance Proceeds relating thereto. If the Trustee or the Investor Certificateholders give a notice directing Seller to accept a retransfer as provided above, the obligation of Seller to accept a retransfer of the Receivables pursuant to this subsection 2.4(e) shall constitute the sole ----------------- remedy respecting a breach of the representations and warranties contained in subsection 2.4(a) available to the Investor Certificateholders or the ----------------- Trustee on behalf of the Investor Certificateholders. Each party hereto agrees that the failure by the Seller to make the deposit in accordance with this Section 2.4(e) shall not give rise to any claim against the -------------- Seller. (f) Seller will not add additional RPA Seller parties to the Receivables Purchase Agreement, and not become a party to a new receivables purchase agreement, without first satisfying the Rating Agency Condition. 32 (g) Seller will be adequately capitalized to engage in the transactions contemplated by its Certificate of Incorporation. Section 2.5 Covenants of Seller. Seller hereby covenants that: ------------------- (a) Receivables to be Accounts. Seller will take no action to cause -------------------------- any Receivable to be characterized as anything other than an "account" (as defined in the UCC as in effect in the applicable jurisdiction). Each Receivable shall be payable pursuant to a contract which does not create a Lien on any goods purchased thereunder. (b) Security Interests. Except for the transfers hereunder, Seller ------------------ will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Receivable, whether now existing or hereafter transferred to the Trust, or any interest therein; Seller will immediately notify the Trustee of the existence of any Lien on any Receivable; and Seller shall defend the right, title and interest of the Trust in, to and under the Receivables, whether now existing or hereafter transferred to the Trust, against all claims of third parties; provided, however, that nothing in this subsection 2.5(b) shall -------- ------- ----------------- prevent or be deemed to prohibit Seller from suffering to exist upon any of the Receivables any Liens for state, municipal or other local taxes if such taxes shall not at the time be due and payable or if Seller shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto; provided further, however, that nothing in this subsection 2.5(b) ---------------- ------- ----------------- shall prevent or be deemed to prohibit Seller from granting a participation interest in the Seller Interest or the Undivided Interest in the Trust evidenced thereby. (c) Account Allocations. ------------------- (i) In the event that Seller is unable for any reason to transfer Receivables to the Trust in accordance with the provisions of this Agreement (including, without limitation, by reason of the occurrence of an Insolvency Event) then, in any such event, (A) Seller agrees to instruct the Servicer to allocate and pay to the Trust, after the date of such inability, payments received in respect of the Accounts giving rise to such Receivables first to the total amount of Principal Receivables from such Accounts transferred to the Trust; and (B) Seller agrees to have such amounts applied as Collections in accordance with Article IV. If such event shall occur, it shall be ---------- deemed a Pay Out Event immediately upon the occurrence thereof. The parties hereto agree that Finance Charge Receivables, whenever created, with respect to Principal Receivables which have been transferred to the Trust shall continue to be a part of the Trust notwithstanding any cessation of the transfer of additional Principal Receivables to the Trust and Collections with respect thereto shall continue to be allocated and paid in accordance with Article IV. ---------- 33 (ii) In the event that pursuant to subsection 2.4(d), Seller ----------------- accepts a retransfer of an Ineligible Receivable as a result of a breach of the representations and warranties in subsection 2.4(b) ----------------- relating to such Receivable, then, in any such event, Seller agrees to instruct the Servicer to allocate payments received in respect of the Account giving rise to such Receivable first to the total amount of Principal Receivables of the appropriate Obligor retained in the Trust and thereafter to the total amount owing by such Obligor on any Ineligible Receivable retransferred to Seller. (d) Delivery of Collections. Seller agrees to pay to the Servicer (if ----------------------- the Servicer is not then FCNB) promptly (but in no event later than two Business Days after receipt) all Collections received by Seller in respect of the Receivables. (e) [Reserved.] -------- (f) Finance Charges and Other Fees. Seller agrees that, except as ------------------------------ otherwise required by any Requirement of Law or as is deemed by FCNB to be advisable for its MasterCard and VISA program based on a good faith assessment by FCNB of the various factors impacting the use of its MasterCard and VISA cards, FCNB shall not reduce at any time (x) the Finance Charges assessed in respect of any Accounts, or (y) any other fees charged on any of the Accounts, if as a result of such reduction, FCNB's reasonable expectation of the Portfolio Yield in respect of any Series as of such date would be less than the current Base Rate applicable to such Series. (g) Cardholder Agreements and Cardholder Guidelines. FCNB agrees to ----------------------------------------------- comply with and perform its obligations under the Cardholder Agreements relating to the Accounts and the Cardholder Guidelines and all applicable regulations of MasterCard and VISA, except insofar as any failure so to comply or conform would not materially and adversely affect the rights of the Trust or the Certificateholders hereunder or under the Certificates or any Supplement. In that regard, except as aforesaid, and so long as such changes are made applicable to the entire portfolio of MasterCard and VISA accounts owned and serviced by the Servicer which have characteristics the same as, or substantially similar to, the Accounts which are subject hereto (if any), FCNB shall be free to change the terms and provisions of such Cardholder Agreements or the Cardholder Guidelines in any respect. (h) Compliance with Law. Seller hereby agrees to comply in all ------------------- material respects with all Requirements of Law applicable to Seller. (i) Activities of Seller. Seller shall not engage in any business or -------------------- activity of any kind or enter into any transaction or indenture, mortgage, instrument, 34 agreement, contract, lease or other undertaking which is not directly related to the transactions contemplated and authorized by this Agreement or the Receivables Purchase Agreement or which is otherwise a Permitted Transaction. (j) Indebtedness. Seller shall not create, incur, assume or suffer to ------------ exist any Indebtedness or other liability whatsoever, except (i) obligations incurred or owing to the Trust under this Agreement or the Receivables Purchase Agreement, (ii) liabilities incident to the maintenance of its corporate existence in good standing and the ownership of the Receivables, (iii) obligations incident to a Permitted Transaction or (iv) obligations to FCNB or Spiegel for payment for Trust Assets acquired under the Receivables Purchase Agreement. (k) Guarantees. Seller shall not become or remain liable, directly or ---------- contingently, in connection with any Indebtedness or other liability of any other Person, whether by guarantee, endorsement (other than endorsements of negotiable instruments for deposit or collection in the ordinary course of business), agreement to purchase or repurchase, agreement to supply or advance funds, or otherwise except incident to a Permitted Transaction. (l) Investments. Seller shall not make or suffer to exist any loans or ----------- advances to, or extend any credit to, or make any investments (by way of transfer of property, contributions to capital, purchase of stock or securities or evidences of indebtedness, acquisition of the business or assets, or otherwise) in, any Person except (i) for purchases of Receivables pursuant to the Receivables Purchase Agreement, (ii) for investments in Permitted Investments in accordance with the terms of this Agreement or (iii) pursuant to a Permitted Transaction. (m) Stock; Merger; Sales. Seller shall not sell any shares of any -------------------- class of its capital stock to any Person, or enter into any transaction of merger or consolidation, or liquidate or dissolve itself (or suffer any liquidation or dissolution), or acquire or be acquired by any Person, or convey, sell, lease or otherwise dispose of any of its property or business, except as provided for in this Agreement. (n) Distributions. Seller shall not declare or pay, directly or ------------- indirectly, any dividend or make any other distribution (whether in cash or other property) with respect to the profits, assets or capital of Seller or any Person's interest therein, or purchase, redeem or otherwise acquire for value any of its capital stock now or hereafter outstanding, except that so long as no Pay Out Event has occurred and is continuing and no Pay Out Event would occur as a result thereof or after giving effect thereto, Seller may declare and pay dividends on its capital stock. (o) Agreements. Seller shall not become a party to, or permit any of ---------- its properties to be bound by, any indenture, mortgage, instrument, contract, agreement, lease or other undertaking, except this Agreement, the Receivables Purchase 35 Agreement and the Supplements and except incidental to a Permitted Transaction or amend or modify the provisions of its certificate of Incorporation or issue any power of attorney except to the Trustee or to the Servicer. (p) Receivables Purchase Agreement. Seller shall not give any consent ------------------------------ to FCNB or exercise any of its rights under the Receivables Purchase Agreement unless the Rating Agency Condition is satisfied with respect thereto. (q) Separate Corporate Existence. Seller shall: ---------------------------- (i) Maintain its own deposit account or accounts, separate from those of any Affiliate, with commercial banking institutions. The funds of Seller will not be diverted to any other Person or for other than corporate uses of Seller, except for dividends allowed under Section 2.5(m) or Section 2.5(n). -------------- -------------- (ii) Ensure that, to the extent that it shares the same officers or other employees as any of its stockholders or Affiliates, the salaries of and the expenses related to providing benefits to such officers and other employees shall be fairly allocated among such entities, and each such entity shall bear its fair share of the salary and benefit costs associated with all such common officers and employees. (iii) Ensure that, to the extent that it jointly contracts with any of its stockholders or Affiliates to do business with vendors or service providers or to share overhead expenses, the costs incurred in so doing shall be allocated fairly among such entities, and each such entity shall bear its fair share of such costs. To the extent that Seller contracts or does business with vendors or service providers where the goods and services provided are partially for the benefit of any other Person, the costs incurred in so doing shall be fairly allocated to or among such entities for whose benefit the goods and services are provided, and each such entity shall bear its fair share of such costs. All material transactions (other than this Agreement and the Receivables Purchase Agreement) between Seller and any of its Affiliates shall be only on an arm's length basis. (iv) Maintain a principal executive and administrative office through which its business is conducted separate from those of its Affiliates. To the extent that Seller and any of its stockholders or Affiliates have offices in the same location, there shall be a fair and appropriate allocation of overhead costs among them, and each such entity shall bear its fair share of such expenses. 36 (v) Conduct its affairs strictly in accordance with its Certificate of Incorporation and observe all necessary, appropriate and customary corporate formalities, including, but not limited to, holding all regular and special stockholders' and directors' meetings appropriate to authorize all corporate action, keeping separate and accurate minutes of its meetings, passing all resolutions or consents necessary to authorize actions taken or to be taken, and maintaining accurate and separate books, records and accounts, including, but not limited to, payroll and intercompany transaction accounts. (vi) Conduct its own business in its own name. (vii) Use separate stationary, invoices and checks. (viii) Hold itself out as a separate entity. (r) Location of Records. Seller (i) shall not move outside the State ------------------- of Delaware the location of its chief executive office without 45 days' prior written notice to the Trustee and (ii) will promptly take all actions required (including but not limited to all filings and other acts necessary or advisable under the UCC of each applicable jurisdiction) in order to continue the first priority perfected ownership interest of the Certificateholders in all Receivables now owned or hereunder created. Seller will give the Trustee prompt notice of a change within the State of Delaware of the location of its chief executive office. Section 2.6 Addition of Accounts. -------------------- (a) If, on any Record Date, the Aggregate Principal Balance is less than the Minimum Aggregate Principal Balance, either Seller or the Servicer (whichever shall first become aware of same) promptly shall give the Trustee written notice thereof, and as soon as practicable (but in no event later than 10 days thereafter) Seller shall designate additional Eligible Accounts ("Additional Accounts") to be included as Accounts and shall ------------------- transfer the Receivables in such Additional Accounts to the Trust, in a sufficient amount so that the Aggregate Principal Balance on such Record Date would have, if the Receivables from such Additional Accounts had been transferred to the Trust on or prior to such Record Date, at least equaled the Minimum Aggregate Principal Balance. If Seller fails to transfer Receivables as required by the preceding sentence, then the Trustee shall give Seller immediate notice thereof. (b) In addition to its obligation under subsection 2.6(a), Seller may, ----------------- but shall not be obligated to, from time to time, designate Additional Accounts to be included as Accounts. 37 (c) Seller agrees that any Receivables from Additional Accounts shall be transferred by Seller to the Trust under subsection 2.6(a), (b) or (e) ----------------- --- --- upon and subject to the following conditions: (i) On or before the fifth Business Day (the "Notice Date") prior ----------- to the Addition Date in respect of Additional Accounts added pursuant to subsection 2.6(a) or (b), Seller shall give the Trustee and the ----------------- --- Servicer (if a Person other than Seller) written notice that such Additional Accounts will be included and specifying the approximate aggregate amount of the Receivables to be transferred; (ii) Seller (A) shall transfer to the Trust Receivables only in Eligible Accounts, and (B) shall, if such designation of Additional Accounts is made pursuant to subsection 2.6(b) or (e) and the addition ----------------- --- of such Additional Accounts (1) would cause the quotient (the "Annual Quotient") of (x) --------------- the sum of the Annual Account Additions after giving effect to such addition, plus the related Base Amount, divided by (y) the ---- ------- -- related Base Amount to exceed 1.20, or (2) would cause the quotient (the "Quarterly Quotient") of ------------------ (x) the sum of the Quarterly Account Additions after giving effect to such addition, plus the related Base Amount, divided by ---- ------- -- (y) the related Base Amount to exceed 1.15; in either case, deliver a letter from each Rating Agency to the Trustee by the Addition Date confirming that the Rating Agency Condition has been satisfied with respect to the addition of such Additional Accounts; (iii) On or prior to the Addition Date, in respect of Additional Accounts added pursuant to subsection 2.6(a) or (b), Seller shall have ----------------- --- delivered to the Trustee a written transfer agreement (including an acceptance by the Trustee on behalf of the Trust for the benefit of the Investor Certificateholders) in substantially the form of Exhibit ------- A (the "Transfer Agreement") and shall have indicated in its books and - ------------------ records, including the computer files of the Receivables, that the Receivables created in connection with the Additional Accounts have been transferred by Seller to the Trust; and shall have delivered to the Trustee a computer file or microfiche list containing a true and complete list of all Additional Accounts identified by account number, and the aggregate amount of the Receivables and the aggregate amount of Principal Receivables in such Additional Accounts, as of the Addition Date in respect of Additional Accounts added pursuant to subsection 2.6(a) or (b), which computer file or microfiche list ----------------- --- 38 shall be marked as Schedule 1 to the Transfer Agreement, delivered to ---------- the Trustee as confidential and proprietary, shall be as of the date of such Transfer Agreement and incorporated into and made a part of such Transfer Agreement and this Agreement; (iv) Seller shall be deemed to represent and warrant that (x) each Additional Account is, as of the Addition Date, an Eligible Account, (y) no selection procedures reasonably believed by Seller to be materially adverse to the interests of the Investor Certificateholders were utilized in selecting the Additional Accounts from the available Eligible Accounts, and (z) as of the Addition Date, Seller is not insolvent and will not be rendered insolvent by adding any such Additional Account to any Cycle; (v) Seller shall be deemed to represent and warrant that, as of the Addition Date, the representations and warranties set out in Schedule 2 are true and correct; and without limiting the generality ---------- of the foregoing, the Transfer Agreement constitutes either (x) a valid transfer to the Trust of all right, title and interest of Seller in, to and under the Receivables then existing and thereafter arising in respect of the Additional Accounts, all monies due or to become due with respect thereto (including all Finance Charge Receivables), and all proceeds (including, without limitation, as defined in the UCC as in effect in the applicable jurisdiction) of such Receivables and Insurance Proceeds relating thereto, and such property will be owned by the Trust free and clear of any Lien of any Person, except for (i) Liens permitted under subsection 2.5(b), (ii) the Seller Interest and ----------------- (iii) Seller's right to receive interest accruing on, and investment earnings in respect of, the Finance Charge Accounts, the Principal Accounts and any other Investor Accounts, as provided in this Agreement and any Supplement, or (y) a grant of a security interest (as defined in the UCC as in effect in the applicable jurisdiction) in such property to the Trust, which is enforceable with respect to then existing Receivables of the Additional Accounts, all monies due or to become due with respect thereto, the proceeds thereof and Recoveries and Insurance Proceeds relating thereto upon the transfer of such Receivables to the Trust, and which will be enforceable with respect to the Receivables thereafter transferred in respect of Additional Accounts, the proceeds thereof and Insurance Proceeds relating thereto upon such transfer; and (z) if the Transfer Agreement constitutes the grant of a security interest to the Trust in such property, upon the filing of a financing statement as described in Section 2.1 with ----------- respect to such Additional Accounts and in the case of the Receivables of Additional Accounts thereafter transferred and the proceeds thereof, and Insurance Proceeds relating to such Receivables, upon such transfer, the Trust shall have a first priority perfected security interest in such property, except for Liens permitted under subsection 2.5(b), the Seller Interest and Seller's right to receive ----------------- interest accruing on, and investment 39 earnings in respect of, the Finance Charge Accounts, the Principal Accounts and any other Investor Accounts, as provided in this Agreement and any Supplement; (vi) Seller shall, on the Addition Date for Additional Accounts added pursuant to subsection 2.6(a) or (b), deliver a certificate of a ----------------- --- Vice President or more senior officer confirming the items set forth in clauses (ii), (iii), (iv) and (v) above; and ------------ ----- ---- --- (vii) Seller shall, on the Addition Date for Additional Accounts added pursuant to subsection 2.6(a) or (b), deliver an Opinion of ----------------- --- Counsel with respect to the Receivables in the Additional Accounts substantially in the form of Exhibit B, and which shall be reasonably --------- acceptable to the Rating Agencies. (d) Seller shall provide to each Rating Agency and to each Enhancement Provider prior written notice each time Additional Accounts are added pursuant to subsection 2.6(a) or (b). ----------------- --- (e) In addition to the occasional designation of Additional Accounts as required or permitted pursuant to subsections 2.6(a) and (b) above, ------------------ --- Seller agrees that each new MasterCard or VISA account originated in the normal course of FCNB's business after the Cut Off Date, where Receivables with respect to such accounts are purchased by Seller pursuant to the Receivables Purchase Agreement, shall automatically be included as an Account (and the Trust Assets arising thereunder automatically transferred to the Trust) effective on the tenth Business Day following the end of the Monthly Period in which such account is assigned to one of Seller's billing cycles; provided, however, that such automatic inclusion and transfer shall -------- ------- not occur with respect to any such account if: (i) such account does not qualify as an Eligible Account, (ii) the inclusion in the Trust of the Receivables in such Account, if such Accounts had been designated by Seller pursuant to subsection 2.6(b), would have caused the limitations set forth ----------------- in subsection 2.6(c)(ii) to be exceeded (unless there shall have been --------------------- delivered to the Trustee a letter from each Rating Agency confirming the Rating Agency Condition has been satisfied with respect to the addition of such Additional Account), or (iii) Seller otherwise designates such account as an account which is not to be included as an Account pursuant to this subsection 2.6(e). On or before the fifth Business Day of each month next ----------------- succeeding a calendar month in which Accounts were included pursuant to the preceding sentence, Seller shall (i) indicate in its books and records, including the computer files of the receivables, that the Receivables created in connection with such included Accounts have been transferred to the Trust, and (ii) shall deliver to the Trustee a computer file or microfiche list containing a true and complete list of all such included Accounts identified by account number and by the Receivables balance and Principal Receivables balance as of the end of such calendar month, 40 which computer file or microfiche list shall be delivered to the Trustee as confidential and proprietary and incorporated into and made a part of this Agreement. Section 2.7 Removal of Accounts. ------------------- (a) Subject to the conditions set forth below, during the Revolving Period Seller may designate from time to time Accounts no longer to be designated for inclusion in the Trust (the "Removed Accounts"); provided, ---------------- -------- however, that Seller shall not make more than one such designation in any ------- Monthly Period. On or before the fifth Business Day (the "Removal Notice -------------- Date") prior to the date on which Removed Accounts shall be designated (the ---- "Removal Date"), Seller shall give the Trustee, the Servicer (if a Person ------------ other than Seller), each Rating Agency and each Enhancement Provider written notice that the Receivables from such Removed Accounts are to be retransferred to Seller. Notwithstanding anything in this Section 2.7(a) to the contrary, Seller's designation of Removed Accounts hereunder shall be on a basis that complies with generally accepted accounting principles as determined by Seller after consultation with its accountants. (b) Seller shall be permitted to designate and require retransfer to it of the Receivables from Removed Accounts only upon satisfaction of the following conditions: (i) The Rating Agency Condition has been satisfied with respect to the removal of such Removed Accounts; (ii) On each Removal Date, the Trustee shall deliver to Seller a written retransfer agreement in substantially the form of Exhibit C --------- (the "Retransfer Agreement") and Seller shall deliver to the Trustee a -------------------- computer file, microfiche or written list containing a true and complete schedule identifying all Removed Accounts specifying for each such Removed Account, as of the Removal Notice Date, its account number and the aggregate amount of Receivables therein. Such computer file, microfiche or written list shall be as of the date of such Retransfer Agreement incorporated into and made a part of this Agreement; (iii) Seller shall represent and warrant as of each Removal Date that (a) the list of Removed Accounts, as of the Removal Notice Date, complies in all material respects with the requirements of (ii) above; ---- (b) no selection procedure used by Seller which is adverse to the interests of the Investor Certificateholders was utilized in selecting the Removed Accounts; and (c) as of the Removal Notice Date and as of the Removal Date, Seller is 41 not insolvent, and such removal was not made in contemplation of the Seller's insolvency; (iv) The removal of any Receivables of any Removed Accounts on any Removal Date shall not, in the reasonable belief of Seller, cause a Pay Out Event to occur, or an event which with notice or lapse of time or both would constitute a Pay Out Event; (v) The Aggregate Principal Balance shall not be less than the Minimum Aggregate Principal Balance after giving effect to such removal; and (vi) Seller shall have delivered to the Trustee and to each Enhancement Provider a certificate of an officer of Seller confirming the items set forth in clauses (i) through (v) above. The Trustee may ----------- --- conclusively rely on such certificate, shall have no duty to make inquiries with regard to the matters set forth therein and shall incur no liability in so relying. Upon satisfaction of the above conditions, the Trustee shall execute and deliver the Retransfer Agreement to Seller, and the Receivables from the Removed Accounts shall no longer constitute a part of the Trust. Section 2.8 Discount Option. ---------------- (a) The Seller shall have the option to designate at any time and from time to time a percentage or percentages, which may be a fixed percentage or a variable percentage based on a formula (the "Discount Percentage"), of ------------------- all or any specified portion of Principal Receivables created after the Discount Option Date to be treated as Finance Charge Receivables ("Discount -------- Option Receivables"). The Seller shall also have the option of reducing or ------------------ withdrawing the Discount Percentage, at any time and from time to time, on and after such Discount Option Date. The Seller shall provide to the Servicer, the Trustee and any Rating Agency 30 days prior written notice of the Discount Option Date, and such designation shall become effective on the Discount Option Date (i) unless such designation in the reasonable belief of the Seller would cause a Pay Out Event with respect to any Series to occur, or an event which, with notice or lapse of time or both, would constitute a Pay Out Event with respect to any Series or (ii) unless the Rating Agency Condition shall not have been satisfied with respect to such designation; provided that for this purpose Moody's shall not be deemed to be a "Rating Agency." (b) After the Discount Option Date, the Seller shall treat Discount Option Receivable Collections as Collections of Finance Charge Receivables as provided herein. 42 ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES Section 3.1 Acceptance of Appointment and Other Matters Relating to ------------------------------------------------------- the Servicer. ------------ (a) FCNB agrees to act as the Servicer under this Agreement. The Investor Certificateholders by their acceptance of the Investor Certificates consent to FCNB acting as Servicer. (b) Subject to the provisions of this Agreement, the Servicer shall service and administer the Receivables and shall collect payments due under the Receivables in accordance with its customary and usual servicing procedures for servicing credit card receivables comparable to the Receivables and in accordance with the Cardholder Guidelines and shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable. Without limiting the generality of the foregoing and subject to Section ------- 10.1, the Servicer is hereby authorized and empowered (i) unless such power ---- and authority is revoked by the Trustee on account of the occurrence of a Servicer Default pursuant to Section 10.1, to make withdrawals from the ------------ Collection Account as set forth in this Agreement, (ii) unless such power and authority is revoked by the Trustee on account of the occurrence of a Servicer Default pursuant to Section 10.1, to instruct the Trustee to make ------------ withdrawals and payments from the Principal Accounts, the Finance Charge Accounts and any other Investor Accounts in accordance with such instructions as set forth in this Agreement, (iii) unless such power and authority is revoked by the Trustee on account of the occurrence of a Servicer Default pursuant to Section 10.1, to instruct the Trustee in ------------ writing as provided herein, and (iv) unless such power and authority is revoked by the Trustee on account of the occurrence of a Servicer Default pursuant to Section 10.1, to execute and deliver, on behalf of the Trust ------------ for the benefit of the Certificateholders, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Receivables and, after the delinquency of any Receivable and to the extent permitted under and in compliance with applicable law and regulations, to commence enforcement proceedings with respect to such Receivables. The Trustee agrees that it shall promptly follow the instructions of the Servicer, including those to withdraw funds from the Principal Accounts, the Finance Charge Accounts, the Excess Funding Account and any other Series Account. The Trustee shall furnish the Servicer with any powers of attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder. 43 (c) (i) In the event that Seller is unable for any reason to transfer Receivables to the Trust in accordance with the provisions of this Agreement (including, without limitation, by reason of the occurrence of an Insolvency Event) the Servicer agrees to allocate and pay to the Trust, after such date, all Collections in respect of the Accounts giving rise to such Receivables first to the total amount of Principal Receivables from such Accounts transferred to the Trust. (ii) In the event that pursuant to subsection 2.4(d), Seller ----------------- accepts a retransfer of an Ineligible Receivable as a result of a breach of the representations and warranties in subsection 2.4(b) ----------------- relating to such Receivable, the Servicer agrees to allocate payments received in respect of the Account giving rise to such Receivable first to the total amount of Principal Receivables of the appropriate Obligor retained in the Trust and thereafter to the total amount owing by such Obligor on any Ineligible Receivables retransferred to Seller. (d) The Servicer shall not be obligated to use separate servicing procedures, offices, employees or accounts for servicing the Receivables from the procedures, offices, employees and accounts used by the Servicer in connection with servicing other credit card receivables. (e) The Servicer shall maintain fidelity bond coverage insuring against losses through wrongdoing of its officers and employees who are involved in the servicing of credit card receivables. Section 3.2 Servicing Compensation. As compensation for its servicing ---------------------- activities hereunder and reimbursement for its expenses as set forth in the immediately following paragraph, the Servicer shall be entitled to receive a monthly servicing fee in respect of any Monthly Period (or portion thereof) prior to the termination of the Trust pursuant to Section 12.1 ------------ (the "Monthly Servicing Fee"). The share of the Monthly Servicing Fee --------------------- allocable to each Series of Investor Certificates with respect to any Monthly Period (or portion thereof) shall be payable on the related Distribution Date and, with respect to each Series (unless provided in the related Supplement), shall be equal to one-twelfth of the product of (A) the applicable Series Servicing Fee Percentage and (B) the Investor Amount of such Series as of the first day of the related Monthly Period, or portion thereof (the "Investor Monthly Servicing Fee"). The share of the ------------------------------ Monthly Servicing Fee allocable to the Seller Interest with respect to any Monthly Period (or portion thereof) shall be equal to one-twelfth of the product of (A) the Seller Amount and (B) the weighted average of the Series Servicing Fee Percentages with respect to each Series of Investor Certificates then outstanding (the "Monthly Seller Servicing Fee"). The ---------------------------- Monthly Servicing Fee shall equal the sum of (x) the aggregate amount of Investor Monthly Servicing Fees with respect to each Series then outstanding and (y) the Monthly Seller Servicing Fee. The Investor Monthly Servicing Fee with 44 respect to any Series is payable in arrears on the related Distribution Date (unless otherwise provided in the related Supplement) and the Monthly Seller Servicing Fee is payable in arrears no later than the last Distribution Date with respect to any Series occurring in a Monthly Period. The Monthly Seller Servicing Fee and, unless otherwise provided in a Supplement, each Investor Monthly Servicing Fee, shall be calculated on the basis of a 360-day year consisting of twelve 30-day months. The Servicer's expenses include the reasonable fees and disbursements of independent accountants and all other expenses incurred by the Servicer in connection with its activities hereunder; provided that the Servicer -------- shall not be liable for any liabilities, costs or expenses of the Trust, the Investor Certificateholders or the Certificate Owners arising under any tax law, including without limitation any federal, state or local income or franchise taxes or any other tax imposed on or measured by income (or any interest or penalties with respect thereto or arising from a failure to comply therewith). The Servicer shall be required to pay such expenses for its own account and shall not be entitled to any payment therefor other than the Monthly Servicing Fee. Section 3.3 Representations, Warranties and Covenants of the Servicer. --------------------------------------------------------- FCNB, as initial Servicer, hereby makes, and any successor Servicer by its appointment hereunder shall make, the following representations and warranties and covenants on which the Trustee has relied in accepting the Receivables in trust and in authenticating Certificates: (a) Organization and Good Standing. The Servicer is duly organized, ------------------------------ validly existing and in good standing under the laws of its jurisdiction of organization, and has full corporate power, authority and right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement. (b) Due Qualification. The Servicer is qualified as a foreign banking ----------------- association or other entity in any state where it is required to be so qualified to service the Receivables as required by this Agreement and has obtained all necessary licenses and approvals as required under federal and state law, in each case, where the failure to be so qualified, licensed or approved, could reasonably be expected materially and adversely to affect the ability of the Servicer to comply with the terms of this Agreement. (c) Due Authorization. The execution, delivery, and performance of ----------------- this Agreement have been duly authorized by the Servicer by all necessary corporate action on the part of the Servicer. 45 (d) Binding Obligation. This Agreement constitutes legal, valid and ------------------ binding obligations of the Servicer, enforceable in accordance with its terms, except as enforceability may be limited by Debtor Relief Laws and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity). (e) No Violation. The execution and delivery of this Agreement by the ------------ Servicer, and the performance of the transactions contemplated by this Agreement and the fulfillment of the terms hereof applicable to the Servicer, will not conflict with, violate, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any Requirements of Law applicable to the Servicer or any indenture, contract, agreement, mortgage, deed of trust or other instrument to which the Servicer is a party or by which it is bound. (f) No Proceedings. There are no proceedings or investigations pending -------------- or, to the best knowledge of the Servicer, threatened against the Servicer before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality seeking to prevent the issuance of the Certificates or the consummation of any of the transactions contemplated by this Agreement, seeking any determination or ruling that, in the reasonable judgment of the Servicer, would materially and adversely affect the performance by the Servicer of its obligations under this Agreement, or seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement. (g) Rescission and Cancellation. Other than pursuant to and in --------------------------- accordance with the Cardholder Guidelines, the Servicer shall not rescind or cancel any Receivable unless such rescission or cancellation shall have been ordered or directed by a Governmental Authority. (h) Other Actions. Other than pursuant to and in accordance with the ------------- Cardholder Guidelines and as otherwise specifically permitted by this Agreement, the Servicer shall not (i) take or fail to take any action if such action or failure to act would impair the rights of the Trust in any Receivable, or (ii) revise or defer any payment due in respect of any Receivable. (i) Compliance with Requirements of Law. The Servicer shall duly ----------------------------------- satisfy all obligations on its part to be fulfilled under or in connection with the Receivables or Accounts, will maintain in effect all qualifications required under Requirements of Law in order to properly service the Receivables and the Accounts and will comply in all material respects with all Requirements of Law in connection with servicing the Receivables and the Accounts the failure to comply with which would have a material adverse effect on the Certificateholders. 46 (j) Regulatory Filings. Servicer shall make any filings, reports, ------------------ notices, applications and registrations with, and seek any consents or authorizations from, the Securities and Exchange Commission and any state securities authority on behalf of the Trust as may be necessary or advisable to comply with any federal or state securities or reporting requirements laws. Section 3.4 Reports and Records for the Trustee; Bank Account ------------------------------------------------- Statements. ----------- (a) Daily Reports. On each Business Day, the Servicer shall prepare ------------- and make available at the office of the Servicer for inspection by the Trustee a record setting forth (i) the aggregate amount of Collections processed by the Servicer on the preceding Business Day and (ii) the aggregate amount of Receivables as of the close of business on the preceding Business Day. (b) Monthly Servicer's Certificate. Unless otherwise stated in the ------------------------------ related Supplement with respect to any Series, on each Determination Date, the Servicer shall forward to the Trustee, the Paying Agent, any Rating Agency and any Enhancement Provider a certificate of a Servicing Officer substantially in the form of Exhibit D setting forth (i) the aggregate --------- amount of Collections processed during the preceding Monthly Period, (ii) the aggregate amount of the Investor Percentage of Collections of Principal Receivables processed by the Servicer pursuant to Article IV during the ---------- preceding Monthly Period, (iii) the aggregate amount of the Investor Percentage of Collections of Finance Charge Receivables processed by the Servicer pursuant to Article IV during the preceding Monthly Period, (iv) ---------- the aggregate amount of Receivables and the balance on deposit in each Finance Charge Account, each Principal Account, the Excess Funding Account and each other Series Account with respect to Collections processed as of the end of the last day of the preceding Monthly Period, (v) the aggregate amount, if any, of withdrawals, drawings or payments under any Enhancement with respect to each Series required to be made with respect to the previous Monthly Period, and (vi) the sum of all amounts payable to the Investor Certificateholders on the succeeding Distribution Date in respect of Certificate Interest and Certificate Principal. Section 3.5 Annual Servicer's Certificate. The Servicer will deliver ----------------------------- to the Trustee, any Enhancement Provider and any Rating Agency on or before April 30 of each calendar year, beginning with April 30, 1993, an Officer's Certificate substantially in the form of Exhibit E stating that (a) a --------- review of the activities of the Servicer during the preceding calendar year and of its performance under this Agreement was made under the supervision of the officer signing such certificate and (b) to the best of such officer's knowledge, based on such review, the Servicer has fully performed all its obligations under this Agreement throughout such year, or, if there has been a default in the performance of any such obligation, specifying each 47 such default known to such officer and the nature and status thereof. A copy of such certificate may be obtained by any Investor Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office. Section 3.6 Annual Independent Public Accountants' Servicing Report. ------------------------------------------------------- (a) On or before April 30 of each calendar year, beginning with April 30, 1993, the Servicer shall cause KPMG or another firm of nationally recognized independent public accountants (who may also render other services to the Servicer or Seller) to furnish a report covering the preceding annual period to the effect that such accountants have applied certain agreed-upon procedures to certain documents and records relating to the servicing of Accounts under this Agreement, compared the information contained in the Servicer's certificates delivered during the period covered by such report with such documents and records and that no matters came to the attention of such accountants that caused them to believe that such servicing was not conducted in compliance with Section 3.2, Article IV ----------- ---------- and Section 8.8, except for such exceptions as such accountants shall ----------- believe to be immaterial and such other exceptions as shall be set forth in such statement. In addition, each report shall set forth the agreed-upon procedures performed. A copy of such report may be obtained by any Investor Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office. In addition, the Servicer shall cause such accountants to furnish a copy of such report to each Rating Agency and to each Enhancement Provider. (b) On or before April 30 of each calendar year, beginning with April 30, 1993, the Servicer shall cause KPMG or another firm of nationally recognized independent public accountants (who may also render other services to the Servicer or Seller) to furnish a report to the Trustee to the effect that they have compared the mathematical calculations of each amount set forth in the monthly certificates forwarded by the Servicer pursuant to subsection 3.4(c) during the period covered by such report ----------------- (which shall be the period from January 1, to and including December 31 of such calendar year) with the Servicer's computer reports which were the source of such amounts and that on the basis of such comparison, such accountants are of the opinion that such amounts are in agreement, except for such exceptions as they believe to be immaterial and such other exceptions as shall be set forth in such statement. A copy of such report may be obtained by any Investor Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office. In addition, the Servicer shall cause such accountants to furnish a copy of such report to each Rating Agency and to each Enhancement Provider. Section 3.7 Tax Treatment. Seller has structured this Agreement and ------------- the Investor Certificates to facilitate a secured, credit-enhanced financing on favorable terms with the intention that the Investor Certificates will constitute indebtedness of Seller for federal income and state and local tax purposes; and Seller and each 48 Investor Certificateholder by acceptance of its Certificate agrees to recognize and report the Investor Certificates as indebtedness of Seller for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income, and to report all receipts and payments relating thereto in a manner that is consistent with such characterization. Section 3.8 Notices to Seller. In the event that Seller is no longer ----------------- affiliated with Servicer, Servicer shall deliver or make available to Seller each certificate and report required to be prepared, forwarded or delivered thereafter pursuant to Sections 3.4, 3.5 and 3.6. ------------ --- --- ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.1 Rights of Certificateholders. Each Series of Investor ---------------------------- Certificates shall represent Undivided Interests in the Trust, including the benefits of any Enhancement and the right to receive the Collections and other amounts at the times and in the amounts specified in this Article ------- IV to be deposited in Investor Accounts for the account of such Investor -- Certificates or paid to the Investor Certificateholders of such Series; provided, however, that the aggregate interest represented by such Series -------- ------- of Certificates at any time in the Principal Receivables shall not exceed an amount equal to the Investor Amount at such time. The Seller Interest shall represent the remaining Undivided Interest in the Trust, including the right to receive the Collections and other amounts at the times and in the amounts specified in this Article IV to be paid with respect to the ---------- Seller Interest, provided, however, that the aggregate interest represented -------- ------- by the Seller Interest at any time in the Principal Receivables shall not exceed the Seller Amount at such time, and the Seller Interest shall not represent any interest in the Investor Accounts, except as provided in this Agreement, or the benefits of any Enhancement issued with respect to any Series. Section 4.2 Establishment of Investor Accounts. ---------------------------------- (a) The Collection Account. The Servicer, for the benefit of the ---------------------- Certificateholders, shall establish and maintain in the name of the Trust, or cause to be established and maintained, with an office or branch located in the state designated by the Servicer of a depository institution or trust company (which may include the Trustee) organized under the laws of the United States of America or any one of the states thereof a non-interest bearing segregated corporate trust account (the "Collection ---------- Account") bearing a designation clearly indicating that the funds deposited ------- therein are held in trust for the benefit of the Certificateholders; provided, however, that at all times the certificates of deposit, -------- ------- short-term deposits or 49 commercial paper or the long-term unsecured debt obligations (other than such obligation whose rating is based on collateral or on the credit of a Person other than such institution or trust company) of such depository institution or trust company shall have a credit rating from the applicable Rating Agency of P-1, A-1+, as applicable, respectively, in the case of the certificates of deposit, short-term deposits or commercial paper, or a rating from the applicable Rating Agency of Aaa, AAA, as applicable, in the case of the long-term unsecured debt obligations, and which is a member of the FDIC (a "Qualified Institution"). Pursuant to Section 3.1(b), the --------------------- -------------- Servicer shall have the revocable power to withdraw funds from the Collection Account for the purposes of carrying out its duties hereunder. The Supplement for any Series may require the Trustee to establish and maintain a subaccount of the Collection Account for a Series (such subaccount, a "Collection Subaccount") bearing a designation clearly --------------------- indicating that the funds deposited therein are held in trust for the benefit of the Certificateholders of such Series with a depository institution or trust company meeting the criteria provided in such Supplement. Funds on deposit in the Collection Subaccount with respect to any Series shall not be for the benefit of the Investor Certificateholders of any other Series. The funds on deposit in each Collection Subaccount shall be invested in the manner provided in the related Supplement, and any earnings on such investments shall be applied as provided in such Supplement. The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Collection Account and in each Collection Subaccount and all proceeds thereof, and the Trustee shall have sole dominion and control of such account, funds and proceeds. (b) The Finance Charge Accounts and Principal Accounts. The Trustee, -------------------------------------------------- for the benefit of the Investor Certificateholders, shall establish and maintain with itself (or with another Qualified Institution) in the name of the Trust two segregated corporate trust accounts for each Series (in each case, the "Series Finance Charge Account" and the "Series Principal ----------------------------- ---------------- Account", respectively, all of which are referred to herein as the "Finance ------- ------- Charge Accounts" and the "Principal Accounts", respectively), bearing a --------------- ------------------ designation clearly indicating that the funds therein are held for the benefit of the Investor Certificateholders of such Series. The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the accounts created pursuant to this subsection (b) and -------------- all proceeds thereof, and the Trustee shall have sole dominion and control of such accounts, funds and proceeds. Pursuant to authority granted to it hereunder, the Servicer shall have the revocable power to instruct the Trustee to withdraw funds from the Finance Charge Accounts and Principal Accounts for the purpose of carrying out the Servicer's duties hereunder. The Trustee at all times shall maintain accurate records reflecting each transaction in the Principal Accounts and the Finance Charge Accounts and that funds held therein shall at all times be held in trust for the benefit of the respective Investor Certificateholders. 50 (c) The Distribution Account. The Trustee, for the benefit of the ------------------------ Investor Certificateholders, shall cause to be established and maintained in the name of the Trust, with an office or branch of a Qualified Institution, a non-interest bearing segregated demand deposit account (the "Distribution Account") bearing a designation clearly indicating that the -------------------- funds deposited therein are held in trust for the benefit of the Investor Certificateholders. The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Distribution Account and all proceeds thereof, and the Trustee shall have sole dominion and control of such account, funds and proceeds. The Paying Agent shall have the revocable authority to make withdrawals from the Distribution Account. (d) Establishment of the Excess Funding Account. The Servicer, for the ------------------------------------------- benefit of the Investor Certificateholders and the holder of the Seller Interest, shall establish and maintain or cause to be established and maintained in the name of the Trustee, on behalf of the Trust, with a Qualified Institution designated by the Servicer, a segregated trust account within the corporate trust department of such Qualified Institution (the "Excess Funding Account"), bearing a designation clearly indicating ---------------------- that the funds deposited therein are held in trust for the benefit of the Investor Certificateholders and the holder of the Seller Interest. The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Excess Funding Account and in all proceeds thereof, and the Trustee shall have sole dominion and control of such account, funds and proceeds. Pursuant to the authority granted to it pursuant to subsection 3.1(b), the Servicer shall have the power, revocable ----------------- by the Trustee, to withdraw funds and to instruct the Trustee to withdraw funds from the Excess Funding Account for the purposes of carrying out its duties hereunder. (e) Administration of the Investor Accounts. Funds on deposit in the --------------------------------------- Principal Accounts and the Finance Charge Accounts shall at all times be invested in Permitted Investments for the benefit of Seller; provided, that -------- any such investment shall mature and such funds shall be available for withdrawal on or prior to the Transfer Date following the Record Date occurring in the Monthly Period in which such funds were processed for collection. The Trustee shall maintain for the benefit of the Investor Certificateholders and the Servicer possession of the negotiable instruments or securities evidencing the Permitted Investments described in clause (a) of the definition thereof from the time of purchase thereof ---------- until the time of sale or maturity. On a monthly basis, all interest and earnings (net of losses and investment expenses) on funds on deposit in the Principal Accounts and the Finance Charge Accounts shall be deposited by the Trustee in a separate deposit account with a Qualified Institution in the name of Seller, which shall not constitute a part of the Trust, or shall otherwise be turned over by the Trustee to Seller in accordance with Seller's instructions. Subject to the restrictions set forth above, Seller shall have the authority to instruct the Trustee with respect to the investment of funds on deposit in the Principal Accounts and the Finance Charge Accounts. For purposes of 51 determining the availability of funds or the balances in the Finance Charge Accounts and the Principal Accounts for any reason under this Agreement, all investment earnings on such funds shall be deemed not to be available or on deposit. (f) Failure of Institution to Qualify. If an institution at which the --------------------------------- Collection Account, any Collection Subaccount, the Excess Funding Account or any Investor Account is established ceases to be a Qualified Institution, the Servicer or the Trustee (as the case may be) shall notify the Rating Agencies and within 15 days establish a replacement account at a Qualified Institution and transfer any monies, documents, instruments, securities, securities entitlements, certificates of deposit and other property to such replacement account. From the date such new account is established, it shall be the Collection Account, Excess Funding Account or applicable Investor Account, as appropriate. Section 4.3 Collections and Allocations. --------------------------- (a) Collections. The Servicer shall deposit all Collections in the ----------- Collection Account as promptly as possible after the Date of Processing of such Collections, but in no event later than the second Business Day following such Date of Processing; provided, however, that during the -------- ------- Revolving Period for all outstanding Series, the Servicer may at its option deposit on a daily basis as aforesaid only those Collections attributable to Finance Charge Receivables and allocable to the Investor Certificates, and retain all other Collections until the next Collections Deposit Day, at which time such other Collections, netted as provided in subsection 4.3(c), ----------------- shall be deposited in the Collection Account. The Servicer shall allocate such amounts to each Series of Investor Certificates and to the Seller Interest in accordance with this Article IV ---------- and shall withdraw the required amounts from the Collection Account or pay such amounts to the Seller Interest or to the other persons entitled thereto pursuant to this Agreement, in each case as modified by any Supplement. The Servicer shall make such deposits or payments on the date indicated therein, if applicable, by wire transfer in next day funds. (b) Commingling Conditions. Notwithstanding anything in this Agreement ---------------------- to the contrary, for so long as, and only so long as, FCNB shall remain the Servicer hereunder and no Servicer Default has occurred and is continuing and either (i) the Servicer provides to the Trustee a letter of credit or other arrangement covering risk of collection of the Servicer and the Servicer shall have satisfied the Rating Agency Condition with respect to such arrangement or (ii) the Servicer (unless the Rating Agency Condition has been satisfied with respect to making monthly deposits) shall have and maintain a certificate of deposit or short-term deposit rating of P-1 by Moody's and of at least A-1 by Standard & Poor's and deposit insurance as required by law and by the FDIC, the Servicer need not deposit 52 Collections to the Collection Account in the manner provided in this Article IV or make payments to the holder of the Seller Interest prior to ---------- the close of business on the day any Collections are deposited in the Collection Account as provided in this Article IV, but may make such ----------- deposits, payments and withdrawals on the Transfer Date in the Monthly Period following the Monthly Period in which such amounts were collected in an amount equal to the net amount of such deposits, payments and withdrawals which would have been made but for the provisions of this paragraph. (c) Net Payments. So long as First Consumers National Bank is the ------------ Servicer and First Consumers National Bank, as Servicer, is making deposits to the Collection Account in accordance with subsection 4.3(a), First ----------------- Consumers National Bank, acting as Servicer and as agent for the holder of the Seller Interest, may make a net payment to the Collection Account on the Collections Deposit Day in the amount of all Collections received by the Servicer since the previous Collections Deposit Date, minus all amounts payable to First Consumers National Bank or with respect to the Seller Interest on or before the next succeeding Transfer Date in accordance with this Article IV and, in such event, the Servicer will, on the Collections ---------- Deposit Date, retain, or pay to the holder of the Seller Interest, as the case may be, all amounts payable to First Consumers National Bank or the holder of the Seller Interest as aforesaid in lieu of the payments required to be made under this Article IV. ---------- (d) Investor Net Recoveries. On each Determination Date, the Servicer ----------------------- shall calculate the Investor Net Recoveries, if any, for the Monthly Period next preceding such Determination Date. On or before the Transfer Date next following such Determination Date, the Servicer shall deposit the amount of Investor Net Recoveries, if any, in the Collection Account. (e) Adjustments for Miscellaneous Credits. The Servicer shall be ------------------------------------- obligated to reduce on a monthly basis the aggregate amount of Principal Receivables used to calculate the Seller Amount as provided in this subsection 4.3(c) (a "Credit Adjustment") with respect to any Principal ----------------- ----------------- Receivable (i) which was created in respect of merchandise refused or returned by the Obligor thereunder, (ii) which is reduced by the Servicer by any rebate, refund, chargeback or adjustment, (iii) as to which the Obligor thereunder has asserted a counterclaim or defense and either (A) the Servicer has agreed such counterclaim or defense is valid or (B) a final nonappealable judgment or decree has been entered in favor of such Obligor in respect of such counterclaim or defense by a court or arbitral body having jurisdiction thereof, or (iv) which the Servicer has determined was created through a fraudulent or counterfeit charge, but only if and to the extent such fraudulent or counterfeit charges are not included as charge-offs under the Cardholder Guidelines. In the event that the exclusion of the amount of a Credit Adjustment from the calculation of the Seller Amount would cause the Seller Amount to be less than zero, 53 Seller shall make a deposit, no later than the Business Day following the Date of Processing of such Credit Adjustment, in the Excess Funding Account in immediately available funds, in an amount equal to the amount by which such Credit Adjustment exceeded the Seller Amount on such Date of Processing to the extent the Seller has received such funds from FCNB under the Receivables Purchase Agreement, and, if Seller has not received such funds, to the extent Seller has funds available for such purpose after amounts payable to Securityholders (as defined in the Receivables Purchase Agreement) have been paid in full. Each party hereto agrees that the failure by the Seller to make the deposit in accordance with this Section ------- 4.3(e) shall not give rise to any claim against the Seller. ------ (f) Allocations for the Seller Interest. Throughout the existence of ----------------------------------- the Trust, unless otherwise stated in any Supplement, the Servicer shall allocate to the Seller Interest an amount equal to the product of (i) the Seller Percentage and (ii) the aggregate amount of such Principal Collections and Finance Charge Collections, respectively, in respect of each Monthly Period. Notwithstanding anything in this Agreement to the contrary, unless otherwise stated in any Supplement, the Servicer need not deposit this amount or any other amounts so allocated to the Seller Interest pursuant to any Supplement into the Collection Account and shall pay, or be deemed to pay, such amounts as collected to the holder of the Seller Interest, except, if the Seller Amount is less than zero, then Principal Collections which are allocated to the Seller Interest shall be deposited in the Excess Funding Account until the Seller Amount is equal to zero. (g) Shared Principal Collections; Excess Funding Account. On each ---------------------------------------------------- Business Day, Principal Collections allocable to the Seller Interest and Shared Principal Collections payable to the holder of the Seller Interest in an aggregate amount equal to the Shortfall Amount shall be deposited in the Excess Funding Account. Thereafter, amounts in the Excess Funding Account shall be treated as Shared Principal Collections to the extent that, after giving effect to the application and distribution of such amount as Shared Principal Collections, the Aggregate Principal Balance would equal or exceed the Minimum Aggregate Principal Balance. Shared Principal Collections shall be allocated to outstanding Principal Sharing Series pro rata based on the Principal Shortfall, if any, for each such --- ---- Principal Sharing Series, and the Servicer shall (except as provided above) pay any remaining Shared Principal Collections on each Business Day to the holder of the Seller Interest. (h) Investment of Amounts in Excess Funding Account. Amounts on ----------------------------------------------- deposit in the Excess Funding Account on any Business Day will be invested, at the direction of the Seller, by the Servicer or the Trustee on behalf of the Seller in Permitted Investments maturing on the next Business Day. Earnings from such investments received shall be paid to the Seller or, if the Seller Amount as 54 determined on such Business Day does not exceed the Minimum Seller Amount, such earnings shall be deposited in the Excess Funding Account. (i) Allocation of Deposit Obligations. If the Seller or the Servicer --------------------------------- shall fail to make any Deposit Obligation, the amount thereof shall first be allocated to reduce the Seller Amount until the Seller Amount equals the Minimum Seller Amount. Any remaining shortfall shall be allocated to each Series ratably based upon a fraction the numerator of which is the Investor Percentage used by such Series to allocate Default Amounts and the denominator of which is the sum of all such numerators of all Series outstanding (such allocated amount, the "Series Share" of such shortfall). ------------ The Series Share of each series that specifies a Minimum Seller Percentage greater than zero shall be allocated to reduce the Minimum Seller Amount, and any Collections otherwise allocable to the Seller Amount or balance on deposit in the Excess Funding Account shall be available on a ratable basis to such Series to cover any shortfalls arising from such failure; provided -------- to the extent the Seller Amount falls below zero, any portion of the Series Share of any such Series that is not covered as described above shall be allocated to such Series. The Series Share of each Series that specifies a Minimum Seller Percentage of zero shall be allocated to such Series. [THE REMAINDER OF ARTICLE IV IS RESERVED AND SHALL BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES] ARTICLE V [ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES] ARTICLE VI THE CERTIFICATES Section 6.1 The Certificates. The Investor Certificates of each Series ---------------- and any Class thereof shall be issued in fully registered form and shall be substantially in the form of the exhibits with respect thereto attached to the related Supplement. The Investor Certificates shall, upon issue, be executed and delivered by the Trustee. The Investor Certificates shall be issuable in a minimum denomination of $1,000 Undivided Interest and integral multiples thereof, unless otherwise provided in any Supplement, and the Investor Certificates of each Series shall be issued upon initial issuance in an aggregate original principal amount equal to the Initial Investor 55 Amount of such Series. Each Certificate shall be executed by manual or facsimile signature on behalf of the Trustee by an authorized officer of the Trustee. Certificates bearing the manual or facsimile signature of the individual who was, at the time when such signature was affixed, authorized to sign on behalf of the Trustee shall not be rendered invalid, notwithstanding that such individual has ceased to be so authorized prior to the authentication and delivery of such Certificates or does not hold such office at the date of such Certificates. No Certificate shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by the manual or facsimile signature of a duly authorized signatory, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. Section 6.2 Authentication of Certificates. Contemporaneously with the ------------------------------ initial transfer of the Receivables, whether now existing or hereafter acquired (other than Receivables in Additional Accounts) and the other components to the Trust, the Trustee shall authenticate and deliver the initial Series of Investor Certificates. The Certificates shall be duly authenticated by or on behalf of the Trustee, and together shall evidence the entire ownership of the Trust. Section 6.3 Registration of Transfer and Exchange of Certificates. ----------------------------------------------------- (a) The Trustee shall cause to be kept at the office or agency to be maintained by a transfer agent and registrar (the "Transfer Agent and ------------------ Registrar") in accordance with the provisions of Section 11.16 a register --------- ------------- (the "Certificate Register") in which, subject to such reasonable -------------------- regulations as it may prescribe, the Transfer Agent and Registrar shall provide for the registration of the Investor Certificates and of transfers and exchanges of the Investor Certificates as herein provided. The Trustee is hereby initially appointed Transfer Agent and Registrar for the purpose of registering the Investor Certificates and transfers and exchanges of the Investor Certificates as herein provided. The Trustee shall be permitted to resign as Transfer Agent and Registrar upon 30 days written notice to the Servicer. In the event that the Trustee shall no longer be the Transfer Agent and Registrar, the Trustee shall appoint a successor Transfer Agent and Registrar. Upon surrender for registration of transfer of any Investor Certificate of any Series at any office or agency of the Transfer Agent and Registrar maintained for such purpose, the Trustee shall execute, authenticate and deliver, in the name of the designated transferee or transferees, one or more new Investor Certificates of such Series in authorized denominations of like aggregate Undivided Interests. 56 At the option of an Investor Certificateholder, Investor Certificates of any Series may be exchanged for other Investor Certificates of the same Series and authorized denominations of like Undivided Interests, upon surrender of the Investor Certificates to be exchanged at any such office or agency. Whenever any Investor Certificates are so surrendered for exchange, the Trustee shall execute, authenticate and deliver the Investor Certificates which the Certificateholder making the exchange is entitled to receive. Every Investor Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in a form satisfactory to the Trustee and the Transfer Agent and Registrar duly executed by the Certificateholder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Investor Certificates, but the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Investor Certificates. All Investor Certificates surrendered for registration of transfer and exchange shall be canceled and disposed of in a manner satisfactory to Seller and the Trustee. (b) Except as provided in Section 6.12 or 7.2 or this subsection ------------ --- ---------- 6.3(b), Seller shall not transfer the Seller Interest or any interest ------ therein other than participations granted under the Receivables Purchase Agreement. Seller may from time to time transfer a portion of the Seller Interest upon satisfaction of the following conditions: (i) the Seller Amount shall not be less than the Minimum Seller Amount, in each case as of the date of, and deducting the transferred portion of, such transfer; (ii) the Rating Agency Condition shall have been satisfied with respect to such transfer; and (iii) Seller shall have delivered to Trustee and each Rating Agency an Opinion of Counsel to the effect that such transfer does not adversely affect any of the conclusions stated in opinions as to federal income tax delivered on any Closing Date, dated the date of such transfer, with respect thereto. Any portion of the Seller Interest transferred as described above may be further transferred only upon satisfaction of the conditions set forth in clauses (ii) and (iii) above. ------------ --- 57 (c) The Transfer Agent and Registrar will maintain at its expense in the Borough of Manhattan, The City of New York, an office or offices or agency or agencies where Investor Certificates may be surrendered for registration of transfer or exchange. Section 6.4 Mutilated, Destroyed, Lost or Stolen Certificates. If (a) ------------------------------------------------- any mutilated Certificate is surrendered to the Transfer Agent and Registrar, and the Transfer Agent and Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Certificate and (b) there is delivered to the Transfer Agent and Registrar and the Trustee such security or indemnity as may be required by them (which unsecured agreement of indemnity by an institutional Certificateholder shall be sufficient for such purposes) to save each of them harmless, then, in the absence of notice to the Trustee that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor and aggregate Undivided Interest. In connection with the issuance of any new Certificate under this Section 6.4, the ----------- Trustee or the Transfer Agent and Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and the Transfer Agent and Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section 6.4 ----------- shall constitute complete and indefeasible evidence of ownership in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 6.5 Persons Deemed Owners. Prior to due presentation of a --------------------- Certificate for registration of transfer, the Trustee and the Paying Agent, the Transfer Agent and Registrar and any agent of any of them may treat the person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Article ------- V (as described in any Supplement) and for all other purposes whatsoever, - and neither the Trustee and the Paying Agent, the Transfer Agent and Registrar nor any agent of any of them shall be affected by any notice to the contrary; provided, however, that in determining whether the holders of -------- ------- Investor Certificates evidencing the requisite Undivided Interests have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Investor Certificates owned by Seller, the Servicer or any Affiliate thereof shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Investor Certificates which a Responsible Officer in the Corporate Trust Office of the Trustee knows to be so owned shall be so disregarded. Investor Certificates so owned which have been pledged in good faith shall not be disregarded and may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to 58 act with respect to such Investor Certificates and that the pledgee is not Seller, the Servicer or an Affiliate thereof. Section 6.6 Appointment of Paying Agent. --------------------------- (a) The Paying Agent shall make distributions to Investor Certificateholders from the Distribution Account pursuant to Articles IV ----------- and V hereof. Any Paying Agent shall have the revocable power to withdraw - funds from the Distribution Account for the purpose of making distributions referred to above. The Trustee may revoke such power and remove the Paying Agent for a particular Series, if the Trustee determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Agreement in any material respect. The Paying Agent, unless the Supplement relating to any Series states otherwise, shall initially be the Trustee. The Trustee shall be permitted to resign as Paying Agent upon 30 days' written notice to Seller. In the event that the Trustee shall no longer be the Paying Agent, the Trustee shall appoint a successor. Each Paying Agent must be acceptable to Seller and the Servicer. The provisions of Sections 11.1, 11.2 and 11.3 shall apply to the Trustee ------------- ---- ---- also in its role as Paying Agent, for so long as the Trustee shall act as Paying Agent. (b) The Trustee shall cause the Paying Agent (other than itself) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee that such Paying Agent will hold all sums, if any, held by it for payment to the Investor Certificateholders in trust for the benefit of the Investor Certificateholders entitled thereto until such sums shall be paid to such Certificateholders and shall agree, and if the Trustee is the Paying Agent it hereby agrees, that it shall comply with all requirements of the Internal Revenue Code regarding the withholding of payments in respect of federal income taxes due from Certificate Owners by the Trustee. Section 6.7 Access to List of Certificateholders' Names and Addresses. --------------------------------------------------------- The Trustee will furnish or cause to be furnished by the Transfer Agent and Registrar to the Servicer or the Paying Agent, within five Business Days after receipt by the Trustee of a request therefor from the Servicer or the Paying Agent, respectively, in writing, a list in such form as the Servicer or the Paying Agent may reasonably require, of the names and addresses of the Investor Certificateholders as of the most recent Record Date for payment of distributions to Investor Certificateholders. If Holders of Investor Certificates (the "Applicants") evidencing Undivided Interests ---------- aggregating not less than 10% of the Investor Amount of the Investor Certificates of any Series apply in writing to the Trustee, and such application states that the Applicants desire to communicate with other Investor Certificateholders of any Series with respect to their rights under this Agreement or under the Investor Certificates and is accompanied by a copy of the communication which such Applicants propose to transmit, then the Trustee, after having been adequately 59 indemnified by the Seller for its costs and expenses, shall afford or shall cause the Transfer Agent and Registrar to afford such Applicants access during normal business hours to the most recent list of Certificateholders held by the Trustee and shall give the Servicer notice that such request has been made, within five Business Days after the receipt of such application. Such list shall be as of a date no more than 45 days prior to the date of receipt of such Applicants' request. Every Certificateholder, by receiving and holding a Certificate, agrees with the Trustee that neither the Trustee, the Transfer Agent and Registrar, nor any of their respective agents shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Certificateholders hereunder, regardless of the source from which such information was obtained. Section 6.8 Authenticating Agent. -------------------- (a) The Trustee may appoint one or more authenticating agents with respect to the Certificates which shall be authorized to act on behalf of the Trustee in authenticating the Certificates in connection with the issuance, delivery, registration of transfer, exchange or repayment of Certificates. Whenever reference is made in this Agreement to the authentication of Certificates by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent. Each authenticating agent must be acceptable to Seller and the Servicer. (b) Any institution succeeding to the corporate agency business of an authenticating agent shall continue to be an authenticating agent without the execution or filing of any paper or any further act on the part of the Trustee or such authenticating agent. (c) An authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to Seller. The Trustee may at any time terminate the agency of an authenticating agent by giving notice of termination to such authenticating agent and to Seller. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an authenticating agent shall cease to be acceptable to the Trustee or Seller or the Servicer, the Trustee promptly may appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent. No successor authenticating agent shall be appointed unless acceptable to the Trustee, Seller and the Servicer. (d) The Servicer agrees to pay each authenticating agent from time to time reasonable compensation for its services under this Section 6.8, and ----------- the Trustee 60 shall be entitled to be reimbursed and Servicer shall reimburse the Trustee for such reasonable payments actually made, subject to the provisions of Section 11.5. ------------- (e) The provisions of Sections 11.1, 11.2 and 11.3 shall be applicable ------------- ---- ---- to any authenticating agent. (f) Pursuant to an appointment made under this Section 6.8, the ----------- Certificates may have endorsed thereon, in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: This is one of the Certificates described in the Pooling and Servicing Agreement. ------------------------------- as Authenticating Agent for the Trustee, By:---------------------------- Authorized Officer Section 6.9 Book-Entry Certificates. Unless otherwise provided in any ----------------------- related Supplement, the Investor Certificates of any Series upon original issuance, shall be issued in the form of a one or more typewritten Certificates representing the Book-Entry Certificates, to be delivered to the Clearing Agency specified in the Supplement for such Series, by, or on behalf of, Seller. The Investor Certificates of each Series shall, unless otherwise provided in the related Supplement, initially be registered on the Certificate Register in the name of the nominee of the Clearing Agency, and no Certificate Owner will receive a definitive certificate representing such Certificate Owner's interest in the Investor Certificates, except as provided in Section 6.11. Unless and until definitive, fully registered ------------ Investor Certificates of any Series (the "Definitive Certificates") have ----------------------- been issued to Certificate Owners: (i) the provisions of this Section 6.9 shall be in full force and ----------- effect with respect to each such Series; (ii) Seller, the Servicer, the Paying Agent, the Transfer Agent and Registrar and the Trustee may deal with the related Clearing Agency and the related Clearing Agency Participants for all purposes (including the making of distributions on the Investor Certificates of each such Series) as the authorized representatives of such Certificate Owners; 61 (iii) to the extent that the provisions of this Section 6.9 ----------- conflict with any other provisions of this Agreement, the provisions of this Section 6.9 shall control with respect to each such Series; ----------- and (iv) the rights of Certificate Owners of each such Series shall be exercised only through the Clearing Agency and the applicable Clearing Agency Participants and shall be limited to those established by law and agreements between such Certificate Owners and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the Depository Agreement applicable to a Series, unless and until Definitive Certificates are issued pursuant to Section 6.11, the ------------ initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit distributions of principal and interest on the Investor Certificates to such Clearing Agency Participants. Section 6.10 Notices to Clearing Agency. Whenever notice or other -------------------------- communication to the Certificateholders of a Series is required under this Agreement, unless and until Definitive Certificates shall have been issued to the Certificate Owners of such Series, the Trustee shall give all such notices and communications specified herein to be given to Holders of the Investor Certificates of such Series to the Clearing Agency. Section 6.11 Definitive Certificates Initially Issued as Book-Entry ------------------------------------------------------ Certificates. If (i)(A) Seller advises the Trustee in writing that the ------------ Clearing Agency is no longer willing or able properly to discharge its responsibilities under the related Depository Agreement, and (B) the Trustee or Seller is unable to locate a qualified successor, (ii) Seller, at its option, advises the Trustee in writing that it elects to terminate the book-entry system through such Clearing Agency or (iii) after the occurrence of a Servicer Default, Certificate Owners of a Series representing beneficial interests aggregating not less than 50% of the Investor Amount of a Series advise the Trustee and the related Clearing Agency through the related Clearing Agency Participants in writing that the continuation of a book-entry system through such Clearing Agency is no longer in the best interests of the Certificate Owners, the Trustee shall notify all Certificate Owners of such Series through such Clearing Agency, of the occurrence of any such event and of the availability of Definitive Certificates to Certificate Owners requesting the same. Upon surrender to the Trustee of the Investor Certificates of such Series by the related Clearing Agency, accompanied by registration instructions from the related Clearing Agency for registration, the Trustee shall issue the Definitive Certificates of such Series. Neither Seller nor the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Certificates of such Series all references herein to obligations imposed upon or to be performed by the Clearing Agency shall be deemed to be imposed upon and performed by the Trustee, to the extent applicable 62 with respect to such Definitive Certificates and the Trustee shall recognize the Holders of the Definitive Certificates of such Series as Certificateholders of such Series hereunder. Section 6.12 New Issuances. ------------- (a) Upon any Exchange, Seller shall under Section 6.1 deliver to the ----------- Trustee for execution and authentication under Section 6.2, one or more new ----------- Series of Investor Certificates. Any such Series of Investor Certificates shall be substantially in the form specified in the related Supplement and shall bear, upon its face, the designation for the Series to which it belongs, as selected by Seller. Except as specified in any Supplement for a related Series, all Investor Certificates of any Series shall rank pari ---- passu and be equally and ratably entitled as provided herein to the ----- benefits hereof (except that the Enhancement provided for any Series shall not be available for any other Series) without preference, priority or distinction on delivery, all in accordance with terms and provisions of this Agreement and the related Supplement. (b) Seller may require Trustee to issue to Seller under Section 6.1, ----------- for execution and redelivery to Trustee for authentication under Section ------- 6.2, one or more newly issued Series of Investor Certificates in exchange --- for a reduction in the Seller Interest (any such transfer, a "Seller ------ Exchange"). In addition, to the extent permitted for any Series of Investor -------- Certificates as specified in the related Supplement, the Investor Certificateholders of such Series may tender their Investor Certificates to the Trustee pursuant to the terms and conditions set forth in such Supplement in exchange for one or more newly issued Series of Investor Certificates (an "Investor Exchange"). The Seller Exchange and Investor ----------------- Exchange are referred to collectively herein as an "Exchange." The holder of the Seller Interest or Investor Certificateholders, as applicable, may perform an Exchange by notifying the Trustee in writing at least five days (but in no event less than three Business Days) in advance (an "Exchange -------- Notice") of the date upon which the Exchange is to occur (an "Exchange ------ -------- Date"). Any Exchange Notice shall state the designation of any Series to be ---- issued on the Exchange Date and, with respect to each such Series: (i) its Initial Investor Amount (or the method of calculating such Initial Investor Amount), (ii) its Certificate Rate (or the method of allocating interest payments or other cash flows to such Series), if any, and (iii) the Enhancement Provider, if any, with respect to such Series. On the Exchange Date, the Trustee shall authenticate and deliver any such Series of Investor Certificates only upon delivery to it of the following: (A) a Supplement in form satisfactory to the Trustee satisfying the criteria set forth in subsection 6.12(c) executed by the Seller and specifying the ------------------ Principal Terms of such Series, (B) the applicable Enhancement, if any, (C) the agreement, if any, pursuant to which the Enhancement Provider agrees to provide the Enhancement, if any, (D) an Opinion of Counsel dated the Exchange Date with respect to such Exchange, to the effect that, for federal income tax purposes, (1) such Exchange will not 63 adversely affect the tax characterization as debt of the Investor Certificates of any outstanding Series or Class that was characterized as debt at the time of its issuance, (2) such action will not cause the Trust to be deemed to be an association (or publicly traded partnership) taxable as a corporation, (3) such Exchange will not cause or constitute an event in which gain or loss would be recognized by any Investor Certificateholder and (4) except as is otherwise provided in a Supplement, the Investor Certificates of the Series established pursuant to such Supplement will be properly characterized as debt, (E) evidence that the Rating Agency Condition has been satisfied with respect to such Exchange, (F) an Officer's Certificate of the Seller that on the Exchange Date (1) the Seller, after giving effect to the Exchange, would not be required to add Additional Accounts pursuant to subsection 2.6(a) and (2) after giving ----------------- effect to such Exchange, the Aggregate Principal Balance would be at least equal to the Minimum Aggregate Principal Balance, and (G) the existing Investor Certificates, in the case of an Investor Exchange. Upon satisfaction of such conditions, Trustee shall issue as provided above, such Series of Investor Certificates, dated the Exchange Date and, in the case of an Investor Exchange, cancel the Investor Certificates tendered in exchange for the new Series. There is no limit to the number of Issuances that may be performed under this Agreement. (c) In conjunction with an Exchange, the parties hereto shall execute a Supplement, which shall specify the relevant terms with respect to any newly issued Series of Investor Certificates, which may including without limitation: (i) its name or designation, (ii) an Initial Investor Amount or the method of calculating the Initial Investor Amount, (iii) the Certificate Rate (or formula for the determination thereof), (iv) the Closing Date, (v) the Rating Agency or Agencies rating such Series, (vi) the name of the Clearing Agency, if any, (vii) the rights of the holder of the Seller Interest that have been transferred to the Holders of such Series pursuant to such Exchange (including any rights to allocations of Collections of Finance Charge Receivables and Principal Receivables), (viii) the interest payment date or dates and the date or dates from which interest shall accrue, (ix) the method of allocating Collections with respect to Principal Receivables for such Series and, if applicable, with respect to other Series and the method by which the principal amount of Investor Certificates of such Series shall amortize or accrete and the method for allocating Collections with respect to Finance Charge Receivables and Receivables in Defaulted Accounts, (x) the names of any accounts to be used by such Series and the terms governing the operation of any such account, (xi) the Series Servicing Fee Percentage, (xii) the Minimum Seller Amount, (xiii) the Series Termination Date, (xiv) the terms of any Enhancement with respect to such Series, (xv) the Enhancement Provider, if applicable, (xvi) the Base Rate applicable to such Series, (xvii) the terms on which the Certificates of such Series may be repurchased or remarketed to other investors, (xviii) any deposit into any account provided for such Series, (xix) the number of Classes of such Series, and if more than one Class, the rights and priorities of each such Class, (xx) whether Interchange, Recoveries or other fees will be included in the funds available to be paid for such Series, (xxi) the 64 priority of any Series with respect to any other Series, (xxii) the rights, if any, of the holders of the Seller Interest that have been transferred to the holders of such Series, and (xxiii) any other relevant terms of such Series (including whether or not such Series will be pledged as collateral for an issuance of any other securities, including commercial paper) (all such terms, the "Principal Terms" of such Series). The terms of such --------------- Supplement may modify or amend the terms of this Agreement solely as applied to such new Series. If on the date of the issuance of such Series there is issued and outstanding one or more Series of Investor Certificates and no Series of Investor Certificates is currently rated by a Rating Agency, then as a condition to such Exchange a nationally recognized investment banking firm or commercial bank shall also deliver to the Trustee an officer's certificate stating, in substance, that the Exchange will not have an adverse effect on the timing or distribution of payments to such other Series of Investor Certificates then issued and outstanding. ARTICLE VII OTHER MATTERS RELATING TO SELLER Section 7.1 Liability of Seller. Seller shall be liable in accordance ------------------- herewith to the extent, and only to the extent, of the obligations specifically undertaken by Seller hereunder. Section 7.2 Merger or Consolidation of, or Assumption of the ------------------------------------------------ Obligations of, Seller. ---------------------- (a) Seller shall not consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (i) the Person formed by such consolidation or into which Seller is merged or the Person which acquires by conveyance or transfer the properties and assets of Seller substantially as an entirety shall be, if Seller is not the surviving entity, organized and existing under the laws of the United States of America or any State or the District of Columbia and shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the performance of every covenant and obligation of Seller, as applicable hereunder, and shall benefit from all the rights granted to Seller, as applicable hereunder. To the extent that any right, covenant or obligation of Seller, as applicable hereunder, is inapplicable to the successor entity, such successor entity shall be subject to such covenant or obligation, or benefit from such right, as would apply, to the extent practicable, to such successor entity. In furtherance hereof, in applying this Section 7.2 to a successor ----------- entity, Section 9.2 shall be applied by reference to events of ----------- involuntary liquidation, 65 receivership or conservatorship applicable to such successor entity as such be set forth in the Officer's Certificate described in subsection ---------- 7.2(a)(ii); ---------- (ii) Seller shall have delivered to the Trustee an Officer's Certificate of Seller and an Opinion of Counsel, each stating that such consolidation, merger, conveyance or transfer and such supplemental agreement comply with this Section 7.2 and that all ----------- conditions precedent herein provided for relating to such transaction have been complied with and, in the case of the Opinion of Counsel, that such supplemental agreement is legal, valid and binding with respect to Seller; and (iii) Seller shall have delivered notice to each Rating Agency of such consolidation, merger, conveyance or transfer. (b) The obligations of Seller hereunder shall not be assignable nor shall any Person succeed to the obligations of Seller hereunder except for mergers, consolidations, assumptions or transfers in accordance with the provisions of the foregoing paragraph. Section 7.3 Limitation on Liability of Seller. Neither Seller nor any --------------------------------- of the directors or officers or employees or agents of Seller shall be under any liability to the Trust, the Trustee, the Certificateholders or any other Person for any action taken or for refraining from the taking of any action pursuant to this Agreement whether arising from express or implied duties under this Agreement; provided, however, that this provision -------- ------- shall not protect Seller or any such person against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or negligence in the performance of duties or by reason of its willful misconduct hereunder; and provided, further, that Seller shall be liable -------- ------- for any actual damages resulting directly from Seller's material failure to perform any of its obligations under this Agreement, but only if and to the extent that another remedy is not provided for and available hereunder. Seller and any director or officer or employee or agent of Seller may rely in good faith on any document of any kind prima facie properly executed and ----- ----- submitted by any Person respecting any matters arising hereunder. Notwithstanding anything to the contrary in this Agreement or any other Transaction Document, any payment by the Seller pursuant to this Section ------- 7.3 shall only be made to the extent the Seller has funds available for --- such purpose after amounts payable to Securityholders (as defined in the Receivables Purchase Agreement) have been paid in full. Each party hereto agrees that the failure to make such payment shall not give rise to any claim against the Seller. 66 ARTICLE VIII OTHER MATTERS RELATING TO THE SERVICER Section 8.1 Liability of the Servicer. The Servicer shall be liable in ------------------------- accordance herewith only to the extent of the obligations specifically undertaken by the Servicer in such capacity herein. Section 8.2 Merger or Consolidation of, or Assumption of the ------------------------------------------------ Obligations of, the Servicer. The Servicer shall not consolidate with or ---------------------------- merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (i) the Person formed by such consolidation or into which the Servicer is merged or the Person which acquires by conveyance or transfer the properties and assets of the Servicer substantially as an entirety shall be a corporation or a banking association organized and existing under the laws of the United States of America or any State or the District of Columbia, and, if the Servicer is not the surviving entity, shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Trustee in form satisfactory to the Trustee, the performance of every covenant and obligation of the Servicer hereunder; (ii) The Servicer has delivered notice of such consolidation, merger, conveyance or transfer to each of the Rating Agencies; and (iii) the Servicer has delivered to the Trustee and each Enhancement Provider an Officer's Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental agreement comply with this Section 8.2 ----------- and that all conditions precedent herein provided for relating to such transaction have been complied with. Section 8.3 Limitation on Liability of the Servicer and Others. Except -------------------------------------------------- as provided in Section 8.4 with respect to the Trust and the Trustee, ----------- neither the Servicer nor any of the directors or officers or employees or agents of the Servicer shall be under any liability to the Trust, the Trustee, the Certificateholders or any other Person for any action taken or for refraining from the taking of any action in its capacity as Servicer pursuant to this Agreement; provided, however, that this provision shall -------- ------- not protect the Servicer or any such person against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or negligence in the performance of duties or by reason of its willful misconduct hereunder. The Servicer and any director or officer or employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly ----- ----- 67 executed and submitted by any Person respecting any matters arising hereunder. The Servicer shall not be under any obligation to appear in, prosecute or defend any legal action which does not arise out of its activities in servicing the Receivables in accordance with this Agreement which in its reasonable opinion may involve it in any expense or liability. Section 8.4 Indemnification of the Trust and the Trustee. The Servicer -------------------------------------------- shall indemnify and hold harmless the Trust and the Trustee from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any acts, omissions or alleged acts or omissions arising out of activities of the Trust or the Trustee pursuant to this Agreement, including those arising from acts or omissions of the Servicer pursuant to this Agreement, including, but not limited to any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim; provided, however, that the Servicer shall not -------- ------- indemnify the Trust or the Trustee if such acts, omissions or alleged acts or omissions constitute fraud, negligence, breach of fiduciary duty or misconduct by the Trustee; provided further, that the Servicer shall not ---------------- indemnify the Trust, the Trustee, any Investor Certificateholders or any Certificate Owners for any liabilities, costs or expenses of the Trust with respect to any action taken by the Trustee at the request of such Investor Certificateholders; provided further, that the Servicer shall not indemnify ---------------- the Trust, any Investor Certificateholders or any Certificate Owners as to any losses, claims or damages incurred by any of them in their capacities as investors, including without limitation losses incurred as a result of defaulted Receivables or Receivables which are written off as uncollectible; and provided further, that the Servicer shall not indemnify ---------------- the Trust, any Investor Certificateholders or the Certificate Owners for any liabilities, costs or expenses of the Trust, such Investor Certificateholders or the Certificate Owners arising under any tax law, including without limitation any federal, state or local income or franchise taxes or any other tax imposed on or measured by income (or any interest or penalties with respect thereto or arising from a failure to comply therewith) required to be paid by the Trust, such Investor Certificateholders or such Certificate Owners in connection herewith to any taxing authority. The provisions of this indemnity shall run directly to and be enforceable by an injured party subject to the limitations hereof. Any indemnification pursuant to this Section shall not be payable from the assets of the Trust. The obligations of the Servicer under this Section 8.4 shall survive ----------- the termination of the Trust and the resignation or removal of the Trustee. Section 8.5 The Servicer Not to Resign. The Servicer shall not resign -------------------------- from the obligations and duties hereby imposed on it except upon determination that (i) the performance of its duties hereunder is or becomes impermissible under 68 applicable law and (ii) there is no reasonable action which the Servicer could take to make the performance of its duties hereunder permissible under applicable law. Any such determination permitting the resignation of the Servicer shall be evidenced as to clause (i) above by an Opinion of ---------- Counsel to such effect delivered to the Trustee. No such resignation shall become effective until the Trustee or a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 10.2. If the Trustee is unable within 120 days of the date of ------------ such determination to appoint a Successor Servicer, the Trustee shall serve as Successor Servicer hereunder. Notice of any resignation by the Servicer shall be given to each Rating Agency by the resigning Servicer. Section 8.6 Access to Certain Documentation and Information Regarding --------------------------------------------------------- the Receivables. The Servicer shall provide to the Trustee access to the --------------- documentation regarding the Accounts and the Receivables in such cases where the Trustee is required in connection with the enforcement of the rights of the Investor Certificateholders, or by applicable statutes or regulations to review such documentation, such access being afforded without charge but only (i) upon reasonable request, (ii) during normal business hours, (iii) subject to the Servicer's normal security and confidentiality procedures and (iv) at offices designated by the Servicer. Nothing in this Section 8.6 shall derogate from the obligation of Seller, ----------- the Trustee or the Servicer to observe any applicable law prohibiting disclosure of information regarding the Obligors and the failure of the Servicer to provide access as provided in this Section 8.6 as a result of ----------- such obligation shall not constitute a breach of this Section 8.6. ----------- Section 8.7 Delegation of Duties. It is understood and agreed by the -------------------- parties hereto that the Servicer may delegate certain of its duties hereunder to Total Systems Services, Inc., a Georgia corporation and to First Data Resources Inc., a Delaware corporation. In addition, in the ordinary course of business, the Servicer may at any time delegate any duties hereunder to any other Person who agrees to conduct such duties in accordance with the Cardholder Guidelines. Any such delegations shall not relieve the Servicer of its liability and responsibility with respect to such duties, and shall not constitute a resignation within the meaning of Section 8.5. ----------- Section 8.8 Examination of Records. The Servicer shall clearly and ---------------------- unambiguously identify each Account (including any Additional Account designated pursuant to Section 2.6) in its computer or other records to ----------- reflect that the Receivables arising in such Account have been transferred by Seller to the Trust pursuant to this Agreement. The Servicer shall, prior to the sale or transfer to a third party of any receivable held in its custody, examine its computer and other records to determine that such receivable is not a Receivable. 69 ARTICLE IX PAY OUT EVENTS Section 9.1 Pay Out Events. If any one of the following events shall -------------- occur during either the Revolving Period or the Controlled Amortization Period with respect to any Series of the Investor Certificates: (a) Seller or FCNB shall (i) become insolvent, (ii) fail to pay its debts generally as they become due, (iii) voluntarily seek, consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law, (iv) become a party to (or be made the subject of) any proceeding provided for by any Debtor Relief Law, other than as a creditor or claimant, and, in the event such proceeding is involuntary, (A) within 10 business days after Seller or FCNB has knowledge of such proceeding or the filing thereof either (1) the petition instituting same has not been dismissed or (2) an order has not been entered by the court having jurisdiction which allows continued transfer to the Trust of Principal Receivables with no adverse effect to the Trust or the Investor Certificateholders or (B) an order as contemplated in clause (A)(2) above having previously been entered, is no ------------- longer in effect other than by reason of the termination of such proceeding, or (v) become unable for any reason to transfer Receivables to the Trust or Seller in accordance with the provisions of this Agreement or the Receivables Purchase Agreement, as the case may be; or (b) the Trust or Seller shall become an "investment company" within the meaning of the Investment Company Act of 1940, as amended; a pay out event (a "Trust Pay Out Event") shall occur without any notice or ------------------- other action on the part of the Trustee or the Investor Certificateholders, immediately upon the occurrence of such event. Section 9.2 Additional Rights Upon the Occurrence of Certain Events. ------------------------------------------------------- If Seller shall consent to the appointment of a conservator or receiver or liquidator for the winding-up or liquidation of its affairs, or a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator or receiver or liquidator for the winding-up or liquidation of its affairs shall have been entered against Seller (an "Insolvency Event"), Seller shall on the day of such ---------------- Insolvency Event immediately cease to transfer Principal Receivables and Discount Option Receivables to the Trust and shall promptly give notice to Trustee of such Insolvency Event. Notwithstanding any cessation of the transfer to the Trust of additional Principal Receivables and Discount Option Receivables, Finance Charge Receivables, whenever created, accrued in respect of Principal Receivables or Discount Option Receivables which have been transferred to the Trust shall continue to be a part of the Trust, and Collections with respect thereto shall continue to be allocated and paid in accordance with Article IV. ---------- 70 ARTICLE X SERVICER DEFAULTS Section 10.1 Servicer Defaults. If any one of the following events (a ----------------- "Servicer Default") shall occur and be continuing: ---------------- (a) any failure by the Servicer to make any payment, transfer or deposit or to give instructions or notice to the Trustee pursuant to Article IV or to make any required drawing, withdrawal, or payment under ---------- any Enhancement on or before the date occurring three Business Days after the date such payment, transfer, deposit, withdrawal or drawing, or such instruction or notice is required to be made or given, as the case may be, under the terms of this Agreement; or (b) failure on the part of the Servicer duly to observe or perform in any material respect any other covenants or agreements of the Servicer set forth in this Agreement which has a material adverse effect on the Certificateholders, which continues unremedied for a period of 30 days after the earlier to occur of (i) knowledge by a Responsible Officer of the Servicer of such failure, or (ii) the date on which written notice of such failure requiring the same to be remedied shall have been given to the Servicer by the Trustee, or to the Servicer and the Trustee by the Holders of Investor Certificates evidencing Undivided Interests aggregating not less than 25% of the Investor Amount of any Series affected thereby; or the Servicer's delegation of its duties under this Agreement except as permitted by Section 8.7; or ----------- (c) any representation, warranty or certification made by the Servicer in this Agreement or in any certificate delivered pursuant to this Agreement shall prove to have been incorrect when made, which has a material adverse effect on the rights of the Certificateholders and which continues to be incorrect in any material respect for a period of 30 days after the earlier to occur of (i) knowledge of same by a Responsible Officer of the Servicer, or (ii) the date on which written notice of such failure requiring the same to be remedied shall have been given to the Servicer by the Trustee, or to the Servicer and the Trustee by the Holders of Investor Certificates evidencing Undivided Interests aggregating not less than 25% of the Investor Amount of any Series affected thereby, or if such failure cannot be cured within such 30-day period owing to causes beyond the control of Servicer, if Servicer shall fail to proceed promptly to cure the same and prosecute the curing of such failure with diligence and continuity; or (d) the Servicer shall (i) become insolvent, (ii) fail to pay its debts generally as they become due, (iii) voluntarily seek, consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law, or (iv) become a party to (or be made 71 the subject of) any proceeding provided for by any Debtor Relief Law, other than as a creditor or claimant, and, in the event such proceeding is involuntary, the petition instituting same is not dismissed within 60 days after its filing; then, so long as such Servicer Default shall not have been remedied, either the Trustee, or the Holders of Investor Certificates evidencing Undivided Interests aggregating greater than 50% of the Investor Amount of any Series affected thereby, by notice then given in writing to the Servicer (and to the Trustee if given by the Investor Certificateholders) (a "Termination ----------- Notice"), may terminate all of the rights and obligations of the Servicer ------ as Servicer under this Agreement and in and to the Receivables and the proceeds thereof (other than its rights and interest, if any, as holder of the Seller Interest under this Agreement). After receipt by the Servicer of such Termination Notice, and on the date that a Successor Servicer shall have been appointed by the Trustee pursuant to Section 10.2, all authority ------------ and power of the Servicer under this Agreement shall pass to and be vested in a Successor Servicer; and, without limitation, the Trustee is hereby authorized and empowered (upon the failure of the Servicer to cooperate) to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all documents and other instruments upon the failure of the Servicer to execute or deliver such documents or instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Servicer agrees to cooperate with the Trustee and such Successor Servicer in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing hereunder, including without limitation, the transfer to such Successor Servicer of all authority of the Servicer to service the Receivables provided for under this Agreement, including, without limitation, all authority over all Collections which shall on the date of transfer be held by the Servicer for deposit, or which have been deposited by the Servicer, in any Collection Account, Finance Charge Account or other Investor Account, or the Principal Account, or which shall thereafter be received with respect to the Receivables, and in assisting the Successor Servicer and in enforcing all rights to Insurance Proceeds. The Servicer shall promptly transfer its electronic records relating to the Receivables to the Successor Servicer in such electronic form as the Successor Servicer may reasonably request and shall promptly transfer to the Successor Servicer all other records, correspondence and documents necessary for the continued servicing of the Receivables in the manner and at such times as the Successor Servicer shall reasonably request. To the extent that compliance with this Section 10.1 shall require the Servicer to disclose to ------------ the Successor Servicer information of any kind which the Servicer reasonably deems to be confidential, the Successor Servicer shall be required to enter into such customary licensing and confidentiality agreements as the Servicer shall deem necessary to protect its interest. The Servicer shall, on the date of any servicing transfer, transfer all of its rights and obligations, if any, in respect of any Enhancement to the Successor Servicer. 72 Section 10.2 Trustee to Act; Appointment of Successor. ---------------------------------------- (a) On and after the receipt by the Servicer of a Termination Notice pursuant to Section 10.1, the Servicer shall continue to perform all ------------ servicing functions under this Agreement until the date specified in the Termination Notice or otherwise specified by the Trustee in writing or, if no such date is specified in such Termination Notice or otherwise specified by the Trustee, until a date mutually agreed upon by the Servicer and Trustee. The Trustee shall as promptly as possible after the giving of a Termination Notice appoint (with the consent of the Holders of Investor Certificates evidencing Undivided Interests aggregating greater than 50% of the Investor Amount of each Series) a successor servicer (the "Successor --------- Servicer"), and such Successor Servicer shall accept its appointment by a -------- written assumption in a form acceptable to the Trustee. The Trustee may obtain bids from any potential successor servicer. If the Trustee is unable to obtain any bids from any potential successor servicer and the Servicer delivers an Officer's Certificate to the effect that it cannot in good faith cure the Servicer Default which gave rise to a transfer of servicing, then the Trustee shall offer Seller the right to accept retransfer of all the Receivables and Seller may accept retransfer of all the Receivables, provided, however, that if the long-term unsecured debt obligations of -------- ------- Seller are not rated at the time of such purchase at least Baa-3 by Moody's and BBB- by Standard & Poor's, no such retransfer shall occur unless Seller shall deliver an Opinion of Counsel reasonably acceptable to the Trustee that such retransfer would not constitute a fraudulent conveyance of Seller. The retransfer deposit amount for such a retransfer shall be equal to the higher of the sum of (i) the outstanding principal balance of the Investor Certificates, plus accrued interest thereon, at the Certificate Rate, through the date of retransfer and (ii) 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 substantially similar to the remaining maturity of the Certificates. In the event that a Successor Servicer has not been appointed and has not accepted its appointment at the time when the Servicer ceases to act as Servicer, the Trustee without further action shall automatically be appointed the Successor Servicer. Notwithstanding the above, the Trustee shall, if it is legally unable so to act, petition a court of competent jurisdiction to appoint any established financial institution having a net worth of not less than $100,000,000 and whose regular business includes the servicing of installment sales charge, credit and/or credit card account receivables as the Successor Servicer hereunder. (b) Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicer with respect to servicing functions under this Agreement and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof, and all references in this Agreement to the Servicer shall be deemed to refer to the Successor Servicer. Any Successor Servicer, by its acceptance of its appointment, will 73 automatically agree to be bound by the terms and provisions of any Enhancement to the extent that such terms apply to the Servicer. (c) In connection with such appointment and assumption, the Trustee shall be entitled to such compensation, or may make such arrangements for the compensation of the Successor Servicer out of Collections, as it and such Successor Servicer shall agree; provided, however, that no such -------- ------- compensation shall be in excess of the Monthly Servicing Fees permitted to the Servicer pursuant to Section 3.2. The holder of the Seller Interest ----------- agrees that if the Servicer is terminated hereunder, it will agree, at the request of the Trustee or any Successor Servicer, to deposit a portion of the Collections in respect of Finance Charge Receivables that it is entitled to receive pursuant to Article IV, to pay its share of the ---------- compensation of the Successor Servicer. Notwithstanding anything to the contrary in this Agreement or any other Transaction Document, any deposit by the Seller pursuant to this Section 10.2(c) shall only be made to the --------------- extent the Seller has funds available for such purpose after amounts payable to Securityholders (as defined in the Receivables Purchase Agreement) have been paid in full. Each party hereto agrees that the failure to make such deposit shall not give rise to any claim against the Seller. (d) All authority and power granted to the Successor Servicer under this Agreement shall automatically cease and terminate upon termination of the Trust pursuant to Section 12.1 and shall pass to and be vested in ------------ Seller and, without limitation, Seller is hereby authorized and empowered to execute and deliver, on behalf of the Successor Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Successor Servicer agrees to cooperate with Seller in effecting the termination of the responsibilities and rights of the Successor Servicer to conduct servicing on the Receivables. The Successor Servicer shall transfer its electronic records relating to the Receivables to Seller in such electronic form as Seller may reasonably request and shall transfer all other records, correspondence and documents to Seller in the manner and at such times as Seller shall reasonably request. To the extent that compliance with this Section 10.2 shall require the Successor Servicer to disclose to Seller ------------ information of any kind which the Successor Servicer deems to be confidential, Seller shall be required to enter into such customary licensing and confidentiality agreements as the Successor Servicer shall deem necessary to protect its interests. Section 10.3 Notification to Certificateholders. Upon the occurrence ---------------------------------- of any Servicer Default, the Servicer shall give prompt written notice thereof to the Trustee and the Trustee shall give notice to the Investor Certificateholders at their respective addresses appearing in the Certificate Register. Upon any termination or appointment of a Successor Servicer pursuant to this Article X, the Trustee shall give prompt written --------- notice thereof to Investor Certificateholders at their respective 74 addresses appearing in the Certificate Register. A copy of any notice given pursuant to this Section 10.3 shall be delivered to each Rating Agency. ------------ Section 10.4 Waiver of Past Defaults. The Holders of Investor ----------------------- Certificates evidencing Undivided Interests aggregating greater than 50% of the Investor Amount of any Series affected thereby may, on behalf of all Holders of Certificates, waive any default by the Servicer or Seller in the performance of its obligations hereunder and its consequences, except a default in the failure to make any required deposits or payments in accordance with Article IV, provided, however, that no such waiver shall ---------- -------- ------- affect any rights of, or obligations to, any Enhancement Provider hereunder. Upon any such waiver of a past default, such default shall cease to exist, and any default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. Notice of any such waiver shall be given to each Rating Agency by the Servicer. ARTICLE XI THE TRUSTEE Section 11.1 Duties of Trustee. ----------------- (a) The Trustee, prior to the occurrence of a Servicer Default and after the curing of all Servicer Defaults which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. If a Servicer Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in the exercise of such rights and powers, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Agreement, shall examine them to determine whether they conform to the requirements of this Agreement. The Trustee shall give prompt written notice to the Certificateholders of any material lack of conformity of any such instrument to the applicable requirements of this Agreement discovered by the Trustee which would entitle a specified percentage of the Certificateholders to take any action pursuant to this Agreement. 75 (c) Subject to subsection 11.1(a), no provision of this Agreement ------------------ shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own misconduct; provided, however, that: -------- ------- (i) the Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (ii) the Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Holders of Investor Certificates evidencing Undivided Interests aggregating more than 50% of the Investor Amount of any Series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Agreement; and (iii) the Trustee shall not be charged with knowledge of any failure by the Servicer to comply with the obligations of the Servicer referred to in clauses (b), (c) and (d) of Section 10.1 unless a ----------- --- --- ------------ Responsible Officer of the Trustee obtains actual knowledge of such failure or the Trustee receives written notice of such failure from the Servicer or any Holders of Investor Certificates evidencing Undivided Interests aggregating not less than 10% of the Investor Amount of any Series. (d) The Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it, and none of the provisions contained in this Agreement shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any of the obligations of the Servicer under this Agreement except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Servicer in accordance with the terms of this Agreement. (e) Except for actions expressly authorized by this Agreement, the Trustee shall take no action reasonably likely to impair the interests of the Trust in any Receivable now existing or hereafter arising or to impair the value of any Receivable now existing or hereafter arising. (f) Except as provided in Section 2.6, the Trustee shall have no power ----------- to vary the corpus of the Trust including, without limitation, the power to (i) accept any substitute obligation for a Receivable initially assigned to the Trust under Section 2.1 ----------- 76 or 2.6, (ii) add any other investment, obligation or security to the Trust --- or (iii) withdraw from the Trust any Receivables, except for a withdrawal permitted under subsection 2.4(d) or 2.4(e), Article IV, or Section 9.2 or ----------------- ------ ---------- ----------- 12.1. ---- (g) In the event that the Paying Agent or the Transfer Agent and Registrar shall fail to perform any obligation, duty or agreement in the manner or on the day required to be performed by the Paying Agent or the Transfer Agent and Registrar, as the case may be, under this Agreement, the Trustee shall be obligated promptly to perform such obligation, duty or agreement in the manner so required. (h) If Seller has agreed to transfer any of its credit card receivables (other than the Receivables) to another Person, upon the written request of Seller, the Trustee will enter into such intercreditor agreements with the transferee of such receivables as are customary and necessary separately to identify the rights of the Trust and such other Person in Seller's, as the case may be, credit card receivables; provided, -------- that the Trust shall not enter into any intercreditor agreement which could adversely affect the interests of the Certificateholders and, upon the request of the Trustee, Seller will deliver an Opinion of Counsel on any matters relating to such intercreditor agreement, reasonably requested by the Trustee. Section 11.2 Certain Matters Affecting the Trustee. Except as ------------------------------------- otherwise provided in Section 11.1: ------------ (a) the Trustee may rely on and shall be protected in acting on, or in refraining from acting in accord with, any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented to it pursuant to this Agreement by the proper party or parties; (b) the Trustee may consult with counsel and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel; (c) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Certificateholders, pursuant to the provisions of this Agreement, unless such Certificateholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligations, upon the occurrence of any Servicer Default (which has not been cured), to exercise such of the rights and powers vested in it by this Agreement, and to use the same degree 77 of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs; (d) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement; (e) the Trustee shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by Holders of Investor Certificates evidencing Undivided Interests aggregating more than 50% of the Investor Amount of any Series; (f) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian, and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent, attorney or custodian appointed with due care by it hereunder; and (g) except as may be required by subsection 11.1(a), the Trustee shall ------------------ not be required to make any initial or periodic examination of any documents or records related to the Receivables or the Accounts for the purpose of establishing the presence or absence of defects, the compliance by Seller with its representations and warranties or for any other purpose. Section 11.3 Trustee Not Liable for Recitals in Certificates. The ----------------------------------------------- Trustee assumes no responsibility for the correctness of the recitals contained herein and in the Certificates (other than the certificate of authentication on the Certificates). Except as set forth in Section 11.15, ------------- the Trustee makes no representations as to the validity or sufficiency of this Agreement or the Supplement or of the Certificates (other than the certificate of authentication on the Certificates) or of any Receivable or related document. The Trustee shall not be accountable for the use or application by Seller of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to Seller in respect of the Receivables or deposited in the Collection Account, any Principal Account, any Finance Charge Account, the Excess Funding Account or any other Series Account, or withdrawn from the Collection Account, by the Servicer. Section 11.4 Trustee May Own Certificates. The Trustee in its ---------------------------- individual or any other capacity may become the owner or pledgee of Investor Certificates with the same rights as it would have if it were not the Trustee. 78 Section 11.5 Servicer to Pay Trustee's Fees and Expenses. Servicer ------------------------------------------- covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to receive, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the Trust hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and, subject to Section 8.4, Servicer will pay or reimburse the Trustee (without ----------- reimbursement from any Investor Account or otherwise) upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Agreement (including the reasonable fees and expenses of its agents and counsel) except any such expense, disbursement or advance as may arise from its negligence or bad faith and except as provided in the following sentence. If the Trustee is appointed Successor Servicer pursuant to Section 10.2, ------------ the provisions of this Section 11.5 shall not apply to expenses, ------------ disbursements and advances made or incurred by the Trustee in its capacity as Successor Servicer. The obligations of Servicer under this Section 11.5 shall survive the ------------ termination of the Trust and the resignation or removal of the Trustee. Section 11.6 Eligibility Requirements for Trustee. The Trustee ------------------------------------ hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or any state thereof authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $100,000,000 and subject to supervision or examination by Federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purpose of this Section 11.6, the combined capital ------------ and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In addition, no institution shall qualify as a Successor Trustee hereunder unless its long-term debt obligations are rated at least BBB- and Baa3 by Standard & Poor's and Moody's, respectively. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 11.6, the Trustee shall resign immediately in the manner and ------------ with the effect specified in Section 11.7. ------------ Section 11.7 Resignation or Removal of Trustee. --------------------------------- (a) The Trustee may at any time resign and be discharged from the Trust hereby created by giving written notice thereof to Seller and the Servicer. Upon receiving such notice of resignation, Seller shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted within 30 days after the giving of 79 such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 11.6 and shall fail to resign ------------ after written request therefor by Seller, or if at any time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then Seller may, but shall not be required to, remove the Trustee and promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. (c) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 11.7 ------------ shall not become effective until acceptance of appointment by the successor trustee as provided in Section 11.8 and any liability of the Trustee ------------ arising hereunder shall survive such appointment of a successor trustee. Section 11.8 Successor Trustee. ----------------- (a) Any successor trustee appointed as provided in Section 11.7 shall ------------ execute, acknowledge and deliver to Seller and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver to the successor trustee all documents and statements held by it hereunder; and Seller and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. (b) No successor trustee shall accept appointment as provided in this Section 11.8 unless at the time of such acceptance such successor trustee ------------ shall be eligible under the provisions of Section 11.6. ------------ (c) Upon acceptance of appointment by a successor trustee as provided in this Section 11.8, such successor trustee shall mail notice of such ------------ succession hereunder to all Certificateholders at their addresses as shown in the Certificate Register, and also to each Rating Agency. 