10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended 1-8668 December 30, 1994 Commission file number ____________________ FINGERHUT COMPANIES, INC. (Exact name of registrant as specified in its charter) Minnesota 41-1396490 (State of Incorporation) (I.R.S. Employer Identification No.) 4400 Baker Road, Minnetonka, Minnesota 55343 (Address of principal executive offices) (612) 932-3100 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, $.01 Par Value New York Stock Exchange, Inc. Securities registered pursuant to section 12(g) of the Act: None 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No 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. [X] As of February 28, 1995, 45,762,968 shares of the Registrant's Common Stock were outstanding and the aggregate market value of Common Stock held by non-affiliates of the Registrant on that date was approximately $686,451,368 based upon the New York Stock Exchange closing price on February 27, 1995. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Annual Report to Shareholders for the fiscal year ended December 30, 1994, are incorporated by reference in Parts II and IV. Certain portions of the Proxy Statement for the Annual Meeting of Shareholders of Fingerhut Companies, Inc. to be held on May 18, 1995, which will be filed with the Securities and Exchange Commission within 120 days after December 30, 1994, are incorporated by reference in Part III. TABLE OF CONTENTS PART I Page Item 1. Business 3 Item 2. Properties 13 Item 3. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 15 Item 6. Selected Financial Data 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 8. Financial Statements and Supplementary Data 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 15 PART III Item 10. Directors and Executive Officers of the Registrant 16 Item 11. Executive Compensation 16 Item 12. Security Ownership of Certain Beneficial Owners and Management 16 Item 13. Certain Relationships and Related Transactions 16 PART IV Item 14. Exhibits, Financial Statement Schedules 17 and Reports on Form 8-K Signatures 18 Exhibit Index 20 PART I Item 1. Business General Fingerhut Companies, Inc. (the "Company") is a direct-to-the- consumer marketing company that sells a broad range of products and services directly to consumers via catalogs, television and other media. The Company had 1994 revenues of $1.934 billion. Its principal subsidiaries are Fingerhut Corporation ("Fingerhut"), Figi's Inc. ("Figi's") and USA Direct Incorporated ("USA Direct"). Fingerhut has been in the direct mail marketing business for over 45 years and sells general merchandise using catalogs and other direct marketing solicitations. Fingerhut's merchandise includes a broad mix of quality brand name and private label products, many of which are specially manufactured or packaged to appeal to its customers. Fingerhut's net sales were $1.577 billion in 1994. Figi's markets specialty foods and other gifts, primarily through catalogs, and had net sales of approximately $70 million in 1994. USA Direct markets products through direct response television advertisements, typically 30 minutes long. USA Direct's 1994 net sales were $59 million. The Company, through subsidiaries, operates a joint venture with Montgomery Ward & Co., Incorporated. The joint venture does business as "Montgomery Ward Direct" and sells general merchandise using specialty catalogs. The Company accounts for its investment in Montgomery Ward Direct using the equity method of accounting. During 1993, the Company sold certain subsidiaries that did not fit into its long-term strategic direction. The Company sold the assets of COMB Corporation in September 1993 and sold the assets of FDC, Inc., a subsidiary of Figi's, effective as of December 31, 1993. In December 1993, the Company signed a letter of intent to sell Figi's, but during the fourth quarter of 1994, the purchaser was unable to complete its financing. As a result, the Company reversed the impact of the sale. In November 1994, the Company announced that it would scale back the operations of USA Direct. In March 1995, USA Direct entered into an alliance with Guthy-Renker Corporation, under which Guthy-Renker will manage infomercial production, media placement and market distribution and USA Direct will provide product development and sourcing, customer service and fulfillment. The Company is the successor to the business of several related companies, the first of which was a partnership formed in 1948. Fingerhut became a publicly held corporation in 1970 and was acquired by a predecessor of The Travelers Inc. ("Travelers") in 1979. The Company was incorporated in 1978 in connection with Travelers' acquisition of Fingerhut. In May 1990, the Company became a publicly held company upon completion of a public offering of a portion of the common stock held by Travelers (which at that time held substantially all of the Company's common stock). Travelers reduced its ownership to zero through subsequent public offerings and sales in 1991, 1992 and 1993. Unless the context otherwise indicates, references to the Company refer to Fingerhut Companies, Inc. and its subsidiaries. Fingerhut Corporation Introduction Fingerhut, one of the largest catalog marketers in the United States, sells general merchandise and financial service products to moderate income consumers. It is the only large general merchandise retailer that serves this market exclusively through catalog direct marketing. The median age of Fingerhut's customers is slightly lower than the national average and young families are a significant portion of its customer base. Fingerhut offers extended payment terms on all purchases under fixed term, fixed payment installment contracts and makes substantially all of its sales on credit utilizing its own closed-end credit. Fingerhut has used its extensive database, credit programs and proprietary database segmentation software to establish a dominant position in this market, with a large base of loyal, repeat customers. Fingerhut has an active customer base of approximately seven million established customers, which account for approximately 80% of Fingerhut's net sales. Marketing Marketing activities are divided into three primary programs: new customer acquisition, a transitional program and existing customer programs. During 1994, Fingerhut mailed approximately 558 million catalogs and other promotions to existing and prospective customers. Fingerhut's new customer acquisition program is designed to identify and attract new customers on a cost-effective basis. The primary sources of new customers are rented lists, advertisements in magazines and newspapers, television, catalog requests and other direct marketing solicitations. Fingerhut mails catalogs and other multi-product offerings to prospective customers and adds them to its data base as responses are received. These programs are intended to identify and target new customers who will become long-term Fingerhut customers. New customers account for approximately 20% of Fingerhut's net sales. The decisions on which prospective customers to solicit, which products to offer and which media to use are based upon the projected long-term profitability and internal rates of return of the program. Maintaining acceptable financial rates of return on new customers depends on balancing the cost of acquisition of new customers with their long-term profitability to Fingerhut. To determine whether the cost to obtain new customers is acceptable, Fingerhut maintains a system that monitors profitability by source of new customers, by type of product and by type of promotional media. Fingerhut also continuously tests various media, products, offerings and incentives and analyzes the results in order to maximize the effectiveness of its customer acquisition efforts. After first-time buyers commence payments on their initial purchases, they are placed into a transitional program. The amount of time a first-time buyer remains in a transitional program and the number and type of products he or she is offered depends on the buyer's purchasing and payment practices. A customer is placed on Fingerhut's promotable customer list after demonstrating his or her creditworthiness. Fingerhut reaches its existing customers through extensive promotional mailing efforts, primarily catalogs, and through telemarketing. In 1994, Fingerhut mailed 154 different catalogs and other promotions to its established customers. These mailings included general merchandise catalogs, specialty catalogs, small and large multi-product mailers and single product promotions. Management believes that the key factors in maximizing the profitability of its existing customer list are developing long-term repeat buyers and balancing customer response with appropriate credit losses and customer return rates for each segment of its customer list. Fingerhut promotes customer satisfaction and loyalty by extending credit; by using a number of marketing devices, including targeted promotions, deferred payments, 30-day free home trials, a "satisfaction assured" policy, free gifts, merchandise giveaways, and personalized mailings; and by offering attractive brand name and private label merchandise. Fingerhut is a leader in the development and use of information-based marketing concepts and management believes that Fingerhut's extensive data base and proprietary data base segmentation software afford it a significant competitive advantage within its market niche. The data base contains names, addresses, behavioral characteristics, general demographic information, information provided by the customer and information on the sources of the customers' initial responses. The data base is continually updated as new information is obtained. Credit Management Fingerhut generally does not require its customers to provide traditional credit information in order to approve purchases on credit. Instead of using traditional credit applications, Fingerhut has developed sophisticated and highly automated proprietary techniques for evaluating the creditworthiness of new and existing customers and for selecting those customers who will receive various categories of mailings. Management believes that Fingerhut's more than 45 years' experience in the mail order business, its data base containing purchase and payment histories of more than 30 million people and its significant investment in computer technology and proprietary analytical models give Fingerhut a unique ability to analyze the creditworthiness of customers in its market. The goal of the analysis is not to achieve the lowest possible credit losses but to balance credit losses and return rates with customer response, thereby optimizing profitability. Consequently, Fingerhut's planned credit losses typically are higher than other direct mail and retail companies. Once a customer places an order, Fingerhut employs proprietary techniques designed to identify customers whose orders can be automatically shipped, customers from whom additional information, including credit applications, must be obtained and reviewed and customers to whom credit is declined. After purchases are shipped, customer payments are continuously monitored to identify credit problems as early as possible. Fingerhut has a flexible policy of working with certain delinquent customers, including adjusting their payment schedules, which Fingerhut believes reduces default rates and maintains customer loyalty. Substantially all of Fingerhut's sales are made utilizing its own closed-end credit program, which uses fixed term, fixed payment installment plans. Monthly payments are made by customers and processed by Fingerhut through the use of coupons contained in payment books delivered with each order shipment. Payment terms to existing customers generally range from 4 to 32 monthly payments. In addition, a majority of sales are to customers who receive a deferred payment option, which extends the due date of the first payment by approximately four to five months. Many customers pay their accounts in full before the end of the scheduled payment term. Merchandising Fingerhut offers a broad mix of brand name and private label consumer products, including electronics, housewares, home textiles, apparel, furniture, home accessories, jewelry, sporting goods and toys, tools, automotive, lawn and garden, and financial service products. In 1994, Fingerhut offered nearly 15,000 different products. Fingerhut's sales mix by product category for 1994 is shown in the following table: Fingerhut Corporation 1994 Product Mix Percent of Gross Retail Sales Electronics 20 Home Textiles 18 Housewares 17 Furniture/Home Accessories 11 Apparel 9 Jewelry 8 Leisure 8 Tools/Automotive/Lawn & Garden 6 Financial Service Products and Other 3 ==== 100% Fingerhut selects merchandise to be offered to its customers by evaluating historical product and category demand and analyzing emerging merchandise trends in conjunction with proprietary marketing information. Fingerhut is constantly developing unique brand name and private label product groupings, such as coordinated kitchen ensembles, coordinated bed and bath ensembles and tool sets, targeted to appeal to its customers and to add value and/or style to its merchandise. Fingerhut's general merchandise catalogs feature a wide array of products; they are updated and published throughout the year, including a 448-page holiday big book. Specialty catalogs mailed to targeted portions of Fingerhut's customer list permit Fingerhut to expand the product selection and intensify the growth opportunities for certain product categories. These specialty catalogs include outdoor living, jewelry, electronics, domestics/housewares, gifts, juvenile, seniors, home fitness, home improvement and Spanish-language catalogs. Financial Services Fingerhut also offers its customers various financial service products, including credit insurance for life, property and disability, extended property insurance, accidental death, hospital income, whole life, and term life insurance. Additionally, merchandise service contracts are sold to customers that extend a manufacturer's warranty on labor and parts. Additional programs are being tested and, if successful, will be expanded in the near future. During 1994, the Company tested and monitored the results of a Fingerhut co-branded MasterCard issued by a third party bank. In 1994, the Company formed Direct Merchants Credit Card Bank, N.A. to expand the types of financial services products that may be offered to its customers. During 1995, Direct Merchants Credit Card Bank, N.A. will offer the Fingerhut co-branded MasterCard on a rollout basis and will also offer its own MasterCard to individuals who may not already be Fingerhut customers. The Bank has a contract with First Data Resources for credit card processing. Management Information Systems Fingerhut pioneered the use of information-based marketing concepts in the mail order industry, using computer technology and related software developed by the Company. The Company continues to be highly dependent on information systems and its computer operations are among the largest and most sophisticated in the direct marketing industry. Management believes that these operations, combined with Fingerhut's extensive data base and advanced information systems, have been key factors in its growth and profitability. Fingerhut's management information systems provide data processing capabilities to Fingerhut, Figi's, USA Direct and Montgomery Ward Direct and support all areas of the Company, including marketing, credit, order fulfillment, customer service, inventory control and finance. Fingerhut's management information systems currently operate on mainframe computers connected to on-line terminals and client-server systems used in all aspects of the Company's business. Preparation and Mailing of Promotional Materials Fingerhut performs a large portion of the production process for its promotional materials in house. The creative department uses desktop publishing for the design and production of all Fingerhut's mailings. A substantial portion of the color photographs used in Fingerhut's catalogs and other marketing materials are taken at the Company's in-house photo studio and Fingerhut prepares color separations for approximately 35% of its promotional materials. In addition, Fingerhut's eight-color web printing presses print more than half of its catalog "wraps", the personalized outside cover used on Fingerhut catalogs. Substantially all of the Company's promotional materials, except the wraps, are printed at outside vendors. Fingerhut's mailing operations are designed to provide the flexibility and rapid response time required to keep pace with its changing marketing and merchandising needs. Fingerhut has two mailing facilities in Minnesota that cut, fold, insert, sort and deliver to the post office its single and multiple product promotions. For catalog mailings, Fingerhut personalizes the catalog wraps and delivers them to its outside printers pre-sorted for mailing. The Company substantially reduces mailing costs by effectively using discounts offered by the United States Postal Service from the basic postal rates. For example, Fingerhut sorts mailings by zip code to the carrier route level and also prints the "zip plus four" barcode to obtain optimum postal discounts, resulting in savings not always available to smaller direct mail companies. In January 1995, the United States Postal Service increased its first class, third class and fourth class postage rates, which will increase the Company's overall postage rates by approximately 12%. In addition, the cost of paper has also increased. To reduce the effect of the postal and paper increases, Fingerhut will begin printing its catalogs on lighter weight paper, will work to improve the efficiency of its mailings by reviewing mailing depth and criteria and will also take steps to reduce its other operating expenses. The Company will adopt new innovations in mail processing techniques, as appropriate, and believes that the increasing cost and complexity of the postal rate structure will strengthen the long-term competitive position of larger, more sophisticated mail order firms such as Fingerhut. Order Processing and Fulfillment Fingerhut provides order processing and fulfillment services for USA Direct and Montgomery Ward Direct. Although most of Fingerhut's customer orders are received by mail, telephone ordering has become a more important part of Fingerhut's business. The majority of USA Direct's and Montgomery Ward Direct's customers place their orders by telephone. Fingerhut also offers its customers the option to place orders by telephone in selected promotions. In 1994, Fingerhut processed approximately 25 million Fingerhut, USA Direct and Montgomery Ward Direct orders and approximately 53 million Fingerhut, USA Direct and Montgomery Ward Direct customer payments. In 1994, Fingerhut shipped approximately 30 million Fingerhut, USA Direct and Montgomery Ward Direct packages from its warehouse and distribution facilities in Minnesota and Tennessee. In order to minimize shipping costs, packages are trucked to drop points throughout the country where they enter the USPS or the United Parcel Service systems for delivery to the customer. In addition, Fingerhut offers optional express delivery in selected promotions. Customer Service Management has continued its strong emphasis on customer service and retention. In 1993, the Company implemented phase one of a new Customer Contact System. For inbound callers, the system consolidates data from several databases into one format that puts more information on the telephone representative's screen, facilitating faster order taking and better customer service. Fingerhut offers special customer services to the top segment of its customers and has other programs to monitor customer satisfaction. Management believes these measures have resulted in increased effectiveness in handling customer communications, a higher overall level of customer satisfaction and improved customer retention. Figi's Inc. Figi's is a mail order retailer of specialty food gifts (such as quality cheeses, smoked meats, candies and baked goods) and other gifts headquartered in Marshfield, Wisconsin. The Company acquired Figi's in 1981. Figi's is one of the largest direct mail food gifts marketers in the United States, with 1994 net sales of approximately $70 million. New customers are acquired from sources similar to those used by Fingerhut, although Figi's customers include both moderate income consumers attracted by Figi's in-house credit terms and more affluent customers who use credit cards. Sales using Figi's interest-free, three payment credit terms constituted approximately 78% of its net sales in 1994. Figi's offerings are made predominantly in catalogs mailed prior to holidays and other gift-giving occasions such as Christmas, Easter, Valentine's Day and Mother's Day. Figi's business is highly seasonal, with approximately 82% of its net sales in the fourth quarter. Like Fingerhut, Figi's seeks to develop repeat business from customers by offering a "satisfaction assured" policy. During 1994, Figi's sales mix by product category was as follows: Figi's Inc. 1994 Product Mix Percent of Gross Retail Sales Cheese/Meat Selections 48% Baked Goods 14% Candy 8% Nuts/Snack Foods 7% Non-Food Gifts 7% Other Food Gifts 16% === 100% Figi's uses marketing techniques similar to those developed by Fingerhut, such as sweepstakes and in-house credit terms, to improve customer response and expand its customer base. Figi's also uses mailing list evaluation and segmentation techniques similar to those used by Fingerhut. In addition, Figi's offers its customers the opportunity to place orders by telephone and accepts payment by major credit card. In December 1993, the Company signed a letter of intent to sell Figi's, but during the fourth quarter of 1994, the purchaser was unable to complete its financing. As a result, the Company reversed the impact of the sale. USA Direct Incorporated USA Direct markets specially selected products primarily through 30-minute direct response television advertisements commonly known as "infomercials." These advertisements provide entertaining and informative product demonstrations and often feature a well known entertainer or other recognized individual. USA Direct's advertisements are distributed through cable networks and broadcast television stations. During 1994, these products included Body by Jake(R) Hip and Thigh Machine(TM), Bissell(R) Little Green Clean Machine(TM), Denise Austin(TM) Tone-up 1-2-3 and Body by Jake(R) Ab and Back Plus. USA Direct's sales mix by product category in 1994 was: 12% health and beauty, 72% fitness/leisure and 16% housewares. USA Direct's 1994 net sales were approximately $59 million. USA Direct promotes payment by major credit card and also offers its customers the option to pay for their purchases by credit card installment billing. USA Direct features a 30-day refund policy on all of its products. Products featured in USA Direct's television advertisements are later included in Fingerhut's and Montgomery Ward Direct's catalogs and identified "As seen on TV." In addition, USA Direct may receive royalties on successful products later sold in non-affiliated retail stores. In November 1994, the Company announced that it would scale back the operations of USA Direct in connection with cancellation of the startup of S The Shopping Network, a television shopping channel that was expected to support the operations of USA Direct. In March 1995, USA Direct entered into an alliance with Guthy-Renker Corporation, under which Guthy-Renker will manage infomercial production, media placement and market distribution and USA Direct will provide product development and sourcing, customer service and fulfillment. Montgomery Ward Direct The Company has a joint venture limited partnership with Montgomery Ward & Co., Incorporated ("Montgomery Ward"). The partnership is structured as a Delaware limited partnership in which the Company and Montgomery Ward, through subsidiaries, each have a 50% interest and conducts business under the name "Montgomery Ward Direct". Montgomery Ward Direct mails its catalogs primarily to Montgomery Ward credit card holders and certain outside rented lists and accepts payment through bank credit cards and the Montgomery Ward credit card. Receivables generated by sales made through the Montgomery Ward credit card are sold through Montgomery Ward to Montgomery Ward Credit Corporation in accordance with a previously existing agreement between Montgomery Ward and Montgomery Ward Credit Corporation. Montgomery Ward and the Company have agreed that the partnership will be, subject to certain exceptions, the exclusive vehicle for each to conduct the business of the partnership. During such time as the Company or one of its subsidiaries is a partner and for a period of up to three years thereafter (depending on the circumstance), the Company's direct mail marketing activities will be limited, with certain exceptions, to the extent that they would compete with the partnership. The business conducted by the partnership is not expected to materially affect the businesses of Fingerhut, Figi's or USA Direct. Montgomery Ward provides, without cost to the partnership, the use of the Montgomery Ward(R) tradename, certain information related to its active credit card account holders and has agreed to provide similar information with respect to future Montgomery Ward credit card account holders. Fingerhut provides certain customer names and certain creative, buying, order processing, customer service, computer services and warehousing services and facilities. During 1994, Fingerhut generally was reimbursed by the partnership for its costs incurred in providing the services and facilities. The Company and Montgomery Ward each contributed an initial $5 million to the partnership's capital and from time to time, have made short-term working capital loans. At December 30, 1994, the Company's aggregate investment in Montgomery Ward Direct was $5 million. The Company accounts for Montgomery Ward Direct using the equity method of accounting; accordingly, 50% of Montgomery Ward Direct's profits or losses are recorded in administrative expenses included in "Administrative and selling expenses" in the Company's Consolidated Statements of Earnings contained in the Company's consolidated financial statements. In 1994, Montgomery Ward Direct mailed 124 million catalogs generating net sales of $188 million. Other Business Activities The Company derives additional revenues from manufacturing plastic products, wholesaling excess merchandise and list rental and package inserts. Taken together, such activities accounted for less than 3% of the Company's 1994 net sales. Divested Subsidiaries Certain assets and liabilities of COMB Corporation, a subsidiary of the Company, were sold on September 3, 1993. In addition, the Company sold certain assets and liabilities of FDC, Inc., a subsidiary of Figi's, effective as of December 31, 1993. These businesses did not fit into the Company's long-term strategic direction. In November 1994, the Company cancelled the launch of S The Shopping Network, its proposed 24-hour cable television shopping channel. Competition The direct marketing industry includes a wide variety of specialty and general merchandise retailers and is both highly fragmented and highly competitive. The Company sells its products to customers in all states of the United States and competes in the purchase and sale of merchandise with all retailers. Fingerhut's traditional principal competitor in the business of direct marketing general merchandise to moderate income customers is J.C. Penney Company, Inc., which operates a large number of retail stores in addition to its mail order businesses and generates substantial catalog sales at its retail premises in addition to direct mail marketing. In the direct marketing retail industry, Fingerhut also competes with television shopping marketers, such as QVC Network, Inc. and Home Shopping Network, Inc. Fingerhut also competes with retail department stores, discount department stores and variety stores, many of which are national chains, for the general merchandise spending of its customers. The principal methods of competition within the direct marketing industry and in the Company's market segments include purchasing convenience, extension of credit, customer service, free trial and merchandise value. The Company believes that it is able to compete on the strength of its marketing strategy despite strong competitive pressures. Although barriers to entering the direct marketing business are minimal and many new companies have entered and may continue to enter the industry in competition with the Company, a substantial capital investment would be required to develop customer databases and software capabilities comparable to those of the Company. The Company believes that these assets are necessary to compete effectively in the Company's market niche, where the predictability of response rates and combined credit and return losses is critical. Other Information Seasonality The Company's business is seasonal. In 1994, approximately 36% of the Company's net sales and approximately 49% of its net earnings (excluding unusual charges) occurred in the fourth quarter. In addition to seasonal variations, the Company experiences variances in quarterly results from year to year that result from changes in the timing of its promotions and the types of customers and products promoted and, to some extent, variations in dates of holidays and the timing of quarter ends resulting from a 52/53 week year. Accordingly, the results of interim periods are not necessarily indicative of the results for the year. Costs of Mailing In 1994, the Company spent an aggregate of $256 million on postage (including the cost of parcel shipments that were passed on to customers) of which 45% was attributable to parcel shipments, 47% was attributable to the mailing of promotional materials and 8% was attributable to various correspondence with customers. As is customary in the direct mail industry, the Company passes on the cost of parcel shipments directly to the customer as part of the shipping and handling charge. The costs of mailing promotional material and certain other correspondence (including postage) are not directly passed on to customers, but are considered in the Company's overall product pricing and mailing strategies. In January 1995, the United States Postal Service increased its first class, third class and fourth class postage rates, which will increase the Company's overall postage rates by approximately 12%. In addition, the cost of paper has also increased. To reduce the effect of the postal increase, Fingerhut will begin printing its catalogs on lighter weight paper, will work to improve the efficiency of its mailings by reviewing mailing depth and criteria and will also take steps to reduce its other operating expenses. The Company will adopt new innovations in mail processing techniques, as appropriate. Vendor Relations The Company purchases products from approximately 2,500 different suppliers and maintains strong relations with its vendors. In 1994, the top ten vendors accounted for approximately 21% of the Company's total merchandise purchases, with Thomson Consumer Electric Inc. and Springs Industries Inc. each accounting for approximately 4% of the total merchandise purchases and Regency Bedspread Corporation and Diversified Products each accounting for approximately 2% of the total merchandise purchases. The Company maintains close relations with overseas representatives in Hong Kong, Taiwan, Korea, Philippines, Thailand and Europe. In 1994, approximately 19% of the Company's merchandise was imported directly from foreign vendors and approximately an additional 30% was purchased through importers. Employees As of December 30, 1994, the Company had approximately 9,000 employees, of whom approximately 3300 were represented by the Midwest Regional Joint Board or the Tennessee/Kentucky District _ Southern Regional Joint Board of the Amalgamated Clothing and Textile Workers Union. The Company's principal collective bargaining agreements expire on February 1, 1996 and February 2, 1997. The Company considers its relations with its employees and the union to be satisfactory. Trademarks and Tradenames The Company has registered and continues to register, when appropriate, various trademarks, tradenames and service marks used in connection with its business and for private label marketing of certain of its products. The Company considers its various trademarks and service marks to be readily identifiable with, and valuable to its business. Governmental Matters The Company's business is subject to regulation by a variety of state and federal laws and regulations related to, among other things, advertising, time payment pricing, offering and extending of credit, charging and collecting state sales and use taxes and product safety. The Company's practices in certain of these areas are subject to periodic inquiries and proceedings by various regulatory agencies. None of these actions has had a material adverse effect upon the Company. In addition, the operations of Fingerhut have been subject to certain federal and state consent decrees, the most recent dating back to 1978. These decrees regulate the manner in which products and gifts may be described by the Company and specific aspects of credit, advertising and merchandise substitution policies. The Company does not consider the existence of these decrees to be a significant impediment to its profitability or operations. As a nationally chartered credit card bank, Direct Merchants Credit Card Bank, N.A. is subject to federal and certain state banking laws and regulations, as well as those relating to offering and extending credit. From time to time the Company has received notices and inquiries from states with respect to collection of use taxes for sales to residents of these states. To the extent that any states are successful in such claims, the Company's cost of doing business could be increased, although it does not believe any increase would be material. Fingerhut relies on the Minnesota "time-price" doctrine in establishing and collecting installment payments on products sold in many states. Under this doctrine, the difference between the time price and the cash price for the same goods is not treated as interest subject to regulation under laws governing the extension of credit. In other states, Fingerhut is subject to regulations that limit maximum finance charges and require refunding of finance charges to customers under certain circumstances. Fingerhut believes that its time payment pricing and credit practices are in compliance with applicable state requirements. Any change of law that would negatively affect Fingerhut's pricing policies could have an adverse effect on the Company's profitability. Executive Officers of the Registrant Name Age Present Office Theodore Deikel 59 Chairman of the Board, Chief Executive Officer and President Rakesh K. Kaul 43 Vice Chairman and Chief Operating Officer Elizabeth A. Bothereau 43 Senior Vice President, Customer Services, Corporate and Environmental Affairs John K. Ellingboe 44 Senior Vice President, Business Development, General Counsel and Secretary Glenn L. Habern 50 Senior Vice President, Chief Information and Business Process Officer Richard B. Hoffmann 48 Senior Vice President, Credit Andrew V Johnson 39 Senior Vice President, Marketing Daniel J. McAthie 44 Senior Vice President, Chief Financial Officer James B. Moran 58 Senior Vice President, Operations and President, Fingerhut Fulfillment Services Richard L. Tate 49 Senior Vice President, Merchandising Ronald N. Zebeck 40 President, Fingerhut Financial Services Corporation Robert W. Oberrender 35 Vice President, Treasurer Thomas C. Vogt 48 Corporate Controller Theodore Deikel has served as Chairman of the Board, Chief Executive Officer and President since 1989. From 1985 until rejoining the Company, Mr. Deikel served as Chairman and CEO of CVN Companies, Inc. ("CVN"), a direct marketing company using television and direct mail. From 1979 to 1983, Mr. Deikel was Executive Vice President of American Can Company (a predecessor to Travelers) and Chairman of American Can Company's specialty retailing division, which included the Company. In addition, Mr. Deikel was Chief Executive Officer of Fingerhut from 1975 to 1983. Rakesh K. Kaul was appointed Chief Operating Officer in March 1995 and has been Vice Chairman since May 1994; he was Executive Vice President and Chief Administrative Officer from January 1992 to May 1994. Prior to joining the Company, Mr. Kaul held several positions at Shaklee Corporation, a direct marketing company: he was Chief Financial and Strategy Officer from 1990 to April 1991 and Senior Vice President, Corporate Development and Planning from 1989 to 1990. Elizabeth A. Bothereau has been Senior Vice President, Customer Services, Corporate and Environmental Affairs of the Company since October 1993. Prior to that time, she held the positions of Vice President, Consumer and Environmental Affairs of the Company from January 1991 to October 1993; and Director, Business Development of Fingerhut from June 1990 to January 1991. Ms. Bothereau was Senior Vice President, Administration of MedTrac, a health care cost containment company, from July 1989 to June 1990. John K. Ellingboe has been Senior Vice President, Business Development, since October 1993, General Counsel of the Company since June 1990 and Secretary of the Company since April 1990. Prior to that time he was a shareholder of Briggs and Morgan, Professional Association, a law firm, from 1987 to April 1990. Glenn L. Habern has been Senior Vice President and Chief Information Officer of the Company since April 1991. Mr. Habern was a Partner and was Director of Retail Systems Consulting of Ernst & Young, independent accountants, from 1987 to April 1991. Richard B. Hoffmann has been Senior Vice President, Credit of the Company since October 1993 and in March 1995 was also given responsibility for New Ventures. Prior to that time, he was Vice President, Credit of the Company from November 1989 to October 1993. Andrew V Johnson has been Senior Vice President, Marketing of the Company since January 1993. Prior to that time, he was Vice President, Marketing of the Company from November 1989 to January 1993 and held various marketing positions at Fingerhut prior to 1989. Daniel J. McAthie became Senior Vice President, Chief Financial Officer of the Company in January 1994. Prior to that time he was Vice President and Treasurer of the Company from June 1990 to December 1993 and Vice President and Treasurer of CVN from 1987 to 1990. Mr. McAthie has resigned effective as of April 1, 1995. James B. Moran has been Senior Vice President, Operations since January 1992 and was Senior Vice President, Subsidiaries from September 1991 to January 1992. From 1988 until joining the Company, Mr. Moran was President and Chief Executive Officer of Tru-Part Manufacturing, a wholesale distribution company. Richard L. Tate has been Senior Vice President, Merchandising of the Company since October 1993. Prior to that time he was Vice President, Merchandising of the Company from December 1989 to October 1993. He was Vice President, Merchandising of CVN from March to December, 1989. Ronald N. Zebeck was hired as President of Fingerhut Financial Services Corporation in March 1994 and is also a Senior Vice President of the Company. He was Managing Director, GM Card Operations of General Motors Corporation from 1991 to 1993 and director of marketing of Advanta Corporation from 1987 to 1991. Robert W. Oberrender has been Vice President, Treasurer of the Company since July 1994. Prior to that time, he was Assistant Treasurer of the Company from February 1993 to July 1994 and was Vice President, Corporate Finance & Banking Group of Chemical Bank for more than five years prior to February 1993. Thomas C. Vogt has been Corporate Controller since November 1994. Prior to that time, he was Assistant Controller, Operations of the Company from August 1991 to October 1994 and was Vice President and Controller of Hanover Direct, Inc. from April 1989 to July 1991. He held various financial positions at Fingerhut from October 1973 to March 1989. Officers of the Company are elected by, and hold office at the will of, the Board of Directors and do not serve a "term of office" as such. Item 2. Properties The Company's executive and administrative offices and warehouse and distribution facilities are located in a number of facilities in Minnesota, Tennessee, Utah and Wisconsin. The total facilities presently used by the Company's continuing operations have an aggregate of approximately 4.9 million square feet, including a 547,000 square foot expansion to its St. Cloud warehouse and distribution center that became operational in the fourth quarter of 1994. Of these, Fingerhut owns buildings in St. Cloud with an aggregate of approximately 1.5 million square feet, in Alexandria with an aggregate of approximately 53,000 square feet, and in Mora with approximately 160,000 square feet. Figi's owns buildings in Marshfield, Wisconsin with an aggregate of approximately 317,000 square feet. Tennessee Distribution, Inc., a subsidiary of the Company, owns a one million square foot warehouse and distribution facility near Bristol, Tennessee. The Company leases the remainder of the facilities it uses, which consist of office, operations and warehouse space, including a 188,000 square foot office building in Minnetonka. The lessor of such facilities has exercised its right to require the Company to purchase those facilities for approximately $15 million in 1995. In order to improve efficiency and accommodate future growth, the Company is constructing a new 185,000 square foot data and technology center in Plymouth, Minnesota, which is expected to open in mid-1995. In addition, the Company has begun constructing a one million square foot warehouse and distribution center in Spanish Fork, Utah. Item 3. Legal Proceedings The Company is a party to various claims, legal actions, sales/use tax disputes and other complaints arising in the ordinary course of business. In the opinion of management, any losses that may occur are adequately covered by insurance, are provided for in the financial statements, or are without merit and the ultimate outcome of these matters will not have a material effect on the financial position or operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders during the fourth quarter of the Company's fiscal year ended December 30, 1994. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The information required by this item is set forth in "Quarterly Financial and Stock Data" on page 31 of the Company's Annual Report to Shareholders for the fiscal year ended December 30, 1994 (the "1994 Annual Report") and is incorporated herein by reference. Item 6. Selected Financial Data The information required by this item is set forth under the caption "Five Year Summary of Selected Consolidated Financial Data" on page 14 of the 1994 Annual Report and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is set forth under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 15 to 18 of the 1994 Annual Report and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The audited Consolidated Financial Statements of the Registrant and independent auditors' report thereon and the unaudited Quarterly Financial and Stock Data set forth on pages 19 to 31 of the 1994 Annual Report are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant The information required by this item with respect to directors is set forth under "Proposal 1: Election of Directors" in the Company's proxy statement for the annual meeting of shareholders to be held on May 18, 1995, which will be filed within 120 days of December 30, 1994 (the "Proxy Statement") and is incorporated herein by reference. The information required by this item with respect to executive officers is, pursuant to instruction 3 of Item 401(b) of Regulation S-K, set forth in Part I of this Form 10-K under "Business--Executive Officers of the Registrant." The information required by this item with respect to reports required to be filed under Section 16(a) of the Securities Exchange Act of 1934 is set forth under "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement and is incorporated by reference. Item 11. Executive Compensation The information required by this item is set forth under "Executive Compensation" in the Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is set forth under "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information required by this item is set forth under "Arrangements and Transactions with Related Parties" in the Proxy Statement and is incorporated herein by reference. With the exception of the information incorporated by reference in Items 10-13 above, the Proxy Statement is not to be deemed filed as part of this Form 10-K. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are made part of this report: 1. Consolidated Financial Statements. The following consolidated financial statements, the related notes and the report of the Company's independent auditors are incorporated herein by reference from the 1994 Annual Report as part of this report at Item 8 hereof: Independent Auditors' Report dated January 23, 1995. Consolidated Statements of Earnings for the three fiscal years ended December 30, 1994. Consolidated Statements of Financial Position at December 30, 1994 and December 31, 1993. Consolidated Statements of Changes in Stockholders' Equity for the three fiscal years ended December 30, 1994. Consolidated Statements of Cash Flows for the three fiscal years ended December 30, 1994. Notes to Consolidated Financial Statements. With the exception of the foregoing information and the information incorporated by reference in Items 5- 8 of this Part II, the 1994 Annual Report is not to be deemed filed as part of this Form 10-K. 2. Financial Statement Schedule: The following schedule for the three years ended December 30, 1994 is included in this Form 10-K: Independent Auditors' Report on consolidated financial statement schedule dated January 23, 1995. Schedule VIII - Valuation and Qualifying Accounts. Certain schedules have been omitted because they are not required under the related instructions or are inapplicable, or because the required information is included elsewhere in the financial statements or related notes. (b) Reports on Form 8-K: None (c) Exhibits: See Exhibit Index on page 20 of this Report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th day of March, 1995. FINGERHUT COMPANIES, INC. (Registrant) By /s/ Theodore Deikel Theodore Deikel Chairman of the Board, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Fingerhut Companies, Inc., the Registrant, and in the capacities and on the dates indicated. Signature Title Date Principal executive Chairman of the Board, March 29, 1995 officer and director: Chief Executive Officer and President /s/ Theodore Deikel Theodore Deikel Principal financial officer: Senior Vice President, March 29, 1995 Chief Financial Officer /s/ Daniel J. McAthie Daniel J. McAthie Principal accounting officer:Corporate Controller March 29, 1995 /s/ Thomas C. Vogt Thomas C. Vogt Directors: /s/ Wendell R. Anderson Director March 29, 1995 Wendell R. Anderson /s/ Edwin C. Gage Director March 29, 1995 Edwin C. Gage /s/ Stanley S. Hubbard Director March 29, 1995 Stanley S. Hubbard /s/ Rakesh K. Kaul Director March 29, 1995 Rakesh K. Kaul /s/ Richard M. Kovacevich Director March 29, 1995 Richard M. Kovacevich /s/ Dudley C. Mecum Director March 29, 1995 Dudley C. Mecum EXHIBIT INDEX Exhibit Number Description of Exhibit Articles of Incorporation and Bylaws 3.a Amended and Restated Articles of Incorporation of the Registrant (restated in electronic format as amended to July 29, 1993)(Incorporated by reference to Exhibit 3.a to Registrant's Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 31, 1993). 3.b Bylaws of the Registrant (restated in electronic format as amended to July 29, 1993)(Incorporated by reference to Exhibit 3.b to Registrant's Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 31, 1993). Material Contracts 10.a Pooling and Servicing Agreement dated as of June 29, 1994 among Fingerhut Receivables, Inc., as Transferor, Fingerhut Corporation, as Servicer, and The Bank of New York (Delaware), as Trustee (Incorporated by reference to Exhibit 10.b to Registrant's Quarterly Report on Form 10-Q (File No. 1-8668) for the fiscal quarter ended July 1, 1994). (i) Series 1994-1 Supplement dated as of June 29, 1994 (Incorporated by reference to Exhibit 10.b(i) to Registrant's Quarterly Report on Form 10-Q (File No. 1-8668) for the fiscal quarter ended July 1, 1994). (ii)Series 1994-2 Supplement dated as of November 15, 1994. 10.b Purchase Agreement dated as of June 29, 1994 between Fingerhut Receivables, Inc., as Buyer, and Fingerhut Corporation, as Seller (Incorporated by reference to Exhibit 10.a. to Registrant's Quarterly Report on Form 10-Q (File No. 1-8668) for the fiscal quarter ended July 1, 1994). 10.c Six Lease and Option Agreements, each effective January 1, 1990, and each between the Registrant and Transport Life Insurance Company (Incorporated by reference to Exhibit 10(c) to Registrant's Registration Statement on Form S-1 (No. 33-33923)). 10.d* Fingerhut Corporation Profit Sharing Plan 1989 Revision (Incorporated by reference to Exhibit 10(d) to Registrant's Registration Statement on Form S-1 (No. 33-33923)). 10.e* Fingerhut Companies, Inc. and Subsidiaries 1994 Key Management Incentive Bonus Plan for Designated Corporate Officers (Incorporated by reference to Exhibit 10.e to Registrant's Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 31, 1993). 10.f* Fingerhut Corporation Pension Plan 1990 Revision (Incorporated by reference to Exhibit 10(f) to Registrant's Registration Statement on Form S-1 (No. 33-33923)). 10.g* Fingerhut Companies, Inc. Stock Option Plan (Incorporated by reference to Exhibit 10(h) to Registrant's Registration Statement on Form S-1 (No. 33-33923)). 10.h* Executive Tax Planning/Preparation and Financial Planning Policy. 10.i Intentionally left blank. 10.j* Fingerhut Companies, Inc. 1992 Long-Term Incentive and Stock Option Plan. (Incorporated by reference to (Exhibit 10(j) to Registrant's Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 25, 1992). 10.k* Fingerhut Companies, Inc. and Subsidiaries Annual Incentive Bonus Plan for Designated Corporate Officers (Incorporated by reference to Exhibit 10.k to Registrant's Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 31, 1993). 10.l* Fingerhut Companies, Inc. Performance Enhancement Investment Plan. (Incorporated by reference to Exhibit 10(l) to Registrant's Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 25, 1992). 10.m* Fingerhut Companies, Inc. Directors' Retainer Stock Deferral Plan (Incorporated by reference to Exhibit 10.m to Registrant's Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 31, 1993). 10.n Amended and Restated Revolving Credit and Letter of Credit Facility dated as of October 17, 1994, among Fingerhut Companies, Inc., the Guarantors party thereto, the Lenders party thereto, the Issuing Banks party thereto, Chemical Bank as Agent and NationsBank of North Carolina N.A., as Co-Agent (Incorporated by reference to Exhibit 10.n to Registrant's Quarterly Report on Form 10-Q (File No. 1-8668) for the fiscal quarter ended September 30, 1994). 10.o Form of Purchase Agreement dated as of January 14, 1991, relating to the sale of $65,000,000 of 9.81% Senior Notes, Series A, due June 30, 1996 and $25,000,000 of 10.12% Senior Notes, Series B, due December 30, 1997 (Incorporated by reference to Exhibit 10(o) to Registrant's Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 28, 1990). (i) First Amendment Agreement dated as of March 1, 1992. (Incorporated by reference to Exhibit 10(o)(i) to Registrant's Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 27, 1991). (ii) Second Amendment Agreement dated as of June 17, 1994. 10.p Purchase Agreement dated as of February 15, 1991, relating to the sale of $20,000,000 of 9.74% Senior Notes, Series C, due August 15, 1996 (Incorporated by reference to Exhibit 10(p) to Registrant's Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 28, 1990). (i) First Amendment Agreement dated as of March 1, 1992. (Incorporated by reference to Exhibit 10(p)(i) to Registrant's Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 27, 1991). (ii) Second Amendment Agreement dated as of June 17, 1994. This document is being omitted from filing pursuant to Instruction 2 to Item 601 of Regulation S-K. 10.q Purchase Agreement dated as of January 15, 1992, relating to the sale of $15,000,000 of 6.96% Senior Notes, Series D, due August 15, 1996. (Incorporated by reference to Exhibit 10(q) to Registrant's Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 27, 1991). (i) First Amendment Agreement dated as of March 1, 1992. (Incorporated by reference to Exhibit 10(q)(i) to Registrant's Annual Report on From 10-K (File No. 1-8668) for the fiscal year ended December 27, 1991). (ii) Second Amendment Agreement dated as of June 17, 1994. This document is being omitted from filing pursuant to Instruction 2 to Item 601 of Regulation S-K. 10.r Pledge Agreement dated as of March 20, 1992, securing the Company's obligations under the Credit Agreement and its Senior Notes, Series A, B, C and D. (Incorporated by reference to Exhibit 10(r) to Registrant's Annual Report on Form 10-K (File No. 1-8668 for the fiscal year ended December 27, 1991). 10.s Purchase Agreement dated as of June 15, 1992, relating to the sale of $60,500,000 of 8.92% Senior Unsecured Notes, Series A, due June 15, 2002 and $14,500,000 of 8.92% Senior Unsecured Notes, Series B, due June 15, 2004 (Incorporated by reference to Exhibit 10(s) to Registrant's Quarterly Report on form 10-Q (File No. 1-8668) for the fiscal quarter ended June 26, 1992. (i) First Amendment Agreement dated as of June 17, 1994. This document is being omitted from filing pursuant to Instruction 2 to Item 601 of Regulation S-K. 10.t Purchase Agreement dated as of August 1, 1993, relating to the sale of $45,000,000 of 6.83% Senior Unsecured Notes, Series C, due August 1, 2000 (Incorporated by reference to Exhibit 10.t to Registrant's Quarterly Report on Form 10-Q (File 1-8668) for the fiscal quarter ending September 24, 1993). (i) First Amendment Agreement dated as of June 17, 1994. This document is being omitted from filing pursuant to Instruction 2 to Item 601 of Regulation S-K. Other Exhibits 11 Computation of Earnings per Share 13 Pages 14 to 31 of the 1994 Annual Report to Shareholders. The 1994 Annual Report shall not be deemed to be filed with the Commission except to the extent that information is specifically incorporated herein by reference. Exhibit 13 also includes a financial statement schedule, and independent auditors' report thereon, that was not part of the 1994 Annual Report. 22 Subsidiaries of the Registrant 23 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedules ______ * Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. EX-10 2 EX-10.A(II) EXHIBIT 10.a(ii) SERIES 1994-2 SUPPLEMENT, dated as of November 15, 1994 (this "Series Supplement") by and among FINGERHUT RECEIVABLES, INC., a corporation organized and existing under the laws of the State of Delaware, as Transferor (the "Transferor"), FINGERHUT CORPORATION, a corporation organized and existing under the laws of Minnesota, as Servicer (the "Servicer"), and THE BANK OF NEW YORK (DELAWARE), a Delaware banking corporation organized and existing under the laws of Delaware, as trustee (together with its successors in trust thereunder as provided in the Agreement referred to below, the "Trustee") under the Pooling and Servicing Agreement dated as of June 29, 1994 as amended, supplemented or otherwise modified from time to time (the "Agreement") among the Transferor, the Servicer and the Trustee. Section 6.9 of the Agreement provides, among other things, that the Transferor and the Trustee may at any time and from time to time enter into a supplement to the Agreement for the purpose of authorizing the issuance by the Trustee to the Transferor, for execution and redelivery to the Trustee for authentication, of one or more Series of Certificates. Pursuant to this Series Supplement, the Transferor and the Trustee shall create a new Series of Investor Certificates and shall specify the Principal Terms thereof. 