<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
AMENDMENT NO. 1
TO
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
First Union National Bank of Georgia
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
United States 58-1051808
- ---------------------------------------- -------------------
(State of incorporation or organization) (IRS Employer
Identification No.)
One First Union Center
Charlotte, North Carolina 28288-0013
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
First Union Master Credit Card Trust
Class A Floating Rate Asset Backed Certificates, Series 1996-2
Class B Floating Rate Asset Backed Certificates, Series 1996-2
------------------------------------------------------------------------------
(Title of Class)
<PAGE> 2
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 1. Description of Registrant's Securities to be Registered.
The description of the Class A Floating Rate Asset Backed
Certificates, Series 1996-2 and Class B Floating Rate Asset Backed
Certificates, Series 1996-2 appearing under the captions entitled:
"Summary of Terms"; "The Receivables"; "Maturity Assumptions";
"Receivable Yield Considerations"; and "Description of the
Certificates" in the Prospectus Supplement dated April 17, 1996 and
"Prospectus Summary"; "Risk Factors"; "The Receivables"; "Maturity
Assumptions"; "Description of the Certificates"; "Certain Legal
Aspects of the Receivables"; "Certain Federal Income Tax
Consequences"; and "ERISA Considerations" in the Prospectus, dated
April 12, 1996.
Item 2. Exhibits.
Exhibit 1--Form of specimens of certificates representing Class A
Floating Rate Asset Backed Certificates, Series 1996-2 and
Class B Floating Rate Asset Backed Certificates, Series
1996-2.*
Exhibit 2--Pooling and Servicing Agreement (incorporated herein by
reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on March 19, 1996).
Exhibit 3--First Amendment to Pooling and Servicing Agreement
(incorporated herein by reference to the Registrant's Form
8-K filed with the Securities and Exchange Commission on
March 19, 1996).
Exhibit 4--Second Amendment to Pooling and Servicing Agreement.*
Exhibit 5--Series 1996-2 Supplement.*
Exhibit 6--Prospectus Supplement dated June 20, 1996 to Prospectus
Supplement dated April 17, 1996 together with the
Prospectus dated April 12, 1996, as filed with the
Securities and Exchange Commission on June 26, 1996,
pursuant to Rule 424(b)(5).
- ----------------------------------
* Previously filed.
2
<PAGE> 3
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Form 8-A
to be signed on its behalf by the undersigned, thereto duly authorized.
FIRST UNION NATIONAL BANK
GEORGIA
Date: June 27, 1996 By:/s/ James H. Gilbraith
-----------------------
James H. Gilbraith
Vice President
3
<PAGE> 4
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------- ------- ------------
<S> <C> <C>
1 Form of specimens of certificates representing Class A Floating Rate N/A
Asset Backed Certificates, Series 1996-2 and Class B Floating Rate
Asset Backed Certificates, Series 1996-2.*
2 Pooling and Servicing Agreement (incorporated herein by reference to N/A
the Registrant's Form 8-K filed with the Securities and Exchange
Commission on March 19, 1996).
3 First Amendment to Pooling and Servicing Agreement (incorporated N/A
herein by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on March 19, 1996).
4 Second Amendment to Pooling and Servicing Agreement.* N/A
5 Series 1996-2 Supplement.* N/A
6 Prospectus Supplement dated June 20, 1996 to the Prospectus 5
Supplement dated April 17, 1996 together with the Prospectus dated
April 12, 1996, as filed with the Securities and Exchange Commission
on April 19, 1996, pursuant to Rule 424(b)(5).
</TABLE>
- ------------------------
* Previously filed.
4
<PAGE> 1
File pursuant to Rule 424(b)(5)
Registration Statement No. 33-98546
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 12, 1996
AND PROSPECTUS SUPPLEMENT DATED APRIL 17, 1996
June 18, 1996 Contact: Marianna Sheridan
(704)383-3715
CHARLOTTE -- First Union Capital Markets Corp. has determined that employee
benefit plans subject to ERISA that hold the First Union Master Credit Card
Trust's Class A Floating Rate Asset Back Certificates, Series 1996-2 ("Class A
Certificates") may be deemed to own "plan assets" for ERISA purposes.
First Union has made this determination because certain trades in connection
with First Union Capital Markets Corp.'s initial offering of the Class A
Certificates may have been impermissible and this may have caused the Class A
Certificates to have failed to meet the "100 holders" requirement of ERISA,
which is one of several ways to make securities "ERISA eligible." Accordingly,
continued ownership of 1996-2 Class A Certificates by plans could result in the
occurrence of "prohibited transactions" under ERISA.
Further, because the Class A Certificates are not "ERISA eligible," holders of
Class A Certificates should not sell them to plans.
The information in this release has no effect on holders of interests in the
Trust other than holders of the Class A Certificates, Series 1996-2.
- END -
The date of this Prospectus Supplement is June 20, 1996.
<PAGE> 2
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 12, 1996
$324,546,000
FIRST UNION MASTER CREDIT CARD TRUST
$300,000,000 CLASS A FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-2
$24,546,000 CLASS B FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-2
FIRST UNION NATIONAL BANK OF GEORGIA
TRANSFEROR AND SERVICER
------------------------------
EACH CLASS A FLOATING RATE ASSET BACKED CERTIFICATE, SERIES 1996-2
(COLLECTIVELY, THE "CLASS A CERTIFICATES") AND EACH CLASS B FLOATING RATE ASSET
BACKED CERTIFICATE, SERIES 1996-2 (COLLECTIVELY, THE "CLASS B CERTIFICATES" AND
TOGETHER WITH THE CLASS A CERTIFICATES, THE "CERTIFICATES") REPRESENTS AN
UNDIVIDED INTEREST IN THE ASSETS OF, AND THE RIGHT TO RECEIVE CERTAIN PAYMENTS
FROM, THE FIRST UNION MASTER CREDIT CARD TRUST (THE "TRUST"), CREATED PURSUANT
TO A POOLING AND SERVICING AGREEMENT BETWEEN FIRST UNION NATIONAL BANK OF
GEORGIA ("FIRST UNION"), AS TRANSFEROR AND SERVICER, AND THE BANK OF NEW YORK,
AS TRUSTEE. THE PROPERTY OF THE TRUST INCLUDES RECEIVABLES (THE "RECEIVABLES")
GENERATED FROM TIME TO TIME IN A PORTFOLIO OF MASTERCARD(R) AND VISA(R)
REVOLVING CREDIT CARD ACCOUNTS (THE "ACCOUNTS"), ALL MONIES DUE AND TO BECOME
DUE IN PAYMENT OF THE RECEIVABLES, ALL PROCEEDS OF THE RECEIVABLES AND PROCEEDS
OF ANY CREDIT INSURANCE POLICIES RELATING TO THE RECEIVABLES, ANY ENHANCEMENTS,
ALL MONIES AND OTHER PROPERTY ON DEPOSIT IN CERTAIN BANK ACCOUNTS OF THE TRUST
(INCLUDING ANY PERMITTED INVESTMENT IN WHICH ANY SUCH MONIES ARE INVESTED) AND
THE RIGHT TO RECEIVE INTERCHANGE ALLOCABLE TO THE CERTIFICATES, AS DESCRIBED
HEREIN.
(Continued on next page)
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CERTIFICATES, AND THERE IS
NO ASSURANCE THAT ONE WILL DEVELOP. POTENTIAL INVESTORS SHOULD CONSIDER, AMONG
OTHER THINGS, THE INFORMATION SET FORTH IN "RISK FACTORS" BEGINNING ON PAGE 18
IN THE PROSPECTUS.
