-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R7ftn+HwePjlXUiCd/6UnGPdePK/ZZe4wuDpPMEx9cbwPLlpSIkXfrBgkPNfYB+w 5qxPRB/UyHUJtifm1UYYKw== 0000019353-04-000135.txt : 20040830 0000019353-04-000135.hdr.sgml : 20040830 20040827183650 ACCESSION NUMBER: 0000019353-04-000135 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20040731 FILED AS OF DATE: 20040830 DATE AS OF CHANGE: 20040827 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHARMING SHOPPES INC CENTRAL INDEX KEY: 0000019353 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 231721355 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07258 FILM NUMBER: 041003514 BUSINESS ADDRESS: STREET 1: 450 WINKS LANE CITY: BENSALEM STATE: PA ZIP: 19020 BUSINESS PHONE: 2152459100 MAIL ADDRESS: STREET 1: 450 WINKS LANE CITY: BENSALEM STATE: PA ZIP: 19020 10-Q 1 form10q.txt FORM 10-Q SECOND QUARTER FISCAL 2005 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 2004 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _______________ Commission File No. 000-07258 CHARMING SHOPPES, INC. ---------------------- (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-1721355 ------------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 450 WINKS LANE, BENSALEM, PA 19020 ------------------------- ----- (Address of principal executive offices) (Zip Code) (215) 245-9100 -------------- (Registrant's telephone number, including Area Code) NOT APPLICABLE -------------- (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] The number of shares outstanding of the issuer's Common Stock (par value $.10 per share), as of August 24, 2004, was 118,078,888 shares. ================================================================================
CHARMING SHOPPES, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets July 31, 2004 and January 31, 2004................................ 2 Condensed Consolidated Statements of Operations and Comprehensive Income Thirteen weeks ended July 31, 2004 and August 2, 2003............. 3 Twenty-six weeks ended July 31, 2004 and August 2, 2003........... 4 Condensed Consolidated Statements of Cash Flows Twenty-six weeks ended July 31, 2004 and August 2, 2003........... 5 Notes to Condensed Consolidated Financial Statements.................... 6 - 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking Statements.............................................. 13 - 14 Critical Accounting Policies............................................ 15 Results of Operations................................................... 15 - 21 Liquidity and Capital Resources......................................... 22 - 25 Financing............................................................... 25 - 26 Market Risk............................................................. 26 - 27 Impact of Recent Accounting Pronouncements.............................. 27 Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 27 Item 4. Controls and Procedures........................................ 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................. 28 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities........................... 28 Item 4. Submission of Matters to a Vote of Security Holders............ 29 Item 6. Exhibits....................................................... 29 - 30 SIGNATURES.............................................................. 31
1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements CHARMING SHOPPES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, January 31, (Dollars in thousands, except share amounts) 2004 2004 ---- ---- (Unaudited) ASSETS Current assets Cash and cash equivalents .......................................... $ 223,856 $ 123,781 Available-for-sale securities ...................................... 66,438 55,688 Merchandise inventories ............................................ 307,244 309,995 Deferred taxes ..................................................... 19,820 19,902 Prepayments and other .............................................. 79,447 57,494 ----------- ----------- Total current assets ........................................... 696,805 566,860 ----------- ----------- Property, equipment, and leasehold improvements - at cost .......... 725,682 705,257 Less accumulated depreciation and amortization ..................... 415,626 386,633 ----------- ----------- Net property, equipment, and leasehold improvements ............ 310,056 318,624 ----------- ----------- Trademarks and other intangible assets ............................. 170,148 170,478 Goodwill ........................................................... 66,956 66,956 Available-for-sale securities ...................................... 5,249 14,521 Other assets ....................................................... 31,361 27,440 ----------- ----------- Total assets ....................................................... $ 1,280,575 $ 1,164,879 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable ................................................... $ 163,195 $ 135,777 Accrued expenses ................................................... 138,254 138,166 Income taxes payable ............................................... 8,238 1,128 Current portion - long-term debt ................................... 22,828 17,278 Accrued expenses related to cost reduction plan .................... 2,455 2,596 ----------- ----------- Total current liabilities ...................................... 334,970 294,945 ----------- ----------- Deferred taxes and other non-current liabilities ................... 62,704 62,030 Long-term debt ..................................................... 194,177 202,819 Stockholders' equity Common Stock $.10 par value: Authorized - 300,000,000 shares Issued - 130,344,247 shares and 125,526,573 shares, respectively 13,034 12,553 Additional paid-in capital ......................................... 235,291 201,798 Treasury stock at cost - 12,265,993 shares ......................... (84,136) (84,136) Deferred employee compensation ..................................... (7,810) (2,539) Accumulated other comprehensive loss ............................... (95) (365) Retained earnings .................................................. 532,440 477,774 ----------- ----------- Total stockholders' equity ..................................... 688,724 605,085 ----------- ----------- Total liabilities and stockholders' equity ......................... $ 1,280,575 $ 1,164,879 =========== =========== See Notes to Condensed Consolidated Financial Statements
2 CHARMING SHOPPES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
Thirteen Weeks Ended -------------------- July 31, August 2, (In thousands, except per share amounts) 2004 2003 ---- ---- Net sales ......................................................... $ 611,737 $ 605,456 --------- --------- Cost of goods sold, buying, and occupancy expenses ................ 430,028 428,425 Selling, general, and administrative expenses ..................... 133,361 136,899 Expenses related to cost reduction plan ........................... 0 6,389 --------- --------- Total operating expenses .......................................... 563,389 571,713 --------- --------- Income from operations ............................................ 48,348 33,743 Other income, principally interest ................................ 415 540 Interest expense .................................................. (3,880) (3,849) --------- --------- Income before income taxes and minority interest .................. 44,883 30,434 Income tax provision .............................................. 17,145 11,838 --------- --------- Income before minority interest ................................... 27,738 18,596 Minority interest in net loss of consolidated subsidiary .......... 0 49 --------- --------- Net income ........................................................ 27,738 18,645 --------- --------- Other comprehensive income, net of tax: Unrealized gains on available-for-sale securities, net of income taxes of $76 and $13, respectively ............................ 142 20 Reclassification of amortization of deferred loss on termination of derivative, net of income taxes of $23 and $46, respectively .. 43 85 --------- --------- Total other comprehensive income, net of taxes .................... 185 105 --------- --------- Comprehensive income .............................................. $ 27,923 $ 18,750 ========= ========= Basic net income per share ........................................ $ .24 $ .17 ========= ========= Diluted net income per share ...................................... $ .22 $ .15 ========= ========= See Notes to Condensed Consolidated Financial Statements
3 CHARMING SHOPPES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
Twenty-six Weeks Ended ---------------------- July 31, August 2, (In thousands, except per share amounts) 2004 2003 ---- ---- Net sales ............................................................... $ 1,204,475 $ 1,169,742 ----------- ----------- Cost of goods sold, buying, and occupancy expenses ...................... 830,415 823,913 Selling, general, and administrative expenses ........................... 282,211 282,164 Expenses related to cost reduction plan ................................. 0 10,820 ----------- ----------- Total operating expenses ................................................ 1,112,626 1,116,897 ----------- ----------- Income from operations .................................................. 91,849 52,845 Other income, principally interest ...................................... 809 964 Interest expense ........................................................ (7,763) (7,654) ----------- ----------- Income before income taxes and minority interest ........................ 84,895 46,155 Income tax provision .................................................... 30,229 17,954 ----------- ----------- Income before minority interest ......................................... 54,666 28,201 Minority interest in net loss of consolidated subsidiary ................ 0 133 ----------- ----------- Net income .............................................................. 54,666 28,334 ----------- ----------- Other comprehensive income, net of tax: Unrealized gains (losses) on available-for-sale securities, net of income tax (provision) benefit of $(97) and $11, respectively .............. 153 (18) Reclassification of amortization of deferred loss on termination of derivative, net of income taxes of $(63) and $(92), respectively .... 117 171 ----------- ----------- Total other comprehensive income, net of taxes .......................... 270 153 ----------- ----------- Comprehensive income .................................................... $ 54,936 $ 28,487 =========== =========== Basic net income per share .............................................. $ .48 $ .25 =========== =========== Diluted net income per share ............................................ $ .43 $ .24 =========== =========== See Notes to Condensed Consolidated Financial Statements
4 CHARMING SHOPPES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Twenty-six Weeks Ended ---------------------- July 31, August 2, (In thousands) 2004 2003 ---- ---- Operating activities Net income ........................................... $ 54,666 $ 28,334 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .................... 34,383 39,226 Tax benefit related to stock plans ............... 4,187 0 Deferred income taxes ............................ (236) 2,240 Loss from disposition of capital assets .......... 422 1,342 Other, net ....................................... 185 (133) Changes in operating assets and liabilities: Merchandise inventories ....................... 2,751 (20,580) Accounts payable .............................. 27,418 36,061 Prepayments and other ......................... (21,953) (2,873) Accrued expenses and other .................... 920 (15,286) Income taxes payable .......................... 7,110 2,415 Accrued expenses related to cost reduction plan (141) 3,678 --------- --------- Net cash provided by operating activities ............ 109,712 74,424 --------- --------- Investing activities Investment in capital assets ......................... (19,397) (25,914) Proceeds from sales of available-for-sale securities . 20,494 19,735 Gross purchases of available-for-sale securities ..... (21,907) (21,507) Increase in other assets ............................. (3,734) (3,144) --------- --------- Net cash used in investing activities ................ (24,544) (30,830) --------- --------- Financing activities Proceeds from short-term borrowings .................. 94,706 111,069 Repayments of short-term borrowings .................. (94,706) (111,069) Proceeds from long-term borrowings ................... 98 1,050 Repayments of long-term borrowings ................... (8,589) (7,172) Proceeds from issuance of common stock ............... 23,398 376 --------- --------- Net cash provided by (used in) financing activities .. 14,907 (5,746) --------- --------- Increase in cash and cash equivalents ................ 100,075 37,848 Cash and cash equivalents, beginning of period ....... 123,781 102,026 --------- --------- Cash and cash equivalents, end of period ............. $ 223,856 $ 139,874 ========= ========= Non-cash financing and investing activities Equipment acquired through capital leases ............ $ 5,399 $ 9,210 ========= ========= Certain prior-year amounts have been reclassified to conform to the current-year presentation. See Notes to Condensed Consolidated Financial Statements
5 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Condensed Consolidated Financial Statements We have prepared our condensed consolidated balance sheet as of July 31, 2004, and our condensed consolidated statements of operations and comprehensive income and cash flows for the thirteen weeks and twenty-six weeks ended July 31, 2004 and August 2, 2003, without audit. In our opinion, we have made all adjustments (which include only normal recurring adjustments) necessary to present fairly our financial position at July 31, 2004, and the results of our operations and cash flows for the thirteen weeks and twenty-six weeks ended July 31, 2004 and August 2, 2003. We have condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States. These financial statements and related notes should be read in conjunction with our financial statements and related notes included in our January 31, 2004 Annual Report on Form 10-K. The results of operations for the thirteen weeks and twenty-six weeks ended July 31, 2004 and August 2, 2003 are not necessarily indicative of operating results for the full fiscal year. As used in these notes, the terms "Fiscal 2005" and "Fiscal 2004" refer to our fiscal year ending January 29, 2005 and our fiscal year ended January 31, 2004, respectively. The terms "Fiscal 2005 Second Quarter" and "Fiscal 2004 Second Quarter" refer to the thirteen weeks ended July 31, 2004 and August 2, 2003, respectively. The terms "Fiscal 2005 First Quarter" and "Fiscal 2004 First Quarter" refer to the thirteen weeks ended May 1, 2004 and May 3, 2003, respectively. The term "Fiscal 2004 Third Quarter" refers to the thirteen weeks ended October 1, 2003. The terms "the Company," "we," "us," and "our" refer to Charming Shoppes, Inc. and, where applicable, its consolidated subsidiaries. We account for cash consideration received from vendors in accordance with the provisions of EITF Issue 02-16, "Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor." For interim reporting, we generally defer markdown allowances and recognize them in the period in which markdown expenses are recognized. Inasmuch as the markdown allowances at the date of purchase are intended to compensate us for future markdowns taken at the time of sale, we defer the recognition of markdown allowances during the interim periods in order to better match the recognition of markdown allowances to the period the related markdown expenses are recorded. We account for stock-based compensation using the intrinsic value method, in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and its related interpretations. We amortize deferred compensation expense attributable to stock awards and stock options having an exercise price less than the market price on the date of grant on a straight-line basis over the vesting period of the award or option. We do not recognize compensation expense for options having an exercise price equal to the market price on the date of grant or for shares purchased under our Employee Stock Purchase Plan. 6 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 1. Condensed Consolidated Financial Statements (Continued) The following table reconciles net income and net income per share as reported, using the intrinsic value method under APB No. 25, to pro forma net income and net income per share using the fair value method under Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-based Compensation":
Thirteen Weeks Ended Twenty-six Weeks Ended -------------------- ---------------------- (In thousands, except per July 31, August 2, July 31, August 2, share amounts) 2004 2003 2004 2003 ---- ---- ---- ---- Net income as reported ............... $ 27,738 $ 18,645 $ 54,666 $ 28,334 Add stock-based employee compensation using intrinsic value method, net of income taxes ................. 377 230 764 500 Less stock-based employee compensation using fair value method, net of income taxes .................... (956) (695) (1,797) (1,684) ---------- ---------- ---------- ---------- Pro forma net income ................. $ 27,159 $ 18,180 $ 53,633 $ 27,150 ========== ========== ========== ========== Basic net income per share: As reported ..................... $ .24 $ .17 $ .48 $ .25 Pro forma ....................... .23 .16 .47 .24 Diluted net income per share: As reported ..................... .22 .15 .43 .24 Pro forma ....................... .21 .15 .42 .23
Note 2. Trademarks and Other Intangible Assets
July 31, January 31, (In thousands) 2004 2004 ---- ---- Trademarks, tradenames, and internet domain names . $168,800 $168,800 Customer lists and covenant not to compete ........ 3,300 3,300 -------- -------- Total at cost ..................................... 172,100 172,100 Less accumulated amortization of customer lists and covenant not to compete ....................... 1,952 1,622 -------- -------- Net trademarks and other intangible assets ........ $170,148 $170,478 ======== ========
7 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 3. Long-term Debt
July 31, January 31, (In thousands) 2004 2004 ---- ---- 4.75% Senior Convertible Notes due 2012 $150,000 $150,000 Capital lease obligations ............. 36,577 37,934 6.53% mortgage note ................... 11,550 12,250 7.77% mortgage note ................... 9,806 10,039 7.5% mortgage note .................... 5,725 5,840 8.15% note ............................ 1,827 2,494 Other long-term debt .................. 1,520 1,540 -------- -------- Total long-term debt .................. 217,005 220,097 Less current portion .................. 22,828 17,278 -------- -------- Long-term debt ........................ $194,177 $202,819 ======== ========
Note 4. Stockholders' Equity
Twenty-six Weeks Ended July 31, (Dollars in thousands) 2004 ---- Total stockholders' equity, beginning of period ...................... $605,085 Net income ........................................................... 54,666 Issuance of common stock (4,817,674 shares) .......................... 23,398 Tax benefit related to stock plans ................................... 4,187 Amortization of deferred compensation expense ........................ 1,118 Amortization of deferred loss on termination of derivative, net of tax 117 Unrealized gains on available-for-sale securities, net of tax ........ 153 -------- Total stockholders' equity, end of period ............................ $688,724 ========
Note 5. Customer Loyalty Card Programs We offer our customers various loyalty card programs. Customers that join these programs are entitled to various benefits, including discounts and rebates on purchases during the membership period. Customers generally join these programs by paying an annual membership fee. We recognize revenue from these loyalty programs as sales over the life of the membership period based on when the customer earns the benefits and when the fee is no longer refundable. We recognize costs we incur in connection with administering these programs as cost of goods sold when incurred. 8 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 5. Customer Loyalty Card Programs (Continued) During the Fiscal 2004 First Quarter, we introduced a new FASHION BUG(R) customer loyalty card program that we operate under our FASHION BUG proprietary credit card program. Like our other loyalty programs, this program entitles customers to various rebates, discounts, and other benefits upon payment of an annual membership fee. This program also provides customers with the option to cancel their membership within 90 days, entitling them to a full refund of their annual fee. Additionally, after 90 days, customers that cancel their membership are entitled to a pro rata fee refund based on the number of months remaining on the annual membership. Accordingly, we recognize 25% of the annual membership fee as revenue after 90 days, with the remaining fee recognized on a pro rata basis over nine months. During the thirteen weeks and twenty-six weeks ended July 31, 2004, we recognized revenues of $2,290,000 and $3,705,000, respectively, in connection with this program. During the thirteen weeks and twenty-six weeks ended August 2, 2003, we recognized revenues of $2,791,000 in connection with this program. No revenues were recognized during the Fiscal 2004 First Quarter. As of July 31, 2004 and January 31, 2004, we accrued $700,000 and $1,200,000, respectively, for the estimated costs of discounts earned and coupons issued and not redeemed. Under a previous FASHION BUG store loyalty card program, we recognized revenues from annual membership fees as sales over the life of the membership based on discounts earned by the customer. For customers who did not earn discounts during the membership period that exceeded the card fee, the difference between the membership fee and discounts earned was recognized as revenue upon the expiration of the annual membership period. Upon early cancellation of the loyalty card, refunds of membership fees were reduced by the amount of any discounts granted to the member under the program. During the thirteen weeks and twenty-six weeks ended August 2, 2003, we recognized revenues of $2,135,000 and $6,308,000, respectively, in connection with this program. We discontinued the issuance of new cards under this program in December 2002, and we terminated the program during the Fiscal 2004 Second Quarter. Our CATHERINES(R) brand currently offers a similar loyalty program. During the thirteen weeks and twenty-six weeks ended July 31, 2004, we recognized revenues of $1,892,000 and $3,741,000, respectively, in connection with this program. During the thirteen weeks and twenty-six weeks ended August 2, 2003, we recognized revenues of $1,903,000 and $3,806,000, respectively in connection with this program. Note 6. Expenses Related to Cost Reduction Plan On March 18, 2003, we announced a cost reduction plan, designed to take advantage of the centralization of all corporate administrative services throughout the Company and to realize certain efficiencies, in order to improve profitability. We accounted for the plan in accordance with the provisions of SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The total costs recognized during Fiscal 2004 related to this plan were $11,534,000, with $4,431,000 of the costs recognized during the Fiscal 2004 First Quarter and $6,389,000 of the costs recognized during the Fiscal 2004 Second Quarter. 9 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 6. Expenses Related to Cost Reduction Plan (Continued) Costs incurred during the thirteen weeks and twenty-six weeks ended August 2, 2003 consisted of the following:
Thirteen Twenty-six Weeks Ended Weeks Ended August 2, August 2, (In thousands) 2003 2003 ---- ---- Workforce reduction costs .......................... $ 650 $ 3,059 Lease termination and related costs ................ 3,139 3,440 Acceleration of depreciation of property, equipment, 2,340 3,703 and leasehold improvements Other facility closure costs ....................... 260 618 ------- ------- Total costs ........................................ $ 6,389 $10,820 ======= =======
Workforce reduction costs represent involuntary termination benefits and retention bonuses. Employees affected by the plan were notified during the Fiscal 2004 First Quarter. During the Fiscal 2004 First Quarter, we terminated 118 employees at our corporate and divisional home offices. During the Fiscal 2004 Second Quarter, we terminated 231 employees in connection with the closing of our Memphis, Tennessee distribution center, our Hollywood, Florida credit operations, and our remaining Monsoon(R) stores. We accrued the severance benefit in accordance with SFAS No. 146 and recognized retention bonuses ratably over the employees' remaining service period. Lease termination and related costs mainly represent the estimated fair value of the remaining lease obligations at our Hollywood, Florida credit facility, reduced by estimated sublease income. We recognized the present value of the remaining lease obligations, less sublease income, related to the Hollywood facility in June 2003 when we closed the facility. Accelerated depreciation costs mainly represent the acceleration of depreciation of the net book value of the assets at our Memphis, Tennessee distribution center and our Hollywood, Florida credit facility, which we closed in June 2003, to their estimated fair values. During the Fiscal 2004 First Quarter, we made the decision to sell our Memphis, Tennessee distribution center, and began accelerating the depreciation of the asset to its estimated net realizable value as of its expected cease-use date of June 2003. During the Fiscal 2004 Third Quarter, we began to evaluate alternative uses for the facility, and began to depreciate the then-current carrying amount of the asset over its estimated useful life. As of July 31, 2004 and January 31, 2004, there were $2,455,000 and $2,596,000, respectively, of accrued lease termination costs related to the closing of the Hollywood facility. 10 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 7. Net Income Per Share
Thirteen Weeks Ended Twenty-six Weeks Ended July 31, August 2, July 31, August 2, (In thousands) 2004 2003 2004 2003 ---- ---- ---- ---- Basic weighted average common shares outstanding .................................... 115,908 112,421 114,603 112,391 Dilutive effect of assumed conversion of convertible notes .............................. 15,182 15,182 15,182 15,182 Dilutive effect of stock options and awards ........ 1,913 807 1,908 496 -------- -------- -------- -------- Diluted weighted average common shares and equivalents outstanding ........................ 133,003 128,410 131,693 128,069 ======== ======== ======== ======== Net income ......................................... $ 27,738 $ 18,645 $ 54,666 $ 28,334 Decrease in interest expense from assumed conversion of notes, net of income taxes ....... 1,135 1,062 2,269 2,161 -------- -------- -------- -------- Net income used to determine diluted net income per share ............................... $ 28,873 $ 19,707 $ 56,935 $ 30,495 ======== ======== ======== ======== Options with weighted average exercise price greater than market price, excluded from computation of net income per share: Number of shares (in thousands) ................ 424 8,430 428 10,342 Weighted average exercise price per share ...... $ 8.24 $ 6.44 $ 8.29 $ 6.14
Note 8. Income Taxes The effective income tax rate was 35.6% for the twenty-six weeks ended July 31, 2004, as compared to 38.9% for the twenty-six weeks ended August 2, 2003. The lower effective tax rate for the twenty-six weeks ended July 31, 2004 is primarily the result of finalizing certain prior year tax audits. The tax rate for the twenty-six weeks ended August 2, 2003 was affected by a provision for taxes related to one of our insurance programs, which we settled with the Internal Revenue Service during the second half of Fiscal 2004. 11 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 9. Impact of Recent Accounting Pronouncements In January 2003, the FASB issued Financial Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities," an interpretation of Accounting Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements." A variable interest entity ("VIE") is a corporation, trust, partnership, or other legal entity used for business purposes that either does not have equity investors with substantive voting rights or has equity investors that do not provide sufficient financial resources for the entity to finance its activities without additional subordinated financial support from other parties. Consolidation of a VIE by a variable interest holder is required if the variable interest holder is subject to a majority of the VIE's risk of loss, is entitled to receive a majority of the VIE's residual returns, or both. The variable interest holder that consolidates the VIE is the primary beneficiary. FIN No. 46 also requires that the primary beneficiary and all other enterprises with a significant variable interest in a VIE provide certain additional disclosures. FIN No. 46 provides certain exceptions to these rules, including qualifying special purpose entities ("QSPEs") subject to the requirements of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." FIN No. 46 is effective for all VIEs created after January 31, 2003. The disclosure provisions of FIN No. 46 apply to financial statements issued after January 31, 2003, regardless of when the VIE was established. For VIEs created before February 1, 2003, the consolidation provisions of FIN No. 46, as originally issued, were to be applied in the first interim or annual reporting period beginning after June 15, 2003. In October 2003, the FASB postponed the implementation date for VIEs created before February 1, 2003 to the first interim or annual period ending after December 15, 2003, provided that the reporting entity has not issued financial statements reporting the VIE in accordance with FIN No. 46. In December 2003, the FASB revised FIN No. 46 to delay the required implementation date for entities that are not special purpose entities ("SPEs"), such as equity method investments in operating companies. Adoption of FIN No. 46 did not have a material impact on our financial position or results of operations. Note 10. Subsequent Event On August 5, 2004, in connection with our asset securitization program, the Charming Shoppes Master Trust (the "Trust") issued $180,000,000 of new five-year asset-backed certificates ("Series 2004-1") in a private placement under Rule 144A. Of the $180,000,000 of certificates issued, $161,100,000 were sold to investors and we held $18,900,000 as a retained interest. The certificates pay interest to investors on a floating-rate basis tied to one-month LIBOR. Concurrently, the Trust entered into a series of fixed-rate interest rate hedge agreements with respect to the $161,100,000 of certificates sold to investors. The blended weighted-average interest rate on the hedged certificates is 4.90%. On August 5, 2004, the Trust used $61,500,000 of the proceeds to pay down other securitization series and placed the remaining proceeds of $118,500,000 into a pre-funding cash account. This pre-funding cash account will replace Series 1999-1 (which is currently in its amortization period) as well as provide financing for additional receivables. On August 24, 2004, we sold to investors $9,450,000 of the $18,900,000 we held as a retained interest. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes included in Item 1 of this report. It should also be read in conjunction with the management's discussion and analysis of financial condition and results of operations, financial statements, and accompanying notes appearing in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. As used in this management's discussion and analysis, the terms "Fiscal 2005," "Fiscal 2004," and "Fiscal 2003" refer to our fiscal year ending January 29, 2005 and our fiscal years ended January 31, 2004 and February 1, 2003, respectively. The terms "Fiscal 2005 Second Quarter" and "Fiscal 2004 Second Quarter" refer to the thirteen weeks ended July 31, 2004 and August 2, 2003, respectively. The terms "Fiscal 2005 Third Quarter," and "Fiscal 2005 Fourth Quarter" refer to the thirteen weeks ending October 30, 2004, and January 29, 2005, respectively. The term "Fiscal 2006 First Quarter" refers to the thirteen weeks ending April 30, 2005. The terms "Fiscal 2004 First Quarter," "Fiscal 2004 Third Quarter," and "Fiscal 2004 Fourth Quarter" refer to the thirteen weeks ended May 3, 2003, November 1, 2003, and January 31, 2004, respectively. The terms "the Company," "we," "us," and "our" refer to Charming Shoppes, Inc. and, where applicable, its consolidated subsidiaries. FORWARD-LOOKING STATEMENTS With the exception of historical information, the matters contained in the following analysis and elsewhere in this report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, projections of revenues, income or loss, cost reductions, capital expenditures, liquidity, financing needs or plans, and plans for future operations, as well as assumptions relating to the foregoing. The words "expect," "should," "project," "estimate," "predict," "anticipate," "plan," "believes," and similar expressions are also intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which we cannot predict or quantify. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. We assume no obligation to update any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statements. Factors that could cause our actual results of operations or financial condition to differ from those described in this report include, but are not necessarily limited to, the following: o Our business is dependent upon our being able to accurately predict rapidly changing fashion trends, customer preferences, and other fashion-related factors, which we may not be able to successfully accomplish in the future. o A slowdown in the United States economy, an uncertain economic outlook, and escalating gasoline prices could lead to reduced consumer demand for our apparel and accessories in the future. o The women's specialty retail apparel industry is highly competitive and we may be unable to compete successfully against existing or future competitors. o We cannot assure the successful implementation of our business plan for increased profitability and growth in our plus-size women's apparel business. o Our business plan is largely dependent upon the continued growth in the plus-size women's apparel market, which may not continue. o We depend on key personnel, particularly our Chief Executive Officer, Dorrit J. Bern, and we may not be able to retain or replace these employees or recruit additional qualified personnel. 13 o We depend on our distribution centers and could incur significantly higher costs and longer lead times associated with distributing our products to our stores if any of these distribution centers were to shut down for any reason. o We depend on the availability of credit for our working capital needs, including credit we receive from our suppliers and their agents, and on our credit card securitization program. If we were unable to obtain sufficient financing at affordable cost, our ability to merchandise our stores would be adversely affected. o We rely significantly on foreign sources of production and face a variety of risks generally associated with doing business in foreign markets and importing merchandise from abroad. Such risks include (but are not necessarily limited to) political instability, imposition of, or changes in, duties or quotas, increased security requirements applicable to imports, delays in shipping, increased costs of transportation, and issues relating to compliance with domestic or international labor standards. o Our stores experience seasonal fluctuations in net sales and operating income. Any decrease in sales or margins during our peak sales periods, or in the availability of working capital during the months preceding such periods, could have a material adverse effect on our business. In addition, extreme or unseasonable weather conditions may have a negative impact on our sales. o War, acts of terrorism, or the threat of either may negatively impact availability of merchandise and customer traffic to our stores, or otherwise adversely affect our business. o We may be unable to obtain adequate insurance for our operations at a reasonable cost. o We may be unable to protect our trademarks and other intellectual property rights, which are important to our success and our competitive position. o We may be unable to hire and retain a sufficient number of suitable sales associates at our stores. o Our manufacturers may be unable to manufacture and deliver merchandise to us in a timely manner or to meet our quality standards. o Our sales are dependent upon a high volume of traffic in the strip centers and malls in which our stores are located, and our future growth is dependent upon the availability of suitable locations for new stores. o We may be unable to successfully implement our plan to improve merchandise assortments in our brands. o The carrying amount and/or useful life of intangible assets related to acquisitions are subject to periodic valuation tests. An adverse change in interest rates or other factors could have a significant impact on the results of the valuation tests, resulting in a write-down of the carrying value or acceleration of amortization of acquired intangible assets. 14 CRITICAL ACCOUNTING POLICIES Our critical accounting policies are discussed in the management's discussion and analysis of financial condition and results of operations and notes accompanying the consolidated financial statements that appear in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. Except as otherwise disclosed in the financial statements and accompanying notes included in this report, there were no material changes in our critical accounting policies or in the assumptions or estimates we used to prepare the financial information appearing in this report. RESULTS OF OPERATIONS The following table shows our results of operations expressed as a percentage of net sales and on a comparative basis:
Thirteen Weeks Ended Percentage Twenty-six Weeks Ended Percentage -------------------- Change ---------------------- Change July 31, August 2, From Prior July 31, August 2, From Prior 2004 2003 Period 2004 2003 Period ---- ---- ------ ---- ---- ------ Net sales........................... 100.0% 100.0% 1.0% 100.0% 100.0% 3.0% Cost of goods sold, buying, and occupancy expenses.............. 70.3 70.8 0.4 68.9 70.4 0.8 Selling, general, and administrative expenses........................ 21.8 22.6 (2.6) 23.4 24.1 - Expenses related to cost reduction plan............................ - 1.1 (100.0) - 0.9 (100.0) Income from operations.............. 7.9 5.6 43.3 7.6 4.5 73.8 Other income, principally interest.. 0.1 0.1 (23.2) 0.1 0.1 (16.1) Interest expense.................... 0.6 0.6 0.8 0.6 0.7 1.4 Income tax provision................ 2.8 2.0 44.8 2.5 1.5 68.4 Net income.......................... 4.5 3.1 48.8 4.5 2.4 92.9 - -------------------- Results may not add due to rounding.
The following table shows our net sales by store brand:
Thirteen Weeks Ended Twenty-six Weeks Ended -------------------- ---------------------- July 31, August 2, July 31, August 2, (In millions) 2004 2003 2004 2003 ---- ---- ---- ---- FASHION BUG(R) $ 290.1 $ 297.1 $ 552.4 $ 550.0 LANE BRYANT(R) 238.2 221.0 484.8 445.9 CATHERINES(R) . 83.4 86.4 167.3 172.1 Other (1) ..... 0.0 1.0 0.0 1.7 -------- -------- ---------- ---------- Total net sales $ 611.7 $ 605.5 $ 1,204.5 $ 1,169.7 ======== ======== ========== ========== - -------------------- (1) Sales attributable to Monsoon/Accessorize stores, which were closed during Fiscal 2004.
15 The following table shows additional information related to changes in our net sales:
Thirteen Weeks Ended Twenty-six Weeks Ended -------------------- ---------------------- July 31, August 2, July 31, August 2, 2004 2003 2004 2003 ---- ---- ---- ---- Increase (decrease) in comparable store sales(1): Consolidated Company....................... 0% (1)% 3% (4)% FASHION BUG................................ 0 3 4 0 CATHERINES................................. (6) 4 (4) 1 LANE BRYANT................................ 3 (9) 4 (10) Sales from new stores as a percentage of total consolidated prior-period sales: FASHION BUG................................ 1 1 1 1 CATHERINES................................. 1 1 1 1 LANE BRYANT................................ 3 3 3 3 Prior-period sales from closed stores as a percentage of total consolidated prior-period sales: FASHION BUG................................ (1) (5) (2) (5) CATHERINES................................. (1) (2) (1) (2) LANE BRYANT................................ (1) (1) (1) (1) Increase (decrease) in total sales............. 1 (5) 3 (8) - -------------------- (1) Sales from stores in operation during both periods. Stores are added to the comparable store base after 13 full months of operation.
The following table sets forth information with respect to our store activity for the first half of Fiscal 2005 and planned store activity for all of Fiscal 2005 (including the first half of Fiscal 2005):
FASHION LANE BUG BRYANT CATHERINES Total --- ------ ---------- ----- Fiscal 2005 First Half: Stores at January 31, 2004 ... 1,051 710 466 2,227 ------ ------ ------ ------ Stores opened ................ 1 10 8 19 Stores closed ................ (5) (5) (4) (14) ------ ------ ------ ------ Net change in stores ......... (4) 5 4 5 ------ ------ ------ ------ Stores at July 31, 2004 ...... 1,047 715 470 2,232 ====== ====== ====== ====== Stores relocated during period 11 8 3 22 Stores remodeled during period 3 7 -- 10 Fiscal 2005: Planned store openings ....... 5 32 15 52 Planned store closings ....... 25 15 10 50 Planned store relocations .... 20 15 15 55
16 Comparison of Thirteen Weeks Ended July 31, 2004 and August 2, 2003 Net Sales The increase in net sales from the Fiscal 2004 Second Quarter to the Fiscal 2005 Second Quarter resulted primarily from positive results at our LANE BRYANT brand, which were partially offset by lower sales at our FASHION BUG and CATHERINES brands. Comparable store sales increased at LANE BRYANT, were flat for FASHION BUG, and decreased for CATHERINES. We operated 2,232 retail stores at the end of the Fiscal 2005 Second Quarter, as compared to 2,240 stores at the end of the Fiscal 2004 Second Quarter. The increase in LANE BRYANT comparable store sales met our sales plan for the quarter. LANE BRYANT stores experienced slightly weaker traffic levels during the current-year quarter, with the average number of transactions per store decreasing 1%. The slightly weaker traffic levels were offset by increases of 4% in the average dollar sale and 6% in the average number of units sold per customer ("UPC"). The average retail value per unit sold decreased 2% as compared to the prior-year period. LANE BRYANT experienced comparable store sales increases for the quarter in intimate apparel and wear-to-work tops and separates, partially offset by decreases in sales of denim and casual woven tops. During the second quarter of Fiscal 2004, LANE BRYANT experienced poor customer acceptance of, and fit and quality issues with, its product offering and had to maintain higher levels of promotional pricing. Continued improvements in the merchandise assortments offered at LANE BRYANT resulted in improved sales performance during the Fiscal 2005 Second Quarter. FASHION BUG comparable store sales did not meet our sales plan for the quarter. FASHION BUG experienced strong sales of its summer merchandise in May, but sales slowed in June and July. FASHION BUG store traffic levels were flat during the current-year quarter, with the average UPC, the average number of transactions per store, the average dollar sale, and the average retail value per unit sold increasing or decreasing less than 1%. FASHION BUG stores experienced decreases in sales of junior and plus sportswear and dresses, which were partially offset by increases in sales of misses and intimate apparel. FASHION BUG store sales also benefited from sales of maternity and girls, two new categories added to the FASHION BUG brand during the Fiscal 2004 Fourth Quarter. CATHERINES stores experienced a decrease in comparable store sales during the Fiscal 2005 Second Quarter, and were below our sales plan for the quarter. The decrease in sales at CATHERINES was primarily a result of disappointing performance in the dress and wear-to-work categories. Traffic levels were down from the prior-year period, with the average number of transactions per store decreasing 4%. The average dollar sale decreased 2% as compared to the prior-year quarter, with a 4% increase in the average UPC offset by a 5% decrease in the average retail value per unit sold, reflecting higher levels of promotional pricing during the current quarter. We offer our customers various loyalty card programs. Customers who join these programs are entitled to various benefits, including discounts and rebates on purchases during the membership period. Customers generally join these programs by paying an annual membership fee. We recognize revenue on these loyalty programs as sales over the life of the membership period based on when the customer earns the benefits and when the fee is no longer refundable. Costs we incur in connection with administering these programs are recognized in cost of goods sold as incurred. See "Item 1. Notes To Condensed Consolidated Financial Statements (Unaudited); Note 5. Customer Loyalty Card Program" above for further information on our loyalty card programs. 17 During the Fiscal 2004 First Quarter, we introduced a new FASHION BUG customer loyalty card program that is being operated under our FASHION BUG proprietary credit card program. During the Fiscal 2005 Second Quarter, we recognized revenues of $2.3 million in connection with this loyalty card program. During the Fiscal 2004 Second Quarter, we recognized $2.8 million of revenues in connection with this program. During the Fiscal 2005 Second Quarter and Fiscal 2004 Second Quarter, we also recognized revenues of $1.9 million and $1.9 million, respectively, in connection with our CATHERINES loyalty card program. During the Fiscal 2004 Second Quarter, we recognized revenues of $2.1 million in connection with a previous FASHION BUG loyalty card program. We discontinued the issuance of new cards under this program at the end of Fiscal 2003, and we terminated this program during the Fiscal 2004 Second Quarter. Cost of Goods Sold, Buying, and Occupancy The increase in cost of goods sold, buying, and occupancy expenses from the Fiscal 2004 Second Quarter to the Fiscal 2005 Second Quarter principally reflects the increase in net sales. Cost of goods sold as a percentage of net sales decreased 0.2% from the Fiscal 2004 Second Quarter to the Fiscal 2005 Second Quarter. Improvements in merchandise margins at our LANE BRYANT and FASHION BUG brands were offset by decreased margins at our CATHERINES brand. Margins at the CATHERINES brand were negatively affected by the increased promotional activity that resulted from reduced traffic levels during the current quarter. Higher levels of promotional activity at our LANE BRYANT brand negatively affected merchandise margins in the Fiscal 2004 Second Quarter. Cost of goods sold includes merchandise costs net of discounts and allowances, freight, inventory shrinkage, and shipping and handling costs associated with our e-commerce business. Net merchandise costs and freight are capitalized as inventory costs. Buying and occupancy expenses as a percentage of net sales decreased 0.3% from the Fiscal 2004 Second Quarter to the Fiscal 2005 Second Quarter. The decrease was primarily a result of leverage on relatively fixed occupancy costs as a result of the increase in net sales, and cost savings from the consolidation of our LANE BRYANT and CATHERINES distribution centers into our White Marsh, Maryland facility. Buying expenses include payroll, payroll-related costs, and operating expenses for our buying departments and warehouses. Occupancy expenses include rent, real estate taxes, insurance, common area maintenance, utilities, maintenance, and depreciation for our stores and warehouse facilities and equipment. Buying and occupancy costs are treated as period costs and are not capitalized as part of inventory. Selling, General, and Administrative Selling, general, and administrative expenses decreased from the Fiscal 2004 Second Quarter to the Fiscal 2005 Second Quarter, and decreased 0.8% as a percentage of net sales. The decrease was primarily a result of continued tight control of store expenses and improved performance of our FASHION BUG credit card operations, which experienced favorable trends in delinquencies during the Fiscal 2005 Second Quarter. Selling expenses and general and administrative expenses each decreased 0.4% as a percentage of net sales. 18 Expenses Related to Cost Reduction Plan On March 18, 2003, we announced a cost reduction plan designed to take advantage of the centralization of all corporate administrative services throughout the Company and to realize certain efficiencies, in order to improve profitability. See "Item 1. Notes To Condensed Consolidated Financial Statements (Unaudited); Note 6. Expenses Related to Cost Reduction Plan" above and "Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 14. Expenses Related to Cost Reduction Plan" in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004 for details of this program. We accounted for the plan in accordance with the provisions of SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The cost reduction plan was substantially completed during Fiscal 2004. The total costs recognized during Fiscal 2004 related to this plan were $11.5 million, with $6.4 million of the costs recognized during the Fiscal 2004 Second Quarter. This cost reduction plan is expected to improve annualized pre-tax earnings by a total of approximately $45 million. During Fiscal 2004, we realized cost reductions of more than $30 million. Except for the remaining benefits to be realized from the consolidation of our distribution centers, which we expect to realize by the end of Fiscal 2005, we have realized the remaining benefits of the cost reduction plan. During the Fiscal 2004 First Quarter, we made the decision to sell our Memphis, Tennessee distribution center, and began accelerating the depreciation of the asset to its estimated net realizable value as of its expected cease-use date of June 2003. During the Fiscal 2004 Third Quarter, we began to evaluate alternative uses for the facility, and began to depreciate the then-current carrying amount of the asset over its estimated useful life. Expenses related to the plan incurred during the Fiscal 2004 Second Quarter are included in "Expenses related to cost reduction plan" in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. Income Tax Provision The effective income tax rate was 38.2% in the Fiscal 2005 Second Quarter, as compared to 38.9% in the Fiscal 2004 Second Quarter. The tax rate for the Fiscal 2004 Second Quarter was affected by a provision for taxes related to one of our insurance programs, which we settled with the Internal Revenue Service during the second half of Fiscal 2004. Comparison of Twenty-six Weeks Ended July 31, 2004 and August 2, 2003 Net Sales The increase in net sales from the first half of Fiscal 2004 to the first half of Fiscal 2005 resulted primarily from positive comparable store sales results at our LANE BRYANT and FASHION BUG brands, which were partially offset by negative comparable store sales results at our CATHERINES brand. 19 LANE BRYANT stores experienced stronger traffic levels during the current-year period, with both the average number of transactions per store and average dollar sale increasing 2%, and the average number of units sold per customer ("UPC") increasing 1%. The average retail value per unit sold increased 1%, reflecting reduced levels of promotional pricing for the brand as compared to the prior-year period. LANE BRYANT experienced comparable store sales increases in most major merchandise categories, especially wear-to-work and intimate apparel, partially offset by decreases in casual woven tops and denim separates. During the first half of Fiscal 2004, LANE BRYANT experienced poor customer acceptance of, and fit and quality issues with, its product offering and had to maintain higher levels of promotional pricing. Continued improvements in the merchandise assortments offered at LANE BRYANT resulted in improved sales performance during the first half of Fiscal 2005. For FASHION BUG stores, stronger traffic levels during the first four months of the current-year period were offset by reduced traffic levels during June and July. For the twenty-six week period, the average number of transactions per store and average UPC increased 4% and 2%, respectively, while the average dollar sale decreased less than 1% and the average retail value per unit sold decreased 3%. FASHION BUG stores experienced increases in sales of misses sportswear, misses and plus wear-to-work, accessories, and intimate apparel, which were partially offset by decreases in sales of junior and plus sportswear and dresses. FASHION BUG store sales also benefited from sales of maternity and girls, two new categories added to the FASHION BUG brand during the Fiscal 2004 Fourth Quarter. CATHERINES stores experienced weaker traffic levels during the current-year period, with the average number of transactions per store and average dollar sale decreasing 4% and 1%, respectively. A 3% increase in the average UPC was offset by a 4% decrease in the average retail value per unit sold, reflecting higher levels of promotional pricing during the current period. The decrease in sales at CATHERINES was primarily a result of disappointing performance in the dress and wear-to-work categories. During the first half of Fiscal 2005, we recognized revenues of $3.7 million in connection with our FASHION BUG customer loyalty card program. During the first half of Fiscal 2004, we recognized $2.8 million of revenues in connection with this program. During the first half of Fiscal 2005 and Fiscal 2004, we also recognized revenues of $3.7 million and $3.8 million, respectively, in connection with our CATHERINES loyalty card program. During the first half of Fiscal 2004, we also recognized revenues of $6.3 million in connection with our previous Fashion Bug loyalty card program, which was terminated during the Fiscal 2004 Second Quarter. Cost of Goods Sold, Buying, and Occupancy The increase in cost of goods sold, buying, and occupancy expenses from the first half of Fiscal 2004 to the first half of Fiscal 2005 principally reflects the increase in net sales. Cost of goods sold as a percentage of net sales decreased 0.6% from the first half of Fiscal 2004 to the first half of Fiscal 2005. Improvement in merchandise margins at our LANE BRYANT brand was offset by decreased margins at our FASHION BUG and CATHERINES brands. Margins at the CATHERINES brand for the first half of Fiscal 2005 were negatively affected by the increased promotional activity that resulted from reduced traffic levels during the current period. As discussed above, margins at our LANE BRYANT brand for the first half of Fiscal 2004 were negatively affected by higher levels of promotional activity. Cost of goods sold includes merchandise costs net of discounts and allowances, freight, inventory shrinkage, and shipping and handling costs associated with our e-commerce business. Net merchandise costs and freight are capitalized as inventory costs. 20 Buying and occupancy expenses as a percentage of net sales decreased 0.9% from the first half of Fiscal 2004 to the first half of Fiscal 2005. The decrease was primarily a result of leverage on relatively fixed occupancy costs as a result of the increase in net sales, and cost savings from the consolidation of our LANE BRYANT and CATHERINES distribution centers into our White Marsh, Maryland facility. Buying expenses include payroll, payroll-related costs, and operating expenses for our buying departments and warehouses. Occupancy expenses include rent, real estate taxes, insurance, common area maintenance, utilities, maintenance, and depreciation for our stores and warehouse facilities and equipment. Buying and occupancy costs are treated as period costs and are not capitalized as part of inventory. Selling, General, and Administrative Selling, general, and administrative expenses for the first half of Fiscal 2005 were comparable to the first half of Fiscal 2004, and decreased 0.7% as a percentage of net sales. The decrease in selling, general, and administrative expenses as a percentage of net sales was primarily a result of continued tight control of store expenses, improved performance of our FASHION BUG credit card operations, which experienced favorable trends in delinquencies during the current-year period, and leverage from the increase in net sales. Selling expenses decreased 0.5% as a percentage of net sales, and general and administrative expenses decreased 0.2% as a percentage of net sales. Expenses Related to Cost Reduction Plan On March 18, 2003, we announced a cost reduction plan designed to take advantage of the centralization of all corporate administrative services throughout the Company and to realize certain efficiencies, in order to improve profitability. See "Comparison of Thirteen Weeks Ended July 31, 2004 and August 2, 2003: Expenses Related to Cost Reduction Plan" above for further details related to this plan. The total costs recognized during Fiscal 2004 related to this plan were $11.5 million, with $10.8 million of the costs recognized during the first half of Fiscal 2004. Expenses related to the plan incurred during the first half of Fiscal 2004 are included in "Expenses related to cost reduction plan" in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. Income Tax Provision The effective income tax rate was 35.6% in the first half of Fiscal 2005, as compared to 38.9% in the first half of Fiscal 2004. The lower effective tax rate in the first half of Fiscal 2005 is primarily the result of finalizing certain prior-year tax audits. We expect the effective income tax rate for the year to be approximately 36.3%. The tax rate for the first half of Fiscal 2004 was affected by a provision for taxes related to one of our insurance programs, which we settled with the Internal Revenue Service during the second half of Fiscal 2004. 21 LIQUIDITY AND CAPITAL RESOURCES Our primary sources of working capital are cash flow from operations, our proprietary credit card receivables securitization agreements, our investment portfolio, and our revolving credit facility. The following table highlights certain information related to our liquidity and capital resources:
July 31, January 31, (Dollars in millions) 2004 2004 ---- ---- Cash and cash equivalents............................ $223.9 $123.8 Long-term available-for-sale securities.............. $5.2 $14.5 Working capital...................................... $361.8 $271.9 Current ratio........................................ 2.1 1.9 Long-term debt to equity ratio....................... 28.2% 33.5%
Our net cash provided by operating activities was $109.7 million for the first half of Fiscal 2005, as compared to $74.4 million for the first half of Fiscal 2004. The increase was a result of a $22.6 million increase in net income before non-cash charges, a decrease of $14.7 million in our investment in inventories (net of accounts payable), and a $17.1 million increase in accrued expenses, income taxes, and other liabilities. These increases were partially offset by a $19.1 million increase in prepaid expenses. The decrease in the net investment in inventories was primarily a result of tighter control over inventory levels during the first half of Fiscal 2005. Prepaid expenses increased $22.0 million during the first half of Fiscal 2005, as compared to an increase of $2.9 million during the first half of Fiscal 2004. The increase was primarily a result of the timing of payments for rent and increases in certain advances related to our securization program. Accrued expenses and other liabilities increased $0.8 million during the first half of Fiscal 2005, as compared to a decrease of $11.6 million during the first half of Fiscal 2004, primarily as a result of the timing of certain payments. Income taxes payable increased $7.1 million during the first half of Fiscal 2005, as compared to an increase of $2.4 million during the first half of Fiscal 2004. The increase in income taxes payable was primarily a result of an increase in taxable income for the first half of Fiscal 2005, as compared to the first half of Fiscal 2004. Capital Expenditures Our capital expenditures were $19.4 million during the first half of Fiscal 2005. In addition, we acquired $3.9 million of point-of-sale equipment for our CATHERINES stores and $1.5 million of equipment for our White Marsh, Maryland distribution center under capital leases. The total investment in property, equipment, and leasehold improvements, including cash expenditures and capital lease financing, was $24.8 million. During the remainder of Fiscal 2005, we anticipate incurring additional capital expenditures of approximately $40 - $45 million, primarily for the construction and fixturing of new stores, remodeling and fixturing of existing stores, and improvements to our corporate offices and distribution centers. We expect to finance these additional capital expenditures primarily through internally generated funds. Common Stock and Dividends During the first half of Fiscal 2005, we received $23.4 million of cash in connection with the issuance of approximately 4.5 million shares of our common stock as a result of exercises of employee stock options and purchases of shares under our employee stock purchase plan. 22 We have not paid any dividends since 1995. The payment of future dividends is within the discretion of our Board of Directors and will depend upon our future earnings, if any, our capital requirements, our financial condition, and other relevant factors. Additionally, our existing credit facility prohibits the payment of dividends on our common stock. Off-Balance-Sheet Financing We have formed a trust called the Charming Shoppes Master Trust (the "Trust") to which Spirit of America National Bank, our credit card bank, has transferred, through a special-purpose entity, its interest in credit card receivables created under our FASHION BUG proprietary credit card program. We, together with the Trust, have entered into various agreements under which the Trust can sell, on a revolving basis, interests in these receivables for a specified term. When the revolving period terminates, an amortization period begins during which principal payments are made to the parties with whom the Trust has entered into the securitization agreement. As of July 31, 2004, the Trust had the following securitization facilities outstanding:
(Dollars in millions) Series 1999-1 Series 2002-1 Series 1999-2 Series 2004 ------------- ------------- ------------- ----------- Date of facility..................... July 1999 November 2002 May 1999 January 2004 Type of facility..................... Term Term Conduit Conduit Maximum funding...................... $150.0 $100.0 $50.0 $100.0 Funding as of July 31, 2004.......... $88.6 $100.0 $33.0 $28.5 First scheduled principal payment.... March 2004 August 2007 Not applicable Not applicable Expected final principal payment..... February 2005 May 2008 Not applicable Not applicable Renewal.............................. Not applicable Not applicable Annual Annual(1) - -------------------- (1) This facility has an initial term of two years, subject to an annual renewal.
The Series 1999-1 securitization began its scheduled amortization period in March 2004, and $61.4 million of principal was amortized in the first half of Fiscal 2005. The remainder of the principal is scheduled to amortize as follows: $36.8 million in the Fiscal 2005 Third Quarter; $36.0 million in the Fiscal 2005 Fourth Quarter; and $15.8 million in the Fiscal 2006 First Quarter. We will fund this remaining amortization through the issuance of Series 2004-1, which closed on August 5, 2004 and provides $180.0 million of funding through a five-year term facility (see below). During the first half of Fiscal 2005, we sold to investors an additional $9.5 million of certificates under the 2002-1 Series that we were previously holding as a retained interest. These certificates were included in our short-term available-for-sale securities as of January 31, 2004. On August 5, 2004, in connection with our asset securitization program, the Trust issued $180.0 million of new five-year asset-backed certificates ("Series 2004-1") in a private placement under Rule 144A. Of the $180.0 million of certificates issued, $161.1 million were sold to investors, and we held $18.9 million as a retained interest. The certificates pay interest to investors on a floating-rate basis tied to one-month LIBOR. Concurrently, the Trust entered into a series of fixed-rate interest rate hedge agreements with respect to the $161.1 million of certificates sold to investors. The blended weighted-average interest rate on the hedged certificates is 4.90%. On August 5, 2004, the Trust used $61.5 million of the proceeds to pay down other securitization series and placed the remaining proceeds of $118.5 million into a pre-funding cash account. This pre-funding cash account will replace Series 1999-1 (which is currently in its amortization period) as well as provide financing for additional receivables. On August 24, 2004, we sold to investors $9.5 million of the $18.9 million we held as a retained interest. 23 As these credit card receivables securitizations reach maturity, we plan to obtain funding for the FASHION BUG proprietary credit card program through additional securitizations. However, we can give no assurance that we will be successful in securing financing through either replacement securitizations or other sources of replacement financing. We securitized $161.6 million of private label credit card receivables in the first half of Fiscal 2005 and had $249.6 million of securitized credit card receivables outstanding as of July 31, 2004. We held certificates and retained interests in our securitizations of $64.9 million as of July 31, 2004, which were generally subordinated in right of payment to certificates issued by the Trust to third-party investors. Our obligation to repurchase receivables sold to the Trust is limited to those receivables that, at the time of their transfer, fail to meet the Trust's eligibility standards under normal representations and warranties. To date, our repurchases of receivables pursuant to this obligation have been insignificant. Charming Shoppes Receivables Corp. ("CSRC") and Charming Shoppes Seller, Inc., our consolidated wholly-owned indirect subsidiaries, are separate special-purpose entities created for the securitization program. As of July 31, 2004, CSRC held $20.6 million of Charming Shoppes Master Trust certificates and retained interests and Charming Shoppes Seller, Inc. held retained interests of $7.9 million (which are included in the $66.4 million of short-term available-for-sale securities we held at July 31, 2004). These assets are first and foremost available to satisfy the claims of the respective creditors of these separate corporate entities, including certain claims of investors in the Charming Shoppes Master Trust. Additionally, if either the Trust or Charming Shoppes, Inc. fails to meet certain financial performance standards, the Trust would be obligated to reallocate to third-party investors holding certain certificates issued by the Trust, collections in an amount up to $7.9 million that otherwise would be available to CSRC. The result of this reallocation would be to increase CSRC's retained interest in the Trust by the same amount. Subsequent to such a transfer occurring, and upon certain conditions being met, these same investors would be required to repurchase these interests. As of July 31, 2004, there were no reallocated collections as the result of a failure to meet these financial performance standards. As a result of the sale to investors on August 24, 2004 of $9.5 million of certificates we held as a retained interest as discussed above, the potential reallocation of collections subject to these financial performance standards increased from $7.9 million to $17.3 million on that date. As of August 24, 2004, there were no reallocated collections as a result of a failure to meet these financial performance standards. We could be affected by certain events that would cause the Trust to hold proceeds of receivables, which would otherwise be available to be paid to us with respect to our subordinated interests, within the Trust as additional enhancement. For example, if we fail or the Trust fails to meet certain financial performance standards, a credit enhancement condition would occur and the Trust would be required to retain amounts otherwise payable to us. In addition, the failure to satisfy certain financial performance standards could further cause the Trust to stop using collections on Trust assets to purchase new receivables, and would require such collections to be used to repay investors on a prescribed basis, as provided in the Trust agreements. If this were to occur, it could result in our having insufficient liquidity; however, we believe we would have sufficient notice to seek alternative forms of financing through other third-party providers. As of July 31, 2004, the Trust was in compliance with all applicable financial performance standards. Amounts placed into enhancement accounts, if any, that are not required for payment to other certificate holders will be available to us at the termination of the securitization series. We have no obligation to directly fund the enhancement account of the Trust, other than for breaches of customary representations, warranties, and covenants and for customary indemnities. These representations, warranties, covenants, and indemnities do not protect the Trust or investors in the Trust against credit-related losses on the receivables. The providers of the credit enhancements and Trust investors have no other recourse to us. 24 These securitization agreements are intended to improve our overall liquidity by providing short-term sources of funding. The agreements provide that we will continue to service the credit card receivables and control credit policies. This control allows us, absent certain adverse events, to fund continued credit card receivable growth and to provide the appropriate customer service and collection activities. Accordingly, our relationship with our credit card customers is not affected by these agreements. Additional information regarding this program is included in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 16. Asset Securitization" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. We also have non-recourse agreements under which third parties provide accounts receivable proprietary credit card sales accounts receivable funding programs for both our CATHERINES and LANE BRYANT brands. These funding programs expire in January 2005 for CATHERINES and in January 2006 for LANE BRYANT. Under these agreements, the third parties reimburse us daily for sales generated by the respective store's credit card accounts. Additional information regarding these agreements is included in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 16. Asset Securitization" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. On January 28, 2004, in accordance with the terms of the Merchant Services Agreement pursuant to which the CATHERINES proprietary credit cards are issued, we gave notification of termination and election to purchase the CATHERINES credit card portfolio to the third-party provider. In accordance with the terms of the Merchant Services Agreement, the purchase option required us to provide one year's notice in order to terminate the agreement and to purchase the portfolio, subject to the negotiation of the final purchase agreement. We expect to purchase the CATHERINES credit card portfolio during the Fiscal 2006 First Quarter, and expect to fund the purchase using our securitization program, including a portion of the proceeds from the Series 2004-1 securitization. We lease substantially all of our operating stores under non-cancelable operating lease agreements. Additional details on these leases, including minimum lease commitments, are included in "Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 17. Leases" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. FINANCING Revolving Credit Facility We have a $300.0 million revolving credit facility (the "Facility") that provides for cash borrowings and enables us to issue up to $150.0 million of letters of credit for purchases of merchandise and for standby letters of credit. As of July 31, 2004, there were no borrowings outstanding under the Facility. The availability of borrowings under the Facility is subject to limitations based on eligible inventory and, under certain circumstances, credit card receivables and in-transit cash. The Facility is secured by our general assets, except for (i) all assets related to our credit card securitization program, (ii) all real property, (iii) certain equipment subject to other mortgages or capital leases, (iv) the assets of our non-U.S. subsidiaries, and (v) certain other assets. The Facility expires on August 15, 2008. 25 The interest rate on borrowings under the Facility ranges from Prime to Prime plus .50% per annum for Prime Rate Loans, and LIBOR plus 1.5% to LIBOR plus 2.00% per annum for Eurodollar Rate Loans. The applicable rate is determined quarterly, based on our average excess and suppressed availability, as defined in the Facility. As of July 31, 2004, the interest rate on borrowings under the Facility was 4.25% for Prime Rate Loans and 2.98% for Eurodollar Rate Loans. The Facility includes limitations on sales and leasebacks, the incurrence of additional liens and debt, capital lease financing, and other limitations. The Facility also requires, among other things, that we not pay dividends on our common stock and, if our excess and suppressed availability (as defined in the Facility) is less than $50.0 million at any time within a fiscal quarter, that we maintain a minimum level of consolidated 12-month earnings before interest, taxes, depreciation, and amortization ("EBITDA") (excluding non-recurring, non-cash charges as defined in the Facility). During the Fiscal 2005 Second Quarter, our excess and suppressed availability was above $50.0 million at all times. As of July 31, 2004, we were not in violation of any of the covenants included in the Facility. Additional information regarding our long-term borrowings is included in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 7. Debt" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. We believe that our capital resources and liquidity position are sufficient to support our current operations. Our requirements for working capital, capital expenditures, and repayment of debt and other obligations are expected to be funded from operations, supplemented as needed by short-term or long-term borrowings available under our credit facility, our proprietary credit card receivables securitization agreements, leases, and other available financing sources. MARKET RISK We manage our FASHION BUG proprietary credit card program through various operating entities that we own. The primary activity of these entities is to service our proprietary credit card receivables portfolio, the balances of which we sell under a credit card securitization program. Under the securitization program, we can be exposed to fluctuations in interest rates to the extent that the interest rates charged to our customers vary from the rates paid on certificates issued by the Trust. The finance charges on most of our proprietary credit card accounts are billed using a floating-rate index (the Prime lending rate), subject to a floor and limited by legal maximums. The certificates issued under the securitization include both floating- and fixed-interest-rate certificates. The floating-rate certificates are based on an index of either one-month LIBOR or the commercial paper rate, depending on the issuance. Consequently, we have basis risk exposure to the extent that the movement of the floating-rate index on the certificates varies from the movement of the Prime rate. Additionally, as of July 31, 2004, the floating finance charge rate on the credit cards was below the contractual floor rate, thus exposing us to interest-rate risk on the portion of certificates that are funded at floating rates. In addition, as a result of the Trust entering into a series of fixed-rate interest rate hedge agreements with respect to the $161.1 million of certificates related to the issuance of Series 2004-1 (see "Off-Balance-Sheet Financing" above), we have significantly reduced the exposure of floating-rate certificates outstanding to interest-rate risk. To the extent that short-term interest rates were to increase by one percentage point by the end of Fiscal 2005, an increase of approximately $206 thousand in selling, general, and administrative expenses would result. 26 As of July 31, 2004, there were no borrowings outstanding under our revolving credit facility. To the extent that there are borrowings outstanding under our revolving credit facility, such borrowings would be exposed to variable interest rates. An increase in market interest rates would increase our interest expense and decrease our cash flows. A decrease in market interest rates would decrease our interest expense and increase our cash flows. We are not subject to material foreign exchange risk, as our foreign transactions are primarily U.S. Dollar-denominated and our foreign operations do not constitute a material part of our business. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS See "Item 1. Notes To Condensed Consolidated Financial Statements (Unaudited); Note 9. Impact of Recent Accounting Pronouncements" above. Item 3. Quantitative and Qualitative Disclosures About Market Risk See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations; MARKET RISK," above. Item 4. Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate and in such a manner as to allow timely decisions regarding required disclosure. We have a Disclosure Committee, which is made up of several key management employees and reports directly to the CEO and CFO, to centralize and enhance these controls and procedures and assist our management, including our CEO and CFO, in fulfilling their responsibilities for establishing and maintaining such controls and procedures and providing accurate, timely, and complete disclosure. As of the end of the period covered by this report on Form 10-Q (the "Evaluation Date"), our Disclosure Committee, under the supervision and with the participation of management, including our CEO and CFO, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our management, including our CEO and CFO, has concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective. Furthermore, there has been no change in our internal control over financial reporting that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings There have been no material developments in legal proceedings involving the Company or its subsidiaries since those reported in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. Other than ordinary routine litigation incidental to our business, there are no other pending material legal proceedings that we or any of our subsidiaries are a party to, and there are no other proceedings that are expected to have a material adverse effect on our financial condition or results of operations. Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities (c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Total Maximum Number Number of of Shares Shares that Total Purchased as May Yet be Number Average Part of Publicly Purchased of Shares Price Paid Announced Plans Under the Plans Period Purchased per Share or Programs(2) or Programs(2) ------ --------- --------- ----------- ----------- May 2, 2004 through May 29, 2004........ 109,373(1) $7.85(1) - - May 30, 2004 through July 3, 2004........ 0 - - - July 4, 2004 through July 31, 2004....... 0 - - - ------- ----- Total................... 109,373 $7.85 - - ======= ===== - -------------------- (1) The shares of common stock we purchased during the four-week period ended May 29, 2004 include 109,246 shares at an average price of $7.85 per share received for payment of the exercise price of certain stock options exercised during the period, and 127 shares at an average price of $6.90 per share withheld for payment of payroll taxes on the issuance of employee stock awards issued during the period. (2) In November 1997, we publicly announced that our Board of Directors granted authority to repurchase up to 10,000,000 shares of our common stock. In March 1999, we publicly announced that our Board of Directors granted authority to repurchase up to an additional 10,000,000 shares of our common stock. As of July 31, 2004, approximately 5,000,000 shares of our common stock remain available for repurchase under these programs. Our ability to exercise this authority is currently subject to certain restrictions by the terms of our revolving credit facility. As conditions may allow, and if consent is required or granted, we may from time to time acquire additional shares of our common stock under these programs. Such shares, if purchased, would be held as treasury shares. No shares were acquired under this program during the three months ended July 31, 2004. The repurchase program has no expiration date.