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 generally as the "Series 1994-2 Certificates." The Series 1994-2 Certificates shall be issued in four Classes, which shall be designated generally as the Variable Funding Trust Certificate, Series 1994-2, Class A (the "Class A Certificate"), the Floating Rate Accounts Receivable Trust Certificates, Series 1994-2, Class B (the "Class B Certificates"), the Floating Rate Accounts Receivable Trust Certificates, Series 1994-2, Class C (the "Class C Certificates") and the Variable Funding Trust Certificates, Series 1994-2, Class D (the "Class D Certificates"). 2. Definitions. In the event that any term or provision contained herein shall conflict with or be inconsistent with any provision contained in the Agreement, the terms and provisions of this Series Supplement shall govern with respect to the Series 1994-2 Certificates. 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 defined in the Agreement. Each capitalized term defined herein shall relate only to the Series 1994-2 Certificates and no other Series of Certificates issued by the Trust. "ABC Fixed/Floating Allocation Percentage" shall mean for any Business Day the percentage equivalent of a fraction, the numerator of which is the sum of the Class A Adjusted Invested Amount, the Class B Invested Amount and the Class C Invested Amount at the end of the last day of the Revolving Period and the denominator of which is the greater of (a) the sum of the aggregate amount of Principal Receivables and the amount on deposit in the Excess Funding Account at the end of the preceding Business Day and (b) the sum of the numerators used to calculate the allocation percentages with respect to Principal Receivables for all Series; provided, however, that during any Class A Pay Down Period, the numerator used in the above calculation shall be the sum of the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount as of the day immediately preceding the commencement of the Class A Pay Down Period. "ABC Investor Default Amount" shall mean an amount equal to the product of (a) the sum of the Class A Floating Allocation Percentage, the Class B Floating Allocation Percentage and the Class C Floating Allocation Percentage applicable on such Business Day and (b) the aggregate Default Amount identified since the prior reporting date. "ABC Revolving Principal Collections" shall have the meaning specified in Section 4.9(b) of the Agreement. "Additional Class A Invested Amounts" shall have the meaning specified in Section 6.15 of the Agreement. "Additional Class D Invested Amounts" shall have the meaning specified in Section 6.16 of the Agreement. "Additional Interest" shall mean, at any time of determination, the sum of Class B Additional Interest and Class C Additional Interest. "Adjusted Portfolio Yield" shall mean for the Series 1994-2 Certificates, with respect to any Monthly Period, the annualized percentage equivalent of a fraction, the numerator of which is an amount equal to the sum of the aggregate amount of Available Series 1994-2 Imputed Yield Collections (without giving effect to any portion thereof representing amounts withdrawn from the Payment Reserve Account) for such Monthly Period (minus the Floating Allocation Percentage of the portion of Imputed Yield Collections for such period described in clause (D) of the definition thereof), minus the aggregate Investor Default Amount for such Monthly Period and the Series Allocation Percentage of any Adjustment Payments which the Transferor is required but fails to make pursuant to the Pooling and Servicing Agreement for such Monthly Period, and the denominator of which is the average daily sum of the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount plus the Pre-Funded Amount for such Monthly Period. "Aggregate ABC Principal Amount" shall mean with respect to any date of determination an amount equal to the sum of the Class A Outstanding Principal Amount, the Class B Invested Amount and the Class C Invested Amount, each as of such date of determination. "Aggregate Interest Rate Caps Notional Amount" shall mean with respect to any date of determination an amount equal to the sum of the notional amounts or equivalent amounts of all outstanding Cap Agreements, Replacement Interest Rate Caps and Qualified Substitute Arrangements, each as of such date of determination. "Amortization Period" shall mean the period beginning on the day following the last day of the Revolving Period and ending on the Series 1994-2 Termination Date. "Amortization Period Commencement Date" shall mean (i) the earlier of October 27, 1997 and the Pay Out Commencement Date or (ii) if there is any Extension, the earlier of the date specified as such in the most recent Extension Notice and the Pay Out Commencement Date. "Available Series 1994-2 Imputed Yield Collections" shall have the meaning specified in subsection 4.9(a) of the Agreement. "Bank" shall mean any liquidity bank providing liquidity for the CP Issuer's Commercial Paper from time to time pursuant to the Liquidity Agreement, as evidenced by its execution thereof, and any successor or assignee liquidity banks under the Liquidity Agreement. "Base Rate" shall mean, as of any Business Day, the sum of (i) the average of (A) the Class A Certificate Rate, (B) the Class B Certificate Rate and (C) the Class C Certificate Rate, each of (A), (B) and (C) weighted by the unpaid principal amount of each respective Class of Certificates as of such Business Day, plus (ii) the product of 2% per annum and the percentage equivalent of a fraction the numerator of which is the sum of the Class A Adjusted Invested Amount, the Class B Invested Amount, the Class C Invested Amount and the Class D Invested Amount and the denominator of which is the Invested Amount. "Cap Agreements" shall mean the interest rate cap agreements, between the Transferor, the Trustee and a Cap Provider, as amended from time to time, with respect to the Class A Certificate Rate, Class B Certificate Rate and Class C Certificate Rate, respectively, and any additional interest rate protection agreement or agreements, entered into between the Transferor, the Trustee and a Cap Provider, as the same may from time to time be amended, restated, modified and in effect. "Cap Proceeds Account" shall have the meaning specified in subsection 3A(b) of this Series Supplement. "Cap Provider" shall mean a third party cap provider having a senior unsecured debt rating of at least "AA" by Standard & Poor's and "Aa2" by Moody's. "Cap Receipt Amount" shall mean, with respect to any Business Day the amount on deposit in the Cap Proceeds Account. "Cap Settlement Date" shall have the meaning specified in subsection 3A(b) of this Series Supplement. "Carryover Class B Interest" shall mean (a) any Class B Interest due but not paid on any previous Distribution Date plus (b) any Class B Additional Interest. "Carryover Class C Interest" shall mean (a) any Class C Interest due but not paid on any previous Distribution Date plus (b) any Class C Additional Interest. "Class A Adjusted Invested Amount" shall mean, with respect to any date of determination, an amount equal to the Class A Invested Amount minus the Defeasance Account Balance on such date of determination. "Class A Certificateholder" shall mean the Person in whose name a Class A Certificate is registered in the Certificate Register. "Class A Certificateholders' Interest" shall mean the portion of the Series 1994-2 Certificateholders' Interest evidenced by the Class A Certificate. "Class A Certificate" shall mean the variable funding certificate executed by the Transferor and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A-1 hereto. "Class A Certificate Rate" shall mean with respect to any Business Day, a per annum interest rate equal to the rate which if multiplied by the Class A Outstanding Principal Amount as of the close of business on the preceding Business Day would produce, on the basis of a 365- or 366-day year, as the case may be, an amount equal to the Cost of Funds for the period from and including the next preceding Business Day to but excluding such Business Day. "Class A Costs" shall mean with respect to any Business Day, the Liquidity Bank Increased Costs (as defined in the Collateral Trust Agreement), OTC Article VI Costs (as defined in the Collateral Trust Agreement) and any amounts described in subsection 5.3(a)(ii)(I)(a) of the Collateral Trust Agreement, in each case to the extent such amount is due and payable and has not previously been paid, and any Commitment Fees (as defined in the Liquidity Agreement) accrued from and including the preceding Business Day to but excluding such Business Day pursuant to Section 2.9 of the Liquidity Agreement with respect to Unutilized Available Commitments (as defined in the Liquidity Agreement) and any such Commitment Fees which accrued with respect to prior Business Days but have not been paid pursuant to Section 2.9 of the Liquidity Agreement. "Class A Event of Default" shall have the meaning specified for the term "Event of Default" in the Liquidity Agreement. "Class A Floating Allocation Percentage" shall mean, with respect to any Business Day, the percentage equivalent of a fraction, the numerator of which is the Class A Adjusted Invested Amount as of the end of the preceding Business Day and the denominator of which is the greater of (a) the total amount of Principal Receivables in the Trust and the amounts on deposit in the Excess Funding Account as of the end of the preceding Business Day and (b) when used with respect to Principal Collections only, the sum of the numerators with respect to all Classes of all Series then outstanding used to calculate the applicable allocation percentage. "Class A Funding Purchase" shall have the meaning specified in Section 4.14A of the Agreement. "Class A Interest" shall mean the interest distributable in respect of the Class A Certificate as calculated in accordance with subsection 4.6(a) of the Agreement. "Class A Interest Adjustment" shall have the meaning specified in Section 4.6A of the Agreement. "Class A Interest Shortfall" shall have the meaning specified in subsection 4.6(a) of the Agreement. "Class A Invested Amount" shall mean, when used with respect to any Business Day, an amount equal to (a) the principal amount of Class A Certificates purchased pursuant to any Class A Funding Purchase pursuant to Section 4.14A(b) of the Agreement, plus (b) the aggregate amount of all Class A Pre-Funding Withdrawals pursuant to Section 4.15 of the Agreement, minus (c) the aggregate amount of principal payments (except principal payments, if any, made from the Pre-Funding Account) made to Class A Certificateholders prior to such Business Day, minus (d) the aggregate amount of Class A Investor Charge-Offs for all prior Distribution Dates, plus (e) the sum of the aggregate amount allocated with respect to Class A Investor Charge-Offs and available on all prior Distribution Dates pursuant to subsection 4.9(a)(viii) of the Agreement and, with respect to such subsection and pursuant to subsections 4.10(a) and (b) and Section 4.16 of the Agreement, for the purpose of reinstating amounts reduced pursuant to the foregoing clause (d) plus (f) the aggregate principal amount of any Additional Class A Invested Amounts purchased pursuant to Section 6.15 of the Agreement. "Class A Investor Charge-Offs" shall have the meaning specified in subsection 4.13(d) of the Agreement. "Class A Investor Percentage" shall mean, for any Business Day, (a) with respect to Imputed Yield Receivables and Defaulted Receivables at any time or Principal Receivables during the Revolving Period (except for any portion of the Revolving Period that occurs during the Class A Pay Down Period), the Class A Floating Allocation Percentage and (b) with respect to Principal Receivables during the Amortization Period and the Class A Pay Down Period, the ABC Fixed/Floating Allocation Percentage. "Class A Maximum Invested Amount" shall mean $412,400,000. "Class A Outstanding Principal Amount" shall mean with respect to the Class A Certificate, when used with respect to any Business Day, an amount equal to (a) the principal amount of Class A Certificates purchased pursuant to any Class A Funding Purchase pursuant to Section 4.14A(b) of the Agreement, or (b) the aggregate amount of the Class A Pre-Funding Deposit pursuant to Section 4.14 of the Agreement, plus (c) the aggregate principal amount of any Additional Class A Invested Amounts purchased by the Class A Certificateholder on or prior to such Business Day pursuant to Section 6.15 of the Agreement minus (d) the aggregate amount of principal payments made to the Class A Certificateholder on or prior to such Business Day. "Class A Pay Down Period" shall have the meaning specified in Section 8A of this Series Supplement. "Class A Percentage" shall mean a fraction the numerator of which is the Class A Invested Amount and the denominator of which is the sum of the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount. "Class A Pre-Funded Amount" shall mean on any date of determination in the Pre-Funding Period an amount equal to the Class A Pre-Funding Deposit minus the aggregate amount of all Class A Pre-Funding Withdrawals and at all other times an amount equal to zero. "Class A Pre-Funding Deposit" shall have the meaning specified in Section 4.14 of the Agreement. "Class A Pre-Funding Withdrawal" shall have the meaning specified in Section 4.15 of the Agreement. "Class A Principal" shall mean the principal distributable in respect of the Class A Certificate as calculated in accordance with subsection 4.7(a) of the Agreement. "Class A Purchase Agreement" shall mean the Class A Purchase Agreement, dated as of November 15, 1994, between Fingerhut Owner Trust and the Transferor, as the same may from time to time be amended, restated, modified and in effect. "Class A Required Amount" shall mean the amount determined by the Servicer on each Business Day equal to the excess, if any, of (x) the sum of (i) the amount described in subsection 4.9(a)(i)(y) for such Business Day, (ii) if Fingerhut or an Affiliate of Fingerhut is no longer the Servicer, the Class A Floating Allocation Percentage of the Daily Portion of the Servicing Fee for the then current Monthly Period, (iii) the Class A Floating Allocation Percentage of the Default Amount, if any, for such Business Day and, to the extent not previously paid, for any previous Business Day in such Monthly Period and (iv) on each Transfer Date the Class A Percentage of the Series Allocation Percentage of the Adjustment Payment required to be made by the Transferor but not made on such Transfer Date over (y) the Available Series 1994-2 Imputed Yield Collections plus any Excess Imputed Yield Collections from other Series and any Transferor Imputed Yield Collections allocated with respect to the amounts described in clauses (x)(i) through (iv). "Class B Additional Interest" shall have the meaning specified in subsection 4.6(b) of the Agreement. "Class B Certificateholder" shall mean the Person in whose name a Class B Certificate is registered in the Certificate Register. "Class B Certificateholders' Interest" shall mean the portion of the Series 1994-2 Certificateholders' Interest evidenced by the Class B Certificates. "Class B Certificate Rate" shall mean with respect to each Interest Accrual Period, a per annum rate .625% in excess of LIBOR, as determined on the related LIBOR Determination Date. "Class B Certificates" shall mean any of the certificates executed by the Transferor and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A-2 hereto. "Class B Daily Principal Amount" shall have the meaning specified in subsection 4.9(c)(ii) of the Agreement. "Class B Fixed/Floating Allocation Percentage" shall mean for any Business Day the percentage equivalent of a fraction, the numerator of which is the Class B Invested Amount at the end of the last day of the Revolving Period and the denominator of which is the greater of (a) the sum of the aggregate amount of Principal Receivables and the amount on deposit in the Excess Funding Account at the end of the preceding Business Day and (b) the sum of the numerators used to calculate the allocation percentages with respect to Principal Collections for all Series. "Class B Floating Allocation Percentage" shall mean, with respect to any Business Day, the percentage equivalent of a fraction, the numerator of which is the Class B Invested Amount as of the end of the preceding Business Day and the denominator of which is the greater of (a) the total amount of Principal Receivables in the Trust and the amount on deposit in the Excess Funding Account as of the end of the preceding Business Day and (b) when used with respect to Principal Collections only, the sum of the numerators with respect to all Classes of all Series then outstanding used to calculate the applicable allocation percentage. "Class B Full Invested Amount" shall mean $27,865,000. "Class B Funding Purchase" shall have the meaning specified in Section 4.14A of the Agreement. "Class B Interest" shall mean the interest distributable in respect of the Class B Certificates as calculated in accordance with subsection 4.6(b) of the Agreement. "Class B Interest Adjustment" shall have the meaning specified in Section 4.6A of the Agreement. "Class B Interest Shortfall" shall have the meaning specified in subsection 4.6(b) of the Agreement. "Class B Invested Amount" shall mean, when used with respect to any Business Day, an amount equal to (a) the principal amount of Class B Certificates purchased pursuant to any Class B Funding Purchase pursuant to Section 4.14A(b) of the Agreement plus (b) the aggregate amount of all Class B Pre-Funding Withdrawals pursuant to Section 4.15 of the Agreement, minus (c) the aggregate amount of principal payments (except principal payments, if any, made from the Pre-Funding Account) made to Class B Certificateholders prior to such Business Day, minus (d) the aggregate amount of Class B Investor Charge-Offs for all prior Distribution Dates, minus (e) the aggregate amount of Reallocated Class B Principal Collections for which neither the Class D Invested Amount nor the Class C Invested Amount has been reduced for all prior Business Days, and plus (f) the sum of the aggregate amount allocated and available on all prior Business Days pursuant to subsection 4.9(a)(xi) of the Agreement and, with respect to such subsection and pursuant to subsections 4.10(a) and (b) and Section 4.16 of the Agreement, for the purpose of reinstating amounts reduced pursuant to the foregoing clauses (d) and (e). "Class B Investor Charge-Offs" shall have the meaning specified in subsection 4.13(c) of the Agreement. "Class B Investor Percentage" shall mean, for any Distribution Date, (a) with respect to Imputed Yield Receivables and Defaulted Receivables at any time or Principal Receivables during the Revolving Period, the Class B Floating Allocation Percentage and (b) with respect to Principal Receivables during the Amortization Period, the ABC Fixed/Floating Allocation Percentage. "Class B Outstanding Principal Amount" shall mean, when used with respect to any Business Day, an amount equal to (a) the principal amount of Class B Certificates purchased pursuant to any Class B Funding Purchase pursuant to Section 4.14A(b) of the Agreement or (b) the aggregate amount of all Class B Pre-Funding Deposits pursuant to Section 4.14 of the Agreement, minus (c) the aggregate amount of principal payments made to Class B Certificateholders prior to such Business Day. "Class B Percentage" shall mean a fraction the numerator of which is the Class B Invested Amount and the denominator of which is the sum of the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount. "Class B Pool Factor" shall mean, with respect to any Record Date, a number carried out to seven decimal places representing the ratio of the Class B Invested Amount as of the last day of the related Monthly Period (determined after taking into account any increases or decreases in the Class B Invested Amount which will occur on the following Distribution Date) to the highest Class B Invested Amount on or prior to the last day of such Monthly Period during the Revolving Period. "Class B Pre-Funded Amount" shall mean on any date of determination in the Pre-Funding Period an amount equal to the Class B Pre-Funding Deposit minus the aggregate amount of all Class B Pre-Funding Withdrawals and at all other times an amount equal to zero. "Class B Pre-Funding Deposit" shall have the meaning specified in Section 4.14 of the Agreement. "Class B Pre-Funding Withdrawal" shall have the meaning specified in Section 4.15 of the Agreement. "Class B Principal" shall mean the principal distributable in respect of the Class B Certificates as calculated in accordance with subsection 4.7(b) of the Agreement. "Class B Principal Payment Commencement Date" shall mean the earlier of (a) the first Distribution Date in an Amortization Period on which the Class A Invested Amount equals or is reduced to zero or, if there are no Principal Collections allocable to the Series 1994-2 Certificates remaining after payments have been made to the Class A Certificate on such Distribution Date, the Distribution Date following the Distribution Date on which the Class A Invested Amount is paid in full and (b) the Distribution Date following a sale or repurchase of the Receivables as set forth in Section 2.4(e), 9.2, 10.2, 12.1 or 12.2 of the Agreement or Section 3 of this Series Supplement. "Class B Purchase Agreement" shall mean the Class B Purchase Agreement, dated as of November 15, 1994, between the Transferor and the purchasers of the Class B Certificates specified therein, as the same may from time to time be amended, restated, modified and in effect. "Class B Required Amount" shall mean the amount determined by the Servicer on each Business Day equal to the excess, if any, of (x) the sum of (i) the Daily Portion of the Class B Interest for the then current Monthly Period, (ii) any Carryover Class B Interest previously due but not paid to the Class B Certificateholders on a prior Business Day, (iii) if Fingerhut or an Affiliate of Fingerhut is no longer the Servicer, the Class B Floating Allocation Percentage of the Servicing Fee for the then current Monthly Period, (iv) the Class B Floating Allocation Percentage of the Default Amount, if any, for such Business Day and, to the extent not previously paid, for any previous Business Day in such Monthly Period and (v) the Class B Percentage of the Series Allocation Percentage of the Adjustment Payment required to be made by the Transferor but not made on the related Transfer Date over (y) the Available Series 1994-2 Imputed Yield Collections plus any Excess Imputed Yield Collections from other Series and any Transferor Imputed Yield Collections allocated with respect to the amounts described in clauses (x)(i) through (v). "Class C Additional Interest" shall have the meaning specified in subsection 4.6(c) of the Agreement. "Class C Certificateholder" shall mean the Person in whose name a Class C Certificate is registered in the Certificate Register. "Class C Certificateholders' Interest" shall mean the portion of the Series 1994-2 Certificateholders' Interest evidenced by the Class C Certificates. "Class C Certificate Rate" shall mean with respect to each Interest Accrual Period, a per annum rate .75% in excess of LIBOR as determined on the related LIBOR Determination Date. "Class C Certificates" shall mean any of the certificates executed by the Transferor and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A-3 hereto. "Class C Daily Principal Amount" shall have the meaning specified in subsection 4.9(c)(iii) of the Agreement. "Class C Fixed/Floating Allocation Percentage" shall mean for any Business Day the percentage equivalent of a fraction, the numerator of which is the Class C Invested Amount at the end of the last day of the Revolving Period and the denominator of which is the greater of (a) the sum of the aggregate amount of Principal Receivables and the amount on deposit in the Excess Funding Account at the end of the preceding Business Day and (b) the sum of the numerators used to calculate the allocation percentages with respect to Principal Collections for all Series. "Class C Floating Allocation Percentage" shall mean, with respect to any Business Day, the percentage equivalent of a fraction, the numerator of which is the Class C Invested Amount as of the end of the preceding Business Day and the denominator of which is the greater of (a) the total amount of Principal Receivables in the Trust and the amount on deposit in the Excess Funding Account as of the end of the preceding Business Day and (b) when used with respect to Principal Collections only, the sum of the numerators with respect to all Classes of all Series then outstanding used to calculate the applicable allocation percentage. "Class C Full Invested Amount" shall mean $50,157,000. "Class C Funding Purchase" shall have the meaning specified in Section 4.14A of the Agreement. "Class C Interest" shall mean the interest distributable in respect of the Class C Certificates as calculated in accordance with subsection 4.6(c) of the Agreement. "Class C Interest Adjustment" shall have the meaning specified in Section 4.6A of the Agreement. "Class C Interest Shortfall" shall have the meaning specified in subsection 4.6(c) of the Agreement. "Class C Invested Amount" shall mean, when used with respect to any Business Day, an amount equal to (a) the principal amount of Class C Certificates purchased pursuant to any Class C Funding Purchase pursuant to Section 4.14A(b) of the Agreement or (b) the aggregate amount of all Class C Pre-Funding Withdrawals pursuant to Section 4.15 of the Agreement, minus (c) the aggregate amount of principal payments (except principal payments, if any, made from the Pre-Funding Account) made to Class C Certificateholders prior to such Business Day, minus (d) the aggregate amount of Class C Investor Charge-Offs for all prior Distribution Dates, minus (e) the aggregate amount of Reallocated Class C Principal Collections for which the Class D Invested Amount has not been reduced for all prior Business Days and plus (f) the sum of the aggregate amount allocated and available on all prior Business Days pursuant to subsection 4.9(a)(xii) of the Agreement (including amounts applied with respect thereto pursuant to subsection 4.19(b)) and, with respect to such subsection, pursuant to subsections 4.10(a) and (b) and 4.19(b) and Section 4.16 of the Agreement, for the purpose of reinstating amounts reduced pursuant to the foregoing clauses (d) and (e). "Class C Investor Charge-Offs" shall have the meaning specified in subsection 4.13(b) of the Agreement. "Class C Investor Percentage" shall mean, for any Distribution Date, (a) with respect to Imputed Yield Receivables and Defaulted Receivables at any time or Principal Receivables during the Revolving Period, the Class C Floating Allocation Percentage and (b) with respect to Principal Receivables during the Amortization Period, the ABC Fixed/Floating Allocation Percentage. "Class C Outstanding Principal Amount" shall mean, when used with respect to any Business Day, an amount equal to (a) the principal amount of Class C Certificates purchased pursuant to any Class C Funding Purchase pursuant to Section 4.14A(b) of the Agreement plus (b) the aggregate amount of all Class C Pre-Funding Deposits pursuant to Section 4.14 of the Agreement, minus (c) the aggregate amount of principal payments made to Class C Certificateholders prior to such Business Day. "Class C Percentage" shall mean a fraction the numerator of which is the Class C Invested Amount and the denominator of which is the sum of the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount. "Class C Pool Factor" shall mean, with respect to any Record Date, a number carried out to seven decimal places representing the ratio of the Class C Invested Amount as of the last day of the related Monthly Period (determined after taking into account any increases or decreases in the Class C Invested Amount which will occur on the following Distribution Date) to the highest Class C Invested Amount on or prior to the last day of such Monthly Period during the Revolving Period. "Class C Pre-Funded Amount" shall mean on any date of determination in the Pre-Funding Period an amount equal to the Class C Pre-Funding Deposit minus the aggregate amount of all Class C Pre-Funding Withdrawals and at all other times an amount equal to zero. "Class C Pre-Funding Deposit" shall have the meaning specified in Section 4.14 of the Agreement. "Class C Pre-Funding Withdrawal" shall have the meaning specified in Section 4.15 of the Agreement. "Class C Principal" shall mean the principal distributable in respect of the Class C Certificates as calculated in accordance with subsection 4.7(c) of the Agreement. "Class C Principal Payment Commencement Date" shall mean the earlier of (a) the first Distribution Date in an Amortization Period on which the Class B Invested Amount is paid in full or, if there are no Principal Collections allocable to the Series 1994-2 Certificates remaining after payments have been made to the Class B Certificates on such Distribution Date, the Distribution Date following the Distribution Date on which the Class B Invested Amount is paid in full and (b) the Distribution Date following a sale or repurchase of the Receivables as set forth in Sections 2.4(e), 9.2, 10.2, 12.1 or 12.2 of the Agreement and Section 3 of this Series Supplement. "Class C Purchase Agreement" shall mean the Class C Purchase Agreement, dated as of November 15, 1994, between the Transferor and the Class C Certificate purchasers specified therein, as the same may from time to time be amended, restated, modified and in effect. "Class C Required Amount" shall mean the amount determined by the Servicer on each Business Day equal to the excess, if any, of (x) the sum of (i) Class C Interest for the then current Monthly Period, (ii) any Carryover Class C Interest previously due but not paid to the Class C Certificateholders on a prior Distribution Date, (iii) if Fingerhut or an Affiliate of Fingerhut is no longer the Servicer, the Class C Floating Allocation Percentage of the Servicing Fee for the then current Monthly Period, (iv) the Class C Floating Allocation Percentage of the Default Amount, if any, for such Business Day and, to the extent not previously paid, for any previous Business Day in such Monthly Period and (v) the Class C Percentage of the Series Allocation Percentage of the Adjustment Payment required to be made by the Transferor but not made on the related Transfer Date over (y) the Available Series 1994-2 Imputed Yield Collections plus any Excess Imputed Yield Collections from other Series and any Transferor Imputed Yield Collections allocated with respect to the amounts described in clauses (x)(i) through (v). "Class C Reserve Account" shall have the meaning specified in subsection 4.19(a) of the Agreement. "Class C Trigger Event" shall have the meaning specified in Section 4.18 of the Agreement. "Class D Certificateholder" shall mean the Person in whose name a Class D Certificate is registered in the Certificate Register. "Class D Certificateholders' Interest" shall mean the portion of the Series 1994-2 Certificateholders' Interest evidenced by the Class D Certificates. "Class D Certificates" shall mean any of the certificates executed by the Transferor and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A-4 hereto. "Class D Daily Principal" shall have the meaning specified in Section 4.7(d) of the Agreement. "Class D Fixed/Floating Allocation Percentage" shall mean for any Business Day the percentage equivalent of a fraction, the numerator of which is the Class D Invested Amount at the end of the last day of the Revolving Period and the denominator of which is the greater of (a) the sum of the aggregate amount of Principal Receivables and the amount on deposit in the Excess Funding Account as of the end of the preceding Business Day and (b) the sum of the numerators used to calculate the allocation percentages with respect to Principal Collections for all Series. "Class D Floating Allocation Percentage" shall mean with respect to any Business Day the percentage equivalent of a fraction, the numerator of which is the Class D Invested Amount as of the end of the preceding Business Day and the denominator of which is the greater of (a) the total amount of Principal Receivables and the amount on deposit in the Excess Funding Account at the end of the preceding Business Day and (b) when used with respect to Principal Collections only, the sum of the numerators with respect to all Classes of all Series then outstanding used to calculate the applicable allocation percentage. "Class D Invested Amount" shall mean, when used with respect to any Business Day, an amount equal to (a) upon the initial issuance of the Class D Certificates the initial amount designated by the Transferor (which shall not be less than the Stated Class D Amount), plus (b) the aggregate principal amount of any Additional Class D Invested Amounts pursuant to Section 6.16 of the Agreement, minus (c) the aggregate amount of principal payments made to Class D Certificateholders prior to such Business Day, minus (d) the aggregate amount of Class D Investor Charge-Offs for all prior Distribution Dates, minus (e) the aggregate amount of Reallocated Principal Collections for all prior Business Days, plus (f) the sum of the aggregate amount allocated and available on all prior Business Days pursuant to subsection 4.9(a)(xiii) of the Agreement and, with respect to such subsection, pursuant to subsections 4.10(a) and (b) of the Agreement, for the purpose of reinstating amounts reduced pursuant to the foregoing clauses (d) and (e). "Class D Investor Charge-Offs" shall have the meaning specified in subsection 4.13(a) of the Agreement. "Class D Investor Default Amount" shall mean for any Business Day an amount equal to the product of (a) the Class D Floating Allocation Percentage applicable on such Business Day and (b) the aggregate Default Amount identified since the prior reporting date. "Class D Investor Percentage" shall mean, for any Business Day, (a) with respect to Imputed Yield Receivables and Defaulted Receivables at any time or Principal Receivables during the Revolving Period, the Class D Floating Allocation Percentage and (b) with respect to Principal Receivables during the Amortization Period, the Class D Fixed/Floating Allocation Percentage. "Class D Maximum Required Amount" shall mean $66,876,000. "Class D Outstanding Principal Amount" shall mean, when used with respect to any Business Day, an amount equal to (a) upon the initial issuance of the Class D Certificates, the initial amount designated by the Transferor (which shall not be less than the Stated Class D Amount), plus (b) the aggregate principal amount of any Additional Class D Invested Amounts pursuant to Section 6.16 of the Agreement, minus (c) the aggregate amount of principal payments made to Class D Certificateholders prior to such Business Day. "Class D Principal" shall mean the principal distributable in respect of the Class D Certificates as specified in subsection 4.7(d) of the Agreement. "Class D Principal Payment Commencement Date" shall mean the earlier of (a) the first Distribution Date on which the Class C Invested Amount is paid in full or, if there are no Principal Collections allocable to the Series 1994-2 Certificates remaining after payments have been made to the Class C Certificates on such Distribution Date, the Distribution Date following the Distribution Date on which the Class C Invested Amount is paid in full and (b) the Distribution Date following a sale or repurchase of the Receivables as set forth in Sections 2.4(e), 9.2, 10.2, 12.1 and 12.2 of the Agreement and Section 3 of this Series Supplement. "Closing Date" shall mean the date of initial issuance of Certificates of Series 1994-2. "Collateral Trust Agreement" shall mean the Collateral Trust Agreement dated as of November 15, 1994, between Fingerhut Owner Trust and State Street Bank and Trust Company, as Collateral Trustee, as the same may from time to time be amended, restated, modified and in effect. "Commercial Paper" shall mean the promissory notes issued by the CP Issuer in the commercial paper market pursuant to the Liquidity Agreement and the Depositary Agreement. "Cost of Funds" shall mean with respect to any day the sum of (a) the greater of (i) interest on Loans outstanding and the Interest Component of outstanding Commercial Paper accrued with respect to such day and ii) (ii) the Servicer's written estimate delivered to the Trustee on the first Business Day preceding the first day of the then current Monthly Period, as may be modified from time to time during such Monthly Period, of the average daily amount of interest that will accrue on the Loans and the Commercial Paper during such Monthly Period; provided, however, that the amount determined pursuant to this clause (a) (ii) shall not exceed on any day (I) the product of (x) the sum of the aggregate outstanding principal amount of the Loans and the aggregate Principal Component of the Commercial Paper outstanding on the preceding Business Day, (y) the greater of (A) LIBOR prevailing on such preceding Business Day plus .75% and (B) 12% and (z) a fraction the numerator of which is one and the denominator of which is the actual number of days in the then current calendar year minus (II) the sum of the amount determined pursuant to clause (b) below and the Total Program Fees for such day, (b) the amount of any Commitment Fees (as defined in the Liquidity Agreement) accrued with respect to such day pursuant to Section 2.9 of the Liquidity Agreement with respect to Utilized Available Commitments (as defined in the Liquidity Agreement), and (c) the Daily Portion of the Interest Amount (as defined in the Owner Trust Agreement) accrued with respect to such day. "CP Issuer" shall mean Fingerhut Owner Trust, a Delaware business trust. "Daily Portion" shall mean, with respect to any amount determined pursuant hereto, the product of such amount and a fraction the numerator of which shall be the number of days from and including the preceding Business Day to but excluding such Business Day and the denominator of which shall be the number of days in the then current Monthly Period. "Defeasance Account" shall have the meaning specified in Section 9A of this Series Supplement. "Defeasance Account Balance" shall mean, with respect to any date of determination, the principal amount, if any, on deposit in the Defeasance Account on such date of determination. "Depositary" shall mean BankAmerica National Trust Company, any successor to the Depositary or such other banking institution as the CP Issuer shall appoint, with the prior written consent of the Majority Lenders (as defined in the Liquidity Agreement). "Depositary Agreement" shall mean the Depositary Agreement, dated as of November 15, 1994, between the CP Issuer and the Depositary, as the same may from time to time be amended, restated, modified and in effect. "Distribution Date" shall mean December 20, 1994, and the twentieth day of each month thereafter, or if such day is not a Business Day, the next succeeding Business Day; provided, however, that solely with respect to the payment of principal with respect to the Class B Certificates, Class C Certificates and Class D Certificates during the Amortization Period, Distribution Date shall mean the first Business Day of each Monthly Period beginning with the Monthly Period next succeeding the Monthly Period in which the Amortization Period Commencement Date occurs; provided further, that the final Distribution Date with respect to the payment of principal and interest shall be the Scheduled Series 1994-2 Termination Date. "Early Amortization Period" shall mean the period beginning on the day on which a Pay Out Event occurs or is deemed to have occurred and ending on the earlier of (i) the date on which the Class A Invested Amount, the Class B Invested Amount, the Class C Invested Amount and the Class D Invested Amount have been paid in full and (ii) the Series 1994-2 Termination Date. "Election Date" shall have the meaning specified in subsection 6.17(a) of the Agreement. "Election Notice" shall have the meaning specified in subsection 6.17(a) of the Agreement. "Enhancement" shall mean, with respect to the Class A Certificate, the subordination of the Class B Invested Amount, the Class C Invested Amount, and the Class D Invested Amount, with respect to the Class B Certificates, the subordination of the Class C Invested Amount and the Class D Invested Amount, and with respect to the Class C Certificates, the subordination of the Class D Invested Amount. "Excess Imputed Yield Collections" shall mean, with respect to any Business Day, as the context requires, either (x) the amount described in subsection 4.9(a)(xxii) of the Agreement allocated to the Series 1994-2 Certificates but available to cover shortfalls in amounts paid from Imputed Yield Collections for other Series, if any, or (y) the aggregate amount of Imputed Yield Collections allocable to other Series in excess of the amounts necessary to make required payments with respect to such Series, if any, and available to cover shortfalls with respect to the Series 1994-2 Certificates. "Expense Reserve Account" shall have the meaning specified in subsection 4.21(a) of the Agreement. "Expense Reserve Trigger" shall have the meaning specified in Section 4.20 of the Agreement. "Extension" shall mean the procedure by which the Investor Certificateholders consent to the extension of the Revolving Period to the new Amortization Period Commencement Date set forth in the Extension Notice, pursuant to Section 6.17 of the Agreement. "Extension Date" shall mean October 24, 1997 or if an Extension has already occurred, the date of the next Extension Date set forth in the Extension Notice relating to the Extension then in effect (or, if any such date is not a Business Day, the next preceding Business Day). "Extension Notice" shall have the meaning specified in subsection 6.17(a) of the Agreement. "Extension Opinion" shall have the meaning specified in subsection 6.17(a) of the Agreement. "Extension Tax Opinion" shall have the meaning specified in subsection 6.17(a) of the Agreement. "Face Amount" shall mean (i) with respect to Commercial Paper issued on a discount basis, the face amount stated therein, and (ii) with respect to Commercial Paper which is interest-bearing, the principal amount of and interest accrued and to accrue on such Commercial Paper to its stated maturity. "FCI Note" shall have the meaning specified in Section 18 of this Series Supplement. "FCI Note Required Amount" shall have the meaning specified in Section 18 of this Series Supplement. "Fingerhut Owner Trust" shall mean the owner trust created pursuant to the Owner Trust Agreement. "Fixed/Floating Allocation Percentage" shall mean for any Business Day the percentage equivalent of a fraction, the numerator of which is the Invested Amount at the end of the last day of the Revolving Period and the denominator of which is the greater of (a) the sum of the aggregate amount of Principal Receivables and the amount on deposit in the Excess Funding Account as of the end of the preceding Business Day and (b) the sum of the numerators used to calculate allocation percentages with respect to Principal Receivables for all Series; provided, however, that during any Class A Pay Down Period, the numerator used in the above calculation shall be the sum of the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount as of the day immediately preceding the commencement of the Class A Pay Down Period. "Floating Allocation Percentage" shall mean for any Business Day the sum of the applicable Class A Floating Allocation Percentage, Class B Floating Allocation Percentage, Class C Floating Allocation Percentage, and Class D Floating Allocation Percentage for such Business Day. "Interest Accrual Period" shall mean a Monthly Period and, with respect to a Distribution Date, the preceding Monthly Period; provided, however, that the initial Interest Accrual Period shall be the period from the Closing Date to and including the last day of the Monthly Period preceding the initial Distribution Date. "Interest Component" shall mean, with respect to any Commercial Paper (i) issued on a discount basis, the portion of the Face Amount of such Commercial Paper representing the discount incurred in respect thereof and (ii) issued on an interest-bearing basis, the interest payable on such Commercial Paper (in each case including the related Commercial Paper dealer fees payable in connection with the issuance of such Commercial Paper). "Interest Rate Caps" shall mean the interest rate caps provided pursuant to Cap Agreements by one or more Cap Providers to the Trustee on behalf of any of the Certificateholders which shall entitle the Trust to receive monthly payments equal to the product of (i) the positive difference, if any, between LIBOR in effect for each applicable Interest Period and 11.20%, (ii) the notional amount of such interest rate cap and (iii) the actual number of days in the Interest Period divided by 360. "Invested Amount" shall mean, when used with respect to any Business Day, an amount equal to the sum of (a) the Class A Invested Amount as of such Business Day, (b) the Class B Invested Amount as of such Business Day, (c) the Class C Invested Amount as of such Business Day and (d) the Class D Invested Amount as of such Business Day; provided, however, that for purposes of determining the Servicing Fee and the Aggregate Invested Amount, the Invested Amount shall mean an amount equal to the sum of (a) the Class A Adjusted Invested Amount as of such Business Day, (b) the Class B Invested Amount as of such Business Day, (c) the Class C Invested Amount as of such Business Day and (d) the Class D Invested Amount as of such Business Day. "Investment Earnings" shall mean, with respect to any Business Day, the investment earnings on amounts on deposit in (i) the Pre-Funding Account, deposited in the Collection Account pursuant to subsection 4.14(d), (ii) the Class C Reserve Account, deposited in the Collection Account pursuant to subsection 4.19(c), (iii) the Expense Reserve, deposited in the Collection Account pursuant to subsection 4.21(c), (iv) the Payment Reserve Account, deposited in the Collection Account pursuant to subsection 4.22(d) and (v) the Defeasance Account, deposited in the Collection Account pursuant to subsection 9A(a). "Investment Period" shall have the meaning specified in Section 4.14A of this Series Supplement. "Investor Certificateholder" shall mean the Holder of record of an Investor Certificate of Series 1994- 2. "Investor Certificates" shall mean the Class A Certificate, the Class B Certificates, the Class C Certificates and the Class D Certificates. "Investor Charge-Offs" shall mean the sum of Class A Investor Charge-Offs, Class B Investor Charge- Offs, Class C Investor Charge-Offs and Class D Investor Charge-Offs. "Investor Default Amount" shall mean, with respect to each Business Day, an amount equal to the product of the Default Amount identified since the prior reporting date and the Floating Allocation Percentage applicable for such Business Day. "Investor Percentage" shall mean for any Business Day, (a) with respect to Imputed Yield Receivables and Defaulted Receivables at any time or Principal Receivables during the Revolving Period (except, with respect to the Class A Certificates, for any portion of the Revolving Period that occurs during the Class A Pay Down Period), the Floating Allocation Percentage and (b) with respect to Principal Receivables during the Amortization Period and the Class A Pay Down Period, the Fixed/Floating Allocation Percentage. "LIBOR" shall mean, for any Interest Accrual Period, the London interbank offered quotations for one- month Dollar deposits determined by the Trustee for each Interest Accrual Period in accordance with the provisions of Section 4.17 of the Agreement. "LIBOR Determination Date" shall mean the second Business Day prior to the commencement of each Interest Accrual Period; provided, however, that with respect to the initial Interest Accrual Period for the Class C Certificates, LIBOR Determination Date shall mean a date selected by the Transferor which shall not be in excess of two Business Days prior to the date of initial issuance of Certificates of the applicable Class. For purposes of this definition, a Business Day is any day on which banks in London and New York are open for the transaction of international business. "Liquidity Agreement" shall mean the Liquidity Agreement, dated as of November 15, 1994, by and among the CP Issuer, the several banks signatory thereto, and Chemical Bank, as Administrative Agent, as the same may from time to time be amended, restated, modified and in effect. "Loans" shall mean any loans made pursuant to the Liquidity Agreement. "Minimum Retained Percentage" shall mean 2%. "Minimum Transferor Percentage" shall mean 0%; provided, however, that in certain circumstances such percentage may be increased. "Monthly Period" shall have the meaning specified in the Agreement, except that the first Monthly Period with respect to the Series 1994-2 Certificates shall begin on and include the Closing Date and shall end on and include the last day of the then current fiscal month of the Transferor. "Negative Carry Amount" shall have the meaning specified in subsection 4.10(a) of the Agreement. "Net ABC Revolving Principal Collections" shall have the meaning specified in Section 4.9(b) of the Agreement. "Owner Trust Agreement" shall mean the Owner Trust Agreement, dated as of November 15, 1994, between Fingerhut Receivables, Inc., as Depositor, and Wilmington Trust Company as Owner Trustee, as the same may from time to time be amended, restated, modified and in effect. "Paying Agent" shall mean, for the Series 1994-2 Certificates, The Bank of New York. "Payment Reserve Account" shall have the meaning specified in subsection 4.22 of the Agreement. "Pay Out Commencement Date" shall mean the date on which a Trust Pay Out Event is deemed to occur pursuant to Section 9.1 of the Agreement or a Series 1994-2 Pay Out Event is deemed to occur pursuant to Section 8 of this Series Supplement. "Percentage" for each Bank shall mean its "Commitment Percentage" as defined in Section 1.1 of the Liquidity Agreement. "Portfolio Yield" shall mean for the Series 1994- 2 Certificates, with respect to any Monthly Period, the annualized percentage equivalent of a fraction, the numerator of which is an amount equal to the sum of the aggregate amount of Available Series 1994-2 Imputed Yield Collections for such Monthly Period (minus the Floating Allocation Percentage of the portion of Imputed Yield Collections for such period described in clause (D) of the definition thereof and minus the amounts on deposit in the Payment Reserve Account, if any), calculated on a cash basis, minus the aggregate Investor Default Amount for such Monthly Period and the Series Allocation Percentage of any Adjustment Payments which the Transferor is required but fails to make pursuant to the Pooling and Servicing Agreement for such Monthly Period, and the denominator of which is the average daily Invested Amount plus the Pre-Funded Amount for such Monthly Period. "Pre-Funded Amount" shall mean at any time the sum of the Class A Pre-Funded Amount, the Class B Pre- Funded Amount and the Class C Pre-Funded Amount. "Pre-Funding Account" shall mean the Pre-Funding Account established and maintained pursuant to Section 4.14 of the Agreement. "Pre-Funding Period" shall mean the period, if any, specified in subsection 4.14(a) of the Agreement. "Principal Shortfalls" shall mean on any Business Day (i) after the Amortization Period Commencement Date, the Invested Amount of the class then receiving principal payments after the application of Principal Collections on such Business Day and (ii) during the Class A Pay Down Period, the Class A Invested Amount after the application of Principal Collections on such Business Day. "Qualified Substitute Arrangement" shall have the meaning specified in Section 3A(d) of this Series Supplement. "Rating Agency" shall mean Standard & Poor's Ratings Group, a division of McGraw-Hill, and Moody's Investors Service, Inc. "Reallocated Class B Principal Collections" shall have the meaning specified in subsection 4.16(c) of the Agreement. "Reallocated Class C Principal Collections" shall have the meaning specified in subsection 4.16(b) of the Agreement. "Reallocated Class D Principal Collections" shall have the meaning specified in subsection 4.16(a) of the Agreement. "Reallocated Principal Collections" shall mean the sum of Reallocated Class B Principal Collections, Reallocated Class C Principal Collections and Reallocated Class D Principal Collections. "Reference Banks" shall mean four major banks in the London interbank market selected by the Trustee. "Replacement Interest Rate Cap" shall mean one or more Interest Rate Caps, which in combination with all other Interest Rate Caps then in effect, after giving effect to any planned cancellations of any presently outstanding Interest Rate Caps satisfies the Transferor's covenant contained in Section 3A of this Series Supplement to maintain Interest Rate Caps. "Required Amount" shall have the meaning specified in Section 4.10 of the Agreement. "Revolving Period" shall mean the period from and including the Closing Date to, but not including, the Amortization Period Commencement Date. "Scheduled Series 1994-2 Termination Date" shall mean October 29, 2001, unless a different date shall be set forth in any Extension Notice. "Series 1994-1 Supplement" shall mean the Series 1994-1 Supplement, dated as of June 29, 1994 by and among Fingerhut Receivables, Inc., as Transferor, Fingerhut Corporation, as Servicer, and The Bank of New York (Delaware), as Trustee under the Agreement. "Series 1994-2" shall mean the Series of the Fingerhut Master Trust represented by the Series 1994-2 Certificates. "Series 1994-2 Certificates" shall mean the Class A Certificate, the Class B Certificates, the Class C Certificates and the Class D Certificate. "Series 1994-2 Certificateholder" shall mean the holder of record of any Series 1994-2 Certificate. "Series 1994-2 Certificateholders' Interest" shall have the meaning specified in Section 4.4 of the Agreement. "Series 1994-2 Pay Out Event" shall have the meaning specified in Section 8 of this Series Supplement. "Series 1994-2 Termination Date" shall mean the earlier to occur of (i) the day after the Distribution Date on which the Series 1994-2 Certificates are paid in full, or (ii) the Scheduled Series 1994-2 Termination Date. "Series Servicing Fee Percentage" shall mean 2.00% per annum. "Servicing Fee" shall mean for any Monthly Period, an amount equal to the product of (i) one-twelfth, (ii) the applicable Series Servicing Fee Percentage and (iii) the Invested Amount as of the last day of the preceding Monthly Period, or, in the case of the first Distribution Date, the Invested Amount on the Closing Date. "Shared Principal Collections" shall mean, as the context requires, either (a) the amount allocated to the Series 1994-2 Certificates which, in accordance with subsections 4.9(b), 4.9(c)(v), and 4.9(e)(ii) of the Agreement, may be applied in accordance with Section 4.3(e) of the Agreement or (b) the amounts allocated to the investor certificates (other than Transferor Retained Certificates) of other Series which the applicable Series Supplements for such Series specify are to be treated as "Shared Principal Collections" and which may be applied to cover Principal Shortfalls with respect to the Series 1994- 2 Certificates. "Specified Class C Reserve Amount" shall mean the amount, if any, which if added to the numerator of the Target Percentage would cause such percentage to be equal to 5%. "Stated Class D Amount" shall mean on any date of determination the greater of (i) zero and (ii) a number rounded to the nearest dollar obtained by multiplying the sum of the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount by a fraction the numerator of which is 12 and the denominator of which is 88; provided, however, that in no event shall the Stated Class D Amount exceed the Class D Maximum Required Amount; and provided further that during any Early Amortization Period or Class A Pay Down Period the Stated Class D Amount shall be equal to the Stated Class D Amount immediately preceding the commencement of the Early Amortization Period or Class A Pay Down Period. "Target Percentage" shall have the meaning specified in Section 4.18 of the Agreement. "Termination Payment Date" shall mean the earlier of the first Distribution Date following the liquidation or sale of the Receivables as a result of an Insolvency Event and the occurrence of the Scheduled Series 1994-2 Termination Date. "Total Program Fees" shall mean with respect to any day, recurring fees payable to the Collateral Trustee (as defined in the Liquidity Agreement), the Owner Trustee (as defined in the Liquidity Agreement), the Administrative Agent (as defined in the Liquidity Agreement) and the Depositary and Basic Administration Fees (as defined in the Collateral Trust Agreement) that arise or accrue on such day. "Transferor Imputed Yield Collections" shall mean on any Business Day the product of (a) the Imputed Yield Collections for such Business Day, (b) the Transferor Percentage and (c) the Series Allocation Percentage. "Transferor Retained Certificates" shall mean investor certificates of any Series, including the Class D Certificates, which the Transferor retains, but only to the extent that and for so long as the Transferor is the Holder of such Certificates. 