------------------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR RECOURSE OBLIGATIONS OF FIRST UNION NATIONAL BANK OF GEORGIA
OR ANY AFFILIATE THEREOF. A CERTIFICATE IS NOT A DEPOSIT AND NEITHER THE
CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR RECEIVABLES ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT TRANSFEROR(1)(2)
------------ ------------ -------------------
<S> <C> <C> <C>
PER CLASS A CERTIFICATE.............................. 100% 0.200% 99.80%
PER CLASS B CERTIFICATE.............................. 100% 0.250% 99.75%
TOTAL................................................ $324,546,000 $661,365 $ 323,884,635
</TABLE>
- ---------------
(1) PLUS ACCRUED INTEREST, IF ANY, AT THE CLASS A CERTIFICATE RATE OR THE CLASS
B CERTIFICATE RATE, AS APPLICABLE, FROM APRIL 23, 1996.
(2) BEFORE DEDUCTION OF EXPENSES ESTIMATED TO BE $600,000.
------------------------------
THIS PROSPECTUS SUPPLEMENT AND THE RELATED PROSPECTUS MAY BE USED BY FIRST
UNION CAPITAL MARKETS CORP., AN AFFILIATE OF THE TRANSFEROR AND SERVICER, IN
CONNECTION WITH OFFERS AND SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE
CERTIFICATES. FIRST UNION CAPITAL MARKETS CORP. MAY ACT AS PRINCIPAL OR AGENT IN
SUCH TRANSACTIONS. SUCH SALES WILL BE MADE AT PRICES RELATED TO PREVAILING
MARKET PRICES AT THE TIME OF SALE OR OTHERWISE.
THE CERTIFICATES ARE OFFERED BY THE UNDERWRITERS WHEN, AS AND IF ISSUED BY
THE TRUST AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO THE UNDERWRITERS'
RIGHT TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT THE CERTIFICATES
WILL BE DELIVERED IN BOOK-ENTRY FORM ON OR ABOUT APRIL 23, 1996, THROUGH THE
FACILITIES OF THE DEPOSITORY TRUST COMPANY, CEDEL BANK, SOCIETE ANONYME, AND THE
EUROCLEAR SYSTEM.
UNDERWRITERS OF THE CLASS A CERTIFICATES
FIRST UNION CAPITAL MARKETS CORP. MERRILL LYNCH & CO.
CHASE SECURITIES, INC.
CITICORP SECURITIES, INC.
UNDERWRITERS OF THE CLASS B CERTIFICATES
FIRST UNION CAPITAL MARKETS CORP. MERRILL LYNCH & CO.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS APRIL 17, 1996
<PAGE> 3
(Continued from previous page)
In addition, the Collateral Interest (as described herein) will be issued
in the initial amount of $39,090,975 and will be subordinated to the
Certificates as described herein. First Union initially will own the remaining
undivided interest in the Trust not represented by the Certificates, the
Collateral Interest and the other interests issued by the Trust from time to
time and will service the Receivables. First Union has offered and may from time
to time offer other Series of certificates that evidence undivided interests in
certain assets of the Trust, which may have terms significantly different from
the Certificates, and may establish other trusts from time to time having assets
substantially similar to the assets of the Trust.
Certain capitalized terms used herein are defined elsewhere in this
Prospectus Supplement and the accompanying Prospectus. Listings of the pages on
which such terms are defined are found in the "Index of Terms for Prospectus
Supplement" beginning on page S-45 herein and in the "Index of Terms for
Prospectus" beginning on page 64 of the Prospectus.
Interest will accrue on the Class A Certificates from April 23, 1996 (the
"Closing Date") through May 19, 1996, from May 20, 1996 through June 19, 1996
and with respect to each Interest Period (as defined herein) thereafter, at the
rate of 0.11% per annum above the London interbank offered rate for one-month
United States dollar deposits ("LIBOR"), determined as described herein,
prevailing on the related LIBOR Determination Date (as defined herein) with
respect to such period (the "Class A Certificate Rate"). Interest will accrue on
the Class B Certificates from the Closing Date through May 19, 1996, from May
20, 1996 through June 19, 1996 and with respect to each Interest Period
thereafter, at the rate of 0.24% per annum above LIBOR prevailing on the related
LIBOR Determination Date with respect to each such period (the "Class B
Certificate Rate"). The initial LIBOR Determination Date is April 19, 1996.
Interest with respect to the Certificates will be distributed on June 20, 1996
and on the 20th day of each month thereafter (or, if such 20th day is not a
business day, the next succeeding business day) (each, a "Distribution Date").
Principal on the Class A Certificates is scheduled to be distributed on the
September 1998 Distribution Date (the "Class A Scheduled Payment Date"), but may
be paid earlier or later under certain limited circumstances described herein.
Principal on the Class B Certificates is scheduled to be distributed on the
October 1998 Distribution Date (the "Class B Scheduled Payment Date"), but may
be paid earlier or later under certain limited circumstances described herein.
See "Maturity Assumptions."
The Class B Certificates will be subordinated to the Class A Certificates
as described herein. The Collateral Interest will be subordinated to the Class A
Certificates and the Class B Certificates as described herein.
Application will be made to list the Certificates on the Luxembourg Stock
Exchange.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
---------------------
The Certificates offered hereby constitute a separate Series of
certificates being offered by the Transferor from time to time pursuant to its
Prospectus dated April 12, 1996. This Prospectus Supplement does not contain
complete information about the offering of the Certificates. Additional
information is contained in the Prospectus and purchasers are urged to read both
this Prospectus Supplement and the Prospectus in full. Sales of the Certificates
may not be consummated unless the purchaser has received both this Prospectus
Supplement and the Prospectus.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from an Underwriter or a request by such
investor's representative within the period during which there is an obligation
to deliver this Prospectus Supplement and the Prospectus, such Underwriter will
promptly deliver, or cause to be delivered, without charge, a paper copy of this
Prospectus Supplement and the Prospectus.
S-2
<PAGE> 4
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Certain capitalized terms used in this summary are
defined elsewhere in this Prospectus Supplement and the accompanying Prospectus.
A listing of the pages on which some of such terms are defined is found in the
"Index of Terms for Prospectus Supplement" herein and the "Index of Terms for
Prospectus" in the Prospectus.
TYPE OF SECURITIES......... Class A Floating Rate Asset Backed Certificates,
Series 1996-2 (the "Class A Certificates") and
Class B Floating Rate Asset Backed Certificates,
Series 1996-2 (the "Class B Certificates," and
together with the Class A Certificates, the
"Certificates").
OVERVIEW OF THE
TRANSACTION................ The Trust was formed for the purpose of holding the
Receivables and to provide for the issuance of
the Certificates and other similar securities.
Each Certificate evidences a specified undivided
interest in the assets of the Trust allocated to
the Certificates and represents the right to
receive a portion of the collections on the
Receivables. Such collections will be used to pay
interest and principal due on such Certificate on
the applicable Distribution Date. The Class A
Certificates will also have the benefits of
excess collections of finance charges, as
described herein, and the subordination of the
Class B Certificates and the Collateral Interest.
The Class B Certificates will also have the
benefits of excess collections of finance charges
not needed to cover shortfalls in respect of the
Class A Certificates and the subordination of the
Collateral Interest not used for the benefit of
the Class A Certificates. The Class B
Certificates, therefore, bear a greater risk of
loss of principal and of shortfalls in payments
of interest than the Class A Certificates.
