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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000019353-01-500009.txt : 20010507
<SEC-HEADER>0000019353-01-500009.hdr.sgml : 20010507
ACCESSION NUMBER: 0000019353-01-500009
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20010203
FILED AS OF DATE: 20010504
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-K
SEC ACT:
SEC FILE NUMBER: 000-07258
FILM NUMBER: 1622998
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
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>form10k.txt
<DESCRIPTION>FORM 10-K
<TEXT>
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 February 3, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-7258
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 (S.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. ( )
As of April 16, 2001, 101,742,782 common shares were outstanding. The
aggregate market value of the common shares (based upon the closing price
on April 16, 2001), held by non-affiliates was approximately $487 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.
PART I
Item 1. Business
General
Charming Shoppes, Inc., a Pennsylvania corporation formed in 1969, operates
through its subsidiary corporations 1,754 women's specialty retail apparel
stores in 48 states, under the names Fashion Bug(R), Fashion Bug Plus(R),
Catherine's Plus Sizes(R), The Answer(TM) and Added Dimensions(R) (as of
the fiscal year ended February 3, 2001 ("Fiscal 2001"). Unless the context
indicates otherwise, the term "Company" refers to Charming Shoppes, Inc.
and, where appropriate, one or more of its subsidiaries.
Charming Shoppes opened its first store on September 13, 1940 in
Philadelphia, Pennsylvania. In 1971, Charming Shoppes became a public
corporation, trading on the over-the-counter market (Nasdaq) under the
ticker symbol "CHRS".
During the fiscal year ended January 29, 2000, the Company acquired the
Catherines Stores Corporation, a chain of 436 retail stores, and the Modern
Woman chain of 136 retail stores. Both chains served a similar customer --
the plus-size woman. The Company consolidated the two businesses so as to
benefit from synergies. The combination provided the Company with an
enhanced platform to strengthen and accelerate its large-size growth
strategy. Charming Shoppes has become a leading provider of large-size
fashion, a segment that continues to outpace the overall growth of the
women's apparel market. In addition to synergies and efficiencies in
buying and administrative functions, the Company achieved improved
geographic diversity in its overall store base and resulting revenue
stream. During Fiscal 2001, the Company completed the integration of the
Modern Woman stores into the Catherines Stores Corporation.
With $1.6 billion in sales and 1,754 stores nationwide, Charming Shoppes is
the largest women's specialty apparel retailer in the strip shopping
center. The Company is a leading women's specialty retailer in plus sizes,
servicing the plus-size woman through three distinct brands: Fashion Bug
(including Fashion Bug Plus), Catherine's Plus Sizes and The Answer/Added
Dimensions. Through varied fashion concepts, the Company offers
merchandise at budget to moderate price points, with classic to updated
fashion tastes, for a wide range of ethnically diverse women. The fashion
apparel needs of the Misses and Junior customer are served through the
Fashion Bug, Monsoon, and Accessorize brands.
The Company's Brands
Fashion Bug(R) and Fashion Bug Plus(R)
The Company's 1,230 Fashion Bug and Fashion Bug Plus stores specialize in
selling a wide variety of plus-size, misses and junior sportswear, dresses,
coats, lingerie, accessories, and casual footwear. The stores sell both
developed product, uniquely designed for the Fashion Bug customer, and
brand-name merchandise. The majority of these stores are located in the
Northeast quadrant of the United States, in strip shopping centers. The
Company's Fashion Bug stores average 8,900 square feet in size and are
located in 46 states. Customers are in the 20- to 49-year-old age group,
shop in the low to moderate price range, and are on trend with current
fashions. Plus-size sportswear is the largest merchandise category, with
41% of sales represented by plus-sizes.
Catherine's Plus Sizes(R)
The Catherine's Plus Sizes customer wears size 16 and larger, and generally
shops in the moderate price range. The brand targets women 40-65 years old
and offers classic apparel and accessories for career and casual lifestyles
in a one-to-one selling environment. The target customer has classic but
fashion-conscious tastes, and is primarily concerned with fit and value in
apparel selection. As a size specialist, Catherine's also has developed an
expertise in providing merchandise catering to plus-size women wearing
sizes 28 and above, as well as petite sizes. These 414 stores, which
exclusively sell plus-size women's apparel, are located in 45 states,
primarily in the Southeast, Mid-Atlantic, and Eastern Central regions of
the United States, and average 4,000 square feet in size. Employing a
strip shopping center strategy, Catherine's Plus Sizes is a destination
store, with a competitive advantage in super sizes, petites, and the body
basics fit program, designed to help a woman choose the merchandise styles
that flatter her figure.
The Answer(TM)/Added Dimensions(R)
The Answer and Added Dimensions stores cater to an ethnically diverse,
plus-size woman, over 35 years of age, who shops in the moderate to better
price range. The brand caters to her need for career, church, social
occasion, and casual apparel and accessories offering high quality fashion.
She is fashion forward, has a strong fashion attitude, and prefers dramatic
styles and bold colors. These 110 stores, which exclusively sell plus-size
women's apparel, are located primarily in metropolitan areas throughout the
Southeastern and Midwestern United States, and average 3,900 square feet in
size. The stores employ a strip center strategy, and are located in 23
states and the District of Columbia.
Monsoon(R) and Accessorize(R)
On October 26, 2000, Charming Shoppes, Inc. and Monsoon plc of London
announced the signing of a joint venture agreement, for the purpose of
bringing the successful apparel and accessories concepts of Monsoon and
Accessorize stores from the United Kingdom to the United States. The
Company plans to open approximately 10 Monsoon and/or Accessorize stores
during the fiscal year ending February 2, 2002 ("Fiscal 2002") and will be
evaluating the performance of these stores in developing a longer-term
growth strategy for the brands.
The Monsoon concept is a women's apparel specialty store in the "better"
price range, with locations in premier malls. All product is private label
and created by Monsoon's team of designers and buyers using manufacturing
resources throughout the world. Product offerings include leading fashion
in both career and special occasion dressing. The target customer is 25 to
55 years old.
Accessorize specializes in women's accessories in the "moderate" to
"better" price range. All product is private label and is sourced from
around the world using Accessorize's design, buying, and development teams.
Product offerings include bags, necklaces, bracelets, earrings, hair
accessories, hats, purses, scarves, sunglasses, and sarongs, among others.
The target customer is 16 to 45 years old.
The Company's real estate strategy for Fashion Bug, Catherine's Plus Sizes,
and The Answer/Added Dimensions stores is focused on locating stores in
strip shopping centers. As of the end of Fiscal 2001, approximately 85% of
the Company's stores were located in strip shopping centers. The Company
believes that its low to moderate customer base visits 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.
Growth Strategy
The Company's primary growth strategy is to increase its market share in
women's specialty plus-size apparel. In support of this strategy, the
Company plans to increase store units aggressively. The Company expects to
fund store growth plans from internally generated funds. During Fiscal
2001, the Company announced plans to eliminate the girls merchandise from
the Fashion Bug stores. Store space and inventory previously committed to
girls will primarily be redirected to the expansion of the plus-size
apparel offerings. Through branded websites, the Company also plans to
develop an online marketing medium for plus-size women, and to introduce e-
commerce for plus-size women's apparel.
Merchandising and Marketing
The Company employs a merchandise strategy that emphasizes a variety of
choices in its merchandise assortment. The Company uses 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 strategy 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, in plus (large-size), misses, petite, and junior sizes.
Merchandise that complements these areas, such as accessories, intimate
apparel, and footwear, are also featured. In addition, Catherine's Plus
Sizes stores offers a broad assortment of merchandise in extended sizes
(over size 26), making the Company one of the few retailers to emphasize
these sizes. The Company has eliminated girls apparel from its Fashion Bug
stores as of the end of the 2000-2001 winter. Sales of girls apparel
represented approximately 3% of Fashion Bug sales. Store space and
inventory commitments previously allocated to girls apparel will be
redirected primarily to growth in plus-size apparel.
Product assortments are generally tailored to the demographics of an area,
and merchandise is available for six seasons -- spring, summer,
transitional, fall, holiday, and transitional. The Company maintains
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 order to meet the demands of its primary customers, the Company uses 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
and agency relationships to procure basic low-risk commodity merchandise,
which generally requires longer lead times.
The Company 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 that 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 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 that 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 operations.
The retail sale of women's apparel is a highly competitive business with
numerous competitors, including moderate-price department stores, discount
department stores, other low- to moderate-price, moderate-price, and
moderate-to-better-price specialty apparel stores, and mail-order
companies. The Company cannot reasonably estimate the number of
competitors due to the large number of companies selling women's apparel.
However, the Company believes that it currently holds an estimated 20%
market share of the women's large-size specialty apparel business. 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's stores experience a normal seasonal sales pattern for the
retail apparel industry, with peak sales occurring during the Easter, Labor
Day, and Christmas seasons. 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 2001, as a percent of
total sales, were 23.6%, 26.7%, 22.6% and 27.1%, respectively.
The Company continues to be promotionally oriented. The Company's
advertising expenditures are focused on stimulating customer traffic
through targeted direct mail advertising to preferred customers. These
customers are selected from a database of more than 18 million proprietary
credit card, third-party credit card, and cash customers. The Company also
may use radio, television, and newspaper advertising to stimulate traffic
at certain strategic times of the year. 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 necessary to feature
certain merchandise or certain promotional selling prices from time to
time.
The Company encourages sales through its proprietary credit cards. The
Company's proprietary credit card programs have approximately 2.8 million
active accounts, which accounted for approximately 33% of retail sales in
Fiscal 2001. 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 Fashion Bug 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 by the Company's credit card bank to a trust,
which issues certificates representing ownership interests in the trust.
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 Fashion Bug proprietary credit card portfolio is originated
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.
Catherine's Plus Sizes and The Answer/Added Dimensions also offer customers
the convenience of a private-label credit card. The Company uses a third-
party bank to finance and service these private-label credit card programs.
This third-party bank provides new account approval, credit authorization,
billing, and account collection services. Under a non-recourse agreement
with the third-party bank, the Company is reimbursed daily with respect to
sales generated by the private-label credit cards. The agreement may
require the Company to repurchase receivables from the third-party bank
under certain conditions relating to a change in control of the Company.
Purchasing
Purchasing is conducted on a departmental basis for each of the Fashion
Bug, Catherine's Plus Sizes, and The Answer/Added Dimensions merchandise
groups by staffs 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 that
will permit attractive selling prices, while obtaining the desired markup
for the Company.
The merchandising staffs obtain store and chain-wide inventory information
generated by merchandise information systems that use point-of-sale
terminals. Through these terminals, 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, markdowns, and
changes in the buying plans for upcoming seasons.
During Fiscal 2001, the Company's stores purchased merchandise from
approximately 1,150 suppliers, none of which accounted for more than 4% of
the Company's purchases. The Company purchased approximately 70% of its
Fashion Bug merchandise and 80% of its Catherine's Stores merchandise in
the domestic market on an open account basis, with the remainder being
obtained through the Company's sourcing organization.
Sourcing
In order to meet the demands of its primary customers, the Company uses 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 2001, the Company purchased approximately 70%
of its Fashion Bug merchandise and 80% of its Catherine's Stores
merchandise in the domestic market, with the remainder being developed by
the Company's sourcing organization. The Company anticipates a reduction
in the percentage of domestically sourced product for Catherine's Stores to
a level closer to the Company's Fashion Bug domestic sourcing percentage of
70%.
During Fiscal 2001, the Company conducted its sourcing operations in 24
countries through its offices in Hong Kong and Singapore. Merchandise
purchases outside the United States are done via letter of credit with
third party vendors, with the Company being the importer of record. To
date, the Company has not experienced difficulties in purchasing
merchandise overseas or importing such merchandise into the United States.
Should political instability result in a disruption of normal activities in
a country with which the Company does business, the Company believes it
would have adequate alternative sources of supply.
Distribution
The Company operates two distribution centers. For its Fashion Bug and The
Answer/Added Dimensions stores, the Company uses a distribution center in
Greencastle, Indiana. The 150-acre tract of land contains a building of
approximately 1,000,000 square feet. The Company estimates that, by
operating multiple shifts, it would have the ability to service over 2,000
stores from this distribution center. For Catherine's Plus Sizes stores,
the Company operates a 213,000 square foot distribution center in Memphis,
Tennessee, which is designed to handle up to approximately 800 stores.
The majority of merchandise purchased by the Company is received at the
Greencastle and Memphis facilities, 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 sorting systems in these distribution centers
enhance the flow of merchandise from receipt to shipment. Merchandise is
shipped to each store by trucks operated principally by common carriers.
The Company uses computerized automated distribution models that enhance
the efficiency of the distribution operations. These models enable the
distribution operations to build various customer profiles into each
store's plan. These profiles 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. This enables the Company's stores to offer fresh
product assortments on a regular basis.
Stores
The Company's stores feature wall and selling-floor displays that
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.
The Company's real estate strategy for Fashion Bug, Catherine's Plus Sizes,
and The Answer/Added Dimensions stores is focused on locating stores in
strip shopping centers. The Company's 1,754 stores (as of February 3,
2001) are primarily located in suburban areas and small towns.
Approximately 85% of these stores are located in strip shopping centers,
while the balance are located in community and regional malls. The Company
believes that its low to moderate customer base visits 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. Typically, stores are open
seven days per week, eleven hours per day Monday through Saturday, and
seven hours on Sunday.
The Company's Fashion Bug stores range in size, generally, from 5,000
square feet to 15,000 square feet, averaging approximately 8,900 square
feet. The Company's Catherine's Plus Sizes and The Answer/Added Dimensions
stores range in size, generally, from 2,000 square feet to 6,000 square
feet, averaging approximately 3,900 square feet. Total leased space was
13,067,000 square feet as of the end of Fiscal 2001, as compared to
12,911,000 square feet as of the end of the fiscal year ended January 29,
2000 ("Fiscal 2000").
The Company has developed new store designs for each of its store concepts.
During the fiscal year ended January 30, 1999, the Fashion Bug store design
was elevated to a brighter, well-defined, easier-to-shop format. By the
end of Fiscal Year 2001, 27% of the Company's 1,230 Fashion Bug stores were
in the new format. New, remodeled, and relocated stores will use the new
design. The Company has also developed new store designs for the
Catherine's Plus Sizes and The Answer/Added Dimensions concepts. The new
Catherine's Plus Sizes store design was introduced in August 2000, and the
updated The Answer/Added Dimensions format was introduced during February
2001. Going forward, new, remodeled, and relocated Added Dimensions stores
will operate under The Answer tradename.
The Company's real estate strategy for Monsoon and Accessorize stores is
focused on locating stores in better-rated mall locations, street fronts
and life-style strip centers.
The Company plans to open 110-120 new stores, remodel approximately 45-50
stores, and relocate approximately 75-80 stores during Fiscal 2002. The
Company continues to seek new locations that meet its financial and
operational objectives.
During Fiscal 2001, the Company opened 94, closed 49, and relocated 18
Fashion Bug stores. The Company opened 11, closed 7, and relocated 9
Catherine's Stores and converted 87 Modern Woman stores to the Catherine's
Plus Sizes and Added Dimension/The Answer formats. As a result of the
integration of Modern Woman stores into the Catherines Stores Corporation,
35 Modern Woman stores were closed during Fiscal 2001.
The Company's store openings and closings over the past five fiscal years
are set forth in the following table:
<TABLE>
<CAPTION>
Year Ended
Feb. 3, Jan. 29, Jan. 30, Jan. 31, Feb. 1,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of stores
Open at beginning
of period.............. 1,740 1,135 1,135 1,134 1,301
Opened during period..... 105 75 65 25 5
Acquired during period... 0 572 0 0 0
Closed or combined
during period.......... (91)(1) (42) (65) (24) (172)
----- ----- ----- ----- -----
1,754 1,740 1,135 1,135 1,134
===== ===== ===== ===== =====
Store Type
Fashion Bug and Fashion
Bug Plus............... 1,230 1,185 1,135 1,135 1,134
Catherine's Plus Sizes,
The Answer, and Added
Dimensions............. 524 555(2) 0 0 0
----- ----- ----- ----- -----
1,754 1,740 1,135 1,135 1,134
===== ===== ===== ===== =====
</TABLE>
- --------------------
[FN]
(1) Includes 35 Modern Woman stores that were closed as a result of the
consolidation of Modern Woman stores into the Catherine's Plus Sizes/The
Answer/Added Dimensions formats during the year ended February 3, 2001.
(2) Includes 122 Modern Woman stores that were closed or converted to the
Catherine's Plus Sizes/The Answer/Added Dimensions formats during the year
ended February 3, 2001.
</FN>
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 district managers, who travel to all stores in
their district on a frequent basis, to supervise store operations. Each
district manager has responsibility for an average of approximately 11
stores. Regional managers, who report to a Director of Stores, supervise
the district managers. Generally, store managers are appointed from the
group of assistant managers, and district managers are appointed from the
group of 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 2001, the Company employed approximately 19,750
people, which included approximately 13,800 part-time employees. In
addition, a number of temporary employees are hired during the Christmas
season. Approximately 36 of the Company's Memphis, Tennessee distribution
center employees are represented by the Upholstery and Allied Industries
Division of the United Steelworkers of America. The Company and the union
have ratified their contract, which expires in November 2001. There have
been no material effects on the Company's operations to date as a result of
the union representation.
Trademarks and Servicemarks
The Company owns, or is in the process of obtaining, all rights to the
trademarks and trade names it believes are necessary to conduct its
business as presently operated. "FASHION BUG"(R), "FASHION BUG PLUS"(R),
"L.A. BLUES"(R), "CATHERINE'S"(R), "CATHERINE'S PLUS SIZES"(R), "ADDED
DIMENSIONS"(R), "THE ANSWER"(TM), "CST STUDIO"(R), "CST SPORT," "MAGGIE
BARNES"(R), "KATHY WHITE"(R), "LIZ & ME"(R), "AD SPORT"(R), "GROVE
AVENUE"(R), "JON LAWRENCE"(R), "CAPISTRANO"(R), "FITTING IMAGE"(R), and
"MODERN WOMAN"(R) and several other trademarks and servicemarks of lesser
importance to the Company have been registered or are in the process of
being registered with the United States Patent and Trademark Office and in
other countries.
The Company is the owner of the following domain name registrations:
charming.com, charmingshoppes.com, fashionbug.com, fashionbugplus.com,
catherines.com, and others of lesser importance.
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 growth strategy, future
performance following its acquisitions, joint ventures, restructurings, and
expense reduction initiatives, and the expected benefits thereof. In
addition, the information contained herein includes certain forward-looking
statements regarding earnings, sales performance, store openings and
closings, cost savings, capital requirements, the Company's exposure to
fluctuations in interest rates, and other matters. Such forward-looking
statements are subject to various risks and uncertainties that could cause
actual results to differ materially from those currently anticipated due to
a number of factors, including those identified below.
Dependence on Key Management
The Company's success and its ability to successfully execute 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 the 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 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 interruption of merchandise flow to the
Company's retail stores from its centralized distribution facilities, (xi)
the availability and cost of external financing, (xii) competitive
pressures, (xiii) failure to realize merger-related synergies, (xiv) the
imposition of more onerous payment terms for merchandise purchases, (xv)
the ability to hire and train associates, (xvi) the availability of
suitable store locations on appropriate terms, and (xvii) failure to
achieve the expected benefits of the plus-size growth strategy. 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, 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 February 3, 2001, the following
table shows the number of store leases expiring during the periods
indicated, assuming the exercise of the Company's renewal options:
<TABLE>
<CAPTION>
Number
of Leases
Period Expiring
------ --------
<S> <C>
2001 65
2002 - 2006 341
2007 - 2011 324
2012 - 2016 307
2017 - 2021 350
2022 - 2026 306
Thereafter 61
</TABLE>
The Company owns a 1,000,000 square foot distribution center in
Greencastle, Indiana that services the Company's Fashion Bug, Fashion Bug
Plus, and The Answer/Added Dimensions stores and a 213,000 square foot
distribution center in Memphis, Tennessee that services the Company's
Catherine's Plus Sizes stores.
The Company leases 91,000 square feet of office space in Bensalem,
Pennsylvania, which houses the Company's corporate headquarters, and owns
approximately 22 acres in Bensalem with a 145,000 square foot office
building housing the Company's data processing facility and additional
administrative offices. In addition, the Company owns a 99,000 square foot
facility in Memphis, Tennessee, which houses the Catherine's Stores
corporate headquarters, data processing facility, and administrative
offices. Spirit of America National Bank, the Company's wholly owned
credit card bank subsidiary, occupies 30,000 square feet of leased office
space in Miami Township, Ohio. The Company also maintains a buying office
in New York City that occupies 13,000 square feet of leased space. The
Company owns or leases a total of 43,000 square feet of office and
warehouse space in Asia.
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 17, 2001. 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
June 2001, or until their successors are duly elected and qualified.
Dorrit J. Bern, 50, 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. Ms. Bern's
term as a Director expires in 2002.
Anthony A. DeSabato, 52, has served as Executive Vice President and
Corporate Director of Human Resources for more than five years.
Eric M. Specter, 43, has served as Executive Vice President - Chief
Financial Officer since January 1997. He also served as Treasurer from
February 1998 to March 2000. Prior to that he served as Vice President -
Chief Financial Officer from December 1995 to January 1997.
Colin D. Stern, 52, has served as Executive Vice President and General
Counsel for more than five years. He has also served as Secretary since
February 1998.
Elizabeth Williams, 47, was appointed President of Fashion Bug in December
1999. Prior to that, she served as Executive Vice President -
Merchandising from October 1995 to December 1999. Prior to that, she
served as Divisional Vice President - Misses Sportswear and Special Sizes
for Sears, Roebuck & Co. from February 1994 to October 1995.
Erna Zint, 57, has served as Executive Vice President - Sourcing since
January 1996.
Carmen Monaco, 54, has served as Vice President - Marketing since May 1997.
Prior to that he served as Senior Vice President - Marketing/Advertising
for Goody's Family Clothing Inc. from August 1992 to May 1997.
John J. Sullivan, 54, has served as Vice President - Corporate Controller
since October 1998. Prior to that, he served as Senior Vice President and
Chief Financial Officer for National Media Corp. from January 1998 to
October 1998 and from September 1991 to April 1995, and as Senior Vice
President of Administration from April 1995 to January 1998.
Jeffery A. Warzel, 44, has served as Senior Vice President - Infrastructure
Operations and Strategic Planning since January 2000. Prior to that, he
served as Vice President - Operations Support and Business Development for
Western Auto, a subsidiary of Sears Roebuck & Co. from August 1996 to
December 1999. Prior to that, he served as Vice President - Process
Improvement for Melville Corporation from 1992 to 1996.
Jonathon Graub, 42, has served as Senior Vice President - Real Estate,
since December 1999. Prior to that, he served as Vice President - Real
Estate for more than five years.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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 sale prices for the
Company's Common Stock during the indicated periods, as reported by Nasdaq.
<TABLE>
<CAPTION>
Fiscal 2001 Fiscal 2000
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter.... $8 $4 15/16 $4 5/8 $2 13/16
2nd Quarter.... 7 1/32 4 5/8 7 1/16 3 9/16
3rd Quarter.... 6 3/16 4 7/8 6 13/16 4 9/16
4th Quarter.... 7 1/8 5 3/8 8 1/4 5
</TABLE>
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 April 16, 2001 was 2,240. This number excludes individual
stockholders holding stock under nominee security position listings.
(d) Recent Sales of Unregistered Securities
Not applicable.
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 February 1, 1997 through February
3, 2001. 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.
Financial Statements and Supplementary Data" of this Form 10-K.
<TABLE>
<CAPTION>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
FIVE-YEAR COMPARATIVE SUMMARY
Year Ended
(in thousands, except Feb. 3, Jan. 29, Jan. 30, Jan. 31, Feb. 1,
per share amounts) 2001(1)(2) 2000(1) 1999 1998 1997
---------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales.............. $1,607,079 $1,196,529 $1,035,160 $1,016,537 $1,016,297
Restructuring charge
(credit)............ 0 (3,471)(3) 54,246(4) 0 0
Non-recurring gain from
demutualization of
insurance company.... 0 6,700(5) 0 0 0
Non-recurring gain from
asset securitization. 0 0 0 13,018(6) 0
Extraordinary gain on
early retirement
of debt, net of tax.. 0 1,232 0 0 0
Cumulative effect of
accounting change,
net of tax........... (540)(7) 0 0 0 0
Net income (loss)...... 51,098 45,059 (20,135) 19,334 (7,237)
Basic net income (loss)
per share............ .50 .46 (.20) .18 (.07)
Net income (loss)
per share, assuming
dilution............. .48 .43 (.20) .18 (.07)
Dividends(8)........... .00 .00 .00 .00 .00
At year end:
Total assets........... $852,767 $784,796 $684,649 $709,738 $710,397
Current portion -
long-term debt....... 4,954 1,920 16 16 16
Long-term debt......... 113,540 105,213 119,475 138,116 138,128
Working capital........ 208,389 161,376 192,274 163,208 224,144
Stockholders' equity... 493,269 436,263 383,572 416,810 421,035
</TABLE>
- --------------------
[FN]
(1) Results for the fiscal years ended February 3, 2001 ("Fiscal 2001") and
January 29, 2000 ("Fiscal 2000") include the results of Catherines Stores
Corporation, acquired January 7, 2000, and Modern Woman Holdings, Inc.,
acquired August 2, 1999, from the dates of their respective acquisitions
(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;
Acquisitions" below.)
(2) The fiscal year ended February 3, 2001 consisted of 53 weeks.
(3) During Fiscal 2000, the Company revised its estimates of costs
recognized during the fiscal year ended January 30, 1999 ("Fiscal 1999")
relating to the closing of the Company's Bensalem distribution center and
elimination of the Company's men's business (see note (4) below). As a
result, the Company recognized pre-tax restructuring credits of $2,834,000
relating to the closing of the distribution center and $2,096,000 relating
to the elimination of the men's business. In addition, the Company
recognized a pre-tax restructuring charge of $1,459,000 in Fiscal 2000 in
conjunction with the consolidation of the Modern Woman chain of stores into
the Catherine's Stores chain. (See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations; Results of
Operations; Restructuring Charge (Credit)" and "Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; Restructuring Charge (Credit)" below.)
(4) During Fiscal 1999, the Company's Board of Directors approved a
restructuring plan in conjunction with the elimination of the Company's
men's business, which resulted in a pre-tax charge of $34,000,000. In
addition, the Company's Board of Directors approved a restructuring plan in
conjunction with the decision to consolidate the Company's distribution
center operations, which resulted in a pre-tax charge of $20,246,000. (See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations; Results of Operations; Restructuring Charge
(Credit)" and "Item 8. Financial Statements and Supplementary Data; Notes
to Consolidated Financial Statements; Restructuring Charge (Credit)"
below.)
(5) During Fiscal 2000, the Company received a stock distribution from one
of its mutual insurance carriers in connection with the carrier's
conversion to a publicly held corporation (demutualization). The Company
recorded the distribution at its fair value and recognized the resulting
non-recurring gain in income from continuing operations (see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations; Results of Operations; Non-recurring Gain from Demutualization
of Insurance Company" and "Item 8. Financial Statements and Supplementary
Data; Notes to Consolidated Financial Statements; Non-recurring Gain from
Demutualization of Insurance Company" below).
(6) During the fiscal year ended January 31, 1998, the Company adopted SFAS
No. 125, which included the valuing of an "I/O Strip" consisting of excess
finance charges and past-due fees over the sum of the return paid to
certificate holders and credit losses. As a result, the Company eliminated
its loss reserve related to its retained interest and related recourse
provisions of its credit card certificates, and recognized a non-recurring
gain of $13,018,000. (See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations; Results of Operations;
Non-recurring Gain from Asset Securitization" and "Item 8. Financial
Statements and Supplementary Data; Notes to Consolidated Financial
Statements; Asset Securitization" below).
(7) The Company changed its method of accounting for sales returns and
layaway sales in accordance with the provisions of Securities and Exchange
Commission Staff Accounting Bulletin No. 101 ("SAB 101") effective as of
January 30, 2000. The cumulative effect of the change as of January 30,
2000 was a reduction in income of $540,000, net of a tax benefit of
$334,000.
(8) 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 revolving credit facility requires that the Company
not pay dividends on its Common Stock. (See "Item 5. Market for the
Registrant's Common Equity and Related Stockholders' Matters" above).
</FN>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the financial
statements and the notes thereto included under "Item 8. Financial
Statements and Supplementary Data" of this Form 10-K.
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.
In particular, it includes forward-looking statements regarding the
Company's growth strategy, future performance following its acquisitions,
joint ventures, restructurings, and expense reduction initiatives, and the
expected benefits thereof. In addition, the information contained herein
includes certain forward-looking statements regarding earnings, sales
performance, store openings and closings, cost savings, capital
requirements, the Company's exposure to fluctuations in interest rates, 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. Such
risks and uncertainties may include, but are not limited 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) the risks attendant to the
sourcing of the Company's merchandise needs abroad, including exchange rate
fluctuations, political instability, trade sanctions or restrictions,
changes in quota and duty regulations, delays in shipping, or increased
costs of transportation, (v) the interruption of merchandise flow to the
Company's retail stores from its centralized distribution facilities, (vi)
competitive pressures, and (vii) failure to realize merger-related
synergies. These, and other risks and uncertainties are detailed further
in this Item 7, in "Part I, Item 1 - Business: Cautionary Statement for
Purposes of the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995," and in the Company's reports filed with the
Securities and Exchange Commission from time to time.
RESULTS OF OPERATIONS
In January 2000, the Company acquired Catherines Stores Corporation
("Catherine's Stores"). Catherine's Stores operated 436 retail apparel
stores in 40 states and the District of Columbia, specializing in large-
size women's apparel. In August 1999, the Company acquired Modern Woman
Holdings, Inc. ("Modern Woman"). Modern Woman operated 136 retail apparel
stores in 24 states, specializing in large-size women's apparel. The
Company has converted the Modern Woman stores into Catherine's Stores. The
acquisitions have been accounted for under the purchase method of
accounting, and the results of operations of the acquired companies are
included in the Company's results of operations from their dates of
acquisition. Prior-period results have not been restated.
Assets acquired and liabilities assumed have been recorded at their
estimated fair values. In connection with the Catherine's Stores
acquisition, the purchase price exceeded the fair value of identifiable net
assets acquired. The excess purchase price, approximately $97.7 million,
has been accounted for as goodwill, and is being amortized over a 20-year
period. The results of operations for the fiscal year ended February 3,
2001 ("Fiscal 2001") include $4.9 million of goodwill amortization.
Financial Summary
The following table sets forth certain financial data expressed as a
percentage of net sales and on a comparative basis:
<TABLE>
<CAPTION>
Percentage Increase
(Decrease)
Percentage of Net Sales From Prior Year
Fiscal Fiscal Fiscal Fiscal Fiscal
2001 2000 1999 2001-2000 2000-1999
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.............. 100.0% 100.0% 100.0% 34.3% 15.6%
Other income........... 0.6 0.8 1.5 12.2 (43.8)
Cost of goods sold,
buying, and occupancy 70.6 71.4 74.5 32.7 10.9
Selling, general, and
administrative....... 23.9 23.6 23.8 35.8 14.7
Non-recurring gain from
demutualization of
insurance company.... -- 0.6 -- ** **
Restructuring charge
(credit)............. -- (0.3) 5.2 ** (106.4)
Amortization of
goodwill............. 0.3 -- -- ** --
Interest expense....... 0.5 0.6 1.0 21.7 (27.3)
Income tax provision
(benefit)............ 2.1 2.2 (1.0) 22.9 **
Income (loss) before
extraordinary item
and cumulative effect
of accounting change. 3.2 3.7 (1.9) 17.8 **
Gain on early
retirement of debt,
net of taxes......... -- 0.1 -- ** **
Net income (loss)...... 3.2 3.8 (1.9) 13.4 **
</TABLE>
- --------------------
[FN]
** Not meaningful
</FN>
Net Sales
The following table sets forth certain information related to the Company's
net sales:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 3, 2001 January 29, 2000
---------------- ----------------
Fiscal Fourth Fiscal Fourth
Year Quarter Year Quarter
---- ------- ---- -------
<S> <C> <C> <C> <C>
Increase (decrease) in comparable
Fashion Bug store sales (1)(2)..... 0.5% (0.9%) 8.7% 11.1%
Sales from new Fashion Bug stores as
a percentage of total prior-period
sales (2).......................... 7.6 7.1 5.2 7.3
Increase in sales from Catherine's
and Modern Woman stores as a
percentage of total prior-period
sales (2)(3)....................... 27.6 14.2 5.6 13.8
Prior-period sales from closed
Fashion Bug stores as a percentage
of total prior-period sales (2).... (3.2) (3.1) (3.6) (3.7)
Increase in sales from additional
week in Fiscal 2001................ 2.0 7.5 -- --
Increase in total sales.............. 34.3% 24.8% 15.6% 28.0%
</TABLE>
- --------------------
[FN]
(1) Sales from stores in operation during both periods. Stores are added
to the comparable store base after 13 full months of operation.
(2) Based on comparable 52-week fiscal years and 13-week fiscal quarters.
(3) Sales from Catherine's Stores acquired in January 2000 and Modern Woman
stores acquired in August 1999.
</FN>
Net sales for the fiscal year ended February 3, 2001 ("Fiscal 2001")
totaled $1,607.1 million as compared to net sales of $1,196.5 million for
the fiscal year ended January 29, 2000 ("Fiscal 2000") and net sales of
$1,035.2 million for the fiscal year ended January 30, 1999 ("Fiscal
1999"). Net sales for Fiscal 2001 include $394.0 million of sales from
Catherine's Stores, including Modern Woman stores, which have been
converted into Catherine's Stores. Net sales for Fiscal 2000 include $58.2
million of sales from Catherine's and Modern Woman stores. Net sales for
the fourth quarter of Fiscal 2001 totaled $434.7 million as compared to net
sales of $348.4 million for the fourth quarter of Fiscal 2000 and net sales
of $272.2 million for the fourth quarter of Fiscal 1999. Net sales for the
fourth quarter of Fiscal 2001 include $93.9 million of sales from
Catherine's and Modern Woman stores. Net sales for the fourth quarter of
Fiscal 2000 include $37.6 million of sales from Catherine's and Modern
Woman stores.
The Company adopted the provisions of Securities and Exchange Commission
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," effective as of the beginning of Fiscal 2001. As a
result of the adoption of SAB 101, the Company established a reserve for
estimated future sales returns based on an analysis of actual returns
received subsequent to the end of each fiscal period, and deferred
recognition of layaway sales to the date of delivery. The effect of the
adoption of SAB 101 on net sales for Fiscal 2001 was immaterial. Due to
the seasonal nature of the Company's business, the pro forma effect of
adoption of SAB 101 on net sales for the fourth quarter of Fiscal 2000
would have been an increase of $2.0 million. The pro forma effect of the
adoption of SAB 101 on net sales for Fiscal 2000 would have been
immaterial.
During Fiscal 2001, increases in Fashion Bug comparable store sales of
junior and plus-size sportswear, coats, intimate apparel, and footwear were
offset by decreases in sales of dresses, accessories, and girls. In
January 2001, the Company announced plans to support growth in large-size
apparel and eliminate girls apparel from Fashion Bug stores, effective at
the end of the 2000-2001 winter season. Sales of Fashion Bug girls apparel
were approximately $38.0 million during Fiscal 2001. Store space and
inventory previously committed to girls will primarily be redirected to the
expansion of the large-size apparel offerings. During Fiscal 2000,
increases in comparable Fashion Bug store sales were achieved in
sportswear, coats, intimate apparel, accessories, and girls, as customers
responded favorably to the Company's merchandise offerings throughout the
year. The number of retail stores in operation was 1,754 at the end of
Fiscal 2001 and 1,740 at the end of Fiscal 2000 (including Catherine's and
Modern Woman stores), and 1,135 at the end of Fiscal 1999.
Other Income
Other income increased 12.2% in Fiscal 2001 as compared to Fiscal 2000,
primarily as a result of a decrease in net realized losses on sales of
available-for-sale securities in Fiscal 2001 as compared to Fiscal 2000.
During the second half of Fiscal 2000, the Company incurred realized losses
from sales of available-for-sale securities to finance the Catherine's
Stores and Modern Woman acquisitions. Interest income decreased as a
result of reduced levels of available-for-sale securities during Fiscal
2001 as compared to Fiscal 2000. Other income expressed as a percentage of
sales decreased 0.7% in Fiscal 2000 as compared to Fiscal 1999, primarily
as a result of a decrease in interest income from the Company's available-
for-sale securities and realized losses from sales of available-for-sale
securities. The decrease in interest income and the realized losses on
sales of available-for-sale securities during Fiscal 2000 were a result of
the sales of securities during the second half of Fiscal 2000 to finance
the Catherine's Stores and Modern Woman acquisitions. In addition to the
sales of available-for-sale securities for the acquisitions of Modern Woman
and Catherine's Stores, the Company sold available-for-sale securities to
finance the repurchase of portions of the Company's convertible notes and
Common Stock during Fiscal 1999 and the first half of Fiscal 2000. The
decrease in other income resulting from these sales was partially offset by
the decrease in interest expense that resulted from the repurchases of the
convertible notes.
Cost of Goods Sold, Buying, and Occupancy
Cost of goods sold, buying, and occupancy expenses, expressed as a
percentage of sales, decreased 0.8% in Fiscal 2001 as compared to Fiscal
2000. Cost of goods sold as a percentage of sales decreased 1.2% in Fiscal
2001 as compared to Fiscal 2000. The improvement in merchandise margins
was primarily a result of the effect of relatively higher gross margins for
the Company's Catherine's Stores. Cost of goods sold for the Company's
Fashion Bug stores decreased 0.2% as a percentage of sales in Fiscal 2001
as compared to Fiscal 2000. Cost of goods sold includes merchandise costs,
net of discounts and allowances, freight, and inventory shrinkage. Net
merchandise costs and freight are capitalized as inventory costs. Buying
and occupancy expenses, expressed as a percentage of sales, increased 0.4%
in Fiscal 2001 as compared to Fiscal 2000. The increase in buying and
occupancy expenses was primarily a result of increased utilities expenses
and relatively higher occupancy expenses for new and relocated stores as
compared to the Company's existing stores. Buying expenses include
payroll, payroll related costs, and operating expenses for the Company's
buying departments and warehouses. Occupancy expenses include rent, real
estate taxes, insurance, common area maintenance, utilities, maintenance,
and depreciation for the Company's stores and warehouse facilities and
equipment. Buying and occupancy costs are treated as period costs and are
not capitalized as part of inventory.
Cost of goods sold, buying, and occupancy expenses, expressed as a
percentage of sales, decreased 0.5% in the fourth quarter of Fiscal 2001 as
compared to the corresponding period of Fiscal 2000. Cost of goods sold,
as a percentage of sales, decreased 1.5% in the fourth quarter of Fiscal
2001 as compared to the fourth quarter of Fiscal 2000. The improvement in
merchandise margins was primarily a result of the effect of relatively
higher gross margins for the Company's Catherine's Stores, and, to a lesser
extent, an improvement in gross margins at the Company's Fashion Bug
stores. Cost of goods sold for the Fashion Bug stores, as a percentage of
sales, decreased 0.3% in the fourth quarter of Fiscal 2001 as compared to
the fourth quarter of Fiscal 2000. Buying and occupancy expenses,
expressed as a percentage of sales, increased 1.0% in the fourth quarter of
Fiscal 2001 as compared to the fourth quarter of Fiscal 2000. The increase
in buying and occupancy expenses was primarily a result of increased
utilities expenses and relatively higher occupancy expenses for new and
relocated stores as compared to the Company's existing stores.
Cost of goods sold, buying, and occupancy expenses, expressed as a
percentage of sales, decreased 3.1% in Fiscal 2000 as compared to Fiscal
1999. Cost of goods sold as a percentage of sales decreased 1.7% in Fiscal
2000 as compared to Fiscal 1999. The improvement in merchandise margins
was primarily a result of reduced levels of markdowns and reductions in
store-wide promotions in Fiscal 2000. Merchandise margins also benefited
from a reduction in inventory shrinkage costs. Buying and occupancy
expenses as a percentage of sales decreased 1.4% in Fiscal 2000 as compared
to the prior year, primarily as a result of cost savings from consolidation
of the Company's distribution centers and the leveraging effect of
increased sales volume on relatively fixed store occupancy and buying
expenses. Cost of goods sold, buying, and occupancy expenses for Fiscal
2000 include the results of Catherine's Stores and Modern Woman from the
dates of their acquisitions.