80 Section 11.9 Merger or Consolidation of Trustee. Any Person into which ---------------------------------- the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 11.6, without the execution or ------------ filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 11.10 Appointment of Co-Trustee or Separate Trustee. --------------------------------------------- (a) Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust may at the time be located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Certificateholders, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section 11.10, such powers, duties, ------------- obligations, rights and trusts as the Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 11.6 and ------------ no notice to Certificateholders of the appointment of any co-trustee or separate trustee shall be required under Section 11.8. ------------ (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any laws of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; (ii) no trustee hereunder shall be liable by reason of any act or omission of any other trustee hereunder; and 81 (iii) the Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article XI. Each separate trustee and ---------- co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Servicer. (d) Any separate trustee or co-trustee may at any time constitute the Trustee its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect to this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 11.11 Tax Returns. In the event the Trust shall be required to ----------- file tax returns, the Trustee, as soon as practicable after it is made aware of such requirement, shall prepare or cause to be prepared and is authorized hereunder to sign any tax returns required to be filed by the Trust and, to the extent possible, shall file such returns at least five days before such returns are due to be filed. The Servicer shall prepare or shall cause to be prepared all tax information required by law to be distributed to Certificateholders and shall deliver such information to the Trustee at least five days prior to the date it is required by law to be distributed to Certificateholders. The Servicer, upon request, will furnish the Trustee with all such information known to the Servicer as may be reasonably required in connection with the preparation of all tax returns of the Trust. In no event shall the Trustee or the Servicer be liable for any liabilities, costs or expenses of the Trust, the Investor Certificateholders or the Certificate Owners arising under any tax law, including without limitation Federal, state or local income or excise taxes or any other tax imposed on or measured by income (or any interest or penalty with respect thereto or arising from a failure to comply therewith). Nothing in this Section 11.11 shall be construed as ------------- inconsistent with the characterization of the Investor Certificates as indebtedness of Seller for purposes of federal, state and local income or franchise taxes and any other tax imposed upon or measured by income, as expressed in Section 3.7. ----------- 82 Section 11.12 Trustee May Enforce Claims Without Possession of ------------------------------------------------ Certificates. All rights of action and claims under this Agreement or the ------------ Certificates may be prosecuted and enforced by the Trustee without the possession of any of the Certificates or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Certificateholders in respect of which such judgment has been obtained. Section 11.13 Suits for Enforcement. If a Servicer Default shall occur --------------------- and be continuing, the Trustee, in its discretion, may, subject to the provisions of Section 10.1, proceed to protect and enforce its rights and ------------ the rights of the Certificateholders under this Agreement or any Supplement by a suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or any Supplement or in aid of the execution of any power granted in this Agreement or any Supplement or for the enforcement of any other legal, equitable or other remedy as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee or the Certificateholders. Section 11.14 Rights of Certificateholders to Direct Trustee. Holders ---------------------------------------------- of Investor Certificates evidencing Undivided Interests aggregating more than 50% of the Investor Amount of any Series affected shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; provided, however, that, subject to Section 11.1, the -------- ------- ------------ Trustee shall have the right to decline to follow any such direction if the Trustee being advised by counsel determines that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a Responsible Officer or Responsible Officers of the Trustee, determine that the proceedings so directed would be illegal or involve it in personal liability or be unduly prejudicial to the rights of Certificateholders not parties to such direction; and provided further that nothing in this -------- ------- Agreement shall impair the right of the Trustee to take any action deemed proper by the Trustee and which is not inconsistent with such direction. Section 11.15 Representations and Warranties of Trustee. The Trustee ----------------------------------------- represents and warrants that: (i) The Trustee is a banking corporation organized, existing and in good standing under the laws of the State of Illinois; (ii) The Trustee has full power, authority and right to execute, deliver and perform this Agreement, and has taken all necessary action to 83 authorize the execution, delivery and performance by it of this Agreement; and (iii) This Agreement has been duly executed and delivered by the Trustee. Section 11.16 Maintenance of Office or Agency. The Trustee will ------------------------------- maintain at its expense in the Borough of Manhattan, The City of New York, an office or offices or agency or agencies where notices and demands to or upon the Trustee in respect of the Certificates and this Agreement may be served. The Trustee initially appoints the Corporate Trust Office as its office for such purposes in New York. The Trustee will give prompt written notice to the Servicer and to Certificateholders of any change in the location of the Certificate Register or any such office or agency. Section 11.17 Requests for Agreement. A copy of this Agreement may be ---------------------- obtained by any Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office and will be provided at the expense of Seller. ARTICLE XII TERMINATION Section 12.1 Termination of Trust. The respective obligations and -------------------- responsibilities of Seller, the Servicer and the Trustee created hereby (other than the obligation of the Trustee to make payments to Certificateholders as hereafter set forth) shall terminate, except with respect to the duties described in subsections 2.4(c) and 12.3(b), upon the ------------------ ------- earlier of (i) the day, if any, designated by Seller after the Distribution Date following the date on which funds shall have been deposited in the Distribution Account sufficient to pay the Aggregate Investor Amount, plus ---- Certificate Interest accrued through the last day of the month preceding such Distribution Date in full and (ii) the day on which final payment is made under the Certificates (any such day under either the preceding clause ------ (i) or this clause (ii) is referred to as a "Trust Termination Date"); but --- ----------- ---------------------- in no event later than the Final Trust Termination Date. Section 12.2 Optional Purchase and Final Maturity Date of Investor ----------------------------------------------------- Certificates. ------------- (a) If so provided in any Supplement, Seller may, but shall not be obligated to, repurchase Investor Certificates of the related Series by depositing into the Distribution Account, on the Transfer Date preceding the Distribution Date specified in such Supplement, the amount so specified therein; provided, however, that if the long-term unsecured debt -------- ------- obligations of Seller are not rated at least Baa-3 84 by Moody's and BBB- by Standard & Poor's at the time of such purchase, such purchase shall not occur unless Seller shall deliver an Opinion of Counsel reasonably acceptable to the Trustee that such purchase of Investor Certificates would not constitute a fraudulent conveyance by Seller. On the Distribution Date following the Transfer Date on which such deposit is made, Seller shall be deemed, automatically and without requirement for any act on the part of Seller or of such Series any other Person, to have acquired all outstanding Certificates and to have retired the Certificates, thereby resulting in an increase in the Seller Amount. (b) The entire Investor Amount with respect to each Series shall be due and payable no later than the related Series Termination Date. If on the Determination Date in the month immediately preceding the month in which the Series Termination Date for any Series occurs (after giving effect to all transfers, withdrawals, deposits and drawings to occur on the next Transfer Date and the payment of principal on the Investor Certificates to be made on the related Distribution Date), the Investor Amount would be greater than zero, the Servicer shall sell, dispose of, or otherwise liquidate, in a commercially reasonable manner and on commercially reasonable terms (which shall include the solicitation of competitive bids from Persons who are not Affiliates of Seller), within 30 days of such Determination Date, an amount of Receivables equal to (i) 100%, plus the lesser of (A) the Seller Percentage or (B) the Minimum Seller Percentage for that Series, multiplied by (ii) the Investor Amount determined as of the date of such sale, disposition or liquidation; provided, however, that the Servicer shall give Seller at least 10 days -------- ------- advance written notice of such sale, disposition or other liquidation. Seller shall have the option, exercisable at any time after the Servicer has obtained an offer from any Person that is not an Affiliate of Seller and prior to the consummation of such sale, disposition or liquidation by giving notice of the exercise thereof to the Servicer, to purchase such Receivables for cash (payable in immediately payable funds on the Series Termination Date) for the lesser of (i) 100% of the amount of such Receivables, or (ii) the highest price offered therefor pursuant to such proposed sale, disposition or other liquidation. The proceeds received upon the sale, disposition or other liquidation of such Receivables in an amount up to (i) the Investor Amount on the Series Termination Date, plus (ii) ---- unpaid interest thereon as of the Series Termination Date, less (iii) amounts on deposit on such date in the related Series Accounts shall be deposited into the Distribution Account on the Series Termination Date with respect to such Series, and shall be distributed to the Holders of the Certificates in final payment thereof pursuant to the terms of Section ------- 12.3. Proceeds received in excess of the amount to be deposited as ---- aforesaid shall be treated as Collections on the Receivables and shall be allocated and deposited in accordance with the provisions of Article IV; ---------- provided that the Servicer shall determine conclusively the amount of such -------- proceeds which are allocable to Finance Charge Receivables and the amount of such proceeds which are allocable to Principal Receivables. In the event that the proceeds received upon the sale, disposition or other liquidation of such Receivables is less than the result of (i) the 85 Investor Amount for such Series on the Series Termination Date, plus (ii) ---- unpaid interest thereon, minus (iii) amounts on deposit on such date in the ----- related Series Accounts, the Servicer will make a withdrawal or drawing or take other action permitted by any applicable Enhancement, and shall deposit all amounts thereby obtained in the Distribution Account on the Final Trust Termination Date, and the amount so withdrawn shall be distributed to the Holders of Certificates in final payment thereof pursuant to the terms of Section 12.3; provided, that if the Servicer fails ------------ -------- to make such withdrawal or drawing or take such other action, then the Trustee may make such withdrawal and deposit such amounts into the Distribution Account. (c) The amount deposited pursuant to subsections 12.2(a) and 12.2(b) ------------------- ------- shall be paid to the Investor Certificateholders in the manner provided in Section 12.3. ------------ Section 12.3 Final Distributions. ------------------- (a) Written notice of any termination, specifying the Distribution Date upon which the Investor Certificateholders may surrender their Certificates for payment of the final distribution and cancellation, shall be given (subject to at least two days' prior notice from the Servicer to the Trustee) by the Trustee to Investor Certificateholders mailed (unless otherwise specified in a Supplement) not later than the fifth day of the month of such final distribution specifying (a) the Distribution Date (which shall be the Distribution Date in the month in which the deposit is made pursuant to subsection 2.4(e), 12.1 or 12.2(a)) upon which final ----------------- ---- -------- payment of the Investor Certificates will be made upon presentation and surrender of Investor Certificates at the office or offices therein designated, (b) the amount of any such final payment and (c) that the Record Date otherwise applicable to such Distribution Date is not applicable, payments being made only upon presentation and surrender of the Investor Certificates at the office or offices therein specified. The Servicer's notice to the Trustee in accordance with the preceding sentence shall be accompanied by an Officer's Certificate setting forth the information specified in Section 3.5 covering the period during the then ----------- current calendar year through the date of such notice. The Trustee shall give such notice to the Transfer Agent and Registrar and the Paying Agent at the time such notice is given to Investor Certificateholders. (b) All funds on deposit in the Distribution Account, in the case of a final payment pursuant to Section 12.2, in the case of a termination of the ------------ Trust pursuant to Section 12.1 (and notwithstanding such termination), ------------ shall continue to be held in trust for the benefit of the Certificateholders and the Paying Agent or the Trustee shall pay such funds to the appropriate Certificateholders upon surrender of their Certificates. In the event that all of the Investor Certificateholders shall not surrender their Certificates for cancellation within six months after the date specified in the above-mentioned written notice, the Trustee shall give a second written notice to the remaining Investor Certificateholders to surrender their Certificates for 86 cancellation and receive the final distribution with respect thereto. If within one year after the second notice all the Investor Certificates shall not have been surrendered for cancellation, the Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining Investor Certificateholders concerning surrender of their Certificates, and the cost thereof shall be paid out of the funds in the Distribution Account held for the benefit of such Investor Certificateholders. Section 12.4 Termination Rights of the Holder of the Seller Interest. ------------------------------------------------------- Upon the termination of the Trust pursuant to Section 12.1, the Trustee ------------ shall return to the holder of the Seller Interest (without recourse, representation or warranty) all right, title and interest of the Trust in, to and under the Receivables, whether then existing or thereafter created, and all monies due or to become due with respect thereto (including all accrued interest theretofore posted as Finance Charge Receivables), all proceeds thereof and Insurance Proceeds relating thereto except for amounts held by the Trustee pursuant to subsection 12.3(b). The Trustee shall ------------------ execute and deliver such instruments of transfer, in each case without recourse, as shall be reasonably requested by the Holder of the Exchangeable Trust Certificate to vest in the Holder of the Exchangeable Trust Certificate all right, title and interest which the Trust had in the Receivables. ARTICLE XIII MISCELLANEOUS PROVISIONS Section 13.1 Amendment. --------- (a) This Agreement or any Supplement may be amended from time to time by the Servicer, Seller and the Trustee, without the consent of any of the Certificateholders, to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other provisions herein, to qualify the transfers of Receivables pursuant to this Agreement as sales under generally accepted accounting principles or to add any other provisions with respect to matters or questions arising under this Agreement which shall not be inconsistent with the provisions of this Agreement; provided, however, that such action shall not, as evidenced by -------- ------- an Opinion of Counsel in a form satisfactory to the Rating Agencies, adversely affect in any material respect the interests of the Certificateholders; provided, further, that prior to entering into any -------- ------- amendment to qualify the transfers of Receivables pursuant to this Agreement as sales under generally accepted accounting principles, the Seller shall deliver to each Rating Agency an Officer's Certificate to the effect that (i) such amendment is being entered into to qualify the transfers of Receivables pursuant to this Agreement as sales under generally accepted accounting principles and (ii) based upon discussions with the Seller's 87 accountants, such amendment will in fact qualify the transfers of Receivables pursuant to this Agreement as sales under generally accepted accounting principles. The Trustee may, but shall not be obligated to, enter into any such amendment which affects the Trustee's rights, duties or immunities under this Agreement or otherwise. For purposes of this Section ------- 13.1 only, no Transfer Agreement or Retransfer Agreement regarding the ---- addition or removal of Receivables from the Trust as provided in Sections -------- 2.6 and 2.7, respectively, executed in accordance with the provisions --- --- hereof and substantially in the form of Exhibit A or C, respectively, with --------- - no material additional terms, shall be considered amendments to this Agreement. (b) This Agreement or any Supplement may also be amended from time to time by the Servicer, Seller and the Trustee with the consent of the Holders of Investor Certificates evidencing Undivided Interests aggregating not less than 66-2/3% of the Investor Amount of each Series adversely affected, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or any Supplement or modifying in any manner the rights of the Investor Certificateholders of any Series then issued and outstanding; provided, -------- however, that no such amendment shall (i) reduce in any manner the amount ------- of, or delay the timing of, distributions which are required to be made on any Investor Certificate of such Series without the consent of the Holder of such Certificate, (ii) change the definition of or the manner of calculating the Investor Amount, the Investor Percentage or the Investor Default Amount of such Series without the consent of each Investor Certificateholder affected thereby, or (iii) reduce the aforesaid percentage required to consent to any such amendment, without the consent of each Investor Certificateholder of all Series affected. The Rating Agency Condition shall be satisfied with respect to any such amendment, except that Moody's shall not be deemed to be a "Rating Agency" for this purpose. (c) Notwithstanding anything in this Section 13.1 to the contrary, the ------------ Supplement with respect to any Series may be amended on the terms and in accordance with the procedures provided in such Supplement. The Rating Agency Condition shall be satisfied with respect to any such amendment, except that Moody's shall not be deemed to be a "Rating Agency" for this purpose. (d) Notwithstanding anything in this Section 13.1 to the contrary, ------------ from and after the Series Termination Date for the Trust's Series 1996-A Certificates (or with the consent of the Holders of such Certificates), the Seller, the Servicer, the holder of the Seller Interest, and the Trustee may amend this Agreement or any Supplement in order to enable all or a portion of the Trust to qualify as a financial asset securitization investment trust (a "FASIT") for Federal income tax purposes and to permit ----- a FASIT election to be made with respect thereto and to make any such other modifications or amendments to this Agreement and any Supplement as may be permitted in making such election; provided, however that such amendment -------- ------- shall 88 not be effective until the Seller provides the Trustee with (i) an Opinion of Counsel to the effect that such amendment (A) would permit the Trust or a relevant portion thereof to be treated as a FASIT, (B) would not cause the Trust to be classified as an association (or publicly traded partnership) taxable as a corporation for Federal income tax purposes, and (C) would not cause or constitute an event in which gain or loss would be recognized by any Investor Certificateholder, and (ii) an Officer's Certificate of the Seller that such amendment would not materially and adversely affect any Certificateholder or any Enhancement Provider. (e) Promptly after the execution of any such amendment or consent the Trustee shall furnish written notification of the substance of such amendment to each Investor Certificateholder of each Series affected thereby and to each Rating Agency providing a rating for such Series. (f) It shall not be necessary for the consent of Investor Certificateholders under this Section 13.1 to approve the particular form ------------ of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Investor Certificateholders shall be subject to such reasonable requirements as the Trustee may prescribe. Section 13.2 Protection of Right, Title and Interest to Trust. ------------------------------------------------ (a) The Servicer shall cause this Agreement, all amendments hereto and/or all financing statements and continuation statements and any other necessary documents covering the Certificateholders and the Trustee's right, title and interest to the Trust to be promptly recorded, registered and filed, and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect the right, title and interest of the Trustee hereunder to all property comprising the Trust. The Servicer shall deliver to the Trustee file-stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recording, registration or filing. Seller shall cooperate fully with the Servicer in connection with the obligations set forth above and will execute any and all documents reasonably required to fulfill the intent of this Section 13.2(a). --------------- (b) Within 30 days after Seller makes any change in its name, identity or corporate structure which would make any financing statement or continuation statement filed in accordance with subsection (a) above -------------- seriously misleading within the meaning of Section 9-506(b) of the UCC as in effect in the state where such financing statement or continuation statement was filed, Seller shall give the Trustee notice of any such change and shall file such financing statements or amendments as may be necessary to continue the perfection of the Trust's security interest in the Receivables and the proceeds thereof. 89 (c) Each of Seller and the Servicer will give the Trustee prompt written notice of any relocation of any office from which it services Receivables or keeps records concerning the Receivables or of its principal executive office and whether, as a result of such relocation, the applicable provisions of the UCC would require the filing of any amendment of any previously filed financing or continuation statement or of any new financing statement and shall file such financing statements or amendments as may be necessary to continue the perfection of the Trust's security interest in the Receivables and the proceeds thereof. Each of Seller and the Servicer will at all times maintain each office from which it services Receivables and its principal executive office within the United States of America. (d) The Servicer will deliver to the Trustee: (i) upon the execution and delivery of each amendment of Articles I, II, III or IV other than ---------- -- --- -- amendments pursuant to subsection 13.1(a) an Opinion of Counsel ------------------ substantially in the form of Exhibit F; and (ii) on or before April 15 of --------- each year, beginning with April 15, 1994 an Opinion of Counsel, dated as of a date during the preceding 90-day period, substantially in the form of Exhibit G. --------- Section 13.3 Limitation on Rights of Certificateholders. ------------------------------------------ (a) The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust, nor shall such death or incapacity entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Trust, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. (b) No Certificateholder shall have any right to vote (except with respect to the Investor Certificateholders as provided in Section 13.1) or ------------ in any manner otherwise control the operation and management of the Trust, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. (c) No Certificateholder shall have any right by virtue of any provisions of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Certificateholder previously shall have given to the Trustee, and unless the Holders of Certificates evidencing Undivided Interests aggregating more than 50% of the Investor Amount of any Series affected shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have 90 offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Certificateholders shall have the right in any manner whatever by virtue or by availing itself or themselves of any provisions of this Agreement to affect, disturb or prejudice the rights of the Certificateholders of any other of the Certificates, or to obtain or seek to obtain priority over or preference to any other such Certificateholder, or to enforce any right under this Agreement, except in the manner herein provided and for the equal, ratable and common benefit of all Certificateholders. For the protection and enforcement of the provisions of this Section 13.3, each and every ------------ Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Section 13.4 Governing Law. This Agreement shall be construed in ------------- accordance with the laws of the State of Illinois, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. Section 13.5 Notices. All demands, notices and communications ------- hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by registered mail, return receipt requested, to (a) in the case of Servicer, to First Consumers National Bank, P.O. Box 5280, Portland, Oregon 97208, Attn: President, with a copy to Spiegel, Inc., 3500 Lacey Road, Downers Grove, Illinois, 60515-5452, Attn: Treasurer, (b) in the case of Seller, to First Consumers Credit Corporation, 400 West 9th Street, Suite 302D, Wilmington, Delaware, 19801, Attn: Treasurer, with a copy to Spiegel, Inc., 3500 Lacey Road, Downers Grove, Illinois, 60515-5452, Attn: Treasurer, (c) in the case of the Trustee, to the Corporate Trust Office, (d) in the case of the Enhancement Provider for a particular Series the address, if any, specified in the Supplement relating to such Series, (e) in the case of Moody's, to Moody's Investor Services, Inc., 99 Church Street, New York, New York 10007, Attn: ABS Monitoring Department, 4th Floor, and (f) in the case of Standard & Poor's, to Standard & Poor's Corporation, 25 Broadway, New York, New York 10004, Attention: Structured Finance Surveillance; or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. Any notice required or permitted to be mailed to a Certificateholder shall be given by first class mail, postage prepaid, at the address of such Certificateholder as shown in the Certificate Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. 91 Section 13.6 Severability of Provisions. If any one or more of the -------------------------- covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or rights of the Certificateholders thereof or any Enhancement Provider. Section 13.7 Assignment. Notwithstanding anything to the contrary ---------- contained herein, except as provided in Section 8.2, this Agreement may not ----------- be assigned by the Servicer without the prior consent of Holders of Investor Certificates evidencing Undivided Interests aggregating more than 50% of the Aggregate Investor Amount. Section 13.8 Certificates Nonassessable and Fully Paid. It is the ----------------------------------------- intention of the parties to this Agreement that the Certificateholders shall not be liable for obligations of the Trust, that the Undivided Interests represented by the Certificates shall be nonassessable for any losses or expenses of the Trust or for any reason whatsoever, and that Certificates upon authentication thereof by the Trustee pursuant to Sections 2.1 and 6.2 are and shall be deemed fully paid. ------------ --- Section 13.9 Further Assurances. Seller and the Servicer agree to do ------------------ and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the Trustee more fully to effect the purposes of this Agreement, including, without limitation, the execution of any financing statements or continuation statements relating to the Receivables for filing under the provisions of the UCC of any applicable jurisdiction. Section 13.10 No Waiver; Cumulative Remedies. No failure to exercise ------------------------------ and no delay in exercising, on the part of the Trustee or the Investor Certificateholders, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. Section 13.11 Counterparts. This Agreement may be executed in two or ------------ more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. Section 13.12 Third-Party Beneficiaries. This Agreement shall inure to ------------------------- the benefit of and be binding upon the parties hereto, the Certificateholders and, to the 92 extent provided in any Supplement, to the Enhancement Provider named therein, and their respective successors and permitted assigns. Except as otherwise provided in this Article XIII, no other person will have any ------------ right or obligation hereunder. Section 13.13 Actions by Certificateholders. ----------------------------- (a) Wherever in this Agreement a provision is made that an action may be taken or a notice, demand or instruction given by Investor Certificateholders, such action, notice or instruction may be taken or given by any Investor Certificateholder, unless such provision requires a specific percentage of Investor Certificateholders. (b) Any request, demand, authorization, direction, notice, consent, waiver or other act by a Certificateholder shall bind such Certificateholder and every subsequent holder of such Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or omitted to be done by the Trustee, Seller or the Servicer in reliance thereon, whether or not notation of such action is made upon such Certificate. Section 13.14 Merger and Integration. Except as specifically stated ---------------------- otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived or supplemented except as provided herein. Section 13.15 Headings. The headings herein are for purposes of -------- reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. Section 13.16 Effect on Existing Pooling Agreement. This Agreement ------------------------------------ amends and restates the Existing Pooling Agreement effective as of the date of this Agreement. This Agreement shall not effect a novation of the obligations of the parties to the Existing Pooling Agreement, but instead shall be merely a restatement and, where applicable, an amendment of the terms governing such obligations. The parties hereto hereby affirm, ratify and confirm all transfers of Receivables and other related assets pursuant to the Existing Pooling Agreement. The parties hereto agree that the existing Exchangeable Seller Certificate shall be deemed to have been replaced with the Seller Interest as further described herein. Section 13.17 No Petition. Each of each Certificateholder, the ---------- Trustee, the Servicer and, with respect to the Trust, the Seller, severally and not jointly, hereby covenants and agrees that, prior to the date which is one (1) year and one (1) day after the payment in full of all Investor Certificates, it will not institute against, or join any other Person in instituting against, the Seller or the Trust any bankruptcy, 93 reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. Section 13.18 Limited Recourse. Notwithstanding anything to the ---------------- contrary in this Agreement or any other Transaction Document, with respect to provisions hereof in which the Seller has agreed that certain actions will be taken at the Seller's expense, payment of any such expense shall only be made to the extent the Seller has funds available for such purpose after amounts payable to Securityholders (as defined in the Receivables Purchase Agreement) have been paid in full. Each party hereto agrees that the failure to make such payment shall not give rise to any claim against the Seller. [Signatures Follow] 94 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. FIRST CONSUMERS CREDIT CORPORATION By: ---------------------------------- Title: ------------------------------- FIRST CONSUMERS NATIONAL BANK By: ---------------------------------- Title: ------------------------------- THE BANK OF NEW YORK By: ---------------------------------- Title: ------------------------------- S-1 EXHIBIT A to Amended and Restated Pooling and Servicing Agreement FORM OF TRANSFER AGREEMENT OF RECEIVABLES IN ADDITIONAL ACCOUNTS ---------------------------------- ASSIGNMENT No. OF RECEIVABLES IN ADDITIONAL ACCOUNTS, dated as -- of , (this "Assignment"), by and between First ----------- ----------- Consumers Credit Corporation, a Delaware corporation ( the "Transferor") to The Bank of New York, a banking corporation organized and existing under the laws of New York, as trustee (the "Trustee") pursuant to the Amended and Servicing Pooling and Servicing Agreement referred to below. W I T N E S S E T H: WHEREAS, the Transferor and the Trustee are parties to the Amended and Restated Pooling and Servicing Agreement, dated as of September 30, 1992, amended and restated as of February 1, 1999, and amended and restated a second time as of December 31, 2001 (hereinafter as such agreement may have been, or may from time to time be, amended, supplemented or otherwise modified, the "Pooling and Servicing Agreement"); WHEREAS, pursuant to the Pooling and Servicing Agreement, the Transferor wishes to designate Additional Accounts of the Transferor to be included as Accounts and to convey the Receivables of such Additional Accounts, whether now existing or hereafter created, to the Trust as part of the corpus of the Trust (as each such term is defined in the Pooling and Servicing Agreement); and WHEREAS, the Trustee is willing to accept such designation and conveyance subject to the terms and conditions hereof; NOW THEREFORE, the Transferor and the Trustee hereby agree as follows: SECTION 1. Defined Terms. All terms defined in the Pooling and ------------- Servicing Agreement and used herein shall have such defined meanings when used herein, unless otherwise defined herein. "Addition Date" shall mean, with respect to the Additional Accounts designated hereby, , . --------- ---------- A-1 "Notice Date" shall mean, with respect to the Additional Accounts designated hereby, , (which shall be a date on or prior to -------- -------- the fifth Business Day prior to the Addition Date). SECTION 2. Designation of Additional Accounts. The Transferor shall ----------------------------------- deliver or cause to be delivered to the Trustee not later than five Business Days after the Addition Date, a computer file or microfiche list containing a true and complete list of each charge account which as of the Addition Date shall be deemed to be an Additional Account, such accounts being identified by account number and by the amount of Receivables and the amount of Principal Receivables in such accounts as of the close of business on the Addition Date. Such list shall be marked as Schedule 1 to this Assignment and, as of the Addition Date, shall be incorporated into and made a part of this Assignment. SECTION 3. Conveyance of Receivables. (a) The Transferor does hereby -------------------------- transfer, assign, set-over and otherwise convey to the Trust for the benefit of the Certificateholders, without recourse on and after the Addition Date, all right, title and interest of the Transferor in and to the Receivables now existing and hereafter created in the Additional Accounts designated hereby, all monies due or to become due with respect thereto (including all Finance Charge Receivables), all Collections, Recoveries and other proceeds of such Receivables and Insurance Proceeds relating thereto. (b) In connection with such transfer, unless a financing statement covering such Receivables has heretofore been filed, the Transferor agrees to record and file, at its own expense, a financing statement with respect to the Receivables now existing and hereafter created in the Additional Accounts designated hereby (which may be a single financing statement with respect to all such Receivables) for the transfer of accounts as defined in Section 9-106 of the UCC as in effect in the applicable jurisdiction meeting the requirements of applicable state law in such manner and such jurisdictions as are necessary to perfect the assignment of such Receivables to the Trust, and to deliver a file-stamped copy of such financing statement or other evidence of such filing (which may, for purposes of this Section 3, consist of telephone confirmation of such filing) to the Trustee on or prior to the date of this Assignment. (c) In connection with such transfer, the Transferor further agrees, at its own expense, on or prior to the date of this Assignment to indicate or cause to be indicated in its books and records and in the computer files of the Receivables that Receivables created in connection with the Additional Accounts designated hereby have been transferred to the Trust pursuant to this Assignment for the benefit of the Certificateholders. A-2 SECTION 4. Acceptance by Trustee. The Trustee hereby acknowledges its ---------------------- acceptance on behalf of the Trust of all right, title and interest previously held by the Transferor in and to the Receivables now existing and hereafter created, and declares that it shall maintain such right, title and interest, upon the trust set forth herein and in the Pooling and Servicing Agreement, for the benefit of all Certificateholders. The Trustee further acknowledges that, prior to or contemporaneously with the execution and delivery of this Assignment, the Transferor delivered to the Trustee the computer file or microfiche list described in Section 2 of this Assignment. SECTION 5. Representations and Warranties of the Transferor. The ------------------------------------------------- Transferor hereby represents and warrants to the Trust as of the Addition Date: (a) Legal, Valid and Binding Obligation. This Assignment constitutes a ------------------------------------ legal, valid and binding obligation of the Transferor enforceable against the Transferor in accordance with its terms, except as such enforceability may be limited by applicable receivership or conservatorship, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and the rights of creditors of national banking associations and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); (b) Eligibility of Accounts. Each Additional Account designated hereby ------------------------ is an Eligible Account; (c) Selection Procedures. No selection procedures believed by the --------------------- Transferor to be materially adverse to the interests of the Investor Certificateholders were utilized in selecting the Additional Accounts designated hereby; (d) Insolvency. The Transferor is not insolvent and, after giving ----------- effect to the conveyance set forth in Section 3 of this Assignment, will not be insolvent; (e) Security Interest. This Assignment constitutes (i) a valid ------------------ transfer and assignment to the Trust of all right, title and interest of the Transferor in and to Receivables now existing and hereafter created in the Additional Accounts designated hereby, and all proceeds (as defined in the UCC as in effect in the applicable jurisdiction) of such Receivables and Insurance Proceeds relating thereto, and such Receivables and any Collections, Recoveries and other proceeds thereof and Insurance Proceeds relating thereto will be held by the Trust free and clear of any Lien of any Person except for (x) Liens permitted under Section 2.5 (b) of the Pooling and Servicing Agreement, (y) the interest of the Transferor as holder of the Seller Interest, and (z) the Transferor's right to receive interest accruing on, and investment earnings in respect of, the Finance Charge Account and the Principal Account as provided in the Pooling and Servicing Agreement; and/or (ii) it A-3 constitutes a grant of a security interest (as defined in the UCC as in effect in the applicable jurisdiction) in such property to the Trust, which is enforceable with respect to the existing Receivables in the Additional Accounts designated hereby, the Collections, Recoveries and other proceeds (as defined in the UCC as in effect in the applicable jurisdiction) thereof and Insurance Proceeds relating thereto upon the conveyance of such Receivables to the Trust, and which will be enforceable with respect to the Receivables thereafter created in respect of the Additional Accounts designated hereby, the Collections, Recoveries and other proceeds (as defined in the UCC as in effect in the applicable jurisdiction) thereof and Insurance Proceeds relating thereto upon the conveyance of such Receivables to the Trust, and which will be enforceable with respect to the Receivables thereafter created in respect of Additional Accounts designated hereby, the Collections, Recoveries and other proceeds (as defined in the UCC as in effect in the applicable jurisdiction) thereof and Insurance Proceeds relating thereto, upon such creation; and (iii) if this Assignment constitutes the grant of a security interest to the Trust in such property, upon the filing of a financing statement described in Section 3 of this Assignment with respect to the Additional Accounts designated hereby and in the case of the Receivables of such Additional Accounts thereafter created and the Collections, Recoveries and other proceeds (as defined in the UCC as in effect in the applicable jurisdiction) thereof, and Insurance Proceeds relating to such Receivables, upon such creation, the Trust shall have a first priority perfected security interest in such property, except for Liens permitted under subsection 2.5 (b) of the Pooling and Servicing Agreement, the interest of the Transferor as holder of the Seller Interest, and the Transferor's right to receive interest accruing on, and investment earnings in respect of, the Finance Charge Account and the Principal Account as provided in the Pooling and Servicing Agreement. (f) Notice has been given to each Rating Agency and to each Enhancement Provider as required under Section 2.6 (d) of the Pooling and Servicing Agreement. SECTION 6. Conditions Precedent. The acceptance of the Trustee set --------------------- forth in Section 4 above and the amendment of the Pooling and Servicing Agreement set forth in Section 7 below are subject to the satisfaction, on or prior to the Addition Date, of the following conditions precedent: (a) Officer's Certificate. The Transferor shall have delivered to the ---------------------- Trustee a certificate of a Vice President or more senior officer, certifying that (i) all requirements set forth in Section 2.6 of the Pooling and Servicing Agreement for designating Additional Accounts and conveying the Principal Receivables of such Accounts, whether now existing or hereafter created, have been satisfied, and (ii) each of the representations and warranties made by the Transferor in Section 5 is true and correct as of the Addition Date. The Trustee may conclusively rely on A-4 such Officer's Certificate, shall have no duty to make inquiries with regard to the matters set forth therein, and shall incur no liability in so relying. (b) Opinion of Counsel. The Transferor shall have delivered to the ------------------- Trustee an Opinion of Counsel with respect to the Additional Accounts designated hereby substantially in the form of Exhibit B to the Pooling and Servicing Agreement. (c) Additional Information. The Transferor shall have delivered to the ----------------------- Trustee such information as was reasonably requested by the Trustee to satisfy itself as to the accuracy of the representation and warranty set forth in Section 5 (d) to this Assignment. SECTION 7. Amendment of the Pooling and Servicing Agreement. The ------------------------------------------------- Pooling and Servicing Agreement is hereby amended to provide that all references therein to the "Pooling and Servicing Agreement," to "this Agreement" and "herein" shall be deemed from and after the Addition Date to be a dual reference to the Pooling and Servicing Agreement as supplemented by this Assignment. Except as expressly amended hereby, all of the representations, warranties, terms, covenants and conditions of the Pooling and Servicing Agreement shall remain unamended and shall continue to be, and shall remain, in full force and effect in accordance with its terms and except as expressly provided herein shall not constitute or be deemed to constitute a waiver of compliance with or a consent to noncompliance with any term or provision of the Pooling and Servicing Agreement. SECTION 8. Counterparts. This Assignment may be executed in two or ------------- more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. SECTION 9. No Petition. Each of the Trustee and, with respect to the ------------ Trust, the Transferor, severally and not jointly, hereby covenants and agrees that, prior to the date which is one (1) year and one (1) day after the payment in full of all Investor Certificates, it will not institute against, or join any other Person in instituting against, the Transferor or the Trust any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. A-5 IN WITNESS WHEREOF, the undersigned have caused this Assignment of Receivables in Additional Accounts to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. FIRST CONSUMERS CREDIT CORPORATION By: ---------------------- Title: ------------------- THE BANK OF NEW YORK, as Successor Trustee By: ---------------------- Title: ------------------- A-6 SCHEDULE 1 to Assignment of Receivables in Additional Accounts ADDITIONAL ACCOUNTS ------------------- Delivered to Trustee only As contained on an appropriately labeled computer record delivered contemporaneously with the Execution and delivery of the Existing Pooling Agreement. A-7 EXHIBIT B to Amended and Restated Pooling and Servicing Agreement PROVISIONS TO BE INCLUDED IN OPINION OF COUNSEL TO BE DELIVERED PURSUANT TO SUBSECTION 2.6(c)(vii) OF THE AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT ---------------------------------------------------- The opinions set forth below may be subject to certain qualifications, assumptions, limitations and exceptions taken or made in the opinion of FCNB's counsel with respect to similar matters delivered on the Initial Closing Date. 1. The Transfer Agreement has been duly authorized, executed and delivered by the Seller and constitutes the legal, valid and binding agreement of Seller, enforceable against the Seller in accordance with its terms. 2. If the Transfer Agreement constitutes a valid transfer and assignment of the Receivables and all rights to security for such Receivables and the proceeds thereof (including without limitation rights to bank accounts or certificates of deposit pledged as collateral) in the Additional Accounts (the "Collateral"), Financing Statements having been ---------- filed in the offices of the Secretaries of State of the States of Delaware and Oregon, and in Washington, D.C., the Trustee has acquired (based upon certificates of Seller to the effect that (a) Seller acquired the Collateral pursuant to the Receivables Purchase Agreement, (b) Seller has not transferred any interest in the Collateral other than to the Trustee or caused any lien to be imposed upon the Receivables, and (c) Seller will acquire pursuant to the Receivables Purchase Agreement all Collateral subsequently created in the Additional Accounts) free and clear of any Lien or interest of any Person except for (x) Liens permitted under subsection 2.5(b) of the Pooling and Servicing Agreement, (y) the interest of the Holder of the Seller Interest, and (z) Seller's right to receive interest accruing on, and investment earnings in respect of, the Collection Subaccounts and the Collection Sub-subaccounts as provided in the Amended and Restated Pooling and Servicing Agreement (the "Pooling and Servicing Agreement")) all right, title and interest of Seller in the Trust Assets free and clear of any Lien or interest of any Person, except for (x) Liens permitted under subsection 2.5(b) of the Pooling and Servicing Agreement, (y) the interest of the Holder of the Seller Interest, and (z) Seller's right to receive interest accruing on, and investment earnings in respect of, the Collection Subaccounts and the Collection Sub-subaccounts as provided in the Pooling and Servicing Agreement. 3. If the Transfer Agreement does not constitute a valid transfer and assignment of the Collateral, the Pooling and Servicing Agreement as amended by the Transfer Agreement creates a valid security interest in favor of the Trustee for B-1 the benefit of the Investor Certificateholders in such Collateral. The Financing Statements having been filed in the Offices of the Secretaries of State of the States of Delaware and Oregon, and in Washington, D.C., the Trust, for the benefit of the Investor Certificateholders has a first priority perfected security interest in the Collateral now existing and hereafter created. Such perfection and priority of the Trustee for the benefit of the Investor Certificateholders in such Receivables, and the proceeds thereof, would not be affected by an increase or decrease in the relative interests in the Receivables of the Holder of the Seller Interest and of the Investor Certificateholders. Such perfection and priority would be enforceable against Seller notwithstanding the insolvency of Seller, except that such counsel need express no opinion as to the effect of Section 9-315 of the UCC as in effect in the applicable jurisdiction with respect to Proceeds held by Seller upon its insolvency. 4. No filings or other action, other than the filing of the financing statement(s) referred to in such opinion (the "Financing Statements") with respect to the Trust's security interest in such Collateral and the proceeds thereof, in the Offices of the Secretaries of State of the States of Delaware and Oregon, and in Washington, D.C., are necessary to perfect or continue the perfected status of the security or other interest of the Trust in the Collateral designated by the Transfer Agreement, and the proceeds thereof, against third parties, except that appropriate continuation statements with respect to the Financing Statements be filed at five-year intervals to continue the perfection of such security interest. 5. In the course of such counsel's representation of Seller in connection with this matter, and without independent investigation, such counsel has not become aware of (a) any type of right, lien or interest of any government or agency or instrumentality thereof or any lien arising by operation of law which might be asserted against the Collateral designated by the Transfer Agreement or the proceeds thereof in particular circumstances other than a tax lien or a lien arising under ERISA, (b) any such right, lien or interest which has been so asserted, or (c) any lien arising by operation of law or any attachment or execution lien which has been asserted against the Collateral designated by the Transfer Agreement or the proceeds thereof. 6. The transfer of the Collateral to the Trust would not constitute a fraudulent conveyance of Seller; provided, that this opinion numbered 6 need not be delivered if the short-term unsecured debt obligations of FCNB are rated at the time of such transfer at least P-3 by Moody's. 7. Based on certificates of Seller to the effect of the following, to the best of the knowledge of counsel, (a) Seller acquired the Collateral pursuant to the Receivables Purchase Agreement, (b) Seller has not transferred any interest in the Collateral other than to the Trustee or caused any lien to be imposed upon the Collateral, and (c) Seller will acquire pursuant to the Receivables Purchase B-2 Agreement all Collateral subsequently created in the Additional Accounts free and clear of any Lien or interest of any Person except for (x) Liens permitted under subsection 2.5(b) of the Pooling and Servicing Agreement, (y) the interest of the Holder of the Seller Interest, and (z) Seller's right to receive interest accruing on, and investment earnings in respect of, the Collection Subaccounts and the Collection Sub-subaccounts as provided in the Pooling and Servicing Agreement. B-3 EXHIBIT C to Amended and Restated Pooling and Servicing Agreement FORM OF RETRANSFER AGREEMENT ---------------------------- TRANSFER No. OF RECEIVABLES (this "Retransfer Agreement"), dated --- as of , , by and between FIRST CONSUMERS CREDIT ---------------- ----- CORPORATION, a Delaware corporation (the "Transferor"), and THE BANK OF NEW YORK, a banking corporation organized and existing under the laws of New York (the "Trustee"), pursuant to the Amended and Restated Pooling and Servicing Agreement referred to below. W I T N E S S E T H: WHEREAS, the Transferor and the Trustee are parties to the Amended and Restated Pooling and Servicing Agreement, dated as of September 30, 1992, amended and restated as of February 1, 1999, and amended and restated a second time as of December 31, 2001 (hereinafter as such agreement may have been, or may from time to time be, amended, supplemented or otherwise modified, the "Pooling and Servicing Agreement"); WHEREAS, pursuant to the Pooling and Servicing Agreement, the Transferor wishes to remove all Receivables from certain designated Accounts of the Transferor (the "Removed Accounts") and to cause the Trustee to reconvey the Receivables of such Removed Accounts, whether now existing or hereafter created, from the Trust to the Transferor (as each such term is defined in the Pooling and Servicing Agreement); and WHEREAS, the Trustee is willing to accept such designation and to reconvey the Receivables in the Removed Accounts subject to the terms and conditions hereof; NOW THEREFORE, the Transferor and the Trustee hereby agree as follows: 1. Defined Terms. All terms defined in the Pooling and Servicing ------------- Agreement and used herein shall have such defined meanings when used herein, unless otherwise defined herein. "Removal Date" shall mean, with respect to the Removed Accounts ------------ designated hereby, , . ----------------- ----- C-1 "Removal Notice Date" shall mean, with respect to the Removed Accounts ------------------- designated hereby, (which shall be a date on or prior ---------------------- to the fifth Business Day prior to the Removal Date). 2. Designation of Removed Accounts. The Transferor shall deliver to ------------------------------- the Trustee, not later than three Business Days after the Removal Date, a computer file or microfiche list containing a true and complete list of each credit card account which as of the Removal Date shall be deemed to be a Removed Account, such accounts being identified by account number and by the amount of Principal Receivables in such accounts as of the close of business on the Removal Notice Date. Such list shall be marked as Schedule 1 to this Retransfer Agreement and shall be incorporated into and made a part of this Retransfer Agreement as of the Removal Date. 3. Conveyance of Receivables. (a) The Trustee does hereby transfer, ------------------------- assign, set-over and otherwise convey to the Transferor, without recourse on and after the Removal Date, all right, title and interest of the Trust in and to the Receivables now existing and hereafter created in the Removed Accounts designated hereby, all monies due or to become due with respect thereto (including all Finance Charge Receivables), all Collections, Recoveries and other proceeds (as defined in Section 9-306 of the UCC as in effect in the applicable jurisdiction) of such Receivables and Insurance Proceeds relating thereto. (b) In connection with such transfer, the Trustee agrees to execute and deliver to the Transferor on or prior to the date of this Retransfer Agreement, a termination statement with respect to the Receivables now existing and hereafter created in the Removed Accounts designated hereby (which may be a single termination statement with respect to all such Receivables) evidencing the release by the Trust of its lien on the Receivables in the Removed Accounts, and meeting the requirements of applicable state law, in such manner and such jurisdictions as are necessary to remove such lien. 4. Acceptance by Trustee. The Trustee hereby acknowledges that, prior --------------------- to or contemporaneously with the execution and delivery of this Retransfer Agreement, the Transferor delivered to the Trustee the computer file or microfiche list described in Section 2 of this Retransfer Agreement. 5. Representations and Warranties of the Transferor. The Transferor ------------------------------------------------ hereby represents and warrants to the Trust as of the Removal Date: (a) Legal Valid and Binding Obligation. This Retransfer Agreement ---------------------------------- constitutes a legal, valid and binding obligation of the Transferor enforceable against the Transferor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other C-2 similar laws now or hereafter in effect affecting the enforcement or creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); and (b) Selection Procedures. No selection procedures believed by the -------------------- Transferor to be materially adverse to the interests of the Investor Certificateholders were utilized in selecting the Removed Accounts designated hereby. 6. Condition Precedent. The amendment of the Pooling and Servicing ------------------- Agreement set forth in Section 7 hereof is subject to the satisfaction, on or prior to the Removal Date, of the following condition precedent: Officers' Certificate. The Transferor shall have delivered to the --------------------- Trustee an Officers' Certificate certifying that (i) as of the Removal Date, all requirements set forth in Section 2.7 of the Pooling and Servicing Agreement for designating Removed Accounts and reconveying the Receivables of such Removed Accounts, whether now existing of hereafter created, have been satisfied, and (ii) each of the representations and warranties made by the Transferor in Section 5 hereof is true and correct as of the Removal Date. The Trustee may conclusively rely on such Officer's Certificate, shall have no duty to make inquiries with regard to the matters set forth therein and shall incur no liability in so relying. 7. Amendment of the Pooling and Servicing Agreement. The Pooling and ------------------------------------------------ Servicing Agreement is hereby amended to provide that all references therein to the "Pooling and Servicing Agreement", to "this Agreement" and "herein" shall be deemed from and after the Removal Date to be a dual reference to the Pooling and Servicing Agreement as supplemented by this Retransfer Agreement. Except as expressly amended hereby, all of the representations, warranties, terms, covenants and conditions of the Pooling and Servicing Agreement shall remain unamended and shall continue to be, and shall remain, in full force and effect in accordance with its terms and except as expressly provided herein shall not constitute or be deemed to constitute a waiver of compliance with or a consent to non-compliance with any term or provision of the Pooling and Servicing Agreement. 8. Counterparts. This Retransfer Agreement may be executed in two or ------------ more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. 9. No Petition. Each of the Trustee and, with respect to the Trust, ----------- the Transferor, severally and not jointly, hereby covenants and agrees that, prior to the date which is one (1) year and one (1) day after the payment in full of all Investor Certificates, it will not institute against, or join any other Person in instituting against, the Transferor or the Trust any bankruptcy, reorganization, arrangement, C-3 insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. IN WITNESS WHEREOF, the undersigned have caused this Retransfer Agreement to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. FIRST CONSUMERS CREDIT CORPORATION By: --------------------------- Title: ------------------------ THE BANK OF NEW YORK, as Successor Trustee By: --------------------------- Title: ------------------------ C-4 SCHEDULE 1 to Retransfer Agreement REMOVED ACCOUNTS ---------------- Delivered to Trustee only As contained on an appropriately labeled computer record delivered contemporaneously with the Execution and delivery of the Existing Pooling Agreement. C-5 EXHIBIT D to Amended and Restated Pooling and Servicing Agreement FORM OF MONTHLY SERVICER'S CERTIFICATE -------------------------------------- FIRST CONSUMERS MASTER TRUST The undersigned, a duly authorized representative of First Consumers National Bank ("FCNB"), as Servicer pursuant to the Pooling and Servicing Agreement dated as of September 30, 1992, amended and restated as of February 1, 1999, and amended and restated a second time as of December 31, 2001, (the "Pooling and Servicing Agreement") among First Consumers Credit Corporation, FCNB and The Bank of New York, as Successor Trustee, does hereby certify as follows: 1. Capitalized terms used in this Certificate have their respective meanings set forth in the Pooling and Servicing Agreement; provided that the "preceding Monthly Period" shall mean the Monthly Period immediately preceding the calendar month in which this Certificate is delivered. This Certificate is delivered pursuant to Section 3.4(c) of the Pooling and Servicing Agreement. References herein to certain sections and subsections are references to the respective sections and subsections of the Pooling and Servicing Agreement. 2. FCNB is Servicer under the Pooling and Servicing Agreement. 3. The undersigned is a Servicing Officer. 4. The date of this Certificate is a Determination Date under the Pooling and Servicing Agreement. 5. The aggregate amount of Collections processed during the preceding Monthly Period was equal to ..................................$ ------------ 6. The aggregate amount of the Investor Percentage of Collections of Principal Receivables processed by the Servicer pursuant to Article IV during the preceding Monthly Period was equal to .............$ ------------ 7. The aggregate amount of the Investor Percentage of Collections of Finance Charge Receivables processed by the Servicer pursuant to Article IV during the preceding Monthly Period was equal to .............$ ------------ D-1 8. The aggregate amount of Receivables as of the end of the last day of the preceding Monthly Period was equal to............................... ................$ ----------- 9. The aggregate amount of funds on deposit in the Finance Charge Account with respect to Collections processed as of the end of the last day of the preceding Monthly Period was equal to............................... ................$ ----------- 10. The aggregate amount of funds on deposit in the Principal Account with respect to Collections processed as of the end of the last day of the preceding Monthly Period was equal to...................................... ................$ ----------- 11. The Available Cash Collateral Amount in connection with the Series Certificates as of the next succeeding Transfer Date is equal to... ------- ................$ ----------- 12. The aggregate amount of withdrawals required to be made from the Cash Collateral Account pursuant to Article IV in connection with the Series Certificates in the current calendar month is equal to...... ------- ................$ ----------- 13. The aggregate amount to be paid to the Cash Collateral Depositor in connection with the Series Certificates from the Series ------- ------- Finance Charge Account pursuant to Article IV in the current calendar month is equal to.....$ ----------- 14. The sum of all amounts payable to the Investor Certificateholders on the Distribution Date in the current calendar month is equal to......... ................$ ----------- 15. Attached hereto is a true and correct copy of the statement required to be delivered by the Servicer on the date of this Certificate to the Paying Agent pursuant to the Series Supplement. ------- 16. To the knowledge of the undersigned, there are no liens on any Receivables in the Trust except as described below: [If applicable, insert "None".] IN WITNESS WHEREOF, the undersigned has duly executed and delivered this certificate this day of , . ---- --------------- ----- FIRST CONSUMERS NATIONAL BANK, as Servicer By: ------------------------------ Title: --------------------------- D-2 EXHIBIT E to Amended and Restated Pooling and Servicing Agreement FORM OF ANNUAL SERVICER'S CERTIFICATE ------------------------------------- FIRST CONSUMERS MASTER TRUST The undersigned, a duly authorized representative of First Consumers National Bank ("FCNB") as Servicer pursuant to the Pooling and Servicing Agreement dated as of September 30, 1992, amended and restated as of February 1, 1999, and as amended and restated a second time as of December 31, 2001 (the Pooling and Servicing Agreement) among First Consumers Credit Corporation, FCNB and The Bank of New York, as successor trustee (the "Trustee"), does hereby certify that: 1. FCNB is Servicer under the Pooling and Servicing Agreement. 2. The undersigned is duly authorized pursuant to the Pooling and Servicing Agreement to execute and deliver this Certificate to the Trustee 3. This Certificate is delivered pursuant to Section 3.5 of the Pooling and Servicing Agreement. 4. A review of the activities of the Servicer during the calendar year ended December 31, was conducted under my supervision. ----- 5. Based on such review, the Servicer has, to the best of my knowledge, fully performed all its obligations under the Pooling and Servicing Agreement throughout such calendar year and no default in the performance of such obligations has occurred or is continuing except as set forth in paragraph 6 below. 6. The following is a description of each default in the performance of the Servicer's obligations under the provisions of the Pooling and Servicing Agreement known to me to have been made during the calendar year ended December 31, , which sets forth in detail the (i) nature of each ----- such default, (ii) the action taken by the Servicer, if any, to remedy each such default and (iii) the current status of each such default: [If applicable, insert "None"] IN WITNESS WHEREOF, the undersigned has duly executed this Certificate this day of , . ------ ----- By: ------------------------------ Name: ------------------------- Title: ------------------------ E-1 EXHIBIT F to Amended and Restated Pooling and Servicing Agreement PROVISIONS TO BE INCLUDED IN OPINION OF COUNSEL PURSUANT TO SUBSECTION 13.2(d)(i) ----------------------------------------- (i) The amendment to the Amended and Restated Pooling and Servicing Agreement, attached hereto as Exhibit A (the "Amendment"), has been duly authorized, executed and delivered by Seller and FCNB and constitutes the legal, valid and binding agreement of Seller and FCNB, enforceable in accordance with its terms. (ii) The Amendment has been entered into in accordance with the terms and provisions of Section 13.1 of the Pooling and Servicing Agreement. 12892058 F-1 EXHIBIT G to Amended and Restated Pooling and Servicing Agreement PROVISIONS TO BE INCLUDED IN ANNUAL OPINION OF COUNSEL ---------------------------- The opinions set forth below, which are to be delivered pursuant to subsection 13.2(d) of the Amended and Restated Pooling and Servicing Agreement ("Pooling and Servicing Agreement"), may be subject to certain qualifications, assumptions, limitations, and exceptions taken or made in the opinion of counsel to FCNB with respect to similar matters delivered on the Initial Closing Date. 1. If the Pooling and Servicing Agreement constitutes a valid transfer and assignment of the Trust Assets, the Financing Statements having been filed in the offices of the Secretaries of State of the States of Delaware and Oregon, and in Washington, D.C., the Trustee has acquired (based upon certificates of Seller to the effect that (a) Seller acquired the Receivables and all rights to security for such Receivables and the proceeds thereof (including without limitation rights to bank accounts or certificates of deposit pledged as collateral) (the "Collateral") pursuant ---------- to the Receivables Purchase Agreement, (b) Seller has not transferred any interest in the Collateral other than to the Trustee or caused any lien to be imposed upon the Collateral, and (c) Seller will acquire pursuant to the Receivables Purchase Agreement all Collateral subsequently created in the Additional Accounts free and clear of any Lien or interest of any Person except for (x) Liens permitted under subsection 2.5(b) of the Pooling and Servicing Agreement, (y) the interest of the Holder of the Seller Interest, and (z) Seller's right to receive interest accruing on, and investment earnings in respect of, the Collection Subaccounts and the Collection Sub-subaccounts as provided in the Pooling and Servicing Agreement) all right, title and interest of Seller in the Trust Assets free and clear of any Lien or interest of any Person, except for (x) Liens permitted under subsection 2.5(b) of the Pooling and Servicing Agreement, (y) the interest of the Holder of the Seller Interest, and (z) Seller's right to receive interest accruing on, and investment earnings in respect of, the Collection Subaccounts and the Collection Sub-subaccounts as provided in the Pooling and Servicing Agreement. 2. If the Pooling and Servicing Agreement does not constitute a valid transfer and assignment of all right, title, and interest in the Trust Assets, the Pooling and Servicing Agreement creates a valid security interest in favor of the Trustee for the benefit of the Investor Certificateholders in the Trust Assets. The Financing Statements having been filed in the offices of the Secretaries of State of the States of Delaware and Oregon, and in Washington, D.C., the Trust, for the benefit of the Investor Certificateholders has a first priority perfected security interest in that G-1 portion of the Trust Assets that consists of the Collateral now existing and hereafter created (other than Collateral in Additional Accounts), and all monies due or to become due with respect thereto, including the proceeds thereof. Such perfection and priority of the Trustee for the benefit of the Investor Certificateholders in such Collateral, and the proceeds thereof, would not be affected by an increase or decrease in the relative interests in the Collateral of the Holder of the Seller Interest and of the Investor Certificateholders. Such perfection and priority would be enforceable against Seller notwithstanding the insolvency of Seller except that such counsel need express no opinion as to the effect of Section 9-315 of the UCC as in effect in the applicable jurisdiction with respect to proceeds held by Seller upon its insolvency. 3. No filings or other action, other than the filing of the financing statement(s) referred to in such opinion (the "Financing Statements") with respect to the Trust's interest in the Collateral and the proceeds thereof in the Offices of the Secretaries of State of the States of Delaware and Oregon, and in Washington, D.C., are necessary to perfect or continue the perfected status of the interest of the Trust in the Collateral and the proceeds thereof against third parties, except that appropriate continuation statements with respect to the Financing Statement(s) must be filed at five-year intervals. 4. In the course of such counsel's representation of Seller in connection with this matter, and without independent investigation, such counsel has not become aware of (a) any type of right, lien, or interest of any government or agency or instrumentality thereof or any lien arising by operation of law which might be asserted against the Collateral or the proceeds arising under ERISA, (b) any such right, lien or interest which has been so asserted or (c) any lien arising by operation of law or any attachment or execution lien which had been asserted against the Collateral or the proceeds thereof. G-2 SCHEDULE 1 to Amended and Restated Pooling and Servicing Agreement LIST OF ACCOUNTS ---------------- Delivered to Trustee only As contained on an appropriately labeled computer record delivered contemporaneously with the Execution and delivery of the Existing Pooling Agreement. Aggregate Receivables as of the Cut Off Date: $152,900,177 Aggregate Principal Receivables as of the Cut Off Date: $150,759,365 G-3 SCHEDULE 2 to Amended and Restated Pooling and Servicing Agreement PERFECTION REPRESENTATIONS AND WARRANTIES ----------------------------------------- In addition to the representations, warranties and covenants contained in the Pooling and Servicing Agreement, Seller hereby represents, warrants and covenants to the Trust as follows: (1) The Pooling and Servicing Agreement creates either (A) a valid transfer to the Trust of all right, title and interest of Seller in, to and under (i) the Receivables conveyed to the Seller pursuant to the Receivables Purchase Agreement and (ii) all rights to security for such Receivables (including without limitation rights to bank accounts or certificates of deposit pledged as collateral) (the "Obligor Collateral" ------------------ and, together with the Receivables, the "Collateral") , and the Collateral ---------- will be held by the Trust free and clear of any Lien, except for (w) the interests of the Trustee, the Certificateholders and the Enhancement Providers, (x) Liens permitted pursuant to paragraph 3 below, or (y) the interests of the Seller as holder of the Seller Interest or (B) a valid and continuing security interest (as defined in the applicable UCC) in the Collateral in favor of the Trust, which security interest is prior to all other Liens, and is enforceable as such against creditors of and purchasers from the Seller (other than Liens permitted pursuant to paragraph 3 below). (2) The Receivables constitute "accounts" within the meaning of the applicable UCC. The Obligor Collateral constitutes security interests on personal property securing certain of those accounts, and the creation and perfection of a security interest in such security interests is governed by Sections 9-203(g) and 9- 308(e), respectively, of the applicable UCC. (3) Immediately prior to the conveyance of, or the grant of the security interest in, the Collateral pursuant to the Pooling and Servicing Agreement, Seller owns and has good and marketable title to the Collateral, and a valid, perfected security interest in the collateral for the Receivables in any secured Accounts, in each case, free and clear of any Lien, claim or encumbrance of any Person; provided that nothing in this paragraph 3 shall prevent or be deemed to prohibit Seller from suffering to exist upon any of the Collateral any Liens for any taxes if such taxes shall not at the time be due and payable or if FCNB or Seller, as applicable, shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. (4) Seller has caused, or will have caused within 10 days, the filing of all appropriate financing statements in the proper filing office in the appropriate G-4 jurisdictions under applicable law in order to perfect the security interest in the Collateral granted to the Trust under the Pooling and Servicing Agreement. (5) Other than the security interest granted to the Trust pursuant to the Pooling and Servicing Agreement, Seller has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Collateral. Seller has not authorized the filing of and is not aware of any financing statements against Seller that include a description of collateral covering the Collateral. (6) Seller is not aware of any judgment, ERISA or tax lien filings against Seller. (7) Notwithstanding any other provision of the Pooling and Servicing Agreement, the representations and warranties set forth in this Schedule 2 ---------- shall be continuing, and remain in full force and effect, until such time as all Certificates have been finally and fully paid and shall survive the transfer of the Trust Assets to the Trust under the Pooling and Servicing Agreement and the termination of the rights and obligations of the Servicer pursuant to Article X thereof. The parties to the Pooling and Servicing --------- Agreement shall not, without satisfying the Rating Agency Condition, waive a breach of any representation or warranty set forth in this Schedule 2. In ---------- order to evidence the interests of Seller and the Trust under the Pooling and Servicing Agreement, Seller and Servicer shall take such action, or execute and deliver such instruments (other than filing financing statements) as may be necessary or advisable (including, without limitation, such actions as are requested by Indenture Trustee) to maintain and perfect, as a first priority interest, Seller's or the Trust's security interest in the Collateral. The Servicer shall, from time to time and within the time limits established by law, prepare and present to the Trustee for the Trustee's authorization and approval all financing statements, amendments, continuations or initial financing statements in lieu of a continuation statement, or other filings necessary to continue, maintain and perfect as a first-priority interest. The Trustee's approval of such filings shall authorize the Servicer to file such financing statements under the UCC without the signature of Seller or Trustee where allowed by applicable law. Notwithstanding anything else in the Pooling and Servicing Agreement to the contrary, the Servicer shall not have any authority to file a termination, partial termination, release, partial release, or any amendment that deletes the name of a debtor or excludes collateral of any such financing statements, without the prior written consent of the Trustee. The Trustee may require, prior to authorizing or filing any such termination, partial termination, release, partial release or amendment, that Servicer provide an Opinion of Counsel that such filings are authorized under the Pooling and Servicing Agreement. G-5 EX-10.40 37 dex1040.txt TRANSFER AND SERVICING AGREEMENT DATED 3/01/2001 Exhibit 10.40 TRANSFER AND SERVICING AGREEMENT among FIRST CONSUMERS CREDIT CORPORATION Seller, FIRST CONSUMERS NATIONAL BANK, Servicer, and FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST, Issuer, Dated as of March 1, 2001 amended and restated as of December 31, 2001 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS ..................................................................1 Section 1.1. Definitions .....................................................1 Section 1.2. Other Definitional Provisions ...................................1 Section 1.3. Monthly Allocation of Finance Charge Receivables .....................................................2 ARTICLE II CONVEYANCE OF RECEIVABLES ....................................................3 Section 2.1. Conveyance of Receivables .......................................3 Section 2.2. Acceptance by Issuer ............................................5 Section 2.3. Representations and Warranties of Seller Relating to Seller ..............................................5 Section 2.4. Representations and Warranties of Seller Relating to this Agreement and the Receivables .................................................7 Section 2.5. Covenants of Seller ............................................11 Section 2.6. Addition of Accounts ...........................................15 Section 2.7. Removal of Accounts ............................................18 Section 2.8. Discount Option ................................................19 ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES .................................................................20 Section 3.1. Acceptance of Appointment and Other Matters Relating to the Servicer ...............................20 Section 3.2. Servicing Compensation .........................................21 Section 3.3. Representations; Warranties and Covenants of the Servicer ................................................22 Section 3.4. Reports and Records for the Indenture Trustee; Bank Account Statements ........................................23 Section 3.5. Annual Servicer's Certificate ..................................24 Section 3.6. Annual Independent Public Accountants' Servicing Report ...............................................24 Section 3.7. Tax Treatment ..................................................25 Section 3.8. Notices to Seller ..............................................25 Section 3.9. Reports to the Commission ......................................25 ARTICLE IV OTHER MATTERS RELATING TO SELLER ............................................25 Section 4.1. Liability of Seller ............................................25 Section 4.2. Merger or Consolidation of, or Assumption of the Obligations of, Seller etc ..............................25 Section 4.3. Limitation on Liability of Seller ..............................27 ARTICLE V OTHER MATTERS RELATING TO THE SERVICER ......................................27 Section 5.1. Liability of the Servicer ......................................27
Section 5.2. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer ............................27 Section 5.3. Limitation on Liability of the Servicer and Others .........................................................28 Section 5.4. Indemnification of the Issuer and the Owner Trustee ........................................................28 Section 5.5. The Servicer Not to Resign .....................................29 Section 5.6. Access to Certain Documentation and Information Regarding the Receivables ..........................29 Section 5.7. Delegation of Duties ...........................................30 Section 5.8. Examination of Records .........................................30 ARTICLE VI INSOLVENCY EVENTS ...........................................................30 Section 6.1. Rights upon the Occurrence of an Insolvency Event ...............................................30 ARTICLE VII SERVICER DEFAULTS ...........................................................31 Section 7.1. Servicer Defaults ..............................................31 Section 7.2. Indenture Trustee to Act; Appointment of Successor ...................................................32 Section 7.3. Notification to Noteholders ....................................34 ARTICLE VIII TERMINATION ................................................................34 Section 8.1. Termination of Agreement .......................................34 ARTICLE IX MISCELLANEOUS PROVISIONS ....................................................35 Section 9.1. Amendment; Waiver of Past Defaults .............................35 Section 9.2. Protection of Right, Title and Interest to Issuer ..............37 Section 9.3. GOVERNING LAW ..................................................38 Section 9.4. Notices; Payments ..............................................38 Section 9.5. Severability of Provisions .....................................38 Section 9.6. Further Assurances .............................................39 Section 9.7. No Waiver; Cumulative Remedies .................................39 Section 9.8. Counterparts ...................................................39 Section 9.9. Third-Party Beneficiaries ......................................39 Section 9.10. Actions by Noteholders ........................................39 Section 9.11. Rule 144A Information .........................................39 Section 9.12. Merger and Integration ........................................40 Section 9.13. No Bankruptcy Petition ........................................40 Section 9.14. Rights of Indenture Trustee ...................................40 Section 9.15. Rights of the Owner Trustee ...................................40
ii EXHIBITS EXHIBIT A Form of Assignment of Receivables in Additional Accounts ...................................................................A-1 EXHIBIT B Form of Reassignment of Receivables in Removed Accounts ...................................................................B-1 EXHIBIT C Form of Monthly Servicer's Certificate .....................................C-1 EXHIBIT D Form of Annual Servicer's Certificate ......................................D-1 EXHIBIT E Form of Annual Independent Public Accountants' Servicing Report ...........................................................E-1 EXHIBIT F-1 Form of Opinion of Counsel with Respect to Amendments ...............................................................F-1-1 EXHIBIT F-2 Form of Opinion of Counsel with Respect to Accounts ......................F-2-1 EXHIBIT F-3 Provisions to be Included in Annual Opinion of Counsel ...................F-3-1 SCHEDULES SCHEDULE 1 List of Accounts ...........................................................1-1 SCHEDULE 2 Additional Representations, Warranties and Covenants .......................2-1
iii TRANSFER AND SERVICING AGREEMENT, dated as of March 1, 2001, as amended and restated herein as of December 31, 2001 (this "Agreement") among FIRST CONSUMERS --------- CREDIT CORPORATION, a Delaware corporation, as Seller, FIRST CONSUMERS NATIONAL BANK, a national banking association, as Servicer, and FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST, a trust organized under the laws of the State of Illinois, as Issuer. In consideration of the mutual agreements herein contained, each party agrees as follows for the benefit of the other parties, the Noteholders and any Series Enhancer to the extent provided herein, in the Indenture and in any Indenture Supplement: ARTICLE I DEFINITIONS Section 1.1. Definitions. Capitalized terms used herein and not otherwise ----------- defined herein are defined in Annex A to the Master Indenture, dated as of the ------- date hereof, between First Consumers Credit Card Master Note Trust and The Bank of New York. Section 1.2. Other Definitional Provisions. All terms defined directly or ----------------------------- by reference in this Agreement shall have the defined meanings when used in any certificate or other document delivered pursuant hereto unless otherwise defined therein. For purposes of this Agreement and all such certificates and other documents, unless the context otherwise requires: (a) accounting terms not otherwise defined in this Agreement, and accounting terms partly defined in this Agreement to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles; (b) terms defined in Article 9 of the UCC as in effect in the applicable jurisdiction and not otherwise defined in this Agreement are used as defined in that Article; (c) any reference to each Rating Agency shall only apply to any specific rating agency if such rating agency is then rating any outstanding Series; (d) references to any amount as on deposit or outstanding on any particular date means such amount at the close of business on such day; (e) the words "hereof," "herein" and "hereunder" and words of similar import refer to this Agreement (or the certificate or other document in which they are used) as a whole and not to any particular provision of this Agreement (or such certificate or document); (f) references to any Section, Schedule or Exhibit are references to Sections, Schedules and Exhibits in or to this Agreement (or the certificate or other document in which the reference is made), and references to any paragraph, Section, clause or other subdivision within any Section or definition refer to such paragraph, subsection, clause or other subdivision of such Section or definition; (g) the term "including" means "including without limitation"; (h) references to any law or regulation refer to that law or regulation as amended from time to time and include any successor law or regulation; (i) references to any Person include that Person's successors and assigns; and (j) headings are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. 1 Section 1.3. Monthly Allocation of Finance Charge Receivables. The amount ------------------------------------------------ of Finance Charge Receivables (excluding, in each case where such term is used in this Section 1.3, Discount Option Receivables) in all Accounts shall be ----------- determined as follows: (a) At the close of business on each Cycle Billing Date for any Cycle of which any Accounts are included in the Trust, the amount of Finance Charge Receivables of all Accounts in such Cycle shall be equal to the result of (A) the amount of Finance Charges charged to all Accounts in such Cycle on such date minus (B) the amount of Finance Charge Receivables on all Accounts in such Billing Cycle that have been charged off since the close of business on the preceding Cycle Billing Date. As of the end of each Monthly Period, the amount of Finance Charge Receivables for all Accounts shall equal (X) the sum of the amounts calculated pursuant to the preceding sentence for each Cycle of which Accounts are included in the Trust during that Monthly Period plus (Y) the Carry-Over Finance Charge Amount. (b) For each Business Day in each Monthly Period, the amount of Collections allocated to Finance Charge Receivables for all Accounts shall be all Collections available for allocation on that Business Day up to an amount equal to the quotient of the result determined pursuant to paragraph (a) above as of the end of the immediately preceding Monthly Period divided by the number of Business Days in such present Monthly Period; provided, however, that (A) the -------- ------- amount of Collections allocated to Finance Charge Receivables for all Accounts on the first Business Day of each Monthly Period shall equal the product of two times such quotient, (B) subject to clause (C) below, the amount of Collections allocated to Finance Charge Receivables for all Accounts on the last Business Day of each Monthly Period shall equal zero and (C) to the extent that the total Collections available for allocation on any Business Day (other than the last Business Day of a Monthly Period) is less than the amount that is to be allocated to Collections of Finance Charge Receivables on that Business Day, then the deficit shall be added to the amount of Collections that will be allocated to Finance Charge Receivables on the next Business Day. (c) If, at the close of business on the last Business Day of any Monthly Period, the amount of Collections allocated to Finance Charge Receivables for all Accounts during such Monthly Period is less than the amount of Finance Charge Receivables for all Accounts calculated pursuant to paragraph (a) as of the end of the next preceding Monthly Period, then such deficit shall be the "Carry-Over Finance Charge Amount" and shall be added to the amount of Finance Charge Receivables as of the end of the then current Monthly Period pursuant to paragraph (a). Notwithstanding the foregoing, the Servicer may adopt a different method of determining the amount of Finance Charge Receivables which in the good faith judgment of the Servicer is designed to more accurately reflect the portions of Receivables and Collections constituting Finance Charge Receivables. 2 ARTICLE II CONVEYANCE OF RECEIVABLES Section 2.1. Conveyance of Receivables. By execution of this Agreement, ------------------------- Seller does hereby transfer, assign, set over and otherwise convey to the Issuer, without recourse except as provided herein, all its right, title and interest in, to and under (a) the Collateral Certificate, and (b) effective on the FCMT Termination Date, the Receivables existing at the opening of business on the FCMT Termination Date, and thereafter created from time to time until the termination of the Issuer, all Collections and Recoveries allocable to the Issuer as provided herein, the rights to receive certain amounts paid or payable as Interchange (if and to the extent provided for in any Indenture Supplement), all rights to security for any Receivables (including without limitation rights to bank accounts or certificates of deposit pledged as collateral) and the right to any Enhancement with respect to any Series, in each case together with all monies due or to become due and all amounts received or receivable with respect thereto, Transferred Assets acquired by Seller under the Receivables Purchase Agreement, rights described in clause (a)(ii) of the definition of "Existing -------------- Assets" in the Receivables Purchase Agreement, rights under the Receivables Purchase Agreement relating to assets that have been transferred or contributed under the Receivables Purchase Agreement (other than the right to acquire such assets under Sections 2.1(a) and 2.1(b) thereof) and all proceeds thereof and --------------- ------ Insurance Proceeds relating thereto. Such property, together with all monies and other property credited to the Collection Account, the Series Accounts and the Excess Funding Account (including any subaccounts of any such account), the rights of the Issuer under this Agreement and the Trust Agreement and the right to receive Recoveries shall constitute the assets of the Issuer (the "Trust ----- Assets"). The foregoing does not constitute and is not intended to result in the - ------ creation or assumption by the Issuer, the Owner Trustee, the Indenture Trustee or any Noteholder of any obligation of the Seller, the Servicer or any other Person in connection with the Accounts or the Receivables or under any agreement or instrument relating thereto, including any obligation to Obligors, merchant banks, merchants or clearance systems. On or prior to the Initial Closing Date, Seller shall deliver to the Owner Trustee a registered certificate representing the Collateral Certificate. On or prior to the FCMT Termination Date, Seller agrees to record and file, at its own expense, financing statements (and continuation statements when applicable) with respect to the Receivables and other Trust Assets conveyed by Seller existing on the FCMT Termination Date and thereafter created meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect, and maintain the perfection of, the transfer and assignment of its interest in such Receivables and other Trust Assets to the Issuer, and to deliver a file stamped copy of each such financing statement or other evidence of such filing to the Owner Trustee as soon as practicable after the FCMT Termination Date, and (if any additional filing is so necessary) as soon as practicable after the applicable Addition Date, in the case of Receivables and other Trust Assets arising in Additional 3 Accounts. The Owner Trustee shall be under no obligation whatsoever to file such financing or continuation statements or to make any other filing under the applicable UCC in connection with such transfer and assignment. Seller further agrees, at its own expense, on or prior to (x) the FCMT Termination Date, (y) the applicable Addition Date, in the case of Additional Accounts (other than Additional Accounts added pursuant to Section 2.6(e)), and -------------- (z) the applicable Removal Date, in the case of Removed Accounts, (a) to indicate in the appropriate computer files that Receivables created (or reassigned, in the case of Removed Accounts) in connection with the Accounts have been conveyed to the Issuer pursuant to this Agreement (or conveyed to Seller or its designee in accordance with Section 2.7, in the case of Removed ----------- Accounts) and (b) to deliver to the Owner Trustee a computer file or microfiche list containing a true and complete list of all such Accounts specifying for each such Account, as of the FCMT Termination Date, the applicable Addition Date in the case of Additional Accounts, and the applicable Removal Date in the case of Removed Accounts, its account number and, the aggregate amount outstanding in such Account and the aggregate amount of Principal Receivables outstanding in such Account. Each such file or list, as supplemented, from time to time, to reflect Additional Accounts and Removed Accounts, shall be marked as Schedule 1 ---------- to this Agreement and is hereby incorporated into and made a part of this Agreement. If the arrangements with respect to the Receivables hereunder shall constitute a loan and not a purchase and sale of such Receivables, it is the intention of the parties hereto that this Agreement shall constitute a security agreement under applicable law, and that Seller shall be deemed to have granted to the Issuer a first priority perfected security interest in all of Seller's right, title and interest, whether owned on the FCMT Termination Date or thereafter acquired, in, to and under the Receivables and the other Trust Assets conveyed by Seller, and all money, accounts, general intangibles, chattel paper, instruments, documents, goods, investment property, deposit accounts, certificates of deposit, letters of credit, and advices of credit consisting of, arising from or related to the Trust Assets, to secure its obligations hereunder. Seller and Servicer acknowledge that all instruments (including certificates of deposit) and bank accounts the security interest in which has been transferred to the Issuer hereby and which are maintained with Servicer or of which Servicer has possession, shall be so maintained and held by Servicer on behalf and for the benefit of the Issuer, in accordance with the terms of this Agreement. Additionally, for purposes of perfecting the Issuer's security interest in bank accounts pledged to Seller, which security interest Seller has transferred to the Issuer hereunder, this Agreement constitutes and shall be deemed (i) notice to Seller and Servicer by the Issuer of the Issuer's security interest in such bank accounts, and (ii) Seller's and Servicer's acknowledgment of and consent to the Issuer's notice and the Issuer's security interest in such bank accounts. 4 Section 2.2. Acceptance by Issuer. -------------------- (a) The Issuer hereby acknowledges its acceptance of all right, title and interest to the property, now existing and hereafter created, conveyed to the Issuer pursuant to Section 2.1. The Owner Trustee shall maintain a copy of ----------- Schedule 1, as delivered from time to time, at its Corporate Trust Office. - ---------- (b) The Owner Trustee hereby agrees not to disclose to any Person any of the account numbers or other information contained in the computer files or microfiche lists marked as Schedule 1 and delivered to the Owner Trustee or the ---------- Issuer, from time to time, except (i) to a Successor Servicer or as required by a Requirement of Law applicable to the Owner Trustee, (ii) in connection with the performance of the Owner Trustee's or the Issuer's duties hereunder, (iii) to the Indenture Trustee in connection with its duties in enforcing the rights of Noteholders or (iv) to bona fide creditors or potential creditors of the Servicer or Seller for the limited purpose of enabling any such creditor to identify Receivables or Accounts subject to this Agreement or the Receivables Purchase Agreement. The Owner Trustee and the Issuer each agrees to take such measures as shall be reasonably requested by Seller to protect and maintain the security and confidentiality of such information and, in connection therewith, shall allow Seller or its duly authorized representatives to inspect the Owner Trustee's security and confidentiality arrangements as they specifically relate to the administration of the Issuer from time to time during normal business hours upon prior written notice. The Owner Trustee and the Issuer shall provide Seller with notice five (5) Business Days prior to disclosure of any information of the type described in this Section 2.2(b). -------------- Section 2.3. Representations and Warranties of Seller Relating to Seller. ----------------------------------------------------------- Seller hereby represents and warrants as of the Initial Closing Date that: (a) Organization and Good Standing. Seller is a corporation duly organized ------------------------------ and validly existing in good standing under the laws of Delaware, and has full corporate power, authority and legal right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement and the Receivables Purchase Agreement. (b) Due Qualification. Seller is not required to qualify to do business as ----------------- a foreign corporation in any state or to obtain any licenses or approvals in any jurisdiction in order to conduct its business. (c) Due Authorization. The execution and delivery of this Agreement and the ----------------- Receivables Purchase Agreement and the consummation of the transactions provided for herein and therein have been duly authorized by Seller by all necessary corporate action on the part of Seller. (d) No Conflict. The execution and delivery of this Agreement and the ----------- Receivables Purchase Agreement, the performance of the transactions contemplated 5 hereby and thereby and the fulfillment of the terms hereof and thereof will not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which Seller is a party or by which it or any of its property is bound. (e) No Violation. The execution and delivery of this Agreement and the ------------ Receivables Purchase Agreement, the performance of the transactions contemplated hereby and thereby and the fulfillment of the terms hereof and thereof will not conflict with or violate any Requirements of Law applicable to Seller. (f) No Proceedings. There are no proceedings or investigations pending or, -------------- to the best knowledge of Seller, threatened against Seller, before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement or the Receivables Purchase Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or the Receivables Purchase Agreement, (iii) seeking any determination or ruling that, in the reasonable judgment of Seller, would materially and adversely affect the performance by Seller of its obligations under this Agreement or the Receivables Purchase Agreement, (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement or the Receivables Purchase Agreement or (v) seeking to impose income taxes on the Issuer (other than as a wholly-owned subsidiary of Seller). (g) Eligibility of Accounts. As of the Initial FCMT Cut-Off Date, each ----------------------- Account then existing was an Eligible Account. (h) All Consents Required. All approvals, authorizations, consents, orders --------------------- or other actions of any Person or of any governmental body or official required in connection with the execution and delivery of this Agreement, the performance of the transactions contemplated by this Agreement, and the fulfillment of or terms hereof, have been obtained. (i) Bulk Sales. The execution, delivery and performance of this Agreement ---------- do not require compliance with any "bulk sales" law by Seller. (j) Solvency. The transactions under this Agreement do not and will not -------- render Seller insolvent, nor have such transactions been entered into in contemplation of the Seller's insolvency. (k) Selection Procedures. No selection procedures believed by Seller to be -------------------- materially adverse to the interests of the Issuer or the Noteholders were utilized by Seller in selecting the Accounts. The representations and warranties set forth in this Section 2.3 shall survive ----------- the transfer of the Trust Assets to the Issuer. Upon discovery by Seller, the Servicer or 6 the Owner Trustee of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the others and any Enhancement Provider. Seller hereby represents and warrants, with respect to any Series, as of the Closing Date with respect to such Series, unless otherwise stated in the related Indenture Supplement, that the representations and warranties of Seller set forth in this Section 2.3 will ----------- be true and correct as of such date. Section 2.4 Representations and Warranties of Seller Relating to this --------------------------------------------------------- Agreement and the Receivables. - ----------------------------- (a) Binding Obligation; Valid Transfer and Security Interest. Seller hereby -------------------------------------------------------- represents and warrants as of each date the representations are made or deemed made in Sections 4.1(e), (j) and (k) of the Receivables Purchase Agreement that --------------- --- --- such representations are true and correct. Seller hereby represents and warrants to the Issuer that, as of the Initial Closing Date and, with respect to any Series issued after the Initial Closing Date, unless otherwise stated in the related Indenture Supplement, as of the Closing Date for such Series: (i) This Agreement constitutes a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). (ii) This Agreement constitutes either (A) a valid transfer to the Issuer of all right, title and interest of Seller in, to and under the Trust Assets, and such property will be held by the Issuer free and clear of any Lien of any Person claiming through or under Seller or its Affiliates, except for (w) the interests of the FCMT Trustee, the Indenture Trustee and the Noteholders, (x) Liens permitted under Section 2.5(b), (y) -------------- the Seller Interest and (z) Seller's right to receive interest accruing on, and investment earnings in respect of, the Collection Account or any Series Account as provided in the Transaction Documents or (B) a grant of a security interest in such property to the Issuer, which is enforceable with respect to (i) upon execution and delivery of this Agreement, the Collateral Certificate, all monies due or to become due with respect thereto and other proceeds thereof, (ii) upon the FCMT Termination Date, the then existing Receivables, all monies due or to become due with respect thereto, the Collections, Recoveries and other proceeds thereof, and Insurance Proceeds relating thereto and (iii) thereafter, at the time new Receivables arise, with respect to such Receivables, all monies due or to become due with respect thereto, and the Collections, Recoveries and other proceeds thereof and Insurance Proceeds relating thereto. If this Agreement constitutes the grant of a security interest to the Issuer in such property, upon the filing of the financing statements described in Section ------- 2.1 and in the case of the Receivables hereafter arising in the Accounts --- and proceeds thereof and Insurance Proceeds relating to such 7 Receivables, as the same arise, the Issuer shall have a first priority perfected security interest in such property, except for Liens permitted under Section 2.5(b). Neither Seller nor any Person claiming through or -------------- under Seller shall have any claim to or interest in the Collection Account, the Excess Funding Account or any Series Account, except for Seller's right to receive interest accruing on, and investment earnings in respect of, the Collection Account, the Excess Funding Account or any Series Account, as provided in the Transaction Documents, Seller's right to receive payments from the Collection Account or any Series Account in accordance with the provisions of the Indenture, and, if this Agreement constitutes the grant of a security interest in such property, except for the interest of Seller in such property as a debtor for purposes of the UCC as in effect in the applicable jurisdiction. Without limiting the generality of the foregoing, from and after the FCMT Termination Date, the representations and warranties specified in Schedule 2 are true and correct. ---------- (b) Eligibility of Receivables. Seller hereby represents and warrants as of -------------------------- each date the representations are made or deemed made in Section 4.1(l) of the -------------- Receivables Purchase Agreement (other than the first sentence thereof) that such representations are true and correct. As of the FCMT Termination Date, Seller agrees that all representations and warranties made by it with respect to any Account or Receivable pursuant to Section 2.4 of the Pooling and Servicing ----------- Agreement shall be deemed for all purposes (including the reassignment obligations under Section 2.4(e)) to have been made pursuant to this Agreement -------------- as of the day when each was made or deemed made, as if this Agreement had been in effect on that day. Thereafter, each day on which any new Receivable is transferred by Seller to the Issuer, Seller shall be deemed to represent and warrant to the Issuer that (i) each Receivable transferred on such day is an Eligible Receivable, (ii) each Receivable transferred on such day has been transferred to the Issuer free and clear of any Lien of any Person (other than Liens permitted under Section 2.5(b), the Seller Interest and Seller's right to -------------- receive interest accruing on, and investment earnings in respect of, the Collection Account or any Series Account, as provided in the Transaction Documents) and in compliance, in all material respects, with all Requirements of Law applicable to Seller, (iii) with respect to each such Receivable, all consents, licenses, approvals or authorizations of or registrations or declarations with any Governmental Authority required to be obtained, effected or given by Seller in connection with the transfer of such Receivable to the Issuer have been duly obtained, effected or given and are in full force and effect and (iv) the representations and warranties set forth in Section 2.4(a) -------------- are true and correct with respect to each Receivable transferred on such day as if made on such day. (c) Notice of Breach. The representations and warranties set forth in this ---------------- Section 2.4 shall survive the transfer of the respective Receivables to the - ----------- Issuer. Upon discovery by Seller, the Servicer or the Owner Trustee of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the others and any Enhancement Provider. 8 (d) Reassignment of Ineligible Receivables. -------------------------------------- (i) Reassignment of Receivables. In the event any representation or --------------------------- warranty contained in Section 2.4(b) is not true and correct in any material -------------- respect as of the date specified therein with respect to any Receivable or the related Account unless cured within sixty (60) days (or such longer period, not in excess of 120 days, as may be agreed to by the Indenture Trustee) after the earliest to occur of the discovery thereof by Seller or receipt by Seller of written notice thereof given by the Owner Trustee, the Indenture Trustee or the Servicer, or the date on which the RPA Seller is required to make any corresponding purchase under the Receivables Purchase Agreement, then Seller shall accept reassignment of all Receivables in the related Account ("Ineligible ---------- Receivables") on the terms and conditions set forth in paragraph (ii) below. - ----------- Notwithstanding anything contained in this Section 2.4(d) to the contrary, in -------------- the event of breach of any representation and warranty set forth in Section ------- 2.4(b) with respect to any Receivable having been conveyed to Seller or the - ------ Issuer free and clear of any Lien of any Person claiming through or under Seller and its Affiliates and in compliance in all material respects with all Requirements of Law applicable to RPA Seller or Seller, immediately upon the earlier to occur of the discovery of such breach by Seller or receipt by Seller of written notice of such breach given by the Owner Trustee, the Indenture Trustee or the Servicer, Seller shall repurchase and the Owner Trustee shall convey, without recourse, representation or warranty, all of the Owner Trustee's right, title and interest in each Ineligible Receivable, and the Servicer shall promptly notify the Rating Agencies of such event. (ii) Price of Reassignment. The Servicer shall deduct the portion of such --------------------- Ineligible Receivables reassigned to the Seller which are Principal Receivables from the aggregate amount of the Principal Receivables used to calculate the Seller Amount and the various Allocation Percentages. If the exclusion of an Ineligible Receivable from the calculation of the Seller Amount would cause the Seller Amount to be less than the Minimum Seller Amount, then Seller shall, on the date of retransfer of such Ineligible Receivable, make a deposit in the Collection Account (for allocation pursuant to the Indenture) in immediately available funds in an amount equal to the Shortfall Amount to the extent Seller has received such funds from RPA Seller under the Receivables Purchase Agreement, and, if Seller has not received such funds, to the extent Seller has funds available for such purpose after amounts payable to Securityholders (as defined in the Receivables Purchase Agreement) have been paid in full. The amounts so deposited are to be treated for all purposes hereof as Collections on such Ineligible Receivables. Upon reassignment of any Ineligible Receivable, the Issuer shall automatically and without further action be deemed to transfer, assign, set over and otherwise convey to Seller or its designee, without recourse, representation or warranty, all the right, title and interest of the Issuer in and to such Ineligible Receivable, all Recoveries related thereto, all monies and amounts due or to become due and all proceeds thereof and such reassigned Ineligible Receivable shall be treated by the Issuer as collected in full as of the date on which it was transferred. 9 The obligation of Seller to accept reassignment of any Ineligible Receivables conveyed to the Issuer by Seller, and to make the deposits, if any, required to be made to the Collection Account as provided in this Section, shall constitute the sole remedy respecting the event giving rise to such obligation available to the Issuer, the Noteholders (or the Owner Trustee on behalf of the Noteholders) or any Series Enhancer. The Issuer shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested and provided by the Seller to effect the conveyance of such Ineligible Receivables pursuant to this Section 2.4(d), but only upon receipt of an -------------- Officer's Certificate from Seller that states that all conditions set forth in Section 2.5 have been satisfied. Each party hereto agrees that the failure by - ----------- the Seller to make the deposit in accordance with this Section 2.4(d) shall not -------------- give rise to any claim against the Seller. (e) Reassignment of Issuer Portfolio. If any representation or warranty of -------------------------------- a Seller set forth in Section 2.4(a) is not true and correct in any material -------------- respect and such breach has a material adverse effect on the Receivables or the availability of the proceeds thereof to the Issuer (which determination shall be made without regard to whether funds are then available pursuant to any Series Enhancement), then either the Owner Trustee, the Indenture Trustee or the Holders of Notes holding not less than 50% of the aggregate principal amount of all Outstanding Notes, by notice then given to Seller and the Servicer (and to the Owner Trustee and Indenture Trustee if given by the Noteholders), may direct Seller to accept a reassignment of the Receivables conveyed to the Issuer by Seller if such breach and any material adverse effect caused by such breach is not cured within sixty (60) days of such notice (or within such longer period, not in excess of 120 days, as may be specified in such notice), and upon those conditions Seller shall be obligated to accept such reassignment on the terms set forth below; provided, however, that the Receivables will not be reassigned -------- ------- to Seller if, on any day prior to the end of such 60-day or longer period (i) the relevant representation and warranty shall be true and correct in all material respects as if made on such day and (ii) Seller shall have delivered to the Owner Trustee a certificate of an authorized officer describing the nature of such breach and the manner in which the relevant representation and warranty has become true and correct. Seller shall deposit in the Collection Account in immediately available funds not later than 1:00 p.m., New York City time, on the Transfer Date for the first Distribution Date following the Monthly Period in which such reassignment obligation arises, in payment for such reassignment, an amount equal to the deposit amount for the reassignment to the extent Seller has received such funds from RPA Seller under the Receivables Purchase Agreement, and, if Seller has not received such funds, to the extent Seller has funds available for such purpose after amounts payable to Securityholders (as defined in the Receivables Purchase Agreement) have been paid in full. The deposit amount for such reassignment will be equal to the sum of the amounts specified therefor with respect to each outstanding Series in the related Indenture Supplement. Notwithstanding anything to the contrary in this Agreement, such amounts shall be distributed to the Noteholders on such Distribution Date in accordance with the terms of each Indenture Supplement. If the 10 Owner Trustee, the Indenture Trustee or the Noteholders give notice directing the Seller to accept a reassignment of the Receivables as provided above, the obligation of Seller to accept such reassignment pursuant to this Section 2.4(e) -------------- and to make the deposit required to be made to the Collection Account as provided in this paragraph shall constitute the sole remedy respecting an event of the type specified in the first sentence of this Section 2.4(e) available to -------------- the Noteholders (or the Owner Trustee or Indenture Trustee on behalf of the Noteholders) or any Series Enhancer. Upon reassignment of the Receivables on such Distribution Date, the Issuer shall automatically and without further action be deemed to sell, transfer, assign, set-over and otherwise convey to the Seller, without recourse, representation or warranty, all the right, title and interest of the Issuer in and to the Receivables and Recoveries allocable to the Issuer, and all monies and amounts due or to become due with respect thereto and all proceeds thereof. The Issuer shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the Seller to effect the conveyance of such property pursuant to this Section. Each party hereto agrees that the failure by the Seller to make the deposit in accordance with this Section 2.4(e) shall not give rise to any -------------- claim against the Seller. (f) Seller will not add additional RPA Seller parties to the Receivables Purchase Agreement, and not become a party to a new receivables purchase agreement with any party other than FCNB, without first satisfying the Rating Agency Condition. (g) Seller will be adequately capitalized to engage in the transactions contemplated by its Certificate of Incorporation. Section 2.5. Covenants of Seller. Seller hereby covenants that: ------------------- (a) Receivables to be Accounts. Seller will take no action to cause any -------------------------- Receivable to be characterized as anything other than an "account" (as defined in the UCC as in effect in the applicable jurisdiction). Each Receivable shall be payable pursuant to a contract which does not create a Lien on any goods purchased thereunder. (b) Security Interests. Except for the transfers hereunder and under the ------------------ Transfer and Servicing Agreement, Seller will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Receivable, whether now existing or hereafter transferred to the Issuer, or any interest therein. Seller will immediately notify the Owner Trustee of the existence of any Lien on any Receivable; and Seller shall defend the right, title and interest of the Issuer in, to and under the Receivables, whether now existing or hereafter transferred to the Issuer, against all claims of third parties; provided, however, that nothing in this Section 2.5(b) shall -------- ------- -------------- prevent or be deemed to prohibit Seller from suffering to exist upon any of the Receivables any Liens for state, municipal or other local taxes if such taxes shall not at the time be due and payable or if Seller shall currently be contesting the validity thereof in good faith by appropriate proceedings 11 and shall have set aside on its books adequate reserves with respect thereto; provided further, however, that nothing in this Section 2.5(b) shall prevent or - -------- ------- ------- -------------- be deemed to prohibit Seller from granting a participation interest in the Seller Interest. (c) Account Allocations. If Seller is unable for any reason to transfer ------------------- Receivables to the Issuer in accordance with the provisions of this Agreement (including by reason of the occurrence of an Insolvency Event) then Seller agrees that, solely for purposes of payments under this Agreement, it shall in any such event allocate, after the occurrence of such event, payments on each Account with respect to the principal balance of such Account first to the oldest principal balance of such Account (it being understood that the foregoing allocation does not affect, with respect to any obligor, the priority of application of cardholder payments provided for in the related Cardholder Agreement(s)) and to have such payments applied as Collections in accordance with the Indenture. The parties hereto agree that Finance Charge Receivables, whenever created, accrued in respect of Principal Receivables which have been conveyed to the Issuer, or which would have been conveyed to the Issuer but for the above described inability to transfer such Receivables, shall continue to be a part of the Issuer notwithstanding any cessation of the transfer of additional Principal Receivables to the Issuer and Collections with respect thereto shall continue to be allocated and paid in accordance with the Indenture. (d) Delivery of Collections. Seller agrees to pay to the Servicer (if the ----------------------- Servicer is not then First Consumers National Bank) promptly (but in no event later than two Business Days after receipt) all Collections received by Seller in respect of the Receivables. (e) Finance Charges and Other Fees. Seller agrees that, except as otherwise ------------------------------ required by any Requirement of Law or as is deemed by Seller to be advisable for its MasterCard and VISA programs based on a good faith assessment by Seller of the various factors impacting the use of its MasterCard and VISA cards, Seller shall not permit FCNB to reduce at any time (i) the Finance Charges assessed in respect of any Accounts, or (ii) any other fees charged on any of the Accounts if, as a result of such reduction, FCNB's reasonable expectation of the Portfolio Yield in respect of any Series as of such date would be less than the current Base Rate applicable to such Series. (f) Cardholder Agreements and Cardholder Guidelines. Seller agrees to ----------------------------------------------- comply with and perform its obligations under the Cardholder Agreements relating to the Accounts and the Cardholder Guidelines, except insofar as any failure so to comply or conform would not materially and adversely affect the rights of the Issuer the Noteholders under the Transaction Documents. In that regard, except as aforesaid, and so long as such changes are made applicable to the comparable segments of those MasterCard and VISA accounts owned and serviced by the Servicer which have characteristics the same as, or substantially similar to, the Accounts which are subject hereto (if any), Seller shall be free to change the terms and provisions of such Cardholder Agreements or the Cardholder Guidelines in any respect (including, without limitation, the calculation of the amount, or the timing, 12 of charge offs). FCNB shall provide to each Rating Agency written notice of any such change that (i) lowers the periodic finance charge rate used to calculate Finance Charges on any Account or changes the minimum monthly payment applicable to any Account; (2) changes any periodic finance charge rate used to calculate Finance Charges on any Account from a floating rate to a fixed rate or from a fixed rate to a floating rate; (3) reduces any Cardholder Fees, Cash Advance Fees or other fees applicable to any Account or (4) changes the calculation of the amount, or the timing, of charge offs. (g) Sale Treatment. Seller agrees to treat the conveyance of Receivables -------------- hereunder as a sale for accounting purposes. (h) Compliance with Law. Seller hereby agrees to comply in all material ------------------- respects with all Requirements of Law applicable to Seller. (i) Activities of Seller. Seller shall not engage in any business or -------------------- activity of any kind or enter into any transaction or indenture, mortgage, instrument, agreement, contract, lease or other undertaking which is not directly related to the transactions contemplated and authorized by the Transaction Documents or which is otherwise a Permitted Transaction. (j) Indebtedness. Seller shall not create, incur, assume or suffer to exist ------------ any Indebtedness or other liability whatsoever, except (i) obligations incurred or owing to the Issuer under this Agreement or the Receivables Purchase Agreement, (ii) liabilities incident to the maintenance of its corporate existence in good standing and the ownership of the Receivables, (iii) obligations incident to a Permitted Transaction or (iv) obligations to FCNB or Spiegel evidenced by a Subordinated Note. (k) Guarantees. Seller shall not become or remain liable, directly or ---------- contingently, in connection with any Indebtedness or other liability of any other Person, whether by guarantee, endorsement (other than endorsements of negotiable instruments for deposit or collection in the ordinary course of business), agreement to purchase or repurchase, agreement to supply or advance funds, or otherwise except incident to a Permitted Transaction. (l) Investments. Seller shall not make or suffer to exist any loans or ----------- advances to, or extend any credit to, or make any investments (by way of transfer of property, contributions to capital, purchase of stock or securities or evidences of indebtedness, acquisition of the business or assets, or otherwise) in, any Person except (i) for purchases of Receivables pursuant to the Receivables Purchase Agreement, (ii) for investments in Permitted Investments in accordance with the terms of this Agreement or (iii) pursuant to a Permitted Transaction. (m) Distributions. Seller shall not declare or pay, directly or indirectly, ------------- any dividend or make any other distribution (whether in cash or other property) with respect to the profits, assets or capital of Seller or any Person's interest therein, or 13 purchase, redeem or otherwise acquire for value any of its capital stock now or hereafter outstanding, except that so long as no Event of Default or Pay Out Event has occurred and is continuing and no Event of Default or Pay Out Event would occur as a result thereof or after giving effect thereto, Seller may declare and pay dividends on its capital stock. (n) Agreements. Seller shall not become a party to, or permit any of its ---------- properties to be bound by, any indenture, mortgage, instrument, contract, agreement, lease or other undertaking, except the Transaction Documents and except incidental to a Permitted Transaction or amend or modify the provisions of its Certificate of Incorporation or issue any power of attorney except to the Owner Trustee or to the Servicer. (o) Receivables Purchase Agreement. Seller shall not give any consent to ------------------------------ FCNB under the Receivables Purchase Agreement unless the Rating Agency Condition is satisfied with respect thereto. (p) Separate Corporate Existence. Seller shall: ---------------------------- (i) Maintain its own deposit account or accounts, separate from those of any Affiliate, with commercial banking institutions. The funds of Seller will not be diverted to any other Person or for other than corporate uses of Seller except for dividends allowed under Section 2.5(m). -------------- (ii) Ensure that, to the extent that it shares the same officers or other employees as any of its stockholders or Affiliates, the salaries of and the expenses related to providing benefits to such officers and other employees shall be fairly allocated among such entities, and each such entity shall bear its fair share of the salary and benefit costs associated with all such common officers and employees. (iii) Ensure that, to the extent that it jointly contracts with any of its stockholders or Affiliates to do business with vendors or service providers or to share overhead expenses, the costs incurred in so doing shall be allocated fairly among such entities, and each such entity shall bear its fair share of such costs. To the extent that Seller contracts or does business with vendors or service providers where the goods and services provided are partially for the benefit of any other Person, the costs incurred in so doing shall be fairly allocated to or among such entities for whose benefit the goods and services are provided, and each such entity shall bear its fair share of such costs. All material transactions (other than this Agreement and the Receivables Purchase Agreement) between Seller and any of its Affiliates shall be only on an arm's length basis. (iv) Maintain a principal executive and administrative office through which its business is conducted separate from those of its Affiliates. To the extent that Seller and any of its stockholders or Affiliates have offices 14 in the same location, there shall be a fair and appropriate allocation of overhead costs among them, and each such entity shall bear its fair share of such expenses. (v) Conduct its affairs strictly in accordance with its Certificate of Incorporation and observe all necessary, appropriate and customary corporate formalities, including, but not limited to, holding all regular and special stockholders' and directors' meetings appropriate to authorize all corporate action, keeping separate and accurate minutes of its meetings, passing all resolutions or consents necessary to authorize actions taken or to be taken, and maintaining accurate and separate books, records and accounts, including, but not limited to, payroll and intercompany transaction accounts. (vi) Conduct its own business in its own name. (vii) Use separate stationary, invoices and checks. (viii) Hold itself out as a separate entity. (q) Location of Records. Seller (i) shall not move outside the State of ------------------- Delaware the location of its chief executive office without 45 days' prior written notice to the Owner Trustee and (ii) will promptly take all actions required (including but not limited to all filings and other acts necessary or advisable under the UCC of each applicable jurisdiction) in order to continue the first priority perfected ownership interest of the Noteholders in all Receivables now owned or hereunder created. Seller will give the Owner Trustee prompt notice of a change within the State of Delaware of the location of its chief executive office. Section 2.6. Addition of Accounts. -------------------- (a) If, on any day after the FCMT Termination Date, the Aggregate Principal Balance is less than the Minimum Aggregate Principal Balance, either Seller or the Servicer (whichever shall first become aware of same) promptly shall give the Owner Trustee written notice thereof, and as soon as practicable (but in no event later than 10 days thereafter) Seller shall designate additional Eligible Accounts ("Additional Accounts") to be included as Accounts and shall transfer ------------------- the Receivables in such Additional Accounts to the Issuer, in a sufficient amount so that the Aggregate Principal Balance on such day would have, if the Receivables from such Additional Accounts had been transferred to the Issuer on or prior to such day, at least equaled the Minimum Aggregate Principal Balance. (b) In addition to its obligation under Section 2.6(a), Seller may, but -------------- shall not be obligated to, from time to time, designate Additional Accounts to be included as Accounts, so long as after giving effect to such addition not more than 20% of the Receivables, by outstanding balance, will be 30 or more days delinquent (and for this purpose, Receivables in an Account shall be considered delinquent if less than 100% of a required payment was received). 15 (c) Seller agrees that any Receivables from Additional Accounts shall be transferred by Seller to the Issuer under Section 2.6(a), (b) or (e) upon and ------------- --- --- subject to the following conditions: (i) On or before the fifth Business Day (the "Notice Date") prior to the Addition Date in respect of Additional Accounts added pursuant to Section 2.6(a) or (b), Seller shall give the Owner Trustee and the Servicer ------------- --- (if a Person other than Seller) written notice that such Additional Accounts will be included and specifying the approximate aggregate amount of the Receivables to be transferred; (ii) Seller (A) shall transfer to the Issuer Receivables only in Eligible Accounts, and (B) shall, if such designation of Additional Accounts is made pursuant to Section 2.6(b) or (e) and if the addition of ------------- --- such Additional Accounts (1) would cause the quotient (the "Annual Quotient") of (x) the --------------- sum of the Annual Account Additions after giving effect to such addition, plus the related Base Amount, divided by (y) the related Base Amount to exceed 1.20, or (2) would cause the quotient (the "Quarterly Quotient") of (x) ------------------ the sum of the Quarterly Account Additions after giving effect to such addition plus the related Base Amount divided by (y) the related Base Amount to exceed 1.15; in either case, deliver a letter from each Rating Agency to the Indenture Trustee by the Addition Date confirming that the Rating Agency Condition has been satisfied with respect to the addition of such Additional Accounts; (iii) On or prior to the Addition Date, in respect of Additional Accounts added pursuant to Section 2.6(a) or (b), Seller shall have ------------- --- delivered to the Owner Trustee a written Assignment Agreement (including an acceptance by the Owner Trustee on behalf of the Issuer for the benefit of the Noteholders) in substantially the form of Exhibit A (the "Assignment --------- ---------- Agreement") and shall have indicated in its books and records, including --------- the computer files of the Receivables, that the Receivables created in connection with the Additional Accounts have been transferred by Seller to the Issuer; and shall have delivered to the Owner Trustee a computer file or microfiche list containing a true and complete list of all Additional Accounts identified by account number, and the aggregate amount of the Receivables and the aggregate amount of Principal Receivables in such Additional Accounts, as of the Addition Date in respect of Additional Accounts added pursuant to Section 2.6(a) or (b), which computer file or ------------- --- microfiche list shall be marked as Schedule 1 to the Assignment Agreement, ---------- delivered to the Owner Trustee as confidential and proprietary, shall be as of the date of such Assignment 16 Agreement and incorporated into and made a part of such Assignment Agreement and this Agreement; (iv) Seller shall be deemed to represent and warrant that (x) each Additional Account is, as of the Addition Date, an Eligible Account, (y) no selection procedures reasonably believed by Seller to be materially adverse to the interests of the Noteholders were utilized in selecting the Additional Accounts from the available Eligible Accounts, and (z) as of the Addition Date, Seller is not insolvent and will not be rendered insolvent by adding any such Additional Account; (v) Seller shall be deemed to represent and warrant that, as of the Addition Date, the representations and warranties set out in Schedule 2 are ---------- correct; and, without limiting the generality of the foregoing, the Assignment Agreement constitutes either (x) a valid transfer to the Issuer of all right, title and interest of Seller in, to and under the Receivables then existing and thereafter arising in respect of the Additional Accounts, all monies due or to become due with respect thereto (including all Finance Charge Receivables), and all proceeds of such Receivables and Insurance Proceeds relating thereto, and such property will be owned by the Issuer free and clear of any Lien of any Person, except for (i) Liens permitted under Section 2.5(b), (ii) the Seller Interest and (iii) Seller's right to ------------- receive interest accruing on, and investment earnings in respect of, the Collection Account or any Series Account, as provided in this Agreement and any Indenture Supplement, or (y) a grant of a security interest in such property to the Issuer, which is enforceable with respect to then existing Receivables of the Additional Accounts, all monies due or to become due with respect thereto, the proceeds thereof and Recoveries and Insurance Proceeds relating thereto upon the transfer of such Receivables to the Issuer, and which will be enforceable with respect to the Receivables thereafter transferred in respect of Additional Accounts, the proceeds thereof and Insurance Proceeds relating thereto upon such transfer; and (z) if the Assignment Agreement constitutes the grant of a security interest to the Issuer in such property, upon the filing of a financing statement as described in Section 2.1 with respect to such Additional Accounts and in ----------- the case of the Receivables of Additional Accounts thereafter transferred and the proceeds thereof, and Insurance Proceeds relating to such Receivables, upon such transfer, the Issuer shall have a first priority perfected security interest in such property, except for Liens permitted under Section 2.5(b), the Seller Interest and Seller's right to receive --------------- interest accruing on, and investment earnings in respect of, the Collection Account or any Series Account, as provided in this Agreement and any Indenture Supplement; (vi) Seller shall, on the Addition Date for Additional Accounts added pursuant to Section 2.6(a) or (b), deliver a certificate of a Vice ------------- --- President or more senior officer confirming the items set forth in paragraphs (ii), (iii), (iv) and (v) above; and ---- ----- ---- --- 17 (vii) Seller shall, on the Addition Date for Additional Accounts added pursuant to Section 2.6(a) or (b), deliver an Opinion of Counsel with ------------- --- respect to the Receivables in the Additional Accounts to the Owner Trustee substantially in the form of Exhibit F-2, and which shall be reasonably ----------- acceptable to the Rating Agencies. (d) Seller shall provide to each Rating Agency and to each Enhancement Provider prior written notice each time Additional Accounts are added pursuant to Section 2.6(a) or (b). -------------- --- (e) In addition to the occasional designation of Additional Accounts as required or permitted pursuant to Sections 2.6(a) and (b), Seller agrees that --------------- --- each new MasterCard or VISA account originated in the normal course of FCNB's business after the FCMT Termination Date, where the Receivables with respect to such accounts are purchased by Seller pursuant to the Receivables Purchase Agreement, shall automatically be included as an Account (and the Trust Assets arising thereunder automatically transferred to the Issuer) effective on the date on which such account is created; provided, however, that such automatic -------- ------- inclusion and transfer shall not occur with respect to any such account if: (i) such account does not qualify as an Eligible Account, (ii) the transfer to the Issuer of the Receivables in such Account, if such Accounts had been designated by Seller pursuant to Section 2.6(b), would have caused the limitations set ------------- forth in Section 2.6(c)(ii) to be exceeded (unless there shall have been ----------------- delivered to the Indenture Trustee a letter from each Rating Agency confirming the Rating Agency Condition has been satisfied with respect to the addition of such Additional Account), or (iii) Seller otherwise designates such account as an account which is not to be included as an Account pursuant to this Section ------- 2.6(e). On or before the fifth Business Day of each month next succeeding a - ----- calendar month in which Accounts were included pursuant to the preceding sentence, Seller shall indicate in its computer files of the receivables that the Receivables created in connection with such included Accounts have been transferred to the Issuer. Seller, at its option, may, by providing written notice to the Owner Trustee and the Servicer, terminate or suspend the inclusion of Additional Accounts added pursuant to Section 2.6(e) at any time. ------------- Section 2.7. Removal of Accounts. ------------------- (a) Subject to the conditions set forth below, after the FCMT Termination Date, Seller may designate from time to time Accounts no longer to be designated for inclusion in the Issuer (the "Removed Accounts"); provided, however, that ---------------- -------- ------- Seller shall not make more than one such designation in any Monthly Period. On or before the fifth Business Day (the "Removal Notice Date") prior to the date ------------------- on which Removed Accounts shall be designated (the "Removal Date"), Seller shall ------------ give the Owner Trustee, the Servicer and each Enhancement Provider written notice that the Receivables from such Removed Accounts are to be retransferred to Seller. 