Accordingly, the Class A Certificates will
receive a higher credit rating than the Class B
Certificates. See "Summary of Terms -- Class A
Certificate Rating" and "-- Class B Certificate
Rating." For a description of the subordination
of the Class B Certificates, see "Summary of
Terms -- Subordination of the Class B
Certificates and the Collateral Interest" and
"Description of the Certificates --
Subordination" herein and "Risk Factors --
Effect of Subordination" and "--Limited Credit
Enhancement" in the Prospectus.
Both the Class A Certificates and the Class B
Certificates are subject to possible repayment
earlier than expected if certain events called
Pay Out Events occur. See "Description of the
Certificates -- Pay Out Events" herein and in the
Prospectus. Both the Class A Certificates and the
Class B Certificates are also subject to
potential delayed repayment if the principal
payment rate on the Receivables decreases. See
"Maturity Assumptions" herein and in the
Prospectus and "Risk Factors -- Timing of
Payments and Maturity" in the Prospectus. In no
event, however, will principal be paid on the
Class B Certificates prior to the payment in full
of the Class A Certificates.
For a discussion of other risk factors applicable
to the Certificates, see "Risk Factors" in the
Prospectus.
TRUST...................... The First Union Master Credit Card Trust (the
"Trust") has been formed pursuant to a pooling
and servicing agreement (as amended from time to
time the "Agreement"), between First Union
National Bank of Georgia ("First Union" or the
"Bank"), as transferor (in such
S-3
<PAGE> 5
capacity, the "Transferor") and as servicer of
the Receivables, and The Bank of New York, as
trustee (the "Trustee"), which will be
supplemented by the supplement relating to the
Certificates (the "Series 1996-2 Supplement")
(the term "Agreement," unless the context
requires otherwise, refers to the Agreement as
supplemented by the Series 1996-2 Supplement). As
used in this Prospectus Supplement, the term
"Certificateholders" refers to holders of the
Certificates, the term "Class A
Certificateholders" refers to holders of the
Class A Certificates and the term "Class B
Certificateholders" refers to holders of the
Class B Certificates.
The Trust has previously issued two other Series.
See Annex I: "Other Series Issued" for a summary
of such other Series.
TRUST ASSETS............... The assets of the Trust include receivables (the
"Receivables") arising under certain
MasterCard(R) and VISA(R)* revolving credit card
accounts (the "Accounts") selected from the
portfolio of MasterCard and VISA accounts owned
by the Bank that are not subject to certain loss
sharing arrangements with the FDIC (the "Bank
Portfolio"), all monies due or to become due in
payment of the Receivables, all proceeds of the
Receivables and proceeds of any credit insurance
policies relating to the Receivables, any
Enhancements, all monies and other property on
deposit in certain bank accounts of the Trust
(including any permitted investment in which any
such monies are invested, but excluding
investment earnings on such amounts, except as
otherwise specified herein), and the right to
receive Interchange allocable to the Certificates
(which right may not be afforded to other Series
issued by the Trust). The Certificateholders will
not be entitled to the benefits of any
Enhancement issued with respect to any Series
other than Series 1996-2, and the holders of
certificates of other Series will not be entitled
to the benefits of any Enhancement issued with
respect to this Series 1996-2.
At the formation of the Trust, the Transferor
conveyed to the Trustee for the benefit of the
Trust all Receivables existing under certain
Accounts that were selected from the Bank
Portfolio based on criteria provided in the
Agreement as applied on August 31, 1995 (the
"Cut-Off Date") and will convey to the Trustee
all Receivables arising under the Accounts from
time to time thereafter until the termination of
the Trust. In addition, pursuant to the
Agreement, the Bank may or may not be obligated
to (subject to certain limitations and
conditions) designate Additional Accounts for
inclusion in the Trust. Also, the Agreement
provides that in lieu of Additional Accounts or
in addition thereto, the Bank may, subject to
certain conditions, include Participations in the
Trust. See "The Receivables" herein and
"Description of the Certificates -- Addition of
Trust Assets" in the Prospectus.
CERTIFICATE INTEREST AND
PRINCIPAL................ Each of the Certificates offered hereby represents
the right to receive certain payments from the
assets of the Trust. The Trust's assets will be
allocated among the Class A Certificateholders
(the "Class A Investor Interest"), the Class B
Certificateholders (the "Class B
- ---------------
* MasterCard(R) and VISA(R) are federally registered servicemarks of MasterCard
International Inc. and Visa U.S.A., Inc., respectively.
S-4
<PAGE> 6
Investor Interest"), the Collateral Interest
Holder (the "Collateral Interest," and together
with the Class A Investor Interest and the Class
B Investor Interest, the "Investor Interest"),
the interest of the holders of other undivided
interests in the Trust issued pursuant to the
Agreement and applicable Series Supplements and
the Transferor (the "Transferor Interest"), as
described below. The Collateral Interest in the
initial amount of $39,090,975 (which amount
represents 10.75% of the amount of the initial
Investor Interest) constitutes Credit Enhancement
for the Certificates. The provider of such Credit
Enhancement is referred to herein as the
"Collateral Interest Holder." Allocations will be
made to the Collateral Interest, and the
Collateral Interest Holder will have voting and
certain other rights, as if the Collateral
Interest were a subordinated class of
Certificates. The Transferor Interest will
represent the right to the assets of the Trust
not allocated to the Class A Investor Interest,
the Class B Investor Interest, the Collateral
Interest or the holders of other undivided
interests in the Trust. The principal amount of
the Transferor Interest will fluctuate as the
amount of Receivables in the Trust changes from
time to time.
The Class A Certificates will represent the right
to receive, from the assets of the Trust
allocated to the Class A Certificates, funds up
to (but not in excess of) the amounts required to
make (a) payments of interest accruing from April
23, 1996 (the "Closing Date") through May 19,
1996, from May 20, 1996 through June 19, 1996 and
with respect to each Interest Period thereafter,
at the rate of 0.11% per annum above the London
interbank offered rate for one-month United
States dollar deposits ("LIBOR"), determined as
described herein, prevailing on the related LIBOR
Determination Date (such rate, the "Class A
Certificate Rate"), and (b) payments of principal
on the Class A Scheduled Payment Date or, under
certain limited circumstances, during the Rapid
Amortization Period, to the extent of the Class A
Investor Interest, which may be less than the
unpaid principal balance of the Class A
Certificates in certain circumstances described
herein.
The Class B Certificates will represent the right
to receive, from the assets of the Trust
allocated to the Class B Certificates, funds up
to (but not in excess of) the amounts required to
make (a) payments of interest accruing from the
Closing Date through May 19, 1996, from May 20,
1996 through June 19, 1996 and with respect to
each Interest Period thereafter, at the rate of
0.24% per annum above LIBOR, determined as
described herein, prevailing on the related LIBOR
Determination Date (such rate, the "Class B
Certificate Rate") and (b) payments of principal
on the Class B Scheduled Payment Date or, under
certain limited circumstances, during the Rapid
Amortization Period, to the extent of the Class B
Investor Interest, which may be less than the
unpaid principal balance of the Class B
Certificates in certain circumstances described
herein. No principal will be paid to the Class B
Certificateholders until the Class A Investor
Interest is paid in full. See "Description of the
Certificates -- Subordination."