Cost of goods sold, buying, and occupancy expenses, expressed as a
percentage of sales, decreased 2.6% in the fourth quarter of Fiscal 2000 as
compared to the corresponding period of Fiscal 1999. Cost of goods sold as
a percentage of sales decreased 1.5% in the fourth quarter of Fiscal 2000
as compared to the fourth quarter of Fiscal 1999. This decrease was
primarily attributable to improvements in gross margins as a result of
reduced levels of markdowns as compared to the prior year and a reduction
in inventory shrinkage costs. Buying and occupancy expenses, expressed as
a percentage of sales, decreased 1.1% in the fourth quarter of Fiscal 2000
as compared to the fourth quarter of Fiscal 1999. The decrease was a
result of the leveraging effect of increased sales volume on relatively
fixed store occupancy and buying expenses. Cost of goods sold, buying, and
occupancy expenses for the fourth quarter of Fiscal 2000 include the
results of Catherine's Stores and Modern Woman from the dates of their
respective acquisitions.
Selling, General, and Administrative
Selling, general, and administrative expenses expressed as a percentage of
sales increased 0.3% in Fiscal 2001 as compared to Fiscal 2000. The
increase reflects relatively higher expenses for Catherine's Stores as a
percentage of sales. Selling, general, and administrative expenses for the
Fashion Bug stores were relatively unchanged as a percentage of sales.
Selling expenses were constant as a percentage of sales. Increases in
payroll costs were offset by lower marketing expenses as a percentage of
sales and a reduction in the cost of the Company's proprietary credit card
program. General and administrative expenses increased 0.3% as a
percentage of sales in Fiscal 2001, primarily as a result of the lack of
sales leverage and relatively higher expenses for Catherine's Stores, which
have been partially offset by improvements arising from the integration and
consolidation of Catherine's Stores. Selling, general, and administrative
expenses for the fourth quarter of Fiscal 2001 increased 0.8% as a
percentage of sales as compared to the fourth quarter of Fiscal 2000.
Improvements in selling expense as a result of lower marketing expenses in
relation to sales and a reduction in the cost of the Company's proprietary
credit card program were offset by an increase in general and
administrative expenses, primarily as a result of relatively higher
expenses for Catherine's Stores as a percentage of sales.
Selling, general, and administrative expenses expressed as a percentage of
sales decreased 0.2% in Fiscal 2000 as compared to Fiscal 1999. This
decrease was primarily attributable to the leveraging effect of the
increase in sales volume on relatively fixed general and administrative
expenses. Selling expenses were constant as a percentage of sales.
Increases in payroll costs, store incentive programs, and certain volume-
related expenses, and inclusion of expenses incurred by Modern Woman, were
offset by the leveraging effect of increased sales volume. Selling,
general, and administrative expenses for the fourth quarter of Fiscal 2000
increased 0.2% as a percentage of sales as compared to the fourth quarter
of Fiscal 1999, primarily as a result of the inclusion of expenses incurred
by Modern Woman and Catherine's Stores.
Restructuring Charge (Credit)
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 restructuring
plan that resulted in a pre-tax charge of $34,000,000. The plan was
approved in conjunction with the decision to eliminate men's merchandise
from the Company's Fashion Bug stores. To date, 72 stores have been closed
in connection with the plan and 100 stores have been downsized.
Elimination of the men's merchandise from the stores was completed in
October 1998, the balance of the men's inventory has been sold, and the
selling space used for men's merchandise has been re-merchandised. In
Fiscal 2000, the Company determined that 21 of the stores originally
included in the plan would remain open as a result of negotiations with
landlords and changes in economic conditions. As a result, the Company
reversed reserves related to these stores and recognized a pre-tax
restructuring credit of $2,096,000. As of February 3, 2001, this
restructuring plan has been completed, and there are no remaining
restructure accruals relating to this plan.
The restructuring charge included a $10,000,000 write-off of the carrying
value of fixtures and improvements in the stores to be reduced in size or
closed. The fixtures and improvements had no alternative use or salvage
value, and were expected to be scrapped at the time of the closing or
downsizing of the stores. The restructuring charge also included accruals
for anticipated payments to landlords for the early termination of existing
store leases of $19,700,000, severance payments of $320,000, costs to
remove store signs and entrances of $3,300,000, costs of supplies to be
scrapped of $400,000, and legal and architectural fees of $280,000. The
accrual for severance payments was for 650 store employees expected to be
terminated as a result of the store closings. The number of employees
actually terminated was reduced to 590 as a result of the 21 stores that
remained open, as discussed above, and the excess severance accrual was
reversed as part of the restructuring credit of $2,096,000 recognized in
Fiscal 2000. During Fiscal 2001, the Company closed 1 store and completed
the downsizing of 28 stores in connection with the plan.
DISTRIBUTION CENTER RESTRUCTURING
On December 10, 1998, the Company's Board of Directors approved a plan to
close the Company's Bensalem, Pennsylvania distribution center and sell the
facility. The plan was approved in conjunction with the decision to
consolidate the Company's distribution center operations in the Company's
Greencastle, Indiana distribution center. The plan resulted in a pre-tax
restructuring charge of $20,246,000 during Fiscal 1999.
The restructuring charge included a $17,969,000 write-down of the cost of
the Bensalem facilities from a carrying value of $23,631,000 to a net
realizable value of $5,662,000, based on an independent appraisal. The
restructuring charge also included an accrual of $1,556,000 for severance
costs resulting from the termination of 90 warehouse and distribution
personnel and 11 management employees. In addition, the restructuring
charge included an accrual of $721,000 for incremental warehouse handling
costs, outplacement services for terminated employees, legal fees related
to the sale of the facility, and other non-recurring costs relating to the
closure.
The Bensalem distribution center closed on December 10, 1998, and the
Company completed the sale of the Bensalem facility during Fiscal 2000.
Upon completion of the sale of the facility, the Company recognized a pre-
tax restructuring credit of $2,834,000 in Fiscal 2000, which primarily
represented sales proceeds in excess of the estimated net realizable value
of the Bensalem facility. As of February 3, 2001, this restructuring plan
has been completed, and there are no remaining restructure accruals
relating to this plan.
CLOSING OF MODERN WOMAN STORES
During the fourth quarter of Fiscal 2000, the Company recorded a
restructuring charge of $1,459,000 in connection with the Company's
acquisitions of Modern Woman and Catherine's Stores. At the time of the
Catherine's Stores acquisition, the Company planned to consolidate Modern
Woman stores into the Catherine's Stores division. The restructuring
charge was primarily for lease termination costs related to the closing of
11 Modern Woman stores that geographically overlapped Catherine's Stores.
During Fiscal 2001, the Company closed 10 of the 11 stores, and lease
termination costs of $1,086,000 related to the closed stores were paid. As
of February 3, 2001, $373,000 of accrued restructuring charges related to
the remaining store were unpaid.
Non-recurring Gain From Demutualization of Insurance Company
During Fiscal 2000, the Company received a stock distribution from one of
its mutual insurance carriers in connection with the carrier's conversion
to a publicly-held corporation (demutualization). In accordance with the
consensus reached in Emerging Issues Task Force Issue No. 99-4, "Accounting
for Stock Received from the Demutualization of A Mutual Insurance Company,"
the Company recorded the distribution at its fair value and recognized the
resulting non-recurring gain in income from continuing operations, and
subsequently sold the securities received.
Interest Expense
Interest expense increased in Fiscal 2001 as compared to Fiscal 2000 as a
result of an increase in long-term lease financing. During Fiscal 2001,
the Company acquired $14.9 million of point-of-sale equipment for its
stores under long-term capital leases. Interest expense decreased in
Fiscal 2000 as compared to Fiscal 1999 as a result of the Company's
repurchases during Fiscal 2000 of $23.3 million aggregate principal amount
of its 7.5% Convertible Subordinated Notes due 2006.
Income Tax Provision (Benefit)
The income tax provision for Fiscal 2001 was $33.0 million, resulting in a
39% effective tax rate, as compared to an income tax provision for Fiscal
2000 of $26.9 million, resulting in a 38% effective tax rate. Included in
the Fiscal 2001 and Fiscal 2000 tax provisions are $3.5 million and $2.0
million, respectively, related to one of the Company's employee insurance
programs. The increase in the effective tax rate from Fiscal 2000 to
Fiscal 2001 is primarily a result of the non-deductibility for tax purposes
of goodwill related to the Catherine's Stores acquisition. The income tax
benefit for Fiscal 1999 was $10.9 million, resulting in a (35%) effective
tax rate. The change in the effective tax rate from Fiscal 1999 to Fiscal
2000 is primarily attributable to the $2.0 million provision in Fiscal 2000
related to one of the Company's employee insurance programs.
Gain on Early Retirement of Debt
During Fiscal 2000, the Company repurchased $23.3 million aggregate
principal amount of its 7.5% Convertible Subordinated Notes due 2006 at a
total cost of $21.0 million. The notes had an aggregate carrying value of
$22.9 million as of the repurchase dates. The repurchases resulted in an
extraordinary gain of $1.2 million, net of income taxes of $0.7 million.
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.
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Including restructuring charge (credit) and
non-recurring items:
Net return on average stockholders' equity.. 11.0% 11.0% (5.0)%
Net return on average total assets.......... 6.2 6.1 (2.9)
Excluding restructuring charge (credit) and
non-recurring items:
Net return on average stockholders' equity.. 10.6 8.6 3.7
Net return on average total assets.......... 6.2 5.3 2.2
</TABLE>
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 investment portfolio, and its credit facilities described
below. The following table highlights certain information related to the
Company's liquidity and capital resources:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
(dollars in thousands) 2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Working capital................ $208,389 $161,376 $192,274
Cash and cash equivalents...... 56,544 34,299 43,789
Available-for-sale securities.. 125,278 115,829 246,625
Cash provided by
operating activities......... 93,269 57,894 63,371
Current ratio.................. 1.9 1.7 2.1
Long-term debt to equity ratio. 23.0% 24.1% 31.2%
</TABLE>
The Company's cash flow from operations increased $35.4 million in Fiscal
2001 as compared to Fiscal 2000. Earnings before interest, taxes,
depreciation, and amortization ("EBITDA") and excluding non-recurring gains
increased by $39.7 million from Fiscal 2000 to Fiscal 2001. This increase
was primarily attributable to the acquisitions of Catherine's Stores and
Modern Woman in Fiscal 2000. EBITDA excluding non-recurring gains for
Fashion Bug stores increased by $1.7 million from Fiscal 2000 to Fiscal
2001. A reduced level of growth in inventories from Fiscal 2000 to Fiscal
2001 was substantially offset by increased payments of prepaid and accrued
expenses.
The Company's cash flow from operations decreased $5.5 million in Fiscal
2000 as compared to Fiscal 1999. The decrease resulted primarily from
payments related to restructurings (see "Results of Operations;
Restructuring Charge (Credit)" above) and an increase in inventories, net
of accounts payable, partially offset by an increase in net income.
On August 2, 1999, the Company completed the acquisition of 100% of the
outstanding stock of Modern Woman Holdings, Inc. ("Modern Woman") for $8.7
million, net of cash acquired of $1.1 million. On January 7, 2000, the
Company completed the acquisition of 100% of the outstanding stock of
Catherines Stores Corporation ("Catherine's Stores") for $21 per share.
The total cost of the acquisition was approximately $136.6 million, net of
cash acquired of $18.3 million. The Company also assumed $11.2 million of
short-term and long-term debt and capital lease obligations. These
acquisitions were accounted for under the purchase method of accounting and
were funded from the Company's existing cash and available-for-sale
securities. Assets and liabilities of the acquired companies are included
in the Company's consolidated balance sheets at February 3, 2001 and
January 29, 2000.
In July 1996, the Company completed a public offering of $138 million
aggregate principal amount of 7.5% Convertible Subordinated Notes due 2006
(the "Notes"). The Notes are convertible into shares of the Company's
Common Stock at a conversion price of $7.46 per share. The Notes are
redeemable, at the Company's option, at 103.125% of principal through July
14, 2001 and at declining prices thereafter, decreasing to 100% on or after
July 15, 2005. Holders of the Notes may require the Company to repurchase
some or all of the Notes under certain circumstances involving a change in
control of the Company. There is no sinking fund for the Notes. During
Fiscal 1999, the Company repurchased $18.6 million aggregate principal
amount of the Notes, which had a net carrying value of $18.3 million as of
the date of purchase, at a total cost of $17.8 million. During Fiscal
2000, the Company repurchased an additional $23.3 million aggregate
principal amount of the Notes, which had a net carrying value of $22.9
million as of the date of purchase, at a total cost of $21.0 million. The
Company will continue to evaluate market conditions to determine if
additional Notes will be repurchased during Fiscal 2002.
As part of the acquisition of Catherine's Stores, the Company assumed a
7.5% Mortgage Note (the "Mortgage Note") and certain capital lease
obligations. The mortgage financing agreement provides for a $6.9 million
mortgage facility with a seven-year term and annual payments based on a 20-
year amortization period. The Mortgage Note is secured by land and
buildings at the Memphis, Tennessee office of Catherine's Stores. The
capital leases are for data processing and point-of-sale ("POS") equipment.
At the end of the initial lease term, the Company has the option of
purchasing the equipment at fair market value (or at $1 in the case of the
POS equipment), renewing the leases, or returning the equipment to the
lessor.
During Fiscal 2001, pursuant to a program to replace its existing POS
equipment, the Company acquired $14.9 million of POS equipment for its
Fashion Bug and Catherine's Stores under capital leases. These leases
generally have an initial lease term of 60 months and contain a bargain
purchase option. The Company anticipates acquiring additional POS
equipment at a total cost of approximately $15.0 million over the next 12-
18 months which will be financed through additional capital leases.
The Company has debt maturity payments of approximately $5.0 million in
Fiscal 2002, which are primarily for amounts due under the Company's
capital lease obligations and the Catherine's Stores Mortgage Note.
The Company has an agreement with a commercial finance company to provide a
revolving credit facility with a maximum availability of $150 million,
subject to limitations based upon eligible inventory. The facility, which
expires June 30, 2004, enables the Company to issue letters of credit for
overseas purchases of merchandise and provides for seasonal cash
borrowings, if necessary. The facility is secured by merchandise
inventory, furniture and fixtures at the Fashion Bug retail stores, and
certain other Company assets. The interest rate on borrowings is 0.5%
above the Prime rate. There is a fee of .25% on the unused portion of the
first $105 million of the facility, and an annual servicing fee of $100
thousand. As of the end of Fiscal 2001, the availability under the
facility was approximately $131.4 million, against which the Company had
outstanding letters of credit of $48.4 million. There were no cash
borrowings outstanding under the agreement as of the end of Fiscal 2001.
The agreement requires that, among other things, the Company maintain a
minimum net worth of $350 million and not pay dividends on its Common
Stock.
As a result of the Catherine's acquisition, the Company has an agreement
with a bank to provide a revolving credit facility with a maximum
availability of $20 million. The facility, which expires June 29, 2001,
enables the Company to issue letters of credit for overseas purchases of
merchandise and provides for seasonal cash borrowings, if necessary, by
utilizing a $5 million swingline credit facility. The agreement is secured
by inventory, general intangibles, patents, trademarks, and proceeds of the
foregoing. The interest rate on borrowings is equal to the agent bank's
prime rate. At February 3, 2001, the combined availability under the
working capital and swingline facilities was $20 million, against which the
Company had outstanding letters of credit of $284 thousand. The Company is
currently negotiating the extension of this agreement.
As a result of the acquisition of Modern Woman, the Company also has an
agreement with a bank to provide a revolving credit facility with a maximum
availability of $10 million. As of February 3, 2001, $5 million was
available under this agreement, against which the Company had outstanding
letters of credit of $139 thousand. In exchange for the bank's release of
its security interest in all of the assets of Modern Woman, the Company
pledged $5 million of available-for-sale securities as security for the
line of credit.
The Company's Board of Directors has approved the repurchase of up to
20,000,000 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. As of the end of Fiscal
2001, the Company has repurchased an aggregate total of 9,105,000 shares at
an aggregate cost of $41.5 million. The Company will continue to evaluate
market conditions to determine if additional shares will be repurchased
during Fiscal 2002.
The Company has formed a trust to which the Company's credit card bank has
transferred, at face value, its interest in receivables created under the
Company's Fashion Bug 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.
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
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 could have a material adverse effect on the Company's results of
operations. A significant decrease in loan servicing proceeds could result
from increases in interest paid to certificate holders, credit losses, or
other expenses.
The Company securitized $437.7 million and $398.6 million of credit card
receivables in Fiscal 2001 and Fiscal 2000, respectively, and had $301.7
million of credit card receivables under securitizations outstanding as of
February 3, 2001. The Company had retained interests in its
securitizations of $47.7 million as of the end of Fiscal 2001, which were
generally subordinated in right of payment to certificates issued by the
trust to third-party investors. The Company's obligation to repurchase
receivables sold to the trust is limited to those receivables that, at the
time of their transfer, fail to meet the trust's eligibility standards
under normal representations and warranties. To-date, the amount of
receivables repurchased pursuant to this obligation has been immaterial
(see "Item 8. Financial Statements and Supplementary Data; Notes to
Consolidated Financial Statements; Asset Securitization" below).
During Fiscal 2000, the Company, through the trust, completed an offering
of $150 million of asset-backed certificates with a five-year term to
replace its five-year facility that matured in April 1999.
These securitization agreements improve the overall liquidity of the
Company 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.
Charming Shoppes Receivables Corp. and Charming Shoppes Street, Inc.,
wholly owned indirect subsidiaries of the Company, are separate special
purpose corporations. At February 3, 2001, Charming Shoppes Receivables
Corp. had $36.8 million of Charming Shoppes Master Trust Certificates
(included in the $47.7 million of retained interests, discussed above), and
Charming Shoppes Street, Inc. had $1.1 million of cash. These assets will
be available first and foremost to satisfy the claims of the respective
creditors of these separate corporate entities, 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 counter-party
non-performance.
The Company has a non-recourse agreement to permit a third party to provide
an accounts receivable proprietary credit card sales funding program for
its Catherine's Stores, which expires in January 2005. Under this
agreement, the third party reimburses the Company daily with respect to the
proprietary credit card sales generated by the Catherine's Stores credit
card accounts. The agreement may require the Company to repurchase
receivables from the third party under certain conditions relating to a
change in control of the Company. Net proceeds received from sales of
Catherine's Stores receivables for Fiscal 2001 and for the month of January
2000 (the period subsequent to the Company's acquisition of Catherine's
Stores), were approximately $121.1 million and $6.6 million, respectively.
The net balance of accounts receivable held by the third party was
approximately $99.6 million and $93.6 million at February 3, 2001 and
January 29, 2000, respectively.
Capital expenditures amounted to $57.9 million, $39.2 million, and $32.4
million in Fiscal 2001, 2000, and 1999, respectively. These expenditures
were primarily for the construction, remodeling, and fixturing of new and
existing retail stores, loss-prevention equipment, and systems technology.
Fiscal 2000 expenditures included approximately $6.1 million for expansion
of the Company's Greencastle, Indiana distribution center.
During Fiscal 2002, the Company anticipates capital expenditures of
approximately $60-$65 million. These expenditures will primarily be for
construction and fixturing of new stores, remodeling and fixturing of
existing retail stores, investments in management information systems
technology, and improvements to the Company's corporate offices and
distribution centers. In addition to these capital expenditures, the
Company anticipates entering into additional capital leases for new point-
of-sale equipment. The total commitment under capital leases, including
leases already incurred, is expected to be approximately $30 million. Each
of the capital leases is expected to have a five-year term. It is
anticipated that the funds required for capital expenditures will be
financed principally through internally generated funds.
The Company plans to open approximately 110-120 new stores, remodel
approximately 45-50 stores, and relocate approximately 75-80 stores during
Fiscal 2002. The following table sets forth information with respect to
store activity for Fiscal 2001:
<TABLE>
<CAPTION>
Fashion Catherine's Modern
Bug Stores Woman Total
--- ------ ----- -----
<S> <C> <C> <C> <C>
Stores at January 29, 2000...... 1,185 433 122 1,740
----- --- --- -----
Stores opened................... 94 11 0 105
Stores converted................ 0 87 (87) 0
Stores closed................... (49) (7) (35) (91)
----- --- --- -----
Net change in stores............ 45 91 (122) 14
----- --- --- -----
Stores at February 3, 2001...... 1,230 524 0 1,754
===== === === =====
Stores relocated during period.. 18 9 0 27
Stores remodeled during period.. 69 11 0 80
</TABLE>
During Fiscal 1999, the Company recorded total restructuring charges of
$54.2 million. During Fiscal 2000, the Company recognized credits of $4.9
million for revisions of the estimated charges recorded in 1999, and
recognized a restructuring charge of $1.4 million. All of these
restructuring costs had been paid or incurred as of February 3, 2001,
except for $373 thousand of costs which are expected to be incurred in
Fiscal 2002. See "Results of Operations: Restructuring Charge (Credit)"
above, and "Item 8. Financial Statements and Supplementary Data; Notes to
Consolidated Financial Statements: Restructuring Charge (Credit)" below.
On October 26, 2000, the Company announced the signing of a joint venture
agreement with Monsoon Plc. Monsoon Plc operates 321 stores, primarily in
the United Kingdom, offering women's clothing and accessories under the
"MONSOON" and "ACCESSORIZE" brand names. The joint venture will be a
separate consolidated operating unit of the Company. During the first full
year of operation, the joint venture plans to open as many as 20 "MONSOON"
and/or "ACCESSORIZE" stores in the United States. The Company invested
$4.0 million, or 80% of the initial capital in the joint venture, during
Fiscal 2001 and plans to invest an additional $4.0 million over the next
three years. The joint venture did not have a material impact on the
Company's earnings for Fiscal 2001 and is not expected to have a material
impact on earnings for Fiscal 2002.
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
$150 million revolving credit facility (discussed above) requires that the
Company not pay dividends on its Common Stock during the term of such
agreement.
The Company believes that cash flow from operations, its proprietary credit
card receivables securitization agreements, its investment portfolio, and
its revolving credit facilities are sufficient to support current
operations.
MARKET RISK
The Company manages its Fashion Bug proprietary credit card program through
various operating entities that are wholly owned by the Company. The
primary activity of these entities is to service the proprietary credit
card portfolio, the balances of which are sold under a credit card
securitization program. Under the securitization program, the Company can
be exposed to fluctuations in interest rates to the extent that interest
rates charged to its customers vary from the rates paid on certificates
issued by the trust. Until November 2000, the credit card program billed
finance charges based on a fixed rate. As of November 2000, finance
charges on all accounts are billed using a floating rate index (the Prime
lending rate), subject to a floor and limited by legal maximums. The
floating rate index on all of the certificates is either one-month LIBOR or
the commercial paper rate, depending on the issue. Consequently, the
Company has reduced its exposure to fluctuations in interest rates.
However, the Company has exposure in the movement of basis risk between the
floating rate index on the certificates and the Prime rate. As of February
3, 2001, the floating-rate finance charge rate was below the contractual
floor rate, thus exposing the Company to a portion of interest-rate risk.
To the extent that short-term interest rates were to increase by one
percentage point by the end of Fiscal 2002, an increase of approximately
$500 thousand in selling, general, and administrative expenses would
result.
In Fiscal 2000, the Company had entered into an interest rate swap, with a
notional value of $50 million, that limited the Company's exposure to
rising interest rates should interest rates increase to a rate above the
agreement's specified rate of 6.51%. The swap agreement required the
Company to pledge certain assets if the market value of the interest rate
swap fell below an amount set forth in the agreement. As of January 29,
2000, there were no pledged amounts required under the terms of the
agreement. During Fiscal 2001, the Company terminated the swap agreement,
and, in Fiscal 2002, the deferred loss related to this termination will be
recognized in comprehensive income and amortized to selling, general, and
administrative expenses over 44 months (the remaining life of the original
swap period) in accordance with SFAS No. 133.
The Company is not subject to material foreign exchange risk, as the
Company's foreign transactions are primarily U. S. Dollar-denominated and
the Company's foreign operations do not constitute a material part of its
business.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Market Risk," above.
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 February 3, 2001 and January 29, 2000,
and the related consolidated statements of operations and comprehensive
income (loss), stockholders' equity, and cash flows for each of the three
fiscal years in the period ended February 3, 2001. 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 auditing standards generally
accepted in the United States. 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 February 3, 2001 and January 29, 2000,
and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended February 3, 2001, in
conformity with accounting principles generally accepted in the United
States.
As discussed in Notes to Consolidated Financial Statements; Summary of
Significant Accounting Policies; Revenue Recognition, in the fiscal year
ended February 3, 2001, the Company changed its method of accounting for
sales returns and allowances and layaway sales.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 12, 2001
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 3, January 29,
(dollars in thousands) 2001 2000
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................... $ 56,544 $ 34,299
Available-for-sale securities, including fair
value adjustments of $3 as of February 3,
2001 and $0 as of January 29, 2000................ 48,817 41,339
Merchandise inventories............................. 259,127 260,792
Deferred taxes...................................... 10,678 10,801
Prepayments and other............................... 56,748 47,090
-------- --------
Total current assets................................ 431,914 394,321
-------- --------
Property, equipment, and leasehold
improvements - at cost............................ 504,071 450,401
Less accumulated depreciation and amortization...... 286,208 259,477
-------- --------
Net property, equipment, and leasehold improvements. 217,863 190,924
-------- --------
Available-for-sale securities, including fair value
adjustments of $77 as of February 3, 2001
and ($2,222) as of January 29, 2000............... 76,461 74,490
Goodwill............................................ 92,520 97,405
Other assets........................................ 34,009 27,656
-------- --------
Total assets........................................ $852,767 $784,796
======== ========
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
</FN>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
February 3, January 29,
(dollars in thousands, except per share amounts) 2001 2000
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................................... $ 94,881 $ 88,721
Accrued expenses.................................... 123,317 134,033
Accrued restructuring expenses...................... 373 8,271
Current portion -- long-term debt................... 4,954 1,920
-------- --------
Total current liabilities........................... 223,525 232,945
-------- --------
Deferred taxes...................................... 21,433 10,375
Long-term debt...................................... 113,540 105,213
Minority interest in consolidated subsidiary....... 1,000 0
Stockholders' equity
Common Stock $.10 par value
Authorized - 300,000,000 shares
Issued - 110,731,483 shares and 109,639,425 shares 11,073 10,964
Additional paid-in capital.......................... 80,977 76,125
Treasury stock at cost - 9,105,000 shares and
8,955,000 shares................................. (41,537) (40,824)
Deferred employee compensation...................... (1,629) (1,792)
Accumulated other comprehensive income (loss)....... 74 (1,423)
Retained earnings................................... 444,311 393,213
-------- --------
Total stockholders' equity.......................... 493,269 436,263
-------- --------
Total liabilities and stockholders' equity.......... $852,767 $784,796
======== ========
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
</FN>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Year Ended
(in thousands, except February 3, January 29, January 30,
per share amounts) 2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Net sales........................................... $1,607,079 $1,196,529 $1,035,160
Other income........................................ 10,094 8,993 16,003
---------- ---------- ----------
Total revenue....................................... 1,617,173 1,205,522 1,051,163
---------- ---------- ----------
Cost of goods sold, buying, and occupancy expenses.. 1,134,554 854,774 771,107
Selling, general, and administrative expenses....... 384,188 282,932 246,747
Amortization of goodwill............................ 4,885 0 0
Restructuring charge (credit)....................... 0 (3,471) 54,246
Non-recurring gain from demutualization of
insurance company................................. 0 (6,700) 0
Interest expense.................................... 8,894 7,308 10,052
---------- ---------- ----------
Total expenses...................................... 1,532,521 1,134,843 1,082,152
---------- ---------- ----------
Income (loss) before income taxes, extraordinary
item, and cumulative effect of accounting change.. 84,652 70,679 (30,989)
Income tax provision (benefit)...................... 33,014 26,852 (10,854)
---------- ---------- ----------
Income (loss) before extraordinary item and
cumulative effect of accounting change............ 51,638 43,827 (20,135)
Extraordinary item - gain on early retirement of
debt, net of income taxes of $664................. 0 1,232 0
---------- ---------- ----------
Income (loss) before cumulative effect of
accounting change................................. 51,638 45,059 (20,135)
Cumulative effect of accounting change, net of
income tax benefit of $334........................ (540) 0 0
---------- ---------- ----------
Net income (loss)................................... 51,098 45,059 (20,135)
---------- ---------- ----------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available-for-sale
securities, net of income tax (expense) benefit of
($718) in 2001, $214 in 2000, and ($86) in 1999... 1,335 (343) 164
Reclassification of realized losses (gains) on
available-for-sale securities included in net
income, net of income tax (benefit) expense of
($87) in 2001, $726 in 2000 and $124 in 1999...... 162 (1,347) (229)
---------- ---------- ----------
Total other comprehensive income (loss)............. 1,497 (1,690) (65)
---------- ---------- ----------
Comprehensive income (loss)......................... $ 52,595 $ 43,369 $ (20,200)
========== ========== ==========
Basic net income (loss) per share:
Before extraordinary item and cumulative effect
of accounting change............................ $ .51 $ .45 $(.20)
Extraordinary item................................ .00 .01 .00
Cumulative effect of accounting change............ (.01) .00 .00
----- ----- -----
Net income (loss)................................. $ .50 $ .46 $(.20)
===== ===== =====
Diluted net income (loss) per share:
Before extraordinary item and cumulative effect
of accounting change............................ $ .49 $ .42 $(.20)
Extraordinary item................................ .00 .01 .00
Cumulative effect of accounting change............ (.01) .00 .00
----- ----- -----
Net income (loss)................................. $ .48 $ .43 $(.20)
===== ===== =====
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
</FN>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Treasury Stock
(dollars in thousands) Shares Amount Capital Shares Amount
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1998... 106,249,385 $10,625 $64,019 (5,580,000) $(25,382)
Issued to employees......... 109,928 11 876
Exercise of stock options... 475,061 47 434
Shares withheld for payment
of employee payroll taxes
due on shares issued under
employee stock plans...... (3,778) (16)
Purchases of treasury stock. (3,130,000) (14,023)
Tax expense - employee stock
programs.................. (389)
----------- ------- ------- --------- --------
Balance, January 30, 1999... 106,830,596 10,683 64,924 (8,710,000) (39,405)
Issued to employees......... 354,620 36 1,575
Exercise of stock options... 3,364,058 336 13,952
Shares received in payment
of stock option exercises. (909,849) (91) (6,374)
Purchases of treasury stock. (245,000) (1,419)
Tax benefit - employee stock
programs.................. 2,048
----------- ------- ------- --------- --------
Balance, January 29, 2000... 109,639,425 10,964 76,125 (8,955,000) (40,824)
Issued to employees......... 224,141 22 1,020
Exercise of stock options... 906,701 91 3,831
Shares withheld for payment
of employee payroll taxes
due on shares issued under
employee stock plans...... (38,784) (4) (214)
Purchases of treasury stock. (150,000) (713)
Tax benefit - employee stock
programs.................. 215
----------- ------- ------- --------- --------
Balance, February 3, 2001... 110,731,483 $11,073 $80,977 (9,105,000) $(41,537)
=========== ======= ======= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Deferred Other
Employee Comprehensive Retained
(in thousands) Compensation Income (Loss) Earnings
------------ ------------- --------
<S> <C> <C> <C>
Balance, January 31, 1998... $(1,073) $ 332 $368,289
Issued to employees......... (688)
Amortization................ 710
Unrealized losses, net of
tax benefit of $38........ (65)
Net loss.................... (20,135)
------- ------- --------
Balance, January 30, 1999... (1,051) 267 348,154
Issued to employees......... (1,488)
Amortization................ 747
Unrealized losses, net of
tax benefit of $940....... (1,690)
Net income.................. 45,059
------- ------- --------
Balance, January 29, 2000... (1,792) (1,423) 393,213
Issued to employees......... (785)
Amortization................ 948
Unrealized gains, net of
income taxes of $805...... 1,497
Net income.................. 51,098
------- ------- --------
Balance, February 3, 2001... $(1,629) $ 74 $444,311
======= ======= ========
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
</FN>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
February 3, January 29, January 30,
(in thousands) 2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net income (loss)................................... $ 51,098 $ 45,059 $ (20,135)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 43,397 32,650 35,091
Amortization of goodwill.......................... 4,885 302 0
Deferred income taxes, net of acquisitions........ 10,375 18,250 (14,099)
Non-recurring gain from demutualization of
insurance company............................... 0 (6,700) 0
Write-down of capital assets due to restructuring. 0 0 27,969
Net (gain) loss from disposition of capital assets 2,587 (1,469) 3,139
Tax benefit (expense) related to stock plans...... 215 2,048 (389)
Net (gain) loss on sale of available-for-sale
securities...................................... 249 4,627 (353)
Net gain on repurchase of notes................... 0 (1,896) (466)
Changes in operating assets and liabilities, net
of acquisitions:
Merchandise inventories......................... 1,665 (29,703) 4,458
Accounts payable................................ 6,160 (1,797) 8,183
Prepayments and other........................... (8,841) (5,097) 1,563
Accrued expenses................................ (10,716) 16,349 1,533
Income taxes payable............................ 0 (4,552) (1,571)
Accrued restructuring expenses.................. (7,805) (10,177) 18,448
--------- --------- ---------
Net cash provided by operating activities........... 93,269 57,894 63,371
--------- --------- ---------
Investing activities
Gross purchases of available-for-sale securities.... (102,228) (393,393) (406,651)
Proceeds from sales of available-for-sale securities 94,840 523,545 452,263
Acquisitions of Catherine's Stores and Modern Woman,
net of cash acquired.............................. 0 (145,309) 0
Investment in capital assets........................ (57,921) (39,211) (32,369)
Proceeds from sales of capital assets............... 833 10,556 368
Increase in other assets............................ (6,444) (4,927) (14,302)
--------- --------- ---------
Net cash used in investing activities............... (70,920) (48,739) (691)
--------- --------- ---------
Financing activities
Reduction of long-term borrowings................... (3,535) (21,237) (17,806)
Proceeds from short-term borrowings................. 0 30,600 0
Reduction of short-term borrowings.................. 0 (34,393) 0
Purchases of treasury stock......................... (713) (1,419) (14,023)
Proceeds from exercise of stock options............. 3,144 7,804 589
Minority shareholder investment in joint venture.... 1,000 0 0
--------- --------- ---------
Net cash used in financing activities............... (104) (18,645) (31,240)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents.... 22,245 (9,490) 31,440
Cash and cash equivalents, beginning of year........ 34,299 43,789 12,349
--------- --------- ---------
Cash and cash equivalents, end of year.............. $ 56,544 $ 34,299 $ 43,789
========= ========= =========
Non-cash transactions
Purchases of assets under capital leases............ $ 14,896 $ 0 $ 0
========= ========= =========
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
</FN>
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 3, 2001
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company operates retail specialty stores located throughout the
continental United States that merchandise large-size, misses, and junior
sportswear, dresses, coats, and lingerie, as well as accessories and casual
footwear at a wide range of prices.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions are eliminated. The parent and its
subsidiaries have a 52-53 week fiscal year ending on the Saturday nearest
to January 31. The fiscal year ended February 3, 2001 consisted of 53
weeks. As used herein, the terms "Fiscal 2001," "Fiscal 2000," and "Fiscal
1999" refer to the fiscal years ended February 3, 2001, January 29, 2000,
and January 30, 1999, respectively.
On October 26, 2000, the Company announced the signing of a joint venture
agreement with Monsoon Plc. The joint venture will be a separate
consolidated operating unit of the Company. The Company invested $4.0
million, or 80% of the initial capital in the joint venture, during Fiscal
2001. The impact of the joint venture on the Company's earnings for Fiscal
2001 was immaterial.
Foreign Operations
The Company uses a December 31 fiscal year for all foreign subsidiaries in
order to expedite the year-end closing. There were no intervening events
or transactions with respect to the Company's foreign subsidiaries during
the period from January 1, 2001 to February 3, 2001 that would have a
material effect on the Company's financial position or results of
operations.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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. Securities
traded on an established market 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 original maturity of greater than three months and a
remaining maturity of less than one year. Long-term investments have an
original maturity of greater than one year, but are available on an as-
needed basis to support working capital needs.
Inventories
Merchandise inventories are valued at the lower of cost or market as
determined by the retail method (average cost basis).
Property and Depreciation
For financial reporting purposes, depreciation and amortization are
principally computed using 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
$38,066,000, $30,483,000, and $32,323,000 in Fiscal 2001, 2000, and 1999,
respectively.
Amortization of Goodwill
Goodwill is amortized on a straight-line basis over 20 years. The Company
periodically evaluates goodwill to determine if a revision to the remaining
estimated useful life is required, or if a reduction in the carrying value
is required because of an impairment of the asset.
Asset Securitizations
The Company adopted the disclosure provisions of SFAS No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (a replacement of SFAS No. 125), as of Fiscal 2001.
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 consolidated statements of operations.
Common Stock Plans
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and its related interpretations. Deferred
compensation expense attributable to stock awards and stock options having
an exercise price less than the market price on the date of grant is
amortized over the vesting period. No compensation expense is recognized
for option plans having 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."
Revenue Recognition
Revenues from merchandise sales are net of returns and allowances, and
exclude sales tax. The Company adopted the provisions of Securities and
Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements," effective as of the beginning of
Fiscal 2001. As a result of adoption of SAB 101, the Company established a
reserve for estimated future sales returns based on an analysis of actual
returns received subsequent to the end of each fiscal period, and deferred
recognition of layaway sales to the date of delivery. The cumulative
effect of the adoption of SAB 101 as of January 30, 2000 was a decrease in
income, net of taxes, of $540,000. The effect of adoption of SAB 101 on
the results of operations for Fiscal 2001 was immaterial. The pro forma
effect of adoption of SAB 101 for Fiscal 2000 and Fiscal 1999 was
immaterial.
Cost of Goods Sold, Buying, and Occupancy Expenses
Cost of goods sold includes merchandise costs, net of discounts and
allowances, freight, and inventory shrinkage. Net merchandise costs and
freight are capitalized as inventory costs. Buying expenses include
payroll, payroll related costs, and operating expenses for the Company's
buying departments and warehouses. Occupancy expenses include rent, real
estate taxes, insurance, common area maintenance, utilities, maintenance,
and depreciation for the Company's stores and warehouse facilities and
equipment. Buying and occupancy costs are treated as period costs.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs
charged to expense were $39,529,000, $28,876,000, and $29,442,000 in Fiscal
2001, 2000, and 1999, 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 basis differences.
U.S. income taxes have not been provided on undistributed earnings of
foreign subsidiaries accumulated prior to February 3, 2001 because the
Company intends to reinvest such undistributed earnings in foreign
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
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 and stock awards, using the treasury stock
method. Common share equivalents also include the effect of assumed
conversion of the Company's 7.5% Convertible Subordinated Notes Due 2006,
using the "if-converted" method, when the effect of such assumed conversion
is dilutive. Share equivalents are not included in the weighted-average
shares outstanding for determining net loss per share, as the result would
be antidilutive.
Comprehensive Income (Loss)
The consolidated statements of operations and comprehensive income (loss)
include transactions from non-owner sources that affect stockholders'
equity. Unrealized gains and losses recognized in comprehensive income are
reclassified to net income (loss) upon their realization.
Business Segments and Related Disclosures
The Company's Fashion Bug and Catherine's Stores operate within a single
segment -- retail sales of women's apparel, and within a single geographic
area -- the continental United States. The Company's foreign sourcing
operations do not constitute a material geographic segment.
Costs of Computer Software Developed or Obtained for Internal Use
The Company adopted the provisions of American Institute of Certified
Public Accountants ("AICPA") Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," effective as of January 31, 1999. Costs related to the
development of internal-use software, other than those incurred during the
application development stage, are expensed as incurred. Costs incurred
during the application development stage are capitalized and amortized over
the estimated useful life of the software. The adoption of SOP 98-1 did
not have a material effect on the Company's consolidated financial
statements.
Impact of Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires the recognition
of all derivative instruments as either assets or liabilities in the
statement of financial position, and the measurement of those instruments
at fair value. SFAS No. 133 also specifies the conditions under which
derivative instruments qualify as hedging activities, and the accounting
for changes in the fair value of derivatives designated as hedges. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement
No. 133." SFAS No. 137 defers the effective date of SFAS No. 133 to all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company
will adopt the provisions of SFAS No. 133 as of the beginning of the fiscal
year ending February 2, 2002.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." This statement
amends the accounting and reporting standards of SFAS No. 133 for certain
derivative instruments and hedging activities.
Prior to the end of Fiscal 2001, the Company terminated its interest rate
swap agreement, which was used to limit the Company's interest rate risk on
assets related to the management of its proprietary credit card program.
The Company expects that adoption of SFAS No. 133 and SFAS No. 138 will not
have a material effect on its financial position, results of operations, or
comprehensive income.
In September 2000, The FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," a
replacement of SFAS No. 125. SFAS No. 140 carries over most of the
provisions of SFAS No. 125, but revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures. Under SFAS No. 140, the accounting and
reporting standards are based on application of a financial-components
approach that focuses on control. Under this approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets
it controls and the liabilities it has incurred, de-recognizes financial
assets when control has been surrendered, and de-recognizes liabilities
when extinguished. SFAS No. 140 also requires disclosures about
securitizations entered into during the period and retained interests in
securitized financial assets at the balance sheet date, accounting
policies, sensitivity information relating to retained interests, and cash
flows distributed to the transferor.