3. Reassignment Terms. The Series 1994-2 Certificates shall be subject to termination by the Transferor at its option, in accordance with the terms specified in subsection 12.2(a) of the Agreement, on any Distribution Date on or after the Distribution Date on which the sum of the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount is reduced to an amount less than or equal to 10% of the sum of the highest Class A Invested Amount, the highest Class B Invested Amount and the highest Class C Invested Amount during the Revolving Period. The deposit required in connection with any such termination and final distribution shall be equal to the sum of the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount plus accrued and unpaid interest on the Series 1994-2 Certificates through the day prior to the Distribution Date on which the final distribution occurs. SECTION 3A. Conveyance of Interest in Interest Rate Cap; Cap Proceeds Account. (a) The Transferor hereby covenants and agrees that, on or prior to the issuance of any of the Class C Certificates, it shall obtain and at all times prior to the close of business on the Series 1994-2 Termination Date maintain one or more Interest Rate Caps whose notional amounts singly or taken as a group equal or exceed the Aggregate ABC Principal Amount. The Transferor hereby assigns, sets-over, conveys, pledges and grants a security interest and lien (free and clear of all other Liens) to the Trustee for the benefit of the Series 1994-2 Certificateholders, in all of the Transferor's right, title and interest now existing or hereafter arising in and to the Cap Agreements and the Interest Rate Caps arising thereunder, together with the Cap Proceeds Account and all other proceeds thereof, as collateral security for the benefit of the Series 1994-2 Certificateholders. The Transferor hereby further agrees to execute all such instruments, documents and financing statements and take all such further action requested by the Trustee to evidence and perfect the assignment of the Cap Agreements and the Interest Rate Caps pursuant to this Section 3A. The Transferor agrees that each Interest Rate Cap shall provide for payments to the Trustee and that the Trust's interest in respect of such payments shall be deposited into the Cap Proceeds Account. (b) The Trustee, for the benefit of the Series 1994-2 Certificateholders, shall establish and maintain with a Qualified Institution, which may be the Trustee, in the name of the Trustee, on behalf of the Certificateholders, a certain segregated trust account (the "Cap Proceeds Account"). All amounts paid pursuant to the Interest Rate Caps or any Qualified Substitute Arrangement on any Business Day (a "Cap Settlement Date") shall be deposited in the Cap Proceeds Account. Funds in the Cap Proceeds Account shall be invested at the direction of the Servicer, in Cash Equivalents with maturities not later than the next succeeding Business Day. Any earnings on such invested funds shall be deposited and held in the Cap Proceeds Account and applied in the same manner and priority as payments pursuant to the Interest Rate Caps. (c) In the event that the Cap Provider defaults in its obligation to make a payment to the Trustee under one or more Cap Agreements on any Cap Settlement Date, the Trustee shall make a demand on such Cap Provider, or any guarantor, if applicable, demanding payment by 12:30 p.m., New York time, on such date. The Trustee shall give notice to the Certificateholders upon the continuing failure by any Cap Provider to perform its obligation during the two Business Days following a demand made by the Trustee on such Cap Provider, and shall take such action with respect to such continuing failure directed to be taken by the Certificateholders. (d) In the event that the senior unsecured debt rating of a Cap Provider is withdrawn or reduced below AA by Standard & Poor's or is withdrawn or reduced below Aa2 by Moody's, then within 30 days after receiving notice of such decline in the creditworthiness of the Cap Provider as determined by the Rating Agency, either (x) the Cap Provider, with the prior written confirmation of the Rating Agency that such arrangement will not result in the reduction or withdrawal of the rating of the Class A Certificates, the Class B Certificates or the Class C Certificates, will enter into an arrangement the purpose of which shall be to assure performance by the Cap Provider of its obligations under the Interest Rate Cap; or (y) the Servicer shall at its option either (i) with the prior written confirmation of the Rating Agency that such action will not result in a reduction or withdrawal of the rating of the Class A Certificates, the Class B Certificates or the Class C Certificates, (A) cause the Cap Provider to pledge securities in the manner provided by applicable law or (B) if permitted to do so, itself pledge or cause to be pledged securities, which shall be held by the Trustee or its agent free and clear of the Lien of any third party, in a manner conferring on the Trustee a perfected first Lien in such securities securing the Cap Provider's performance of its obligations under the applicable Interest Rate Cap, or (ii) provided that a Replacement Interest Rate Cap or Qualified Substitute Arrangement meeting the requirements of Section 3A(e) has been obtained, direct the Trustee (A) to provide written notice to the Cap Provider of its intention to terminate the applicable Interest Rate Cap within such 30-day period and (B) to terminate the applicable Interest Rate Cap within such 30-day period, to request the payment to it of all amounts due to the Trust under the applicable Interest Rate Cap through the termination date and to deposit any such amounts so received, on the day of receipt, to the Cap Proceeds Account for the benefit of the Certificateholders, or (iii) establish any other arrangement (including an arrangement or arrangements in addition to or in substitution for any prior arrangement made in accordance with the provisions of this Section 3A(d)) satisfactory to the Rating Agency such that the Rating Agency will not reduce or withdraw the rating of the Class A Certificates, the Class B Certificates or the Class C Certificates (a "Qualified Substitute Arrangement"); provided, however, that in the event at any time any alternative arrangement established pursuant to clause (x) or (y)(i) or (y)(iii) above shall cease to be satisfactory to the Rating Agency then the provisions of this Section 3A(d) shall again be applied and in connection therewith the 30-day period referred to above shall commence on the date the Servicer receives notice of such cessation or termination, as the case may be. (e) Unless an alternative arrangement pursuant to clause (x) or (y)(i) of Section 3A(d) is being established, the Servicer shall use its best efforts to obtain a Replacement Interest Rate Cap or Qualified Substitute Arrangement meeting the requirements of this Section 3A(e) during the 30-day period referred to in Section 3A(d). The Trustee shall not terminate the Interest Rate Cap unless, prior to the expiration of the 30-day period referred to in said Section 3A(d), the Servicer delivers to the Trustee (i) a Replacement Interest Rate Cap or Qualified Substitute Arrangement, (ii) to the extent applicable, an Opinion of Counsel as to the due authorization, execution and delivery and validity and enforceability of such Replacement Interest Rate Cap or Qualified Substitute Arrangement, as the case may be, and (iii) a letter from the Rating Agency confirming that the termination of the Interest Rate Cap and its replacement with such Replacement Interest Rate Cap or Qualified Substitute Arrangement will not adversely affect its rating of the Class A Certificates, the Class B Certificates or the Class C Certificates. (f) The Servicer shall notify the Trustee and the Rating Agency within five Business Days after obtaining knowledge that the senior unsecured debt rating of the Cap Provider has been withdrawn or reduced by Standard & Poor's or Moody's. (g) Notwithstanding the foregoing, the Servicer may at any time obtain a Replacement Interest Rate Cap, provided that the Servicer delivers to the Trustee (i) an Opinion of Counsel as to the due authorization, execution and delivery and validity and enforceability of such Replacement Interest Rate Cap and (ii) a letter from the Rating Agency confirming that the termination of the then current Interest Rate Cap and its replacement with such Replacement Interest Rate Cap will not adversely affect its rating of the Class A Certificates, the Class B Certificates or the Class C Certificates. (h) The Trustee hereby appoints the Servicer to perform the duties of the calculation agent under the Interest Rate Cap and the Servicer accepts such appointment. (i) The Trustee, on behalf of the Certificateholders, upon notification from the Servicer shall, sell all or a portion of the Interest Rate Caps subject to the following conditions having been met: (x) the Aggregate Interest Rate Caps Notional Amount after giving effect to such sale shall equal or exceed the Aggregate ABC Principal Amount as of the date of such sale after giving effect to all payments and allocations made pursuant to this Agreement; (y) such sale will not result in a downgrading or withdrawal of the then current rating on any class of the Certificates by the Rating Agencies; and (z) the minimum notional amount denomination of any Interest Rate Cap to be sold is $500,000. The Servicer shall have the duty of obtaining a fair market value price for the sale of the Trust's rights under any Interest Rate Cap, notifying the Trustee of prospective purchasers and bids, and selecting the purchaser of such Interest Rate Cap. The Trustee upon receipt of the purchase price in the Collection Account shall execute all documentation necessary to effect the transfer of the Trust's rights under the Interest Rate Cap and to release the Lien of the Trustee on the Interest Rate Cap and proceeds thereof. Funds deposited in the Collection Account in respect of the sale of all or a portion of an Interest Rate Cap shall be applied as Principal Collections allocable to Series 1994-2 and shall be applied on the next Distribution Date in accordance with subsections 4.7(a), (b) and (c) and 4.9(b), (c) and (e). 4. Delivery and Payment for the Series 1994- 2 Certificates. The Transferor shall execute and deliver the Series 1994-2 Certificates to the Trustee for authentication in accordance with Section 6.1 of the Agreement. The Trustee shall deliver the Series 1994-2 Certificates to or upon the order of the Transferor when authenticated in accordance with Section 6.2 of the Agreement. 5. Form of Delivery of Series 1994-2 Certificates. The Class A Certificate, the Class B Certificates, the Class C Certificates and the Class D Certificates shall be delivered as Registered Certificates as provided in Section 6.1 of the Agreement. 6. Article IV of Agreement. Sections 4.1, 4.2 and 4.3 of the Agreement shall read in their entirety as provided in the Agreement. Article IV of the Agreement (except for Sections 4.1, 4.2 and 4.3 thereof) shall read in its entirety as follows and shall be applicable only to the Series 1994-2 Certificates: II. RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS A. Rights of Certificateholders. The Series 1994-2 Certificates shall represent undivided interests in the Trust, including the right to receive, to the extent necessary to make the required payments with respect to such Series 1994-2 Certificates at the times and in the amounts specified in this Agreement, (a) the Floating Allocation Percentage and the Fixed/Floating Allocation Percentage (as applicable from time to time) of Collections (including Imputed Yield Collections) available in the Collection Account, (b) funds allocable to the Series 1994-2 Certificates on deposit in the Excess Funding Account and (c) funds on deposit in the Interest Funding Account, the Principal Account, the Distribution Account, the Cap Proceeds Account, the Payment Reserve Account, the Class C Reserve Account, the Pre-Funding Account, the Defeasance Account and the Expense Reserve Account (for such Series, the "Series 1994-2 Certificateholders' Interest"). The Class B Invested Amount, the Class C Invested Amount and the Class D Invested Amount shall be subordinated to the Class A Certificate; the Class C Invested Amount and the Class D Invested Amount shall be subordinated to the Class B Certificates; and the Class D Invested Amount shall be subordinated to the Class C Certificates, in each case to the extent provided in this Article IV. The Class B Certificates will not have the right to receive payments of principal until the Class A Invested Amount has been paid in full. The Class C Certificates will not have the right to receive payments of principal until the Class A Invested Amount and the Class B Invested Amount have been paid in full. Except in connection with a payment of Class D Daily Principal pursuant to subsection 4.9(g) of this Agreement, the Class D Certificates will not have the right to receive payments of principal until the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount have been paid in full. B. Collections and Allocation; Payments on Exchangeable Transferor Certificate. a. Collections. The Servicer will apply or will instruct the Trustee to apply all funds on deposit in the Collection Account and the Excess Funding Account allocable to the Series 1994-2 Certificates, and all funds on deposit in the Interest Funding Account, the Principal Account, the Pre-Funding Account, the Cap Proceeds Account, the Distribution Account, the Payment Reserve Account, the Defeasance Account, the Class C Reserve Account and the Expense Reserve Account maintained for this Series, as described in this Article IV. b. Payments to the Holder of the Exchangeable Transferor Certificate. On each Business Day, the Servicer shall determine whether a Pay Out Event is deemed to have occurred with respect to the Series 1994-2 Certificates, and the Servicer shall allocate and pay Collections in accordance with the Daily Report with respect to such Business Day to the Holder of the Exchangeable Transferor Certificate as follows: (1) For each Business Day with respect to the Revolving Period, in addition to amounts allocated and paid to the Holder of the Exchangeable Transferor Certificate pursuant to subsection 4.3(b) of the Agreement, an amount equal to (x) the product of the Class D Floating Allocation Percentage and the amount of Principal Collections on such Business Day, minus (y) the Reallocated Class D Principal Collections for such Business Day minus (z) the amount of any Class D Daily Principal for such Business Day; (2) For each Business Day with respect to the Amortization Period prior to the Business Day on which an amount equal to the Class C Invested Amount has been deposited in the Principal Account to be applied to the payment of Class C Principal, in addition to amounts allocated and paid to the Holder of the Exchangeable Transferor Certificate pursuant to subsection 4.3(b) of the Agreement, an amount equal to (x) the product of the Class D Fixed/Floating Allocation Percentage and the amount of Principal Collections on such Business Day minus (y) the Reallocated Class D Principal Collections for such Business Day minus (z) the amount of any Class D Daily Principal for such Business Day; and (3) For each Business Day on and after the day on which Principal Collections are being deposited in the Principal Account pursuant to Section 4.9(c)(iv), the amount of payments of Principal Collections made to the Holder of the Exchangeable Transferor Certificate shall be determined only as provided in subsection 4.3(b) of the Agreement. Notwithstanding the foregoing, amounts payable to the Transferor pursuant to subsection 4.5(b)(i) or (ii) shall instead be deposited in the Excess Funding Account to the extent necessary to prevent the Transferor Interest from being less than the Minimum Transferor Interest. The allocations to be made pursuant to this subsection 4.5(b) also apply to deposits into the Collection Account that are treated as Collections, including Adjustment Payments, payment of the reassignment price pursuant to Section 2.4(e) of the Agreement and proceeds from the sale, disposition or liquidation of the Receivables pursuant to Section 9.2, 10.2, 12.1 or 12.2 of the Agreement and Section 3 of this Series Supplement. Such deposits to be treated as Collections will be allocated as Imputed Yield Receivables or Principal Receivables as provided in the Agreement. C. Determination of Interest for the Series 1994-2 Certificates. (a) The amount of interest (the "Class A Interest") allocable to the Class A Certificate with respect to any Business Day shall be an amount equal to the sum of (x) the Total Program Fees accrued from and including the preceding Business Day to but excluding such Business Day and (y) the product of (i) the Class A Certificate Rate and (ii) a fraction the numerator of which is the actual number of days from and including the next preceding Business Day to but excluding such Business Day and the denominator of which is 365 or 366, as the case may be, and (iii) the Class A Outstanding Principal Amount as of the close of business on the preceding Business Day. On each Business Day, the Servicer shall determine an amount (the "Class A Interest Shortfall") equal to the excess, if any, of (x) the Class A Interest for such Business Day plus the Class A Interest Shortfall for the preceding Business Day over (y) the amount available to be paid to the Class A Certificateholder in respect of Class A Interest on such Business Day. The Class A Interest Shortfall shall initially be zero. b. The amount of monthly interest (the "Class B Interest") allocable to the Class B Certificates with respect to any Interest Accrual Period shall be an amount equal to the product of (i) the Class B Certificate Rate and (ii) a fraction the numerator of which is the actual number of days in such Interest Accrual Period and the denominator of which is 360 and (iii) the Class B Invested Amount as of the close of business on the first day of such Interest Accrual Period; provided, however, that with respect to any Distribution Date related to the Pre-Funding Period the amount described in clause (iii) shall be the Class B Outstanding Principal Amount on the first day of the Pre-Funding Period. On the Determination Date preceding each Distribution Date, the Servicer shall determine an amount (the "Class B Interest Shortfall") equal to the excess, if any, of (x) the aggregate Class B Interest for the Interest Accrual Period applicable to the Distribution Date over (y) the amount available to be paid to the Class B Certificateholders in respect of interest on such Distribution Date. If there is a Class B Interest Shortfall with respect to any Distribution Date, an additional amount ("Class B Additional Interest") shall be payable as provided herein with respect to the Class B Certificates on each Distribution Date following such Distribution Date, to and including the Distribution Date on which such Class B Interest Shortfall is paid to Class B Certificateholders, equal to the product of (i) the Class B Certificate Rate plus 2% per annum and (ii) such Class B Interest Shortfall remaining unpaid calculated on the basis of a fraction the numerator of which is the actual number of days in the related Interest Accrual Period and the denominator of which is 360. Notwithstanding anything to the contrary herein, Class B Additional Interest shall be payable or distributed to Class B Certificateholders only to the extent permitted by applicable law. c. The amount of monthly interest (the "Class C Interest") allocable to the Class C Certificates with respect to any Interest Accrual Period shall be an amount equal to the product of (i) the Class C Certificate Rate and (ii) a fraction the numerator of which is the actual number of days in such Interest Accrual Period and the denominator of which is 360 and (iii) the Class C Invested Amount as of the close of business on the first day of such Interest Accrual Period; provided, however, that with respect to any Distribution Date related to the Pre-Funding Period the amount described in clause (iii) shall be the Class C Outstanding Principal Amount on the first day of the Pre-Funding Period. On the Determination Date preceding each Distribution Date, the Servicer shall determine an amount (the "Class C Interest Shortfall") equal to the excess, if any, of (x) the aggregate Class C Interest for the Interest Accrual Period applicable to the Distribution Date over (y) the amount available to be paid to the Class C Certificateholders in respect of interest on such Distribution Date. If there is a Class C Interest Shortfall with respect to any Distribution Date, an additional amount ("Class C Additional Interest") shall be payable as provided herein with respect to the Class C Certificates on each Distribution Date following such Distribution Date, to and including the Distribution Date on which such Class C Interest Shortfall is paid to Class C Certificateholders, equal to the product of (i) the Class C Certificate Rate plus 2% per annum and (ii) such Class C Interest Shortfall remaining unpaid calculated on the basis of a fraction the numerator of which is the actual number of days in the related Interest Accrual Period and the denominator of which is 360. Notwithstanding anything to the contrary herein, Class C Additional Interest shall be payable or distributed to Class C Certificateholders only to the extent permitted by applicable law. Section 4.6A Determination of the Class A Interest Adjustment. On each Business Day on which any obligations of the Trust to the Class A Certificateholders remain outstanding, the Servicer shall compute the excess, if any, of (i) the amount payable pursuant to subsection 4.9(a)(i) over (ii) the aggregate amounts actually paid to the Class A Certificateholders pursuant to subsection 4.9(a)(i) on such Business Day. The greater of zero and the amount of the excess, if any, computed in the immediately preceding sentence shall be the "Class A Interest Adjustment" for such Business Day and the Servicer shall provide the Trustee with written notice by facsimile or otherwise of the Class A Interest Adjustment. If the Class A Interest Adjustment is greater than zero, the Trustee shall withdraw from the Interest Funding Account and deposit in the Distribution Account an amount equal to the lesser of the aggregate amounts deposited in the Interest Funding Account pursuant to subsections 4.9(a)(iii) and 4.9(a)(x) of the Agreement during the then current Monthly Period on and prior to such Business Day (less the amount of any prior withdrawals therefrom pursuant to this third sentence of Section 4.6A on each prior Business Day in the then current Monthly Period) and the Class A Interest Adjustment (the greater of any such amount withdrawn and zero, the "Class C Interest Adjustment" for such Business Day). If the Class A Interest Adjustment for such Business Day exceeds the Class C Interest Adjustment for such Business Day, the Trustee shall withdraw from the Interest Funding Account and deposit in the Distribution Account an amount equal to the lesser of (i) the aggregate amounts deposited in the Interest Funding Account pursuant to subsection 4.9(a)(ii) and 4.9(a)(ix) of the Agreement during the then current Monthly Period on and prior to such Business Day (less the amount of any prior withdrawals therefrom pursuant to this fourth sentence of Section 4.6A on each prior Business Day in the then current Monthly Period and (ii) the difference between the Class A Interest Adjustment and the Class C Interest Adjustment (the greater of any such amount withdrawn and zero, the "Class B Interest Adjustment" for such Business Day). D. Determination of Principal Amounts. (a) The amount of principal (the "Class A Principal") distributable from the Distribution Account with respect to the Class A Certificate on each Business Day with respect to (A) the Revolving Period (except for any portion of the Revolving Period during a Class A Pay Down Period) shall be an amount equal to the sum of (x) amounts deposited into the Principal Account from the Defeasance Account pursuant to Section 9A of this Series Supplement and (y) the amount, if any, specified in the last sentence of Section 3A(i) of this Series Supplement and (B) the Amortization Period or the Class A Pay Down Period shall be equal to an amount calculated as follows: the sum of (i) an amount equal to the product of the ABC Fixed/Floating Allocation Percentage and the aggregate amount of Principal Collections (less the amount of Reallocated Class B Principal Collections and Reallocated Class C Principal Collections) with respect to such Business Day, (ii) any amount on deposit in the Excess Funding Account allocated to the Class A Certificate pursuant to subsection 4.9(d) with respect to such Business Day, and any remaining Class A Pre-Funded Amount, (iii) the amount, if any, allocated to the Class A Certificate pursuant to subsections 4.9(a)(v), (vii), (viii), (xi), and (xii) of the Agreement and, with respect to such subsections, pursuant to subsections 4.10(a) and (b) and 4.16(a), (b) and (c) on such Business Day, (iv) the amount of Shared Principal Collections allocated to the Class A Certificate with respect to such Business Day pursuant to Section 4.3(e) and (v) the amount, if any, specified in the last sentence of Section 3A(i) of this Series Supplement; provided, however, that with respect to any Business Day, Class A Principal may not exceed the Class A Invested Amount; provided, further, that with respect to the Scheduled Series 1994-2 Termination Date, the Class A Principal shall be an amount equal to the Class A Invested Amount. a. The amount of principal (the "Class B Principal") distributable from the Distribution Account with respect to the Class B Certificates on each Distribution Date, beginning with the Class B Principal Payment Commencement Date, shall equal an amount calculated as follows: the sum of (i) an amount equal to the product of the ABC Fixed/Floating Allocation Percentage and the aggregate amount of Principal Collections (less the amount of Reallocated Class B Principal Collections and Reallocated Class C Principal Collections) with respect to the preceding Monthly Period (or, in the case of the first Distribution Date in the Amortization Period following the date on which an amount equal to the Class A Invested Amount is paid to the Class A Certificateholder in respect of Class A Principal, the ABC Fixed/Floating Allocation Percentage of Principal Collections from the date on which such deposit is made), (ii) any amount on deposit in the Excess Funding Account allocated to the Class B Certificates pursuant to subsection 4.9(d) with respect to the preceding Monthly Period, or any remaining Class B Pre-Funded Amount, (iii) the amount, if any, allocated to the Class B Certificates pursuant to subsections 4.9(a)(v), (vii), (xi) and (xii) of the Agreement and, with respect to such subsections, pursuant to subsections 4.10(a) and (b) and 4.16(a) and (b) of the Agreement with respect to such Distribution Date, (iv) the amount of Shared Principal Collections allocated to the Class B Certificates with respect to the preceding Monthly Period pursuant to Section 4.3(e) of the Agreement on and after the Class B Principal Payment Commencement Date and (v) the amount, if any, specified in the last sentence of Section 3A(i) of this Series Supplement; provided, further, that with respect to any Distribution Date, Class B Principal may not exceed the Class B Invested Amount; provided, further, that with respect to the Scheduled Series 1994-2 Termination Date, the Class B Principal shall be an amount equal to the Class B Invested Amount. b. The amount of principal (the "Class C Principal") distributable from the Distribution Account with respect to the Class C Certificates on each Distribution Date, beginning with the Class C Principal Payment Commencement Date, shall be an amount equal to and calculated as follows: the sum of (i) an amount equal to the product of the ABC Fixed/Floating Allocation Percentage and the aggregate amount of Principal Collections (less the amount of Reallocated Class C Principal Collections) with respect to the preceding Monthly Period (or, in the case of the first Distribution Date following the date on which an amount equal to the Class B Invested Amount is deposited in the Principal Account to be applied to the payment of Class B Principal, the ABC Fixed/Floating Allocation Percentage of Principal Collections from the date on which such deposit is made), (ii) any amounts on deposit in the Excess Funding Account allocated to the Class C Certificates pursuant to subsection 4.9(d) with respect to the preceding Monthly Period, or any remaining Class C Pre- Funded Amount, (iii) the amount, if any, allocated to the Class C Certificates pursuant to subsections 4.9(a)(v), (vii) and (xii) of the Agreement and, with respect to such subsections, pursuant to subsections 4.10(a) and (b) and 4.16(a) on such Business Day, (iv) the amount of Shared Principal Collections allocated to the Class C Certificates with respect to the preceding Monthly Period pursuant to Section 4.3(e) of the Agreement on and after the Class C Principal Payment Commencement Date and (v) the amount, if any, specified in the last sentence of Section 3A(i) of this Series Supplement; provided that with respect to any Distribution Date, Class C Principal may not exceed the Class C Invested Amount; provided, further, that with respect to the Scheduled Series 1994-2 Termination Date, the Class C Principal shall be an amount equal to the Class C Invested Amount. c. The amount of principal (the "Class D Principal") distributable from the Distribution Account with respect to the Class D Certificates on each Distribution Date beginning with the Class D Principal Payment Commencement Date, or in the case of distributions of Class D Daily Principal pursuant to the last proviso of this subsection 4.7(d), on each Business Day, shall be an amount equal to and calculated as follows: the sum of (i) an amount equal to the product of the Class D Fixed/Floating Allocation Percentage of Principal Collections (less the amount of Reallocated Class D Principal Collections) with respect to the preceding Monthly Period (or, in the case of the first Distribution Date following the date on which an amount equal to the Class C Invested Amount is deposited in the Principal Account to be applied to the payment of Class C Principal, the Class D Fixed/Floating Allocation Percentage of Principal Collections from the date on which such deposit is made), (ii) any amount on deposit in the Excess Funding Account allocated to the Class D Certificates pursuant to subsection 4.9(d) with respect to the preceding Monthly Period, and (iii) the amount, if any, allocated to the Class D Certificates pursuant to subsections 4.9(a)(vi), (vii) and (xiii) of the Agreement and, with respect to such subsections, pursuant to subsection 4.10(a) and (b) of the Agreement with respect to such Distribution Date; provided, however, that with respect to the Scheduled Series 1994-2 Termination Date, the Class D Principal shall be an amount equal to the Class D Invested Amount; provided further, that on any Business Day during any period other than an Early Amortization Period or Class A Pay Down Period, the Transferor may designate that an amount up to the lesser of (i) the excess of the Class D Invested Amount over the Stated Class D Amount as of the close of business on the immediately preceding Business Day and (ii) (I) during the Revolving Period an amount equal to (x) the product of the Class D Floating Allocation Percentage and the amount of Principal Collections on such Business Day minus (y) Reallocated Class D Principal Collections on such Business Day or (II) after the Amortization Period Commencement Date an amount equal to (x) the product of the Class D Fixed/Floating Allocation Percentage and the amount of Principal Collections on such Business Day minus (y) Reallocated Class D Principal Collections on such Business Day (such designated amount, the "Class D Daily Principal") shall be distributed in accordance with subsection 4.9(g). E. Shared Principal Collections. Shared Principal Collections allocated to the Series 1994-2 Certificates and to be applied pursuant to subsections 4.9(c)(i)(z), 4.9(c)(ii)(z), 4.9(c)(iii)(z), 4.9(c)(iv)(z) and 4.9(e)(i)(z) for any Business Day with respect to the Amortization Period or the Class A Pay Down Period shall mean an amount equal to the product of (x) Shared Principal Collections for all Series for such Business Day and (y) a fraction, the numerator of which is the Principal Shortfall for the Series 1994-2 Certificates for such Business Day and the denominator of which is the aggregate amount of Principal Shortfalls for all Series for such Business Day. For any Business Day with respect to the Revolving Period (except for any portion of the Revolving Period during a Class A Pay Down Period), Shared Principal Collections allocated to the Series 1994-2 Certificates shall be zero. G. Application of Funds on Deposit in the Collection Account for the Certificates. (a) On each Business Day, the Servicer shall deliver to the Trustee a Daily Report in which it shall instruct the Trustee to withdraw, and the Trustee, acting in accordance with such instructions, shall withdraw from the Collection Account and the Cap Proceeds Account, to the extent of the sum of (w) the Floating Allocation Percentage of Imputed Yield Collections available in the Collection Account, (x) Investment Earnings on deposit in the Collection Account, (y) amounts on deposit in the Payment Reserve Account, if any, and (z) the Cap Receipt Amount, if any, for such Business Day (the "Available Series 1994-2 Imputed Yield Collections") the amounts set forth in subsections 4.9(a)(i) through 4.9(a)(xxii). (1) Class A Interest. On each Business Day during a Monthly Period, the Trustee, acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the Cap Receipt Amount and then from the Collection Account and pay to the Class A Certificateholders on such Business Day, to the extent of the Available Series 1994-2 Imputed Yield Collections, an amount equal to the lesser of (x) the Available Series 1994-2 Imputed Yield Collections and (y) the sum of (A) the lesser of (I) the Class A Interest for such Business Day and (II) the product of (i) the greater of LIBOR then in effect plus 0.75% per annum and 12% per annum and (ii) a fraction the numerator of which is the number of days from and including the preceding Business Day to but excluding such Business Day and the denominator of which is the actual number of days in the then current calendar year and (iii) the Class A Outstanding Principal Balance as of the close of business on the preceding Business Day plus (B) the excess, if any, of the amount payable to the Class A Certificateholders pursuant to clause (A) on each prior Business Day over the amount which has been paid to the Class A Certificateholders with respect thereto on each prior Business Day. (2) Class B Interest. On each Business Day during a Monthly Period, the Trustee, acting in accordance with instructions from the Servicer, shall allocate to the Class B Certificates and withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount for such Business Day, and then from the Collection Account and deposit into the Interest Funding Account, to the extent of the Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawal pursuant to subsection 4.9(a)(i), an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) the sum of (A) the Daily Portion of Class B Interest to be distributed on the Distribution Date following such Monthly Period plus (B) the excess, if any, of the amount required to be deposited pursuant to clause (A) above on each prior Business Day over the amount on deposit in the Interest Funding Account with respect thereto on such Business Day plus (C) an amount equal to the portion of Carryover Class B Interest attributable to amounts required to be deposited pursuant to clause (A) above that were not so deposited prior to such Business Day minus the amounts required to be deposited pursuant to clause (B) above. (3) Class C Interest. On each Business Day during a Monthly Period, the Trustee, acting in accordance with instructions from the Servicer, shall allocate to the Class C Certificates and withdraw first from the Cap Proceeds Account, to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account and deposit into the Interest Funding Account, to the extent of the Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawal pursuant to subsections 4.9(a)(i) and (ii), an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) the sum of (A) the Daily Portion of Class C Interest to be distributed on the Distribution Date following such Monthly Period plus (B) the excess, if any, of the amount required to be deposited pursuant to clause (A) above on each prior Business Day over the amount on deposit in the Interest Funding Account with respect thereto on such Business Day plus (C) an amount equal to the portion of Carryover Class C Interest attributable to amounts required to be deposited pursuant to clause (A) above that were not so deposited prior to such Business Day minus the amounts required to be deposited pursuant to clause (B) above. (4) Investor Servicing Fee. On each Business Day on which Fingerhut or an Affiliate of Fingerhut is not the Servicer, the Trustee, acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount and then from the Collection Account and distribute to the Servicer, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (iii), an amount equal to the lesser of (x) any such remaining Available Series 1994- 2 Imputed Yield Collections and (y) the excess of (i) the Daily Portion of the Servicing Fee for such Monthly Period plus any unpaid Daily Portion of the Servicing Fees over (ii) any amounts with respect thereto previously distributed to the Servicer during such Monthly Period. (5) ABC Investor Default Amount. On each Business Day, the Trustee, acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount and then from the Collection Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (iv), an amount equal to the lesser of (x) any such remaining Available Series 1994- 2 Imputed Yield Collections and (y) the sum of (1) the aggregate ABC Investor Default Amount for such Business Day plus (2) the unpaid ABC Investor Default Amount for each previous Business Day during such Monthly Period, such amount to be (A) during the Revolving Period (except for any portion of the Revolving Period during a Class A Paydown Period) treated as Shared Principal Collections, (B) during the Amortization Period or the Class A Pay Down Period on and prior to the day on which an amount equal to the Class A Invested Amount is deposited in the Principal Account, to be deposited in the Principal Account for distribution to the Class A Certificateholder on the next Distribution Date, (C) during the Amortization Period, on and after the day on which such deposit to the Principal Account with respect to the Class A Invested Amount has been made and on and prior to the day on which an amount equal to the Class B Invested Amount is deposited in the Principal Account, to be deposited in the Principal Account for payment to the Class B Certificateholders on the next Distribution Date, (D) during the Amortization Period on and after the day on which such deposit to the Principal Account with respect to the Class B Invested Amount has been made on and prior to the day on which an amount equal to the Class C Invested Amount is deposited in the Principal Account, to be deposited in the Principal Account for payment to the Class C Certificateholders on the next Distribution Date and (E) on and after the day such deposit to the Principal Account with respect to Class C Invested Amount has been made, to be paid to the Class D Certificateholders. (6) Class D Investor Default Amount. On each Business Day, the Trustee, acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount and then from the Collection Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (v), an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) the sum of (1) the aggregate Class D Investor Default Amount for such Business Day plus (2) the unpaid Class D Investor Default Amount for each previous Business Day during such Monthly Period, such amount to be (A) paid to the Transferor during the Revolving Period and the Amortization Period prior to the payment in full of the Class C Invested Amount, and (B) to the extent allocated to Class D Principal pursuant to Section 4.7 during the Amortization Period following the payment in full of the Class C Invested Amount, deposited in the Principal Account for distribution to the Class D Certificateholders on the next Distribution Date. (7) Adjustment Payment Shortfalls. On each Business Day, the Trustee, acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount and then from the Collection Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (vi), an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) an amount equal to the Series Allocation Percentage of any Adjustment Payment which the Transferor is required but fails to make pursuant to subsection 3.8(a) of the Agreement, such amount, (i) during the Revolving Period (except for any portion of the Revolving Period during a Class A Paydown Period), to be treated as Shared Principal Collections, (ii) during the Amortization Period or the Class A Pay Down Period on and prior to the day on which an amount equal to the Class A Invested Amount is deposited in the Principal Account, to be deposited in the Principal Account for distribution to the Class A Certificateholder on the next Distribution Date, (iii) during the Amortization Period, on and after the day on which such deposit to the Principal Account with respect to the Class A Invested Amount has been made and on and prior to the day on which an amount equal to the Class B Invested Amount is deposited in the Principal Account for payment to the Class B Certificateholders on the next Distribution Date, (iv) during the Amortization Period on and after the day on which such deposit to the Principal Account with respect to the Class B Invested Amount has been made on and prior to the day on which an amount equal to the Class C Invested Amount is deposited in the Principal Account, to be deposited in the Principal Account for payment to the Class C Certificateholders on the next Distribution Date and (v) on and after the day such deposit to the Principal Account with respect to Class C Invested Amount has been made, to be paid to the Class D Certificateholders. (8) Reimbursement of Class A Investor Charge-Offs. On each Business Day, the Trustee, acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount and then from the Collection Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (vii), an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) the unreimbursed Class A Investor Charge-Offs, if any; such amount will be applied to reimburse Class A Investor Charge-Offs, and, during the Revolving Period (except for any portion of the Revolving Period during a Class A Paydown Period), will be treated as Shared Principal Collections, and during the Amortization Period or the Class A Pay Down Period on and prior to the day on which an amount equal to the Class A Invested Amount is deposited in the Principal Account will be deposited in the Principal Account for distribution to the Class A Certificateholders on the next Distribution Date. (9) Unpaid Class B Interest. On each Business Day, the Trustee, acting in accordance with the instructions from the Servicer, shall allocate to the Class B Certificates and withdraw first from the Cap Proceeds Account, to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account and deposit in the Interest Funding Account, to the extent of the Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (viii), an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) the sum of (1) the excess of the Daily Portion of the product of (i) the Class B Certificate Rate and (ii) a fraction the numerator of which is the actual number of days in the then current Interest Accrual Period and the denominator of which is 360 and (iii) the Class B Outstanding Principal Amount as of the close of business on the first day of such Interest Accrual Period, over the amount which has previously been deposited into the Interest Funding Account or paid to the Class B Certificateholders and (2) any additional interest (to the extent permitted by applicable law) at the Class B Certificate Rate plus 2% for interest that has accrued on interest that was due during a prior Monthly Period pursuant to this subsection but was not deposited in the Interest Funding Account or paid to the Class B Certificateholders. (10) Unpaid Class C Interest. On each Business Day, the Trustee, acting in accordance with the instructions from the Servicer, shall allocate to the Class C Certificates and withdraw first from the Cap Proceeds Account, to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account and deposit in the Interest Funding Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (ix), an amount equal to the lesser of (x) any such remaining Available Series 1994- 2 Imputed Yield Collections and (y) the sum of (1) the excess of the Daily Portion of the product of (i) the Class C Certificate Rate and (ii) a fraction the numerator of which is the actual number of days in the then current Interest Accrual Period and the denominator of which is 360 and (iii) the Class C Outstanding Principal Amount as of the close of business on the first day of such Interest Accrual Period over the amount which has previously been deposited into the Interest Funding Account or paid to the Class C Certificateholders and (2) any additional interest (to the extent permitted by applicable law) at the Class C Certificate Rate plus 2% for interest that has accrued on interest that was due during a prior Monthly Period pursuant to this subsection but was not deposited in the Interest Funding Account or paid to the Class C Certificateholders. (11) Reimbursement of Class B Investor Charge-Offs. On each Business Day, the Trustee, acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (x), an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) the unreimbursed amount by which the Class B Invested Amount has been reduced on prior Business Days pursuant to clauses (d) and (e) of the definition of Class B Invested Amount, if any, such amount, (i) during the Revolving Period (except for any portion of the Revolving Period during a Class A Paydown Period), to be treated as Shared Principal Collections, (ii) during the Amortization Period or the Class A Pay Down Period, on and prior to the day on which an amount equal to the Class A Invested Amount is deposited in the Principal Account, to be deposited in the Principal Account for distribution to the Class A Certificateholders on the next Distribution Date, and (iii) during the Amortization Period, on and after the day on which such deposit has been made and on and prior to the day on which the Class B Invested Amount has been deposited in the Principal Account, to be deposited in the Principal Account for payment to the Class B Certificateholders on the next Distribution Date. (12) Reimbursement of Class C Investor Charge-Offs. On each Business Day, the Trustee, acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Class C Reserve Account, to the extent of the amount on deposit in the Class C Reserve Account, if any, and then from the Collection Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (xi), an amount equal to the lesser of (x) any such amounts on deposit in the Class C Reserve Account and remaining Available Series 1994-2 Imputed Yield Collections and (y) the unreimbursed amount by which the Class C Invested Amount has been reduced on prior Business Days pursuant to clauses (d) and (e) of the definition of Class C Invested Amount, if any, such amount, (i) during the Revolving Period (except for any portion of the Revolving Period during a Class A Paydown Period), to be treated as Shared Principal Collections, (ii) during the Amortization Period or the Class A Pay Down Period, on and prior to the day on which an amount equal to the Class A Invested Amount is deposited in the Principal Account, to be deposited in the Principal Account for distribution to the Class A Certificateholders on the next Distribution Date, (iii) during the Amortization Period, on and prior to the day on which an amount equal to the Class B Invested Amount is deposited in the Principal Account, to be deposited in the Principal Account for distribution to the Class B Certificateholders on the next Distribution Date and (iv) during the Amortization Period, on and after the day on which such deposit has been made and on and prior to the day on which an amount equal to the Class C Invested Amount is deposited in the Principal Account, to be deposited in the Principal Account for payment to the Class C Certificateholders on the next Distribution Date. (13) Reimbursement of Class D Investor Charge-Offs. On each Business Day, the Trustee, acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (xii), an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) the unreimbursed amount by which the Class D Invested Amount has been reduced on prior Business Days pursuant to clauses (d) and (e) of the definition of Class D Invested Amount, if any, such amount, (i) during the Revolving Period to be paid to the Transferor and (ii) during the Amortization Period, to be deposited in the Principal Account for payment pursuant to Section 4.9(c) of the Agreement. (14) Class C Reserve Account. On each Business Day following the occurrence of a Class C Trigger Event, the Trustee acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (xiii), an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) the amount by which the Specified Class C Reserve Amount exceeds the amount on deposit in the Class C Reserve Account and deposit such amount, if any, into the Class C Reserve Account. (15) Additional Class A Interest. On each Business Day during a Monthly Period, the Trustee, acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account and pay to the Class A Certificateholder on such Business Day, to the extent of the Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawal pursuant to subsections 4.9(a)(i) through (xiv), an amount equal to the lesser of (x) any such remaining Available Series 1994- 2 Imputed Yield Collections and (y) the excess, if any, of (1) the sum of Class A Interest for such Business Day and the Class A Interest Shortfall for the preceding Business Day over (2) the amounts previously deposited into the Interest Funding Account on such Business Day pursuant to subsection 4.9(a)(i). (16) Class A Costs. On each Business Day, the Trustee acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account and pay to the Class A Certificateholder, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (xv), an amount equal to the lesser of (x) any such remaining Available Series 1994- 2 Imputed Yield Collections and (y) the Class A Costs for such Business Day and any such amounts that remain unpaid from previous days to the extent not included in Class A Costs for such Business Day. (17) Class B Increased Costs. On each Business Day, the Trustee acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (xvi), an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) amounts payable to Class B Certificateholders pursuant to Section 16 of this Series Supplement for payment to such Class B Certificateholders. (18) Class C Increased Costs. On each Business Day, the Trustee acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (xvii), an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) amounts payable to Class C Certificateholders pursuant to Section 16 of this Series Supplement for payment to such Class C Certificateholders. (19) Investor Servicing Fee. On each Business Day, if Fingerhut or an Affiliate of Fingerhut is the Servicer, the Trustee, acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account and distribute to the Servicer, to the extent of Available Series 1994-2 Imputed Yield Collections for such Business Day (after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (xviii) of the Agreement), the Servicing Fee accrued since the preceding Business Day plus any Servicing Fee due with respect to any prior Business Day but not distributed to the Servicer. (20) Expense Reserve Account. On each Business Day following the occurrence of an Expense Reserve Trigger, the Trustee acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (xix) an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) the amount specified in subsection 4.21(b) of the Agreement and deposit such amount, if any, into the Expense Reserve Account. (21) Payment Reserve Account. On each Business Day, the Trustee acting in accordance with instructions from the Servicer, shall withdraw first from the Cap Proceeds Account to the extent of the remaining Cap Receipt Amount for such Business Day and then from the Collection Account, to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsections 4.9(a)(i) through (xx) an amount equal to the lesser of (x) any such remaining Available Series 1994-2 Imputed Yield Collections and (y) the amount designated by the Transferor in writing (which include facsimile transmission) in its instructions to the Trustee on such Business Day and deposit such amount, if any, into the Payment Reserve Account. (22) Excess Imputed Yield Collections. Any amounts remaining in the Cap Proceeds Account or the Collection Account to the extent of any Available Series 1994-2 Imputed Yield Collections remaining after giving effect to the withdrawals pursuant to subsection 4.9(a)(i) through (xxi), shall be treated as Excess Imputed Yield Collections, and the Servicer shall direct the Trustee in writing on each Business Day to withdraw such amounts from the Cap Proceeds Account, if applicable, and the Collection Account and to first make such amounts available to pay to Certificateholders of other Series to the extent of shortfalls, if any, in amounts payable to such certificateholders from Imputed Yield Collections allocated to such other Series, then to pay any unpaid commercially reasonable costs and expenses of a Successor Servicer, if any, and then pay any remaining Excess Imputed Yield Collections to the Transferor. b. For each Business Day with respect to the Revolving Period (except for any portion of the Revolving Period during a Class A Paydown Period), the funds on deposit in