28 Item 4. Submission of Matters to a Vote of Security Holders Our Annual Meeting of Shareholders was held on June 24, 2004. Joseph L. Castle II, Pamela S. Lewis, and Katherine M. Hudson were nominated for election, in our Proxy Statement, to serve three-year terms as Class B Directors. The total number of shares represented at the Annual Meeting were 107,958,296 shares, representing 94.0% of the total number of shares outstanding as of the close of business on May 5, 2004 (the record date fixed by the Board of Directors). The following table indicates the number of votes cast in favor of election and the number of votes withheld with respect to each of the Class B Directors nominated: Name Votes For Votes Withheld ---- --------- -------------- Joseph L. Castle, II 100,277,757 7,680,539 Pamela S. Lewis 100,284,429 7,673,867 Katherine M. Hudson 100,267,011 7,691,285 A proposal to approve the 2004 Stock Award and Incentive Plan, which was approved by the Board of Directors on April 30, 2004, was approved, with 75,350,784 votes for the proposal, 16,685,976 votes against the proposal, 259,165 abstentions, and 15,662,371 broker non-votes. Item 6. Exhibits (a) Exhibits The following is a list of Exhibits filed as part of this Quarterly Report on Form 10-Q. Where so indicated, Exhibits that were previously filed are incorporated by reference. For Exhibits incorporated by reference, the location of the Exhibit in the previous filing is indicated in parenthesis. 3.1 Restated Articles of Incorporation, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 29, 1994. (File No. 000-07258, Exhibit 3.1) 3.2 Bylaws, as Amended and Restated, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 1999. (Exhibit 3.2) 10.1 2003 Incentive Compensation Plan, incorporated by reference to Appendix C of the Registrant's Proxy Statement Pursuant to Section 14 of the Securities Exchange Act of 1934, filed on May 22, 2003. 10.2 2004 Stock Award and Incentive Plan, incorporated by reference to Appendix B of the Registrant's Proxy Statement Pursuant to Section 14 of the Securities Exchange Act of 1934, filed on May 19, 2004. 10.3 Amended and Restated Variable Deferred Compensation Plan for Executives, Effective December 23, 2003. 10.4 Fourth Amendment, dated as of August 5, 2004, to Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997, as amended on July 22, 1999 and on May 8, 2001, among Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association (formerly known as First Union National Bank) as Trustee. 29 10.5 Series 2004-1 Supplement, dated as of August 5, 2004, to Second Amended and Restated Pooling and Service Agreement, dated as of November 25, 1997 (as amended on July 22, 1999, on May 8, 2001 and on August 5, 2004), among Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association, as Trustee, on behalf of the Series 2004-1 Certificateholders, for $180,000,000 Charming Shoppes Master Trust Series 2004-1. 10.6 Certificate Purchase Agreement, dated as of July 21, 2004, among Charming Shoppes Receivables Corp., Fashion Service Corp., Spirit of America, Inc., and Barclay's Capital Inc. (as representative of the Initial Purchasers). 10.7 Certificate Purchase Agreement, dated as of August 5, 2004, among Wachovia Bank, National Association as Trustee, Charming Shoppes Receivables Corp. as Seller, Spirit of America, Inc. as Servicer, and Clipper Receivables Company LLC as Initial Class C Holder. 10.8 The Charming Shoppes, Inc. 1993 Employees' Stock Incentive Plan Restricted Stock Agreement, dated as of May 13, 2004, between Charming Shoppes, Inc. and Dorrit J. Bern. 31.1 Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 30 SIGNATURES Pursuant to the requirements 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. CHARMING SHOPPES, INC. ---------------------- (Registrant) Date: August 27, 2004 /S/ Dorrit J. Bern ------------------ Dorrit J. Bern Chairman of the Board President and Chief Executive Officer Date: August 27, 2004 /S/ Eric M. Specter ------------------- Eric M. Specter Executive Vice President Chief Financial Officer 31 Exhibit Index Exhibit No. Item - ----------- ---- 3.1 Restated Articles of Incorporation, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 29, 1994. (File No. 000-07258, Exhibit 3.1) 3.2 Bylaws, as Amended and Restated, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 1999. (Exhibit 3.2) 10.1 2003 Incentive Compensation Plan, incorporated by reference to Appendix C of the Registrant's Proxy Statement Pursuant to Section 14 of the Securities Exchange Act of 1934, filed on May 22, 2003. 10.2 2004 Stock Award and Incentive Plan, incorporated by reference to Appendix B of the Registrant's Proxy Statement Pursuant to Section 14 of the Securities Exchange Act of 1934, filed on May 19, 2004. 10.3 Amended and Restated Variable Deferred Compensation Plan for Executives, Effective December 23, 2003. 10.4 Fourth Amendment, dated as of August 5, 2004, to Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997, as amended on July 22, 1999 and on May 8, 2001, among Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association (formerly known as First Union National Bank) as Trustee. 10.5 Series 2004-1 Supplement, dated as of August 5, 2004, to Second Amended and Restated Pooling and Service Agreement, dated as of November 25, 1997 (as amended on July 22, 1999, on May 8, 2001 and on August 5, 2004), among Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association, as Trustee, on behalf of the Series 2004-1 Certificateholders, for $180,000,000 Charming Shoppes Master Trust Series 2004-1. 10.6 Certificate Purchase Agreement, dated as of July 21, 2004, among Charming Shoppes Receivables Corp., Fashion Service Corp., Spirit of America, Inc., and Barclay's Capital Inc. (as representative of the Initial Purchasers). 10.7 Certificate Purchase Agreement, dated as of August 5, 2004, among Wachovia Bank, National Association as Trustee, Charming Shoppes Receivables Corp. as Seller, Spirit of America, Inc. as Servicer, and Clipper Receivables Company LLC as Initial Class C Holder. 10.8 The Charming Shoppes, Inc. 1993 Employees' Stock Incentive Plan Restricted Stock Agreement, dated as of May 13, 2004, between Charming Shoppes, Inc. and Dorrit J. Bern. 31.1 Certification By Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification By Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32 EX-10 2 exh103.txt EXHIBIT 10.3 EXHIBIT 10.3 CHARMING SHOPPES on VARIABLE DEFERRED COMPENSATION PLAN on FOR EXECUTIVES on Amended and Restated on Effective December 23, 2003 on CHARMING SHOPPES VARIABLE DEFERRED COMPENSATION PLAN FOR EXECUTIVES Amended and Restated Effective December 23, 2003 TABLE OF CONTENTS Article 1 Preamble.................................................. 1 Article 2 Definitions............................................... 2 Article 3 Administration of the Plan................................ 8 Article 4 Participation............................................. 9 Article 5 Distribution Option Accounts..............................12 Article 6 Distribution Options......................................13 Article 7 Benefits to Participants..................................14 Article 8 Disability................................................16 Article 9 Survivor Benefits.........................................17 Article 10 Emergency Benefit.........................................18 Article 11 Accelerated Distribution..................................18 Article 12 Miscellaneous.............................................19 Article 13 Signature.................................................23 i CHARMING SHOPPES VARIABLE DEFERRED COMPENSATION PLAN FOR EXECUTIVES Amended and Restated Effective December 23, 2003 ARTICLE 1 Preamble 1.1 Purpose. The purpose of the Charming Shoppes Variable Deferred Compensation Plan for Executives (the "Plan") is to provide a means whereby Charming Shoppes, Inc. (hereinafter referred to as the "Company" or "Charming Shoppes") may afford increased financial security, on a tax-favored basis, to a select group of key management employees of the Company who have rendered and continue to render valuable services to the Company which constitute an important contribution towards the Company's continued growth and success, by providing for additional future compensation so that such employees may be retained and their productive efforts encouraged. 1.2 Amended and Restated Plan. The Company hereby amends and restates the Plan, effective December 23, 2003, to permit certain executive employees of the Company to defer the receipt of all or a portion of the Company Stock (as defined below) that they would otherwise receive upon the lapse of the restrictions applicable to the restricted stock awards made to such employees under the Company's 1993 Employees Stock Incentive Plan, 1999 Associates Stock Incentive Plan and 2000 Associates Stock Incentive Plan. The Plan was previously amended and restated effective January 1, 2002, to allow Eligible Employees (as defined below), who were participants under the Limited, Inc. Alternate Savings Plan (the "Limited Plan") and the Lane Bryant, Inc. Supplemental Retirement and Deferred Compensation Plan (the "Lane Bryant Plan"), to consolidate their prior balances under such plans and have such balances credited to a Retirement Distribution Account under this Plan which shall: (a) earn a fixed annual rate of interest as respectively provided for such balances under the Limited Plan and/or the Lane Bryant Plan as in effect on December 31, 2001 (the "Fixed Rate"); and (b) be segregated for purposes of Article V from any new deferrals under this Plan, and credited only with that interest rate. In addition, the Lane Bryant Plan was merged with and into the Plan, effective as of January 1, 2002. Any such individual who is or becomes an Eligible Employee on or after December 23, 2003, and who wishes to participate in the Plan, shall be subject to the terms and conditions as set forth herein on or after that date. 1 ARTICLE 2 Definitions For ease of reference, the following definitions will be used in the Plan: 2.1 Affiliate. "Affiliate" means any firm, partnership, or corporation that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the Company. "Affiliate" also includes any other organization similarly related to the Company that is designated as such by the Board. 2.2 Base Salary. "Base Salary" means with respect to a Participant for any Plan Year such Participant's annual base salary, before deferral pursuant to this Plan or any agreement or any other plan of the Company whereby compensation is deferred, including, without limitation, a plan whereby compensation is deferred in accordance with Code Section 401(k) or reduced in accordance with Code Section 125. 2.3 Base Salary Deferral. "Base Salary Deferral" means that portion of Base Salary as to which an Eligible Employee has made an annual irrevocable election to defer receipt of until the date specified under the In-Service Distribution Option and/or the Retirement Distribution Option. 2.4 Beneficial Owner, Beneficially Owns and Beneficial Ownership. "Beneficial Owner, Beneficially Owns and Beneficial Ownership" shall have the meanings ascribed to such terms for purposes of Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules thereunder, except that, for purposes of this definition, "Beneficial Ownership" (and the related terms) shall include Voting Securities that a Person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants, options or otherwise, regardless of whether any such right is exercisable within 60 days of the date as of which Beneficial Ownership is to be determined. 2.5 Beneficiary. "Beneficiary" means the person or persons designated as such in accordance with Section 12.3. 2.6 Board. "Board" means the Board of Directors of Charming Shoppes. 2.7 Bonus Compensation. "Bonus Compensation" means with respect to a Participant for any Plan Year such Participant's annual bonus compensation before deferral pursuant to this Plan or any agreement or any other plan of the Company whereby compensation is deferred, including, without limitation, a plan whereby compensation is deferred in accordance with Code Section 401(k) or reduced in accordance with Code Section 125. "Bonus Compensation" also means with respect to a Participant for any Plan Year such Participant's award from the Charming Shoppes, Inc. Long-Term Incentive Program before deferral pursuant to this Plan. 2 2.8 Bonus Compensation Deferral. "Bonus Compensation Deferral" means that portion of Bonus Compensation as to which an Eligible Employee has made an annual irrevocable election to defer receipt of until the date specified under the In-Service Distribution Option and/or the Retirement Distribution Option. "Bonus Compensation Deferral" also means that portion of Bonus Compensation attributable to an award from the Charming Shoppes, Inc. Long-Term Incentive Program as to which an Eligible Employee has made an irrevocable election, prior to the end of the second fiscal year within the performance period attributable to such award, or such other time as determined by the Committee, to defer receipt of until the date specified under the In-Service Distribution Option and/or the Retirement Distribution Option. 2.9 Break in Service. "Break in Service" means a Plan Year during which a Participant is not credited with more than 500 Hours of Service. 2.10 Change of Control. "Change of Control" means and shall be deemed to have occurred if: (a) any Person, other than the Company or a Related Party, acquires directly or indirectly the Beneficial Ownership of any Voting Security and immediately after such acquisition such Person has, directly or indirectly, the Beneficial Ownership of Voting Securities representing 20 percent or more of the total voting power of all the then-outstanding Voting Securities; or (b) those individuals who as of the day after the Charming Shoppes' annual shareholders meeting in the Plan Year prior to the determination constitute the Board or who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors as of the day after the Charming Shoppes' annual shareholders meeting in the Plan Year prior to the determination or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the members of the Board ; or (c) the shareholders of Charming Shoppes approve a merger, consolidation, recapitalization or reorganization of Charming Shoppes, a reverse stock split of outstanding Voting Securities, or an acquisition of securities or assets by Charming Shoppes (a "Transaction"), or consummation of such a Transaction if shareholder approval is not obtained, other than a Transaction which would result in the holders of Voting Securities having at least 80 percent of the total voting power represented by the Voting Securities outstanding immediately prior thereto continuing to hold Voting Securities or voting securities of the surviving entity having at least 60 percent of the total voting power represented by the Voting Securities or the voting securities of such surviving entity outstanding immediately after such transaction and in or as a result of which the voting rights of each Voting Security relative to the voting rights of all other Voting Securities are not altered; or (d) the shareholders of Charming Shoppes approve a plan of complete liquidation of Charming Shoppes or an agreement for the sale or disposition by Charming Shoppes of all or substantially all of Charming Shoppes' assets other than any such transaction 3 which would result in Related Parties owning or acquiring more than 50 percent of the assets owned by Charming Shoppes immediately prior to the transaction. 2.11 Code. "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.12 Committee. "Committee" means the persons appointed by the Company to administer the Plan. 2.13 Company. "Company" means Charming Shoppes and any Affiliate which is authorized by the Board to adopt the Plan and cover its Eligible Employees and whose designation as such has become effective upon acceptance of such status by the board of directors of the Affiliate. An Affiliate may revoke its acceptance of such designation at any time, but until such acceptance has been revoked, all the provisions of the Plan and amendments thereto shall apply to the Eligible Employees of the Affiliate. In the event the designation is revoked by the board of directors of an Affiliate, the Plan shall be deemed terminated only with respect to such Affiliate. 2.14 Company Stock. "Company Stock" means shares of common stock of Charming Shoppes, Inc. 2.15 Disabled. "Disabled" means a mental or physical condition which qualifies a Participant for benefits under the Charming Shoppes Long Term Disability Plan. 2.16 Distribution Option. "Distribution Option" means the two distribution options which are available under the Plan, consisting of the Retirement Distribution Option and the In-Service Distribution Option. 2.17 Distribution Option Account. "Distribution Option Account" or "Accounts" means, with respect to a Participant, the Retirement Distribution Account and/or the In-Service Distribution Account established on the books of account of the Company, pursuant to Section 5.1, for each Distribution Option Period. 2.18 Distribution Option Period. "Distribution Option Period" means a period of four Plan Years for which an Eligible Employee elects, in the Enrollment Agreement, the time and manner of payment of amounts credited to the Eligible Employee's Distribution Option Accounts for such Plan Years. 2.19 Earnings Crediting Options. "Earnings Crediting Options" means the options selected by the Participant from time to time pursuant to which earnings are credited to the Participant's Distribution Option Accounts. 2.20 Effective Date. "Effective Date" means the effective date of the Plan which is December 1, 1997, as amended and restated effective December 23, 2003. 4 2.21 Eligible Employee. "Eligible Employee" means an Employee who is a member of the group of selected management and/or highly compensated Employees of the Company designated by the Company's Chief Executive Officer as eligible to participate in the Plan. 2.22 Employee. "Employee" means any person employed by the Company on a regular full-time salaried basis or who is an officer of the Company. 2.23 End Termination Date. "End Termination Date" means the date of termination of a Participant's Service with the Company and its Affiliates. 2.24 Enrollment Agreement. "Enrollment Agreement" means the authorization form which an Eligible Employee files with the Committee to participate in the Plan. 2.25 Equity Plans. "Equity Plans" means the Company's 1993 Employees Stock Incentive Plan, 1999 Associates Stock Incentive Plan and 2000 Associates Stock Incentive Plan and any similar plan adopted by the Company after the Effective Date. 2.26 Excess Compensation. "Excess Compensation" means amounts of Base Salary and Bonus Compensation equal to the excess, if any, of (a) the sum of the Participant's Base Salary and Bonus Compensation minus the amount of deferrals under this Plan over (b) the maximum amount of compensation permitted to be taken into account under the terms of the Savings Plan. 2.27 Fair Market Value. "Fair Market Value" means: (i) if the Company Stock is publicly traded, then the Fair Market Value per share shall be determined as follows: (A) if the principal trading market for the Company Stock is a national securities exchange or the Nasdaq National Market, the last reported sale price thereof on the relevant date or (if there were no trades on that date) the latest preceding date upon which a sale was reported, or (B) if the Company Stock is not principally traded on such exchange or market, the mean between the last reported "bid" and "asked" prices of Company Stock on the relevant date, as reported on Nasdaq or, if not so reported, as reported by the National Daily Quotation Bureau, Inc. or as reported in a customary financial reporting service, as applicable and as the Board determines; or (ii) if the Company Stock is not publicly traded or, if publicly traded, is not subject to reported transactions or "bid" or "asked" quotations as set forth below, the Fair Market Value per share shall be as determined by the Committee. 2.28 Hour of Service. "Hour of Service" means each hour for which an Employee is directly or indirectly paid or entitled to be paid by the Company or an Affiliate for the performance of employment duties and each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Company or an Affiliate. These hours shall be credited to an Employee for the computation period during which his or her employment duties were performed or to which a back pay agreement or award pertains irrespective of when payment is made. No Employee shall be credited with duplicate Hours of Service as a result of a back pay agreement or award. An Employee shall also be credited with one Hour of Service for each hour for which the Employee is directly or indirectly paid, or entitled to payment, by the Company or an Affiliate on account of a period during which no duties are performed due to vacation, holiday, illness, incapacity, disability, layoff, jury duty or Leave of Absence; provided, 5 however, that not more than 501 Hours of Service shall be credited to an Employee under this sentence on account of any single, continuous period during which the Employee performs no duties, and provided further that no credit shall be given if payment is made or due under a plan maintained solely for the purpose of complying with applicable workers' compensation, unemployment compensation or disability insurance laws, or is made solely to reimburse an Employee for medical or medically related expenses incurred by the Employee. (a) For purposes of determining the number of Hours of Service completed in any applicable computation period, the Committee may maintain accurate records of actual hours completed for all Employees. The number of Hours of Service to be credited to an Employee for periods during which no employment duties are performed shall be determined in accordance with sections 2530.200b-2(b) and 2530.200b-2(c) of the Department of Labor regulations in Title 29 of the Code of Federal Regulations. (b) If the Committee does not maintain records of actual Hours of Service, an Employee shall be credited with 45 Hours of Service for each week in which such Employee would otherwise be credited with at least one Hour of Service. (c) Solely for the purpose of preventing a Break in Service, an Employee shall be credited with Hours of Service during an absence by reason of: (i) the pregnancy of the Employee; (ii) the birth of a child of the Employee; (iii) the placement of a child with the Employee in connection with the adoption of such child by the Employee; or (iv) for purposes of caring for a child beginning immediately after such birth or placement; provided the Employee shall, during the period of his or her absence, be credited with the number of Hours of Service which would have been credited to him at his or her normal work rate but for such absence, or, if the number of Hours of Service based on a normal rate is indeterminable, the Employee shall be credited with eight Hours of Service per day of such absence. Notwithstanding the foregoing, the Employee shall be credited with no more than 501 Hours of Service during said absence. These hours shall be credited to the Break in Service computation period in which the absence began if necessary to avoid a Break in Service or, if not necessary, then to the following computation period. The Employee shall be responsible for reporting to the Committee any Hours of Service that are to be credited under this Section 2.25. Nothing contained in the Section shall be deemed to expand or extend any maternity or paternity leave policy of the Company or an Affiliate. 6 2.29 In-Service Distribution Account. "In-Service Distribution Account" means the Account maintained for a Participant for each Distribution Option Period to which Base Salary Deferrals and/or Bonus Compensation Deferrals and Company Matching Contributions are credited pursuant to the In-Service Distribution Option. 2.30 In-Service Distribution Option. "In-Service Distribution Option" means the Distribution Option pursuant to which benefits are payable in accordance with Section 7.2. 2.31 Leave of Absence. "Leave of Absence" means any temporary absence from employment authorized by the Company or an Affiliate based on its normal practices. 2.32 Matching Contributions. "Matching Contributions" are those credited to a Participant's Distribution Option Accounts by the Company pursuant to Section 4.4. 2.33 Matching Units. "Matching Units" are those credited to a Participant's Distribution Option Accounts by the Company pursuant to Section 4.6. 2.34 Participant. "Participant" means an Eligible Employee who has filed a completed and executed Enrollment Agreement with the Committee or its designee and is participating in the Plan in accordance with the provisions of Article 4. 2.35 Person. "Person" shall have the meaning ascribed for purposes of Section 13(d) of the Exchange Act and the rules thereunder. 2.36 Plan. "Plan" means this plan, called the Charming Shoppes Variable Deferred Compensation Plan for Executives, as amended from time to time. 2.37 Plan Year. "Plan Year" means the 12 month period beginning on each January 1 and ending on the following December 31 except that the first Plan Year shall begin on the Effective Date. 2.38 Related Party. "Related Party" means (a) a majority-owned subsidiary of Charming Shoppes; or (b) a trustee or other fiduciary holding securities under an employee benefit plan of Charming Shoppes or any majority-owned subsidiary of Charming Shoppes; or (c) a corporation owned directly or indirectly by the shareholders of Charming Shoppes in substantially the same proportion as their ownership of Voting Securities. 2.39 Retirement. "Retirement" means the termination of the Participant's Service with the Employer (for reasons other than death) at or after age 65, or, if the Participant has 10 or more years of Service, at or after age 55. 2.40 Retirement Distribution Account. "Retirement Distribution Account" means the Account maintained for a Participant for each Distribution Option Period to which Base Salary Deferrals and/or Bonus Compensation Deferrals and Company Matching Contributions are credited pursuant to the Retirement Distribution Option. 7 2.41 Retirement Distribution Option. "Retirement Distribution Option" means the Distribution Option pursuant to which benefits are payable in accordance with Section 7.1. 2.42 Savings Plan. "Savings Plan" means the Company's Employees' Retirement Savings Plan. 2.43 Service. "Service" means the period of time during which an employment relationship exists between an Employee and the Company, including any period during which the Employee is on an approved leave of absence, whether paid or unpaid. "Service" also includes employment with an Affiliate if an Employee transfers directly between the Company and the Affiliate. 2.44 Vesting or Vested. "Vesting" or "Vested" refers to the permanent ownership rights to the Matching Contributions that a Participant earns through Years of Service. A Participant does not fully vest until after six Years of Service. A Participant shall be Vested in 20% of the Matching Contribution after 2 Years of Service and 20% for each Year of Service in excess of two, after which the Participant will be 100% Vested in the Matching Contributions. Matching Contributions and related earnings are forfeited when service terminates, to the extent not then Vested. A Participant is automatically 100% Vested if the Participant becomes Disabled or dies. A Participant is always 100% Vested in Base Salary Deferrals, Bonus Compensation Deferrals, and related earnings. Notwithstanding the foregoing, effective January 1, 2003, a Participant shall be 100% Vested in his Matching Contributions upon attainment of age 65. 2.45 Voting Securities. "Voting Securities" means any securities of Charming Shoppes which carry the right to vote generally in the election of directors. 2.46 Year of Service. A "Year of Service" for Vesting purposes is a calendar year during which a Participant is credited with 1,000 Hours of Service. If a Participant incurs a Break in Service, his Years of Service before that Break in Service (and not disregarded by reason of any prior Break in Service) shall be taken into account only if following the Break in Service the Participant completes one Year of Service, and: (a) before the Break in Service the Participant had a Vested interest in his or her accrued benefits under the Plan; or (b) the aggregate number of the Participant's consecutive Breaks in Service is less than five. ARTICLE 3 Administration of the Plan 3.1 Committee. The Committee is hereby authorized to administer the Plan and establish, adopt, or revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan. The Committee shall have discretionary authority to construe and interpret the Plan, to make determinations, including factual determinations, and to determine the rights, if any, of Participants and Beneficiaries under the Plan. The Committee's resolution of 8 any matter concerning the Plan shall be final and binding upon any Participant and Beneficiary affected thereby. Members of the Committee shall be eligible to participate in the Plan while serving as members of the Committee, but a member of the Committee shall not vote or act upon any matter which relates solely to such member's interest in the Plan as a Participant. ARTICLE 4 Participation 4.1 Election to Participate. Annually, all Eligible Employees will be offered the opportunity to defer compensation to be earned in the following Plan Year. Any Eligible Employee may enroll in the Plan effective as of the first day of a Plan Year by filing a completed and fully executed Enrollment Agreement with the Committee prior to the end of the first quarter of such Plan Year; provided, however, that the Eligible Employee's Base Salary Deferral shall be effective prospectively only from the first payroll period of the Company next following receipt of the Enrollment Agreement. In addition, during any Plan Year, an Eligible Employee may make a one-time election to completely defer compensation; provided, however, that such an election shall be effective for the balance of the current Plan Year and the next following full Plan Year. Such election shall be in writing in such form, and at such time, as the Committee directs. Pursuant to said Enrollment Agreement, the Eligible Employee shall irrevocably elect (a) the percentages, in whole percentages, by which up to 77% of Base Salary (80% in the case of Excess Compensation) or up to 100% of Bonus Compensation (in each case after required payroll tax deductions) of such Eligible Employee for the Plan Year will be deferred, and (b) the Distribution Option Accounts to which such amounts will be credited, and shall provide such other information as the Committee shall require. The first Enrollment Agreement filed by an Eligible Employee during any Distribution Option Period must also set forth the Participant's election as to the time and manner of distribution from the In-Service Distribution Account and the Retirement Distribution Account of amounts credited for that Distribution Option Period and related earnings. Notwithstanding anything in this Plan to the contrary, any election by a Participant to defer Base Salary or Bonus Compensation for any Plan Year by less than 2%, or such other amount as the Committee may determine from time to time, shall not be given effect. Participation in the Plan shall be made conditional upon an Eligible Employee's acknowledgement, in writing, that all decisions and determinations of the Committee shall be final and binding on the Eligible Employee, his beneficiaries, and any other person having or claiming an interest under the Plan. 4.2 Acknowledgement of Committee's Authority. A Participant's execution of the Enrollment Agreement shall also constitute acknowledgment that all decisions, interpretations and determinations by the Committee shall be final and binding on the Company, Participants, Beneficiaries and any other persons having or claiming an interest thereunder. 4.3 New Eligible Employees. The Committee may, in its discretion, permit Employees who first become Eligible Employees after the beginning of a Plan Year to enroll in the Plan for that Plan Year by filing a completed and fully executed Enrollment Agreement, in accordance with Section 4.1, as soon as practicable following the date the Employee becomes an Eligible Employee but, in any event, within 30 days after such date. Notwithstanding the 9 foregoing, however, any election by an Eligible Employee, pursuant to this section, to defer Base Salary and/or Bonus Compensation shall apply only to such amounts as are earned by the Eligible Employee after the date on which such Enrollment Agreement is filed. 4.4 Matching Contributions. An Eligible Employee who elects to participate in the Plan pursuant to Section 4.1 and/or Section 4.3 shall be eligible to receive Matching Contributions by the Company if, and only when, such Eligible Employee is eligible to receive matching contributions under the Savings Plan. The amount of such Matching Contributions for a Plan Year shall be 1 1/2% of the Base Salary Deferral and Bonus Compensation Deferral to the extent that any such deferral relates to compensation less than or equal to the maximum amount of compensation permitted to be taken into account under the terms of the Savings Plan and 50% of the Base Salary Deferrals and Bonus Compensation Deferrals made under this Plan to the extent that such deferrals do not exceed 3% of Base Salary and Bonus Compensation; provided, however, that the Matching Contributions shall equal 50% of the Base Salary Deferrals and Bonus Compensation Deferrals made under the Plan to the extent the deferrals relate to Excess Compensation and to the extent that such deferrals do not exceed 6% of Base Salary and Bonus Compensation. Matching Contributions will be credited to the Distribution Option Account to which the matched Base Salary or Bonus Compensation Deferrals are credited. Matching Contributions will be credited as frequently as determined by the Committee, acting on behalf of the Company, but in any event at least once per year. Matching Contributions will be credited as soon as practicable in the Participant's final year of Participation. 4.5 Transfer of Limited Plan or Lane Bryant Plan Balances. Notwithstanding the above, an Eligible Employee, who was a participant under the Limited Plan and/or the Lane Bryant Plan, shall have his or her prior balances under such plans, if any, consolidated and credited to the Retirement Distribution Account, and the Fixed Rate thereafter applied to such balances. Such a Participant's deferrals on or after January 1, 2002 shall not be credited with the Fixed Rate but shall be subject to the provisions of Article V. 4.6 Company Stock Deferrals. (a) Eligibility. The Company, in its sole and absolute discretion, may permit selected Eligible Employees to elect to defer all or a portion of the shares of Company Stock that they would otherwise receive upon the lapse of restrictions applicable to the restricted stock awards made to such Eligible Employees under one or more of the Equity Plans. Unless otherwise permitted by the Committee and specifically communicated to the Eligible Employee, Company Stock may only be deferred into a Retirement Distribution Account. (b) Form and Timing of Election. An election to defer Company Stock must be made no later than the last day of the calendar year prior to the calendar year in which the restrictions applicable to such Company Stock would otherwise lapse. An Eligible Employee may make an election by filing a completed and fully executed Enrollment Agreement with the Committee. In no event may an Eligible Employee change his election to defer receipt of all or part of his Company Stock once made, and such election shall be irrevocable. 10 (c) Deferral of Company Stock. Upon receipt by the Committee of an Eligible Employee's completed and executed Enrollment Form, the number of shares of Company Stock that the Eligible Employee elected to defer shall be cancelled and the Company shall credit the Eligible Employee's Distribution Option Accounts with a number of units equal to the number of shares of Company Stock the Eligible Employee elected to defer. (d) Matching Units. For every share of Company Stock an Eligible Employee elects to defer that, when aggregated with all other compensation payable to the Eligible Employee for the fiscal year, would have otherwise been in excess of the limitation under Code section 162(m) (the "162(m) limit"), the Company shall credit to such Eligible Employee's Distribution Option Account a unit equivalent to two-tenths of a share of Company Stock such that for every five shares of Company Stock an Eligible Employee elects to defer (but only to the extent that such shares would have otherwise caused the Eligible Employee's compensation to exceed the 162(m) limit), the Company shall credit a number of units equivalent to one whole share of Company Stock to such Eligible Employee's Distribution Option Accounts. Matching Units shall be credited to an Eligible Employee's Distribution Option Accounts as of the last day of the fiscal year of the Company in which the restrictions applicable to the Company Stock would have otherwise lapsed (and would have resulted in a taxable event to the Eligible Employee but for the deferral), after it is determined whether and to what extent an Eligible Employee's compensation would have exceeded the 162(m) limit had no deferral of Company Stock been made. (e) Vesting. The units credited to an Eligible Employee's Distribution Option Accounts (including any Matching Units) shall be subject to the vesting requirements set forth in the applicable Equity Plan and the restricted stock agreement governing the Company Stock deferred by the Eligible Employee under the applicable Equity Plan. (f) Dividends. If dividends are declared with respect to shares of Company Stock, the amount of the dividend that would have been distributed with respect to the units allocated to an Eligible Employee's Distribution Option Accounts, had each such whole unit been a share of Company Stock, shall be converted into additional units based on the Fair Market Value of the Company Stock on the date the dividend is paid. The additional units shall be credited to an Eligible Employee's Distribution Option Accounts as of the date the dividends are paid. All units attributable to dividends shall become vested, or shall be forfeited, according to the vesting of the units to which they relate. (g) Distribution. Distribution shall be made in accordance with the provisions of the Plan; provided that all distributions attributable to units representing deferred Company Stock shall be made in Company Stock. In no event will distribution be made until the units credited to Eligible Employee's Distribution Option Accounts have become vested in accordance with Section 4.4(e). 11 ARTICLE 5 Distribution Option Accounts 5.1 Distribution Option Accounts. The Committee shall establish and maintain separate Distribution Option Accounts with respect to a Participant for each Distribution Option Period. A Participant's Distribution Option Accounts shall consist of the Retirement Distribution Account and/or the In-Service Distribution Account. The amount of Base Salary and/or Bonus Compensation deferred pursuant to Section 4.1 or Section 4.3 shall be credited by the Company to the Participant's Distribution Option Accounts no later than the first day of the month following the month in which such Base Salary and/or Bonus Compensation would otherwise have been paid, in accordance with the Distribution Option irrevocably elected by the Participant in the Enrollment Agreement. Any Company Stock deferred pursuant to Section 4.6 shall be credited by the Company to the Participant's Distribution Option Accounts as of the date the shares are deferred following the Committee's receipt of the Participant's completed and executed Enrollment Agreement. Any amount once taken into account as Base Salary and/or Bonus Compensation for purposes of this Plan shall not be taken into account thereafter. Matching Contributions, when credited, are credited to the Distribution Option Accounts in the same proportion as the Base Salary and/or Bonus Compensation they match. The Participant's Distribution Option Accounts shall be reduced by the amount of payments made by the Company to the Participant or the Participant's Beneficiary pursuant to this Plan. 5.2 Earnings on Distribution Option Accounts. (a) Except as provided in (b) below, a Participant's Distribution Option Accounts shall be credited with earnings in accordance with the Earnings Crediting Options elected by the Participant from time to time. Participants may allocate each of their Retirement Distribution Accounts and/or In-Service Distribution Accounts among the Earnings Crediting Options available under the Plan only in whole percentages of not less than five (5) percent. The deemed rate of return, positive or negative, credited under each Earnings Crediting Option is based upon the actual investment performance of the corresponding investment portfolios of the Hudson River Trust or EQ Advisers Trust, open-end management investment companies under the Investment Company Act of 1940, as amended from time to time, or such other investment fund(s) as the Company may designate from time to time, and shall equal the total return of such investment fund net of asset based charges, including, without limitation, money management fees, fund expenses and mortality and expense risk insurance contract charges. The Company reserves the right, on a prospective basis, to add or delete Earnings Crediting Options. (b) The value of any units credited to an Eligible Employee's Distribution Option Accounts in connection with the deferral of Company Stock pursuant to Section 4.6 shall be based on the Fair Market Value of a share of Company Stock and shall not be subject to the provisions of (a) above relating to Earnings Crediting Options. 5.3 Earnings Crediting Options. Except as otherwise provided pursuant to Section 5.2, the Earnings Crediting Options available under the Plan shall consist of options which correspond to certain investment portfolios of both the Hudson River Trust and EQ Advisers 12 Trust. Notwithstanding that the rates of return credited to Participants' Distribution Option Accounts under the Earnings Crediting Options are based upon the actual performance of the corresponding portfolios of these Trusts, or such other investment funds as the Company may designate, the Company shall not be obligated to invest any Base Salary and/or Bonus Compensation deferred by Participants under this Plan, Matching Contributions, or any other amounts, in such portfolios or in any other investment funds. 5.4 Changes in Earnings Crediting Options. A Participant may change the Earnings Crediting Options to which his Distribution Option Accounts are deemed to be allocated not more frequently than four (4) times per Plan Year. Effective January 1, 2003, there shall be no limit to the frequency that a Participant may change the Earnings Crediting Options to which his Distribution Option Accounts are deemed to be allocated. Each such change may include (a) reallocation of the Participant's existing Accounts in whole percentages of not less than five (5) percent, and/or (b) change in investment allocation of amounts to be credited to the Participant's Accounts in the future, as the Participant may elect. Notwithstanding the foregoing, however, in the event the Company deletes an Earnings Crediting Option, a Participant whose Accounts are allocated to such Earnings Crediting Option, in whole or in part, shall be entitled to reallocate his Distribution Option Accounts and/or any amounts to be credited in the future to such Distribution Option Accounts among the remaining Earnings Crediting Options, at the time of such deletion, without regard to the annual limit of four (4) such changes. 5.5 Valuation of Accounts. The value of a Participant's Distribution Option Accounts as of any date shall equal the amounts theretofore credited to such Accounts, including any earnings (positive or negative) deemed to be earned on such Accounts in accordance with Section 5.2 through the day preceding such date, less the amounts theretofore deducted from such Accounts. 5.6 Statement of Accounts. The Committee shall provide to each Participant, not less frequently than quarterly, a statement in such form as the Committee deems desirable setting forth the balance standing to the credit of each Participant in each of his Distribution Option Accounts. 5.7 Distributions from Accounts. Any distribution made to or on behalf of a Participant from one or more of his Distribution Option Accounts in an amount which is less than the entire balance of any such Account shall be made pro rata from each of the Earnings Crediting Options to which such Account is then allocated. ARTICLE 6 Distribution Options 6.1 Election of Distribution Option. In the first completed and fully executed Enrollment Agreement filed with the Committee for each Distribution Option Period, an Eligible Employee shall elect the time and manner of payment pursuant to which the Eligible Employee's Distribution Option Accounts for that Distribution Option Period will be distributed; provided that, unless the Committee determines otherwise and specifically communicates such 13 determination to the Eligible Employee, Company Stock deferred pursuant to Section 4.6 may only be deferred into a Retirement Distribution Account. Annually, the Eligible Employee shall allocate his deferrals and Matching Contributions between the Distribution Options in increments of ten percent, provided, however that 100 percent of such deferrals and Matching Contributions may be allocated to one or the other of the Distribution Options. 6.2 Retirement Distribution Option. Subject to Section 7.1, distribution of the Participant's Retirement Distribution Account for any Distribution Option Period shall commence upon (a) the Participant's Retirement, or (b) if later, the Participant's attainment of age 65, as elected by the Participant in the Enrollment Agreement pursuant to which such Retirement Distribution Account was established or otherwise as permitted under Section 7.1(a). 6.3 In-Service Distribution Option. Subject to Section 7.2, the Participant's In-Service Distribution Account for any Distribution Option Period shall be distributed commencing in the year elected by the Participant in the Enrollment Agreement pursuant to which such In-Service Distribution Account was established. Notwithstanding the foregoing, if a Participant elects to receive a distribution of his In-Service Distribution Account for any Distribution Option Period commencing in a year which is within such Distribution Option Period, the Participant shall not be entitled to allocate any additional deferrals and Matching Contributions to such In-Service Distribution Account within two Plan Years of the date on which such Account is distributed and such additional deferrals during the Distribution Option Period shall instead be allocated to the Retirement Distribution Account. 6.4 Distribution following Change of Control. In the event that a Participant terminates Service for any reason within two years following a Change of Control, notwithstanding anything else in this Article 6 to the contrary, the Participant's Distribution Option Accounts shall be distributed, in a single lump sum, within thirty days following the date of the termination of Service. ARTICLE 7 Benefits To Participants 7.1 Benefits Under the Retirement Distribution Option. Benefits under the Retirement Distribution Option shall be paid to a Participant as follows: (a) Benefits Upon Retirement. In the case of a Participant whose Service with the Employer terminates on account of his Retirement, the Participant's Retirement Distribution Account with respect to any Distribution Option Period shall be distributed in one of the following methods, as elected by the Participant in writing either in the Enrollment Agreement or in a separate election made prior to the date of the Participant's Retirement: (i) in a lump sum; (ii) in 5, 10, 15, or 20 annual installments; or (iii) by any other formula that is mathematically derived, as long as distribution is completed within 20 years following Retirement. Any lump-sum benefit payable in accordance with this paragraph shall be paid in, but not later than January 31, of the Plan Year following the Plan Year in which occurs the Participant's Retirement or, if later, attainment of age 65 as elected by the Participant in accordance with this Section or 14 Section 6.2, in an amount equal to the value of such Retirement Distribution Account as of the last business day of the Plan Year preceding the date of payment. Annual installment payments, if any, shall commence not later than January 31 of the Plan Year following the Plan Year in which occurs the Participant's Retirement or if later, attainment of age 65, as elected by the Participant in accordance with this Section or Section 6.2, in an amount equal to (i) the value of such Retirement Distribution Account as of the last business day of the Plan Year preceding the date of payment, divided by (ii) the number of annual installment payments elected by the Participant in the Enrollment Agreement pursuant to which such Retirement Distribution Account was established. The remaining annual installments shall be paid not later than January 31 of each succeeding Plan Year in an amount equal to (i) the value of such Retirement Distribution Account as of the last business day of the immediately preceding Plan Year divided by (ii) the number of installments remaining. A Participant may change the election regarding the manner of payment as described in Section 6.1 of the Participant's Account at any time prior to the beginning of the Plan Year in which occurs the Participant's Retirement or attainment of age 65, if later, and elected as the distribution date by the Participant in accordance with Section 6.1. (b) Benefits Upon Termination of Employment. In the case of a Participant whose Service with the Employer terminates prior to the earliest date on which the Participant is eligible for Retirement, other than on account of becoming Disabled or by reason of death, the Vested portion of a Participant's Retirement Distribution Account with respect to any Distribution Option Period shall be distributed in a lump sum as soon as practicable following the Participant's End Termination Date or attainment of age 65, as irrevocably elected by the Participant in the Enrollment Agreement pursuant to which such Retirement Distribution Account was established. 7.2 Benefits Under the In-Service Distribution Option. Benefits under the In-Service Distribution Option shall be paid to a Participant as follows: (a) In-Service Distributions. In the case of a Participant who continues in Service with the Employer, the Vested portion of a Participant's In-Service Distribution Account for any Distribution Option Period shall be paid to the Participant commencing no later than January 31 of the Plan Year irrevocably elected by the Participant in the Enrollment Agreement pursuant to which such In-Service Distribution Account was established, which may be no earlier than the third Plan Year following the end of the last Plan Year in the Distribution Option Period in which deferrals are to be credited to the In-Service Distribution Account for that Distribution Option Period, in one lump sum or in annual installments payable over 2, 3, 4, or 5 years. Any lump-sum benefit payable in accordance with this paragraph shall be paid not later than January 31 of the Plan Year elected by the Participant in accordance with Section 6.3, in an amount equal to the Vested value of such In-Service Distribution Account as of the last business day of the Plan Year preceding the date of payment. Annual installment payments, if any, shall commence not later than January 31 of the Plan Year as elected by the Participant in accordance with Section 6.3, in an amount equal to (i) the Vested value of such In-Service Distribution Account as of the last business day of the Plan Year preceding the date of payment, divided by (ii) the number of annual installment payments elected by the Participant in the Enrollment Agreement pursuant to which such In-Service Distribution Account was established. The 15 remaining annual installments shall be paid not later than January 31 of each succeeding year in an amount equal to (i) the Vested value of such In-Service Distribution Account as of the last business day of the immediately preceding Plan Year divided by (ii) the number of installments remaining. If a Participant is not fully Vested when the In-Service Distribution Account is to be paid, the non-Vested portion at the date of first payment will automatically be transferred to the Retirement Distribution Account. (b) Benefits Upon Termination of Employment. In the case of a Participant whose Service with the Employer terminates prior to the date on which the Participant's In-Service Distribution Account with respect to any Distribution Option Period would otherwise be distributed, other than on account of becoming Disabled or by reason of death, the Vested portion of such In-Service Distribution Account shall be distributed either (i) in a lump sum as soon as is practicable following the Participant's End Termination Date; (ii) in annual installments commencing on the date such In-Service Distribution Account would otherwise have been distributed; or (iii) in a lump sum on the date such In-Service Distribution Account would otherwise have been distributed, all as irrevocably elected by the Participant in the Enrollment Agreement pursuant to which such In-Service Distribution Account was established; provided, however, that the Company may override a Participant's election and cause a distribution under clause (i) notwithstanding any other election by the Participant. ARTICLE 8 Disability In the event a Participant becomes Disabled, the Participant's right to make any further deferrals under this Plan shall terminate as of the date for which the Participant first receives benefits under the Company's Long-Term Disability Benefit Plan, as amended from time to time. The Participant's Distribution Option Accounts shall continue to be credited with earnings in accordance with Section 5.2 until such Accounts are fully distributed. For purposes of this Plan, a Disabled Participant will not be treated as having terminated Service. The Participant's Retirement Distribution Accounts, if any, shall be distributed to the Participant in accordance with Section 7.1(a), provided, however, that distribution of the Participant's Retirement Distribution Accounts, if any, shall commence not later than January 31 of the Plan Year immediately following the later of (a) the Plan Year in which the Participant first becomes eligible for Retirement, or (b) the Plan Year in which the Participant first received benefits under the Company's Long-Term Disability Plan, as amended from time to time. The Participant's In-Service Distribution Accounts, if any, will be distributed to the Participant in accordance with Section 7.2(a) without regard to the fact that the Participant became Disabled. Notwithstanding the foregoing, in no event will distribution be made with respect to units credited to a Participant's Distribution Option Accounts attributable to deferred Company Stock until such units are vested in accordance with Section 4.6(e). 16 ARTICLE 9 Survivor Benefits 9.1 Death of Participant Prior to the Commencement of Benefits. In the event of a Participant's death prior to the commencement of benefits in accordance with Article 7, benefits shall be paid to the Participant's Beneficiary, as determined under Section 12.3, pursuant to Section 9.2 or 9.3, whichever is applicable, in lieu of any benefits otherwise payable under the Plan to or on behalf of such Participant. 9.2 Survivor Benefits Under the Retirement Distribution Option. In the case of a Participant with respect to whom the Company has established one or more Retirement Distribution Accounts, and who dies prior to the commencement of benefits under such Retirement Distribution Accounts pursuant to Section 7.1, distribution of such Retirement Distribution Accounts shall be made (a) in a lump sum as soon as practicable following the Participant's death, or (b) in the manner and at such time as such Retirement Distribution Accounts would otherwise have been distributed in accordance with Section 7.1 had the Participant lived, as elected by the Participant in the Enrollment Agreement pursuant to which such Retirement Distribution Accounts were established or as may have been changed by the Participant. The amount of any lump sum benefit payable in accordance with this Section shall equal the value of such Retirement Distribution Accounts as of the last business day of the calendar month immediately preceding the date on which such benefit is paid. The amount of any annual installment benefit payable in accordance with this Section shall equal (a) the value of such Retirement Distribution Accounts as of the last business day of the calendar month immediately preceding the date on which such installment is paid, divided by (b) the number of annual installments remaining to be paid pursuant to the election of the Participant in the Enrollment Agreement pursuant to which such Retirement Distribution Accounts were established or as may have been changed by the Participant. 9.3 Survivor Benefits Under the In-Service Distribution Option. In the case of a Participant with respect to whom the Company has established one or more In-Service Distribution Accounts, and who dies prior to the date on which such In-Service Distribution Accounts are to be paid pursuant to Section 7.2, distribution of such In-Service Distribution Accounts shall be made (a) in a lump sum as soon as practicable following the Participant's death, or (b) at such time and in such form as such In-Service Distribution Accounts would otherwise have been distributed in accordance with Section 7.2 had the Participant lived, as irrevocably elected by the Participant in the Enrollment Agreement pursuant to which such In-Service Distribution Accounts were established. The amount of any lump sum benefit payable in accordance with this Section shall equal the value of such In-Service Distribution Accounts as of the last business day of the calendar month immediately preceding the date on which such benefit is paid. 9.4 Death of Participant After Benefits Have Commenced. In the event a Participant who elected the Retirement Distribution Option for any Distribution Option Period dies after annual installment benefits payable under Section 7.1 from one or more of the Participant's Retirement Distribution Accounts have commenced, but before the entire balance of such 17 Retirement Distribution Accounts has been paid, any remaining installments shall continue to be paid to the Participant's Beneficiary, as determined under Section 11.3, at such times and in such amounts as they would have been paid to the Participant had he survived. ARTICLE 10 Emergency Benefit 10.1 Unforeseen Financial Emergency. In the event that the Committee, upon written request of a Participant, determines, in its sole discretion, that the Participant has suffered an unforeseeable financial emergency, the Company shall pay to the Participant from the Vested portion of his Distribution Option Account, as soon as practicable following such determination, an amount necessary to meet the emergency, after deduction of any and all taxes as may be required pursuant to Section 12.9 (the "Emergency Benefit"). For purposes of this Plan, an unforeseeable financial emergency is an unexpected need for cash arising from an illness, casualty loss, sudden financial reversal, or other such unforeseeable occurrence. Cash needs arising from foreseeable events such as the purchase of a house or education expenses for children shall not be considered to be the result of an unforeseeable financial emergency. Emergency Benefits shall be paid first from the Participant's In-Service Distribution Accounts, if any, to the extent the Vested balance of one or more of such In-Service Distribution Accounts is sufficient to meet the emergency, in the order in which such Accounts would otherwise be distributed to the Participant. If the distribution exhausts the Vested In-Service Distribution Accounts, the Vested Retirement Distribution Accounts may be accessed. With respect to that portion of any Distribution Option Account which is distributed to a Participant as an Emergency Benefit, in accordance with this Article, no further benefit shall be payable to the Participant under this Plan. Notwithstanding anything in this Plan to the contrary, a Participant who receives an Emergency Benefit in any Plan Year shall not be entitled to make any further deferrals for the remainder of such Plan Year. It is intended that the Committee's determination as to whether a Participant has suffered an "unforeseeable financial emergency" shall be made consistent with the requirements under Section 457(d) of the Code. ARTICLE 11 Accelerated Distribution 11.1 Availability of Withdrawal Prior to Retirement. Upon the Participant's written election, the Participant may elect to withdraw all or a portion of the Participant's vested Distribution Option Account at any time prior to the time such Distribution Option Account otherwise becomes payable under the Plan, provided the conditions specified in Section 11.3, Section 11.4, and Section 11.5 are satisfied. 11.2 Acceleration of Periodic Distributions. Upon the Participant's written election, the Participant or Participant's Beneficiary who is receiving installment payments under the Plan may elect to have the remaining installments distributed in the form of an immediately payable lump sum, provided the condition specified in Section 11.3 is satisfied. 18 11.3 Forfeiture Penalty. In the event of a withdrawal pursuant to Section 11.1, or an accelerated distribution pursuant to Section 11.2, the Participant shall forfeit from his Distribution Option Account from which the withdrawal is made an amount equal to 10% of the amount of the withdrawal or accelerated distribution, as the case may be. The forfeited amount shall be deducted from the applicable Distribution Option Account prior to giving effect to the requested withdrawal or acceleration. The Participant and the Participant's Beneficiary shall not have any right or claim to the forfeited amount, and the Company shall have no obligation whatsoever to the Participant, the Participant's Beneficiary or any other person with regard to the forfeited amount. 11.4 Minimum Withdrawal. In no event shall the amount withdrawn in accordance with Section 11.1 be less than 25% of the amount credited to the Participant's Distribution Option Account immediately prior to the withdrawal. 11.5 Suspension from Deferrals. In the event of a withdrawal pursuant to Section 11.1, a Participant who is otherwise eligible to make deferrals under Article 4 shall be prohibited from making any deferrals with respect to the Plan Year immediately following the Plan Year during which the withdrawal was made, and any election previously made by the Participant with respect to deferrals for that Plan Year shall be void and of no effect. ARTICLE 12 Miscellaneous 12.1 Amendment and Termination. The Plan may be amended, suspended, discontinued or terminated at any time by Charming Shoppes; provided, however, that no such amendment, suspension, discontinuance or termination shall reduce or in any manner adversely affect the rights of any Participant with respect to benefits that are payable or may become payable under the Plan based upon the balance of the Participant's Accounts as of the effective date of such amendment, suspension, discontinuance or termination. 12.2 Claims Procedure. (a) Claim. A person who believes that he is being denied a benefit to which he is entitled under the Plan (hereinafter referred to as a "Claimant") may file a written request for such a benefit with the Benefits Department of the Company, setting forth his or her claim. (b) Claim Decision. Upon receipt of a claim, the Benefits Department of the Company shall advise the Claimant that a reply will be forthcoming within ninety (90) days and shall, in fact, deliver such reply within such period. The Benefits Department of the Company may, however, extend the reply period under special circumstances for an additional ninety (90) days. If the claim is denied in whole or in part, the Claimant shall be provided a written opinion, using language calculated to be understood by the Participant, setting forth: 19 (i) the specific reason or reasons for the denial; (ii) specific reference to relevant provisions of the Plan on which the denial is based; (iii) a description of any additional or material information necessary for the Claimant to perfect his or her claim and an explanation why such additional or material information is necessary; (iv) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; (v) the time limits for requesting a review under subsection (c) and for review under subsection (d) hereof; and (vi) the Claimant's right to bring an action for benefits under Section 502 of the Employee Retirement Income Security of 1974, as amended ("ERISA"), following an adverse benefit determination on appeal. (c) Request for Review. Within sixty (60) days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Committee review the determination of the Benefits Department of the Company. The Claimant written request for review must set forth all the facts upon which the appeal is based. The Claimant or his duly authorized representative may, but need not, review the pertinent documents and obtain, upon request and without charge, copies of all information relevant to your claim. If the Claimant does not request a review of the initial determination within such sixty (60) day period, the Claimant shall be barred and estopped from challenging the determination. (d) Review of Decision. Within sixty (60) days after the Committee's receipt of a request for review, it will review the initial determination. After considering all materials presented by the Claimant, the Committee will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision, specific references to the pertinent Plan provisions on which the decision is based, the Claimant's right to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim for benefits, and the Claimant's right to bring a civil action under section 502(a) of ERISA. If special circumstances require that the sixty (60) day time period be extended, the Committee will so notify the Claimant and will render the decision as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review. 12.3 Designation of Beneficiary. Each Participant may designate a Beneficiary or Beneficiaries (which Beneficiary may be an entity other than a natural person) to receive any payments which may be made following the Participant's death. Such designation may be changed or canceled at any time without the consent of any such Beneficiary. Any such designation, change or cancellation must be made in a form approved by the Committee and 20 shall not be effective until received by the Committee, or its designee. If no Beneficiary has been named, or the designated Beneficiary or Beneficiaries shall have predeceased the Participant, the Beneficiary shall be the Participant' s estate. If a Participant designates more than one Beneficiary, the interests of such Beneficiaries shall be paid in equal shares, unless the Participant has specifically designated otherwise. 12.4 Limitation of Participant's Right. Nothing in this Plan shall be construed as conferring upon any Participant any right to continue in the employment of the Company, nor shall it interfere with the rights of the Company to terminate the employment of any Participant and/or to take any personnel action affecting any Participant without regard to the effect which such action may have upon such Participant as a recipient or prospective recipient of benefits under the Plan. 12.5 No Limitation on Company Actions. Nothing contained in the Plan shall be construed to prevent the Company from taking any action which is deemed by it to be appropriate or in its best interest. No Participant, Beneficiary, or other person shall have any claim against the Employer as a result of such action. Any decisions, actions or interpretations to be made under the Plan by the Company or the Board, or the Committee acting on behalf of the Company, shall be made in its respective sole discretion, not as a fiduciary, need not be uniformly applied to similarly situated individuals and shall be final, binding and conclusive on all persons interested in the Plan. 12.6 Obligations to Company. If a Participant becomes entitled to a distribution of benefits under the Plan, and if at such time the Participant has outstanding any debt, obligation, or other liability representing an amount owing to the Employer, then the Employer may offset such amount owed to it against the amount of benefits otherwise distributable. Such determination shall be made by the Committee. 12.7 Nonalienation of Benefits. Except as expressly provided herein, no Participant or Beneficiary shall have the power or right to transfer (otherwise than by will or the laws of descent and distribution), alienate, or otherwise encumber the Participant's interest under the Plan. The Company's obligations under this Plan are not assignable or transferable except to (a) any corporation or partnership which acquires all or substantially all of the Company's assets or (b) any corporation or partnership into which the Company may be merged or consolidated. The provisions of the Plan shall inure to the benefit of each Participant and the Participant's Beneficiaries, heirs, executors, administrators or successors in interest. 12.8 Protective Provisions. Each Participant shall cooperate with the Employer by furnishing any and all information requested by the Employer in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Employer may deem necessary and taking such other relevant action as may be requested by the Employer. If a Participant refuses to cooperate, the Employer shall have no further obligation to the Participant under the Plan, other than payment to such Participant of the then current balance of the Participant's Distribution Option Accounts in accordance with his prior elections. 21 12.9 Withholding Taxes. The Company may make such provisions and take such action as it may deem necessary or appropriate for the withholding of any taxes which the Company is required by any law or regulation of any governmental authority, whether Federal, state or local, to withhold in connection with any benefits under the Plan, including, but not limited to, the withholding of appropriate sums from any amount otherwise payable to the Participant (or his Beneficiary). Each Participant, however, shall be responsible for the payment of all individual tax liabilities relating to any such benefits. 12.10 Unfunded Status of Plan. The Plan is intended to constitute an "unfunded" plan of deferred compensation for Participants. Benefits payable hereunder shall be payable out of the general assets of the Company, and no segregation of any assets whatsoever for such benefits shall be made. Notwithstanding any segregation of assets or transfer to a grantor trust, with respect to any payments not yet made to a Participant, nothing contained herein shall give any such Participant any rights to assets that are greater than those of a general creditor of the Company. 12.11 Severability. If any provision of this Plan is held unenforceable, the remainder of the Plan shall continue in full force and effect without regard to such unenforceable provision and shall be applied as though the unenforceable provision were not contained in the Plan. 12.12 Governing Law. The Plan shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania, without reference to the principles of conflict of laws. 12.13 Headings and Captions. Headings and captions are inserted in this Plan for convenience of reference only and are to be ignored in the construction of the provisions of the Plan. 12.14 Gender, Singular and Plural. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may read as the plural and the plural as the singular. 12.15 Notice. Any notice or filing required or permitted to be given to the Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the Benefits Department, or to such other entity as the Committee may designate from time to time. Such notice shall be deemed given as to the date of delivery, or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 22 ARTICLE 13 SIGNATURE This Plan is hereby adopted and approved, to be effective as of December 23, 2003. Charming Shoppes, Inc. By:___________________________ Colin D. Stern Executive Vice President, General Counsel and Secretary Approved by the Board of Directors on June 26, 2004 23 EX-10 3 exh104.txt EXHIBIT 10.4 EXHIBIT 10.4 FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT THIS FOURTH AMENDMENT dated as of August 5, 2004 to the SECOND AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT (as defined below), (this "Amendment"), is among Charming Shoppes Receivables Corp., as Seller ("Seller"), Spirit of America, Inc., as Servicer ("Servicer"), and Wachovia Bank, National Association (f/k/a First Union National Bank), as Trustee ("Trustee"). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Existing Agreement (defined below). W I T N E S S E T H WHEREAS, Seller, Servicer and Trustee are parties to that certain Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997 (as amended on July 22, 1999 and May 8, 2001, the "Existing Agreement"); and WHEREAS, Seller, Servicer and Trustee desire to amend the Existing Agreement in certain respects as set forth herein. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Amendments. (a) Section 1.1 of the Existing Agreement is hereby amended as follows: (i) by deleting the definition of "Due Period" in its entirety and substituting the following therefor: ""Due Period" shall mean, with respect to any Distribution Date, the immediately preceding calendar month, unless otherwise defined with respect to any Certificate Series in the related Supplement; provided, however, that the initial Due Period with respect to any Certificate Series will commence on the Closing Date with respect to such Certificate Series and shall end on the last day of the calendar month preceding the first Distribution Date with respect to such Certificate Series."; and (ii) by deleting the definition of "Required Addition Event" and substituting the following therefor: ""Required Addition Event" means, as of any Business Day, the Seller Interest is less than the Aggregate Minimum Seller Interest." (b) Section 2.6(a) of the Existing Agreement is amended by deleting the first sentence thereof and substituting the following sentence therefor: "If, a Required Addition Event occurs, the Seller shall on or prior to the close of business on the 10th Business Day following the occurrence of such Required Addition Event (the "Required Designation Date"), unless the Seller Interest exceeds the Aggregate Minimum Seller Interest as of the close of business on any day after the occurrence of such Required Addition Event and prior to the Required Designation Date, designate additional Eligible Accounts to be included as Accounts as of the Required Designation Date ("Additional Accounts") or any earlier date in a sufficient amount such that after giving effect to such addition, the Seller Interest as of the close of business on the Addition Date is at least equal to the Aggregate Minimum Seller Interest on such date.". (c) Section 4.3(c) of the Existing Agreement is amended by adding the following proviso immediately following the existing proviso to the first sentence of such section: "; and provided, further, that, if the Seller Interest (determined after giving effect to any transfer of Principal Receivables to the Trust on such day) is less than the Aggregate Minimum Seller Interest, the Servicer shall not allocate to the Holder of the Exchangeable Seller Certificate any such amounts that would otherwise be allocated to the Holder of the Exchangeable Seller Certificate, but shall instead deposit such funds to the Excess Funding Account". (d) Section 4.3(d) of the Existing Agreement is amended by deleting the second and third sentences of such section and substituting the following therefor: "If any such reduction causes the Seller Interest to be less than the Aggregate Minimum Seller Interest, the Seller shall be required to make a deposit in the Excess Funding Account in immediately available funds in an amount equal to such reduction on or prior to the tenth Business Day following the last Business Day of the Due Period in which such reduction occurred; provided that no such deposit shall be required to be made to the extent that such deficiency has been eliminated (through the conveyance of Receivables in Additional Accounts pursuant to Section 2.6(a), the deposit of Collections to the Excess Funding Account pursuant to Section 4.3(c) or 4.3(f) or otherwise), so that the Seller Interest is at least equal to the Aggregate Minimum Seller Interest on the date such deposit would otherwise be required to be made. If the Seller shall fail to make a deposit required pursuant to the preceding sentence, the portion of the Dilution Amount equal to the amount of the deposit not made (with respect to each Due Period, the "Series Dilution Amount") will be allocated to each Series based upon the Series Percentage for such Series." SECTION 2. Effectiveness. The amendment set forth in Section 1 shall become effective on the date when the Servicer receives counterparts of this Amendment executed by each of the parties hereto and each other condition precedent specified in Section 13.1 of the Existing Agreement to the effectiveness of any amendment to the Existing Agreement shall have been satisfied. SECTION 3. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK 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 4. Severability. Each provision of this Amendment shall be severable from every other provision of this Amendment for the purpose of determining the legal enforceability of any provision hereof, and the unenforceability of any provision hereof, and the unenforceability of one or more provisions of this Amendment in one jurisdiction shall not have the effect of rendering such provision or provisions unenforceable in any other jurisdiction. SECTION 5. Ratification of the Existing Agreement. From and after the date hereof, each reference in the Existing Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and references to the Existing Agreement in any other document, instrument or agreement executed and/or delivered in connection therewith, shall, in each case, mean and be a reference to the Existing Agreement as amended hereby. Except as otherwise amended by this Amendment, the Existing Agreement shall continue in full force and effect and is hereby ratified and confirmed. SECTION 6. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. [Remainder of page intentionally left blank.] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective duly authorized officers as of the date and year first written. CHARMING SHOPPES RECEIVABLES CORP., Seller By: ----------------------------------- Name: Title: SPIRIT OF AMERICA, INC. Servicer By: ----------------------------------- Name: Title: WACHOVIA BANK, NATIONAL ASSOCIATION, not in its individual capacity but solely as the Trustee for CHARMING SHOPPES MASTER TRUST By: ---------------------------------- Name: Title: EX-10 4 exh105.txt EXHIBIT 10.5 EXHIBIT 10.5 - ------------------------------------------------------------------------------- CHARMING SHOPPES RECEIVABLES CORP. Seller SPIRIT OF AMERICA, INC. Servicer and WACHOVIA BANK, NATIONAL ASSOCIATION Trustee on behalf of the Series 2004-1 Certificateholders ------------------------------ SERIES 2004-1 SUPPLEMENT Dated as of August 5, 2004 to SECOND AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT Dated as of November 25, 1997 (as amended on July 22, 1999, on May 8, 2001 and on August 5, 2004) ------------------------------ $180,000,000 CHARMING SHOPPES MASTER TRUST SERIES 2004-1 - ------------------------------------------------------------------------------- Table of Contents (continued) Page SECTION 1 Designation...................................................1 SECTION 2 Definitions...................................................1 SECTION 3 Servicing Compensation.......................................30 SECTION 4 Reassignment and Transfer Terms..............................31 SECTION 5 Delivery and Payment for the Series 2004-1 Certificates......31 SECTION 6 Depository; Form of Delivery of Series 2004-1 Certificates...31 SECTION 7 Interest Rate Swap Agreements................................32 SECTION 8 Article IV of Agreement......................................33 SECTION 9 Article V of the Agreement...................................58 SECTION 10 Series 2004-1 Early Amortization Events......................61 SECTION 11 Series 2004-1 Termination....................................62 SECTION 12 Ratification of Agreement....................................63 SECTION 13 Counterparts.................................................63 SECTION 14 No Petition..................................................63 SECTION 15 Forms of Series 2004-1 Certificates..........................63 SECTION 16 Transfer Restrictions........................................65 SECTION 17 Certain Amendments...........................................73 SECTION 18 Commercial Law Representations and Warranties of the Seller..73 SECTION 19 Governing Law................................................74 -i- EXHIBITS EXHIBIT A Form of Class A Certificate EXHIBIT M Form of Class M Certificate EXHIBIT B Form of Class B Certificate EXHIBIT C Form of Class C Certificate EXHIBIT D-1 Form of Class D-1 Certificate EXHIBIT D-2 Form of Class D-2 Certificate EXHIBIT E Form of Monthly Payment Instructions and Notification to the Trustee EXHIBIT F Form of Monthly Certificateholders' Statement EXHIBIT G-1 Form of Regulation S Book-Entry Certificate to Restricted Book-Entry Certificate Transfer Certificate EXHIBIT G-2 Form of Restricted Book-Entry Certificate to Regulation S Book-Entry Certificate Transfer Certificate EXHIBIT H Form of Interest Rate Swap Agreement EXHIBIT I Form of Non-U.S. Beneficial Ownership Certification by Member Organization EXHIBIT J Form of Non-U.S. Beneficial Ownership Certification by Euroclear or Clearstream Banking, Societe Anonyme -ii- This SERIES 2004-1 SUPPLEMENT, dated as of August 5, 2004 (this "Supplement"), is among CHARMING SHOPPES RECEIVABLES CORP., a Delaware corporation, as Seller (the "Seller"), SPIRIT OF AMERICA, INC., a Delaware corporation, as Servicer (the "Servicer"), and WACHOVIA BANK, NATIONAL ASSOCIATION (f/k/a First Union National Bank), as Trustee (the "Trustee") under the Second Amended and Restated Pooling and Servicing Agreement dated as of November 25, 1997 among the Seller, the Servicer and the Trustee, as amended on July 22, 1999, May 8, 2001 and August 5, 2004 (as further amended or otherwise modified from time to time, the "Agreement"). Section 6.9 of the Agreement provides, among other things, that the Seller, the Servicer and the Trustee may at any time and from time to time enter into a supplement to the Agreement for the purpose of authorizing the delivery by the Trustee to the Seller for the execution and redelivery to the Trustee for authentication of one or more Series of Certificates. Pursuant to this Supplement, the Seller and the Trustee shall create a new Series of Investor Certificates and shall specify the Principal Terms thereof. SECTION 1. Designation. (a) There is hereby created a Series of Investor Certificates to be issued in five classes pursuant to the Agreement and this Series Supplement and to be known together as the Series 2004-1 Certificates. The five classes shall be designated the Class A Floating Rate Asset Backed Certificates, Series 2004-1 (the "Class A Certificates"), the Class M Floating Rate Asset Backed Certificates, Series 2004-1 (the "Class M Certificates"), the Class B Floating Rate Asset Backed Certificates, Series 2004-1 (the "Class B Certificates"), the Class C Floating Rate Asset Backed Certificates, Series 2004-1 (the "Class C Certificates") and the Class D Asset Backed Certificates, Series 2004-1 (the "Class D Certificates"). The Class D Asset Backed Certificates shall be comprised of two subclasses designated as the Class D-1 Asset Backed Certificates, Series 2004-1 (the "Class D-1 Certificates") and the Class D-2 Asset Backed Certificates, Series 2004-1 (the "Class D-2 Certificates"). (b) Series 2004-1 shall be included in Group One. Series 2004-1 shall be a Paired Series with respect to Series 1999-1. (c) If any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Agreement, the terms and provisions of this Supplement shall be controlling. SECTION 2. Definitions. In the event that any term or provision contained herein shall conflict with or be inconsistent with any provision contained in the Agreement, the terms and provisions of this Supplement shall govern with respect to this Series. All Article, Section or subsection references herein shall mean Article, Section or subsections of the Agreement, 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 2004-1 Certificates and no other Series of Certificates or Receivables Purchase Series issued by the Trust. "Amortization Period" shall mean, with respect to Series 2004-1, the Controlled Amortization Period or the Early Amortization Period. "Available Funds" shall mean, with respect to any Distribution Date, the sum of Class A Available Funds, Class M Available Funds, Class B Available Funds, Class C Available Funds and Class D Available Funds, in each case for such Distribution Date. "Available Principal Collections" shall mean, with respect to any Distribution Date, the sum of: (a) (i) with respect to any Distribution Date prior to the earlier to occur of (A) payment in full of the Series 1999-1 Certificates and (B) the end of the Funding Period, $0; and (ii) with respect to any other Distribution Date, the Principal Allocation Percentage of all Collections of Principal Receivables received during the related Due Period, minus the amount of Reallocated Class D Principal Collections, Reallocated Class C Principal Collections, Reallocated Class B Principal Collections and Reallocated Class M Principal Collections with respect to such Due Period which pursuant to Section 4.12 are required to fund the Class A Required Amount, the Class M Required Amount, the Class B Required Amount and the Class C Required Amount, (b) any Shared Principal Collections with respect to other Series in Group One that are allocated to Series 2004-1 in accordance with Section 4.15 for such Distribution Date, (c) any other amounts which pursuant to subsections 4.9(a) and 4.11(a) (to the extent allocable to the Class A Investor Loss Amount or the Class A Investor Dilution Amount), (b), (c) (to the extent allocable to the Class M Investor Loss Amount or the Class M Investor Dilution Amount), (d), (e) (to the extent allocable to the Class B Investor Loss Amount or the Class B Investor Dilution Amount), (f), (i), (j), (k), (o), (p) and (q) for such Due Period (other than such amounts paid from Reallocated Principal Collections) are to be treated as Available Principal Collections for such Distribution Date, and (d) the amount, if any, specified by the Holder of the Exchangeable Seller Certificate pursuant to the first proviso to subsection 4.5(b)(ii) to be distributed as Available Principal Collections on such Distribution Date. "Average Principal Balance" shall mean, for any Due Period in which one or more Reset Dates occur, the weighted average of the Principal Receivables on the first day of each Subperiod in such Due Period, it being understood that such average will be weighted according 2 to a fraction, the numerator of which is the number of days during the relevant Subperiod and the denominator of which is the number of days in such Due Period. "Base Rate" shall mean, for any Due Period, an annualized percentage equivalent of a fraction, the numerator of which is equal to the sum of Monthly Interest and any Net Swap Payment for the related Distribution Date and the Series 2004-1 Investor Monthly Servicing Fee for such Due Period, and the denominator of which is equal to the outstanding principal amount of the Series 2004-1 Certificates, determined as of the last day of the immediately preceding Due Period (or, for the initial Due Period, the outstanding principal amount of the Series 2004-1 Certificates as of the Closing Date). "Benefit Plan Investor" shall have the meaning specified in subsection 16(c)(viii) of this Supplement. "Cash Pre-Funded Amount" shall mean the amount on deposit in the Pre-Funding Account from time to time, excluding any investment income on funds on deposit therein. "Class" shall mean any of the Class A Investor Interest, the Class M Investor Interest, the Class B Investor Interest, the Class C Investor Interest or the Class D Investor Interest. "Class A Additional Interest" shall have the meaning specified in subsection 4.6(a). "Class A Available Funds" shall mean, with respect to any Distribution Date, an amount equal to the sum of (a) the Class A Floating Allocation of the Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates and deposited in the Collection Account for the related Due Period (including amounts under Sections 4.19(c) and 4.20(b) and other amounts that are in each case to be treated as Collections of Finance Charge Receivables in accordance with the Agreement (other than the Class A Net Swap Receipt)) and (b) any Class A Net Swap Receipt for such Distribution Date. "Class A Certificate Rate" shall mean, with respect to any Interest Period, a per annum rate equal to LIBOR as of the related LIBOR Determination Date for such Interest Period plus 0.33%. "Class A Certificateholder" shall mean each Person in whose name a Class A Certificate is registered in the Certificate Register. "Class A Certificates" shall have the meaning specified in subsection 1(a) of this Supplement. "Class A Controlled Amortization Amount" for any Due Period related to the Controlled Amortization Period shall mean $14,400,000; provided, however, that such amount shall be adjusted downward to reflect (i) any reduction to the Class A Investor Interest as a result of any cancellation of Class A Certificates pursuant to Section 4.16 and (ii) any principal payments to the Class A Certificateholders pursuant to subsection 4.9(h), so that such amount shall be equal 3 to 1/8th of the outstanding principal amount of the Class A Certificates as of the last day of the Due Period prior to the commencement of the Controlled Amortization Period. "Class A Controlled Amortization Shortfall" shall mean (i) with respect to the first Due Period related to the Controlled Amortization Period, zero, and (ii) with respect to each other Due Period during the Controlled Amortization Period occurring on or prior to the Class A Expected Final Payment Date, means the excess, if any, of the Class A Controlled Payment Amount for the previous Due Period over the amount of Available Principal Collections distributed as payment of such Class A Controlled Payment Amount on the Distribution Date related to such previous Due Period. "Class A Controlled Payment Amount" for any Due Period, shall mean, the sum of (a) the Class A Controlled Amortization Amount and (b) any existing Class A Controlled Amortization Shortfall. "Class A Deficiency Amount" shall have the meaning specified in subsection 4.6(a). "Class A Expected Final Payment Date" shall mean the November 2009 Distribution Date. "Class A Fixed Allocation" shall mean, with respect to any Due Period other than a Due Period relating to the Revolving Period, the percentage equivalent (which percentage shall never exceed 100%) of a fraction, the numerator of which is the Class A Investor Interest as of the close of business on the last day of the Revolving Period and the denominator of which is equal to the Series Investor Interest as of the close of business on the last day of the Revolving Period. "Class A Floating Allocation" shall mean, with respect to any Due Period (including any day within such Due Period), the percentage equivalent (which percentage shall never exceed 100%) of a fraction: (a) the numerator of which is the Class A Investor Interest as of the close of business on the last day of the preceding Due Period (or with respect to the first Due Period ending after the Closing Date, the Class A Investor Interest as of the Closing Date); and (b) the denominator of which is equal to the Series Investor Interest as of the close of business on the last day of the preceding Due Period (or with respect to the first Due Period ending after the Closing Date, the Series Investor Interest as of the Closing Date). "Class A Initial Investor Interest" shall mean the aggregate initial principal amount of the Class A Certificates, which is $115,200,000. "Class A Investor Allocation" shall mean, with respect to any Due Period, (a) with respect to Series 2004-1 Investor Loss Amounts, Series 2004-1 Investor Dilution Amount and Collections of Finance Charge Receivables at any time and Collections of Principal Receivables 4 during the Revolving Period, the Class A Floating Allocation and (b) with respect to Collections of Principal Receivables during the Controlled Amortization Period or Early Amortization Period, the Class A Fixed Allocation. "Class A Investor Charge-Off" shall have the meaning specified in subsection 4.10(a). "Class A Investor Dilution Amount" shall mean, for any Distribution Date, an amount equal to the product of (a) the Series 2004-1 Investor Dilution Amount for such Distribution Date and (b) the Class A Floating Allocation for the related Due Period. "Class A Investor Interest" shall mean, on any date of determination, an amount equal to the greater of (x) zero and (y) an amount equal to (a) the Class A Initial Investor Interest, minus (b) the aggregate amount of principal payments made to Class A Certificateholders prior to such date (other than any principal payment made pursuant to subsection 4.9(h)), minus (c) the excess, if any, of the aggregate amount of Class A Investor Charge-Offs pursuant to subsection 4.10(a) over Class A Investor Charge-Offs reimbursed pursuant to subsection 4.11(b) prior to such date of determination, minus (d) the amount of any reduction to the Class A Investor Interest as a result of the purchase by the Seller and subsequent cancellation of the Class A Certificates pursuant to Section 4.16, minus (e) the Class A Percentage of the Initial Total Pre-Funded Amount, plus (f) the Class A Percentage of the amount of any increases to the Series Investor Interest pursuant to Section 4.21 during the Funding Period. "Class A Investor Loss Amount" shall mean, with respect to each Distribution Date, an amount equal to the product of (a) the Investor Loss Amount for the related Due Period and (b) the Class A Floating Allocation applicable for the related Due Period. "Class A Monthly Interest" shall have the meaning specified in subsection 4.6(a). "Class A Monthly Principal" shall mean the monthly principal distributable in respect of the Class A Certificates as calculated in accordance with subsection 4.7(a). "Class A Net Swap Payment" means, for any Distribution Date, the net amount payable by the Trust to the Swap Counterparty pursuant to the Class A Swap on that Distribution Date as a result of LIBOR being less than the Class A Swap Rate. For the avoidance of doubt, Class A Net Swap Payments do not include early termination payments or payment of breakage or other miscellaneous costs. "Class A Net Swap Receipt" means, for any Distribution Date, the net amount payable to the Trust from the Swap Counterparty pursuant to the Class A Swap on that Distribution Date as a result of LIBOR being greater than the Class A Swap Rate. "Class A Percentage" shall mean a fraction the numerator of which is the Class A Initial Investor Interest and the denominator of which is the Initial Investor Interest. "Class A Required Amount" shall have the meaning specified in subsection 4.8(a). 5 "Class A Servicing Fee" shall have the meaning specified in Section 3 of this Supplement. "Class A Swap" means any Interest Rate Swap Agreement relating to the Class A Certificates that has a notional amount equal to the outstanding principal amount of the Class A Certificates from time to time. "Class A Swap Rate" means 4.326% per annum. "Class B Additional Interest" shall have the meaning specified in subsection 4.6(c). "Class B Available Funds" shall mean, with respect to any Distribution Date, an amount equal to the sum of (a) the Class B Floating Allocation of the Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates and deposited in the Collection Account for the related Due Period (including amounts under Sections 4.19(c) and 4.20(b) and other amounts that are in each case to be treated as Collections of Finance Charge Receivables in accordance with the Agreement (other than the Class B Net Swap Receipt)) and (b) the Class B Net Swap Receipt for the related Distribution Date. "Class B Certificate Rate" shall mean, with respect to any Interest Period, a per annum rate equal to LIBOR as of the related LIBOR Determination Date for such Interest Period plus 0.95%. "Class B Certificateholder" shall mean each Person in whose name a Class B Certificate is registered in the Certificate Register. "Class B Certificates" shall have the meaning specified in subsection 1(a) of this Supplement. "Class B Controlled Amortization Amount" for any Due Period related to the Controlled Amortization Period shall mean $18,900,000; provided, however, that such amount shall be adjusted downward to reflect (i) any reduction to the Class B Investor Interest as a result of any cancellation of Class B Certificates pursuant to Section 4.16 and (ii) any principal payments to the Class B Certificateholders pursuant to subsection 4.9(h), so that such amount shall be equal to the outstanding principal amount of the Class B Certificates as of the last day of the Due Period prior to the commencement of the Controlled Amortization Period. "Class B Controlled Amortization Shortfall" shall mean (i) with respect to the first Due Period related to the Controlled Amortization Period occurring after the Class M Expected Final Payment Date, zero, and (ii) with respect to each other Due Period thereafter during the Controlled Amortization Period occurring on or prior to the Class B Expected Final Payment Date, means the excess, if any, of the Class B Controlled Payment Amount for the previous Due Period over the amount of Available Principal Collections distributed as payment of such Class B Controlled Payment Amount on the Distribution Date related to such previous Due Period. 6 "Class B Controlled Payment Amount" for any Due Period, shall mean, the sum of (a) the Class B Controlled Amortization Amount and (b) any existing Class B Controlled Amortization Shortfall. "Class B Deficiency Amount" shall have the meaning specified in subsection 4.6(c). "Class B Expected Final Payment Date" shall mean the January 2010 Distribution Date. "Class B Fixed Allocation" shall mean, with respect to any Due Period other than a Due Period relating to the Revolving Period, the percentage equivalent (which percentage shall never exceed 100%) of a fraction, the numerator of which is the Class B Investor Interest as of the close of business on the last day of the Revolving Period, and the denominator of which is equal to the Series Investor Interest as of the close of business on the last day of the Revolving Period. "Class B Floating Allocation" shall mean, with respect to any Due Period (including any day within such Due Period), the percentage equivalent (which percentage shall never exceed 100%) of a fraction: (a) the numerator of which is the Class B Investor Interest as of the close of business on the last day of the preceding Due Period (or with respect to the first Due Period ending after the Closing Date, the Class B Investor Interest as of the Closing Date); and (b) the denominator of which is equal to the Series Investor Interest as of the close of business on the last day of the preceding Due Period (or with respect to the first Due Period ending after the Closing Date, the Series Investor Interest as of the Closing Date). "Class B Initial Investor Interest" shall mean the aggregate initial principal amount of the Class B Certificates, which is $18,900,000. "Class B Investor Allocation" shall mean, with respect to any Due Period (a) with respect to Series 2004-1 Investor Loss Amounts, Series 2004-1 Investor Dilution Amounts and Collections of Finance Charge Receivables at any time and Collections of Principal Receivables during the Revolving Period, the Class B Floating Allocation and (b) with respect to Collections of Principal Receivables during the Controlled Amortization Period or Early Amortization Period, the Class B Fixed Allocation. "Class B Investor Charge-Off" shall have the meaning specified in subsection 4.10(c). "Class B Investor Dilution Amount" shall mean, for any Distribution Date, an amount equal to the product of (a) the Series 2004-1 Investor Dilution Amount for such Distribution Date and (b) the Class B Floating Allocation for the related Due Period. "Class B Investor Interest" shall mean, on any date of determination, an amount equal to the greater of (x) zero and (y) an amount equal to (a) the Class B Initial Investor Interest, minus 7 (b) the aggregate amount of principal payments made to Class B Certificateholders prior to such date (other than any principal payment made pursuant to subsection 4.9(h)), minus (c) the aggregate amount of Class B Investor Charge-Offs for all prior Distribution Dates pursuant to subsections 4.10(a), (b) and (c), minus (d) the aggregate amount of Reallocated Class B Principal Collections allocated pursuant to subsection 4.12(b)(iv) on all prior Distribution Dates, minus (e) the amount of any reduction to the Class B Investor Interest as a result of the purchase by the Seller and subsequent cancellation of the Class B Certificates pursuant to Section 4.16, minus (f) the Class B Percentage of the Initial Total Pre-Funded Amount, plus (g) the Class B Percentage of the amount of any increases to the Series Investor Interest pursuant to Section 4.21 during the Funding Period, plus (h) the aggregate amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available on all prior Distribution Dates pursuant to subsection 4.11(f) for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d). "Class B Investor Loss Amount" shall mean, with respect to each Distribution Date, an amount equal to the product of (a) the Investor Loss Amount for the related Due Period and (b) the Class B Floating Allocation applicable for the related Due Period. "Class B Monthly Interest" shall have the meaning specified in subsection 4.6(c). "Class B Monthly Principal" shall mean the monthly principal distributable in respect of the Class B Certificates as calculated in accordance with subsection 4.7(c). "Class B Net Swap Payment" shall mean, for any Distribution Date, the net amount payable by the Trust to the Swap Counterparty pursuant to the Class B Swap on that Distribution Date as a result of LIBOR being less than the Class B Swap Rate. For the avoidance of doubt, Class B Net Swap Payments do not include early termination payments or payment of breakage or other miscellaneous costs. "Class B Net Swap Receipt" means, for any Distribution Date, the net amount payable to the Trust from the Swap Counterparty pursuant to the Class B Swap on that Distribution Date as a result of LIBOR being greater than the Class B Swap Rate. "Class B Percentage" shall mean a fraction the numerator of which is the Class B Initial Investor Interest and the denominator of which is the Initial Investor Interest. "Class B Principal Commencement Date" shall have the meaning specified in subsection 4.7(c). "Class B Required Amount" shall have the meaning specified in subsection 4.8(c). "Class B Servicing Fee" shall have the meaning specified in Section 3 of this Supplement. 