18 (b) Seller shall be permitted to designate and require retransfer to it of the Receivables from Removed Accounts only upon satisfaction of the following conditions: (i) If the Accounts to be removed have outstanding Receivables, Seller shall satisfy the Rating Agency Condition with respect thereto by such Removal Date; (ii) on each Removal Date, the Owner Trustee shall deliver to Seller a written Reassignment Agreement in substantially the form of Exhibit B (the --------- "Reassignment Agreement") prepared by Seller, and Seller shall deliver to ---------------------- the Owner Trustee a computer file, microfiche or written list containing a true and complete schedule identifying all Removed Accounts specifying for each such Removed Account, as of the Removal Notice Date, its account number and the Receivable balance thereof. Such computer file, microfiche or written list shall be as of the date of such Reassignment Agreement incorporated into and made a part of this Agreement; (iii) Seller shall represent and warrant as of each Removal Date that (A) the list of Removed Accounts, as of the Removal Notice Date, complies in all material respects with the requirements of (ii) above; (B) Accounts (or administratively convenient groups of Accounts, such as billing cycles) were chosen for removal randomly or otherwise not on a basis intended to select particular accounts or groups of accounts for any reason other than administrative convenience, and no selection procedure used by Seller which is adverse to the interests of the Noteholders was utilized in selecting the Removed Accounts; and (C) as of the Removal Notice Date and as of the Removal Date, Seller is not insolvent and such removal was not made in contemplation of the Seller's insolvency; (iv) The removal of any Receivables of any Removed Accounts on any Removal Date shall not, in the reasonable belief of Seller, cause a Pay Out Event to occur, or an event which with notice or lapse of time or both would constitute a Pay Out Event; (v) The Aggregate Principal Balance shall not be less than the Minimum Aggregate Principal Balance after giving effect to such removal; (vi) Seller shall have delivered to the Owner Trustee and to each Enhancement Provider a certificate of an officer of Seller confirming the items set forth in (i) through (v) above. The Owner Trustee may conclusively rely on such certificate, shall have no duty to make inquiries with regard to the matters set forth therein and shall incur no liability in so relying; and (vii) such other conditions and restrictions as may at any time be specified in an Officer's Certificate of the Seller delivered to the Owner Trustee shall have been satisfied, it being understood that (i) no such 19 additional conditions or restrictions may conflict with or override any of the conditions and restrictions specified above, and (ii) upon delivery of such an Officer's Certificate to the Owner Trustee, the additional conditions and restrictions specified therein shall be deemed to be incorporated by reference into and become a part of this Agreement. Upon satisfaction of the above conditions, the Owner Trustee shall execute and deliver the Reassignment Agreement to Seller, and the Receivables from the Removed Accounts shall no longer constitute a part of the Issuer. (d) On and after the FCMT Termination Date, on the date on which an Account becomes a Defaulted Account, the Trust shall automatically and without further action or consideration be deemed to transfer, set over, and otherwise convey to the Seller, without recourse, representation or warranty, all the right, title and interest of the Trust in and to the Receivables in such Defaulted Account, all monies due or to become due with respect thereto, all proceeds of such Receivables allocable to the Trust with respect to such Receivable, excluding Recoveries relating thereto, which shall remain a part of the Trust Assets. Section 2.8. Discount Option. (a) Seller shall have the option to designate --------------- at any time and from time to time a percentage or percentages, which may be a fixed percentage or a variable percentage based on a formula (the "Discount -------- Percentage"), of all or any specified portion of Principal Receivables created - ---------- after the Discount Option Date to be treated as Finance Charge Receivables ("Discount Option Receivables"). Seller shall also have the option of reducing --------------------------- or withdrawing the Discount Percentage, at any time and from time to time, on and after such Discount Option Date. Seller shall provide to the Servicer, the Owner Trustee and any Rating Agency 30 days' prior written notice of the Discount Option Date, and such designation shall become effective on the Discount Option Date (i) unless such designation in the reasonable belief of Seller would cause a Pay Out Event with respect to any series to occur, or an event which, with notice or lapse of time or both, would constitute a Pay Out Event with respect to any Series or (ii) unless the Rating Agency Condition shall not have been satisfied with respect to such designation; provided that -------- for this purpose Moody's shall not be deemed to be a "Rating Agency." (b) After the Discount Option Date, Seller shall treat Discount Option Receivable Collections as Collections of Finance Charge Receivables. ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES Prior to the FCMT Termination Date, the Receivables shall be serviced as provided in the Pooling and Servicing Agreement, and this Article III will have ----------- no effect. On and after the FCMT Termination Date: 20 Section 3.1. Acceptance of Appointment and Other Matters Relating to the ----------------------------------------------------------- Servicer. - -------- (a) FCNB agrees to act as the Servicer under this Agreement. The Noteholders by their acceptance of the Notes consent to FCNB's acting as Servicer. (b) Subject to the provisions of this Agreement, the Servicer shall service and administer the Receivables and shall collect payments due under the Collateral Certificate and the Receivables in accordance with its customary and usual servicing procedures for servicing credit card receivables comparable to the Receivables and in accordance with the Cardholder Guidelines and shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable. Without limiting the generality of the foregoing and subject to Section 7.1, the Servicer is hereby ----------- authorized and empowered (i) unless such power and authority is revoked by the Indenture Trustee on account of the occurrence of a Servicer Default pursuant to Section 7.1, to make withdrawals from the Collection Account as set forth in - ----------- this Agreement, (ii) unless such power and authority is revoked by the Indenture Trustee on account of the occurrence of a Servicer Default pursuant to Section ------- 7.1, to instruct the Indenture Trustee to make withdrawals and payments from the - --- Series Accounts in accordance with such instructions as set forth in this Agreement, (iii) unless such power and authority is revoked by the Indenture Trustee on account of the occurrence of a Servicer Default pursuant to Section ------- 7.1, to instruct the Indenture Trustee in writing as provided herein, and (iv) - --- unless such power and authority is revoked by the Indenture Trustee on account of the occurrence of a Servicer Default pursuant to Section 7.1, to execute and ----------- deliver, on behalf of the Issuer for the benefit of the Noteholders, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Receivables and, after the delinquency of any Receivable and to the extent permitted under and in compliance with applicable law and regulations, to commence enforcement proceedings with respect to such Receivables. The Owner Trustee shall furnish the Servicer with any powers of attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder. (c) If Seller is unable for any reason to transfer Receivables to the Issuer in accordance with the provisions of this Agreement (including by reason of the occurrence of an Insolvency Event), the Servicer agrees to allocate and pay to the Issuer, after such date, all Collections as contemplated by Section ------- 2.5(c). - ------ (d) The Servicer shall not be obligated to use separate servicing procedures, offices, employees or accounts for servicing the Receivables from the procedures, offices, employees and accounts used by the Servicer in connection with servicing other credit card receivables. 21 (e) The Servicer shall maintain fidelity bond coverage insuring against losses through wrongdoing of its officers and employees who are involved in the servicing of credit card receivables. Section 3.2. Servicing Compensation. As compensation for its servicing ---------------------- activities hereunder and reimbursement for its expenses as set forth in the immediately following paragraph, the Servicer shall be entitled to receive a monthly servicing fee in respect of any Monthly Period (or portion thereof) prior to the termination of the Issuer pursuant to the Indenture (the "Monthly ------- Servicing Fee"). The share of the Monthly Servicing Fee allocable to each Series - ------------- of Notes with respect to any Monthly Period (or portion thereof) shall be payable on the related Distribution Date and, with respect to each Series (unless provided in the related Indenture Supplement), shall be equal to the amount specified in the related Indenture Supplement (the "Investor Monthly ---------------- Servicing Fee"). The share of the Monthly Servicing Fee allocable to the Holder - ------------- of the Seller Interest with respect to any Monthly Period (or portion thereof) shall be equal to one-twelfth of the product of (A) Seller Amount minus the sum of the Excess Funding Amount and the balance on deposit in the Principal Collections Subaccount, and (B) the weighted average of the Servicing Fee Rates with respect to each Series of Notes then outstanding (the "Monthly Seller -------------- Servicing Fee"). The Monthly Servicing Fee shall equal the sum of (x) the - ------------- aggregate amount of Investor Monthly Servicing Fees with respect to each Series then outstanding and (y) the Monthly Seller Servicing Fee. The Investor Monthly Servicing Fee with respect to any Series is payable in arrears on the related Distribution Date (unless otherwise provided in the related Indenture Supplement) and the Monthly Seller Servicing Fee is payable in arrears no later than the last Distribution Date with respect to any Series occurring in a Monthly Period. The Monthly Seller Servicing Fee and, unless otherwise provided in an Indenture Supplement, each Investor Monthly Servicing Fee, shall be calculated on the basis of a 360-day year consisting of twelve 30-day months. The Servicer's expenses include the reasonable fees and disbursements of independent accountants and all other expenses incurred by the Servicer in connection with its activities hereunder; provided that the Servicer shall not -------- be liable for any liabilities, costs or expenses of the Issuer, the Noteholders or the Note Owners arising under any tax law, including any federal, state or local income or franchise taxes or any other tax imposed on or measured by income (or any interest or penalties with respect thereto or arising from a failure to comply therewith). The Servicer shall be required to pay such expenses for its own account and shall not be entitled to any payment therefor other than the Monthly Servicing Fee. Section 3.3. Representations; Warranties and Covenants of the Servicer. --------------------------------------------------------- FCNB, as initial Servicer, hereby makes, and any successor Servicer by its appointment hereunder shall make, the following representations and warranties and covenants on which the Owner Trustee has relied in accepting the Receivables in trust and in authenticating Notes: 22 (a) Organization and Good Standing. The Servicer is duly organized, validly ------------------------------ existing and in good standing under the laws of its jurisdiction of organization, and has full corporate power, authority and right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement. (b) Due Qualification. The Servicer is qualified as a foreign banking ----------------- association or other entity in any state where it is required to be so qualified to service the Receivables as required by this Agreement and has obtained all necessary licenses and approvals as required under federal and state law, in each case, where the failure to be so qualified, licensed or approved, could reasonably be expected materially and adversely to affect the ability of the Servicer to comply with the terms of this Agreement. (c) Due Authorization. The execution, delivery, and performance of this ----------------- Agreement have been duly authorized by the Servicer by all necessary corporate action on the part of the Servicer. (d) Binding Obligation. This Agreement constitutes the legal, valid and ------------------ binding obligations of the Servicer, enforceable in accordance with its terms, except as enforceability may be limited by Debtor Relief Laws and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity). (e) No Violation. The execution and delivery of this Agreement by the ------------ Servicer, and the performance of the transactions contemplated by this Agreement and the fulfillment of the terms hereof applicable to the Servicer, will not conflict with, violate, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any Requirements of Law applicable to the Servicer or any indenture, contract, agreement, mortgage, deed of trust or other instrument to which the Servicer is a party or by which it is bound. (f) No Proceedings. There are no proceedings or investigations pending or, -------------- to the best knowledge of the Servicer, threatened against the Servicer before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality seeking to prevent the consummation of any of the transactions contemplated by this Agreement, seeking any determination or ruling that, in the reasonable judgment of the Servicer, would materially and adversely affect the performance by the Servicer of its obligations under this Agreement, or seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement. (g) Rescission and Cancellation. Other than pursuant to and in accordance --------------------------- with the Cardholder Guidelines, the Servicer shall not rescind or cancel any 23 Receivable unless such rescission or cancellation shall have been ordered or directed by a Governmental Authority. (h) Other Actions. Other than pursuant to and in accordance with the ------------- Cardholder Guidelines and as otherwise specifically permitted by this Agreement, the Servicer shall not (i) take or fail to take any action if such action or failure to act would impair the rights of the Issuer in any Receivable, or (ii) revise or defer any payment due in respect of any Receivable. (i) Compliance with Requirements of Law. The Servicer shall duly satisfy ----------------------------------- all obligations on its part to be fulfilled under or in connection with the Receivables or Accounts, will maintain in effect all qualifications required under Requirements of Law in order to properly service the Receivables and the Accounts and will comply in all material respects with all Requirements of Law in connection with servicing the Receivables and the Accounts the failure to comply with which would have a material adverse effect on the Noteholders. Section 3.4. Reports and Records for the Indenture Trustee; Bank Account ----------------------------------------------------------- Statements. - ---------- (a) Daily Reports. On each Business Day, the Servicer shall prepare and ------------- make available at the office of the Servicer for inspection by the Indenture Trustee a record setting forth (i) the aggregate amount of Collections processed by the Servicer on the preceding Business Day and (ii) the aggregate amount of Receivables as of the close of business on the preceding Business Day. (b) Monthly Servicer's Certificate. Unless otherwise stated in the related ------------------------------ Indenture Supplement with respect to any Series, on each Determination Date, the Servicer shall forward to the Indenture Trustee, the Paying Agent, any Rating Agency and any Enhancement Provider a certificate of a Servicing Officer substantially in the form of Exhibit C. --------- Section 3.5. Annual Servicer's Certificate. Unless the Servicer has been ----------------------------- relieved of all of its obligations under this Agreement because the final Series has been repaid during the prior calendar year, the Servicer will deliver to the Indenture Trustee, any Enhancement Provider and any Rating Agency on or before April 30 of each calendar year, beginning with April 30, 2002, an Officer's Certificate substantially in the form of Exhibit D stating that (a) a review of --------- the activities of the Servicer during the preceding calendar year (or, with respect to the certificate to be delivered on April 30, 2002, since the Issuer's inception) and of its performance under this Agreement was made under the supervision of the officer signing such certificate and (b) to the best of such officer's knowledge, based on such review, the Servicer has fully performed all its obligations under this Agreement throughout such period, or, if there has been a default in the performance of any such obligation, specifying each such default known to such officer and the nature and status thereof. A copy of such certificate may be obtained by any Noteholder by a request in writing to the Indenture Trustee addressed to the Corporate Trust Office. 24 Section 3.6. Annual Independent Public Accountants' Servicing Report. ------------------------------------------------------- (a) Unless the Servicer has been relieved of all of its obligations under this Agreement because the final Series has been repaid during the prior calendar year, on or before April 30 of each calendar year after the year during which the FCMT Termination Date occurs, the Servicer shall cause KPMG LLP or another firm of nationally recognized independent public accountants (who may also render other services to the Servicer or Seller) to furnish a report covering the preceding annual period to the effect that such accountants have applied certain agreed-upon procedures to certain documents and records relating to the servicing of Accounts under this Agreement (and Pooling and Servicing Agreement, if applicable), compared the information contained in the Servicer's certificates (excluding Servicer's certificates for any Series that has been repaid during the prior calendar year) delivered during the period covered by such report (which shall be the period from January 1, to and including December 31 of such calendar year) with such documents and records in each case as specified in Exhibit E. In addition, each report shall set forth the agreed-upon --------- procedures performed. A copy of such report may be obtained by any Noteholder by a request in writing to the Indenture Trustee addressed to the Corporate Trust Office. In addition, the Servicer shall cause such accountants to furnish a copy of such report to each Rating Agency and to each Enhancement Provider. (b) On or before April 30 of each calendar year, beginning with April 30, 2002, the Servicer shall cause KPMG LLP or another firm of nationally recognized independent public accountants (who may also render other services to the Servicer or Seller) to furnish a report to the Indenture Trustee to the effect that they have compared the mathematical calculations of each amount set forth in the monthly certificates forwarded by the Servicer pursuant to Section 3.4(b) -------------- during the period covered by such report (which shall be the period from January 1, to and including December 31 of such calendar year) with the Servicer's computer reports which were the source of such amounts and that on the basis of such comparison, such accountants are of the opinion that such amounts are in agreement, except for such exceptions as they believe to be immaterial and such other exceptions as shall be set forth in such statement. A copy of such report may be obtained by any Noteholder by a request in writing to the Owner Trustee addressed to the Corporate Trust Office. In addition, the Servicer shall cause such accountants to furnish a copy of such report to each Rating Agency and to each Enhancement Provider. Section 3.7. Tax Treatment. Seller has structured this Agreement and the ------------- Notes to facilitate a secured, credit-enhanced financing on favorable terms with the intention that the Notes will constitute indebtedness of Seller for federal income and state and local tax purposes; and Seller and each Noteholder by acceptance of its Note agrees to recognize and report the Notes as indebtedness of Seller for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income, and to report all receipts and payments relating thereto in a manner that is consistent with such characterization. 25 Section 3.8. Notices to Seller. In the event that FCNB is no longer acting ----------------- as Servicer, any Successor Servicer appointed pursuant to Section 7.2 shall ----------- deliver or make available to Seller each certificate and report required to be prepared, forwarded or delivered thereafter pursuant to Sections 3.4, 3.5 and ------------ --- 3.6. - --- Section 3.9. Reports to the Commission. The Servicer shall, on behalf of ------------------------- the Issuer, cause to be filed with the Commission any periodic reports required to be filed under the provisions of the Securities Exchange Act of 1934, and the rules and regulations of the Commission thereunder. Seller shall, at its own expense, cooperate in any reasonable request of the Servicer in connection with such filings. The Issuer agrees to cooperate with the Servicer in connection with such filings. ARTICLE IV OTHER MATTERS RELATING TO SELLER Section 4.1. Liability of Seller. Seller shall be liable in accordance ------------------- herewith to the extent, and only to the extent, of the obligations specifically undertaken by Seller hereunder. Section 4.2. Merger or Consolidation of, or Assumption of the Obligations ------------------------------------------------------------ of, Seller etc. - --------------- (a) Seller shall not consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (i) the Person formed by such consolidation or into which Seller is merged or the Person which acquires by conveyance or transfer the properties and assets of Seller substantially as an entirety shall be, if Seller is not the surviving entity, organized and existing under the laws of the United States of America or any State or the District of Columbia and shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Owner Trustee, in form satisfactory to the Owner Trustee, the performance of every covenant and obligation of Seller, as applicable hereunder, and shall benefit from all the rights granted to Seller, as applicable hereunder. To the extent that any right, covenant or obligation of Seller, as applicable hereunder, is inapplicable to the successor entity, such successor entity shall be subject to such covenant or obligation, or benefit from such right, as would apply, to the extent practicable, to such successor entity. In furtherance hereof, in applying this Section 4.2 to a successor entity, Section 6.1 hereof shall be applied ----------- ----------- by reference to events of involuntary liquidation, receivership or conservatorship applicable to such successor entity as such be set forth in the officer's certificate described in Section 4.2(a)(ii); ------------------ 26 (ii) Seller shall have delivered to the Indenture Trustee an Officer's Certificate of Seller and an Opinion of Counsel, each stating that such consolidation, merger, conveyance or transfer and such supplemental agreement comply with this Section 4.2 and that all conditions precedent ----------- herein provided for relating to such transaction have been complied with and, in the case of the Opinion of Counsel, that such supplemental agreement is legal, valid and binding with respect to Seller; and (iii) Seller shall have delivered notice of such consolidation, merger, conveyance or transfer to each Rating Agency, and the Rating Agency Condition shall have been satisfied; it being understood that a sale, transfer, assignment, participation, pledge or other disposition of the Seller Interest or the issuance of a Supplemental Certificate permitted by Section 3.4 of the Trust Agreement shall not be deemed to be a conveyance ----------- or transfer of the Seller's property substantially as an entirety for purposes of this Section 4.2. ----------- it being understood that a sale, transfer, assignment, participation, pledge or other disposition of the Seller Interest or the issuance of a Supplemental Certificate permitted by Section 3.4 of the Trust Agreement shall not be deemed to be a conveyance or transfer of the Seller's property substantially as an entirety for purposes of this Section 4.2. ----------- (b) The obligations of Seller hereunder shall not be assignable nor shall any Person succeed to the obligations of Seller hereunder except for mergers, consolidations, assumptions or transfers in accordance with the provisions of the foregoing paragraph. Section 4.3. Limitation on Liability of Seller. Neither Seller nor any of --------------------------------- the directors or officers or employees or agents of Seller shall be under any liability to the Issuer, the Owner Trustee, the Noteholders or any other Person for any action taken or for refraining from the taking of any action pursuant to this Agreement whether arising from express or implied duties under this Agreement; provided, however, that this provision shall not protect Seller or -------- ------- any such person against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of its willful misconduct hereunder; and provided, further, -------- ------- that Seller shall be liable for any actual damages resulting directly from Seller's material failure to perform any of its obligations under this Agreement, but only if and to the extent that another remedy is not provided for and available hereunder. Seller and any director or officer or employee or agent of Seller may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. Notwithstanding anything to the contrary in this Agreement or any other Transaction Document, any payment by the Seller pursuant to this Section ------- 4.3 shall only be made to the extent the Seller has funds available for such - --- purpose after amounts payable to Securityholders (as defined in the Receivables Purchase 27 Agreement) have been paid in full. Each party hereto agrees that the failure to make such payment shall not give rise to any claim against the Seller. ARTICLE V OTHER MATTERS RELATING TO THE SERVICER Section 5.1. Liability of the Servicer. The Servicer shall be liable in ------------------------- accordance herewith only to the extent of the obligations specifically undertaken by the Servicer in such capacity herein. Section 5.2. Merger or Consolidation of, or Assumption of the Obligations ------------------------------------------------------------ of, the Servicer. The Servicer shall not consolidate with or merge into any - ---------------- other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (a) the Person formed by such consolidation or into which the Servicer is merged or the Person which acquires by conveyance or transfer the properties and assets of the Servicer substantially as an entirety shall be a corporation or a banking association organized and existing under the laws of the United States of America or any State or the District of Columbia and, if the Servicer is not the surviving entity, shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Owner Trustee in form satisfactory to the Owner Trustee, the performance of every covenant and obligation of the Servicer hereunder; (b) the Servicer has delivered to the Indenture Trustee and each Enhancement Provider an Officer's Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental agreement comply with this Section 5.2 and that all ----------- conditions precedent herein provided for relating to such transaction have been complied with; and (c) the Servicer shall have delivered notice of such consolidation, merger, conveyance or transfer to each of the Rating Agencies; it being understood that a sale, transfer, assignment, participation, pledge or other disposition of the Seller Interest or the issuance of a Supplemental Certificate permitted by Section 3.4 of the Trust Agreement shall not be deemed to be a conveyance or transfer of the Servicer's property substantially as an entirety for purposes of this Section 5.2. ----------- Section 5.3. Limitation on Liability of the Servicer and Others. Except as -------------------------------------------------- provided in Section 5.4 with respect to the Issuer and the Owner Trustee and ----------- Section 6.7 of the Indenture with respect to the Indenture Trustee, neither the Servicer nor any of the directors or officers or employees or agents of the Servicer shall be under any liability to the Issuer, the Owner Trustee, the Indenture Trustee, the Noteholders or 28 any other Person for any action taken or for refraining from the taking of any action in its capacity as Servicer pursuant to this Agreement; provided, -------- however, that this provision shall not protect the Servicer or any such Person - ------- against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of its willful misconduct hereunder. The Servicer and any director or officer or employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Servicer shall not be under any obligation to appear in, prosecute or defend any legal action which does not arise out of its activities in servicing the Receivables in accordance with this Agreement which in its reasonable opinion may involve it in any expense or liability. Section 5.4. Indemnification of the Issuer and the Owner Trustee. The --------------------------------------------------- Servicer shall indemnify, defend and hold harmless the Issuer and the Owner Trustee and its officers, directors, employees and agents from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any acts, omissions or alleged acts or omissions arising out of activities of the Issuer or the Owner Trustee pursuant to the Transaction Documents, including those arising from acts or omissions of the Servicer pursuant to this Agreement, including, but not limited to any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim; provided, -------- however, that the Servicer shall not indemnify the Issuer or the Owner Trustee - ------- if such acts, omissions or alleged acts or omissions constitute fraud, gross negligence or breach of fiduciary duty by the Owner Trustee; provided further, -------- ------- that the Servicer shall not indemnify the Issuer, any Noteholders or any Note Owners for any liabilities, costs or expenses of the Issuer with respect to any action taken by the Indenture Trustee at the request of such Noteholders; provided further, that the Servicer shall not indemnify the Issuer, any - -------- ------- Noteholders or any Note Owners as to any losses, claims or damages incurred by any of them in their capacities as investors, including losses incurred as a result of defaulted Receivables or Receivables which are written off as uncollectible; and provided further, that the Servicer shall not indemnify the -------- ------- Issuer, or any Noteholders for any liabilities, costs or expenses of the Issuer, or such Noteholders arising under any tax law, including any federal, state or local income or franchise taxes or any other tax imposed on or measured by income (or any interest or penalties with respect thereto or arising from a failure to comply therewith) required to be paid by the Issuer, or such Noteholders in connection herewith to any taxing authority. The provisions of this indemnity shall run directly to and be enforceable by an injured party subject to the limitations hereof. Any indemnification pursuant to this Section shall not be payable from the assets of the Issuer. The obligations of the Servicer under this Section 5.4 shall survive the ----------- termination of the Issuer and the resignation or removal of the Owner Trustee. 29 The Servicer shall indemnify the Indenture Trustee as provided in Section 6.7 of the Master Indenture. Section 5.5. The Servicer Not to Resign. The Servicer shall not resign from -------------------------- the obligations and duties hereby imposed on it except upon determination that (i) the performance of its duties hereunder is or becomes impermissible under applicable law and (ii) there is no reasonable action which the Servicer could take to make the performance of its duties hereunder permissible under applicable law. Any such determination permitting the resignation of the Servicer shall be evidenced as to clause (i) by an Opinion of Counsel to such ---------- effect delivered to the Indenture Trustee. No such resignation shall become effective until the Indenture Trustee or a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section ------- 7.2. If the Indenture Trustee is unable within 120 days of the date of such - --- determination to appoint a Successor Servicer, the Indenture Trustee shall serve as Successor Servicer hereunder. Notice of any resignation by the Servicer shall be given to each Rating Agency by the resigning Servicer. Section 5.6. Access to Certain Documentation and Information Regarding the ------------------------------------------------------------- Receivables. The Servicer shall provide to the Indenture Trustee access to the - ----------- documentation regarding the Accounts and the Receivables in such cases where the Indenture Trustee is required in connection with the enforcement of the rights of the Noteholders, or by applicable statutes or regulations to review such documentation, such access being afforded without charge but only (i) upon reasonable request, (ii) during normal business hours, (iii) subject to the Servicer's normal security and confidentiality procedures and (iv) at offices designated by the Servicer. Nothing in this Section 5.6 shall derogate from the ----------- obligation of Seller, the Indenture Trustee or the Servicer to observe any applicable law prohibiting disclosure of information regarding the Obligors and the failure of the Servicer to provide access as provided in this Section 5.6 as ----------- a result of such obligation shall not constitute a breach of this Section 5.6. ----------- Section 5.7. Delegation of Duties. It is understood and agreed by the -------------------- parties hereto that the Servicer may delegate certain of its duties hereunder to First Data Resources Inc., a Delaware corporation. In addition, in the ordinary course of business, the Servicer may at any time delegate any duties hereunder to any other Person who agrees to conduct such duties in accordance with the Cardholder Guidelines. Any such delegations shall not relieve the Servicer of its liability and responsibility with respect to such duties, and shall not constitute a resignation within the meaning of Section 5.5. The Servicer shall ----------- notify each Rating Agency of any material delegation of its duties not consistent with its normal practices as of the date hereof. Section 5.8. Examination of Records. The Servicer shall clearly and ---------------------- unambiguously identify each Account (including any Additional Account designated pursuant to Section 2.6) in its computer or other records to reflect that the ----------- Receivables arising in such Account have been transferred by Seller to the Issuer pursuant to this Agreement. The Servicer shall, prior to the sale or transfer to a third party of any 30 receivable held in its custody, examine its computer and other records to determine that such receivable is not a Receivable. ARTICLE VI INSOLVENCY EVENTS Section 6.1. Rights upon the Occurrence of an Insolvency Event. If Seller ------------------------------------------------- shall consent or fail to object to the appointment of a bankruptcy trustee or conservator, receiver or liquidator in any bankruptcy proceeding or other insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings of or relating to Seller of or relating to all or substantially all of Seller's property, or the commencement of an action seeking a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a bankruptcy trustee or conservator, receiver or liquidator in any insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for the winding-up, insolvency, bankruptcy, reorganization, conservatorship, receivership or liquidation of such entity's affairs, or notwithstanding an objection by Seller any such action shall have remained undischarged or unstayed for a period of sixty (60) days or upon entry of any order or decree providing for such relief; or Seller shall admit in writing its inability to pay its debts generally as they become due, file, or consent or fail to object (or object without dismissal of any such filing within sixty (60) days of such filing) to the filing of, a petition to take advantage of any Debtor Relief Law, make an assignment for the benefit of its creditors (any such act or occurrence with respect to any Person being an "Insolvency Event"), Seller shall on the day any ---------------- such Insolvency Event occurs immediately cease to transfer Principal Receivables to the Issuer and shall promptly give notice to the Indenture Trustee, the Owner Trustee and the Rating Agencies thereof. ARTICLE VII SERVICER DEFAULTS Section 7.1. Servicer Defaults. If any one of the following events (a ----------------- "Servicer Default") shall occur and be continuing after the FCMT Termination ---------------- Date: (a) any failure by the Servicer to make any payment, transfer or deposit or to give instructions or notice to the Indenture Trustee to make such payment, transfer or deposit or to make any required drawing, withdrawal, or payment under any Enhancement required to be made by the Servicer on or before the date occurring five Business Days after the date such payment, transfer, deposit, withdrawal or drawing, or such instruction or notice is required to be made or given by the Servicer, as the case may be, under the terms of this Agreement, the Indenture or any Indenture Supplement; or (b) failure on the part of the Servicer duly to observe or perform in any material respect any other covenants or agreements of the Servicer set 31 forth in this Agreement which has a material adverse effect on the Noteholders, which continues unremedied for a period of 60 days after the date on which written notice of such failure requiring the same to be remedied shall have been given to the Servicer by the Indenture Trustee, or to the Servicer and the Indenture Trustee by the Noteholders holding not less than 10% of the outstanding principal amount of any Series adversely affected thereby and continues to materially adversely affect such Noteholders for such period; or the Servicer's delegation of its duties under this Agreement except as permitted by Section 5.7; or ----------- (c) any representation, warranty or certification made by the Servicer in this Agreement or in any certificate delivered pursuant to this Agreement shall prove to have been incorrect when made, which has a material adverse effect on the rights of the Noteholders and which continues to be incorrect in any material respect for a period of 60 days after the date on which written notice of such failure requiring the same to be remedied shall have been given to the Servicer by the Indenture Trustee, or to the Servicer and the Indenture Trustee by the Noteholders holding not less than 10% of the outstanding principal amount of any Series adversely affected thereby and continues to materially adversely affect such Noteholders for such period, or if such failure cannot be cured within such 60-day period owing to causes beyond the control of the Servicer, if the Servicer shall fail to proceed promptly to cure the same and prosecute the curing of such failure with diligence and continuity; (d) the Servicer shall (i) become insolvent, (ii) fail to pay its debts generally as they become due, (iii) voluntarily seek, consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law, or (iv) become a party to (or be made the subject of) any proceeding provided for by any Debtor Relief Law, other than as a creditor or claimant, and, in the event such proceeding is involuntary, the petition instituting same is not dismissed within 60 days after its filing; or (e) with respect to any Series, any other event specified in the Indenture Supplement for such Series, then, so long as such Servicer Default shall not have been remedied, either the Indenture Trustee, or the Noteholders holding more than 50% of the Outstanding Amount, by notice then given in writing to the Servicer (and to the Indenture Trustee if given by the Noteholders) (a "Termination Notice"), may terminate all ------------------ of the rights and obligations of the Servicer as Servicer under this Agreement and in and to the Receivables and the proceeds thereof (other than its rights and interest, if any, as holder of the Seller Interest or any Notes). After receipt by the Servicer of such Termination Notice, and on the date that a Successor Servicer shall have been appointed by the Indenture Trustee pursuant to Section 7.2, all authority and power of the Servicer under this Agreement ----------- shall pass to and be vested in a Successor Servicer; and the Indenture Trustee is hereby authorized and empowered (upon the 32 failure of the Servicer to cooperate) to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all documents and other instruments upon the failure of the Servicer to execute or deliver such documents or instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Servicer agrees to cooperate with the Indenture Trustee and such Successor Servicer in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing hereunder, including the transfer to such Successor Servicer of all authority of the Servicer to service the Receivables provided for under this Agreement, including all authority over all Collections which shall on the date of transfer be held by the Servicer for deposit, or which have been deposited by the Servicer, in any Collection Account or Series Account, or which shall thereafter be received with respect to the Receivables, and in assisting the Successor Servicer and in enforcing all rights to Insurance Proceeds. The Servicer shall promptly transfer its electronic records relating to the Receivables to the Successor Servicer in such electronic form as the Successor Servicer may reasonably request and shall promptly transfer to the Successor Servicer all other records, correspondence and documents necessary for the continued servicing of the Receivables in the manner and at such times as the Successor Servicer shall reasonably request. To the extent that compliance with this Section 7.1 shall require the Servicer to disclose to the Successor ----------- Servicer information of any kind which the Servicer reasonably deems to be confidential, the Successor Servicer shall be required to enter into such customary licensing and confidentiality agreements as the Servicer shall deem necessary to protect its interest. The Servicer shall, on the date of any servicing transfer, transfer all of its rights and obligations, if any, in respect of any Enhancement to the Successor Servicer. Section 7.2. Indenture Trustee to Act; Appointment of Successor. (a) On and -------------------------------------------------- after the receipt by the Servicer of a Termination Notice pursuant to Section ------- 7.1, the Servicer shall continue to perform all servicing functions under this - --- Agreement until the date specified in the Termination Notice or otherwise specified by the Indenture Trustee in writing or, if no such date is specified in such Termination Notice or otherwise specified by the Indenture Trustee, until a date mutually agreed upon by the Servicer and the Indenture Trustee. The Indenture Trustee shall as promptly as possible after the giving of a Termination Notice appoint (with the consent of the Noteholders holding greater than 50% of the outstanding principal amount of each Series, and with prior written notice to the Rating Agencies) a successor servicer (the "Successor --------- Servicer"), and such Successor Servicer shall accept its appointment by a - -------- written assumption in a form acceptable to the Indenture Trustee. The Indenture Trustee may obtain bids from any potential successor servicer. If the Indenture Trustee is unable to obtain any bids from any potential successor servicer and the Servicer delivers an Officer's Certificate to the effect that it cannot in good faith cure the Servicer Default which gave rise to a transfer of servicing, then the Owner Trustee shall offer Seller the right to accept retransfer of all the Receivables and Seller may accept retransfer of all the Receivables, provided, however, that if the long-term unsecured debt obligations of Seller - -------- ------- are not rated at the time of such purchase at least Baa3 by Moody's and BBB- by Standard & Poor's, no such retransfer shall occur unless Seller shall deliver an Opinion of Counsel 33 reasonably acceptable to the Indenture Trustee that such retransfer would not constitute a fraudulent conveyance of Seller. The retransfer deposit amount for such a retransfer shall be equal to the higher of the sum of (i) the outstanding principal balance of the Notes, plus accrued interest thereon, at the Note Rate, through the date of retransfer and (ii) 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 substantially similar to the remaining maturity of the Notes. In the event that a Successor Servicer has not been appointed and has not accepted its appointment at the time when the Servicer ceases to act as Servicer, the Indenture Trustee without further action shall automatically be appointed the Successor Servicer. Notwithstanding the above, the Indenture Trustee shall, if it is legally unable so to act, petition a court of competent jurisdiction to appoint any established financial institution having a net worth of not less than $50,000,000 and whose regular business includes the servicing of installment sales charge, credit and/or credit card account receivables as the Successor Servicer hereunder. Notwithstanding anything else herein to the contrary, in no event shall the Indenture Trustee be liable for any servicing fee. (b) Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicer with respect to servicing functions under this Agreement and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof, and all references in this Agreement to the Servicer shall be deemed to refer to the Successor Servicer. Any Successor Servicer, by its acceptance of its appointment, will automatically agree to be bound by the terms and provisions of any Enhancement to the extent that such terms apply to the Servicer. Any sub-servicing agreement shall be assigned to the Successor Servicer. (c) In connection with such appointment and assumption, the Indenture Trustee shall be entitled to such compensation, or may make such arrangements for the compensation of the Successor Servicer out of Collections, as it and such Successor Servicer shall agree; provided, however, that no such -------- ------- compensation shall be in excess of the Monthly Servicing Fees permitted to the Servicer pursuant to Section 3.2. The Holder of the Seller Interest agrees that ----------- if the Servicer is terminated hereunder, it will agree, at the request of the Indenture Trustee or any Successor Servicer, to deposit a portion of the Collections in respect of Finance Charge Receivables that it is entitled to receive pursuant to the Indenture, to pay its share of the compensation of the Successor Servicer. The Successor Servicer shall have no liability for any actions or failure to act on the part of the Servicer. (d) All authority and power granted to the Successor Servicer under this Agreement shall automatically cease and terminate upon termination of the Issuer pursuant to the Trust Agreement and shall pass to and be vested in Seller and, Seller is hereby authorized and empowered to execute and deliver, on behalf of the Successor Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Successor Servicer 34 agrees to cooperate with Seller in effecting the termination of the responsibilities and rights of the Successor Servicer to conduct servicing on the Receivables. The Successor Servicer shall transfer its electronic records relating to the Receivables to Seller in such electronic form as Seller may reasonably request and shall transfer all other records, correspondence and documents to Seller in the manner and at such times as Seller shall reasonably request. To the extent that compliance with this Section 7.2 shall require the ----------- Successor Servicer to disclose to Seller information of any kind which the Successor Servicer deems to be confidential, Seller shall be required to enter into such customary licensing and confidentiality agreements as the Successor Servicer shall deem necessary to protect its interests. Section 7.3. Notification to Noteholders. Upon the occurrence of any --------------------------- Servicer Default, the Servicer shall give prompt written notice thereof to a Trustee Officer of the Indenture Trustee and the Indenture Trustee shall give notice to the Noteholders at their respective addresses appearing in the Note Register. Upon any termination or appointment of a Successor Servicer pursuant to this Article VII, the Indenture Trustee shall give prompt written notice ----------- thereof to Noteholders at their respective addresses appearing in the Note Register. A copy of any notice given pursuant to this Section 7.3 shall be ----------- delivered to each Rating Agency. ARTICLE VIII TERMINATION Section 8.1. Termination of Agreement. This Agreement and the respective ------------------------ obligations and responsibilities of the Issuer, Seller and the Servicer under this Agreement shall terminate, except with respect to the duties described in Section 5.4, on the Trust Termination Date. - ----------- ARTICLE IX MISCELLANEOUS PROVISIONS Section 9.1. Amendment; Waiver of Past Defaults. ---------------------------------- (a) This Agreement may be amended from time to time by the Servicer, Seller and the Issuer, without the consent of any of the Indenture Trustee or any Noteholder to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other provisions herein or to add any other provisions with respect to matters or questions raised under this Agreement which shall not be inconsistent with the provisions of this Agreement; provided, -------- however, that such action shall not adversely affect in any material respect the - ------- interests of any of the Noteholders. Additionally, this Agreement may be amended from time to time by the Servicer, the Seller and the Issuer by a written instrument signed by each of them, without the consent of the Indenture Trustee or any of the Noteholders; provided that (i) Seller shall have delivered to the -------- Indenture Trustee and the Owner Trustee an Officer's Certificate, dated the date of any such Amendment, stating that 35 Seller reasonably believes that such amendment will not have an Adverse Effect and (ii) the Rating Agency Condition shall have been satisfied with respect to any such amendment. Additionally, notwithstanding the preceding sentence, this Agreement will be amended by the Servicer and the Issuer at the direction of Seller without the consent of the Indenture Trustee or any of the Noteholders or Series Enhancers to add, modify or eliminate such provisions as may be necessary or advisable in order to enable all or a portion of the Issuer (1) to qualify as, and to permit an election to be made to cause the Issuer to be treated as, a "financial asset securitization investment trust" as described in the provisions of Section 860L of the Code, and (2) to avoid the imposition of state or local income or franchise taxes imposed on the Issuer's property or its income; provided, however, that (A) Seller delivers to the Indenture Trustee and the - -------- ------- Owner Trustee an Officer's Certificate to the effect that the proposed amendments meet the requirements set forth in this Section, (B) the Rating Agency Condition has been satisfied, and (C) such amendment does not affect the rights, duties or obligations of the Indenture Trustee or the Owner Trustee hereunder. The amendments which Seller may make without the consent of Noteholders or Series Enhancers pursuant to the preceding sentence may include the addition of a Seller. (b) This Agreement may also be amended from time to time by the Servicer, Seller and the Issuer, with the consent of the Noteholders holding more than 66 2/3% of the Outstanding principal amount of the Notes of each Series affected thereby for which Seller has not delivered an Officer's Certificate stating that there is no Adverse Effect, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Noteholders; provided, however, -------- ------- that no such amendment shall (i) reduce in any manner the amount of or delay the timing of any distributions (changes in Pay Out Events or Events of Default that decrease the likelihood of the occurrence thereof shall not be considered delays in the timing of distributions for purposes of this clause) to be made to Noteholders or deposits of amounts to be so distributed or the amount available under any Series Enhancement without the consent of each affected Noteholder, (ii) change the definition of or the manner of calculating the interest of any Noteholder without the consent of each affected Noteholder or (iii) reduce the aforesaid percentage required to consent to any such amendment without the consent of each Noteholder or (iv) adversely affect the rating of any Series or Class by any Rating Agency without the consent of the Noteholders of such Series or Class holding more than 66 2/3% of the Outstanding principal amount of the Notes of such Series or Class affected thereby. (c) Promptly after the execution of any such amendment or consent (other than an amendment pursuant to paragraph (a)), the Issuer shall furnish notification of the substance of such amendment to the Indenture Trustee and each Noteholder, and the Servicer shall furnish notification of the substance of such amendment to each Rating Agency and each Series Enhancer. (d) It shall not be necessary for the consent of Noteholders under this Section 9.1 to approve the particular form of any proposed amendment, but it - ----------- shall be sufficient if such consent shall approve the substance thereof. The manner of 36 obtaining such consents and of evidencing the authorization of the execution thereof by Noteholders shall be subject to such reasonable requirements as the Indenture Trustee may prescribe. (e) Notwithstanding anything in this Section 9.1 to the contrary, no ----------- amendment may be made to this Agreement which would adversely affect in any material respect the interests of any Series Enhancer without the consent of such Series Enhancer. (f) Any Indenture Supplement executed in accordance with the provisions of Article X of the Indenture shall not be considered an amendment of this - --------- Agreement for the purposes of this Section 9.1. ----------- (g) The Noteholders holding 66 2/3% or more of the Outstanding principal amount of the Notes of each Series or, with respect to any Series with two (2) or more Classes, of each Class (or, with respect to any default that does not relate to all Series, 66 2/3% or more of the principal amount of the Outstanding Notes of each Series to which such default relates or, with respect to any such Series with two or more Classes, of each Class) may, on behalf of all Noteholders, waive any default by Seller or the Servicer in the performance of their obligations hereunder and its consequences, except the failure to make any distributions required to be made to Noteholders or to make any required deposits of any amounts to be so distributed. Upon any such waiver of a past default, such default shall cease to exist, and any default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. (h) The Owner Trustee may, but shall not be obligated to, enter into any such amendment which affects the Owner Trustee's rights, duties or immunities under this Agreement or otherwise. In connection with the execution of any amendment hereunder, the Owner Trustee shall be entitled to receive the Opinion of Counsel described in Section 9.2(d). -------------- Section 9.2. Protection of Right, Title and Interest to Issuer. ------------------------------------------------- (a) Seller shall cause this Agreement, all amendments and supplements hereto and all financing statements and continuation statements and any other necessary documents covering the Indenture Trustee's and the Issuer's right, title and interest to the Issuer to be promptly recorded, registered and filed, and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect the right, title and interest of the Indenture Trustee, Noteholders and the Issuer hereunder to all property comprising the Issuer. Seller shall deliver to the Indenture Trustee file-stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recording, registration or filing. Seller shall cooperate fully with the Servicer in connection with the obligations set forth above and will execute any and all documents reasonably required to fulfill the intent of this paragraph. 37 (b) Within thirty (30) days after the Seller makes any change in its name, identity or corporate structure which would make any financing statement or continuation statement filed in accordance with paragraph (a) seriously misleading within the meaning of Section 9-506 (or any comparable provision) of the applicable UCC, the Seller shall give the Indenture Trustee notice of any such change and shall file such financing statements or amendments as may be necessary to continue the perfection of the Issuer's security interest or ownership interest in the Receivables and the proceeds thereof. (c) Each of the Seller and the Servicer shall give the Indenture Trustee prompt notice of any relocation of its chief principal executive office or any change in the jurisdiction under whose laws it is organized and whether, as a result of such relocation or change, the applicable provisions of the applicable UCC would require the filing of any amendment of any previously filed financing or continuation statement or of any new financing statement and shall file such financing statements or amendments as may be necessary to perfect or to continue the perfection of the Issuer's security interest in the Receivables and the proceeds thereof. Each of Seller and Servicer shall at all times maintain its chief principal executive offices within the United States and shall at all times be organized under the laws of a jurisdiction located within the United States. (d) Seller shall deliver to the Indenture Trustee (i) upon the execution and delivery of each amendment of this Agreement, an Opinion of Counsel to the effect specified in Exhibit F-1; (ii) on each date specified in Section ----------- ------- 2.6(c)(vii) with respect to Additional Accounts added pursuant to Section 2.6(a) - ----------- -------------- or (b), an Opinion of Counsel substantially in the form of Exhibit F-2; and --- ----------- (iii) on or before April 30 of each year following the year in which the FCMT Termination Date occurs, an Opinion of Counsel substantially in the form of Exhibit F-3. - ----------- Section 9.3. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE ------------- WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 9.4. Notices; Payments. ----------------- (a) All demands, notices, instructions, directions and communications (collectively, "Notices") under this Agreement shall be in writing and shall be ------- deemed to have been duly given if personally delivered at, mailed by registered mail, return receipt requested, or sent by facsimile transmission (i) in the case of Seller, to First Consumers Credit Corporation, 400 West 9th Street, Suite 302D, Wilmington, Delaware, 19801, Attn.: Treasurer, with a copy to Spiegel, Inc., 3500 Lacey Road, Downers Grove, Illinois, 60515-5452, Attn.: Treasurer, (ii) and the Servicer, to First Consumers National Bank, 9300 S.W. Gemini Drive, Beaverton, Oregon 97008, Attn: President, (iii) in the case of the Issuer or the Owner Trustee, to the Corporate Trust 38 Office, Attn: Corporate Trust & Agency Services, with a copy to the Administrator, (iv) in the case of the Rating Agency for a particular Series, the address, if any, specified in the Indenture Supplement relating to such Series, and (v) to any other Person as specified in the Indenture or any Indenture Supplement; or, as to each party, at such other address or facsimile number as shall be designated by such party in a written notice to each other party. (b) Any Notice required or permitted to be given to a Holder of Registered Notes shall be given by first-class mail, postage prepaid, at the address of such Holder as shown in the Note Register. Any Notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Noteholder receives such Notice. In addition, in the case of any Series or Class with respect to which any Notes are outstanding, any Notice required or permitted to be given to Noteholders of such Series or Class shall be published in an Authorized Newspaper within the time period prescribed in this Agreement. Section 9.5. Severability of Provisions. If any one or more of the -------------------------- covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such provisions shall be deemed severable from the remaining provisions of this Agreement and shall in no way affect the validity or enforceability of the remaining provisions or of the Notes or the rights of the Noteholders. Section 9.6. Further Assurances. Seller and the Servicer agree to do and ------------------ perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the Owner Trustee and the Indenture Trustee more fully to effect the purposes of this Agreement, including the execution of any financing statements or continuation statements relating to the Receivables for filing under the provisions of the UCC of any applicable jurisdiction. Section 9.7. No Waiver; Cumulative Remedies. No failure to exercise and no ------------------------------ delay in exercising, on the part of the Owner Trustee, the Indenture Trustee or the Noteholders, any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges provided under this Agreement are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. Section 9.8. Counterparts. This Agreement may be executed in two or more ------------ counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. Section 9.9. Third-Party Beneficiaries. This Agreement will inure to the ------------------------- benefit of and be binding upon the parties hereto, the Indenture Trustee, the Noteholders, and any Series Enhancer. Except as otherwise expressly provided in this Agreement, no other Person will have any right or obligation hereunder. 39 Section 9.10. Actions by Noteholders. ---------------------- (a) Wherever in this Agreement a provision is made that an action may be taken or a Notice given by Noteholders, such action or Notice may be taken or given by any Noteholder, unless such provision requires a specific percentage of Noteholders. (b) Any Notice, request, authorization, direction, consent, waiver or other act by the Noteholder shall bind such Holder and every subsequent Holder of such Note and of any Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or omitted to be done by the Owner Trustee, Seller or the Servicer in reliance thereon, whether or not notation of such action is made upon such Note. Section 9.11. Rule 144A Information. For so long as any of the Notes of any --------------------- Series or Class are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, each of Seller, the Owner Trustee, the Indenture Trustee, the Servicer and any Series Enhancer agree to cooperate with each other to provide to any Noteholders of such Series or Class and to any prospective purchaser of Notes designated by such Noteholder, upon the request of such Noteholder or prospective purchaser, any information required to be provided to such holder or prospective purchaser to satisfy the condition set forth in Rule 144A(d)(4) under the Securities Act. Section 9.12. Merger and Integration. Except as specifically stated ---------------------- otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived or supplemented except as provided herein. Section 9.13. No Bankruptcy Petition. (a) Each of Seller and Servicer, ---------------------- severally and not jointly, hereby covenants and agrees that, prior to the date which is one (1) year and one (1) day after the payment in full of all Notes, it will not institute against, or join any other Person in instituting against, the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. (b) Each of Servicer and Issuer, severally and not jointly, hereby covenants and agrees that, prior to the date which is one (1) year and one (1) day after the payment in full of all Notes, it will not institute against, or join any other Person in instituting against, the Seller any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. Section 9.14. Rights of Indenture Trustee. The Indenture Trustee shall have --------------------------- herein the same rights, protections, indemnities and immunities as specified in the Indenture. 40 Section 9.15. Rights of the Owner Trustee. Each of the parties hereto --------------------------- acknowledges and agrees that this Agreement is being executed and delivered by Bankers Trust Company not individually but solely and exclusively in its capacity as Owner Trustee on behalf of First Consumers Credit Card Master Note Trust for the purpose and with the intention of binding First Consumers Credit Card Master Note Trust. No obligations or liabilities hereunder shall run against Bankers Trust Company in its individual capacity or against its properties or assets. Section 9.16. Limited Recourse. Notwithstanding anything to the contrary in ---------------- this Agreement or any other Transaction Document, with respect to provisions hereof in which the Seller has agreed that certain actions will be taken at the Seller's expense, payment of any such expense shall only be made to the extent the Seller has funds available for such purpose after amounts payable to Securityholders (as defined in the Receivables Purchase Agreement) have been paid in full. Each party hereto agrees that the failure to make such payments beyond the extent available shall not give rise to any claim against the Seller. 41 IN WITNESS WHEREOF, Seller, the Servicer and the Issuer have caused this Transfer and Servicing Agreement to be duly executed by their respective officers as of the day and year first above written. FIRST CONSUMERS CREDIT CORPORATION, as Seller By: ---------------------------------------- Name: John R. Steele Title: Treasurer FIRST CONSUMERS NATIONAL BANK, as Servicer By: ---------------------------------------- Name: John R. Steele Title: Treasurer FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST, Issuer By: BANKERS TRUST COMPANY, not in its individual capacity but solely as Owner Trustee on behalf of the Issuer By: ---------------------------------------- Name: Eileen M. Hughes Title: Vice President Acknowledged and Accepted: THE BANK OF NEW YORK, not in its individual capacity but solely as Indenture Trustee By: ------------------------------ Name: Title: First Consumers Credit Card Master Note Trust Transfer and Servicing Agreement Signature Page EXHIBIT A to TRANSFER AND SERVICING AGREEMENT FORM OF ASSIGNMENT OF RECEIVABLES IN ADDITIONAL ACCOUNTS (As required by Section 2.6 of the Transfer and Servicing Agreement) ----------- ASSIGNMENT No. OF RECEIVABLES IN ADDITIONAL ACCOUNTS dated as of -- , by and among FIRST CONSUMERS CREDIT CORPORATION, a Delaware - ------------- corporation, as Seller (the "Seller") FIRST CONSUMERS NATIONAL BANK, a national ------ banking association, as Servicer (the "Servicer") and FIRST CONSUMERS CREDIT -------- CARD MASTER NOTE TRUST (the "Issuer"), pursuant to the Transfer and Servicing ------ Agreement referred to below. WITNESSETH WHEREAS, the Seller, the Servicer and the Issuer are parties to the Transfer and Servicing Agreement, dated as of March 1, 2001, and amended and restated as of December 31, 2001 (the "Agreement"); --------- WHEREAS, pursuant to the Agreement, the Seller wishes to designate Additional Accounts to be included as Accounts and to convey the Receivables of such Additional Accounts (as each such term is defined in the Agreement), whether now existing or hereafter created, to the Issuer; and WHEREAS, the Issuer is willing to accept such designation and conveyance subject to the terms and conditions hereof; NOW, THEREFORE, the Seller, the Servicer and the Issuer hereby agree as follows: 1. Defined Terms. All capitalized terms used herein shall have the meanings ------------- ascribed to them in the Agreement unless otherwise defined herein. "Addition Date" means, with respect to the Additional Accounts designated ------------- hereby, , 200 . ------------ -- "Notice Date" means, with respect to the Additional Accounts designated hereby, ----------- , , (which shall be a date on or prior to the fifth Business Day - ------------ ---- prior to the Addition Date). 2. Designation of Additional Accounts. On or before the date hereof, the Seller ---------------------------------- will deliver to the Owner Trustee a computer file or microfiche list containing a true and complete schedule identifying all such Additional Accounts (the "Additional Accounts") specifying for each such Additional Account, as of the ------------------- Notice Date, its account number, the aggregate amount outstanding in such Account and the aggregate Exhibit A-1 amount of Principal Receivables outstanding in such Account, which computer file or microfiche list shall supplement Schedule 1 to the Agreement. ---------- 3. Conveyance of Receivables. (a) The Seller does hereby transfer, assign, set ------------------------- over and otherwise convey, without recourse except as set forth in the Transfer and Servicing Agreement, to the Issuer, all its right, title and interest in, to and under the Receivables of such Additional Accounts existing at the close of business on the Notice Date and thereafter created from time to time until the termination of the Issuer, all Recoveries related thereto, all monies due or to become due and all amounts received or receivable with respect thereto and all proceeds thereof. The foregoing does not constitute and is not intended to result in the creation or assumption by the Issuer, the Owner Trustee, the Indenture Trustee, any Noteholders or any Series Enhancer of any obligation of the Servicer, the Seller or any other Person in connection with the Accounts, the Receivables or under any agreement or instrument relating thereto, including any obligation to Obligors, merchant banks, merchants or clearance systems. (b) The Seller agrees to record and file, at its own expense, financing statements (and continuation statements when applicable) with respect to the Receivables in Additional Accounts existing on the Notice Date and thereafter created meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect, and maintain perfection of, the sale and assignment of its interest in such Receivables to the Issuer, and to deliver a file-stamped copy of each such financing statement or other evidence of such filing to the Owner Trustee on or prior to the Addition Date. The Owner Trustee shall be under no obligation whatsoever to file such financing or continuation statements or to make any other filing under the applicable UCC in connection with such sale and assignment. (c) In connection with such sale, the Seller further agrees, at its own expense, on or prior to the date of this Assignment, to indicate in the appropriate computer files that Receivables created in connection with the Additional Accounts and designated hereby have been conveyed to the Issuer pursuant to the Agreement and this Assignment. (d) The Seller does hereby grant to the Issuer a security interest in all of its right, title and interest, whether now owned or hereafter acquired, in and to the Receivables in the Additional Accounts existing on the Notice Date and thereafter created, all Recoveries related thereto, all monies due or to become due and all amounts received or receivable with respect thereto, all money, accounts, general intangibles, chattel paper, instruments, documents, goods, investment property, deposit accounts, certificates of deposit, letters of credit, and advices of credit consisting of, arising from or related to the foregoing, and all proceeds thereof. This Assignment constitutes a security agreement under the applicable UCC. 4. Acceptance by Issuer. The Issuer hereby acknowledges its acceptance of all -------------------- right, title and interest to the property, existing on the Notice Date and thereafter created, conveyed to the Issuer pursuant to Section 3(a) of this ------------ Assignment. The Exhibit A-2 Issuer further acknowledges that, prior to or simultaneously with the execution and delivery of this Assignment, the Seller delivered to the Owner Trustee the computer file or microfiche list described in Section 2 of this Assignment. --------- 5. Representations and Warranties of the Seller. The Seller hereby represents -------------------------------------------- and warrants to the Issuer as of the Addition Date: (a) Legal Valid and Binding Obligation. This Assignment constitutes a ---------------------------------- legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, receivership or conservatorship, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and the rights of creditors of national banking associations and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); (b) Schedule 1. Schedule 1 to this Assignment and the computer file or ---------- microfiche list delivered pursuant to Section 2 of this Assignment is an --------- accurate and complete listing in all material respects of all the Additional Accounts as of the Addition Date and the information contained therein with respect to the identity of such Additional Accounts and the Receivables existing thereunder is true and correct in all material respects as of the Addition Date; (c) Eligibility of Accounts. Each Additional Account designated hereby is ----------------------- an Eligible Account; (d) Selection Procedures. No selection procedures believed by the Seller to -------------------- be materially adverse to the interests of the Noteholders were utilized in selecting the Additional Accounts designated hereby; (e) Insolvency. The Seller is not insolvent and, after giving effect to the ---------- conveyance set forth in Section 3 of this Assignment, will not be insolvent; --------- (f) Security Interest. This Assignment constitutes (i) a valid transfer and ----------------- assignment to the Issuer of all right, title and interest of the Seller in and to Receivables now existing and hereafter created in the Additional Accounts designated hereby, and all proceeds (as defined in the UCC as in effect in the applicable jurisdiction) of such Receivables and Insurance Proceeds relating thereto, and such Receivables and any Collections, Recoveries and other proceeds thereof and Insurance Proceeds relating thereto will be held by the Issuer free and clear of any Lien of any Person except for (x) Liens permitted under Section ------- 2.5(b) of the Transfer and Servicing Agreement and (y) the interest of the - ------ Seller as holder of the Collateral Certificate and/or (ii) it constitutes a grant of a security interest (as defined in the UCC as in effect in the applicable jurisdiction) in such property to the Issuer, which is enforceable with respect to the existing Receivables in the Additional Accounts designated hereby, the Collections, Recoveries and other proceeds (as defined in the UCC as in effect in the applicable jurisdiction) thereof and Insurance Exhibit A-3 Proceeds relating thereto upon the conveyance of such Receivables to the Issuer, and which will be enforceable with respect to the Receivables thereafter created in respect of the Additional Accounts designated hereby, the Collections, Recoveries and other proceeds (as defined in the UCC as in effect in the applicable jurisdiction) thereof and Insurance Proceeds relating thereto, upon such creation; and (iii) if this Assignment constitutes the grant of a security interest to the Issuer in such property, upon the filing of a financing statement described in Section 3 of this Assignment with respect to the --------- Additional Accounts designated hereby and in the case of the Receivables of such Additional Accounts thereafter created and the Collections, Recoveries and other proceeds (as defined in the UCC as in effect in the applicable jurisdiction) thereof, and Insurance Proceeds relating to such Receivables, upon such creation, the Issuer shall have a first priority perfected security interest in such property, except for Liens permitted under Section 2.5(b) of the Transfer -------------- and Servicing Agreement, the interest of the Seller as holder of the Collateral Certificate and the Seller's right to receive interest accruing on, and investment earnings in respect of, the Collection Subaccount and any Series Account as provided in the Transfer and Servicing Agreement. (g) Notice has been given to each Rating Agency and to each Enhancement Provider as required under Section 2.7(d) of the Transfer and Servicing -------------- Agreement. 6. Conditions Precedent. The acceptance of the Owner Trustee set forth in -------------------- Section 4 above and the amendment of the Transfer and Servicing Agreement set - --------- forth in Section 7 below are subject to the satisfaction, on or prior to the --------- Addition Date, of the following conditions precedent: (a) Officer's Certificate. The Seller shall have delivered to the Owner --------------------- Trustee a certificate of a Vice President or more senior officer, certifying that (i) all requirements set forth in Section 2.6 of the Transfer and Servicing ----------- Agreement for designating Additional Accounts and conveying the Principal Receivables of such Accounts, whether now existing or hereafter created, have been satisfied and (ii) each of the representations and warranties made by the Seller in Section 5 is true and correct as of the Addition Date. The Owner --------- Trustee may conclusively rely on such Officer's Certificate, shall have no duty to make inquiries with regard to the matters set forth therein, and shall incur no liability in so relying. (b) Opinion of Counsel. The Seller shall have delivered to the Owner ------------------ Trustee an Opinion of Counsel with respect to the Additional Accounts designated hereby substantially in the form of Exhibit F-2 to the Agreement. ----------- (c) Additional Information. The Seller shall have delivered to the Owner ---------------------- Trustee such information as was reasonably requested by the Owner Trustee to satisfy itself as to the accuracy of the representation and warranty set forth in Section 5(d) to this Assignment. ------------ 7. Amendment of the Transfer and Servicing Agreement. The Transfer and Servicing ------------------------------------------------- Agreement is hereby amended to provide that all references therein to the Exhibit A-4 "Transfer and Servicing Agreement", to "this Agreement" and "herein" shall be deemed from and after the Addition Date to be a dual reference to the Transfer and Servicing Agreement as supplemented by this Assignment. Except as expressly amended hereby, all of the representations, warranties, terms, covenants and conditions of the Transfer and Servicing Agreement shall remain unamended and shall continue to be, and shall remain, in full force and effect in accordance with its terms and except as expressly provided herein shall not constitute or be deemed to constitute a waiver of compliance with or a consent to noncompliance with any term or provision of the Transfer and Servicing Agreement. 8. Counterparts. This Assignment may be executed in two or more counterparts ------------ (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. 9. Rights of the Owner Trustee. Each of the parties hereto acknowledges and --------------------------- agrees that this Agreement is being executed and delivered by Bankers Trust Company not individually but solely and exclusively in its capacity as Owner Trustee on behalf of First Consumers Credit Card Master Note Trust for the purpose and with the intention of binding First Consumers Credit Card Master Note Trust. No obligations or liabilities hereunder shall run against Bankers Trust Company in its individual capacity or against its properties or assets. 10. No Bankruptcy Petition. (a) Each of Seller and Servicer, severally and not ---------------------- jointly, hereby covenants and agrees that, prior to the date which is one (1) year and one (1) day after the payment in full of all Notes, it will not institute against, or join any other Person in instituting against, the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. (b) Each of Servicer and Issuer, severally and not jointly, hereby covenants and agrees that, prior to the date which is one (1) year and one (1) day after the payment in full of all Notes, it will not institute against, or join any other Person in instituting against, the Seller any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. Exhibit A-5 IN WITNESS WHEREOF, the undersigned have caused this Assignment of Receivables in Additional Accounts to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. FIRST CONSUMERS CREDIT CORPORATION, Seller By: ---------------------------------------- Name: Title: FIRST CONSUMERS NATIONAL BANK, Servicer By: ---------------------------------------- Name: Title: FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST, Issuer By: BANKERS TRUST COMPANY, not in its individual capacity but solely on behalf of the Issuer By: ---------------------------------------- Name: Title: Exhibit A-6 Schedule 1 to Assignment of Receivables in Additional Accounts ADDITIONAL ACCOUNTS ------------------- Exhibit A-7 EXHIBIT B to TRANSFER AND SERVICING AGREEMENT FORM OF REASSIGNMENT OF RECEIVABLES IN REMOVED ACCOUNTS (As required by Section 2.7 of the Transfer and Servicing Agreement) ----------- REASSIGNMENT No. OF RECEIVABLES dated as of , by and among ------- --------- FIRST CONSUMERS CREDIT CORPORATION, a Delaware corporation, as Seller (the "Seller"), FIRST CONSUMERS NATIONAL BANK, a national banking association, as ------ Servicer (the "Servicer"), and FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST (the "Issuer"), pursuant to the Transfer and Servicing Agreement referred to ------ below. WITNESSETH: WHEREAS the Seller, the Servicer and the Issuer are parties to the Transfer and Servicing Agreement, dated as of March 1, 2001, and amended and restated as of December 31, 2001 (the "Agreement"); --------- WHEREAS pursuant to the Agreement, the Seller wishes to remove from the Issuer all Receivables owned by the Issuer in certain designated Accounts (the "Removed ------- Accounts") and to cause the Issuer to reconvey the Receivables of such Removed - -------- Accounts, whether now existing or hereafter created, from the Issuer to the Seller; and WHEREAS the Issuer is willing to accept such designation and to reconvey the Receivables in the Removed Accounts subject to the terms and conditions hereof; NOW, THEREFORE, the Seller and the Issuer hereby agree as follows: 1. Defined Terms. All terms defined in the Agreement and used herein shall have ------------- such defined meanings when used herein, unless otherwise defined herein. "Removal Date" means, with respect to the Removed Accounts designated hereby, ------------ - -----------, ----. "Removal Notice Date" means, with respect to the Removed Accounts , , ------------------- ---------- -- (which shall be a date on or prior to the fifth Business Day prior to the Removal Date). 2. Designation of Removed Accounts. On or before the date that is ten (10) ------------------------------- Business Days after the Removal Date, the Seller will deliver to the Owner Trustee a computer file or microfiche list containing a true and complete schedule identifying all Accounts the Receivables of which are being removed from the Issuer, specifying for each such Account, as of the Removal Notice Date, its account number, the Exhibit B-1 aggregate amount outstanding in such Account and the aggregate amount of Principal Receivables in such Account, which computer file or microfiche list shall supplement Schedule 1 to the Agreement. ---------- 3. Conveyance of Receivables. (a) The Issuer does hereby transfer, assign, set ------------------------- over and otherwise convey to the Seller, without recourse, on and after the Removal Date, all right, title and interest of the Issuer in, to and under the Receivables existing at the close of business on the Removal Notice Date and thereafter created from time to time in the Removed Accounts designated hereby, all Recoveries related thereto, all monies due or to become due and all amounts received or receivable with respect thereto and all proceeds thereof. (b) In connection with such transfer, the Issuer agrees to execute and deliver to the Seller on or prior to the date this Reassignment is delivered, applicable termination statements prepared by the Seller with respect to the Receivables existing at the close of business on the Removal Notice Date and thereafter created from time to time in the Removed Accounts reassigned hereby and the proceeds thereof evidencing the release by the Issuer of its interest in the Receivables in the Removed Accounts, and meeting the requirements of applicable state law, in such manner and such jurisdictions as are necessary to terminate such interest. 4. Representations and Warranties of the Seller. The Seller hereby represents -------------------------------------------- and warrants to the Issuer as of the Removal Date: (a) Legal Valid and Binding Obligation. This Reassignment Agreement constitutes ---------------------------------- a legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); and (b) Selection Procedures. No selection procedures believed by the Seller to be -------------------- materially adverse to the interests of the Noteholders were utilized in selecting the Removed Accounts designated hereby. 5. Condition Precedent. The amendment of the Transfer and Servicing Agreement ------------------- set forth in Section 7 hereof is subject to the satisfaction, on or prior to the --------- Removal Date, of the following condition precedent: 6. Officers' Certificate. The Seller shall have delivered to the Owner Trustee --------------------- an Officers' Certificate certifying that (i) as of the Removal Date, all requirements set forth in Section 2.5 of the Transfer and Servicing Agreement ----------- for designating Removed Accounts and reconveying the Receivables of such Removed Accounts, whether now existing or hereafter created, have been satisfied, and (ii) each of the representations and warranties made by the Seller in Section 5 --------- hereof is true and correct as of the Removal Date. The Owner Trustee may conclusively rely on such Exhibit B-2 Officer's Certificate, shall have no duty to make inquiries with regard to the matters set forth therein and shall incur no liability in so relying. 7. Amendment of the Transfer and Servicing Agreement. The Transfer and Servicing ------------------------------------------------- Agreement is hereby amended to provide that all references therein to the "Transfer and Servicing Agreement", to "this Agreement" and "herein" shall be deemed from and after the Removal Date to be a dual reference to the Transfer and Servicing Agreement as supplemented by this Reassignment Agreement. Except as expressly amended hereby, all of the representations, warranties, terms, covenants and conditions of the Transfer and Servicing Agreement shall remain unamended and shall continue to be, and shall remain, in full force and effect in accordance with its terms and except as expressly provided herein shall not constitute or be deemed to constitute a waiver of compliance with or a consent to non-compliance with any term or provision of the Transfer and Servicing Agreement. 8. Counterparts. This Reassignment Agreement may be executed in two or more ------------ counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. 9. Rights of the Owner Trustee. Each of the parties hereto acknowledges and --------------------------- agrees that this Agreement is being executed and delivered by Bankers Trust Company not individually but solely and exclusively in its capacity as Owner Trustee on behalf of First Consumers Credit Card Master Note Trust for the purpose and with the intention of binding First Consumers Credit Card Master Note Trust. No obligations or liabilities hereunder shall run against Bankers Trust Company in its individual capacity or against its properties or assets. 10. No Bankruptcy Petition. (a) Each of Seller and Servicer, severally and not ---------------------- jointly, hereby covenants and agrees that, prior to the date which is one (1) year and one (1) day after the payment in full of all Notes, it will not institute against, or join any other Person in instituting against, the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. (b) Each of Servicer and Issuer, severally and not jointly, hereby covenants and agrees that, prior to the date which is one (1) year and one (1) day after the payment in full of all Notes, it will not institute against, or join any other Person in instituting against, the Seller any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. Exhibit B-3 IN WITNESS WHEREOF, the undersigned have caused this Reassignment Agreement to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. FIRST CONSUMERS CREDIT CORPORATION, Seller By: ---------------------------------------- Name: Title: FIRST CONSUMERS NATIONAL BANK, Servicer By: ---------------------------------------- Name: Title: FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST, Issuer By: BANKERS TRUST COMPANY, not in its individual capacity but solely on behalf of the Issuer By: ---------------------------------------- Name: Title: Exhibit B-4 Schedule 1 to Reassignment Agreement REMOVED ACCOUNTS ---------------- Exhibit B-5 EXHIBIT C to TRANSFER AND SERVICING AGREEMENT FORM OF MONTHLY SERVICER'S CERTIFICATE The undersigned, a duly authorized representative of First Consumers National Bank ("FCNB"), as Servicer pursuant to the Transfer and Servicing Agreement ---- dated as of March 1, 2001, and amended and restated as of December 31, 2001 (the "Transfer and Servicing Agreement") among FCNB, First Consumers Credit -------------------------------- Corporation, and First Consumers Credit Card Master Note Trust, does hereby certify as follows: 1. Capitalized terms used in this Certificate have their respective meanings set forth in the Transfer and Servicing Agreement; provided that the -------- "preceding Monthly Period" shall mean the Monthly Period immediately ------------------------ preceding the calendar month in which this Certificate is delivered. This Certificate is delivered pursuant to Section 3.4(b) of the Transfer and -------------- Servicing Agreement. References herein to certain sections and subsections are references to the respective sections and subsections of the Transfer and Servicing Agreement. 2. FCNB is the Servicer under the Transfer and Servicing Agreement. 3. The undersigned is a Servicing Officer. 4. The date of this Certificate is a Determination Date under the Transfer and Servicing Agreement. 5. The aggregate amount of Collections processed during the preceding Monthly Period was equal to $ ------------- 6. The aggregate amount of the Allocation Percentage of Collections of Principal Receivables processed by the Servicer pursuant to Article VIII of the Indenture during the preceding Monthly Period was equal to $ ----------- Exhibit C-1 7. The aggregate amount of the Allocation Percentage of Finance Charge Collections processed by the Servicer pursuant to Article VIII of the Indenture during the preceding Monthly Period was equal to $ ------------- 8. The Default Amount for the preceding Monthly Period was equal to $ --------- 9. Net Recoveries for the preceding Monthly Period was equal to $ ------------- 10. The Portfolio Yield for the preceding Monthly Period for each of the following Series was equal to: Series $ ------------- ------------- Series $ ------------- ------------- 11. The Base Rate for the preceding Monthly Period for each of the following Series was equal to: Series $ ------------- ------------- Series $ ------------- ------------- 12. The aggregate amount of Receivables as of the last day of the preceding Monthly Period was equal to $ ------------- 13. The aggregate amount of funds on deposit in the Collection Account (or any Subaccount thereof) and each other Series Account with respect to Collections processed as of the end of the last day of the preceding Monthly Period was equal to $ ------------- 14. The aggregate amount, if any, of withdrawals, drawings or payments under any Enhancement with respect to each Series made with respect to the preceding Monthly Period was equal to $ ------------- 15. The aggregate amount payable to the Noteholders on the succeeding Distribution Date in respect of interest is equal to $ ------------- Exhibit C-2 16. The aggregate amount payable to the Noteholders on the succeeding Distribution Date in respect of principal is equal to $ ------------- Exhibit C-3 EXHIBIT D to TRANSFER AND SERVICING AGREEMENT FORM OF ANNUAL SERVICER'S CERTIFICATE The undersigned, a duly authorized representative of First Consumers National Bank ("FCNB") as Servicer pursuant to the Transfer and Servicing Agreement dated as of March 1, 2001, and amended and restated as of December 31, 2001 (the "Transfer and Servicing Agreement") among FCNB, First Consumers Credit -------------------------------- Corporation and Spiegel Credit Card Master Note Trust, does hereby certify that: 1. FCNB is Servicer under the Transfer and Servicing Agreement. 2. The undersigned is duly authorized pursuant to the Transfer and Servicing Agreement to execute and deliver this Certificate to the Owner Trustee. 3. This Certificate is delivered pursuant to Section 3.5 of the Transfer ----------- and Servicing Agreement. 4. A review of the activities of the Servicer during the calendar year ended December 31, 200 was conducted under my supervision. - 5. Based on such review, the Servicer has, to the best of my knowledge, fully performed all its obligations under the Transfer and Servicing Agreement throughout such calendar year and no default in the performance of such obligations has occurred or is continuing except as set forth in paragraph 6 below. 6. The following is a description of each default in the performance of the Servicer's obligations under the provisions of the Transfer and Servicing Agreement known to me to have been made during the calendar year ended December 31, 200 , which sets forth in detail the (i) nature of each such default, (ii) - the action taken by the Servicer, if any, to remedy each such default and (iii) the current status of each such default: [If applicable, insert "None."] Exhibit D-1 IN WITNESS WHEREOF, the undersigned has duly executed this Certificate this day of , 200 . ----- --- ------------------------------- Name: Title: Exhibit D-2 EXHIBIT E to TRANSFER AND SERVICING AGREEMENT FORM OF ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT First Consumers National Bank 9300 S. W. Gemini Drive Beaverton, Oregon 97005 First Consumers Credit Corporation 400 West 9th Street, Suite 302D Wilmington, Delaware, 19801 The Bank of New York 2 North LaSalle Street, Suite 1020 Chicago, Illinois 60602 The Management of First Consumers National Bank, First Consumers Credit Corporation and The Bank of New York: We have performed the procedures enumerated below, which were agreed to by the management of First Consumers National Bank ("FCNB"), First Consumers Credit ---- Corporation ("FCCC") and The Bank of New York (the "Trustee"), solely to assist ---- ------- you in evaluating the Monthly Noteholder's Statements and the Monthly Servicer Certificates (collectively, the Certificates) issued pursuant to the Transfer and Servicing Agreement dated as of December 31, 2001 among FCNB, FCCC and First Consumers Credit Card Master Note Trust (the "Transfer and Servicing Agreement") -------------------------------- in accordance with the requirements stated therein. This agreed-upon procedures engagement was performed in accordance with standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of FCNB, FCCC and the Trustee. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. For purposes of these agreed-upon procedures, differences between reported amounts and FCNB (the "Servicer") documented amounts of less than or equal to -------- $5,000 or 5% of the average of the amounts being compared were not considered exceptions to the procedures performed. Our procedures and findings are as follows: Exhibit E-1 1. We compared and/or recalculated, each of the amounts or entries shown in the Monthly Noteholder's Statements and the Monthly Servicer Certificates, other than entries showing "zero" amounts or "not applicable", for each of the months in the year ended December 31, based on one or more of the ----- following: . Corresponding amounts or entries on the Transfer and Servicing Agreement, . Schedules prepared by FCNB, . Data extracted from FCNB's credit accounting system, . Data provided to FCNB from the Trustee, . Recalculations based on schedules prepared by FCNB and data extracted from FCNB's credit accounting system, or . In instances where timely data was not available at the time the Certificates were prepared, to documented estimates by the Servicer. g. We read the "Annual Servicer's Certificate" for the year ended December 31, required by the Transfer and Servicing Agreement ----- and made inquiries of FCNB's management regarding FCNB's compliance with the guidelines of the Transfer and Servicing Agreement. FCNB's management represented full compliance with the Transfer and Servicing Agreement. We were not engaged to, and did not, perform an examination, the objective of which would be the expression of an opinion on the Certificates. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of the specified users listed above and is not intended to be and should not be used by anyone other than these specified users. Date Exhibit E-2 EXHIBIT F-1 FORM OF OPINION OF COUNSEL WITH RESPECT TO AMENDMENTS (Provisions to be included in Opinion of Counsel to be delivered pursuant to Section 9.2(d)(i)) ----------------- The opinions set forth below may be subject to all the qualifications, assumptions, limitations and exceptions taken or made in the Opinions Of Counsel delivered on any applicable Closing Date. (i) The amendment to the Transfer and Servicing Agreement, attached hereto as Schedule 1 (the "Amendment" ), has been duly authorized, executed and ---------- --------- delivered by Seller and constitutes the legal, valid and binding agreement of Seller, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws from time to time in effect affecting creditors' rights generally. The enforceability of Seller's obligations is also subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (ii) The Amendment has been entered into in accordance with the terms and provisions of Section 9.1 of the Transfer and Servicing Agreement. ----------- Exhibit F-1-1 EXHIBIT F-2 to TRANSFER AND SERVICING AGREEMENT (Provisions to be included in Opinion of Counsel to be delivered pursuant to Section 2.6(c)(vii) and Section 9.2(d)(ii)) ------------------- ------------------ The opinions set forth below may be subject to all the qualifications, assumptions, limitations and exceptions taken or made in the Opinions of Counsel delivered on any applicable Closing Date. 1. Except for any Receivable that is evidenced by an instrument, the Receivables constitute accounts under Article 9 of the applicable UCC. 2. If the Assignment, together with the Agreement, constitutes a valid assignment of all Seller's right, title and interest in, to and under the Receivables in Schedule 1 to the Assignment and all rights to security for such ---------- Receivables and the proceeds thereof (including without limitation rights to bank accounts or certificates of deposit pledged as collateral) (the "Collateral") and all of the Seller's rights, remedies, powers, and privileges ---------- with respect to such Collateral, then the Issuer has or will acquire all of Seller's right, title and interest in, to and under the Collateral free and clear of any Lien or interest of any person at the time of transfer (and anytime thereafter with respect to any Lien or interest arising through or under the Seller except as provided in the Agreement), except for Liens for municipal or other local taxes permitted under Section 2.5(b) of the Agreement. 3. If the Assignment, together with the Agreement, does not constitute a valid assignment of all of the Seller's right, title and interest in, to and under the Collateral, then the Assignment creates a valid security interest in all right, title and interest of Seller in, to and under the Collateral in favor of the Issuer. 4. The Receivables Purchase Agreement constitutes a valid assignment of all of the RPA Seller's right, title and interest in, to and under the Collateral and all of its rights, remedies, powers, and privileges with respect to such Collateral. The Seller has or will acquire all the RPA Seller's right, title and interest in, to and under such Collateral free and clear of any Lien or interest of any person at the time of transfer (and anytime thereafter with respect to any Lien or interest arising through or under the RPA Seller, except as provided in the Agreement), except for Liens for state, municipal or other local taxes. 5. The security interest described in paragraphs 3 above is perfected and of first priority. Exhibit F-2-1 EXHIBIT F-3 PROVISIONS TO BE INCLUDED IN ANNUAL OPINION OF COUNSEL The opinions set forth below may be subject to certain qualifications, assumptions, limitations and exceptions taken or made in the opinion of counsel to Seller with respect to similar matters delivered on the Initial Closing Date. Unless otherwise indicated, all capitalized terms used herein shall have the meanings ascribed to them in the Transfer and Servicing Agreement. 1. No filing or other action, other than such filing or other action described in this opinion letter, is necessary from the date of this opinion letter through June 30 of the following year to continue the perfected status of the security interest of the Trust in the Receivables and all rights to security for such Receivables and the proceeds thereof (including without limitation rights to bank accounts or certificates of deposit pledged as collateral) (the "Collateral") described in the financing statements referenced in this opinion ---------- letter. 2. No filing or other action, other than such filing or other action described in this opinion letter, is necessary from the date of this opinion letter through June 30 of the following year to continue the perfected status of the security interest of the Indenture Trustee in the Collateral described in the financing statements referenced in this opinion letter. 3. No filing or other action, other than such filing or other action described in this opinion letter, is necessary from the date of this opinion letter through June 30 of the following year to continue the perfected status of the security interest of the Seller in the Collateral described in the financing statements referenced in this opinion letter. Exhibit F-3-1 SCHEDULE 1 List of Accounts ---------------- [Original list delivered to Owner Trustee] 1 - 1 SCHEDULE 2 ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS In addition to the representations, warranties and covenants contained in the Transfer and Servicing Agreement, Seller hereby represents, warrants and covenants to the Trust as follows: (1) The Transfer and Servicing Agreement creates either (A) a valid transfer to the Issuer of all right, title and interest of Seller in, to and under (i) the Receivables conveyed to the Seller pursuant to the Receivables Purchase Agreement, (ii) all rights to security for such Receivables (including without limitation rights to bank accounts or certificates of deposit pledged as collateral) (the "Obligor Collateral") and (iii) the Collateral Certificate (the ------------------ Obligor Collateral and Collateral Certificate together with the Receivables, the "Collateral") and the Collateral will be held by the Issuer free and clear of ---------- any Lien, except for (w) the interests of the Noteholders and the Enhancement Providers, (x) Liens permitted pursuant to paragraph 3 below, or (y) the interests of the Seller as holder of the Seller Interest or (B) a valid and continuing security interest (as defined in the applicable UCC) in the Collateral in favor of the Issuer, which security interest is prior to all other Liens, and is enforceable as such against creditors of and purchasers from the Seller (other than Liens permitted pursuant to paragraph 3 below). (2) The Receivables constitute "accounts" within the meaning of the applicable UCC. The Obligor Collateral constitutes security interests on personal property securing certain of those accounts, and the creation and perfection of a security interest in such security interests is governed by Sections 9-203(g) and 9- 308(e), respectively, of the applicable UCC. The Collateral Certificate constitutes a "certificated security," "instrument" or "general intangible" within the meaning of the applicable UCC. (3) Immediately prior to the conveyance of, or grant of the security interest in, the Collateral pursuant to the Transfer and Servicing Agreement, Seller owns and has good and marketable title to the Collateral, and a valid, perfected security interest in the collateral for the Receivables in any secured Accounts, in each case, free and clear of any Lien, claim or encumbrance of any Person; provided that nothing in this paragraph 3 shall prevent or be deemed to prohibit Seller from suffering to exist upon any of the Collateral any Liens for any taxes if such taxes shall not at the time be due and payable or if FCNB or Seller, as applicable, shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. Seller has received all consents and approvals required by the terms of the Collateral to the valid transfer of or grant of security interest in the Collateral hereunder to the Issuer. (4) (a) If perfection is by filing, Seller has caused, or will have caused within 10 days, the filing of all appropriate financing statements in the proper filing 1 - 2 office in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Collateral granted to the Issuer under the Transfer and Servicing Agreement. (b) If perfection is by possession, all original executed copies of each mortgage note, promissory note or security certificate that constitutes or evidences the Collateral has been delivered to the Issuer. Each security certificate either (i) is in bearer form, (ii) has been indorsed, by an effective indorsement, to the Issuer or in blank or (iii) has been registered in the name of the Issuer. (5) Other than the grant of the security interest in the Collateral to the Issuer pursuant to the Transfer and Servicing Agreement, Seller has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Collateral. Seller has not authorized the filing of and is not aware of any financing statements against Seller that include a description of collateral covering the Collateral. (a) If perfection is by filing, Issuer has in its possession all original copies of the mortgage notes, promissory notes or security certificates that constitute or evidence the Collateral. The mortgage notes, promissory notes or security certificates that constitute or evidence the Collateral do not have any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Issuer. All financing statements to be filed against Seller in favor of Issuer in connection herewith describing the Collateral will contain a statement to the effect that "A purchase of or security interest in any collateral described in this financing statement will violate the rights of the Issuer". (b) If perfection is by possession, none of the mortgage notes, promissory notes or security certificates that constitute or evidence the Collateral have any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Issuer. (6) Seller is not aware of any judgment, ERISA or tax lien filings against Seller. (7) Notwithstanding any other provision of the Transfer and Servicing Agreement, the representations and warranties set forth in this Schedule 2 shall ---------- be continuing, and remain in full force and effect, until such time as all Notes have been finally and fully paid and shall survive the transfer of the Trust Assets to the Issuer under the Transfer and Servicing Agreement and the termination of the rights and obligations of the Servicer pursuant to Article ------- VII thereof. The parties to the Transfer and Servicing Agreement shall not, - --- without satisfying the Rating Agency Condition, waive a breach of any representation or warranty set forth in this Schedule 2. In order to evidence ---------- the interests of Seller and the Issuer under the Transfer and Servicing Agreement, Seller and Servicer shall take such action, or execute and deliver such instruments (other than filing financing statements) as may be necessary or advisable (including, without limitation, such actions as are requested by Indenture Trustee) to maintain and perfect, as a first priority interest, Seller's or the Issuer's security interest in the Collateral. The Servicer shall, from time to time and within the time limits established by law, prepare and present to the Issuer for the Indenture Trustee's authorization and approval all financing statements, amendments, continuations or initial financing statements in lieu of a continuation statement, or other filings 1 - 3 necessary to continue, maintain and perfect as a first-priority interest. The Indenture Trustee's approval of such filings shall authorize the Servicer to file such financing statements under the applicable UCC without the signature of Seller or Issuer where allowed by applicable law. Notwithstanding anything else in the Transfer and Servicing Agreement to the contrary, the Servicer shall not have any authority to file a termination, partial termination, release, partial release, or any amendment that deletes the name of a debtor or excludes collateral of any such financing statements, without the prior written consent of the Indenture Trustee. The Issuer may require, prior to authorizing or filing any such termination, partial termination, release, partial release or amendment, that Servicer provide an Opinion of Counsel that such filings are authorized under the Transfer and Servicing Agreement. 1 - 4 EX-10.41 38 dex1041.txt COLLATERAL SERIES SUPPLEMENT DATED AS OF 3/1/2001 - -------------------------------------------------------------------------------- Exhibit 10.41 ------------- FIRST CONSUMERS NATIONAL BANK, Seller and Servicer, and THE BANK OF NEW YORK, Trustee on behalf of the Collateral Certificateholder - -------------------------------------------------------------------------------- COLLATERAL SERIES SUPPLEMENT Dated as of March 1, 2001 to AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT Dated as of February 1, 1999 - -------------------------------------------------------------------------------- FIRST CONSUMERS MASTER TRUST - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page SECTION 1. Designation.................................................................1 SECTION 2. Definitions.................................................................2 SECTION 3. Reassignment and Transfer Terms.............................................3 SECTION 4. Delivery and Payment for the Collateral Certificates........................3 SECTION 5. Form of Delivery of Collateral Certificates.................................3 SECTION 6. Article IV of Agreement.....................................................4 SECTION 7. Series Pay Out Events and Events of Default; Servicer Defaults..............4 SECTION 9. Successors and Assigns......................................................5 SECTION 10. Modification to and Ratification of Agreement...............................5 SECTION 11. Counterparts................................................................5 SECTION 12. Governing Law...............................................................5
EXHIBITS Exhibit A Form of Collateral Certificate COLLATERAL SERIES SUPPLEMENT dated as of March 1, 2001 (this "Series Supplement"), among First Consumers National Bank, a national banking association, as Seller and Servicer, and The Bank of New York (as successor-in-interest to the corporate trust administration of Harris Trust and Savings Bank), as Trustee under the Amended and Restated Pooling and Servicing Agreement dated as of February 1, 1999 among Seller, the Servicer and the Trustee (the "Agreement"). Section 6.12 of the Agreement provides, among other things, that Seller and the Trustee may at any time and from time to time enter into a supplement to the Agreement for the purpose of authorizing the delivery by Seller to the Trustee for execution and authentication of one or more Series of Investor Certificates. Pursuant to this Series Supplement, Seller shall create a new Series of Investor Certificates and shall specify the Principal Terms thereof and add and amend certain provisions of the Agreement. SECTION 1. Designation. There is hereby created a Series of Investor ----------- Certificates to be issued pursuant to the Agreement and this Series Supplement to be known as the "Collateral Certificates." The Collateral Certificates will be transferred by the Seller to First Consumers Credit Card Master Note Trust (the "Note Trust") pursuant to a Transfer and Servicing Agreement dated as of March 1, 2001 among the Seller, the Servicer and First Consumers Credit Card Master Note Trust. The Note Trust will pledge the Collateral Certificates as collateral for one or more series of notes (each, a "Note Series") to be issued by the Note Trust pursuant to a Master Indenture dated as of March 1, 2001 between First Consumers Credit Card Master Note Trust, and The Bank of New York, as indenture trustee, and one or more supplements to the Master Indenture (each, an "Indenture Supplement" and, together with the Master Indenture referred to above, the "Indenture"). The portions of the Collateral Certificates primarily securing each Note Series shall be treated as separate Series (each, a "Collateral Series") under the Agreement and this Series Supplement. Certain terms pertaining to each Collateral Series will be defined in the applicable Indenture Supplements (but are hereby incorporated by reference into this Series Supplement). Unless and until the Trust has been terminated as permitted by Section 3(b) of this Series Supplement: (a) each Indenture Supplement executed and delivered by the Note Trust shall be deemed to supplement this Series Supplement; (b) a new Collateral Series shall be deemed to be issued upon the issuance of each Note Series and shall have the same designation (e.g., Series 2001-A) as the related Note Series; (c) the amounts payable as interest and principal on such Collateral Series shall equal the aggregate of the amounts payable on the related Note Series and shall be payable at the times and in the amounts specified for such Note Series, (d) all amounts available and applied as credit enhancement with respect to such Note Series shall be deemed to be available and applied as credit enhancement with respect to such Collateral Series; (e) all amounts payable to the Seller pursuant to the related Indenture Supplement shall be deemed to be payable to the Seller pursuant to this Series Supplement; and (f) the conditions defined in Section 6.12 of the Agreement for issuance of new Series must be satisfied in connection with each issuance of a Note Series; provided, however, that the Opinion of Counsel required in clause (D) of the - -------- ------- sixth sentence of Section 6.12(b) shall not be required to include the opinion in subclause (4) of such clause (D) to the effect that the Collateral Certificate established pursuant to this Series Supplement will be properly characterized as debt. SECTION 2. Definitions. If any term or provision contained herein ----------- shall conflict with or be inconsistent with any provision contained in the Agreement, the terms and provisions of this Series Supplement shall govern. All Article, Section or subsection references herein shall mean Article, Section or subsections of the Agreement, as amended or supplemented by this Series Supplement, except as otherwise provided herein. All capitalized terms not otherwise defined herein are used herein as defined in the Agreement. Each capitalized term defined herein shall relate only to the Collateral Certificates and no other Series of Certificates issued by the Trust. "Base Rate" is defined for each Collateral Series in the related Indenture Supplement. "Certificate" means a Collateral Certificate. "Certificateholder" means the holder of record of any Certificate. "Certificate Rate" means, for any Collateral Series, the average of the interest rates applicable to the notes in the related Note Series, weighted by the outstanding principal amount of the applicable classes of notes. "Closing Date" means, for any Collateral Series, the "Closing Date" for the related Note Series, as defined in the related Indenture Supplement. "Collateral Certificates" is defined in Section 1 of this Series Supplement. "Collateral Series" is defined in Section 1 of this Series Supplement. "Enhancement Provider" if applicable to any Collateral Series will be the "Enhancement Provider" defined in the related Indenture Supplement. "Finance Charge Shortfall" means, for any Collateral Series, the Finance Charge Shortfall for the related Note Series, as defined in the related Indenture Supplement. "Indenture" is defined in Section 1 of this Series Supplement. "Indenture Supplement" is defined in Section 1 of this Series Supplement. "Initial Investor Amount" means, for any Collateral Series, the "Initial Collateral Amount" of the related Note Series, as defined in the related Indenture Supplement. -2- "Investor Amount" means, for any Collateral Series, the "Collateral Amount" of the related Note Series, as defined in the related Indenture Supplement. "Minimum Seller Percentage" is defined for each Collateral Series in the related Indenture Supplement. "Net Recoveries" means, for any Collateral Series, with respect to any Monthly Period, the excess, if any, of Recoveries collected during such Monthly Period over the aggregate amount of Principal Receivables in Defaulted Accounts charged off during such Monthly Period. "Note Series" is defined in Section 1 of this Series Supplement. "Note Trust" is defined in Section 1 of this Series Supplement. "Principal Shortfall" means, for any Collateral Series, the Principal Shortfall for the related Note Series, as defined in the related Indenture Supplement. "Rating Agency" means, for any Collateral Series, the rating agencies for the related Note Series, as defined in the related Indenture Supplement. "Series Accounts" means, for any Collateral Series, any bank accounts established for the benefit of the related Note Series, as defined in the related Indenture Supplement. "Series Servicing Fee Percentage" is defined for each Collateral Series in the related Indenture Supplement. "Series Termination Date" means, for any Collateral Series, the final maturity date for the related Note Series defined in the related Indenture Supplement. SECTION 3. Reassignment and Transfer Terms. -------------------------------- (a) If the Servicer purchases, redeems or prepays any Note Series pursuant to a clean-up call under the related Indenture Supplement, then the related Collateral Series shall be deemed to have been retired. (b) Once each Series of Certificates issued under the Agreement has been retired, other than the Collateral Series and any other Series the requisite holders of which have consented to the following transactions, the holder of the Seller Interest shall have the option to transfer the Seller Interest to the Note Trust, upon which transfer the Trust shall terminate, and all of the Trust Assets shall be distributed to the Note Trust, as holder of all of the beneficial interests in the Trust. -3- SECTION 4. Delivery and Payment for the Collateral Certificates. The ----------------------------------------------------- Trustee shall deliver the Collateral Certificates when authenticated in accordance with Section 6.2. SECTION 5. Form of Delivery of Collateral Certificates. ------------------------------------------- (1) The Collateral Certificates shall be delivered as Definitive Certificates. (2) For purposes of voting with respect to any consent or other matter under the Agreement or this Series Supplement, each class of notes included in any Note Series shall be deemed to be a Class of Certificates in the related Collateral Series, and the provisions for voting by beneficial owners of such notes specified in the Indenture shall apply mutatis mutandis to voting under the Agreement and this Series Supplement. SECTION 6. Article IV of Agreement. (a) Sections 4.1, 4.2 and 4.3 of ----------------------- the Agreement shall read in their entirety as provided in the Agreement; provided that notwithstanding anything to the contrary in the third sentence of - -------- Section 4.2(e), unless otherwise specified in an Indenture Supplement, on each Distribution Date, a portion of interest and investment earnings (net of losses and investment expenses) on funds on deposit in the Collection Account and the Excess Funding Account shall be allocated to each Collateral Series based on the Investor Percentage with respect to Finance Charge Receivables for such Series and deposited in the Finance Charge Subaccount for that Series. The remainder of Article IV of the Agreement shall read in its entirety as follows and shall be applicable only to the Collateral Certificates: ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.1A Rights of Investor Certificateholders. The Collateral ------------------------------------- Certificates shall represent Undivided Interests in the Trust, consisting of the right to receive (a) the related Allocation Percentage (as defined in the related Indenture Supplement) of Collections, (b) funds on deposit in the Collection Account and the Excess Funding Account allocable to the Collateral Certificates and (c) Shared Principal Collections allocated to the Collateral Certificates in accordance with subsection 4.3(g). Unless otherwise specified in the related Indenture Supplement, each Collateral Series shall consist of a single Class and shall not be senior or subordinated to any other Series. The Seller Interest shall represent the ownership interest in the Trust Assets not allocated to the Collateral Certificates or any other Series outstanding; provided, however, the ownership interest represented by the Seller Interest and - -------- ------- any other Series outstanding shall not represent any interest in the Collection Account or any other Series Account, except as specifically provided in this Article IV. - ---------- -4- Section 4.4 Allocations. The Servicer shall, prior to the close of business ----------- on the day any Collections are deposited in the Collection Account, allocate from the Collection Account to the Collateral Series related to each Note Series the amounts specified in the related Indenture Supplement, which shall be deposited or otherwise applied as provided in such Indenture Supplement. SECTION 7. Series Pay Out Events and Events of Default; Servicer ----------------------------------------------------- Defaults. The Series Pay Out Events applicable to each Collateral Series shall - -------- be the Series Pay Out Events specified in the related Indenture Supplement, as well as the Trust Pay Out Events specified in the Indenture. In addition, each Note Series will have the benefit of applicable "Events of Default," as defined in the Indenture. Upon the occurrence of an applicable Event of Default, the Indenture Trustee shall have the right to foreclose upon a portion of the Receivables, as defined (and subject to the limitations stated) in the Indenture notwithstanding the continuing existence of the Trust. In addition, each Servicer Default specified in the Master Indenture shall be an additional Servicer Default for purposes of each Collateral Series. SECTION 8. Successors and Assigns. This Series Supplement shall be ---------------------- binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. SECTION 9. Modification to and Ratification of Agreement. For purposes --------------------------------------------- of this Supplement and each Collateral Series: (a) Section 2.6(a) shall be deemed to read as follows: "(a) If either (i) on any Record Date, the Aggregate Principal Balance is less than the Minimum Aggregate Principal Balance, or (ii) on any day the Aggregate Principal Balance is less than the greater of (A) the sum of the Aggregate Investor Amount, plus the Minimum Seller Amount, in each case as of such date and (B) the sum of the numerators used to determine the Investor Percentages for Principal Collections for all Series outstanding on such date, either Seller or Servicer (whichever shall first become aware of the same) promptly shall give the Trustee written notice thereof, and as soon as practicable (but in no event later than 10 days thereafter) Seller shall designate additional Eligible Accounts ("Additional Accounts") to be included as Accounts and shall transfer the Receivables in such Additional Accounts to the Trust, in a sufficient amount so that (x) in the case of clause (i) above, the Aggregate Principal Balance on such Record Date would have, if the Receivables from such Additional Accounts had been transferred to the Trust on or prior to such Record Date, at least equalled the Minimum Aggregate Principal Balance and (y) in the case of clause (ii) above, Aggregate Principal Balance on such day would have, if the Receivables from such Additional Accounts had been transferred to the Trust on or prior to such day, at least equalled the greater -5- of the amounts described in clauses (ii)(A) and (ii)(B) above. If Seller fails to transfer Receivables as required by the preceding sentence, then the Trustee shall give Seller immediate notice thereof;" and (b) Section 2.6(b) shall be deemed to read as follows: "(b) In addition to its obligation under subsection 2.6(a), Seller may, but shall not be obligated to, from time to time, designate Additional Accounts to be included as Accounts, so long as after giving effect to such addition no more than 20% of the Receivables, by outstanding balance , will be 30 or more days delinquent." (c) the following new clause (d) is added at the end of Section 2.7(b)(iii) of the Agreement: "and (d) Accounts (or administratively convenient groups of Accounts, such as billing cycles) were chosen for removal randomly or otherwise not on a basis intended to select particular accounts or groups of accounts for any reason other than administrative convenience;" (d) notwithstanding anything to the contrary in Section 3.2 of the Agreement, the servicing fee payable with respect to each Note Series and the related Collateral Series shall be solely as set forth in the related Indenture Supplement; (e) the second paragraph in Section 4.3(e) shall be deemed to read as follows: "In the event that the exclusion of the amount of a Credit Adjustment from the calculation of the Seller Amount would cause the Seller Amount to be less than the Minimum Seller Amount, Seller shall make a deposit, no later than the Business Day following the Date of Processing of such Credit Adjustment, in the Excess Funding Account in immediately available funds, in an amount equal to the amount by which the Minimum Seller Amount exceeds the Seller Amount, after giving effect to such exclusion." (f) Section 12.2(b),other than the first sentence thereof, shall not be applicable to any Collateral Series. In addition, to the extent that the terms of this Series Supplement (directly or as supplemented by any Indenture Supplement) are deemed to be inconsistent with the terms of the Agreement, this Series Supplement shall be deemed to modify or amend the terms of the Agreement solely as applied to each Collateral Series affected by any such inconsistency, as permitted by Section 6.12(c) of the Agreement. Otherwise, as supplemented by this Series Supplement (and the various Indenture Supplements executed form time to time), the Agreement -6- is in all respects ratified and confirmed and the Agreement as so amended and supplemented by this Series Supplement shall be read, taken and construed as one and the same instrument. SECTION 10. Counterparts. This Series Supplement may be executed in ------------ any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. SECTION 11. Governing Law. This Series Supplement shall be construed ------------- in accordance with the laws of the State of Illinois, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. -7- IN WITNESS WHEREOF, the parties have caused this Collateral Series Supplement to be duly executed by their respective officers as of the day and year first above written. FIRST CONSUMERS NATIONAL BANK, as Seller and Servicer By: /s/ John R. Steele ---------------------------------------------- Name: John R. Steele Title: Treasurer THE BANK OF NEW YORK, (successor-in-interest to the corporate trust administration of Harris Trust and Savings Bank), as Trustee By: /s/ Greg Anderson ---------------------------------------------- Name: Greg Anderson Title: Authorized Agent First Consumers Credit Card Master Note Trust -8- Collateral Series Supplement Signature Page -9- EXHIBIT A to COLLATERAL SERIES SUPPLEMENT FORM OF COLLATERAL CERTIFICATE No. $ ------------------- FIRST CONSUMERS MASTER TRUST COLLATERAL CERTIFICATE Evidencing an undivided interest in a trust originated by First Consumers National Bank ("FCNB"), the corpus of which consists of a portfolio of receivables created under charge accounts originated by FCNB and other assets and interests constituting the trust under the Pooling and Servicing Agreement described below. (Not an interest in or obligation of FCNB) This certifies that FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST (the "Certificateholder") is the registered owner of an undivided interest in a trust (the "Trust"), the corpus of which consists of a portfolio of receivables (the "Receivables") now existing or hereafter created under selected charge accounts originated by FCNB and transferred to the Trust, all monies due or to become due with respect thereto and the other assets and interests constituting the Trust pursuant to an Amended and Restated Pooling and Servicing Agreement, dated as of February 1, 1999, as amended and supplemented, including by the Collateral Series Supplement, dated as of March 1, 2001 (collectively, the "Pooling and Servicing Agreement"), among FCNB and The Bank of New York (as successor-in-interest to the corporate trust administration of Harris Trust and Savings Bank), as trustee. THIS COLLATERAL CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF, OR AN INTEREST IN, FCNB, AND NONE OF THIS CERTIFICATE, THE RECEIVABLES AND THE ACCOUNTS IS INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. THIS COLLATERAL CERTIFICATE IS LIMITED IN RIGHT OF PAYMENT TO CERTAIN COLLECTIONS RESPECTING THE RECEIVABLES, ALL AS MORE SPECIFICALLY SET FORTH IN THE POOLING AND SERVICING AGREEMENT. To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. This Collateral Certificate is issued under and is subject to the terms, provisions and conditions of the Pooling and Servicing Agreement, to which Pooling and Servicing Agreement, as amended from time to time, the Certificateholder by virtue of its acceptance hereof assents and by which the Certificateholder is bound. This Certificate is one of a series of Certificates entitled "First Consumers Master Trust Collateral Certificates" (the "Collateral Certificates"), which represents an undivided interest in the Trust. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual or facsimile signature of a duly authorized signatory, this Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement or be valid for any purpose. IN WITNESS WHEREOF, the Trustee has caused this Collateral Certificate to be duly executed under its official seal. THE BANK OF NEW YORK, (successor-in-interest to the corporate trust administration of Harris Trust and Savings Bank), as Trustee By: --------------------------------------------- Vice President Attested to: By: ------------------------------ Assistant Secretary Date: ------------------------------ -3- Trustee's Certificate of Authentication This is one of the Collateral Certificates referred to in the within-mentioned Pooling and Servicing Agreement. THE BANK OF NEW YORK, (successor-in-interest to the corporate trust administration of Harris Trust and Savings Bank), as Trustee By: --------------------------------------------- Authorized Officer EX-10.42 39 dex1042.txt AMENDED & RESTATED POOLING AND SERVICING AGREEMENT Exhibit 10.42 EXECUTION COPY ================================================================================ FIRST CONSUMERS NATIONAL BANK Seller and Servicer and HARRIS TRUST AND SAVINGS BANK Trustee on behalf of the Series 1999-A Certificateholders ------------------------ SERIES 1999-A SUPPLEMENT Dated as of February 1, 1999 to AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT Dated as of February 1, 1999 ------------------------ $276,243,094 FIRST CONSUMERS MASTER TRUST Series 1999-A ================================================================================ TABLE OF CONTENTS ----------------- PAGE SECTION 1. Designation.................................................1 SECTION 2. Definitions.................................................1 SECTION 3. Interchange................................................13 SECTION 4. Reassignment and Transfer Terms............................13 SECTION 5. Delivery and Payment for the Series 1999-A Certificates...............................................14 SECTION 6. Form of Delivery of Series 1999-A Certificates.............14 SECTION 7. Article IV of Agreement....................................14 SECTION 8. Article V of the Agreement.................................22 SECTION 9. Series 1999-A Pay Out Events...............................24 SECTION 10. Provision of Information to Certificateholders.............26 SECTION 11. Modifications to Class C Certificates......................26 SECTION 12. Registration and Transfer of Certificates..................26 SECTION 13. Final Distribution.........................................30 SECTION 14. Ratification of Agreement..................................30 SECTION 15. Counterparts...............................................30 SECTION 16. Additional Representations and Warranties of the Servicer...................................................30 SECTION 17. Governing Law..............................................30 i EXHIBITS - -------- Exhibit A Form of Series 1999-A Class A Certificate Exhibit B Form of Series 1999-A Class B Certificate Exhibit C Form of Series 1999-A Class C Certificate Exhibit D Form of Monthly Payment Instructions and Notification to Trustee Exhibit E Form of Monthly Certificateholders' Statement Exhibit F Form of Certificate to be Given by Certificate Owner Exhibit G Form of Certificate to be Given by Euroclear or Cedel Bank Exhibit H Form of Certificate to be Given by Transferee of Beneficial Interest in a Regulation S Temporary Book-Entry Certificate Exhibit I Form of Transfer Certificate for Exchange or Transfer From 144A Book-Entry Certificate to Regulation S Book-Entry Certificate Exhibit J Form of Placement Agent Exchange Instructions SCHEDULE 1 - ---------- Schedule to Exhibit F of the Agreement with respect to the Series 1999-A --------- Certificates. ii SERIES 1999-A SUPPLEMENT, dated as of February , 1999 (this "Series -- ------ Supplement"), by and between First Consumers National Bank, a national banking - ---------- association, as Seller and Servicer, and Harris Trust and Savings Bank, as Trustee, under the Amended and Restated Pooling and Servicing Agreement dated as of February 1, 1999 (the "Agreement"), between First Consumers National Bank and --------- the Trustee. Section 6.12 of the Agreement provides, among other things, that the Seller ------------ and the Trustee may at any time and from time to time enter into a supplement to the Agreement for the purpose of authorizing the delivery by the Seller to the Trustee for execution and authentication of one or more Series of Certificates. Pursuant to this Series Supplement, the Seller shall create a new Series of Investor Certificates and shall specify the Principal Terms thereof. SECTION 1. Designation. There is hereby created a Series of Investor ----------- Certificates to be issued pursuant to the Agreement and this Series Supplement to be known as the "Series 1999-A Certificates." The Series 1999-A Certificates -------------------------- shall consist of the Series 1999-A 5.80% Class A Asset Backed Certificates (the "Class A Certificates"), the Series 1999-A 6.28% Class B Asset Backed -------------------- Certificates (the "Class B Certificates") and the Series 1999-A Class C Asset -------------------- Backed Certificates (the "Class C Certificates"). The Class A Certificates, -------------------- Class B Certificates and Class C Certificates shall be substantially in the form of Exhibits A, B, and C to this Series Supplement, respectively. As provided in ---------- - - Section 11 of this Series Supplement, if requested by the Seller (with the - ---------- consent of the Holders of the Class C Certificates), the Class C Certificates may be returned to the Trustee for cancellation, in which case the interest in the Trust evidenced by the Class C Certificates shall be a third Class which constitutes an uncertificated interest in the Trust, shall be deemed to be an "Investor Certificate" for all purposes under the Agreement and this Series Supplement, except as expressly provided herein, and shall be known as the Collateral Interest, Series 1999-A and have the rights assigned to the Class C Certificates in this Series Supplement and in the related Loan Agreement. The Series 1999-A Certificates shall not be subordinated to any other Series of certificates. SECTION 2. Definitions. If any term or provision contained herein shall ----------- conflict with or be inconsistent with any provision contained in the Agreement, the terms and provisions of this Series Supplement shall govern. All Article, Section or subsection references herein shall mean Article, Section or subsections of the Agreement, as amended or supplemented by this Series Supplement, except as otherwise provided herein. All capitalized terms not otherwise defined herein are used herein as defined in the Agreement. Each capitalized term defined herein shall relate only to the Series 1999-A Certificates and no other Series of Certificates issued by the Trust. "Accrual Period" means the period from and including a Distribution Date -------------- (or, in the case of the initial Accrual Period, the Closing Date) to but excluding the next Distribution Date. "Aggregate Principal Amount" means, at any time, the sum of the Aggregate -------------------------- Principal Receivables and the amount on deposit in the Excess Funding Account at such time. "Amortization Period" means the period following the Revolving Period, ------------------- which shall be either the Controlled Amortization Period or the Rapid Amortization Period. "Available Funds" means, for any Transfer Date, an amount equal to the sum --------------- of (a) the aggregate amounts deposited to the Series Finance Charge Account with respect to Finance Charge Collections, Investor Net Recoveries for Series 1999-A and Interchange allocable to Series 1999-A for the related Monthly Period, (b) any Shared Finance Charge Collections allocated to Series 1999-A pursuant to subsection 4.10 for such Transfer Date, and (c) any Reallocated Principal - --------------- Collections for such Transfer Date. "Average Investor Percentage" means with respect to any Investor Percentage --------------------------- for any Monthly Period the sum of the Investor Percentages as of the close of business for each day in such Monthly Period, divided by the number of days in ------- -- such Monthly Period. "Base Rate" means, with respect to any Monthly Period, (i) the sum of (a) --------- the amount of interest accrued on the Class A Certificates, the Class B Certificates and (at any time after the Class C Certificates have been assigned an interest rate) the Class C Certificates for the Accrual Period ending in the month following the end of such Monthly Period, plus (b) the amount of the ---- Investor Monthly Servicing Fee allocable to the Series 1999-A Certificates in respect of such Monthly Period, divided by (ii) the Investor Amount as of the ------- -- last day of the preceding Monthly Period, times (iii) 12. ----- "Cedel" means CEDEL Bank, societe anonyme, a professional depository ----- incorporated under the laws of Luxembourg, and its successors. "Class A Certificate Interest" means, for any Distribution Date, an amount ---------------------------- equal to the sum of (a) the product of (i) one-twelfth, (ii) the Class A Certificate Rate and (iii) the outstanding principal amount of the Class A Certificates on the preceding Distribution Date, plus (b) any unpaid Class A ---- Deficiency Amount; provided that the Class A Certificate Interest for the first -------- Distribution Date shall equal $1,517,022.21. "Class A Certificate Rate" means 5.80% per annum. ------------------------ "Class A Certificates" is defined in Section 1 of this Series Supplement. -------------------- --------- "Class A Default Amount" is defined in subsection 4.6(d). ---------------------- ----------------- "Class A Deficiency Amount" means, for any Distribution Date after the ------------------------- first Distribution Date, an amount equal to the sum of (a) the excess, if any, of the Class A Certificate Interest for the prior Distribution Date over the amount actually distributed to the Class A Holders on account of 2 such Class A Certificate Interest, plus (b) one month's interest on the excess ---- calculated pursuant to clause (a) at the Class A Certificate Rate (calculated on ---------- the basis of a 360-day year of twelve 30-day months). The Class A Deficiency Amount for the first Distribution Date is zero. "Class A Floating Percentage" means, for any Monthly Period, the percentage --------------------------- equivalent of a fraction, the numerator of which is the Class A Investor Amount and the denominator of which is the Investor Amount, in each case as of the end of the prior Monthly Period. "Class A Investor Amount" means, on any date of determination, an amount ----------------------- equal to (a) the Initial Class A Investor Amount, minus (b) the aggregate amount ----- of payments of principal to the Class A Certificateholders made pursuant to Section 4.8 prior to such date of determination, minus (c) the excess, if any, - ----------- of the aggregate amount of Class A Investor Charge Offs over Class A Investor Charge Offs reimbursed pursuant to subsection 4.6(e) prior to such date of ----------------- determination. "Class A Investor Charge Off" is defined in Section 4.5. --------------------------- ----------- "Class A Monthly Principal" means: (a) for any Distribution Date with ------------------------- respect to the Revolving Period, zero; (b) for any Distribution Date with respect to the Controlled Amortization Period, the least of (i) the Controlled Distribution Amount for that Distribution Date, (ii) the aggregate amount deposited into the Series Principal Account with respect to the related Monthly Period and (iii) the Class A Investor Amount; and (c) for any Distribution Date with respect to a Rapid Amortization Period, the lesser of (i) the aggregate amount deposited into the Series Principal Account with respect to the related Monthly Period (less any Reallocated Principal Collections) and (ii) the Class A Investor Amount. "Class B Certificate Interest" means, for any Distribution Date, an amount ---------------------------- equal to the sum of (a) the product of (i) one-twelfth, (ii) the Class B Certificate Rate and (iii) the outstanding principal amount of the Class B Certificates on the preceding Distribution Date, plus (b) any unpaid Class B ---- Deficiency Amount; provided that the Class B Certificate Interest for the first -------- Distribution Date shall equal $276,319.99. "Class B Certificate Rate" means 6.28% per annum. ------------------------ "Class B Certificates" is defined in Section 1 of this Series Supplement. -------------------- --------- "Class B Default Amount" is defined in subsection 4.6(f). ---------------------- ----------------- "Class B Deficiency Amount" means, for any Distribution Date after the ------------------------- first Distribution Date, an amount equal to the sum of (a) the excess, if any, of the Class B Certificate Interest for the prior Distribution Date over the amount actually distributed to the Class B Holders on account of such Class B Certificate Interest, plus (b) one month's interest on the excess calculated ---- pursuant to clause (a) at the Class B Certificate Rate (calculated on the basis ---------- of a 360-day year of twelve 30-day months). The Class B Deficiency Amount for the first Distribution Date is zero. 3 "Class B Floating Percentage" means, for any Monthly Period, the percentage --------------------------- equivalent of a fraction, the numerator of which is the Class B Investor Amount and the denominator of which is the Investor Amount, in each case as of the end of the prior Monthly Period. "Class B Investor Amount" means, on any date of determination, an amount ----------------------- equal to (a) the Initial Class B Investor Amount, minus (b) the aggregate amount ----- of payments of principal to the Class B Certificateholders made pursuant to Section 4.8 prior to such date of determination, minus (c) the excess, if any, - ----------- ----- of the aggregate amount of Class B Investor Charge Offs over Class B Investor Charge Offs reimbursed pursuant to subsection 4.6(g) prior to such date of ----------------- determination. "Class B Investor Charge Off" is defined in Section 4.5. --------------------------- ------------ "Class B Monthly Principal" means: (a) for any Distribution Date with ------------------------- respect to the Revolving Period or the Controlled Amortization Period, zero; and (b) for any Distribution Date with respect to a Rapid Amortization Period, the lesser of (i) the excess, if any, of (A) the aggregate amount deposited into the Series Principal Account with respect to the related Monthly Period (less any Reallocated Principal Collections) over (B) the Class A Monthly Principal for that Distribution Date and (ii) the Class B Investor Amount. "Class B Principal Percentage" means, for any Monthly Period during the ---------------------------- Revolving Period, the Class B Floating Percentage, and for any other Monthly Period, the percentage equivalent of a fraction, the numerator of which is the Class B Investor Amount at the end of the Revolving Period and the denominator of which is the Investor Amount as of the end of the prior Monthly Period; provided that if the Series 1999-A Certificates are paired with another Series - -------- and a Rapid Amortization Period commences for such paired Series, upon satisfaction of the Rating Agency Condition, FCNB may, by written notice to the Trustee and the Servicer, designate a different numerator to be used to determine such percentage which shall not be less than the Class B Investor Amount as of the day on which such Rapid Amortization Period commences. "Class C Certificate Interest" means, for any Distribution Date, an amount ---------------------------- equal to the sum of (a) the product of (i) one-twelfth, times (ii) the Class C ----- Certificate Rate, times (iii) the outstanding principal amount of the Class C ----- Certificates on the preceding Distribution Date, plus (b) any unpaid Class C ---- Deficiency Amount; provided that the Class C Certificate Interest for the first -------- Distribution Date shall equal zero. "Class C Certificate Rate" means initially 0% per annum. As provided in ------------------------ Section 11 of this Series Supplement, the Seller may designate a fixed or - ---------- floating interest rate for any portion of the Class C Certificates that is transferred to any investor that is not an Affiliate of the Seller. "Class C Certificates" is defined in Section 1 of this Series Supplement. -------------------- --------- 4 "Class C Deficiency Amount" means, for any Distribution Date after the ------------------------- first Distribution Date, an amount equal to the sum of (a) the excess, if any, of the Class C Certificate Interest for the prior Distribution Date over the amount actually distributed to the Class C Holders on account of such Class C Certificate Interest, plus (b) one month's interest on the excess calculated ---- pursuant to clause (a) at the Class C Certificate Rate (calculated on the basis ---------- of a 360-day year of twelve 30-day months). The Class C Deficiency Amount for the first Distribution Date is zero. "Class C Floating Percentage" means, for any Monthly Period, the percentage --------------------------- equivalent of a fraction, the numerator of which is the Class C Investor Amount and the denominator of which is the Investor Amount, in each case as of the end of the prior Monthly Period. "Class C Investor Amount" means, on any date of determination, an amount ----------------------- equal to (a) the Initial Class C Investor Amount, minus (b) the aggregate amount ----- of payments of principal to the Class C Certificateholders made pursuant to Section 4.8 prior to such date of determination, minus (c) the excess, if any, - ----------- ----- of the aggregate amount of Class C Investor Charge Offs over Class C Investor Charge Offs reimbursed pursuant to subsection 4.6(j) prior to such date of ----------------- determination. "Class C Investor Charge Off" is defined in Section 4.5. --------------------------- ------------ "Class C Monthly Principal" means, for any Distribution Date, the lesser ------------------------- of: (i) the excess, if any, of (A) the aggregate amount deposited into the Series Principal Account with respect to the related Monthly Period over (B) the sum of the Class A Monthly Principal and the Class B Monthly Principal for that Distribution Date; and (ii) the Class C Monthly Principal Target for that Distribution Date. "Class C Monthly Principal Target" means, for any Distribution Date, the -------------------------------- Excess Class C Investor Amount, or such lesser amount as may agreed upon between the Seller and the Holder of the Class C Certificates. "Class C Principal Percentage" means, for any Monthly Period during the ---------------------------- Revolving Period, the Class C Floating Percentage, and for any other Monthly Period, the percentage equivalent of a fraction, the numerator of which is the Class C Investor Amount at the end of the Revolving Period and the denominator of which is the Investor Amount as of the end of the prior Monthly Period; provided that if the Series 1999-A Certificates are paired with another Series - -------- and a Rapid Amortization Period commences for such paired Series, upon satisfaction of the Rating Agency Condition, FCNB may, by written notice to the Trustee and the Servicer, designate a different numerator to be used to determine such percentage which shall not be less than the Class C Investor Amount as of the day on which such Rapid Amortization Period commences. "Closing Date" means February 1, 1999. ------------ "Collateral Interest" means the uncertificated interest in the Trust for ------------------- which the Class C Certificates may be exchanged as provided in Section 11 of ---------- this Series Supplement. 5 "Collateral Interest Holder" means the Person from time to time designated -------------------------- as such pursuant to the Loan Agreement. "Controlled Amortization Amount" means $17,833,333. ------------------------------ "Controlled Amortization Period" means an amortization period commencing on ------------------------------ March 1, 2003 and continuing to, but not including, a Pay Out Commencement Date or to, and including, (i) the date of termination of the Trust pursuant to Section 12.1 of the Agreement or (ii) the Series Termination Date. - ------------ "Controlled Distribution Amount" means, for any Monthly Period, the sum of ------------------------------ (a) the Controlled Amortization Amount, (b) the Deficit Controlled Amortization Amount and (c) for the February 2004 Monthly Period, any additional amount needed to reduce the Class A Investor Amount to zero on the March 2004 Distribution Date. "Default Estimate" means, for any Monthly Period, an amount equal to 1.5 ---------------- times the Investor Default Amount for the prior Monthly Period. "Deficit Controlled Amortization Amount" means (a) for the first Monthly -------------------------------------- Period falling in the Controlled Amortization Period, zero, and (b) for each other Monthly Period falling in the Controlled Amortization Period, an amount equal to the excess, if any, of the Controlled Distribution Amount for the prior Monthly Period over the amount available to be distributed with respect to such prior Controlled Distribution Amount on the applicable Distribution Date. "Distribution Date" is defined in the Agreement, except that the first ----------------- Distribution Date for the Series 1999-A Certificates shall be March 15, 1999. "Enhancement" means the Class C Certificates or, if applicable, the ----------- Collateral Interest. "Enhancement Provider" means the Holder of the Class C Certificates or, if -------------------- applicable, the Collateral Interest Holder. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels --------- office, as operator of the Euroclear System. "Excess Class C Investor Amount" means, for any Transfer Date, the excess, ------------------------------ if any, of the Class C Investor Amount over the Required Class C Investor Amount. "Exchange Date" is defined in Section 12(b) of this Series Supplement. ------------- ------------- "Finance Charge Sharing Series" is defined in Section 4.10. ----------------------------- ------------ 6 "Finance Charge Shortfall" means, with respect to the Series 1999-A ------------------------ Certificates for any Determination Date, an amount equal to the Shortfall with respect to that Determination Date, calculated as if the amount of Shared Finance Charge Collections available to Series 1999-A for that Distribution Date were zero. "Initial Class A Investor Amount" means $214,000,000. ------------------------------- "Initial Class B Investor Amount" means $36,000,000. ------------------------------- "Initial Class C Investor Amount" means $26,243,094. ------------------------------- "Initial Investor Amount" means the sum of the Initial Class A Investor ----------------------- Amount, the Initial Class B Investor Amount and the Initial Class C Investor Amount. "Investor Amount" means, on any date of determination, an amount equal to --------------- the sum of the Class A Investor Amount, the Class B Investor Amount and the Class C Investor Amount. "Investor Charge Off" means a Class A Investor Charge Off, a Class B ------------------- Investor Charge Off or a Class C Investor Charge Off. "Investor Default Amount" means, with respect to any Monthly Period, an ----------------------- amount equal to the product of (a) the Default Amount for such Monthly Period, times (b) the Average Investor Percentage for Receivables in Defaulted Accounts - ----- for such Monthly Period. "Investor Default and Deposit Amount" is defined in Section 4.5. ----------------------------------- ----------- "Investor Percentage" means: ------------------- (a) when used with respect to Finance Charge Collections (other than during the Rapid Amortization Period) and Receivables in Defaulted Accounts (at all times), the percentage equivalent of a fraction the numerator of which is the Investor Amount at the end of the last day of the prior Monthly Period (or, if later, the Closing Date) and the denominator of which is the greater of (i) the Aggregate Principal Amount as of the end of the day on the most recent Reset Date and (ii) the sum of the numerators used to calculate the investor percentages for allocations with respect to Finance Charge Collections or Defaulted Accounts, as applicable, for all outstanding Series on the day after such Reset Date; (b) when used with respect to Finance Charge Collections during the Rapid Amortization Period, the percentage equivalent of a fraction the numerator of which is the Investor Amount at the end of the last day of the Revolving Period and the denominator of which is the greater of (i) the Aggregate Principal Amount as of the end of the day on the most recent Reset Date and (ii) the sum of the numerators used to calculate the investor 7 percentages for allocations with respect to Finance Charge Collections for all outstanding Series on the day after such Reset Date; (c) when used with respect to Principal Collections during the Revolving Period, the percentage equivalent of a fraction the numerator of which is the Investor Amount at the end of the last day of the prior Monthly Period (or, if later, the Closing Date) and the denominator of which is the greater of (i) the Aggregate Principal Amount as of the end of the day on the most recent Reset Date and (ii) the sum of the numerators used to calculate the investor percentages for allocations with respect to Principal Collections for all outstanding Series on the day after such Reset Date; and (d) when used with respect to Principal Collections during the Amortization Period, the percentage equivalent of a fraction the numerator of which is the Investor Amount as of the end of the day on the last day of the Revolving Period and the denominator of which is the greater of (i) the Aggregate Principal Amount as of the end of the day on the most recent Reset Date and (ii) the sum of the numerators used to calculate the investor percentages for allocations with respect to Principal Collections for all outstanding Series on the day after such Reset Date; provided, that (x) during the Controlled Amortization Period, the numerator used to determine the Investor Percentage for Principal Receivables may, upon satisfaction of the Rating Agency Condition, be reset by and at the option of the Servicer (and any such reset numerator will also apply in any Rapid Amortization Period) for each Monthly Period to an amount not greater than the amount described above and not less than the greater of (A) the Investor Amount determined as of the close of business on the last Reset Date immediately preceding the date of determination, and (B) a number that results in an Investor Percentage that when multiplied by the amount of collections allocable to Principal Receivables for the preceding Monthly Period will equal 110% of the Controlled Distribution Amount for such preceding Monthly Period, and (y) if the Series 1999-A Certificates are paired with a paired series and a Rapid Amortization Period commences for such paired series, FCNB may, upon satisfaction of the Rating Agency Condition, by written notice to the Trustee and the Servicer, designate a different numerator to be used to determine such percentage which shall not be less than the Investor Amount as of the day on which such Rapid Amortization Period commences. "Loan Agreement" means any agreement so designated entered into in -------------- connection with an exchange of the Class C Certificates for the Collateral Interest pursuant to Section 11 of this Series Supplement. ---------- "Member Organization" is defined in Section 12(b) of this Series ------------------- ------------- Supplement. "Minimum Seller Percentage" means, with respect to Series 1999-A, 7%. ------------------------- 8 "Monthly Period" is defined in the Agreement, except that the first Monthly -------------- Period with respect to the Series 1999-A Certificates shall begin on and include the Closing Date and shall end on and include February 28, 1999. "Monthly Total Percentage Allocation" is defined in subsection 4.4(b)(ii). ----------------------------------- --------------------- "Optional Repurchase Percentage" means, with respect to Series 1999-A, 10%. ------------------------------ "Pay Out Commencement Date" means the date on which a Trust Pay Out Event ------------------------- is deemed to occur pursuant to Section 9.1 of the Agreement or a Series 1999-A Pay Out Event is deemed to occur pursuant to Section 9 of this Series --------- Supplement. "Percentage Allocation" is defined in subsection 4.4(b)(ii). --------------------- --------------------- "Pool Factor" means, with respect to the Class A Certificates, the Class B ----------- Certificates or the Class C Certificates, respectively, as of any Record Date, a number rounded to seven decimals representing the ratio of the Class A Investor Amount, Class B Investor Amount or Class C Investor Amount as of such Record Date (determined after taking into account any reduction in such amount which will occur on the following Distribution Date) to the Initial Class A Investor Amount, Initial Class B Investor Amount or Initial Class C Investor Amount. "Portfolio Yield" means, with respect to any Monthly Period, the annualized --------------- percentage equivalent of a fraction, the numerator of which is an amount equal the amount of collections of Finance Charge Receivables allocated to the Series 1999-A Certificates and deposited in the Series Finance Charge Account pursuant to Section 4.4 for such Monthly Period (such sum to be calculated on a cash ----------- basis after subtracting an amount equal to the Investor Default Amount for such Monthly Period and without taking into account any netting permitted pursuant to Section 4.4(d)), and the denominator of which is the Investor Amount as of the - --------------- last day of the preceding Monthly Period. "Principal Shortfall" means, with respect to the Series 1999-A ------------------- Certificates, for any Monthly Period: (a) if such Monthly Period falls in the Controlled Amortization Period, the excess of the applicable Controlled Distribution Amount over the Monthly Total Principal Allocation for such Monthly Period; (b) if such Monthly Period falls in the Rapid Amortization Period, the excess of the Investor Amount over the Monthly Total Percentage Allocation for such Monthly Period; and (c) if such Monthly Period falls in the Revolving Period, zero. "Qualified Institutional Buyer" has the meaning assigned to that term in ----------------------------- Rule 144A. 9 "Rapid Amortization Period" means an Amortization Period commencing on the ------------------------- Pay Out Commencement Date and ending on the earlier to occur of (a) the date of termination of the Trust pursuant to Section 12.1 or (b) the Series 1999-A ------------ Termination Date. "Rating Agencies" means, collectively, Moody's and Standard & Poor's. --------------- "Rating Agency Condition" means, with respect to any action or series of ----------------------- related actions or proposed transactions in the Agreement or this Series Supplement, that each of the Rating Agencies shall have notified the Servicer in writing that such action or series of related actions or the consummation of such proposed transaction or series of related transactions will not result in a reduction or withdrawal of such Rating Agency's rating of any Class of Series 1999-A Certificates or, if applicable, the Collateral Interest. "Reallocated Principal Collections" is defined in Section 4.5. --------------------------------- ----------- "Regulation S" means Regulation S under the Securities Act, as amended from ------------ time to time. "Regulation S Global Certificates" is defined in Section 12(b) of this -------------------------------- ------------- Series Supplement. "Regulation S Permanent Global Certificates" is defined in Section 12(a) of ------------------------------------------ ------------- this Series Supplement. "Regulation S Temporary Global Certificates" is defined in Section 12(b) of ------------------------------------------ ------------- this Series Supplement. "Required Class C Investor Amount" means, for any Transfer Date, the -------------------------------- product of (a) the Required Class C Investor Percentage and (b) the sum of (i) the Class A Investor Amount and the Class B Investor Amount on such Transfer Date, in each case after taking into account payments to be made on the related Distribution Date, plus (ii) the Class C Investor Amount at the end of the prior ---- Distribution Date, but the Required Class C Investor Amount shall not be less than $8,287,293; provided that (A) if either (x) there is a reduction in the -------- Class C Investor Amount as the result of a Class C Investor Charge Off or (y) a Rapid Amortization Period commences, the Required Class C Investor Amount for any Transfer Date shall (subject to clause (B)) equal the Required Class C ---------- Investor Amount for the Transfer Date immediately preceding such reduction or commencement of the Rapid Amortization Period and (B) in no event shall the Required Class C Investor Amount exceed the sum of the outstanding principal amounts of (x) the Class A Certificates and (y) the Class B Certificates, each as of the last day of the Monthly Period preceding such Transfer Date after taking into account the payments to be made on the related Distribution Date. "Required Class C Percentage" means, with respect to any date of --------------------------- determination, 9.5%; provided, that the Seller may reduce such percentage from -------- time to time so long as (a) the Rating Agency Condition has been satisfied with respect to such reduction, and (b) the Trustee and the Seller shall have received an opinion of Rooks, Pitts and Poust or other outside tax counsel to the 10 effect that such reduction will not cause outstanding Class A Certificates or Class B Certificates to be characterized as other than indebtedness for federal income tax purposes. "Reset Date" means each day that is: (a) the last day prior to the Closing ---------- Date; (b) the last day in a Monthly Period; (c) a day on which Receivables in Additional Accounts are added to the Trust pursuant to subsection 2.6(a) or (b); ----------------- (d) a day on which Receivables in Removed Accounts are removed the Trust pursuant to Section 2.7; (e) the last day prior to any day on which a Series is ----------- issued; and (f) the last day prior to any day on which there is an increase in the invested amount of any outstanding Series of variable funding certificates. "Revolving Period" means the period from and including the Closing Date to, ---------------- but not including, the earlier of March 1, 2003 or the Pay Out Commencement Date. "Rule 144A" means Rule 144A under the Securities Act, as amended from time --------- to time. "Rule 144A Certificates" is defined in Section 12(a) of this Series ---------------------- ------------- Supplement. "Scheduled Series 1999-A Termination Date" means the December 2005 ---------------------------------------- Distribution Date. "Securities Act" means the Securities Act of 1933, as amended from time to -------------- time. "Series Accounts" means the Series Finance Charge Account and the Series --------------- Principal Account. "Series Finance Charge Account" means the Series Finance Charge Account ----------------------------- established and maintained by the Trustee with respect to the Series 1999-A Certificates pursuant to subsection 4.2(b). ----------------- "Series 1999-A" means the Series of the Trust represented by the Series ------------- 1999-A Certificates. "Series 1999-A Certificateholder" means the holder of record of any Series ------------------------------- 1999-A Investor Certificate. "Series 1999-A Certificates" is defined in Section 1 of this Series -------------------------- --------- Supplement. "Series Pay Out Event" is defined in Section 9 of this Series Supplement. -------------------- --------- "Series Principal Account" means the Series Principal Account established ------------------------ and maintained by the Trustee with respect to the Series 1999-A Certificates pursuant to subsection 4.2(b). ----------------- "Series Servicing Fee Percentage" means two percent (2%). ------------------------------- 11 "Series Termination Date" means the earlier to occur of (a) the day after ----------------------- the Distribution Date on which the Series 1999-A Certificates are paid in full, or (b) the Scheduled Series 1999-A Termination Date. "Shortfall" is defined in Section 4.5. --------- ----------- SECTION 3. Interchange. On or prior to each Determination Date, Seller ----------- shall notify the Servicer of the amount of Interchange to be included as Collections of Finance Charge Receivables allocable to the Series 1999-A Certificateholders with respect to the preceding Monthly Period, which allocation shall be based upon the Investor Percentage for Finance Charge Receivables for such preceding Monthly Period. On each Transfer Date, Seller shall pay to the Servicer, and the Servicer shall deposit into the Series Finance Charge Account, in immediately available funds, the amount of Interchange to be so included as Collections of Finance Charge Receivables allocable to the Series 1999-A Certificates with respect to the preceding Monthly Period. Seller hereby assigns, sets-over, conveys, pledges and grants a security interest and lien to the Trustee for the benefit of the Series 1999-A Certificateholders in such Interchange and the proceeds of such Interchange, as set forth in this Section 3. To the extent that a Supplement for a related --------- Series, other than Series 1999-A, assigns, sets-over, conveys, pledges or grants a security interest in Interchange allocable to the Trust, all Investor Certificates of any such Series (except as otherwise specified in any such Supplement) and the Series 1999-A Certificates shall rank pari passu and be ---------- equally and ratably entitled as provided herein to the benefits of such Interchange without preference or priority on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Series Supplement and the other related Supplements. SECTION 4. Reassignment and Transfer Terms. The Series 1999-A Certificates ------------------------------- shall be subject to repurchase by the Seller at its option, in accordance with the terms specified in subsection 12.2(a), on any Distribution Date on or after ------------------ the Distribution Date on which the sum of the Class A Investor Amount and the Class B Investor Amount is reduced to an amount less than or equal to the Optional Repurchase Percentage of the sum of the Initial Class A Investor Amount and the Initial Class B Investor Amount. The deposit required in connection with any such repurchase shall be equal to the Investor Amount, plus accrued and ---- unpaid interest on the Series 1999-A Certificates through the Record Date preceding the Distribution Date on which the repurchase occurs. SECTION 5. Delivery and Payment for the Series 1999-A Certificates. The ------------------------------------------------------- Trustee shall deliver the Series 1999-A Certificates when authenticated in accordance with Section 6.2. ----------- SECTION 6. Form of Delivery of Series 1999-A Certificates. The Series ---------------------------------------------- 1999-A Certificates shall be delivered as Book-Entry Certificates. SECTION 7. Article IV of Agreement. Sections 4.1, 4.2 and 4.3 of the ----------------------- ------------ --- --- Agreement shall read in their entirety as provided in the Agreement. The remainder of Article IV of the ---------- 12 Agreement shall read in its entirety as follows and shall be applicable only to the Series 1999-A Certificates: ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.4. Allocations. ----------- (a) Daily Allocations During the Revolving Period. During the Revolving --------------------------------------------- Period, Servicer shall, prior to the close of business on each day any Collections are deposited in the Collection Account pursuant to subsection ---------- 4.3(a), allocate to the Series 1999-A Certificateholders or the Seller Interest - ------ and pay or deposit from the Collection Account the following amounts as set forth below: (i) Allocate to Series 1999-A and deposit in the Series Finance Charge Account an amount equal to the product of (A) the Investor Percentage on the Date of Processing of such Collections and (B) the aggregate amount of Finance Charge Collections processed on such Date of Processing; provided, -------- that with respect to each Monthly Period, such amount so allocated to Series 1999-A shall be deposited in the Collection Account and allocated to the Series Finance Charge Account only until such time as the amount retained in the Collection Account and allocated to the Series Finance Charge Account pursuant to this subsection equals the sum of (1) the aggregate amount of Class A Certificate Interest, Class B Certificate Interest and Class C Certificate Interest with respect to the related Distribution Date, (2) the Default Estimate for that Monthly Period, and (3) at any time that neither FCNB nor any of its Affiliates is the Servicer, the Investor Monthly Servicing Fee payable on the immediately succeeding Transfer Date and all accrued and unpaid Investor Monthly Servicing Fees with respect to prior Monthly Periods, and any excess shall be paid to the holder of the Seller Interest; provided further, however, -------- ------- ------- that notwithstanding the foregoing proviso, the Investor Percentage of Finance Charge Collections shall be deposited in the Collection Account and allocated to the Series Finance Charge Account if the excess, if any, of the Portfolio Yield over the Base Rate for the preceding Monthly Period is less than 3%. (ii) Allocate to Series 1999-A and treat as Shared Principal Collections an amount equal to the product of (A) the Investor Percentage on the Date of Processing of such Collections, times (B) the aggregate ---- amount of such Principal Collections processed on such Date of Processing; provided however, that if there has been a reduction in the Required Class -------- ------ C Percentage, the Collections allocated pursuant to this subsection ---------- 4.4(a)(ii) with respect to any Date of Processing shall be deposited into ---------- the Series Principal Account until the amount on deposit therein equals the Class C Monthly Principal Target for the related Distribution Date. 13 (b) Daily Allocations During the Controlled Amortization Period. During the ----------------------------------------------------------- Controlled Amortization Period, the Servicer shall, prior to the close of business on each day any Collections are deposited in the Collection Account pursuant to subsection 4.3(a), allocate to the Series 1999-A Certificateholders ----------------- or the Seller Interest and pay or deposit from the Collection Account the following amounts as set forth below: (i) Allocate to Series 1999-A and deposit in the Series Finance Charge Account an amount equal to the product of (A) the Investor Percentage on the Date of Processing of such Collections, and (B) the aggregate amount of Finance Charge Collections processed on such Date of Processing; provided, -------- that with respect to each Monthly Period, such amount so allocated to Series 1999-A shall be deposited in the Collection Account and allocated to the Series Finance Charge Account only until such time as the amount retained in the Collection Account and allocated to the Series Finance Charge Account pursuant to this subsection equals the sum of (1) the aggregate amount of Class A Certificate Interest, Class B Certificate Interest and Class C Certificate Interest with respect to the related Distribution Date, (2) the Default Estimate for that Monthly Period, and (3) at any time that neither FCNB nor any of its Affiliates is the Servicer, the Investor Monthly Servicing Fee payable on the immediately succeeding Transfer Date and all accrued and unpaid Investor Monthly Servicing Fees with respect to prior Monthly Periods, and any excess shall be paid to the holder of the Seller Interest; provided further, however, -------- ------- ------- that notwithstanding the foregoing proviso, the Investor Percentage of Finance Charge Collections shall be deposited in the Collection Account and allocated to the Series Finance Charge Account if the excess, if any, of the Portfolio Yield over the Base Rate for the preceding Monthly Period is less than 3%. (ii) Allocate to Series 1999-A and deposit in the Series Principal Account an amount, if any, equal to the product of (A) the Investor Percentage on the Date of Processing of such Collections, and (B) the aggregate amount of Principal Collections processed on such Date of Processing (for any such Date of Processing, a "Percentage Allocation"); --------------------- provided, however, that such deposit shall be made only to the extent that -------- ------- the sum of such Percentage Allocation (or portion thereof) and all preceding Percentage Allocations, if any, with respect to the same Monthly Period (the "Monthly Total Percentage Allocation") is less than or equal to ----------------------------------- the Controlled Distribution Amount for such Monthly Period; (iii) Deposit in the Series Principal Account an amount equal to the excess, if any, of the Percentage Allocation for such Date of Processing over the amount of the deposit to the Series Principal Account made pursuant to subsection 4.4(b)(ii) on such day; provided, however, that such --------------------- -------- ------- deposit shall be made only to the extent that the sum of the amount so deposited and all previous deposits to the Series Principal Account made pursuant to this subsection 4.4(b)(iii) with respect to the same Monthly ---------------------- Period is less than or equal to the Class C Monthly Principal Target for the related Distribution Date. 14 (iv) Treat as Shared Principal Collections any remaining Percentage Allocation not required to be deposited into the Series Principal Account pursuant to subsection 4.4(b)(ii) or 4.4(b)(iii). --------------------- ----------- (c) Daily Allocations During the Rapid Amortization Period. During the ------------------------------------------------------ Rapid Amortization Period, the Servicer shall, prior to the close of business on each day any Collections are deposited in the Collection Account, allocate to the Series 1999-A Certificateholders and pay or deposit from the Collection Account the following amounts as set forth below: (i) Allocate to Series 1999-A and deposit in the Series Finance Charge Account an amount equal to the product of (A) the Investor Percentage on the Date of Processing of such Collections, and (B) the aggregate amount of Finance Charge Collections processed on such Date of Processing. (ii) Allocate to Series 1999-A and deposit in the Series Principal Account an amount equal to the product of (A) the Investor Percentage on the Date of Processing of such Collections, and (B) the aggregate amount of Principal Collections processed on such Date of Processing; provided, -------- however, that after the date on which the balance on deposit in the Series ------- Principal Account equals the Investor Amount, the amount determined in accordance with this subparagraph (ii) shall be treated as Shared Principal ----------------- Collections. (d) Monthly Allocations During the Revolving Period and Controlled -------------------------------------------------------------- Amortization Period. On each Determination Date with respect to a Monthly Period - ------------------- falling all or in part in the Revolving Period or Controlled Amortization Period, the Servicer shall deposit in the Collection Account and allocate to the Series Finance Charge Account an amount equal to the sum of (i) the excess, if any, of the aggregate amount of Collections that would have been deposited in the Collection Account and allocated to the Series Finance Charge Account pursuant to subsection 4.4(a)(i) or 4.4(b)(i), as the case may be, but for the -------------------- --------- first proviso thereto, over the aggregate amount of Collections that were actually deposited in the Collection Account and allocated to the Series Finance Charge Account pursuant to subsection 4.4(a)(i) or 4.4(b)(i) during such Monthly -------------------- --------- Period, (ii) any Shared Finance Charge Collections that are allocated to Series 1999-A pursuant to Section 4.10 for the related Monthly Period and (iii) the ------------ excess, if any, of the aggregate amount of Collections allocated to Series 1999-A pursuant to subsection 4.4(a)(ii) or 4.4(b)(ii), as the case may be, over --------------------- ---------- the aggregate amount of such Collections that were actually deposited in the Collection Account and allocated to the Series Principal Account pursuant to subsection 4.4(a) or 4.4(b) during such Monthly Period; provided, however, that - ----------------- ------ -------- ------- so long as FCNB is the Servicer, FCNB, as Servicer, and as agent for the holder of the Seller Interest, may make a net deposit to the Collection Account on each Determination date in an amount equal to the sum specified above, minus all ----- amounts payable or distributable to FCNB, as Servicer, or the holder of the Seller Interest pursuant to Section 4.6 on the related Transfer Date; and ----------- provided further that, if FCNB shall for any reason fail to make any deposit - -------- ------- required to be made pursuant to this Section 4.4(d), then any amounts that would -------------- have been payable to FCNB from amounts required to be so deposited shall nevertheless be deemed to have been so deposited and then paid to FCNB. 15 Section 4.5 Defaulted Accounts; Reallocations. (a) On each Determination --------------------------------- Date, the Servicer shall calculate the Investor Default Amount for the preceding Monthly Period. If on any Determination Date, the sum of (i) Class A Certificate Interest, (ii) Class B Certificate Interest, (iii) the Investor Monthly Servicing Fee, (iv) the Investor Default Amount, and (v) the Series Share for Series 1999-A of any Deposit Obligation that was not made in respect of the preceding Monthly Period that is allocated to the Series 1999-A Certificates pursuant to subsection 4.3(i), exceeds the amount of Finance Charge Collections ----------------- (including Shared Finance Charge Collections) allocated to Series 1999-A pursuant to subsection 4.4(a)(i), 4.4(b)(i) or 4.4(c)(i) with respect to such -------------------- --------- --------- preceding Monthly Period (whether or not such funds were deposited in the Series Finance Charge Account) (such deficiency, the "Shortfall"), the Class C Investor --------- Amount will be reduced by the lesser of (A) the sum of (1) the Investor Default Amount, plus (2) the amount of any unpaid Deposit Obligation allocable to the ---- Series 1999-A Certificates in respect of the preceding Monthly Period (such sum, the "Investor Default and Deposit Amount"), and (B) such Shortfall (together ----------------------------------- with any reduction to the Class C Investor Amount in accordance with subsection ---------- 4.5(b), a "Class C Investor Charge-Off"). If such reduction would cause the - ------ --------------------------- Class C Investor Amount to be a negative number, the Class C Investor Amount will be zero, and the Class B Investor Amount will be reduced by an amount equal to the excess (if any) of such reduction, over the sum of the Class C Investor ---- Amount prior to the reduction and the Class C Percentage of the Investor Default Amount (together with any reduction to the Class B Investor Amount in accordance with subsection 4.5(b), a "Class B Investor Charge-Off"). If such reduction ----------------- --------------------------- would cause the Class B Investor Amount to be a negative number, the Class B Investor Amount will be zero, and the Class A Investor Amount will be reduced by an amount equal to the excess of such reduction over the sum of the Class B Investor Amount and the Class C Investor Amount prior to the reduction (a "Class ----- A Investor Charge-Off"). - --------------------- (b) On each Transfer Date, an amount of Principal Collections in respect of the preceding Monthly Period allocated to the Series 1999-A Certificates equal to the product of (A) the amount of such collections, times (B) the sum of the ------ Class B Principal Percentage and the Class C Principal Percentage for that preceding Monthly Period will be reallocated (the "Reallocated Principal --------------------- Collections") by the Servicer to the extent necessary to cover Class A - ----------- Certificate Interest, Class B Certificate Interest, the Investor Monthly Servicing Fee, the Class A Default Amount and the Class B Default Amount to the extent not covered in full with other amounts available pursuant to Section 4.6. ----------- On each such Transfer Date, the Class C Invested Amount remaining after any Class C Investor Charge Offs pursuant to subsection 4.5(a) shall be reduced (but ----------------- not below zero) by the amount of any Reallocated Principal Collections. If the amount of Reallocated Principal Collections for any Transfer Date exceeds the Class C Investor Amount remaining after any Class C Investor Charge Off pursuant to subsection 4.5(a), then the Class B Investor Amount remaining after any Class ----------------- B Investor Charge Offs pursuant to subsection 4.5(a) shall be reduced (but not ----------------- below zero) by the amount of any remaining Reallocated Principal Collections. Section 4.6 Monthly Payments. On each Determination Date, the Servicer ---------------- shall instruct the Trustee, by delivering the Monthly Payment Instructions and Notification to Trustee, substantially in the form of Exhibit D hereto, to, and --------- on the succeeding Transfer Date the Trustee acting in accordance with such instructions shall (x) transfer any Reallocated Principal Collections 16 and Investor Net Recoveries allocable to Series 1999-A and Shared Finance Charge Collections allocable to Series 1999-A for such succeeding Transfer Date to the Series Finance Charge Account and (y) withdraw the following amounts from the Series Finance Charge Account for deposit or payment as provided below, in the priority specified below and in each case (except as otherwise provided below) to the extent of the Available Funds remaining after all prior applications specified below: (a) Class A Certificate Interest. Transfer an amount equal to the ---------------------------- Class A Certificate Interest for the related Distribution Date to the Distribution Account. (b) Class B Certificate Interest. Transfer an amount equal to the ---------------------------- Class B Certificate Interest for the related Distribution Date to the Distribution Account. (c) Servicing Fee. Transfer the Investor Monthly Servicing Fee accrued ------------- in respect of the preceding Monthly Period, plus all accrued and unpaid Investor Monthly Servicing Fees in respect of previous Monthly Periods to the Servicer. (d) Class A Defaults. Withdraw an amount equal to the Class A Floating ---------------- Percentage of the Investor Default Amount for the preceding Monthly Period (the "Class A Default Amount"), and (i) during the Revolving Period, apply ---------------------- such amount in accordance with subsection 4.4(a)(ii) and (ii) during the --------------------- Controlled Amortization Period or the Rapid Amortization Period, deposit such amount in accordance with subsections 4.4(b)(ii) and 4.4(c)(ii), ---------------------- ---------- respectively, in each case as if such amounts were Collections of Principal Receivables for the related Monthly Period. (e) Reimbursement of Class A Investor Charge Offs. Withdraw an amount --------------------------------------------- equal to the aggregate amount of Class A Investor Charge Offs, if any, which have not theretofore been reimbursed pursuant to this subsection ---------- 4.6(e), and (i) during the Revolving Period, apply such amount in ------ accordance with subsection 4.4(a)(ii) and (ii) during the Controlled --------------------- Amortization Period or the Rapid Amortization Period, deposit such amount in accordance with subsections 4.4(b)(ii) and 4.4(c)(ii), respectively, in ---------------------- ---------- each case as if such amounts were Collections of Principal Receivables for the related Monthly Period. (f) Class B Defaults. Withdraw an amount equal to the Class B Floating ---------------- Percentage of the Investor Default Amount for the preceding Monthly Period (the "Class B Default Amount"), and (i) during the Revolving Period, apply ---------------------- such amount in accordance with subsection 4.4(a)(ii) and (ii) during the --------------------- Controlled Amortization Period or the Rapid Amortization Period, deposit such amount in accordance with subsections 4.4(b)(ii) and 4.4(c)(ii), ---------------------- ---------- respectively, in each case as if such amounts were Collections of Principal Receivables for the related Monthly Period. (g) Reimbursement of Class B Investor Charge Offs. Withdraw an amount --------------------------------------------- equal to the aggregate amount of Class B Investor Charge Offs, if any, which have not theretofore 17 been reimbursed pursuant to this subsection 4.6(g), and (i) during the ----------------- Revolving Period, apply such amount in accordance with subsection ---------- 4.4(a)(ii) and (ii) during the Controlled Amortization Period or the Rapid ---------- Amortization Period, deposit such amount in accordance with subsections ----------- 4.4(b)(ii) and 4.4(c)(ii), respectively, in each case as if such amounts ---------- ---------- were Collections of Principal Receivables for the related Monthly Period. (h) Class C Interest. Transfer an amount equal to the Class C ---------------- Certificate Interest (if any) for the related Distribution Date to the Distribution Account. (i) Class C Defaults. Withdraw an amount equal to the Class C Floating ---------------- Percentage of the Investor Default Amount, if any, for the preceding Monthly Period, and (i) during the Revolving Period, apply such amount in accordance with subsection 4.4(a)(ii) and (B) during the Controlled --------------------- Amortization Period or the Rapid Amortization Period, deposit such amount in accordance with subsections 4.4(b)(ii) and 4.4(c)(ii), respectively, in ---------------------- ---------- each case as if such amounts were Collections of Principal Receivables for the related Monthly Period. (j) Reimbursement of Class C Investor Charge Offs. Withdraw an amount --------------------------------------------- equal to the aggregate amount of Class C Investor Charge Offs, if any, which have not theretofore been reimbursed pursuant to this subsection ---------- 4.6(j), and (i) during the Revolving Period, apply such amount in ------ accordance with subsection 4.4(a)(ii) and (B) during the Controlled --------------------- Amortization Period or the Rapid Amortization Period, deposit such amount in accordance with subsections 4.4(b)(ii) and 4.4(c)(ii), respectively, in ---------------------- ---------- each case as if such amounts were Collections of Principal Receivables for the related Monthly Period. (k) Additional Class C Amounts. Withdraw an amount equal to any -------------------------- remaining Available Funds and pay it to the Holder of the Class C Certificates to the extent agreed from time to time between the Seller and any Holders of the Class C Certificates (or any Collateral Interest) other than the Seller or any of its Affiliates. (l) Shared Finance Charge Collections. Withdraw an amount equal to any --------------------------------- remaining Available Funds and treat it as Shared Finance Charge Collections. Section 4.7 Payment of Certificate Interest. On each Distribution Date, the ------------------------------- Paying Agent shall pay in accordance with Section 5.1 to the Class A Holders, ----------- the Class B Holders and the Class C Holders, respectively, from the Distribution Account the amount deposited into the Distribution Account pursuant to subsections 4.6(a), 4.6(b) and 4.6(h) on the preceding Transfer Date - ------------------ ------ ------ Section 4.8 Payment of Certificate Principal. -------------------------------- (a) On each Determination Date with respect to the Revolving Period after there has been any decrease in the Required Class C Percentage, the Servicer shall instruct the Trustee to withdraw, and on the next succeeding Transfer Date the Trustee shall withdraw, from the Series Principal 18 Account and deposit in the Distribution Account any Class C Monthly Principal for the related Distribution Date. (b) On each Determination Date with respect to the Amortization Period, the Servicer shall instruct the Trustee to withdraw, and on the next succeeding Transfer Date the Trustee shall withdraw, from the Series Principal Account and deposit in the Distribution Account the following amounts, in the priority specified below and in each case (except as otherwise provided below) to the extent of the funds on deposit in the Series Principal Account with respect to the related Monthly Period (including amounts deposited pursuant to subsections ----------- 4.6(d), (e), (f), (g), (i), and (j) and any Shared Principal Collections - ------ --- --- --- --- --- allocable to Series 1999-A) after all prior applications specified below: (i) Class A Monthly Principal; (ii) Class B Monthly Principal; and (iii) Class C Monthly Principal. Section 4.9 Seller's or Servicer's Failure to Make a Deposit or Payment. If ----------------------------------------------------------- the Servicer or Seller fails to make, or give instructions to make, any payment or deposit (other than as required by subsection 2.4(d), 2.4(e), 3.3, 8.4 or ----------------- ------ --- --- 12.2 of the Agreement) required to be made or given by the Servicer or Seller, - ---- respectively, at the time specified in the Agreement (including applicable grace periods), the Trustee shall make such payment or deposit from the applicable Series Account without instruction from the Servicer. The Trustee shall be required to make any such payment, deposit or withdrawal hereunder only to the extent that the Trustee has sufficient information to allow it to determine the amount thereof; provided, however, that the Trustee shall in all cases be deemed -------- ------- to have sufficient information to determine the amount of interest payable to the Series 1999-A Certificateholders on each Distribution Date. The Servicer shall, upon request of the Trustee, promptly provide the Trustee with all information necessary to allow the Trustee to make such payment, deposit or withdrawal. Such funds or the proceeds of such withdrawal shall be applied by the Trustee in the manner in which such payment or deposit should have been made by the Seller or the Servicer, as the case may be. Section 4.10 Sharing of Finance Charge Collections. Amounts constituting ------------------------------------- Shared Finance Charge Collections on any Determination Date with respect to all Series shall be shared among each outstanding Series (including Series 1999-A) which provides for such sharing in the related Supplement (each, a "Finance ------- Charge Sharing Series"), and the amount of such Shared Finance Charge - --------------------- Collections available to Series 1999-A shall be determined on the following basis. The portion of such Shared Finance Charge Collections to be allocated to Series 1999-A on each Determination Date shall equal the Finance Charge Shortfall on that Determination Date, except that if the aggregate amount of Shared Finance Charge Collections for such Determination Date is less than the sum of Finance Charge Shortfalls (as defined in the related Supplements) for all Finance Charge Sharing Series on such Determination Date, then the portion of Shared Finance Charge Collections allocable to Series 1999-A on such Determination Date shall equal the product of (i) the 19 aggregate Shared Finance Charge Collections for that Determination Date and (ii) a fraction, the numerator of which is the Finance Charge Shortfall for Series 1999-A for such Determination Date and the denominator of which is the sum of the Finance Charge Shortfalls for all Finance Charge Sharing Series for such Determination Date. Any Shared Finance Charge Collections in excess of the aggregate Finance Charge Shortfalls for all Finance Charge Sharing Series on any Determination Date shall be paid to the holder of the Seller Interest. SECTION 8 Article V of the Agreement. Article V of the Agreement shall read -------------------------- --------- in its entirety as follows and shall be applicable only to the Series 1999-A Certificates: ARTICLE V DISTRIBUTIONS AND REPORTS TO INVESTOR CERTIFICATEHOLDERS Section 5.1 Distributions. On each Distribution Date, the Paying Agent ------------- shall distribute (in accordance with the certificate delivered by the Servicer to the Trustee pursuant to subsection 3.4(b)) to each Series 1999-A ----------------- Certificateholder of record on the immediately preceding Record Date (other than as provided in subsection 2.4(e) or Section 12.3 respecting a final ----------------- ------------ distribution) by check mailed to such Series 1999-A Certificateholder such Certificateholder's pro rata share (based on the aggregate Undivided Interests --- ---- represented by Series 1999-A Certificates held by such Certificateholder) of the following amounts: (a) to Class A Holders, the amounts deposited into the Distribution Account pursuant to subsections 4.6(a) and 4.8(b)(i); ------------------ --------- (b) to Class B Holders, the amounts deposited into the Distribution Account pursuant to subsections 4.6(b) and 4.8(b)(ii); and ------------------ ---------- (c) to Class C Holders, the amounts deposited into the Distribution Account pursuant to subsections 4.6(h), 4.6(k), 4.8(a) and 4.8(b)(iii). ------------------ ------ ------ ---------- Section 5.2 Monthly Certificateholders' Statement. ------------------------------------- (a) On or before each Distribution Date, the Paying Agent shall forward to each Series 1999-A Certificateholder and each Rating Agency a statement substantially in the form of Exhibit E to this Series Supplement prepared by the --------- Servicer setting forth among other things the following information (which, in the case of subclauses (i), (ii) and (iii) below, shall be stated on the basis -------------- ---- ----- of an original principal amount of $1,000 per Series 1999-A Certificate and, in the case of subclauses (viii) and (ix) shall be stated on an aggregate basis and ----------------- ---- on the basis of an original principal amount of $1,000 per Series 1999-A Certificate): (i) the total amount distributed with respect to the Class A Certificates, the Class B Certificates and the Class C Certificates; 20 (ii) the amount of each such distribution allocable to principal; (iii) the amount of each such distribution allocable to interest; (iv) the amount of Principal Collections processed during the preceding Monthly Period and allocated in respect of the Series 1999-A Certificates; (v) the aggregate amount of Principal Receivables, the Investor Amount and the Investor Amount as a percentage of the aggregate amount of Principal Receivables in the Trust as of the end of the day on the last day of the preceding Monthly Period; (vi) the aggregate outstanding balance of Accounts which were one, two, three, four, five and six or more months delinquent as of the most recent Aging Date occurring on or before the last day of the preceding Monthly Period; (vii) the Investor Default Amount for the preceding Monthly Period; (viii) the aggregate amount of Investor Charge Offs for the preceding Monthly Period, allocated among Class A Investor Charge Offs, Class B Investor Charge Offs and Class C Investor Charge Offs; (ix) the aggregate amount of Investor Charge Offs reimbursed on the Transfer Date immediately preceding such Distribution Date; (x) the amount of the Investor Monthly Servicing Fee for the preceding Monthly Period; (xi) the Class C Investor Amount and the Required Class C Investor Amount as of the close of business on the Transfer Date immediately preceding such Distribution Date; (xii) the Deficit Controlled Amortization Amount; and (xiii) the Pool Factor for the Class A Certificates, Class B Certificates and Class C Certificates as of the preceding Record Date. (b) Annual Certificateholders' Tax Statement. On or before January 31 of ---------------------------------------- each calendar year, beginning with calendar year 2000, the Trustee shall distribute to each Person who at any time during the preceding calendar year was a Series 1999-A Certificateholder, a statement prepared by the Servicer and delivered to the Trustee on or before January 31 of each calendar year containing the information required to be contained in the regular monthly report to Series 1999-A Certificateholders, as set forth in subclauses (i), (ii) -------------- ---- and (iii) above, aggregated for such calendar year or the applicable portion ----- thereof during which such Person was a Series 1999-A Certificateholder, together with such other customary information (consistent with the treatment of the Certificates as 21 debt) as the Trustee or the Servicer deems necessary or desirable to enable the Series 1999-A Certificateholders to prepare their tax returns consistent with the treatment of the Certificates as debt instruments. Such obligations of the Trustee shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Trustee pursuant to any requirements of the Internal Revenue Code as from time to time in effect. SECTION 9. Series 1999-A Pay Out Events. If any one of the following events ---------------------------- shall occur with respect to the Series 1999-A Certificates: (a) failure on the part of Seller (i) to make any payment or deposit required by the terms of (A) the Agreement, or (B) this Series Supplement, on or before the date occurring five Business Days after the date such payment or deposit is required to be made or (ii) duly to observe or perform in any material respect any covenants or agreements of Seller set forth in the Agreement or this Series Supplement, which failure has a material adverse effect on the Series 1999-A Certificateholders (determined without reference to the availability of the Class C Investor Amount) and which continues unremedied for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Trustee, or to the Seller and the Trustee by the Holders of Series 1999-A Certificates evidencing Undivided Interests aggregating not less than 50% of the Investor Amount of this Series 1999-A, and continues to affect materially and adversely the interests of the Series 1999-A Certificateholders for such period; or (b) any representation or warranty made by Seller in the Agreement or this Series Supplement, or any information contained in a computer file or microfiche list required to be delivered by the Seller pursuant to Section 2.1 or 2.6 of ----------- --- the Agreement, (i) shall prove to have been incorrect in any material respect when made or when delivered, which continues to be incorrect in any material respect for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Trustee, or to the Seller and the Trustee by the Holders of the Series 1999-A Certificates evidencing Undivided Interests aggregating more than 50% of the Investor Amount of this Series 1999-A, and (ii) as a result of which the interests of the Series 1999-A Certificateholders are materially and adversely affected (determined without reference to the availability of the Class C Investor Amount) and continue to be materially and adversely affected for such period; provided, however, that a Series 1999-A Pay Out Event pursuant to this -------- ------- subsection 9(b) shall not be deemed to have occurred hereunder if Seller has - --------------- accepted reassignment of the related Receivable, or all of such Receivables, if applicable, during such period in accordance with the provisions of the Agreement; or (c) the Portfolio Yield averaged for any three consecutive Monthly Periods is less than the Base Rate averaged for such three consecutive Monthly Periods; or (d) the Seller shall fail to designate Additional Accounts the Receivables of which will be Eligible Receivables, as required by subsection 2.6(a), and ----------------- such failure shall continue for a period of five (5) days; or 22 (e) any Servicer Default shall occur which would have a material adverse effect on the Series 1999-A Certificates; or (f) the Class A Investor Amount is not reduced to zero on the March 2004 Distribution Date; then, in the case of any event described in subparagraph (a), (b) or (e), after ---------------- --- --- the applicable grace period set forth in such subparagraphs, either the Trustee or the Holders of Series 1999-A Certificates evidencing Undivided Interests aggregating more than 50% of the Investor Amount of this Series 1999-A by notice then given in writing to Seller and the Servicer (and to the Trustee if given by the Certificateholders) may declare that a pay out event (a "Series 1999-A Pay ----------------- Out Event") has occurred as of the date of such notice, and in the case of any - --------- event described in subparagraphs (c), (d) or (f), a Series 1999-A Pay Out Event ----------------- --- --- shall occur without any notice or other action on the part of the Trustee or the Series 1999-A Certificateholders immediately upon the occurrence of such event. SECTION 10. Provision of Information to Certificateholders. For so long as ---------------------------------------------- the Series 1999-A Certificates are outstanding, the Servicer will provide or cause to be provided to any Holder of the Series 1999-A Certificates and any prospective purchaser of Series 1999-A Certificates designated by such a Holder, upon the request of such Holder or prospective purchaser, the information required to be provided to such Holder or prospective purchaser pursuant to Rule 144A(d)(4) promulgated under the Securities Act of 1933, as amended. SECTION 11. Modifications to Class C Certificates. In connection with any ------------------------------------- transfer of all or a portion of the Class C Certificates (or the interest in the Trust evidenced thereby) to any Person other than any of its Affiliates, the Seller shall provide notice to the Rating Agencies and may, at its option take any or all of the following actions: (a) designate a Class C Certificate Rate, which may be a fixed rate not in excess of 8.25% per annum or a floating rate which shall not at any time exceed one-month London interbank offered rate as determined for interest periods corresponding to each Accrual Period, plus 3.00% per annum; provided that the Seller may designate a higher fixed or floating -------- rate upon satisfaction of the Rating Agency Condition; (b) return the Class C Certificates to the Trustee for cancellation, after which cancellation the interest in the Trust initially evidenced by the Class C Certificates shall constitute the Collateral Interest but shall continue to enjoy the same rights and benefits as did the Class C Certificates immediately prior to their cancellation, together with such additional rights and benefits not inconsistent with the Agreement and this Series Supplement as shall be set forth in a Loan Agreement; or (c) cause this Series Supplement to be amended so that all references herein to the Class C Certificates shall instead refer to the Collateral Interest. 23 SECTION 12. Registration and Transfer of Certificates. (a) Certificates ----------------------------------------- sold to Qualified Institutional Buyers in reliance on Rule 144A shall be represented by one or more Book-Entry Certificates (the "Rule 144A --------- Certificates"), in registered form, without interest coupons, which will be - ------------ deposited upon the order of Seller on the Closing Date with Trustee as custodian for and registered in the name of Cede & Co., as nominee of the Clearing Agency. Certificates sold in offshore transactions in reliance on Regulation S shall be represented initially by temporary Book-Entry Certificates (the "Regulation S ------------ Temporary Global Certificates"), in registered form, without interest coupons. - ----------------------------- (b) The Regulation S Temporary Global Certificates shall be exchanged at the later of (i) the end of a 40-day distribution compliance period (within the meaning of Regulation S) and (ii) the date on which the requisite certifications of non-U.S. ownership are provided to Trustee (the later of clauses (i) and (ii) ----------- ---- is referred to as the "Exchange Date") for permanent Book-Entry Certificates ------------- (the "Regulation S Permanent Global Certificates," and together with the ------------------------------------------ Regulation S Temporary Global Certificates, the "Regulation S Global ------------------- Certificates"). The Regulation S Global Certificates shall be issued in - ------------ registered form, without interest coupons, and deposited upon the order of Seller with Trustee as custodian for and registered in the name of a nominee of the Clearing Agency for credit to the account of the depositaries for Euroclear and Cedel, which depositaries shall, on behalf of Euroclear and Cedel, hold the interests on behalf of account holders (each a "Member Organization"), which ------------------- have rights in respect of the Certificates credited to their securities accounts with Euroclear or Cedel from time to time. (c) A Certificate Owner holding an interest in a Regulation S Temporary Global Certificate may receive payments in respect of the Certificates on the Regulation S Temporary Global Certificate only after delivery to Euroclear or Cedel, as the case may be, of a written certification substantially in the form of a certification in the form set forth in Exhibit F, and upon delivery by --------- Euroclear or Cedel, as the case may be, to the Transfer Agent and Registrar of a certification or certifications substantially in the form set forth in Exhibit ------- G. The delivery by a Certificate Owner of the certification referred to above - - shall constitute its irrevocable instruction to Euroclear or Cedel, as the case may be, to arrange for the exchange of the Certificate Owner's interest in the Regulation S Temporary Global Certificate for a beneficial interest in the Regulation S Permanent Global Certificate after the Exchange Date in accordance with the paragraph below. (d) After (i) the Exchange Date and (ii) receipt by the Transfer Agent and Registrar of written instructions from Euroclear or Cedel, as the case may be, directing the Transfer Agent and Registrar to credit or cause to be credited to either Euroclear's or Cedel's, as the case may be, depositary account a beneficial interest in the Regulation S Permanent Global Certificate in a principal amount not greater than that of the beneficial interest in the Regulation S Temporary Global Certificate, the Transfer Agent and Registrar shall instruct the Clearing Agency to reduce the principal amount of the Regulation S Temporary Global Certificate and increase the principal amount of the Regulation S Permanent Global Certificate, by the principal amount of the beneficial interest in the Regulation S Temporary Global Certificate to be so transferred, and to credit or cause to be credited to the account of Euroclear, Cedel or any Clearing Agency Participant, as the case may be, a beneficial 24 interest in the Regulation S Permanent Global Certificate having a principal amount of the Regulation S Temporary Global Certificate that was reduced upon the transfer. Upon return of the entire principal amount of the Regulation S Temporary Global Certificate to Trustee in exchange for beneficial interests in the Regulation S Permanent Global Certificate, Trustee shall cancel the Regulation S Temporary Global Certificate by perforation and shall forthwith destroy it. (e) Transfers between different Book-Entry Certificates shall be made in accordance with this subsection 12(e): ---------------- (i) If the Certificate Owner of a beneficial interest in a Regulation S Permanent Global Certificate deposited with the Clearing Agency wishes at any time to exchange its interest in the Regulation S Permanent Global Certificate for an interest in the Rule 144A Certificate, or to transfer its interest in the Regulation S Permanent Global Certificate to a Person who wishes to take delivery thereof in the form of an interest in the Rule 144A Certificate, the Holder may, subject to the rules and procedures of Euroclear or Cedel and the Clearing Agency, as the case may be, give directions for the Transfer Agent and Registrar to exchange or cause the exchange or transfer or cause the transfer of the interest for an equivalent beneficial interest in the Rule 144A Certificate. Upon receipt by the Transfer Agent and Registrar of instructions from Euroclear or Cedel (based on instructions from a Member Organization) or from a Clearing Agency Participant, as applicable, or the Clearing Agency, as the case may be, directing the Transfer Agent and Registrar to credit or cause to be credited a beneficial interest in the Rule 144A Certificate equal to the beneficial interest in the Regulation S Permanent Global Certificate to be exchanged or transferred (such instructions to contain information regarding the Clearing Agency Participant account to be credited with the increase, and, with respect to an exchange or transfer of an interest in the Regulation S Permanent Global Certificate, information regarding the Clearing Agency Participant account to be debited with the decrease), the Transfer Agent and Registrar shall instruct the Clearing Agency to reduce the Regulation S Permanent Global Certificate by the aggregate principal amount of the beneficial interest in the Regulation S Permanent Global Certificate to be exchanged or transferred, and the Transfer Agent shall instruct the Clearing Agency, concurrently with the reduction, to increase the principal amount of the Rule 144A Certificate by the aggregate principal amount of the beneficial interest in the Regulation S Permanent Global Certificate to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in the instructions a beneficial interest in the Rule 144A Certificate equal to the reduction in the principal amount of the Regulation S Permanent Global Certificate. (ii) If a Certificate Owner holding a beneficial interest in the Rule 144A Certificate wishes at any time to exchange its interest in the Rule 144A Certificate for an interest in a Regulation S Global Certificate, or to transfer its interest in the Rule 144A Certificate to a Person who wishes to take delivery thereof in the form of an interest in the Regulation S 25 Global Certificate, the Holder may, subject to the rules and procedures of the Clearing Agency, give directions for the Transfer Agent and Registrar to exchange or cause the exchange or transfer or cause the transfer of the interest for an equivalent beneficial interest in the Regulation S Global Certificate. Upon receipt by the Transfer Agent and Registrar of (A) instructions given in accordance with the Clearing Agency's procedures from a Clearing Agency Participant directing the Transfer Agent and Registrar to credit or cause to be credited a beneficial interest in the Regulation S Global Certificate in an amount equal to the beneficial interest in the Rule 144A Certificate to be exchanged or transferred, (B) a written order given in accordance with the Clearing Agency's procedures containing information regarding the account of the depositaries for Euroclear or Cedel or another Clearing Agency Participant, as the case may be, to be credited with the increase and the name of the account and (C) certificates in the forms of Exhibits H and I, respectively, given by the Certificate ---------- - Owner and the proposed transferee of the interest, the Transfer Agent and Registrar shall instruct the Clearing Agency to reduce the Rule 144A Certificate by the aggregate principal amount of the beneficial interest in the Rule 144A Certificate to be so exchanged or transferred and the Transfer Agent and Registrar shall instruct the Clearing Agency, concurrently with the reduction, to increase the principal amount of the Regulation S Global Certificate by the aggregate principal amount of the beneficial interest in the Rule 144A Certificate to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in the instructions a beneficial interest in the Regulation S Global Certificate equal to the reduction in the principal amount of the Rule 144A Certificate. (iii) Notwithstanding any other provisions of this Section 12, a ---------- placement agent for the Certificates may exchange beneficial interests in the Regulation S Temporary Global Certificate held by it for interests in the Rule 144A Certificate only after delivery by the placement agent of instructions for the exchange substantially in the form of Exhibit J. Upon --------- receipt of the instructions described in the preceding sentence, the Transfer Agent and Registrar shall instruct the Clearing Agency to reduce the principal amount of the Regulation S Temporary Global Certificate to be so transferred and shall instruct the Clearing Agency to increase the principal amount of the Rule 144A Certificate and credit or cause to be credited to the account of the placement agent a beneficial interest in the Rule 144A Certificate having a principal amount equal to the amount by which the principal amount of the Regulation S Temporary Global Certificate was reduced upon the transfer pursuant to the instructions provided in the first sentence of this subclause. (iv) If a Book-Entry Certificate is exchanged for a Definitive Certificate, the Certificates may be exchanged or transferred for one another only in accordance with such procedures as are substantially consistent with the provisions of clauses (i) through (iii) above ----------- ----- (including the certification requirements intended to ensure that the exchanges or transfers comply with Rule 144 or Regulation S under the Securities Act, as the case may be) and as may be from time to time adopted by the Trustee upon written instruction from the Seller. 26 SECTION 13. Final Distribution. Written notice of any termination, ------------------ specifying the Distribution Date upon which the Series 1999-A Certificateholders may surrender their Certificates for payment of the final distribution and cancellation shall be given by the Trustee not later than the 30th day immediately preceding the Distribution Date on which final payment of the Certificates shall be made. SECTION 14. Ratification of Agreement. As supplemented by this Series ------------------------- Supplement, the Agreement is in all respects ratified and confirmed and the Agreement as so supplemented by this Series Supplement shall be read, taken and construed as one and the same instrument. SECTION 15. Counterparts. This Series Supplement may be executed in any ------------ number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. SECTION 16. Additional Representations and Warranties of the Servicer. --------------------------------------------------------- FCNB, as initial Servicer, hereby represents and warrants, and any successor Servicer by its appointment under the Agreement shall be deemed to represent and warrant, that each of the representations and warranties set out in subsections ----------- 3.3(a) through (f) of the Agreement is true and correct as of the Closing Date - ------ --- as if made on the Closing Date (and for this purpose each reference to the "Agreement" in such subsections shall be deemed to refer collectively to the Agreement and this Supplement). SECTION 17. Governing Law. THIS SERIES SUPPLEMENT SHALL BE CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. [Signatures Follow] 27 IN WITNESS WHEREOF, the parties have caused this Series 1999-A Supplement to be duly executed by the respective officers as of the day and year first above written. FIRST CONSUMERS NATIONAL BANK By: ---------------------------------- Title: ---------------------------- HARRIS TRUST AND SAVINGS BANK By: ---------------------------------- Title: ---------------------------- S-1 EXHIBIT A to the Series 1999-A Supplement FORM OF SERIES 1999-A CLASS A % ASSET BACKED CERTIFICATE --- [include if certificate is a book-entry certificate deposited with DTC or a custodian on behalf of DTC -- UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] [include if certificate is a 144A book-entry certificate or certificate issued in exchange therefor -- THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA. THE CERTIFICATEHOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON THAT THE CERTIFICATEHOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A "QUALIFIED INSTITUTIONAL BUYER"), PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, AND WHOM THE CERTIFICATEHOLDER HAS INFORMED, IN EACH CASE, THAT THE OFFER, RESALE, PLEDGE, OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN A TRANSACTION COMPLYING WITH THE PROVISIONS OF REGULATION S UNDER THE SECURITIES ACT OR [(3) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT PROVIDES CERTAIN REPRESENTATIONS AND AGREEMENTS TO THE TRUSTEE, AND, IF THE TRUSTEE SO REQUIRES, AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE WITH RESPECT TO THE AVAILABILITY OF SUCH EXEMPTION PRIOR TO THE RESALE A-1 OR TRANSFER.] WITH RESPECT TO CLAUSES (1), (2) AND (3), SUBJECT TO THE RECEIPT ----------- --- --- BY THE TRUSTEE OF OTHER EVIDENCE ACCEPTABLE TO THE TRUSTEE THAT THE OFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES OF AMERICA OR OTHER APPLICABLE JURISDICTION AND SECURITIES AND BLUE SKY LAWS OF THE STATES OF THE UNITED STATES OF AMERICA. THE CERTIFICATEHOLDER OF THIS CERTIFICATE AGREES THAT IT WILL, AND EACH SUBSEQUENT CERTIFICATEHOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS CERTIFICATE OF THE RESALE RESTRICTIONS REFERRED TO ABOVE.] [include if certificate is a Regulation S temporary global certificate or certificate issued in exchange therefor -- THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA. THIS CERTIFICATE IS A REGULATION S TEMPORARY GLOBAL CERTIFICATE WITHIN THE MEANING OF THE POOLING AGREEMENT. THE CERTIFICATEHOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT INTERESTS IN THIS REGULATION S TEMPORARY GLOBAL CERTIFICATE MAY NOT BE OFFERED OR SOLD TO A U.S. PERSON OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON PRIOR TO THE EXCHANGE DATE (AS DEFINED IN THE POOLING AGREEMENT), AND NO TRANSFER OR EXCHANGE OF AN INTEREST IN THIS REGULATION S TEMPORARY GLOBAL CERTIFICATE MAY BE MADE FOR AN INTEREST IN THE RULE 144A CERTIFICATE OR IN THE REGULATION S PERMANENT GLOBAL CERTIFICATE UNTIL AFTER THE LATER OF THE EXCHANGE DATE AND THE DATE ON WHICH CERTAIN CERTIFICATIONS RELATING TO THE INTEREST HAVE BEEN PROVIDED IN ACCORDANCE WITH THE TERMS OF THE POOLING AGREEMENT, TO THE EFFECT THAT THE BENEFICIAL OWNER OR OWNERS OF SUCH INTEREST ARE NOT U.S. PERSONS. THE CERTIFICATEHOLDER OF THIS CERTIFICATE AGREES THAT IT WILL, AND EACH SUBSEQUENT CERTIFICATEHOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS CERTIFICATE OF THE RESALE RESTRICTIONS REFERRED TO ABOVE.] [include if the certificate is a restricted certificate in definitive form - -- THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN CONTRAVENTION OF THAT ACT. THIS CERTIFICATE WILL BE NOT ACCEPTED FOR REGISTRATION OF TRANSFER EXCEPT UPON PRESENTATION OF EVIDENCE SATISFACTORY TO THE REGISTRAR AND TRANSFER AGENT THAT THE RESTRICTIONS ON TRANSFER SET FORTH IN THE POOLING AGREEMENT HAVE BEEN COMPLIED WITH.] A-2 No. $ ---------- ----------- FIRST CONSUMERS MASTER TRUST SERIES 1999-A CLASS A % ASSET BACKED CERTIFICATE ------- Evidencing an undivided interest in a trust, the corpus of which consists of a portfolio of receivables created under charge accounts generated by First Consumers National Bank ("FCNB") and other assets and interests constituting the trust under the Pooling and Servicing Agreement described below. (Not an interest in or obligation of FCNB) This certifies that (the "Class A Certificateholder") --------------------- is the registered owner of an undivided interest in a trust (the "Trust"), the corpus of which consists of a portfolio of receivables (the "Receivables") now existing or hereafter created under selected charge accounts generated by FCNB and transferred to the Trust, all monies due or to become due with respect thereto and the other assets and interests constituting the Trust pursuant to an Pooling and Servicing Agreement, dated as of September 30, 1992, as amended and restated as of January, , 1999 and as otherwise amended and supplemented, -- including by the Series 1999-A Supplement thereto (collectively, the "Pooling and Servicing Agreement"), between FCNB and Harris Trust and Savings Bank, as trustee. THIS CLASS A CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF, OR AN INTEREST IN, FCNB, AND NONE OF THIS CERTIFICATE, THE RECEIVABLES AND THE ACCOUNTS IS INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. THIS CLASS A CERTIFICATE IS LIMITED IN RIGHT OF PAYMENT TO CERTAIN COLLECTIONS RESPECTING THE RECEIVABLES, ALL AS MORE SPECIFICALLY SET FORTH IN THE POOLING AND SERVICING AGREEMENT. FCNB has structured the Pooling and Servicing Agreement and the Series 1999-A Certificates with the intention that the Series 1999-A Class A % ------ Asset Backed Certificates (the "Class A Certificates") will qualify under applicable tax law as indebtedness, and each Class A Certificateholder by acceptance of its Class A Certificate agrees to treat, and to take no action inconsistent with the treatment of, the Class A Certificates for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income, as indebtedness. To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. This Class A Certificate is issued under and is subject to the terms, provisions and conditions of the Pooling and Servicing Agreement, to which Pooling and Servicing Agreement, as amended from time to time, the Class A Certificateholder by virtue of its acceptance hereof assents and by which the Class A Certificateholder is bound. This Class A Certificate is one of a series of Investor Certificates entitled "First Consumers Master Trust Series 1999-A Certificates" (the "Series 1999-A Certificates"), consisting of the Series 1999-A Class A Certificates (the "Class A Certificates"), the Series 1999-A Class B Asset Backed Certificates (the "Class B Certificates"), and the Series 1999-C Certificate (the "Class C Certificate") each of which represents an undivided interest in the Trust, including the right to receive the Collections and other amounts at the times and in the amounts specified in the Pooling and Servicing Agreement to be deposited in the Collection Account or the Series Accounts maintained for the benefit of such Investor Certificates or paid to the Series 1999-A Certificateholders. This Certificate is one of the Class A Certificates. The Class B Certificates and the Class C Certificate are subordinated in right of payment to the Class A Certificates. Class A Certificate Interest will be distributed monthly on the ----- Business Day of each calendar month (a "Distribution Date"). In the case of the first interest payment, interest will accrue from the date of issuance and in the case of subsequent interest payments, interest will accrue from the preceding Distribution Date, in each case to but excluding the date payment thereof (an "Accrual Period"). Class A Certificate Interest accrued during the Accrual Period will be distributed to the Class A Certificateholder of record as of the close of business on the last Business Day of the month preceding the related Distribution Date. During the Amortization Period, Certificate Principal will be distributed to the Class A Certificateholder on the Distribution Date or each calendar month commencing on the , Distribution Date or ----------- ------ earlier in the event of the occurrence of a Pay Out Commencement Date. By accepting this Certificate, or any beneficial interest therein, each Certificateholder and Certificate Owner agrees not to file a petition or otherwise institute against, or join any other person in instituting against, the Trust any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and one day after the final payment is made on the last rated Series of Certificates issued by the Trust. The Trustee, the Paying Agent and the Transfer Agent and Registrar, and any agent of any of them, may treat the Person in whose name this Class A Certificate is registered as the owner hereof for all purposes, and neither the Trustee, the Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them shall be affected by notice to the contrary except in certain circumstances described in the Pooling and Servicing Agreement. The obligation in favor of this Class A Certificate created by the Pooling and Servicing Agreement shall terminate on the earlier of (i) the date after which funds shall have been deposited in the Distribution Account sufficient to pay the Class A Investor Amount plus Class A Certificate A-4 Interest accrued through the date of distribution thereof and (ii) the day on which final payment is made on the Class A Certificates, but in no event later than , Distribution Date. ----------- ----- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual or facsimile signature of a duly authorized signatory, this Class A Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement or be valid for any purpose. IN WITNESS WHEREOF, the Trustee has caused this Class A Certificate to be duly executed under its official seal. HARRIS TRUST AND SAVINGS BANK, as Trustee By: --------------------------- Title: [Seal] Attested to: By: ------------------------ Title: Date: A-5 Trustee's Certificate of Authentication This is one of the Series 1999-A % Class A Certificates referred to in ----- the within-mentioned Pooling and Servicing Agreement. HARRIS TRUST AND SAVINGS BANK, as Trustee By: --------------------------- Authorized Officer A-6 EXHIBIT B to the Series 1999-A Supplement FORM OF SERIES 1999-A CLASS B % ASSET BACKED CERTIFICATE --- [include if certificate is a book-entry certificate deposited with DTC or a custodian on behalf of DTC -- UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] [include if certificate is a 144A book-entry certificate or certificate issued in exchange therefor -- THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA. THE CERTIFICATEHOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON THAT THE CERTIFICATEHOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A "QUALIFIED INSTITUTIONAL BUYER"), PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, AND WHOM THE CERTIFICATEHOLDER HAS INFORMED, IN EACH CASE, THAT THE OFFER, RESALE, PLEDGE, OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN A TRANSACTION COMPLYING WITH THE PROVISIONS OF REGULATION S UNDER THE SECURITIES ACT OR [(3) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT PROVIDES CERTAIN REPRESENTATIONS AND AGREEMENTS TO THE TRUSTEE, AND, IF THE TRUSTEE SO REQUIRES, AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE WITH RESPECT TO THE AVAILABILITY OF SUCH EXEMPTION PRIOR TO THE RESALE B-1 OR TRANSFER.] WITH RESPECT TO CLAUSES (1), (2) AND (3), SUBJECT TO THE RECEIPT ----------- --- --- BY THE TRUSTEE OF OTHER EVIDENCE ACCEPTABLE TO THE TRUSTEE THAT THE OFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES OF AMERICA OR OTHER APPLICABLE JURISDICTION AND SECURITIES AND BLUE SKY LAWS OF THE STATES OF THE UNITED STATES OF AMERICA. THE CERTIFICATEHOLDER OF THIS CERTIFICATE AGREES THAT IT WILL, AND EACH SUBSEQUENT CERTIFICATEHOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS CERTIFICATE OF THE RESALE RESTRICTIONS REFERRED TO ABOVE.] [include if certificate is a Regulation S temporary global certificate or certificate issued in exchange therefor -- THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA. THIS CERTIFICATE IS A REGULATION S TEMPORARY GLOBAL CERTIFICATE WITHIN THE MEANING OF THE POOLING AGREEMENT. THE CERTIFICATEHOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT INTERESTS IN THIS REGULATION S TEMPORARY GLOBAL CERTIFICATE MAY NOT BE OFFERED OR SOLD TO A U.S. PERSON OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON PRIOR TO THE EXCHANGE DATE (AS DEFINED IN THE POOLING AGREEMENT), AND NO TRANSFER OR EXCHANGE OF AN INTEREST IN THIS REGULATION S TEMPORARY GLOBAL CERTIFICATE MAY BE MADE FOR AN INTEREST IN THE RULE 144A CERTIFICATE OR IN THE REGULATION S PERMANENT GLOBAL CERTIFICATE UNTIL AFTER THE LATER OF THE EXCHANGE DATE AND THE DATE ON WHICH CERTAIN CERTIFICATIONS RELATING TO THE INTEREST HAVE BEEN PROVIDED IN ACCORDANCE WITH THE TERMS OF THE POOLING AGREEMENT, TO THE EFFECT THAT THE BENEFICIAL OWNER OR OWNERS OF SUCH INTEREST ARE NOT U.S. PERSONS. THE CERTIFICATEHOLDER OF THIS CERTIFICATE AGREES THAT IT WILL, AND EACH SUBSEQUENT CERTIFICATEHOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS CERTIFICATE OF THE RESALE RESTRICTIONS REFERRED TO ABOVE.] [include if the certificate is a restricted certificate in definitive form - -- THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN CONTRAVENTION OF THAT ACT. THIS CERTIFICATE WILL BE NOT ACCEPTED FOR REGISTRATION OF TRANSFER EXCEPT UPON PRESENTATION OF EVIDENCE SATISFACTORY TO THE REGISTRAR AND TRANSFER AGENT THAT THE RESTRICTIONS ON TRANSFER SET FORTH IN THE POOLING AGREEMENT HAVE BEEN COMPLIED WITH.] B-2 CLASS B INVESTOR AMOUNT No. $ ----------- ------------------ FIRST CONSUMERS MASTER TRUST SERIES 1999-A CLASS B % ASSET BACKED CERTIFICATE ------- Evidencing an undivided interest in a trust, the corpus of which consists of a portfolio of receivables created under charge accounts generated by First Consumers National Bank ("FCNB") and other assets and interests constituting the trust under the Pooling and Servicing Agreement described below. (Not an interest in or obligation of FCNB) This certifies that (the "Class B Certificateholder") --------------------- is the registered owner of an undivided interest in a trust (the "Trust"), the corpus of which consists of a portfolio of receivables (the "Receivables") now existing or hereafter created under selected charge accounts generated by FCNB and transferred to the Trust, all monies due or to become due with respect thereto and the other assets and interests constituting the Trust pursuant to an Pooling and Servicing Agreement, dated as of September 30, 1992, as amended and restated as of January, , 1999 and as otherwise amended and supplemented, -- including by the Series 1999-A Supplement thereto (collectively, the "Pooling and Servicing Agreement"), between FCNB and Harris Trust and Savings Bank, as trustee. THIS CLASS B CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF, OR AN INTEREST IN, FCNB, AND NONE OF THIS CERTIFICATE, THE RECEIVABLES AND THE ACCOUNTS IS INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. THIS CLASS B CERTIFICATE IS LIMITED IN RIGHT OF PAYMENT TO CERTAIN COLLECTIONS RESPECTING THE RECEIVABLES, ALL AS MORE SPECIFICALLY SET FORTH IN THE POOLING AND SERVICING AGREEMENT. FCNB has structured the Pooling and Servicing Agreement and the Series 1999-A Certificates with the intention that the Series 1999-A Class B % ------ Asset Backed Certificates (the "Class B Certificates") will qualify under applicable tax law as indebtedness, and each Class B Certificateholder by acceptance of its Class B Certificate agrees to treat, and to take no action inconsistent with the treatment of, the Class B Certificates for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income, as indebtedness. To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. This Class B Certificate is issued under and is subject to B-3 the terms, provisions and conditions of the Pooling and Servicing Agreement, to which Pooling and Servicing Agreement, as amended from time to time, the Class B Certificateholder by virtue of its acceptance hereof assents and by which the Class B Certificateholder is bound. This Class B Certificate is one of a series of Investor Certificates entitled "First Consumers Master Trust Series 1999-A Certificates" (the "Series 1999-A Certificates"), consisting of the Series 1999-A Class A Certificates (the "Class A Certificates"), the Series 1999-A Class B Asset Backed Certificates (the "Class B Certificates"), and the Series 1999-C Certificate (the "Class C Certificate") each of which represents an undivided interest in the Trust, including the right to receive the Collections and other amounts at the times and in the amounts specified in the Pooling and Servicing Agreement to be deposited in the Collection Account or the Series Accounts maintained for the benefit of such Investor Certificates or paid to the Series 1999-A Certificateholders. This Certificate is one of the Class B Certificates. The Class B Certificates are subordinated in right of payment to the Class A Certificates and the Class C Certificates are subordinated in right of payment to the Class B Certificates. Class B Certificate Interest will be distributed monthly on the ------- Business Day of each calendar month (a "Distribution Date"). In the case of the first interest payment, interest will accrue from the date of issuance and in the case of subsequent interest payments, interest will accrue from the preceding Distribution Date, in each case to but excluding the date of payment thereof (an "Accrual Period"). Class B Certificate Interest accrued during the Accrual Period will be distributed to the Class B Certificateholder of record as of the close of business on the last Business Day of the month preceding the related Distribution Date. Certificate Principal will be distributed to the Class B Certificateholder on the Distribution Date of each calendar month commencing with the first Distribution Date occurring on or after the Class B Principal Payment Commencement Date. By accepting this Certificate, or any beneficial interest therein, each Certificateholder and Certificate Owner agrees not to file a petition or otherwise institute against, or join any other person in instituting against, the Trust any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and one day after the final payment is made on the last rated Series of Certificates issued by the Trust. The Trustee, the Paying Agent and the Transfer Agency and Registrar, and any agent of any of them, may treat the Person in whose name this Class B Certificate is registered as the owner hereof for all purposes, and neither the Trustee, the Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them shall be affected by notice to the contrary except in certain circumstances described in the Pooling and Servicing Agreement. The obligations in favor of this Class B Certificate created by the Pooling and Servicing Agreement shall terminate on the earlier of (i) the date after which funds shall have been deposited in the Distribution Account sufficient to pay the Class B Investor Amount plus Class B Certificate Interest accrued through the date of distribution thereof and (ii) the day on which final payment is B-4 made on the Class B Certificates, but in no event later than the , ------------- Distribution Date. - ----- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual or facsimile signature of a duly authorized signatory, this Class B Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement or be valid for any purpose. IN WITNESS WHEREOF, the Trustee has caused this Class B Certificate to be duly executed under its official seal. HARRIS TRUST AND SAVINGS BANK, as Trustee By: ------------------------- Title: [Seal] Attested to: By: ------------------------ Title: Date: B-5 Trustee's Certificate of Authentication This is one of the Series 1999-A % Class B Certificates referred to in ----- the within-mentioned Pooling and Servicing Agreement. HARRIS TRUST AND SAVINGS BANK, as Trustee By: --------------------------- Authorized Officer B-6 EXHIBIT C to the Series 1999-A Supplement FORM OF SERIES 1999-A CLASS C % ASSET BACKED CERTIFICATE --- [include if certificate is a book-entry certificate deposited with DTC or a custodian on behalf of DTC -- UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] [include if certificate is a 144A book-entry certificate or certificate issued in exchange therefor -- THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA. THE CERTIFICATEHOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON THAT THE CERTIFICATEHOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A "QUALIFIED INSTITUTIONAL BUYER"), PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, AND WHOM THE CERTIFICATEHOLDER HAS INFORMED, IN EACH CASE, THAT THE OFFER, RESALE, PLEDGE, OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN A TRANSACTION COMPLYING WITH THE PROVISIONS OF REGULATION S UNDER THE SECURITIES ACT OR [(3) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT PROVIDES CERTAIN REPRESENTATIONS AND AGREEMENTS TO THE TRUSTEE, AND, IF THE TRUSTEE SO REQUIRES, AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE WITH RESPECT TO THE AVAILABILITY OF SUCH EXEMPTION PRIOR TO THE RESALE C-1 OR TRANSFER.] WITH RESPECT TO CLAUSES (1), (2) AND (3), SUBJECT TO THE RECEIPT ----------- --- --- BY THE TRUSTEE OF OTHER EVIDENCE ACCEPTABLE TO THE TRUSTEE THAT THE OFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES OF AMERICA OR OTHER APPLICABLE JURISDICTION AND SECURITIES AND BLUE SKY LAWS OF THE STATES OF THE UNITED STATES OF AMERICA. THE CERTIFICATEHOLDER OF THIS CERTIFICATE AGREES THAT IT WILL, AND EACH SUBSEQUENT CERTIFICATEHOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS CERTIFICATE OF THE RESALE RESTRICTIONS REFERRED TO ABOVE.] [include if certificate is a Regulation S temporary book-entry certificate or certificate issued in exchange therefor -- THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA. THIS CERTIFICATE IS A REGULATION S TEMPORARY GLOBAL CERTIFICATE WITHIN THE MEANING OF THE POOLING AGREEMENT. THE CERTIFICATEHOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT INTERESTS IN THIS REGULATION S TEMPORARY GLOBAL CERTIFICATE MAY NOT BE OFFERED OR SOLD TO A U.S. PERSON OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON PRIOR TO THE EXCHANGE DATE (AS DEFINED IN THE POOLING AGREEMENT), AND NO TRANSFER OR EXCHANGE OF AN INTEREST IN THIS REGULATION S TEMPORARY GLOBAL CERTIFICATE MAY BE MADE FOR AN INTEREST IN THE RULE 144A CERTIFICATE OR IN THE REGULATION S PERMANENT GLOBAL CERTIFICATE UNTIL AFTER THE LATER OF THE EXCHANGE DATE AND THE DATE ON WHICH CERTAIN CERTIFICATIONS RELATING TO THE INTEREST HAVE BEEN PROVIDED IN ACCORDANCE WITH THE TERMS OF THE POOLING AGREEMENT, TO THE EFFECT THAT THE BENEFICIAL OWNER OR OWNERS OF SUCH INTEREST ARE NOT U.S. PERSONS. THE CERTIFICATEHOLDER OF THIS CERTIFICATE AGREES THAT IT WILL, AND EACH SUBSEQUENT CERTIFICATEHOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS CERTIFICATE OF THE RESALE RESTRICTIONS REFERRED TO ABOVE.] [include if the certificate is a restricted certificate in definitive form - -- THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN CONTRAVENTION OF THAT ACT. THIS CERTIFICATE WILL BE NOT ACCEPTED FOR REGISTRATION OF TRANSFER EXCEPT UPON PRESENTATION OF EVIDENCE SATISFACTORY TO THE REGISTRAR AND TRANSFER AGENT THAT THE RESTRICTIONS ON TRANSFER SET FORTH IN THE POOLING AGREEMENT HAVE BEEN COMPLIED WITH.] C-2 No. $ ----------- ---------------- FIRST CONSUMERS MASTER TRUST SERIES 1999-A CLASS C % ASSET BACKED CERTIFICATE ----- Evidencing an undivided interest in a trust, the corpus of which consists of a portfolio of receivables created under charge accounts generated by First Consumers National Bank ("FCNB") and other assets and interests constituting the trust under the Pooling and Servicing Agreement described below. (Not an interest in or obligation of FCNB) This certifies that (the "Class C Certificateholder") ---------------------- is the registered owner of an undivided interest in a trust (the "Trust"), the corpus of which consists of a portfolio of receivables (the "Receivables") now existing or hereafter created under selected charge accounts generated by FCNB and transferred to the Trust, all monies due or to become due with respect thereto and the other assets and interests constituting the Trust pursuant to an Pooling and Servicing Agreement, dated as of September 30, 1992, as amended and restated as of January, , 1999 and as otherwise amended and supplemented, -- including by the Series 1999-A Supplement thereto (collectively, the "Pooling and Servicing Agreement"), between FCNB and Harris Trust and Savings Bank, as trustee. THIS CLASS C CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF, OR AN INTEREST IN, FCNB, AND NONE OF THIS CERTIFICATE, THE RECEIVABLES AND THE ACCOUNTS IS INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. THIS CLASS C CERTIFICATE IS LIMITED IN RIGHT OF PAYMENT TO CERTAIN COLLECTIONS RESPECTING THE RECEIVABLES, ALL AS MORE SPECIFICALLY SET FORTH IN THE POOLING AND SERVICING AGREEMENT. FCNB has structured the Pooling and Servicing Agreement and the Series 1999-A Certificates with the intention that the Series 1999-A Class C % ------ Asset Backed Certificates (the "Class C Certificates") will qualify under applicable tax law as indebtedness, and each Class C Certificateholder by acceptance of its Class C Certificate agrees to treat, and to take no action inconsistent with the treatment of, the Class C Certificates for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income, as indebtedness. To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. This Class C Certificate is issued under and is subject to C-3 the terms, provisions and conditions of the Pooling and Servicing Agreement, to which Pooling and Servicing Agreement, as amended from time to time, the Class C Certificateholder by virtue of its acceptance hereof assents and by which the Class C Certificateholder is bound. This Class C Certificate is one of a series of Investor Certificates entitled "First Consumers Master Trust Series 1999-A Certificates" (the "Series 1999-A Certificates"), consisting of the Series 1999-A Class A Certificates (the "Class A Certificates"), the Series 1999-A Class B Asset Backed Certificates (the "Class B Certificates"), and the Series 1999-C Certificate (the "Class C Certificate") each of which represents an undivided interest in the Trust, including the right to receive the Collections and other amounts at the times and in the amounts specified in the Pooling and Servicing Agreement to be deposited in the Collection Account or the Series Accounts maintained for the benefit of such Investor Certificates or paid to the Series 1999-A Certificateholders. This Certificate is one of the Class C Certificates. The Class C Certificate is subordinated in right of payment to the Class A Certificates and the Class B Certificates. FCNB from time to time may subdivide the Class C Certificates and may sell or otherwise transfer all or a portion thereof to other investors. The aggregate principal amount of the Class C Certificates may increase and decrease upon the occurrence of certain events defined in the Pooling and Servicing Agreement. By accepting this Certificate, or any beneficial interest therein, each Certificateholder and Certificate Owner agrees not to file a petition or otherwise institute against, or join any other person in instituting against, the Trust any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and one day after the final payment is made on the last rated Series of Certificates issued by the Trust. The Trustee, the Paying Agent and the Transfer Agent and Registrar, and any agent of any of them, may treat the Person in whose name this Class C Certificate is registered as the owner hereof for all purposes, and neither the Trustee, the Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them shall be affected by notice to the contrary except in certain circumstances described in the Pooling and Servicing Agreement. The obligations in favor of this Class C Certificate created by the Pooling and Servicing Agreement shall terminate on the day on which final payment is made on the Series 1999-A Certificates, but in no event later than the , Distribution Date. - ------------ ---- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual or facsimile signature of a duly authorized signatory, this Class C Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement or be valid for any purpose. C-4 IN WITNESS WHEREOF, the Trustee has caused this Class C Certificate to be duly executed under its official seal. HARRIS TRUST AND SAVINGS BANK, as Trustee By: --------------------------- Title: [Seal] Attested to: By: ------------------------ Title: Date: C-5 Trustee's Certificate of Authentication This is one of the Series 1999-A % Class C Certificates referred to in ----- the within-mentioned Pooling and Servicing Agreement. HARRIS TRUST AND SAVINGS BANK, as Trustee By: --------------------------- Authorized Officer C-6 EXHIBIT D to SERIES 1999-A SUPPLEMENT FORM OF MONTHLY PAYMENT INSTRUCTIONS AND NOTIFICATION TO TRUSTEE FIRST CONSUMERS MASTER TRUST SERIES 1999-A The undersigned, a duly authorized representative of First Consumers National Bank ("FCNB"), as Servicer pursuant to the Pooling and Servicing Agreement dated as of September 30, 1992, as amended and restated as of January , 1999, and as amended and supplemented by the Series 1999-A Supplement - --- thereto (the "Pooling and Servicing Agreement") between FCNB and Harris Trust and Savings Bank, as trustee (the "Trustee"), does hereby certify as follows: A. Capitalized terms used in this Certificate have their respective meanings set forth in the Pooling and Servicing Agreement, as amended by the Series 1999-A Supplement thereto; provided, that the "preceding Monthly Period" -------- means the monthly Period immediately preceding the calendar month in which this Certificate is delivered. References herein to certain sections and subsections are references to the respective sections and subsections of the Pooling and Servicing Agreement. This Certificate is delivered pursuant to Section 4.6 of the Pooling and Servicing Agreement. B. FCNB is the Servicer under the Pooling and Servicing Agreement. C. The undersigned is a Servicing Officer. D. The date of this notice is a Determination Date under the Pooling and Servicing Agreement. D-1 XVIII. INSTRUCTION TO MAKE A WITHDRAWAL Pursuant to Section 4.6, the Servicer does hereby instruct the Trustee (i) to make a withdrawal from the Series Finance Charge Account on , , ---------- ---- which date is a Transfer Date under the Pooling and Servicing Agreement, in an aggregate amount as set forth below [, including $ to be withdrawn ---------- from the Series Principal Account pursuant to Section 4.11,] in respect of the following amounts and (ii) to apply the proceeds of such withdrawal in accordance with Section 4.6: A. Pursuant to Subsection 4.6(a): ----------------------------- Class A Certificate Interest for the related Distribution Date..................................................... $ --------- B. Pursuant to Subsection 4.6(b): ----------------------------- Class B Certificate Interest for the related Distribution Date..................................................... $ --------- C. Pursuant to Subsection 4.6(c): ----------------------------- Investor Monthly Servicing Fee for the preceding Monthly Period plus all accrued and unpaid Investor Monthly Servicing Fees in respect of previous Monthly Periods.................................................. $ --------- D. Pursuant to Subsection 4.6(d): ----------------------------- Class A Floating Percentage of the Investor Default Amount for the preceding Monthly Period.................. $ --------- E. Pursuant to Subsection 4.6(e): ----------------------------- Aggregate reimbursed Class A Charge Offs................. $ --------- F. Pursuant to Subsection 4.6(f): ----------------------------- Class B Floating Percentage of the Investor Default Amount for the preceding Monthly Period.................. $ --------- G. Pursuant to Subsection 4.6(g): ----------------------------- Aggregate reimbursed Class B Investor Charge Offs........ $ --------- H. Pursuant to Subsection 4.6(h): ----------------------------- Class C Certificate Interest for the related Distribution Date..................................................... $ --------- D-2 I. Pursuant to Subsection 4.6(i): ----------------------------- Class C Floating Percentage of Investor Default Amount for the preceding Monthly Period......................... $ --------- J. Pursuant to Subsection 4.6(j) ----------------------------- Aggregate reimbursed Class C Investor Charge Offs........ $ --------- K. Pursuant to Subsection 4.6(k) ----------------------------- Available Funds agreed to be paid to Holders of Class C Certificates or Collateral Interests..................... $ --------- L. Pursuant to Subsection 4.6(l) ----------------------------- Any remaining Available funds to be treated as Shared Finance Charge Collections............................... $ --------- D-3 I. INSTRUCTION TO MAKE A WITHDRAWAL Pursuant to Section 4.8, the Servicer does hereby instruct the Trustee (i) to make a withdrawal from the Series Principal Account on , , ---------- ---- which date is a Transfer Date under the Pooling and Servicing Agreement, and (ii) apply such amount in accordance with Section 4.8: A. Amounts to be distributed to the Series 1999-A Class A Certificateholders in accordance with Subsection 5.1(a) $ --------- B. Amounts to be distributed to the Series 1999-A Class B Certificateholders in accordance with Subsection 5.1(b) $ --------- C. Amounts to be distributed to the Series 1999-A Class C Certificateholders in accordance with Subsection 5.1(c) IN WITNESS WHEREOF, the undersigned has duly executed this certificate this day of . - ---- -------------------- FIRST CONSUMERS NATIONAL BANK, as Servicer By: --------------------------- Title: D-4 EXECUTION COPY ================================================================================ FIRST CONSUMERS NATIONAL BANK Seller and Servicer and HARRIS TRUST AND SAVINGS BANK Trustee on behalf of the Series 1999-A Certificateholders ------------------------ SERIES 1999-A SUPPLEMENT Dated as of February 1, 1999 to AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT Dated as of February 1, 1999 ------------------------ $276,243,094 FIRST CONSUMERS MASTER TRUST Series 1999-A ================================================================================ EX-10.43 40 dex1043.txt MASTER INDENTURE BETWEEN 1ST CONSUMER & BNY Exhibit 10.43 MASTER INDENTURE between FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST Issuer, and THE BANK OF NEW YORK Indenture Trustee Dated as of March 1, 2001, amended and restated as of December 31, 2001 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS ...................................................................... 3 Section 1.1. Definitions ........................................................ 3 Section 1.2. Other Definitional Provisions ...................................... 3 ARTICLE II THE NOTES ........................................................................ 4 Section 2.1. Form Generally ..................................................... 4 Section 2.2. Denominations ...................................................... 4 Section 2.3. Execution, Authentication and Delivery ............................. 5 Section 2.4. Authenticating Agent ............................................... 5 Section 2.5. Registration of and Limitations on Transfer and Exchange of Notes .................................................. 6 Section 2.6. Mutilated, Destroyed, Lost or Stolen Notes ......................... 8 Section 2.7. Persons Deemed Owners .............................................. 9 Section 2.8. Appointment of Paying Agent ........................................ 10 Section 2.9. Access to List of Noteholders' Names and] Addresses .......................................................... 10 Section 2.10. Cancellation ....................................................... 11 Section 2.11. [Reserved] ......................................................... 11 Section 2.12. New Issuances ...................................................... 11 Section 2.13. Book-Entry Notes ................................................... 13 Section 2.14. Notices to Clearing Agency or Foreign Clearing Agency ............................................................. 14 Section 2.15. Definitive Notes ................................................... 14 Section 2.16. Global Note ........................................................ 15 Section 2.17. Meetings of Noteholders ............................................ 15 ARTICLE III REPRESENTATIONS AND COVENANTS OF ISSUER .......................................... 15 Section 3.1. Payment of Principal and Interest .................................. 15 Section 3.2. Maintenance of Office or Agency .................................... 16 Section 3.3. Money for Note Payments to Be Held in Trust ........................ 16 Section 3.4. Existence .......................................................... 17 Section 3.5. Protection of Collateral ........................................... 17 Section 3.6. Opinions as to Collateral .......................................... 18 Section 3.7. Performance of Obligations; Servicing of Receivables ........................................................ 19 Section 3.8. Negative Covenants ................................................. 21 Section 3.9. Statements as to Compliance ........................................ 21 Section 3.10. Issuer May Consolidate, Etc., Only on Certain Terms .............................................................. 22 Section 3.11. Successor Substituted .............................................. 24
i TABLE OF CONTENTS (Continued)
Page ---- Section 3.12. No Other Business .................................................. 24 Section 3.13. [Reserved] ......................................................... 24 Section 3.14. Servicer's Obligations ............................................. 24 Section 3.15. Investments ........................................................ 24 Section 3.16. Capital Expenditures ............................................... 24 Section 3.17. Removal of Administrator ........................................... 24 Section 3.18. Restricted Payments ................................................ 25 Section 3.19. Notice of Events of Default ........................................ 25 Section 3.20. Further Instruments and Acts ....................................... 25 ARTICLE IV SATISFACTION AND DISCHARGE ....................................................... 25 Section 4.1. Satisfaction and Discharge of this Indenture ....................... 25 Section 4.2. Application of Issuer Money ........................................ 27 ARTICLE V PAY OUT EVENTS, DEFAULTS AND REMEDIES ............................................ 27 Section 5.1. Pay Out Events ..................................................... 27 Section 5.2. Events of Default .................................................. 27 Section 5.3. Acceleration of Maturity; Rescission and Annulment .......................................................... 29 Section 5.4. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee ................................... 30 Section 5.6. Optional Preservation of the Collateral ............................ 34 Section 5.7. Limitation on Suits ................................................ 34 Section 5.8. Unconditional Rights of Noteholders to Receive Principal and Interest ............................................. 35 Section 5.10. Rights and Remedies Cumulative ..................................... 35 Section 5.11. Delay or Omission Not Waiver ....................................... 35 Section 5.12. Rights of Noteholders to Direct Indenture Trustee ............................................................ 36 Section 5.13. Waiver of Past Defaults ............................................ 36 Section 5.14. Undertaking for Costs .............................................. 37 Section 5.16. Sale of Receivables ................................................ 37 Section 5.17. Action on Notes .................................................... 38 ARTICLE VI THE INDENTURE TRUSTEE ............................................................ 38 Section 6.1. Duties of the Indenture Trustee .................................... 38 Section 6.2. Notice of Pay Out Event or Event of Default ........................ 40 Section 6.3. Rights of Indenture Trustee ........................................ 41 Section 6.4. Not Responsible for Recitals or Issuance of Notes .............................................................. 42 Section 6.5. Restrictions on Holding Notes ...................................... 42
ii TABLE OF CONTENTS (Continued)
Page ---- Section 6.6. Money Held in Trust ................................................ 42 Section 6.7. Compensation, Reimbursement and Indemnification .................................................... 42 Section 6.8. Replacement of Indenture Trustee ................................... 43 Section 6.9. Successor Indenture Trustee by Merger .............................. 45 Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee ......................................... 45 Section 6.11. Eligibility; Disqualification ...................................... 46 Section 6.12. Preferential Collection of Claims Against .......................... 47 Section 6.13. Representations and Covenants of the Indenture Trustee ............................................................ 47 Section 6.14. Custody of the Collateral .......................................... 47 ARTICLE VII NOTEHOLDERS' LIST AND REPORTS BY INDENTURE TRUSTEE AND ISSUER ............................................................... 48 Section 7.1. Issuer to Furnish Indenture Trustee Names and Addresses of Noteholders ........................................... 48 Section 7.2. Preservation of Information; Communications to Noteholders ........................................................ 48 Section 7.3. Reports by Issuer .................................................. 48 Section 7.4. Reports by Indenture Trustee ....................................... 49 ARTICLE VIII ALLOCATION AND APPLICATION OF COLLECTIONS ........................................ 50 Section 8.1. Collection of Money ................................................ 50 Section 8.2. Rights of Noteholders .............................................. 50 Section 8.3. Establishment of Collection Account and Excess Funding Account .................................................... 50 Section 8.4. Collections and Allocations ........................................ 53 Section 8.5. Shared Principal Collections ....................................... 56 Section 8.6. Excess Finance Charge Collections .................................. 56 Section 8.7. Allocation of Collateral to Series or Groups ....................... 57 Section 8.8. Release of Collateral; Eligible Loan Documents ..................... 57 Section 8.9. Opinion of Counsel ................................................. 58 ARTICLE IX DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS ......................................... 58 ARTICLE X SUPPLEMENTAL INDENTURES .......................................................... 59 Section 10.1. Supplemental Indentures Without Consent of Noteholders ........................................................ 59 Section 10.2. Supplemental Indentures with Consent of Noteholders ........................................................ 61
iii TABLE OF CONTENTS (Continued)
Page ---- Section 10.3. Execution of Supplemental Indentures ............................... 62 Section 10.4. Effect of Supplemental Indenture ................................... 63 Section 10.5. Conformity With Trust Indenture Act ................................ 63 Section 10.6. Reference in Notes to Supplemental Indentures ...................... 63 ARTICLE XI TERMINATION ...................................................................... 63 Section 11.1. Termination of Issuer .............................................. 63 Section 11.2. Final Distribution ................................................. 63 Section 11.3. Issuer's Termination Rights ........................................ 64 ARTICLE XII MISCELLANEOUS .................................................................... 65 Section 12.1. Compliance Certificates and Opinions etc ........................... 65 Section 12.2. Form of Documents Delivered to Indenture Trustee ............................................................ 66 Section 12.3. Acts of Noteholders ................................................ 67 Section 12.4. Notices, Etc. to Indenture Trustee and Issuer ...................... 67 Section 12.5. Notices to Noteholders; Waiver ..................................... 68 Section 12.6. Alternate Payment and Notice Provisions ............................ 68 Section 12.7. Conflict with Trust Indenture Act .................................. 69 Section 12.8. Effect of Headings and Table of Contents ........................... 69 Section 12.9. Successors and Assigns ............................................. 69 Section 12.10. Separability ...................................................... 69 Section 12.11. Benefits of Indenture ............................................. 69 Section 12.12. Legal Holidays .................................................... 69 Section 12.13. GOVERNING LAW ..................................................... 69 Section 12.14. Counterparts ...................................................... 70 Section 12.15. Issuer Obligation ................................................. 70 Section 12.16. No Petition ....................................................... 70