the Collection Account to the extent of the lesser of (A) the Class A Invested Amount and (B) the sum of (x) product of (i) the sum of the Class A Floating Allocation Percentage, the Class B Floating Allocation Percentage and the Class C Floating Allocation Percentage and (ii) the amount of Principal Collections on such Business Day (such product the "ABC Revolving Principal Collections") less the amount of Reallocated Class C Principal Collections and Reallocated Class B Principal Collections on such Business Day (the ABC Revolving Principal Collections less the Class C Reallocated Principal Collections and the Class B Reallocated Principal Collections on the related Business Day, the "Net ABC Revolving Principal Collections") and (y) the amount then on deposit in the Collection Account pursuant to subsection 3A(i) of this Series Supplement may, at the option of the Transferor or shall, if the Aggregate ABC Principal Amount exceeds the Aggregate Interest Rate Caps Notional Amount on such Business Day, pursuant to instructions delivered to the Servicer and the Trustee by facsimile or other similar means of documented communication, be deposited into the Defeasance Account and applied as provided in Section 9A(b) of this Series Supplement. During the Revolving Period (except for any portion of the Revolving Period during a Class A Pay Down Period), an amount equal to the Net ABC Revolving Principal Collections less any amount deposited to the Defeasance Account pursuant to the immediately preceding sentence shall be treated as Shared Principal Collections and applied pursuant to the written direction of the Servicer in the Daily Report for such Business Day, as provided in Section 4.3(e) of the Agreement. c. For each Business Day on and after the Amortization Period Commencement Date, the amount of funds on deposit in the Collection Account and the other amounts described below will be distributed, pursuant to the written direction of the Servicer in the Daily Report for such Business Day in the following priority: (1) on and prior to the day on which an amount equal to the Class A Invested Amount has been deposited in the Principal Account to be applied to the payment of Class A Principal, an amount (not in excess of the Class A Invested Amount) equal to the sum of (v) the product of the ABC Fixed/Floating Allocation Percentage and Principal Collections in the Collection Account at the end of the preceding Business Day (less the amount thereof to be applied as Reallocated Class B Principal Collections or Reallocated Class C Principal Collections on such Business Day), (w) any amount on deposit in the Excess Funding Account allocated to the Class A Certificate on such Business Day pursuant to subsection 4.9(d), (x) amounts to be paid pursuant to subsections 4.9(a)(v), (vii), (viii), (xi), (xii) and (xiii) of the Agreement from Available Series 1994-2 Imputed Yield Collections and from amounts available pursuant to subsections 4.10(a) and (b) and 4.16(a), (b) and (c) of the Agreement on such Business Day, (y) any remaining Class A Pre-Funded Amount on such Business Day and amounts specified in the last sentence of Section 3A(i) of this Series Supplement and (z) the amount of Shared Principal Collections allocated to the Series 1994-2 Certificates in accordance with Section 4.8 on such Business Day, will be paid to the Class A Certificateholder; (2) on and after the day on which an amount equal to the Class A Invested Amount has been paid to the Class A Certificateholder, an amount (not in excess of the Class B Invested Amount) equal to the sum of (v) an amount equal to the product of the ABC Fixed/Floating Allocation Percentage and Principal Collections in the Collection Account at the end of the preceding Business Day (less the amount thereof to be applied as Reallocated Class B Principal Collections or Reallocated Class C Principal Collections on such Business Day), (w) any amount on deposit in the Excess Funding Account allocated to the Class B Certificates on such Business Day pursuant to subsection 4.9(d), (x) the amount, if any, allocated to be paid to the Class B Certificates pursuant to subsections 4.9(a)(v), (vii), (xi), (xii) and (xiii) of the Agreement from Available Series Imputed Yield Collections and from amounts available pursuant to subsections 4.10(a) and (b) and 4.16(a) and (b) of the Agreement with respect to such Business Day, (y) any remaining Class B Pre-Funded Amount in the Pre-Funding Account on such Business Day and amounts specified in the last sentence of Section 3A(i) of this Series Supplement and (z) the amount of Shared Principal Collections allocated to the Series 1994-2 Certificates in accordance with Section 4.8 on such Business Day (such sum, the "Class B Daily Principal Amount") will be deposited into the Principal Account; (3) on and after the day on which an amount equal to the Class B Invested Amount has been deposited in the Principal Account to be applied to the payment of Class B Principal, an amount (not in excess of the Class C Invested Amount) equal to the sum of (v) an amount equal to the product of the ABC Fixed/Floating Allocation Percentage and Principal Collections in the Collection Account at the end of the preceding Business Day (less the amount thereof to be applied as Reallocated Class C Principal Collections on such Business Day), (w) any amount on deposit in the Excess Funding Account allocated to the Class C Certificates on such Business Day pursuant to subsection 4.9(d), (x) the amount, if any, allocated to be paid to the Class C Certificates pursuant to subsections 4.9(a)(v), (vii), (xii) and (xiii) of the Agreement from Available Series Imputed Yield Collections and from amounts available pursuant to subsections 4.10(a) and (b) and 4.16(a) of the Agreement with respect to such Business Day, (y) any remaining Class C Pre-Funded Amount in the Pre-Funding Account on such Business Day and amounts specified in the last sentence of Section 3A(i) of this Series Supplement and (z) the amount of Shared Principal Collections allocated to the Series 1994-2 Certificates in accordance with Section 4.8 on such Business Day (such sum, the "Class C Daily Principal Amount") will be deposited into the Principal Account; (4) on and after the day on which an amount equal to the Class C Invested Amount has been deposited in the Principal Account to be applied to the payment of Class C Principal, an amount equal to the sum of (w) an amount equal to the product of the Class D Fixed/Floating Allocation Percentage and Principal Collections in the Collection Account at the end of the preceding Business Day (less the amount thereof to be applied as Reallocated Class D Principal Collections on such Business Day), (x) any amount on deposit in the Excess Funding Account allocated to the Class D Certificates on such Business Day pursuant to subsection 4.9(d), (y) the amount, if any, allocated to be paid to the Class D Certificates pursuant to subsections 4.9(a)(vi), (vii) and (xiii) of the Agreement from Available Series Imputed Yield Collections and from amounts available pursuant to subsections 4.10(a) and (b) of the Agreement with respect to such Business Day and (z) the amount of Shared Principal Collections allocated to the Series 1994-2 Certificates in accordance with Section 4.8 on such Business Day (such sum, the "Class D Daily Principal Amount") will be distributed to the Class D Certificateholders; and (5) an amount equal to the excess, if any, of (A) the sum of the amounts described in clauses (i)(v) and (x), (ii)(v) and (x) and (iii)(v) and (x) above over (B) the sum of Class A Principal, Class B Principal and Class C Principal will be treated as Shared Principal Collections and applied as provided in subsection 4.3(e) of the Agreement. d. On the first Business Day of the Amortization Period, funds on deposit in the Excess Funding Account will be deposited in the Principal Account, provided that if any other Series enters its Amortization Period, as defined in its related Series Supplement, the amount of the foregoing deposit shall be equal to the product of an amount equal to the amount of funds on deposit in the Excess Funding Account and a fraction the numerator of which is the Invested Amount and the denominator of which is equal to the sum of the invested amounts of each Series then entering its related Amortization Period as defined in its related Series Supplement. Amounts deposited in the Principal Account pursuant to the foregoing sentence will be allocated in the following order of priority: (i) to the Class A Certificate in an amount not to exceed the Class A Principal after subtracting therefrom any amounts to be paid to the Class A Certificateholders with respect thereto pursuant to subsections 4.9(c)(i)(v), (y), and (z), (ii) to the Class B Certificates in an amount not to exceed the Class B Principal after subtracting therefrom any amounts to be deposited in the Principal Account with respect thereto pursuant to subsections 4.9(c)(ii)(v), (y) and (z), and (iii) to the Class C Certificates in an amount not to exceed the Class C Principal after subtracting therefrom any amounts to be deposited in the Principal Account with respect thereto pursuant to subsections 4.9(c)(iii)(v), (y) and (z). On and after the Class D Principal Payment Commencement Date any amounts remaining on deposit in the Excess Funding Account and allocated to the Series 1994-2 Certificates will be deposited in the Principal Account in an amount not to exceed the Class D Invested Amount after subtracting therefrom any amounts to be deposited in the Principal Account with respect thereto pursuant to subsections 4.9(c)(iv)(w), (y) and (z). e. For each Business Day during the Class A Pay Down Period: (1) funds on deposit in the Collection Account will be, pursuant to the written direction of the Servicer in the Daily Report for such Business Day, paid to the Class A Certificateholder in respect of the Class A Principal in an amount (not in excess of the Class A Invested Amount) equal to the sum of (w) the product of the ABC Fixed/Floating Allocation Percentage and Principal Collections in the Collection Account at the end of the preceding Business Day (less the amount thereof to be applied as Reallocated Class B Principal Collections or Reallocated Class C Principal Collections on such Business Day), (x) amounts to be paid pursuant to subsections 4.9(a)(v), (vii), (viii), (xi), (xii) and (xiii) of the Agreement from Available Series 1994-2 Imputed Yield Collections and from amounts available pursuant to subsections 4.10(a) and (b) and 4.16(a), (b) and (c) of the Agreement on such Business Day, (y) any remaining Class A Pre-Funded Amount on such Business Day and amounts specified in the last sentence of Section 3A(i) of this Series Supplement and (z) the amount of Shared Principal Collections allocated to the Series 1994-2 Certificates in accordance with Section 4.8 of the Agreement on such Business Day; (2) an amount equal to the excess, if any, of (A) the sum of the amounts described in clauses (i)(w) and (x) above over (B) the Class A Principal will be treated as Shared Principal Collections and applied as provided in subsection 4.3(e) of the Agreement. f. [Reserved] (g) On each Business Day on which Class D Daily Principal has been allocated pursuant to subsection 4.7(d) of the Agreement, funds on deposit in the Collection Account in an amount equal to the Class D Daily Principal Amount designated by the Transferor with respect to such Business Day will be distributed to the Class D Certificateholders. H. Coverage of Required Amount for the Series 1994-2 Certificates. (a) To the extent that any amounts are on deposit in the Pre-Funding Account or the Excess Funding Account on any Business Day, the Servicer shall apply, in the manner specified for application of Available Series 1994-2 Imputed Yield Collections in subsections 4.9(a)(i) through (xix), Transferor Imputed Yield Collections in an amount equal to the excess of (x) the product of (a) the Base Rate, (b) the amounts on deposit in the Pre-Funding Account and the Excess Funding Account and (c) the number of days elapsed since the previous Business Day divided by the actual number of days in such year over (y) the aggregate amount of all earnings since the previous Business Day available from the Cash Equivalents in which funds on deposit in the Pre-Funding Account and the Excess Funding Account are invested (the "Negative Carry Amount"). a. To the extent that on any Business Day payments are being made pursuant to any of subsections 4.9(a)(i) through (xix), respectively, and the full amount to be paid pursuant to any such subsection receiving payments on such Business Day is not paid in full on such Business Day, the Servicer shall apply, in the manner specified for application of Available Series 1994-2 Imputed Yield Collections in subsections 4.9(a)(i) through (xix), all or a portion of the Excess Imputed Yield Collections from other Series with respect to such Business Day allocable to the Series 1994-2 Certificates in an amount equal to the excess of the full amount to be allocated or paid pursuant to the applicable subsection over the amount applied with respect thereto from Available Series 1994-2 Imputed Yield Collections and Transferor Imputed Yield Collections on such Business Day (the "Required Amount"). Excess Imputed Yield Collections allocated to the Series 1994-2 Certificates for any Business Day shall mean an amount equal to the product of (x) Excess Imputed Yield Collections available from all other Series for such Business Day and (y) a fraction, the numerator of which is the Required Amount for such Business Day and the denominator of which is the aggregate amount of shortfalls in required amounts or other amounts to be paid from Imputed Yield Collections for all Series for such Business Day. I. Payment of Certificate Interest. On each Transfer Date, the Trustee, acting in accordance with instructions from the Servicer set forth in the Daily Report for such day, shall withdraw the amount on deposit in the Interest Funding Account with respect to the preceding Monthly Period allocable to the Series 1994-2 Certificates and deposit such amount in the Distribution Account. On each Business Day, the Paying Agent shall pay in accordance with Section 5.1 of the Agreement to Class A Certificateholders from the Distribution Account an amount equal to the sum of the Class C Interest Adjustment, if any, and the Class B Interest Adjustment, if any, deposited into the Distribution Account pursuant to Section 4.6A. On each Distribution Date, the Paying Agent shall pay in accordance with Section 5.1 of the Agreement (x) to the Class B Certificateholders from the Distribution Account the amount deposited into the Interest Funding Account during the preceding Monthly Period pursuant to subsections 4.9(a)(ii) and (ix) and Sections 4.10 and 4.16 less the aggregate Class B Interest Adjustment made with respect to the related Interest Accrual Period and (y) the Class C Certificateholders from the Distribution Account the amount deposited into the Interest Funding Account pursuant to subsections 4.9(a)(iii) and (x) and Sections 4.10 and 4.16 during the preceding Monthly Period less the aggregate Class C Interest Adjustment made in the related Interest Accrual Period. J. Payment of Certificate Principal. a. [Reserved] b. On the Transfer Date preceding the Class B Principal Payment Commencement Date and each Distribution Date thereafter, the Trustee, acting in accordance with instructions from the Servicer set forth in the Daily Report for such day, shall withdraw from the Principal Account and deposit in the Distribution Account, to the extent of funds available, an amount equal to the Class B Principal for such Distribution Date. On the Class B Principal Payment Commencement Date, after the payment of any principal amounts to the Class A Certificate on such day, and on each Distribution Date thereafter until the Class B Invested Amount is paid in full, the Paying Agent shall pay in accordance with Section 5.1 to the Class B Certificateholders from the Distribution Account such amount deposited into the Distribution Account on the related Transfer Date. c. On the Transfer Date preceding the Class C Principal Payment Commencement Date and each Distribution Date thereafter, the Trustee, acting in accordance with instructions from the Servicer set forth in the Daily Report for such day, shall withdraw from the Principal Account and deposit in the Distribution Account an amount equal to the lesser of the Class C Invested Amount and the amount on deposit in the Principal Account allocable to the Series 1994-2 Certificates (after giving effect to transfers pursuant to subsection 4.12(b)). On the Class C Principal Payment Commencement Date, after the payment of any principal amounts to the Class B Certificates on such day, and on each Distribution Date thereafter until the Class C Invested Amount is paid in full, the Paying Agent shall pay in accordance with Section 5.1 to the Class C Certificateholders from the Distribution Account such amount deposited into the Distribution Account on the related Transfer Date. d. On the Transfer Date preceding the Class D Principal Payment Commencement Date and each Business Day thereafter, the Trustee, acting in accordance with instructions from the Servicer set forth in the Daily Report for such day, shall make payments of principal to the Class D Certificateholders in accordance with subsection 4.9(c)(iv) of the Agreement. e. On each Business Day the Trustee acting in accordance with instructions from the Servicer set forth in the Daily Report for such Business Day shall make payments of principal to the Class D Certificateholders of Class D Daily Principal, if any, designated by the Transferor pursuant to Section 4.7(d) of the Agreement. Any amounts remaining in the Principal Account and allocable to the Series 1994-2 Certificates, after the Class D Invested Amount has been paid in full, will be treated as Shared Principal Collections and applied in accordance with Section 4.3(e) of the Agreement. K. Investor Charge-Offs. (a) If, on any Determination Date, the aggregate Investor Default Amount and the Series Allocation Percentage of unpaid Adjustment Payments, if any, for each Business Day in the preceding Monthly Period exceeded the Available Series 1994-2 Imputed Yield Collections applied to the payment thereof pursuant to subsections 4.9(a)(v), (vi) and (vii) of the Agreement and the amount of Transferor Imputed Yield Collections and Excess Imputed Yield Collections allocated thereto pursuant to Section 4.10 of the Agreement, and the amount of Reallocated Principal Collections applied with respect thereto pursuant to Section 4.16 of the Agreement, the Class D Invested Amount will be reduced by the amount by which the remaining aggregate Investor Default Amount and Series Allocation Percentage of unpaid Adjustment Payments exceed the amount applied with respect thereto during such preceding Monthly Period (a "Class D Investor Charge-Off"). a. In the event that any such reduction of the Class D Invested Amount would cause the Class D Invested Amount to be a negative number, the Class D Invested Amount will be reduced to zero, and, the Class C Invested Amount will be reduced by the amount by which the Class D Invested Amount would have been reduced below zero, but not more than the aggregate Investor Default Amount and Series Allocation Percentage of unpaid Adjustment Payments for such Monthly Period (a "Class C Investor Charge-Off"). b. In the event that any such reduction of the Class C Invested Amount would cause the Class C Invested Amount to be a negative number, the Class C Invested Amount will be reduced to zero, and, the Class B Invested Amount will be reduced by the amount by which the Class C Invested Amount would have been reduced below zero, but not more than the remaining aggregate Investor Default Amount and Series Allocation Percentage of unpaid Adjustment Payments for such Monthly Period (a "Class B Investor Charge-Off"). c. In the event that any such reduction of the Class B Invested Amount would cause the Class B Invested Amount to be a negative number, the Class B Invested Amount will be reduced to zero, and the Class A Invested Amount will be reduced by the amount by which the Class B Invested Amount would have been reduced below zero, but not more than the remaining aggregate Investor Default Amount and Series Allocation Percentage of unpaid Adjustment Payments for such Monthly Period (a "Class A Investor Charge-Off"). L. Pre-Funding Period and Establishment of the Pre-Funding Account. (a) If, as of the close of business on January 2, 1995 (i) there has not been a Class C Funding Purchase and a Class B Funding Purchase and (ii) during the period between the Closing Date and the close of business on January 2, 1995 the Class A Invested Amount during such time has not at any time equalled or exceeded $12,400,000, then unless a Series 1994-2 Pay Out Event shall have occurred prior to January 3, 1995 the period between January 3, 1995 and the earliest to occur of (i) the close of business on June 30, 1995, (ii) the occurrence of a Pay Out Event and (iii) the first date on which the Class C Pre-Funded Amount, the Class B Pre- Funded Amount and the Class A Pre-Funded Amount are all equal to zero shall be the "Pre-Funding Period". (b) Prior to the commencement of the Pre-Funding Period, if any, the Servicer shall for the benefit of the Series 1994-2 Certificateholders establish and maintain or cause to be established and maintained in the name of the Trustee, on behalf of the Series 1994-2 Certificateholders, with a Qualified Institution a segregated trust account (the "Pre-Funding Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 1994-2 Certificateholders. The Transferor does hereby transfer, assign, set over and otherwise convey to the Trust for the benefit of the Series 1994-2 Certificateholders, without recourse, all of its right, title and interest in, to and under the Pre-Funding Account, any Cash Equivalent on deposit therein and any proceeds of the foregoing, including the investment earnings thereon. The Pre-Funding Account shall be under the sole dominion and control of the Trustee for the benefit of the Series 1994-2 Certificateholders. If, at any time, the institution holding the Pre-Funding Account ceases to be a Qualified Institution, the Transferor shall direct the Servicer to establish within 10 Business Days a new Pre-Funding Account meeting the conditions specified above with a Qualified Institution, transfer any cash and/or any investments to such new Pre-Funding Account and from the date such new Pre-Funding Account is established, it shall be the "Pre-Funding Account." In addition, upon at least five days' notice to the Trustee, the Transferor may direct the Servicer to establish a new Pre-Funding Account meeting the conditions specified above with a different Qualified Institution, transfer all cash and investments held in the existing Pre-Funding Account to such new Pre-Funding Account and from the date such new Pre-Funding Account is established, it shall be, for the Series 1994-2 Certificates, the "Pre-Funding Account." Pursuant to the authority granted to the Servicer in subsection 3.1(b) of the Agreement, the Servicer shall have the power, revocable by the Trustee, to make withdrawals and payments or to instruct the Trustee to make withdrawals and payments from the Pre-Funding Account for the purposes of carrying out the Servicer's or Trustee's duties hereunder. (c) On the first day of the Pre-Funding Period, (i) if there has been no Class C Funding Purchase, then the purchasers of the Class C Certificates under the Class C Purchase Agreement shall deposit or cause to be deposited into the Pre-Funding Account an amount equal to the Class C Full Invested Amount (such deposit the "Class C Pre-Funding Deposit") and the Trustee at the direction of the Transferor shall issue the Class C Certificate to the aforementioned purchaser of the Class C Certificates; (ii) if there has been no Class B Funding Purchase, then the purchasers of the Class B Certificates under the Class B Purchase Agreement shall deposit or cause to be deposited into the Pre-Funding Account an amount equal to the Class B Full Invested Amount (such deposit, the "Class B Pre-Funding Deposit") and the Trustee at the direction of the Transferor shall issue the Class B Certificate to the aforementioned purchasers of the Class B Certificates; (iii) if during the Investment Period the maximum Class A Invested Amount never equalled or exceeded $12,400,000 then the purchaser of the Class A Certificate under the Class A Purchase Agreement shall deposit into the Pre- Funding Account, $12,400,000 (such deposit, the "Class A Pre-Funding Deposit") and the Trustee at the direction of the Transferor shall issue the Class A Certificate, if the Class A Certificate has not been issued, to the aforementioned purchaser of the Class A Certificate; provided, however, that no issuance of Class C Certificates, Class B Certificates or the Class A Certificate and no Class C Pre-Funding Deposit, Class B Pre-Funding Deposit or Class A Pre-Funding Deposit shall be made pursuant to this Section 4.14(b) unless (i) immediately following any issuance of the Class C Certificates, the Class B Certificates or the Class A Certificate pursuant to this Section 4.14(c), the Class D Invested Amount would equal or exceed the Stated Class D Amount; (ii) each of the conditions to the issuance of a Series pursuant to Section 6.9(b) of the Agreement are satisfied on or prior to the date of issuance with respect to the applicable Class or Classes of Certificates as if such Class or Classes of Certificates were a Series, except for the requirement to deliver a Series Supplement (as defined in the Agreement); and (iii) that the Transferor has given the purchasers of the Class C Certificates, the Class B Certificates or the Class A Certificate, as applicable, at least five Business Days' notice of the commencement of the Pre-Funding Period. Upon satisfaction of the above conditions, and in accordance with Section 6.9 of the Agreement to the extent applicable, the Trustee shall issue any Class C Certificates, Class B Certificates or Class A Certificates required to be issued pursuant to this Section 4.14. On the Business Day preceding each Transfer Date, the Servicer shall withdraw from the Pre-Funding Account and deposit in the Collection Account all interest and other investment income on the Pre-Funded Amount. Interest (including reinvested interest) and other investment income on funds on deposit in the Pre-Funded Account shall not be considered part of the Pre-Funded Amount for purposes of this Agreement but shall be applied as Available Series 1994-2 Imputed Yield Collections pursuant to subsection 4.9(a). Funds on deposit in the Pre-Funding Account other than investment income shall be withdrawn by the Servicer and paid to the Transferor to the extent of any increases in the Invested Amount pursuant to Section 4.15. The Trustee shall withdraw the remaining Pre-Funded Amount, if any, on deposit in the Pre-Funding Account on the last Business Day of the Pre-Funding Period and pay: (i) to the Class C Certificateholders an amount equal to the Class C Pre-Funded Amount, (ii) to the Class B Certificateholders an amount equal to the Class B Pre- Funded Amount and (iii) to the Class A Certificateholder an amount equal to the Class A Pre-Funded Amount; provided, however, that the above referenced payments need not be made to the Class C Certificateholders, the Class B Certificateholders or the Class A Certificateholders if the Class C Pre-Funded Amount, the Class B Pre-Funded Amount or the Class A Pre-Funded Amount, respectively, equals zero. (d) Funds on deposit in the Pre-Funding Account shall be invested in Cash Equivalents by the Trustee (or, at the direction of the Trustee, by the Servicer on behalf of the Trustee) at the direction of the Servicer. Funds on deposit in the Pre-Funding Account on any Distribution Date, after giving effect to any withdrawals from the Pre- Funding Account, shall be invested in Cash Equivalents that will mature so that such funds will be available for withdrawal on or prior to the following Transfer Date. The proceeds of any such investments shall be invested in Cash Equivalents that will mature so that such funds will be available for withdrawal on or prior to the following Transfer Date. On each Transfer Date the aggregate proceeds of any such investment shall be deposited in the Collection Account for application as Available Series 1994-2 Imputed Yield Collections. b. The "Investment Period" shall be the period, if any, beginning on the Closing Date and ending at the close of business on the first day of the January 1995 Monthly Period. c. On any Business Day during the Investment Period, the Transferor may require that: the Persons obligated to purchase the Class C Certificates pursuant to the Class C Purchase Agreement purchase a principal amount of Class C Certificates equal to the Class C Full Invested Amount (a "Class C Funding Purchase"); the Persons obligated to purchase the Class B Certificates pursuant to the Class B Purchase Agreement purchase a principal amount of Class B Certificates equal to the Class B Full Invested Amount (a "Class B Funding Purchase"); and that the Person obligated to purchase the Class A Certificate purchase a principal amount of the Class A Certificate according to the terms of the Class A Certificate Purchase Agreement less than or equal to the Class A Maximum Invested Amount, but in no event less than $12,400,000 (a "Class A Funding Purchase"); provided, however, that any Class A Funding Purchase, Class B Funding Purchase or Class C Funding Purchase may be required only upon satisfaction of the following conditions: (i) that the purchase of the Class C Funding Purchase be made in a single purchase on a single Business Day and prior to or contemporaneously with the issuance of the Class B Certificates; (ii) that the Class B Funding Purchase be made in a single purchase on a single Business Day and prior to or contemporaneously with the issuance of the Class A Certificate; (iii) that the Class A Funding Purchase be made only after or contemporaneously with the Class B Funding Purchase or Class C Funding Purchase; (iv) that immediately following the issuance of each of the Class C Certificates, the Class B Certificates and the Class A Certificate, the Class D Invested Amount be equal to or greater than the Stated Class D Amount; (v) that all of the conditions placed upon the issuance of a Series pursuant to Section 6.9(b) of the Agreement be satisfied with respect to the applicable Class or Classes of Certificates as if such Class or Classes of Certificates were a Series, except for the requirement to deliver a Series Supplement (as defined in the Agreement); and (vi) that the Transferor have given the purchasers of the Class C Certificates, the Class B Certificates or the Class A Certificates, as applicable at least five Business Days' notice of the date on which the purchase is to be made in accordance with this Section 4.14A. Upon satisfaction of the above conditions, and in accordance with Section 6.9 of the Agreement to the extent applicable, the Trustee shall issue the Class C Certificates in the case of a Class C Funding Purchase, the Class B Certificates in the case of a Class B Funding Purchase, and the Class A Certificates in the case of a Class A Funding Purchase, as applicable, upon receipt of payment therefor. M. Increases in Invested Amount during the Pre-Funding Period. The Transferor may at any time during the Pre-Funding Period determine to increase the Class C Invested Amount up to the Class C Full Invested Amount, to increase the Class B Invested Amount up to the Class B Full Invested Amount and the Class A Invested Amount by up to the amount, at any time, of the Class A Pre-Funded Amount; provided, however, that the Servicer may not, pursuant to this Section 4.15, increase the Class B Invested Amount until the Class C Invested Amount has been increased to the Class C Full Invested Amount nor increase the Class A Invested Amount until the Class B Invested Amount has been increased to the Class B Full Invested Amount; provided further, however, that no increase in the Class C Invested Amount, the Class B Invested Amount or the Class A Invested Amount pursuant to this Section 4.15 shall be made unless immediately after giving effect to any increase in the Class C Invested Amount, Class B Invested Amount or the Class A Invested Amount hereunder, the Class D Invested Amount would equal or exceed the Stated Class D Amount then applicable. Upon determining to increase the Class C Invested Amount, the Class B Invested Amount or the Class A Invested Amount in accordance with the terms of this Section 4.15, the Transferor shall deliver to the Servicer and the Trustee and each Rating Agency an Officer's Certificate specifying the amount of the increase in the Class C Invested Amount, the Class B Invested Amount or the Class A Invested Amount, as applicable, that the Transferor has determined to make and certifying that no Pay Out Event with respect to any outstanding Series will occur as a result of or in connection with such increase in the Class C Invested Amount, Class B Invested Amount or Class A Invested Amount as applicable. Upon receipt of such Officer's Certificate by the Trustee, the Class C Invested Amount the Class B Invested Amount or the Class A Invested Amount shall be increased as indicated on such Officer's Certificate, whereupon the Trustee shall instruct the Servicer to withdraw from the Pre-Funding Account and pay to the Transferor an amount equal to the amount of such increase in the Class C Invested Amount, the Class B Invested Amount or the Class A Invested Amount as applicable. Any withdrawal from the Pre-Funding Account which is used to increase the Class C Invested Amount pursuant to this Section 4.15 shall be a "Class C Pre-Funding Withdrawal"; any withdrawal from the Pre-Funding Account which is used to increase the Class B Invested Amount shall be pursuant to this Section 4.15 shall be a "Class B Pre-Funding Withdrawal"; and any withdrawal from the Pre-Funding Account which is used to increase the Class A Invested Amount pursuant to this Section 4.15 shall be a "Class A Pre-Funding Withdrawal." The Class C Pre-Funded Amount shall be immediately reduced by the amount of any Class C Pre-Funding Withdrawal; the Class B Pre-Funded Amount shall be immediately reduced by the amount of any Class B Pre-Funding Withdrawal and the Class A Pre-Funded Amount shall be immediately reduced by any Class A Pre-Funding Withdrawal. N. Reallocated Principal Collections for the Series 1994-2 Certificates. (a) On each Business Day, the Servicer will determine an amount equal to the least of (i) the Class D Invested Amount, (ii) the product of (x)(I) during the Revolving Period, the Class D Floating Allocation Percentage or (II) during an Amortization Period, the Class D Fixed/Floating Allocation Percentage and (y) the amount of Principal Collections with respect to such Business Day and (iii) an amount equal to the sum of (a) the Class A Required Amount for such Business Day, (b) the Class B Required Amount for such Business Day and (c) the Class C Required Amount for such Business Day (such amount called "Reallocated Class D Principal Collections") and shall apply Principal Collections in an amount equal to such amount first to the components of the Class A Required Amount, then to the components of the Class B Required Amount and then to the components of the Class C Required Amount in the same priority as amounts are applied to such components from Available Series 1994- 2 Imputed Yield Collections pursuant to subsection 4.9(a). a. On each Business Day, the Servicer will determine an amount equal to the least of (i) the Class C Invested Amount, (ii) the product of (x)(I) during the Revolving Period, the Class C Floating Allocation Percentage or (II) during an Amortization Period, the Class C Fixed/Floating Allocation Percentage and (y) the amount of Principal Collections for such Business Day and (iii) an amount equal to the sum of (a) the Class A Required Amount for such Business Day over the amount of Reallocated Class D Principal Collections applied with respect thereto for such Business Day and (b) the Class B Required Amount for such Business Day over the amount of Reallocated Class D Principal Collections applied with respect thereto for such Business Day (such amount called "Reallocated Class C Principal Collections") and shall apply Principal Collections in an amount equal to such amount first to the remaining components of the Class A Required Amount and then to the remaining components of the Class B Required Amount in the same priority as amounts are applied to such components from Available Series 1994-2 Imputed Yield Collections pursuant to subsection 4.9(a). b. On each Business Day, the Servicer will determine an amount equal to the least of (i) the Class B Invested Amount, (ii) the product of (x)(I) during the Revolving Period, the Class B Floating Allocation Percentage or (II) during an Amortization Period, the Class B Fixed/Floating Allocation Percentage and (y) the amount of Principal Collections for such Business Day and (iii) an amount equal to the excess, if any, of the Class A Required Amount for such Business Day over the sum of the amount of Reallocated Class D Principal Collections and Reallocated Class C Principal Collections applied with respect thereto for such Business Day (such amount called "Reallocated Class B Principal Collections") and shall apply Principal Collections equal to such amount to the remaining components of the Class A Required Amount in the same priority as amounts are applied to such components from Available Series 1994-2 Imputed Yield Collections pursuant to subsection 4.9(a). O. Determination of LIBOR. (a) "LIBOR" shall mean, for a specific Interest Accrual Period, the rate for deposits in United States dollars for one month (commencing on the first day of the relevant Interest Accrual Period) which appears on Telerate Page 3750 as of 11:00 A.M., London time, on the LIBOR Determination Date for such Interest Accrual Period. If such rate does not appear on Telerate Page 3750, the rate for such Interest Accrual Period will be determined on the basis of the rates at which deposits in the United States dollars are offered by the Reference Banks at approximately 11:00 a.m., London time, on such LIBOR Determination Date to prime banks in the London interbank market for a period equal to one month (commencing on the first day of Interest Accrual Period). The Trustee will request the principal London office of each such bank to provide a quotation of its rate. If at least two such quotations are provided, the rate for such Interest Accrual Period will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for such Interest Accrual Period will be the arithmetic mean of the rates quoted by four major banks in New York City, selected by the Trustee, at approximately 11:00 a.m., New York City time, on the first day of such Interest Accrual Period for loans in United States dollars to leading European banks for a period equal to one month (commencing on the first day of such Interest Accrual Period). a. The Class B Certificate Rate and the Class C Certificate Rate applicable to the then current and the immediately preceding Interest Accrual Periods may be obtained by any Series 1994-2 Certificateholder by telephoning the Trustee at its Corporate Trust Office at (302) 451-2500. b. On each LIBOR Determination Date, the Trustee shall send to the Servicer by facsimile notification of LIBOR for the following Interest Accrual Period. P. Class C Trigger. If (i) the private letter rating from Standard & Poor's of Fingerhut Companies, Inc.'s senior secured notes is reduced below BBB (a "Class C Trigger Event"), and (ii) the percentage equivalent of a fraction the numerator of which is the Series Allocation Percentage of the Transferor Interest and the denominator of which is the sum of the Invested Amount and the Series Allocation Percentage of the Transferor Interest (the "Target Percentage") is less than 5%, the Transferor shall, in connection with increases in the aggregate amount of Principal Receivables in the Trust, the scheduled paydown of other Series or, with respect to any Series of Variable Funding Certificates, an optional payment of principal, allow the Transferor Interest to increase such that the Target Percentage shall be equal to or in excess of 5%. The Servicer shall provide to Standard & Poor's and the Trustee prompt written notice of any downgrading of the private letter rating of Fingerhut Companies, Inc.'s senior secured notes. Q. Establishment of Class C Reserve Account. (a) The Servicer, for the benefit of the Class C Certificateholders, shall, upon the occurrence of a Class C Trigger Event, establish and maintain or cause to be established and maintained with a Qualified Institution, which may be the Trustee, in the name of the Trustee, on behalf of the Class C Certificateholders, the "Class C Reserve Account," which shall be a segregated trust account with the corporate trust department of such Qualified Institution, bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Class C Certificateholders. The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Class C Reserve Account and in all proceeds thereof. The Class C Reserve Account shall be under the sole dominion and control of the Trustee for the benefit of the Class C Certificateholders. If, at any time, the institution holding the Class C Reserve Account ceases to be a Qualified Institution, the Trustee shall within 10 Business Days establish a new Class C Reserve Account meeting the conditions specified above with a Qualified Institution, and shall transfer any cash or any investments to such new Class C Reserve Account. From the date such new Class C Reserve Account is established, it shall be the "Class C Reserve Account." (b) The Servicer shall on each Business Day following the occurrence of a Class C Trigger Event, deposit in the Class C Reserve Account an amount equal to the excess of the Specified Class C Reserve Amount over the amount on deposit in the Class C Reserve Account to the extent of funds available therefor pursuant to subsection 4.9(a)(xiv). Funds on deposit in the Class C Reserve Account shall be withdrawn by the Servicer and applied in accordance with subsection 4.9(a)(xii) to the extent of the aggregate amount of Class C Investor Charge- Offs resulting from unpaid Adjustment Payments, if any. Amounts on deposit in the Class C Reserve Account may be subsequently released therefrom to the extent that the amount on deposit in the Class C Reserve Account exceeds the Specified Class C Reserve Amount and shall be applied in accordance with and in the priority of payments set forth in subsections 4.9(a)(xv) through (xxii). The amount on deposit in the Class C Reserve Account may also be released therefrom and shall be applied in accordance with and in the priority of payments set forth in subsections 4.9(a)(xv) through (xxii), and the Series Allocation Percentage of the Transferor Interest may equal zero, if the rating of Fingerhut Companies, Inc.'s senior secured notes is subsequently increased to BBB or higher or the Class C Invested Amount has been paid in full. (c) Funds on deposit in the Class C Reserve Account shall be invested in Cash Equivalents by the Trustee (or, at the direction of the Trustee, by the Servicer on behalf of the Trustee) at the direction of the Servicer. Funds on deposit in the Class C Reserve Account on any Distribution Date, after giving effect to any withdrawals from the Class C Reserve Account, shall be invested in Cash Equivalents that will mature so that such funds will be available for withdrawal on or prior to the following Business Day. The proceeds of any such investments shall be invested in Cash Equivalents that will mature so that such funds will be available for withdrawal on or prior to the following Business Day. On each Business Day following a deposit of funds to the Class C Reserve Account, to the extent that the amount on deposit in the Class C Reserve Account exceeds the specified Class C Reserve Amount, the aggregate proceeds of any such investment shall be deposited in the Collection Account and treated as Investment Proceeds for application as Available Series 1994-2 Imputed Yield Collections. R. Expense Reserve. If with respect to any Monthly Period the Portfolio Yield exceeds the Base Rate by less than 2% (the "Expense Reserve Trigger") the Trustee shall deposit on each Business Day and after the Determination Date related to such Monthly Period in the Expense Reserve Account from amounts available therefor pursuant to subsection 4.9(a)(xx) of the Agreement, an aggregate amount equal to the difference, if any, between $50,000 and amounts already on deposit in the Expense Reserve Account. S. Expense Reserve Account. (a) The Servicer shall, upon the occurrence of an Expense Reserve Trigger, establish and maintain or cause to be established and maintained with a Qualified Institution, which may be the Trustee, in the name of the Trustee, on behalf of the Certificateholders, the "Expense Reserve Account," which shall be a segregated trust account with the corporate trust department of such Qualified Institution, bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Certificateholders. The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Expense Reserve Account and in all proceeds thereof. The Expense Reserve Account shall be under the sole dominion and control of the Trustee for the benefit of the Certificateholders. If, at any time, the institution holding the Expense Reserve Account ceases to be a Qualified Institution, the Trustee shall within 20 Business Days establish a new Expense Reserve Account meeting the conditions specified above with a Qualified Institution, and shall transfer any cash or any investments to such new Expense Reserve Account. From the date such new Expense Reserve Account is established, it shall be the "Expense Reserve Account." (b) The Servicer shall on each Business Day following the occurrence of an Expense Reserve Trigger, deposit in the Expense Reserve Account an amount equal to the excess of $50,000 over the amount on deposit in the Expense Reserve Account to the extent of funds available therefor pursuant to subsection 4.9(a)(xx). Funds on deposit in the Expense Reserve Account shall be withdrawn by the Servicer or the Trustee and applied solely to the payment of expenses incurred by the Transferor. Amounts on deposit in the Expense Reserve Account may be subsequently released therefrom and paid to the Transferor to the extent that such amounts exceed $50,000. The amount on deposit in the Reserve Account may also be released therefrom and paid to the Transferor on the Series 1994-2 Termination Date. (c) Funds on deposit in the Expense Reserve Account shall be invested in Cash Equivalents by the Trustee (or, at the direction of the Trustee, by the Servicer on behalf of the Trustee) at the direction of the Servicer. Funds on deposit in the Expense Reserve Account on any Distribution Date, after giving effect to any withdrawals from the Expense Reserve Account, shall be invested in Cash Equivalents that will mature so that such funds will be available for withdrawal on or prior to the following Transfer Date. The proceeds of any such investments shall be invested in Cash Equivalents that will mature so that such funds will be available for withdrawal on or prior to the following Transfer Date. On each Transfer Date the aggregate proceeds of any such investment shall be deposited in the Collection Account and treated as Investment Proceeds for application as Available Series 1994-2 Imputed Yield Collections. T. Payment Reserve Account a. The Servicer shall establish and maintain or cause to be established and maintained with a Qualified Institution, which may be the Trustee, in the name of the Trustee, on behalf of the Certificateholders, the "Payment Reserve Account," which shall be a segregated trust account with the corporate trust department of such Qualified Institution, bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Certificateholders. The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Payment Reserve Account and in all proceeds thereof. The Payment Reserve Account shall be under the sole dominion and control of the Trustee for the benefit of the Certificateholders. If, at any time, the institution holding the Payment Reserve Account ceases to be a Qualified Institution, the Trustee shall within 20 Business Days establish a new Payment Reserve Account meeting the conditions specified above with a Qualified Institution, and shall transfer any cash or any investments to such new Payment Reserve Account. From the date such new Payment Reserve Account is established, it shall be the "Payment Reserve Account." (b) [Reserved] (c) The Transferor, at its discretion, may withdraw on any Determination Date a part or all of any amounts remaining in the Payment Reserve Account after giving effect to any withdrawals required to be made under Section 4.9(a) above. (d) Funds on deposit in the Payment Reserve Account shall be invested in Cash Equivalents by the Trustee (or, at the direction of the Trustee, by the Servicer on behalf of the Trustee) at the direction of the Servicer. Funds on deposit in the Payment Reserve Account on any Business Day, after giving effect to any withdrawals from the Payment Reserve Account, shall be invested in Cash Equivalents that will mature so that such funds will be available for withdrawal on or prior to the following Business Day. The proceeds of any such investments shall be invested in Cash Equivalents that will mature so that such funds will be available for withdrawal on or prior to the following Business Day. On each Business Day following a deposit of funds to the Payment Reserve Account, the aggregate proceeds of any such investment shall be deposited in the Collection Account and treated as Investment Proceeds for application as Available Series 1994-2 Imputed Yield Collections. SECTION 7. Article V of the Agreement. Article V of the Agreement shall read in its entirety as follows and shall be applicable only to the Series 1994-2 Certificates: III. DISTRIBUTIONS AND REPORTS TO INVESTOR CERTIFICATEHOLDERS A. Distributions. (a) On each Business Day, the Paying Agent shall distribute (in accordance with the Settlement Statement delivered by the Servicer to the Trustee and the Paying Agent pursuant to subsection 3.4(c)) to the Class A Certificateholder of record on the preceding Record Date (other than as provided in subsection 2.4(e) or in Section 12.3 respecting a final distribution) such Certificateholder's pro rata share (based on the aggregate Undivided Interests represented by Class A Certificate held by such Certificateholder) of amounts on deposit in the Distribution Account as are payable to the Class A Certificateholder pursuant to Section 4.11 of the Agreement by wire transfer to an account or accounts designated by such Class A Certificateholder by written notice given to the Paying Agent not less than five days prior to such Business Day; provided, however, that the final payment in retirement of the Class A Certificate will be made only upon presentation and surrender of the Class A Certificate at the office or offices specified in the notice of such final distribution delivered by the Trustee pursuant to Section 12.3. a. On each Distribution Date, the Paying Agent shall distribute (in accordance with the Settlement Statement delivered by the Servicer to the Trustee and the Paying Agent pursuant to subsection 3.4(c)) to each Class B Certificateholder of record on the preceding Record Date (other than as provided in subsection 2.4(e) or in Section 12.3 respecting a final distribution) such Certificateholder's pro rata share (based on the aggregate Undivided Interests represented by Class B Certificates held by such Certificateholder) of amounts on deposit in the Distribution Account as are payable to the Class B Certificateholders pursuant to Section 4.11 and 4.12 of the Agreement by wire transfer to an account or accounts designated by such Class B Certificateholder by written notice given to the Paying Agent not less than five days prior to the related Distributed Date; provided, however, that the final payment in retirement of the Class B Certificates will be made only upon presentation and surrender of the Class B Certificates at the office or offices specified in the notice of such final distribution delivered by the Trustee pursuant to Section 12.3. b. On each Distribution Date, the Paying Agent shall distribute (in accordance with the Settlement Statement delivered by the Servicer to the Trustee and the Paying Agent pursuant to subsection 3.4(c)) to each Class C Certificateholder of record on the preceding Record Date (other than as provided in subsection 2.4(e) or in Section 12.3 respecting a final distribution) such Certificateholder's pro rata share (based on the aggregate Undivided Interests represented by Class C Certificates held by such Certificateholder) of amounts on deposit in the Distribution Account as are payable to the Class C Certificateholders pursuant to Section 4.11 and 4.12 of the Agreement by wire transfer to each Class C Certificateholder to an account or accounts designated by such Class C Certificateholder by written notice given to the Paying Agent not less than five days prior to the related Distribution Date; provided, however, that the final payment in retirement of the Class C Certificates will be made only upon presentation and surrender of the Class C Certificates at the office or offices specified in the notice of such final distribution delivered by the Trustee pursuant to Section 12.3. B. Certificateholders' Statement. (a) On the 20th day of each calendar month (or if such day is not a Business Day the next succeeding Business Day), the Paying Agent shall forward to each Certificateholder and the Rating Agencies a statement substantially in the form of Exhibit C prepared by the Servicer and delivered to the Trustee and the Paying Agent on the preceding Determination Date setting forth the following information (which, in the case of (i), (ii) and (iii) below, shall be stated on the basis of an original principal amount of $1,000 per Certificate and, in the case of (ix) and (x), shall be stated on an aggregate basis and on the basis of an original principal amount of $1,000 per Certificate): (1) the total amount distributed; (2) the amount of such distribution allocable to Certificate Principal; (3) the amount of such distribution allocable to Certificate Interest; (4) the amount of Principal Collections received in the Collection Account during the preceding Monthly Period and allocated in respect of the Class A Certificate, the Class B Certificates, the Class C Certificates and the Class D Certificates, respectively; (5) the amount of Imputed Yield Collections processed during the preceding Monthly Period and allocated in respect of the Class A Certificate, the Class B Certificates, the Class C Certificates and the Class D Certificates, respectively; (6) the aggregate amount of Principal Receivables, the Invested Amount, the Class A Invested Amount, the Class B Invested Amount, the Class C Invested Amount, the Class D Invested Amount, the Floating Allocation Percentage and, during the Amortization Period, the ABC Fixed/Floating Allocation Percentage, Class B Fixed/Floating Allocation Percentage, or Class C Fixed/Floating Allocation Percentage as applicable, with respect to the Principal Receivables in the Trust as of the end of the day on the last day of the related Monthly Period; (7) the aggregate outstanding balance of Receivables which are current, 30-59, 60-89, and 90 days and over delinquent as of the end of the day on the last day of the related Monthly Period; (8) the aggregate Investor Default Amount for the preceding Monthly Period; (9) the aggregate amount of Class A Investor Charge- Offs, Class B Investor Charge-Offs, Class C Investor Charge-Offs and Class D Investor Charge-Offs for the preceding Monthly Period; (10) the amount of the Servicing Fee for the preceding Monthly Period; (11) the Class A Pool Factor, the Class B Pool Factor and the Class C Pool Factor as of