-----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, EVxhkK77iW3XDMbeabqn4ErQj9aUA3DVRt2I/wR7cOcKd3P3AyhhUaz7N9Te45Qy I4DBsnNopGCDaLWpIua65w== 0000893220-98-000841.txt : 19980504 0000893220-98-000841.hdr.sgml : 19980504 ACCESSION NUMBER: 0000893220-98-000841 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980501 SROS: NONE 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-K405 SEC ACT: SEC FILE NUMBER: 000-07258 FILM NUMBER: 98608082 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-K405 1 FORM 10-K405 FOR CHARMING SHOPPES, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission file number 0-7258 CHARMING SHOPPES, INC. (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-1721355 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 450 Winks Lane, Bensalem, Pennsylvania 19020 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 245-9100 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock (par value $.10 per share) (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (X) YES ( ) NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in 2 definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) As of March 26, 1998, 100,720,159 common shares were outstanding. The aggregate market value of the common shares (based upon the closing price on March 26, 1998), held by non-affiliates was approximately $482 million. DOCUMENTS INCORPORATED BY REFERENCE: As stated in Part III of this annual report, portions of the following document are incorporated herein by reference: Definitive proxy statement for annual shareholders meeting to be filed within 120 days after the end of the fiscal year covered by this Annual Report. 3 CHARMING SHOPPES, INC. 1998 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I Item 1 Business General...................................................... 1 Merchandising and Marketing.................................. 3 Purchasing................................................... 6 Distribution................................................. 7 Stores....................................................... 7 Store Management and Employees............................... 9 Trademarks and Servicemarks.................................. 9 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995.............................. 9 Item 2 Properties..................................................... 11 Item 3 Legal Proceedings.............................................. 12 Item 4 Submission of Matters to a Vote of Security Holders............ 12 Item 4a Executive Officers of the Registrant........................... 12 PART II Item 5 Market for the Registrant's Common Equity and Related Stockholders' Matters........................................ 14 Item 6 Selected Financial Data........................................ 15 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 16 Item 7a Quantitative and Qualitative Disclosures About Market Risk..... 29 Item 8 Financial Statements and Supplementary Data.................... 30 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................. 62 PART III Item 10 Directors and Executive Officers of the Registrant............. 63 Item 11 Executive Compensation......................................... 63 4 Item 12 Security Ownership of Certain Beneficial Owners and Management. 63 Item 13 Certain Relationships and Related Transactions................. 63 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 64 5 PART I Item 1. Business General Charming Shoppes, Inc., a Pennsylvania corporation formed in 1969, operates through its subsidiary corporations 1,135 women's specialty apparel stores in 42 states (as of January 31, 1998), the substantial majority of which are located in the Northeast quadrant of the United States. Unless the context indicates otherwise, the term "Company" refers to Charming Shoppes, Inc. and, where appropriate, one or more of its wholly-owned subsidiaries. The Company's 1,077 "Fashion Bug" stores specialize in selling, at moderate and popular prices, a wide variety of junior, misses, large-size and girls-size sportswear, dresses, coats, lingerie, accessories and casual footwear. The Company's 58 "Fashion Bug Plus" stores specialize in similar merchandise for the large-size customer. The Company's stores sell both brand-name merchandise and specially manufactured garments under one of the Company's private labels. The Company has also carried an assortment of men's casual apparel in most of its "Fashion Bug" stores. In the fall of 1997, the Company eliminated men's merchandise from approximately 300 of its stores in order to refine its product assortments. On March 5, 1998, the Company's Board of Directors approved a plan to eliminate men's merchandise from the remaining "Fashion Bug" stores during the fiscal year ending January 30, 1999 ("Fiscal 1999"). The Company expects that the elimination of men's merchandise will allow for further development of product categories that are more closely related to its existing women's apparel businesses. The Company plans to focus on the development and expansion of its junior apparel, junior accessories and footwear categories. The Company expects to begin the repositioning of these stores in the Fall of Fiscal 1999. The Company's real estate strategy is focused on locating stores in strip shopping centers. As of the end of the fiscal year ended January 31, 1998 ("Fiscal 1998") approximately 82% of the Company's stores were located in strip shopping centers. The Company believes that its customers visit strip shopping centers more frequently than malls for their shopping needs as a result of the mix of the tenants in, and the convenience of, strip shopping centers. In addition, the Company benefits from substantially lower occupancy costs as compared to store occupancy costs in malls. The Company's "Fashion Bug" stores average 9,600 square feet in size. During Fiscal 1998, the Company opened 25 stores while closing 24 underperforming stores. The Company continues to seek new locations which meet its (1) 6 financial and operational objectives. In January 1998, the Company acquired 28 stores from Petrie Retail, Inc. These stores, the majority of which are now open under the "Fashion Bug" name, will partly enable the Company to expand into previously unserved markets. The Company continually evaluates its real estate portfolio to determine what action, if any, is necessary to maintain or improve sales productivity and store profitability. As a result of this process and the decision to eliminate men's merchandise from the "Fashion Bug" stores, on March 5, 1998, the Company's Board of Directors also approved a plan to record a one-time pre-tax charge of approximately $34,000,000 for the cost of downsizing approximately 100 stores and closing approximately 65 underperforming stores. The charge is to be recorded during the first quarter of Fiscal 1999 in accordance with Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity," as this plan was approved subsequent to the end of Fiscal 1998. On November 2, 1997, the Company announced that its Board of Directors approved the repurchase of up to ten million shares of the Company's Common Stock. As of January 31, 1998, the Company had repurchased a total of 5,580,000 shares for $25,382,000. During the first quarter of Fiscal 1999, the Company repurchased an additional 400,000 shares for $1,800,000. These shares are held as treasury stock. The Company will continue to evaluate market conditions to determine if additional shares will be repurchased during Fiscal 1999. The Company employs a business strategy, initiated in the fall of 1995 after a significant management and financial restructuring, which focuses efforts on providing fashion apparel and related merchandise which meet the demands of its primary customers. Such customers are generally in the 20 to 45 year old age group, and in the lower-middle to middle income range, and tend to follow, rather than set, fashion trends. The Company responds to the needs of its customers by providing a variety of choices in its merchandise assortment. The Company offers an assortment of both casual and career oriented products. Merchandise which complements these areas such as accessories, intimate apparel and footwear are also featured. The Company has expanded its product line to include junior merchandise which is intended to appeal to a younger, trend-influenced consumer. To complement this area, the girl's assortment has been redefined to reflect the apparel tastes of the pre-teen audience. Product assortments are tailored to the demographics of an area, and merchandise is available for six distinct seasons -- spring, summer, transitional, fall, holiday and transitional. The Company maintains (2) 7 quality standards with respect to merchandise fabrication, construction and fit. Realistic initial pricing is also part of the business strategy. The pricing provides sufficient margin to permit merchandise discounts in order to stimulate customer purchases. In addition, the Company's advertising expenditures are focused on stimulating customer traffic through targeted direct mail advertising to preferred customers selected from a database of customer purchase information which includes approximately 2,600,000 active proprietary credit card customers, as well as customers who utilize cash and third party credit cards. The Company also uses radio and newspaper advertising to stimulate traffic at certain strategic times of the year. In order to meet the demands of its primary customer, the Company utilizes the domestic wholesale apparel marketplace for a significant portion of its purchases. This allows management to maintain short lead times, respond quickly to current fashion trends and quickly replenish merchandise inventory as necessary. The Company uses its overseas sourcing operation to procure basic low-risk commodity merchandise which generally requires longer lead times. Merchandising and Marketing The Company employs a merchandise strategy which emphasizes a variety of choices in its merchandise assortment. The Company utilizes domestic fashion market guidance, fashion advisory services and in-store testing to determine the optimal product assortment for its customer base. Management believes that this results in a higher degree of accuracy in predicting consumer preferences while reducing the Company's inventory investment and risk. The purpose of this strategy is to enable the Company to provide merchandise assortments to meet its customers' preferences. The Company offers an assortment of both casual and career oriented products. Merchandise which complements these areas such as accessories, intimate apparel and footwear are also featured. The Company has expanded its product line to include junior merchandise which is intended to appeal to a younger, trend-influenced consumer. To complement this area, the girl's assortment has been redefined to reflect the apparel tastes of the pre-teen audience. The Company has also carried an assortment of men's casual apparel in most of its "Fashion Bug" stores. In the fall of 1997, the Company eliminated men's merchandise from approximately 300 of its stores in order to refine its product assortments. On March 5, 1998, the Company's Board of Directors approved a plan to eliminate men's merchandise from the remaining "Fashion Bug" stores during Fiscal 1999. The Company expects that the elimination of men's merchandise will allow for further development of product categories that are more closely related to its existing women's apparel businesses. The Company plans to focus on the (3) 8 development and expansion of its junior apparel, junior accessories and footwear categories. These businesses are expected to yield improved sales and gross margin productivity as compared to the men's merchandise. The Company expects to begin the repositioning of these stores in the Fall of Fiscal 1999. Product assortments are tailored to the demographics of an area, and merchandise will be available for six distinct seasons -- spring, summer, transitional, fall, holiday and transitional. In addition, the Company maintains quality standards with respect to merchandise fabrication, construction and fit. The Company also continues to redefine its merchandise assortments to reflect the needs and demands of diverse customer groups. The Company has distribution systems in place whereby stores which are identified as having certain customer profiles can be merchandised with products specifically targeted to such customers. In addition, the Company continues to work to improve inventory turnover by better managing the inventory receipt flow of seasonal merchandise to its stores across all geographic regions. Further, the Company addresses the different lifestyle needs of its customers with respect to fashion by varying the depth and assortments of career and casual merchandise. The Company employs a realistic pricing strategy which is aimed at setting the initial price markup of fashion merchandise in order to increase the percentage of sales at the ticketed price. Management believes this strategy has resulted in a greater degree of credibility with the customer, reducing the need for aggressive price promotions. The pricing does allow sufficient margin to permit merchandise discounts in order to stimulate customer purchases when necessary. The Company expects to continue to achieve a higher initial markup in the basic low-risk commodity merchandise that is purchased through its overseas sourcing operation. The Company continues to be promotionally oriented. The Company's advertising expenditures are focused on stimulating customer traffic thorough targeted direct mail advertising to preferred customers selected from a database of customer purchase information which includes approximately 2,600,000 active proprietary credit card customers, as well as customers who utilize cash and third party credit cards. The Company also uses radio and newspaper advertising to stimulate traffic at certain strategic times of the year. In addition, the Company continues to explore alternative forms of advertising such as national magazine advertising and selected television advertising vehicles. Pricing policies, displays, store promotions, and convenient store hours are also used to attract customers. With the planning and guidance of specialized home office personnel, each store provides such displays and advertising as may be (4) 9 necessary to feature certain merchandise or certain promotional selling prices from time to time. In order to meet the demands of its primary customers, the Company utilizes the domestic wholesale apparel marketplace for a significant portion of its purchases. This allows management to maintain short lead times, respond quickly to current fashion trends and quickly replenish merchandise inventory as necessary. The Company uses its overseas sourcing operation to procure basic low-risk commodity merchandise which generally requires longer lead times. In Fiscal 1998, approximately 70% of merchandise was purchased in the domestic market with the remainder being developed by the Company's sourcing organization. The retail sale of women's apparel is a highly competitive business with numerous competitors, including moderate price department stores, discount department stores and other low- to moderate-price specialty apparel stores. The Company cannot estimate the number of competitors or its relative competitive position, due to the large number of companies selling women's apparel. The primary elements of competition are merchandise style, size, selection, quality, display and price, as well as store location, design, advertising and promotion and personalized service to the customers. The Company experiences a normal seasonal sales pattern for the retail apparel industry, with its peak sales occurring during the Christmas season and other, less significant, increases around Easter and Labor Day. The Company generally builds inventory levels prior to these peak selling periods. To keep inventory current and fashionable, the Company reduces the price of slow-moving merchandise throughout the year. End-of-season sales are conducted with the objective of carrying a minimal amount of seasonal merchandise over from one season to another. Sales for the four quarters of Fiscal 1998, as a percent of total sales, were 23.2%, 26.1%, 23.2% and 27.5%, respectively. The Company encourages sales on its proprietary credit card. The proprietary credit program has approximately 2,600,000 active accounts which accounted for 36% of retail sales in Fiscal 1998. The Company believes that the credit card is a promotional vehicle in itself, engendering customer loyalty, creating a substantial base for targeted direct mail promotion and encouraging incremental sales. The Company controls and services its entire proprietary credit card file, and has entered into various agreements whereby it securitizes and sells all of these receivables. In each securitization, the receivables are transferred to a trust which issues certificates representing ownership interests in the trust. (5) 10 Under these agreements, the Company continues to service the receivables and control credit policies. This allows the Company to continue to fund receivable growth, provide customer service and collect past-due accounts. Accordingly, its relationship with its credit card customers is not affected by the securitization agreements. The Company's proprietary credit card portfolio is administered by Spirit of America National Bank, a national banking association and wholly-owned subsidiary of the Company. Spirit of America National Bank approves credit applications and a third party performs all billing and collection activities. The Company's proprietary credit card customers tend to be a higher credit risk than bank issued credit card customers. The Company's stores feature wall and selling-floor displays which coordinate merchandise in order to promote multiple sales. The stores, which the Company believes must present a fresh, contemporary shopping environment, are redecorated or remodeled as necessary. The Company is constantly testing and implementing new store designs and fixture packages aimed at providing an effective merchandise presentation. The Company emphasizes customer service, including the presence of salespeople in the stores, rather than self-service; lay-away plans; and acceptance of merchandise returns for cash or credit within a reasonable time period. Purchasing Purchasing is conducted on a departmental basis for each of the "Fashion Bug" and "Fashion Bug Plus" merchandise groups by a staff of buyers supervised by one or more merchandise managers. The Company believes that specialization of buyers within their departments enhances their expertise in obtaining quality merchandise at a cost which will permit attractive selling prices, while obtaining the desired markup for the Company. The merchandising staff obtains store and chain-wide inventory information generated by a merchandise information system utilizing point-of-sale terminals, through which merchandise can be followed from the placement of the order to the actual sale. Based upon this data, the merchandise managers compare budgeted-to-actual sales and make merchandising decisions, as needed, including re-order, mark-downs and changes in the buying plans for upcoming seasons. During Fiscal 1998, the Company purchased merchandise from approximately 900 suppliers, none of which accounted for more than 5% of its purchases. In Fiscal 1998, approximately 70% of merchandise was purchased in the domestic market on an open account basis, the remainder being developed by (6) 11 the Company's sourcing organization. During Fiscal 1998, the Company's Hong Kong office conducted its sourcing operations in 21 countries while maintaining satellite offices in 3 of these countries. Purchases of such merchandise is done via letter of credit with third party factories, with the Company being the importer of record. The Company also has a manufacturing facility in the Dominican Republic which manufactures certain basic knit products. Distribution The Company operates two distribution centers. One is located in Bensalem, Pennsylvania, adjacent to the Company's corporate headquarters. This automated facility, which also contains executive, administrative and buying offices, occupies approximately 515,000 square feet. The second distribution facility is located in Greencastle, Indiana. The 150-acre tract of land contains a building of approximately 525,000 square feet. The Company estimates that, by operating multiple shifts, it would have the ability to service over 2,000 stores from these two distribution centers. The majority of merchandise purchased by the Company is received at these centers, where it is prepared for distribution to the stores. The functions performed at these central facilities include quality control inspection, receiving, ticketing, packing and shipping. The Company's automated sortation systems in both distribution centers enhance the flow of merchandise from receipt to shipment. Shipments to each store are made by trucks operated principally by common carriers. The Company utilizes a computerized automated distribution model which enhances the efficiency of the distribution department and enables that department to build various customer profiles into each store's plan to determine not only the number of units, but also the type of unit to be distributed to each store. The Company's merchandise and purchasing strategy, and enhancements to the Company's inventory management, facilitate the timely and orderly purchase and flow of merchandise, thereby enabling the stores to offer fresh product assortments on a regular basis. Stores The Company's 1,135 stores (as of January 31, 1998) are primarily located in suburban areas and small towns. Approximately 82% of these stores are located in strip shopping centers, while the balance are located in community and regional malls. Typically, stores are open seven days per week, eleven hours per day Monday through Saturday and seven hours on Sunday. (7) 12 The "Fashion Bug" stores range in size, generally, from 5,000 square feet to 15,000 square feet, averaging approximately 9,600 square feet. The "Fashion Bug Plus" stores range in size, generally, from 3,000 square feet to 5,000 square feet, averaging approximately 4,000 square feet. Total leased space was 10,587,000 square feet as of the end of Fiscal 1998, as compared to 10,650,000 square feet as of the end of the fiscal year ended February 1, 1997 ("Fiscal 1997"). On March 5, 1998, the Board of Directors of the Company approved a plan to downsize approximately 100 stores and close approximately 65 underperforming stores. This decision, in combination with the strategic decision to terminate the men's apparel line in the Company's stores, is aimed at improving sales productivity and store profitability. In January 1998, the Company acquired 28 stores from Petrie Retail, Inc. These stores, the majority of which are now open under the "Fashion Bug" name, will partly enable the Company to expand into previously unserved markets. The Company plans to open 65 stores in total during Fiscal 1999. The Company's store openings and closings over the past five fiscal years is set forth in the following table:
Year Ended Jan. 31, Feb. 1, Feb. 3, Jan. 28, Jan. 29, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Number of Stores Open at beginning of period.............. 1,134 1,301 1,428 1,333 1,220 Opened during period..... 25 5 47 126 157 Closed or combined during period.......... (24) (172) (174) (31) (44) ----- ----- ----- ----- ----- 1,135 1,134 1,301 1,428 1,333 ===== ===== ===== ===== ===== Store Type Fashion Bug.............. 1,077 1,073 1,234 1,346 1,248 Fashion Bug Plus......... 58 61 67 82 85 ----- ----- ----- ----- ----- 1,135 1,134 1,301 1,428 1,333 ===== ===== ===== ===== =====
(8) 13 Store Management and Employees All stores are operated under the direct management of the Company. Each store has a manager and an assistant manager who are in daily operational control. The Company has 101 district managers who travel to all stores in their district on a frequent basis, to supervise store operations, each having responsibility for an average of approximately 11 stores. The district managers are supervised by 12 regional managers who report to the Director of Stores. Generally, store managers are appointed from the group of assistant managers, and district managers are appointed from the group of existing store managers. The Company's policy is to motivate its store personnel through promotion from within, with competitive wages and various incentive, medical and retirement plans. Store operational and purchasing policies are developed centrally, leaving individual store management with the principal duties of display, selling and reporting through point-of-sale terminals. As of the end of Fiscal 1998, the Company employed approximately 12,600 people, approximately 6,500 of whom were employed on a part-time basis. In addition, a number of temporary employees are hired during the Christmas season. Trademarks and Servicemarks "Fashion Bug" (R), "Fashion Bug Plus" (R), "Glitter" (R), "Maggie Lawrence" (R), "Stefano" (R), "L.A. Blues" (R), and several other trademarks and servicemarks of lesser importance to the Company have been registered with the United States Patent and Trademark Office and in other countries. Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The Company has made in this report, and from time to time may otherwise make, forward-looking statements concerning the Company's operations, performance and financial condition. This report includes, in particular, forward-looking statements regarding the Company's expectations of future performance following implementation of its business strategy, restructurings and expense reduction initiatives and the expected benefits thereof. In addition, the information contained herein includes certain forward-looking statements regarding store openings and closings, foreign sourcing operations, capital requirements, and other matters. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, actual results could differ materially from those currently anticipated due to a number of factors, including those identified below. (9) 14 Ability to Implement Business Strategy The Company's future results and financial condition are dependent on the successful implementation of its business strategy. While the Company believes that this strategy will enable it to improve its financial results, there can be no assurance that this strategy will be successful, that the anticipated benefits of this strategy will be realized, that management will be able to implement such strategy on a timely basis, that the Company will return to profitability levels previously experienced or that losses will not be incurred in the future. Dependence on Key Management The Company's success and its ability to successfully implement its business strategy depends largely on the efforts and abilities of Dorrit J. Bern, the Company's Chairman of the Board, President and Chief Executive Officer, and her management team. The loss of the services of one or more of such key personnel could have a material adverse effect on the Company's business and financial results. The Company does not maintain key-man insurance policies with respect to any of its employees. Other Factors Actual results could also differ materially from those currently anticipated due to (i) rapid changes in or miscalculation of fashion trends, (ii) extreme or unseasonable weather conditions, (iii) economic downturns, a weakness in overall consumer demand, inflation and cyclical variations in the retail market for women's fashion apparel, (iv) a further increase in Federal (or State) Minimum Wage, (v) an acceleration in the rate of business failures in the retail industry, (vi) the loss of certain or all of the collateral pledged under the Company's credit facilities, (vii) the availability and/or cost of receivables securitization arrangements, (viii) an increase in the rate of bad debt expense among the Company's proprietary credit card customers, (ix) the risks attendant to the sourcing of the Company's merchandise needs abroad, including China's assumption of control of Hong Kong, exchange rate fluctuations, political instability, trade sanctions or restrictions, changes in quota and duty regulations, delays in shipping or increased costs of transportation, (x) the availability and cost of external financing, (xi) competitive pressures, and (xii) the imposition of more onerous payment terms for merchandise purchases. In addition, the market price of the Company's Common Stock, which is quoted on the Nasdaq National Market, may be subject to significant fluctuation in response to quarter-to-quarter variations in the Company's revenues and earnings, variations in monthly sales figures, (10) 15 and general stock market volatility unrelated to the Company's operating performance. Item 2. Properties The Company leases all store premises, with the exception of 6 stores, which the Company owns. Typically, store leases have initial terms of 5 to 20 years and contain provisions for renewal options, additional rental charges based on sales performance and payment of real estate taxes and common area charges. With respect to leased stores open as of January 31, 1998, the following table shows the number of store leases expiring during the periods indicated, assuming the exercise of the Company's renewal options: Number of Leases Period Expiring ------ -------- 1998 12 1999 - 2003 81 2004 - 2008 158 2009 - 2013 206 2014 - 2018 191 2019 - 2023 248 2024 - 2028 197 2029 - 2041 42 The Company owns offices and an approximately 515,000 square foot distribution center in Bensalem, Pennsylvania and a 525,000 square foot distribution center in Greencastle, Indiana (see "Item 1. Business - Distribution" above). The Company owns approximately 22 acres in two parcels across the street from the Company's offices and distribution center in Bensalem, Pennsylvania. This 22-acre tract contains a 110,000 square foot office building which houses the Company's data processing facility and additional administrative offices. Spirit of America National Bank, a wholly-owned subsidiary of the Company, which is the Company's proprietary credit card bank, occupies 15,000 square feet of leased office space in Milford, Ohio. The Company owns or leases a total of 40,000 square feet of office and warehouse space in Hong Kong. (11) 16 Item 3. Legal Proceedings There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is the subject. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. Item 4a. Executive Officers of the Registrant The following list contains certain information relative to Executive Officers of the Company as of April 22, 1998. There are no family relationships among any Executive Officers. The term of each Executive Officer expires at the next annual meeting of the Board of Directors following the Annual Meeting of Shareholders scheduled to be held during July 1998, or until their successors are duly elected and qualified. Dorrit J. Bern, 47, has served as Chairman of the Board of Directors since January 1997. Prior to that, she served as Vice Chairman of the Board of Directors from September 1995 to January 1997. She has also served as President and Chief Executive Officer since September 1995. Prior to that, she served as Group Vice President of Women's Apparel and Home Fashions at Sears, Roebuck & Co. from December 1993 to August 1995 and as Category Vice President of Women's Apparel from December 1992 to December 1993. Ms. Bern's term as a Director expires in 1999. Anthony A. DeSabato, 49, has served as Executive Vice President and Corporate Director of Human Resources for more than five years. Eric M. Specter, 40, has served as Executive Vice President - Chief Financial Officer since January 1997. He has also served as Treasurer since February 1998. Prior to that he served as Vice President - Chief Financial Officer from December 1995 to January 1997. Prior to that, he served as Vice President - Corporate Controller for more than five years. Colin D. Stern, 49, has served as Executive Vice President and General Counsel for more than five years. He has also served as Secretary since February 1998. (12) 17 Elizabeth Williams, 44, has served as Executive Vice President - Merchandising since October 1995. Prior to that, she served as Divisional Vice President - Misses Sportswear and Special Sizes at Sears, Roebuck & Co. from February 1994 to October 1995 and as Divisional Merchandise Manager from August 1990 to February 1994. Erna Zint, 54, has served as Executive Vice President - Sourcing since January 1996. Prior to that, she served as Corporate Vice President - Southeast Asia Operations for Leslie Fay Companies, Inc. from December 1990 to December 1995. Jon A. Goldberg, 38, has served as Vice President - Corporate Controller since December 1995. Prior to that, he served as Vice President - Retail Controller from May 1995 to December 1995 and as Retail Controller from August 1990 to May 1995. Carmen Monaco, 51, has served as Vice President - Marketing since May 1997. Prior to that he served as Senior Vice President - Marketing/Advertising at Goody's Family Clothing Inc. from August 1992 to May 1997. (13) 18 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholders' Matters (a) Principal Market: The Company's Common Stock is traded on the over-the-counter market and quoted on the Nasdaq National Market under the symbol CHRS. (b) The following table sets forth the high and low closing sale prices for the Company's Common Stock during the indicated periods, as reported by Nasdaq.
Fiscal 1998 Fiscal 1997 High Low High Low ---- --- ---- --- 1st Quarter.... $6 $4 3/8 $6 9/16 $3 2nd Quarter.... 6 1/8 5 3/16 8 1/4 6 1/8 3rd Quarter.... 7 1/32 5 1/16 7 3/4 4 1/2 4th Quarter.... 5 3/8 3 15/16 5 9/16 4 7/16
On October 2, 1995, the Company's Board of Directors announced an indefinite suspension of dividends on the Company's Common Stock. On November 30, 1995, the Company entered into borrowing agreements that require, among other things, that the Company not pay dividends on its Common Stock (see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements - Debt" below). (c) Approximate Number of Holders of Common Stock: The approximate number of holders of record of the Company's Common Stock as of March 26, 1998 was 2,839. This number excludes individual stockholders holding stock under nominee security position listings. (d) Recent Sales of Unregistered Securities During the quarter ended January 31, 1998, the Company issued 39 shares of its Common Stock, $.10 par value. The shares were issued on December 22, 1997 to an employee of the Company under the terms of the Company's Restricted Stock Award Plan for Associates. No consideration was received for the shares, which were issued as a bonus award to the employee. The aggregate fair market value of the shares on the date of issue was $180.38. (14) 19 The issuance and delivery of the 39 shares of Common Stock under the Restricted Stock Plan for Associates need not be registered under the Securities Act of 1933, as amended (the 1933 Act) because it was a bonus grant of Restricted Stock under an employee benefit plan, and, therefore, did not involve an offer or sale of securities under Section 2(3) of the 1933 Act. Item 6. Selected Financial Data The following table presents selected financial data for the Company for each of the five fiscal years ended as of January 29, 1994 through January 31, 1998. All of the selected financial data are extracted from the Company's audited financial statements and should be read in conjunction with the financial statements and the notes thereto included under Item 8 of this Form 10-K. CHARMING SHOPPES, INC. AND SUBSIDIARIES FIVE-YEAR COMPARATIVE SUMMARY
Year Ended (in thousands except Jan. 31, Feb. 1, Feb. 3, Jan. 28, Jan. 29, per share amounts) 1998 1997 1996(1) 1995 1994 ---------- ----------- ----------- ---------- ---------- Net sales ................ $1,016,537 $ 1,016,297 $ 1,102,384 $1,272,693 $1,254,122 Non-recurring gain from asset securitization ... 13,018(2) 0 0 0 0 Restructuring charge ..... 0 0 103,000(3) 0 0 Income (loss) before cumu- lative effect of accounting change ...... 19,334 (7,237) (139,241) 44,689 75,765(4) Income (loss) per share before cumulative effect of accounting change ... .18 (.07) (1.35) .43 .74(4) Income (loss) per share before cumulative effect of accounting change, assuming dilution ...... .18 (.07) (1.35) .42 .70(4) Cash dividends per common share(5) ............... .00 .00 .045 .09 .09 At year end: Total assets ............. $ 709,738 $ 710,397 $ 681,746 $ 840,809 $ 829,233 Current portion - Long-term debt ......... 16 16 57,691 5,002 5,005 Long-term debt ........... 138,116 138,128 38,102 17,298 22,298 Working capital .......... 163,208 224,144 199,457 191,815 181,906 Stockholders' equity ..... 416,810 421,035 419,029 558,822 522,100
(1) The fiscal year ended February 3, 1996 consists of 53 weeks. (15) 20 (2) During the third quarter of Fiscal 1998, the Company recorded a non-recurring gain of $13,018,000 as a result of the adoption of SFAS No. 125 as related to the sale of credit card receivables during Fiscal 1998 (see "Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements - Asset Securitization" below). (3) During the fourth quarter of the fiscal year ended February 3, 1996, the Company's Board of Directors approved a restructuring plan which resulted in a fourth quarter pre-tax charge of $103,000,000 (see "Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements - Restructuring Charge" below). (4) Net income for the fiscal year ended January 29, 1994 is before the cumulative effect of an accounting change of $3,991,000 or $.04 per share. (5) On October 2, 1995, the Company's Board of Directors announced an indefinite suspension of dividends on the Company's Common Stock (see "Item 5. Market for the Registrant's Common Equity and Related Stockholders' Matters" above). Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements concerning the Company's operations, performance and financial condition including, in particular, forward-looking statements regarding the Company's expectations of future performance following implementation of its business strategy, recent restructurings and expense reduction initiatives, and the expected benefits thereof. In addition, the information contained herein includes certain forward-looking statements regarding store openings and closings, foreign sourcing operations, capital requirements and other matters. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements due to a number of factors identified in Part 1, Item 1 -- Business: Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 of this Annual Report on Form 10-K, among others, and other risks and factors identified from time to time in the Company's reports filed with the Securities and Exchange Commission. (16) 21 1998 STORE RESTRUCTURING AND ELIMINATION OF MEN'S MERCHANDISE FROM THE COMPANY'S "FASHION BUG" STORES On March 5, 1998, the Company's Board of Directors approved a plan to record a one-time pre-tax charge of approximately $34,000,000 to account for the cost of downsizing approximately 100 stores and closing approximately 65 underperforming stores, during the fiscal year ending January 30, 1999 ("Fiscal 1999"). This plan was approved in conjunction with the decision to eliminate men's merchandise from the Company's stores. Sales of men's merchandise were approximately $48,000,000 in Fiscal 1998 and are expected to be approximately $15,000,000 in Fiscal 1999. In the fall of 1997, the Company eliminated men's merchandise from approximately 300 of its stores in order to refine its product assortments. The Company expects that the elimination of men's merchandise will allow for further development of product categories that are more closely related to its existing women's apparel businesses. The Company plans to focus on the development and expansion of its junior apparel, junior accessories and footwear categories. These businesses are expected to yield improved sales and gross margin productivity as compared to the men's merchandise. The Company expects to cease selling men's merchandise by the Fall of 1998 at which time it will begin to reposition the merchandise assortments in these stores. The Company does not expect to realize the full benefit of this strategy until after Fiscal 1999. The charge is to be recorded during the first quarter of Fiscal 1999 in accordance with Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity," as this plan was approved subsequent to the end of the fiscal year ended January 31, 1998 ("Fiscal 1998"). (17) 22 RESULTS OF OPERATIONS Financial Summary The following table sets forth certain financial data expressed as a percentage of net sales and on a comparative basis:
Percentage Increase (Decrease) Percentage of Net Sales From Prior Year Fiscal Fiscal Fiscal Fiscal Fiscal 1998 1997 1996 1998-1997 1997-1996 ------ ------ ------ --------- --------- Net sales ............. 100.0% 100.0% 100.0% 0.0% (7.8)% Cost of goods sold, buying and occupancy 76.0 77.0 83.2 (1.3) (14.7) Selling, general and administrative ...... 22.9 23.8 27.1 (3.5) (19.3) Non-recurring gain from asset securitization 1.3 0.0 0.0 ** ** Restructuring charge .. 0.0 0.0 9.3 0.0 (100.0) Interest expense ...... 1.0 0.9 0.3 8.5 161.3 Income tax (benefit) expense ............. 1.0 (0.3) (6.9) ** ** Net income (loss) ..... 2.0 (0.7) (12.6) ** **
** Not meaningful Net Sales Net sales for the fiscal year ended January 31, 1998 totaled $1,016,537,000, which is approximately equal to net sales of $1,016,297,000 for the fiscal year ended February 1, 1997 ("Fiscal 1997"). The Company experienced a 3.0% increase in comparable store sales (sales generated by stores in operation during the same weeks of each period) in Fiscal 1998 from Fiscal 1997. In addition, sales from new stores (sales generated by stores in operation during Fiscal 1998 that were not in operation during the corresponding weeks in Fiscal 1997) in Fiscal 1998 equaled 1.0% of Fiscal 1997 sales. Sales for Fiscal 1997 which were not comparable with sales for Fiscal 1998 as a result of the closing of stores in those years equaled 3.8% of Fiscal 1997 sales. The number of retail stores increased from 1,134 as of February 1, 1997 to 1,135 as of January 31, 1998. Sales for the fourth quarter of Fiscal 1998 totaled $278,950,000, a 3.4% increase from $269,797,000 for the corresponding period of Fiscal 1997. The Company experienced a 3.9% increase in comparable store sales in the (18) 23 fourth quarter of Fiscal 1998 as compared to the fourth quarter of Fiscal 1997. In addition, sales from new stores equaled 1.5% of Fiscal 1997 fourth quarter sales; and, sales in the fourth quarter of Fiscal 1997 which were not comparable with sales for the fourth quarter of Fiscal 1998 as a result of the closing of stores in those years equaled 2.2% of Fiscal 1997 fourth quarter sales. The increases in comparable store sales were primarily attributable to increased sales of sportswear, dresses, accessories and footwear. Such increases were partially offset by declines in comparable sales in outerwear and men's apparel. Net sales decreased 7.8% in Fiscal 1997 as compared to net sales in the fiscal year ended February 3, 1996 ("Fiscal 1996"). The primary reason for this decrease was a 12.5% reduction from Fiscal 1996 sales as a result of stores closed during Fiscal 1996 and Fiscal 1997 and an additional week of sales in Fiscal 1996, which equaled 1.5% of Fiscal 1997 sales. The Company experienced a 4.5% increase in comparable store sales in Fiscal 1997 from Fiscal 1996 and sales from new stores open less than a full year equaled 2.2% of Fiscal 1996 sales. Net sales for the fourth quarter of Fiscal 1997 decreased 16.2% as compared to net sales for the corresponding period during Fiscal 1996. This decrease in sales was primarily due to a 12.5% reduction from fourth quarter Fiscal 1996 sales as a result of stores closed during Fiscal 1996 and Fiscal 1997 and an additional week of sales in Fiscal 1996, which equaled 9.0% of Fiscal 1997 fourth quarter sales. The Company experienced a 2.5% increase in comparable store sales in the fourth quarter of Fiscal 1997 from the fourth quarter of Fiscal 1996 and sales from new stores open less than a full year equaled 0.6% of Fiscal 1996 fourth quarter sales. Cost of Goods Sold, Buying and Occupancy Cost of goods sold, buying and occupancy expenses expressed as a percentage of sales decreased 1.0% in Fiscal 1998 as compared to the prior year. The Company's cost of goods sold in relation to sales was constant in Fiscal 1998 as compared to Fiscal 1997. Buying and occupancy expenses decreased as a percentage of sales in Fiscal 1998 as compared to the prior year as a result of reductions in distribution center operating expenses, lower store depreciation expense and decreases in store occupancy expenses. Cost of goods sold, buying and occupancy expenses expressed as a percentage of sales decreased 0.5% in the fourth quarter of Fiscal 1998 as compared to the corresponding period of Fiscal 1997. This improvement was attributable to improvements in both merchandise gross margins and buying and occupancy (19) 24 expenses expressed a percentage of sales. The decrease in cost of goods sold in relation to sales in the fourth quarter of Fiscal 1998 as compared to the corresponding period of Fiscal 1997 resulted from an improvement in gross margins due to improved sales in higher margin categories. The decrease in buying and occupancy expenses in relation to sales in the fourth quarter of Fiscal 1998 was due primarily to reductions in distribution center operating expenses, lower store depreciation expense and decreases in merchandising payroll expenses which were partially offset by increases in store occupancy expenses. Cost of goods sold, buying and occupancy expenses expressed as a percentage of sales decreased 6.2% in Fiscal 1997 as compared to Fiscal 1996. The Company's cost of goods sold in relation to sales decreased during Fiscal 1997 as a result of a significantly reduced level of price reductions, which are initiated to stimulate consumer demand. The reduced level of price reductions was made possible by a favorable response to the Company's new merchandising strategy implemented during Fiscal 1997. Buying and occupancy expenses in relation to sales decreased in the fourth quarter of Fiscal 1998 as compared to the corresponding period of Fiscal 1997 as a result of cost savings attributable to the closing of underperforming stores, the renegotiation of store lease obligations and the reduction of distribution and merchandising personnel. Cost of goods sold, buying and occupancy expenses expressed as a percentage of sales decreased 15.4% in the fourth quarter of Fiscal 1997 as compared to the corresponding period of Fiscal 1996. The Company's cost of goods sold in relation to sales decreased during the fourth quarter of Fiscal 1997 as a result of a significantly reduced level of price reductions made possible by a more favorable consumer response to the Company's new merchandising strategy. Buying and occupancy expenses decreased as a percentage of sales in the fourth quarter of Fiscal 1997 as compared to the prior year as a result of cost savings attributable to the closing of underperforming stores, the renegotiation of store lease obligations and the reduction of distribution and merchandising personnel. Selling, General and Administrative Selling, general and administrative expenses expressed as a percentage of sales decreased 0.9% in Fiscal 1998 as compared to Fiscal 1997. This was primarily attributable to the closing of underperforming stores during Fiscal 1997 and administrative expense reductions as part of the Company's expense reduction initiative. These reductions were partially offset by the effect of the increase in the Federal minimum wage. Selling expenses for Fiscal 1998 continued to be adversely impacted by a higher, although (20) 25 stable, level of delinquencies within the Company's securitized proprietary credit card receivables portfolio. However, the impact of these increased expenses has been partially offset by reduced expenses related to the servicing of the credit card operations. Selling, general and administrative expenses expressed as a percentage of sales decreased 3.3% in Fiscal 1997 as compared to Fiscal 1996. This was primarily attributable to the Company's efforts to reduce operating costs through the closing of underperforming stores, the reduction of store payroll expenses, a decrease in advertising and promotional expenses and the reduction of corporate and administrative personnel. Non-recurring Gain From Asset Securitization The Company securitizes all of its private label credit card receivables in the public and private markets. In each securitization, credit card receivables are transferred to a trust, which issues certificates representing ownership interest in the trust to institutional investors. The Company retains a participation interest in the trust, reflecting the excess of the total amount of receivables transferred to the trust over the portion represented by certificates sold to investors. The Company is subject to certain recourse provisions in connection with securitizations entered into prior to January 1, 1997 and has established reserves relating to these provisions. In June 1996 the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which establishes the accounting for certain financial asset transfers, including securitization transactions. The Company adopted the provisions of this statement in January 1997. For transfers that result in the recognition of a sale, SFAS No. 125 requires that assets obtained and liabilities incurred by transferors be measured at fair value. In conjunction with the sale of $83,500,000 of credit card receivables during Fiscal 1998, the Company evaluated the fair value of its participation interest and related recourse provisions in these securitizations. As the result of such evaluation, the Company recognized a non-recurring gain of $13,018,000. Interest Expense Interest expense increased in Fiscal 1998 as compared to the corresponding period of Fiscal 1997 as a result of an increase in the average amount of long-term debt outstanding. The average amount of long-term debt outstanding in Fiscal 1998 was $138,138,000 in Fiscal 1998 as compared to $105,140,000 in Fiscal 1997. The impact of this increase was partially offset by a reduction in the average interest rate on the combined debt (21) 26 from 8.67% in Fiscal 1997 to 7.5% in Fiscal 1998. The primary reason for this increase in principal and reduction in rate was the issuance in July 1996 of $138,000,000 aggregate principal amount of 7.5% Convertible Subordinated Notes due 2006 (the "Notes") which were issued, in part, to repay the outstanding principal balance of term loans issued in November 1995. Interest expense increased in Fiscal 1997, as compared to Fiscal 1996, as a result of the interest expense associated with the Notes as well as the interest expense associated with $92,350,000 of term loans which were issued in November 1995. Restructuring Charge - Fiscal 1996 In Fiscal 1996, the Company's Board of Directors approved a restructuring plan that resulted in a pre-tax charge of $103,000,000. The restructuring charge included $58,878,000 related to the planned closing of 290 stores, $34,487,000 related to the reorganization of foreign merchandise sourcing operations, $5,445,000 for severance benefits and a $4,190,000 write-off of surplus store construction fixtures and equipment. From inception of this restructuring plan, the Company closed 294 underperforming stores, reduced store employees by 2,300 and reduced non-store employees by 600. As of January 31, 1998, all costs relating to the restructuring had been paid. There were no material changes in the restructuring plan as originally announced or in the estimates of charges accrued with respect to this restructuring plan. Income Tax (Benefit) Expense The income tax expense for Fiscal 1998 was $10,088,000, resulting in a 34.3% effective tax rate, as compared to a $2,683,000 income tax benefit, resulting in a (27.1)% effective tax rate for Fiscal 1997. The change in the effective tax rate is primarily attributable to an increase in state income taxes, a decrease in foreign income taxes, and a decrease in non-deductible permanent differences relating to certain Company-owned life insurance policies. This compares with a $75,747,000 income tax benefit, resulting in a (35.2)% effective tax rate for Fiscal 1996. The decrease in the effective tax rate for Fiscal 1997 as compared to Fiscal 1996 is primarily attributable to an increase in state income taxes and an increase in non-deductible permanent differences relating to certain Company-owned life insurance policies (see "Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements - Income Taxes" below). (22) 27 Performance Analysis The following ratios measure the Company's overall performance as shown by the return on average stockholders' equity and return on average total assets.
Fiscal Fiscal Fiscal 1998 1997 1996 ------ ------ ------- Net return on average stockholders' equity.. 4.6% (1.7)% (28.5)% Net return on average total assets.......... 2.7% (1.0)% (18.3)%
FINANCIAL CONDITION Liquidity and Capital Resources The Company's primary sources of working capital are cash flow from operations, its proprietary credit card receivables securitization agreements, its long-term investment portfolio and its $150 million revolving credit facility described below. The Company considers, and currently uses for internal management purposes, the following measures of liquidity and capital resources:
Fiscal Fiscal Fiscal (dollars in thousands) 1998 1997 1996 ---------- ---------- ---------- Working capital .......... $ 163,208 $ 224,144 $ 199,457 Cash provided by (used in) operating activities ... 83,484 131,399 (55,434) Current ratio ............ 2.1 2.6 2.0 Debt to equity ratio ..... 33.1% 32.8% 22.9%
The Company's cash flow from operations decreased $47.9 million in Fiscal 1998 as compared to Fiscal 1997. The primary reason for this decrease was a reduction in income tax refunds received, a smaller decrease in the net investment in inventory and an increase in prepaid assets. An increase in income, net of the non-recurring gain from asset securitization, and an increase in accrued expenses partially offset the decrease in cash flow from operations. The Company's cash flow from operations increased $186.8 million in Fiscal 1997 as compared to Fiscal 1996. The primary reason for this increase was a reduction of $132.0 million in the net loss for Fiscal 1997 as compared to Fiscal 1996. In addition, reductions in the income tax refund (23) 28 receivable, deferred taxes and merchandise inventories, net of accounts payable, served to further increase cash flow from operations. A reduced level of losses from abandonment of capital assets and the payment of accrued restructuring expenses partially offset the improvement in cash flow from operations. During Fiscal 1997, the Company received a $56,726,000 income tax refund as a result of net operating loss carrybacks for taxes paid in prior years. In accordance with the terms of the Company's $82,862,000 of term loans, the tax refund was used to reduce the amount of such term loans to $26,136,000. As a result of such payment, a letter of credit in the amount of $22,000,000, issued under the Company's revolving credit facility (see below) as security for the payment of such refund, was canceled and a $7,000,000 cash deposit in support of such letter of credit was returned to the Company. On July 22, 1996, the Company completed a public offering of $138,000,000 aggregate principal amount of 7.5% Convertible Subordinated Notes due 2006 (the "Notes"). The net proceeds of the offering to the Company, after underwriting discounts and commissions, were $133,860,000. The Notes are convertible at any time prior to maturity into shares of Common Stock of the Company at a conversion price of $7.46 per share. The Notes are redeemable at the Company's option, in whole or in part, on or after July 15, 1999, at declining redemption prices, starting at 103.750% of principal and decreasing to 100% on or after July 15, 2005. Under certain circumstances involving a change of control of the Company, holders of the Notes may require the Company to repurchase all or a portion of the Notes at 100% of the principal amount plus accrued and unpaid interest, if any. There is no sinking fund for the Notes. Of the net proceeds received, $35,624,000 were used to repay the remainder of the Company's outstanding term loans. The remaining net proceeds were invested in cash-equivalent and available-for-sale securities. The Company has an agreement with a commercial finance company to provide a revolving credit facility with a maximum availability of $150,000,000, subject to limitations based upon eligible inventory. The primary purpose of the facility, which expires June 1, 1998, is to enable the Company to issue letters of credit for overseas purchases of merchandise as well as to provide for seasonal cash borrowings. The facility is secured by merchandise inventory, furniture and fixtures within retail stores and certain other Company assets. As of the end of Fiscal 1998, the availability under the facility was approximately $98,356,000, against which the Company had outstanding letters of credit of $22,875,000. There were no cash borrowings outstanding under the agreement as of the end of Fiscal 1998. The agreement requires that, among other things, the Company (24) 29 maintain a minimum net worth of $350,000,000 and not pay dividends on its Common Stock. The Company has formed a trust to which it has transferred, at face value, its interest in receivables created under the Company's proprietary credit card program. The Company, together with the trust, has entered into various agreements whereby it can sell, on a revolving basis, interests in these receivables for a specified term. When the revolving period terminates, an amortization period begins whereby the principal payments are made to the party with whom the trust has entered into the securitization agreement. The Company securitized $376,885,000 and $402,670,000 of credit card receivables in Fiscal 1998 and Fiscal 1997, respectively, and had $313,874,000 of credit card receivables under securitizations outstanding as of January 31, 1998, of which the Company retained an interest equal to $38,893,000 (see "Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements - Asset Securitization" below). These securitization agreements improve the overall liquidity of the Company and lessen the effect of interest rate volatility by providing short-term sources of funding. The agreements provide for the Company to continue to service the credit card receivables and control credit policies. This control allows the Company to fund continued credit card receivable growth and to provide the appropriate customer service and collection activities. Accordingly, its relationship with its credit card customers is not affected by these agreements. The terms of certain of the Company's securitizations require the Company to maintain a certain level of assets, retained by the trust, to absorb potential credit losses. The amounts available to absorb potential credit losses were included in available-for-sale securities and were $12,750,000 and $9,042,000 as of January 31, 1998 and February 1, 1997, respectively, which were held in a cash collateral account. In the event of a deterioration in the performance of the credit card receivables portfolio, the Company will be required to increase its contribution to the cash collateral account through distributions otherwise due to the Company from the trust. In the event the cash collateral account is released to the investors, the Company will have a subordinated interest equal to its contribution to the released amounts. Management does not believe that such events will have a material adverse effect on the Company. If such securitization agreements were to become unavailable to the Company or prohibitively expensive, this could have a material adverse effect on the Company's results of operations and financial position. The Company receives loan servicing proceeds from the Charming Shoppes Master Trust (25) 30 representing income from credit card finance charge income and fees in excess of interest paid to certificate holders, credit losses and other expenses. As a result, although the Company's securitization agreements provide for the Company to continue to service the credit card receivables and control credit policy, a significant decrease in loan servicing proceeds as a result of an increase in interest paid to certificate holders, credit losses or other expenses may result in a material adverse effect on the Company's results of operations. At January 31, 1998, the Company had $12,750,000 of receivables from the credit card securitizations and $38,893,000 of Charming Shoppes Master Trust Certificates, collectively, which will be available first and foremost to satisfy the claims of its creditors, including certain claims of investors in the Charming Shoppes Master Trust. The providers of the credit enhancements and trust investors have no other recourse to the Company. The Company does not receive collateral from any party to the securitization, and the Company does not have any risk of counterparty non-performance. The Company has historically entered into interest-rate swap and interest-rate cap agreements to reduce the impact of increases in interest rates on the Company's floating-rate credit card securitizations. The Company had no interest-rate swap agreements in effect during Fiscal 1998 or Fiscal 1997. The Company has entered into interest-rate cap agreements with an aggregate notional amount of $143.5 million as of the end of Fiscal 1998 (see "Item 8, Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements - Derivative Financial Instruments Held For Purposes Other Than Trading" below). The Company believes that cash flow from operations, its proprietary credit card receivables securitization agreements, its long-term investment portfolio and its $150 million revolving credit facility are sufficient to support current operations. Capital Requirements Capital expenditures amounted to $22.0 million, $11.8 million and $30.0 million in Fiscal 1998, 1997 and 1996, respectively. In Fiscal 1998, such expenditures were for the leasehold improvements and fixtures of new stores, the remodeling and fixturing of existing retail stores, the acquisition of leases for stores to be opened in Fiscal 1999, investment in loss prevention equipment, and an investment in systems technology to complement the Company's merchandising strategies. In Fiscal 1997, such expenditures were primarily for remodeling and fixturing of existing retail stores. In Fiscal 1996, such expenditures were primarily for new store (26) 31 construction, the remodeling and expansion of existing stores and the expansion of the Company's Greencastle, Indiana distribution center. During Fiscal 1999, the Company anticipates capital expenditures of approximately $25 million, which are intended principally for (i) remodeling and fixturing of existing retail stores, (ii) construction and fixturing of new stores and (iii) investment in management information systems technology. The Company plans to open approximately 65 new stores during Fiscal 1999, including 28 which were acquired during January 1998 from a competitor which had closed such locations. It is anticipated that the funds required for capital expenditures will be financed principally through internally generated funds. The Company continually evaluates its real estate portfolio to determine what action, if any, is necessary to maintain or improve sales productivity and store profitability. As a result of this process and the previously mentioned decision to eliminate men's merchandise from the "Fashion Bug" stores (see "1998 STORE RESTRUCTURING AND ELIMINATION OF MEN'S MERCHANDISE FROM THE COMPANY'S "FASHION BUG" STORES"" above and "Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements - Subsequent Event" below), on March 5, 1998, the Company's Board of Directors approved a plan to record a one-time pre-tax charge of approximately $34,000,000 to account for the cost of downsizing approximately 100 stores and closing approximately 65 underperforming stores. The charge is to be recorded during the first quarter of Fiscal 1999 in accordance with Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity," as this plan was approved subsequent to the end of Fiscal 1998. It is currently estimated that cash payments required to execute this plan will be approximately $23,000,000. The Company has estimated debt maturity payments of $16,000 in Fiscal 1999. On November 2, 1997, the Company announced that its Board of Directors approved the repurchase of up to ten million shares of the Company's Common Stock. As of January 31, 1998, the Company had repurchased a total of 5,580,000 shares for $25,382,000. During the first quarter of Fiscal 1999, the Company repurchased an additional 400,000 shares for $1,800,000. These shares are held as treasury stock. The Company will continue to evaluate market conditions to determine if additional shares will be repurchased during Fiscal 1999. The Company has not paid cash dividends since Fiscal 1996. On October 2, 1995, the Company's Board of Directors announced an indefinite suspension of dividends on the Company's Common Stock. In addition, the Company's (27) 32 revolving credit facility (discussed above) requires the Company to refrain from paying dividends on its Common Stock during the term of such agreement. Impact of Year 2000 Since Fiscal 1997 the Company has been in the process of modifying or replacing its existing computer systems to make them Year 2000 compliant. It is anticipated that this project will be completed during the fiscal year ending January 29, 2000 ("Fiscal 2000"). The Company currently estimates that the total cost of achieving compliance will range between $1,500,000 and $2,500,000 over the period from Fiscal 1997 through Fiscal 2000. The Company has also initiated discussions with its significant vendors to ensure that these parties have appropriate plans to remediate Year 2000 issues. Inflation The Company's financial statements are presented on a historical cost basis. The Company believes that the impact of inflation during Fiscal 1998 has not been material to its financial condition and results of operations. Impact of Recent Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." These statements are required to be adopted by the Company as of the beginning of Fiscal 1999. SFAS No. 130 requires disclosure of transactions from non-owner sources which affect stockholders' equity in a separate financial statement for the period in which they are recognized. SFAS No. 131 requires disclosure of certain information about operating segments, products and services, geographic areas of operations and major customers and the factors used by management to determine reportable segments. The adoption of these statements will not affect the Company's financial position or results of operations. Management has not completed its determination of the effect these statements will have on financial statement disclosures. (28) 33 Item 7a. Quantitative and Qualitative Disclosures About Market Risk The Company operates a credit card banking subsidiary. Its primary activity is to service its own private label credit card account portfolio, the balances of which were sold under a credit card securitization program. Under the securitization program, the Company may be exposed to fluctuations in interest rates to the extent that a portion of the investor certificates are floating-rate instruments. The Company manages a portion of its interest rate risk through the use of derivative instruments that cap a portion of interest rate risk. The Company regularly monitors interest rate fluctuations and the business implications such rate changes may have to the value of its private label credit card program and matches such interest rate risk to each asset it then securitizes. As of January 31, 1998, rate exposure to floating-rate-interest instruments represented approximately $84 million, or approximately 26% of all securitized assets under the credit card receivable program. The credit card banking subsidiary has no interest rate risk other than the instruments identified. Certain interest rate cap agreements protect both asset-backed-certificate investors and the Company to the extent that short-term interest rates were to exceed 9% and 12%. To the extent that short-term interest rates were to increase by one percentage point by the end of the next fiscal year, an increase of approximately $306,000 in selling, general and administrative expenses would result. Conversely, a decrease by one percentage point would result in a corresponding decrease in selling, general and administrative expenses. Such increase or decrease would not have been material to the Company's Fiscal 1998 results of operations or financial condition. (29) 34 Item 8. Financial Statements and Supplementary Data REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Stockholders and Board of Directors Charming Shoppes, Inc. We have audited the accompanying consolidated balance sheets of Charming Shoppes, Inc. and subsidiaries as of January 31, 1998 and February 1, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three fiscal years in the period ended January 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Charming Shoppes, Inc. and subsidiaries at January 31, 1998 and February 1, 1997, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 31, 1998, in conformity with generally accepted accounting principles. As discussed in the Notes to Consolidated Financial Statements, the Company changed its method of accounting for asset securitizations as of January 1, 1997. ERNST & YOUNG LLP Philadelphia, Pennsylvania April 24, 1998 (30) 35 Charming Shoppes, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
January 31, February 1, (dollars in thousands except per share amounts 1998 1997 ----------- ----------- ASSETS Current Assets Cash and Cash Equivalents ............................. $ 12,349 $ 78,979 Available-for-Sale Securities [including fair value adjustments of $37 as of January 31, 1998 and ($2) as of February 1, 1997] ............... 84,909 55,856 Income Tax Refund Receivable .......................... 0 3,836 Merchandise Inventories ............................... 175,785 193,977 Deferred Taxes ........................................ 863 3,277 Prepayments and Other ................................. 31,975 30,301 ----------- ----------- Total Current Assets .................................. 305,881 366,226 ----------- ----------- Property, Equipment and Leasehold Improvements - at Cost .............................. 443,017 438,933 Less: Accumulated Depreciation and Amortization ....... 257,013 238,539 ----------- ----------- Net Property, Equipment and Leasehold Improvements .... 186,004 200,394 ----------- ----------- Available-for-Sale Securities [including fair value adjustments of $474 as of January 31, 1998 and $220 as of February 1, 1997] ........................ 207,191 119,975 Other Assets .......................................... 10,662 23,802 ----------- ----------- Total Assets .......................................... $709,738 $710,397 =========== ===========
See Notes to Consolidated Financial Statements. (31) 36 Charming Shoppes, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (Continued)
January 31, February 1, (dollars in thousands except per share amounts) 1998 1997 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable .................................... $ 53,623 $ 55,501 Accrued Expenses .................................... 82,911 86,565 Income Taxes Payable ................................ 6,123 0 Current Portion - Long-Term Debt .................... 16 16 ----------- ----------- Total Current Liabilities ........................... 142,673 142,082 ----------- ----------- Deferred Taxes ...................................... 12,139 9,152 Long-Term Debt ...................................... 138,116 138,128 Stockholders' Equity Common Stock $.10 par value Authorized - 300,000,000 shares Issued - 106,249,385 shares and 105,470,251 shares 10,625 10,547 Additional Paid-In Capital .......................... 64,019 62,818 Treasury stock at cost - 5,580,000 shares ........... (25,382) 0 Deferred Employee Compensation ...................... (1,073) (1,444) Unrealized Gains on Available-for-Sale Securities [net of income tax expense of $179 as of January 31, 1998 and $59 as of February 1, 1997] .......... 332 159 Retained Earnings ................................... 368,289 348,955 ----------- ----------- Total Stockholders' Equity .......................... 416,810 421,035 ----------- ----------- Total Liabilities and Stockholders' Equity .......... $ 709,738 $ 710,397 =========== ===========
Certain prior-year amounts have been reclassified to conform to current- year presentation. See Notes to Consolidated Financial Statements. (32) 37 Charming Shoppes, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended (in thousands except January 31, February 1, February 3, per share amounts) 1998 1997 1996 ----------- ----------- ----------- Net Sales ....................... $ 1,016,537 $ 1,016,297 $ 1,102,384 Other Income .................... 15,986 7,464 5,655 ----------- ----------- ----------- Total Revenue ................... 1,032,523 1,023,761 1,108,039 ----------- ----------- ----------- Cost of Goods Sold, Buying and Occupancy Expenses ............ 772,709 782,671 917,064 Selling, General and Administrative Expenses ....... 233,020 241,431 299,297 Non-recurring Gain from Asset Securitization ................ (13,018) 0 0 Restructuring Charge ............ 0 0 103,000 Interest Expense ................ 10,390 9,579 3,666 ----------- ----------- ----------- Total Expenses .................. 1,003,101 1,033,681 1,323,027 ----------- ----------- ----------- Income (Loss) Before Income Taxes 29,422 (9,920) (214,988) Income Tax (Benefit) Expense .... 10,088 (2,683) (75,747) ----------- ----------- ----------- Net Income (Loss) ............... $ 19,334 $ (7,237) $ (139,241) =========== =========== =========== Per Share Data Net Income (Loss) ............... $ .18 $ (.07) $ (1.35) Cash Dividends .................. $ .00 $ .00 $ .045
The fiscal year ended February 3, 1996 consists of 53 weeks. See Notes to Consolidated Financial Statements. (33) 38 Charming Shoppes, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended January 31, February 1, February 3, (in thousands) 1998 1997 1996 ----------- ----------- ----------- Operating Activities Net Income (Loss) ...................... $ 19,334 $ (7,237) $(139,241) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided By (Used In) Operating Activities: Deferred Income Taxes ................ 5,401 773 (21,065) Depreciation and Amortization ........ 40,092 45,089 46,988 Amortization of Deferred Compensation 718 2,994 2,195 Non-recurring Gain from Asset Securitization ..................... (13,018) 0 0 (Gain) Loss from Disposition of Capital Assets ..................... (2,107) (2,115) 37,546 Tax Expense Related to Stock Plans ... (78) (505) (373) Net (Gain) Loss on Sale of Available- for-Sale Securities ................ (109) 0 44 Changes in Operating Assets and Liabilities: Income Tax Refund Receivable ....... 3,836 53,066 (49,460) Merchandise Inventories ............ 18,192 26,873 37,702 Accounts Payable ................... (1,878) 15,030 (14,289) Prepayments and Other .............. (2,266) 17,842 33,853 Income Taxes Payable ............... 6,003 0 0 Accrued Expenses ................... 9,364 (20,411) 10,666 ----------- ----------- ----------- Net Cash Provided By (Used In) Operating Activities ................. 83,484 131,399 (55,434) ----------- ----------- -----------
The fiscal year ended February 3, 1996 consists of 53 weeks. Certain prior-year amounts have been reclassified to conform to current-year presentation. See Notes to Consolidated Financial Statements. (34) 39 Charming Shoppes, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended January 31, February 1, February 3, (in thousands) 1998 1997 1996 ----------- ----------- ----------- Investing Activities Gross Purchases of Available-for-Sale Securities ............................. (419,983) (190,569) (30,525) Proceeds from Sales of Available-for- Sale Securities ........................ 304,189 56,462 108,898 Investment in Capital Assets ............. (22,001) (11,802) (30,007) Proceeds from Sales of Capital Assets .... 3,565 9,141 0 Decrease in Other Assets ................. 7,908 7,376 8,703 ----------- ----------- ----------- Net Cash Provided By (Used In) Investing Activities ................... (126,322) (129,392) 57,069 ----------- ----------- ----------- Financing Activities Purchases of Treasury Stock .............. (25,382) 0 0 Proceeds from Exercise of Stock Options .. 1,602 6,644 562 Reduction of Long-Term Borrowings ........ (12) (95,649) (9,369) Reduction of Short-Term Borrowings ....... 0 (761,097) (247,822) Proceeds from Long-Term Borrowings ....... 0 138,000 0 Proceeds from Short-Term Borrowings ...... 0 761,097 247,822 Underwriting Discounts and Commissions on Long-Term Borrowings ................ 0 (4,140) 0 (Increase) Decrease in Restricted Cash ... 0 7,000 (7,000) Dividends Paid ........................... 0 0 (4,634) ----------- ----------- ----------- Net Cash Provided By (Used In) Financing Activities ............................. (23,792) 51,855 (20,441) ----------- ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents ............................ (66,630) 53,862 (18,806) Cash and Cash Equivalents, Beginning of Year ................................ 78,979 25,117 43,923 ----------- ----------- ----------- Cash and Cash Equivalents, End of Year.... $ 12,349 $ 78,979 $ 25,117 =========== =========== ===========
The fiscal year ended February 3, 1996 consists of 53 weeks. See Notes to Consolidated Financial Statements. (35) 40 Charming Shoppes, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Common Stock Paid-in Treasury Stock (dollars in thousands) Shares Amount Capital Shares Amount ------------ -------- ---------- ---------- -------- Balance, January 28, 1995 ...... 102,894,239 $ 10,289 $ 55,176 0 $ 0 Issued to Employees, Net ....... 88,406 9 (169) Exercise of Stock Options ...... 270,005 27 279 Tax Expense - Employee Stock Programs ..................... (373) ------------ -------- ---------- ---------- -------- Balance, February 3, 1996 ...... 103,252,650 10,325 54,913 0 0 Issued to Employees, Net ....... 475,698 48 2,162 Exercise of Stock Options ...... 1,741,903 174 6,248 Tax Expense - Employee Stock Programs ..................... (505) ------------ -------- ---------- ---------- -------- Balance, February 1, 1997 ...... 105,470,251 10,547 62,818 0 0 Issued to Employees, Net ....... 286,627 29 (23) Exercise of Stock Options ...... 492,507 49 1,302 Purchases of Treasury Stock .... (5,580,000) (25,382) Tax Expense - Employee Stock Programs ..................... (78) ------------ -------- ---------- ---------- -------- Balance January 31, 1998 ....... 106,249,385 $ 10,625 $ 64,019 (5,580,000) $(25,382) ============ ======== ======== ========== ========
See Notes to Consolidated Financial Statements. (36) 41 Charming Shoppes, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
Unrealized Gains Deferred (Losses) on Employee Available-For-Sale Retained (in thousands) Compensation Securities Earnings ------------ ------------------ --------- Balance, January 28, 1995 .. $(5,025) $(1,685) $ 500,067 Issued to Employees, net ... 416 Amortization ............... 2,195 Unrealized Gains [net of income taxes of ($914)] .. 1,698 Cash Dividends ............. (4,634) Net Loss ................... (139,241) ------- ------- --------- Balance, February 3, 1996 .. (2,414) 13 356,192 Issued to Employees, net ... (2,024) Amortization ............... 2,994 Unrealized Gains [net of income taxes of ($50)] ... 146 Net Loss ................... (7,237) ------- ------- --------- Balance, February 1, 1997 .. (1,444) 159 348,955 Issued to Employees, net ... (347) Amortization ............... 718 Unrealized Gains [net of income taxes of ($120)] .. 173 Net Income ................. 19,334 ------- ------- --------- Balance, January 31, 1998 .. $(1,073) $ 332 $ 368,289 ======= ======= =========
See Notes to Consolidated Financial Statements. (37) 42 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business The Company operates a chain of specialty stores located throughout the continental United States which merchandises moderately priced junior, misses, large-size and girls-size sportswear, dresses, coats, lingerie, accessories and casual footwear. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions are eliminated. The parent and its subsidiaries have a 52-53 week fiscal year ending the Saturday nearest January 31. Foreign Operations The Company follows the practice of using a December 31 fiscal year for all foreign subsidiaries in order to expedite the year-end closing. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. These amounts are stated at cost, which approximates market value. Investments The Company's investments are classified as available-for-sale. These securities are carried at fair value and unrealized gains and losses are reported in a separate component of stockholders' equity. The cost of investments is adjusted for amortization of premiums and the accretion of discounts to maturity. Such amortization is included in other income. Realized gains and losses and interest from investments are also included in other income. The cost of securities sold is based on the specific identification method. Short-term investments include investments with an (38) 43 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 original maturity of greater than three months and a remaining maturity of less than one year. Inventories Merchandise inventories are valued at the lower of cost or market as determined by the retail method (average cost basis). Property and Depreciation Depreciation and amortization for financial reporting purposes are principally computed by the straight-line method over the estimated useful lives of the assets, or in the case of leasehold improvements, over the lives of the respective leases. Accelerated depreciation methods are used for income tax reporting purposes. Depreciation expense was $35,307,000, $39,378,000 and $44,126,000 in Fiscal 1998, 1997 and 1996, respectively. Asset Securitizations In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which was effective January 1, 1997 and which establishes the accounting for certain financial asset transfers, including securitization transactions. As a result of the adoption of SFAS No. 125 in January 1997, the Company recorded as an asset on the balance sheet the retained rights to future interest income from the sold credit card receivables that exceed the contractual servicing fee (i.e., interest-only strips) and recorded a liability on the balance sheet for its costs associated with its future servicing obligations associated with the sold credit card receivables. The Company prospectively adopted the requirements of SFAS No. 125 for the securitization of its proprietary credit cards. The incremental effect of applying the new requirements was to increase income before income taxes in Fiscal 1998 by $3,941,000. The adoption of SFAS No. 125 did not have a material impact on the Fiscal 1997 financial statements.Transaction expenses related to securitizations are deferred and amortized over the reinvestment period of the transaction. Net securitization income is included as a reduction of selling, general and administrative expenses in the accompanying statements of income. Interest Rate Cap Agreements The Company purchases interest-rate cap agreements that are designed to limit its exposure to increasing interest rates and are designated as hedges of its asset-backed certificates issued in connection with its (39) 44 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 credit card securitizations. An interest rate cap entitles the Company to receive a payment from the counterparty equal to the excess, if any, of the hypothetical interest expense (strike price) on a specified notional amount at a current market interest rate over an amount specified in the agreement. The only amount the Company is obligated to pay to the counterparty is an initial premium. The strike price of these agreements exceeds the current market levels at the time they are entered into. The interest rate indices specified by the agreements have been, and are expected to be, highly correlated with the interest rates the Company incurs on its asset-backed certificates. Payments to be received as a result of the specified interest rate index exceeding the strike price are accrued in other assets and are recognized as a reduction of selling, general and administrative expenses (the accrual accounting method). The cost of these agreements is included in other assets and amortized to selling, general and administrative expenses ratably during the life of the agreement. Upon termination of an interest-rate cap agreement, to the extent it represents the value attributable to the market interest rate exceeding the strike rate of the cap and it continues to be probable that asset-backed certificates of at least as much as the notional amount of the terminated cap will be outstanding, the gain is deferred in other liabilities and amortized over the remaining term of the original contractual life of the agreement as a reduction of selling, general and administrative expenses. Additional gains or losses are recognized in earnings. Any notional amounts of agreements in excess of the balance of asset-backed certificates to be outstanding during their terms would be marked to market, with changes in market value recorded in selling, general and administrative expenses. Common Stock Plans The Company accounts for stock compensation in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and its related interpretations. Deferred compensation expense relating to Employee Stock Option and Stock Incentive Plans is amortized over the required employment period. No compensation expense is recognized for the Company's option plans which have an exercise price equal to the market price on the date of grant or for the Company's Employee Stock Purchase Plan. The Company has adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," as of Fiscal 1997. (40) 45 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 Advertising Costs The Company expenses advertising costs as incurred. Advertising costs charged to expense were $22,677,000, $23,583,000 and $26,211,000 in Fiscal 1998, 1997 and 1996, respectively. Income Taxes The Company uses the liability method of accounting for income taxes as prescribed by SFAS No. 109, "Accounting for Income Taxes." Under the liability method, deferred tax assets and liabilities are adjusted to reflect the effect of changes in enacted tax rates on expected reversals of financial statement and income tax carrying value differences. U.S. income taxes have not been provided on undistributed earnings of foreign subsidiaries accumulated prior to January 31, 1998 because the Company intends to reinvest such undistributed earnings in the operations. Presently, income taxes would not be significantly increased if such earnings were remitted because of available foreign tax credits. Net Income (Loss) Per Share The Company has adopted the provisions of SFAS No. 128, "Earnings per Share," as of the beginning of Fiscal 1998. Prior-period amounts have been restated to conform to the current presentation. Adoption of SFAS No. 128 did not have a material impact on the Company's financial statements. Net income (loss) per share is based on the weighted average number of common shares outstanding during each fiscal year. Net income per share assuming dilution is based on the weighted average number of common shares and share equivalents outstanding. Common share equivalents include the effect of dilutive stock options, using the treasury stock method. Share equivalents are not included in the weighted average shares outstanding for determining net loss per share as the result would be antidilutive. Impact of Recent Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." These statements are required to be adopted by the Company as of the beginning of Fiscal 1999. SFAS No. 130 requires disclosure of transactions from non-owner sources which affect stockholders' equity in a separate financial statement for the period in which they are recognized. SFAS No. 131 requires disclosure of certain information about operating segments, products and services, geographic (41) 46 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 areas of operations and major customers and the factors used by management to determine reportable segments. The adoption of these statements will not affect the Company's financial position or results of operations. Management has not completed its determination of the effect these statements will have on financial statement disclosures. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Lives (in thousands) (Years) 1998 1997 -------- -------- -------- Land ............................ $ 4,014 $ 4,014 Buildings and Improvements ...... 10 to 33 67,129 65,606 Store Fixtures .................. 5 to 10 100,543 105,094 Equipment ....................... 3 to 10 128,338 118,679 Leasehold Improvements .......... 10 to 20 142,993 145,540 -------- -------- Total at Cost ................... 443,017 438,933 Less Accumulated Depreciation and Amortization .............. 257,013 238,539 -------- -------- $186,004 $200,394 ======== ========