iv RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939 AND INDENTURE PROVISIONS/1/ Trust Indenture Act Section Indenture Section - --------------- ----------------- 310(a)(1) ........................................... 6.11 (a)(2) ........................................... 6.11 (a)(3) ........................................... 6.10 (a)(4) ........................................... Not Applicable (a)(5) ........................................... 6.11 (b) .............................................. 6.8, 6.11 (c) .............................................. Not Applicable 311(a) .............................................. 6.12 (b) .............................................. 6.12 (c) .............................................. Not Applicable 312(a) .............................................. 7.1, 7.2(a) (b) .............................................. 7.2(b) (c) .............................................. 7.2(c) 313(a) .............................................. 7.4 (b) .............................................. 7.4 (c) .............................................. 7.3, 7.4 (d) .............................................. 7.4 314(a) .............................................. 3.9, 7.3(a) (b) .............................................. 3.6 (c)(1) ........................................... 8.9, 12.1(a) (c)(2) ........................................... 8.9, 12.1(a) (c)(3) ........................................... 8.9, 12.1(a) (d)(1) ........................................... 8.9, 12.1(b) (d)(2) ........................................... Not Applicable (d)(3) ........................................... Not Applicable (e) .............................................. 12.1(a) 315(a) .............................................. 6.1(b) (b) .............................................. 6.2 (c) .............................................. 6.1(c) (d) .............................................. 6.1(d) (d)(1) ........................................... 6.1(d) (d)(2) ........................................... 6.1(d) (d)(3) ........................................... 6.1(d) (e) .............................................. 5.14 316(a)(1)(A) ........................................ 5.12 316(a)(1)(B) ........................................ 5.13 316(a)(2) ........................................... Not Applicable 316(b) .............................................. 5.8 317(a)(1) ........................................... 5.4 317(a)(2) ........................................... 5.4(d) 317(b) .............................................. 5.4(a) 318(a) .............................................. 12.7 - ---------- /1/ This reconciliation and tie shall not, for any purpose, be deemed to be part of the within indenture. MASTER INDENTURE, dated as of March 1, 2001, and amended and restated as of December 31, 2001 (the "Indenture"), between First Consumers Credit Card Master --------- Note Trust, a trust organized under the laws of the State of Illinois (the "Issuer"), and The Bank of New York, a New York banking corporation, as ------ indenture trustee (the "Indenture Trustee"). This Indenture may be supplemented ----------------- at any time and from time to time by an indenture supplement in accordance with Article X (an "Indenture Supplement," and together with this Indenture and any - --------- -------------------- amendments, the "Agreement"). If a conflict exists between the terms and --------- provisions of this Indenture and any Indenture Supplement, the terms and provisions of the Indenture Supplement shall be controlling with respect to the related Series. PRELIMINARY STATEMENT The Issuer has duly authorized the execution and delivery of this Indenture to provide for an issue of its asset backed notes as provided in this Indenture. All covenants and agreements made by the Issuer herein are for the benefit and security of the Noteholders. The Issuer is entering into this Indenture, and the Indenture Trustee is accepting the trusts created hereby, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged. Simultaneously with the amendment and restatement of this Indenture, the Issuer is amending and restating a Transfer and Servicing Agreement with First Consumers National Bank, a national banking association, as Servicer (which amendment and restatement will, among other things, substitute First Consumers Credit Corporation, a Delaware corporation for First Consumers National Bank as Seller under that Agreement), pursuant to which (a) the Seller will convey to the Issuer all of its right, title and interest in, to and under (i) the Collateral Certificate, which the Seller will have received from First Consumers Master Trust, and (ii) on and after the FCMT Termination Date, the Receivables which the Seller will have received from First Consumers National Bank pursuant to the Receivables Purchase Agreement, dated as of the date hereof, and (b) the Servicer will agree to service the Receivables and make collections thereon on behalf of the Noteholders. Under the Receivables Purchase Agreement and the Transfer and Servicing Agreement, Receivables arising in the Accounts from time to time will be conveyed thereunder to the Issuer. GRANTING CLAUSE The Issuer hereby Grants to the Indenture Trustee, for the benefit of the Holders of the Notes and the Enhancement Providers, all of the Issuer's right, title and interest, whether now owned or hereafter acquired, in, to and under (a) the Collateral Certificate, (b) the Receivables, (c) Recoveries related to and all money, instruments, investment property and other property distributed or distributable in respect of (together with all earnings, dividends, distributions, income, issues, and profits relating to) the Receivables pursuant to the terms of the Transfer and Servicing Agreement, this Indenture and any Indenture Supplement; (d) the rights to receive certain amounts paid or payable as Interchange (if and to the extent provided for in any Indenture Supplement), (e) all rights to security for any Receivables (including rights to bank accounts or certificates of deposit pledged as collateral), (f) all Permitted Investments and all money, investment property, instruments and other property on deposit from time to time in, credited to or related to the Collection Account, the Series Accounts and the Excess Funding Account (including any subaccounts of any such account), and in all interest, dividends, earnings, income and other distributions from time to time received, receivable or otherwise distributed or distributable thereto or in respect thereof (including any accrued discount realized on liquidation of any investment purchased at a discount); (g) all rights, remedies, powers, privileges and claims of the Issuer under or with respect to any Series Enhancement and the Transfer and Servicing Agreement (whether arising pursuant to the terms of the Transfer and Servicing Agreement or otherwise available to the Issuer at law or in equity), including the rights of the Issuer to enforce the Transfer and Servicing Agreement, and to give or withhold any and all consents, requests, notices, directions, approvals, extensions or waivers under or with respect to the Transfer and Servicing Agreement to the same extent as the Issuer could but for the assignment and security interest granted to the Indenture Trustee for the benefit of the Noteholders; (h) all proceeds of any Credit Insurance policies relating to the Receivables; (i) all proceeds of any derivative contracts between the Issuer or FCNB and a counterparty, as described in any Indenture Supplement; (j) all money, accounts, general intangibles, chattel paper, instruments, documents, goods, investment property, deposit accounts, certificates of deposit, letters of credit, and advices of credit consisting of, arising from or related to the foregoing; (k) all other property of the Issuer; (l) all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing and all payments on or under and all proceeds of every kind and nature whatsoever in respect of any or all of the foregoing, including all proceeds, products, rents, receipts or profits of the conversion, voluntary or involuntary, into cash or other property, all cash and non-cash proceeds, and other property consisting of, arising from or relating to all or any part of any of the foregoing; and (m) any proceeds of the foregoing (collectively, the "Collateral"). ---------- LIMITED RECOURSE The obligation of the Issuer to make payments of principal, interest and other amounts in respect of the Notes is limited by recourse only to the Collateral. 2 ARTICLE I DEFINITIONS Section 1.1. Definitions. ----------- Capitalized terms used herein are defined in Annex A. ------- Section 1.2. Other Definitional Provisions. ----------------------------- (a) All terms defined directly or by reference in this Indenture shall have the defined meanings when used in any certificate or other document delivered pursuant hereto unless otherwise defined therein. For purposes of this Indenture and all such certificates and other documents, unless the context otherwise requires: (i) accounting terms not otherwise defined in this Indenture, and accounting terms partly defined in this Indenture to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles; (ii) terms defined in Article 9 of the UCC as in effect in the applicable jurisdiction and not otherwise defined in this Indenture are used as defined in that Article; (iii) any reference to each Rating Agency shall only apply to any specific rating agency if such rating agency is then rating any outstanding Series; (iv) references to any amount as on deposit or outstanding on any particular date means such amount at the close of business on such day; (v) the words "hereof," "herein" and "hereunder" and words of similar import refer to this Indenture (or the certificate or other document in which they are used) as a whole and not to any particular provision of this Indenture (or such certificate or document); (vi) references to any Section, Schedule or Exhibit are references to Sections, Schedules and Exhibits in or to this Indenture (or the certificate or other document in which the reference is made), and references to any paragraph, Section, clause or other subdivision within any Section or definition refer to such paragraph, subsection, clause or other subdivision of such Section or definition; (vii) the term "including" means "including without limitation"; (viii) references to any law or regulation refer to that law or regulation as amended from time to time and include any successor law or regulation; (ix) references to any Person include that Person's successors and assigns; and (x) headings are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. (b) Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes -------------------- "indenture security holder" means a Noteholder ------------------------- 3 "indenture to be qualified" means this Indenture ------------------------- "indenture trustee" or "institutional trustee" means the Indenture Trustee ----------------- --------------------- "obligor" on the indenture securities means the Issuer and any other ------- obligor on the indenture securities All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule have the meanings assigned to them by such definitions. ARTICLE II THE NOTES Section 2.1. Form Generally. Any Series or Class of Notes, together with -------------- the Indenture Trustee's certificate of authentication related thereto, may be issued in bearer form (the "Bearer Notes") with attached interest coupons and a ------------ special coupon (collectively, the "Coupons") or in fully registered form (the ------- "Registered Notes") and shall be in substantially the form of an exhibit to the ---------------- related Indenture Supplement with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture or such Indenture Supplement, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon, as may, consistently herewith, be determined by the officers executing such Notes, as evidenced by their execution of such Notes. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Note. The terms of any Notes set forth in an exhibit to the related Indenture Supplement are part of the terms of this Indenture, as applicable. The Definitive Notes shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods, all as determined by the officers executing such Notes, as evidenced by their execution of such Notes. Each Note will be dated the Closing Date and each Definitive Note will be dated as of the date of its authentication. Section 2.2. Denominations. Except as otherwise specified in the related ------------- Indenture Supplement and the Notes, each class of Notes of each Series shall be issued in fully registered form in minimum amounts of $1,000 and in integral multiples of $1,000 in excess thereof (except that one Note of each Class may be issued in a different amount, so long as such amount exceeds the applicable minimum denomination for such Class), and shall be issued upon initial issuance as one or more Notes in an aggregate original principal amount equal to the applicable Collateral Amount for such Class or Series. 4 Section 2.3. Execution, Authentication and Delivery. Each Note shall be -------------------------------------- executed by manual or facsimile signature on behalf of the Issuer by an Authorized Officer. Notes bearing the manual or facsimile signature of an individual who was, at the time when such signature was affixed, authorized to sign on behalf of the Issuer shall not be rendered invalid, notwithstanding the fact that such individual ceased to be so authorized prior to the authentication and delivery of such Notes or does not hold such office at the date of issuance of such Notes. At any time and from time to time after the execution and delivery of this Indenture, the Issuer may deliver Notes executed by the Issuer to the Indenture Trustee for authentication and delivery, and the Indenture Trustee shall authenticate at the written direction of the Issuer and deliver such Notes as provided in this Indenture or the related Indenture Supplement and not otherwise. No Note shall be entitled to any benefit under this Indenture or the applicable Indenture Supplement or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for herein or in the related Indenture Supplement executed by or on behalf of the Indenture Trustee by the manual signature of a duly authorized signatory, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. Section 2.4. Authenticating Agent. -------------------- (a) The Indenture Trustee, at the expense of the Servicer, may appoint one or more authenticating agents with respect to the Notes which shall be authorized to act on behalf of the Indenture Trustee in authenticating the Notes in connection with the issuance, delivery, registration of transfer, exchange or repayment of the Notes. Whenever reference is made in this Indenture to the authentication of Notes by the Indenture Trustee or the Indenture Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of the Indenture Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Indenture Trustee by an authenticating agent. Each authenticating agent must be acceptable to the Issuer and the Servicer. (b) Any institution succeeding to the corporate agency business of an authenticating agent shall continue to be an authenticating agent without the execution or filing of any power or any further act on the part of the Indenture Trustee or such authenticating agent. 5 (c) An authenticating agent may at any time resign by giving written notice of resignation to the Indenture Trustee, the Issuer and the Servicer. The Indenture Trustee may at any time terminate the agency of an authenticating agent by giving notice of termination to such authenticating agent and to the Issuer and the Servicer. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an authenticating agent shall cease to be acceptable to the Indenture Trustee or the Issuer and the Servicer, the Indenture Trustee may promptly appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent. No successor authenticating agent shall be appointed unless acceptable to the Issuer and the Servicer. (d) The Issuer agrees to pay to each authenticating agent from time to time reasonable compensation for its services under this Section 2.4. ------------ (e) The provisions of Sections 6.1 and 6.4 shall be applicable to any ------------ --- authenticating agent. (f) Pursuant to an appointment made under this Section 2.4, the Notes may ----------- have endorsed thereon, in lieu of or in addition to the Indenture Trustee's certificate of authentication, an alternative certificate of authentication in substantially the following form: "This is one of the Notes described in the within-mentioned Agreement. - ----------------------------- - ----------------------------- as Authenticating Agent for the Indenture Trustee By: ------------------------------ "Authorized Signatory" Section 2.5. Registration of and Limitations on Transfer and Exchange of ----------------------------------------------------------- Notes. The Issuer shall cause to be kept a register (the "Note Register") in - ----- ------------- which the Issuer shall provide for the registration of Notes and the registration of transfers of Notes. The Indenture Trustee initially shall be the transfer agent and registrar (in such capacity, the "Transfer Agent and ------------------ Registrar") for the purpose of registering Notes and transfers of Notes as - --------- herein provided. Upon any resignation of any Transfer Agent and 6 Registrar, the Issuer shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Transfer Agent and Registrar. If a Person other than the Indenture Trustee is appointed by the Issuer as Transfer Agent and Registrar, the Issuer will give the Indenture Trustee prompt written notice of the appointment of a Transfer Agent and Registrar and of the location, and any change in the location, of the Transfer Agent and Registrar and Note Register. The Indenture Trustee shall have the right to inspect the Note Register at all reasonable times and to obtain copies thereof, and the Indenture Trustee shall have the right to conclusively rely upon a certificate executed on behalf of the Transfer Agent and Registrar by an officer thereof as to the names and addresses of the Noteholders and the principal amounts and numbers of such Notes. Upon surrender for registration of transfer of any Note at the office or agency of the Transfer Agent and Registrar, to be maintained as provided in Section 3.2, if the requirements of Section 8-401 of the UCC as in effect in the - ----------- applicable jurisdiction are met as certified by the Administrator to the Indenture Trustee, the Issuer shall execute, and upon receipt of such surrendered Note the Indenture Trustee shall authenticate and deliver to the Noteholder, in the name of the designated transferee or transferees, one or more new Notes (of the same Series and Class) in any authorized denominations of like aggregate principal amount. At the option of a Noteholder, Notes may be exchanged for other Notes (of the same Series and Class) in any authorized denominations and of like aggregate principal amount, upon surrender of such Notes to be exchanged at the office or agency of the Transfer Agent and Registrar. Whenever any Notes are so surrendered for exchange, if the requirements of Section 8-401 of the UCC as in effect in the applicable jurisdiction are met as certified by the Administrator to the Indenture Trustee, the Issuer shall execute, and upon receipt of such surrendered Note the Indenture Trustee shall authenticate and deliver to the Noteholder, the Notes which the Noteholder making the exchange is entitled to receive. All Notes issued upon any registration of transfer or exchange of Notes shall evidence the same obligations, evidence the same debt, and be entitled to the same rights and privileges under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by a written instrument of transfer in a form satisfactory to the Indenture Trustee duly executed by, the Noteholder thereof or its attorney-in-fact duly authorized in writing, and by such other documents as the Indenture Trustee may reasonably require. 7 Any Note held by the Seller at any time after the date of its initial issuance may be transferred or exchanged only upon the delivery to the Owner Trustee and the Indenture Trustee of a Tax Opinion dated as of the date of such transfer or exchange, as the case may be, with respect to such transfer or exchange. The registration of transfer of any Note shall be subject to the additional requirements, if any, set forth in the related Indenture Supplement. No service charge shall be made for any registration of transfer or exchange of Notes, but the Issuer and the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of such Notes. All Notes surrendered for registration of transfer and exchange shall be canceled by the Issuer and delivered to the Indenture Trustee for subsequent destruction without liability on the part of either. The Indenture Trustee shall destroy the Global Note upon its exchange in full for Definitive Notes and shall deliver a certificate of destruction to the Seller. Such certificate shall also state that a certificate or certificates of each Foreign Clearing Agency referred to in the applicable Indenture Supplement was received with respect to each portion of the Global Note exchanged for Definitive Notes. The preceding provisions of this Section 2.5 notwithstanding, the Issuer ----------- shall not be required to make, and Transfer Agent and Registrar need not register, transfers or exchanges of Notes for a period of twenty (20) days preceding the due date for any payment with respect to the Note. If and so long as any Series of Notes are listed on the Luxembourg Stock Exchange and such exchange shall so require, the Issuer shall appoint a co-transfer agent and co-registrar in Luxembourg or another European city. Any reference in this Indenture to the Transfer Agent and Registrar shall include any co-transfer agent and co-registrar unless the context otherwise requires. The Indenture Trustee will enter into any appropriate agency agreement with any co-transfer agent and co-registrar not a party to this Indenture, which will implement the provisions of this Indenture that relate to such agent. Section 2.6. Mutilated, Destroyed, Lost or Stolen Notes. If (a) any ------------------------------------------ mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (b) in case of destruction, loss, or theft there is delivered to the Indenture Trustee such security or indemnity as may be required by it to hold the Issuer, the Noteholders and the Indenture Trustee harmless, then, in the absence of notice to the Issuer, the Transfer Agent and Registrar or the Indenture Trustee that such Note has been acquired by a protected purchaser (as defined in Section 8-303 of the UCC as in effect in the applicable 8 jurisdiction), the Issuer shall execute, and the Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement Note of like tenor (including the same date of issuance) and principal amount, bearing a number not contemporaneously outstanding; provided, however, that if any such mutilated, -------- ------- destroyed, lost or stolen Note shall have become or within seven (7) days shall be due and payable, or shall have been selected or called for redemption, instead of issuing a replacement Note, the Issuer may pay such Note without surrender thereof, except that any mutilated Note shall be surrendered. If, after the delivery of such replacement Note or payment of a destroyed, lost or stolen Note pursuant to the proviso to the preceding sentence, a protected purchaser (as defined in Section 8-303 of the UCC as in effect in the applicable jurisdiction) of the original Note in lieu of which such replacement Note was issued presents for payment such original Note, the Issuer and the Indenture Trustee shall be entitled to recover such replacement Note (or such payment) from the Person to whom it was delivered or any Person taking such replacement Note from such Person to whom such replacement Note was delivered or any assignee of such Person, except a protected purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee in connection therewith. Upon the issuance of any replacement Note under this Section 2.6, the ----------- Issuer may require the payment by the Holder of such Note of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the fees and expenses of the Indenture Trustee or the Transfer Agent and Registrar) connected therewith. Every replacement Note issued pursuant to this Section 2.6 in replacement ----------- of any mutilated, destroyed, lost or stolen Note shall constitute complete and indefeasible evidence of an obligation of the Trust, as if originally issued, whether or not the mutilated, destroyed, lost or stolen Note shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section 2.6 are exclusive and shall preclude (to the ----------- extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. Section 2.7. Persons Deemed Owners. Prior to due presentment for --------------------- registration of transfer of any Note, the Issuer, the Seller, the Indenture Trustee and any agent of the Issuer, the Seller or the Indenture Trustee shall treat the Person in whose name any Note is registered as the owner of such Note for the purpose of receiving distributions pursuant to the terms of the applicable Indenture Supplement and for all other purposes whatsoever, whether or not such Note is overdue, and neither the Issuer, 9 the Seller, the Indenture Trustee nor any agent of the Issuer, the Seller or the Indenture Trustee shall be affected by any notice to the contrary. Section 2.8. Appointment of Paying Agent. --------------------------- (a) The Issuer reserves the right at any time to vary or terminate the appointment of a Paying Agent for the Notes, and to appoint additional or other Paying Agents, provided that it will at all times maintain the Indenture Trustee as a Paying Agent. If and so long as any Notes are listed on the Luxembourg Stock Exchange and such exchange shall so require, the Indenture Trustee will appoint a co-paying agent in Luxembourg or another European city. The Indenture Trustee will enter into any appropriate agency agreement with any co-paying agent not a party to this Indenture, which will implement the provisions of this Indenture that relate to such agent. Notice of all changes in the identity or specified office of a Paying Agent will be delivered promptly to the Noteholders by the Indenture Trustee. (b) The Indenture Trustee shall cause each Paying Agent (other than itself) to execute and deliver to the Indenture Trustee an instrument in which such Paying Agent shall agree with the Indenture Trustee that such Paying Agent will hold all sums, if any, held by it for payment to the Noteholders in trust for the benefit of the Noteholders entitled thereto until such sums shall be paid to such Noteholders and shall agree, and if the Indenture Trustee is the Paying Agent it hereby agrees, that it shall comply with all requirements of the Code regarding the withholding by the Indenture Trustee of payments in respect of federal income taxes due from the Note Owners. Section 2.9. Access to List of Noteholders' Names and Addresses. -------------------------------------------------- (a) The Issuer will furnish or cause to be furnished to the Indenture Trustee, the Servicer or the Paying Agent, within five (5) Business Days after receipt by the Issuer of a written request therefor from the Indenture Trustee, the Servicer or the Paying Agent, respectively, a list of the names and addresses of the Noteholders. Unless otherwise provided in the related Indenture Supplement, the Holders of not less than 10% of the principal balance of the Outstanding Notes of any Series (the "Applicants") may apply in writing to the ----------- Indenture Trustee, and if such application states that the Applicants desire to communicate with other Noteholders of any Series with respect to their rights under this Indenture or under the Notes and is accompanied by a copy of the communication which such Applicants propose to transmit, then the Indenture Trustee, after having been adequately indemnified by such Applicants for its costs and expenses, shall afford or shall cause the Transfer Agent and Registrar to afford such Applicants access during normal business hours to the most recent list of Noteholders held by the Indenture Trustee and shall give the Servicer notice that such request has been made, 10 within five (5) Business Days after the receipt of such application. Such list shall be as of a date no more than forty-five (45) days prior to the date of receipt of such Applicants' request. (b) Every Noteholder, by receiving and holding a Note, agrees that none of the Issuer, the Indenture Trustee, the Transfer Agent and Registrar and the Servicer or any of their respective agents and employees shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Noteholders hereunder, regardless of the sources from which such information was derived. Section 2.10. Cancellation. All Notes surrendered for payment, registration ------------ of transfer, exchange or redemption shall, if surrendered to any Person other than the Indenture Trustee, be delivered to the Indenture Trustee and shall be promptly canceled by it. The Issuer may at any time deliver to the Indenture Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Issuer may have acquired in any lawful manner whatsoever, and all Notes so delivered shall be promptly canceled by the Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section 2.10, except as expressly permitted by this ------------ Indenture. All canceled Notes held by the Indenture Trustee shall be destroyed unless the Issuer shall direct by a timely order that they be returned to it. Section 2.11. [Reserved] ---------- Section 2.12. New Issuances. ------------- (a) Pursuant to one or more Indenture Supplements, the Seller may from time to time direct the Owner Trustee, on behalf of the Issuer, to issue one or more new Series of Notes (a "New Issuance"). The Notes of all outstanding Series ------------ shall be equally and ratably entitled as provided herein to the benefits of this Indenture without preference, priority or distinction, all in accordance with the terms and provisions of this Indenture and the applicable Indenture Supplement except, with respect to any Series or Class, as provided in the related Indenture Supplement. Interest on and principal of the Notes of each outstanding Series shall be paid as specified in the Indenture Supplement relating to such outstanding Series. (b) On or before the Closing Date relating to any new Series of Notes, the parties hereto will execute and deliver an Indenture Supplement which will specify the Principal Terms of such Series. The terms of such Indenture Supplement may modify or amend the terms of this Indenture solely as applied to such new Series. The obligation of the Owner Trustee to execute, on behalf of the Issuer, the Notes of any Series and of the Indenture Trustee to authenticate such Notes (other than any Series issued pursuant to an Indenture Supplement dated as of the date hereof) and to execute and deliver the related Indenture Supplement is subject to the satisfaction of the following conditions: 11 (i) on or before the fifth Business Day immediately preceding the Closing Date the Seller shall have given the Owner Trustee, the Indenture Trustee, the Servicer and each Rating Agency notice (unless such notice requirement is otherwise waived) of such issuance and the Closing Date; (ii) the Seller shall have delivered to the Owner Trustee and the Indenture Trustee any related Indenture Supplement, in form satisfactory to the Owner Trustee and the Indenture Trustee, executed by each party hereto (other than the Indenture Trustee); (iii) the Seller shall have delivered to the Owner Trustee and the Indenture Trustee any related Enhancement Agreement executed by the Seller and the Series Enhancer; (iv) the Rating Agency Condition shall have been satisfied with respect to such issuance; (v) such issuance will not result in any Adverse Effect and the Seller shall have delivered to the Owner Trustee and the Indenture Trustee an Officer's Certificate, dated the Closing Date to the effect that the Seller reasonably believes that such issuance will not, based on the facts known to such officer at the time of such certification, have an Adverse Effect; (vi) the Seller shall have delivered to the Owner Trustee and the Indenture Trustee (with a copy to each Rating Agency) (A) an Opinion of Counsel, dated the Closing Date with respect to such issuance, to the effect that, except as otherwise stated in the related Indenture Supplement, the Notes of the new Series will be characterized as debt for federal income tax purposes and (B) a Tax Opinion, dated the Closing Date with respect to such issuance; and (vii) the Aggregate Principal Balance shall not be less than the Minimum Aggregate Principal Balance as of the Closing Date and after giving effect to such issuance. (c) Upon satisfaction of the above conditions, pursuant to Section 2.3, the ----------- Owner Trustee, on behalf of the Issuer, shall execute and the Indenture Trustee shall upon written direction of the Issuer authenticate and deliver the Notes of such Series as provided in this Indenture and the applicable Indenture Supplement. (d) The Issuer may direct the Indenture Trustee in writing to deposit the net proceeds from any New Issuance in the Excess Funding Account. The Issuer may also specify that on any Transfer Date the proceeds from the sale of any new Series may be 12 withdrawn from the Excess Funding Account and treated as Shared Principal Collections. Section 2.13. Book-Entry Notes. Unless otherwise provided in any related ---------------- Indenture Supplement, the Notes, upon original issuance, shall be issued in the form of typewritten or printed Notes representing the Book-Entry Notes to be delivered to the depository specified in such Indenture Supplement which shall be the Clearing Agency or Foreign Clearing Agency, by or on behalf of such Series. The Notes of each Series shall, unless otherwise provided in the related Indenture Supplement, initially be registered in the Note Register in the name of the nominee of the Clearing Agency or Foreign Clearing Agency for such Book-Entry Notes and shall be delivered to the Indenture Trustee or, pursuant to such Clearing Agency's or Foreign Clearing Agency's instructions held by the Indenture Trustee's agent as custodian for the Clearing Agency or Foreign Clearing Agency. Unless and until Definitive Notes are issued under the limited circumstances described in Section 2.15, no Note Owner shall be entitled to ------------ receive a Definitive Note representing such Note Owner's interest in such Note. Unless and until Definitive Notes have been issued to the Note Owners pursuant to Section 2.15: ------------ (a) the provisions of this Section 2.13 shall be in full force and effect ------------ with respect to each such Series; (b) the Indenture Trustee shall be entitled to deal with the Clearing Agency or Foreign Clearing Agency and the Clearing Agency Participants for all purposes of this Indenture (including the payment of principal of and interest on the Notes of each such Series) as the authorized representatives of the Note Owners; (c) to the extent that the provisions of this Section 2.13 conflict with ------------ any other provisions of this Indenture, the provisions of this Section 2.13 ------------ shall control with respect to each such Series; (d) the rights of Note Owners of each such Series shall be exercised only through the Clearing Agency or Foreign Clearing Agency and the applicable Clearing Agency Participants and shall be limited to those established by law and agreements between such Note Owners and the Clearing Agency or Foreign Clearing Agency and/or the Clearing Agency Participants. Pursuant to the depository agreement applicable to a Series, unless and until Definitive Notes of such Series are issued pursuant to Section 2.15, the initial Clearing Agency ------------ shall make book-entry transfers among the Clearing Agency Participants and receive and transmit distributions of principal and interest on the Notes to such Clearing Agency Participants; and 13 (e) whenever this Indenture requires or permits actions to be taken based upon instructions or directions of the Holders of Notes representing a specified percentage of the Outstanding Amount, the Clearing Agency or Foreign Clearing Agency shall be deemed to represent such percentage only to the extent that they have received instructions to such effect from the Note Owners and/or Clearing Agency Participants owning or representing, respectively, such required percentage of the beneficial interest in the Notes and has delivered such instructions to the Indenture Trustee. Section 2.14. Notices to Clearing Agency or Foreign Clearing Agency. ----------------------------------------------------- Whenever a notice or other communication to the Noteholders is required under this Indenture, unless and until Definitive Notes shall have been issued to Note Owners pursuant to Section 2.15, the Indenture Trustee shall give all such ------------ notices and communications specified herein to be given to Noteholders to the Clearing Agency or Foreign Clearing Agency, as applicable, and shall have no obligation to the Note Owners. Section 2.15. Definitive Notes. If (i) (A) the Seller advises the Indenture ---------------- Trustee in writing that the Clearing Agency is no longer willing or able to discharge properly its responsibilities as Clearing Agency with respect to the Book-Entry Notes of a given Series and (B) the Indenture Trustee or Issuer is unable to locate and reach an agreement on satisfactory terms with a qualified successor, (ii) the Seller, at its option, advises the Indenture Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency with respect to such Series or (iii) after the occurrence of a Servicer Default, Note Owners of Notes evidencing more than 50% of the principal balance of the Outstanding Notes (or such other percentage as specified in the related Indenture Supplement) of such Series advise the Indenture Trustee and the applicable Clearing Agency through the applicable Clearing Agency Participants in writing that the continuation of a book-entry system is no longer in the best interests of the Note Owners of such Series, the Clearing Agency shall notify all Note Owners of such Series of the occurrence of such event and of the availability of Definitive Notes to Note Owners of such Series requesting the same. Upon surrender to the Indenture Trustee of the Notes of such Series, accompanied by registration instructions from the applicable Clearing Agency, the Issuer shall execute and the Indenture Trustee shall authenticate Definitive Notes of such Series and shall recognize the registered holders of such Definitive Notes as Noteholders under this Indenture. Neither the Issuer nor the Indenture Trustee shall be liable for any delay in delivery of such instructions, and the Issuer and the Indenture Trustee may conclusively rely on, and shall be fully protected in relying on, such instructions. Upon the issuance of Definitive Notes of such Series, all references herein to obligations imposed upon or to be performed by the applicable Clearing Agency or Foreign Clearing Agency shall be deemed to be imposed upon and performed by the Indenture Trustee, to the extent applicable with respect to such Definitive Notes, and the Indenture Trustee shall recognize the registered holders of the Definitive Notes of such Series as Noteholders of such Series hereunder. Definitive 14 Notes will be transferable and exchangeable at the offices of the Transfer Agent and Registrar. Section 2.16. Global Note. If specified in the related Indenture Supplement ----------- for any Series, Notes may be initially issued in the form of a single temporary Global Note (the "Global Note") in bearer form, without interest coupons, in the ----------- denomination of the initial principal amount and substantially in the form attached to the related Indenture Supplement. Unless otherwise specified in the related Indenture Supplement, the provisions of this Section 2.16 shall apply to ------------ such Global Note. The Global Note will be authenticated by the Indenture Trustee upon the same conditions, in substantially the same manner and with the same effect as the Definitive Notes. The Global Note may be exchanged in the manner described in the related Indenture Supplement for Registered Notes or Bearer Notes in definitive form. Except as otherwise specifically provided in the Indenture Supplement, any Notes that are issued in bearer form pursuant to this Indenture shall be issued in accordance with the requirements of Code section 163(f)(2). Section 2.17. Meetings of Noteholders. To the extent provided by the ----------------------- Indenture Supplement for any Series issued in whole or in part in Bearer Notes, the Servicer or the Indenture Trustee may at any time call a meeting of the Noteholders of such Series, to be held at such time and at such place as the Servicer and the Indenture Trustee, as the case may be, shall determine, for the purpose of approving a modification or amendment to, or obtaining a waiver of, any covenant or condition set forth in this Indenture with respect to such Series or in the Notes of such Series, subject to Article X. --------- Section 2.18. Uncertificated Classes. Notwithstanding anything to the ---------------------- contrary contained in this Article II or in Article XI, unless otherwise ---------- ---------- specified in any Indenture Supplement, any provisions contained in this Article ------- II and in Article XI relating to the registration, form, execution, - -- ---------- authentication, delivery, presentation, cancellation and surrender of Notes shall not be applicable to any uncertificated Notes, provided, however, that, -------- ------- except as otherwise specifically provided in the Indenture Supplement, any such uncertificated Notes shall be issued in "registered form" within the meaning of Code section 163(f)(1). ARTICLE III REPRESENTATIONS AND COVENANTS OF ISSUER Section 3.1. Payment of Principal and Interest. --------------------------------- (a) The Issuer will duly and punctually pay principal and interest in accordance with the terms of the Notes as specified in the relevant Indenture Supplement. 15 (b) The Noteholders of a Series as of the Record Date in respect of a Distribution Date shall be entitled to the interest accrued and payable and principal payable on such Distribution Date as specified in the related Indenture Supplement. All payment obligations under a Note are discharged to the extent such payments are made to the Noteholder of record. Section 3.2. Maintenance of Office or Agency. The Issuer will maintain an ------------------------------- office or agency within the State of New York and such other locations as may be set forth in an Indenture Supplement where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Issuer in respect of the Notes and this Indenture may be served. The Issuer hereby initially appoints the Indenture Trustee at its Corporate Trust Office to serve as its agent for the foregoing purposes. The Issuer will give prompt written notice to the Indenture Trustee and the Noteholders of the location, and of any change in the location, of any such office or agency. If at any time the Issuer shall fail to maintain any such office or agency or shall fail to furnish the Indenture Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee at its Corporate Trust Office as its agent to receive all such presentations, surrenders, notices and demands. Section 3.3. Money for Note Payments to Be Held in Trust. As specified in ------------------------------------------- Section 8.3(a) and (b) herein and in the related Indenture Supplement, all - -------------- --- payments of amounts due and payable with respect to the Notes which are to be made from amounts withdrawn from the Collection Account and the Excess Funding Account shall be made on behalf of the Issuer by the Indenture Trustee or by the Paying Agent, and no amounts so withdrawn from the Collection Account or the Excess Funding Account shall be paid over to or at the direction of the Issuer except as provided in this Section 3.3 and in the related Indenture Supplement. ----------- The Issuer will cause each Paying Agent other than the Indenture Trustee to execute and deliver to the Indenture Trustee an instrument in which such Paying Agent shall agree with the Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of this Section ------- 3.3, that such Paying Agent, in acting as Paying Agent, is an express agent of - --- the Issuer and, further, that such Paying Agent will: (i) hold all sums held by it for the payment of amounts due with respect to the Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided and pay such sums to such Persons as herein provided; 16 (ii) give a Trustee Officer of the Indenture Trustee written notice of any default by the Issuer (or any other obligor upon the Notes) of which it has actual knowledge in the making of any payment required to be made with respect to the Notes; (iii) at any time during the continuance of any such default, upon the written request of the Indenture Trustee, forthwith pay to the Indenture Trustee all sums so held in trust by such Paying Agent; (iv) immediately resign as a Paying Agent and forthwith pay to the Indenture Trustee all sums held by it in trust for the payment of Notes if at any time it ceases to meet the standards required to be met by a Paying Agent at the time of its appointment; and (v) comply with all requirements of the Code with respect to the withholding from any payments made by it on any Notes of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith. The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, by Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums held in trust by such Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts as those upon which such sums were held by such Paying Agent; and upon such payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Section 3.4. Existence. The Issuer will keep in full effect its existence, --------- rights and franchises as a common law trust under the laws of the State of Illinois (unless it becomes, or any successor Issuer hereunder is or becomes, organized under the laws of any other State or of the United States of America, in which case the Issuer will keep in full effect its existence, rights and franchises under the laws of such other jurisdiction) and will obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Indenture, the Notes, the Collateral and each other related instrument or agreement. Section 3.5. Protection of Collateral. The Issuer will from time to time ------------------------ prepare, or cause to be prepared, execute and deliver all such supplements and amendments hereto and all such financing statements, continuation statements, instruments of further assurance and other instruments, and will take such other action necessary or advisable to: 17 (a) grant more effectively all or any portion of the Collateral as security for the Notes; (b) maintain or preserve the lien (and the priority thereof) of this Indenture or to carry out more effectively the purposes hereof; (c) perfect, publish notice of, or protect the validity of any Grant made or to be made under this Indenture; (d) enforce any of the Collateral; or (e) preserve and defend title to the Collateral securing the Notes and the rights therein of the Indenture Trustee and the Noteholders secured thereby against the claims of all persons and parties. The Issuer hereby represents that all of the representations and warranties set out in Annex B are true and correct. ------- The Issuer hereby designates the Indenture Trustee its agent and attorney-in-fact to execute any financing statement, continuation statement or other instrument required pursuant to this Section 3.5, but the Indenture ----------- Trustee shall not have any obligation to take any such action unless instructed to do so by Noteholders in accordance with the terms hereof. The Issuer shall pay or cause to be paid any taxes levied on all or any part of the Receivables securing the Notes. Section 3.6. Opinions as to Collateral. ------------------------- (a) On the Closing Date relating to any new Series of Notes, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel satisfactory to the Rating Agencies either stating that, in the opinion of such counsel, such action has been taken to perfect the lien and security interest of this Indenture, including with respect to the recording and filing of this Indenture, any indentures supplemental hereto, and any other requisite documents, and with respect to the execution and filing of any financing statements and continuation statements, as are so necessary and reciting the details of such action, or stating that, in the opinion of such counsel, no such action is necessary to maintain the perfection of such lien and security interest. (b) On or before May 30 in each calendar year, beginning in 2001, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel satisfactory to the Rating Agencies either stating that, in the opinion of such counsel, such action has been taken to perfect the lien and security interest of this Indenture, including with respect to the recording, filing, re-recording and refiling of this Indenture, any indentures 18 supplemental hereto and any other requisite documents and with respect to the execution and filing of any financing statements and continuation statements as is so necessary and reciting the details of such action or stating that in the opinion of such counsel no such action is necessary to maintain the perfection of such lien and security interest. Such Opinion of Counsel shall also describe the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and the execution and filing of any financing statements and continuation statements that will, in the opinion of such counsel, be required to maintain the perfection of the lien and security interest of this Indenture until May 30 in the following calendar year. Section 3.7. Performance of Obligations; Servicing of Receivables. ---------------------------------------------------- (a) The Issuer will not take any action and will use its best efforts not to permit any action to be taken by others that would release any Person from any of such Person's material covenants or obligations under any instrument or agreement included in the Collateral or that would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such instrument or agreement, except as expressly provided in this Indenture, the Transfer and Servicing Agreement or such other instrument or agreement. (b) The Issuer may contract with other Persons to assist it in performing its duties under this Indenture, and any performance of such duties by a Person identified to the Indenture Trustee in an Officer's Certificate of the Issuer shall be deemed to be action taken by the Issuer. Initially, the Issuer has contracted with the Administrator to assist the Issuer in performing its duties under this Indenture. (c) The Issuer will punctually perform and observe all of its obligations and agreements contained in this Indenture, the other Transaction Documents and in the instruments and agreements relating to the Collateral, including but not limited to filing or causing to be filed all UCC financing statements and continuation statements required to be filed by the terms of this Indenture and the Transfer and Servicing Agreement in accordance with and within the time periods provided for herein and therein. (d) If the Issuer shall have knowledge of the occurrence of a Servicer Default under the Transfer and Servicing Agreement, the Issuer shall cause the Indenture Trustee to promptly notify the Rating Agencies thereof, and shall cause the Indenture Trustee to specify in such notice the action, if any, being taken with respect to such default. If a Servicer Default shall arise from the failure of the Servicer to perform any of its duties or obligations under the Transfer and Servicing Agreement with respect to the Receivables, the Issuer shall take all reasonable steps available to it to remedy such failure. 19 (e) On and after the receipt by the Servicer of a Termination Notice pursuant to Section 7.1 of the Transfer and Servicing Agreement, the Servicer ----------- shall continue to perform all servicing functions under this Indenture until the date specified in the Termination Notice or until a date mutually agreed upon by the Servicer and the Indenture Trustee. As promptly as possible after the giving of a Termination Notice to the Servicer, the Indenture Trustee shall appoint a Successor Servicer, and such Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Indenture Trustee. In the event that a Successor Servicer has not been appointed and accepted its appointment at the time when the Servicer ceases to act as Servicer, the Indenture Trustee in accordance with Section 7.2 of the Transfer and Servicing Agreement without ----------- further action shall automatically be appointed the Successor Servicer. The Indenture Trustee may delegate any of its servicing obligations to an Affiliate or agent in accordance with Section 3.1(b) and Section 5.7 of the Transfer and -------------- ----------- Servicing Agreement. Notwithstanding the foregoing, the Indenture Trustee shall, if it is legally unable so to act, petition at the expense of the Servicer a court of competent jurisdiction to appoint any established institution qualifying as an Eligible Servicer as the Successor Servicer hereunder. The Indenture Trustee shall give prompt notice to each Rating Agency and each Series Enhancer upon the appointment of a Successor Servicer. Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicer with respect to servicing functions under this Indenture and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof, and all references in this Indenture to the Servicer shall be deemed to refer to the Successor Servicer. In connection with any Termination Notice, the Indenture Trustee will review any bids which it obtains from Eligible Servicers and shall be permitted to appoint any Eligible Servicer submitting such a bid as a Successor Servicer for servicing compensation, subject to the limitations set forth in Section 7.2 of ----------- the Transfer and Servicing Agreement. Notwithstanding anything else herein to the contrary, in no event shall the Indenture Trustee be liable for any servicing fee. (f) Without derogating from the absolute nature of the assignment granted to the Indenture Trustee under this Indenture or the rights of the Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the prior written consent of the Indenture Trustee and satisfaction of the Rating Agency Condition, amend, modify, waive, supplement, terminate or surrender, or agree to any amendment, modification, supplement, termination, waiver or surrender of, the terms of any Collateral (except to the extent otherwise provided in the Transfer and Servicing Agreement) or the Transaction Documents (except to the extent otherwise provided in the Transaction Documents), or waive timely performance or observance by the Servicer or the Seller under the Transfer and Servicing Agreement; and (ii) that any such amendment shall not (A) increase or reduce in any manner the amount of, or accelerate or delay the timing of, collections of payments on the Receivables or distributions that are required to be made for the benefit of the Noteholders or (B) reduce the aforesaid percentage of the Notes that is required to consent to any such amendment, without the consent of the 20 Holders of all the Outstanding Notes. If any such amendment, modification, supplement or waiver shall be so consented to by the Indenture Trustee and such Noteholders, the Issuer agrees, promptly following a request by the Indenture Trustee to do so, to execute and deliver, in its own name and at its own expense, such agreements, instruments, consents and other documents as the Indenture Trustee may deem necessary or appropriate in the circumstances. Section 3.8. Negative Covenants. So long as any Notes are Outstanding, the ------------------ Issuer will not: (a) sell, transfer, exchange, or otherwise dispose of any part of the Collateral unless directed to do so by the Indenture Trustee, except as expressly permitted by this Indenture and any Indenture Supplement, the Receivables Purchase Agreement, the Trust Agreement or the Transfer and Servicing Agreement; (b) claim any credit on, or make any deduction from, the principal and interest payable in respect of the Notes (other than amounts properly withheld from such payments under the Code or applicable state law) or assert any claim against any present or former Noteholder by reason of the payment of any taxes levied or assessed upon any part of the Collateral; (c) incur, assume, guarantee or otherwise become liable, directly or indirectly, for any indebtedness other than incurred under the Notes and this Indenture; (d) (i) permit the validity or effectiveness of this Indenture to be impaired, or permit the lien of this Indenture to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations with respect to the Notes under this Indenture except as may be expressly permitted hereby, (ii) permit any Lien, charge, excise, claim, security interest, mortgage or other encumbrance (other than the lien of this Indenture) to be created on or extend to or otherwise arise upon or burden the Collateral or any part thereof or any interest therein or the proceeds thereof or (iii) permit the lien of this Indenture not to constitute a valid first priority security interest (other than with respect to a tax, mechanics, or similar lien) in the Collateral; or (e) voluntarily dissolve or liquidate in whole or in part. Section 3.9. Statements as to Compliance. The Issuer will deliver to the --------------------------- Indenture Trustee and the Rating Agencies, within 120 days after the end of each fiscal year of the Issuer at the end of which any Notes are outstanding (commencing within 120 days after the end of the fiscal year 2001), an Officer's Certificate stating, as to the Authorized Officer signing such Officer's Certificate, that 21 (i) a review of the activities of the Issuer during the 12-month period ending at the end of such fiscal year and of performance under this Indenture has been made under such Authorized Officer's supervision, and (ii) to the best of such Authorized Officer's knowledge, based on such review, the Issuer has complied with all conditions and covenants under this Indenture throughout such year, or, if there has been a default in the compliance of any such condition or covenant, specifying each such default known to such Authorized Officer and the nature and status thereof. Section 3.10. Issuer May Consolidate, Etc., Only on Certain Terms. --------------------------------------------------- (a) The Issuer shall not consolidate or merge with or into any other Person, unless: (1) the Person (if other than the Issuer) formed by or surviving such consolidation or merger (the "Surviving Person") (i) is organized ---------------- and existing under the laws of the United States of America or any state or the District of Columbia, (ii) is not subject to regulation as an "investment company" under the Investment Company Act and (iii) expressly assumes, by an indenture supplemental hereto, executed and delivered to the Indenture Trustee, in a form satisfactory to the Indenture Trustee, the obligation to make due and punctual payment of the principal of and interest on all Notes and the performance of every covenant of this Indenture on the part of the Issuer to be performed or observed; (2) immediately after giving effect to such transaction, no Event of Default or Pay Out Event shall have occurred and be continuing; (3) the Issuer shall have delivered to the Indenture Trustee an Officer's Certificate and an Opinion of Counsel each stating that (i) such consolidation or merger and such supplemental indenture comply with this Section 3.10, (ii) all conditions precedent provided for in ------------ this Section 3.10 relating to such transaction have been complied with ------------ (including any filing required by the Exchange Act), and (iii) such supplemental indenture is duly authorized, executed and delivered and is valid, binding and enforceable against the Surviving Person; (4) the Rating Agency Condition shall have been satisfied with respect to such transaction; 22 (5) the Issuer shall have received a Tax Opinion with respect to such consolidation or merger; and (6) any action that is necessary to maintain the lien and security interest created by this Indenture shall have been taken. For the avoidance of doubt, this Section 3.10 shall not apply to the ------------ transfer of the Receivables and other assets to the Issuer on the FCMT Termination Date. (b) The Issuer shall not convey or transfer any of its properties or assets, including those included in the Collateral, substantially as an entirety to any Person, unless: (1) the Person that acquires by conveyance or transfer the properties and assets of the Issuer the conveyance or transfer of which is hereby restricted (the "Acquiring Person") (A) is a United ---------------- States citizen or a Person organized and existing under the laws of the United States of America or any state, or the District of Columbia, (B) is not subject to regulation as an "investment company" under the Investment Company Act, (C) expressly assumes, by an indenture supplemental hereto, executed and delivered to the Indenture Trustee, in form satisfactory to the Indenture Trustee, the obligation to make due and punctual payments of the principal of and interest on all Notes and the performance of every covenant of this Indenture on the part of the Issuer to be performed or observed, (D) expressly agree by means of such supplemental indenture that all right, title and interest so conveyed or transferred shall be subject and subordinate to the rights of Holders of the Notes, (E) unless otherwise provided in such supplemental indenture, expressly agree to indemnify, defend and hold harmless the Issuer against and from any loss, liability or expense arising under or related to this Indenture and the Notes and (F) expressly agree by means of such supplemental indenture that such Person (or if a group of Persons, then one specified Person) shall make all filings with the Commission (and any other appropriate Person) required by the Exchange Act in connection with the Notes; (2) immediately after giving effect to such transaction, no Event of Default or Pay Out Event shall have occurred and be continuing; (3) the Rating Agency Condition shall have been satisfied with respect to such transaction; 23 (4) the Issuer shall have received a Tax Opinion with respect to such transaction; (5) any action that is necessary to maintain the lien and security interest created by this Indenture shall have been taken; and (6) the Issuer shall have delivered to the Indenture Trustee an Officer's Certificate and an Opinion of Counsel each stating that (i) such conveyance or transfer and such supplemental indenture comply with this Section 3.10, (ii) all conditions precedent herein provided ------------ for relating to such transaction have been complied with (including any filing required by the Exchange Act), and (iii) such supplemental indenture is duly authorized, executed and delivered and is valid, binding and enforceable against the Acquiring Person. Section 3.11. Successor Substituted. Upon any consolidation or merger, or --------------------- any conveyance or transfer of the properties and assets of the Issuer substantially as an entirety in accordance with Section 3.10, the Surviving ------------ Person or the Acquiring Person, as the case may be, shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer under this Indenture with the same effect as if such Person had been named as the Issuer herein. In the event of any such conveyance or transfer, the Person named as the Issuer in the first paragraph of this Indenture or any successor which shall theretofore have become such in the manner prescribed in this Section 3.11 ------------ shall be released from its obligations under this Indenture as issued immediately upon the effectiveness of such conveyance or transfer, provided that the Issuer shall not be released from any obligations or liabilities to the Indenture Trustee or the Noteholders arising prior to such effectiveness. Section 3.12. No Other Business. The Issuer shall not engage in any ----------------- business other than (i) purchasing, owning and managing the Trust Assets and the proceeds thereof in the manner contemplated by this Indenture and the other Transaction Documents, (ii) issuing and making payments in respect of the Notes and (iii) all activities related thereto. Section 3.13. [Reserved]. Section 3.14. Servicer's Obligations. The Issuer shall cause the Servicer ---------------------- to comply with all of its obligations under the Transaction Documents. Section 3.15. Investments. Except as contemplated by this Indenture or the ----------- Transfer and Servicing Agreement, the Issuer shall not own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other Person. 24 Section 3.16. Capital Expenditures. The Issuer shall not make any -------------------- expenditure (by long-term or operating lease or otherwise) for capital assets (either realty or personalty). Section 3.17. Removal of Administrator. So long as any Notes are ------------------------ outstanding, the Issuer shall not remove the Administrator without cause unless the Rating Agency Condition shall have been satisfied in connection with such removal. Section 3.18. Restricted Payments. The Issuer shall not, directly or ------------------- indirectly, (i) pay any dividend or make any distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, to the Owner Trustee or any owner of a beneficial interest in the Issuer or otherwise with respect to any ownership or equity interest or security in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or otherwise acquire for value any such ownership or equity interest or security or (iii) set aside or otherwise segregate any amounts for any such purpose; provided, however, that the Issuer may make, or cause to be made, (x) - -------- ------- distributions as contemplated by, and to the extent funds are available for such purpose under, the Transaction Documents and (y) payments to the Indenture Trustee pursuant to Section 6.7. The Issuer will not, directly or indirectly, ----------- make payments to or distributions from the Collection Account except in accordance with the Transaction Documents. Section 3.19. Notice of Events of Default. The Issuer agrees to give a --------------------------- Trustee Officer of the Indenture Trustee and the Rating Agencies prompt written notice of each Event of Default hereunder and written notice of each default on the part of the Servicer or the Seller of its obligations under the Transfer and Servicing Agreement and each default on the part of a Seller of its obligations under the Receivables Purchase Agreement, as applicable. Section 3.20. Further Instruments and Acts. Upon request of the Indenture ---------------------------- Trustee, the Issuer will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE IV SATISFACTION AND DISCHARGE Section 4.1. Satisfaction and Discharge of this Indenture. This Indenture -------------------------------------------- shall cease to be of further effect with respect to the Notes except as to (a) rights of registration of transfer and exchange, (b) substitution of mutilated, destroyed, lost or stolen Notes, (c) the rights of Noteholders to receive payments of principal thereof and interest thereon, (d) Sections 3.3, 3.7, 3.8, -------- --- --- --- 3.11, 3.12 and 12.16, (e) the rights and immunities of the Indenture Trustee - ---- ---- ----- hereunder, including the rights of the Indenture Trustee under Section 6.7, and ----------- the obligations of the Indenture Trustee under Section ------- 25 4.2, and (f) the rights of Noteholders as beneficiaries hereof with respect to - ---- the property so deposited with the Indenture Trustee and payable to all or any of them, and the Indenture Trustee, on written demand of and at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture with respect to the Notes when: (i) either (A) all Notes theretofore authenticated and delivered (other than (1) Notes which have been destroyed, lost or stolen and which have been replaced, or paid as provided in Section 2.6, and ----------- (2) Notes for whose full payment money has theretofore been deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from such trust, as provided in Section 3.3) have been delivered to the ----------- Indenture Trustee for cancellation; or (B) all Notes not theretofore delivered to the Indenture Trustee for cancellation: (1) have become due and payable; (2) will become due and payable at the Series Termination Date for such Class or Series of Notes; or (3) are to be called for redemption within one year under arrangements satisfactory to the Indenture Trustee for the giving of notice of redemption by the Indenture Trustee in the name, and at the expense, of the Issuer; (4) and the Issuer, in the case of (1), (2) or (3) above, has irrevocably deposited or caused to be irrevocably deposited with the Indenture Trustee cash or direct obligations of or obligations guaranteed by the United States of America (which will mature prior to the date such amounts are payable), in trust for such purpose, in an amount sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Indenture Trustee for cancellation when due at the Series Termination Date for such Class or Series of Notes or the Redemption Date (if Notes shall have been called for redemption pursuant to the related Indenture Supplement), as the case may be; (ii) the Issuer has paid or caused to be paid all other sums payable hereunder by the Issuer; and 26 (iii) the Issuer has delivered to the Indenture Trustee an Officer's Certificate, an Opinion of Counsel and (if required by the TIA or the Indenture Trustee) an Independent Certificate from a firm of certified public accountants, each meeting the applicable requirements of Section ------- 12.1(a) and each stating that all conditions precedent herein provided for ------- relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Issuer to the Indenture Trustee under Section 6.7 and of the ---------- Indenture Trustee to the Noteholders under Section 4.2 shall survive. ----------- Section 4.2. Application of Issuer Money. All monies deposited with the --------------------------- Indenture Trustee pursuant to Section 4.1 shall be held in trust and applied by ----------- it, in accordance with the provisions of the Notes, this Indenture and the applicable Indenture Supplement, to make payments, either directly or through any Paying Agent to the Noteholders and for the payment in respect of which such monies have been deposited with the Indenture Trustee, of all sums due and to become due thereon for principal and interest; but such monies need not be segregated from other funds except to the extent required herein or in the Transfer and Servicing Agreement or required by law. ARTICLE V PAY OUT EVENTS, DEFAULTS AND REMEDIES Section 5.1. Pay Out Events. If any one of the following events (each, a -------------- "Trust Pay Out Event") shall occur: ------------------- (a) the occurrence of an Insolvency Event relating to the Seller or FCNB; (b) a Transfer Restriction Event shall occur; or (c) the Issuer shall become subject to regulation by the Commission as an "investment company" within the meaning of the Investment Company Act; then a Pay Out Event with respect to all Series of Notes shall occur without any notice or other action on the part of the Indenture Trustee or the Noteholders immediately upon the occurrence of such event. Upon the occurrence of a Pay Out Event, payment on the Notes of each Series will be made in accordance with the terms of the related Indenture Supplement. 27 Section 5.2. Events of Default. "Event of Default," wherever used herein, ----------------- ---------------- means with respect to any Series any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of the principal of any Note of that Series, if and to the extent not previously paid, when the same becomes due and payable on its Series Termination Date; or (b) default in the payment of any interest on any Note of that Series when the same becomes due and payable, and such default shall continue for a period of thirty-five (35) days; or (c) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of the Issuer in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, conservator, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Issuer or ordering the winding-up or liquidation of the Issuer's affairs, and such decree or order shall remain unstayed and in effect for a period of sixty (60) consecutive days; or (d) the commencement by the Issuer of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by the Issuer to the entry of an order for relief in an involuntary case under any such law, or the consent by the Issuer to the appointment of or the taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator or similar official of the Issuer, or the making by the Issuer of any general assignment for the benefit of creditors, or the failure by the Issuer generally to pay, or the admission in writing by the Issuer of its inability to pay, its debts as such debts become due, or the taking of action by the Issuer in furtherance of any of the foregoing; or (e) default in the observance or performance of any covenant or agreement of the Issuer made in this Indenture made in respect of the Notes of such Series (other than a covenant or agreement, a default in the observance or performance of which is elsewhere in this Section 5.2 specifically dealt with) (all of such ----------- covenants and agreements in the Indenture which are not expressly stated to be for the benefit of a particular Series being deemed to be in respect of the Notes of all Series for this purpose) and such default shall continue or not be cured for a period of sixty (60) days after there shall have been given, by registered or certified mail, return receipt requested to the Issuer by the Indenture Trustee or to the Issuer and the Indenture Trustee by the Holders of Notes representing at least 25% of the principal balance of the Outstanding Notes of such Series, a written notice specifying such default and requiring it to be 28 remedied and stating that such notice is a "Notice of Default" hereunder and, as ----------------- a result of such default, the interests of the Holders of the Notes are materially and adversely affected and continue to be materially and adversely affected during the 60-day period; or (f) any additional events specified in the Indenture Supplement related to such Series. The Issuer shall deliver to a Trustee Officer of the Indenture Trustee, within five (5) days after the occurrence thereof, written notice in the form of an Officer's Certificate of any event which with the giving of notice and the lapse of time would become an Event of Default, its status and what action the Issuer is taking or proposes to take with respect thereto. Section 5.3. Acceleration of Maturity; Rescission and Annulment. If an -------------------------------------------------- Event of Default described in paragraph (a), (b) or (e) of Section 5.2 should ------------- --- --- ----------- occur and be continuing with respect to a Series, then and in every such case the Indenture Trustee or the Holders of Notes representing more than 50% of the principal balance of the Outstanding Notes of such Series may declare all the Notes of such Series to be immediately due and payable, by a notice in writing to the Issuer (and to a Trustee Officer of the Indenture Trustee if declared by Noteholders), and upon any such declaration the unpaid principal amount of such Notes, together with accrued and unpaid interest thereon through the date of acceleration, shall become immediately due and payable. If an Event of Default described in paragraph (c) or (d) of Section 5.2 ------------- --- ----------- should occur and be continuing, then the unpaid principal of the Notes, together with accrued and unpaid interest thereon through the date of acceleration, shall automatically become due and payable. At any time after such declaration of acceleration of maturity has been made and before a judgment or decree for payment of the money due has been obtained by the Indenture Trustee as hereinafter provided in this Article V, the ---------- Holders of Notes representing more than 50% of the principal balance of the Outstanding Notes of such Series, by written notice to the Issuer, a Trustee Officer of the Indenture Trustee and the Rating Agencies, may rescind and annul such declaration and its consequences; provided, that: -------- ----- (a) the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay: (i) all payments of principal of and interest on all Notes and all other amounts that would then be due hereunder or upon such Notes if the Event of Default giving rise to such acceleration had not occurred; and 29 (ii) all sums paid or advanced by the Indenture Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel; and (b) all Events of Default, other than the nonpayment of the principal of the Notes that has become due solely by such acceleration, have been cured or waived as provided in Section 5.13. ------------- No such rescission shall affect any subsequent default or impair any right consequent thereto. Section 5.4. Collection of Indebtedness and Suits for Enforcement by ------------------------------------------------------- Indenture Trustee. - ----------------- (a) The Issuer covenants that if (i) default is made in the payment of any interest on any Note when the same becomes due and payable, and such default continues for a period of thirty-five (35) days following the date on which such interest became due and payable, or (ii) default is made in the payment of principal of any Note, if and to the extent not previously paid, when the same becomes due and payable on the Series Termination Date, the Issuer will, upon demand of the Indenture Trustee, pay to it, for the benefit of the Holders of the Notes of the affected Series, the whole amount then due and payable on such Notes for principal and interest, with interest upon the overdue principal, and, to the extent payment at such rate of interest shall be legally enforceable, interest upon overdue installments of interest, as specified in the related Indenture Supplement, and in addition thereto will pay such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel. (b) In case the Issuer shall fail forthwith to pay such amounts upon such demand, the Indenture Trustee, in its own name and as trustee of an express trust, may institute a Proceeding for the collection of the sums so due and unpaid, and may prosecute such Proceeding to judgment or final decree, and may enforce the same against the Issuer or other obligor upon such Notes and collect in the manner provided by law out of the property of the Issuer or other obligor upon such Notes, wherever situated, the moneys adjudged or decreed to be payable. (c) If an Event of Default occurs and is continuing, the Indenture Trustee may, as more particularly provided in Section 5.5, in its discretion, proceed to ----------- protect and enforce its rights and the rights of the Noteholders of the affected Series, by such appropriate Proceedings as the Indenture Trustee shall deem most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to 30 enforce any other proper remedy or legal or equitable right vested in the Indenture Trustee by this Indenture or by law. (d) In case there shall be pending, relative to the Issuer or any other obligor upon the Notes of the affected Series, or any Person having or claiming an ownership interest in the Collateral, Proceedings under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or in case a receiver, conservator, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator, custodian or other similar official shall have been appointed for or taken possession of the Issuer or its property or such other obligor or Person, or in case of any other comparable judicial Proceedings relative to the Issuer or other obligor upon the Notes of such Series, or to the creditors or property of the Issuer or such other obligor, the Indenture Trustee, irrespective of whether the principal of any Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Indenture Trustee shall have made any demand pursuant to the provisions of this Section 5.4, shall be entitled and empowered, by intervention ----------- in such Proceedings or otherwise: (i) to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Notes of such Series and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee (including any claim for reasonable compensation to the Indenture Trustee and each predecessor Indenture Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee, except as a result of negligence or willful misconduct) and of the Noteholders of such Series allowed in such Proceedings; (ii) unless prohibited by applicable law and regulations, to vote on behalf of the Holders of Notes of such Series in any election of a trustee, a standby trustee or Person performing similar functions in any such Proceedings; (iii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute all amounts received with respect to the claims of the Noteholders of such Series and of the Indenture Trustee on their behalf; and (iv) to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee or the Holders of Notes of such Series allowed in any judicial Proceedings relative to the Issuer, its creditors and its property; 31 and any trustee, receiver, conservator, liquidator, custodian, assignee, sequestrator or other similar official in any such Proceeding is hereby authorized by each of such Noteholders to make payments to the Indenture Trustee, and, in the event that the Indenture Trustee shall consent to the making of payments directly to such Noteholders, to pay to the Indenture Trustee such amounts as shall be sufficient to cover reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee except as a result of negligence or willful misconduct. (e) Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Noteholder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof or to authorize the Indenture Trustee to vote in respect of the claim of any Noteholder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person. (f) All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof in any trial or other Proceedings relative thereto, and any such action or Proceedings instituted by the Indenture Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Indenture Trustee, each predecessor Indenture Trustee and their respective agents and attorneys, shall be for the benefit of the Holders of the Notes of the affected Series as provided herein. (g) In any Proceedings brought by the Indenture Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent all the Holders of the Notes of the affected Series, and it shall not be necessary to make any such Noteholder a party to any such Proceedings. Section 5.5. Remedies; Priorities. -------------------- (a) If an Event of Default shall have occurred and be continuing with respect to any Series, and the Notes of such Series have been accelerated pursuant to Section 5.3, the Indenture Trustee may do one or more of the ----------- following (subject to Sections 5.6 and 12.16): ------------ ----- (i) institute Proceedings in its own name and as trustee of an express trust for the collection of all amounts then payable on the Notes of the affected Series or under this Indenture with respect thereto, whether by 32 declaration or otherwise, enforce any judgment obtained, and collect from the Issuer and any other obligor upon such Notes moneys adjudged due; (ii) take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee and the Holders of the Notes of the affected Series; (iii) cause the Issuer to sell Principal Receivables (or interests therein) in an amount equal to the Collateral Amount of the accelerated Series and the related Finance Charge Receivables in accordance with Section 5.16; ------------ provided, however, that the Indenture Trustee may not exercise the remedy - -------- ------- described in subparagraph (iii) above unless (A)(1) the Holders of Notes representing 100% of the principal balance of the Outstanding Notes of the affected Series consent in writing thereto, (2) the Indenture Trustee determines that any proceeds of such exercise distributable to the Noteholders of the affected Series are sufficient to discharge in full all amounts then due and unpaid upon the Notes for principal and interest and is directed to exercise this remedy by Holders of Notes representing more than 50% of the principal balance of the Outstanding Notes of such Series, or (3) the Indenture Trustee determines that the Collateral may not continue to provide sufficient funds for the payment of principal of and interest on the Notes as they would have become due if the Notes had not been declared due and payable, and the Indenture Trustee obtains the consent of the Holders of Notes representing at least 66-2/3% of the principal balance of the Outstanding Notes of each Class of such Series and (B) the Indenture Trustee has obtained an Opinion of Counsel to the effect that the exercise of such remedy complies with applicable federal and state securities laws. In determining such sufficiency or insufficiency with respect to clauses (A)(2) and (A)(3), the Indenture Trustee may, but need not, obtain and conclusively rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Collateral for such purpose. The remedies provided in this Section 5.5(a) are the exclusive remedies -------------- provided to the Noteholders with respect to the Collateral and each of the Noteholders (by their acceptance of their respective interests in the Notes) or the Indenture Trustee hereby expressly waive any other remedy that might have been available under the applicable UCC. (b) If the Indenture Trustee collects any money or property pursuant to this Article V following the acceleration of the Notes of the affected Series pursuant to Section 5.3 (so long as such a declaration shall not have been rescinded or annulled), it shall pay out the money or property in the following order: FIRST: to the Indenture Trustee for amounts due pursuant to Section 6.7; ----------- and 33 SECOND: unless otherwise specified in the related Indenture Supplement, to the Servicer for distribution in accordance with Article IV of the related Indenture Supplement with such amounts being deemed to be Principal Collections and Finance Charge Collections in the same proportion as (x) the outstanding principal balance of the Notes bears to (y) the sum of the accrued and unpaid interest on the Notes and other fees and expenses payable in connection therewith under the applicable Indenture Supplement, including the amounts payable under any Enhancements with respect to such Series. (c) The Indenture Trustee may, upon notification to the Issuer, fix a record date and payment date for any payment to Noteholders of the affected Series pursuant to this Section 5.5. At least fifteen (15) days before such ------------ record date, the Indenture Trustee shall mail or send by facsimile, at the expense of the Servicer, to each such Noteholder a notice that states the record date, the payment date and the amount to be paid. Section 5.6. Optional Preservation of the Collateral. If the Notes of any --------------------------------------- Series have been declared to be due and payable under Section 5.3 following an ----------- Event of Default and such declaration and its consequences have not been rescinded and annulled, and the Indenture Trustee has not received directions from the Noteholders pursuant to Section 5.12, the Indenture Trustee may, but ------------ need not, elect to maintain possession of the portion of the Collateral which secures such Notes and apply proceeds of the Collateral to make payments on such Notes to the extent such proceeds are available therefor. It is the desire of the parties hereto and the Noteholders that there be at all times sufficient funds for the payment of principal of and interest on the Notes, and the Indenture Trustee shall take such desire into account when determining whether or not to maintain possession of the Collateral. In determining whether to maintain possession of the Collateral, the Indenture Trustee may, but need not, obtain and conclusively rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Trust Assets for such purpose. Section 5.7. Limitation on Suits. No Noteholder shall have any right to ------------------- institute any proceedings, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (a) the Holders of Notes representing not less than 25% of the principal balance of the Outstanding Notes of each affected Series have made written request to the Indenture Trustee to institute such proceeding in its own name as indenture trustee; 34 (b) such Noteholder or Noteholders has previously given written notice to the Indenture Trustee of a continuing Event of Default; (c) such Noteholder or Noteholders has offered to the Indenture Trustee indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Indenture Trustee for sixty (60) days after its receipt of such request and offer of indemnity has failed to institute any such Proceeding; and (e) no direction inconsistent with such written request has been given to the Indenture Trustee during such 60-day period by the Holders of Notes representing more than 50% of the principal balance of the Outstanding Notes of such Series; it being understood and intended that no one or more Noteholders of the affected Series shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Noteholders of such Series or to obtain or to seek to obtain priority or preference over any other Noteholders of such Series or to enforce any right under this Indenture, except in the manner herein provided. In the event the Indenture Trustee shall receive conflicting or inconsistent requests and indemnity from two (2) or more groups of Noteholders of such affected Series, each representing no more than 50% of the principal balance of the Outstanding Notes of such Series, the Indenture Trustee in its sole discretion may determine what action, if any, shall be taken, notwithstanding any other provisions of this Indenture. Section 5.8. Unconditional Rights of Noteholders to Receive Principal and ------------------------------------------------------------ Interest. Notwithstanding any other provision in this Indenture, each Noteholder - -------- shall have the right which is absolute and unconditional to receive payment of the principal of and interest in respect of such Note as such principal and interest becomes due and payable and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Noteholder. Section 5.9. Restoration of Rights and Remedies. If the Indenture Trustee ---------------------------------- or any Noteholder has instituted any Proceeding to enforce any right or remedy under this Indenture and such Proceeding has been discontinued or abandoned, or has been determined adversely to the Indenture Trustee or to such Noteholder, then and in every such case the Issuer, the Indenture Trustee and the Noteholder shall, subject to any determination in such Proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Indenture Trustee and the Noteholders shall continue as though no such Proceeding had been instituted. 35 Section 5.10. Rights and Remedies Cumulative. No right, remedy, power or ------------------------------ privilege herein conferred upon or reserved to the Indenture Trustee or to the Noteholders is intended to be exclusive of any other right, remedy, power or privilege, and every right, remedy, power or privilege shall, to the extent permitted by law, be cumulative and in addition to every other right, remedy, power or privilege given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or exercise of any right or remedy shall not preclude any other further assertion or the exercise of any other appropriate right or remedy. Section 5.11. Delay or Omission Not Waiver. No failure to exercise and no ---------------------------- delay in exercising, on the part of the Indenture Trustee or of any Noteholder or other Person, any right or remedy occurring hereunder upon any Event of Default shall impair any such right or remedy or constitute a waiver thereof of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Indenture Trustee or to the Noteholders --------- may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as the case may be. Section 5.12. Rights of Noteholders to Direct Indenture Trustee. The ------------------------------------------------- Holders of Notes representing more than 50% of the principal balance of the Outstanding Notes of any affected Series shall have the right to direct in writing the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee with respect to such Series or exercising any trust or power conferred on the Indenture Trustee with respect to such Series; provided, however, that subject to Section 6.1: - -------- ------- ----------- (a) the Indenture Trustee shall have the right to decline any such direction if the Indenture Trustee, after being advised by counsel, determines that the action so directed is in conflict with any rule of law or with this Indenture, and (b) the Indenture Trustee shall have the right to decline any such direction if the Indenture Trustee in good faith shall, by a Trustee Officer of the Indenture Trustee, determine that the Proceedings so directed would be illegal or involve the Indenture Trustee in personal liability or be unjustly prejudicial to the Noteholders not parties to such direction. Section 5.13. Waiver of Past Defaults. Prior to the declaration of the ----------------------- acceleration of the maturity of the Notes of the affected Series as provided in Section 5.3, Holders of Notes representing more than 50% of the principal - ----------- balance of the Outstanding Notes of such Series (or with respect to any such Series with two or more Classes, of each Class), may, on behalf of all such Noteholders, waive in writing any past default, with written notice to the Indenture Trustee, with respect to such Notes and its consequences, except a default: 36 (a) in the payment of the principal or interest in respect of any Note of such Series, or (b) in respect of a covenant or provision hereof that under Section 10.2 ------------ cannot be modified or amended without the consent of the Noteholder of each Outstanding Note affected. Upon any such written waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 5.14. Undertaking for Costs. All parties to this Indenture agree, --------------------- and each Noteholder by its acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Indenture Trustee for any action taken, suffered or omitted by it as Indenture Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant (other than the Indenture Trustee) in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.14 shall not apply to any suit instituted by the Indenture ------------ Trustee, to any suit instituted by any Noteholder, or group of Noteholders (in compliance with Section 5.8), holding Notes representing more than 10% of the ----------- principal balance of the Outstanding Notes of the affected Series, or to any suit instituted by any Noteholder for the enforcement of the payment of the principal or interest in respect of any Note on or after the Distribution Date on which any of such amounts was due (or, in the case of redemption, on or after the applicable Redemption Date). Section 5.15. Waiver of Stay or Extension Laws. The Issuer covenants (to -------------------------------- the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may adversely affect the covenants or the performance of this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Indenture Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 37 Section 5.16. Sale of Receivables. ------------------- (a) The method, manner, time, place and terms of any sale of Receivables pursuant to Section 5.5(a)(iii) shall be commercially reasonable. The Indenture ------------------- Trustee may from time to time postpone any sale by public announcement made at the time and place of such sale. The Indenture Trustee hereby expressly waives its right to any amount fixed by law as compensation for any sale. (b) The Indenture Trustee is hereby irrevocably appointed the agent and attorney-in-fact of the Issuer in connection with any sale of Receivables pursuant to Section 5.5(a)(iii). No purchaser or transferee at any such sale ------------------- shall be bound to ascertain the Indenture Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any monies. (c) In its exercise of the foreclosure remedy pursuant to Section ------- 5.5(a)(iii), the Indenture Trustee shall solicit bids for the sale of Principal - ----------- Receivables in any amount equal to the Collateral Amount of the affected Series of Notes at the time of sale and the related Finance Charge Receivables (or interests therein). The Seller or any of its affiliates shall be entitled to participate in, and to receive from the Indenture Trustee a copy of each other bid submitted in connection with, such bidding process; provided that (i) at -------- least one participant other than the Seller and any of its affiliates must submit a bona fide offer, and (ii) the Seller and any of its affiliates are prohibited from bidding an amount which exceeds fair value for the transferred assets. The Indenture Trustee shall sell such Receivables (or interests therein) to the bidder with the highest cash purchase offer. The proceeds of any such sale shall be applied as specified in the applicable Indenture Supplement. Section 5.17. Action on Notes. The Indenture Trustee's right to seek and --------------- recover judgment on the Notes or under this Indenture shall not be affected by the seeking or obtaining of or application for any other relief under or with respect to this Indenture. Neither the lien of this Indenture nor any rights or remedies of the Indenture Trustee or the Noteholders shall be impaired by the recovery of any judgment by the Indenture Trustee against the Issuer or by the levy of any execution under such judgment upon any portion of the Collateral or upon any of the assets of the Issuer. Any money or property collected by the Indenture Trustee shall be applied as specified in the applicable Indenture Supplement. 38 ARTICLE VI THE INDENTURE TRUSTEE Section 6.1. Duties of the Indenture Trustee. ------------------------------- (a) If an Event of Default has occurred and is continuing and a Trustee Officer shall have actual knowledge or written notice of such Event of Default, the Indenture Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the Indenture Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee; and (ii) in the absence of bad faith or negligence on its part, the Indenture Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Indenture Trustee and conforming to the requirements of this Indenture; provided, however, the Indenture Trustee, -------- ------- upon receipt of any resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Indenture Trustee which are specifically required to be furnished pursuant to any provision of this Indenture or any Indenture Supplement, shall examine them to determine whether they substantially conform to the requirements of this Indenture or any Indenture Supplement. (c) If a Pay Out Event has occurred and is continuing and a Trustee Officer shall have actual knowledge or written notice of such Pay Out Event, the Indenture Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (d) No provision of this Indenture shall be construed to relieve the Indenture Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this Section 6.1(d) shall not be construed to limit the effect of -------------- Section 6.1(a); -------------- 39 (ii) the Indenture Trustee shall not be liable for any error of judgment made in good faith by a Trustee Officer, unless it shall be proved that the Indenture Trustee was negligent in ascertaining the pertinent facts; and (iii) the Indenture Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the Indenture and/or the direction of the Holders of Notes or for exercising any trust or power conferred upon the Indenture Trustee, under this Indenture. The Indenture Trustee shall not be liable for any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Servicer, the Seller or the Trust in compliance with the terms of this Indenture or any Indenture Supplement. (e) No provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur any liability, financial or otherwise, in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or indemnity satisfactory to it against such risk or liability is not reasonably assured to it. (f) Every provision of this Indenture that in any way relates to the Indenture Trustee is subject to this Section 6.1. ----------- (g) Except as expressly provided in this Indenture, the Indenture Trustee shall have no power to vary the Collateral, including by (i) accepting any substitute payment obligation for a Receivable initially transferred to the Trust under the Transfer and Servicing Agreement, (ii) adding any other investment, obligation or security to the Trust or (iii) withdrawing from the Issuer any Receivable (except as otherwise provided in the Transfer and Servicing Agreement). (h) The Indenture Trustee shall have no responsibility or liability for investment losses on Permitted Investments (other than Permitted Investments on which the institution acting as Indenture Trustee is an obligor). The Indenture Trustee shall have no obligation to invest and reinvest any cash held in the absence of timely and specific written investment direction from the Issuer. In no event shall the Indenture Trustee be liable for the selection of investments or for investment losses incurred thereon. The Indenture Trustee shall have no liability in respect of losses incurred as a result of the liquidation of any investment prior to its stated maturity or the failure of the Issuer to provide timely written investment direction. (i) The Indenture Trustee shall notify each Rating Agency (i) of any change in any rating of the Notes by any other Rating Agency of which a Trustee Officer of the Indenture Trustee has actual knowledge, and (ii) immediately of the occurrence of any Event of Default or Pay Out Event of which a Trustee Officer of the Indenture 40 Trustee has actual knowledge of or has actual notice from the Servicer of potential Pay Out Events or Events of Default. (j) For all purposes under this Indenture, the Indenture Trustee shall not be deemed to have notice or knowledge of any Event of Default, Pay Out Event or Servicer Default unless a Trustee Officer assigned to and working in the Corporate Trust Office of the Indenture Trustee has actual knowledge thereof or has received written notice thereof. For purposes of determining the Indenture Trustee's responsibility and liability hereunder, any reference to an Event of Default, Pay Out Event or Servicer Default shall be construed to refer only to such event of which the Indenture Trustee is deemed to have notice as described in this Section 6.1(j). -------------- Section 6.2. Notice of Pay Out Event or Event of Default. Upon the ------------------------------------------- occurrence of any Pay Out Event or Event of Default of which a Trustee Officer has actual knowledge or has received written notice thereof, the Indenture Trustee shall transmit by mail to all Noteholders as their names and addresses appear on the Note Register and the Rating Agencies, notice of such Pay Out Event or Event of Default hereunder known to the Indenture Trustee within thirty (30) days after it occurs or within ten (10) Business Days after it receives such notice or obtains actual notice, if later. Section 6.3. Rights of Indenture Trustee. Except as otherwise provided in --------------------------- Section 6.1: - ----------- (a) the Indenture Trustee may conclusively rely and shall fully be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) whenever in the administration of this Indenture the Indenture Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Indenture Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officer's Certificate of the Issuer. The Issuer shall provide a copy of such Officer's Certificate to the Noteholders at or prior to the time the Indenture Trustee receives such Officer's Certificate; (c) as a condition to the taking, suffering or omitting of any action by it hereunder, the Indenture Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in-good faith and in reliance thereon; 12887017 42 41 (d) the Indenture Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or to honor the request or direction of any of the Noteholders pursuant to this Indenture, unless such Noteholders shall have offered to the Indenture Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (e) the Indenture Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other paper or document, but the Indenture Trustee at the written direction of one or more of the Noteholders and at the expense of the Noteholders, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Indenture Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuer and the Servicer, personally or by agent or attorney; (f) the Indenture Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees and the Indenture Trustee shall not be responsible for any (i) misconduct or negligence on the part of any agent, attorney, custodians or nominees appointed with due care by it hereunder or (ii) the supervision of such agents, attorneys, custodians or nominees after such appointment with due care; (g) the Indenture Trustee shall not be liable for any actions taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights conferred upon the Indenture Trustee by this Indenture; and (h) in the event that the Indenture Trustee is also acting as Paying Agent and Transfer Agent and Registrar and Successor Servicer, if it becomes Successor Servicer pursuant to Section 7.2 of the Transfer and Servicing Agreement, the rights and protections afforded to the Indenture Trustee pursuant to this Article VI shall also be afforded to such Paying Agent and Transfer Agent and - ---------- Registrar and Successor Servicer, if it becomes Successor Servicer pursuant to Section 7.2 of the Transfer and Servicing Agreement. Section 6.4. Not Responsible for Recitals or Issuance of Notes. The ------------------------------------------------- recitals contained herein and in the Notes, except the certificate of authentication of the Indenture Trustee, shall be taken as the statements of the Issuer, and the Indenture Trustee assumes no responsibility for their correctness. Neither the Indenture Trustee nor any of its agents makes any representation as to the validity or sufficiency of the Agreement, the Notes, or any related document. The Indenture Trustee shall not be accountable for the use or application by the Issuer of the proceeds from the Notes. 42 Section 6.5. Restrictions on Holding Notes. The Indenture Trustee shall not ----------------------------- in its individual capacity, but may in a fiduciary capacity, become the owner or pledgee of Notes and may otherwise deal with the Issuer with the same rights it would have if it were not Indenture Trustee, Paying Agent, Transfer Agent and Registrar or such other agent. Any Paying Agent, Transfer Agent and Registrar that is not also the Indenture Trustee or any other agent of the Issuer, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Issuer with the same rights it would have if it were not Indenture Trustee, Paying Agent, Transfer Agent and Registrar or such other agent. Section 6.6. Money Held in Trust. Money held by the Indenture Trustee in ------------------- trust hereunder need not be segregated from other funds held by the Indenture Trustee in trust hereunder except to the extent required herein or required by law. The Indenture Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed upon in writing by the Indenture Trustee and the Issuer. Section 6.7. Compensation, Reimbursement and Indemnification. The Servicer ----------------------------------------------- shall pay to the Indenture Trustee from time to time reasonable compensation for all services rendered by the Indenture Trustee and the Authenticating Agent under this Agreement (which compensation shall not be limited by any law on compensation of a trustee of an express trust). The Servicer shall reimburse the Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Indenture Trustee's agents, counsel, accountants and experts. The Issuer shall direct the Servicer to indemnify, defend and hold harmless, and the Servicer shall indemnify the Indenture Trustee and its officers, directors, employees and agents against any and all loss, liability, expense, damage or claim (including the fees of either in-house counsel or outside counsel) incurred by it in connection with the administration of this trust and the performance of its duties hereunder and under any other Transaction Document, including any claim arising from any failure by Issuer or Seller to pay when due any sales, excise, transfer or personal taxes relating to the Receivables. The Indenture Trustee shall notify the Issuer and the Servicer promptly of any claim for which it may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and the Servicer shall not relieve the Issuer or the Servicer of its obligations hereunder unless such loss, liability or expense could have been avoided with such prompt notification and then only to the extent of such loss, expense or liability which could have been so avoided. The Servicer shall defend any claim against the Indenture Trustee, the Indenture Trustee may have separate counsel and, if it does, the Servicer shall pay the fees and expenses of such counsel. Neither the Issuer nor the Servicer need reimburse any expense or indemnify against any loss, liability or expense incurred by the Indenture Trustee through the Indenture Trustee's own willful misconduct or negligence. 43 The Servicer's payment obligations to the Indenture Trustee pursuant to this Section 6.7 shall survive the discharge of this Indenture or earlier ----------- resignation or removal of the Indenture Trustee. When the Indenture Trustee incurs expenses after the occurrence of a Default specified in Section 5.2(c) or -------------- 5.2(d) with respect to the Issuer, the expenses are intended to constitute - ------ expenses of administration under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or similar law. To secure the Servicer's and Issuer's payment obligations in this Section ------- 6.7, the Indenture Trustee shall have a lien prior to the Notes on all money or - --- property held or collected by the Indenture Trustee, in its capacity as Indenture Trustee, except money or property held in trust to pay principal of, or interest on, the Notes. Section 6.8. Replacement of Indenture Trustee. No resignation or removal of -------------------------------- the Indenture Trustee and no appointment of a successor Indenture Trustee shall become effective until the acceptance of appointment by the successor Indenture Trustee pursuant to this Section 6.8. The Indenture Trustee may resign at any ----------- time by giving thirty (30) days written notice to the Issuer and the Rating Agencies. The Holders of Notes representing more than 66 2/3% of the Outstanding Amount may remove the Indenture Trustee by so notifying the Indenture Trustee in writing and may appoint a successor Indenture Trustee. The Administrator shall remove the Indenture Trustee upon written notice if: (i) the Indenture Trustee fails to comply with Section 6.11; ------------ (ii) the Indenture Trustee is adjudged a bankrupt or insolvent; (iii) a receiver of the Indenture Trustee or of its property shall be appointed, or any public officer takes charge of the Indenture Trustee or its property or its affairs for the purpose of rehabilitation, conservation or liquidation; or (iv) the Indenture Trustee otherwise becomes legally unable to act. If the Indenture Trustee resigns or is removed or if a vacancy exists in the office of Indenture Trustee for any reason (the Indenture Trustee in such event being referred to herein as the retiring Indenture Trustee), the Administrator shall promptly appoint a successor Indenture Trustee. A successor Indenture Trustee shall deliver a written acceptance of its appointment to the retiring Indenture Trustee, the Servicer and to the Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee shall become effective, and the successor Indenture Trustee shall have all the rights, powers and duties of the Indenture Trustee under this Indenture. The successor Indenture Trustee shall mail a 44 notice of its succession to Noteholders. The retiring Indenture Trustee shall promptly transfer all property held by it as Indenture Trustee to the successor Indenture Trustee, subject to the payment of any an all amounts then due and owing to the Indenture Trustee. If a successor Indenture Trustee does not take office within sixty (60) days after the retiring Indenture Trustee resigns or is removed, the retiring Indenture Trustee, the Issuer or the Holders of Notes representing more than 50% of the Outstanding Amount may petition any court of competent jurisdiction for the appointment of a successor Indenture Trustee. If the Indenture Trustee fails to comply with Section 6.11, any Noteholder ------------ may petition any court of competent jurisdiction for the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee. Notwithstanding the replacement of the Indenture Trustee pursuant to this Section 6.8, the Issuer's obligations under Section 6.7 shall continue for the - ----------- ----------- benefit of the retiring Indenture Trustee. The Administrator shall notify the Rating Agencies of any replacement of the Indenture Trustee pursuant to this Section 6.8. ----------- Section 6.9. Successor Indenture Trustee by Merger. If the Indenture ------------------------------------- Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Indenture Trustee; provided that such corporation or banking association shall be otherwise qualified and eligible under Section 6.11. The Indenture Trustee shall provide the Rating ------------ Agencies prior written notice of any such transaction. In case at the time such successor or successors by merger, conversion, consolidation or transfer to the Indenture Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Indenture Trustee may adopt the certificate of authentication of any predecessor Indenture Trustee and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Indenture Trustee may authenticate such Notes in the name of the successor to the Indenture Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Indenture Trustee shall have. 45 Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture --------------------------------------------------------- Trustee. - ------- (a) Notwithstanding any other provisions of this Indenture, at any time, for the purpose of meeting any legal requirement of any jurisdiction in which any part of the Collateral may at the time be located, the Indenture Trustee shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Collateral, and to vest in such Person or Persons, in such capacity and for the benefit of the Noteholders, such title to the Collateral, or any part hereof, and, subject to the other provisions of this Section 6.10, such powers, duties, obligations, rights and ------------ trusts as the Indenture Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 6.11 and no notice to ------------ Noteholders of the appointment of any co-trustee or separate trustee shall be required under Section 6.8. ----------- (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Indenture Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Collateral or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Indenture Trustee; (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; (iii) the Indenture Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee; and (iv) the Indenture Trustee shall not be liable for any act or failure to act on the part of any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Indenture Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee 46 or co-trustee shall refer to this Indenture and the conditions of this Article ------- VI. Each separate trustee and co-trustee, upon its acceptance of the trusts - -- conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Indenture Trustee or separately, as may be provided therein, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Indenture Trustee. Every such instrument shall be filed with the Indenture Trustee. (d) Any separate trustee or co-trustee may at any time constitute the Indenture Trustee, its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Indenture on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Indenture Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 6.11. Eligibility; Disqualification. The Indenture Trustee shall at ----------------------------- all times satisfy the requirements of TIA Section.310(a). The Indenture Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition and either its long-term unsecured debt shall be rated at least A3 by Moody's and BBB- by Standard & Poor's or its short-term debt shall be rated at least P-2 by Moody's or A-2 by Standard & Poor's. The Indenture Trustee shall comply with TIA Section.310(b), including the optional provision permitted by the second sentence of TIA Sections.310(b)(9); provided, however, that there shall be excluded from the operation of TIA Section .310(b)(1) any indenture or indentures under which other securities of the Issuer are outstanding if the requirements for such exclusion set forth in TIA Sectioin.310(b)(1) are met. Section 6.12. Preferential Collection of Claims Against. The Indenture ----------------------------------------- Trustee shall comply with TIA Sectioin.311(a), excluding any creditor relationship listed in TIA Section.311(b). An Indenture Trustee who has resigned or been removed shall be subject to TIA Section.311(a) to the extent indicated. Section 6.13. Representations and Covenants of the Indenture Trustee. The ------------------------------------------------------ Indenture Trustee represents, warrants and covenants that: (i) the Indenture Trustee is a banking corporation duly organized and validly existing under the laws of the State of New York; (ii) The Indenture Trustee has full power and authority to deliver and perform this Indenture and has taken all necessary action to authorize the execution, delivery and performance by it of this Indenture and other Transaction Documents to which it is a party; and 47 (iii) Each of this Indenture and the other Transaction Documents to which it is a party has been duly executed and delivered by the Indenture Trustee and constitutes its legal, valid and binding obligation in accordance with its terms. Section 6.14. Custody of the Collateral. The Indenture Trustee shall hold ------------------------- such of the Trust Estate as consists of instruments, deposit accounts, negotiable documents, money, goods, letters of credit, and advices of credit in the State of Illinois. The Indenture Trustee shall hold such of the Trust Estate as constitutes investment property through a securities intermediary, which securities intermediary shall agree with the Indenture Trustee that (a) such investment property shall at all times be credited to a securities account of the Indenture Trustee, (b) such securities intermediary shall treat the Indenture Trustee as entitled to exercise the rights that comprise each financial asset credited to such securities account, (c) all property credited to such securities account shall be treated as a financial asset, (d) such securities intermediary shall comply with entitlement orders originated by the Indenture Trustee without the further consent of any other person or entity, (e) such securities intermediary will not agree with any person or entity other than the Indenture Trustee to comply with entitlement orders originated by such other person or entity, (f) such securities accounts and the property credited thereto shall not be subject to any lien, security interest, or right of set-off in favor of such securities intermediary or anyone claiming through it (other than the Indenture Trustee), and (g) such agreement shall be governed by the laws of the State of Illinois. Terms used in the preceding sentence that are defined in the Illinois UCC and not otherwise defined herein shall have the meaning set forth in the Illinois UCC. Except as permitted by this Section 6.14, the ------------ Indenture Trustee shall not hold any part of the Trust Estate through an agent or a nominee. ARTICLE VII NOTEHOLDERS' LIST AND REPORTS BY INDENTURE TRUSTEE AND ISSUER Section 7.1. Issuer to Furnish Indenture Trustee Names and Addresses of ---------------------------------------------------------- Noteholders. The Issuer will furnish or cause to be furnished to the Indenture - ----------- Trustee (a) upon each transfer of a Note, a list, in such form as the Indenture Trustee may reasonably require, of the names, addresses and taxpayer identification numbers of the Noteholders as they appear on the Note Register as of such Record Date, and (b) at such other times, as the Indenture Trustee may request in writing, within ten (10) days after receipt by the Issuer of any such request, a list of similar form and content as of a date not more than ten (10) days prior to the time such list is furnished; provided, however, that for so -------- ------- long as the Indenture Trustee is the Transfer Agent and Registrar, the Indenture Trustee shall furnish to the Issuer such list in the same manner prescribed in clause (b) above. 48 Section 7.2. Preservation of Information; Communications to Noteholders. ---------------------------------------------------------- (a) The Indenture Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of the Noteholders contained in the most recent list furnished to the Indenture Trustee as provided in Section -------- 7.1 and the names, addresses and taxpayer identification numbers of the - --- Noteholders received by the Indenture Trustee in its capacity as Transfer Agent and Registrar. The Indenture Trustee may destroy any list furnished to it as provided in Section 7.1 upon receipt of a new list so furnished. ----------- (b) Noteholders may communicate, pursuant to TIA Section 312(b), with other Noteholders with respect to their rights under this Indenture or under the Notes. (c) The Issuer, the Indenture Trustee and the Transfer Agent and Registrar shall have the protection of TIA Section 312(c). Section 7.3. Reports by Issuer. ----------------- (a) The Issuer shall: (i) file with the Indenture Trustee, within fifteen (15) days after the Issuer is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Issuer may be required to file with the Commission pursuant to Section 13 or 15(d) of the ---------- ----- Exchange Act; (ii) file with the Indenture Trustee and the Commission in accordance with rules and regulations prescribed from time to time by the Commission such additional information, documents and reports with respect to compliance by the Issuer with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (iii) supply to the Indenture Trustee (and the Indenture Trustee shall transmit by mail to all Noteholders described in TIA Section 313(c)) such summaries of any information, documents and reports required to be filed by the Issuer pursuant to clauses (i) and (ii) of this Section 7.3(a) as may -------------- be required by rules and regulations prescribed from time to time by the Commission. (b) Unless the Issuer otherwise determines, the fiscal year of the Issuer shall end on December 31 of each year. (c) Delivery of such reports, information and documents to the Indenture Trustee is for informational purposes only and the Indenture Trustee's receipt of such 49 shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuer's compliance with any of the covenants hereunder. Section 7.4. Reports by Indenture Trustee. If required by TIA Section ---------------------------- 313(a), within sixty (60) days after each March 31 beginning with March 31, 2002, the Indenture Trustee shall mail to each Noteholder as required by TIA Section.313(c) a brief report dated as of such date that complies with TIA Section 313(a). The Indenture Trustee also shall comply with TIA Section 313(b). A copy of each report at the time of its mailing to Noteholders shall be filed by the Indenture Trustee with the Commission and each stock exchange, if any, on which the Notes are listed. The Issuer shall notify the Indenture Trustee if and when the Notes are listed on any stock exchange. ARTICLE VIII ALLOCATION AND APPLICATION OF COLLECTIONS Section 8.1. Collection of Money. Except as otherwise expressly provided ------------------- herein and in the related Indenture Supplement, the Indenture Trustee may demand payment or delivery of, and shall receive and collect, directly and without intervention or assistance of any fiscal agent or other intermediary, all money and other property payable to or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall hold all such money and property received by it in trust for the Noteholders and shall apply it as provided in this Indenture. Except as otherwise expressly provided in this Indenture, if any default occurs in the making of any payment or performance under the Transfer and Servicing Agreement or any other Transaction Document, the Indenture Trustee may, and upon the written request of the Holders of Notes representing more than 50% of the principal balance of the Outstanding Notes of the affected Series shall, subject to Sections 6.1(e) and 6.3(d) take such action as may be --------------- ------ appropriate to enforce such payment or performance, including the institution and prosecution of appropriate Proceedings. Any such action shall be without prejudice to any right to claim a Pay Out Event or a Default or Event of Default under this Indenture and to proceed thereafter as provided in Article V. --------- Section 8.2. Rights of Noteholders. The Collateral shall secure the rights --------------------- of the Holders of the Notes of each Series to receive the portion of Collections allocable to the Noteholders of such Series pursuant to this Indenture and the related Indenture Supplement, funds and other property credited to the Collection Account and the Excess Funding Account (or any subaccount thereof) allocable to the Noteholders of such Series pursuant to this Indenture and such Indenture Supplement, funds and other property credited to any related Series Account and funds available pursuant to any 50 related Series Enhancement, it being understood that, except as specifically set forth in the Indenture Supplement with respect thereto, the Notes of any Series or Class shall not be secured by any interest in any Series Account or Series Enhancement pledged for the benefit of any other Series or Class. Section 8.3. Establishment of Collection Account and Excess Funding ------------------------------------------------------ Account. - ------- (a) The Servicer, for the benefit of the Noteholders, shall establish and maintain with the Indenture Trustee or its nominee in the name of the Indenture Trustee, on behalf of the Issuer, a Qualified Account (including any subaccount thereof) bearing a designation clearly indicating that the funds and other property credited thereto are held for the benefit of the Noteholders (the "Collection Account"). The Indenture Trustee shall possess all right, title and ----------------- interest in all monies, instruments, investment property, documents, certificates of deposit and other property credited from time to time to the Collection Account and in all proceeds, earnings, income, revenue, dividends and distributions thereof for the benefit of the Noteholders. The Collection Account shall be under the sole dominion and control of the Indenture Trustee for the benefit of the Noteholders. Except as expressly provided in this Indenture and the Transfer and Servicing Agreement, the Servicer agrees that it shall have no right of setoff or banker's lien against, and no right to otherwise deduct from, any funds held in the Collection Account for any amount owed to it by the Indenture Trustee, the Issuer, any Noteholder or any Series Enhancer. If, at any time, the Collection Account ceases to be a Qualified Account and the same is actually known to a Trustee Officer of the Indenture Trustee, the Indenture Trustee (or the Servicer on its behalf) shall within 15 days (or such longer period, not to exceed thirty (30) calendar days, as to which each Rating Agency may consent) establish a new Collection Account meeting the conditions specified above, transfer any monies, documents, instruments, investment property, certificates of deposit and other property to such new Collection Account and from the date such new Collection Account is established, it shall be the "Collection Account." Pursuant to the authority ------------------ granted to the Servicer in Section 3.1(b) of the Transfer and Servicing -------------- Agreement, the Servicer shall have the power, revocable by the Indenture Trustee, to make withdrawals and payments from the Collection Account and to instruct the Indenture Trustee in writing to make withdrawals and payments from the Collection Account for the purposes of carrying out the Servicer's or the Indenture Trustee's duties hereunder and under the Transfer and Servicing Agreement, as applicable. The Servicer shall reduce deposits into the Collection Account payable by the Seller on any Deposit Date to the extent the Seller is entitled to receive funds from the Collection Account on such Deposit Date. Funds on deposit in the Collection Account (other than investment earnings and amounts deposited pursuant to Section 2.6, 6.1, or 7.1 of the Transfer and ------------ --- --- Servicing Agreement or Section 11.2 of this Indenture) shall at the written ------------ direction of the 51 Servicer be invested by the Indenture Trustee or its nominee in Permitted Investments selected by the Servicer. All such Permitted Investments shall be held by the Indenture Trustee for the benefit of the Noteholders pursuant to Sections 6.14 and 6.1(h). Investments of funds representing Collections - ------------- ------ collected during any Monthly Period shall be invested in Permitted Investments that will mature so that such funds will be available no later than the close of business on each monthly Transfer Date following such Monthly Period in amounts sufficient to the extent of such funds to make the required distributions on the following Distribution Date. No such Permitted Investment shall be disposed of prior to its maturity; provided, however, that the Indenture Trustee may sell, --------- -------- liquidate or dispose of any such Permitted Investment before its maturity, at the written direction of the Servicer, if such sale, liquidation or disposal would not result in a loss of all or part of the principal portion of such Permitted Investment or if, prior to the maturity of such Permitted Investment, a default occurs in the payment of principal, interest or any other amount with respect to such Permitted Investment. Unless directed by the Servicer in writing, funds deposited in the Collection Account on a Transfer Date with respect to the immediately succeeding Distribution Date are not required to be invested overnight. On each Distribution Date, all interest and other investment earnings (net of losses and investment expenses) on funds on deposit in the Collection Account shall be treated as Collections of Finance Charge Receivables with respect to the last day of the related Monthly Period, except as otherwise specified in any Indenture Supplement. The Indenture Trustee shall bear no responsibility or liability for any losses resulting from investment or reinvestment of any funds in accordance with this Section 8.3 nor for the ----------- selection of Permitted Investments in accordance with the provisions of this Indenture and any Indenture Supplement. (b) The Servicer, for the benefit of the Noteholders, shall establish and maintain with the Indenture Trustee or its nominee in the name of the Indenture Trustee, on behalf of the Issuer, a Qualified Account (including any subaccounts thereof) bearing a designation clearly indicating that the funds and other property credited thereto are held for the benefit of the Noteholders (the "Excess Funding Account"). The Indenture Trustee shall possess all right, title ---------------------- and interest in all monies, instruments, investment property, documents, certificates of deposit and other property credited from time to time to the Excess Funding Account and in all proceeds, dividends distributions, earnings, income and revenue thereof for the benefit of the Noteholders. The Excess Funding Account shall be under the sole dominion and control of the Indenture Trustee for the benefit of the Noteholders. Except as expressly provided in this Indenture and the Transfer and Servicing Agreement, the Servicer agrees that it shall have no right of setoff or banker's lien against, and no right to otherwise deduct from, any funds and other property held in the Excess Funding Account for any amount owed to it by the Indenture Trustee, the Issuer, any Noteholder or any Series Enhancer. If, at any time, the Excess Funding Account ceases to be a Qualified Account and the same is actually known to a Trustee Officer of the Indenture Trustee, the Indenture Trustee (or the Servicer on its behalf) shall within 15 days (or such longer period, not to exceed thirty (30) calendar days, as to which each Rating Agency may consent) 52 establish a new Excess Funding Account meeting the conditions specified above, transfer any monies, documents, instruments, investment property, certificates of deposit and other property to such new Excess Funding Account and from the date such new Excess Funding Account is established, it shall be the "Excess ------ Funding Account." - ---------------- Funds on deposit in the Excess Funding Account shall at the written direction of the Servicer be invested by the Indenture Trustee in Permitted Investments selected by the Servicer. All such Permitted Investments shall be held by the Indenture Trustee or its nominee (including any securities intermediary) for the benefit of the Noteholders pursuant to Sections 6.14 and ------------- 6.1(h). Funds on deposit in the Excess Funding Account on any Distribution Date - ----- will be invested in Permitted Investments that will mature so that such funds will be available no later than the close of business on the next succeeding Transfer Date. No such Permitted Investment shall be disposed of prior to its maturity; provided, however, that the Indenture Trustee may sell, liquidate or --------- -------- dispose of a Permitted Investment before its maturity, at the written direction of the Servicer, if such sale, liquidation or disposal would not result in a loss of all or part of the principal portion of such Permitted Investment or if, prior to the maturity of such Permitted Investment, a default occurs in the payment of principal, interest or any other amount with respect to such Permitted Investment. Unless directed by the Servicer in writing, funds deposited in the Excess Funding Account on a Transfer Date with respect to the immediately succeeding Distribution Date are not required to be invested overnight. On each Distribution Date, all interest and other investment earnings (net of losses and investment expenses) on funds on deposit in the Excess Funding Account shall be treated as Collections of Finance Charge Receivables with respect to the last day of the related Monthly Period except as otherwise specified in the related Indenture Supplement. Section 8.4. Collections and Allocations. From and after the FCMT --------------------------- Termination Date: (a) Collections. The Servicer shall apply or shall instruct the Indenture ----------- Trustee in writing to apply all funds on deposit in the Collection Account as described in this Article VIII and in each Indenture Supplement. Except as ------------ otherwise provided below, the Servicer shall deposit Collections into the Collection Account as promptly as possible after the Date of Processing of such Collections, but in no event later than the second Business Day following the Date of Processing. Subject to the express terms of any Indenture Supplement, but notwithstanding anything else in this Indenture or the Transfer and Servicing Agreement to the contrary, for so long as FCNB shall remain the Servicer and no Servicer Default has occurred and is continuing and either (i) the Servicer provides to the Indenture Trustee a letter of credit or other arrangement covering risk of collection of the Servicer and the Servicer shall have satisfied the Rating Agency Condition with respect to such arrangement or (ii) the Servicer (unless the Rating Agency Condition shall have been satisfied with respect to making monthly deposits) shall have and maintain a certificate of deposit or short-term deposit rating of 53 P-1 by Moody's and of at least A-1 by Standard & Poor's and deposit insurance as required by law and by the FDIC, the Servicer need not make the daily deposits of Collections into the Collection Account as provided in the preceding sentence, but may make a single deposit in the Collection Account in immediately available funds on the Transfer Date following the Monthly Period with respect to which such deposit relates. Notwithstanding anything else in this Indenture or the Transfer and Servicing Agreement to the contrary, with respect to any Monthly Period, whether the Servicer is required to make deposits of Collections pursuant to the first or the second preceding sentence, (i) the Servicer will only be required to deposit Collections into the Collection Account up to the aggregate amount of Collections required to be deposited into any Series Account or, without duplication, distributed on or prior to the related Distribution Date to Noteholders or to any Series Enhancer pursuant to the terms of any Indenture Supplement or Enhancement Agreement, but the Servicer shall account for Collections as if the full deposit had been made and (ii) if at any time prior to such Distribution Date the amount of Collections deposited in the Collection Account exceeds the amount required to be deposited pursuant to clause (i) above, the Servicer will be permitted to withdraw the excess from the - ---------- Collection Account and pay such amount to the Holder of the Seller Interest. Subject to the immediately preceding sentence, the Servicer may retain its Servicing Fee with respect to a Series and shall not be required to deposit it in the Collection Account. (b) Series and Seller Allocations. Finance Charge Collections, Collections ----------------------------- of Principal Receivables and Defaulted Receivables will be allocated to each Series of Notes and to the Holders of the Seller Interest in accordance with this Article VIII and each Indenture Supplement, and amounts so allocated to any ------------ Series will not, except as specified in the related Indenture Supplement, be available to the Noteholders of any other Series. All Finance Charge Collections, Collections of Principal Receivables and Defaulted Receivables not so allocated to any Series of Notes shall be allocated and (in the case of Collections) paid to the Holder of the Seller Interest, except as otherwise provided in Section 8.4(g). (c) Allocation of Collections Between Finance Charge Receivables and ---------------------------------------------------------------- Principal Receivables. On each Business Day, the Servicer shall allocate - --------------------- Collections processed on the Accounts as Finance Charge Collections as set forth in Section 1.3 of the Transfer and Servicing Agreement, or, in the case of ----------- Discount Option Receivables, Finance Charge Collections as set forth in Section ------- 2.8(b) of the Transfer and Servicing Agreement . In addition all Collections - ------ which constitute Net Recoveries, investment earnings (net of investment expenses and losses) on the Collection Account and the Excess Funding Account shall be treated as Finance Charge Collections and allocated accordingly. The balance of the Collections processed on any Business Day shall be allocated to Principal Receivables. (d) Allocation of Collections of Recoveries and Defaulted Amounts. On each ------------------------------------------------------------- Determination Date, the Servicer shall calculate the Investor Default Amount and 54 the amount of Net Recoveries, if any, for the preceding Monthly Period with respect to each Series. (e) Adjustments for Miscellaneous Credits. The Servicer shall be obligated ------------------------------------- to reduce or adjust, as the case may be, on a net basis, the aggregate amount of Principal Receivables used to calculate the Seller Amount as provided in this Section 8.4(e) (a "Credit Adjustment") with respect to any Principal Receivable - -------------- ----------------- (i) which was created in respect of merchandise refused or returned by the Obligor thereunder, (ii) which is reduced by the Servicer by any rebate, refund, chargeback or adjustment, (iii) as to which the Obligor thereunder has asserted a counterclaim or defense and either (x) the Servicer has agreed such counterclaim or defense is valid or (y) a final nonappealable judgment or decree has been entered in favor of such Obligor in respect of such counterclaim or defense by a court or arbitral body having jurisdiction thereof, or (iv) which the Servicer has determined was created through a fraudulent or counterfeit charge, but only if and to the extent such fraudulent or counterfeit charges are not included as charge-offs under the Cardholder Guidelines. In the event that the exclusion of the amount of a Credit Adjustment from the calculation of the Seller Amount would cause the Seller Amount to be less than the Minimum Seller Amount, Seller shall make a deposit, no later than the Business Day following the Date of Processing of such Credit Adjustment, in the Excess Funding Account in immediately available funds, in an amount equal to the Shortfall Amount, after giving effect to such exclusion to the extent Seller has received such funds from FCNB under the Receivables Purchase Agreement and, if Seller has not received such funds, to the extent Seller has funds available for such purpose after amounts payable to Securityholders (as defined in the Receivables Purchase Agreement) have been paid in full. Such deposit shall be applied in accordance with this Article VIII and the Indenture Supplements and ------------ treated as a Principal Collection for all purposes hereof and thereof. Each party hereto agrees that the failure by the Seller to make the deposit beyond the extent it has such funds available for such purpose in accordance with this Section 8.4(e) shall not give rise to a claim against the Seller for such - -------------- failure. (f) Net Payments. So long as FCNB is the Servicer and FCNB, as Servicer, is ------------ making daily deposits to the Collection Account in accordance with Section ------- 8.4(a), FCNB, acting as Servicer and as agent for the Holder of the Seller - ------ Interest, may make a net payment to the Collection Account on each Deposit Date in the amount of all Collections received by the Servicer since the previous Deposit Date, minus all amounts payable to the Holder of the Seller Interest on or before such day in accordance with this Article VIII and the Indenture ------------ Supplements. (g) Unallocated Collections; Excess Funding Account. On each Business Day, ------------------------------------------------ Principal Collections allocable to the Seller Interest (including Shared Principal Collections and Excess Finance Charge Collections payable to the Holders of the Seller Interest) in an aggregate amount equal to the Shortfall Amount shall be deposited in the 55 Excess Funding Account. Thereafter, amounts in the Excess Funding Account shall be treated as Shared Principal Collections to the extent that, after giving effect to the application of such amount as Shared Principal Collections to the extent provided in any Indenture Supplement, the Seller Amount would equal or exceed the Minimum Seller Amount. (h) Allocation of Deposit Obligations. If the Seller or the Servicer shall --------------------------------- fail to make any Deposit Obligation, the amount thereof shall first be allocated to reduce the Seller Amount until the Seller Amount equals the Minimum Seller Amount. Any remaining shortfall shall be allocated to each Series ratably based upon a fraction the numerator of which is the Allocation Percentage used by such Series to allocate Default Amounts and the denominator of which is the sum of all such numerators of all Series outstanding (such allocated amount, the "Series Share" of such shortfall). The Series Share of each series that ------------ specifies a Minimum Seller Percentage greater than zero shall be allocated to reduce the Seller Amount and any Collections otherwise allocable to the Seller Amount and the balance on deposit in the Excess Funding Account shall be available on a ratable basis to such Series to cover any shortfalls arising from such failure; provided to the extent the Seller Amount falls below zero, any portion of the Series Share of any such Series that is not covered as described above shall be allocated to such Series. The Series Share of each Series that specifies a Minimum Seller Percentage of zero shall be allocated to such series. Section 8.5. Shared Principal Collections. From and after the FCMT ---------------------------- Termination Date, on each Distribution Date, (a) the Servicer shall allocate Shared Principal Collections (as described below) to each Principal Sharing Series, pro rata, in proportion to the Principal Shortfalls (as described below), if any, with respect to each such Series and (b) the Servicer shall withdraw from the Collection Account an amount equal to the excess, if any, of (i) the aggregate amount for all outstanding Series of Collections of Principal Receivables which the related Indenture Supplements specify are to be treated as "Shared Principal Collections" for such Distribution Date over (ii) the ---------------------------- aggregate amount for all outstanding Series which the related Indenture Supplements specify are "Principal Shortfalls" for such Series and for such -------------------- Distribution Date and shall (A) deposit such funds into the Excess Funding Account in an aggregate amount equal to the Shortfall Amount in accordance with Section 8.4(g) and (B) pay any remaining amount to the Holders of the Seller - -------------- Interest. The Seller may, at its option, instruct the Indenture Trustee in writing to deposit Shared Principal Collections which are otherwise payable to the holders of the Seller Interest pursuant to the provisions set forth above into the Excess Funding Account. Section 8.6. Excess Finance Charge Collections. From and after the FCMT --------------------------------- Termination Date, on each Distribution Date, (a) the Servicer shall allocate Excess Finance Charge Collections (as described below) to each Excess Allocation Series, pro rata, in proportion to the Finance Charge Shortfalls (as described below), if any, with respect to each such Series and (b) the Servicer shall withdraw from the Collection 56 Account an amount equal to the excess, if any, of (x) the aggregate amount for all outstanding Series of Collections of Finance Charge Receivables which the related Supplements specify are to be treated as "Excess Finance Charge --------------------- Collections" for such Distribution Date over (y) the aggregate amount for all - ----------- outstanding Series which the related Supplements specify are "Finance Charge -------------- Shortfalls" for such Series and such Distribution Date and shall (A) deposit - ---------- such funds into the Excess Funding Account in an aggregate amount equal to the Shortfall Amount in accordance with Section 8.4(g) and (b) pay any remaining ------ --- amount to the holders of the Seller Interest; provided, however, that the -------- ------- sharing of Excess Finance Charge Collections among Series will continue only until such time, if any, at which the Seller shall deliver to the Indenture Trustee an Officer's Certificate to the effect that, in the reasonable belief of the Seller, the continued sharing of Excess Finance Charge Collections among Series would have adverse regulatory implications with respect to the Seller. Notwithstanding the foregoing, a Group of Series may specify in their related Indenture Supplements that Excess Finance Charge Collections from such Series shall be allocated as provided above but only among the Series in such Group. Section 8.7. Allocation of Collateral to Series or Groups. To the extent so -------------------------------------------- provided in the Indenture Supplement for any Series or in an Indenture Supplement otherwise executed pursuant to Section 10.1, Receivables conveyed to ------------ the Issuer pursuant to Section 2.1 of the Transfer and Servicing Agreement and ----------- Receivables conveyed to the Issuer pursuant to Section 2.9 of the Transfer and ----------- Servicing Agreement and all Collections received with respect thereto may be allocated or applied in whole or in part to one or more Series or Groups as may be provided in such Indenture Supplement; provided, however, that any such -------- ------- allocation or application shall be effective only upon satisfaction of the following conditions: (i) on or before the fifth Business Day immediately preceding such allocation, the Servicer shall have given the Indenture Trustee and each Rating Agency written notice of such allocation; (ii) the Rating Agency Condition shall have been satisfied with respect to such allocation; and (iii) the Servicer shall have delivered to the Indenture Trustee an Officer's Certificate, dated the date of such allocation, to the effect that the Servicer reasonably believes that such allocation will not have an Adverse Effect. Any such Indenture Supplement may provide that (i) such allocation to one or more particular Series or Groups may terminate upon the occurrence of certain events specified therein and (ii) that upon the occurrence of any such event, such assets and any Collections with respect thereto, shall be reallocated to other Series or Groups or to all Series, all as shall be provided in such Indenture Supplement. 