SFAS No. 140 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after March 31, 2001, and is
effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000. The Company has adopted the
disclosure provisions of SFAS No. 140 as of Fiscal 2001, and will adopt the
accounting requirements of SFAS No. 140 to the extent that it issues new
beneficial interests after March 31, 2001. Management is currently
assessing the effect that SFAS No. 140 will have on the Company's results
of operations and financial position.
ACQUISITIONS
In August 1999, the Company acquired 100% of the outstanding stock of
Modern Woman Holdings, Inc. ("Modern Woman") for $9,773,000 ($8,709,000 net
of cash acquired). Modern Woman operated 136 retail apparel stores in 24
states, specializing in large-size women's apparel. In January 2000, the
Company acquired 100% of the outstanding stock of Catherines Stores
Corporation ("Catherine's Stores") for $154,884,000 ($136,600,000 net of
cash acquired). Catherine's Stores operated 436 retail apparel stores in
40 states and the District of Columbia, specializing in large-size women's
apparel. The Company has converted the Modern Woman stores into
Catherine's Stores. The acquisitions have been accounted for under the
purchase method of accounting, and the results of operations of the
acquired companies are included in the Company's results of operations from
their dates of acquisition. Prior-period results have not been restated.
Assets acquired and liabilities assumed have been recorded at their
estimated fair values. In connection with the Catherine's Stores
acquisition, the purchase price exceeded the fair value of identifiable net
assets acquired. The excess purchase price, approximately $97,707,000, has
been accounted for as goodwill, and is being amortized over a 20-year
period. In connection with the Modern Woman acquisition, the fair value of
the net assets acquired exceeded the purchase price, and the excess was
applied to reduce the fair value of non-current assets. The acquisitions
were financed through the use of internally-generated funds.
The following unaudited pro forma information is based on historical data,
and gives effect to the Company's acquisition of Catherine's Stores as if
the acquisition had occurred on January 31, 1999. Pro forma adjustments
primarily represent a reduction in interest income from the use of
investments and amortization of goodwill resulting from the acquisition.
The pro forma information does not include the acquisition of Modern Woman,
as the effect would have been immaterial.
<TABLE>
<CAPTION>
(in thousands except per share amounts) 2000
----
<S> <C>
Net sales......................................... $1,487,053
Income before extraordinary items................. 45,693
Net income........................................ 46,925
Net income per share:
Basic........................................... $0.48
Diluted......................................... 0.45
</TABLE>
The unaudited pro forma information is not necessarily indicative of the
actual results of operations that would have occurred if the acquisition
had occurred as of January 31, 1999, and is not necessarily indicative of
results that may be achieved in the future. The unaudited pro forma
information does not reflect adjustments for operating synergies that the
Company may realize as the result of the acquisition. No assurances can be
made as to the amount and timing of any financial benefits that the Company
may realize as the result of the acquisition.
PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
<TABLE>
<CAPTION>
Lives
(in thousands) (Years) 2001 2000
----- ---- ----
<S> <C> <C> <C>
Land.......................... $ 1,757 $ 1,757
Buildings and improvements.... 10 to 40 54,232 52,543
Store fixtures................ 5 to 10 108,069 141,331
Equipment..................... 3 to 10 166,906 134,099
Leasehold improvements........ 10 to 20 173,107 120,671
-------- --------
Total at cost................. 504,071 450,401
Less accumulated depreciation
and amortization............ 286,208 259,477
-------- --------
$217,863 $190,924
======== ========
</TABLE>
AVAILABLE-FOR-SALE SECURITIES
<TABLE>
<CAPTION>
Unrealized Estimated
(in thousands) Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
February 3, 2001
U. S. Treasury and government
agency bonds........................ $ 69,192 $ 99 $ (19) $ 69,272
Charming Shoppes Master Trust
retained interest................... 47,724 0 0 47,724
Low income housing partnerships....... 7,952 0 0 7,952
Other................................. 330 0 0 330
-------- ---- ------- --------
$125,198 $ 99 $ (19) $125,278
======== ==== ======= ========
January 29, 2000
U. S. Treasury and government
agency bonds........................ $ 68,520 $ 4 $(2,226) $ 66,298
Charming Shoppes Master Trust
retained interest................... 41,245 0 0 41,245
Low income housing partnerships....... 7,952 0 0 7,952
Other................................. 334 0 0 334
-------- ---- ------- --------
$118,051 $ 4 $(2,226) $115,829
======== ==== ======= ========
</TABLE>
Gross realized gains and (losses) on available-for-sale securities were
$43,000 and ($292,000), respectively, during Fiscal 2001. Gross realized
gains and (losses) were $6,910,000 and ($4,837,000), respectively, during
Fiscal 2000.
Contractual maturities of available-for-sale securities at February 3, 2001
were:
<TABLE>
<CAPTION>
Estimated
(in thousands) Cost Fair Value
---- ----------
<S> <C> <C>
Due in one year or less................ $ 48,814 $ 48,817
Due after one year through five years.. 68,432 68,509
-------- --------
117,246 117,326
Equity securities...................... 7,952 7,952
-------- --------
$125,198 $125,278
======== ========
</TABLE>
INCOME TAXES
Income (loss) before income taxes, extraordinary item, and cumulative
effect of accounting change:
<TABLE>
<CAPTION>
(in thousands) 2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Domestic........ $79,716 $65,615 $(34,479)
Foreign......... 4,936 5,064 3,490
------- ------- --------
$84,652 $70,679 $(30,989)
======= ======= ========
</TABLE>
Income tax provision (benefit):
<TABLE>
<CAPTION>
(in thousands) 2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Current:
Federal....... $ 17,345 $ 5,431 $ 4,321
State......... 1,683 1,158 692
Foreign....... 883 514 192
-------- ------- --------
19,911 7,103 5,205
Deferred(1)..... 13,103 19,749 (16,059)
-------- ------- --------
$ 33,014 $26,852 $(10,854)
======== ======= ========
</TABLE>
[FN]
(1) Primarily Federal
</FN>
The Company made income tax payments of $20,041,000, $9,692,000, and
$5,982,000 during Fiscal 2001, 2000, and 1999, respectively. Included in
"Prepayments and other" in the accompanying consolidated balance sheet as
of January 29, 2000 is an income tax receivable of $6,808,000.
Reconciliation of the effective tax rate with the statutory Federal income
tax rate:
<TABLE>
<CAPTION>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax
(benefit) rate................ 35.0% 35.0% (35.0)%
State income tax, net
of Federal income tax......... 1.9 1.0 1.5
Foreign income.................. (1.0) (1.7) (3.4)
Employee benefits............... 2.5 3.1 1.4
Amortization of goodwill........ 2.0 -- --
Other, net...................... (1.4) 0.6 0.5
---- ---- ----
39.0% 38.0% (35.0)%
==== ==== ====
</TABLE>
Components of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
Net Current Net Long-Term
Assets Assets
(in thousands) (Liabilities) (Liabilities)
----------- -----------
<S> <C> <C>
February 3, 2001
Property, equipment, and leasehold
improvements........................... $ (208)
Accrued expenses......................... $ 9,990
Inventory................................ (1,853)
Deferred compensation.................... 2,729
Prepaid employee benefits................ 3,406
Investments.............................. (6,907)
Deferred rent............................ 2,099
Employee insurance program............... (11,100)
Other.................................... (2,964) (5,947)
------- --------
$10,678 $(21,433)
======= ========
</TABLE>
<TABLE>
<CAPTION>
Net Current Net Long-Term
Assets Assets
(in thousands) (Liabilities) (Liabilities)
----------- -----------
<S> <C> <C>
January 29, 2000
Property, equipment, and leasehold
improvements........................... $ (2,112)
Tax net operating losses
and credit carryforwards............... 8,467
Accrued expenses......................... $10,461
Inventory................................ (3,317)
Deferred compensation.................... 1,585
Prepaid employee benefits................ 2,233
Investments.............................. (6,184)
Deferred rent............................ 2,059
Employee insurance program............... (7,600)
Other.................................... (635) (4,531)
------- --------
$10,801 $(10,375)
======= ========
</TABLE>
[FN]
Certain prior period amounts have been reclassified to conform to the
current presentation.
</FN>
The Company's Federal tax returns for the fiscal years ended January 1994
through January 1997 are currently under audit. The Company anticipates
that the outcome of these audits will not have a material adverse effect on
its financial condition or results of operations.
DEBT
Long-term debt at year end:
<TABLE>
<CAPTION>
(in thousands) 2001 2000
---- ----
<S> <C> <C>
7.5% Convertible Subordinated Notes
Due 2006............................. $ 96,047 $ 96,047
Capital lease obligations.............. 15,890 4,332
7.5% mortgage note..................... 6,449 6,652
Other.................................. 108 102
-------- --------
Total long-term debt................... 118,494 107,133
Less current portion................... 4,954 1,920
-------- --------
$113,540 $105,213
======== ========
</TABLE>
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, at 103.125% of principal through
July 14, 2001 and at declining prices thereafter, decreasing to 100% on or
after July 15, 2005. Under certain circumstances involving a change in
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.
During Fiscal 2000, the Company repurchased $23,316,000 aggregate principal
amount of the Notes, which had a net carrying value of $22,927,000 as of
the dates of purchase, at a total cost of $21,031,000. The repurchases
resulted in an extraordinary gain of $1,232,000, net of income taxes of
$664,000, for Fiscal 2000. During Fiscal 1999, the Company repurchased
$18,637,000 aggregate principal amount of the Notes, which had a net
carrying value of $18,268,000 as of the dates of purchase, at a total cost
of $17,802,000. The net gain on the repurchases of the Notes during Fiscal
1999 was not material.
During Fiscal 2001, pursuant to its program to replace its existing point-
of-sale ("POS") equipment, the Company acquired $14,896,000 of POS
equipment for its Fashion Bug and Catherine's Stores under capital leases.
These leases generally have an initial lease term of 60 months and contain
a bargain purchase option.
The 7.5% Mortgage Note (the "Mortgage Note") and $2,753,000 of capital
lease obligations were assumed in January 2000 in connection with the
acquisition of Catherine's Stores. The mortgage financing agreement
provides for a $6,919,000 mortgage facility with a seven-year term and
payments based on a 20-year amortization period. The mortgage includes a
final payment of $5,585,000 in April 2005. The Mortgage Note is secured by
land and buildings at Catherine's office in Memphis, Tennessee. The
capital leases are for data processing and point-of-sale equipment. At the
end of the initial lease term, the Company has the option of purchasing the
equipment at fair market value (or at $1 in the case of the point-of-sale
equipment), renewing the leases, or returning the equipment to the lessor.
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 facility, which
expires June 30, 2004, enables the Company to issue letters of credit for
overseas purchases of merchandise and provides for seasonal cash
borrowings, if necessary. The facility is secured by merchandise
inventory, furniture and fixtures at the Fashion Bug retail stores, and
certain other Company assets. The interest rate on borrowings is 0.5%
above the Prime rate. There is a fee of .25% on the unused portion of the
first $105,000,000 of the facility, and an annual servicing fee of
$100,000. As of February 3, 2001, the availability under the facility was
approximately $131,424,000, against which the Company had outstanding
letters of credit of $48,381,000. There were no cash borrowings
outstanding under the agreement as of February 3, 2001. 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.
As a result of the Catherine's Stores acquisition, the Company has an
agreement with a bank to provide a revolving credit facility with a maximum
availability of $20,000,000. The facility, which expires June 29, 2001,
enables the Company to issue letters of credit for overseas purchases of
merchandise and provides for seasonal cash borrowings, if necessary, by
utilizing a $5,000,000 swingline credit facility. The agreement is secured
by inventory, general intangibles, patents, trademarks, and proceeds of the
foregoing. The interest rate on borrowings is equal to the agent bank's
prime rate. At February 3, 2001, the combined availability under the
working capital and swingline facilities was $20,000,000, against which the
Company had outstanding letters of credit of $284,000. The Company is
currently negotiating the extension of this agreement.
As a result of the acquisition of Modern Woman, the Company also has an
agreement with a bank to provide a revolving credit facility with a maximum
availability of $10,000,000. As of February 3, 2001, $5,000,000 was
available under this agreement, against which the Company had outstanding
letters of credit of $139,000. In exchange for the bank's release of its
security interest in all of the assets of Modern Woman, the Company pledged
$5,000,000 of available-for-sale securities as security for the line of
credit.
During Fiscal 2001, 2000, and 1999, the Company made interest payments of
$8,712,000, $7,519,000, and $9,756,000, respectively.
Aggregate maturities of long-term debt principal during the next five
fiscal years are:
<TABLE>
<CAPTION>
7.5%
Capital Mortgage
(in thousands) Leases Note Other Total
------ ---- ----- -----
<S> <C> <C> <C> <C>
2002 $4,741 $188 $25 $4,954
2003 3,626 203 24 3,853
2004 3,360 199 19 3,578
2005 2,868 234 16 3,118
2006 1,295 5,625 16 6,936
</TABLE>
STOCKHOLDERS' EQUITY
The Company's capital consists of 1,000,000 shares of Series Participating
Preferred Stock, $1.00 par value, of which 500,000 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.
In November 1997, the Company's Board of Directors ("the Board") authorized
the repurchase of up to 10,000,000 shares of the Company's Common Stock.
In March 1999, the Board authorized the repurchase of an additional
10,000,000 shares of 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. As of February 3, 2001, the
Company has repurchased an aggregate total of 9,105,000 shares of its
Common Stock at an aggregate cost of $41,537,000.
STOCK OPTION AND STOCK INCENTIVE PLANS
At February 3, 2001, 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 $948,000, $747,000, and $710,000 in Fiscal 2001, 2000,
and 1999, respectively.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires pro forma
disclosures of the effect of using fair values at the dates of grant to
determine compensation cost for awards under stock-based compensation
plans. Using the method prescribed under SFAS No. 123 to determine
compensation cost for the Company's plans, the Company's net income (loss)
and net income (loss) per share would have changed to the pro forma amounts
shown below:
<TABLE>
<CAPTION>
(in thousands, except per-share data) 2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Pro forma net income (loss).......... $49,185 $43,102 $(21,629)
Pro forma net income (loss) per share
Basic net income (loss) per share.. $.49 $.44 $(.22)
Diluted net income (loss) per share $.47 $.41 $(.22)
</TABLE>
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. In applying the Black-Scholes model, the following
assumptions were used: dividend yield of 0%; expected stock price
volatility of 37.6%; expected lives of 3 months for the Employee Stock
Purchase Plan, 1 to 3 years for stock award plans, and 6 to 7 years for
stock option and stock incentive plans; and the following risk-free
interest rates:
<TABLE>
<CAPTION>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Employee stock purchase plan..... 4.9% 5.4% 4.7%
Stock award plans................ 4.8 6.5 5.1
Stock option and incentive plans. 5.1 6.6 5.2
</TABLE>
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. Option
grants and awards generally vest over several years and the Company expects
to grant additional awards in the future. Therefore, the pro forma results
should not be considered to be representative of the effects on reported
results for future years.
The Company's Board of Directors adopted the 2000 Associates' Stock
Incentive Plan on January 27, 2000. The plan provides for the grant of
options, stock appreciation rights, restricted stock awards, deferred
stock, or other stock-based awards to purchase up to 5,000,000 shares of
the Company's Common Stock. The form of the grants, exercise price, and
maximum term, where applicable, are at the discretion of the Board of
Directors and the Stock Option Committee of the Board of Directors. As of
February 3, 2001, 177,690 options were exercisable under this plan.
The Company's Amended and Restated Non-Employee Directors Program was
adopted by the Board of Directors on July 1, 1999. This program provides
for the automatic annual grant of options to purchase 20,000 shares of
Common Stock to each non-employee director. The options vest in equal
installments over five years. The exercise price of such options shall be
equal to the fair market value of the stock on the date of grant. As of
February 3, 2001 and January 29, 2000, 28,000 options and 0 options,
respectively, were exercisable under this plan. The program also provides
for a one-time grant of 10,000 shares of Restricted Common Stock to each
newly elected non-employee director. The grants vest in equal amounts over
three years. During Fiscal 2001 and Fiscal 2000, 10,000 shares and 20,000
shares, respectively, were granted and issued as one-time grants under this
program. The weighted average market value at date of grant for shares
granted in Fiscal 2001 and Fiscal 2000 was $5.13 and $6.21, respectively.
The Company's Board of Directors adopted the 1999 Associates' Stock
Incentive Plan in February 1999. The plan provides for the grant of
options to purchase up to 1,000,000 shares of the Company's Common Stock.
The exercise price of such options may not be less than the fair market
value at the date of grant. The maximum term of options issued under the
plan is ten years. As of February 3, 2001 and January 29, 2000, 127,500
options and 0 options, respectively, were exercisable under this plan.
The Company's 1993 Employees' 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
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 February 3, 2001, January 29, 2000, and January 30, 1999,
4,380,640 options, 3,415,250 options, and 2,465,230 options, respectively,
were exercisable under this plan. During Fiscal 2001 and Fiscal 2000,
88,000 shares and 306,307 shares, respectively, were granted as restricted
stock awards under this plan. The weighted average market value at date of
grant for the Fiscal 2001 and Fiscal 2000 awards was $6.81 per share and
$4.61 per share, respectively. During Fiscal 2001, 38,308 shares granted
as restricted stock awards under this plan were issued and awards totaling
10,300 shares were cancelled. As of February 3, 2001, restricted stock
awards totaling 345,699 shares were outstanding under this plan.
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 options under this
Plan. As of February 3, 2001, January 29, 2000, and January 30, 1999,
144,000 options, 483,800 options, and 3,522,142 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 February 3, 2001, January 29,
2000, and January 30, 1999, 66,000 options, 78,000 options, and 90,000
options, respectively, were exercisable under this plan. As a result of
the adoption of the Amended and Restated Non-Employee Directors Program on
July 1, 1999, the Company no longer intends to issue options 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 February 3, 2001, January 29, 2000, and January 30,
1999, 92,937 options, 205,330 options, and 412,245 options, respectively,
were exercisable under this plan.
The table below summarizes the activity in all Stock Option Plans:
<TABLE>
<CAPTION>
Average Option
Option Option Prices
Shares Price Per Share
------ ----- ---------
<S> <C> <C> <C>
Outstanding at January 31, 1998...... 10,612,111 $5.512 $ .222-17.000
Granted-option price equal to market. 1,551,722 4.306 3.594- 5.250
Granted-option price less than market 18,500 1.000 1.000- 1.000
Canceled/forfeited................... (1,279,938) 7.797 .500-17.000
Exercised............................ (475,061) 1.013 .222- 5.375
---------- ------ -------------
Outstanding at January 30, 1999...... 10,427,334 5.249 .500-16.875
Granted-option price equal to market. 1,794,970 4.077 3.625- 6.625
Granted-option price less than market 16,000 1.000 1.000- 1.000
Canceled/forfeited................... (417,387) 5.068 .500-15.750
Exercised............................ (3,364,058) 4.247 .500- 6.188
---------- ------ -------------
Outstanding at January 29, 2000...... 8,456,859 5.400 .500-16.875
Granted-option price equal to market. 2,192,050 6.633 5.000- 6.813
Granted-option price less than market 37,700 1.000 1.000- 1.000
Canceled/forfeited................... (682,035) 6.225 1.000-16.875
Exercised............................ (906,701) 4.326 .500- 6.188
---------- ------ -------------
Outstanding at February 3, 2001...... 9,097,873 $5.724 $ .500-15.813
========== ====== =============
</TABLE>
Weighted average grant date fair value for options granted, using Black-
Scholes model and assumptions described above:
<TABLE>
<CAPTION>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Option price equals market price............$2.35 $1.92 $1.94
Option price less than market price......... 5.32 2.96 3.59
</TABLE>
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 February 3, 2001 for the ranges
of exercise prices shown:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Option Option Remaining
Ranges of Option Prices Shares Price Life
- ----------------------- ------ ----- ----
<S> <C> <C> <C>
$0.50-$1.00:
Options outstanding........ 170,023 $.855 4.8
Options exercisable........ 92,937 .735
$1.01-$5.00:
Options outstanding........ 4,478,400 $4.015 6.2
Options exercisable........ 2,750,600 4.083
$5.01-$10.00:
Options outstanding........ 3,593,000 $6.347 7.4
Options exercisable........ 1,382,180 6.209
$10.01-$15.81:
Options outstanding........ 856,450 $13.011 2.3
Options exercisable........ 791,050 13.032
</TABLE>
At February 3, 2001, 1,031,050 shares were available for grant under the
2000 Associates' Stock Incentive Plan, 248,327 shares were available for
grant under the Amended and Restated Non-employee Directors Program,
249,900 shares were available for grant under the 1999 Associates' Stock
Incentive Plan, 2,356,324 shares were available for future grant under the
1993 Employees' Stock Incentive plan, and 184,549 shares were available for
grant under the 1988 Key Employee Stock Option Plan.
The Company's 1998 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 2000. During Fiscal
2001, 77,450 shares were issued under this plan and rights to receive
33,605 shares were cancelled. During Fiscal 2000, rights to receive 4,591
shares were granted and rights to receive 7,768 shares were cancelled.
During Fiscal 1999, rights to receive 114,232 shares were granted. The
weighted average market value at date of grant for awards granted in Fiscal
2000 and Fiscal 1999 was $4.03 per share and $4.31 per share, respectively.
Associates pay no cash consideration for shares received under the plan.
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 2000, 1,500
rights were granted under this plan, and 1,500 shares were issued. During
Fiscal 1999, 41,904 rights were granted under this plan, and 41,904 shares
were issued. The weighted average market value at date of grant for awards
granted in Fiscal 2000 and Fiscal 1999 was $4.00 per share and $4.80 per
share, respectively. Awards under this program were discontinued as of
July 1, 1999 as a result of adoption of the Amended and Restated Non-
Employee Directors Program.
The Company's Board of Directors adopted the Restricted Stock Award Plan
for Associates 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 2001, 5,500 shares were issued under this
plan. During Fiscal 2000, 5,500 rights were granted under this plan, and
5,500 shares were issued. During Fiscal 1999, 5,500 rights were granted
under this plan, and 12,783 shares were issued. The weighted average
market value at date of grant for awards granted in Fiscal 2000 and Fiscal
1999 was $3.63 per share and $4.31 per share, respectively.
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. Under the 1989 Non-Employee Director Stock
Option Plan, the Non-Employee Director Compensation Program, the
Compensation Program for the Non-Employee Chairman of the Board of
Directors, and the Amended and Restated Non-Employee Directors Program,
shares issued and options granted are subject to forfeiture if the
individual ceases to remain a Director of the Company except, under certain
circumstances, in the case of retirement.
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 2001 and
Fiscal 2000, 57,527 shares and 31,343 shares, respectively, were purchased
under the plan. The weighted average grant date market value for shares
purchased during Fiscal 2001 and Fiscal 2000 was $5.41 per share and $4.84
per share, respectively. At February 3, 2001, 1,673,964 shares were
available for future purchase under this plan.
SHAREHOLDER RIGHTS PLAN
In February 1999, the Company's Board of Directors adopted a Shareholder
Rights Plan to replace the existing Shareholder Rights Plan with effect
from April 26, 1999, when the existing Shareholder Rights Plan expired.
The Board of Directors also increased the authorized shares of
Participating Series A Junior Preferred Stock, $1.00 par value, from
300,000 shares to 500,000 shares, and declared a dividend of one Right for
each outstanding share of Common Stock, payable as of the close of business
on April 26, 1999 to shareholders of record as of the close of business on
April 12, 1999. Such Rights only become exercisable or transferable apart
from the Common Stock ten days after a person or group (Acquiring Person)
acquires, or obtains the right to acquire, beneficial ownership of 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 purchase
price of $20, 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. 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), the rights entitle holders other than
the Acquiring Person 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.
Prior to February 1, 2001, redemption of the Rights by the Company required
the approval of a majority of those directors who were members of the Board
of Directors at the time of execution of the Rights Agreement (the
"Continuing Directors") or any person who subsequently became a member of
the Board of Directors if such director's election to the Board of
Directors was recommended or approved by a majority of the Continuing
Directors. On February 1, 2001, the Company's Board of Directors approved
an amendment and restatement of the Rights Agreement dated as of April 26,
1999 that deletes the concept of Continuing Directors and provides that
redemption of the Rights requires approval by the Board of Directors
(regardless of whether such directors would have been Continuing
Directors). The Rights will expire on April 25, 2009.
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
(in thousands) 2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Basic weighted average common shares
outstanding.......................... 101,119 98,609 99,441
Dilutive effect of assumed conversion
of convertible notes................. 12,875 16,001 0
Dilutive effect of stock options....... 1,033 1,278 0
------- ------- ------
Diluted weighted average common
shares and equivalents outstanding... 115,027 115,888 99,441
======= ======= ======
Income (loss) before extraordinary item
and cumulative effect of accounting
change............................... $51,638 $43,827 $(20,135)
Decrease in interest expense from
assumed conversion of notes, net of
income taxes......................... 4,455 4,708 0
------- ------- --------
Income (loss) before extraordinary item
and cumulative effect of accounting
change used to determine diluted
earnings per share................... 56,093 48,535 (20,135)
Extraordinary item, net of income taxes 0 1,232 0
Cumulative effect of accounting change,
net of income taxes.................. (540) 0 0
------- ------- --------
Net income (loss) used to determine
diluted earnings per share........... $55,553 $49,767 $(20,135)
======= ======= ========
Options with weighted average exercise
price greater than market price,
excluded from computation of diluted
earnings per share:
Number of shares (in thousands)..... 3,762 4,089 6,147
Weighted average exercise price..... $8.06 $6.95 $6.61
</TABLE>
The effect of an assumed conversion of the Company's Convertible Notes into
18.5 million shares of Common Stock was excluded from the computation of
diluted net loss per share for Fiscal 1999 because the effect would have
been antidilutive. Options to purchase 0.7 million shares of Common Stock
at January 30, 1999, 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.
Grants of stock awards under the Company's restricted stock award programs
generally require continuing employment for a specified period of time as a
condition for vesting of the award. Grants that have not vested and are
subject to a risk of forfeiture are included in the calculation of diluted
earnings per share using the treasury stock method if the impact of the
award is dilutive. Upon vesting, shares issued under these award programs
are included in the calculation of basic earnings per share.
EMPLOYEE RETIREMENT BENEFIT PLAN
The Company provides a comprehensive retirement benefit program for its
employees. This plan provides for a noncontributory profit-sharing
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. The 401(k) plan includes a matching
Company contribution of 50% of the participant's elective contribution on
up to 6% of the participant's compensation. Participating employees are
immediately vested in their own contributions. Full vesting in the
matching Company contribution occurs on the earlier of the participant's
attainment of 6 years of service, retirement, death, or disability, as
defined in the plan.
The total expense for the above plans amounted to $2,137,000, $1,312,000,
and $1,556,000 for Fiscal 2001, 2000, and 1999, respectively.
As of the dates of their respective acquisitions, Catherine's Stores and
Modern Woman provided retirement plans for its employees with benefits
substantially the same as the Company's plan. The Catherine's Stores and
Modern Woman plans have been merged into the Company's plan. Participants
in the Catherine's and Modern Woman plans retain credited years of service
earned under those plans.
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 77% of their base compensation and
100% of bonus compensation.
ASSET SECURITIZATION
Asset securitization involves the transfer by the Company's credit card
bank of Fashion Bug 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 remaining undivided 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 remaining undivided interest and any other retained
interest in investment securities available for sale in the accompanying
consolidated balance sheet. The carrying value of these retained interests
approximates their fair value.
The Company records gains or losses on the securitization of Fashion Bug
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 that 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 Years 2001, 2000, and
1999, the Company recognized additions to the I/O strip of $11,973,000,
$9,876,000, and $9,765,000, respectively, and of those balances,
$10,979,000, $9,814,000, and $10,254,000 were amortized during each
respective Fiscal Year. In addition, the Company recognized a servicing
liability of $3,864,000, $2,744,000, and $2,370,000 in Fiscal Years 2001,
2000, and 1999, respectively, and of those balances, $3,260,000,
$2,797,000, and $2,579,000 were amortized in each Fiscal Year,
respectively. The Company amortizes additions to the I/O strip and
servicing liability on a straight-line basis over the expected life of the
credit card receivables, which is generally less than one year. The
expected life is computed using the 12-month rolling average of principal
payments as a percent of outstanding trust receivables sold.
Proceeds from the sale of new loans to the Trust were approximately
$437,697,000, $398,646,000, and $360,686,000 for Fiscal 2001, Fiscal 2000,
and Fiscal 1999, respectively. At February 3, 2001 and January 29, 2000,
approximately $301,704,000 and $285,782,000, respectively, of investor
certificates remained outstanding. The investor certificates mature as
follows: $66,500,000 in the fiscal year ending February 2, 2002 ("Fiscal
2002"), $85,204,000 in the fiscal year ending February 1, 2003 ("Fiscal
2003") and $150,000,000 in the fiscal year ending January 29, 2005 ("Fiscal
2005"). The Company's retained interests in its securitizations, which
aggregated $47,724,000 and $41,245,000 at February 3, 2001 and January 29,
2000, respectively, are generally subordinated in right of payment to
certificates issued by the Trust to third party investors. The Company's
obligation to repurchase receivables sold to the Trust is limited to those
receivables that, at the time of their transfer, fail to meet the Trust's
eligibility standards under normal representations and warranties. To
date, the amount of receivables repurchased pursuant to this obligation has
been immaterial
In September 2000, The FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," a
replacement of SFAS No. 125. The Company has adopted the disclosure
provisions of SFAS No. 140 as of Fiscal 2001, and will adopt the accounting
requirements of SFAS No. 140 to the extent that it issues new beneficial
interests after March 31, 2001. Management uses key valuation assumptions
in determining the fair value of its I/O strip. Key valuation assumptions
relate to the average lives of the receivables sold and anticipated credit
losses, as well as the appropriate market discount rate. The Company
estimates the average lives of the receivables and the anticipated credit
losses using the rolling average of the past twelve months experience,
adjusted as necessary for the future impact of these key assumptions. The
key assumptions used for the following sensitivities are a loan payment
rate of 13.5%, a discount rate of 14.0% and a credit loss percentage of
8.1%. The average life of the receivables sold is approximately 0.6 years.
A 10% and 20% adverse change in the loan payment rate would impact the fair
value of the I/O strip by $401,000 and $739,000, respectively. A 10% and
20% adverse change in the discount rate would impact the fair value of the
I/O strip receivable by $14,000 and $32,000, respectively. A 10% and 20%
adverse change in the credit loss percentage would impact the fair value of
the I/O strip receivable by $442,000 and $885,000, respectively. These
adverse changes are hypothetical in nature and are presented in accordance
with SFAS No. 140.
Collections reinvested in revolving-period securitizations for Fiscal 2001
were $445,576,000. Cash flows received on retained interests and servicing
fees received for Fiscal 2001 were $34,963,000 and $5,708,000,
respectively. The Company is the servicer of the Master Trust, and
receives a servicing fee of approximately 2% of the investor interest.
During Fiscal 2001, total net credit losses were $22,602,000, and credit
card accounts that were 90 or more days delinquent at February 3,2001 were
$9,153,000.
Charming Shoppes Receivables Corp. and Charming Shoppes Street, Inc.,
wholly owned indirect subsidiaries of the Company, are separate special
purpose corporations. At February 3, 2001, Charming Shoppes Receivables
Corp. had $36,792,000 of Charming Shoppes Master Trust Certificates (which
are included in the $47,724,000 of retained interests at February 3, 2001),
and Charming Shoppes Street, Inc. had $1,127,000 of cash. These assets
will be available first and foremost to satisfy the claims of the
respective creditors of these separate corporate entities, 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 a non-recourse agreement to permit a third party to provide
an accounts receivable proprietary credit card sales funding program for
its Catherine's Stores, which expires in January 2005. Under this
agreement, the third party reimburses the Company daily with respect to the
proprietary credit card sales generated by the Catherine's Stores credit
card accounts. The agreement may require the Company to repurchase
receivables from the third party under certain conditions relating to a
change in control of the Company. Net proceeds received from sales of
Catherine's receivables for Fiscal 2001 and for the month of January 2000
(the period subsequent to the Company's acquisition of Catherine's), were
approximately $121,093,000 and $6,611,000, respectively. The net balance
of accounts receivable held by the third party was approximately
$99,571,000 and $93,648,000 at February 3, 2001 and January 29, 2000,
respectively.
DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
Although the Company securitizes credit card receivables from its Fashion
Bug proprietary credit card program in a non-consolidated master trust, the
Company is exposed to fluctuations in interest rates. On September 15,
1999, the Company entered into an interest rate swap transaction with a
notional amount of $50,000,000 that limited the Company's exposure to
rising interest rates should the one-month LIBOR rate increase to a rate
above the agreement's specified rate of 6.51%. The swap agreement required
the Company to pledge certain assets if the market value of the interest
rate swap fell below an amount set forth in the agreement. As of January
29, 2000, there were no assets required to be pledged under the terms of
the agreement. During Fiscal 2001, the Company terminated the swap
agreement, and, in Fiscal 2002, the deferred loss related to this
termination will be recognized in comprehensive income and amortized to
selling, general, and administrative expenses over 44 months (the remaining
life of the original swap period) in accordance with SFAS No. 133.
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.
Rental expense was:
<TABLE>
<CAPTION>
(in thousands) 2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Minimum rental...... $117,824 $ 86,438 $80,058
Contingent rental... 18,901 15,399 13,399
-------- -------- -------
$136,725 $101,837 $93,457
======== ======== =======
</TABLE>
Minimum annual rental commitments for all non-cancelable leases for the
next five fiscal years and thereafter are: 2002 - $125,995,000; 2003 -
$108,404,000; 2004 - $89,170,000; 2005 - $66,241,000; 2006 - $42,573,000;
Thereafter - $87,565,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is a summary of the carrying amounts and estimated fair
values of the Company's financial instruments:
<TABLE>
<CAPTION>
February 3, 2001 January 29, 2000
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents.... $ 56,544 $ 56,544 $ 34,299 $ 34,299
Available-for-sale securities 125,278 125,278 115,829 115,829
Liabilities:
7.5% Convertible Subordinated
Notes due 2006............. 96,047 93,012 96,047 98,448
7.5% mortgage note........... 6,449 6,449 6,652 6,652
Other long-term debt......... 108 108 102 102
Off-Balance-Sheet Financial
Instruments:
Interest rate caps........... 0 0 0 116
Interest rate swaps.......... 0 0 0 1,096
</TABLE>
The fair value of cash and cash equivalents approximates their carrying
amount 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 that have no available
bid/ask or sales prices as they are not traded in the open market. The
carrying amount of these equity securities ($7,952,000 at February 3, 2001
and January 29, 2000) was used to approximate fair value. The fair value
of the Company's 7.5% Convertible Subordinated Notes is based on quoted
market prices for the securities. The fair values of the 7.5% Mortgage
Note and other long-term debt approximate their carrying amounts based on
estimated current interest rates that the Company could obtain on similar
borrowings. The fair values of interest-rate caps and swaps were
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 (CREDIT)
On March 5, 1998, the Company's Board of Directors approved a restructuring
plan that resulted in a pre-tax charge of $34,000,000. The plan was
approved in conjunction with the decision to eliminate men's merchandise
from the Company's Fashion Bug stores. To-date, 72 stores have been closed
in connection with the plan and 100 stores have been downsized.
Elimination of the men's merchandise from the stores was completed in
October 1998, the balance of the men's inventory has been sold, and the
selling space used for men's merchandise has been re-merchandised. In
Fiscal 2000, the Company determined that 21 of the stores originally
included in the plan would remain open as a result of negotiations with
landlords and changes in economic conditions. As a result, the Company
reversed reserves related to these stores and recognized a pre-tax
restructuring credit of $2,096,000. As of February 3, 2001, this
restructuring plan has been completed, and there are no remaining
restructure accruals relating to this plan.
The restructuring charge included a $10,000,000 write-off of the carrying
value of fixtures and improvements in the stores to be reduced in size or
closed. The fixtures and improvements had no alternative use or salvage
value, and were expected to be scrapped at the time of the closing or
downsizing of the stores. The restructuring charge also included accruals
for anticipated payments to landlords for the early termination of existing
store leases of $19,700,000, severance payments of $320,000, costs to
remove store signs and entrances of $3,300,000, costs of supplies to be
scrapped of $400,000, and legal and architectural fees of $280,000. The
accrual for severance payments was for 650 store employees expected to be
terminated as a result of the store closings. The number of employees
actually terminated was reduced to 590 as a result of the 21 stores that
remained open, as discussed above, and the excess severance accrual was
reversed as part of the restructuring credit of $2,096,000 recognized in
Fiscal 2000.
The following is a summary of other restructure charges accrued in
connection with the plan to eliminate men's merchandise from the Company's
Fashion Bug stores, and payments charged against the accrual:
<TABLE>
<CAPTION>
Sign and
Lease Entrance
Termin- Removal Total
ation and Other Sever- Accrued
(in thousands) Costs Costs ance Costs
----- ----- ---- -----
<S> <C> <C> <C> <C>
Beginning accrual................. $19,700 $ 3,980 $ 320 $24,000
Fiscal 1999:
Payments........................ (6,071) (551) (200) (6,822)
------- ------- ----- -------
Balance, January 30, 1999......... 13,629 3,429 120 17,178
Fiscal 2000:
Payments........................ (6,955) (1,340) (90) (8,385)
Revision of cost estimate....... (1,784) (282) (30) (2,096)
------- ------- ----- -------
Balance, January 29, 2000......... 4,890 1,807 0 6,697
Fiscal 2001:
Payments........................ (4,890) (1,807) -- (6,697)
------- ------- ----- -------
Balance, February 3, 2001......... $ 0 $ 0 $ 0 $ 0
======= ======= ===== =======
</TABLE>
On December 10, 1998, the Company's Board of Directors approved a plan to
close the Company's Bensalem, Pennsylvania distribution center and sell the
facility. The plan was approved in conjunction with the decision to
consolidate the Company's distribution center operations in the Company's
Greencastle, Indiana distribution center. The plan resulted in a pre-tax
restructuring charge of $20,246,000 during Fiscal 1999.
The restructuring charge included a $17,969,000 write-down of the cost of
the Bensalem facilities from a carrying value of $23,631,000 to a net
realizable value of $5,662,000, based on an independent appraisal. The
restructuring charge also included an accrual of $1,556,000 for severance
costs resulting from the termination of 90 warehouse and distribution
personnel and 11 management employees. In addition, the restructuring
charge included an accrual of $721,000 for incremental warehouse handling
costs, outplacement services for terminated employees, legal fees related
to the sale of the facility, and other non-recurring costs relating to the
closure.
The Bensalem distribution center closed on December 10, 1998, and the
Company completed the sale of the Bensalem facility during Fiscal 2000.
Upon completion of the sale of the facility, the Company recognized a pre-
tax restructuring credit of $2,834,000 in Fiscal 2000, which primarily
represented sales proceeds in excess of the estimated net realizable value
of the Bensalem facility.
The following is a summary of other restructure charges accrued in
connection with the closing of the Bensalem facility, and payments charged
against the accrual:
<TABLE>
<CAPTION>
Contractual
Warehouse
Handling Other Total
(in thousands) Severance Costs Costs Costs
--------- ----- ----- -----
<S> <C> <C> <C> <C>
Beginning accrual........ $1,556 $ 436 $ 285 $ 2,277
Fiscal 1999:
Payments............... (981) (0) (26) (1,007)
------ ----- ----- -------
Balance, January 30, 1999 575 436 259 1,270
Fiscal 2000:
Payments............... (575) (436) (144) (1,155)
------ ----- ----- -------
Balance, January 29, 2000 0 0 115 115
Fiscal 2001:
Payments............... -- -- (115) (115)
------ ----- ----- -------
Balance, February 3, 2001 $ 0 $ 0 $ 0 $ 0
====== ===== ===== =======
</TABLE>
During the fourth quarter of Fiscal 2000, the Company recorded a
restructuring charge of $1,459,000 in connection with the Company's
acquisitions of Modern Woman and Catherine's Stores. At the time of the
Catherine's Stores acquisition, the Company planned to consolidate Modern
Woman stores into the Catherine's Stores division. The restructuring
charge was primarily for lease termination costs related to the closing of
11 Modern Woman stores that geographically overlapped Catherine's Stores.
There were no payments charged against this accrual as of January 29, 2000.
During Fiscal 2001, the Company closed 10 of the 11 stores, and accrued
restructuring charges of $1,086,000 related to the closed stores were paid.
As of February 3, 2001, $373,000 of accrued restructuring charges related
to the remaining store were unpaid.