the end of the last day of the Monthly Period immediately preceding the Determination Date; (12) the amount of Reallocated Class B Principal Collections, Reallocated Class C Principal Collections and Reallocated Class D Principal Collections for the related Monthly Period; (13) the aggregate amount of funds in the Excess Funding Account as of the last day of the Monthly Period immediately preceding the Distribution Date; (14) whether a Class C Trigger Event has occurred and if so the Specified Class C Reserve Amount; and (15) the Aggregate Interest Rate Caps Notional Amount and the amount deposited in the Cap Proceeds Account during the related Monthly Period. b. Annual Certificateholders' Tax Statement. On or before January 15 of each calendar year, beginning with calendar year 1995, the Paying Agent shall distribute to each Person who at any time during the preceding calendar year was a Series 1994-2 Certificateholder, a statement prepared by the Servicer containing the information required to be contained in the regular report to Series 1994-2 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 1994-2 Certificateholder, together with, on or before January 31 of each year, beginning in 1995, such other customary information (consistent with the treatment of the Certificates as debt) as the Trustee or the Servicer deems necessary or desirable to enable the Series 1994-2 Certificateholders to prepare their tax returns. Such obligations of the Trustee shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Trustee pursuant to any requirements of the Internal Revenue Code as from time to time in effect. SECTION 7A. Article VI of the Agreement. Article VI (except for Sections 6.01 through 6.14 thereof) shall read in its entirety as follows and shall be applicable only to the Series 1994-2: IV. THE CERTIFICATES A. Additional Class A Invested Amounts. The Class A Certificateholder agrees, by acceptance of the Class A Certificate, that the Transferor may from time to time, other than after a Pay Out Commencement Date or during either the Pre-Funding Period or the Class A Pay Down Period, request that such Class A Certificateholder acquire on any Business Day additional undivided interests in the Trust in specified amounts (such amounts, the "Additional Class A Invested Amounts"); provided, however, that if such an increase in the Class A Invested Amount would cause a Trust Pay Out Event or a Series 1994-2 Pay Out Event to occur, then the amount of the increase in the Class A Invested Amount shall be limited on such Business Day to the maximum increase in the Class A Invested Amount that may be obtained without causing either a Trust Pay Out Event or a Series 1994-2 Pay Out Event to occur; and provided further, that in no case shall the Class A Invested Amount be increased above the Class A Maximum Invested Amount. The Additional Class A Invested Amounts on any Business Day shall not exceed an amount equal to the excess of the aggregate amount of Principal Receivables over the greater of (a) the sum of (i) the aggregate invested amount of each Series then outstanding as of such day including the Class A Certificate (prior to the addition of such Additional Class A Invested Amount) minus amounts on deposit in the Principal Account for any Series, if any, and (ii) the Minimum Transferor Interest as of such day or (b) the Minimum Aggregate Principal Receivables. The Class A Certificateholder shall acquire such Additional Class A Invested Amount, only if (a) the Class D Invested Amount following the acquisition of such Additional Class A Invested Amount shall be at least equal to the Stated Class D Amount (including increases to the Class D Invested Amount pursuant to Section 6.16 of the Agreement), (b) the notional amount of the Interest Rate Caps shall be at least equal to the Aggregate ABC Principal Amount after giving effect to the proposed increase in the Class A Invested Amount, (c) after giving effect to the proposed increase in the Class A Invested Amount no Series 1994-2 Pay Out Event shall occur as a result of such increase and (d) the conditions precedent to issuance of Commercial Paper or making a Revolving Loan (as defined in the Liquidity Agreement) pursuant to the Liquidity Agreement have been met. If the Class A Certificateholder acquires such Additional Class A Invested Amount, such Class A Certificateholder shall pay an amount equal to the Additional Class A Invested Amount to the Trustee and, in consideration of such Certificateholder's payment of the Additional Class A Invested Amount, the Servicer shall appropriately note such Additional Class A Invested Amount (and the increased Class A Invested Amount) on the next succeeding Servicer's report and direct the Trustee in writing to pay to the Transferor such Additional Class A Invested Amount, and the Invested Amount of the Class A Certificate will be equal to the Invested Amount of the Class A Certificate stated in such Servicer's report. The purchase of any Additional Class A Invested Amount shall be in an aggregate principal amount that is not less than $1,000,000 or integral multiples of $1,000,000 in excess thereof. The outstanding amounts of any Additional Class A Invested Amount purchased by the Class A Certificateholder shall be evidenced by a Class A Certificate to be issued on the Closing Date substantially in the form of Exhibit A-1 hereto. The Class A Certificateholder shall be and is hereby authorized to record on the grid attached to its Class A Certificate (or at such Class A Certificateholder's option, in its internal books and records) the date and amount of any Additional Class A Invested Amount purchased by it, and each repayment thereof; provided that failure to make any such recordation on such grid or any error in such grid shall not adversely affect the Class A Certificateholder's rights with respect to its Class A Invested Amount and its right to receive interest payments in respect of the Class A Invested Amount held by the Class A Certificateholder. B. Additional Class D Invested Amounts. a. On any Business Day while any Series 1994-2 Certificates are outstanding, the Transferor may elect to increase the Class D Invested Amount (such additional amounts, "Additional Class D Invested Amounts") by written notice to the Trustee at least three and not more than thirty Business Days in advance of such date which notice shall specify the effective date and the amount of such increase in the Class D Invested Amount; provided, however, that if such an increase in the Class D Invested Amount would cause a Trust Pay Out Event or a Series 1994- 2 Pay Out Event to occur, then the amount of the increase in the Class D Invested Amount shall be limited on such Business Day to the maximum increase in the Class D Invested Amount that may be obtained without causing either a Trust Pay Out Event or a Series 1994-2 Pay Out Event to occur; and provided further, that in no case shall the Class D Invested Amount be increased above the Class D Maximum Required Amount; provided further that no such increase in the Class D Invested Amount shall be permitted under this Section 6.16 unless: (i) after giving effect to the proposed increase in Class D Invested Amount the Transferor Interest shall equal or exceed the Minimum Transferor Interest, (ii) no Series 1994-2 Pay Out Event will occur as a result of such increase in the Class D Invested Amount and (iii) such increase in the Class D Invested Amount shall be made concurrently with a Class A Funding Purchase, Class B Funding Purchase or Class C Funding Purchase pursuant to Section 4.14A(b) of the Agreement or an increase in the Class A Invested Amount pursuant to Section 6.15 of the Agreement. C. Extension. (a) If a Pay Out Event has not occurred or has occurred but has been remedied on or before the 30th Business Day preceding the Extension Date, the Transferor, in its sole discretion, may deliver to the Trustee on or before such date a notice substantially in the form of Exhibit E (the "Extension Notice") to this Series Supplement. The Trustee shall deliver a copy of the Extension Notice and all documents annexed thereto to the Investor Certificateholders of record on the date of receipt thereof. The Transferor shall state in the Extension Notice that it intends to extend the Revolving Period until the later Amortization Period Commencement Date set forth in the Extension Notice. The Extension Notice shall also set forth the next Extension Date. The following documents shall be annexed to the Extension Notice: (i) a form of the Opinion of Counsel addressed to the Transferor and the Trustee to the effect that despite the extension the Trust will not be treated as an association taxable as a corporation (the "Extension Tax Opinion"); (ii) a form of the Opinion of Counsel addressed to the Transferor and the Trustee (the "Extension Opinion") to the effect that (A) the Transferor has the corporate power and authority to effect the Extension, (B) the extension has been duly authorized by the Transferor, and (C) all conditions precedent to the Extension required by this Section 6.17 have been fulfilled; (iii) a form of Investor Certificateholder Election Notice substantially in the form of Exhibit F (the "Election Notice") to this Series Supplement; and (iv) a schedule setting forth the Aggregate Interest Rate Caps Notional Amount for the period or periods as indicated from the Extension Date through the new Scheduled Series 1994-2 Termination Date, each as specified in the related Extension Notice. In addition, the Extension Notice shall state that any Investor Certificateholder electing to approve the Extension must do so on or before the Election Date (as defined below) by returning the annexed Election Notice properly executed to the Trustee in the manner described below. The Extension Notice shall also state that an Investor Certificateholder may withdraw any such election in whole or in part on or before the Election Date, and the Transferor, in its sole discretion, may, prior to the Election Date, withdraw its election to extend the Revolving Period. Any Holder that elects to approve an Extension hereunder shall deliver a duly executed Election Notice to the Trustee at the address designated in the Extension Notice on or before 3:00 p.m., New York City time, on or before the fifth Business Day preceding the Extension Date (such Business Day constituting the "Election Date"). a. No extension shall occur unless each of the following conditions have been satisfied prior to the close of business on the Election Date: (i) no Pay Out Event shall have occurred and be continuing, (ii) there shall have been delivered to the Trustee (A) the Extension Tax Opinion and the Extension Opinion, each addressed to the Trustee and (B)(1) written confirmation from each Rating Agency rating the Class A Certificates that the Extension will not cause such Rating Agency to lower or withdraw its then current rating of such Investor Certificates, (2) written confirmation from each Rating Agency rating the Class B Certificates that the Extension will not cause such Rating Agency to lower or withdraw its then current rating of such Investor Certificates, and (3) written confirmation from each Rating Agency rating its Class C Certificates that the extension will not cause such Rating Agency to lower or withdraw its then current rating of such Investor Certificates, (iii) each of the holders of the Class A Certificates, the Class B Certificates, and the Class C Certificates shall have elected to approve the Extension by returning to the Trustee on or before the Election Date the executed Election Notice annexed to the Extension Notice delivered to the Certificateholders pursuant to subsection 6.17(a) of the Agreement. If, by the close of business on the Election Date, all of the conditions stated in this subsection 6.17(b) of the Agreement have not been satisfied and all such documents delivered to the Trustee pursuant to this subsection 6.17(b) of the Agreement are not in form satisfactory to it, or if the Transferor has notified the Trustee, prior to the Election Date, that the Transferor has exercised its right to withdraw its election of an Extension, no Extension shall occur. b. The execution by the required number of Investor Certificateholders of the applicable Election Notice and return thereof to the Trustee by the required Date and time, the continued election by the Transferor to extend the Revolving Period at the Election Date, and the compliance with all of the provisions of this Section 6.17, shall evidence an extension or renewal of the obligations represented by the Investor Certificates, and not a novation or extinguishment of such obligations or a substitution with respect thereto. c. To the extent required by applicable laws and regulations, as evidenced by an Opinion of Counsel delivered by the Transferor to the Trustee, the provisions of this Section 6.17 shall or may be modified to comply with all applicable laws and regulations in effect at the time of the Extension. SECTION 8. Series 1994-2 Pay Out Events. If any one of the following events shall occur with respect to the Series 1994-2 Certificates: d. failure on the part of the Transferor (i) to make any payment or deposit required to be made by the Transferor by the terms of (A) the Agreement or (B) this Series Supplement, on or before the date occurring five Business Days after the date such payment or deposit is required to be made herein, (ii) to perform in all material respects the Transferor's covenant not to sell, pledge, assign, or transfer to any person, or grant any unpermitted lien on, any Receivable; or (iii) duly to observe or perform in any material respect any covenants or agreements of the Transferor set forth in the Agreement or this Series Supplement, which failure has a material adverse effect on the Series 1994-2 Certificateholders and which continues unremedied for a period of 60 days (or, in the case of a covenant pursuant to Section 3A of this Series Supplement, 30 days) after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Transferor by the Trustee, or to the Transferor and the Trustee by the Holders of Series 1994-2 Certificates evidencing Undivided Interests aggregating not less than 50% of any of the Class A Invested Amount, the Class B Invested Amount or the Class C Invested Amount, and continues to affect materially and adversely the interests of the Series 1994- 2 Certificateholders for such period; e. any representation or warranty made by the Transferor in the Agreement or this Series Supplement, (i) shall prove to have been incorrect in any material respect when made, which continues to be incorrect in any material respect for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Transferor by the Trustee, or to the Transferor and the Trustee by the Holders of the Series 1994-2 Certificates evidencing Undivided Interests aggregating more than 50% of any of the Class A Invested Amount, the Class B Invested Amount or the Class C Invested Amount, and (ii) as a result of which the interests of the Series 1994-2 Certificateholders are materially and adversely affected and continue to be materially and adversely affected for such period; provided, however, that a Series 1994-2 Pay Out Event pursuant to this subsection 8(b) shall not be deemed to have occurred hereunder if the Transferor has accepted reassignment of the related Receivable, or all of such Receivables, if applicable, during such period in accordance with the provisions of the Agreement; f. the average of the Portfolio Yields for any three consecutive Monthly Periods is reduced to a rate which is less than the weighted average of the weighted average Base Rates for such three consecutive Monthly Periods; g. (i) the Transferor Interest shall be less than the Minimum Transferor Interest, (ii)(A) the sum of (x) the amount on deposit in the Pre-Funding Account plus (y) the Series Allocation Percentage of the sum of the total amount of Principal Receivables plus amounts on deposit in the Excess Funding Account shall be less than (B) the sum of the Class A Outstanding Principal Amount, the Class B Outstanding Principal Amount, the Class C Outstanding Principal Amount and the Class D Outstanding Principal Amount or (iii) the total amount of Principal Receivables and the amount on deposit in the Excess Funding Account and the Pre-Funding Account shall be less than the Minimum Aggregate Principal Receivables, in each case as of any Determination Date; h. (i) any Servicer Default shall occur which would have a material adverse effect on the Series 1994-2 Certificateholders or (ii) for the purpose of determining Defaulted Receivables, the Servicer shall cease to charge off all Receivables as to which no payment has been made for at least 260 days, which default continues for a period of 10 Business Days after the Servicer shall have obtained knowledge thereof; or i. the amount on deposit in the Excess Funding Account as a percentage of the sum of the aggregate amount of Principal Receivables plus the amount on deposit in the Excess Funding Account shall equal or exceed 30% on the last day of three consecutive Monthly Periods; then, in the case of any event described in subparagraph (a), (b) or (e), after the applicable grace period, if any, set forth in such subparagraphs, the Holders of Series 1994-2 Certificates evidencing Undivided Interests aggregating more than 50% of any of the Class A Invested Amount, the Class B Invested Amount or the Class C Invested Amount by notice then given in writing to the Trustee, the Transferor, the Cap Provider and the Servicer may declare that a pay out event (a "Series 1994-2 Pay Out Event") has occurred as of the date of such notice, and in the case of any event described in subparagraphs (c), (d) or (f), a Series 1994-2 Pay Out Event shall occur without any notice or other action on the part of the Trustee or the Series 1994-2 Certificateholders immediately upon the occurrence of such event. SECTION 8A. Class A Pay Down Period. If (i) an OTC Termination Event (as defined in the Owner Trust Agreement) or a Class A Event of Default shall have occurred and the Trustee shall have received written notice from Owner Trust Certificateholders (as defined in the Owner Trust Agreement) and Lenders (as defined in the Liquidity Agreement) whose aggregate Voting Interests (as defined in the Collateral Trust Agreement) exceed 50 percent of the total Voting Interests or (ii) the principal amount of the FCI Note shall be less than the FCI Note Required Amount or (iii) the Transferor shall sell, transfer, assign, pledge, hypothecate, participate or otherwise convey or encumber the FCI Note and such action shall not be completely revoked or otherwise remedied within five days, or (iv) the Transferor shall permit to exist any Lien (other than a Permitted Lien) on the FCI Note not created with the Transferor's consent and such Lien shall not be completely removed, revoked or otherwise remedied within 30 days, then the "Class A Pay Down Period" shall commence without notice or any action on the part of the Trustee or the Class A Certificateholder immediately upon the occurrence of such event and continue until the earlier of (i) the payment in full of the Class A Certificates and (ii) the Amortization Period Commencement Date. SECTION 9. Series 1994-2 Termination. The right of the Series 1994-2 Certificateholders to receive payments from the Trust will terminate on the first Business Day following the Series 1994-2 Termination Date unless such Series is an Affected Series as specified in Section 12.1(c) of the Agreement and the sale contemplated therein has not occurred by such date, in which event the Series 1994-2 Certificateholders shall remain entitled to receive proceeds of such sale when such sale occurs. j. During the Revolving Period (except for any portion of the Revolving Period during a Class A Pay Down Period), the Holder of the Exchangeable Transferor Certificate may specify upon an Exchange, pursuant to Section 6.9 of the Agreement, that the purchaser of a newly issued Series deposit payment therefor, in full or in part, in the Defeasance Account in an amount not to exceed the Class A Invested Amount on such date. On the Closing Date the Trustee shall, for the benefit of the Class A Certificateholder, establish and maintain with a Qualified Institution in the name of the Trust, a certain segregated trust account (the "Defeasance Account"). Any amounts on deposit in the Defeasance Account on any Business Day shall be invested at the direction of the Servicer in Cash Equivalents which mature on the next succeeding Business Day. On each Business Day following a deposit of funds to the Defeasance Account, the aggregate proceeds of any such investment shall be deposited in the Collection Account and treated as Investment Proceeds for application as Available Series 1994-2 Imputed Yield Collections. k. Upon the direction of the Servicer any amounts, up to the Class A Invested Amount, on deposit in the Defeasance Account may, or upon the occurrence of a Pay Out Event the amount on deposit in the Defeasance Account shall, be deposited in the Principal Account for distribution on the next Business Day to be applied to the payment of Class A Principal. Such amounts shall be applied and paid in accordance with Sections 4.7, 4.12 and 5.1 of the Agreement. Subsequent to any reduction of the Class A Invested Amount as a result of payments pursuant to this Section 9A, the Class A Invested Amount may be increased pursuant to the terms and conditions set forth in Section 6.15 of the Agreement. SECTION 10. Legends; Transfer and Exchange; Restrictions on Transfer of Series 1994-2 Certificates; Tax Treatment. (a) Each Class A Certificate will bear a legend substantially in the following form: THIS CERTIFICATE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY OTHER APPLICABLE SECURITIES LAW. THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. (b) Each Class A Certificate, Class B Certificate, Class C Certificate and Class D Certificate will bear a legend substantially in the following form: EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT, UNLESS SUCH PURCHASER, AT ITS EXPENSE, DELIVERS TO THE TRUSTEE, THE SERVICER AND THE TRANSFEROR AN OPINION OF COUNSEL SATISFACTORY TO THEM TO THE EFFECT THAT THE PURCHASE OR HOLDING OF A CLASS A CERTIFICATE, CLASS B CERTIFICATE, CLASS C CERTIFICATE OR CLASS D CERTIFICATE BY SUCH PURCHASER WILL NOT RESULT IN THE ASSETS OF THE TRUST BEING DEEMED TO BE "ASSETS OF THE BENEFIT PLAN" AND SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF ERISA AND THE CODE AND WILL NOT SUBJECT THE TRUSTEE, THE TRANSFEROR OR THE SERVICER TO ANY OBLIGATION IN ADDITION TO THOSE UNDERTAKEN IN THE POOLING AND SERVICING AGREEMENT, SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR (III) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY. (c) Each Class B and Class C Certificate will bear a legend substantially in the following form: THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO AN INSTITUTIONAL INVESTOR THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A ("QIB") PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, OR TO THE TRANSFEROR. EACH CERTIFICATE OWNER BY ACCEPTING A BENEFICIAL INTEREST IN THIS CERTIFICATE IS DEEMED TO REPRESENT THAT IT IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF ANOTHER QIB. (d) Each Class D Certificate will bear a legend substantially in the following form: THIS CERTIFICATE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY OTHER APPLICABLE SECURITIES LAW. FINGERHUT RECEIVABLES, INC. SHALL BE PROHIBITED FROM TRANSFERRING ANY INTEREST IN OR PORTION OF THIS CERTIFICATE UNLESS, PRIOR TO SUCH TRANSFER, IT SHALL HAVE DELIVERED TO THE TRUSTEE AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH PROPOSED TRANSFER WILL NOT ADVERSELY AFFECT THE FEDERAL, MINNESOTA OR DELAWARE INCOME TAX CHARACTERIZATION OF ANY OUTSTANDING SERIES OF INVESTOR CERTIFICATES OR THE TAXABILITY (OR TAX CHARACTERIZATION) OF THE TRUST UNDER FEDERAL, MINNESOTA OR DELAWARE INCOME TAX LAWS. THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. (e) Upon surrender for registration of transfer of a Class B Certificate or Class C Certificate at the office of the Transfer Agent and Registrar, accompanied by a certification by the Class B Certificateholder or Class C Certificateholder, as applicable, substantially in the form attached as Exhibit D if the new purchaser is a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933 and by a written instrument of transfer in the form approved by the Transferor and the Trustee (it being understood that, until notice to the contrary is given to Class B Certificateholders or Class C Certificateholders, the Transferor and the Trustee shall each be deemed to have approved the form of instrument of transfer, if any printed on any definitive Class B Certificate or Class C Certificate), executed by the registered owner, in person or by such Class B Certificateholder's or Class C Certificateholder's attorney thereunto duly authorized in writing, such Class B Certificate or Class C Certificate shall be transferred upon the register, and the Transferor shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferees one or more new registered Class C Certificates of any authorized denominations and of a like aggregate principal amount and tenor. Transfers and exchanges of Class B Certificates or Class C Certificates shall be subject to such restrictions as shall be set forth in the text of the Class B Certificates or Class C Certificates and such reasonable regulations as may be prescribed by the Transferor. Successive registrations and registrations of transfers as aforesaid may be made from time to time as desired, and each such registration shall be noted on the register. (f) Fingerhut Receivables, Inc. shall be prohibited from transferring any interest in or portion of the Class D Certificates unless, prior to such Transfer, it shall have delivered to the Trustee an Opinion of Counsel to the effect that such proposed Transfer will not adversely affect the Federal, Minnesota or Delaware income tax characterization of any outstanding Series of Investor Certificates or the taxability (or tax characterization) of the Trust under Federal, Minnesota or Delaware income tax laws. In no event shall any interest in or portion of the Class D Certificates be transferred to Fingerhut. As a condition to transfer of an interest in or portion of the Class D Certificates the transferee shall be required to agree not to 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 all Investor Certificates are paid in full. The Transferor shall provide prompt written notice to the Rating Agencies of any such transfer. (g) No transfer of a Class B Certificate, Class C Certificate or Class D Certificate will be permitted to be made to a Benefit Plan unless such Benefit Plan, at its expense, delivers to the Trustee, the Servicer and the Transferor an opinion of counsel satisfactory to them to the effect that the purchase or holding of a Class B Certificate, Class C Certificate or Class D Certificate by such Benefit Plan will not result in the assets of the Trust being deemed to be "assets of the Benefit Plan" and subject to the prohibited transaction provisions of ERISA and the Code and will not subject the Trustee, the Transferor or the Servicer to any obligation in addition to those undertaken in the Agreement. Unless such opinion is delivered, each person acquiring a Class B Certificate, Class C Certificate or Class D Certificate or the beneficial ownership of a Class B Certificate, Class C Certificate or Class D Certificate will be deemed to represent to the Trustee, the Transferor and the Servicer that it is not (i) an employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to the provisions of Title I of ERISA, (ii) a plan described in Section 4975(e)(1) of the Code, or (iii) any entity whose underlying assets include plan assets by reason of a plan's investment in the entity. (h) The Class B Certificateholders or Class C Certificateholders shall comply with their obligations under Section 3.7 of the Agreement with respect to the tax treatment of the Class B Certificates or Class C Certificates, except to the extent that a relevant taxing authority has disallowed such treatment. l. 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. m. For so long as any of the Class B Certificates or the Class C Certificates are outstanding, each of the Transferor, the Servicer and the Trustee agree to cooperate with each other to provide to any Class B Certificateholders or Class C Certificateholders, as applicable, and to any prospective purchaser of Class B Certificates or Class C Certificates designated by such a Class B Certificateholder or Class C Certificateholder upon the request of such Class B Certificateholder or Class C Certificateholder 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. n. For so long as any of the Certificates are outstanding, the Transferor shall not reduce the Discount Factor if, after giving effect to such reduction, the average Adjusted Portfolio Yield for the twelve Monthly Periods preceding the effective date of such reduction (giving effect to such reduction on a pro forma basis) minus the sum of: (1) the average of the maximum per annum rates payable in respect of the Class A Certificates, Class B Certificates and Class C Certificates as of such effective date (in each case determined by adding .80%, .625% and .75%, respectively, to the strike rates on LIBOR set forth in the Cap Agreements with respect to the Class A Certificate Rate, Class B Certificate Rate and Class C Certificate Rate, respectively), in each case weighted by the daily average Class A Invested Amount, Class B Invested Amount and Class C Invested Amount, respectively, during such twelve Monthly Periods; and (2) the Servicing Fee Rate; shall be less than 0%. If, and to the extent, the Receivables bear a monthly finance charge component, the Imputed Yield Collections attributable to such component may be taken into account on a pro forma basis in making the foregoing calculation. SECTION 12. 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 13. GOVERNING LAW. THIS SERIES SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. SECTION 14. Instructions in Writing. All instructions or other communications given by the Servicer or any other person to the Trustee pursuant to this Series Supplement shall be in writing, and, with respect to the Servicer, may be included in a Daily Report or Settlement Statement. SECTION 15. Amendments. Solely with respect to any amendment pursuant to Section 13.1(b) of the Agreement and any consent required pursuant thereto from the Holders of Investor Certificates of Series 1994-2, this Series Supplement and the Agreement may be amended from time to time by the Servicer, the Transferor and the Trustee with the consent of the Holders of Investor Certificates evidencing Undivided Interests aggregating not less than 66 2/3% of the Invested Amount of the Series 1994-2 Certificates and (y) not less than 51% of each of the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount to the extent that such classes would be adversely affected, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Series Supplement or the Agreement or of modifying in any manner the rights of the Certificateholders of any Class of the Series 1994-2 Certificates then issued and outstanding; provided, however, that no such amendment under this Section 15 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 Class without the consent of all of the related Investor Certificateholders; (ii) change the definition of or the manner of calculating the interest of any Investor Certificate of such Class without the consent of the related Investor Certificateholders or (iii) reduce the aforesaid percentage required to consent to any such amendment, in each case without the consent of all such Investor Certificateholders. o. Notwithstanding any other provision herein, if after the Effective Date (as defined in the Liquidity Agreement), any change in applicable law or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of payments to any Class B or Class C Certificateholder that is a commercial bank or controlled by a commercial bank of the principal of or interest on any Class B or Class C Certificate (other than changes in respect of taxes imposed on the overall net income of such Certificateholder by the jurisdiction in which such Certificateholder has its principal office or by any political subdivision or taxing authority therein), or shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by such Certificateholder, or shall impose on such Certificateholder or the London interbank market any other condition affecting this Series Supplement or any Class B or Class C Certificate owned by such Certificateholder, and the result of any of the foregoing shall be to increase the cost to such Certificateholder of holding any Class B or Class C Certificate or to reduce the amount of any sum received or receivable by such Certificateholder hereunder (whether of principal or interest) in respect thereof by an amount deemed by such Certificateholder to be material, then the Trustee will pay to such Certificateholder upon demand such additional amount or amounts as will compensate such Certificateholder for such additional costs incurred or reduction suffered. Any Class B or Class C Certificateholder claiming any additional amounts payable pursuant to this Section 16 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Transferor or the Trustee or to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any additional amount which may thereafter accrue and would not, in the sole determination of such Certificateholder, be otherwise disadvantageous to such Certificateholder. p. If any Class B or Class C Certificateholder that is a commercial Bank or controlled by a commercial bank shall have determined that the adoption after the Effective Date (as defined in the Liquidity Agreement) of any other law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any such Certificateholder (or any lending office of such Certificateholder) or any such Certificateholder's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Certificateholder's capital or on the capital of such Certificateholder's holding company, if any, as a consequence of this Series Supplement or the Class B or Class C Certificates owned by such Certificateholder to a level below that which such Certificateholder or such Certificateholder's holding company could have achieved but for such adoption, change or compliance (taking into consideration such Certificateholder's policies and the policies of such Certificate-holder's holding company with respect to such capital adequacy) by an amount deemed by such Certificateholder to be material, then from time to time the Trustee shall pay to such Certificateholder such additional amount or amounts as will compensate such Certificateholder or such Trustee's holding company for any such reduction suffered after the date hereof. q. A certificate of a Class B or Class C Certificateholder setting forth such amount or amounts, along with such Certificateholder's method of computation of such amounts, as shall be necessary to compensate such Certificateholder as specified in paragraph (a) or (b) above, as the case may be, shall be delivered to the Trustee and shall be conclusive absent manifest error. The Trustee shall pay each Certificateholder the amount shown as due on any such certificate delivered by it no later than the Distribution Date immediately succeeding the date of delivery of such certificate. r. Failure on the part of any eligible Class B or Class C Certificateholder to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any period shall not constitute a waiver of such Certificateholder's right to demand compensation with respect to such period or any other period; provided, however, that no Certificateholder shall be entitled to compensation for any such increased costs or reductions unless it shall have submitted a certificate under paragraph (c) above with respect thereto not more than 90 days after the date that such Certificateholder knows that such increased costs have been incurred or such reduction suffered. Notwithstanding any other provision of this Section 16, no Certificateholder shall demand compensation for any increased cost or reduction referred to above if it shall not at the time be the general policy of such Certificateholder to demand such compensation in similar circumstances under comparable provisions of other credit agreements, and each Certificateholder shall in good faith endeavor to allocate increased costs or reductions fairly among all of its affected commitments and credit extensions (whether or not it seeks compensation from all affected borrowers). The protection of this Section 16 shall be available to each Class B or Class C Certificateholder that is a commercial bank or controlled by a commercial bank regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, guideline or other change or condition which shall have occurred or been imposed. s. The amounts owing by the Trustee pursuant to this Section 16 shall be payable solely from amounts available therefor pursuant to subsections 4.9(a)(xvii) and (xviii) of the Agreement. SECTION 17. Replacement of Certain Investor Certificateholders. In the event that (i) a Class B or Class C Certificateholder requests compensation pursuant to Section 16, (ii) a Holder of Investor Certificates (a "Non-Consenting Holder") does not consent to an amendment, supplement, waiver or other modification with respect to this Series Supplement or to the Agreement, as provided in Section 15 within the time period specified for delivery of such consent pursuant to the documentation associated therewith and the amendment, supplement, waiver or other modification is not approved in accordance with said Section 15, or (iii) an Investor Certificateholder fails to approve any Extension requested by the Transferor pursuant to Section 6.17 of the Agreement, the Transferor shall have the right to replace such Holder with a Person or Persons meeting the requirements of Section 10, by giving three Business Days prior written notice to the Trustee and such Holder, specifying the date on which such Holder's Certificates shall be transferred; provided, however that, (a) such transfer shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority, and (b) in the case of clause (ii) above, all Non-Consenting Holders with respect to any one proposed amendment, supplement, waiver or other modification or Extension must be concurrently replaced in accordance with this Section 17. In the event of the replacement of an Investor Certificateholder, such Investor Certificateholder agrees to assign, without recourse, its rights and obligations hereunder to a replacement Holder selected by the Transferor upon payment by the replacement Holder to such Investor Certificateholder in immediately available funds of the principal amount of such Investor Certificateholder's outstanding Certificates and any interest accrued and unpaid thereon and all other amounts owing to such Investor Certificateholder hereunder and to execute and/or deliver any certification or other document required to be delivered pursuant to Section 10. SECTION 18. FCI Note. The Transferor has received a note from Fingerhut Companies, Inc. in the amount of $18,000,000 (such note, together with any additional notes of Fingerhut Companies, Inc. held by the Transferor at any time, the "FCI Note"). The Transferor hereby agrees that at no time shall the principal amount of the FCI Note be less than $15,500,000 (the "FCI Note Required Amount"). The FCI Note may not be sold, transferred, assigned, pledged, hypothecated, participated or otherwise conveyed or encumbered, nor may the Transferor grant any security interest in the FCI Note. IN WITNESS WHEREOF, the Transferor, the Servicer and the Trustee have caused this Series 1994-2 Supplement to be duly executed by their respective officers as of the day and year first above written. FINGERHUT RECEIVABLES, INC. Transferor By:_______________________ Name: Title: FINGERHUT CORPORATION Servicer By:_________________________ Name: Title: THE BANK OF NEW YORK (DELAWARE) Trustee By:_________________________ Name: Title: EXHIBIT A-1 [FORM OF VARIABLE FUNDING CERTIFICATE] THIS CERTIFICATE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY OTHER APPLICABLE SECURITIES LAW. THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET FROTH IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT, UNLESS SUCH PURCHASER, AT ITS EXPENSE, DELIVERS TO THE TRUSTEE, THE SERVICER AND THE TRANSFEROR AN OPINION OF COUNSEL SATISFACTORY TO THEM TO THE EFFECT THAT THE PURCHASE OR HOLDING OF A CLASS A CERTIFICATE BY SUCH PURCHASER WILL NOT RESULT IN THE ASSETS OF THE TRUST BEING DEEMED TO BE "ASSETS OF THE BENEFIT PLAN" AND SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF ERISA AND THE CODE AND WILL NOT SUBJECT THE TRUSTEE, THE TRANSFEROR OR THE SERVICER TO ANY OBLIGATION IN ADDITION TO THOSE UNDERTAKEN IN THE POOLING AND SERVICING AGREEMENT, SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR (III) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY. No. Percentage Interest: ___% FINGERHUT MASTER TRUST VARIABLE FUNDING TRUST CERTIFICATE, SERIES 1994-2, CLASS A Evidencing an undivided interest in a trust, the corpus of which consists of receivables generated from time to time in the ordinary course of business from a portfolio of installment sale contracts generated or to be generated by Fingerhut Corporation ("Fingerhut" or the "Servicer") and other assets and interests constituting the Trust under the Agreement described below. (Not an interest in or a recourse obligation of Fingerhut Receivables, Inc., Fingerhut or any affiliate of either of them.) This certifies that _________ (the "Certificateholder") is the registered owner of a fractional undivided interest in the Fingerhut Master Trust (the "Trust") issued pursuant to the Pooling and Servicing Agreement, dated as of June 29, 1994 (the "Pooling and Servicing Agreement"; such term to include any amendment thereto) by and between Fingerhut Receivables, Inc., as Transferor (the "Transferor"), Fingerhut, as the Servicer, and The Bank of New York (Delaware), as Trustee (the "Trustee"), and the Series 1994-2 Supplement, dated as of November 15, 1994 (the "Series 1994-2 Supplement"), among the Transferor, Fingerhut as Servicer and the Trustee (the Pooling and Servicing Agreement, as supplemented by the Series 1994-2 Supplement, is herein referred to as the "Agreement"). The corpus of the Trust consists of all of the Transferor's right, title and interest in, to and under (i) the Trust Property (as defined in the Agreement) and (ii) the property described in Section 3A of the Series 1994-2 Supplement and Section 4.4 of the Agreement. This Certificate does not purport to summarize the Agreement and reference is made to the Agreement for information with respect to the interests, rights, benefits, obligations, proceeds, and duties evidenced hereby and the rights, duties and obligations of the Trustee. To the extent not defined herein, the capitalized terms used herein have the meanings ascribed to them in the Agreement. This Certificate is entitled the "Fingerhut Master Trust Variable Funding Trust Certificate, Series 1994-2, Class A" (the "Class A Certificate"), and represents a fractional undivided interest in the Trust, and is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement, as amended from time to time, the Certificateholder by virtue of the acceptance hereof assents and by which the Certificateholder is bound. In the case of any conflict between terms specified in this Certificate and terms specified in the Agreement, the terms of the Agreement shall govern. The Transferor has structured the Agreement, the Class A Certificate, the Fingerhut Master Trust Floating Rate Accounts Receivable Trust Certificates, Series 1994- 2, Class B (the "Class B Certificates") and the Fingerhut Master Trust Accounts Receivable Trust Certificates, Series 1994-2, Class C (the "Class C Certificates") with the intention that the Class A Certificate, the Class B Certificates and the Class C Certificates will qualify under applicable tax law as indebtedness, and both the Transferor and each holder of a Class A Certificate (a "Class A Certificateholder") or any interest therein by acceptance of its Certificate or any interest therein, agrees to treat the Class A Certificate for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income, as indebtedness. Except in limited circumstance described in the third succeeding paragraph no principal will be payable to the Class A Certificateholder before the first Business Day in the Amortization Period. No principal will be payable to the Class B Certificateholders, or Class C Certificateholders until all principal payments have been made to the Class A Certificateholders. Except in connection with a payment of Class D Daily Principal, the Class D Certificates will not have the right to receive payments of principal until the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount have been paid in full. Upon issuance, the Class A Certificate represents the right to receive, on each Business Day, an amount equal to the lesser of (x) the Available Series 1994-2 Imputed Yield Collections for such Business Day and (y) the sum of (A) the lesser of (I) the sum of (a) the Total Program Fees, and (b) the product of (i) the Class A Certificate Rate, (ii) a fraction the numerator of which is the actual number of days from and including the next preceding Business Day to but excluding such Business Day and the denominator of which is 365 or 366, as the case may be, and (iii) the Class A Outstanding Principal Amount as of the closed of business on the preceding Business Day and (II) the product of (X) the greater of LIBOR as then in effect plus 0.75% per annum and 12% per annum and (Y) a fraction the numerator of which is the number of days from and including the preceding Business Day to but excluding such Business Day and the denominator of which is the actual number of days in the then current calendar year and (iii) the Class A Outstanding Principal Balance as of the close of business on the preceding Business Day plus (B) the excess, if any, of the amount payable to the Class A Certificateholders pursuant to clause (A) on each prior Business Day over the amount which has been paid to the Class A Certificateholders with respect thereto on each prior Business Day. Unless there is any Extension, on the earlier of October 27, 1997 and the Pay Out Commencement Date, interest and principal will be distributed to the Class A Certificateholders on each Business Day prior to the Series Termination Date. If in accordance with Section 6.17 of the Agreement, the Transferor elects to issue an Extension Notice and the conditions precedent for Extension specified therein have been satisfied, no principal will be payable with respect to the Class A Certificate until the date specified in such Extension Notice or in the last of any subsequent Extension Notices. Interest for any Business Day due but not paid on any Business Day will be due on the next succeeding Business Day. On any Business Day during the Revolving Period, except during a Class A Pay Down Period, the Transferor may specify an amount, not to exceed the Net ABC Revolving Principal Collections, to be deposited into the Defeasance Account. Any amounts so deposited, shall be paid to the Class A Certificateholder in accordance with Section 9A of the Agreement and upon payment shall reduce the Class A Invested Amount by an amount equal to any such payment. In addition the Transferor may specify, upon the issuance of a new Series pursuant to an Exchange made at any time during the Revolving Period, except during a Class A Pay Down Period, that the proceeds of such issuance be deposited into the Defeasance Account for payment to the Class A Certificateholder pursuant to Section 9A of the Agreement. The Class A Invested Amount will be reduced by an amount equal to the amount of any such payments made. In addition, pursuant to Section 6.15 of the Agreement, the holders of this Certificate may from time to time be required, prior to the commencement of the Amortization Period for the Certificates or the Class A Paydown Period, to purchase Additional Class A Invested Amounts on the terms and conditions specified therein. The holder of this Certificate is authorized to record on the grid attached to its Class A Certificate (or at such Certificateholder's option, in its internal books and records) the date and amount of any Additional Invested Amount purchased by it, and each repayment thereof; provided that failure to make any such recordation on such grid or any error in such grid shall not adversely affect such Certificateholder's rights with respect to its Class A Invested Amount and its right to receive interest payments in respect of the Class A Invested Amount held by such Certificateholder. "Class A Invested Amount" means, when used with respect to any Business Day, an amount equal to (a) the initial principal amount of Class A Certificates purchased pursuant to any Class A Funding Purchase pursuant to Section 4.14A(b) of the Agreement, or (b) the aggregate amount of all Class A Pre-Funding Withdrawals pursuant to Section 4.15 of the Agreement minus (c) the aggregate amount of principal payments (except principal payments, if any, made from the Pre-Funding Account) made to Class A Certificateholders prior to such date, and minus (d) the aggregate amount of Class A Investor Charge-Offs for all prior Distribution Dates, and plus (e) the aggregate amount of Available Series Imputed Yield Collections, Transferor Imputed Yield Collections, Excess Imputed Yield Collections and Reallocated Principal Collections applied on all prior Distribution Dates for the purpose of reimbursing amounts deducted pursuant to the foregoing clause (d) plus (f) the aggregate principal amount of any Additional Class A Invested Amounts purchased pursuant to Section 6.15 of the Agreement. [Upon the occurrence of certain conditions relating to the issuance of the Class C Certificates, the Class B Certificates and the Class A Certificate as described in Section 4.14 of the Agreement, during the period from and including January 3, 1995 to but excluding the earliest of (x) the first day for which the Class A Pre-Funded Amount, the Class B Pre-Funded Amount and the Class C Pre-Funded Amount equals zero; (y) the first day on which a Pay Out Event is deemed to occur; and (z) the close of business on June 30, 1995 (the "Pre-Funding Period"), the Pre-Funded Amount will be maintained in a trust account to be established with The Bank of New York (the "Pre-Funding Account"). The "Pre-Funded Amount" will equal the amount of the initial deposit to the Pre-Funding Account, less the amounts of any increases in the Invested Amount pursuant to the Series 1994-2 Supplement in connection with the increase in the amount of Receivables in the Trust. Upon the occurrence of the conditions referred to in the preceding sentence, on January 3, 1995, a cash deposit will be made to the Pre-Funding Account in an amount equal to the sum of (i) if there has been no Class C Funding Purchase, an amount equal to the Class C Full Invested Amount or zero if there has been a Class C Funding Purchase, (ii) if there has been no Class B Funding Purchase, an amount equal to the Class B Full Invested Amount, or zero if there has been a Class B Funding Purchase and (iii) if there has been no Class A Funding Purchase, an amount equal to $12,400,000. Funds on deposit in the Pre-Funding Account will be invested by the Trustee at the direction of the Servicer in Cash Equivalents.] [During the Pre-Funding Period, upon satisfaction of the conditions contained in Section 4.15 of the Agreement, the Transferor may elect to withdraw funds on deposit in the Pre-Funding Account equal to the Class C Full Invested Amount and concurrently increase the Class C Invested Amount to the Class C Full Invested Amount, and concurrently or subsequently withdraw funds on deposit in the Pre-Funding Account equal to the Class B Full Invested Amount and increase the Class B Invested Amount to the Class B Full Invested Amount, and concurrently or subsequently withdraw any funds remaining in the Pre-Funding Account and increase the Class A Invested Amount by an amount equal to such withdrawal. Should the Pre-Funded Amount be greater than zero on the last Business Day of the Pre-Funding Period, such amount will be withdrawn from the Pre-Funding Account and distributed to the Class A Certificateholder in an amount equal to the Class A Pre-Funded Amount, to the Class B Certificateholders in an amount equal to the Class B Pre- Funded Amount and the Class C Certificateholders in an amount equal to the Class C Pre-Funded Amount.] Subject to the Agreement, payments of principal are limited to the unpaid Class A Invested Amount of the Class A Certificate, which may be less than the unpaid balance of the Class A Certificate pursuant to the terms of the Agreement. All principal of and interest on the Class A Certificate is due and payable no later than October 29,2001 (the "Series 1994-2 Termination Date"). After the Series 1994-2 Termination Date neither the Trust nor the Transferor will have any further obligation to distribute principal or interest on the Class A Certificate. In the event that the Class A Invested Amount is greater than zero on the Series Termination Date, the Trustee will sell or cause to be sold, to the extent necessary, an amount of interests in the Receivables or certain of the Receivables up to 110% of the Class A Invested Amount, the Class B Invested Amount, the Class C Invested Amount and the Class D Invested Amount at the close of business on such date (but not more than the total amount of Receivables allocable to the Investor Certificates), and shall pay the proceeds to the Class A Certificateholders pro rata in final payment of the Class A Certificate, then to the Class B Certificateholders pro rata in final payment of the Class B Certificates, then to the Class C Certificateholders pro rata in final payment of the Class C Certificates and finally to the Class D Certificateholders pro rata in final payment of the Class D Certificates. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement, or be valid for any purpose. IN WITNESS WHEREOF, the Transferor has caused this Certificate to be duly executed under its official seal. FINGERHUT RECEIVABLES, INC. By:________________________ Name: Title: Dated: CERTIFICATE OF AUTHENTICATION This is the Class A Certificate referred to in the within-mentioned Pooling and Servicing Agreement. THE BANK OF NEW YORK By:________________________ Name: Title: Date Beginning Additions Payments Ending Principal Principal Balance Balance Exhibit A-2 [FORM OF CLASS B INVESTOR CERTIFICATE] THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO AN INSTITUTIONAL INVESTOR THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A ("QIB") PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, OR TO THE TRANSFEROR. EACH CERTIFICATE OWNER BY ACCEPTING A BENEFICIAL INTEREST IN THIS CERTIFICATE IS DEEMED TO REPRESENT THAT IT IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF ANOTHER QIB. EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT, UNLESS SUCH PURCHASER, AT ITS EXPENSE, DELIVERS TO THE TRUSTEE, THE SERVICER AND THE TRANSFEROR AN OPINION OF COUNSEL SATISFACTORY TO THEM TO THE EFFECT THAT THE PURCHASE OR HOLDING OF A CLASS B CERTIFICATE BY SUCH PURCHASER WILL NOT RESULT IN THE ASSETS OF THE TRUST BEING DEEMED TO BE "ASSETS OF THE BENEFIT PLAN" AND SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF ERISA AND THE CODE AND WILL NOT SUBJECT THE TRUSTEE, THE TRANSFEROR OR THE SERVICER TO ANY OBLIGATION IN ADDITION TO THOSE UNDERTAKEN IN THE POOLING AND SERVICING AGREEMENT, SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR (III) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY. No. Percentage Interest: ___% FINGERHUT MASTER TRUST FLOATING RATE ACCOUNTS RECEIVABLE TRUST CERTIFICATE, SERIES 1994-2, CLASS B Evidencing an undivided interest in a trust, the corpus of which consists of receivables generated from time to time in the ordinary course of business from a portfolio of installment sale contracts generated or to be generated by Fingerhut Corporation ("Fingerhut" or the "Servicer") and other assets and interests constituting the Trust under the Agreement described below. (Not an interest in or a recourse obligation of Fingerhut Receivables, Inc., Fingerhut or any affiliate of either of them.) This certifies that _________ (the "Certificateholder") is the registered owner of a fractional undivided interest in the Fingerhut Master Trust (the "Trust") issued pursuant to the Pooling and Servicing Agreement, dated as of June 29, 1994 (the "Pooling and Servicing Agreement"; such term to include any amendment thereto) by and between Fingerhut Receivables, Inc., as Transferor (the "Transferor"), Fingerhut, as the Servicer, and The Bank of New York (Delaware), as Trustee (the "Trustee"), and the Series 1994-2 Supplement, dated as of November 15, 1994 (the "Series 1994-2 Supplement"), among the Transferor, Fingerhut as Servicer and the Trustee (the Pooling and Servicing Agreement, as supplemented by the Series 1994-2 Supplement, is herein referred to as the "Agreement"). The corpus of the Trust consists of all of the Transferor's right, title and interest in, to and under (i) the Trust Property (as defined in the Agreement) and (ii) the property described in Section 3A of the Series 1994-2 Supplement and Section 4.4 of the Agreement. This Certificate does not purport to summarize the Agreement and reference is made to the Agreement for information with respect to the interests, rights, benefits, obligations, proceeds, and duties evidenced hereby and the rights, duties and obligations of the Trustee. To the extent not defined herein, the capitalized terms used herein have the meanings ascribed to them in the Agreement. This Certificate is one of a series of Certificates entitled "Fingerhut Master Trust Floating Rate Accounts Receivable Trust Certificates, Series 1994-2, Class B" (the "Class B Certificates"), each of which represents a fractional undivided interest in the Trust, and is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement, as amended from time to time, the Certificateholder by virtue of the acceptance hereof assents and by which the Certificateholder is bound. In the case of any conflict between terms specified in this Certificate and terms specified in the Agreement, the terms of the Agreement shall govern. The Transferor has structured the Agreement, the Class B Certificates, the Fingerhut Master Trust Variable Funding Trust Certificate, Series 1994-2, Class A (the "Class A Certificate") and the Fingerhut Master Trust Accounts Receivable Trust Certificates, Series 1994-2, Class C (the "Class C Certificates") with the intention that the Class A Certificate, the Class B Certificates and the Class C Certificates will qualify under applicable tax law as indebtedness, and both the Transferor and each holder of a Class B Certificate (a "Class B Certificateholder") or any interest therein by acceptance of its Certificate or any interest therein, agrees to treat the Class B Certificate for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income, as indebtedness. No principal will be payable to the Class B Certificateholders until the Class B Principal Payment Commencement Date, which is the Distribution Date either on or following the Distribution Date, on which the Class A Invested Amount had been paid in full. No principal will be payable to the Class B Certificateholders until all principal payments have been made to the Class A Certificateholders. No principal payments will be made to the Class C Certificateholder until the Distribution Date either on or following the Distribution Date on which the Class B Invested Amount has been paid in full. Except in connection with a payment of Class D Daily Principal, the Class D Certificates will not have the right to receive payments of principal until the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount have been paid in full. The Class B Pre-Funded Amount, if any, will be paid to the Class C Certificateholders on the last day of the Pre-Funding Period in accordance with Section 4.14 of the Series 1994- 2 Supplement. Each Class B Certificate represents the right to receive interest at the rate of .__% per annum above LIBOR (as determined on the related LIBOR Determination Date, and such rate, as in effect from time to time, the "Class B Certificate Rate" ) on the 20th day of each month after the issuance of the Class B Certificates, or if such day is not a business day, on the next succeeding business day (each, a "Distribution Date"), in an amount equal to the product of (a) the actual number of days in the related Interest Accrual Period divided by 360, (b) the Class B Certificate Rate and (c) the Class B Invested Amount as of the close of business on the first day of the related Interest Accrual Period; provided, however, that with respect to any Distribution Date occurring in the Pre- Funding Period, the amount described in clause (c) above shall be the Class B Outstanding Principal Amount on the first day of the Pre-Funding Period. Interest for any Distribution Date will include accrued interest at the Class B Certificate Rate from and including the preceding Distribution Date or, in the case of the first Distribution Date from and including the Closing Date, to but excluding such Distribution Date. Interest for any Distribution Date due but not paid on any Distribution Date will be due on the next succeeding Distribution Date together with, to the extent permitted by applicable law, additional interest on such amount at the Class B Certificate Rate plus 2%. "Class B Invested Amount" means an amount equal to (a) the principal amount of Class B Certificates purchased pursuant to any Class B Funding Purchase pursuant to Section 4.14A(b) of the Agreement, plus (b) the aggregate amount of all Class B Pre-Funding Withdrawals made pursuant to Section 4.15 of the Agreement minus (c) the aggregate amount of principal payments (except principal payments, if any, made from the Pre- Funding Account) made to Class B Certificateholders prior to such date minus (d) the aggregate amount of Class B Investor Charge-Offs for all prior Distribution Dates, minus (e) the aggregate amount of Reallocated Class B Principal collections for which neither the Class D Invested Amount nor the Class C Invested Amount has been reduced for all prior Business Days and plus (f) the aggregate amount of Available Series Imputed Yield Collections, Transferor Imputed Yield Collections, Excess Imputed Yield Collections and Reallocated Principal Collections applied on all prior Distribution Dates for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (d) and (e). Upon the occurrence of certain conditions relating to the issuance of the Class C Certificates, the Class B Certificates and the Class A Certificate as described in Section 4.14 of the Agreement, during the period from and including January 3, 1995 to but excluding the earlier of (x) the first day for which the Class A Pre- Funded Amount, the Class B Pre-Funded Amount and the Class C Pre-Funded Amount equals zero; (y) the first day on which a Pay Out Event is deemed to occur; and (z) the close of business on June 30, 1995 (the "Pre-Funding Period"), the Pre-Funded Amount will be maintained in a trust account to be established with The Bank of New York (the "Pre-Funding Account"). The "Pre-Funded Amount" will equal the amount of the initial deposit to the Pre-Funding Account, less the amounts of any increases in the Invested Amount pursuant to the Series 1994-2 Supplement in connection with the increase in the amount of Receivables in the Trust. If, as of the close of business of January 2, 1995 (i) there has not been a Class C Funding Purchase and a Class B Funding Purchase and (ii) during the period between the Closing Date and the close of business on January 2, 1995 the Class A Invested Amount during such time has not at any time equalled or exceeded $12,400,000, unless a Series 1994-2 Pay Out Event shall have occurred, a cash deposit will be made to the Pre-Funding Account in an amount equal to the sum of (i) if there has been no Class C Funding Purchase, an amount equal to the Class C Full Invested Amount or zero if there has been a Class C Funding Purchase, (ii) if there has been no Class B Funding Purchase, an amount equal to the Class B Full Invested Amount, or zero if there has been a Class B Funding Purchase and (iii) if there has been no Class A Funding Purchase, an amount equal to $12,400,000. Funds on deposit in the Pre-Funding Account will be invested by the Trustee at the direction of the Servicer in Cash Equivalents. During the Pre-Funding Period, upon satisfaction of the conditions contained in section 4.15 of the Agreement, the Transferor may elect to withdraw funds on deposit in the Pre-Funding Account equal to the Class C Full Invested Amount and concurrently increase the Class C Invested Amount to the Class C Full Invested Amount, and concurrently or subsequently withdraw funds on deposit in the Pre-Funding Account equal to the Class B Full Invested Amount and concurrently increase the Class B Invested Amount to the Class B Full Invested Amount, and concurrently or subsequently withdraw any funds remaining in the Pre-Funding Account and increase the Class A Invested Amount by an amount equal to such withdrawal. Should the Pre-Funded Amount be greater than zero on the last Business Day of the Pre-Funding Period, such amount will be withdrawn from the Pre-Funding Account and distributed to the Class A Certificateholder in an amount equal to the Class A Pre-Funded Amount, to the Class B Certificateholders in an amount equal to the Class B Pre- Funded Amount and the Class C Certificateholders in an amount equal to the Class C Pre-Funded Amount. Subject to the Agreement, payments of principal are limited to the unpaid Class B Invested Amount of the Class B Certificate, which may be less than the unpaid balance of the Class B Certificate pursuant to the terms of the Agreement. All principal of and interest on the Class B Certificate is due and payable no later than October 29, 2001, unless a different date is set forth in the Extension Notice (the "Series 1994-2 Termination Date"). After the Series 1994-2 Termination Date neither the Trust nor the Transferor will have any further obligation to distribute principal or interest on the Class B Certificate. In the event that the Class B Invested Amount is greater than zero on the Series 1994-2 Termination Date, the Trustee will sell or cause to be sold, to the extent necessary, an amount of interests in the Receivables or certain of the Receivables up to 110% of the Class A Invested Amount, the Class B Invested Amount, the Class C Invested Amount and the Class D Invested Amount at the close of business on such date (but not more than the total amount of Receivables allocable to the Investor Certificates), and shall pay the proceeds to the Class A Certificateholders pro rata in final payment of the Class A Certificate, then to the Class B Certificateholders pro rata in final payment of the Class B Certificates, then to the Class C Certificateholders pro rata in final payment of the Class C Certificates and finally to the Class D Certificateholders pro rata in final payment of the Class D Certificates. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement, or be valid for any purpose. IN WITNESS WHEREOF, the Transferor has caused this Certificate to be duly executed under its official seal. FINGERHUT RECEIVABLES, INC. By:_______________________ Name: Title: Dated: CERTIFICATE OF AUTHENTICATION This is one of the Class B Certificates referred to in the within-mentioned Pooling and Servicing Agreement. THE BANK OF NEW YORK By: _______________________ Name: Title: Exhibit A-3 [FORM OF CLASS C INVESTOR CERTIFICATE] THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO AN INSTITUTIONAL INVESTOR THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A ("QIB") PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, OR TO THE TRANSFEROR. EACH CERTIFICATE OWNER BY ACCEPTING A BENEFICIAL INTEREST IN THIS CERTIFICATE IS DEEMED TO REPRESENT THAT IT IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF ANOTHER QIB. EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT, UNLESS SUCH PURCHASER, AT ITS EXPENSE, DELIVERS TO THE TRUSTEE, THE SERVICER AND THE TRANSFEROR AN OPINION OF COUNSEL SATISFACTORY TO THEM TO THE EFFECT THAT THE PURCHASE OR HOLDING OF A CLASS C CERTIFICATE BY SUCH PURCHASER WILL NOT RESULT IN THE ASSETS OF THE TRUST BEING DEEMED TO BE "ASSETS OF THE BENEFIT PLAN" AND SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF ERISA AND THE CODE AND WILL NOT SUBJECT THE TRUSTEE, THE TRANSFEROR OR THE SERVICER TO ANY OBLIGATION IN ADDITION TO THOSE UNDERTAKEN IN THE POOLING AND SERVICING AGREEMENT, SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR (III) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY. No. Percentage Interest: ___% FINGERHUT MASTER TRUST FLOATING RATE ACCOUNTS RECEIVABLE TRUST CERTIFICATE, SERIES 1994-2, CLASS C Evidencing an undivided interest in a trust, the corpus of which consists of receivables generated from time to time in the ordinary course of business from a portfolio of installment sale contracts generated or to be generated by Fingerhut Corporation ("Fingerhut" or the "Servicer") and other assets and interests constituting the Trust under the Agreement described below. (Not an interest in or a recourse obligation of Fingerhut Receivables, Inc., Fingerhut or any affiliate of either of them.) This certifies that _________ (the "Certificateholder") is the registered owner of a fractional undivided interest in the Fingerhut Master Trust (the "Trust") issued pursuant to the Pooling and Servicing Agreement, dated as of June 29, 1994 (the "Pooling and Servicing Agreement"; such term to include any amendment thereto) by and between Fingerhut Receivables, Inc., as Transferor (the "Transferor"), Fingerhut, as the Servicer, and The Bank of New York (Delaware), as Trustee (the "Trustee"), and the Series 1994-2 Supplement, dated as of November 15, 1994 (the "Series 1994-2 Supplement"), among the Transferor, Fingerhut as Servicer and the Trustee (the Pooling and Servicing Agreement, as supplemented by the Series 1994-2 Supplement, is herein referred to as the "Agreement"). The corpus of the Trust consists of all of the Transferor's right, title and interest in, to and under (i) the Trust Property (as defined in the Agreement) and (ii) the property described in Section 3A of the Series 1994-2 Supplement and Section 4.4 of the Agreement. This Certificate does not purport to summarize the Agreement and reference is made to the Agreement for information with respect to the interests, rights, benefits, obligations, proceeds, and duties evidenced hereby and the rights, duties and obligations of the Trustee. To the extent not defined herein, the capitalized terms used herein have the meanings ascribed to them in the Agreement. This Certificate is one of a series of Certificates entitled "Fingerhut Master Trust Floating Rate Accounts Receivable Trust Certificates, Series 1994-2, Class C" (the "Class C Certificates"), each of which represents a fractional undivided interest in the Trust, and is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement, as amended from time to time, the Certificateholder by virtue of the acceptance hereof assents and by which the Certificateholder is bound. In the case of any conflict between terms specified in this Certificate and terms specified in the Agreement, the terms of the Agreement shall govern. The Transferor has structured the Agreement, the Class C Certificates, the Fingerhut Master Trust Variable Funding Trust Certificate, Series 1994-2, Class A (the "Class A Certificate") and the Fingerhut Master Trust Accounts Receivable Trust Certificates, Series 1994-2, Class B (the "Class B Certificates") with the intention that the Class A Certificate, the Class B Certificates and the Class C Certificates will qualify under applicable tax law as indebtedness, and both the Transferor and each holder of a Class C Certificate (a "Class C Certificateholder") or any interest therein by acceptance of its Certificate or any interest therein, agrees to treat the Class C Certificate for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income, as indebtedness. No principal will be payable to the Class C Certificateholders until the Class C Principal Payment Commencement Date, which is the Distribution Date either on or following the Distribution Date, on which the Class B Invested Amount had been paid in full. No principal will be payable to the Class C Certificateholders until all principal payments have been made to the Class B Certificateholders. Except in connection with a payment of Class D Daily Principal, the Class D Certificates will not have the right to receive payments of principal until the Class A Invested Amount, the Class B Invested Amount and the Class C Invested Amount have been paid in full. The Class C Pre-Funded Amount, if any, will be paid to the Class C Certificateholders on the last day of the Pre- Funding Period in accordance with Section 4.14 of the Series 1994-2 Supplement. Each Class C Certificate represents the right to receive interest at the rate of .__% per annum above LIBOR (as determined on the related LIBOR Determination Date, and such rate, as in effect from time to time, the "Class C Certificate Rate" ) on the 20th day of each month after the issuance of the Class C Certificates, or if such day is not a business day, on the next succeeding business day (each, a "Distribution Date"), in an amount equal to the product of (a) the actual number of days in the related Interest Accrual Period divided by 360, (b) the Class C Certificate Rate and (c) the Class C Invested Amount as of the close of business on the first day of the related Interest Accrual Period; provided, however, that with respect to any Distribution Date occurring in the Pre- Funding Period, the amount described in clause (c) above shall be the Class C Outstanding Principal Amount on the first day of the Pre-Funding Period. Interest for any Distribution Date will include accrued interest at the Class C Certificate Rate from and including the preceding Distribution Date or, in the case of the first Distribution Date from and including the Closing Date, to but excluding such Distribution Date. Interest for any Distribution Date due but not paid on any Distribution Date will be due on the next succeeding Distribution Date together with, to the extent permitted by applicable law, additional interest on such amount at the Class C Certificate Rate plus 2%. "Class C Invested Amount" means an amount equal to (a) the principal amount of Class C Certificates purchased pursuant to any Class C Funding Purchase pursuant to Section 4.14A(b) of the Agreement, plus (b) the aggregate amount of all Class C Pre-Funding Withdrawals made pursuant to Section 4.15 of the Agreement minus (c) the aggregate amount of principal payments (except principal payments, if any, made from the Pre- Funding Account) made to Class C Certificateholders prior to such date minus (d) the aggregate amount of Class C Investor Charge-Offs for all prior Distribution Dates minus (e) the aggregate amount of Reallocated Class C Principal collections for which the Class D Invested Amount has not been reduced for all prior Business Days and plus (f) the aggregate amount of Available Series Imputed Yield Collections, Transferor Imputed Yield Collections, Excess Imputed Yield Collections and Reallocated Principal Collections applied on all prior Distribution Dates for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (d) and (e). Upon the occurrence of certain conditions relating to the issuance of the Class C Certificates, the Class B Certificates and the Class A Certificate as described in Section 4.14 of the Agreement, during the period from and including January 3, 1995 to but excluding the earlier of (x) the first day for which the Class A Pre- Funded Amount, the Class B Pre-Funded Amount and the Class C Pre-Funded Amount equals zero; (y) the first day on which a Pay Out Event is deemed to occur; and (z) the close of business on June 30, 1995 (the "Pre-Funding Period"), the Pre-Funded Amount will be maintained in a trust account to be established with The Bank of New York (the "Pre-Funding Account"). The "Pre-Funded Amount" will equal the amount of the initial deposit to the Pre-Funding Account, less the amounts of any increases in the Invested Amount pursuant to the Series 1994-2 Supplement in connection with the increase in the amount of Receivables in the Trust. If, as of the close of business on January 2, 1995 (i) there has not been a Class C Funding Purchase and a Class B Funding Purchase and (ii) during the period between the Closing Date and the close of business on January 2, 1995 the Class A Invested Amount during such time has not at any time equalled or exceeded $12,400,000, a cash deposit will be made to the Pre-Funding Account in an amount equal to the sum of (i) if there has been no Class C Funding Purchase, an amount equal to the Class C Full Invested Amount or zero if there has been a Class C Funding Purchase, (ii) if there has been no Class B Funding Purchase, an amount equal to the Class B Full Invested Amount, or zero if there has been a Class B Funding Purchase and (iii) if there has been no Class A Funding Purchase, an amount equal to $12,400,000. Funds on deposit in the Pre-Funding Account will be invested by the Trustee at the direction of the Servicer in Cash Equivalents. During the Pre-Funding Period, upon satisfaction of the conditions contained in Section 4.15 of the Agreement, the Transferor may elect to withdraw funds on deposit in the Pre-Funding Account equal to the Class C Full Invested Amount and concurrently increase the Class C Invested Amount to the Class C Full Invested Amount, and concurrently or subsequently withdraw funds on deposit in the Pre-Funding Account equal to the Class B Full Invested Amount and concurrently increase the Class B Invested Amount to the Class B Full Invested Amount, and concurrently or subsequently withdraw any funds remaining in the Pre-Funding Account and increase the Class A Invested Amount by an amount equal to such withdrawal. Should the Pre-Funded Amount be greater than zero on the last Business Day of the Pre-Funding Period, such amount will be withdrawn from the Pre-Funding Account and distributed to the Class A Certificateholder in an amount equal to the Class A Pre-Funded Amount, to the Class B Certificateholders in an amount equal to the Class B Pre- Funded Amount and the Class C Certificateholders in an amount equal to the Class C Pre-Funded Amount. Subject to the Agreement, payments of principal are limited to the unpaid Class C Invested Amount of the Class C Certificate, which may be less than the unpaid balance of the Class C Certificate pursuant to the terms of the Agreement. All principal of and interest on the Class C Certificate is due and payable no later than October 29, 2001 unless a different date is set forth in the Extension Notice (the "Series 1994-2 Termination Date"). After the Series 1994-2 Termination Date neither the Trust nor the Transferor will have any further obligation to distribute principal or interest on the Class C Certificate. In the event that the Class C Invested Amount is greater than zero on the Series 1994-2 Termination Date, the Trustee will sell or cause to be sold, to the extent necessary, an amount of interests in the Receivables or certain of the Receivables up to 110% of the Class A Invested Amount, the Class B Invested Amount, the Class C Invested Amount and the Class D Invested Amount at the close of business on such date (but not more than the total amount of Receivables allocable to the Investor Certificates), and shall pay the proceeds to the Class A Certificateholders pro rata in final payment of the Class A Certificate, then to the Class B Certificateholders pro rata in final payment of the Class B Certificates, then to the Class C Certificateholders pro rata in final payment of the Class C Certificates and finally to the Class D Certificateholders pro rata in final payment of the Class D Certificates. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement, or be valid for any purpose. IN WITNESS WHEREOF, the Transferor has caused this Certificate to be duly executed under its official seal. FINGERHUT RECEIVABLES, INC. By:________________________ Name: Title: Dated: CERTIFICATE OF AUTHENTICATION This is one of the Class C Certificates referred to in the within-mentioned Pooling and Servicing Agreement. THE BANK OF NEW YORK By: _______________________ Name: Title: Exhibit A-4 [FORM OF CLASS D INVESTOR CERTIFICATE] THIS CERTIFICATE WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY OTHER APPLICABLE SECURITIES LAW. FINGERHUT RECEIVABLES, INC. SHALL BE PROHIBITED FROM TRANSFERRING ANY INTEREST IN OR PORTION OF THIS CERTIFICATE UNLESS, PRIOR TO SUCH TRANSFER, IT SHALL HAVE DELIVERED TO THE TRUSTEE AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH PROPOSED TRANSFER WILL NOT ADVERSELY AFFECT THE FEDERAL, MINNESOTA OR DELAWARE INCOME TAX CHARACTERIZATION OF ANY OUTSTANDING SERIES OF INVESTOR CERTIFICATES OR THE TAXABILITY (OR TAX CHARACTERIZATION) OF THE TRUST UNDER FEDERAL, MINNESOTA OR DELAWARE INCOME TAX LAWS. THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF FINGERHUT RECEIVABLES, INC. THAT SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR (III) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY. No. ___ $_________ FINGERHUT MASTER TRUST FLOATING RATE ACCOUNTS RECEIVABLE TRUST CERTIFICATE, SERIES 1994-2, CLASS D Evidencing an undivided interest in a trust, the corpus of which consists of receivables generated from time to time in the ordinary course of business from a portfolio of installment sale contracts generated or to be generated by Fingerhut Corporation ("Fingerhut" or the "Servicer") and other assets and interests constituting the Trust under the Agreement described below. (Not an interest in or a recourse obligation of Fingerhut Receivables, Inc., Fingerhut or any affiliate of either of them.) This certifies that FINGERHUT RECEIVABLES, INC. (the "Certificateholder") is the registered owner of a fractional undivided interest in the Fingerhut Master Trust (the "Trust") issued pursuant to the Pooling and Servicing Agreement, dated as of June 29, 1994 (the "Pooling and Servicing Agreement"; such term to include any amendment or Series Supplement thereto) by and between Fingerhut Receivables, Inc., as Transferor (the "Transferor"), Fingerhut as the Servicer, and The Bank of New York (Delaware), as Trustee (the "Trustee"), and the Series 1994-2 Supplement, dated as of November 15, 1994 (the "Series 1994-2 Supplement"), among the Transferor, Fingerhut as Servicer and the Trustee (the Pooling and Servicing Agreement, as supplemented by the Series 1994-2 Supplement, is herein referred to as the "Agreement"). The corpus of the Trust consists of all of the Transferor's right, title and interest in, to and under (i) the Trust Property (as defined in the Agreement) and (ii) the property described in Section 3A of the Series 1994-2 Supplement and Section 4.4 of the Agreement. This Certificate does not purport to summarize the Agreement and reference is made to the Agreement for information with respect to the interests, rights, benefits, obligations, proceeds, and duties evidenced hereby and the rights, duties and obligations of the Trustee. To the extent not defined herein, the capitalized terms used herein have the meanings ascribed to them in the Agreement. This Certificate is one of a series of Certificates entitled "Fingerhut Master Trust Floating Rate Accounts Receivable Trust Certificates, Series 1994-2, Class D" (the "Class D Certificates"), each of which represents a fractional undivided interest in the Trust, and is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement, as amended from time to time, the Certificateholder by virtue of the acceptance hereof assents and by which the Certificateholder is bound. Fingerhut Receivables, Inc. shall be prohibited from Transferring any interest in or portion of the Class D Certificate unless, prior to such Transfer, it shall have delivered to the Trustee an Opinion of Counsel to the effect that such proposed Transfer will not adversely affect the Federal, Minnesota or Delaware income tax characterization of any outstanding Series of Investor Certificate or the taxability (or tax characterization) of the Trust under Federal, Minnesota or Delaware income tax laws. Except in connection with a payment of Class D Daily Principal, no principal will be payable to the Class D Certificateholders until the Class D Payment Commencement Date, which is the Distribution Date either on or following the Distribution Date on which the Class C Invested Amount had been paid in full. No principal will be payable to the Class D Certificateholders until all principal payments have first been made to the Class A Certificateholders and then on and after the Class B Principal Payment Commencement Date, after all principal payments have been made to the Class B Certificateholders and then on and after the Class C Principal Payment Commencement Date, after all payments have been made to the Class C Certificateholders. Interest will not accrue on the unpaid principal amount of the Class D Certificates. "Class D Invested Amount" means an amount equal to (a) the initial principal balance of the Class D Certificates, plus (b) the aggregate principal amount of any Additional Class D Invested Amounts pursuant to Section 6.16 of the Agreement minus (c) the aggregate amount of principal payments made to Class D Certificateholders prior to such date, minus (d) the aggregate amount of Class D Investor Charge-Offs for all prior Distribution Dates, equal to the amount by which the Class D Invested Amount has been reduced to fund the Investor Default Amount on all prior Distribution Dates, minus (e) the aggregate amount of Reallocated Principal Collections for all prior Distribution Dates, and plus (f) the aggregate amount of Imputed Yield Collections, Transferor Imputed Yield Collections, and Excess imputed Yield Collections applied on all prior Distribution Dates for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (d) and (e). Subject to the Agreement, payments of principal are limited to the unpaid Class D Invested Amount of the Class D Certificates, which may be less than the unpaid balance of the Class D Certificates pursuant to the terms of the Agreement. All principal of and interest on the Class D Certificates is due and payable no later than October 29, 2001 (the "Series 1994-2 Termination Date"). After the Series 1994-2 Termination Date neither the Trust nor the Transferor will have any further obligation to distribute principal or interest on the Class C Certificates. In the event that the Class D Invested Amount is greater than zero on the Series 1994-2 Termination Date, the Trustee will sell or cause to be sold, to the extent necessary, an amount of interests in the Receivables or certain of the Receivables up to 110% of the Class A Invested Amount, the Class B Invested Amount, the Class C Invested Amount and the Class D Invested Amount at the close of business on such date (but not more than the total amount of Receivables allocable to the Investor Certificates), and shall pay the proceeds to the Class A Certificateholders pro rata in final payment of the Class A Certificate, then to the Class B Certificateholders pro rata in final payment of the Class B Certificates, then to the Class C Certificateholders pro rata in final payment of the Class C Certificates and finally to the Class D Certificateholders pro rata in final payment of the Class D Certificates. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement, or be valid for any purpose. IN WITNESS WHEREOF, the Transferor has caused this Certificate to be duly executed under its official seal. FINGERHUT RECEIVABLES, INC. By:________________________ Name: Title: Dated: CERTIFICATE OF AUTHENTICATION This is one of the Class D Certificates referred to in the within-mentioned Pooling and Servicing Agreement. THE BANK OF NEW YORK By:________________________ Name: Title: EXHIBIT B [RESERVED] EXHIBIT C [Form of Monthly Certificateholders' Statement] EXHIBIT D Form of 144A Exchange Notice and Certification , 199 Fingerhut Receivables, Inc. 4400 Baker Road Suite F480 Minnetonka, MN 55343 Attention: The Bank of New York (Delaware) White Clay Center Route 273 Newark, Delaware 19711 Attention: Corporate Trust Department Ladies and Gentlemen: This is to notify you as to the transfer of $ of Floating Rate Accounts Receivable Trust Certificates, Series 1994-2, Class C (the "Class C Certificates") of Fingerhut Master Trust (the "Company"). The undersigned is the holder of the Certificates and with this notice hereby deposits with the Trustee $ principal amount of Class C Certificates and requests that Class C Certificates in the same principal amount be issued and executed by the Company and authenticated by the Trustee and registered to the purchaser on , 19 , as specified in the Pooling and Servicing Agreement, as supplemented by the Series 1994-2 Supplement thereto, as follows: Name: Denominations: Address: Taxpayer I.D. No.: The undersigned represents and warrants that the undersigned (i) reasonably believes the purchaser is a "qualified institutional buyer," as defined in Rule 144A under the Securities Act of 1933 (the "Act"), (ii) such purchaser has acquired the Certificates in a transaction effected in accordance with the exemption from the registration requirements of the Act provided by Rule 144A and, (iii) if the purchaser has purchased the Certificates for one or more accounts for which it is acting as fiduciary or agent, (A) each such account is a qualified institutional buyer and (B) each such account is acquiring Notes for its own account or for one or more institutional accounts for which it is acting as fiduciary or agent in a minimum amount equivalent to not less than U.S. $250,000 for each such account. Very truly yours, [NAME OF HOLDER OF CERTIFICATE] By: [Name], [Chief Financial or other Executive Officer] Exhibit E FORM OF EXTENSION NOTICE FINGERHUT CARD MASTER TRUST, SERIES 1994-2 The undersigned, a duly authorized representative of Fingerhut Receivables, Inc., a Delaware corporation (the "Transferor"), as Transferor pursuant to the Pooling and Servicing Agreement dated as of June 29, 1994 (the "Pooling and Servicing Agreement"), by and between the Transferor, as transferor, Fingerhut Corporation, as servicer (the "Servicer"), and The Bank of New York (Delaware), as trustee (the "Trustee"), as supplemented by the Series 1994-2 Supplement, dated November 15, 1994 (the "Series 1994-2 Supplement"), by and between the Transferor, the Servicer and the Trustee (the Pooling and Servicing Agreement, as supplemented by the Series 1994-2 Supplement, or as the Pooling and Servicing Agreement may from time to time be amended, supplemented, or modified, the "Agreement"), does hereby notify the Trustee (or any successor Trustee) and the Investor Certificateholders: D. Capitalized terms used but not defined in this Certificate shall have the respective meanings set forth in the Agreement. References herein to certain sections and subsections are references to the respective sections and subsections of the Agreement. E. The undersigned is a [Vice President] or more senior officer of the Transferor who is duly authorized to execute and deliver this Certificate on behalf of the Transferor. F. This Certificate is being delivered pursuant to Section 6.17(a) of the Agreement. G. The Transferor is the Transferor under the Agreement. H. No Pay Out Event has occurred that has not been remedied pursuant to the provisions of the Agreement. I. The Certificate is being delivered to the Trustee on or before the date specified in subsection 6.17(a) for delivery. J. NOTIFICATION OF EXTENSION Pursuant to subsection 6.17(a) and in respect of [ , ] (the "Current Extension Date"), the Transferor hereby notifies the Trustee and the Investor Certificateholders of the Transferor's intention to extend the Revolving Period in respect of Series 1994-2 on the Current Extension Date pursuant to the provisions of Section 6.17, until the date set forth below (such extension, the "Extension"). K. REQUIREMENTS TO COMPLETE EXTENSION (1) Annexed hereto is an election notice (an "Election Notice") to be returned by any Investor Certificateholder electing to approve the Extension. No Extension shall occur unless Investor Certificateholders holding at least more than fifty percent of each of the aggregate principal amount of Class A Certificates, Class B Certificates, Class C Certificates and Class D Certificates, respectively, shall return properly executed Election Notices approving the Extension by the Election Date (as defined below). Any Investor Certificateholder electing to approve the Extension must deliver a properly executed Election Notice at the office of the Trustee, [ ] on or before 3:00 p.m., [ ] time, on [ , ] (the "Election Date"). Any Investor Certificateholder may withdraw any Election Notice delivered by it to the Trustee by notifying the Trustee in writing at the address set forth in the previous sentence on or prior to the Election Date. (2) THE EXTENSION SHALL NOT OCCUR UNTIL PRIOR SATISFACTION OF CERTAIN CONDITIONS PRECEDENT BY THE CLOSE OF BUSINESS ON THE ELECTION DATE, INCLUDING THE APPROVAL OF SUCH EXTENSION BY THE INVESTOR CERTIFICATEHOLDERS HOLDING THE REQUIRED AGGREGATE PRINCIPAL AMOUNT OF CLASS A CERTIFICATES, CLASS B CERTIFICATES, CLASS C CERTIFICATES AND CLASS D CERTIFICATES, THAT NO PAY OUT EVENT SHALL HAVE OCCURRED AND BE CONTINUING, AND THAT CERTAIN LEGAL OPINIONS AND RATING AGENCY CONFIRMATIONS SHALL HAVE BEEN DELIVERED TO THE TRANSFEROR AND THE TRUSTEE PURSUANT TO SECTION 6.17(b). THE TRANSFEROR MAY IN ITS SOLE DISCRETION WITHDRAW THIS EXTENSION NOTICE AT ANY TIME ON OR PRIOR TO THE ELECTION DATE BY DELIVERING NOTICE OF SUCH WITHDRAWAL IN WRITING TO THE TRUSTEE. IF ANY SUCH NOTICE OF WITHDRAWAL SHALL BE SO DELIVERED, NO EXTENSION SHALL OCCUR. L. NEW PROVISIONS TO BECOME EFFECTIVE ON THE EXTENSION DATE (1) The new Amortization Period Commencement Date shall be the earlier of (a) [ , ] or (b) the Pay Out Commencement Date. (2) The new Extension Date shall be [ , ]. (4) The new Scheduled Series 1994-2 Termination Date shall be [ , ].] (5) The new Class A Expected Payment Date is ______. (6) The new Class B Expected Payment Date is ______. (7) The new Class C Expected Payment Date is ______. (9) The following are additional provisions that will apply to the Investor Certificates on and after the Extension Date: INSERT PROVISIONS] M. Annexed hereto are the following: (1) the form of Extension Tax Opinion. (2) the form of Extension Opinion. (3) the Election Notice. IN WITNESS WHEREOF, the undersigned has duly executed this certificate this [ ] day of [ , ]. FINGERHUT RECEIVABLES, INC. By:________________________ Name: Title: EXHIBIT F FORM OF INVESTOR CERTIFICATEHOLDER ELECTION NOTICE [INSERT NAME AND ADDRESS OF TRUSTEE] Re: Fingerhut Master Trust: Election Notice to Extend Series 1994-2 Ladies and Gentlemen: The undersigned hereby elects to approve the extension of the Revolving Period for Series 1994-2 until the Amortization Period Commencement Date set forth in the Extension Notice dated [ , ] (the "Extension Notice") and delivered to the undersigned pursuant Section 6.17(a) of the Pooling and Servicing Agreement, dated as of June 29, 1994, including the Series 1994-2 Supplement thereto, dated as of November 15, 1994, each by and among Fingerhut Receivables, Inc., as transferor, Fingerhut Corporation, as servicer, and The Bank of New York (Delaware), as trustee (the "Pooling and Servicing Agreement"). The undersigned hereby acknowledges that, commencing on the Current Extension Date (as defined in the Extension Notice), the terms and provisions of the Pooling and Servicing Agreement shall be modified as set forth in the Extension Notice. IN WITNESS WHEREOF, the undersigned registered owner(s) has [have] executed this Election Notice as of the date set forth below. Dated: Name(s):___________________ Address:___________________ (Please Print) Signature(s):______________ TABLE OF CONTENTS PAGE SECTION 1. Designation 1 SECTION 2. Definitions 2 SECTION 3. Reassignment Terms 37 SECTION 3A Conveyance of Interest in Interest Rate Cap; Cap Proceeds Account 37 SECTION 4. Delivery and Payment for the Series 1994-2 Certificates 42 SECTION 5. Form of Delivery of Series 1994-2 Certificates 43 SECTION 6. Article IV of Agreement 43 ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS 43 Section 4.4 Rights of Certificateholders 43 Section 4.5 Collections and Allocation; Payments on Exchangeable Transferor Certificate 44 Section 4.6 Determination of Interest for the Series 1994-2 Certificates 46 Section 4.6A Determination of the Class A Interest Adjustment 49 Section 4.7 Determination of Principal Amounts 50 Section 4.8 Shared Principal Collections 54 Section 4.9 Application of Funds on Deposit in the Collection Account for the Certificates 55 Section 4.10 Coverage of Required Amount for the Series 1994-2 Certificates 76 Section 4.11 Payment of Certificate Interest 77 Section 4.12 Payment of Certificate Principal 78 Section 4.13 Investor Charge-Offs 80 Section 4.14 Pre-Funding Period and Establishment of the Pre-Funding Account 81 Section 4.14A Increases in the Invested Amount During the Investment Period 85 Section 4.15 Increases in Invested Amount during the Pre-Funding Period 87 Section 4.16 Reallocated Principal Collections for the Series 1994-2 Certificates 88 Section 4.17 Determination of LIBOR 90 Section 4.18 Class C Trigger 91 Section 4.19 Establishment of Class C Reserve Account 92 Section 4.20 Expense Reserve 94 Section 4.21 Expense Reserve Account 94 Section 4.22 Payment Reserve Account 96 ARTICLE V DISTRIBUTIONS AND REPORTS TO INVESTOR CERTIFICATEHOLDERS 97 Section 5.1 Distributions 97 Section 5.2 Certificateholders' Statement 99 SECTION 7A. Article VI of the Agreement 102 ARTICLE VI THE CERTIFICATES 102 Section 6.15 Additional Class A Invested Amounts 102 Section 6.16 Additional Class D Invested Amounts. 104 Section 6.17 Extension 105 SECTION 8. Series 1994-2 Pay Out Events 108 SECTION 8A. Class A Pay Down Period 111 SECTION 9. Series 1994-2 Termination 111 SECTION 9A. Class A Pre-Payment 112 SECTION 10. Legends; Transfer and Exchange; Restrictions on Transfer of Series 1994- 2 Certificates; Tax Treatment 113 SECTION 11. Ratification of Agreement 118 SECTION 12. Counterparts 119 SECTION 13. GOVERNING LAW 119 SECTION 14. Instructions in Writing 119 SECTION 15. Amendments 119 SECTION 16. Increased Costs 120 SECTION 17. Replacement of Certain Investor Certificateholders 124 SECTION 18. FCI Note 125 EXHIBITS EXHIBIT A-1 Form of Class A Investor Certificate EXHIBIT A-2 Form of Class B Investor Certificate EXHIBIT A-3 Form of Class C Investor Certificate EXHIBIT A-4 Form of Class D Investor Certificate EXHIBIT B [RESERVED] EXHIBIT C [Form of Monthly Certificateholders' Statement] EXHIBIT D Form of 144A Exchange Notice and Certification EXHIBIT E Form of Extension Notice EXHIBIT F Form of Investor Certificateholder Election Notice _________________________________________ FINGERHUT RECEIVABLES, INC. Transferor FINGERHUT CORPORATION Servicer and THE BANK OF NEW YORK (DELAWARE) Trustee on behalf of the Series 1994-2 Certificateholders SERIES 1994-2 SUPPLEMENT Dated as of November 15, 1994 to POOLING AND SERVICING AGREEMENT Dated as of June 29, 1994 ____________________________________ FINGERHUT MASTER TRUST Variable Funding Trust Certificate, Series 1994-2, Class A $27,865,000 Floating Rate Accounts Receivable Trust Certificates, Series 1994-2, Class B $50,157,000 Floating Rate Accounts Receivable Trust Certificates, Series 1994-2, Class C 0% Variable Funding Trust Certificates, Series 1994-2, Class D _______________________________ EX-10 3 EX-10.H EXECUTIVE TAX PLANNING/PREPARATION AND FINANCIAL PLANNING POLICY Effective for fiscal years commencing January 1, 1993 and later, Fingerhut will provide a tax planning/preparation and financial planning benefit to designated Vice President level and above executives. This benefit will apply to incurred covered expenses, including expenses related to prior year tax returns. The Company may change, modify or terminate this policy at any time. Eligibility This benefit is provided to the Chairman & CEO, Executive Vice Presidents, Senior Vice Presidents, and Vice Presidents who are members of the Executive Management Committee. Benefit This benefit covers annual income tax planning/preparation assistance, financial planning, estate planning and investment, legal, and financial advice up to the following maximum amounts for each calendar year. Only actual incurred charges for tax planning/preparation and financial planning up to the appropriate maximum are eligible for reimbursement. Excluded expenses include, but are not limited to, brokerage fees or charges, sales commissions, and administrative or account management fees. The Company reserves the right to specifically exclude other expenses on a case by case basis. Maximum Title Annual Benefit Chairman & CEO $20,000 Executive Vice President $10,000 Senior Vice President $6,500 Vice President (if member $5,000 of Executive Management Committee) In addition, a corresponding tax "gross-up" calculation and adjustment will be made on all amounts paid at year-end for each participating Executive. A tax "gross-up" will occur since amounts reimbursed will be taxable earnings to the participating Executive. Service Provider Executives may select any firm or individual normally engaged to provide these services. Administration Under the Company's annual corporate compliance and business conduct process, each participating Executive must submit copies of their annual income tax returns to the Company's independent auditing firm, Price Waterhouse, for its confidential review within 10 days of April 15 or the date the tax returns(s) is filed. No information other than that determined to be potentially in conflict with the Company's code of business conduct will be reported to the Company. The administration of the Executive Planning/Preparation and Financial Planning Policy is the responsibility of the Senior Vice President, Human Resources, Senior Vice President, Chief Financial Officer, and the Executive Compensation Committee. Reimbursement Expense reimbursement for services rendered should be submitted to Human Resources and will be processed through the normal travel and expense process. To substantiate actual incurred expenses, original and itemized invoices for each service utilized and all payments made must be submitted as support in the same manner as for a properly completed and approved travel and expense voucher. EX-10 4 EX-10.0(II) EXECUTION COPY FINGERHUT COMPANIES, INC. __________________ $65,000,000 9.81% Senior Notes, Series A, Due June 30, 1996 $25,000,000 10.12% Senior Notes, Series B, due December 30, 1997 ________________ SECOND AMENDMENT AGREEMENT _________________ Dated as of June 17, 1994 to PURCHASE AGREEMENT dated as of January 14, 1991 as amended by FIRST AMENDMENT AGREEMENT Dated as of March 1, 1992 SECOND AMENDMENT, dated as of June 17, 1994, ("this Amendment"), between Fingerhut Companies, Inc., a Minnesota corporation (the "Company"), and the Noteholders (as defined below). Preliminary Statement Reference is made to the separate Purchase Agreements dated as of January 14, 1991 between the Company and the Purchasers listed in Schedule 1 thereto and their assigns (the "Noteholders"), pursuant to which the Company issued and sold its 9.81% Senior Notes, Series A, due June 30, 1996, in the aggregate principal amount of $65,000,000 (the "Series A Notes"), and its 10.12% Senior Notes, Series B, due December 30, 1997, in the aggregate principal amount of $25,000,000 (the "Series B Notes"), each as amended by the amendment dated as of March 1, 1992 (collectively, as amended, the "Purchase Agreements"). The Series A Notes and the Series B Notes are hereinafter collectively referred to herein as the "Notes". Unless otherwise defined in this Amendment, capitalized terms used herein without definition shall have the meanings set forth in the Purchase Agreements. The Company and Principal Mutual Life Insurance Company ("Principal Mutual") have entered into a Purchase Agreement, dated as of February 15, 1991, pursuant to which the Company issued and sold its 9.74% Senior Notes, Series C, due August 15, 1996, in the aggregate principal amount of $20,000,000 (the "Series C Notes"), as amended by the amendment dated as of March 1, 1992 (as amended, the "Series C Purchase Agreement"), and a Purchase Agreement, dated as of January 15, 1992, pursuant to which the Company issued and sold its 6.96% Senior Notes, Series D, due August 15, 1996, in the aggregate principal amount of $15,000,000 (the "Series D Notes"), as amended by the amendment dated as of March 1, 1992 (as amended, the Series D Purchase Agreement"). The Series C Notes and the Series D Notes are collectively referred to herein as the "Other Notes," the Series C Purchase Agreement and the Series D Purchase Agreement are collectively referred to herein as the "Other Purchase Agreements." The Company has amended and restated the Bank Credit Agreement, a copy of which the Company has given to Fried, Frank, Harris, Shriver & Jacobson, special counsel for the Noteholders. The Collateral Documents provide that the Notes and the Other Notes and the Bank Credit Agreement are secured equally and ratably by the Collateral. Section 8.02 of the Bank Credit Agreement provides that (i) if at any time the Noteholders and the holders of Other Notes authorize the Collateral Agent to release any of the collateral securing the Company's obligations under the Purchase Agreement and the Other Purchase Agreements, the Collateral Agent will automatically release such Collateral from the Liens created under the Collateral Documents and (ii) if at any time the Noteholders and the holders of the Other Notes authorize the Collateral Agent to instruct the Custodial Agent to deliver Collateral Documents to the Company on their behalf, the Collateral Agent is authorized to instruct the Custodial Agent to deliver such Collateral Documents to the Company on the Banks' behalf. The penultimate paragraph of Article X of the Bank Credit Agreement provides that if at any time the Noteholders release any Guarantor under any Guaranty, such Guarantor shall automatically be released from the guarantee under such Article X (or any other document, in the case of a Subsidiary that has become a Guarantor). The Company and the Banks propose to enter into Amendment No. 1, dated as of June 16, 1994 ("Amendment No. 1 to the Bank Credit Agreement") to the Bank Credit Agreement, a copy of which the Company has given to Fried, Frank, Harris, Shriver & Jacobson. Amendment No. 1 to the Bank Credit Agreement provides, among other things, for amendments to the Bank Credit Agreement that will facilitate the transactions of the Company and the Subsidiaries that are described below. The Company has amended and restated the Receivables Transfer Agreement, a copy of which the Company has given to Fried, Frank, Harris, Shriver & Jacobson. In addition, the Company is entering into a new receivables transfer facility involving the public offering of certificates of beneficial interest. The Company has given a copy of a registration statement describing the new facility to Fried, Frank, Harris, Shriver & Jacobson. The existing receivables transfer agreements and the new receivables facility together constitute the Receivables Transfer Agreement, and the Company may use both programs hereafter, subject to the terms and conditions of the Purchase Agreements with respect to the Receivables Transfer Agreement. The Company is contemplating plans to finance expansion into the television home shopping business through the sale of equity interests in S The Shopping Network, Inc., a newly formed Delaware corporation, and the contribution to S The Shopping Network, Inc. of the capital stock and/or assets of USA Direct Incorporated. The Company anticipates that it will sell minority interests, and may sell majority interests in the TV Shopping Companies (as defined in Section 7.2 hereof). The Company also anticipates that it or one or more of the TV Shopping Companies may enter into joint ventures with third parties for home shopping television shows. In connection with the foregoing, the Company has requested the release of certain Subsidiaries from the Guaranty, the release of certain Pledged Stock from the security interest under the Pledge Agreement and the amendment of certain provisions of the Purchase Agreements and the Other Purchase Agreements to release the potential security interests of the Notes and the Other Notes in the Collateral under the Security Agreement, to exempt certain proposed Subsidiaries from the Pledge Agreement and the Guaranty and to revise certain definitions and covenants in the Purchase Agreements and the Other Purchase Agreements to reflect the structure of the new receivables transfer facility and the Company's plans for the TV Shopping Companies and the Credit Card Bank. Accordingly, the Company and the Noteholders hereby agree as follows: ARTICLE 1 CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT This Amendment is expressly subject to and shall become effective only upon satisfaction of each of the following conditions (such date upon which all of such conditions are satisfied being herein called the "Effective Date"): Section 1.1. There shall exist on the Effective Date (i) no Default or Event of Default under the Loan Documents or any of the Other Purchase Agreements and the documents related thereto, both before and after giving effect to this Amendment and the Other Amendments (as defined in Section 1.2 hereof) and (ii) no Default or Event of Default under and as defined in the Bank Credit Agreement. Section 1.2. Amendments, similar in substance to this Amendment, to the Other Purchase Agreements (collectively, the "Other Amendments") shall have been entered into by the requisite percentage of noteholders under the Other Purchase Agreements and become effective, and the Noteholders shall have received satisfactory evidence to such effect. Section 1.3. Amendment No. 1 to the Bank Credit Agreement shall have been entered into by the requisite percentage of the Banks and shall have become effective, and the Noteholders shall have received satisfactory evidence to such effect. Section 1.4. The Noteholders shall have received an opinion from the General Counsel of the Company, dated the Effective Date, with respect to such matters relating to the transactions contemplated hereby as the Noteholders may reasonably request. Section 1.5. The Noteholders shall have received a certificate, dated as of the Effective Date and signed by a Responsible Officer of the Company, stating that, as of the Effective Date, (i) all of the obligations of the Company to be performed prior to or as of the Effective Date under this Amendment have been performed; (ii) the representations and warranties contained in Article 10 of this Amendment are accurate and complete, and (iii) all of the conditions to the effectiveness of this Amendment have been satisfied in full. Section 1.6. The Noteholders shall have received a certificate, dated as of the Effective Date and signed by the Chief Financial Officer of the Company, stating that the proposed replacement receivables transfer facility described in clause (ii) of the definition of Receivables Transfer Agreement (as amended hereby) is not materially less advantageous to the financial condition of the Company and its consolidated Subsidiaries than are the agreements described in clause (i) of such definition (as amended). Section 1.7. All corporate and other proceedings and all documents incident to the transactions contemplated by this Amendment shall be satisfactory in form and substance to the Noteholders, and the Noteholders shall have received copies of all documents and records relating thereto which they may reasonably request. Section 1.8. In consideration for entering into this Amendment, the Noteholders shall have received in immediately available funds the one-time payment by the Company of additional interest in an amount equal to 0.375% of the outstanding principal balance of the Notes calculated as of the Effective Date. ARTICLE 2 AMENDMENTS TO ARTICLE I OF THE PURCHASE AGREEMENTS Section 2.1. 