The aggregate principal amount of the Class A
Investor Interest and the Class B Investor
Interest will, except as otherwise provided
herein,
S-5
<PAGE> 7
remain fixed at $300,000,000 and $24,546,000,
respectively. The Class A Investor Interest will
decline in certain circumstances if the Default
Amounts allocated to the Class A Certificates
exceed funds allocable thereto as described
herein and the Class B Investor Interest and the
Collateral Interest are zero. The Class B
Investor Interest will decline in certain
circumstances as a result of (a) the reallocation
of collections of Principal Receivables otherwise
allocable to the Class B Investor Interest to
fund certain payments in respect of the Class A
Certificates and (b) the allocation to the Class
B Investor Interest of certain Default Amounts,
including such amounts otherwise allocable to the
Class A Investor Interest when the Collateral
Interest is zero. During the Controlled
Accumulation Period, for the purpose of
allocating collections of Finance Charge
Receivables and Default Amounts with respect to
each Monthly Period, an amount equal to the
amount on deposit in the Principal Funding
Account from time to time will be subtracted from
the Class A Investor Interest (as so reduced, the
"Class A Adjusted Investor Interest" and together
with the Class B Investor Interest and the
Collateral Interest, the "Adjusted Investor
Interest").
The Class A Certificates, the Class B Certificates
and the Collateral Interest will each include the
right to receive (but only to the extent needed
to make required payments under the Agreement)
varying percentages of collections of Finance
Charge Receivables and Principal Receivables and
will be allocated varying percentages of Default
Amounts during each calendar month (a "Monthly
Period"). Collections of Finance Charge
Receivables and Default Amounts at all times, and
collections of Principal Receivables during the
Revolving Period, will be allocated to the
Investor Interest based on the Floating Investor
Percentage and will be further allocated among
the Class A Investor Interest, the Class B
Investor Interest and the Collateral Interest
based on the Class A Floating Allocation, the
Class B Floating Allocation and the Collateral
Floating Allocation, respectively, applicable
during the related Monthly Period. Collections of
Principal Receivables during the Controlled
Accumulation Period and the Rapid Amortization
Period will be allocated to the Investor Interest
based on the Fixed Investor Percentage and will
be further allocated among the Class A Investor
Interest, the Class B Investor Interest and the
Collateral Interest based on the Class A Fixed
Allocation, the Class B Fixed Allocation and the
Collateral Fixed Allocation, respectively. See
"Description of the Certificates -- Allocation
Percentages" and "-- Pay Out Events" herein and
"Description of the Certificates -- Pay Out
Events" in the Prospectus.
The Transferor initially will own the Transferor
Interest. The Transferor may tender the
certificate that represents the Transferor
Interest (the "Transferor Certificate") or, if
provided in the relevant Series Supplement,
certificates of any Series and the Transferor
Certificate, to the Trustee and, upon satisfying
certain conditions, cause the Trustee to issue
one or more new Series, as described in
"Description of the Certificates -- Exchanges" in
the Prospectus. The Certificates may not be
tendered with the Transferor Certificate as
described above. The certificates of any new
Series will be issued pursuant to the
S-6
<PAGE> 8
Agreement and a related Series Supplement. See
"Description of the Certificates" herein and in
the Prospectus.
The final distribution of principal and interest on
the Certificates will be made no later than the
April 2001 Distribution Date in the manner
provided in "Description of the
Certificates -- Final Payment of Principal;
Termination" in the Prospectus. Series 1996-2
will terminate on the earliest to occur of (a)
the Distribution Date on which the Investor
Interest is paid in full, (b) the April 2001
Distribution Date or (c) the Trust Termination
Date (such earliest to occur, the "Series 1996-2
Termination Date"). After the Series 1996-2
Termination Date, the Trust will have no further
obligation to pay principal or interest on the
Certificates.
RECEIVABLES................ The Receivables arise in Accounts that have been
selected from the Bank Portfolio based on
criteria provided in the Agreement as applied on
the Cut-Off Date. The Receivables consist of
Principal Receivables and Finance Charge
Receivables. In addition, certain amounts of
Interchange attributed to cardholder charges for
goods and services in the Accounts will be
allocated to the Certificates and treated as
Finance Charge Receivables. See "First Union's
Credit Card Activities -- Interchange" in the
Prospectus.
The aggregate amount of Receivables in the Accounts
as of the beginning of the day on March 1, 1996
was $4,394,899,377, comprised of $4,327,772,241
of Principal Receivables and $67,127,136 of
Finance Charge Receivables. The amount of Finance
Charge Receivables will not affect the amount of
the Investor Interest represented by the
Certificates and the Collateral Interest or the
amount of the Transferor Interest, all of which
are determined on the basis of the amount of
Principal Receivables in the Trust. The aggregate
interest in the Principal Receivables in the
Trust evidenced by the Certificates and the
Collateral Interest will never exceed the amount
of the Investor Interest regardless of the total
amount of Principal Receivables in the Trust at
any time.
DENOMINATIONS.............. Beneficial interests in the Certificates will be
offered for purchase in denominations of $1,000
and integral multiples thereof.
REGISTRATION OF
CERTIFICATES............... The Certificates initially will be represented by
Certificates registered in the name of Cede, as
the nominee of DTC. No Certificate Owner will be
entitled to receive a Definitive Certificate,
except under the limited circumstances described
herein. Transfers will be made in accordance with
the rules and operating procedures described
herein. See "Description of the
Certificates -- Definitive Certificates" in the
Prospectus.
SERVICING FEE.............. The Servicer will receive a monthly fee as
servicing compensation from the Trust on each
Transfer Date. On each Transfer Date, Servicer
Interchange with respect to the related Monthly
Period that is on deposit in the Finance Charge
Account will be withdrawn from the Finance Charge
Account and paid to the Servicer in respect of
the Investor Servicing Fee. In addition, the
Class A Servicing Fee, the Class B Servicing Fee
and the Collateral Interest Servicing Fee will be
paid on each Transfer Date as described under
"Description of the Certificates -- Servicing
Compensation and Payment of Expenses."
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<PAGE> 9
See also "Description of the
Certificates -- Servicing Compensation and
Payment of Expenses" in the Prospectus.
INTEREST................... Interest on the Certificates for each Interest
Period will be distributed on June 20, 1996, and
on the 20th day of each month thereafter, or if
such day is not a business day, on the next
succeeding business day (each, a "Distribution
Date"), in an amount equal to (a) with respect to
the Class A Certificates, the product of (i) the
actual number of days in the related Interest
Period divided by 360 and (ii) the Class A
Certificate Rate and (iii) the outstanding
principal balance of the Class A Certificates as
of the preceding Record Date (or in the case of
the first Distribution Date, as of the Closing
Date) and (b) with respect to the Class B
Certificates, the product of (i) the actual
number of days in the related Interest Period
divided by 360 and (ii) the Class B Certificate
Rate and (iii) the outstanding principal balance
of the Class B Certificates as of the preceding
Record Date (or in the case of the first
Distribution Date, as of the Closing Date).
Interest for any Distribution Date due but not
paid on such Distribution Date will be payable on
the next succeeding Distribution Date, together
with additional interest on such amount at the
applicable Certificate Rate plus 2% per annum
(such amount, as applicable, "Additional
Interest").
The "Interest Period" with respect to any
Distribution Date, will be the period from and
including the previous Distribution Date through
the day preceding such Distribution Date, except
the initial Interest Period will be the period
from and including the Closing Date through the
day preceding the initial Distribution Date.