NON-RECURRING GAIN FROM DEMUTUALIZATION OF INSURANCE COMPANY
During Fiscal 2000, the Company received a $6,700,000 stock distribution
from one of its mutual insurance carriers in connection with the carrier's
conversion to a publicly-held corporation (demutualization). In accordance
with the consensus reached in Emerging Issues Task Force Issue No. 99-4,
"Accounting for Stock Received from the Demutualization of A Mutual
Insurance Company," the Company recorded the distribution at its fair value
and recognized the resulting non-recurring gain in income from continuing
operations, and subsequently sold the securities received.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except First Second Third Fourth
(per share amounts) Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal 2001(1)
Net sales........... $378,925 $429,658 $363,812 $434,684
Gross profit........ 107,409 133,128 108,236 123,752
Net income.......... 7,733(2) 26,841 7,377 9,147
Basic net income
per share......... .08(2) .27 .07 .09
Diluted net income
per share......... .08(2) .24 .07 .09
Fiscal 2000
Net sales........... $258,975 $311,743 $277,441 $348,370
Gross profit........ 68,913 96,971 78,264 97,607
Net income.......... 6,002(3) 22,225(4) 8,276(5) 8,556(6)
Basic net income
per share......... .06(3) .23 .08 .09
Diluted net income
per share......... .06(3) .21 .08 .08
</TABLE>
- --------------------
[FN]
(1) In the fourth quarter of Fiscal 2001, the Company changed its method of
accounting for sales returns and layaway sales, as required by Securities
and Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements." The Company adopted SAB 101
effective as of the beginning of Fiscal 2001 and restated its results of
operations for the first three quarters of Fiscal 2001. Quarterly
financial data for the first three quarters of Fiscal 2001 as previously
reported, prior to restatement for the adoption of SAB 101, are as follows:
<TABLE>
(in thousands, except First Second Third
(per share amounts) Quarter Quarter Quarter
------- ------- -------
<S> <C> <C> <C>
Net sales............................ $381,334 $428,229 $365,690
Gross profit......................... 108,493 132,485 109,081
Net income........................... 8,943 26,444 7,899
Basic net income per share........... .09 .26 .08
Diluted net income per share......... .09 .24 .08
</TABLE>
(2) Includes cumulative effect of adoption of SAB 101 of ($540) (($.01) per
share).
(3) Net income includes an after-tax extraordinary gain from early
retirement of debt of $1,232 ($.01 per share).
(4) Net income includes an after-tax restructuring credit of $1,842.
(5) Net income includes an after-tax non-recurring gain from
demutualization of insurance company of $4,355.
(6) Net income includes an after-tax restructuring credit of $1,362 and an
after-tax restructuring charge of $948.
</FN>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There are no matters that are required to be reported under this Item 9.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding Directors of the Company is included under the
caption "Election of Directors" of the Company's definitive proxy
statement, which is incorporated herein by reference. Information
regarding Executive Officers is included under "Item 4A. Executive
Officers of the Registrant," in Part I of this Report.
Item 11. Executive Compensation
Information regarding executive compensation is included 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 captions "Certain Relationships and Related Transactions"
and "Compensation Committee Interlocks and Insider Participation" of the
Company's definitive proxy statement, which is incorporated herein by
reference.
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
Consolidated Balance Sheets - February 3, 2001 and January 29, 2000
Consolidated Statements of Operations and Comprehensive Income (Loss) -
years ended February 3, 2001, January 29, 2000, and January 30, 1999
Consolidated Statements of Stockholders' Equity - years ended
February 3, 2001, January 29, 2000, and January 30, 1999
Consolidated Statements of Cash Flows - years ended
February 3, 2001, January 29, 2000, and January 30, 1999
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
All schedules required by Rule 5-04 of Regulation S-X have been omitted as
they are not applicable, not required, or the information is included in
the consolidated financial statements or notes thereto included in Part II,
Item 8 of this Report on Form 10-K.
(b) Reports on Form 8-K
No reports were filed during the quarter ended February 3, 2001.
(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 that were previously
filed are incorporated by reference. For Exhibits incorporated by
reference, the location of the Exhibit in the previous filing is indicated
in parenthesis.
Articles of Incorporation and By-Laws
3.1 Restated Articles of Incorporation, incorporated by 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-Q of the Registrant for the quarter ended July 31, 1999. (Exhibit 3.2).
Instruments Defining the Rights of Security Holders, Including Indentures
4.1 Amended and Restated Rights Agreement, dated as of February 1, 2001,
between Charming Shoppes, Inc. and American Stock Transfer & Trust Company,
as Rights Agent.
Material Contracts
10.1.1 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),
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended January 31, 1998. (Exhibit 10.1.9).
10.1.2 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).
10.1.3 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 Borrower's Agent, incorporated by reference
to Form 10-K of the Registrant for the fiscal year ended February 1, 1997.
(Exhibit 10.1.16).
10.1.4 Amendment of Second Amended and Restated Loan and Security
Agreement, dated February 28, 1997 among Charming Shoppes, Inc. (the
"Company"), certain subsidiaries of the Company which are parties thereto,
Borrowers' Agent and Congress Financial Corporation, dated as of May 1,
1998, incorporated by reference to Form 10-Q for the quarter ended May 2,
1998. (Exhibit 10.1).
10.1.5 Amendment No. 2 to Second Amended and Restated Loan and Security
Agreement, dated February 28, 1997 (as amended and supplemented) among
Charming Shoppes, Inc. (the "Company"), certain subsidiaries of the Company
which are parties thereto, Borrowers' Agent and Congress Financial
Corporation, dated as of December 21, 1998, incorporated by reference to
Form 10-K of the Registrant for the fiscal year ended January 30, 1999.
(Exhibit 10.1.14).
10.1.6 Consent of Congress Financial Corporation, dated July 30, 1999, to
the Modern Woman Acquisition, Re: Second Amended and Restated Loan and
Security Agreement, dated February 28, 1997, as amended and supplemented,
among Charming Shoppes, Inc. (the "Company"), certain subsidiaries of the
Company which are parties thereto (collectively, with the Company,
"Borrowers"), Borrower's Agent, and Congress Financial Corporation,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended January 29, 2000. (Exhibit 10.1.14).
10.1.7 Amendment, dated as of October 19, 1999, to Second Amended and
Restated Loan and Security Agreement, by and among Congress Financial
Corporation, as Lender, Charming Shoppes, Inc., Charming Shoppes of
Delaware, Inc., CSI Industries, Inc., and FB Apparel, Inc., as Borrowers,
and Charming Shoppes of Delaware, Inc., as Borrower's Agent, dated February
28, 1997, incorporated by reference to Form 10-K of the Registrant for the
fiscal year ended January 29, 2000. (Exhibit 10.1.15).
10.1.8 Consent of Congress Financial Corporation, dated November 1999, to
Catherine Stores Merger Transaction, Re: Second Amended and Restated Loan
and Security Agreement, dated February 28, 1997, as amended and
supplemented, among Charming Shoppes, Inc. (the "Company"), certain
subsidiaries of the Company which are parties thereto (collectively, with
the Company, "Borrowers"), Borrower's Agent, and Congress Financial
Corporation, incorporated by reference to Form 10-K of the Registrant for
the fiscal year ended January 29, 2000. (Exhibit 10.1.16).
10.1.9 Amendment No. 3, dated as of December 27, 1999, to Second Amended
and Restated Loan and Security Agreement, dated February 28, 1997, as
amended and supplemented, among Charming Shoppes, Inc. (the "Company"),
certain subsidiaries of the Company which are parties thereto
(collectively, with the Company, "Borrowers"), Borrower's Agent, and
Congress Financial Corporation, incorporated by reference to Form 10-K of
the Registrant for the fiscal year ended January 29, 2000. (Exhibit
10.1.17).
10.1.10 Amendment No. 4, dated as of October 26, 2000, to Second Amended
and Restated Loan and Security Agreement, dated February 28, 1997, as
amended and supplemented, among Charming Shoppes, Inc. (the "Company"),
certain subsidiaries of the Company which are parties thereto
(collectively, with the Company, "Borrowers"), Borrower's Agent, and
Congress Financial Corporation.
10.1.11 Amendment No. 5, dated as of January 31, 2001, to Second Amended
and Restated Loan and Security Agreement, dated February 28, 1997, as
amended and supplemented, among Charming Shoppes, Inc. (the "Company"),
certain subsidiaries of the Company which are parties thereto
(collectively, with the Company, "Borrowers"), Borrower's Agent, and
Congress Financial Corporation.
10.1.12 Second Amended and Restated Pooling and Servicing Agreement, dated
as of November 25, 1997, as amended on July 22, 1999, among Charming
Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer,
and First Union National Bank as Trustee, incorporated by reference to Form
8-K of Charming Shoppes Receivables Corp., (No. 333-71757) dated July 22,
1999. (Exhibit No. 4.1).
10.1.13 Series 1999-1 Supplement, dated as of July 22, 1999, to Second
Amended and Restated Pooling and Service Agreement, dated as of November
25, 1997, as amended on July 22, 1999, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and First Union
National Bank, as Trustee, for $150,000,000 Charming Shoppes Master Trust
Asset-Backed Certificates Series 1999-1, incorporated by reference to Form
8-K of Charming Shoppes Receivables Corp., (No. 333-71757) dated July 22,
1999. (Exhibit No. 4.2).
10.1.14 Receivables Purchase Agreement, dated as of May 28, 1999, among
Charming Shoppes Street, Inc. as Seller, Spirit of America, Inc., as
Servicer, Clipper Receivables Corporation, as Purchaser, State Street
Capital Corporation, as Administrator, and State Street Bank & Trust
Company, as Relationship Bank, incorporated by reference to Form 10-K of
the Registrant for the fiscal year ended January 29, 2000. (Exhibit
10.1.22).
10.1.15 Series 1999-2 Supplement, dated as of May 28, 1999, to Second
Amended and Restated Pooling and Service Agreement, dated as of November
25, 1997, as amended on July 22, 1999, among Charming Shoppes Receivables
Corp., as Seller, Spirit of America, Inc., as Servicer, and First Union
National Bank, as Trustee, for $55,750,000 Charming Shoppes Master Trust
Asset-Backed Certificates Series 1999-2, incorporated by reference to Form
10-K of the Registrant for the fiscal year ended January 29, 2000.
(Exhibit 10.1.23).
10.1.16 Series 2000-VFC Supplement, dated as of November 9, 2000, to
Second Amended and Restated Pooling and Service Agreement, dated as of
November 25, 1997, among Charming Shoppes Receivables Corp., as Seller,
Spirit of America, Inc., as Servicer, and First Union National Bank, as
Trustee, on behalf of the Series 2000-VFC Certificateholders, for up to
$60,122,700 Charming Shoppes Master Trust Series 2000-VFC.
10.1.17 Certificate Purchase Agreement, dates as of November 9, 2000,
among Charming Shoppes Receivables Corp. as Seller and as the Class B
Purchaser, Spirit of America, Inc. as Servicer, Monte Rosa Capital
Corporation as the Conduit Purchaser, and ING Baring (U.S.) Capital Markets
LLC as Administrator for the Conduit Purchaser.
10.1.18 Agreement and Plan of Merger, dated as of November 15, 1999, by
and among Catherines Stores Corporation, Charming Shoppes, Inc., and Rose
Merger Sub, Inc., incorporated by reference to Schedule 14(D)-1 of the
Registrant filed November 19, 1999. (Item 11(c)(1)).
10.1.19 Merchant Services Agreement, between Hurley State Bank and
Catherines, Inc., incorporated by reference to Form 10-Q of Catherines
Stores Corp. (Commission File No. 000-19372) for the quarter ended May 1,
1999. (Item 6. (A)(1).)
10.1.20 Credit Agreement, Dated July 31, 2000, by and between Catherines,
Inc., Catherines Stores Corporation, and their subsidiaries, as Borrowers,
and Amsouth Bank and Hibernia National Bank, as Banks, and Amsouth Bank, as
Agent, incorporated by reference to Form 10-Q of the Registrant for the
quarter ended October 28, 2000. (Exhibit 10.1).
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).
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 The Charming Shoppes, Inc. Non-Employee Directors Compensation
Program, As Amended and Restated, incorporated by reference to Form 10-Q of
the Registrant for the quarter ended July 31, 1999. (Exhibit 10.1).
10.2.7 The Charming Shoppes, Inc. Non-Employee Directors Compensation
Program Stock Option Agreement, incorporated by reference to Form 10-Q of
the Registrant for the quarter ended July 31, 1999. (Exhibit 10.2).
10.2.8 The Charming Shoppes, Inc. Non-Employee Directors Compensation
Program Restricted Stock Agreement, incorporated by reference to Form 10-Q
of the Registrant for the quarter ended July 31, 1999. (Exhibit 10.3).
10.2.9 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).
10.2.10 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).
10.2.11 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).
10.2.12 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).
10.2.13 The Charming Shoppes, Inc. 1993 Employees' Stock Incentive Plan
Restricted Stock Agreement, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 30, 1999. (Exhibit 10.2.10).
10.2.14 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).
10.2.15 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).
10.2.16 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).
10.2.17 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).
10.2.18 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).
10.2.19 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).
10.2.20 Employment Agreement, dated as of October 12, 1999, by and between
Charming Shoppes, Inc. and Dorrit J. Bern, incorporated by reference to
Form 10-Q of the Registrant for the quarter ended October 30, 1999.
(Exhibit 10.1).
10.2.21 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).
10.2.22 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).
10.2.23 1993 Employees' Stock Incentive Plan Restricted Stock Agreement,
dated as of October 12, 1999, by and between Charming Shoppes, Inc. and
Dorrit J. Bern, incorporated by reference to Form 10-Q of the Registrant
for the quarter ended October 30, 1999. (Exhibit 10.2).
10.2.24 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, 1997.
(Exhibit 4.1).
10.2.25 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, 1997. (Exhibit 4.2).
10.2.26 Charming Shoppes, Inc. 1998 Restricted Award Program, incorporated
by reference to Form 10-K of the Registrant for the fiscal year ended
January 31, 1998. (Exhibit 10.2.22).
10.2.27 Charming Shoppes Inc. 1999 Associates' Stock Incentive Plan,
incorporated by reference to Form 10-K of the Registrant for the fiscal
year ended January 30, 1999. (Exhibit 10.2.24).
10.2.28 Charming Shoppes, Inc. 1999 Associates' Stock Incentive Plan Stock
Option Agreement, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended January 30, 1999. (Exhibit 10.2.25).
10.2.29 Charming Shoppes, Inc. Amended and Restated 2000 Associates' Stock
Incentive Plan.
10.2.30 Charming Shoppes, Inc. 2000 Associates' Stock Incentive Plan Stock
Option Agreement, incorporated by reference to Form 10-K of the Registrant
for the fiscal year ended January 29, 2000. (Exhibit 10.2.32).
10.2.31 Forms of Executive Severance Agreements by and between the
Company, the named executive officers in the Company's Proxy Statement for
the Annual Meeting to be held on June 15, 2000, and certain other Executive
Officers of the Company, incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 29, 2000. (Exhibit 10.2.33).
10.2.32 Charming Shoppes, Inc. Employees' Retirement Savings Plan, as
Amended and Restated, Effective January 1, 1998, Including Amendments
Adopted Through August 1, 2001.
Other Exhibits
Exhibit 21 - Subsidiaries of Registrant
Exhibit 23 - Consent of independent auditors
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 26, 2001
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 26, 2001 Eric M. Specter, April 26, 2001
Chairman of the Board Executive Vice President
President and Chief Executive Officer Chief Financial Officer And Treasurer
/S/ JOHN J. SULLIVAN /S/ JOSEPH L. CASTLE II
- ------------------------------------- ------------------------------------
John J. Sullivan, April 26, 2001 Joseph L. Castle II, April 26, 2001
Vice President, Corporate Controller Director
Chief Accounting Officer
/S/ ALAN ROSSKAMM /S/ MARVIN L. SLOMOWITZ
- ------------------------------------- ------------------------------------
Alan Rosskamm, April 26, 2001 Marvin L. Slomowitz, April 26, 2001
Director Director
/S/ PAMELA S. LEWIS
- ------------------------------------- ------------------------------------
Marjorie Margolies-Mezvinsky Pamela S. Lewis, April 26, 2001
Director Director
/S/ CHARLES T. HOPKINS
- ------------------------------------- ------------------------------------
Kenneth S. Olshan, Charles T. Hopkins, April 26, 2001
Director Director
/S/ KATHERINE M. HUDSON
- -------------------------------------
Katherine M. Hudson, April 26, 2001
Director
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4
<SEQUENCE>2
<FILENAME>exh41.txt
<DESCRIPTION>RIGHTS AGREEMENT
<TEXT>
EXHIBIT 4.1
Charming Shoppes, Inc.
and
American Stock Transfer & Trust Company
as Rights Agent
AMENDED AND RESTATED
RIGHTS AGREEMENT
Dated as of February 1, 2001
Table of Contents
<TABLE>
<CAPTION>
Section Page
<S> <C>
Section 1. Certain Definitions -2-
Section 2. Appointment of Rights Agent -5-
Section 3. Issue of Rights Certificates -5-
Section 4. Form of Rights Certificates -7-
Section 5. Countersignature and Registration -8-
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates -9-
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights
-10-
Section 8. Cancellation and Destruction of Rights Certificates -12-
Section 9. Reservation and Availability of Capital Stock; Registration of
Securities -12-
Section 10. Capital Stock Record Date -13-
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights -14-
Section 12. Certificate of Adjusted Purchase Price or Number of Shares -23-
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power -23-
Section 14. Fractional Rights and Fractional Shares -26-
Section 15. Rights of Action -28-
Section 16. Agreement of Rights Holders -28-
Section 17. Rights Certificate Holder Not Deemed a Shareholder -29-
Section 18. Concerning the Rights Agent -29-
Section 19. Merger or Consolidation or Change of Name of Rights Agent -30-
Section 20. Duties of Rights Agent -30-
Section 21. Change of Rights Agent -32-
Section 22. Issuance of New Rights Certificates -33-
Section 23. Redemption and Termination -34-
Section 24. Notice of Certain Events -35-
Section 25. Notices -36-
Section 26. Supplements and Amendments -36-
Section 27. Successors -37-
Section 28. Determinations and Actions by the Board of Directors, etc -37-
Section 29. Benefits of this Agreement -37-
Section 30. Severability -38-
Section 31. Governing Law -38-
Section 32. Counterparts -38-
Section 33. Descriptive Headings -38-
</TABLE>
RIGHTS AGREEMENT
AMENDED AND RESTATED RIGHTS AGREEMENT, dated as
February 1, 2001 (the "Agreement"), between CHARMING SHOPPES,
INC., a Pennsylvania corporation (the Company), and American
Stock Transfer & Trust Company (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on April 27, 1989, the Mellon Bank (East)
National Association (as the rights agent) and the Company
entered into a Rights Agreement (the "Original Rights Agreement")
dated as of April 27, 1989.
WHEREAS, on April 27, 1989, the Board of Directors of
the Company authorized and declared a dividend distribution of
one Right (as defined in the Original Rights Agreement) for each
share of common stock of the Company outstanding at the close of
business on May 11, 1989 and authorized the issuance of one Right
(as defined in the Original Rights Agreement), with each Right
(as defined in the Original Rights Agreement) initially
representing the right to purchase one three-hundredth of a
Preferred Share (as defined in the Original Rights Agreement) of
the Company having the rights, powers and preferences set forth
in the form of a resolution of the Board of Directors; and
WHEREAS, the Original Rights Agreement and all Rights
outstanding thereunder expired in accordance with the terms of
the Original Rights Agreement at the close of business on April
26, 1999; and
WHEREAS, the Board of Directors of the Company
authorized and declared a dividend distribution payable effective
immediately following the close of business on April 26, 1999
(the "Rights Dividend Declaration Date") of one Right (defined
below) for each Common Share (as hereinafter defined) of the
Company outstanding at the close of business on April 12, 1999
(the "Record Date") with each Right initially representing the
right-to purchase one three-hundredth of a Preferred Share (as
hereinafter defined) of the Company having the rights, powers and
preferences set forth in the form of the Resolution of the Board
of Directors attached hereto as Exhibit A, upon the terms and
subject to the conditions hereinafter set forth (the "Rights");
and
WHEREAS, the Rights will be held by the Rights Agent
under this Agreement as trustee for the shareholders of the
Company until the Distribution Date; and
WHEREAS, the Board of Directors of the Company has
considered whether approval of this Agreement and the
distribution of the Rights is in the best interests of the
Company and all other pertinent factors; and
WHEREAS, the Board of Directors of the Company has
concluded that approval of this Agreement and the distribution of
the Rights is in the best interests of the Company because the
existence of the Rights will help (i) reduce the risk of coercive
two-tiered, front-end loaded or partial offers that may not offer
fair value to all shareholders, (ii) mitigate against market
accumulators who through open market and/or private purchases may
achieve a position of substantial influence or control without
paying to selling or remaining shareholders a fair control
premium, (iii) deter market accumulators who are simply
interested in putting the Company into "play" (iv) restrict self-
dealing by a substantial shareholder, and (v) preserve the Board
of Directors' bargaining power and flexibility to deal with third-
party acquirors and to otherwise seek to maximize values for all
shareholders.
NOW, THEREFORE, in consideration of the premises and
the mutual agreements herein set forth, and intending to be
legally bound hereby, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(1) "Acquiring Person" shall mean any Person who or which
together with all Affiliates and Associates of such Person, shall
be the Beneficial Owner of 20% or more of the Common Shares then
outstanding but shall not include the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the
terms of any such plan.
(2) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
as amended and in effect on the date hereof (the "Exchange Act").
(3) A Person shall be deemed the "Beneficial Owner" of, and
shall be deemed to "beneficially own" any securities:
(1) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options,
or otherwise; Provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own," (A)
securities tendered pursuant to a tender or exchange offer made
by such Person or any of such Person's Affiliates or Associates
until such tendered securities are accepted for payment, purchase
or exchange, or (B) securities issuable upon exercise of Rights
at any time prior to the occurrence of a Triggering Event, or (C)
securities issuable upon exercise of Rights from and after the
occurrence of a Triggering Event which Rights were acquired by
such Person or any of such Person's Affiliates or Associates
prior to the Distribution Date or pursuant to Section 3(a) or
Section 22 hereof (the "Original Rights') or pursuant to Section
11(i) hereof in connection with an adjustment made with respect
to any Original Rights;
(2) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or
dispose of or has "beneficial" ownerships of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under
the Exchange Act), including without limitation pursuant to any
agreement, arrangement or understanding, whether or not in
writing; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own" any security
under this subparagraph (ii) as a result of an oral or written
agreement, arrangement or understanding to vote such security if
such agreement, arrangement or understanding: (A) arises solely
from a revocable proxy given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with,
the applicable provisions of the General Rules and Regulations
under the Exchange Act, and (B) is not also then reportable by
such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(3) that are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which
such Person (or any of such Person's Affiliates or Associates)
has any agreement, arrangement or understanding (whether or not
in writing), for the purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as described in the proviso
to subparagraph (ii) of this paragraph (c)) or disposing of any
voting securities of the Company,
provided, however, that nothing in this paragraph (c) shall cause
a Person engaged in business as an underwriter of securities to
be the "Beneficial Owner" of, or to "beneficially own" any
securities acquired through such Person's participation in good
faith in a firm commitment underwriting until the expiration of
forty days after the date of such acquisition.
(4) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to
close.
(5) "Close of business" an any given date shall mean 5:00 P.M.,
New York, New York time, on such date; provided, however, that if
such date is not a Business Day it shall mean 5:00 P.M., New
York, New York time, on the next succeeding Business Day.
(6) "Common Share" shall mean the shares of Common Stock, par
value $.10 per share, of the Company and, to the extent that
there are not a sufficient number of Common Shares authorized to
permit the full exercise of the Rights, shares of any other class
or series of the Company designated for such purpose containing
terms substantially similar to the terms of the Common Shares,
except that "Common Share" when used with reference to any Person
other than the Company shall mean the shares of capital stock of
such Person with the greatest voting power, or the equity
securities or other equity interest having power to control or
direct the management, of such Person.
(7) Intentionally left blank.
(8) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(9) "Expiration Date" shall have the meaning set forth in
Section 7(a).
(10) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
(11) "Preferred Share" shall mean a share of Series A Junior
Participating Preferred Stock, par value $1.00 per share, of the
Company and, to the extent that there are not a sufficient number
of Series A Junior Participating Preferred Stock authorized to
permit the full exercise of the Rights, shares of any other
series of Series Preferred Stock of the Company designated for
such purpose containing terms substantially similar to the terms
of the Series A Junior Participating Preferred Stock.
(12) "Preferred Share Fraction" shall mean one three-hundredth of
a Preferred Share.
(13) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii) (A), (B) or (C) hereof.
(14) "Section 13 Event" shall mean any event described in clauses
(x), (y) or (z) of Section 13(a) hereof.
(15) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section
13(d) under the Exchange Act) by the Company or an Acquiring
Person that an Acquiring Person has become such.
(16) "Subsidiary" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
(17) "Trading Day" shall have the meaning set forth-in Section
11(d)(i) hereof.
(1)
(18) "Triggering Event" shall mean any Section 11(a)(ii) Event or
any Section 13 Event.
Unless otherwise specified, where reference is made in
this Agreement to sections of, and the General Rules and
Regulations under, the Exchange Act, such reference shall mean
such sections and rules as amended from time to time and any
successor provisions thereto.
Section 2. Appointment of Rights Agent.
(1) The Company hereby appoints the Rights Agent to act as agent
for the Company and trustee for the beneficial owners of the
Rights (who, in accordance with Section 3 hereof, shall prior to
the Distribution Date also be the holders of the Common Shares)
in accordance with the terms and conditions hereof, and the
Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable.
(2) On the Record Date, the Company will deliver a Rights
Certificate to the Rights Agent, registered in the name of the
Rights Agent as trustee for the beneficial owners of the Rights
represented thereby, for that number of Rights equal to the
number of Common Shares issued and outstanding on the Record
Date, and the Rights Agent shall hold the Rights represented
thereby in trust for the beneficial owners in accordance with the
provisions of this Agreement.
Section 3. Issue of Rights Certificates.
(1) Until the earlier of (i) the close of business on the tenth
day after a Stock Acquisition Date involving an Acquiring Person
that has become such in a transaction as to which the Board of
Directors has not made the determination referred to in Section
11(a)(ii)(B) hereof, or (ii) the close of business on such date
as may be fixed by the Board of Directors of the Company by
notice to the Rights Agent and publicly announced by the Company,
which date shall not be later than 65 days after the date that a
tender or exchange offer by any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person or
entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d-2(a) of the General
Rules and Regulations under the Exchange Act, if upon
consummation thereof, such Person would be the "Beneficial Owner"
of 20% or more of the Common Shares then outstanding (the earlier
of (i) and (ii) being herein referred to as the "Distribution
Date"), (x) beneficial interests in the Rights will be evidenced
(subject to the provisions of paragraph (b) of this Section 3) by
the certificates for the Common Shares registered in the names of
the holders of the Common Shares (which certificates for Common
Shares shall be deemed also to be certificates for beneficial
interests in the Rights) and not by separate certificates, and
(y) the Rights and beneficial interests therein will be
transferable only in connection with the transfer of the
underlying Common Shares (including a transfer to the Company).
As soon as practicable after the Distribution Date, the Rights
Agent will send by first-class, insured, postage prepaid mail, to
each record holder of the Common Shares as of the close of
business on the Distribution Date, at the address of such holder
shown on the records of the Company, one or more rights
certificates, in substantially the form of Exhibit B hereto (the
"Rights Certificates"), evidencing one Right for each Common
Share so held, subject to adjustment as provided herein. In the
event that an adjustment in the number of Rights per Common Share
has been made pursuant to Section 11(p) hereof, at the time of
distribution of the Rights certificates, the Company shall make
the necessary and appropriate rounding adjustments (in accordance
with Section 14(a) hereof) so that Rights Certificates
representing only whole numbers of Rights are distributed and
cash is paid in lieu of any fractional Rights. As of and after
the Distribution Date, the Rights will be evidenced solely by
such Rights Certificates. Upon the distribution of the Rights
Certificates as provided in this subsection (a), the trust
created hereby shall cease.
(2) As promptly as practicable following the Record Date the
Company will send a copy of a Summary of Rights, in substantially
the form of Exhibit C hereto (the "Summary of Rights"), by first-
class, postage prepaid mail, to each record holder of the Common
Shares as of the close of business on the Record Date, at the
address of such holder shown on the records of the Company. With
respect to certificates for the Common Shares outstanding as of
the Record Date, until the Distribution Date, beneficial
interests in the Rights will be evidenced by such certificates
for the Common Shares and the registered holders of the Common
Shares shall also be the registered holders of the beneficial
interests in the associated Rights. Until the earlier of the
Distribution Date or the Expiration Date (as such term is defined
in Section 7 hereof), the transfer of any certificates
representing Common Shares in respect of which Rights have been
issued shall also constitute the transfer of the Rights
associated with such Common Shares. Certificates issued after
the Record Date upon the transfer of Common Shares outstanding on
the Record Date shall bear the legend set forth in subsection
(c).
(3) Except as provided in Section 22 hereof, Rights shall be
issued in respect of all Common Shares that are issued (whether
originally issued or delivered from the Company's treasury) after
the Record Date but prior to the earlier of the Distribution Date
or the Expiration Date. Certificates representing such Common
Shares shall also be deemed to be certificates for beneficial
interests in the associated Rights, and shall bear the following
legend:
"This certificate also evidences a
beneficial interest in and entitles
the holder hereof to certain rights
as set forth in the Rights
Agreement between Charming Shoppes,
Inc. (the "Company") and American
Stock Transfer & Trust Company (the
"Rights Agent") dated as of April
26, 1999 (the "Rights Agreement"),
and as the same may be amended from
time to time, the terms of which
are hereby incorporated herein by
reference and a copy of which is on
file at the principal offices of
the Company. Under certain
circumstances, as set forth in the
Rights Agreement, such Rights will
be evidenced by separate
certificates and beneficial
interests therein will no longer be
evidenced by this certificate. The
Company will mail to the holder of
this certificate a copy of the
Rights Agreement, as in effect on
the date of mailing, without charge
promptly after receipt of a written
request therefor. Under certain
circumstances set forth in the
Rights Agreement, Rights issued to,
or held by, any Person who is, was
or becomes-an Acquiring Person or
any Affiliate or Associate thereof
(as such terms are defined in the
Rights Agreement), whether
currently held by or on behalf of
such Person or by any subsequent
holder, may become null and void."
With respect to such certificates containing the foregoing
legend, until the earlier of (i) the Distribution Date or (ii)
the Expiration Date, beneficial interests in the Rights
associated with the Common Shares represented by such
certificates shall be evidenced by such certificates alone and
registered holders of Common Shares shall also be the registered
holders of beneficial interests in the associated Rights, and the
transfer of any of such certificates shall also constitute the
transfer of beneficial interests in the Rights associated with
the Common Shares represented by such certificates.
Section 4. Form of Rights Certificates.
(1) The Rights Certificates (and the forms of election to
purchase and of assignment to be printed on the reverse thereof)
shall each be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation
and such legends, summaries or endorsements printed thereon as
the Company may deem appropriate and as are not inconsistent with
the provisions of this Agreement, or as may be required to comply
with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or
to conform to usage. Subject to the provisions of Section 11 and
Section 22 hereof, the Rights Certificates, whenever distributed,
shall entitle the holders thereof to purchase such number of
Preferred Share Fractions as shall be set forth therein at the
price set forth therein (such exercise price per Preferred Share
Fraction, the "Purchase Price"), but the amount of securities
purchasable upon the exercise of each Right and the Purchase
Price thereof shall be subject to adjustment as provided herein.
(2) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights that the Company knows
are beneficially owned by: (i) an Acquiring Person or any
Associate or Affiliate of an Acquiring Person, (ii) a transferee
of an Acquiring Person (or of any such Associate or Affiliate)
who becomes a transferee after the Acquiring Person becomes such,
or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives
such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity
interests in such Acquiring Person or to any Person with whom
such Acquiring Person has any continuing oral or written plan,
agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer that the Board of Directors of the
Company has determined is part of an oral or written plan,
agreement, arrangement or understanding that has as a primary
purpose or effect avoidance of Section 7(e) hereof, and any
Rights Certificate issued pursuant to Section 6 or Section 11
hereof upon transfer, exchange, replacement or adjustment of any
other Rights Certificate referred to in this sentence, shall
contain (to the extent feasible) the following legend:
"The Rights represented by this Rights
Certificate are or were beneficially owned by
a Person who was or became an Acquiring
Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined
in the Rights Agreement). Accordingly, this
Rights Certificate and the Rights represented
hereby may become null and void in the
circumstances specified in Section 7(e) of
such Agreement."
Section 5. Countersignature and Registration.
(1) The Rights Certificates shall-be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice
President, either manually or by facsimile signature, and shall
have affixed thereto the Company's seal or a facsimile thereof
which shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Rights Certificates
shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by
the Company, such Rights Certificates, nevertheless, may be
countersigned by the Rights Agent and issued and delivered by the
Company with the same force and effect as though the Person who
signed such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificates may be signed on
behalf of the Company by any Person who, at the actual date of
the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although
at the date of the execution of this Agreement any such Person
was not such an officer.
(2) Following the Distribution Date, the Rights Agent will keep
or cause to be kept, at its principal office or offices
designated as the appropriate place for surrender of Rights
Certificates upon exercise or transfer, books for registration
and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights
evidenced on its face by each of the Rights Certificates, the
Certificate number and the date of each of the Rights
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates.
(1) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the close of business on the
Distribution Date, and at or prior to the close of business on
the Expiration Date, any Rights Certificate or Certificates may
be transferred, split up, combined or exchanged for another
Rights Certificate or Certificates, entitling the registered
holder to purchase a like number of Preferred Share Fractions
(or, following a Triggering Event, Common Shares or other
securities, cash or other assets, as the case may be, as the
Rights Certificate or Certificates surrendered then entitled such
holder or former holder in the case of a transfer). Any
registered holder desiring to transfer, split up, combine or
exchange any Rights Certificate or Certificate shall make such
request in writing delivered to the Rights Agent, and shall
surrender the Rights Certificate or Certificates to be
transferred, split up, combined or exchanged at the principal
office or offices of the Rights Agent designated for such
Purpose. Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the
registered holder shall have completed and signed the certificate
contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the
Company shall reasonably request. Thereupon the Rights Agent
shall, subject to Section 4(b), Section 7(e) and Section 14
hereof, countersign and deliver to the Person entitled thereto a
Rights Certificate or Rights Certificates, as the case may be, as
so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(2) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction
or mutilation of a Rights Certificate, and, in case of loss,
theft or destruction, of indemnity or security reasonably
satisfactory to them, and reimbursement to the Company and the
Rights Agent of all reasonable expenses incidental thereto, and
upon surrender to the Rights Agent and cancellation of the Rights
Certificate if mutilated, the Company will execute and deliver a
new Rights Certificate of like tenor to the Rights Agent for
countersignature and delivery to the registered owner in lieu of
the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration
Date of Rights.
(1) Subject to subsection (e), the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby
(except as otherwise provided herein including, without
limitation, the restrictions on exercisability set forth in
Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in
whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to
purchase and the certificate on the reverse side thereof duly
executed, to the Rights Agent at the principal office or offices
of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price (except as provided in
Section 11(q) hereof) with respect to the total number of
Preferred Share Fractions (or Common Shares, other securities,
cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable (except as provided in
Section 11(q) hereof), at or prior to the earliest of (i) the
close of business on April 25, 2009 (the "Final Expiration
Date"), (ii) the consummation of a transaction contemplated by
Section 13(d) hereof, or (iii) the time at which the Rights are
redeemed or terminated as provided in Section 23 hereof (the
earlier of (i), (ii) and (iii) being herein referred to as the
"Expiration Date").
(2) The Purchase Price for each Preferred Share Fraction
pursuant to the exercise of a Right shall initially be $20.00,
and shall be subject to adjustment from time to time as provided
in Sections 11 and 13(a) hereof and shall be payable in
accordance with subsection (c).
(3) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the
certificate duly executed, accompanied by payment, with respect
to each Right so exercised, of the Purchase Price per Preferred
Share Fraction (or Common Shares, other securities, cash or other
assets, as the case may be) to be purchased as set forth below
and an amount equal to any applicable transfer tax, the Rights
Agent shall, subject to Section 20(k) and Section 14(b) hereof,
thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Shares (or make available, if the Rights Agent is
the transfer agent for such Shares) certificates for the total
number of Preferred Shares to be purchased and the Company hereby
irrevocably authorizes its transfer agent to comply with all such
requests, or (B) if the Company shall have elected to deposit
some or all of the total number of Preferred Shares issuable upon
exercise of the Rights hereunder with a depositary agent,
requisition from the depositary agent depositary receipts
representing such number of Preferred Share Fractions as are to
be purchased (in which case certificates for the Preferred Shares
represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company will direct the
depositary agent to comply with such request, (ii) requisition
from the Company the amount of cash, if any, to be paid in lieu
of fractional shares in accordance with Section 14 hereof, (iii)
after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered
holder of such Rights Certificate, registered in such name or
names as may be designated by such holder, and (iv) after receipt
thereof, deliver such cash, if any, to or upon the order of the
registered holder of such Rights Certificate. The payment of the
Purchase Price (as such amount may be reduced pursuant to Section
11(a)(iii) hereof) may be made, at the election of the holder of
the Rights Certificate, (x) in cash or by certified bank check or
money order payable to the order of the Company, or (y) by
delivery of Rights if and to the extent authorized by Section
11(q) hereof. In the event that the Company is obligated to
issue other securities of the Company (including Common Shares)
pay cash and/or distribute other property pursuant to Section
11(a) hereof, the Company will make all arrangements necessary so
that such other securities, cash and/or other property are
available for distribution by the Rights Agent, if, and when
appropriate.
(4) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new
Rights Certificate evidencing Rights equivalent to the Rights
remaining unexercised shall be issued by the Rights Agent and
delivered to, or upon the order of, the registered holder of such
Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section
14 hereof.
(5) Notwithstanding anything in this Agreement to the contrary,
from and after the first occurrence of a Section 11(a)(ii) Event,
any Rights beneficially owned by (i) an Acquiring Person or an
Associate or Affiliate of an Acquiring Person, (ii) a transferee
of an Acquiring Person (or of any such Associate or Affiliate)
who becomes a transferee after the Acquiring Person becomes such,
or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives
such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity
interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing oral or written plan,
agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of them
Company has determined is part of an oral or written plan,
agreement, arrangement or understanding which has as a primary
purpose or effect the avoidance of this Section 7(e), shall
become null and void without any further action and no holder of
such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or
otherwise; provided, however, that the Rights held by an
Acquiring Person, an Affiliate or Associate of an Acquiring
Person or the transferees of such Persons referred to above shall
not be voided unless the Acquiring Person in question or an
Affiliate or Associate of such Acquiring Person shall be involved
in the transaction giving rise to the Section 11(a)(ii) Event.
The Company shall use all reasonable efforts to insure that the
provisions of this Section 7(e) and Section 4(b) hereof are
complied with, but shall have no liability to any holder of
Rights Certificates' or other Person as a result of its failure
to make any determinations with respect to an Acquiring Person or
its Affiliates, Associates or transferees hereunder.
(6) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the
occurrence of any purported exercise as set forth in this Section
7 unless such registered holder shall have (i) completed and
signed the certificate contained in the form of election to
purchase set forth on-the reverse side of the Rights Certificate
surrendered for such exercise, and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the
Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights
Certificates. All Rights Certificates surrendered for the
purpose of exercise, transfer, split up, combination or exchange
shall, if surrendered to the Company or any of its agents, be
delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled
by it, and no Rights Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this
Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel
and retire, any other Rights Certificate purchased or acquired by
the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all canceled Rights Certificates to the
Company, or shall, at the written request of the Company, destroy
such canceled Rights Certificates, and in such case shall deliver
a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock;
Registration of Securities.
(1) The Company covenants and agrees that it will cause to be
reserved and kept available for issuance upon the exercise of
outstanding Rights as many of its authorized and unissued
Preferred Shares (and, following the occurrence of a Triggering
Event, out of its authorized and unissued Common Shares and/or
other securities or out of its authorized and issued shares held
in its treasury), which together shall at all times after the
Distribution Date be sufficient to permit the exercise in full of
all outstanding Rights.
(2) So long as the Preferred Shares (and, following the
occurrence of a Triggering Event, Common Shares or other
securities) issuable and deliverable upon the exercise of the
Rights may be listed on any national securities exchange, the
Company shall use its best efforts to cause, from and after such
time as the Rights become exercisable, all shares and other
securities reserved for such issuance to be listed on such
exchange upon official notice of issuance upon such exercise.