(42) 47 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 AVAILABLE-FOR-SALE SECURITIES
Unrealized Estimated (in thousands) Cost Gains Losses Fair Value -------- ----- ---------- ---------- January 31, 1998 U. S. Treasury and Government Agency Bonds ...................... $233,156 $ 635 $ (124) $233,667 Charming Shoppes Master Trust Certificates ...................... 38,893 0 0 38,893 Charming Shoppes Master Trust Note .. 12,750 0 0 12,750 Low Income Housing Partnerships ..... 6,503 0 0 6,503 Other ............................... 287 0 0 287 -------- ----- ---------- ---------- $291,589 $ 635 $ (124) $292,100 ======== ===== ========== ========== February 1, 1997 U. S. Treasury and Government Agency Bonds ...................... $134,881 $ 305 $ (87) $135,099 Charming Shoppes Master Trust Certificates ...................... 25,856 0 0 25,856 Charming Shoppes Master Trust Note .. 9,042 0 0 9,042 Low Income Housing Partnerships ..... 5,550 0 0 5,550 Other ............................... 284 0 0 284 -------- ----- ---------- ---------- $175,613 $ 305 $ (87) $175,831 ======== ===== ========== ==========
Gross realized gains and (losses) on available-for-sale securities were $223,000 and $(114,000), respectively, during Fiscal 1998. There were no realized gains or losses on available-for-sale securities during Fiscal 1997. (43) 48 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 Contractual maturities of available-for-sale securities at January 31, 1998 were:
Estimated (in thousands) Cost Fair Value -------- ---------- Due in One Year or Less ................ $ 74,077 $ 74,114 Due After One Year Through Five Years .. 200,214 200,688 -------- -------- 274,291 274,802 Equity Securities ...................... 6,503 6,503 -------- -------- $280,794 $281,305 ======== ========
INCOME TAXES Income (loss) before income taxes:
(in thousands) 1998 1997 1996 -------- --------- --------- Domestic ..... $ 27,853 $ (9,268) $(212,698) Foreign ...... 1,569 (652) (2,290) -------- --------- --------- $ 29,422 $ (9,920) $(214,988) ======== ========= =========
(44) 49 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 Income tax (benefit) expense:
(in thousands) 1998 1997 1996 -------- -------- -------- Current: Federal .... $ 6,376 $ (3,394) $(56,953) State ...... 2,061 583 591 Foreign .... 4 (351) 1,680 -------- -------- -------- 8,441 (3,162) (54,682) -------- -------- -------- Deferred: Federal .... 2,776 624 (19,026) State ...... (779) (385) (2,039) Foreign .... (350) 240 0 -------- -------- -------- 1,647 479 (21,065) -------- -------- -------- $ 10,088 $ (2,683) $(75,747) ======== ======== ========
The Company made income tax payments of $2,000,000, $1,367,000 and $3,531,000 during Fiscal 1998, 1997 and 1996, respectively. Reconciliation of the effective tax rate with the statutory Federal income tax rate:
1998 1997 1996 ------ ------- ------- Statutory Federal Income Tax (Benefit) Rate ................ 35.0% (35.0)% (35.0)% State Income Tax (Benefit), Net of Federal Income Tax ......... 2.8 1.3 (0.4) Foreign Income .................. (3.0) 1.2 1.1 Investment Income ............... 0.0 0.0 (0.3) Employee Benefits ............... (0.2) 3.1 (1.6) Other, Net ...................... (0.3) 2.3 1.0 ------ ------- ------- 34.3% (27.1)% (35.2)% ====== ======= =======
(45) 50 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 The components of deferred tax assets and liabilities:
Net Current Net Long-Term Assets Assets (in thousands) (Liabilities) (Liabilities) ----------- ------------- January 31, 1998 Property, Equipment and Leasehold Improvements .................... $(17,645) Tax Credit Carryforwards .......... 11,722 Accrued Expenses .................. $ 2,388 Inventory ......................... (7,430) Deferred Employee Compensation .... 2,333 Prepaid Employee Benefits ......... 1,495 Investments ....................... (2,729) Deferred Rent ..................... 2,783 Other ............................. 1,627 (5,820) ----------- ------------- $ 863 $(12,139) =========== ============= February 1, 1997 Property, Equipment and Leasehold Improvements .................... $(17,390) Tax Credits and Operating Loss Carryforwards ................... 12,891 Inventory ......................... $ (6,425) Deferred Employee Compensation .... 3,306 Prepaid Employee Benefits ......... 1,500 Accounts Receivable ............... 3,484 Deferred Rent ..................... 2,896 Other ............................. 1,822 (7,959) ----------- ------------- $ 3,277 $ (9,152) =========== =============
At January 31, 1998, the Company had Alternative Minimum Tax and General Business Credit carryforwards of $11,722,000. The tax credit carryforwards do not expire. (46) 51 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 NET INCOME (LOSS) PER SHARE
(in thousands except per-share amounts) 1998 1997 1996 -------- --------- --------- Net Income (Loss) ................... $ 19,334 $ (7,237) $(139,241) Weighted Average Common Shares Outstanding ....................... 105,678 104,616 103,038 Basic Net Income (Loss) per Share ... $ .18 $ (.07) $ (1.35) Dilutive Effect of Stock Options .... 1,403 0 0 Weighted Average Common Shares and Equivalents Outstanding ....... 107,081 104,616 103,038 Diluted Net Income (Loss) per Share . $ .18 $ (.07) $ (1.35)
Options to purchase 4.0 million, 3.0 million and 9.3 million shares of Common Stock at a weighted average exercise price of $8.49, $10.09 and $8.05 per share were outstanding at January 31, 1998, February 1, 1997 and February 3, 1996, respectively, but were not included in the computation of diluted net income (loss) per share because the option exercise prices were greater than the average market price of the Company's Common Stock. The effect of an assumed conversion of the Company's Convertible Notes were excluded from the computation of diluted net income (loss) per share because the effect would have been antidilutive. Options to purchase 1.9 million and 2.0 million shares of Common Stock at February 1, 1997 and February 3, 1996, respectively, with exercise prices below the average market price of the Company's Common Stock, were excluded from the calculation of diluted net loss per share because the effect would have been antidilutive. (47) 52 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 DEBT Long-term debt at year end:
(in thousands) 1998 1997 -------- -------- 7.5% Convertible Subordinated Notes Due 2006............................. $138,000 $138,000 Other.................................. 132 144 -------- -------- Total Long-Term Debt................... 138,132 138,144 Less Current Portion................... 16 16 -------- -------- $138,116 $138,128 ======== ========
The 7.5% Convertible Subordinated Notes (the "Notes") are convertible at any time prior to maturity into shares of Common Stock of the Company at a conversion price of $7.46 per share. The Notes are redeemable at the Company's option, in whole or in part, on or after July 15, 1999, at declining redemption prices, starting at 103.750% of principal and decreasing to 100% on or after July 15, 2005. Under certain circumstances involving a change of control of the Company, holders of the Notes may require the Company to repurchase all or a portion of the Notes at 100% of the principal amount plus accrued and unpaid interest, if any. There is no sinking fund for the Notes. The Company has an agreement with a commercial finance company to provide a revolving credit facility with a maximum availability of $150,000,000, subject to limitations based upon eligible inventory. The primary purpose of the facility, which expires June 1, 1998, is to enable the Company to issue letters of credit for overseas purchases of merchandise as well as to provide for seasonal cash borrowings. The facility is secured by merchandise inventory, furniture and fixtures within retail stores and certain other Company assets. The interest rate on borrowings is 0.75% above the Prime rate. There is a fee of .375% on the unused portion of the first $105,000,000 of the facility, and an annual servicing fee of $100,000. As of January 31, 1998, the availability under the facility was approximately $98,356,000, against which the Company had outstanding (48) 53 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 letters of credit of $22,875,000. There were no cash borrowings outstanding under the agreement as of January 31, 1998. The agreement requires that, among other things, the Company maintain a minimum net worth of $350,000,000 and not pay dividends on its Common Stock. During Fiscal 1998, 1997 and 1996, the Company made interest payments of $10,361,000, $9,357,000 and $4,267,000, respectively. Aggregate maturities of long-term debt during the next five fiscal years are: 1999 - $16,000, 2000 - $16,000, 2001 - $16,000, 2002 - $84,000, and 2003 - $0. STOCKHOLDERS' EQUITY The Company's capital consists of 1,000,000 shares of Series Participating Preferred Stock, $1.00 par value, of which 300,000 shares of Participating Series A Junior Preferred Stock, $1.00 par value have been authorized; and 300,000,000 shares of Common Stock, $.10 par value. On November 19,1997, the Board of Directors approved the repurchase of up to 10,000,000 shares of the Company's Common Stock. Shares repurchased will be held as treasury stock available for use under the Company's employee benefits program or for other corporate purposes. In Fiscal 1998 the Company purchased 5,580,000 shares at an aggregate cost of $25,382,000. STOCK OPTION AND STOCK INCENTIVE PLANS At January 31, 1998, the Company had various stock-based compensation plans, which are described below. The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its stock plans. Accordingly, no compensation has been recognized in the financial statements for options issued under such plans with an exercise price equal to the market price of the Company's Common Stock at the date of grant. In addition, no compensation expense has been recognized for shares of stock issued under the Company's Employee Stock Purchase Plan. Compensation cost recognized in the financial statements for discounted stock options, restricted stock awards and performance share awards granted was $718,000, $2,994,000 and $2,195,000 in Fiscal 1998, 1997 (49) 54 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 and 1996, respectively. Had compensation cost for the Company's stock-based compensation plans been determined using fair values at the grant dates for awards under those plans (as defined by SFAS No. 123, "Accounting for Stock-based Compensation"), the Company's net income (loss) and net income (loss) per share would have changed to the pro forma amounts shown below:
(in thousands except per-share data) 1998 1997 1996 ------- ------- --------- Net Income (Loss) As Reported.............. $19,334 $(7,237) $(139,241) Pro forma................ 17,690 (8,281) (139,847) Net Income (Loss) Per Share As reported.............. $.18 $(.07) $(1.35) Pro forma................ $.17 (.08) (1.36)
For purposes of determining the pro forma disclosures, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions used for each year except as otherwise indicated: dividend yield of 0%; expected volatility of 37.6%; risk-free interest rates of 5.33% (Fiscal 1998) and 5.21% (Fiscal 1997 and Fiscal 1996) for the Employee Stock Purchase Plan; risk-free interest rates of 5.55% (Fiscal 1998) and 6.18% (Fiscal 1997 and Fiscal 1996) for stock option and stock incentive plans; and expected lives of 3 months for the Employee Stock Purchase Plan, 1 to 3 years for stock award plans, and 6 years for stock option and stock incentive plans. In accordance with the transition provisions of SFAS No. 123, the pro forma disclosures presented above reflect the statement's application only to option grants and stock awards dated on or after January 29, 1995. Therefore, because option grants and awards generally vest over several years and additional awards are expected to be made in the future, the pro forma results should not be considered to be representative of the effects on reported results for future years. The Company's 1993 Employee Stock Incentive Plan provides for the grant of options to purchase up to 9,000,000 shares of Common Stock plus 9% of shares issued by the Company after the effective date of the plan and any shares available but unissued under the 1990 Plan described below. The (50) 55 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 form of the grants and exercise price, where applicable, are at the discretion of the Board of Directors and the Stock Option Committee of the Board of Directors. The maximum term of options issued under the plan is ten years. As of January 31, 1998 and February 1, 1997, 1,852,420 options and 1,246,920 options, respectively, were exercisable under this plan. During Fiscal 1998 and Fiscal 1997, 13,992 shares and 400,000 shares, respectively, of Restricted Stock were awarded and issued at no cost under this plan. These shares had grant date fair values ranging from $3.94 to $5.81 per share. The Company's 1990 Employees' Stock Incentive Plan provides for the grant of options to purchase Common Stock to key employees of the Company. The exercise price of such options may not be less than the fair market value at the date of grant. As a result of adoption of the 1993 Employees' Stock Incentive Plan, the Company no longer intends to issue shares under this Plan. As of January 31, 1998 and February 1, 1997, 3,901,494 options and 4,016,191 options, respectively, were exercisable under this plan. The Company's 1989 Non-Employee Director Stock Option Plan provides for the grant of options to purchase up to 30,000 shares of Common Stock to each member of the Board of Directors who is not an employee of the Company. The exercise price of such options shall be equal to the fair market value of the stock on the date of grant. As of January 31, 1998 and February 1, 1997, 144,000 options and 126,000 options, respectively, were exercisable under this plan. The Company's 1988 Key Employee Stock Option Plan provides for the grant of options to purchase up to 3,000,000 shares of Common Stock to key employees of the Company. The exercise price of options granted under this plan is $1.00 per share. As of January 31, 1998 and February 1, 1997, 791,925 options and 961,242 options, respectively, were exercisable under this plan. (51) 56 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 The table below summarizes the activity in all Stock Option Plans:
Average Option Option Option Prices Shares Price Per Share ----------- ------------- ------------- Outstanding at January 28, 1995 ........ 11,498,301 $ 6.818 $ .222-17.000 Granted ................................ 3,976,800 5.089 1.000- 6.125 Canceled/Forfeited ..................... (2,099,554) 9.403 .500-17.000 Exercised .............................. (270,005) 1.134 .222- 4.500 ----------- ------------- ------------- Outstanding at February 3, 1996 ........ 13,105,542 5.996 .222-17.000 Granted-Option Price Equal to Market ... 1,551,940 4.060 3.937- 7.688 Granted-Option Price Less Than Market .. 24,800 1.000 1.000- 1.000 Canceled/Forfeited ..................... (2,069,005) 9.100 .500-15.750 Exercised .............................. (1,741,903) 3.687 .500- 6.187 ----------- ------------- ------------- Outstanding at February 1, 1997 ........ 10,871,374 5.450 .222-17.000 Granted-Option Price Equal to Market ... 1,177,000 5.948 5.063- 6.188 Granted-Option Price Less Than Market .. 35,600 1.000 1.000- 1.000 Canceled/Forfeited ..................... (812,295) 6.733 .500-15.750 Expired ................................ (165,900) 5.813 5.813- 5.813 Exercised .............................. (493,668) 2.751 .333- 6.000 ----------- ------------- ------------- Outstanding at January 31, 1998 ........ 10,612,111 $ 5.512 $ .222-17.000 =========== ============= =============
The weighted average grant date fair value for options granted during Fiscal 1998, as determined under SFAS No. 123 using the Black-Scholes model and assumptions described above, was $2.69 for options granted with an option price equal to market and $5.25 for options granted with an option price less than market. (52) 57 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 The table below summarizes information regarding weighted average exercise price and weighted average remaining contractual life in years for options outstanding and options exercisable as of January 31, 1998 for the ranges of exercise prices shown:
Weighted Weighted Average Average Ranges of Option Option Remaining Option Prices Shares Price Life - ------------- -------- -------- --------- $0.00-$1.00: Options Outstanding .. 889,359 $ .549 2.9 Options Exercisable .. 791,925 .494 2.3 $1.01-$5.00: Options Outstanding .. 5,890,104 $ 4.308 4.6 Options Exercisable .. 4,201,104 4.411 3.3 $5.01-$10.00: Options Outstanding .. 2,490,218 $ 6.026 7.5 Options Exercisable .. 702,700 6.131 5.3 $10.01-$17.00: Options Outstanding .. 1,342,430 $13.157 5.2 Options Exercisable .. 996,510 13.395 5.1
At January 31, 1998, 2,929,221 shares were available for future grant under the 1988 Key Employee Stock Option and the 1993 Employees' Stock Incentive plans. The Company's Restricted Stock Award Plan for Associates was adopted by the Company's Board of Directors on January 26, 1995. The plan provides for discretionary awards of rights to receive up to 200,000 shares of restricted Common Stock to associates who are not directors or executive officers of the Company. Associates will pay no cash consideration for restricted stock received under an award. During Fiscal 1998 and Fiscal 1997, no rights were granted under this plan. During Fiscal 1998 and Fiscal 1997, 11,229 shares and 15,600 shares, respectively, were issued under this plan. (53) 58 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 The Company's Non-Employee Director Compensation Program and the Compensation Program for the Non-Employee Chairman of the Board of Directors were adopted on August 21, 1996 and approved by shareholders on June 19, 1997. These programs stipulate that, effective June 27, 1996, 60% of Non-Employee Director and 50% of Non-Employee Chairman compensation shall be paid in Common Stock of the Company. During Fiscal 1998 and Fiscal 1997, rights to receive 44,949 shares and 37,013 shares, respectively, have been granted under these Plans. During Fiscal 1998, 81,962 shares have been issued under these plans. The weighted average fair value at date of grant for shares granted in Fiscal 1998 was $5.21. The Company's 1996 Restricted Stock Award Program provides for the grant of rights to receive shares of the Company's Common Stock subject to attainment of specified performance goals for Fiscal 1997. During Fiscal 1997, a total of 334,024 rights to receive shares were granted under the Plan. These shares had a grant date fair value of $3.938. In March 1997, 225,107 shares were issued and the remaining rights were canceled. Associates pay no cash consideration for shares received under the plan. The shares issued and options granted under the above plans are subject to forfeiture if the employees do not remain employed by the Company for a specified period of time, or, in the case of the 1989 Non-Employee Director Stock Option Plan, the Non-Employee Director Compensation Program and the Compensation Program for the Non-Employee Chairman of the Board of Directors, if the individual ceases to remain a Director of the Company. EMPLOYEE STOCK PURCHASE PLAN The Company's 1994 Employee Stock Purchase Plan permits employees to purchase shares during each quarterly offering period at a price equal to 85% of the market price of the Company's Common Stock on either the first day of the offering period or the fifth business day after the end of the offering period, whichever is lower. The shares are purchased through the accumulation of payroll deductions of up to 10% of each participating employee's compensation during such offering period. Under this plan, 2,000,000 shares have been reserved for grant. During Fiscal 1998 and Fiscal 1997, 32,323 shares and 60,098 shares, respectively, were purchased under the plan. The weighted average grant date fair value for shares (54) 59 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 purchased during Fiscal 1998 was $5.313 per share. At January 31, 1998, 1,818,953 shares were available for future purchase under this plan. SHAREHOLDER RIGHTS PLAN In April 1989, the Board of Directors adopted a Shareholder Rights Plan and declared a dividend of one Right for each outstanding share of Common Stock. In connection with the Company's two-for-one stock split which was effected on December 7, 1992, the number of Rights associated with each outstanding share of Common Stock was adjusted from one Right per share of Common Stock to one-half of a Right per share of Common Stock. Such Rights only become exercisable or transferable apart from the Common Stock ten days after a person or group (Acquiring Person) acquires beneficial ownership of, or commences a tender or exchange offer for, twenty percent (20%) or more of the Company's outstanding common shares. Each Right then may be exercised to acquire one three-hundredth of a share of newly created Series A Junior Participating Preferred Stock or a combination of securities and assets of equivalent value at a price of $70, subject to adjustment. Upon the occurrence of certain events (for example, if the Company is a surviving corporation in a merger with an Acquiring Person), the Rights entitle holders other than the Acquiring Person to acquire Common Stock having a value of twice the exercise price of the Rights, or, upon the occurrence of certain other events (for example, if the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation), to acquire Common Stock of the Acquiring Person having a value twice the exercise price of the Rights. The Rights may be redeemed by the Company at $.01 per Right at any time until the tenth day following public announcement that a twenty percent (20%) position has been acquired. The Rights will expire on April 26, 1999. EMPLOYEE RETIREMENT BENEFIT PLAN The Company provides a comprehensive retirement benefit program for its employees. This plan provides for a noncontributory profit-sharing (55) 60 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 contribution which covers substantially all full-time employees who meet age and service requirements. The contribution is completely discretionary and is determined by the Board of Directors on an annual basis. The program also includes a 401(k) employee savings plan, whereby eligible participating employees may elect to contribute up to 15% of their compensation to an investment trust. Effective January 1, 1998, the Company's contribution was increased from 30% to 50% of the participant's elective contribution, on up to 6% of the participant's compensation. The total expense for the above plans amounted to $709,000, $668,000 and $741,000 for Fiscal 1998, 1997 and 1996, respectively. Also available to officers and certain key executives is a non-qualified deferred compensation plan. Under this plan, which was adopted January 1, 1998, participants may contribute up to 22% of their base compensation and 100% of bonus compensation. ASSET SECURITIZATION Asset securitization involves the transfer by the Company of its proprietary credit card receivables to a special purpose corporation, which in turn transfers the receivables to a single purpose trust (the "Trust") created for the securitization. Asset-backed certificates issued by the Trust represent undivided interests in those credit card receivables transferred into the Trust. Certificates issued by the Trust are sold to investors, with any seller's interest retained by the Company. These asset-backed certificates issued to investors are generally credit-enhanced by a third party to provide various levels of an investment grade credit rating at the time of issuance. The Company includes the seller's interest and any other retained interest in investment securities available for sale in the accompanying balance sheet. The carrying value of these retained interests approximates their fair value. In June 1996 the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which was effective January 1, 1997. The Company prospectively adopted the requirements of SFAS No. 125 for the (56) 61 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 securitization of its proprietary credit card receivables. In connection with the execution of the Series 1997-1 securitization, the Company evaluated the fair market value of its retained interests and related recourse provisions and, as a result, recognized a non-recurring gain of $13,018,000. Additionally, the effect of applying SFAS No. 125 as related to sales of credit card receivables during Fiscal 1998 was to increase income before income taxes by $3,941,000. The Company records gains or losses on the securitization of credit card receivables based on the estimated fair value of the assets retained and liabilities incurred in the sale. Gains represent the present value of the estimated cash flows which the Company has retained over the estimated outstanding period of the receivables. This excess cash flow essentially represents an "interest-only" ("I/O") strip, consisting of the excess finance charges and past-due fees over the sum of the return paid to certificate holders and credit losses. During Fiscal 1998 the Company recognized an I/O strip of $11,688,000 and, of that amount, $6,453,000 was amortized. In addition, the Company recognized a servicing liability which is included in accrued expenses in the accompanying balance sheet and which is initially recorded at fair value. During Fiscal 1998, the Company recognized a servicing liability of $3,500,000 and, of that amount, $2,206,000 was amortized. Prior to January 1, 1997, no gains were recorded due to the relatively short average life of the credit card loans securitized. Excess servicing fee income was recorded over the life of each sale transaction. In accordance with SFAS No. 125, prior years have not been restated. Proceeds from securitization transactions were approximately $376,885,000, $402,670,000 and $412,464,000 for Fiscal 1998, Fiscal 1997 and Fiscal 1996, respectively. At January 31, 1998 and February 1, 1997, approximately $302,674,000 and $321,800,000 of investor certificates remained outstanding, respectively. The investor certificates mature as follows: $18,674,000 in Fiscal 1999; $210,000,000 in the fiscal year ended January 29, 2000 ("Fiscal 2000"); and $74,000,000 in the fiscal year ended February 1, 2003 ("Fiscal 2003"). The Company's retained interests in its securitizations, which aggregated $38,893,000 and $25,856,000 at January 31, 1998 and February 1, 1997, respectively, are generally subordinated in right of payment to certificates issued by the Trust to third-party investors. (57) 62 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 The Company is active in originating private label credit card lines to the customers of the Company's retail stores. Holders of credit cards issued by a subsidiary of the Company are located throughout the United States and have various available lines of credit which are granted on an unsecured basis after reviewing each potential cardholders credit application and evaluating their financial history and ability to repay. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING The Company has entered into interest-rate cap agreements with an aggregate notional amount of $143,500,000 as of January 31, 1998, which mature as follows: $60,000,000 in 1999, $56,000,000 in 2002 and $27,500,000 in 2003. The aggregate notional amount of interest-rate cap agreements as of February 1, 1997 was $353,900,000. The agreements effectively entitle the Company to receive from a bank the amount, if any, by which the interest rates on the Company's floating-rate credit card securitizations exceed 9% for $77,500,000 notional amount, 11% for $56,000,000 notional amount and 12% for $10,000,000 notional amount. The premiums paid for these interest-rate cap agreements are included in other assets and are being amortized to selling, general and administrative expenses over the respective lives of the individual interest-rate cap agreements. Any payments that may be received as a result of the cap will be accrued as a reduction of selling, general and administrative expenses. The Company's credit exposure on interest-rate caps is limited to the value of interest-rate caps that have become favorable to the Company, but the Company does not anticipate non-performance by any of these counterparties. The amount of such exposure is generally the unrealized gains in the contracts. LEASES The Company leases substantially all of its stores under non-cancelable operating lease agreements. Generally, these leases have initial periods of 5 to 20 years and contain provisions for renewal options, additional rentals based on a percentage of sales and payment of certain real estate taxes. The Company also leases certain other buildings and equipment. (58) 63 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 Rental expense was:
(in thousands) 1998 1997 1996 ------- ------- -------- Minimum Rental...... $80,050 $85,513 $103,440 Contingent Rental... 13,216 12,883 14,841 ------- ------- -------- $93,266 $98,396 $118,281 ======= ======= ========
Minimum annual rental commitments for all non-cancelable leases for the next five fiscal years and thereafter are: 1999 - $87,207,000; 2000 - $74,522,000; 2001 - $66,102,000; 2002 - $57,500,000; 2003 - $46,634,000; Thereafter - $104,718,000. FAIR VALUE OF FINANCIAL INSTRUMENTS The following is a summary of the carrying amounts and estimated fair values of the Company's financial instruments:
January 31, 1998 February 1, 1997 Carrying Fair Carrying Fair (in thousands) Amount Value Amount Value -------- -------- -------- -------- Cash and Cash Equivalents ...... $ 12,349 $ 12,349 $ 78,979 $ 78,979 Available-for-Sale Securities .. 292,100 292,100 175,831 175,831 Total Long-term Debt ........... 138,132 125,022 138,144 131,244 Off-Balance-Sheet Financial Instruments: Interest Rate Cap Agreements . 0 0 0 20 -------- -------- -------- -------- $442,581 $429,471 $392,954 $386,074 ======== ======== ======== ========
The carrying amount for cash and cash equivalents approximates fair value because of the short maturities of such instruments. The fair value of available-for-sale securities is based on quoted market prices of the securities, except for certain equity securities which are not traded in the open market. The carrying amount of these equity securities (59) 64 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 ($6,503,000 at January 31, 1998 and $5,550,000 at February 1, 1997) was used to approximate fair value. The fair value of long-term debt is based on quoted market prices for the securities. The fair value of interest rate caps was determined on the basis of valuation pricing models which take into account current market and contractual prices of the underlying instruments, as well as the time value and yield curve or volatility factors underlying the positions. RESTRUCTURING CHARGE During Fiscal 1996, the Company's Board of Directors approved a restructuring plan that resulted in a pre-tax charge of $103,000,000. The restructuring plan included the planned closing of 290 under-performing "Fashion Bug" and "Fashion Bug Plus" stores, the reorganization and reduction of foreign merchandise sourcing operations and reductions in corporate support operations. From inception of the restructuring plan through February 1, 1997, the Company closed 294 underperforming stores, reduced store employees by 2,300 and reduced non-store employees by 600. As of January 31, 1998, all costs relating to the restructuring had been paid. Sales and Operating Loss (before allocation of fixed overhead and income taxes) for the 294 stores which were closed, during the periods in which they operated, were as follows:
(in thousands) 1998 1997 1996 ---- ------- -------- Sales.............. $0 $34,654 $159,657 Operating Loss..... 0 (3,202) (34,000)
SUBSEQUENT EVENT On March 5, 1998, the Company's Board of Directors approved a plan to record a one-time pre-tax charge of approximately $34,000,000 to account for the cost of downsizing approximately 100 stores and closing approximately 65 underperforming stores. This plan was approved in conjunction with the decision to eliminate men's merchandise from the Company's stores. The charge is to be recorded during the first quarter of (60) 65 Charming Shoppes, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended January 3l, 1998 Fiscal 1999 in accordance with Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity," as this plan was approved subsequent to the end of Fiscal 1998. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth (in thousands) Quarter Quarter Quarter Quarter -------- -------- -------- -------- Fiscal 1998 Net Sales.................. $235,688 $265,696 $236,203 $278,950 Gross Profit............... 52,737 67,374 56,295 67,422 Net Income (Loss).......... (2,342) 6,853 8,626(1) 6,197 Net Income (Loss) per Share (.02) .06 .08(1) .06 Fiscal 1997 Net Sales.................. $237,454 $266,678 $242,368 $269,797 Gross Profit............... 53,332 62,077 54,187 64,030 Net Income (Loss).......... (6,158) 304 (3,604) 2,221 Net Income (Loss) per Share (.06) .00 (.03) .02
(1) Net income (loss) includes a non-recurring gain from asset securitization of $8,462 or .08 cents per share. (61) 66 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There are no matters which are required to be reported under this Item 9. (62) 67 PART III Item 10. Directors and Executive Officers of the Registrant Information regarding Directors of the Company is set forth under the caption "Election of Directors" of the Company's definitive proxy statement which is incorporated herein by reference. Information regarding Executive Officers is set forth herein under "Item 4A. Executive Officers of the Registrant," in Part I hereof. Item 11. Executive Compensation Information regarding executive compensation is set forth under the captions "Management Compensation" and "Report of the Compensation and Stock Option Committees of the Board of Directors on Executive Compensation" of the Company's definitive proxy statement which is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information regarding the security ownership of certain beneficial owners and management is set forth under the caption "Principal Shareholders and Management Ownership" of the Company's definitive proxy statement which is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information regarding certain relationships and related transactions is set forth under the caption "Certain Relationships and Related Transactions" of the Company's definitive proxy statement which is incorporated herein by reference. (63) 68 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) Financial Statements The following Consolidated Financial Statements of Charming Shoppes, Inc. and its subsidiaries are included in Part II, Item 8: Report of independent auditors.........................................30 Consolidated Balance Sheets - January 31, 1998 and February 1, 1997....31 Consolidated Statements of Operations - years ended January 31, 1998, February 1, 1997 and February 3, 1996..............33 Consolidated Statements of Cash Flows - years ended January 31, 1998, February 1, 1997 and February 3, 1996..............34 Consolidated Statements of Stockholders' Equity - years ended January 31, 1998, February 1, 1997 and February 3, 1996..............36 Notes to Consolidated Financial Statements.............................38 (a)(2) Financial Statement Schedules No schedules required to be filed. (b) Reports on Form 8-K No reports were filed during the quarter ended January 31, 1998. (c) Exhibits, including those incorporated by reference The following is a list of Exhibits filed as part of this Annual Report on Form 10-K. Where so indicated by footnote, Exhibits which 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. If page numbers are listed, they refer to the page numbers where such Exhibits are located using the sequential numbering system specified by Rule 0-3 under the Securities Exchange Act of 1934 and Rule 403 under the Securities Act of 1933: (64) 69 Articles of Incorporation and By-Laws 3.1 Restated Articles of Incorporation, incorporated by x reference to Form 10-K of the Registrant for the fiscal year ended January 29, 1994. (Exhibit 3.1). 3.2 By-Laws, as Amended and Restated, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 29, 1994. (Exhibit 3.2). Instruments Defining the Rights of Security Holders, Including Indentures 4.1 Shareholders' Rights Plan, incorporated by reference to Form 8-K of the Registrant, filed May 23, 1989. Material Contracts 10.1.1 Amended and Restated Pooling and Servicing Agreement dated as of December 24, 1992, as amended and restated as of May 4, 1994, by and between Spirit of America National Bank, as Seller and Servicer, and First Fidelity Bank, National Association, as Trustee, incorporated by reference to Form 8-K of Spirit of America National Bank (No. 33-73884) dated May 4, 1994. (Exhibit No. 4). 10.1.2 Amendment No. 1, dated as of December 22, 1995, to Amended and Restated Pooling and Service Agreement, dated as of December 24, 1992, as Amended and Restated as of May 4, 1994, between Spirit of America National Bank as Seller and Servicer, and First Fidelity Bank, National Association, as Trustee for Charming Shoppes Master Trust, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.1.11). 10.1.3 Amendment No. 2, dated as of March 22, 1996, to Amended and Restated Pooling and Service Agreement, dated as of December 24, 1992, as Amended and Restated as of May 4, 1994, as Amended by Amendment No. 1 as of December 22, 1995, between Spirit of America National Bank as Seller and Servicer, and First Union National Bank as Trustee for Charming Shoppes Master Trust, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.1.12). 10.1.4 Series 1994-1 Supplement dated as of May 4, 1994 to Amended and Restated Pooling and Servicing Agreement dated as of December 24, 1992 and amended and restated as of May 4, 1994, by and between Spirit of America National Bank, as Seller and Servicer, and First Fidelity Bank, National (65) 70 Association, as Trustee, (for $200,000,000 Charming Shoppes Master Trust Asset-Backed Certificates Series 1994-1), incorporated by reference to Form 8-K of Spirit of America National Bank (No. 33-73884) dated May 4, 1994. (Exhibit No. 4). 10.1.5 First Amendment and Assignment dated as of November 25, 1997 to the Series 1994-1 Supplement, dated as of May 4, 1994 by and between Spirit of America National Bank, as Seller and Servicer, and First Union National Bank, as Trustee for Charming Shoppes Master Trust. 10.1.6 Series 1994-2 Supplement dated as of August 15, 1994, to Amended and Restated Pooling and Servicing Agreement, dated as of December 24, 1992, as amended and restated as of May 4, 1994 by and between Spirit of America National Bank, as Seller and Servicer, and First Fidelity Bank, National Association, as Trustee (for $14,000,000 Charming Shoppes Master Trust Asset-Backed Certificates Series 1994-2), incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 28, 1995. (Exhibit 10.1.14). 10.1.7 Amendment No. 1, dated as of March 29, 1996, to Series 1994-2 Supplement, between Spirit of America National Bank as Seller and Servicer, and First Union National Bank as Trustee for Charming Shoppes Master Trust, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.1.13). 10.1.8 Second Amendment dated as of November 25, 1997 to the Series 1994-2 Supplement, dated as of August 15, 1994, as amended on March 29, 1996, by and between Spirit of America National Bank, as Seller and Servicer, and First Union National Bank, as Trustee for Charming Shoppes Master Trust. 10.1.9 Series 1997-1 Supplement dated as of November 25, 1997 to the Second Amended and Restated Pooling and Servicing Agreement dated as of November 25, 1997 by and among Charming Shoppes Receivables Corp., as Seller, Spirit of America National Bank, as Servicer and First Union National Bank, as Trustee on behalf of the Series 1997-1 Certificate Holders ($83,500,000 Charming Shoppes Master Trust Series 1997-1). 10.1.10 Amended and Restated Loan and Security Agreement By and Between Congress Financial Corporation as Lender and Charming Shoppes, Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc., and FB Apparel, Inc. as Borrowers, and Charming Shoppes of Delaware, Inc. as Borrowers' Agent, Dated November 30, 1995, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.1.7). (66) 71 10.1.11 Release Agreement, dated as of February 28, 1997, among (a) Congress Financial Corporation (Lender) and (b) Charming Shoppes, Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc. and FB Apparel, Inc. (collectively, the Borrowers), incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 1, 1997. (Exhibit 10.1.15). 10.1.12 Second Amended and Restated Loan and Security Agreement, Dated February 28, 1997, by and between (a) Congress Financial Corporation, as Lender, (b) Charming Shoppes, Inc., Charming Shoppes of Delaware, Inc., CSI Industries, Inc. and FB Apparel, Inc., as borrowers and (c) Charming Shoppes of Delaware, Inc., as Borrowers Agent, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 1, 1997. (Exhibit 10.1.16). 10.1.13 Receivables Purchase Agreement, dated as of April 4, 1996, among (a) First Union National Bank, solely in its capacity as the trustee for Charming Shoppes Master Trust, as the Seller, (b) Fashion SPC, Inc., as the Subordinated Purchaser, (c) Spirit of America National Bank, as the Owner and as the Servicer, (d) CXC Incorporated, as the Purchaser, and (e) Citicorp, North America, Inc., as the Agent, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.1.9). 10.1.14 Receivables Purchase Agreement (Parallel Purchase Commitment), dated as of April 4, 1996, among (a) First Union National Bank, solely in its capacity as the trustee for Charming Shoppes Master Trust, as the Seller, (b) Fashion SPC, Inc., as the Subordinated Purchaser, (c) Spirit of America National Bank, as the Owner and as the Servicer, and (d) Citibank, N.A. and Citicorp, North America, Inc., as the Agent, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.1.10). 10.1.15 Amendment to Receivables Purchase Agreement dated as of December 13, 1996 to Receivables Purchase Agreement, dated as of April 4, 1996, among (a) First Union National Bank, solely in its capacity as the trustee for Charming Shoppes Master Trust, as the Seller, (b) Fashion SPC, Inc., as the Subordinated Purchaser, (c) Spirit of America National Bank, as the Owner and as the Servicer, (d) CXC Incorporated, as the Purchaser, and (e) Citicorp, North America, Inc. as the Agent, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 1, 1997. (Exhibit 10.1.12). 10.1.16 Amendment to Receivables Purchase Agreement (Parallel Purchase Commitment) dated as of December 13, 1996 to Receivables Purchase Agreement (67) 72 (Parallel Purchase Commitment), dated as of April 4, 1996, among (a) First Union National Bank, solely in its capacity as the trustee for Charming Shoppes Master Trust, as the Seller, (b) Fashion SPC, Inc., as the Subordinated Purchaser, (c) Spirit of America National Bank, as the Owner and as the Servicer, and (d) Citibank, N. A. and Citicorp, North America, Inc. as the Agent, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 1, 1997. (Exhibit 10.1.13). 10.1.17 Second Amendment to Receivables Purchase Agreement and the Receivables Purchase Agreement (Parallel Purchase Commitment) dated as of March 31, 1997 to Receivables Purchase Agreement, dated as of April 4, 1996, among (a) First Union National Bank, solely in its capacity as the trustee for Charming Shoppes Master Trust, as the Seller, (b) Fashion SPC, Inc., as the Subordinated Purchaser, (c) Spirit of America National Bank, as the Owner and as the Servicer, (d) CXC Incorporated, as the Purchaser, and (e) Citicorp, North America, Inc. as the Agent; and to Receivables Purchase Agreement (Parallel Purchase Commitment), dated as of April 4, 1996, among (a) First Union National Bank, solely in its capacity as the trustee for Charming Shoppes Master Trust, as the Seller, (b) Fashion SPC, Inc., as the Subordinated Purchaser, (c) Spirit of America National Bank, as the Owner and as the Servicer, and (d) Citibank, N. A. and Citicorp, North America, Inc. as the Agent, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 1, 1997. (Exhibit 10.1.14). 10.1.18 Amended and Restated Receivables Purchase Agreement dated as of November 25, 1997 by and among First Union National Bank, in its capacity as Trustee for the Charming Shoppes Master Trust, as the Seller, Charming Shoppes Receivables Corp., as the Owner and the Subordinated Purchaser, Spirit of America National Bank, as the Servicer and the Originator, Corporate Receivables Corporation, as the Purchaser, Citibank, N.A., as a Bank, and Citicorp North America, Inc., as the Agent. Management Contracts and Compensatory Plans and Arrangements 10.2.1 The 1986 Employees' Stock Option Plan of Charming Shoppes, Inc., incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 1, 1992. (Exhibit 10.2.2, Pg. 240). 10.2.2 The 1988 Key Employee Stock Option Plan of Charming Shoppes, Inc., as amended, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 30, 1993. (Exhibit 10.2.3, Pg. 486). (68) 73 10.2.3 The 1990 Employees' Stock Incentive Plan of Charming Shoppes, Inc., as amended, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 30, 1993. (Exhibit 10.2.4, Pg. 492). 10.2.4 The 1989 Non-Employee Director Stock Option Plan of Charming Shoppes, Inc., as amended, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 30, 1993. (Exhibit 10.2.5, Pg. 499). 10.2.5 Non-Employee Director Restricted Stock Plan of Charming Shoppes, Inc., as amended, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 30, 1993. (Exhibit 10.2.6, Pg. 503). 10.2.6 Subplan and Summary Description of the Annual Incentive Plan of Charming Shoppes, Inc., incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 1, 1992. (Exhibit 10.2.13, Pg. 251). 10.2.7 The 1993 Employees' Stock Incentive Plan of Charming Shoppes, Inc., incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 29, 1994. (Exhibit 10.2.10). 10.2.8 The 1993 Employees' Stock Incentive Plan Stock Option Agreement (regular vesting schedule) of Charming Shoppes, Inc., incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 29, 1994. (Exhibit 10.2.11). 10.2.9 The 1993 Employees' Stock Incentive Plan Stock Option Agreement (accelerated vesting schedule) of Charming Shoppes, Inc., incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 29, 1994. (Exhibit 10.2.12). 10.2.10 The Charming Shoppes, Inc. Employee Stock Purchase Plan, as amended, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.2.10). 10.2.11 The Charming Shoppes, Inc. Restricted Stock Award Plan for Associates, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.2.11). 10.2.12 The Charming Shoppes, Inc. 1996 Restricted Stock Award Program, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.2.12). (69) 74 10.2.13 The Charming Shoppes, Inc. 1996 Restricted Stock Award Program Restricted Stock Agreement, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.2.13). 10.2.14 Employment Agreement, dated as of May 17, 1995, by and between Charming Shoppes, Inc., and David V. Wachs, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.2.14). 10.2.15 Employment Agreement, dated as of August 22, 1995 by and between Charming Shoppes, Inc., and Dorrit J. Bern, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.2.15). 10.2.16 1993 Employees' Stock Incentive Plan Stock Option Agreement, dated as of August 23, 1995, by and between Charming Shoppes, Inc., and Dorrit J. Bern, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.2.16). 10.2.17 1993 Employees' Stock Incentive Plan Restricted Stock and Stock Bonus Agreement, dated as of March 20, 1996, by and between Charming Shoppes, Inc., and Dorrit J. Bern, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.2.17). 10.2.18 Settlement Agreement and Release, dated as of February 9, 1996, by and between Charming Shoppes, Inc., and Philip Wachs, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.2.20). 10.2.19 Settlement Agreement and Release, dated as of April 25, 1996, by and between Charming Shoppes, Inc., and Samuel Sidewater, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended February 3, 1996. (Exhibit 10.2.21). 10.2.20 The Charming Shoppes, Inc. Non-Employee Directors Compensation Program, incorporated by reference to Registration Statement on Form S-8 (Registration No. 333-22323), of the Registrant, dated February 25, 2997. (Exhibit 4.1). 10.2.21 The Charming Shoppes, Inc. Compensation Program for the Non-Employee Chairman of the Board of Directors, incorporated by reference to Registration Statement on Form S-8 (Registration No. 333-22323), of the Registrant, dated February 25, 2997. (Exhibit 4.2). (70) 75 10.2.22 Charming Shoppes, Inc. 1998 Restricted Award Program. Other Exhibits Exhibit 21 - Subsidiaries of Registrant Exhibit 23 - Consent of independent auditors Exhibit 27 - Financial data schedule All other schedules are omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statements or notes thereto. (71) 76 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Charming Shoppes, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHARMING SHOPPES, INC. /s/ DORRIT J. BERN By: Dorrit J. Bern Chairman of the Board President and Chief Executive Officer Date: April 24, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: /s/ DORRIT J. BERN /s/ ERIC M. SPECTER Dorrit J. Bern, April 24, 1998 Eric M. Specter, April 24,1998 Chairman of the Board Executive Vice President President and Chief Executive Officer Chief Financial Officer And Treasurer /s/ JOSEPH L. CASTLE II /s/ ALAN ROSSKAMM Joseph L. Castle II, April 24, 1998 Alan Rosskamm, April 24, 1998 Director Director /s/ MICHAEL SOLOMON /s/ GEOFFREY W. LEVY Michael Solomon, April 24, 1998 Geoffrey W. Levy, April 24, 1998 Director Director /s/ MARJORIE MARGOLIES-MEZVINSKY /s/ MARVIN L. SLOMOWITZ Marjorie Margolies-Mezvinsky Marvin L. Slomowitz, April 24, 1998 April 24, 1998 Director Director /s/ LAURA A. LISWOOD /s/ JON A. GOLDBERG Laura A. Liswood, April 24, 1998 Jon A. Goldberg, April 24, 1998 Director Vice President Corporate Controller Chief Accounting Officer (72) EX-10.1.5 2 FIRST AMENDMENT AND ASSIGNMENT 1 EXHIBIT 10.1.5 FIRST AMENDMENT AND ASSIGNMENT THIS FIRST AMENDMENT AND ASSIGNMENT, dated as of November 25, 1997 (this "Amendment") is to the Series 1994-1 Supplement, dated as of May 4, 1994 (the "Supplement"), by and between Spirit of America National Bank ("Spirit"), a national banking association, as Seller and Servicer, and First Union National Bank (f/k/a First Fidelity Bank, National Association), a national banking association, as Trustee. Any capitalized term not herein defined shall have the meaning assigned to it in the Supplement. WHEREAS, Spirit, as Seller and Servicer, and the Trustee are parties to that certain Pooling and Servicing Agreement dated as of December 24, 1992, as amended and restated as of May 4, 1994, and as amended by Amendment No. 1, dated as of December 22, 1995, and Amendment No. 2, dated as of March 22, 1996 (the "Prior PSA"); WHEREAS, Spirit, as Seller and Servicer, the Trustee and the Cash Collateral Depositor are parties to that certain Loan Agreement dated as of May 4, 1994 (the "Loan Agreement"); WHEREAS, concurrently herewith (x) the parties hereto are entering into (i) a Second Amended and Restated Pooling and Servicing Agreement, dated even herewith (the "Amended Pooling Agreement") amending and restating in its entirety the Prior PSA, and (ii) an amendment dated even herewith to the Loan Agreement (as so amended, the "Amended Loan Agreement"), in each case, in order to, among other things, provide for the substitution of Charming Shoppes Receivables Corp. ("CRSC"), as Seller, and (y) Spirit and CSRC are entering into a Purchase and Sale Agreement, dated even herewith, pursuant to which Spirit will sell Receivables to CSRC in accordance with the terms thereof; WHEREAS, the parties hereto desire to amend the Supplement in order to provide for the substitution of CSRC as Seller, and make certain other changes in connection with such substitution; and WHEREAS, an Opinion of Counsel for the Seller has been delivered to the Trustee and each Purchaser Representative pursuant to Section 13.1(a) of the Amended Pooling Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as follows: SECTION 1. AMENDMENT. (a) All references to the "Seller" and to "Spirit of America", in its capacity as Seller, in the Supplement shall be deemed to be references to CSRC. All references in the Supplement to the Pooling and Servicing Agreement and the Loan Agreement shall be references to the Amended Pooling Agreement and the Amended Loan Agreement, respectively. (b) Section 9 of the Supplement is hereby amended by deleting the word "or" at the end of subparagraph (f) thereof, and inserting the following immediately after subparagraph (g) thereof: 2 "(h) failure on the part of the Originator or the Seller (A) to make any payment or deposit required by the terms of the Purchase Agreement, on or before the date occurring five days after the date such payment or deposit is required to be made therein or (B) to observe or perform in any material respect any covenants or agreements of the Originator or the Seller, as applicable, set forth in the Purchase Agreement, which failure has a material adverse effect on the Series 1994-1 Certificateholders (which determination shall be made without regard to whether any funds are on deposit in the Cash Collateral Account) and which continues unremedied for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Originator or the Seller, as applicable, by the Seller, Servicer or Trustee, or to the Originator or the Seller, as applicable, and the Trustee by the Cash Collateral Depositor or the Holders of Series 1994-1 Certificates evidencing Undivided Trust Interests aggregating not less than 50% of the Investor Interest of this Series 1994-1, and continues to affect materially and adversely the interests of the Series 1994-1 Certificateholders for such period; or (i) any representation or warranty made by the Originator in the Purchase Agreement, or any information contained in a computer file or microfiche or written list required to be delivered by the Originator pursuant to Section 1.1 or 2.4 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 Servicer or the Trustee, or to the Seller and the Trustee by the Holders of the Series 1994-1 Certificates evidencing Undivided Interests aggregating more than 50% of the Investor Interest of this Series 1994-1, and (ii) as a result of which the interests of the Series 1994-1 Certificateholders are materially and adversely affected (which determination shall be made without regard to whether any funds are on deposit in the Cash Collateral Account) and continue to be materially and adversely affected for such period; provided, however, that a Series 1994-1 Early Amortization Event pursuant to this subsection 9(i) shall not be deemed to have occurred hereunder if the Originator has accepted reassignment of the related Receivable, or all of such Receivables, if applicable, during such period in accordance with the provisions of the Purchase Agreement;" (c) The penultimate clause of Section 9 of the Supplement is hereby amended by amending the reference to "subparagraph (a), (b) or (e)" to be a reference to "subparagraph (a), (b), (e), (h) or (i)". SECTION 2. CASH COLLATERAL ACCOUNT ASSIGNMENT. CSRC, in its capacity as Seller under the Supplement, as amended herein, hereby assigns, sets-over, conveys, pledges and grants a security interest and lien to the Trustee for the benefit of the Series 1994-1 Certificateholders and the Cash Collateral Depositor, as their interests appear in the Supplement, as amended herein (which interest in the case of the Cash Collateral Depositor shall be subject to the prior interest of the Series 1994-1 Certificateholders to the extent provided in the Supplement, as amended herein, and in the Amended Loan Agreement) in all of CSRC's right, 3 title and interest (if any) in and to all property or amounts held or on deposit in the Cash Collateral Account, and all proceeds thereof, as collateral security for the amounts payable from time to time to the Series 1994-1 Certificateholders and owing to the Cash Collateral Depositor from the Cash Collateral Account pursuant to Article IV of the Supplement, as amended herein, in respect of the Series 1994-1 Certificates. SECTION 3. EFFECTIVENESS. The amendments set forth in Section 1 and the assignment set forth in Section 2 above shall become effective on the date on which (i) the Servicer shall have received counterparts of this Amendment executed by CSRC, as Seller, Spirit, as Servicer, and the Trustee, and (ii) each of the conditions precedent to the effectiveness of the Amended Pooling and Servicing Agreement are satisfied or waived. SECTION 4. MISCELLANEOUS. (a) As herein amended, the Supplement (as so amended, the "Amended Supplement"), shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the effectiveness hereof, all references in the Loan Agreement, the Pooling and Servicing Agreement, any other Supplement, and any similar document to the "Series 1994-1 Supplement" or similar terms shall refer to the Amended Supplement. (b) This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. (c) Spirit agrees to pay the reasonable costs and expenses of the Trustee (including reasonable attorneys' fees and charges) in connection with the negotiation, preparation, execution and delivery of this Amendment. (d) This Amendment 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. (e) All notices to CSRC under the Amended Supplement shall be addressed to Charming Shoppes Receivables Corp., c/o Charming Shoppes, Inc., 450 Winks Lane, Bensalem, Pennsylvania 19020, Attention: General Counsel. [Remainder of page intentionally left blank] 4 IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have caused this Amendment to be duly executed by their respective officers as of the day and year first above written. SPIRIT OF AMERICA NATIONAL BANK, as Servicer By: Name: Kirk R. Simme Title: President CHARMING SHOPPES RECEIVABLES CORP., as Seller By: Name: Eric M. Specter Title: President FIRST UNION NATIONAL BANK, as Trustee By: Name: George Rayzis Title: Vice President EX-10.1.8 3 SECOND AMENDMENT DATED NOVEMBER 25, 1997 1 EXHIBIT 10.1.8 SECOND AMENDMENT THIS SECOND AMENDMENT, dated as of November 25, 1997 (this "Amendment") is to the Series 1994-2 Supplement, dated as of August 15, 1994, as amended on March 29, 1996 (the "Supplement"), by and between Spirit of America National Bank ("Spirit"), a national banking association, as Seller and Servicer, and First Union National Bank (f/k/a First Fidelity Bank, National Association), a national banking association, as Trustee. Any capitalized term not herein defined shall have the meaning assigned to it in the Supplement. WHEREAS, Spirit, as Seller and Servicer, and the Trustee are parties to that certain Pooling and Servicing Agreement dated as of December 24, 1992, as amended and restated as of May 4, 1994, and as amended by Amendment No. 1, dated as of December 22, 1995, and Amendment No. 2, dated as of March 22, 1996 (the "Prior PSA"); WHEREAS, Spirit, as Seller and Servicer, the Trustee and State Street Bank and Trust Company are parties to that certain Loan Agreement dated as of May 4, 1994 (the "Loan Agreement"); WHEREAS, concurrently herewith (x) the parties hereto are entering into (i) a Second Amended and Restated Pooling and Servicing Agreement, dated even herewith (the "Amended Pooling Agreement") amending and restating in its entirety the Prior PSA, and (ii) an amendment dated even herewith to the Loan Agreement (as so amended, the "Amended Loan Agreement"), in each case, in order to, among other things, provide for the substitution of Charming Shoppes Receivables Corp. ("CRSC"), as Seller, and (y) Spirit and CSRC are entering into a Purchase and Sale Agreement, dated even herewith, pursuant to which Spirit will sell Receivables to CSRC in accordance with the terms thereof; WHEREAS, the parties hereto desire to amend the Supplement in order to provide for the substitution of CSRC as Seller, and make certain other changes in connection with such substitution; and WHEREAS, an Opinion of Counsel for the Seller has been delivered to the Trustee and each Purchaser Representative pursuant to Section 13.1(a) of the Amended Pooling Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as follows: SECTION 1. AMENDMENT. (a) All references to the "Seller" and to "Spirit of America", in its capacity as Seller, in the Supplement shall be deemed to be references to CSRC. All references in the Supplement to the Pooling and Servicing Agreement and the Loan Agreement shall be references to the Amended Pooling Agreement and the Amended Loan Agreement, respectively. 2 (b) Section 8 of the Supplement is hereby amended by deleting the word "or" at the end of subparagraph (f) thereof, and inserting the following immediately after subparagraph (g) thereof: "(h) failure on the part of the Originator or the Seller (A) to make any payment or deposit required by the terms of the Purchase Agreement, on or before the date occurring five days after the date such payment or deposit is required to be made therein or (B) to observe or perform in any material respect any covenants or agreements of the Originator or the Seller, as applicable, set forth in the Purchase Agreement, which failure has a material adverse effect on the Series 1994-2 Certificateholders and which continues unremedied for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Originator or the Seller, as applicable, by the Seller, Servicer or Trustee, or to the Originator or the Seller, as applicable, and the Trustee by the Holders of Series 1994-2 Certificates evidencing Undivided Trust Interests aggregating not less than 50% of the Investor Interest of this Series 1994-2, and continues to affect materially and adversely the interests of the Series 1994-2 Certificateholders for such period; or (i) any representation or warranty made by the Originator in the Purchase Agreement, or any information contained in a computer file or microfiche or written list required to be delivered by the Originator pursuant to Section 1.1 or 2.4 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 Servicer or the Trustee, or to the Seller and the Trustee by the Holders of the Series 1994-2 Certificates evidencing Undivided Interests aggregating more than 50% of the Investor Interest of this Series 1994-2, and (ii) as a result of which the interests of the Series 1994-2 Certificateholders are materially and adversely affected (which determination shall be made without regard to whether any funds are on deposit in the Cash Collateral Account) and continue to be materially and adversely affected for such period; provided, however, that a Series 1994-2 Early Amortization Event pursuant to this subsection 8(i) shall not be deemed to have occurred hereunder if the Originator has accepted reassignment of the related Receivable, or all of such Receivables, if applicable, during such period in accordance with the provisions of the Purchase Agreement;" (c) The penultimate clause of Section 8 of the Supplement is hereby amended by amending the reference to "subparagraph (a), (b) or (e)" to be a reference to "subparagraph (a), (b), (e), (h) or (i)". SECTION 2. EFFECTIVENESS. The amendments set forth in Section 1 above shall become effective on the date on which (i) the Servicer shall have received counterparts of this Amendment executed by CSRC, as Seller, Spirit, as Servicer, and the Trustee, and (ii) each of the conditions precedent to the effectiveness of the Amended Pooling and Servicing Agreement are satisfied or waived. 3 SECTION 3. MISCELLANEOUS. (a) As herein amended, the Supplement (as so amended, the "Amended Supplement"), shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the effectiveness hereof, all references in the Loan Agreement, the Pooling and Servicing Agreement, any other Supplement, and any similar document to the "Series 1994-2 Supplement" or similar terms shall refer to the Amended Supplement. (b) This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. (c) Spirit agrees to pay the reasonable costs and expenses of the Trustee (including reasonable attorneys' fees and charges) in connection with the negotiation, preparation, execution and delivery of this Amendment. (d) This Amendment shall be construed in accordance with the governed by the Laws of the State of New York, without giving effect to its conflicts of law provisions. (e) All notices to CSRC under the Amended Supplement shall be addressed to Charming Shoppes Receivables Corp., c/o Charming Shoppes, Inc., 450 Winks Lane, Bensalem, Pennsylvania 19020, Attention: General Counsel. [Remainder of page intentionally left blank] 4 IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have caused this Amendment to be duly executed by their respective officers as of the day and year first above written. SPIRIT OF AMERICA NATIONAL BANK, as Servicer By: Name: Kirk R. Simme Title: President CHARMING SHOPPES RECEIVABLES CORP., as Seller By: Name: Eric M. Specter Title: President FIRST UNION NATIONAL BANK, as Trustee By: Name: George Rayzis Title: Vice President EX-10.1.9 4 SERIES 1997-1 SUPLEMENT DATED NOVEMBER 25, 1997 1 EXHIBIT 10.1.9 SERIES 1997-1 SUPPLEMENT, dated as of November 25, 1997 (this "Supplement"), by and among CHARMING SHOPPES RECEIVABLES CORP., a Delaware corporation, as Seller (the "Seller"), SPIRIT OF AMERICA NATIONAL BANK, a national banking association, as Servicer (the "Servicer"), and 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 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 0.0.1. DESIGNATION. 0.0.1.1. There is hereby created a Series of Investor Certificates to be issued in four classes pursuant to the Agreement and this Series Supplement and to be known together as the "Series 1997-1 Certificates." The four classes shall be designated the Class A Floating Rate Asset Backed Certificates, Series 1997-1 (the "Class A Certificates"), the Class B Floating Rate Asset Backed Certificates, Series 1997-1 (the "Class B Certificates"), the Class C Floating Rate Asset Backed Certificates, Series 1997-1 (the "Class C Certificates") and the Class D Floating Rate Asset Backed Certificates, Series 1997-1 (the "Class D Certificates"). The Class A Certificates, the Class B Certificates, the Class C Certificates and the Class D Certificate shall be substantially in the form of Exhibits A-1, A-2, A-3 and A-4 hereto, respectively. 0.0.1.2. Series 1997-1 shall be included in Group One. Series 1997-1 shall not be subordinated to any other Series. SECTION 0.0.2. 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 1997-1 Certificates and no other Series of Certificates or Receivables Purchase Series issued by the Trust. "Accumulation Period" shall mean, unless an Early Amortization Event shall have occurred prior thereto, the period commencing on the date specified by the Seller pursuant to subsection 4.17(d) and ending upon the first to occur of (a) the commencement of the Early Amortization Period and (b) the Series 1997-1 Termination Date. 2 "Accumulation Period Length" shall have the meaning specified in subsection 4.17(d). "Adjusted Investor Interest" shall mean, with respect to any date of determination, an amount equal to the sum of (a) the Class A Adjusted Investor Interest, (b) the Class B Investor Interest, (c) the Class C Investor Interest and (d) the Class D Investor Interest for such date. "Amortization Period" shall not be applicable to this Supplement. "Available Funds" shall mean, with respect to any Distribution Date, the sum of Class A 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) the Principal Allocation Percentage of all Collections of Principal Receivables for the related Due Period, minus the amount of Reallocated Class D Principal Collections, Reallocated Class C Principal Collections and Reallocated Class B 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 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 1997-1 in accordance with Section 4.15 for such Distribution Date, (c) any other amounts which pursuant to Section 4.9 and 4.11(a) (to the extent allocable to the Class A Investor Loss Amount), (b), (d), (g), (h), (n) and (o) 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) any amounts withdrawn from the Series Excess Funding Account pursuant to subsection 4.21(d) for such Distribution Date. "Available Series Excess Funding Reserve Account Amount" shall mean, with respect to any Distribution Date, the lesser of (a) the amount on deposit in the Series Excess Funding Reserve Account (before giving effect to any deposit to be made to the Series Excess Funding Reserve Account on such date) and (b) the Series Excess Funding Reserve Account Required Amount for such Distribution Date. "Average Principal Balance" shall mean, for a Due Period in which an Addition Date or Removal Date occurs, the weighted average of the Principal Receivables in the Trust at the end of the day on the last day of the prior Due Period and the Principal Receivables in the Trust at the end of the day on the related Addition Date or Removal Date, weighted, respectively, by a fraction, the numerator of which is the number of days from and including the first day of such Due Period to but excluding the related Addition Date or Removal Date, and the denominator of which is the number of days in such Due Period, and by a fraction, the numerator of which is the number of days from and including the related Addition Date or Removal Date to and including the last day of such Due Period, and the denominator of which is the number of days in such Due Period. "Base Rate" shall mean, for any Due Period, (a) the sum of Monthly Interest for the related Distribution Date and the Investor Monthly Servicing Fee for such Due Period, 3 divided by (b) the sum of (i) the Series Investor Interest and (ii) the Series Excess Funding Account Balance, in each case as of the last day of the prior Due Period, times (c) 12. "Certificateholder Servicing Fee" shall have the meaning specified in Section 3. "Class" shall mean any of the Class A 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 Adjusted Investor Interest" shall mean, with respect to any date of determination, an amount equal to the Class A Investor Interest minus the Principal Funding Account Balance on such date of determination. "Class A Allocable Share" shall mean, with respect to a Due Period, the sum of (a) the Class A Floating Allocation of the Collections of Finance Charge Receivables allocated to the Investor Certificates and deposited in the Collection Account for such Due Period (excluding any such Collections allocated as a result of the application of clause (b) of the definition of Floating Allocation Percentage) and (b) if such Due Period occurs during the Accumulation Period, all Collections allocated as a result of the operation of clause (b) of the definition of Floating Allocation Percentage. "Class A Available Funds" shall mean, with respect to any Distribution Date, an amount equal to the sum of (a) the Class A Allocable Share of the Collections of Finance Charge Receivables allocated to the Investor Certificates and deposited in the Collection Account for the related Due Period, (b) the amount of any Class A Cap Payment with respect to such Distribution Date and the amount of any payments due from the Class A Cap Provider but not paid with respect to any prior date (to the extent received by the Trustee), (c) with respect to any Due Period during the Accumulation Period prior to the payment in full of the Class A Investor Interest, the Principal Funding Investment Proceeds arising pursuant to subsection 4.17(b), if any, with respect to the related Distribution Date, (d) the Class A Floating Allocation of amounts, if any, to be withdrawn from the Series Excess Funding Account and the Series Excess Funding Reserve Account which will be deposited into the Collection Account on such Distribution Date pursuant to subsections 4.21(b), 4.22(b) and 4.22(d) and (e) the amount, if any, withdrawn from the Series Excess Funding Reserve Account on such Distribution Date pursuant to subsection 4.22(e). "Class A Cap" shall mean the interest rate cap agreement dated the Closing Date between Fashion Service Corp. and the Class A Cap Provider and assigned to the Trust for the benefit of the Class A Certificateholders in substantially the form attached hereto as Exhibit D-1, or any Replacement Interest Rate Cap therefor. "Class A Cap Payment" shall mean, with respect to a Distribution Date, the payment received from the Class A Cap Provider on the day preceding such Distribution Date, as determined pursuant to the Class A Cap. 4 "Class A Cap Provider" shall mean The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, or any successor or assign thereto appointed as provided in the Class A Cap, in its individual capacity pursuant to the Class A Cap, or if any Replacement Interest Rate Cap is obtained therefor pursuant to Section 4.19, the replacement cap provider named therein the short-term debt obligations of which shall be rated at least A-1 by Standard & Poor's and P-1 by Moody's. "Class A Certificate Rate" shall mean from the Closing Date through December 14, 1997, from December 15, 1997 through January 14, 1998 and with respect to each Interest Period thereafter, a per annum rate equal to 0.35% per annum in excess of LIBOR as determined on the related LIBOR Determination Date; provided that if the Class A Certificates are not paid in full on the Class A Expected Final Payment Date, the Class A Certificate Rate applicable to the Interest Period commencing on such date and each Interest Period thereafter will not exceed 11.35% per annum. "Class A Certificateholder" shall mean each Person in whose name a Class A Certificate is registered in the Certificate Register. "Class A Certificates" shall mean any of the certificates executed by the Seller and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A-1 hereto. "Class A Deficiency Amount" shall have the meaning specified in sub- section 4.6(a). "Class A Expected Final Payment Date" shall mean the December 2002 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 ending prior to such Due Period; provided, however, that if Series 1997-1 is paired with a Paired Series and an Early Amortization Event occurs with respect to such Paired Series during the Accumulation Period, the Seller may, by written notice delivered to the Trustee, the Servicer, Moody's and Standard & Poor's, designate a different numerator (provided that such numerator is not less than the Class A Adjusted Investor Interest as of the last day of the revolving period for such Paired Series), and the denominator of which is equal to the numerator used to determine the Principal Allocation Percentage with respect to such Due Period. "Class A Floating Allocation" shall mean, with respect to any Due Period, the percentage equivalent (which percentage shall never exceed 100%) of a fraction, the numerator of which is the Class A Adjusted Investor Interest as of the close of business on the last day of the preceding Due Period and the denominator of which is equal to the Adjusted Investor Interest as of the close of business on such day; provided, however, that, with respect to the first Due Period, the Class A Floating Allocation shall mean the percentage equivalent of a fraction, the 5 numerator of which is the Class A Initial Investor Interest and the denominator of which is the Initial Investor Interest. "Class A Initial Investor Interest" shall mean the aggregate initial principal amount of the Class A Certificates, which is $56,000,000. "Class A Investor Allocation" shall mean, with respect to any Due Period, (a) with respect to Loss Amounts and Collections of Finance Charge Receivables at any time and Collections of Principal Receivables during the Revolving Period, the Class A Floating Allocation and (b) with respect to Collections of Principal Receivables during the Accumulation Period or Early Amortization Period, the Class A Fixed Allocation. "Class A Investor Charge-Offs" shall have the meaning specified in subsection 4.10(a). "Class A Investor Interest" shall mean, on any date of determination, 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 and 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; provided, however, that the Class A Investor Interest may not be reduced below zero. "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 mean the monthly interest distributable in respect of the Class A Certificates as calculated in accordance with 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 Required Amount" shall have the meaning specified in sub- section 4.8(a). "Class A Servicing Fee" shall have the meaning specified in Section 3. "Class B Additional Interest" shall have the meaning specified in subsection 4.6(b). "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 Investor Certificates and deposited in the Collection Account for the related Due Period (excluding any such Collections allocated as a result of the application of clause (b) of the definition of Floating Allocation Percentage); (b) the amount of any Class B 6 Cap Payment with respect to such Distribution Date and the amount of any payments due from the Class B Cap Provider but not paid with respect to any prior date (to the extent received by the Trustee) and (c) the Class B Floating Allocation of amounts, if any, to be withdrawn from the Series Excess Funding Account and the Series Excess Funding Reserve Account which will be deposited into the Collection Account on the related Distribution Date pursuant to subsections 4.21(b), 4.22(b) and 4.22(d). "Class B Cap" shall mean the interest rate cap agreement dated the Closing Date between Fashion Service Corp. and the Class B Cap Provider, and assigned to the Trust for the benefit of the Class B Certificateholders, the Class C Certificateholders and the Class D Certificateholders in substantially the form attached hereto as Exhibit D-2, or any Replacement Interest Rate Cap therefor. "Class B Cap Payment" shall mean, with respect to a Distribution Date, the payment received from the Class B Cap Provider on the day preceding such Distribution Date, as determined pursuant to the Class B Cap. "Class B Cap Provider" shall mean The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, or any successor or assign thereto appointed as provided in the Class B Cap, in its individual capacity pursuant to the Class B Cap, or if any Replacement Interest Rate Cap is obtained therefor pursuant to Section 4.19, the replacement cap provider named therein the short-term debt obligations of which are rated at least A-1 by Standard & Poor's and P-1 by Moody's. "Class B Certificate Rate" shall mean, from the Closing Date through December 14, 1997, from December 15, 1997 through January 14, 1998, and with respect to each Interest Period thereafter, a per annum rate equal to .70% per annum in excess of LIBOR as determined on the related LIBOR Determination Date; provided that if the Class B Certificates are not paid in full on the Class B Expected Final Payment Date, the Class B Certificate Rate applicable to the Interest Period commencing on such date and each Interest Period thereafter will not exceed 9.70% per annum. "Class B Certificateholder" shall mean each Person in whose name a Class B Certificate is registered in the Certificate Register. "Class B Certificates" shall mean any of the certificates executed by the Seller and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A-2 hereto. "Class B Deficiency Amount" shall have the meaning specified in subsection 4.6(b). "Class B Expected Final Payment Date" shall mean the January 2003 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 ending prior to such Due Period; 7 provided, however, that if Series 1997-1 is paired with a Paired Series and an Early Amortization Event occurs with respect to such Paired Series during the Accumulation Period, the Seller may, by written notice delivered to the Trustee, the Servicer, Moody's and Standard & Poor's, designate a different numerator (provided that such numerator is not less than the Class B Investor Interest as of the last day of the revolving period for such Paired Series), and the denominator of which is equal to the numerator used to determine the Principal Allocation Percentage with respect to such Due Period. "Class B Floating Allocation" shall mean, with respect to any Due 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 preceding Due Period and the denominator of which is equal to the Adjusted Investor Interest as of the close of business on such day; provided, however, that, with respect to the first Due Period, the Class B Floating Allocation shall mean the percentage equivalent of 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 Initial Investor Interest" shall mean the aggregate initial principal amount of the Class B Certificates, which is $8,500,000. "Class B Investor Allocation" shall mean, with respect to any Due Period (a) with respect to Loss 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 Accumulation Period or Early Amortization Period, the Class B Fixed Allocation. "Class B Investor Charge-Offs" shall have the meaning specified in subsection 4.10(b). "Class B Investor Interest" shall mean, on any date of determination, an amount equal to (a) the Class B Initial Investor Interest, minus (b) the aggregate amount of principal payments made to Class B Certificateholders prior to such date, minus (c) the aggregate amount of Class B Investor Charge-Offs for all prior Distribution Dates pursuant to subsection 4.10(b), minus (d) the aggregate amount of Reallocated Class B Principal Collections allocated pursuant to subsection 4.12 on all prior Distribution Dates for which the Class C Investor Interest or the Class D Investor Interest has not been reduced, minus (e) an amount equal to the amount by which the Class B Investor Interest has been reduced on all prior Distribution Dates pursuant to subsection 4.10(a) and plus (f) 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), (d) and (e); provided, however, that the Class B Investor Interest may not be reduced below zero. "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. 