57 Section 8.8. Release of Collateral; Eligible Loan Documents. ---------------------------------------------- (a) Upon the written direction of the Issuer, the Indenture Trustee may, and when required by the provisions of this Indenture shall, execute instruments to release property from the lien of this Indenture, or convey the Indenture Trustee's interest in the same, in a manner and under circumstances which are not inconsistent with the provisions of this Indenture. No party relying upon an instrument executed by the Indenture Trustee as provided in this Article VIII ------------ shall be bound to ascertain the Indenture Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any monies. (b) In order to facilitate the servicing of the Receivables by the Servicer, the Indenture Trustee upon Issuer Order shall authorize the Servicer to execute in the name and on behalf of the Indenture Trustee instruments of satisfaction or cancellation, or of partial or full release or discharge, and other comparable instruments with respect to the Receivables (and the Indenture Trustee shall execute any such documents on written request of the Servicer), subject to the obligations of the Servicer under the Transfer and Servicing Agreement. (c) The Indenture Trustee shall, at such time as there are no Notes outstanding, release and transfer, without recourse, all of the Collateral that secured the Notes (other than any cash held for the payment of the Notes pursuant to Section 4.2). The Indenture Trustee shall release property from the ----------- lien of this Indenture pursuant to this Section 8.9(c) only upon receipt of an -------------- Issuer Order accompanied by an Officer's Certificate, an Opinion of Counsel and (if required by the TIA) Independent Certificates in accordance with TIA Section 314(c) and 314(d)(1) meeting the applicable requirements of Section 12.1. ------------ (d) Notwithstanding anything to the contrary in this Indenture, the Transfer and Servicing Agreement and the Trust Agreement, immediately prior to the release of any portion of the Collateral or any funds on deposit in the Series Accounts pursuant to this Indenture, the Indenture Trustee shall at the written request of the Issuer remit to the Seller for its own account any funds that, upon such release, would otherwise be remitted to the Issuer. Section 8.9. Opinion of Counsel. The Indenture Trustee shall receive at ------------------ least seven (7) days notice when requested by the Issuer to take any action pursuant to Section 8.8(a), accompanied by copies of any instruments involved, -------------- and the Indenture Trustee shall also require, as a condition to such action, an Opinion of Counsel, in form and substance reasonably satisfactory to the Indenture Trustee, stating the legal effect of any such action, outlining the steps required to complete the same, and concluding that all conditions precedent to the taking of such action have been complied with and such action will not materially and adversely impair the security for the Notes or the rights of the Noteholders in contravention of the provisions of this Indenture; provided, - -------- 58 however, that such Opinion of Counsel shall not be required to express an - ------- opinion as to the fair value of the Collateral. The Indenture Trustee and counsel rendering any such opinion may conclusively rely, without independent investigation, on the accuracy and validity of any certificate or other instrument delivered to the Indenture Trustee in connection with any such action. ARTICLE IX DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS Distributions shall be made to, and reports shall be provided to, Noteholders as set forth in the applicable Indenture Supplement. The identity of the Noteholders with respect to distributions and reports shall be determined according to the immediately preceding Record Date. ARTICLE X SUPPLEMENTAL INDENTURES Section 10.1. Supplemental Indentures Without Consent of Noteholders. ------------------------------------------------------ (a) Without the consent of the Holders of any Notes but with prior notice to each Rating Agency with respect to the Notes of all Series rated by such Rating Agency, the Issuer and the Indenture Trustee, when authorized by an Issuer Order, at any time and from time to time, may enter into one or more indentures supplemental hereto (which shall conform to the provisions of the TIA as in force at the date of the execution thereof), in form satisfactory to the Indenture Trustee, for any of the following purposes: (i) to correct or amplify the description of any property at any time subject to the lien of this Indenture, or better to assure, convey and confirm unto the Indenture Trustee any property subject or required to be subjected to the lien of this Indenture, or to subject to the lien of this Indenture additional property; (ii) to evidence the succession, in compliance with Section 3.11, of ------------ another person to the Issuer, and the assumption by any such successor of the covenants of the Issuer contained herein and in the Notes; (iii) to add to the covenants of the Issuer, for the benefit of the Holders of the Notes, or to surrender any right or power herein conferred upon the Issuer; 59 (iv) to convey, transfer, assign, mortgage or pledge any property to or with the Indenture Trustee; (v) to cure any ambiguity, to correct or supplement any provision herein or in any supplemental indenture that may be inconsistent with any other provision herein or in any supplemental indenture or to make any other provisions with respect to matters or questions arising under this Indenture or in any supplemental indenture; provided that such action shall -------- not adversely affect the interests of the Holders of the Notes; (vi) to evidence and provide for the acceptance of the appointment hereunder by a successor indenture trustee with respect to the Notes and to add to or change any of the provisions of this Indenture as shall be necessary to facilitate the administration of the trusts hereunder by more than one indenture trustee, pursuant to the requirements of Article VI; ---------- (vii) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the TIA or under any similar federal statute hereafter enacted and to add to this Indenture such other provisions as may be expressly required by the TIA; (viii) to provide for the issuance of one or more new Series of Notes, in accordance with the provisions of Section 2.12; or ------------ (ix) to provide for the termination of any interest rate swap agreement or other form of credit enhancement or maturity guarantee agreement in accordance with the provisions of the related Indenture Supplement. The Indenture Trustee is hereby authorized to join in the execution of any such supplemental indenture and to make any further appropriate agreements and stipulations that may be therein contained. (b) The Issuer and the Indenture Trustee, when authorized by an Issuer Order, may, also without the consent of any Noteholders of any Series then Outstanding but upon satisfaction of the Rating Agency Condition with respect to the Notes of all Series, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Holders of the Notes under this Indenture; provided, -------- however that the Seller shall have delivered to the Owner Trustee and the - ------- Indenture Trustee an Officer's Certificate, dated the date of any such action, stating that all requirements for such amendments contained in the Agreement have been met and the Seller reasonably believes that such action will not have an Adverse Effect. Additionally, notwithstanding the preceding sentence, the 60 Issuer and the Indenture Trustee, when authorized by an Issuer Order, may, without the consent of any Noteholders of any Series then Outstanding or the Series Enhancers for any Series, enter into an indenture or indentures supplemental hereto to add, modify or eliminate such provisions as may be necessary or advisable in order to enable all or a portion of the Issuer (i) to qualify as, and to permit an election to be made to cause the Issuer to be treated as, a "financial asset securitization investment trust" as described in the provisions of Section 860L of the Code, and (ii) to avoid the imposition of state or local income or franchise taxes imposed on the Issuer's property or its income; provided, however, that (i) the Seller delivers to the Indenture Trustee -------- ------- and the Owner Trustee an Officer's Certificate to the effect that the proposed amendments meet the requirements set forth in this Section 10.1(b), (ii) the --------------- Rating Agency Condition will have been satisfied and (iii) such amendment does not affect the rights, duties, protections, indemnities, immunities or obligations of the Indenture Trustee or the Owner Trustee hereunder. The amendments which the Seller may make without the consent of Noteholders pursuant to the preceding sentence may include the addition or sale of Receivables. Section 10.2. Supplemental Indentures with Consent of Noteholders. The --------------------------------------------------- Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may, upon satisfaction of the Rating Agency Condition and with the consent of the Holders of Notes representing more than 66-2/3% of the principal balance of the Outstanding Notes of each adversely affected Series, by Act of such Holders delivered to the Issuer and the Indenture Trustee, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of such Noteholders under this Indenture; provided, however that no such supplemental indenture shall, without the consent - -------- ------- of the Holder of each outstanding Note affected thereby: (a) change the due date of any installment of principal of or interest on any Note, or reduce the principal amount thereof, the interest rate specified thereon or the redemption price with respect thereto or change any place of payment where, or the coin or currency in which, any Note or any interest thereon is payable; (b) impair the right to institute suit for the enforcement of the provisions of this Indenture requiring the application of funds available therefor, as provided in Article V, to the payment of any such amount due on the --------- Notes on or after the respective due dates thereof (or, in the case of redemption, on or after the Redemption Date); (c) reduce the percentage of the Outstanding Notes of any Series the consent of the Holders of which is required for any such supplemental indenture, or the consent of the Holders of which is required for any waiver of compliance with certain 61 provisions of this Indenture or certain defaults hereunder and their consequences as provided for in this Indenture; (d) reduce the percentage of the Outstanding Notes of any Series, the consent of the Holders of which is required to direct the Indenture Trustee to sell or liquidate the Collateral if the proceeds of such sale would be insufficient to pay the principal amount and accrued but unpaid interest on the outstanding Notes of such Series; (e) decrease the percentage of the Outstanding Notes required to amend the sections of this Indenture which specify the applicable percentage of the Outstanding Notes of any Series necessary to amend the Indenture or any Transaction Documents which require such consent; (f) modify or alter the provisions of this Indenture prohibiting the voting of Notes held by the Issuer, any other Obligor on the Notes, a Seller or any affiliate thereof; or (g) permit the creation of any Lien ranking prior to or on a parity with the lien of this Indenture with respect to any part of the Collateral for any Notes or, except as otherwise permitted or contemplated herein, terminate the Lien of this Indenture on any such Collateral at any time subject hereto or deprive the Holder of any Note of the security provided by the Lien of this Indenture. The Indenture Trustee may in its discretion determine whether or not any Notes would be affected by any supplemental indenture and any such determination shall be conclusive upon the Holders of all Notes, whether theretofore or thereafter authenticated and delivered hereunder. The Indenture Trustee shall not be liable for any such determination made in good faith. Satisfaction of the Rating Agency Condition shall not be required with respect to the execution of any supplemental indenture pursuant to this Section ------- 10.2 for which the consent of all of the affected Noteholders is required. - ---- It shall not be necessary for any Act of Noteholders under this Section ------- 10.2 to approve the particular form of any proposed supplemental indenture, but - ---- it shall be sufficient if such Act shall approve the substance thereof. Promptly after the execution by the Issuer and the Indenture Trustee of any supplemental indenture pursuant to this Section 10.2, the Indenture Trustee ------------ shall mail to the Holders of the Notes to which such amendment or supplemental indenture relates written notice setting forth in general terms the substance of such supplemental indenture. Any failure of the Indenture Trustee to mail such notice, or any defect 62 therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. Section 10.3. Execution of Supplemental Indentures. In executing, or ------------------------------------ permitting the additional trusts created by, any supplemental indenture permitted by this Article X or the modification thereby of the trusts created by --------- this Indenture, the Indenture Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture and stating that all requisite consents have been obtained or that no consents are required and stating that such supplemental indenture or modification constitutes the legal, valid and binding obligation of the Issuer in accordance with its terms. The Indenture Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Indenture Trustee's own rights, duties, liabilities or immunities under this Indenture or otherwise. Section 10.4. Effect of Supplemental Indenture. Upon the execution of any -------------------------------- supplemental indenture under this Article X, this Indenture shall be modified in --------- accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes, and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. This Section 10.4 ------------ does not apply to Indenture Supplements. Section 10.5. Conformity With Trust Indenture Act. Every amendment of this ----------------------------------- Indenture and every supplemental indenture executed pursuant to this Article X --------- shall conform to the requirements of the TIA as then in effect so long as this Indenture shall then be qualified under the TIA. Section 10.6. Reference in Notes to Supplemental Indentures. Notes --------------------------------------------- authenticated and delivered after the execution of any supplemental indenture pursuant to this Article X may, and if required by the Indenture Trustee shall, --------- bear a notation in form approved by the Indenture Trustee as to any matter provided for in such supplemental indenture. If the Issuer shall so determine, new Notes so modified as to conform, in the opinion of the Indenture Trustee and the Issuer, to any such supplemental indenture may be prepared and executed by the Issuer and authenticated and delivered by the Indenture Trustee in exchange for the outstanding Notes. 63 ARTICLE XI TERMINATION Section 11.1. Termination of Issuer. The Issuer and the respective --------------------- obligations and responsibilities of the Indenture Trustee created hereby (other than the obligation of the Indenture Trustee to make payments to Noteholders as hereinafter set forth) shall terminate, except with respect to the duties described in Section 11.2(b), as provided in the Trust Agreement. --------------- Section 11.2. Final Distribution. ------------------ (a) The Servicer shall give the Indenture Trustee and the Rating Agencies at least thirty (30) days prior written notice of the Distribution Date on which the Noteholders of any Series or Class may surrender their Notes for payment of the final distribution on and cancellation of such Notes (or, in the event of a final distribution resulting from the application of Section 2.6 of the Transfer ----------- and Servicing Agreement, notice of such Distribution Date promptly after the Servicer has determined that a final distribution will occur, if such determination is made less than thirty (30) days prior to such Distribution Date). Such notice shall be accompanied by an Officer's Certificate setting forth the information specified in Section 3.5 of the Transfer and Servicing ----------- Agreement covering the period during the then-current calendar year through the date of such notice. Not later than the fifth day of the month in which the final distribution in respect of such Series or Class is payable to Noteholders, the Indenture Trustee shall provide notice to Noteholders of such Series or Class specifying (i) the date upon which final payment of such Series or Class will be made upon presentation and surrender of Notes of such Series or Class at the office or offices therein designated, (ii) the amount of any such final payment and (iii) that the Record Date otherwise applicable to such payment date is not applicable, payments being made only upon presentation and surrender of such Notes at the office or offices therein specified (which in the case of Bearer Notes shall be outside the United States). The Indenture Trustee shall give such notice to the Transfer Agent and Registrar and the Paying Agent at the time such notice is given to Noteholders. (b) Notwithstanding a final distribution to the Noteholders of any Series or Class (or the termination of the Issuer), except as otherwise provided in this paragraph, all funds then on deposit in the Collection Account and any Series Account allocated to such Noteholders shall continue to be held in trust for the benefit of such Noteholders and the Paying Agent or the Indenture Trustee shall pay such funds to such Noteholders upon surrender of their Notes, if certificated (and any excess shall be paid in accordance with the terms of any Enhancement Agreement). In the event that all such Noteholders shall not surrender their Notes for cancellation within six (6) months after the date specified in the notice from the Indenture Trustee 64 described in paragraph (a), the Indenture Trustee shall give a second notice to the remaining such Noteholders to surrender their Notes for cancellation and receive the final distribution with respect thereto (which surrender and payment, in the case of Bearer Notes, shall be outside the United States). If within one year after the second notice all such Notes shall not have been surrendered for cancellation, the Indenture Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining such Noteholders concerning surrender of their Notes, and the cost thereof shall be paid out of the funds in the Collection Account or any Series Account held for the benefit of such Noteholders. The Indenture Trustee and, upon the written request of the Servicer, the Paying Agent shall pay to the Issuer any monies held by them for the payment of principal or interest that remains unclaimed for two (2) years. After payment to the Issuer, Noteholders entitled to the money must look to the Issuer for payment as general creditors unless an applicable abandoned property law designates another Person. Section 11.3. Issuer's Termination Rights. Upon the termination of the --------------------------- Issuer pursuant to the terms of the Trust Agreement and upon the written direction of the Issuer, the Indenture Trustee shall assign and convey to the Holders of the Seller Interest or any of their designees, without recourse, representation or warranty, all right, title and interest of the Issuer in the Receivables, whether then existing or thereafter created, all Recoveries related thereto all monies due or to become due and all amounts received or receivable with respect thereto (including all moneys then held in the Collection Account or any Series Account) and all proceeds thereof, except for amounts held by the Indenture Trustee pursuant to Section 11.2(b). The Indenture Trustee shall --------------- execute and deliver such instruments of transfer and assignment, in each case without recourse, as shall be reasonably requested in writing by the Holders of the Seller Interest to vest in the Holders of the Seller Interest or any of their designees all right, title and interest which the Indenture Trustee had in the Collateral and such other property. ARTICLE XII MISCELLANEOUS Section 12.1. Compliance Certificates and Opinions etc. ---------------------------------------- (a) Upon any application or request by the Issuer to the Indenture Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Indenture Trustee (i) an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and (ii) (if required by the TIA) an Independent Certificate from a firm of certified public accountants meeting the applicable requirements of this Section 12.1, except that, in the case of any ------------ such application or request as to which 65 the furnishing of such documents is specifically required by any provision of this Indenture, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (i) a statement that each signatory of such certificate or opinion has read or has caused to be read such covenant or condition and the definitions herein relating thereto; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of each such signatory, such signatory has made such examination or investigation as is necessary to enable such signatory to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether, in the opinion of each such signatory, such condition or covenant has been complied with. (b) Other than with respect to the release of any Receivables in Removed Accounts, whenever any property or investment property is to be released from the lien of this Indenture, the Issuer shall also furnish to the Indenture Trustee an Officer's Certificate certifying or stating the opinion of each person signing such certificate as to the fair value (within ninety (90) days of such release) of the property or securities proposed to be released and stating that in the opinion of such person the proposed release will not impair the security under this Indenture in contravention of the provisions hereof. (i) Notwithstanding any other provision of this Section 12.1, the ------------ Issuer may (A) collect, liquidate, sell or otherwise dispose of Receivables as and to the extent permitted or required by the Transaction Documents and (B) make cash payments out of the Series Accounts as and to the extent permitted or required by the Transaction Documents. 66 Section 12.2. Form of Documents Delivered to Indenture Trustee. In any case ------------------------------------------------ where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of a Responsible Officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such officer's certificate or opinion is based are erroneous. Any such certificate of a Responsible Officer or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Servicer, a Seller, the Issuer or the Administrator, stating that the information with respect to such factual matters is in the possession of the Servicer, a Seller, the Issuer or the Administrator, unless such Responsible Officer or Counsel has actual knowledge that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two (2) or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Whenever in this Indenture, in connection with any application or certificate or report to the Indenture Trustee, it is provided that the Issuer shall deliver any document as a condition of the granting of such application, or as evidence of the Issuer's compliance with any term hereof, it is intended that the truth and accuracy, at the time of the granting of such application or at the effective date of such certificate or report (as the case may be), of the facts and opinions stated in such document shall in such case be conditions precedent to the right of the Issuer to have such application granted or to the sufficiency of such certificate or report. The foregoing shall not, however, be construed to affect the Indenture Trustee's right to conclusively rely upon the truth and accuracy of any statement or opinion contained in any such document as provided in Article VI. ---------- Section 12.3. Acts of Noteholders. -------------------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Noteholders may be embodied in and evidenced by one or more instruments of 67 substantially similar tenor signed by such Noteholders in person or by their agents duly appointed in writing and satisfying any requisite percentages as to minimum number or dollar value of outstanding principal amount represented by such Noteholders; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Indenture Trustee, and, where it is hereby expressly required, to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the --- Noteholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Indenture Trustee and the Issuer, if made in the manner provided in this Section 12.3. ------------ (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Indenture Trustee deems sufficient. (c) The ownership of Notes shall be proved by the Note Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Notes shall bind the Holder (and any transferee thereof) of every Note issued upon the registration thereof in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Note. Section 12.4. Notices, Etc. to Indenture Trustee and Issuer. Any request, --------------------------------------------- demand, authorization, direction, notice, consent, waiver or Act of Noteholders or other documents provided or permitted by the Agreement to be made upon, given or furnished to, or filed with: (a) the Indenture Trustee by any Noteholder or by the Issuer shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to a Trustee Officer, by facsimile transmission or by other means acceptable to the Indenture Trustee to or with the Indenture Trustee at its Corporate Trust Office; or (b) the Issuer by the Indenture Trustee or by any Noteholder shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid, to the Issuer addressed to it and received by it c/o Bankers Trust Company, Four Albany Street, 10th Floor, New York, New York 10006, Attn: Corporate Trust and Agency Services, or at any other address previously furnished in writing to the Indenture Trustee by the Issuer. A copy of each notice to the Issuer shall be sent in writing and mailed, first-class postage prepaid, to the Administrator at First 68 Consumers National Bank, 9300 S.W. Gemini Drive, Beaverton, Oregon 97008, Attn.: President. Section 12.5. Notices to Noteholders; Waiver. Where the Indenture provides ------------------------------ for notice to Noteholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed by registered or certified mail or first class postage prepaid or national overnight courier service to each Noteholder affected by such event, at its address as it appears on the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Noteholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Noteholder shall affect the sufficiency of such notice with respect to other Noteholders, and any notice which is mailed in the manner herein provided shall conclusively be presumed to have been duly given. Where this Indenture provides for notice in any manner, such notice may be waived in writing by any Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Noteholders shall be filed with the Indenture Trustee but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In the event that, by reason of the suspension of regular mail service as a result of a strike, work stoppage or similar activity, it shall be impractical to mail notice of any event to Noteholders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a sufficient giving of such notice. Where this Indenture provides for notice to any Rating Agency, failure to give such notice shall not affect any other rights or obligations created hereunder and shall not under any circumstance constitute a Default or Event of Default. Section 12.6. Alternate Payment and Notice Provisions. Notwithstanding any --------------------------------------- provision of this Indenture or any of the Notes to the contrary, the Issuer, with the prior written consent of the Indenture Trustee, may enter into any agreement with any Holder of a Note providing for a method of payment, or notice by the Indenture Trustee or any Paying Agent to such Holder, that is different from the methods provided for in this Indenture for such payments or notices. The Issuer will furnish to the Indenture Trustee a copy of each such agreement and the Indenture Trustee will cause payments to be made and notices to be given in accordance with such agreements. 69 Section 12.7. Conflict with Trust Indenture Act. If any provision hereof --------------------------------- limits, qualifies or conflicts with another provision hereof that is required to be included in this indenture by any of the provisions of the TIA, such required provision shall control. The provisions of TIA Sections 310 through 317 that impose duties on any person (including the provisions automatically deemed included herein unless expressly excluded by this Indenture) are a part of and govern this Indenture, whether or not physically contained herein. Section 12.8. Effect of Headings and Table of Contents. The Article and ---------------------------------------- Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 12.9. Successors and Assigns. All covenants and agreements in this ---------------------- Indenture by the Issuer shall bind its successors and assigns, whether so expressed or not. Section 12.10. Separability. In case any provision in this Indenture or in ------------ the Notes shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.11. Benefits of Indenture. Nothing in this Indenture or in the --------------------- Notes, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, and the Noteholders, the Servicer and the Seller, any benefit. Section 12.12. Legal Holidays. In any case where the date on which any -------------- payment is due shall not be a Business Day, then (notwithstanding any other provision of the Notes or this Indenture) payment need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date on which nominally due, and no interest shall accrue for the period from and after any such nominal date. Section 12.13. GOVERNING LAW. THIS INDENTURE AND EACH NOTE SHALL BE ------------- CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN; PROVIDED, HOWEVER, THAT THE DUTIES AND OBLIGATIONS OF THE INDENTURE TRUSTEE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CHOICE OF LAW PROVISIONS. 70 Section 12.14. Counterparts. This Indenture may be executed in any number ------------ of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Section 12.15. Issuer Obligation. No recourse may be taken, directly or ----------------- indirectly, with respect to the obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under this Indenture or any certificate or other writing delivered in connection herewith or therewith, against (i) the Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director, employee or agent of the Indenture Trustee or the Owner Trustee in its individual capacity, any holder of a beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Indenture Trustee or the Owner Trustee in its individual capacity, except as any such Person may have expressly agreed (it being understood that the Indenture Trustee and the Owner Trustee have no such obligations in their individual capacity) and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay any installment or call owing to such entity. For all purposes of this Indenture, in the performance of any duties or obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the benefits of, the terms and provisions of Articles V, VI and VII of the Trust Agreement. ---------- -- --- Section 12.16. No Petition. The Indenture Trustee, by entering into this ----------- Indenture, and each Noteholder, by accepting a Note, hereby covenant and agree that they will not at any time institute against the Issuer, First Consumers Master Trust or the Seller, or join in instituting against the Issuer, First Consumers Master Trust or the Seller any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any United States federal or state bankruptcy or similar law. 71 IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Indenture to be duly executed by their respective officers thereunto duly authorized and attested, all as of the day and year first above written. FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST, as Issuer By: Bankers Trust Company, not in its individual capacity, but solely as Owner Trustee By: ------------------------------- Name: Eileen M. Hughes Title: Vice President THE BANK OF NEW YORK, as Indenture Trustee By: ------------------------------- Name: Title: Acknowledged and Accepted: FIRST CONSUMERS NATIONAL BANK, as Servicer By: ------------------------------- Name: John R. Steele Title: Treasurer FIRST CONSUMERS CREDIT CORPORATION, as Seller By: ------------------------------- Name: John R. Steele Title: Treasurer First Consumers Credit Card Master Note Trust Master Indenture Signature Page 72 ANNEX A to MASTER INDENTURE DEFINITIONS ----------- 73 ANNEX B to MASTER INDENTURE PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS (A) Effective on the RPA Closing Date, in addition to the representations, warranties and covenants contained in the Master Indenture, Issuer hereby represents, warrants and covenants to the Indenture Trustee as follows: (1) The Master Indenture creates a valid and continuing security interest (as defined in the applicable UCC) in (i) the Collateral Certificate and (ii) Permitted Investments (the Collateral Certificate and Permitted Investments together, the "Collateral" for the purposes of this paragraph (A)) in favor of ---------- ------------- the Indenture Trustee, which security interest is prior to all other Liens, and is enforceable as such against creditors of and purchasers from the Issuer (other than Liens permitted pursuant to paragraph (A)(3) below). (2) The Collateral Certificate constitutes a "certificated security," "instrument" or "general intangible" within the meaning of the applicable UCC. The Permitted Investments constitute "instruments," "payment intangibles," "uncertificated securities" or "deposit accounts" under the applicable UCC. (3) Issuer owns and has good and marketable title to the Collateral free and clear of any Lien, claim or encumbrance of any Person; provided that nothing in this paragraph 3 shall prevent or be deemed to prohibit Issuer from suffering to exist upon any of the Collateral any Liens for any taxes if such taxes shall not at the time be due and payable or if FCNB or Issuer, as applicable, shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. Issuer has received all consents and approvals required by the terms of the Collateral to the sale of the Collateral hereunder to the Indenture Trustee. (4) (a) If perfection is by filing (i) Issuer has caused, or will have caused within 10 days, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Collateral granted to the Indenture Trustee under the Master Indenture. (b) If perfection is by possession, all original executed copies of each mortgage note, promissory note or security certificate that constitute or evidence the Collateral have been delivered to the Indenture Trustee. Each security certificate either (i) is in bearer form, (ii) has been indorsed, by an effective indorsement, to the Indenture Trustee or in blank or (iii) has been registered in the name of the Indenture Trustee. (c) With regard to Permitted Investments that constitute "deposit accounts" within the 74 meaning of the applicable UCC (the "deposit accounts"), Issuer has delivered to ---------------- the Indenture Trustee a fully executed agreement pursuant to which the bank maintaining the deposit accounts has agreed to comply with all instructions originated by the Indenture Trustee directing disposition of the funds in such deposit accounts without further consent by the Issuer, or Issuer has taken all steps necessary to cause Indenture Trustee to become the account holder of the deposit accounts. (d) If perfection is by control, with regard to Permitted Investments that constitute "uncertificated securities" within the meaning of the applicable UCC, each issuer of Permitted Investments that constitutes an uncertificated security has registered the Indenture Trustee as the registered owner, or the Issuer is the registered owner of such uncertificated security and has agreed in writing that it will comply with instructions originated by the Indenture Trustee without further consent by the Issuer. (5) Other than the grant of the security interest in the Collateral to the Indenture Trustee pursuant to the Master Indenture, Issuer has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Collateral. Issuer has not authorized the filing of and is not aware of any financing statements against Issuer that include a description of collateral covering the Collateral. (a) If perfection is by filing, Issuer has in its possession all original copies of the mortgage notes, promissory notes or security certificates that constitute or evidence the Collateral. The mortgage notes, promissory notes or security certificates that constitute or evidence the Collateral do not have any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Indenture Trustee. All financing statements to be filed against the Issuer in favor of the Indenture Trustee in connection herewith describing the Collateral will contain a statement to the effect that "A purchase of or security interest in any collateral described in this financing statement will violate the rights of the Indenture Trustee". (b) If perfection is by possession, none of the mortgage notes, promissory notes or security certificates that constitute or evidence the Collateral has any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Indenture Trustee. With regard to deposit accounts, the deposit accounts are not in the name of any Person other than the Issuer or the Indenture Trustee. The Issuer has not consented to the bank maintaining the deposit accounts to comply with instructions of any Person other than the Indenture Trustee. (6) Issuer is not aware of any judgment, ERISA or tax lien filings against Issuer. (7) Notwithstanding any other provision of the Master Indenture, the representations and warranties set forth in this Annex B shall be continuing, ------- and remain in full force and effect, until such time as all Notes have been finally and fully paid. The parties hereto shall not, without satisfying the Rating Agency Condition, waive a breach of any representation or warranty set forth in this Annex B. In order to evidence the interests of Issuer and the ------- Indenture Trustee under the Master Indenture, Issuer and 75 Servicer shall take such action, or execute and deliver such instruments (other than filing financing statements) as may be necessary or advisable (including, without limitation, such actions as are requested by Indenture Trustee) to maintain and perfect, as a first priority interest, Issuer's or the Indenture Trustee's security interest in the Collateral. The Servicer shall, from time to time and within the time limits established by law, prepare and present to the Indenture Trustee for the Indenture Trustee's authorization and approval all financing statements, amendments, continuations or initial financing statements in lieu of a continuation statement, or other filings necessary to continue, maintain and perfect as a first-priority interest. The Indenture Trustee's approval of such filings shall authorize the Servicer to file such financing statements under the applicable UCC without the signature of Issuer or Indenture Trustee where allowed by applicable law. Notwithstanding anything else in the Master Indenture to the contrary, the Servicer shall not have any authority to file a termination, partial termination, release, partial release, or any amendment that deletes the name of a debtor or excludes collateral of any such financing statements, without the prior written consent of the Indenture Trustee. The Indenture Trustee may require, prior to authorizing or filing any such termination, partial termination, release, partial release or amendment, that Servicer provide an Opinion of Counsel that such filings are authorized under the Master Indenture. (B) Effective on the FCMT Termination Date and on each Closing Date with respect to each Series, in addition to the representations, warranties and covenants contained in the Master Indenture, Issuer hereby represents, warrants and covenants to the Indenture Trustee as follows: (1) The Master Indenture creates a valid and continuing security interest (as defined in the applicable UCC) in (i) the Receivables conveyed (whether as a valid transfer or as a grant of a security interest) to the Issuer pursuant to the Servicing Agreement, (ii) all rights to security for such Receivables (including without limitation rights to bank accounts or certificates of deposit pledged as collateral) conveyed (whether as a valid transfer or as a grant of a security interest) to the Issuer pursuant to the Servicing Agreement (the "Obligor Collateral") and (iii) Permitted Investments (the Obligor Collateral ------------------ and Permitted Investments together with the Receivables, the "Collateral" for ---------- the purposes of this paragraph (B)) in favor of the Indenture Trustee, which ------------- security interest is prior to all other Liens, and is enforceable as such against creditors of and purchasers from the Issuer (other than Liens permitted pursuant to paragraph (B)(3) below). (2) The Receivables constitute "accounts" within the meaning of the applicable UCC. The Obligor Collateral constitutes security interests on personal property securing certain of those accounts, and the creation and perfection of a security interest in such security interests is governed by Sections 9-203(g) and 9-308(e), respectively, of the applicable UCC. The Permitted Investments constitute 76 "instruments," "payment intangibles," "uncertificated securities" or "deposit accounts" under the applicable UCC. (3) Immediately prior to the grant of the security interest in the Collateral pursuant to the Master Indenture, Issuer owns and has good and marketable title to the Collateral, and a valid, perfected security interest in the collateral for the Receivables in any secured Accounts, in each case, free and clear of any Lien, claim or encumbrance of any Person; provided that nothing in this paragraph 3 shall prevent or be deemed to prohibit Issuer from suffering to exist upon any of the Collateral any Liens for any taxes if such taxes shall not at the time be due and payable or if FCNB or Issuer, as applicable, shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. Issuer has received all consents and approvals required by the terms of the Collateral to the grant of the security interest in the Collateral hereunder to the Indenture Trustee. (4) (a) If perfection is by filing (i) Issuer has caused, or will have caused within 10 days, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Collateral granted to the Indenture Trustee under the Master Indenture. (b) If perfection is by possession, all original executed copies of each mortgage note, promissory note or security certificate that constitute or evidence the Collateral have been delivered to the Indenture Trustee. Each security certificate either (i) is in bearer form, (ii) has been indorsed, by an effective indorsement, to the Indenture Trustee or in blank or (iii) has been registered in the name of the Indenture Trustee. (c) With regard to Permitted Investments that constitute "deposit accounts" within the meaning of the applicable UCC (the "deposit ------- accounts"), Issuer has delivered to the Indenture Trustee a fully executed - -------- agreement pursuant to which the bank maintaining the deposit accounts has agreed to comply with all instructions originated by the Indenture Trustee directing disposition of the funds in such deposit accounts without further consent by the Issuer, or Issuer has taken all steps necessary to cause Indenture Trustee to become the account holder of the deposit accounts. (d) If perfection is by control, with regard to Permitted Investments that constitute "uncertificated securities" within the meaning of the applicable UCC, each issuer of Permitted Investments that constitutes an uncertificated security has registered the Indenture Trustee as the registered owner, or the Issuer is the registered owner of such uncertificated security and has agreed in writing that it will comply with instructions originated by the Indenture Trustee without further consent by the Issuer. (5) Other than the grant of the security interest in the Collateral to the Indenture Trustee pursuant to the Master Indenture, Issuer has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Collateral. Issuer has not authorized the filing of and is not aware of any financing statements against Issuer that include a description of collateral covering the Collateral. (a) If perfection is by filing, Issuer has in its possession all original copies of the mortgage notes, 77 promissory notes or security certificates that constitute or evidence the Collateral. The mortgage notes, promissory notes or security certificates that constitute or evidence the Collateral do not have any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Indenture Trustee. All financing statements to be filed against the Issuer in favor of the Indenture Trustee in connection herewith describing the Collateral will contain a statement to the effect that "A purchase of or security interest in any collateral described in this financing statement will violate the rights of the Indenture Trustee". (b) If perfection is by possession, none of the mortgage notes, promissory notes or security certificates that constitute or evidence the Collateral has any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Indenture Trustee. With regard to deposit accounts, the deposit accounts are not in the name of any Person other than the Issuer or the Indenture Trustee. The Issuer has not consented to the bank maintaining the deposit accounts to comply with instructions of any Person other than the Indenture Trustee. (6) Issuer is not aware of any judgment, ERISA or tax lien filings against Issuer. (7) Notwithstanding any other provision of the Master Indenture, the representations and warranties set forth in this Annex B shall be continuing, ------- and remain in full force and effect, until such time as all Notes have been finally and fully paid. The parties hereto shall not, without satisfying the Rating Agency Condition, waive a breach of any representation or warranty set forth in this Annex B. In order to evidence the interests of Issuer and the ------- Indenture Trustee under the Master Indenture, Issuer and Servicer shall take such action, or execute and deliver such instruments (other than filing financing statements) as may be necessary or advisable (including, without limitation, such actions as are requested by Indenture Trustee) to maintain and perfect, as a first priority interest, Issuer's or the Indenture Trustee's security interest in the Collateral. The Servicer shall, from time to time and within the time limits established by law, prepare and present to the Indenture Trustee for the Indenture Trustee's authorization and approval all financing statements, amendments, continuations or initial financing statements in lieu of a continuation statement, or other filings necessary to continue, maintain and perfect as a first-priority interest. The Indenture Trustee's approval of such filings shall authorize the Servicer to file such financing statements under the applicable UCC without the signature of Issuer or Indenture Trustee where allowed by applicable law. Notwithstanding anything else in the Master Indenture to the contrary, the Servicer shall not have any authority to file a termination, partial termination, release, partial release, or any amendment that deletes the name of a debtor or excludes collateral of any such financing statements, without the prior written consent of the Indenture Trustee. The Indenture Trustee may require, prior to authorizing or filing any such termination, partial termination, release, partial release or amendment, that Servicer provide an Opinion of Counsel that such filings are authorised under the Master Indenture. 78 ANNEX A TO MASTER INDENTURE DEFINITIONS "Account" means each MasterCard(R) or VISA(R)*/ credit card account ------- established pursuant to a Cardholder Agreement, and which is designated as an "Account" pursuant to (and as defined in) the Pooling and Servicing Agreement on or prior to the FCMT Termination Date. The term "Account" shall also be deemed to refer to an Additional Account, but only from and after the Addition Date with respect thereto, and the term "Account" shall be deemed to refer to any Removed Account prior to but not after the Removal Date with respect thereto. "Acquiring Person" is defined in Section 3.10(b) of the Indenture. ---------------- --------------- "Act" is defined in Section 12.3(a) of the Indenture. --- --------------- "Addition Date" means, with respect to any Additional Accounts, either the ------------- date five Business Days after the period or date when such Additional Accounts are required or permitted to be added as Accounts pursuant to Section 2.6(a) or -------------- (b) of the Transfer and Servicing Agreement, or the date on which such - --- Additional Accounts are automatically added as Accounts pursuant to Section ------- 2.6(e) of the Transfer and Servicing Agreement. - ------ "Additional Accounts" means the Accounts the receivables arising under ------------------- which are transferred to the Issuer in accordance with the procedures set forth in Section 2.6 of the Transfer and Servicing Agreement. ----------- "Adjusted Collateral Amount" is defined, with respect to any Series (if ------------------------- applicable to that Series), in the related Indenture Supplement, or if no meaning for such term is specified in such Supplement, shall mean the Collateral Amount for such Series. "Administration Agreement" means the Administration Agreement, dated as of ------------------------ March 1, 2001, and amended and restated as of December 31, 2001 between the Issuer and the Administrator, as the same may be amended, supplemented or otherwise modified from time to time. - ---------- MasterCard is a registered trademark of MasterCard International Incorporated and VISA is a registered trademark of VISA U.S.A., Inc. "Administrator" means FCNB, its capacity as administrator, under the ------------- Administration Agreement, and any successor in that capacity. "Adverse Effect" means, with respect to any action, that such action will -------------- (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 the Noteholders of any Series or Class pursuant to the Transaction Documents. "Affiliate" means, with respect to any specified Person, any other Person --------- controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control" means the power to direct the management and policies of a Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Aggregate Allocation Percentage" with respect to Principal Receivables, ------------------------------ Finance Charge Receivables and Receivables in Defaulted Accounts, as the case may be, means, as of any date of determination, the sum of such Allocation Percentages of all Series issued and outstanding on such date of determination; provided, however, that the Aggregate Allocation Percentage shall not exceed - -------- ------- 100%. "Aggregate Collateral Amount" means, as of any date of determination, the --------------------------- sum of the Adjusted Collateral Amounts of all Series issued and outstanding on such date of determination. "Aggregate Principal Balance" means, as of any time of determination, the --------------------------- sum of (a) the Aggregate Principal Receivables, (b) the Excess Funding Amount (exclusive of any investment earnings on such amount) and (c) the amount on deposit in the Principal Collection Subaccount (exclusive of any investment earnings on such amount), in each case as of such time. "Aggregate Principal Receivables" means, as of any date of determination, ------------------------------- the aggregate amount of Principal Receivables (excluding any Discount Option Receivables) as of the end of the prior day. "Allocation Percentage" is defined, for any Series, with respect to --------------------- Principal Receivables, Finance Charge Receivables and Receivables in Defaulted Accounts, in the related Indenture Supplement. "Annual Account Additions" means on any date of determination, the number ------------------------ of Accounts the Receivables of which have been added to the Receivables Trust pursuant to Sections 2.6(a), (b) and (e) of the Transfer and Servicing Agreement --------------- --- --- or the corresponding sections of the Pooling and Servicing Agreement, -2- from and including the first day of the eleventh Monthly Period preceding such date of determination. "Annual Quotient" is defined in Section 2.6(c)(ii)(1) of the Transfer and --------------- --------------------- Servicing Agreement. "Applicants" is defined in Section 2.9 of the Indenture. ---------- ----------- "Assignee Seller" is defined in Section 6.6 of the Receivables Purchase --------------- ----------- Agreement. "Assignment Agreement" is defined in Section 2.6(b)(iii) of the Transfer -------------------- ------------------- and Servicing Agreement. "Assignor Seller" is defined in Section 6.6 of the Receivables Purchase --------------- ----------- Agreement. "Authorized Newspapers" means each newspaper of general circulation in New --------------------- York, New York, or in any other place specified by Seller, printed in the English language and customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays. "Authorized Officer" means: ------------------ (a) with respect to the Issuer, any officer of the Owner Trustee who is authorized to act for the Owner Trustee in matters relating to the Issuer and who is identified on the list of Authorized Officers, containing the specimen signature of each such Person, delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list may be modified or supplemented from time to time thereafter) and any Vice President or more senior officer of the Administrator who is authorized to act for the Administrator in matters relating to the Issuer and to be acted upon by the Administrator pursuant to the Administration Agreement and who is identified on the list of Authorized Officers (containing the specimen signatures of such officers) delivered by the Administrator to the Indenture Trustee on the Closing Date (as such list may be modified or supplemented from time to time thereafter); (b) with respect to the Seller, any officer of the Seller who is authorized to act for the Seller in matters relating to the Seller and who is identified on the list of Authorized Officers, containing the specimen signature of each such Person, delivered by the Seller to the Indenture Trustee on the Closing Date (as such list may be modified or supplemented from time to time thereafter); and -3- (c) with respect to the Servicer, any officer of the Servicer who is authorized to act for the Servicer in matters relating to the Servicer and who is identified on the list of Authorized Officers, containing the specimen signature of each such Person, delivered by the Servicer to the Indenture Trustee on the Closing Date (as such list may be modified or supplemented from time to time thereafter). "Base Amount" means, at any date of determination, with reference to Annual ----------- Account Additions or Quarterly Account Additions, the number of Accounts included in the Receivables Trust on the first day of the relevant measurement period before giving effect to any Accounts added to the Receivables Trust on such first day. "Base Rate" is defined, with respect to any Series, in the related --------- Indenture Supplement. "Bearer Note" is defined in Section 2.1 of the Indenture. ----------- ----------- "Book-Entry Notes" means beneficial interests in the Notes, ownership and ---------------- transfers of which shall be made through book entries by a Clearing Agency or Foreign Clearing Agency as described in Section 2.13 of the Indenture. ------------ "Business Day" means each day which is neither a Saturday, a Sunday nor any ------------ other day on which banking institutions in New York, New York, Portland, Oregon or Chicago, Illinois (or, with respect to any Series, any additional city specified in the related Indenture Supplement) are authorized or obligated by law or required by executive order to be closed. "Buyer" means First Consumers Credit Corporation, a Delaware corporation. ----- "Cardholder Agreement" means the agreement (and the related application) -------------------- for a MasterCard or VISA credit card account between any Obligor and FCNB, as the same may be amended, modified or otherwise changed from time to time, or in the case of any Additional Account not originated by FCNB, the agreement (and the related application) for a MasterCard or VISA credit card account between the related Obligor and the originator of such Account, as the same may be amended, modified or otherwise changed from time to time. "Cardholder Fees" means, with respect to any Account, any fees specified in --------------- the Cardholder Agreement applicable to such Account, including annual fees, over limit charges, cash advance fees, late charges, returned check fees, and reinstatement charges. -4- "Cardholder Guidelines" means FCNB's policies and procedures relating to --------------------- the operation of its credit card business, including the FCNB Credit Policy and Operations Manual or such other of its policies and procedures for determining the creditworthiness of credit card customers, the extension of credit to customers, the terms on which repayments are required to be made, and relating to the maintenance of credit card accounts and collection of credit card account receivables, as said manual and such policies and procedures, as applicable, may be amended from time to time. "Cash Advance Fees" means, with respect to any Account, any fees specified ----------------- in the Cardholder Agreement applicable to such Account as cash advance fees or any similar term. "Class" means, with respect to any Series, any one of the classes of Notes ----- of that Series. "Clearing Agency" means an organization registered as a "clearing agency" --------------- pursuant to Section 17A of the Securities Exchange Act of 1934. "Clearing Agency Participant" means a broker, dealer, bank, other financial --------------------------- institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Clearstream" means Clearstream Banking, societe anonyme, a professional ----------- depository incorporated under the laws of Luxembourg, and its successors. "Closing Date" means, with respect to any Series, the closing date ------------ specified in the related Indenture Supplement. "Code" means the Internal Revenue Code of 1986, as amended. ---- "Collateral" is defined in the Granting Clause of the Indenture. ---------- "Collateral Amount" is defined, with respect to any Series, in the related ----------------- Indenture Supplement. "Collateral Certificate" means the certificate, representing an undivided ---------------------- interest in the assets held in the First Consumers Master Trust, issued pursuant to the Pooling and Servicing Agreement and the Collateral Series Supplement, dated as of March 1, 2001, to the Pooling and Servicing Agreement. "Collection Account" is defined in Section 8.3(a) of the Indenture. ------------------ -------------- -5- "Collections" means all payments (including Insurance Proceeds and ----------- Recoveries) received by the Servicer or by Seller in respect of the Collateral Certificate and the Receivables, in the form of cash, checks, wire transfers, ATM transfers, net proceeds of redemption of certificates of deposit or liquidation of bank accounts or other form of payment in accordance with the Cardholder Agreement in effect from time to time on any Receivable. A Collection processed in respect of an Account (other than a Defaulted Account) in excess of the aggregate amount of Receivables in such Account as of the Date of Processing of such Collection shall be deemed to be a payment in respect of Principal Receivables to the extent of such excess. Collections with respect to any Monthly Period shall also include the amount of Interchange (if any) allocable to any Series of Notes pursuant to any Indenture Supplement with respect to such Monthly Period (to the extent received by the Issuer and deposited into the Collection Account, on the Transfer Date following such Monthly Period), to be applied as if such Collections were Finance Charge Receivables for all purposes. "Commission" means the Securities and Exchange Commission. ---------- "Conveyance Papers" is defined in Section 4.1(b) of the Receivables ----------------- -------------- Purchase Agreement. "Corporate Trust Office" means ---------------------- (a) for the Indenture Trustee, the principal office at which at any particular time its corporate trust business shall be administered, which office at date of the execution of the Indenture is located at 2 North LaSalle Street, Suite 1020, Chicago, Illinois 60602, Attention: Structured Finance Services, or at such other address as the Indenture Trustee may designate from time to time by notice to the Noteholders and the Seller, or the principal corporate trust office of any successor Indenture Trustee (the address of which the successor Indenture Trustee will notify the Noteholders and the Seller); (b) for the Owner Trustee, the principal office at which at any particular time its corporate trust business shall be administered, which office at date of the execution of the Indenture is located at Four Albany Street, 10th Floor, New York, New York 10006, Attn: Corporate Trust and Agency Services. "Coupon" is defined in Section 2.1 of the Indenture. ------ ----------- "Credit Adjustment" is defined in Section 8.4(e) of the Indenture. ----------------- -------------- "Credit Insurance" means life, accident, health, disability, involuntary ---------------- unemployment or other insurance of an Obligor to Seller to insure payment of any -6- amount owing by such Obligor under an Account and which proceeds of such insurance are payable to Seller upon such Obligor's death, disability or involuntary unemployment. "Date of Processing" means, with respect to any transaction, the date on ------------------ which such transaction is first recorded on the Servicer's computer master file of accounts (without regard to the effective date of such recordation). "Debtor Relief Laws" means the Bankruptcy Code of the United States of ------------------ America and all other applicable liquidation, conservatorship, bankruptcy, fraudulent conveyance, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar debtor relief laws from time to time in effect affecting the rights of creditors (including creditors of national banking associations) generally. "Default" means any occurrence that is, or with notice or the lapse of time ------- or both would become, an Event of Default. "Default Amount" means, with respect to any Monthly Period, the result of -------------- multiplying (i) the excess, if any, of (A) the aggregate amount of Receivables in Defaulted Accounts charged off during such Monthly Period over (B) Recoveries collected during such Monthly Period, times (ii) 1.00 minus the percentage (expressed as a decimal) of Receivables (other than Receivables in Defaulted Accounts) constituting Finance Charge Receivables determined in accordance with Section 1.3 of the Transfer and Servicing Agreement or Section 1.3 of the Pooling and Servicing Agreement. "Defaulted Account" means each Account with respect to which, in accordance ----------------- with the Cardholder Guidelines or the Servicer's customary and usual servicing procedures for servicing credit card receivables comparable to the Receivables, the Servicer has charged off the Receivables in such Account as uncollectible; an Account shall become a Defaulted Account on the day on which such Receivables are recorded as charged off on the Servicer's computer master file of accounts (regardless of whether such Receivables are charged off before or after the Initial FCMT Cut-Off Date or Addition Date of such Account, as the case may be). "Definitive Notes" means Notes in definitive, fully registered form. ---------------- "Demand Note" is defined in Section 2.9 of the Transfer and Servicing ----------- ----------- Agreement. "Deposit Date" means each day on which the Servicer deposits Collections in ------------ the Collection Account. -7- "Deposit Obligation" means the obligation of the Seller to make any deposit ------------------ to the Excess Funding Account or the Collection Account pursuant to Section ------- 2.4(d) of the Transfer and Servicing Agreement or Section 8.4(g) of the - ------ -------------- Indenture. "Determination Date" means the seventh calendar day prior to each Transfer ------------------ Date. "Discount Option Date" means each date on which a Discount Percentage -------------------- designated by the Seller pursuant to Section 2.8 of the Transfer and Servicing ----------- Agreement takes effect. "Discount Option Receivable Collections" means on any Date of Processing -------------------------------------- occurring in any Monthly Period succeeding the Monthly Period in which the Discount Option Date occurs, the product of (a) a fraction (i) the numerator of which is the Discount Option Receivables and (ii) the denominator of which is the sum of the Principal Receivables and the Discount Option Receivables in each case (for both the numerator and the denominator) at the end of the prior Date of Processing and (b) Collections of Original Principal Receivables on such Date of Processing. "Discount Option Receivables" is defined in Section 2.8 of the Transfer and --------------------------- ----------- Servicing Agreement. The aggregate amount of Discount Option Receivables outstanding on any Date of Processing occurring on or after the Discount Option Date shall equal the result of (a) the aggregate Discount Option Receivables at the end of the prior Date of Processing (which amount, prior to the Discount Option Date, shall be zero) plus (b) any new Discount Option Receivables created on such Date of Processing minus (c) any Discount Option Receivables Collections received on such Date of Processing. Discount Option Receivables created on any Date of Processing mean the product of the amount of any Original Principal Receivables created on such Date of Processing and the Discount Percentage. "Discount Percentage" is defined in Section 2.8 of the Transfer and ------------------- ----------- Servicing Agreement. "Distribution Date" means, unless otherwise specified in the Indenture ----------------- Supplement for a Series, the fifteenth day of each month or, if such fifteenth day is not a Business Day, the next succeeding Business Day. "Dollars," "$" or "U.S. $" means United States dollars. ------- - ------ "DTC" means The Depository Trust Company. --- "Eligible Account" means, (a) with respect to "Accounts" designated ---------------- pursuant to (and as defined in) the Pooling and Servicing Agreement prior to the FCMT Termination Date, Accounts which are "Eligible Accounts" under (and as -8- defined in) the Pooling and Servicing Agreement and (b) as of the relevant Notice Date in respect of Additional Accounts added pursuant to Section 2.6 (a) --------------- or (b) of the Transfer and Servicing Agreement or the fifth Business Day prior --- to the relevant Addition Date in respect of Additional Accounts added pursuant to Section 2.6(e) of the Transfer and Servicing Agreement), each Account: -------------- (a) which is payable in United States dollars; (b) which is serviced in any credit service center of Seller which is located in the United States; (c) the Obligor on which has provided, as its initial billing address, an address which is located in the United States or its territories or possessions; (d) which the Seller has not finally determined to be counterfeit or fraudulent; (e) which the Seller has not charged off in its customary and usual manner for charging off such Accounts as of the relevant Notice Date or Addition Date; (f) which was originated by FCNB in the ordinary course of business, unless the Rating Agency Condition has otherwise been satisfied with respect to such Account; (g) which has not been sold or pledged to any other party; (h) which does not have receivables which have been sold or pledged to any party other than Seller pursuant to the Receivables Purchase Agreement; and (i) is a "VISA" or "MasterCard" revolving credit card account. "Eligible Institution" means any depository institution (which may be the -------------------- Owner Trustee or the Indenture Trustee) organized under the laws of the United States or any one of the states thereof, including the District of Columbia (or any domestic branch of a foreign bank), which depository institution at all times (a) has FDIC deposit insurance and (b) has (i) a long-term unsecured debt rating acceptable to the Rating Agencies, which in the case of Standard and Poor's shall be a rating of AAA or (ii) a certificate of deposit rating acceptable to the Rating Agencies, which in the case of Standard and Poor's shall be a rating of A-1+. Notwithstanding the previous sentence, any institution the appointment of which satisfies the Rating -9- Agency Condition shall be considered an Eligible Institution. If so qualified, the Servicer may be considered an Eligible Institution for the purposes of this definition. "Eligible Receivable" means each Receivable: ------------------- (a) which has arisen under an Eligible Account; (b) which was created in compliance, in all material respects, with all Requirements of Law applicable to FCNB or the originator of the related Account pursuant to a Cardholder Agreement which complies, in all material respects, with all Requirements of Law applicable to FCNB or the originator of the related Account; (c) with respect to which all consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given by FCNB or the originator of the related Account in connection with the creation of such Receivable or the execution, delivery and performance by FCNB or the originator of the related Account, as applicable, of the Cardholder Agreement pursuant to which such Receivable was created, have been duly obtained, effected or given and are in full force and effect as of such date of creation; (d) as to which, immediately prior to the transfer of same to the Receivables Trust by Seller, Seller had good title thereto free and clear of all Liens arising under or through FCNB, Seller or their respective Affiliates (other than Liens permitted pursuant to Section 2.5(b) of the -------------- Transfer and Servicing Agreement); (e) which is the legal, valid and binding payment obligation of the Obligor thereon, enforceable against such Obligor in accordance with its terms, except as such enforceability may be limited by applicable Debtor Relief Laws, and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); (f) which constitutes an "account" under and as defined in Article 9 of the UCC as then in effect in the applicable jurisdiction; (g) which, at the time of transfer to the Receivables Trust, has not been waived or modified except for a Receivable which has been waived or modified as permitted in accordance with the Cardholder Guidelines and which waiver or modification is reflected in FCNB's computer files of revolving credit card accounts; -10- (h) which, at the time of transfer to the Receivables Trust, is not (to the knowledge of Seller) subject to any right of rescission, set-off, counterclaim or any other defense (including defenses arising out of violations or usury laws) of the Obligor, which requires that such Receivable be charged off in accordance with the Cardholder Guidelines, other than defenses arising out of applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights in general; (i) as to which, at the time of transfer to the Receivables Trust, each of the Seller and FCNB has satisfied all its obligations required to be satisfied by such time; (j) which has been the subject of either a valid transfer and assignment from the Seller to the Issuer of the Seller's right, title and interest therein (including any proceeds thereof), or the grant by the Seller to the Issuer of a valid first priority perfected security interest therein (and the proceeds thereof); and (k) as to which at the time of transfer to the Issuer, the Seller has not taken any action, or omitted to take any action, that would impair the rights of the Issuer or the Noteholders. "Eligible Servicer" means the Indenture Trustee or, if the Indenture ----------------- Trustee is not acting as Servicer, an entity which, at the time of its appointment as Servicer, (a) is servicing a portfolio of revolving credit card accounts, (b) is legally qualified and has the capacity to service the Accounts, (c) has demonstrated the ability to service professionally and competently a portfolio of similar accounts in accordance with high standards of skill and care, (d) is qualified to use the software that is then being used to service the Accounts or obtains the right to use or has its own software which is adequate to perform its duties under this Agreement and (e) has a net worth of at least $50,000,000 as of the end of its most recent fiscal quarter. "Enhancement" means, with respect to any Series, the cash collateral ----------- account, letter of credit, surety bond, guaranteed rate agreement, maturity guaranty facility, tax protection agreement, interest rate swap or any other contract, arrangement or agreement for the benefit of the Noteholders of such Series (or Noteholders of a Class within such Series), as designated in the applicable Indenture Supplement. "Enhancement Agreement" means any agreement, instrument or document --------------------- governing the terms of any Series Enhancement or pursuant to which any Series Enhancement is issued or outstanding. -11- "Enhancement Provider" means, with respect to any Series, the Person, if -------------------- any, designated as such in the related Indenture Supplement. "Euroclear Operator" means Euroclear Bank S.A./N.V. ------------------ "Event of Default" is defined in Section 5.2 of the Indenture. ---------------- ----------- "Excess Allocation Series" means a Series that, pursuant to the Indenture ------------------------ Supplement therefor, is entitled to receive certain excess Collections of Finance Charge Receivables, as more specifically set forth in such Indenture Supplement. If so specified in the Indenture Supplement for a Group of Series, such Series may be Excess Allocation Series only for the Series in such Group. "Excess Finance Charge Collections" is defined in Section 8.6 of the --------------------------------- ----------- Indenture. "Excess Funding Account" is defined in Section 8.3 of the Indenture. ---------------------- ----------- "Excess Funding Amount" means the amount on deposit in the Excess Funding --------------------- Account. "Exchange Act" means the Securities Exchange Act of 1934. ------------ "Expenses" is defined in Section 7.2 of the Trust Agreement. -------- ----------- "FCMT Termination Date" means the date on which the First Consumers Master --------------------- Trust is terminated and all of the Receivables held by First Consumers Master Trust are transferred to the Issuer. "FCMT Trustee" means the trustee under the Pooling and Servicing Agreement. ------------ "FCNB" means First Consumers National Bank, a national banking association. ---- "FDIC" means the Federal Deposit Insurance Corporation. ---- "Finance Charge Collections" means, for any period, the amount of -------------------------- Collections allocated to Finance Charge Receivables during such period in accordance with Section 1.3 of the Transfer and Servicing Agreement plus ----------- Discount Option Receivables Collections for such period. Payments on account of Net Recoveries shall also be treated as Finance Charge Collections. -12- "Finance Charge Receivables" means, with respect to any Monthly Period, (a) -------------------------- all amounts billed to Obligors on any Account during such Monthly Period in respect of Finance Charges, Cash Advance Fees and Cardholder Fees, and (b) the amount of Interchange (if any) allocable to any Series of Notes pursuant to any Indenture Supplement with respect to such Monthly Period. "Finance Charge Shortfalls" is defined in Section 8.6 of the Indenture. ------------------------- ----------- "Finance Charge Subaccount" means the finance charge subaccount of the ------------------------- Collections Account. "Finance Charges" means, as of any day, the amount of interest as --------------- determined by the periodic finance charge rate assessed on the Cycle Billing Date on or next preceding such day pursuant to the Cardholder Agreements. "First Consumers Master Trust" means the trust formed by the Pooling and ---------------------------- Servicing Agreement. "Fitch" means Fitch, Inc. ----- "Foreign Clearing Agency" means Clearstream and the Euroclear Operator. ----------------------- "GAAP" means generally accepted accounting principles in the United States ---- of America in effect from time to time. "Global Note" is defined in Section 2.16 of the Indenture. ----------- ------------ "Governmental Authority" means the United States of America, any state or ---------------------- other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Grant" means to mortgage, pledge, bargain, warrant, alienate, remise, ----- release, convey, assign, transfer, create, and grant a lien upon and a security interest in and right of set-off against, deposit, set over and confirm pursuant to this Indenture. A Grant of the Collateral or of any other agreement or instrument shall include all rights, powers and options (but none of the obligations) of the Granting party thereunder, including if available the immediate and continuing right to claim for, collect, receive and give receipt for principal and interest payments in respect of the Collateral and all other moneys payable thereunder, to give and receive notices and other communications, to make waivers or other agreements, to exercise all rights and options, to bring Proceedings in the name of the Granting party or otherwise and generally to do and receive anything that the Granting party is or may be entitled to do or receive thereunder or with respect thereto. -13- "Group" means, with respect to any Series, the group of Series, if any, in ----- which the related Indenture Supplement specifies such Series is to be included. "Indebtedness" means, with respect to any Person at any date, (a) all ------------ indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current liabilities incurred in the ordinary course of business and payable in accordance with customary trade practices) or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of such Person under capital leases, (c) all obligations of such Person in respect of acceptances issued or created for the account of such Person and (d) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Indemnified Parties" is defined in Section 7.2 of the Trust Agreement. ------------------- ----------- "Indenture" means the Master Indenture, dated as of March 1, 2001, and --------- amended and restated as of December 31, 2001, between the Issuer and the Indenture Trustee, as the same may be amended, supplemented or otherwise modified from time to time. "Indenture Supplement" means, with respect to any Series, a supplement to -------------------- this Indenture, executed and delivered in connection with the original issuance of the Notes of such Series pursuant to Section 2.12 of the Indenture, and an ------------ amendment to this Indenture executed pursuant to Sections 10.1 or 10.2 of the ------------- ---- Indenture, and, in either case, including all amendments thereof and supplements thereto. "Indenture Trustee" means The Bank of New York, in its capacity as trustee ----------------- under this Indenture, its successors in interest and any successor indenture trustee under this Indenture. "Independent" means, when used with respect to any specified Person, that ----------- the Person (a) is in fact independent of the Issuer, any other obligor upon the Notes, the Seller and any Affiliate of any of the foregoing Persons, (b) does not have any direct financial interest or any material indirect financial interest in the Issuer, any such other obligor, the Seller or any Affiliate of any of the foregoing Persons and (c) is not connected with the Issuer, any such other obligor, the Seller or any Affiliate of any of the foregoing Persons as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. "Independent Certificate" means a certificate or opinion to be delivered to ----------------------- the Indenture Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of Section 12.1 of the Indenture, ------------ made by an Independent appraiser or other expert appointed by an Issuer Order, and such opinion -14- or certificate shall state that the signer has read the definition of "Independent" in this Indenture and that the signer is Independent within the meaning thereof. "Indirect Participant" means other Persons such as securities brokers and -------------------- dealers, banks and trust companies that clear or maintain a custodial relationship with a participant of DTC, either directly or indirectly. "Ineligible Receivables" is defined: (a) for purposes of the Transfer and ---------------------- Servicing Agreement in Section 2.4(d) of that Agreement; and (b) for purposes of -------------- the Receivables Purchase Agreement, in Section 6.1 of that Agreement. ----------- "Initial Closing Date" means March 6, 2001. -------------------- "Initial Collateral Amount" with respect to any Series, shall have the ------------------------- meaning specified in the related Indenture Supplement. "Initial FCMT Cut-Off Date" means September 22, 1992. ------------------------- "Insolvency Event" is defined in Section 6.1 of the Transfer and Servicing ---------------- ----------- Agreement. "Insurance Proceeds" means any amounts received pursuant to the payment of ------------------ benefits under any credit life insurance policies, credit disability or unemployment insurance policies covering any Obligor with respect to Receivables under such Obligor's Account. "Interchange" means interchange fees paid or payable to the Seller, in its ----------- capacity as credit card issuer, through MasterCard International Incorporated and/or VISA U.S.A., Inc. in connection with cardholder charges for goods and services. "Investment Company Act" means the Investment Company Act of 1940. ---------------------- "Investor Monthly Servicing Fee" is defined in Section 3.2 of the Transfer ------------------------------ ----------- and Servicing Agreement. "Issuer" means the First Consumers Credit Card Master Note Trust, which is ------ established by the Trust Agreement. "Issuer Order" and "Issuer Request" means a written order or request signed ------------ -------------- in the name of the Issuer by any one of its Authorized Officers and delivered to the Indenture Trustee. "Lien" means any mortgage, deed of trust, pledge, hypothecation, ---- assignment, deposit arrangement, encumbrance, lien (statutory or other), equity -15- interest, participation interest, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the applicable UCC (other than any such financing statement filed for informational purposes only) or comparable law of any jurisdiction to evidence any of the foregoing; provided, however, that any -------- ------- assignment pursuant to the Indenture shall not be deemed to constitute a Lien. "Minimum Aggregate Principal Balance" means, on any date of determination, ----------------------------------- the greater of (a) the sum of the Aggregate Collateral Amount, plus the Minimum Seller Amount, in each case as of such date and (b) the sum of the numerators used to determine the Allocation Percentages for Principal Collections of all Series outstanding on such date. "Minimum Average Seller Percentage" means the weighted average (by Adjusted --------------------------------- Collateral Amount) Minimum Seller Percentages for all Series then outstanding. "Minimum Seller Amount" means, on any Determination Date, the Aggregate --------------------- Collateral Amount at the end of the day prior to such Determination Date, times the Minimum Average Seller Percentage; provided that if such percentage is zero, -------- ---- the Minimum Seller Amount shall be zero. FCNB may reduce the Minimum Seller Amount by written notice to the Indenture Trustee, provided that (a) the Rating Agency Condition is satisfied with respect to such reduction and (b) FCNB delivers to the Indenture Trustee an Opinion of Counsel to the effect that such reduction will not have a material adverse effect on the Federal income tax characterization of any outstanding Series. "Minimum Seller Percentage" is defined, for any Series, in the related ------------------------- Indenture Supplement. "Monthly Period" means the period from and including the first day of the -------------- calendar month preceding a related Determination Date to and including the last day of such calendar month. "Monthly Seller Servicing Fee" is defined in Section 3.2 of the Transfer ---------------------------- ----------- and Servicing Agreement. "Monthly Servicing Fee" is defined in Section 3.2 of the Transfer and --------------------- ----------- Servicing Agreement. "Moody's" means Moody's Investors Service, Inc. ------- -16- "Net Recoveries" means, with respect to any Monthly Period, the excess, if -------------- any, of Recoveries collected during such Monthly Period over the aggregate amount of Principal Receivables in Defaulted Accounts charged off during such Monthly Period. "New Issuance" is defined in Section 2.12(a) of the Indenture. ------------ --------------- "Notes" means all Series of Notes issued by the Issuer pursuant to this ----- Indenture and the applicable Indenture Supplements. "Noteholder" or "Holder" means the Person in whose name a Note is ---------- ------ registered on the Note Register and, if applicable, the holder of any Global Note, or Coupon, as the case may be, or such other Person deemed to be a "Noteholder" or "Holder" in any related Indenture Supplement. "Note Interest Rate" means, as of any particular date of determination and ------------------ with respect to any Series or Class, the interest rate as of such date specified therefor in the related Indenture Supplement. "Note Owner" means, with respect to a Book-Entry Note, the Person who is ---------- the owner of such Book-Entry Note, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an Indirect Participant, in accordance with the rules of such Clearing Agency). "Note Principal Balance" means, as of any particular date of determination ---------------------- and with respect to any Series or Class, the amount specified in the related Indenture Supplement. "Note Register" is defined in Section 2.5 of the Indenture. ------------- ----------- "Notes" means all Series of Notes issued by the Issuer pursuant to this ----- Indenture and the applicable Indenture Supplements. "Notice Date" is defined in Section 2.6(c) of the Transfer and Servicing ----------- -------------- Agreement. "Notices" is defined in Section 9.4(a) of the Transfer and Servicing ------- -------------- Agreement. "Obligor" means, with respect to any Account, the Person or Persons ------- obligated to make payments with respect to such Account, including any guarantor thereof. -17- "Officer's Certificate" means a certificate signed by any officer of Seller --------------------- or the Servicer and delivered to the Indenture Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel ------------------ for Seller or the Servicer and who shall be reasonably acceptable to the Indenture Trustee, provided that a Tax Opinion shall be an opinion of Rooks, -------- Pitts and Poust or other nationally recognized tax counsel. "Original Principal Receivables" means Principal Receivables determined ------------------------------ without giving effect to any reduction thereof attributable to Discount Option Receivables. "Outstanding" means, as of the date of determination, all Notes theretofore ----------- authenticated and delivered under this Indenture except: (i) Notes theretofore canceled by the Note Registrar or delivered to the Note Registrar for cancellation; (ii) Notes or portions thereof the payment for which money in the necessary amount has been theretofore deposited with the Indenture Trustee or any Paying Agent in trust for the Holders of such Notes (provided, -------- however, that if such Notes are to be redeemed, notice of such redemption ------- has been duly given pursuant to this Indenture or provision therefor, satisfactory to the Indenture Trustee, has been made); and (iii) Notes in exchange for or in lieu of other Notes which have been authenticated and delivered pursuant to this Indenture unless proof satisfactory to the Indenture Trustee is presented that any such Notes are held by a protected purchaser; provided that in determining whether the Holders of Notes representing the - -------- requisite Outstanding Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Issuer, any other obligor upon the Notes, the Seller, the Servicer or any Affiliate of any of the foregoing Persons shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Indenture Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes that a Trustee Officer of the Indenture Trustee actually knows to be so owned shall be so disregarded. Notes so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Indenture Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Issuer, any other obligor upon the Notes, the Seller, the Servicer or any Affiliate of any of the foregoing Persons. In making any such determination, the Indenture -18- Trustee may conclusively rely on the representations of the pledgee and shall not be required to undertake any independent investigation. "Outstanding Amount" means the aggregate principal amount of all Notes ------------------ Outstanding at the date of determination. "Owner" means Seller, as the holder of the beneficial ownership interest in ----- the Issuer and any successor or assign in that capacity. "Owner Trustee" means Bankers Trust Company, in its capacity as owner ------------- trustee under the Trust Agreement, its successors in interest and any successor owner trustee under the Trust Agreement. "Paired Series" means (i) each Series which has been paired with another ------------- Series (which Series may be prefunded or partially prefunded), such that the reduction of the Collateral Amount or Adjusted Collateral Amount of such Series results in the increase of the Collateral Amount of such other Series, as described in the related Indenture Supplements, and (ii) such other Series. "Pay Out Event" means, with respect to any Series, a Series Pay Out Event ------------- relating to that Series or a Trust Pay Out Event. "Paying Agent" means any paying agent appointed pursuant to Section 2.8 of ------------ ----------- the Indenture and shall initially be the Indenture Trustee; provided that if the -------- Indenture Supplement for a Series so provides, a separate or additional Paying Agent may be appointed with respect to such Series. "Permitted Assignee" means any Person who, if it were to purchase ------------------ Receivables (or interests therein) in connection with a sale thereof pursuant to Sections 5.5(a) and 5.16 of the Indenture, would not cause the Issuer to be - --------------- ---- taxable as a publicly traded partnership for federal income tax purposes. "Permitted Investments" means (a) negotiable instruments or securities --------------------- represented by instruments in bearer or registered form which evidence (i) obligations of or guaranteed by the United States of America, (ii) time deposits in, certificates of deposit of, or bankers' acceptances issued by, any depositary institution or trust company (other than Seller or an Affiliate of Seller) incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by federal or state banking or depositary institution authorities, provided, however, that at the time of -------- ------- the Trust's investment or contractual commitment to invest therein, the certificates of deposit or short-term deposits, if any, or long-term unsecured debt obligations (other than such obligation whose rating is based on collateral or on the credit of a Person other than such institution or trust company) of such depositary institution or trust company shall -19- have a credit rating from Moody's and Standard & Poor's of P-1 and A-1+, respectively, in the case of the certificates of deposit or short-term deposits, or a rating from Moody's of Aaa and from Standard & Poor's of AAA in the case of the long-term unsecured debt obligations, or such time deposits are fully insured by the FDIC, (iii) certificates of deposit (other than those of Seller or an Affiliate of Seller) having, at the time of the Trust's investment or contractual commitment to invest therein, a rating from Moody's and Standard & Poor's of P-1 and A-1+, respectively, and (iv) investments in money market funds rated in the highest investment category or otherwise approved in writing by Moody's and Standard & Poor's, which in the case of Standard & Poor's is AAAmg; (b) demand deposits in the name of the Issuer or the Indenture Trustee in any depositary institution or trust company referred to in (a) (ii) above; and (c) securities not represented by an instrument, which are registered in the name of the Indenture Trustee upon books maintained for that purpose by or on behalf of the issuer thereof and identified on books maintained for that purpose by the Indenture Trustee as held for the benefit of the Issuer or the Noteholders, and consisting of shares of an open end diversified investment company which is registered under the Investment Company Act of 1940, as amended, and which (i) invests its assets exclusively in obligations of or guaranteed by the United States of America or any instrumentality or agency thereof having in each instance a final maturity date of less than one year from their date of purchase or other Permitted Investments, (ii) seeks to maintain a constant net asset value per share and (iii) has aggregate net assets of not less than $100,000,000 on the date of purchase of such shares, and which satisfies the Rating Agency Condition; provided, however, that only those investments described above which -------- ------- are permitted to be made by a national banking association shall be deemed to be "Permitted Investments" hereunder. "Permitted Transaction" mean any transaction or series of related --------------------- transactions pursuant to which the Seller finances an interest in the Trust Assets and (i) as to which the Rating Agency Condition is satisfied and (ii) which in the reasonable judgment of the Seller as evidenced by an Officer's Certificate, will not have a material adverse effect on the interests of the Noteholders. "Person" means any legal person, including any individual, corporation, ------ partnership, joint venture, association, joint-stock company, trust, unincorporated organization, governmental entity or other entity of similar nature. "Pooling and Servicing Agreement" means the Pooling and Servicing ------------------------------- Agreement, dated as of September 30, 1992, as amended and restated February 1, 1999, and as amended and restated a second time as of December 31, 2001, and heretofore amended, among FCNB and The Bank of New York (as successor-in- interest to the corporate trust administration of Harris Trust and Savings Bank), as trustee. -20- "Portfolio Yield" is defined, with respect to any Series, in the related --------------- Indenture Supplement. "Principal Collections" means all Collections that are not Finance Charge --------------------- Collections. "Principal Collections Subaccount" means the principal collections -------------------------------- subaccount of the Collections Account. "Principal Receivable" means each Receivable other than Finance Charge -------------------- Receivables and Receivables in Defaulted Accounts. A Principal Receivable shall be deemed to have been created at the end of the day on the Date of Processing of such Receivable. In calculating the aggregate amount of Principal Receivables on any day, the amount of Principal Receivables shall be reduced by the aggregate amount of credit balances in the Accounts on such day. Any Principal Receivables which Seller is unable to transfer as provided in Section 2.5(c) of -------------- the Transfer and Servicing Agreement shall not be included in calculating the aggregate amount of Principal Receivables. "Principal Sharing Series" means a Series that, pursuant to the Indenture ------------------------ Supplement therefor, is entitled to receive Shared Principal Collections. "Principal Shortfalls" is defined in Section 8.5 of the Indenture. -------------------- ----------- "Principal Terms" means, with respect to any Series, (a) the name or --------------- designation; (b) the initial principal amount (or method for calculating such amount), the Collateral Amount and the Seller Amount; (c) the Note Interest Rate for each Class of Notes of such Series (or method for the determination thereof); (d) the payment date or dates and the date or dates from which interest shall accrue; (e) the method for allocating Collections to Noteholders; (f) the designation of any Series Accounts and the terms governing the operation of any such Series Accounts; (g) the Servicing Fee; (h) the terms of any form of Series Enhancements with respect thereto; (i) the terms on which the Notes of such Series may be exchanged for Notes of another Series, repurchased by the Seller or remarketed to other investors; (j) the Series Termination Date; (k) the number of Classes of Notes of such Series and, if more than one Class, the rights and priorities of each such Class; (l) the extent to which the Notes of such Series will be issuable in temporary or permanent global form (and, in such case, the depositary for such global note or notes, the terms and conditions, if any, upon which such global note or notes may be exchanged, in whole or in part, for Definitive Notes, and the manner in which any interest payable on a temporary or global note will be paid); (m) whether the Notes of such Series may be issued in bearer form and any limitations imposed thereon; (n) the priority of such Series with respect to any other Series; (o) whether such Series will be part of a Group; (p) whether such Series will be a Principal Sharing Series and whether such -21- Series is entitled to share Shared Seller Principal Collections; (q) whether such Series will be an Excess Allocation Series; (r) the Distribution Date; (s) the legal final maturity date on which the rights of the Noteholders of such Series to receive payments from the Issuer will terminate, which shall not be later than the Scheduled Trust Termination Date; (t) whether Interchange will be included in the funds available to be paid for such Series; and (u) whether such Series will or may be a Paired Series and the Series, with which it will be paired, if applicable. "Proceeding" means any suit in equity, action at law or other judicial or ---------- administrative proceeding. "Purchase Price" is defined in Section 3.1 of the Receivables Purchase -------------- ----------- Agreement. "Qualified Account" means either (a) a non-interest bearing segregated ----------------- account with an Eligible Institution, or (b) a non-interest bearing segregated trust account with the corporate trust department of a depository institution organized under the laws of the United States or any one of the states thereof, including the District of Columbia (or any domestic branch of a foreign bank), and acting as a trustee for funds deposited in such account, so long as any of the securities of such depository institution shall have a credit rating from each Rating Agency in one of its generic credit rating categories that signifies investment grade. "Quarterly Account Additions" means on any Determination Date, the number --------------------------- of Accounts the Receivables of which have been added to the Receivables Trust pursuant to Sections 2.6(a), (b) and (e) of the Transfer and Servicing Agreement --------------- --- --- during the current calendar quarter. "Quarterly Quotient" is defined in Section 2.6(c)(ii)(2) of the Transfer ------------------ --------------------- and Servicing Agreement. "Rating Agency" means, with respect to any outstanding Series or Class, ------------- each rating agency, as specified in the applicable Indenture Supplement, selected by the Seller to rate the Notes of such Series or Class. "Rating Agency Condition" means, with respect to any action or series of ----------------------- related actions or proposed transaction or series of related proposed transactions, that each Rating Agency shall have notified Seller and the Indenture Trustee in writing that such action or series of related actions or the consummation of such proposed transaction or series of related transactions will not result in a reduction or withdrawal of the rating of any outstanding Series or Class with respect to which it is a Rating Agency. -22- "Reassignment Agreement" is defined in Section 2.7(b)(ii) of the Transfer ---------------------- ------------------ and Servicing Agreement. "Receivable" means any amount owing by an Obligor under an Account ---------- (including amounts in Defaulted Accounts) from time to time, including amounts owing for the purchase of goods and services, Finance Charges, Cash Advance Fees, Cardholder Fees, Special Fees and premiums for Credit Insurance, if any. "Receivables Purchase Agreement" means the Receivables Purchase Agreement ------------------------------ dated as of December 31, 2001, among Seller and FCNB, as amended from time to time, and includes any receivables purchase agreement substantially in the form of such agreement entered into between the Seller and FCNB. "Receivables Trust" means (a) prior to the FCMT Termination Date, First ----------------- Consumers Master Trust and (b) on and after the FCMT Termination Date, the Issuer. "Reconveyance" means an instrument substantially in the form and upon the ------------ terms of Exhibit B to the Receivables Purchase Agreement. --------- "Record Date" means, with respect to any Distribution Date, the last ----------- Business Day of the calendar month immediately preceding such Distribution Date unless otherwise specified for a Series in the related Indenture Supplement. "Recoveries" means, with respect to any Monthly Period, all amounts ---------- received, including Insurance Proceeds and net proceeds from the liquidation of certificates of deposit or bank accounts, by the Servicer with respect to Receivables which have previously been charged off as uncollectible, after deducting, in the case of each such amount received, a percentage of such amount which in the good faith judgment of the Servicer represents the amount of out-of-pocket costs incurred by the Servicer during the preceding fiscal year (or other, more recent period deemed appropriate by the Servicer) as a percentage of collections during such period in respect of charged off receivables in all credit card accounts (including the Accounts) serviced by the Servicer. "Redemption Date" means, with respect to any Series, the date or dates --------------- specified in the related Indenture Supplement. "Registered Notes" is defined in Section 2.1 of the Indenture. ---------------- ----------- "Removal Date" is defined in Section 2.7 of the Transfer and Servicing ------------ ----------- Agreement. -23- "Removal Notice Date" means the fifth Business Day prior to a Removal Date. ------------------- "Removed Accounts" is defined in Section 2.7(a) of the Transfer and ---------------- -------------- Servicing Agreement. "Repurchase Date" is defined in Section 6.2 of the Receivables Purchase --------------- ----------- Agreement. "Repurchase Notice Date" is defined in Section 6.2 of the Receivables ---------------------- ----------- Purchase Agreement. "Repurchase Price" means the Repurchase Price specified in Section 6.1(c) ---------------- -------------- or 6.2(a), as the case may be, of the Receivables Purchase Agreement. ------ "Requirements of Law" for any Person means the certificate of incorporation ------------------- or articles of association and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or order or determination of an arbitrator or Governmental Authority, in each case applicable to or binding upon such Person or to which such Person is subject, whether Federal, state or local (including usury laws, the Federal Truth in Lending Act and Regulation Z and Regulation B of the Board of Governors of the Federal Reserve System). "Responsible Officer" means, as to the Issuer, the Chairman or any Vice ------------------- Chairman of the Board of Directors or Trustees of the Administrator; the Chairman or Vice Chairman of the Executive or Standing Committee of the Board of Directors or Trustees of the Administrator; and the President, any Executive Vice President, Senior Vice President, Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant or Deputy Cashier, the Controller and any Assistant Controller or any other officer of the Administrator customarily performing functions similar to those performed by any of the above-designated officers. The term "Responsible Officer", when used herein with respect to any Person other than the Issuer, means an officer or employee of such Person corresponding to any officer or employee described in the preceding sentence. "RPA Closing Date" means December 31, 2001. ---------------- "RPA Seller" means FCNB. ---------- "Scheduled Trust Termination Date" means December 31, 2050. -------------------------------- "Securities Act" means the Securities Act of 1933. -------------- -24- "Seller" shall mean (i) before the RPA Closing Date, FCNB, and (ii) on and ------ after the RPA Closing Date, First Consumers Credit Corporation, a Delaware corporation. "Seller Amount" means, on any Determination Date, the Aggregate Principal ------------- Balance at the end of the day immediately prior to such Determination Date, minus the Aggregate Collateral Amount at the end of such day. "Seller Certificate Supplement" shall have the meaning specified in Section ----------------------------- ------- 3.4 of the Trust Agreement. - --- "Seller Interest" means the interest of the Seller or its assigns in the --------------- Issuer and the Receivables, which entitles the Seller or its assigns to receive the various amounts specified in the Transaction Documents to be paid or transferred to the holder(s) of the Seller Interest. "Seller Percentage" means, on any date of determination, when used with ----------------- respect to Principal Collections, Finance Charge Collections and Receivables in Defaulted Accounts, the percentage equivalent of a fraction equal to 1.0, minus ----- the fraction calculated on such date with respect to such categories of Receivables in accordance with the definition of Aggregate Allocation Percentage; provided, however, that the Seller Percentage shall never be less -------- ------- than zero. "Series" means any series of Notes, which may include within any such ------ Series a Class or Classes of Notes subordinate to another such Class or Classes of Notes. "Series Account" means, with respect to any Series, any of the accounts -------------- established and designated as such pursuant to the related Indenture Supplement. "Series Enhancement" means the rights and benefits provided to the Issuer ------------------ or the Noteholders of any Series or Class pursuant to any letter of credit, surety bond, cash collateral account, collateral interest, spread account, reserve account, cash collateral guaranty, insurance policy, tax protection agreement, interest rate swap agreement, interest rate cap agreement, cross support feature or other similar arrangement. The subordination of any Series or Class to another Series or Class shall be deemed to be a Series Enhancement. "Series Enhancer" means the Person or Persons providing any Series --------------- Enhancement, other than (except to the extent otherwise provided with respect to any Series in the Indenture Supplement for such Series) any account or deposits therein or the Noteholders of any Series or Class which is subordinated to another Series or Class. -25- "Series Pay Out Event" is defined, with respect to any Series, in the -------------------- related Indenture Supplement. "Series Share" is defined in Section 8.4(h) of the Indenture. ------------ -------------- "Series Termination Date" means, with respect to any Series, the ----------------------- termination date for such Series specified in the related Indenture Supplement. "Servicer" means initially FCNB, and thereafter any Person appointed as -------- successor as herein provided to service the Receivables. "Servicer Default" is defined in Section 7.1 of the Transfer and Servicing ---------------- ----------- Agreement. "Servicing Agreement" means (i) before the FCMT Termination Date, the ------------------- Pooling and Servicing Agreement, and (ii) on and after the FCMT Termination Date, the Transfer and Servicing Agreement. "Servicing Fee Rate" means, with respect to any Series, the Series ------------------ servicing fee percentage specified in the related Indenture Supplement. "Servicing Officer" means any employee of the Servicer involved in, or ----------------- responsible for, the administration and servicing of the Receivables whose name appears on a list of servicing officers furnished to the Indenture Trustee by the Servicer, as such list may from time to time be amended. "Settlement Date" is defined in Section 3.4 of the Receivables Purchase --------------- ----------- Agreement. "Settlement Statement" means a document substantially in the form of -------------------- Exhibit C to the Receivables Purchase Agreement. - --------- "Shared Finance Charge Collections" means, with respect to any Distribution --------------------------------- Date, the aggregate amount for all outstanding Series that the related Indenture Supplements specify are to be treated as "Shared Finance Charge Collections" for such Distribution Date. "Shared Principal Collections" is defined in Section 8.5 of the Indenture. ---------------------------- ----------- "Shortfall Amount" means, on any Determination Date, the amount, if any, by ---------------- which the Minimum Seller Amount exceeds the Seller Amount. "Special Fees" means Receivables consisting of fees which are not now but ------------ may from time to time be assessed on the Accounts. -26- "Spiegel" means Spiegel, Inc., a Delaware corporation. ------- "Standard & Poor's" means Standard & Poor's Ratings Services, or its ----------------- successor. "Subordinated Note" means a subordinated note of Seller substantially in ----------------- the form attached to Exhibit F to the Receivables Purchase Agreement. --------- "Successor Servicer" is defined in Section 7.2(a) of the Transfer and ------------------ -------------- Servicing Agreement. "Supplemental Certificate" is defined in Section 3.4 of the Trust ------------------------ ----------- Agreement. "Supplemental Conveyance" means an instrument substantially in the form and ----------------------- upon the terms of Exhibit A to the Receivables Purchase Agreement. --------- "Surviving Person" is defined in Section 3.10(a) of the Indenture. ---------------- --------------- "Tax Opinion" means, with respect to any action, an Opinion of Counsel to ----------- the effect that, for federal income tax purposes, (a) such action will not adversely affect the tax characterization as debt of the Notes of any outstanding Series or Class that were characterized as debt at the time of their issuance, (b) such action will not cause the Issuer to be deemed to be an association (or publicly traded partnership) taxable as a corporation and (c) such action will not cause or constitute an event in which gain or loss would be recognized by any Noteholder. "Termination Notice" is defined in Section 7.1 of the Transfer and ------------------ ----------- Servicing Agreement. "Transaction Documents" means the Master Indenture, Indenture Supplements, --------------------- Transfer and Servicing Agreement, Trust Agreement, Administration Agreement, and, until the FCMT Termination Date, the Pooling and Servicing Agreement and the Collateral Series Supplement, and any other documents related to this transaction. "Transfer Agent and Registrar" is defined in Section 2.5 of the Indenture. ---------------------------- ----------- "Transfer and Servicing Agreement" means the Transfer and Servicing -------------------------------- Agreement, dated as of March 1, 2001, and amended and restated as of December 31, 2001, among First Consumers Credit Corporation, FCNB and the Issuer. "Transfer Date" means the Business Day immediately preceding each ------------- Distribution Date or each Distribution Date. -27- "Transfer Restriction Event" means any event that prevents FCNB from -------------------------- transferring Receivables to the Seller or prevents the Seller from transferring Receivables to the Issuer. "Trust" means the First Consumers Credit Card Master Note Trust. ----- "Trust Agreement" means the Trust Agreement relating to the Receivables --------------- Trust, dated as of March 1, 2001 and amended and restated as of December 31, 2001, between First Consumers Credit Corporation and the Owner Trustee, as the same may be amended, supplemented or otherwise modified from time to time. "Trust Assets" is defined in Section 2.1 of the Transfer and Servicing ------------ ----------- Agreement. "Trust Estate" means all right, title and interest of the Issuer in and to ------------ the property and rights assigned to the Issuer pursuant to Section 2.5 of the ----------- Trust Agreement and Section 2.1 of the Transfer and Servicing Agreement, all ----------- monies, investment property, instruments and other property on deposit from time to time in the Collection Account, the Series Accounts and the Excess Funding Account and all other property of the Issuer from time to time, including any rights of the Owner Trustee and the Issuer pursuant to the Transaction Documents. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939. ------------------- --- "Trust Pay Out Event" is defined, with respect to each Series, in Section ------------------- ------- 5.1 of the Indenture. - --- "Trust Termination Date" is defined in Section 8.1 of the Trust Agreement. ---------------------- "Trustee Officer" means, with respect to the Indenture Trustee any officer --------------- assigned to the Corporate Trust Office, including any managing director, vice president, assistant vice president, assistant treasurer, assistant secretary or any other officer of the Indenture Trustee customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for the administration of the applicable Transaction Documents, and also, with respect to a particular matter, any other officer, to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "UCC" means the Uniform Commercial Code, as in effect in any specified --- jurisdiction. -28- EX-10.44 41 dex1044.txt SERIES 2001-A INDENTURE SUPPLEMENT DATED 3/1/2001 Exhibit 10.44 SPIEGEL CREDIT CARD MASTER NOTE TRUST Issuer, and THE BANK OF NEW YORK Indenture Trustee SERIES 2001-A INDENTURE SUPPLEMENT Dated as of July 19, 2001 TABLE OF CONTENTS
ARTICLE I Creation of the Series 2001-A Notes........................... 1 Section 1.1 Designation.................................... 1 ARTICLE II Definitions................................................... 1 Section 2.1 Definitions.................................... 1 ARTICLE III Servicing Fee................................................. 12 Section 3.1 Servicing Compensation......................... 12 ARTICLE IV Rights of Series 2001-A Noteholders and Allocation and Application of Collections.................................. 13 Section 4.1 Collections and Allocations.................... 13 Section 4.2 Determination of Monthly Interest.............. 15 Section 4.3 Determination of Monthly Principal............. 16 Section 4.4 Application of Available Finance Charge Collections and Available Principal Collections.................................. 16 Section 4.5 Investor Charge-Offs........................... 18 Section 4.6 Reallocated Principal Collections.............. 19 Section 4.7 Excess Finance Charge Collections.............. 19 Section 4.8 Shared Principal Collections................... 19 Section 4.9 Principal Accumulation Account................. 20 Section 4.10 Reserve Account................................ 21 Section 4.11 [Reserved]..................................... 23 Section 4.12 Determination of LIBOR......................... 24 Section 4.13 Investment Instructions........................ 24 Section 4.14 Controlled Accumulation Period................. 24 Section 4.15 Suspension of Controlled Accumulation Period....................................... 25 Section 4.16 Insurance Policies............................. 27 Section 4.17 Swap........................................... 27 ARTICLE V Delivery of Series 2001-A Notes; Distributions; Reports to Series 2001-A Noteholders................................... 28 Section 5.1 Delivery and Payment for the Series 2001-A Notes........................................ 28 Section 5.2 Distributions.................................. 28 Section 5.3 Reports and Statements to Series 2001-A
i
Noteholders.................................. 29 ARTICLE VI Series 2001-A Pay Out Events and Events of Default............ 30 Section 6.1 Series 2001-A Pay Out Events................... 30 Section 6.2 Series 2001-A Events of Default................ 31 Section 6.3 Declarations of Default........................ 32 ARTICLE VII Redemption of Series 2001-A Notes; Final Distributions; Series Termination.......................................... 33 Section 7.1 Optional Redemption of Series 2001-A Notes; Final Distributions................... 33 Section 7.2 Series Termination............................. 34 ARTICLE VIII Miscellaneous Provisions...................................... 34 Section 8.1 Ratification of Indenture; Amendments.......... 34 Section 8.2 Form of Delivery of the Series 2001-A Notes.... 34 Section 8.3 Counterparts................................... 34 Section 8.4 GOVERNING LAW.................................. 35 Section 8.5 Limitation of Liability........................ 35 Section 8.6 Rights of the Indenture Trustee................ 35 Section 8.7 Third Party Beneficiary........................ 35 Section 8.8 Inconsistency.................................. 35 Section 8.9 Collateral Series Supplement................... 35 Section 8.10 Increase of Collateral Amount.................. 35 Section 8.11 Additional Representations and Warranties...... 36