Interest payments on each Distribution Date will
be funded from the portion of Finance Charge
Receivables collected during the preceding
Monthly Period (or with respect to the first
Distribution Date, from and including the Closing
Date through May 31, 1996) and certain other
available amounts (a) with respect to the Class A
Certificates, allocated to the Class A Investor
Interest, and, if necessary, from Excess Spread
and Reallocated Principal Collections (to the
extent available), (b) with respect to the Class
B Certificates, allocated to the Class B Investor
Interest and, if necessary, from Excess Spread
and Reallocated Collateral Principal Collections
(to the extent available) and (c) with respect to
the Collateral Interest, from Excess Spread. See
"Description of the Certificates -- Reallocation
of Cash Flows" and "-- Application of
Collections -- Payment of Interest, Fees and
Other Items" herein and "Risk Factors -- Limited
Credit Enhancement" in the Prospectus.
REVOLVING PERIOD........... The "Revolving Period" with respect to the
Certificates means the period from and including
the Closing Date to, but not including, the
earlier of (a) the commencement of the Controlled
Accumulation Period and (b) the commencement of
the Rapid Amortization Period. The controlled
accumulation period with respect to the
Certificates (the "Controlled Accumulation
Period") is scheduled to begin at the close of
business on August 31, 1997. Subject to the
conditions set forth under "Description of the
Certificates -- Postponement of Controlled
Accumulation Period," the day on which the
Revolving Period ends and the Controlled
Accumulation Period begins may be delayed
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to no later than the close of business on July
31, 1998. During the Revolving Period, Available
Investor Principal Collections otherwise
allocable to the Investor Interest will, subject
to certain limitations, be treated as Shared
Principal Collections and allocated to the
holders of other Series of certificates within
Group One issued and outstanding or, subject to
certain limitations, paid to the holder of the
Transferor Certificate. See "Description of the
Certificates -- Principal Payments." See
"Description of the Certificates -- Pay Out
Events" for a discussion of the events which
might lead to the termination of the Revolving
Period prior to the commencement of the
Controlled Accumulation Period.
CONTROLLED ACCUMULATION
PERIOD................... Unless a Pay Out Event has occurred, the Controlled
Accumulation Period will begin at the close of
business on the last day of the Revolving Period
and will end on the earliest of (i) the
commencement of the Rapid Amortization Period,
(ii) payment of the Investor Interest in full and
(iii) the Series 1996-2 Termination Date. During
the Controlled Accumulation Period, prior to the
payment of the Class A Investor Interest in full,
amounts equal to the least of (a) the Available
Investor Principal Collections for the related
Monthly Period, (b) the sum of the applicable
Controlled Accumulation Amount for such Monthly
Period and the applicable Accumulation Shortfall,
if any (such applicable sum, the "Controlled
Deposit Amount" for such Monthly Period) and (c)
the Class A Adjusted Investor Interest on such
Transfer Date will be deposited monthly in a
trust account established by the Trustee (the
"Principal Funding Account") on each Transfer
Date beginning with the Transfer Date in the
month following the commencement of the
Controlled Accumulation Period until the
Principal Funding Account Balance is equal to the
Class A Investor Interest. On each Transfer Date
during the Controlled Accumulation Period after
the Distribution Date on which the Class A
Investor Interest has been paid in full, an
amount equal to the lesser of (a) the Available
Investor Principal Collections for the related
Monthly Period and (b) the Class B Investor
Interest on such Transfer Date will be deposited
into the Distribution Account for distribution to
the Class B Certificateholders until the Class B
Investor Interest has been paid in full. If, for
any Monthly Period, the Available Investor
Principal Collections for such Monthly Period
exceed the applicable Controlled Deposit Amount,
the amount of such excess will be paid first to
the Collateral Interest Holder to the extent that
the Collateral Interest exceeds the Required
Collateral Interest and then will be treated as
Shared Principal Collections and allocated to the
holders of other Series of certificates within
Group One issued and outstanding or, subject to
certain limitations, paid to the holder of the
Transferor Certificate. If for any Monthly Period
the Available Investor Principal Collections for
such Monthly Period are less than the applicable
Controlled Deposit Amount, the amount of such
deficiency will be the applicable "Accumulation
Shortfall" for the succeeding Monthly Period. See
"Description of the Certificates -- Application
of Collections."
Unless a Pay Out Event shall have occurred, prior
to the payment of the Class A Investor Interest
in full, all funds on deposit in the Principal
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<PAGE> 11
Funding Account will be invested at the direction
of the Servicer by the Trustee in certain
Permitted Investments. Investment earnings (net
of investment losses and expenses) on funds on
deposit in the Principal Funding Account (the
"Principal Funding Investment Proceeds") during
the Controlled Accumulation Period will be
applied as Class A Available Funds.
Funds on deposit in the Principal Funding Account
will be available to pay the Class A
Certificateholders in respect of the Class A
Investor Interest on the Class A Scheduled
Payment Date. If the aggregate principal amount
of deposits made to the Principal Funding Account
is insufficient to pay the Class A Investor
Interest in full on the Class A Scheduled Payment
Date, the Rapid Amortization Period will commence
as described below. Although it is anticipated
that during the Controlled Accumulation Period
prior to the payment of the Class A Investor
Interest in full, funds will be deposited in the
Principal Funding Account in an amount equal to
the applicable Controlled Deposit Amount on each
Transfer Date and that scheduled principal will
be available for distribution to the Class A
Certificateholders on the Class A Scheduled
Payment Date, no assurance can be given in that
regard. See "Maturity Assumptions" in the
Prospectus and "Maturity Assumptions" herein.
On the Class B Scheduled Payment Date, provided
that the Class A Certificates are paid in full on
the Class A Scheduled Payment Date and the Rapid
Amortization Period has not commenced, Available
Investor Principal Collections will be used to
pay the Class B Certificateholders in respect of
the Class B Investor Interest as described
herein. If the Available Investor Principal
Collections are insufficient to pay the Class B
Investor Interest in full on the Class B
Scheduled Payment Date, the Rapid Amortization
Period will commence as described below. Although
it is anticipated that scheduled principal will
be available for distribution to the Class B
Certificateholders on the Class B Scheduled
Payment Date, no assurance can be given in that
regard. See "Maturity Assumptions" in the
Prospectus and "Maturity Assumptions" herein.
If a Pay Out Event occurs during the Controlled
Accumulation Period, the Rapid Amortization
Period will commence and any amounts on deposit
in the Principal Funding Account will be paid to
the Class A Certificateholders on the
Distribution Date in the month following the
commencement of the Rapid Amortization Period.
Other Series offered by the Trust may or may not
have amortization or accumulation periods like
the Controlled Accumulation Period for the
Certificates, and such periods may have different
lengths and begin on different dates than such
Controlled Accumulation Period. Thus, certain
Series may be in their revolving periods while
others are in periods during which collections of
Principal Receivables are distributed to or held
for the benefit of certificateholders of such
other Series. In addition, other Series may
allocate Principal Receivables based upon
different investor percentages. See "Description
of the Certificates -- Exchanges" in the
Prospectus for a discussion of the potential
terms of any other Series.
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<PAGE> 12
RAPID AMORTIZATION
PERIOD..................... During the period beginning on the day on which a
Pay Out Event has occurred and ending on the
earlier of (a) the payment of the Investor
Interest in full and (b) the Series 1996-2
Termination Date (the "Rapid Amortization
Period"), Available Investor Principal
Collections will be applied to the payment of
principal on the Certificates and will be
distributed monthly on each Distribution Date to
the Class A Certificateholders and, following
payment of the Class A Investor Interest in full,
to the Class B Certificateholders and, following
payment of the Class B Investor Interest in full,
to the Collateral Interest Holder beginning with
the Distribution Date in the month following the
commencement of the Rapid Amortization Period.