8 "Class B Monthly Interest" shall mean the monthly interest distributable in respect of the Class B Certificates as calculated in accordance with subsection 4.6(b). "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(b). "Class B Required Amount" shall have the meaning specified in sub- section 4.8(b). "Class B Servicing Fee" shall have the meaning specified in Section 3. "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 Investor Certificates and deposited in the Collection Account for the related Due Period (excluding any such Collections allocated as a result of the application of clause (b) of the definition of Floating Allocation Percentage) and (b) the Class C Floating Allocation of amounts, if any, to be withdrawn from the Series Excess Funding Account and the Series Excess Funding Reserve Account which will be deposited into the Collection Account on the related Distribution Date pursuant to subsections 4.21(b), 4.22(b) and 4.22(d). "Class C Certificate Rate" shall mean, from the Closing Date through December 14, 1997, from December 15, 1997 through January 14, 1998, and with respect to each Interest Period thereafter, the rate specified in the Class C Purchase Agreement. "Class C Certificateholder" shall mean each Person in whose name a Class C Certificate is registered in the Certificate Register. "Class C Certificates" shall mean any of the certificates executed by the Seller and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A-3 hereto. "Class C Deficiency Amount" shall have the meaning specified in subsection 4.6(c). "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 ending prior to such Due Period; provided, however, that if Series 1997-1 is paired with a Paired Series and an Early Amortization Event occurs with respect to such Paired Series during the Accumulation Period, the Seller may, by written notice delivered to the Trustee and the Servicer, designate a different numerator (provided that such numerator is not less than the Class C Investor Interest as of the last day of the revolving period for such Paired Series), and the denominator of which is equal to the numerator used to determine the Principal Allocation Percentage with respect to such Due Period. 9 "Class C Floating Allocation" shall mean, with respect to any Due 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 preceding Due Period and the denominator of which is equal to the Adjusted Investor Interest as of the close of business on such day; provided, however, that, with respect to the first Due Period, the Class C Floating Allocation shall mean the percentage equivalent of 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 Initial Investor Interest" shall mean the aggregate initial principal amount of the Class C Certificates, which is $9,500,000. "Class C Investor Allocation" shall mean, with respect to any Due Period (a) with respect to Loss 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 Accumulation Period or Early Amortization Period, the Class C Fixed Allocation. "Class C Investor Charge-Offs" shall have the meaning specified in subsection 4.10(c). "Class C Investor Interest" shall mean, on any date of determination, 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, minus (c) the aggregate amount of Class C Investor Charge-Offs for all prior Distribution Dates pursuant to subsection 4.10(c), minus (d) the aggregate amount of Reallocated Class C Principal Collections allocated pursuant to subsections 4.12(a) and (b) on all prior Distribution Dates, minus (e) an amount equal to the amount by which the Class C Investor Interest has been reduced on all prior Distribution Dates pursuant to subsections 4.10(a) and (b), and plus (f) 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(h) for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c), (d) and (e); provided further, however, that the Class C Investor Interest may not be reduced below zero. "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 mean the monthly interest distributable in respect of the Class C Certificates as calculated in accordance with subsection 4.6(c). "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(c). "Class C Purchase Agreement" shall mean the agreement among the Seller, the Servicer, the Trustee and the initial Class C Certificateholders, dated as of the Closing Date, as amended or modified from time to time. 10 "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 Loss Amount, if any, for the prior Due Period exceeds the amount of Excess Spread available to be applied to such amounts pursuant to subsections 4.11(f) and (g), 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(e). "Class C Servicing Fee" shall have the meaning specified in Section 3. "Class D Available Funds" shall mean, with respect to any Distribution Date, an amount equal to the sum of (a) the Class D Floating Allocation of Collections of Finance Charge Receivables allocated to the Investor Certificates and deposited in the Collection Account for the related Due Period (excluding any such Collections allocated as a result of the application of clause (b) of the definition of Floating Allocation Percentage) and (b) the Class D Floating Allocation of amounts, if any, to be withdrawn from the Series Excess Funding Account and the Series Excess Funding Reserve Account which will be deposited into the Collection Account on the related Distribution Date pursuant to subsections 4.21(b), 4.22(b) and 4.22(d). "Class D Certificate Rate" shall mean, from the Closing Date through December 14, 1997, from December 15, 1997 through January 14, 1998, and with respect to any Interest Period thereafter, a per annum rate equal to .25% per annum in excess of the Class C Certificate Rate. "Class D Certificateholder" shall mean any person in whose name a Class D Certificate is registered in the Certificate Register. "Class D Certificates" shall mean any of the certificates executed by the Seller and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A-4 hereto. "Class D 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 Investor Interest as of the close of business on the last day of the Revolving Period ending prior to such Due Period; provided, however, that if Series 1997-1 is paired with a Paired Series and an Early Amortization Event occurs with respect to such Paired Series during the Accumulation Period, the Seller may, by written notice delivered to the Trustee and the Servicer, designate a different numerator (provided that such numerator is not less than the Class D Investor Interest as of the last day of the revolving period for such Paired Series), and the denominator of which is equal to the numerator used to determine the Principal Allocation Percentage with respect to such Due Period. 11 "Class D Floating Allocation" shall mean, with respect to any Due Period, the percentage equivalent (which percentage shall never exceed 100%) of a fraction, the numerator of which is the Class D Investor Interest as of the close of business on the last day of the preceding Due Period and the denominator of which is equal to the Adjusted Investor Interest as of the close of business on such day; provided, however, that with respect to the first Due Period, the Class D Floating Allocation shall mean the percentage equivalent of a fraction, the numerator of which is the Class D Initial Investor Interest and the denominator of which is the Initial Investor Interest. "Class D Initial Investor Interest" shall mean the aggregate initial principal amount of the Class D Investor Interest, which is $9,500,000. "Class D Investor Allocation" shall mean, with respect to any Due Period, (a) with respect to Loss 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 Accumulation Period or Early Amortization Period, the Class D Fixed Allocation. "Class D Investor Charge-Offs" shall have the meaning specified in subsection 4.10(d). "Class D Investor Interest" shall mean, on any date of determination, an amount equal to (a) the Class D Initial Investor Interest, minus (b) the aggregate amount of principal payments made to the holders of the Class D Certificates prior to such date, minus (c) the aggregate amount of Class D Investor Charge-Offs for all prior Distribution Dates pursuant to subsection 4.10(d), minus (d) the aggregate amount of Reallocated Class D Principal Collections allocated pursuant to subsections 4.12(a), (b) and (c) on all prior Distribution Dates, minus (e) an amount equal to the amount by which the Class D Investor Interest has been reduced on all prior Distribution Dates pursuant to subsections 4.10(a), (b) and (c), and plus (f) 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(o) for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c), (d) and (e); provided further, however, that the Class D Investor Interest may not be reduced below zero. "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 monthly interest distributable in respect of the Class D Certificates as calculated in accordance with subsection 4.6(d). "Class D Monthly Principal" shall mean the monthly principal distributable in respect of the Class D Certificates as calculated in accordance with subsection 4.7(d). "Class D Servicing Fee" shall have the meaning specified in Section 3. "Closing Date" shall mean November 25, 1997. 12 "Controlled Accumulation Amount" shall mean an amount equal to the Class A Initial Investor Interest divided by the Accumulation Period Length. "Controlled Deposit Amount" for any Due Period shall mean the excess, if any, of (a) the product of the Controlled Accumulation Amount and the number of months elapsed with respect to the Accumulation Period through and including such Due Period over (b) the Principal Funding Account Balance as of the end of the day of the last day of the prior Due Period; provided, that from and after the Distribution Date occurring in such Due Period, the Controlled Deposit Amount for such Due Period shall be reduced by the amount of Available Principal Collections that are deposited into the Principal Funding Account on such Distribution Date. "Controlling Certificateholders" shall mean (a) on any date of determination on which the Class A Investor Interest or the Class B Investor Interest is greater than zero, the Holders of Class A Certificates and Class B Certificates evidencing more than 50% of the sum of the Class A Investor Interest and the Class B Investor Interest, and (b) thereafter, the Holders of Class C Certificates evidencing more than 50% of the Class C Investor Interest. "Covered Amount" shall mean, for any Distribution Date with respect to the Accumulation Period, the product of (a) the Class A Certificate Rate, (b) the Principal Funding Account Balance on the last day of the preceding Due Period and (c) a fraction, the numerator of which is the actual number of days in the related Interest Period and the denominator of which is 360. "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. "Deposit Amount" shall have the meaning specified in subsection 4.21(c). "Distribution Date" shall mean January 15, 1998 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 1997-1 is deemed to have occurred, and ending on the Series 1997-1 Termination Date. "Enhancement" shall mean (a) with respect to the Class A Certificates, the subordination of the Class B Certificates, the Class C Certificates and the Class D Certificates, (b) with respect to the Class B Certificates, the subordination of the Class C Certificates and the Class D Certificates and (c) with respect to the Class C Certificates, the subordination of the Class D Certificates. "Enhancement Provider" shall mean, collectively, the Class C Certificateholders. 13 "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)(iv), 4.9(b)(iv), 4.9(c)(ii) and 4.9(d)(ii). "Finance Charge Shortfall" shall have the meaning specified in subsection 4.14(b). "Fixed Principal Allocation Date" shall mean the earlier of (a) the date on which an Early Amortization Event with respect to Series 1997-1 is deemed to have occurred; and (b) a date selected by the Servicer before the Class A Expected Final Payment Date, if any. If the Servicer establishes a Fixed Principal Allocation Date pursuant to clause (b) of the preceding sentence, the Servicer shall provide notification of such date to the Seller, the Trustee, the Enhancement Provider and the Rating Agencies no later than two Business Days prior to such date. "Floating Allocation Percentage" shall mean, with respect to any Due Period (including any day within such Due Period), the sum of (a) the percentage equivalent of a fraction, the numerator of which is the excess of the Adjusted 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 Initial Investor Interest) over the Series Excess Funding Account Balance on such day and 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 such date (or with respect to the first Due Period ending after the 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 (ii) the sum of the numerators used to calculate the Investor/Purchaser Percentages for such Due Period with respect to Finance Charge Receivables, Principal Receivables or Loss Amounts, as applicable, for all Series of Certificates and Receivable Purchase Series outstanding and (b) for any Due Period with respect to the Accumulation Period (including any day within such Due Period), the percentage equivalent of a fraction which if multiplied by denominator of the fraction described in clause (a) above would produce, on the basis of the actual number of days in the related Interest Period and a year of 360 days, an amount equal to the Principal Funding Investment Shortfall with respect to such Due Period; provided, that with respect to any Due Period in which an Addition Date or Removal Date occurs, the amount in clause (i)(A) above shall be (1) the aggregate amount of Principal Receivables in the Trust 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 such Due Period to but excluding the related Addition Date or Removal Date and (2) the aggregate amount of Principal Receivables in the Trust at the end of the day on the related Addition Date or Removal Date for the period from and including the related Addition Date or Removal Date to and including the last day of such Due Period; provided further, that with respect to any Due Period in which an Addition Date or a Removal Date occurs and the Servicer need not make daily deposits of Collections into the Collection Account, the amount in (i)(A) above shall be the Average Principal Balance. "Group One" shall mean Series 1997-1 and each other Series specified in the related Supplement or Receivables Purchase Agreement to be included in Group One. 14 "Initial Investor Interest" shall mean the sum of the Class A Initial Investor Interest, the Class B Initial Investor Interest, the Class C Initial Investor Interest and the Class D Initial Investor Interest. "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. "Interest Rate Cap" shall mean either of the Class A Cap or the Class B Cap. "Interest Rate Cap Provider" shall mean either of the Class A Cap Provider or the Class B Cap Provider. "Investor Certificateholder" shall mean (a) with respect to the Class A Certificates, any Class A Certificateholder, (b) with respect to the Class B Certificates, any Class B Certificateholder, (c) with respect to the Class C Certificates, any Class C Certificateholder and (d) with respect to the Class D Certificates, any Class D Certificateholder. "Investor Certificates" shall mean the Class A Certificates, the Class B Certificates, the Class C Certificates and the Class D Certificates. "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 Monthly Servicing Fee" shall mean, with respect to any Due Period, an amount equal to one-twelfth of the product of the Series Servicing Fee Percentage and the Adjusted Investor Interest as of the last day of the preceding Due Period; provided that with respect to the first Due Period ending after the Closing Date, the Investor Monthly Servicing Fee shall be $236,583.34. "Investor/Purchaser Percentage" shall mean, with respect to Collections of Principal Receivables, the Principal Allocation Percentage, and with respect to Collections of Finance Charge Receivables or Loss Amounts, the Floating Allocation Percentage. "LIBOR" shall mean, for any Interest Period, the London interbank offered rate for one-month United States dollar deposits determined by the Trustee for each Interest Period in accordance with the provisions of Section 4.18. "LIBOR Determination Date" shall mean November 21, 1997 for the period from the Closing Date through December 14, 1997, December 11, 1997 for the period from December 15, 1997 through January 14, 1998, and the second London Business Day prior to the commencement of the second and each subsequent Interest Period. 15 "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 Seller Interest" shall mean, as of any date of determination, the product of 2% and the excess of the Adjusted Investor Interest over the Series Excess Funding Account Balance on such date of determination; provided, however, that the Seller may reduce the Minimum Seller Interest upon (i) ten Business Days' prior notice to the Trustee, each Rating Agency and the Class C Certificateholder, (ii) satisfaction of the Rating Agency Condition, (iii) delivery to the Trustee, each Purchaser Representative and the Class C Certificateholder of an Officer's Certificate to the effect that such reduction will not then or thereafter cause an Early Amortization Event to occur with respect to any Series, (iv) receipt by the Seller of the consent of the Class C Certificateholder to such reduction, and (v) delivery of a Tax Opinion to the Trustee with respect to such reduction. "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 B Monthly Interest, the Class B Additional Interest, if any, and the unpaid Class B Deficiency Amount, if any; (c) the Class C Monthly Interest and the unpaid Class C Deficiency Amount, if any; and (d) the Class D Monthly Interest, each with respect to 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 sum of (a) the Floating Allocation Percentage of Collections of Finance Charge Receivables allocated to the Investor Certificates for such Due Period, (b) the amount of any Principal Funding Investment Proceeds for the related Distribution Date, (c) any Shared Excess Finance Charge Collections that are allocated to Series 1997-1 pursuant to Section 4.14 for the related Distribution Date, and (d) the amount of funds, if any, to be withdrawn from the Series Excess Funding Account and the Series Excess Funding Reserve Account which, pursuant to subsections 4.21(b), 4.22(b), 4.22(d), 4.22(e) and 4.22(f) are required to be deposited in the Collection Account with respect to such Distribution Date, such sum to be calculated on a cash basis after subtracting the Investor Loss Amount for such Due Period, and the denominator of which is the Series Investor Interest as of the last day of the preceding Due Period (or with respect to the initial Due Period, the Initial Investor Interest). "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 percentage equivalent of a fraction, the numerator of which is the Series Investor Interest as of the end of the day on the last day of the Due Period occurring immediately prior to the Fixed Principal Allocation Date, as applicable and the denominator of which is the greater of (x) the sum of (i) 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 (ii) the Excess Funding Amount as of the close of business of the last day of the prior Due Period, and (y) the sum of the numerators used to calculate the Investor/Purchaser Percentages for such Due Period with respect to Principal 16 Receivables for all Series of Certificates and Receivable Purchase Series outstanding; provided, that with respect to any Due Period in which an Addition Date or Removal Date occurs, the amount in (x)(i) above shall be (1) the aggregate amount of Principal Receivables in the Trust 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 such Due Period to but excluding the related Addition Date or Removal Date and (2) the aggregate amount of Principal Receivables in the Trust at the end of the day on the related Addition Date or Removal Date for the period from and including the related Addition Date or Removal Date to and including the last day of such Due Period; provided further, that with respect to any Due Period in which an Addition Date or a Removal Date occurs and the Servicer need not make daily deposits of Collections into the Collection Account, the amount in clause (x)(i) above shall be the Average Principal Balance. "Principal Funding Account" shall have the meaning set forth in sub- section 4.17(a). "Principal Funding Account Balance" shall mean, with respect to any date of determination during the Accumulation Period, the principal amount, if any, on deposit in the Principal Funding Account on such date of determination. "Principal Funding Investment Proceeds" shall mean, with respect to each Due Period during the Accumulation Period, the investment earnings on funds in the Principal Funding Account (net of investment expenses and losses) for such Due Period. "Principal Funding Investment Shortfall" shall mean, with respect to each Due Period during the Accumulation Period, the amount, if any, by which the Principal Funding Investment Proceeds are less than the Covered Amount; provided that for purposes of determining the Principal Funding Investment Shortfall for purposes of clause (b) of the definition of Floating Allocation Percentage, on any date when the Principal Funding Investment Proceeds or the Covered Amount cannot be determined, Principal Funding Investment Proceeds for such Due Period will be assumed to be the product of (x) 1/12, (y) 2.5% and (z) the Principal Funding Account Balance as of the first day of such Due Period and the Covered Amount shall be determined as if the Class A Certificate Rate was 65% greater than the Class A Certificate Rate applicable to the then-current Interest Period. "Principal Shortfall" shall mean, as the context requires, any of the following: (a) on any Distribution Date with respect to the Accumulation Period, the amount by which the Controlled Deposit 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 (b) on any Distribution Date with respect to the Early Amortization Period, the amount by which the sum of the Adjusted Investor Interest exceeds the Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections). "Rating Agency" shall mean Moody's and Standard & Poor's. 17 "Reallocated Class B Principal Collections" shall mean, with respect to any Distribution Date, Collections of Principal Receivables applied in accordance with subsection 4.12(a) in an amount not to exceed the amount described in subsection 4.5(a)(iv) during the Revolving Period and subsection 4.5(b)(iv) during the Accumulation Period; provided, however, that such amount shall not exceed the Class B Investor Interest after giving effect to any Class B Investor Charge-Offs for such Distribution Date. "Reallocated Class C Principal Collections" shall mean, with respect to any Distribution Date, Collections of Principal Receivables applied in accordance with subsection 4.12(a) in an amount not to exceed the amount described in subsection 4.5(a)(iii) during the Revolving Period and subsection 4.5(b)(iii) during the Accumulation Period; provided, however, that such amount shall not exceed the Class C Investor Interest after giving effect to any Class C Investor Charge-Offs for such Distribution Date. "Reallocated Class D Principal Collections" shall mean, with respect to any Distribution Date, Collections of Principal Receivables applied in accordance with subsection 4.12(a) in an amount not to exceed the amount described in subsection 4.5(a)(ii) during the Revolving Period and subsection 4.5(b)(ii) during the Accumulation Period; provided, however, that such amount shall not exceed the Class D Investor Interest after giving effect to any Class D Investor Charge-Offs for such Distribution Date. "Reallocated Principal Collections" shall mean the sum of (a) Reallocated Class B Principal Collections, (b) Reallocated Class C Principal Collections and (c) Reallocated Class D Principal Collections. "Reference Banks" shall mean four major banks in the London interbank market selected by the Servicer. "Remitted Amount" shall have the meaning specified in subsection 4.21(c). "Replacement Interest Rate Cap" shall mean any replacement interest cap having substantially similar terms and conditions as the Interest Rate Cap it replaces. "Revolving Period" shall mean the period from and including the Closing Date to, but not including, the earlier of (a) the day the Accumulation Period commences or (b) the day the Early Amortization Period commences. "Series Accounts" means the Principal Funding Account, the Series Excess Funding Account and the Series Excess Funding Reserve Account. "Series Excess Funding Account" shall have the meaning set forth in subsection 4.21(a). "Series Excess Funding Account Balance" means, with respect to any date of determination, the principal amount, if any, on deposit in the Series Excess Funding Account on such date of determination. 18 "Series Excess Funding Account Covered Amount" shall mean, for any Distribution Date, the product of (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, (b) the weighted average of the Class A Certificate Rate, the Class B Certificate Rate, the Class C Certificate Rate and the Class D Certificate Rate, weighted based on the Class A Investor Interest, the Class B Investor Interest, the Class C Investor Interest and the Class D Investor Interest and (c) the Series Excess Funding Account Balance on the last day of the preceding Due Period. "Series Excess Funding Account Investment Proceeds" shall mean, with respect to each Due Period, the investment earnings on funds in the Series Excess Funding Account (net of investment expenses and losses) for such Due Period. "Series Excess Funding Account Investment Shortfall" shall mean, (x) with respect to each Due Period occurring prior to the payment in full of all Certificate Series outstanding prior to the Closing Date, the amount, if any, by which the Series Excess Funding Account Investment Proceeds are less than the Series Excess Funding Account Covered Amount and (y) thereafter, $0. "Series Excess Funding Account Required Amount" shall mean, as of any date of determination, the amount, if any, by which the Minimum Aggregate Principal Receivables exceeds the aggregate amount of Principal Receivables. "Series Excess Funding Account Surplus" shall mean as of any date of determination, the amount, if any, which, if withdrawn from the Series Excess Funding Account, would not cause the Minimum Aggregate Principal Receivables to exceed the aggregate amount of Principal Receivables. "Series Excess Funding Reserve Account" shall have the meaning set forth in subsection 4.22(a). "Series Excess Funding Reserve Account Required Amount" shall mean, with respect to any Distribution Date, an amount equal to (a) the product of .50% and the Series Excess Funding Account Balance or (b) any other amount designated by the Seller; provided, that if such designation is of a lesser amount, the Seller shall (i) provide the Servicer, the Class C Certificateholder and the Trustee with evidence that the Rating Agency Condition shall have been satisfied and (ii) deliver to the Trustee a certificate of an authorized officer to the effect that, based on the facts known to such officer at such time, in the reasonable belief of the Seller, such designation will not cause an Early Amortization Event or an event that, after the giving of notice or the lapse of time, would cause an Early Amortization Event to occur with respect to Series 1997-1. "Series Excess Funding Reserve Account Surplus" shall mean, as of any date of determination, the amount, if any, by which the amount on deposit in the Series Excess Funding Reserve Account exceeds the Series Excess Funding Reserve Account Required Amount. 19 "Series Excess Funding Reserve Draw Amount" shall have the meaning set forth in subsection 4.22(c). "Series Investor Interest" shall mean, on any date of determination, an amount equal to (a) the sum of (i) the Class A Investor Interest, (ii) the Class B Investor Interest, (iii) the Class C Investor Interest and (iv) the Class D Investor Interest, each as of such date minus (b) the Series Excess Funding Account Balance on such date. "Series 1997-1" shall mean the Series of the Charming Shoppes Master Trust represented by the Investor Certificates. "Series 1997-1 Certificateholder" shall mean the Holder of record of any Series 1997-1 Certificate. "Series 1997-1 Certificates" shall mean the Class A Certificates, the Class B Certificates, the Class C Certificates and the Class D Certificates. "Series 1997-1 Early Amortization Event" shall have the meaning specified in Section 9 of this Supplement. "Series 1997-1 Termination Date" shall mean the earliest to occur of (a) the Distribution Date on which the Series 1997-1 Certificates are paid in full, (b) the April 2006 Distribution Date or (c) the date of termination of the Trust pursuant to Section 12.1. "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 Investor 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 Investor Certificates as described in Section 4.14. "Shared Principal Collections" shall mean, as the context requires, either (a) the amount allocated to the Investor 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 Investor Certificates pursuant to Section 4.15. "Telerate Page 3750" shall mean the display page currently so designated on the Dow Jones Telerate Service (or such other page as may replace that page on that service for displaying comparable rates or prices). 20 SECTION 0.0.3. SERVICING COMPENSATION. The share of the Monthly Servicing Fee allocable to Series 1997-1 with respect to any Due Period (the "Investor Monthly Servicing Fee") shall be equal to one-twelfth of the product of (i) the Series Servicing Fee Percentage and (ii) the Adjusted Investor Interest less the Series Excess Funding Account Balance, in each case, as of the last day of such Due Period; provided, however, that with respect to the first Due Period ending after the Closing Date, the Investor Monthly Servicing Fee shall be equal to $236,583.34. The share of the 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 one-twelfth of the product of (i) the Class A Floating Allocation, (ii) the Series Servicing Fee Percentage, and (iii) the Adjusted Investor Interest, less the Series Excess Funding Account Balance, in each case, as of the last day of such Due Period; provided, however, that with respect to the first Due Period ending after the Closing Date, the Class A Servicing Fee shall be equal to $158,666.67. The share of the 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 one-twelfth of the product of (i) the Class B Floating Allocation, (ii) the Series Servicing Fee Percentage and (iii) the Adjusted Investor Interest less the Series Excess Funding Account Balance, in each case, as of the last day of such Due Period; provided, however, that with respect to the first Due Period ending after the Closing Date, the Class B Servicing Fee shall be equal to $24,083.33. The share of the 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 one-twelfth of the product of (i) the Class C Floating Allocation, (ii) the Series Servicing Fee Percentage and (iii) the Adjusted Investor Interest less the Series Excess Funding Account Balance, in each case, as of the last day of such Due Period; provided, however, that with respect to the first Due Period ending after the Closing Date, the Class C Servicing Fee shall be equal to $26,916.67. The share of the Investor Monthly Servicing Fee allocable to the Class D Investor Interest with respect to any Due Period (the "Class D Servicing Fee"; together with the Class A Servicing Fee, the Class B Servicing Fee and the Class C Servicing Fee, the "Certificateholder Servicing Fee") shall be equal to one-twelfth of the product of (i) the Class D Floating Allocation, (ii) the Series Servicing Fee Percentage and (iii) the Adjusted Investor Interest less the Series Excess Funding Account Balance, in each case, as of the last day of such Due Period; provided, however, that with respect to the first Due Period ending after the Closing Date, the Class D Servicing Fee shall be equal to $26,916.67. Except as specifically provided above, the Investor 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 Investor 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 B Servicing Fee shall be payable 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 C Servicing Fee shall be payable solely to the extent amounts are available for distribution in respect thereof pursuant to subsections 4.9(c)(i) and 4.11(e). The Class D Servicing Fee shall be 21 payable solely to the extent amounts are available for distribution in respect thereof pursuant to subsections 4.9(d)(i) and 4.11(l). SECTION 0.0.4. REASSIGNMENT AND TRANSFER TERMS. The Investor Certificates shall be subject to retransfer to the Seller at its option, in accordance with the terms specified in subsection 12.2(a), on any Distribution Date on or after the Distribution Date on which the Series Investor Interest is less than or equal to 5% of the Initial Investor Interest. The deposit required in connection with any such repurchase shall be equal to the Series Investor Interest plus accrued and unpaid interest on the Investor Certificates through the day preceding the Distribution Date on which the repurchase occurs. SECTION 0.0.5. DELIVERY AND PAYMENT FOR THE INVESTOR CERTIFICATES. The Seller shall execute and deliver the Investor Certificates to the Trustee for authentication in accordance with Section 6.1. The Trustee shall deliver the Investor Certificates when authenticated in accordance with Section 6.2. SECTION 0.0.6. DEPOSITORY; FORM OF DELIVERY OF SERIES 1997-1 CERTIFICATES. 0.0.6.1. The Class A Certificates and the Class B Certificates shall be delivered as Book-Entry Certificates as provided in Sections 6.2 and 6.10. 0.0.6.2. The Depository for Series 1997-1 shall be The Depository Trust Company, and the Class A Certificates and Class B Certificates shall be initially registered in the name of Cede & Co., its nominee. SECTION 0.0.7. 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 1997-1 Certificates. 22 ARTICLE 1. RIGHTS OF CERTIFICATEHOLDERS AND RECEIVABLES PURCHASERS AND ALLOCATION AND APPLICATION OF COLLECTIONS SECTION 1.1. RIGHTS OF INVESTOR CERTIFICATEHOLDERS. The Investor 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 Investor 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 and (b) funds on deposit in the Collection Account, the Principal Funding Account, the Series Excess Funding Account and the Series Excess Funding Reserve Account. The Class D Certificate shall be subordinate to the Class A Certificates, the Class B Certificates and the Class C Certificates. The Class C Certificates shall be subordinate to the Class A Certificates and the Class B Certificates. The Class B Certificates shall be subordinate to the Class A Certificates. The Exchangeable Seller Certificate shall not represent any interest in the Collection Account, the Principal Funding Account, the Series Excess Funding Account or the Series Excess Funding Reserve Account, except as specifically provided in this Article IV. SECTION 1.2. Allocations. 1.2.0.1. 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 Investor Certificateholders, the Certificateholders of other Series and the Holder of the Exchangeable Seller Certificate the following amounts as set forth below: 1.2.0.1.1. Allocate to the Investor Certificateholders 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 Section 4.9. 1.2.0.1.2. An amount equal to the product of (A) the Class D 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 and then in accordance with subsection 4.9(e). 1.2.0.1.3. 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 23 such date, to be applied first in accordance with Section 4.12 and then in accordance with subsection 4.9(e). 1.2.0.1.4. 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 and then in accordance with subsection 4.9(e). 1.2.0.1.5. 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(e). 1.2.0.2. Allocations During the Accumulation Period. During the Accumulation Period, the Servicer shall, prior to the close of business on the any Collections are deposited in the Collection Account, allocate to the Investor Certificateholders, the Certificateholders of other Series or the Holder of the Exchangeable Seller Certificate the following amounts as set forth below: 1.2.0.2.1. Allocate to the Investor Certificateholders 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 Section 4.9. 1.2.0.2.2. An amount equal to the product of (A) the Class D 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 and then in accordance with subsection 4.9(f). 1.2.0.2.3. 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 and then in accordance with subsection 4.9(f). 1.2.0.2.4. 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 and then in accordance with subsection 4.9(f). 1.2.0.2.5. 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(f). 24 1.2.0.3. 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 Investor Certificateholders, the Certificateholders of other Series or the Holder of the Exchangeable Seller Certificate the following amounts as set forth below: 1.2.0.3.1. Allocate to the Investor 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 Section 4.9. 1.2.0.3.2. An amount equal to the product of (A) the Class D 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 and then in accordance with subsection 4.9(f). 1.2.0.3.3. 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 and then in accordance with subsection 4.9(f). 1.2.0.3.4. 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 and then in accordance with subsection 4.9(f). 1.2.0.3.5. 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(f). SECTION 1.3. DETERMINATION OF MONTHLY INTEREST. 1.3.0.1. 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 actual number of days in the related Interest Period and the denominator of which is 360, (ii) the Class A Certificate Rate, and (iii) the outstanding principal balance of the Class A Certificates determined as of the Record Date preceding such Distribution Date (the "Class A Monthly Interest"); provided, however, that with respect to the first Distribution Date, Class A Monthly Interest will be equal to interest accrued on the initial outstanding principal balance of the Class A Certificates at the Class A Certificate Rate from the Closing Date through January 14, 1998; provided further, however, 25 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 actual number of days in the related Interest Period and the denominator of which is 360, (B) the sum of the Class A Certificate Rate, and 2.0% 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 prior Interest Periods over the amount actually paid to Class A Certificateholders in respect of such amounts. (b) 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 actual number of days in the related Interest Period and the denominator of which is 360, (ii) the Class B Certificate Rate, and (iii) the outstanding principal balance of the Class B Certificates determined as of the Record Date preceding such Distribution Date (the "Class B Monthly Interest"); provided, however, that with respect to the first Distribution Date, Class B Monthly Interest will be equal to interest accrued on the initial outstanding principal balance of the Class B Certificates at the Class B Certificate Rate from the Closing Date through January 14, 1998; provided further, however, 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 actual number of days in the related Interest Period and the denominator of which is 360, (B) the sum of the Class B Certificate Rate and 2.0% 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(b) for all prior Interest Periods over the amount actually paid to the Class B Certificateholders in respect of such amounts. (c) 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 actual number of days in the related Interest Period 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 Class C Investor Interest determined as of the Record Date preceding such Distribution Date (the "Class C Monthly Interest"); provided, however, 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(c) for all prior Interest Periods over the amount actually paid to the Class C Certificateholders in respect of such amounts. (d) The amount of monthly interest distributable in respect of the Class D Certificates on each Distribution Date shall be an amount equal to the product of (i) a fraction, 26 the numerator of which is the actual number of days in the related Interest Period and the denominator of which is 360, (ii) the Class D Certificate Rate in effect with respect to the related Interest Period, and (iii) the Class D Investor Interest determined as of the Record Date preceding such Distribution Date (the "Class D Monthly Interest"). SECTION 1.4. DETERMINATION OF MONTHLY PRINCIPAL. 1.4.0.1. The amount of monthly principal distributable with respect to the Class A Certificates or to be deposited into the Principal Funding Account on each Distribution Date (the "Class A Monthly Principal"), beginning with the Distribution Date in the month following the month in which the Accumulation 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 Accumulation Period prior to the Class A Expected Final Payment Date, the Controlled Deposit Amount for such Distribution Date and (iii) the Class A Adjusted Investor Interest on such Distribution Date prior to any deposit into the Principal Funding Account on such Distribution Date (and after taking into account any adjustments to be made on such Distribution Date pursuant to Section 4.10 and Section 4.12). 1.4.0.2. 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 following the Due Period in 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, shall be 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 on such Distribution Date) and (ii) 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. 1.4.0.3. 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 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. 1.4.0.4. The amount of monthly principal distributable with respect to the Class D Certificates on each Distribution Date (the "Class D 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 B Monthly Principal and Class C Monthly Principal on such Distribution Date) and (ii) the Class D Investor Interest (after taking into account any 27 adjustments to be made on such Distribution Date pursuant to Sections 4.10 and 4.12) on such Distribution Date. SECTION 1.5. COVERAGE OF CLASS A AND CLASS B REQUIRED AMOUNTS. 1.5.0.1. 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, plus (iv) the Class A Servicing Fee for the prior 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 the prior Due Period, exceeds the Class A Available Funds for the related Due Period. 1.5.0.2. 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 prior 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 the prior Due Period, exceeds the Class B Available Funds for the related Due Period. 1.5.0.3. In the event that the Class A 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 or Class B Required Amount on or before such Distribution Date. For any Distribution Date other than Distribution Dates relating to the Early Amortization Period, 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, the Collections of Principal Receivables allocable to the Class D Certificates, the Collections of Principal Receivables allocable to the Class C Certificates and the Collections of Principal Receivables allocable to the Class B Certificates with respect to the prior Due Period shall be applied as specified in Section 4.12. 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(c), the Collections of Principal Receivables allocable to the Class D Certificates and the Collections of Principal Receivables allocable to the Class C Certificates (after application, in each case, to the Class A Required Amount) 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 and the Class B Required Amount. 28 SECTION 1.6. 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 B 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: 1.6.0.1. 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: 1.6.0.1.1. 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; 1.6.0.1.2. 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; 1.6.0.1.3. an amount equal to the Class A Investor Loss Amount, if any, for the preceding Due Period shall be treated as a portion of Available Principal Collections for such Distribution Date; and 1.6.0.1.4. the balance, if any, shall constitute Excess Spread and shall be allocated and distributed as set forth in Section 4.11. 1.6.0.2. 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: 1.6.0.2.1. 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; 1.6.0.2.2. 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 1.6.0.2.3. an amount equal to the Class B Investor Loss Amount, if any, for the preceding Due Period shall be treated as a portion of Available Principal Collections for such Distribution Date; and 1.6.0.2.4. the balance, if any, shall constitute Excess Spread and shall be allocated and distributed as set forth in Section 4.11. 29 1.6.0.3. 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: 1.6.0.3.1. 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 1.6.0.3.2. the balance, if any, shall constitute Excess Spread and shall be allocated and distributed as set forth in Section 4.11. 1.6.0.4. 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: 1.6.0.4.1. 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 1.6.0.4.2. the balance, if any, shall constitute Excess Spread and shall be allocated and distributed as set forth in Section 4.11. 1.6.0.5. 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: 1.6.0.5.1. 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; 1.6.0.5.2. an amount equal to the lesser of (A) Available Principal Collections for such Distribution Date after giving effect to the applications specified in subsections 4.9(e)(i) above, (B) the product of (1) a fraction, the numerator of which is equal to the Available Principal Collections and the denominator of which is equal to the sum of the Available Principal Collections available for sharing as specified in the related Supplement and Receivables Purchase Agreement for each Series (including this Series 1997-1) in Group One that are Principal Sharing Series and (2) the Cumulative Principal Shortfall and (C) Available Principal Collections, shall be treated as Shared Principal Collections and applied to Series in Group One that are Principal Sharing Series other than this Series 1997-1; and 1.6.0.5.3. subject to Section 4.21(c), an amount equal to the excess, if any, of (A) the Available Principal Collections for such Distribution Date over (B) the applications specified in subsections 4.9(e)(i) and (ii) above shall be paid to the Holder of the Exchangeable Seller Certificate; provided, however, that in no event shall the amount payable to the Holder of the Exchangeable Seller Certificate pursuant to this subsection 4.9(e)(iii) be greater than the Seller Interest on such Distribution Date. 30 1.6.0.6. During the Accumulation Period or the Early Amortization 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: 1.6.0.6.1. an amount equal to the Class A Monthly Principal for such Distribution Date shall be (A) during the Accumulation Period, deposited into the Principal Funding Account, and (B) during the Early Amortization Period, distributed to the Class A Certificateholders; 1.6.0.6.2. after giving effect to the distribution referred to in clause (i) above, an amount equal to the Class B Monthly Principal shall be distributed to the Class B Certificateholders; 1.6.0.6.3. after giving effect to the distribution referred to in clauses (i) and (ii) above, 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; 1.6.0.6.4. after giving effect to the distributions referred to in clauses (i), (ii) and (iii) above, an amount equal to the Class D Monthly Principal shall be distributed to the Class D Certificateholders; 1.6.0.6.5. after giving effect to the distribution referred to in clause (i), (ii), (iii) and (iv) above, 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; 1.6.0.6.6. an amount equal to the lesser of (A) the product of (1) a fraction, the numerator of which is equal to the Available Principal Collections remaining after the application specified in clauses (i), (ii), (iii), (iv) and (v) above and the denominator of which is equal to the sum of the Available Principal Collections available for sharing as specified in the related Supplement or Receivables Purchase Agreement for each Series (including this Series 1997-1) in Group One which is a Principal Sharing Series and (2) the Cumulative Principal Shortfall and (B) the Available Principal Collections, shall be treated as Shared Principal Collections and applied to Series in Group One which are Principal Sharing Series other than this Series 1997-1; and 1.6.0.6.7. an amount equal to the excess, if any, of (A) the Available Principal Collections over (B) the applications specified in clauses (i) through (vi) above shall be paid to the Holder of the Exchangeable Seller Certificate; provided, however, that in no event shall the amount payable to the Holder of the Exchangeable Seller Certificate pursuant to this subsection 4.9(f)(vii) be greater than the Seller Interest on such Distribution Date. 1.6.0.7. On the earlier to occur of (i) the Distribution Date in the month following the commencement of the Early Amortization Period and (ii) the Class A Expected 31 Final Payment Date, the Trustee, acting in accordance with instructions from the Servicer, shall withdraw from the Principal Funding Account and distribute to the Class A Certificateholders the amount on deposit in the Principal Funding Account. SECTION 1.7. INVESTOR CHARGE-OFFS. 1.7.0.1. 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 Investor Interest (after giving effect to reductions for any Class D Investor Charge-Offs and any Reallocated Class D Principal Collections on such Distribution Date) will be reduced by the amount of such excess. In the event that such reduction would cause the Class D Investor Interest to be a negative number, the Class D 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 and any Reallocated Class C Principal Collections on such Distribution Date) will be reduced by the amount by which the Class D Investor Interest would have been reduced below zero. In the event that such reduction would cause the Class C Investor Interest to be a negative number, 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 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. In the event that such reduction would cause the Class B Investor Interest to be a negative number, the Class B Investor Interest will be reduced to zero, and the Class A Investor Interest will 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 A Investor Loss Amount for such Distribution Date (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 allocated and available for such purpose pursuant to subsection 4.11(b). 1.7.0.2. 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 sub- section 4.9(b)(iii), subsection 4.11(c) and Section 4.12 with respect to such Due Period, the Class D Investor Interest (after giving effect to reductions for any Class D Investor Charge-Offs and any Reallocated Class D Principal Collections on such Distribution Date and any adjustments with respect thereto as described in subsection 4.10(a) above) will be reduced by the amount of such excess. In the event that such reduction would cause the Class D Investor Interest to be a negative number, the Class D 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 and any Reallocated Class C Principal Collections on such Distribution Date and any adjustment with respect thereto as described in subsection 4.10(a) above) will be reduced by the amount by which the Class D Investor Interest would have been reduced below zero. In the event that such reduction would cause the Class C Investor 32 Interest to be a negative number, 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 (a "Class B Investor Charge-Off"). The Class B Investor Interest will also be reduced by the amount of Reallocated Class B Principal Collections in excess of the Class C Investor Interest pursuant to Section 4.12 and the amount of any portion of the Class B Investor Interest allocated to the Class A Certificates to avoid a reduction in the Class A Investor Interest pursuant to subsection 4.10(a) above. The Class B Investor Interest will thereafter be reimbursed (but not to an amount in excess of the unpaid principal balance of the Class B Certificates) on any Distribution Date by the amount of Excess Spread allocated and available for that purpose as described under subsection 4.11(d). 1.7.0.3. 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(g) and Section 4.12, the Class D Investor Interest (after giving effect to reductions for any Class D Investor Charge-Offs and any Reallocated Class D Principal Collections on such Distribution Date and any adjustments thereto as described in subsection 4.10(a) or (b) above) will be reduced by the amount of such excess. In the event that such reduction would cause the Class D Investor Interest to be a negative number, the Class D 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 and any Reallocated Class C Principal Collections on such Distribution Date and any adjustments with respect thereto as described in subsection 4.10(a) or 4.10(b) above) will be reduced by the amount by which the Class D Investor Interest would have been reduced below zero (a "Class C Investor Charge-Off"). The Class C Investor Interest will also be reduced by the amount of Reallocated Class C Principal Collections pursuant to Section 4.12 and the amount of any portion of the Class C Investor Interest allocated to the Class A Certificates or the Class B Certificates to avoid a reduction in the Class A Investor Interest, pursuant to subsection 4.10(a), or the Class B Investor Interest, pursuant to subsection 4.10(b), respectively. The Class C Investor Interest will thereafter be reimbursed on any Distribution Date by the amount of the Excess Spread allocated and available under subsection 4.11(h). 1.7.0.4. 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 which is allocated and available to fund such amount pursuant to subsection 4.11(n), the Class D Investor Interest will be reduced by the amount of such excess (a "Class D Investor Charge-Off"). The Class D Investor Interest will also be reduced by the amount of Class D Reallocated Principal Collections pursuant to Section 4.12 and the amount of any portion of the Class D Investor Interest allocated to the Class A Certificates, the Class B Certificates or the Class C Certificates to avoid a reduction in the Class A Investor Interest, pursuant to subsection 4.10(a), the Class B Investor Interest, pursuant to subsection 4.10(b), or the Class C Investor Interest, pursuant to Section 4.10(c), respectively. The Class D Investor Interest will 33 thereafter be reimbursed on any Distribution Date by the amount of the Excess Spread allocated and available for that purpose as described under subsection 4.11(o). SECTION 1.8. 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 B hereto) to apply Excess Spread and Shared Excess Finance Charge Collections allocated to Series 1997-1 with respect to the related Due Period to make the following distributions on each Distribution Date in the following priority: 1.8.0.1. 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); 1.8.0.2. 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; 1.8.0.3. an amount equal to the Class B Required Amount, if any, with respect to such Distribution Date shall be used to fund the Class B Required Amount and be applied in accordance with, and in the priority set forth in, subsection 4.9(b); 1.8.0.4. an amount equal to the aggregate amount by which the Class B Investor Interest has been reduced below the Class B Initial Investor Interest for reasons other than the payment of principal to the Class B Certificateholders (but not in excess of the aggregate amount of such reductions which have not been previously reimbursed) shall be treated as a portion of Available Principal Collections for such Distribution Date; 1.8.0.5. 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; 1.8.0.6. an amount equal to 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; 1.8.0.7. an amount equal to the Class C Investor Loss Amount, if any, for the prior Due Period shall be treated as a portion of Available Principal Collections for such Distribution Date; 1.8.0.8. an amount equal to the aggregate 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 (but not in excess of the aggregate amount of such reductions which have not been previously reimbursed) shall be treated as a portion of Available Principal Collections for such Distribution Date; 34 1.8.0.9. [Reserved]; 1.8.0.10. an amount up to the excess, if any, of the Series Excess Funding Reserve Account Required Amount over the amount on deposit in the Series Excess Funding Reserve Account shall be deposited into the Series Excess Funding Reserve Account; 1.8.0.11. 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 1997-1 pursuant to the Class C Purchase Agreement shall be distributed for application in accordance with the Class C Purchase Agreement; 1.8.0.12. an amount equal to the excess, if any, of the Class D Servicing Fee over the Class D Available Funds for such Distribution Date shall be paid to the Servicer; 1.8.0.13. an amount equal to the Class D Monthly Interest plus the amount of any past due Class D Monthly Interest for such Distribution Date shall be distributed to the Class D Certificateholders; 1.8.0.14. an amount equal to the Class D Investor Loss Amount, if any, for the prior Due Period shall be treated as a portion of Available Principal Collections for such Distribution Date; 1.8.0.15. an amount equal to the aggregate amount by which the Class D Investor Interest has been reduced below the Class D Initial Investor Interest for reasons other than the payment of principal to the Class D Certificateholders (but not in excess of the aggregate amount of such reductions which have not been previously reimbursed) shall be treated as a portion of Available Principal Collections for such Distribution Date; and 1.8.0.16. 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 Collections with respect to any Series in Group One, shall be distributed to the Holder of the Exchangeable Seller Certificate. SECTION 1.9. REALLOCATED PRINCIPAL 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 B hereto) to apply Reallocated Principal Collections (applying all Reallocated Class C Principal Collections in accordance with subsections 4.12(a) and (b) prior to applying any Reallocated Class B Principal Collections in accordance with subsection 4.12(a) for any amounts still owing after the application of Reallocated Class C Principal Collections and applying all Reallocated Class D Principal Collections in accordance with subsections 4.12(a), (b) and (c) prior to applying any Reallocated Class C Principal Collections in accordance with subsections 4.12(a) or (b) for any amounts still owing after the application of Reallocated Class D Principal Collections) 35 with respect to such Distribution Date, to make the following distributions on each Distribution Date in the following priority: 1.9.0.1. an amount equal to the excess, if any, of (i) the Class A Required Amount, if any, with respect to such Distribution Date over (ii) the amount of Excess Spread and Shared Excess Finance Charge Collections allocated to Series 1997-1 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) and (iii); 1.9.0.2. an amount equal to the excess, if any, of (i) the Class B Required Amount, if any, with respect to such Distribution Date over (ii) the amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available to the Class B Certificates pursuant to subsection 4.11(c) on such Distribution Date shall be applied in accordance with, and in the priority set forth in subsections 4.9(b)(i), (ii) and (iii); and 1.9.0.3. an amount equal to the excess, if any, of (i) the Class C Required Amount, if any, with respect to such Distribution Date over (ii) 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(e), 4.11(f) and 4.11(g) on such Distribution Date shall be applied first pursuant to subsection 4.9(c)(i), and then pursuant to and in the priority set forth in subsections 4.11(f) and 4.11(g). On each Distribution Date, the Class D Investor Interest shall be reduced by the amount of Reallocated Class D Principal Collections for such Distribution Date, the Class C Investor Interest shall be reduced by the amount of Reallocated Class C Principal Collections for such Distribution Date, and the Class B Investor Interest shall be reduced by the amount of Reallocated Class B Principal Collections for such Distribution Date. SECTION 1.10. 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 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 Investor 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. 36 SECTION 1.11. SHARED EXCESS FINANCE CHARGE COLLECTIONS. 1.11.0.1. The balance of any Available Funds on deposit in the Collection Account after giving effect to subsections 4.11(a) through (o) 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 1997-1 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 1997-1 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 1997-1 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 1997-1 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 (o) on such Distribution Date over (b) the Available Funds for such Distribution Date. SECTION 1.12. SHARED PRINCIPAL COLLECTIONS. Subject to subsection 4.3(f) of the Agreement, Shared Principal Collections for any Distribution Date will be allocated to Series 1997-1 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 1997-1 for such Distribution Date and the denominator of which is the Cumulative Principal Shortfall for such Distribution Date. 37 SECTION 1.13. [Reserved]. SECTION 1.14. THE PRINCIPAL FUNDING ACCOUNT. 1.14.0.1. The Trustee, for the benefit of the Class A Certificateholders, shall establish or shall cause to be established and maintained with a Qualified Depository Institution in the name of the Trustee, on behalf of the Trust, a segregated trust account (the "Principal Funding Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Class A Certificateholders. The Principal Funding Account shall be under the sole dominion and control of the Trustee for the benefit of the Investor Certificateholders. If, at any time, the institution holding the Principal Funding Account ceases to be a Qualified Depository Institution, the Seller shall notify the Trustee and the Trustee upon being notified shall, promptly (but, in any event within twenty Business Days) establish a new Principal Funding Account meeting the conditions specified above with a Qualified Depository Institution, transfer any cash or any investments to such new Principal Funding Account and from the date such new Principal Funding Account is established, it shall be the "Principal Funding Account." Neither the Seller nor the Servicer, nor any Person claiming by, through or under the Seller or Servicer, shall have any right, title or interest in, or any right to withdraw any amount from, the Principal Funding Account except to the extent provided in this Supplement and the Agreement. Pursuant to the authority granted to the Servicer in subsection 3.1(b), the Servicer shall have the revocable power to instruct the Trustee to make withdrawals and payments from the Principal Funding Account for the purposes of carrying out the Servicer's duties under this Supplement. 1.14.0.2. Funds on deposit in the Principal Funding Account shall be invested by the Trustee at the direction of the Servicer in Permitted Investments that will mature so that such funds will be available prior to the Distribution Date following such investment. Any request by the Servicer to invest funds on deposit in the Principal Funding Account shall be in writing and shall certify that the requested investment is a Permitted Investment that matures at or prior to the time required hereby. The Trustee shall maintain possession of the negotiable instruments or securities, if any, evidencing such Permitted Investments. No Permitted Investment shall be disposed of prior to its maturity. 1.14.0.3. On each Distribution Date with respect to the Accumulation Period, the Trustee, acting at the Servicer's direction given on the related Determination Date, shall transfer from the Principal Funding Account to the Collection Account the Principal Funding Investment Proceeds on such date, for application as Class A Available Funds for such Distribution Date. Principal Funding Investment Proceeds shall not be considered to be principal amounts on deposit in the Principal Funding Account for purposes of this Supplement. 1.14.0.4. On or prior to the Distribution Date commencing 13 months prior to the Class A Expected Final Payment Date, the Seller shall designate the number of months in the Accumulation Period (the "Accumulation Period Length") and, correspondingly, the 38 first day of the Due Period on which the Accumulation Period will commence. The Seller may change such designation at any time prior to the commencement of the Accumulation Period. The Seller shall provide the Servicer, the Trustee, the Rating Agencies and the Class C Certificateholders with notice of each such designation. Such designations shall be effective hereunder for all purposes if the Seller shall (i) have provided the Servicer, the Trustee and the Enhancement Provider evidence that the Rating Agency Condition shall have been satisfied, and (ii) have delivered to the Trustee a certificate of an authorized officer to the effect that, based on the facts known to such officer at such time, in the reasonable belief of the Seller, such designation will not cause an Early Amortization Event or an event that, after the giving of notice or the lapse of time, would cause an Early Amortization Event to occur with respect to Series 1997-1. SECTION 1.15. DETERMINATION OF LIBOR. 1.15.0.1. On each LIBOR Determination Date, the Trustee will determine LIBOR on the basis of the rate for deposits in United States dollars for a one-month period which appears on Telerate page 3750 as of 11:00 a.m., London time, on such date. If such rate does not appear on Telerate Page 3750, the rate for that LIBOR Determination Date will be determined on the basis of the rates at which deposits in United States dollars are offered by the Reference Banks at approximately 11:00 a.m., London time, on that day to prime banks in the London interbank market for a one-month period. The Trustee will request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two such 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 as requested, the rate for that LIBOR Determination Date will be the arithmetic mean of the rates quoted by major banks in New York City, selected by the Servicer, at approximately 11:00 a.m., New York City time, on that day for loans in United States dollars to leading European banks for a one-month period. 1.15.0.2. The Class A Certificate Rate and the Class B Certificate Rate applicable to the then current and the immediately preceding Interest Periods may be obtained by any Investor Certificateholder by telephoning the Trustee at its Corporate Trust Office at (215) 985-7321. 1.15.0.3. 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. 39 SECTION 1.16. INTEREST RATE CAPS. 1.16.0.1. The Servicer hereby represents that Fashion Service Corp has obtained and assigned to the Trust (i) the Class A Cap in favor of the Trust for the benefit of the Class A Certificateholders and (ii) the Class B Cap in favor of the Trust for the benefit of the Class B Certificateholders, the Class C Certificateholders and the Class D Certificateholders. The Class A Cap shall entitle the Trust to receive monthly the Class A Cap Payment, if any, as set forth in the Class A Cap. The Class B Cap shall entitle the Trust to receive monthly the Class B Cap Payment, if any, as set forth in the Class B Cap. 1.16.0.2. Upon the effectiveness of any Replacement Interest Rate Cap, the Interest Rate Cap being replaced shall terminate and the applicable Interest Rate Cap Provider shall be released of all future obligations thereunder, provided that such Interest Rate Cap shall not be released from any obligations which have previously accrued thereunder and shall continue to be obligated to perform such obligations. 1.16.0.3. The Trustee hereby appoints the Servicer to act as calculation agent under the Interest Rate Caps and the Servicer accepts such appointment. SECTION 1.17. PAIRED SERIES. Any other Series in Group One may be designated (but only with the consent of the Class C Certificateholders) as a Paired Series for Series 1997-1. Such Paired Series either shall be prefunded with an initial deposit to a prefunding account in an amount up to the initial principal balance 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 1997-1 Certificateholders. As funds in the Collection Account are allocated for distribution as Available Principal Collections during the Early Amortization Period or Accumulation 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 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 Series Investor Interest of such Paired Series will increase by up to a corresponding amount. Upon payment in full of the Series 1997-1 Certificates and payment of all amounts due to the Class C Certificateholders, 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 1997-1 Certificateholders and the Class C Certificateholders (or such other amount as the holders of such Paired Series shall agree). 40 SECTION 1.18. SERIES EXCESS FUNDING ACCOUNT. 1.18.0.1. The Servicer, for the benefit of the Investor Certificateholders, shall establish and maintain in the name of the Trustee, on behalf of the Trust, a segregated trust account with a Qualified Depository Institution bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Investor Certificateholders (the "Series Excess Funding Account"). The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Series Excess Funding Account and in all proceeds thereof. The Series Excess Funding Account shall be under the sole dominion and control of the Trustee for the benefit of the Investor Certificateholders. Except as expressly provided in this Agreement, the Servicer agrees that it shall have no right of setoff or banker's lien against, and no right to otherwise deduct from, any funds held in the Series Excess Funding Account for any amount owed to it by the Trustee, the Trust, or any Investor Certificateholder. If, at any time, the institution holding the Series Excess Funding Account ceases to be a Qualified Depository Institution, the Trustee upon notice by the Servicer (or the Servicer on its behalf) shall promptly (but in any event within 20 Business Days) establish a new Series Excess Funding Account with a Qualified Depository Institution meeting the conditions specified above, transfer any cash or any investments to such new Series Excess Funding Account and from the date such new Series Excess Funding Account is established, it shall be the "Series Excess Funding Account." 1.18.0.2. On the Closing Date, the Servicer shall deposit into the Series Excess Funding Account an amount equal to the Series Excess Funding Account Required Amount. Funds on deposit in the Series Excess Funding Account shall at the direction of the Servicer be invested by the Trustee in Permitted Investments selected by the Servicer. All such Permitted Investments shall be held by the Trustee for the benefit of the Investor Certificateholders. The Trustee shall maintain for the benefit of the Investor Certificateholders possession of the negotiable instruments or securities, if any, evidencing such Permitted Investments. Funds on deposit in the Series Excess Funding Account on any date (after giving effect to any withdrawals from the Series Excess Funding Account on such date) will be invested in Permitted Investments that will mature so that funds will be available at the close of business on the Distribution Date following such date. On each Determination Date, the Servicer shall instruct the Trustee to withdraw on the related Distribution Date from the Series Excess Funding Account and deposit in the Collection Account all Series Excess Funding Account Investment Proceeds on funds on deposit in the Series Excess Funding Account, for application as Available Funds on such Distribution Date. 1.18.0.3. On any day on which, pursuant to subsection 4.3(c), the Servicer would otherwise pay amounts from Collections in respect of Principal Receivables to the Holder of the Exchangeable Seller Certificate, the Servicer shall be entitled to deposit all or part of such amount into the Series Excess Funding Account, it being understood that such amount may be attributable to Series 1997-1 or any other Series. On the Business Day immediately prior to each Determination Date, Servicer shall reconcile the amounts that were so deposited during the related Due Period (the "Deposit Amount"), together with other amounts paid to the Holder of the Exchangeable Seller Certificate or the Originator pursuant 41 to subsection 4.3(c) during such Due Period in respect of Collections on Principal Receivables (the "Remitted Amount"), taking into account amounts required to be allocated on or prior to the related Distribution Date to each Series (including without limitation any deposit to the Excess Funding Amount required under subsection 4.3(f) and any reallocation of Principal Collections required under Section 4.12 of the Supplement for Series 1997-1 or the comparable section of any other Supplement). If such reconciliation showed that the sum of the Deposit Amount plus the Remitted Amount exceeded the aggregate amount permitted to be paid to the Holder of the Seller Exchangeable Certificate in respect thereof, the Servicer shall withdraw the amount by which such excess is greater than the Remitted Amount from the Series Excess Funding Account on such Business Day and deposit such amount into the Collection Account for allocation to the appropriate Series. 1.18.0.4. On any Determination Date with respect to the Accumulation Period or Early Amortization Period, the Servicer shall determine the aggregate amount of Principal Shortfalls, if any, with respect to Series 1997-1 (after giving effect to the allocation and payment provisions herein), and the Servicer shall instruct the Trustee to withdraw such amount from the Series Excess Funding Account on the succeeding Distribution Date (up to the amount on deposit therein) and allocate such amount as Available Principal Collections for such Distribution Date. 1.18.0.5. On any Determination Date on which a Series Excess Funding Account Surplus exists (after taking into account all withdrawals and deposits to be made on the following Distribution Date), the Trustee shall withdraw such from the Series Excess Funding Account the amount of such Series Excess Funding Account Surplus on the related Distribution Date and pay such amount to the Holder of the Exchangeable Seller Certificate; provided, however, in no event shall the amount payable to the Holder of the Exchangeable Seller Certificate pursuant to this subsection 4.21(e) be greater than the Sellers Interest on such Distribution Date. 1.18.0.6. On each Determination Date on which funds are on deposit in the Series Excess Funding Account, the Servicer will determine whether (after giving effect to the withdrawals and deposits provided for in clauses (c), (d) and (e) above on or prior to the following Distribution Date) the amount on deposit in the Series Excess Funding Account is equal to or greater than 20% of the Initial Investor Interest. If such determination shows the amount on deposit to be equal to or greater than 20% of the Initial Investor Interest on that Determination Date and the five preceding Determination Dates, on the next Distribution Date the Trustee shall withdraw funds from the Series Excess Funding Account, in an amount equal to 20% of the Initial Investor Interest, and distribute such amount as a payment of principal to the Holders of the Investor Certificates pro rata based on the Class A Investor Interest, the Class B Investor Interest, the Class C Investor Interest and the Class D Investor Interest, respectively. 42 SECTION 1.19. SERIES EXCESS FUNDING RESERVE ACCOUNT. 1.19.0.1. The Servicer shall establish and maintain with a Qualified Depository Institution, in the name of the Trustee, on behalf of the Trust, for the benefit of the Investor Certificateholders, a segregated trust account with the corporate trust department of such Qualified Depository Institution (the "Series Excess Funding Reserve Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Investor Certificateholders. The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Series Excess Funding Reserve Account and in all proceeds thereof. The Series Excess Funding Reserve Account shall be under the sole dominion and control of the Trustee for the benefit of the Series 1997-1 Certificateholders. If at any time the institution holding the Series Excess Funding Reserve Account ceases to be a Qualified Depository Institution the Seller shall notify the Trustee and the Trustee upon being notified (or the Servicer on its behalf) shall promptly (but in any event within 20 Business Days) establish a new Series Excess Funding Reserve Account meeting the conditions specified above with a Qualified Depository Institution, and shall transfer any cash or any investments to such new Series Excess Funding Reserve Account. The Trustee, at the direction of the Servicer, shall (i) make withdrawals from the Series Excess Funding Reserve Account from time to time in an amount up to the Available Series Excess Funding Reserve Account Amount at such time, for the purposes set forth in this Supplement, and (ii) on each Distribution Date make a deposit into the Series Excess Funding Reserve Account in the amount specified in, and otherwise in accordance with, subsection 4.11(j). 1.19.0.2. Funds on deposit in the Series Excess Funding Reserve Account shall be invested at the direction of the Servicer by the Trustee in Permitted Investments. Funds on deposit in the Series Excess Funding Reserve Account on any Distribution Date, after giving effect to any withdrawals from the Series Excess Funding Reserve Account on such Distribution Date, shall be invested in such investments that will mature so that such funds will be available for withdrawal on or prior to the following Distribution Date. The Trustee shall maintain for the benefit of the Investor Certificateholders possession of the negotiable instruments or securities, if any, evidencing such Permitted Investments. No Permitted Investment shall be disposed of prior to its maturity. On each Distribution Date, all interest and earnings (net of losses and investment expenses) accrued since the preceding Distribution Date on funds on deposit in the Series Excess Funding Reserve Account shall be retained in the Series Excess Funding Reserve Account (to the extent that the Available Series Excess Funding Reserve Account Amount is less than the Series Excess Funding Reserve Account Required Amount) and the balance, if any, shall be deposited in the Collection Account for application as Available Funds on such Distribution Date. For purposes of determining the availability of funds or the balance in the Series Excess Funding Reserve Account for any reason under this Supplement, except as otherwise provided in the preceding sentence, investment earnings on such funds shall be deemed not to be available or on deposit. 1.19.0.3. On the Determination Date preceding each Distribution Date, the Servicer shall calculate the "Series Excess Funding Reserve Draw Amount" which shall be 43 equal to the Series Excess Funding Account Investment Shortfall with respect to such Distribution Date. 1.19.0.4. In the event that for any Distribution Date the Series Excess Funding Reserve Draw Amount is greater than zero, the Series Excess Funding Reserve Draw Amount, up to the amount on deposit in the Series Excess Funding Reserve Account, shall be withdrawn from the Series Excess Funding Reserve Account on such Distribution Date by the Trustee (acting in accordance with the instructions of the Servicer), and deposited into the Collection Account for application as provided herein on such Distribution Date. 1.19.0.5. In the event that the Series Excess Funding Reserve Account Surplus on any Distribution Date, after giving effect to all deposits to and withdrawals from the Series Excess Funding Reserve Account with respect to such Distribution Date, is greater than zero, the Trustee, acting in accordance with the instructions of the Servicer, shall withdraw from the Series Excess Funding Reserve Account and deposit such Series Excess Funding Reserve Account Surplus in the Collection Account, for application as Class A Available Funds for such Distribution Date. 1.19.0.6. Upon the earliest to occur of (i) the termination of the Trust pursuant to Article XII of the Agreement and (ii) the day on which the Adjusted Investor Interest is paid in full, the Trustee, acting in accordance with the instructions of the Servicer, after the prior payment of all amounts owing to the Investor Certificateholders that are payable from the Series Excess Funding Reserve Account as provided herein, shall withdraw from the Series Excess Funding Reserve Account amounts, if any, on deposit in the Series Excess Funding Reserve Account and pay such amount to the Holder of the Exchangeable Seller Certificate and the Series Excess Funding Reserve Account shall be deemed to have terminated for purposes of this Supplement. SECTION 1.19.1. ARTICLE V OF THE AGREEMENT. Article V of the Agreement shall read in its entirety as follows and shall be applicable only to the Investor Certificates: ARTICLE 2. DISTRIBUTIONS AND REPORTS TO INVESTOR CERTIFICATEHOLDERS; NOTIFICATION OF CAP PAYMENTS SECTION 2.1. DISTRIBUTIONS. 2.1.0.1. 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 Certificateholder's pro rata share (based on the aggregate Undivided Trust Interests represented by Class A Certificates held by such Certificateholder) of amounts on deposit in the Collection Account 44 and the Principal Funding Account as are payable to the Class A Certificateholders pursuant to Section 4.9 by check mailed to each Class A Certificateholder (at such 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. 2.1.0.2. 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 Certificateholder's pro rata share (based on the aggregate Undivided Trust Interests represented by Class B Certificates held by such 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 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. 2.1.0.3. On each Distribution Date, the Trustee shall distribute (in accordance with the Class C Purchase Agreement) to each Class C Certificateholder of record on the immediately preceding Record Date (other than as provided in Section 12.3 respecting a final distribution) such Certificateholder's pro rata share (based on the aggregate Undivided Trust Interests represented by Class C Certificates held by such Certificateholder) of amounts on deposit in the Collection Account as are payable to the Class C Certificateholders pursuant to the Class C Purchase Agreement 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 Certificateholder to the Trustee not later than the Determination Date preceding such Distribution Date. 2.1.0.4. 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 D Certificateholder of record on the immediately preceding Record Date (other than as provided in Section 12.3 respecting a final distribution) such Certificateholder's pro rata share (based on the aggregate Undivided Trust Interests represented by Class D Certificates held by such Certificateholder) of amounts on deposit in the Collection Account as are payable to the Class D Certificateholders pursuant to Section 4.11 by check mailed to each Class D 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 Certificateholder to the Trustee not later than the Determination Date preceding such Distribution Date. 2.1.0.5. The Trustee shall promptly notify the Seller and the Servicer if it does not receive a payment under any Interest Rate Cap on the date on which such payment is due pursuant to the terms of such Interest Rate Cap. 45 SECTION 2.2. MONTHLY CERTIFICATEHOLDERS' STATEMENT. 