(3) The Company shall use its best efforts to (i) file, as soon
as practicable following the earliest date after the first
occurrence of a Section 11(a)(ii) Event on which the
consideration to be delivered by the Company upon exercise of the
Rights has been determined in accordance with Section 11(a)(iii)
hereof, or as soon as is required by law following the
Distribution Date, as the case may be, a registration statement
or statements under the Securities Act of 1933 (the "Act"), with
respect to the securities purchasable upon exercise of the Rights
on an appropriate form or forms, (ii) cause such registration
statement or statements to become effective as soon as
practicable after such filing, and (iii) cause such registration
statement or statements to remain effective (with a prospectus at
all times meeting the requirements of the Act) until the earlier
of (A) the date as of which the Rights are no longer exercisable
for such securities, and (B) the date of the expiration of the
Rights. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities
or "blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company may temporarily
suspend, for a period of time not to exceed ninety (90) days
after the date set forth in clause (i) of the first sentence of
this subsection (c), the exercisability of the Rights in order to
prepare and file such registration statement and permit it to-
become effective. Upon any such suspension, the Company shall
issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in
effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction
unless the requisite qualification in such jurisdiction shall
have been obtained.
(4) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Preferred Shares
(and, following a Triggering Event, Common Shares or other
securities) delivered upon exercise of Rights shall, at the time
of delivery of the certificates for such shares or other
securities (subject to payment of the Purchase Price), be duly
and validly authorized and issued and, with respect to Preferred
Shares, Common Shares or other shares of capital stock, fully
paid and nonassessable.
(5) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes
and charges that may be payable in respect of the issuance or
delivery of the Rights Certificates and of any certificates for a
number of Preferred Share Fractions (or Common Shares or other
securities, as the case may be) upon the exercise of Rights. The
Company shall not, however, be required to pay any transfer tax
that may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or
delivery of a number of Preferred Share Fractions (or Common
Shares or other securities, as the case may be) in respect of a
name other than that of the registered holder of the Rights
Certificates evidencing Rights surrendered for exercise or to
issue or deliver any certificates for a number of Preferred Share
Fractions (or Common Shares or other securities, as the case may
be) in a name other than that of the registered holder upon the
exercise of any Rights until such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificate
at the time of surrender) or until it has been established to the
Company's satisfaction that no such tax is due.
Section 10. Capital Stock Record Date. Each Person in whose
name any certificate for a number of Preferred Share Fractions
(or Common Shares or other securities, as the case may be) is
issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of such Preferred
Share Fractions (or Common Shares or other securities, as the
case may be) represented thereby on, and such certificate shall
be dated, the date upon which the Rights Certificate evidencing
such Rights was duly surrendered and payment of the Purchase
Price (and all applicable transfer taxes) was made; provided,
however, that if the date of such surrender and payment is a date
upon which the applicable transfer books of the Company are
closed, such Person shall be deemed to have become the record
holder of such shares (fractional or otherwise) on, and such
certificate shall be dated, the next succeeding Business Day on
which the applicable transfer books of the Company are open.
Prior to the exercise of the Rights evidenced thereby, the holder
of a Rights Certificate shall not be entitled to any rights of a
shareholder of the Company with respect to shares for which the
Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as
provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights. The Purchase Price, the number and
kind of shares and other securities covered by each Right and the
number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(1) (i) In the event the Company shall at any time
after the date of this Agreement (A) declare a dividend on any
security of the Company payable in Preferred Shares, (B)
subdivide the outstanding Preferred Shares, (C) combine the
outstanding Preferred Shares into a smaller number of shares, or
(D) issue any shares of its capital stock in a reclassification
of the Preferred Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is
the continuing or surviving corporation), except as otherwise
provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of
Preferred Shares or capital stock, as the case may be, issuable
on such date, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled
to receive, upon payment of the adjusted Purchase Price, the
aggregate number and kind of Preferred Shares or capital stock,
as the case may be, that, if such Right had been exercised
immediately prior to such date and at a time when the Preferred
Share transfer books were open, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. If an event occurs
which would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided
for in this Section 11(a)(i) shall be in addition to, and shall
be made prior to, any adjustment required pursuant to Section
11(a)(ii) hereof.
(ii) In the event:
(1) any Acquiring Person or any Associate or Affiliate of
any Acquiring Person, at any time after the Stock Acquisition Date,
directly or indirectly, (1) shall merge into the Company or
otherwise combine with the Company and the Company shall be the
continuing or surviving corporation of such merger or combination
and the Common Shares of the Company or other equity securities
of the Company shall remain outstanding, (2) shall, in one
transaction or a series of transactions, transfer any assets to
the Company or to any of its Subsidiaries in exchange (in whole
or in part) for Common Shares, for shares of other equity
securities of the Company, or for securities exercisable for or
convertible into shares of equity securities of the Company
(Common Shares or otherwise) or otherwise obtain from the
Company, with or without consideration, any additional shares of
such equity securities or securities exercisable for or
convertible into shares of such equity securities (other than
pursuant to a pro rata distribution to all holders of Common
Shares), (3) shall sell, purchase, lease, exchange, mortgage,
pledge, transfer or otherwise acquire or dispose of assets in one
transaction or a series of transactions, to, from or with (as the
case may be) the Company or any of its Subsidiaries, on terms and
conditions less favorable to the Company than the Company would
be able to obtain in arm's-length negotiation with an
unaffiliated third party, other than pursuant to a Section 13
Event, (4) shall sell, purchase, lease, exchange, mortgage,
pledge, transfer or otherwise acquire or dispose of assets having
an aggregate fair market value of more than $5,000,000 in one
transaction or a series of transactions, to, from or with (as the
case may be) the Company or any of the Company's Subsidiaries
(other than incidental to the lines of business, if any, engaged
in as of the date hereof between the Company and such Acquiring
Person or Associate or Affiliate), other than pursuant to a
Section 13 Event, (5) shall receive any compensation from the
Company or any of the Company's Subsidiaries other than
compensation for full-time employment as a regular employee at
rates in accordance with the Company's (or its Subsidiaries')
past practices, or (6) shall receive the benefit, directly or
indirectly (except proportionately as a shareholder and except if
resulting from a requirement of law or governmental regulation),
of any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantage provided by
the Company or any of its Subsidiaries, or
(2) any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms
of any such plan), alone or together with its Affiliates and
Associates, shall, at any time after the Rights Dividend Declaration
Date become the Beneficial Owner of 20% or more of the Common Shares
then outstanding, unless the event causing the 20% threshold to be
crossed is a Section 13 Event, or is an acquisition of Common Shares
pursuant to a tender offer or an exchange offer for all outstanding
Common Shares at a price and on terms that provide fair value to all
shareholders, as determined by at least a majority of the Board of
Directors of the Company, after taking into consideration all factors
that such members of the Board of Directors deem relevant,
including, without limitation, the long-term prospects and value of
the Company and the prices and terms that such members of the Board
of Directors believe, in good faith, could reasonably be achieved if
the Company or its assets were sold on an orderly basis designed to
realize maximum value, or
(3) during such time as there is an Acquiring Person, there
shall be any reclassification of securities (including any
reverse stock split), or recapitalization of the Company, or any
merger or consolidation of the Company with any of its
Subsidiaries or any other transaction or series of transactions
involving the Company or any of its Subsidiaries, other than a
Section 13 Event or series of such Events (whether or not with or
into or otherwise involving an Acquiring Person) that has the
effect, directly or indirectly, of increasing by more than its
proportionate share, the outstanding shares of any class of
equity securities of the Company or any of the Company's
Subsidiaries that is directly or indirectly beneficially owned by
any Acquiring Person or any Associate or Affiliate of any
Acquiring Person,
then, promptly following the first occurrence of a
Section 11(a)(ii) Event, proper provision shall be made
so that each holder of a Right (except as provided
below and in Section 7(e) hereof) shall thereafter have
the right to receive, upon exercise thereof at the then
current Purchase Price in accordance with the terms of
this Agreement, in lieu of a number of Preferred Share
Fractions, such number of Common Shares of the Company
as shall equal the result obtained by (x) multiplying
the then current Purchase Price by the then number of
Preferred Share Fractions for which a Right was
exercisable immediately prior to the first occurrence
of a Section 11(a)(ii) Event, and (y) dividing that
product (which, following such first occurrence, shall
thereafter be referred to as the "Purchase Price" for
each Right and for all purposes of this Agreement) by
50% of the current market price (determined pursuant to
Section 11(d) hereof) per Common Share on the date of
such first occurrence (such number of shares, the
"Adjustment Shares").
(iii) In the event that the number of Common
Shares that are authorized by the Company's Articles
but not outstanding or reserved for issuance for
purposes other than upon exercise of the Rights are not
sufficient to permit the exercise in full of the Rights
in accordance with the foregoing subparagraph (ii) of
this Section 11(a), the Company shall: (A) determine
the excess of the value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current
Value") over the Purchase Price (such excess, the
"Spread"), and (B) with respect to each Right, make
adequate provision to substitute for the Adjustment
Shares, upon payment of the applicable Purchase Price,
(1) cash, (2) a reduction in the Purchase Price, (3)
Common Shares of the same or a different class or other
equity securities of the Company (including, without
limitation, preferred shares or units of preferred
shares that a majority of the Board of Directors of the
Company in office at the time has deemed (based, among
other things, on the dividend and liquidation rights of
such preferred shares) to have substantially the same
economic value as Common Shares (such preferred shares,
hereinafter referred to as "common share equivalents"),
(4) debt securities of the Company, (5) other assets,
or (6) any combination of the foregoing, having an
aggregate value equal to the Current Value, where such
aggregate value has been determined by a majority of
the Board of Directors of the Company in office at the
time after considering the advice of a nationally
recognized investment banking firm selected by the
Board of Directors of the Company; provided, however,
if the Company shall not have made adequate provision
to deliver value pursuant to clause (B) above within
thirty (30) days following the later of (x) the first
occurrence of a Section 11(a)(ii) Event and (y) the
date on which the Company's right of redemption
pursuant to Section 23(a) expires (the later of (x) and
(y) being referred to herein as the "Section 11(a)(ii)
Trigger Date"), then the Company shall be obligated to
deliver, upon the surrender for exercise of a Right and
without requiring payment of the Purchase Price, Common
Shares (to the extent available) and then, if
necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. If the Board of
Directors of the Company shall determine in good faith
that it is likely that sufficient additional Common
Shares could be authorized for issuance upon exercise
in full of the Rights, the thirty (30) day period set
forth above may be extended to the extent necessary,
but not more than ninety (90) days after the Section
11(a)(ii) Trigger Date, in order that the Company may
seek shareholder approval for the authorization of such
additional shares (such period, as it may be extended,
the "Substitution Period"). To the extent that the
Company determines that some action need be taken
pursuant to the first and/or second sentences of this
Section 11(a)(iii), the Company shall provide, subject
to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and may suspend
the exercisability of the Rights until the expiration
of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to
such first sentence and to determine the value thereof.
The Company shall make a public announcement when the
exercisability of the Rights has been temporarily
suspended, and again when such suspension is no longer
in effect. For purposes of this Section 11(a)(iii),
the value of the Common Shares shall be the current
market price (as determined pursuant to Section 11(d)
hereof) per Common Share on the Section 11(a)(ii)
Trigger Date and the value of any common share
equivalent shall be deemed to have the same value as
the Common Shares on such date.
(2) In case the Company shall fix a record date for the issuance
of rights, options or warrants to holders of any security of the
Company entitling them to subscribe for or purchase (for a period
expiring within forty-five (45) calendar days after such record
date) Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred
Shares or equivalent preferred shares at a price per Preferred
Share or per equivalent preferred share (or having a conversion
price per share, if a security convertible into Preferred Shares
or equivalent preferred shares) less than the current market
price (as determined pursuant to Section 11(d) hereof) per
Preferred Share on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record
date by a fraction, the numerator of which shall be the number of
Preferred Shares outstanding on such record date, plus the number
of Preferred Shares that the aggregate offering price of the
total number of Preferred Shares and/or equivalent preferred
shares so to be offered (and/or the aggregate initial conversion
price of the convertible securities so to be offered) would
purchase at such current market price, and the denominator of
which shall be the number of Preferred Shares outstanding on such
record date, plus the number of additional Preferred Shares
and/or equivalent preferred shares to be offered for subscription
or purchase (or into which the convertible securities so to be
offered are initially convertible). In case such subscription
price may be paid by delivery of consideration part or all of
which may be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board
of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be
binding on the Company, the Rights Agent and the holders of the
Rights. Preferred Shares owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively
whenever such a record date is fixed, and in the event that such
rights or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price that would then be in effect if
such record date had not been fixed.
(3) In case the Company shall fix a record date for a
distribution to all holders of Preferred Shares (including any
such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) of
evidences of indebtedness, cash (other than a regular quarterly
dividend out of the earnings or retained earnings of the
Company), assets (other than a regular quarterly dividend
referred to above or dividend payable in Preferred Shares, but
including any dividend payable in stock other than Preferred
Shares) or subscription rights or warrants (excluding those
referred to in Section 11(b) hereof), the Purchase Price to be in
effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record
date by a fraction, the numerator of which shall be the current
market price (as determined pursuant to Section 11(d) hereof) per
Preferred Share on such record date, less the then fair market
value (as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the
cash, assets or evidences of indebtedness so to be distributed or
of such subscription rights or warrants applicable to a Preferred
Share and the denominator of which shall be such current market
price (as determined pursuant to Section 11(d) hereof) per
Preferred Share. Such adjustments shall be made successively
whenever such a record date is fixed, and in the event that such
distribution is not so made, the Purchase Price shall be adjusted
to be the Purchase Price which would have been in effect if such
record date had not been fixed.
(4) (i) For the purpose of any computation hereunder,
other than computations made pursuant to section 11(a)(iii)
hereof, the "current market price" per Common Share on any date
shall be deemed to be the average of the daily closing prices per
Common Share for the thirty (30) consecutive Trading Days (as
such term is hereinafter defined) immediately prior to such date,
and for purposes of computations made pursuant to section
11(a)(iii) hereof, the "current market price" per Common Share on
any date shall be deemed to be the average of the daily closing
prices per Common Share for the ten (10) consecutive Trading Days
immediately following such date; provided, however, that in the
event that the current market price per Common Share is
determined during a period following the announcement by the
issuer of such Common Share of (A) a dividend or distribution on
such Common Share payable in Common shares or securities
convertible into Common Shares (other than the Rights), or (B)
any subdivision, combination or reclassification of such Common
Shares, and prior to the expiration of the requisite thirty (30)
Trading Day or ten (10) Trading Day period, as set forth above,
after the ex-dividend date for such dividend or distribution, or
the record date for such subdivision, combination or
reclassification, then, and in each such case, the current market
price shall be properly adjusted to take into account ex-dividend
trading. The closing price for each Trading Day shall be the
last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock
Exchange or, if the Common Shares are not listed or admitted to
trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect
to securities listed on the principal national securities
exchange on which the Common Shares are listed or admitted to
trading or, if the Common Shares are not listed or admitted to
trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or such other system then in use, or,
if on any such date the Common Shares are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the
Common Shares selected by the Board of Directors of the Company.
If on any such date no market maker is making a market in the
Common Shares, the fair value of such shares on such date as
determined in good faith by the Board of Directors of the Company
shall be used. The term "Trading Day" shall mean a day on which
the principal national securities exchange on which the Common
Shares are listed or admitted to trading is open for the
transaction of business or, if the Common Shares are not listed
or admitted to trading on any national securities exchange, a
Business Day. If the Common Shares are not publicly held or not
so listed or traded, "current market price" per share shall mean
the fair value per share as determined in good faith by the Board
of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(ii) For the purpose of any computation hereunder,
the "current market price" per Preferred Share shall be
determined in the same manner as set forth above for
the Common Shares in clause (i) of this Section 11(d)
(other than the last sentence thereof). If the current
market price per Preferred Share cannot be determined
in the manner provided above or if the Preferred Shares
are not publicly held or listed or traded in a manner
described in clause (i) of this Section 11(d), the
"current market price" per Preferred Share shall be
conclusively deemed to be an amount equal to 300 (as
such number may be appropriately adjusted for such
events as stock splits, stock dividends and
recapitalizations with respect to the Common Shares
occurring after the date of this Agreement) multiplied
by the current market price per Common Share. If
neither the Common Shares nor the Preferred Shares are
publicly held or so listed or traded, "current market
price" per Preferred Share shall mean the fair value
per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent
and shall be conclusive for all purposes. For all
purposes of this Agreement, the "current market price"
of a Preferred Share Fraction shall be equal to the
current market price of one Preferred Share divided by
300.
(5) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least one
percent (1%) in the Purchase Price; provided, however, that any
adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under
this Section 11 shall be made to the nearest cent or to the
nearest ten-thousandth of a Common Share or one-millionth of a
Preferred Share, as the case may be. Notwithstanding the first
sentence of this subsection (e), any adjustment required by this
Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction that mandates such
adjustment, or (ii) the Expiration Date.
(6) If as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right
thereafter exercised shall become entitled to receive any shares
of capital stock other than Preferred Shares, thereafter the
number of such other shares so receivable upon exercise of any
Right and the Purchase Price thereof shall be Subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Sections 11(a), (b), (c), (e), (g),
(h), (i), (j), (k), (m) and (q), and the provisions of Sections
7, 9, 10, 13 and 14 hereof with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(7) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall
evidence the right to purchase, at the adjusted Purchase Price,
the number of Preferred Share Fractions purchasable from time to
time hereunder upon exercise of the Rights, all subject to
further adjustment as provided herein.
(8) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase
Price as a result of the calculations made in subsections (b) and
(c), each Right outstanding immediately prior to the making of
such adjustment shall thereafter evidence the right to purchase,
at the adjusted Purchase Price, that number of Preferred Share
Fractions (calculated to the nearest one-millionth of a Preferred
Share) obtained by (i) multiplying (x) the number of Preferred
Share Fractions covered by a Right immediately prior to this
adjustment, by (y) the Purchase Price in effect immediately prior
to such adjustment of the Purchase Price, and (ii) dividing the
product so obtained by the Purchase Price in effect immediately
after such adjustment of the Purchase Price.
(9) The Company may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in lieu of
any adjustment in the number of Preferred Share Fractions
purchasable upon the exercise of a Right. Each of the Rights
outstanding after the adjustment in the number of Rights shall be
exercisable for the number of Preferred Share Fractions for which
a Right was exercisable immediately prior to such adjustment.
Each Right held of record prior to such adjustment of the number
of Rights shall become that number of Rights (calculated to the
nearest ten-thousandth of a Preferred Share) obtained by dividing
the Purchase Price in effect immediately prior to adjustment of
the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. The
record date for the adjustment may be the date on which the
Purchase Price is adjusted or any day thereafter, but, if the
Rights Certificates have been issued, shall be at least ten (10)
days later than the date of the public announcement. If Rights
Certificates have been issued, upon each adjustment of the number
of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights
Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a
result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by
such holders prior to the date of adjustment, and upon surrender
thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled
after such adjustment. Rights Certificates so to be distributed
shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company,
the adjusted Purchase Price) and shall be registered in the names
of the holders of record of Rights Certificates on the record
date specified in the public announcement.
(10) Irrespective of any adjustment or change in the Purchase
Price or the number of Preferred Share Fractions issuable upon
the exercise of the Rights, the Rights Certificates theretofore
and thereafter issued may continue to express the Purchase Price
per Preferred Share Fraction and the number of Preferred Share
Fractions that were expressed in the initial Rights Certificates
issued hereunder.
(11) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then stated or par value,
if any, of the number of Preferred Share Fractions issuable upon
exercise of the Rights, the Company shall take any corporate
action that may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue such number
of fully paid and nonassessable Preferred Share Fractions at such
adjusted Purchase Price.
(12) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record
date for a specified event, the Company may elect to defer until
the occurrence of such event the issuance to the holder of any
Right exercised after such record date the number of Preferred
Share Fractions and other capital stock or securities of the
Company, if any, issuable upon such exercise over and above the
number of Preferred Share Fractions and other capital stock or
securities of the Company, if any, issuable upon such exercise on
the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares (fractional
or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(13) Anything in this Section 11 to the contrary notwithstanding,
the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that in their
good faith judgment the Board of Directors of the Company shall
determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Shares, (ii) issuance wholly for
cash of any Preferred Shares at less than the current market
price, (iii) issuance wholly for cash or Preferred Shares or
securities which by their terms are convertible into or
exchangeable for Preferred Shares, (iv) stock dividends or (v)
issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Company to holders of its
Preferred Shares shall not be taxable to such shareholders.
(14) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other
Person (other than a Subsidiary of the Company in a transaction
which complies with Section 11(o) hereof), (ii) merge with or
into any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o) hereof), or (iii)
sell or transfer (or permit any Subsidiary to sell or transfer),
in one transaction, or a series of related transactions, assets
or earning power aggregating more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Company
and/or any of its Subsidiaries in one or more transactions each
of which complies with Section 11(o) hereof), if (x) at the time
of or immediately after such consolidation, merger or sale there
are any rights, warrants or other instruments or securities
outstanding or agreements in effect that would substantially
diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or
immediately after such consolidation, merger or sale, the
shareholders of the Person who constitutes, or would constitute,
the "Principal Party" for purposes of Section 13(a) hereof shall
have received a distribution of Rights previously owned by such
Person or any of its Affiliates and Associates.
(15) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23
or Section 26 hereof, take (or permit any Subsidiary to take) any
action if at the time such action is taken it is reasonably
foreseeable that such action will diminish substantially or
otherwise eliminate the benefits intended to be afforded by the
Rights.
(16) Anything in this Agreement to the contrary notwithstanding,
in the event that the Company shall at any time after the Rights
Dividend Declaration Date and prior to the Distribution Date (i)
declare a dividend on the outstanding Common Shares payable in
Common Shares, (ii) subdivide the outstanding Common Shares, or
(iii) combine the outstanding Common Shares into a smaller number
of shares, the number of Rights associated with each Common Share
then outstanding, or issued or delivered thereafter but prior to
the Distribution Date, shall be proportionately adjusted so that
the number of Rights thereafter associated with each Common Share
following any such event shall equal the result obtained by
multiplying the number of Rights associated with each Common
Share immediately prior to such event by a fraction the numerator
of which shall be the total number of Common Shares outstanding
immediately prior to the occurrence of the event and the
denominator of which shall be the total number of Common Shares
outstanding immediately following the occurrence of such event.
(17) In the event that the Rights become exercisable following a
Section 11(a)(ii) Event, the Company, by action of a majority of
the Board of Directors of the Company in office at the time, may
permit the Rights, subject to Section 7(e) hereof, to be
exercised for 50% of the Common Shares (or cash or other
securities or assets to be substituted for the Adjustment Shares
pursuant to subsection (a)(iii)) that would otherwise be
purchasable under subsection (a), in consideration of the
surrender to the Company of the Rights so exercised and without
other payment of the Purchase Price. Rights exercised under this
subsection (g) shall be deemed to have been exercised in full and
shall be canceled.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section
11 and Section 13 hereof, the Company shall (a) promptly prepare
a certificate setting forth such adjustment and a brief statement
of the facts accounting for such adjustment, (b) promptly file
with the Rights Agent, and with each transfer agent for the
Preferred Shares and the Common Shares, a copy of such
certificate, and (c) mail a brief summary thereof to each holder
of a Rights Certificate (or, if prior to the Distribution Date,
to each holder of a certificate representing Common Shares) in
accordance with Section 25 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any
adjustment therein contained and shall not be deemed to have
knowledge of any adjustment unless and until it shall have
received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power.
(1) In the event that, following the Stock Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with,
or merge with and into, any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o)
hereof), and the Company shall not be the continuing or surviving
corporation of such consolidation or merger, (y) any Person
(other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof) shall consolidate with, or
merge with or into, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation or
merger and, in connection with such consolidation or merger, all
or part of the outstanding Common Shares shall be changed into or
exchanged for stock or other securities of any other Person or
cash or any other property, or (z) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell
or otherwise transfer), in one transaction or a series of related
transactions, assets or earning power aggregating more than 50%
of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons (other
than the Company or any Subsidiary of the Company in one or more
transactions each of which complies with Section 11(o) hereof),
then, and in each such case and except as contemplated by
subsection (d), proper provision shall be made so that:
(1) each holder of a Right, except as provided in Section 7(e)
hereof or subsection (e), shall thereafter have the right to
receive, upon the exercise thereof at the then current Purchase
Price in accordance with the terms of this Agreement, such number
of validly authorized and issued, fully paid, non assessable and
freely tradeable Common Shares of the Principal Party (as such
term is hereinafter defined), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as
shall be equal to the result obtained by (1) multiplying the then
current Purchase Price by the number of Preferred Share Fractions
for which a Right is exercisable immediately prior to the first
occurrence of a Section 13 Event (or, if a Section 11(a)(ii)
Event has occurred prior to the first occurrence of a Section 13
Event, multiplying the number of such shares for which a Right
was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event by the Purchase Price in effect
immediately prior to such first occurrence), and dividing that
product (which, following the first occurrence of a Section 13
Event, shall be referred to as the "Purchase Price" for each
Right and for all purposes of this Agreement) by (2) 50% of the
current market price (determined pursuant to Section 11(d)(i)
hereof) per Common Share of such Principal Party on the date of
consummation of such Section 13 Event,
(2) such Principal Party shall thereafter be liable for, and
shall assume, by virtue of such Section 13 Event, all the
obligations and duties of the Company pursuant to this Agreement;
(3) the term "Company" shall thereafter be deemed to refer to
such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Section 13
Event;
(4) such Principal Party shall take such steps (including, but
not limited to, the reservation of a sufficient number of its
Common Shares) in connection with the consummation of any such
transaction as may be necessary to assure that the provisions
hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its Common Shares thereafter deliverable
upon the exercise of the Rights; and
(5) the provisions of Section 11(a)(ii) hereof shall be of no
effect following the first occurrence of any Section 13 Event.
(2) "Principal Party" shall mean
(1) in the case of any transaction described in clause (x) or
(y) of the first sentence of subsection (a), the Person that is
the issuer of any securities into which Common Shares of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to
such merger or consolidation; and
(2) in the case of any transaction described in clause (z) of
the first sentence of subsection (a), the Person that is the
party receiving the greatest portion of the assets or earning
power transferred pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common
Shares of such Person are not at such time and have not been
continuously over the preceding twelve (12) month period
registered under Section 12 of the Exchange Act, and such Person
is a direct or indirect Subsidiary of another Person the Common
Shares of which are and have been so registered, "Principal
Party" shall refer to such other Person, and (2) in case such
Person is a Subsidiary, directly or indirectly, of more than one
Person, the Common Shares of two or more of which are and have
been so registered, "Principal Party" shall refer to whichever of
such Persons is the issuer of the Common Shares having the
greatest aggregate market value.
(3) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a
sufficient number-of authorized shares of its Common Shares that
have not been issued or reserved for issuance to permit the
exercise in full of the Rights in accordance with this Section 13
and unless prior thereto the Company and such Principal Party
shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in
paragraphs (a) and (b) of this section 13 and further providing
that, as soon as practicable after the date of any Section 13
event, the Principal Party will
(1)
(1) prepare and file a registration statement under the Act,
with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will use its
best efforts to cause such registration statement to (A) become
effective as soon as practicable after such filing and (B) remain
effective (with a prospectus at all times meeting the
requirements of the Act) until the Expiration Date; and
(2) will deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates
that comply in all respects with the requirements for
registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
In the event that a Section 13 Event shall occur at any time
after the occurrence of a Section 11(a)(ii) Event, the Rights
that have not theretofore been exercised shall thereafter become
exercisable solely in the manner described in Section 13(a).
(4) Notwithstanding anything in this Agreement to the contrary,
Section 13 (other than this subsection (d)) shall not be
applicable to, and the term "Section 13 Event" shall not include,
a transaction described in subparagraphs (x) and (y) of Section
13(a) if (i) such transaction is consummated with a Person, or
Persons who acquired Common Shares pursuant to a tender offer or
exchange offer for all outstanding Common Shares that complies
with the, provisions of Section 11(a)(ii)(B) hereof (or a wholly
owned Subsidiary of any such Person or Persons), (ii) the price
per Common Share offered in such transaction is not less than the
price per Common Share paid to all holders of Common Shares whose
shares were purchased pursuant to such tender offer or exchange
offer and (iii) the form of consideration being offered to the
remaining holders of Common Shares pursuant to such transaction
is the same as the form of consideration paid pursuant to such
tender or exchange offer. Upon consummation of any such
transaction contemplated by this subsection (d), all Rights
hereunder shall expire
(5) In the event that the Rights become exercisable under
subsection (a) (except as provided in subsection (d)), the
Company, by action of a majority of the Board of Directors of the
Company in office at the time, may agree with the Principal Party
that the Principal Party shall permit the Rights to be exercised
for 50% of the Common Shares of the Principal Party that would
otherwise be purchasable under subsection (a), in consideration
of the surrender to the Principal Party, as the successor to the
Company under subsection (a) (ii), of the Rights so exercised and
without other payment of the Purchase Price. Rights exercised
under this subsection (e) shall be deemed to have been exercised
in full and shall be canceled.
Section 14. Fractional Rights and Fractional Shares.
(1) The Company shall not be required to issue fractions of
Rights, except prior to the Distribution Date as provided in
Section 11(p) hereof, or to distribute Rights Certificates that
evidence fractional Rights. In lieu of such fractional Rights,
there shall be paid to the registered holders of the Rights
Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same
fraction of the current market value of a whole Right. For
purposes of this subsection (a), the current market value of a
whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The
closing price of the Rights for any day shall be the last sale
price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the
Rights are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights
are listed or admitted to trading, or if the Rights are not
listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average
of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the
Rights selected by the Board of Directors of the Company. If on
any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined
in good faith by the Board of Directors of the Company shall be
used.
(2) The Company shall not be required to issue fractions of
Preferred Shares upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares, except
in each case for fractions which are integral multiples of
Preferred Shares. In lieu of fractional Preferred Shares that are
not integral multiples of Preferred Shares, the Company may pay
to the registered holders of Rights Certificates at the time such
Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of a Preferred
Share. For purposes of this subsection (b), the current market
value of one Preferred Share shall be the closing price of a
Preferred Share (as determined pursuant to Section 11(d)(ii)
hereof) for the Trading Day immediately prior to the date of such
exercise.
(3) Following the occurrence of a Triggering Event, the Company
shall not be required to issue fractions of Common Shares upon
exercise of the Rights or to distribute certificates that
evidence fractional Common Shares. In lieu of fractional Common
Shares, the Company may pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the
current market value of one Common Share. For purposes of this
subsection (c), the current market value of one Common Share
shall be the closing price of one Common Share (as determined
pursuant to Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(4) The holder of a Right or a beneficial interest in a Right by
the acceptance thereof expressly waives his right to receive any
fractional Rights or any fractional Common Shares upon exercise
of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect
of this Agreement other than those vested in the Rights Agent in
Section 18, are vested in the respective registered holders of
the Rights Certificates (and, prior to the Distribution Date, the
registered holders of the Common Shares); and any registered
holder of any Rights Certificate (or, prior to the Distribution
Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), may, in his own
behalf and for his own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his right to exercise
the Rights evidenced by such Rights Certificate in the manner
provided in such Rights Certificate and in this Agreement.
Without limiting the foregoing or any remedies available to the
holders of Rights or beneficial interests therein, it is
specifically acknowledged that the holders of Rights or
beneficial interests therein would not have an adequate remedy at
law for any breach of this Agreement and shall be entitled to
specific performance of the obligations hereunder and injunctive
relief against actual or threatened violations of the obligations
hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a
Right or a beneficial interest in a Right by accepting the same
consents and agrees with the Company and the Rights Agent and
with every other such holder that:
(1) prior to the Distribution Date, beneficial interests in the
Rights will be transferable only in connection with the transfer
of Common Shares;
(2) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the principal office or Offices of the Rights
Agent designated for such purposes, duly endorsed or accompanied
by a proper instrument of transfer and with the appropriate forms
and certificates fully executed;
(3) subject to Section 6(a) and Section 7(f) hereof, the Company
and the Rights Agent may deem and treat the Person in whose name
a Rights Certificate (or, prior to the Distribution Date the
associated Common Share certificate) is registered as the
absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Share certificate
made by anyone other than the Company or the Rights Agent) for
all purposes whatsoever, and neither the Company nor the Rights
Agent, subject to the last sentence of Section 7(e) hereof, shall
be required to be affected by any notice to the contrary; and
(4) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability
to any holder of a Right or a beneficial interest in a Right or
other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a
court of competent jurisdiction or by a governmental, regulatory
or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company
must use its best efforts to have any such order, decree or
ruling lifted or otherwise overturned as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a
Shareholder. No holder, as such, of any Rights Certificate shall
be entitled to vote, receive dividends or be deemed for any
purpose the holder of the number of Preferred Share Fractions or
any other securities of the Company (including the Common Shares)
that may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in
any Rights Certificate be construed to confer upon the holder of
any Rights Certificate, as such, any of the rights of a
shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate
action, or to receive notice of meetings or other actions
affecting shareholders (except as provided in Section 24 hereof),
or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by such Rights Certificate
shall have been exercised in accordance with the provisions
hereof.
Section 18. Concerning the Rights Agent.
(1) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from
time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and disbursements and other
disbursements incurred in the administration and execution of
this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability, or
expense, incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or
omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the
premises.
(2) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or
omitted by it in connection with its administration of this
Agreement in reliance upon any Rights Certificate or certificate
for Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it
to be genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent.
(1) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated,
or any corporation resulting from any merger or consolidation to
which the Rights Agent or any successor Rights Agent shall be a
party, or any corporation succeeding to the corporate trust or
stock transfer business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or
any further act on the part of any of the parties hereto;
provided, however, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency and trust created by this
Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent
may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at
that time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign such
Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
(2) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall
have been countersigned but not delivered the Rights Agent may
adopt the countersignature under its prior name and deliver
Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned,
the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases
such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions, by all of which the
Company and the holders of Rights Certificates or beneficial
interests in the Rights, by their acceptance thereof, shall be
bound:
(1) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the written opinion of such
counsel shall be full and complete authorization and protection
to the Rights Agent as to any action taken or omitted by it in
good faith and in accordance with such opinion.
(2) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable
that any fact or matter (including, without limitation, the
identity of any Acquiring Person and the determination of the
current market price) be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved
and established by a certificate signed by the Chairman of the
Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of
the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
(3) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(4) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement
or in the Rights Certificates or be required to verify the same
(except as to its countersignature on such Rights Certificates),
but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(5) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the validity or execution of any Rights
Certificate (except its countersignature thereof); nor shall it
be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights
Certificate; nor shall it be responsible for any adjustment
required under the provisions of Section 11 or Section 13 hereof
or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that
would require any such adjustment (except with respect to the
exercise of Rights evidenced by Rights Certificates after receipt
of a Certificate furnished pursuant to Section 12, describing any
such adjustment); nor shall it by any act hereunder be deemed to
make any representation or warranty as to the authorization or
reservation of any Common Shares to be issued pursuant to this
Agreement or any Rights Certificate or as to whether any Common
Shares or Preferred Shares will, when so issued, be validly
authorized and issued, fully paid and nonassessable:
(6) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the
Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(7) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties
hereunder from the Chairman of the Board, the President, any Vice
President, the Secretary, any Assistant Secretary, the Treasurer
or any Assistant Treasurer of the Company, and to apply to such
officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or
suffered to be taken by it in good faith in accordance with
instructions of any such officer. Any application by the Rights
Agent for written instructions from the Company may, at the
option of the Rights Agent, set forth in writing any action
proposed to be taken or omitted by the Rights Agent under this
Rights Agreement and the date on and/or after which such action
shall be taken or such omission shall be effective. The Rights
Agent shall not be liable for any action taken by, or omission
of, the Rights Agent in accordance with a proposal included in
any such application on or after the date specified in such
application (which date shall not be less than five Business Days
after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in
writing to an earlier date) unless, prior to taking any such
action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response
to such application specifying the action to be taken or omitted.
(8) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not the
Rights Agent under this Agreement, and none of such actions shall
constitute a breach of trust. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or
for any other legal entity.
(9) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the
Rights Agent shall not be answerable or accountable for any act,
default, neglect or misconduct of any such attorneys or agents or
for any loss to the Company resulting from any such act, default,
neglect or misconduct; provided, however, reasonable care was
exercised in the selection and continued employment thereof.
(10) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties
hereunder or in the exercise of its rights if there shall be
reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not
reasonably assured to it.
(11) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate
attached to the form of assignment or form of election to
purchase, as the case may be, has either not been completed or
indicates an affirmative response to clause 1 and/or 2 thereof,
the Rights Agent shall not take any further action with respect
to such requested exercise or transfer without first consulting
with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its
duties under this Agreement upon thirty (30) days' prior written
notice mailed to the Company and to each transfer agent of the
Common Shares and Preferred Shares by registered or certified
mail, and to the holders of the Rights Certificates by first-
class mail. The Company may remove the Rights Agent or any
successor Rights Agent upon thirty (30) days' prior written
notice mailed to the Rights Agent or successor Rights Agent, as
the case may be, and to each transfer agent of the Common Shares
and Preferred Shares, by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. If the
Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the
Rights Agent. If the Company shall fail to make such appointment
within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Rights Certificate (who shall,
with such notice, submit his Rights Certificate for inspection by
the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for
the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall
be (a) a corporation organized, doing business and in good
standing under the laws of the United States or of any state,
having a principal office in the State of New York or the
Commonwealth of Pennsylvania, that is authorized by law to
exercise corporate trust and stock transfer powers and is subject
to supervision or examination by federal or state authority and
that has at the time of its-appointment as Rights Agent a
combined capital and surplus adequate in the judgment of a
majority of the Board of Directors of the Company in office at
the time to assure the performance of its duties hereunder and
the protection of the interests of the Company and the holders of
Rights or beneficial interests therein, or (b) an Affiliate of a
corporation described in clause (a) of this sentence. After
appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or
deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company
shall file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Shares and Preferred
Shares and mail a notice thereof in writing to the registered
holders of the Rights Certificates or, prior to the Distribution
Date, to the registered holders of the Common Shares. Failure to
give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates.
Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Company may, at its option, issue new
Rights Certificates evidencing Rights in such form as may be
approved by its Board of Directors to reflect any adjustment or
change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the
Rights Certificates made in accordance with the provisions of
this Agreement. In addition, in connection with the issuance,
sale or delivery of Common Shares following the Distribution Date
and prior to the redemption or expiration of the Rights, the
Company (a) shall, with respect to Common Shares so issued, sold
or delivered pursuant to the exercise of stock options, stock
appreciation rights grants or awards outstanding on the
Distribution Date under any benefit plan or arrangement for
employees or directors, or upon the exercise, conversion or
exchange of securities outstanding on the Record Date or
hereinafter issued by the Company, and (b) may, in any other
case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance
or sale; provided, however, that (i) no such Rights Certificate
shall be issued if, and to the extent that, the Company shall be
advised by counsel that such issuance would create a significant
risk of material adverse tax consequences to the Company or the
Person to whom such Rights Certificate would be issued, and (ii)
no such Rights Certificate shall be issued if, and to the extent
that, appropriate adjustment shall otherwise have been made in
lieu of the issuance thereof.
Section 23. Redemption and Termination.
(1) The Board of Directors of the Company may, at its option, at
any time prior to the earlier of (i) the close of business on the
tenth day following a Stock Acquisition Date (or, if the Stock
Acquisition Date shall have occurred prior to the Record Date,
the close of business on the tenth day following the Record
Date), or (ii) the Final Expiration Date, redeem all but not less
than all the then outstanding Rights at a redemption price of
$.01 per Right, as such amount may be appropriately adjusted to
reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price") and the
Company may, at its option, pay the Redemption Price either in
Common Shares (based on the "current market price", as defined in
Section 11(d)(i) hereof, of the Common Shares at the time of
redemption) or cash. Notwithstanding anything contained in this
Agreement to the contrary, the Rights shall not be exercisable
after the first occurrence of a Section 11(a)(ii) Event until
such time as the Company's right of redemption hereunder has
expired.
(2) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which
shall have been filed with the Rights Agent and without any
further action and without any notice, the right to exercise the
Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of
Directors ordering the redemption of the Rights, the Company
shall give notice of such redemption to the Rights Agent and the
holders of the then outstanding Rights by mailing such notice to
all such holders at each holder's last address as it appears upon
the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the Transfer Agent
for the Common Shares. Any notice that is mailed in the manner
herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state
the method by which the payment of the Redemption Price will be
made.
(3) In deciding whether or not to exercise the Company's right
of redemption hereunder, the directors of the Company shall act
in good faith, in a manner they reasonably believe to be in the
best interests of the Company and with such care, including
reasonable inquiry, skill and diligence, as a Person of ordinary
prudence would use under similar circumstances.
Section 24. Notice of Certain Events.
Section 1.