See "Description of the Certificates -- Pay Out
Events" for a discussion of the events which
might lead to the commencement of the Rapid
Amortization Period.
SUBORDINATION OF THE CLASS
B CERTIFICATES AND THE
COLLATERAL INTEREST...... The Class B Certificates and the Collateral
Interest will be subordinated, as described
herein, to the extent necessary to fund payments
with respect to the Class A Certificates as
described herein. In addition, the Collateral
Interest will be subordinated to the extent
necessary to fund certain payments with respect
to the Class A Certificates and the Class B
Certificates. If the Collateral Interest is
reduced to zero, the Class B Certificateholders
will bear directly the credit and other risks
associated with their interest in the Trust and
thus will be more likely to suffer a loss. To the
extent the Class B Investor Interest is reduced,
the percentage of collections of Finance Charge
Receivables allocable to the Class B
Certificateholders in subsequent Monthly Periods
will be reduced. Such reductions of the Class B
Investor Interest will thereafter be reimbursed
and the Class B Investor Interest increased on
each Transfer Date by the amount, if any, of
Excess Spread for such Transfer Date available
for that purpose. To the extent the amount of
such reduction in the Class B Investor Interest
is not reimbursed, the amount of principal and
interest distributable to the Class B
Certificateholders will be reduced. No principal
will be paid to the Class B Certificateholders
until the Class A Investor Interest is paid in
full. See "Description of the
Certificates -- Subordination" herein and "Risk
Factors -- Effect of Subordination" in the
Prospectus.
ADDITIONAL AMOUNTS
AVAILABLE TO
CERTIFICATEHOLDERS....... With respect to any Transfer Date, Excess Spread
will be applied to fund the Class A Required
Amount and the Class B Required Amount, if any.
The "Class A Required Amount" means the amount,
if any, by which the sum of (a) the Class A
Monthly Interest due on the related Distribution
Date and any overdue Class A Monthly Interest and
Class A Additional Interest thereon, (b) the
Class A Servicing Fee for the related Monthly
Period and any overdue Class A Servicing Fee and
(c) the Class A Investor Default Amount, if any,
for the related Monthly Period exceeds the Class
A Available Funds for the related Monthly Period.
The "Class B Required Amount" means the amount,
if any, equal to the sum of (a) the amount, if
any, by which the sum of (i) Class B Monthly
Interest due on the related Distribution Date and
any overdue Class B Monthly Interest and Class B
Additional Interest
S-11
<PAGE> 13
thereon and (ii) the Class B Servicing Fee for
the related Monthly Period and any overdue Class
B Servicing Fee exceeds the Class B Available
Funds for the related Monthly Period and (b) the
Class B Investor Default Amount, if any, for the
related Monthly Period. The "Required Amount" for
any Monthly Period shall mean the sum of (a) the
Class A Required Amount and (b) the Class B
Required Amount, each for such Monthly Period.
"Excess Spread" for any Transfer Date will equal
the sum of (a) the excess of (i) Class A
Available Funds for the related Monthly Period
over (ii) the sum of the amounts referred to in
clauses (a), (b) and (c) in the definition of
"Class A Required Amount" above, (b) the excess
of (i) Class B Available Funds for the related
Monthly Period over (ii) the sum of the amounts
referred to in clauses (a)(i) and (a)(ii) in the
definition of "Class B Required Amount" above and
(c) Collateral Available Funds for the related
Monthly Period not used under certain
circumstances to pay the Collateral Interest
Servicing Fee, as described herein.
If, on any Transfer Date, Excess Spread is less
than the Class A Required Amount, Reallocated
Principal Collections allocable first to the
Collateral Interest and then to the Class B
Investor Interest with respect to the related
Monthly Period will be used to fund the remaining
Class A Required Amount. If Reallocated Principal
Collections with respect to such Monthly Period
are insufficient to fund the remaining Class A
Required Amount for the related Transfer Date,
then the Collateral Interest (after giving effect
to reductions for any Collateral Charge-Offs and
Reallocated Principal Collections on such
Transfer Date) will be reduced by the amount of
such deficiency (but not by more than the Class A
Investor Default Amount for such Monthly Period).
In the event that such reduction would cause the
Collateral Interest to be a negative number, the
Collateral Interest will be reduced to zero, and
the Class B Investor Interest (after giving
effect to reductions for any Class B Investor
Charge-Offs and any Reallocated Class B Principal
Collections on such Transfer Date) will be
reduced by the amount by which the Collateral
Interest would have been reduced below zero (but
not by more than the excess of the Class A
Investor Default Amount, if any, for such Monthly
Period over the amount of such reduction, if any,
of the Collateral Interest with respect to such
Monthly Period). In the event that such reduction
would cause the Class B Investor Interest to be a
negative number, the Class B Investor Interest
will be reduced to zero and the Class A Investor
Interest will be reduced by the amount by which
the Class B Investor Interest would have been
reduced below zero (but not by more than the
excess, if any, of the Class A Investor Default
Amount for such Monthly Period over such
reductions in the Collateral Interest and the
Class B Investor Interest with respect to such
Monthly Period) (such reduction, a "Class A
Investor Charge-Off"). If the Collateral Interest
and the Class B Investor Interest are reduced to
zero, the Class A Certificateholders will bear
directly the credit and other risks associated
with their undivided interest in the Trust. See
"Description of the Certificates -- Reallocation
of Cash Flows" and "-- Defaulted Receivables;
Investor Charge-Offs."
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<PAGE> 14
If, on any Transfer Date, Excess Spread not
required to pay the Class A Required Amount and
to reimburse Class A Investor Charge-Offs is less
than the Class B Required Amount, Reallocated
Principal Collections allocable to the Collateral
Interest for the related Monthly Period not
required to pay the Class A Required Amount will
be used to fund the remaining Class B Required
Amount. If such remaining Reallocated Principal
Collections allocable to the Collateral Interest
with respect to such Monthly Period are
insufficient to fund the remaining Class B
Required Amount for the related Transfer Date,
then the Collateral Interest (after giving effect
to reductions for any Collateral Charge-Offs,
Reallocated Principal Collections and any
adjustments made thereto for the benefit of the
Class A Certificateholders) will be reduced by
the amount of such deficiency (but not by more
than the Class B Investor Default Amount for such
Monthly Period). In the event that such reduction
would cause the Collateral Interest to be a
negative number, the Collateral Interest will be
reduced to zero, and the Class B Investor
Interest will be reduced by the amount by which
the Collateral Interest would have been reduced
below zero (but not by more than the excess, if
any, of the Class B Investor Default Amount for
such Monthly Period over such reduction in the
Collateral Interest with respect to such Monthly
Period) (such reduction, a "Class B Investor
Charge-Off"). In the event of a reduction of the
Class A Investor Interest, the Class B Investor
Interest or the Collateral Interest, the amount
of principal and interest available to fund
payments with respect to the Class A Certificates
and the Class B Certificates will be decreased.
See "Description of the
Certificates -- Reallocation of Cash Flows" and
"-- Defaulted Receivables; Investor Charge-Offs."