2.2.0.1. On or before each Distribution Date, the Paying Agent shall forward to each Series 1997-1 Certificateholder, each Rating Agency and the Class C Certificateholders a statement substantially in the form of Exhibit C to this Supplement prepared by the Servicer setting forth, among other things, the following information (which, in the case of subclauses (i) and (ii) below, shall be stated on the basis of an original principal amount of $1,000 per Series 1997-1 Certificate and, in the case of subclauses (viii) and (ix) shall be stated on an aggregate basis and on the basis of an original principal amount of $1,000 per Series 1997-1 Certificate): 2.2.0.1.1. the amount of the current distribution allocable to Class A Monthly Principal, Class B Monthly Principal, Class C Monthly Principal and Class D Monthly Principal, respectively; 2.2.0.1.2. the amount of the current distribution allocable to Class A Monthly Interest, Class A Deficiency Amounts, Class A Additional Interest, Class B Monthly Interest, Class B Deficiency Amounts, Class B Additional Interest, Class C Monthly Interest, Class C Deficiency Amounts, Class D Monthly Interest and any accrued and unpaid Class D Monthly Interest, respectively; 2.2.0.1.3. the amount of Collections of Principal Receivables processed during the related Due Period and allocated in respect of the Class A Certificates, the Class B Certificates, the Class C Certificates and the Class D Certificates, respectively; 2.2.0.1.4. the amount of Collections of Finance Charge Receivables processed during the related Due Period and allocated in respect of the Class A Certificates, the Class B Certificates, the Class C Certificates and the Class D Certificates, respectively; 2.2.0.1.5. the aggregate amount of Principal Receivables, the Series Investor Interest, the Series Adjusted Investor Interest, the Adjusted Investor Interest, the Class A Investor Interest, the Class A Adjusted Investor Interest, the Class B Investor Interest, the Class C Investor Interest, the Class D Investor Interest, the Floating Allocation Percentage, the Class A Floating Allocation, the Class B Floating Allocation, the Class C Floating Allocation, the Class D Floating Allocation and the Principal Allocation Percentage, the Class A Fixed Allocation, the Class B Fixed Allocation, the Class C Fixed Allocation and the Class D Fixed Allocation with respect to the Principal Receivables in the Trust as of the end of the day on the Record Date; 2.2.0.1.6. the aggregate outstanding balance of Accounts which were 30 to 59, 60 to 89, 90 to 119 and 120 or more days delinquent as of the end of the day on the Record Date; 46 2.2.0.1.7. the Investor Loss Amount, the Class A Investor Loss Amount, the Class B Investor Loss Amount, the Class C Investor Loss Amount and the Class D Investor Loss Amount for the related Due Period; 2.2.0.1.8. the aggregate amount of Class A Investor Charge-Offs, Class B Investor Charge-Offs, Class C Investor Charge-Offs and Class D Investor Charge-Offs for the related Due Period; 2.2.0.1.9. the aggregate amount of Class A Investor Charge-Offs, Class B Investor Charge-Offs, Class C Investor Charge-Offs and Class D Investor Charge-Offs reimbursed on the Distribution Date immediately preceding such Distribution Date; 2.2.0.1.10. the amount of the Class A Servicing Fee, the Class B Servicing Fee, the Class C Servicing Fee and the Class D Servicing Fee for the related Due Period; 2.2.0.1.11. the Portfolio Yield for the preceding Due Period; 2.2.0.1.12. the amount of Reallocated Class D Principal Collections, Reallocated Class C Principal Collections and Reallocated Class B Principal Collections with respect to such Distribution Date; 2.2.0.1.13. the Class A Investor Interest, the Class B Investor Interest, the Class C Investor Interest and the Class D Investor Interest as of the close of business on such Distribution Date; 2.2.0.1.14. LIBOR on such Distribution Date; 2.2.0.1.15. the Principal Funding Account Balance on the related Distribution Date; 2.2.0.1.16. the Principal Shortfall; 2.2.0.1.17. the Principal Funding Investment Proceeds transferred to the Collection Account on the related Distribution Date; 2.2.0.1.18. the Principal Funding Investment Shortfall on the related Distribution Date; 2.2.0.1.19. the amount of Class A Available Funds, Class B Available Funds, Class C Available Funds and Class D Available Funds on deposit in the Collection Account on the related Distribution Date; 2.2.0.1.20. the Series Excess Funding Account Balance on the related Distribution Date; 47 2.2.0.1.21. the Series Excess Funding Account Investment Proceeds transferred to the Collection Account on the related Distribution Date; 2.2.0.1.22. the Series Excess Funding Account Investment Shortfall on the related Distribution Date; 2.2.0.1.23. the amount on deposit in the Series Excess Funding Reserve Account and the Series Excess Funding Reserve Account Required Amount on the related Distribution Date; and 2.2.0.1.24. such other items as are set forth in Exhibit C to this Supplement. 2.2.0.2. Annual Certificateholders' Tax Statement. On or before January 31 of each calendar year, beginning with calendar year 1998, the Trustee shall distribute to each Person who at any time during the preceding calendar year was a Series 1997-1 Certificateholder, a statement prepared by the Servicer containing the information required to be contained in the regular monthly report to Series 1997-1 Certificateholders, as set forth in subclauses (i) and (ii) above, aggregated for such calendar year or the applicable portion thereof during which such Person was a Series 1997-1 Certificateholder, together with such other customary information (consistent with the treatment of the Class A Certificates and the Class B Certificates as debt) as the Servicer deems necessary or desirable to enable the Series 1997-1 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 2.2.1. SERIES 1997-1 EARLY AMORTIZATION EVENTS. If any one of the following events shall occur with respect to the Investor Certificates: 2.2.1.1. 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 covenants or agreements of the Seller set forth in the Agreement, this Supplement (including, without limitation, the covenant of the Seller contained in Section 11 of this Supplement) or the Purchase Agreement, which failure has a material adverse effect on the Series 1997-1 Certificateholders (which determination shall be made without reference to the amount of the Class C Investor Interest or the Class D Investor Interest for such period) and which continues unremedied for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Trustee, or to the Seller and the Trustee by the Controlling Certificateholders, and continues to affect materially and adversely the interests of the Series 1997-1 Certificateholders for such period (which determination shall be made without reference to the amount of the Class C Investor Interest or the Class D Investor Interest for such period); 48 2.2.1.2. 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 Series 1997-1 Certificateholders are materially and adversely affected (which determination shall be made without reference to the amount of the Class C Investor Interest or the Class D Investor Interest) and continue to be materially and adversely affected for such period; provided, however, that a Series 1997-1 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; 2.2.1.3. 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; 2.2.1.4. the Seller shall fail to convey Receivables arising under Additional Accounts to the Trust, as required by subsection 2.6(a); 2.2.1.5. any Servicer Default shall occur which would have a material adverse effect on the Class A or Class B Certificateholders; 2.2.1.6. the Class A Investor Interest shall not be paid in full on the Class A Expected Final Payment Date; 2.2.1.7. the failure on the part of an Interest Rate Cap Provider to make a Class A Cap Payment or a Class B Cap Payment, as applicable, in full within five calendar days of the date on which such Class A Cap Payment or Class B Cap Payment was due; 2.2.1.8. the failure on the part of the Servicer (and the applicable Interest Rate Cap Provider pursuant to its obligations under the related Interest Rate Cap), within 30 calendar days of the withdrawal or reduction below A-1 in the unsecured, unguaranteed, short-term debt rating of an Interest Rate Cap Provider by Standard & Poor's or a withdrawal of or reduction below P-1 in the unsecured, unguaranteed, short-term debt rating of an Interest Rate Cap Provider by Moody's to (i) obtain a Replacement Interest Rate Cap with a replacement cap provider having terms substantially the same as the replaced Interest Rate Cap or (ii) enter into any other arrangement satisfactory to the applicable Rating Agency, such that the rating of Class A Certificates or Class B Certificates by the applicable Rating Agency will not be withdrawn or reduced; or 2.2.1.9. on any Determination Date, the sum of (x) the amount, if any, distributed to the Investor Certificateholders pursuant to subsection 4.21(f) plus (y) the 49 amount on deposit in the Series Excess Funding Account (after giving effect to all withdrawals and deposits to be made on such date) plus (2) the amount on deposit in the Excess Funding Account, to the extent, but only to the extent, such amount is held therein to maintain the Minimum Seller Interest with respect to Series 1997-1 exceeds 33-1/3% of the Initial Investor Interest. then, in the case of any event described in subparagraph (a), (b), (e), (g) or (h) 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 1997-1 Early Amortization Event") has occurred as of the date of such notice, and in the case of any event described in subparagraphs (c), (d), (f) or (i), a Series 1997-1 Early Amortization Event shall occur without any notice or other action on the part of the Trustee or the Investor Certificateholders immediately upon the occurrence of such event. SECTION 2.2.2. SERIES 1997-1 TERMINATION. The right of the Investor Certificateholders to receive payments from the Trust will terminate on the first Business Day following the Series 1997-1 Termination Date. SECTION 2.2.3. LIMITATIONS ON ADDITION OF ACCOUNTS. The Seller agrees that it shall not designate any Additional Accounts pursuant to subsection 2.6(b) unless on or prior to the related Addition Date, the Seller shall have provided the Class C Certificateholders with an Officer's Certificate certifying that such designation of such Additional Accounts will not, as of the related Addition Date, (x) be reasonably expected by the Seller to result in a reduction or withdrawal by either Rating Agency of its rating for the Series 1997-1 Certificates, (y) cause a Series 1997-1 Early Amortization Event, 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. SECTION 2.2.4. 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 2.2.5. 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 2.2.6. 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. 50 SECTION 2.2.7. NO PETITION. 2.2.7.1. The Seller, the Servicer and the Trustee, by entering into this Supplement and each Investor Certificateholder, by accepting an Investor Certificate, hereby covenant and agree that they will not at any time institute against the Trust, or join in any institution against the Trust of, any bankruptcy proceedings under any United States Federal or state bankruptcy or similar law in connection with any obligations relating to the Investor Certificates, the Agreement or this Supplement. 2.2.7.2. The Servicer and the Trustee, by entering into this Supplement and each Investor Certificateholder, by accepting a Series Investor Certificate, hereby covenant and agree that they will not at any time institute against the Seller, or join in any institution against the Seller of, any bankruptcy proceedings under any United States Federal or state bankruptcy or similar law in connection with any obligations relating to the Investor Certificates, the Agreement or this Supplement. SECTION 2.2.8. TAX REPRESENTATION AND COVENANT. Notwithstanding Section 6.3 of the Pooling and Servicing 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 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 3 Private Holders of Class D Certificates. For purposes of this Supplement and the Pooling Agreement, each Holder of a Class C Certificate or a Class D Certificate shall be a "Private Holder." SECTION 2.2.9. CERTAIN TAX RELATED AMENDMENTS. In addition to any other provisions relating to amendments in either the Agreement or this Supplement, this Supplement may be amended by the Seller without the consent of the Servicer, Trustee or any Investor Certificateholder if the Seller provides the Trustee with (i) an Opinion of Counsel to the effect that such amendment or modification would reduce the risk the Trust would be treated as taxable as a publicly traded partnership pursuant to Code section 7704 and (ii) a certificate that such amendment or modification would not materially and adversely affect any Investor Certificateholder; 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. 51 IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have caused this Series 1997-1 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 NATIONAL BANK, Servicer By: Name: Title: FIRST UNION NATIONAL BANK, Trustee By: Name: Title: 52 EXHIBIT A-1 FORM OF CLASS A CERTIFICATE THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"). NEITHER THIS CERTIFICATE NOR ANY PORTION HEREOF MAY BE OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE 1933 ACT AND ANY APPLICABLE PROVISIONS OF ANY STATE BLUE SKY OR SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS. THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A BENEFIT PLAN (AS DEFINED BELOW): THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF ANY EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT, INCLUDING AN INDIVIDUAL RETIREMENT ACCOUNT, THAT IS SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 OR THAT IS DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986 OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN SUCH ENTITY (A "BENEFIT PLAN"). BY ACCEPTING AND HOLDING THIS CERTIFICATE, THE HOLDER HEREOF SHALL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT IT IS NOT A BENEFIT PLAN. BY ACQUIRING ANY INTEREST IN THIS CERTIFICATE, THE APPLICABLE CERTIFICATE OWNER OR OWNERS SHALL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT IT OR THEY ARE NOT BENEFIT PLANS. 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. 53 No. __ $__________ CUSIP No. 1161137 AB0 CHARMING SHOPPES MASTER TRUST FLOATING RATE ASSET BACKED CERTIFICATE, SERIES 1997-1, CLASS A Each $1,000 minimum denomination represents a 1/83,500th Undivided Interest in the Charming Shoppes Master Trust Series 1997-1 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, 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 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 (the "Pooling and Servicing Agreement"), by and among Charming Shoppes Receivables Corp., as Seller, Spirit of America National Bank, as Servicer, and First Union National Bank, as Trustee (the "Trustee"). The Series 1997-1 Certificates are issued in four classes, the Class A Certificates (of which this certificate is one), the Class B Certificates, which are subordinated to the Class A Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement, the Class C Certificates, which are subordinated to the Class A Certificates and the Class B Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement, and the Class D Certificates, which are subordinated to the Class A Certificates, the Class B Certificates and the Class C Certificates in certain rights of payments 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 54 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. To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. This Class A Certificate is issued under and is subject to the terms, provisions and conditions of the Pooling and Servicing Agreement, to which Pooling and Servicing Agreement, as amended from time to time, the Class A Certificateholder by virtue of 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 Certificate is one of a series of Certificates entitled "Charming Shoppes Master Trust, Floating Rate Asset Backed Certificates, Series 1997-1, 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 Certificate-holders. 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. "Class A Investor Interest" shall mean, on any date of determination, an amount equal to (a) the Class A Initial Series Investor Interest, minus (b) the aggregate amount of principal payments made to Class A Certificateholders prior to such date and minus (c) the excess, if any, of the aggregate amount of Class A Investor Charge-Offs over Class A Investor Charge-Offs reimbursed prior to such date of determination; provided, however, that the Class A Investor Interest may not be reduced below zero. The Class A Initial Series Investor Interest is $56,000,000. In addition to the Series 1997-1 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 A Certificate does not represent an obligation of, or an interest in, the Seller 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 55 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. 56 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 [Seal] Attested to: By: Assistant Secretary Date: _____ __, 1997 CERTIFICATE OF AUTHENTICATION This is one of the Class A Certificates referred to in the within-mentioned Pooling and Servicing Agreement. FIRST UNION NATIONAL BANK, Trustee By: Authorized Officer 57 EXHIBIT A-2 FORM OF CLASS B CERTIFICATE THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"). NEITHER THIS CERTIFICATE NOR ANY PORTION HEREOF MAY BE OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE 1933 ACT AND ANY APPLICABLE PROVISIONS OF ANY STATE BLUE SKY OR SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS. THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A BENEFIT PLAN (AS DEFINED BELOW). THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF ANY EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT, INCLUDING AN INDIVIDUAL RETIREMENT ACCOUNT, THAT IS SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 OR THAT IS DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986 OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN SUCH ENTITY (A "BENEFIT PLAN"). BY ACCEPTING AND HOLDING THIS CERTIFICATE, THE HOLDER HEREOF SHALL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT IT IS NOT A BENEFIT PLAN. BY ACQUIRING ANY INTEREST IN THIS CERTIFICATE, THE APPLICABLE CERTIFICATE OWNER OR OWNERS SHALL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT IT OR THEY ARE NOT BENEFIT PLANS. 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. 58 No. __ $__________ CUSIP No.161137 AC8 CHARMING SHOPPES MASTER TRUST FLOATING RATE ASSET BACKED CERTIFICATE, SERIES 1997-1, CLASS B Each $1,000 minimum denomination represents a 1/83,500th Undivided Interest in the Charming Shoppes Master Trust Series 1997-1 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, 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 Class C Certificates and the Class D Certificate 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 (the "Pooling and Servicing Agreement"), by and among Charming Shoppes Receivables Corp., as Seller, Spirit of America National Bank, as Servicer, and First Union National Bank, as Trustee (the "Trustee"). The Series 1997-1 Certificates are issued in four classes, the Class A Certificates, the Class B 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, the Class C Certificates, which are subordinated to the Class A Certificates and the Class B Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement, and the Class D Certificates, which are subordinated to the Class A Certificates, the Class B Certificates and the Class C Certificates in certain rights of payments 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 59 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. To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. This Class B Certificate is issued under and is subject to 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 1997-1, Class B" (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 Certificate-holders. 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. "Class B Investor Interest" shall mean, on any date of determination, an amount equal to (a) the Class B Initial Investor Interest, minus (b) the aggregate amount of principal payments made to Class B Certificateholders prior to such date, minus (c) the aggregate amount of Class B Investor Charge-Offs for all prior Distribution Dates minus (d) the aggregate amount of Reallocated Class B Principal Collections allocated on all prior Distribution Dates for which the Class C Investor Interest or the Class D Investor Interest has not been reduced, minus (e) an amount equal to the amount by which the Class B Investor Interest has been reduced on all prior Distribution Dates pursuant to Section 4.10 of the Pooling and Servicing Agreement and plus (f) the aggregate amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available on all prior Distribution Dates for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c), (d) and (e); provided, however, that the Class B Investor Interest may not be reduced below zero. The Class B Initial Series Investor Interest is $8,500,000. In addition to the Series 1997-1 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 60 Series of Investor Certificates and a reissued Exchangeable Seller Certificate upon the conditions set forth in the Pooling and Servicing Agreement. This Class B Certificate does not represent an obligation of, or an interest in, the Seller 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. 61 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. 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 [Seal] Attested to: By: Assistant Secretary Date: _______ __, 1997 CERTIFICATE OF AUTHENTICATION This is one of the Class B Certificates referred to in the within-mentioned Pooling and Servicing Agreement. FIRST UNION NATIONAL BANK, Trustee By: Authorized Officer 62 EXHIBIT A-3 FORM OF CLASS C CERTIFICATE THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"). NEITHER THIS CERTIFICATE NOR ANY PORTION HEREOF MAY BE OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE 1933 ACT AND ANY APPLICABLE PROVISIONS OF ANY STATE BLUE SKY OR SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS. THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A BENEFIT PLAN (AS DEFINED BELOW). THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF ANY EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT, INCLUDING AN INDIVIDUAL RETIREMENT ACCOUNT, THAT IS SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 OR THAT IS DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986 OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN SUCH ENTITY (A "BENEFIT PLAN"). BY ACCEPTING AND HOLDING THIS CERTIFICATE, THE HOLDER HEREOF SHALL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT IT IS NOT A BENEFIT PLAN. BY ACQUIRING ANY INTEREST IN THIS CERTIFICATE, THE APPLICABLE CERTIFICATE OWNER OR OWNERS SHALL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT IT OR THEY ARE NOT BENEFIT PLANS. 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 63 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). CUSIP No.161137 AD6 CHARMING SHOPPES MASTER TRUST FLOATING RATE ASSET BACKED CERTIFICATE, SERIES 1997-1, CLASS C Each $1,000 minimum denomination represents a 1/83,500th Undivided Interest in the Charming Shoppes Master Trust Series 1997-1 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, Charming Shoppes, Inc. or any Affiliate thereof.) This certifies that ______________ (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 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 Certificate 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 (the "Pooling and Servicing Agreement"), by and among Charming Shoppes Receivables Corp., as Seller, Spirit of America National Bank, as Servicer, and First Union National Bank, as Trustee (the "Trustee"). The Series 1997-1 Certificates are issued in four classes, the Class A Certificates, the Class B Certificates, which are subordinated to the Class A Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement, the Class C Certificates (of which this certificate is one), which are subordinated to the Class A Certificates and the Class B Certificates in certain rights of payment as described herein and in the Pooling 64 and Servicing Agreement, and the Class D Certificates, which are subordinated to the Class A Certificates, the Class B Certificates and the Class C Certificates in certain rights of payments as described herein and in the Pooling and Servicing Agreement. To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. This 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, Floating Rate Asset Backed Certificates, Series 1997-1, Class C" (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. "Class C Investor Interest" shall mean, on any date of determination, an amount equal to (a) the Class C Initial Investor Interest, minus (b) the aggregate amount of principal payments made to Class C Certificateholders prior to such date, minus (c) the aggregate amount of Class C Investor Charge-Offs for all prior Distribution Dates minus (d) the aggregate amount of Reallocated Class C Principal Collections allocated on all prior Distribution Dates for which the Class D Investor Interest has not been reduced, minus (e) an amount equal to the amount by which the Class C Investor Interest has been reduced on all prior Distribution Dates pursuant to Section 4.10 of the Pooling and Servicing Agreement and plus (f) the aggregate amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available on all prior Distribution Dates for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c), (d) and (e); provided, however, that the Class C Investor Interest may not be reduced below zero. The Class C Initial Series Investor Interest is $9,500,000. In addition to the Series 1997-1 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. 65 This Class C Certificate does not represent an obligation of, or an interest in, the Seller 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. 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 [Seal] 66 Attested to: By: Assistant Secretary Date: _______ __, 1997 CERTIFICATE OF AUTHENTICATION This is one of the Class C Certificates referred to in the within-mentioned Pooling and Servicing Agreement. FIRST UNION NATIONAL BANK, Trustee By: Authorized Officer 67 EXHIBIT A-4 FORM OF CLASS D CERTIFICATE No. __ $__________ CHARMING SHOPPES MASTER TRUST FLOATING RATE ASSET BACKED CERTIFICATE, SERIES 1997-1, CLASS D 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 MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF ANY EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT, INCLUDING AN INDIVIDUAL RETIREMENT ACCOUNT, THAT IS SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 OR THAT IS DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986 OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN SUCH ENTITY (A "BENEFIT PLAN"). BY ACCEPTING AND HOLDING THIS CERTIFICATE, THE HOLDER HEREOF SHALL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT IT IS NOT A BENEFIT PLAN. BY ACQUIRING ANY INTEREST IN THIS CERTIFICATE, THE APPLICABLE CERTIFICATE OWNER OR OWNERS SHALL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT IT OR THEY ARE NOT BENEFIT PLANS. NEITHER THIS CERTIFICATE, NOR ANY PORTION OF THIS CERTIFICATE, MAY BE TRANSFERRED (X) IF AFTER GIVING EFFECT TO THE EXECUTOR OR TRANSFER OF SUCH CERTIFICATE, THERE WOULD BE MORE THAN (I) 3 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 REGULATION THEREUNDER, INCLUDING, WITHOUT LIMITATION, AN OVER-THE-COUNTER-MARKET OR AN INTERDEALER QUOTATIONS SYSTEM THAT REGULARLY DISSEMINATES FIRM BUY OR 68 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 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). Each $1,000 minimum denomination represents a 1/83,500th Undivided Interest in the Charming Shoppes Master Trust Series 1997-1 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, Charming Shoppes, Inc. or any Affiliate thereof.) This certifies that ____________ (the "Class D 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 (the "Pooling and Servicing Agreement"), by and among Charming Shoppes Receivables Corp., as Seller, Spirit of America National Bank, as Servicer, and First Union National Bank, as Trustee (the "Trustee"). The Series 1997-1 Certificates are issued in four classes, the Class A Certificates, the Class B Certificates, which are subordinated to the Class A Certificates in certain rights of payment as described herein and in the Pooling and Servicing Agreement, the Class C Certificates, which are subordinated to the Class A Certificates and the Class B Certificates in certain rights of payment as described herein, and in the Pooling and Servicing Agreement, and 69 the Class D Certificates (of which this certificate is one), which are subordinated to the Class A Certificates, the Class B Certificates and the Class C Certificates in certain rights of payments as described herein, and in the Pooling and Servicing Agreement. To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Pooling and Servicing Agreement. This Class D 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 Certificateholder by virtue of the acceptance hereof assents and by which the Class D 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 1997-1, Class D Certificates" (the "Class D 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 Certificateholders. The aggregate interest represented by the Class D Certificates at any time in the Principal Receivables in the Trust shall not exceed an amount equal to the Class D Investor Interest at such time. "Class D Investor Interest" shall mean, on any date of determination, an amount equal to (a) the Class D Series Initial Interest, minus (b) the aggregate amount of principal payments made to the holders of the Class D Certificates prior to such date, minus (c) the aggregate amount of Class D Charge-Offs for all prior Distribution Dates, minus (d) the aggregate amount of Reallocated Class D Principal Collections allocated, (b) and (c) on all prior Distribution Dates, minus (e) an amount equal to the amount by which the Class D Investor Interest has been reduced on all prior Distribution Dates pursuant to Section 4.10 of the Pooling and Servicing Agreement, and plus (f) the aggregate amount of Excess Spread and Shared Excess Finance Charge Collections allocated and available on all prior Distribution Dates for the purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c), (d) and (e); provided further, however, that the Class D Interest may not be reduced below zero. The Class D Initial Investor Interest is $9,500,000. In addition to the Series 1997-1 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 Certificate does not represent an obligation of, or an interest in, the Seller or the Servicer, and neither the Class D Certificates nor the Accounts or Receivables are 70 insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. This Class D 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 Certificate shall be registered in the Certificate Register upon surrender of this Class D 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 Certificateholder or such Class D Certificateholder's attorney-in-fact duly authorized in writing, and thereupon one or more new Class D 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 D Certificates are exchangeable for new Class D Certificates evidencing like aggregate Undivided Interests, as requested by the Class D Certificateholder surrendering such Class D 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 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. 71 Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Class D Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement, or be valid for any purpose. IN WITNESS WHEREOF, Charming Shoppes Receivables Corp. has caused this Class D Certificate to be duly executed under its official seal. CHARMING SHOPPES RECEIVABLES CORP. By: Authorized Officer [Seal] Attested to: By: Assistant Secretary Date: _______ __, 1997 CERTIFICATE OF AUTHENTICATION This is one of the Class D Certificates referred to in the within-mentioned Pooling and Servicing Agreement. FIRST UNION NATIONAL BANK, Trustee By: Authorized Officer 72 EXHIBIT B FORM OF MONTHLY PAYMENT INSTRUCTIONS AND NOTIFICATION TO THE TRUSTEE SPIRIT OF AMERICA NATIONAL BANK CHARMING SHOPPES MASTER TRUST SERIES 1997-1 The undersigned, a duly authorized representative of Spirit of America National Bank ("Spirit"), as Servicer pursuant to the Second Amended and Restated Pooling and Servicing Agreement dated as of November 25, 1997 (the "Pooling and Servicing Agreement") by and among Charming Shoppes Receivables Corp., as Seller, Spirit and First Union National Bank, as trustee (the "Trustee"), does hereby certify as follows: 2.2.9.0.0.1. Capitalized terms used in this notice have their respective meanings set forth in the Pooling and Servicing Agreement; provided, that the "preceding Due Period" shall mean the Due Period immediately preceding the calendar month in which this notice is delivered. References herein to certain sections and subsections are references to the respective sections and subsections of the Pooling and Servicing Agreement. This notice is delivered pursuant to Section 4.9 of the Pooling and Servicing Agreement. 2.2.9.0.0.2. Spirit is the Servicer under the Pooling and Servicing Agreement. 2.2.9.0.0.3. The undersigned is a Servicing Officer. 2.2.9.0.0.4. The date of this notice is a Determination Date under the Pooling and Servicing Agreement. 3. INSTRUCTION TO MAKE A WITHDRAWAL The Servicer does hereby instruct the Trustee (i) to make withdrawals from the Collection Account, the Principal Funding Account and the Series Excess Funding Reserve Account on ______________ __, _____, which date is a Distribution Date under the Pooling and Servicing Agreement, in aggregate amounts set forth below in respect of the following amounts and (ii) to 73 apply the proceeds of such withdrawals in accordance with Section 3 of the Series 1997-1 Supplement, as applicable and Section 4.9 of the Pooling and Servicing Agreement, as applicable: 3.0.0.0.0.1. Pursuant to subsection 4.9(a)(i): 3.0.0.0.0.1.1. Class A Monthly Interest at the Class A Certificate Rate on the Class A Investor Interest $ -------- 3.0.0.0.0.1.2. Class A Deficiency Amount $ -------- 3.0.0.0.0.1.3. Class A Additional Interest $ -------- 3.0.0.0.0.2. Pursuant to subsection 4.9(a)(ii): 3.0.0.0.0.2.1. Class A Servicing Fee $ -------- 3.0.0.0.0.2.2. Accrued and unpaid Class A Servicing Fee $ -------- 3.0.0.0.0.3. Pursuant to subsection 4.9(a)(iii): 3.0.0.0.0.3.1. Class A Investor Loss Amount $ -------- 3.0.0.0.0.4. Pursuant to subsection 4.9(a)(iv): 3.0.0.0.0.4.1. Portion of Excess Spread from Class A Available Funds to be allocated and distributed as provided in Section 4.11 $ -------- 3.0.0.0.0.5. Pursuant to subsection 4.9(b)(i): 3.0.0.0.0.5.1. Class B Monthly Interest at the Class B Certificate Rate on the Class B Investor Interest $ -------- 3.0.0.0.0.5.2. Class B Deficiency Amount $ -------- 3.0.0.0.0.5.3. Class B Additional Interest $ --------
74 3.0.0.0.0.6. Pursuant to subsection 4.9(b)(ii): 3.0.0.0.0.6.1. Class B Servicing Fee $ -------- 3.0.0.0.0.6.2. Accrued and unpaid Class B Servicing Fee $ -------- 3.0.0.0.0.7. Pursuant to subsection 4.9(b)(iii): 3.0.0.0.0.7.1. Class B Investor Loss Amount $ -------- 3.0.0.0.0.8. Pursuant to subsection 4.9(b)(iv): 3.0.0.0.0.8.1. Portion of Excess Spread from Class B Available Funds to be allocated and distributed as provided in Section 4.11 $ -------- 3.0.0.0.0.9. Pursuant to subsection 4.9(c)(i): 3.0.0.0.0.9.1. Class C Servicing Fee $ -------- 3.0.0.0.0.9.2. Accrued and unpaid Class C Servicing Fee, if applicable $ -------- 3.0.0.0.0.10. Pursuant to subsection 4.9(c)(ii): 3.0.0.0.0.10.1. Portion of Excess Spread from Class C Available Funds to be allocated and distributed as provided in Section 4.11 $ -------- 3.0.0.0.0.11. Pursuant to subsection 4.9(d)(i): 3.0.0.0.0.11.1. Class D Servicing Fee 3.0.0.0.0.11.2. Accrued and unpaid Class D Servicing Fee, if applicable $ --------
75 3.0.0.0.0.12. Pursuant to subsection 4.9(d)(ii): 3.0.0.0.0.12.1. Portion of Excess Spread from Class D Available Funds to be allocated and distributed as provided in Section 4.11 $ -------- Total $ ======== 3.0.0.0.0.13. Pursuant to subsection 4.9(e)(i): 3.0.0.0.0.13.1. Amount to be applied pursuant to Class C Purchase Agreement $ -------- 3.0.0.0.0.14. Pursuant to subsection 4.9(e)(ii): 3.0.0.0.0.14.1. Amount to be treated as Shared Excess Principal Collections $ -------- 3.0.0.0.0.15. Pursuant to subsection 4.9(e)(iii): 3.0.0.0.0.15.1. Amount to be paid to the Holder of the Exchangeable Seller's Certificate $ -------- 3.0.0.0.0.16. Pursuant to subsection 4.9(f)(i): 3.0.0.0.0.16.1. Class A Monthly Principal $ -------- 3.0.0.0.0.17. Pursuant to subsection 4.9(f)(ii): 3.0.0.0.0.17.1. Class B Monthly Principal $ -------- 3.0.0.0.0.18. Pursuant to subsection 4.9(f)(iii): 3.0.0.0.0.18.1. Class C Monthly Principal to be applied in accordance with the Class C Purchase Agreement $ -------- 3.0.0.0.0.19. Pursuant to subsection 4.9(f)(iv): 3.0.0.0.0.19.1. Class D Monthly Principal $ --------
76 3.0.0.0.0.20. Pursuant to subsection 4.9(f)(v): 3.0.0.0.0.20.1. Amount to be applied pursuant to Class C Purchase Agreement $ -------- 3.0.0.0.0.21. Pursuant to subsection 4.9(f)(vi): 3.0.0.0.0.21.1. Amount to be treated as Shared Excess Principal Collections $ -------- 3.0.0.0.0.22. Pursuant to subsection 4.9(f)(vii): 3.0.0.0.0.22.1. Amount to be paid to the Holder of the Exchangeable Seller's Certificate $ -------- Total $ ======== 3.0.0.0.0.23. Pursuant to subsection 4.9(g): 3.0.0.0.0.23.1. Amount to be withdrawn from the Principal Funding Account and deposited into the Distribution Account $ -------- 3.0.0.0.0.24. Pursuant to Section 4.14: 3.0.0.0.0.24.1. Amount of Shared Excess Finance Charge Collections to be withdrawn from the Collection Account to be allocated to Series 1997-1 and distributed as provided in Section 4.11. $ -------- 3.0.0.0.0.25. Pursuant to Section 4.17(c): 3.0.0.0.0.25.1. Principal Funding Investment Proceeds $ -------- 3.0.0.0.0.26. Pursuant to Section 4.21(b): 3.0.0.0.0.26.1. Amount of investment income earned on Series Excess Funding Account $ --------
77 3.0.0.0.0.27. Pursuant to Section 4.21(d): 3.0.0.0.0.28. Pursuant to Section 4.21(e): 3.0.0.0.0.28.1. Amount treated as Shared Principal Collections $ -------- 3.0.0.0.0.28.2. Amount to be paid to Holder of Exchangeable Seller Certificate $ -------- 3.0.0.0.0.29. Pursuant to Section 4.21(f): 3.0.0.0.0.29.1. Amount to be distributed as principal to holders of Investor Certificates $ -------- (a) amount distributable to Class A Certificateholders $ -------- (b) amount distributable to Class B Certificateholders $ -------- (c) amount distributable to Class C Certificateholders $ -------- (d) amount distributable to Class D Certificateholders $ -------- 3.0.0.0.0.29.2. Amount of Principal Shortfalls $ -------- 3.0.0.0.0.30. Pursuant to Section 4.22(b): 3.0.0.0.0.30.1. Amount of investment income earned on Series Excess Funding Reserve Account in excess of Series Excess Funding Reserve Account Required Amount $ -------- 3.0.0.0.0.31. Pursuant to Section 4.22(d): 3.0.0.0.0.31.1. Series Excess Funding Reserve Draw Amount $ -------- 3.0.0.0.0.32. Pursuant to Section 4.22(e): 3.0.0.0.0.32.1. Series Excess Funding Reserve Account Surplus $ --------
78 4. INSTRUCTION TO MAKE CERTAIN PAYMENTS Pursuant to Section 4.9 of the Pooling and Servicing Agreement, the Servicer does hereby instruct the Trustee to pay in accordance with Section 5.1 from the Collection Account on __________ __, ____, which date is a Distribution Date under the Pooling and Servicing Agreement: 4.0.1. AMOUNT TO BE DISTRIBUTED TO Class A Certificateholders $ 4.0.2. AMOUNT TO BE DISTRIBUTED TO Class B Certificateholders $ 4.0.3. AMOUNT TO BE DISTRIBUTED TO THE Class D Certificateholders $
5. APPLICATION OF EXCESS SPREAD Pursuant to Section 4.11, the Servicer does hereby instruct the Trustee to apply the Excess Spread with respect to the related Due Period and to make the following distributions in the following priority: A. The amount equal to the Class A Required Amount, if any, which will 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. The amount equal to the aggregate amount of Class A Investor Charge-Offs which have not been previously reimbursed (after giving effect to the allocation on such Distribution Date of certain other amounts applied for that purpose) which will be treated as a portion of Investor Principal Collections $ C. The amount equal to the Class B Required Amount, if any, which
79 will be used to fund the Class B Required Amount and be applied first in accordance with, and in the priority set forth in, subsection 4.9(b) $ D. The amount equal to the aggregate amount by which the Class B Investor Interest has been reduced below the initial Class B Series Investor Interest for reasons other than the payment of principal to the Class B Certificateholders (but not in excess of the aggregate amount of such reductions which have not been previously reimbursed) which will be treated as a portion of Available Principal Collection $ E. The amount equal to the aggregate amount of accrued but unpaid Class C Servicing Fee (after giving affect to the application of Class C Available Funds thereto pursuant to Section 4.9) $ F. The amount equal to the Class C Monthly Interest plus the amount of any past due Class C Monthly Interest which will be paid to the Class C Holder for application in accordance with the Class C Purchase Agreement $ G. The amount equal to the Class C Investor Loss Amount, if any, for the prior Due Period which will be treated as a portion of Available Principal Collections $ H. The amount equal to the aggregate amount by which the Class C Investor Interest has been reduced
80 below the initial Class C Investor Interest for reasons other than the payment of principal to the Class C Investor Holder (but not in excess of the aggregate amount of such reductions which have not been previously reimbursed) which will be treated as a portion of Available Principal Collections $ I. The amount up to the excess, if any, of the Series Excess Funding Account Required Amount over the amount on deposit in the Series Excess Funding Reserve Account which shall be deposited into the Series Excess Funding Reserve Account $ J. The amount equal to the aggregate amount of any other amounts then due to the Class C Certificateholders out of Excess Spread and Shared Excess Finance Charge Collections allocated to Series 1997-1 pursuant to the Class C Purchase Agreement to be distributed to the Class C Certificateholders for application in accordance with the Class C Purchase Agreement $ K. The amount equal to the aggregate amount of accrued but unpaid Class D Servicing Fees which will be paid to the Servicer (after giving effect to the application of Class D Available Funds thereto pursuant to Section 4.9) $ L. The amount equal to the Class D Monthly Interest plus the amount of any past due Class D Monthly Interest which will be paid to the Class D Certificateholders $
81 M. The amount equal to the Class D Investor Loss Amount, if any, for the prior Due Period which will be treated as a portion of Available Principal Collections $ N. The amount equal to the aggregate amount by which the Class C Investor Interest has been reduced below the initial Class D Investor Interest for reasons other than the payment of principal to the Class D Certificateholders (but not in excess of the aggregate amount of such reductions which have not been previously reimbursed) which will be treated as a portion of Available Principal Collections $ O. The balance, if any, after giving effect to the payments made pursuant to subparagraphs (A) through (N) above to be applied as Shared Excess Finance Charge Collections for such Distribution Date $
6. REALLOCATED PRINCIPAL COLLECTIONS Pursuant to Section 4.12, the Servicer does hereby instruct the Trustee to withdraw from the Collection Account and apply Reallocated Principal Collections pursuant to Section 4.12 with respect to the related Due Period in the following amounts: A. Reallocated Class D Principal Collections $ B. Reallocated Class C Principal $ Collections C. Reallocated Class B Principal Collections $ 82 7. ACCRUED AND UNPAID AMOUNTS After giving effect to the withdrawals and transfers to be made in accordance with this notice, the following amounts will be accrued and unpaid with respect to all Due Periods preceding the current calendar month A. Subsections 4.9(a)(i) and (b)(i): (1) The aggregate amount of the Class A Deficiency Amount $ (2) The aggregate amount of Class B Deficiency Amount $ B. Subsections 4.9(a)(ii) and (b)(ii): (1) The aggregate amount of all accrued and unpaid Class A Servicing Fee $ (2) The aggregate amount of all accrued and unpaid Class B Servicing Fee $ C. Section 4.10: (1) The aggregate amount of all unreimbursed Class A Investor Charge-Offs $ (2) The aggregate amount of all unreimbursed Class B Investor Charge-Offs $ (3) The aggregate amount of all unreimbursed Class C Investor Charge-Offs $
83 (4) The aggregate amount of all unreimbursed Class D Investor Charge-Offs $
IN WITNESS WHEREOF, the undersigned has duly executed this certificate this __ day of _______, ____. SPIRIT OF AMERICA NATIONAL BANK, Servicer By:___________________________ Name: Title: 84 EXHIBIT C FORM OF MONTHLY CERTIFICATEHOLDERS' STATEMENT Series 1997-1 SPIRIT OF AMERICA NATIONAL BANK CHARMING SHOPPES MASTER TRUST Under Section 5.2 of the Series 1997-1 Supplement dated as of November 25, 1997 (the "Series 1997-1 Supplement", and together with the Second Amended and Restated Pooling and Servicing Agreement dated as of November 25, 1997, the "Pooling and Servicing Agreement") by and among Charming Shoppes Receivables Corp., as Seller, Spirit of America National Bank ("Spirit"), as Servicer, and First Union National Bank, as Trustee, Spirit, as Servicer, is required to prepare certain information each month regarding current distributions to Series 1997-1 Certificateholders and the performance of the Charming Shoppes Master Trust (the "Trust") during the previous month. The information which is required to be prepared with respect to the Distribution Date of _______, ______ and with respect to the performance of the Trust during the month of _________, ______ is set forth below. Certain of the information is presented on the basis of an original principal amount of $1,000 per Series 1997-1 Certificate (a "Certificate"). Certain other information is presented based on the aggregate amounts for the Trust as a whole. Capitalized terms used in this Statement have their respective meanings set forth in the Pooling and Servicing Agreement. A. Information Regarding the Current Monthly Distribution (Stated on the Basis of $1,000 Original Certificate Principal Amount) 7.0.1. THE AMOUNT OF THE CURRENT MONTHLY distribution in respect of Class A Monthly Principal .................. $________ 7.0.2. THE AMOUNT OF THE CURRENT MONTHLY distribution in respect of Class B Monthly Principal .................. $________ 7.0.3. THE AMOUNT OF THE CURRENT MONTHLY distribution in respect of Class C Monthly Principal .......... $________ 7.0.4. THE AMOUNT OF THE CURRENT MONTHLY
85 distribution in respect of Class D Monthly Principal .......................... $________ 7.0.5. THE AMOUNT OF THE CURRENT MONTHLY distribution in respect of Class A Monthly Interest ................... $________ 7.0.6. THE AMOUNT OF THE CURRENT MONTHLY distribution in respect of Class A Deficiency Amounts ................. $________ 7.0.7. THE AMOUNT OF THE CURRENT MONTHLY distribution in respect of Class A Additional Interest ................ $________ 7.0.8. THE AMOUNT OF THE CURRENT MONTHLY distribution in respect of Class B Monthly Interest ................... $________ 7.0.9. THE AMOUNT OF THE CURRENT MONTHLY distribution in respect of Class B Deficiency Amounts ................. $________ 7.0.10. THE AMOUNT OF THE CURRENT MONTHLY distribution in respect of Class B Additional Interest ................ $________ 7.0.11. THE AMOUNT OF THE CURRENT MONTHLY distribution in respect of Class C Monthly Interest ........... $________ 7.0.12. THE AMOUNT OF THE CURRENT MONTHLY distribution in respect of any accrued and unpaid Class C Deficiency Amounts ................. $________
86 7.0.13. THE AMOUNT OF THE CURRENT MONTHLY distribution in respect of Class D Monthly Interest ................ $________ B. Information Regarding the Performance of the Trust 7.0.14. COLLECTION OF PRINCIPAL RECEIVABLES 7.0.14.1. The aggregate amount of Collections of Principal Receivables processed during the related Due Period which were allocated in respect of the Class A Certificates .................. $________ 7.0.14.2. The aggregate amount of Collections of Principal Receivables processed during the related Due Period which were allocated in respect of the Class B Certificates .................. $________ 7.0.14.3. The aggregate amount of Collections of Principal Receivables processed during the related Due Period which were allocated in respect of the Class C Certificates .................. $________ 7.0.14.4. The aggregate amount of Collections of Principal Receivables during the related Due Period which were allocated in respect of the Class D Certificates ... $________ 7.0.15. PRINCIPAL RECEIVABLES IN THE TRUST 7.0.15.1. The aggregate amount of Principal Receivables in the Trust as of the end of the day on the last
87 day of the preceding Due Period ........................ $________ 7.0.15.2. The Excess Funding Amount (the aggregate amount on deposit in the Excess Funding Account) as of the end of the day on the last day of the preceding Due Period .......... $________ 7.0.15.3. The Series Investor Interest as of the last day of the preceding Due Period .......... $________ 7.0.15.4. The Floating Allocation Percentage with respect to the related Due Period ........................ ______% 7.0.15.5. The Class A Floating Allocation with respect to the related Due Period ........................ ______% 7.0.15.6. The Class B Floating Allocation with respect to the related Due Period ........................ ______% 7.0.15.7. The Class C Floating Allocation with respect to the related Due Period ........................ ______% 7.0.15.8 The Class D Floating Allocation with respect to the related Due Period ..... ______% 7.0.15.9. The Principal Allocation Percentage with respect to the related Due Period ........ ______% 7.0.15.10. The Class A Fixed Allocation with respect to the related Due Period .................... ______%
88 7.0.15.11. The Class B Fixed Allocation with respect to the related Due Period .................... ______% 7.0.15.12. The Class C Fixed Allocation with respect to the related Due Period ........................ ______% 7.0.15.13. The Class D Fixed Allocation with respect to the related Due Period ....... ______%
7.0.16. DELINQUENT BALANCES The aggregate amount of outstanding balances in the Accounts which were delinquent as of the day on the last day of the preceding Due Period:
Aggregate Account Balance ------- (a) 30-59 days .................................... $_______ (b) 60-89 days .................................... $_______ (c) 90-119 days ................................... $_______ (d) 120 or more days ............................... $_______ Total: $_______
7.0.17. INVESTOR LOSS AMOUNT 7.0.17.1. The Investor Loss Amount for the related Due Period ............... $ 7.0.17.2. The Class A Investor Loss Amount for the related Due Period ....... $ 7.0.17.3. The Class B Investor Loss Amount for the related Due Period ....... $
89 (d) The Class C Investor Loss Amount for the related Due Period .................... $ (e) The Class D Investor Loss Amount for the related Due Period .................... $ 7.0.18. INVESTOR CHARGE OFFS 7.0.18.1. The aggregate amount of Class A Investor Charge Offs for the related Due Period .................... $ 7.0.18.2. The aggregate amount of Class A Investor Charge Offs set forth in 5(a) above per $1,000 of original certificate principal amount .............. $ 7.0.18.3. The aggregate amount of Class B Investor Charge Offs for the related Due Period .................... $ 7.0.18.4. The aggregate amount of Class B Investor Charge Off set forth in 5(c) above per $1,000 of original certificate principal amount ........................ $ 7.0.18.5. The aggregate amount of Class C Investor Charge Offs for the related Due Period ........................ $ 7.0.18.6. The aggregate amount of Class C Investor Charge Offs set forth in 5(e) above per $1,000 of original certificate principal amount .. $
90 7.0.18.7. The aggregate amount of Class D Investor Charge Offs for the related Due Period ........... $ 7.0.18.8. The aggregate amount of Class D Investor Charge Offs set forth in 5(e) above per $1,000 of original certificate principal amount ............. $ 7.0.18.9. The aggregate amount of Class A Investor Charge Offs reimbursed on this Distribution Date ............ $ 7.0.18.10. The aggregate amount of Class A Investor Charge Offs set forth in 5(i) above per $1,000 original certificate principal amount reimbursed on this Distribution Date ............ $ 7.0.18.11. The aggregate amount of Class B Investor Charge Offs reimbursed on this Distribution Date ............ $ 7.0.18.12. The aggregate amount of Class B Investor Charge Offs set forth in 5(k) above per $1,000 original certificate principal amount reimbursed on this Distribution Date ......................... $ 7.0.18.13. The aggregate amount of Class C Investor Charge Offs reimbursed on this Distribution Date ............ $
91 7.0.18.14. The aggregate amount of Class C Investor Charge Offs set forth in 5(m) above per $1,000 original certificate principal amount reimbursed on this Distribution Date .... $ 7.0.18.15. The aggregate amount of Class D Investor Charge Offs reimbursed on this Distribution Date ....... $ 7.0.18.16. The aggregate amount of Class D Investor Charge Offs set forth in 5(o) above per $1,000 original certificate principal amount reimbursed on this Distribution Date .... $ 7.0.19. INVESTOR MONTHLY SERVICING FEE 7.0.19.1. The amount of the Class A Servicing Fee payable by the Trust to the Servicer for the related Due Period ........... $ 7.0.19.2. The amount of the Class B Servicing Fee payable by the Trust to the Servicer for the related Due Period ........... $ 7.0.19.3. The amount of the Class C Servicing Fee payable by the Trust to the Servicer for the related Due Period ........... $ 7.0.19.4. The amount of the Class D Servicing Fee payable by the Trust to the Servicer for the related Due Period ... $
92 7.0.20. REALLOCATIONS 7.0.20.1. The amount of Reallocated Class D Principal Collections with respect to this Distribution Date ........ $ 7.0.20.2. The amount of Reallocated Class C Principal Collections with respect to this Distribution Date ........ $ 7.0.20.3. The amount of Reallocated Class B Principal Collections with respect to this Distribution Date ............. $ 7.0.20.4. The Class D Investor Interest as of the close of business on this Distribution Date .......................... $ 7.0.20.5. The Class C Investor Interest as of the close of business on this Distribution Date ........ $ 7.0.20.6. The Class B Investor Interest as of the close of business on this Distribution Date ........ $ 7.0.20.7. The Class A Investor Interest as of the close of business on this Distribution Date ........ $ 7.0.21. COLLECTION OF FINANCE CHARGE RECEIVABLES 7.0.21.1. The aggregate amount of Collections of Finance Charge Receivables received during the related Due Period which were allocated in respect of Class A Certificates .................. $ 7.0.21.2. The aggregate amount of
93 Collections of Finance Charge Receivables received during the related Due Period which were allocated in respect of the Class B Certificates .................. $ 7.0.21.3. The aggregate amount of Collections of Finance Charge Receivables received during the related Due Period which were allocated in respect of the Class C Certificates .................. $ 7.0.21.4. The aggregate amount of Collections of Finance Charge Receivables received during the related Due Period which were allocated in respect of the Class D Certificates .................. $ 7.0.22. PRINCIPAL FUNDING ACCOUNT 7.0.22.1. The principal amount on deposit in the Principal Funding Account on this Distribution Date ............. $ 7.0.22.2. The Principal Shortfall with respect to the related Due Period .................... $ 7.0.22.3. The Principal Funding Investment Proceeds deposited in the Collection Account on the related Distribution Date ............. $ 7.0.22.4. The Principal Funding Investment Shortfall .......... $
94 7.0.23. SERIES EXCESS FUNDING ACCOUNT 7.0.23.1. The amount on deposit in the Series Excess Funding Account on this Distribution Date ............. $ 7.0.23.2. The investment proceeds deposited from the Series Excess Funding Account to the Collection Account on the related Distribution Date ............. $ 7.0.23.3. The Series Excess Funding Account Surplus ............... $ 7.0.24. SERIES EXCESS FUNDING RESERVE ACCOUNT 7.0.24.1. The principal amount on deposit in the Series Excess Funding Reserve Account on this Distribution Date ............. $ 7.0.24.2. The investment proceeds deposited from the Series Excess Funding Reserve Account to the Collection Account on the related Distribution Date ............. $ 7.0.24.3. The Series Excess Funding Account Investment Shortfall .. $ 7.0.24.4. The Series Excess Funding Reserve Draw Amount ........... $ 7.0.24.5. The Series Excess Funding Reserve Account Surplus ....... $
95 7.0.25. AVAILABLE FUNDS 7.0.25.1. The amount of Class A Available Funds on deposit in the Collection Account on this Distribution Date........ $ 7.0.25.2. The amount of Class B Available Funds on deposit in the Collection Account on this Distribution Date........ $ 7.0.25.3. The amount of Class C Available Funds on deposit in the Collection Account on this Distribution Date........... $ 7.0.25.4. The amount of Class D Available Funds on deposit in the Collection Account on this Distribution Date............................. $ 7.0.26. PORTFOLIO YIELD The Portfolio Yield for the related Due Period......................... % 7.0.27. SHARED PRINCIPAL COLLECTIONS (a) The Cumulative Principal Shortfall with respect to such Distribution Date................. $ (b) The Shared Principal Collections allocable to the Certificates on such Distribution Date................. $ 7.0.28. SHARED EXCESS FINANCE CHARGE COLLECTIONS (a) The Finance Charge Shortfall with respect to such Distribution Date................ $
96 (b) The Shared Excess Finance Charge Collections allocable to the Certificates on such Distribution Date.......................... $ C. Floating-Rate Determinations 1. LIBOR for the Interest Period ending on this Distribution Date.......................... %
SPIRIT OF AMERICA NATIONAL BANK, Servicer By: Name: Title: 97 EXHIBIT D-1 CLASS A INTEREST RATE CAP 98 EXHIBIT D-2 CLASS B INTEREST RATE CAP 99 CHARMING SHOPPES RECEIVABLES CORP. Seller SPIRIT OF AMERICA NATIONAL BANK Servicer and FIRST UNION NATIONAL BANK Trustee on behalf of the Series 1997-1 Certificateholders ---------------------------------- SERIES 1997-1 SUPPLEMENT Dated as of November 25, 1997 to SECOND AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT Dated as of November 25, 1997 ---------------------------------- $83,500,000 CHARMING SHOPPES MASTER TRUST SERIES 1997-1 100 TABLE OF CONTENTS PAGE SECTION 1. Designation 1 SECTION 2. Definitions 1 SECTION 3. Servicing Compensation 20 SECTION 4. Reassignment and Transfer Terms 21 SECTION 5. Delivery and Payment for the Investor Certificates 21 SECTION 6. Depository; Form of Delivery of Series 1997-1 Certificates 21 SECTION 7. Article IV of Agreement 21 SECTION 8. Article V of the Agreement. 41 SECTION 9. Series 1997-1 Early Amortization Events 45 SECTION 10. Series 1997-1 Termination 47 SECTION 11. Limitations on Addition of Accounts 47 SECTION 12. Ratification of Agreement 47 SECTION 13. Counterparts 47 SECTION 14. Governing Law 47 SECTION 15. No Petition 48 SECTION 16. Tax Representation and Covenant 48 SECTION 17. Certain Tax Related Amendments 48 101 EXHIBITS EXHIBIT A-1 Form of Class A Certificate EXHIBIT A-2 Form of Class B Certificate EXHIBIT A-3 Form of Class C Certificate EXHIBIT A-4 Form of Class D Certificate EXHIBIT B Form of Monthly Payment Instructions and Notification to the Trustee EXHIBIT C Form of Monthly Certificateholders' Statement EXHIBIT D-1 Form of Class A Cap EXHIBIT D-2 Form of Class B Cap EX-10.1.18 5 AMENDED/RESTATED RECEIVABLES PURCHASE AGREEMENT 1 1475 797 EXHIBIT 10.1.18 [Execution Copy] AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT Dated as of November 25, 1997 Among FIRST UNION NATIONAL BANK solely in its capacity as the trustee for CHARMING SHOPPES MASTER TRUST as the Seller CHARMING SHOPPES RECEIVABLES CORP. as the Owner and the Subordinated Purchaser SPIRIT OF AMERICA NATIONAL BANK as the Servicer and the Originator CORPORATE RECEIVABLES CORPORATION as the Purchaser CITIBANK, N.A. as a Bank and CITICORP NORTH AMERICA, INC. as the Agent 2 TABLE OF CONTENTS Page ARTICLE I - AMOUNTS AND TERMS OF THE PURCHASES 4 SECTION 1.01. Purchase Facility 4 SECTION 1.02. Making Purchases 5 SECTION 1.03. Fees 7 SECTION 1.04. Payments and Computations, Etc. 7 SECTION 1.05. Increased Costs 8 SECTION 1.06. Additional Yield on Purchaser Receivable Interests Bearing a Eurodollar Rate; Breakage Fee 9 ARTICLE II - ALLOCATION AND DISTRIBUTION OF COLLECTIONS 10 SECTION 2.01. General Allocation Procedures 10 SECTION 2.02. Allocation Among the Purchasers, the Banks, the Subordinated Purchaser and the Seller 10 SECTION 2.03. Allocation and Distribution of Finance Charges 12 SECTION 2.04. Allocation and Distribution of Excess Finance Charge Collections 14 SECTION 2.05. Required Amount; Subordinated Principal Collections; Charge-Offs 15 SECTION 2.06. Allocation and Distribution of Allocable Principal Collections 18 SECTION 2.07. Dilution Amounts 19 ARTICLE III - REPRESENTATIONS AND WARRANTIES; COVENANTS; EARLY AMORTIZATION EVENTS 20 SECTION 3.01. Representations and Warranties; Covenants 20 SECTION 3.02. Early Amortization Events 20 ARTICLE IV - INDEMNIFICATION; PURCHASE OF INELIGIBLE RECEIVABLES 21 SECTION 4.01. Indemnities by the Owner 21 SECTION 4.02. Indemnities by the Servicer 24 SECTION 4.03. Purchase of Ineligible and Certain Other Receivables 26 SECTION 4.04. Reassignment of Receivables and Receivable Interests 26 3 SECTION 4.05. Repurchase of Purchaser Receivable Interests 27 ARTICLE V - THE SERVICER 28 SECTION 5.01. Designation of the Servicer; Delegation of Duties 28 SECTION 5.02. Administration and Collection of the Pool Receivables 29 SECTION 5.03. Servicer Fee 29 ARTICLE VI - THE PURCHASER REPRESENTATIVE 29 SECTION 6.01. Designation of the Purchaser Representative 29 SECTION 6.02. Duties of the Purchaser Representative 30 SECTION 6.03. Limitation on Purchaser Representative Liability, Etc. 30 ARTICLE VII - MISCELLANEOUS 32 SECTION 7.01. Amendments, Waivers, Etc. 32 SECTION 7.02. Notices, Etc. 33 SECTION 7.03. Assignability 34 SECTION 7.04. Costs, Expenses and Taxes 39 SECTION 7.05. No Proceedings 40 SECTION 7.06. Confidentiality 40 SECTION 7.07. GOVERNING LAW 42 SECTION 7.08. Execution in Counterparts 42 SECTION 7.09. Survival of Termination 42 SECTION 7.10. Tax Treatment 42 SECTION 7.11. Duties of the Trustee 43 SECTION 7.12. Limitation on Seller/Trustee Liability, Etc. 43 SECTION 7.13. Third Party Beneficiaries 44 SECTION 7.14. Limited Recourse 44 SECTION 7.15. Limitation on Rights of Purchasers and Banks 45 SECTION 7.16. The CO Escrow Account 46 EXHIBITS Exhibit I Definitions Exhibit II Conditions of Purchases Exhibit III Representations and Warranties Exhibit IV Covenants Exhibit V Administration and Collection of Pool Receivables Exhibit VI Early Amortization Events 4 ANNEXES Annex A Form of Servicer Report Annex B Form of Depositary Agreement Annex C Form of Opinion of Counsel to the Trustee Annex D-1 Form of Opinion of Counsel to the Owner, the Originator, the Subordinated Purchaser, the Servicer, Charming Shoppes and FSC Annex D-2 Form of Opinion of Counsel to the Originator and the Servicer Annex D-3 Form of Opinion of General Counsel to the Owner, the Originator, the Subordinated Purchaser and the Servicer Annex D-4 Form of Opinion of Counsel to the Subordinated Purchaser, Charming Shoppes and FSC Annex E Form of Opinion of General Counsel to Charming Shoppes and FSC Annex F Form of Store Payment Notice Annex G Form of Summary of Interest Rate Agreements Annex H Form of Assignment and Acceptance SCHEDULES Schedule I Material Provisions Schedule II Depositary Banks 5 AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT Dated as of November 25, 1997 AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT dated as of November 25, 1997 among FIRST UNION NATIONAL BANK, a national banking association, solely in its capacity as the trustee (the "Trustee") for CHARMING SHOPPES MASTER TRUST, a trust formed pursuant to the Pooling and Servicing Agreement (this and other capitalized terms used herein are defined in Exhibit I to this Agreement) (in such capacity, the "Seller"), CHARMING SHOPPES RECEIVABLES CORP. (formerly known as Fashion SPC, Inc.), a Delaware corporation in its capacity as the owner (prior to the sale of the Receivables to the Seller pursuant to the Pooling and Servicing Agreement) of the Receivables (in such capacity, the "Owner") and in its capacity as the holder of a subordinate interest (after the sale of the Receivables by the Owner to the Seller pursuant to the Pooling and Servicing Agreement) in the Receivables (in such capacity, the "Subordinated Purchaser"), SPIRIT OF AMERICA NATIONAL BANK, a national banking association ("Spirit"), in its capacity as the Servicer (in such capacity, the "Servicer"), and in its capacity as the originator (before the sale of the Receivables to the Owner pursuant to the Purchase Agreement) of the Receivables (in such capacity, the "Originator"), CORPORATE RECEIVABLES CORPORATION, a California corporation ("CRC" or the "Purchaser"), CITIBANK, N.A., a national banking association, and CITICORP NORTH AMERICA, INC., a Delaware corporation ("CNAI"), as agent (the "Agent") for the Purchasers and the Banks. PRELIMINARY STATEMENTS. 0.0.0.0.0.1. Certain terms that are capitalized and used throughout this Agreement are defined in Exhibit I to this Agreement. References in the Exhibits to "the Agreement" refer to this Agreement, as amended, restated, modified or supplemented from time to time. 0.0.0.0.0.2. The Seller, the Subordinated Purchaser, the Originator, the Servicer, CXC Incorporated ("CXC") and CNAI as Agent, entered into a Receivables Purchase Agreement dated as of April 4, 1996, as amended as of December 13, 1996, as of March 31, 1997, as of June 30, 1997, as of August 31, 1997, as of September 30, 1997 and as of October 31, 1997 (the "Original RPA"), pursuant to which a Purchaser may, in its sole discretion, purchase Receivable Interests. 6 0.0.0.0.0.3. The Seller, the Subordinated Purchaser, the Originator, the Servicer, the Banks, and CNAI as Agent for the Banks, are parties to a Receivables Purchase Agreement (Parallel Purchase Commitment) dated as of April 4, 1996, as amended as of December 13, 1996, as of March 31, 1997, as of June 30, 1997, as of August 31, 1997, as of September 30, 1997 and as of October 31, 1997 (the "Original PPC"; together with the Original RPA, the "Original Agreements"), pursuant to which the Banks have agreed to purchase Receivable Interests. 0.0.0.0.0.4. Charming Shoppes and FSC are parties to two Company Agreements each dated as of April 4, 1996 (the "Original Company Agreements"), one in favor of the Purchasers and the Agent and the other in favor of the Banks and the Agent, pursuant to which Charming Shoppes and FSC agree, among other things, to cause the performance and observance by each of the Originator, the Servicer and the Seller and their respective successors and assigns of all of the terms, covenants, conditions, agreements and undertakings on the part of the Originator, the Servicer and the Seller, respectively, to be performed or observed under the Original RPA and the Original PPC. 0.0.0.0.0.5. Pursuant to the terms of an Assignment and Acceptance effective as of October 31, 1997, CXC sold and assigned to CRC and CRC purchased and assumed all of CXC's rights and obligations under the Original RPA. 0.0.0.0.0.6. Pursuant to the terms of the Purchase Agreement, the Originator has conveyed to the Owner all its interest in all Receivables and Related Assets (as those terms are defined in the Purchase Agreement) (subject, in the case of Receivables in existence on the date hereof, to the rights previously conveyed to the Seller pursuant to the Prior PSA); and pursuant to the terms of the Pooling and Servicing Agreement, the Owner has in turn conveyed the Receivables to the Seller. 0.0.0.0.0.7. The Seller, the Subordinated Purchaser, the Owner, the Originator, the Servicer, the Purchasers, the Banks, the Agent, FSC and Charming Shoppes, as the case may be, desire to amend, restate and combine (i) the Original Agreements to, among other things, (a) reflect the amendments heretofore made to the Original Agreements, (b) decrease the maximum Purchase Limit and Total Commitment (each as defined in the Original Agreements), (c) delete all references to the Servicer Escrow Account, and (d) reflect the amendment and restatement of the Prior PSA on the date 7 hereof, and (ii) the Original Company Agreements to include obligations of the Owner and to reflect, among other things, the amendment and restatement of the Prior PSA on the date hereof. 0.0.0.0.0.8. Pursuant to the Pooling and Servicing Agreement and certain related agreements, the Seller may, among other things, sell undivided ownership interests in the Receivables (referred to herein as "Receivable Interests") to various purchasers and may sell certificates of beneficial interest in the Receivables in the Trust to various investors. 0.0.0.0.0.9. Pursuant to the Pooling and Servicing Agreement, a portion of all Collections of the Receivable Interests and all Loss Amounts with respect thereto will be allocated to the Receivables Purchase Interests based on the Allocation Percentage. 0.0.0.0.0.10. Spirit has been requested and is prepared to act as the Servicer hereunder and has been appointed and agreed to act as servicer under the Pooling and Servicing Agreement. 0.0.0.0.0.11. This Agreement is one of the "Receivables Purchase Agreements" referred to in the Pooling and Servicing Agreement and creates a Receivables Purchase Series thereunder. 0.0.0.0.0.12. Notwithstanding anything to the contrary in this Agreement, the Agent, the Purchaser, the Banks and the Subordinated Purchaser hereby acknowledge that their rights and remedies hereunder, and the rights and remedies of their respective assignees under this Agreement, may be subject to the limitations set forth in the Pooling and Servicing Agreement. To the extent that any provision in this Agreement or in any certificate or document delivered in connection with this Agreement is inconsistent with any provision under the Pooling and Servicing Agreement, or in any circumstance in which it is unclear whether this Agreement or the Pooling and Servicing Agreement shall control, the provisions contained in the Pooling and Servicing Agreement shall control, except that with respect to any such inconsistency between any such provision and Section 2 of this Agreement (including the defined terms used in such Section 2), this Agreement shall control. 8 0.0.0.0.0.13. The Subordinated Purchaser, the Purchaser and the Banks are prepared to purchase the Receivable Interests on the terms set forth herein. 0.0.0.0.0.14. The Purchasers and the Banks acknowledge that the purchase of the Receivable Interests shall not include the right to sell the Owner's or the Originator's customer lists, the right to use the Owner's or the Originator's customer lists for any purpose other than a purpose expressly set forth in this Agreement, or the right to use any trademarks of the Seller, the Owner, the Originator or the Servicer or any of their respective Affiliates. Accordingly, the parties agree as follows: ARTICLE 1. AMOUNTS AND TERMS OF THE PURCHASES SECTION 1.1. PURCHASE FACILITY. 1.1.1. On the terms and conditions hereinafter set forth, a Purchaser may, in its sole discretion, and the Banks shall, ratably in accordance with their respective Bank Commitments, purchase Purchaser Receivable Interests from the Seller from time to time during the period from the date hereof to the Facility Termination Date (in the case of a Purchaser) and to the Commitment Termination Date (in the case of the Banks). Under no circumstances shall any Purchaser make any such purchase on any date, or the Banks be obligated to make any such purchase, if after giving effect to such purchase the aggregate outstanding Purchaser Capital would exceed the Purchase Limit on such date. 1.1.2. The Subordinated Purchaser shall, on the date of each purchase of Purchaser Receivable Interests hereunder, be allocated Subordinated Receivable Interests in the amount determined pursuant to paragraph 3 of Exhibit II hereto. 1.1.3. The Seller may, upon at least 30 days' prior notice to the Agent, terminate in whole or, from time to time, reduce in part the unused portion of the Purchase Limit; provided that each partial reduction shall be in the amount of at least $1,000,000 or an integral multiple thereof. 9 SECTION 1.2. MAKING PURCHASES. 1.2.1. Each offer by the Seller to sell Purchaser Receivable Interests to the Purchaser or the Banks hereunder shall be made, by written notice from the Seller to the Agent and the Subordinated Purchaser, at least three Business Days' prior to the date of the proposed sale. Each such notice of an offer to sell Purchaser Receivable Interests shall specify (i) the amount requested to be paid to the Seller (such amount, which shall not be less than $1,000,000, being referred to herein as the initial "Purchaser Capital" of the Purchaser Receivable Interest then being sold) and (ii) the proposed date of such purchase (which shall be a Distribution Date). The Agent shall promptly thereafter notify the Seller whether CRC has determined that it may make a purchase and, if so, whether all of the terms specified by the Seller are acceptable to the Purchaser. 1.2.2. If the Purchaser has determined not to make a proposed purchase, the Agent shall promptly send notice of the proposed purchase to all of the Banks concurrently by telecopier, telex or cable specifying the date of such purchase, each Bank's Percentage multiplied by the aggregate amount of Purchaser Capital of the Purchaser Receivable Interest being purchased, whether the Yield for the Fixed Period for such Purchaser Receivable Interest is calculated based on the Eurodollar Rate (which may be selected only if such notice is given at least two Business Days prior to the purchase date) or the Alternate Base Rate, and the duration of the Fixed Period for such Purchaser Receivable Interest (which shall be one day if the Seller has not selected another period). 1.2.3. On the date of each purchase of a Purchaser Receivable Interest, the Purchaser or the Banks, as the case may be, shall, upon satisfaction of the applicable conditions set forth in Exhibit II hereto, make available to the Seller in same day funds, by deposit to the Seller Account no later than 12:00 Noon (New York City time), an amount equal to the initial Purchaser Capital of such Purchaser Receivable Interest. 1.2.4. Effective on the date of each purchase pursuant to this Section 1.02 and each reinvestment pursuant to Section 2.06(a) hereof, the Seller hereby sells and assigns to the Agent, for the benefit of the parties making such purchase or reinvestment, an undivided percentage ownership interest, to the extent of the Purchaser Receivable Interest 10 then being purchased, in each Pool Receivable then existing or thereafter arising and in the Collections with respect thereto. 1.2.5. Notwithstanding the foregoing, a Bank shall not be obligated to make purchases under this Section 1.02 at any time in an amount which would exceed such Bank's Bank Commitment less (in the case of any Bank other than Citibank) the outstanding and unpaid amount of any purchases made by such Bank under the APA. Each Bank's obligation shall be several, such that the failure of any Bank to make available to the Seller any funds in connection with any purchase shall not relieve any other Bank of its obligation, if any, hereunder to make funds available on the date of such purchase, but no Bank shall be responsible for the failure of any other Bank to make funds available in connection with any purchase. 1.2.6. On the date of each purchase pursuant to Section 1.02(a) above, the Seller shall convey and allocate to the Subordinated Receivable Interest, from the Unallocated Net Receivables Pool Balance, an amount equal to the excess (if any) of (i) 16% of the aggregate outstanding Purchaser Capital (after giving effect to any purchase of a Purchaser Receivable Interest on such date) over (ii) the aggregate outstanding Subordinated Purchaser Capital (immediately prior to the purchase of a Purchaser Receivable Interest on such date) (such amount being referred to herein as the initial "Subordinated Purchaser Capital" of such Subordinated Receivable Interest). Effective on the date of each such allocation and each reinvestment on behalf of the Subordinated Purchaser pursuant to Section 2.06(a) hereof, there is hereby conveyed to, and created in favor of, the Subordinated Purchaser a subordinated (to the extent set forth in Section 1.02(g) and Article II hereof) undivided percentage ownership interest, to the extent of the Subordinated Receivable Interest then being allocated, in each Pool Receivable then existing or thereafter arising and in the Collections with respect thereto. 1.2.7. The interest of the Purchaser and the Banks in the Pool Receivables and the Collections with respect thereto shall be pari passu (ratably in accordance with their respective Purchaser Capital) and shall be deemed to have a priority senior to any interest of the Subordinated Purchaser therein. Such priority shall be irrespective of the time, order or method of attachment or perfection of the respective interests of the Purchasers, the Banks and the Subordinated Purchaser, or the time or order of the filing of financing 11 statements. Until the first day after the later to occur of the Facility Termination Date or the Commitment Termination Date on which all amounts described in clauses (i), (ii) and (iv) of the definition of Final Distribution Date have been paid in full, the Subordinated Purchaser agrees that it will not commence or continue any default, foreclosure or liquidation proceedings or remedies in respect of the Pool Receivables or the Collections. SECTION 1.3. FEES. The fees set forth in the separate fee agreement of even date among the Seller, the Owner, the Servicer, the Subordinated Purchaser and the Agent, as amended or restated from time to time (the "Fee Letter") shall be payable to the Agent, the Purchaser and the Banks in the amounts and on the dates set forth therein, subject to the allocation and priority of distribution of such Collections set forth in Article II hereof. SECTION 1.4. PAYMENTS AND COMPUTATIONS, ETC. 1.4.1. All amounts to be paid or deposited by the Seller or the Servicer hereunder shall be paid or deposited no later than 11:00 A.M. (New York City time) on the day when due in same day funds to the Agent's Account. 1.4.2. The Owner (with respect to payments or deposits to be paid by the Seller) and the Servicer (with respect to payments or deposits to be paid by the Servicer) shall, to the extent permitted by law, pay or cause to be paid interest on any amount not paid or deposited by the Seller or the Servicer when due hereunder (without regard to any applicable grace period before such missed payment or deposit gives rise to an Early Amortization Event hereunder), at an interest rate per annum equal to 2.0% per annum above the Alternate Base Rate, payable on demand. 1.4.3. All computations of interest under subsection (b) above and all computations of Yield, fees, and other amounts hereunder shall be made on the basis of a year of 360 days for the actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. 12 SECTION 1.5. INCREASED COSTS. 1.5.1. If CNAI, any Purchaser, any Bank, any entity which enters into a commitment to purchase Purchaser Receivable Interests or interests therein, or any of their respective Affiliates (each an "Affected Person") determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Affected Person and such Affected Person determines that the amount of such capital is increased by or based upon the existence of any commitment to make purchases of or otherwise to maintain the investment in Pool Receivables or interests therein related to this Agreement or to the funding thereof and other commitments of the same type, then, upon demand by such Affected Person (with a copy to the Agent), the Owner shall immediately pay, or cause to be paid, to the Agent, for the account of such Affected Person (as a third-party beneficiary), from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of any of such commitments. A certificate as to such amounts submitted to the Seller, the Owner, the Servicer and the Agent by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. 1.5.2. If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements referred to in Section 1.06) in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to a Purchaser or Bank of agreeing to purchase or purchasing, or maintaining the ownership of Purchaser Receivable Interests in respect of which Yield is computed by reference to the Eurodollar Rate, then, upon demand by such Purchaser or Bank (with a copy to the Agent), the Owner shall immediately pay, or cause to be paid, to the Agent, for the account of such Purchaser or Bank (as a third-party beneficiary), from time to time as specified by such Purchaser or Bank, additional amounts sufficient to compensate such Purchaser or Bank for such increased costs. A certificate as to such amounts submitted to the Seller, the Owner, the Servicer and the Agent 13 by such Purchaser or Bank shall be conclusive and binding for all purposes, absent manifest error. SECTION 1.6. ADDITIONAL YIELD ON PURCHASER RECEIVABLE INTERESTS BEARING A EURODOLLAR RATE; BREAKAGE FEE. 1.6.1. The Owner shall pay, or cause to be paid, to any Purchaser or Bank, so long as such Purchaser or Bank shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional Yield on the unpaid Purchaser Capital of each Purchaser Receivable Interest of such Purchaser or Bank during each Fixed Period in respect of which Yield is computed by reference to the Eurodollar Rate, for such Fixed Period, at a rate per annum equal at all times during such Fixed Period to the remainder obtained by subtracting (i) the Eurodollar Rate for such Fixed Period from (ii) the rate obtained by dividing such Eurodollar Rate referred to in clause (i) above by that percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Purchaser or Bank for such Fixed Period, payable on the next succeeding date on which Yield is payable on such Purchaser Receivable Interest. Such additional Yield shall be determined by such Purchaser or Bank and notified to the Seller, the Owner and the Servicer through the Agent within 30 days after any Yield payment is made with respect to which such additional Yield is requested. A certificate as to such additional Yield submitted to the Seller, the Owner and the Servicer and the Agent by such Purchaser or Bank shall be conclusive and binding for all purposes, absent manifest error. 1.6.2. If (i) any payment of Purchaser Capital with respect to a Purchaser Receivable Interest as to which Yield is computed by reference to the Eurodollar Rate is made by the Seller to or for the account of any Purchaser(s) or Bank(s) other than on the last day of the Fixed Period for such Purchaser Receivable Interest, as a result of a payment pursuant to Section 4.03, or for any other reason, or (ii) the Termination Date shall occur during any Fixed Period, the Owner shall, upon demand by such Purchaser or Bank (with a copy to the Seller, the Servicer and the Agent), immediately pay, or cause to be paid, to the Agent for the account of such Purchaser or Bank (as a third-party beneficiary) any amounts required to compensate such Purchaser or Bank for any additional losses, costs or expenses which it may reasonably incur as a result of such payment, including, without limitation, any loss (including loss of anticipated profits), costs or expenses incurred by reason of the liquidation or 14 reemployment of deposits or other funds acquired by such Purchaser or Bank to fund or maintain its interest in such Purchaser Receivable Interest. A certificate as to such amounts submitted to the Seller, the Servicer, the Owner and the Agent by such Purchaser or Bank shall be conclusive and binding for all purposes, absent manifest error. ARTICLE 2. ALLOCATION AND DISTRIBUTION OF COLLECTIONS SECTION 2.1. GENERAL ALLOCATION PROCEDURES. Pursuant to the Pooling and Servicing Agreement, the Servicer will allocate to the Receivables Purchase Interest arising under this Agreement a portion of all Collections of Pool Receivables and all Loss Amounts for each Due Period, based on the Allocation Percentage. Collections of Pool Receivables and Loss Amounts which have been so allocated to the Receivables Purchase Interest arising under this Agreement shall be allocated and distributed or reallocated among the Purchasers, the Banks, the Subordinated Purchaser and the Seller as set forth in this Article II. SECTION 2.2. ALLOCATION AMONG THE PURCHASERS, THE BANKS, THE SUBORDINATED PURCHASER AND THE SELLER. 