ii iii EXHIBITS EXHIBIT A FORM OF CLASS A NOTE EXHIBIT B FORM OF MONTHLY PAYMENT INSTRUCTIONS AND NOTIFICATION TO THE INDENTURE TRUSTEE EXHIBIT C FORM OF MONTHLY STATEMENT EXHIBIT D FORM OF MONTHLY SERVICER'S CERTIFICATE EXHIBIT E FORM OF SWAP EXHIBIT F INSURANCE AGREEMENT DEFINITIONS EXHIBIT G SECTION 2.05 OF INSURANCE AGREEMENT (SPREAD ACCOUNT) EXHIBIT H SECTION 5.01 OF INSURANCE AGREEMENT (INSURANCE AGREEMENT PAY OUT EVENTS) SCHEDULES SCHEDULE I PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS iv SERIES 2001-A INDENTURE SUPPLEMENT, dated as of July 19, 2001 (the "Indenture Supplement"), between SPIEGEL CREDIT CARD MASTER NOTE TRUST, a trust organized and existing under the laws of the State of Illinois (herein, the "Issuer" or the "Trust"), and THE BANK OF NEW YORK, a banking corporation organized and existing under the laws of the State of New York, not in its individual capacity, but solely as indenture trustee (herein, together with its successors in the trusts thereunder as provided in the Master Indenture referred to below, the "Indenture Trustee") under the Master Indenture, dated as of December 1, 2000 (the "Indenture") between the Issuer and the Indenture Trustee (the Indenture, together with this Indenture Supplement, the "Agreement"). Pursuant to Section 2.12 of the Indenture, the Seller may direct the Issuer to issue one or more Series of Notes. The Principal Terms of this Series are set forth in this Indenture Supplement to the Indenture. ARTICLE I Creation of the Series 2001-A Notes Section 1.1 Designation. ----------- (1) There is hereby created and designated a Series of Notes to be issued pursuant to the Indenture and this Indenture Supplement to be known as "Spiegel Credit Card Master Note Trust, Series 2001-A" or the "Series 2001-A Notes." The Series 2001-A Notes shall be issued in a single Class, known as the "Class A Series 2001-A Floating Rate Asset Backed Notes." (2) Series 2001-A shall be included in Group One and shall be a Principal Sharing Series. Series 2001-A shall be an Excess Allocation Series with respect to Group One only. Series 2001-A shall not be subordinated to any other Series. ARTICLE II Definitions Section 1.2 Definitions. ----------- (1) Whenever used in this Indenture Supplement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and the masculine as well as the feminine and neuter genders of such terms. "Accumulation Period Factor" means, for any Monthly Period, a fraction, the numerator of which is equal to the sum of the Initial Collateral Amounts of all outstanding Series designated as Principal Sharing Series, and the denominator of which is equal to the sum of (a) the Initial Collateral Amount and (b) the Initial Collateral Amounts of all outstanding Series designated as Principal Sharing Series 1 (other than Series 2001-A) which are not expected to be in their revolving periods; provided, however, that this definition may be changed at any time if the Rating Agency Condition is satisfied. "Accumulation Period Length" is defined in subsection 4.14. "Accumulation Shortfall" means: (a) for the first Distribution Date during the Controlled Accumulation Period, zero; and (b) thereafter, for any Distribution Date during the Controlled Accumulation Period, the excess, if any, of the Controlled Deposit Amount for the previous Distribution Date over the amount deposited into the Principal Accumulation Account pursuant to subsection 4.4(c)(i) for the previous Distribution Date. "Additional Interest" is defined in Section 4.2. "Allocation Percentage" means, on any date of determination, the percentage equivalent of a fraction: (a) the numerator of which shall be the Collateral Amount, determined: (i) for Principal Collections during the Revolving Period and for Finance Charge Collections and Default Amounts at any time, at the end of the last day of the prior Monthly Period (or, in the case of the Monthly Period in which the Closing Date occurs, on the Closing Date); provided, however, that if the Rapid Amortization Period is extended past the Series 2001-A Final Maturity Date as a result of there being amounts owed to the Insurer or the Counterparty, then during that extended period the numerator for Finance Charge Collections and Default Amounts shall equal the numerator in effect for the last Monthly Period prior to the Series 2001-A Final Maturity Date; (ii) for Principal Collections during the Rapid Amortization Period and the Controlled Accumulation Period, on the last day of the Revolving Period; provided, however, that if Series 2001-A is paired with a Paired Series and a Rapid Amortization Period commences for such Paired Series, the Seller may, by written notice to the Indenture Trustee, the Servicer and the Rating Agencies, but only after satisfying the Rating Agency Condition, designate a different numerator for such fraction, which numerator shall not be less than the Collateral Amount as of the last day of the Revolving Period for the Paired Series; and (b) the denominator of which shall be the greater of (x) the sum of the Aggregate Principal Receivables and the amount on deposit in the Excess 2 Funding Account (exclusive of any investment earnings on such amount) in each case as of the end of the Business Day preceding such date of determination and (y) the sum of the numerators used to calculate the Allocation Percentages for allocations with respect to Finance Charge Collections, Principal Collections or Default Amounts, as applicable, for all outstanding Series or "Series" under (and as defined in) the Pooling and Servicing Agreement (other than Series represented by the Collateral Certificate) on such date of determination. "Available Finance Charge Collections" means, for any Monthly Period, an amount equal to the sum of (a) the Investor Finance Charge Collections for such Monthly Period, plus (b) any Net Swap Receipts for the related Distribution Date, plus (c) the Excess Finance Charge Collections allocated to Series 2001-A for such Monthly Period, plus (d) Principal Accumulation Investment Proceeds, if any, with respect to the related Distribution Date, plus (e) amounts, if any, to be withdrawn from the Reserve Account which will be deposited into the Collection Account on the related Distribution Date to be treated as Available Finance Charge Collections pursuant to subsection 4.10(d). "Available Principal Collections" means, for any Monthly Period, an amount equal to the sum of (a) the Investor Principal Collections for such Monthly Period minus (b) the amount of Reallocated Principal Collections with respect to such Monthly Period which pursuant to Section 4.6 are required to be applied on the related Distribution Date, plus (c) any Shared Principal Collections with respect to other Principal Sharing Series (including any amounts on deposit in the Excess Funding Account that are allocated to Series 2001-A pursuant to the Agreement for application as Shared Principal Collections), plus (d) the aggregate amount to be treated as Available Principal Collections pursuant to subsections 4.4(a)(iii), (iv) and (viii) for the related Distribution Date. "Available Reserve Account Amount" means, for any Distribution Date, the lesser of (a) the amount on deposit in the Reserve Account on such date (after taking into account any interest and earnings retained in the Reserve Account pursuant to subsection 4.10(b) on such date, but before giving effect to any deposit made or to be made pursuant to subsection 4.4(a)(vi) to the Reserve Account on such date) and (b) the Required Reserve Account Amount. "Available Spread Account Amount" is defined in the Insurance Agreement. "Base Rate" is defined in the Insurance Agreement. "Class A Noteholder" means the Person in whose name a Class A Note is registered in the Note Register. 3 "Class A Notes" means any one of the Notes executed by the Issuer and authenticated by or on behalf of the Indenture Trustee, substantially in the form of Exhibit A. "Closing Date" means July 19, 2001. "Collateral Amount" means, as of any date of determination, an amount equal to the result of (a) the Initial Collateral Amount, minus (b) the amount of principal previously paid to the Series 2001-A Noteholders, minus (c) the balance on deposit in the Principal Accumulation Account, minus (d) the aggregate reductions to the Collateral Amount made pursuant to Section 4.4(c) on or prior to such date of determination, minus (e) the excess, if any, of the aggregate amount of Investor Charge-Offs and Reallocated Principal Collections over the reimbursements of such amounts pursuant to subsection 4.4(a)(iv) prior to such date, plus (f) any additional amount designated by the Seller pursuant to Section 8.10. "Control Transfer Event" means either of the following events: (a) the Insurer shall fail to timely make any payment required to be made by it pursuant to any Policy or otherwise default in any of its obligations under the Insurance Agreement; or (b) the Insurer shall (i) become insolvent, (ii) fail to pay its debts generally as they become due, (iii) voluntarily seek, consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law, or (iv) become a party to (or be made the subject of) any proceeding provided for by any Debtor Relief Law, other than as a creditor or claimant, and, in the event such proceeding is involuntary, the petition instituting same is not dismissed within 60 days after its filing. "Controlled Accumulation Amount" means, for any Distribution Date with respect to the Controlled Accumulation Period, $50,000,000; provided, however, that if the Accumulation Period Length is determined to be less than 12 months pursuant to Section 4.14 or 4.15, the Controlled Accumulation Amount for each Distribution Date with respect to the Controlled Accumulation Period will be equal to (i) the product of (x) the aggregate initial principal amount of the Series 2001-A Notes and (y) the Accumulation Period Factor for such Monthly Period divided by (ii) the Required Accumulation Factor Number. "Controlled Accumulation Period" means, unless a Pay Out Event shall have occurred prior thereto, the period commencing at the opening of business on March 1, 2004 or such later date as is determined in accordance with Section 4.14 and 4.15, and ending on the first to occur of (a) the commencement of the Rapid Amortization Period, (b) the payment in full of the Note Principal Balance and (c) the Series 2001-A Final Maturity Date. "Controlled Deposit Amount" means, for any Distribution Date with respect to the Controlled Accumulation Period, an amount equal to the sum of the Controlled Accumulation Amount for such Distribution Date and any existing Accumulation Shortfall. 4 "Counterparty" means Morgan Guaranty Trust Company of New York or the counterparty under any replacement interest rate swap obtained pursuant to Section 4.17. "Covered Amount" means an amount, determined as of each Distribution Date for any Interest Period, equal to the sum of (a) the product of (i) a fraction, the numerator of which is the actual number of days in such Interest Period and the denominator of which is 360, times (ii) the Note Interest Rate in effect with respect to such Interest Period, times (iii) the aggregate amount on deposit in the Principal Accumulation Account as of the Record Date preceding such Distribution Date. "Default Amount Rate" is defined in the Insurance Agreement. "Default Estimate" means, for any Monthly Period, an amount equal to the product of (i) 1.5, multiplied by (ii) the arithmetic mean of the Investor Default Amounts for the prior three Monthly Periods. For this purpose, the April, May, June and July Investor Default Amounts shall be deemed to have equaled $9,300,000. "Deficiency Amount" means (a) for any Distribution Date other than the Series 2001-A Final Maturity Date, the excess of the amounts payable pursuant to Sections 4.4(a)(i) and (ii) for such Distribution Date over the Available Finance Charge Collections, Reallocated Principal Collections and Available Spread Account Amount that are available to cover such amounts, and (b) for the Series 2001-A Final Maturity Date, the sum of (i) the amount determined pursuant to clause (a) for the Series 2001-A Final Maturity Date and (ii) the excess of the Note Principal Balance over the Available Principal Collections and Available Spread Account Amount that are available to cover such amount. "Distribution Date" means August 15, 2001 and the 15th day of each calendar month thereafter, or if such 15th day is not a Business Day, the next succeeding Business Day. "Enhancement Provider" means each of the Insurer and the Counterparty. "Excess Collateral Amount" means, at any time, the result of the Collateral Amount, plus the Principal Accumulation Account Balance, minus the Note Principal Balance. "Excess Spread Percentage" is defined in the Insurance Agreement. "Expected Principal Distribution Date" means the March 2005 Distribution Date. "Finance Charge Shortfall" is defined in Section 4.7. 5 "Group One" means Series 2001-A, the outstanding Series under (and as defined in) the Pooling and Servicing Agreement (other than Series represented by the Collateral Certificate) and each other Series hereafter specified in the related Indenture Supplement to be included in Group One. "Initial Collateral Amount" means the sum of (a) $685,800,000, which equals the sum of (i) the initial principal amount of the Series 2001-A Notes plus (ii) the Initial Excess Collateral Amount (excluding the Supplemental Enhancement), plus (b) the Supplemental Enhancement. "Initial Excess Collateral Amount" means, at any time, the sum of (a) $85,800,000, plus (b) the Supplemental Enhancement. "Insurance Agreement" means the Insurance and Reimbursement Agreement dated as of the Closing Date between the Seller, the Servicer, Spiegel, Spiegel Acceptance Corporation, the Issuer, the Indenture Trustee and the Insurer. "Insured Obligation" means, with respect to any Policy, the "Insured Obligation" as defined in such Policy. "Insurer" means MBIA Insurance Corporation, a New York stock insurance corporation. "Interest Period" means, for any Distribution Date, the period from and including the Distribution Date immediately preceding such Distribution Date (or, in the case of the first Distribution Date, from and including the Closing Date) to but excluding such Distribution Date. "Interest Shortfall" is defined in Section 4.2. "Investor Charge-Offs" is defined in Section 4.5. "Investor Default Amount" means, for any Distribution Date, an amount equal to the product of (a) the Default Amount for the related Monthly Period and (b) the daily average Allocation Percentage for such Monthly Period; provided that the Investor Default Amount for the August 15, 2001 Distribution Date shall be equal to the product of (a) the Default Amount for the calendar month of July 2001, (b) the daily average Allocation Percentage for the first Monthly Period and (c) a fraction equal to the number of days in the first Monthly Period, divided by 31. "Investor Finance Charge Collections" means, for any Monthly Period, an amount equal to the aggregate amount of Finance Charge Collections (including Net Recoveries treated as Finance Charge Collections) retained or deposited in the Finance Charge Subaccount for Series 2001-A pursuant to subsection 4.1(b)(i) for such Monthly Period. 6 "Investor Principal Collections" means, for any Monthly Period, the aggregate amount of Principal Collections retained or deposited in the Principal Collections Subaccount for Series 2001-A pursuant to subsection 4.1(b)(ii) for such Monthly Period. "Investor Uncovered Dilution Amount" means, for any Distribution Date, an amount equal to the Series Share of shortfalls in Deposit Obligations that is allocated to Series 2001-A pursuant to Section 8.4(h) of the Indenture. "LIBOR" means, for any Interest Period, the London interbank offered rate for one-month United States dollar deposits determined by the Indenture Trustee for each Interest Period in accordance with the provisions of Section 4.12. "LIBOR Determination Date" means the second London Banking Day prior to the commencement of each Interest Period. "London Banking Day" means any day on which commercial banks are open for general business (including dealings in foreign exchange and foreign currency deposits) in London, England. "Minimum Seller Percentage" means zero for Series 2001-A. "Modified Excess Spread Percentage" is defined in the Insurance Agreement. "Monthly Insurance Premium" means the Premium (as defined in the Premium and Fee Letter) for any Monthly Period. "Monthly Interest" is defined in Section 4.2. "Monthly Period" means the period from and including the first day of the calendar month preceding a related Determination Date to and including the last day of such calendar month; provided that the first Monthly Period shall begin on and include the Closing Date and end on and include July 31, 2001. "Monthly Principal" means the monthly principal distributable in respect of the Notes as calculated in accordance with Section 4.3. "Monthly Principal Reallocation Amount" means, for any Monthly Period, an amount equal to the lower of: (a) the excess of the Required Amount, over the amount of Available Finance Charge Collections applied to pay the Required Amount pursuant to subsection 4.4(a); and (b) the Excess Collateral Amount (after giving effect to Investor Charge-Offs for the related Monthly Period). 7 "Monthly Servicing Fee" is defined in subsection 3.1(a). "Net Interest Obligation" means, for any Distribution Date: (a) if there is a Net Swap Payment due on that Distribution Date, the sum of the Net Swap Payment and the Monthly Interest for that Distribution Date; (b) if there is a Net Swap Receipt due on that Distribution Date, the result of the Monthly Interest for that Distribution Date minus the Net Swap Receipt; and (c) if the Swap has terminated for any reason, the Monthly Interest for that Distribution Date. "Net Swap Payment" means any net amount payable by the Issuer under the Swap as a result of LIBOR being less than the Swap Rate. For the avoidance of doubt, (i) Net Swap Payments do not include early termination payments or payment of breakage or other miscellaneous costs, and (ii) for any Distribution Date, the Monthly Interest, less the Net Swap Receipt, if any, plus, the Net Swap Payment, if any, will never exceed what Monthly Interest would have been if the Note Interest Rate were 5.485%. "Net Swap Receipt" means any net amount payable by the Counterparty as a result of LIBOR being greater than the Swap Rate. For the avoidance of doubt, Net Swap Receipts do not include early termination payments. "Note Initial Principal Balance" means $600,000,000. "Note Interest Rate" means a per annum rate of 0.28% in excess of LIBOR as determined on the LIBOR Determination Date for the applicable Interest Period. "Note Principal Balance" means, on any date of determination, an amount equal to (a) the Note Initial Principal Balance, minus (b) the aggregate amount of principal payments made to the Class A Noteholders on or prior to such date. "Percentage Allocation" is defined in subsection 4.1(b)(ii)(y). "Policy" means the Financial Guaranty Insurance Policy No. 35738(1) or the Financial Guaranty Insurance Policy No. 35738(2), each issued by MBIA Insurance Corporation pursuant to the Insurance Agreement, and, collectively, referred to herein as the "Policies." "Portfolio Adjusted Yield" means, for any Distribution Date, the average of the percentages obtained for each of the three preceding Monthly Periods by subtracting the Base Rate and the Default Amount Rate for each such Monthly Period from the Portfolio Yield for each such Monthly Period. "Portfolio Yield" is defined in the Insurance Agreement. "Premium and Fee Letter" is defined in the Insurance Agreement. 8 "Principal Accumulation Account" shall have the meaning set forth in subsection 4.9(a). "Principal Accumulation Account Balance" means, for any date of determination, the principal amount, if any, on deposit in the Principal Accumulation Account on such date of determination. "Principal Accumulation Investment Proceeds" means, with respect to each Distribution Date, the investment earnings on funds in the Principal Accumulation Account (net of investment expenses and losses) for the period from and including the immediately preceding Distribution Date to but excluding such Distribution Date. "Principal Payment Rate" means, for any Monthly Period, (a) the aggregate amount of Principal Collections deposited in the Collection Account during that Monthly Period, divided by (b) the Aggregate Principal Receivables as of the close of business on the last day of the prior Monthly Period. "Principal Shortfall" is defined in subsection 4.8(a). "Qualified Maturity Agreement" means an agreement, meeting the requirements described in the definition of "Qualified Maturity Agreement" set forth in the Policies, whereby an Eligible Institution agrees to make a deposit into the Principal Accumulation Account on the Expected Principal Distribution Date in an amount equal to the Note Principal Balance on such date; provided that for purposes of this definition, references in the definition of "Eligible Institution" to ratings of "A-1+" and "AAA" by Standard & Poor's shall be modified to require ratings of "A-1" and "A+" from Standard & Poor's. "Rapid Amortization Period" means the period commencing on the Business Day immediately preceding the day on which a Pay Out Event with respect to Series 2001-A is deemed to have occurred, and ending on the first to occur of (i) the payment in full of the Collateral Amount and (ii) the Series 2001-A Final Maturity Date; provided, that if any amounts are owing to the Insurer under the Insurance Agreement or the Counterparty under the Swap at the Series 2001-A Final Maturity Date, the Rapid Amortization Period shall continue, solely for purposes of repaying such amounts, but in no event shall the Rapid Amortization Period continue after the earliest of (x) the date on which no further amounts are owed to the Insurer under the Insurance Agreement and the Counterparty under the Swap, (y) the March 2010 Distribution Date and (z) the date on which the Collateral Amount has been reduced to zero; provided, further, that if the Rapid Amortization Period is extended in accordance with the immediately preceding proviso, for purposes of calculating the Minimum Aggregate Principal Balance, for so long as the Rapid Amortization Period is so extended, (i) Series 2001-A shall be deemed to be outstanding, (ii) the Collateral Amount shall be included in the sum of the collateral amounts of all outstanding series for purposes of clause (a) of the definition of Minimum Aggregate Principal Balance and (iii) the numerator used for purposes of the Allocation Percentage with 9 respect to Principal Collections for Series 2001-A shall be included in the calculation described in clause (b) of the definition of Minimum Aggregate Principal Balance. "Rating Agency" means each of Fitch, Moody's and Standard & Poor's. "Rating Agency Condition" means, with respect to Series 2001-A, the Rating Agency Condition, as defined in the Insurance Agreement. "Reallocated Principal Collections" means, for any Distribution Date, Investor Principal Collections applied in accordance with Section 4.6 in an amount not to exceed the Monthly Principal Reallocation Amount for the related Monthly Period. "Reassignment Amount" means, for any Distribution Date, after giving effect to any deposits and distributions otherwise to be made on such Distribution Date, the sum of (i) the outstanding principal balance of the Series 2001-A Notes on such Distribution Date, plus (ii) Monthly Interest for such Distribution Date and any Monthly Interest previously due but not distributed to the Series 2001-A Noteholders, plus (iii) the amount of Additional Interest, if any, for such Distribution Date and any Additional Interest previously due but not distributed to the Series 2001-A Noteholders on a prior Distribution Date. "Reference Banks" means four major banks in the London interbank market selected by the Servicer or the Counterparty as calculation agent under the Swap. "Reimbursement Amounts" is defined in the Insurance Agreement. "Required Accumulation Factor Number" shall be equal to a fraction, rounded upwards to the nearest whole number, the numerator of which is one and the denominator of which is equal to the lowest monthly Principal Payment Rate on the Accounts, expressed as a decimal, for the 12 months preceding the date of such calculation; provided, however, that this definition may be changed at any time if the Rating Agency Condition is satisfied. "Required Amount" is defined in the Insurance Agreement. "Required Excess Collateral Amount" is defined in the Insurance Agreement. "Required Reserve Account Amount" means, for any Distribution Date on or after the Reserve Account Funding Date, an amount equal to (a) 0.5% of the Note Principal Balance or (b) any other amount designated by the Seller; provided, however, that if such designation is of a lesser amount, the Seller shall (i) provide the Servicer and the Indenture Trustee with evidence that the Rating Agency Condition shall have been satisfied and (ii) deliver to the Indenture Trustee a certificate of an Authorized Officer to the effect that, based on the facts known to such officer at such time, in the reasonable belief of the Seller, such designation will not cause a Pay Out 10 Event or an event that, after the giving of notice or the lapse of time, would cause a Pay Out Event to occur with respect to Series 2001-A. "Reserve Account" is defined in subsection 4.10(a). "Reserve Account Funding Date" means the Distribution Date designated by the Servicer which occurs not later than the earliest of (a) the Distribution Date with respect to the Monthly Period which commences 3 months prior to the commencement of the Controlled Accumulation Period; (b) the first Distribution Date for which the Portfolio Adjusted Yield is less than 2%, but in such event the Reserve Account Funding Date shall not be required to occur earlier than the Distribution Date with respect to the Monthly Period which commences 12 months prior to the commencement of the Controlled Accumulation Period; (c) the first Distribution Date for which the Portfolio Adjusted Yield is less than 3%, but in such event the Reserve Account Funding Date shall not be required to occur earlier than the Distribution Date with respect to the Monthly Period which commences 6 months prior to the commencement of the Controlled Accumulation Period; and (d) the first Distribution Date for which the Portfolio Adjusted Yield is less than 4%, but in such event the Reserve Account Funding Date shall not be required to occur earlier than the Distribution Date with respect to the Monthly Period which commences 4 months prior to the commencement of the Controlled Accumulation Period. "Reserve Account Surplus" means, as of any Distribution Date following the Reserve Account Funding Date, the amount, if any, by which the amount on deposit in the Reserve Account exceeds the Required Reserve Account Amount. "Reserve Draw Amount" means, with respect to each Distribution Date relating to the Controlled Accumulation Period or the first Distribution Date relating to the Rapid Amortization Period, the amount, if any, by which the Principal Accumulation Investment Proceeds for such Distribution Date are less than the Covered Amount determined as of such Distribution Date. "Revolving Period" means the period beginning on the Closing Date and ending on the earlier of the close of business on the day immediately preceding the day the Controlled Accumulation Period commences or the Rapid Amortization Period commences. "Series 2001-A" means the Series of Notes the terms of which are specified in this Indenture Supplement. "Series 2001-A Final Maturity Date" means the earlier to occur of (a) the Distribution Date on which the Note Principal Balance is paid in full and (b) the March 2010 Distribution Date. "Series 2001-A Note" means a Class A Note. 11 "Series 2001-A Noteholder" means a Class A Noteholder. "Series 2001-A Pay Out Event" is defined in Section 6.1. "Series Servicing Fee Percentage" means 2% per annum. "Spread Account" means the segregated trust account required to be established pursuant to Section 2.05 of the Insurance Agreement, which section is set forth in its entirety in Exhibit G. "Supplemental Enhancement" is defined in the Insurance Agreement. "Surplus Collateral Amount" means, at any time, the excess, if any, of the Excess Collateral Amount over the sum of the Required Excess Collateral Amount and the Supplemental Enhancement. "Swap" means an interest rate swap agreement between the Owner Trustee, on behalf of the Trust, and the Counterparty substantially in the form of Exhibit E to this Indenture Supplement, or such other form as shall have satisfied the Rating Agency Condition. "Swap Rate" means 5.205% per annum. "Telerate Page 3750" means the display page currently so designated on the Bridge Telerate Capital Markets Report (or such other page as may replace that page in that service for the purpose of displaying comparable rates or prices). (2) Each capitalized term defined herein shall relate to the Series 2001-A Notes and no other Series of Notes issued by the Trust, unless the context otherwise requires. All capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Indenture or the Transfer and Servicing Agreement. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture or the Transfer and Servicing Agreement, the terms and provisions of this Indenture Supplement shall govern. (3) The interpretive rules specified in Section 1.2 of the Master Indenture also apply to this Indenture Supplement. (4) The definitions of all capitalized terms defined herein by reference to the respective definitions of those terms in the Insurance Agreement can be found in Exhibit F. ARTICLE III Servicing Fee ------------- 12 Section III.0 Servicing Compensation. The share of the Servicing Fee allocable to Series 2001-A for any Distribution Date (the "Monthly Servicing Fee") shall be equal to one-twelfth of the product of (a) the Series Servicing Fee Percentage and (b) (i) the Collateral Amount as of the last day of the Monthly Period preceding such Distribution Date, minus (ii) the product of the amount, if any, on deposit in the Excess Funding Account as of the last day of the Monthly Period preceding such Distribution Date and the Allocation Percentage for Finance Charge Collections with respect to such Monthly Period; provided, however, that with respect to the first Distribution Date, the Monthly Servicing Fee shall be equal to $495,300. The remainder of the Servicing Fee shall be paid by the holders of the Seller Interest or the noteholders of other Series (as provided in the related Indenture Supplements) and in no event shall the Trust, the Indenture Trustee or the Series 2001-A Noteholders be liable for the share of the Servicing Fee to be paid by the holders of the Seller Interest or the noteholders of any other Series. To the extent that the Monthly Servicing Fee is not paid in full pursuant to the preceding provisions of this Section 3.1 and Section 4.4, it shall be paid by the holders of the Seller Interest. ARTICLE IV Rights of Series 2001-A Noteholders and Allocation and Application of Collections Section 1.3 Collections and Allocations. --------------------------- (1) Allocations. Finance Charge Collections, Principal Collections and Defaulted Receivables allocated to Series 2001-A pursuant to Article VIII of the Indenture shall be allocated and distributed as set forth in this Article. (2) Allocations to the Series 2001-A Noteholders. The Servicer shall, prior to the close of business on any Deposit Date, allocate to the Series 2001-A Noteholders the following amounts as set forth below: (1) Allocations of Finance Charge Collections. The Servicer shall allocate to the Series 2001-A Noteholders and transfer to the Finance Charge Subaccount for application as provided herein an amount equal to the product of (A) the Allocation Percentage and (B) the aggregate Finance Charge Collections deposited in the Collection Account on such Deposit Date; provided, however, that with respect to the portion of each Monthly Period falling in the Revolving Period or the Controlled Accumulation Period, such allocation shall be transferred to the Finance Charge Subaccount only until such time as the amount transferred to the Finance Charge Subaccount pursuant to this subsection during that Monthly Period equals the sum of (1) the Net Interest Obligation with respect to the Distribution Date relating to that Monthly Period, (2) at any time that FCNB is not the Servicer, the Monthly Servicing Fee payable on the Distribution Date relating to that Monthly Period and all accrued and unpaid Investor Monthly Servicing Fees 13 with respect to any prior Monthly Periods, (3) the Default Estimate for that Monthly Period and (4) the Monthly Insurance Premium with respect to that Monthly Period; provided further, however, that notwithstanding the foregoing proviso, (1) the entire Allocation Percentage of Finance Charge Collections shall be transferred to the Finance Charge Subaccount on a daily basis if (x) the Excess Spread Percentage for the preceding Monthly Period is less than 3.00%, or (y) the Available Spread Account Amount is less than the Required Spread Account Amount; and (2) subject to Section 8.4(a) of the Indenture, on each Determination Date, the Servicer shall deposit in the Finance Charge Subaccount any amounts not retained on a daily basis pursuant to the preceding proviso. Any portion of such allocation not required to be transferred to the Finance Charge Subaccount pursuant to the preceding sentence shall be (x) first, deposited in the Excess Funding Account to the extent that the Seller Amount is less than the Minimum Seller Amount and (y) thereafter paid to the Holders of the Seller Interest. (2) Allocations of Principal Collections. The Servicer shall allocate to the Series 2001-A Noteholders the following amounts as set forth below: (x) Allocations During the Revolving Period. During the Revolving Period an amount equal to the product of the Allocation Percentage and the aggregate amount of Principal Collections deposited in the Collection Account on such Deposit Date, shall be allocated to the Series 2001-A Noteholders and shall be first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, retained in the Collection Account for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount and third paid to the holders of the Seller Interest. (y) Allocations During the Controlled Accumulation Period. During the Controlled Accumulation Period an amount equal to the product of (I) the Allocation Percentage and (II) the aggregate amount of Principal Collections deposited in the Collection Account on such Deposit Date (the product for any such date is hereinafter referred to as a "Percentage Allocation") shall be allocated to the Series 2001-A Noteholders and transferred to the Principal Collections Subaccount until applied as provided herein; provided, however, that if the sum of such Percentage Allocation and all preceding Percentage Allocations with respect to the same Monthly Period exceeds the Controlled Deposit Amount during the Controlled Accumulation Period for the related Distribution Date, then such 14 excess shall not be treated as a Percentage Allocation and shall be first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, transferred to the Principal Collections Subaccount for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount and third paid to the holders of the Seller Interest. (z) Allocations During the Rapid Amortization Period. During the Rapid Amortization Period, an amount equal to the product of (I) the Allocation Percentage and (II) the aggregate amount of Principal Collections deposited in the Collection Account on such Deposit Date, shall be allocated to the Series 2001-A Noteholders and transferred to the Principal Collections Subaccount until applied as provided herein; provided, however, that after the date on which an amount of such Collections equal to the Note Principal Balance plus any amounts owing to the Counterparty under the Swap and the Insurer under the Insurance Agreement has been deposited into the Collection Account and allocated to the Series 2001-A Noteholders, such amount shall be first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, transferred to the Principal Collections Subaccount for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount and third paid to the holders of the Seller Interest. Section 1.4 Determination of Monthly Interest. The amount of monthly interest (" Monthly Interest") distributable from the Collection Account with respect to the Class A Notes on any Distribution Date shall be an amount equal to the product of (i) (A) a fraction, the numerator of which is the actual number of days in the related Interest Period and the denominator of which is 360, times (B) the Note Interest Rate in effect with respect to the related Interest Period and (ii) the Note Principal Balance as of the close of business on the last day of the preceding Monthly Period (or, with respect to the initial Distribution Date, the Note Initial Principal Balance). Section 1.1 On the Determination Date preceding each Distribution Date, the Servicer shall determine the excess, if any (the "Interest Shortfall"), of (x) the Monthly Interest for such Distribution Date over (y) the aggregate amount of funds allocated and available to pay such Monthly Interest on such Distribution Date. If the Interest Shortfall for any Distribution Date is greater than zero and the Insurer fails to pay 15 such Interest Shortfall in accordance with the terms of the related Policy, on each subsequent Distribution Date until such Interest Shortfall is fully paid, an additional amount ("Additional Interest") equal to the product of (i) (A) a fraction, the numerator of which is the actual number of days in the related Interest Period and the denominator of which is 360, times (B) the Note Interest Rate in effect with respect to the related Interest Period and (ii) such Interest Shortfall (or the portion thereof which has not been paid to the Class A Noteholders) shall be payable as provided herein with respect to the Class A Notes. Notwithstanding anything to the contrary herein, Additional Interest shall be payable or distributed to the Class A Noteholders only to the extent permitted by applicable law. Section 1.5 Determination of Monthly Principal. The amount of monthly principal distributable from the Collection Account with respect to the Notes on each Distribution Date (the "Monthly Principal"), beginning with the Distribution Date in the month following the month in which the Controlled Accumulation Period or, if earlier, the Rapid Amortization Period, begins, shall be equal to the least of (i) the Available Principal Collections on deposit in the Collection Account with respect to such Distribution Date, (ii) for each Distribution Date with respect to the Controlled Accumulation Period, the Controlled Deposit Amount for such Distribution Date, (iii) the Note Principal Balance, minus any amount already on deposit in the Principal Accumulation Account on such Distribution Date and (iv) the Collateral Amount (after taking into account any adjustments to be made pursuant to Sections 4.5 and 4.6) prior to any deposit into the Principal Accumulation Account on such Distribution Date. Section 1.6 Application of Available Finance Charge Collections and Available Principal Collections. The Servicer shall apply, or shall cause the Indenture Trustee to apply by written instruction to the Indenture Trustee, on each Distribution Date, Available Finance Charge Collections and Available Principal Collections on deposit in the Collection Account with respect to such Distribution Date to make the following distributions: (1) On each Distribution Date, an amount equal to the Available Finance Charge Collections with respect to such Distribution Date will be distributed or deposited in the following priority: (1) on a pari passu basis (A) an amount equal to Monthly Interest for such Distribution Date, plus the amount of any Monthly Interest previously due but not distributed to Class A Noteholders on a prior Distribution Date, plus the amount of any Additional Interest for such Distribution Date, plus the amount of any Additional Interest previously due but not distributed to Class A Noteholders on a prior Distribution Date, shall be distributed to the Paying Agent for payment to Class A Noteholders on such Distribution Date and (B) any Net Swap Payment for that Distribution Date shall be distributed to the Counterparty; 16 (2) if neither FCNB nor any affiliate of the Seller is the Servicer, an amount equal to the Monthly Servicing Fee for such Distribution Date, plus the amount of any Monthly Servicing Fee previously due but not distributed to the Servicer on a prior Distribution Date, shall be distributed to the Servicer; (3) an amount equal to the Investor Default Amount and any Investor Uncovered Dilution Amount for such Distribution Date shall be treated as a portion of Available Principal Collections for such Distribution Date; (4) an amount equal to the sum of the aggregate amount of Investor Charge-Offs and the amount of Reallocated Principal Collections which have not been previously reimbursed pursuant to this subsection (iv) shall be treated as a portion of Available Principal Collections for such Distribution Date; (5) an amount equal to the Monthly Insurance Premium for the related Monthly Period and any unpaid Monthly Insurance Premiums for prior Monthly Periods shall be paid to the Insurer; (6) on each Distribution Date from and after the Reserve Account Funding Date, but prior to the date on which the Reserve Account terminates as described in subsection 4.10(f), an amount up to the excess, if any, of the Required Reserve Account Amount over the Available Reserve Account Amount shall be deposited into the Reserve Account; (7) an amount equal to the amounts required to be deposited in the Spread Account pursuant to Section 2.05(f) of the Insurance Agreement shall be deposited into the Spread Account as provided in Section 2.05(f) of the Insurance Agreement; (8) during the Rapid Amortization Period, any amount remaining shall be applied as Available Principal Collections for such Distribution Date to the extent that the other Available Principal Collections (excluding any amounts drawn under the Policies) are not sufficient to repay the Class A Notes in full; (9) an amount equal to any Reimbursement Amounts and interest thereon owed under the Insurance Agreement shall be paid to the Insurer; (10) an amount equal to any other amounts owing to the Insurer under the Insurance Agreement shall be paid to the Insurer; (11) if the Rapid Amortization Period is extended past the Distribution Date on which the Note Principal Balance is paid in full as a 17 result of there being amounts owed to the Counterparty, on each Distribution Date after the Note Principal Balance is paid in full, an amount equal to any partial or early termination payments or other additional payments owed to the Counterparty under the Swap shall be paid to the Counterparty; (12) any Monthly Servicing Fee for such Distribution Date or prior Distribution Dates not paid pursuant to subsection 4.4(a)(ii) (unless such amount has been netted against deposits to the Collection Account in accordance with Section 8.4 of the Indenture) shall be distributed to the Servicer; and (13) the balance, if any, will constitute a portion of Excess Finance Charge Collections for such Distribution Date and first will be available for allocation to other Series in Group One, second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount and third paid to the Holders of the Seller Interest as described in Section 8.6 of the Indenture. (2) On each Distribution Date with respect to the Revolving Period, an amount equal to the Available Principal Collections deposited in the Collection Account for the related Monthly Period shall be treated as Shared Principal Collections and applied in accordance with Section 8.5 of the Indenture. (3) On each Distribution Date with respect to the Controlled Accumulation Period or the Rapid Amortization Period, an amount equal to the Available Principal Collections deposited in the Collection Account for the related Monthly Period shall be distributed or deposited in the following order of priority: (1) during the Controlled Accumulation Period, an amount equal to the Monthly Principal for such Distribution Date shall be deposited into the Principal Accumulation Account, and any remaining Available Principal Collections shall be treated as Shared Principal Collections and applied in accordance with Section 8.5 of the Indenture; and (2) during the Rapid Amortization Period, an amount equal to the Monthly Principal for such Distribution Date shall be distributed to the Paying Agent for payment to the Class A Noteholders on such Distribution Date until the Note Principal Balance has been paid in full, and any remaining Available Principal Collections shall be treated as Shared Principal Collections and applied in accordance with Section 8.5 of the Indenture. As of any Distribution Date on which any Available Principal Collections are treated as Shared Principal Collections as provided above, the Collateral Amount shall be reduced by an amount equal to the lesser of (x) the amount of Available Principal Collections applied as Shared Principal Collections and (y) the Surplus Collateral Amount. 18 (4) On the earlier to occur of (i) the first Distribution Date with respect to the Rapid Amortization Period and (ii) the Expected Principal Distribution Date, the Indenture Trustee, acting in accordance with instructions from the Servicer, shall withdraw from the Principal Accumulation Account and distribute to the Paying Agent for payment to the Class A Noteholders the amounts deposited into the Principal Accumulation Account pursuant to subsection 4.4(c)(i). Section 1.7 Investor Charge-Offs. On each Determination Date, the Servicer shall calculate the Investor Default Amount and any Investor Uncovered Dilution Amount for the related Distribution Date. If, on any Distribution Date, the sum of the Investor Default Amount and any Investor Uncovered Dilution Amount for such Distribution Date exceeds the amount of Available Finance Charge Collections allocated with respect thereto pursuant to subsection 4.4(a)(iii) with respect to such Distribution Date, the Collateral Amount will be reduced (but not below zero) by the amount of such excess (such reduction, an "Investor Charge-Off"). Section 1.8 Reallocated Principal Collections. On each Distribution Date, the Servicer shall apply, or shall instruct the Indenture Trustee in writing to apply, Reallocated Principal Collections with respect to such Distribution Date, to fund any deficiency pursuant to and in the priority set forth in subsections 4.4(a)(i), (ii), (v), (ix), (x) and (xi); provided that in no event will Reallocated Principal Collections be applied pursuant to subsections 4.4(a)(v), (ix), (x) and (xi) until the Series 2001-A Final Maturity Date. On each Distribution Date, the Collateral Amount shall be reduced by the amount of Reallocated Principal Collections for such Distribution Date. Section 1.9 Excess Finance Charge Collections. Series 2001-A shall be an Excess Allocation Series with respect to Group One only. For this purpose, each outstanding series of certificates issued by Spiegel Master Trust (other than series represented by the Collateral Certificate) shall be deemed to be a Series in Group One. Subject to Section 8.6 of the Indenture, Excess Finance Charge Collections with respect to the Excess Allocation Series in Group One for any Distribution Date will be allocated to Series 2001-A in an amount equal to the product of (x) the aggregate amount of Excess Finance Charge Collections with respect to all the Excess Allocation Series in Group One for such Distribution Date and (y) a fraction, the numerator of which is the Finance Charge Shortfall for Series 2001-A for such Distribution Date and the denominator of which is the aggregate amount of Finance Charge Shortfalls for all the Excess Allocation Series in Group One for such Distribution Date. The "Finance Charge Shortfall" for Series 2001-A for any Distribution Date will be equal to the excess, if any, of (a) the full amount required to be paid, without duplication, pursuant to subsections 4.4(a)(i) through (xii) on such Distribution Date over (b) the Available Finance Charge Collections with respect to such Distribution Date (excluding any portion thereof attributable to Excess Finance Charge Collections). 19 Section 1.1 Section 1.10 Shared Principal Collections. Subject to Section 8.5 of the Indenture, Shared Principal Collections for any Distribution Date will be allocated to Series 2001-A in an amount equal to the product of (x) the aggregate amount of Shared Principal Collections with respect to all Principal Sharing Series for such Distribution Date and (y) a fraction, the numerator of which is the Principal Shortfall for Series 2001-A for such Distribution Date and the denominator of which is the aggregate amount of Principal Shortfalls for all the Series which are Principal Sharing Series for such Distribution Date. For this purpose, each outstanding series of certificates issued by Spiegel Master Trust (other than series represented by the Collateral Certificate) shall be deemed to be a Principal Sharing Series. The "Principal Shortfall" for Series 2001-A will be equal to (a) for any Distribution Date with respect to the Revolving Period, zero, (b) for any Distribution Date with respect to the Controlled Accumulation Period, the excess, if any, of the Controlled Deposit Amount with respect to such Distribution Date over the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections), and (c) for any Distribution Date with respect to the Rapid Amortization Period, the excess, if any, of the Note Principal Balance (less the balance in the Principal Accumulation Account) over the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections). 20 Section 1.11 Principal Accumulation Account. ------------------------------ (1) The Indenture Trustee shall establish and maintain with an Eligible Institution, which may be the Indenture Trustee in the name of the Trust, on behalf of the Trust, for the benefit of the Series 2001-A Noteholders, a non-interest bearing segregated trust account with the corporate trust department of such Eligible Institution (the "Principal Accumulation Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 2001-A Noteholders. The Indenture Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Principal Accumulation Account and in all proceeds thereof. The Principal Accumulation Account shall be under the sole dominion and control of the Indenture Trustee for the benefit of the Series 2001-A Noteholders. If at any time the institution holding the Principal Accumulation Account ceases to be an Eligible Institution, the Servicer shall notify the Indenture Trustee in writing, and the Indenture Trustee upon being notified (or the Servicer on its behalf) shall, within ten (10) Business Days, establish a new Principal Accumulation Account meeting the conditions specified above with an Eligible Institution, and shall transfer any cash or any investments to such new Principal Accumulation Account. The Indenture Trustee, at the written direction of the Servicer, shall (i) make withdrawals from the Principal Accumulation Account from time to time, in the amounts and for the purposes set forth in this Indenture Supplement, and (ii) on each Distribution Date (from and after the commencement of the Controlled Accumulation Period) prior to the termination of the Principal Accumulation Account, make deposits into the Principal Accumulation Account in the amounts specified in, and otherwise in accordance with, subsection 4.4(c)(i). (2) Funds on deposit in the Principal Accumulation Account shall be invested at the written direction of the Servicer by the Indenture Trustee in Permitted Investments. Funds on deposit in the Principal Accumulation Account on any Distribution Date, after giving effect to any withdrawals from the Principal Accumulation Account on such Distribution Date, shall be invested in such investments that will mature so that such funds will be available for withdrawal on or prior to the following Distribution Date. The Indenture Trustee shall hold such of the Permitted Investments as consists of instruments, deposit accounts, negotiable documents, money, goods, letters of credit, and advices of credit in the State of New York and/or Illinois. The Indenture Trustee shall hold such of the Permitted Investments as constitutes investment property through a securities intermediary, which securities intermediary shall agree with the Indenture Trustee that (a) such investment property shall at all times be credited to a securities account of the Indenture Trustee, (b) such securities intermediary shall treat the Indenture Trustee as entitled to exercise the rights that comprise each financial asset credited to such securities account, (c) all property credited to such securities account shall be treated as a financial asset, (d) such securities intermediary shall comply with entitlement orders originated by the 21 Indenture Trustee without the further consent of any other person or entity, (e) such securities intermediary will not agree with any person or entity other than the Indenture Trustee to comply with entitlement orders originated by such other person or entity, (f) such securities accounts and the property credited thereto shall not be subject to any lien, security interest or right of set-off in favor of such securities intermediary or anyone claiming through it (other than the Indenture Trustee), and (g) such agreement shall be governed by the laws of the State of Illinois. Terms used in the preceding sentence that are defined in the New York UCC and not otherwise defined herein shall have the meaning set forth in the New York UCC. On each Distribution Date with respect to the Controlled Accumulation Period and on the first Distribution Date with respect to the Rapid Amortization Period, the Indenture Trustee, acting at the Servicer's written direction given on or before such Distribution Date, shall transfer from the Principal Accumulation Account to the Collection Account the Principal Accumulation Investment Proceeds on deposit in the Principal Accumulation Account for application as Available Finance Charge Collections in accordance with Section 4.4. Principal Accumulation Investment Proceeds (including reinvested interest) shall not be considered part of the amounts on deposit in the Principal Accumulation Account for purposes of this Indenture Supplement. Section 1.12 Reserve Account. --------------- (1) The Indenture Trustee shall establish and maintain with an Eligible Institution, which may be the Indenture Trustee in the name of the Trust, on behalf of the Trust, for the benefit of the Series 2001-A Noteholders, a non-interest bearing segregated trust account with the corporate trust department of such Eligible Institution (the "Reserve Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 2001-A Noteholders. The Indenture Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Reserve Account and in all proceeds thereof. The Reserve Account shall be under the sole dominion and control of the Indenture Trustee for the benefit of the Series 2001-A Noteholders. If at any time the institution holding the Reserve Account ceases to be an Eligible Institution, the Servicer shall notify the Indenture Trustee in writing, and the Indenture Trustee upon being notified (or the Servicer on its behalf) shall, within ten (10) Business Days, establish a new Reserve Account meeting the conditions specified above with an Eligible Institution, and shall transfer any cash or any investments to such new Reserve Account. The Indenture Trustee, at the written direction of the Servicer, shall (i) make withdrawals from the Reserve Account from time to time in an amount up to the Available Reserve Account Amount at such time, for the purposes set forth in this Indenture Supplement, and (ii) on each Distribution Date (from and after the Reserve Account Funding Date) prior to termination of the Reserve Account, make a deposit into the 22 Reserve Account in the amount specified in, and otherwise in accordance with, subsection 4.4(a)(vi). (2) Funds on deposit in the Reserve Account shall be invested at the written direction of the Servicer by the Indenture Trustee in Permitted Investments. Funds on deposit in the Reserve Account on any Distribution Date, after giving effect to any withdrawals from the Reserve Account on such Distribution Date, shall be invested in such investments that will mature so that such funds will be available for withdrawal on or prior to the following Distribution Date. The Indenture Trustee shall hold such of the Permitted Investments as consists of instruments, deposit accounts, negotiable documents, money, goods, letters of credit, and advices of credit in the State of New York. The Indenture Trustee shall hold such of the Permitted Investments as constitutes investment property through a securities intermediary, which securities intermediary shall agree with the Indenture Trustee that (a) such investment property shall at all times be credited to a securities account of the Indenture Trustee, (b) such securities intermediary shall treat the Indenture Trustee as entitled to exercise the rights that comprise each financial asset credited to such securities account, (c) all property credited to such securities account shall be treated as a financial asset, (d) such securities intermediary shall comply with entitlement orders originated by the Indenture Trustee without the further consent of any other person or entity, (e) such securities intermediary will not agree with any person or entity other than the Indenture Trustee to comply with entitlement orders originated by such other person or entity, (f) such securities accounts and the property credited thereto shall not be subject to any lien, security interest, or right of set-off in favor of such securities intermediary or anyone claiming through it (other than the Indenture Trustee), and (g) such agreement shall be governed by the laws of the State of New York. Terms used in the preceding sentence that are defined in the New York UCC and not otherwise defined herein shall have the meaning set forth in the New York UCC. On each Distribution Date, all interest and earnings (net of losses and investment expenses) accrued since the preceding Distribution Date on funds on deposit in the Reserve Account shall be retained in the Reserve Account (to the extent that the Available Reserve Account Amount is less than the Required Reserve Account Amount) and the balance, if any, shall be deposited into the Collection Account and included in Available Finance Charge Collections for such Distribution Date. For purposes of determining the availability of funds or the balance in the Reserve Account for any reason under this Indenture Supplement, except as otherwise provided in the preceding sentence, investment earnings on such funds shall be deemed not to be available or on deposit. (3) 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 Servicer shall calculate the Reserve Draw Amount; 23 provided, however, that such amount will be reduced to the extent that funds otherwise would be available for deposit in the Reserve Account under Section 4.4(a)(vi) with respect to such Distribution Date. (4) If for any Distribution Date the Reserve Draw Amount is greater than zero, the Reserve Draw Amount, up to the Available Reserve Account Amount, shall be withdrawn from the Reserve Account on such Distribution Date by the Indenture Trustee (acting in accordance with the written instructions of the Servicer) and deposited into the Collection Account for application as Available Finance Charge Collections for such Distribution Date. (5) If the Reserve Account Surplus on any Distribution Date, after giving effect to all deposits to and withdrawals from the Reserve Account with respect to such Distribution Date, is greater than zero, the Indenture Trustee, acting in accordance with the written instructions of the Servicer, shall withdraw from the Reserve Account an amount equal to such Reserve Account Surplus and (i) deposit such amounts in the Spread Account, to the extent that funds on deposit in the Spread Account are less than the Required Spread Account Amount, and (ii) distribute any such amounts remaining after application pursuant to subsection 4.10(e)(i) to the holders of the Seller Interest. (6) Upon the earliest to occur of (i) the termination of the Trust pursuant to Article VIII of the Trust Agreement, (ii) the first Distribution Date relating to the Rapid Amortization Period and (iii) the Expected Principal Distribution Date, the Indenture Trustee, acting in accordance with the instructions of the Servicer, after the prior payment of all amounts owing to the Series 2001-A Noteholders that are payable from the Reserve Account as provided herein, shall withdraw from the Reserve Account all amounts, if any, on deposit in the Reserve Account and (i) deposit such amounts in the Spread Account, to the extent that funds on deposit in the Spread Account are less than the Required Spread Account Amount, and (ii) distribute any such amounts remaining after application pursuant to subsection 4.10(f)(i) to the holders of the Seller Interest. The Reserve Account shall thereafter be deemed to have terminated for purposes of this Indenture Supplement. Funds on deposit in the Reserve Account at any time that the Controlled Accumulation Period is suspended pursuant to Section 4.15, shall remain on deposit until applied in accordance with subsection 4.10(d), (e) or (f). Section 1.13 [Reserved]. ---------- 24 Section 1.14 Determination of LIBOR. ---------------------- (1) On each LIBOR Determination Date in respect of an Interest Period, the Indenture Trustee, utilizing the services of the Counterparty as calculation agent under the Swap (or the Servicer if the Swap is terminated), shall determine LIBOR on the basis of 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 such date. If such rate does not appear on Telerate Page 3750, the rate for that Interest Period shall be determined on the basis of the rates at which deposits in United States dollars are offered by the Reference Banks 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 shall request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two (2) such quotations are provided, the rate for that Interest Period shall be the arithmetic mean of the quotations. If fewer than two (2) quotations are provided as requested, the rate for that Interest Period will be the arithmetic mean of the rates quoted by major banks in New York City, selected by the Counterparty or, if the Swap is terminated, 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. (2) The Note Interest Rate applicable to the then current and the immediately preceding Interest Periods may be obtained by telephoning the Indenture Trustee at its corporate trust office at (312) 827-8500 or such other telephone number as shall be designated by the Indenture Trustee for such purpose by prior written notice by the Indenture Trustee to each Series 2001-A Noteholder from time to time. (3) On each LIBOR Determination Date, the Indenture Trustee shall send to the Servicer by facsimile transmission, notification of LIBOR for the following Interest Period. Section 1.15 Investment Instructions. Any investment instructions required to be given to the Indenture Trustee pursuant to the terms hereof must be given to the Indenture Trustee no later than 11:00 a.m., New York City time, on the date such investment is to be made. In the event the Indenture Trustee receives such investment instruction later than such time, the Indenture Trustee may, but shall have no obligation to, make such investment. In the event the Indenture Trustee is unable to make an investment required in an investment instruction received by the Indenture Trustee after 11:00 a.m., New York City time, on such day, such investment shall be made by the Indenture Trustee on the next succeeding Business Day. In no event shall the Indenture Trustee be liable for any investment not made pursuant to investment instructions received after 11:00 a.m., New York City time, on the day such investment is requested to be made. Section 1.16 Controlled Accumulation Period. The Controlled Accumulation Period is scheduled to commence at the opening of business 25 March 1, 2004. However, if the Accumulation Period Length (determined as described below) is less than 12 months, the date on which the Controlled Accumulation Period actually commences will be delayed to the first Business Day of the month that is the number of whole months prior to the Expected Principal Distribution Date at least equal to the Accumulation Period Length and, as a result, the number of Monthly Periods in the Controlled Accumulation Period will at least equal the Accumulation Period Length. On the Determination Date immediately preceding the February 2004 Distribution Date, and each Determination Date thereafter until the Controlled Accumulation Period begins, the Servicer will determine the "Accumulation Period Length" which will equal the number of whole months such that the sum of the Accumulation Period Factors for each month during such period will be equal to or greater than the Required Accumulation Factor Number; provided, however, that the Accumulation Period Length will not be determined to be less than one month; provided further, however, that the determination of the Accumulation Period Length may be changed at any time if the Rating Agency Condition is satisfied. Section 1.17 Suspension of Controlled Accumulation Period. (a) The Issuer may, in its sole discretion, elect to suspend the commencement of the Controlled Accumulation Period with prior notice to the Rating Agencies. The commencement of the Controlled Accumulation Period shall be suspended upon delivery by the Issuer to the Indenture Trustee of (i) an Officer's Certificate stating that the Issuer has elected to suspend the commencement of the Controlled Accumulation Period and that all conditions precedent to such suspension set forth in this Section 4.15 have been satisfied, (ii) a copy of an executed Qualified Maturity Agreement and (iii) an Opinion of Counsel addressed to the Indenture Trustee as to the due authorization, execution and delivery and the validity and enforceability of such Qualified Maturity Agreement. The Issuer does hereby transfer, assign, set-over, and otherwise convey to the Indenture Trustee for the benefit of the Class A Noteholders, without recourse, all of its rights under any Qualified Maturity Agreement obtained in accordance with this Section 4.15 and all proceeds thereof. Such property shall constitute part of the Trust Estate for all purposes of the Indenture. The foregoing transfer, assignment, set-over and conveyance does not constitute and is not intended to result in a creation or an assumption by the Indenture Trustee or any Noteholder of any obligation of the Issuer or any other Person in connection with a Qualified Maturity Agreement or under any agreement or instrument relating thereto. The Indenture Trustee hereby acknowledges its acceptance, to the extent validly transferred, assigned, set-over or otherwise conveyed to the Indenture Trustee, for the benefit of the Class A Noteholders, of all of the rights previously held by the Issuer under any Qualified Maturity Agreement obtained by the Issuer and all proceeds thereof, and declares that it shall hold such rights upon the trust set forth herein and in the Agreement, and subject to the terms hereof and thereof, for the benefit of the Class A Noteholders. 26 (b) The Issuer shall cause the provider of each Qualified Maturity Agreement to deposit into the Principal Accumulation Account on or before the Expected Principal Distribution Date an amount equal to the aggregate outstanding principal balance of the Class A Notes on such Distribution Date; provided, however, that the Issuer may instead elect to fund all or a portion of such deposit with the proceeds of the issuance of a new Series or with the Available Principal Collections with respect to such Distribution Date; and provided, further, that the Issuer shall in no event cause or permit the provider of any Qualified Maturity Agreement to fund under such Qualified Maturity Agreement unless there are sufficient funds on deposit in the Collection Account allocated to make required payments pursuant to Sections 4.4(a)(i) and (ii) for any Distribution Date falling on or after the funding under such Qualified Maturity Agreement. The amount deposited shall be applied on the Expected Principal Distribution Date pursuant to Section 4.4(d) as if the commencement of the Controlled Accumulation Period had not been suspended. (c) Each Qualified Maturity Agreement shall terminate at the close of business on the Expected Principal Distribution Date; provided, however, that the Issuer may terminate a Qualified Maturity Agreement prior to such Distribution Date, with notice to each Rating Agency, if (i) the Available Reserve Account Amount equals the Required Reserve Account Amount and (ii) one of the following events occurs: (A) the Issuer obtains a substitute Qualified Maturity Agreement, (B) the provider of the Qualified Maturity Agreement ceases to qualify as an Eligible Institution and the Issuer is unable to obtain a substitute Qualified Maturity Agreement or (C) a Pay Out Event occurs. In addition, the Issuer may terminate a Qualified Maturity Agreement prior to the later of (i) the date on which the Controlled Accumulation Period was scheduled to begin, before giving effect to the suspension of the Controlled Accumulation Period, and (b) the date to which the commencement of the Controlled Accumulation Period may be postponed pursuant to Section 4.15 (as determined on the Determination Date preceding the date of such termination), in which case the commencement of the Controlled Accumulation Period shall be determined as if the Issuer had not elected to suspend such commencement. In the event that the provider of a Qualified Maturity Agreement ceases to qualify as an Eligible Institution, the Issuer shall use its best efforts to obtain a substitute Qualified Maturity Agreement. (d) If a Qualified Maturity Agreement is terminated prior to the earlier of the Expected Principal Distribution Date and the commencement of the Rapid Amortization Period and the Issuer does not obtain a substitute Qualified Maturity Agreement, the Controlled Accumulation Period shall commence on the latest of (i) March 1, 2004, (ii) at the election of the Issuer, the date to which the commencement of the Controlled Accumulation Period may be postponed pursuant to Section 4.14 (as determined on the date of such termination) and (iii) the first day of the Monthly Period following the date of such termination. 27 Section 1.18 Insurance Policies. (a) On the Closing Date, the Issuer shall enter into the Insurance Agreement, pursuant to which the Policies will be issued for the benefit of the Series 2001-A Noteholders and the Counterparty. (b) Prior to 12:00 noon, New York City time, on the third Business Day preceding each Distribution Date, the Servicer shall determine whether there will be a Deficiency Amount on the following Distribution Date. If the Servicer determines that there will be a Deficiency Amount on the following Distribution Date, the Servicer shall complete the notice in the form set forth as an exhibit to the related Policy (the "Notice") and submit such Notice in accordance with the related Policy to the Insurer no later than 3:00 p.m., New York time, on such Business Day, as a claim for an Insured Obligation in an amount equal to such Deficiency Amount. The Insurer shall remit or cause to be remitted to the Trustee such Deficiency Amount in accordance with the terms of the related Policy. (c) The Indenture Trustee shall (i) receive as attorney-in-fact of the applicable owners an Insured Obligation from the Insurer and (ii) distribute the same to (a) the Class A Noteholders as provided in subsections 5.2(a) and (b) to the extent that such amounts relate to Monthly Interest or principal of the Class A Notes, respectively, and (b) the Counterparty or the Servicer to the extent that such amounts relate to Net Swap Payments or Monthly Servicing Fees, respectively. Any and all Insured Obligations disbursed by the Indenture Trustee from claims made under the Policies shall not be considered payment by the Issuer with respect to the Class A Notes or other applicable obligations, nor shall such payments discharge the obligation of the Issuer with respect to the Class A Notes or other obligations, and the Insurer shall become the owner of such unpaid amounts due from the Issuer in respect of Insured Obligations. If on any Distribution Date, the Indenture Trustee or the Servicer determines that the Insurer has paid more under any Policy than is required by the terms hereof, the Indenture Trustee shall promptly return such excess to the Insurer. The Indenture Trustee shall keep a complete and accurate record of the amount of the Insured Obligations paid. The Insurer shall have the right to inspect such record during normal business hours upon prior notice to the Indenture Trustee. (d) So long as no Control Transfer Event shall have occurred and be continuing, the Insurer shall be deemed to be the sole Holder of the Series 2001-A Notes for the purpose of exercising voting rights and the giving of any consents, approvals, instructions, directions, declarations and notices relating to the Series 2001-A Notes. However, for any amendment or waiver requiring the consent of all affected Noteholders, the consent of the Insurer and all affected Noteholders will be required. 28 Section 1.19 Swap. (a) On or prior to the Closing Date, the Owner Trustee shall, on behalf of the Issuer, enter into the Swap with the Counterparty for the benefit of the Noteholders. The aggregate notional amount under the Swap shall, at any time, be equal to the Note Principal Balance at such time. Net Swap Receipts and early termination payments payable by the Counterparty shall be deposited by the Indenture Trustee in the Collection Account on the day received and treated as Available Finance Charge Collections. On any Distribution Date when there shall be a Net Swap Payment, such Net Swap Payments shall be paid as provided in Section 4.4(a)(i). On any Distribution Date when there shall be an early termination payment or any other miscellaneous payment payable by the Issuer to the Counterparty, such amount shall be paid as provided in Section 4.4(a)(xi). (b) Each Swap shall be in substantially the same form as the initial Swap attached hereto as Exhibit E. (c) The Servicer may, upon (i) satisfaction of the Rating Agency Condition and, (ii) unless a Control Transfer Event has occurred, receipt of written consent from the Insurer (which consent shall not be unreasonably withheld), and, when required under the terms of the existing Swap, shall, obtain a replacement Swap. ARTICLE V Delivery of Series 2001-A Notes; Distributions; Reports to Series 2001-A Noteholders Section V.1 Delivery and Payment for the Series 2001-A Notes. The Issuer shall execute and issue, and the Indenture Trustee shall authenticate, the Series 2001-A Notes in accordance with Section 2.3 of the Indenture. The Indenture Trustee shall deliver the Series 2001-A Notes to or upon the written order of the Trust when so authenticated. Section 1.20 Distributions. (1) On each Distribution Date, the Paying Agent shall distribute to each Class A Noteholder of record on the related Record Date (other than as provided in Section 11.2 of the Indenture) such Class A Noteholder's pro rata share of the amounts held by the Paying Agent that are allocated and available on such Distribution Date to pay interest on the Class A Notes pursuant to this Indenture Supplement, including amounts made available as a result of any draw on the Policies. (2) On each Distribution Date, the Paying Agent shall distribute to each Class A Noteholder of record on the related Record Date such Class A Noteholder's pro rata share of the amounts held by the Paying Agent that are allocated and 29 available on such Distribution Date to pay principal of the Class A Notes pursuant to this Indenture Supplement, including amounts made available as a result of any draw on the Policies. (3) The distributions to be made pursuant to this Section 5.2 are subject to the provisions of Sections 2.6, 6.1 and 7.1 of the Transfer and Servicing Agreement, Section 11.2 of the Indenture and Section 7.1 of this Indenture Supplement. (4) Except as provided in Section 11.2 of the Indenture with respect to a final distribution, distributions to Series 2001-A Noteholders hereunder shall be made by (i) check mailed to each Series 2001-A Noteholder (at such Noteholder's address as it appears in the Note Register), except that for any Series 2001-A Notes registered in the name of the nominee of a Clearing Agency, such distribution shall be made by wire transfer of immediately available funds and (ii) without presentation or surrender of any Series 2001-A Note or the making of any notation thereon. Section 1.21 Reports and Statements to Series 2001-A Noteholders. (1) On each Distribution Date, the Paying Agent, on behalf of the Indenture Trustee, shall forward to each Series 2001-A Noteholder a statement substantially in the form of Exhibit C prepared by the Servicer. (2) Not later than the second Business Day preceding each Distribution Date, the Servicer shall deliver to the Owner Trustee, the Indenture Trustee, the Paying Agent, the Insurer, the Counterparty and each Rating Agency (i) a statement substantially in the form of Exhibit C prepared by the Servicer and (ii) a certificate of an Authorized Officer substantially in the form of Exhibit D; provided that the Servicer may amend the form of Exhibit C and Exhibit D, from time to time, with the prior written consent of the Indenture Trustee. (3) A copy of each statement or certificate provided pursuant to paragraph (a) or (b) may be obtained by any Series 2001-A Noteholder by a request in writing to the Servicer. (4) On or before January 31 of each calendar year, beginning with January 31, 2002, the Paying Agent, on behalf of the Indenture Trustee, shall furnish or cause to be furnished to each Person who at any time during the preceding calendar year was a Series 2001-A Noteholder, a statement prepared by the Servicer containing the information which is required to be contained in the statement to Series 2001-A Noteholders, as set forth in paragraph (a) above, aggregated for such calendar year or the applicable portion thereof during which such Person was a Series 2001-A Noteholder, together with other information as is required to be provided by an issuer of indebtedness under the Code. Such obligation of the Paying Agent shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Servicer pursuant to any requirements of the Code as from time to time in effect. 30 ARTICLE VI Series 2001-A Pay Out Events and Events of Default -------------------------------------------------- Section 1.22 Series 2001-A Pay Out Events. If any one of the following events shall occur with respect to the Series 2001-A Notes: (1) failure on the part of the Seller or the "Seller" under the Pooling and Servicing Agreement (i) to make any payment or deposit required to be made by the Seller by the terms of the Transfer and Servicing Agreement, the Pooling and Servicing Agreement, the Indenture or this Indenture Supplement on or before the date occurring five (5) Business Days after the date such payment or deposit is required to be made therein or herein or (ii) duly to observe or perform in any material respect any other covenants or agreements of the Seller set forth in the Transfer and Servicing Agreement, the Pooling and Servicing Agreement, the Indenture or this Indenture Supplement, which failure has a material adverse effect on the Series 2001-A Noteholders and which continues unremedied for a period of forty-five (45) days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Indenture Trustee, or to the Seller and the Indenture Trustee by any Holder of the Series 2001-A Notes; (2) any representation or warranty made by the Seller in the Transfer and Servicing Agreement or, prior to the SMT Termination Date, by the "Seller" under the Pooling and Servicing Agreement in the Pooling and Servicing Agreement, or any information contained in a computer file or microfiche list required to be delivered by the Seller pursuant to Section 2.1 or subsection 2.6(c) of the Transfer and Servicing Agreement or Section 2.1 or subsection 2.6(c) of the Pooling and Servicing Agreement shall prove to have been incorrect in any material respect when made or when delivered, which continues to be incorrect in any material respect for a period of forty-five (45) days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Indenture Trustee, or to the Seller and the Indenture Trustee by any Holder of the Series 2001-A Notes and as a result of which the interests of the Series 2001-A Noteholders are materially and adversely affected for such period; provided, however, that a Series 2001-A Pay Out Event pursuant to this subsection 6.1(b) shall not be deemed to have occurred hereunder if the Seller has accepted reassignment of the related Receivable, or all of such Receivables, if applicable, during such period in accordance with the provisions of the Transfer and Servicing Agreement or the Pooling and Servicing Agreement; (3) a failure by the Seller or the "Seller" under the Pooling and Servicing Agreement to convey Receivables in Additional Accounts to the Trust within ten (10) days after the day on which it is required to convey such Receivables pursuant to subsection 2.6(a) of the Transfer and Servicing Agreement or subsection 2.6(a) of the Pooling and Servicing Agreement; (4) any Servicer Default shall occur; 31 (5) the average of the Portfolio Yields for any three consecutive Monthly Periods is reduced to a rate which is less than the sum of the average of the Base Rates for such period and the average of the Default Amount Rates for such period; it being understood that, for purposes of such calculation, the result of the Portfolio Yield for the first Monthly Period, minus the sum of the Base Rate and the Default Amount Rate for the first Monthly Period shall be equal to the Modified Excess Spread Percentage for the first Monthly Period; (6) the Note Principal Balance shall not be paid in full on the Expected Principal Distribution Date; (7) prior to the SMT Termination Date, a Trust Pay Out Event shall occur under (and as defined in) the Pooling and Servicing Agreement; (8) any draw shall be made on any Policy in accordance with the terms thereof; (9) Insurer shall by notice to the Seller, the Servicer and the Indenture Trustee declare a Pay Out Event in accordance with Section 5.01 of the Insurance Agreement (which section is set forth in its entirety in Exhibit H) at any time prior to a Control Transfer Event; (10) the Counterparty shall fail to make any net payment required to be made by it under the Swap, and such failure is not cured within five Business Days, or the Swap shall terminate prior to the Series 2001-A Final Maturity Date and the Issuer shall fail to enter into a replacement Swap in accordance with subsection 4.17(c); (11) without limiting the foregoing, the occurrence of an Event of Default with respect to Series 2001-A; or (12) the occurrence of an Insolvency Event relating to the Insurer; then, in the case of any event described in subsection (a), (b) or (d), after the applicable grace period, if any, set forth in such subparagraphs, either the Indenture Trustee or the Holders of Series 2001-A Notes evidencing more than 50% of the aggregate unpaid principal amount of Series 2001-A Notes by notice then given in writing to the Seller and the Servicer (and to the Indenture Trustee if given by the Series 2001-A Noteholders) may declare that a "Series Pay Out Event" with respect to Series 2001-A (a "Series 2001-A Pay Out Event") has occurred as of the date of such notice, and, in the case of any event described in subsection (c), (e), (f), (g), (h), (i), (j), (k) or (l), a Series 2001-A Pay Out Event shall occur without any notice or other action on the part of the Indenture Trustee or the Series 2001-A Noteholders immediately upon the occurrence of such event. 32 Section 1.23 Series 2001-A Events of Default. (a) For so long as no Control Transfer Event has occurred, the Events of Default for Series 2001-A shall include, in addition to the Events of Default specified in the Indenture, any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) default in the payment of interest on the Series 2001-A Notes when the same becomes due and payable, and such default shall continue for a period of twenty-eight (28) days; (ii) default in the observance or performance of any covenant or agreement of the Issuer made in the Indenture made in respect of the Series 2001-A Notes (other than a covenant or agreement, a default in the observance or performance of which is elsewhere in this Section 6.2 or in Section 5.2 of the Indenture specifically dealt with) (all of such covenants and agreements in the Indenture which are not expressly stated to be for the benefit of a particular Series being deemed to be in respect of the Notes of Series 2001-A for this purpose) in any material respect and such default shall continue or not be cured for a period of forty-five (45) days after there shall have been given, by registered or certified mail, return receipt requested to the Issuer and the Indenture Trustee by the Insurer, a written notice specifying such default and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (iii) any Servicer Default. (b) If an Event of Default for Series 2001-A shall have occurred and be continuing and the Series 2001-A Notes have been accelerated pursuant to Section 5.3, so long as no Control Transfer Event has occurred, the Insurer shall have the right, but not the obligation, to (i) exercise the rights of the Series 2001-A Noteholders described in Section 5.5 of the Indenture, and (ii) to pay all or any portion of the outstanding principal balance of the Series 2001-A Notes prior to the Series 2001-A Final Maturity Date. Following the occurrence of an Event of Default for Series 2001-A, the Indenture Trustee shall continue to submit claims under the Policies as necessary to enable the Issuer to continue to make payments on each Distribution Date in accordance with the terms of this Indenture Supplement. Section 1.24 Declarations of Default. So long as no Control Transfer Event shall have occurred and be continuing, neither the Indenture Trustee nor the Class A Noteholders may declare an Event of Default with respect to the Series 2001-A Notes. So long as no Control Transfer Event shall have occurred and be continuing, an Event of Default with respect to the Series 2001-A Notes shall occur only upon 33 delivery by the Insurer to the Indenture Trustee of notice of the occurrence of an Event of Default. ARTICLE VII Redemption of Series 2001-A Notes; Final Distributions; Series Termination Section 1.25 Optional Redemption of Series 2001-A Notes; Final Distributions. (1) On any day occurring on or after the date on which the outstanding principal balance of the Series 2001-A Notes is reduced to 10% or less of the initial outstanding principal balance of Series 2001-A Notes, the Servicer shall have the option to redeem the Series 2001-A Notes, at a purchase price equal to (i) if such day is a Distribution Date, the Reassignment Amount for such Distribution Date or (ii) if such day is not a Distribution Date, the Reassignment Amount for the Distribution Date following such day; provided that all amounts due and owing to the Insurer pursuant to the Insurance Agreement shall have been paid to the Insurer. (2) The Issuer shall give the Servicer and the Indenture Trustee at least thirty (30) days prior written notice of the date on which the Issuer intends to exercise such optional redemption. Not later than 12:00 noon, New York City time, on such day the Issuer shall deposit into the Collection Account in immediately available funds the excess of the Reassignment Amount over the amount, if any, on deposit in the Principal Accumulation Account. Such redemption option is subject to payment in full of the Reassignment Amount. Following such deposit into the Collection Account in accordance with the foregoing, the Collateral Amount for Series 2001-A shall be reduced to zero and the Series 2001-A Noteholders shall have no further security interest in the Receivables. The Reassignment Amount shall be distributed as set forth in subsection 7.1(d). (3) (i) The amount to be paid by the Seller with respect to Series 2001-A in connection with a reassignment of Receivables to the Seller pursuant to Section 2.4(e) of the Transfer and Servicing Agreement shall equal the Reassignment Amount for the first Distribution Date following the Monthly Period in which the reassignment obligation arises under the Transfer and Servicing Agreement. (ii) The amount to be paid by the Seller with respect to Series 2001-A in connection with a repurchase of the Notes pursuant to Section 7.1 of the Transfer and Servicing Agreement shall equal the Reassignment Amount for the Distribution Date of such repurchase. (4) With respect to the Reassignment Amount deposited into the Collection Account pursuant to Section 7.1, the Indenture Trustee shall, in accordance with the written direction of the Servicer, not later than 12:00 noon, New York City time, on the related Distribution Date, make deposits or distributions of 34 the following amounts (in the priority set forth below and, in each case, after giving effect to any deposits and distributions otherwise to be made on such date) in immediately available funds: (i) (x) the Note Principal Balance on such Distribution Date will be distributed to the Paying Agent for payment to the Class A Noteholders and (y) an amount equal to the sum of (A) Monthly Interest for such Distribution Date, (B) any Monthly Interest previously due but not distributed to the Class A Noteholders on a prior Distribution Date and (C) the amount of Additional Interest, if any, for such Distribution Date and any Additional Interest previously due but not distributed to the Class A Noteholders on any prior Distribution Date, will be distributed to the Paying Agent for payment to the Class A Noteholders, (ii) any unpaid Monthly Insurance Premiums, Reimbursement Amounts, interest thereon and other amounts payable to the Insurer under the Insurance Agreement will be distributed to the Insurer (iii) any amounts owed to the Counterparty under the Swap shall be distributed to the Counterparty and (iv) any excess shall be released to the Issuer. (5) Notwithstanding anything to the contrary in this Indenture Supplement, the Indenture or the Transfer and Servicing Agreement, all amounts distributed to the Paying Agent pursuant to subsection 7.1(d) for payment to the Series 2001-A Noteholders shall be deemed distributed in full to the Series 2001-A Noteholders on the date on which such funds are distributed to the Paying Agent pursuant to this Section 7.1 and shall be deemed to be a final distribution pursuant to Section 11.2 of the Indenture. Section 1.26 Series Termination. On the Series 2001-A Final Maturity Date, the right of the Series 2001-A Noteholders to receive payments from the Issuer will be limited solely to the right to receive payments pursuant to Section 5.5 of the Indenture. ARTICLE VIII Miscellaneous Provisions ------------------------ Section 1.27 Ratification of Indenture; Amendments. As supplemented by this Indenture Supplement, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented by this Indenture Supplement shall be read, taken and construed as one and the same instrument. This Indenture Supplement may be amended only by a Supplemental Indenture entered in accordance with the terms of Section 10.1 or 10.2 of the Indenture. For purposes of the application of Section 10.2 to any amendment of this Indenture Supplement, only the vote of the Series 2001-A Noteholders shall be required. The Issuer and Indenture Trustee shall not enter into any amendment to this Indenture Supplement to provide for the termination of the Swap, any Policy or any Qualified Maturity Agreement unless the Rating Agency Condition is satisfied with respect to such amendment; it being understood that (i) the Servicer may obtain a replacement Swap in accordance with Section 4.17 and (ii) the Issuer may terminate a Qualified Maturity Agreement in accordance with Section 4.15, so long as such replacement or termination is not affected through the amendment of this Indenture Supplement. 35 Section 1.28 Form of Delivery of the Series 2001-A Notes. The Series 2001-A Notes shall be Book-Entry Notes and shall be delivered as Registered Notes as provided in Section 2.1 of the Indenture. Section 1.29 Counterparts. This Indenture Supplement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. Section 1.30 GOVERNING LAW. THIS INDENTURE SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, PROVIDED, HOWEVER, THAT THE DUTIES AND OBLIGATIONS OF THE INDENTURE TRUSTEE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS. Section 1.31 Limitation of Liability. Notwithstanding any other provision herein or elsewhere, this Agreement has been executed and delivered by Bankers Trust Company, not in its individual capacity, but solely in its capacity as Owner Trustee of the Trust, in no event shall Bankers Trust Company in its individual capacity have any liability in respect of the representations, warranties, or obligations of the Trust hereunder or under any other document, as to all of which recourse shall be had solely to the assets of the Trust, and for all purposes of this Agreement and each other document, the Owner Trustee (as such or in its individual capacity) shall be subject to, and entitled to the benefits of, the terms and provisions of the Trust Agreement. Section 1.32 Rights of the Indenture Trustee. The Indenture Trustee shall have herein the same rights, protections, indemnities and immunities as specified in the Master Indenture. Section 1.33 Third Party Beneficiary. This Indenture Supplement and the Indenture will inure to the benefit of the Insurer. Section 1.34 Inconsistency. In the event of any inconsistency between (a) the provisions of the Insurance Agreement set forth in Exhibits F, G and H and (b) the Insurance Agreement, the provisions of the Insurance Agreement shall prevail. Section 1.35 Collateral Series Supplement. Section 10(h) of the Collateral Series Supplement, dated as of December 1, 2000 (the "Collateral Series Supplement"), to the Pooling and Servicing Agreement shall not apply to the Collateral Series (as defined in the Collateral Series Supplement) related to the Series 2001-A Notes. 36 Section 1.1 Section 1.36 Increase of Collateral Amount. The Seller may, in its sole discretion, increase the Collateral Amount to cure any breach set forth in Section 4.02(g)(i) of the Insurance Agreement; provided that, after giving effect to any such increase, the Aggregate Principal Balance shall not be less than the Minimum Aggregate Principal Balance; and provided, further that the Servicer may, at the direction of the Seller, retain Principal Collections otherwise distributable to the holders of the Seller Interest in the Excess Funding Account for the purpose of increasing the Aggregate Principal Balance so that the Aggregate Principal Balance shall at least equal the Minimum Aggregate Principal Balance after giving effect to such increase; and provided further that the Seller may, in its sole discretion, decrease the Collateral Amount if such decrease would not cause a breach of the covenant set forth in Section 4.02(g)(i) of the Insurance Agreement. Section 1.37 Perfection Representations and Warranties. The parties hereto agree that the representations, warranties and covenants set forth in Schedule I shall be a part of this Indenture Supplement for all purposes. [SIGNATURE PAGES FOLLOW] 37 IN WITNESS WHEREOF, the undersigned have caused this Indenture Supplement to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. SPIEGEL CREDIT CARD MASTER NOTE TRUST, as Issuer By: BANKERS TRUST COMPANY, not in its individual capacity but solely as Owner Trustee Name: /s/ Eileen M. Hughes --------------------------------- Title: Vice President -------------------------------- THE BANK OF NEW YORK, as Indenture Trustee Name: /s/ Robert D. Foltz --------------------------------- Title: Agent -------------------------------- Signature page to Indenture Supplement 38 Acknowledged and Accepted: FIRST CONSUMERS NATIONAL BANK, as Servicer Name: /s/ John R. Steele ---------------------------- Title: Acknowledged and Accepted: SPIEGEL CREDIT CORPORATION III, as Seller Name: /s/ John R. Steele ---------------------------- Title: Signature page to Indenture Supplement 39 EX-10.45 42 dex1045.txt SERIES 2001-VFN INDENTURE SUPPLEMENT 10/17/2001 Exhibit 10.45 Execution Copy -------------- FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST Issuer, and THE BANK OF NEW YORK Indenture Trustee SERIES 2001-VFN INDENTURE SUPPLEMENT Dated as of October 17, 2001 TABLE OF CONTENTS Page ARTICLE I CREATION OF THE SERIES 2001-VFN NOTES...............................1 Section 1.1 Designation..................................................1 ARTICLE II DEFINITIONS........................................................1 Section 2.1 Definitions..................................................1 ARTICLE III Optional Redemption of Notes; Final Distributions................14 Section 3.1 Optional Redemption.........................................14 Section 3.2 Delivery and Payment for the Series 2001-VFN Notes..........16 Section 3.3 Private Placement of Class A Notes; Form of Delivery of Series 2001-VFN..........................................16 ARTICLE IV RIGHTS OF NOTEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIION Section 4.1 [Reserved]..................................................17 Section 4.2 [Reserved]..................................................17 Section 4.3 Allocations.................................................17 Section 4.4 Defaulted Accounts..........................................20 Section 4.5 Monthly Payments............................................20 Section 4.6 Payment of Note Interest....................................23 Section 4.7 Payment of Note Principal...................................24 Section 4.9 Seller's or Servicer's Failure to Make a Deposit or Payment..........................................25 Section 4.10 Reallocated Principal Collections..........................26 Section 4.11 Class A Increases..........................................27 Section 4.12 Notice of Note Rate........................................27 Section 4.13 Suspension of the Revolving Period.........................27 Section 4.14 Maximum Class A Collateral Amount..........................28 Section 4.15 Shared Principal Collections...............................28 Section 4.16 Excess Finance Charge Collections..........................28 Section 4.17 Termination of Series......................................29 ARTICLE V DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS...........................29 Section 5.1 Distributions...............................................29 Section 5.2 Reports to Investors........................................30 TABLE OF CONTENTS (continued) Page ARTICLE VI SERIES PAY-OUT EVENTS.............................................30 Section 6.1 Series Pay-Out Events.......................................30 ARTICLE VII MISCELLANEOUS....................................................33 Section 7.1 Change in Account Terms.....................................33 Section 7.2 Permitted Successor Servicer................................33 Section 7.3 Successors and Assigns......................................34 Section 7.4 Final Distribution..........................................34 Section 7.5 Amendments..................................................34 Section 7.6 Effectiveness...............................................34 Section 7.7 Ratification of Indenture...................................35 Section 7.8 Counterparts................................................35 Section 7.9 GOVERNING LAW...............................................35 Section 7.10 Consents...................................................35 Section 7.11 Certain Calculations.......................................35 Section 7.12 Repurchase Requests........................................36 Section 7.13 Perfection Representations, Warranties and Covenants.......37 Section 7.14 Rights of the Indenture Trustee............................37 Section 7.15 Limitation of Liability....................................37 Exhibit A Form of Class A Note Exhibit B Form of Monthly Payment Instructions and Notification Exhibit C Form of Investor Report Schedule1 Perfection Representations, Warranties and Covenants SERIES 2001-VFN INDENTURE SUPPLEMENT, dated as of October 17, 2001 (the "Indenture Supplement"), between FIRST CONSUMERS CREDIT CARD MASTER -------------------- NOTE TRUST, a trust organized and existing under the laws of the State of Illinois (herein, the "Issuer" or the "Trust"), and THE BANK OF NEW YORK, a ------ ----- banking corporation organized and existing under the laws of the State of New York, not in its individual capacity, but solely as indenture trustee (herein, together with its successors in the trusts thereunder as provided in the Master Indenture referred to below, the "Indenture Trustee") under ----------------- the Master Indenture, dated as of March 1, 2001 (the "Master Indenture") ---------------- between the Issuer and the Indenture Trustee (the Master Indenture, together with this Indenture Supplement, the "Indenture"). --------- Pursuant to Section 2.12 of the Indenture, the Seller may direct the ------------ Issuer to issue one or more Series of Notes. The Principal Terms of this Series are set forth in this Indenture Supplement to the Indenture. ARTICLE I CREATION OF THE SERIES 2001-VFN NOTES Section 1.1 Designation. There is hereby created a Series of Notes to ----------- be issued pursuant to the Indenture to be known as the "Series 2001-VFN --------------- Notes." The Series 2001-VFN Notes shall consist of the "Series 2001-VFN ----- Class A Variable Funding Asset Backed Notes" (the "Class A Notes"). The ------------- Class A Notes shall be substantially in the form of Exhibit A to this --------- Indenture Supplement. ARTICLE II DEFINITIONS Section 2.1 Definitions. ----------- (a) Whenever used in this Indenture Supplement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and the masculine as well as the feminine and neuter genders of such terms. "Accrual Period" means the period from and including a Distribution -------------- Date (or in the case of the initial Accrual Period, the Closing Date) to but excluding the succeeding Distribution Date. "Administrative Agent" means MGT or any successor in that capacity -------------------- pursuant to the Note Purchase Agreement. A-1 "Aggregate Class A Increase Amount" means the cumulative amount of --------------------------------- Class A Increase Amounts. "Aggregate Excess Collateral Amount Increase Amount" means the -------------------------------------------------- cumulative amount of Excess Collateral Amount Increase Amounts. "Allocation Percentage" means, on any date of determination: --------------------- (a) when used with respect to Principal Collections during the Revolving Period, the percentage equivalent of a fraction the numerator of which shall be the Collateral Amount on the preceding Business Day (taking into account all Class A Increases and Excess Collateral Amount Increases effected on such date of determination or any reduction in the Collateral Amount on such date of determination) and the denominator of which shall be the greater of (i) the aggregate amount of Principal Receivables as of the end of the day on the most recent Reset Date and (ii) the sum of the numerators used to calculate the Allocation Percentages with respect to Principal Receivables for all Series outstanding on the day after such Reset Date; (b) when used with respect to Principal Collections during an Amortization Period, the percentage equivalent of a fraction the numerator of which shall be the Collateral Amount as of the end of the day on the last day of the Revolving Period and the denominator of which shall be the greater of (i) the aggregate amount of Principal Receivables as of the end of the most recent Reset Date and (ii) the sum of the numerators used to calculate the Allocation Percentages for allocations with respect to Principal Receivables for all outstanding Series on the day after such Reset Date; (c) when used with respect to Finance Charge Collections during the Revolving Period, any Limited Amortization Period and the Controlled Amortization Period and with respect to Receivables in Defaulted Accounts at any time, the percentage equivalent of a fraction the numerator of which shall be the Collateral Amount as of the end of the day on the preceding Business Day (taking into account all Class A Increases and Excess Collateral Amount Increases effected on such date of determination or any reduction in the Collateral Amount on such date of determination) and the denominator of which shall be the greater of (i) the aggregate amount of Principal Receivables as of the end of the day on the most recent Reset Date and (ii) the sum of the numerators used to calculate the Allocation Percentages for allocations with respect to Finance Charge Collections or Defaulted Accounts, as applicable, for all outstanding Series on the day after such Reset Date; and 2 (d) when used with respect to Finance Charge Collections during the Rapid Amortization Period, the percentage equivalent of a fraction the numerator of which shall be the Collateral Amount as of the end of the day on the last day of the Revolving Period and the denominator of which shall be the greater of (i) the aggregate amount of Principal Receivables as of the end of the day on the most recent Reset Date and (ii) the sum of the numerators used to calculate the Allocation Percentages with respect to Finance Charge Collections for all outstanding Series on the day after such Reset Date. "Amortization Period" means the Controlled Amortization Period, the ------------------- Limited Amortization Period or the Rapid Amortization Period. "Average Allocation Percentage" means with respect to any Allocation ----------------------------- Percentage for any Monthly Period the sum of the Allocation Percentages as of the close of business for each day in such Monthly Period divided by the number of days in such Monthly Period. "Average Class A Collateral Amount" means for any Monthly Period the --------------------------------- sum of the Class A Collateral Amounts as of the close of business for each day in such Monthly Period, divided by the number of days in such Monthly Period. "Average Collateral Amount" means for any Monthly Period the sum of ------------------------- the Collateral Amounts as of the close of business for each day in such Monthly Period, divided by the number of days in such Monthly Period. "Base Rate" means, with respect to any Monthly Period, (a) the sum of --------- (i) the Note Interest for the Accrual Period ending in the month following the end of such Monthly Period and (ii) the amount of the Investor Monthly Servicing Fee allocable to the Series 2001-VFN Notes in respect of such Monthly Period, divided by (b) the Average Collateral Amount for the preceding Monthly Period, multiplied by (c) 12. "Breakage Payments" is defined in the Note Purchase Agreement. ----------------- "Change of Control" means that: ----------------- (i) Spiegel shall fail to own, directly or indirectly, free and clear of all liens, security interests or other encumbrances, at least 51% of the outstanding shares of capital stock of FCNB, on a fully diluted basis; or (ii) the Otto family related investment entities shall fail to own or control at least 67% of the outstanding voting stock of Spiegel. 3 "Class A Allocation Percentage" means, with respect to any date of ----------------------------- determination, (a) during the Revolving Period, the percentage equivalent of a fraction, the numerator of which is the Class A Collateral Amount determined as of the close of business on the Business Day immediately preceding such date of determination and the denominator of which is the Collateral Amount determined as of the close of business on such day and (b) during an Amortization Period, the percentage equivalent of a fraction, the numerator of which is the Class A Collateral Amount as of the close of business on the last day of the Revolving Period and the denominator of which is the Collateral Amount as of the close of business on such last day. "Class A Collateral Amount" means, on any date of determination, an ------------------------- amount equal to (a) the Initial Class A Collateral Amount, plus (b) the Aggregate Class A Increase Amount, minus (c) the aggregate amount of payments of principal paid to the Class A Noteholders pursuant to Section ------- 4.7 or from the proceeds of issuance of a new Series pursuant to the final --- paragraph of Section 4.13 prior to such date of determination, minus (d) ------------ the excess, if any, of the aggregate amount of Class A Investor Charge Offs over Class A Investor Charge Offs reimbursed pursuant to Section 4.5(d) -------------- prior to such date of determination. "Class A Expected Final Payment Date" means the January 2004 ----------------------------------- Distribution Date. "Class A Increase" means an increase in the Class A Collateral Amount ---------------- pursuant to Section 4.11. ------------ "Class A Increase Amount" is defined in Section 4.11. ----------------------- ------------ "Class A Increase Conditions" are set forth in Section 4.2 of the Note --------------------------- ----------- Purchase Agreement. "Class A Investor Charge Off" is defined in Section 4.4. --------------------------- ----------- "Class A Monthly Total Principal Allocation" is defined in Section ------------------------------------------ ------- 4.7. --- "Class A Note Rate" means, with respect to any Accrual Period, the per ----------------- --- annum rate equal to the percentage equivalent of a fraction (a) the ----- numerator of which is the Note Interest for that Accrual Period, multiplied by a fraction the numerator of which is 365 (or 366, in a leap year) and the denominator of which is the number of days in that Accrual Period and (b) the denominator of which is the Average Class A Collateral Amount during that Accrual Period. "Class A Noteholder" means the holder of record of any Class A Note. ------------------ 4 "Class A Notes" means any one of the Notes executed by the Seller and ------------- authenticated by or on behalf of the Indenture Trustee, substantially in the form of Exhibit A. --------- "Class A Principal Allocation" means, with respect to any Deposit ---------------------------- Date, an amount equal to the product of (A) the Class A Allocation Percentage on the Deposit Date for Principal Collections (or, during a Non-Renewal Amortization Period, the Non-Renewing Allocation Percentage), (B) the Allocation Percentage on the Deposit Date for Principal Collections and (C) the aggregate amount of Principal Collections processed on such Deposit Date, all as pursuant to Section 4.3(b)(ii). ------------------ "Class Note Interest" is defined in the Note Purchase Agreement. ------------------- "Closing Date" means the date of this Indenture Supplement. ------------ "Collateral Amount" means, on any date of determination, the sum of ----------------- (a) the Class A Collateral Amount, plus (b) the Excess Collateral Amount on such date of determination. "Commercial Paper" means commercial paper notes issued by any Conduit ---------------- Purchaser to fund or maintain its initial purchase of the Class A Notes and any Class A Increase Amount. "Conduit Downgrade Event" means any action or other event related to ----------------------- the Trust that causes a Rating Agency to reduce, or withdraw, its rating of the Commercial Paper issued by any Conduit Purchaser below the then current ratings of the Commercial Paper issued by such Conduit Purchaser. "Conduit Managing Agent" is defined in the Note Purchase Agreement. ---------------------- "Conduit Purchaser" is defined in the Note Purchase Agreement. ----------------- "Controlled Amortization Period" means an Amortization Period ------------------------------ commencing on the day following the last day of the Revolving Period and continuing (a) to, but not including, the commencement of the Rapid Amortization Period or (b) to, and including, the earlier of (i) the Trust Termination Date and (ii) the Series Termination Date. "Controlled Distribution Amount" means, for each Monthly Period which ------------------------------ commences during the Controlled Amortization Period, the sum of (a) one-twelfth of the Class A Collateral Amount as of the last day of the Revolving Period, plus (b) the Deficit Controlled Distribution Amount for the preceding Monthly Period; provided, that the Seller may, by written -------- notice to the Administrative Agent delivered not less than five (5) Business Days prior to the related Distribution 5 Date, specify a greater Controlled Distribution Amount for that Distribution Date (which shall be an integral multiple of $1,000,000). "Cycle" means, with respect to any Account, the monthly billing cycle ----- for such Account as determined in accordance with the Charge Account Guidelines as in effect on the date of this Agreement. "Cycle Billing Date" means, with respect to any Account, each date on ------------------ which bills are processed for the Cycle which includes such Account. "Default Estimate" means, for any Monthly Period, an amount equal to ---------------- the product of (i) 1.5, multiplied by (ii) the arithmetic mean of the Investor Default Amounts for the prior three Monthly Periods. "Deficit Controlled Distribution Amount" means, for each Monthly -------------------------------------- Period during the Controlled Amortization Period, the excess, if any, of the Controlled Distribution Amount for such Monthly Period over the amount of principal actually distributed with respect to the Class A Notes on the related Distribution Date. "Delinquency Amount" means, with respect to any Monthly Period, the ------------------ aggregate amount of Receivables that were 31 or more days past due at the end of such Monthly Period. "Determination Date" means with respect to any Monthly Period, the ------------------ last Business Day occurring in the first ten days of the succeeding calendar month. "Dilution" means, for any Monthly Period, the aggregate reduction in -------- the outstanding balance of receivables in the entire portfolio of FCNB MasterCard and Visa credit card accounts during such Monthly Period that are due to, without duplication, (a) merchandise refused or returned by the obligor thereunder, (b) any rebate, refund, chargeback or adjustment, (c) the assertion of a counterclaim or defense by the obligor thereunder and either (i) the Servicer has agreed that such counterclaim or defense is valid or (ii) a final nonappealable judgment or decree has been entered in favor of such obligor in respect of such counterclaim or defense by a court or arbitral body having jurisdiction thereof, and (d) fraudulent or counterfeit charges, but only if and to the extent such fraudulent or counterfeit charges are not included as charge-offs under the Charge Account Guidelines. "Distribution Date" means the fifteenth day of each month, or, if such ----------------- fifteenth day is not a Business Day, the next succeeding Business Day. "Enhancement Increase Amount" means a Class A Increase Condition after -------------------------- giving effect to the related Class A Increase Amount and the resulting 6 increase in the Collateral Amount, the amount, if any, that when added to the Excess Collateral Amount will cause the Excess Collateral Amount Allocation Percentage (after giving effect to such increase) to equal the Required Excess Collateral Amount Percentage then in effect. "Enhancement Increase Condition" means a Class A Increase. ------------------------------ "Excess Allocation Series" is defined in Section 4.16. ------------------------ ------------ "Excess Collateral Amount" means, on any date of determination, an ------------------------ amount equal to (a) the sum of (i) the Initial Excess Collateral Amount and (ii) the Aggregate Excess Collateral Amount Increase Amount, minus (b) the aggregate amount of payments of principal paid to the Excess Collateral Amount Holders pursuant to Section 4.7 prior to such date of determination, ----------- minus (c) the excess, if any, of the sum of the aggregate amount of Excess Collateral Amount Investor Charge Offs and Excess Collateral Amount Reallocated Amounts over Excess Collateral Amount Investor Charge Offs and Excess Collateral Amount Reallocated Amounts reimbursed pursuant to Section ------- 4.5(d) prior to such date of determination. ------ "Excess Collateral Amount Allocation Percentage" means, with respect ---------------------------------------------- to any date of determination, the percentage equivalent of a fraction, the numerator of which is the Excess Collateral Amount determined as of the close of business on the immediately preceding Business Day and the denominator of which is the Collateral Amount determined as of the close of business on such Business Day. "Excess Collateral Amount Holder" means the holders of the Seller ------------------------------- Interest. "Excess Collateral Amount Increase" means any increase in the Excess --------------------------------- Collateral Amount as provided in Section 4.8. ------------ "Excess Collateral Amount Increase Amount" means the amount of any ---------------------------------------- Excess Collateral Amount Increase pursuant to Section 4.8. ----------- "Excess Collateral Amount Investor Charge Off" is defined in Section 4.4. -------------------------------------------- ------------ "Excess Collateral Amount Percentage" means, for any date of ----------------------------------- determination, 100%, minus the Class A Allocation Percentage on that date. "Excess Collateral Amount Reallocated Amounts" is defined in Section -------------------------------------------- -------- 4.10. ---- "Excess Spread" is defined in Section 4.5(f). ------------- -------------- 7 "Excess Spread Percentage" means, for any Monthly Period, the ------------------------ difference between the Portfolio Yield and the Base Rate for such Monthly Period. "Finance Charge Shortfall" is defined in Section 4.16. ------------------------ ------------ "Funding Costs" means any Breakage Payments and any additional costs ------------- payable pursuant to Section 13.4 or 13.5 of the Note Purchase Agreement, to ------------ ---- the extent not paid pursuant to the Note Purchase Agreement. "Initial Class A Collateral Amount" means $198,000,000. --------------------------------- "Initial Collateral Amount" means the sum of the Initial Class A ------------------------- Collateral Amount and the Initial Excess Collateral Amount. "Initial Excess Collateral Amount" means $34,941,176. -------------------------------- "Investor Charge Off" means a Class A Investor Charge Off or an Excess ------------------- Collateral Amount Investor Charge Off. "Investor Default Amount" means, for any Monthly Period, an amount ----------------------- equal to the product of (a) the Default Amount for such Monthly Period and (b) the Average Allocation Percentage for such Monthly Period. "Investor Monthly Servicing Fee" means, for any Monthly Period, an ------------------------------ amount equal to the product of (a) the Average Collateral Amount for that Monthly Period, (b) the applicable Series Servicing Fee Percentage and (c) a fraction, the numerator of which is the number of days in that Monthly Period and the denominator which is 365 (or 366, when applicable). "Limited Amortization Amount" means (a) for any Distribution Date --------------------------- relating to a Non-Renewal Amortization Period, the Class A Collateral Amount with respect to all Non-Renewing Ownership Groups, (b) for any Distribution Date relating to any other Limited Amortization Period, the excess, if any, of (i) the amount specified in the effective notice delivered by the Seller in accordance with Section 4.13, over (ii) the ------------ ---- aggregate amount of principal distributed to the Series 2001-VFN Noteholders on all prior Distribution Dates, if any, related to any Monthly Period in such Limited Amortization Period and (c) for any other Distribution Date, any amount (which shall be in an amount satisfying the requirements of the second grammatical paragraph of Section 4.13) selected ------------ by the Seller with respect to that Distribution Date with not less than five Business Days' prior written notification by the Seller to the Administrative Agent. 8 "Limited Amortization Period" means, unless the Controlled --------------------------- Amortization Period or the Rapid Amortization Period shall have occurred prior thereto, a period beginning on the first day of any Monthly Period (a) specified in the effective notice delivered by the Seller in accordance with Section 4.13 or (b) following any Purchase Commitment Expiration Date ------------ as to which there is any Non-Renewing Ownership Group, if none of or less than all of the related Purchase Commitments have been assigned to other Persons pursuant to Section 15.4 of the Note Purchase Agreement, and ending ------------ upon the first to occur of (i) the commencement of the Controlled Amortization Period or the Rapid Amortization Period, and (ii) the last day of the Monthly Period related to the Distribution Date on which the Limited Amortization Amount is reduced to zero. "Maximum Class A Collateral Amount" is defined in Section 4.14. --------------------------------- ------------ "Maximum Reallocated Principal Reserves Amount" means, with respect to --------------------------------------------- any Monthly Period, the sum of (a) the aggregate amount of Note Interest payable on the Distribution Date following such Monthly Period (such amount to be estimated by the Servicer in good faith after consultation with the Administrative Agent) and (b) the Monthly Servicing Fee payable on the Distribution Date following such Monthly Period. "MGT" means Morgan Guaranty Trust Company of New York and its --- successors and assigns. "Minimum Seller Percentage" means, with respect to Series 2001-VFN, ------------------------- 7.00%. "Monthly Finance Charge Allocation" is defined in Section 4.3(c). --------------------------------- -------------- "Monthly Period Finance Charge Subaccount Allocation" is defined in --------------------------------------------------- Section 4.5. ----------- "Non-Renewal Amortization Period" means a Limited Amortization Period ------------------------------- which begins pursuant to clause (b) of the definition thereof. ---------- "Non-Renewing Allocation Percentage" means, with respect to any date ---------------------------------- of determination, during a Non-Renewal Amortization Period, the percentage equivalent of a fraction, the numerator of which is the portion of the Class A Collateral Amount represented by the Class A Notes held by the Conduit Managing Agent for each Non-Renewing Ownership Group as of the close of business on the last day of the Revolving Period and the denominator of which is the Collateral Amount as of the close of business on such last day. "Non-Renewing Ownership Group" is defined in the Note Purchase --------------------------- Agreement. 9 "Note Interest" is defined in the Note Purchase Agreement. ------------- "Note Purchase Agreement" means the Note Purchase Agreement dated as ----------------------- of October , 2001 among the Seller, the Servicer, FCNB, SCCIII, MGT, as -- the Administrative Agent and Conduit Managing Agent and the Conduit Purchasers, the other Conduit Managing Agents, and the Bank Purchasers identified therein, as amended and in effect from time to time. "Noteholder" means the holder of record of any Note. ---------- "Notes" means the Class A Notes. ----- "Official Body" means any government or political subdivision or any ------------- agency, authority, bureau, central bank, commission, department or instrumentality thereof, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Ownership Group" is defined in the Note Purchase Agreement. --------------- "Pay Out Commencement Date" means the date on which a Trust Pay Out ------------------------- Event is deemed to occur pursuant to Section 5.1 of the Indenture or a ----------- Series Pay Out Event is deemed to occur pursuant to Section 6.1 of this ----------- Indenture Supplement. "Pay Out Event" means a Trust Pay Out Event or a Series Pay Out Event. ------------- "Portfolio Yield" means, with respect to any Monthly Period, the --------------- annualized percentage equivalent of a fraction, the numerator of which is an amount equal to the Allocation Percentage of Finance Charge Collections for such Monthly Period, such sum to be calculated on a cash basis after subtracting an amount equal to the Investor Default Amount for such Monthly Period, and the denominator of which is the Average Collateral Amount for such Monthly Period. "Principal Collections Subaccount" is defined in the Indenture. -------------------------------- ------------- "Principal Shortfall" means, with respect to the Series 2001-VFN ------------------- Notes, on any Deposit Date during a Monthly Period: (a) if such Monthly Period falls in the Controlled Amortization Period, the excess of the applicable Controlled Distribution Amount over the Class A Principal Allocation for such Deposit Date and for each prior Deposit Date during such Monthly Period; (b) if such Monthly Period falls in the Rapid Amortization Period, the excess of the Class A Collateral Amount over the aggregate amount deposited 10 into the Principal Collections Subaccount pursuant to Section 4.3(b)(ii)(z) --------------------- for such Deposit Date and for each prior Deposit Date during such Monthly Period; (c) if such Monthly Period falls in a Limited Amortization Period, the excess of the applicable Limited Amortization Amount over the Class A Principal Allocation for such Deposit Date and for each prior Deposit Date during such Monthly Period; and (d) if such Monthly Period falls in the Revolving Period, the excess of any applicable Limited Amortization Amount over the aggregate amount deposited into the Principal Collections Subaccount pursuant to Section ------- 4.3(b)(ii)(x) for such Deposit Date and for each prior Deposit Date during ------------- such Monthly Period. "Purchase Commitment Expiration Date" is defined in the Note Purchase ----------------------------------- Agreement. "Purchase Commitments" is defined in the Note Purchase Agreement. -------------------- "Rapid Amortization Period" means an Amortization Period commencing on ------------------------- the Pay Out Commencement Date and ending on the earlier to occur of (a) the Trust Termination Date or (b) the Series Termination Date. "Rating Agency" means the rating agency or agencies providing ratings ------------- for the Notes issued by any Conduit Purchaser. "Rating Agency Condition" means, with respect to any action or series ----------------------- of related actions or proposed transactions in the Note Purchase Agreement, the Indenture or this Indenture Supplement, that the Rating Agency or Agencies for the respective Notes shall have notified the related Conduit Managing Agent that such action or series of related actions or the consummation of such proposed transaction or series of related transactions will not result in a reduction or withdrawal of the rating or ratings of the Class A Notes. "Reallocated Principal Collections" is defined in Section 4.10. --------------------------------- ------------ "Reallocated Principal Reserves" is defined in subsection ------------------------------ ---------- 4.3(b)(ii)(x). ------------- "Reassignment Amount" means, for any Distribution Date, after giving ------------------- effect to any deposits and distributions otherwise to be made on such Distribution Date, the sum of (i) the outstanding principal balance of the Series 2001-VFN Notes on such Distribution Date, plus (ii) Note Interest for such Distribution Date and any Note Interest previously due but not distributed to the Series 2001-VFN Noteholders plus (iii) fees and other amounts owing under the Note Purchase Agreement or Fee Letter. 11 "Record Date" means, with respect to any Distribution Date, the close ----------- of business on the last Business Day of the preceding month. "Required Conduit Managing Agents" is defined in the Note Purchase -------------------------------- Agreement. "Required Excess Collateral Amount" means, as of any date of --------------------------------- determination, an amount that if equal to the Excess Collateral Amount on such date of determination would cause the Excess Collateral Amount Allocation Percentage to be equal to the Required Excess Collateral Amount Percentage on such date of determination. "Required Excess Collateral Amount Percentage" means, with respect to -------------------------------------------- any date of determination, 15.00%; provided, that the Seller may reduce -------- such percentage from time to time so long as (a) the Rating Agency Condition has been satisfied with respect to such reduction, (b) the Seller shall have obtained the prior written consent of the Administrative Agent and the Conduit Managing Agents, and (c) the Trustee and the Seller shall have received an opinion of Rooks, Pitts and Poust or other outside tax counsel to the effect that for federal income tax purposes such reduction will not cause (i) the outstanding Class A Notes to be characterized other than as indebtedness or an interest in a partnership or (ii) the Trust to be taxable as a corporation or a publicly traded partnership. "Reset Date" means each day that is: (a) the last day prior to the ---------- Closing Date; (b) the last day in a Monthly Period; (c) a day on which Receivables in Additional Accounts are added to the Trust pursuant to Section 2.6(a) or (b) of the Transfer and Servicing Agreement; (d) a day on -------------- --- which Receivables in Removed Accounts are removed from the Trust pursuant to Section 2.7; (e) the last day prior to any day on which a Series is ----------- issued; and (f) the last day prior to any day on which there is an increase in the invested amount of any outstanding Series of variable funding Notes. "Revolving Period" means the period from and including the Closing ---------------- Date to and including the earlier of (a) the close of business on the Scheduled Pay Out Commencement Date or (b) the Pay Out Commencement Date; provided, however, that the Revolving Period will be temporarily suspended -------- ------- for the duration of any Limited Amortization Period. "SCCMNT Indenture Supplement" is defined in the Note Purchase --------------------------- Agreement. "Scheduled Pay Out Commencement Date" is defined in the Note Purchase ----------------------------------- Agreement. 12 "Scheduled Series 2001-VFN Termination Date" means the Distribution ------------------------------------------ Date which occurs in the Monthly Period occurring 44 months after the earlier to occur of the commencement of the Controlled Amortization Period or the Rapid Amortization Period. "Series 2001-VFN" means the Series of the First Consumers Credit Card --------------- Master Note Trust represented by the Series 2001-VFN Notes. "Series Pay Out Event" is defined in Section 6.1 of this Indenture -------------------- ----------- Supplement. "Series Servicing Fee Percentage" means (a) at any time when FCNB is ------------------------------- Servicer, two percent (2.00%) per annum or such lesser percentage as FCNB --- ----- may from time to time designate by written notice to the Indenture Trustee and the Administrative Agent (which lesser percentage shall be based on a good faith determination by FCNB that such percentage will result in payment of a Servicing Fee with respect to Series 2001-VFN at least adequate to cover FCNB's estimated costs of servicing the portion of the Receivables allocable to Series 2001-VFN), and (b) at any other time, two percent (2.00%) per annum. --- ----- "Series Termination Date" means the earlier to occur of (a) the day ----------------------- after the Distribution Date on which the Series 2001-VFN Notes are paid in full, or (b) the Scheduled Series 2001-VFN Termination Date. "Total Deficiency Amount" is defined in Section 4.5. ----------------------- ----------- Section 2.2 Terms. Each capitalized term defined herein shall relate ----- to the Series 2001-VFN Notes and no other Series of Notes issued by the Trust, unless the context otherwise requires. All capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Indenture or the Transfer and Servicing Agreement. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture or the Transfer and Servicing Agreement, the terms and provisions of this Indenture Supplement shall govern. Section 2.3 Interpretive Rules. The interpretive rules specified in ------------------ Section 1.2 of the Indenture also apply to this Indenture Supplement. If ----------- any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture, the terms and provisions of this Indenture Supplement shall be controlling. Section 2.4 Calculations. The Series 2001-VFN Notes are replacing and ------------ refinancing the Series 1999-B Certificates issued by the FCMT Trust that had substantially similar economic terms. For any Monthly Period commencing prior to the Closing Date and the portion of the October 2001 Monthly Period falling 13 prior to the Closing Date, "Base Rate", "Delinquency Amount", "Dilution", "Excess Spread Percentage" and any other related calculations shall be calculated in accordance with the Series 1999-B transaction documents for purposes of this document, and for purposes of calculations required by this Indenture Supplement, the "Collateral Amount" and "Allocation Percentage" on each day falling in the October 2001 Monthly Period and prior to the Closing Date shall be deemed to have equaled the "Investor Amount" and the "Investor Percentage," respectively, under the Series Supplement for that Series on that day. Section 2.5 Interchange. On or prior to each Determination Date, ----------- Seller shall notify the Servicer of the amount of Interchange to be included as Collections of Finance Charge Receivables allocable to the Series 2001-VFN Noteholders with respect to the preceding Monthly Period, which allocation shall equal the Allocation Percentage for Finance Charge Receivables for such preceding Monthly Period times the total amount of Interchange for such Monthly Period. On each Transfer Date, Seller shall pay to the Servicer, and the Servicer shall deposit into the Finance Charge Subaccount, in immediately available funds, the amount of Interchange to be so included as Collections of Finance Charge Receivables allocable to the Series 2001-VFN Notes with respect to the preceding Monthly Period. Seller hereby assigns, sets-over, conveys, pledges and grants a security interest and lien to the Indenture Trustee for the benefit of the Series 2001-VFN Noteholders in such Interchange and the proceeds of such Interchange, as set forth in this Section 2.2. To the extent that an Indenture Supplement ----------- for a Series, other than Series 2001-VFN, assigns, sets-over, conveys, pledges or grants a security interest in Interchange allocable to the Trust, all Notes of any such Series (except as otherwise specified in any such Indenture Supplement) and the Series 2001-VFN Notes shall rank pari ---- passu and be equally and ratably entitled as provided herein to the ----- benefits of such Interchange without preference or priority on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Indenture Supplement and the other related Indenture Supplements. ARTICLE III OPTIONAL REDEMPTION OF NOTES; FINAL DISTRIBUTIONS Section 3.1 Optional Redemption. On any day occurring after the end of ------------------- the Revolving Period and on or after the date on which the outstanding principal balance of the Series 2001-VFN Notes is reduced to 5% or less of the highest outstanding principal balance of Series 2001-VFN Notes since the Closing Date, the Servicer shall have the option to redeem the Series 2001-VFN Notes, at a purchase price equal to (i) if such day is a Distribution Date, the Reassignment Amount for such Distribution Date or (ii) if such day is not a Distribution Date, the Reassignment Amount for the Distribution Date following such day. 14 (a) The Servicer shall give the Indenture Trustee at least thirty (30) days prior written notice of the date on which the Servicer intends to exercise such optional redemption. Not later than 12:00 noon, New York City time, on such day the Servicer shall deposit the Reassignment Amount into the Collection Account in immediately available funds. Such redemption option is subject to payment in full of the Reassignment Amount. Following such deposit into the Collection Account in accordance with the foregoing, the Collateral Amount for Series 2001-VFN shall be reduced to zero and the Series 2001-VFN Noteholders shall have no further security interest in the Receivables. The Reassignment Amount shall be distributed as set forth in Section 3.1(c). -------------- (b) (i) The amount to be paid by the Seller with respect to Series 2001-VFN in connection with a reassignment of Receivables to the Seller pursuant to Section 2.4(e) of the Transfer and Servicing Agreement shall -------------- equal the Reassignment Amount for the first Distribution Date following the Monthly Period in which the reassignment obligation arises under the Transfer and Servicing Agreement. (c) The amount to be paid by the Servicer with respect to Series 2001- VFN in connection with a repurchase of the Notes pursuant to Section 7.1 of ----------- the Transfer and Servicing Agreement shall equal the Reassignment Amount for the Distribution Date of such repurchase. (d) With respect to the Reassignment Amount deposited into the Collection Account, the Indenture Trustee shall, in accordance with the written direction of the Servicer, not later than 12:00 noon, New York City time, on the related Distribution Date, make distributions of the following amounts (in the priority set forth below and, in each case, after giving effect to any deposits and distributions otherwise to be made on such date) in immediately available funds: (x) the Note Principal Balance on such Distribution Date will be distributed to the Paying Agent for payment to the Class A Noteholders and (y) an amount equal to the sum of (A) Monthly Interest for such Distribution Date, and (B) any Monthly Interest previously due but not distributed to the Class A Noteholders on a prior Distribution Date and (C) any fees or amounts due and owing under the Note Purchase Agreement or Fee Letter will be distributed to the parties to which each such item is owed. (e) Notwithstanding anything to the contrary in this Indenture Supplement, the Indenture or the Transfer and Servicing Agreement, all amounts distributed to the Paying Agent pursuant to this Section 3.1 for ----------- payment to the Series 2001-VFN Noteholders shall be deemed distributed in full to the Series 2001-VFN Noteholders on the date on which such funds are distributed to the Paying Agent pursuant to this Section 3.1 and shall be ----------- deemed to be a final distribution pursuant to Section 11.2 of the ------------ Indenture. 