REQUIRED COLLATERAL
INTEREST................... The "Required Collateral Interest" with respect to
any Transfer Date means (a) initially,
$39,090,975 (the "Initial Collateral Interest")
and (b) on any Transfer Date thereafter, an
amount equal to 10.75% of the sum of the Class A
Adjusted Investor Interest and the Class B
Investor Interest on such Transfer Date, after
taking into account deposits into the Principal
Funding Account on such Transfer Date and
payments to be made on the related Distribution
Date, and the Collateral Interest on the prior
Transfer Date after any adjustments made on such
Transfer Date, but not less than $10,909,110;
provided, however, that (i) if certain reductions
in the Collateral Interest occur or if a Pay Out
Event occurs, the Required Collateral Interest
for such Transfer Date shall equal the Required
Collateral Interest for the Transfer Date
immediately preceding the occurrence of such
reduction or Pay Out Event; and (ii) in no event
shall the Required Collateral Interest exceed the
unpaid principal amount of the Certificates as of
the last day of the Monthly Period preceding such
Transfer Date after taking into account payments
to be made on the related Distribution Date. See
"Description of the Certificates -- Required
Collateral Interest."
If on any Transfer Date, the Collateral Interest is
less than the Required Collateral Interest,
certain Excess Spread amounts, if available, will
be used to increase the Collateral Interest to
the extent of such shortfall. If on any Transfer
Date the Collateral Interest equals or exceeds
the Required Collateral Interest, any such Excess
Spread amounts will
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<PAGE> 15
first be deposited into the Reserve Account as
described herein and second, to the extent
available, be applied in accordance with the Loan
Agreement among the Trustee, the Transferor, the
Servicer and the Collateral Interest Holder (the
"Loan Agreement") and will not be available to
the Certificateholders.
SHARED PRINCIPAL
COLLECTIONS................ The Series 1996-2 Certificates are included in a
group of Series ("Group One"). Series 1995-A and
Series 1996-1 are, and other Series may in the
future be, included in Group One. To the extent
that collections of Principal Receivables
allocated to the Investor Interest are not needed
to make payments on the Investor Interest or to
be deposited in the Principal Funding Account,
such collections ("Shared Principal Collections")
will be allocated to cover certain principal
payments due to or for the benefit of
certificateholders of other Series within Group
One. Any such reallocation or deposit will not
result in a reduction in the Investor Interest
with respect to Series 1996-2. In addition,
collections of Principal Receivables and certain
other amounts otherwise allocable to other Series
within Group One, to the extent such collections
are not needed to make payments to or deposits
for the benefit of the certificateholders of such
other Series, may be applied to cover principal
payments due to or for the benefit of the holders
of the Class A Certificates and the Class B
Certificates or the Collateral Interest Holder.
See "Description of the Certificates -- Shared
Principal Collections."
OPTIONAL REPURCHASE........ The Investor Interest will be subject to optional
repurchase by the Transferor on any Distribution
Date on or after the Distribution Date on which
the Investor Interest is reduced to an amount
less than or equal to $18,181,849 (5% of the
initial Investor Interest), if certain conditions
set forth in the Agreement are met. The
repurchase price will be equal to the sum of the
Investor Interest and all accrued and unpaid
interest on the Certificates and the Collateral
Interest through the day preceding the
Distribution Date on which the repurchase occurs.
See "Description of the Certificates -- Final
Payment of Principal; Termination" in the
Prospectus.
TRUSTEE.................... The Bank of New York.
TAX STATUS................. Special counsel to the Transferor will deliver its
opinion on the Closing Date that under existing
law the Certificates will be characterized as
debt for United States federal income tax
purposes. Under the Agreement, the Transferor and
the Certificateholders will agree to treat the
Certificates as debt for United States federal,
state and local income tax and franchise tax
purposes. See "Certain Federal Income Tax
Consequences" in the Prospectus for additional
information concerning the application of United
States federal income tax laws.
ERISA CONSIDERATIONS....... Subject to considerations described below, the
Class A Certificates are eligible for purchase by
employee benefit plan investors. Under a
regulation issued by the Department of Labor, the
Trust's assets would not be deemed "plan assets"
of an employee benefit plan holding the Class A
Certificates if certain conditions are met,
including that the Class A Certificates must be
held, upon completion of the public offering made
hereby, by at least 100 investors who are
independent of the Transferor and of one another.
The Underwriters expect that the
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<PAGE> 16
Class A Certificates will be held by at least 100
independent investors at the conclusion of the
offering, although no assurance can be given, and
no monitoring or other measures will be taken to
ensure, that such condition will be met with
respect to the Class A Certificates. The
Transferor anticipates that the other conditions
of the regulation will be met. If the Trust's
assets were deemed to be "plan assets" of an
employee benefit plan investor (e.g., if the 100
independent investor criterion is not satisfied),
violations of the "prohibited transaction" rules
of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), could result and
generate excise tax and other liabilities under
ERISA and section 4975 of the Internal Revenue
Code of 1986, as amended (the "Code"), unless a
statutory, regulatory or administrative exemption
is available. It is uncertain whether existing
exemptions from the "prohibited transaction"
rules of ERISA would apply to all transactions
involving the Trust's assets if such assets were
treated for ERISA purposes as "plan assets" of
employee benefit plan investors. Accordingly,
fiduciaries or other persons contemplating
purchasing the Certificates on behalf or with
"plan assets" of any employee benefit plan should
consult their counsel before making a purchase.
See "ERISA Considerations" in the Prospectus.
The Underwriters currently do not expect that the
Class B Certificates will be held by at least 100
such persons and, therefore, do not expect that
such Class B Certificates will qualify as
publicly-offered securities under the regulation
referred to in the preceding paragraph.
Accordingly, the Class B Certificates may not be
acquired by (a) any employee benefit plan that is
subject to ERISA, (b) any plan or other
arrangement (including an individual retirement
account or Keogh plan) that is subject to section
4975 of the Code or (c) any entity whose
underlying assets include "plan assets" under the
regulation by reason of any such plan's
investment in the entity. By its acceptance of a
Class B Certificate or an interest therein, each
Class B Certificateholder and Certificate Owner
will be deemed to have represented and warranted
that it is not subject to the foregoing
limitation.
CLASS A CERTIFICATE
RATING..................... It is a condition to the issuance of the Class A
Certificates that they be rated in the highest
rating category by at least one Rating Agency.
The rating of the Class A Certificates is based
primarily on the value of the Receivables and the
terms of the Class B Certificates and the
Collateral Interest. See "Risk Factors -- Scope
of Certificate Rating" in the Prospectus.
CLASS B CERTIFICATE
RATING..................... It is a condition to the issuance of the Class B
Certificates that they be rated in one of the
three highest rating categories by at least one
Rating Agency. The rating of the Class B
Certificates is based primarily on the value of
the Receivables and the terms of the Collateral
Interest. See "Risk Factors -- Scope of
Certificate Rating" in the Prospectus.
LISTING.................... Application will be made to list the Certificates
on the Luxembourg Stock Exchange.
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<PAGE> 17
FIRST UNION'S CREDIT CARD PORTFOLIO
GENERAL
The Receivables conveyed or to be conveyed to the Trust by First Union
pursuant to the Agreement have been or will be generated from transactions made
by holders of selected MasterCard and VISA credit card accounts, including
premium accounts and standard accounts, from the Bank Portfolio.
BILLING, PAYMENTS AND FEES
The Accounts currently have various billing and payment characteristics,
including varying periodic rate finance charges and fees.
Currently, monthly billing statements are sent by First Union to
cardholders with balances at the end of each billing period. With some
exceptions, cardholders must make a minimum monthly payment generally equal to
the sum of (a) the greater of 2% of the outstanding balance (including
purchases, cash advances, finance charges, and fees posted to the Account) or
$10, plus (b) any past due and any overlimit amounts. If the cardholder's
outstanding balance is less than $10, then the minimum monthly payment equals
the amount of the outstanding balance.