2.2.1. The Servicer shall, on each day on which Collections of Pool Receivables are received by it which are allocated to the Receivables Purchase Interest arising under this Agreement, hold such Collections in trust for the Purchasers, the Banks, the Subordinated Purchaser and the Seller, and shall allocate such amounts, during each Due Period, as follows: 2.2.1.1. during the Revolving Period and the Amortization Period, Allocable Finance Charge Collections will be allocated to the Purchasers, the Banks and the Subordinated Purchaser jointly based on the Floating Allocation Percentage for such Due Period; 2.2.1.2. during the Revolving Period and the Amortization Period, Allocated Loss Amounts will be allocated to the Purchasers, the Banks and the Subordinated Purchaser jointly based on the Floating Allocation Percentage for such Due Period; 15 2.2.1.3. during the Revolving Period, Allocable Principal Collections will be allocated to the Purchasers, the Banks and the Subordinated Purchaser jointly based on the Floating Allocation Percentage for such Due Period and the Servicer shall, on behalf of the Purchasers, the Banks and the Subordinated Purchaser which own such Receivables Purchase Interest, have the proceeds of the Allocable Principal Collections attributable to such Receivables Purchase Interest automatically reinvested in additional undivided percentage interests in the Pool Receivables pursuant to Section 2.06(a) below; 2.2.1.4. during the Amortization Period, Allocable Principal Collections will be allocated to the Purchasers, the Banks and the Subordinated Purchaser jointly based on the Fixed Allocation Percentage for such Due Period; and (v) notwithstanding the occurrence of the Final Distribution Date or the termination of the Trust under the Pooling and Servicing Agreement, the Purchasers and the Banks shall be entitled to receive all amounts constituting the Allocation Percentage of Recoveries of Pool Receivables up to the amount of the unreimbursed Purchaser Charge-Offs on such date. 2.2.2. Amounts not allocated to the Purchasers, the Banks and the Subordinated Purchaser jointly as described above will be allocated to the Seller Interest and deposited into the Seller Account. Amounts allocated under subsections (a)(iii) and (a)(iv) above for any Due Period are referred to as the "Total Principal Collections" for such Due Period. 2.2.3. Amounts which are allocated to the Purchasers, the Banks and the Subordinated Purchaser jointly as described above will be deposited into the Collection Account on the date required by Section 4.3(a) of the Pooling and Servicing Agreement. The portion of such amounts constituting Allocable Finance Charge Collections shall remain on deposit in the Collection Account until the next applicable Distribution Date, when such Allocable Finance Charge Collections shall be distributed pursuant to Sections 2.03 and 2.04. The portion of such amounts constituting Total Principal Collections shall (i) during the Revolving Period, be distributed from the Collection Account daily pursuant to Section 2.06(a), and (ii) during the Amortization Period, remain on deposit in the Collection Account until the next applicable Distribution Date, when such Total Principal 16 Collections shall be distributed pursuant to Section 2.06(b). Notwithstanding the two preceding sentences, the Servicer shall, at the request of the Agent at any time following an Early Amortization Event, deposit Collections allocated jointly to the Purchasers, the Banks and the Subordinated Purchaser pursuant to this Section 2.02 into the Collection Account within one Business Day after receipt thereof and deposit or cause such Collections to be deposited into the Agent's Account within one Business Day of deposit into the Collection Account. SECTION 2.3. ALLOCATION AND DISTRIBUTION OF FINANCE CHARGES. 2.3.1. On each Distribution Date, the Servicer will allocate all Allocable Finance Charge Collections for the immediately preceding Due Period held by it for the Purchasers, the Banks and the Subordinated Purchaser jointly pursuant to Section 2.02 above to the Purchasers and the Subordinated Purchaser pro rata based on their relative Purchaser Capital and Subordinated Purchaser Capital, as the case may be, as of the end of the second preceding Due Period. 2.3.2. On each Distribution Date, the Servicer shall further allocate and distribute Allocable Finance Charge Collections allocated to the Purchasers and the Banks pursuant to Section 2.03(a) in the following priority: 2.3.2.1. first, an amount equal to the accrued but unpaid Yield to such Distribution Date with respect to each Purchaser Receivable Interest plus any additional interest with respect to Yield that was due with respect to such Purchaser Receivable Interest but not paid on a prior Distribution Date will be deposited into the Agent's Account on behalf of the Purchasers and the Banks owning such Purchaser Receivable Interest; 2.3.2.2. second, an amount equal to any accrued but unpaid amounts, fees and expenses (including amounts payable under the Fee Letter and (if the Agent shall notify the Servicer at least two Business Days prior to such Distribution Date) payments under Sections 1.05, 1.06, 4.01, 4.02, 4.03 and 7.04 of this Agreement) due and payable under this Agreement with respect to each Purchaser Receivable Interest will be deposited into the Agent's Account, for the Agent's own account or on behalf of the Purchasers and the Banks owning such Purchaser Receivable Interest, as the case may be; 17 2.3.2.3. third, an amount equal to the Purchaser Loss Amount for such Distribution Date shall be allocated and distributed, in accordance with the provisions of Section 2.06 hereof, in the same manner as the portion of Total Principal Collections allocated to the Purchasers and the Banks for such Distribution Date; 2.3.2.4. fourth, if the Servicer is neither Spirit nor an Affiliate of Spirit, an amount equal to the Purchaser Servicer Fee for such Distribution Date will be paid to the Servicer; and 2.3.2.5. fifth, the balance, if any, will constitute a portion of the Excess Finance Charge Collections for such Distribution Date and will be allocated as set forth in Section 2.04 hereof. 2.3.3. Upon receipt of funds deposited into the Agent's Account pursuant to subsection (b) above, the Agent will distribute such funds to the relevant Purchasers and Banks or retain such funds for its own account, as the case may be. 2.3.4. On each Distribution Date, the Servicer shall further allocate and distribute Allocable Finance Charge Collections allocated to the Subordinated Purchaser pursuant to Section 2.03(a) in the following priority: 2.3.4.1. first, if the Servicer is neither Spirit nor an Affiliate of Spirit, an amount equal to the Subordinated Purchaser Servicer Fee for such Distribution Date will be allocated and paid to the Servicer; and 2.3.4.2. second, the balance, if any, will constitute a portion of Excess Finance Charge Collections for such Distribution Date and will be allocated and distributed as set forth in Section 2.04 hereof. SECTION 2.4. ALLOCATION AND DISTRIBUTION OF EXCESS FINANCE CHARGE COLLECTIONS. On each Distribution Date, the Servicer will allocate and distribute all amounts, if any, specified pursuant to Section 2.03(b)(v) and Section 2.03(d)(ii) (the "Excess Finance Charge Collections" for such Distribution Date), in the following priority: 2.4.1. first, an amount equal to the Required Amount, if any, with respect to such Due Period will be deposited into the Agent's Account, and upon receipt of such funds, the Agent shall apply such funds to the Required Amount, in the order set forth in Section 2.05(a) hereof; 18 2.4.2. second, an amount equal to the aggregate amount of Purchaser Charge-Offs which have not been previously reimbursed will be allocated and distributed (i) during the Revolving Period, in accordance with the provisions of Section 2.06(a) hereof, in the same manner as the portion of Total Principal Collections allocated to the Purchasers and the Banks for such Distribution Date, and (ii) during the Amortization Period, in accordance with the provisions of Section 2.06(b) hereof, in the same manner as Purchaser Principal Collections for such Distribution Date; 2.4.3. third, an amount equal to the Subordinated Purchaser Loss Amount for such Distribution Date will be allocated and distributed (i) during the Revolving Period, in accordance with the provisions of Section 2.06(a) hereof, in the same manner as the portion of Total Principal Collections allocated to the Subordinated Purchaser for such Distribution Date, and (ii) during the Amortization Period, in accordance with the provisions of Section 2.06(b) hereof, in the same manner as the portion of Total Principal Collections allocated to the Subordinated Purchaser for such Distribution Date; 2.4.4. fourth, if the Servicer is Spirit or an Affiliate of Spirit, an amount equal to the sum of the Purchaser Servicer Fee and the Subordinated Purchaser Servicer Fee for such Distribution Date will be allocated and paid to the Servicer; 2.4.5. fifth, an amount equal to the aggregate amount by which the Subordinated Purchaser Capital has been reduced pursuant to clauses (c), (d) and (e) of the definition of "Subordinated Purchaser Capital" (but not in excess of the aggregate amount of such reductions which have not been previously reimbursed) will be allocated and distributed (i) during the Revolving Period, in accordance with the provisions of Section 2.06(a) hereof, in the same manner as the portion of Total Principal Collections allocated to the Subordinated Purchaser for such Distribution Date, and (ii) during the Amortization Period, in accordance with the provisions of Section 2.06(b) hereof, in the same manner as the portion of Total Principal Collections allocated to the Subordinated Purchaser for such Distribution Date; 2.4.6. sixth, an amount equal to the Subordinated Purchaser Yield will be allocated and deposited into the Subordinated Purchaser Account; and 19 2.4.7. seventh, the balance, if any, will be allocated to the Seller Interest and deposited into the Seller Account. SECTION 2.5. REQUIRED AMOUNT; SUBORDINATED PRINCIPAL COLLECTIONS; CHARGE-OFFS. 2.5.1. On the second Business Day preceding each Distribution Date, the Servicer will determine the amount (the "Required Amount"), if any, by which: 2.5.1.1. the sum of: 2.5.1.1.1. The accrued but unpaid Yield to such Distribution date, 2.5.1.1.2. any additional interest with respect to Yield that was due but not paid on a prior Distribution Date, 2.5.1.1.3. the amount of any accrued but unpaid amounts, fees or expenses due and payable to the Purchasers, the Banks or the Agent under this Agreement (including amounts payable under the Fee Letter and (if the Agent shall have notified the Servicer at least two Business Days prior to such Distribution Date) payments under Sections 1.05, 1.06, 4.01, 4.02, 4.03 and 7.04 of this Agreement) accrued to such Distribution Date, 2.5.1.1.4. The Purchaser Loss Amount for the related Due Period, and 2.5.1.1.5. if Spirit or an Affiliate of Spirit is no longer the Servicer, the Purchaser Servicer Fee accrued to such Distribution Date; exceeds: 2.5.1.2. the product of: 2.5.1.2.1. Allocated Finance Charges, and 2.5.1.2.2. the Purchaser Percentage. 20 The Servicer will give the Agent notice of the Required Amount on each such determination date on which the Servicer determines that the Required Amount is greater than zero. 2.5.2. If the Required Amount is greater than zero, Excess Finance Charge Collections for the related Distribution Date will be allocated to and used to fund the Required Amount with respect to such Distribution Date pursuant to Section 2.04(a) hereof. 2.5.3. If Excess Finance Charge Collections with respect to such Distribution Date are less than the Required Amount, an amount up to the amount of the Subordinated Principal Collections for such Distribution Date will be allocated to and used to fund the remaining Required Amount. The Subordinated Purchaser Capital, if any, will be reduced by the amount of Subordinated Principal Collections allocated to fund the Required Amount. In the event that such reduction would cause the Subordinated Purchaser Capital to be a negative number, the Subordinated Purchaser Capital will be reduced to zero, and the Purchaser Capital will be reduced by the amount by which the Subordinated Purchaser Capital would have been reduced below zero (but not by more than the Purchaser Loss Amount for such Due Period). 2.5.4. If Subordinated Principal Collections with respect to any Due Period are insufficient to fund the remaining Required Amount for such Due Period, then a portion of the Subordinated Purchaser Capital, if any, equal to such insufficiency (but not in excess of the Purchaser Loss Amount for such Due Period) will be allocated and distributed to the Purchasers and the Banks, and the Subordinated Purchaser Capital will be reduced by the amount so allocated and distributed. In the event that such reduction would cause the Subordinated Purchaser Capital to be a negative number, the Subordinated Purchaser Capital will be reduced to zero, and the Purchaser Capital will be reduced by the amount by which the Subordinated Purchaser Capital would have been reduced below zero (but not by more than the Purchaser Loss Amount for such Due Period) and such amount will be treated as a Purchaser Charge-Off. 2.5.5. Such reductions of the Subordinated Purchaser Capital shall thereafter be reimbursed and the Subordinated Purchaser Capital increased (but not by an amount in excess of the aggregate reductions of the Subordinated Purchaser Capital) on each Distribution Date by the amount of Excess Finance Charge Collections for such Distribution Date 21 allocated and available for that purpose pursuant to Section 2.04(e) hereof. 2.5.6. Purchaser Charge-Offs shall be reimbursed and the Purchaser Capital increased (but not by an amount in excess of the aggregate Purchaser Charge-Offs) on any Distribution Date by the amount of Excess Finance Charge Collections allocated and available for that purpose pursuant to Section 2.04(b) hereof. SECTION 2.6. ALLOCATION AND DISTRIBUTION OF ALLOCABLE PRINCIPAL COLLECTIONS. 2.6.1. On each day during the Revolving Period on which Collections of Pool Receivables are received by it, the Servicer will allocate Total Principal Collections to the Purchasers, the Banks and the Subordinated Purchaser pro rata based on their relative Purchaser Capital or Subordinated Purchaser Capital, as the case may be, as of the end of the immediately preceding Due Period. The Servicer shall, on each day during the Revolving Period on which Total Principal Collections are allocated pursuant to the preceding sentence, unless the Servicer shall then have knowledge that any of the conditions precedent set forth in paragraph 2 of Exhibit II hereto has not been satisfied, reinvest with the Seller, on behalf of the Purchasers, the Banks and the Subordinated Purchaser, respectively, in additional undivided percentage interests in the Pool Receivables, the amount of the Total Principal Collections so allocated to the Purchasers, the Banks and the Subordinated Purchaser, as the case may be; provided, however, that such reinvestment shall be effected in a manner such that the Purchaser Capital and the Subordinated Purchaser Capital immediately following such reinvestment are equal to the Purchaser Capital and the Subordinated Purchaser Capital immediately prior to the allocation of Total Principal Collections on such day pursuant to the first sentence of this Section 2.06(a). 2.6.2. On each Distribution Date with respect to the Amortization Period, the portion of the Total Principal Collections received by the Servicer during the preceding Due Period not used to fund any portion of the Required Amount pursuant to Section 2.05(c) hereof (the "Available Principal Collections") will be allocated and distributed by the Servicer in the following priority: 2.6.2.0.0.0.0.1. first, an amount equal to the lesser of (x) such Available Principal Collections and (y) the Adjusted Purchaser Capital for such Distribution Date 22 will be allocated to the Purchaser Receivable Interests and deposited into the Agent's Account, and upon receipt of such funds, the Agent shall distribute such funds to the Purchasers and the Banks; 2.6.2.0.0.0.0.2. second, an amount equal to the lesser of the balance of such Available Principal Collections and the Subordinated Purchaser Capital for such Distribution Date will be allocated to the Subordinated Purchaser Receivable Interests and deposited into the Subordinated Purchaser Account; and 2.6.2.0.0.0.0.3. third, the balance, if any, will be allocated to the Seller Interest and deposited into the Seller Account. 23 SECTION 2.7. DILUTION AMOUNTS. 2.7.1. On the last day of each Due Period, the aggregate amount of Principal Receivables used to calculate the Seller Interest will be reduced by an amount equal to the sum of the Series Dilution Amount for this Series and for all other Receivables Purchase Series (such reduction to be in addition to the reductions required by Section 4.3(d) of the Pooling and Servicing Agreement). If such reduction would cause the Seller Interest to be less than the Aggregate Minimum Seller Interest (as defined in the Pooling and Servicing Agreement) (the amount by which the Seller Interest is reduced below the Aggregate Minimum Seller Interest is referred to herein as the "Dilution Deficit"), then the Owner shall calculate an amount (the "Series Dilution Deficit") equal to the lesser of the Dilution Deficit and the Series Dilution Amount for this Series, and shall promptly, but in no event later than 10 Business Days after the last day of such Due Period, either (i) deposit into the Agent's Account in immediately available funds an amount equal to such Series Dilution Deficit, which deposit shall be treated as Allocable Principal Collections with respect to such Due Period and shall be applied in accordance with this Article II, or (ii) convey Principal Receivables arising in Additional Accounts to the Trust in an aggregate amount at least equal to such Series Dilution Deficit; provided, that if the Owner shall fail to either deposit the Series Dilution Deficit into the Agent's Account or convey Principal Receivables arising in Additional Accounts in an aggregate amount at least equal to such Series Dilution Deficit with respect to any Due Period within ten days after the Owner shall be required to make such a deposit or conveyance, then if such Series Dilution Deficit exceeds the Minimum Seller Interest,(i) the Subordinated Purchaser Capital will be reduced by an amount equal to the lesser of such excess and the Subordinated Purchaser Capital and (ii) the positive difference, if any, between such excess and the Subordinated Purchaser Capital will be treated as a Purchaser Charge-Off and the Purchaser Capital will be reduced by such amount. 2.7.2. If the Pool Receivables shall include any Discount Option Receivables on any date when the Owner is required, pursuant to Section 2.07(a) of this Agreement, to deposit any amount into the Agent's Account or to convey Principal Receivables to the Trust, the Owner shall on such date make an additional deposit into the Agent's Account or convey Principal Receivables arising in Additional Accounts to the Trust, in each case in an amount equal to the difference 24 between (i) the amount the Owner would have been required to deposit or convey on such date pursuant to Section 2.07(a) if none of the Pool Receivables had been Discount Option Receivables, minus (ii) the amount actually deposited or conveyed by the Owner on such date pursuant to Section 2.07(a). ARTICLE 3. REPRESENTATIONS AND WARRANTIES; COVENANTS; EARLY AMORTIZATION EVENTS SECTION 3.1. REPRESENTATIONS AND WARRANTIES; COVENANTS. 3.1.1. Each of the Trustee, the Subordinated Purchaser, the Owner, the Servicer and the Originator hereby makes the representations and warranties set forth for such party in Exhibit III hereto. 3.1.2. Each of the Trustee, the Owner, the Servicer, and the Originator hereby agrees to perform and observe the covenants set forth for such party in Exhibit IV hereto. 3.1.3. In addition, the Servicer hereby agrees to perform and observe the covenants set forth in Exhibit V hereto. SECTION 3.2. EARLY AMORTIZATION EVENTS. If any of the Early Amortization Events set forth in Exhibit VI hereto shall occur and be continuing, then, and in any such event, any or all of the following actions may be taken by notice to the Owner, the Seller and the Servicer: (x) the Purchasers or the Agent may declare the Facility Termination Date to have occurred (in which case the Facility Termination Date shall be deemed to have occurred) and (y) the Agent may declare the Commitment Termination Date to have occurred (in which case the Commitment Termination Date shall be deemed to have occurred); provided that, automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in paragraph (g) of Exhibit VI, the Facility Termination Date and the Commitment Termination Date shall occur. Upon any such declaration or upon any such automatic termination, and subject to any limitations on the Purchasers' and the Banks' rights and remedies in respect of the Pool Receivables under the Pooling and Servicing Agreement or pursuant to the other terms of this Agreement, the Purchasers, the Banks and the Agent shall 25 have, in addition to the rights and remedies which they may have under this Agreement, all other rights and remedies provided under the UCC with respect to the Receivable Interests purchased by them hereunder and under other applicable law, which rights and remedies shall be cumulative; provided, however, that so long as any Investor Certificates shall be outstanding, the Agent, the Purchasers and the Banks shall not exercise such other rights and remedies under the UCC and other applicable law unless the Agent shall have obtained and delivered to the Trustee an Opinion of Counsel to the effect that the exercise of such rights and remedies shall not materially and adversely affect the interests of the holders of the Investor Certificates. ARTICLE 4. INDEMNIFICATION; PURCHASE OF INELIGIBLE RECEIVABLES SECTION 4.1. INDEMNITIES BY THE OWNER. Without limiting any other rights that the Agent, the Purchaser Representative, the Seller, the Trustee, any Purchaser, any Bank or any of their respective Affiliates (each, an "Indemnified Party") may have under this Agreement or under applicable law, the Owner hereby agrees to indemnify each Indemnified Party from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) (all of the foregoing being collectively referred to as "Indemnified Amounts") arising out of or resulting from this Agreement or the use of proceeds of purchases or reinvestments or the ownership of Purchaser Receivable Interests or in respect of any Receivable or any Cardholder Agreement, excluding, however, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party or any of its Affiliates, (b) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables or (c) any income taxes incurred by such Indemnified Party arising out of or as a result of this Agreement or the ownership of Purchaser Receivable Interests or in respect of any Receivable or any Cardholder Agreement. Without limiting or being limited by the foregoing, the Owner shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: 4.1.0.1. the creation of an undivided percentage ownership interest in any Receivable (A) which purports to be part of the Net Receivables Pool Balance but which is not, at the date of the creation of such 26 interest, an Eligible RPA Receivable or (B) the Obligor of which is an Affiliate of any of the parties hereto or is a government or a governmental subdivision or agency; 4.1.0.2. reliance on (A) any written representation or warranty or statement made or deemed made by the Seller, the Owner or the Originator (or any of their respective officers) on or prior to the date of this Agreement under or in connection with this Agreement, or any exhibit, certificate or report delivered pursuant hereto or thereto or in connection herewith or therewith, which shall have been incorrect in any material respect when made, and (B) thereafter, any representation or warranty or statement made or deemed made by the Seller, the Owner or the Originator (or any of their respective officers) under or in connection with this Agreement which shall have been incorrect in any material respect when made; 4.1.0.3. the failure by the Seller, the Owner or the Originator to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Cardholder Agreement (including, without limitation, Regulation Z of the Board of Governors of the Federal Reserve System, the Federal Consumer Protection Act (including, without limitation, the Federal Truth in Lending Act), the Fair Credit Billing Act, and all other laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy); or the failure of any Pool Receivable or the related Cardholder Agreement to conform to any such applicable law, rule or regulation; 4.1.0.4. the failure to vest in the relevant Purchaser or Bank a perfected undivided percentage ownership interest in the Receivables in, or purporting to be in, the Receivables Pool and the Collections in respect thereof, free and clear of any Adverse Claim (except for interests created therein pursuant to the Pooling and Servicing Agreement); 4.1.0.5. the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the 27 Receivables Pool and the Collections in respect thereof, whether at the time of any purchase or reinvestment or at any subsequent time; 4.1.0.6. any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including, without limitation, a defense based on such Receivable or the related Cardholder Agreement not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services; 4.1.0.7. any failure of the Seller, the Owner or the Originator to perform its duties or obligations in accordance with the provisions hereof or of the Pooling and Servicing Agreement or the Purchase Agreement or to perform its duties or obligations under the Cardholder Agreements; 4.1.0.8. any products liability or other claim arising out of or in connection with merchandise, insurance or services which are the subject of any Cardholder Agreement; 4.1.0.9. the commingling of Collections of Pool Receivables at any time with other funds; 4.1.0.10. any action or omission by the Owner, the Originator or the Seller reducing or impairing the rights of any Purchaser or any Bank with respect to any Pool Receivable or the value of any Pool Receivable (including, without limitation, any cancellation, modification or netting of any Receivable by the Owner, the Originator or the Seller); or 4.1.0.11. any investigation, litigation or proceeding related to this Agreement or the use of proceeds of purchases or reinvestments or the ownership of Purchaser Receivable Interests or in respect of any Receivable or Cardholder Agreement. SECTION 4.2. INDEMNITIES BY THE SERVICER. Without limiting any other rights that any Indemnified Party may have under this Agreement or under applicable law, the Servicer hereby 28 agrees to indemnify each Indemnified Party from and against, and to pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against, any and all Indemnified Amounts relating to or resulting from any of the following: 4.2.0.1. reliance on (A) any written representation or warranty or statement made or deemed made by the Servicer (or any of its officers) on or prior to the date of this Agreement under or in connection with this Agreement, or any exhibit, certificate or report delivered pursuant hereto or in connection herewith, which shall have been incorrect in any material respect when made, and (B) thereafter, any representation or warranty or statement made or deemed made by the Servicer (or any of its officers) under or in connection with this Agreement which shall have been incorrect in any material respect when made; 4.2.0.2. the failure by the Servicer to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Cardholder Agreement (including, without limitation, Regulation Z of the Board of Governors of the Federal Reserve System, the Federal Consumer Protection Act (including, without limitation, the Federal Truth in Lending Act), the Fair Credit Billing Act, and all other laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy); 4.2.0.3. any claim relating to collection activities with respect to any Pool Receivable; 4.2.0.4. any failure of the Servicer or the Administrative Servicer to perform its duties or obligations in accordance with the provisions hereof or of the Administrative Servicer Agreement or of the Pooling and Servicing Agreement; 4.2.0.5. any action or omission by the Servicer reducing or impairing the rights of any Purchaser or any Bank with respect to any Pool Receivable or the value of any Pool Receivable; excluding, however, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party or any of its Affiliates, (b) recourse 29 (except as otherwise specifically provided in this Agreement) for uncollectible Receivables or (c) any income taxes incurred by such Indemnified Party arising out of or as a result of this Agreement or the ownership of Receivable Interests or in respect of any Receivable or any Cardholder Agreement. SECTION 4.3. PURCHASE OF INELIGIBLE AND CERTAIN OTHER RECEIVABLES. 4.3.1. The Owner agrees to make payment when due of all deposits which the Owner is required to make pursuant to Sections 2.4(d)(iii) and 2.4(e) of the Pooling and Servicing Agreement. Any amount deposited by the Owner in the Collection Account pursuant to Section 2.4(d)(iii) or 2.4(e) of the Pooling and Servicing Agreement, which deposit is made on account of the Receivable Interests created under this Agreement, shall be deemed to be a Collection in respect of the related Pool Receivable as to which such deposit is made, and the amount of each such Collection shall be applied in accordance with Article II hereof. If any such deposit is made after the end of a Due Period but on or prior to the first Distribution Date following the end of such Due Period, such deposit shall be deemed to be a Collection received during such Due Period. 4.3.2. If the Pool Receivables shall include any Discount Option Receivables on any date when the Owner is required, pursuant to Section 2.4(d)(iii) or 2.4(e) of the Pooling and Servicing Agreement, to deposit any amount into the Collection Account on account of the Receivable Interests created under this Agreement, the Owner shall make an additional deposit into the Collection Account on such date in an amount equal to the difference between (i) the amount the Owner would have been required to deposit into the Collection Account on such date on account of such Receivable Interests pursuant to the Pooling and Servicing Agreement if none of the Pool Receivables had been Discount Option Receivables, minus (ii) the amount actually deposited by the Owner into the Collection Account on such date on account of such Receivable Interests pursuant to the Pooling and Servicing Agreement. 30 SECTION 4.4. REASSIGNMENT OF RECEIVABLES AND RECEIVABLE INTERESTS. 4.4.1. If, pursuant to Section 2.4(d) of the Pooling and Servicing Agreement, any Receivables that are "Ineligible Receivables" (as defined in the Pooling and Servicing Agreement) are required to be assigned by the Seller to the Owner, each Purchaser, each Bank and the Subordinated Purchaser hereby assigns such Receivables to the extent of its Receivable Interest to the Seller, effective upon and simultaneously with the assignment by the Seller of such Receivable to the Owner in accordance with the Pooling and Servicing Agreement, subject to the prior payment by the Owner of the amounts required under the Pooling and Servicing Agreement. 4.4.2. If, pursuant to Section 2.4(e) of the Pooling and Servicing Agreement, all Receivable Interests are required to be assigned by the Seller to the Owner, each Purchaser, each Bank and the Subordinated Purchaser hereby assigns its Receivable Interest to the Seller, effective upon and simultaneously with the assignment by the Seller of the Receivables to the Owner in accordance with the Pooling and Servicing Agreement, subject to the prior payment by the Owner of the amounts required under the Pooling and Servicing Agreement. 4.4.3. If, pursuant to Section 9.2 of the Pooling and Servicing Agreement, all Receivables are to be sold by the Seller, each Purchaser, each Bank and the Subordinated Purchaser hereby assigns its Receivable Interest to the Seller, effective upon and simultaneously with the sale by the Seller of the Receivables in accordance with the Pooling and Servicing Agreement. 31 SECTION 4.5. REPURCHASE OF PURCHASER RECEIVABLE INTERESTS. On any Distribution Date on or after the Facility Termination Date and the Commitment Termination Date, the Owner may, upon 30 days' prior notice to the Agent, purchase all, but not less than all, of the Purchaser Receivable Interests outstanding on such Distribution Date, in accordance with the terms specified in Section 12.2(a) of the Pooling and Servicing Agreement, provided that on such Distribution Date (a) the Subordinated Purchaser Capital has not been reduced to zero, and (b) the sum of the Purchaser Capital plus the Subordinated Purchaser Capital is equal to or less than 5% of the highest Purchase Limit theretofore in effect under this Agreement. The deposit required in connection with any such purchase shall be made to the Agent's Account, for the account of the relevant Purchaser(s) and Bank(s), and shall be in an amount equal to the Purchaser Capital plus all Yield accrued thereon through the date of such purchase. The Owner shall also pay to the Agent, on the date of any such purchase, for the account of the Agent and the relevant Purchaser(s) and Bank(s), Indemnified Parties and Affected Persons as the case may be, all accrued fees, costs and expenses and Indemnified Amounts payable hereunder to the Agent, the Purchasers, the Banks, Indemnified Parties and/or Affected Persons. ARTICLE 5. THE SERVICER SECTION 5.1. DESIGNATION OF THE SERVICER; DELEGATION OF DUTIES. 5.1.1. Each of the Seller, the Subordinated Purchaser, the Purchasers, the Banks and the Agent hereby confirms that the Person appointed from time to time to act as Servicer under the Pooling and Servicing Agreement, initially Spirit, shall act as its agent and as agent for the holders of the Investor Certificates in servicing the Pool Receivables and the Collections. The parties hereto confirm that it is impracticable to have more than one Servicer servicing the Pool Receivables and, accordingly, all servicing activities described in the Pooling and Servicing Agreement shall be the responsibility of the Servicer and shall be performed in accordance with the Pooling and Servicing Agreement. Spirit as the initial Servicer hereby confirms, for the benefit of the parties hereto, that it shall perform the duties and 32 obligations of the Servicer pursuant to the terms of the Pooling and Servicing Agreement. 5.1.2. In accordance with Section 10.2 of the Pooling and Servicing Agreement, the Servicer may be terminated from time to time. Any Successor Servicer shall be appointed by the Trustee in accordance with Section 10.2 of the Pooling and Servicing Agreement and any Successor Servicer so appointed shall act as the Servicer. 5.1.3. The Servicer may subcontract with any other Person, with the prior consent of the Agent (which consent will not be unreasonably withheld), for the administration and collection of the Pool Receivables; provided, however, that such subcontract shall not affect the Servicer's liability for performance of its duties and obligations pursuant to the terms hereof and of the Pooling and Servicing Agreement. The Agent hereby acknowledges and consents to the continuation of Alliance Data Services, Inc. as the Administrative Servicer pursuant to the terms and conditions set forth in the Administrative Servicer Agreement. SECTION 5.2. ADMINISTRATION AND COLLECTION OF THE POOL RECEIVABLES. In addition to performing the duties undertaken pursuant to the Pooling and Servicing Agreement, the Servicer shall conduct the administration and collection of the Pool Receivables in accordance with the provisions of Exhibit V. SECTION 5.3. SERVICER FEE. The Servicer shall be paid a servicing fee (the "Servicer Fee") at the per annum rate of 2.0% (the "Servicing Fee Rate") on the average daily Purchaser Capital and Subordinated Purchaser Capital of each Receivable Interest, from the date of purchase of such Receivable Interest until the date on which such Purchaser Capital and Subordinated Purchaser Capital is reduced to zero, payable on each Distribution Date for the immediately preceding Settlement Period. The Servicer Fee shall be payable only from Collections pursuant to, and subject to the priority of payment set forth in, Article II of the Agreement. 33 ARTICLE 6. THE PURCHASER REPRESENTATIVE SECTION 6.1. DESIGNATION OF THE PURCHASER REPRESENTATIVE. 6.1.1. CNAI is hereby designated as, and hereby agrees to perform the duties and obligations of, the Purchaser Representative pursuant to the terms hereof and (with respect to the Receivables Purchase Series arising in connection with this Agreement) pursuant to the Pooling and Servicing Agreement. 6.1.2. The Purchasers, the Banks, the Subordinated Purchaser and the Agent hereby appoint the Purchaser Representative, from time to time designated pursuant to this Section 6.01, as the representative for themselves and for the Purchasers and the Banks to perform the duties and obligations of the Purchaser Representative on their behalf under the Pooling and Servicing Agreement. 6.1.3. The Agent may, by notice to the Seller, the Owner, the Subordinated Purchaser and the Servicer, designate another Person (including, without limitation, the Agent itself) to succeed CNAI as the Purchaser Representative if such Person shall consent and agree to the terms hereof and of the Pooling and Servicing Agreement. SECTION 6.2. DUTIES OF THE PURCHASER REPRESENTATIVE. 6.2.1. The Purchaser Representative shall furnish to each Purchaser, each Bank and to the Subordinated Purchaser a copy of each notice, instrument or other document received by it in connection with this Agreement or the Pooling and Servicing Agreement within a reasonable period of time after receipt thereof. 6.2.2. The Purchaser Representative shall, on behalf of the Purchasers, the Banks and the Subordinated Purchaser, direct the time, method and place of exercising any right or remedy available to the Purchasers, the Banks and/or the Subordinated Purchaser under the Pooling and Servicing Agreement and take such other actions under the Pooling and Servicing Agreement as could be taken by the Purchasers, the Banks and/or the Subordinated Purchaser and as are, in the sole discretion of the Purchaser Representative, necessary or desirable to effectuate the purposes of this Agreement; provided, however, that the Purchaser Representative shall not 34 be required to take any action which exposes the Purchaser Representative to personal liability or which is contrary to this Agreement or applicable law. SECTION 6.3. LIMITATION ON PURCHASER REPRESENTATIVE LIABILITY, ETC. 6.3.1. Neither the Purchaser Representative nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Purchaser Representative: 6.3.1.1. may treat the Purchaser of or the Bank which funded any purchase of any Purchaser Receivable Interest as the holder thereof, and may treat the Subordinated Purchaser as the holder of the Subordinated Receivable Interest, until the Purchaser Representative receives written notice of the assignment or transfer thereof signed by such Person and in form satisfactory to the Purchaser Representative; 6.3.1.2. may consult with legal counsel (including counsel for the Seller, the Owner, the Originator or the Servicer), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; 6.3.1.3. makes no warranty or representation to any Purchaser, any Bank or to the Subordinated Purchaser and shall not be responsible to any Purchaser, any Bank or to the Subordinated Purchaser for any statements, warranties or representations made in or in connection with this Agreement, the Pooling and Servicing Agreement or the Purchase Agreement; 6.3.1.4. shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, the Pooling and Servicing Agreement or the Purchase Agreement on the part of the Seller, the Owner, the Originator or the Servicer or to inspect the property (including the books and records) of the Seller, the Owner or the Servicer; 35 6.3.1.5. shall not be responsible to any Purchaser, any Bank or the Subordinated Purchaser for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, the Pooling and Servicing Agreement or the Purchase Agreement or any instrument or document furnished pursuant hereto; and 6.3.1.6. shall incur no liability under or in respect of this Agreement, the Pooling and Servicing Agreement, the Purchase Agreement or any such other document or instrument by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram) believed by it to be genuine and signed or sent by the proper party or parties. 6.3.2. With respect to rights and obligations under this Agreement and as the Purchaser or a Bank hereunder, CRC shall have the same rights and powers under this Agreement, the Pooling and Servicing Agreement, the Purchase Agreement or any such other document or instrument as any other Purchaser or Bank and may exercise the same as though CNAI were not the Purchaser Representative hereunder. CNAI and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Seller, the Owner or the Servicer, any of their respective Affiliates and any Person or entity who may do business with or own securities of the Seller, the Owner or the Servicer or any of its Affiliates, all as if CNAI were not the Purchaser Representative and without any duty to account therefor to the Purchasers, the Banks or the Subordinated Purchaser. 6.3.3. The Subordinated Purchaser acknowledges that it has, independently and without reliance upon the Purchaser Representative and based on such financial statements and other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. The Subordinated Purchaser also acknowledges that it will, independently and without reliance upon the Purchaser Representative or any other Purchaser or Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement, the Pooling and Servicing Agreement, the Purchase Agreement and any other agreement or other document. 36 ARTICLE 7. MISCELLANEOUS SECTION 7.1. AMENDMENTS, WAIVERS, ETC. 7.1.1. No amendment or waiver of any provision of this Agreement or consent to any departure by the Seller, the Owner, the Servicer or the Subordinated Purchaser therefrom shall be effective unless in a writing signed by the Owner, the Seller, the Servicer, the Subordinated Purchaser and the Agent, as agent for the Purchasers and the Banks, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that so long as any Investor Certificates shall be outstanding, no such amendment shall become effective unless (i) the Owner shall have delivered an Opinion of Counsel to the Agent and the Trustee to the effect that such amendment shall not materially and adversely affect the interests of the holders of the Investor Certificates or (ii) S&P and Moody's shall have notified the Owner, the Servicer and the Trustee in writing that such action will not result in a reduction or withdrawal of their respective ratings on any Investor Certificates. In addition, and so long as any Investor Certificates shall be outstanding, (y) if such amendment relates to any of the provisions of Article II hereof (and regardless of whether an Opinion of Counsel has been delivered pursuant to clause (i) of the preceding sentence), S&P shall have notified the Owner, the Servicer and the Trustee in writing that such action will not result in a reduction or withdrawal of its rating on any Investor Certificates, or (z) if such amendment relates to any other provisions of this Agreement (other than an amendment the sole effect of which is to extend the Facility Termination Date or the Commitment Termination Date, to reduce the Purchase Limit or to modify the terms of an Enhancement which is for the sole benefit of the Receivables Purchase Interest under this Agreement), S&P shall have been given at least one Business Day's prior written notice of such amendment and S&P shall not have advised the Owner or the Servicer at the close of business on the Business Day following receipt of such notice that such action would result in a reduction or withdrawal of its rating on any Investor Certificates. Defined terms which are incorporated herein by reference from the Pooling and Servicing Agreement shall not be altered or affected by any subsequent amendment to the Pooling and Servicing Agreement which relates to such terms, unless the Agent shall have consented in writing to such amendment. 37 7.1.2. No failure on the part of any Purchaser, any Bank, the Subordinated Purchaser or the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. SECTION 7.2. NOTICES, ETC. 7.2.1. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and faxed or delivered, to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by regular mail), and notices and communications sent by other means shall be effective when received. 7.2.2. So long as Spirit is the Servicer under this Agreement, any notice required to be given to the Owner and the Servicer hereunder shall be deemed to have been delivered to both the Owner and the Servicer if such notice is delivered to Spirit at its address set forth below its name on the signature page hereof. 38 SECTION 7.3. ASSIGNABILITY. 7.3.1. This Agreement and each Purchaser's rights and obligations herein (including ownership of each Purchaser Receivable Interest) shall be assignable by such Purchaser and its successors and assigns; provided, that no assignee shall be entitled to compensation pursuant to Section 1.05(a) hereof at a rate in excess of that to which the assignor Purchaser was entitled immediately prior to such assignment; and provided, further, that, unless the proposed assignee is CNAI or a Bank, (i) each assignor of a Purchaser Receivable Interest or any interest therein shall give the Agent, the Owner, the Servicer and the Seller at least ten Business Days' notice of a proposed assignment and shall not consummate such assignment if the Owner notifies such assignor that the proposed assignee or any Affiliate of a proposed assignee is a competitor of the Owner, Charming Shoppes or any of their respective Affiliates, and (ii) the amount being assigned pursuant to each such assignment (determined as of the date of such assignment) shall in no event be less than the lesser of (x) $10,000,000 and (y) the assigning Purchaser's share of the Purchase Limit. 7.3.1.1. Each Bank may assign to any Eligible Assignee or to any other Bank all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Bank Commitment and any Purchaser Receivable Interests or interests therein owned by it); provided, that no assignee shall be entitled to compensation pursuant to Section 1.05(a) hereof at a rate in excess of that to which the assignor Bank was entitled immediately prior to such assignment; and provided, further, that, unless the proposed assignee is CNAI or a Bank, each assignor of a Purchaser Receivable Interest or any interest therein shall give the Agent, the Owner, the Servicer and the Seller at least ten Business Days' notice of a proposed assignment and shall not consummate such assignment if the Owner notifies such assignor that the proposed assignee or any Affiliate of the proposed assignee is a competitor of the Owner, Charming Shoppes or any of their respective Affiliates; and provided, further, that in the case of any assignment, 7.3.1.1.1. each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement, 7.3.1.1.2. the amount being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) 39 shall in no event be less than the lesser of (x) $10,000,000 and (y) the assigning Bank's Bank Commitment, 7.3.1.1.3. the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recordation fee of $2,500, 7.3.1.1.4. concurrently with such assignment, if such Bank is a Bank other than Citibank, the assignor thereunder shall assign to such Eligible Assignee an equal percentage of its rights and obligations under the APA, and 7.3.1.1.5. Citibank may not assign any portion of its Bank Commitment to the extent it reduces such Bank Commitment below (x) 10% of the Purchase Limit minus (y) the Purchaser Capital of all Purchaser Receivable Interests owned by CNAI or any of its Affiliates. 7.3.1.2. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and (y) the Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto). 7.3.1.3. The Agent shall maintain at its address referred to in Section 7.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Bank Commitment of, and aggregate outstanding Purchaser Capital of Purchaser Receivable Interests or interests therein owned by, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Seller, the Owner, the Servicer, the Agent and the Banks may treat each person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Seller, the Owner, the Servicer, or any Bank at any reasonable time and from time to time upon reasonable prior notice. 40 7.3.1.4. Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and by an assignee which is an Eligible Assignee or an existing Bank, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Annex H hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Seller, the Owner and the Servicer. 7.3.1.5. Notwithstanding any of the other provisions of this Section 7.03, Citibank or any of its Affiliates may assign any of its rights (including, without limitation, rights to payment of Purchaser Capital and Yield) under this Agreement to any Federal Reserve Bank without notice to or consent of the Agent, the Owner, the Servicer or the Seller. 7.3.2. Subject to the provisions of Section 7.06(b) hereof, each assignor of a Purchaser Receivable Interest may in connection with the assignment or participation, disclose to the assignee or participant any information relating to the Seller, the Servicer, the Owner or the Originator, including the Receivables, furnished to such assignor by or on behalf of the Seller, the Servicer, the Owner or the Originator or by the Agent. 7.3.3. This Agreement and the rights and obligations of the Agent (in its capacity as agent hereunder) herein shall be assignable by the Agent and its successors and assigns; provided, however, that the Agent agrees that it will not assign of its own volition such rights and obligations to any Person other than an Affiliate of CNAI unless: 7.3.3.1. in the reasonable judgment of the Agent consistent with its internal policy (including, without limitation, the internal policy of any Affiliate of the Agent, with respect to which the manner in which conflicts of interest are to be resolved) and legal and regulatory restrictions, the Agent determines that it would be disadvantageous to the Agent or an Affiliate of the Agent for it to continue as the Agent hereunder, or 7.3.3.2. the Agent's decision to assign its rights and obligations (in its capacity as the agent hereunder) is consistent with its determination to assign its rights and obligations as the agent in respect of a majority of the other transactions with sellers of receivables in which it is, at such time, the agent, which 41 involve receivables having a tenor similar to the tenor of the Receivables. 7.3.4. None of the Seller or subject to paragraph 2(m) of Exhibit IV hereto, the Owner, or subject to Section 8.2 of the Pooling and Servicing Agreement and paragraph 3(e) of Exhibit IV hereto, the Servicer, may assign its rights or obligations hereunder or any interest herein without the prior written consent of the Agent. 7.3.5. Each Purchaser may sell participations, to one or more banks or other financial institutions, in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, any Purchaser Receivable Interests or interests therein owned by it); provided, however, that (i) unless the proposed participant is CNAI or a Bank, each seller of a participation shall give the Agent, the Owner, the Servicer and the Seller at least ten Business Days' notice of a proposed participation and shall not consummate such participation if the Owner notifies such seller that the proposed participant or any Affiliate of the proposed participant is a competitor of the Owner, Charming Shoppes or any of their respective Affiliates; (ii) such selling Purchaser's obligations under this Agreement shall remain unchanged; (iii) such selling Purchaser shall remain solely responsible to the other parties hereto for the performance of such obligations; and (iv) the amount being participated pursuant to each such participation (determined as of the date of such participation) shall in no event be less than the lesser of (x) $10,000,000 and (y) the selling Purchaser's share of the Purchase Limit. The parties to this Agreement shall continue to deal solely and directly with such selling Purchaser in connection with such Purchaser's rights and obligations under this Agreement. 7.3.6. Each Bank may sell participations, to one or more banks or other financial institutions, in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Bank Commitment and any Purchaser Receivable Interests or interests therein owned by it); provided, however, that (i) unless the proposed participant is CNAI or a Bank, each seller of a participation shall give the Agent, the Owner, the Servicer and the Seller at least ten Business Days' notice of a proposed participation and shall not consummate such participation if the Owner notifies such seller that the proposed participant or any Affiliate of the proposed participant is a competitor of the Owner, Charming Shoppes or any of their respective Affiliates; (ii) such selling Bank's 42 obligations under this Agreement (including, without limitation, its Bank Commitment hereunder) shall remain unchanged; (iii) such selling Bank shall remain solely responsible to the other parties hereto for the performance of such obligations; (iv) the amount being participated pursuant to each such participation (determined as of the date of such participation) shall in no event be less than the lesser of (x) $10,000,000 and (y) the selling Bank's Bank Commitment; and (v) concurrently with such participation, the selling Bank (if other than Citibank) thereunder shall sell to such participant an equal percentage of its rights and obligations under the APA. The parties to this Agreement shall continue to deal solely and directly with such selling Bank in connection with such Bank's rights and obligations under this Agreement 7.3.7. No transfer (or purported transfer) of all or any part of the Purchaser Receivable Interests (or any participation or other economic interest therein) or the Subordinated Receivable Interests (or any participation or other economic interest therein), whether to another Receivables Purchaser or to a person who is not a Receivables Purchaser, shall be effective, and any such transfer (or purported transfer) shall be void ab initio, and no Person shall otherwise become a holder of a Purchaser Receivable Interest or a Subordinated Receivable Interest if (i) at the time of such transfer (or purported transfer) any Purchaser Receivable Interests or Subordinated Receivable Interests are traded on a Market, (ii) after such transfer (or purported transfer) the Trust would have more than 25 Private Holders of the Purchaser Receivable Interests or the Subordinated Receivable Interests (or any participation or other economic interests in any of the foregoing), (iii) the Purchaser Receivable Interests or Subordinated Receivable Interests were required to be registered under the Securities Act (or, to the extent sold or offered pursuant to Regulation S (17 CFR 230.901 through 230.904 or any successor thereto), would have been required to be registered under the Securities Act if sold or offered within the United States) or (iv) such transfer (or purported transfer) is to a Person other than (x) an "accredited investor" as defined in paragraph (1), (2), (3) or (7) of Rule 501(a) under the Securities Act, (y) a qualified institutional buyer as defined in Rule 144A under the Securities Act or (z) an Affiliate of the Owner, provided, however, that the Trustee shall not be responsible for monitoring compliance with the requirements of this subsection (h) with respect to any transfer (or purported transfer) unless it shall have received prior written notice of the applicability thereof from the Servicer. 43 SECTION 7.4. COSTS, EXPENSES AND TAXES. 7.4.1. In addition to the rights of indemnification granted under Sections 4.01 and 4.02 hereof, the Owner agrees to pay on demand all costs and expenses in connection with the preparation, execution, delivery and administration of this Agreement, any asset purchase agreement or similar agreement relating to the sale or transfer of interests in Purchaser Receivable Interests and the other documents and agreements to be delivered hereunder, including, without limitation, (i) the reasonable fees and out-of-pocket expenses of counsel for the Agent, CNAI, Citicorp Securities Inc., Citibank, CRC with respect thereto and with respect to advising the Agent, CNAI, Citicorp Securities, Inc., Citibank and CRC as to their rights and remedies under this Agreement, (ii) the Agent's out-of-pocket costs and expenses in connection with annual audits under paragraph 1(b) of Exhibit V, and (iii) all costs and expenses, if any (including reasonable counsel fees and expenses), of the Agent, CNAI, Citicorp Securities, Inc., Citibank, the Seller, the Trustee, the Purchasers or the Banks in connection with the enforcement of this Agreement and the other documents and agreements to be delivered hereunder. 7.4.2. In addition, the Owner shall pay any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 7.5. NO PROCEEDINGS. 7.5.1. Each of the Seller, the Agent, the Owner, the Originator, the Servicer, the Subordinated Purchaser, each Purchaser, each Bank, each assignee of a Purchaser Receivable Interest or any interest therein and each entity which enters into a commitment to purchase Purchaser Receivable Interests or interests therein hereby agrees that it will not institute against CRC any proceeding of the type referred to in paragraph (g) of Exhibit VI so long as any senior indebtedness issued by CRC shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such senior indebtedness shall have been outstanding. 7.5.2. Each of the Agent, the Owner, the Originator, the Servicer, each Purchaser, each Bank, each assignee of a 44 Purchaser Receivable Interest or any interest therein and each entity which enters into a commitment to purchase Purchaser Receivable Interests or interests therein hereby agrees that it will not institute against the Trust any proceeding of the type referred to in paragraph (g) of Exhibit VI so long as any Investor Certificate shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any Investor Certificate shall have been outstanding. SECTION 7.6. CONFIDENTIALITY. 7.6.1. Unless otherwise required by applicable law, each of the Seller, the Owner, the Originator, the Servicer and the Subordinated Purchaser agrees to maintain the confidentiality of this Agreement (and all drafts thereof) in communications with third parties and otherwise; provided that this Agreement may be disclosed (i) to third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the Agent, (ii) to independent financial rating agencies in connection with the rating of any Certificate Series issued or to be issued pursuant to the Pooling and Servicing Agreement, and (iii) to the Seller's legal counsel and auditors, the Owner's or the Originator's legal counsel and auditors, the Servicer's legal counsel and auditors, and the Subordinated Purchaser's legal counsel and auditors if, in each case, they agree (whether or not in writing) to hold it confidential; and provided, further, that this Agreement may be filed by Charming Shoppes with the Securities and Exchange Commission as an exhibit to an annual report on Form 10-K or a quarterly report on Form 10-Q under the Exchange Act, in each case without any special confidentiality requirement. 7.6.2. Each of the Agent, each Purchaser and each Bank agrees (i) to maintain the confidentiality of this Agreement (and all drafts thereof) in communications with third parties and otherwise, (ii) to use reasonable efforts (e.g., procedures substantially comparable to those applied by the Agent, such Purchaser or Bank, as the case may be, in respect of non-public information as to its business) to maintain the confidentiality of (x) the Owner's or the Originator's customer lists, the list of Stores delivered to the Agent pursuant to paragraph 2(n) of Exhibit IV hereto, and any other non-public information as to the Owner's or the Originator's business and the Servicer's business and (y) the contents of the Administrative Servicer Agreement, in each case, to the extent that such information is not and does not become publicly available (other than by the filing of 45 financing statements pursuant to this Agreement), and (iii) not to use any of the information described in the preceding clauses (x) and (y) for any purposes not specifically related to its business relationship with the Owner, the Servicer and the Trust or its ownership of Purchaser Receivable Interests or interests therein; provided, that nothing in this subsection (b) shall affect the disclosure of this Agreement or such non-public information (1) to the extent required by law (including statute, rule, regulation or judicial process), (2) to the Agent's, a Purchaser's or a Bank's counsel or accountants, as the case may be, provided they agree (whether or not in writing) to hold it confidential, and (3) to bank and insurance company examiners and auditors, appropriate government examining authorities and independent financial rating agencies, and provided, further, that the Agent, each Bank, each Purchaser and each assignee of Receivable Interests may, in connection with any assignment or participation, or proposed assignment or participation, disclose this Agreement to the assignee or participant or to a proposed assignee or participant and any information relating to the Owner, the Originator or the Servicer furnished to such entity by or on behalf of the Owner, the Originator or the Servicer or by the Agent, if, prior to any such disclosure, such assignee or participant or proposed assignee or participant agrees, in a writing reasonably satisfactory to the Owner, the Originator or the Servicer, as the case may be, to preserve the confidentiality of this Agreement and any confidential information relating to the Owner, the Originator or the Servicer received by it from any of the foregoing entities and to be bound by the provisions of this Section 7.06(b). The Agent, each Purchaser and each Bank shall, as promptly as practicable after becoming aware of any disclosure of any confidential information relating to the Owner, the Originator or the Servicer, use good faith efforts to notify the Owner, the Originator and the Servicer of such disclosure; provided, however, that the failure by the Agent, any Purchaser or any Bank to give such notice shall not subject it to liability. SECTION 7.7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE PURCHASERS, THE BANKS OR THE SUBORDINATED PURCHASER IN THE RECEIVABLES OR REMEDIES HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. 46 SECTION 7.8. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 7.9. Survival of Termination. The provisions of Sections 1.05, 1.06, 4.01, 4.02, 4.03, 7.04, 7.05 and 7.06 shall survive any termination of this Agreement. SECTION 7.10. Tax Treatment. The Owner and the Seller have structured this Agreement and the Purchaser Receivable Interests with the intention that the Purchaser Receivable Interests will qualify under applicable federal, state and local tax law as indebtedness. Except as otherwise required by law, the Seller, the Servicer, the Agent and each Purchaser agree to treat and to take no action inconsistent with the treatment of the Purchaser Receivable Interests as indebtedness for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income. SECTION 7.11. Duties of the Trustee. The Trustee hereby agrees to (i) perform its duties and obligations as set forth in the Pooling and Servicing Agreement and (ii) promptly take each action which the Agent may specify in accordance with Section 11.14(a) or any other applicable Section of the Pooling and Servicing Agreement to enforce the Pooling and Servicing Agreement for the benefit of the Purchasers, the Banks, any other receivables purchasers, and any holders of Investor Certificates, all with reasonable care and diligence and in accordance with applicable laws, rules and regulations and the Pooling and Servicing Agreement. SECTION 7.12. Limitation on Seller/Trustee Liability, Etc. 7.12.1. Neither the Trustee, in its individual capacity or in its capacity as the Seller hereunder, nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Trustee: 47 7.12.1.1. may consult with legal counsel (including counsel for the Seller, the Owner, the Originator or the Servicer), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; 7.12.1.2. makes no warranty or representation to any Purchaser, any Bank or to the Subordinated Purchaser and shall not be responsible to any Purchaser, any Bank or to the Subordinated Purchaser for any statements, warranties or representations made in or in connection with this Agreement, the Pooling and Servicing Agreement or the Purchase Agreement; 7.12.1.3. shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, the Pooling and Servicing Agreement or the Purchase Agreement on the part of the Seller, the Owner, the Originator or the Servicer or to inspect the property (including the books and records) of the Seller, the Owner, the Originator or the Servicer; 7.12.1.4. shall not be responsible to any Purchaser, any Bank or the Subordinated Purchaser for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, the Pooling and Servicing Agreement or the Purchase Agreement or any instrument or document furnished pursuant hereto; and 7.12.1.5. shall incur no liability under or in respect of this Agreement, the Pooling and Servicing Agreement, the Purchase Agreement or any such other document or instrument by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.13. THIRD PARTY BENEFICIARIES. 7.13.1. Each of the Seller, the Owner, the Originator and the Trustee hereby acknowledge that the Agent, for the benefit of the Purchasers and the Banks, and the Purchasers and the Banks are, to the extent of the Purchasers' and the Banks' respective rights and obligations under this Agreement, intended to be third party beneficiaries under Section 13.14 of the Pooling and Servicing Agreement. 48 7.13.2. No "Investor Certificateholder" or "Enhancement Provider" (in each case as defined in the Pooling and Servicing Agreement) shall be a third-party beneficiary of this Agreement or have any benefit or any legal or equitable right, remedy or claim under this Agreement. SECTION 7.14. LIMITED RECOURSE. 7.14.1. In no event will any Purchaser or any Bank have any right or interest in the Trust to the extent allocated to the holder of Investor Certificates or attributable to the receivables purchase interest of any other Receivables Purchaser. Notwithstanding any other provision herein or in any other agreement or instrument, the Agent, on behalf of each Purchaser and each Bank, confirms that it and each Purchaser and each Bank have no interest in and will make no claim on, or otherwise interfere with, distributions of Collections allocated to any Investor Certificates or attributable to any other Receivables Purchasers under the Pooling and Servicing Agreement, any Supplement or any other receivables purchase agreement. 7.14.2. Notwithstanding any claim that any Purchaser, any Bank or the Agent may have hereunder, no such claim shall be payable from any Collections other than those attributable to the Receivables Purchase Interest pursuant to Section 2.01 and, as to all claims that any Purchaser, any Bank or the Agent may have hereunder against the Trust, no such claim shall be payable other than from Allocable Finance Charge Collections, Allocable Principal Collections and the Allocation Percentage of Recoveries of Pool Receivables attributable to the Receivables Purchase Interest pursuant to Section 2.01. Nothing contained in this Section, however, shall limit or affect any claim that any Purchaser, any Bank or the Agent may have hereunder against the Owner, the Originator or the Servicer for any obligations under this Agreement which are direct obligations of the Owner, the Originator or the Servicer. 7.14.3. By way of clarification of certain provisions contained in Section 6.16(a) and 12.1(c) of the Pooling and Servicing Agreement, the parties hereto confirm and agree that the reference in the last sentence of Section 6.16(a) to "equally and ratably" and the reference in the second sentence of Section 12.1(c) to "pro rata" means that the applicable benefits and payments will be allocated among the different Series in accordance with the "Investor/Purchaser Percentages" of the relevant Series (which, in the case of the Series 49 created by this Agreement, is the Allocation Percentage) and among the Receivables Purchasers within each Receivable Purchase Series in accordance with the priorities set forth in the receivables purchase agreement for such Series. SECTION 7.15. LIMITATION ON RIGHTS OF PURCHASERS AND BANKS. It is understood and intended, and upon the purchase of each Purchaser Receivable Interest the Agent, each Purchaser and each Bank shall be deemed to have expressly covenanted and agreed with every other Receivables Purchaser and holder of an Investor Certificate and the Trustee, that the Purchaser Receivable Interests and the Investor Certificates shall rank pari passu among one another and amongst themselves (except for any Enhancement that may apply to only the Purchaser Receivable Interests or one series of Investor Certificates) and neither the Agent nor any Purchaser or Bank shall have any right hereunder or under the Pooling and Servicing Agreement (i) to surrender, waive, impair, disturb or prejudice the rights of any other Receivables Purchasers or the holders of the Investor Certificates, (ii) to obtain or seek to obtain priority over or preference to any other Receivables Purchaser or holder of an Investor Certificate or (iii) to enforce any right under this Agreement or the Pooling and Servicing Agreement against the Seller, except in the manner provided in the Pooling and Servicing Agreement and for the equal, ratable and common benefit of all Receivables Purchasers and holders of Investor Certificates and except (x) as otherwise expressly provided in the Pooling and Servicing Agreement or (y) to the extent this Agreement creates independent and non-duplicative rights against the Seller. For the protection and enforcement of the provisions of this Section, each and every Receivables Purchaser and holder of an Investor Certificate and the Trustee shall be entitled to such relief as can be given either at law or in equity. SECTION 7.16. THE CO ESCROW ACCOUNT. 7.16.1. Establishment. If at any time the Quarterly Charge-Off Ratio shall exceed 12%, the Agent shall establish an account (the "CO Escrow Account") in the name and under the control of the Agent with an Eligible Institution (which may be Citibank) titled "Citicorp North America, Inc., as Agent, pursuant to the Amended and Restated Receivables Purchase Agreement dated as of November 25, 1997, as amended, among Spirit of America National Bank, as Owner and Servicer, the Agent and certain other parties (CO Escrow Account)". The CO Escrow Account shall be a fully segregated trust account, unless the Escrow Bank shall be (i) an Eligible Institution having short-term debt ratings from S&P and Moody's no lower 50 than A-1/P-1 or (ii) Citibank. The CO Escrow Account shall be under the sole dominion and control of the Agent, and neither the Subordinated Purchaser, nor any Person claiming by, through or under the Subordinated Purchaser shall have any right, title or interest in, or any right to withdraw any amount from, the CO Escrow Account. 7.16.2. Taxation. The taxpayer identification number associated with the CO Escrow Account shall be that of the Subordinated Purchaser and the Subordinated Purchaser will report for federal, state and local income tax purposes the income, if any, earned on funds in the CO Escrow Account. 7.16.3. Investments. The Subordinated Purchaser is hereby appointed as the investment agent, which appointment the Subordinated Purchaser hereby accepts, to act on behalf of the Agent for determining investments of cash at any time on deposit in the CO Escrow Account. All funds on deposit in the CO Escrow Account shall be invested in Eligible Investments (as shall be specified by the Subordinated Purchaser, as investment agent, in writing to the Escrow Bank and the Agent; provided, that if the Subordinated Purchaser shall fail to specify such Eligible Investments in a timely manner, the Agent may specify such Eligible Investments) which shall mature not later than the Business Day preceding the next Distribution Date and shall be held to maturity. All such investments shall be made in the name of the Escrow Bank, as agent, and held by the Escrow Bank, or its nominee, for the benefit of the Agent. The Escrow Bank shall not be liable for any loss incurred in connection with any investment in the CO Escrow Account, except for losses in respect of investments in any investment issued or guaranteed by the Escrow Bank. Income earned on funds deposited to the CO Escrow Account, if any, shall be considered a part of the CO Escrow Account. 7.16.4. New CO Escrow Account. In the event the Escrow Bank ceases to be an Eligible Institution, the Agent shall, within ten days after learning thereof, establish a new CO Escrow Account (and transfer any balance and investments then in the CO Escrow Account to such new CO Escrow Account) at another Eligible Institution. 7.16.5. Statements for CO Escrow Account. On a monthly basis, the Escrow Bank shall provide the Agent with a written statement with respect to the preceding calendar month regarding the CO Escrow Account in a form customary for statements provided by the Escrow Bank for other accounts held by it, which statement shall include, at a minimum, the amount on deposit in the CO Escrow Account, and the dates and amounts 51 of all deposits, withdrawals and investment earnings with respect to the CO Escrow Account. The Escrow Bank shall promptly deliver a copy of each such statement to the Subordinated Purchaser and to the Servicer. 7.16.6. Payments to CO Escrow Account. On each Distribution Date, commencing on any Distribution Date on which the Quarterly Charge-Off Ratio shall exceed 12% and continuing until the earlier of (i) the second Distribution Date thereafter on which the Quarterly Charge-Off Ratio shall be less than 12% and (ii) the Termination Date, the Subordinated Purchaser shall pay into the CO Escrow Account an amount such that, after giving effect to such payment, the aggregate funds on deposit in the CO Escrow Account shall at least be equal to an amount (the "Required CO Escrow Amount") equal to the product of (x) the aggregate outstanding Purchaser Capital multiplied by (y) a percentage equal to the excess, if any, of the higher of the Quarterly Charge-Off Ratios for the two Due Periods preceding such Distribution Date minus 12%. 7.16.7. Payments from CO Escrow Account. On each Distribution Date preceding the Termination Date on which the funds on deposit in the CO Escrow Account exceed the Required CO Escrow Amount, the Agent agrees to notify the Escrow Bank to pay such excess to the Subordinated Purchaser. On the second Business Day preceding each Distribution Date, the Servicer will determine whether any Purchaser Charge-Offs will arise with respect to the related Due Period pursuant to Section 2.05(d) or Section 2.07(a) and will give the Agent notice of the amount thereof (such amount, the "New Purchaser Charge-Offs"). By 1:00 P.M. New York City time on the Business Day prior to each Distribution Date on which the amount of the New Purchaser Charge-Offs is greater than zero or on which any unreimbursed Purchaser Charge-Offs exist, the Agent on behalf of the Owners shall notify the Escrow Bank requesting payment thereof. To the extent funds are available in the CO Escrow Account, the Escrow Bank shall pay the amount requested to the Agent by noon New York City time on such Distribution Date, and the Agent shall distribute such funds to the Purchasers and the Banks. Such payment and distribution of funds from the CO Escrow Account shall not result in any reduction of Purchaser Capital. 7.16.8. Pledge. The Subordinated Purchaser hereby pledges and assigns to the Agent for the benefit of the Purchasers and the Banks, and hereby grants to the Agent for the benefit of the Purchasers and the Banks, a security interest in, all of the Subordinated Purchaser's right, title 52 and interest in and to the CO Escrow Account, including, without limitation, all funds on deposit therein, all investments arising out of such funds, all interest and any other income arising therefrom, all claims thereunder or in connection therewith, and all cash, instruments, securities, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of such account, such funds or such investments, and all money at any time in the possession or under the control of, or in transit to such account, or any bailee, nominee, agent or custodian of the Escrow Bank, and all proceeds and products of any of the foregoing. Except as provided in the preceding sentence, the Subordinated Purchaser may not assign, transfer or otherwise convey its rights under this Agreement to receive any amounts from the CO Escrow Account. 7.16.9. Termination of CO Escrow Account. Unless the balance in the CO Escrow Account has been sooner reduced to zero pursuant to paragraph (g) of this Section 7.16, on the date occurring on or immediately after the date on which the Adjusted Purchaser Capital is reduced to zero, all funds then on deposit in the CO Escrow Account shall be paid to the Subordinated Purchaser, and the CO Escrow Account shall be closed. If, on the Distribution Date immediately following the second anniversary of the commencement of the Amortization Period, the CO Escrow Account shall not have been closed in accordance with the preceding sentence, then on such Distribution Date, all funds then on deposit in the CO Escrow Account shall be applied as follows: first, such funds, in an amount not in excess of the Adjusted Purchaser Capital for such Distribution Date, shall be paid to the Agent, and upon receipt of such funds, the Agent shall distribute such funds to the Purchasers and the Banks; and second, the balance, if any, shall be paid to the Subordinated Purchaser. Upon the making of all payments described in the preceding sentence, the CO Escrow Account shall be closed. 53 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SELLER: FIRST UNION NATIONAL BANK, not in its individual capacity but solely as the Trustee for CHARMING SHOPPES MASTER TRUST By: Title: Vice President 123 South Broad Street Philadelphia, Pennsylvania 19109 Attention: Corporate Trust Services Facsimile Number: (215) 985-7290 with copies to: Pepper, Hamilton & Scheetz 1201 Market Street, Suite 1402 Wilmington, Delaware 19801-1163 Attention: Richard Eckman, Esq. Facsimile Number: (302) 656-8865 SUBORDINATED PURCHASER/OWNER: CHARMING SHOPPES RECEIVABLES CORP. By: Title: Vice President 3411 Silverside Road Wilmington, Delaware 19810 54 Attention: Kirk R. Simme Facsimile Number: (302) 479-5512 SERVICER/ ORIGINATOR: SPIRIT OF AMERICA NATIONAL BANK By: Title: Vice President 745 Center Street Milford, Ohio 45150 Attention: Kirk R. Simme Facsimile No. (513) 576-5320 with copies to: Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinois 60603 Attention: Mary Fontaine, Esq. Facsimile Number: (312) 701-7711 Colin Stern, Esq., General Counsel Charming Shoppes, Inc. 450 Winks Lane Bensalem, Pennsylvania 19020 CRC: CORPORATE RECEIVABLES CORPORATION By: Citicorp North America, Inc., as Attorney-in-Fact By: Vice President 450 Mamaroneck Avenue Harrison, New York 10528 Attention: U.S. Securitization Facsimile No. (914) 899-7890 55 BANK: CITIBANK, N.A. By: Citicorp North America, Inc., As Attorney-in-Fact By: Vice President 450 Mamaroneck Avenue Harrison, New York 10528 Attention: U.S. Securitization Facsimile No.: (914) 899-7890 Commitment: $50,000,000 Percentage Interest: 100% AGENT: CITICORP NORTH AMERICA, INC., as Agent By: Vice President 450 Mamaroneck Avenue Harrison, New York 10528 Attention: U.S. Securitization Facsimile No.: (914) 899-7890 56 EXHIBIT I DEFINITIONS 1. Certain Defined Terms. As used in the Agreement (including its Exhibits), the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "APA" means an asset purchase agreement entered into by a bank or other financial institution and the Agent pursuant to which such bank or other financial institution agrees to purchase Purchaser Receivables Interests or interests therein from CRC. "Account" means each Spirit of America National Bank revolving credit card account (including, without limitation, accounts which have been written off as uncollectible) issued to an Obligor pursuant to a Cardholder Agreement between the Originator and any Person, which account is an Eligible Account on the initial Cut Off Date (or, in the case of Additional Accounts, as of the applicable Addition Cut Off Date), and which is identified by account number, Obligor name, Obligor address and Receivable balance as of the applicable Cut Off Date (or, in the case of Additional Accounts, as of the applicable Addition Cut Off Date) in each computer file or microfiche list delivered to the Trustee by the Servicer pursuant to Section 2.1 or Section 2.6 of the Pooling and Servicing Agreement. The term "Account" shall include each Renumbered Account. The term "Account" shall be deemed to refer to an Additional Account only from and after the Addition Date with respect thereto, and the term "Account" shall be deemed to refer to any Removed Account only prior to the Removal Date with respect thereto. "Addition Cut Off Date" has the meaning set forth in Section 1.1 of the Pooling and Servicing Agreement. "Addition Date" means each date as of which Additional Accounts will be included as Accounts for purposes of the Pooling and Servicing Agreement pursuant to Section 2.6 thereof. "Additional Account" means each revolving credit card account established pursuant to a Cardholder Agreement, which account is designated pursuant to Section 2.6 of the Pooling and Servicing Agreement to be included as an Account under the Pooling and Servicing Agreement and is identified in a computer file, microfiche or written list delivered to the Trustee by the Servicer pursuant to Sections 2.1 and 2.6 thereof. "Adjusted Purchaser Capital" means, as of any date, an amount equal to (a) the aggregate Purchaser Capital of all I-1 57 Purchaser Receivable Interests as of such date, plus (b) the aggregate amount of all unreimbursed Purchaser Charge-Offs as of such date, minus (c) the total amount of payments made to the Purchasers from the CO Escrow Account prior to such date. "Administrative Servicer" means, initially, Alliance Data Services, Inc. (formerly known as BSI Business Services, Inc.), a Delaware corporation, and shall also include any other Person who succeeds to the functions performed by the Administrative Servicer, as provided in the Administrative Servicer Agreement, and/or such other Administrative Servicer, including Spirit, as the Agent and the Owner shall reasonably and mutually agree upon. "Administrative Servicer Agreement" means the Credit Processing Agreement effective as of July 8, 1988, as amended as of July 26, 1991, between Spirit of America National Bank and the Administrative Servicer, and any other agreement with the same or any successor Administrative Servicer regarding the performance of servicing functions for the Receivables, and all agreements, instruments and documents attached thereto or delivered in connection therewith, as any of the same may from time to time be hereafter amended, supplemented, or otherwise modified in accordance with the terms of the Agreement. "Adverse Claim" means a lien, security interest or other charge or encumbrance, or any other type of preferential arrangement. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, a Person shall be deemed to be "controlled by" another Person if such other Person possesses, directly or indirectly, power either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agent's Account" means the special account (account number 4060-0094) of the Agent maintained at the office of Citibank at 399 Park Avenue, New York, New York. The Agent's Account is the "Series Account" referred to in the Pooling and Servicing Agreement for the Receivables Purchase Series arising in connection with the Agreement. "Allocable Finance Charge Collections" means, for any Due Period, the product of (a) the Allocation Percentage for such I-2 58 Due Period and (b) the amount of Collections of Finance Charge Receivables with respect to such Due Period. "Allocable Principal Collections" means, for any Due Period, the product of (a) the Allocation Percentage for such Due Period and (b) the amount of Collections of Principal Receivables with respect to such Due Period. "Allocated Finance Charges" means amounts allocated pursuant to Section 2.02(a)(i) of the Agreement. "Allocated Interchange" has the meaning set forth in Section 1.1 of the Pooling and Servicing Agreement. "Allocated Loss Amount" means, with respect to any Due Period, an amount equal to the product of (a) the Allocation Percentage for such Due Period and (b) the Loss Amount with respect to such Due Period. "Allocation Percentage" means: (i) for the initial Due Period, the ratio (expressed as percentage) computed as of the date of the initial purchase under the Agreement by dividing (A) the sum of (1) the initial Purchaser Capital, (2) the initial Subordinated Purchaser Capital and (3) the Minimum Seller Capital, in each case as of such date by (B) the Outstanding Balance of all Pool Receivables on the initial Cut Off Date; (ii) for any subsequent Due Period during the Revolving Period, the ratio (expressed as percentage) computed as of the last day of the immediately preceding Due Period by dividing (A) the sum of (1) the Purchaser Capital, (2) the Subordinated Purchaser Capital and (3) the Minimum Seller Capital, in each case as of such last day by (B) the greater of (1) the Outstanding Balance of all Pool Receivables as of such last day minus the total amount of Discount Option Receivables (if any) on such last day and (2) the sum of the numerators used to calculate the Investor/Purchaser Percentages for such subsequent Due Period for all Certificate Series and Receivables Purchase Series outstanding; and (iii) for any subsequent Due Period during the Amortization Period, the ratio (expressed as percentage) computed as of the last day of the immediately preceding Due Period by dividing (A) the sum of (1) the Purchaser Capital, (2) the Subordinated Purchaser Capital and (3) the Unallocated Receivables Balance, in each case as of such last day by (B) the greater of (i) the Outstanding Balance I-3 59 of all Pool Receivables as of such last day minus the total amount of Discount Option Receivables (if any) on such last day and (2) the sum of the numerators used to calculate the Investor/Purchaser Percentages for such subsequent Due Period for all Certificate Series and Receivables Purchase Series outstanding. Notwithstanding the foregoing, with respect to any Due Period in which an Addition Date or Removal Date occurs, the amount in (ii)(B)(1) and (iii)(B)(1) above shall be (1) for the period from and including the first day of such Due Period to but excluding the related Addition Date or Removal Date, the Outstanding Balance of all Pool Receivables as of the last day of the immediately preceding Due Period, minus the total amount of Discount Option Receivables (if any) on such last day, and (2) for the period from and including the related Addition Date or Removal Date to and including the last day of such Due Period, the Outstanding Balance of all Pool Receivables at the end of the day on the related Addition Date or Removal Date, minus the total amount of Discount Option Receivables (if any) at the end of the day on such Addition Date or Removal Date; provided further, that with respect to any Due Period in which an Addition Date or Removal Date occurs and the Servicer need not make daily deposits of Collections into the Collection Account, the amount in (ii)(B)(1) and (iii)(B)(1) above shall be the Average Principal Balance for such Due Period. For purposes of this definition, "Investor/Purchaser Percentages" and "Certificate Series" have the meanings attributed to them in the Pooling and Servicing Agreement, and "Unallocated Receivables Balance" on any day means the lesser of (1) the Outstanding Balance of the Pool Receivables not allocated to the Purchaser Receivable Interests or the Subordinated Receivable Interests pursuant to the Agreement and not allocated to any other Person other than the Holder of the Exchangeable Seller Certificate pursuant to a supplement to the Pooling and Servicing Agreement or pursuant to any other receivables purchase agreement that is subject to the Pooling and Servicing Agreement and (2) the Minimum Seller Capital as of such day. The Allocation Percentage may never be greater than 100%. The Allocation Percentage is the "Investor/Purchaser Percentage" referred to in the Pooling and Servicing Agreement for the Receivables Purchase Series arising in connection with the Agreement, and for purposes of clauses (ii)(B)(2) and (iii)(B)(2) above, the numerator used to calculate the Investor/Purchaser Percentage for the Receivables Purchase Series arising in connection with the Agreement is the amount set forth in clauses (ii)(A) and (iii)(A), respectively. I-4 60 "Alternate Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the interest rate per annum determined using the applicable spread specified in the Fee Letter plus the highest of: (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time as Citibank's base rate; (b) 1/2 of one percent above the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average being determined weekly on each Monday (or, if such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank, in either case adjusted to the nearest 1/4 of one percent or, if there is no nearest 1/4 of one percent, to the next higher 1/4 of one percent; and (c) the Federal Funds Rate. "Amortization Period" means the period commencing at the close of business of the Agent on the Business Day immediately preceding the Termination Date and ending on the Final Distribution Date. "Assignee Rate" for any Fixed Period for any Purchaser Receivable Interest means an interest rate per annum determined using the applicable spread specified in the Fee Letter plus the Eurodollar Rate for such Fixed Period; provided, however, that in the case of (i) any Fixed Period beginning on or after the first day of which a Purchaser or Bank shall have notified the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Purchaser or Bank to fund such Purchaser Receivable Interest at the Assignee Rate set I-5 61 forth above (and such Purchaser or Bank shall not have subsequently notified the Agent that such circumstances no longer exist), (ii) any Fixed Period of one to (and including) 29 days, (iii) any Fixed Period as to which the Agent does not receive notice, by no later than 12:00 noon (New York City time) on the third Business Day preceding the first day of such Fixed Period, that the related Purchaser Receivable Interest will not be funded by issuance of commercial paper, or (iv) any Fixed Period for a Purchaser Receivable Interest the Purchaser Capital of which is less than $500,000, the "Assignee Rate" for each such Fixed Period shall be an interest rate per annum equal to the Alternate Base Rate in effect on the first day of such Fixed Period; provided further that the Agent and the Owner may agree in writing from time to time upon a different "Assignee Rate". "Assignment and Acceptance" means an assignment and acceptance agreement entered into by a Bank, an Eligible Assignee and the Agent, pursuant to which such Eligible Assignee may become a party to the Agreement, in substantially the form of Annex H hereto. "Average Principal Balance" shall mean, for a Due Period in which an Addition Date or Removal Date occurs, the weighted average of (i) the Outstanding Balance of all Pool Receivables at the end of the day on the last day of the prior Due Period minus the total amount of Discount Option Receivables (if any) on such last day and (ii) the Outstanding Balance of all Pool Receivables at the end of the day on the related Addition Date or Removal Date minus the total amount of Discount Option Receivables (if any) at the end of the day on such Addition Date or Removal Date, weighted, respectively, by a fraction, the numerator of which is the number of days from and including the first day of such Due Period to but excluding the related Addition Date or Removal Date, and the denominator of which is the number of days in such Due Period, and by a fraction, the numerator of which is the number of days from and including the related Addition Date or Removal Date to and including the last day of such Due Period, and the denominator of which is the number of days in such Due period. I-6 62 "Bank Commitment" of any Bank means, (a) with respect to Citibank, $50,000,000 or such amount as reduced by any Assignment and Acceptance entered into between Citibank and other Banks; (b) with respect to a Bank that has entered into an Assignment and Acceptance, the amount set forth therein as such Bank's Bank Commitment or such amount as reduced by an Assignment and Acceptance entered into between such bank and an Eligible Assignee, in each case as reduced (or terminated) pursuant to the next sentence. Any reduction (or termination) of the Purchase Limit pursuant to the terms of the Agreement shall reduce ratably (or terminate) each Bank's Bank Commitment. "Banks" means Citibank and each Eligible Assignee that shall become as party to the Agreement pursuant to Section 7.03(b). "Business Day" means any day on which (i) banks are not authorized or required to close in New York City, Philadelphia, Pennsylvania or Milford, Ohio and (ii) if this definition of "Business Day" is utilized in connection with the Eurodollar Rate, dealings are carried out in the London interbank market. "Cardholder Agreement" means the agreement (and the related application) for any Account, as such agreement may be amended, modified or otherwise changed from time to time in accordance with the terms thereof. The "related Cardholder Agreement" means, when used with respect to any Receivable, the Cardholder Agreement under which such Receivable arose. "Cardholder Guidelines" means the Originator's policies and procedures relating to the operation of its credit card business in effect on the date of the Agreement, including, without limitation, the policies and procedures for determining the creditworthiness of potential and existing credit card customers, and relating to the maintenance of credit card accounts and collection of credit card receivables, as such policies and procedures may be amended from time to time in accordance with the Agreement. "Charming Shoppes" means Charming Shoppes, Inc., a Pennsylvania corporation. "Citibank" means Citibank, N.A., a national banking association. "Collection" means any payment by or on behalf of Obligors received by the Originator, the Seller, the Servicer or the Trustee in respect of the Pool Receivables, in the form of cash, checks, wire transfers, electronic transfers, ATM transfers I-7 63 or any other form of payment on any Pool Receivables, including, without limitation, (x) all Recoveries, (y) all payments made with respect to Principal Receivables by deposit into the Collection Account pursuant to Section 4.3(d) of the Pooling and Servicing Agreement or Section 2.07(b) of the Agreement and (z) payments by the Owner with respect to the reassignment of ineligible Receivables or the reassignment of Receivables following the breach of certain representations, made by deposit into the Collection Account pursuant to Section 2.4(d)(iii) or 2.4(e) of the Pooling and Servicing Agreement or pursuant to Section 4.03(b) of the Agreement. The term "Collection" shall include Insurance Proceeds generally, but shall exclude Insurance Proceeds and other amounts constituting Recoveries of Pool Receivables to the extent the aggregate Insurance Proceeds received in respect of the Pool Receivables during any Due Period exceed the Loss Amount for such Due Period and any prior Due Periods. A Collection processed on an Account in excess of the amount of Receivables in such Account as of the date of receipt by the Originator, the Seller, the Servicer or the Trustee of such Collection shall be deemed to be a payment in respect of Principal Receivables to the extent of such excess. The term "Collection" shall also include all benefits of the Owner or FSC under and all monies due or to become due to the Owner or FSC under the Interest Rate Agreements, and any such monies received shall be deemed a Collection of Finance Charge Receivables and shall be considered a Collection with respect to Pool Receivables. Notwithstanding any other provision of the Agreement to the contrary, Collections constituting payments in respect of the Interest Rate Agreements shall be allocated entirely to the Receivables Purchase Interest under the Agreement, and Collections described in clauses (y) and (z) above (to the extent allocable to the Receivables Purchase Series arising in connection with the Agreement) shall be allocated entirely to the Receivables Purchase Interest under the Agreement. "Collection Account" means the segregated account established by the Trustee pursuant to Section 4.2(a) of the Pooling and Servicing Agreement. "Commitment Termination Date" means the earliest of (a) October 30, 1998, (b) the Facility Termination Date, (c) the date determined pursuant to Section 3.02, and (d) the date the Purchase Limit reduces to zero. "Company" means each of FSC and Charming Shoppes. "Company Agreement" means an agreement, dated as of the date hereof, made by each of FSC and Charming Shoppes in favor of I-8 64 the Purchasers, the Banks and the Agent, in form and substance satisfactory to the Agent, as the same may, from time to time, be amended, restated, modified or supplemented. "Congress Facility" means (i) the Amended and Restated Loan and Security Agreement dated as of February 28, 1997 among Charming Shoppes, certain subsidiaries of Charming Shoppes and Congress Financial Corporation, as such agreement may be amended or modified and then in effect or (ii) if the agreement described in clause (i) is no longer in effect, any other credit agreement with Congress Financial Corporation executed by Charming Shoppes and its subsidiaries in substitution for such agreement. "CRC" means Corporate Receivables Corporation, a California corporation, and any successor or assignee of CRC that is a receivables investment company which in the ordinary course of its business issues commercial paper or other securities to fund its acquisition and maintenance of receivables. "Credit Facility" means (i) the Congress Facility or (ii) any other credit facility to which Charming Shoppes and/or its Affiliates are parties. "Cut Off Date" means the close of business of the Owner on February 29, 1996, or, in the case of Additional Accounts, the applicable Addition Cut Off Date. "Cycle" means each billing cycle used by the Originator to bill Obligors of the Receivables. "Cycle Closing Date", in respect of any Account, means the last day of each Cycle applicable to such Account. "Defaulted Receivable" means a Principal Receivable: (i) in respect of which the related Obligor has failed to make the minimum monthly payment required under the terms of the related Cardholder Agreement and such failure has continued for 180 days or seven consecutive Cycles (whichever is less) after the due date of such payment; (ii) as to which the Obligor thereof or any other Person obligated thereon has taken any action, or suffered any event to occur, of the type described in paragraph (g) of Exhibit VI; or I-9 65 (iii) which, consistent with the Cardholder Guidelines, would be written off the Seller's books as uncollectible. "Delinquency Ratio" means the ratio (expressed as a percentage) computed as of the last day of any Due Period by dividing (i) the average of the aggregate Outstanding Balances of all Pool Receivables that were Delinquent Receivables on such last day and on the last day of the two immediately preceding Due Periods by (ii) the aggregate Outstanding Balance of all Pool Receivables on such last day. "Delinquent Receivable" means a Receivable that is not a Defaulted Receivable and: (i) in respect of which the related Obligor has failed to make the minimum monthly payment required under the terms of the related Cardholder Agreement and such failure has continued for 90 days or four consecutive Cycles (whichever is less) after the due date of such payment; or (ii) which, consistent with the Cardholder Guidelines, would be classified as delinquent by the Servicer. "Depositary Agreement" means an agreement, in substantially the form of Annex B, from the Seller to any Depositary Bank. "Depositary Bank" means any of the banks holding one or more Initial Depositary Accounts. "Discount Option Receivable" has the meaning set forth in the Pooling and Servicing Agreement. "Distribution Date" means the fifteenth day of each month, or if such day is not a Business Day, the next succeeding Business Day. Notwithstanding the foregoing, in the event a Total Systems Failure exists on any Distribution Date, the date of such Distribution Date shall mean the fourth Business Day after the date on which the Seller or the Servicer delivers a Servicer Report; provided, that in no event shall a Distribution Date be postponed more than 10 Business Days due to a Total Systems Failure. "Due Period" means, initially, the period from the close of business on the Cut-Off Date to the close of business on the Last Cycle Closing Date for the month of March 1996, and I-10 66 thereafter, the period from the close of business on the last day of the prior Due Period to the close of business of the next Last Cycle Closing Date. "Early Amortization Event" has the meaning set forth in Exhibit VI. "Effective Date" means November 25, 1997. "Eligible Account" has the meaning set forth in Section 1.1 of the Pooling and Servicing Agreement. "Eligible Assignee" means CNAI, any of its Affiliates, any Person managed by Citibank, CNAI or any of their Affiliates, or any financial or other institution acceptable to the Agent. "Eligible Institution" means any depository institution (which may not be the Originator or its successors or assigns, or any affiliate of the Originator, or its successors or assigns), organized under the laws of the United States or any state, having capital and surplus in excess of $50,000,000, the deposits of which are insured to the full extent permitted by law by the Federal Deposit Insurance Corporation and which is subject to supervision and examination by federal or state banking authorities; provided that such institution also must have a rating of Baa or higher with respect to long-term deposit obligations from Moody's and BBB or higher with respect to long-term deposit obligations from S&P. If such depository institution publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. "Eligible Investments" means any "Permitted Investments" (as defined in the Pooling and Servicing Agreement); provided, however, that Eligible Investments shall not include any demand or time deposit or certificate of deposit of the Originator. "Eligible Receivable" has the meaning set forth in Section 1.1 of the Pooling and Servicing Agreement. I-11 67 "Eligible RPA Receivable" means, at any time, an Eligible Receivable: (i) the Obligor of which, at the time of the initial creation of an interest therein under the Agreement, has not failed to make, at the time of the sale of the goods or services giving rise to such Receivable, at least the minimum monthly payment required in order to entitle such Obligor to further extensions of credit under the terms of the Cardholder Guidelines; (ii) the Obligor of which, at the time of the initial creation of an interest therein under the Agreement, has not failed to make any such required payments for any period of two consecutive Cycles (including the Cycle ending on the most recent Cycle Closing Date under the related Cardholder Agreement to occur 10 Business Days or more prior to the date of such creation); provided, however, that this clause (ii) shall not apply to determine the eligibility of a Receivable on the date of its purchase under the Agreement; (iii) [Intentionally omitted] (iv) which is a "general intangible" or an "account" within the meaning of Section 9-106 of the UCC of each jurisdiction whose law governs the perfection of the interest created by a Purchaser Receivable Interest; (v) which is (A) denominated and payable only in United States dollars in the United States, and (B) required to be paid either by means of a check sent to the Initial Depositary Account or, until the date on which the Store Payment Notice is delivered to the Store managers pursuant to paragraph 2(b)(ii) of Exhibit V to the Agreement, by means of a Store Payment; (vi) which: (A) arises under a Cardholder Agreement which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable, except as such enforceability may be limited by any applicable bankruptcy, insolvency, I-12 68 reorganization, moratorium or similar law affecting creditors' rights generally or by general principles of equity (whether considered in a proceeding in equity or at law), (B) arises under a Cardholder Agreement the terms of which require minimum monthly payments such that such Receivable is scheduled to be paid in full within 5 years from the date of its creation, (C) arises from a Cardholder Agreement and either (x) has been billed to the related Obligor on such Obligor's Statement in accordance with the terms of such Cardholder Agreement, or (y) will be billed to the related Obligor on such Obligor's Statement rendered no later than the third Cycle Closing Date after such Receivable is incurred in accordance with the terms of such Cardholder Agreement; provided, however, that an Eligible Receivable satisfying the requirements of this clause (y) and all other requirements of this definition of "Eligible RPA Receivable" (but not satisfying the preceding clause (x)) shall be considered an Eligible RPA Receivable only to the extent that the Outstanding Balance thereof at the time of the initial creation of an interest therein under the Agreement, when aggregated with the Outstanding Balance of all other Eligible Receivables satisfying the requirements of the preceding clause (y) and all other requirements of this definition of "Eligible RPA Receivable" (but not satisfying the preceding clause (x)), does not exceed 10% of the then Outstanding Balance of all Eligible Receivables, (D) is not subject to any dispute, offset, counterclaim or defense whatsoever (except the potential discharge in bankruptcy of such Obligor), (E) has not been purchased by the Owner pursuant to Section 2.4(d)(iii) or 2.4(e) of the Pooling and Servicing Agreement, (F) at the time of the initial creation of an interest therein under the Agreement is not a Defaulted Receivable, I-13 69 (G) does not arise under an Account which the Owner has classified on its electronic records as counterfeit, cancelled or fraudulent, or which has been identified as an Account with respect to which the related card has been lost or stolen, and (H) has not otherwise been charged off as uncollectible pursuant to the Cardholder Guidelines; (vii) which, together with the Cardholder Agreement related thereto, does not contravene in any material respect any local, state or federal laws, rules or regulations applicable thereto (including, without limitation, Regulation Z of the Board of Governors of the Federal Reserve System, the Federal Consumer Protection Act (including, without limitation, the Federal Truth in Lending Act), the Fair Credit Billing Act, and all other laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Cardholder Agreement related thereto is in violation of any such law, rule or regulation in any material respect; (viii) which satisfies all applicable requirements of the Cardholder Guidelines; (ix) which was not originated in or subject to the laws of a jurisdiction whose laws would make such Receivable, the related Cardholder Agreement or the sale of such Receivable to a Purchaser or a Bank under the Agreement unlawful, invalid or unenforceable; and (x) which is owned solely by the Seller free and clear of all Adverse Claims, except for (1) the interests created therein pursuant to the Pooling and Servicing Agreement (which interests are pari passu with the Purchasers' and the Banks' interests therein), and (2) the interests therein created under the Agreement. "Escrow Bank" means the Eligible Institution then holding the CO Escrow Account pursuant to Section 7.16 of the Agreement. I-14 70 "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Rate" means, for any Fixed Period, an interest rate per annum equal to the rate per annum at which deposits in U.S. dollars are offered by the principal office of Citibank in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Fixed Period in an amount substantially equal to the Purchaser Capital associated with such Fixed Period on such first day and for a period equal to such Fixed Period. "Eurodollar Rate Reserve Percentage" of any Purchaser or Bank for any Fixed Period in respect of which Yield is computed by reference to the Eurodollar Rate means the reserve percentage applicable two Business Days before the first day of such Fixed Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) (or if more than one such percentage shall be applicable, the daily average of such percentages for those days in such Fixed Period during which any such percentage shall be so applicable) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Purchaser or Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurocurrency Liabilities is determined) having a term equal to such Fixed Period. "Excess Finance Charge Collections" has the meaning set forth in Section 2.04 of the Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Facility Termination Date" means the earliest of (i) October 30, 1998 (or such later date as the Seller, the Subordinated Purchaser, the Owner, the Originator, the Servicer and the Agent may mutually agree in writing), (ii) the date determined pursuant to Section 3.02 and (iii) the date the Purchase Limit reduces to zero pursuant to Section 1.01(c). "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight I-15 71 Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" has the meaning set forth in Section 1.03 of the Agreement. "Final Distribution Date" means the date on which (i) the Purchaser Capital of all Purchaser Receivable Interests and Yield thereon have been paid in full, (ii) all other amounts payable hereunder to the Purchasers, the Banks or the Agent with respect thereto are paid in full, (iii) the Subordinated Purchaser Capital of all Subordinated Receivable Interests have been paid in full, and (iv) the aggregate amount of all unreimbursed Purchaser Charge-Offs with respect thereto have been reimbursed; provided, that the Final Distribution Date shall in any event occur one year after all amounts payable pursuant to clauses (i), (ii) and (iii) above have been paid in full even if all unreimbursed Purchaser Charge-Offs with respect thereto have not been reimbursed; this is the "Series Termination Date" referred to in the Pooling and Servicing Agreement. "Finance Charge Receivables" means (i) all amounts billed to the Obligors on any Account in the ordinary course of the Originator's business in respect of (a) periodic rate finance charges, (b) late payment fees, (c) annual fees, if any, with respect to the Accounts (excluding any fees payable with respect to the "Fashion Bug Gold Club" which fees shall be deemed to be Principal Receivables), (d) returned check charges, and (e) any other fees with respect to the Accounts designated by the Seller by notice to the Trustee and the Agent at any time and from time to time to be included as Finance Charge Receivables and (ii) all amounts paid to the Originator in respect of Allocated Interchange. Notwithstanding their treatment under the Pooling and Servicing Agreement, Discount Option Receivables, shall, for the purposes of the Agreement, be treated as Principal Receivables and not as Finance Charge Receivables, except as otherwise expressly provided in the Agreement. "Fixed Allocation Percentage" means, for each Due Period with respect to the Amortization Period, the ratio (expressed as a percentage) (which shall not be in excess of 100%) computed as at the close of business of the Agent on the Business Day immediately preceding the Termination Date, by I-16 72 dividing (a) the sum of the Purchaser Capital and the Subordinated Purchaser Capital on such Business Day by (b) the product of (i) the Allocation Percentage for such Due Period and (ii) the total amount of Principal Receivables on the last day of the immediately preceding Due Period minus the total amount of Discount Option Receivables (if any) on such last day. "Fixed Period" means, with respect to any Purchaser Receivable Interest which is not funded through the issuance of commercial paper: (a) initially the period commencing on the date on which such Purchaser Receivable Interest is first funded other than by the issuance of commercial paper and ending such number of days as the Servicer shall select and the Agent shall approve pursuant to the proviso below; and (b) thereafter each period commencing on the last day of the immediately preceding Fixed Period for such Purchaser Receivable Interest and ending such number of days as the Servicer shall select and the Agent shall approve pursuant to the proviso below; provided, that (i) such Fixed Period shall be a period from one to and including 29 days, or a period of one, two or three months, as the Servicer may select and the agent shall approve on notice received by the Agent (including notice by telephone, confirmed in writing) not later than 11:00 A.M. on (A) the third Business Day before the first day of such Fixed Period (in the case of Fixed Periods of one, two or three months) or (B) the first day of such Fixed Period (in the case of Fixed Periods of one to 29 days); (ii) any Fixed Period (other than of one day) which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day (provided, however, if Yield in respect of such Fixed Period is computed by reference to the Eurodollar Rate, and such Fixed Period would otherwise end on a day which is not a Business Day, and there is no subsequent Business Day in the same calendar month as such day, such Fixed Period shall end on the next preceding Business Day); I-17 73 (iii) in the case of any Fixed Period of one day, (A) if such Fixed Period is the initial Fixed Period for a Purchaser Receivable Interest, such Fixed Period shall be the day of purchase of such Purchaser Receivable Interest; (B) any subsequently occurring Fixed Period which is one day shall, if the immediately preceding Fixed Period is more than one day, be the last day of such immediately preceding Fixed Period, and, if the immediately preceding Fixed Period is one day, be the day next following such immediately preceding Fixed Period; and (C) if such Fixed Period occurs on a day immediately preceding a day which is not a Business Day, such Fixed Period shall be extended to the next succeeding Business Day; and (iv) in the case of any Fixed Period for any Purchaser Receivable Interest which commences before the Termination Date for such Purchaser Receivable Interest and would otherwise end on a date occurring after such Termination Date, such Fixed Period shall end on such Termination Date and the duration of each Fixed Period which commences on or after the Termination Date for such Purchaser Receivable Interest shall be of such duration as shall be selected by the Agent. "Floating Allocation Percentage" means, for each Due Period, the ratio (expressed as a percentage) (which shall not be in excess of 100%) computed as of the last day of the immediately preceding Due Period by dividing (a) the sum of the Purchaser Capital and the Subordinated Purchaser Capital as of such last day by (b) the product of (i) the Allocation Percentage for such Due Period and (ii) the total amount of Principal Receivables on such last day minus the total amount of Discount Option Receivables (if any) on such day; provided, however, that during the initial Due Period, the Floating Allocation Percentage will be equal to the ratio (expressed as a percentage) computed by dividing (x) the sum of the initial Purchaser Capital and the initial Subordinated Purchaser Capital by (y) the product of (i) the Allocation Percentage for such initial Due Period and (ii) the total amount of Principal Receivables on the initial Cut-Off Date. "FSC" means Fashion Service Corp., a Delaware corporation. "Funding Rate" for any Settlement Period means (a) the rate per annum equivalent to the weighted average of the per annum rates paid or payable by CRC from time to time as interest I-18 74 on, or otherwise (by means of interest rate hedges or otherwise) in respect of, that commercial paper issued by CRC and which is allocated, in whole or in part, by the Agent (on behalf of CRC) to fund its purchase or maintenance of such Purchaser Receivable Interest during such Settlement Period, as determined by the Agent (on behalf of CRC) and reported to the Owner and the Servicer, which rates shall reflect and give effect to the commissions of placement agents and dealers in respect of such commercial paper, to the extent such commissions are allocated, in whole or in part, to such commercial paper by the Agent (on behalf of CRC); provided, however, that if any component of such rate is a discount rate, in calculating the "Funding Rate" for such Settlement Period, the Agent shall for such component use the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum; provided further, that if the Agent so requests and the Servicer consents thereto, the "Funding Rate" for any Settlement Period of one day shall be the Assignee Rate for such period or (b) such other rate as the Agent and the Servicer shall agree to in writing. "GAAP" means generally accepted accounting principles in the United States of America, applied on a consistent basis and applied to both classification of items and amounts, and shall include but not be limited to the official interpretations thereof by the Financial Accounting Standards Board, its predecessors and successors. "Holder of the Exchangeable Seller Certificate" shall have the meaning ascribed to that term in the Pooling and Servicing Agreement. "Initial Depositary Account" means the "Initial Depositary Account" under the Pooling and Servicing Agreement. "Insurance Proceeds" means any amounts received pursuant to any credit life insurance policies, credit disability or unemployment insurance policies covering any Obligor with respect to Pool Receivables under such Obligor's Account to the extent such amounts are used to make payments on such Account. "Interest Rate Agreements" mean one or more interest rate cap or interest rate swap agreements which shall (i) in the case of a cap agreement, provide for payments to the Owner or FSC or the Seller in the event the Funding Rate shall exceed 9.0% per annum, (ii) in the case of a swap agreement, provide for payments to the Owner or FSC at the Funding Rate in exchange for payments by the Owner or FSC at a fixed interest rate not in excess of 9.0% per annum, (iii) cover in the aggregate (x) a notional balance of at least $50,000,000 through the Facility Termination I-19 75 Date, which notional balance shall either (A) remain at least at $50,000,000 during the ten months immediately following the Facility Termination Date or (B) amortize on a straight-line basis to zero over not less than 10 months immediately following the Facility Termination Date and (iv) be with such counter-parties and contain such other terms and provisions as shall be satisfactory to the Agent. The Interest Rate Agreements, which are limited to those agreements specified in the Owner's officer's certificate in the form of Annex G delivered from time to time in accordance with the Agreement, are the "Enhancement" referred to in the Pooling and Servicing Agreement for the Receivables Purchase Series arising in connection with the Agreement. "Investor Certificate" has the meaning set forth in Section 1.1 of the Pooling and Servicing Agreement. "Last Cycle Closing Date" means, for any month, the latest-occurring Cycle Closing Date for all Cardholder Agreements in such month. "Liquidation Fee" means, for the Settlement Period or Fixed Period during which the Termination Date occurs, the amount, if any, by which (i) the additional Yield (calculated without taking into account any Liquidation Fee or any shortened duration of such Settlement Period or Fixed Period due to the occurrence of the Termination Date) which would have accrued during such Settlement Period or Fixed Period on the reductions of Purchaser Capital of the Purchaser Receivable Interests had such reductions remained as Purchaser Capital, exceeds (ii) the income, if any, received by the Purchasers' investing the proceeds of such reductions of Purchaser Capital. "Loss Amount" for any Due Period means an amount (which shall not be less than zero) equal to (a) the principal balance of any Account, or any portion thereof, that has been written off or, consistent with the Cardholder Guidelines, should have been written off the Originator's books as uncollectible during such Due Period, minus (b) the amount of Recoveries received in such Due Period with respect to Pool Receivables previously charged off as uncollectible. "Majority Banks" means at any time Banks holding Purchaser Receivable Interests having Purchaser Capital equal to more than 66- % of the aggregate outstanding Purchaser Capital of all Purchaser Receivable Interests owned by the Banks or, if no such Purchaser Capital is then outstanding, Banks having more than 66- % of the Purchase Limit. I-20 76 "Market" means (i) an "established securities market" within the meaning of Section 7704(b)(1) of the Internal Revenue Code and any proposed, temporary or final treasury regulation thereunder, including, without limitation, an over-the-counter market or an interdealer quotation 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)(2) of the Internal Revenue 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. "Master Trust Documents" means the Pooling and Servicing Agreement, the Purchase Agreement, the Security Agreement and each other agreement, instrument or other document (other than any "supplement" or "receivables purchase agreement" (in each case, as defined therein)) delivered in connection with the Pooling and Servicing Agreement, in each case as the same may be amended, modified or supplemented in accordance with the terms thereof. "Minimum Seller Capital" means, on any date of determination, an aggregate Outstanding Balance of Principal Receivables that are Eligible Receivables in the Receivables Pool on such date of determination equal to (i) during the Revolving Period and during the Amortization Period (but only so long during the Amortization Period as neither the Facility Termination Date nor the Commitment Termination Date has occurred and the Seller has not designated the Termination Date), the product of (a) 2.0% and (b) the amount of the Purchaser Capital on such date of determination and (ii) during the Amortization Period (and following the occurrence of the Facility Termination Date or the Commitment Termination Date or the designation of the Termination Date by the Seller), an amount equal to (a) 102% of the amount of the Purchaser Capital at the close of business of the Agent on the Business Day (the "MSC Fix Date") immediately preceding the earliest to occur of the Facility Termination Date, the Commitment Termination Date and the designation of the Termination Date by the Seller, minus (b) the sum of (1) the amount of the Purchaser Capital on such date of determination and (2) the aggregate reductions, if any, in the amount of Subordinated Purchaser Capital from the MSC Fix Date to such date of determination. I-21 77 "Minimum Seller Interest" means, on any date of determination, an aggregate Outstanding Balance of Principal Receivables that are Eligible Receivables in the Receivables Pool on such date of determination equal to (i) during the Revolving Period, the product of (a) 2.0% and (b) the amount of the Purchaser Capital on such date of determination and (ii) during the Amortization Period, an amount equal to the product of (a) 2.0% and (b) the amount of the Purchaser Capital at the close of business of the Agent on the Business Day immediately preceding the Termination Date. "Monthly Charge-Off Ratio" for any Due Period means the ratio (expressed as a percentage) computed as of the last day of such Due Period by dividing (i) an amount equal to twelve times the remainder of (x) the aggregate Outstanding Balance of all Pool Receivables written off the Seller's books, or which should have been written off the Seller's books during such Due Period minus (y) the aggregate amount of Collections of Principal Receivables in the Receivables Pool actually received during such Due Period in respect of Pool Receivables that had been written off the Seller's books during a prior Due Period by (ii) the Outstanding Balance of the Receivables in the Receivables Pool as of the first day of such Due Period. "Moody's" means Moody's Investors Service, Inc. or any successor thereto. "Net Excess Spread" means, as of the last day of each Due Period, the Portfolio Yield for such Due Period minus the sum of (A) the weighted average Yield Rate for such Due Period, (B) the Servicer Fee Rate for such Due Period, (C) the fees payable under the Fee Letter for such Due Period (each expressed as a percentage rate per annum) and (D) the Monthly Charge-Off Ratio for such Due Period. "Net Receivables Pool Balance" means, at any time, the Outstanding Balance of all Eligible Receivables then in the Receivables Pool. For the purpose of this definition, if any Receivable in any Account shall constitute a Defaulted Receivable, the Outstanding Balance of all Receivables in the same Account shall be deemed to be zero. "Obligor" means, with respect to any Account, the Person or Persons obligated to make payments with respect to such Account pursuant to a Cardholder Agreement, including any guarantor thereof. "Opinion of Counsel" has the meaning set forth in Section 1.1 of the Pooling and Servicing Agreement. I-22 78 "Original Agreements" has the meaning set forth in the third Preliminary Statement to the Agreement. "Original PPC" has the meaning set forth in the third Preliminary Statement to the Agreement. "Original RPA" has the meaning set forth in the second Preliminary Statement to the Agreement. "Originator" means Spirit of America National Bank in its capacity as the originator of the Receivables prior to the sale thereof to the Owner pursuant to the Purchase Agreement. "Outstanding Balance" of any Receivable at any time means the then outstanding principal balance thereof. "Owner" means Charming Shoppes Receivables Corp. in its capacity as the seller of Receivables to the Seller pursuant to the Pooling and Servicing Agreement. "Payment Ratio" means the ratio (expressed as a percentage) computed as of the last day of any Due Period by dividing (i) the aggregate Collections received during such Due Period (excluding Collections constituting payments in respect of the Interest Rate Agreements) by (ii) the aggregate Outstanding Balance of all Pool Receivables at the close of business of the Due Period immediately preceding such Due Period. "Percentage" of any Bank means, (a) with respect to Citibank, the percentage set forth on the signature page to the Agreement, or such amount as reduced by any Assignment and Acceptance entered into with an Eligible Assignee, or (b) with respect to a Bank that has entered into an Assignment and Acceptance, the amount set forth therein as such Bank's Percentage, or such amount as reduced by an Assignment and Acceptance entered into between such Bank and an Eligible Assignee. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof. "Pool Index File" means the file on the Originator's computer system that identifies revolving credit card accounts of the Originator, which file is designated by the Originator as its "Pool Index File". I-23 79 "Pool Receivables" means all Receivables existing on the initial Cut-Off Date and all Receivables arising in the Accounts from time to time after the applicable Cut Off Date until the Final Distribution Date. "Pooling and Servicing Agreement" means the Second Amended and Restated Pooling and Servicing Agreement dated as of November 25, 1997 among the Owner, as the seller, Spirit, as the Servicer, and First Union National Bank, as the Trustee, as the same may from time to time be amended, restated, modified or supplemented. "Portfolio Yield" means, with respect to any Due Period, the annualized percentage equivalent to the amount computed as of the last day of such Due Period by dividing (i) the amount of Collections of Finance Charge Receivables during such Due Period calculated on a cash basis by (ii) the total amount of the Principal Receivables in the Receivables Pool as of the first day of such Due Period. "Principal Receivables" means (a) all amounts (other than amounts which represent Finance Charge Receivables) billed to the Obligor on any Account, including, without limitation, amounts billed in the ordinary course of the Originator's business in respect of purchases of merchandise or services or credit insurance premiums and (b) all other fees (other than Finance Charge Receivables) billed to Obligors on the Accounts. Notwithstanding their treatment under the Pooling and Servicing Agreement, Discount Option Receivables, shall, for the purposes of the Agreement, be treated as Principal Receivables and not as Finance Charge Receivables, except as otherwise expressly provided in the Agreement. "Prior PSA" means the Amended and Restated Pooling and Servicing Agreement dated as of December 24, 1992 as amended and restated as of May 4, 1994, and as amended by Amendment No. 1 dated as of December 22, 1995 and Amendment No. 2 dated as of March 22, 1996, among Spirit, as the seller and the Servicer and First Union National Bank, as the Trustee. "Private Holder" means each holder of a right to receive interest or principal in respect of any direct or indirect interest in the Trust, including any financial instrument or contract the value of which is determined in whole or part by reference to the Trust (including the Trust's assets, income of the Trust or distributions made by the Trust), excluding any interest in the Trust represented by any Series, Class of Certificates, Receivables Purchase Interest (as defined I-24 80 in the Pooling and Servicing Agreement) or any other interests as to which the Trustee has received an Opinion of Counsel to the effect that such Series, Class, Receivables Purchase Interest or other interest will be treated as debt or otherwise not as an equity interest in either the Trust or the Receivables for federal income tax purposes (unless such interest is convertible or exchangeable into an interest in the Trust or the Trust's income or such interest provides for payment of equivalent value). Notwithstanding the immediately preceding sentence, "Private Holder" shall also include any other Person that the Seller determines is a "partner" within the meaning of Section 1.7704-1(h)(1)(ii) of the U.S. Treasury Regulations (including by reason of Section 1.7704-1(h)(3) or any successor provision of law. Any Person holding more than one interest in the Trust, each of which separately would cause such Person to be a Private Holder, shall be treated as a single Private Holder. Each holder of an interest in a Private Holder which is a partnership, S corporation or a grantor trust under the Internal Revenue Code shall be treated as a Private Holder unless excepted with the consent of the Seller (which consent shall be based on an Opinion of Counsel generally to the effect that the action taken pursuant to the consent will not cause the Trust to become a publicly traded partnership treated as a corporation). Notwithstanding anything to the contrary herein, each Person designated as a "Private Holder" in any Supplement or Receivables Purchase Agreement as defined in the Pooling and Servicing Agreement shall be considered to be a Private Holder. "Purchase Agreement" means that certain Purchase and Sale Agreement, dated as of November 25, 1997, between Spirit of America National Bank, as seller and Charming Shoppes Receivables Corp., as purchaser, as the same may, from time to time, be amended, restated, modified or supplemented. "Purchase Limit" means $50,000,000, as such amount may be reduced pursuant to Section 1.01(c) of the Agreement. "Purchaser" means CRC and all other owners by assignment or otherwise (other than the Banks) of a Purchaser Receivable Interest and, to the extent of the undivided interests so purchased, shall include any participants. "Purchaser Capital" for any date means an amount equal to (a) the aggregate initial Purchaser Capital of all Purchaser Receivable Interests purchased by the Purchasers or the Banks under the Agreement prior to such date (including pursuant to reinvestments under Section 2.06(a) of the Agreement) minus (b) the amount of distributions on account of Purchaser Capital made to the Purchasers and the Banks prior to such date and minus I-25 81 (c) the excess, if any, of the aggregate amount of Purchaser Charge-Offs for all Distribution Dates preceding such date over the aggregate amount of Purchaser Charge-Offs reimbursed prior to such date; provided, however, that if Purchaser Capital shall have been reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Purchaser Capital shall be increased by the amount of such rescinded or returned distribution, as though it had not been made. "Purchaser Charge-Off" means any amount designated as such in Section 2.05(d) or 2.07(a) of the Agreement. "Purchaser Loss Amount" means, with respect to any Distribution Date, the product of (a) the Floating Allocation Percentage of the Allocated Loss Amount for the preceding Due Period and (b) the Purchaser Percentage. "Purchaser Percentage" means, with respect to any Distribution Date, a fraction, the numerator of which is equal to the Purchaser Capital as of the close of business on the last day of the second preceding Due Period and the denominator of which is equal to the sum of the Purchaser Capital and the Subordinated Purchaser Capital as of the close of business on such day. "Purchaser Principal Collections" has the meaning set forth in Section 2.06(b) of the Agreement. "Purchaser Receivable Interest" means, at any time, the undivided percentage ownership interests purchased by CRC, the Banks or their respective successors and assigns, under the Agreement, which shall represent an undivided percentage ownership interest in all outstanding Pool Receivables then existing or thereafter arising and all Collections with respect to, and other proceeds of, such Pool Receivables (including, without limitation, Insurance Proceeds and other amounts constituting Recoveries of Pool Receivables and payments in respect of the Interest Rate Agreements). "Purchaser Representative" means, initially, CNAI, as the Purchaser Representative pursuant to Section 6.01 of the Agreement, and each other Person who shall succeed to the functions of CNAI as the Purchaser Representative pursuant to Section 6.01(c) of the Agreement. "Purchaser Servicer Fee", with respect to any Distribution Date, means an amount equal to one-twelfth of the product of (a) the Servicing Fee Rate and (b) the Purchaser I-26 82 Capital as of the last day of the Due Period second preceding such Distribution Date. "Quarterly Charge-Off Ratio" as of the last day of any Due Period means the ratio (expressed as a percentage) computed by averaging the Monthly Charge-Off Ratio for such Due Period with the two immediately preceding Monthly Charge-Off Ratios. "Receivable" means Principal Receivables and Finance Charge Receivables. "Receivable Interest" has the meaning set forth in the eighth Preliminary Statement to the Agreement. "Receivables Pool" means at any time the aggregation of each then outstanding Pool Receivable. "Receivables Purchase Interest" and "Receivables Purchase Series Interest" mean, collectively, the Purchaser Receivable Interests and the Subordinated Receivable Interests. "Receivables Purchase Series" has the meaning attributed thereto in the Pooling and Servicing Agreement. "Receivables Purchaser" has the meaning attributed thereto in the Pooling and Servicing Agreement. "Records" means correspondence, memoranda, computer programs, tapes, discs, papers, books or other documents or transcribed information of any type whether expressed in ordinary or machine readable language. "Recoveries" means all amounts received (net of out-of-pocket costs of collection) with respect to Pool Receivables which were previously charged off as uncollectible and all Insurance Proceeds. "Register" has the meaning set forth in Section 7.03(b)(iii). "Removal Date" has the meaning set forth in Section 1.1 of the Pooling and Servicing Agreement. "Removed Accounts" means Accounts designated by the Owner for deletion and removal from the Trust for purposes of the Pooling and Servicing Agreement pursuant to Section 2.7 thereof. "Renumbered Account" means an Account with respect to which a new credit account number has been issued by the Servicer I-27 83 or the Originator under circumstances resulting from a lost or stolen credit card, from the transfer from one group to another group, from the transfer from one Obligor to another Obligor or from the addition of any Obligor and not requiring standard application and credit evaluation procedures under the Cardholder Guidelines; and which in any case can be traced or identified by reference to or by way of the computer files or microfiche or written lists delivered to the Trustee pursuant to Section 2.1, 2.6(d)(ii) or 2.7(b)(ii)(B) of the Pooling and Servicing Agreement as an Account which has been renumbered. "Required Amount" has the meaning set forth in Section 2.05(a) of the Agreement. "Requirements of Law" means any law, treaty, rule or regulation, or determination of an arbitrator or of the United States of America, any state or other political subdivision thereof or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, whether federal, state or local (including any usury law, the Federal Truth-in-Lending Act and Regulation Z of the Board of Governors of the Federal Reserve System), and, when used with respect to any Person, the certificate of incorporation and by-laws or other charter or other governing documents of such Person. "Responsible Officer" of the Seller, the Owner, the Originator, the Servicer, FSC or Charming Shoppes, as the case may be, means the chief executive officer, chief financial officer or controller thereof, and in addition, with respect to FSC, any Vice President. "Revolving Period" means the period beginning on the date of the Agreement and ending at the close of business of the Agent on the Business Day immediately preceding the Termination Date. "S&P" means Standard & Poor's Corporation or any successor thereto. "Securities Act" means the Securities Act of 1933, as amended. "Security Agreement" means that certain Security Agreement, dated as of November 25, 1997, between Spirit of America National Bank and First Union National Bank, as trustee, as the same may, from time to time, be amended, restated, modified or supplemented. I-28 84 "Seller Account" means, initially, the account (account number 033009128001) of the Seller maintained at the office of the Trustee located at 123 South Broad Street, Philadelphia, Pennsylvania, or, upon 10 Business Days' written notice from the Seller to the Agent, any other account established by the Seller with a financial institution in New York, New York or Philadelphia, Pennsylvania for the purpose of receiving amounts allocated and distributed by the Servicer in respect of the Seller Interest. "Seller Interest" has the meaning set forth in Section 1.1 of the Pooling and Servicing Agreement. "Series" has the meaning set forth in Section 1.1 of the Pooling and Servicing Agreement. "Servicer" means at any time the Person then authorized pursuant to the Agreement and the Pooling and Servicing Agreement to administer and collect Pool Receivables. "Servicer Fee" has the meaning set forth in Section 5.03 of the Agreement; this is the "Receivables Purchaser Monthly Servicing Fee" referred to in the Pooling and Servicing Agreement. "Servicer Report" means a report, in substantially the form of Annex A hereto, furnished by the Servicer to the Agent pursuant to paragraph 1(f) of Exhibit V. "Servicing Fee Rate" has the meaning set forth in Section 5.03 of the Agreement; this is the "Series Servicing Fee Percentage" referred to in the Pooling and Servicing Agreement. "Settlement Period" means (a) initially, the period from and including the date of the Agreement to but excluding the next following Distribution Date and (b) thereafter, the period from and including a Distribution Date to but excluding the next following Distribution Date. "Statement" means, in respect of any Cardholder Agreement, the periodic written notice to the related Obligor setting forth the previous balance, payments and credits, finance charge, charges (including sales and other charges), new balance, and minimum payment. I-29 85 "Store" means: (i) each retail location of the Originator or any Affiliate of the Originator that is part of the "Fashion Bug" or "Fashion Bug Plus" chain of women's retail apparel stores, (ii) each other retail location of a chain of women's retail apparel stores established de novo by the Originator or any Affiliate of the Originator the primary business of which is the retail sale of moderately priced women's apparel, and (iii) any other retail location the primary business of which is the retail sale of moderately priced women's apparel that is consented to by the Agent. "Store Account" means each account established by a Store for the purpose of collecting Store Payments. "Store Payment" means any payment by an Obligor of a Pool Receivable made by means of cash or a check delivered in person by or on behalf of such Obligor at any Store. "Store Payment Notice" has the meaning set forth in paragraph 1(b)(xxi) of Exhibit II to the Agreement. "Subject Instrument" means any Certificate or Receivables Purchase Interest (as defined in the Pooling and Servicing Agreement) issued by the Trust with respect to which the Seller shall not have received an Opinion of Counsel to the effect that such Certificate or Receivables Purchase Interest will be treated as debt for Federal income tax purposes. "Subordinated Principal Collections" means, with respect to each Distribution Date, (a) the product of (1) the Floating Allocation Percentage, with respect to the Revolving Period, or the Fixed Allocation Percentage, with respect to the Amortization Period, of Allocable Principal Collections for the related Due Period (or any partial Due Period which occurs as the first Due Period during the Amortization Period) and (2) the Subordinated Purchaser Percentage for such Distribution Date, minus (b) the aggregate amount (if any) of Total Principal Collections reinvested with the Seller on behalf of the Subordinated Purchaser during such Due Period pursuant to Section 2.06(a) of the Agreement; provided, that in no event shall Subordinated Principal Collections be less than zero. I-30 86 "Subordinated Purchaser Account" means the special account (account number 033009128002) of the Subordinated Purchaser maintained at First Union National Bank, or, upon 10 Business Days' written notice from the Subordinated Purchaser to the Agent, any other account established by the Subordinated Purchaser with a financial institution in New York, New York or Philadelphia, Pennsylvania for the purpose of receiving amounts allocated and distributed by the Servicer in respect of the Subordinated Receivable Interest. "Subordinated Purchaser Capital" for any date means an amount equal to (a) the aggregate initial Subordinated Purchaser Capital of all Subordinated Receivable Interests conveyed and allocated to the Subordinated Purchaser under the Agreement prior to such date (including pursuant to reinvestments under Section 2.06(a) of the Agreement), minus (b) the amount of Total Principal Collections allocated to the Subordinated Purchaser on account of Subordinated Purchaser Capital which are, prior to such date, distributed to the Subordinated Purchaser pursuant to Section 2.06(a) of the Agreement, minus (c) an amount equal to the aggregate amount by which the Subordinated Purchaser Capital has been reduced as a result of Subordinated Principal Collections for prior Distribution Dates having been used to fund the Required Amount with respect to such Distribution Dates pursuant to Section 2.05(c) of the Agreement, minus (d) an amount equal to the aggregate amount by which the Subordinated Purchaser Capital has been reduced to fund the Purchaser Loss Amount on all prior Distribution Dates pursuant to Section 2.05(d) of the Agreement, minus (e) an amount equal to the aggregate amount by which Subordinated Purchaser Capital has been reduced on all prior Distribution Dates pursuant to Section 2.07(a) of the Agreement, and plus (f) the aggregate amount of Excess Finance Charge Collections applied on all prior Distribution Dates for the purposes of reimbursing amounts deducted pursuant to the foregoing clauses (c), (d) and (e). "Subordinated Purchaser Loss Amount" means, with respect to any Distribution Date, the product of (a) the Floating Allocation Percentage of the Allocated Loss Amount for the preceding Due Period and (b) the Subordinated Purchaser Percentage as of such Distribution Date. "Subordinated Purchaser Percentage" means, with respect to any Distribution Date, a fraction, the numerator of which is equal to the Subordinated Purchaser Capital as of the close of business on the last day of the second preceding Due Period and the denominator of which is equal to the sum of the Purchaser Capital and the Subordinated Purchaser Capital at the close of business on such day. I-31 87 "Subordinated Purchaser Rate" means, for any period, a per annum rate equal to the Yield Rate for such period plus 0.25%. "Subordinated Purchaser Servicer Fee", with respect to any Distribution Date, means an amount equal to one-twelfth of the product of (a) the Servicing Fee Rate and (b) the Subordinated Purchaser Capital as of the last day of the Due Period second preceding such Distribution Date. "Subordinated Purchaser Yield" means, for each Subordinated Receivable Interest for any Settlement Period, SPR x SPC x ED --- 360 where: SPR = the Subordinated Purchaser Rate for such Subordinated Receivable Interest for such Settlement Period SPC = the Subordinated Purchaser Capital of the Subordinated Receivable Interests during such Settlement Period ED = the actual number of days elapsed during such Settlement Period; provided that no provision of the Agreement shall require the payment or permit the collection of Subordinated Purchaser Yield in excess of the maximum permitted by applicable law; and provided, further that Subordinated Purchaser Yield for any Subordinated Receivable Interest shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason. "Subordinated Receivable Interest" means, at any time, the undivided percentage ownership interests conveyed and allocated to the Subordinated Purchaser under the Agreement, which shall represent an undivided percentage ownership interest, subordinated (to the extent set forth in Article II of the Agreement) to the Purchaser Receivable Interests, in all outstanding Pool Receivables then existing or thereafter arising and all Collections with respect to, and other proceeds of, such Pool Receivables (including, without limitation, Insurance Proceeds and other amounts constituting Recoveries of Pool Receivables and payments in respect of the Interest Rate Agreements). I-32 88 "Termination Date" means (i) in the case of a Purchaser Receivable Interest owned by the Purchaser, the earlier of (a) the Business Day which the Seller or the Agent so designates by notice to the other (with a copy to the Servicer) at least one Business Day in advance (including any date on which the Agent terminates the reinvestment of Collections pursuant to paragraph 2(b)(iii) of Exhibit II to the Agreement) and (b) the Facility Termination Date, and (ii) in the case of a Purchaser Receivable Interest owned by a Bank, the earlier of (a) the Business Day which the Seller so designates by notice to the Agent (with a copy to the Servicer) at least one Business Day in advance and (b) the Commitment Termination Date. "Total Principal Collections" has the meaning set forth in Section 2.02(b) of the Agreement. "Total Systems Failure" means, in respect of any Distribution Date, a total failure of the computer system (including but not limited to off-site backup systems) of the Servicer or the Administrative Servicer which contain Records relating to the Pool Receivables, the effect of which would make it impossible or impracticable for the Servicer or the Administrative Servicer to perform the acts required to be performed hereunder on or in anticipation of such Distribution Date. "Trust" means the trust created by the Pooling and Servicing Agreement. "Trustee" means, initially, First Union National Bank (formerly known as First Fidelity Bank, National Association, and prior to that known as First Fidelity Bank, N.A., Pennsylvania, and prior to that known as Fidelity Bank, National Association), a national banking association, as the trustee under the Pooling and Servicing Agreement, and each other Person who shall succeed to the functions of First Union National Bank pursuant to the terms of the Pooling and Servicing Agreement. "UCC" means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction. "Unallocated Net Receivables Pool Balance" means, at any time, the Outstanding Balance of Principal Receivables that are Eligible Receivables in the Receivables Pool that is not allocated to the Purchaser Receivable Interests or the Subordinated Receivable Interests pursuant to the Agreement and not allocated to any other Person other than the Holder of the Exchangeable Seller Certificate pursuant to a supplement to the I-33 89 Pooling and Servicing Agreement or pursuant to any other receivables purchase agreement that is subject to the Pooling and Servicing Agreement. "Yield" means: (i) for each Purchaser Receivable Interest for any Settlement Period to the extent the Purchaser will be funding such Purchaser Receivable Interest on the first day of such Settlement Period through the issuance of commercial paper, FR x C x ED + LF --- 360 (ii) for each Purchaser Receivable Interest for any Fixed Period to the extent (x) the Purchaser will not be funding such Purchaser Receivable Interest on the first day of such Fixed Period through the issuance of commercial paper or (y) the Banks will be funding such Purchaser Receivable Interest, AR x C x ED --- 360 where: AR = the Assignee Rate for such Purchaser Receivable Interest for the applicable Fixed Period C = the Purchaser Capital of the Purchaser Receivable Interests during the applicable Settlement Period or Fixed Period FR = the Funding Rate for the applicable Settlement Period ED = the actual number of days elapsed during the applicable Settlement Period or Fixed Period LF = the Liquidation Fee, if any, for such Settlement Period; provided that no provision of the Agreement shall require the payment or permit the collection of Yield in excess of the maximum permitted by applicable law; and provided, further that I-34 90 Yield for any Purchaser Receivable Interest shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason. "Yield Rate" means, at any time, the Assignee Rate or the Funding Rate with regard to which Yield is calculated at such time. - - - - - - 2. Defined Terms from the Pooling and Servicing Agreement. For purposes of the Pooling and Servicing Agreement: "Enhancement" means the Interest Rate Agreements and any additional interest rate caps purchased pursuant to Section 5.04(h). "interest" at any time means the sum of the Yield and the Subordinated Purchaser Yield at such time. "Investor/Purchaser Percentage" means the Allocation Percentage. "principal" at any time means the sum of the Purchaser Capital and the Subordinated Purchaser Capital at such time. "Receivables Purchaser Monthly Servicing Fee" means the Servicer Fee. "Series Servicing Fee Percentage" means the Servicing Fee Rate. "Series Termination Date" means the Final Distribution Date. 3. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. I-35 91 EXHIBIT II CONDITIONS OF PURCHASES 1. Conditions Precedent to the Effectiveness of the Amendment and Restatement. The effectiveness of the amendment and restatement of the Original Agreements on the terms set forth in the Agreement is subject to the conditions precedent that: 7.16.10. on or before the date of such effectiveness, the Owner shall have (i) indicated in the Pool Index File maintained in its computer files that interests in the Receivables created in connection with the Accounts have been sold by the Seller to the Purchasers pursuant to the Agreement and (ii) delivered to the Trustee, pursuant to Section 2.1 of the Pooling and Servicing Agreement, a computer file or microfiche or written list containing a true and complete list of all Accounts, identified by account number, Obligor name and Obligor address and setting forth the Receivable balance as of the applicable Cut Off Date; and 7.16.11. the Agent shall have received on or before the date of such effectiveness the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Agent: 7.16.11.1. Certified copies of any necessary corporate action of the Trustee approving the Agreement and certified copies of all documents evidencing other necessary governmental approvals, if any, with respect to the Agreement. 7.16.11.2. A copy of (A) the Subordinated Purchaser's Certificate of Incorporation, certified (as of a date reasonably near the date of the effectiveness hereof) by the Secretary of State of the State of Delaware as being a true and correct copy thereof, (B) the Subordinated Purchaser's By-Laws as in effect on the date of such effectiveness, certified by the Subordinated Purchaser's President or a Vice President and the Secretary or any Assistant Secretary of the Subordinated Purchaser as being a true and correct copy thereof, (C) the resolutions adopted by the Board of Directors of the Subordinated Purchaser authorizing the Subordinated Purchaser's officers to enter into, and to perform all necessary actions in connection with, transactions of the type contemplated by the Agreement, certified by the Subordinated Purchaser's Secretary or Assistant Secretary and (D) a certificate of the Secretary or Assistant Secretary of the Subordinated Purchaser certifying the names and true signatures of the II-1 92 officers of the Subordinated Purchaser authorized to sign the Agreement on behalf of the Subordinated Purchaser and the other documents to be delivered by the Subordinated Purchaser thereunder. 7.16.11.3. Certified copies of the resolutions of the Board of Directors of the Servicer and the Originator approving the Agreement and certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Agreement. 7.16.11.4. Certified copies of the resolutions of the Board of Directors of each of FSC and Charming Shoppes approving the Company Agreement and certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Company Agreement. 7.16.11.5. A certificate of the Secretary or Assistant Secretary of the Trustee certifying the names and true signatures of the officers of the Trustee authorized to sign the Agreement on behalf of the Seller and the other documents to be delivered by the Seller thereunder. 7.16.11.6. A certificate of the Secretary or Assistant Secretary of the Servicer, the Originator and the Owner, certifying the names and true signatures of the officers of the Servicer, the Originator or the Owner, as the case may be, authorized to sign the Agreement and the other documents to be delivered by it thereunder. 7.16.11.7. A certificate of the Secretary or Assistant Secretary of each of FSC and Charming Shoppes certifying the names and true signatures of the officers thereof authorized to sign the Company Agreement and the other documents to be delivered by it thereunder. 7.16.11.8. Executed copies of proper financing statements or amendments thereto, duly filed on or before the date of such initial purchase under the UCC of all jurisdictions that the Agent may deem necessary or desirable in order to perfect the ownership interests contemplated by the Agreement. 7.16.11.9. Executed copies of proper financing statements, if any, necessary to release all security interests and other rights of any Person in the Receivables or Cardholder Agreements previously granted by the II-2 93 Originator, the Owner or the Seller (other than Adverse Claims expressly permitted under the Agreement). 7.16.11.10. Completed requests for information, dated as of a date reasonably near the date of such effectiveness listing all effective financing statements (other than the financing statements referred to in subsection (viii) above) filed in the jurisdictions referred to in subsection (viii) above (other than Philadelphia County, Pennsylvania) that name the Seller as debtor, together with copies of such other financing statements (none of which shall cover any Receivables or Cardholder Agreements). 7.16.11.11. A copy of each Depositary Agreement with each Depositary Bank, duly executed by the Servicer and duly acknowledged by such Depositary Bank, and a notice to each Depositary Bank instructing such Depositary Bank to make all payments to the Collection Account and informing them of the intermediate sale of Receivables to the Owner. 7.16.11.12. An instruction letter or letters to the Administrative Servicer, duly executed and delivered by the Owner and duly acknowledged by the Administrative Servicer, directing the Administrative Servicer to process Collections in accordance with the Trustee's instructions and informing them of the intermediate sale of Receivables to the Owner. 7.16.11.13. The Company Agreement, duly executed and delivered by each of FSC and Charming Shoppes. 7.16.11.14. The Fee Letter, duly executed and delivered by the Seller. 7.16.11.15. Certified copies or executed originals of (A) the Pooling and Servicing Agreement and the Purchase Agreement, duly executed and delivered by each party thereto, and evidence satisfactory to the Agent that each of the conditions to the effectiveness thereof shall have been satisfied (including, without limitation, the filing of all appropriate UCC financing statements) and that the conveyances contemplated therein have occurred and (B) the Security Agreement and each other agreement, document and opinion delivered pursuant to the Pooling and Servicing Agreement. 7.16.11.16. A copy of the Cardholder Guidelines, certified by a Responsible Officer of the Originator as being complete and accurate in all material respects. II-3 94 7.16.11.17. A favorable opinion of Pepper, Hamilton & Scheetz, counsel for the Trustee, substantially in the form of Annex C hereto and as to such other matters as the Agent may reasonably request. 7.16.11.18. A favorable opinion of: (1) Mayer, Brown & Platt, counsel for each of the Servicer, the Originator, the Owner, the Subordinated Purchaser, Charming Shoppes and FSC, as to certain corporate and security interest matters substantially in the form of Annex D-1 hereto, (2) Mayer, Brown & Platt, counsel for the Originator and the Servicer, as to certain bank regulatory matters substantially in the form of Annex D-2 hereto, (3) Colin Stern, Esq., General Counsel for each of the Servicer, the Originator, the Owner and the Subordinated Purchaser, substantially in the form of Annex D-3, and (4) Mayer, Brown & Platt, counsel for each of the Subordinated Purchaser, Charming Shoppes and FSC, as to certain Federal Bankruptcy Code matters substantially in the form of Annex D-4 hereto. 7.16.11.19. A favorable opinion of Colin Stern, Esq., General Counsel for each of FSC and Charming Shoppes, substantially in the form of Annex E hereto. 7.16.11.20. A favorable opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel for the Agent, as the Agent may reasonably request. 7.16.11.21. An undated notice (the "Store Payment Notice"), duly executed by each of the Owner and the Originator, to the manager of each Store, in substantially the form of Annex F hereto. 7.16.11.22. Assignments to the Seller of the benefits under each of the Interest Rate Agreements in effect on the Effective Date, together with any necessary consents by the counterparties to such Interest Rate Agreements. 7.16.11.23. Copies of each of the Interest Rate Agreements in effect on the Effective Date, together with a II-4 95 summary thereof in the form of Annex G hereto, in each case certified by a Responsible Officer of the Owner as being complete and correct. 7.16.11.24. [Intentionally omitted]. 7.16.11.25. Copies of each of the Credit Facilities as in effect on the Effective Date, certified by an officer of Charming Shoppes as being complete and correct, accompanied by a certificate of an officer of Charming Shoppes that (x) Charming Shoppes has duly executed and delivered each of the Credit Facilities, (y) all conditions precedent to the obligations of the lenders under the Credit Facilities have been satisfied and the Credit Facilities are in full force and effect as of the date of the initial purchase and (z) no event or condition of the type described in paragraph (l) of Exhibit VI has occurred and is continuing. 7.16.11.26. Copies of the Consumer Credit Plan Agreement between Charming Shoppes of Delaware, Inc. and FSC, the Consumer Credit Plan Operations Agreement between FSC and Spirit and the Cardholder Agreement, each as in effect on the Effective Date, certified by a Responsible Officer of FSC or the Owner as being complete and correct. 7.16.11.27. A copy of the Administrative Servicing Agreement or a summary prepared by the Servicer of the provisions of the Administrative Servicing Agreement relating to the termination thereof by either party and the assignability thereof by the Administrative Servicer. 7.16.11.28. [Intentionally omitted] (xxix) A letter agreement between Charming Shoppes of Delaware, Inc. and the Trustee, in form and substance satisfactory to the Agent, duly executed and delivered by Charming Shoppes of Delaware, Inc. and the Trustee, setting forth certain instructions with respect to the flow of funds arising out of Store Payments and the agreement of Charming Shoppes of Delaware, Inc. not to assert setoffs against such funds. (xxx) Copies of good standing certificates for Spirit from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. 2. Conditions Precedent to All Purchases and Reinvestments. Each purchase (including the initial purchase) of II-5 96 Purchaser Receivable Interests by the Purchaser or the Banks, as the case may be, under the Agreement and each reinvestment pursuant to Section 2.06(a) of the Agreement shall be subject to the further conditions precedent that: (a) in the case of each purchase, the Servicer shall have delivered (i) to the Trustee, on or prior to such purchase, the then most recent computer file or microfiche or written list of Accounts required pursuant to Section 2.1 or 2.6(d)(ii) of the Pooling and Servicing Agreement, and (ii) to the Agent, on or prior to such purchase, in form and substance satisfactory to the Agent, a completed Servicer Report dated within 31 days prior to the date of such purchase together with such additional information as may reasonably be requested by the Agent, (b) on the date of such purchase or reinvestment the following statements shall be true, except that the statement in clause (iii) below is required to be true only if such purchase or reinvestment is by the Purchaser (and acceptance of the proceeds of such purchase or reinvestment shall be deemed a representation and warranty by the Seller that such statements are then true): (i) The representations and warranties contained in Exhibit III are correct on and as of the date of such purchase or reinvestment as though made on and as of such date, and (ii) No event has occurred and is continuing, or would result from such purchase or reinvestment, that constitutes an Early Amortization Event or that would constitute an Early Amortization Event but for the requirement that notice be given or time elapse or both, and (iii) The Agent shall not have given the Seller and the Servicer at least one Business Day's notice that the Purchaser has terminated the reinvestment of Collections in Purchaser Receivable Interests, and 7.16.12. the Agent shall have received such other approvals, opinions or documents as it may reasonably request. 3. Additional Conditions Precedent to Each Purchase by the Purchaser and the Banks. Each purchase (including the initial purchase) of a Purchaser Receivable Interest by the Purchaser and the Banks under the Agreement is subject to the additional conditions precedent that, after giving effect to such purchase and any concurrent allocation of a Subordinated Receivable Interest pursuant to Section 1.02(f) of the Agreement: II-6 97 7.16.13. the representation and warranty contained in paragraph 2(n) of Exhibit III shall be correct; and 7.16.14. the Unallocated Net Receivables Pool Balance shall be equal to or exceed the Minimum Seller Capital. II-7 98 EXHIBIT III REPRESENTATIONS AND WARRANTIES 1. Representations and Warranties of the Trustee. The Trustee, not in its individual capacity but solely as the trustee for the Charming Shoppes Master Trust, represents and warrants as follows: 7.16.15. The Trustee is a national banking association duly organized, validly existing and in good standing under the federal law of the United States of America with full corporate trust power and authority to enter into and perform its obligations under the Agreement, the Pooling and Servicing Agreement and each other Master Trust Document to which the Trustee will be a party. 7.16.16. The execution and delivery by the Trustee of, and the performance by the Trustee of the transactions contemplated by, the Agreement, the Pooling and Servicing Agreement and each other Master Trust Document to which the Trustee is a party, including the Trustee's use of the proceeds of purchases and reinvestments, are within the Trustee's corporate trust powers, have been duly authorized by all necessary corporate action of the Trustee, and (a) do not contravene (i) the Trustee's charter or by-laws or (ii) any existing federal or applicable state law governing the trust powers of the Trustee. 7.16.17. Each of the Agreement, the Pooling and Servicing Agreement and each other Master Trust Document to which the Trustee is a party has been duly executed and delivered by the Trustee, as the trustee for Charming Shoppes Master Trust pursuant to the Pooling and Servicing Agreement, and constitutes a legal, valid and binding obligation of the Trustee, enforceable against the Trustee in accordance with its terms, subject to bankruptcy, insolvency or other similar laws affecting creditors' rights generally and to general principles of equity (whether considered in a proceeding in equity or at law). 7.16.18. No authorization or approval or other action by and no notice to or filing with, any governmental authority or regulatory body under any existing federal or Pennsylvania law governing the trust powers of the Trustee, except such as have been obtained, made or taken, is required for the due execution and delivery by the Trustee of, and the consummation of any of the transactions by the Trustee contemplated by, the Agreement, the Pooling and Servicing Agreement or each other Master Trust Document to which the Trustee is a party or for III-1 99 the perfection of or the exercise by the Agent or the Purchasers of their respective rights and remedies under the Agreement. 7.16.19. There are no actions or proceedings pending or, to the best knowledge of the Trustee, threatened against the Trustee before any court, regulatory body, administrative agency or other tribunal, governmental instrumentality or arbitrator seeking to prevent the consummation of any of the transactions contemplated by the Agreement, the Pooling and Servicing Agreement or any other Master Trust Document, or seeking and determination or ruling that, would materially and adversely affect the performance by the Trustee of its obligations under the Agreement, the Pooling and Servicing Agreement or any other Master Trust Document to which the Trustee is a party, or seeking any determination or ruling that would materially and adversely affect the legality, validity or enforceability of the Agreement, the Pooling and Servicing Agreement or any other Master Trust Document. 7.16.20. The principal place of business and chief executive office of the Trustee and the office where the Trustee keeps its records concerning the Pool Receivables are located at 123 South Broad Street, Philadelphia, Pennsylvania 19109; the address of the Trustee where notices and demands to or upon the Trustee in respect of the Pool Receivables, the Agreement or the Pooling and Servicing Agreement may be served is First Union National Bank, 123 S. Broad Street, 12th Floor, Philadelphia, Pennsylvania 19109, Attention: Corporate Trust Services. 7.16.21. All representations and warranties of the Trustee set forth in the Pooling and Servicing Agreement and each other Master Trust Document to which the Trustee is a party are true and correct in all material respects (unless any such representation or warranty speaks as of a particular date, in which case it is true and correct in all materials respects as of each such date). 2. Representations and Warranties of the Owner. The Owner represents and warrants as follows: 7.16.22. The Owner is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified. III-2 100 7.16.23. The execution, delivery and performance by the Owner of the Agreement and each Master Trust Document to which it is or will be a party, (i) are within the Owner's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene (1) the Owner's charter or by-laws, (2) any Requirement of Law applicable to the Owner, (3) any indenture, contract, agreement, mortgage, deed of trust or other instrument to which the Owner is a party or by which it is bound (including, without limitation, the Pooling and Servicing Agreement and any other Master Trust Document to which the Owner is or will be a party), or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Owner or its property, and do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties (other than the interests created by the Pooling and Servicing Agreement and the Agreement). Each of the Agreement, and each Master Trust Document to which the Owner is or will be a party has been or will be duly executed and delivered by the Owner. 7.16.24. No authorization or approval or other action by, and, except for the filing of financing statements to be filed pursuant to the Pooling and Servicing Agreement and pursuant to the Agreement, no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Owner of the Agreement or any Master Trust Document to which the Owner is or will be a party. 7.16.25. Each of the Agreement and each Master Trust Document to which the Owner is or will be a party constitutes, or upon due execution and delivery by the Owner will constitute, the legal, valid and binding obligation of the Owner enforceable against the Owner in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally or by general principles of equity (whether considered in a proceeding in equity or at law). 