8 "Class B Swap" means any Interest Rate Swap Agreement relating to the Class B Certificates that has a notional amount equal to the outstanding principal amount of the Class B Certificates from time to time. "Class B Swap Rate" means 4.425% per annum. "Class C Available Funds" shall mean, with respect to any Distribution Date, an amount equal to the sum of (a) the Class C Floating Allocation of Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates and deposited in the Collection Account for the related Due Period (including amounts under Sections 4.19(c) and 4.20(b) and other amounts that are in each case to be treated as Collections of Finance Charge Receivables in accordance with the Agreement (other than the Class C Net Swap Receipt)) and (b) the Class C Net Swap Receipt for the related Distribution Date. "Class C Certificate Rate" with respect to any Interest Period shall have the meaning specified in the Class C Purchase Agreement; provided that the Class C Certificate Rate shall in no event exceed a per annum rate equal to LIBOR as of the LIBOR Determination Date for such Interest Period plus 2.50%. "Class C Certificateholder" shall mean each Person in whose name a Class C Certificate is registered in the Certificate Register. "Class C Certificates" shall have the meaning specified in subsection 1(a) of this Supplement. "Class C Deficiency Amount" shall have the meaning specified in subsection 4.6(d). "Class C Expected Final Payment Date" shall have the meaning set forth in the Class C Purchase Agreement. "Class C Fixed Allocation" shall mean, with respect to any Due Period other than a Due Period relating to the Revolving Period, the percentage equivalent (which percentage shall never exceed 100%) of a fraction, the numerator of which is the Class C Investor Interest as of the close of business on the last day of the Revolving Period, and the denominator of which is equal to the Series Investor Interest as of the close of business on the last day of the Revolving Period. "Class C Floating Allocation" shall mean, with respect to any Due Period (including any day within such Due Period), the percentage equivalent (which percentage shall never exceed 100%) of a fraction: (a) the numerator of which is the Class C Investor Interest as of the close of business on the last day of the preceding Due Period (or with respect to the first Due Period ending after the Closing Date, the Class C Investor Interest as of the Closing Date); and 9 (b) the denominator of which is equal to the Series Investor Interest as of the close of business on the last day of the preceding Due Period (or with respect to the first Due Period ending after the Closing Date, the Series Investor Interest as of the Closing Date). "Class C Initial Investor Interest" shall mean the aggregate initial principal amount of the Class C Certificates, which is $16,200,000. "Class C Investor Allocation" shall mean, with respect to any Due Period (a) with respect to Series 2004-1 Investor Loss Amounts, Series 2004-1 Investor Dilution Amounts and Collections of Finance Charge Receivables at any time and Collections of Principal Receivables during the Revolving Period, the Class C Floating Allocation and (b) with respect to Collections of Principal Receivables during the Controlled Amortization Period or Early Amortization Period, the Class C Fixed Allocation. "Class C Investor Charge-Off" shall have the meaning specified in subsection 4.10(d). "Class C Investor Dilution Amount" shall mean, for any Distribution Date, an amount equal to the product of (a) the Series 2004-1 Investor Dilution Amount for such Distribution Date and (b) the Class C Floating Allocation for the related Due Period. "Class C Investor Interest" shall mean, on any date of determination, an amount equal to the greater of (x) zero and (y) an amount equal to (a) the Class C Initial Investor Interest, minus (b) the aggregate amount of principal payments made to the Class C Certificateholders prior to such date (other than any principal payment made pursuant to subsection 4.9(h)), minus (c) the aggregate amount of Class C Investor Charge-Offs for all prior Distribution Dates pursuant to subsections 4.10(a), (b), (c) and (d), minus (d) the aggregate amount of Reallocated Class C Principal Collections allocated pursuant to subsection 4.12(b)(iii) on all prior Distribution Dates, minus (e) the amount of any reduction to the Class C Investor Interest as a result of the purchase by the Seller and subsequent cancellation of the Class C Certificates pursuant to Section 4.16, minus (f) the Class C Percentage of the Initial Total Pre-Funded Amount, plus (g) the Class C Percentage of the amount of any increases to the Series Investor Interest pursuant to Section 4.21 during the Funding Period, and plus (h) the aggregate amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available on all prior Distribution Dates pursuant to subsection 4.11(k) for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d). "Class C Investor Loss Amount" shall mean, with respect to any Distribution Date, an amount equal to the product of (a) the Investor Loss Amount for the related Due Period and (b) the Class C Floating Allocation applicable for the related Due Period. "Class C Monthly Interest" shall have the meaning specified in subsection 4.6(d). "Class C Monthly Principal" shall mean the monthly principal distributable in respect of the Class C Certificates as calculated in accordance with subsection 4.7(d). 10 "Class C Net Swap Payment" shall mean, for any Distribution Date, the net amount payable by the Trust to the Swap Counterparty pursuant to the Class C Swap on that Distribution Date as a result of LIBOR being less than the Class C Swap Rate. For the avoidance of doubt, Class C Net Swap Payments do not include early termination payments or payment of breakage or other miscellaneous costs. "Class C Net Swap Receipt" means, for any Distribution Date, the net amount payable to the Trust from the Swap Counterparty pursuant to the Class C Swap on that Distribution Date as a result of LIBOR being greater than the Class C Swap Rate. "Class C Percentage" shall mean a fraction the numerator of which is the Class C Initial Investor Interest and the denominator of which is the Initial Investor Interest. "Class C Purchase Agreement" shall mean the agreement among the Seller, the Servicer, the Trustee and the Class C Certificateholders, as amended, modified or restated from time to time. "Class C Required Amount" shall mean the amount, if any, equal to the sum of (a) the amount, if any, by which the sum of (i) the Class C Monthly Interest for such Distribution Date, plus (ii) the Class C Deficiency Amount, if any, for such Distribution Date, plus (iii) the Class C Investor Loss Amount, if any, for the prior Due Period, plus (iv) the Class C Investor Dilution Amount, if any, for such Distribution Date exceeds the amount of Excess Spread available to be applied to such amounts pursuant to subsections 4.11(h), (i) and (j), plus (b) the amount, if any, by which the sum of (i) the Class C Servicing Fee for the prior Due Period, plus (ii) the Class C Servicing Fee, if any, due but not paid on any prior Distribution Date, exceeds the Class C Available Funds for the related Due Period and the amount of any Excess Spread available to be applied to such amount pursuant to subsection 4.11(g). "Class C Servicing Fee" shall have the meaning specified in Section 3 of this Supplement. "Class C Swap" means any Interest Rate Swap Agreement relating to the Class C Certificates that has a notional amount equal to the outstanding principal amount of the Class C Certificates from time to time. "Class C Swap Rate" means 4.445% per annum. "Class D Available Funds" shall mean, with respect to any Distribution Date, an amount equal the Class D Floating Allocation of Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates and deposited in the Collection Account for the related Due Period (including amounts under Sections 4.19(c) and 4.20(b) and other amounts that are in each case to be treated as Collections of Finance Charge Receivables in accordance with the Agreement). "Class D Certificateholders" shall mean any Person in whose name a Class D Certificate is registered in the Certificate Register. 11 "Class D Certificates" shall have the meaning specified in subsection 1(a) of this Supplement. "Class D Deficiency Amount" shall mean, with respect to any Distribution Date, the sum of the Class D-1 Deficiency Amount plus the Class D-2 Deficiency Amount. "Class D Expected Final Payment Date" shall have the meaning set forth in the Class D Purchase Agreement. "Class D Fixed Allocation" shall mean, with respect to any Due Period other than a Due Period relating to the Revolving Period, the sum of the Class D-1 Fixed Allocation and the Class D-2 Fixed Allocation. "Class D Floating Allocation" shall mean, with respect to any Due Period (including any day within such Due Period), the sum of the Class D-1 Floating Allocation and the Class D-2 Floating Allocation. "Class D Initial Investor Interest" shall mean the sum of the Class D-1 Initial Investor Interest plus the Class D-2 Initial Investor Interest. "Class D Investor Allocation" shall mean, with respect to any Due Period, (a) with respect to Series 2004-1 Investor Loss Amounts, Series 2004-1 Investor Dilution Amounts and Collections of Finance Charge Receivables at any time and Principal Receivables during the Revolving Period, the Class D Floating Allocation and (b) with respect to Collections of Principal Receivables during the Controlled Amortization Period or Early Amortization Period, the Class D Fixed Allocation. "Class D Investor Charge-Offs" shall mean the sum of Class D-1 Investor Charge-Offs plus Class D-2 Investor Charge-Offs. "Class D Investor Dilution Amount" shall mean, for any Distribution Date, an amount equal to the product of (a) the Series 2004-1 Investor Dilution Amount for such Distribution Date and (b) the Class D Floating Allocation for the related Due Period. "Class D Investor Interest" shall mean, on any date of determination, the sum of the Class D-1 Investor Interest plus the Class D-2 Investor Interest. "Class D Investor Loss Amount" shall mean, with respect to any Distribution Date, an amount equal to the product of (a) the Investor Loss Amount for the related Due Period and (b) the Class D Floating Allocation applicable for the related Due Period. "Class D Monthly Interest" shall mean the sum of the Class D-1 Monthly Interest plus the Class D-2 Monthly Interest. "Class D Monthly Principal" shall mean the sum of the Class D-1 Monthly Principal plus the Class D-2 Monthly Principal. 12 "Class D Purchase Agreement(s)" shall mean the Class D-1 Purchase Agreement and/or the Class D-2 Purchase Agreement, as the case may be. "Class D Servicing Fee" shall mean the sum of the Class D-1 Servicing Fee plus the Class D-2 Servicing Fee. "Class D-1 Certificate Rate" with respect to any Interest Period shall have the meaning specified in the Class D-1 Purchase Agreement; provided that the Class D-1 Certificate Rate shall in no event exceed a per annum rate equal to (i) if the Class D-1 Certificate Rate is a floating rate, LIBOR as of the LIBOR Determination Date for such Interest Period plus 10.0% and (ii) if the Class D-1 Certificate Rate is a fixed rate, 15.0%. "Class D-1 Certificates" shall have the meaning specified in subsection 1(a) of this Supplement. "Class D-1 Deficiency Amount" shall have the meaning specified in subsection 4.6(e). "Class D-1 Fixed Allocation" shall mean, with respect to any Due Period other than a Due Period relating to the Revolving Period, the percentage equivalent (which percentage shall never exceed 100%) of a fraction, the numerator of which is the Class D-1 Investor Interest as of the close of business on the last day of the Revolving Period, and the denominator of which is equal to the Series Investor Interest as of the close of business on the last day of the Revolving Period. "Class D-1 Floating Allocation" shall mean, with respect to any Due Period (including any day within such Due Period), the percentage equivalent (which percentage shall never exceed 100%) of a fraction: (a) the numerator of which is the Class D-1 Investor Interest as of the close of business on the last day of the preceding Due Period (or with respect to the first Due Period ending after the Closing Date, the Class D-1 Investor Interest as of the Closing Date); and (b) the denominator of which is equal to the Series Investor Interest as of the close of business on the last day of the preceding Due Period (or with respect to the first Due Period ending after the Closing Date, the Series Investor Interest as of the Closing Date). "Class D-1 Initial Investor Interest" shall mean the aggregate initial principal amount of the Class D-1 Investor Interest, which is $9,450,000. "Class D-1 Investor Allocation" shall mean, with respect to any Due Period, (a) with respect to Series 2004-1 Investor Loss Amounts, Series 2004-1 Investor Dilution Amounts and Collections of Finance Charge Receivables at any time and Principal Receivables during the Revolving Period, the Class D-1 Floating Allocation and (b) with respect to Collections of 13 Principal Receivables during the Controlled Amortization Period or Early Amortization Period, the Class D-1 Fixed Allocation. "Class D-1 Investor Charge-Off" shall have the meaning specified in subsection 4.10(e). "Class D-1 Investor Interest" shall mean, on any date of determination, an amount equal to the greater of (x) zero and (y) an amount equal to (a) the Class D-1 Initial Investor Interest, minus (b) the aggregate amount of principal payments made to the holders of the Class D-1 Certificates prior to such date (other than any principal payments made pursuant to subsection 4.9(h)), minus (c) the aggregate amount of Class D-1 Investor Charge-Offs for all prior Distribution Dates pursuant to subsections 4.10(a) through (e), minus (d) the aggregate amount of Reallocated Class D-1 Principal Collections allocated pursuant to subsection 4.12(b)(ii) on all prior Distribution Dates, minus (e) the amount of any reduction to the Class D-1 Investor Interest as a result of the purchase by the Seller and subsequent cancellation of the Class D-1 Certificates pursuant to Section 4.16, minus (f) the Class D-1 Percentage of the Initial Total Pre-Funded Amount, plus (g) the Class D-1 Percentage of the amount of any increases to the Series Investor Interest pursuant to Section 4.21 during the Funding Period, plus (h) the aggregate amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available on all prior Distribution Dates pursuant to subsection 4.11(q) for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d) ; provided that the Class D-1 Investor Interest determined pursuant to the foregoing clauses (a) through (h) may be subject to further increase or decrease under the circumstances described in Section 16(e) of this Supplement. "Class D-1 Monthly Interest" shall mean the monthly interest distributable in respect of the Class D-1 Certificates as calculated in accordance with subsection 4.6(e). "Class D-1 Monthly Principal" shall mean the monthly principal distributable in respect of the Class D-1 Certificates as calculated in accordance with subsection 4.7(e). "Class D-1 Percentage" shall mean a fraction the numerator of which is the Class D-1 Initial Investor Interest and the denominator of which is the Initial Investor Interest. "Class D-1 Purchase Agreement" shall be the agreement among the Seller, the Servicer, the Trustee and the Class D-1 Certificateholders, as amended, modified or restated from time to time. "Class D-1 Servicing Fee" shall have the meaning specified in Section 3 of this Supplement. "Class D-2 Certificate Rate" with respect to any Interest Period shall have the meaning specified in the Class D-2 Purchase Agreement; provided that the Class D-2 Certificate Rate shall in no event exceed a per annum rate equal to (i) if the Class D-2 Certificate Rate is a floating rate, LIBOR as of the LIBOR Determination Date for such Interest Period plus 10.0% and (ii) if the Class D-2 Certificate Rate is a fixed rate, 15.0%. 14 "Class D-2 Certificates" shall have the meaning specified in subsection 1(a) of this Supplement. "Class D-2 Deficiency Amount" shall have the meaning specified in subsection 4.6(f). "Class D-2 Fixed Allocation" shall mean, with respect to any Due Period other than a Due Period relating to the Revolving Period, the percentage equivalent (which percentage shall never exceed 100%) of a fraction, the numerator of which is the Class D-2 Investor Interest as of the close of business on the last day of the Revolving Period, and the denominator of which is equal to the Series Investor Interest as of the close of business on the last day of the Revolving Period. "Class D-2 Floating Allocation" shall mean, with respect to any Due Period (including any day within such Due Period), the percentage equivalent (which percentage shall never exceed 100%) of a fraction: (a) the numerator of which is the Class D-2 Investor Interest as of the close of business on the last day of the preceding Due Period (or with respect to the first Due Period ending after the Closing Date, the Class D-2 Investor Interest as of the Closing Date); and (b) the denominator of which is equal to the Series Investor Interest as of the close of business on the last day of the preceding Due Period (or with respect to the first Due Period ending after the Closing Date, the Series Investor Interest as of the Closing Date). "Class D-2 Initial Investor Interest" shall mean the aggregate initial principal amount of the Class D-2 Investor Interest, which is $9,450,000. "Class D-2 Investor Allocation" shall mean, with respect to any Due Period, (a) with respect to Series 2004-1 Investor Loss Amounts, Series 2004-1 Investor Dilution Amounts and Collections of Finance Charge Receivables at any time and Principal Receivables during the Revolving Period, the Class D-2 Floating Allocation and (b) with respect to Collections of Principal Receivables during the Controlled Amortization Period or Early Amortization Period, the Class D-2 Fixed Allocation. "Class D-2 Investor Charge-Off" shall have the meaning specified in subsection 4.10(e). "Class D-2 Investor Interest" shall mean, on any date of determination, an amount equal to the greater of (x) zero and (y) an amount equal to (a) the Class D-2 Initial Investor Interest, minus (b) the aggregate amount of principal payments made to the holders of the Class D-2 Certificates prior to such date (other than any principal payments made pursuant to subsection 4.9(h)), minus (c) the aggregate amount of Class D-2 Investor Charge-Offs for all prior Distribution Dates pursuant to subsections 4.10(a) through (e), minus (d) the aggregate amount of Reallocated Class D-2 Principal Collections allocated pursuant to subsection 4.12(b)(i) on all prior Distribution Dates, minus (e) the amount of any reduction to the Class D-2 Investor Interest 15 as a result of the purchase by the Seller and subsequent cancellation of the Class D-2 Certificates pursuant to Section 4.16, minus (f) the Class D-2 Percentage of the Initial Total Pre-Funded Amount, plus (g) the Class D-2 Percentage of the amount of any increases to the Series Investor Interest pursuant to Section 4.21 during the Funding Period, plus (h) the aggregate amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available on all prior Distribution Dates pursuant to subsection 4.11(q) for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d) ; provided that the Class D-2 Investor Interest determined pursuant to the foregoing clauses (a) through (h) may be subject to further increase or decrease under the circumstances described in Section 16(e) of this Supplement. "Class D-2 Monthly Interest" shall mean the monthly interest distributable in respect of the Class D-2 Certificates as calculated in accordance with subsection 4.6(f). "Class D-2 Monthly Principal" shall mean the monthly principal distributable in respect of the Class D-2 Certificates as calculated in accordance with subsection 4.7(f). "Class D-2 Percentage" shall mean a fraction the numerator of which is the Class D-2 Initial Investor Interest and the denominator of which is the Initial Investor Interest. "Class D-2 Purchase Agreement" shall mean the agreement among the Seller, the Servicer, the Trustee and the Class D-2 Certificateholders, as amended, modified or restated from time to time. "Class D-2 Servicing Fee" shall have the meaning specified in Section 3 of this Supplement. "Class M Additional Interest" shall have the meaning specified in subsection 4.6(b). "Class M Available Funds" shall mean, with respect to any Distribution Date, an amount equal to the sum of (a) the Class M Floating Allocation of the Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates and deposited in the Collection Account for the related Due Period (including amounts under Sections 4.19(c) and 4.20(b) and other amounts that are in each case to be treated as Collections of Finance Charge Receivables in accordance with the Agreement (other than the Class M Net Swap Receipt)) and (b) the Class M Net Swap Receipt for the related Distribution Date. "Class M Certificate Rate" shall mean, with respect to any Interest Period, a per annum rate equal to LIBOR as of the related LIBOR Determination Date for such Interest Period plus 0.65%. "Class M Certificateholder" shall mean each Person in whose name a Class M Certificate is registered in the Certificate Register. "Class M Certificates" shall have the meaning specified in subsection 1(a) of this Supplement. 16 "Class M Controlled Amortization Amount" for any Due Period related to the Controlled Amortization Period shall mean $10,800,000; provided, however, that such amount shall be adjusted downward to reflect (i) any reduction to the Class M Investor Interest as a result of any cancellation of Class M Certificates pursuant to Section 4.16 and (ii) any principal payments to the Class M Certificateholders pursuant to subsection 4.9(h), so that such amount shall be equal to the outstanding principal amount of the Class M Certificates as of the last day of the Due Period prior to the commencement of the Controlled Amortization Period. "Class M Controlled Amortization Shortfall" shall mean (i) with respect to the first Due Period related to the Controlled Amortization Period occurring after the Class A Expected Final Payment Date, zero, and (ii) with respect to each other Due Period thereafter during the Controlled Amortization Period occurring on or prior to the Class M Expected Final Payment Date, means the excess, if any, of the Class M Controlled Payment Amount for the previous Due Period over the amount of Available Principal Collections distributed as payment of such Class M Controlled Payment Amount on the Distribution Date related to such previous Due Period. "Class M Controlled Payment Amount" for any Due Period, shall mean, the sum of (a) the Class M Controlled Amortization Amount and (b) any existing Class M Controlled Amortization Shortfall. "Class M Deficiency Amount" shall have the meaning specified in subsection 4.6(b). "Class M Expected Final Payment Date" shall mean the December 2009 Distribution Date. "Class M Fixed Allocation" shall mean, with respect to any Due Period other than a Due Period relating to the Revolving Period, the percentage equivalent (which percentage shall never exceed 100%) of a fraction, the numerator of which is the Class M Investor Interest as of the close of business on the last day of the Revolving Period, and the denominator of which is equal to the Series Investor Interest as of the close of business on the last day of the Revolving Period. "Class M Floating Allocation" shall mean, with respect to any Due Period (including any day within such Due Period), the percentage equivalent (which percentage shall never exceed 100%) of a fraction: (a) the numerator of which is the Class M Investor Interest as of the close of business on the last day of the preceding Due Period (or with respect to the first Due Period ending after the Closing Date, the Class M Investor Interest as of the Closing Date); and (b) the denominator of which is equal to the Series Investor Interest as of the close of business on the last day of the preceding Due Period (or with respect to the first Due Period ending after the Closing Date, the Series Investor Interest as of the Closing Date). 17 "Class M Initial Investor Interest" shall mean the aggregate initial principal amount of the Class M Certificates, which is $10,800,000. "Class M Investor Allocation" shall mean, with respect to any Due Period (a) with respect to Series 2004-1 Investor Loss Amounts, Series 2004-1 Investor Dilution Amounts and Collections of Finance Charge Receivables at any time and Collections of Principal Receivables during the Revolving Period, the Class M Floating Allocation and (b) with respect to Collections of Principal Receivables during the Controlled Amortization Period or Early Amortization Period, the Class M Fixed Allocation. "Class M Investor Charge-Off" shall have the meaning specified in subsection 4.10(b). "Class M Investor Dilution Amount" shall mean, for any Distribution Date, an amount equal to the product of (a) the Series 2004-1 Investor Dilution Amount for such Distribution Date and (b) the Class M Floating Allocation for the related Due Period. "Class M Investor Interest" shall mean, on any date of determination, an amount equal to the greater of (x) zero and (y) an amount equal to (a) the Class M Initial Investor Interest, minus (b) the aggregate amount of principal payments made to Class M Certificateholders prior to such date (other than any principal payment made pursuant to subsection 4.9(h)), minus (c) the aggregate amount of Class M Investor Charge-Offs for all prior Distribution Dates pursuant to subsections 4.10(a) and (b), minus (d) the aggregate amount of Reallocated Class M Principal Collections allocated pursuant to subsection 4.12(b)(v) on all prior Distribution Dates, minus (e) the amount of any reduction to the Class M Investor Interest as a result of the purchase by the Seller and subsequent cancellation of the Class M Certificates pursuant to Section 4.16, minus (f) the Class M Percentage of the Initial Total Pre-Funded Amount, plus (g) the Class M Percentage of the amount of any increases to the Series Investor Interest pursuant to Section 4.21 during the Funding Period, plus (h) the aggregate amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available on all prior Distribution Dates pursuant to subsection 4.11(d) for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d). "Class M Investor Loss Amount" shall mean, with respect to each Distribution Date, an amount equal to the product of (a) the Investor Loss Amount for the related Due Period and (b) the Class M Floating Allocation applicable for the related Due Period. "Class M Monthly Interest" shall have the meaning specified in subsection 4.6(b). "Class M Monthly Principal" shall mean the monthly principal distributable in respect of the Class M Certificates as calculated in accordance with subsection 4.7(b). "Class M Net Swap Payment" shall mean, for any Distribution Date, the net amount payable by the Trust to the Swap Counterparty pursuant to the Class M Swap on that Distribution Date as a result of LIBOR being less than the Class M Swap Rate. For the avoidance of doubt, 18 Class M Net Swap Payments do not include early termination payments or payment of breakage or other miscellaneous costs. "Class M Net Swap Receipt" means, for any Distribution Date, the net amount payable to the Trust from the Swap Counterparty pursuant to the Class M Swap on that Distribution Date as a result of LIBOR being greater than the Class M Swap Rate. "Class M Percentage" shall mean a fraction the numerator of which is the Class M Initial Investor Interest and the denominator of which is the Initial Investor Interest. "Class M Principal Commencement Date" shall have the meaning specified in subsection 4.7(b). "Class M Required Amount" shall have the meaning specified in subsection 4.8(b). "Class M Servicing Fee" shall have the meaning specified in Section 3 of this Supplement. "Class M Swap" means any Interest Rate Swap Agreement relating to the Class M Certificates that has a notional amount equal to the outstanding principal amount of the Class M Certificates from time to time. "Class M Swap Rate" means 4.410% per annum. "Clearstream" means Clearstream Banking, societe anonyme. "Closing Date" shall mean August 5, 2004. "Controlled Amortization Period" shall mean, unless an Early Amortization Event shall have occurred prior thereto, the period commencing on March 1, 2009, and ending upon the first to occur of (a) the payment in full of the Series 2004-1 Certificates, (b) the commencement of the Early Amortization Period and (c) the Series 2004-1 Termination Date. "Controlling Certificateholders" shall mean (a) on any date of determination on which the Class A Investor Interest, the Class M Investor Interest and the Class B Investor Interest is greater than zero, the Holders of Class A Certificates, Class M Certificates and Class B Certificates evidencing more than 50% of the sum of the Class A Investor Interest, the Class M Investor Interest and the Class B Investor Interest, (b) thereafter, on any date of determination on which the Class C Investor Interest is greater than zero, the Holders of Class C Certificates evidencing more than 50% of the Class C Investor Interest and (c) thereafter, the Required Class D Holders (as defined in the Class D Purchase Agreement). "Cumulative Principal Shortfall" shall mean the sum of the Principal Shortfalls (as such term is defined in each of the related Supplements or Receivables Purchase Agreement) for each Series in Group One that are Principal Sharing Series. 19 "Depository" means The Depository Trust Company, as initial Depository, or any successor Clearing Agency appointed by the Seller. "Designated Maturity" means, for any LIBOR Determination Date, one month; provided that LIBOR for the initial Interest Period will be determined by straight-line interpolation (based on the actual number of days in the initial Interest Period) between two rates determined in accordance with the definition of LIBOR, one of which will be determined for a Designated Maturity of one month and the other of which will be determined for a Designated Maturity of two months. "Distribution Date" shall mean September 15, 2004 and the fifteenth day of each calendar month thereafter, or if such fifteenth day is not a Business Day, the next succeeding Business Day. "Early Amortization Period" shall mean the period commencing at the close of business on the Business Day immediately preceding the day on which an Early Amortization Event with respect to Series 2004-1 is deemed to have occurred, and ending on the Series 2004-1 Termination Date. "Enhancement" shall mean (a) with respect to the Class A Certificates, the subordination of the Class M Certificates, the Class B Certificates, the Class C Certificates and the Class D Certificates, (b) with respect to the Class M Certificates, the subordination of the Class B Certificates, Class C Certificates and the Class D Certificates, (c) with respect to the Class B Certificates, the subordination of the Class C Certificates and the Class D Certificates, (d) with respect to the Class C Certificates, the subordination of the Class D Certificates and (e) with respect to the Class D-1 Certificates, the subordination of the Class D-2 Certificates. "Enhancement Provider" shall mean, collectively, the Class C Certificateholders and the Class D Certificateholders specified as such in the Class C Purchase Agreement or the Class D Purchase Agreement, as applicable. "Euroclear" means Euroclear Bank S.A./N.V., as operator of the Euroclear System. "Excess Spread" shall mean, with respect to any Distribution Date, the sum of the amounts with respect to such Distribution Date, if any, specified pursuant to subsections 4.9(a)(v), 4.9(b)(iii), 4.9(c)(iii), 4.9(d)(ii) and 4.9(e)(ii). "Finance Charge Shortfall" shall have the meaning specified in subsection 4.14(b). "Fixed Allocation Percentage" shall mean, with respect to any Due Period (including any day within such Due Period) occurring on or after the Fixed Principal Allocation Date, the percentage equivalent of a fraction: (a) the numerator of which is the Series Investor Interest as of the close of business on the last day of the Revolving Period; provided, that if Series 2004-1 is paired with a Paired Series and an Early Amortization Event occurs with respect 20 to such Paired Series during the Controlled Amortization Period or the Early Amortization Period, the Seller may, by written notice delivered to the Trustee, the Servicer and the Rating Agencies, designate a different numerator (provided that (x) such numerator is not less than the Series 2004-1 Investor Interest as of the last day of the revolving period for such Paired Series and (y) each of the Rating Agencies confirms in writing, concurrently with the issuance of such Paired Series (other than Series 1999-1), that such change would not result in a reduction or withdrawal by such Rating Agency of its rating for the Series 2004-1 Certificates); and (b) the denominator of which is the greater of (i) the sum of (A) the aggregate amount of Principal Receivables in the Trust at the end of the day on the last day of the prior Due Period and (B) the Excess Funding Amount as of the close of business of the last day of the prior Due Period, and (ii) the sum of the numerators used to calculate the Investor/Purchaser Percentages for such Due Period with respect to Principal Receivables for all Series of Certificates and Receivable Purchase Series outstanding; provided, that with respect to any Due Period in which one or more Reset Dates occur, the denominator determined pursuant to subclause (b)(i)(A) shall be (1) the aggregate amount of Principal Receivables in the Trust as of the close of business on the later of the last day of the preceding Due Period or the preceding Reset Date, for the period from and including the first day of the current Due Period or preceding Reset Date, as applicable, to but excluding such Reset Date and (2) the aggregate amount of Principal Receivables in the Trust as of the close of business on such Reset Date, for the period from and including such Reset Date to the earlier of the last day of such Due Period (in which case such period shall include such day) or the next succeeding Reset Date (in which case such period shall not include such succeeding Reset Date); and provided further that with respect to any Due Period in which a Reset Date occurs, if the Servicer need not make daily deposits of Collections into the Collection Account, the amount in subclause (b)(i)(A) shall be the Average Principal Balance. "Fixed Principal Allocation Date" shall mean the earlier of (a) the date on which an Early Amortization Period with respect to Series 2004-1 commences; and (b) the date of commencement of the Controlled Amortization Period. "Floating Allocation Percentage" shall mean, with respect to any Due Period (including any day within such Due Period), the percentage equivalent of a fraction: (a) the numerator of which is the Investor Interest at the end of the day on the last day of the prior Due Period (or with respect to the first Due Period ending after the Closing Date, the Series Investor Interest as of the Closing Date), and (b) the denominator of which is the greater of (1) the sum of (A) the aggregate amount of Principal Receivables in the Trust at the end of the day on the last day of the prior Due Period (or with respect to the first Due Period ending after the 21 Closing Date, at the end of the day on the Closing Date) and (B) the Excess Funding Amount as of the close of business of the last day of the prior Due Period, and (2) the sum of the numerators used to calculate the Investor/Purchaser Percentages for such Due Period with respect to Finance Charge Receivables, Series Dilution Amounts or Loss Amounts, as applicable, for all Series of Certificates and Receivable Purchase Series outstanding; provided that with respect to any Due Period in which one or more Reset Dates occur: (x) the denominator determined pursuant to subclause (b)(1)(A) shall be (1) the aggregate amount of Principal Receivables in the Trust as of the close of business on the later of the last day of the preceding Due Period or the preceding Reset Date, for the period from and including the first day of the current Due Period or preceding Reset Date, as applicable, to but excluding such Reset Date and (2) the aggregate amount of Principal Receivables in the Trust as of the close of business on such Reset Date, for the period from and including such Reset Date to the earlier of the last day of such Due Period (in which case such period shall include such day) or the next succeeding Reset Date (in which case such period shall not include such succeeding Reset Date); provided that with respect to any Due Period in which a Reset Date occurs, if the Servicer need not make daily deposits of Collections into the Collection Account, the amount in subclause (b)(1)(A) shall be the Average Principal Balance; and (y) the denominator determined pursuant to subclause (b)(2) shall be (1) the sum of the numerators used to calculate the Investor/Purchaser Percentages for all outstanding Series for allocations with respect to Finance Charge Receivables, Loss Amounts or Principal Receivables, as applicable, for all such Series as of the close of business on the later of the last day of the preceding Due Period or the preceding Reset Date, for the period from and including the first day of the current Due Period or preceding Reset Date, as applicable, to but excluding such Reset Date and (2) the sum of the numerators used to calculate the Investor/Purchaser Percentages for all outstanding Series for allocations with respect to Finance Charge Receivables, Series Dilution Amounts, Loss Amounts or Principal Receivables, as applicable, for all such Series as the close of business on such Reset Date, for the period from and including such Reset Date to the earlier of the last day of such Due Period (in which case such period shall include such day) or the next succeeding Reset Date (in which case such period shall not include such succeeding Reset Date); and provided, further, that with respect to any Due Period during the Funding Period during which the Series Investor Interest is increased pursuant to Section 4.21, the numerator shall be (1) the Investor Interest at the end of the day on the last day of the prior Due Period, for the period from and including the first day of the current Due Period, to but excluding the Distribution Date on which such increase occurs and (2) the Investor Interest, after giving effect 22 to such increase, for the period from and including the Distribution Date on which such increase occurs to and including the last day of such Due Period. "Funding Period" shall mean the period from and including the Closing Date to and including the earliest of (x) the first day on which the Series Investor Interest equals the Initial Investor Interest; (y) the commencement of the Early Amortization Period and (z) the July 2005 Distribution Date. "Funding Period Reserve Account" shall have the meaning set forth in subsection 4.20(a). "Funding Period Reserve Draw Amount" shall mean, with respect to each Distribution Date during the Funding Period, the lesser of (a) the amount on deposit in the Funding Period Reserve Account on such Distribution Date, other than net investment income (before giving effect to any withdrawal to be made from the Funding Period Reserve Account on such Distribution Date) and (b) the Pre-Funding Interest Amount for such Distribution Date. "Funding Period Termination Distribution Date" shall mean the earlier to occur of (x) the first Distribution Date to occur following the commencement of the Early Amortization Period and (y) if the Funding Period shall not have terminated pursuant to clause (x) of the definition of "Funding Period" (after giving effect to any increase in the Series Investor Interest on the July 2005 Distribution Date), the July 2005 Distribution Date. "Group One" shall mean Series 2004-1 and each other Series specified in the related Supplement or Receivables Purchase Agreement to be included in Group One. "Initial Investor Interest" shall mean the sum of the Class A Initial Investor Interest, the Class M Initial Investor Interest, the Class B Initial Investor Interest, the Class C Initial Investor Interest and the Class D Initial Investor Interest. "Initial Purchasers" means Barclays Capital Inc. and Bear, Stearns & Co. Inc., as initial purchasers of the Class A Certificates, the Class M Certificates and the Class B Certificates. "Initial Total Pre-Funded Amount" shall mean $118,500,000. "Interest Rate Swap Agreement" means each interest rate swap agreement between Trustee, on behalf of the Trust, and the Swap Counterparty substantially in the form of Exhibit I; provided, however, that the Interest Rate Swap Agreements can deviate from the terms described in Exhibit I if the Rating Agency Condition is satisfied. "Interest Period" shall mean, with respect to any Distribution Date, the period from and including the previous Distribution Date through the day preceding such Distribution Date, except that the initial Interest Period shall be the period from and including the Closing Date through the day preceding the initial Distribution Date. 23 "Investor Charge-Offs" shall mean, on any date of determination, an amount equal to the sum of (i) the Class A Investor Charge-Offs, (ii) the Class M Investor Charge-Offs, (iii) the Class B Investor Charge-Offs, (iv) the Class C Investor Charge-Offs and (v) the Class D Investor Charge-Offs. "Investor Interest" for Series 2004-1 means the Series Investor Interest. "Investor Loss Amount" shall mean, with respect to any Distribution Date, an amount equal to the product of (a) the aggregate of the Loss Amounts for the related Due Period and (b) the Floating Allocation Percentage for such Due Period. "Investor/Purchaser Percentage" for Series 2004-1 shall mean, with respect to Collections of Principal Receivables, the Principal Allocation Percentage, and with respect to Collections of Finance Charge Receivables, Series Dilution Amounts or Loss Amounts, the Floating Allocation Percentage. "LIBOR" shall mean, for any Interest Period, the London interbank offered rate for United States dollar deposits of the Designated Maturity determined by the Trustee for each Interest Period in accordance with the provisions of Section 4.17. "LIBOR Determination Date" shall mean August 3, 2004 for the initial Interest Period and the second London Business Day prior to the commencement of each subsequent Interest Period. "London Business Day" shall mean a day on which the Trustee and commercial banks in the City of London are open for the transaction of commercial banking business. "Minimum Required Funding Period Reserve Amount" shall mean, with respect to any Distribution Date, an amount equal to the product of (i) 1.3% and (ii) the amount on deposit in the Pre-Funding Account on such Distribution Date (after taking into account any withdrawals to be made from the Pre-Funding Account on such Distribution Date pursuant to subsection 4.21(b)). "Minimum Seller Interest" for Series 2004-1 shall mean zero. "Monthly Interest" shall mean, with respect to any Distribution Date, the sum of (a) the Class A Monthly Interest, the Class A Additional Interest, if any, and the unpaid Class A Deficiency Amount, if any; (b) the Class M Monthly Interest, the Class M Additional Interest, if any, and the unpaid Class M Deficiency Amount, if any; (c) the Class B Monthly Interest, the Class B Additional Interest, if any, and the unpaid Class B Deficiency Amount, if any; (d) the Class C Monthly Interest and the unpaid Class C Deficiency Amount, if any; and (e) the Class D Monthly Interest and unpaid Class D Deficiency Amount, each with respect to such Distribution Date. 24 "Net Swap Payment" means, for any Distribution Date, the sum of the Class A Net Swap Payment (if any), the Class M Net Swap Payment (if any), the Class B Net Swap Payment (if any) and the Class C Net Swap Payment (if any), each for such Distribution Date. "Net Swap Receipt" means, for any Distribution Date, the sum of the Class A Net Swap Receipt (if any), the Class M Net Swap Receipt (if any), the Class B Net Swap Receipt (if any) and the Class C Net Swap Receipt (if any), each for such Distribution Date. "Portfolio Yield" shall mean, with respect to any Due Period, the annualized percentage equivalent of a fraction, the numerator of which is an amount equal to the result of (a) the Floating Allocation Percentage of Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates for such Due Period (including net investment earnings on funds on deposit in the Pre-Funding Account and the Funding Period Reserve Account and certain other amounts that are to be treated as Collections of Finance Charge Receivables in accordance with the Agreement and this Supplement) plus (b) amounts withdrawn from the Funding Period Reserve Account pursuant to subsection 4.20(c) and (c) any Net Swap Receipt for the related Distribution Date, such amount to be calculated on a cash basis after subtracting the Investor Loss Amount and the Series 2004-1 Investor Dilution Amount for such Due Period, and the denominator of which is the outstanding principal amount of the Series 2004-1 Certificates as of the last day of the preceding Due Period (or with respect to the initial Due Period, the outstanding principal amount of the Series 2004-1 Certificates on the Closing Date); it being understood that such fraction shall be annualized by dividing the fraction obtained in accordance with the definition set forth above by the number of days in such Due Period and multiplying such amount by 365. "Pre-Funded Portion" shall mean (i) with respect to Class C Certificates, an amount equal to the Class C Percentage times the amount of funds on deposit in the Pre-Funding Account, (ii) with respect to Class D-1 Certificates, an amount equal to the Class D-1 Percentage times the amount of funds on deposit in the Pre-Funding Account, and (iii) with respect to the Class D-2 Certificates, an amount equal to the Class D-2 Percentage times the amount of funds on deposit in the Pre-Funding Account. "Pre-Funding Account" shall mean the account established and maintained pursuant to subsection 4.19(a). "Pre-Funding Interest Amount" means, for any Distribution Date during the Funding Period, the excess, if any, of: (i) the product of (A) the result of the Monthly Interest for such Distribution Date, minus Net Swap Receipts received by the Trust, plus Net Swap Payments payable by the Trust on that Distribution Date, multiplied by 25 (B) a fraction, the numerator of which is equal to the amount on deposit in the Pre-Funding Account on the last day of the preceding Due Period (or with respect to the first Distribution Date, the Closing Date), other than net investment income, and the denominator of which is equal to the outstanding principal amount of the Series 2004-1 Certificates on the last day of the preceding Due Period (or with respect to the first Distribution Date, the Closing Date), over (ii) the investment earnings on funds in the Pre-Funding Account (net of investment losses and expenses) for such Distribution Date. "Principal Allocation Percentage" shall mean, (a) with respect to any Due Period (including any day within such Due Period) occurring prior to the Fixed Principal Allocation Date, the Floating Allocation Percentage for such Due Period, and (b) with respect to any Due Period (including any day within such Due Period) occurring on or after the Fixed Principal Allocation Date, the Fixed Allocation Percentage for such Due Period. "Principal Shortfall" shall mean, as the context requires, any of the following: (a) on any Distribution Date with respect to the Controlled Amortization Period, (i) if such Distribution Date is on or prior to the Class A Expected Final Payment Date, the amount by which the Class A Controlled Payment Amount for the prior Due Period exceeds the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections), (ii) if such Distribution Date occurs after the Class A Expected Final Payment Date but on or prior to the Class M Expected Final Payment Date, the amount by which the Class M Controlled Payment Amount for the prior Due Period exceeds the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections) and (iii) if such Distribution Date occurs after the Class M Expected Final Payment Date but on or prior to the Class B Expected Final Payment Date, the amount by which the Class B Controlled Payment Amount for the prior Due Period exceeds the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections); (b) on the Class C Expected Final Payment Date (if an Early Amortization Event with respect to Series 2004-1 has not occurred), the amount by which the Class C Investor Interest exceeds the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections); (c) on the Class D Expected Final Payment Date (if an Early Amortization Event with respect to Series 2004-1 has not occurred), the amount by which the Class D Investor Interest exceeds the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections); and (d) on any Distribution Date with respect to the Early Amortization Period, the amount by which the Investor Interest exceeds the Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections). "QIB" means a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act). "Rating Agency" shall mean Moody's and Standard & Poor's. 26 "Reallocated Class B Principal Collections" shall mean, with respect to any Distribution Date, Collections of Principal Receivables allocated to Series 2004-1 for the preceding Due Period in an amount not to exceed the lesser of (i) the product of (A) the Class B Investor Allocation times (B) the Investor/Purchaser Percentage times (C) the aggregate amount of Collections in respect of Principal Receivables deposited in the Collection Account for the related Due Period; and (ii) the Class B Investor Interest after giving effect to any reduction of the Class B Investor Interest pursuant to subsection 4.10(c) on such Distribution Date. "Reallocated Class C Principal Collections" shall mean, with respect to any Distribution Date, Collections of Principal Receivables allocated to Series 2004-1 for the preceding Due Period in an amount not to exceed the lesser of (i) the product of (A) the Class C Investor Allocation times (B) the Investor/Purchaser Percentage times (C) the aggregate amount of Collections in respect of Principal Receivables deposited in the Collection Account for the related Due Period; and (ii) the Class C Investor Interest after giving effect to any reduction of the Class C Investor Interest pursuant to subsection 4.10(d) on such Distribution Date. "Reallocated Class D Principal Collections" shall mean, with respect to any Distribution Date, the sum of Reallocated Class D-1 Principal Collections plus Reallocated Class D-2 Principal Collections. "Reallocated Class D-1 Principal Collections" shall mean, with respect to any Distribution Date, Collections of Principal Receivables allocated to Series 2004-1 for the preceding Due Period in an amount not to exceed the lesser of (i) the product of (A) the Class D-1 Investor Allocation times (B) the Investor/Purchaser Percentage times (C) the aggregate amount of Collections in respect of Principal Receivables deposited in the Collection Account for the related Due Period; and (ii) the Class D-1 Investor Interest after giving effect to any reduction of the Class D-1 Investor Interest pursuant to subsection 4.10(e) on such Distribution Date. "Reallocated Class D-2 Principal Collections" shall mean, with respect to any Distribution Date, Collections of Principal Receivables allocated to Series 2004-1 for the preceding Due Period in an amount not to exceed the lesser of (i) the product of (A) the Class D-2 Investor Allocation times (B) the Investor/Purchaser Percentage times (C) the aggregate amount of Collections in respect of Principal Receivables deposited in the Collection Account for the related Due Period; and (ii) the Class D-2 Investor Interest after giving effect to any reductions of the Class D-2 Investor Interest pursuant to subsection 4.10(e) on such Distribution Date. "Reallocated Class M Principal Collections" shall mean, with respect to any Distribution Date, Collections of Principal Receivables allocated to Series 2004-1 for the preceding Due Period in an amount not to exceed the lesser of (i) the product of (A) the Class M Investor Allocation times (B) the Investor/Purchaser Percentage times (C) the aggregate amount of Collections in respect of Principal Receivables deposited in the Collection Account for the related Due Period; and (ii) the Class M Investor Interest after giving effect to any reduction of the Class M Investor Interest pursuant to subsection 4.10(b) on such Distribution Date. 27 "Reallocated Principal Collections" shall mean the sum of (a) Reallocated Class M Principal Collections, (b) Reallocated Class B Principal Collections, (c) Reallocated Class C Principal Collections and (d) Reallocated Class D Principal Collections. "Reference Banks" shall mean four major banks in the London interbank market selected by the Servicer. "Regulation S Book-Entry Certificate" shall have the meaning specified in subsection 15(b) of this Supplement. "Regulation S Permanent Book-Entry Certificate" shall have the meaning specified in subsection 15(b) of this Supplement. "Regulation S Temporary Book-Entry Certificate" shall have the meaning specified in subsection 15(b) of this Supplement. "Reset Date" shall mean the occurrence of any Addition Date or any Removal Date. "Restricted Book-Entry Certificate" shall have the meaning specified in subsection 15(b) of this Supplement. "Revolving Period" shall mean the period from and including the Closing Date to, but not including, the Fixed Principal Allocation Date. "Series 2004-1" shall mean the Series of the Charming Shoppes Master Trust represented by the Investor Certificates. "Series 2004-1 Certificateholder" shall mean the Holder of record of any Series 2004-1 Certificate. "Series 2004-1 Certificates" shall mean the Class A Certificates, the Class M Certificates, the Class B Certificates, the Class C Certificates and the Class D Certificates. "Series 2004-1 Early Amortization Event" shall have the meaning specified in Section 9 of this Supplement. "Series 2004-1 Investor Dilution Amount" shall mean, with respect to any Distribution Date, an amount equal to the product of (a) the Series Percentage for the related Due Period and (b) any Series Dilution Amount remaining after giving effect to any addition of Accounts and other actions taken pursuant to Sections 4.3(d) and 2.6. "Series 2004-1 Investor Monthly Servicing Fee" shall have the meaning specified in Section 3 of this Supplement. 28 "Series 2004-1 Termination Date" shall mean the earliest to occur of (a) the Distribution Date on which the Series 2004-1 Certificates are paid in full, (b) the May 2014 Distribution Date or (c) the date of termination of the Trust pursuant to Section 12.1 of the Agreement. "Series 2004-1 Unfunded Dilution Amount" shall mean, on any Distribution Date, an amount equal to any unfunded Series 2004-1 Investor Dilution Amount remaining after application of Class A Available Funds pursuant to subsection 4.9(a)(iv) and Excess Spread and Shared Excess Finance Charge Collections in accordance with Section 4.11. "Series Investor Interest" shall mean, on any date of determination, an amount equal to the sum of (i) the Class A Investor Interest, (ii) the Class M Investor Interest, (iii) the Class B Investor Interest, (iv) the Class C Investor Interest and (v) the Class D Investor Interest, each as of such date. "Series Servicing Fee Percentage" shall mean 2.0%. "Shared Excess Finance Charge Collections" shall mean, with respect to any Distribution Date, as the context requires, either (a) the aggregate amount of Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates but available to cover Finance Charge Shortfalls for other Series in Group One, if any, or (b) the aggregate amount of Collections of Finance Charge Receivables and other amounts allocable to other Series in Group One in excess of the amounts necessary to make required payments with respect to such Series, if any, and available to cover any Finance Charge Shortfall with respect to the Series 2004-1 Certificates as described in Section 4.14. "Shared Principal Collections" shall mean, as the context requires, either (a) the amount allocated to the Series 2004-1 Certificates which may be applied to cover Principal Shortfalls with respect to other outstanding Series in Group One, or (b) the amounts allocated to the Investor Certificates of other Series in Group One that the applicable 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 2004-1 Certificates pursuant to Section 4.15. "Specified Days" shall mean, with respect to any Interest Period, (a) 30, when used with reference to the calculation of interest for any Class that bears interest at a fixed rate during such Interest Period and (b) the number of days in such Interest Period, when used with reference to the calculation of interest for any Class that bears interest a rate calculated by reference to LIBOR during such Interest Period. "Subperiod" means, with respect to a Due Period in which one or more Reset Dates occur (the "Subject Due Period"), any of the following: (i) the period from and including the last day of the prior Due Period to but excluding the first Reset Date in the Subject Due Period, 29 (ii) the period from and including the last Reset Date in the Subject Due Period to and including the last day of the Subject Due Period, and (iii) the period, if any, from and including one Reset Date in the Subject Due Period to but excluding the next Reset Date. "Swap Counterparty" means Barclays Bank PLC or any other counterparty under the initial Interest Rate Swap Agreements or any successor agreement to the initial Class A Swap, the initial Class M Swap, the initial Class B Swap or the initial Class C Swap. "Telerate Page 3750" shall mean the display page currently so designated on the Moneyline Telerate Service (or such other page as may replace that page on that service for displaying comparable rates or prices). SECTION 3. Servicing Compensation. The share of the Monthly Servicing Fee allocable to Series 2004-1 (the "Series 2004-1 Investor Monthly Servicing Fee") with respect to any Due Period shall be equal to one-twelfth of the product of (i) the Series Servicing Fee Percentage and (ii) (a) the Investor Interest as of the last day of such Due Period minus (b) the product of the amount, if any, on deposit in the Excess Funding Account as of the last day of such Due Period and the Principal Allocation Percentage for such Due Period; provided, however, that with respect to the initial Due Period ending after the Closing Date, the Series 2004-1 Investor Monthly Servicing Fee shall be adjusted based on the ratio of the number of days in the initial Due Period to 30; provided, further, that if a Successor Servicer that is not an Affiliate of the Seller is appointed, the Series 2004-1 Investor Servicing Fee shall be such amount as may be agreed upon in writing between such Successor Servicer and the Trustee, so long as the Trustee shall have received written confirmation from each of the Rating Agencies then rating any Class of Series 2004-1 Certificates that such change would not result in a reduction or withdrawal by such Rating Agency of its rating of any Class of the Series 2004-1 Certificates. The share of the Series 2004-1 Investor Monthly Servicing Fee allocable to the Class A Investor Interest with respect to any Due Period (the "Class A Servicing Fee") shall be equal to the product of (i) the Class A Floating Allocation, and (ii) the Series 2004-1 Investor Monthly Servicing Fee for such Due Period. The share of the Series 2004-1 Investor Monthly Servicing Fee allocable to the Class M Investor Interest with respect to any Due Period (the "Class M Servicing Fee") shall be equal to the product of (i) the Class M Floating Allocation and (ii) the Series 2004-1 Investor Monthly Servicing Fee for such Due Period. The share of the Series 2004-1 Investor Monthly Servicing Fee allocable to the Class B Investor Interest with respect to any Due Period (the "Class B Servicing Fee") shall be equal to the product of (i) the Class B Floating Allocation and (ii) the Series 2004-1 Investor Monthly Servicing Fee for such Due Period. The share of the Series 2004-1 Investor Monthly Servicing Fee allocable to the Class C Investor Interest with respect to any Due Period (the "Class C Servicing Fee") shall be equal to the product of (i) the Class C Floating Allocation and (ii) the Series 2004-1 Investor Monthly Servicing Fee for such Due Period. The share of the Series 2004-1 Investor Monthly Servicing Fee allocable to the Class D-1 Investor Interest with respect to any Due Period (the "Class D-1 Servicing Fee") shall be equal to the product of (i) the Class D-1 Floating Allocation 30 and (ii) the Series 2004-1 Investor Monthly Servicing Fee for such Due Period. The share of the Series 2004-1 Investor Monthly Servicing Fee allocable to the Class D-2 Investor Interest with respect to any Due Period (the "Class D-2 Servicing Fee") shall be equal to the product of (i) the Class D-2 Floating Allocation and (ii) the Series 2004-1 Investor Monthly Servicing Fee for such Due Period. Except as specifically provided above, the Monthly Servicing Fee shall be paid by the cash flows from the Trust allocated to the Seller or the Certificateholders of other Series (as provided in the related Supplements or Receivables Purchase Agreements) and in no event shall the Trust, the Trustee or the Series 2004-1 Certificateholders be liable therefor. The Class A Servicing Fee shall be payable to the Servicer solely to the extent amounts are available for distribution in respect thereof pursuant to subsections 4.9(a)(ii) and 4.11(a). The Class M Servicing Fee shall be payable to the Servicer solely to the extent amounts are available for distribution in respect thereof pursuant to subsections 4.9(b)(ii) and 4.11(c). The Class B Servicing Fee shall be payable solely to the extent amounts are available for distribution in respect thereof pursuant to subsections 4.9(c)(ii) and 4.11(e). The Class C Servicing Fee shall be payable solely to the extent amounts are available for distribution in respect thereof pursuant to subsections 4.9(d)(i) and 4.11(g). The Class D Servicing Fee shall be payable solely to the extent amounts are available for distribution in respect thereof pursuant to subsections 4.9(e)(i) and 4.11(m). SECTION 4. Reassignment and Transfer Terms. The Series 2004-1 Certificates shall be subject to retransfer to the Seller 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 Series Investor Interest is less than or equal to 10% of the Series Investor Interest on the Funding Period Termination Distribution Date (after giving effect to any increase in the Series Investor Interest on such date). The deposit required in connection with any such repurchase shall be equal to the Series Investor Interest plus accrued and unpaid interest on the Series 2004-1 Certificates through the day preceding the Distribution Date on which the repurchase occurs. SECTION 5. Delivery and Payment for the Series 2004-1 Certificates. The Seller shall execute and deliver the Series 2004-1 Certificates to the Trustee for authentication in accordance with Section 6.1 of the Agreement. The Trustee shall deliver the Series 2004-1 Certificates when authenticated in accordance with Section 6.2 of the Agreement. SECTION 6. Depository; Form of Delivery of Series 2004-1 Certificates. (a) The Class A Certificates, the Class M Certificates and the Class B Certificates shall be delivered as Book-Entry Certificates as provided in Sections 6.2 and 6.10 of the Agreement. The Class C Certificates and the Class D Certificates shall be delivered as Definitive Certificates as provided in Sections 6.2 and 6.12 of the Agreement. 31 (b) The Depository for Series 2004-1 shall be The Depository Trust Company, and the Class A Certificates, the Class M Certificates and Class B Certificates shall be initially registered in the name of Cede & Co., its nominee. SECTION 7. Interest Rate Swap Agreements. (a) The Trustee shall, on behalf of the Trust, enter into a Class A Swap, a Class M Swap, a Class B Swap and a Class C Swap on the Closing Date for the benefit of the Class A Certificateholders, the Class M Certificateholders, the Class B Certificateholders or the Class C Certificateholders respectively. The notional amount under any Class A Swap at any time shall be equal to the outstanding principal amount of the Class A Certificates at such time. The notional amount under any Class M Swap at any time shall be equal to the outstanding principal amount of the Class M Certificates at such time. The notional amount under any Class B Swap at any time shall be equal to the outstanding principal amount of the Class B Certificates at such time. The notional amount under any Class C Swap at any time shall be equal to the outstanding principal amount of the Class C Certificates at such time. Class A Net Swap Receipts shall be deposited by the Trustee in the Collection Account on the date such Class A Net Swap Receipts are paid and shall be treated as Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates and available to be applied as Class A Available Funds. Class M Net Swap Receipts shall be deposited by the Trustee in the Collection Account on the date such Class M Net Swap Receipts are paid and shall be treated as Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates and available to be applied as Class M Available Funds. Class B Net Swap Receipts shall be deposited by the Trustee in the Collection Account on the date such Class B Net Swap Receipts are paid and shall be treated as Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates and available to be applied as Class B Available Funds. Class C Net Swap Receipts shall be deposited by the Trustee in the Collection Account on the date such Class C Net Swap Receipts are paid and shall be treated as Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates and available to be applied as Class C Available Funds. On any Distribution Date when the Class A Net Swap Payment, the Class M Net Swap Payment or the Class B Net Swap Payment is greater than zero, the Trustee shall pay such Class A Net Swap Payment, Class M Net Swap Payment or Class B Net Swap Payment from the Class A Available Funds, the Class M Available Funds and the Class B Available Funds, respectively, as provided in Sections 4.9(a), 4.9(b) and 4.9(c). If the Class A Available Funds, the Class M Available Funds or the Class B Available Funds are insufficient to pay the Class A Net Swap Payment, the Class M Net Swap Payment and the Class B Net Swap Payment, respectively, the Class A Net Swap Payment, the Class M Net Swap Payment, and the Class B Net Swap Payment will be paid from the Excess Spread and Shared Excess Finance Charge Collections, as provided in Sections 4.11(a), 4.11(c), 4.11(e) and 4.14(b). On any Distribution Date when the Class C Net Swap Payment is greater than zero, the Class C Net Swap Payment shall be paid from the Excess Spread and Shared Excess Finance Charge Collections, as provided in Section 4.11(h) and 4.14(b). 32 (b) Subject to satisfaction of the Rating Agency Condition, the Servicer may at any time obtain a replacement Interest Rate Swap Agreement. SECTION 8. Article IV of Agreement. Sections 4.1, 4.2 and 4.3 of the Agreement shall be 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 2004-1 Certificates. ARTICLE IV. RIGHTS OF CERTIFICATEHOLDERS AND RECEIVABLES PURCHASERS AND ALLOCATION AND APPLICATION OF COLLECTIONS SECTION 4.4. Rights of Series 2004-1 Certificateholders. The Series 2004-1 Certificates shall represent undivided interests in the Trust, consisting of the right to receive, to the extent necessary to make the required payments with respect to such Series 2004-1 Certificates at the times and in the amounts specified in this Agreement, (a) the Floating Allocation Percentage and Principal Allocation Percentage (as applicable from time to time) of Collections received with respect to the Receivables (including certain other amounts that are to be treated as collections of Receivables in accordance with the terms of this Agreement), (b) any other funds on deposit (or to be deposited) in the Collection Account or the Excess Funding Account allocated to Series 2004-1 and (c) any other amounts that pursuant to this Agreement or any Supplement are allocable to Series 2004-1. The Class D-2 Certificates shall be subordinate to the Class D-1 Certificates as described herein and in the Class D Purchase Agreement. The Class D Certificates shall be subordinate to the Class A Certificates, the Class M Certificates, the Class B Certificates and the Class C Certificates. The Class C Certificates shall be subordinate to the Class A Certificates, the Class M Certificates and the Class B Certificates. The Class B Certificates shall be subordinate to the Class A Certificates and the Class M Certificates. The Class M Certificates will be subordinate to the Class A Certificates. The Exchangeable Seller Certificate shall not represent any interest in the Collection Account or the Excess Funding Account except as specifically provided in this Article IV. SECTION 4.5. Allocations. (a) Allocations During the Revolving Period. During the Revolving Period, the Servicer shall, prior to the close of business on the day any Collections are deposited in the Collection Account, allocate to the Series 2004-1 Certificateholders, the following amounts as set forth below: (i) An amount equal to the product of (A) the Floating Allocation Percentage on such date and (B) the aggregate amount of Collections processed in respect of Finance Charge Receivables on such date, to be applied in accordance with Sections 4.9 and 4.11. (ii) If the Series 1999-1 Certificates have been paid in full, an amount equal to the product of (A) the Investor/Purchaser Percentage on such date and (B) the aggregate 33 amount of Collections processed in respect of Principal Receivables on such date, which amount shall be, first, held in the Collection Account to the extent of amounts to be distributed pursuant to Section 4.9(f)(i) on the next Distribution Date, second, if any other Principal Sharing Series is outstanding and in its accumulation period or amortization period, held in the Collection Account for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the related Distribution Date, third, deposited to the Excess Funding Account to the extent necessary so that the Seller Interest is not less than the Minimum Seller Interest and, fourth, paid to the Holders of the Exchangeable Seller Certificate. With respect to each Due Period falling in the Revolving Period, to the extent that Collections of Principal Receivables allocated to the Series 2004-1 Certificateholders pursuant to this subsection are paid to any Holder of the Exchangeable Seller Certificate, such Holder shall make an amount equal to the Reallocated Principal Collections for the related Distribution Date available on that Distribution Date for application in accordance with Section 4.12; provided, however, that if such Holder fails to make such funds available, then an amount of Collections of Principal Receivables allocated to Series 2004-1 and on deposit in the Collection Account equal to that deficiency shall be treated as Reallocated Principal Collections for application in accordance with Section 4.12, prior to any other application of such Collections. (b) Allocations During the Controlled Amortization Period. During the Controlled Amortization Period, the Servicer shall, prior to the close of business on the day any Collections are deposited in the Collection Account, allocate to the Series 2004-1 Certificateholders, the following amounts as set forth below: (i) An amount equal to the product of (A) the Floating Allocation Percentage on such date and (B) the aggregate amount of Collections processed in respect of Finance Charge Receivables on such date, to be applied in accordance with Sections 4.9 and 4.11. (ii) An amount equal to the product of (A) the Investor/Purchaser Percentage on such date and (B) the aggregate amount of Collections processed in respect of Principal Receivables on such date, which amount shall be, first, held in the Collection Account to the extent of amounts to be distributed pursuant to Section 4.9(g) on the next Distribution Date, and, second, if any other Principal Sharing Series is outstanding and in its accumulation period or amortization period, held in the Collection Account for application, to the extent necessary, as Shared Principal Collections to other Principal Sharing Series on the next Distribution Date, third, deposited to the Excess Funding Account to the extent necessary so that the Seller Interest is not less than the Minimum Seller Interest and, fourth, paid to the Holder of the Exchangeable Seller Certificate, provided that, upon written notice to the Servicer and the Trustee, such Holder may specify that any such amount to be distributed to it after the Class A Investor Interest has been paid in full shall be retained in the Collection Account for distribution pursuant to Section 4.9(g) as Available Principal Collections on the Distribution Date following the next Distribution Date. With respect to each Due Period falling in the Controlled Amortization Period, to the extent that Collections of Principal Receivables allocated to 34 the Series 2004-1 Certificateholders pursuant to this subsection are paid to any Holder of the Exchangeable Seller Certificate, such Holder shall make an amount equal to the Reallocated Principal Collections for the related Distribution Date available on that Distribution Date for application in accordance with Section 4.12; provided, however, that if such Holder fails to make such funds available, then an amount of Collections on Principal Receivables equal to that deficiency shall be treated as Reallocated Principal Collections for application in accordance with Section 4.12, prior to any other application of the amounts in the Collection Account. (c) Allocations During the Early Amortization Period. During the Early Amortization Period, the Servicer shall, prior to the close of business on the day any Collections are deposited in the Collection Account, allocate to the Series 2004-1 Certificateholders, the following amounts as set forth below: (i) Allocate to the Series 2004-1 Certificateholders an amount equal to the product of (A) the Floating Allocation Percentage on such date and (B) the aggregate amount of such Collections processed in respect of Finance Charge Receivables on such date, to be applied in accordance with Sections 4.9 and 4.11. (ii) An amount equal to the product of (A) the Class D-2 Investor Allocation on such date, (B) the Investor/Purchaser Percentage on such date and (C) the aggregate amount of Collections processed in respect of Principal Receivables on such date, to be applied first in accordance with Section 4.12(b)(i) and then in accordance with subsection 4.9(g). (iii) An amount equal to the product of (A) the Class D-1 Investor Allocation on such date, (B) the Investor/Purchaser Percentage on such date and (C) the aggregate amount of Collections processed in respect of Principal Receivables on such date, to be applied first in accordance with Section 4.12(b)(ii) and then in accordance with subsection 4.9(g). (iv) An amount equal to the product of (A) the Class C Investor Allocation on such date, (B) the Investor/Purchaser Percentage on such date and (C) the aggregate amount of Collections processed in respect of Principal Receivables on such date, to be applied first in accordance with Section 4.12(b)(iii) and then in accordance with subsection 4.9(g). (v) An amount equal to the product of (A) the Class B Investor Allocation on such date, (B) the Investor/Purchaser Percentage on such date and (C) the aggregate amount of Collections processed in respect of Principal Receivables on such date, to be applied first in accordance with Section 4.12(b)(iv) and then in accordance with subsection 4.9(g). (vi) An amount equal to the product of (A) the Class M Investor Allocation on such date, (B) the Investor/Purchaser Percentage on such date and (C) the aggregate 35 amount of Collections processed in respect of Principal Receivables on such date, to be applied first in accordance with Section 4.12(b)(v) and then in accordance with subsection 4.9(g). (vii) An amount equal to the product of (A) the Class A Investor Allocation on such date, (B) the Investor/Purchaser Percentage on such date and (C) the aggregate amount of Collections processed in respect of Principal Receivables on such date, to be applied in accordance with subsection 4.9(g). SECTION 4.6. Determination of Monthly Interest. (a) The amount of monthly interest distributable in respect of the Class A Certificates on each Distribution Date shall be an amount equal to the product of (i) a fraction, the numerator of which is the Specified Days and the denominator of which is 360, (ii) the Class A Certificate Rate in effect with respect to the related Interest Period, and (iii) the outstanding principal amount of the Class A Certificates determined as of the Record Date preceding such Distribution Date (the "Class A Monthly Interest"); provided, that in addition to Class A Monthly Interest an amount equal to the amount of any unpaid Class A Deficiency Amounts, as defined below, plus an amount equal to the product of (A) a fraction, the numerator of which is the Specified Days and the denominator of which is 360, (B) the sum of the Class A Certificate Rate and 1.0% per annum, and (C) any Class A Deficiency Amounts from the prior Distribution Date, as defined below, or the portion thereof which has not theretofore been paid to Class A Certificateholders (the "Class A Additional Interest"), shall also be distributable in respect of the Class A Certificates. The "Class A Deficiency Amount" for any Distribution Date shall be equal to the excess, if any, of the aggregate amount accrued pursuant to this subsection 4.6(a) for all Interest Periods prior to the immediately preceding Interest Period, over the amount actually paid to Class A Certificateholders in respect of such amounts on all prior Distribution Dates. (b) The amount of monthly interest distributable in respect of the Class M Certificates on each Distribution Date shall be an amount equal to the product of (i) a fraction, the numerator of which is the Specified Days and the denominator of which is 360, (ii) the Class M Certificate Rate in effect with respect to the related Interest Period, and (iii) the outstanding principal amount of the Class M Certificates determined as of the Record Date preceding such Distribution Date (the "Class M Monthly Interest"); provided, that in addition to the Class M Monthly Interest an amount equal to the amount of any unpaid Class M Deficiency Amounts, as defined below, plus an amount equal to the product of (A) a fraction, the numerator of which is the Specified Days and the denominator of which is 360, (B) the sum of the Class M Certificate Rate and 1.0% per annum, and (C) any Class M Deficiency Amount from the prior Distribution Date, as defined below, or the portion thereof which has not theretofore been paid to Class M Certificateholders (the "Class M Additional Interest"), shall also be distributable in respect of the Class M Certificates. The "Class M Deficiency Amount" for any Distribution Date shall be equal to the excess, if any, of the aggregate amount accrued pursuant to this subsection 4.6(b) for all Interest Periods prior to the immediately preceding Interest Period, over the amount actually paid to the Class M Certificateholders in respect of such amounts on all prior Distribution Dates. 36 (c) The amount of monthly interest distributable in respect of the Class B Certificates on each Distribution Date shall be an amount equal to the product of (i) a fraction, the numerator of which is the Specified Days and the denominator of which is 360, (ii) the Class B Certificate Rate in effect with respect to the related Interest Period, and (iii) the outstanding principal amount of the Class B Certificates determined as of the Record Date preceding such Distribution Date (the "Class B Monthly Interest"); provided, that in addition to the Class B Monthly Interest an amount equal to the amount of any unpaid Class B Deficiency Amounts, as defined below, plus an amount equal to the product of (A) a fraction, the numerator of which is the Specified Days and the denominator of which is 360, (B) the sum of the Class B Certificate Rate and 1.0% per annum, and (C) any Class B Deficiency Amount from the prior Distribution Date, as defined below, or the portion thereof which has not theretofore been paid to Class B Certificateholders (the "Class B Additional Interest"), shall also be distributable in respect of the Class B Certificates. The "Class B Deficiency Amount" for any Distribution Date shall be equal to the excess, if any, of the aggregate amount accrued pursuant to this subsection 4.6(c) for all Interest Periods prior to the immediately preceding Interest Period, over the amount actually paid to the Class B Certificateholders in respect of such amounts on all prior Distribution Dates. (d) The amount of monthly interest distributable in respect of the Class C Certificates on each Distribution Date shall be an amount equal to the product of (i) a fraction, the numerator of which is the Specified Days and the denominator of which is 360, (ii) the Class C Certificate Rate in effect with respect to the related Interest Period, and (iii) the sum of the Class C Investor Interest plus the applicable Pre-Funded Portion, each determined as of the Record Date preceding such Distribution Date (the "Class C Monthly Interest"); provided, that in addition to the Class C Monthly Interest an amount equal to any unpaid Class C Deficiency Amounts, as defined below, shall also be distributed to the Class C Certificateholders. The "Class C Deficiency Amount" for any Distribution Date shall be equal to the excess, if any, of the aggregate amount accrued pursuant to this subsection 4.6(d) for all Interest Periods prior to the immediately preceding Interest Period, over the amount actually paid to the Class C Certificateholders in respect of such amounts on all prior Distribution Dates. (e) The amount of monthly interest distributable in respect of the Class D-1 Certificates on each Distribution Date shall be an amount equal to the product of (i) a fraction, the numerator of which is the Specified Days and the denominator of which is 360, (ii) the Class D-1 Certificate Rate in effect with respect to the related Interest Period, and (iii) the sum of the Class D-1 Investor Interest plus the applicable Pre-Funded Portion, each determined as of the Record Date preceding such Distribution Date (the "Class D-1 Monthly Interest"); provided, that in addition to the Class D-1 Monthly Interest an amount equal to any unpaid Class D-1 Deficiency Amounts, as defined below, shall also be distributed to the Class D-1 Certificateholders. The "Class D-1 Deficiency Amount" for any Distribution Date shall be equal to the excess, if any, of the aggregate amount accrued pursuant to this subsection 4.6(e) for all Interest Periods prior to the immediately preceding Interest Period, over the amount actually paid to the Class D-1 Certificateholders in respect of such amounts on all prior Distribution Dates. 37 (f) The amount of monthly interest distributable in respect of the Class D-2 Certificates on each Distribution Date shall be an amount equal to the product of (i) a fraction, the numerator of which is the Specified Days and the denominator of which is 360, (ii) the Class D-2 Certificate Rate in effect with respect to the related Interest Period, and (iii) the sum of the Class D-2 Investor Interest plus the applicable Pre-Funded Portion, each determined as of the Record Date preceding such Distribution Date (the "Class D-2 Monthly Interest"); provided, that in addition to the Class D-2 Monthly Interest an amount equal to any unpaid Class D-2 Deficiency Amounts, as defined below, shall also be distributed to the Class D-2 Certificateholders. The "Class D-2 Deficiency Amount" for any Distribution Date shall be equal to the excess, if any, of the aggregate amount accrued pursuant to this subsection 4.6(f) for all Interest Periods prior to the immediately preceding Interest Period, over the amount actually paid to the Class D-2 Certificateholders in respect of such amounts on all prior Distribution Dates. SECTION 4.7. Determination of Monthly Principal. (a) The amount of monthly principal distributable with respect to the Class A Certificates on each Distribution Date (the "Class A Monthly Principal"), beginning with the Distribution Date in the month following the month in which the Controlled Amortization Period or, if earlier, the Early Amortization Period, begins, shall be equal to the least of (i) the Available Principal Collections with respect to such Distribution Date, (ii) for each Distribution Date with respect to the Controlled Amortization Period prior to the Class A Expected Final Payment Date, the Class A Controlled Payment Amount for the Due Period related to such Distribution Date and (iii) the Class A Investor Interest on such Distribution Date (after taking into account any adjustments to be made on such Distribution Date pursuant to Section 4.10). (b) The amount of monthly principal distributable with respect to the Class M Certificates on each Distribution Date (the "Class M Monthly Principal") beginning with the Distribution Date immediately following the Distribution Date on which the Class A Investor Interest has been paid in full, and during the Early Amortization Period, beginning with the Distribution Date on which the Class A Investor Interest has been paid in full (in either case, the "Class M Principal Commencement Date"), shall be an amount equal to the least of (i) the Available Principal Collections with respect to such Distribution Date (minus the portion of such Available Principal Collections applied to Class A Monthly Principal on such Distribution Date), (ii) for each Distribution Date with respect to the Controlled Amortization Period beginning on the Class M Principal Commencement Date but prior to the Class M Expected Final Payment Date, the Class M Controlled Payment Amount for the Due Period related to such Distribution Date and (iii) the Class M Investor Interest (after taking into account any adjustments to be made on such Distribution Date pursuant to Sections 4.10 and 4.12) on such Distribution Date. (c) The amount of monthly principal distributable with respect to the Class B Certificates on each Distribution Date (the "Class B Monthly Principal") beginning with the Distribution Date immediately following the Distribution Date on which the Class A Investor Interest and the Class M Investor Interest have been paid in full, and during the Early Amortization Period, beginning with the Distribution Date on which the Class A Investor Interest and the Class M Investor Interest have been paid in full (in either case, the "Class B Principal 38 Commencement Date"), shall be an amount equal to the least of (i) the Available Principal Collections with respect to such Distribution Date (minus the portion of such Available Principal Collections applied to Class A Monthly Principal and Class M Monthly Principal on such Distribution Date), (ii) for each Distribution Date with respect to the Controlled Amortization Period beginning on the Class B Principal Commencement Date but prior to the Class B Expected Final Payment Date, the Class B Controlled Payment Amount for the Due Period related to such Distribution Date and (iii) the Class B Investor Interest (after taking into account any adjustments to be made on such Distribution Date pursuant to Sections 4.10 and 4.12) on such Distribution Date. (d) The amount of monthly principal distributable with respect to the Class C Certificates on each Distribution Date (the "Class C Monthly Principal") shall be, beginning with the Distribution Date on which the Class B Investor Interest has been paid in full, an amount equal to the lesser of (i) the Available Principal Collections with respect to such Distribution Date (minus the portion of such Available Principal Collections applied to Class A Monthly Principal, Class M Monthly Principal and Class B Monthly Principal on such Distribution Date) and (ii) the Class C Investor Interest (after taking into account any adjustments to be made on such Distribution Date pursuant to Sections 4.10 and 4.12) on such Distribution Date. (e) The amount of monthly principal distributable with respect to the Class D-1 Certificates on each Distribution Date (the "Class D-1 Monthly Principal") shall be, beginning with the Distribution Date on which the Class C Investor Interest has been paid in full, an amount equal to the lesser of (i) the Available Principal Collections with respect to such Distribution Date (minus the portion of such Available Principal Collections applied to Class A Monthly Principal, Class M Monthly Principal, Class B Monthly Principal and Class C Monthly Principal on such Distribution Date) and (ii) the Class D-1 Investor Interest (after taking into account any adjustments to be made on such Distribution Date pursuant to Sections 4.10 and 4.12) on such Distribution Date. (f) The amount of monthly principal distributable with respect to the Class D-2 Certificates on each Distribution Date (the "Class D-2 Monthly Principal") shall be, beginning with the Distribution Date on which the Class D-1 Investor Interest has been paid in full, an amount equal to the lesser of (i) the Available Principal Collections with respect to such Distribution Date (minus the portion of such Available Principal Collections applied to Class A Monthly Principal, Class M Monthly Principal, Class B Monthly Principal, Class C Monthly Principal and Class D-1 Monthly Principal on such Distribution Date) and (ii) the Class D-2 Investor Interest (after taking into account any adjustments to be made on such Distribution Date pursuant to Sections 4.10 and 4.12) on such Distribution Date. SECTION 4.8. Coverage of Class A, Class M and Class B Required Amounts. (a) On or before each Distribution Date, the Servicer shall determine the amount (the "Class A Required Amount"), if any, by which the sum of (i) the Class A Monthly Interest for such Distribution Date, plus (ii) the Class A Deficiency Amount, if any, for such Distribution Date, plus (iii) the Class A Additional Interest, if any, for such Distribution Date, 39 plus (iv) the Class A Servicing Fee for the related Due Period, plus (v) the Class A Servicing Fee, if any, due but not paid on any prior Distribution Date, plus (vi) the Class A Investor Loss Amount, if any, for such Distribution Date, plus (vii) the Class A Investor Dilution Amount for such Distribution Date, plus (viii) the Class A Net Swap Payment, if any, for such Distribution Date exceeds the Class A Available Funds for such Distribution Date. (b) On or before each Distribution Date, the Servicer shall also determine the amount (the "Class M Required Amount"), if any, by which the sum of (i) the Class M Monthly Interest for such Distribution Date, plus (ii) the Class M Deficiency Amount, if any, for such Distribution Date, plus (iii) the Class M Additional Interest, if any, for such Distribution Date, plus (iv) the Class M Servicing Fee for the related Due Period, plus (v) the Class M Servicing Fee, if any, due but not paid on any prior Distribution Date, plus (vi) the Class M Investor Loss Amount, if any, for such Distribution Date, plus (vii) the Class M Investor Dilution Amount for such Distribution Date, plus (viii) the Class M Net Swap Payment, if any, for such Distribution Date exceeds the Class M Available Funds for such Distribution Date. (c) On or before each Distribution Date, the Servicer shall also determine the amount (the "Class B Required Amount"), if any, by which the sum of (i) the Class B Monthly Interest for such Distribution Date, plus (ii) the Class B Deficiency Amount, if any, for such Distribution Date, plus (iii) the Class B Additional Interest, if any, for such Distribution Date, plus (iv) the Class B Servicing Fee for the related Due Period, plus (v) the Class B Servicing Fee, if any, due but not paid on any prior Distribution Date, plus (vi) the Class B Investor Loss Amount, if any, for such Distribution Date, plus (vii) the Class B Investor Dilution Amount for such Distribution Date, plus (viii) the Class B Net Swap Payment, if any, for such Distribution Date exceeds the Class B Available Funds for such Distribution Date. (d) In the event that the Class A Required Amount, the Class M Required Amount or the Class B Required Amount for such Distribution Date is greater than zero, the Servicer shall give written notice to the Trustee of such positive Class A Required Amount, Class M Required Amount or Class B Required Amount on or before such Distribution Date. For any Distribution Date, in the event that the Class A Required Amount for such Distribution Date is greater than zero, all or a portion of the Excess Spread and Shared Excess Finance Charge Collections with respect to such Distribution Date in an amount equal to the Class A Required Amount, to the extent available, for such Distribution Date shall be distributed on such Distribution Date pursuant to subsection 4.11(a). In the event that the Class A Required Amount for such Distribution Date exceeds the amount of Excess Spread and Shared Excess Finance Charge Collections with respect to such Distribution Date, Reallocated Principal Collections with respect to the related Due Period shall be applied as specified in Section 4.12. In the event that the Class M Required Amount for such Distribution Date exceeds the amount of Excess Spread and Shared Excess Finance Charge Collections available to fund the Class M Required Amount pursuant to subsection 4.11(c), the Reallocated Class B Principal Collections, the Reallocated Class C Principal Collections and the Reallocated Class D Principal Collections (after application, in each case, to the Class A Required Amount) with respect to the related Due Period shall be applied as specified in Section 4.12; provided, however, that the sum of any payments pursuant to this paragraph shall not exceed the sum of the Class A Required Amount 40 and the Class M Required Amount. In the event that the Class B Required Amount for such Distribution Date exceeds the amount of Excess Spread and Shared Excess Finance Charge Collections available to fund the Class B Required Amount pursuant to subsection 4.11(e), the Reallocated Class C Principal Collections and Reallocated Class D Principal Collections (after application, in each case, to the Class A Required Amount and the Class M Required Amount) with respect to the related Due Period shall be applied as specified in Section 4.12; provided, however, that the sum of any payments pursuant to this paragraph shall not exceed the sum of the Class A Required Amount, the Class M Required Amount and the Class B Required Amount. SECTION 4.9. Monthly Payments. On or before each Distribution Date, the Servicer shall instruct the Trustee in writing (which writing shall be substantially in the form of Exhibit E hereto) to withdraw and the Trustee, acting in accordance with such instructions, shall withdraw on such Distribution Date, to the extent of available funds, the amounts required to be withdrawn from the Collection Account as follows: (a) an amount equal to the Class A Available Funds for the related Due Period shall be distributed on each Distribution Date in the following priority: (i) on a pro rata basis based on amounts owing under this clause (i) to the Class A Certificateholders and the Swap Counterparty under the Class A Swap (A) an amount equal to Class A Monthly Interest for such Distribution Date, plus the amount of any Class A Deficiency Amount for such Distribution Date, plus the amount of any Class A Additional Interest for such Distribution Date, shall be distributed to the Class A Certificateholders and (B) any Class A Net Swap Payment shall be paid to the Swap Counterparty; (ii) an amount equal to the Class A Servicing Fee for such Distribution Date plus the amount of any Class A Servicing Fee due but not paid to the Servicer on any prior Distribution Date shall be distributed to the Servicer; (iii) an amount equal to the Class A Investor Loss Amount, if any, for the related Due Period shall be treated as a portion of Available Principal Collections for such Distribution Date; (iv) an amount equal to the Class A Investor Dilution Amount, if any, for the related Due Period shall be treated as a portion of Available Principal Collections for such Distribution Date; and (v) the balance, if any, shall constitute Excess Spread and shall be allocated and distributed as set forth in Section 4.11. (b) an amount equal to the Class M Available Funds for the related Due Period shall be distributed on each Distribution Date in the following priority: (i) on a pro rata basis based on amounts owing under this clause (i) to the Class M Certificateholders and the Swap Counterparty under the Class M Swap (A) an 41 amount equal to the Class M Monthly Interest for such Distribution Date, plus the amount of any Class M Deficiency Amount for such Distribution Date, plus the amount of any Class M Additional Interest for such Distribution Date, shall be distributed to the Class M Certificateholders and (B) any Class M Net Swap Payment shall be paid to the Swap Counterparty; (ii) an amount equal to the Class M Servicing Fee for such Distribution Date, plus the amount of any Class M Servicing Fee due but not paid to the Servicer on any prior Distribution Date shall be distributed to the Servicer; and (iii) the balance, if any, shall constitute Excess Spread and shall be allocated and distributed as set forth in Section 4.11. (c) an amount equal to the Class B Available Funds for the related Due Period shall be distributed on each Distribution Date in the following priority: (i) on a pro rata basis based on amounts owing under this clause (i) to the Class B Certificateholders and the Swap Counterparty under the Class B Swap (A) an amount equal to the Class B Monthly Interest for such Distribution Date, plus the amount of any Class B Deficiency Amount for such Distribution Date, plus the amount of any Class B Additional Interest for such Distribution Date, shall be distributed to the Class B Certificateholders and (B) any Class B Net Swap Payment shall be paid to the Swap Counterparty; (ii) an amount equal to the Class B Servicing Fee for such Distribution Date, plus the amount of any Class B Servicing Fee due but not paid to the Servicer on any prior Distribution Date shall be distributed to the Servicer; and (iii) the balance, if any, shall constitute Excess Spread and shall be allocated and distributed as set forth in Section 4.11. (d) An amount equal to the Class C Available Funds for the related Due Period shall be distributed on each Distribution Date in the following priority: (i) an