(1) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of
any class to the holders of Preferred Shares or to make any other
distribution to the holders of Preferred Shares (other than a
regular quarterly dividend out of earnings or retained earnings
of the Company), or (ii) to offer to the holders of Preferred
Shares rights or warrants to subscribe for or to purchase any
additional Preferred Shares or shares of stock of any class or
any other securities, rights or options, or (iii) to effect any
reclassification of its Preferred Shares (other than a
reclassification involving only the subdivision of outstanding
Preferred Shares), or (iv) to effect any consolidation or merger
into or with any other Person (other than a Subsidiary of the
Company in a transaction which complies with Section 11(o)
hereof), or to effect any sale or other transfer (or to permit
one or more of its Subsidiaries to effect any sale or other
transfer), in one transaction or a series of related
transactions, of more than 50% of the assets or earning power of
the Company and its Subsidiaries (taken as a whole) to any other
Person or Persons (other than the Company and/or any of its
Subsidiaries in one or more transactions each of which complies
with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such
case, the Company shall give to each holder of a Rights
Certificate, to the extent feasible and in accordance with
Section 25 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend,
distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of Preferred Shares,
if any such date is to be fixed, and such notice shall be so
given in the case of any action covered by clause (i) or (ii)
above at least twenty (20) days prior to the record date for
determining holders of Preferred Shares for purposes of such
action, and in the case of any such other action, at least twenty
(20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of Preferred
Shares, whichever shall be the earlier.
(2) Upon the occurrence of a Section 11(a)(ii) Event, (i) the
Company shall as soon as practicable thereafter give to each
holder of a Right, to the extent feasible and in accordance with
Section 25 hereof, a notice of the occurrence of such event,
which shall specify the event and the consequences of the event
to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Shares shall
be deemed thereafter to refer to Common Shares and/or, if
appropriate, other securities.
Section 25. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the
holder of any Rights Certificate to or on the Company shall be
sufficiently given or made if sent by first class mail, postage
prepaid, addressed (until another address is filed in writing
with the Rights Agent) as follows:
Charming Shoppes, Inc.
450 Winks Lane
Bensalem, Pennsylvania 19020
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand
authorized by this Agreement to be given or made by the Company
or by the holder of any Rights Certificate to or on the Rights
Agent shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed
in writing with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Attention: Corporate Trust Department
Notices or demands authorized by this Agreement to be given or
made by the Company or the Rights Agent to the holder of any
Rights Certificate (or, if prior to the Distribution Date to the
holder of certificates representing Common Shares) shall be
sufficiently given or made if sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder
as shown on the registry books of the Company.
Section 26. Supplements and Amendments.
(1) Prior to the Distribution Date the Company may, and the
Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement without the approval of any
holders of Common Shares. From and after the Distribution Date
the Company may, and the Rights Agent shall, if the Company so
directs, supplement or amend this Agreement without the approval
of any holders of Rights Certificates in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other
provisions herein, (iii) to shorten or lengthen any time period
hereunder or (iv) to change or supplement the provisions
hereunder in any manner that the Company may deem necessary or
desirable and that shall not adversely affect the interests of
the holders of Rights Certificates; provided, this Agreement may
not be supplemented or amended to lengthen, pursuant to clause
(iii) of this sentence, (A) a time period relating to when the
Rights may be redeemed at such time as the Rights are not then
redeemable, or (B) any other time period unless such lengthening
is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights. Upon
the delivery of a certificate from an appropriate officer of the
Company that states that the proposed supplement or amendment is
in compliance with the terms of this Section 26, the Rights Agent
shall execute such supplement or amendment. Prior to the
Distribution Date, the interests of the beneficial owners of
Rights shall be deemed coincident with the interests of the
holders of Common Shares.
(2) In deciding whether or not to supplement or amend this
Agreement, the directors of the Company shall act in good faith,
in a manner they reasonably believe to be in the best interests
of the Company and with such care, including reasonable inquiry,
skill and diligence, as a Person of ordinary prudence would use
under similar circumstances, and they may consider the effects of
any action upon employees, suppliers and customers of the Company
and upon communities in which offices or other establishments of
the Company are located, and all other pertinent factors.
Section 27. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights
Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.
Section 28. Determinations and Actions by the Board of
Directors, etc. For all purposes of this Agreement, any
calculation of the number of Common Shares outstanding at any
particular time, including for purposes of determining the
particular percentage of such outstanding Common Shares of which
any Person is the Beneficial Owner, shall be made in accordance
with the last sentence of Rule 13d-3(d)(1)(i) of the General
Rules and Regulations under the Exchange Act. The Board of
Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise all rights
and powers specifically granted to the Board or to the Company,
or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to
(i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to
redeem or not redeem the Rights or to amend or supplement the
Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all
omissions with respect to the foregoing) that are done or made by
the Board in good faith, shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the
Rights and all other parties, and (y) not subject the Board to
any liability to the holders of the Rights.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the
Company, the Rights Agent and the registered holders of the
Rights Certificates (and, prior to the Distribution Date,
registered holders of the Common Shares) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the
Rights Agent and the registered holders of the Rights
Certificates (and, prior to the Distribution Date, registered
holders of the Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
Jurisdiction or other Authority to be invalid, void or
unenforceable for any purpose or under any set of circumstances
or as applied to any Person, such invalid, void or unenforceable
term, provision, covenant or restriction shall continue in effect
to the maximum extent possible for all other purposes, under all
other circumstances and as applied to all other Persons; and the
remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated; provided, however,
that notwithstanding anything in this Agreement to the contrary,
if any such term, provision, covenant or restriction is held by
such Court or authority to be invalid, void or unenforceable and
the Board of Directors of the Company determines in its good
faith judgment that severing the invalid language from this
Agreement would adversely affect the purpose or effect of this
Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of
business on the tenth day following the date of such
determination by the Board of Directors.
Section 31. Governing Law. This Agreement, each Right and
each Rights Certificate issued hereunder shall be deemed to be a
contract made under the laws of the Commonwealth of Pennsylvania
and for all purposes shall be governed by and construed in
accordance with the laws of such jurisdiction applicable to
contracts made and to be performed entirely within such
jurisdiction.
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall
for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same
instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience
only and shall not control or affect the meaning or construction
of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
CHARMING SHOPPES, INC.
By_________________________________
Name: Dorrit J. Bern
Title: Chief Executive Officer
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By_________________________________
Name:______________________________
Title:_____________________________
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>exh10110.txt
<DESCRIPTION>AMENDMENT NO. 4
<TEXT>
EXHIBIT 10.1.10
October 26, 2000
Charming Shoppes, Inc.
450 Winks Lane
Bensalem, Pennsylvania 19020
Re: Amendment No. 4 to Second Amended and Restated
Loan and Security Agreement, dated February 28,
1997 (as amended and supplemented, the "Loan
Agreement") among Charming Shoppes, Inc. (the
"Company"), certain subsidiaries of the Company
which are parties thereto (collectively, with the
Company, "Borrowers"), Borrowers' Agent and
Congress Financial Corporation ("Congress")
Ladies and Gentlemen:
The Company has advised Congress that (a) the Company has
organized Charming J.V. Inc., a Delaware corporation, ("New
Subsidiary") and all of the issued and outstanding stock of New
Subsidiary is owned by the Company, (b) New Subsidiary has
entered into or is about to enter into a joint venture agreement,
dated on or about the date hereof, with Monsoon Accessorize, Ltd.
(the "ER Joint Venture Agreement") to form M and A Joint Venture
LLC (the "EJV") for the sale of casual to better wear garments
and accessories ("ER Joint Venture"), pursuant to which the
Company has approved an $8,000,000 equity commitment.
Capitalized terms used herein which are defined in the Loan
Agreement shall have the respective meanings ascribed to such
terms in the Loan Agreement.
This will confirm that Congress consents to (a) the
organization of New Subsidiary and (b) the equity investments in
the EJV, provided, that:
(i) no Event of Default exists at the time of the
formation (or after giving effect thereto) of
the ER Joint Venture; and
(ii) ER Joint Venture is consummated on or before
November 15, 2000.
Borrowers hereby confirm, that after giving effect to the
transactions contemplated by the ER Joint Venture Agreement,
Borrowers and Obligors shall only be permitted, pursuant to the
terms of the Loan Agreement, to make additional cash investments
in joint ventures including, without limitation, the EJV, in an
amount not to exceed $2,000,000, provided, that, all of the other
conditions set forth in Section 9.10 of the Loan Agreement and
otherwise are satisfied with respect to any such investment.
This will also confirm that Congress agrees that New
Subsidiary, EJV and any subsidiary of EJV, shall each be deemed
to be an Excluded Subsidiary.
Notwithstanding anything to the contrary set forth in
Sections 9.9 and 9.10 of the Loan Agreement, this will also
confirm that Congress agrees that the Company may execute
guaranties in favor of lessors of retail stores with respect to
the obligations of EJV, and subsidiaries of EJV, as the case may
be, to make rental payments to such lessors with respect to
retail stores operated by EJV and subsidiaries of EJV after the
date hereof (collectively, the AEJV Store Leases@), provided,
that, after giving effect to each such guarantee each of the
following conditions is satisfied: (a) the aggregate amount
guaranteed under all such EJV Store Leases does not exceed
$16,000,000 in the aggregate at any time, (b) there does not
exist any Event of Default or condition which with notice or
passage of time or both, would constitute an Event of Default at
the time such guarantee is made, and (c) such guarantee is
unsecured indebtedness of the Company. The Company shall, at the
request of Lender, deliver to Lender true and correct copies of
any or all of the EJV Store Leases and related guarantees.
Except as expressly set forth herein, no existing defaults
or Events of Default and no rights or remedies of Congress have
been or are being waived hereby and no changes in the Financing
Agreements have been or are being made or intended hereby, and in
all other respects, the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties
hereto as of the date hereof.
The foregoing shall be effective, as of the date hereof,
upon execution of this letter by Borrowers and the other entities
listed below.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By:___________________________
Title:________________________
[SIGNATURES CONTINUE ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
AGREED AND ACCEPTED:
CHARMING SHOPPES, INC.
By:_________________________
Title:______________________
CHARMING SHOPPES OF DELAWARE, INC.
By:_________________________
Title:______________________
CSI INDUSTRIES, INC.
By:_________________________
Title:______________________
FB APPAREL, INC,
By:_________________________
Title:______________________
BORROWERS' AGENT
CHARMING SHOPPES OF DELAWARE, INC.,
BORROWERS' AGENT
By:_________________________
Title:______________________
[SIGNATURES CONTINUE ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
CONSENTED TO:
By Each of the Obligors
on Exhibit A Annexed Hereto
____________________________
Its:________________________
By Each of the Obligors
on Exhibit B Annexed Hereto
____________________________
Its:________________________
EXHIBIT "A" TO CONGRESS FINANCIAL CONSENT
Obligors on behalf of which Colin D. Stern has signed as Vice
President:
C.S.A.C., Inc.
C.S.F., Corp.
EXHIBIT "B" TO CONGRESS FINANCIAL CONSENT
Obligors on behalf of which Eric M. Specter has signed in the
capacity noted below:
C.S.I.C., Inc. -President
Charm-Fin Stores, Inc. -Vice President
Fashion Bug of California -Vice President
FB Clothing, Inc. -Vice President
International Apparel, Inc. -Vice President
Operating Retail Stores -Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>exh10111.txt
<DESCRIPTION>AMENDMENT NO. 5
<TEXT>
EXHIBIT 10.1.11
As of January 31, 2001
Charming Shoppes, Inc.
450 Winks Lane
Bensalem, Pennsylvania 19020
Re: Amendment No. 5 to Financing Agreements (this "Amendment")
Ladies and Gentlemen:
In consideration of the mutual agreements contained herein
and other good and valuable consideration, each of the parties to
the Loan Agreement (as hereinafter defined) agree as follows:
1. Capitalized terms used herein shall have the meanings
ascribed thereto in the Second Amended and Restated Loan and
Security Agreement, dated February 28, 1997, by and among
Charming Shoppes, Inc. (the "Company"), certain subsidiaries of
the Company which are parties thereto (collectively, with the
Company, "Borrowers"), Congress Financial Corporation
("Congress") and Charming Shoppes of Delaware, Inc. ("Borrowers'
Agent"), as the same now exists or may hereafter be further
amended, modified, supplemented, extended, renewed, restated or
replaced (the "Loan Agreement"), unless otherwise defined herein.
2. (a) Subject to the terms and conditions hereof,
Congress consents to the formation of a new wholly-owned
subsidiary of the Company, CSIM, Inc, a Delaware corporation
("CSIM"); provided, that: (i) such formation occurs prior to
February 28, 2001; and (ii) as of the date of such formation and
after giving effect thereto, no Event of Default, or act
condition or event which with notice or passage of time or both
would constitute an Event of Default exists or has occurred.
(b) In consideration for Congress' consent as set forth
in Section 2(a) above, Borrowers and Obligors jointly and
severally agree and covenant that:
(i) upon the formation of the CSIM, true and
correct copies of the formation documents of CSIM and written
evidence of updates to Borrowers' certificates of insurance to
add CSIM as a named insured under such policies and certificates
of such updated insurance policy or policies and/or endorsements
naming Congress as loss payee, shall be promptly delivered to
Congress,
(ii) no Borrower nor any Obligor shall, directly
or indirectly, make any loans or advance money or property to
CSIM, or invest in (by capital contribution, dividend or
otherwise) CSIM or make any other payment to CSIM or transfer any
assets or properties to or on behalf of or for the benefit of
CSIM, guarantee or otherwise become liable in any respect for any
obligations of CSIM; except that any Borrower or Obligor may make
loans or advance money or property to, or invest by capital
contribution in CSIM so long as: (aa) the total amount of any
loans, investments or advances by Borrowers and Obligors to CSIM
at any time outstanding shall not exceed $1,000 and (bb) Congress
shall receive a monthly report in form and substance satisfactory
to Congress of the amount of Borrowers= or any Obligors loans,
investments or advances in CSIM and such other information with
respect thereto as Congress may reasonably request, and
(iii) no Borrower nor any Obligor, shall permit
CSIM to, directly or indirectly: (aa) create, incur, assume or
permit to exist any mortgage, pledge, security interest, lien or
encumbrance of any kind upon any of the assets or properties of
CSIM, whether now owned or hereafter acquired or (bb) sell,
assign, lease, transfer, abandon or otherwise dispose of any
stock or indebtedness of CSIM to any other person or any
properties or assets of CSIM to any other person except in favor
of Congress.
3. The Loan Agreement shall be and is amended, effective as
of the date hereof, as follows:
(a) Section 9.13 of the Loan Agreement is amended by
deleting the reference to "$300,000,000" set forth therein and
inserting "$350,000,000" in its stead;
(b) Section 12.1(a) of the Loan Agreement is amended
by deleting the date of "June 30, 2001" set forth therein and
inserting "June 30, 2004" in its stead;
(c) Section 12.1(c) of the Loan Agreement is amended
by deleting the text of such Section in its entirety and
inserting "Intentionally Deleted" in its stead; and
(d) The existing Omnibus Schedule 2 to the Loan
Agreement entitled "Eligible Inventory Locations" is hereby
amended by adding to Section A.4. thereof: "Los Angeles,
California".
4. In consideration of the amendments set forth herein,
Borrowers shall on the date hereof, pay to Congress, and Congress
may, at its option, charge the account of Borrowers maintained by
Congress, a fee in the amount of $562,500, which fee shall
constitute part of the Obligations and is fully earned as of the
date hereof.
5. In addition to the representations, warranties and
covenants heretofore or hereafter made by the Company and the
other Borrowers to Congress pursuant to the Loan Agreement and
the other Financing Agreements, each of the Borrowers hereby
represents, warrants and covenants to and with Congress as
follows (which representations, warranties and covenants are
continuing and shall survive the execution and delivery of this
letter and shall be incorporated into and made a part of the
Financing Agreements):
(a) No Event of Default exists or has occurred and is
continuing on the date hereof;
(b) Borrowers hereby agrees that, in addition to all
other terms, conditions and provisions set forth in the other
Financing Agreements, Borrowers shall deliver or cause to be
delivered to Congress, as soon as possible, but in no event later
than March 2, 2001, a UCC-1 financing statement by and between
CSI, as debtor and Congress, as secured party with rider for
filing with the Secretary of State of California, duly
authorized, executed and delivered by CSI; and
(c) this Amendment has been duly authorized, executed
and delivered by the Company and each of the other Borrowers, has
been consented to by each of the other Obligors and is in full
force and effect on the date hereof.
6. This Amendment shall be effective, as of the date
hereof, upon receipt by Congress of Congress shall have received:
(a) this Amendment, duly authorized, executed and delivered by
the Company and each of the other Borrowers and Obligors, and (b)
the fee referred to in Section 4 hereof.
7. This Amendment contains the entire agreement of the
parties with respect to the subject matter hereof and supersedes
all correspondence, memoranda, communications, discussions and
negotiations with respect thereto. Except as expressly set forth
above, no existing defaults or Events of Default and no rights or
remedies of Congress have been or are being waived hereby and no
changes or modifications to the Financing Agreements have been or
are being made or are intended hereby and in all other respects
the Financing Agreements shall continue in full force and effect.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
8. This Amendment may be executed and delivered in
counterparts, all of which together shall constitute a complete
agreement.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By:__________________________
Title:_________________________
AGREED AND ACCEPTED:
CHARMING SHOPPES, INC.
By:________________________
Title:_______________________
[SIGNATURES CONTINUE ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
CHARMING SHOPPES OF DELAWARE, INC.
By:_________________________
Title:_______________________
CSI INDUSTRIES, INC.
By:_________________________
Title:_______________________
FB APPAREL, INC,
By:_________________________
Title:_______________________
BORROWERS' AGENT
CHARMING SHOPPES OF DELAWARE, INC.,
BORROWERS' AGENT
By:_________________________
Title:_______________________
[SIGNATURES CONTINUE ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
CONSENTED TO:
By Each of the Obligors
on Exhibit A Annexed Hereto
____________________________
Its:_________________________
By Each of the Obligors
on Exhibit B Annexed Hereto
____________________________
Its:_________________________
EXHIBIT "A" TO AMENDMENT NO. 5
Obligors on behalf of which Colin D. Stern has signed as Vice
President:
C.S.A.C., Inc.,
C.S.F., Corp.
EXHIBIT "B" TO AMENDMENT NO. 5
Obligors on behalf of which Eric M. Specter has signed in the
capacity noted below:
C.S.I.C., Inc. - President
Charm-Fin Stores, Inc. - Vice President
Fashion Bug of California - Vice President
FB Clothing, Inc. - Vice President
International Apparel, Inc. - Vice President
Operating Retail Stores - Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>exh10116.txt
<DESCRIPTION>2000 VFC SUPPLEMENT
<TEXT>
EXHIBIT 10.1.16
CHARMING SHOPPES RECEIVABLES CORP.
Seller
SPIRIT OF AMERICA, INC.
Servicer
and
FIRST UNION NATIONAL BANK
Trustee
on behalf of the Series 2000-VFC Certificateholders
SERIES 2000-VFC SUPPLEMENT
Dated as of November 9, 2000
to
SECOND AMENDED AND RESTATED POOLING AND
SERVICING AGREEMENT
Dated as of November 25, 1997
up to $60,122,700
CHARMING SHOPPES MASTER TRUST
SERIES 2000-VFC
SERIES 2000-VFC 2SUPPLEMENT, dated as of November 9,
2000 (this "Supplement"), by and among CHARMING SHOPPES
RECEIVABLES CORP., a Delaware corporation, as Seller (the
"Seller"), SPIRIT OF AMERICA, INC., 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 1. Designation.
(a) There is hereby created a Series of Investor Certificates to
be issued in two classes pursuant to the Agreement and this
Series Supplement and to be known together as the "Series 2000-
VFC Certificates." The two classes shall be designated the Class
A Floating Rate Asset Backed Certificates, Series 2000-VFC (the
"Class A Certificates") and the Class B Floating Rate Asset
Backed Certificates, Series 2000-VFC (the "Class B
Certificates"). The Class A Certificates and the Class B
Certificate shall be substantially in the form of Exhibits A-1
and A-2, hereto, respectively.
(b) Series 2000-VFC shall be included in Group One. Series 2000-
VFC shall not be subordinated to any other Series.
SECTION 2. Definitions. In the event that any term or
provision contained herein shall conflict with or be inconsistent
with any provision contained in the Agreement, the terms and
provisions of this Supplement shall govern with respect to this
Series. All Article, Section or subsection references herein
shall mean Article, Section or subsections of the Agreement,
except as otherwise provided herein. All capitalized terms not
otherwise defined herein are defined in the Agreement. Each
capitalized term defined herein shall relate only to the Series
2000-VFC Certificates and no other Series of Certificates or
Receivables Purchase Series issued by the Trust.
"Accrued Costs" means, with respect to any Distribution
Date, the sum of (i) the Class A Monthly Interest for such
Distribution Date, plus (ii) the Class A Additional Amounts, if
any, for such Distribution Date.
"Adjusted Excess Yield Percentage" shall mean, with respect
to any Distribution Date, the excess, if any, of (i) the
Portfolio Yield for the related Due Period over (ii) the Base
Rate for such Distribution Date.
"Administrator" shall mean ING Baring (U.S.) Capital Markets
LLC, as administrator for the initial Class A Purchaser.
"Agent" is defined in Section 18.
"Amortization Period" shall mean, unless an Early
Amortization Event shall have occurred prior thereto, the period
commencing at the close of business on the Purchase Expiration
Date (or such later date as shall have been agreed to by the
Seller and each Series 2000-VFC Certificateholder) and ending on
the earlier to occur of (a) the commencement of the Early
Amortization Period, and (b) the Series 2000-VFC Termination
Date, provided that the Seller may, by written notice to the
Trustee and each Series 2000-VFC Certificateholder (and so long
as the Early Amortization Period has not begun), cause the
Amortization Period to begin on any date earlier than the one
otherwise specified above.
"Available Funds" shall mean, with respect to any
Distribution Date, an amount equal to the sum (without
duplication) of (i) all Collections of Finance Charge Receivables
received during the related Due Period and allocated to the
Series 2000-VFC Certificates, (ii) the interest and earnings on
funds on deposit in the Series Cash Collateral Account and the
Spread Account for such Due Period deposited into the Collection
Account pursuant to Sections 4.16 and 4.17 on the related
Distribution Date and (iii) the amount of any Cap Payment with
respect to such Distribution Date and the amount of any payments
due from the Cap Provider but not paid with respect to any prior
date (to the extent received by the Trustee).
"Available Principal Collections" shall mean, (i) with
respect to any Optional Amortization Date that is not also a
Distribution Date, all Collections of Principal Receivables
previously allocated to the Series 2000-VFC Certificateholders
pursuant to Section 4.5(a)(ii), (a)(iii), (b)(ii) and (b)(iii)
then on deposit in the Collection Account and (ii) 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 any such Collections of Principal
Receivables used to make an Optional Amortization, minus the
amount of 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, (b) any Shared Principal
Collections with respect to other Series in Group One that are
allocated to Series 2000-VFC in accordance with Section 4.15 for
such Distribution Date, and (c) any other amounts which pursuant
to Section 4.9(a) (v), (vi), (vii) and (viii) or Section 4.11 (to
the extent allocable to the Class A Investor Loss Amount or the
Class A Dilution Amount) for such Due Period (other than such
amounts paid from Reallocated Class B Principal Collections) are
to be treated as Available Principal Collections for such
Distribution Date.
"Available Series Cash Collateral Amount" shall mean with
respect to any date, the amount on deposit in the Series Cash
Collateral Account on such date (such amount calculated before
giving effect to any deposit to, or withdrawal from, the Series
Cash Collateral Account to be made with respect to such date).
"Available Shared Principal Collections" shall mean, with
respect to any date, the amount of Shared Principal Collections
available for distribution in connection with an Optional
Amortization.
"Average Class A Funded Amount" shall mean, with respect to
any Interest Period, the quotient of (a) the sum of the Class A
Funded Amount as of each day in such Interest Period, divided by
(b) the number of days in such Interest Period.
"Average Class B Funded Amount" shall mean, with respect to
any Interest Period, the quotient of (a) the sum of the Class B
Funded Amount as of each day in such Interest Period, divided by
(b) the number of days in such Interest Period.
"Average Maximum Class A Funded Amount" shall mean, with
respect to any Interest Period, the quotient of (a) the sum of
the Maximum Class A Funded Amount as of each day in such Interest
Period, divided by (b) the number of days in such Interest
Period.
"Average Maximum Class B Funded Amount" shall mean, with
respect to any Interest Period, the quotient of (a) the sum of
the Maximum Class B Funded Amount as of each day in such Interest
Period, divided by (b) the number of days in such Interest
Period.
"Base Rate" means, with respect to any Distribution Date,
twelve times the percentage equivalent of a fraction, the
numerator of which is the sum of (i) the Accrued Costs for such
Distribution Date, plus (ii) the Investor Monthly Servicing Fee
for the related Due Period plus (iii) the Class B Monthly
Interest and Class B Additional Amounts payable on the Class B
Certificates, in each case, for such Distribution Date, and the
denominator of which is the Weighted Average Investor Interest
for the related Due Period.
"Breakage Payment" is defined in Section 4.6(c).
"Calculation Date" shall mean the date of any Class A
Incremental Funding and each Distribution Date, in each case,
occurring after the second Distribution Date occurring after the
Closing Date.
"Cap Agreement" shall mean the interest rate cap agreement
dated on or prior to the initial Incremental Funding between
Fashion Service Corp. and the Cap Provider and assigned to the
Trust for the benefit of the Series 2000-VFC Certificateholders
in substantially the form attached hereto as Exhibit E, or any
Replacement Interest Rate Cap therefor.
"Cap Payment" shall mean, with respect to a Distribution
Date, the payment, if any, received from the Cap Provider on the
day preceding such Distribution Date, as determined pursuant to
the Cap Agreement.
"Cap Provider" shall mean the initial counterparty under the
Cap Agreement, or any successor or assign thereto appointed as
provided in the Cap Agreement, in its individual capacity
pursuant to the Cap Agreement, or if any Replacement Interest
Rate Cap is obtained therefor pursuant to Section 4.18, such
replacement cap provider, it being understood that the initial
counterparty and any replacement cap provider shall be required
to have short-term debt obligations which are rated at least A-1
by Standard & Poor's and P-1 by Moody's.
"Cap Replacement Event" shall mean (i) (x) any Cap Provider
shall fail to make any payment required to be made by it pursuant
to the Cap Agreement and such failure shall continue for three
Business Days, (y) the withdrawal of or reduction below A-1 in
the senior unsecured, unguaranteed, short-term debt rating of a
Cap Provider by Standard & Poor's or a withdrawal of or reduction
below P-1 of the unsecured, unguaranteed, short-term debt rating
of a Cap Provider by Moody's, or (z) any Cap Agreement shall
terminate or shall not be extended in connection with the
extension of the Purchase Expiration Date and (ii) the Servicer
shall fail to enter into a Replacement Interest Rate Cap within
30 days of the occurrence of any event described in clause (i).
"Certificate Purchase Agreement" shall mean the Certificate
Purchase Agreement among Seller, Servicer, the Conduit Purchaser,
the Administrator and the Class B Certificateholder, as
supplemented by the Fee Letter referred to (and defined) therein
and as the same may be amended or otherwise modified from time to
time. The Certificate Purchase Agreement is hereby designated a
"Transaction Document" for all purposes of the Agreement and this
Supplement.
"Change in Control" means
(a) as to Seller, Servicer or Originator, any person or
group of related persons (excluding Charming Shoppes and its
Affiliates) gains beneficial ownership of a majority in voting
interest of the outstanding voting stock of Seller, Servicer or
Originator or has caused to be elected a majority of the Board of
Directors of Seller, Servicer or Originator; and
(b) as to Charming Shoppes, any Person, or two or more
Persons acting in concert, shall acquire beneficial ownership
(within the meaning of Rule 13D-3 of the Securities and Exchange
Commission) of 25% or more of the outstanding voting shares of
Charming Shoppes.
"Class A Additional Amounts" is defined in Section 4.6(b).
"Class A Certificate Rate" shall mean, for any Interest
Period, a per annum interest rate which if multiplied by the
Class A Investor Interest as of the last day of such Interest
Period would produce, on the basis of a 360 day year (based on
actual days elapsed), as the case may be, an amount equal to the
Cost of Funds (as defined in the Certificate Purchase Agreement)
for such Interest Period.
"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 Fixed Allocation Percentage" shall mean, for any
Due Period during the Fixed Allocation Period, the percentage
equivalent (which percentage shall never exceed 100%) of a
fraction, (a) the numerator of which is the Class A Investor
Interest as of the close of business on the last day of the
Revolving Period and (b) the denominator of which is equal to the
Investor Interest as of the close of business on the last day of
the Revolving Period.
"Class A Floating Allocation Percentage" shall mean, for any
Due Period, the percentage equivalent (which percentage shall
never exceed 100%) of a fraction:
(a) the numerator of which is the Class A Investor
Interest as of the close of business on the last day of the
preceding Due Period; and
(b) the denominator of which is equal to the Investor
Interest as of the close of business on the last day of the
preceding Due Period;
provided that with respect to any Due Period in which an
Incremental Funding occurs:
(x) the numerator determined pursuant to clause (a)
shall be (1) the Class A Investor Interest as of the close
of business on the later of the last day of the prior Due
Period or the preceding Reset Date, for the period from and
including the first day of the current Due Period or the
preceding Reset Date, as applicable, to but excluding the
related Reset Date and (2) the Class A Investor Interest as
of the close of business on such Reset Date, for the period
from and including such Reset Date to the earlier of the
last day of such Due Period (in which case such period shall
include such day) or the next succeeding Reset Date (in
which case such period shall not include such succeeding
Reset Date); and
(y) the denominator determined pursuant to clause (b)
shall be (1) the Investor Interest as of the close of
business on the later of the last day of the prior Due
Period or the preceding Reset Date, for the period from and
including the first day of the current Due Period or
preceding Reset Date, as applicable, to but excluding the
related Reset Date and (2) the Investor Interest as of the
close of business on such Reset Date, for the period from
and including such Reset Date to the earlier of the last day
of such Due Period (in which case such period shall include
such day) or the next succeeding Reset Date (in which case
such period shall not include such succeeding Reset Date);
provided further that, with respect to the first Due Period, the
Closing Date shall be treated as the last day of the preceding
Due Period.
"Class A Funded Amount" shall mean, with respect to any date
of determination, an amount equal to the result of (a) the Class
A Initial Investor Interest, plus (b) the aggregate amount of all
Class A Incremental Funded Amounts for all Class A Incremental
Fundings occurring on or prior to such date, minus (c) the
aggregate amount of principal payments made on the Class A
Certificates prior to such date. As applied to any particular
Class A Certificate, the "Class A Funded Amount" means the
portion of the overall Class A Funded Amount represented by that
Certificate.
"Class A Incremental Funded Amount" shall mean the amount of
the increase in the Class A Funded Amount occurring as a result
of any Class A Incremental Funding, which amount shall equal the
aggregate amount of the purchase price paid by the Conduit
Purchaser with respect to that Class A Incremental Funding
pursuant to the Certificate Purchase Agreement and Section 4
hereof.
"Class A Incremental Funding" shall mean any increase in the
Class A Funded Amount during the Revolving Period made pursuant
to the Certificate Purchase Agreement.
"Class A Initial Investor Interest" shall mean the aggregate
initial principal amount of the Class A Certificates, which is
$0.
"Class A Investor Allocation" shall mean, with respect to
any Due Period or any date during any Due Period, as applicable,
(a) with respect to Loss Amounts and the Series 2000-VFC Investor
Dilution Amount, the Weighted Average Class A Floating Allocation
Percentage, (b) with respect to Collections of Finance Charge
Receivables at any time and Collections of Principal Receivables
during the Revolving Period, the Class A Floating Allocation
Percentage and (c) with respect to Collections of Principal
Receivables during the Fixed Allocation Period, the Class A Fixed
Allocation Percentage.
"Class A Investor Charge-Offs" is defined in
subsection 4.10(a).
"Class A Investor Dilution Amount" shall mean, for any
Distribution Date, an amount equal to the product of (a) the
Series 2000-VFC Investor Dilution Amount for such Distribution
Date and (b) the Weighted Average Class A Floating Allocation for
the related Due Period.
"Class A Investor Interest" shall mean, on any date of
determination, an amount equal to (a) the Class A Funded Amount
on that date, minus (b) the excess, if any, of the aggregate
amount of Class A Investor Charge-Offs pursuant to Section
4.10(a) over Class A Investor Charge-Offs reimbursed pursuant to
Section 4.9(a)(vi), 4.11 or 4.16 prior to such date of
determination; provided 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
Weighted Average Class A Floating Allocation Percentage
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 Non-Use Fee" is defined in Section 4.6(b).
"Class A Optional Amortization" is defined in Section 4(b).
"Class A Optional Amortization Amount" is defined in Section
4(b).
"Class A Required Amount" is defined in subsection 4.8(a).
"Class A Scheduled Final Payment Date" shall mean the
twelfth Distribution Date following the Purchase Expiration Date
(as defined in the Certificate Purchase Agreement).
"Class B Additional Amounts" is defined in Section 4.6(e).
"Class B Certificate Rate" shall mean, for any Interest
Period, the rate specified in the Certificate Purchase Agreement
as the Class B Certificate Rate for such Interest Period.
"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 Fixed Allocation Percentage" shall mean, with
respect to any Due Period during a Fixed Allocation Period, the
excess (if any) of 100% over the Class A Fixed Allocation
Percentage for such Due Period.
"Class B Floating Allocation Percentage" shall mean, with
respect to any Due Period, the excess (if any) of 100% over the
Class A Floating Allocation Percentage for such Due Period.
"Class B Funded Amount" shall mean, with respect to any date
of determination, an amount equal to the result of (a) the Class
B Initial Investor Interest, plus (b) the aggregate amount of all
Class B Incremental Funded Amounts for all Class B Incremental
Fundings occurring on or prior to such date, minus (c) the
aggregate amount of principal payments made to the Class B
Certificateholders prior to such date. As applied to any
particular Class B Certificate, the "Class B Funded Amount" means
the portion of the overall Class B Funded Amount represented by
that Certificate.
"Class B Incremental Funded Amount" shall mean the amount of
each increase in the Class B Funded Amount occurring as a result
of any Class B Incremental Funding, which amount shall equal the
aggregate amount of the purchase price paid by the Class B
Certificateholders with respect to that Class B Incremental
Funding pursuant to the Certificate Purchase Agreement and
Section 4 hereof.
"Class B Incremental Funding" shall mean any increase in the
Class B Funded Amount during the Revolving Period made pursuant
to the Certificate Purchase Agreement and Section 4 hereof.
"Class B Initial Investor Interest" shall mean the aggregate
initial principal amount of the Class B Certificates, which is
$0.
"Class B Investor Allocation" shall mean, with respect to
any Due Period or any date during any Due Period, as applicable,
(a) with respect to Loss Amounts and the Series 2000-VFC Investor
Dilution Amount, the Weighted Average Class B Floating Allocation
Percentage, (b) with respect to Collections of Finance Charge
Receivables at any time and Collections of Principal Receivables
during the Revolving Period, the Class B Floating Allocation
Percentage and (c) with respect to Collections of Principal
Receivables during the Fixed Allocation Period, the Class B Fixed
Allocation Percentage.
"Class B Investor Charge-Offs" is defined in
subsection 4.10(b).
"Class B Investor Dilution Amount" shall mean, for any
Distribution Date, an amount equal to the product of (a) the
Series 2000-VFC Investor Dilution Amount for such Distribution
Date and (b) the Weighted Average Class B Floating Allocation for
the related Due Period.
"Class B Investor Interest" shall mean, on any date of
determination, an amount equal to (a) the Class B Funded Amount
on such date, minus (b) the aggregate amount of Class B Investor
Charge-Offs for all prior Distribution Dates pursuant to
subsection 4.10(b), minus (c) the aggregate amount of Reallocated
Class B Principal Collections allocated pursuant to subsection
4.12 on all prior Distribution Dates, minus (d) 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 (e) the aggregate amount of Available Funds and
Shared Excess Finance Charge Collections allocated and available
on all prior Distribution Dates pursuant to subsections 4.9 and
4.11 for the purpose of reimbursing amounts deducted pursuant to
the foregoing clauses (b), (c) and (d); 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
Weighted Average Class B Floating Allocation Percentage
applicable for the related Due Period.
"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(d).
"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 Non-Use Fee" is defined in Section 4.6(e).
"Class B Optional Amortization" is defined in Section 4(e).
"Class B Optional Amortization Amount" is defined in Section
4(e).
"Closing Date" shall mean November 9, 2000.
"Conduit Purchaser" shall mean Monte Rosa Capital
Corporation, a Delaware Corporation.
"Controlled Amortization Amount" shall mean for any
Distribution Date with respect to the Amortization Period prior
to the payment in full of the Class A Investor Interest, the
Class A Investor Interest as of the close of business on the last
day of the Revolving Period divided by twelve.
"Controlled Amortization Shortfall" initially shall mean
zero and thereafter shall mean, with respect to any Due Period
during the Amortization Period, the excess, if any, of the
Controlled Payment Amount for the previous Due Period over the
amounts distributed pursuant to Section 4.9(c)(i) with respect to
the Class A Certificates for the previous Due Period.
"Controlled Payment Amount" shall mean, with respect to any
Distribution Date, the sum of (a) the Controlled Amortization
Amount for such Distribution Date and (b) any existing Controlled
Amortization Shortfall; provided that (a) Seller may designate
any amount greater than the foregoing as the Controlled Payment
Amount upon five Business Days' notice to the Series 2000-VFC
Certificateholders prior to the related Distribution Date and (b)
in no event will the Controlled Payment Amount exceed the Class A
Investor Interest.
"Controlling Certificateholders" shall mean (a) on any date
of determination on which the Class A Investor Interest is
greater than zero, Class A Certificateholders owning Class A
Certificates evidencing more than 50% of the sum of the Class A
Investor Interest, and (b) thereafter, Class B Certificateholders
owning Class B Certificates evidencing more than 50% of the Class
B Investor Interest.
"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.
"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 2000-VFC is deemed to have occurred, and ending
on the Series 2000-VFC Termination Date.
"Enhancement" shall mean with respect to the Class A
Certificates, the subordination of the Class B Certificates, the
Series Cash Collateral Account and the Spread Account.
"Enhancement Provider" shall mean the Class B
Certificateholders.
"Enhancement Surplus" shall mean, with respect to any
Distribution Date, the excess, if any, of (a) the Specified
Enhancement Amount (after giving effect to any reductions made
with respect to such date other than as the result of the
existence of an Enhancement Surplus) over (b) the Required
Enhancement Amount.
"Finance Charge Shortfall" is defined in subsection 4.14(b).
"Fixed Allocation Percentage" shall mean, with respect to
any Due Period, the percentage equivalent of a fraction (a) the
numerator of which is the Investor Interest as of the close of
business on the last day of the Revolving Period and (b) the
denominator of which is the greater of (i) the aggregate amount
of Principal Receivables in the Trust determined as of the close
of business on (A) if only one Series is outstanding the last day
of the Revolving Period and (B) if more than one Series is
outstanding, the last day of the prior Due Period and (ii) the
sum of the numerators used to calculate the Investor Percentages
for allocations with respect to Principal Receivables for all
outstanding Series on such date of determination; provided that
with respect to any Due Period in which a Reset Date occurs, (x)
the denominator determined pursuant to subclause (b)(i) shall be
(1) the aggregate amount of Principal Receivables in the Trust as
of the close of business on the later of the last day of the
prior Due Period or the preceding Reset Date, for the period from
and including the first day of the current Due Period or the
preceding Reset Date, as applicable, to but excluding such Reset
Date and (2) the aggregate amount of Principal Receivables in the
Trust as of the close of business on such Reset Date, for the
period from and including such Reset Date to the later of the
last day of such Due Period (in which case such period shall
include such day) or the next succeeding Reset Date (in which
case such period shall not include such succeeding Reset Date)
and (y) the denominator determined pursuant to subclause (b)(ii)
shall be (1) the sum of the numerators used to calculate the
Investor Percentages for allocations with respect to Principal
Receivables for all outstanding Series as of the close of
business on the later of the last day of the prior Due Period or
the preceding Reset Date, for the period from and including the
first day of the current Due Period or the preceding Reset Date,
as applicable, to but excluding such Reset Date and (2) the sum
of the numerators used to calculate the Investor Percentages for
allocations with respect to Principal Receivables for all
outstanding Series as of the close of business on such Reset
Date, for the period from and including such Reset Date to the
earlier of the last day of such Due Period (in which case such
period shall include such day) or the next succeeding Reset Date
(in which case such period shall not include such succeeding
Reset Date).
"Fixed Allocation Period" shall mean the Amortization Period
or the Early Amortization Period.
"Fixed Period" is defined in Section 4.6(a).