1.5 of the Purchase Agreements is hereby amended by adding the following sentence at the end thereof: The obligations of each Guarantor under this Agreement and the Guaranty shall automatically terminate upon (a) the sale, contribution or other disposition, in compliance with 8.4, of all of the Company's direct and indirect ownership of the capital stock and Indebtedness of such Guarantor or (b) any sale, contribution or other disposition, in compliance with the terms of 8.5, of all or substantially all of the assets of such Guarantor that results in such Guarantor owning less than 1% of the consolidated assets of the Company and not generating revenues. Section 2.2. 1.6 of the Purchase Agreements is hereby amended by restating such section in its entirety as follows: 1.6 SECURITY FOR NOTES. (a) The Senior Obligations (as defined in the Pledge Agreement) owing to the Secured Parties shall be equally and ratably secured on a pari passu basis by a pledge of all the outstanding capital stock of the Subsidiaries pursuant to the Pledge Agreement. The Purchasers, the other Secured Parties under the Pledge Agreement and Chemical Bank, as collateral agent for the Secured Parties, shall enter into the Amended and Restated Intercreditor Collateral Agency Agreement, dated as of December 31, 1990, as amended and restated through January 14, 1991, attached as Exhibit D-3 hereto (herein, as amended and modified from time to time as permitted thereby, called the "Collateral Agency Agreement"), pursuant to which the Secured Parties shall appoint Chemical Bank (herein, together with its successors in its capacity as collateral agent under the Collateral Agency Agreement and the Pledge Agreement, called the "Collateral Agent"), and Chemical Bank shall agree to act, as Collateral Agent for the Purchasers and the other Secured Parties under the Pledge Agreement and to hold the collateral under such agreement as security for the Senior Obligations secured thereby. (b) Notwithstanding the foregoing or any other provision hereof to the contrary, (i) neither the Company nor any Subsidiary shall be obligated to pledge under the Pledge Agreement any capital stock of FRI, any of the TV Shopping Companies, either of the MWD Subsidiaries, any Subsidiary that is also a subsidiary of FRI, any of the TV Shopping Companies or either of the MWD Subsidiaries and that, in each case, is at all times engaged only in the business in which such parent corporation is expressly permitted to be engaged hereunder and owns only such assets as are incidental to such business, or any Subsidiary owning less than 1% of the Company's consolidated assets and not generating revenues; and no capital stock of FRI, any of the TV Shopping Companies, either of the MWD Subsidiaries, any Subsidiary that is also a subsidiary of FRI, any of the TV Shopping Companies or either of the MWD Subsidiaries and that, in each case, is at all times engaged only in the business in which such parent corporation is expressly permitted to be engaged hereunder and owns only such assets as are incidental to such business, or any Subsidiary owning less than 1% of the Company's consolidated assets and not generating revenues, shall be subject to the security interest created under the Pledge Agreement, and (ii) the obligations of each Subsidiary under the Pledge Agreement and the security interest in the stock of such Subsidiary under the Pledge Agreement shall automatically terminate upon (x) the sale, contribution or other disposition, in compliance with 8.4, of all of the Company's direct and indirect ownership of the capital stock and Indebtedness of such Subsidiary or (y) any sale, contribution or other disposition, in compliance with the terms of 8.5, of all or substantially all of the assets of such Subsidiary that results in such Subsidiary owning less than 1% of the Company's consolidated assets and not generating revenues. ARTICLE 3 AMENDMENTS TO ARTICLE II OF THE PURCHASE AGREEMENTS Section 3.1. 2.15 of the Purchase Agreements is hereby amended by (i) deleting clauses (b) and (c) of such section in their entirety and designating such clauses with the phrase "Intentionally left blank" and (ii) by restating clause (a) of such section in its entirety to read as follows: (a) Upon the execution and delivery to the Collateral Agent of the Pledge Agreement and the Pledged Stock (as defined therein), the Collateral Agent will have, for the benefit of the Purchasers and the other Secured Parties, a valid, first priority, perfected security interest in the Pledged Stock, subject to no other Liens. ARTICLE 4 AMENDMENTS TO ARTICLE VII OF THE PURCHASE AGREEMENTS Section 4.1. 7.5 of the Purchase Agreements is hereby amended (i) by deleting clause (d) thereof in its entirety and designating such clause "Intentionally left blank" and (ii) by restating clauses (c) and (e) thereof in their entirety to read as follows: (c) Compliance Certificates. Concurrently with any delivery of financial statements under clause (a) or (b) above, (x) a certificate of the accounting firm, in the case of clause (a), or a Financial Officer, in the case of clause (b), referred to in the applicable paragraph, (i) certifying that no Event of Default or Default has occurred or, if an Event of Default or Default has occurred, specifying the nature and extent thereof and corrective action taken or proposed to be taken with respect thereto and (ii) setting forth computations, in reasonable detail satisfactory to the Noteholders, demonstrating compliance with the covenants contained in 8.1(d), 8.2, 8.3(f), 8.3(g), 8.4(c), 8.5(d), 8.6, 8.8, 8.9(j), 8.9(m), 8.9(n), 8.9(o), 8.9(p), 8.12, 8.14(e), 8.14(f), 8.14(g), 8.17 and 8.19, and (y) a certificate of a Financial Officer stating that a review has been made of the activities during such quarter of the Company and the Subsidiaries, on the one hand, and (i) Montgomery Ward Direct, on the other hand, and that the Company and the Subsidiaries are in compliance with the covenants contained in 7.16 and 8.13(iv), (ii) FRI, the Fingerhut Master Trust or any transferee thereunder pursuant to the Receivables Transfer Agreement, on the other hand, and that the Company and the Subsidiaries are in compliance with the covenants contained in 8.13(v), and (iii) if during such quarter the Company's direct or indirect ownership of the capital stock of any of the TV Shopping Companies was greater than 10% but such TV Shopping Company was not a Subsidiary, such TV Shopping Company, on the other hand, and that the Company and the Subsidiaries are in compliance with the covenants contained in 7.17 and 8.13(vi); (e) Commission and Stock Exchange Filings. Promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Company, any Subsidiary or the Fingerhut Master Trust with the Commission, any Governmental Authority succeeding to any or all of the functions of the Commission or any national securities exchange or distributed to shareholders of the Company or any Subsidiary; and Section 4.2. 7.10 of the Purchase Agreements is hereby amended by deleting any reference therein to the Security Agreement. Section 4.3. 7.11 of the Purchase Agreements is hereby amended by deleting any reference therein to the Security Agreement. Section 4.4. 7.13 of the Purchase Agreements is hereby amended (i) by amending the first sentence of clause (a) thereof to read as set forth below, (ii) by deleting clause (b) of such section in its entirety and designating such clause with the phrase "Intentionally left blank" and (iii) by restating clause (c) thereof in its entirety to read as set forth below: On or prior to (i) the direct or indirect acquisition by the Company of any Subsidiary which at the time of such acquisition shall be a Significant Subsidiary or (ii) the fifth Business Day after the availability of financial statements revealing that any Subsidiary (other than (A) a Guarantor, (B) either of the MWD Subsidiaries, (C) FRI, (D) any of the TV Shopping Companies or (E) the Credit Card Bank) shall have become a Significant Subsidiary, the Company agrees that the Company will cause such Subsidiary to (x) unconditionally guarantee the payment and performance of all obligations and liabilities of the Company under this Agreement and the Notes, all upon the terms set forth in the Guaranty, and (y) execute and deliver or cause to be delivered to the Noteholders one or more such instruments as the Noteholders may request in form and substance undertaking the obligation of a Guarantor. (c) As promptly as practicable, and in any event within five Business Days, after any person shall become a Subsidiary, the Company will execute and deliver, or cause to be executed and delivered, to the Collateral Agent such agreements and instruments as the Collateral Agent shall request to subject the issued and outstanding shares of capital stock of such Subsidiary to the Pledge Agreement, together with the certificates representing such shares and stock powers, executed in blank, with respect thereto. Notwithstanding the foregoing or any other provision hereof to the contrary, neither the Company nor any Subsidiary shall be obligated to pledge under the Pledge Agreement any capital stock of FRI, any of the TV Shopping Companies, either of the MWD Subsidiaries, any Subsidiary that is also a subsidiary of FRI, any of the TV Shopping Companies or either of the MWD Subsidiaries and that, in each case, is at all times engaged only in the business in which such parent corporation is expressly permitted to be engaged hereunder and owns only such assets as are incidental to such business, or any Subsidiary owning less than 1% of the Company's consolidated assets and not generating revenues; and no capital stock of FRI, any of the TV Shopping Companies, either of the MWD Subsidiaries, any Subsidiary that is also a subsidiary of FRI, any of the TV Shopping Companies or either of the MWD Subsidiaries and that, in each case, is at all times engaged only in the business in which such parent corporation is expressly permitted to be engaged hereunder and owns only such assets as are incidental to such business, or any Subsidiary owning less than 1% of the Company's consolidated assets and not generating revenues shall be subject to the security interest created under the Pledge Agreement. Section 4.5. 7.15 of the Purchase Agreements is hereby amended by restating 7.15 in its entirety to read as follows: 7.15 BANK CREDIT AGREEMENT AND NOTE PURCHASE AGREEMENT. The Company will, and, as applicable, will cause each Subsidiary to, at the request of a Majority-in-Interest of the Noteholders, amend or modify the terms or conditions of this Agreement and the Other Agreements to the same extent that the Bank Credit Agreement in effect as of June 16, 1994, or the Note Purchase Agreement is at any time or from time to time amended or modified or the Bank Credit Agreement is replaced by one or more similar credit facilities, if such amendment or modification or replacement facility makes the terms or conditions of the Bank Credit Agreement in effect as of June 16, 1994, or Note Purchase Agreement, as the case may be, more restrictive to the Company than the terms and conditions under this Agreement and the Other Agreements, which determination shall be made in the sole judgment of the Noteholders reasonably exercised. Upon entering into any such amendment, modification or replacement facility, the Company shall promptly notify the Noteholders of any such more restrictive terms or conditions. Section 4.6. Article VII of the Purchase Agreements is hereby amended by adding the following 7.17 at the end thereof: 7.17 RELATIONSHIP WITH THE TV SHOPPING COMPANIES. At any time the Company owns, directly or indirectly, at least 10% of the capital stock of any of the TV Shopping Companies that is not a Subsidiary, the Company will, and will cause each Subsidiary to, conduct the relationship taken as a whole between the Company and the Subsidiaries, on the one hand, and such TV Shopping Company, on the other hand, upon fair and reasonable terms no less favorable to the Company and the Subsidiaries than the terms the Company and the Subsidiaries could obtain or become entitled to in an arm's-length transaction with a person that is not an Affiliate; provided, however, that any determination with respect to whether any transaction between the Company or any Subsidiary and such TV Shopping Company satisfies the foregoing requirements shall be made by considering the relationship taken as a whole between the Company and the Subsidiaries, on the one hand, and such TV Shopping Company, on the other. ARTICLE 5 AMENDMENTS TO ARTICLE VIII OF THE PURCHASE AGREEMENTS Section 5.1. 8.3 of the Purchase Agreements is hereby amended by (i) deleting any reference therein to the Security Agreement and (ii) restating the preamble thereof in its entirety to read as follows: The Company will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien upon any of the property or assets, including capital stock (other than assets sold on a nonrecourse basis pursuant to the Receivables Transfer Agreement, but notwithstanding the exceptions set forth below, no Lien shall at any time be permitted with respect to (i) any of the capital stock of FRI or any Subsidiary that is also a subsidiary of FRI or (ii) any of the capital stock of the TV Shopping Companies or any Subsidiary that is also a subsidiary of the TV Shopping Companies except for only such capital stock that is pledged to secure Indebtedness of only the TV Shopping Companies or any such subsidiary, which Indebtedness (x) is then permitted under the other provisions of this 8.3 and the other provisions of this Agreement to be incurred and (y) is at all times nonrecourse to the Company and the Subsidiaries other than the TV Shopping Companies or any subsidiary of the TV Shopping Companies), now owned or hereafter acquired by it or on any income or rights in respect of any thereof, except: Section 5.2. 8.4 of the Purchase Agreements is amended by (i) relettering clause (b) thereof, and all references thereto contained in such clause, as clause (c) and (ii) adding a new clause (b) to read as follows: (b)(i) sales, contributions or other dispositions of all or a portion of the capital stock or Indebtedness of any of the TV Shopping Companies or their joint ventures or (ii) a dividend of all or a portion of the capital stock of any of the TV Shopping Companies to the shareholders of the Company; excluding, however, any such sale, contribution or other disposition that would result in such TV Shopping Company no longer being a Subsidiary, unless (x) immediately prior thereto and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing and (y) if substantially all of the capital stock of any of the TV Shopping Companies held by the Company or any Subsidiary shall have been sold, contributed or otherwise disposed of to a person other than the Company or a Subsidiary, all of the Indebtedness of such TV Shopping Company held by the Company or any Subsidiary shall at such time have been sold, contributed or otherwise disposed of to a person other than the Company or a Subsidiary. Section 5.3. 8.9 of the Purchase Agreements is hereby amended by (i) relettering clauses (k) and (l) thereof as clauses (o) and (p), respectively; (ii) by adding new clauses (k), (l), (m) and (n) to read in their entirety as set forth below; and (iii) by changing the reference to clause (j) in clause (o) thereof to a reference to clause (n): (k) make and permit to remain outstanding investments, including ownership of certificates of beneficial ownership in accounts receivable, in the Fingerhut Master Trust and any other trust formed for purposes of the transactions contemplated by the Receivables Transfer Agreement; (l) make and permit to remain outstanding investments in the TV Shopping Companies; (m) make and permit to remain outstanding investments (excluding Guarantees except as otherwise permitted under this Agreement) in entities formed in connection with the Company's joint ventures with MTVN Shopping, Capital Cities/ABC Video Enterprises, Inc. and The Lifetime Network, which investments shall be limited to funding activities related to televised direct marketing, including development and production of programming, purchase of broadcast or cable television time for programming or advertising, purchasing and warehousing inventory, order processing and fulfillment, preparation and mailing of catalogs and other print promotions, promotional and advertising activities and other activities that are related to televised direct marketing; (n) make and permit to remain outstanding investments in the Credit Card Bank; provided that the aggregate principal amount of the Company's and the Subsidiaries' capital contributions, loans, advances and Guarantees to or for the benefit of the Credit Card Bank at any time outstanding permitted under this clause (n) shall not exceed 5% of Consolidated Net Worth. Section 5.4. 8.11 of the Purchase Agreements is hereby amended in its entirety to read as follows: The Company will not permit any Subsidiary to create, incur, assume or permit to exist any agreement or instrument which has the effect of restricting or prohibiting the power, authority or legal right of such Subsidiary to declare or pay any dividend or other distribution to the Company, except as may be required under the Receivables Transfer Agreement with respect to limitations on the frequency of dividends from FRI. Section 5.5. 8.13 of the Purchase Agreements is hereby amended to add new clauses (v) and (vi) to read as set forth below: (v) any transactions between the Company or any Subsidiary and FRI, the Fingerhut Master Trust or any transferee thereunder pursuant to the Receivables Transfer Agreement; and (vi) at any time the Company owns, directly or indirectly, at least 10% of the capital stock of any of the TV Shopping Companies that is not a Subsidiary, any transactions between the Company or any Subsidiary and such TV Shopping Company entered into in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or such Subsidiary, as applicable, could obtain or become entitled to in an arm's-length transaction with a person that is not an Affiliate; provided, however, that any determination with respect to whether any transaction between the Company or any Subsidiary and such TV Shopping Company satisfies the foregoing requirements shall be made by considering the relationship taken as a whole between the Company and the Subsidiaries, on the one hand, and such TV Shopping Company, on the other. Section 5.6. 8.14 of the Purchase Agreements is hereby amended by adding a new clause (h) at the end thereof to read as follows: (h) Notwithstanding anything in the foregoing, no Guarantee of Indebtedness shall at any time be permitted to be made by FRI, any of the TV Shopping Companies, either of the MWD Subsidiaries, the Credit Card Bank or any Subsidiary that is a subsidiary of FRI, any of the TV Shopping Companies, either of the MWD Subsidiaries or the Credit Card Bank, other than (i) as permitted under clause (e) with respect to the MWD Subsidiaries and (ii) Guarantees of Indebtedness of one or more of the TV Shopping Companies by one of such TV Shopping Companies. Section 5.7. Article VIII of the Purchase Agreements is hereby amended by adding the following 8.18 and 8.19 at the end thereof. 8.18 LIMITATIONS ON FINGERHUT RECEIVABLES, INC. The Company will not permit FRI or any subsidiary of FRI to engage at any time in any business or business activity other than the purchasing, holding, owning and selling of the Accounts of the Company and the Subsidiaries pursuant to the Receivables Transfer Agreement and any activities incidental to and necessary or appropriate for the accomplishment of such purpose. 8.19 MINIMUM CONSOLIDATED NET WORTH. The Company will not permit Consolidated Net Worth at any time to be less than $325,000,000. ARTICLE 6 AMENDMENTS TO ARTICLE IX OF THE PURCHASE AGREEMENTS Section 6.1. 9.1 of the Purchase Agreements is hereby amended by restating clauses (n) and (q) thereof to read in their entirety as set forth below: (n) Pledge Agreement. If at any time the Pledge Agreement shall not be in full force and effect, enforceable in accordance with its terms, or the security interest purported to be created by the Pledge Agreement shall not be a valid and enforceable perfected first priority security interest in any collateral subject thereto (except as otherwise expressly permitted by this Agreement); or (q) Bank Credit Agreement. If an Event of Default shall occur and be continuing under the Bank Credit Agreement, provided that the existence of such Event of Default shall be determined without giving effect to any waiver in respect of any provision of the Bank Credit Agreement or consent to any departure by the Company or any Subsidiary therefrom or to any amendment or modification of the terms thereof or to any agreement entered into following the occurrence, and during the continuance, of a Default or an Event of Default as defined under the Bank Credit Agreement, if any such waiver, consent, amendment, modification or agreement is given or entered into in exchange for monetary or other consideration, provided that the reimbursement by the Company or any Subsidiary of the out-of-pocket costs and reasonable out-of-pocket administrative or overhead expenses of any party to the Bank Credit Agreement shall not constitute monetary or other consideration for purposes of this paragraph (q). ARTICLE 7 AMENDMENTS TO ARTICLE X OF THE PURCHASE AGREEMENTS Section 7.1. 10.2 of the Purchase Agreements is hereby amended by (i) deleting each of the following definitions in its entirety: "Additional Note Purchase Agreement," "Additional Private Placement Date," "Custodial Agency Agreement," "Custodial Agent," "Custodianship," "Grantor," "Perfection Certificate," "Post Box," "Post Office Location," "Post Office Notice," "Primerica," "Receivables Agreement," and "Security Agreement" and (ii) restating the definitions of the terms "Bank Credit Agreement," "Collateral", "Collateral Documents," "Loan Document," "Montgomery Ward Direct," "Receivables Transfer Agreement," "Secured Parties," "Senior Obligations" and "Subsidiary" to read in their entirety as follows: "Bank Credit Agreement" shall mean the Revolving Credit, Term Loan, Competitive Advance and Letter of Credit Facility Agreement, dated as of October 29, 1990, as amended and restated as of October 20, 1993, among the Company, the guarantors named therein, the Banks, Chemical Bank, as agent for the Banks (in such capacity, the "Agent"), NationsBank of North Carolina, N.A., as co-agent, and the issuing banks named therein, together with any exhibits, attachments, certificates, documents or other agreements attached thereto, and as the same may be amended or modified from time to time as permitted thereby or replaced by one or more bank or similar credit facilities. "Collateral" shall have the meaning provided in the Pledge Agreement. "Collateral Documents" shall mean the Pledge Agreement and other instruments and documents delivered pursuant to 3.6, 7.11 and 7.13(c). "Loan Documents" shall mean this Agreement, the Other Agreements, the Notes, the Guaranty and the Collateral Documents. "Montgomery Ward Direct" shall mean Montgomery Ward Direct L.P., a Delaware limited partnership, of which Fingerhut MWD General Corporation (a Minnesota corporation and a Wholly- Owned Subsidiary) and MW Direct General, Inc. (a Delaware corporation and a subsidiary of Montgomery Ward & Co., Incorporated ("Montgomery Ward")) each own 50% of the general partnership interests and Fingerhut MWD Limited Corporation (a Minnesota corporation and a Wholly-Owned Subsidiary) and MW Direct Limited, Inc. (a Delaware corporation and a subsidiary of Montgomery Ward) each own 50% of the limited partnership interests. "Receivables Transfer Agreement" shall mean (i) collectively, the Second Amended and Restated Receivables Transfer Agreement dated as of July 9, 1993, among Fingerhut Corporation, Matterhorn Capital Corporation, Enterprise Funding Corporation, Citibank, N.A., Citicorp North America, Inc., and Ciesco, L.P., as amended by Amendment No. 1 dated as of March 31, 1994, and the Second Amended and Restated Receivables Transfer Agreement dated as of July 9, 1993, among Fingerhut Corporation, Citibank, N.A., and Citicorp North America, Inc., as amended by Amendment No. 1 dated as of March 31, 1994, (ii) the receivables program conducted pursuant to a purchase agreement and a pooling and servicing agreement among Fingerhut Corporation and/or one or more other Subsidiaries, FRI and the Fingerhut Master Trust, including the series supplement to the pooling and servicing agreement relating to the certificates being registered under Registration Statement No. 33-77780 (each in the form of the draft dated June 16, 1994) and (iii) any amendment to the receivables transfer facilities identified in clause (i) or (ii) above and any receivables transfer agreement or agreements replacing all or any portion of such facilities; provided that each such amendment and agreement, taken together with all such other amendments and agreements, provide for the sale of accounts receivable and related property on a nonrecourse basis (within the meaning of generally accepted accounting principles in effect on the date of this Agreement) and that the Chief Financial Officer of the Company has certified that any such amended or replacement agreement is not materially less advantageous to the financial condition of the Company and its consolidated subsidiaries than are the receivables transfer agreements described in clause (i) or (ii) above. Interests in Accounts sold by the Company and/or any of its Subsidiaries under clause (ii) above will for all purposes be deemed sold pursuant to the Receivables Transfer Agreement as of the date the Accounts are initially transferred to FRI. "Secured Parties" shall have the meaning provided in the Pledge Agreement. "Senior Obligations" shall have the meaning provided in the Pledge Agreement. "subsidiary" shall mean, with respect to any person (herein referred to as the "parent"), any corporation, partnership, association or other business entity of which securities or other ownership interests representing more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held, directly or indirectly, by the parent and "Subsidiary" shall mean any subsidiary of the Company including any subsidiary of the Company created or acquired by the Company after the date hereof but shall not include the Fingerhut Master Trust. Section 7.2. 10.2 of the Purchase Agreements is hereby amended by adding the following definitions in appropriate alphabetical order: "Consolidated Net Worth" shall mean, as at any date of determination, the consolidated stockholders' equity of the Company and its consolidated Subsidiaries, as determined on a consolidated basis in conformity with generally accepted accounting principles consistently applied; provided, however, that Consolidated Net Worth shall not be deemed to include any of the stockholders' equity of any TV Shopping Company or any Subsidiary that is also a subsidiary of any TV Shopping Company (as the case may be) at any time that any Lien exists with respect to any portion of the capital stock of such TV Shopping Company or such subsidiary (as the case may be) held directly or indirectly by the Company. "Credit Card Bank" shall mean a limited purpose credit card national bank to be formed or acquired by the Company or one of the Subsidiaries, which shall engage only in the business activities specified in Section 2(c)(2)(F) of the Bank Holding Company Act of 1956, as amended by the Competitive Equality Banking Act of 1987, as amended. "Fingerhut Master Trust" shall mean one or more independent trusts formed for the purpose of acquiring interests in the Company's customer accounts receivable and issuing certificates of beneficial interest in such receivables or commercial paper, pursuant to the Receivables Transfer Agreement. "FRI" shall mean (i) Fingerhut Receivables, Inc., a Delaware special purpose corporation formed to become a Subsidiary for the purpose of purchasing customer accounts receivable from Fingerhut Corporation or other Subsidiaries and transferring such receivables to an independent trust pursuant to the Receivables Transfer Agreement and (ii) any other special purpose Subsidiary formed pursuant to the Receivables Transfer Agreement. "TV Shopping Companies" shall mean S The Shopping Network, Inc. and USA Direct Incorporated, both of which shall engage only in the businesses of television and/or electronic home shopping and direct marketing and related activities, and their respective subsidiaries that are engaged only in the businesses in which such parent corporations are expressly permitted to be engaged hereunder and own only such assets as are incidental to such businesses. ARTICLE 8 AMENDMENT TO ARTICLE XII OF THE PURCHASE AGREEMENTS Section 8.1. Article XII of the Purchase Agreements is hereby amended by deleting such article in its entirety. ARTICLE 9 AMENDMENTS TO THE PLEDGE AGREEMENT Section 9.1 Upon the satisfaction of the conditions for the valid and binding effect of this Amendment set forth in Section 12.1 hereof and the effectiveness of the Other Amendments, which, together, shall have been executed by the Noteholders and all of the noteholders under the Other Purchase Agreements, (i) the security interest in the stock of USA Direct Incorporated, Figi's Inc. (and Family Farm Gifts, Inc. and Figi's Gifts, Inc., subsidiaries of Figi's Inc.), Minnesota Telemarketing, Inc. (formerly COMB Corporation) and FDC, Inc. under the Pledge Agreement is hereby released and the Collateral Agent is hereby directed to return any stock certificates therefor to the Company and (ii) the security interest in the stock of any Subsidiary under the Pledge Agreement, which stock is as of the Effective Date pledged under the Pledge Agreement, is hereby automatically released (without the need for any further action whatsoever by any Noteholder), effective as of the date such security interest shall terminate pursuant to 1.6(b)(ii) of the Purchase Agreement, and the Collateral Agent is hereby directed to thereupon return any stock certificates therefor to the Company. Upon the effectiveness of the release of such stock, the Company shall promptly notify the Noteholders thereof. Section 9.2 The definition of "Credit Agreement" in the opening paragraph of the Pledge Agreement is hereby restated in its entirety to read as follows: the Revolving Credit, Term Loan, Competitive Advance and Letter of Credit Facility Agreement, dated as of October 29, 1990, as amended and restated as of October 20, 1993, among the Company, the guarantors named therein, the Banks, Chemical Bank, as agent for the Banks, NationsBank of North Carolina, N.A., as co-agent, and the issuing banks named therein with any exhibits, attachments, certificates, documents or other agreements attached thereto, and as the same may be amended or modified from time to time as permitted thereby or replaced by one or more bank or similar credit facilities (the "Credit Agreement"). Section 9.3 Section 2 of the Pledge Agreement is hereby amended by restating clause (a) thereof in its entirety to read as follows: (a) the shares of capital stock listed in Schedule I hereto as being owned by it and any shares of capital stock of any Subsidiary obtained by it in the future (except for FRI, the MWD Subsidiaries, the TV Shopping Companies or any Subsidiary owning less than 1% of the consolidated assets of the Company and not generating any revenues), and the certificates representing or evidencing such shares (the "Pledged Stock"). Section 9.4 Section 3 of the Pledge Agreement is hereby amended by restating clause (a) in its entirety to read as follows: (a) the Pledged Stock set forth in Schedule I attached hereto represents all the outstanding capital stock of each Subsidiary (except FRI, the MWD Subsidiaries, the TV Shopping Subsidiaries and any Subsidiary owning less than 1% of the consolidated assets of the Company and not generating any revenues). ARTICLE 10 REPRESENTATIONS AND WARRANTIES Section 10.1. The Company hereby represents and warrants to the Noteholders as of the Effective Date: (a) Each of the Company, the Guarantors, the Significant Subsidiaries and the Pledgors is duly organized, validly existing and in good standing in its jurisdiction of incorporation. (b) The Company has the power to enter into this Amendment and to perform its obligations hereunder. (c) The execution and delivery by the Company of this Amendment and the performance of its obligations hereunder have been duly authorized, and this Amendment will, upon execution and delivery thereof, be duly executed and delivered thereby and will constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to applicable laws affecting the enforcement of creditors' rights generally and principles of equity. (d) Neither the execution nor delivery by the Company of this Amendment nor the performance by it of its obligations hereunder or under the Purchase Agreements (as amended as contemplated hereby), the Notes, the Pledge Agreement (as amended as contemplated hereby) or the Guaranty of each Guarantor: (1) will adversely affect the enforceability against the Company of the Purchase Agreement or the Notes, against the Guarantors of the Guaranty or against any Pledgor of the security interest in the Pledged Stock under the Pledge Agreement (as amended as contemplated hereby); (2) will require the taking of any action or the giving of any consent or approval by, or the making or any registration or filing with, any Governmental Authority or other person other than such actions, consents, approvals, registrations and filings as have heretofore been taken, given or made (as the case may be); (3) will violate any provision of the articles of incorporation or bylaws of any of the Company, any Guarantor, any Significant Subsidiary or any Pledgor or any provision of any law, rule, regulation, order or decree of any Governmental Authority applicable thereto; (4) will violate or constitute a default under any material agreement to which any of the Company, any Guarantor, any Significant Subsidiary or any Pledgor is a party or by which any of its properties or assets is or may be bound; or (5) will result in the creation or imposition of any Lien on the properties or assets of the Company, any Guarantor, any Significant Subsidiary or any Pledgor other than (i) Liens in favor of the Collateral Agent for the benefit of the Secured Parties under the Pledge Agreement and (ii) as contemplated by the Receivables Transfer Agreement. (e) The representations and warranties of the Company set forth in 2.15 of the Purchase Agreements (as amended hereby) are accurate and complete as if made as of the Effective Date, and by this reference such representations and warranties are incorporated and made herein as if fully set forth herein. (f) Neither this Amendment nor any certificate furnished in connection herewith nor any other document or statement furnished to the Noteholders or to their special counsel, Fried, Frank, Harris, Shriver & Jacobson, in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. Except as expressly disclosed in documents filed by the Company or any Subsidiary with the Commission and delivered by the Company to the Noteholders prior to the Effective Date, there is no fact known to the Company (except for general economic or political conditions) which materially adversely affects, or, so far as the Company can now reasonably foresee, would be likely to materially and adversely affect, the business, properties, prospects, operations or condition, financial or otherwise, of the Company and the Subsidiaries taken as a whole or the ability of the Company or any Significant Subsidiary to perform any material obligation under any Loan Document, which has not been disclosed in writing to the Noteholders. (g) There exists (i) no Default or Event of Default under the Loan Documents either before or after giving effect to this Amendment and (ii) no Event of Default or event that with the lapse of time or giving of notice would constitute an Event of Default under the Bank Credit Agreement or the Other Purchase Agreements, either before or after giving effect to the Other Amendments. ARTICLE 11 RELEASE OF GUARANTY AND COLLATERAL DOCUMENTS Section 11.1 The Noteholders hereby authorize and instruct the Collateral Agent, upon the satisfaction of the conditions for the valid and binding effect of this Amendment set forth in Section 12.1 hereof (and without the need for any further action whatsoever by the Noteholders) to instruct the Custodial Agent to release and deliver to the Company all of the Collateral and Collateral Documents held by the Custodial Agent pursuant to Article XII of the Purchase Agreements, and upon such release and delivery the Custodial Agent's duties under the Loan Documents will terminate. The Noteholders hereby instruct the Collateral Agent that notwithstanding such release and delivery, the Collateral Agent shall continue to maintain under the Pledge Agreement a perfected first priority security interest in the Pledged Stock for the benefit of the Secured Parties. Section 11.2 Upon the satisfaction of the conditions for the valid and binding effect of this Amendment set forth in Section 12.1 hereof and the effectiveness of the Other Amendments, which, together, shall have been executed by the Noteholders and all of the noteholders under the Other Purchase Agreements, the Guaranty of each of Minnesota Telemarketing, Inc. (formerly COMB Corporation) and Figi's Inc. is hereby released. Upon the effectiveness of the release of each such Guaranty, the Company shall promptly notify the Noteholders thereof. ARTICLE 12 MISCELLANEOUS Section 12.1 This Amendment shall not be valid and binding upon the Company or any Noteholder under the Purchase Agreements until the execution hereof by a Majority- in-Interest of Noteholders and complete satisfaction by the Company of the conditions precedent set forth in Article 1, and upon the execution hereof by such Noteholders, and compliance by the Company with said conditions precedent, this Amendment shall be valid and binding upon the Company and each Noteholder under the Purchase Agreements with respect to each provision of this Amendment except that the release of any existing Pledged Stock shall be so valid and binding only pursuant to Section 9.1 hereof and the release of any existing Guaranty shall be so valid only pursuant to Section 11.2 hereof. Section 12.2 This Amendment embodies the entire agreement and understanding of the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. In case any one or more of the provisions contained in this Amendment, or in the Purchase Agreements as amended hereby, or in any Note, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein, and any other applications thereof, shall not in any way be affected or impaired thereby. Section 12.3 This Amendment is intended to be governed by the laws of the State of New York and shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of such State. Section 12.4 This Amendment shall bind and inure to the benefit of the respective successors and assigns of the Company and the Noteholders. Section 12.5 Except as otherwise expressly provided herein, nothing contained in this Amendment shall, or shall be construed to, modify, invalidate or otherwise affect any provision of the Purchase Agreements or any right of the Noteholders arising thereunder. Section 12.6 The execution of this Amendment by the Noteholders shall not in any way constitute, or be construed as, a waiver of any provision of, or of any Default or Event of Default otherwise existing under, the Purchase Agreements, nor shall it constitute an agreement or obligation of the Noteholders to give their consent to any future amendment of the Purchase Agreements or to any future transaction which would, absent consent of the Noteholders, constitute a Default or Event of Default under the Purchase Agreements. Section 12.7 Except as specifically provided herein, the Purchase Agreements are in all respects ratified and confirmed, and all the terms, conditions and provisions thereof shall be and remain in full force and effect. For any and all purposes, from and after the Effective Date, any and all references hereafter to any Purchase Agreement, and all references to "this Agreement" in any Purchase Agreement, shall refer to such Purchase Agreement as hereby amended. Section 12.8 This Amendment may be executed in as many counterparts as may be deemed necessary or convenient and by the different parties hereto on separate counterparts (provided that the Company will execute each counterpart), and each of which, when so executed, shall be deemed to be an original, but all such counterparts shall constitute but one and the same agreement. Section 12.9 The Company will pay, or cause to be paid, the reasonable out-of-pocket costs and expenses of each Noteholder in connection with entering into this Amendment and the consummation of all transactions contemplated hereby, including, without limitation, the reasonable fees, expenses and disbursements of Fried, Frank, Harris, Shriver & Jacobson, and the Company will also indemnify and hold each Noteholder harmless from and against all liability and loss with respect to or resulting from all claims on account of brokers' or finders' fees or commissions in connection with this Amendment or any of the transactions contemplated hereby. The obligations of the Company under this Section 12.9 shall survive payment of any Note issued under any Purchase Agreement. IN WITNESS WHEREOF, the Company and the undersigned Noteholders have caused this Amendment to be executed by their respective officer or officers thereto duly authorized. FINGERHUT COMPANIES, INC. By: /s/ Daniel J. McAthie Name: Daniel J. McAthie Title: Senior Vice President, Chief Financial Officer and Treasurer By: /s/ Robert W. Oberrender Name: Robert W. Oberrender Title: Assistant Treasurer TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By: /s/ Raymond J. Albright, Jr. Name: Raymond J. Albright, Jr. Title: Associate Director, Private Placements MERRILL LYNCH LIFE INSURANCE COMPANY By: /s/ David M. Dunford Name: David M. Dunford Title: Senior Vice President FARMLAND LIFE INSURANCE COMPANY** FINANCIAL HORIZONS LIFE INSURANCE COMPANY* NATIONWIDE LIFE INSURANCE COMPANY* WEST COAST LIFE INSURANCE COMPANY** WISCONSIN HEALTH CARE LIABILITY INSURANCE PLAN** By: /s/ Jeffrey G. Milburn Name: Jeffrey G. Milburn Title: Vice President, Corporate Fixed-Income Securities **By: /s/ Jeffrey G. Milburn Name: Jeffrey G. Milburn Title: Attorney-in-Fact NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION By: /s/ Lydia S. Sangren Name: Lydia S. Sangren Title: GREAT NORTHERN INSURED ANNUITY CORPORATION By: /s/ Charles Kaminski Name: Charles Kaminski Title: Senior Vice President, Investments UNITED OF OMAHA LIFE INSURANCE COMPANY By: /s/ M. G. Echtenkamp Name: M. G. Echtenkamp Title: Second Vice President MUTUAL OF OMAHA INSURANCE COMPANY By: /s/ M. G. Echtenkamp Name: M. G. Echtenkamp Title: Second Vice President COMPANION LIFE INSURANCE COMPANY By: /s/ David Lee Name: David Lee Title: Vice President and Actuary By: /s/ Richard A. Witt Name: Richard A. Witt Title: Second Vice President & Assistant Treasurer THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES By: /s/ Sheryl Rothman Name: Sheryl Rothman Title: Investment Officer EQUITABLE VARIABLE LIFE INSURANCE COMPANY By: /s/ Sheryl Rothman Name: Sheryl Rothman Title: Investment Officer THE EQUITABLE OF COLORADO, INC. By: /s/ Sheryl Rothman Name: Sheryl Rothman Title: Investment Officer Accepted and Agreed to but only with respect to the provisions of Article 9 hereof: FINGERHUT COMPANIES, INC., as Pledgor By: /s/ Robert W. Oberrender Name: Robert W. Oberrender Title: Assistant Treasurer FINGERHUT CORPORATION, as Pledgor By: /s/ Robert W. Oberrender Name: Robert W. Oberrender Title: Assistant Treasurer FIGI'S INC., as Pledgor By: /s/ Robert W. Oberrender Name: Robert W. Oberrender Title: Assistant Treasurer CHEMICAL BANK, as Collateral Agent By: /s/ Edward W. Devine Name: Edward W. Devine Title: Managing Director EX-11 5 Exhibit 11 FINGERHUT COMPANIES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE FOR THE PERIODS ENDED DECEMBER 30, 1994, DECEMBER 31, 1993 AND DECEMBER 25, 1992 (In thousands of dollars, except per share data)
1994 1993 1992 Primary Net earnings (a) $ 45,925 $ 75,328 $ 61,806 =========== =========== =========== Weighted average shares of common stock outstanding 46,237,706 46,019,158 47,717,432 Common stock equivalents 4,032,713 4,082,581 4,220,504 ----------- ----------- ----------- Weighted average shares of common stock and common stock equivalents (b) 50,270,419 50,101,739 51,937,936 =========== =========== =========== Primary earnings per share of common stock and common stock equivalents (a / b) $.91 $1.50 $1.19 =========== =========== =========== Fully Diluted Net earnings (c) $ 45,925 $ 75,328 $ 61,806 =========== =========== =========== Weighted average shares of common stock outstanding 4,054,602 46,019,158 47,717,432 Common stock equivalents 46,237,706 4,611,732 4,239,634 ----------- ----------- ----------- Weighted average shares of common stock and common stock equivalents (d) 50,292,308 50,630,890 51,957,066 =========== =========== =========== Fully diluted earnings per share of common stock and common stock equivalents (c / d) $.91 $1.49 $1.19 =========== =========== ===========
Common stock equivalents for primary earnings per share are computed by the treasury stock method using the average market price. Common stock equivalents for fully diluted earnings per share are computed by the treasury stock method using the ending market price or the average of the fully diluted monthly amounts, whichever is higher. EX-13 6 FINGERHUT COMPANIES, INC. AND SUBSIDIARIES FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA (In thousands of dollars, except per share data)
For the fiscal year ended December 30, December 31, December 25, December 27, December 28, 1994 1993(c) 1992 1991 1990 Earnings data: Revenues $ 1,934,385 $ 1,807,908 $ 1,606,114 $ 1,428,428 $ 1,247,997 Earnings before taxes (b) $ 70,926 $ 111,879 $ 93,930 $ 81,398 $ 74,139 Net earnings (b) $ 45,925 $ 75,328 $ 61,806 $ 53,558 $ 47,715 Net earnings as a percent of revenues (b) 2.4% 4.2% 3.8% 3.7% 3.8% Per share: Earnings (a) (b) $ .91 $ 1.50 $ 1.19 $ 1.07 $ .98 Dividends declared $ .16 $ .16 $ .16 $ .16 $ .08 At fiscal year-end Financial position data: Total assets $ 1,097,933 $ 988,302 $ 925,649 $ 801,999 $ 651,162 Total current debt $ 336 $ 313 $ 333 $ 62,853 $ 87,284 Long-term debt and capitalized lease, less current portion $ 246,516 $ 246,852 $ 247,190 $ 119,164 $ 15,015 Total stockholders' equity $ 500,950 $ 472,389 $ 399,591 $ 384,149 $ 318,600 (a) Based on a weighted average of 50,270,419; 50,101,739; 51,937,936; 49,960,546 and 48,565,694 shares of common stock and common stock equivalents for the fiscal years ended December 30, 1994; December 31, 1993; December 25, 1992; December 27, 1991 and December 28, 1990, respectively. (b) 1994 results included a $29.9 million charge ($19.4 million after tax) relating to unusual items. See Note 3 to the Consolidated Financial Statements. (c) In 1993, the Company sold certain assets of COMB Corporation and FDC, Inc., a subsidiary of Figi's Inc.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The Company experiences variances in quarterly results from year to year that result from changes in the timing of its promotions and the types of customers and products promoted and, to some extent, from variations in dates of holidays and the timing of the quarter ends resulting from a 52/53 week fiscal year. Fiscal years 1994 and 1992 included 52 weeks compared to 53 weeks in 1993. In addition, the individual cost components (product cost, administrative and selling expenses, and provision for uncollectible accounts) and gross margin as a percent of net sales may vary from period to period due to the different types of products, mail programs, and customers promoted. Highlights of operations: For the fiscal year ended Percent of net sales 1994 1993 1992 Finance income, net 12.6% 10.6% 9.2% Product cost 49.7 50.3 48.4 Administrative and selling expenses 40.8 37.9 38.0 Provision for uncollectible accounts 13.3 11.9 12.7 Percent of revenues Discount on sale of accounts receivable 2.8% 1.5% 1.4% Interest expense, net 1.3 1.9 2.1 Earnings before taxes 3.7 6.2 5.8 Provision for income taxes 1.3 2.0 2.0 Net earnings 2.4 4.2 3.8 Bar Graph depicting Earnings Per Share for the last five years: 1994 $ .91/$1.30* 1993 $1.50 1992 $1.19 1991 $1.07 1990 $ .98 * Excluding one-time charge 1994 COMPARED WITH 1993 The Company reported record revenues of $1.934 billion in 1994. Net earnings of $45.9 million, or $.91 per share, were negatively impacted by the fourth quarter after-tax charge of $19.4 million, or $.39 per share, relating to the cancelation of its proposed 24- hour cable television shopping channel, substantial reduction of its USA Direct infomercial subsidiary and provisions for corporate streamlining. Also during the fourth quarter, the intended purchaser of Figi's Inc. ("Figi's"), a catalog marketer of specialty foods and other gifts, was unable to complete its financing. As a result, the Company reversed the effects of the sale, which were recorded in the fourth quarter of 1993. This did not have a material impact on earnings. Net sales for the year were $1.719 billion compared to $1.634 billion in 1993. Excluding COMB Corporation ("COMB") and FDC, Inc. ("FDC"), which the Company sold in 1993, net sales for the current 52-week period increased 11% from $1.554 billion in 1993, a 53-week period. Fingerhut Corporation ("Fingerhut"), the Company's core business, had net sales of $1.577 billion in 1994 compared to $1.414 billion in 1993, an increase of 12%. Net sales from Fingerhut's existing customer list increased 13% to $1.321 billion primarily as a result of a higher average order size and additional mailings, partially offset by lower response per mailing. Net sales from Fingerhut's new customer acquisition programs increased 5% in 1994 to $256 million primarily due to a higher average order size and increased mailings. Net sales from Figi's increased 6% in 1994 to $70 million compared to $66 million in 1993 as a result of increased customer acquisitions. Net sales from USA Direct Incorporated ("USA Direct") decreased 16% in 1994 to $59 million compared to $70 million for 1993 resulting from less successful product promotions. Montgomery Ward Direct L.P., a 50% owned affiliate, had net sales of $188 million compared to $116 million for 1993. Montgomery Ward Direct's sales are not included as revenues in the Company's consolidated financial statements. Net finance income for the year was $215.7 million compared to $173.9 million in 1993. The increase was due to increased sales from Fingerhut's existing customers, longer payment plans and a higher percent of accounts receivable sold under the Fingerhut Master Trust. Product cost for the year was $854.5 million, or 49.7% of net sales, compared to $821.4 million, or 50.3% of net sales, during the prior year. The decrease as a percent of net sales was due to improved margins in the core business as the result of improved buying, and the sale of COMB, which had a higher product cost as a percent of net sales, partially offset by provisions for the cancelation of S The Shopping Network and scaling back USA Direct. Administrative and selling expenses for 1994 were $701.6 million, or 40.8% of net sales, compared to $619.0 million, or 37.9% of net sales, in the prior year. The increase was primarily due to operating expenses associated with, and the cancelation of, S The Shopping Network, scaling back USA Direct and provisions for corporate streamlining, as well as planned depreciation costs. The provision for uncollectible accounts was $229.4 million, or 13.3% of net sales, compared with $194.5 million, or 11.9% of net sales, for the prior year. The increase as a percent of net sales was due to the following three factors: the sale of COMB and FDC, which had lower provisions for uncollectible accounts as a percent of net sales, a higher provision for uncollectible accounts on Fingerhut's existing customer list and increased provisions related to scaling back USA Direct. Discount on sale of accounts receivable for the year was $53.7 million compared to $26.7 million for the comparable period in 1993. The increase resulted from higher short-term interest rates, as well as an increase in the amount of accounts receivable sold and the replacement of the Receivables Transfer Agreement with the Fingerhut Master Trust. Net interest expense for the year was $24.3 million compared to $34.5 million in 1993. The decrease was primarily attributable to the expiration of the interest rate swap agreements on June 30, 1993 and June 30, 1994. The effective tax rate for 1994 was 35.2% compared with 32.7% in the prior year. In 1993, the Company recognized a one-time benefit of $2.0 million on its deferred tax asset as a result of the Omnibus Budget Reconciliation Act of 1993 ("the Act"). Other factors contributing to the increase in the 1994 effective income tax rate included a provision for additional state income taxes and the disallowance of certain deductions as a result of the Act, partially offset by an increase in merchandise donations. The above factors resulted in net earnings for 1994 of $45.9 million, or $.91 per share, compared with $75.3 million, or $1.50 per share, for 1993. 