7.16.26. There are no actions or proceedings pending or, to the best knowledge of the Owner, threatened against the Owner before any court, regulatory body, administrative agency or other tribunal, governmental instrumentality or arbitrator seeking to prevent the consummation of any of the transactions contemplated by this Agreement or any Master Trust Document, or seeking any determination or ruling that, in the reasonable judgment of the Owner, would materially and adversely affect III-3 101 the performance by the Owner of its obligations under this Agreement or any Master Trust Document to which it is or will be a party, or seeking any determination or ruling that would materially and adversely affect the legality, validity or enforceability of this Agreement or any Master Trust Document. 7.16.27. Since February 1, 1997, (i) there has been no material adverse change in the business, operations, property or financial or other condition of the Owner which may materially adversely affect the Owner's ability to collect Pool Receivables pursuant to the Agreement or the Pooling and Servicing Agreement or otherwise perform its obligations under the Agreement or the Master Trust Documents to which it is or will be a party and (ii) there has not occurred any event which may materially adversely affect the collectibility or value of the Receivables Pool. 7.16.28. (i) Immediately prior to the purchase by the Seller of an interest therein under the Pooling and Servicing Agreement, the Owner is the legal and beneficial owner of each Pool Receivable free and clear of any Adverse Claims except for the interests therein created pursuant to the Security Agreement; (ii) upon each purchase by the Trustee under the Pooling and Servicing Agreement, the Trustee will acquire a valid and perfected first priority ownership interest in the Pool Receivables and Collections with respect thereto; (iii) immediately prior to the purchase by each Purchaser or Bank of an interest therein under the Agreement, the Trustee will be the legal and beneficial owner of each Pool Receivable free and clear of any Adverse Claims, except for the interests created therein pursuant to the Pooling and Servicing Agreement (which interests will be pari passu with the Purchasers' or Banks' interests therein); (iv) upon each purchase by a Purchaser or a Bank and each reinvestment on behalf of a Purchaser or a Bank under the Agreement, such Purchaser or Bank, as the case may be, will acquire a valid and perfected first priority undivided percentage ownership interest to the extent of the pertinent Purchaser Receivable Interest in the Pool Receivables and in the Collections with respect thereto, subject to the interests therein referred to clause (iii) above; III-4 102 (v) no effective financing statement or other instrument similar in effect covering any Cardholder Agreement or any Pool Receivable or Collections with respect thereto is on file in any recording office, except those filed pursuant to the Pooling and Servicing Agreement and those filed pursuant to the Agreement; and (vi) except for any credit life insurance policies, credit disability or unemployment insurance policies covering an Obligor with respect to Pool Receivables under such Obligor's Account, there are no guaranties, insurance, or other agreements, and no security interests or liens, supporting or securing or purporting to support or secure payment of any Receivable. 7.16.29. The principal place of business and chief executive office of the Owner and the office where the Owner keeps its records concerning the Pool Receivables are located at the address or addresses referred to in paragraph 2(b) of Exhibit IV. 7.16.30. The names and addresses of all the Depositary Banks, together with the account numbers of the Initial Depositary Accounts of the Seller at such Depositary Banks, are specified in Schedule II hereto (or at such other Depositary Banks and/or with such other Initial Depositary Accounts as have been notified to the Agent in accordance with the Agreement). 7.16.31. The facts and assumptions contained in paragraph (p) on page 10 of the opinion of Mayer, Brown & Platt delivered pursuant to paragraph 1(b(xviii)(4) of Exhibit II to the Agreement are true and correct as of the time specified therein. 7.16.32. All representations and warranties of the Owner set forth in the Pooling and Servicing Agreement and each other Master Trust Document to which the Owner is a party are true and correct in all material respects (unless any such representation or warranty speaks as of a particular date, in which case it is true and correct in all material respects as of each such date). 7.16.33. The Trust is not an "investment company" required to be registered under the Investment Company Act of 1940, as amended. 7.16.34. As of the applicable Cut Off Date, Schedule 1 to the Pooling and Servicing Agreement and the related III-5 103 computer file or microfiche or written list referred to in paragraph 1(a) of Exhibit II to the Agreement is an accurate and complete listing in all material respects of all the Accounts, and the information contained therein with respect to the identity of such Accounts and the Receivables existing thereunder is true and correct in all material respects as of such Cut Off Date. 7.16.35. On the date of each purchase of Purchaser Receivable Interests by the Purchaser or a Bank under the Agreement, after giving effect to the purchase to be made by the Purchaser or Bank on such date and any allocation of a Subordinated Receivable Interest to the Subordinated Purchaser on such date, the Net Receivables Pool Balance minus the sum of (A) the aggregate "Investor Interests" (as defined in the Pooling and Servicing Agreement) for all Certificate Series issued pursuant to one or more supplements to the Pooling and Servicing Agreement, (B) the aggregate "Receivables Purchase Interests" (as defined in the Pooling and Servicing Agreement) for all Receivables Purchase Series issued pursuant to any receivables purchase agreement that is subject to the Pooling and Servicing Agreement (other than the Agreement), (C) the Subordinated Purchaser Capital, (D) the Minimum Seller Capital, and (E) the total amount of Discount Option Receivables, if any, will be equal to or exceed the sum of the aggregate outstanding Purchaser Capital of all Purchaser Receivable Interests under the Agreement; and the Floating Allocation Percentage as of such day shall be less than or equal to 98.305%. 7.16.36. No proceeds of any purchase or reinvestment will be used by the Owner or the Seller to acquire any equity security of a class which is registered pursuant to Section 12 of the Exchange Act. 7.16.37. After giving effect to the Pooling and Servicing Agreement and each purchase of Receivables from the Owner by the Trustee under the Pooling and Servicing Agreement and the use of proceeds of each Purchase by the Owner, (i) the Owner will have sufficient presently saleable assets, and sufficient cash flow, to enable it to meet its debts as they mature (in each case as such concepts are defined in applicable bankruptcy and related laws), and (ii) the Owner does not have unreasonably small capital. 7.16.38. The Owner is not entering into, and has not caused any other Person to enter into, any of the transactions contemplated by the Pooling and Servicing Agreement or the III-6 104 Agreement with the intent to hinder, delay or defraud the creditors of the Owner. 7.16.39. Each computer file or microfiche list which has been delivered to the Trustee by the Owner pursuant to Section 2.1 or Section 2.6 of the Pooling and Servicing Agreement contains a complete and accurate list of Accounts identified by account number, Obligor name, Obligor address and Receivable balance as of the applicable Cut Off Date. 7.16.40. The Trustee is not an insider or Affiliate of the Owner. 3. Representations and Warranties of the Servicer. The Servicer represents and warrants as follows: 7.16.41. The Servicer is a national banking association, duly organized, validly existing and in good standing under the laws of the United States of America, and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified. 7.16.42. The execution, delivery and performance by the Servicer of the Agreement and each Master Trust Document to which it is or will be a party and the other documents to be delivered by it thereunder, (i) are within the Servicer's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene (1) the Servicer's charter or by-laws, (2) any Requirement of Law applicable to the Servicer, (3) any indenture, contract, agreement, mortgage, deed of trust or other instrument to which the Servicer is a party or by which it is bound (including, without limitation, the Pooling and Servicing Agreement and any other Master Trust Document to which the Servicer is or will be a party), or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Servicer or its property, and do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties (other than the interests created by the Master Trust Documents and the Agreement). Each of the Agreement and each Master Trust Document to which the Servicer is or will be a party has been or will be duly executed and delivered by the Servicer. 7.16.43. No authorization or approval or other action by, and no notice to or filing with, any governmental III-7 105 authority or regulatory body is required for the due execution, delivery and performance by the Servicer of the Agreement or any Master Trust Document to which the Servicer is or will be party or any other document to be delivered thereunder. 7.16.44. Each of the Agreement and each Master Trust Document to which the Servicer is or will be party constitutes, or upon due execution and delivery by the Servicer will constitute, the 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 any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally or by general principles of equity (whether considered in a proceeding in equity or at law). 7.16.45. There are no actions 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, governmental instrumentality or arbitrator seeking to prevent the consummation of any of the transactions contemplated by the Agreement or any Master Trust Document, or 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 the Agreement or any Master Trust Document to which it is or will be a party, or seeking any determination or ruling that would materially and adversely affect the legality, validity or enforceability of the Agreement or any Master Trust Document. 7.16.46. The principal place of business and chief executive office of the Servicer and the office where the Servicer keeps its records concerning the Pool Receivables are located at the address or addresses referred to in paragraph 3(b) of Exhibit IV. 7.16.47. All representations and warranties of the Servicer set forth in the Pooling and Servicing Agreement and each other Master Trust Document to which the Servicer is a party are true and correct in all material respects (unless any such representation or warranty speaks as of a particular date, in which case it is true and correct in all materials respects as of each such date). 4. Representations and Warranties of the Originator. The Originator represents and warrants as follows: III-8 106 7.16.48. The Originator is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America, and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified. 7.16.49. The execution, delivery and performance by the Originator of the Agreement and each Master Trust Document to which the Originator is a party and the other documents to be delivered by it thereunder, (i) are within the Originator's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene (1) the Originator's charter or by-laws, (2) any Requirement of Law applicable to the Originator, (3) any indenture, contract, agreement, mortgage, deed of trust or other instrument to which the Originator is a party or by which it is bound or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Originator or its property, and do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. The Agreement and each Master Trust Document to which the Originator is a party has been duly executed and delivered by the Originator. 7.16.50. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Originator of the Agreement, any Master Trust Document to which the Originator is a party or any other document to be delivered thereunder. 7.16.51. The Agreement and each Master Trust Document to which the Originator is a party constitutes the legal, valid and binding obligation of the Originator enforceable against the Originator in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally or by general principles of equity (whether considered in a proceeding in equity or at law). 7.16.52. There are no actions or proceedings pending or, to the best knowledge of the Originator, threatened against the Originator before any court, regulatory body, administrative agency or other tribunal, governmental instrumentality or arbitrator seeking to prevent the consummation of any of the transactions contemplated by the Agreement or any Master Trust Document, or seeking any III-9 107 determination or ruling that, in the reasonable judgment of the Originator, would materially and adversely affect the performance by the Originator of its obligations under the Agreement or any Master Trust Document to which it is or will be a party, or seeking any determination or ruling that would materially and adversely affect the legality, validity or enforceability of the Agreement or any Master Trust Document. 7.16.53. The Originator is in compliance with its regulatory capital requirements under applicable rules and regulations of the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System or other appropriate governmental authorities. 7.16.54. The Originator did not (i) execute the Purchase Agreement, the Agreement or any other Master Trust Document, (ii) convey the assets described in Section 1.1 of the Agreement or in the Security Agreement, (iii) cause, permit, or suffer the perfection or attachment of an interest in such assets, or (iv) otherwise effectuate or consummate any transfer pursuant to the Purchase Agreement or the Agreement, in each case: 7.16.54.0.1. in contemplation of insolvency; 7.16.54.0.2. with a view to preferring one creditor over another or to preventing the application of its assets in the manner required by applicable law or regulations; 7.16.54.0.3. after committing an act of insolvency; or 7.16.54.0.4. with any intent to hinder, delay, or defraud itself or its creditors. 7.16.55. All representations and warranties of the Originator set forth in the Purchase Agreement and each other Master Trust Document to which the Originator is a party are true and correct in all material respects (unless any such representation or warranty speaks as of a particular date, in which case it is true and correct in all materials respects as of each such date). III-10 108 EXHIBIT IV COVENANTS 1. Covenants of the Trustee. The Trustee, not in its individual capacity but solely as the trustee for the Charming Shoppes Master Trust, agrees that, until the latest of (x) the Facility Termination Date, (y) the Commitment Termination Date or (z) the Final Distribution Date: 7.16.56. Compliance with Laws, Etc. The Trustee will comply in all material respects with all applicable laws, rules, regulations and orders and preserve and maintain its existence, rights, franchises, qualifications, and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications, and privileges would not materially adversely affect the collectibility of the Receivables Pool or the ability of the Trustee to perform its obligations under the Agreement or the Master Trust Documents. 7.16.57. Offices, Records and Books of Account. The Trustee will keep its principal place of business and chief executive office and the office where it keeps its records concerning the Pool Receivables at 123 Broad Street, Philadelphia, Pennsylvania 19109 or, upon 30 days' prior written notice to the Agent, at any other locations in jurisdictions where all actions reasonably requested by the Agent to protect and perfect the interest in the Pool Receivables have been taken and completed. The Trustee shall maintain in the City of Newark, New Jersey, an office or offices where notices and demands to or upon the Trustee in respect of the Pool Receivables, the Agreement or the Pooling and Servicing Agreement may be served. 7.16.58. Further Assurances. The Trustee shall, from time to time, at the Servicer's expense, promptly execute and deliver all further instruments and documents, and take all further actions, that may be necessary or desirable, or that the Agent may reasonably request, to perfect, protect or more fully evidence the Receivable Interests purchased under the Agreement, or to enable the Purchasers, the Banks or the Agent to exercise and enforce their respective rights and remedies under the Agreement. Without limiting the foregoing, the Trustee: 7.16.58.1. will upon the request of the Agent (x) execute and file such financing or continuation statements, or amendments thereto, and such other IV-1 109 instruments and documents, that may be necessary or desirable, or that the Agent may reasonably request, to perfect, protect or evidence such Receivable Interests; (y) ensure that all Records evidencing Pool Receivables and related Cardholder Agreements in its possession are marked conspicuously with a legend, acceptable to the Agent, evidencing that Receivable Interests therein have been sold in accordance with the Agreement; and (z) ensure that any data processing records evidencing such Pool Receivables and related Cardholder Agreements in its possession are marked with such a legend; and 7.16.58.2. authorizes the Agent to file financing or continuation statements, and amendments thereto, relating to such Receivable Interests without the signature of the Trustee where permitted by law and agrees that a photocopy or other reproduction of the Agreement shall be sufficient as a financing statement where permitted by law. Notwithstanding the foregoing, so long as any Investor Certificates shall be outstanding, the Trustee and the Agent shall not file any financing statements pursuant to this Section (other than continuation statements, amendments reflecting name changes or changes of office location or financing statements relating solely to an Enhancement for the benefit of the Receivables Purchase Series arising in connection with the Agreement) unless the Agent shall have obtained and delivered to the Trustee an Opinion of Counsel to the effect that such filing shall not materially and adversely affect the interests of the holders of the Investor Certificates. 7.16.59. Interest Rate Agreements. The Trustee shall not consent to any modification or amendment of the Interest Rate Agreements without the prior written consent of the Agent in each instance, which consent shall not be unreasonably withheld by the Agent. 7.16.60. Store Payment Notice. If the Trustee shall be notified by any Person (other than the Agent) to deliver the Store Payment Notice, the Trustee shall promptly notify the Agent thereof. 7.16.61. Books and Records. The Trustee will mark its books and records to indicate that interests in the Pool Receivables have been conveyed to the Purchasers, the Banks and the Subordinated Purchaser and to evidence the interest of the Purchasers, the Banks and the Subordinated Purchaser in the Pool Receivables. IV-2 110 7.16.62. Store Payment Agreements. The Trustee shall not consent to any modification, amendment or termination of the letter agreements delivered pursuant to clause (xxix) of Section 1(b) of Exhibit II of the Agreement without the prior written consent of the Agent in each instance. 2. Covenants of the Owner. Until the latest of (x) the Facility Termination Date, (y) the Commitment Termination Date or (z) the Final Distribution Date: 7.16.63. Compliance with Laws, Etc. The Owner will comply in all material respects with all applicable laws, rules, regulations and orders and preserve and maintain its corporate existence, rights, franchises, qualifications, and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications, and privileges would not materially adversely affect the collectibility of the Receivables Pool or its ability to perform its obligations under the Agreement or the Master Trust Documents. 7.16.64. Offices, Records and Books of Account. The Owner will keep its principal place of business and chief executive office or the office where it keeps its records concerning the Pool Receivables at 745 Center Street, Milford, Ohio 45150, 3411 Silverside Road, 186 Weldin Bldg., Wilmington, Delaware 19810 and 450 Winks Lane, Bensalem, Pennsylvania 19020, or, upon 30 days' prior written notice to the Agent, at any other locations in jurisdictions where all actions reasonably requested by the Agent to protect and perfect the interest in the Pool Receivables have been taken and completed. The Owner also will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables and related Cardholder Agreements in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Pool Receivables (including, without limitation, records adequate to permit the daily identification of each Pool Receivable and all Collections of and adjustments to each existing Pool Receivable). IV-3 111 7.16.65. [Intentionally omitted]. 7.16.66. Sales, Liens, Etc. The Owner will not, prior to the Final Distribution Date, (i) suffer to exist any Adverse Claim upon or with respect to any portion of the Minimum Seller Capital, except for the interests therein created pursuant to the Security Agreement, or (ii) sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any of the Accounts or (iii) assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to any account to which any Collections of any Pool Receivable are sent, or assign any right to receive income in respect thereof, other than pursuant to the Pooling and Servicing Agreement. 7.16.67. Interest Rate Hedging. The Owner shall maintain, or cause to be maintained, the Interest Rate Agreements in full force and effect and shall obtain, or cause to be obtained, extensions to or replacements for the Interest Rate Agreements from time to time so that the then effective Interest Rate Agreements are at all times in compliance with the first sentence of the definition of "Interest Rate Agreements." Whenever the Owner shall obtain, or cause to be obtained, an extension to or replacement for any Interest Rate Agreement, the Owner shall immediately furnish the Agent with an updated Annex G incorporating such extension or replacement and a copy of such extension or replacement, in each case certified by a Responsible Officer of the Owner as being complete and correct. With respect to each Interest Rate Agreement to which the Seller is not a party, the Owner shall cause all monies due or to become due to the Owner (or, if applicable, FSC) under such Interest Rate Agreement to be assigned to the Seller. 7.16.68. [Intentionally omitted] 7.16.69. Information. The Owner shall provide to (i) the Servicer (if other than Spirit) on a timely basis all information needed for the administration of the Pool Receivables, including notice of the commencement of the Amortization Period and (ii) to the Agent, as soon as possible and in any event within two Business Days after receipt thereof, copies of all notices, reports, information, documents, instruments and records delivered to the Trustee which relate to the Pool Receivables or the Pooling and Servicing Agreement. IV-4 112 7.16.70. Further Assurances. The Owner shall, from time to time, at its expense, promptly execute and deliver all further instruments and documents, and take all further actions, that may be necessary or desirable, or that the Agent may reasonably request, to perfect, protect or more fully evidence the Receivable Interests purchased under the Agreement, or to enable the Purchasers, the Banks or the Agent to exercise and enforce their respective rights and remedies under the Agreement. Without limiting the foregoing, the Owner: 7.16.70.1. will upon the request of the Agent (x) execute and file such financing or continuation statements, or amendments thereto, and such other instruments and documents, that may be necessary or desirable, or that the Agent may reasonably request, to perfect, protect or evidence such Receivable Interests; (y) mark conspicuously the Records evidencing each Pool Receivable and the related Cardholder Agreement with a legend, acceptable to the Agent, evidencing that Receivable Interests therein have been sold in accordance with the Agreement; and (z) mark its master data processing records evidencing such Pool Receivables and related Cardholder Agreements with such a legend; and 7.16.70.2. authorizes the Agent to file financing or continuation statements (solely with respect to the Agreement), and amendments thereto, relating to such Receivable Interests without the signature of the Owner where permitted by law and agrees that a photocopy or other reproduction of the Agreement shall be sufficient as a financing statement where permitted by law. Notwithstanding the foregoing, so long as any Investor Certificates shall be outstanding, the Owner and the Agent shall not file any financing statements pursuant to this Section (other than continuation statements, amendments reflecting name changes or changes of office location or financing statements relating solely to an Enhancement for the benefit of the Receivables Purchase Series arising in connection with the Agreement) unless the Agent shall have obtained and delivered to the Trustee an Opinion of Counsel to the effect that such filing shall not materially and adversely affect the interests of the holders of the Investor Certificates. 7.16.71. Annual Compliance Certificate. The Owner will provide to the Agent, as soon as possible and in any event within 30 days after the close of each fiscal year of the Owner, a certificate signed by the President or a Vice IV-5 113 President of the Owner, stating that a review of the activities of the Owner and its subsidiaries during the fiscal year in respect of which such statement was delivered has been made under his or her supervision and that no Early Amortization Event or condition or event which, with notice or lapse of time or both, would constitute an Early Amortization Event has occurred, or, if such has occurred, specifying the nature and status thereof. 7.16.72. No Alteration of File Designation. The Owner shall not alter the file designation referenced in clause (i) of paragraph 1(a) of Exhibit II to the Agreement during the term of this Agreement for any Account unless and until such Account becomes a Removed Account. 7.16.73. Pool Receivables Not to Be Evidenced by Instruments, Etc. The Owner will not take any action to cause any Pool Receivable to be evidenced by any instrument (as defined in the UCC as in effect in each of the States of New York, Ohio, Pennsylvania and Delaware). Each Pool Receivable shall be payable pursuant to a contract which does not create a lien on any goods purchased thereunder. The Owner will not take any action to cause any Pool Receivable to be anything other than an "account", or a "general intangible" or the "proceeds" of either for purposes of the UCC as in effect in each of the States of New York, Ohio, Pennsylvania and Delaware. 7.16.74. Addition of Accounts or Accounts from Additional Programs. (i) The Owner will not, without the prior written consent of the Agent, add to the Trust pursuant to Section 2.6 of the Pooling and Servicing Agreement Eligible Accounts which have been acquired by the Owner from third parties (as distinguished from Accounts originated by the Owner or an Affiliate of the Owner) ("Third-Party Accounts") to the extent that: (A) the number of such Third-Party Accounts plus the total number of all Third- Party Accounts theretofore added to the Trust in the same calendar year shall exceed 5% of the total number of Accounts in the Trust as of the end of the prior calendar year; or (B) the sum of the Outstanding Balance of the Receivables in such Third-Party Accounts as of the Addition Date plus the Outstanding Balance of the Receivables in all other Third-Party Accounts theretofore added to the Trust in the same calendar year shall exceed 5% of the Outstanding Balance of all IV-6 114 Receivables in the Receivables Pool as of the end of the prior calendar year. (ii) The Owner will not, without the prior written consent of the Agent, add to the Trust Accounts arising from programs other than the Private Label Program (as defined in the Pooling and Servicing Agreement). 7.16.75. Merger, Consolidation, Etc. The Owner will not consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (i) the Person formed by such consolidation or into which the Owner is merged or which acquires by conveyance or transfer the properties of the Owner substantially as an entirety shall be a special purpose bankruptcy-remote entity (and its certificate of incorporation shall have provisions similar to those of the Owner) and, if the Owner is not the surviving entity, shall expressly assume, by an agreement executed and delivered to the Agent and in form and substance satisfactory to the Agent, the performance of every covenant and obligation of the Owner hereunder; (ii) the Owner shall have delivered to the Agent (A) an officer's certificate of a Responsible Officer of the Owner certifying that such consolidation, merger, conveyance or transfer and such agreement comply with this paragraph (m) and that all conditions precedent herein provided for relating to such transaction have been complied with and (B) an opinion of counsel, from counsel reasonably acceptable to the Agent and addressed to the Agent, that such agreement is legal, valid and binding with respect to the Owner and the surviving entity and that the surviving entity would not be substantively consolidated, in connection with any bankruptcy proceeding, with any shareholder or other equity owner of such surviving entity; (iii) the Owner shall have given at least 10 Business Days' prior notice to the Agent of such consolidation, merger, conveyance or transfer; and (iv) the Agent shall have consented to such consolidation, merger, conveyance or transfer in writing (such consent not to be unreasonably withheld). IV-7 115 7.16.76. List of Stores. On or prior to May 31 of each year, the Owner shall furnish to the Agent a complete and accurate list of the names and addresses of all of the Stores. 7.16.77. [Intentionally omitted] 7.16.78. Limit on Certain Holders. The Owner shall not allow (i) to be outstanding over 100 Private Holders of Subject Instruments, or (ii) any Subject Instruments to be traded on a Market, registered under the Securities Act or offered or sold pursuant to Regulation S (17 CFR 230.901 through 230.904 or any successor thereto) if such offering or sale would have been required to be registered under the Securities Act if the interests so offered or sold had been offered and sold within the United States. 3. Covenants of the Servicer. In addition to the duties of the Servicer set forth in Exhibit V hereto, until the latest of (x) the Facility Termination Date, (y) the Commitment Termination Date or (z) the Final Distribution Date: 7.16.79. Compliance with Laws, Etc. The Servicer will comply in all material respects with all applicable laws, rules, regulations and orders and preserve and maintain its corporate existence, rights, franchises, qualifications, and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications, and privileges would not materially adversely affect the collectibility of the Receivables Pool or the ability of the Servicer to perform its obligations under the Agreement, the Pooling and Servicing Agreement or the other Master Trust Documents. 7.16.80. Offices, Records and Books of Account. The Servicer will keep its principal place of business and chief executive office and the office where it keeps its records concerning the Pool Receivables at 745 Center Street, Milford, Ohio 45150 or, upon 30 days' prior written notice to the Agent, at any other locations in jurisdictions where all actions reasonably requested by the Agent to protect and perfect the interest in the Pool Receivables have been taken and completed. The Servicer also will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Pool Receivables and related Cardholder Agreements in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all IV-8 116 Pool Receivables (including, without limitation, records adequate to permit the daily identification of each Pool Receivable and all Collections of and adjustments to each existing Pool Receivable). 7.16.81. Further Assurances. The Servicer shall, from time to time, at its expense, promptly execute and deliver all further instruments and documents, and take all further actions, that may be necessary or desirable, or that the Agent may reasonably request, to perfect, protect or more fully evidence the Receivable Interests purchased under the Agreement, or to enable the Purchasers, the Banks or the Agent to exercise and enforce their respective rights and remedies under the Agreement. Without limiting the foregoing, the Servicer will upon the request of the Agent (x) execute such instruments and documents that may be necessary or desirable, or that the Agent may reasonably request, to perfect, protect or evidence the Receivable Interests purchased under the Agreement; (y) mark conspicuously the Records evidencing each Pool Receivable and the related Cardholder Agreement with a legend, acceptable to the Agent, evidencing that Receivable Interests therein have been sold in accordance with the Agreement; and (z) mark its master data processing records evidencing such Pool Receivables and related Cardholder Agreements with such a legend. Notwithstanding the foregoing, so long as any Investor Certificates shall be outstanding, the Servicer and the Agent shall not file any financing statements pursuant to this Section (other than continuation statements, amendments reflecting name changes or changes of office location or financing statements relating solely to an Enhancement for the benefit of the Receivables Purchase Series arising in connection with the Agreement) unless the Agent shall have obtained and delivered to the Trustee an Opinion of Counsel to the effect that such filing shall not materially and adversely affect the interests of the holders of the Investor Certificates. 7.16.82. Servicer Will Not Resign. The Servicer shall not resign from the obligations and duties imposed by it under the Agreement except as permitted pursuant to Section 8.5 of the Pooling and Servicing Agreement. 7.16.83. Merger, Consolidation, Etc. The Servicer will not consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (i) the Person formed by such consolidation or into which the Servicer is merged or which acquires by IV-9 117 conveyance or transfer the properties of the Servicer substantially as an entirety shall be a state or national banking or savings association or other entity which is not subject to the bankruptcy laws of the United States of America and, if the Servicer is not the surviving entity, shall expressly assume, by an agreement executed and delivered to the Agent and in form and substance satisfactory to the Agent, the performance of every covenant and obligation of the Servicer hereunder; (ii) the Servicer shall have delivered to the Agent (A) an officer's certificate of a Responsible Officer of the Servicer certifying that such consolidation, merger, conveyance or transfer and such agreement comply with this paragraph (e) and that all conditions precedent herein provided for relating to such transaction have been complied with and (B) an opinion of counsel, from counsel reasonably acceptable to the Agent and addressed to the Agent, that such agreement is legal, valid and binding with respect to the Servicer and the surviving entity; (iii) the Servicer shall have given at least 10 Business Days' prior notice to the Agent of such consolidation, merger, conveyance or transfer; and (iv) the Agent shall have consented to such consolidation, merger, conveyance or transfer in writing (such consent not to be unreasonably withheld). 4. Covenants of the Subordinated Purchaser. Until the latest of (x) the Facility Termination Date, (y) the Commitment Termination Date or (z) the Final Distribution Date: 7.16.84. Sale, Liens, Etc. The Subordinated Purchaser shall not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any Subordinated Receivable Interest, or assign any right to receive income in respect thereof, without the prior written consent of the Agent. 7.16.85. Observance of Corporate Procedures, Etc. The Subordinated Purchaser (i) shall observe the corporate procedures required by its certificate of incorporation, its by-laws and the corporate law of the State of Delaware, including, without limitation, holding separate director and shareholder meetings from those of any other Person and otherwise ensure at all times that it is maintained as a separate corporate entity from any other Person and (ii) shall not amend or modify any provision of its Certificate of IV-10 118 Incorporation or by-laws without the prior written consent of the Agent (such consent not to be unreasonably withheld). 7.16.86. Board of Directors' Authorization, Etc. The Subordinated Purchaser shall (i) ensure that its Board of Directors duly authorizes all of its corporate actions, and (ii) keep correct and complete books and records of account separate from those of any other Person, and correct and complete minutes of the meetings and other proceedings of its stockholders and Board of Directors, and (iii) where necessary, obtain proper authorization from its directors or stockholders, as appropriate, for corporate action. 7.16.87. Operating Expenses; Separate Accounts. The Subordinated Purchaser shall provide for its operating expenses and liabilities from its own funds and maintain deposit accounts and other bank accounts separate from those of the Servicer or the Seller, or any of their respective Affiliates. 7.16.88. Corporate Action. The Subordinated Purchaser shall act solely in its corporate name and through its duly authorized officers or agents in the conduct of its business and ensure that neither the Originator nor the Servicer nor any of their respective Affiliates controls any corporate decisions made by it. 7.16.89. Arm's-Length Transactions. To the extent it obtains any services from the Originator or the Servicer or any of their respective Affiliates, the Subordinated Purchaser shall ensure that the terms of such arrangements are comparable to those that would be obtained in an arm's-length transaction. 7.16.90. No Commingling. The Subordinated Purchaser shall ensure that its assets are not commingled with those of the Originator, the Servicer, the Seller or any other Person. 7.16.91. Separate Records. The Subordinated Purchaser shall maintain separate corporate records and books of account from those of the Originator, the Servicer or any other Person. 7.16.92. Conduct of Business. The Subordinated Purchaser shall not conduct any business or engage in any activities other than (i) the ownership of the Subordinated Receivable Interest, (ii) the performance of its obligations under the Agreement and the Master Trust Document to which it is a party, (iii) the ownership of the "Seller Interest" under IV-11 119 the Pooling and Servicing Agreement, and (iv) the ownership of a "subordinated receivable interest" and the performance of its obligations under any receivables purchase agreement that is subject to the Pooling and Servicing Agreement. 7.16.93. Separate Existence, Etc. The Subordinated Purchaser (i) shall not hold itself out, or permit itself to be held out, as having agreed to pay, or as being liable for, the debts of the Originator, the Servicer, or any other Person; (ii) shall maintain an arm's-length relationship with the Originator and the Servicer and their respective Affiliates with respect to any transactions between itself and such other Person; and (iii) shall comply with (and cause to be true and correct) each of the facts and assumptions contained in paragraphs (a) through (k),(m) and (o) on pages 8 to 10 of the opinion of Mayer, Brown & Platt delivered pursuant to paragraph 1(b)(xviii)(4) of Exhibit II to the Agreement. 7.16.94. Independent Director. The Subordinated Purchaser shall select and at all times maintain as its Independent Director a Person who meets the following qualifications (which qualifications are in addition to those set forth in the Subordinated Purchaser's certificate of incorporation): the Independent Director shall have (i) prior experience as an independent director for a corporation whose charter documents require the unanimous written consent of all independent directors thereof before such corporation could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy, and (ii) at least three years of employment experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management or placement services to issuers of securitization or structured finance instruments, agreements or securities. 5. Covenants of the Originator. In addition to the duties of the Servicer set forth in Exhibit V hereto, until the latest of (x) the Facility Termination Date, (y) the Commitment Termination Date or (z) the Final Distribution Date: 7.16.95. Compliance with Laws, Etc. The Originator will comply in all material respects with all applicable laws, rules, regulations and orders and preserve and maintain its corporate existence, rights, franchises, qualifications, and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, IV-12 120 qualifications, and privileges would not materially adversely affect the collectibility of the Receivables Pool or its ability to perform its obligations under the Agreement or the Master Trust Documents. 7.16.96. Change in Cardholder Guidelines, Etc. 7.16.96.1. Except (x) as otherwise required by any Requirements of Law or (y) as is deemed by the Originator to be necessary in order for it to maintain its credit card business on a competitive basis based on a good faith assessment by it of the nature of the competition in the credit card business and only if the change giving rise to such reduction is made applicable to the comparable segment of revolving credit card accounts owned or serviced by it which have characteristics similar to the Accounts which are the subject of such change, the Originator shall not at any time permit the Portfolio Yield to be less than the Funding Rate; and 7.16.96.2. unless the Agent consents in writing, the Originator shall not otherwise alter the Cardholder Guidelines in any manner which the Originator reasonably believes might have a material adverse effect on the collectibility or value of Pool Receivables and shall apply its Cardholder Guidelines to each of the Pool Receivables; provided, however, that if any such alteration made without the Agent's consent is later determined by the Agent or the Originator to have had an adverse effect on the collectibility or value of Pool Receivables, then the Originator shall promptly revise the Cardholder Guidelines in order to prevent any such adverse effect from occurring thereafter and any loss suffered by the Purchasers or the Banks as a result of such alteration shall be subject to Section 4.01 of the Agreement; provided, however, that the Originator shall, within 10 Business Days following any material change to the Cardholder Guidelines, give the Agent written notice of such change; and provided, further, that the Originator (x) shall not make any material adverse change in the minimum monthly payment required to be made by an Obligor in respect of any Pool Receivable without the prior written consent of the Agent (which consent will not be unreasonably withheld), (y) shall not make any change in the duration of the Cycles used to bill Obligors of the Receivables such that any such Cycle is more than 32 days and (z) shall ensure that the entire principal balance of any Account any portion of which remains unpaid for 180 days or more is written off the Seller's books as uncollectible. IV-13 121 7.16.97. Administrative Servicer. 7.16.97.1. Unless the Agent consents in writing, the Originator will not amend, modify or supplement the Administrative Servicer Agreement in any manner which the Originator reasonably believes might have a material adverse effect on the collectibility or value of Pool Receivables; provided, however, that if any amendment, modification or amendment made without the Agent's consent is later determined by the Agent or the Originator to have had an adverse effect on the collectibility or value of Pool Receivables, then the Originator shall use its best efforts to promptly amend, modify or supplement the Administrative Servicer Agreement in order to prevent any such adverse effect from occurring thereafter and any loss suffered by the Purchasers or the Banks as a result of such amendment, modification or supplement shall be subject to Section 4.01 of the Agreement; and provided, however, that the Originator shall, within 10 Business Days following any amendment, modification or supplement to the Administrative Servicer Agreement, give the Agent written notice thereof such change. 7.16.97.2. The Originator will not replace the Administrative Servicer without the prior written consent of the Agent, which consent will not be unreasonably withheld. 7.16.97.3. The Originator will provide to the Agent, as promptly as possible, and in any event within two Business Days, after receiving any notice from the Administrative Servicer of the Administrative Servicer's intention to terminate the Administrative Servicer Agreement for any reason, a statement setting forth the details of such termination (including the reasons given by the Administrative Servicer for taking such action) and the action that the Originator proposes to take with respect thereto. 7.16.98. Information. The Originator shall provide to (i) the Servicer (if other than Spirit) on a timely basis all information needed for the administration of the Pool Receivables, including notice of the commencement of the Amortization Period and (ii) to the Agent, as soon as possible and in any event within two Business Days after receipt thereof, copies of all notices, reports, information, documents, instruments and records delivered to the Trustee IV-14 122 which relate to the Pool Receivables or the Pooling and Servicing Agreement. 7.16.99. Annual Compliance Certificate. The Originator will provide to the Agent, as soon as possible and in any event within 30 days after the close of each fiscal year of the Originator, a certificate signed by the President or a Vice President of the Originator, stating that the Originator is in compliance with its regulatory capital requirements under applicable rules and regulations of the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System or other appropriate governmental authorities. 7.16.100. No Alteration of File Designation. The Originator shall not alter the file designation referenced in clause (i) of paragraph 1(a) of Exhibit II to the Agreement during the term of this Agreement for any Account unless and until such Account becomes a Removed Account. 7.16.101. Pool Receivables Not to Be Evidenced by Instruments, Etc. The Originator will not take any action to cause any Pool Receivable to be evidenced by any instrument (as defined in the UCC as in effect in each of the States of New York, Ohio, Pennsylvania and Delaware). Each Pool Receivable shall be payable pursuant to a contract which does not create a lien on any goods purchased thereunder. The Originator will not take any action to cause any Pool Receivable to be anything other than an "account", or a "general intangible" or the "proceeds" of either for purposes of the UCC as in effect in each of the States of New York, Ohio, Pennsylvania and Delaware. 7.16.102. Approval; Official Record. Each Master Trust Document to which the Originator is a party and the Agreement (i) was approved by the board of directors of the Originator and such approval has been, and will be, reflected continuously in the minutes of the Originator's board of directors, and (ii) has been, and will be, an official record of the Originator continuously from the time of its execution. IV-15 123 EXHIBIT V ADMINISTRATION AND COLLECTION OF POOL RECEIVABLES 1. Duties of the Servicer. Until the latest of (x) the Facility Termination Date, (y) the Commitment Termination Date or (z) the Final Distribution Date: 7.16.103. In General. The Servicer shall take or cause to be taken all such actions as may be necessary or advisable to service and administer the Pool Receivables and collect all payments due under the Pool Receivables from time to time in accordance with its customary and usual servicing procedures for servicing credit card receivables comparable to the Pool Receivables and in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Cardholder Guidelines, the Agreement and the Pooling and Servicing Agreement. The Servicer shall not be obligated to use separate servicing procedures, offices, employees or accounts for servicing the Pool Receivables from the procedures, offices, employees and accounts used by the Servicer in connection with servicing other credit card receivables. 7.16.104. Audits. At any reasonable time and from time to time at the Agent's reasonable request upon reasonable notice to the Servicer and, if applicable, the Administrative Servicer, the Servicer shall permit the Agent or its agents or representatives, to visit the offices and properties of the Servicer for the purpose of examining Records relating to the Servicer's credit card-related operations and/or the Pool Receivables, internal controls and procedures maintained by the Administrative Servicer (including, without limitation, all Files, File Extracts and Masterfiles, as such terms are defined in the Administrative Servicing Agreement in effect from time to time) and to take copies and extracts therefrom, and to discuss the Servicer's affairs with its officers, employees and independent accountants. 7.16.105. Change in Payment Instructions to Obligors. The Servicer will not add or terminate any bank as a Depositary Bank from those listed in Schedule II to the Agreement, or, except as requested by the Trustee pursuant to the Pooling and Servicing Agreement, make any change in its instructions to Obligors V-1 124 regarding the method by which payments are to be made in respect of Pool Receivables, unless the Agent shall have received notice of such addition, termination or change and the Trustee shall have received copies of Depositary Agreements with each new Depositary Bank, duly executed by the Seller and duly acknowledged by such Depositary Bank, or such other notice or acknowledgments as the Trustee may reasonably request. 7.16.106. Reporting Requirements. The Servicer will provide to the Agent (in multiple copies, if requested by the Agent) the following: 7.16.106.1. as soon as possible and in any event within five days after the occurrence of each Early Amortization Event or event which, with the giving of notice or lapse of time, or both, would constitute an Early Amortization Event, a statement of the chief financial officer of the Servicer setting forth details of such Early Amortization Event or event and the action that the Servicer has taken and proposes to take with respect thereto; 7.16.106.2. within 30 days after the end of each calendar year, a certificate of a Responsible Officer of the Servicer to the effect that no Early Amortization Event (including, without limitation, an Early Amortization Event described in paragraph (m) of Exhibit VI), or event which, with the giving of notice or lapse of time, or both, would constitute an Early Amortization Event, has occurred and is continuing; 7.16.106.3. at least 10 Business Days prior to any change in the Seller's name or the Servicer's name, a notice setting forth the new name and the effective date thereof; and 7.16.106.4. such other information respecting the Pool Receivables or the condition or operations, financial or otherwise, of the Seller, the Servicer or any of their respective Affiliates required to be delivered to the "Receivables Purchasers" under the Pooling and Servicing Agreement or as the Agent may from time to time reasonably request. 7.16.107. Calculation of Allocated Amounts. The Servicer shall, from time to time at the reasonable request of the Agent, furnish to the Agent (promptly after any such request) a calculation of the amounts set aside for the V-2 125 Purchasers and the Banks pursuant to Article II of the Agreement. 7.16.108. Delivery of Servicer Reports. The Servicer shall prepare and forward to the Agent, at least 2 Business Days prior to each Distribution Date, a Servicer Report relating to the Purchaser Receivable Interests outstanding on the last day of the immediately preceding Due Period, together with an analysis of the aging of the Pool Receivables outstanding on such last day, and each such Servicer Report will be accurate in all material respects as of its date. 7.16.109. Total Systems Failure. The Servicer shall promptly notify the Agent of any Total Systems Failure and shall advise the Agent of the estimated time required in order to remedy such Total Systems Failure and of the estimated date on which a Servicer Report can be delivered. Until a Total Systems Failure is remedied, the Servicer will (i) furnish to the Agent such periodic status reports and other information relating to such Total Systems Failure as the Agent may reasonably request and (ii) promptly notify the Agent if the Servicer believes that such Total Systems Failure cannot be remedied by the estimated date, which notice shall include a description of the circumstances which gave rise to such delay, and the action proposed to be taken in response thereto, and a revised estimate of the date on which a Servicer Report can be delivered. The Servicer shall promptly notify the Agent when a Total Systems Failure has been remedied. 7.16.110. Servicer Remains Liable. The exercise by the Agent and by any Purchaser or any Bank of their rights under the Agreement shall not release the Servicer, the Originator or the Owner from any of their duties or obligations with respect to any Pool Receivables or under the related Cardholder Agreements. Neither the Agent nor any Purchaser nor any Bank shall have any obligation or liability with respect to any Pool Receivables or related Cardholder Agreements, nor shall any of them be obligated to perform the obligations of any party thereunder. V-3 126 2. Certain Rights of the Agent. 7.16.111. Notification of Obligors. The Agent may at any time following the termination or transfer of the rights and obligations of both the Servicer under the Pooling and Servicing Agreement and the Administrative Servicer under the Administrative Servicer Agreement, upon ten days prior written notice to the Owner and the Servicer, instruct the Trustee to, and upon such instruction the Trustee shall, direct the Servicer to notify the Obligors of Pool Receivables, at the Servicer's expense (if the Servicer is then Spirit, the Seller or a designee of either of them), of the Agent's security interest in the Pool Receivables pursuant to the Agreement, such notification to be made (i) by means of statement to the foregoing effect contained in or enclosed with the monthly billing statement sent by the Servicer to the Obligors of Pool Receivables and (ii) within the next 32 days. If the Servicer fails to notify Obligors as required pursuant to the foregoing sentence, then the Agent itself may, by any means reasonably determined by the Agent to be consistent with market practice and otherwise desirable to accomplish the purpose of this subsection and at the Servicer's expense (if the Servicer is then Spirit, the Seller or a designee of either of them), so notify such Obligors. 7.16.112. Store Payment Notice, Etc. (i) At any time following the institution of insolvency proceedings by or against any Store or Charming Shoppes or Charming Shoppes of Delaware, Inc., the Agent is authorized to instruct the Trustee to, and upon such instruction the Trustee shall, at the Servicer's expense, date and deliver the Store Payment Notice to the manager of each Store by or against which such a proceeding has been instituted, or in the case of such a proceeding by or against Charming Shoppes or Charming Shoppes of Delaware, Inc., to the managers of all Stores. (ii) Each of the Trustee, the Seller, the Servicer, the Owner, the Originator, CNAI, the Purchasers and the Banks hereby authorizes the Agent, if appointed Successor Servicer under the Pooling and Servicing Agreement, to take any and all steps in the Trustee's name and on behalf of the Trustee, the Purchasers and the Banks that are necessary or desirable, in the determination of the Agent, to collect amounts due under the Pool Receivables, V-4 127 including, without limitation, indorsing the name of the Originator, the Owner or the Seller, as appropriate, on checks and other instruments representing Collections of Pool Receivables and enforcing the Pool Receivables and the related Cardholder Agreements. V-5 128 EXHIBIT VI EARLY AMORTIZATION EVENTS Each of the following (whether occurring before or after the commencement of the Amortization Period) shall be an "Early Amortization Event": 7.16.113. (i) The Servicer shall fail to perform or observe any term, covenant or agreement on its part to be performed or observed under the Agreement (other than as referred to in clause (ii) below) and such failure shall remain unremedied for 10 Business Days after written notice thereof shall have been given to the Servicer by the Agent; or (ii) the Servicer shall fail to make when due any payment or deposit to be made by it under the Agreement and such failure shall remain unremedied for 1 Business Day after written notice thereof shall have been given to the Servicer by the Agent; or 7.16.114. (i) The Owner shall fail to make any deposit into the Collection Account or the Agent's Account pursuant to Section 2.4(d) or 2.4(e) of the Pooling and Servicing Agreement or pursuant to Section 2.07 or 4.03(b) of the Agreement, or (ii) the Seller shall fail to make any other payment required under the Agreement; and, in the case of either clause (i) or clause (ii) of this subsection (b), such failure shall remain unremedied for one Business Day after written notice thereof shall have been given to the Owner or the Seller, as the case may be, by the Agent; or 7.16.115. Any representation or warranty made or deemed made by the Seller, the Owner, the Originator, the Servicer, FSC or Charming Shoppes (or any of their respective officers) under or in connection with the Agreement, any Master Trust Document or the Company Agreement or any information or report (other than any Servicer Report) delivered by the Seller, the Owner, the Originator, the Servicer, FSC or Charming Shoppes pursuant to the Agreement, any Master Trust Document or the Company Agreement shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; or 7.16.116. The Seller, the Owner, the Originator, FSC or Charming Shoppes shall fail to perform or observe any other term, covenant or agreement contained in the Agreement, any Master Trust Document or the Company Agreement on its part to be performed or observed and any such failure shall remain VI-1 129 unremedied for 10 continuous Business Days after written notice thereof shall have been given to the Seller, the Owner, the Originator, FSC or Charming Shoppes, as the case may be, by the Agent; or 7.16.117. (i) Spirit, in its capacity as the Servicer under the Pooling and Servicing Agreement or Spirit or any Affiliate of Spirit, in any capacity under any other Master Trust Document, shall fail to perform or observe any term, covenant or agreement contained in the Pooling and Servicing Agreement or such other Master Trust Document, on its part to be performed or observed and (A) any such failure shall continue for 10 Business Days after written notice thereof shall have been given to the Servicer by the Trustee or any Purchaser Representative (as defined in the Pooling and Servicing Agreement) or (B) any such failure under the Pooling and Servicing Agreement or other Master Trust Document shall constitute an "early amortization event" or similar event under any Certificate Series or Receivables Purchase Series (as defined in the Pooling and Servicing Agreement), or (ii) any "Servicer Default" shall occur under the Pooling and Servicing Agreement, or (iii) any other event shall occur or condition shall exist under the Pooling and Servicing Agreement or other Master Trust Document that constitutes an "Amortization Event" or a "Trust Early Amortization Event" thereunder or would constitute an "Amortization Event" or a "Trust Early Amortization Event" thereunder but for the requirement that notice be given or time elapse or both; or 7.16.118. Any purchase or any reinvestment pursuant to the Agreement shall for any reason (other than pursuant to the terms hereof) cease to create, or any Purchaser Receivable Interest shall for any reason cease to be, a valid and perfected first priority undivided percentage ownership interest to the extent of the pertinent Purchaser Receivable Interest in each applicable Pool Receivable and the Collections with respect thereto; or 7.16.119. The Seller, the Owner, the Originator, FSC or Charming Shoppes shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Seller, the Owner, the VI-2 130 Originator, FSC or Charming Shoppes 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 (including any law relating to the conservatorship or liquidation of national banking associations), 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 and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian, conservator, sequestrator or other similar official for, it or for any substantial part of its property) shall occur; or the Seller, the Owner, the Originator, FSC or Charming Shoppes shall take any corporate action to authorize any of the actions set forth above in this paragraph (g); or 7.16.120. As of the last day of any Due Period, either the Delinquency Ratio shall exceed 10% or the Quarterly Charge-Off Ratio shall exceed 15%; or 7.16.121. The Net Receivables Pool Balance minus the sum of (A) the aggregate "Investor Interests" (as defined in the Pooling and Servicing Agreement) for all Certificate Series issued pursuant to any supplement to the Pooling and Servicing Agreement, (B) the aggregate "Receivables Purchase Interests" (as defined in the Pooling and Servicing Agreement) for all Receivables Purchase Series issued pursuant to any receivables purchase agreement that is subject to the Pooling and Servicing Agreement (other than the Agreement), (C) the Subordinated Purchaser Capital, (D) the Minimum Seller Capital, and (E) the total amount of Discount Option Receivables, if any, shall, as of the last day of any Due Period, be less than the sum of the aggregate outstanding Purchaser Capital of all Purchaser Receivable Interests under the Agreement; or the Floating Allocation Percentage as of the last day of any Due Period shall be greater than 98.305%; and, in either case, such condition shall continue until the first Distribution Date immediately following such day; or VI-3 131 7.16.122. Charming Shoppes shall cease to own, directly or indirectly, all shares of each class of the issued and outstanding shares of capital stock of FSC; or FSC shall cease to own, directly or indirectly, all shares of each class of the issued and outstanding shares of capital stock of Spirit; or 7.16.123. The Net Excess Spread (averaged over any three consecutive Due Periods) shall be less than 2.5%; or 7.16.124. (i) Charming Shoppes or any of its subsidiaries shall fail to pay any principal of or premium or interest on any indebtedness arising under any Credit Facility when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such indebtedness (regardless of whether such failure shall have been waived by the other parties to such Credit Facility); or (ii) any event or condition listed in Schedule I as a "material provision" shall occur or exist under any Credit Facility and shall continue after the applicable grace period, if any, specified therein (regardless of whether such event or condition shall have been waived by the other parties to such Credit Facility); or (iii) any other event shall occur or condition shall exist (which is not referred to in clause (i) or (ii) of this paragraph) under any Credit Facility or any agreement or instrument relating to any such indebtedness and shall (A) continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such indebtedness and (B) continue without waiver by the other parties to such Credit Facility after the earliest to occur of (x) acceleration of the maturity of such indebtedness, (y) in the case of the Congress Facility, the refusal of the lenders thereunder to make further revolving loans or letter of credit accommodations to Charming Shoppes and its Affiliates after a request therefor and (z) the passage of ten Business Days following the last day of the applicable grace period, if any; or (iv) any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to repay, redeem, purchase or defease such indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or VI-4 132 7.16.125. Spirit shall not be in compliance with its regulatory capital requirements under applicable rules and regulations of the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System or other appropriate governmental authorities; or 7.16.126. The Company Agreement shall cease to be in full force and effect. VI-5 133 Schedule I Material Provision 1. Material Provision: adjusted net worth covenant. I- 134 Schedule II Depositary Banks NationsBank: ABA # 11 000 025 Account # 375-0504484 II- 135 ANNEX G Summary of Interest Rate Agreements as of [Date]
Reference Date No. or Type Fixed Amortization Date of (Swap Notional Rate or Effective of Notional Termination Counterparty Confirmation or Cap) Amount Cap Rate Date Amount Begins Date - ------------ ------------ ------- -------- -------- --------- ------------- -----------
The [Owner/FSC] is a party to each of the above Agreements. The Index for floating rate payments for each of the above Agreements is ["USD-CP-H.15"] for one month maturities. II- EX-10.2.22 6 RESTRICTED AWARD PROGRAM 1 EXHIBIT 10.2.22 CHARMING SHOPPES, INC. 1998 RESTRICTED AWARD PROGRAM 1. Purpose and Overview. This 1998 Restricted Award Program (the "Program") of Charming Shoppes, Inc. (the "Company") is intended to provide an additional incentive to selected associates to promote the success of the Company through long-term service. Under the Program, associates of the Company and its subsidiaries selected to participate will be granted an award which represents a conditional right to receive bonus compensation on June 30, 2000, subject to complete or partial forfeiture of the award in the event of termination of employment before that date as more fully set forth in the Program (a "Restricted Award"). During the 30-day period following the grant to an associate of a Restricted Award, the associate (a "Participant") may elect to have the Restricted Award denominated as a cash amount or as an equivalent number of shares of Company Common Stock. At the end of the restricted period, cash will be payable in settlement of a cash-denominated Restricted Award and shares will be issuable in settlement of a share-denominated Restricted Award. A Restricted Award constitutes a conditional bonus, and does not replace or reduce a Participant's salary or other compensation. 2. Administration. (a) Authority. The Program shall be administered by the Chief Executive Officer of the Company (the "CEO") or a committee of officers designated by the CEO (the CEO or such committee being the "Administrator"). The Administrator may delegate authority with respect to actions and determinations under the Program. (b) Manner of Exercise of Authority. Any action of the Administrator or its delegatee with respect to the Program shall be final, conclusive, and binding on all persons, including the Company, subsidiaries, a Participant, and any person claiming any rights under the Program from or through any Participant, except that the Administrator may take action within a reasonable time after any such action superseding or overruling a prior action. (c) Limitation of Liability. Each person acting for the Administrator or a delegatee shall be entitled to, in good faith, rely or act upon any report or other information furnished to him by any officer or other employee of the Company or any subsidiary or any agent or professional assisting in the administration of the Program, such person shall not be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Program, and such person shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination, or interpretation. 3. Restricted Award Limits; Stock Subject to Program. An aggregate of $500,000 is available for grants of Restricted Awards under the Program, which limitation shall apply to all grants regardless of Participant elections as to denomination of the Restricted Awards. Subject to adjustment as provided in Section 8(b) of the Program, a total of 140,000 shares of Common Stock are reserved and available for issuance in settlement of share-denominated Restricted Awards under the Program. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares, and will not be deemed to be drawn from the reserves under any other Company plan or program. If a Restricted Award is forfeited, the cash amount thereof and shares subject thereto will again be available for Restricted Awards under the Program. 4. Eligibility. Associates of the Company and its subsidiaries who are not officers of the Company and are not serving on the Board of Directors of the Company are eligible for selection to be granted Restricted Awards under the Program. 2 5. Grants of Restricted Awards. Each associate selected by the Administrator to participate in the Program shall be granted a Restricted Award. The Administrator shall specify the amount of such Restricted Award initially as a cash amount. Such Restricted Award shall be subject to the terms and conditions set forth in the Program and in the Restricted Award Agreement and Election executed by the Company and the Participant, including the following: (a) Consideration for Restricted Award. A Restricted Award shall be granted for the general purposes set forth in Section 1 of the Program and to help secure the benefits of the Participant's continued service to the Company during the period the Award is outstanding. A Participant shall not be required to pay any cash consideration or other tangible or definable consideration for the Restricted Award, nor may a Participant choose to receive the Restricted Award in lieu of other compensation or other compensation in lieu of the Restricted Award. No negotiation shall take place between the Company and any Participant as to the amount, timing, or other terms of a Restricted Award or the cash or shares deliverable in settlement of a Restricted Award (except a Participant may elect the form of settlement of the Restricted Award, cash or shares, as specified below). (b) Risk of Forfeiture. A Restricted Award shall be subject to a risk of forfeiture, as follows: In the event that the Participant is not continuously employed as an associate of the Company or a subsidiary of the Company from the date of grant of his or her Restricted Award until June 30, 2000, the Participant's Restricted Award shall be forfeited; provided, however, that (i) this risk of forfeiture shall automatically lapse in the event the associate's employment as an associate of the Company or a subsidiary terminates due to death or a permanent disability (as determined by the Administrator); (ii) in the event the Participant is continuously employed by the Company or a subsidiary from the date of grant of his or her Restricted Award through December 31, 1999 and is thereafter terminated for any reason other than for "cause" between January 1, 2000 and June 30, 2000, this risk of forfeiture will lapse as to seventy-five (75%) percent of the Restricted Award on the date of such termination (i.e. 75% of the cash amount determined as the Restricted Award or 75% of the number of shares of Restricted Stock denominated as the Restricted Award as initially elected by the Participant); and (iii) the Administrator may otherwise accelerate the date or dates as of which this risk of forfeiture shall lapse or, at the time of grant of a Restricted Award, specify a later date as of which such risk of forfeiture will lapse, with respect to all or part of a Restricted Award. For purposes hereof, "cause" shall mean the Participant's chronic neglect, refusal or failure to fulfill his or her employment duties and responsibilities, other than for reasons of sickness, accident or other similar causes beyond the Participant's control. Such neglect, refusal or failure shall be determined in the sole and reasonable judgment of the Administrator. (c) Nontransferability. A Restricted Award, rights to cash or shares in settlement of the Restricted Award, and other rights relating thereto shall not be transferable or assignable by a Participant, other than by will or the laws of descent and distribution, and shall not be pledged, hypothecated, or otherwise encumbered in any way or subject to execution, attachment, lien, or similar process. 6. Participant Election of Denomination of Restricted Award in Cash or Shares of Common Stock. During the 30-day period following the grant of the Restricted Award, a Participant may file an election with the Administrator to have his or her Restricted Award denominated as a cash amount or as an equivalent number of shares of Company Common Stock. The form of such election shall be specified by the Administrator. The election of a Participant is irrevocable; no Participant may make any further election as to the denomination of his or her Restricted Award. (a) Cash-Denominated Restricted Award. If a Participant elects to have his or her Restricted Award denominated as a cash amount, or if the Participant fails to file a valid election as to the denomination of the Restricted Award by the filing deadline set forth in this Section 6, the Participant's Restricted Award will be denominated as a cash amount equal to the amount of the Restricted Award initially specified by the Administrator. For so long as such Restricted Award remains outstanding, the amount of the Restricted Award shall not be changed or adjusted, and no interest will be credited on the amount of such Restricted Award. As promptly as practicable after lapse of the risk of forfeiture relating to such Restricted Award under Section 5(b), the Company shall pay to 2 3 the Participant cash in the amount of the Restricted Award (to the extent not forfeited) in full settlement of the Restricted Award, subject to withholding under Section 7. (b) Share-Denominated Restricted Award. If a Participant elects to have his or her Restricted Award denominated as shares of Company Common Stock by filing a valid election prior to the filing deadline set forth in this Section 6, the Participant's Restricted Award will be converted into a number of share units ("Restricted Stock") determined by dividing the cash amount of the Restricted Award initially specified by the Administrator by the Fair Market Value (as defined below) per share of Company Common Stock at the date of grant. Such Restricted Stock shall be subject to the terms set forth in Section 6(b) through 6(g), including the crediting of additional Restricted Stock as a result of dividends and changes in the number of shares of Restricted Stock credited to the Participant due to adjustments. As promptly as practicable after lapse of the risk of forfeiture relating to such Restricted Award under Section 5(b), the Company shall settle such Restricted Award (to the extent not forfeited) by issuance and delivery of a number of shares of Common Stock equal to the number of shares of Restricted Stock then credited to the Participant in full settlement of the Restricted Award, subject to withholding under Section 7. (c) Dividend Equivalents. A Participant shall be entitled to receive dividends equivalents in respect of Restricted Stock, as follows: (i) Dividends Other Than Stock Dividends. If the Company declares and pays any dividend or distribution on Common Stock in the form of cash or any other property other than Common Stock, the record date of which is prior to the date on which the Participant's Restricted Stock is settled, the Company shall credit to the Participant, as of the payment date of such dividend or distribution, a number of additional shares of Restricted Stock determined by multiplying (A) the amount of cash actually paid plus the fair market value at such payment date of any such property actually paid as a dividend or distribution per share of Common Stock times (B) the number of shares of such Restricted Stock credited to the Participant at the record date and dividing the product by (C) the Fair Market Value per share of Common Stock on the dividend or distribution payment date. (ii) Stock Dividends and Stock Splits. If the Company declares and pays a dividend or distribution in the form of Common Stock payable on Common Stock, or their occurs a forward stock split of the Common Stock, the record date of which is prior to the date on which the Participant's Restricted Stock is settled, the Company shall credit to the Participant a number of shares of additional Restricted Stock equal to the number of shares of Common Stock paid as a dividend or distribution per share of Common Stock or distributed as a result of the stock split per share of Common Stock multiplied by the number of shares of Restricted Stock credited to the Participant on the record date. (iii) Other Terms Applicable to Restricted Stock Resulting from Dividends or Splits. Additional shares of Restricted Stock credited under this Section 6(c) will be subject to the same terms, including the risk of forfeiture, as other Restricted Stock. No such additional Restricted Stock will be credited to a Participant in respect of Restricted Stock forfeited under Section 5(b) on or before the payment date for the dividend or distribution. A Participant shall not be entitled to receive actual dividends in respect of Restricted Stock prior to the issuance of Common Stock in settlement thereof. (d) Delivery of Shares in Settlement of Restricted Stock. The Administrator may make delivery of shares hereunder in settlement of Restricted Stock by either delivering one or more certificates representing such shares to the Participant, registered in the name of the Participant (and any joint name, if so directed by the Participant), or by depositing such shares into an account maintained for the Participant (or of which the Participant is a joint owner, with the consent of the Participant) established in connection with the Company's Employee Stock Purchase Program or another plan or arrangement providing for investment in Common Stock and under which the Participant's rights are similar in nature to those under a stock brokerage account. If the Administrator determines to settle Restricted Stock by making a deposit of shares into such an account, the Company may settle any fractional share of Restricted Stock by means of such deposit. In other circumstances or if so determined by the Administrator, the Company shall instead pay cash in lieu of fractional shares, on such basis as the Administrator may determine. In no event will the Company in fact issue fractional shares. 3 4 (e) Definition of "Fair Market Value." "Fair Market Value" as of a given date means the closing sale price of Common Stock reported in the table entitled "Nasdaq National Market Issues" or any successor table in the Wall Street Journal (or, if Common Stock is then principally traded on a national securities exchange, in the table reporting composite transactions for such exchange) for such date or, if no shares of Common Stock were traded on that date, on the next preceding day on which there was such a trade. (f) Crediting of Fractional Shares of Restricted Stock. If any transaction or event under the Program results in the Participant being credited with fractional shares of Restricted Stock, such fractional shares will be credited to not less than three decimal places. (g) Form of Restricted Award Agreement and Election. The general form of the Restricted Award Agreement and Election is attached hereto as Exhibit A. The Administrator may make changes to the form of Restricted Award Agreement and Election or amend outstanding Restricted Award Agreements. 7. Tax Withholding. The Company and any subsidiary may deduct from any payment to be made to a Participant, including but not limited to settlement of a cash-denominated Restricted Award, any amount that federal, state, local, or foreign tax law requires to be withheld with respect to the settlement of the Restricted Award. At the election of the Administrator, the Company may withhold from the shares of Common Stock to be distributed in settlement of Restricted Stock that number of shares having a Fair Market Value, at the date of settlement of the Restricted Stock, equal to the amount of such withholding taxes. 8. General Provisions. (a) Compliance With Legal and Other Requirements. The grant and settlement of Restricted Awards and other obligations of the Company under the Program will be subject to all applicable federal and state laws, rules, and regulations, and to such approvals by any regulatory or governmental agency as may be required. The Company may, in its discretion, postpone the issuance or delivery of Common Stock in settlement of Restricted Stock under the Program until completion of any required action under any federal or state law, rule, or regulation, listing or other required action with respect to any automated quotation system or stock exchange upon which the Common Stock or other Company securities are designated or listed, or compliance with any other contractual obligation of the Company, as the Company may consider appropriate, and the Company may require any Participant to make such representations and furnish such information as the Company may consider appropriate in connection with the issuance or delivery of Common Stock in compliance with applicable laws, rules, and regulations, designation or listing requirements, or other contractual obligations. (b) Adjustments. In the event that the Administrator shall determine that any recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, extraordinary dividend or distribution, or share exchange, or other similar corporate transaction or event, affects the Common Stock such that an adjustment is appropriate to carry out the purposes of the Program and to prevent dilution or enlargement of the rights of Participants to whom Restricted Stock has been credited under the Program (after taking into account any Restricted Stock credited under Section 6(c) to Participants as a result of such transaction or event), then the Administrator shall, in such manner as it may deem equitable, adjust any or all of (i) the number and kind of shares of Common Stock which may thereafter be issued under Section 3 in connection with Restricted Stock, and (ii) the number and kind of shares of Common Stock issuable in settlement of then-outstanding Restricted Stock. For purposes of the Program, the term "Common Stock" shall include any security that may be substituted or resubstituted for Common Stock pursuant to this Section 8(b). (c) No Right to Continued Employment. Neither the Program nor any action taken hereunder, including the grant of any Restricted Award, will be construed as giving any associate the right to be retained in the employ of the Company or any of its subsidiaries, nor will it interfere in any way with the right of the Company or any of its subsidiaries to terminate any associate's employment at any time. 4 5 (d) No Rights to Participate; No Shareholder Rights. No Participant or employee will have any claim to participate in the Program, and the Company will have no obligation to continue the Program. A crediting of Restricted Stock under a Restricted Award will confer on the Participant none of the rights of a shareholder of the Company (including no rights to vote or receive dividends or distributions) until settlement by delivery of Common Stock, and then only to the extent that such Restricted Stock has not otherwise been forfeited by the Participant. (e) Changes to the Program. The Administrator may amend, alter, suspend, discontinue, or terminate the Program without the consent of Participants; provided, however, that, without the consent of an affected Participant, no such action shall materially and adversely affect the rights of such Participant with respect to an outstanding Restricted Award; and provided further, that any increase in the aggregate cash limit on Restricted Awards or the number of shares issuable under Section 3 shall be subject to the approval by the Board of Directors. (f) Effect of Settlement. Upon settlement of a Restricted Award, all obligations of the Company in respect of such Restricted Award shall be terminated. Any shares delivered in settlement of Restricted Stock shall no longer be deemed Restricted Stock for purposes of the Program. (g) Governing Law. The validity, construction, and effect of the Program and any rules and regulations relating to the Program will be determined in accordance with the Pennsylvania Business Corporation Law, to the extent applicable, other laws (including those governing contracts) of the Commonwealth of Pennsylvania, without giving effect to principles of conflicts of laws, and applicable federal law. 9. Effective Date and Termination of Program. The Program shall become effective on March 5, 1998. Unless earlier terminated under Section 8(e), the Program shall terminate at such time after 1998 that no Restricted Award previously granted under the Program remains outstanding. Approved and Ratified by the Board of Directors: March 5, 1998 5 EX-21 7 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT The following are the Company's subsidiaries, each of which is directly and wholly owned by its immediate parent, Charming Shoppes, Inc. All subsidiaries are included in the consolidated financial statements of Charming Shoppes, Inc., and subsidiaries, except as noted.