"Fixed Principal Allocation Date" shall mean the earlier of
(a) the date on which an Early Amortization Event with respect to
Series 2000-VFC is deemed to have occurred; and (b) the date on
which the Amortization Period with respect to Series 2000-VFC
commences.
"Floating Allocation Percentage" shall mean, with respect to
any Due Period, the percentage equivalent of a fraction:
(a) the numerator of which is the Investor Interest as
of the close of business on the last day of the preceding
Due Period; and
(b) the denominator of which is the greater of (i) the
aggregate amount of Principal Receivables in the Trust as of
the close of business on the last day of the preceding Due
Period and (ii) the sum of the numerators used to calculate
the Investor/Purchaser Percentages for such Due Period
allocations with respect to Finance Charge Receivables,
Series Dilution Amounts, Principal Receivables or Loss
Amounts, as applicable, for all outstanding Series on such
date of determination in subclause (b)(i);
provided that with respect to any Due Period in which a Reset
Date occurs:
(x) if such Reset Date is the result of an Incremental
Funding, the numerator determined pursuant to clause (a)
shall be (1) the Investor Interest as of the close of
business on the later of the last day of the preceding Due
Period or the preceding Reset Date, for the period from and
including the first day of the current Due Period or the
preceding Reset Date, as applicable, to but excluding such
Reset Date and (2) the Investor Interest as of the close of
business on such Reset Date, for the period from and
including such Reset Date to the earlier of the last day of
such Due Period (in which case such period shall include
such day) or the next succeeding Reset Date (in which case
such period shall not include such succeeding Reset Date);
(y) the denominator determined pursuant to subclause
(b)(i) shall be (1) the aggregate amount of Principal
Receivables in the Trust as of the close of business on the
later of the last day of the preceding Due Period or the
preceding Reset Date, for the period from and including the
first day of the current Due Period or preceding Reset Date,
as applicable, to but excluding such Reset Date and (2) the
aggregate amount of Principal Receivables in the Trust as of
the close of business on such Reset Date, for the period
from and including such Reset Date to the earlier of the
last day of such Due Period (in which case such period shall
include such day) or the next succeeding Reset Date (in
which case such period shall not include such succeeding
Reset Date); and
(z) the denominator determined pursuant to subclause
(b)(ii) shall be (1) the sum of the numerators used to
calculate the Investor/Purchaser Percentages for all
outstanding Series for allocations with respect to Finance
Charge Receivables, Loss Amounts or Principal Receivables,
as applicable, for all such Series as of the close of
business on the later of the last day of the preceding Due
Period or the preceding Reset Date, for the period from and
including the first day of the current Due Period or
preceding Reset Date, as applicable, to but excluding such
Reset Date and (2) the sum of the numerators used to
calculate the Investor/Purchaser Percentages for all
outstanding Series for allocations with respect to Finance
Charge Receivables, Loss Amounts, Series Dilution Amounts or
Principal Receivables, as applicable, for all such Series as
the close of business on such Reset Date, for the period
from and including such Reset Date to the earlier of the
last day of such Due Period (in which case such period shall
include such day) or the next succeeding Reset Date (in
which case such period shall not include such succeeding
Reset Date).
provided further that with respect to the first Due Period, the
Closing Date shall be treated as the last day of the preceding
Due Period.
"Funding Tranche" is defined in Section 4.6(a).
"Group One" shall mean Series 2000-VFC and each other Series
specified in the related Supplement or Receivables Purchase
Agreement to be included in Group One.
"Incremental Funding" shall mean a Class A Incremental
Funding or a Class B Incremental Funding.
"Initial Investor Interest" shall mean the sum of the
Class A Initial Investor Interest and the Class B 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.
"Investor Interest" shall mean, with respect to any date of
determination, an amount equal to the sum of (a) the Class A
Investor Interest, and (b) the Class B Investor Interest for such
date.
"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" is defined in Section 3 of
this Supplement.
"Investor/Purchaser Percentage" shall mean, with respect to
Collections of Principal Receivables, the Principal Allocation
Percentage, with respect to Collections of Finance Charge
Receivables, the Floating Allocation Percentage, and with respect
to Loss Amounts or Series Dilution Amounts, the Weighted Average
Investor Floating Allocation Percentage.
"Liquidity Purchaser" is defined in the Certificate Purchase
Agreement.
"Maximum Class A Funded Amount" shall mean, as of any day,
$49,000,000, as such amount may be increased or decreased from
time to time pursuant to Section 6 of this Supplement. As applied
to any particular Class A Certificate, the "Maximum Class A
Funded Amount" means the portion of the overall Maximum Class A
Funded Amount represented by that Certificate.
"Maximum Class B Funded Amount" shall mean, as of any day,
(x) $11,122,700, as such amount may be increased or decreased
from time to time pursuant to the Certificate Purchase Agreement.
As applied to any particular Class B Certificate, the "Maximum
Class B Funded Amount" means the portion of the overall Maximum
Class B Funded Amount represented by that Certificate.
"Minimum Seller Interest" shall mean, for Series 2000-VFC,
zero.
"Monthly Interest" shall mean, with respect to any
Distribution Date, the sum of (a) the Class A Monthly Interest
and (b) the Class B Monthly Interest, each with respect to such
Distribution Date.
"Optional Amortization" shall mean a Class A Optional
Amortization or Class B Optional Amortization.
"Optional Amortization Date" is defined in Section 4(b) of
this Supplement.
"Optional Amortization Notice" is defined in Section 4(b) of
this Supplement.
"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 (without
duplication) of (a) the Floating Allocation Percentage of
Collections of Finance Charge Receivables for such Due Period,
and (b) the amount of any interest and earnings on each of the
Series Cash Collateral Account and the Spread Account deposited
in the Collection Account pursuant to Sections 4.16 and 4.17 on
the related 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 Weighted Average
Investor Interest for such Due Period.
"Principal Allocation Percentage" shall mean, (a) with
respect to any Due Period (including any day within such Due
Period) occurring prior to the Fixed Principal Allocation Date,
the Floating Allocation Percentage for such Due Period, and
(b) with respect to any Due Period (including any day within such
Due Period) occurring on or after the Fixed Principal Allocation
Date, the Fixed Allocation Percentage for such Due Period.
"Principal Shortfall" shall mean, as the context requires,
any of the following: (a) on any Distribution Date with respect
to the Amortization Period, the amount by which the Controlled
Payment Amount for the prior Due Period exceeds the amount of
Available Principal Collections for such Distribution Date
(excluding any portion thereof attributable to Shared Principal
Collections); and (b) on any Distribution Date with respect to
the Early Amortization Period, the amount by which the sum of the
Investor Interest exceeds the Available Principal Collections for
such Distribution Date (excluding any portion thereof
attributable to Shared Principal Collections).
"Purchase Expiration Date" is defined in the Certificate
Purchase Agreement.
"Rating Agency Condition" shall mean for purposes of this
Series 2000-VFC, with respect to any action, that each rating
agency then rating the Commercial Paper (as defined in the
Certificate Purchase Agreement) issued by the Conduit Purchaser
shall have notified the Conduit Purchaser in writing that such
action will not result in a reduction or withdrawal of its rating
on the Commercial Paper; it being understood that the
Administrator shall be deemed to be the "Rating Agency" solely
for purposes of receiving notices of any proposed action that
requires satisfaction of the Rating Agency Condition.
"Reallocated Class B Principal Collections" shall mean, with
respect to any Distribution Date, Collections of Principal
Receivables allocated to the Class B Investor Interest applied in
accordance with subsection 4.12 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 B
Investor Interest after giving effect to any Class B Investor
Charge-Offs for such Distribution Date.
"Record Date" shall mean, for purposes of Series 2000-VFC
with respect to any Distribution Date or Optional Amortization
Date, the date falling five Business Days prior to such date.
"Refinancing Date" is defined in Section 4(c).
"Replacement Interest Rate Cap" shall mean any replacement
interest cap having substantially similar terms and conditions as
the Cap Agreement that it replaces.
"Required B Enhancement Multiplier" shall mean (i) if a Cap
Replacement Event shall have occurred, until such time as a
Replacement Interest Rate Cap shall have been entered into,
0.227, and (ii) otherwise 0.19.
"Required CCA Enhancement Multiplier" shall mean (i) if a
Cap Replacement Event shall have occurred, until such time as a
Replacement Interest Rate Cap shall have been entered into,
0.185, and (ii) otherwise 0.160.
"Required Class B Amount" shall mean, as of any date of
determination, the result of the following calculation:
(a) divide the Available Series Cash Collateral Amount by
the Required CCA Enhancement Multiplier;
(b) determine the excess, if any, of the Class A Investor
Interest over the amount determined pursuant to clause
(a);
(c) multiply the amount determined pursuant to clause (b)
by the Required B Enhancement Multiplier, the product
of which multiplication shall be the Required Class B
Amount.
"Required Class B Floor Amount" shall mean, as of any date
of determination, the result of the following calculation:
(a) divide the Available Series Cash Collateral Amount by
0.01;
(b) determine the excess, if any, of the Class A Investor
Interest as of the close of business on the last day of
the Revolving Period over the amount determined
pursuant to clause (a);
(c) multiply the amount determined pursuant to clause (b)
by 0.03, the product of which multiplication shall be
the Required Class B Floor Amount.
"Required Draw Amount" is defined in Section 4.16 of this
Supplement.
"Required Enhancement Amount" shall mean, with respect to
any date of determination, the greater of (i) the sum of (x) the
Available Series Cash Collateral Amount, plus (y) the Required
Class B Amount and (ii) the Required Enhancement Floor.
"Required Enhancement Floor" shall mean, with respect to any
date of determination occurring after the conclusion of the
Revolving Period, an amount equal to the sum of (x) the Available
Series Cash Collateral Amount and (y) the Required Class B Floor
Amount.
"Required Spread Account Amount" means (x) with respect to
any Calculation Date on which the Class A Investor Interest is
greater than zero, (i) the Spread Account Percentage times (ii)
the Investor Interest as of the related Calculation Date (after
giving effect to any Incremental Funding on such date), except
that if the Spread Account Percentage under clause (i) and the
Investor Interest under clause (ii) are calculated on any date
after the conclusion of the Revolving Period, such percentage and
amount shall be calculated as of the close of business on the
last day of the Revolving Period, and (y) otherwise, zero.
"Reset Date" shall mean the occurrence of (a) any Addition
Date, (b) any Removal Date, (c) a date on which an Incremental
Funding occurs, (d) any Optional Amortization Date or (e) any
date on which a new Series is issued.
"Revolving Period" shall mean the period from and including
the Closing Date to, but not including, the earlier of (a) the
day the Amortization Period commences or (b) the day the Early
Amortization Period commences.
"Series Account" means the Series Cash Collateral Account.
"Series Cash Collateral Account" is defined in Section
4.16(a).
"Series Investor Interest" shall mean, on any date of
determination, an amount equal to the sum of (i) the Class A
Investor Interest and (ii) the Class B Investor Interest.
"Series 2000-VFC" shall mean the Series of the Charming
Shoppes Master Trust represented by the Series 2000-VFC
Certificates.
"Series 2000-VFC Certificateholder" shall mean the Holder of
record of any Series 2000-VFC Certificates.
"Series 2000-VFC Certificates" shall mean the Class A
Certificates and the Class B Certificates.
"Series Early Amortization Event" is defined in Section 10
of this Supplement.
"Series 2000-VFC Investor Dilution Amount" shall mean, with
respect to any Distribution Date, an amount equal to the product
of (a) the Series Percentage for the related Due Period and (b)
any Series Dilution Amount remaining after giving effect to any
addition of Accounts and other actions taken pursuant to Sections
4.3(d) and 2.6.
"Series 2000-VFC Termination Date" shall mean the earliest
to occur of (a) the first date following the end of the Revolving
Period on which the Series 2000-VFC Certificates are paid in
full, (b) the forty-second Distribution Date following the Class
A Scheduled Final Payment Date, or (c) the date of termination of
the Trust pursuant to Section 12.1.
"Series 2000-VFC Unfunded Dilution Amount" shall mean, on
any Distribution Date, an amount equal to any unfunded Series
2000-VFC Investor Dilution Amount remaining after application of
Available Funds pursuant to subsection 4.9(a) and Shared Excess
Finance Charge Collections in accordance with Section 4.11.
"Series Servicing Fee Percentage" shall mean 2.0%.
"Shared Excess Finance Charge Collections" shall mean, with
respect to any Distribution Date, as the context requires, either
(a) the aggregate amount of Collections of Finance Charge
Receivables allocated to the Series 2000-VFC Certificates but
available to cover Finance Charge Shortfalls for other Series in
Group One, if any, or (b) the aggregate amount of Collections of
Finance Charge Receivables and other amounts allocable to other
Series in Group One in excess of the amounts necessary to make
required payments with respect to such Series, if any, and
available to cover any Finance Charge Shortfall with respect to
the Series 2000-VFC Certificates as described in Section 4.14.
"Shared Principal Collections" shall mean, as the context
requires, either (a) the amount allocated to the Series 2000-VFC
Certificates which may be applied to cover Principal Shortfalls
with respect to other outstanding Series in Group One, or (b) the
amounts allocated to the Investor Certificates of other Series in
Group One that the applicable Supplements for such Series specify
are to be treated as "Shared Principal Collections" and which may
be applied to cover Principal Shortfalls with respect to the
Series 2000-VFC Certificates pursuant to Section 4.15.
"Specified Enhancement Amount" shall mean, at any time, the
sum of the Available Series Cash Collateral Amount plus the Class
B Investor Interest.
"Spread Account" is defined in Section 4.17 of this
Supplement.
"Spread Account Amount" shall mean with respect to any date,
the amount on deposit in the Spread Account on such date (such
amount calculated before giving effect to any deposit to, or
withdrawal from, the Spread Account to be made with respect to
such date).
"Spread Account Percentage" shall mean, with respect to any
Calculation Date, the "Required Percentage" set forth in the
right column of the table set forth below that corresponds to the
applicable range for the Tested Percentage in effect for the
preceding Distribution Date (or if such Calculation Date is also
a Distribution Date, for such Distribution Date):
Tested Percentage Required Percentage
greater than 5.0% 0.0%
greater than 4.0% but less
than or equal to 5.0% 2.0%
greater than 3.0% but less
than or equal to 4.0% 3.0%
greater than 2.0% but less
than or equal to 3.0% 4.0%
less than or equal to 2.0% 5.0%
*If the "Required Percentage" is increased for any
Distribution Date, the "Required Percentage" for any succeeding
Distribution Date shall not be decreased until the applicable
Tested Percentage falls within the range specified for a lower
"Required Percentage" for three consecutive Distribution Periods;
provided that the Required Percentage shall not be reduced if the
Early Amortization Period shall have commenced.
"Tested Percentage" means, with respect to any Calculation
Date, the average of the Adjusted Excess Yield Percentages for
the three most recent Distribution Dates (including such
Calculation Date).
"Weighted Average Class A Floating Allocation Percentage"
shall mean, for any Due Period, the quotient of (a) the sum of
the Class A Floating Allocation Percentage determined as of each
day in that Due Period, divided by (b) the number of days in that
Due Period.
"Weighted Average Class A Investor Interest" shall mean, for
any Due Period, the quotient of (a) the sum of the Class A
Investor Interest determined as of each day in that Due Period,
divided by (b) the number of days in that Due Period.
"Weighted Average Class B Floating Allocation Percentage"
shall mean, for any Due Period, the quotient of (a) the sum of
the Class B Floating Allocation Percentage determined as of each
day in that Due Period, divided by (b) the number of days in that
Due Period.
"Weighted Average Class B Investor Interest" shall mean, for
any Due Period or Interest Period, as applicable, the quotient of
(a) the sum of the Class B Investor Interest determined as of
each day in that Due Period or Interest Period, as applicable,
divided by (b) the number of days in that Due Period, or Interest
Period, as applicable.
"Weighted Average Investor Floating Allocation Percentage"
shall mean, for any Due Period, the quotient of (a) the sum of
the Floating Allocation Percentages determined as of each day in
that Due Period, divided by (b) the number of days in that Due
Period.
"Weighted Average Investor Interest" shall mean, for any Due
Period, the quotient of (a) the sum of the Investor Interest
determined as of each day in that Due Period, divided by (b) the
number of days in that Due Period.
"Write Down Accrual" shall mean, for any Payment Date, an
amount equal to the product of (x) the Class A Certificate Rate
for the related Interest Period times (y) the Write Down Amount
for the preceding Distribution Date times (z) a fraction, the
numerator of which is the actual number of days in the related
Interest Period and the denominator of which is 360.
"Write Down Amount" shall mean, for any Distribution Date,
the amount, if any, by which the Class A Funded Amount exceeded
the Class A Investor Interest as of such Distribution Date after
giving effect to all payments and allocations of Class A Investor
Charge-Offs on such Distribution Date.
SECTION 3. Servicing Compensation. The share of the Monthly
Servicing Fee allocable to Series 2000-VFC 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 Weighted Average Investor Interest for
such Due Period. The share of the Monthly Servicing Fee
allocable to the Seller or the Certificateholders of other Series
shall be paid from the cash flows of the Trust allocated to the
Seller or Certificateholders of other Series (as provided in the
related Supplements or Receivables Purchase Agreements) and in no
other event shall the Trust, the Trustee or the Investor
Certificateholders be liable therefor. The Investor Monthly
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)(iv) and 4.11.
SECTION 4. Variable Funding Mechanics. (a) Class A
Incremental Fundings. From time to time during the Revolving
Period, the Seller and the Servicer may notify the Agent and the
Conduit Purchaser that a Class A Incremental Funding will occur,
subject to the conditions of the Certificate Purchase Agreement,
on the third or any later subsequent Business Day by delivering a
Notice of Incremental Funding (as defined in the Certificate
Purchase Agreement) executed by the Seller and the Servicer to
the Administrator, specifying the amount of such Class A
Incremental Funding (which shall be a minimum of $100,000 (or, in
the case of the initial funding hereunder, $500,000)) or a higher
integral multiple thereof, except that a Class A Incremental
Funding may be requested in the entire remaining Maximum Class A
Funded Amount) and the Business Day upon which such Class A
Incremental Funding is to occur. Upon the occurrence of any Class
A Incremental Funding, the Class A Floating Allocation
Percentage, the Class A Investor Interest, the Floating
Allocation Percentage, the Investor Interest and the Class A
Funded Amount shall increase as provided herein.
(b) Class A Optional Amortization. On any Business Day in the
Revolving Period or the Amortization Period, the Seller may cause
the Servicer to provide notice to the Trustee and the affected
Holders (an "Optional Amortization Notice") at least three
Business Days prior to any Business Day (the "Optional
Amortization Date") stating its intention to cause a full or
partial amortization of the Class A Certificates (a "Class A
Optional Amortization") with Available Principal Collections
and/or Available Shared Principal Collections on the Optional
Amortization Date, in an amount (the "Class A Optional
Amortization Amount") of not less than $100,000 or a higher
integral multiple thereof, except that the Class A Optional
Amortization Amount may equal the entire Class A Funded Amount.
The Optional Amortization Notice shall state the Optional
Amortization Date, the Class A Optional Amortization Amount and
the allocation of such Class A Optional Amortization Amount among
the various outstanding Funding Tranches. The Class A Optional
Amortization Amount shall be paid from Available Principal
Collections and/or Available Shared Principal Collections.
Allocation of the Class A Optional Amortization Amount among the
various outstanding Funding Tranches shall be at the discretion
of the Seller, and accrued interest and any Class A Additional
Amounts on the affected Funding Tranches shall be payable on the
first Distribution Date on or after the related Optional
Amortization Date. On the Business Day prior to each Optional
Amortization Date, the Servicer shall instruct the Trustee in
writing (which writing shall be substantially in the form of
Exhibit B) to withdraw Available Principal Collections and/or
Available Shared Principal Collections from the Collection
Account in an aggregate amount sufficient to pay the Class A
Optional Amortization Amount on that Optional Amortization Date
and the Trustee, acting in accordance with such instructions,
shall on such Optional Amortization Date distribute such Class A
Optional Amortization Amount to the Class A Certificateholders
pursuant to Section 5.1. Notwithstanding the foregoing, no Class
A Optional Amortization shall be made during any Due Period if
the effect of such Class A Optional Amortization would be to
cause any portion of the Class A Required Amount to remain
unfunded on the related Distribution Date after giving effect to
all applications of funds on such Distribution Date.
(c) Refinanced Optional Amortization. On any Business Day in
the Revolving Period or the Amortization Period, the Seller may,
with the consent of each affected Series 2000-VFC
Certificateholder, cause the Servicer to provide notice to the
Trustee and all Series 2000-VFC Certificateholders at least three
Business Days prior to any Business Day (the "Refinancing Date")
stating its intention to cause the Class A Investor Interest
and/or the Class B Investor Interest to be prepaid in full or in
part on the Refinancing Date by causing the Investor Interest, as
applicable, to be conveyed to one or more Persons (who may be the
Holders of a new Series issued substantially contemporaneously
with such prepayment) for a cash purchase price in an amount
equal to the sum of (i) the Investor Interest (or the portion
thereof that is being conveyed), plus (ii) accrued and unpaid
interest on the Investor Interest (or the portion thereof that is
being conveyed) through the Refinancing Date, plus (iii) any
accrued and unpaid Class A Non-Use Fees and Class A Additional
Amounts in respect of the Class A Investor Interest (or portion
thereof that is being conveyed) through the Refinancing Date,
plus (iv) if any part of the Investor Interest attributable to
the Class B Investor Interest is being conveyed, any accrued and
unpaid Class B Non-Use Fees and Class B Additional Amounts in
respect of the Class B Investor Interest (or portion thereof that
is being conveyed) through the Refinancing Date. In the case of
any such conveyance, the purchase price shall be deposited in the
Collection Account and shall be distributed to the applicable
Series 2000-VFC Holders on the Refinancing Date in accordance
with the terms of this Supplement and the Agreement, except that
any portion of such purchase price may be applied to reduce the
Class B Investor Interest if and only to the extent that the
Specified Enhancement Amount, after giving effect to such
conveyance, other applications of the purchase price, and any
concurrent reduction in the Class A Funded Amount, shall not be
less than the Required Enhancement Amount).
(d) Class B Incremental Fundings. From time to time during the
Revolving Period, the Seller and the Servicer may notify the
Class B Certificateholders that a Class B Incremental Funding
will occur, subject to the conditions of the Certificate Purchase
Agreement, on the next Distribution Date or on the date of any
Class A Incremental Funding pursuant to paragraph (a) above by
delivering a Notice of Incremental Funding (as defined in the
Certificate Purchase Agreement) executed by the Seller and the
Servicer to the Class B Certificateholders, specifying the amount
of such Class B Incremental Funding and the Business Date upon
which such Class B Incremental Funding is to occur. Upon the
occurrence of any Class B Incremental Funding, the Class B
Floating Allocation Percentage, the Class B Investor Interest,
the Floating Allocation Percentage, the Class B Funded Amount and
the Investor Interest shall increase as provided herein.
(e) Class B Optional Amortization. If on any Optional
Amortization Date, the Specified Enhancement Amount (after giving
effect to any Class A Optional Amortization to occur on such
date) will be greater than the Required Enhancement Amount, if so
specified in any Optional Amortization Notice delivered to the
Trustee pursuant to paragraph (b) above, the Seller may cause a
full or partial amortization of the Class B Certificates (a
"Class B Optional Amortization") up to (but not in excess of) the
amount of such Enhancement Surplus with Available Principal
Collections and/or Available Shared Principal Collections on the
Optional Amortization Date, in an amount (the "Class B Optional
Amortization Amount"), except that the Class B Optional
Amortization Amount may equal the entire Class B Funded Amount if
otherwise permitted pursuant to this sentence. The Optional
Amortization Notice shall state the Optional Amortization Date
and the Class B Optional Amortization Amount. The Class B
Optional Amortization Amount shall be paid from Available
Principal Collections and/or Available Shared Principal
Collections. Accrued interest and any Class B Additional Amounts
shall be payable on the first Distribution Date on or after the
related Optional Amortization Date. On the Business Day prior to
each Optional Amortization Date, the Servicer shall instruct the
Trustee in writing (which writing shall be substantially in the
form of Exhibit B) to withdraw Available Principal Collections
and/or Available Shared Principal Collections from the Collection
Account in an aggregate amount sufficient to pay the Class B
Optional Amortization Amount on that Optional Amortization Date
and the Trustee, acting in accordance with such instructions,
shall on such Optional Amortization Date distribute such Class B
Optional Amortization Amount to the applicable Investor
Certificateholders pursuant to Section 5.1. Notwithstanding the
foregoing, no Class B Optional Amortization shall be made during
any Due Period if the effect of such Class B Optional
Amortization would be to cause any portion of the Class A
Required Amount to remain unfunded on the related Distribution
Date after giving effect to all applications of funds on such
Distribution Date.
SECTION 5. Optional Repurchase; Reassignment and Termination
Provisions. The Series 2000-VFC Certificates shall be subject to
transfer to the Servicer at its option on any Distribution Date,
on or after the Distribution Date on which the Investor Interest
is permanently reduced to an amount less than or equal to 10% of
the sum of the Maximum Class A Funded Amount plus the Maximum
Class B Funded Amount by deposit into the Collection Account of a
final distribution for application in accordance with Section
12.3 in an amount which shall be equal to the sum of (i) the
Investor Interest, plus (ii) accrued and unpaid interest on the
Series 2000-VFC Certificates through the day preceding the
Distribution Date on which the purchase occurs, plus (iii) any
accrued and unpaid Class A Non-Use Fees and Class A Additional
Amounts in respect of the Class A Certificates through the day
preceding the Distribution Date on which the repurchase occurs
plus (iv) any accrued and unpaid Class B Non-Use Fees and Class B
Additional Amounts in respect of the Class B Certificates through
the day preceding the Distribution Date on which the repurchase
occurs. Upon the tender of the outstanding Series 2000-VFC
Certificates by the Holders, the Trustee shall distribute the
amounts, to the Series 2000-VFC Holders on the next Distribution
Date in repayment of the principal amount and accrued and unpaid
interest and other amounts owing to the Series 2000-VFC Holders.
Following payment of the aggregate purchase price as provided
above, the Series 2000-VFC Holders shall have no further rights
with respect to the Receivables. In the event that the Servicer
fails for any reason to deposit in the Collection Account the
aggregate purchase price for the Investor Certificates, payments
shall continue to be made to the Series 2000-VFC Holders in
accordance with the terms of the Agreement and this Supplement.
The Servicer shall not be permitted to effect an optional
repurchase pursuant to this Section 5 unless, after payment of
the amount specified above, the Class A Funded Amount shall have
been paid in full.
SECTION 6. Maximum Funded Amounts. The initial Maximum Class
A Funded Amount of each Class A Certificate is as set forth on
the related Class A Certificate. The Maximum Class A Funded
Amount of each Class A Certificate may be reduced or increased
from time to time as provided in the Certificate Purchase
Agreement. Increases and decreases in the overall Maximum Class A
Funded Amount shall be made ratably among the various Class A
Certificates. The Maximum Class B Funded Amount may be reduced
or increased from time to time (with notice to the Administrator)
as provided in the Certificate Purchase Agreement.
SECTION 7. Delivery and Payment for the Series 2000-VFC
Certificates. (a) The Seller shall execute and deliver the
Series 2000-VFC Certificates (in definitive, fully registered
form) to the Trustee for authentication in accordance with
Section 6.1 of the Agreement. The Trustee shall deliver the
Series 2000-VFC Certificates when authenticated in accordance
with Section 6.2 of the Agreement. The Certificates shall be
delivered as Definitive Certificates as provided in Sections 6.2
and 6.12.
(b) The Agent shall record on the schedule attached to its Class
A Certificate, the date and amount of each Class A Incremental
Funding made under such Class A Certificate and each repayment
thereof. The Class A Funded Amount so recorded shall be
rebuttable presumptive evidence of the principal amount owing and
unpaid on such Class A Certificate. The failure to so record any
such amount or any error in so recording any such amount shall
not, however, limit or otherwise affect the obligations of the
Trust hereunder or under such Class A Certificate to repay the
Class A Investor Interest evidenced by such Class A Certificate
together with all interest and other amounts payable thereunder
in accordance with the terms of this Supplement.
SECTION 8. Article IV of Agreement. Sections 4.1, 4.2 and
4.3 of the Agreement shall be read in their entirety as provided
in the Agreement. Article IV of the Agreement (except for
Sections 4.1, 4.2 and 4.3 thereof) shall read in its entirety as
follows and shall be applicable only to the Series 2000-VFC
Certificates.
ARTICLE IV.
RIGHTS OF CERTIFICATEHOLDERS AND RECEIVABLES
PURCHASERS AND ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.1.
SECTION 4.2.
SECTION 4.3.
SECTION 4.4. Rights of Series 2000-VFC Certificateholders. The
Series 2000-VFC Certificates shall represent undivided interests
in the Trust, consisting of the right to receive, to the extent
necessary to make the required payments with respect to such
Series 2000-VFC 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 Series Cash Collateral Account and the Spread Account. The
Class B Certificates shall be subordinated to the Class A
Certificates to the extent described herein. The Exchangeable
Seller Certificate shall not represent any interest in the
Collection Account, the Series Cash Collateral Account or the
Spread Account, except as specifically provided in this Article
IV.
SECTION 4.5. Allocations.
(a) Allocations During the Revolving Period. During the
Revolving Period, the Servicer shall, prior to the close of
business on any day on which any Collections are deposited in the
Collection Account, allocate the following amounts as set forth
below:
(i) allocate to the Series 2000-VFC 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(a);
(ii) allocate to the Series 2000-VFC Certificateholders 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 on the related Distribution Date (to the extent not
previously used to make an Optional Amortization Payment pursuant
to Section 4.3 of the Supplement) in accordance with Section 4.12
and then in accordance with Section 4.9(b); and
(iii) allocate to the Series 2000-VFC Certificateholders 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
on the related Distribution Date (to the extent not previously
used to make an Optional Amortization Payment pursuant to Section
4.3 of the Supplement) in accordance with Section 4.9(b).
(b) Allocations During the Amortization Period. During the
Amortization Period, the Servicer shall, prior to the close of
business on any day on which any Collections are deposited in the
Collection Account, allocate the following amounts as set forth
below:
(i) allocate to the Series 2000-VFC 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(a);
(ii) allocate to the Series 2000-VFC Certificateholders 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 on the related Distribution Date (to the extent not
previously used to make an Optional Amortization Payment pursuant
to Section 4.3 of the Supplement) in accordance with Section 4.12
and then in accordance with Section 4.9(c); and
(iii) allocate to the Series 2000-VFC Certificateholders 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
on the related Distribution Date (to the extent not previously
used to make an Optional Amortization Payment pursuant to Section
4.3 of the Supplement) in accordance with Section 4.9(c).
(c) Allocations During the Early Amortization Period. During
the Early Amortization Period, Servicer shall, prior to the close
of business on any day on which any Collections are deposited in
the Collection Account, allocate the following amounts as set
forth below:
(i) allocate to the Series 2000-VFC 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(a);
(ii) allocate to the Series 2000-VFC Certificateholders 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
Section 4.9(c); and
(iii) allocate to the Series 2000-VFC Certificateholders 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 Section 4.9(c).
SECTION 4.6. Determination of Monthly Interest, Non-Use Fees
and Breakage.
(a) Pursuant to the Certificate Purchase Agreement, the Class A
Certificates may from time to time be divided into one or more
subdivisions (each, as further specified in the Certificate
Purchase Agreement, a "Funding Tranche") which will accrue
interest on different bases. For Funding Tranches that accrue
interest by reference to a commercial paper rate or the London
interbank offered rate, a specified period (each, a "Fixed
Period") will be designated in the Certificate Purchase Agreement
during which that Funding Tranche may accrue interest at a fixed
rate. The "Class A Monthly Interest" for any Interest Period
shall equal the sum of (i) the product of (A) the Class A
Certificate Rate in effect for such Interest Period times (B) the
Class A Investor Interest as of the last day of such Interest
Period times (C) a fraction, the numerator of which is the actual
number of days in such Interest Period and the denominator of
which is 360 plus (ii) the amount of any accrued and unpaid Class
A Monthly Interest for any prior Interest Period plus additional
interest (to the extent permitted by law) on such unpaid interest
amount at the Class A Certificate for the current Interest Period
plus 2%, as such "Class A Monthly Interest" is adjusted for such
Interest Period in accordance with Section 2.6 of the Certificate
Purchase Agreement, all as determined by Servicer on the related
Determination Date. For purposes of such determination, Servicer
shall rely upon information provided by the Administrator
pursuant to the Certificate Purchase Agreement.
(b) In addition to Class A Monthly Interest, the Class A
Certificateholders shall receive a monthly commitment fee (a
"Class A Non-Use Fee") with respect to each Interest Period (or
portion thereof) falling in the Revolving Period at a rate
specified in the Fee Letter referred to in the Certificate
Purchase Agreement based on its portion of the excess of the
Average Maximum Class A Funded Amount over the Average Class A
Funded Amount for such period and (ii) shall be entitled to
receive certain other amounts identified as Class A Additional
Amounts (such amounts, including Breakage Payments, being "Class
A Additional Amounts") in the Certificate Purchase Agreement.
The Class A Non-Use Fee shall accrue based upon the number of
days in the related Interest Period (or the portion thereof
falling in the Revolving Period) and a year of 360 days.
(c) If any distribution of principal is made with respect to any
Funding Tranche with a Fixed Period and a fixed interest rate
other than on a Distribution Date or on the last day of that
Fixed Period, or if the Class A Funded Amount or Class B Funded
Amount is reduced by an Optional Amortization in an amount
greater than the amount (if any) specified in the Certificate
Purchase Agreement without the applicable number (as specified in
the Certificate Purchase Agreement) of Business Days' prior
notice to a Class A Certificateholder or Class B
Certificateholder, as applicable, and in either case (i) the
interest paid by such Certificateholder (or, in the case of the
Class A Certificate held by the Administrator as agent for the
Conduit Purchaser and each Liquidity Purchaser, by the Conduit
Purchaser or such Liquidity Purchaser, as applicable) to
providers of funds to it to fund that Funding Tranche exceeds
(ii) returns earned by such Certificateholder (or, in the case of
the Class A Certificate held by the Administrator as agent for
the Conduit Purchaser and each Liquidity Purchaser, by the
Conduit Purchaser or such Liquidity Purchaser, as applicable)
through the last day of that Fixed Period by redeployment of such
funds in highly rated short-term money market instruments, then,
upon written notice (which notice shall be signed by an officer
of such Certificateholder (or the Conduit Purchaser or such
Liquidity Purchaser, by the Conduit Purchaser or such Liquidity
Purchaser, as applicable) with knowledge of and responsibility
for such matters and shall set forth in reasonable detail the
basis for requesting the amounts) from such Certificateholder (or
the Conduit Purchaser or Liquidity Purchaser) to the Servicer,
such Certificateholder (or the Conduit Purchaser or Liquidity
Purchaser) shall be entitled to receive additional amounts in the
amount of such excess (each, a "Breakage Payment") on the
Distribution Date on or after the date such distribution of
principal is made with respect to that Funding Tranche, so long
as such written notice is received not later than noon, New York
City time, on the Determination Date related to such Distribution
Date. For purposes of calculations under this paragraph, any
payment received by a Certificateholder later than noon, New York
City time, on any day shall be deemed to have been received on
the next day.
(d) The amount of monthly interest distributable to the Class B
Certificateholders on each Distribution Date (the "Class B
Monthly Interest") shall equal the sum of (i) 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,
times (B) the Class B Certificate Rate in effect with respect to
the related Interest Period, times (C) the Weighted Average Class
B Investor Interest for the related Interest Period plus (ii) the
amount of any accrued and unpaid Class B Monthly Interest for any
prior Interest Period plus additional interest (to the extent
permitted by law) on such unpaid interest amount at the Class B
Certificate for the current Interest Period plus 2%.
(e) In addition to Class B Monthly Interest, the Class B
Certificateholders (i) shall receive a monthly commitment fee (a
"Class B Non-Use Fee") with respect to each Interest Period (or
portion thereof) falling in the Revolving Period at a rate
specified in the Fee Letter referred to in the Certificate
Purchase Agreement based on its portion of the excess of the
Average Maximum Class B Funded Amount over the Average Class B
Funded Amount for such period and (ii) shall be entitled to
receive certain other amounts identified as Class B Additional
Amounts (such amounts, including Breakage Payments, being "Class
B Additional Amounts") in the Certificate Purchase Agreement. The
Class B Non-Use Fee shall accrue based upon the number of days in
the related Interest Period (or the portion thereof falling in
the Revolving Period) and a year of 365 or 366 days, as
applicable.
SECTION 4.7. Determination of Monthly Principal.
(a) The amount of monthly principal distributable from the
Collection Account with respect to the Class A Certificates on
each Distribution Date (the "Class A Monthly Principal"),
beginning with the Distribution Date in the month following the
month in which the Amortization Period or, if earlier, the Early
Amortization Period, begins, shall be equal to the lesser of
(i) the Available Principal Collections with respect to such
Distribution Date and (ii) (a) for each Distribution Date with
respect to the Amortization Period, the Controlled Payment Amount
for such Distribution Date and (b) for each Distribution Date
during the Early Amortization Period, the Class A Investor
Interest on such Distribution Date (after taking into account any
adjustments to be made on such Distribution Date pursuant to
Section 4.10).
(b) The amount of monthly principal distributable with respect
to the Class B Certificates on each Distribution Date (the "Class
B Monthly Principal") shall be (i) during the Revolving Period,
an amount equal to the lesser of (1) the amount of any
Enhancement Surplus or such lesser amount as designated by the
Servicer on the related Determination Date and (2) the Available
Principal Collections not required for any Class A Optional
Amortization on such Distribution Date, (ii) during the
Amortization Period, an amount equal to the lesser of (1) the
amount of any Enhancement Surplus on such Distribution Date and
(2) the Available Principal Collections not required for Class A
Monthly Principal or any Class A Optional Amortization on such
Distribution Date and (iii) during the Early Amortization Period
on and after the date on which the Class A Investor Interest is
paid in full, the Class B Investor Interest on such Distribution
Date (after taking into account any adjustments to be made on
such Distribution Date pursuant to Section 4.10 and Section
4.12).
SECTION 4.8. Coverage of Class A Required Amount.
(a) On or before each Distribution Date, 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 Investor Loss Amount, if
any, for the prior Due Period plus (iii) the Class A Investor
Dilution Amount, if any, for such Distribution Date, (iv) the
Investor Monthly Servicing Fee for the prior Due Period plus (v)
any Class A Monthly Interest and Investor Monthly Servicing Fee
included in the Class A Required Amount for any prior
Distribution Date but not yet paid, exceeds the Available Funds
for the related Due Period.
(b) If the Class A Required Amount for any Distribution Date is
greater than zero, (i) the Servicer shall give written notice to
the Trustee of such positive Class A Required Amount on or before
such Distribution Date and (ii) all or a portion of any Shared
Excess Finance Charge Collections and any Required Draw Amount
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 from the Collection
Account or the Series Cash Collateral Account, as applicable, on
such Distribution Date pursuant to Sections 4.9 and 4.16. If the
Class A Required Amount for such Distribution Date exceeds the
amount so allocated pursuant to the preceding sentence, an amount
equal to such excess, to the extent available, for such
Distribution Date shall be distributed from the Spread Account on
such Distribution Date pursuant to Section 4.17. If the Class A
Required Amount for such Distribution Date exceeds the amount so
allocated pursuant to the two preceding sentences, 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.