15 (f) On the Series 2001-VFN Final Maturity Date, the right of the Series 2001-VFN Noteholders to receive payments from the Issuer will be limited solely to the right to receive payments pursuant to Section 5.5 of ----------- the Indenture. Section 3.2 Delivery and Payment for the Series 2001-VFN Notes. The -------------------------------------------------- Indenture Trustee shall deliver the initial Series 2001-VFN Notes on the Closing Date when authenticated in accordance with Section 2.3 of the ----------- Indenture. In addition, from time to time, within five Business Days of receipt of written instructions from the Seller, the Indenture Trustee shall authenticate and deliver additional Series 2001-VFN Notes to the Conduit Managing Agent for any additional Ownership Group. Section 3.3 Private Placement of Class A Notes; Form of Delivery of ------------------------------------------------------- Series 2001-VFN Notes. --------------------- (a) The Class A Notes have not been registered under the Securities Act of 1933, as amended, (the "Securities Act"), or any state securities -------------- law. No transfer of any Class A Note shall be made except in accordance with the terms of the Note Purchase Agreement and either (i) pursuant to an effective registration under the Securities Act and applicable state securities or "blue sky" laws or (ii) in a transaction exempt from the registration requirements of the Securities Act and applicable state securities or "blue sky" laws, to (A) a person who the transferor -------- reasonably believes is a Qualified Institutional Buyer within the meaning thereof in Rule 144A under the Securities Act that is aware that the resale or other transfer is being made in reliance on Rule 144A, (2) a person who is an accredited investor as defined in Rule 501(a) under the Securities Act or (3) an institution which has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment therein. The Class A Notes shall bear a legend to the effect set forth in Exhibit A. None of the Seller, the Transfer --------- Agent and Registrar or the Indenture Trustee is obligated to register the Class A Notes under the Securities Act or any other securities or "blue sky" law or to take any other action not otherwise required under this Indenture Supplement or the Indenture to permit the transfer of Class A Notes without registration or as described above. (b) The Series 2001-VFN Notes shall not be delivered as Book-Entry Notes. The Series 2001-VFN Notes shall be delivered as Registered Notes as provided in Section 6.1 of the Indenture. The Class A Notes shall be ----------- substantially in the form of Exhibit A. --------- 16 ARTICLE IV RIGHTS OF NOTEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.1 [Reserved] -------- Section 4.2 [Reserved] -------- Section 4.3 Allocations. ----------- (a) Allocations. Finance Charge Collections, Principal Collections and ----------- Defaulted Receivables allocated to Series 2001-VFN pursuant to Article VIII ------------ of the Indenture shall be allocated and distributed as set forth in this Article. (b) Allocations to the Series 2001-VFN Noteholders. The Servicer ---------------------------------------------- shall, prior to the close of business on any Deposit Date, allocate to the Series 2001-VFN Noteholders the following amounts as set forth below: (c) Allocation of Finance Charge Collections. The Servicer shall ---------------------------------------- allocate to the Series 2001-VFN Noteholders and transfer to the Finance Charge Subaccount for application as provided herein an amount equal to the product of (A) the Allocation Percentage on the Deposit Date of such Collections and (B) the aggregate amount of Finance Charge Collections for such Deposit Date; provided, however, that with respect to each Monthly -------- ------- Period falling in the Revolving Period or the Controlled Amortization Period, such amount shall be deposited in the Collection Account and allocated to the Finance Charge Subaccount only until such time as the amount retained in the Collection Account and allocated to the Finance Charge Subaccount pursuant to this Section equals the sum of (1) the aggregate amount of Note Interest with respect to the Distribution Date in the immediately succeeding Monthly Period (such amount to be estimated by the Servicer in good faith after consultation with the Administrative Agent), (2) at any time that FCNB is not the Servicer, the Investor Monthly Servicing Fee payable on the Transfer Date in the immediately succeeding Monthly Period and all accrued and unpaid Investor Monthly Servicing Fees with respect to prior Monthly Periods and (3) the Default Estimate for that Monthly Period; provided further, however, that notwithstanding the -------- ------- ------- foregoing proviso, (1) the entire Allocation Percentage of Finance Charge ------- Collections shall be deposited in the Collection Account and allocated to the Finance Charge Subaccount on a daily basis if the Excess Spread Percentage for the preceding Monthly Period is less than 3.00% and (2) subject to Section 8.4(a) of the Indenture, on each Determination Date, the -------------- Servicer shall deposit in the Finance Charge Subaccount any amounts not retained on a daily basis pursuant to the preceding proviso. Any portion of ------- such allocation not required to be transferred to the Finance Charge Subaccount pursuant to the preceding sentence shall be (x) first, deposited in the 17 Excess Funding Account to the extent that the Seller Amount is less than the Minimum Seller Amount and (y) thereafter paid to the holders of the Seller Interest. (d) Allocations of Principal Collections. The Servicer shall allocate ------------------------------------ to the Series 2001-VFN Noteholders the following amounts as set forth below: (x) Allocations During the Revolving Period. During the --------------------------------------- Revolving Period an amount equal to the product of the Allocation Percentage and the aggregate amount of Principal Collections deposited in the Collection Account on such Deposit Date, shall be allocated to the Series 2001-VFN Noteholders and transferred to the Principal Collections Subaccount for application as Reallocated Principal Collections on the related Distribution Date pursuant to Section 4.10(a) (all such amounts retained in --------------- the Collection Account for application as Reallocated Principal Collections pursuant to this subsection 4.3(b)(ii)(x) being ------------------------ hereinafter referred to as "Reallocated Principal Reserves"); ------------------------------ provided, however, that if the sum of (i) such Reallocated -------- ------- Principal Reserves for any Deposit Date, (ii) all Reallocated Principal Reserves previously deposited in the Principal Collections Subaccount pursuant to this subsection 4.3(b)(ii)(x) ------------------------ on Deposit Dates occurring during the same Monthly Period and (iii) the aggregate amount of Finance Charge Collections deposited in the Finance Charge Subaccount pursuant to subsection ---------- 4.3(b)(i) on Deposit Dates occurring in the same Monthly Period, --------- exceeds the Maximum Reallocated Principal Reserves Amount for such Monthly Period, then such excess shall not be treated as Reallocated Principal Reserves and shall be (A) first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, retained in the Collection Account for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, (B) second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount, and (C) third paid to the holders of the Seller Interest. (y) Allocations During the Controlled Amortization Period ----------------------------------------------------- and any Limited Amortization Period. During the Controlled ----------------------------------- Amortization Period and any Limited Amortization Period, an amount equal to the product of (I) the Allocation Percentage and (II) the aggregate amount of Principal Collections deposited in the Collection Account on such Deposit Date (the 18 product for any such date is hereinafter referred to as a "Percentage Allocation") shall be allocated to the Series --------------------- 2001-VFN Noteholders and transferred to the Principal Collections Subaccount; provided, however, that if the sum of such Percentage -------- ------- Allocation and all preceding Percentage Allocations with respect to the same Monthly Period exceeds (1) the Controlled Distribution Amount during the Controlled Amortization Period and (2) the Limited Amortization Amount during a Limited Amortization Period, in each case for the related Distribution Date, then such excess shall not be treated as a Percentage Allocation and shall be (A) first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, transferred to the Principal Collections Subaccount for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, (B) second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount, and (C) third paid to the holders of the Seller Interest. (z) Allocations During the Rapid Amortization Period. During ------------------------------------------------ the Rapid Amortization Period, an amount equal to the product of (I) the Allocation Percentage and (II) the aggregate amount of Principal Collections deposited in the Collection Account on such Deposit Date shall be allocated to the Series 2001-VFN Noteholders and transferred to the Principal Collections Subaccount; provided, however, that after the date on which an -------- ------- amount of such Collections equal to the Note Principal Balance has been deposited into the Collection Account and allocated to the Series 2001-VFN Noteholders, such amount shall be (A) first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, transferred to the Principal Collections Subaccount for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, (B) second deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount, and (C) third paid to the holders of the Seller Interest. (e) Monthly Allocations During the Revolving Period, Limited -------------------------------------------------------- Amortization Period and Controlled Amortization Period. Prior to the ------------------------------------------------------ commencement of the Rapid Amortization Period, on each Determination Date with respect to a Monthly Period, the Servicer shall deposit in the Collection Account and allocate to the Finance Charge Subaccount an amount equal to the excess, if any, of the aggregate amount of Collections that would have been 19 deposited in the Collection Account and allocated to the Finance Charge Subaccount pursuant to Section 4.3(b)(i) but for the proviso thereto, over ----------------- ------- ---- the aggregate amount of Collections that were deposited in the Collection Account and allocated to the Finance Charge Subaccount pursuant to Section ------- 4.3(b)(i) during such Monthly Period (the "Monthly Finance Charge --------- ---------------------- Allocation"); provided, however, that so long as FCNB is the Servicer and ---------- -------- ------- is affiliated with the holders of the Seller Interest, FCNB, as Servicer and as agent for the holders of the Seller Interest, may make a net deposit to the Collection Account on each Determination Date in an amount equal to the Monthly Finance Charge Allocation, minus all amounts payable or distributable to FCNB, as Servicer, or the holders of the Seller Interest pursuant to Section 4.5 on the related Transfer Date. ----------- Section 4.4 Defaulted Accounts. On each Determination Date, the ------------------ Servicer shall calculate the Investor Default Amount for the preceding Monthly Period and the Total Deficiency Amount for the related Distribution Date. If on such date the Total Deficiency Amount exceeds zero (such deficiency, the "Shortfall"), the Excess Collateral Amount (after being --------- reduced by any Excess Collateral Amount Reallocated Amounts) will be reduced by the lesser of (a) the Investor Default Amount for the preceding Monthly Period and (b) such Shortfall (a "Excess Collateral Amount Investor --------------------------------- Charge Off"). In the event that such reduction would cause the Excess ---------- Collateral Amount to be a negative number, the Excess Collateral Amount shall be reduced to zero, and the Class A Collateral Amount will be reduced by an amount equal to the excess of such reduction over the Excess Collateral Amount prior to such reduction (a "Class A Investor Charge Off") --------------------------- Section 4.5 Monthly Payments. On each Determination Date, the ---------------- Servicer, pursuant to a Monthly Payment Instructions and Notification substantially in the form of Exhibit B to this Indenture Supplement, shall --------- instruct the Indenture Trustee in writing to withdraw, and on the succeeding Transfer Date the Indenture Trustee acting in accordance with such written instructions shall withdraw, the amounts required to be withdrawn from the Finance Charge Subaccount pursuant to Sections 4.5(a), -------------- (b), (c), (d), (e), and (f) and the amounts required to be withdrawn from --- --- --- --- --- the Principal Collection Subaccount pursuant to Section 4.10; provided that ------------ -------- the Servicer may amend the form of Exhibit B from time to time, with the --------- prior written consent of the Indenture Trustee. On each Determination Date, the Servicer shall also determine the amount (the "Total Deficiency ---------------- Amount"), if any, by which the sum of (a) Note Interest for the following ------- Distribution Date, plus (b) the Investor Monthly Servicing Fee accrued in respect of the preceding Monthly Period and any unpaid Monthly Servicing Fees from prior Monthly Periods, plus (c) the Investor Default Amount, if any, for the preceding Monthly Period, exceeds the aggregate of (i) amounts allocated to the Finance Charge Subaccount in respect of the preceding Monthly Period, (ii) 20 any amounts deposited or to be deposited in the Finance Charge Subaccount for the preceding Monthly Period, with respect to the portion of Ineligible Receivables constituting Finance Charge Receivables reassigned pursuant to Section 2.4(d) of the Indenture, (iii) any amounts deposited or to be ------------- deposited in the Finance Charge Subaccount for the preceding Monthly Period, with respect to Investor Net Recoveries, and (iv) any amounts allocable to the Series 2001-VFN Notes in respect of Shared Finance Charge Collections in respect of the preceding Monthly Period (such sum, the "Monthly Period Finance Charge Subaccount Allocation"). --------------------------------------------------- (a) Note Interest. On each Transfer Date, the Indenture Trustee, ------------- acting in accordance with written instructions from the Servicer, shall withdraw from the Finance Charge Subaccount an amount equal to the Monthly Period Finance Charge Subaccount Allocation, to the extent necessary to pay the Note Interest for the related Distribution Date. (b) Servicing Fee. On each Transfer Date, the Indenture Trustee, ------------- acting in accordance with written instructions from the Servicer, shall withdraw from the Finance Charge Subaccount an amount equal to the lesser of (i) the Monthly Period Finance Charge Subaccount Allocation less any amounts withdrawn from the Finance Charge Subaccount pursuant to Section ------- 4.5(a) and (ii) the Investor Monthly Servicing Fee accrued in respect of ----- the preceding Monthly Period plus all accrued and unpaid Investor Monthly Servicing Fees in respect of previous Monthly Periods, and the Indenture Trustee shall in accordance with such written instructions pay such amount to the Servicer. (c) Defaults. On each Transfer Date, the Indenture Trustee, acting in -------- accordance with written instructions from the Servicer, shall withdraw from the Finance Charge Subaccount an amount equal to the lesser of (i) the Monthly Period Finance Charge Subaccount Allocation less any amounts withdrawn from the Finance Charge Subaccount pursuant to Sections 4.5(a) -------------- and (b) and (ii) the Investor Default Amount, if any, for the preceding --- Monthly Period, and the Indenture Trustee shall in accordance with such written instructions (A) during the Revolving Period, apply such amount in accordance with Section 4.3(b)(ii)(x), (B) during the Controlled -------------------- Amortization Period or any Limited Amortization Period, deposit such amount in accordance with Section 4.3(b)(ii)(y) and (C) during the Rapid -------------------- Amortization Period, deposit such amount in accordance with Section ------- 4.3(b)(ii)(z) in each case as if such amounts were Collections of Principal ------------ Receivables allocable to the Series 2001-VFN Notes received during the Monthly Period related to such Transfer Date. (d) Reimbursement of Investor Charge Offs and Excess Collateral Amount ------------------------------------------------------------------ Reallocated Amounts. On each Transfer Date, the Indenture Trustee, acting ------------------- in accordance with written instructions of the Servicer, shall withdraw from 21 the Finance Charge Subaccount an amount equal to the lesser of (i) the Monthly Period Finance Charge Subaccount Allocation less any amounts withdrawn from the Finance Charge Subaccount pursuant to Sections 4.5(a), -------------- (b) and (c) and (ii) an amount equal to the aggregate amount of Investor --- --- Charge Offs, if any, Excess Collateral Amount Reallocated Amounts which have not theretofore been reimbursed pursuant to this Section 4.5(d), if ------------- any, and shall in accordance with such written instructions (A) during the Revolving Period, apply such amount in accordance with Section ------- 4.3(b)(ii)(x), (B) during the Controlled Amortization Period or any Limited ------------ Amortization Period, deposit such amounts in accordance with Section ------- 4.3(b)(ii)(y) and (C) during the Rapid Amortization Period, deposit such ------------ amounts in accordance with Section 4.3(b)(ii)(z) in each case, as if such ------------- amounts were Collections of Principal Receivables allocable to the Series 2001-VFN Notes received during the Monthly Period related to such Transfer Date. On the date of any such reimbursement, the Collateral Amount shall be increased by the amount of such reimbursement of Investor Charge Offs and Excess Collateral Amount Reallocated Amounts. Reimbursements pursuant to this Section 4.5(d) shall be applied first ------------- ----- to reimburse the Class A Notes for Class A Investor Charge Offs, second, to ------ the extent amounts are available following the reimbursement of the Class A Notes, to reimburse the Excess Collateral Amount for Excess Collateral Amount Reallocated Amounts and third, to the extent amounts are available ----- following the reimbursement of the Excess Collateral Amount for Excess Collateral Amount Reallocated Amounts, to reimburse the Excess Collateral Amount for Excess Collateral Amount Investor Charge Offs. (e) Funding Costs. On each Transfer Date, the Indenture Trustee, ------------- acting in accordance with written instructions from the Servicer, shall withdraw from the Finance Charge Subaccount an amount equal to the lesser of (i) the Monthly Period Finance Charge Subaccount Allocation, and (ii) the aggregate amount of Funding Costs owed to any Class A Noteholder and deposit the same into the Collection Account. (f) Excess Spread. On each Transfer Date, the Indenture Trustee, ------------- acting in accordance with written instructions from the Servicer, shall withdraw from the Finance Charge Subaccount and deposit to the Collection Account an amount equal to excess, if any, of (i) the Monthly Period Finance Charge Subaccount Allocation, over (ii) all amounts withdrawn from the Finance Charge Subaccount pursuant to Sections 4.5(a), (b), (c), (d) -------------- --- --- --- and (e) (such excess, the "Excess Spread"). --- ------------- Section 4.6 Payment of Note Interest. On each Distribution Date, the ------------------------ Paying Agent shall pay in accordance with Section 5.1: (a) to each Conduit ----------- Managing Agent from amounts available for that purpose pursuant to 22 Section 4.5(a) in respect of the Class A Notes on the related Transfer Date ------------- an amount equal to the Class Note Interest for the related Ownership Group for the Accrual Period ending on that Distribution Date; and (b) to the Excess Collateral Amount Holders from amounts available for that purpose pursuant to Section 4.5(f) on the related Transfer Date. If the amount of ------------- funds available for that purpose pursuant to Section 4.5(a) is less than ------------- the Note Interest for the Accrual Period ending on that Distribution Date, then the distribution pursuant to clause (a) above shall be made to the --------- Conduit Managing Agents pro rata based upon the Class Note Interest for their respective Ownership Groups. Section 4.7 Payment of Note Principal. ------------------------- (a) (i) On any Determination Date with respect to the Revolving Period following five (5) Business Days' prior written notification by the Seller to the Administrative Agent, and (ii) on the Determination Date in the calendar month following the Monthly Period in which an Amortization Period commences and on each Determination Date thereafter until the end of such Amortization Period, the Servicer shall instruct the Indenture Trustee in writing to withdraw, and on the next succeeding Transfer Date the Indenture Trustee shall, subject to the following paragraph, withdraw, from the Principal Collections Subaccount (A) the amount deposited in the Principal Collection Subaccount pursuant to Section 4.3(b)(ii)(x) (or such lesser -------------------- amount as may be specified in the notification referred to above), 4.3(b)(ii)(y) or 4.3(b)(ii)(z) during the preceding Monthly Period, (B) any ------------ ------------ Shared Principal Collections from other Series allocated to the Series 2001-VFN Notes including funds in the Excess Funding Account that are treated as Shared Principal Collections pursuant to Section 8.5 of the ----------- Indenture, and (C) the amount to be deposited in the Principal Collection Subaccount on such Transfer Date pursuant to Section 4.5(c) or 4.5(d) in ------------- ----- each case after giving effect to any reallocation of Collections pursuant to Section 4.10. ------------ On the Determination Date preceding the final Transfer Date, the Servicer shall determine the amounts to be deposited pursuant to this sentence and on the final Transfer Date: (x) the Servicer shall, or shall instruct the Indenture Trustee in writing to, and the Indenture Trustee shall, withdraw from the Principal Collection Subaccount an amount which is no greater than the Collateral Amount as of the end of the day on the preceding Record Date; and (y) the Servicer shall, or shall instruct the Indenture Trustee in writing to, and the Indenture Trustee shall, withdraw from the Principal Collection Subaccount for allocation as Collections of Principal Receivables pursuant to Article IV, the amount, if any, remaining ---------- in the Principal Collection Subaccount after giving effect to the withdrawals made pursuant to clause (x). --------- (b) On each Distribution Date occurring after a deposit is made pursuant to Section 4.7(a) of this Indenture Supplement, the Paying Agent ------------- shall pay in 23 accordance with Section 5.1 of the Indenture, (A) to the Conduit Managing ----------- Agents (pro rata based upon the portions of the Class A Collateral Amount held by their respective Ownership Groups) from the Collection Account the lesser of (1) the amount available for this purpose pursuant to Section ------- 4.7(a) of this Indenture Supplement on the related Transfer Date and (2) ------ the Class A Collateral Amount on such date (provided that during any -------- Non-Renewal Amortization Period, the amount so withdrawn shall be paid only to the Conduit Managing Agents for Non-Renewing Ownership Groups (pro rata based upon the portions of the Class A Collateral Amount held by their respective Ownership Groups) and shall be limited to the aggregate portion of the Class A Collateral Amount held by their respective Ownership Groups), and (B) to the Excess Collateral Amount Holders from the Collection Account the lesser of (1) the amount available for this purpose pursuant to Section 4.7(a) of this Indenture Supplement on the related -------------- Transfer Date less any amounts withdrawn from the Collection Account pursuant to clause (A) of this Section 4.7(b)(i) and (2) the Excess ---------- ----------------- Collateral Amount on such date. (c) On each Determination Date in respect of any Monthly Period in respect of which amounts have been deposited in the Principal Collections Subaccount pursuant to Section 4.8(b), the Servicer shall instruct the -------------- Indenture Trustee in writing to withdraw, and on the next succeeding Transfer Date the Indenture Trustee shall withdraw, from the Principal Collections Subaccount the amount deposited in the Principal Collection Subaccount pursuant to Section 4.8(b) during the preceding Monthly Period. -------------- On each Distribution Date occurring after a deposit is made pursuant to this Section 4.7(c), the Paying Agent shall pay in accordance with Section -------------- ------- 5.1 of the Indenture, to the Excess Collateral Amount Holders from the --- Collection Account the amount deposited into the Collection Account pursuant to this Section 4.7(c) on the related Transfer Date. -------------- Section 4.8 Increase and Decrease of Excess Collateral Amount. (a) ------------------------------------------------- Whenever an Enhancement Increase Condition exists and the Excess Collateral Amount Allocation Percentage is less than the Required Excess Collateral Amount Percentage, the Seller shall increase the Excess Collateral Amount by the applicable Enhancement Increase Amount. Such increase shall be effected by reducing the Seller Amount, if any, by the lesser of such Enhancement Increase Amount and the amount, if any, by which the Seller Amount exceeds the Minimum Seller Amount immediately prior to such increase and by reallocating such amount to the Excess Collateral Amount. If, after giving effect to the preceding sentence, the Excess Collateral Amount Allocation Percentage is less than the Required Excess Collateral Amount Percentage the Seller shall immediately make a deposit in the Excess Funding Account in immediately available funds in the amount necessary to cure such deficiency. Concurrently with the decrease in the Seller Amount and any required deposit to the Excess Funding Account, the Excess Collateral Amount shall be increased by the 24 aggregate amount of such decrease and of such deposit. If the Seller makes a deposit to the Excess Funding Account as described above, and the balance on deposit in the Excess Funding Account as a result of such deposit exceeds 20% of the Portfolio Sub-Limit and is not reduced below that level for a period of 60 consecutive days, then the Seller shall give notice commencing a Limited Amortization Period with a Limited Amortization Amount of not less than the balance on deposit on the Excess Funding Account at the time such notice is given. (b) Unless the Pay Out Commencement Date shall have occurred, on any Distribution Date when the Excess Collateral Amount Allocation Percentage exceeds the Required Excess Collateral Amount Percentage (giving effect to any permitted reduction thereof), the Servicer shall allocate to the Excess Collateral Amount Holders from the Principal Collections Subaccount an amount equal to the lesser of (i) the excess of the amount of Collections of Principal Receivables allocated to the Principal Collections Subaccount pursuant to Section 4.3(b)(ii) over the amount of Excess Collateral Amount ------------------ Reallocated Amounts with respect to such Distribution Date and (ii) the amount that when subtracted from the Excess Collateral Amount (after giving effect to amounts previously allocated from the Principal Collections Subaccount pursuant to this Section 4.8(b)) will cause the Excess -------------- Collateral Amount Allocation Percentage to equal the Required Excess Collateral Amount Percentage; provided, however, that in no event shall the -------- ------- Excess Collateral Amount be reduced below 3 percent of the result of (x) the Portfolio Sub-limit (as defined in the Note Purchase Agreement), divided by (y) one minus the Required Excess Collateral Amount Percentage. Section 4.9 Seller's or Servicer's Failure to Make a Deposit or --------------------------------------------------- Payment. If the Servicer or Seller fails to make, or give instructions to ------- make, any payment or deposit (other than as required by Section 2.4(d), -------------- 2.4(e), 8.4, 9.2 or 12.2 of the Indenture) required to be made or given by ------ --- --- ---- the Servicer or Seller, respectively, at the time specified in the Indenture (including applicable grace periods), the Indenture Trustee shall make such payment or deposit from the applicable Series Account or from amounts otherwise owing to the Seller or the Servicer pursuant hereto without instruction from the Servicer or Seller. The Indenture Trustee shall be required to make any such payment, deposit or withdrawal hereunder only to the extent that the Indenture Trustee has sufficient information to allow it to determine the amount thereof. The Servicer shall, upon request of the Indenture Trustee, promptly provide the Indenture Trustee with all information necessary to allow the Indenture Trustee to make such payment, deposit or withdrawal. Such funds or the proceeds of such withdrawal shall be applied by the Indenture Trustee in the manner in which such payment or deposit should have been made by Seller or the Servicer, as the case may be. 25 Section 4.10 Reallocated Principal Collections. (a) The Servicer shall --------------------------------- apply or shall direct the Indenture Trustee in writing to apply on each Distribution Date the Collections in respect of the preceding Monthly Period allocated pursuant to Section 4.3(b)(ii)(x), 4.3(b)(ii)(y) or --------------------- ------------- 4.3(b)(ii)(z) equal to the lesser of (a) the Excess Collateral Amount ------------- Percentage of such amounts allocated pursuant to Section 4.3(b)(ii)(x), --------------------- 4.3(b)(ii)(y) or Section 4.3(b)(ii)(z) and (b) the Total Deficiency Amount ------------- --------------------- --- for such Distribution Date (such amounts applied, the "Excess Collateral ----------------- Amount Reallocated Amounts") to pay the amounts specified in Sections -------------------------- -------- 4.5(a), (b) and (c) in the order of priority specified in Section 4.5. On ------ --- --- ----------- each Distribution Date with respect to the Revolving Period, the Limited Amortization Period or the Controlled Amortization Period, the Servicer shall (or shall direct the Indenture Trustee in writing to) withdraw from the Principal Collections Subaccount and pay to the holder of the Seller Interest an amount equal to the excess of (i) the Collections in respect of the preceding Monthly Period allocated pursuant to Section 4.3(b)(ii) over ----------------------- (ii) the sum of (A) the amount of Excess Collateral Amount Reallocated Amounts and (B) the amount allocated to the C Excess Collateral Amount Holders pursuant to Section 4.8(b). -------------- (a) On any Deposit Date on which the sum of (i) all Reallocated Principal Reserves previously deposited in the Principal Collections Subaccount pursuant to subsection 4.3(b)(ii)(x) on Deposit Dates occurring ------------------------ in the same Monthly Period, plus (ii) the aggregate amount of Finance Charge Collections deposited in the Finance Charge Subaccount pursuant to subsection 4.3(b)(i) on Deposit Dates occurring in the same Monthly Period, -------------------- exceeds the Maximum Reallocated Principal Reserves Amount, then the Servicer shall allocate, or cause the Indenture Trustee to allocate, Reallocated Principal Reserves in the amount of such excess, first, if any other Principal Sharing Series is outstanding and in its accumulation period or amortization period, to be retained in the Collection Account for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, second to be deposited in the Excess Funding Account to the extent necessary so that the Seller Amount is not less than the Minimum Seller Amount and third to be paid to the holders of the Seller Interest. Section 4.11 Class A Increases. Subject to the satisfaction of the ----------------- Class A Increase Conditions, and subject to the terms and conditions of the Indenture, this Indenture Supplement and the Note Purchase Agreement, the Seller may, during the Revolving Period, request an increase in the outstanding principal balance of the Class A Notes to an amount not to exceed the Maximum Class A Collateral Amount (any such increase being referred to herein as a "Class A Increase" and the amount of such increase ---------------- as the "Class A Increase Amount") in the manner specified in the Note ----------------------- Purchase Agreement. 26 Section 4.12 Notice of Note Rate. On or prior to each Determination ------------------- Date and each Transfer Date, each Conduit Managing Agent shall during the Revolving Period provide the Servicer with certain information relating to the Class Note Interest (as defined in the Note Purchase Agreement) pursuant to Section 2.6 of the Note Purchase Agreement. ----------- Section 4.13 Suspension of the Revolving Period. The Seller may from ---------------------------------- time to time at its sole discretion and without the consent of any Series 2001-VFN Noteholder or any other Person, unless a Trust Pay Out Event or a Series Pay Out Event shall have occurred prior thereto, suspend the Revolving Period and cause a Limited Amortization Period to commence for one or more Monthly Periods by delivering to the Servicer, the Indenture Trustee and the Administrative Agent, a written notice at least five days prior to the first day of the Monthly Period in which such Limited Amortization Period is scheduled to commence, which notice shall specify the Limited Amortization Amount for such Limited Amortization Period and the number of Monthly Periods in such Limited Amortization Period; provided, however, that any Limited Amortization Amount shall be in an -------- ------- amount of not less than $1,000,000 per Conduit Purchaser; provided further -------- ------- that the Seller may not cause a Limited Amortization Period to commence unless, in the reasonable belief of the Seller, such Limited Amortization Period would not result in the occurrence of a Trust Pay Out Event or a Series Pay Out Event. During the Revolving Period, the Seller may also, subject to providing the prior written notification referred to in clause (x) of Section 4.7(a), ---------- -------------- from time to time cause a Limited Amortization Amount to be distributed to the Class A Noteholders on any Distribution Date from funds deposited for that purpose pursuant to Section 4.3(b)(ii), provided, that (a) except as ------------------ ------- permitted by the following clause (b), any such Limited Amortization Amount ---------- shall be in an amount of not less than $1,000,000 per Conduit Purchaser, (b) the Limited Amortization Amount may be less than $1,000,000 per Conduit Purchaser if the aggregate amount available in the Principal Collections Subaccount to pay such Limited Amortization Amount is less than $1,000,000 per Conduit Purchaser and the Seller Amount would be less than zero if the Limited Amortization Amount is not distributed and (c) when a Limited Amortization Amount of less than $1,000,000 per Conduit Purchaser is permitted by clause (b), the Limited Amortization Amount shall nevertheless ---------- be in an amount that is an integral multiple of $500,000 unless the aggregate amount available in the Principal Collections Subaccount to pay such Limited Amortization Amount is less than the lowest integral multiple of $500,000 that is greater than or equal to the amount by which the Seller Amount is less than the Minimum Seller Amount. In addition, the Seller may from time to time cause the Class A Notes to be repaid in full or in part from the proceeds of issuance of another Series of Notes, provided that (i) the Administrative Agent shall receive -------- not less than five 27 Business Days' prior written notice of any such prepayment, and (ii) together with any such prepayment, the Seller shall be required to pay Note Interest accrued on the prepaid amount through the date of prepayment, plus any Breakage Payment resulting from such prepayment. Section 4.14 Maximum Class A Collateral Amount. The Class A Notes will --------------------------------- have a maximum aggregate principal amount equal to the Portfolio Sub-Limit (as defined in the Note Purchase Agreement) (the "Maximum Class A --------------- Collateral Amount"), which represents the maximum Class A Collateral Amount ----------------- pursuant to this Indenture Supplement. The Class A Collateral Amount shall at no time exceed the Maximum Class A Collateral Amount. Section 4.15 Shared Principal Collections. Subject to Section 8.5 of ---------------------------- ----------- the Indenture, Shared Principal Collections for any Distribution Date will be allocated to Series 2001-VFN in an amount equal to the product of (x) the aggregate amount of Shared Principal Collections with respect to all Principal Sharing Series for such Distribution Date and (y) a fraction, the numerator of which is the Principal Shortfall for Series 2001-VFN for such Distribution Date and the denominator of which is the aggregate amount of Principal Shortfalls for all the Series which are Principal Sharing Series for such Distribution Date. For this purpose, each outstanding series of certificates issued by First Consumers Master Trust (other than series represented by the Collateral Certificate) shall be deemed to be a Principal Sharing Series. Section 4.16 Excess Finance Charge Collections. Series 2001-VFN shall --------------------------------- be an Excess Allocation Series with respect to Group One only. For this purpose, each outstanding series of certificates issued by First Consumers Master Trust (other than series represented by the Collateral Certificate) shall be deemed to be a Series in Group One. Subject to Section 8.6 of the ----------- Indenture, Excess Finance Charge Collections with respect to the Excess Allocation Series in Group One for any Distribution Date will be allocated to Series 2001-VFN in an amount equal to the product of (x) the aggregate amount of Excess Finance Charge Collections with respect to all the Excess Allocation Series in Group One for such Distribution Date and (y) a fraction, the numerator of which is the Finance Charge Shortfall for Series 2001-VFN for such Distribution Date and the denominator of which is the aggregate amount of Finance Charge Shortfalls for all the Excess Allocation Series in Group One for such Distribution Date. The "Finance Charge -------------- Shortfall" for Series 2001-VFN for any Distribution Date will be equal to --------- the excess, if any, of (a) the full amount required to be paid, without duplication, pursuant to Sections 4.5(a) through (e) on such Distribution --------------- --- Date over (b) the Monthly Period Finance Charge Subaccount Allocation with respect to such Distribution Date (excluding any portion thereof attributable to Excess Finance Charge Collections). 28 Section 4.17 Termination of Series. The entire Class A Collateral --------------------- Amount shall be due and payable no later than the Series Termination Date. ARTICLE V DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS Section 5.1 Distributions. (a) On each Distribution Date, the Paying ------------- Agent shall distribute (in accordance with the certificate delivered by the Servicer to the Indenture Trustee pursuant to Section 3.4(b) of the -------------- Indenture) to each Conduit Managing Agent the amounts specified in Sections -------- 4.6 and 4.7 for such Distribution Date, together with any Funding Costs --- --- payable to members of the related Ownership Group (but only from funds available for that purpose pursuant to Section 4.5(e)), by wire transfer of immediately available funds. If the total Funding Costs owed on any Distribution Date exceed the amounts available for that purpose pursuant to Section 4.5(e) on the related Transfer Date, then such amounts shall be -------------- applied to pay Funding Costs to each Conduit Managing Agent pro rata based upon the aggregate Funding Costs owed to each member of their respective Ownership Groups. (b) On each Distribution Date, the Paying Agent shall distribute (in accordance with the certificate delivered by the Servicer to the Indenture Trustee pursuant to Section 3.4(b) of the Indenture) to each Excess -------------- Collateral Amount Holder of record on the immediately preceding Record Date (other than as provided in Section 2.4(e) of the Indenture or Section 12.3 -------------- ------------ of the Indenture respecting a final distribution) such Excess Collateral Amount Holder's pro rata share (based on the aggregate Undivided Interests --- ---- represented by the Excess Collateral Amount held by such Excess Collateral Amount Holder) of amounts available for that purpose as are payable to the Excess Collateral Amount pursuant to Sections 4.6 and 4.7 by wire transfer ------------ --- of immediately available funds. Section 5.2 Reports to Investors. (a) Monthly Noteholders' Statement. -------------------- ------------------------------ On or before each Distribution Date, the Paying Agent shall forward to each Series 2001-VFN Noteholder and each Rating Agency a statement substantially in the form of Exhibit C to this Indenture Supplement prepared by the --------- Servicer. (b) Annual Noteholders' Tax Statement. On or before January 21 of each --------------------------------- calendar year, beginning with calendar year 2002, the Seller shall deliver to the Indenture Trustee a statement containing (i) the total amount distributed with respect to the Notes, (ii) the amount of such distribution allocable to principal and (iii) the amount of such distribution allocable to Note Interest, each aggregated for the preceding calendar year. On or before January 31 of each calendar year, 29 beginning with calendar year 2002, the Indenture Trustee shall, at the written direction of the Servicer, distribute on behalf of the Seller, to each Person who at any time during the preceding calendar year was a Series 2001-VFN Noteholder, a statement containing such customary information (consistent with the treatment of the Series 2001-VFN Notes as debt) as necessary or desirable to enable the Series 2001-VFN Noteholders to prepare their tax returns consistent with the treatment of the Series 2001-VFN Notes as debt instruments. Such obligations of the Indenture Trustee shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Indenture Trustee pursuant to any requirements of the Internal Revenue Code as from time to time in effect. ARTICLE VI SERIES PAY-OUT EVENTS Section 6.1 Series Pay-Out Events. If any one of the following events --------------------- shall occur with respect to the Series 2001-VFN Notes: (a) failure on the part of the Seller or the Servicer (i) to make any payment, transfer or deposit required by the terms of the Indenture or this Indenture Supplement or to give written instructions or to give written notice to the Indenture Trustee to make such payment, transfer or deposit (A) in the case of any payment, transfer or deposit of principal, or any instruction or notice with respect thereto, within five days after the date on which such payment, transfer, deposit, notice or instruction is required to be made or given, (B) in the case of any payment, transfer or deposit of interest, or any instruction or notice with respect thereto, on the date on which such payment, transfer, deposit, notice or instruction is required to be made or given and (C) in the case of any other payment, transfer or deposit, or any instruction or notice with respect thereto, within five Business Days after the date on which such payment, transfer, deposit, notice or instruction is required to be made or given or (ii) duly to observe or perform in any material respect any covenants or agreements applicable to it set forth in the Indenture or this Indenture Supplement, which failure has a material adverse effect on the Class A Noteholders and which continues unremedied for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Indenture Trustee, or to the Seller and the Indenture Trustee by the Administrative Agent at the direction of one or more Conduit Managing Agents and continues to affect materially and adversely the interests of the Class A Noteholders for such period; (b) any representation or warranty made by Seller in the Indenture or this Indenture Supplement, or any information contained in a computer file or microfiche list required to be delivered by Seller pursuant to Section ------- 2.1 or 2.6 of --- --- 30 the Transfer and Servicing Agreement, shall prove to have been incorrect in any material respect when made or when delivered, which continues to be incorrect in any material respect for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Indenture Trustee, or to the Seller and the Indenture Trustee by the Administrative Agent, and as a result of which the interests of the Class A Noteholders are materially and adversely affected and continue to be materially and adversely affected for such period; provided, however, that a Series Pay Out Event pursuant to -------- ------- this Section 6.1 shall not be deemed to have occurred hereunder if the ----------- Seller has accepted reassignment of the related Receivable, or all of such Receivables, if applicable, and deposited any amounts required to be deposited in connection therewith during such period in accordance with the provisions of the Indenture; (c) (i) the Seller shall fail to designate Additional Accounts the Receivables of which will be Eligible Receivables, as required by Section ------- 2.6(a) of the Transfer and Servicing Agreement, and such failure shall ------ continue for a period of five Business Days, or (ii) the Aggregate Principal Balance shall be less than the sum of the numerators used to determine the respective Allocation Percentages with respect to Principal Receivables for each outstanding Series for a period of ten (10) Business Days (or such longer period as the Required Conduit Managing Agents shall allow, but in no event longer than the number of days remaining in the Monthly Period in which such deficiency is reported); (d) any Servicer Default shall occur which would have a material adverse effect on the Holders of the Class A Notes; an event described in Section 6.1(d) of the SCCMNT Indenture Supplement shall occur; or an event -------------- described in clause (ii) of Section 6.1(a) of the SCCCMNT Indenture ----------- -------------- Supplement relating to the Servicer shall occur (and the applicable grace period lapses without cure); (e) the Administrative Agent shall notify the Servicer and the Indenture Trustee in writing that the Purchase Commitment Expiration Date has occurred; (f) a Conduit Downgrade Event shall have occurred; or an event described in Section 6.1(i) of the SCCMNT Indenture Supplement shall occur; -------------- (g) the average of the Principal Payment Rates for any three consecutive Monthly Periods shall be less than 7.00%; (h) the average of the Excess Spread Percentages for any three consecutive Monthly Periods shall be less than 2.0% (i) 60 days following the date on which (A) the Securities and Exchange Commission, any banking regulatory authority or any other Official Body having jurisdiction over any Conduit Managing Agent or any of its subsidiaries (including, 31 if applicable, the Administrative Agent) shall require the consolidation of the assets and liabilities of the related Conduit Purchaser on the balance sheet of such Conduit Managing Agent or any of its subsidiaries or shall require that capital be maintained with respect thereto under any capital requirements as if such assets were owned by such Conduit Managing Agent or any of its subsidiaries, or (B) the independent auditors for such Conduit Managing Agent shall have advised such Conduit Managing Agent or any of its subsidiaries in writing that in their opinion such consolidation is required by GAAP or applicable Law, rule or regulations; (j) a Change of Control shall occur; (k) FCNB shall (A) voluntarily seek, consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law, or (B) become a party to (or be made the subject of) any proceeding provided for by any Debtor Relief Law, other than as a creditor or claimant, and, in the event such proceeding is involuntary, within 10 Business Days after FCNB has knowledge of such proceeding or the filing thereof, the petition instituting same has not been dismissed; (l) the Pension Benefit Guaranty Corporation shall file notice of a lien pursuant to Section 4068 of the Employee Retirement Income Security Act of 1974 with regard to any of the assets of FCNB which lien relates to an unpaid liability of at least $10,000,000 and shall not have been released within 40 days; (m) if at any time any Rating Agency withdraws or lowers its rating on the Notes below A2 for Moody's or A for S & P; (n) without limiting the foregoing, the occurrence of an Event of Default with respect to Series 2001-VFN and acceleration of the maturity of the Series 2001-VFN Notes pursuant to Section 5.3 of the Indenture; or ----------- (o) prior to the FCMT Termination Date, a Trust Pay Out Event shall occur under (and as defined in) the Pooling and Servicing Agreement; (p) then, and in any such event described in subparagraph (a), (b), ------------ --- --- (d), (g), (j) or (l) after the applicable grace period set forth in such --- --- --- --- subparagraphs, either the Indenture Trustee or the Administrative Agent at the direction of the Required Conduit Managing Agents by notice then given in writing to the Seller and the Servicer (and to the Indenture Trustee if given by the Administrative Agent) may declare that a pay out event (a "Series Pay Out Event") has occurred as of the date of such notice and in --------------------- the case of any event described in subparagraph (c), (e), (f), (h), (i), ------------ --- --- --- --- --- (k), (m), (n) or (o) a Series Pay Out Event shall occur without any notice --- --- --- --- or other action on the part of the Indenture Trustee, the Administrative Agent or the Noteholders immediately upon the occurrence of such event. Upon the 32 occurrence of a Pay Out Event, the Seller shall give prompt written notice to the Rating Agencies. ARTICLE VII MISCELLANEOUS Section 7.1 Change in Account Terms. FCNB hereby agrees that, except ----------------------- as required by any requirement of law, or as is deemed by FCNB to be necessary in order for FCNB to maintain its credit card business, based upon a good faith assessment by FCNB, in its sole discretion, of the nature of the competition in the credit card business, it shall not at any time change the formula for calculating the periodic finance charges assessed on any Receivable or reduce other fees on any Account if FCNB reasonably expects that any Pay Out Event will occur as a result of such change or reduction. Section 7.2 Permitted Successor Servicer. With respect to Series 2001- ---------------------------- VFN, any financial institution which does not qualify as a permitted Successor Servicer under Section 10.2 of the Indenture shall qualify as a ------------ permitted Successor Servicer if approved in writing by each Conduit Managing Agent and written notice is given thereof by the Seller to the Administrative Agent and each Rating Agency. Section 7.3 Successors and Assigns. This Indenture Supplement shall be ---------------------- binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns, except that the Seller may not assign or transfer any of its rights under this Indenture Supplement (except to Affiliates) without the prior written consent of each Conduit Managing Agent and written notice is given thereof by the Seller to Administrative Agent. Section 7.4 Final Distribution. Written notice of any termination, ------------------ specifying the Distribution Date upon which the Series 2001-VFN Noteholders may surrender their Series 2001-VFN Notes for payment of the final distribution and cancellation shall be given by the Indenture Trustee not later than the 30th day immediately preceding the Distribution Date on which final payment of the Series 2001-VFN Notes shall be made. Section 7.5 Amendments. No amendment or waiver of any provision of the ---------- Indenture or this Indenture Supplement and no consent to any departure by the Seller, or the Servicer herefrom, shall be effective unless in a writing signed by (x) the Required Conduit Managing Agents and (y) in the case of any amendment, the Seller and the Servicer, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, -------- ------- that no such amendment, waiver or consent shall, unless in a writing signed by all the Conduit Managing Agents, do any of 33 the following: (a) subject the Administrative Agent, the Conduit Purchasers or the Conduit Managing Agents to any additional obligations, (b) reduce the amount of Note Interest, principal or any fees payable hereunder, (c) postpone any date scheduled for any reduction of Class A Collateral Amount or for any payment of Note Interest or any fees payable hereunder, (d) amend any Pay Out Event or waive any automatic Pay Out Event, (e) amend the definition of "Base Rate," "Delinquency Amount," "Dilution," "Excess Spread Percentage," "Minimum Seller Percentage," "Liquidation Rate," "Portfolio Yield" or "Required Excess Collateral Amount Percentage," (f) change the percentage of, or the numbers of, Conduit Managing Agents, which shall be required for any amendment, waiver or consent or for any other action hereunder, or (g) amend this Section 13. The Servicer shall give each ---------- Rating Agency prior written notice of each amendment to this Indenture Supplement. No amendment described in clause (b) through (e) above shall be ---------- --- effective unless the Rating Agency Condition has been satisfied. Section 7.6 Effectiveness. This Indenture Supplement shall become ------------- effective as of the day and year first above written. Section 7.7 Ratification of Indenture. As supplemented by this ------------------------- Indenture Supplement, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented by this Indenture Supplement shall be read, taken and construed as one and the same instrument. Section 7.8 Counterparts. This Indenture Supplement may be executed in ------------ any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. Section 7.9 GOVERNING LAW. THIS INDENTURE SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, PROVIDED, HOWEVER, THAT THE DUTIES AND OBLIGATIONS OF THE INDENTURE TRUSTEE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CHOICE OF LAW. Section 7.10 Consents. [Reserved.] -------- Section 7.11 Certain Calculations. In accordance with Section 1.3 of -------------------- ----------- the Indenture, the Servicer has adopted the following method of determining the amount of Finance Charge Receivables: 34 (i) At the close of business on each Cycle Billing Date for any Cycle of which any Accounts are included in the Trust, the amount of Finance Charge Receivables of all Accounts in such Cycle shall be equal to the result of (A) the amount of Finance Charges charged to all Accounts in such Cycle on such date minus (B) the amount of Finance Charge Receivables on all Accounts in such Cycle that have been charged off since the close of business on the preceding Cycle Billing Date. As of the end of each Monthly Period, the amount of Finance Charge Receivables for all Accounts shall equal (X) the sum of the amounts calculated pursuant to the preceding sentence for each Cycle of which Accounts are included in the Trust during that Monthly Period plus (Y) the Carry-Over Finance Charge Amount. (ii) For each Business Day in each Monthly Period, the amount of Collections allocated to Finance Charge Receivables for all Accounts shall be all Collections available for allocation on that Business Day up to an amount equal to the quotient of the result determined pursuant to clause (i) above as of the end of the immediately preceding Monthly Period divided by the number of Business Days in such present Monthly Period; provided, however, that (A) the amount of -------- ------- Collections allocated to Finance Charge Receivables for all Accounts on the first Business Day of each Monthly Period shall equal the product of two times such quotient, (B) the amount of Collections allocated to Finance Charge Receivables for all Accounts on the last Business Day of each Monthly Period shall equal zero and (C) to the extent that the total Collections available for allocation on any Business Day (other than the last Business Day of a Monthly Period) is less than the amount that is to be allocated to Collections of Finance Charge Receivables on that Business Day, then the deficit shall be added to the amount of Collections that will be allocated to Finance Charge Receivables on the next Business Day. (iii) If, at the close of business on the last Business Day of any Monthly Period, the amount of Collections allocated to Finance Charge Receivables for all Accounts during such Monthly Period is less than the amount of Finance Charge Receivables for all Accounts calculated pursuant to clause (i) as of the end of the next preceding Monthly Period, then such deficit shall be the "Carry-Over Finance ------------------ Charge Amount" and shall be added to the amount of Finance Charges ------------- Receivables as of the end of the then current Monthly Period pursuant to clause (i). ---------- Notwithstanding the terms of Section 1.3 of the Indenture, the ----------- Servicer shall not adopt a method of determining the amount of Finance Charge Receivables different from the method described above without the consent of each Conduit Managing Agent. 35 Section 7.12 Repurchase Requests. On any Business Day, Seller may make ------------------- a written offer (a "Repurchase Offer") to each Conduit Managing Agent to ---------------- redeem all or a portion of the principal balance of the Class A Notes. Each Conduit Managing Agent may accept or reject such offer. If all of the Conduit Managing Agents accept the offer, then on the day that the repurchase is consummated the purchase price agreed upon between Seller and the Conduit Managing Agents shall be deposited in the Collection Account and shall be distributed to the Conduit Managing Agents on the date of the repurchase. Upon such payment, the Class A Collateral Amount shall decrease by an amount equal to the principal amount of the interest conveyed, and the Excess Collateral Amount shall automatically decrease to an amount so that the Excess Collateral Amount (after such decrease) shall equal the Required Excess Collateral Amount Percentage of the Collateral Amount (after such decrease). To the extent agreed upon between Seller and the Conduit Managing Agents, a portion of the purchase price paid shall decrease the amount of Class Note Interest and Program Commitment Fee payable on the next Distribution Date. Section 7.13 Perfection Representations, Warranties and Covenants. The ---------------------------------------------------- parties hereto agree that the representations, warranties and covenants set forth in Schedule I shall be a part of this Indenture Supplement for all ---------- purposes. Section 7.14 Rights of the Indenture Trustee. The Indenture Trustee ------------------------------- shall be entitled to the same rights, protections, immunities and indemnities set forth in the Master Indenture as if specifically set forth herein. Section 7.15 Limitation of Liability. Notwithstanding any other ----------------------- provision herein or elsewhere, this Indenture Supplement has been executed and delivered by Bankers Trust Company, not in its individual capacity, but solely in its capacity as Owner Trustee of the Trust, in no event shall Bankers Trust Company in its individual capacity have any liability in respect of the representations, warranties, or obligations of the Trust hereunder or under any other document, as to all of which recourse shall be had solely to the assets of the Trust, and for all purposes of this Indenture Supplement and each other document, the Owner Trustee (as such or in its individual capacity) shall be subject to, and entitled to the benefits of, the terms and provisions of the Trust Agreement. [Signatures follow] 36 IN WITNESS WHEREOF, the undersigned have caused this Indenture Supplement to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST, as Issuer By: BANKERS TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: /s/ Illegible ------------------------------- Name: [Illegible] Title: Vice President THE BANK OF NEW YORK, as Indenture Trustee Name: ----------------------------- Title: ---------------------------- 1 IN WITNESS WHEREOF, the undersigned have caused this Indenture Supplement to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST, as Issuer By: BANKERS TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: ------------------------------- Name: ----------------------------- Title: ---------------------------- THE BANK OF NEW YORK, as Indenture Trustee Name: Illegible ---------------------------- Title: ASSISTANT TREASURER ---------------------------- 1 Acknowledged and Accepted: FIRST CONSUMER NATIONAL BANK, as Seller and Servicer /s/ Illegible - ---------------------------- Name: Title: 2 EXHIBIT A to SERIES 2001-VFN INDENTURE SUPPLEMENT FORM OF SERIES 2001-VFN CLASS A VARIABLE FUNDING NOTE THIS CLASS A NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NO RESALE OR --------------- OTHER TRANSFER OF THIS CLASS A NOTE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE TERMS OF THE NOTE PURCHASE AGREEMENT AND EITHER (A) PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS OR (B) IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS TO (I) A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER ("QIB") WITHIN THE MEANING THEREOF IN RULE 144A UNDER THE SECURITIES ACT THAT IS AWARE THAT THE RESALE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (II) A PERSON WHO IS AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT OR (III) AN INSTITUTION WHICH HAS SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS AS TO BE CAPABLE OF EVALUATING THE MERITS AND RISKS OF THE INVESTMENT THEREIN. NONE OF THE SELLER, THE TRANSFER AGENT AND REGISTRAR OR THE INDENTURE TRUSTEE IS OBLIGATED TO REGISTER THE NOTES UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES OR "BLUE SKY" LAW. EACH CLASS A NOTEHOLDER AND EACH BENEFICIAL OWNER OF A CLASS A NOTE, BY ITS ACCEPTANCE THEREOF OR OF SUCH BENEFICIAL INTEREST, WILL BE DEEMED TO HAVE REPRESENTED AND AGREED AS FOLLOW: (i) SUCH HOLDER OR OWNER UNDERSTANDS THAT THE CLASS A NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR ANY STATE OR OTHER APPLICABLE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO, OR EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND ANY OTHER APPLICABLE SECURITIES LAWS, (ii) SUCH HOLDER OR OWNER WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER SUCH CLASS A NOTE OR ANY INTEREST THEREIN AT ANY TIME EXCEPT TO THE SELLER OR TO A PERSON WHOM SUCH TRANSFEROR OF THE CLASS A NOTE REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT IN ACCORDANCE WITH RULE 144A TO WHOM NOTICE IS GIVEN THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A AND AFTER DELIVERY OF THE DOCUMENTATION A-1 REQUIRED BY THE INDENTURE AND THIS SUPPLEMENTAL INDENTURE, AND (iii) SUCH HOLDER OR OWNER IS A QIB PURCHASING FOR ITS OWN ACCOUNT IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT AND HAS RECEIVED NOTICE THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A. NEITHER THIS CLASS A NOTE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED, ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED, EXCEPT IN ACCORDANCE WITH SECTION 2.5 OF THE INDENTURE REFERRED TO HEREIN. THE CLASS A NOTEHOLDER MAY NOT - ----------- SELL OR OTHERWISE TRANSFER ALL OR ANY PORTION OF THIS CLASS A NOTE, EXCEPT IN ACCORDANCE WITH THE NOTE PURCHASE AGREEMENT. THE PRINCIPAL AMOUNT OF THIS CLASS A NOTE WILL BE REDUCED FROM TIME TO TIME BY DISTRIBUTIONS ON THIS CLASS A NOTE ALLOCABLE TO PRINCIPAL. IN ADDITION, THIS CLASS A NOTE MAY BE INCREASED AT THE REQUEST OF THE SELLER SUBJECT TO CERTAIN TERMS AND CONDITIONS SET FORTH IN THE SERIES 2001-VFN INDENTURE SUPPLEMENT REFERRED TO HEREIN. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE CLASS A NOTES, THE PRINCIPAL AMOUNT OF THIS CLASS A NOTE MAY VARY FROM TIME TO TIME. ANYONE ACQUIRING THIS CLASS A NOTE MAY ASCERTAIN THE CURRENT PRINCIPAL AMOUNT OF THIS CLASS A NOTE BY INQUIRY OF THE INDENTURE TRUSTEE. ON THE DATE OF THE INITIAL ISSUANCE OF THE CLASS A NOTES, THE INDENTURE TRUSTEE IS THE BANK OF NEW YORK. THIS CLASS A NOTE DOES NOT REPRESENT AN OBLIGATION OF, OR AN INTEREST IN, FCNB, AND NONE OF THIS NOTE, THE RECEIVABLES AND THE ACCOUNTS IS INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. THIS CLASS A NOTE IS LIMITED IN RIGHT OF PAYMENT TO CERTAIN COLLECTIONS RESPECTING THE RECEIVABLES, ALL AS MORE SPECIFICALLY SET FORTH IN THE INDENTURE. A-2 MAXIMUM PRINCIPAL AMOUNT No. $ ---------- ------------------- FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST SERIES 2001-VFN CLASS A VARIABLE FUNDING ASSET BACKED NOTE First Consumers Credit Card Master Note Trust (herein referred to as the "Issuer" or the "Trust"), an Illinois common law trust governed by a Trust Agreement dated as of March 1, 2001, for value received, hereby promises to pay to [___], or registered assigns, subject to the following provisions, the principal sum of [___] DOLLARS ($[___]), or such greater or lesser amount as determined in accordance with the Indenture, on the Series 2001-VFN Final Maturity Date (which is the earlier to occur of (a) the Distribution Date on which the Note Principal Balance is paid in full and (b) the [January 2004] Distribution Date, except as otherwise provided below or in the Indenture. The Issuer will pay interest on the unpaid principal amount of this Note at the Note Interest Rate on each Distribution Date until the principal amount of this Note is paid in full. Interest on this Note will accrue for each Distribution Date from and including the most recent Distribution Date on which interest has been paid to but excluding such Distribution Date or, for the initial Distribution Date, from and including the Closing Date to but excluding such Distribution Date. Interest will be computed as provided in the Indenture. Principal of this Note shall be paid in the manner specified on the reverse hereof. The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note. Unless the certificate of authentication hereon has been executed by or on behalf of the Indenture Trustee, by manual signature, this Note shall not be entitled to any benefit under the Indenture or the Indenture Supplement referred to on the reverse hereof, or be valid for any purpose. A-3 IN WITNESS WHEREOF, the Issuer has caused this Class A Series 2001-VFN Asset Backed Note to be duly executed. FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST, as Issuer By: Bankers Trust Company, not in its individual capacity but solely as Owner Trustee under the Trust Agreement By: ------------------------------ Name: Title: Dated: A-4 GRID TO CLASS A NOTE NO. -- - -------------------------------------------------------------------------------- Date of Principal Class A Increase Amount of Notation Transaction Amount for this Amount Principal Payment Made By Series before giving effect to the Transaction on such Date - -------------------------------------------------------------------------------- $ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A-5 Trustee's Note of Authentication This is one of the Series 2001-VFN Class A Variable Funding Asset Backed Notes referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Indenture Trustee By: ------------------------------- Name Title A-6 EXHIBIT B to SERIES 2001-VFN INDENTURE SUPPLEMENT FORM OF MONTHLY PAYMENT INSTRUCTIONS AND NOTIFICATION TO INDENTURE TRUSTEE FIRST CONSUMERS CREDIT CARD MASTER NOTE TRUST SERIES 2001-VFN The undersigned, a duly authorized representative of First Consumers National Bank ("FCNB"), as Servicer pursuant to the Master Indenture, dated as of March 1, 2001 (the "Master Indenture") between the Issuer and The Bank of New York, as ---------------- indenture trustee (the "Indenture Trustee"), as supplemented by the Indenture ----------------- Supplement, dated as of [ ], 2001 (the "Indenture Supplement" and together with -------------------- the Master Indenture, the "Indenture"), does hereby certify as follows: --------- A. Capitalized terms used in this Certificate have their respective meanings set forth in the Indenture, as amended by the Series 2001-VFN Indenture Supplement thereto; provided, that the "preceding Monthly Period" means the -------- monthly Period immediately preceding the calendar month in which this Certificate is delivered. References herein to certain sections and Sections are references to the respective sections and Sections of the Indenture. B. FCNB is the Servicer under the Indenture. C. The undersigned is a Servicing Officer. D. The date of this notice is a Determination Date under the Indenture. B-1 I. INSTRUCTION TO MAKE A WITHDRAWAL Pursuant to Section 4.5, the Servicer does hereby instruct the Indenture ----------- Trustee (i) to make a withdrawal from the Finance Charge Subaccount on , , which date is a Transfer Date under the Indenture, in an - ---------- ---- aggregate amount as set forth below [, including $ to be withdrawn ---------- from the Principal Subaccount pursuant to Section 4.10,] in respect of the ------------ following amounts and (ii) to apply the proceeds of such withdrawal in accordance with Section 4.5: ----------- A. Pursuant to Section 4.5(a): -------------------------- Note Interest for the preceding Accrual Period $ ------------ B. Pursuant to Section 4.5(b): -------------------------- Investor Monthly Servicing Fee for the $ preceding Monthly Period ------------ C. Pursuant to Section 4.5(c): -------------------------- Investor Default Amount for the preceding $ Monthly Period (less the aggregate amount ------------ of Investor Charge Offs in respect of such Monthly Period) D. Pursuant to Section 4.5(d): -------------------------- Aggregate reimbursed Investor Charge Off $ and Excess Collateral Amount Reallocated Amounts ------------ E. Funding Costs for the Preceding Monthly Period $ ------------ F. Pursuant to Section 4.5(f): -------------------------- Excess Spread payable to the Excess $ Collateral Amount Holder ------------ II. INSTRUCTION TO MAKE A WITHDRAWAL Pursuant to Section 4.7, the Servicer does hereby instruct the Indenture ----------- Trustee (i) to make a withdrawal from the Principal Collection Subaccount on , , which date is a Transfer Date under the Indenture, and (ii) - ---------- ---- apply such amount in accordance with Section 4.7: ----------- A. Amounts to be distributed to the Conduit $ Managing Agents in accordance ------------ with Section 4.7(b)(A) and Section 5.1(a) B-2 B. Amounts to be distributed to the Noteholders in $ accordance with Section 4.7(c) and Section 5.1(c) ------------ C. Amount to be distributed to the holder of the $ Seller Interest ------------ IN WITNESS WHEREOF, the undersigned has duly executed this Certificate this day of , 200 . - ---- ---------- -- FIRST CONSUMERS NATIONAL BANK, as Servicer By: Title B-3 EXHIBIT C to SERIES 2001-VFN INDENTURE SUPPLEMENT [TO COME] C-1 SCHEDULE 1 TO SERIES 2001-VFN INDENTURE SUPPLEMENT PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS (a) In addition to the representations, warranties and covenants contained in the Indenture, the Issuer hereby represents, warrants and covenants to the Indenture Trustee as follows as of October , 2001: -- (1.) The Indenture creates a valid and continuing security interest (as defined in the applicable Uniform Commercial Code) in the Collateral Certificate in favor of the Indenture Trustee, which security interest is prior to all other Liens, and is enforceable as such against creditors of and purchasers from Issuer. (2.) The Collateral Certificate constitutes an "instrument," a "general intangible" or a "certificated security" within the meaning of the applicable Uniform Commercial Code. (3.) Issuer owns and has good and marketable title to the Collateral Certificate free and clear of any Lien, claim or encumbrance of any Person; provided that nothing in this paragraph(a)(3) shall prevent or be deemed to -------- --------------- prohibit Issuer from suffering to exist upon any of the Receivables any Liens for any taxes if such taxes shall not at the time be due and payable or if Seller or Issuer, as applicable, shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. (4.) There are no consents or approvals required by the terms of the Collateral Certificate for the pledge of the Collateral Certificate to the Indenture Trustee pursuant to the Indenture. (5.) Issuer (or the Administrator on behalf of the Issuer) has caused the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest granted to the Indenture Trustee under the Indenture in the Collateral Certificate. (6.) There is only one executed copy of the Collateral Certificate and such copy has been delivered to the Indenture Trustee. The Collateral Certificate is registered in the name of the Indenture Trustee, upon original issue or registration of transfer by the Issuer. (7.) Other than the pledge of the Collateral Certificate to Indenture Trustee pursuant to the Indenture, Issuer has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed the Collateral Certificate. Issuer has not authorized the filing of and is not aware of any financing statements against Issuer that include a description of collateral covering the Collateral Certificate, except for the financing statement filed pursuant to the Indenture. i (8.) The Issuer is not aware of any judgment, ERISA or tax lien filings against the Issuer. (9.) The Collateral Certificate does not have any marks or notations indicating that it has been pledged, assigned or otherwise conveyed to any Person other than the Indenture Trustee. (10.) Notwithstanding any other provision of the Indenture, the representations and warranties set forth in this Schedule 1 shall be ---------- continuing, and remain in full force and effect, until such time as the Collateral Certificate is retired. (b) Indenture Trustee covenants that it shall not, without satisfying the Rating Agency Condition, waive a breach of any representation or warranty set forth in this Schedule 1. ---------- (c) The Servicer covenants that, in order to evidence the interests of Issuer and Indenture Trustee under the Indenture, Servicer shall take such action, or execute and deliver such instruments (other than effecting a Filing (as defined below), unless such Filing is effected in accordance with this paragraph (c)) as may be necessary or advisable (including, without limitation, - -------------- such actions as are requested by Indenture Trustee) to maintain and perfect, as a first priority interest, Indenture Trustee's security interest in the Collateral Certificate. Servicer shall, from time to time and within the time limits established by law, prepare and present to Indenture Trustee for Indenture Trustee to authorize (based in reliance on the Opinion of Counsel hereinafter provided for) the Servicer to file, all financing statements, amendments, continuations, initial financing statements in lieu of a continuation statement, terminations, partial terminations, releases or partial releases, or any other filings necessary or advisable to continue, maintain and perfect the Indenture Trustee's security interest in the Collateral Certificate as a first-priority interest (each a "Filing"). Servicer shall present each such ------ Filing to the Indenture Trustee together with (x) an Opinion of Counsel to the effect that such Filing is (i) consistent with grant of the security interest to the Indenture Trustee pursuant to the Granting Clause of the Indenture, (ii) satisfies all requirements and conditions to such Filing in the Indenture and (iii) satisfies the requirements for a Filing of such type under the Uniform Commercial Code in the applicable jurisdiction (or if the Uniform Commercial Code does not apply, the applicable statute governing the perfection of security interests), and (y) a form of authorization for Indenture Trustee's signature. Upon receipt of such Opinion of Counsel and form of authorization, Indenture Trustee shall promptly authorize in writing Servicer to, and Servicer shall, effect such Filing under the Uniform Commercial Code without the signature of Issuer or Indenture Trustee where allowed by applicable law. Notwithstanding anything else in the Indenture to the contrary, the Servicer shall not have any authority to effect a Filing without obtaining written authorization from the Trustee in accordance with this paragraph (c). ------------- ii EX-10.46 43 dex1046.txt CONSENT ORDER UNITED STATES DEPARTMENT TREASURY UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY OFFICE OF THE COMPTROLLER OF THE CURRENCY In the Matter of: ) ) First Consumers National Bank, ) AA-EC-02-04 Beaverton, Oregon ) _______________________________________) CONSENT ORDER The Comptroller of the Currency of the United States of America ("Comptroller"), through his National Bank Examiners, is examining First Consumers National Bank, Beaverton, Oregon (the "Bank"), and his preliminary findings have been communicated to the Bank. The Bank, by and through its duly elected and acting Board of Directors (the "Board"), has executed a "Stipulation and Consent to the Issuance of a Consent Order," dated May 14, 2002, that is accepted by the Comptroller. By this Stipulation and Consent, which is incorporated herein by this reference, the Bank has consented to the issuance of this Consent Order ("Order") by the Comptroller. Pursuant to the authority vested in him by the Federal Deposit Insurance Act, as amended, 12 U.S.C.(S)1818, the Comptroller hereby orders that: ARTICLE I AFFILIATE TRANSACTIONS ---------------------- (1) The Bank shall immediately, and until further notice by the OCC, cease and desist any and all transactions with any of its affiliates, as defined in 12 U.S.C. (S) 371c, except those activities and transactions (i) specifically permitted or required by other provisions of this Order, and (ii) that otherwise comply with the requirements of 12 U.S.C. (S) 371c and 12 U.S.C. (S) 371c-1. (2) Subject to the remaining provisions of this Article, the Bank may continue the following: (a) transactions required to consummate the sale of the credit card receivables of Eddie Bauer, Inc., Newport News, Inc., Spiegel Catalog, Inc., and Crate & Barrel, Inc. (collectively the "Preferred card receivables"); (b) transactions required to consummate the sale of the VISA and MasterCard credit card receivables (collectively the "Bankcard receivables"); (c) transactions required to service the Preferred card and Bankcard receivables; and (d) transactions involving the provision of certain routine administrative and operational services provided in the ordinary course of business. Within three (3) days of the effective date of this Order, the Bank shall provide the OCC in writing with a complete list of all such services. Provided however, nothing in this paragraph is intended, or shall be construed, to have the effect of authorizing any transaction that is otherwise prohibited by this Order. (3) The Bank shall immediately, and until further notice by the OCC, cease and desist from the payment of all fees, commissions, salaries, or funds of any kind and from incurring any obligation to any of its affiliate companies, other than withdrawal of deposits, unless the funds are paid out or the obligation is incurred pursuant to written agreements or contracts that are documented in the books and records of the Bank and supported by documentation in the books and records of the Bank which demonstrate that the contracts or agreements represent arm's length transactions on terms and conditions that are fair and reasonable to the Bank. 2 (4) The Bank shall immediately, and until further notice by the OCC, cease and desist from the performance of services of any kind for, or on behalf of, any of its affiliate companies unless the services are performed pursuant to written agreements or contracts that are documented in the books and records of the Bank and supported by documentation in the books and records of the Bank which demonstrate that the contracts or agreements represent arm's length transactions on terms and conditions that are fair and reasonable to the Bank. (5) The Bank shall immediately review all existing contracts and agreements with all of its affiliate companies, written or otherwise, to determine whether each contract or agreement represents an arm's length transaction whose terms and conditions are fair and reasonable to the Bank. The Bank shall document its conclusions from each review and shall complete the reviews of all transactions and the documentation thereof within forty-five (45) days of the effective date of this Order. The Bank shall terminate, within forty-five (45) days of the effective date of this Order, all contracts or agreements with affiliates not on an arm's length basis and shall similarly terminate all such contracts or agreements whose terms and conditions are not demonstrably fair and reasonable to the Bank. (6) The Bank shall complete a review of all existing contracts and agreements within one hundred and twenty (120) days of the effective date of this Order to determine whether the affiliate companies have performed in accordance with the terms and conditions of each contract or agreement and shall within thirty (30) days following completion of the review request appropriate reimbursement for: (a) excess fees, if any, paid to an affiliate; and (b) payments that the Bank did not receive but was contractually entitled to receive, if any. 3 (7) Within seven (7) business days of the effective date of the Order, the Bank shall provide written evidence to the OCC that: (i) a deposit facility in the amount of one hundred and twenty million dollars ($120,000,000) has been established at an unaffiliated depository institution for the benefit of the Bank or any appointed receiver, in a form acceptable to the OCC (the "Facility"), the proceeds of which shall be used solely to defease, payoff or retire all of the Bank's deposits (except those deposits described in paragraph (1)(i) of Article III), and the interest due at maturity on such deposits, when such deposits mature and become due; and (ii) an Irrevocable Letter of Credit in the amount of seventy-eight million dollars ($78,000,000) (the "Letter of Credit") that has been issued to provide for the continued performance of Spiegel, Inc. and or its affiliates pursuant to the terms of any and all agreements for the purchase of receivables from the Bank, including but not limited to the Receivables Purchase Agreement dated October 17, 2001. In the event the Letter of Credit has not been provided within seven (7) business days of the effective date of this Order in a form and amount acceptable to the OCC, the Bank shall immediately terminate its obligations under the aforementioned receivables purchase agreement(s), and shall thereafter, cease funding any receivables originated pursuant to said agreement(s). (8) Until further notice, effective immediately, the Bank shall provide the OCC with a daily email that: (i) confirm that all credit card receivables required to be sold pursuant to the terms of the aforementioned agreement(s) in paragraph (7) above have been sold in accordance with the terms thereof, (ii) sets forth the dollar amount of credit card receivables sold each day pursuant to said agreement(s); (iii) sets forth the dollar amount of credit card receivables retained or held on the Bank's books; and (iv) sets forth the amount of credit card receivables sold or securitized by the Bank. Such email shall be provided no later than 5:00 P.M. PST or PDT (whichever is applicable) the following business day. 4 ARTICLE II BOOKS AND RECORDS ----------------- (1) The Bank shall maintain its books, records and management information systems ("MIS") in a complete and accurate condition, and the Bank's files shall contain all records and information necessary to allow the Comptroller to determine the details or purposes of each of the Bank's transactions. At a minimum, the Bank shall immediately develop, document and implement policies, procedures, systems and controls to ensure that, on an on-going basis, the books and records of the Bank: (a) utilize a chart of accounts that contains account descriptions consistent with the activity in the account; (b) reflect all of the assets, liabilities, capital, income and expenses of the Bank in accordance with Generally Accepted Accounting Principles ("GAAP"); (c) provide references from the general ledger to the journal entries and, in turn, reference to the supporting source documents; (d) reflect readily available documentation to adequately support all general ledger entries; (e) reflect approval of all general ledger entries by an appropriate supervisor before being recorded in the books and records; (f) include account analyses and/or reconciliations where appropriate or useful to evaluate or understand amounts recorded in the account; and (g) readily reflect that the Bank has complied with all affiliate transaction laws. 5 (2) The Bank shall provide all federal financial regulatory agency personnel (agency personnel) with prompt and unrestricted access to the Bank's books, records and staff, and provide full and complete details or purposes of the Bank's transactions to agency personnel upon inquiry. (3) Within forty-five (45) days of the effective date of this Order, the Bank shall engage, subject to the supervisory non-objection of the Director for Special Supervision/Fraud (the "Director"), an independent accounting firm to review all material 2001 income and expense accounts, all material asset and liability accounts as of December 31, 2001, and all affiliate party transactions since January 1, 1999. For purposes of this Order, "material" shall have the same meaning accorded in Securities and Exchange Commission Staff Accounting Bulletin No. 99 on Materiality, or as the OCC may, in its discretion, otherwise determine. Such review shall be completed within sixty (60) days of receipt of the supervisory non-objection from the OCC. (4) Within thirty (30) days from the receipt of the report completed pursuant to paragraph (3) above, the Bank shall file amended Consolidated Reports of Condition ("Call Reports") as necessary to correct material inaccuracies noted by the independent accounting firm. (5) Within one hundred and twenty (120) days, with the assistance of the independent accounting firm, the Board shall cause to be developed and implemented revised written accounting policies and procedures for all significant Bank activities including sales of assets, and other securitization activities. (6) Within sixty (60) days of the effective date of this Order, the Bank shall obtain and begin using on an ongoing basis, a residual asset valuation model ("model") that comports with industry practice and OCC Bulletin 2000-16 and shall, at a minimum, base its estimation process on the following factors or assumptions: (a) an actual cash payment rate - which the Bank shall calculate based on the 6 history of actual payments made; (b) a loss rate - which the Bank shall calculate on the basis of a three month rolling average loss rate (including roll rate analysis) from the relevant portfolio and trends in delinquency rates; (c) a discount rate - which the Bank shall calculate based on appropriate comparisons with at least three comparable portfolios and supported by such other market information as is available to determine the appropriate required yields for residual assets; and (d) gross yield - which the Bank shall calculate based upon historical cash yields and the use of a three-month rolling average. (7) The Bank shall document, and maintain such documentation of, its calculation of each of the factors or assumptions described above in paragraph (6). (8) The Bank's valuation estimate and the applicable valuation assumptions shall comply with GAAP and OCC Bulletin 99-46 and be acceptable to the OCC. (9) Within ninety (90) days of the effective date of this Order, the Bank shall prepare policies, procedures and controls for the use of the model described in paragraph (6) of this Article. The policies, procedures, and controls shall require that the Bank fully document and maintain every quantitative and qualitative assumption used to determine residual asset valuation, and any deviations from the policy's calculation process shall be fully documented in the Bank's books and records. The policies, procedures, and controls shall also: (i) require the performance of a back-testing procedure to validate the accuracy of estimates relative to actual performance; (ii) require a written analysis of the results of each such back-testing; (iii) require the retention of all documentation pertaining to each such back-testing; and (iv) require formal approval by Bank 7 senior management before making changes to the assumptions. The Bank shall not record in its books and records any estimate of the value of a residual where the estimate was not generated according to its written policies without the prior approval of the OCC. (10) On an on-going basis, the Bank shall ensure that it is accurately reporting its allowance for loan and lease losses ("ALLL") for all credit card receivables. Within sixty (60) days, the Bank shall submit to the OCC for review and prior supervisory non-objection, a description of its methodology for determining the ALLL. The methodology shall be consistent with the Interagency Guidance on Subprime Lending, OCC Bulletin 99-10 and the Interagency Expanded Guidance for Subprime Lending Programs, OCC Bulletin 01-6 (collectively "Interagency Guidance on Subprime Lending") and also with the Allowance for Loan and Lease Losses booklet, A-ALLL, of the Comptroller's Handbook. ARTICLE III DEPOSITS -------- (1) The Bank shall immediately, and until further notice by the OCC, cease and desist from accepting, renewing or rolling over any deposits, except for: (i) a parent company deposit necessary to maintain its status as an "insured depository institution" as that phrase is defined at 12 U.S.C. (S)1813(c)(2); (ii) deposits received by the Bank pursuant to any secured credit card solicitation(s) the Bank is contractually or legally obligated to honor as of the effective date of this Order; and (iii) additional deposits received from existing customers of the Bank as of effective date of this Order for which the Bank is contractually obligated to increase the customer's line of credit upon receipt of such deposit. (2) Consistent with the requirements of paragraph (7) of Article I of this Order, within seven (7) business days of the effective date of this Order, the Bank shall cause funds to be 8 deposited into an unaffiliated insured depository institution in an amount sufficient to defease, payoff, or retire all of the Bank's deposits (except those deposits described in paragraph (1)(i) of this Article) and the interest due at maturity on such deposits. ARTICLE IV CREDIT CARD ADMINISTRATION -------------------------- (1) Within thirty (30) days of the effective date of this Order, the Board shall ensure that the Bank has appropriate management information systems in place so that Bank management can effectively monitor the performance of the Preferred and Bankcard receivables by product, marketing initiative, and vintage. The Bank shall generate reports to analyze asset quality in terms of portfolio dimensions, composition, and performance. Reports should include risk levels and trends relating to product profitability, volumes, delinquencies, charge-offs, recoveries, bankruptcies, fraud, over limits, credit line increases, reissue, renewal, re-age, debt management programs, aggregation, and other appropriate areas as described in the Credit Card Lending booklet, A-CCL of the Comptroller's Handbook. (2) Within fifteen (15) days of the effective date of this Order, the Bank shall develop, document and implement policies, procedures, systems and controls designed to identify, monitor and control on an on-going basis, the total credit risk associated with any single customer. Until such policies, procedures, systems and controls are in place and operational, the Bank shall not issue any additional card(s) to an existing Bankcard or Preferred card customer. ARTICLE V GROWTH RESTRICTIONS ------------------- (1) Except for credit cards issued and credit line increases provided pursuant to any 9 solicitations the Bank is contractually or legally obligated to honor, and that accrued prior to the effective date of this Order, the Bank shall immediately, and until further notice by the OCC, cease and desist from: (a) issuing any new secured credit cards unless: (i) such card is fully secured, and (ii) the deposit is held by another insured depository institution; (b) increasing the credit line of any existing secured credit card except with respect to increases required by the contractual terms of the secured credit card as of the effective date of this Order; (c) issuing any new unsecured or partially-secured Bankcards to any existing customer having a Fair, Isaac & Company score, or equivalent score that is empirically derived and statistically sound numeric score (hereinafter collectively referred to as "FICO score") of less than 680, and issuing any unsecured or partially-secured Bankcard to any new customer with a FICO score of less than 680, without the prior written supervisory non-objection of the Director; (d) issuing any new unsecured or partially-secured Preferred cards to any existing customer having a FICO score less than 640, and issuing any unsecured or partially-secured Preferred card to any new customer with a FICO score of less than 640, without the prior written supervisory non-objection of the Director; (e) providing any new credit line increases on any Bankcard to any customer having a FICO score less than 680; 10 (f) providing any new credit line increases on any Preferred card to any customer having a FICO score less than 640; and (g) issuing any new credit card programs for, or on behalf of, any third parties. For purposes of this paragraph, the term "solicitations" includes any offer of credit, including but not limited to those made by direct mail, telemarketing, point of sale, and "Take One" applications. (2) Within ten (10) days of the effective date of this Order, the Bank shall submit to the OCC for its prior supervisory non-objection, a line reduction program for all Bankcard and Preferred card customers. (3) The Bank shall immediately, and until further notice from the OCC, not permit its average total assets at any calendar quarter end (commencing with the quarter ending June 30, 2002) to increase more than three percent (3%) over its average total assets at the end of the preceding calendar quarter. (4) The Bank shall not acquire any interest in any company or insured depository institution without the prior supervisory non-objection of the OCC. (5) Unless prohibited by applicable Federal statute or regulation, the Bank shall immediately close all Bankcard accounts with a FICO score of less than 680 and all Preferred card accounts with a FICO score of less than 640 (collectively "the Identified Accounts") that have been inactive for a period of twelve months or more and have a zero balance as of the effective date of this Order. For the Identified Accounts that have been inactive for at least six months but less than twelve months and have a zero balance as of the effective date of this Order, the Bank shall immediately reduce the customer's credit limit by fifty percent (50%). The Bank shall implement this policy on a going forward basis. 11 ARTICLE VI CAPITAL MINIMUMS AND DISPOSITION PLAN ------------------------------------- (1) The Bank shall achieve by June 30, 2002, and thereafter maintain the following capital levels (as defined in 12 C.F.R. Part 3): (a) Tier 1 capital at least equal to twenty-eight percent (28%) of adjusted total assets as determined by line 32 of Schedule RC-R of the Call Report (or the corresponding line item should this line item change as a result of an amendment to the Call Report); and (b) Total risk based capital at least equal to twelve percent (12%) of total risk weighted assets after the subprime assets are risk-adjusted by three hundred percent (300%) consistent with the Interagency Guidance on Subprime Lending. (2) The Bank shall immediately, and until further notice by the OCC, make no capital distributions without the prior approval of the OCC. (3) Within dirty (30) days of the effective date of this Order, the Bank shall file with the OCC a Disposition Plan to either: (i) sell or merge the Bank, or (ii) liquidate the Bank in conformance with 12 U.S.C. (S)181. The Disposition Plan shall include specific dates for the completion of the sale, merger or liquidation of the Bank in a manner that will result in no loss or cost to the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("Deposit Insurance Fund") and in conformance with the Comptroller's Corporate Manual for Termination of National Bank Status. The Disposition Plan shall also provide for the maintenance of the Facility referenced in Article I, paragraph (7) of this Order, which Facility shall be in an amount sufficient to ensure that the Bank's ultimate resolution, including involuntary liquidation, is completed in a manner that 12 will result in no loss or cost to the Deposit Insurance Fund. The Disposition Plan shall also provide for the disposition of all deposits received in connection with the Bank's secured credit cards, including those deposits referenced in paragraph (1)(ii) and (iii) of Article III. The Disposition Plan and terms and conditions of the Facility shall be subject to the prior supervisory non-objection of the Director. (4) The Bank agrees that it will not begin the liquidation process prior to securing the OCC's written determination of non-supervisory objection to the Disposition Plan. After the OCC has advised the Bank in writing that it does not take supervisory objection to the Disposition Plan, the Bank shall immediately implement, and shall thereafter ensure adherence to, the terms of the Disposition Plan. ARTICLE VII LIQUIDITY --------- (1) The Bank shall at all times maintain sufficient Liquid Assets to meet the daily liquidity needs of the Bank. Effective immediately, the Bank shall prepare a daily liquidity report reflecting the amount of deposit and other liabilities coming due in the next thirty (30) days, together with any unfunded card commitments, and the level of Liquid Assets available for payment of these deposit and other liabilities and commitments. As an element of sufficient liquid assets, the Bank shall maintain liquidity of not less than 100% of the deposit and other liabilities coming due within the next thirty (30) days not otherwise covered by the Facility. (2) Within seven (7) days of the effective date of this Order, the Bank shall enter into an agreement with a depository institution and the OCC whereby the Bank will at all times maintain liquid assets in the amount of fifteen million ($15,000,000), of a type acceptable to the OCC, in a third party bank or a Federal Reserve Bank, to be used to: (i) fund charges and advances on all 13 Bankcard accounts; and (ii) cover sales of Preferred card receivables under the Receivables Purchase Agreement(s) described in Article I of this Order. The amount of liquid assets required by this paragraph may be used in calculating the Bank's capital and liquidity levels required by this Order. (3) Effective immediately, the Bank shall adopt and implement a process to monitor and report the amount of uninsured deposits maintained by the Bank. The report shall be made available to the asset/liability management committee of the Bank on a weekly basis, and provided to the OCC upon request. (4) Within thirty (30) days of the effective date of this Order, the Bank shall develop and implement a contingency funding plan to include at a minimum: (a) establishment of a strategic direction and tolerance for liquidity risk; (b) procedures and practices that translate the Board's goals, objectives, and risk tolerances into operating standards that are well understood by Bank personnel and consistent with the Board's intent, including: (i) oversight of the implementation and maintenance of management information and other systems that identify, measure, monitor, and control the Bank's liquidity risk; (ii) identification of key personnel, their responsibilities, and the lines of authority for day-to-day liquidity reviews; (iii) identification of key personnel, their responsibilities, and the lines of authority under various liquidity scenarios, including responsibilities for initiating communications inside and outside of the Bank and identifying the role of senior management and 14 detailed information about the availability of personnel with responsibilities under various liquidity scenarios; and (iv) establishment of effective internal controls over the liquidity risk management process; (c) monitoring of the Bank's performance and overall liquidity risk profile; (d) projections of all significant balance sheet and off-balance sheet funds flows and their related effects, including deposit funding; (e) projections of all liquidity needs of the Bank; (f) a system for obtaining and regularly testing appropriate levels of secondary funding sources; (g) identification, quantification, and ranking by preference of all sources of funding, including an evaluation of support from the Facility; (h) a system to alert management to a pre-determined level of potential liquidity risk; (i) a description of all potential securitization early amortization triggers; (j) an assessment of the legal responsibility to fund new charges on the credit card receivables associated with any potential early amortization of a securitization; (k) an assessment of the financial impact of any potential early amortization of a securitization to the Bank, including but not limited to, scenario analyses where total cash collections on the affected securitizations are directed to the master trust and new advances on the credit card receivables have to be funded; and 15 (l) methods for preventing loss to the Deposit Insurance Fund in the event of voluntary or involuntary liquidation. ARTICLE VIII RISK MANAGEMENT --------------- (1) Within sixty (60) days of the effective date of this Order, the Board shall cause to be developed and implemented, and thereafter ensure Bank adherence to a written risk management program to include, at a minimum, the following: (a) identification of existing credit, interest rate, liquidity, transaction, compliance, strategic, reputation, and price risks, and a written analysis of those risks; (b) action plans and time frames to reduce risks where exposure is high, particularly with regard to credit risk, which impacts directly on liquidity, compliance, strategic, transaction and reputation risks. (c) policies, procedures or standards which limit the degree of risk the Board is willing to incur, consistent with the strategic plan and the Bank's financial condition. This includes analyzing and limiting the risks associated with any new lines of business which the Board undertakes. The procedures shall ensure that strategic direction and risk tolerances are effectively communicated and followed throughout the Bank and should describe the actions to be taken where noncompliance with risk policies is identified; (d) systems to measure and control risks within the Bank. Measurement systems should provide timely and accurate risk reports by customer, by department or division, and Bank-wide as appropriate; and 16 (e) procedures to ensure that Bank employees have the necessary skills to supervise effectively the current and the new business risks within the Bank, and procedures to describe the actions to be taken to address deficiencies in staff levels and skills. The risk management program shall be consistent with the Bank Supervision Process booklet, EP-SUP of the Comptroller's Handbook. (2) Within sixty (60) days of the effective date of this Order, the Board shall ensure that the Bank has processes, personnel, and control systems to ensure implementation of and adherence to the program developed pursuant to this Article. (3) Within ninety (90) days of the effective date of this Order, the Board shall identify and appoint an individual with demonstrated experience and skills in providing overall risk management to implement the Bank's risk management program. This individual shall report to the Board and shall be independent of other Bank operations. Prior to the appointment of an individual to this position, the Director shall have the power to veto the appointment of this person. However, the failure to exercise such veto power shall not constitute an approval or endorsement of the proposed individual. (4) The requirement to submit information and the prior veto provisions of this Article are based on the authority of 12 U.S.C. (S)1818(b). ARTICLE IX DOCUMENT RETENTION ------------------ (1) Effective immediately, the Bank shall develop and implement policies and procedures governing the retention of documents in the ordinary course of business that shall, at a minimum: 17 (a) identify the types of documents or books and records to be retained in the ordinary course of business; (b) set forth a time table on which retained documents will be destroyed; (c) prohibit the destruction, alteration, or removal of documents or books and records from the Bank's premises outside of the standards set forth in the policy. (2) The policies and procedures developed for this Article shall be approved by the Board and submitted to the Director for prior determination of no supervisory objection. (3) If and when the Director issues a notice of non-objection, the Bank shall retain all documents, books and records unless the destruction, alteration or removal is completed pursuant to the policies, procedures and schedule implemented pursuant to this Article. (4) For the purposes of this Article, the words "documents," "books," and "records" shall have the broadest meaning reasonably imaginable and shall include, without limitation, paper and electronic records of all kinds, notes, calendars, phone logs, financial instruments and tapes. ARTICLE X PROGRESS AND OTHER REPORTS -------------------------- (1) Within thirty (30) days of the effective date of this Order, and monthly thereafter, the Board shall submit a written progress report to the Director setting forth in detail: (a) actions taken to comply with each Article of this Order; and (b) the results of those actions. (2) The Bank shall continue with the weekly reporting required under the December 10, 2001 letter to the Bank from the OCC. 18 (3) The Bank shall immediately provide the daily, email required pursuant to Article 1, paragraph (8) to the individual email addresses, which will be provided upon execution of this document and updated as necessary by the Director. ARTICLE XI NOTICE AND CLOSING ------------------ (1) All correspondences related to this Order, and any information or documentation required hereunder to be submitted (other than by email) to the Director or the OCC, shall be sent by overnight mail, hand delivery, or facsimile to: Ronald G. Schneck Director for Special Supervision/Fraud Office of the Comptroller of the Currency 250 E Street, SW Mail Stop 6-4 Washington, DC 20219 202-874-4450 202-874-5214 (fax) and to: Rita Kuehn National Bank Examiner Office of the Comptroller of the Currency 2795 E. Cottonwood Parkway, Suite 390 Salt Lake City, Utah 84121-7029 801-365-0203 801-365-0210 (fax) (2) Although the Bank is by this Order required to submit certain proposed actions and programs for the review or approval of the Director, the Board has the ultimate responsibility for the proper and sound supervision of the Bank. (3) It is expressly and clearly understood that if, at any time, the Comptroller deems it appropriate in fulfilling the responsibilities placed upon him by the several laws of the United States of America to undertake any action affecting the Bank, including the commencement of any 19 administrative action on matters arising from the ongoing examination of the Bank and not expressly addressed herein, nothing in this Order shall in any way inhibit, estop, bar or otherwise prevent the Comptroller from so doing. (4) Any time limitations imposed by this Order shall begin to run from the effective date of this Order. Such time limitations may be extended in writing by the Director for good cause upon written application by the Board. (5) In each instance in this Order in which the Board is required to ensure adherence to, and undertake to perform certain obligations of the Bank, it is intended to mean that the Board shall: (i) authorize and adopt such actions on behalf of the Bank as may be necessary for the Bank to perform its obligations and undertakings under the terms of this Order; (ii) require the timely reporting by Bank management of such actions directed by the Board to be taken under the terms of this Order; (iii) follow-up on any non-compliance with such actions in a timely and appropriate manner; and (iv) require corrective action be taken in a timely manner of any non-compliance with such actions. (6) The provisions of this Order are effective upon issuance of this Order by the Comptroller, through his authorized representative whose hand appears below, and shall remain effective and enforceable, except to the extent that, and until such time as, any provisions of this Order shall have been amended, suspended, waived, or terminated in writing by the Comptroller. IT IS SO ORDERED, this 15th day of May 2002. __________________________________________ Ronald G. Schneck Director for Special Supervision/Fraud Office of the Comptroller of the Currency 20 UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY OFFICE OF THE COMPTROLLER OF THE CURRENCY _______________________________________ In the Matter of: ) ) AA-EC-2002-04 First Consumers National Bank ) Beaverton, Oregon ) _______________________________________) STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER WHEREAS, the Comptroller of the Currency of the United States of America ("Comptroller" or "OCC") intends to initiate a cease and desist proceeding against First Consumers National Bank, Beaverton, Oregon (the "Bank") pursuant to 12 U.S.C. (S)1818(b); and WHEREAS, the Bank, by and through its duly elected and acting Board of Directors ("Board"), desiring to cooperate with the OCC, has executed this Stipulation and Consent to the Issuance of a Consent Order ("Stipulation and Consent"), dated May 14, 2002, which is accepted by the Comptroller. By this Stipulation and Consent, the Bank has consented to the issuance of a Consent Order ("Order") by the Comptroller dated May 15, 2002, and incorporated herein by this reference as though fully set forth. In consideration of the above premises, the Comptroller, through his authorized representative, and the Bank, by and through its Board, hereby stipulate and agree to the following: ARTICLE I (1) The Bank is a national bank, chartered, supervised and examined by the Comptroller pursuant to the National Bank Act, as amended, 12 U.S.C. (S)1 et seq. (2) The Comptroller is the "appropriate Federal banking agency" with regulatory and supervisory responsibility for the Bank pursuant to 12 U.S.C. (S)1813(q) and (S)1818(b). (3) The Bank is an "insured depository institution" as defined in 12 U.S.C. (S)1813(c)(2) and within the meaning of 12 U.S.C. (S)1818(b)(1). (4) The Bank acknowledges that it is currently solvent. ARTICLE II (1) The Bank, without admitting or denying any wrongdoing, hereby consents and agrees to the issuance of the Order by the Comptroller. The Bank further agrees that said Order shall be deemed an "order issued with the consent of the depository institution" as defined in 12 U.S.C. (S)1818(h)(2), and consents and agrees that said Order shall become effective upon its issuance and shall be fully enforceable by the Comptroller under the provisions of 12 U.S.C. (S)1818(i)(1). ARTICLE III (1) The Bank, by signing this Stipulation and Consent, admits to the jurisdiction of the Comptroller with respect to the matters set forth in the Order pursuant to 12 U.S.C. (S)1818(b). (2) The Bank, by signing the Stipulation and Consent, hereby waives: (a) any and all procedural rights available in connection with the issuance of the Order including the right to the issuance of a notice of charges, an administrative hearing and all post hearing procedures available pursuant to 12 U.S.C.(S)1818; (b) all rights to seek any type of administrative or judicial review of the Order, 2 or any provision hereof, including all such rights provided by 12 U.S.C. (S) 1818(h); (c) any and all rights to challenge or contest in any manner the basis, issuance, validity, terms, effectiveness or enforceability of the Order or any provision hereof; (d) entry of findings of fact and conclusions of law; and (e) any and all claims for fees, costs or expenses against the Comptroller, or any of his agents or employees, related in any way to this enforcement matter and/or the Consent Order, whether arising under common law or under the terms of any statute, including but not limited to, the Equal Access to Justice Act, 5 U.S.C. (S) 504 and 28 U.S.C. (S) 2412. ARTICLE IV (1) The provisions of this Order shall become effective upon execution of this Order by the Comptroller, through his authorized representative whose signature appears below, and shall remain effective and enforceable, except to the extent that, and until such time as, any provisions of this Order shall have been amended, suspended, waived, or terminated by the Comptroller through the exercise of his sole discretion. ARTICLE V (1) The Bank agrees that the provisions of this Stipulation and Consent, and the Order, shall not be construed as an adjudication on the merits, and shall not inhibit, estop, bar, or otherwise prevent the Comptroller from taking any other action involving or affecting the Bank, if at any time, he deems it appropriate to do so to fulfill the responsibilities placed upon him by 3 the several laws of the United States of America, including but not limited to, the appointment of a conservator or receiver, or the commencement of any other action that he deems to be appropriate as a result of findings arising from any examination of the Bank. (2) The Bank understands and agrees that nothing herein shall preclude any proceedings brought by the Comptroller to enforce the terms of this Stipulation and Consent or the terms and provisions of the Order, and that nothing herein constitutes, nor shall the Bank contend that it constitutes, a waiver of any right, power, or authority of any other representatives of the United States or agencies thereof, including the Department of Justice, to bring other actions deemed appropriate. (3) This Stipulation and Consent expressly does not form, and may not be construed to form, a contract binding on the OCC or the United States. Notwithstanding the absence of mutuality of obligation, or of consideration, or of a contract, the OCC may enforce any of the commitments or obligations herein undertaken by the Bank under its supervisory powers, including 12 U.S.C. (S) 1818(b)(1), and not as a matter of contract law. The Bank expressly acknowledges that neither the Bank nor the OCC has any intention to enter into a contract. The Bank also expressly acknowledges that no OCC officer or employee has statutory or other authority to bind the United States, the U.S. Treasury Department, the OCC, or any other federal bank regulatory agency or entity, or any officer or employee of any of those entities to a contract affecting the OCC's exercise of its supervisory responsibilities. The terms of this Stipulation and Consent, including this paragraph, are not subject to amendment or modification by any extraneous expression, prior agreements or arrangements, or negotiations between the parties, whether oral or written. 4 IN TESTIMONY WHEREOF, the undersigned, authorized by the Comptroller as his representative, has hereunto set her hand on behalf of the Comptroller. /s/ Ronald G. Schneck 5/15/02 - ------------------------------------ ------------------------------- Ronald G. Schneck Date Director for Special Supervision/Fraud 5 IN TESTIMONY WHEREOF, the undersigned members of the Board of Directors of the Bank have hereunto set their hands on behalf of the Bank: /s/ James Cannatero 5/14/02 - --------------------------- ------------------------ James Cannatero Date - --------------------------- ------------------------ Robert L. Gill Date - --------------------------- ------------------------ James E. Huston Date /s/ Michael A. McKillip 5/14/02 - --------------------------- ------------------------ Michael A. McKillip Date /s/ John Steele 5/14/02 - --------------------------- ------------------------ John Steele Date 6 IN TESTIMONY WEEREOF, the undersigned members of the Board of Directors of the Bank have hereunto set their hands on behalf of the Bank: - --------------------------- ------------------------ James Cannatero Date /s/ Robert L. Gill 5/14/02 - --------------------------- ------------------------ Robert L. Gill Date /s/ James E. Huston 5/14/02 - --------------------------- ------------------------ James E. Huston Date - --------------------------- ------------------------ Michael A. McKillip Date - --------------------------- ------------------------ John Steele Date 6 EX-10.47 44 dex1047.txt OMNIBUS AM. TO SERIES 2000-A EXECUTION COPY EXHIBIT 10.47 OMNIBUS AMENDMENT TO SERIES 2000-A INDENTURE SUPPLEMENT AND SERIES 2001-A INDENTURE SUPPLEMENT This OMNIBUS AMENDMENT (this "Amendment") TO SERIES 2000-A INDENTURE SUPPLEMENT and SERIES 2001-A INDENTURE SUPPLEMENT is made as of October 31, 2002 by and between SPIEGEL CREDIT CARD MASTER NOTE TRUST, as Issuer (the "Issuer") and THE BANK OF NEW YORK, as Indenture Trustee (the "Indenture Trustee"). WHEREAS, the Issuer and the Indenture Trustee are parties to the Series 2000-A Indenture Supplement, dated as of December 1, 2000, as amended (the "2000 Indenture Supplement") and the Series 2001-A Indenture Supplement, dated as of July 19, 2001 (the "2001 Indenture Supplement" and together with the 2000 Indenture Supplement, the "Indenture Supplements"); WHEREAS, MBIA Insurance Corporation, Spiegel Credit Corporation III, First Consumers National Bank, Spiegel, Inc., Spiegel Acceptance Corporation, Spiegel Credit Card Master Note Trust, as Issuer and The Bank of New York, as Indenture Trustee have entered into the Omnibus Amendment to Insurance and Reimbursement Agreements (the "Omnibus Amendments") pursuant to which certain provisions of the Insurance and Reimbursement Agreement, relating to the Spiegel Credit Card Master Note Trust, Series 2000-A, dated as of December 19, 2000 (the "2000 Insurance Agreement") and the Insurance and Reimbursement Agreement, relating to the Spiegel Credit Card Master Note Trust, Series 2001-A, dated as of July 19, 2001 (the "2001 Insurance Agreement" and together with the 2000 Insurance Agreement, the "Insurance Agreements") were amended; WHEREAS, the Omnibus Amendments amended certain definitions which were also contained in Exhibit F to the Indenture Supplements and this Amendment is required in order to reflect such changes to such Exhibit F; and WHEREAS, the parties hereto also wish to amend the Indenture Supplements to add an additional Pay Out Event. Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the related Indenture Supplement. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: Section 1. Amendments. (a) Section 6.1 of the Indenture Supplements is hereby amended to add the word "or" following clause (l) thereof and to add the following clause (m) following clause (l): "(m) (i) an event of default, pay out event or other rapid amortization event or early redemption event shall occur with respect to the Series 2001-VFN issued by the Issuer or such Series shall terminate for any reason or (ii) on and after November 22, 2002, Spiegel, Inc. shall not have a $600,000,000 revolving credit facility available to it, or the revolving credit lenders' commitment thereunder shall terminate for any reason;" (b) The last paragraph of Section 6.1 of the 2000 Indenture Supplement is hereby amended to add a reference to clause "(m)" following the reference to clause (i). (c) The last paragraph of Section 6.1 of the 2001 Indenture Supplement is hereby amended to add a reference to clause "(m)" following the reference to clause (d). (d) The following definitions in Exhibit F to the Indenture Supplements, other than with respect to the amendment to the definition of Required Spread Account Amount which shall apply solely to the 2001 Indenture Supplement, are hereby amended to read as follows: "Required Spread Account Amount" means (a) on the Closing Date, the Spread Account Deposit, (b) on each Distribution Date prior to a Pay Out Event, an amount equal to the lesser of (x) the product of (i) the Spread Account Percentage for that Distribution Date and (ii) the Maximum Commitment Amount, and (y) the result of the Note Principal Balance on such Distribution Date, minus the Principal Accumulation Account Balance on such Distribution Date; and (c) on each Distribution Date after a Pay Out Event or on which a Pay Out Event has occurred, the greater of (x) the product of (i) the Spread Account Percentage for that Distribution Date and (ii) the Maximum Commitment Amount and (y) the Note Principal Balance as of that Distribution Date; provided (i) that at any time that a Dilution Trigger Event has occurred and is continuing, the amounts calculated pursuant to clauses (b)(x) and (c)(x) shall be increased by an amount equal to the product of (A) the amount by which the Dilution Rate exceeds 3.5% multiplied by (B) the Note Principal Balance and (ii) at any time that a Credit Agreements Trigger Event has occurred and is continuing, the amount calculated pursuant to clauses (b)(x) and (c)(x) shall be increased by an amount equal to 3% of the Maximum Commitment Amount. "Shadow Rating" means on any day the `shadow' rating on the Notes as determined by the Rating Agencies without giving effect to the Policy. -2- "Spread Account Percentage" means on each Distribution Date (i) if the Average Excess Spread Percentage for such Distribution Date is greater than 5.5%, the Spread Account Percentage shall mean 5.0% ("level 1"); (ii) if the Average Excess Spread Percentage for such Distribution Date is less than or equal to 5.5%, but is greater than 5.0%, the Spread Account Percentage shall mean 7.5% ("level 2"); (iii) if the Average Excess Spread Percentage for such Distribution Date is less than or equal to 5.0%, but is greater than 4.5%, the Spread Account Percentage shall mean 10% ("level 3"); (iv) if the Average Excess Spread Percentage for such Distribution Date is less than or equal to 4.5%, but is greater than 3.5%, the Spread Account Percentage shall mean 12.5% ("level 4"); and (v) if the Average Excess Spread Percentage for such Distribution Date is less than or equal to 3.5%, the Spread Account Percentage shall mean 15% ("level 5"); provided, however, that, if the Spread Account Percentage is greater than 5%, the Spread Account Percentage will remain constant until (a) it is required to be increased pursuant to (ii) through (v) above, or (b) the Average Excess Spread Percentage has exceeded the percentage specified as the upper bound of the range of Average Excess Spread Percentages specified for such Spread Account Percentage for three consecutive Distribution Dates, in which case the Spread Account Percentage will be decreased on the third consecutive Distribution Date as required in (i) through (v) above, provided that the Spread Account Percentage on any Distribution Date may in no event be reduced by more than one level below the Spread Account Percentage on the immediately preceding Distribution Date and in no event shall the Spread Account Percentage be less than 5%; provided, further, however, the following subsections (x) and (y) shall apply solely for the Distribution Dates for each of the six (6) Monthly Periods commencing with the June 2002 Monthly Period and the related July 2002 Distribution Date: (x) the amount required to be deposited in both Series 2000-A and Series 2001-A Spread Accounts shall equal the Required Spread Account Deposits (as defined in the Insurance Agreement); and (y) clause (x) above notwithstanding, the aggregate incremental amount required to be deposited in both Series 2000-A and Series 2001-A Spread Accounts for the seven (7) Monthly Periods commencing with the May 2002 Monthly Period and the Related June 2002 Distribution Date to meet the current "Level 5" requirement" shall not exceed $60 million in total. (e) Exhibit G of the 2001 Indenture Supplement is hereby amended by changing Section 2.05(f) referenced therein to read in its entirety as follows: (f) If on any Distribution Date, after giving effect to all withdrawals from the Spread Account, the Available Spread Account Amount is less than the Required Spread Account Amount then in effect, the Indenture Trustee shall deposit -3- Available Finance Charge Collections into the Spread Account up to the amount of the Spread Account Deficiency in accordance with subsection 4.4(a)(vii) of the Series 2001-A Indenture Supplement. Subject to Section 2.05(k), if on any Distribution Date prior to the commencement of the Rapid Amortization Period, after giving effect to all withdrawals from the Spread Account, the Available Spread Account Amount exceeds the Required Spread Account Amount, the Servicer shall withdraw the amount of such excess and distribute such amount to the holders of the Seller Interest. Subject to Sections 2.05(j) and 2.05(k), following the commencement of the Rapid Amortization Period, no funds on deposit in the Spread Account shall be released to the holders of the Seller Interest unless and until all amounts owing to the Noteholders, the Insurer and the Counterparty under the Swap have been paid in full. Section 2. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of the following condition precedent: (a) Rating Agency Approval. Each of Standard & Poor's and Moody's shall have received prior written notice of this Amendment, and the Rating Agency Condition shall have been satisfied. Section 3. References. On and after the effective date of this Amendment, each reference in the Transaction Documents to the "Indenture Supplement" shall mean and be a reference to the Indenture Supplement as amended hereby. Section 4. Full Force and Effect. Except as specifically amended above, the Indenture Supplements and the other Transaction Documents are and shall continue to be in full force and effect. This Amendment shall not have the effect of restating the representations and warranties contained in the Transaction Documents nor shall this Amendment have the effect of waiving or otherwise modifying such representations and warranties or any provisions relating thereto, Section 5. Counterparts; Governing Law. This Amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION). Section 6. Supplemental Indenture. This Amendment shall be considered a Supplemental Indenture under Section 8.1 of the Indenture Supplements. Section 7. Effectiveness. This Amendment shall become effective as of June 1, 2002 when counterparts of this Amendment shall have been accepted and agreed to by -4- each of the parties hereto and the conditions precedent set forth in Section 2(a) hereof shall be satisfied. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -5- IN WITNESS WHEREOF, the parties hereto have executed this Amendment on this 31st day of October, 2002. SPIEGEL CREDIT CARD MASTER NOTE TRUST By: Deutsche Bank Trust Company Americas, not in its individual capacity but solely as Owner Trustee /s/ Peter T. Becker By:_________________________________ Name: Peter T. Becker Title: Vice President THE BANK OF NEW YORK as Indenture Trustee /s/ Robert Foltz By:_________________________________ Name: Robert Foltz Title: Agent -6- EX-10.48 45 dex1048.txt SECOND AMENDMENT TO TRANSFER & SERVICE AGREE EXECUTION COPY EXHIBIT 10.48 Second amendment TO TRANSFER AND SERVICING AGREEMENT This SECOND AMENDMENT (this "Amendment") TO TRANSFER AND SERVICING AGREEMENT is made as of October 31, 2002 by and among SPIEGEL CREDIT CORPORATION III, as Seller, FIRST CONSUMERS NATIONAL BANK, as Servicer and SPIEGEL CREDIT CARD MASTER NOTE TRUST, as Issuer. W I T N E S S E T H WHEREAS, the parties hereto have entered into the Transfer and Servicing Agreement, dated as of December 1, 2000, as amended (the "Transfer and Servicing Agreement"); WHEREAS, MBIA Insurance Corporation ("MBIA"), Spiegel Credit Corporation III, Spiegel, Inc. ("Spiegel"), Spiegel Acceptance Corporation and First Consumers National Bank ("FCNB"), have entered into the letter agreement dated May 16, 2002, (together with all exhibits and supplements thereto the "Letter Agreement"); and WHEREAS, in accordance with the terms of the Letter Agreement, the parties have agreed to amend the Transfer and Servicing Agreement as hereinafter provided. NOW THEREFORE, in consideration of the Letter Agreement and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Transfer and Servicing Agreement. Section 1. Amendments. (a) Article VII shall be amended by changing the caption thereof to read in its entirety "SERVICER DEFAULTS AND SERVICER TERMINATION EVENTS" (b) The heading and the phrase preceding clause (a) of Section 7.1 shall be amended to read in its entirety as follows: "Section 7.1. Servicer Defaults and Servicer Termination Events. (X) If any one of the following events (a "Servicer Default") shall occur and be continuing:". (c) A new Section 7.1(Y) shall be added following clause (d) of Section 7.1(X) as follows: "(Y). If any one of the following events (a "Servicer Termination Event" shall occur and be continuing: (a) FCNB is not sold, disposed of, or otherwise liquidated (whether by sale of its ownership interests or substantially all of its assets) on or before December 15, 2002 (the "Disposition Date") in a manner that is acceptable to MBIA Insurance Corporation ("MBIA"); provided that if the Office of the Comptroller of the Currency extends the date by which FCNB must be sold, disposed of, or otherwise liquidated to a date beyond December 31, 2002, the Disposition Date shall be fifteen (15) days prior to the date of such extension; or (b) FCNB shall be dissolved, liquidated or cease to be 100% owned by Spiegel except (i) pursuant to a sale, disposition or liquidation meeting the requirements of clause (a) above or (ii) with the prior written consent of MBIA; or (c) the ratio of Tangible Equity to total assets of FCNB is less than 20%; where Tangible Equity means the remainder of total equity less intangible assets (in each case as shown on the monthly financial statements of FCNB and calculated in accordance with US Generally Accepted Accounting Principles); or (d) managed assets (i.e., assets owned or serviced by FCNB) of FCNB in excess of 10% in the aggregate of FCNB's total managed assets are sold, transferred or otherwise disposed of, including, without limitation, to any affiliate of FCNB, without the prior written consent of MBIA, excluding the transfer of receivables in the ordinary course of business pursuant to the Receivables Purchase Agreement; or (e) the Servicer shall change or amend the Charge Account Agreements or Charge Account Guidelines with respect to the private label portfolio in any material respect without the prior written consent of MBIA, which consent shall not be unreasonably withheld, conditioned or delayed; or (f) any quarterly servicing audit conducted by or on behalf of MBIA shall reveal that the Servicer has failed to comply in any material respect with the Charge Account Guidelines or the Conditions Precedent Documents and such failure shall not be cured within 30 days of such audit as determined by MBIA by means 2 of a follow up audit and is not otherwise deemed cured by MBIA; or (g) FCNB shall have Liquid Assets in an amount less than the greatest of (i) 12% of its Total Assets, (ii) $15,000,000 and (iii) 35% of the sum of (a) Deposit Liabilities, (b) Operating Expenses, (c) Accounts Payable, (d) Accrued and Other Liabilities, and (e) Debt or other Borrowings, in each case maturing in less than 90 days; where "Liquid Assets" for the purpose of clause (i) above means as of the end of any calendar month, the sum of (a) cash, (b) cash equivalents, and (c) repurchase agreements (in each case as shown on the monthly financial statements of FCNB and calculated in accordance with US Generally Accepted Accounting Principles); for the purpose of clause (ii) above means as of the end of any calendar month, the sum of (a) cash and (b) cash equivalents (in each case as shown on the monthly financial statements of FCNB and calculated in accordance with US Generally Accepted Accounting Principles) and for the purpose of clause (iii) means the sum of (a) bank deposits (excluding deposits in transit and outstanding checks) and (b) for purposes of this calculation only, the amount of cash on deposit at Deutsche Bank Trust Company Americas being held pursuant to Article I, Section 7(i) of the Consent Order dated May 14, 2002 between FCNB and the Office of the Comptroller of the Currency to the extent such amount relates to Deposit Liabilities maturing in less than 90 days; or (h) FCNB shall assign or delegate its duties or obligations as Servicer under the Transaction Documents without the prior written consent of MBIA; (d) The first sentence of the undesignated paragraph concluding Article VII and now following Section 7.1(Y) shall be amended to read as follows: "then, so long as any such Servicer Default or Servicer Termination Event shall not have been remedied, either the Indenture Trustee, or the Noteholders holding more than 50% of the aggregate outstanding principal amount of the Notes, by notice then given in writing to the Servicer (and to the Indenture Trustee if given by the Noteholders) (a "Termination Notice"), may terminate all of the rights and except as otherwise provided herein, the obligations of the Servicer as Servicer under this 3 Agreement and in and to the Receivables and the proceeds thereof." (e) The first parenthetical in the second sentence of Section 7.2(a) shall be amended to read as follows: "(with the consent of the Noteholders holding more than 50% of the aggregate outstanding principal amount of the Notes, and with prior written notice to the Rating Agencies)" Section 2. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent: (a) Officer's Certificate. The Seller shall have delivered to the Indenture Trustee and the Owner Trustee an Officer's Certificate, dated the date hereof, stating that the Seller reasonably believes that this Amendment will not have an Adverse Effect. (b) Rating Agency Condition. The Rating Agency Condition shall have been satisfied. Section 3. References. On and after the effective date of this Amendment, each reference in the Transaction Documents to the "Transfer and Servicing Agreement" shall mean and be a reference to the Transfer and Servicing Agreement as amended hereby. Section 4. Full Force and Effect. Except as specifically amended above, the Transfer and Servicing Agreement and the other Transaction Documents are and shall continue to be in full force and effect. This Amendment shall not have the effect of restating the representations and warranties contained in the Transaction Documents nor shall this Amendment have the effect of waiving or otherwise modifying such representations and warranties or any provisions relating thereto, Section 5. Counterparts; Governing Law. This Amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION). Section 6. Effectiveness. This Amendment shall become effective as of the date first written above when counterparts of this Amendment shall have been accepted and agreed to by each of the parties hereto and the conditions precedent set forth in Section 2 hereof shall be satisfied. 4 IN WITNESS WHEREOF, the parties hereto have executed this Amendment on this 31st day of October, 2002. SPIEGEL CREDIT CORPORATION III, as Seller By: /s/ John R. Steele -------------------------------- Name: John R. Steele Title: Treasurer FIRST CONSUMERS NATIONAL BANK By: /s/ John R. Steele -------------------------------- Name: John R. Steele Title: Treasurer SPIEGEL CREDIT CARD MASTER NOTE TRUST By: Deutsche Bank Trust Company Americas, not in its individual capacity but solely as Owner Trustee By: /s/ Peter T. Becker --------------------------------- Name: Peter T. Becker Title: Vice President 5 EX-21 46 dex21.txt LISTING OF SUBSIDIARIES DECEMBER 29, 2001 Exhibit 21 SPIEGEL, INC. Listing of Subsidiaries December 29, 2001
Name of Corporation Incorporated In - ----------------------------------------------- ----------------- Distribution Fulfillment Services, Inc. Delaware East Coast Collection Agency, Inc. Delaware Eddie Bauer, Inc. Delaware Eddie Bauer of Canada, Inc. (1) Canada First Consumers National Bank Federal Charter First Credit Services, Inc. Delaware First Consumers Credit Corporation (2) Delaware New Hampton Realty Corporation (3) Delaware Newport News, Inc. (formerly New Hampton, Inc.) Delaware Retailer Financial Products, Inc. Delaware S.I. Reinsurance Limited Turks & Caicos Islands FCSI Reinsurance Limited Turks & Caicos Islands Spiegel Acceptance Corporation Delaware Spiegel Cares Illinois Spiegel Catalog, Inc. Delaware Spiegel Credit Corporation III Delaware Spiegel Management Group, Inc. Delaware Spiegel Marketing Corporation (formerly Boutique Europa, Inc.) Delaware Spiegel Publishing Company Illinois Spiegel Group Teleservice, Inc. (formerly Spiegel Teleservice, Inc.) Illinois The Spiegel Foundation Illinois Ultimate Outlet, Inc. Delaware Spiegel Hermes General Service, LLC Delaware Financial Services Acceptance Corp. Delaware Spiegel Group Teleservices-Canada, Inc. Canada Newport News Services, LLC (3) Ohio Eddie Bauer Services, LLC (1) Ohio Spiegel Catalog Services, LLC (4) Ohio
(1) Wholly owned subsidiary of Eddie Bauer, Inc., a wholly owned subsidiary of Spiegel, Inc. (2) Wholly owned subsidiary of First Consumers National Bank, a wholly owned subsidiary of Spiegel, Inc. (3) Wholly owned subsidiary of Newport News, Inc., a wholly owned subsidiary of Spiegel, Inc. (4) Wholly owned subsidiary of Spiegel Catalog, Inc., a wholly owned subsidiary of Spiegel, Inc. 91 EX-23 47 dex23.txt CONSENT OF KPMG LLP Exhibit 23 CONSENT OF KPMG LLP The Board of Directors Spiegel, Inc.: We consent to incorporation by reference in the registration statements No. 33-69937, 33-19663, 33-32385, 33-38478, 33-44780, 33-56200 and 33-51755 on Form S-8 of Spiegel, Inc. of our reports dated February 14, 2002, except for Note 2, Note 3, Note 4, Note 5, Note 9, Note 11, Note 12 and Note 14, which are as of January 31, 2003, relating to the consolidated balance sheets of Spiegel, Inc. and subsidiaries as of December 29, 2001 and December 30, 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 29, 2001, and related financial statement schedule, which reports appear in the December 29, 2001 annual report on Form 10-K of Spiegel, Inc. The audit report on the consolidated financial statements of Spiegel, Inc. and subsidiaries referred to above contains an explanatory paragraph that the Company was not in compliance with certain restrictive covenants in its debt agreements, and accordingly, substantially all of the Company's debt is currently due and payable. In addition, the Company was not in compliance with certain provisions of agreements with the insurer of its asset-backed securitization transactions, and has been unable to negotiate amended agreements with its lenders. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 3 to the consolidated financial statements. The consolidated financial statements and the accompanying financial statement schedule do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 6 to the consolidated financial statements, the Company changed its method of recording revenue for discount club memberships in 2000. /s/ KPMG LLP KPMG LLP Chicago, Illinois January 31, 2003 92 -----END PRIVACY-ENHANCED MESSAGE-----