amount equal to the Class C Servicing Fee for such Distribution Date plus the amount of any Class C Servicing Fee due but not paid to the Servicer on any prior Distribution Date shall be distributed to the Servicer; and (ii) the balance, if any, shall constitute Excess Spread and shall be allocated and distributed as set forth in Section 4.11. (e) An amount equal to the Class D Available Funds for the related Due Period shall be distributed on each Distribution Date in the following priority: 42 (i) an amount equal to the Class D Servicing Fee for such Distribution Date plus the amount of any Class D Servicing Fee due but not paid to the Servicer on any prior Distribution Date shall be distributed to the Servicer; and (ii) the balance, if any, shall constitute Excess Spread and shall be allocated and distributed as set forth in Section 4.11. (f) During the Revolving Period, an amount equal to the Available Principal Collections for the related Due Period shall be distributed on each Distribution Date in the following priority: (i) first, an amount equal to any amounts required to be applied on such date from Available Principal Collections pursuant to the Class C Purchase Agreement shall be so applied, and second, an amount equal to any amounts required to be applied on such date from Available Principal Collections pursuant to the Class D Purchase Agreement shall be so applied; and (ii) an amount equal to Available Principal Collections remaining after giving effect to the applications specified in subsection 4.9(f)(i) above shall be treated as Shared Principal Collections and applied to Series in Group One that are Principal Sharing Series other than this Series 2004-1 and as provided in Section 4.3(f). (g) During the Controlled Amortization Period or the Early Amortization Period (beginning with the Distribution Date in the month following the month in which the Controlled Amortization Period or the Early Amortization Period begins), an amount equal to the Available Principal Collections for the related Due Period shall be distributed on each Distribution Date in the following priority: (i) an amount equal to the Class A Monthly Principal for such Distribution Date shall be distributed to the Class A Certificateholders; (ii) after giving effect to the distribution referred to in clause (i) above, beginning on the Class M Principal Commencement Date, an amount equal to the Class M Monthly Principal shall be distributed to the Class M Certificateholders; (iii) after giving effect to the distribution referred to in clauses (i) and (ii) above, beginning on the Class B Principal Commencement Date, an amount equal to the Class B Monthly Principal shall be distributed to the Class B Certificateholders; (iv) after giving effect to the distribution referred to in clauses (i), (ii) and (iii) above, beginning with the Distribution Date on which the Class B Investor Interest has been paid in full, an amount equal to the Class C Monthly Principal shall be distributed to the Class C Certificateholders in accordance with the Class C Purchase Agreement; (v) after giving effect to the distributions referred to in clauses (i), (ii), (iii) and (iv) above, beginning with the Distribution Date on which the Class C Investor 43 Interest has been paid in full, an amount equal to the Class D Monthly Principal shall be distributed to the Class D Certificateholders in accordance with the Class D Purchase Agreements; (vi) after giving effect to the distributions referred to in clauses (i), (ii), (iii), (iv) and (v) above, first an amount equal to any amounts required to be applied from Available Principal Collections on such date pursuant to the Class C Purchase Agreement shall be so applied, and second, an amount equal to any amounts required to be applied from Available Principal Collections on such date pursuant to the Class D Purchase Agreement shall be so applied ; and (vii) an amount equal to Available Principal Collections remaining after the applications specified in clauses (i), (ii), (iii), (iv), (v) and (vi) above shall be treated as Shared Principal Collections and applied to Series in Group One which are Principal Sharing Series other than this Series 2004-1 and as provided in Section 4.3(f). (h) On the Funding Period Termination Distribution Date, an amount equal to the amount withdrawn from the Pre-Funding Account and deposited in the Collection Account pursuant to the last sentence of subsection 4.19(b) shall be distributed to the Class A Certificateholders, the Class M Certificateholders, the Class B Certificateholders, the Class C Certificateholders and Class D Certificateholders in reduction of the outstanding principal amount of the Class A Certificates, the Class M Certificates, the Class B Certificates, the Class C Certificates and the Class D Certificates, pro rata according to the initial principal amount of each such Class. SECTION 4.10. Investor Charge-Offs. (a) On or before each Distribution Date, the Servicer shall calculate the Class A Investor Loss Amount. If on any Distribution Date, the Class A Investor Loss Amount for the prior Due Period exceeds the sum of the amounts allocated with respect thereto pursuant to subsection 4.9(a)(iii), subsection 4.11(a) and Section 4.12 with respect to such Due Period, the Class D-2 Investor Interest (after giving effect to reductions for any Class D-2 Investor Charge-Offs described in paragraph (e) and any Reallocated Class D-2 Principal Collections on such Distribution Date) will be reduced by the amount of such excess. If such reduction would cause the Class D-2 Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class D-2 Investor Interest will be reduced to zero, and the Class D-1 Investor Interest (after giving effect to reductions for any Class D-1 Investor Charge-Offs described in paragraph (e) and any Reallocated Class D-1 Principal Collections on such Distribution Date) will be reduced by the amount by which the Class D-2 Investor Interest would have been reduced below zero. If such reduction would cause the Class D-1 Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class D-1 Investor Interest will be reduced to zero, and the Class C Investor Interest (after giving effect to reductions for any Class C Investor Charge-Offs described in paragraph (d) and any Reallocated Class C Principal Collections on such Distribution Date) will be reduced by the amount by which the Class D-1 Investor Interest would have been reduced below zero. If such reduction would 44 cause the Class C Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class C Investor Interest will be reduced to zero, and the Class B Investor Interest (after giving effect to reductions for any Class B Investor Charge-Offs described in paragraph (c) and any Reallocated Class B Principal Collections on such Distribution Date) will be reduced by the amount by which the Class C Investor Interest would have been reduced below zero. If such reduction would cause the Class B Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class B Investor Interest will be reduced to zero, and the Class M Investor Interest (after giving effect to reductions for any Class M Investor Charge-Offs described in paragraph (b) and any Reallocated Class M Principal Collections on such Distribution Date) will be reduced by the amount by which the Class B Investor Interest would have been reduced below zero. If such reduction would cause the Class M Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class M Investor Interest will be reduced to zero, and the Class A Investor Interest will be reduced by the amount by which the Class M Investor Interest would have been reduced below zero, but not by more than the Class A Investor Loss Amount for such Distribution Date. Additionally, the Class A Investor Interest shall be reduced by the amount of any Series 2004-1 Unfunded Dilution Amount remaining after giving effect to any related Class M Investor Charge-Off, Class B Investor Charge-Off, Class C Investor Charge-Off and Class D Investor Charge-Off. The reductions described in the two prior sentences are referred to collectively as a "Class A Investor Charge-Off". If the Class A Investor Interest has been reduced by the amount of any Class A Investor Charge-Offs, it will be reimbursed on any Distribution Date (but not by an amount in excess of the aggregate Class A Investor Charge-Offs) by the amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available for such purpose pursuant to subsection 4.11(b). (b) On or before each Distribution Date, the Servicer shall calculate the Class M Investor Loss Amount. If on any Distribution Date, the Class M Investor Loss Amount for the prior Due Period exceeds the amounts allocated with respect thereto pursuant to subsection 4.11(c) and Section 4.12 with respect to such Due Period, the Class D-2 Investor Interest (after giving effect to reductions for any Class D-2 Investor Charge-Offs described in paragraph (a) and paragraph (e) and any Reallocated Class D-2 Principal Collections on such Distribution Date) will be reduced by the amount of such excess. If such reduction would cause the Class D-2 Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class D-2 Investor Interest will be reduced to zero, and the Class D-1 Investor Interest (after giving effect to reductions for any Class D-1 Investor Charge-Offs described in paragraph (a) and paragraph (e) and any Reallocated Class D-1 Principal Collections on such Distribution Date) will be reduced by the amount by which the Class D-2 Investor Interest would have been reduced below zero. If such reduction would cause the Class D-1 Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class D-1 Investor Interest will be reduced to zero, and the Class C Investor Interest 45 (after giving effect to reductions for any Class C Investor Charge-Offs described in paragraph (a) and paragraph (d) and any Reallocated Class C Principal Collections on such Distribution Date) will be reduced by the amount by which the Class D-1 Investor Interest would have been reduced below zero. If such reduction would cause the Class C Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class C Investor Interest will be reduced to zero, and the Class B Investor Interest (after giving effect to reductions for any Class B Investor Charge-Offs described in paragraph (a) and paragraph (c) and any Reallocated Class B Principal Collections on such Distribution Date) will be reduced by the amount by which the Class C Investor Interest would have been reduced below zero. If such reduction would cause the Class B Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class B Investor Interest shall be reduced to zero, and the Class M Investor Interest shall be reduced by the amount by which the Class B Investor Interest would have been reduced below zero, but not by more than the Class M Investor Loss Amount for such Distribution Date. Additionally, the Class M Investor Interest shall be reduced by the amount of any Series 2004-1 Unfunded Dilution Amount remaining after giving effect to any related Class B Investor Charge-Off, Class C Investor Charge-Off and Class D Investor Charge-Off. The reductions to the Class M Investor Interest under this subsection 4.10(b), together with all reductions to the Class M Investor Interest under subsection 4.10(a), are collectively referred to as a "Class M Investor Charge-Off". The Class M Investor Interest will thereafter be reimbursed (but not to an amount in excess of the unpaid principal amount of the Class M Certificates) on any Distribution Date by the amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available for that purpose as described under subsection 4.11(d). (c) On or before each Distribution Date, the Servicer shall calculate the Class B Investor Loss Amount. If on any Distribution Date, the Class B Investor Loss Amount for the prior Due Period exceeds the amounts allocated with respect thereto pursuant to subsection 4.11(e) and Section 4.12 with respect to such Due Period, the Class D-2 Investor Interest (after giving effect to reductions for any Class D-2 Investor Charge-Offs described in paragraph (a), paragraph (b) and paragraph (e) and any Reallocated Class D-2 Principal Collections on such Distribution Date) will be reduced by the amount of such excess. If such reduction would cause the Class D-2 Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class D-2 Investor Interest will be reduced to zero, and the Class D-1 Investor Interest (after giving effect to reductions for any Class D-1 Investor Charge-Offs described in paragraph (a), paragraph (b) and paragraph (e) and any Reallocated Class D-1 Principal Collections on such Distribution Date) will be reduced by the amount by which the Class D-2 Investor Interest would have been reduced below zero. If such reduction would cause the Class D-1 Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class D-1 Investor Interest will be reduced to zero, and the Class C Investor Interest (after giving effect to reductions for any Class C Investor Charge-Offs described in paragraph (a), paragraph (b) and paragraph (d) and any Reallocated Class C Principal Collections on such Distribution Date) will be reduced by the amount by which the Class D-1 Investor Interest would have been reduced below zero. If such reduction would cause the Class C Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class C Investor Interest shall be reduced to zero and the Class B Investor Interest shall be reduced by the amount by which the Class C Investor Interest would have been reduced below zero, but not by more than the Class B Investor Loss Amount for such Distribution Date. Additionally, the Class B Investor Interest shall be reduced by the amount of any Series 2004-1 Unfunded Dilution Amount remaining after giving effect to any related Class C Investor Charge-Off and Class D Investor Charge-Off. The reductions to the Class B Investor Interest under this subsection 4.10(c), together with all reductions to the Class B Investor Interest under subsections 46 4.10(a) and 4.10(b), are collectively referred to as a "Class B Investor Charge-Off". The Class B Investor Interest will thereafter be reimbursed (but not to an amount in excess of the unpaid principal amount of the Class B Certificates) on any Distribution Date by the amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available for that purpose as described under subsection 4.11(f). (d) On or before each Distribution Date, the Servicer shall calculate the Class C Investor Loss Amount. If on any Distribution Date, the Class C Investor Loss Amount for the prior Due Period exceeds the amount of Excess Spread, Shared Excess Finance Charge Collections and Reallocated Class D Principal Collections which are allocated and available to fund such amount pursuant to subsection 4.11(i) and Section 4.12, the Class D-2 Investor Interest (after giving effect to reductions for any Class D-2 Investor Charge-Offs described in paragraphs (a), (b) and (c) and paragraph (e) and any Reallocated Class D-2 Principal Collections on such Distribution Date) will be reduced by the amount of such excess. If such reduction would cause the Class D-2 Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class D-2 Investor Interest will be reduced to zero, and the Class D-1 Investor Interest (after giving effect to reductions for any Class D-1 Investor Charge-Offs described in paragraphs (a), (b) and (c) and paragraph (e) and any Reallocated Class D-1 Principal Collections on such Distribution Date) will be reduced by the amount by which the Class D-2 Investor Interest would have been reduced below zero. If such reduction would cause the Class D-1 Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class D-1 Investor Interest will be reduced to zero, and the Class C Investor Interest will be reduced by the amount by which the Class D-1 Investor Interest would have been reduced below zero, but not by more than the Class C Investor Loss Amount for such Distribution Date. Additionally, the Class C Investor Interest shall be reduced by the amount of any Series 2004-1 Unfunded Dilution Amount remaining after giving effect to any related Class D Investor Charge-Off . The reductions to the Class C Investor Interest under this subsection 4.10(d), together with all reductions to the Class C Investor Interest under subsections 4.10(a), (b) and (c), are referred to collectively as a "Class C Investor Charge-Off". The Class C Investor Interest will thereafter be reimbursed (but not in excess of the unreimbursed amount of such reductions) on any Distribution Date by the amount of the Excess Spread and Shared Excess Finance Charge Collections allocated and available under subsection 4.11(k). (e) On or before each Distribution Date, the Servicer shall calculate the Class D Investor Loss Amount. If on any Distribution Date, the Class D Investor Loss Amount for the prior Due Period exceeds the amount of Excess Spread and Shared Excess Finance Charge Collections which is allocated and available to fund such amount pursuant to subsection 4.11(o), the Class D-2 Investor Interest will be reduced by the amount of such excess. If such reduction would cause the Class D-2 Investor Interest to be a negative number (but for the proviso in the definition thereof), the Class D-2 Investor Interest will be reduced to zero, and the Class D-1 Investor Interest will be reduced by the amount by which the Class D-2 Investor Interest would have been reduced below zero but not by more than the lesser of any remaining Class D Investor Loss Amount for such Distribution Date and the Class D-1 Investor Interest. Additionally, the Class D-2 Investor Interest shall be reduced by the amount of any Series 2004-1 Unfunded Dilution Amount. If such reduction would cause the Class D-2 Investor Interest to be a negative 47 number (but for the proviso in the definition thereof), the Class D-2 Investor Interest will be reduced to zero, and the Class D-1 Investor Interest will be reduced by the amount by which the Class D-2 Investor Interest would have been reduced below zero but not by more than the lesser of any remaining Series 2004-1 Unfunded Dilution Amount for such Distribution Date and the Class D-1 Investor Interest. The reductions to the Class D-2 Investor Interest under this clause (e), together with all reductions to the Class D-2 Investor Interest under subsections 4.10(a), (b), (c) and (d), are referred to collectively as a "Class D-2 Investor Charge-Off". The reductions to the Class D-1 Investor Interest under this subsection 4.10(e), together with all reductions to the Class D-1 Investor Interest under subsections 4.10(a), (b), (c) and (d), are referred to collectively as a "Class D-1 Investor Charge-Off". Each of the Class D-1 Investor Interest and the Class D-2 Investor Interest will thereafter be reimbursed (but not in excess of the unreimbursed amount of such reductions) on any Distribution Date by the amount of the Excess Spread and Shared Excess Finance Charge Collections allocated and available for that purpose as described under subsection 4.11(q). SECTION 4.11. Excess Spread; Shared Excess Finance Charge Collections. On or before each Distribution Date, the Servicer shall instruct the Trustee in writing (which writing shall be substantially in the form of Exhibit E hereto) to apply Excess Spread and Shared Excess Finance Charge Collections allocated to Series 2004-1 with respect to the related Due Period to make the following distributions on each Distribution Date in the following priority: (a) an amount equal to the Class A Required Amount, if any, with respect to such Distribution Date shall be used to fund the Class A Required Amount and be applied in accordance with, and in the priority set forth in, subsection 4.9(a); (b) an amount equal to the aggregate amount of Class A Investor Charge-Offs which have not been previously reimbursed shall be treated as a portion of Available Principal Collections for such Distribution Date; (c) (I) an amount equal to the Class M Required Amount, if any, with respect to such Distribution Date shall be used to fund any deficiency pursuant to subsections 4.9(b)(i) and (ii) in the order of priority specified therein and (II) any remaining amount up to the sum of the Class M Investor Loss Amount and Class M Investor Dilution Amount for the related Due Period shall be treated as a portion of Available Principal Collections for such Distribution Date; (d) an amount equal to the aggregate amount by which the Class M Investor Interest has been reduced as described in clauses (c) and (d) of the definition of Class M Investor Interest (but not in excess of the unreimbursed amount of such reductions) shall be treated as a portion of Available Principal Collections for such Distribution Date; (e) (I) an amount equal to the Class B Required Amount, if any, with respect to such Distribution Date shall be used to fund any deficiency pursuant to subsections 4.9(c)(i) and (ii) in the order of priority specified therein and (II) any remaining amount up to the sum of the Class B Investor Loss Amount and Class B Investor Dilution Amount for the related Due Period shall be treated as a portion of Available Principal Collections for such Distribution Date; 48 (f) an amount equal to the aggregate amount by which the Class B Investor Interest has been reduced as described in clauses (c) and (d) of the definition of Class B Investor Interest (but not in excess of the unreimbursed amount of such reductions) shall be treated as a portion of Available Principal Collections for such Distribution Date; (g) an amount equal to the excess, if any, of the Class C Servicing Fee for such Distribution Date plus the amount of any Class C Servicing Fee due but not paid to the Servicer on any prior Distribution Date over the Class C Available Funds for such Distribution Date shall be paid to the Servicer; (h) on a pro rata basis based on amounts owing in this clause (h) to the Class C Certificateholders and the Swap Counterparty under the Class C Swap, (A) an amount equal to the sum of the Class C Monthly Interest plus the Class C Deficiency Amount for such Distribution Date shall be distributed to the Class C Certificateholders in accordance with the Class C Purchase Agreement and (B) any Class C Net Swap Payment shall be paid to the Swap Counterparty in accordance with the Class C Swap; (i) an amount equal to the Class C Investor Loss Amount, if any, for the related Due Period shall be treated as a portion of Available Principal Collections for such Distribution Date; (j) an amount equal to the Class C Investor Dilution Amount, if any, for the related Due Period shall be treated as a portion of Available Principal Collections for such Distribution Date; (k) an amount equal to the aggregate amount by which the Class C Investor Interest has been reduced as described in clauses (c) and (d) of the definition of Class C Investor Interest (but not in excess of the unreimbursed amount of such reductions) shall be treated as a portion of Available Principal Collections for such Distribution Date; (l) an amount equal to the aggregate of any other amounts then due to the Class C Certificateholders or required to be applied pursuant to the Class C Purchase Agreement out of Excess Spread and Shared Excess Finance Charge Collections allocated to Series 2004-1 shall be distributed for application in accordance with the Class C Purchase Agreement; (m) an amount equal to the excess, if any, of the Class D Servicing Fee for such Distribution Date plus the amount of any Class D Servicing Fee due but not paid to the Servicer on any prior Distribution Date over the Class D Available Funds for such Distribution Date shall be paid to the Servicer; (n) an amount equal to the Class D Monthly Interest plus the amount of any Class D Deficiency Amount for such Distribution Date shall be distributed to the Class D Certificateholders in accordance with the Class D Purchase Agreements; 49 (o) an amount equal to the Class D Investor Loss Amount, if any, for the related Due Period shall be treated as a portion of Available Principal Collections for such Distribution Date; (p) an amount equal to the Class D Investor Dilution Amount, if any, for the related Due Period shall be treated as a portion of Available Principal Collections for such Distribution Date; (q) first an amount equal to the aggregate amount by which the Class D-1 Investor Interest has been reduced as described in clauses (c) and (d) of the definition of Class D-1 Investor Interest (but not in excess of the unreimbursed amount of such reductions) shall be treated as a portion of Available Principal Collections for such Distribution Date and then an amount equal to the aggregate amount by which the Class D-2 Investor Interest has been reduced as described in clauses (c) and (d) of the definition of Class D-2 Investor Interest (but not in excess of the unreimbursed amount of such reductions) shall be treated as a portion of Available Principal Collections for such Distribution Date; (r) an amount equal to the excess, if any, of (A) the Minimum Required Funding Period Reserve Amount over (B) the amount on deposit in the Funding Period Reserve Account (after taking into account any withdrawals to be made from the Funding Period Reserve Account on such Distribution Date pursuant to subsection 4.20(c)(i)), shall be deposited into the Funding Period Reserve Account; (s) an amount equal to the aggregate of any other amounts then due to the Class D Certificateholders or required to be applied pursuant to the Class D Purchase Agreements out of Excess Spread and Shared Excess Finance Charge Collections allocated to Series 2004-1 shall be distributed for application in accordance with the Class D Purchase Agreements; (t) on a pro rata basis based on amounts owing under this clause (t): (A) an amount equal to any partial or early termination payments or other additional payments owed to the Swap Counterparty under the Class A Swap shall be paid to the Swap Counterparty under the Class A Swap, (B) an amount equal to any partial or early termination payments or other additional payments owed to the Swap Counterparty under the Class M Swap shall be paid to the Swap Counterparty under the Class M Swap, (C) an amount equal to any partial or early termination payments or other additional payments owed to the Swap Counterparty under the Class B Swap shall be paid to the Swap Counterparty under the Class B Swap, and (D) an amount equal to any partial or early termination payments or other additional payments owed to the Swap Counterparty under the Class C Swap shall be paid to the Swap Counterparty under the Class C Swap; and (u) the balance, if any, will constitute a portion of Shared Excess Finance Charge Collections for such Distribution Date and will be available for allocation to other Series in Group One and, to the extent not required to be applied as Shared Excess Finance Charge 50 Collections with respect to any Series in Group One, shall be distributed to the Holder of the Exchangeable Seller Certificate or any other Person then entitled to such amounts. SECTION 4.12. Reallocated Principal Collections. (a) On or before each Distribution Date, the Servicer shall instruct the Trustee in writing (which writing shall be substantially in the form of Exhibit E hereto) to apply Reallocated Principal Collections (applying all Reallocated Principal Collections in accordance with subsection 4.12(b)) with respect to such Distribution Date, to make the following distributions on each Distribution Date in the following priority: (i) an amount equal to the excess, if any, of (x) the Class A Required Amount, if any, with respect to such Distribution Date over (y) the amount of Excess Spread and Shared Excess Finance Charge Collections allocated to Series 2004-1 with respect to the related Due Period, shall be applied in accordance with, and in the priority set forth in, subsections 4.9(a)(i), (ii), (iii) and (iv); (ii) an amount equal to the excess, if any, of (x) the Class M Required Amount, if any, with respect to such Distribution Date over (y) the amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available to the Class M Certificates pursuant to subsection 4.11(c) on such Distribution Date shall be applied first in accordance with, and in the priority set forth in subsections 4.9(b)(i) and (ii) and then pursuant to and in the priority set forth in subsection 4.11(c)(II); (iii) an amount equal to the excess, if any, of (x) the Class B Required Amount, if any, with respect to such Distribution Date over (y) the amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available to the Class B Certificates pursuant to subsection 4.11(e) on such Distribution Date shall be applied first in accordance with, and in the priority set forth in subsections 4.9(c)(i) and (ii) and then pursuant to and in the priority set forth in subsection 4.11(e)(II); and (iv) an amount equal to the excess, if any, of (x) the Class C Required Amount, if any, with respect to such Distribution Date over (y) the amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available to the Class C Investor Interest pursuant to subsections 4.11(g), 4.11(h), 4.11(i) and 4.11(j) on such Distribution Date shall be applied first pursuant to subsection 4.9(d)(i), and then pursuant to and in the priority set forth in subsections 4.11(h), 4.11(i) and 4.11(j). (b) On each Distribution Date on which the Servicer shall instruct the Trustee to apply Reallocated Principal Collections pursuant to paragraph (a) above, the Trustee shall apply such Reallocated Principal Collections in the following order of priority and only to the extent provided below: (i) applying Reallocated Class D-2 Principal Collections in accordance with subsections 4.12 (a)(i) through (a)(iv); 51 (ii) if any amounts remain outstanding under subsections 4.12 (a)(i) through (a)(iv) after giving effect to Reallocated Class D-2 Principal Collections, then applying Reallocated Class D-1 Principal Collections in accordance with subsections 4.12 (a)(i) through (a)(iv); (iii) if any amounts remain outstanding under subsections 4.12(a)(i), (a)(ii) or (a)(iii) above after giving effect to Reallocated Class D Principal Collections, then applying Reallocated Class C Principal Collections in accordance with subsections 4.12(a)(i), (a)(ii) and (a)(iii); (iv) if any amounts remain outstanding under subsection 4.12 (a)(i) or (a)(ii) above after giving effect to Reallocated Class D Principal Collections and Reallocated Class C Principal Collections, then applying Reallocated Class B Principal Collections in accordance with subsection 4.12(a)(i) or (a)(ii); and (v) if any amounts remain outstanding under subsection 4.12 (a)(i) above after giving effect to Reallocated Class D Principal Collections, Reallocated Class C Principal Collections and Reallocated Class B Principal Collections, then applying Reallocated Class M Principal Collections in accordance with subsection 4.12(a)(i). (c) On each Distribution Date, the Class D-2 Investor Interest shall be reduced by the amount of Reallocated Class D-2 Principal Collections applied in accordance with subsection 4.12(b) for such Distribution Date, the Class D-1 Investor Interest shall be reduced by the amount of Reallocated Class D-1 Principal Collections applied in accordance with subsection 4.12(b) for such Distribution Date, the Class C Investor Interest shall be reduced by the amount of Reallocated Class C Principal Collections applied in accordance with subsection 4.12(b) for such Distribution Date, the Class B Investor Interest shall be reduced by the amount of Reallocated Class B Principal Collections applied in accordance with subsection 4.12(b) for such Distribution Date and the Class M Investor Interest shall be reduced by the amount of Reallocated Class M Principal Collections applied in accordance with subsection 4.12(b) for such Distribution Date. Each of the Class M Investor Interest, the Class B Investor Interest, the Class C Investor Interest, the Class D-1 Investor Interest and the Class D-2 Investor Interest will thereafter be reimbursed (but not in excess of the unreimbursed amount of such reductions) on any Distribution Date by the amount of the Excess Spread and Shared Excess Finance Charge Collections allocated and available to (A) the Class M Investor Interest pursuant to subsection 4.11(d), (B) the Class B Investor Interest pursuant to subsection 4.11(f), (C) the Class C Investor Interest pursuant to subsection 4.11(k) and (D) to the Class D-1 Investor Interest and Class D-2 Investor Interest pursuant to subsection 4.11(q). SECTION 4.13. Seller's or Servicer's Failure to Make a Deposit or Payment. If the Servicer or the Seller fails to make, or give instructions to make, any payment or deposit required to be made or given by the Servicer or Seller, respectively, at the time specified in the Agreement (including applicable grace periods), the Trustee shall make such payment or deposit from the applicable account without instruction from the Servicer or Seller. The Trustee shall be required to make any such payment, deposit or withdrawal hereunder only to the extent that the 52 Trustee has sufficient information to allow it to determine the amount thereof; provided, however, that the Trustee shall in all cases be deemed to have sufficient information to determine the amount of interest payable to the Series 2004-1 Certificateholders on each Distribution Date. The Servicer shall, upon request of the Trustee, promptly provide the Trustee with all information necessary to allow the Trustee to make such payment, deposit or withdrawal. Such funds or the proceeds of such withdrawal shall be applied by the Trustee in the manner in which such payment or deposit should have been made by the Seller or the Servicer, as the case may be. SECTION 4.14. Shared Excess Finance Charge Collections. (a) The balance of any Available Funds on deposit in the Collection Account after giving effect to subsections 4.11(a) through (t) will constitute a portion of Shared Excess Finance Charge Collections and will be available for allocation to other Series in Group One or to the Holder of the Exchangeable Seller Certificate as described in Section 4.3(g). (b) Series 2004-1 shall be included in Group One. Subject to subsection 4.3(g) of the Agreement, Shared Excess Finance Charge Collections with respect to the Series in Group One for any Distribution Date will be allocated to Series 2004-1 in an amount equal to the product of (x) the aggregate amount of Shared Excess Finance Charge Collections with respect to all Series in Group One for such Distribution Date and (y) a fraction, the numerator of which is the Finance Charge Shortfall for Series 2004-1 for such Distribution Date and the denominator of which is the aggregate amount of Finance Charge Shortfalls for all Series in Group One for such Distribution Date. The "Finance Charge Shortfall" for Series 2004-1 for any Distribution Date will be equal to the excess, if any, of (a) the full amount required to be paid, without duplication, pursuant to subsections 4.11(a) through (t) on such Distribution Date over (b) the Excess Spread for such Distribution Date. SECTION 4.15. Shared Principal Collections. Subject to subsection 4.3(f) of the Agreement, Shared Principal Collections for any Distribution Date will be allocated to Series 2004-1 in an amount equal to the product of (x) the aggregate amount of Shared Principal Collections with respect to all Series in Group One that are Principal Sharing Series for such Distribution Date and (y) a fraction, the numerator of which is the Principal Shortfall for Series 2004-1 for such Distribution Date and the denominator of which is the Cumulative Principal Shortfall for such Distribution Date. SECTION 4.16. Purchase and Cancellation of Certificates. The Seller may on any Distribution Date on or after the Funding Period Termination Distribution Date, upon five Business Days' prior written notice to the Trustee, purchase Series 2004-1 Certificates on the secondary market and request the Trustee to cancel such Series 2004-1 Certificates purchased by the Seller on such Distribution Date. In such case, the Class A, Class M, Class B, Class C and/or Class D Investor Interest, as applicable, will be reduced by the portion thereof represented by such cancelled Certificates; provided that after giving effect to any cancellation (A) the Class M Investor Interest shall not be less than 6.0% of the Series 2004-1 Investor Interest (calculated after giving effect to such cancellation), (B) the Class B Investor Interest shall not be less than 10.5% of the Series 2004-1 Investor Interest (calculated after giving effect to such cancellation), 53 (C) the Class C Investor Interest shall not be less than 9.0% of the Series 2004-1 Investor Interest (calculated after giving affect to such cancellation), and (D) the Class D Investor Interest shall not be less than 10.5% of the Series 2004-1 Investor Interest (calculated after giving effect to such cancellations). No Certificateholder shall be required to sell its Certificates to the Seller pursuant to this Section 4.16. SECTION 4.17. Determination of LIBOR. (a) On each LIBOR Determination Date, the Trustee shall determine LIBOR on the basis of the rate for deposits in United States dollars for a period of the Designated Maturity which appears on Telerate Page 3750 as of 11:00 a.m., London time, on that date. If such rate does not appear on Telerate Page 3750, the rate for that LIBOR Determination Date will be determined based on the rates at which deposits in United States dollars are offered by the Reference Banks at approximately 11:00 a.m., London time, on that day to prime banks in the London interbank market for a period of the Designated Maturity. The Trustee or the Swap Counterparty will request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two quotations are provided, the rate for that LIBOR Determination Date will be the arithmetic mean of the quotations. If fewer than two quotations are provided, the rate for that LIBOR Determination Date will be the arithmetic mean of the rates quoted by four major banks in New York City, selected by the Servicer, at approximately 11:00 a.m., New York City time, on that day for loans in United States dollars to leading European banks for a period of the Designated Maturity. (b) The Class A Certificate Rate, Class M Certificate Rate, Class B Certificate Rate, Class C Certificate Rate, Class D-1 Certificate Rate and Class D-2 Certificate Rate applicable to the then current and the immediately preceding Interest Periods may be obtained by any Series 2004-1 Certificateholder by telephoning the Trustee at its Corporate Trust Office at (215) 670-6327. (c) On each LIBOR Determination Date prior to 12:00 noon New York City time, the Trustee shall send to the Servicer by facsimile, notification of LIBOR for the following Interest Period. SECTION 4.18. Paired Series. Any other Series in Group One may be designated (but only with the consent of the Class C Certificateholders and the Class D Certificateholders specified in the Class C Purchase Agreement or the Class D Certificate Purchase Agreements, as applicable, and subject to satisfaction of the Rating Agency Condition) as a Paired Series for Series 2004-1. Such Paired Series either shall be prefunded with an initial deposit to a prefunding account in an amount up to the initial principal amount of such Paired Series and primarily from the sale of such Paired Series or shall have a variable principal amount. Any such prefunding account shall be held for the benefit of such Paired Series and not for the benefit of the Series 2004-1 Certificateholders. As funds in the Collection Account are allocated for distribution as Available Principal Collections during the Early Amortization Period or Controlled Amortization Period, either (i) in the case of a prefunded Paired Series, an equal amount of funds in any prefunding account for such Paired Series shall be released and 54 distributed pursuant to the terms of such Paired Series or (ii) in the case of a Paired Series having a variable principal amount, an interest in such variable Paired Series in an equal or lesser amount may be sold by the Trust and the proceeds thereof will be distributed pursuant to the terms of such Paired Series, and, in either case, the Investor Interest of such Paired Series will increase by up to a corresponding amount. Upon payment in full of the Series Investor Interest, assuming that there have been no unreimbursed Loss Amounts with respect to any related Paired Series, the aggregate amount of such Paired Series shall have been increased by an amount up to an aggregate amount equal to the Series Investor Interest paid to the Series 2004-1 Certificateholders (or such other amount as the holders of such Paired Series shall agree). SECTION 4.19 Pre-Funding Account. (a) The Seller hereby directs the Servicer, for the benefit of the Series 2004-1 Certificateholders, to establish and maintain or cause to be established and maintained in the name of the Trustee and for the Trustee, on behalf of the Series 2004-1 Certificateholders, with a Qualified Depository Institution (which initially shall be the Trustee) 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 2004-1 Certificateholders. The Seller does hereby transfer, assign, set over and otherwise convey to the Trust for the benefit of the Series 2004-1 Certificateholders, without recourse, all of its right, title and interest (if any) in, to and under the Pre-Funding Account, any cash and/or investments on deposit therein and any proceeds of the foregoing, including the investment earnings. The Pre-Funding Account shall be owned by, and under the sole dominion and control of, the Trustee for the benefit of the Series 2004-1 Certificateholders. If, at any time, the institution holding the Pre-Funding Account ceases to be a Qualified Depository Institution, the Seller shall direct the Servicer to establish within 10 Business Days a new Pre-Funding Account meeting the conditions specified above with a Qualified Depository 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, after five days notice to the Trustee, the Seller may direct the Servicer to establish a new Pre-Funding Account meeting the conditions specified above with a different Qualified Depository Institution, transfer any cash and/or investments to such new Pre-Funding Account and from the date such new Pre-Funding Account is established, it shall be, for the Series 2004-1 Certificates, the "Pre-Funding Account." The Trustee, at the direction of the Servicer, shall make withdrawals and payments from the Pre-Funding Account for the purposes of carrying out the Servicer's or Trustee's duties hereunder. (b) A portion of the cash proceeds of the sale of the Series 2004-1 Certificates in an amount equal to $118,500,000 shall be deposited into the Pre-Funding Account on the Closing Date. This amount shall be the initial Cash Pre-Funded Amount. On the Business Day preceding each Distribution Date, the Trustee, at the direction of the Servicer, shall withdraw from the Pre-Funding Account and deposit in the Collection Account all interest and other investment income on the Cash Pre-Funded Amount. Interest (including reinvested interest) and other investment income on funds on deposit in the Pre-Funding Account shall not be considered part of the Cash Pre-Funded Amount for purposes of this Supplement. Funds on deposit in the Pre-Funding Account shall be withdrawn by the Trustee, at the direction of the Servicer, and paid to the Seller to the extent of any increases in the Series Investor Interest pursuant to Section 4.21. If the Funding Period Termination Distribution Date occurs and any Cash Pre-Funded 55 Amount remains on deposit in the Pre-Funding Account, such remaining Cash Pre-Funded Amount will be deposited into the Collection Account and will be applied by the Trustee, at the direction of the Servicer, in accordance with subsection 4.9(h) to reduce the outstanding principal amount of the Class A Certificates, the Class M Certificates, the Class B Certificates, the Class C Certificates and the Class D Certificates as specified in subsection 4.9(h). (c) Funds on deposit in the Pre-Funding Account shall be invested in Permitted Investments by 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 Permitted Investments that will mature so that such funds will be available for withdrawal on or prior to the following Distribution Date. All interest and earnings (net of losses and investment expenses) on funds on deposit in the Pre-Funding Account shall be deposited by the Trustee, at the direction of the Servicer, in the Collection Account on each Distribution Date and treated as Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates for the prior Due Period. (d) The parties hereto intend that the Pre-Funding Account shall be an account of the Trustee, and not an account of the Seller. If, notwithstanding the intent of the parties hereto, it shall be determined that the Seller has any rights in the Pre-Funding Account, the Seller hereby grants to the Trustee, to secure all of its obligations hereunder, a security interest in all of its right, title, and interest, whether now owned or hereafter acquired, in, to, and under the Pre-Funding Account, all money, instruments, investment property, and other property credited to or on deposit in the Pre-Funding Account, and all proceeds thereof. Section 4.20. Funding Period Reserve Account. (a) The Seller hereby directs the Servicer, for the benefit of the Series 2004-1 Certificateholders, to establish and maintain or cause to be established and maintained in the name of the Trustee and for the Trustee, on behalf of the Series 2004-1 Certificateholders, with a Qualified Depository Institution (which initially shall be the Trustee) a segregated trust account (the "Funding Period Reserve Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 2004-1 Certificateholders. The Seller does hereby transfer, assign, set over and otherwise convey to the Trust for the benefit of the Series 2004-1 Certificateholders, without recourse, all of its right, title and interest (if any) in, to and under the Funding Period Reserve Account, any cash and/or investments on deposit therein and any proceeds of the foregoing, including the investment earnings. The Funding Period Reserve Account shall be owned by, and under the sole dominion and control of, the Trustee for the benefit of the Series 2004-1 Certificateholders. If, at any time, the institution holding the Funding Period Reserve Account ceases to be a Qualified Depository Institution, the Seller shall direct the Servicer to establish within 10 Business Days a new Funding Period Reserve Account meeting the conditions specified above with a Qualified Depository Institution, transfer any cash and/or any investment to such new Funding Period Reserve Account 56 and from the date such new Funding Period Reserve Account is established, it shall be the "Funding Period Reserve Account." In addition, after five days notice to the Trustee, the Seller may direct the Servicer to establish a new Funding Period Reserve Account meeting the conditions specified above with a different Qualified Depository Institution, transfer any cash and/or investments to such new Funding Period Reserve Account and from the date such new Funding Period Reserve Account is established, it shall be, for the Series 2004-1 Certificates, the "Funding Period Reserve 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 Funding Period Reserve Account for the purposes of carrying out the Servicer's or Trustee's duties hereunder. (b) The Servicer shall deposit $2,100,000 into the Funding Period Reserve Account on the Closing Date. Funds on deposit in the Funding Period Reserve Account (after giving effect to any withdrawals from the Funding Period Reserve Account) shall be invested by the Trustee at the direction of the Servicer in Permitted Investments maturing no later than the following Distribution Date. The interest and other investment income (net of investment expenses and losses) earned on such investments shall be deposited in the Collection Account at the end of each month and treated as Collections of Finance Charge Receivables allocated to the Series 2004-1 Certificates for the preceding Due Period and available to be applied as Available Funds. (c) On or before each Distribution Date with respect to the Funding Period, the Trustee at the direction of the Servicer shall (i) withdraw from the Funding Period Reserve Account an amount equal to the Funding Period Reserve Draw Amount for such Distribution Date and deposit such amount into the Collection Account for application as Available Funds and (ii) deposit in the Funding Period Reserve Account an amount equal to the amount specified in, and otherwise in accordance with, subsection 4.11(r). (d) The Funding Period Reserve Account shall be terminated following the earlier to occur of (a) the completion of the Funding Period and (b) the termination of the Trust pursuant to the Agreement. Upon the termination of the Funding Period Reserve Account, all amounts on deposit therein (after giving effect to any withdrawal from the Funding Period Reserve Account on such date as described above) shall be distributed to the Holder of the Exchangeable Seller Certificate. Section 4.21. Adjustments to Investor Interest. (a) Series 2004-1 shall be a Paired Series with respect to Series 1999-1. On each Distribution Date during the Funding Period, the Series Investor Interest will be increased (but not above an amount equal to the Initial Investor Interest) by the amount of any decrease in the Investor Interest for Series 1999-1 on each such Distribution Date. The Class A Investor Interest shall be increased by an amount equal to the Class A Percentage of the amount of such decrease, the Class M Investor Interest shall be increased by an amount equal to the Class M Percentage of the amount of such decrease, the Class B Investor Interest shall be increased by an amount equal to the Class B Percentage of the amount of such decrease, the Class C Investor Interest shall be increased by an amount equal to the Class C Percentage of the amount of such decrease, the Class D-1 Investor Interest shall be increased by an amount equal to the Class D-1 Percentage of the amount of such decrease and the Class D-2 Investor Interest shall be increased by an amount equal to the Class D-2 Percentage of the amount of such decrease, whereupon the 57 Trustee shall instruct the Servicer to withdraw from the Pre-Funding Account and pay to the Seller an amount equal to the increase in the Series Investor Interest. (b) The Seller may on any Distribution Date during the Funding Period determine to increase the Series Investor Interest amount up to the Initial Investor Interest by transferring new Receivables to the Trust so long as such increase to the Series Investor Interest shall not cause an Early Amortization Event to occur with respect to any outstanding Series. Upon determining to increase the Series Investor Interest pursuant to this Section 4.21(b), the Seller shall deliver to the Servicer and the Trustee an Officers' Certificate specifying the amount of the increase in the Series Investor Interest the Seller has determined to make and certifying that no Early Amortization Event with respect to any outstanding Series will occur as a result of or in connection with such increase in the Series Investor Interest. Upon receipt of such Officer's Certificate by the Trustee, the Class A Investor Interest shall be increased by an amount equal to the Class A Percentage of the amount of such increase, the Class M Investor Interest shall be increased by an amount equal to the Class M Percentage of the amount of such increase, the Class B Investor Interest shall be increased by an amount equal to the Class B Percentage of the amount of such increase, the Class C Investor Interest shall be increased by an amount equal to the Class C Percentage of the amount of such increase, the Class D-1 Investor Interest shall be increased by an amount equal to the Class D-1 Percentage of the amount of such increase and the Class D-2 Investor Interest shall be increased by an amount equal to the Class D-2 Percentage of the amount of such increase, whereupon the Trustee shall instruct the Servicer to withdraw from the Pre-Funding Account and pay to the Seller an amount equal to such increase in the Series Investor Interest. Section 4.22. Designation of Trustee's Jurisdiction. The Trustee hereby agrees that its jurisdiction for purposes of the applicable UCC is Pennsylvania. SECTION 9. 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 2004-1 Certificates: 58 ARTICLE V. DISTRIBUTIONS AND REPORTS TO INVESTOR CERTIFICATEHOLDERS SECTION 5.1. Distributions. (a) On each Distribution Date, the Trustee shall distribute (in accordance with the certificate delivered by the Servicer to the Trustee pursuant to subsection 3.4(b)) to each Class A Certificateholder of record on the immediately preceding Record Date (other than as provided in Section 12.3 respecting a final distribution) such Class A Certificateholder's pro rata share (based on the aggregate Undivided Trust Interests represented by Class A Certificates held by such Class A Certificateholder) of amounts on deposit in the Collection Account as are payable to the Class A Certificateholders pursuant to Section 4.9 by check mailed to each Class A Certificateholder (at such Class A Certificateholder's address as it appears in the Certificate Register), except that with respect to Class A Certificates registered in the name of the nominee of a Clearing Agency, such distribution shall be made in immediately available funds. (b) On each Distribution Date, the Trustee shall distribute (in accordance with the certificate delivered by the Servicer to the Trustee pursuant to subsection 3.4(b)) to each Class M Certificateholder of record on the immediately preceding Record Date (other than as provided in Section 12.3 respecting a final distribution) such Class M Certificateholder's pro rata share (based on the aggregate Undivided Trust Interests represented by Class M Certificates held by such Class M Certificateholder) of amounts on deposit in the Collection Account as are payable to the Class M Certificateholders pursuant to Section 4.9 by check mailed to each Class M Certificateholder (at such Class M Certificateholder's address as it appears in the Certificate Register), except that with respect to Class M Certificates registered in the name of the nominee of a Clearing Agency, such distribution shall be made in immediately available funds. (c) On each Distribution Date, the Trustee shall distribute (in accordance with the certificate delivered by the Servicer to the Trustee pursuant to subsection 3.4(b)) to each Class B Certificateholder of record on the immediately preceding Record Date (other than as provided in Section 12.3 respecting a final distribution) such Class B Certificateholder's pro rata share (based on the aggregate Undivided Trust Interests represented by Class B Certificates held by such Class B Certificateholder) of amounts on deposit in the Collection Account as are payable to the Class B Certificateholders pursuant to Section 4.9 by check mailed to each Class B Certificateholder (at such Class B Certificateholder's address as it appears in the Certificate Register), except that with respect to Class B Certificates registered in the name of the nominee of a Clearing Agency, such distribution shall be made in immediately available funds. (d) Unless otherwise specified in the Class C Purchase Agreement, on each Distribution Date, the Trustee shall distribute to each Class C Certificateholder of record on the immediately preceding Record Date (other than as provided in Section 12.3 of the Agreement respecting a final distribution) such Class C Certificateholder's pro rata share (based on the aggregate Undivided Trust Interests represented by Class C Certificates held by such Class C 59 Certificateholder) of amounts on deposit in the Collection Account as are payable to the Class C Certificateholders pursuant to Section 4.9 of this Supplement by check mailed to each Class C Certificateholder (at such Certificateholder's address as it appears in the Certificate Register) or by wire transfer of immediately available funds to such account designated in writing by such Class C Certificateholder to the Trustee not later than the Distribution Date preceding such Distribution Date. (e) Unless otherwise specified in the Class D-1 Purchase Agreement, on each Distribution Date, the Trustee shall distribute to each Class D-1 Certificateholder of record on the immediately preceding Record Date (other than as provided in Section 12.3 of the Agreement respecting a final distribution) such Class D-1 Certificateholder's pro rata share (based on the aggregate Undivided Trust Interests represented by Class D-1 Certificates held by such Class D-1 Certificateholder) of amounts on deposit in the Collection Account as are payable to the Class D-1 Certificateholders pursuant to Section 4.9 of this Supplement by check mailed to each Class D-1 Certificateholder (at such Class D-1 Certificateholder's address as it appears in the Certificate Register) or by wire transfer of immediately available funds to such account designated in writing by such Class D-1 Certificateholder to the Trustee not later than the Distribution Date preceding such Distribution Date. (f) Unless otherwise specified in the Class D-2 Purchase Agreement, on each Distribution Date, the Trustee shall distribute to each Class D-2 Certificateholder of record on the immediately preceding Record Date (other than as provided in Section 12.3 of the Agreement respecting a final distribution) such Class D-2 Certificateholder's pro rata share (based on the aggregate Undivided Trust Interests represented by Class D-2 Certificates held by such Class D-2 Certificateholder) of amounts on deposit in the Collection Account as are payable to the Class D-2 Certificateholders pursuant to the Class D-2 Purchase Agreement by check mailed to each Class D-2 Certificateholder (at such Class D-2 Certificateholder's address as it appears in the Certificate Register) or by wire transfer of immediately available funds to such account designated in writing by such Class D-2 Certificateholder to the Trustee not later than the Distribution Date preceding such Distribution Date. SECTION 5.2. Monthly Certificateholders' Statement. (a) On or before each Distribution Date, the Paying Agent shall forward to each Series 2004-1 Certificateholder and each Rating Agency a statement substantially in the form of Exhibit F to this Supplement prepared by the Servicer, appropriately completed. (b) Annual Certificateholders' Tax Statement. On or before January 31 of each calendar year, beginning with calendar year 2005, the Trustee shall distribute to each Person who at any time during the preceding calendar year was a Series 2004-1 Certificateholder, a statement prepared by the Servicer containing the information required to be contained in the regular monthly statement to Series 2004-1 Certificateholders, aggregated for such calendar year or the applicable portion thereof during which such Person was a Series 2004-1 Certificateholder, together with such other customary information (consistent with the treatment of the Class A Certificates, the Class M Certificates and the Class B Certificates as 60 debt) as the Servicer deems necessary or desirable to enable the Series 2004-1 Certificateholders to prepare their tax returns. The Servicer will provide such information to the Trustee as soon as possible after January 1 of each calendar year. 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 Code as from time to time in effect. SECTION 10. Series 2004-1 Early Amortization Events. If any one of the following events shall occur with respect to the Series 2004-1 Certificates: (a) failure on the part of the Seller or the Originator (i) to make any payment or deposit required by the terms of (A) the Agreement, (B) this Supplement or (C) the Purchase Agreement, on or before the date occurring five days after the date such payment or deposit is required to be made herein or (ii) duly to observe or perform in any material respect any of its covenants or agreements set forth in the Agreement, this Supplement or the Purchase Agreement, which failure has a material adverse effect on the Class A Certificateholders, the Class M Certificateholders, the Class B Certificateholders or the Class C Certificateholders and which continues unremedied for a period of 35 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Trustee, or to the Seller and the Trustee by the Controlling Certificateholders, and continues to affect materially and adversely the interests of the Class A Certificateholders, the Class M Certificateholders, the Class B Certificateholders or the Class C Certificateholders for such period; (b) any representation or warranty made by the Seller or the Originator in the Agreement, this Supplement or the Purchase Agreement, or any information contained in a computer file or microfiche or written list required to be delivered by the Seller pursuant to Section 2.1 or 2.6 or by the Originator pursuant to Section 1.1 or 2.4(e) of the Purchase Agreement, (i) shall prove to have been incorrect in any material respect when made or when delivered, which continues to be incorrect in any material respect for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Trustee, or to the Seller and the Trustee by the Controlling Certificateholders, and (ii) as a result of which the interests of the Class A Certificateholders, the Class M Certificateholders, the Class B Certificateholders or the Class C Certificateholders are materially and adversely affected and continue to be materially and adversely affected for such period; provided, however, that a Series 2004-1 Early Amortization Event pursuant to this subsection 9(b) shall not be deemed to have occurred hereunder if the Seller has accepted reassignment of the related Receivable, or all of such Receivables, if applicable, during such period in accordance with the provisions of the Agreement; (c) the average Portfolio Yield for any three consecutive Due Periods is reduced to a rate which is less than the average Base Rate for such period; (d) the Seller shall fail to convey Receivables arising under Additional Accounts to the Trust, as required by subsection 2.6(a) of the Agreement; 61 (e) any Servicer Default shall occur which would have a material adverse effect on the Series 2004-1 Certificateholders; (f) the Class A Investor Interest shall not be paid in full on the Class A Expected Final Payment Date, or the Class M Investor Interest shall not be paid in full on the Class M Expected Final Payment Date, or the Class B Investor Interest shall not be paid in full on the Class B Expected Final Payment Date; (g) Fashion Service Corp. shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to all or substantially all of its property, or a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against Fashion Service Corp.; or Fashion Service Corp. shall admit in writing its inability to pay its debts generally as they become due, commence or have commenced against it (unless dismissed within thirty days) as a debtor a proceeding under any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors or voluntarily suspend payment of its obligations; (h) the early termination of the Class A Swap, the Class M Swap, the Class B Swap or the Class C Swap unless the Trustee obtains a replacement Class A Swap, Class M Swap, Class B Swap or Class C Swap, as applicable, or enters into another interest rate hedging arrangement with respect to the Class A Certificates, Class M Certificates, Class B Certificates or Class C Certificates that satisfies the Rating Agency Condition within 5 Business Days following the termination of such Class A Swap, Class M Swap, Class B Swap or Class C Swap, as applicable; or (i) failure of any Swap Counterparty to make a payment under any of the Interest Rate Swap Agreements for the Class A Certificates, Class M Certificates, Class B Certificates or Class C Certificates in respect of a payment obligation arising as a result of LIBOR being greater than the specified fixed rate for the related Interest Rate Swap Agreement, and the failure is not cured within 5 Business Days after payment is due, then, (x) in the case of any event described in subparagraph (a), (b) or (e) after the applicable grace period set forth in such subparagraphs, either the Trustee or the Controlling Certificateholders by notice then given in writing to the Seller and the Servicer (and to the Trustee if given by the Certificateholders) may declare that an early amortization event (a "Series 2004-1 Early Amortization Event") has occurred as of the date of such notice and (y) in the case of any event described in subparagraphs (c), (d), (f), (g), (h) or (i), a Series 2004-1 Early Amortization Event shall occur without any notice or other action on the part of the Trustee or the Series 2004-1 Certificateholders immediately upon the occurrence of such event. SECTION 11. Series 2004-1 Termination. The right of the Series 2004-1 Certificateholders to receive payments from the Trust will terminate on the first Business Day 62 following the Series 2004-1 Termination Date. For purposes of Series 2004-1, the reference to "110%" in Section 12.1(c) of the Agreement shall be deemed to be a reference to "110% (or if such percentage would cause an Early Amortization Event to occur with respect to any other outstanding Series, the greater of (x) such lesser percentage as would not cause such Early Amortization Event and (y) the then current Series Allocation Percentage)". The proceeds of such sale shall be treated as Collections on the Receivables that are allocated to Series 2004-1 pursuant to the Agreement and this Supplement and shall be distributed in accordance with the terms of this Supplement; provided, however, that the Servicer shall determine conclusively the amount of such proceeds that are allocable to Finance Charge Receivables and the amount of such proceeds that are allocable to Principal Receivables. SECTION 12. Ratification of Agreement. As supplemented by this Supplement, the Agreement is in all respects ratified and confirmed and the Agreement as so supplemented by this Supplement shall be read, taken, and construed as one and the same instrument. SECTION 13. Counterparts. This 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 14. No Petition. Each of the Trustee, the Servicer and the Seller (with respect to the Trust only), by entering into this Supplement and each Series 2004-1 Certificateholder, by accepting a Series 2004-1 Certificate, shall not, prior to the date which is one year and one day after the last day on which any Investor Certificate shall have been outstanding, acquiesce, petition or otherwise invoke or cause the Trust or the Seller to invoke the process of any Governmental Authority for the purpose of commencing or sustaining a case against the Trust or the Seller under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Trust or the Seller or any substantial part of its property or ordering the winding up or liquidation of the affairs of the Trust or the Seller. SECTION 15. Forms of Series 2004-1 Certificates. (a) Form of Certificates. The form of each of the Class A Certificates, the Class M Certificates, the Class B Certificates, the Class C Certificates, the Class D-1 Certificates and the Class D-2 Certificates, including the Certificate of Authentication, shall be substantially as set forth respectively as Exhibits A, M, B, C, D-1 and D-2 hereto, respectively. (b) Book-Entry Certificates. (i) The Class A Certificates, the Class M Certificates and the Class B Certificates that are not sold in offshore transactions in reliance on Regulation S under the Securities Act shall be offered and sold in reliance on the exemption from registration under Rule 144A (except for any sale directly from the Trust) and shall be issued initially in the form of one or more permanent global certificates in definitive, fully registered 63 form without interest coupons with the applicable legends set forth in Exhibits A, M and B hereto, as applicable, added to the form of such Certificates (each, a "Restricted Book-Entry Certificate"), which shall be registered in the name of the nominee of the Depository and deposited with the Trustee, as custodian for the Depository. The aggregate principal amount of the Restricted Book-Entry Certificates may from time to time be increased or decreased by adjustments made on the records of the Trustee or the Depository or its nominee, as the case may be, as hereinafter provided. (ii) The Class A Certificates, the Class M Certificates and the Class B Certificates offered and sold in offshore transactions in reliance on Regulation S under the Securities Act shall be issued initially, and during the "40 day distribution compliance period" described below shall remain, in the form of temporary global certificates, without interest coupons (the "Regulation S Temporary Book-Entry Certificates"), to be held by the Depository and registered in the name of a nominee of the Depository or its custodian for the respective accounts of Euroclear and Clearstream duly executed by the Seller and authenticated by the Trustee as hereinafter provided. The "40 day distribution compliance period" shall be terminated upon the later of (i) the end of the distribution compliance period (as defined in Rule 902 of the Securities Act) and (ii) receipt by the Trustee of a written certificate from the Depository, together with copies of certificates substantially in the form of Exhibit I from Euroclear or Clearstream, certifying that the beneficial owner of such Regulation S Temporary Book-Entry Certificate is a non-U.S. person. Following the termination of the 40 day distribution compliance period, beneficial interests in the Regulation S Temporary Book-Entry Certificates may be exchanged for beneficial interests in permanent Book-Entry Certificates (the "Regulation S Permanent Book-Entry Certificates"; and together with the Regulation S Temporary Book-Entry Certificate, the "Regulation S Book-Entry Certificates"), which will be duly executed by the Seller and authenticated by the Trustee as hereinafter provided and which will be deposited with the Trustee, as custodian for the Depository, and registered in the name of the Depository or a nominee thereof. Upon any exchange of a portion of a Regulation S Temporary Book-Entry Certificate for a comparable portion of a Regulation S Permanent Book-Entry Certificate, the Trustee shall endorse on the schedules affixed to each of such Regulation S Book-Entry Certificate (or on continuations of such schedules affixed to each of such Regulation S Book-Entry Certificate and made parts thereof) appropriate notations evidencing the date of transfer and (x) with respect to the Regulation S Temporary Book-Entry Certificate, a decrease in the principal amount thereof equal to the amount covered by the applicable certification and (y) with respect to the Regulation S Permanent Book-Entry Certificate, an increase in the principal amount thereof equal to the principal amount of the decrease in the Regulation S Temporary Book-Entry Certificate. (c) Definitive Series 2004-1 Certificates. (i) The Class C Certificates and the Class D Certificates shall be issued in the form of Definitive Certificates with the applicable legends set forth in Exhibits C and D, hereto, which shall be registered in the name of the Holder or a nominee thereof, duly executed by the Trust and authenticated by the Trustee as hereinafter 64 provided. Except as provided in Section 6.12 of the Agreement, owners of beneficial interests in the Book-Entry Certificates shall not be entitled to receive Definitive Certificates. SECTION 16. Transfer Restrictions. (a) No Series 2004-1 Certificate may be sold or transferred (including, without limitation, by pledge or hypothecation) unless such sale or transfer is exempt from the registration requirements of the Securities Act and is exempt from the registration requirements under applicable state securities laws. No Class A Certificate, Class M Certificate or Class B Certificate may be offered, sold or delivered within the United States or to, or for the benefit of, U.S. Persons as defined in Regulation S except to QIBs purchasing for their own account or for the accounts of one or more QIBs, for which the purchaser is acting as fiduciary or agent in accordance with Rule 144A in reliance on the exemption from registration in Section 4(2) of the Securities Act. The Class A Certificates, the Class M Certificates and the Class B Certificates may also be sold or resold, as the case may be, in offshore transactions to non-U.S. Persons in reliance on Regulation S under the Securities Act. No Class C Certificate or Class D Certificate may be offered, sold or delivered to, or for the benefit of, any Person except U.S. Persons (as defined in Section 7701(a)(30) of the Code) within the United States that are QIBs purchasing for their own account or for the accounts of one or more QIBs, for which the purchaser is acting as a fiduciary or agent in accordance with Rule 144A in reliance on the exemption for registration in Section 4(2) of the Securities Act. None of the Trust, the Trustee, the Seller, the Originator, the Servicer or any other Person may register the Series 2004-1 Certificates under the Securities Act or any applicable securities laws. (b) Notwithstanding any provision to the contrary herein, so long as a Book-Entry Certificate remains outstanding and is held by or on behalf of the Depository, transfers of a Book-Entry Certificate, in whole or in part, shall only be made in accordance with this Section 16(b) and Section 6.10 of the Agreement. (i) Subject to clauses (ii) and (iii) of this Section 16(b), transfers of a Book-Entry Certificate shall be limited to transfers of such Book-Entry Certificate in whole, but not in part, to a nominee of the Depository or to a successor of the Depository or such successor's nominee. (ii) Regulation S Book-Entry Certificate to Restricted Book-Entry Certificate. If a holder of a beneficial interest in a Regulation S Book-Entry Certificate wishes to transfer all or a part of its interest in such Regulation S Book-Entry Certificate to a Person who wishes to take delivery thereof in the form of a Restricted Book-Entry Certificate, such holder may, subject to the terms hereof and the rules and procedures of Euroclear or Clearstream, as the case may be, and the Depository exchange or cause the 65 exchange of such interest for an equivalent beneficial interest in a Restricted Book-Entry Certificate of the same Class. Upon receipt by the Transfer Agent and Registrar, of (A) instructions from Euroclear, Clearstream or the Depository, as the case may be, directing the Trustee, as Transfer Agent and Registrar, to cause such Restricted Book-Entry Certificate to be increased by an amount equal to such beneficial interest in such Regulation S Book-Entry Certificate but not less than the minimum denomination applicable to the related Class of Series 2004-1 Certificates, and (B) a certificate substantially in the form of Exhibit G-1 hereto given by the prospective transferee of such beneficial interest and stating, among other things, that such transferee acquiring such interest in a Restricted Book-Entry Certificate is a QIB, is obtaining such beneficial interest in a transaction pursuant to Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction, then Euroclear, Clearstream or the Trustee, as Transfer Agent and Registrar, as the case may be, will instruct the Depository to reduce such Regulation S Book-Entry Certificate by the aggregate principal amount of the interest in such Regulation S Book-Entry Certificate to be transferred, increase the Restricted Book-Entry Certificate specified in such instructions by an amount equal to such reduction in such principal amount of the Regulation S Book-Entry Certificate and make the corresponding adjustments to the applicable participants' accounts. (iii) Restricted Book-Entry Certificate to Regulation S Book-Entry Certificate. If a holder of a beneficial interest in a Restricted Book-Entry Certificate wishes to transfer all or a part of its interest in such Restricted Book-Entry Certificate to a Person who wishes to take delivery thereof in the form of a Regulation S Book-Entry Certificate, such holder may, subject to the terms hereof and the rules and procedures of Euroclear or Clearstream, as the case may be, and the Depository exchange or cause the exchange of such interest for an equivalent beneficial interest in a Regulation S Book-Entry Certificate of the same Class. Upon receipt by the Trustee, as Transfer Agent and Registrar, of (A) instructions from Euroclear, Clearstream or the Depository, as the case may be, directing the Trustee, as Transfer Agent and Registrar, to cause such Regulation S Book-Entry Certificate to be increased by an amount equal to the beneficial interest in such Restricted Book-Entry Certificate but not less than the minimum denomination applicable to the related Class of Series 2004-1 Certificates to be exchanged, and (B) a certificate substantially in the form of Exhibit G-2 hereto given by the prospective transferee of such beneficial interest and stating, among other things, that such transferee acquiring such interest in a Regulation S Book-Entry Certificate is a non-U.S. Person located outside the United States and such transfer is being made pursuant to Rule 903 or 904 under Regulation S of the Securities Act, then Euroclear, Clearstream or the Trustee, as Transfer Agent and Registrar, as the case may be, will instruct the Depository to reduce such Restricted Book-Entry Certificate by the aggregate principal amount of the interest in such Restricted Book-Entry Certificate to be transferred, increase the Regulation S Book-Entry Certificate specified in such instructions by an aggregate principal amount equal to such reduction in the principal amount of the Restricted Book-Entry Certificate and make the corresponding adjustments to the applicable participants' accounts. 66 (iv) Other Exchanges. In the event that a Class A Certificate, a Class M Certificate or a Class B Certificate initially represented by a Book-Entry Certificate is exchanged for one or more Definitive Certificates pursuant to Section 6.12 of the Agreement, the related Class A Certificateholder, Class M Certificateholder or Class B Certificateholder, as the case may be, shall be required to deliver a representation letter with respect to the matters described in subsections 16(c) and (d) of this Supplement. Such Definitive Certificates may be exchanged for one another only upon delivery of a representation letter with respect to the matters described in subsections 16(c) and (d) of this Supplement and in accordance with such procedures as are substantially consistent with the provisions above (including certification requirements intended to insure that such transfers comply with Rule 144A or are to non-U.S. Persons, or otherwise comply with Regulation S under the Securities Act, as the case may be) and as may be from time to time adopted by the Trust and the Trustee. (c) Each beneficial owner of Restricted Book-Entry Certificates or Regulation S Book-Entry Certificates will be deemed to represent and agree as follows (terms used in this paragraph that are defined in Rule 144A or Regulation S under the Securities Act are used herein as defined therein): (i) The owner either (A)(1) is a QIB, (2) is aware that the sale of the Class A Certificates, Class M Certificates or Class B Certificates, as applicable, to it (other than the initial sale by the Trust) is being made in reliance on the exemption from registration provided by Rule 144A under the Securities Act and (3) is acquiring the Class A Certificates, Class M Certificates or Class B Certificates, as applicable, for its own account or for one or more accounts, each of which is a QIB, and as to each of which the owner exercises sole investment discretion, and in a principal amount of not less than $1,000,000 for the purchaser or for each such account, as the case may be, or (B) (1) is not a U.S. Person (as defined under Regulation S of the Securities Act) and (2) is purchasing the Class A Certificates, Class M Certificates or Class B Certificates, as applicable, pursuant to Rule 903 or 904 of Regulation S of the Securities Act. The owner has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment in the Class A Certificates, Class M Certificates or Class B Certificates, as applicable, and the owner and any accounts for which it is acting are each able to bear the economic risk of the owner's or its investment. The owner understands that in the event that at any time the Trust or the Trustee determines that such purchaser was in breach, at the time given, of any of the representations or agreements set forth in this clause (i), upon direction from the Trust the Trustee shall consider the acquisition of the related Class A Certificates, Class M Certificates or Class B Certificates, as applicable, void and require that the related Class A Certificates, Class M Certificates or Class B Certificates, as applicable, be transferred to a Person designated by the Trust. (ii) The owner understands that the Class A Certificates, Class M Certificates or Class B Certificates, as applicable, are being offered only in a transaction not involving any public offering in the United States within the meaning of the Securities 67 Act, the Class A Certificates, Class M Certificates or Class B Certificates, as applicable, have not been and will not be registered under the Securities Act, and, if in the future the owner decides to offer, resell, pledge or otherwise transfer the Class A Certificates, Class M Certificates or Class B Certificates, as applicable, such Class A Certificates, Class M Certificates or Class B Certificates, as applicable, may be offered, resold, pledged or otherwise transferred in accordance with the Agreement and this Supplement and the applicable legend on such Series 2004-1 Certificates set forth in Exhibit A or B hereto, as applicable. The owner acknowledges that no representation is made by the Trust, the Trustee, the Seller or the Initial Purchasers, as the case may be, as to the availability of any exemption under the Securities Act or any State securities laws for resale of the Series 2004-1 Certificates. (iii) The owner is not purchasing the Class A Certificates, Class M Certificates or Class B Certificates, as applicable, with a view to the resale, distribution or other disposition thereof in violation of the Securities Act. The owner understands that an investment in the Series 2004-1 Certificates involves certain risks, including the risk of loss of all or a substantial part of its investment under certain circumstances. The owner has had access to such financial and other information concerning the Originator, the Seller, the Servicer, the Trust and the Series 2004-1 Certificates as it deemed necessary or appropriate in order to make an informed investment decision with respect to its purchase of the Class A Certificates, Class M Certificates or Class B Certificates, as applicable, including an opportunity to ask questions of and request information from the Originator, the Seller and the Servicer. (iv) In connection with the purchase of the Series 2004-1 Certificates: (A) none of the Trust, the Initial Purchasers or the Trustee is acting as a fiduciary or financial or investment adviser for the owner; (B) the owner is not relying (for purposes of making any investment decision or otherwise) upon any advice, counsel or representations (whether written or oral) of the Originator, the Seller, the Servicer, the Trust, the Initial Purchasers or the Trustee or any of their Affiliates other than, in the case of the Trust, in a current offering memorandum for such Series 2004-1 Certificates and any representations expressly set forth in a written agreement with such party; (C) none of the Originator, the Seller, the Trust, the Initial Purchasers or the Trustee or any of their Affiliates has given to the owner (directly or indirectly through any other Person) any assurance, guarantee, or representation whatsoever as to the expected or projected success, profitability, return, performance, result, effect, consequence, or benefit (including legal, regulatory, tax, financial, accounting, or otherwise) of its purchase, (D) the owner has consulted with its own legal, regulatory, tax, business, investment, financial, and accounting advisers to the extent it has deemed necessary, and it has made its own investment decisions (including decisions regarding the suitability of any transaction pursuant to the Agreement or this Supplement) based upon its own judgment and upon any advice from such advisers as it has deemed necessary and not upon any view expressed by the Originator, the Seller, the Trust, the Initial Purchasers or the Trustee or any of their Affiliates; and (E) the owner is purchasing the Class A Certificates, Class M Certificates or Class B Certificates, as applicable, with a full 68 understanding of all of the terms, conditions and risks thereof (economic and otherwise), and is capable of assuming and willing to assume (financially and otherwise) these risks. (v) Neither the owner nor such account was formed for the purpose of acquiring any Series 2004-1 Certificates (unless the Trust, in its sole discretion and with the advice of counsel in respect of U.S. securities laws, expressly otherwise permits). The owner and each such account agrees that it shall not hold such Series 2004-1 Certificates for the benefit of any other Person and shall be the sole beneficial owner thereof for all purposes and that it shall not sell participation interests in the Series 2004-1 Certificates or enter into any other arrangement pursuant to which any other Person shall be entitled to a beneficial interest in the distributions on the Series 2004-1 Certificates. The owner understands and agrees that any purported transfer of the Series 2004-1 Certificates to an owner that does not comply with the requirements of this clause (v) shall be null and void ab initio. The owner understands that in the event that at any time the Trustee has determined, or the Trust notifies the Trustee that the Trust has determined, that such purchaser was in breach, at the time given, of any of the representations or agreements set forth in clause (i) above, then the Trustee shall consider the acquisition of the related Series 2004-1 Certificates void and require that the related Series 2004-1 Certificates be transferred to a Person designated by the Trust. (vi) The owner understands that the Class A Certificates, Class M Certificates and Class B Certificates will bear the applicable legend set forth in Exhibit A, M or B hereto. (vii) Either (A) the owner is not acquiring such Series 2004-1 Certificate with the assets of an "employee benefit plan" whether or not subject to ERISA, any "plan" described in Section 4975(e)(1) of the Code or any entity deemed to hold "plan assets" of any of the foregoing (each, a "Benefit Plan Investor") or (B) it is an insurance company purchasing such Series 2004-1 Certificate with assets of its general account, and at the time of acquisition and throughout the period of holding, (x) it meets all of the requirements of and is eligible for exemptive relief under Prohibited Transaction Class Exemption 95-60; (y) less than 25% of the assets of that general account are assets of a Benefit Plan Investor; and (z) it is not a servicer to the Trust or an affiliate of a servicer to the Trust, and would not otherwise be excluded under 29 CFR Section 2510.3-101(f)(1). (viii) If such owner is acquiring the Class A Certificates, the Class M Certificates or the Class B Certificates in an "offshore transaction" (as defined in Regulation S), it acknowledges that such Series 2004-1 Certificates will initially be represented by the Regulation S Temporary Book-Entry Certificates and that transfers thereof or any interest or participation therein are restricted as described herein. It understands that the Temporary Regulation S Book-Entry Certificate will bear a legend to the following effect unless the Seller determines otherwise, consistent with applicable law: 69 "THIS CERTIFICATE IS A TEMPORARY GLOBAL SECURITY FOR PURPOSES OF REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). NEITHER THIS TEMPORARY GLOBAL SECURITY NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD OR DELIVERED, EXCEPT AS PERMITTED UNDER THE SERIES 2004-1 SUPPLEMENT. NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL SECURITY SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE SERIES 2004-1 SERIES SUPPLEMENT." (ix) If such owner is acquiring the Class A Certificates, the Class M Certificates or the Class B Certificates in an "offshore transaction" (as defined in Regulation S), the owner is aware that the sale of such Series 2004-1 Certificates to it is being made in reliance on the exemption from registration provided by Regulation S and understands that the Series 2004-1 Certificates offered in reliance on Regulation S under the Securities Act will be represented by one or more Regulation S Book-Entry Certificates and will bear the appropriate legends set forth in Exhibits A, B and C as applicable. The Series 2004-1 Certificates so represented may not at any time be held by or on behalf of U.S. Persons as defined in Regulation S. Each of the owner and the related Holder is not, and will not be, a U.S. Person as defined in Regulation S. Before any interest in a Regulation S Book-Entry Certificate may be offered, resold, pledged or otherwise transferred to a Person who takes delivery in the form of a Restricted Book-Entry Certificate, the transferor and the prospective transferee will be required to provide the Trustee with a written certification substantially in the form of Exhibit G-1 hereto as to compliance with the transfer restrictions. (d) The transfers of the Class C Certificates and the Class D Certificates are subject to additional restrictions set forth in the Class C Purchase Agreement and the applicable Class D Purchase Agreement, respectively. Each of the Class C Certificates and the Class D Certificates are Subject Instruments subject to the transfer restrictions set forth in Section 6.3(e) of the Agreement. Notwithstanding Section 6.3 of the Agreement, Seller shall not execute, and the Transfer Agent and Registrar shall not register the transfer of, (i) any Class C Certificate, if after giving effect to the execution or transfer of such Class C Certificate, there would be more than 10 Private Holders of Class C Certificates or (ii) any Class D Certificate, if after giving effect to the execution or transfer of such Class D Certificate, there would be more than 5 Private Holders of Class D Certificates. For purposes of this Supplement and the Agreement, each Holder of a Class C Certificate or a Class D Certificate shall be a "Private Holder." (e) If the Seller owns Class D-1 Certificates, the Seller may, upon written request to the Trustee and Transfer Agent and Registrar, exchange all or any portion of the Class D-1 Certificates owned by it for a principal amount of Class D-2 Certificates equal to the principal amount of Class D-1 Certificates surrendered to the Transfer Agent and Registrar for exchange; provided that no Class D-1 Certificates may be exchanged for Class D-2 Certificates 70 without the prior written consent of all Class D-2 Certificateholders other than the Seller. Upon any such exchange, the Class D-1 Investor Interest shall be proportionately reduced based on the proportion that the outstanding principal amount of the Class D-1 Certificates so exchanged bears to the outstanding principal amount of the Class D-1 Certificates before giving effect to the exchange, and the Class D-2 Investor Interest shall be increased by a corresponding amount. If the Seller owns Class D-2 Certificates, the Seller may, upon written request to the Trustee and the Transfer Agent and Registrar, exchange all or any portion of the Class D-2 Certificates owned by it for a principal amount of Class D-1 Certificates equal to the principal amount of Class D-2 Certificates surrendered to the Transfer Agent and Registrar for exchange; provided that no Class D-2 Certificates may be exchanged for Class D-1 Certificates without the prior written consent of all Class D-1 Certificateholders other than the Seller. Upon any such exchange, the Class D-2 Investor Interest shall be proportionately reduced based on the proportion that the outstanding principal amount of the Class D-2 Certificates so exchanged bears to the outstanding principal amount of the Class D-2 Certificates before giving effect to the exchange, and the Class D-1 Investor Interest shall be increased by a corresponding amount. The Trustee shall authenticate and deliver to the Seller such new Class D-1 Certificates and Class D-2 Certificates as the Seller shall be entitled to receive pursuant to this Section 16(e). (f) Any purported transfer of a Series 2004-1 Certificate of the Trust not in accordance with the Agreement and Section 16 of this Supplement and, in the case of the Class C Certificates and Class D Certificates, in accordance with the Class C Purchase Agreement and the applicable Class D Purchase Agreement, respectively shall be null and void and shall not be given effect for any purpose hereunder. (g) Notwithstanding anything contained in this Supplement to the contrary, neither the Trustee nor the Transfer Agent and Registrar shall be responsible or liable for compliance with applicable federal or state securities laws (including, without limitation, the Securities Act or Rule 144A or Regulation S promulgated thereunder), ERISA or the Code (or any applicable regulations thereunder); provided that if a specified transfer certificate or opinion of counsel is required by the express terms of the Agreement and Section 16 of this Supplement or, in the case of the Class C Certificates and Class D Certificates, the terms of the Class C Purchase Agreement and applicable Class D Purchase Agreement, respectively, to be delivered to the Trustee or Transfer Agent and Registrar prior to registration of transfer of a Series 2004-1 Certificate, the Trustee and/or Transfer Agent and Registrar, as applicable, shall be under a duty to receive such certificate or opinion of counsel and to examine the same to determine whether it conforms on its face to the requirements hereof and, in the case of the Class C Certificates and Class D Certificates, the requirements of the Class C Purchase Agreement and Class D Purchase Agreement, respectively, and the Trustee or Transfer Agent and Registrar, as the case may be, shall promptly notify the party delivering the same if it determines that such certificate or opinion does not so conform. (h) If the Trustee determines or is notified by the Trust, the Seller or the Servicer that (i) a transfer or attempted or purported transfer of any interest in any Series 2004-1 71 Certificate was not consummated in compliance with the provisions of Section 16 of this Supplement on the basis of an incorrect form or certification from the transferee or purported transferee, (ii) a transferee failed to deliver to the Trustee any form or certificate required to be delivered hereunder, (iii) the holder of any interest in a Series 2004-1 Certificate is in breach of any representation or agreement set forth in any certificate or any deemed representation or agreement of such holder or (iv) such transfer would have the effect of causing the assets of the Trust to be deemed to be "plan assets" for purposes of ERISA, the Trustee will not register such attempted or purported transfer and if a transfer has been registered, such transfer shall be absolutely null and void ab initio and shall vest no rights in the purported transferee (such purported transferee, a "Disqualified Transferee") and the last preceding holder of such interest in such Series 2004-1 Certificate that was not a Disqualified Transferee shall be restored to all rights as a holder thereof retroactively to the date of transfer of such Series 2004-1 Certificate by such holder. The purported transferor of such Series 2004-1 Certificates or beneficial interest therein shall be required to cause the purported transferee to surrender the Series 2004-1 Certificates or any beneficial interest therein in return for a refund of the consideration paid therefor by such transferee (together with interest thereon) or to cause the purported transferee to dispose of such Series 2004-1 Certificates or beneficial interest promptly in one or more open market sales to one or more Persons each of whom satisfies the requirements of the Agreement and this Supplement and the legends on the Series 2004-1 Certificates, and such purported transferor shall take, and shall cause such transferee to take, all further action necessary or desirable, in the judgment of the Trustee, to ensure that such Series 2004-1 Certificates or any beneficial interest therein are held by Persons in compliance therewith. In addition, the Trust may require that the interest in the Series 2004-1 Certificate referred to in (i), (ii) or (iii) in the preceding paragraph be transferred to any Person designated by the Trust at a price determined by the Trust, based upon its estimation of the prevailing price of such interest and each Holder, by acceptance of an interest in a Series 2004-1 Certificate, authorizes the Trust to take such action. In any case, neither the Trust nor the Trustee will be held responsible, other than the Trustee, to the extent of its obligations under Section 16(g) (but subject to Article XI), for any losses that may be incurred as a result of any required transfer under this Section 16(h). (i) To the extent applicable to the Trust, the Trust shall comply with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56 (2001) (the "Patriot Act"). To the extent applicable to the Trust, the Trust shall impose additional transfer restrictions to comply with the Patriot Act and each Holder agrees to comply with such transfer restrictions. The Trust shall notify the Trustee and the Transfer Agent and Registrar of the imposition of any such transfer restrictions, and the Trustee shall give notice to all Holders of such transfer restrictions. In order to comply with U.S. laws and regulations, including the Patriot Act, the Trust may request from an owner or a prospective owner such information as it reasonably believes is necessary to verify the identity of such owner or prospective owner, and to determine whether such owner or prospective owner is permitted to be an owner of the Series 2004-1 Certificates pursuant to such laws and regulations. In the event of the delay or failure by any owner or prospective owner of the Series 2004-1 Certificates to deliver to the Trust any such requested information, the Trust 72 (or the Initial Purchasers, the Servicer or the Trustee on its behalf) may (i) require such owner to immediately transfer any Series 2004-1 Certificate, or beneficial interest therein, held by such owner to an owner meeting the requirements of this Supplement and the Agreement, (ii) refuse to accept the subscription of a prospective owner, or (iii) take any other action required to comply with such laws and regulations. In addition, following the delivery of any such information, the Trust (or the Initial Purchasers, the Servicer or the Trustee on its behalf) may take any of the actions identified in clauses (i)-(iii) above. In certain circumstances, the Trust, the Trustee, the Servicer or the Initial Purchasers may be required to provide information about owners to regulatory authorities and to take any further action as may be required by law. None of the Trust, the Trustee, the Servicer or the Initial Purchasers will be liable for any loss or injury to an owner or prospective owner that may occur as a result of disclosing such information, refusing to accept the subscription of any potential owner, redeeming any investment in a certificate or taking any other action required by law. SECTION 17. Certain Amendments. In addition to any other provisions relating to amendments in either the Agreement or this Supplement, this Supplement may be amended by written agreement of the Seller, subject to satisfaction of the Rating Agency Condition but without the consent of the Servicer, Trustee or any Series 2004-1 Certificateholder, if such amendment is to the Series 2004-1 Supplement and is made to conform the terms of this Supplement to the terms described in any offering memorandum relating to the initial offer and sale of the Class A Certificates, Class M Certificates and Class B Certificates; provided, however, that no such amendment shall be deemed effective without the Trustee's consent, if the Trustee's rights, duties and obligations hereunder are thereby modified. The Servicer shall provide notice to the Rating Agencies of the waiver of any Early Amortization Event with respect to Series 2004-1. SECTION 18. Commercial Law Representations and Warranties of the Seller. The Seller hereby makes the following representations and warranties. Such representations and warranties shall survive until the termination of the Series 2004-1 Supplement. Such representations and warranties speak as of the date that the Collateral (as defined below) is transferred to the Trustee but shall not be waived by any of the parties to this Supplement unless each Rating Agency shall have notified the Seller, the Servicer and the Trustee in writing that such waiver will not result in a reduction or withdrawal of the rating of any outstanding Series or Class to which it is a Rating Agency. (a) The Agreement creates a valid and continuing security interest (as defined in the applicable UCC) in favor of the Trustee in the Receivables described in Section 2.1 of the Agreement (the "Collateral"), which security interest is prior to all other liens, and is enforceable as such against creditors of and purchasers from the Seller. (b) The Collateral constitutes an "account" or a "general intangible" within the meaning of the applicable UCC. 73 (c) At the time of its transfer of the Collateral pursuant to the Agreement, the Seller owned and had good and marketable title to the Collateral free and clear of any lien, claim or encumbrance of any Person. (d) The Seller has caused or will have caused, within ten (10) days of the initial execution of this Supplement, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Collateral granted to the Trustee pursuant to the Agreement. (e) Other than the security interest granted to the Trustee pursuant to the Agreement, the Seller has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed the Collateral. The Seller has not authorized the filing of and is not aware of any financing statements against the Seller that include a description of the Collateral other than any financing statement relating to the security interest granted to the Trustee pursuant to the Agreement or that has been terminated. The Seller is not aware of any judgment or tax lien filings against the Seller. SECTION 19. Governing Law. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK 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. 74 IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have caused this Series 2004-1 Supplement to be duly executed by their respective officers as of the day and year first above written. CHARMING SHOPPES RECEIVABLES CORP., Seller By: ----------------------------------- Name: Title: SPIRIT OF AMERICA, INC. Servicer By: ---------------------------------- Name: Title: WACHOVIA BANK, NATIONAL ASSOCIATION, Trustee By: --------------------------------- Name: Title: S-1 EXHIBIT A [REGULATION S TEMPORARY BOOK-ENTRY CERTIFICATE](1) [RESTRICTED BOOK-ENTRY CERTIFICATE](2) FORM OF CLASS A CERTIFICATE THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION. THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT (A)(1) TO A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (A "QUALIFIED INSTITUTIONAL BUYER") THAT IS EITHER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, IN A PRINCIPAL AMOUNT OF NOT LESS THAN $1,000,000, FOR THE PURCHASER AND FOR EACH SUCH ACCOUNT, IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS CERTIFICATE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS SPECIFIED IN THE SERIES 2004-1 SUPPLEMENT, (2) TO A NON U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT IN A PRINCIPAL AMOUNT OF NOT LESS THAN $1,000,000, SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS SPECIFIED IN THE SERIES 2004-1 SUPPLEMENT OR (3) TO THE SELLER AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE JURISDICTION. EACH PURCHASER OF A BENEFICIAL INTEREST IN THIS CERTIFICATE WILL BE DEEMED TO HAVE MADE, AND EACH PURCHASER OF A DEFINITIVE CERTIFICATE WILL MAKE, THE REPRESENTATIONS AND AGREEMENTS SET FORTH IN SECTION 16 OF SERIES 2004-1 SUPPLEMENT (AS DEFINED HEREIN). ANY TRANSFER IN VIOLATION OF THE FOREGOING WILL BE OF NO FORCE AND EFFECT, WILL BE VOID AB INITIO, AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE TRUST, THE TRUSTEE OR ANY INTERMEDIARY. IF AT ANY TIME THE TRUST DETERMINES OR IS NOTIFIED THAT THE HOLDER OF SUCH BENEFICIAL INTEREST IN SUCH CERTIFICATE OR DEFINITIVE CERTIFICATE, AS APPLICABLE, WAS IN BREACH, AT THE TIME GIVEN, OF ANY OF THE REPRESENTATIONS SET FORTH IN THE SERIES 2004-1 SUPPLEMENT, THE TRUSTEE MAY CONSIDER THE ACQUISITION OF THIS - ------------------- (1) Insert for Regulation S Certificates only. (2) Insert for Restricted Book-Entry Certificates only. A-1 CERTIFICATE OR SUCH INTEREST IN SUCH CERTIFICATE VOID AND REQUIRE THAT THIS CERTIFICATE OR SUCH INTEREST HEREIN BE TRANSFERRED TO A PERSON DESIGNATED BY THE TRUST. EACH HOLDER OF THIS CERTIFICATE (OR ANY INTEREST HEREIN) SHALL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT EITHER (I) IT IS NOT (A) AN "EMPLOYEE BENEFIT PLAN" AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), WHETHER OR NOT SUBJECT TO ERISA, (B) A "PLAN" AS DEFINED IN SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR (C) AN ENTITY DEEMED TO HOLD PLAN ASSETS OF ANY OF THE FOREGOING (EACH, A "BENEFIT PLAN INVESTOR"), OR (II) IT IS AN INSURANCE COMPANY ACQUIRING THE CERTIFICATE WITH ASSETS OF ITS GENERAL ACCOUNT, AND AT THE TIME OF ACQUISITION AND THROUGHOUT THE PERIOD OF HOLDING, (A) IT COMPLIES WITH AND IS ELIGIBLE FOR EXEMPTIVE RELIEF UNDER PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, (B) LESS THAN 25% OF THE ASSETS OF THAT GENERAL ACCOUNT ARE BENEFIT PLAN INVESTOR ASSETS, AND (C) IT IS NOT A SERVICER TO THE TRUST OR AN AFFILIATE OF ANY SERVICER TO THE TRUST, AND WOULD NOT OTHERWISE BE DISREGARDED UNDER 29 C.F.R. SECTION 2510.3-101. [THIS CERTIFICATE IS A TEMPORARY GLOBAL SECURITY FOR PURPOSES OF REGULATION S UNDER THE SECURITIES ACT. NEITHER THIS TEMPORARY GLOBAL SECURITY NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD OR DELIVERED, EXCEPT AS PERMITTED UNDER THE SERIES 2004-1 SUPPLEMENT. NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL SECURITY SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE SERIES 2004-1 SUPPLEMENT.](3) [EACH PURCHASER OF THIS CERTIFICATE WILL BE DEEMED TO HAVE MADE THE APPLICABLE REPRESENTATIONS AND AGREEMENTS SET FORTH IN SECTION 16(c) OF THE SERIES 2004-1 SUPPLEMENT. ANY BENEFICIAL INTEREST HEREIN MAY BE TRANSFERRED TO A PERSON WHO TAKES DELIVERY IN THE FORM OF AN INTEREST IN A REGULATION S BOOK-ENTRY CERTIFICATE ONLY UPON RECEIPT BY THE CERTIFICATE REGISTRAR OF (A) A TRANSFER CERTIFICATE FROM THE TRANSFEROR SUBSTANTIALLY IN THE FORM SPECIFIED IN THE SERIES 2004-1 SUPPLEMENT AND (B) A WRITTEN ORDER GIVEN IN ACCORDANCE WITH THE APPLICABLE PROCEDURES UTILIZED OR IMPOSED FROM TIME TO - ------------------- (3) Insert for Regulation S Certificates only. A-2 TIME BY DTC, THE EUROCLEAR SYSTEM AND/OR CLEARSTREAM BANKING (IN THE CASE OF A REGULATION S BOOK-ENTRY CERTIFICATE).](4) THIS CERTIFICATE (OR AN INTEREST HEREIN) MAY NOT BE TRANSFERRED UNLESS, AFTER GIVING EFFECT TO THE TRANSFER, THE TRANSFEREE IS HOLDING A PRINCIPAL AMOUNT WHICH IS EQUAL TO U.S.$1,000,000 OR INTEGRAL MULTIPLES OF $100,000 IN EXCESS THEREOF. THE PURCHASER OF THIS CERTIFICATE OR ANY BENEFICIAL INTEREST HEREIN WILL BE DEEMED TO UNDERSTAND AND AGREE THAT IF ANY PURPORTED TRANSFER OF THIS CERTIFICATE OR ANY BENEFICIAL INTEREST HEREIN TO A PURCHASER DOES NOT COMPLY WITH THE REQUIREMENTS SET FORTH IN THIS CERTIFICATE OR THE SERIES 2004-1 SUPPLEMENT, THEN THE PURPORTED TRANSFEROR OF THIS CERTIFICATE OR BENEFICIAL INTEREST HEREIN SHALL BE REQUIRED TO CAUSE THE PURPORTED TRANSFEREE TO SURRENDER THE TRANSFERRED CERTIFICATE OR ANY BENEFICIAL INTEREST THEREIN IN RETURN FOR A REFUND OF THE CONSIDERATION PAID THEREFOR BY SUCH TRANSFEREE (TOGETHER WITH INTEREST THEREON) OR TO CAUSE THE PURPORTED TRANSFEREE TO DISPOSE OF SUCH CERTIFICATE OR BENEFICIAL INTEREST PROMPTLY IN ONE OR MORE OPEN MARKET SALES TO ONE OR MORE PERSONS EACH OF WHOM SATISFIES THE REQUIREMENTS OF THE REPRESENTATIONS, WARRANTIES AND COVENANTS SET FORTH IN SECTION 16 OF THE SERIES 2004-1 SUPPLEMENT, AND SUCH PURPORTED TRANSFEROR SHALL TAKE, AND SHALL CAUSE SUCH TRANSFEREE TO TAKE, ALL FURTHER ACTION NECESSARY OR DESIRABLE, IN THE JUDGMENT OF THE ISSUER, TO ENSURE THAT SUCH CERTIFICATE OR ANY BENEFICIAL INTEREST THEREIN IS HELD BY PERSONS IN COMPLIANCE THEREWITH. ANY TRANSFER IN VIOLATION OF THE FOREGOING PROVISIONS OF THIS CERTIFICATE OR THE SERIES 2004-1 SUPPLEMENT WILL BE OF NO FORCE AND EFFECT, WILL BE VOID AB INITIO, AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE TRUST, THE TRUSTEE OR ANY INTERMEDIARY. Unless this Certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Charming Shoppes Receivables Corp. or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. - ------------------- (4) Insert for Restricted Book-Entry Certificates only. A-3 No.__ Up to $__________ CUSIP No. [ISIN No. _] CHARMING SHOPPES MASTER TRUST FLOATING RATE ASSET BACKED CERTIFICATE, SERIES 2004-1, CLASS A Evidencing an Undivided Interest in a trust, the corpus of which consists of a portfolio of credit card receivables acquired by Charming Shoppes Receivables Corp. and other assets and interests constituting the Trust under the Pooling and Servicing Agreement described below. (Not an interest in or obligation of, Charming Shoppes Receivables Corp., Spirit of America National Bank, Spirit of America, Inc. Charming Shoppes, Inc. or any Affiliate thereof.) This certifies that CEDE & CO. (the "Class A Certificateholder") is the registered owner of the Undivided Interest in a trust (the "Trust"), the corpus of which consists of a portfolio of receivables (the "Receivables") now existing or hereafter created under credit card accounts (the "Accounts") of Spirit of America National Bank, a national banking association organized under the laws of the United States, all monies due or to become due in payment of the Receivables (including all Finance Charge Receivables), the benefits of the subordination of the Class M Certificates, the Class B Certificates, the Class C Certificates and Class D Certificates and the other assets and interests constituting the Trust pursuant to a Second Amended and Restated Pooling and Servicing Agreement dated as of November 25, 1997, as amended on July 22, 1999, May 8, 2001 and August 5, 2004 and as supplemented by the Series 2004-1 Supplement dated as of August 5, 2004 (as amended, the "Series 2004-1 Supplement") (as further amended or otherwise modified from time to time, the "Pooling and Servicing Agreement"), by and among Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association (formerly known as First Union National Bank), as Trustee (the "Trustee"). The aggregate principal amount of all outstanding Class A Certificates shall be as indicated in the books and records of the Trustee and shall not exceed one hundred fifteen million two hundred thousand Dollars (U.S. $115,200,000). To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. The Series 2004-1 Certificates are issued in five classes: (i) the Class A Certificates (of which this certificate is one); (ii) the Class M Certificates, which are subordinated to the Class A Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (iii) the Class B Certificates, which are subordinated to the Class A Certificates and the Class M Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (iv) the Class C Certificates, which are subordinated to the Class A Certificates, the Class M Certificates and the Class B Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (v) A-4 the Class D Certificates, comprised of the Class D-1 Certificates and Class D-2 Certificates, which are subordinated to the Class A Certificates, the Class M Certificates, the Class B Certificates and the Class C Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement. The Seller has structured the Pooling and Servicing Agreement and the Class A Certificates with the intention that the Class A Certificates will qualify under applicable tax law as indebtedness, and the Seller, the Holder of the Exchangeable Seller Certificate, the Servicer and each Class A Certificateholder (or Certificate Owner with respect to a Class A Certificate (a "Class A Certificate Owner")) by acceptance of its Class A Certificate (or in the case of a Class A Certificate Owner, by virtue of such Class A Certificate Owner's acquisition of a beneficial interest therein), agrees to treat and to take no action inconsistent with the treatment of the Class A Certificates (or beneficial interest therein) for purposes of federal, state, local and foreign income or franchise taxes and any other tax imposed on or measured by income, as indebtedness. Each Class A Certificateholder agrees that it will cause any Class A Certificate Owner acquiring an interest in a Class A Certificate through it to comply with the Pooling and Servicing Agreement as to treatment as indebtedness for certain tax purposes. This Class A Certificate is issued under and is subject to the terms, provisions and conditions of the Pooling and Servicing Agreement, to which Pooling and Servicing Agreement, as amended from time to time, the Class A Certificateholder by virtue of the acceptance hereof assents and by which the Class A Certificateholder is bound. The Receivables consist of Principal Receivables which arise from the purchase of goods and services and of Finance Charge Receivables which arise generally from periodic rate finance charges and other fees and charges, as more fully specified in the Pooling and Servicing Agreement. The Trust corpus consists of the Receivables now existing in the Accounts or hereafter created in the Accounts, all monies due or to become due with respect thereto (including all Finance Charge Receivables), all proceeds of the Receivables and Recoveries and Insurance Proceeds relating thereto, and such funds as from time to time are deposited in the Collection Account. This Class A Certificate is one of a series of Certificates entitled Charming Shoppes Master Trust, Asset Backed Certificates, Series 2004-1, Class A (the "Class A Certificates") each of which represents an Undivided Interest in the Trust, including the right to receive the Collections and other amounts at the times and in the amounts specified in the Pooling and Servicing Agreement to be deposited in the Collection Account or paid to the Class A Certificateholders. The aggregate interest represented by the Class A Certificates at any time in the Principal Receivables in the Trust shall not exceed an amount equal to the Class A Investor Interest at such time. In addition to the Series 2004-1 Certificates, an Exchangeable Seller Certificate will be reissued to the Seller pursuant to the Pooling and Servicing Agreement, which will represent an undivided interest in the Trust. The Exchangeable Seller Certificate will represent the interest in the Principal Receivables not represented by all of the Series of Investor Certificates issued by the Trust or Series of Receivables Purchase Interests sold by the Trust. The Exchangeable Seller Certificate may be exchanged by the Seller pursuant to the Pooling and Servicing Agreement for a newly issued Series of Investor Certificates and a reissued Exchangeable Seller Certificate upon the conditions set forth in the Pooling and Servicing Agreement. A-5 This Class A Certificate does not represent an obligation of, or an interest in, the Seller, the Originator or the Servicer, and neither the Class A Certificates nor the Accounts or Receivables are insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. This Class A Certificate is limited in right of payment to certain collections respecting the Receivables, all as more specifically set forth in the Pooling and Servicing Agreement. The transfer of this Class A Certificate shall be registered in the Certificate Register upon surrender of this Class A Certificate for registration of transfer at any office or agency maintained by the Transfer Agent and Registrar accompanied by a written instrument of transfer in a form satisfactory to the Trustee and the Transfer Agent and Registrar duly executed by the Class A Certificateholder or such Class A Certificateholder's attorney-in-fact duly authorized in writing, and thereupon one or more new Class A Certificates of authorized denominations and for the same aggregate Undivided Interests will be issued to the designated transferee or transferees. As provided in the Pooling and Servicing Agreement and subject to certain limitations therein set forth, Class A Certificates are exchangeable for new Class A Certificates evidencing like aggregate Undivided Interests, as requested by the Class A Certificateholder surrendering such Class A Certificates. No service charge may be imposed for any such exchange but the Servicer or Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. The Servicer, the Trustee, the Paying Agent and the Transfer Agent and Registrar, and any agent of any of them, may treat the person in whose name this Class A Certificate is registered as the owner hereof for all purposes, and neither the Servicer, the Trustee, the Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them or of any such agent shall be affected by notice to the contrary except in certain circumstances described in the Pooling and Servicing Agreement. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Class A Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement, or be valid for any purpose. A-6 IN WITNESS WHEREOF, Charming Shoppes Receivables Corp. has caused this Class A Certificate to be duly executed under its official seal. CHARMING SHOPPES RECEIVABLES CORP. By: -------------------------------- Authorized Officer Attested to: By: ----------------------------------------- Assistant Secretary Date: [____], [_________] CERTIFICATE OF AUTHENTICATION This is one of the Class A Certificates referred to in the within-mentioned Pooling and Servicing Agreement. WACHOVIA BANK, NATIONAL ASSOCIATION, Trustee By: ------------------------------- Authorized Officer A-7 EXHIBIT M [REGULATION S TEMPORARY BOOK-ENTRY CERTIFICATE](5) [RESTRICTED BOOK-ENTRY CERTIFICATE](6) FORM OF CLASS M CERTIFICATE THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION. THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT (A)(1) TO A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (A "QUALIFIED INSTITUTIONAL BUYER") THAT IS EITHER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, IN A PRINCIPAL AMOUNT OF NOT LESS THAN $1,000,000, FOR THE PURCHASER AND FOR EACH SUCH ACCOUNT, IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS CERTIFICATE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS SPECIFIED IN THE SERIES 2004-1 SUPPLEMENT, (2) TO A NON U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT IN A PRINCIPAL AMOUNT OF NOT LESS THAN $1,000,000, SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS SPECIFIED IN THE SERIES 2004-1 SUPPLEMENT OR (3) TO THE SELLER AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE JURISDICTION. EACH PURCHASER OF A BENEFICIAL INTEREST IN THIS CERTIFICATE WILL BE DEEMED TO HAVE MADE, AND EACH PURCHASER OF A DEFINITIVE CERTIFICATE WILL MAKE, THE REPRESENTATIONS AND AGREEMENTS SET FORTH IN SECTION 16 OF SERIES 2004-1 SUPPLEMENT (AS DEFINED HEREIN). ANY TRANSFER IN VIOLATION OF THE FOREGOING WILL BE OF NO FORCE AND EFFECT, WILL BE VOID AB INITIO, AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE TRUST, THE TRUSTEE OR ANY INTERMEDIARY. IF AT ANY TIME THE TRUST DETERMINES OR IS NOTIFIED THAT THE HOLDER OF SUCH BENEFICIAL INTEREST IN SUCH CERTIFICATE OR DEFINITIVE CERTIFICATE, AS APPLICABLE, WAS IN BREACH, AT THE TIME GIVEN, OF ANY OF THE REPRESENTATIONS SET FORTH IN THE SERIES 2004-1 SUPPLEMENT, THE TRUSTEE MAY CONSIDER THE ACQUISITION OF THIS - ------------------- (5) Insert for Regulation S Certificates only. (6) Insert for Restricted Book-Entry Certificates only. M-1 CERTIFICATE OR SUCH INTEREST IN SUCH CERTIFICATE VOID AND REQUIRE THAT THIS CERTIFICATE OR SUCH INTEREST HEREIN BE TRANSFERRED TO A PERSON DESIGNATED BY THE TRUST. EACH HOLDER OF THIS CERTIFICATE (OR ANY INTEREST HEREIN) SHALL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT EITHER (I) IT IS NOT (A) AN "EMPLOYEE BENEFIT PLAN" AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), WHETHER OR NOT SUBJECT TO ERISA, (B) A "PLAN" AS DEFINED IN SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR (C) AN ENTITY DEEMED TO HOLD PLAN ASSETS OF ANY OF THE FOREGOING (EACH, A "BENEFIT PLAN INVESTOR"), OR (II) IT IS AN INSURANCE COMPANY ACQUIRING THE CERTIFICATE WITH ASSETS OF ITS GENERAL ACCOUNT, AND AT THE TIME OF ACQUISITION AND THROUGHOUT THE PERIOD OF HOLDING, (A) IT COMPLIES WITH AND IS ELIGIBLE FOR EXEMPTIVE RELIEF UNDER PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, (B) LESS THAN 25% OF THE ASSETS OF THAT GENERAL ACCOUNT ARE BENEFIT PLAN INVESTOR ASSETS, AND (C) IT IS NOT A SERVICER TO THE TRUST OR AN AFFILIATE OF ANY SERVICER TO THE TRUST, AND WOULD NOT OTHERWISE BE DISREGARDED UNDER 29 C.F.R. SECTION 2510.3-101. [THIS CERTIFICATE IS A TEMPORARY GLOBAL SECURITY FOR PURPOSES OF REGULATION S UNDER THE SECURITIES ACT. NEITHER THIS TEMPORARY GLOBAL SECURITY NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD OR DELIVERED, EXCEPT AS PERMITTED UNDER THE SERIES 2004-1 SUPPLEMENT. NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL SECURITY SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE SERIES 2004-1 SUPPLEMENT.](7) [EACH PURCHASER OF THIS CERTIFICATE WILL BE DEEMED TO HAVE MADE THE APPLICABLE REPRESENTATIONS AND AGREEMENTS SET FORTH IN SECTION 16(c) OF THE SERIES 2004-1 SUPPLEMENT. ANY BENEFICIAL INTEREST HEREIN MAY BE TRANSFERRED TO A PERSON WHO TAKES DELIVERY IN THE FORM OF AN INTEREST IN A REGULATION S BOOK-ENTRY CERTIFICATE ONLY UPON RECEIPT BY THE CERTIFICATE REGISTRAR OF (A) A TRANSFER CERTIFICATE FROM THE TRANSFEROR SUBSTANTIALLY IN THE FORM SPECIFIED IN THE SERIES 2004-1 SUPPLEMENT AND (B) A WRITTEN ORDER GIVEN IN ACCORDANCE WITH THE APPLICABLE PROCEDURES UTILIZED OR IMPOSED FROM TIME TO - ------------------- (7) Insert for Regulation S Certificates only. M-2 TIME BY DTC, THE EUROCLEAR SYSTEM AND/OR CLEARSTREAM BANKING (IN THE CASE OF A REGULATION S BOOK-ENTRY CERTIFICATE).](8) THIS CERTIFICATE (OR AN INTEREST HEREIN) MAY NOT BE TRANSFERRED UNLESS, AFTER GIVING EFFECT TO THE TRANSFER, THE TRANSFEREE IS HOLDING A PRINCIPAL AMOUNT WHICH IS EQUAL TO U.S.$1,000,000 OR INTEGRAL MULTIPLES OF $100,000 IN EXCESS THEREOF. THE PURCHASER OF THIS CERTIFICATE OR ANY BENEFICIAL INTEREST HEREIN WILL BE DEEMED TO UNDERSTAND AND AGREE THAT IF ANY PURPORTED TRANSFER OF THIS CERTIFICATE OR ANY BENEFICIAL INTEREST HEREIN TO A PURCHASER DOES NOT COMPLY WITH THE REQUIREMENTS SET FORTH IN THIS CERTIFICATE OR THE SERIES 2004-1 SUPPLEMENT, THEN THE PURPORTED TRANSFEROR OF THIS CERTIFICATE OR BENEFICIAL INTEREST HEREIN SHALL BE REQUIRED TO CAUSE THE PURPORTED TRANSFEREE TO SURRENDER THE TRANSFERRED CERTIFICATE OR ANY BENEFICIAL INTEREST THEREIN IN RETURN FOR A REFUND OF THE CONSIDERATION PAID THEREFOR BY SUCH TRANSFEREE (TOGETHER WITH INTEREST THEREON) OR TO CAUSE THE PURPORTED TRANSFEREE TO DISPOSE OF SUCH CERTIFICATE OR BENEFICIAL INTEREST PROMPTLY IN ONE OR MORE OPEN MARKET SALES TO ONE OR MORE PERSONS EACH OF WHOM SATISFIES THE REQUIREMENTS OF THE REPRESENTATIONS, WARRANTIES AND COVENANTS SET FORTH IN SECTION 16 OF THE SERIES 2004-1 SUPPLEMENT, AND SUCH PURPORTED TRANSFEROR SHALL TAKE, AND SHALL CAUSE SUCH TRANSFEREE TO TAKE, ALL FURTHER ACTION NECESSARY OR DESIRABLE, IN THE JUDGMENT OF THE ISSUER, TO ENSURE THAT SUCH CERTIFICATE OR ANY BENEFICIAL INTEREST THEREIN IS HELD BY PERSONS IN COMPLIANCE THEREWITH. ANY TRANSFER IN VIOLATION OF THE FOREGOING PROVISIONS OF THIS CERTIFICATE OR THE SERIES 2004-1 SUPPLEMENT WILL BE OF NO FORCE AND EFFECT, WILL BE VOID AB INITIO, AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE TRUST, THE TRUSTEE OR ANY INTERMEDIARY. Unless this Certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Charming Shoppes Receivables Corp. or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. - ------------------- (8) Insert for Restricted Book-Entry Certificates only. M-3 No. __ Up to $__________ CUSIP No. [ISIN No. _] CHARMING SHOPPES MASTER TRUST FLOATING RATE ASSET BACKED CERTIFICATE, SERIES 2004-1, CLASS M Evidencing an Undivided Interest in a trust, the corpus of which consists of a portfolio of credit card receivables acquired by Charming Shoppes Receivables Corp. and other assets and interests constituting the Trust under the Pooling and Servicing Agreement described below. (Not an interest in or obligation of, Charming Shoppes Receivables Corp., Spirit of America National Bank, Spirit of America, Inc. Charming Shoppes, Inc. or any Affiliate thereof.) This certifies that CEDE & CO. (the "Class M Certificateholder") is the registered owner of the Undivided Interest in a trust (the "Trust"), the corpus of which consists of a portfolio of receivables (the "Receivables") now existing or hereafter created under credit card accounts (the "Accounts") of Spirit of America National Bank, a national banking association organized under the laws of the United States, all monies due or to become due in payment of the Receivables (including all Finance Charge Receivables), the benefits of the subordination of the Class B Certificates, the Class C Certificates and Class D Certificates and the other assets and interests constituting the Trust pursuant to a Second Amended and Restated Pooling and Servicing Agreement dated as of November 25, 1997, as amended on July 22, 1999, May 8, 2001 and August 5, 2004 and as supplemented by the Series 2004-1 Supplement dated as of August 5, 2004 (as amended, the "Series 2004-1 Supplement") (as further amended or otherwise modified from time to time, the "Pooling and Servicing Agreement"), by and among Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association (formerly known as First Union National Bank), as Trustee (the "Trustee"). The aggregate principal amount of all outstanding Class M Certificates shall be as indicated in the books and records of the Trustee and shall not exceed ten million eight hundred thousand Dollars (U.S. $10,800,000). To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. The Series 2004-1 Certificates are issued in five classes: (i) the Class A Certificates; (ii) the Class M Certificates (of which this certificate is one), which are subordinated to the Class A Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (iii) the Class B Certificates, which are subordinated to the Class A Certificates and the Class M Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (iv) the Class C Certificates, which are subordinated to the Class A Certificates, the Class M Certificates and the Class B Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (v) the Class D Certificates, comprised of the Class D-1 Certificates and Class D-2 Certificates, M-4 which are subordinated to the Class A Certificates, the Class M Certificates, the Class B Certificates and the Class C Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement. The Seller has structured the Pooling and Servicing Agreement and the Class M Certificates with the intention that the Class M Certificates will qualify under applicable tax law as indebtedness, and the Seller, the Holder of the Exchangeable Seller Certificate, the Servicer and each Class M Certificateholder (or Certificate Owner with respect to a Class M Certificate (a "Class M Certificate Owner")) by acceptance of its Class M Certificate (or in the case of a Class M Certificate Owner, by virtue of such Class M Certificate Owner's acquisition of a beneficial interest therein), agrees to treat and to take no action inconsistent with the treatment of the Class M Certificates (or beneficial interest therein) for purposes of federal, state, local and foreign income or franchise taxes and any other tax imposed on or measured by income, as indebtedness. Each Class M Certificateholder agrees that it will cause any Class M Certificate Owner acquiring an interest in a Class M Certificate through it to comply with the Pooling and Servicing Agreement as to treatment as indebtedness for certain tax purposes. This Class M Certificate is issued under and is subject to the terms, provisions and conditions of the Pooling and Servicing Agreement, to which Pooling and Servicing Agreement, as amended from time to time, the Class M Certificateholder by virtue of the acceptance hereof assents and by which the Class M Certificateholder is bound. The Receivables consist of Principal Receivables which arise from the purchase of goods and services and of Finance Charge Receivables which arise generally from periodic rate finance charges and other fees and charges, as more fully specified in the Pooling and Servicing Agreement. The Trust corpus consists of the Receivables now existing in the Accounts or hereafter created in the Accounts, all monies due or to become due with respect thereto (including all Finance Charge Receivables), all proceeds of the Receivables and Recoveries and Insurance Proceeds relating thereto, and such funds as from time to time are deposited in the Collection Account. This Certificate is one of a Series of Certificates entitled Charming Shoppes Master Trust, Floating Rate Asset Backed Certificates, Series 2004-1 Class M Certificates (the "Class M Certificates"), each of which represents an Undivided Interest in the Trust, including the right to receive the Collections and other amounts at the times and in the amounts specified in the Pooling and Servicing Agreement to be deposited in the Collection Account or paid to the Class M Certificateholders. The aggregate interest represented by the Class M Certificates at any time in the Principal Receivables in the Trust shall not exceed an amount equal to the Class M Investor Interest at such time. In addition to the Series 2004-1 Certificates, an Exchangeable Seller Certificate will be reissued to the Seller pursuant to the Pooling and Servicing Agreement, which will represent an undivided interest in the Trust. The Exchangeable Seller Certificate will represent the interest in the Principal Receivables not represented by all of the Series of Investor Certificates issued by the Trust or Series of Receivables Purchase Interests sold by the Trust. The Exchangeable Seller Certificate may be exchanged by the Seller pursuant to the Pooling and Servicing Agreement for a newly issued Series of Investor Certificates and a reissued Exchangeable Seller Certificate upon the conditions set forth in the Pooling and Servicing Agreement. M-5 This Class M Certificate does not represent an obligation of, or an interest in, the Seller, the Originator or the Servicer, and neither the Class M Certificates nor the Accounts or Receivables are insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. This Class M Certificate is limited in right of payment to certain collections respecting the Receivables, all as more specifically set forth in the Pooling and Servicing Agreement. The transfer of this Class M Certificate shall be registered in the Certificate Register upon surrender of this Class M Certificate for registration of transfer at any office or agency maintained by the Transfer Agent and Registrar accompanied by a written instrument of transfer in a form satisfactory to the Trustee and the Transfer Agent and Registrar duly executed by the Class M Certificateholder or such Class M Certificateholder's attorney-in-fact duly authorized in writing, and thereupon one or more new Class M Certificates of authorized denominations and for the same aggregate Undivided Interests will be issued to the designated transferee or transferees. As provided in the Pooling and Servicing Agreement and subject to certain limitations therein set forth, Class M Certificates are exchangeable for new Class M Certificates evidencing like aggregate Undivided Interests, as requested by the Class M Certificateholder surrendering such Class M Certificates. No service charge may be imposed for any such exchange but the Servicer or Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. The Servicer, the Trustee, the Paying Agent and the Transfer Agent and Registrar, and any agent of any of them, may treat the person in whose name this Class M Certificate is registered as the owner hereof for all purposes, and neither the Servicer, the Trustee, the Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them or of any such agent shall be affected by notice to the contrary except in certain circumstances described in the Pooling and Servicing Agreement. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Class M Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement, or be valid for any purpose. M-6 IN WITNESS WHEREOF, Charming Shoppes Receivables Corp. has caused this Class M Certificate to be duly executed under its official seal. CHARMING SHOPPES RECEIVABLES CORP. By: ------------------------------------ Authorized Officer Attested to: By: ----------------------------------------- Assistant Secretary Date: _______ __, 200[__] CERTIFICATE OF AUTHENTICATION This is one of the Class M Certificates referred to in the within-mentioned Pooling and Servicing Agreement. WACHOVIA BANK, NATIONAL ASSOCIATION, Trustee By: --------------------------------- Authorized Officer M-7 EXHIBIT B [REGULATION S TEMPORARY BOOK-ENTRY CERTIFICATE](9) [RESTRICTED BOOK-ENTRY CERTIFICATE](10) FORM OF CLASS B CERTIFICATE THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION. THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT (A)(1) TO A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (A "QUALIFIED INSTITUTIONAL BUYER") THAT IS EITHER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, IN A PRINCIPAL AMOUNT OF NOT LESS THAN $1,000,000, FOR THE PURCHASER AND FOR EACH SUCH ACCOUNT, IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS CERTIFICATE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS SPECIFIED IN THE SERIES 2004-1 SUPPLEMENT, (2) TO A NON U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT IN A PRINCIPAL AMOUNT OF NOT LESS THAN $1,000,000, SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS SPECIFIED IN THE SERIES 2004-1 SUPPLEMENT OR (3) TO THE SELLER AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE JURISDICTION. EACH PURCHASER OF A BENEFICIAL INTEREST IN THIS CERTIFICATE WILL BE DEEMED TO HAVE MADE, AND EACH PURCHASER OF A DEFINITIVE CERTIFICATE WILL MAKE, THE REPRESENTATIONS AND AGREEMENTS SET FORTH IN SECTION 16 OF SERIES 2004-1 SUPPLEMENT (AS DEFINED HEREIN). ANY TRANSFER IN VIOLATION OF THE FOREGOING WILL BE OF NO FORCE AND EFFECT, WILL BE VOID AB INITIO, AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE TRUST, THE TRUSTEE OR ANY INTERMEDIARY. IF AT ANY TIME THE TRUST DETERMINES OR IS NOTIFIED THAT THE HOLDER OF SUCH BENEFICIAL INTEREST IN SUCH CERTIFICATE OR DEFINITIVE CERTIFICATE, AS APPLICABLE, WAS IN BREACH, AT THE TIME GIVEN, OF ANY OF THE REPRESENTATIONS SET FORTH IN THE SERIES 2004-1 - ------------------- (9) Insert for Regulation S Certificates only. (10) Insert for Restricted Book-Entry Certificates only. B-1 SUPPLEMENT, THE TRUSTEE MAY CONSIDER THE ACQUISITION OF THIS CERTIFICATE OR SUCH INTEREST IN SUCH CERTIFICATE VOID AND REQUIRE THAT THIS CERTIFICATE OR SUCH INTEREST HEREIN BE TRANSFERRED TO A PERSON DESIGNATED BY THE TRUST. EACH HOLDER OF THIS CERTIFICATE (OR ANY INTEREST HEREIN) SHALL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT EITHER (I) IT IS NOT (A) AN "EMPLOYEE BENEFIT PLAN" AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), WHETHER OR NOT SUBJECT TO ERISA, (B) A "PLAN" AS DEFINED IN SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR (C) AN ENTITY DEEMED TO HOLD PLAN ASSETS OF ANY OF THE FOREGOING (EACH, A "BENEFIT PLAN INVESTOR"), OR (II) IT IS AN INSURANCE COMPANY ACQUIRING THE CERTIFICATE WITH ASSETS OF ITS GENERAL ACCOUNT, AND AT THE TIME OF ACQUISITION AND THROUGHOUT THE PERIOD OF HOLDING, (A) IT COMPLIES WITH AND IS ELIGIBLE FOR EXEMPTIVE RELIEF UNDER PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, (B) LESS THAN 25% OF THE ASSETS OF THAT GENERAL ACCOUNT ARE BENEFIT PLAN INVESTOR ASSETS, AND (C) IT IS NOT A SERVICER TO THE TRUST OR AN AFFILIATE OF ANY SERVICER TO THE TRUST, AND WOULD NOT OTHERWISE BE DISREGARDED UNDER 29 C.F.R. SECTION 2510.3-101. [THIS CERTIFICATE IS A TEMPORARY GLOBAL SECURITY FOR PURPOSES OF REGULATION S UNDER THE SECURITIES ACT. NEITHER THIS TEMPORARY GLOBAL SECURITY NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD OR DELIVERED, EXCEPT AS PERMITTED UNDER THE SERIES 2004-1 SUPPLEMENT. NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL SECURITY SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE SERIES 2004-1 SUPPLEMENT.](11) [EACH PURCHASER OF THIS CERTIFICATE WILL BE DEEMED TO HAVE MADE THE APPLICABLE REPRESENTATIONS AND AGREEMENTS SET FORTH IN SECTION 16(c) OF THE SERIES 2004-1 SUPPLEMENT. ANY BENEFICIAL INTEREST HEREIN MAY BE TRANSFERRED TO A PERSON WHO TAKES DELIVERY IN THE FORM OF AN INTEREST IN A REGULATION S BOOK-ENTRY CERTIFICATE ONLY UPON RECEIPT BY THE CERTIFICATE REGISTRAR OF (A) A TRANSFER CERTIFICATE FROM THE TRANSFEROR SUBSTANTIALLY IN THE FORM SPECIFIED IN THE SERIES 2004-1 SUPPLEMENT AND (B) A WRITTEN ORDER GIVEN IN ACCORDANCE WITH THE APPLICABLE PROCEDURES UTILIZED OR IMPOSED FROM TIME TO - ------------------- (11) Insert for Regulation S Certificates only. B-2 TIME BY DTC, THE EUROCLEAR SYSTEM AND/OR CLEARSTREAM BANKING (IN THE CASE OF A REGULATION S BOOK-ENTRY CERTIFICATE).](12) THIS CERTIFICATE (OR AN INTEREST HEREIN) MAY NOT BE TRANSFERRED UNLESS, AFTER GIVING EFFECT TO THE TRANSFER, THE TRANSFEREE IS HOLDING A PRINCIPAL AMOUNT WHICH IS EQUAL TO U.S.$1,000,000 OR INTEGRAL MULTIPLES OF $100,000 IN EXCESS THEREOF. THE PURCHASER OF THIS CERTIFICATE OR ANY BENEFICIAL INTEREST HEREIN WILL BE DEEMED TO UNDERSTAND AND AGREE THAT IF ANY PURPORTED TRANSFER OF THIS CERTIFICATE OR ANY BENEFICIAL INTEREST HEREIN TO A PURCHASER DOES NOT COMPLY WITH THE REQUIREMENTS SET FORTH IN THIS CERTIFICATE OR THE SERIES 2004-1 SUPPLEMENT, THEN THE PURPORTED TRANSFEROR OF THIS CERTIFICATE OR BENEFICIAL INTEREST HEREIN SHALL BE REQUIRED TO CAUSE THE PURPORTED TRANSFEREE TO SURRENDER THE TRANSFERRED CERTIFICATE OR ANY BENEFICIAL INTEREST THEREIN IN RETURN FOR A REFUND OF THE CONSIDERATION PAID THEREFOR BY SUCH TRANSFEREE (TOGETHER WITH INTEREST THEREON) OR TO CAUSE THE PURPORTED TRANSFEREE TO DISPOSE OF SUCH CERTIFICATE OR BENEFICIAL INTEREST PROMPTLY IN ONE OR MORE OPEN MARKET SALES TO ONE OR MORE PERSONS EACH OF WHOM SATISFIES THE REQUIREMENTS OF THE REPRESENTATIONS, WARRANTIES AND COVENANTS SET FORTH IN SECTION 16 OF THE SERIES 2004-1 SUPPLEMENT, AND SUCH PURPORTED TRANSFEROR SHALL TAKE, AND SHALL CAUSE SUCH TRANSFEREE TO TAKE, ALL FURTHER ACTION NECESSARY OR DESIRABLE, IN THE JUDGMENT OF THE ISSUER, TO ENSURE THAT SUCH CERTIFICATE OR ANY BENEFICIAL INTEREST THEREIN IS HELD BY PERSONS IN COMPLIANCE THEREWITH. ANY TRANSFER IN VIOLATION OF THE FOREGOING PROVISIONS OF THIS CERTIFICATE OR THE SERIES 2004-1 SUPPLEMENT WILL BE OF NO FORCE AND EFFECT, WILL BE VOID AB INITIO, AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE TRUST, THE TRUSTEE OR ANY INTERMEDIARY. Unless this Certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Charming Shoppes Receivables Corp. or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. - ------------------- (12) Insert for Restricted Book-Entry Certificates only. B-3 No. __ Up to $__________ CUSIP No. [ISIN No. _] CHARMING SHOPPES MASTER TRUST FLOATING RATE ASSET BACKED CERTIFICATE, SERIES 2004-1, CLASS B Evidencing an Undivided Interest in a trust, the corpus of which consists of a portfolio of credit card receivables acquired by Charming Shoppes Receivables Corp. and other assets and interests constituting the Trust under the Pooling and Servicing Agreement described below. (Not an interest in or obligation of, Charming Shoppes Receivables Corp., Spirit of America National Bank, Spirit of America, Inc. Charming Shoppes, Inc. or any Affiliate thereof.) This certifies that CEDE & CO. (the "Class B Certificateholder") is the registered owner of the Undivided Interest in a trust (the "Trust"), the corpus of which consists of a portfolio of receivables (the "Receivables") now existing or hereafter created under credit card accounts (the "Accounts") of Spirit of America National Bank, a national banking association organized under the laws of the United States, all monies due or to become due in payment of the Receivables (including all Finance Charge Receivables), the benefits of the subordination of the C Certificates and Class D Certificates and the other assets and interests constituting the Trust pursuant to a Second Amended and Restated Pooling and Servicing Agreement dated as of November 25, 1997, as amended on July 22, 1999, May 8, 2001 and August 5, 2004 and as supplemented by the Series 2004-1 Supplement dated as of August 5, 2004 (as amended, the "Series 2004-1 Supplement") (as further amended or otherwise modified from time to time, the "Pooling and Servicing Agreement"), by and among Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association (formerly known as First Union National Bank), as Trustee (the "Trustee"). The aggregate principal amount of all outstanding Class B Certificates shall be as indicated in the books and records of the Trustee and shall not exceed eighteen million nine hundred thousand Dollars (U.S. $18,900,000). To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. The Series 2004-1 Certificates are issued in five classes: (i) the Class A Certificates; (ii) the Class M Certificates, which are subordinated to the Class A Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (iii) the Class B Certificates (of which this certificate is one), which are subordinated to the Class A Certificates and the Class M Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (iv) the Class C Certificates, which are subordinated to the Class A Certificates, the Class M Certificates and the Class B Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (v) the Class D Certificates, comprised of the Class D-1 Certificates and Class D-2 Certificates, which are B-4 subordinated to the Class A Certificates, the Class M Certificates, the Class B Certificates and the Class C Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement. The Seller has structured the Pooling and Servicing Agreement and the Class B Certificates with the intention that the Class B Certificates will qualify under applicable tax law as indebtedness, and the Seller, the Holder of the Exchangeable Seller Certificate, the Servicer and each Class B Certificateholder (or Certificate Owner with respect to a Class B Certificate (a "Class B Certificate Owner")) by acceptance of its Class B Certificate (or in the case of a Class B Certificate Owner, by virtue of such Class B Certificate Owner's acquisition of a beneficial interest therein), agrees to treat and to take no action inconsistent with the treatment of the Class B Certificates (or beneficial interest therein) for purposes of federal, state, local and foreign income or franchise taxes and any other tax imposed on or measured by income, as indebtedness. Each Class B Certificateholder agrees that it will cause any Class B Certificate Owner acquiring an interest in a Class B Certificate through it to comply with the Pooling and Servicing Agreement as to treatment as indebtedness for certain tax purposes. This Class B Certificate is issued under and is subject to the terms, provisions and conditions of the Pooling and Servicing Agreement, to which Pooling and Servicing Agreement, as amended from time to time, the Class B Certificateholder by virtue of the acceptance hereof assents and by which the Class B Certificateholder is bound. The Receivables consist of Principal Receivables which arise from the purchase of goods and services and of Finance Charge Receivables which arise generally from periodic rate finance charges and other fees and charges, as more fully specified in the Pooling and Servicing Agreement. The Trust corpus consists of the Receivables now existing in the Accounts or hereafter created in the Accounts, all monies due or to become due with respect thereto (including all Finance Charge Receivables), all proceeds of the Receivables and Recoveries and Insurance Proceeds relating thereto, and such funds as from time to time are deposited in the Collection Account. This Certificate is one of a Series of Certificates entitled Charming Shoppes Master Trust, Floating Rate Asset Backed Certificates, Series 2004-1 Class B Certificates (the "Class B Certificates"), each of which represents an Undivided Interest in the Trust, including the right to receive the Collections and other amounts at the times and in the amounts specified in the Pooling and Servicing Agreement to be deposited in the Collection Account or paid to the Class B Certificateholders. The aggregate interest represented by the Class B Certificates at any time in the Principal Receivables in the Trust shall not exceed an amount equal to the Class B Investor Interest at such time. In addition to the Series 2004-1 Certificates, an Exchangeable Seller Certificate will be reissued to the Seller pursuant to the Pooling and Servicing Agreement, which will represent an undivided interest in the Trust. The Exchangeable Seller Certificate will represent the interest in the Principal Receivables not represented by all of the Series of Investor Certificates issued by the Trust or Series of Receivables Purchase Interests sold by the Trust. The Exchangeable Seller Certificate may be exchanged by the Seller pursuant to the Pooling and Servicing Agreement for a newly issued Series of Investor Certificates and a reissued Exchangeable Seller Certificate upon the conditions set forth in the Pooling and Servicing Agreement. B-5 This Class B Certificate does not represent an obligation of, or an interest in, the Seller, the Originator or the Servicer, and neither the Class B Certificates nor the Accounts or Receivables are insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. This Class B Certificate is limited in right of payment to certain collections respecting the Receivables, all as more specifically set forth in the Pooling and Servicing Agreement. The transfer of this Class B Certificate shall be registered in the Certificate Register upon surrender of this Class B Certificate for registration of transfer at any office or agency maintained by the Transfer Agent and Registrar accompanied by a written instrument of transfer in a form satisfactory to the Trustee and the Transfer Agent and Registrar duly executed by the Class B Certificateholder or such Class B Certificateholder's attorney-in-fact duly authorized in writing, and thereupon one or more new Class B Certificates of authorized denominations and for the same aggregate Undivided Interests will be issued to the designated transferee or transferees. As provided in the Pooling and Servicing Agreement and subject to certain limitations therein set forth, Class B Certificates are exchangeable for new Class B Certificates evidencing like aggregate Undivided Interests, as requested by the Class B Certificateholder surrendering such Class B Certificates. No service charge may be imposed for any such exchange but the Servicer or Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. The Servicer, the Trustee, the Paying Agent and the Transfer Agent and Registrar, and any agent of any of them, may treat the person in whose name this Class B Certificate is registered as the owner hereof for all purposes, and neither the Servicer, the Trustee, the Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them or of any such agent shall be affected by notice to the contrary except in certain circumstances described in the Pooling and Servicing Agreement. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Class B Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement, or be valid for any purpose. B-6 IN WITNESS WHEREOF, Charming Shoppes Receivables Corp. has caused this Class B Certificate to be duly executed under its official seal. CHARMING SHOPPES RECEIVABLES CORP. By: -------------------------------- Authorized Officer Attested to: By: ----------------------------------------- Assistant Secretary Date: _______ __, 200[__] CERTIFICATE OF AUTHENTICATION This is one of the Class B Certificates referred to in the within-mentioned Pooling and Servicing Agreement. WACHOVIA BANK, NATIONAL ASSOCIATION, Trustee By: --------------------------------- Authorized Officer B-7 EXHIBIT C FORM OF CLASS C CERTIFICATE NO. R-1 $[16,200,000]- CHARMING SHOPPES MASTER TRUST ASSET BACKED CERTIFICATE, SERIES 2004-1, CLASS C CERTIFICATE THIS CERTIFICATE WAS ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY BE SOLD ONLY PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE ACT OR AN EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE ACT. IN ADDITION, THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. A COPY OF THE POOLING AND SERVICING AGREEMENT WILL BE FURNISHED TO THE HOLDER OF THIS CERTIFICATE BY THE TRUSTEE UPON WRITTEN REQUEST. THIS CERTIFICATE, OR AN INTEREST HEREIN, MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF ANY EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), WHETHER OR NOT SUBJECT TO ERISA, OR A PLAN THAT IS DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, INCLUDING AN INDIVIDUAL RETIREMENT ACCOUNT (EACH, A "BENEFIT PLAN"), OR BY OR FOR THE ACCOUNT OF ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE ANY BENEFIT PLAN ASSETS BY REASON OF A BENEFIT PLAN'S INVESTMENT IN SUCH ENTITY. BY ACQUIRING THIS CERTIFICATE OR AN INTEREST HEREIN, THE PURCHASER OR TRANSFEREE THEREOF WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT EITHER (I) IT IS NOT A BENEFIT PLAN, AND THAT ITS ACQUISITION OF THIS CERTIFICATE OR AN INTEREST HEREIN IS IN COMPLIANCE WITH THE FOREGOING RESTRICTIONS ON BENEFIT PLAN ASSETS OR (II) IT IS AN INSURANCE COMPANY PURCHASING THIS CERTIFICATE OR INTEREST HEREIN WITH ASSETS OF ITS GENERAL ACCOUNT, AND AT THE TIME OF ACQUISITION AND THROUGHOUT THE PERIOD OF HOLDING, (A) IT MEETS ALL OF THE REQUIREMENTS OF AND IS ELIGIBLE FOR EXEMPTIVE RELIEF UNDER PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, (B) LESS THAN 25% OF THE ASSETS OF SUCH ACCOUNT ARE BENEFIT PLAN ASSETS AND (C) IT IS NOT A SERVICER TO THE TRUST OR AN AFFILIATE OF SUCH SERVICER, AND WOULD NOT OTHERWISE BE EXCLUDED UNDER 29 CFR 2510.3-101(f)(1). NEITHER THIS CERTIFICATE, NOR ANY PORTION OF THIS CERTIFICATE, MAY BE TRANSFERRED (X) IF AFTER GIVING EFFECT TO THE EXECUTION OR TRANSFER OF SUCH CERTIFICATE, THERE WOULD BE MORE THAN (I) 10 PRIVATE HOLDERS OF CLASS C CERTIFICATES OR (II) 100 PRIVATE HOLDERS, OR (Y) ON OR THROUGH (I) AN "ESTABLISHED SECURITIES MARKET" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND ANY PROPOSED, TEMPORARY OR FINAL TREASURY REGULATION THEREUNDER, INCLUDING, WITHOUT LIMITATION, AN OVER-THE-COUNTER-MARKET OR AN INTERDEALER QUOTATIONS SYSTEM THAT REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS OR (II) "SECONDARY MARKET" OR "SUBSTANTIAL EQUIVALENT THEREOF" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND ANY PROPOSED, TEMPORARY OR FINAL TREASURY REGULATIONS THEREUNDER, INCLUDING A MARKET WHEREIN INTERESTS IN THE TRUST ARE REGULARLY QUOTED BY ANY PERSON MAKING A MARKET IN SUCH INTERESTS AND A MARKET WHEREIN ANY PERSON REGULARLY MAKES AVAILABLE BID OR OFFER QUOTES WITH RESPECT TO INTERESTS IN THE TRUST AND STANDS READY TO EFFECT BUY OR SELL TRANSACTIONS AT THE QUOTED PRICES FOR ITSELF OR ON BEHALF OF OTHERS. ANY ATTEMPTED TRANSFER, ASSIGNMENT, CONVEYANCE, PARTICIPATION OR SUBDIVISION IN CONTRAVENTION OF THE PRECEDING RESTRICTIONS, AS REASONABLY DETERMINED BY THE SELLER, SHALL BE VOID AB INITIO AND THE PURPORTED TRANSFEROR, SELLER, OR SUBDIVIDER OF SUCH CERTIFICATE SHALL BE CONSTRUED TO BE TREATED AS THE CERTIFICATEHOLDER OF ANY SUCH CERTIFICATE FOR ALL PURPOSES OF THE POOLING AND SERVICING AGREEMENT (DEFINED BELOW). Evidencing an Undivided Interest in a trust, the corpus of which consists of a portfolio of credit card receivables acquired by Charming Shoppes Receivables Corp. and other assets and interests constituting the Trust under the Pooling and Servicing Agreement described below. (Not an interest in or obligation of, Charming Shoppes Receivables Corp., Spirit of America National Bank, Spirit of America, Inc. Charming Shoppes, Inc. or any Affiliate thereof.) This certifies that CHARMING SHOPPES RECEIVABLES CORP. (the "Class C Certificateholder") is the registered owner of the Undivided Interest in a trust (the "Trust"), the corpus of which consists of a portfolio of credit card receivables (the "Receivables") now existing or hereafter created under credit card accounts (the "Accounts") of Spirit of America National Bank, a national banking association organized under the laws of the United States, all monies due or to become due in payment of the Receivables (including all Finance Charge Receivables), the subordination of the Class D-1 Certificates and the Class D-2 Certificates and the other assets and interests constituting the Trust pursuant to a Second Amended and Restated Pooling and Servicing Agreement dated as of November 25, 1997, as amended on July 22, 1999, May 8, 2001 and August 5, 2004 and as supplemented by the Series 2 2004-1 Supplement dated as of August 5, 2004 (as further amended, supplemented or otherwise modified from time to time, the "Pooling and Servicing Agreement"), by and among Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association (formerly known as First Union National Bank), as Trustee (the "Trustee"). To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. The Series 2004-1 Certificates are issued in five classes: (i) the Class A Certificates; (ii) the Class M Certificates, which are subordinated to the Class A Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (iii) the Class B Certificates, which are subordinated to the Class A Certificates and the Class M Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (iv) the Class C Certificates (of which this certificate is one), which are subordinated to the Class A Certificates, the Class M Certificates and the Class B Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (v) the Class D Certificates, comprised of the Class D-1 Certificates and Class D-2 Certificates, which are subordinated to the Class A Certificates, the Class M Certificates, the Class B Certificates and the Class C Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement as described herein and in the Pooling and Servicing Agreement. This Class C Certificate is issued under and is subject to the terms, provisions and conditions of the Pooling and Servicing Agreement, to which Pooling and Servicing Agreement, as amended from time to time, the Class C Certificateholder by virtue of the acceptance hereof assents and by which the Class C Certificateholder is bound. The Receivables consist of Principal Receivables which arise from the purchase of goods and services and of Finance Charge Receivables which arise generally from periodic rate finance charges and other fees and charges, as more fully specified in the Pooling and Servicing Agreement. The Trust corpus consists of the Receivables now existing in the Accounts or hereafter created in the Accounts, all monies due or to become due with respect thereto (including all Finance Charge Receivables), all proceeds of the Receivables and Recoveries and Insurance Proceeds relating thereto, and such funds as from time to time are deposited in the Collection Account. This Certificate is one of a series of Certificates entitled Charming Shoppes Master Trust, Asset Backed Certificates, Series 2004-1, Class C Certificates (the "Class C Certificates"), each of which represents an Undivided Interest in the Trust, including the right to receive the Collections and other amounts at the times and in the amounts specified in the Pooling and Servicing Agreement to be deposited in the Collection Account or paid to the Class C Certificateholders. The aggregate interest represented by the Class C Certificates at any time in the Principal Receivables in the Trust shall not exceed an amount equal to the Class C Investor Interest at such time. In addition to the Series 2004-1 Certificates, an Exchangeable Seller Certificate will be reissued to the Seller pursuant to the Pooling and Servicing Agreement, which will represent an undivided interest in the Trust. The Exchangeable Seller Certificate will represent the interest in the Principal Receivables not represented by all of the Series of Investor Certificates issued by the Trust or Series of Receivables Purchase Interests sold by the Trust. The Exchangeable Seller Certificate may be exchanged by the Seller pursuant to the Pooling and Servicing Agreement for a newly issued Series of Investor Certificates and a 3 reissued Exchangeable Seller Certificate upon the conditions set forth in the Pooling and Servicing Agreement. This Class C Certificate does not represent an obligation of, or an interest in, the Seller, the Originator or the Servicer, and neither the Class C Certificates nor the Accounts or Receivables are insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. This Class C Certificate is limited in right of payment to certain collections respecting the Receivables, all as more specifically set forth in the Pooling and Servicing Agreement. The transfer of this Class C Certificate shall be registered in the Certificate Register upon surrender of this Class C Certificate for registration of transfer at any office or agency maintained by the Transfer Agent and Registrar accompanied by a written instrument of transfer in a form satisfactory to the Trustee and the Transfer Agent and Registrar duly executed by the Class C Certificateholder or such Class C Certificateholder's attorney-in-fact duly authorized in writing, and thereupon one or more new Class C Certificates of authorized denominations and for the same aggregate Undivided Interests will be issued to the designated transferee or transferees. As provided in the Pooling and Servicing Agreement and subject to certain limitations therein set forth and in the Class C Purchase Agreement, Class C Certificates are exchangeable for new Class C Certificates evidencing like aggregate Undivided Interests, as requested by the Class C Certificateholder surrendering such Class C Certificates. No service charge may be imposed for any such exchange but the Servicer or Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. The Servicer, the Trustee, the Paying Agent and the Transfer Agent and Registrar, and any agent of any of them, may treat the person in whose name this Class C Certificate is registered as the owner hereof for all purposes, and neither the Servicer, the Trustee, the Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them or of any such agent shall be affected by notice to the contrary except in certain circumstances described in the Pooling and Servicing Agreement. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Class C Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement, or be valid for any purpose. 4 IN WITNESS WHEREOF, Charming Shoppes Receivables Corp. has caused this Class C Certificate to be duly executed under its official seal. CHARMING SHOPPES RECEIVABLES CORP. By: ------------------------------- Authorized Officer Attested to: By: ----------------------------------------- Assistant Secretary Date: August ___, 2004 CERTIFICATE OF AUTHENTICATION This is one of the Class C Certificates referred to in the within-mentioned Pooling and Servicing Agreement. WACHOVIA BANK, NATIONAL ASSOCIATION, Trustee By: --------------------------------- Authorized Officer S-1 EXHIBIT D-1 FORM OF CLASS D-1 CERTIFICATE NO. R-1 $[9,450,000] CHARMING SHOPPES MASTER TRUST ASSET BACKED CERTIFICATE, SERIES 2004-1, CLASS D-1 CERTIFICATE THIS CERTIFICATE WAS ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY BE SOLD ONLY PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE ACT OR AN EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE ACT. IN ADDITION, THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. A COPY OF THE POOLING AND SERVICING AGREEMENT WILL BE FURNISHED TO THE HOLDER OF THIS CERTIFICATE BY THE TRUSTEE UPON WRITTEN REQUEST. THIS CERTIFICATE, OR AN INTEREST HEREIN, MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF ANY EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), WHETHER OR NOT SUBJECT TO ERISA, OR A PLAN THAT IS DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, INCLUDING AN INDIVIDUAL RETIREMENT ACCOUNT (EACH, A "BENEFIT PLAN"), OR BY OR FOR THE ACCOUNT OF ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE ANY BENEFIT PLAN ASSETS BY REASON OF A BENEFIT PLAN'S INVESTMENT IN SUCH ENTITY. BY ACQUIRING THIS CERTIFICATE OR AN INTEREST HEREIN, THE PURCHASER OR TRANSFEREE THEREOF WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT EITHER (I) IT IS NOT A BENEFIT PLAN, AND THAT ITS ACQUISITION OF THIS CERTIFICATE OR AN INTEREST HEREIN IS IN COMPLIANCE WITH THE FOREGOING RESTRICTIONS ON BENEFIT PLAN ASSETS OR (II) IT IS AN INSURANCE COMPANY PURCHASING THIS CERTIFICATE OR INTEREST HEREIN WITH ASSETS OF ITS GENERAL ACCOUNT, AND AT THE TIME OF ACQUISITION AND THROUGHOUT THE PERIOD OF HOLDING, (A) IT MEETS ALL OF THE REQUIREMENTS OF AND IS ELIGIBLE FOR EXEMPTIVE RELIEF UNDER PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, (B) LESS THAN 25% OF THE ASSETS OF SUCH ACCOUNT ARE BENEFIT PLAN ASSETS AND (C) IT IS NOT A SERVICER TO THE TRUST OR AN AFFILIATE OF SUCH SERVICER, AND WOULD NOT OTHERWISE BE EXCLUDED UNDER 29 CFR 2510.3-101(f)(1). NEITHER THIS CERTIFICATE, NOR ANY PORTION OF THIS CERTIFICATE, MAY BE TRANSFERRED (X) IF AFTER GIVING EFFECT TO THE EXECUTION OR TRANSFER OF SUCH CERTIFICATE, THERE WOULD BE MORE THAN (I) 5 PRIVATE HOLDERS OF CLASS D CERTIFICATES OR (II) 100 PRIVATE HOLDERS, OR (Y) ON OR THROUGH (I) AN "ESTABLISHED SECURITIES MARKET" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND ANY PROPOSED, TEMPORARY OR FINAL TREASURY REGULATIONS THEREUNDER, INCLUDING, WITHOUT LIMITATION, AN OVER-THE-COUNTER-MARKET OR AN INTERDEALER QUOTATIONS SYSTEM THAT REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS OR (II) "SECONDARY MARKET" OR "SUBSTANTIAL EQUIVALENT THEREOF" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND ANY PROPOSED, TEMPORARY OR FINAL TREASURY REGULATIONS THEREUNDER, INCLUDING A MARKET WHEREIN INTERESTS IN THE TRUST ARE REGULARLY QUOTED BY ANY PERSON MAKING A MARKET IN SUCH INTERESTS AND A MARKET WHEREIN ANY PERSON REGULARLY MAKES AVAILABLE BID OR OFFER QUOTES WITH RESPECT TO INTEREST IN THE TRUST AND STANDS READY TO EFFECT BUY OR SELL TRANSACTIONS AT THE QUOTED PRICES FOR ITSELF OR ON BEHALF OF OTHERS. ANY ATTEMPTED TRANSFER, ASSIGNMENT, CONVEYANCE, PARTICIPATION OR SUBDIVISION IN CONTRAVENTION OF THE PRECEDING RESTRICTIONS, AS REASONABLY DETERMINED BY THE SELLER, SHALL BE VOID AB INITIO AND THE PURPORTED TRANSFEROR, SELLER, OR SUBDIVIDER OF SUCH CERTIFICATE SHALL BE CONSTRUED TO BE TREATED AS THE CERTIFICATEHOLDER OF ANY SUCH CERTIFICATE FOR ALL PURPOSES OF THE POOLING AND SERVICING AGREEMENT (DEFINED BELOW). 2 Evidencing an Undivided Interest in a trust, the corpus of which consists of a portfolio of credit card receivables acquired by Charming Shoppes Receivables Corp. and other assets and interests constituting the Trust under the Pooling and Servicing Agreement described below. (Not an interest in or obligation of, Charming Shoppes Receivables Corp., Spirit of America National Bank, Spirit of America, Inc. Charming Shoppes, Inc. or any Affiliate thereof.) This certifies that CHARMING SHOPPES RECEIVABLES CORP. (the "Class D-1 Certificateholder") is the registered owner of the Undivided Interest in a trust (the "Trust"), the corpus of which consists of a portfolio of credit card receivables (the "Receivables") now existing or hereafter created under credit card accounts (the "Accounts") of Spirit of America National Bank, a national banking association organized under the laws of the United States, all monies due or to become due in payment of the Receivables (including all Finance Charge Receivables), and the other assets and interests constituting the Trust pursuant to a Second Amended and Restated Pooling and Servicing Agreement dated as of November 25, 1997, as amended on July 22, 1999, May 8, 2001 and August 5, 2004 and as supplemented by the Series 2004-1 Supplement dated as of August 5, 2004 (as further amended, supplemented or otherwise modified from time to time, the "Pooling and Servicing Agreement"), by and among Charming Shoppes Receivables Corp. ("CSRC"), as Seller, Spirit of America, Inc. ("SOAI"), as Servicer, and Wachovia Bank, National Association (formerly known as First Union National Bank), as Trustee (the "Trustee"). To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. The initial principal balance of this D-1 Certificate may be increased or decreased according to the terms of the Pooling and Servicing Agreement and the Certificate Purchase Agreement, dated as of August 5, 2004, among CSRC, SOAI, the Trustee and the Class D-1 Certificateholder described therein. The Series 2004-1 Certificates are issued in five classes: (i) the Class A Certificates; (ii) the Class M Certificates, which are subordinated to the Class A Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (iii) the Class B Certificates, which are subordinated to the Class A Certificates and the Class M Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (iv) the Class C Certificates, which are subordinated to the Class A Certificates, the Class M Certificates and the Class B Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (v) the Class D Certificates, comprised of the Class D-1 Certificates and Class D-2 Certificates (of which this certificate is one), which are subordinated to the Class A Certificates, the Class M Certificates, the Class B Certificates and the Class C Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement as described herein and in the Pooling and Servicing Agreement. This Class D-1 Certificate is issued under and is subject to the terms, provisions and conditions of the Pooling and Servicing Agreement, to which Pooling and Servicing 3 Agreement, as amended from time to time, the Class D-1 Certificateholder by virtue of the acceptance hereof assents and by which the Class D-1 Certificateholder is bound. The Receivables consist of Principal Receivables which arise from the purchase of goods and services and of Finance Charge Receivables which arise generally from periodic rate finance charges and other fees and charges, as more fully specified in the Pooling and Servicing Agreement. The Trust corpus consists of the Receivables now existing in the Accounts or hereafter created in the Accounts, all monies due or to become due with respect thereto (including all Finance Charge Receivables), all proceeds of the Receivables and Recoveries and Insurance Proceeds relating thereto, and such funds as from time to time are deposited in the Collection Account. This Certificate is one of a series of Certificates entitled Charming Shoppes Master Trust, Asset Backed Certificates, Series 2004-1, Class D-1 Certificates (the "Class D-1 Certificates"), each of which represents an Undivided Interest in the Trust, including the right to receive the Collections and other amounts at the times and in the amounts specified in the Pooling and Servicing Agreement to be deposited in the Collection Account or paid to the Class D-1 Certificateholders. The aggregate interest represented by the Class D-1 Certificates at any time in the Principal Receivables in the Trust shall not exceed an amount equal to the Class D-1 Investor Interest at such time. In addition to the Series 2004-1 Certificates, an Exchangeable Seller Certificate will be reissued to the Seller pursuant to the Pooling and Servicing Agreement, which will represent an undivided interest in the Trust. The Exchangeable Seller Certificate will represent the interest in the Principal Receivables not represented by all of the Series of Investor Certificates issued by the Trust or Series of Receivables Purchase Interests sold by the Trust. The Exchangeable Seller Certificate may be exchanged by the Seller pursuant to the Pooling and Servicing Agreement for a newly issued Series of Investor Certificates and a reissued Exchangeable Seller Certificate upon the conditions set forth in the Pooling and Servicing Agreement. This Class D-1 Certificate does not represent an obligation of, or an interest in, the Seller, the Originator or the Servicer, and neither the Class D-1 Certificates nor the Accounts or Receivables are insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. This Class D-1 Certificate is limited in right of payment to certain collections respecting the Receivables, all as more specifically set forth in the Pooling and Servicing Agreement. The transfer of this Class D-1 Certificate shall be registered in the Certificate Register upon surrender of this Class D-1 Certificate for registration of transfer at any office or agency maintained by the Transfer Agent and Registrar accompanied by a written instrument of transfer in a form satisfactory to the Trustee and the Transfer Agent and Registrar duly executed by the Class D-1 Certificateholder or such Class D-1 Certificateholder's attorney-in-fact duly authorized in writing, and thereupon one or more new Class D-1 Certificates of authorized denominations and for the same aggregate Undivided Interests will be issued to the designated transferee or transferees. As provided in the Pooling and Servicing Agreement and subject to certain limitations therein set forth and in the Class D-1 Purchase Agreement, Class D-1 Certificates are exchangeable for new Class D-1 Certificates evidencing like aggregate Undivided Interests, as 4 requested by the Class D-1 Certificateholder surrendering such Class D-1 Certificates. No service charge may be imposed for any such exchange but the Servicer or Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. The Servicer, the Trustee, the Paying Agent and the Transfer Agent and Registrar, and any agent of any of them, may treat the person in whose name this Class D-1 Certificate is registered as the owner hereof for all purposes, and neither the Servicer, the Trustee, the Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them or of any such agent shall be affected by notice to the contrary except in certain circumstances described in the Pooling and Servicing Agreement. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Class D-1 Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement, or be valid for any purpose. 5 IN WITNESS WHEREOF, Charming Shoppes Receivables Corp. has caused this Class D-1 Certificate to be duly executed under its official seal. CHARMING SHOPPES RECEIVABLES CORP. By: --------------------------------- Authorized Officer Attested to: By: ----------------------------------------- Assistant Secretary Date: August ___, 2004 CERTIFICATE OF AUTHENTICATION This is one of the Class D-1 Certificates referred to in the within-mentioned Pooling and Servicing Agreement. WACHOVIA BANK, NATIONAL ASSOCIATION, Trustee By: ---------------------------------- Authorized Officer S-1 EXHIBIT D-2 FORM OF CLASS D-2 CERTIFICATE NO. R-1 $9,450,000 CHARMING SHOPPES MASTER TRUST ASSET BACKED CERTIFICATE, SERIES 2004-1, CLASS D-2 CERTIFICATE THIS CERTIFICATE WAS ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY BE SOLD ONLY PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE ACT OR AN EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE ACT. IN ADDITION, THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. A COPY OF THE POOLING AND SERVICING AGREEMENT WILL BE FURNISHED TO THE HOLDER OF THIS CERTIFICATE BY THE TRUSTEE UPON WRITTEN REQUEST. THIS CERTIFICATE, OR AN INTEREST HEREIN, MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF ANY EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), WHETHER OR NOT SUBJECT TO ERISA, OR A PLAN THAT IS DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, INCLUDING AN INDIVIDUAL RETIREMENT ACCOUNT (EACH, A "BENEFIT PLAN"), OR BY OR FOR THE ACCOUNT OF ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE ANY BENEFIT PLAN ASSETS BY REASON OF A BENEFIT PLAN'S INVESTMENT IN SUCH ENTITY. BY ACQUIRING THIS CERTIFICATE OR AN INTEREST HEREIN, THE PURCHASER OR TRANSFEREE THEREOF WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT EITHER (I) IT IS NOT A BENEFIT PLAN, AND THAT ITS ACQUISITION OF THIS CERTIFICATE OR AN INTEREST HEREIN IS IN COMPLIANCE WITH THE FOREGOING RESTRICTIONS ON BENEFIT PLAN ASSETS OR (II) IT IS AN INSURANCE COMPANY PURCHASING THIS CERTIFICATE OR INTEREST HEREIN WITH ASSETS OF ITS GENERAL ACCOUNT, AND AT THE TIME OF ACQUISITION AND THROUGHOUT THE PERIOD OF HOLDING, (A) IT MEETS ALL OF THE REQUIREMENTS OF AND IS ELIGIBLE FOR EXEMPTIVE RELIEF UNDER PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, (B) LESS THAN 25% OF THE ASSETS OF SUCH ACCOUNT ARE BENEFIT PLAN ASSETS AND (C) IT IS NOT A SERVICER TO THE TRUST OR AN AFFILIATE OF SUCH SERVICER, AND WOULD NOT OTHERWISE BE EXCLUDED UNDER 29 CFR 2510.3-101(f)(1). NEITHER THIS CERTIFICATE, NOR ANY PORTION OF THIS CERTIFICATE, MAY BE TRANSFERRED (X) IF AFTER GIVING EFFECT TO THE EXECUTION OR TRANSFER OF SUCH CERTIFICATE, THERE WOULD BE MORE THAN (I) 5 PRIVATE HOLDERS OF CLASS D-2 CERTIFICATES OR (II) 100 PRIVATE HOLDERS, OR (Y) ON OR THROUGH (I) AN "ESTABLISHED SECURITIES MARKET" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND ANY PROPOSED, TEMPORARY OR FINAL TREASURY REGULATIONS THEREUNDER, INCLUDING, WITHOUT LIMITATION, AN OVER-THE-COUNTER-MARKET OR AN INTERDEALER QUOTATIONS SYSTEM THAT REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS OR (II) "SECONDARY MARKET" OR "SUBSTANTIAL EQUIVALENT THEREOF" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND ANY PROPOSED, TEMPORARY OR FINAL TREASURY REGULATIONS THEREUNDER, INCLUDING A MARKET WHEREIN INTERESTS IN THE TRUST ARE REGULARLY QUOTED BY ANY PERSON MAKING A MARKET IN SUCH INTERESTS AND A MARKET WHEREIN ANY PERSON REGULARLY MAKES AVAILABLE BID OR OFFER QUOTES WITH RESPECT TO INTEREST IN THE TRUST AND STANDS READY TO EFFECT BUY OR SELL TRANSACTIONS AT THE QUOTED PRICES FOR ITSELF OR ON BEHALF OF OTHERS. ANY ATTEMPTED TRANSFER, ASSIGNMENT, CONVEYANCE, PARTICIPATION OR SUBDIVISION IN CONTRAVENTION OF THE PRECEDING RESTRICTIONS, AS REASONABLY DETERMINED BY THE SELLER, SHALL BE VOID AB INITIO AND THE PURPORTED TRANSFEROR, SELLER, OR SUBDIVIDER OF SUCH CERTIFICATE SHALL BE CONSTRUED TO BE TREATED AS THE CERTIFICATEHOLDER OF ANY SUCH CERTIFICATE FOR ALL PURPOSES OF THE POOLING AND SERVICING AGREEMENT (DEFINED BELOW). Evidencing an Undivided Interest in a trust, the corpus of which consists of a portfolio of credit card receivables acquired by Charming Shoppes Receivables Corp. and other assets and interests constituting the Trust under the Pooling and Servicing Agreement described below. (Not an interest in or obligation of, Charming Shoppes Receivables Corp., Spirit of America National Bank, Spirit of America, Inc. Charming Shoppes, Inc. or any Affiliate thereof.) This certifies that CHARMING SHOPPES RECEIVABLES CORP. (the "Class D-2 Certificateholder") is the registered owner of the Undivided Interest in a trust (the "Trust"), the corpus of which consists of a portfolio of credit card receivables (the "Receivables") now existing or hereafter created under credit card accounts (the "Accounts") of Spirit of America National Bank, a national banking association organized under the laws of the United States, all monies due or to become due in payment of the Receivables (including all Finance Charge Receivables), and the other assets and interests constituting the Trust pursuant to a Second Amended and Restated Pooling and Servicing Agreement dated as of November 25, 1997, as amended on July 22, 1999, May 8, 2001 and August 5, 2004 and as supplemented by the Series 2004-1 Supplement dated as of August 5, 2004 (as further amended, supplemented or 2 otherwise modified from time to time, the "Pooling and Servicing Agreement"), by and among Charming Shoppes Receivables Corp. ("CSRC"), as Seller, Spirit of America, Inc. ("SOAI"), as Servicer, and Wachovia Bank, National Association (formerly known as First Union National Bank), as Trustee (the "Trustee"). To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. The initial principal balance of this D-2 Certificate may be increased or decreased according to the terms of the Pooling and Servicing Agreement and the Certificate Purchase Agreement, dated as of August 5, 2004, among CSRC, SOAI, the Trustee and the Class D-2 Certificateholder described therein. The Series 2004-1 Certificates are issued in five classes: (i) the Class A Certificates; (ii) the Class M Certificates, which are subordinated to the Class A Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (iii) the Class B Certificates, which are subordinated to the Class A Certificates and the Class M Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement; (iv) the Class C Certificates, which are subordinated to the Class A Certificates, the Class M Certificates and the Class B Certificates in certain rights of payment as described herein, and in the Pooling and Servicing Agreement; (v) the Class D Certificates, comprised of the D-1 Certificates and the Class D-2 Certificates, which are subordinated to the Class A Certificates, the Class M Certificates, the Class B Certificates and the Class C Certificates in certain rights of payment as described herein, and in the Pooling and Servicing Agreement as described herein and in the Pooling and Servicing Agreement. This Class D-2 Certificate is issued under and is subject to the terms, provisions and conditions of the Pooling and Servicing Agreement, to which Pooling and Servicing Agreement, as amended from time to time, the Class D-2 Certificateholder by virtue of the acceptance hereof assents and by which the Class D-2 Certificateholder is bound. The Receivables consist of Principal Receivables which arise from the purchase of goods and services and of Finance Charge Receivables which arise generally from periodic rate finance charges and other fees and charges, as more fully specified in the Pooling and Servicing Agreement. The Trust corpus consists of the Receivables now existing in the Accounts or hereafter created in the Accounts, all monies due or to become due with respect thereto (including all Finance Charge Receivables), all proceeds of the Receivables and Recoveries and Insurance Proceeds relating thereto, and such funds as from time to time are deposited in the Collection Account. This Certificate is one of a series of Certificates entitled Charming Shoppes Master Trust, Asset Backed Certificates, Series 2004-1, Class D-2 Certificates (the "Class D-2 Certificates"), each of which represents an Undivided Interest in the Trust, including the right to receive the Collections and other amounts at the times and in the amounts specified in the Pooling and Servicing Agreement to be deposited in the Collection Account or paid to the Class D-2 Certificateholders. The aggregate interest represented by the Class D-2 Certificates at any time in the Principal Receivables in the Trust shall not exceed an amount equal to the Class D-2 Investor Interest at such time. In addition to the Series 2004-1 Certificates, an Exchangeable Seller Certificate will be reissued to the Seller pursuant to the Pooling and Servicing Agreement, which will represent an undivided interest in the Trust. The 3 Exchangeable Seller Certificate will represent the interest in the Principal Receivables not represented by all of the Series of Investor Certificates issued by the Trust or Series of Receivables Purchase Interests sold by the Trust. The Exchangeable Seller Certificate may be exchanged by the Seller pursuant to the Pooling and Servicing Agreement for a newly issued Series of Investor Certificates and a reissued Exchangeable Seller Certificate upon the conditions set forth in the Pooling and Servicing Agreement. This Class D-2 Certificate does not represent an obligation of, or an interest in, the Seller, the Originator or the Servicer, and neither the Class D-2 Certificates nor the Accounts or Receivables are insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. This Class D-2 Certificate is limited in right of payment to certain collections respecting the Receivables, all as more specifically set forth in the Pooling and Servicing Agreement. The transfer of this Class D-2 Certificate shall be registered in the Certificate Register upon surrender of this Class D-2 Certificate for registration of transfer at any office or agency maintained by the Transfer Agent and Registrar accompanied by a written instrument of transfer in a form satisfactory to the Trustee and the Transfer Agent and Registrar duly executed by the Class D-2 Certificateholder or such Class D-2 Certificateholder's attorney-in-fact duly authorized in writing, and thereupon one or more new Class D-2 Certificates of authorized denominations and for the same aggregate Undivided Interests will be issued to the designated transferee or transferees. As provided in the Pooling and Servicing Agreement and subject to certain limitations therein set forth and the Class D-2 Certificate Purchase Agreement, Class D-2 Certificates are exchangeable for new Class D-2 Certificates evidencing like aggregate Undivided Interests, as requested by the Class D-2 Certificateholder surrendering such Class D-2 Certificates. No service charge may be imposed for any such exchange but the Servicer or Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. The Servicer, the Trustee, the Paying Agent and the Transfer Agent and Registrar, and any agent of any of them, may treat the person in whose name this Class D-2 Certificate is registered as the owner hereof for all purposes, and neither the Servicer, the Trustee, the Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them or of any such agent shall be affected by notice to the contrary except in certain circumstances described in the Pooling and Servicing Agreement. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Class D-2 Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement, or be valid for any purpose. 4 IN WITNESS WHEREOF, Charming Shoppes Receivables Corp. has caused this Class D-2 Certificate to be duly executed under its official seal. CHARMING SHOPPES RECEIVABLES CORP. By: ---------------------------------- Authorized Officer Attested to: By: ----------------------------------------- Assistant Secretary Date: August ___, 2004 CERTIFICATE OF AUTHENTICATION This is one of the Class D-2 Certificates referred to in the within-mentioned Pooling and Servicing Agreement. WACHOVIA BANK, NATIONAL ASSOCIATION, Trustee By: --------------------------------- Authorized Officer S-1 SPIRIT OF AMERICA, INC. Form 2004-1E CHARMING SHOPPES MASTER TRUST Series 2004-1 (Exhibit E) FORM OF MONTHLY PAYMENT INSTRUCTIONS AND NOTIFICATION TO THE TRUSTEE
Distribution Date: 15-Jun-04 Due Period Ending: 31-May-04 1 Series 2004-1 Principal Payable to Investors on this Distribution Date (a) Class A $0.00 (b) Class M $0.00 (c) Class B $0.00 (d) Class C $0.00 (e) Class D-1 $0.00 (f) Class D-2 $0.00 2 Series 2004-1 Interest Payable to Investors on this Distribution Date (a) Class A $0.00 (b) Class M $0.00 (c) Class B $0.00 (d) Class C $0.00 (e) Class D-1 $0.00 (f) Class D-2 $0.00 3 Series 2004-1 Net Swap Payment/(Receipt) to/(from) Swap Counterparty on this Distribution Date (a) Class A $0.00 (b) Class M $0.00 (c) Class B $0.00 (d) Class C $0.00 4 Class A Available Funds $0.00 (a) Class A Monthly Interest refer to 2(a) (b) Class A Net Swap Payment refer to 3(a) (c) Class A Servicing Fee $0.00 (d) Class A Investor Loss Amount $0.00 (e) Class A Dilution Amount $0.00 (f) Excess Spread $0.00 5 Class M Available Funds $0.00 (a) Class M Monthly Interest refer to 2(b) (b) Class M Net Swap Payment refer to 3(b) (c) Class M Servicing Fee $0.00 (d) Excess Spread $0.00 6 Class B Available Funds $0.00 (a) Class B Monthly Interest refer to 2(c) (b) Class B Net Swap Payment refer to 3(c) (c) Class B Servicing Fee $0.00 (d) Excess Spread $0.00 7 Class C Available Funds $0.00 (a) Class C Servicing Fee $0.00 (b) Excess Spread $0.00 8 Class D Available Funds $0.00 (a) Class D Servicing Fee $0.00 (b) Excess Spread $0.00
The Servicer does hereby instruct the Trustee (i) to make withdrawals from the Collection Account as of this Distribution Date in an aggregate amount as set forth above and, (ii) to apply the proceeds of such withdrawal in accordance with Section 4.7, 4.9 and 4.11 of the Series 2004-1 Supplement, as applicable and Section 3 of the Pooling and Servicing Agreement, as applicable. By: /s/ Kirk R. Simme Kirk R. Simme Vice President Spirit of America, Inc. Note - Reporting on class deficiency amounts, class additional interest, certificate reductions, reallocations of collections, unreimbursed charge-offs, discounting of principal, allocation of dilution to investors and other transactions contemplated by the Series 2004-1 Supplement will be added to the above report as applicable. Charming Shoppes Master Trust Form 2004-1F Monthly Certificateholders' Statement Series 2004-1 Monthly Statement Exhibit F
Distribution Date: 15-Sep-04 Due Period Ending: 31-Aug-04 Information for the Due Period and the Distribution Date listed above is set forth below: 1 Trust Receivables at the beginning of the Due Period: (a) Aggregate Receivables in the Trust at beginning of Due Period $0.00 (b) Total Principal Receivables in Trust $0.00 (1) Excess Funding in Trust at beginning of Due Period $0.00 (2) Total Trust Assets at beginning of Due Period $0.00 (c) Aggregate Investor Interest at beginning of Due Period $0.00 (d) Seller Interest at beginning of Due Period $0.00 2 Trust Receivables at the end of the Due Period: (a) Aggregate Receivables in the Trust at end of Due Period $0.00 (b) Total Principal Receivables in Trust $0.00 (1) Excess Funding in Trust at end of Due Period $0.00 (2) Total Trust Assets at end of Due Period $0.00 (c) Aggregate Investor Interest at end of Due Period $0.00 (d) Seller Interest at end of Due Period $0.00 3 Trust Delinquency Distribution 30 - 59 days past due $0.00 60 - 89 days past due $0.00 90 - 119 days past due $0.00 120 days or more past due $0.00 4 Investor Losses (a) Trust gross investor Losses $0.00 (b) Trust investor Recoveries $0.00 (c) Trust net investor Losses $0.00 5 Allocation of Collections During the Due Period (a) Total Collections $0.00 (b) Principal Receivables Collected $0.00 (c) Total Finance Charge Collections $0.00 (1) Finance Charge Receivables Collected $0.00 (2) Excess Funding Account interest earned $0.00 (3) Collections Account interest earned $0.00 6 Pre-Funding Account (a) Pre-Funding Account Balance at Beginning of Due Period $0.00 (1) Principal Funding Account interest earned $0.00 (b) Pre-Funding Account Balance at End of Due Period $0.00 (c) Pre-Funding Account Withdrawals on this Distribution Date $0.00 (d) Pre-Funding Account Balance on this Distribution Date $0.00 7 Funding Period Reserve Account (a) Funding Period Reserve Account Balance at Beginning of Due Period $0.00 (1) Funding Period Reserve Account Interest $0.00 (b) Funding Period Reserve Account Balance at End of Due Period $0.00 (c) Funding Period Reserve Draw Amount on this Distribution Date $0.00 (d) Funding Period Reserve Account Balance on this Distribution Date $0.00 8 LIBOR 0.000% 9 Number of Days in Distribution Period 0 10 Number of Days in Due Period 0 11 Series 2004-1 Interest Rates (a) Class A ( LIBOR + spread .33bps ) 0.000% (b) Class M ( LIBOR + spread .65 bps ) 0.000% (c) Class B ( LIBOR + spread .95 bps ) 0.000% 12 Series 2004-1 Investor Interest by Class Investor % (a) Class A Investor Interest 0.000% (b) Class M Investor Interest 0.000% (c) Class B Investor Interest 0.000% (d) Class C Investor Interest 0.000% (e) Class D-1 Investor Interest 0.000% (f) Class D-2 Investor Interest 0.000% Investor $ 13 Series 2004-1 Total Investor Interest at Beginning of Due Period $0.00 (a) Class A Investor Interest $0.00 (b) Class M Investor Interest $0.00 (c) Class B Investor Interest $0.00 (d) Class C Investor Interest $0.00 (e) Class D-1 Investor Interest $0.00 (f) Class D-2 Investor Interest $0.00 14 Series 2004-1 Principal Allocations to Investors $0.00 (a) Class A $0.00 (b) Class M $0.00 (c) Class B $0.00 (d) Class C $0.00 (e) Class D-1 $0.00 (f) Class D-2 $0.00 15 Series 2004-1 Finance Charge Allocations to Investors $0.00 (a) Class A $0.00 (b) Class M $0.00 (c) Class B $0.00 (d) Class C $0.00 (e) Class D-1 $0.00 (f) Class D-2 $0.00 16 Series 2004-1 Loss Allocations to Investors $0.00 (a) Class A $0.00 (b) Class M $0.00 (c) Class B $0.00 (d) Class C $0.00 (e) Class D-1 $0.00 (f) Class D-2 $0.00 17 Monthly Servicing Fee Payable on this Distribution Date (a) Class A $0.00 (b) Class M $0.00 (c) Class B $0.00 (d) Class C $0.00 (e) Class D-1 $0.00 (f) Class D-2 $0.00 18 Series 2004-1 Performance (a) Portfolio Yield (Finance Charge Collections during the Due Period allocated to Series 2004-1, plus interest earned on the PFA and the Funding Period Reserve Account, plus the Funding Period Reserve Draw Amount, plus any Net Swap Receipt, minus the net losses allocated to Series 2004-1, divided by the outstanding principal amount as of the last day of the previous current period 0.000% Due Period, multiplied by 365 preceding period 0.0000% divided by number of days in Due Period) second preceding period 0.0000% (b) Base Rate (Monthly Interest for related Distribution Date for Series 2004-1, plus any Net Swap Payment, plus the Series 2004-1 Servicing Fee, divided by current period 0.000% the Series 2004-1 outstanding principal amount as of the last day of the previous preceding period 0.000% Due Period, multiplied by 360, divided by number of days in Due Period) second preceding period 0.000% (c) Portfolio Yield Test (1) 3 month average Portfolio Yield 0.000% (2) 3 month average Base Rate 0.000% (3) Is 3 month average Portfolio Yield greater than 3 month average Base Rate? If YES, test was passed. YES (d) Servicing Fee Percentage 0.000% (e) Excess Spread Amount (Finance Charges allocated to Series 2004-1 minus losses allocated to Series 2004-1, minus Series' Servicing Fee, minus Series Certificate Interest, minus Swap Payment) $0.00