1993 COMPARED WITH 1992 In 1993, the Company achieved record levels of net earnings and revenues. Operating results reflected strong performance from Fingerhut's existing customer list and new customer acquisition programs, as well as improved earnings performance from the Company's other subsidiaries. The results included higher fulfillment costs and a planned increase in depreciation expense. Certain assets of COMB were sold on September 3, 1993. In addition, the Company sold certain assets of FDC effective as of December 31, 1993 and signed a letter of intent to sell the remaining assets of Figi's. The Company anticipated finalizing this transaction in 1994. The effects of these transactions were recorded in 1993 and did not have a material impact on earnings. Fiscal 1993 net sales were $1.634 billion compared to $1.471 billion for 1992, an increase of 11%, or 15% excluding COMB. Fingerhut had net sales of $1.414 billion compared to $1.216 billion in 1992, a 16% increase. Net sales from Fingerhut's existing customer list increased 21% to $1.171 billion from $970 million for 1992 primarily as a result of increased mailings and higher sales per mailing. Net sales from Fingerhut's new customer acquisition programs were $243 million compared to $246 million in 1992. During 1993, Fingerhut acquired approximately 190 thousand more new customers than it did in the prior year. Net sales from USA Direct were $70 million compared to $59 million for the prior year. Net sales from Figi's were $66 million compared to $76 million in 1992 as a result of a planned reduction in mailings. Net sales from COMB (which was sold on September 3, 1993) were $65 million compared to $103 million for the full year of 1992. Net finance income for the year was $173.9 million compared to $135.5 million in 1992. The improvement in finance income was primarily due to increased sales from Fingerhut's existing customers and lengthened payment plans. Product cost for the year was $821.4 million, or 50.3% of net sales, compared to $711.8 million, or 48.4% of net sales, for the prior year. The increase as a percent of net sales resulted primarily from the price/value strategy implemented in the fall of 1992 and, to a lesser extent, higher fulfillment costs, partially offset by the sale of COMB (which had higher product cost as a percent of net sales). Administrative and selling expenses for 1993 were $619.0 million, or 37.9% of net sales, compared to $558.4 million, or 38.0% of net sales, in the prior year. Planned higher depreciation costs were more than offset by improved sales per advertising dollar from Fingerhut's existing and new customers, an increased proportion of sales from Fingerhut's existing customers (which have a lower advertising cost as a percent of net sales) and, to a much lesser extent, improved performance of Montgomery Ward Direct. The provision for uncollectible accounts was $194.5 million, or 11.9% of net sales, compared with $186.4 million, or 12.7% of net sales for the prior year. The decrease in the percent of net sales was due to lower delinquency rates on sales from Fingerhut's new customer acquisition programs and an increase in the proportion of sales from Fingerhut's existing customers (which have a lower provision for uncollectible accounts as a percent of net sales), partially offset by the sale of COMB (which had a lower provision for uncollectible accounts as a percent of net sales). Bar Graph depicting Total Assets for the last five years (in millions): 1994 $1097.9 1993 $ 988.3 1992 $ 925.6 1991 $ 802.0 1990 $ 651.2 Discount on sale of accounts receivable for the year was $26.7 million compared to $22.3 million for 1992, resulting from an increase in sales from Fingerhut's existing customers and, accordingly, in the amount of accounts receivable sold, partially offset by lower average commercial paper rates in 1993. Net interest expense for the year was $34.5 million compared to $33.3 million in the prior year. The increase was primarily attributable to interest expense on borrowings related to the Company's repurchase of stock in December 1992 and the replacement of current debt with higher rate long-term debt agreements, partially offset by the expiration of $160 million of interest rate swap agreements on June 30, 1993. The effective tax rate for 1993 was 32.7% compared with 34.2% in the prior year. As a result of the Omnibus Budget Reconciliation Act of 1993, the Company recognized a one-time benefit of $2.0 million on the Company's deferred tax asset and, due to higher rates under the Act, the Company increased its provision for income taxes by $1.1 million. In addition, the Company recognized a favorable cumulative effect of $0.3 million due to the adoption of FAS 109 in the first quarter of 1993. The above factors resulted in record net earnings for 1993 of $75.3 million, or $1.50 per share, compared with $61.8 million, or $1.19 per share, for 1992, an increase in earnings per share of 26%. LIQUIDITY AND CAPITAL RESOURCES The Company funds its operations through internally generated funds, the sale of accounts receivable pursuant to the Fingerhut Master Trust, borrowings under the Revolving Credit Facility and issuance of long-term debt and common stock. In June 1994, the Company formed the Fingerhut Master Trust ("the Trust") to replace the Receivables Transfer Agreement (see Note 4 of the Consolidated Financial Statements). Under the Trust and (prior to its replacement) the Receivables Transfer Agreement, Fingerhut sells, on a continuous basis, an undivided interest in a pool of customer accounts receivable subject to meeting certain eligibility requirements. The Trust allowed Fingerhut to sell a greater percentage of its receivables, which had the effect of increasing the proceeds received by the Company as of December 30, 1994. Proceeds received from these sales were $1.096 billion as of December 30, 1994 and $829.0 million as of December 31, 1993. The Revolving Credit Facility was amended in October 1994 to increase the aggregate commitments to $400.0 million, which includes the issuance of up to $200.0 million in letters of credit, and extend the expiration date to October 1999. As of December 30, 1994 and December 31, 1993, the Company had no borrowings under the Revolving Credit Facility but had outstanding letters of credit of $5.8 million and $42.6 million, respectively. Additional outstanding open letters of credit under a separate agreement aggregated $34.9 million at December 30, 1994. The Company had an aggregate amount of fixed rate notes outstanding of $245.0 million as of December 30, 1994 and December 31, 1993. The Company generated $92.4 million in cash from operations in 1994 compared to $8.5 million in 1993. This net $83.9 million increase in cash from operations resulted from decreased working capital requirements partially offset by the $29.4 million decrease in earnings. The most significant items affecting working capital were a decrease in customer accounts receivable and increases in inventory, accounts payable, accrued liabilities and deferred income taxes. The change in customer accounts receivable from a $41.6 million use of cash in 1993 to a $3.7 million source of cash in 1994 resulted from the increase in the percent of accounts receivable sold as a result of the Trust. Inventories increased $7.0 million in 1994 primarily due to higher purchases reflecting planned increases in future sales. The $32.2 million increase in accounts payable compared to the $27.4 million decrease in 1993 was due to the additional week of activity during 1993 and the timing of purchases and disbursements. The increase in accrued liabilities was due to costs associated with canceling the launch of S The Shopping Network, scaling back USA Direct and provisions for corporate streamlining. Deferred income taxes increased as a result of an increase in reserve provisions relating to uncollectible accounts and the cancelation of S The Shopping Network. The Company's use of cash for investment activities of $57.5 million in 1994 increased $32.7 million compared to 1993 as a result of capital expenditures related to the facility additions discussed below, partially offset by reduced proceeds received from businesses divested at the end of 1993. Bar Graph depicting Working Capital for the last five years (in millions): 1994 $ 468.3 1993 $ 472.9 1992 $ 413.0 1991 $ 298.2 1990 $ 174.4 Three separate facility additions were approved by the Company's Board of Directors in 1994. The $20.0 million 547,000 square- foot warehouse and distribution facility expansion in St. Cloud, Minnesota, became operational during the fourth quarter. Spending through December 30, 1994 on the St. Cloud expansion was $18.7 million. Construction on a western distribution center in Spanish Fork, Utah, began in the third quarter. Spending through December 30, 1994 was $14.7 million. The remaining construction of this one million square-foot facility in 1995 and 1996 is projected to cost approximately $45.0 million. The Company also broke ground in the third quarter for a $23.0 million data and technology center in Plymouth, Minnesota, which is anticipated to be open in 1995. Spending through December 30, 1994 on the data center was $4.7 million. The owner of certain office and warehouse facilities leased to the Company exercised its right to require the Company to repurchase those facilities in 1995 for approximately $14.9 million. The Company anticipates completing the purchase on or before September 29, 1995. On January 24, 1995, the Company declared a cash dividend of $.04 per share, or an aggregate of $1.8 million, payable on February 23, 1995 to the shareholders of record as of the close of business on February 7, 1995. During 1994, the Company's Board of Directors authorized the repurchase of up to 2.5 million shares of the Company's common stock that may be made from time to time at prevailing prices in the open market or by block purchase and may be discontinued at any time. The purchases will be made within certain restrictions relating to volume, price and timing in order to minimize the impact of the purchase on the market for the Company's stock. During 1994, the Company repurchased at prevailing market prices 807,400 shares of its common stock for an aggregate of $13.4 million. The Company believes it will have sufficient funds available to meet current and future commitments. For further discussion of the above financing arrangements, see the Notes to Consolidated Financial Statements. EFFECTS OF INFLATION AND FOREIGN EXCHANGE Since the Company's inventory turns approximately four times a year, the product cost reported in the financial statements, on a first-in, first-out basis, would not have been materially different from the product cost at current prices. Also, since the Company does not rely on any particular product group or brand, management believes that the Company can adjust its product mix to reduce the effects of price changes on its overall merchandise base. Due to the timing of the Company's promotions, the Company is generally able to reflect cost increases and decreases resulting from the effects of inflation and foreign currency fluctuations in its selling prices. In addition, most foreign purchase orders are denominated in U.S. dollars. Accordingly, the results of operations for the periods discussed have not been significantly affected by these factors. Bar Graph depicting Stockholders' Equity for the last five years (in millions): 1994 $ 500.9 1993 $ 472.4 1992 $ 399.6 1991 $ 384.1 1990 $ 318.6 FINGERHUT COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands of dollars, except per share data)
For the fiscal year ended December 30, December 31, December 25, 1994 1993 1992 Revenues: Net sales $ 1,718,647 $ 1,634,009 $ 1,470,628 Finance income, net 215,738 173,899 135,486 --------- --------- --------- 1,934,385 1,807,908 1,606,114 Costs and expenses: Product cost 854,461 821,357 711,764 Administrative and selling expenses 701,582 619,009 558,416 Provision for uncollectible accounts 229,396 194,494 186,372 Discount on sale of accounts receivable 53,736 26,713 22,325 Interest expense, net 24,284 34,456 33,307 --------- --------- --------- 1,863,459 1,696,029 1,512,184 --------- --------- --------- Earnings before taxes 70,926 111,879 93,930 Provision for income taxes 25,001 36,551 32,124 --------- --------- --------- Net earnings $ 45,925 $ 75,328 $ 61,806 ========= ========= ========= Earnings per share $ .91 $ 1.50 $ 1.19 ========= ========= ========= Weighted average shares 50,270,419 50,101,739 51,937,936 ========== ========== ========== See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In thousands of dollars)
A S S E T S December 30, December 31, 1994 1993 Current assets: Cash and cash equivalents $ 85,382 $ 65,022 Customer accounts receivable, net 351,605 367,306 Inventories, net 159,048 152,029 Promotional material 59,477 57,507 Deferred income taxes 116,755 71,722 Other 19,645 8,605 ---------- ---------- Total current assets 791,912 722,191 Property and equipment, net 226,385 190,936 Excess of cost over fair value of net assets acquired, net 44,321 45,625 Customer lists, net 12,601 14,001 Other assets 22,714 15,549 ---------- ---------- $1,097,933 $ 988,302 ========== =========== L I A B I L I T I E S Current liabilities: Accounts payable $ 156,121 $ 123,927 Accrued payroll and employee benefits 39,891 38,477 Other accrued liabilities 55,595 59,185 Accrued unusual charges 29,358 - Current portion of long-term debt 336 313 Current income taxes payable 42,327 27,366 ---------- ---------- Total current liabilities 323,628 249,268 Long-term debt, less current portion 246,516 246,852 Deferred income taxes 21,762 15,459 Other non-current liabilities 5,077 4,334 ---------- ---------- 596,983 515,913 S T O C K H O L D E R S ' E Q U I T Y Preferred stock - - Common stock 456 461 Additional paid-in capital 253,926 254,984 Earnings reinvested 246,568 216,944 ---------- ---------- Total stockholders' equity 500,950 472,389 ---------- ---------- $1,097,933 $ 988,302 ========== =========== See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands of dollars)
Common stock Additional Number of Par paid-in Earnings shares value capital reinvested Total Balance, December 27, 1991 47,665,400 $ 477 $ 254,022 $ 129,650 $ 384,149 Stock repurchase (3,000,000) (30) (15,315) (29,655) (45,000) Stock retirement (523,382) (5) (2,673) (5,173) (7,851) Exercise of stock options 1,609,380 16 14,119 - 14,135 Cash dividends paid - - - (7,648) (7,648) Net earnings - - - 61,806 61,806 ---------- ------ --------- --------- --------- Balance, December 25, 1992 45,751,398 458 250,153 148,980 399,591 Exercise of stock options 397,050 3 4,831 - 4,834 Cash dividends paid - - - (7,364) (7,364) Net earnings - - - 75,328 75,328 ---------- ------ --------- --------- --------- Balance, December 31, 1993 46,148,448 461 254,984 216,944 472,389 Stock repurchase (807,400) (8) (4,493) (8,900) (13,401) Exercise of stock options 211,025 2 3,033 - 3,035 Employee stock purchase plan 20,582 1 402 - 403 Cash dividends paid - - - (7,401) (7,401) Net earnings - - - 45,925 45,925 ---------- ------ --------- --------- --------- Balance, December 30, 1994 45,572,655 $ 456 $ 253,926 $ 246,568 $ 500,950 ========== ====== ========= ========= ========= See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars)
For the fiscal year ended December 30, December 31, December 25, 1994 1993 1992 Cash flows from operating activities: Net earnings $ 45,925 $ 75,328 $ 61,806 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 37,693 29,708 18,019 Change in assets and liabilities, excluding the effects of business divestitures: Customer accounts receivable, net 3,662 (41,621) 10,718 Inventories, net (7,019) (27,739) (26,954) Promotional material and other current assets (13,010) (9,872) (6,425) Accounts payable 32,194 (27,374) 23,899 Accrued payroll and employee benefits 1,414 3,279 3,488 Accrued liabilities 26,599 (8,504) 3,247 Current income taxes payable 16,464 8,914 13,372 Deferred and other income taxes (40,664) 6,980 13,073 Other (10,869) (640) (11,995) --------- --------- --------- Net cash provided by operating activities 92,389 8,459 102,248 --------- --------- --------- Cash flows from investing activities: Additions to property and equipment (69,578) (51,771) (50,900) Proceeds from business divestitures 12,039 26,889 - --------- --------- --------- Net cash used by investing activities (57,539) (24,882) (50,900) --------- --------- --------- Cash flows from financing activities: Proceeds from long-term debt - 45,000 135,000 Repayments of long-term debt (313) (45,402) (280) Revolving credit facility - - (57,000) Repurchase of common stock (8,706) - (45,000) Issuance of common stock 1,930 2,529 1,036 Cash dividends paid (7,401) (7,364) (7,648) --------- --------- --------- Net cash (used) provided by financing activities (14,490) (5,237) 26,108 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 20,360 (21,660) 77,456 Cash and cash equivalents at beginning of year 65,022 86,682 9,226 --------- --------- --------- Cash and cash equivalents at end of year $ 85,382 $ 65,022 $ 86,682 ========= ========= ========= Supplemental noncash investing and financing activities: Fixed assets retired under capital lease $ - $ - $ 11,064 Capital lease retired $ - $ - $ 12,214 Noncash retirement of common stock $ - $ - $ 7,851 Noncash exercise of stock options $ - $ - $ 7,851 Tax benefit from exercise of non-qualified stock options $ 1,508 $ 2,305 $ 5,248 Accrued stock repurchase $ 4,695 $ - $ - The Company included in cash and cash equivalents liquid investments with maturities of fifteen days or less. See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION Fingerhut Companies, Inc. (the "Company") is a direct-to-the-consumer marketing company selling a broad range of products and services to consumers via catalogs, television and other media. Prior to 1990, the Company was privately held, primarily by a wholly owned subsidiary of The Travelers Inc. ("Travelers"), formerly Primerica Corporation. In May 1990, the Company became a publicly held company upon completion of a secondary public offering in which Travelers sold a portion of its common stock. Travelers reduced its ownership to zero through subsequent public offerings and sales in 1991, 1992 and 1993, including the Company's December 1992 repurchase of 3,000,000 shares at an aggregate amount of $45.0 million. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries and the Company's investment in and 50% share of net earnings or losses of Montgomery Ward Direct, after elimination of all material intercompany transactions and balances. At December 30, 1994 and December 31, 1993, the Company's principal subsidiaries were Fingerhut Corporation, Figi's Inc. and USA Direct Incorporated. Reclassifications have been made to prior years' Consolidated Financial Statements whenever necessary to conform to the current year's presentation. Fiscal Year The fiscal years ended December 30, 1994 and December 25, 1992 included 52 weeks. The fiscal year ended December 31, 1993 included 53 weeks. Revenue Recognition Substantially all sales are made on the installment contract basis. Finance income on installment contracts (net of estimated returns and exchanges, allowances, uncollectible amounts and collection costs) is recognized using an effective interest method over the weighted average of the contract periods (which approximates sixteen months) or when collected, whichever is faster. When accounts receivable are sold (see Note 4), finance income, net, is recognized. Sales are recorded at the time of shipment and a provision for anticipated merchandise returns, net of exchanges, is recorded based upon historical experience. The provision charged against sales for 1994, 1993 and 1992 amounted to $275.3 million, $253.2 million and $218.5 million, respectively. Amounts billed to customers for shipping and handling of orders are netted against the associated costs. Earnings Per Share Earnings per share is computed by dividing net earnings by the weighted average shares of common stock and common stock equivalents outstanding during the year. The dilutive effect of the potential exercise of outstanding options to purchase shares of common stock is calculated using the treasury stock method. Inventories Inventories, principally merchandise, are stated at the lower of cost (as determined on a first-in, first-out basis) or market. Promotional Material Promotional material primarily includes free gifts and items in inventory associated with direct response advertising (paper, printing and postage). Pursuant to Statement of Position 93-7, "Reporting on Advertising Costs", the cost of mailed or aired direct response advertising is deferred and expensed over the period during which the orders are expected, generally one to four months. The amount of mailed or aired direct response advertising included in the Consolidated Statement of Financial Position is not material. The cost of non-direct response advertising is expensed as incurred. Property and Equipment Property and equipment are stated at cost and depreciated or amortized on a straight-line basis over their estimated economic useful lives (30 years for buildings; 5 years for software; 3 to 10 years for machinery and equipment, furniture and fixtures; and over the estimated useful life of the property or the life of the lease, whichever is shorter, for leasehold improvements). The Company capitalizes software developed for internal use that represents major enhancements and replacements of operating and management information systems. Intangible Assets The excess of cost over fair value of net assets acquired is amortized on a straight-line basis over 40 years. The ongoing cost of developing and maintaining customer lists is charged to operations as incurred. Customer lists obtained by the acquisition of a business are capitalized at fair market value and amortized over their estimated useful lives, approximately fifteen years. Management periodically assesses the carrying amount and amortization period of its intangible assets and has concluded that they are realizable. Income Taxes The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes". Under the guidelines of FAS 109, the Company provides for deferred taxes on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities that will result in future taxable or deductible amounts. The Company provides for deferred taxes at the enacted tax rate that is expected to apply when the temporary differences reverse. 3. UNUSUAL ITEMS In the fourth quarter of 1994, the Company recorded an after-tax charge of $19.4 million, or $.39 per share, relating to the cancelation of its proposed 24-hour cable television shopping channel. The $29.9 million pre-tax charge covered the costs of closing down S The Shopping Network and substantially scaling back USA Direct, as well as provisions for corporate streamlining. The charge included $6.8 million for the cost of severance and related employee benefits to approximately 100 employees throughout all levels of the Company and $23.1 million for the write-off and disposition of assets and anticipated costs of fulfilling contractual commitments. A summary of the change in the Company's reserve for unusual charges is as follows:
Accrued unusual Provision for Reserves charges at (In thousands of dollars) unusual charges utilized December 30, 1994 Product costs $ 5,253 $ - $ 5,253 Administrative and selling expenses 21,230 459 20,771 Provision for uncollectible accounts 3,434 100 3,334 -------- -------- -------- $ 29,917 $ 559 $ 29,358 ======== ======== ========
In December 1993, the Company signed a letter of intent to sell certain assets of Figi's. The effects of the Figi's transaction were recorded in the fourth quarter of 1993 with the net amounts anticipated to be received from the sale included in other assets as of December 31, 1993. During the fourth quarter of 1994, the intended purchaser of Figi's was unable to complete its financing. As a result, the Company reversed the effects of the sale. This did not have a material impact on earnings. As of December 30, 1994, the Company reclassified the assets and liabilities of Figi's to their respective Statement of Financial Position captions. In 1993, the Company sold certain assets of COMB and FDC. The net financial results of these divestitures did not have a material impact on earnings. 4. SALE OF ACCOUNTS RECEIVABLE The Receivables Transfer Agreement was replaced with the Fingerhut Master Trust ("the Trust") in June 1994. The Trust allows Fingerhut to sell, on a continuous basis, an undivided interest in a pool of customer accounts receivables, subject to meeting certain eligibility requirements. In June 1994, the Trust issued the Series 1994-1 certificates which raised $900.0 million of proceeds. In November 1994, the Trust issued the Series 1994-2 certificates with aggregate commitments totaling $490.4 million. The Series 1994-1 certificates and the Series 1994-2 certificates enter into amortization periods beginning December 1996 and October 1997, respectively. Under the Trust, Fingerhut sold a greater percentage of its receivables, which had the effect of increasing the proceeds received by the Company as of December 30, 1994. The proceeds from the sale of accounts receivable were $1.096 billion and $829.0 million as of December 30, 1994 and December 31, 1993, respectively. The Company's retained interest in the Trust was approximately $184.2 million as of December 30, 1994. The holdback under the Receivables Transfer Agreement, which represented the Company's interest under that agreement, was approximately $227.0 million at December 31, 1993. Both the retained interest and the holdback were included in the Company's Statements of Financial Position under "Customer accounts receivable, net". A credit risk exists for losses on receivables in which the purchasers have an undivided interest, up to the amount of Fingerhut's retained interest in the Trust for 1994 and the holdback amount for 1993. Any losses beyond that level are the responsibility of the purchasers. "Discount on sale of accounts receivable" is comprised of the interest, discount and administrative and other fees paid or due to the purchasers of the accounts receivable sold. The discount, determined under the Trust and the Receivables Transfer Agreement, approximates the prevailing short-term LIBO rates and commercial paper rates for high grade unsecured notes, respectively, plus administrative fees. The rates (including administrative fees) applicable to receivables sold as of December 30, 1994 and December 31, 1993 were 6.3% and 4.0%, respectively. The Company has included in "Other accrued liabilities" the estimated expenses related to the subsequent collections of the receivables sold ($18.5 and $15.0 million for 1994 and 1993, respectively). 5. CUSTOMER ACCOUNTS RECEIVABLE Substantially all of the Company's customer accounts receivable were generated by Fingerhut and Figi's Inc. Fingerhut uses fixed term, fixed payment installment plans with terms generally up to 32 months (excluding deferred billing periods of generally four to five months) and finance charge rates ranging from 18% to 24.9%. Figi's Inc. uses fixed term, fixed payment plans with terms up to three months (excluding deferred billing periods of up to approximately three months) with no finance charge. Customer accounts receivable are classified as current assets and include some which are due after one year, consistent with industry practice. Customer accounts receivable, net of amounts sold, consists of the following:
(In thousands of dollars) 1994 1993 Due from customers $ 484,158 $ 504,552 Reserve for uncollectible accounts, net of anticipated recoveries (81,271) (74,410) Reserve for returns and exchanges (14,889) (18,988) Other reserves (17,223) (19,135) Net collectible amount 370,775 392,019 Unearned finance income (19,170) (24,713) ---------- ---------- Customer accounts receivable, net $ 351,605 $ 367,306 ========== ==========
Other reserves consist primarily of allowances for anticipated adjustments of finance charges billed to customers (due to earlier than scheduled payment) and anticipated costs required to collect customer accounts. The Company's customer base is dispersed throughout the United States. As a consequence, concentrations of credit risk are limited. 6. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
(In thousands of dollars) 1994 1993 Land and improvements $ 4,981 $ 4,931 Buildings and leasehold improvements 65,511 61,982 Construction in progress 39,176 11,618 Machinery and equipment 101,315 79,666 Software 90,492 76,232 Other, principally furniture and fixtures 14,922 13,582 --------- --------- 316,397 248,011 Less: Accumulated depreciation (62,353) (43,612) Accumulated amortization of software (27,659) (13,463) --------- --------- $ 226,385 $ 190,936 ========= =========
The capitalized software amortization expense recorded in 1994, 1993 and 1992 was $14.3 million, $10.5 million and $2.9 million, respectively. 7. REVOLVING CREDIT FACILITY The Revolving Credit Facility was amended in October 1994 to increase the aggregate commitments to $400.0 million, which includes the issuance of up to $200.0 million in letters of credit, and extend the expiration date to October 1999. The proceeds from borrowings under the Revolving Credit Facility are to be used by the Company to provide for working capital and for other general corporate purposes. The Company's obligations under the Revolving Credit Facility are secured by a pledge of the capital stock of substantially all its subsidiaries. The following is a summary of the Revolving Credit Facility:
(In thousands of dollars) 1994 1993 1992 Balance at year-end $ - $ - $ - Interest rate at year-end 8.5% 6.0% 6.0% Maximum month-end borrowing during the year $ 20,000 $ 8,000 $ 84,000 Average daily borrowing during the year $ 918 $ 1,364 $ 36,503 Weighted average interest rate during the year 7.4% 6.0% 6.3%
The outstanding portion of open letters of credit, primarily established to facilitate international merchandise purchases, was not reflected in the accompanying financial statements and aggregated $40.7 million at December 30, 1994. 8. LONG-TERM DEBT Long-term debt and related maturity dates are as follows:
(In thousands of dollars) 1994 1993 Private placements: Senior Notes Maturity date Interest rate Series A June 1996 9.81% $ 65,000 $ 65,000 Series B December 1997 10.12% 25,000 25,000 Series C August 1996 9.74% 20,000 20,000 Series D August 1996 6.96% 15,000 15,000 Series A Unsecured June 2002 8.92% 60,500 60,500 Series B Unsecured June 2004 8.92% 14,500 14,500 Series C Unsecured August 2000 6.83% 45,000 45,000
Other indebtedness (due in various installments through November 2014; interest at varying rates ranging from 5.87% to 8.5% at December 30, 1994) 1,852 2,165 ---------- ---------- 246,852 247,165 Current portion of long-term debt (336) (313) $ 246,516 $ 246,852 ========== ==========
The Senior Notes are secured by a pledge of the capital stock of substantially all of the Company's subsidiaries. Scheduled annual maturities due on long-term debt at December 30, 1994 were as follows: (In thousands of dollars) 1995 $ 336 1996 $100,054 1997 $ 25,054 1998 $ 54 1999 $ 46 Thereafter $121,308 The Senior Notes contain covenants restricting the payment of dividends. The maximum amount of dividends the Company was permitted to pay at December 30, 1994 was $79.9 million. 9. FINANCIAL INSTRUMENTS FAIR VALUE OF FINANCIAL INSTRUMENTS This discloses the fair value of all financial instruments, both assets and liabilities, recognized and not recognized, in the Consolidated Statements of Financial Position for which it is practicable to estimate fair value. Quoted market prices generally are not available for all of the Company's financial instruments. Accordingly, fair values are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates involve uncertainties and matters of judgement, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. A description of the methods and assumptions used to estimate the fair value of each class of the Company's financial instruments is as follows: Cash and cash equivalents, Accounts payable, Accrued payroll and employee benefits, Other accrued liabilities and Accrued unusual charges The carrying amounts approximate fair value due to the short maturity of these instruments. Customer accounts receivable, net As the average collection period for these exceeds 90 days, the discounted present value of expected future cash flows from the collection of the receivables and related deferred finance income were calculated and it was determined that the carrying amount approximates fair value. Sale of accounts receivable The carrying amount of the Company's retained interest in the Trust or holdback under the Receivables Transfer Agreement approximates fair value, as it was determined that "Customer accounts receivable, net" approximates fair value. Long-term debt The fair value of the Company's long-term debt was estimated based on the amount of future cash flows associated with each instrument discounted using the current rates offered to the Company for similar debt instruments of comparable maturity. Interest rate cap and swap agreements The fair values of interest rate cap and swap agreements were obtained from dealer quoted prices. These values represent the estimated amount the Company would pay to terminate the agreements, taking into consideration current interest rates and the current creditworthiness of the counterparties. The estimated fair values of the Company's financial instruments are summarized as follows:
1994 1993 Carrying Estimated Carrying Estimated (In thousands of dollars) amount fair value amount fair value Cash and cash equivalents $ 85,382 $ 85,382 $ 65,022 $ 65,022 Sale of accounts receivable $ 184,200 $ 184,200 $ 227,000 $ 227,000 Long-term debt $ 246,852 $ 243,335 $ 247,165 $ 268,641 Interest rate swap agreements in a net payable position $ - $ - $ - $ 3,000 Interest rate cap agreements $ 7,887 $ 6,185 $ - $ -
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING In 1994, the Company entered into interest-rate cap agreements to hedge its economic exposure to increasing interest rates on the sale of accounts receivable under the Fingerhut Master Trust. At December 30, 1994, the Company had two agreements in place which effectively cap short-term LIBOR at 6.5% until interest rates exceed 11.7%, on an aggregate notional amount of $500.0 million relating to Series 1994-1 certificates. The certificates themselves are capped at LIBOR equal to 11.7%. The $5.1 million premium paid for these interest-rate cap agreements is included in other current assets and is being amortized to interest expense ratably over the remaining term of the agreements. The Series 1994-2 certificates required an additional agreement which effectively caps short-term LIBOR at 11.2% on a notional amount that varies over the life of the agreement. At December 30, 1994, the effective notional amount was $300.0 million. The $2.9 million premium paid for this interest rate cap agreement is included in other assets and is being amortized to "Discount on sale of accounts receivable" over the remaining term of the agreement. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate cap agreements. However, the Company does not anticipate nonperformance by the counterparties. Fingerhut entered into interest rate swap agreements during 1990 totalling $260.0 million. The agreements exchanged a variable rate, which approximated the prevailing short-term commercial paper rate, for a fixed interest rate of 9.5%. $160.0 million of the interest rate swap agreements expired on June 30, 1993. The remaining $100.0 million expired on June 30, 1994. 10. INTEREST EXPENSE Net interest expense was as follows:
(In thousands of dollars) 1994 1993 1992 Interest expense $ 25,711 $ 34,852 $ 33,537 Interest income 1,427 396 230 -------- -------- -------- Net interest expense $ 24,284 $ 34,456 $ 33,307 ======== ======== ========
The Company paid interest of $25.1 million in 1994, $45.1 million in 1993 and $30.4 million in 1992. 11. OPERATING LEASES Rental expense for both cancelable and noncancelable operating leases, (principally for office and warehouse facilities and computer equipment) for the fiscal years 1994, 1993 and 1992 was $39.8 million, $39.1 million and $34.1 million, respectively. Future minimum annual rentals at December 30, 1994, under noncancelable operating leases are as follows: (In thousands of dollars) 1995 $27,108 1996 $18,400 1997 $13,345 1998 $ 5,720 1999 $ 3,193 Thereafter $ 61 The Company leases certain office and warehouse facilities (the "properties") from an affiliated company of Travelers. The leases provide for a term of 17 years, with rental payments subject to increases every three years. Annual rental expense for 1994, 1993 and 1992 was $1.7 million. In December 1994, the lessor exercised its right to require the Company to purchase the properties in 1995 for approximately $14.9 million. The Company anticipates completing the purchase on or before September 29, 1995. 12. EMPLOYEE BENEFIT PLANS The Company maintains two noncontributory, defined benefit pension plans which cover substantially all full-time nonunion employees. The plans provide monthly retirement benefits to eligible participants based upon years of service and level of compensation. The Company's funding policy is to make an annual contribution equal to, or exceeding, the minimum required by the Employee Retirement Income Security Act of 1974. The actuarial present value of the benefit obligation and the funded status of the plans were as follows:
(In thousands of dollars) 1994 1993 Actuarial present value of benefit obligations: Vested benefits $12,459 $13,520 Non-vested benefits 1,398 968 -------- -------- Accumulated benefit obligation 13,857 14,488 Effect of future compensation increases 6,285 9,887 -------- -------- Projected benefit obligation 20,142 24,375 Plan assets at fair value 14,450 13,646 -------- -------- Unfunded projected benefit obligation 5,692 10,729 Unrecognized prior service cost (71) (319) Unrecognized net gain (loss) 2,708 (3,633) -------- -------- Accrued pension cost $ 8,329 $ 6,777 ======== ========
Plan assets at December 30, 1994 and December 31, 1993 were primarily invested in an equity fund. The actuarial present value of the projected benefit obligations represents the present value of benefits to be paid in the future under current provisions of the plan based on accumulated service to date and assuming future annual pay increases of 5.5% in 1994 and 1993. Projected benefits have been discounted using rates of 8.50% and 7.25% for 1994 and 1993, respectively. In determining pension expense, the assumed long-term rate of return on plan assets was 9.5% for 1994, 1993 and 1992. The Company's nonunion pension plans have vesting periods of five years. The components of pension expense for nonunion employees were as follows:
(In thousands of dollars) 1994 1993 1992 Benefit earned during the period $ 2,460 $ 1,984 $ 1,655 Interest accrued on projected benefit obligation 1,822 1,448 1,237 Actual return on assets (262) (1,577) (1,420) Deferred (loss) gain (1,038) 472 467 Amortization of prior service cost 5 20 20 Amortization of net loss 44 - - -------- -------- -------- Pension expense for the period $ 3,031 $ 2,347 $ 1,959 ======== ======== ========
Additionally, the Company participates in a multi-employer pension plan for all union employees. The plan provides monthly retirement benefits to eligible participants based upon years of service. The plan is funded with contributions made in accordance with negotiated labor contracts. The pension expense related to this plan for 1994, 1993 and 1992 was $1.6 million, $1.3 million and $0.8 million, respectively. The Company also has several defined contribution plans (some of which have, or are limited to, 401(k) provisions) covering substantially all nonunion employees. Employer contributions to the plans are discretionary and are determined by the Board of Directors for each of the individual companies. The maximum contribution allowed is 15% of each participant's eligible compensation. The cost to the Company of these plans was $11.2 million, $14.1 million and $12.9 million for 1994, 1993 and 1992, respectively. In 1994, the Company adopted Statement of Financial Accounting Standards No. 112 ("FAS 112"), "Employers' Accounting for Postemployment Benefits". The impact of FAS 112 was not significant to the Company's financial statements. 13. INCOME TAXES The provision for income taxes consisted of the following:
(In thousands of dollars) 1994 1993 1992 Currently payable: Federal $ 62,645 $ 23,407 $ 32,318 State 1,139 611 1,281 Deferred (38,783) 12,533 (1,475) --------- --------- --------- $ 25,001 $ 36,551 $ 32,124 ========= ========= =========
The Company's effective income tax rate differed from the U.S. federal statutory rate as follows:
1994 1993 1992 U.S. federal statutory rate 35.0% 35.0% 34.0% State income taxes, net of federal tax benefit .7 .5 .9 Merchandise donations (2.6) (.9) (1.1) Effect of change in federal tax rate on net deferred income tax asset - (1.7) - Other, net 2.1 (.2) .4 ------ ------ ------ Effective income tax rate 35.2% 32.7% 34.2% ====== ====== ======
The "Other, net" tax rate in 1994, 1993 and 1992 was composed of miscellaneous items, none of which were individually significant. The current and long-term deferred income tax assets and liabilities included in the Consolidated Statements of Financial Position as of December 30, 1994 and December 31, 1993 were composed of the following:
(In thousands of dollars) 1994 1993 Current and long-term deferred income tax assets resulting from future deductible temporary differences are: Accounts receivable reserves $ 166,846 $ 133,501 Yield reserve 9,697 5,053 Inventory capitalization 3,692 4,382 Inventory obsolescence reserves 7,016 7,218 Reserve for unusual charges 8,585 - Other 10,696 18,975 ----------- ----------- $ 206,532 $ 169,129 =========== ===========
Current and long-term deferred income tax liabilities resulting from future taxable temporary differences are: Accelerated depreciation and amortization $ (24,658) $ (30,854) Deferred finance income (80,930) (62,930) Deferred advertising (4,513) (5,748) Other (1,438) (13,334) ----------- ----------- $ (111,539) $ (112,866) =========== ===========
Management believes, based on the Company's history of prior operating earnings and its expectations for the future, that operating income of the Company will be sufficient to fully utilize the deferred tax assets included in its financial statements. The Company paid income taxes (net of refunds) of $47.3 million, $21.5 million and $4.8 million during 1994, 1993 and 1992, respectively. These payments of income taxes included a refund from Travelers during 1993 of $0.6 million and a payment to Travelers during 1992 of $9.0 million. The 1992 payments to Travelers consisted of $2.9 million for interest and $6.1 million for income taxes related to Internal Revenue Service audits of prior years' tax returns. These amounts resulted in the creation of a current deferred tax asset or were accrued at December 27, 1991, in current taxes payable. During the time that Travelers owned 80% or more of the Company, income taxes were calculated substantially on a stand alone basis under an income tax allocation agreement with Travelers. 14. RELATED PARTY TRANSACTIONS In 1992, the Company paid Travelers $1.7 million which related primarily to retrospectively rated workers compensation insurance which the Company obtained through Travelers prior to April 1, 1989. These payments were under an agreement with Travelers which also calls for ongoing reimbursement for all retrospectively rated policies. For other related party transactions, the following list details the subject and Note reference: Operating leases Note 11 Income taxes Note 13 Stockholders' equity - stock redemption Note 15 15. STOCKHOLDERS' EQUITY The Company currently has 100,000,000 authorized shares of $.01 par value common stock of which 45,572,655 and 46,148,448 were issued and outstanding as of December 30, 1994 and December 31, 1993, respectively. 5,000,000 shares of $.01 par value preferred stock are authorized, none of which have been issued. On May 12, 1994 and November 21, 1994, the Company's Board of Directors authorized the repurchase of up to 500,000 shares and 2,000,000 shares, respectively, of the Company's common stock that may be made from time to time at prevailing prices in the open market or by block purchase and may be discontinued at any time. The purchases will be made within certain restrictions relating to volume, price and timing in order to minimize the impact of the purchase on the market for the Company's stock. During 1994, the Company repurchased at prevailing market prices 807,400 shares of its common stock for an aggregate of $13.4 million. Effective July 1, 1994, the Company made available to certain employees the Fingerhut Employee Stock Purchase Plan under which eligible employees have the opportunity to purchase Company common stock at a discounted market value determined on the first or last business day of the calendar quarter, whichever is lower. A maximum of 250,000 shares are authorized. During 1994, 20,582 shares were issued at $19.55 per share. The Fingerhut Companies, Inc. Stock Option Plan provides certain management of the Company with options to purchase up to 7,768,000 shares of common stock of which 177,725 were available for grant at December 30, 1994. The options are granted at the fair market value on the date of grant. The options become exercisable in five equal annual installments beginning on the first anniversary of the date of grant. Unexercised options will be canceled ten years and one month after the date of grant. The Fingerhut Companies, Inc. Performance Enhancement Investment Plan ("PEIP Plan") provides certain management of the Company with the right to purchase options to acquire up to 3,000,000 shares of common stock, of which 786,924 were available for grant at December 30, 1994. Under the PEIP Plan, management will be offered the opportunity to purchase option units, each consisting of four options to purchase common stock, with exercise prices of 110%, 120%, 130% and 140%, respectively, of the fair market value at the time of grant. The options are offered at prices determined by the Company on the grant date. The options granted in 1993 become exercisable in four equal installments beginning on January 1, 1995. The options granted in 1994 become exercisable in four equal installments beginning on the first anniversary of the grant date. Unexercised options will be repurchased at an amount equal to or less than the purchase price on the earlier of the optionee's termination of employment or the seventh anniversary of the grant date. All purchase prices are included in "Accrued payroll and employee benefits" in the Consolidated Statement of Financial Position. The Fingerhut Companies, Inc. 1992 Stock Option and Long-Term Incentive Plan provides certain management of the Company with options to purchase up to 523,382 shares of common stock. In 1992, the Company granted the Chairman and Chief Executive Officer non-qualified options to purchase 523,382 shares of common stock with an option price of $15.00, the fair market value at the date of grant. In November 1993, 50% of these options became exercisable, 50% became exercisable in November 1994 and all expire in December 1999. In December 1992, the Chairman and Chief Executive Officer exercised options to purchase 1,439,180 shares by tendering to the Company 523,382 shares of the Company's stock at the market value of $15.00 per share. The following table summarizes the activity of the stock option plans:
Non-qualified stock Option option shares prices Outstanding Exercisable (In dollars) Balance at December 27, 1991 7,396,650 2,624,300 $ 5.45-$15.12 Granted 826,382 - 12.37- 17.50 Canceled/forfeited (269,300) - 5.45- 15.75 Exercisable - 1,438,250 5.45- 15.12 Exercised (1,609,380) (1,609,380) 5.45- 10.50 ----------- ----------- -------------- Balance at December 25, 1992 6,344,352 2,453,170 5.45- 17.50 Granted 2,652,076 - 15.12- 34.25 Canceled/forfeited (264,600) - 5.45- 28.04 Exercisable - 1,720,441 5.45- 17.50 Exercised (397,050) (397,050) 5.45- 15.56 ----------- ----------- -------------- Balance at December 31, 1993 8,334,778 3,776,561 5.45- 34.25 Granted 484,500 - 17.00- 42.64 Canceled/forfeited (664,375) (4,000) 5.45- 35.69 Exercisable - 1,163,284 5.45- 42.25 Exercised (211,025) (211,025) 5.45- 17.50 ----------- ----------- -------------- Balance at December 30, 1994 7,943,878 4,724,820 $ 5.45-$42.64 =========== =========== ==============
In connection with the December 1992 secondary public offering, the Company repurchased 3,000,000 shares of its common stock from a subsidiary of Travelers at $15.00 per share, or an aggregate amount of $45.0 million. 16. OTHER DISCLOSURES Administrative and selling expenses included promotional material and advertising expenses of $434.2 million, $391.0 million and $371.9 million for 1994, 1993 and 1992, respectively. Amortization expense relating to the excess of cost over fair value of net assets acquired was $1.3 million for 1994, 1993 and 1992. Accumulated amortization was $7.8 million and $6.5 million at December 30, 1994 and December 31, 1993, respectively. Amortization expense relating to customer lists was $1.4 million for 1994 and $1.5 million for 1993 and 1992. Accumulated amortization was $8.4 million and $7.0 million at December 30, 1994 and December 31, 1993, respectively. 17. CONTINGENCIES The Company is a party to various claims, legal actions, sales tax disputes and other complaints arising in the ordinary course of business. In the opinion of management, any losses which may occur are adequately covered by insurance, are provided for in the financial statements, or are without merit and the ultimate outcome of these matters will not have a material effect on the consolidated financial position or operations of the Company. 18. SUBSEQUENT EVENT On January 24, 1995, the Company declared a cash dividend of $.04 per share, or an aggregate of $1.8 million, payable on February 23, 1995 to shareholders of record as of the close of business on February 7, 1995. FINGERHUT COMPANIES, INC. AND SUBSIDIARIES REPORT OF MANAGEMENT To the Shareholders of Fingerhut Companies, Inc.: The Company is responsible for the information presented in this annual report. The consolidated financial statements contained herein were prepared in accordance with generally accepted accounting principles and were based on informed judgments and management's best estimates where appropriate. Financial information elsewhere in this annual report is consistent with that contained in the consolidated financial statements. The Company maintains a system of internal controls designed to provide reasonable assurance, at suitable costs, that assets are safeguarded and transactions are executed in accordance with established procedures. The system of internal controls includes Standards of Ethical Business Conduct, widely communicated to employees, which are designed to require them to maintain high ethical standards in their conduct of Company affairs, written procedures that provide for appropriate evidence of authority and a program of internal audit with management follow-up. The Company's consolidated financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants, whose appointment was ratified by shareholder vote at the 1994 annual shareholders' meeting. Their audit was conducted in accordance with generally accepted auditing standards. As part of their audit of the Company's 1994 consolidated financial statements, our independent accountants considered the Company's system of internal controls structure to the extent they deemed necessary to determine the nature, timing and extent of their audit tests. The Audit Committee of the Board of Directors is composed entirely of independent directors. This Committee supervises and reviews the Company's accounting practices; recommends to the Board the independent auditors; reviews the audit plans, scope, findings, reports and recommendations; and reviews the Company's financial controls, procedures and practices. The independent public accountants and the internal auditors have free access to the Audit Committee without management present. /s/ Theodore Deikel Theodore Deikel Chairman of the Board, Chief Executive Officer and President /s/ Daniel J. McAthie Daniel J. McAthie Senior Vice President and Chief Financial Officer INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Fingerhut Companies, Inc.: We have audited the accompanying consolidated statements of financial position of Fingerhut Companies, Inc. and Subsidiaries (the "Company") as of December 30, 1994 and December 31, 1993 and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the fiscal years in the three-year period ended December 30, 1994. 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 generally accepted auditing standards. 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 consolidated financial position of Fingerhut Companies, Inc. and Subsidiaries as of December 30, 1994 and December 31, 1993, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended December 30, 1994 in conformity with generally accepted accounting principles. /s/KPMG Peat Marwick LLP Minneapolis, Minnesota January 23, 1995 Quarterly Financial -- Fiscal Year Summaries
(In thousands of dollars, 1994 except per share data) First Second Third Fourth (b) Total Revenues $ 362,144 $ 446,031 $ 429,445 $ 696,765 $1,934,385 Gross margin (a) $ 164,292 $ 191,487 $ 193,695 $ 314,712 $ 864,186 Net earnings $ 9,973 $ 16,192 $ 7,087 $ 12,673 $ 45,925 Earnings per share $ .20 $ .32 $ .14 $ .26 $ .91 1993 First Second Third Fourth Total Revenues $ 371,807 $ 420,835 $ 379,313 $ 635,953 $1,807,908 Gross margin (a) $ 169,371 $ 187,269 $ 162,944 $ 293,068 $ 812,652 Net earnings $ 7,764 $ 12,976 $ 13,759 $ 40,829 $ 75,328 Earnings per share $ .16 $ .26 $ .27 $ .81 $ 1.50 (a) Gross margin is equal to net sales less product cost. (b) Fourth quarter 1994 results included an after-tax charge of $19.4 million from unusual items, as well as the results of Figi's for the year. See Note 3 to the Consolidated Financial Statements.
Stock Data The Company's common stock is traded under the symbol "FHT" on the New York Stock Exchange. As of February 28, 1995, there were 696 holders of record of the Company's common stock.
1994 First Second Third Fourth Year Common stock price: High $ 33-1/4 $ 32 $ 29-1/2 $ 23-7/8 $ 33-1/4 Low $ 25-1/4 $ 22-5/8 $ 21-5/8 $ 14 $ 14 Dividends paid $ .04 $ .04 $ .04 $ .04 $ .16 1993 First Second Third Fourth Year Common stock price: High $ 20-3/8 $ 22-1/2 $ 29-1/8 $ 30-5/8 $ 30-5/8 Low $ 14-7/8 $ 19-1/8 $ 21-1/8 $ 24 $ 14-7/8 Dividends paid $ .04 $ .04 $ .04 $ .04 $ .16
Dividend Policy The Company intends to pay regular quarterly cash dividends and expects to retain a substantial portion of its net earnings to fund future growth. The declaration and payment of dividends will be subject to the discretion of the Board of Directors, and there can be no assurance that any dividends will be paid in the future. In determining whether to pay dividends (as well as the amount and timing thereof), the Board of Directors will consider a number of factors including the Company's results of operations, financial condition, future capital requirements and any applicable restrictive provisions in any financing agreements. See Note 8 for dividend restrictions. Independent Auditors' Report The Board of Directors and Stockholders of Fingerhut Companies, Inc.: Under date of January 23, 1995, we reported on the consolidated statements of financial position of Fingerhut Companies, Inc. and subsidiaries as of December 30, 1994 and December 31, 1993, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 30, 1994, as contained in the 1993 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1994. In connection with our audits of the aforementioned consolidated financial statements, we have also audited the related financial statement schedule as listed in the accompanying index. 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. /s/KPMG Peat Marwick LLP Minneapolis, Minnesota January 23, 1995 SCHEDULE VIII FINGERHUT COMPANIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 30, 1994, DECEMBER 31, 1993 AND DECEMBER 25, 1992 (In thousands of dollars)
Additions charged to Balance at cost, Balance at beginning expenses, end Description of period revenues Deductions of period Accounts receivable reserves: 1994 $112,533 $749,900 $749,050 (a) $113,383 1993 $120,334 $646,702 $654,503 (a) $112,533 1992 $115,616 $576,234 $571,516 (a) $120,334 Inventory reserves: 1994 $ 19,328 $ 27,913 $ 29,139 (b) $ 18,102 1993 $ 15,184 $ 21,260 $ 17,116 (b) $ 19,328 1992 $ 16,775 $ 16,666 $ 18,257 (b) $ 15,184 (a) Primarily represents reductions in the reserves for actual returns and exchanges, allowances, uncollectible amounts (net of recoveries) and collection costs. And also, includes the reserves related to the accounts receivable sold under the Fingerhut Master Trust and Receivables Transfer Agreement. (b) Primarily represents inventory sold to liquidators and returned to vendors.
EX-22 7 Exhibit 22 SUBSIDIARIES OF FINGERHUT COMPANIES, INC.* Names State of Incorporation Fingerhut Corporation Minnesota Direct Merchants Credit Card Bank, N.A. United States** Fingerhut Financial Services Corporation Minnesota Tennessee Distribution, Inc. Minnesota USA Direct Incorporated Minnesota Figi's Inc. Wisconsin *The names of certain subsidiaries have been omitted because considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary. **A national banking association. EX-23 8 Exhibit 23 Consent of Independent Certified Accountants The Board of Directors Fingerhut Companies, Inc.: We consent to incorporation by reference in the registration statements (No. 33-38988 and 33-55871) on Form S-8 of Fingerhut Companies, Inc. and subsidiaries of our reports dated January 23, 1995 relating to the consolidated statements of financial position of Fingerhut Companies, Inc. as of December 30, 1994 and December 31, 1993 and the related consolidated statements of earnings, changes in stockholders' equity and cash flows and the related financial statements schedule for each of the years in the three-year period ended December 30, 1994, which reports appear in the December 30, 1994 annual report on Form 10-K of Fingerhut Companies, Inc. KPMG Peat Marwick LLP Minneapolis, Minnesota March 29, 1995 EX-27 9
5 This schedule contains summary financial information extracted from the Registrant's Consolidated Financial Statements for the fiscal year ended December 30, 1994 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-30-1994 DEC-30-1994 85,382 0 484,158 132,553 159,048 791,912 316,397 90,012 1,097,933 323,628 246,516 456 0 0 500,494 1,097,933 1,718,647 1,934,385 854,461 1,785,439 53,736 229,396 24,284 70,926 25,001 45,925 0 0 0 45,925 .91 .91