SECTION 4.9. Monthly Payments. On or before each Distribution
Date, the Servicer shall instruct the Trustee in writing (which
writing shall be substantially in the form of Exhibit C hereto)
to withdraw and the Trustee, acting in accordance with such
instructions, shall withdraw on such Distribution Date, to the
extent of available funds, the amounts required to be withdrawn
from the Collection Account as follows:
(a) An amount equal to the Available Funds for the related Due
Period will be distributed on each Distribution Date, to the
extent available, in the following priority:
(i) an amount equal to the unpaid Class A Monthly Interest shall
be distributed to the Class A Certificateholders in accordance
with Section 5.1;
(ii) an amount equal to the unpaid Write Down Accrual, if
any, for such Distribution Date plus any Write Down Accrual due
but not paid on any prior Distribution Date shall be distributed
to the Class A Certificateholders in accordance with Section 5.1;
(iii) [reserved];
(iv) an amount equal to the Investor Monthly Servicing Fee
for such Distribution Date plus any Investor Monthly Servicing
Fee due but not paid to the Servicer on any prior Distribution
Date shall be distributed to Servicer;
(v) first, an amount equal to the Class A Investor Loss Amount,
if any, and second, an amount equal to the Class A Investor
Dilution Amount, if any, in either case, for the related Due
Period shall be treated as a portion of Available Principal
Collections on such Distribution Date;
(vi) an amount equal to the aggregate amount of Class A
Investor Charge-Offs which have not been previously reimbursed
will be treated as a portion of Available Principal Collections
on such Distribution Date;
(vii) first, an amount equal to the Class B Investor Loss
Amount, if any, and then, an amount equal to the Class B Investor
Dilution Amount, if any, in either case, for the prior Due Period
will be treated as a portion of Available Principal Collections
on such Distribution Date;
(viii) an amount equal to the aggregate amount by which the
Class B Investor Interest has been reduced 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) will be treated as a portion
of Available Principal Collections on such Distribution Date;
(ix) an amount up to the excess, if any of the Required
Enhancement Amount (determined after all deposits, withdrawals,
reductions, payments, and adjustments to be made with respect to
such Distribution Date) over the Specified Enhancement Amount
(determined after all deposits, withdrawals, reductions, payments
and adjustments to be made with respect to such Distribution
Date) shall be deposited in the Series Cash Collateral Account;
(x) an amount up to the excess, if any of the Required Spread
Account Amount (determined after all deposits, withdrawals,
reductions, payments and adjustments to be made with respect to
such Distribution Date) over the Spread Account Amount
(determined after all deposits, withdrawals, reductions, payments
and adjustments to be made with respect to such Distribution
Date) shall be deposited in the Spread Account;
(xi) an amount equal to the unpaid Class A Non-Use Fee, if
any, for the related Interest Period plus any Class A Non-Use Fee
due but not paid to the Class A Certificateholders on any prior
Distribution Date shall be distributed to the Class A
Certificateholders in accordance with Section 5.1;
(xii) an amount equal to the Class A Additional Amounts, if
any, for the related Interest Period plus any Class A Additional
Amounts due but not paid to the Class A Certificateholders on any
prior Distribution Date shall be distributed to the Class A
Certificateholders in accordance with Section 5.1;
(xiii) an amount equal to the Class B Monthly Interest will be
paid to the Class B Certificateholders in accordance with the
Certificate Purchase Agreement;
(xiv) an amount equal to (i) any Class B Non-Use Fee payable
to the Class B Certificateholders under the Certificate Purchase
Agreement for such Distribution Date, plus (ii) any Class B
Additional Amounts payable to the Class B Certificateholders
under the Certificate Purchase Agreement for such Distribution
Date, plus (iii) the amount of any past due Class B Non-Use Fee
and Class B Additional Amounts payable to the Class B
Certificateholders in accordance with the Certificate Purchase
Agreement; and
(xv) the balance, if any, after giving effect to the
payments made pursuant to clauses (i) through (xiv) shall
constitute "Excess Finance Charge Collections" to be applied
with respect to other Series in accordance with Section 4.3 of
the Agreement.
(b) During the Revolving Period, an amount equal to the
Available Principal Collections for the related Due Period will
be distributed on each Distribution Date, to the extent
available, in the following priority:
(i) an amount equal to the Class B Monthly Principal for such
Distribution Date shall be distributed to the Class B
Certificateholders;
(ii) an amount equal to the lesser of (A) Available
Principal Collections for such Distribution Date after giving
effect to the application specified in subsection 4.9(b)(i)
above, and (B) the product of (1) a fraction, the numerator of
which is equal to such 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 or Receivables Purchase Agreement for each
Series (including this Series 2000-VFC) in Group One that are
Principal Sharing Series and (2) the Cumulative Principal
Shortfall, shall be treated as Shared Principal Collections and
applied to Series in Group One that are Principal Sharing Series
other than this Series 2000-VFC; and
(iii) 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(b)(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(b)(iii) be greater than the
Seller Interest on such Distribution Date.
(c) During a Fixed Allocation Period, an amount equal to the
Available Principal Collections for the related Due Period plus
any amounts in the Excess Funding Account allocable to Series
2000-VFC in accordance with Section 4.3(e) will be distributed on
each Distribution Date, to the extent available, in the following
priority:
(i) an amount equal to the Class A Monthly Principal for such
Distribution Date shall be distributed to the Class A
Certificateholders in accordance with Section 5.1(a);
(ii) an amount equal to Class B Monthly Principal shall be
distributed to the Class B Certificateholders in accordance with
Section 5.1(b);
(iii) an amount equal to the lesser of (A) Available
Principal Collections for such Distribution Date after giving
effect to the application specified in clauses (i) and (ii) above
and (B) the product of (1) a fraction, the numerator of which is
equal to such 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 or Receivables Purchase Agreement for each Series
(including this Series 2000-VFC) in Group One which is a
Principal Sharing Series and (2) the Cumulative Principal
Shortfall, shall be treated as Shared Principal Collections and
applied to Series in Group One which are Principal Sharing Series
other than this Series 2000-VFC; and
(iv) an amount equal to the excess, if any, of (A) the
Available Principal Collections over (B) the applications
specified in clauses (i) through (iii) 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(c)(iv) be greater than the Seller Interest on such
Distribution Date.
SECTION 4.10. Investor Charge-Offs.
(a) On or before each Distribution Date, the Servicer shall
calculate the Class A Investor Loss Amount. If on any
Distribution Date, the Class A Investor Loss Amount for the prior
Due Period exceeds the sum of the amounts allocated with respect
thereto pursuant to subsection 4.9(a)(v), Section 4.11 and
Section 4.12 with respect to such Due Period, 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 of such excess. 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 (after giving effect to
reductions for any Class A Investor Charge-Offs on such
Distribution Date) 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. Additionally, the Class A Investor Interest
shall be reduced by the amount of any Series 2000-VFC Unfunded
Dilution Amount remaining after giving effect to any related
Class B Investor Charge-Off but not by more than the Class A
Investor Dilution Amount for such Distribution Date
(collectively, 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 Available Funds allocated
and available for such purpose pursuant to subsections 4.9(a) and
4.11.
(b) 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 subsections 4.9(a) and 4.11 with respect to such Due
Period, the Class B Investor Interest (after giving effect to any
Reallocated Class B Principal Collections on such Distribution
Date) will be reduced by the amount of such excess.
Additionally, the Class B Investor Interest shall be reduced, but
not below zero, by the amount of any Series 2000-VFC Unfunded
Dilution Amount (collectively, a "Class B Investor Charge-Off").
The Class B Investor Interest will also be reduced by the amount
of Reallocated Class B Principal Collections 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
subsections 4.10(a) and 4.11. The Class B Investor Interest will
thereafter be reimbursed (but not in excess of the aggregate
amount of such reductions which have not been previously
reimbursed) on any Distribution Date by the amount of Available
Funds allocated and available for that purpose as described under
subsection 4.9(a).
SECTION 4.11. Shared Excess Finance Charge Collections Allocated
to Series 2000-VFC. To the extent that on any Distribution Date
funds are required to be distributed pursuant to any of Section
4.9(a)(i) through Section 4.9(a)(xiv), and the full amount to be
distributed pursuant to any such section is not paid in full
after the application of Available Funds for such Distribution
Date, the Servicer shall instruct the Trustee in writing (which
writing shall be substantially in the form of Exhibit C hereto)
to apply Shared Excess Finance Charge Collections allocated to
Series 2000-VFC as provided in Section 4.14(b) with respect to
the related Due Period in the manner and priority specified for
application of Available Funds in Section 4.9(a)(i) through
Section 4.9(a)(xiv).
SECTION 4.12. Reallocated Class B 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 Class B Principal
Collections in 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 sum of (A) the amount of
Available Funds and Shared Excess Finance Charge Collections
allocated to Series 2000-VFC with respect to the related Due
Period plus (B) the Available Series Cash Collateral Amount for
such Distribution Date, plus (C) amounts deposited in the
Collection Account from the Spread Account Agreement for
application in accordance with Section 4.17 on such Distribution
Date, in accordance with, and in the priority set forth in,
subsections 4.9(a)(i) through (vi).
On each Distribution Date, the Class B Investor
Interest shall be reduced by the amount of Reallocated Class B
Principal Collections for such Distribution Date.
SECTION 4.13. Seller's or Servicer's Failure to Make a Deposit
or Payment. If the Servicer or the Seller fails to make, or give
instructions to make, any payment or deposit required to be made
or given by the Servicer or Seller, respectively, at the time
specified in the Agreement (including applicable grace periods),
the Trustee shall make such payment or deposit from the
applicable account without instruction from the Servicer or
Seller. Such funds or the proceeds of such withdrawal shall be
applied by the Trustee. The Trustee only 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 and only to the extent amounts
on deposit in any applicable account are sufficient to make such
payment, deposit or withdrawal. 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.
SECTION 4.14. Shared Excess Finance Charge Collections.
(a) The balance of any Available Funds on deposit in the
Collection Account after giving effect to subsections 4.9(a)(i)
through (xiv) 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 2000-VFC 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 2000-VFC 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
2000-VFC 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 2000-VFC 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
4.9(a)(i) through (xiv) on such Distribution Date over (b) the
Available Funds for such Distribution Date.
SECTION 4.15. Shared Principal Collections. Subject to
subsection 4.3(f) of the Agreement, Shared Principal Collections
for any Distribution Date will be allocated to Series 2000-VFC 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 2000-VFC for such Distribution Date and the
denominator of which is the Cumulative Principal Shortfall for
such Distribution Date.
SECTION 4.16. Series Cash Collateral Account.
(a) The Servicer, for the benefit of the Class A
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 in
the name of the Trustee for the benefit of the Class A
Certificateholders (the "Series Cash Collateral Account"). The
Trustee shall possess all right, title and interest in all funds
on deposit from time to time in the Series Cash Collateral
Account and in all proceeds thereof. The Series Cash Collateral
Account shall be under the sole dominion and control of the
Trustee for the benefit of the Class A 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 Cash Collateral Account for any amount owed to it by
the Trustee, the Trust, or any Class A Certificateholder. If, at
any time, the Trustee is advised in writing by the Servicer that
the institution holding the Series Cash Collateral Account ceases
to be a Qualified Depository Institution, the Trustee upon
receiving such notice by the Servicer (or the Servicer on its
behalf) shall promptly (but in any event within 20 Business Days)
establish a new Series Cash Collateral Account with a Qualified
Depository Institution meeting the conditions specified above,
transfer any cash or any investments to such new Series Cash
Collateral Account and from the date such new Series Cash
Collateral Account is established, it shall be the "Series Cash
Collateral Account."
(b) On the date of the initial funding hereunder, the Servicer
shall deposit into the Series Cash Collateral Account an amount
equal to the excess of the Required Enhancement Amount over the
Class B Investor Interest as of such date. Funds on deposit in
the Series Cash Collateral 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 Class A
Certificateholders. The Trustee shall maintain for the benefit
of the Class A Certificateholders possession of the negotiable
instruments or securities, if any, evidencing such Permitted
Investments. Funds on deposit in the Series Cash Collateral
Account on any date (after giving effect to any withdrawals from
the Series Cash Collateral Account on such date) will be invested
in Permitted Investments that will mature so that funds will be
available for withdrawal 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 Cash Collateral Account and deposit in the Collection
Account all interest and earnings on funds on deposit in the
Series Cash Collateral Account, for application as Available
Funds on such Distribution Date.
(c) On each Determination Date, the Servicer shall calculate the
amount (the "Required Draw Amount") by which the sum of the
amounts specified in clauses (i) through (vi) of Section 4.9 with
respect to the Distribution Date exceeds the amount of Available
Funds and Shared Excess Finance Charge Collections allocated with
respect to the related Distribution Date. In the event that any
Distribution Date the Required Draw Amount is greater than zero,
the Servicer shall give written notice to the Trustee of such
positive Required Draw Amount on the related Determination Date.
On the related Distribution Date, the Required Draw Amount, if
any, up to the Available Series Cash Collateral Amount, shall be
withdrawn from the Series Cash Collateral Account and distributed
to fund any deficiency pursuant to subsections 4.9(a)(i) through
(vi).
(d) If, after giving effect to all deposits to and withdrawals
from the Series Cash Collateral Account with respect to any
Distribution Date, the Specified Enhancement Amount shall exceed
the Required Enhancement Amount and the Class B Investor Interest
shall have been reduced to zero, the Trustee, acting in
accordance with the instructions of the Servicer, shall withdraw
an amount equal to such excess from the Series Cash Collateral
Account, and pay such amount to the Seller.
(e) The Trustee, acting in accordance with the instructions of
the Servicer, shall from time to time deposit in the Series Cash
Collateral Account (i) a portion of the proceeds of any
Incremental Funding under this Supplement, if necessary to cause
the Specified Enhancement Amount to at least equal the Required
Enhancement Amount on such date and (ii) funds otherwise required
to be deposited in the Series Cash Collateral Account pursuant to
Section 4.9(ix).
SECTION 4.17. Spread Account.
(a) The Servicer, for the benefit of the Class A
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 in
the name of the Trustee for the benefit of the Class A
Certificateholders (the "Spread Account"). The Trustee shall
possess all right, title and interest in all funds on deposit
from time to time in the Spread Account and in all proceeds
thereof. The Spread Account shall be under the sole dominion and
control of the Trustee for the benefit of the Class A
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 Spread Account for any amount owed to
it by the Trustee, the Trust, or any Class A Certificateholder.
If, at any time, the Trustee is advised in writing by the
Servicer that the institution holding the Spread Account ceases
to be a Qualified Depository Institution, the Trustee upon
receiving such notice by the Servicer (or the Servicer on its
behalf) shall promptly (but in any event within 20 Business Days)
establish a new Spread Account with a Qualified Depository
Institution meeting the conditions specified above, transfer any
cash or any investments to such new Spread Account and from the
date such new Spread Account is established, it shall be the
"Spread Account."
(b) Funds on deposit in the Spread 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
Class A Certificateholders. The Trustee shall maintain for the
benefit of the Class A Certificateholders possession of the
negotiable instruments or securities, if any, evidencing such
Permitted Investments. Funds on deposit in the Spread Account on
any date (after giving effect to any withdrawals from the Spread
Account on such date) will be invested in Permitted Investments
that will mature so that funds will be available for withdrawal
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 Spread Account
and deposit in the Collection Account all interest and earnings
on funds on deposit in the Spread Account, for application as
Available Funds on such Distribution Date.
(c) If on any Distribution Date, any Class A Required Amount
remains unfunded after all amounts distributed with respect
thereto pursuant to Sections 4.9, 4.11 and 4.16, the Servicer
shall instruct the Trustee in writing to withdraw and the
Trustee, acting in accordance with such instructions, shall
withdraw, amounts deposited in the Spread Account on such date
pursuant to the Spread Account Agreement to fund any such
deficiency in accordance with and in the order of priority set
forth in subsections 4.9(a)(i) through (vi).
(d) If, after giving effect to all deposits to and withdrawals
from the Spread Account with respect to any Distribution Date,
the Spread Account Amount shall exceed the Required Spread
Account Amount, the Trustee, acting in accordance with the
instructions of the Servicer, shall withdraw an amount equal to
such excess from the Spread Account, and pay such amount to the
Seller.
(e) The Trustee, acting in accordance with the instructions of
the Servicer, shall from time to time deposit in the Spread
Account (i) a portion of the proceeds of any Incremental Funding
under this Supplement, if necessary to cause the Spread Account
Amount to at least equal the Required Spread Account Amount on
such date and (ii) funds otherwise required to be deposited in
the Spread Account pursuant to Section 4.9(x).
SECTION 4.18. Interest Rate Cap.
(a) The Servicer hereby represents that Fashion Service Corp has
obtained and assigned to the Trust the Cap Agreement in favor of
the Trust for the benefit of the Certificateholders. The Cap
Agreement shall entitle the Trust to receive monthly the Cap
Payment, if any, as set forth in the Cap Agreement.
(b) Upon the effectiveness of any Replacement Interest Rate Cap,
the Cap Agreement being replaced shall terminate and the
applicable Cap Provider shall be released of all future
obligations thereunder, provided that such Cap Agreement shall
not be released from any obligations which have previously
accrued thereunder and shall continue to be obligated to perform
such obligations.
(c) The Trustee hereby appoints the Servicer to act as
calculation agent under the Cap Agreement and the Servicer
accepts such appointment.
SECTION 9. Article V of the Agreement. Article V of the
Agreement shall read in its entirety as follows and shall be
applicable only to the Series 2000-VFC Certificates:
ARTICLE V.
DISTRIBUTIONS AND REPORTS TO INVESTOR
CERTIFICATEHOLDERS
SECTION 5.1. Distributions.
(a) On each Distribution Date, the Trustee shall distribute (in
accordance with the certificate delivered by the Servicer to the
Trustee pursuant to subsection 3.4(b)) to each Class A
Certificateholder of record on the immediately preceding Record
Date (other than as provided in Section 12.3 respecting a final
distribution) such 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 as are payable to the Class A
Certificateholders pursuant to Section 4.9 in immediately
available funds to each Class A Certificateholder (at such
Certificateholder's address as it appears in the Certificate
Register).
(b) On each Distribution Date, the Trustee shall distribute (in
accordance with the certificate delivered by the Servicer to the
Trustee pursuant to subsection 3.4(b)) to each Class 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 in immediately
available funds to each Class B Certificateholder (at such
Certificateholder's address as it appears in the Certificate
Register).
(c) On each Optional Amortization Date, the Trustee shall
distribute (in accordance with the instructions delivered to the
Trustee pursuant to Section 4.2) to each Class A
Certificateholder of record on the immediately preceding Record
Date, such Certificateholder's pro rata share (based on the
aggregate Undivided Trust Interests represented by the Class A
Certificates held by such Certificateholder) of the Class A
Optional Amortization Amount to be distributed on such date.
(d) The Trustee shall promptly notify the Seller and the
Servicer if it does not receive a payment under the Cap Agreement
on the date on which such payment is due pursuant to the terms
thereof.
SECTION 5.2. Monthly Certificateholders' Statement.
(a) On or before each Distribution Date, the Paying Agent shall
forward to each Series 2000-VFC Certificateholder a statement
substantially in the form of Exhibit D to this Supplement
prepared by the Servicer setting forth, among other things, the
following information (which, in the case of subclauses (i),
(ii), (viii) and (ix) below, shall be stated on the basis of an
original principal amount of $1,000 per Series 2000-VFC
Certificate):
(i) the amount of the current distribution allocable to Class A
Monthly Principal and Class B Monthly Principal, respectively;
(ii) the amount of the current distribution allocable to
Class A Monthly Interest, the Class A Non-Use Fee, the Class B
Non-Use Fee, Class A Additional Amounts, Class B Monthly
Interest, and other amounts then owing to the Class B
Certificateholders under the Certificate Purchase Agreement,
respectively;
(iii) the amount of Collections of Principal Receivables
processed during the related Due Period and allocated in respect
of the Class A Certificates and the Class B Certificates,
respectively;
(iv) the amount of Collections of Finance Charge Receivables
processed during the related Due Period and allocated in respect
of the Class A Certificates and the Class B Certificates,
respectively;
(v) the aggregate amount of Principal Receivables, the Series
Investor Interest, the Class A Investor Interest, the Weighted
Average Class A Investor Interest, the Class B Investor Interest,
the Weighted Average Class B Investor Interest, the Floating
Allocation Percentage, the Class A Floating Allocation
Percentage, the Class B Floating Allocation Percentage, and the
Principal Allocation Percentage, the Class A Fixed Allocation
Percentage and the Class B Fixed Allocation Percentage, with
respect to the Principal Receivables in the Trust as of the end
of the day on the Record Date;
(vi) 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;
(vii) the Investor Loss Amount, the Class A Investor Loss
Amount and the Class B Investor Loss Amount for the related Due
Period and the Dilution Amount, the Investor Dilution Amount, the
Class A Investor Dilution Amount and the Class B Investor
Dilution Amount;
(viii) the aggregate amount of Class A Investor Charge-Offs
and Class B Investor Charge-Offs for the related Due Period;
(ix) the amount of the Investor Monthly Servicing Fee for
the related Due Period;
(x) the Portfolio Yield, the Adjusted Excess Yield Percentage
and the Base Rate for the preceding Due Period;
(xi) the amount of Reallocated Class B Principal Collections
with respect to such Distribution Date;
(xii) the Class A Investor Interest and the Class B Investor
Interest as of the close of business on such Distribution Date;
(xiii) the Class A Certificate Rate (and information with
respect to each Fundings Tranche on which such rate is based) and
Class B Certificate Rate, each with respect to the preceding Due
Period;
(xiv) the amount of Available Funds on deposit in the
Collection Account on the related Distribution Date;
(xv) the Series Cash Collateral Account Amount and the
Spread Account Amount on the related Distribution Date;
(xvi) the Series Cash Collateral Account Investment Proceeds
transferred to the Collection Account on the related Distribution
Date;
(xvii) such other items as are set forth in Exhibit D to this
Supplement.
In addition, the Paying Agent shall forward to each Rating
Agency a summary of the information specified above prepared by
the Servicer in form and substance acceptable to the Rating
Agencies.
(b) Annual Certificateholders' Tax Statement. On or before
January 31 of each calendar year, beginning with calendar year
2001, the Trustee shall distribute to each Person who at any time
during the preceding calendar year was a Series 2000-VFC
Certificateholder, a statement prepared by the Servicer
containing the information required to be contained in the
regular monthly report to Series 2000-VFC 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 2000-VFC 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
2000-VFC Certificateholders to prepare their tax returns. The
Servicer will provide such information to the Trustee as soon as
possible after January 1 of each calendar year. Such obligations
of the Trustee shall be deemed to have been satisfied to the
extent that substantially comparable information shall be
provided by the Trustee pursuant to any requirements of the Code
as from time to time in effect.
SECTION 10. Series Early Amortization Events. If any one of
the following events shall occur with respect to the Investor
Certificates:
(a) failure on the part of the Seller, the Originator or, in the
case of clause (i), Fashion Service Corp. (i) in the case of the
Seller or Fashion Service Corp., to pay any Class A Non-Use Fee
on any Distribution Date, (ii) to make any other payment or
deposit required by the terms of the Agreement, this Supplement,
the Certificate Purchase Agreement or 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 (iii) to duly
to observe or perform in any material respect any covenants or
agreements of the Seller or Originator, as applicable, set forth
in the Agreement, this Supplement, the Certificate Purchase
Agreement or the Purchase Agreement, which failure has a material
adverse effect on the Series 2000-VFC Certificateholders (which
determination shall be made without reference to the amount of
the Class B Investor Interest or the amount on deposit in the
Spread Account or the Cash Collateral Account for such period)
and which continues unremedied for a period of 35 days after the
date on which written notice of such failure, requiring the same
to be remedied, shall have been given to the Seller by the
Trustee, or to the Seller and the Trustee by the Controlling
Certificateholders, and continues to affect materially and
adversely the interests of the Series 2000-VFC Certificateholders
for such period (which determination shall be made without
reference to the amount of the Class B Investor Interest or the
amount on deposit in the Spread Account or the Cash Collateral
Account for such period);
(b) any representation or warranty made by the Seller or the
Originator in the Agreement, this Supplement, the Certificate
Purchase Agreement 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 35 days
after the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Seller by
the Trustee, or to the Seller and the Trustee by the Controlling
Certificateholders, and (ii) as a result of which the interests
of the Series 2000-VFC Certificateholders are materially and
adversely affected (which determination shall be made without
reference to the amount of the Class B Investor Interest) and
continue to be materially and adversely affected for such period;
provided, however, that a Series Early Amortization Event
pursuant to this subsection 9(b) shall not be deemed to have
occurred hereunder if the Seller has accepted reassignment of the
related Receivable, or all of such Receivables, if applicable,
during such period in accordance with the provisions of the
Agreement;
(c) the average Portfolio Yield for any three consecutive Due
Periods is reduced to a rate which is less than the average Base
Rate for such periods;
(d) the Seller shall fail to convey Receivables arising under
Additional Accounts to the Trust, as required by subsection
2.6(a);
(e) any Servicer Default shall occur which would have a material
adverse effect on the Class A Certificateholders;
(f) the Class A Investor Interest shall not be paid in full on
the Class A Scheduled Final Payment Date;
(g) the Specified Enhancement Amount shall be less than the
Required Enhancement Amount on any Distribution Date after giving
effect to any deposits and payments on such date and such
condition shall continue for ten days; or
(h) the Seller, Servicer (if Servicer is the Originator or its
Affiliate), any Originator or Charming Shoppes is subject to a
Change in Control;
then, in the case of any event described above (other than any
event described in subparagraph (c), (d), (f) or (g)) after any
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 Early Amortization Event")
has occurred as of the date of such notice. Upon the occurrence
of any event described in subparagraph (c), (d), (f) or (g))
above, a Series Early Amortization Event will occur
automatically.
SECTION 11. Series 2000-VFC Termination. The right of the
Series 2000-VFC Certificateholders to receive payments from the
Trust will terminate on the first Business Day following the
Series 2000-VFC Termination Date.
SECTION 12. Ratification of Agreement. As supplemented by
this Supplement, the Agreement is in all respects ratified and
confirmed and the Agreement as so supplemented by this Supplement
shall be read, taken, and construed as one and the same
instrument.
SECTION 13. Counterparts. This Supplement may be executed in
any number of counterparts, each of which so executed shall be
deemed to be an original, but all of such counterparts shall
together constitute but one and the same instrument.
SECTION 14. 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.
SECTION 15. No Petition.
(a) The Seller, the Servicer and the Trustee, by entering into
this Supplement and each Series 2000-VFC Certificateholder, by
accepting a Series 2000-VFC 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.
(b) The Servicer and the Trustee, by entering into this
Supplement and each Series 2000-VFC Certificateholder, by
accepting a Series 2000-VFC 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 16. 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, any Class B Certificate, if after
giving effect to the execution or transfer of such Class B
Certificate, there would be more than 5 Private Holders of Class
B Certificates. For purposes of this Supplement and the Pooling
Agreement, each Holder of a Class B Certificate shall be a
"Private Holder."
SECTION 17. Amendments. No amendment may be made to this
Supplement without the consent of 100% of the Series 2000-VFC
Certificateholders and without satisfaction of the Rating Agency
Condition.
SECTION 18. Agent as Class A Certificateholder.
Notwithstanding anything to the contrary in this Supplement, the
Trust shall issue, and shall cause the Trustee to authorize and
deliver to the ING Baring (U.S.) Capital Markets LLC, in its
capacity as agent for the Conduit Purchaser and the Liquidity
Purchasers (in such capacity, the "Agent") the Class A
Certificate issued on the Closing Date. The Agent shall hold the
Class A Certificates on behalf of the Conduit Purchaser and the
Liquidity Purchasers in accordance with the outstanding amounts
funded thereunder by the Conduit Purchaser, on the one hand, and
the Liquidity Purchasers, on the other hand. Payments made to
the Agent as the Class A Certificateholder shall be distributed
to the Conduit Purchaser and/or the Liquidity Purchasers in
accordance with the Certificate Purchase Agreement and the
agreement through which the Liquidity Purchasers have agreed to
provide liquidity support to the Conduit Purchaser in connection
with this transaction.
IN WITNESS WHEREOF, the Seller, the Servicer and the
Trustee have caused this Series 2000-VFC Supplement to be duly
executed by their respective officers as of the day and year
first above written.
CHARMING SHOPPES RECEIVABLES CORP.,
Seller
By:
Name:
Title:
SPIRIT OF AMERICA, INC.
Servicer
By:
Name:
Title:
FIRST UNION NATIONAL BANK,
not in its individual capacity but
solely as the
Trustee for CHARMING SHOPPES
MASTER TRUST
By:
Name:
Title:
EXHIBIT A-1
FORM OF CLASS A CERTIFICATE
CLASS A CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). NEITHER THIS CERTIFICATE NOR ANY PORTION HEREOF
MAY BE OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED
EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS
OF THE SECURITIES 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 AND IN THE CERTIFICATE
PURCHASE AGREEMENT, EACH REFERRED TO BELOW.
No. [_______] Maximum Stated Amount
$[___________]
CHARMING SHOPPES MASTER TRUST
FLOATING RATE ASSET BACKED CERTIFICATE, SERIES 2000-VFC, CLASS A
Evidencing an Undivided Interest in a trust, the corpus of which
consists of a portfolio of credit card receivables acquired by
Charming Shoppes Receivables Corp. and other assets and interests
constituting the Trust under the Pooling and Servicing Agreement
described below.
(Not an interest in or obligation of,
Charming Shoppes Receivables Corp., Spirit of America National
Bank, Spirit of America, Inc.
Charming Shoppes, Inc. or any Affiliate thereof.)
This certifies that ING Baring (U.S.) Capital Markets
LLC, in its capacity as agent for the Conduit Purchaser and the
Liquidity Purchasers(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) and the other assets and interests constituting the
Trust pursuant to a Second Amended and Restated Pooling and
Servicing Agreement dated as of November 25, 1997, as amended on
July 22, 1999 (as further amended or otherwise modified from time
to time, the "Pooling and Servicing Agreement") and as
supplemented by the Series 2000-VFC Supplement, dated as of
November 9, 2000 (as amended or otherwise modified from time to
time, the "Series 2000-VFC Supplement"), each by and among
Charming Shoppes Receivables Corp., as Seller, Spirit of America,
Inc., as Servicer, and First Union National Bank, as Trustee (the
"Trustee"). To the extent not defined herein, capitalized terms
used herein have the meanings assigned in the Pooling and
Servicing Agreement as supplemented by the Series 2000-VFC
Supplement (as so supplemented, the "Agreement").
The Class A Certificateholder is hereby authorized to
record on the grid attached to this Certificate (or at such
holder's option, in its internal books and records) the date and
amount of each Class A Incremental Funding made by the Conduit
Purchaser, the amount of each repayment of the principal amount
represented by this Certificate and any reductions to the Maximum
Class A Funded Amount of this Certificate made pursuant to the
Certificate Purchase Agreement, dated as of November 9, 2000
among the Seller, the Servicer, the initial Class A
Certificateholder, as the administrator for the Conduit
Purchaser, the Conduit Purchaser and the initial Class B
Certificateholder (as amended or otherwise modified from time to
time, the "Certificate Purchase Agreement"); provided, however,
that failure to make any such recordation on the grid or records
or any error in the grid or records shall not adversely affect
the Class A Certificateholder's rights with respect to its
interest in the assets of the Trust and its right to receive
monthly interest in respect of the outstanding principal amount
of this Certificate.
The Seller has structured the Agreement and the Class A
Certificates with the intention that the Class A Certificates
will qualify under applicable tax law as indebtedness, and the
Seller, the Holder of the Exchangeable Seller Certificate, the
Servicer and each Class A Certificateholder (or Certificate Owner
with respect to a Class A Certificate (a "Class A Certificate
Owner")) by acceptance of its Class A Certificate (or in the case
of a Class A Certificate Owner, by virtue of such Class A
Certificate Owner's acquisition of a beneficial interest
therein), agrees to treat and to take no action inconsistent with
the treatment of the Class A Certificates (or beneficial interest
therein) for purposes of federal, state, local and foreign income
or franchise taxes and any other tax imposed on or measured by
income, as indebtedness. Each Class A Certificateholder agrees
that it will cause any Class A Certificate Owner acquiring an
interest in a Class A Certificate through it to comply with the
Agreement as to treatment as indebtedness for certain tax
purposes.
This Class A Certificate is issued under and is subject
to the terms, provisions and conditions of the Agreement, to
which 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.
This Class A Certificate does not represent an
obligation of, or an interest in, the Seller, the Originator or
the Servicer, and neither the Class A Certificates nor the
Accounts or Receivables are insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency.
This Class A Certificate is limited in right of payment to
certain collections respecting the Receivables, all as more
specifically set forth in the Agreement and the Certificate
Purchase 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 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 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 Agreement, or be valid for any purpose.
IN WITNESS WHEREOF, Charming Shoppes Receivables Corp.
has caused this Class A Certificate to be duly executed under its
official seal.
CHARMING SHOPPES RECEIVABLES CORP.
By:
Authorized Officer
Attested to:
By:
Assistant Secretary
Date: November 9, 2000
CERTIFICATE OF AUTHENTICATION
This is one of the Class A Certificates referred to in
the within-mentioned Agreement.
FIRST UNION NATIONAL BANK,
Trustee
By:
Authorized Officer
CLASS A INCREMENTAL FUNDINGS AND REPAYMENTS
Class A Principal Outstanding Maximum
Incremental Amount Repaid Principal Class A
Funded Amount Balance Funded
Amount
EXHIBIT A-2
FORM OF CLASS B CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). NEITHER THIS CERTIFICATE NOR ANY PORTION HEREOF
MAY BE OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED
EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS
OF THE SECURITIES 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 AND IN THE CERTIFICATE
PURCHASE AGREEMENT, EACH REFERRED TO BELOW.
No. [______] Maximum Stated Amount
$[____________]
CHARMING SHOPPES MASTER TRUST
FLOATING RATE ASSET BACKED CERTIFICATE, SERIES 2000-VFC, CLASS B
Evidencing an Undivided Interest in a trust, the corpus of which
consists of a portfolio of credit card receivables acquired by
Charming Shoppes Receivables Corp. and other assets and interests
constituting the Trust under the Pooling and Servicing Agreement
described below.
(Not an interest in or obligation of,
Charming Shoppes Receivables Corp., Spirit of America National
Bank, Spirit of America, Inc.
Charming Shoppes, Inc. or any Affiliate thereof.)
This certifies that Charming Shoppes Receivables Corp.,
a Delaware corporation (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) and the other assets and interests constituting the
Trust pursuant to a Second Amended and Restated Pooling and
Servicing Agreement dated as of November 25, 1997, as amended on
July 22, 1999 (as further amended or otherwise modified from time
to time, the "Pooling and Servicing Agreement") and as
supplemented by the Series 2000-VFC Supplement, dated as of
November 9, 2000 (as amended or otherwise modified from time to
time, the "Series 2000-VFC Supplement"), each by and among
Charming Shoppes Receivables Corp., as Seller, Spirit of America,
Inc., as Servicer, and First Union National Bank, as Trustee (the
"Trustee"). To the extent not defined herein, capitalized terms
used herein have the meanings assigned in the Pooling and
Servicing Agreement as supplemented by the Series 2000-VFC
Supplement (as so supplemented, the "Agreement") as supplemented
by the Series 2000-VFC Supplement (as so supplemented, the
"Agreement").
The Class B Certificateholder is hereby authorized to
record on the grid attached to this Certificate (or at such
holder's option, in its internal books and records) the date and
amount of each Class B Incremental Funding made by it, the amount
of each repayment of the principal amount represented by this
Certificate and any reductions to the Maximum Class B Funded
Amount of this Certificate made pursuant to the Certificate
Purchase Agreement, dated as of November 9, 2000 among the
Seller, the Servicer, the initial Class A Certificateholder, the
administrator for the Conduit Purchaser, the Conduit Purchaser
and the initial Class B Certificateholder (as amended or
otherwise modified from time to time, the "Certificate Purchase
Agreement"); provided, however, that failure to make any such
recordation on the grid or records or any error in the grid or
records shall not adversely affect the Class B
Certificateholder's rights with respect to its interest in the
assets of the Trust and its right to receive monthly interest in
respect of the outstanding principal amount of this Certificate.
This Class B Certificate is issued under and is subject
to the terms, provisions and conditions of the Agreement, to
which Agreement, as amended from time to time, the Class B
Certificateholder by virtue of the acceptance hereof assents and
by which the Class B Certificateholder is bound.
This Class B Certificate does not represent an
obligation of, or an interest in, the Seller, the Originator or
the Servicer, and neither the Class B Certificates nor the
Accounts or Receivables are insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency.
This Class B Certificate is limited in right of payment to
certain collections respecting the Receivables, all as more
specifically set forth in the Agreement and the Certificate
Purchase 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 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 Agreement.
Unless the certificate of authentication hereon has
been executed by or on behalf of the Trustee, by manual
signature, this Class B Certificate shall not be entitled to any
benefit under the 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
Attested to:
By:
Assistant Secretary
Date: November 9, 2000
CERTIFICATE OF AUTHENTICATION
This is one of the Class B Certificates referred to in
the within-mentioned Agreement.
FIRST UNION NATIONAL BANK,
Trustee
By:
Authorized Officer
CLASS B INCREMENTAL FUNDINGS AND REPAYMENTS
Class B Principal Outstanding Maximum
Incremental Amount Repaid Principal Class B
Funded Amount Balance Funded
Amount
EXHIBIT B
FORM OF OPTIONAL PAYMENT INSTRUCTIONS
AND NOTIFICATION TO THE TRUSTEE
EXHIBIT B
Form of Optional Amortization Payment Instructions and
Notification to Trustee
Date of Notice: ____________ __, ____
The undersigned duly authorized representative of the
Servicer hereby notifies the Trustee and the affected Holders
that the Seller intends to cause a full or partial amortization
of the Class A Certificates, pursuant to Section 4(b) of the
Series 2000-VFC Supplement, dated as of November 9, 2000, among
Charming Shoppes Receivables Corp. (the "Seller"), Spirit of
America, Inc., (the "Servicer"), and First Union National Bank
(the "Trustee") (the "2000-VFC Supplement"). Capitalized terms
used herein, but not otherwise defined, shall have the meanings
given such terms in the 2000-VFC Supplement.
1. Optional Amortization Date:
2. Optional Amortization Amount:
3. Outstanding Funding Tranches: (a)
(b)
(c)
(d)
4. Amount of the Optional Amortization Amount allocated to each
Outstanding Funding Tranche:
(a)
(b)
(c)
(d)
The Trustee is hereby instructed to withdraw Available
Principal Collections and/or Available Shared Principal
Collections from the Collection Account in an amount sufficient
to pay the Class A Optional Amortization Amount to the Class A
Certificateholders. The Trustee is hereby instructed to pay this
amount to the Certificateholders in accordance with Section 5.1
of the Series 2000-VFC Supplement.
SPIRIT OF AMERICA, INC., as
Servicer
__________________________________
Name:
EXHIBIT C
FORM OF MONTHLY PAYMENT INSTRUCTIONS AND
NOTIFICATION TO THE TRUSTEE
SPIRIT OF AMERICA, INC.
CHARMING SHOPPES MASTER TRUST
SERIES 2000-VFC
(A) DEFINITIONS
The undersigned, a duly authorized representative of Spirit
of America, Inc. ("Spirit"), as Servicer pursuant to the Second
Amended and Restated Pooling and Servicing Agreement dated as of
November 25, 1997, as amended on July 22, 1999 (as further
amended or otherwise modified from time to time, the "Pooling and
Servicing Agreement") by and among Charming Shoppes Receivables
Corp., as Seller, and First Union National Bank, as trustee (the
"Trustee"), does hereby certify as follows:
(i) 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 Supplement.
(ii) Spirit is the Servicer under the Pooling and Servicing
Agreement.
(iii) The undersigned is a Servicing Officer.
(iv) The date of this notice is a Determination Date under the
Pooling and Servicing Agreement.
(b) INSTRUCTION TO MAKE A WITHDRAWAL
The Servicer does hereby instruct the Trustee (i) to make
withdrawals from the Collection 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 apply the proceeds
of such withdrawals in accordance with Section 4.9 of the Series
2000-VFC Supplement, as applicable and Section 3 of the Pooling
and Servicing Agreement, as applicable:
(i) Pursuant to subsection 4.9(a)(i):
Class A Monthly Interest at
the Class A Certificate Rate
as provided by the Administrator,
on the Class A Investor Interest
$_____________
(ii) Pursuant to subsection 4.9(a)(ii): $_____________
(1) Write Down Accrual
for this Interest Period $_____________
(2) Write Down Accrual
from prior Interest Periods $_____________
(iii) [reserved]
(iv) Pursuant to subsection 4.9(a)(iv):
(1) Investor Monthly Servicing Fee
for this Interest Period $_____________
(2) Investor Monthly Servicing Fee
for prior Interest Periods $_____________
(v) Pursuant to subsection 4.9(a)(v):
(1) Class A Investor Loss Amount $_____________
(2) Class A Investor Dilution Amount $_____________
(vi) Pursuant to subsection 4.9(a)(vi):
The amount equal to the aggregate
amount of Class A Investor
Charge-Offs which have not been
previously reimbursed which will be treated
as a portion of Available Principal
Collections $_____________
(vii) Pursuant to subsection 4.9(a)(vii):
(1) Class B Investor Loss Amount $_____________
(2) Class B Investor Dilution Amount $_____________
(viii) Pursuant to subsection 4.9(a)(viii):
The amount equal to the aggregate
amount by which the Class B Investor
Interest has been reduced 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 Collections $_____________
(ix) Pursuant to subsection 4.9(a)(ix):
an amount up to the excess, if any, of the
Required Enhancement Amount (determined
after all deposits, withdrawals, reductions,
payments
and adjustments to be made with respect to
such Distribution Date) over the Specified
Enhancement Amount (determined after all
deposits, withdrawals, reductions, payments
and adjustments to be made with respect to
such Distribution Date) shall be deposited
in the Series Cash Collateral Account $_____________
(x) Pursuant to subsection 4.9(a)(x):
an amount up to the excess, if any, of the
Required Spread Account Amount (determined
after all deposits, withdrawals, red