The representations and warranties of Charming Shoppes Receivable Corp. ("CSRC") in the Second Amended Pooling and Servicing Agreement dated as of November 25, 1997 and amended as of July 22, 1999, May 8, 2001 and August 5, 2004 (as amended or otherwise modified, the "Pooling and Servicing Agreement"), among CSRC, as Seller, Spirit of America, Inc. as Servicer, and Wachovia Bank, NA, as Trustee (the "Trustee") and the Series 2004-1 Supplement dated as of August 5, 2004 are true and correct on the date hereof. By: /s/ Kirk R. Simme Kirk R. Simme Vice President Spirit of America, Inc. Note - Reporting on class deficiency amounts, class additional interest, certificate reductions, reallocations of collections, unreimbursed charge-offs, discounting of principal, allocation of dilution to investors and other transactions contemplated by the Series 2004-1 Supplement will be added to the above report as applicable. Exhibit G-1 Form of Class A, Class M and Class B Regulation S Book-Entry Certificate to Restricted Book-Entry Certificate Transfer Certificate (Transfer pursuant to subsection 16(b)(ii) of the Supplement) Wachovia Bank, National Association, as Trustee 123 South Broad Street 11th Floor, PA1249 Philadelphia, Pennsylvania 19109 Attention: Corporate Trust Department Reference is hereby made to the Series 2004-1 Supplement dated as of August 5, 2004 (the "Supplement") by and between Charming Shoppes Receivables Corp. ("Seller"), Spirit of America, Inc. ("Servicer") and Wachovia Bank, National Association (formerly known as First Union National Bank) ("Trustee") to the Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997 by and between the Seller, the Servicer and the Trustee (as amended, the "Agreement"). Capitalized terms used but not defined herein are used as defined in the Supplement and if not in the Supplement then such terms shall have the meanings assigned to them in Regulation S ("Regulation S") or Rule 144A ("Rule 144A") under the United States Securities Act of 1933, as amended (the "Securities Act"). This letter relates to U.S.$[o] aggregate principal amount of [Class A] [Class M] [Class B] Certificates which are held in the form of a Regulation S Book-Entry Certificate (CUSIP No. [o]) with The Depositary Trust Company in the name of [name of Transferor] (the "Transferor") and is intended to facilitate the transfer of [Class A] [Class M] [Class B] Certificates in exchange for an equivalent beneficial interest in a Restricted Book-Entry Certificate in the name of [name of Transferee](the "Transferee"). In connection with such request, (i) the Transferor and the Transferee both hereby certify that such transfer has been effected in accordance with the transfer restrictions set forth in the Agreement, the Supplement and the Offering Memorandum relating to the initial sale of the Class A Certificates, the Class M Certificates and the Class B Certificates, and (ii) (A) the Transferee does hereby make the representations and warranties discussed or listed in Section 16(c) of the Supplement and further represents, warrants and agrees for the benefit of the Seller and the Trust that statements (1) through (6) below are all true, and (B) the Transferor does hereby certify that it reasonably believes that the following statements (1) through (6) concerning the Transferee are all true: 1. The Transferee is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act. 2. The Transferee is acquiring the [Class A Certificates] [Class M Certificates] [Class B Certificates] for its own account or for an account that is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act. G-1-1 The Transferee and each such account is acquiring not less than the minimum denomination of the [Class A Certificates] [Class M Certificates] [Class B Certificates]; 3. The Transferee (and each such account) is not formed for the purpose of acquiring the [Class A Certificates] [Class M Certificates] [Class B Certificates]; 4. The Transferee will notify future transferees of these transfer restrictions; 5. The Transferee is obtaining the [Class A Certificates] [Class M Certificates] [Class B Certificates] in a transaction pursuant to Rule 144A; and 6. The Transferee is obtaining the [Class A Certificates] [Class M Certificates] [Class B Certificates] in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction. [THIS SPACE INTENTIONALLY LEFT BLANK] G-1-2 You, the Seller and the Trust are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. [Name of Transferee] By: ------------------------------- Name: Title: [Name of Transferor] By: ------------------------------- Name: Title: Dated: G-1-3 ANNEX A The Transferor owns and proposes to transfer a beneficial interest in the following: (i) 0 Class A Regulation S Book-Entry Certificate, principal amount of $[o], (ii) 0 Class M Regulation S Book-Entry Certificate, principal amount of $[o], or (iii) 0 Class B Regulation S Book-Entry Certificate, principal amount of $[o]. G-1-4 Exhibit G-2 Form of Class A, Class M and Class B Restricted Book-Entry Certificate to Regulation S Book-Entry Certificate Transfer Certificate (Transfer pursuant to subsection 16(b)(iii) of the Supplement) Wachovia Bank, National Association, as Trustee 123 South Broad Street 11th Floor, PA1249 Philadelphia, Pennsylvania 19109 Attention: Corporate Trust Department Reference is hereby made to the Series 2004-1 Supplement dated as of August 5, 2004 (the "Supplement") by and between Charming Shoppes Receivables Corp. ("Seller"), Spirit of America, Inc. ("Servicer") and Wachovia Bank, National Association (formerly known as First Union National Bank) ("Trustee") to the Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997 by and between the Seller, the Servicer and the Trustee (as amended, the "Agreement"). Capitalized terms used but not defined herein are used as defined in the Supplement and if not in the Supplement then such terms shall have the meanings assigned to them in Regulation S ("Regulation S") or Rule 144A ("Rule 144A") under the United States Securities Act of 1933, as amended (the "Securities Act"). This letter relates to U.S.$[o] aggregate principal amount of [Class A] [Class M] [Class B] Certificates which are held in the form of a Restricted Book-Entry Certificate (CUSIP No. [o]) with The Depositary Trust Company in the name of [name of Transferor] (the "Transferor") and is intended to facilitate the transfer of [Class A] [Class M] [Class B] Certificates in exchange for an equivalent beneficial interest in a Regulation S Book-Entry Certificate in the name of [name of Transferee](the "Transferee"). In connection with such request the Transferee does hereby certify represent, warrant and agree for the benefit of the Trust and the Trustee that (1) at the time the buy order was originated, the Transferee was outside the United States, (2) the Transferee is not a U.S. Person, (3) the transfer from Transferor to Transferee is being made pursuant to Rule 903 or 904 under Regulation S and (4) the transfer is being effected in accordance with the transfer restrictions set forth in the Agreement and the Offering Memorandum relating to the initial sale of the Class A Certificates, the Class M Certificates and Class B Certificates. The transferee further hereby makes the representations and warranties discussed or listed in Section 16(c) of the Supplement. G-2-1 You, the Seller and the Trust are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. [Name of Transferee] By: ----------------------------------- Name: Title: Dated: G-2-2 ANNEX A The Transferor owns and proposes to transfer a beneficial interest in the following to the Transferee: (i) 0 Class A Rule 144A Restricted Book-Entry Certificate, principal amount of $[o], (ii) 0 Class M Rule 144A Restricted Book-Entry Certificate, principal amount of $[o], or (iii) 0 Class B Rule 144A Restricted Book-Entry Certificate, principal amount of $[o]. G-2-3 EXHIBIT H (Multicurrency--Cross Border) ISDA(R) International Swap Dealers Association, Inc. MASTER AGREEMENT dated as of August 5, 2004 ([Class A]) [Barclays Bank PLC] And Wachovia Bank, National Association, as ("Party A") Trustee of Charming Shoppes Master Trust ("Party B") have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this Master Agreement, which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties confirming those Transactions. Accordingly, the parties agree as follows:-- 1. Interpretation a. Definitions. The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement. b. Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction. c. Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions. 2. Obligations a. General Conditions. (i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement. (ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement. (iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement. Copyright (c) 1992 by International Swap Dealers Association, Inc. b. Change of Account. Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change. c. Netting. If on any date amounts would otherwise be payable:-- (i) in the same currency; and (ii) in respect of the same Transaction, by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries. d. Deduction or Withholding for Tax. (i) Gross-Up. All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct or withhold, then that party ("X") will:-- (1) promptly notify the other party ("Y") of such requirement; (2) pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y; (3) promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and (4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required. However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:-- A. the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or B. the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (II) a Change in Tax Law. (ii) Liability. If:-- 2 (1) X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section 2(d)(i)(4); (2) X does not so deduct or withhold; and (3) a liability resulting from such Tax is assessed directly against X, then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)). e. Default Interest; Other Amounts. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement. 3. Representations Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:-- a. Basic Representations. (i) Status. It is duly organised and validly existing under the laws of the jurisdiction of its organisation or incorporation and, if relevant under such laws, in good standing; (ii) Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorise such execution, delivery and performance; (iii) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (iv) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (v) Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). 3 b. Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party. c. Absence of Litigation. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document. d. Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect. e. Payer Tax Representation. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true. f. Payee Tax Representations. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true. 4. Agreements Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:-- a. Furnish Specified Information. It will deliver to the other party or, in certain cases under subparagraph (iii) below, to such government or taxing authority as the other party reasonably directs: (i) any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation; (ii) any other documents specified in the Schedule or any Confirmation; and (iii) upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification, in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable. b. Maintain Authorisations. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future. c. Comply with Laws. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party. d. Tax Agreement. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure. e. Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organised, managed and controlled, or considered to have its seat, or in which a branch or office through 4 which it is acting for the purpose of this Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party's execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party. 5. Events of Default and Termination Events a. Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party:-- (i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party; (ii) Breach of Agreement. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party; (iii) Credit Support Default. (1) Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed; (2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or (3) the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document; (iv) Misrepresentation. A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated; (v) Default under Specified Transaction. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf); (vi) Cross Default. If "Cross Default" is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified 5 Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period); (vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:-- (1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or (viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:-- (1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement. b. Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in (ii) below or a Tax Event Upon Merger if the event is specified in (iii) below, and, if specified to be applicable, a Credit Event 6 Upon Merger if the event is specified pursuant to (iv) below or an Additional Termination Event if the event is specified pursuant to (v) below:-- (i) Illegality. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party):-- (1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or (2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction; (ii) Tax Event. Due to (x) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (y) a Change in Tax Law, the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (1) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B)); (iii) Tax Event Upon Merger. The party (the "Burdened Party") on the next succeeding Scheduled Payment Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been deducted or withheld for or on account of any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii); (iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or (v) Additional Termination Event. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation). c. Event of Default and Illegality. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default. 7 6.Early Termination a. Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8). b. Right to Terminate Following Termination Event. (i) Notice. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require. (ii) Transfer to Avoid Termination Event. If either an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist. If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i). Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party's policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed. (iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event. (iv) Right to Terminate. If:-- (1) a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or (2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party, either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then 8 continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions. c. Effect of Designation. (i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing. (ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e). d. Calculations. (i) Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation. (ii) Payment Date. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. e. Payments on Early Termination. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or "Loss", and a payment method, either the "First Method" or the "Second Method". If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off. (i) Events of Default. If the Early Termination Date results from an Event of Default:-- (1) First Method and Market Quotation. If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. (2) First Method and Loss. If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party's Loss in respect of this Agreement. (3) Second Method and Market Quotation. If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the 9 Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (ii) Termination Events. If the Early Termination Date results from a Termination Event:-- (1) One Affected Party. If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions. (2) Two Affected Parties. If there are two Affected Parties:-- A. if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Settlement Amount of the party with the lower Settlement Amount ("Y") and (b) the Termination Currency Equivalent of the Unpaid Amounts owing to X less (II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y; and B. if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss ("X") and the Loss of the party with the lower Loss ("Y"). If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y. (iii) Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs because "Automatic Early Termination" applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii). (iv) Pre-Estimate. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses. 10 7. Transfer Subject to Section 6(b)(ii), neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that:-- a. a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and b. a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e). Any purported transfer that is not in compliance with this Section will be void. 8. Contractual Currency a. Payment in the Contractual Currency. Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the "Contractual Currency"). To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess. b. Judgments. To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, acting in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term "rate of exchange" includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency. c. Separate Indemnities. To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable in respect of this Agreement. d. Evidence of Loss. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss had an actual exchange or purchase been made. 11 9. Miscellaneous a. Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto. b. Amendments. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system. c. Survival of Obligations. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction. d. Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law. e. Counterparts and Confirmations. (i) This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original. (ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall he entered into as soon as practicable and may he executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation. f. No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege. g. Headings. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement. 10. Offices; Multibranch Parties a. If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to the other party that, notwithstanding the place of booking office or jurisdiction of incorporation or organisation of such party, the obligations of such party are the same as if it had entered into the Transaction through its head or home office. This representation will be deemed to be repeated by such party on each date on which a Transaction is entered into. b. Neither party may change the Office through which it makes and receives payments or deliveries for the purpose of a Transaction without the prior written consent of the other party. c. If a party is specified as a Multibranch Party in the Schedule, such Multibranch Party may make and receive payments or deliveries under any Transaction through any Office listed in the Schedule, and the Office through which it makes and receives payments or deliveries with respect to a Transaction will be specified in the relevant Confirmation. 11. Expenses A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document 12 to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection. 12. Notices a. Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:-- (i) if in writing and delivered in person or by courier, on the date it is delivered; (ii) if sent by telex, on the date the recipient's answerback is received; (iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine); (iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or (v) if sent by electronic messaging system, on the date that electronic message is received, unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day. b. Change of Addresses. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it. 13. Governing Law and Jurisdiction a. Governing Law. This Agreement will be governed by and construed in accordance with the law specified in the Schedule. b. Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably:-- (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. c. Service of Process. Each party irrevocably appoints the Process Agent (if any) specified opposite its name in the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party's Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably 13 consent to service of process given in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law. d. Waiver of Immunities. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 14. Definitions As used in this Agreement:-- "Additional Termination Event" has the meaning specified in Section 5(b). "Affected Party" has the meaning specified in Section 5(b). "Affected Transactions" means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions. "Affiliate" means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of a majority of the voting power of the entity or person. "Applicable Rate" means:-- a. in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate; b. in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate; c. in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and d. in all other cases, the Termination Rate. "Burdened Party" has the meaning specified in Section 5(b). "Change in Tax Law" means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Transaction is entered into. "consent" includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control consent. "Credit Event Upon Merger" has the meaning specified in Section 5(b). "Credit Support Document" means any agreement or instrument that is specified as such in this Agreement. "Credit Support Provider" has the meaning specified in the Schedule. "Default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. 14 "Defaulting Party" has the meaning specified in Section 6(a). "Early Termination Date" means the date determined in accordance with Section 6(a) or 6(b)(iv). "Event of Default" has the meaning specified in Section 5(a) and, if applicable, in the Schedule. "Illegality" has the meaning specified in Section 5(b). "Indemnifiable Tax" means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document). "law" includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and "lawful" and "unlawful" will be construed accordingly. "Local Business Day" means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located and, if different, in the principal financial centre, if any, of the currency of such payment, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction. "Loss" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets. "Market Quotation" means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the "Replacement Transaction") that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have 15 been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined. "Non-default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount. "Non-defaulting Party" has the meaning specified in Section 6(a). "Office" means a branch or office of a party, which may be such party's head or home office. "Potential Event of Default" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "Reference Market-makers" means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city. "Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised, managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made. "Scheduled Payment Date" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction. "Set-off" means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer. "Settlement Amount" means, with respect to a party and any Early Termination Date, the sum of:-- a. the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and b. such party's Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result. "Specified Entity" has the meanings specified in the Schedule. 16 "Specified Indebtedness" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money. "Specified Transaction" means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation. "Stamp Tax" means any stamp, registration, documentation or similar tax. "Tax" means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax. "Tax Event" has the meaning specified in Section 5(b). "Tax Event Upon Merger" has the meaning specified in Section 5(b). "Terminated Transactions" means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date). "Termination Currency" has the meaning specified in the Schedule. "Termination Currency Equivalent" means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the "Other Currency"), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date, or, if the relevant Market Quotation or Loss (as the case may be), is determined as of a later date, that later date, with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties. "Termination Event" means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event. "Termination Rate" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts. "Unpaid Amounts" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market 17 value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency, of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values reasonably determined by both parties. IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document. [Barclays Bank PLC] ("[Barclays]") Wachovia Bank, National Association , (Name of Party) as Trustee of Charming Shoppes Master Trust ("Counterparty") (Name of Party) By: By: ---------------------------- --------------------------------- Name: Name: Title: Title: Date: Date: S-1 SCHEDULE to the Master Agreement dated as of August 5, 2004 between [Barclays Bank PLC] and Wachovia Bank, National Association, ("[Barclays]") as Trustee of the Charming Shoppes Master Trust (the "Counterparty") The only Transaction that will be governed by the terms of this Agreement will be the [Class A] Swap (as defined in the Series Supplement). References in the Agreement to "Transactions" or "Transaction" shall be deemed to be references to the [Class A] Swap. Part 1 Termination Provisions In this Agreement:- (1) "Specified Entity" shall not apply. (2) The "Breach of Agreement" provisions of Section 5(a)(ii) will apply to [Barclays] and will not apply to the Counterparty. (3) The "Credit Support Default" provisions of Section 5(a)(iii) will apply to [Barclays] and will not apply to the Counterparty. (4) The "Misrepresentation" provisions of Section 5(a)(iv) will apply to [Barclays] and will not apply to the Counterparty. (5) The "Default Under Specified Transaction" provisions of Section 5(a)(v) will not apply to [Barclays] and will not apply to the Counterparty. (6) The "Cross Default" provisions of Section 5(a)(vi) will not apply to [Barclays] and will not apply to the Counterparty. (7) The "Merger Without Assumption" provisions of Section 5(a)(viii) will apply to [Barclays] and will not apply to the Counterparty. (8) The "Tax Event" provisions of Section 5(b)(ii) will not apply to [Barclays] and will not apply to the Counterparty. (9) The "Tax Event Upon Merger" provisions of Section 5(b)(iii) will not apply to [Barclays] and will not apply to the Counterparty. (10) The "Credit Event Upon Merger" provisions of Section 5(b)(iv) will not apply to [Barclays] and will not apply to the Counterparty. (11) The "Additional Termination Event" provisions of Section 5(b)(v) will apply as set forth in Part 1(15) hereof. (12) The "Automatic Early Termination" provisions of Section 6(a) will not apply to [Barclays] and will not apply to the Counterparty. (13) "Termination Currency" means United States Dollars. (14) For purposes of computing amounts payable on early termination resulting from an Event of Default with respect to [Barclays] or a Termination Event (including an Additional Termination Event) with [Barclays] as the Affected Party, (a) Market Quotation will apply to this Agreement; and (b) the First Method will apply to this Agreement. For purposes of computing amounts payable on early termination as a result of an Event of Default or Termination Event with respect to the Counterparty, the Settlement Amount shall be deemed to be zero. (15) The occurrence of the following event shall constitute an "Additional Termination Event" for purposes of Section 5(b)(v): (a) the occurrence of an Additional Termination Event as forth in Part 5 (10) hereof. If this Additional Termination Event occurs, [Barclays] shall be the sole Affected Party and all Transactions then outstanding between the parties shall be Affected Transactions. Upon the occurrence of an Additional Termination Event, [Barclays] shall notify the Rating Agencies of such occurrence. Part 2 Tax Representations (1) Payer Tax Representation: For the purpose of Section 3(e) of this Agreement, [Barclays] and Counterparty each make the following representation: It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made by it to the other party under this Agreement. In making this representation, it may rely on: 2 (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of this Agreement; (ii) the satisfaction of the agreement of the other party contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement; and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of this Agreement, provided that it shall not be a breach of this representation where reliance is placed on clause (ii) and the other party does not deliver a form or document under Section 4(a)(iii) of this Agreement by reason of material prejudice to its legal or commercial position. (2) [Barclays] Payee Tax Representations: For the purpose of Section 3(f), [Barclays] makes the following representations, which apply to [Barclays] with respect to that portion of its payments that are not attributable to [Barclays]' U.S. trade or business: (i) With respect to payments made to [Barclays] that are not effectively connected to the United States: It is a non-U.S. branch of a foreign person for United States federal income tax purposes; (ii) With respect to payments made to [Barclays] that are effectively connected to the United States: Each payment received or to be received by it in connection with this Agreement will be effectively connected with its conduct of a trade or business in the United States; and (iii) Each payment received or to be received by [Barclays] in connection with this Agreement may, in whole or in part, be effectively connected with the conduct of a trade or business by [Barclays] in the United States and the Counterparty may treat the full amount of each such payment as effectively connected with the conduct of a trade or business by [Barclays] in the United States for United States information reporting purposes. (3) Counterparty Payee Tax Representation: For the purpose of Section 3(f), the Counterparty represents that it is a United States Person for U.S. federal income tax purposes and either (a) is a financial institution or (b) is not acting as an agent for a person that is not a United States Person for U.S. federal income tax purposes. Part 3 Agreement to Deliver Documents For the purpose of Sections 4(a)(i) and (ii), each party agrees to deliver the following documents, as applicable: (1) For the purpose of Sections 4(a)(i) and (ii) of this Agreement, Counterparty agrees to deliver a complete and accurate United States Internal Revenue Service Form W-9 (or any 3 applicable successor form), in a manner reasonably satisfactory to [Barclays], (I) upon execution of this Agreement; (II) promptly upon reasonable demand of [Barclays], and (III) promptly upon learning that any such form previously filed by Counterparty has become obsolete or incorrect. (2) [Barclays] will, on demand, deliver a certificate (or, if available, the current authorized signature book of [Barclays]) specifying the names, title and specimen signatures of the persons authorized to execute this Agreement and each Confirmation on its behalf. (3) The Counterparty will, on demand, deliver a certificate (or, if available, the current authorized signature book of the Counterparty) specifying the names, title and specimen signatures of the persons authorized to execute this Agreement and each Confirmation on its behalf. (4) The Counterparty will, upon execution of this Agreement, deliver a conformed copy of the Pooling and Servicing Agreement and the Series Supplement. (5) Each party will, upon execution of this Agreement, deliver a legal opinion of counsel in form and substance satisfactory to the other party regarding this Agreement and any other matters as such other party may reasonably request. (6) The Counterparty shall supply (and/or shall instruct the Trustee to supply) [Barclays] with copies of the monthly and annual servicing reports delivered to the Series 2004-1 Certificateholders in the form specified in the Series Supplement. Copies of such accountings and/or reports shall be delivered to [Barclays] at the following address: [Barclays Bank PLC] 5 The North Colonnade Canary Wharf E14 4BB e-mail address: bgsoperations@barcap.com Each of the foregoing documents (other than the legal opinions described in (5) above) is covered by the representation contained in Section 3(d) of this Agreement. Part 4 Miscellaneous (1) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine. (2) Notices. (a) In connection with Section 12(a), all notices to [Barclays] shall, with respect to any particular Transaction, be sent to the address, telex number or facsimile number specified in the relevant Confirmation and any notice for purposes of Sections 5 or 6 of the Agreement shall be sent to the address or telex number specified below: 4 [Barclays Bank PLC] Attention: Swaps Documentation 5 The North Colonnade Canary Wharf E14 4BB Telephone No.: 44 (20) 7773 6810 Facsimile No.: 44 (20) 7773 6461 (b) In connection with Section 12(a), all notices to the Counterparty shall, with respect to any particular Transaction, be sent to the address, telex number or facsimile number specified in the relevant Confirmation and any notice for purposes of Sections 5 or 6 of the Agreement shall be sent to the address or telex number specified below: Charming Shoppes Master Trust c/o Wachovia Bank, National Association 123 Broad Street Philadelphia, PA 19101 Attn: George Rayzis Telephone No.: (215) 985-7321 Facsimile No.: (215) 985-7290 With a copy to: Spirit of America, Inc. 450 Winks Lane Bensalem, PA 19020 Attn: Kirk Simme Telephone No.: (215) 638-6722 Facsimile No.: (215) 633-4856 (3) Netting of Payments. Section 2(c)(ii) of this Agreement will apply, with the effect that payment netting will not take place with respect to amounts due and owing in respect of more than one Transaction. (4) Offices; Multibranch Party. For purposes of Section 10: (a) Section 10(a) will apply; and (b) For the purpose of Section 10(c): (i) [Barclays] is a Multibranch Party and may act through its London and New York Offices. (ii) The Counterparty is not a Multibranch Party. (5) Credit Support Documents. With respect to [Barclays], if applicable, any Third Party Credit Support Document delivered by [Barclays] shall constitute a Credit Support Document. 5 With respect to [Barclays] and the Counterparty, if applicable, any Approved Credit Support Document shall constitute a Credit Support Document. (6) Credit Support Provider. With respect to [Barclays], the party guaranteeing [Barclays]' obligations pursuant to a Third Party Credit Support Document, if any, shall be a Credit Support Provider. (7) Process Agents. The Counterparty appoints as its Process Agent for the purpose of Section 13(c): Not applicable Part 5 Other Provisions (1) ISDA Definitions. Reference is hereby made to the 2000 ISDA Definitions (the "ISDA Definitions") each as published by the International Swaps and Derivatives Association, Inc., which are hereby incorporated by reference herein. Any terms used and not otherwise defined herein which are contained in the ISDA Definitions shall have the meaning set forth therein. (2) Scope of Agreement. Notwithstanding anything contained in the Agreement to the contrary, if the parties enter into any Specified Transaction, such Specified Transaction shall be subject to, governed by and construed in accordance with the terms of this Agreement unless the Confirmation relating thereto shall specifically state to the contrary. Each such Specified Transaction shall be a Transaction for the purposes of this Agreement. (3) Inconsistency. In the event of any inconsistency between any of the following documents, the relevant document first listed below shall govern: (i) a Confirmation; (ii) the Schedule; (iii) the ISDA Definitions; and (iv) the printed form of ISDA Master Agreement. (4) Calculation Agent. The Calculation Agent will be [Barclays]. (5) Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating to this Agreement or any Credit Support Document. Each party (i) certifies that no representative, agent or attorney of the other party or any Credit Support Provider has represented, expressly or otherwise, that such other party would not, in the event of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party have been induced to enter into this Agreement and provide for any Credit Support Document, as applicable, by, among other things, the mutual waivers and certifications in this Section. (6) Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal, or unenforceable (in whole or in part) in any respect, the remaining terms, provisions, covenants and conditions hereof shall continue in full force and effect as if this Agreement had been executed with the invalid or unenforceable 6 portion eliminated, so long as this Agreement as so modified continues to express, without material change the original intentions of the parties as to the subject matter of this Agreement and the deletion of such portion of this Agreement will not substantially impair the respective benefits or expectations of the parties to this Agreement; provided, however, that this severability provision shall not be applicable if any provision of Section 2, 5, 6 or 13 (or any definition or provision in Section 14 to the extent it relates to, or is used in or in connection with any such Section) shall be so held to be invalid or unenforceable. (7) No Gross-up for Counterparty. Section 2(d) of the Agreement shall not apply with respect to the Counterparty so that the Counterparty shall not be obligated to gross up pursuant thereto. (8) [RESERVED] (9) No Petition; Limited Recourse. [Barclays] hereby agrees that it shall not institute against, or join any other Person in instituting against the Counterparty any bankruptcy, reorganization, arrangement, insolvency, moratorium or liquidation proceedings or other proceedings under U.S. federal or state or other bankruptcy or similar laws. Notwithstanding the foregoing, nothing herein shall prevent [Barclays] from participating in any such proceeding once commenced. [Barclays] hereby acknowledges and agrees that the Counterparty's obligations hereunder will be solely the limited recourse obligations of the Counterparty, and that [Barclays] will not have any recourse to any of the directors, officers, employees, shareholders or affiliates of the Counterparty with respect to any claims, losses, damages, liabilities, indemnities or other obligations in connection with any transactions contemplated hereby. Notwithstanding any other provisions hereof, recourse in respect of any obligations of the Counterparty to [Barclays] hereunder or thereunder will be limited to the assets of the Trust, subject to and in accordance with the terms of the priority of payments set forth in the Series Supplement, and on the exhaustion thereof all claims against the Counterparty arising from this Agreement or any other transactions contemplated hereby or thereby shall be extinguished. (10) Ratings Downgrade Provisions. Unless written notification to the contrary has been received from the Rating Agencies, following the occurrence of a Ratings Event I and/or a Ratings Event II, the parties shall comply with the following provisions, as applicable. I. If a Ratings Event I shall occur and be continuing with respect to [Barclays], then [Barclays] shall, within 5 Local Business Days of the occurrence of such Ratings Event I, give notice of the occurrence of such Ratings Event I to Counterparty and the Servicer. Following such notice, [Barclays] may either (A) at its sole option and expense, provide, or cause to be provided, a Third Party Credit Support Document to Counterparty; or (B) at its sole option and expense, use reasonable efforts to transfer [Barclays]' rights and obligations under the Agreement and all Confirmations to another party. Each of I(A) and I(B) above shall be subject to satisfaction of the Rating Agency Condition. 7 If, on or prior to the date that is 29 calendar days after the occurrence of a Ratings Event I, [Barclays] has provided a Third Party Credit Support Document as provided in I(A) above and the Rating Agency Condition has been satisfied, then, for so long as such Third Party Credit Support Document is in effect and the Rating Agency Condition continues to be satisfied, [Barclays] shall have no further obligations in respect of this Part 5(10)(I). If, (i) on or prior to the date that is 29 calendar days after the occurrence of a Ratings Event I, [Barclays] has not provided a Third Party Credit Support Document as provided in I(A) above or transferred its rights and obligations as provided in I(B) above, or (ii) [Barclays] has provided a Third Party Credit Support Document as provided in I(A) above but such Third Party Credit Support Document has ceased to be in effect and/or the Rating Agency Condition is no longer satisfied, then, on the first Local Business Day following the date that is 29 calendar days after the occurrence of the Ratings Event I (in respect of (i) above) or on the first Local Business Day following the date on which the Third Party Credit Support Document referred to in (ii) above has ceased to be in effect and/or fails to satisfy the Rating Agency Condition, Counterparty may demand that [Barclays] deliver Eligible Collateral to Counterparty in accordance with the terms of an Approved Credit Support Document. Concurrently with such delivery of Eligible Collateral, [Barclays] shall cause its outside counsel to deliver to Counterparty an opinion as to the enforceability, perfection and priority of Counterparty's security interest in such Eligible Collateral in all relevant jurisdictions (i.e. that, notwithstanding Barclay's insolvency, the collateral will be available to meet swap obligations free from any preference claim or moratorium), if necessary to satisfy the Rating Agency Condition. Notwithstanding the foregoing, [Barclays]' obligations under this Part 5(10)(I) to post Eligible Collateral under the Approved Credit Support Document shall remain in effect only for so long as a Ratings Event I is continuing with respect to [Barclays]. The failure by [Barclays] to comply with the provisions hereof shall constitute an Additional Termination Event, with [Barclays] as the sole Affected Party and all Transactions then outstanding between the parties as Affected Transactions. II. If a Ratings Event II or Ratings Event III shall occur and be continuing with respect to [Barclays], then [Barclays] shall, within 5 Local Business Days of the occurrence of such Ratings Event, give notice of the occurrence of such Ratings Event to Counterparty and the Servicer. Following such notice, [Barclays] shall either (A) if such Ratings Event is a Ratings Event II only (i.e., is not a Ratings Event III) and to the extent that is has not already done so in accordance with Part 5(10)(I), at its sole option and expense, provide, or cause to be provided, a Third Party Credit Support Document to Counterparty; or (B) if such Ratings Event is either a Ratings Event II or Ratings Event III, at its sole option and expense, use reasonable efforts to transfer [Barclays]' rights and obligations under the Agreement and all Confirmations to another party. 8 Each of II(A) and II(B) above shall be subject to satisfaction of the Rating Agency Condition. If, on or prior to the date that is 29 calendar days after the occurrence of a Ratings Event II, [Barclays] has provided a Third Party Credit Support Document as provided in II(A) or I(A) above and the Rating Agency Condition has been satisfied, then, for so long as such Third Party Credit Support Document is in effect and the Rating Agency Condition continues to be satisfied, then, (i) [Barclays] shall have no further obligations in respect of this Part 5(10)(II) and, (ii) if [Barclays] was delivering Eligible Collateral to Counterparty in accordance with the terms of an Approved Credit Support Document pursuant to the provisions of Part 5(10)(I) hereof, [Barclays] shall have no further obligations to deliver Eligible Collateral under the Approved Credit Support Document. If, (i) on or prior to the date that is 29 calendar days after the occurrence of a Ratings Event II, [Barclays] has not provided a Third Party Credit Support Document as provided in II(A) above or transferred its rights and obligations as provided in II(B) above; or on or prior to the date that is 29 calendar days after the occurrence of Ratings Event III, [Barclays] has not transferred its rights and obligations as provided in II(B) above, or (ii) [Barclays] has provided a Third Party Credit Support Document as provided in II(A) or I(A) above but such Third Party Credit Support Document has ceased to be in effect and/or the Rating Agency Condition is no longer satisfied, then, on the first Local Business Day following the date that is 29 calendar days after the occurrence of the Ratings Event II (in respect of (i) above) or on the first Local Business Day following the date on which the Third Party Credit Support Document referred to in (ii) above has ceased to be in effect and/or fails to satisfy the Rating Agency Condition, and only to the extent that [Barclays] is not already delivering Eligible Collateral to Counterparty in accordance with the terms of an Approved Credit Support Document pursuant to the provisions of Part 5(10)(I) hereof, [Barclays] will deliver Eligible Collateral to Counterparty in accordance with the terms of an Approved Credit Support Document. Concurrently with such delivery of Eligible Collateral, [Barclays] shall cause its outside counsel to deliver to Counterparty an opinion as to the enforceability, perfection and priority of Counterparty's security interest in such Eligible Collateral in all relevant jurisdictions (i.e. that, notwithstanding Barclay's insolvency, the collateral will be available to meet swap obligations free from any preference claim or moratorium), if necessary to satisfy the Rating Agency Condition. Notwithstanding [Barclays]' posting of Eligible Collateral in accordance with the terms of the Approved Credit Support Document, [Barclays] shall use best efforts to either transfer its rights and obligations to an acceptable third party or to provide a Third Party Credit Support Document. Notwithstanding the foregoing, [Barclays]' obligations under this Part 5(10)(II) to find a transferee or provide a Third Party Credit Support Document, as applicable, and to post Eligible Collateral under the Approved Credit Support Document shall remain in effect only for so long as a Ratings Event II or Ratings Event III is continuing with respect to [Barclays]. The failure by [Barclays] to comply with the provisions hereof shall constitute an Additional Termination Event, with [Barclays] as the sole Affected Party and all Transactions then outstanding between the parties as Affected Transactions. 9 As used herein: "Approved Credit Support Document" the 1994 ISDA Credit Support Annex (ISDA Agreements Subject to New York Law Only), dated as of August 5, 2004, between Party A and Party B, as modified by the Paragraph 13 thereto (collectively, the "Initial Credit Support Document"), and any other security agreement substantially in the form of the Initial Credit Support Document. "Moody's" means Moody's Investors Service, Inc. or any successor thereto; "Pooling and Servicing Agreement" means the Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997 and as amended as of July 22, 1999 and as of May 8, 2001 among Charming Shoppes Receivables Corp., Spirit of America, Inc., as servicer (together with its successors and assigns, the "Servicer") and Wachovia Bank National Association (formerly known as First Union National Bank), as trustee (together with its successors and assigns, the "Trustee"). "Rating Agencies" means S&P and Moody's; "Rating Agency Condition" has the meaning specified in the Pooling and Servicing Agreement; "Ratings Event" means a Ratings Event I, a Ratings Event II or a Ratings Event III. "Ratings Event I" shall occur with respect to [Barclays] (to the extent that [Barclays]' relevant obligations are rated by Moody's) if [Barclays]' long-term senior unsecured debt rating by Moody's is lower than A1 or is A1 on negative watch or [Barclays]' short-term senior unsecured debt rating by Moody's is lower than P-1 or is P-1 on negative watch; "Ratings Event II" shall occur with respect to [Barclays] (to the extent that [Barclays]' relevant obligations are rated by S&P and/or Moody's) if (a) [Barclays]' short-term senior unsecured debt rating by S&P is lower than A-1 or (b) [Barclays]' long-term senior unsecured debt rating by Moody's is A3 or lower or [Barclays]' short-term senior unsecured debt rating by Moody's is P-2 or lower; "Ratings Event III" shall occur with respect to [Barclays] (to the extent that [Barclays]' relevant obligations are rated by S&P) if [Barclays]' long-term senior unsecured debt rating by S&P is lower than BBB-; "Series Supplement" means the Series 2004-1 Supplement to the Pooling and Servicing Agreement dated as of August 5, 2004, among the Seller, the Servicer and the Trustee; "S&P" means by Standard & Poor's Ratings Service or any successor thereto; and "Third Party Credit Support Document" means any agreement or instrument (including any guarantee, letter of credit, insurance policy, security agreement or pledge agreement) whose terms provide for the guarantee of [Barclays]' obligations under this Agreement by a third party. (11) Additional Representations. Section 3 is hereby amended by adding at the end thereof the following paragraphs: 10 "(g) It is an "eligible contract participant" under, and as defined in, Section 1a(12) of the Commodity Exchange Act, as amended. (h) Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction): (i) Non-Reliance. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. No communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of that Transaction. (ii) Assessment and Understanding. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the risks of that Transaction. (iii) Status of Parties. The other party is not acting as a fiduciary for or an adviser to it in respect of that Transaction." (12) Amendment to Section 7 of the Agreement. Section 7 of the Agreement is hereby amended by: (i) adding the words "and the confirmation of the Rating Agencies" immediately following the word "party" in the third line thereof; and (ii) adding the following sentence immediately following the final sentence thereof: "In addition, no transfer shall be effective unless it satisfies the Rating Agency Condition.". (13) Events of Default. Section 5(a)(i) of the Agreement is amended by substituting the following therefor: "Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the fifth Local Business Day after notice of such failure is given to the other party; provided that failure by Party A to make a payment under this Agreement shall not constitute an Event of Default if the required payment is made from Posted Collateral (as defined in the applicable Approved Credit Support Document) available for such purpose and Party A Transfers to the Trustee Cash in U.S. Dollars in an amount equal to the amount of Posted Collateral applied to make such required payment on behalf of Party A within five Local Business Days of the date on which such payment or delivery is due. (14) Amendment to Section 9(b) of the Agreement. Section 9(b) of the Agreement is amended by adding the following sentence immediately following the end of the first sentence thereof: "In addition, no amendment modification or waiver in respect of this Agreement will be effective unless it satisfied the Rating Agency Condition." 11 (15) Amendment to Section 6(e) of the Agreement. Section 6(e) of the Agreement is amended by deleting the last sentence of the introductory paragraph thereof (i.e. there shall be no Set-Off). (16) Set-Off. The parties agree that there will be no Set-off with respect to this Agreement. (17) Restrictions on Amendments. The Trustee shall not, without the prior written consent of Party A, enter into any amendment, modification or supplement to the Series Supplement that would materially and adversely affects the timing, amount or priority of distributions to be made to Party A. (18) Servicer Empowered to Act for Party B. Each of Party A and Party B acknowledges and agrees that, until the Trustee shall have notified the Servicer and Party A to the contrary, the Servicer (as defined in the Pooling and Servicing Agreement) is hereby authorized and empowered to make or deliver, as applicable, any notice, demand, request or consent required or permitted to be made by Party B pursuant to this Agreement. 12 Please confirm your agreement to the terms of the foregoing Schedule by signing below. [BARCLAYS BANK PLC] By: ------------------------------- Name: Title: WACHOVIA BANK, NATIONAL ASSOCIATION, as Trustee of Charming Shoppes Master Trust By: ------------------------------- Name: Title: S-1 (Bilateral Form) (ISDA Agreements Subject to New York Law Only) ISDA(R) International Swaps and Derivatives Association, Inc. CREDIT SUPPORT ANNEX to the Schedule to the ISDA MASTER AGREEMENT ([Class A]) dated as of August 5, 2004 between [Barclays Bank PLC] and Wachovia Bank, National Association, as ("Party A") Trustee ("Party B") This Annex supplements, forms part of, and is subject to, the ISDA Master Agreement referred to above (this "Agreement"), is part of its Schedule and is a Credit Support Document under this Agreement with respect to each party. Accordingly, the parties agree as follows: Paragraphs 1 - 12. Incorporation Paragraphs 1 through 12 inclusive of the ISDA Credit Support Annex (Bilateral Form) (ISDA Agreements Subject to New York Law Only) published in 1994 by the International Swaps and Derivatives Association, Inc. are incorporated herein by reference and made a part hereof. Paragraph 13. (a) Security Interest for "Obligations". The term "Obligations" as used in this Annex includes the following additional obligations: With respect to Party A: None. With respect to Party B: None. (b) Credit Support Obligations. (i) Delivery Amount, Return Amount and Credit Support Amount. (A) "Delivery Amount" has the meaning specified in Paragraph 3(a), except that the words "upon a demand made by the Secured Party on or promptly following a Valuation Date" shall be deleted and replaced with the words "not later than the close of business on the next Local Business Day following a Valuation Date"; and (B) "Return Amount" has the meaning specified in Paragraph 3(b). (C) "Credit Support Amount" shall not have the meaning specified in Paragraph 3(b) and, instead, will have the following meaning: "Credit Support Amount" means, (a) for any Valuation Date on which a Ratings Event (as defined in the Agreement) has occurred and is continuing, the Secured Party's Modified Exposure for that Valuation Date, and (b) for any other Valuation Date, Floor Amount. (ii) Eligible Credit Support. On any date, the following items will qualify as "Eligible Credit Support" for each party; provided that an amount of Eligible Collateral equal to the Floor Amount shall at all times be posted as cash in U.S. Dollars.
Valuation Percentage (A) cash in U.S. Dollars 100% (B) negotiable debt obligations issued after 18 July 1984 by the U.S. Treasury 97.1% Department having a residual maturity on such date of less than 1 year (with local and foreign currency issuer ratings of Moody's Aa2 and S&P AA or above) (C) negotiable debt obligations issued after 18 July 1984 by the U.S. Treasury To Be Determined Department having a residual maturity on such date equal to or greater than 1 year but less than 5 years (with local and foreign currency issuer ratings of Moody's Aa2 and S&P AA or above) (D) negotiable debt obligations issued after l8 July 1984 by the U.S. Treasury To Be Determined Department having a residual maturity on such date equal to or greater than 5 years but less than 10 years (with local and foreign currency issuer ratings of Moody's Aa2 and S&P AA or above) (E) negotiable debt obligations of the Government National Mortgage To Be Determined Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Student Loan Marketing Association or a Federal Home Loan Bank (all entities rated Moody's Aal and S&P AA+ or above) with a residual maturity on such date equal to or greater than 1 year but less than 3 years. (F) negotiable debt obligations of the Government National Mortgage To Be Determined Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Student Loan Marketing Association or a Federal Home Loan Bank (all entries rated Moody's Aa1 and S&P AA+ or above) with a residual maturity on such date equal to or greater than 3 years but less than 5 years. (G) negotiable debt obligations of the Government National Mortgage To Be Determined Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Student Loan Marketing Association or a Federal Home Loan Bank (all entries rated Moody's Aal and S&P AA+ or above) with a residual maturity on such date equal to or greater than 5 years but less than 7 years. (H) negotiable debt obligations of the Government National Mortgage To Be Determined Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Student Loan Marketing Association or a Federal Home Loan Bank (all entries rated Moody's Aal and S&P AA+ or above) with a residual maturity on such date equal to or greater than 7 years but less than 10 years.
2 Where the ratings of the relevant agencies differ with respect to the same negotiable debt obligation, the lower of the ratings shall apply. In addition, upon a Ratings Event, the Valuation Percentage in relation to Eligible Collateral of the type described in (C) through (H) above shall be determined with the consent of S&P and Moody's; provided, however, that if Party A is required to post collateral in accordance with the terms of this Agreement it shall post only Eligible Collateral of the type described in (A) and (B) above until such time as the Rating Agency Condition shall have been satisfied with respect to the Valuation Percentages assigned to Eligible Collateral of the type described in (C) through (H) above. (iii) Other Eligible Support. Such Other Eligible Support as the Pledgor may designate with the consent of the Secured Party and the Servicer; provided, at the expense of the Pledgor, the Rating Agency Condition shall have been satisfied; and provided further that an amount of Eligible Collateral equal to the Floor Amount shall at all times be posted as cash in U.S. Dollars. For the avoidance of doubt there are no items which qualify as Other Eligible Support as of the date of this Annex. (iv) Thresholds. (A) "Independent Amount" means zero. (B) "Threshold" means for Party A: zero. "Threshold" means, for Party B: infinity. (C) "Minimum Transfer Amount" means zero. (D) Rounding: The Delivery Amount and the Return Amount will not be rounded. (c) Valuation and Timing. (i) "Valuation Agent" means Party A. (ii) "Valuation Date" means each Reset Date (as defined in the Confirmation relating to the [Class A] Swap) and each other Local Business Day which, if treated as a Valuation Date, would result in a Delivery Amount or Return Amount. Additionally, in the event of a Ratings Event (and except as otherwise agreed by S&P), the parties agree that a Valuation Date shall occur at least once each week and that the Valuation Agent will use its best efforts to verify the Valuation Agent's Exposure calculation at least once each month by obtaining Exposure calculations from two Reference Market-makers. The Valuation Agent shall obtain Exposure calculations from the same Reference Market-maker no more than four times in any calendar year. For the purposes of this provision only, the Exposure calculation by the Valuation Agent should reflect the higher of the two Exposure calculations provided by the Reference Market-makers. (iii) "Valuation Time" means the close of business in the city of the Valuation Agent on the Local Business Day before the Valuation Date or date of calculation, as applicable, provided that the calculations of Value and Exposure will be made as of approximately the same time on the same date. (iv) "Notification Time" means 11:00 a.m., New York time, on a Local Business Day. 3 (d) Conditions Precedent and Secured Party's Rights and Remedies. With respect to Party A, each of the following will be a "Specified Condition": (x) any Additional Termination Event (if [Barclays] is the Affected Party), (y) any Potential Event of Default under Section 5(a)(i) of the Agreement and the continuance thereof for one Local Business Day after the related payment or delivery is due, or (z) any Potential Event of Default under Section 5(a)(vii) of the Agreement. Party A: (e) Substitution. (i) "Substitution Date" has the meaning specified in Paragraph 4(d)(ii). (ii) Consent. Not applicable. (f) Dispute Resolution. (i) "Resolution Time" means 1:00 p.m. New York time on the Local Business Day following the date on which the notice of the dispute is given under Paragraph 5. Value. For the purpose of Paragraphs 5(i)(C) and 5(ii), on any date, the Value of Eligible Credit Support will be calculated as follows: For Eligible Credit Support comprised of cash, the amount of such cash. For Eligible Collateral comprising securities; the sum of (a)(x) the last bid price on such date for such securities on the principal national securities exchange on which such securities are listed, multiplied by the applicable Valuation Percentage or (y) where any such securities are not listed on a national securities exchange, the bid price for such securities quoted as at the close of business on such date by any principal market maker for such securities chosen by the Valuation Agent, multiplied by the applicable Valuation Percentage or (z) if no such bid price is listed or quoted for such date, the last bid price listed or quoted (as the case may be), as of the day next preceding such date on which such prices were available; multiplied by the applicable Valuation Percentage; plus (b) the accrued interest on such securities (except to the extent that such interest shall have been paid to the Pledgor pursuant to Paragraph 6(d)(ii) or included in the applicable price referred to in subparagraph (a) above) as of such date. (ii) Alternative. The provisions of Paragraph 5 will apply; provided that the obligation of the appropriate party to deliver the undisputed amount to the other party will not arise prior to the time that would otherwise have applied to the Transfer pursuant to, or deemed made, under Paragraph 3 if no dispute had arisen. (g) Holding and Using Posted Collateral. (i) Eligibility to Hold Posted Collateral; Custodians. Party B is not and will not be entitled to hold Posted Collateral. Party B's Custodian will be entitled to hold Posted Collateral pursuant to Paragraph 6(b); provided that the Custodian for Party B shall be the same banking institution that acts as Trustee under the Pooling and Servicing Agreement. Initially, the Custodian for Party B is Wachovia Bank, National Association, not in its individual capacity, but solely as Trustee under the Pooling and Servicing Agreement. (ii) Use of Posted Collateral. The provisions of Paragraph 6(c) will not apply to Party B; therefore, Party B will not have any of the rights specified in Paragraph 6(c)(i) or 6 (c)(ii); provided, however, that the Trustee shall invest Cash Posted Credit Support in Permitted Investments (as 4 defined in the Pooling and Servicing Agreement) designated by Party A and approved by the Servicer that mature no later than the following Floating Rate Payer Payment Date, with losses (net of gains) incurred in respect of such investments to be for the account of Party A. The Secured Party is authorized to liquidate any Posted Credit Support pursuant to written instructions from Party A. (h) Distributions and Interest Amount. (i) Interest Rate. The "Interest Rate" will be the yield earned on Cash Posted Credit Support pursuant to clause (g)(ii) above. (ii) Transfer of Interest Amount. The Transfer of the Interest Amount will be made on the first Local Business Day following each Reset Date (as defined in the Confirmation relating to the Class A Certificates). (i) Additional Representation(s). There are no additional representations by either party. (j) Other Eligible Support and Other Posted Support. (i) "Value" with respect to Other Eligible Support and Other Posted Support shall have such meaning as the parties and the Servicer shall agree in writing from time to time. (ii) "Transfer" with respect to Other Eligible Support and Other Posted Support shall have such meaning as the parties and the Servicer shall agree in writing from time to time. (k) Demands and Notices. All demands, specifications and notices under this Annex will be made pursuant to the Notices Section of this Agreement, save that any demand, specification or notice: (i) shall be given to or made at the following addresses: If to Party A: As per the Notices Section of the Agreement. with a copy to: General Counsel's Office 200 Park Avenue New York, N.Y. 10166 Notices to Party A shall not be deemed effective unless delivered to the New York address set forth above. If to Party B: Charming Shoppes Master Trust c/o Wachovia Bank, National Association 123 Broad Street Philadelphia, PA 19101 Attn: George Rayzis Telephone No.: (215) 985-7321 Facsimile No.: (215) 985-7290 With a copy to: 5 Spirit of America, Inc., as Servicer 450 Winks Lane Bensalem, PA 19020 Attn: Kirk Simme Telephone No.: (215) 638-6722 Facsimile No: (215) 633-4856 or at such other address as the relevant party may from time to time designate by giving notice (in accordance with the terms of this paragraph) to the other party; (ii) shall (unless otherwise stated in this Annex) be deemed to be effective at the time such notice is actually received unless such notice is received on a day which is not a Local Business Day. (l) Address for Transfers. Party B: Wachovia Bank, National Association Charlotte, NC ABA# 053000219 D/5000000016439 FFC: 2576047066/CSMT 2004-1 Swap 8-5-04 Attention to: CT1870 George Rayzis (m) Other Provisions. (i) Additional Definitions. As used in this Annex: "Floor Amount" means, for any Valuation Date, the amount payable by Party A on the next following Floating Rate Payer Payment Date specified in the Confirmation relating to the [Class A] Certificates. "Local Business Day" means: (i) any day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in New York, Philadelphia, Pennsylvania, Milford, Ohio and the location of the Trustee, and (ii) in relation to a Return Date on which a Transfer of Eligible Credit Support is to occur, a day on which the clearance system agreed between the parties for the delivery of Eligible Credit Support is open for acceptance and execution of settlement instructions (or in the case of a Transfer of Cash or other Eligible Credit Support for which delivery is contemplated by other means, a day on which commercial banks are open for business (including dealings for foreign exchange and foreign deposits) in New York and such other places as the parties shall agree). "Modified Exposure" means, for any Valuation Date, an amount equal to the greater of: (x) the greater of (i) the Secured Party's Exposure for that Valuation Date (plus the Notional Volatility Buffer or (ii) zero, and (y) the Floor Amount. "Ratings Event" means a "Ratings Event I" (as defined in the Agreement) or a "Ratings Event II" (as defined in the Agreement"). "Notional Volatility Buffer" as determined by the Valuation Agent for any date, means the outstanding Notional Amount of the Transaction on such date multiplied by the relevant percentage for such date as set out in the table below on such date. 6 Less than or Less than or equal to equal to 5 10 years but greater years to than 5 years to Party A S&P Rating on Termination Termination Date of such date Date of the the Transaction --------- Transaction --------------- ----------- S-T Rating of A-2 3.25% 4.00% ------------------------------- ----------- --------------- S-T Rating of A-3 4.00% 5.00% ------------------------------- ----------- --------------- L-T Rating of BB+ or lower 4.50% 6.75% ------------------------------- ----------- --------------- "Servicer" means the person designated as such under the Pooling and Servicing Agreement. As of the date hereof, the Servicer is Spirit of America, Inc. (ii) Holding Collateral. The Secured Party shall cause any Custodian appointed hereunder to open and maintain a segregated account and to hold, record and identify all the Posted Collateral in such segregated account and, subject to Paragraph 8(a), such Posted Collateral shall at all times be and remain the property of the Pledgor and shall at no time constitute the property of, or be commingled with the property of, the Secured Party or the Custodian. (iii) Agreement as to Single Secured Party and Pledgor. Party A and Party B agree that, notwithstanding anything to the contrary in this Annex, (a) the term "Secured Party" as used in this Annex means only Party B, (b) the term "Pledgor" as used in this Annex means only Party A, and (c) only Party A makes the pledge and grant in Paragraph 2, the acknowledgement in the final sentence of Paragraph 8(a) and the representations in Paragraph 9. (iv) Modifications to Paragraph 12: The following definitions of "Pledgor" and "Secured Party" are substituted for the definitions of those terms contained in Paragraph 12 of this Annex: "Pledgor" means Party A. "Secured Party" means Party B. (v) Expenses. Notwithstanding Paragraph 10, the Pledgor will be responsible for, and will reimburse the Secured Party for, all transfer and other taxes and other costs involved in the transfer of Eligible Collateral. (vi) Servicer Empowered to Act for Party B. Each of Party A and Party B acknowledges and agrees that, until the Trustee shall have notified the Servicer and Party A to the contrary, the Servicer is hereby authorized and empowered to make or deliver, as applicable, any notice, demand, request or consent required or permitted to be made by Party B pursuant to this Agreement. (vii) Amendment to Paragraph 8. Paragraph 8 of this Annex is amended by adding the following new sentence at the end thereof: `For the avoidance of doubt, in the event a Potential Event of Default occurs under Section 5(a)(i) or 5(a)(vii) of the Agreement, Party B shall be entitled to exercise the rights described in Paragraph 8(a), including the application of Posted Collateral to satisfy any payment obligation of Party A (including any payment obligation that gave rise to such Potential Event of Default) when due.' 7 IN WITNESS WHEREOF, the parties have executed this Annex by their duly authorized representatives as of the date of the Agreement. [BARCLAYS BANK PLC] WACHOVIA BANK, NATIONAL ASSOCIATION, as Trustee By: By: ------------------------- --------------------------------- Name Name: Title: Title: 8 [CLASS A] CONFIRMATION FOR U.S. DOLLAR INTEREST RATE SWAP TRANSACTION UNDER 1992 MASTER AGREEMENT Date: August 5, 2004 Our ref: [Barclays] Reference Number 576361B To: Wachovia Bank, National Association, From: [Barclays Bank PLC] as Trustee of Charming Shoppes 5 The North Colonnade Master Trust Canary Wharf E14 4BB Attn: George Rayzis Contact: Swap Documentation Fax No: (215) 985-7321 Fax No: 44 (20) 7773 6461 Tel No: (215) 985-7290 Tel No: 44 (20) 7773 6810 Dear Sir/Madam, The purpose of this letter agreement is to confirm the terms and conditions of the Transaction entered into between Wachovia Bank, National Association, as trustee of Charming Shoppes Master Trust and [Barclays Bank PLC] (each a "party" and together "the parties") on the Trade Date specified below (the "Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified in paragraph 1 below (the "Agreement"). The definitions and provisions contained in the 2000 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc., the "Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. Capitalized terms used herein and not otherwise defined have the meanings set forth in the Definitions or the Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997 and as amended as of July 22, 1999, May 8, 2001 and August 5, 2004 (the "Pooling and Servicing Agreement") among the Seller, Spirit of America, Inc., a Delaware corporation, as servicer (in such capacity, the "Servicer"), and Wachovia Bank, National Association (formerly known as First Union National Bank), as trustee (the "Trustee"), as supplemented by the Series 2004-1 Supplement to the Pooling and Servicing Agreement dated as of August 5, 2004 (the "Series Supplement"). 1. This Confirmation supplements, forms part of, and is subject to, the ISDA Master Agreement ([Class A]) (including the Schedule thereto) dated as of August 5, 2004 as amended and supplemented from time to time (the "Agreement"), between the parties. All provisions contained in the Agreement govern this Confirmation except as expressly modified below. In this Confirmation "Party A" means [Barclays Bank PLC] and "Party B" means Wachovia Bank, National Association, as Trustee for Charming Shoppes Master Trust. 2. The terms of the particular Transaction to which this Confirmation relates are as follows: Notional Amount Initially, USD $[115,200,000] and thereafter an amount equal for each Calculation Period to the outstanding principal amount of the [Class A] Certificates (as defined in the Series Supplement) at the end of the first day of that Calculation Period. Trade Date: July 21, 2004 Effective Date: August 5, 2004 Termination Date: The earlier of (i) May 15, 2014, subject to adjustment in accordance with the Following Business Day Convention, and (ii) the date on which the outstanding principal amount of the [Class A] Certificates (as defined in the Series Supplement) is reduced to zero, subject to early termination in accordance with the terms of the Agreement. In accordance with the Series Supplement, the [Class A] Expected Final Payment Date is November 15, 2009, subject to the Modified Following Business Day Convention. Fixed Amounts: Fixed Rate Payer: Party B Fixed Rate Payer Payment Dates: The 15th of each month commencing September 15, 2004 and ending on the Termination Date, subject to adjustmentin accordance with the Modified Following Business Day Convention Fixed Rate: 4.326% per annum Fixed Rate Day Count Fraction: Actual/360 Floating Amounts: Floating Rate Payer: Party A Floating Rate Payer Payment Dates: The 15th of each month commencing September 15, 2004 and ending on the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention. Floating Rate for initial Calculation Period: Linear Interpolation Floating Rate Option: USD-LIBOR-BBA Designated Maturity: 1 Month, except for the initial Calculation Period Spread: None Floating Rate Day Count Fraction: Actual/360 Reset Dates: First day of each Calculation Period Business Days: New York, London, Philadelphia, Pennsylvania, and Milford, Ohio Calculation Agent: Party A 3. Additional Amounts Upon Certain Partial Terminations (a) Capitalized terms used but not otherwise defined in this Section 3 have the meanings assigned thereto in the Series Supplement. In addition, the following terms have the meanings set forth below: "Available Reserve Funds" means funds on deposit in the Swap Reserve Account, other than interest and other investment income. "Estimate Date" means (x) the first Determination Date in 2005 on which the Three Month Excess Yield Percentage for the immediately succeeding Distribution Date is less than 7%, (y) each Determination Date thereafter during the Funding Period, and (z) the June, 2005 Determination Date. "Estimated Payment" means, with respect to any Estimate Date: (i) if the Three Month Excess Yield Percentage for the immediately succeeding Distribution Date (other than the June, 2005 Determination Date) is 7% or greater, zero; and (ii) otherwise, the amount, if any, that would be payable by Party B under this Section 3 if a Terminated Transaction were to occur on the Distribution Date immediately succeeding such Estimate Date as a result of a reduction in the Notional Amount by the [Class A] Percentage of the lesser of (A) $[30 million] or (B) the amount on deposit in the Pre-Funding Account, excluding interest or other investment earnings on funds on deposit in such account. "Floor Amount" means the lesser of (a) $[390,000] and (b) 1.3% of the amount on deposit in the Pre-Funding Account. "Prefunding Reduction" means a principal payment made on the [Class A] Certificates as a result of the release of funds from the Pre-Funding Account pursuant to Section 4.19(b) of the Series Supplement. "Swap Reserve Account" means a segregated trust account maintained by the Trustee at the Trustee in the name of the Trustee, for the benefit of Party A as counterparty under each of the Interest Rate Swap Agreements. "Three Month Excess Yield Percentage" has the meaning set forth in the [Class C] Purchase Agreement. (b) If the Notional Amount is reduced on the Funding Period Termination Distribution Date as a result of a Prefunding Reduction, the parties hereto shall treat the portion of such reduction (without duplication) as terminated on such date (a "Terminated Transaction"). Party A shall calculate the Market Quotation for the Terminated Transaction as set forth below. "Market Quotation" means, with respect to a Terminated Transaction, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to Party A (expressed as a negative number) or by Party A (expressed as a positive number) in consideration of an agreement between Party A and the quoting Reference Market-maker to enter into such Terminated Transaction (with the same fixed and floating payment rates and remaining term as this Transaction) on the relevant Payment Date. Party A will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable prior to the relevant Payment Date. The day and time as of which those quotations are to be obtained will be selected in good faith by Party A. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, Party A will determine the Market Quotation in good faith. Notwithstanding the foregoing, Party A shall be the sole Reference Market-maker unless: (a) the reduction in the Notional Amount of the Transaction is equal to or greater than $[50 million], and (b) the Servicer or the Trustee requests that Quotations from Reference Market-makers other than Party A are utilized. If the amount so determined by Party A in respect of a Terminated Transaction is positive, Party B shall owe such amount to Party A, which shall be payable (with interest thereon accruing from such Payment Date and calculated at the Fixed Rate) on the next Payment Date to the extent provided in the Series Supplement. If such amount is negative, Party A shall pay such amount to Party B on the next Local Business Day. (c) On each Estimate Date, the Calculation Agent shall calculate the Estimated Payment. If the Estimated Payment on the first Estimate Date exceeds the Floor Amount, Party B shall transfer an amount equal to the excess, pursuant to Section 4.11(t) of the Series Supplement, to the Swap Reserve Account on the immediately succeeding Distribution Date. On each Estimate Date thereafter, the Calculation Agent shall calculate: (i) the Estimated Payment, (ii) the excess, if any (the "Estimated Shortfall"), of (A) the Estimated Payment over (B) the sum of the Floor Amount plus Available Reserve Funds; and (iii) the excess, if any (the "Estimated Excess") of (A) the sum of the Floor Amount plus Available Reserve Funds, over (B) the Estimated Payment. If the Estimated Shortfall is greater than zero, Party B shall transfer the Estimated Shortfall to the Swap Reserve Account on the next succeeding Distribution Date pursuant to Section 4.11(t) of the Series Supplement. If the Estimated Excess is greater than zero, Party B shall withdraw the Estimated Excess from the Swap Reserve Account and transfer such amount to the Holder of the Exchangeable Seller Certificate. (d) On the Funding Period Termination Distribution Date, the amount payable by Party B under clause (b) of this Section 3, if any, shall be paid from the following sources: first, funds available for that purpose under Section 4.11(t) of the Series Supplement, second, Available Reserve Funds in the Swap Reserve Account, and third, funds that would otherwise be released on such date to the holder of the Exchangeable Seller Certificate from the Funding Period Reserve Account. (e) Party B's obligation to deposit funds to the Swap Reserve Account shall be limited to the extent that funds are available for such purpose under Section 4.11(t) of the Series Supplement, and failure to make such deposit due to such funds not being available shall not constitute an Event of Default. Funds held in the Swap Reserve Account shall be used solely to fund Party B's obligations under clause (b) of this Section 3 in respect of a Terminated Transaction, and may not be used for any other purpose. (f) Funds on deposit in the Swap Reserve Account (after giving effect to any withdrawals from the Swap Reserve Account) shall be invested by the Trustee at the direction of the Servicer in Permitted Investments maturing no later than the following Distribution Date. The interest and other investment income (net of investment expenses and losses) earned on such investments shall be withdrawn from the Swap Reserve Account and transferred to the holder of the Exchangeable Seller Certificate on each Distribution Date, provided that any other deposit to, or withdrawal from, such account required to be made on such date has occurred. (g) The Swap Reserve Account shall be terminated following the earlier to occur of (a) the completion of the Funding Period and (b) the termination of the Trust pursuant to the Agreement. Upon the termination of the Swap Reserve Account, all amounts on deposit therein (after giving effect to any withdrawal from the Swap Reserve Account on such date as described above) shall be distributed to the Holder of the Exchangeable Seller Certificate. 4. Account Details: Account for payments to Party A: Name: [Barclays Bank PLC] City: New York ABA# 026 002 574 Ref: [Barclays] Swaps Acct: 050-01922-8 Account for payments to Party B: Wachovia Bank, National Association Charlotte, NC ABA# 053000219 D/5000000016439 FFC: 2576000052/CSMT Collections AC Attention to: CT1870 George Rayzis 5. Offices: The Office of Party A for this 5 The North Colonnade Transaction is: Canary Wharf E14 4BB The Office of Party B for this c/o Wachovia Bank, National Association Transaction is: 123 Broad Street Philadelphia, PA 19101 6. Insolvency The "Bankruptcy" provisions of clause (2) of Section 5(a)(vii) will not apply to the Counterparty if the Counterparty's insolvency, inability to pay its debts, or failure or admission in writing of its inability generally to pay its debts as they become due relates solely to debts of the Counterparty that are subordinated to the [Class A] Certificates. Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding within three (3) Business Days by returning via telecopier an executed copy of this Confirmation to the attention of BGS Operations (fax no. 44 (20) 7773 6461). Failure to respond within such period shall not affect the validity or enforceability of this Transaction, and shall be deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. [BARCLAYS BANK PLC] Accepted and confirmed as of the date first written: WACHOVIA BANK, NATIONAL ASSOCIATION, By: as Trustee of Charming Shoppes Master Trust -------------------------- Name: Title: By: ------------------------------ Name: Title: S-1 Exhibit I FORM OF NON-U.S. BENEFICIAL OWNERSHIP CERTIFICATION BY MEMBER ORGANIZATION [Date] [Euroclear or Clearstream Banking, societe anonyme, as applicable] Re: Charming Shoppes Master Trust (the "Trust") Series 2004-1 Certificates, Class [A] [M] [B] (the "Certificates") This is to certify that as of the date hereof, and except as set forth below, the Certificates held by you for our account are beneficially owned by a non-U.S. person(s). As used in this paragraph the term "U.S. person" has the meaning given to it by Regulation S under the United States Securities Act of 1933, as amended. We undertake to advise you promptly by tested telex on or prior to the date on which you intend to submit your certification relating to the Certificates held by you for our account in accordance with your operating procedures if any applicable statement herein is not correct on such date, and in the absence of any such notification it may be assumed that this certification applies as of such date. We understand that this certification is required in connection with certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorize you, the Trust, Indenture Trustee or Transfer Agent and Registrar for the Certificates to produce this certification to any interested party in such proceedings. Date: ____________, 20___. By: --------------------------------- [Agent Member] As, or as agent for, the Beneficial Owner(s) of the Certificates to which this certificate relates. I-1 Exhibit J FORM OF NON-U.S. BENEFICIAL OWNERSHIP CERTIFICATION BY EUROCLEAR OR CLEARSTREAM BANKING, SOCIETE ANONYME [Date] [Name and address of Trustee] Re: Charming Shoppes Master Trust (the "Trust") Series 2004-1 Certificates, Class [A] [M] [B] (the "Certificates") This is to certify that, based solely on certifications we have received in writing, by tested telex or by electronic transmission, from member organizations appearing in our records as persons being entitled to a portion of the principal amount of the Certificates set forth below (our "Member Organizations") substantially to the effect set forth in the Series 2004-1 Supplement, dated as of August 5, 2004, between Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association, as Trustee, U.S. $_______ principal amount of the above-captioned Certificates held by us or on our behalf are beneficially owned by non-U.S. person(s). As used in this paragraph, the term "U.S. person" has the meaning given to it by Regulation S under the United States Securities Act of 1933, as amended. We further certify: 1. that we are not making available herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) any portion of the Regulation S Temporary Book-Entry Certificates excepted in such certifications; and 2. that as of the date hereof we have not received any notification from any of our Member Organizations to the effect that the statements made by such Member Organizations with respect to any portion of the part submitted herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) are no longer true and cannot be relied upon as the date hereof. We understand that this certification is required in connection with certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorize you, the Seller or the Trust to produce this certification to any interested party in such proceedings. J-1 Dated: ________, 20_ Yours Faithfully, [Euroclear or Clearstream Banking, societe anonyme] By:_________________________________ J-2 EX-10 5 exh106.txt EXHIBIT 10.6 EXHIBIT 10.6 CHARMING SHOPPES MASTER TRUST $115,200,000 Floating Rate Class A Asset Backed Certificates, Series 2004-1 $10,800,000 Floating Rate Class M Asset Backed Certificates, Series 2004-1 $18,900,000 Floating Rate Class B Asset Backed Certificates, Series 2004-1 CERTIFICATE PURCHASE AGREEMENT July 21, 2004 Barclays Capital Inc., as a Representative of the Initial Purchasers (the "Representative") 200 Park Avenue New York, New York 10166 Ladies and Gentlemen: 1. Introduction. Charming Shoppes Receivables Corp. ("CSRC" or the "Seller"), a special-purpose Delaware corporation whose principal place of business is in Delaware and which is a wholly-owned indirect subsidiary of Charming Shoppes, Inc. ("Charming"), proposes to sell to Barclays Capital Inc. and Bear, Stearns & Co. Inc. (the "Initial Purchasers") (a) $115,200,000 Series 2004-1 Floating Rate Class A Asset Backed Certificates (the "Class A Certificates"), (b) $10,800,000 Series 2004-1 Floating Rate Class M Asset Backed Certificates (the "Class M Certificates") and (c) $18,900,000 Series 2004-1 Floating Rate Class B Asset Backed Certificates (the "Class B Certificates" and, together with the Class A Certificates and the Class M Certificates, the "Offered Certificates") to be issued pursuant to the Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997 (as amended as of July 22, 1999 and May 8, 2001 and as further amended from time to time, the "Pooling Agreement") among the Seller, Spirit of America, Inc. ("SOAI"), a Delaware corporation which is a wholly-owned indirect subsidiary of Charming, as servicer (in such capacity, the "Servicer"), and Wachovia Bank, National Association (formerly known as First Union National Bank), as trustee (the "Trustee"), as supplemented by the Series 2004-1 Supplement to the Pooling Agreement dated as of the Issuance Date (as defined below) (the "Series Supplement", and the Pooling Agreement, as so supplemented, the "Supplemented Pooling Agreement"). Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Supplemented Pooling Agreement. Each Offered Certificate will represent an undivided ownership interest in the Charming Shoppes Master Trust (the "Trust"). In addition, concurrently with the issuance of the Offered Certificates, the Trust will issue $16,200,000 Series 2004-1 Class C Asset Backed Certificates (the "Class C Certificates") and $18,900,000 Series 2004-1 Class D Asset Backed Certificates (the "Class D Certificates"), which will be issued in two subclasses designated as the "Class D-1 Certificates" and the "Class D-2 Certificates". The Offered Certificates, the Class C Certificates and the Class D Certificates are referred to herein as the "Certificates". The Class C Certificates will be sold pursuant to the Class C Certificate Purchase Agreement (the "Class C Purchase Agreement") among the Trustee, the Seller, the Servicer and the purchasers named therein (the "Class C Purchasers"). The Class D-1 Certificates will be sold pursuant to the Class D-1 Certificate Purchase Agreement (the "Class D-1 Purchase Agreement") among the Trustee, the Seller, the Servicer and the purchasers named therein (the "Class D-1 Purchasers"). The Class D-2 Certificates will initially be held by the Seller. The Seller will enter into a Class D-2 Certificate Purchase Agreement (the "Class D-2 Purchase Agreement") among the Trustee, the Seller and the Servicer. The assets of the Trust include, among other things, receivables (the "Receivables") arising under a pool of certain revolving credit card accounts owned by Spirit of America National Bank ("Spirit of America") which have been conveyed to the Seller by Spirit of America pursuant to a Purchase and Sale Agreement dated as of November 25, 1997 and as amended as of September 1, 1999, November 9, 2000 and May 8, 2001 (the "Purchase Agreement") and conveyed to the Trust pursuant to the Pooling Agreement. The Seller, at its own expense, has prepared an offering memorandum dated July 16, 2004 (together with any exhibits attached thereto, the "Preliminary Memorandum"), describing among other things, the Offered Certificates and the Supplemented Pooling Agreement. Copies of the Preliminary Memorandum have been delivered to you. The Seller, at its own expense, shall also prepare a final offering memorandum (together with any exhibits attached thereto, the "Final Memorandum"), which it will deliver to you no later than three business days prior to the Issuance Date (as herein defined). The Seller hereby confirms that it has authorized the Initial Purchasers to use the Preliminary Memorandum and Final Memorandum in connection with the offering and resale of the Offered Certificates by the Initial Purchasers. From and after the date of any amendment or supplement to the Final Memorandum or the Preliminary Memorandum, as applicable, the term "Final Memorandum" or "Preliminary Memorandum" shall mean the Final Memorandum or the Preliminary Memorandum, as applicable, as so amended or supplemented. The Pooling Agreement, the Series Supplement and the Purchase Agreement shall be collectively referred to herein as the "Related Documents". The Offered Certificates may be resold solely to (i) "qualified institutional buyers ("QIBs") in reliance upon Rule 144A ("Rule 144A") under the Securities Act of 1933, as amended (the "Securities Act") and (ii) non-U.S. persons outside the United States, as defined in Regulation S of the Securities Act ("Regulation S"), in a transaction meeting the requirements of Regulation S. 2. Representations, Warranties and Covenants of CSRC, FSC and SOAI. (a) CSRC represents and warrants to, and agrees with the Initial Purchasers that: (i) The Final Memorandum, as of its date and any amendment thereof or supplement thereto, as of their respective dates, and in each case as of the Issuance Date (as defined herein), does not and will not, as of such dates and at such times, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading except that the representations and warranties in this clause (i) do not relate to any statements or omissions made in reliance on and in conformity with the Initial Purchaser Information (as defined in Section 7(b)). 2 (ii) As of the Issuance Date (as defined herein), the representations and warranties of the Seller in the Pooling Agreement will be true and correct in all material respects except to the extent that such representations and warranties expressly relate to a date other than the Issuance Date (as defined herein). (iii) The Seller is duly organized and is validly existing as a Delaware corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) and legal right to own its properties and conduct its business as described in the Preliminary Memorandum and the Final Memorandum, and is duly qualified (or is exempt from such requirement) as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing would not have a material adverse effect on the Seller and its Affiliates taken as a whole or on the transactions contemplated by this Agreement and the Related Documents. (iv) The Certificates have been duly authorized for issuance and sale, and, when issued and delivered pursuant to the Supplemented Pooling Agreement, executed by the Seller and duly authenticated by the Trustee and paid for by the Initial Purchasers or the respective initial purchasers of the Class C Certificates and Class D Certificates therein in accordance with the terms of this Agreement, the Class C Purchase Agreement, the Class D-1 Purchase Agreement or the Class D-2 Purchase Agreement, as applicable, will be duly and validly issued and entitled to the benefits of the Supplemented Pooling Agreement; each of this Agreement and the Related Documents to which the Seller is a party has been duly authorized by the Seller, and, when executed and delivered by CSRC and the other parties thereto, each of this Agreement and the Related Documents to which the Seller is a party will constitute a valid, binding and enforceable agreement of the Seller; provided that with respect to all such documents such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity) and subject to the unenforceability, under certain circumstances, of provisions indemnifying a party against liability where such indemnification is contrary to public policy; and the Offered Certificates and the Related Documents will conform to the descriptions thereof in the Final Memorandum in all material respects. (v) No consent, approval, authorization or order of, or filing with, any court, governmental agency or body is required to be obtained or made by the Seller in connection with (i) the issuance and sale of the Certificates or (ii) the consummation of the transactions contemplated by this Agreement and the Related Documents, except such as have been obtained or made and remain, and will continue to remain, in full force and effect, such as may be required under state securities laws and the filing of any financing statements required to perfect the Trust's and the Seller's interest in the Receivables. (vi) The Seller is not in violation of its certificate of incorporation or by-laws or in default in the performance or observance of any obligation, agreement, covenant or 3 condition contained in any agreement or instrument to which it is a party or by which it or its properties is bound which would have a material adverse effect on the transactions contemplated in this Agreement or in the Supplemented Pooling Agreement and the Related Documents. This Agreement has been duly executed and delivered by CRSC. The execution, delivery and performance of this Agreement and the other Related Documents, and the issuance and sale of the Certificates, the compliance with the terms and provisions hereof and thereof and the consummation of the transactions contemplated herein and therein will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, the certificate of incorporation or by-laws of the Seller or result in a breach or violation of any of the terms and provisions of, or constitute a default under, or result in the creation or imposition of any Lien under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over it or any of its properties, or any agreement or instrument to which it is a party or by which it is bound or to which any of its properties is subject, and it has full power and authority (corporate and otherwise) to enter into this Agreement and the Related Documents to which it is a party and to consummate the transactions contemplated hereby and thereby, including the full power and authority to sell the Offered Certificates as contemplated by this Agreement. (vii) Other than as set forth or contemplated in the Final Memorandum, there are no legal or governmental proceedings or investigations pending or, to its knowledge, threatened to which any of the Seller or its Affiliates is or may be a party or to which any property of the Seller or its Affiliates is or may be the subject (x) which, if determined adversely to the Seller, could individually or in the aggregate reasonably be expected to have a material adverse effect on the general affairs, business, prospects, management, financial position, stockholders' equity or results of operations of the Seller and its Affiliates, taken as a whole, or that would reasonably be expected to materially adversely affect the interests of the holders of the Offered Certificates, (y) asserting the invalidity of this Agreement, any of the Related Documents or the Offered Certificates or (z) seeking to prevent the issuance of the Offered Certificates or of any of the transactions contemplated by this Agreement or any of the Related Documents. (viii) Any taxes, fees and other governmental charges in connection with the execution, delivery and performance by the Seller of this Agreement, the Offered Certificates, the Class C Certificates, the Class D Certificates or the other Related Documents shall have been paid or will be paid by or on behalf of the Seller at or prior to the Issuance Date (as defined herein) to the extent then due. (ix) No Early Amortization Event, and no event that would become an Early Amortization Event after any applicable grace period has elapsed, exists with respect to any outstanding Series of Certificates issued by the Trust and no event has occurred that would constitute (after the issuance of the Certificates) an Early Amortization Event or would become an Early Amortization Event after any applicable grace period has elapsed. 4 (x) Except as set forth in or contemplated in the Final Memorandum, there has been no material adverse change in the condition (financial or otherwise) of the Seller since May 1, 2004. (xi) Assuming that (i) the Offered Certificates are offered and sold in the manner contemplated in this Agreement and in the Final Memorandum, (ii) the Initial Purchasers comply with the agreements and covenants contained in this Agreement, (iii) the representations made in this Agreement by the Initial Purchasers are true and correct and (iv) the representations and warranties made or deemed to be made by the purchasers of the Certificates are true and correct, the Offered Certificates are not required to be registered under Section 5 of the Securities Act in connection with the offer, issuance, sale and delivery thereof as contemplated by the Final Memorandum and this Agreement and neither the Seller nor any agent acting on its behalf (other than the Initial Purchasers), has taken or will take any action which would subject the offer, issuance, sale or delivery of the Offered Certificates to the provisions of Section 5 of the Securities Act or to the registration provisions of any state securities laws of any applicable jurisdiction. (xii) Neither the Seller nor any of its Affiliates has directly or through any agent (it being understood that the Seller makes no representation and warranty in this regard with respect to the Initial Purchasers or any affiliates of the Initial Purchasers) engaged in any "directed selling efforts" (as defined in Rule 902(c) under Regulation S) with respect to the Offered Certificates. The Seller and its affiliates and any agent acting on their behalf (it being understood that the Seller makes no representation or warranty in this regard with respect to the Initial Purchasers or any affiliates of the Initial Purchasers) have complied with the "offering restrictions" (as defined in Rule 902(g) under Regulation S) with respect to Offered Certificates sold outside the United States. Neither the Seller, any of its Affiliates or any person or entity acting on its behalf (it being understood that the Seller makes no representation or warranty in this regard with respect to the Initial Purchasers or any affiliates of the Initial Purchasers) has entered into any contractual arrangement with respect to the distribution of the Offered Certificates, except for this Agreement and the Related Documents. (xiii) None of the Seller, any of its Affiliates or any person or entity acting on its or their behalf (it being understood that the Seller makes no representation or warranty in this regard with respect to the Initial Purchasers or any affiliates of the Initial Purchasers) within the six months preceding the date of this Agreement, (A) has offered or sold any securities which are substantially similar to the Offered Certificates the result of which would cause the offer and sale of any of the Offered Certificates pursuant to this Agreement to fail to be entitled to exemption from registration under the Securities Act or (B) has offered or will offer to sell the Offered Certificates in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act. (xiv) Neither the Seller nor the Trust is required (or after giving effect to the transactions contemplated by the Related Documents, will be required) to be registered as 5 an "investment company" as such term is defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (b) Fashion Service Corp. ("FSC") represents and warrants to, and agrees with the Initial Purchasers, that: (i) As of the Issuance Date (as defined herein), the representations and warranties of Spirit of America in each of the Related Documents to which it is a party will be true and correct except to the extent that such representations and warranties expressly relate to a date other than the Issuance Date (as defined herein). (ii) FSC is duly organized and is validly existing as a Delaware corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) and legal right to own its properties and conduct its business as currently conducted, and is duly qualified (or is exempt from such requirement) as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing would not have a material adverse effect on FSC and its Affiliates taken as a whole or on the transactions contemplated by this Agreement and the Related Documents. (iii) Spirit of America is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America, and has full corporate power, authority and legal right to own its properties and conduct its business as described in the Preliminary Memorandum and the Final Memorandum, and is duly qualified (or is exempt from such requirement) as a foreign corporation for the transaction of business and is in good standing under the laws of each jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where failure to be so qualified or in good standing would not have a material adverse effect on Spirit of America and its Affiliates taken as a whole or on the transactions contemplated by this Agreement and the Related Documents. (iv) This Agreement has been duly authorized, executed and delivered by FSC, and, when executed and delivered by the other parties hereto will constitute a valid, binding and enforceable agreement of FSC; provided that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity) and subject to the unenforceability, under certain circumstances, of provisions indemnifying a party against liability where such indemnification is contrary to public policy. (v) The Purchase Agreement has been duly authorized, executed and delivered by Spirit of America and constitutes a valid, binding and enforceable agreement of Spirit of America; provided that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or 6 hereafter in effect affecting the enforcement of creditors' rights in general and such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity) and subject to the unenforceability, under certain circumstances, of provisions indemnifying a party against liability where such indemnification is contrary to public policy. (vi) FSC is not in default in the performance or observance of any obligation, agreement, covenant or condition contained in any agreement or instrument to which it is a party or by which it or its properties are bound which would have a material adverse effect on the transactions contemplated in this Agreement or in the Supplemented Pooling Agreement and the Related Documents. No consent, approval, authorization or order of, or filing with, any court, governmental agency or body is required to be obtained or made by FSC for the consummation of the transactions contemplated by this Agreement, or by Spirit of America for the consummation of the transactions contemplated by the Purchase Agreement, except such as have been obtained or made and remain, and will continue to remain, in full force and effect, such as may be required under state securities laws and the filing of any financing statements required to perfect the Trust's and the Seller's interest in the Receivables. (vii) The execution, delivery and performance of this Agreement by FSC, the compliance with the terms and provisions hereof and the consummation of the transactions contemplated herein and therein will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, the certificate of incorporation or by-laws of FSC or result in a breach or violation of any of the terms and provisions of, or constitute a default under, or result in the creation or imposition of any Lien under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over it or any of its properties, or any agreement or instrument to which it is a party or by which it is bound or to which any of the properties of it is subject, and it has full power and authority (corporate and otherwise) to enter into this Agreement and to consummate the transactions contemplated hereby. (viii) Spirit of America is not in default in the performance or observance of any obligation, agreement, covenant or condition contained in any agreement or instrument to which it is a party or by which it or its properties are bound which would have a material adverse effect on the transactions contemplated in the Purchase Agreement and the Supplemented Pooling Agreement. The execution, delivery and performance of the Purchase Agreement by Spirit of America, the compliance with the terms and provisions thereof and the consummation of the transactions contemplated herein and therein will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, Spirit of America's charter or by-laws or result in a breach or violation of any of the terms and provisions of, or constitute a default under, or result in the creation or imposition of any Lien under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over Spirit of America or any of its properties, or any agreement or instrument to which Spirit of America is a party or by which it is bound or to which any of its properties is subject, 7 and Spirit of America has full power and authority (corporate and otherwise) to enter into the Purchase Agreement and to consummate the transactions contemplated thereby. (ix) Other than as set forth or contemplated in the Final Memorandum, there are no legal or governmental proceedings or investigations pending or, to its knowledge, threatened to which Spirit of America or any of its Affiliates is or may be a party or to which any property of Spirit of America and its Affiliates is or may be the subject (x) which, if determined adversely to Spirit of America, could individually or in the aggregate reasonably be expected to have a material adverse effect on the general affairs, business, prospects, management, financial position, stockholders' equity or results of operations of Spirit of America and its Affiliates, taken as a whole, or that would reasonably be expected to materially adversely affect the interests of the holders of the Certificates, (y) asserting the invalidity of this Agreement, any of the Related Documents or the Offered Certificates or (z) seeking to prevent the issuance of the Offered Certificates or of any of the transactions contemplated by this Agreement or any of the Related Documents. (x) Other than as set forth or contemplated in the Final Memorandum, there are no legal or governmental proceedings or investigations pending or, to its knowledge, threatened to which FSC or any of its Affiliates is or may be a party or to which any of property of FSC or its Affiliates is or may be the subject (x) which, if determined adversely to FSC, could individually or in the aggregate reasonably be expected to have a material adverse effect on the general affairs, business, prospects, management, financial position, stockholders' equity or results of operations of FSC or FSC and its Affiliates, taken as a whole, or that would reasonably be expected to materially adversely affect the interests of the holders of the Certificates, (y) asserting the invalidity of this Agreement, any of the Related Documents or the Offered Certificates or (z) seeking to prevent the issuance of the Offered Certificates or of any of the transactions contemplated by this Agreement or any of the Related Documents. (xi) Any taxes, fees and other governmental charges in connection with the execution, delivery and performance by FSC of this Agreement or the other Related Documents shall have been paid or will be paid by or on behalf of FSC at or prior to the Issuance Date (as defined herein) to the extent then due. (xii) Any taxes, fees and other governmental charges in connection with the execution, delivery and performance by the Servicer of the Related Documents shall have been paid or will be paid by or on behalf of the Servicer at or prior to the Issuance Date to the extent then due. (xiii) Except as set forth in or contemplated in the Final Memorandum, there has been no material adverse change in the condition (financial or otherwise) of FSC or any of its subsidiaries since May 1, 2004. (xiv) Except as set forth in or contemplated in the Final Memorandum, there has been no material adverse change in the condition (financial or otherwise) of the Servicer or any of its subsidiaries since May 1, 2004. 