State or Jurisdiction of Name Organization - ---- ------------ CHARM-FIN STORES,INC. (2) DE CHARMING SHOPPES OF COLONIAL PARK,INC. PA CHARMING SHOPPES OF CUMBERLAND,INC. PA CHARMING SHOPPES OF DELAWARE,INC. (2) PA CHARMING SHOPPES OF ECHELON,INC. NJ CHARMING SHOPPES OF NORRISTOWN,INC. (2) PA CHARMING SHOPPES OF NORRISTOWN,INC. (2) PA CHARMING SHOPPES OF TRENTON,INC. NJ CHARMING SHOPPES OF WOODBURY,INC NJ CHARMING SHOPPES,INC. (2) PA COLUMBIA #2589 DEVOLPMENT CO,INC. TN CS INSURANCE LTD. (2) BERMUDA CSBC, INC. (2) DE CSI CHARITIES (2) PA CSI INDUSTRIES,INC. (2) DE CSI-DR,INC. (2) DOM. REPUB. C.S.A.C.,INC. (2) DE C.S.F.CORP. (2) DE C.S.I.C.,INC. (2) DE DIVERSIFIED FASHIONS,INC. (2) PA ERICOOL CO LTD. (2) HONG KONG EVATONE TRADING LTD. (2) HONG KONG EXECUTIVE FLIGHTS,INC. (2) DE FASHION BUG ACQUISITION CORP DE FASHION BUG OF 640 PLAZA,INC. TN FASHION BUG OF ALLENTOWN,INC. PA FASHION BUG OF ALLIANCE,INC. PA FASHION BUG OF ALPENA,INC. PA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 2
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG OF ALTOONA,INC. PA FASHION BUG OF AMHERST,INC. NY FASHION BUG OF ANDORRA,INC. PA FASHION BUG OF APPLE VALLEY SQUARE,INC. PA FASHION BUG OF ASBURY PARK,INC. PA FASHION BUG OF AUDUBON,INC. NJ FASHION BUG OF AURORA,INC. PA FASHION BUG OF BARBERTON,INC. PA FASHION BUG OF BEAVER FALLS,INC. (2) PA FASHION BUG OF BECKLEY,INC. PA FASHION BUG OF BELLEVILLE,INC. PA FASHION BUG OF BELMONT,INC. PA FASHION BUG OF BELVEDERE PLAZA,INC. (2) GA FASHION BUG OF BETHLEHEM,INC. PA FASHION BUG OF BIRMINGHAM,INC. AL FASHION BUG OF BLOOMSBURG,INC. PA FASHION BUG OF BLUE ASH,INC. (2) PA FASHION BUG OF BLUEFIELD,INC. PA FASHION BUG OF BOLINGBROOK,INC. IL FASHION BUG OF BOND,INC. PA FASHION BUG OF BORDENTOWN,INC. PA FASHION BUG OF BRADFORD,INC. PA FASHION BUG OF BRICKTOWN PLAZA,INC. PA FASHION BUG OF BRIDGEVIEW,INC. PA FASHION BUG OF BRISTOL, CT,INC. CT FASHION BUG OF BRISTOL,INC. PA FASHION BUG OF BRUNSWICK,INC. PA FASHION BUG OF BUCYRUS,INC. PA FASHION BUG OF CALIFORNIA, INC. (1) (2) CA FASHION BUG OF CAMBRIDGE,INC. MD FASHION BUG OF CAPE MAY,INC. PA FASHION BUG OF CARLISLE,INC. PA FASHION BUG OF CASSELBERRY,INC. FL FASHION BUG OF CASTOR AVENUE,INC. PA FASHION BUG OF CENTURY III MALL PA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 3
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG OF CHARLOTTESVILLE,INC. VA FASHION BUG OF CHESTERTOWN,INC. PA FASHION BUG OF CHILLICOTHE,INC. PA FASHION BUG OF CLARION,INC. PA FASHION BUG OF CLARKSBURG,INC. PA FASHION BUG OF CLEARFIELD,INC. PA FASHION BUG OF CLEARVIEW MALL,INC. PA FASHION BUG OF CLEVELAND,INC. OH FASHION BUG OF COCKEYSVILLE,INC. PA FASHION BUG OF COLLEGE SQUARE,INC. PA FASHION BUG OF CORBIN,INC. (2) PA FASHION BUG OF COTTMAN,INC. PA FASHION BUG OF COUNTRYSIDE,INC. PA FASHION BUG OF CRANBERRY,INC. PA FASHION BUG OF CREST HILL,INC. (2) PA FASHION BUG OF CROMWELL FIELD,INC. MD FASHION BUG OF CRYSTAL LAKE,INC. (2) PA FASHION BUG OF CULPEPPER,INC. VA FASHION BUG OF CUMBERLAND MALL,INC. (2) GA FASHION BUG OF CUYAHOGA FALLS,INC. PA FASHION BUG OF DANBURY,INC. PA FASHION BUG OF DANVILLE,INC. PA FASHION BUG OF DEARBORN,INC. PA FASHION BUG OF DEKALB,INC. IL FASHION BUG OF DES PLAINES,INC. PA FASHION BUG OF DEVON,INC. PA FASHION BUG OF DOVER PLAZA,INC. PA FASHION BUG OF DUBOIS,INC. PA FASHION BUG OF DUNBAR,INC. PA FASHION BUG OF EAST HARTFORD,INC. CT FASHION BUG OF EAST MANSFIELD,INC. PA FASHION BUG OF EAST PARK,INC. PA FASHION BUG OF EAST WINDSOR,INC. PA FASHION BUG OF EASTSIDE PLAZA,INC. PA FASHION BUG OF EASTWOOD MALL,INC. PA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 4
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG OF EDGEWOOD,INC. PA FASHION BUG OF EDWARDSVILLE,INC. PA FASHION BUG OF ELDERSBURG,INC. PA FASHION BUG OF ELKTON,INC. PA FASHION BUG OF ELWOOD CITY,INC. PA FASHION BUG OF EUSTIS,INC. (1) (2) FL FASHION BUG OF EVANSVILLE,INC. IN FASHION BUG OF FAIRFIELD,INC. PA FASHION BUG OF FAIRMONT,INC. PA FASHION BUG OF FALL RIVER,INC. PA FASHION BUG OF FALLS CHURCH,INC. (2) VA FASHION BUG OF FLEMINGTON,INC. (2) PA FASHION BUG OF FLINT,INC. PA FASHION BUG OF FOREST PARK MALL,INC. (2) PA FASHION BUG OF FOREST PLAZA,INC. IL FASHION BUG OF FOSTORIA,INC. (2) PA FASHION BUG OF FRACKVILLE,INC. PA FASHION BUG OF FRANKFORT,INC. PA FASHION BUG OF FRANKLIN COUNTY,INC. PA FASHION BUG OF FRANKLIN,INC. PA FASHION BUG OF FREDERICKSBURG,INC. PA FASHION BUG OF FREEHOLD,INC. NJ FASHION BUG OF FRONT ROYAL,INC. VA FASHION BUG OF FT. FINDLAY,INC. PA FASHION BUG OF FT. MYERS,INC. FL FASHION BUG OF FULLERTON,INC. PA FASHION BUG OF GARFIELD HEIGHTS,INC. PA FASHION BUG OF GEORIA SQUARE,INC. (2) GA FASHION BUG OF GIBBSTOWN,INC. NJ FASHION BUG OF GLEN BURNIE,INC. PA FASHION BUG OF GLEN ELLYN,INC. IL FASHION BUG OF GORHAM,INC. NH FASHION BUG OF GREENVILLE PLAZA,INC. PA FASHION BUG OF GROVE CITY,INC. PA FASHION BUG OF HACKENSACK,INC. PA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 5
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG OF HACKETTSTOWN,INC. PA FASHION BUG OF HAGERSTOWN,INC. PA FASHION BUG OF HAMILTON SQUARE,INC. PA FASHION BUG OF HAMPTON,INC. PA FASHION BUG OF HANNIBAL,INC. MO FASHION BUG OF HANOVER,INC. PA FASHION BUG OF HARRISBURG,INC. PA FASHION BUG OF HAZELTON,INC. PA FASHION BUG OF HERSHEY,INC. (2) PA FASHION BUG OF HIGHLAND RIDGE,INC. OH FASHION BUG OF HINESVILLE,INC. GA FASHION BUG OF HOLYOKE,INC. MA FASHION BUG OF HONESDALE,INC. PA FASHION BUG OF HOUGHTON,INC. PA FASHION BUG OF HOWELL,INC. PA FASHION BUG OF HUNTINGTON PLAZA,INC. IN FASHION BUG OF HUNTINGTON,INC. PA FASHION BUG OF IROQUOIS MANOR,INC. PA FASHION BUG OF JASPER,INC. IN FASHION BUG OF JOHNSTON,INC. RI FASHION BUG OF JOHNSTOWN,INC. (2) PA FASHION BUG OF JOLIET,INC. IL FASHION BUG OF KEDZIE,INC. PA FASHION BUG OF KENT,INC. PA FASHION BUG OF KUTZTOWN,INC. PA FASHION BUG OF LAKELAND,INC. (2) FL FASHION BUG OF LAKEMORE PLAZA,INC. PA FASHION BUG OF LANCASTER,INC. PA FASHION BUG OF LANGLEY PARK,INC. (2) PA FASHION BUG OF LANSING,INC. PA FASHION BUG OF LAUREL,INC. PA FASHION BUG OF LAVALE,INC. PA FASHION BUG OF LAWRENCEVILLE,INC. NJ FASHION BUG OF LEBANON,INC. PA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 6
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG OF LEDGEWOOD,INC. PA FASHION BUG OF LENOX SQUARE,INC. (2) GA FASHION BUG OF LEWISBURG,INC. PA FASHION BUG OF LEWISTON,INC. ME FASHION BUG OF LEXINGTON,INC. (2) PA FASHION BUG OF LIVONIA,INC. PA FASHION BUG OF LOCKPORT,INC. NY FASHION BUG OF LOGAN,INC. PA FASHION BUG OF LORAIN,INC. OH FASHION BUG OF LOUISVILLE,INC. PA FASHION BUG OF LOWER BURRELL,INC. PA FASHION BUG OF LYNCHBURG,INC. VA FASHION BUG OF LYNN,INC. MA FASHION BUG OF MACDADE,INC. PA FASHION BUG OF MANAHAWKIN,INC. PA FASHION BUG OF MANCHESTER, N.H.,INC. NH FASHION BUG OF MAPLE HEIGHTS,INC. PA FASHION BUG OF MARQUETTE,INC. MI FASHION BUG OF MARTIN PLAZA,INC. PA FASHION BUG OF MASON CITY,INC. IA FASHION BUG OF MASSILLON,INC. OH FASHION BUG OF MAULDIN,INC. PA FASHION BUG OF MAYFAIR,INC. PA FASHION BUG OF MAYFIELD HEIGHTS,INC. (2) OH FASHION BUG OF MCKEESPORT (2) PA FASHION BUG OF MEADVILLE,INC. PA FASHION BUG OF MEDFORD,INC. PA FASHION BUG OF MERRITT ISLAND,INC. FL FASHION BUG OF MIDDLESBORO,INC. PA FASHION BUG OF MIDDLETOWN PLAZA,INC. PA FASHION BUG OF MIDLAND PLAZA,INC. MI FASHION BUG OF MIDWAY,INC. MN FASHION BUG OF MONROEVILLE (2) PA FASHION BUG OF MONROEVILLE,INC. PA FASHION BUG OF MONROE,INC. PA FASHION BUG OF MONTGOMERYVILLE,INC. (2) PA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 7
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG OF MONTPELIER,INC. VT FASHION BUG OF MOORESTOWN MALL,INC. PA FASHION BUG OF MOOSIC,INC. PA FASHION BUG OF MOREHEAD,INC. PA FASHION BUG OF MORRIS COUNTY,INC. PA FASHION BUG OF MOUNT PLEASANT,INC. PA FASHION BUG OF MOUNT VERNON,INC. PA FASHION BUG OF MT. CLEMENS,INC. PA FASHION BUG OF MURRAY,INC. PA FASHION BUG OF NANTICOKE,INC. PA FASHION BUG OF NASHVILLE,INC. TN FASHION BUG OF NATRONA,INC. (2) PA FASHION BUG OF NEW BRITIAN,INC. CT FASHION BUG OF NEW CASTLE,INC. PA FASHION BUG OF NEW HOLLAND,INC. PA FASHION BUG OF NEW LONDON,INC. PA FASHION BUG OF NEW PHILADELPHIA,INC. PA FASHION BUG OF NORTH ADAMS,INC. PA FASHION BUG OF NORTH BRUNSWICK,INC. PA FASHION BUG OF NORTH EAST,INC. PA FASHION BUG OF NORTH POINT,INC. PA FASHION BUG OF NORWELL,INC. PA FASHION BUG OF NORWIN,INC. PA FASHION BUG OF N. ROANOKE,INC. VA FASHION BUG OF OAK RIDGE,INC. (2) PA FASHION BUG OF OIL CITY,INC. PA FASHION BUG OF OLEAN,INC. PA FASHION BUG OF PADUCAH,INC. (2) PA FASHION BUG OF PAINTSVILLE,INC. PA FASHION BUG OF PAKA PLAZA,INC. MI FASHION BUG OF PALM HARBOR,INC. FL FASHION BUG OF PANAMA CITY,INC. FL FASHION BUG OF PARKERSBURG,INC. PA FASHION BUG OF PARLIN,INC. (2) PA FASHION BUG OF PATCHOQUE,INC. NY
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 8
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG OF PENNSVILLE,INC. PA FASHION BUG OF PEORIA,INC. PA FASHION BUG OF PERIMETER MALL,INC. (2) GA FASHION BUG OF PERRING,INC. PA FASHION BUG OF PHILLIPSBURG,INC. PA FASHION BUG OF PIKEVILLE,INC. PA FASHION BUG OF PITTSTON,INC. PA FASHION BUG OF PORTSMOUTH,INC. PA FASHION BUG OF POTTSVILLE,INC. PA FASHION BUG OF RAVENSWOOD,INC. PA FASHION BUG OF RAYNHAM,INC. MA FASHION BUG OF REISTERTOWN,INC. PA FASHION BUG OF REVERE,INC. MA FASHION BUG OF REYNOLDSBURG,INC. OH FASHION BUG OF RISING SUN,INC. PA FASHION BUG OF RIVERHEAD,INC. (2) NY FASHION BUG OF RIVERSIDE SQUARE,INC. IL FASHION BUG OF RIVERTOWNE COMMONS,INC. MD FASHION BUG OF ROANOKE RAPIDS,INC. (2) PA FASHION BUG OF ROGERS PLAZA,INC. PA FASHION BUG OF ROYAL OAK,INC. PA FASHION BUG OF RUMFORD,INC. (2) RI FASHION BUG OF SAGINAW,INC. PA FASHION BUG OF SALEM,INC. MA FASHION BUG OF SAUGUS,INC. (2) MA FASHION BUG OF SAUGUS,INC. (2) MA FASHION BUG OF SCRANTON,INC. PA FASHION BUG OF SEAFORD,INC. PA FASHION BUG OF SECURITY,INC. PA FASHION BUG OF SHARONVILLE,INC. PA FASHION BUG OF SHARON,INC. PA FASHION BUG OF SMYRNA,INC. GA FASHION BUG OF SOLON,INC. OH FASHION BUG OF SOMERS POINT,INC. NJ FASHION BUG OF SOUTH FLINT,INC. PA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 9
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG OF SOUTH HILLS VILLAGE (2) PA FASHION BUG OF SOUTH PLAINFIELD,INC. NJ FASHION BUG OF SOUTHFIELD,INC. MI FASHION BUG OF SOUTHGATE,INC. MI FASHION BUG OF SOUTHLAKE MALL,INC. (2) GA FASHION BUG OF SPEEDWAY SHOPPING CENTER,INC. IN FASHION BUG OF SPOTSYLVANIA,INC. PA FASHION BUG OF SPRINGFIELD PLAZA,INC. MA FASHION BUG OF STATE COLLEGE,INC. PA FASHION BUG OF STRATFORD,INC. CT FASHION BUG OF STROUDSBURG,INC. PA FASHION BUG OF STRUTHERS,INC. OH FASHION BUG OF STURGIS,INC. MI FASHION BUG OF ST. ALBANS,INC. PA FASHION BUG OF ST. CLAIR SHORES,INC. MI FASHION BUG OF TAYLOR,INC. MI FASHION BUG OF TECH PLAZA,INC. PA FASHION BUG OF THE MARKET PLACE,INC. (2) TN FASHION BUG OF THORNDALE,INC. PA FASHION BUG OF TIFFIN,INC. PA FASHION BUG OF TOMS RIVER,INC. PA FASHION BUG OF TOPSHAM,INC. (2) ME FASHION BUG OF TOTOWA,INC. NJ FASHION BUG OF TROY,INC. NY FASHION BUG OF TRUMBULL PLAZA,INC. PA FASHION BUG OF TUNKHANNOCK,INC. PA FASHION BUG OF UNIONTOWN,INC. PA FASHION BUG OF UNION,INC. PA FASHION BUG OF UNIVERSITY MALL,INC. OH FASHION BUG OF UNIVERSITY PLAZA,INC. TN FASHION BUG OF VALLEY PLAZA, INC. PA FASHION BUG OF VAN BUREN,INC. PA FASHION BUG OF VINELAND,INC. NJ FASHION BUG OF VIRGINIA BEACH,INC. VA FASHION BUG OF WALNUTPORT,INC. PA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 10
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG OF WARREN PLAZA,INC. OH FASHION BUG OF WARRENTON,INC. PA FASHION BUG OF WARREN,INC. PA FASHION BUG OF WARSAW,INC. IN FASHION BUG OF WATERBURY, INC. PA FASHION BUG OF WAUKEGAN,INC. IL FASHION BUG OF WAYNESBURG,INC. PA FASHION BUG OF WEBSTER,INC. MA FASHION BUG OF WEIRTON,INC. PA FASHION BUG OF WEST FRANKFORT,INC. PA FASHION BUG OF WEST MANCHESTER,INC. PA FASHION BUG OF WEST MIFFLIN,INC. PA FASHION BUG OF WEST SPRINGFIELD,INC. (2) MA FASHION BUG OF WEST TOWN ,INC. (1) (2) PA FASHION BUG OF WHARTON SQUARE,INC. PA FASHION BUG OF WHITMAN PLAZA,INC. PA FASHION BUG OF WILKES BARRE,INC. PA FASHION BUG OF WILLIAMSON,INC. PA FASHION BUG OF WILLIAMSPORT,INC. PA FASHION BUG OF WILLIAMSTOWN,INC. NJ FASHION BUG OF WILMINGTON,INC. MA FASHION BUG OF WISCONSIN RAPIDS,INC. WI FASHION BUG OF WOODBRIDGE,INC. PA FASHION BUG OF WOODLYN,INC. PA FASHION BUG OF XENIA,INC. (2) PA FASHION BUG OF YOUNGSTOWN,INC. PA FASHION BUG OF ZANESVILLE,INC. PA FASHION BUG PLUS OF AMERICAN MALL,INC. PA FASHION BUG PLUS OF APPLETON,INC. PA FASHION BUG PLUS OF BALTIMORE,INC. MD FASHION BUG PLUS OF BELOIT,INC. WI FASHION BUG PLUS OF CHARLESTON,INC. PA FASHION BUG PLUS OF DETROIT,INC. (1) (2) MI FASHION BUG PLUS OF DUBOIS,INC. PA FASHION BUG PLUS OF ERIE,INC. PA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 11
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG PLUS OF ESSEXVILLE,INC. PA FASHION BUG PLUS OF FLINT,INC. MI FASHION BUG PLUS OF FREDERICK,INC. PA FASHION BUG PLUS OF HADLEY,INC. PA FASHION BUG PLUS OF HAGERSTOWN,INC. PA FASHION BUG PLUS OF HARRISBURG,INC. (2) PA FASHION BUG PLUS OF HYATTSVILLE,INC. PA FASHION BUG PLUS OF LANCASTER PLAZA,INC. PA FASHION BUG PLUS OF LAWNSIDE,INC. NJ FASHION BUG PLUS OF LIVONIA MALL,INC. PA FASHION BUG PLUS OF MARION,INC. PA FASHION BUG PLUS OF MARTIN PLAZA,INC. PA FASHION BUG PLUS OF MELROSE PARK,INC. IL FASHION BUG PLUS OF MONROEVILLE,INC. (2) PA FASHION BUG PLUS OF MT. GREENWOOD,INC. IL FASHION BUG PLUS OF NORTH FT MYERS,INC. FL FASHION BUG PLUS OF NORTHWEST PLAZA,INC. PA FASHION BUG PLUS OF PEKIN,INC, PA FASHION BUG PLUS OF PONTIAC,INC. MI FASHION BUG PLUS OF SHARON HILL,INC. PA FASHION BUG PLUS OF SHEBOYGAN,INC. WI FASHION BUG PLUS OF SOUTH ATTLEBORO,INC. (2) PA FASHION BUG PLUS OF TURFLAND MALL,INC. PA FASHION BUG PLUS OF VILLAGE MALL,INC. (2) MA FASHION BUG PLUS OF WALLKILL,INC. NY FASHION BUG PLUS OF WASHINGTON,INC. (1) (2) DC FASHION BUG PLUS OF WHITEHAVEN,INC. TN FASHION BUG PLUS OF WORCESTER,INC. PA FASHION BUG PLUS #8005,INC. (2) NJ FASHION BUG PLUS #8010 OF ROCKY POINT,INC. NY FASHION BUG PLUS #8014,INC. PA FASHION BUG PLUS #8019,INC. PA FASHION BUG PLUS #8023,INC. VA FASHION BUG PLUS #8024,INC. NJ FASHION BUG PLUS #8027,INC. (1) (2) OH
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 12
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG PLUS #8028,INC. (2) CT FASHION BUG PLUS #8034,INC. PA FASHION BUG PLUS #8038,INC. MD FASHION BUG PLUS #8039,INC. (1) (2) OH FASHION BUG PLUS #8040,INC. PA FASHION BUG PLUS #8041,INC. (1) (2) CA FASHION BUG PLUS #8042,INC. (1) (2) MA FASHION BUG PLUS #8043,INC. (1) (2) NJ FASHION BUG PLUS #811,INC. MI FASHION BUG PLUS #818 OF AUBURN,INC. NY FASHION BUG PLUS #881,INC. MI FASHION BUG PLUS #904,INC. FL FASHION BUG PLUS #932,INC. KY FASHION BUG PLUS #957,INC. (2) PA FASHION BUG PLUS #961,INC. (1) (2) IN FASHION BUG PLUS #962,INC. (2) WV FASHION BUG PLUS #963,INC. MI FASHION BUG PLUS #964,INC. OH FASHION BUG PLUS #966,INC. WV FASHION BUG PLUS #970,INC. GA FASHION BUG PLUS #972,INC. (2) IL FASHION BUG PLUS #975 OF HORSEHEADS,INC. NY FASHION BUG PLUS #976,INC. (2) WI FASHION BUG PLUS #979,INC. MO FASHION BUG PLUS #980,INC. ME FASHION BUG PLUS #981,INC. PA FASHION BUG PLUS #985,INC. MN FASHION BUG PLUS #987,INC. PA FASHION BUG PLUS #991,INC. IA FASHION BUG PLUS #993,INC. (1) (2) NJ FASHION BUG #108,INC. MI FASHION BUG #138,INC. (2) IN FASHION BUG #139,INC. IN FASHION BUG #141,INC. NJ FASHION BUG #144,INC. IN
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 13
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #157,INC. OH FASHION BUG #168,INC. IN FASHION BUG #2003,INC. OH FASHION BUG #2004,INC. MI FASHION BUG #2006,INC. KY FASHION BUG #2007,INC. (1) (2) LA FASHION BUG #2009,INC. PA FASHION BUG #2010,INC. MI FASHION BUG #2011,INC. MD FASHION BUG #2014,INC. MI FASHION BUG #2015,INC. IN FASHION BUG #2018,INC. MI FASHION BUG #2019,INC. (2) ND FASHION BUG #2020,INC. VA FASHION BUG #2021,INC. OH FASHION BUG #2022,INC. IN FASHION BUG #2023,INC. PA FASHION BUG #2026,INC. PA FASHION BUG #2027,INC. NE FASHION BUG #2028,INC. GA FASHION BUG #2029,INC. NH FASHION BUG #2030,INC. PA FASHION BUG #2031,INC. KS FASHION BUG #2032,INC. MI FASHION BUG #2034,INC. MO FASHION BUG #2035,INC. MA FASHION BUG #2036,INC. OH FASHION BUG #2037,INC. MI FASHION BUG #2038,INC. (1) (2) KY FASHION BUG #2039,INC. OH FASHION BUG #2040,INC. KY FASHION BUG #2043,INC. IN FASHION BUG #2044,INC. NC FASHION BUG #2045 OF EAST GREENBUSH,INC. NY FASHION BUG #2047,INC. MA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 14
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2048,INC. KY FASHION BUG #2049,INC. MD FASHION BUG #2050 OF MASSENA,INC. NY FASHION BUG #2051,INC. IL FASHION BUG #2052,INC. MN FASHION BUG #2053,INC. MO FASHION BUG #2057,INC. CT FASHION BUG #2058,INC. MA FASHION BUG #2063,INC. KS FASHION BUG #2064,INC. (2) OH FASHION BUG #2065,INC. GA FASHION BUG #2067,INC. TN FASHION BUG #2068,INC. ME FASHION BUG #2069,INC. AR FASHION BUG #2070 OF BROOKLYN,INC. NY FASHION BUG #2072 OF ISLANDIA,INC. NY FASHION BUG #2074,INC. KY FASHION BUG #2075,INC. IL FASHION BUG #2077,INC. MI FASHION BUG #2078,INC. MI FASHION BUG #2079,INC, OH FASHION BUG #2080,INC. OH FASHION BUG #2081 OF OGDENSBURG,INC. NY FASHION BUG #2082,INC. NJ FASHION BUG #2084,INC. OH FASHION BUG #2085,INC. KS FASHION BUG #2086,INC. IL FASHION BUG #2088,INC. CT FASHION BUG #2090,INC. FL FASHION BUG #2091,INC. FL FASHION BUG #2092,INC. WI FASHION BUG #2093,INC. IL FASHION BUG #2095,INC. OH FASHION BUG #2096,INC. MI FASHION BUG #2097,INC. NJ
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 15
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2100 OF BATAVIA,INC. NY FASHION BUG #2101,INC. PA FASHION BUG #2102,INC. WA FASHION BUG #2103,INC. WA FASHION BUG #2104,INC. (1) (2) MI FASHION BUG #2105,INC. (2) NH FASHION BUG #2106 OF DEPEW,INC. NY FASHION BUG #2109,INC. GA FASHION BUG #210,INC. (1) (2) KY FASHION BUG #2111,INC. NJ FASHION BUG #2112,INC. FL FASHION BUG #2113,INC. GA FASHION BUG #2114,INC. (2) MO FASHION BUG #2115,INC. WI FASHION BUG #2118 OF NEWBURGH,INC. NY FASHION BUG #2119,INC. OH FASHION BUG #2120,INC. OH FASHION BUG #2121,INC. IN FASHION BUG #2123,INC. VA FASHION BUG #2124,INC. PA FASHION BUG #2125,INC. WA FASHION BUG #2126,INC. MI FASHION BUG #2127,INC. MI FASHION BUG #2128,INC. CT FASHION BUG #2129,INC. OH FASHION BUG #2130,INC. IL FASHION BUG #2131,INC. WI FASHION BUG #2132,INC. MO FASHION BUG #2133,INC. WI FASHION BUG #2134,INC. IL FASHION BUG #2135,INC. VT FASHION BUG #2137,INC. IN FASHION BUG #2138,INC. OH FASHION BUG #2139,INC. OR FASHION BUG #2140,INC. VA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 16
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2141,INC. MI FASHION BUG #2143,INC. NE FASHION BUG #2144,INC. (2) VA FASHION BUG #2145,INC. MI FASHION BUG #2147,INC. WI FASHION BUG #2148,INC. WI FASHION BUG #2149,INC. MA FASHION BUG #2150,INC. NH FASHION BUG #2151,INC. NH FASHION BUG #2152,INC. VA FASHION BUG #2153,INC. TN FASHION BUG #2154,INC. WI FASHION BUG #2155,INC. OH FASHION BUG #2156,INC. RI FASHION BUG #2157 OF ONEIDA,INC. NY FASHION BUG #2158,INC. MO FASHION BUG #2159,INC. (2) FL FASHION BUG #2162,INC. NC FASHION BUG #2163,INC. NC FASHION BUG #2164,INC. (2) FL FASHION BUG #2165,INC. FL FASHION BUG #2166,INC. IA FASHION BUG #2167,INC. WA FASHION BUG #2169,INC. WA FASHION BUG #2170,INC. WA FASHION BUG #2171,INC. PA FASHION BUG #2172,INC. KY FASHION BUG #2173,INC. IN FASHION BUG #2174,INC. MI FASHION BUG #2175,INC. CA FASHION BUG #2177,INC. PA FASHION BUG #2180,INC. FL FASHION BUG #2181,INC. CA FASHION BUG #2182,INC. CA FASHION BUG #2183,INC. OH
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 17
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2184 of WEBSTER,INC. NY FASHION BUG #2185,INC. OH FASHION BUG #2186,INC. OR FASHION BUG #2187,INC. MN FASHION BUG #2189,INC. IN FASHION BUG #2190,INC. WI FASHION BUG #2192,INC. OH FASHION BUG #2193,INC. MA FASHION BUG #2194,INC. WI FASHION BUG #2195,INC. WV FASHION BUG #2196 OF NEWARK,INC. NY FASHION BUG #2197,INC. (2) OH FASHION BUG #2198,INC. IN FASHION BUG #2199,INC. MD FASHION BUG #2201,INC. WA FASHION BUG #2202,INC. (2) CA FASHION BUG #2203,INC. ME FASHION BUG #2204 OF HORNELL,INC. NY FASHION BUG #2206,INC. NH FASHION BUG #2208,INC. (2) VA FASHION BUG #2209,INC. IL FASHION BUG #2210 OF KINGSTON,INC. NY FASHION BUG #2211,INC. MD FASHION BUG #2212,INC. WI FASHION BUG #2214,INC. MN FASHION BUG #2215,INC. FL FASHION BUG #2217,INC. ID FASHION BUG #2218,INC. MN FASHION BUG #2219,INC. (2) WA FASHION BUG #2220,INC. OH FASHION BUG #2221,INC. OH FASHION BUG #2222,INC. KY FASHION BUG #2223,INC. (2) ID FASHION BUG #2224,INC. WA FASHION BUG #2226,INC. MI
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 18
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2227,INC. MI FASHION BUG #2228,INC. WI FASHION BUG #2229,INC. MI FASHION BUG #2230,INC. MI FASHION BUG #2231,INC. MI FASHION BUG #2232,INC. MI FASHION BUG #2233,INC. ME FASHION BUG #2235,INC. IN FASHION BUG #2236,INC. MN FASHION BUG #2237,INC. PA FASHION BUG #2238,INC. MA FASHION BUG #2239,INC. OR FASHION BUG #2240,INC. ID FASHION BUG #2242,INC. PA FASHION BUG #2243,INC. WA FASHION BUG #2244 OF CANANDAIGUA,INC. NY FASHION BUG #2245,INC. MD FASHION BUG #2246,INC. MD FASHION BUG #2247,INC. OH FASHION BUG #2248,INC. MN FASHION BUG #2249,INC. OH FASHION BUG #2250,INC. OH FASHION BUG #2251,INC. (2) CA FASHION BUG #2253,INC. (2) CA FASHION BUG #2254,INC. WI FASHION BUG #2255,INC. MD FASHION BUG #2256,INC. (2) CA FASHION BUG #2257,INC. IL FASHION BUG #2258,INC. IL FASHION BUG #2259,INC. IL FASHION BUG #2260,INC. IL FASHION BUG #2262,INC. WV FASHION BUG #2263,INC. IN FASHION BUG #2264,INC. OH FASHION BUG #2266,INC. IL
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 19
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2270,INC. OR FASHION BUG #2274,INC. (2) CA FASHION BUG #2275,INC. MI FASHION BUG #2276,INC. MI FASHION BUG #2277,INC. (1) (2) VA FASHION BUG #2278,INC. NC FASHION BUG #2279,INC. WI FASHION BUG #2280,INC. WI FASHION BUG #2281,INC. OH FASHION BUG #2283,INC. OH FASHION BUG #2284,INC. OH FASHION BUG #2285,INC. CA FASHION BUG #2286,INC. WI FASHION BUG #2288,INC. (2) WA FASHION BUG #2289 OF GARDEN CITY,INC. NY FASHION BUG #2290,INC. RI FASHION BUG #2291,INC. IN FASHION BUG #2292,INC. MI FASHION BUG #2293,INC. OH FASHION BUG #2295,INC. WI FASHION BUG #2296,INC. MA FASHION BUG #2297,INC. MI FASHION BUG #2298,INC. (1) (2) WV FASHION BUG #2299,INC. WV FASHION BUG #2300,INC. (2) FL FASHION BUG #2301,INC. FL FASHION BUG #2302,INC. NC FASHION BUG #2303,INC. (1) (2) NJ FASHION BUG #2304,INC. VA FASHION BUG #2305,INC. PA FASHION BUG #2306,INC. (2) CA FASHION BUG #2309,INC. IN FASHION BUG #2311,INC. GA FASHION BUG #2313,INC. WA FASHION BUG #2314,INC. IN
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 20
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2315,INC. WI FASHION BUG #2318,INC. DE FASHION BUG #2320,INC. (2) TN FASHION BUG #2322,INC. ME FASHION BUG #2325,INC. MI FASHION BUG #2326,INC. PA FASHION BUG #2328,INC. MN FASHION BUG #2329,INC. (2) CA FASHION BUG #2330,INC. PA FASHION BUG #2332,INC. VA FASHION BUG #2334,INC. (2) CA FASHION BUG #2335,INC. CA FASHION BUG #2337,INC. OH FASHION BUG #2338,INC. WI FASHION BUG #2339,INC. RI FASHION BUG #2340,INC. MI FASHION BUG #2343,INC. WI FASHION BUG #2345,INC. PA FASHION BUG #2346,INC. CT FASHION BUG #2347,INC. NH FASHION BUG #2348,INC. WA FASHION BUG #2349,INC. IN FASHION BUG #2350,INC. NH FASHION BUG #2351,INC. MN FASHION BUG #2352,INC. WV FASHION BUG #2353,INC. MI FASHION BUG #2354,INC. CA FASHION BUG #2355,INC. PA FASHION BUG #2356,INC. GA FASHION BUG #2357,INC. MI FASHION BUG #2358,INC. ME FASHION BUG #2359,INC. PA FASHION BUG #2360,INC. PA FASHION BUG #2362,INC. PA FASHION BUG #2364, OF NORTH TONAWANDA,INC. NY
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 21
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2366,INC. (2) NV FASHION BUG #2368,INC. PA FASHION BUG #2369,INC. SC FASHION BUG #2370 OF MALONE,INC. NY FASHION BUG #2371 OF POUGHKEEPSIE,INC. (2) NY FASHION BUG #2373,INC. ME FASHION BUG #2374,INC. WI FASHION BUG #2375,INC. PA FASHION BUG #2376,INC. IL FASHION BUG #2377,INC. NH FASHION BUG #2378,INC. NV FASHION BUG #2379,INC. MA FASHION BUG #2380,INC. NC FASHION BUG #2382,INC. TN FASHION BUG #2384 OF ROCHESTER,INC. NY FASHION BUG #2385,INC. ME FASHION BUG #2387,INC. (2) PA FASHION BUG #2388,INC. OR FASHION BUG #2389,INC. PA FASHION BUG #2390,INC. ND FASHION BUG #2391,INC. VA FASHION BUG #2393,INC. VT FASHION BUG #2394,INC. IN FASHION BUG #2395,INC. MD FASHION BUG #2396 OF BIG FLATS,INC. NY FASHION BUG #2397,INC. CT FASHION BUG #2398,INC. NH FASHION BUG #2399,INC. MI FASHION BUG #2403,INC. CT FASHION BUG #2404,INC. MD FASHION BUG #2405,INC. (2) NC FASHION BUG #2406,INC. MO FASHION BUG #2407,INC. NH FASHION BUG #2409,INC. PA FASHION BUG #2411,INC. MA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 22
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2412,INC. MA FASHION BUG #2413,INC. (2) CT FASHION BUG #2414,INC. GA FASHION BUG #2415,INC. PA FASHION BUG #2416,INC. MA FASHION BUG #2418,INC. (2) SC FASHION BUG #2419,INC. (2) NJ FASHION BUG #2420,INC. MO FASHION BUG #2421,INC. NV FASHION BUG #2422,INC. WA FASHION BUG #2423,INC. MA FASHION BUG #2424,INC. MN FASHION BUG #2425,INC. CT FASHION BUG #2426 OF EAST AURORA,INC. NY FASHION BUG #2429,INC. IN FASHION BUG #2430,INC. (2) MN FASHION BUG #2431,INC. (2) SD FASHION BUG #2432,INC. PA FASHION BUG #2435,INC. OH FASHION BUG #2436,INC. ME FASHION BUG #2437,INC. PA FASHION BUG #2439,INC. MA FASHION BUG #2440,INC. PA FASHION BUG #2443,INC. (2) MN FASHION BUG #2444,INC. (2) MN FASHION BUG #2446,INC. PA FASHION BUG #2448,INC. OH FASHION BUG #2449,INC. NV FASHION BUG #2450,INC. AL FASHION BUG #2452,INC. CT FASHION BUG #2453,INC. PA FASHION BUG #2454 OF SCHENECTADY,INC. (2) NY FASHION BUG #2455 OF WILTON,INC. NY FASHION BUG #2457,INC. VA FASHION BUG #2458,INC. NH
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 23
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2459,INC. PA FASHION BUG #2460,INC. MA FASHION BUG #2461,INC. (2) SC FASHION BUG #2461,INC. (1) (2) GA FASHION BUG #2462,INC. OR FASHION BUG #2466,INC. PA FASHION BUG #2467,INC. (2) KY FASHION BUG #2468 OF BATH,INC. NY FASHION BUG #2469,INC. (1) (2) IN FASHION BUG #2470 OF BINGHAMPTON,INC. NY FASHION BUG #2472,INC. CT FASHION BUG #2473,INC. MI FASHION BUG #2474,INC. OH FASHION BUG #2475,INC. (2) MN FASHION BUG #2476 OF MIDDLE ISLAND,INC. NY FASHION BUG #2477,INC. MI FASHION BUG #2478,INC. GA FASHION BUG #2479,INC. IA FASHION BUG #2484,INC. WA FASHION BUG #2485,INC. MD FASHION BUG #2486,INC. (2) IA FASHION BUG #2487,INC. (2) IN FASHION BUG #2488,INC. MN FASHION BUG #2492,INC. PA FASHION BUG #2493,INC. PA FASHION BUG #2497,INC. MA FASHION BUG #2501,INC. MI FASHION BUG #2502,INC. WI FASHION BUG #2503,INC. PA FASHION BUG #2505 OF HUDSON,INC. NY FASHION BUG #2508,INC. MO FASHION BUG #2510,INC. OH FASHION BUG #2511,INC. IN FASHION BUG #2512,INC. NH FASHION BUG #2513,INC. ME
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 24
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2517,INC. (1) (2) CT FASHION BUG #2518,INC. NH FASHION BUG #2519 OF FULTON,INC. NY FASHION BUG #2520,INC. (2) MA FASHION BUG #2521,INC. (2) GA FASHION BUG #2523,INC. FL FASHION BUG #2524,INC. CA FASHION BUG #2529,INC. AZ FASHION BUG #2530,INC. AZ FASHION BUG #2531,INC. GA FASHION BUG #2533,INC. NJ FASHION BUG #2534,INC. NJ FASHION BUG #2536,INC. PA FASHION BUG #2537,INC. KY FASHION BUG #2538,INC. VA FASHION BUG #2540,INC. FL FASHION BUG #2541,INC. NC FASHION BUG #2542,INC. PA FASHION BUG #2543,INC. CT FASHION BUG #2547,INC. VA FASHION BUG #2548,INC. PA FASHION BUG #2549,INC. (2) NE FASHION BUG #2550,INC. VA FASHION BUG #2551 OF CLAY,INC. NY FASHION BUG #2553,INC. OH FASHION BUG #2554,INC. PA FASHION BUG #2555,INC. ME FASHION BUG #2556,INC. OH FASHION BUG #2557,INC. UT FASHION BUG #2558,INC. (2) UT FASHION BUG #2559,INC. UT FASHION BUG #255,INC. ME FASHION BUG #2560,INC. UT FASHION BUG #2561,INC. OH FASHION BUG #2562,INC. OH
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 25
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2564,INC. KY FASHION BUG #2565,INC. KY FASHION BUG #2568,INC. FL FASHION BUG #2569,INC. (1) (2) CA FASHION BUG #2571,INC. OH FASHION BUG #2573,INC. WI FASHION BUG #2574,INC. NH FASHION BUG #2575,INC. TN FASHION BUG #2577,INC. KY FASHION BUG #2578,INC. OH FASHION BUG #2579,INC. PA FASHION BUG #2580,INC. OH FASHION BUG #2581,INC. (2) NE FASHION BUG #2582,INC. SC FASHION BUG #2583,INC. (1) (2) WV FASHION BUG #2584 OF CORTLAND,INC. NY FASHION BUG #2585,INC MD FASHION BUG #2586,INC. OH FASHION BUG #2587,INC. OH FASHION BUG #2588,INC. PA FASHION BUG #2589,INC. TN FASHION BUG #258,INC. TN FASHION BUG #2593,INC. AZ FASHION BUG #2594,INC. CA FASHION BUG #2597 OF COLONIE,INC. NY FASHION BUG #2601,INC. IN FASHION BUG #2603,INC. KY FASHION BUG #2604 OF VESTAL,INC. NY FASHION BUG #2605,INC. MD FASHION BUG #2606,INC. (2) OH FASHION BUG #2607,INC. NJ FASHION BUG #2608,INC. WI FASHION BUG #2609,INC. WI FASHION BUG #2610,INC. MI FASHION BUG #2612,INC. AL
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 26
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2613,INC. (1) (2) WV FASHION BUG #2614,INC. (2) MS FASHION BUG #2616,INC. MA FASHION BUG #2617,INC. WA FASHION BUG #2618,INC. (2) VA FASHION BUG #2619,INC. IL FASHION BUG #2620,INC. GA FASHION BUG #2621,INC. PA FASHION BUG #2623,INC. (2) ID FASHION BUG #2626,INC. IL FASHION BUG #2627 OF WEST SENECA,INC. NY FASHION BUG #2629,INC. MI FASHION BUG #2631,INC. (2) TN FASHION BUG #2635 OF GENESEO,INC. NY FASHION BUG #2636,INC. NH FASHION BUG #2637,INC. IA FASHION BUG #2639,INC. AZ FASHION BUG #263,INC. OH FASHION BUG #2643,INC. OH FASHION BUG #2644,INC. (2) UT FASHION BUG #2646,INC. (2) CA FASHION BUG #2647,INC. (2) CA FASHION BUG #2649,INC. NM FASHION BUG #2650,INC. IA FASHION BUG #2651,INC. MN FASHION BUG #2658,INC. PA FASHION BUG #2659,INC VT FASHION BUG #265,INC. ME FASHION BUG #2661 OF LAKEWOOD,INC. NY FASHION BUG #2662,INC. (1) (2) NJ FASHION BUG #2663,INC. PA FASHION BUG #2665,INC. WI FASHION BUG #2666,INC. VA FASHION BUG #2667,INC. (DUE TO TORNATO) (2) VA FASHION BUG #2667,INC. (REOPENED) VA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 27
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2670,INC. MD FASHION BUG #2671,INC. MI FASHION BUG #2673,INC. NC FASHION BUG #2675,INC. (2) CO FASHION BUG #2676,INC. OH FASHION BUG #2677,INC. IL FASHION BUG #2679,INC. CA FASHION BUG #2680,INC. IA FASHION BUG #2681,INC. (2) OH FASHION BUG #2682,INC. CO FASHION BUG #2684,INC. (2) UT FASHION BUG #2685,INC. MO FASHION BUG #2688,INC. KY FASHION BUG #2689,INC. UT FASHION BUG #2690,INC. DE FASHION BUG #2692,INC. OH FASHION BUG #2695,INC. PA FASHION BUG #2696,INC. CA FASHION BUG #2697,INC. MA FASHION BUG #2698,INC. (1) (2) MA FASHION BUG #2699,INC. MA FASHION BUG #2700 OF PORT JEFFERSON,INC. NY FASHION BUG #2701,INC. CA FASHION BUG #2702,INC. IN FASHION BUG #2705,INC. OH FASHION BUG #2707,INC. MD FASHION BUG #2708,INC. OH FASHION BUG #2709,INC. OH FASHION BUG #2711,INC. MI FASHION BUG #2713,INC. (2) IA FASHION BUG #2715 OF SYRACUSE,INC. (2) NY FASHION BUG #2716,INC. IN FASHION BUG #2717,INC. WI FASHION BUG #2718,INC. (2) GA FASHION BUG #2719,INC. IA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 28
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2720,INC. WV FASHION BUG #2721,INC. PA FASHION BUG #2722,INC. IN FASHION BUG #2724,INC. IN FASHION BUG #2727,INC. CA FASHION BUG #2729,INC. WI FASHION BUG #2730,INC. DE FASHION BUG #2731,INC. DE FASHION BUG #2732,INC. (2) GA FASHION BUG #2733,INC. MO FASHION BUG #2736,INC. MO FASHION BUG #2737,INC. MI FASHION BUG #2738,INC. KY FASHION BUG #2739 OF ROTTERDAM,INC. NY FASHION BUG #2740,INC KS FASHION BUG #2741,INC. OH FASHION BUG #2744,INC. (2) MA FASHION BUG #2749,INC. MN FASHION BUG #2750,INC. PA FASHION BUG #2751,INC. IN FASHION BUG #2752,INC. (2) AL FASHION BUG #2753,INC. (2) MS FASHION BUG #2754,INC. TN FASHION BUG #2755,INC. (1) (2) MO FASHION BUG #2756,INC. (2) ME FASHION BUG #2757,INC. SC FASHION BUG #2759,INC. PA FASHION BUG #2761,INC. (2) KY FASHION BUG #2762,INC. (2) NJ FASHION BUG #2763,INC. PA FASHION BUG #2766,INC. PA FASHION BUG #2767,INC. PA FASHION BUG #2768,INC. IN FASHION BUG #2769,INC. WY FASHION BUG #2773,INC. ID
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 29
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2775,INC. IN FASHION BUG #2777,INC. (1) (2) MI FASHION BUG #2779,INC. OH FASHION BUG #2781,INC. NC FASHION BUG #2783,INC. (2) MN FASHION BUG #2787,INC. ME FASHION BUG #2789,INC. VA FASHION BUG #2790,INC. WA FASHION BUG #2791,INC. OH FASHION BUG #2792,INC. (2) CA FASHION BUG #2793,INC. (2) CA FASHION BUG #2794,INC. NV FASHION BUG #2795,INC. WI FASHION BUG #2796 OF COBLESKILL,INC. NY FASHION BUG #2797,INC. NJ FASHION BUG #2798,INC. (2) FL FASHION BUG #279,INC. PA FASHION BUG #2801,INC. (1) (2) MA FASHION BUG #2802,INC. PA FASHION BUG #2803,INC. (2) TX FASHION BUG #2804,INC. (2) TX FASHION BUG #2805,INC. (2) TX FASHION BUG #2807,INC. IN FASHION BUG #2808,INC. KS FASHION BUG #2809,INC. IN FASHION BUG #2810,INC. OH FASHION BUG #2811,INC. PA FASHION BUG #2814,INC. (2) WY FASHION BUG #2816,INC. MA FASHION BUG #2817,INC. (1) (2) MO FASHION BUG #2818,INC. (2) IL FASHION BUG #2820,INC. CT FASHION BUG #2821,INC. VA FASHION BUG #2822,INC. (1) (2) MI FASHION BUG #2822,INC. MI
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 30
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2826,INC. RI FASHION BUG #2827,INC. (1) (2) KY FASHION BUG #2828,INC. OH FASHION BUG #2829,INC. OH FASHION BUG #2830,INC. WA FASHION BUG #2833,INC. (2) IA FASHION BUG #2836,INC. (2) UT FASHION BUG #2838,INC. OR FASHION BUG #2841,INC. IN FASHION BUG #2842,INC. IL FASHION BUG #2844,INC. PA FASHION BUG #2845,INC. (2) CA FASHION BUG #2850,INC. MI FASHION BUG #2851,INC. NJ FASHION BUG #2852,INC. CO FASHION BUG #2853 OF ROME,INC. NY FASHION BUG #2855,INC. IL FASHION BUG #2856,INC. (2) WI FASHION BUG #2857,INC. OH FASHION BUG #2858,INC. CA FASHION BUG #2861,INC. (2) AL FASHION BUG #2863,INC. MA FASHION BUG #2864,INC. OH FASHION BUG #2868,INC. AZ FASHION BUG #2869,INC. MD FASHION BUG #2871 OF ALBANY,INC. NY FASHION BUG #2872,INC. WI FASHION BUG #2874,INC. IN FASHION BUG #2877,INC. AL FASHION BUG #2879,INC. OR FASHION BUG #2880,INC. (2) CA FASHION BUG #2881,INC. NH FASHION BUG #2882,INC. (1) (2) NH FASHION BUG #2883,INC. (1) (2) WV FASHION BUG #2886,INC. IL
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 31
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2891,INC. (2) TX FASHION BUG #2892,INC. (2) ID FASHION BUG #2893,INC. (2) MT FASHION BUG #2894,INC. IL FASHION BUG #2895,INC. TN FASHION BUG #2896,INC. (1) (2) UT FASHION BUG #2898,INC. CA FASHION BUG #2899,INC. WA FASHION BUG #2902,INC. IA FASHION BUG #2903,INC. (2) NE FASHION BUG #2905,INC. IN FASHION BUG #2906,INC. IN FASHION BUG #2907,INC. IL FASHION BUG #2909,INC. PA FASHION BUG #2911,INC. TN FASHION BUG #2912 OF VICTOR,INC. (2) NY FASHION BUG #2913,INC. PA FASHION BUG #2915,INC. MA FASHION BUG #2919,INC. (2) FL FASHION BUG #2920,INC. WA FASHION BUG #2922,INC. PA FASHION BUG #2923 OF AMSTERDAM,INC. NY FASHION BUG #2924,INC. WI FASHION BUG #2926,INC. KS FASHION BUG #2927,INC. (2) NJ FASHION BUG #2928,INC. RI FASHION BUG #2930,INC. IL FASHION BUG #2932,INC. MA FASHION BUG #2934,INC. CA FASHION BUG #2937,INC. GA FASHION BUG #2941,INC. DE FASHION BUG #2942,INC. (2) UT FASHION BUG #2943,INC. (1) (2) UT FASHION BUG #2944,INC. CA FASHION BUG #2945 OF MEDIA,INC. NY
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 32
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #2948,INC. (2) FL FASHION BUG #2951,INC. NC FASHION BUG #2952,INC. OH FASHION BUG #2954,INC. MI FASHION BUG #2956,INC. MI FASHION BUG #2958,INC. MI FASHION BUG #2959 OF BUFFALO,INC. NY FASHION BUG #2968,INC. (2) OR FASHION BUG #2969,INC. WY FASHION BUG #2974,INC. MI FASHION BUG #2975,INC. (1) (2) MO FASHION BUG #2978,INC. OH FASHION BUG #2980,INC. (2) FL FASHION BUG #2982,INC. VT FASHION BUG #2983,INC. ME FASHION BUG #2987,INC. IN FASHION BUG #2988,INC. IN FASHION BUG #2989,INC. IN FASHION BUG #2990,INC. WI FASHION BUG #2992,INC. (2) CO FASHION BUG #2994,INC. (2) VA FASHION BUG #2995,INC. OH FASHION BUG #2998,INC. PA FASHION BUG #2999,INC. NC FASHION BUG #3000,INC. KS FASHION BUG #3001,INC. VA FASHION BUG #3003,INC. (2) MT FASHION BUG #3005,INC. OH FASHION BUG #3006,INC. AZ FASHION BUG #3008,INC. MA FASHION BUG #3009,INC. WI FASHION BUG #3011,INC. PA FASHION BUG #3016,INC. OH FASHION BUG #3018,INC. WV FASHION BUG #3022,INC. IL
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 33
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #3023,INC. WI FASHION BUG #3026,INC. WV FASHION BUG #3027,INC. (1) (2) UT FASHION BUG #3030,INC. AZ FASHION BUG #3033,INC. NH FASHION BUG #3034,INC. MO FASHION BUG #3038,INC. VT FASHION BUG #3040,INC. MO FASHION BUG #3042,INC. IN FASHION BUG #3044,INC. GA FASHION BUG #3046,INC. GA FASHION BUG #3047,INC. TN FASHION BUG #3048 OF WELLSVILLE,INC. NY FASHION BUG #3049,INC. CT FASHION BUG #3050,INC. MA FASHION BUG #3052,INC. MO FASHION BUG #3054,INC. IL FASHION BUG #3056,INC. GA FASHION BUG #3057,INC. PA FASHION BUG #3058,INC. CT FASHION BUG #3060,INC. (2) SD FASHION BUG #3061,INC. DE FASHION BUG #3062,INC. GA FASHION BUG #3063,INC. (1) (2) VA FASHION BUG #3064,INC. (1) (2) MI FASHION BUG #3065,INC. (1) (2) TN FASHION BUG #3066,INC. (1) (2) MI FASHION BUG #3067,INC (1) (2) TX FASHION BUG #3068,INC. (1) (2) MN FASHION BUG #3069,INC. NJ FASHION BUG #3070,INC. (1) (2) MO FASHION BUG #3071,INC. (1) (2) WA FASHION BUG #3072,INC. (1) (2) AR FASHION BUG #3073,INC. (1) (2) WA FASHION BUG #3078,INC. IL
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 34
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #3079,INC. MO FASHION BUG #3080,INC. (1) (2) ME FASHION BUG #3081,INC. PA FASHION BUG #3082,INC. (1) (2) CT FASHION BUG #3088,INC. (1) (2) WA FASHION BUG #3091,INC. PA FASHION BUG #3092,INC. WI FASHION BUG #3093,INC. (1) (2) MA FASHION BUG #3094,INC. ME FASHION BUG #3099,INC. (1) (2) MD FASHION BUG #3100,INC. OH FASHION BUG #3101,INC. MO FASHION BUG #3102,INC. (1) (2) WV FASHION BUG #3103,INC. IL FASHION BUG #3104,INC. GA FASHION BUG #3105 OF WILLIAMSVILLE,INC. NY FASHION BUG #3106,INC. IN FASHION BUG #3107,INC. (1) (2) PA FASHION BUG #3108,INC. KY FASHION BUG #3109,INC. CT FASHION BUG #3110,INC. IL FASHION BUG #3111,INC. IL FASHION BUG #3112,INC. OH FASHION BUG #3113,INC. FL FASHION BUG #3114,INC. AZ FASHION BUG #3115,INC. MI FASHION BUG #3116,INC. MO FASHION BUG #3117,INC. FL FASHION BUG #3118,INC. CO FASHION BUG #3119,INC. (1) (2) CT FASHION BUG #3120,INC. AZ FASHION BUG #3121,INC PA FASHION BUG #3122,INC PA FASHION BUG #3123,INC. MO FASHION BUG #3124,INC. PA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 35
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #3125,INC. MD FASHION BUG #3126,INC. MA FASHION BUG #3127,INC. MO FASHION BUG #3128,INC. (1) (2) MD FASHION BUG #3129,INC. (1) (2) MD FASHION BUG #3130,INC. (1) (2) NJ FASHION BUG #3131,INC. (1) (2) OH FASHION BUG #3133,INC. (1) (2) CA FASHION BUG #3134,INC. (1) (2) IL FASHION BUG #3135,INC. (1) (2) NY FASHION BUG #3136,INC. (1) (2) GA FASHION BUG #3138,INC. (1) (2) CA FASHION BUG #3139,INC. (1) (2) OH FASHION BUG #3140,INC. (1) (2) CA FASHION BUG #3141,INC. (1) (2) VA FASHION BUG #3142,INC. (1) (2) CA FASHION BUG #3143 OF NORWICH,INC. (1) (2) NY FASHION BUG #3144,INC. (1) (2) AZ FASHION BUG #3145,INC. (1) (2) DE FASHION BUG #3146,INC. (1) (2) FL FASHION BUG #3147,INC. (1) (2) GA FASHION BUG #3148,INC. (1) (2) IL FASHION BUG #3149,INC. (1) (2) OH FASHION BUG #3150,INC. (1) (2) CA FASHION BUG #3151,INC. (1) (2) LA FASHION BUG #3152,INC. (1) (2) LA FASHION BUG #3153,INC. (1) (2) LA FASHION BUG #3154,INC. (1) (2) MD FASHION BUG #3155,INC. (1) (2) AZ FASHION BUG #3156,INC. (1) (2) MD FASHION BUG #3157,INC. (1) (2) MD FASHION BUG #3158,INC. (1) (2) MD FASHION BUG #3159,INC. (1) (2) NM FASHION BUG #3160,INC. (1) (2) MI FASHION BUG #3161,INC. (1) (2) NC
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 36
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #3162,INC. (1) (2) NC FASHION BUG #3163,INC. (1) (2) NJ FASHION BUG #3164,INC. (1) (2) NJ FASHION BUG #3165,INC. (1) (2) NJ FASHION BUG #3166,INC. (1) (2) NJ FASHION BUG #3167,INC. (1) (2) PA FASHION BUG #3168,INC. (1) (2) PA FASHION BUG #3169,INC. (1) (2) PA FASHION BUG #3170,INC. (1) (2) TX FASHION BUG #3171,INC. (1) (2) TX FASHION BUG #3172,INC. (1) (2) TX FASHION BUG #3173,INC. (1) (2) TX FASHION BUG #3174,INC. (1) (2) VA FASHION BUG #3175,INC. (1) (2) VA FASHION BUG #3176,INC. (1) (2) VA FASHION BUG #3177,INC. (1) (2) DE FASHION BUG #3178,INC. (1) (2) CO FASHION BUG #3179,INC. (1) (2) VA FASHION BUG #3180,INC. (1) (2) VA FASHION BUG #3181,INC. (1) (2) WA FASHION BUG #3182,INC. (1) (2) NM FASHION BUG #3183,INC. (1) (2) MA FASHION BUG #3184,INC. (1) (2) MI FASHION BUG #3185,INC. (1) (2) NM FASHION BUG #3186,INC. (1) (2) CO FASHION BUG #3187,INC. (1) (2) KS FASHION BUG #3188,INC. (1) (2) LA FASHION BUG #3189,INC. (1) (2) TX FASHION BUG #3190,INC. (1) (2) UT FASHION BUG #3191,INC. (1) (2) LA FASHION BUG #3192,INC. (1) (2) MD FASHION BUG #3193,INC. (1) PA FASHION BUG #3194,INC. (1) (2) MI FASHION BUG #3195,INC. (1) (2) MD FASHION BUG #3196,INC. (1) (2) CA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 37
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #3197,INC. (1) (2) MO FASHION BUG #336,INC. IN FASHION BUG #3906,INC. (1) (2) NJ FASHION BUG #3907,INC. (1) (2) NJ FASHION BUG #4001,INC. NJ FASHION BUG #4002,INC. CT FASHION BUG #4004,INC. NJ FASHION BUG #4005,INC. MA FASHION BUG #4006,INC. PA FASHION BUG #4007,INC. PA FASHION BUG #4008,INC. NJ FASHION BUG #4009,INC. RI FASHION BUG #4010,INC. MA FASHION BUG #4011,INC. NH FASHION BUG #4012,INC. NY FASHION BUG #4013,INC. NJ FASHION BUG #418,INC. NJ FASHION BUG #44,INC. PA FASHION BUG #471,INC. MN FASHION BUG #47,INC. IN FASHION BUG #508,INC. PA FASHION BUG #519,INC. WV FASHION BUG #520,INC. MA FASHION BUG #527,INC. KS FASHION BUG #529 OF HAMBURG,INC. NY FASHION BUG #534,INC. IN FASHION BUG #538,INC. ME FASHION BUG #545,INC. VT FASHION BUG #548,INC. ME FASHION BUG #554,INC. PA FASHION BUG #558,INC. (2) TN FASHION BUG #560 OF GLOVERSVILLE,INC. NY FASHION BUG #561,INC. FL FASHION BUG #562,INC. NJ FASHION BUG #564,INC. MO
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 38
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #565,INC. MI FASHION BUG #566,INC. IN FASHION BUG #567,INC. IL FASHION BUG #571,INC. TN FASHION BUG #572,INC. (2) LA FASHION BUG #573,INC. PA FASHION BUG #574 OF SYRACUSE,INC. NY FASHION BUG #575,INC. MN FASHION BUG #576,INC. NJ FASHION BUG #580,INC. ME FASHION BUG #581,INC. NH FASHION BUG #583,INC. KY FASHION BUG #584 OF YONKERS,INC. NY FASHION BUG #585,INC. NJ FASHION BUG #586,INC. NJ FASHION BUG #588,INC. IL FASHION BUG #589,INC. IL FASHION BUG #591,INC. (2) MO FASHION BUG #592,INC. IL FASHION BUG #593 OF SELDEN,INC. NY FASHION BUG #594,INC. KS FASHION BUG #595,INC. IN FASHION BUG #596,INC. CT FASHION BUG #597,INC. MN FASHION BUG #600,INC. (2) PA FASHION BUG #601,INC. SC FASHION BUG #602,INC. PA FASHION BUG #605,INC. (2) MI FASHION BUG #606,INC. MI FASHION BUG #607,INC. MI FASHION BUG #612,INC. OH FASHION BUG #614,INC. MA FASHION BUG #615,INC. PA FASHION BUG #617,INC. MA FASHION BUG #618,INC. (2) SC
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 39
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #622,INC. WI FASHION BUG #624,INC. MO FASHION BUG #626,INC. (2) MD FASHION BUG #627,INC. OH FASHION BUG #629,INC. NJ FASHION BUG #630,INC. IN FASHION BUG #631,INC. PA FASHION BUG #636,INC. IL FASHION BUG #638,INC. MI FASHION BUG #642,INC. PA FASHION BUG #643,INC. PA FASHION BUG #644,INC. GA FASHION BUG #645,INC. MI FASHION BUG #646,INC. OH FASHION BUG #647,INC. ME FASHION BUG #649,INC. PA FASHION BUG #650,INC. (2) VA FASHION BUG #651,INC. MI FASHION BUG #653,INC. NJ FASHION BUG #654,INC. AL FASHION BUG #656,INC. FL FASHION BUG #657,INC. MO FASHION BUG #658,INC. MA FASHION BUG #660 OF ALBANY,INC. NY FASHION BUG #661,INC. WV FASHION BUG #662,INC. PA FASHION BUG #663,INC. PA FASHION BUG #664,INC. CO FASHION BUG #667,INC. MI FASHION BUG #668 OF SHIRLEY,INC. NY FASHION BUG #670,INC. MA FASHION BUG #672,INC. MI FASHION BUG #673,INC. KY FASHION BUG #674,INC. IL FASHION BUG #675,INC. (2) LA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 40
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #676 OF OZONE PARK,INC. NY FASHION BUG #678,INC. OH FASHION BUG #679 OF WATERTOWN,INC. NY FASHION BUG #681,INC. IN FASHION BUG #683,INC. (2) WI FASHION BUG #684,INC. NC FASHION BUG #686,INC. (2) IL FASHION BUG #687,INC. IL FASHION BUG #689,INC. PA FASHION BUG #691,INC. MD FASHION BUG #692,INC. (2) MO FASHION BUG #693,INC. MI FASHION BUG #694,INC. MI FASHION BUG #697,INC. OH FASHION BUG #698,INC. OH FASHION BUG #716,INC. RI FASHION BUG #719,INC. OH FASHION BUG #720 OF OSWEGO,INC. NY FASHION BUG #721,INC. (2) MA FASHION BUG #723,INC. (2) AL FASHION BUG #724,INC. NH FASHION BUG #727,INC. ME FASHION BUG #729,INC. MI FASHION BUG #730,INC. (2) OH FASHION BUG #731,INC. IL FASHION BUG #732,INC. MI FASHION BUG #733,INC. IN FASHION BUG #734 OF DUNKIRK,INC. NY FASHION BUG #736,INC. (2) MO FASHION BUG #737,INC. MA FASHION BUG #738,INC. NC FASHION BUG #739,INC. (2) OH FASHION BUG #740,INC. WI FASHION BUG #741,INC. OH FASHION BUG #742,INC. OH
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 41
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #743,INC. (2) OH FASHION BUG #745,INC. PA FASHION BUG #748,INC. OH FASHION BUG #751,INC. MI FASHION BUG #752,INC. VT FASHION BUG #754,INC. PA FASHION BUG #755,INC. ME FASHION BUG #756,INC. CT FASHION BUG #757 OF BROCKPORT,INC. NY FASHION BUG #758,INC. WI FASHION BUG #759,INC. MI FASHION BUG #760 OF PINE PLAZA,INC. PA FASHION BUG #761,INC. MO FASHION BUG #762,INC. MO FASHION BUG #763,INC. MO FASHION BUG #764,INC. IL FASHION BUG #766,INC. OH FASHION BUG #767,INC. (2) WV FASHION BUG #768,INC. VA FASHION BUG #769,INC. OH FASHION BUG #771,INC. MI FASHION BUG #772 OF MIDDLETOWN,INC. NY FASHION BUG #773,INC. TN FASHION BUG #774,INC. PA FASHION BUG #775,INC. VT FASHION BUG #776,INC. KY FASHION BUG #778,INC. PA FASHION BUG #779,INC. KY FASHION BUG #781,INC. OH FASHION BUG #784,INC. VA FASHION BUG #785,INC. MI FASHION BUG #786,INC. CT FASHION BUG #787,INC. RI FASHION BUG #788,INC. MA FASHION BUG #790,INC. (2) OH
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 42
State or Jurisdiction of Name Organization - ---- ------------ FASHION BUG #792,INC. NC FASHION BUG #793,INC. VA FASHION BUG #795,INC. MI FASHION BUG #797,INC. KS FASHION BUG #799,INC. VA FASHION BUG #84 OF QUEENS,INC. NY FASHION BUG #863,INC. IN FASHION BUG #95,INC.(907) (2) MD FASHION BUG & FASHION BUG PLUS #2179,INC. FL FASHION SERVICE CORP (2) PA FASHION VALUE OUTLET OF CAMPHILL,INC. (1) (2) PA FB APPAREL IN FB CLOTHING,INC. (2) IN FB DISTRO IN FESTUS #2733 DEVELOPMENT CO.,INC. MO FSC SERVICE CORP. (2) PA FSHC,INC. (2) DE F.B. PLUS WOMEN'S APPAREL OF JOHNSON CITY,INC. (2) PA F.B. PLUS WOMEN'S APPAREL OF KINGSTON,INC. PA F.B. PLUS WOMEN'S APPAREL OF RIVERSIDE,INC. (2) NY F.B. WOMEN'S APPAREL OF CLAY,INC. (2) PA F.B. WOMEN'S APPAREL OF DELMAR,INC. PA F.B. WOMEN'S APPAREL OF DEPEW,INC. PA F.B. WOMEN'S APPAREL OF ONEONTA,INC. PA F.B. WOMEN'S APPAREL OF PANORAMA PLAZA,INC. NY F.B. WOMEN'S APPAREL OF WEST SENECA,INC. (1) (2) NY F.B. WOMEN'S APPAREL OF YORKTOWN HEIGHTS,INC. (2) PA F.B. WOMEN'S APPAREL #2481 OF RIVERSIDE,INC. PA F.B. WOMEN'S APPAREL #3097 OF NEW HARTFORD,INC.(1) (2) NY INTERNATIONAL APPAREL, INC. (2) PA J.M. BALTER CO (1) (2) PA J.P.A. CLOTHING COMPANY (2) GA J.P.A. SERVICE CO. (1) (2) PA J.P.A. SERVICE CO. PA KAFCO DEVELOPMENT CO., INC. (2) PA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. 43
State or Jurisdiction of Name Organization - ---- ------------ KIRKSTONE LTD (2) HONG KONG MACOMB #2619 DEVELOPMENT CO., INC. IL ORLE (2) DE PRESQUE ISLE #2756 DEVELOPMENT CO.,INC. (2) ME PRICE APPEAL #5001 OF STATEN ISLAND,INC. (1) (2) NY PRICE APPEAL #5015,INC. (1) (2) NJ PRICE APPEAL #5020,INC. (1) (2) OH PRICE APPEAL #5060,INC. (1) (2) MI ROLLA #2685 DEVELOPMENT CO.,INC. MO S A FUNDING,INC. (2) DE SALINA #2926 DEVELOPMENT CO.,INC. KS SAN ANGELO #2973 DEVELOPMENT CO.,INC. (2) TX SENTANI TRADING LTD. (2) HONG KONG SIKESTON #2736 DEVELOPMENT CO.,INC. MO SPECIALTY FIXTURES,INC. (2) DE SPIRIT OF AMERICA NATIONAL BANK (2) PA VICTORIA #2972 DEVELOPMENT CO.,INC. (2) TX WINKS LANE,INC. (2) PA W.L. DISTRIBUTORS,INC. (2) PA YARDARM TRADING LTD. (2) HONG KONG YUCCA #2524 DEVELOPMENT CO.,INC. CA
- -------------------- (1) These companies are not included in the consolidated financial statements for the fiscal year ended January 31, 1998, as they had not then commenced operations and the original capitalization was not then paid in. (2) These companies do not currently operate stores. EX-23 8 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement (Form S-8, No. 333-43117), dated December 23,1997, Registration Statement (Form S-8, No. 333-22323), dated February 25, 1997, Registration Statement (Form S-8, No. 33-56145) and Registration Statement (Form S-8, No. 33-56147), dated October 25, 1994, Registration Statement (Form S-8, No. 33-39558), dated March 25, 1991 and Registration Statement (Form S-8 No. 2-92975), dated September 17, 1984, of our report dated April 27, 1998 with respect to the consolidated financial statements of Charming Shoppes, Inc. included in this Annual Report (Form 10-K) for the year ended January 31, 1998. ERNST & YOUNG LLP Philadelphia, Pennsylvania April 27, 1998 (72) EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JAN-31-1998 JAN-31-1998 12,349 84,909 0 0 175,785 305,881 443,017 257,013 709,738 142,673 138,116 0 0 10,625 406,185 709,738 1,016,537 1,016,537 772,709 772,709 0 0 10,390 29,422 10,088 19,334 0 0 0 19,334 0.18 0.18
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