8 (c) SOAI represents and warrants to, and agrees with the Initial Purchasers, that: (i) As of the Issuance Date (as defined herein), the representations and warranties of SOAI in each of the Related Documents to which it is a party will be true and correct except to the extent that such representations and warranties expressly relate to a date other than the Issuance Date (as defined herein). (ii) SOAI is duly organized and is validly existing as a Delaware corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) and legal right to own its properties and conduct its business as described in the Preliminary Memorandum and the Final Memorandum, and is duly qualified (or is exempt from such requirement) as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing would not have a material adverse effect on SOAI and its Affiliates taken as a whole or on the transactions contemplated by this Agreement and the Related Documents. (iii) Each of this Agreement and the Related Documents to which SOAI is a party have been duly authorized, executed and delivered by SOAI, and, when executed and delivered by the other parties thereto, each of this Agreement and the Related Documents to which SOAI is a party will constitute a valid, binding and enforceable agreement of SOAI; provided that with respect to all such documents such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity) and subject to the unenforceability, under certain circumstances, of provisions indemnifying a party against liability where such indemnification is contrary to public policy. (iv) No consent, approval, authorization or order of, or filing with, any court, governmental agency or body is required to be obtained or made by SOAI in connection with the consummation of the transactions contemplated by this Agreement and the Related Documents, except such as have been obtained or made and remain, and will continue to remain, in full force and effect, such as may be required under state securities laws and the filing of any financing statements required to perfect the Trust's and the Seller's interest in the Receivables. (v) SOAI is not in default in the performance or observance of any obligation, agreement, covenant or condition contained in any agreement or instrument to which it is a party or by which it or its properties is bound which would have a material adverse effect on the transactions contemplated this Agreement or any of the Related Documents. The execution, delivery and performance of this Agreement and the other Related Documents, the compliance with the terms and provisions hereof and thereof and the consummation of the transactions contemplated herein and therein will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, its 9 certificate of incorporation or by-laws or result in a breach or violation of any of the terms and provisions of, or constitute a default under, or result in the creation or imposition of any Lien under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over it or any of its properties, or any agreement or instrument to which it is a party or by which it is bound or to which any of the properties of it is subject, and it has full power and authority (corporate and otherwise) to enter into this Agreement and the Related Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. (vi) Other than as set forth or contemplated in the Final Memorandum, there are no legal or governmental proceedings or investigations pending or, to its knowledge, threatened to which any of SOAI or its Affiliates is or may be a party or to which any property of SOAI or its Affiliates is or may be the subject (x) which, if determined adversely to SOAI, could individually or in the aggregate reasonably be expected to have a material adverse effect on the general affairs, business, prospects, management, financial position, stockholders' equity or results of operations of SOAI and its Affiliates, taken as a whole, or that would reasonably be expected to materially adversely affect the interests of the holders of the Certificates, (y) asserting the invalidity of this Agreement, any of the Related Documents or the Offered Certificates or (z) seeking to prevent the issuance of the Offered Certificates or of any of the transactions contemplated by this Agreement or any of the Related Documents. (vii) No Early Amortization Event, and no event that would become an Early Amortization Event after any applicable grace period has elapsed, exists with respect to any outstanding Series of Certificates issued by the Trust and no event has occurred that would constitute (after the issuance of the Certificates) an Early Amortization Event or would become an Early Amortization Event after any applicable grace period has elapsed. (viii) Any taxes, fees and other governmental charges in connection with the execution, delivery and performance by SOAI of this Agreement or the other Related Documents shall have been paid or will be paid by or on behalf of SOAI at or prior to the Issuance Date (as defined herein) to the extent then due. (ix) Except as set forth in or contemplated in the Final Memorandum, there has been no material adverse change in the condition (financial or otherwise) of SOAI or any of its subsidiaries since May 1, 2004. 3. Payment and Delivery of Offered Certificates; Fees. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Seller agrees to sell to the Initial Purchasers and the Initial Purchasers agree to purchase $115,200,000 principal amount of Class A Certificates, $10,800,000 principal amount of the Class M Certificates and $18,900,000 principal amount of the Class B Certificates, each Initial Purchaser to purchase the amounts shown on Schedule A hereto. The Seller hereby agrees, that in consideration of the Initial Purchasers' efforts in the resale of the Offered Certificates, it shall pay the Initial Purchasers a fee equal to the sum of 10 0.425% of the aggregate original principal amount of the Class A Certificates, 0.520% of the aggregate original principal amount of the Class M Certificates and 0.60% of the aggregate original principal amount of the Class B Certificates (the "Initial Purchaser Fee"), payable in full on August 5, 2004 (or such later date as may be mutually agreed upon by the parties hereto) (the "Issuance Date"), to be paid by the Seller by wire transfer in immediately available funds to an account designated by the Initial Purchasers. The Class A Certificates are to be purchased at a price equal to 100% of the principal amount thereof, the Class M Certificates are to be purchased at a price equal to 100% of the principal amount thereof and the Class B Certificates are to be purchased at a price equal to 100% of the principal amount thereof. The closing and sale of the Certificates (the "Closing") shall be held at the offices of Mayer, Brown, Rowe & Maw LLP in Chicago, Illinois, at 10:00 a.m., Chicago time, on the Issuance Date. Payment of the purchase price for the Offered Certificates being sold and purchased hereunder shall be made on the Issuance Date by wire transfer of immediately available funds to an account to be designated by the Seller prior to the Issuance Date, against delivery to the Initial Purchasers of the Offered Certificates registered in the name of Cede & Co., the nominee of The Depository Trust Company ("DTC"). The Initial Purchasers' interests as beneficial owners of the Offered Certificates will be represented by book entries on the records of DTC and participating members thereof. 4. Certain Agreements of the Seller. The Seller agrees with the Initial Purchasers that: (a) The Seller shall furnish such information, execute such instruments and take such actions, if any, as may be reasonably requested by the Initial Purchasers to effect the resale of the Offered Certificates under the securities "blue sky" laws of each jurisdiction in which the Offered Certificates are offered for sale or sold; provided that the Seller shall not be obligated to qualify to do business in any jurisdiction in which it is not currently so qualified; and provided, further, that the Seller shall not be required to file a general consent to service of process in any jurisdiction. (b) In order to render the Offered Certificates eligible for resale pursuant to Rule 144A, the Seller shall make or cause to be made available to any beneficial owner of the Offered Certificates in connection with any sale thereof and any prospective purchaser of such Offered Certificates from such beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act. (c) The Seller will not at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, pledge, contract or disposition would cause the exemption afforded by the Securities Act to cease to be applicable to the offer and sale of the Offered Certificates hereunder. (d) The Seller agrees that it will not and will cause its affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act) not to solicit any offer to buy or make any offer or sale of or otherwise negotiate in respect of, the Offered Certificates if, as a result of the doctrine of "integration" referred to in Rule 502 under the Securities 11 Act, such offer or sale would render invalid (for the purposes of (i) the sale of the Offered Certificates from Seller to the Initial Purchasers, (ii) the resale of the Offered Certificates by the Initial Purchasers to subsequent purchasers or (iii) the resale of the Offered Certificates by such subsequent purchasers to others) the exemption from the registration requirements of the Securities Act provided by Section 4(2) thereof or by Rule 144A or by Regulation S thereunder or otherwise. (e) The Seller agrees that neither it nor any of its affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act) will directly or through any person acting on its behalf, assuming the accuracy of the representations and warranties of the Initial Purchasers in Section 5: (i) engage in any form of general solicitation or general advertising in connection with the offering or sale of the Offered Certificates in the United States (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act or (ii) engage in any "directed selling efforts" (as defined in Rule 902(c) under Regulation S) with respect to the Offered Certificates. The Seller agrees that it and its affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act) and any person acting on its behalf, assuming the accuracy of the representations and warranties of the Initial Purchasers in Section 5, will comply with the "offering restrictions" (as defined in Rule 902(g) under Regulation S) with respect to any Offered Certificates sold outside the United States. (f) Whether or not the transactions contemplated by this Agreement are terminated for any reason, the Seller agrees to pay promptly all costs and expenses incident to the performance by the Seller of its obligations hereunder, including, without limitation, (i) the preparation, reproduction and printing (to the extent such documents are printed) of the Preliminary Memorandum and the Final Memorandum and all amendments or supplements thereto (including the exhibits thereto), the Pooling Agreement, the Series Supplement, the Certificates, this Agreement and the other Related Documents, (ii) the preparation, authentication, issuance and delivery of the Offered Certificates, (iii) the expenses (including reasonable fees and disbursements of counsel to the Initial Purchasers), if any, of registering or qualifying the Offered Certificates under state securities or "blue sky" laws, (iv) the fees and expenses of the Seller's accountants and of reasonable fees and expenses of counsel for the Seller, (v) the reasonable fees and disbursements of counsel for the Initial Purchasers, (vi) the furnishing to the Initial Purchasers of such copies of the Preliminary Memorandum and the Final Memorandum and all amendments or supplements thereto (including the exhibits thereto) as may be requested for use in connection with the offering and sale of the Offered Certificates, (vii) fees of each Rating Agency in connection with their ratings of the Offered Certificates, (viii) fees of the Trustee under the Pooling Agreement (including the fees and expenses of its counsel which the Seller shall be obligated to pay pursuant to this clause (viii)), and (ix) the Seller's performance of and compliance with all agreements and conditions contained herein, in the Pooling Agreement, the Series Supplement, the Certificates and the other Related Documents on its part to be performed or complied with. 12 (g) To the extent, if any, that the ratings provided with respect to the Offered Certificates by either Rating Agency is conditional upon the furnishing of documents or the taking of any other reasonable actions by the Seller, the Seller shall, subject to availability and the reasonableness of such document request, furnish such documents and take any such other reasonable actions. (h) During the period any Offered Certificates shall remain outstanding, the Seller will furnish or will cause to be furnished to the Initial Purchasers, copies of all reports or other communication (financial or other) furnished to the holders of the Offered Certificates. 5. Representations, Warranties and Covenants of the Initial Purchasers. Each Initial Purchaser represents and warrants to, and agrees with the Seller, the Servicer and FSC as of the date hereof, and as of the Issuance Date, that: (a) It understands that the Offered Certificates have not been and will not be registered under the Securities Act in reliance upon an exemption therefrom, or registered or qualified under the securities or "blue sky" laws of any state in the United States. It has advised Seller that it proposes to offer the Offered Certificates for resale upon the terms and conditions set forth herein and in the Final Memorandum, and it will furnish to each person purchasing the Offered Certificates from it, the Final Memorandum and any amendment or supplement thereto. In addition to the foregoing, it will not offer, sell, transfer, pledge, hypothecate or otherwise dispose of the Offered Certificates except in accordance with this Agreement and the Supplemented Pooling Agreement. (b) It shall not utilize any form of general solicitation or general advertising within the meaning of Rule 502(c) of the Securities Act in connection with the resale of the Offered Certificates, including any advertisement, article, notice or other communication published in any newspaper, magazine or similar medium or broadcast over television or radio, or conduct any seminar or meeting with respect to the Offered Certificates whose attendees have been invited by general solicitation or general advertising or other action involving a public offering within the meaning of Section 4(2) of the Securities Act. (c) It is an "accredited investor" (as defined in Regulation D under the Securities Act) and a QIB within the meaning of Rule 144A, purchasing the Offered Certificates. It has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Offered Certificates. (d) It will offer or sell the Offered Certificates only to (i) persons whom it reasonably believes to be QIBs, purchasing the Offered Certificates for their own account or for the account of other investors who are QIBs in transactions meeting the requirements of Rule 144A and (ii) non-U.S. persons (as defined in Regulation S) in offshore transactions (as defined in Regulation S) made in compliance with Regulation S. It agrees that it will not offer, sell or deliver any of the Offered Certificates in any 13 jurisdiction outside the United States (as defined in Regulation S) except under circumstances which will result in compliance with the applicable laws thereof, and that it will take whatever action is required to permit its offer and resale of the Offered Certificates in such jurisdictions. (e) It will take reasonable steps to inform, and cause each of its affiliates to take reasonable steps to inform, persons acquiring Offered Certificates from it or its affiliates, as the case may be, in the United States that the Offered Certificates (i) have not been and will not be registered under the Securities Act, (ii) are being sold to them without registration under the Securities Act in reliance on Rule 144A or Rule 903 or 904 of Regulation S, and (iii) may not be offered, sold or otherwise transferred except (A) in offshore transactions to non-U.S. Persons in accordance with Rule 903 or 904 of Regulation S in a principal amount of not less than $1,000,000, or (B) to a person whom the seller reasonably believes is a QIB that is purchasing such Offered Certificates for its own account or for the account of a QIB to whom notice is given that the offer, sale or transfer is being made in reliance on Rule 144A, in a principal amount of not less than $1,000,000, for the purchaser and each such account, in a transaction meeting the requirements of Rule 144A. (f) The transfer restrictions and the other provisions set forth in the Final Memorandum under the headings "Notice to Investors" and "Plan of Distribution," including the legend required thereby, shall apply to the Offered Certificates. (g) None of it, its affiliates or any person acting on its behalf has engaged or will engage in any directed selling efforts (as defined in Regulation S under the Securities Act) with respect to the Offered Certificates, and it, its affiliates and any person acting on its behalf have complied and will comply with the offering restriction requirements of Regulation S. It agrees that, at or before confirmation of a sale of Offered Certificates (other than a sale of Offered Certificates pursuant to Rule 144A) it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration who purchases the Offered Certificates from or through it during the distribution compliance period as defined in Rule 902 of Regulation S, a confirmation or notice to substantially the following effect: "The Offered Certificates covered hereby have not been registered under the United States Securities Act of 1933 (the "Securities Act") and may not be offered or sold within the United States or to or for the account or benefit of U.S. persons (as defined in Regulation S), except in accordance with Rule 144A under the Securities Act." (h) It (x) has complied and shall comply with all applicable provisions of the Financial Services and Markets Act 2000 ("FSMA") and the Public Offers of Securities Regulations 1995, as amended (the "Regulations") with respect to anything done by it in relation to the Offered Certificates in, from or otherwise involving the United Kingdom; (y) has only communicated or caused to be communicated and it will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received by it in connection with the issue or sale of any Offered Certificates in circumstances in which section 21(1) of 14 the FSMA does not apply to the Seller or the Servicer; and (z) has not offered or sold and, prior to the date which is six months after the date of issue of the Offered Certificates will not offer or sell any Offered Certificates to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing, or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which do not constitute an offer to the public in the United Kingdom for purposes of the Regulations. (i) It represents and warrants that (i) it is duly authorized and empowered to execute, deliver and perform this Agreement; (ii) the person signing this Agreement on its behalf has been duly authorized to do so; (iii) the execution, delivery and performance of this Agreement does not and will not conflict with, violate or constitute a default under any applicable law or regulation, its articles of organization or other organizational document or by-laws and (iv) this Agreement constitutes a legal, valid and binding obligation of the Initial Purchasers; provided that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity) and subject to the unenforceability, under certain circumstances, of provisions indemnifying a party against liability where such indemnification is contrary to public policy. Such Initial Purchaser acknowledges that the Seller and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements. 6. Conditions of the Obligations of the Initial Purchasers. The Initial Purchasers' obligations hereunder will be subject to the accuracy of the representations and warranties herein made on the part of the Seller, FSC and the Servicer, to the accuracy of the statements of the officers of each of the Seller, FSC and the Servicer made pursuant to the provisions hereof, to the performance by the Seller, FSC and the Servicer of their respective obligations hereunder and to the following additional conditions precedent: (a) The Initial Purchasers shall have received fully executed copies of this Agreement, the Supplemented Pooling Agreement and the other Related Documents duly executed and delivered by the parties thereto. (b) Subsequent to the execution and delivery of this Agreement and prior to the Issuance Date, there shall not have occurred and be continuing (i) any change, or any development involving a prospective change, in or affecting particularly the business or properties of the Seller, FSC, the Servicer or Spirit of America which, in the reasonable judgment of the Initial Purchasers after consultation with the Seller and the Servicer, materially impairs the investment quality of the Offered Certificates; (ii) any reduction in or withdrawal of the rating of the Certificates issued by the Trust or any other debt securities of the Seller, the Servicer or any Affiliate thereof by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Securities Act), or any public announcement that any such organization has under surveillance or review its rating of the Certificates issued by the 15 Trust or any other debt securities of the Seller, the Servicer or any Affiliate thereof (other than an announcement with positive implications of a possible upgrading, and no implication of a possible reduction in or withdrawal of such rating); (iii) any suspension or limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Seller or the Servicer or any Affiliate of the Seller or the Servicer on any exchange or in any over-the-counter market; (iv) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities; (v) any material disruption in commercial banking securities settlement or clearance services; if, in the reasonable judgment of the Initial Purchasers, the effect of any such disruption makes it impractical or inadvisable to proceed with completion of the resale of the Offered Certificates; or (vi) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the reasonable judgment of the Initial Purchasers, the effect of any such outbreak, escalation, declaration, calamity, emergency or change makes it impractical or inadvisable to proceed with completion of the resale of the Offered Certificates. (c) The Initial Purchasers shall have received an opinion of Colin D. Stern, Esq., Executive Vice President and General Counsel to Charming, dated the Issuance Date and addressed to the Initial Purchasers, satisfactory in form and substance to the Representative and its counsel as to the matters set forth in Exhibit A. (d) The Initial Purchasers shall have received an opinion of local tax counsel for the Seller and the Servicer, each dated the Issuance Date, regarding certain Ohio and Georgia tax matters in form and substance reasonable satisfactory to the Representative and its counsel. (e) The Initial Purchasers shall have received an opinion of Mayer, Brown, Rowe & Maw LLP, dated the Issuance Date and addressed to the Initial Purchasers, satisfactory in form and substance to the Representative and its counsel as to the matters set forth in Exhibit B. Such counsel shall also deliver a letter, dated the Issuance Date and addressed to the Initial Purchasers, stating that such counsel has participated in conferences with representatives of the Seller and the Servicer, the Initial Purchasers and counsel to the Initial Purchasers concerning the Final Memorandum, and that, on the basis of the information such counsel gained in the course of performing its professional engagement, nothing came to its attention that caused it to believe that the Final Memorandum, as of its date, or as of the Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that it need not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Final Memorandum (except for the statements under the headings "Structural Summary--ERISA Considerations for Investors." "Legal Aspects of the Receivables" and "Certain ERISA Considerations", in each case to the extent they constitute matters of law or legal conclusions with respect thereto), and it need not express any belief with 16 respect to the financial statements or other financial, statistical or accounting data contained in the Final Memorandum. (f) The Initial Purchasers shall have received an opinion of Mayer, Brown, Rowe & Maw LLP, dated the Issuance Date and addressed to the Initial Purchasers, to the effect that the transfer of Receivables from the Seller to the Trust creates a first priority perfected security interest in such Receivables in favor of the Trustee, in form and substance satisfactory to the Representative and its counsel. (g) The Initial Purchasers shall have received an opinion of Squire, Sanders & Dempsey LLP, dated the Issuance Date and addressed to the Initial Purchasers, to the effect that the transfer of Receivables from Spirit of America to the Seller creates a first priority perfected security interest in such Receivables in favor of the Seller, in form and substance satisfactory to the Representative and its counsel. (h) The Initial Purchasers shall have received an opinion of Mayer, Brown, Rowe & Maw LLP, dated the Issuance Date and addressed to the Initial Purchasers, with respect to (a) the nonconsolidation of FSC with the Seller and (b) certain matters relating to the transfer of the Receivables from Spirit of America to the Seller, in each case in form and substance satisfactory to the Representative and its counsel. (i) The Initial Purchasers shall have received copies of UCC-1 financing statements filed in the offices of the Secretaries of State of the State of Ohio and the District of Columbia, in the case of Spirit of America, and the State of Delaware, in the case of the Seller, reflecting the interests of the Seller and the Trust in the Receivables. (j) The Representative shall have received an opinion of Orrick, Herrington & Sutcliffe LLP, special counsel for the Initial Purchasers, subject to customary qualifications, assumptions, limitations and exceptions, dated the Issuance Date, in form and substance reasonably satisfactory to the Representative, to the effect set forth in Exhibit C. (k) The Initial Purchasers shall have received an opinion from Pepper, Hamilton & Sheetz, counsel for the Trustee, dated the Issuance Date and addressed to the Initial Purchasers, with respect to general corporate matters, enforceability of the Related Documents to which the Trustee is a party, due authentication and delivery of the Offered Certificates and such other matters as the Representative shall request, in form and substance satisfactory to the Representative and its counsel. (l) The Initial Purchasers shall have received a certificate or certificates, dated the Issuance Date, of a vice president or more senior officer of each of the Seller, FSC and the Servicer in which such officer, to the best of his or her knowledge after reasonable investigation, shall state that (A) the representations and warranties of the Seller, FSC and the Servicer, as applicable, contained in this Agreement are true and correct in all material respects on and as of the Issuance Date, (B) the Seller, FSC and the Servicer, as applicable, has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Issuance Date, (C) the 17 representations and warranties of the Seller, FSC or the Servicer, as applicable, in the Related Documents to which it is a party are true on the Issuance Date, except to the extent such representations and warranties relate to an earlier date, and (D) subsequent to the date as of which information is given in the Final Memorandum, and except as set forth or contemplated in the Final Memorandum or such certificate, there has been no material adverse change in the condition (financial or otherwise) of the Seller, FSC or the Servicer, as applicable, or any of their respective Affiliates. (m) The Initial Purchasers shall have received a letter of Ernst & Young addressed to the Seller and the Initial Purchasers regarding the Receivables, substantially in the form heretofore agreed to and otherwise in form and in substance satisfactory to the Representative and its counsel. (n) The Initial Purchasers shall have received letters from each of the Rating Agencies stating that (i) the Class A Certificates have received a rating of "AAA" and "Aaa" by Standard & Poor's and Moody's, respectively, (ii) the Class M Certificates have received a rating of "AA" and "Aa2" by Standard & Poor's and Moody's respectively, (iii) the Class B Certificates have received a rating of "A" and "A2" by Standard and Poor's and Moody's, respectively, (iv) the Class C Certificates have received a rating of "Baa2" by Moody's and (v) confirming that the rating of any certificates of any other Series issued by the Trust will not be withdrawn or reduced as a result of the issuance of the Certificates. (o) The Initial Purchasers shall have received from the Servicer a Servicer Report dated as of the Issuance Date, calculated after giving effect to all transactions contemplated on the Issuance Date. (p) The Seller and the Servicer will furnish the Initial Purchasers with such number of conformed copies of such opinions, certificates, letters and documents as it may reasonably request. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Initial Purchasers by notice to the Seller at any time at or prior to the Issuance Date, and such termination shall be without liability of any party to any other party except as provided in Section 8. 7. Indemnification and Contribution. (a) CSRC, SOAI and FSC, jointly and severally, agrees to indemnify and hold harmless each Initial Purchaser, and each person, if any, who controls the Initial Purchasers within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and all losses, claims, damages, liabilities and expenses (including, without limitation, the reasonable legal fees and other reasonable expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of any material fact contained in the Final Memorandum or the Preliminary Memorandum or caused by any omission or alleged 18 omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as any such loss, claim, damage, expense or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with the Initial Purchaser Information (as defined in subsection (b) below); provided, further, that none of CSRC, SOAI or FSC will be liable under the indemnity agreement in this subsection (a) with respect to the Preliminary Memorandum to the extent that any loss, claim, damage or liability of the Initial Purchasers (or any Person controlling the Initial Purchasers within the meaning of the Securities Act) results from the fact that the Initial Purchasers sold Offered Certificates to a person as to whom it is established that there was not sent or given, at or prior to consummation of such sale, a copy of the Final Memorandum (including any amendment or supplement but excluding documents incorporated by reference) if the Seller or the Servicer previously furnished copies of the Final Memorandum (including any amendment or supplement but excluding documents incorporated by reference) to the Initial Purchasers and the loss, claim, damage or liability of the Initial Purchasers (or any Person controlling the Initial Purchasers within the meaning of the Securities Act) results from an untrue statement or omission of a material fact contained in the Preliminary Memorandum that is corrected in the Final Memorandum or any amendment or supplement to the Final Memorandum. (b) Each Initial Purchaser, severally and not jointly, agrees to indemnify and hold harmless each of CSRC, SOAI and FSC and each person, if any, who controls the CSRC, SOAI or FSC within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and expenses (including, without limitation, the reasonable legal fees and other reasonable expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of any material fact contained in the Final Memorandum or the Preliminary Memorandum or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, but only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance on or in conformity with the Initial Purchaser Information. The "Initial Purchaser Information" includes the names of the Initial Purchasers as they appear on the front page of the Preliminary Memorandum and the Final Memorandum and the information in the Preliminary Memorandum and the Final Memorandum in the third paragraph under the heading "Plan of Distribution". (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above except and to the extent of any prejudice to such indemnifying party arising from such failure to provide such notice. In case any such action is brought against any indemnified party 19 and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may elect by written notice to the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 7 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation unless (i) the named parties in any such proceeding include both the indemnified party and the indemnifying party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interest between them, (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action and assumption of the defense thereof, or (iii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party; it is understood that the indemnifying party shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all indemnified parties. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and does not include a statement as to, or an admission of, fault, culpability or failure to act by or on behalf of any indemnified party. No indemnifying party shall be liable under this section for any settlement of any claim or action effected without its prior written consent, which shall not be unreasonably withheld. (d) If the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then in order to provide for just and equitable contribution, each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages, expenses or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the CSRC, SOAI and FSC on the one hand and the Initial Purchasers on the other from the offering of the Offered Certificates, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of CSR, SOAI and FSC on the one hand and the Initial Purchasers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by CSRC, SOAI and FSC on the one hand and the Initial Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the sale of the Offered Certificates (before deducting expenses) received by CSRC bear to the Initial Purchaser Fee. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material 20 fact relates to information supplied by CSRC, SOAI or FSC, on the one hand, or information supplied by the Initial Purchasers, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission with respect to the Offered Certificates and any other equitable consideration appropriate under the circumstances. The amount paid by an indemnified party as a result of the losses, claims, damages, expenses or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), the Initial Purchasers shall not be required to contribute any amount in excess of the amount by which the Initial Purchaser Fee exceeds the amount of damages which the Initial Purchasers have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission with respect to the Offered Certificates. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The obligations of CSRC, SOAI and FSC under this section shall be in addition to any liability which CSRC, SOAI and FSC may otherwise have and shall extend, upon the same terms and conditions, to the directors and officers of the Initial Purchasers and each Person, if any, who controls any Initial Purchaser within the meaning of the Securities Act; and the obligations of the Initial Purchasers under this section shall be in addition to any liability which the Initial Purchasers may otherwise have and shall extend, upon the same terms and conditions and to each Person, if any, who controls CSRC, SOAI or FSC within the meaning of the Securities Act. 8. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of CSRC, SOAI or FSC or their respective officers and of the Initial Purchasers or their respective officers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of the Initial Purchasers, the Seller, FSC or the Servicer or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Certificates. If this Agreement is terminated, in whole or in part, or for any reason other than solely because of the occurrence of an event specified in clauses (iii), (iv) or (v) of Section 6(b), and the purchase of the Offered Certificates is not consummated, the Seller shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 4(f) and the obligations of the Seller, FSC and the Servicer pursuant to Section 7 shall remain in effect. 9. Notices. All communications hereunder will be in writing and effective only upon receipt, and, if sent to the Initial Purchasers, will be mailed, delivered or telecopied and confirmed to the Representative, at the following address: Barclays Capital Inc. 200 Park Avenue New York, New York 10166 Attention: Giuseppe Pagano Facsimile: (212) 412-6846 21 if sent to the CSRC, FSC or SOAI, will be mailed, delivered or telecopied and confirmed to the CSRC, FSC or SOAI, at the following address: . 450 Winks Lane Bensalem, PA 19020 Attn: Kirk Simme Facsimile: (215) 604-5655 with a copy to: General Counsel Charming Shoppes, Inc. 450 Winks Lane Bensalem, PA 19020 Facsimile: (215) 638-6919 10. Other Services. Nothing in this Agreement is intended to obligate or commit the Initial Purchasers or any of its affiliates to provide any services other than as set forth herein. 11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns and the officers and directors and controlling persons referred to in Section 7 hereof, and no other person will have any right or obligation hereunder. 12. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF. 13. Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon Seller, the Servicer, FSC, the Initial Purchasers, any controlling persons referred to herein and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Offered Certificates from the Initial Purchasers shall be deemed to be a successor by reason merely of such purchase. 14. Representative. The Representative will act for the several Initial Purchasers in connection with this Agreement and the transactions contemplated hereby and any action undertaken under this Agreement taken by the Representative will be binding upon the Initial Purchasers. 22 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed duplicate hereof, whereupon it will become a binding agreement among the Seller, FSC, SOAI and the Initial Purchasers in accordance with its terms. Very truly yours, CHARMING SHOPPES RECEIVABLES CORP. By: -------------------------------- Name: Title: SPIRIT OF AMERICA, INC. By: --------------------------------- Name: Title: FASHION SERVICE CORP. By: --------------------------------- Name: Title: The foregoing Certificate Purchase Agreement is hereby confirmed and accepted as of the date first above written: BARCLAYS CAPITAL INC., as Representative of the Initial Purchasers By ---------------------------------- Name: Title: S-1 EXHIBIT A August 5, 2004 To the Persons listed on Schedule A Re: Charming Shoppes Master Trust - Series 2004-1 Ladies and Gentlemen: This opinion is being rendered in connection with the transactions contemplated by the following agreements: (i) the Purchase and Sale Agreement, dated as of November 25, 1997 (as amended as of July 22, 1999, November 9, 2000 and May 8, 2001, the "Purchase Agreement"), between Spirit of America National Bank ("Spirit") and Charming Shoppes Receivables Corp. ("CSRC"); (ii) the Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997 (as amended as of July 22, 1999 and May 8, 2001, the "Pooling and Servicing Agreement"), between CSRC, as Seller, Spirit of America, Inc. ("SOAI"), as Servicer, and Wachovia Bank, National Association (formerly known as First Union National Bank), as the Trustee (the "Trustee") for the Charming Shoppes Master Trust (the "Trust"); (iii) the Series 2004-1 Supplement to the Pooling and Servicing Agreement, dated as of August 5, 2004 (the "Supplement"); (iv) the Certificate Purchase Agreement, dated as of July 21, 2004 (the "Certificate Purchase Agreement"), among Fashion Service Corp. ("FSC"), CSRC, SOAI, and Barclays Capital Inc. ("Barclays"), as representative of the several initial purchaser; (v) the Certificate Purchase Agreement, dated as of July [ ], 2004 (the "Class C Purchase Agreement") among the Trustee, the Seller, SOAI and the purchasers of the Class C Certificates (as defined in the Supplement) named therein; and (vi) the Certificate Purchase Agreement, dated as of July [ ], 2004 (the "Class D Purchase Agreement") among the Trustee, the Seller, SOAI and the purchasers of the Class D Certificates (as defined in the Supplement) named therein. Spirit, SOAI, FSC, CSRC and Charming Shoppes are referred to herein as the "Companies." The Class A Certificates (as defined in the Supplement), Class M Certificates (as defined in the Supplement), Class B Certificates (as defined in the Supplement), Class C Certificates and Class D Certificates are referred to herein as the "Series 2004-1 Certificates." Exh. A-1 Capitalized terms not defined herein shall have the same meanings as ascribed to them in the Certificate Purchase Agreement or Pooling and Servicing Agreement, as applicable. I or members of my staff have examined each of (i) the Purchase Agreement, (ii) the Pooling and Servicing Agreement, (iii) the Supplement, (iv) the Certificate Purchase Agreement, (v) the Class C Purchase Agreement and (vi) the Class D Purchase Agreement. The documents listed in clauses (i) through (vi) are referred to herein as the "Subject Agreements." I or members of my staff have also examined such corporate documents and records of the Companies and such other instruments and certificates of public officials, officers and representatives of the Companies and other Persons as I have deemed necessary or appropriate for the purposes of this opinion. In rendering the opinions expressed below, I have assumed, with your permission, without independent investigation or inquiry, (a) the authenticity of all documents submitted as originals, (b) the genuineness of all signatures on all documents that I have examined (other than those of the Companies and officers of the Companies) and (c) the conformity to authentic originals of documents submitted as certified, conformed or photostatic copies. I am employed by Charming Shoppes, Inc. as its general counsel and as general counsel for its subsidiaries, including the Companies, and have acted in that capacity in connection with the execution and delivery of the Subject Agreements and all other documents executed and delivered by the Companies in connection with the foregoing. I am qualified to practice law in the Commonwealth of Pennsylvania and I do not purport to express an opinion on any laws other than the laws of the Commonwealth of Pennsylvania, the General Corporation Law of the State of Delaware, and the Federal laws of the United States of America. Based upon the foregoing and upon such investigation as I have deemed appropriate, I am of the following opinion: 1. Spirit (a) is a national banking association validly existing and in good standing under the laws of the United States of America, (b) is duly qualified to transact business and is registered as a foreign corporation in each jurisdiction where the conduct of its business as presently conducted requires such qualification or registration, except to the extent that the failure to be so qualified or registered would not, in the aggregate, have a material adverse effect on the Certificateholders, (c) has full power, authority and legal right to own its properties and conduct its credit card business as such properties are presently owned and such business is presently conducted and (d) had at all relevant times and has full power, authority and legal right to execute and deliver each of the Subject Agreements to which it is a party and to perform its obligations under each of the Subject Agreements to which it is a party. 2. CSRC (a) is a corporation validly existing and in good standing under the laws of the State of Delaware, (b) is duly qualified to transact business and is registered as a foreign corporation in each jurisdiction where the conduct of its business as presently conducted requires such qualification or registration, except to the extent that the failure to be so qualified Exh. A-2 or registered would not, in the aggregate, have a material adverse effect on the Certificateholders, (c) has full corporate power, authority and legal right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted and (d) had at all relevant times and has full power, authority and legal right to execute and deliver each of the Subject Agreements to which it is a party and to perform its obligations under each of the Subject Agreements to which it is a party, including the execution and delivery of the Series 2004-1 Certificates. 3. SOAI (a) is a corporation validly existing and in good standing under the laws of the State of Delaware, (b) is duly qualified to transact business and is registered as a foreign corporation in each jurisdiction where the conduct of its business as presently conducted requires such qualification or registration, except to the extent that the failure to be so qualified or registered would not, in the aggregate, have a material adverse effect on the Certificateholders, (c) has full corporate power, authority and legal right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted and (d) had at all relevant times and has full corporate power, authority and legal right to execute and deliver each of the Subject Agreements to which it is a party and to perform its obligations under each of the Subject Agreements to which it is a party. 4. FSC (a) is a corporation validly existing and in good standing under the laws of the State of Delaware, (b) is duly qualified to transact business and is registered as a foreign corporation in each jurisdiction where the conduct of its business as presently conducted requires such qualification or registration, except to the extent that the failure to be so qualified or registered would not, in the aggregate, have a material adverse effect on the Certificateholders, (c) has full corporate power, authority and legal right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted and (d) had at all relevant times and has full corporate power, authority and legal right to execute and deliver each of the Subject Agreements to which it is a party and to perform its obligations under each of the Subject Agreements to which it is a party. 5. Charming Shoppes (a) is a corporation validly existing and in good standing under the laws of the State of Pennsylvania, (b) is duly qualified to transact business and is registered as a foreign corporation in each jurisdiction where the conduct of its business as presently conducted requires such qualification or registration, except to the extent that the failure to be so qualified or registered would not, in the aggregate, have a material adverse effect on the Certificateholders, (c) has full corporate power, authority and legal right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted and (d) had at all relevant times and has full corporate power, authority and legal right to execute and deliver each of the Subject Agreements to which it is a party and to perform its obligations under each of the Subject Agreements to which it is a party. 6. The execution, delivery and performance by each of the Companies of the Subject Agreements to which it is a party and the transactions contemplated therein are within its corporate powers and have been duly authorized by all necessary corporate action. Exh. A-3 7. Neither the execution, delivery or performance by any of the Companies of the Subject Agreements to which it is a party will conflict with, result in a breach of or violation of, any material term of, or constitute a default under, its articles of association or incorporation, as applicable, or its bylaws, or any order of any court, regulatory body, administrative agency or governmental body having jurisdiction over it or the material terms of any material indenture or other material agreement or instrument known to me to which it is a party or by which it or its properties are bound. 8. There are no actions, proceedings or investigations pending or, to the best of my knowledge, threatened before any court, administrative agency or other tribunal against any of the Companies (A) asserting the invalidity of any of the Subject Agreements or the Series 2004-1 Certificates, (B) seeking to prevent the issuance of the Series 2004-1 Certificates or the consummation of any of the transactions contemplated by the Subject Agreements or the Series 2004-1 Certificates, which might materially and adversely affect the performance by any of the Companies of its obligations under, or the validity or enforceability of any of the Subject Agreements to which it is a party, or in the case of CSRC, the Series 2004-1 Certificates, or (C) seeking adversely to affect the federal income tax attributes of the Series 2004-1 Certificates. 9. Each of the Subject Agreements has been duly authorized, executed and delivered by each of the Companies that is a party thereto. The opinions rendered herein may be relied upon by the addressees hereto. This opinion may not be relied upon for any other purpose or by any other party for any purpose without my prior written consent. Very truly yours, Executive Vice President and General Counsel - Charming Shoppes, Inc. Exh. A-4 Schedule A Moody's Investors Service 99 Church Street New York, New York 10007 Standard & Poor's Corporation 55 Water Street New York, New York 10041-0003 Wachovia Bank, National Association, as Trustee 123 South Broad Street 11th Floor, PA 1249 Philadelphia, Pennsylvania 19109 Barclays Capital Inc. 200 Park Avenue New York, New York 10166 Bear, Stearns & Co. Inc. [address] New York, New York [ ] Exh. A-5 EXHIBIT B August 5, 2004 Barclays Capital Inc. Barclays Capital Inc. 200 Park Avenue New York, New York 10166 Bear, Stearns & Co. Inc. - ------------------------ New York, New York _____ Re: Charming Shoppes Master Trust -- Series 2004-1 Ladies and Gentlemen: This opinion is being furnished to you pursuant to Section 6(e) of the Certificate Purchase Agreement, dated as of July 21, 2004 (the "Certificate Purchase Agreement") among Charming Shoppes Receivables Corp. ("CSRC"), Spirit of America, Inc. ("SOAI"), Fashion Service Corp. ("FSC") and Barclays Capital Inc. and Bear Stearns & Company, Inc., as initial purchasers (in such capacity, the "Initial Purchasers"). Unless otherwise defined, all capitalized terms used herein have the meanings ascribed thereto in the Certificate Purchase Agreement. The Series 2004-1 Class A Certificates, Class B Certificates, Class M Certificates, Class C Certificates and Class D Certificates are collectively called the "Series 2004-1 Certificates." Spirit of America National Bank ("Spirit"), SOAI, FSC and CSRC are referred to herein as the "Companies." We have acted as special counsel to the Companies in connection with the preparation, execution and delivery of each of (i) the Certificate Purchase Agreement, (ii) the Supplement, (iii) the Class C Purchase Agreement, dated as of July [__], 2004 (the "Class C Purchase Agreement") among the Class C Holders named therein, CSRC, as Seller, SOAI as Servicer and Wachovia Bank, National Association (the "Trustee") and (iv) the Class D Purchase Agreement, dated as of July [__], 2004 (the "Class D Purchase Agreement") among the Class D Holders named therein, CSRC, as Seller, SOAI, as Servicer, and the Trustee. In such connection we have examined (i) the Certificate Purchase Agreement, (ii) the Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997 (as amended on July 22, 1999 and May 8, 2001, the "Pooling and Servicing Agreement") among CSRC, SOAI and the Trustee, (iii) the Supplement, (iv) the Purchase Agreement, dated as of November 25, 1997 (as amended on July 22, 1999, November 9, 2000 and May 8, 2001, the "Purchase Agreement"), between Spirit and CSRC, (v) the Class C Purchase Agreement and (vi) Exh. B-1 August 5, 2004 Page 2 the Class D Purchase Agreement (collectively, the "Subject Agreements"). We understand that the Initial Purchaser intends to offer and sell the 2004-1 Certificates pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"). We have also examined the final offering memorandum, dated July [__], 2004 (together with any exhibits attached thereto, the "Offering Memorandum"). Our opinions set forth below are subject to the following assumptions, exceptions, qualifications and limitations: (a) We have assumed for purposes of our opinions that: (i) all parties to the Subject Agreements are duly organized, validly existing and in good standing under the laws of their respective jurisdictions of organization; (ii) each such party is duly qualified to engage in the activities contemplated by the Subject Agreements and has the requisite organizational power and authority to execute, deliver and perform its respective obligations under the Subject Agreements to which it is a party; (iii) each Subject Agreement has been duly authorized, executed and delivered by each party thereto; (iv) each Subject Agreement constitutes the valid and binding obligation of each party thereto (other than, with respect to the Subject Agreements, the Companies), enforceable against each such other party in accordance with its terms (subject to the limitations on enforceability described in paragraph (c) below); (v) the execution, delivery and performance of the Subject Agreements by the Companies party thereto will not contravene (A) such Company's by-laws or charter, (B) any statute, rule, regulation or contractual restriction binding on or affecting such Company or its properties, or (C) require any consents, approvals, authorizations, registrations or filings under any statute, rule or regulation (other than items with respect to the Companies of the type described in paragraphs 1 and 6 below); (vi) there are no actions, suits or proceedings pending or threatened against any Company or any of its subsidiaries before any court, governmental agency or arbitrator which are likely to materially adversely affect the ability of such Company to perform its obligations under, or which purport to affect the legality, validity or enforceability of the Subject Agreements to which it is a party; Exh. B-2 August 5, 2004 Page 3 (vii) the representations and warranties of all parties in the Subject Agreements are true and correct as of the date hereof; (viii) each such party has complied and will comply with its covenants and other obligations under the Subject Agreements; (ix) there has not been any fraud, duress, undue influence or material mistake of fact in connection with the transactions contemplated by the Subject Agreements; (x) due consideration for performance of the Subjects Agreements has been received; (xi) there are no agreements between or among any parties that would alter the agreements set forth in the initial Subject Agreements; (xii) all statutes, judicial and administrative decisions, and rules and regulations of governmental agencies, constituting the law of the State of New York are generally available (i.e., in terms of access and distribution following publication or other release) to lawyers practicing in that jurisdiction; (xiii) the constitutionality or validity of a relevant statute, rule, regulation or agency action is not at issue unless a reported decision in the State of New York has specifically addressed but not resolved, or has established, its unconstitutionality or validity; and (xiv) the Initial Purchasers have not offered or sold any Class A Certificates, Class M Certificates or Class B Certificates except (A) within the United States to, or for the benefit of, U.S. Persons (as defined in Regulation S) who are qualified institutional buyers ("QIBs") (as defined in Rule 144A of the Securities Act) purchasing for their own account or for the accounts of one or more QIBs for which the purchaser is acting as fiduciary or agent in accordance with 144A in reliance on the exemption from registration in Section 4(2) of the Securities Act and (B) to Non-U.S. Persons (as defined in Regulation S under the Securities Act) who acquire the Class A Certificates, Class M Certificates and Class B Certificates in an offshore transaction in accordance with Regulation S under the Securities Act. (b) We are opining herein as to the effect on the subject transactions only of the internal laws of the State of New York (other than state securities laws) and the Federal laws of the United States of America. We express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or as to any matters of municipal law or the laws of any local agencies within any state. Exh. B-3 August 5, 2004 Page 4 (c) Our opinion in paragraph 2 below may be subject to or limited by (i) the effect of bankruptcy, insolvency, reorganization, moratorium, conservatorship, receivership, or other similar laws (including any such laws relating to the insolvency of banks) now or hereafter in effect relating to or affecting the rights or remedies of creditors, and (ii) the effect of general principles of equity (including without limitation concepts of materiality, reasonableness, good faith and fair dealing), regardless of whether considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought. Without limiting the foregoing, we point out that such laws may limit the extent to which property acquired by a debtor after the commencement of an insolvency or similar proceeding may be subject to a security interest arising from a security agreement entered into by the debtor before the commencement of such case. (d) We express no opinion with respect to the enforceability of the waiver of rights or defenses set forth in the Subject Agreements to the extent such rights or defenses may not be waived under, or are limited by, applicable law. (e) The opinions set forth in paragraphs 6, 8 and 10 below are based upon the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations promulgated and proposed thereunder, current positions of the Internal Revenue Service (the "IRS") contained in published Revenue Rulings and Revenue Procedures, current administrative positions of the IRS and existing judicial decisions. The statutory provisions, regulations and interpretations on which our opinions in paragraphs 6, 8 and 10 are based are subject to change, which changes could apply retroactively. In addition, there can be no assurance that positions contrary to those stated in such opinions may not be taken by the IRS. (f) Except as specifically provided in paragraphs 6, 8 and 10 below, we are not providing any opinion concerning the Federal income tax consequences of any other aspect of the execution, delivery and performance of the Subject Agreements, nor is any opinion provided as to the tax consequences of the transactions contemplated by the Subject Agreements under any other tax laws. Without limiting the foregoing, we have assumed that, prior to giving effect to the issuance of the Series 2004-1 Certificates, the Investor Certificates of any outstanding Certificate Series would have constituted indebtedness or an interest in a partnership (other than a publicly traded partnership) for Federal income tax purposes and that the Trust was not an association (or publicly traded partnership) taxable as a corporation for Federal income tax purposes and we render no opinion herein with respect to such matters. (g) We express no opinion as to the enforceability under certain circumstances of provisions indemnifying a party against liability or requiring contribution from a party for liability where such indemnification or contribution is contrary to public policy. Exh. B-4 August 5, 2004 Page 5 (h) We point out that certain rights, remedies and waivers contained in the Subject Agreements may also be rendered ineffective or limited by applicable laws or judicial decisions governing such provisions but, subject to clauses (c) and (g) above, such laws and judicial decisions do not, in our opinion, affect the validity of the Subject Agreements, and the Subject Agreements contain adequate provisions for the practical realization of the rights and benefits intended to be afforded thereby, although we note that the enforceability of such provisions may result in delays in the enforcement of rights and remedies by certain parties under the Subject Agreements (and we express no opinion as to the economic consequences, if any, of such delays). (i) Whenever our opinion with respect to the existence or absence of facts is indicated to be based on our knowledge or awareness, we are referring only to the actual knowledge of the Mayer, Brown, Rowe & Maw attorneys who have represented the Companies in connection with the transactions contemplated by the Subject Agreements. Except as expressly set forth herein, we have not undertaken any independent investigation to determine the existence or absence of such facts and no inference as to our knowledge concerning such facts should be drawn. (j) For the purposes of our opinion in paragraph 9 we assume that (i) the purchasers have sufficient knowledge and experience, are sufficiently sophisticated in financial matters and are capable of evaluating the risks involved in transactions of this nature; (ii) the purchasers are able and prepared to bear the economic risk of investing in and holding the Series 2004-1 Certificates; (iii) prior to purchasing the Series 2001-1 Certificates, the purchasers had access to such financial information and other information regarding the transaction and the parties thereto as they deemed necessary; and (iv) the purchasers were afforded the opportunity to ask questions of representatives of the Companies, and received answers as they deemed necessary. (k) We express no opinion as to the priority or perfection of any transfer of or security interest in any asset or property transferred pursuant to the Subject Agreements and refer you to our opinion dated as of the date hereof which addresses these matters. (l) We express no opinion as to principles of equitable subordination. (m) We express no opinion as to provisions regarding forum selection, venue, service of process, or provisions requiring submission or consent to the jurisdiction (both as to personal jurisdiction and subject matter jurisdiction) of any court or waiver of jury trial. (n) We express no opinion with respect to the validity, creation, priority, perfection or enforceability of any security interest, or the existence of, or title to, any collateral, or whether any transfer pursuant to a Subject Agreement is a "true sale". Exh. B-5 August 5, 2004 Page 6 (o) We express no opinion as to compliance by any party to the Subject Agreements (other than the Companies to the extent expressly set forth herein) with any state or federal laws or regulations applicable to the transactions contemplated by the Subject Agreements because of the nature of such party's business. (p) We express no opinion as to whether a court sitting in any jurisdiction other than New York will honor the choice of New York law to govern the Subject Agreements. (q) Our opinion that the New York choice of law provision in the Subject Agreements is enforceable is subject to the qualifications that such enforceability (i) may be limited by public policy considerations of any jurisdiction, other than the courts of the State of New York, in which enforcement of such provisions, or of a judgment upon an agreement containing such provisions, is sought, and (ii) does not apply to the extent provided to the contrary in subsection two of Section 1-105 of the UCC as in effect on the date hereof in the State of New York. (r) We express no opinion with respect to the severability provision of any Subject Agreement. (s) We express no opinion with respect to provisions appointing one Person as an attorney in fact for any other Person or providing that the decision of or calculations by any particular Person will be conclusive or binding on others. (t) We express no opinion with respect to provisions that provide for the appointment of a receiver, successor servicer or administrator. (u) We express no opinion with respect to confidentiality agreements. (v) We express no opinion with respect to any provision of the Subject Agreements (i) restricting access to legal or equitable remedies (including, but not limited to, legal or equitable remedies under bankruptcy laws), (ii) purporting to establish evidentiary standards or to waive either illegality as a defense to the performance of contract obligations or any other defense to such performance which cannot, as a matter of law, be effectively waived, (iii) which provides that any Subject Agreement may be amended, modified or waived only in writing, (iv) stating that all rights or remedies of any party are cumulative and may be enforced in addition to any other right or remedy, and that the election of a particular remedy does not preclude recourse to one or more other remedies, (v) which provides that the failure to exercise or the delay in exercising rights or remedies will not operate as a waiver of any such rights or remedies, or (vi) which provides for set off, unless there is mutuality between the parties, or that relates to any set-off owed to any affiliate of a party, severability, cumulative rights and remedies or usury. Exh. B-6 August 5, 2004 Page 7 (w) We express no opinion as to any provision of the Subject Agreements: (i) that may require a party to pay any amount determined to be a forfeiture penalty, including without limitation any setoff section as applied to any unmatured obligation or any obligation to pay additional interest following the entry of a judgment; or (ii) that may require a party to pay any consequential, special, incidental, indirect, contingent or exemplary damages or amount. (x) We express no opinion with respect to the legality, validity or enforceability, other than under the laws of the State of New York, of any agreement as to the compounding of interest. (y) We express no opinion as to the existence of any violation of, or default under, any financial covenant, ratio or test that may be contained in any agreement or instrument. Based on the foregoing, and subject to the qualifications and assumptions set forth herein, it is our opinion that: 1. No consent, authorization, approval, or other action by, and no notice to or filing with, any Federal or New York State governmental authority or regulatory body is required for the due execution, delivery and performance by any Company of the Subject Agreements to which it is a party; and such execution, delivery and performance will not contravene any Federal or New York statute, rule or regulation applicable to the Companies. 2. Each of the Subject Agreements is the legal, valid and binding obligation of each Company party thereto, enforceable against it in accordance with its terms. 3. The Series 2004-1 Certificates, when duly executed and authenticated and delivered by the Trustee in accordance with the terms of the Pooling and Servicing Agreement and delivered pursuant to the Supplement and delivered and paid for pursuant to the Certificate Purchase Agreement, the Class C Purchase Agreement or the Class D Purchase Agreement, as applicable, will be duly issued and outstanding, and will be entitled to the benefits afforded by the Pooling and Servicing Agreement, as supplemented by the Supplement. 4. The Trust is not, and immediately following the sale of the Class A Certificates, the Class M Certificates and Class B Certificates to the Initial Purchasers and the sale of the Class C Certificates and the Class D Certificates to the purchasers thereof, will not be, an "investment company" required to be registered under the Investment Company Act of 1940, as amended. 5. Neither the Pooling and Servicing Agreement nor the Supplement is required to be qualified under the Trust Indenture Act of 1939, as amended. Exh. B-7 August 5, 2004 Page 8 6. The issuance of the Series 2004-1 Certificates will not (i) adversely affect the characterization of the Investor Certificates of any outstanding Certificate Series as indebtedness for Federal income tax purposes or (ii) cause the Trust to be treated as an association (or publicly traded partnership) taxable as a corporation for Federal income tax purposes. 7. The Pooling and Servicing Agreement, the Purchase Agreement, the Supplement and the Series 2004-1 Certificates conform in all material respects to the descriptions thereof contained in the Offering Memorandum. 8. The statements contained in the Offering Memorandum under the headings "Structural Summary--Federal Tax Status of Offered Certificates and the Trust" (to the extent relating to Federal income tax consequences), "U.S. Federal Income Tax Consequences" and "Legal Aspects of the Receivables," in each case to the extent that they constitute statements of matters of law or legal conclusions with respect thereto, have been reviewed by us and are correct in all material respects. 9. Assuming the Class A Certificates, Class M Certificates and the Class B Certificates are offered and sold to the Initial Purchaser and resold by the Initial Purchaser only under the circumstances contemplated by the Certificate Purchase Agreement, the offer, sale and initial resale by the Initial Purchaser of the Class A Certificates, Class M Certificates and the Class B Certificates will be exempt from the registration requirements of the Securities Act. We express no opinion as to how and when the Class A Certificates, the Class M Certificates and the Class B Certificates may subsequently be resold. Exh. B-8 The opinions rendered herein may be relied upon by the addressees hereto. This opinion may not be relied upon for any other purpose or by any other party for any purpose without our prior written consent, except that each of Moody's Investors Service, Inc. and Standard & Poor's may rely upon this opinion to the same extent as if such opinion were addressed to it. Very truly yours, MAYER, BROWN, ROWE & MAW LLP MCF/JAG/JHK Exh. B-9 EXHIBIT C (i) The Supplemented Pooling Agreement is not required to be qualified under the Trust Indenture Act of 1939, as amended, and neither the Seller nor the Trust is now, and immediately following the sale of the Offered Certificates pursuant to this Agreement will be, required to be registered under the 1940 Act. (ii) The Supplemented Pooling Agreement constitutes a legal, valid and binding agreement of the Seller and the Servicer, enforceable against the Seller and the Servicer in accordance with its terms (subject to customary qualifications relating to bankruptcy or other laws and general principles of equity). (iii) When the Offered Certificates have been duly executed and delivered by the Seller, authenticated by the Trustee in accordance with the Supplemented Pooling Agreement and delivered and paid for by the Initial Purchasers pursuant to this Agreement, the holder of record of any Offered Certificate will be entitled to the benefits afforded by the Supplemented Pooling Agreement, and the Offered Certificates will be validly issued and outstanding, enforceable in accordance with their respective terms. (iv) Assuming the accuracy of the representations and warranties contained in this Agreement of each of the parties hereto, compliance by such parties with their respective covenants and agreements contained herein and that the Offered Certificates are offered and sold in the manner contemplated by the Final Memorandum and this Agreement, the offer and sale of the Offered Certificates do not require registration under the Securities Act. Such counsel shall also state that they have participated in conferences with representatives of the Initial Purchasers and representatives of the Seller and the Servicer and counsel to the Seller and the Servicer concerning the Final Memorandum and have considered the matters required to be stated therein and the matters stated therein, although they have not independently verified the accuracy, completeness or fairness of such statements and make no independent check or verification thereof other than as specified therein, and based upon and subject to the foregoing, nothing has come to such counsel's attention to cause them to believe that the Final Memorandum, as of its date or as of the Issuance Date, contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel has not been requested to, and does not, make any comment in this paragraph with respect to the financial statements, supporting schedules and other financial or statistical information contained in the Final Memorandum, or with respect to the information set forth under the heading "Description of the Certificates--Interest Rate Swap Counterparty" contained in the Final Memorandum). Exh. C-1 SCHEDULE A Class A Certificates Initial Purchasers Principal Amount of Class A Certificates Barclays Capital Inc. $ 100,200,000 Bear, Stearns & Co. Inc. $ 15,000,000 ------------- Total $ 115,200,000 Class M Certificates Initial Purchasers Principal Amount of Class M Certificates Barclays Capital Inc. $ 9,394,000 Bear, Stearns & Co. Inc. $ 1,406,000 ------------ Total $ 10,800,000 Class B Certificates Initial Purchasers Principal Amount of Class B Certificates Barclays Capital Inc. $ 16,440,000 Bear, Stearns & Co. Inc. $ 2,460,000 ------------- Total $ 18,900,000 Sched. A EX-10 6 exh107.txt EXHIBIT 10.7 EXHIBIT 10.7 - -------------------------------------------------------------------------------- CERTIFICATE PURCHASE AGREEMENT among WACHOVIA BANK, NATIONAL ASSOCIATION as Trustee CHARMING SHOPPES RECEIVABLES CORP., as Seller SPIRIT OF AMERICA, INC., as Servicer and THE CLASS C HOLDER DESCRIBED HEREIN dated as of August 5, 2004 - -------------------------------------------------------------------------------- Table of Contents
Page ARTICLE I Definitions SECTION 1.1 Defined Terms..............................................................................1 SECTION 1.2 Other Definitional Provisions..............................................................7 ARTICLE II Amount and Terms of Class C Certificates SECTION 2.1 Purchase...................................................................................8 SECTION 2.2 Distributions..............................................................................8 SECTION 2.3 Interest Rate; Payment Dates...............................................................9 SECTION 2.4 Payments...................................................................................9 SECTION 2.5 Class C Spread Account....................................................................10 SECTION 2.6 Nonrecourse and Recourse Obligations; Obligations Absolute.............................................................................11 SECTION 2.7 Indemnification...........................................................................11 SECTION 2.8 Increased Cost, Reduced Return and Taxes..................................................13 ARTICLE III Representations and Warranties of Seller and Servicer SECTION 3.1 Representations and Warranties of the Servicer............................................15 SECTION 3.2 Representations and Warranties of the Seller..............................................17 ARTICLE IV Conditions Precedent SECTION 4.1 Representations and Warranties............................................................19 SECTION 4.2 Documents.................................................................................19 SECTION 4.3 Related Agreements........................................................................19 SECTION 4.4 Accountants' Letter.......................................................................19 SECTION 4.5 Certificate Issuance......................................................................19 SECTION 4.6 Officer's Certificates....................................................................19 SECTION 4.7 Spread Account............................................................................20 SECTION 4.8 Certificate Rating........................................................................20 SECTION 4.9 The Trustee...............................................................................20 SECTION 4.10 Additional Documents......................................................................20
-i- Table of Contents (Continued)
Page ARTICLE V Covenants of the Seller and Servicer SECTION 5.1 Certificates..............................................................................20 SECTION 5.2 Monthly Status Reports....................................................................20 SECTION 5.3 Servicer Default..........................................................................20 SECTION 5.4 Reassignment of Certificates..............................................................21 SECTION 5.5 Rule 144A Information.....................................................................21 SECTION 5.6 Seller Financial Information; Other Information; Confidentiality......................................................................21 SECTION 5.7 Class C Holders' Identities...............................................................21 SECTION 5.8 Amendments and Modifications..............................................................21 SECTION 5.9 Trigger Increase Event....................................................................22 SECTION 5.10 Liens.....................................................................................22 SECTION 5.11 Discount Option Receivables...............................................................23 SECTION 5.12 Access....................................................................................23 SECTION 5.13 Performance of Agreements.................................................................23 SECTION 5.14 Payments..................................................................................23 SECTION 5.15 Further Actions...........................................................................23 SECTION 5.16 Class D Cancellation......................................................................23 ARTICLE VI Representations, Warranties and Covenants of the Initial Class C Holder and the Trustee SECTION 6.1 Representations, Warranties and Covenants of the Class C Holder...........................23 SECTION 6.2 Representations, Warranties and Covenants of the Trustee..................................25 ARTICLE VII Miscellaneous SECTION 7.1 Amendments and Waivers....................................................................25 SECTION 7.2 Servicer Transfer.........................................................................25 SECTION 7.3 Fees and Expenses.........................................................................26 SECTION 7.5 No Waiver.................................................................................26 SECTION 7.6 Severability..............................................................................26 SECTION 7.7 Termination...............................................................................26 SECTION 7.8 Transfer Restrictions.....................................................................26
-ii- Table of Contents (Continued)
Page SECTION 7.9 Notices...................................................................................28 SECTION 7.10 Survival of Representations and Warranties................................................28 SECTION 7.11 Exclusive Benefit.........................................................................28 SECTION 7.12 Limitation of Remedies....................................................................28 SECTION 7.13 Counterparts..............................................................................29 SECTION 7.14 Entire Agreement..........................................................................29 SECTION 7.15 Headings..................................................................................29 SECTION 7.16 Nonpetition Agreement.....................................................................29 SECTION 7.17 Waiver of Jury Trial......................................................................29 SCHEDULE I Initial Class C. Holder EXHIBIT A Form of Monthly Report EXHIBIT B Form of Purchaser Representation Letter
-iii- CERTIFICATE PURCHASE AGREEMENT, dated as of August 5, 2004, among WACHOVIA BANK, NATIONAL ASSOCIATION, as trustee (together with its successors and assigns, the "Trustee") for the Charming Shoppes Master Trust (the "Trust"), SPIRIT OF AMERICA, INC., a Delaware corporation ("Spirit, Inc."), as Servicer, CHARMING SHOPPES RECEIVABLES CORP., a Delaware corporation ("CSRC"), as Seller, and the purchaser of the Class C Certificates named on the signature pages of this Agreement (the "Initial Class C Holder"; and together with its permitted transferees, the "Class C Holders"). WHEREAS the Seller, the Servicer and the Trustee have entered into a Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997 (as amended by Amendments thereto, dated as of July 22, 1999, May 8, 2001 and August 5, 2004, and as the same may from time to time be further amended, modified or otherwise supplemented, the "Pooling and Servicing Agreement"), for the Trust and the Series 2004-1 Supplement, dated as of August 5, 2004 to the Pooling and Servicing Agreement (as the same may from time to time be amended, modified or otherwise supplemented, the "Supplement"); and WHEREAS the Initial Class C Holder has agreed to purchase the Class C Certificates provided for herein; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, the receipt and adequacy of which are hereby expressly acknowledged, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.1 Defined Terms. Unless otherwise defined herein, all terms used herein which are defined in the Pooling and Servicing Agreement or the Supplement shall have the meanings assigned thereto in the Pooling and Servicing Agreement or the Supplement, as the case may be, and the following terms shall have the following meanings: "Act" shall mean the Securities Act of 1933, as amended. "Administrator" shall mean State Street Global Markets, LLC and its successors and assigns. "Agreement" shall mean this Certificate Purchase Agreement, as amended, supplemented or otherwise modified from time to time. "Available Amounts" shall mean, with respect to each Distribution Date, sum of Available Interest Amounts and Available Principal Amounts, in each case, as of such Distribution Date. "Available Interest Amounts" shall mean, with respect to each Distribution Date, the sum of (a) the amounts distributed by the Servicer or the Trustee (acting in accordance with instructions of the Servicer) for application under this Agreement pursuant to Section 4.11(h) and 4.11(l) of Article IV under Section 8 of the Supplement plus (b) Investment Earnings, if any, available to be paid from the Class C Spread Account pursuant to Section 2.5 plus (c) amounts paid to the Trust pursuant to the Class C Swap. "Available Principal Amounts" shall mean, with respect to each Distribution Date, an amount equal to the amount distributed by the Servicer or the Trustee (acting in accordance with instructions of the Servicer) for application under this Agreement pursuant to Section 4.9(f)(i) of Article IV under Section 8 of the Supplement. "Class C Additional Interest" shall mean, on any Distribution Date, an amount equal to the product of (i) (A) a fraction, the numerator of which is the actual number of days in the related Interest Period and the denominator of which is 360, times (B) the sum of the Class C Certificate Rate and 1% times (ii) any Class C Deficiency Amounts from the prior Distribution Date (or the portion thereof which has not theretofore been paid to the Class C Holders). "Class C Certificate Rate" shall mean LIBOR plus the "Applicable Spread" as defined in the Fee Letter. "Class C Expected Final Payment Date" shall mean the February 2010 Distribution Date. "Class C Holders" shall have the meaning assigned thereto to in the preamble to this Agreement. "Class C Reduction Amount" shall mean, on any day, the aggregate unreimbursed amount by which the Class C Investor Interest has been reduced below the Class C Initial Investor Interest for reasons other than the payment of principal to the Class C Certificateholders. "Class C Reduction Rate" shall mean, on any day, the Class C Certificate Rate in effect on such Distribution Date plus the "Reduction Spread" as defined in the Fee Letter. "Class D-1 Purchase Agreement" shall mean the Certificate Purchase Agreement, if any, among CSRC, the Servicer, the Trustee and the Initial Class C Holder named therein, as amended, modified or otherwise supplemented from time to time. "Closing Date" shall mean August 5, 2004. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Commercial Paper" shall mean the commercial paper promissory notes issued by a Structured Holder in the commercial paper market. "Commission" shall mean the Securities and Exchange Commission. "Covered Class D-1 Certificates" shall have the meaning assigned thereto in the Class D-1 Purchase Agreement. "Covered Class D-1 Holder" shall mean each "Covered Class D-1 Holder" as defined in the Class D-1 Purchase Agreement. 2 "Credit Agreement" shall mean any agreement (other than the Liquidity Agreement) now or hereafter entered into by a Structured Holder providing for the issuance of one or more letters of credit for the account of such Structured Holder, the making of loans to such Structured Holder or any other extensions of credit to or for the account of such Structured Holder to support all or any part of such Structured Holder's payment obligations under its Commercial Paper or to provide an alternate means of funding such Structured Holder's investments in accounts receivable or other financial assets, in each case as amended, supplemented or otherwise modified from time to time. "CSRC" has the meaning assigned thereto in the preamble. "Dollars" and "$" shall mean dollars in lawful currency of the United States of America. "Excess Yield Percentage" shall mean, with respect to any Distribution Date, the result (expressed as a percentage) of a fraction, the numerator of which is the product of (a) the Excess Spread for such Distribution Date, minus (i) the Shared Excess Finance Charge Collections from Series other than Series 2004-1 included in the calculation of Excess Spread for such Distribution Date and (ii) the sum of (A) amounts required to be applied pursuant to Sections 4.11(a) through (q) of the Supplement (other than Section 4.11(l)) plus (B) the amounts required to be applied pursuant to Section 2.2(c)(i) through 2.2(c)(iii) thereof of the Class D-1 Purchase Agreement plus (C) the amounts required to be applied pursuant to Sections 2.2(b)(ii) through (2.2(b)(iv) of this Agreement times (b) twelve, and the denominator of which is the Series Investor Interest for such Distribution Date. "Fee Letter" shall mean the letter agreement, dated as of the date hereof, among the Seller, the Servicer and the Initial Class C Holder, as amended or otherwise modified from time to time. "Foreign" shall mean, with respect to any Funding Source that is an assignee or participant of a Structured Holder, any Person not organized under the laws of the United States, one of the states thereof, or the District of Columbia. "Funding Agreement" shall mean any agreement or instrument executed by any Funding Source with or for the benefit of a Structured Holder. "Funding Source" shall mean any insurance company, bank or other financial institution providing liquidity, credit enhancement or back-up purchase support or facilities to a Structured Holder in respect of commercial paper issued by such Structured Holder, the proceeds of which were used to fund the Class C Investor Interest. "GAAP" shall mean United States generally accepted accounting principles. "Indemnifying Party" shall have the meaning assigned thereto in Section 2.7(b) of this Agreement. "Indemnitee" shall have the meaning assigned thereto in Section 2.7(a) of this Agreement. 3 "Initial Class C Holder" shall have the meaning assigned thereto in the preamble of this Agreement. "Insolvency Event" shall mean, with respect to any Person, that any proceeding shall be instituted by or against such Person seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, conservatorship or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian, conservator, sequestrator or other similar official for it or for any substantial part of its property. "Investment Earnings" shall mean, with respect to any Distribution Date, all earnings on Class C Spread Account investments (net of losses and investment expenses) during the Interest Period ending on such Distribution Date. "Liquidity Agreement" shall mean that certain Liquidity Asset Purchase Agreement, dated as of August 5, 2004, among Clipper Receivables Company LLC, State Street Bank and Trust Company, as Liquidity Agent, the Administrator and each of the purchasers thereto, as amended from time to time. "Monthly Payment Percentage" shall mean, for any Due Period, the percentage equivalent of a fraction, the numerator of which is an amount equal to the aggregate Collections received during such Due Period and the denominator of which is the aggregate Outstanding Balance of all Receivables as of the close of business on the last day of the immediately preceding Due Period. "Proposed Transfer" shall have the meaning assigned thereto in Section 7.8(c). "Regulation D" shall mean Regulation D of the Federal Reserve Board, or any other regulation of the Federal Reserve Board that prescribes reserve requirements applicable to nonpersonal time deposits or "Eurocurrency Liabilities" as presently defined in Regulation D, as in effect from time to time. "Regulatory Change" shall mean, relative to any Funding Source: (a) any change in (or the adoption, implementation, phase-in or commencement of effectiveness of) any (i) United States federal or state law or foreign law applicable to such Funding Source; (ii) regulation, interpretation, directive, requirement or request (whether or not having the force of law) applicable to such Funding Source of (A) any court, government authority charged with the interpretation or administration of any law referred to in clause (a)(i) or (B) any fiscal, monetary or other authority having jurisdiction over such Funding Source; or 4 (iii) generally accepted accounting principles or regulatory accounting principles applicable to such Funding Source and affecting the application to such Funding Source of any law, regulation, interpretation, directive, requirement or request referred to in clause (a)(i) or (a)(ii) above; or (b) any change in the application to such Funding Source of any existing law, regulation, interpretation, directive, requirement, request or accounting principles referred to in clause (a)(i), (a)(ii) or (a)(iii) above. "Repayment Amount" shall mean, as of any date, amounts owed to the Class C Holders hereunder or under the Supplement. "Required Class C Holders" shall mean Holders of Class C Certificates representing more than 50% of the Class C Investor Interest. "Required Class C Spread Amount" shall mean, with respect to any Distribution Date, the product of (1) the sum of the Required EY Percentage plus the Required MPR Percentage times (2) the Initial Investor Interest. "Required EY Percentage" shall mean, with respect to any Distribution Date, the "Required EY Percentage" set forth in the right column of the table set forth below that corresponds to the applicable range for the Three Month Excess Yield Percentage in effect for such Distribution Date: Three Month Excess Yield Percentage Required EY Percentage* - ------------------------------------------------------ ----------------------- greater than or equal to 5.0% 0.0% greater than or equal to 4.0% but less than 5.0% 1.0% greater than or equal to than 2.0% but less than 4.0% 3.0% less than 2.0% the Specified Percentage *If the "Required EY Percentage" is increased for any Distribution Date, the "Required EY Percentage" for any succeeding Distribution Date shall not be decreased until the Three Month Excess Yield Percentage falls within the range specified for a lower "Required EY Percentage" for three consecutive Due Periods. Notwithstanding the foregoing, during the continuation of a Trigger Increase Event, the "Required EY Percentage" shall be the Specified Percentage. "Required MPR Percentage" shall mean, with respect to any Distribution Date, the "Required MPR Percentage" set forth in the right column of the table set forth below that corresponds to the applicable range for the Three Month MPR Percentage in effect for such Distribution Date; provided, however, that the "Required MPR Percentage" for any Distribution Date on which the Required EY Percentage is the Specified Percentage shall be 0%: 5 Three Month MPR Percentage Required MPR Percentage* - ----------------------------------------------------- ------------------------ greater than 7.0% 0.0% greater than 5.0% but less than or equal to 7.0% 1.0% equal to or less than 5.0% 2.0% *If the "Required MPR Percentage" is increased for any Distribution Date, the "Required MPR Percentage" for any succeeding Distribution Date shall not be decreased until the Three Month MPR Percentage falls within the range specified for a lower "Required MPR Percentage" for three consecutive Distribution Periods. "Senior Certificate Purchase Agreement" shall mean the Certificate Purchase Agreement dated as of July 21, 2004, among the Seller, the Servicer, Fashion Service Corp., Barclays Capital Inc. and Bear, Stearns & Company Inc., relating to offer and sale of the Class A Certificates, Class M Certificates and the Class B Certificates. "Specified Percentage" shall mean the sum of (x) 9% plus (y) if the Class D-1 Purchase Agreement has been executed and delivered by the parties thereto, such percentage as is specified in such agreement to be included in this definition. "Spirit, Inc." has the meaning assigned thereto in the preamble. "State Street Related Party" shall mean State Street Bank and Trust Company, the Initial Class C Holder and any other Structured Holder owned or administered by State Street Bank and Trust Company or the Administrator. "Structured Holder" shall mean the Initial Class C Holder and any other Class C Holder the principal business of which consists of issuing commercial paper promissory notes to fund its acquisition and maintenance of receivables, accounts, instruments, chattel paper, general intangibles and other similar assets or interests therein and which is required by any nationally recognized rating agency which is rating such Commercial Paper to obtain from its principal debtors an agreement such as that set forth in Section 7.16(b) of this Agreement in order to maintain such rating. "Taxes" shall mean, in the case of any Funding Source that is an assignee or participant of a Structured Holder, taxes, levies, imposts, deductions, charges, withholdings and liabilities, now or hereafter imposed, levied, collected, withheld or assessed by any country (or any political subdivision thereof), excluding income or franchise taxes imposed on it by (i) the jurisdiction under the laws of which such Funding Source is organized (or by any political subdivision thereof), (ii) any jurisdiction in which an office of such Funding Source funding the Class C Investor Interest is located (or any political subdivision thereof), or (iii) any jurisdiction in which such Funding Source is already subject to tax. "Three Month Excess Yield Percentage" shall mean, with respect to any Distribution Date, the average of the Excess Yield Percentages for the most recent three Distribution Dates, 6 including such Distribution Date (or, if less than three Distribution Dates have occurred since the Closing Date, for such Distribution Dates as shall have occurred). "Three Month MPR Percentage" shall mean, with respect to any Distribution Date, the average of the Monthly Payment Percentages for the most recent three Distribution Dates, including such Distribution Date (or, if less than three Distribution Dates have occurred since the closing Date, for such Distribution Dates as shall have occurred). "Trigger Increase Event" shall mean any of the following events: (a) the occurrence of an Early Amortization Event with respect to the Series 2004-1 Certificates (whether or not waived by the holders of the Series 2004-1 Certificates or declared by the Trustee) or an Appointment Day, unless, in either case, waived by the Required Class C Holders, (b) notice by the Class C Holders to the Servicer of a failure by the Seller or the Servicer of its obligation to make or to give instructions to the Trustee for the making of, any payment, transfer or deposit required by the terms of the Pooling and Servicing Agreement, the Supplement or this Agreement (unless, in any case, waived by the Required Class C Holders or cured on or before the applicable Distribution Date after the Seller or the Servicer receives notice of the failure to make or give instructions for the making of such payment, transfer or deposit), (c) notice by the Required Class C Holders of a breach by the Seller or the Servicer of a representation, warranty or covenant under this Agreement (unless waived by the Required Class C Holders or cured within 30 days after the Seller or the Servicer receives notice of such breach), (d) on or after any date on which the Seller has reduced any designated percentage of Principal Receivables to be treated as Finance Charge Receivables, the average of the Excess Yield Percentages for the current and two preceding Distribution Dates (calculated as if the amount of such designated percentage is zero) is less than 0%, unless waived by the Class C Holders or on any subsequent Distribution Date, such average is greater than 0% or (e) the swap counterparty under the Class C Swap shall fail to make any payment required to be made by it pursuant to the Class C Swap and such failure shall continue for five Business Days after written notice thereof to such counterparty from the Trustee; or a Termination Event (as defined in the Class C Swap), shall occur with respect to the swap counterparty under the Class C Swap. "Trust" has the meaning assigned thereto in the preamble. "Trustee" has the meaning assigned thereto in the preamble. SECTION 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto. (b) As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular 7 provision of this Agreement; and Section, subsection, Schedule, Attachment and Exhibit references are to this Agreement, unless otherwise specified. The words "including" and "include" shall be deemed to be followed by the words "without limitation." (d) References herein to the Class D-1 Purchase Agreement and terms defined therein shall apply hereunder only when and if the Class D-1 Purchase Agreement has been executed and delivered by the parties hereto and remains in effect. ARTICLE II Amount and Terms of Class C Certificates SECTION 2.1 Purchase. (a) Subject to terms and conditions hereof, the Initial Class C Holder hereby agrees to purchase on the Closing Date a Class C Certificate in a principal amount equal to the amount set forth opposite its name in Schedule I hereto for a purchase price equal to 100% of such principal amount. (b) Except as otherwise set forth herein, all rights of any Class C Holder with respect to any Class C Certificate shall be governed by the Pooling and Servicing Agreement and the Supplement. SECTION 2.2 Distributions. On each Distribution Date, the Trustee (at the direction of the Servicer and upon receipt of the report substantially in the form of Exhibit A hereto to be delivered to each Class C Holder on the related Determination Date) shall distribute Available Amounts with respect to such date to the following Persons in the order of priority listed below: (a) Available Principal Amounts, if any, shall be distributed to the Class C Holders to pay Class C Monthly Principal, if any, on such Distribution Date. (b) Available Interest Amounts shall be distributed as follows: (i) an amount equal to Class C Monthly Interest for such Distribution Date shall be distributed to the Class C Holders; (ii) an amount equal to the lesser of (A) any amounts remaining after the payment made pursuant to clause (i) above and (B)(I) any Class C Deficiency Amount for such Distribution Date plus (II) any Class C Additional Interest for such Distribution Date (and any Class C Additional Interest previously payable pursuant to this clause (ii) but not paid on a prior Distribution Date) shall be distributed to the Class C Holders; (iii) an amount equal to the lesser of (A) any amounts remaining after the payments made pursuant to clauses (i) and (ii) above and (B) an amount equal to the sum of any amounts owed to the Class C Holders or any Funding Source pursuant to the Fee Letter or Section 2.7, 2.8 or 7.3 hereof shall be distributed to the Class C Holders; (iv) an amount equal to the lesser of (A) any amounts remaining after the payments made pursuant to clauses (i) through (iii) above and (B) an amount equal to the sum of (1) the product of (x) the Class C Reduction Amount as of the most recently 8 preceding Distribution Date times (y) the Class C Reduction Rate, times (z) a fraction, the numerator of which is the actual number of days in the related Interest Period and the denominator of which is 360 and (2) any amounts payable pursuant to this subclause (iv) on a prior Distribution Date and not so paid; (v) an amount equal to the lesser of (A) any amounts remaining after the payments made pursuant to clauses (i) through (iv) above and (B) on any Distribution Date occurring during the Early Amortization Period, an amount equal to the outstanding Class C Reduction Amount on such Distribution Date, if any, shall be distributed to the Class C Holders, it being understood that the aggregate amount distributed to the Class C Holders pursuant to Section 2.2(a) and this subclause (v) shall not exceed the Class C Initial Investor Interest; (vi) an amount equal to the lesser of (A) any amounts remaining after the payments made pursuant to clauses (i) through (v) above and (B) an amount equal to the excess, if any, of the Required Class C Spread Amount over the amount on deposit in the Class C Spread Account shall be transferred to the Class C Spread Account; and (vii) an amount equal to the amounts remaining after the payments made pursuant to clauses (i) through (vi) above shall be (A) applied as "Available Interest Amounts" as defined in the Class D-1 Purchase Agreement if the Class D-1 Purchase Agreement is in effect, or (B) otherwise, paid to the holder of the Exchangeable Seller Certificate. (c) In order to effect the distributions required to be made under this Section 2.2, this Agreement hereby requires that amounts be paid pursuant to Section 4.11(s) of Article IV under Section 8 of the Supplement, in each case to the extent funds are available for such payment under the terms of the Supplement, to be used to fund amounts described in Section 2.2(b). SECTION 2.3 Interest Rate; Payment Dates. (a) The Class C Investor Interest shall bear interest at the Class C Certificate Rate. (b) The Class C Reduction Amount shall bear interest at the Class C Reduction Rate. (c) Class C Monthly Interest, Class C Deficiency Amounts, Class C Additional Interest and Class C Monthly Principal shall be payable on each Distribution Date, as provided in Section 2.2 hereof and the Supplement. SECTION 2.4 Payments. On or prior to 10:00 a.m., New York City time, on each Distribution Date, the Servicer shall deliver instructions to the Trustee regarding all payments to be made hereunder on such Distribution Date. All payments to be made on behalf of the Trust hereunder, whether on account of principal, interest, or otherwise, shall be made without setoff or counterclaim and shall be made prior to 2:30 p.m., New York City time, on the due date thereof, to each Class C Holder in accordance with the terms of the Pooling and Servicing Agreement and the Supplement. 9 SECTION 2.5 Class C Spread Account. (a) The Servicer, for the benefit of the Class C Holders, shall establish and maintain or cause to be established and maintained, a spread account (the "Class C Spread Account") for the sole and exclusive benefit of the Class C Holders and the Covered Class D-1 Holders and, after payment in full of the Class C Investor Interest and Class D-1 Investor Interest, the Holder of the Exchangeable Seller Certificate. The Class C Spread Account shall be established and maintained with the Trustee, bearing a designation clearly indicating that the funds deposited therein are held exclusively for the benefit of the Class C Holders and the Covered Class D-1 Holders and, after payment in full of the Class C Investor Interest and Class D-1 Investor Interest, the Holder of the Exchangeable Seller Certificate. The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Class C Spread Account and in all proceeds thereof for the benefit of the Class C Holders and the Covered Class D-1 Holders and upon payment in full of the Class C Investor Interest and Class D-1 Investor Interest, the Holder of the Exchangeable Seller Certificate. The Class C Spread Account shall be under the sole dominion and control of the Trustee for the benefit of the Class C Holders and the Covered Class D-1 Holders and upon payment in full of the Class C Investor Interest and Class D-1 Investor Interest, the Holder of the Exchangeable Seller Certificate. If, at any time, the Class C Spread Account ceases to be established and maintained with the Trustee, the Trustee (or the Servicer on its behalf) shall on or before the next Distribution Date (or if such Distribution Date is not more than five Business Days from such date, the following Distribution Date) establish a new deposit account for the Class C Spread Account which shall be established and maintained with a Qualified Depository Institution and shall transfer any cash and/or any investments to such new deposit account and from the date such new account is established, it shall be the Class C Spread Account. The Trustee at the written direction of the Servicer (or the Servicer on the Trustee's behalf) shall make withdrawals from the Class C Spread Account from time to time for the purposes set forth in this Section 2.5. Funds on deposit in the Class C Spread Account shall be invested at the written direction of the Servicer by the Trustee in Permitted Investments. All such investments shall be held by the Trustee for the benefit of the Class C Holders and the Covered Class D-1 Holders (and upon payment in full of the Class C Investor Interest and Class D-1 Investor Interest, the Holder of the Exchangeable Seller Certificate); provided that on each Distribution Date, the Trustee shall (upon the written instruction of the Servicer and in accordance with the information set forth in Exhibit A) apply all interest and other investment earnings (net of losses and investment expenses) as Available Interest Amounts, to the extent such interest and earnings together with other funds in the Class C Spread Account exceed the Required Class C Spread Amount, as provided in Section 2.2). Funds on deposit in the Class C Spread Account shall be invested in Permitted Investments having maturities such that such funds will be available not later than the succeeding Distribution Date. (b) If on any Distribution Date the aggregate amount available for distribution pursuant to Section 2.2 on such Distribution Date is less than the aggregate amount required to be distributed pursuant to Sections 2.2 (b)(i) through (v), then the Servicer shall direct the Trustee to withdraw the amount of such deficiency, up to the amount available in the Class C Spread Account, from the Class C Spread Account and apply such amount in the order of priority and in the manner set forth in Sections 2.2 (b)(i) through (v). (c) If on any Distribution Date on which a Covered Class D-1 Holder is a Class D-1 Holder, the aggregate amount available for distribution pursuant to Section 2.2 (including any 10 Redirected Payments (as defined in the Class D-1 Purchase Agreement) on such Distribution Date) of the Class D-1 Purchase Agreement is less than the aggregate amount required to be distributed pursuant to Section 2.2(a)(i) and 2.2(b)(i) of the Class D-1 Purchase Agreement, then, after giving effect to any withdrawals from the Class C Spread Account pursuant to paragraph (b) above, the Servicer shall direct the Trustee to withdraw the amount of such deficiency, up to the amount available in the Class C Spread Account and apply such amount in accordance with Section 2.8 of the Class D-1 Purchase Agreement. (d) If on any Distribution Date, after giving effect to all withdrawals from and deposits to the Class C Spread Account, including any withdrawals required under paragraphs (b) and (c) above, the amount on deposit in the Class C Spread Account would exceed the Required Class C Spread Amount, then such excess shall be distributed on such date to the Holder of the Exchangeable Seller Certificate. On the date on which the Class C Investor Interest and the Class D-1 Investor Interest have been reduced to zero and all other amounts owing to the Class C Holders hereunder and under the Supplement and all other amounts owing to the Class D-1 Holders under the Class D-1 Purchase Agreement and the Supplement have been paid in full, the Servicer shall direct the Trustee to distribute all amounts then remaining in the Class C Spread Account to the Holder of the Exchangeable Seller Certificate. SECTION 2.6 Nonrecourse and Recourse Obligations; Obligations Absolute. Except as provided in Section 2.7, notwithstanding any provision in any other Section of this Agreement to the contrary, the obligation to pay the Repayment Amount shall be without recourse to (i) the Seller, the Servicer, the Trustee, any Certificateholder, any Certificate Owner, any Receivables Purchaser or any Purchaser Representative or (ii) any affiliate, officer, director, employee or agent of any Person described in clause (i), and the obligation to pay such amounts hereunder shall be limited solely to the application of Available Amounts, as described in Section 2.2 hereof, and withdrawals from the Class C Spread Account as described in Section 2.5 hereof, in the Pooling and Servicing Agreement and the Supplement, which amounts shall be subordinated to the rights of other Investor Certificateholders as provided herein and in the Pooling and Servicing Agreement and the Supplement. SECTION 2.7 Indemnification. (a) The Trust, acting through the Trustee (and at the direction of the Servicer), but only to the extent funds are available therefor under Section 2.2 and Section 2.5, the Seller and the Servicer agree to indemnify and hold harmless each Class C Holder and any director, officer, employee, representative or agent of such Class C Holder (each such Person being an "Indemnitee") from and against any and all claims, damages, losses, liabilities, costs or expenses (including reasonable fees and expenses of counsel) whatsoever (other than claims for payment of Class C Monthly Interest, Class C Deficiency Amounts and Class C Monthly Principal) which the Indemnitee may incur (or which may be claimed against the Indemnitee) by reason of or in connection with (i) the execution and delivery of payment under, this Agreement or the Class C Investor Interest or (ii) the transactions contemplated hereby, except (A) to the extent that any such claim, damage, loss, liability, cost or expense shall be caused by the willful misconduct or gross negligence of the Indemnitee in performing its obligations under this Agreement or a Class C Certificate, (B) to the extent that any such claim, damage, loss, liability, cost or expense relates to any income or franchise tax based on the net income of such Class C Holder or any other tax upon or measured by income, gross receipts, assets or capital of such Class C Holder imposed by the United States of America or by any 11 state, locality or foreign jurisdiction in which such Class C Holder maintains an office or permanent establishment or is otherwise doing business or (C) as provided in Section 7.3 hereof. If an Indemnitee has a claim for indemnification pursuant to this Section 2.7 arising from (i) any representation and warranty of the Seller or the Servicer made herein or in the Pooling and Servicing Agreement being incorrect in any material respect when made, (ii) noncompliance by the Seller or the Servicer with the terms and provisions of this Agreement, the Pooling and Servicing Agreement or the Supplement or (iii) the amounts of any Class C Reduction Amount, to the extent such amounts represent amounts which the Seller or the Servicer failed to deposit in the Collection Account in accordance with the Pooling and Servicing Agreement, together with interest thereon, such claim, notwithstanding the terms of Section 2.6, shall be with recourse to the Seller or the Servicer, as the case may be, but not to any successor to the Servicer. Notwithstanding the preceding sentence, the sole remedy against the Seller or the Servicer for a breach of a representation, warranty or covenant made in the Pooling and Servicing Agreement shall be limited to the right to remedies provided therein and this Section 2.7 is not intended to create any claim against the Seller or Servicer not otherwise created by the terms of the Pooling and Servicing Agreement. (b) Promptly after the receipt by any Indemnitee of a notice of commencement of any action, such Indemnitee will, if a claim in respect thereof is to be made against the Trust, the Seller or the Servicer pursuant to Section 2.7(a) (the "Indemnifying Party"), notify such Indemnifying Party in writing of the commencement thereof; but the omission so to notify such Indemnifying Party will not relieve such Indemnifying Party from any liability which it may have to such Indemnitee pursuant to Section 2.7(a) except and to the extent of any prejudice to such Indemnifying Party arising from such failure to provide such notice. In case any such action shall be brought against any Indemnitee and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other Indemnifying Party similarly notified, to assume the defense thereof, with counsel satisfactory to such Indemnitee (who shall not, except with the consent of such Indemnitee, be counsel to the Indemnifying Party) with respect to such action, and it being understood that the Indemnifying Party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for all such indemnified parties. Upon receipt of notice from an Indemnifying Party to such Indemnitee of such Indemnifying Party's election so to appoint counsel to assume the defense of such action and approval by such Indemnitee of such counsel, such Indemnifying Party will not be liable to such Indemnitee under this Section 2.7 for any legal or other expenses subsequently incurred by such Indemnitee in connection with the defense thereof other than reasonable costs of investigation. No Indemnifying Party shall, without the prior written consent of the Indemnitee, effect any settlement of any pending or threatened action in respect of which any Indemnitee is or could have been a party and indemnity could have been sought hereunder by such Indemnitee unless such settlement includes an unconditional release of such Indemnitee from all liability on any claims that are the subject matter of such action. No Indemnifying Party shall be liable under this section for any settlement of any claim or action effected without their prior written consent, which shall not be unreasonably withheld. Notwithstanding the foregoing, in case any action is brought against an Indemnitee in which the Seller, the Servicer or the Trust is a defendant, and such Indemnitee shall have concluded that there may be legal defenses available to it that are different from or 12 additional to those available to the Seller, the Servicer or the Trust, such Indemnitee shall have the right to select and, at its own expense, retain separate counsel to assert such legal defenses and to otherwise participate in the defense. SECTION 2.8 Increased Cost, Reduced Return and Taxes. (a) If (i) Regulation D or (ii) any Regulatory Change occurring after the date hereof: (A) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Federal Reserve Board), special deposit or similar requirement against assets of any Funding Source, deposits or obligations with or for the account of any Funding Source or with or for the account of any affiliate (or entity deemed by the Federal Reserve Board to be an affiliate) of any Funding Source, or credit extended by any Funding Source under any Funding Agreement; or (B) shall change the amount of capital maintained or required or requested or directed to be maintained by any Funding Source; or (C) shall impose any other condition affecting any Class C Certificates owned or funded in whole or in part by any Funding Source, or its obligations or rights, if any, to fund the Class C Investor Interest; and the result of any of the foregoing is or would be (x) to increase the cost to (or in the case of Regulation D referred to above, to impose a cost on) a Funding Source funding the Class C Investor Interest, any purchases, reinvestments, or loans or other extensions of credit under the Liquidity Agreement or any Credit Agreement, or any commitment of such Funding Source with respect to any of the foregoing, (y) to reduce the amount of any sum received or receivable by a Funding Source under the Liquidity Agreement or the Credit Agreement with respect thereto, or (z) in the reasonable determination of such Funding Source, to reduce the rate of return on the capital of a Funding Source as a consequence of its obligations arising in connection herewith to a level below that which such Funding Source could otherwise have achieved but for Regulation D or such Regulatory Change, then within thirty days after demand by such Funding Source (which demand shall be accompanied by a statement setting forth the basis of such demand), the Trust shall pay to the applicable Structured Holder solely from Available Amounts available therefor in accordance with Section 2.2(b) for the benefit of such Funding Source, such amounts charged to such Funding Source or to compensate such Funding Source for such reduction. This Section 2.8(a) shall not apply to Taxes. For the avoidance of doubt, any interpretation of Accounting Research Bulletin No. 51 by the Financial Accounting Standards Board (including Interpretation of No. 13 46: Consolidation of Variable Entities) shall constitute an adoption, change, request or directive subject to this Section 2.8(a). (b) Each Funding Source will promptly notify the applicable Structured Holder and the Seller of any event of which it has knowledge which will entitle such Funding Source to compensation pursuant to this Section 2.8; provided, however, no failure to give or delay in giving such notification shall adversely affect the rights of any Funding Source to such compensation. (c) In determining any amount provided for or referred to in this Section 2.8, a Funding Source may use any reasonable averaging and attribution methods that it (in its sole discretion) shall deem applicable. Any Funding Source when making a claim under this Section 2.8 shall submit to the applicable Structured Holder and the Seller a statement as to such increased cost or reduced return (including calculation thereof in reasonable detail), which statement shall, in the absence of demonstrable error, be conclusive and binding upon Seller. (d) Each Structured Holder agrees that it shall use its reasonable best efforts to take any action that will avoid the need to pay, or will reduce the amount of, any increased amounts referred to in paragraph (a) and agrees that the Servicer may require such Structured Holder to replace a Funding Source if there arises any obligation to make any payments to such Funding Source pursuant to this Section 2.8; provided that a Structured Holder shall not be obligated to take any actions that would, in the reasonable opinion of such Structured Holder, be disadvantageous to such Structured Holder and shall not be required to replace any Funding Source unless such replacement Funding Source is reasonably acceptable to such Structured Holder. (e) Subject to Section 2.8(g), any and all payments made under this Agreement shall be made free and clear of, and without deduction for, any and all present or future Taxes. If any amount of Taxes shall be required by law to be deducted from or in respect of any sum payable hereunder to any Foreign Funding Source that is an assignee or participant of a Structured Holder, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.8(e)), such Foreign Funding Source receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Trustee shall make such deductions and (iii) the Trustee shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law solely from Available Amounts available therefor in accordance with Section 2.2. (f) Each Foreign Funding Source that is an assignee or participant of a Structured Holder, on or prior to the date pursuant to which it becomes an assignee or participant of the such Structured Holder, and from time to time thereafter if requested in writing by the Seller (unless such Funding Source can no longer lawfully do so due to a change in law subsequent to the date it became an assignee or participant of such Structured Holder hereunder), shall provide Seller and the Trustee with Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Funding Source is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest to zero or certifying that the income 14 receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (g) For any period with respect to which a Funding Source that is a Foreign assignee or participant of a Structured Holder has failed to provide the Seller with the appropriate form described in Section 2.8(f) (other than if such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided), such Funding Source shall not be entitled to payments of additional amounts under Section 2.8(e). ARTICLE III Representations and Warranties of Seller and Servicer SECTION 3.1 Representations and Warranties of the Servicer. Spirit, Inc., as Servicer, hereby represents and warrants to the Initial Class C Holder as of the Closing Date as follows: (a) Organization and Good Standing. The Servicer is a corporation duly organized and validly existing under the laws of the State of Delaware and has full corporate power, authority and legal right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement and each other Transaction Document to which it is a party. (b) Due Qualification. The Servicer is duly qualified to do business and is in good standing (or is exempt from such requirement) in any state required in order to conduct its business, and has obtained all necessary licenses and approvals with respect to the Servicer required under applicable law, except in each case where the failure to do so would not individually or in the aggregate have a material adverse effect on the Class C Certificates. (c) Due Authorization. The execution and delivery by the Servicer of this Agreement and each other Transaction Document to which it is a party and the consummation of the transactions provided for hereunder and thereunder have been duly authorized by the Servicer by all necessary corporate action on its part and this Agreement and each other Transaction Document to which it is a party will remain, from the time of its execution, an official record of the Servicer. (d) Enforceability. Each of this Agreement and each other Transaction Document to which the Servicer is a party has been duly executed and delivered by the Servicer and constitutes a legal, valid and binding obligation of the Servicer, enforceable against the Servicer in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws. (e) No Conflict. The execution and delivery of this Agreement and each other Transaction Document to which the Servicer is a party, the performance of the transactions contemplated hereunder and thereunder and the fulfillment of the terms hereof and thereof will not conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which the Servicer is a party or by which it or any of its properties are bound. 15 (f) No Violation. The execution and delivery of this Agreement and each other Transaction Document to which the Servicer is a party, the performance of the transactions contemplated hereunder and thereunder and the fulfillment of the terms hereof and thereof will not conflict with or violate in any material respect any Requirements of Law applicable to the Servicer. (g) No Proceedings. There are no actions, investigations or proceedings pending or, to the best knowledge of the Servicer, threatened against the Servicer before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement or any other Transaction Document to which it is a party, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or any other Transaction Document, (iii) seeking any determination or ruling that, in the reasonable judgment of the Servicer, would materially and adversely affect the performance by the Servicer of its obligations under this Agreement or any other Transaction Document to which it is a party, (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement or any other Transaction Document or (v) seeking to affect adversely the income tax attributes of the Trust. (h) All Consents Required. All appraisals, authorizations, consents, orders or other actions of any Person or of any governmental body or official required in connection with the execution and delivery by the Servicer of this Agreement and each other Transaction Document to which it is a party, the performance of the transactions contemplated hereunder and thereunder and the fulfillment of the terms hereof, have been obtained. (i) Incorporated Representations and Warranties. Its representations and warranties in Section 3.3 of the Pooling and Servicing Agreement are true and correct in all material respects as of the dates they were so made. (j) Financial Statements. The Servicer has delivered to the Initial Class C Holder complete and correct copies of the audited consolidated balance sheet and audited consolidated statement of income of Charming Shoppes, Inc. for the fiscal year ended January 31, 2004. (k) No Adverse Change. There has not been any material adverse change in the business, operations, financial condition, properties or assets of the Servicer since the date of its formation. (l) Trust Indenture Act; Investment Company Act. Neither the Pooling and Servicing Agreement nor the Supplement is required to be qualified under the Trust Indenture Act of 1939, and the Trust is not required to be registered under the Investment Company Act of 1940, as amended. (m) No Early Amortization Event, Insolvency Event or Servicer Default. No Early Amortization Event with respect to the Series 2004-1 Certificates, Insolvency Event, or Servicer Default has occurred and is continuing, and no event, act or omission has occurred and is continuing which, with the lapse of time, the giving of notice or both, would constitute such an Early Amortization Event, Insolvency Event or Servicer Default. 16 (n) Reports. No report, statement, exhibit or other written information required to be furnished by the Servicer or any of its Affiliates, agents or representatives to the Class C Holders pursuant to this Agreement, the Pooling and Servicing Agreement or the Supplement is or shall be inaccurate in any material respect, or contains or shall contain any material misstatement of fact, or omits or shall omit to state a material fact or any fact necessary to make the statements contained therein not misleading, in each case, as of the date it is or shall be dated or (except as otherwise disclosed to the Class C Holders at such time) as of the date so furnished. SECTION 3.2 Representations and Warranties of the Seller. CSRC, as Seller, hereby represents and warrants to the Initial Class C Holder as of the Closing Date as follows: (a) Organization and Good Standing. The Seller is a corporation duly organized and validly existing under the laws of the State of Delaware and has full corporate power, authority and legal right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement and each other Transaction Document to which it is a party. (b) Due Qualification. The Seller is duly qualified to do business and is in good standing (or is exempt from such requirement) in any state required in order to conduct its business, and has obtained all necessary licenses and approvals with respect to the Seller required under applicable law, except in each case where the failure to do so would not individually or in the aggregate have a material adverse effect on the Class C Certificates. (c) Due Authorization. The execution and delivery by the Seller of this Agreement and each other Transaction Document to which it is a party and the consummation of the transactions provided for hereunder and thereunder have been duly authorized by the Seller by all necessary corporate action on its part and this Agreement and each other Transaction Document to which it is a party will remain, from the time of its execution, an official record of the Seller. (d) Enforceability. Each of this Agreement and each other Transaction Document to which the Seller is a party has been duly executed and delivered by the Seller and constitutes a legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws. (e) No Conflict. The execution and delivery of this Agreement and each other Transaction Document to which the Seller is a party, the performance of the transactions contemplated hereunder and thereunder and the fulfillment of the terms hereof and thereof will not conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which the Seller is a party or by which it or any of its properties are bound. (f) No Violation. The execution and delivery of this Agreement and each other Transaction Document to which the Seller is a party, the performance of the transactions contemplated hereunder and thereunder and the fulfillment of the terms hereof and thereof will 17 not conflict with or violate in any material respect any Requirements of Law applicable to the Seller. (g) No Proceedings. There are no actions, investigations or proceedings pending or, to the best knowledge of the Seller, threatened against the Seller before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement or any other Transaction Document to which it is a party, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or any other Transaction Document, (iii) seeking any determination or ruling that, in the reasonable judgment of the Seller, would materially and adversely affect the performance by the Seller of its obligations under this Agreement or any other Transaction Document to which it is a party, (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement or any other Transaction Document or (v) seeking to affect adversely the income tax attributes of the Trust. (h) All Consents Required. All appraisals, authorizations, consents, orders or other actions of any Person or of any governmental body or official required in connection with the execution and delivery by the Seller of this Agreement and each other Transaction Document to which it is a party, the performance of the transactions contemplated hereunder and thereunder and the fulfillment of the terms hereof, have been obtained. (i) Incorporated Representations and Warranties. Its representations and warranties in Sections 2.3 and 2.4 of the Pooling and Servicing Agreement are true and correct in all material respects as of the dates they were so made. (j) Trust Indenture Act; Investment Company Act. Neither the Pooling and Servicing Agreement nor the Supplement is required to be qualified under the Trust Indenture Act of 1939, and the Trust is not required to be registered under the Investment Company Act of 1940, as amended. (k) No Early Amortization Event, Insolvency Event or Servicer Default. No Early Amortization Event with respect to the Series 2004-1 Certificates, Insolvency Event, or Servicer Default has occurred and is continuing, and no event, act or omission has occurred and is continuing which, with the lapse of time, the giving of notice or both, would constitute an Early Amortization Event, Insolvency Event or Servicer Default. (l) No Adverse Change. There has not been any material adverse change in the business, operations, financial condition, properties or assets of the Seller since the fiscal year ended January 31, 2004. (m) Class C Certificates. The Class C Certificates have been duly and validly authorized, and, when executed and authenticated in accordance with the terms of the Pooling and Servicing Agreement and the Supplement and delivered to and paid for in accordance with this Agreement, will be duly and validly issued and outstanding, and will be entitled to the benefits of the Pooling and Servicing Agreement, the Supplement and this Agreement. (n) Securities Laws. Based upon, among other things, the representations and warranties of the Initial Class C Holders hereunder, the sale of the Class C Certificates pursuant 18 to the terms of this Agreement, the Pooling and Servicing Agreement and the Supplement will not require the registration of such Class C Certificates under the Securities Act of 1933, as amended. ARTICLE IV Conditions Precedent Sections 4.1 through 4.10 constitute conditions precedent to the obligation of the Initial Class C Holder to purchase the Class C Certificates on the Closing Date. SECTION 4.1 Representations and Warranties. On the Closing Date and after giving effect to the issuance of the Series 2004-1 Certificates, all representations and warranties of the Seller and the Servicer contained herein or in the Purchase Agreement and the Pooling and Servicing Agreement or otherwise made in writing pursuant to any of the provisions hereof or thereof shall be true and correct in all material respects with the same force and effect as though such representations and warranties had been made on and as of such date (unless such representations and warranties specifically relate to an earlier date). SECTION 4.2 Documents. The Initial Class C Holder shall have received an executed copy of each document described in Section 6 of the Senior Certificate Purchase Agreement (excluding Section 6(j) and the second sentence of Section 6(e) but including reliance letters on all opinions delivered to the Rating Agencies). SECTION 4.3 Related Agreements. The Initial Class C Holders shall have received copies of each of the Purchase Agreement, the Pooling and Servicing Agreement, the Security Agreement, the Supplement (which shall be satisfactory to the Initial Class C Holder) and the Senior Certificate Purchase Agreement, duly executed by the parties thereto. SECTION 4.4 Accountants' Letter. The Initial Class C Holder shall have received a copy of the letter of Ernst & Young, delivered pursuant to Section 6(m) of the Senior Certificate Purchase Agreement. SECTION 4.5 Certificate Issuance. On or prior to the Closing Date (i) all Series 2004-1 Certificates shall have been duly executed and authenticated and delivered in accordance with Section 6.2 of the Pooling and Servicing Agreement, (ii) the Class C Certificates shall have been delivered to the Initial Class C Holder in accordance with the terms hereof, and (iii) the Class A Certificates, Class M Certificates and Class B Certificates shall have been sold pursuant to the Senior Certificate Purchase Agreement. SECTION 4.6 Officer's Certificates. On the Closing Date, the Initial Class C Holder shall have received from the Seller and the Servicer, as applicable, a certificate of (a) an Assistant Secretary of the Seller or the Servicer, as the case may be, attaching a copy of the resolutions of the Board of Directors of such Person, authorizing the execution, delivery and performance of this Agreement and the other Transaction Documents to which the Seller or the Servicer, as applicable, is a party, and as to the incumbency of certain officers of the Seller or the Servicer, as applicable, authorized to execute this Agreement and the other Transaction 19 Documents to which such Person is a party, and (b) an authorized officer of each of the Seller and the Servicer as to the fulfillment of the condition set forth in Section 4.1 (as the same relates to such Person). SECTION 4.7 Spread Account. On the Closing Date, the Initial Class C Holder shall have received from the Trustee satisfactory evidence of the establishment of the Class C Spread Account. SECTION 4.8 Certificate Rating. On the Closing Date, the Initial Class C Holder shall have received evidence reasonably satisfactory to it that the Class A Certificate will be rated in the highest rating category by at least one nationally recognized rating agency, the Class M Certificates will be rated at least "AA" by at least one nationally recognized rating agency, the Class B Certificates will be rated at least "A" by at least one nationally recognized rating agency, and that the Class C Certificates will be rated at least "Baa2" or its equivalent by at least one nationally recognized rating agency. SECTION 4.9 The Trustee. The Initial Class C Holder shall have received a certificate from the Trustee, in form and substance reasonably satisfactory to it covering the incumbency and specimen signatures of its officers executing such documents. SECTION 4.10 Additional Documents. The Initial Class C Holder shall have received such additional certificates, letters or opinions as it or its counsel may reasonably request. ARTICLE V Covenants of the Seller and Servicer Each of the Seller and Servicer (and each Successor Servicer) covenants and agrees that, until the Class C Investor Interest is reduced to zero, unless the Required Class C Holders shall otherwise consent in writing, each of the Seller and Servicer (and each Successor Servicer) will: SECTION 5.1 Certificates. Furnish to the Class C Holders a copy of each certificate, report, statement, notice or other communication furnished by or on behalf of the Seller or the Servicer to the Trustee or to the Rating Agencies concurrently therewith and furnish to the Class C Holders promptly after receipt thereof a copy of each notice, demand or other communication received by or on behalf of Seller or Servicer with respect to the Series 2004-1 Certificates, this Agreement, the Pooling and Servicing Agreement or the Supplement. SECTION 5.2 Monthly Status Reports. Furnish to each Class C Holder (or cause to be furnished to each Class C Holder), two Business Days prior to each Distribution Date information relating to distributions of Available Amounts and amounts on deposit in the Class C Spread Account in a certificate substantially in the form of Exhibit A hereto, and such other information with respect to the Trust's property as the Required Class C Holders may reasonably request (including a copy of the monthly statements with respect to the Class C Spread Account furnished by the Trustee). SECTION 5.3 Servicer Default. Furnish to each Class C Holder, promptly after the occurrence of any Servicer Default, a certificate of an appropriate officer of the Servicer setting 20 forth the circumstances of such Servicer Default and any action taken or proposed to be taken by the Servicer with respect thereto. SECTION 5.4 Reassignment of Certificates. Not effect a reassignment of the Series 2004-1 Certificates pursuant to Section 12.2 of the Pooling and Servicing Agreement and Section 4 of the Supplement unless the Class C Investor Interest and all other amounts owing to the Class C Holders hereunder and under the Supplement shall have been paid in full. SECTION 5.5 Rule 144A Information. The Seller will promptly furnish or cause to be furnished to any Class C Holder and upon request of any Class C Holder, to any prospective purchaser of any Class C Certificate, copies of the information required to be delivered to Class C Holders and any prospective purchasers pursuant to Rule 144A(d)(4) under the Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of the Class C Certificates. The Seller shall pay the expenses of printing and distributing all such documents. SECTION 5.6 Seller Financial Information; Other Information; Confidentiality. (a) Furnish to the Class C Holders (or in the case of clause (ii) cause the Trustee to furnish) (i) no later than 45 days following the end of each quarter, in the case of the Originator, its call report for such quarterly period, and in any other case, such other publicly available financial information, if any, as to the Originator, Spirit, Inc., Charming Shoppes, Inc. , CSRC or the Receivables as the Required Class C Holders may reasonably request, (ii) a copy of each report prepared under Section 3.6(b) of the Pooling and Servicing Agreement, and (iii) notice of the occurrence of any Early Amortization Event with respect to the Series 2004-1 Certificates. All such information acquired by a Class C Holder hereunder shall be kept confidential to the extent provided in Section 6.1(b). (b) Use reasonable efforts to cause all information provided to any Class C Holder pursuant to this Agreement, the Pooling and Servicing Agreement or the Supplement, or in connection with any action required or permitted to be taken hereunder or thereunder, to be complete and accurate in all material respects. SECTION 5.7 Class C Holders' Identities. Maintain as confidential and not disclose to any Person (other than any officer, employee, agent, counsel, advisor, Rating Agency or representative of a party hereto or any underwriter of the Series 2004-1 Certificates or its counsel) the pricing terms of this Agreement or the identify of any Class C Holder, except as such Class C Holder may have consented to in writing prior to any proposed disclosure or except as the Servicer, CSRC or the Originator may have been advised by counsel is (i) required by law, including, without limitation, any securities or banking laws, rules, orders or regulations or (ii) reasonably necessary or desirable in connection with any lawsuit or governmental investigation or proceeding; provided, however, that in any such instance, the Servicer or the Seller, as applicable, shall notify such Class C Holder of its intention to make any such disclosure prior to making such disclosure. SECTION 5.8 Amendments and Modifications. (a) Not amend, waive or otherwise modify the provisions of the Supplement or any Interest Rate Swap Agreement, or the 21 performance of any of the terms thereof, unless the Class C Holders have consented in writing to such amendment, waiver or modification, which consent shall not be unreasonably withheld or delayed. (b) In addition to the requirements of Section 13.1 of the Pooling and Servicing Agreement, not amend the Pooling and Servicing Agreement without the prior written consent of the Class C Holders unless such amendment shall not, as evidenced by an Opinion of Counsel for the Seller addressed to the Trustee and the Class C Holders, adversely affect in any material respect the interests of the Class C Holders. For the avoidance of doubt, the following actions shall not require the consent of the Class C Holders: (1) the issuance of a new Series pursuant to and in accordance with the terms of the Pooling and Servicing Agreement; (2) the addition of Accounts, including Additional Accounts, pursuant to Section 2.6 of the Pooling and Servicing Agreement; provided that with respect to any designation of Additional Accounts pursuant to Section 2.6(b) of the Agreement, the Seller shall have provided the Class C Certificateholders with an Officer's Certificate certifying that such designation of Additional Accounts will not, as of the related Addition Date, (x) result in a reduction or withdrawal by either Rating Agency of its ratings for the Series 2004-1 Certificates, (y) cause a Series 2004-1 Early Amortization Event to occur or (z) be reasonably expected by the Seller to materially adversely affect in any manner the timing or amount of payments to the Class C Certificateholders; (3) the removal of Accounts pursuant to Section 2.7 of the Pooling and Servicing Agreement; and (4) the amendment of a supplement or receivables purchase agreement other than the Supplement. (c) Not increase the Series 2004-1 Investor Monthly Servicing Fee as contemplated by Section 3 of the Supplement unless the Class C Holders have consented thereto, which consent will not be unreasonably withheld or delayed. SECTION 5.9 Trigger Increase Event. Furnish to the Class C Holders, promptly after the occurrence of any Trigger Increase Event, a certificate of an appropriate officer of the Servicer setting forth the circumstances of such Trigger Increase Event and any action taken or proposed to be taken by the Servicer, if any, with respect thereto and furnish to the Class C Holders such other information with respect to any such Trigger Increase Event as any Class C Holder may reasonably request. SECTION 5.10 Liens. Not create, incur or otherwise permit to exist any mortgage, pledge, lien or other encumbrance on the Class C Spread Account other than any interests of the Class C Holders, the Covered Class D-1 Holders and the Holder of the Exchangeable Seller Certificate. 22 SECTION 5.11 Discount Option Receivables. In the event that the Seller has given the Trustee notice of the designation of Discount Option Receivables, not terminate or discontinue or reduce such amount without the written consent of the Class C Holders unless, on or prior to the date of such discontinuance or reduction, the amount on deposit in the Class C Spread Account is equal to the Required Class C Spread Amount (determined as if no such discount is in effect). SECTION 5.12 Access. At such reasonable times as the Class C Holders may notify the Seller and the Servicer upon five Business Days' notice in writing or by telephone during normal business hours and at the expense of the Class C Holders, afford the Class C Holders reasonable access to all records maintained by the Seller or the Servicer relating to the Receivables for purposes of inspection, to which inspection the Trustee by its acceptance of this Agreement hereby consents. SECTION 5.13 Performance of Agreements. For the benefit of the Class C Holders, perform each of their respective agreements, representations, warranties, covenants and indemnities under, and comply in all material respects with each of the respective terms and provisions applicable to it in, the Pooling and Servicing Agreement and Supplement which are hereby incorporated by reference into this Agreement as if set forth herein in full. SECTION 5.14 Payments. Subject to Section 2.6, timely make all payments, deposits or transfers and give all instruction to transfer when required under the Pooling and Servicing Agreement and the Supplement. SECTION 5.15 Further Actions. Execute and promptly deliver to the Class C Holders all such documents and instruments and do all such other acts and things as may be necessary or reasonably required by the Class C Holders or the Trustee to enable the Trustee or the Class C Holders to exercise and enforce their respective rights under this Agreement, the Pooling Agreement, the Supplement and to realize thereon, and the Seller shall record and file and re-record and refile all such documents and instruments, at such time or times, in such manner and at such place or places, as may be necessary or reasonably required by the Trustee or the Class C Holders to validate, preserve, perfect and protect the position of the Trustee or the Class C Holders hereunder and under the Pooling and Servicing Agreement and the Supplement and the Sellers and the Servicer shall maintain each of such documents as part of its official records. SECTION 5.16 Class D Cancellation. Not cause any Class D Certificate to be cancelled under Section 4.16 of the Supplement if, at the time of such cancellation (or immediately after giving effect thereto), (i) an Early Amortization Event has occurred and is continuing, or (ii) the Three Month Excess Yield Percentage is less than 2%. ARTICLE VI Representations, Warranties and Covenants of the Initial Class C Holder and the Trustee SECTION 6.1 Representations, Warranties and Covenants of the Class C Holder. (a) As of the date hereof, the Initial Class C Holder represents and warrants (and each other Class C Holder shall be deemed to represent and warrant as of the date that its acquisition of any Class C Certificate becomes effective) that: 23 (i) it is a "qualified institutional buyer" as that term is defined under Rule 144A of the Act and it is not purchasing the Class C Certificate with a view to making a distribution thereof (within the meaning of the Securities Act); (ii) either (x) it is not acquiring such Class C Certificate with the assets of an "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") whether or not subject to ERISA, any "plan" described in Section 4975(e)(1) of the Code or any entity deemed to hold "plan assets" of any of the foregoing (each, a "Benefit Plan Investor") or (y) it is an insurance company purchasing the Class C Certificate with assets of its general account, and at the time of acquisition and throughout the period of holding, (a) it meets all of the requirements of and is eligible for exemptive relief under Prohibited Transaction Class Exemption 95-60; (b) less than 25% of the assets of such general account are assets of Benefit Plan Investors; and (c) it is not a servicer to the Trust or an affiliate of a servicer to the Trust, and would not otherwise be excluded under 29 CFR Section 2510.3-101(f)(1); (iii) no registration with consent or approval of or other action by any federal, state or other governmental authority or regulatory body having jurisdiction over it is required in connection with the execution, delivery or performance by it of this Agreement; and (iv) such Class C Holder is 1 Private Holder and is a U.S. Person (as defined in Section 7701(a)(30) of the Code). (b) Each Class C Holder covenants and agrees to maintain as confidential, not disclose to any Person (other than any officer, employee, agent, counsel, advisor or representative of a party hereto) and not use for any purpose other than in connection with this Agreement, all information acquired by such Class C Holder that is not publicly available relating to the Trust, the Originator, the Seller or the Servicer which it obtained in connection with the transactions contemplated hereby, except (x) as the Trustee, the Seller, the Originator or the Servicer may have consented to in writing prior to any proposed disclosure, (y) if such Class C Holder is a Structured Holder, such information may be disclosed to Persons that hold subordinated notes issued by such Structured Holder, and (z) as it may have been advised by counsel is (i) required by law, including, without limitation, any securities or banking laws, rules, orders or regulations or (ii) reasonably necessary or desirable in connection with any lawsuit or governmental investigation or proceeding, provided, however, that in any such instance such Class C Holder will notify the Seller and the Servicer of its intention to make any such disclosure prior to making any such disclosure. Notwithstanding anything herein to the contrary, (a) each of the parties to this Agreement (and each employee, representative or other agent of such parties) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to such parties relating to such tax treatment and tax structure and (b) any Class C Holder may disclose information concerning the purchase or sale of the Class C Certificates by such Class C Holder to any federal or state regulatory authority having jurisdiction over such Class C Holder and the National Association of Insurance Commissioners 24 or any similar organization, or any nationally recognized rating agency that requires access to information about such Class C Holder's investment portfolio. SECTION 6.2 Representations, Warranties and Covenants of the Trustee. The Trustee represents, warrants and covenants to the Initial Class C Holder that: (i) The Trustee is a national banking association duly authorized to engage in the business of banking under the laws of the United States of America; (ii) The Trustee has full power and authority to deliver and perform this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement; and (iii) This Agreement has been duly executed and delivered by the Trustee and constitutes its legal, valid and binding obligation in accordance with its terms. (iv) The Trustee shall not amend, waive or otherwise modify any provisions of any Interest Rate Swap Agreement unless the Class C Holders have consented in writing thereto (such consent not to be unreasonably withheld or delayed). ARTICLE VII Miscellaneous SECTION 7.1 Amendments and Waivers. This Agreement shall not be amended or modified without the written consent of the Seller, the Trustee, the Servicer and the Required Class C Holders. No waiver of, or consent to the departure from, any provision of this Agreement by any party hereto shall be effective without the written consent of the Seller, the Servicer, the Trustee, and the Required Class C Holders; provided, however, that no amendment reducing the amount or delaying any payment to be made to the Class C Holders hereunder or modifying the definition of Required Class C Holders shall be effective without the written consent of all Class C Holders. The Servicer shall provide to Moody's a copy of any amendment prior to the effectiveness thereof. Additionally, to the extent that any Class C Holder is a Structured Holder, no action otherwise permitted pursuant to this Section 7.1 shall be permitted unless each rating agency then rating the outstanding Commercial Paper issued by such Structured Holder shall have provided prior written confirmation that such action would not cause such rating agency to reduce or withdraw its then current rating of such Commercial Paper. SECTION 7.2 Servicer Transfer. In the event that a transfer of servicing occurs under Article X of the Pooling and Servicing Agreement, from and after the effective date of such transfer, the Successor Servicer appointed pursuant to the Pooling and Servicing Agreement, and not Spirit, Inc., shall be responsible for the performance of all servicing functions to be performed by the Servicer from and after such date, except as provided in the Pooling and Servicing Agreement. Such transfer shall not affect any rights or obligations of Spirit, Inc. which arose prior to the effective date of the transfer of servicing or the rights or obligations of Spirit, Inc. under Sections 2.2, Section 2.7 and Article V (in the case of Sections 5.2 or 5.3 under Article V, excluding any documents received by any Successor Servicer and also excluding any 25 documents received by Spirit, Inc. from the Successor Servicer), or Section 7.3 of this Agreement, whether arising before or after such date. SECTION 7.3 Fees and Expenses. Each party shall pay all fees and expenses incurred by it in connection with preparing and entering into this Agreement; provided, however, that the Seller will reimburse the Initial Class C Holder for its out-of-pocket expenses and shall directly pay all reasonable legal fees and expenses and disbursements of its counsel (including fees, expenses and disbursements of such counsel incurred in connection with the preparation and execution of this Agreement and the Class D-1 Purchase Agreement) in an aggregate amount not to exceed $20,000. The Trust through the Trustee (acting in accordance with instructions of the Servicer), but solely to the extent funds are available therefor under Section 2.2(b), and the Seller agree to pay on demand all reasonable costs and expenses of the Class C Holders in connection with any amendment to, or any waiver requested under, this Agreement, and of the Class C Holders in connection with the "work-out" or enforcement of its rights under this Agreement or any of the other documents delivered in connection herewith, including, without limitation, the reasonable fees and out-of-pocket expenses of its legal counsel with respect thereto. SECTION 7.4 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW PROVISIONS. SECTION 7.5 No Waiver. Neither any failure nor any delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power or privilege. SECTION 7.6 Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7.7 Termination. This Agreement shall remain in full force and effect until the earlier of (i) the payment in full of the Class C Investor Interest and all other amounts payable to the Class C Holders hereunder and under the Supplement and (ii) the Series 2004-1 Termination Date; provided that Sections 2.6, 2.7, 2.8, 7.10, 7.12 and 7.16 shall survive the termination of this Agreement. SECTION 7.8 Transfer Restrictions. (a) The Initial Class C Holder shall deliver, on or prior to the Closing Date, to the to the Seller and the Trustee a purchaser representation letter substantially in the form attached hereto as Exhibit B for such Initial Class C Holder and for each Funding Source executing the Liquidity Agreement as a "Liquidity Bank" on the Closing Date. Additionally, for so long as any Structured Holder is a Class C Holder, such Structured Holder shall require each Funding Source that executes a Credit Agreement or Liquidity Agreement pursuant to which such Funding Source agrees to purchase an interest in all or a portion of the 26 Class C Investor Interest from time to time to deliver to the Seller and the Trustee a purchaser representation letter substantially in the form attached hereto as Exhibit B for such Funding Source on or prior to the execution of such Credit Agreement or Liquidity Agreement. No Class C Certificate may be offered, sold or otherwise transferred to any Person (other than the Seller or a State Street Related Party) unless (x) the Seller shall have been given an opportunity to purchase such Class C Certificate in accordance with Section 7.8(c) and (y) if the Seller does not exercise its right to purchase such Class C Certificate, the Seller shall have given its prior written approval to such offer, sale or transfer (which approval shall not be unreasonably withheld). Each Class C Holder further agrees that it will not make any general solicitation or general advertising for the offer or sale of its Class C Certificate and will not transfer its Class C Certificate (or any portion thereof) to any Person except to a Person within the United States which such Class C Holder reasonably believes is a "qualified institutional buyer" (as defined in Rule 144A under the Act) that is purchasing (1) for its own account or (2) for the account of a "qualified institutional buyer" (as so defined) that is, in either case, aware that such resale, pledge or transfer is being made in reliance on an exemption from registration under the Act, and, in either case, unless such Person is a U.S. Person (as defined in Section 7701(a)(30) of the Code) and shall have delivered to such Class C Holder a purchaser representation letter substantially in the form attached hereto as Exhibit B. Each Class C Holder further agrees to provide to any Person purchasing a Class C Certificate (or any portion thereof) from it a notice advising such purchaser that resales of the Class C Certificates are restricted as stated above. (b) Seller shall not execute, and (if given prior written notice by the Servicer of the inability of the Seller to execute any Subject Instrument by operation of this clause (b)) the Transfer Agent and Registrar shall not register the transfer of, any Class C Certificate unless (i) after giving effect to the execution or transfer of such Class C Certificate, there would be no more than 5 Private Holders of Class C Certificates and (ii) the other conditions to transfer set forth in Section 6.3 of the Pooling Agreement and in Section 16 of the Series 2004-1 Supplement to the Pooling Agreement have been satisfied. (c) Any Class C Holder that intends to offer, sell or otherwise transfer its Class C Certificate to a Person other than the Seller or any State Street Related Party (any such offering, sale or transfer being herein called a "Proposed Transfer"), such Class C Holder shall give the Seller not less than ten days prior written notice of the Proposed Transfer. Such notice shall include the proposed date of transfer, the Person or Persons to which such transfer will be made, and all other material terms of the Proposed Transfer (other than the purchase price). During the period of five Business Days following the Seller's receipt of such notice, the Seller shall be entitled to notify such Class C Holder that the Seller will acquire such Class C Certificate on the terms set forth in such notice and at a price acceptable to such Class C Holder in its sole discretion. Such acquisition will occur on or before the date specified for the Proposed Transfer in such notice, and each Class C Holder hereby agrees, subject to acceptance of the purchase price therefor, to transfer such Class C Certificate to the Seller on the terms set forth in any such notice sent by it. If the Seller does not notify such Class C Holder of its intent to acquire such Class C Certificate within such five Business Day period, it will be deemed to have elected not to so acquire such Class C Certificate. 27 SECTION 7.9 Notices. (a) All notices and other communications provided for hereunder shall be in writing (including telecopy) and, if to the Seller, the Servicer or the Trustee either mailed, telecopied, couriered or delivered to it, addressed to it at its address set forth in the Pooling and Servicing Agreement, or if to the Initial Class C Holder, as set forth below: Clipper Receivables Company LLC c/o State Street Global Markets, LLC, as Program Administrator 1 Lincoln Street, 5th Floor Boston, Massachusetts 02110-2804 Attention: Clipper Receivables Department Telephone: (617) 664-6419 Facsimile: (617) 664-8630 If such notice is to any subsequent Class C Holder, such notice shall be given in accordance with the terms of the Pooling and Servicing Agreement. All notices and other communications shall, when mailed, be effective on the first Business Day after the date of receipt, addressed as aforesaid. Any party hereto may change the address or telecopier number to which notices to it are to be sent by notice given to the other parties hereto. (b) Any notice or written direction given by a Class C Holder to the Trustee hereunder may conclusively be relied upon by the Trustee, absent manifest error. SECTION 7.10 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement. SECTION 7.11 Exclusive Benefit. The rights and remedies of the Class C Holders specified herein are for the sole and exclusive benefit, use and protection of the Class C Holders, and the Class C Holders are entitled, but shall have no duty or obligation to the Seller, the Servicer, the Trustee, the other Certificateholders or otherwise, to exercise or to refrain from exercising any right or remedy reserved to the Class C Holders hereunder or cause the Trustee or any other party to exercise or to refrain from exercising any right or remedy available to it. Notwithstanding the foregoing, the Covered Class D-1 Holders shall be third-party beneficiaries of amounts on deposit in the Class C Spread Account to the extent provided in Section 2.5. SECTION 7.12 Limitation of Remedies. (a) No Class C Holder shall have the right to cause the Class C Investor Interest or any portion thereof to become due and payable prior to any Distribution Date or other date on which amounts are payable hereunder to such Class C Holder other than as set forth in Section 2.2 hereof and shall not attempt to exercise any of its rights hereunder with respect to Available Amounts or amounts on deposit in the Class C Spread Account prior to such due date or Distribution Date. (b) The obligations of each Class C Holder under this Agreement, or any other agreement, instrument, document or certificate executed and delivered by or issued by such 28 Class C Holder or any officer thereof are solely the corporate obligations of such Class C Holder. No recourse shall be had for payment of any fee or other obligation or claim arising out of or relating to this Agreement or any other agreement, instrument, document or certificate executed and delivered or issued by such Class C Holder or any officer thereof in connection therewith, against any stockholder, employee, officer, director or incorporator of such Class C Holder. SECTION 7.13 Counterparts. This Agreement may be executed in any number of counterparts, and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. SECTION 7.14 Entire Agreement. This Agreement constitutes the entire agreement between the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement. Nothing in this Agreement, expressed or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement. SECTION 7.15 Headings. Article, Section and subsection headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 7.16 Nonpetition Agreement. (a) Notwithstanding any prior termination of this Agreement, no Class C Holder shall, prior to the date which is one year and one day after the final payment of the Certificates, acquiesce, petition or otherwise invoke or cause the Trust or the Seller to invoke the process of any governmental authority for the purpose of commencing or sustaining a case against the Trust or the Seller under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Trust or the Seller or any substantial part of its property or ordering the winding up or liquidation of the affairs of the Trust or the Seller. (b) Notwithstanding any prior termination of this Agreement, none of the Seller, the Servicer nor the Trustee shall acquiesce, petition or otherwise invoke or cause any Structured Holder to invoke the process of any governmental authority for the purpose of commencing or sustaining a case against such Structured Holder under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator of other similar official of such Structured Holder or any substantial part of its property or ordering the winding up or liquidation of the affairs of such Structured Holder until the date which is one year and one day after the latest maturing Commercial Paper issued by such Structured Holder have been paid. SECTION 7.17 Waiver of Jury Trial. EACH OF, THE SELLER, THE SERVICER, THE TRUSTEE, AND EACH CLASS C HOLDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, THE CLASS C CERTIFICATES OR ANY OTHER DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE 29 OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE SELLER, THE SERVICER, THE TRUSTEE, OR ANY CLASS C HOLDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE CLASS C HOLDERS PURCHASING THE CLASS C CERTIFICATES DESCRIBED HEREIN. 30 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. SPIRIT OF AMERICA, INC., as Servicer By: --------------------------------------- Name: Title: CHARMING SHOPPES RECEIVABLES CORP., as Seller By: --------------------------------------- Name: Title: S-1 WACHOVIA BANK, NATIONAL ASSOCIATION, as Trustee By: --------------------------------------- Name: George Rayzis Title: Vice President S-3 CLIPPER RECEIVABLES COMPANY LLC, as a Class C Holder By: --------------------------------------- Name: Title: S-3 SCHEDULE I Initial Class C Holder Name of Initial Class C Holder Principal Amount of Class C Certificate - ------------------------------ --------------------------------------- Clipper Receivables Company LLC $16,200,000 EXHIBIT A to Certificate Purchase Agreement CHARMING SHOPPES MASTER TRUST SERIES 2004-1 DUE PERIOD ENDING ______________
SPIRIT OF AMERICA, INC. Form 2004-1 C1 CHARMING SHOPPES MASTER TRUST Series 2004-1 Class C Certificate Agreement Exhibit A Monthly Status Report to the Enhancement Provider: Capitalized terms used in this Statement have their respective meanings set forth in the 2004-1 Class C Certificate Purchase Agreement. Distribution Date: 09/15/04 1 Class C Investor Interest at Beginning of Due Period $0.00 2 Class C Investor Interest at End of Due Period $0.00 3 Class C Monthly Principal Payable $0.00 4 Class C Investor Interest on this Distribution Date $0.00 5 Class C Monthly Interest Payable $0.00 6 Class C Net Swap Payment $0.00 7 Series 2004-1 Floating Allocation Percentage 0.000% 8 Series 2004-1 Class C Floating Allocation Percentage 0.000% 9 Monthly Payment Percentage (a) Monthly Payment Rate Percentage - current period 0.000% (b) Monthly Payment Rate Percentage - preceding period 0.000% (c) Monthly Payment Rate Percentage - second preceding period 0.000% (d) Three month average Monthly Payment Percentage 0.000% (d) Required Monthly Payment Percentage 0.000% 10 Excess Yield Percentage (a) Excess Yield Percentage - current period 0.000% (b) Excess Yield Percentage - preceding period 0.000% (c) Excess Yield Percentage - second preceding period 0.000% (d) Three month average Excess Yield Percentage 0.000% (e) Required Excess Yield Percentage 0.000% 11 Class C Spread Account (a) Required Class C Spread Account $0.00 12 (b) Deposits/(withdrawals) from the Class C Spread Account on this $0.00 Distribution Date 13 (c) Amount on deposit in the Class C Spread Account as of this Distribution Date $0.00
By: /s/ Kirk R. Simme Kirk R. Simme Vice President Spirit of America Inc. Note - Reporting on class deficiency amounts, class additional interest, certificate reductions, reallocations of collections, unreimbursed charge-offs, discounting of principal, allocation of dilution to investors and other transactions contemplated by the Series 2004-1 Supplement will be added to the above report as applicable. A-1 Exhibit B to Certificate Purchase Agreement FORM OF REPRESENTATION LETTER Wachovia Bank, National Association 123 South Broad Street 11th Floor, PA 1249 Philadelphia, Pennsylvania 19104 Attn: Corporate Trust Administration Charming Shoppes Receivables Corp. c/o Charming Shoppes, Inc. 450 Winks Lane Bensalem, Pennsylvania 19020 Re: Purchase of $[__________] principal amount of Charming Shoppes Master Trust Series 2004-1 Floating Rate Asset Backed Certificates, Class C Ladies and Gentlemen: Reference is made to that certain Class C Certificate Purchase Agreement, dated as of August 5, 2004 (the "Class C CPA"), among Wachovia Bank, National Association, as Trustee, Charming Shoppes Receivables Corp. ("CSRC"), as Seller, Spirit of America, Inc., as Servicer and the Class C Holders described therein. In connection with our purchase of the above Asset Backed Certificates (the "Certificates"), we (the "Purchaser") confirm that: (1) we understand that the Certificates are not being registered under the Securities Act of 1933, as amended (the "1933 Act"), and are being sold to us in a transaction that is exempt from the registration requirements of the 1933 Act and of any applicable state securities laws; (2) any information we desire concerning the Certificates or any other matter relevant to our decision to purchase the Certificates is or has been made available to us; (3) we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Certificates, and we (and any account for which we are purchasing) are able to bear the economic risk of an investment in the Certificates; (4) we are a qualified institutional buyer as defined in Rule 144A promulgated under the 1933 Act (a "QIB") that is purchasing for its own account or for the account of a QIB and have completed one of the forms of certification to that effect attached hereto as Annex 1 or Annex 2 (each, a "Certification Form"); B-1 (5) we will not make any general solicitation or general advertising for the offer or sale of our Certificates and will not transfer our Certificates (or any portion thereof) to any Person except to a U.S. Person (as defined in Section 7701(a)(30) of the Code) within the United States which we reasonably believe is a QIB that is purchasing (i) for its own account or (ii) for the account of a QIB, and, in such case, unless such Person shall have delivered to us a purchaser representation letter substantially in the form hereof; (6) we are either (i) not acquiring such Certificates with the assets of an "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") whether or not subject to ERISA, any "plan" described in Section 4975(e)(1) of the Code or any entity deemed to hold "plan assets" of any of the foregoing (each, a "Benefit Plan Investor") or (ii) an insurance company purchasing the Certificates with assets of our general account, and at the time of acquisition and throughout the period of holding, (a) we meet all of the requirements of and are eligible for exemptive relief under Prohibited Transaction Class Exemption 95-60; (b) less than 25% of the assets of such general account are assets of Benefit Plan Investors; and (c) we are not a servicer to the Trust or an affiliate of a servicer to the Trust, and would not otherwise be excluded under 29 CFR Section 2510.3-101(f)(1); (7) no registration with, consent or approval of or other action by any federal, state or other governmental authority or regulatory body having jurisdiction over it is required in connection with the execution, delivery or performance by it of the Class C CPA; (8) we are each 1 Private Holder and a U.S. Person (as defined in Section 7701(a)(30) of the Code); (9) we covenant and agree to maintain as confidential, not disclose to any Person (other than any officer, employee, agent, counsel, advisor or representative of a party hereto), and not use for any purpose other than in connection with this Agreement, all information acquired by us that is not publicly available relating to the Trust, the Seller, the Originator or the Servicer which we obtained in connection with the transactions contemplated hereby, except (A) as the Trustee, the Seller or the Servicer may have consented to in writing prior to any proposed disclosure, (B) as we have been advised by counsel is (i) required by law, including, without limitation, any securities or banking laws, rules, orders or regulations or (ii) reasonably necessary or desirable in connection with any lawsuit or governmental investigation or proceeding, provided in each such instance we will notify the Seller and the Servicer of our intention to make any such disclosure prior to making such disclosure; and provided further that we may disclose to any and all persons the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to us relating to such tax treatment and tax structure and such information concerning the purchase or sale of the Class C Certificates as we may be required to disclose to any federal or state regulatory authority having B-2 jurisdiction over us and the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about our investment portfolio; (10) we understand that any sale or other transfer of the Class C Certificates will be subject to the additional transfer restrictions and the notice requirements as described in the Class C CPA and acknowledge that we have received a copy of the Class C CPA; (11) we are not acquiring, and will not sell or otherwise transfer, any Class C Certificates through (i) an "established securities market" within the meaning of section 7704(b)(1) of the Code, and any proposed, temporary or final treasury regulation thereunder, including, without limitation, an over-the-counter-market or an interdealer quotations system that regularly disseminates firm buy or sell quotations or (ii) a "secondary market" or "substantial equivalent thereof" within the meaning of section 7704(b)(1) of the Code, and any proposed, temporary or final treasury regulation thereunder, including a market wherein interests in the Trust are regularly quoted by any person making a market in such interests and a market wherein any person regularly makes available bid or offer quotes with respect to interests in the Trust and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others; (12) we are not a competitor of CSRC or any Affiliate of CSRC; it being understood that for purposes of the foregoing certification, a "competitor" means a Person, or Affiliate thereof, engaged in any of the same businesses as the businesses conducted by CSRC or its Affiliates; but notwithstanding the foregoing, the term "competitor" shall not include any bank, trust company, savings and loan association or other financial institution, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form, unless, in any such case, such Person, or affiliate thereof, is engaged in the business of issuing and owning retail private label credit card programs; and (13) we understand that the Certificates will bear a legend to substantially the following effect: "THIS CERTIFICATE WAS ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY BE SOLD ONLY PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE ACT OR AN EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE ACT. IN ADDITION, THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. A COPY OF THE POOLING AND SERVICING AGREEMENT WILL BE FURNISHED TO THE HOLDER OF THIS CERTIFICATE BY THE TRUSTEE UPON WRITTEN REQUEST. B-3 THIS CERTIFICATE, OR AN INTEREST HEREIN, MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF ANY EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), WHETHER OR NOT SUBJECT TO ERISA, OR A PLAN THAT IS DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, INCLUDING AN INDIVIDUAL RETIREMENT ACCOUNT (EACH, A "BENEFIT PLAN INVESTOR"), OR BY OR FOR THE ACCOUNT OF ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE ANY BENEFIT PLAN ASSETS. BY ACQUIRING THIS CERTIFICATE OR AN INTEREST HEREIN, THE PURCHASER THEREOF WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT EITHER (I) IT IS NOT A BENEFIT PLAN INVESTOR, AND THAT ITS ACQUISITION OF THIS CERTIFICATE OR AN INTEREST HEREIN IS IN COMPLIANCE WITH THE FOREGOING RESTRICTIONS ON BENEFIT PLAN ASSETS OR (II) IT IS AN INSURANCE COMPANY PURCHASING THIS CERTIFICATE OR INTEREST HEREIN WITH ASSETS OF ITS GENERAL ACCOUNT, AND AT THE TIME OF ACQUISITION AND THROUGHOUT THE PERIOD OF HOLDING, (A) IT MEETS ALL OF THE REQUIREMENTS OF AND IS ELIGIBLE FOR EXEMPTIVE RELIEF UNDER PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, (B) LESS THAN 25% OF THE ASSETS OF SUCH ACCOUNT ARE ASSETS OF A BENEFIT PLAN INVESTOR AND (C) IT IS NOT A SERVICER TO THE TRUST OR AN AFFILIATE OF SUCH SERVICER, AND WOULD NOT OTHERWISE BE EXCLUDED UNDER 29 CFR SECTION 2510.3-101(f)(1). NEITHER THIS CERTIFICATE, NOR ANY PORTION OF THIS CERTIFICATE, MAY BE TRANSFERRED (X) IF AFTER GIVING EFFECT TO THE EXECUTION OR TRANSFER OF SUCH CERTIFICATE, THERE WOULD BE MORE THAN (I) 5 PRIVATE HOLDERS OF CLASS C CERTIFICATES OR (II) 100 PRIVATE HOLDERS, OR (Y) ON OR THROUGH (I) AN "ESTABLISHED SECURITIES MARKET" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND ANY PROPOSED, TEMPORARY OR FINAL TREASURY REGULATION THEREUNDER, INCLUDING, WITHOUT LIMITATION, AN OVER-THE-COUNTER-MARKET OR AN INTERDEALER QUOTATIONS SYSTEM THAT REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS OR (II) "SECONDARY MARKET" OR "SUBSTANTIAL EQUIVALENT THEREOF" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND ANY PROPOSED, TEMPORARY OR FINAL TREASURY REGULATION THEREUNDER, INCLUDING A MARKET WHEREIN INTERESTS IN THE TRUST ARE REGULARLY QUOTED BY ANY PERSON MAKING A MARKET IN SUCH INTERESTS AND A MARKET WHEREIN ANY PERSON REGULARLY MAKES AVAILABLE BID OR OFFER QUOTES WITH RESPECT TO INTEREST IN THE TRUST AND STANDS READY TO EFFECT BUY OR B-4 SELL TRANSACTIONS AT THE QUOTED PRICES FOR ITSELF OR ON BEHALF OF OTHERS. ANY ATTEMPTED TRANSFER, ASSIGNMENT, CONVEYANCE, PARTICIPATION OR SUBDIVISION IN CONTRAVENTION OF THE PRECEDING RESTRICTIONS, AS REASONABLY DETERMINED BY THE SELLER, SHALL BE VOID AB INITIO AND THE PURPORTED TRANSFEROR, SELLER, OR SUBDIVIDER OF SUCH CERTIFICATE SHALL BE CONSTRUED TO BE TREATED AS THE CERTIFICATEHOLDER OF ANY SUCH CERTIFICATE FOR ALL PURPOSES OF THE POOLING AND SERVICING AGREEMENT." The Seller and the Trustee are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. B-5 Capitalized terms used but not defined herein shall have those meanings set forth for such terms in the Class C CPA. Very truly yours, [Name of Purchaser] By: -------------------------------------- (Authorized Officer) B-6 Annex 1 to Exhibit B Qualified Institutional Buyer Status Under SEC Rule 144A (Buyers other than investment companies) Wachovia Bank, National Association 123 South Broad Street 11th Floor, PA 1249 Philadelphia, Pennsylvania 19104 Attn: Corporate Trust Administration Charming Shoppes Receivables Corp. c/o Charming Shoppes, Inc. 450 Winks Lane Bensalem, Pennsylvania 19020 [Transferring Class C Holder] Name of Buyer: _____________________________________ ("Buyer") I hereby certify that as indicated below, I am the duly-authorized President, Chief Financial Officer, Vice President or other executive officer of Buyer. In connection with purchases of securities by Buyer, I hereby certify to you and, if you act as broker for one or more customers, to such customers, that Buyer is a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended ("Rule 144A") because (i) Buyer owned and/or invested on a discretionary basis $_______(1) in securities (except for the excluded securities referred to below) as of the end of Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A) and (ii) Buyer satisfies the criteria in the category marked below: Corporation, etc. Buyer is a corporation (other than a bank, savings and loan association or similar institution), Massachusetts or similar business trust, partnership, or charitable organization described in Section 501(c)(3) of the Internal Revenue Code. Bank. Buyer (a) is a national bank or banking institution organized under the laws of any State, territory or the District of Columbia, the business of which is substantially confined to banking and is supervised by the State or territorial banking commission or similar official or is a foreign bank or equivalent institution, and (b) has an audited - ------------------- (1) Buyer must own and/or invest on a discretionary basis at least $100,000,000 in securities of issuers that are not affiliated with the Buyer, unless Buyer is a dealer, and, in that case, Buyer must own and/or invest on a discretionary basis at least $10,000,000 in securities of issuers that are not affiliated with the Buyer. B-7 net worth of at least $25,000,000 as demonstrated in its latest annual financial statements, a copy of which is attached hereto. Savings and Loan. Buyer (a) is a savings and loan association, building and loan association, cooperative bank, homestead association or similar institution, which is supervised and examined by a State or Federal authority having supervision over any such institution or is a foreign savings and loan association or equivalent institution and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statements, a copy of which is attached hereto. Broker-dealer. Buyer is a dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934. Insurance Company. Buyer is an insurance company whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies and which is subject to supervision by the insurance commissioner or a similar official or agency of a State, territory or the District of Columbia. State or Local Plan. Buyer is a plan established and maintained by a State, its political subdivisions, or any agency or instrumentality of a State or its political subdivisions, for the benefit of its employees. Investment Advisor. Buyer is an investment advisor registered under the Investment Advisers Act of 1940. The term "securities" as used herein does not include (i) securities of issuers that are affiliated with Buyer, (ii) securities that are part of an unsold allotment to or subscription by Buyer (if Buyer is a dealer), (iii) securities issued or guaranteed by the U.S. or any instrumentality thereof, (iv) bank deposit notes and certificates of deposit, (v) loan participations, (vi) repurchase agreements, (vii) securities owned but subject to a repurchase agreement, and (viii) currency, interest rate and commodity swaps. For purposes of determining the aggregate amount of securities owned and/or invested on a discretionary basis, Buyer used the cost of such securities to Buyer and did not include any of the securities referred to in the preceding paragraph. Further, in determining such aggregate amount, Buyer may have included securities owned by subsidiaries of Buyer, but only if such subsidiaries are consolidated with Buyer in its financial statements prepared in accordance with generally accepted accounting principles and if the investments of such subsidiaries are managed under Buyer's direction. However, such securities were not included if Buyer is a majority-owned, consolidated subsidiary of another enterprise and Buyer is not itself a reporting company under the Securities Exchange Act of 1934. [Buyer acknowledges that it is familiar with Rule 144A and understands that you and your customers (if you act as a broker for one or more customers) are and will continue to rely B-8 on the statements made herein because one or more sales by you for your own account of your customer's account to Buyer may be in reliance on Rule 144A. Will Buyer be purchasing Rule 144A securities only for Buyer's own account? ___ ___ Yes No If the answer to this question is "no", Buyer agrees that, in connection with any purchase of securities sold to Buyer for the account of a third party (including any separate account) in reliance on Rule 144A, Buyer will only purchase for the account of a third party that at the time is a "qualified institutional buyer" within the meaning of Rule 144A. In addition, Buyer agrees that Buyer will not purchase securities for a third party unless Buyer has obtained a current representation letter from such third party or taken other appropriate steps contemplated by Rule 144A to conclude that such third party independently meets the definition of "qualified institutional buyer" set forth in Rule 144A.](2) Buyer agrees to notify you of any changes in the information and conclusions herein. Until such notice is given to you, Buyer's purchase of securities from you, or through you from your customers will constitute a reaffirmation of the foregoing certifications and acknowledgments as of the date of such purchase. Further, if Buyer is a bank or savings and loan as provided above, Buyer agrees that it will furnish you with updated annual financial statements promptly after they become available. Date:______________________ Very truly yours, [Print Name of Buyer] By: --------------------------------------- Name: Title: - ------------------- (2) Bracketed language to be included only in Certification Forms from Buyers in connection with re-sales pursuant to Rule 144A. B-9 Annex 2 to Exhibit B Wachovia Bank, National Association 123 South Broad Street 11th Floor, PA 1249 Philadelphia, Pennsylvania 19104 Attn: Corporate Trust Administration Charming Shoppes Receivables Corp. c/o Charming Shoppes, Inc. 450 Winks Lane Bensalem, Pennsylvania 19020 Name of Buyer: ____________________________________ ("Buyer") Name of Investment Adviser: _________________________ ("Adviser") I hereby certify that, as indicated below, I am the duly-authorized President, Chief Financial Officer or Vice President of Buyer or, if Buyer is a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended ("Rule 144A") because Buyer is part of a Family of Investment Companies (as defined below), of Adviser. In connection with purchases of securities by Buyer, I hereby certify to you and, if you act as broker for one or more customers, to such customers, that Buyer is a "qualified institutional buyer" as defined in Rule 144A because (i) Buyer is an investment company registered under the Investment Company Act of 1940 and (ii) as marked below, Buyer alone, or Buyer's Family of Investment Companies, owned at least $100,000,000 in securities (other than the excluded securities referred to below) as of the end of Buyer's most recent fiscal year. ______ Buyer owned $________ in securities (other than the excluded securities referred to below) as of the end of Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A). ______ Buyer is part of a Family of Investment Companies which owned in the aggregate $_______ in securities (other than the excluded securities referred to below) as of the end of Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A). For purposes of determining the amount of securities owned by Buyer or Buyer's Family of Investment Companies, I used the cost of such securities. The term "Family of Investment Companies" as used herein means two or more registered investment companies (or series thereof) that have the same investment adviser or investment advisers that are affiliated (by virtue of being majority owned subsidiaries of the same parent or because one investment adviser is a majority owned subsidiary of the other). B-10 The term "securities" as used herein does not include (i) securities of issuers that are affiliated with Buyer or are part of Buyer's Family of Investment Companies, (ii) securities issued or guaranteed by the U.S. or any instrumentality thereof, (iii) bank deposit notes and certificates of deposit, (iv) loan participations, (v) repurchase agreements, (vi) securities owned but subject to a repurchase agreement and (vii) currency, interest rate and commodity swaps. [On behalf of Buyer, I acknowledge that Buyer is familiar with Rule 144A and understands that you and your customers (if you act as a broker for one or more customers) are and will continue to rely on the statements made herein because one or more sales to Buyer by you for your own account or your customer's account will be in reliance on Rule 144A. In addition, on behalf of Buyer, I agree that, in connection with any purchase of securities sold by or through you in reliance on Rule 144A, Buyer will only purchase for Buyer's own account.](3) Finally, on behalf of Buyer or Adviser (as appropriate), I also agree to notify you of any changes in the information and conclusions herein. Until such notice is given to you, Buyer's purchase of securities from you, or through you from your customers, will constitute a reaffirmation of the foregoing certifications and acknowledgments as of the date of such purchase. Date:______________________ Very truly yours, [Print Name of Buyer] By: ------------------------------------- Name: Title: On behalf of: [Name of Buyer/Adviser] - ------------------- (3) Bracketed language to be included only in Certification Forms from Buyers in connection with re-sales pursuant to Rule 144A. B-11 EX-10 7 exh108.txt EXHIBIT 10.8 EXHIBIT 10.8 CHARMING SHOPPES, INC. 1993 EMPLOYEES' STOCK INCENTIVE PLAN RESTRICTED STOCK AGREEMENT Agreement dated as of May 13, 2004 between CHARMING SHOPPES, INC. (the "Company") and DORRIT J. BERN ("Employee"). It is agreed as follows: 1. GRANT OF RESTRICTED STOCK; CONSIDERATION The Company hereby confirms the grant, under and pursuant to the Company's 1993 Employees' Stock Incentive Plan (the "Plan"), to Employee on May 13, 2004 (the "Date of Grant") of 130,000 shares of the Company's common stock, par value $0.10 per share ("Shares"), granted pursuant to Section 6(d) of the Plan and subject to restrictions as set forth herein and therein ("Restricted Stock" or "Award"). Employee shall be required to pay no cash consideration for the grant of the Restricted Stock, but Employee's prior services to the Company, performance of services to the Company prior to the expiration of applicable restrictions relating to the Restricted Stock and otherwise during the term of her Employment Agreement, and her agreement to abide by the terms set forth in the Plan and this Restricted Stock Agreement (the "Agreement") shall be deemed to be consideration for the Award. 2. INCORPORATION OF PLAN BY REFERENCE The Award has been granted to Employee under the Plan, a copy of which is attached hereto. All of the terms, conditions and other provisions of the Plan are hereby incorporated by reference into this Agreement. Capitalized terms used in this Agreement but not defined herein shall have the same meanings as in the Plan. If there is any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. 3. RESTRICTIONS ON RESTRICTED STOCK AND RELATED TERMS (a) Restrictions Generally. Until they expire in accordance with Section 3(b), 3(c), or 5(a), the following restrictions (the "Restrictions") shall apply to the Restricted Stock: Employee shall have no right to sell, transfer, assign, pledge, or otherwise encumber or dispose of the Restricted Stock (except for transfers and forfeitures to the Company); and the Restricted Stock shall be subject to the risk of forfeiture as set forth in Section 3(b). Employee shall be entitled to receive dividends on the Restricted Stock when, as, and if dividends are declared and paid on Shares, shall be entitled to vote Restricted Stock on any matter submitted to a vote of holders of Common Stock, and shall have all other rights of a shareholder of the Company except as otherwise expressly provided under this Section 3. - ----------------------------------------------------------------------------- THE DATE OF GRANT OF THE STOCK IS May 13, 2004 GRANT NUMBER:_______ (b) Forfeiture. Unless otherwise determined by the Committee, if Employee's employment terminates and she thereafter is not an employee by the Company or any of its subsidiaries (a "Termination") prior to the expiration of the Restrictions for any reason other than due to death, permanent disability, involuntary termination by the Company for reasons other than "Cause," or voluntary termination by Employee for "Good Reason," the Restricted Stock as to which Restrictions have not previously expired shall be forfeited at the time of such Termination. In the event of a Termination due to death, permanent disability, involuntary termination by the Company for reasons other than "Cause," or a voluntary termination by Employee for "Good Reason," the Restrictions on the Restricted Stock shall expire at the time of such Termination. For purposes of this Agreement, "Cause" and "Good Reason" shall have the meanings ascribed to such terms in the Employment Agreement between Employee and the Company, as in effect at the Date of Grant. The foregoing notwithstanding, the Committee shall independently make any determination that "Cause" exists, but only if the Board of Directors previously has made such determination pursuant to the Employment Agreement. For purposes of this Agreement, the existence of a "permanent disability" shall be determined by, or in accordance with criteria and standards adopted by, the Committee. (c) Expiration of Restrictions. Unless the Restrictions on Restricted Stock expire earlier under Section 3 (b) or 5 (a), the Restrictions shall expire as to thirty-three (33%) percent of the total numer of Restricted Stock on the third anniversary of the Date of Grant, an additional thirty-three (33%) percent of the total number of shares of Restricted Stock on the fourth anniversary of the Date of Grant and the remaining thirty-four (34%) percent of the total number of shares of Restricted Stock on the fifth anniversary of the Date of Grant. Upon expiration of the Restrictions on any Restricted Stock, the Company shall promptly deliver to Employee one or more certificates representing such Shares (which shall no longer be deemed to be Restricted Stock), with any legend referring to the Restrictions removed from such certificate(s), or shall cause such Shares to be delivered to a broker or bank which maintains an account for Employee or Employee's designee, for deposit to such account. (d) Certificates Representing Restricted Stock. Restricted Stock shall be evidenced by issuance of one or more certificates in the name of Employee, bearing an appropriate legend referring to the terms, conditions, and Restrictions applicable hereunder, and shall remain in the physical custody of the General Counsel of the Company or his designee until such time as the Restrictions on such shares have expired. In addition, Restricted Stock shall be subject to such stop-transfer orders and other restrictive measures as the General Counsel of the Company shall deem advisable under federal or state securities laws, rules and regulations thereunder, and the rules of the Nasdaq National Market System or any national securities exchange on which Common Stock is then quoted or listed, or to implement the Restrictions, and the General Counsel may cause a legend or legends to be placed on any such certificates to make appropriate reference to the Restrictions. 2 (e) Stock Powers. Employee agrees to execute and deliver to the Company one or more stock powers, in such form as may be specified by the General Counsel, authorizing the transfer of the Restricted Stock to the Company, at the Date of Grant of the Restricted Stock or upon request at any time thereafter. 4. TAX WITHHOLDING Employee agrees to remit to the Company and any subsidiary, and authorizes the Company and any subsidiary to deduct from any payment to be made to Employee hereunder if such remittance has not been made, any amount that federal, state, local, or foreign tax law requires to be withheld with respect to the grant of Restricted Stock or delivery of Shares hereunder. At the election of the Employee, the Company shall withhold from the number of Shares to be delivered upon expiration of Restrictions on Restricted Stock a number of whole shares up to but not exceeding that number which has a Fair Market Value nearest to but not exceeding the amount of taxes required to be withheld with respect to such expiration of Restrictions; provided, however, no such withholding shall be permitted if Employee elects to be taxed on the grant of Restricted Stock, under Section 83(b) of the Code, prior to expiration of Restrictions. 5. CHANGE OF CONTROL PROVISIONS (a) Acceleration of Expiration of Restrictions. In the event of a Change of Control at any time after the date of grant of the Restricted Stock, the Restrictions on the Restricted Stock shall immediately expire. (b) Definitions of Certain Terms. For purposes of this Agreement, the following definitions shall apply: (1) "Beneficial Owner," "Beneficially Owns," and "Beneficial Ownership" shall have the meanings ascribed to such terms for purposes of Section 13(d) of the Exchange Act and the rules thereunder, except that, for purposes of this Section 5, "Beneficial Ownership" (and the related terms) shall include Voting Securities that a Person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants, options, or otherwise, regardless of whether any such right is exercisable within 60 days of the date as of which Beneficial Ownership is to be determined. (2) "Change of Control" means and shall be deemed to have occurred if 3 (i) any Person, other than the Company or a Related Party, acquires directly or indirectly the Beneficial Ownership of any Voting Security of the Company and immediately after such acquisition such Person has, directly or indirectly, the Beneficial Ownership of Voting Securities representing 20 percent or more of the total voting power of all the then-outstanding Voting Securities; or (ii) those individuals who as of the Date of Grant constitute the Board or who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors as of the Date of Grant or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the members of the Board; or (iii) the shareholders of the Company approve a merger, consolidation, recapitalization, or reorganization of the Company, a reverse stock split of outstanding Voting Securities, or an acquisition of securities or assets by the Company (a "Transaction"), or consummation of such a Transaction if shareholder approval is not obtained, other than a Transaction which would result in the holders of Voting Securities having at least 80 percent of the total voting power represented by the Voting Securities outstanding immediately prior thereto continuing to hold Voting Securities or voting securities of the surviving entity having at least 60 percent of the total voting power represented by the Voting Securities or the voting securities of such surviving entity outstanding immediately after such Transaction and in or as a result of which the voting rights of each Voting Security relative to the voting rights of all other voting securities are not altered; provided, however, a Change of Control shall not be deemed to have occurred if the Committee shall have determined, by action taken prior to the approval of the Transaction by shareholders or consummation of the Transaction if shareholder approval is not obtained, that such Transaction shall not constitute a Change of Control for purposes of this Agreement (provided that the Committee shall make no such determination unless the Board shall have determined that such Transaction shall not constitute a Change of Control for purposes of Employee's Employment Agreement with the Company as in effect at the Date of Grant and all other Awards then outstanding under the Plan, which determination, if made with respect to a Transaction, shall not be deemed to constitute a determination with respect to any subsequent Transaction; or 4 (iv) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets other than any such transaction which would result in Related Parties owning or acquiring more than 50 percent of the assets owned by the Company immediately prior to the transaction. (3) "Person" shall have the meaning ascribed for purposes of Section 13(d) of the Exchange Act and the rules thereunder. (4) "Related Party" means (i) a majority-owned subsidiary of the Company; or (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any majority-owned subsidiary of the Company; or (iii) a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportion as their ownership of Voting Securities; or (iv) if, prior to any acquisition of a Voting Security which would result in any Person Beneficially Owning more than ten percent of any outstanding class of Voting Security and which would be required to be reported on a Schedule 13D or an amendment thereto, the Board approved the initial transaction giving rise to an increase in Beneficial Ownership in excess of ten percent and any subsequent transaction giving rise to any further increase in Beneficial Ownership; provided, however, that such Person has not, prior to obtaining Board approval of any such transaction, publicly announced an intention to take actions which, if consummated or successful (at a time such Person has not been deemed a "Related Party"), would constitute a Change of Control. (5) "Voting Securities" means any securities of the Company which carry the right to vote generally in the election of directors. 6. EMPLOYEE BOUND BY PLAN Employee hereby acknowledges receipt of the attached copy of the Plan and agrees to be bound by all the terms and provisions thereof (as presently in effect or hereafter amended), and by all decisions and determinations of the Committee thereunder. 5 7. MISCELLANEOUS This Agreement shall be binding upon the heirs, executors, administrators, and successors of the parties. This Agreement constitutes the entire agreement between the parties with respect to the Award, and supersedes any prior agreements or documents with respect to the Award. No amendment, alteration, suspension, discontinuation, or termination of this Agreement which may impose any additional obligation upon the Company or materially impair the rights of Employee with respect to the Award shall be valid unless in each instance such amendment, alteration, suspension, discontinuation, or termination is expressed in a written instrument duly executed in the name and on behalf of the Company and by Employee. CHARMING SHOPPES, INC. By:__________________________ EMPLOYEE: By: __________________________ Dorrit J. Bern 6 STOCK POWER FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto Charming Shoppes, Inc. _____________ shares of Common Stock, $0.10 par value per share, of Charming Shoppes, Inc., a Pennsylvania corporation (the "Corporation"), registered in the name of the undersigned on the books and records of the Corporation, and does hereby irrevocably constitute and appoint Colin D. Stern and Gale H. Varma, and each of them, attorneys, to transfer the Common Stock on the books of the Corporation, with full power of substitution in the premises. --------------------------------------- Signed: Dorrit J. Bern (Signature should be in exact form as on Stock certificate) --------------------------------------- Date 7 EX-31 8 exh311.txt EXHIBIT 31.1 EXHIBIT 31.1 Certification By Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Dorrit J. Bern, Principal Executive Officer of Charming Shoppes, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Charming Shoppes, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 27, 2004 /S/ Dorrit J. Bern ------------------ Dorrit J. Bern Chairman of the Board President and Principal Executive Officer EX-31 9 exh312.txt EXHIBIT 31.2 EXHIBIT 31.2 Certification By Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Eric M. Specter, Principal Financial Officer of Charming Shoppes, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Charming Shoppes, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 27, 2004 /S/ Eric M. Specter ------------------- Eric M. Specter Executive Vice President Principal Financial Officer EX-32 10 exh32.txt EXHIBIT 32 EXHIBIT 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), Dorrit J. Bern, Chairman of the Board, President, and Chief Executive Officer and Eric M. Specter, Executive Vice President and Chief Financial Officer of Charming Shoppes, Inc. (the "Company"), each certifies with respect to the Quarterly Report of the Company on Form 10-Q for the period ended July 31, 2004 (the "Report") that, to the best of her/his knowledge: (1) The Report fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 27, 2004 /S/ Dorrit J. Bern Dorrit J. Bern Chairman of the Board President and Chief Executive Officer Dated: August 27, 2004 /S/ Eric M. Specter Eric M. Specter Executive Vice President Chief Financial Officer The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document. -----END PRIVACY-ENHANCED MESSAGE-----