Accounts may have a different annual percentage rate for purchase and cash
balances. First Union uses fixed and variable annual rate percentage pricing
based on a selected external prime rate. In certain marketing programs,
including those programs which generate new Accounts, First Union makes use of
introductory rates. Introductory rates are predominately fixed for some initial
period and, at the conclusion of this period, rise to a higher variable rate.
Accounts have a grace period which allows the customer to pay the new
balance of purchases in full every month and not incur a finance charge. The
grace period allows 25 days to avoid additional finance charges on the new
balance of purchases. There is no grace period on cash balances generated by
Cash Advances. There can be no assurance that periodic rate finance charges,
fees and other charges on Accounts will remain at current levels.
First Union offers fixed rate and variable rate credit card accounts.
Generally, fixed annual percentage rates range from 10% to 19%, and variable
rates range from Prime plus 3.9% to Prime plus 9.9% per annum. First Union also
offers temporary promotional rates and, under certain circumstances, the
periodic finance charges on a limited number of accounts may be less than those
generally assessed by First Union.
First Union assesses annual membership fees (generally ranging from $20 to
$39) on certain accounts, although under various marketing programs these fees
may be waived or rebated. For most credit card accounts, First Union also
assesses late and over limit charges (generally $18) and returned check charges
(generally $18). First Union generally assesses a cash advance fee, typically
2.5% of the cash advance amount with a $2.50 minimum. Generally a cash advance
fee is not assessed on balance transfers and convenience checks.
INTEREST REBATE FEATURE
Certain Accounts in the Trust Portfolio include a rebate feature which
permits a qualifying cardholder participating in the program to earn rebates
payable by First Union in an amount equal to a portion of certain qualifying
finance charges billed on such cardholder's account. See "Risk
Factors -- Effects of Rebate Programs" in the Prospectus. A cardholder could
reduce the amount payable in respect of its Receivables by the amount of rebate
credits earned and requested to be paid to such cardholder. In such a case, the
amount of the Transferor Interest will be reduced by the aggregate amount of any
resulting reduction in Principal Receivables. These Accounts represented less
than 10% of the Receivables outstanding as of the Cut-Off Date. If after the
Cut-Off Date the aggregate amount of Principal Receivables arising in Rebate
Accounts within the Trust exceed 10% of the total amount of Principal
Receivables (or any greater percentage as to which the Rating Agency Condition
has been satisfied), Standard & Poor's may increase the Minimum
S-16
<PAGE> 18
Transferor Interest to a percentage in excess of the current requirement. See
"The Receivables" herein and "Risk Factors -- Effects of Rebate Programs" in the
Prospectus.
DELINQUENCY AND LOSS EXPERIENCE
An Account is contractually delinquent if the minimum payment is not
received by the payment due date. An Account is not treated as delinquent if the
minimum monthly payment is received by the next billing date; however, the
period of delinquency on any Account is measured from the payment due date.
Efforts to collect delinquent credit card receivables currently are made by
First Union's credit card collection personnel located in regional collection
centers in Miami, Florida; Jacksonville, Florida; and North Wilkesboro, North
Carolina or by First Union's designees. Collection activities include statement
messages, telephone calls and formal collection letters. Collectors generally
initiate telephone contact with cardholders whose Accounts have become 5 days or
more delinquent. In the event that initial telephone contact fails to resolve
the delinquency, First Union continues to contact the cardholder by telephone
and by mail. First Union may also enter into arrangements with cardholders to
extend or otherwise change payment schedules as approved by one of First Union's
collection managers. Delinquency levels are monitored daily by First Union's
collection representatives with aggregate delinquency information reported to
senior management on a daily basis.
Accounts currently are charged-off once they have become contractually past
due between 180 and 209 days unless a payment has been received in an amount
sufficient to bring the Account into a different delinquency category or to
bring the Account current. At the time of charge-off, an evaluation is made
whether to pursue further remedies. In certain cases, outside collection
agencies and law firms are engaged. The credit evaluation, servicing and
charge-off policies and collection practices of First Union may change from time
to time in accordance with First Union's business judgment and applicable law.
The following tables set forth the delinquency and loss experience for each
of the periods shown for the Bank Portfolio of credit card accounts. The Bank
Portfolio's delinquency and loss experience is comprised of segments which may,
when taken individually, have delinquency and loss characteristics different
from those of the overall Bank Portfolio of credit card accounts. As of the
beginning of the day on March 1, 1996, the Receivables in the Trust Portfolio
represented approximately 81.43% of the Bank Portfolio. Because the Trust
Portfolio is only a portion of the Bank Portfolio, actual delinquency and loss
experience with respect to the Receivables may be different from that set forth
below for the Bank Portfolio. There can be no assurance that the delinquency and
loss experience for the Receivables in the future will be similar to the
historical experience of the Bank Portfolio set forth below.
DELINQUENCY EXPERIENCE
BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, 1996 1995 1994 1993
------------------------ ------------------------ ------------------------ ------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL OF TOTAL OF TOTAL
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(1).......... $5,519,508 $ 5,056,326 $ 3,502,185 $ 1,587,259
Receivables Delinquent:
31-60 Days.............. 95,196 1.72% 82,981 1.64% 19,062 0.55% 8,916 0.56%
61-90 Days.............. 58,578 1.06 49,464 0.98 14,383 0.41 6,305 0.40
91 or More Days......... 116,043 2.10 95,086 1.88 18,368 0.52 8,965 0.56
----------- ---- ----------- ---- ----------- ---- ----------- ----
Total............. $ 269,817 4.88% $ 227,531 4.50% $ 51,813 1.48% $ 24,186 1.52%
=========== ==== =========== ==== =========== ==== =========== ====
</TABLE>
- ---------------
(1) The Receivables Outstanding on the accounts consist of all amounts due from
cardholders as posted to the accounts as of the end of the period shown.
S-17
<PAGE> 19
LOSS EXPERIENCE
BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED ------------------------------------------------
MARCH 31, 1996 1995 1994 1993
------------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Average Receivables
Outstanding(1)............... $5,384,570 $ 4,135,129 $ 2,308,994 $ 1,375,335
Total Gross Charge-Offs(2)..... 81,855 175,884 54,588 48,363
Total Gross Charge-Offs as a
percentage of Average
Receivables Outstanding(3)... 6.11% 4.25% 2.36% 3.52%
</TABLE>
- ---------------
(1) Average Receivables Outstanding is the average of the daily ending
receivable balance during the period indicated.
(2) Total Gross Charge-Offs are total principal, finance charge and other fee
charge-offs before recoveries and do not include the amount of any
reductions in Average Receivables Outstanding due to fraud, returned goods,
customer disputes or other miscellaneous credit adjustments.
(3) The percentage reflected for the three months ended March 31, 1996 is an
annualized figure.
First Union's delinquency and gross charge-off rates at any time reflect,
among other factors, the quality of the credit card loans, the age of First
Union's accounts, the success of First Union's collection efforts and general
economic conditions. Newly booked accounts generally exhibit rising
delinquencies and losses which typically stabilize within approximately two to
three years. First Union believes that the increase in Total Gross Charge-Offs
as a percentage of Average Receivables Outstanding for the three months ended
March 31, 1996 is primarily reflective of a general trend in the credit card
industry towards higher gross charge-offs during 1996.
INTERCHANGE
The Transferor will be required, pursuant to the terms of the Agreement, to
transfer to the Trust a percentage of the Interchange attributed to cardholder
charges for goods and services in the Accounts. Interchange arising under the
Accounts will be allocated to the Certificates on the basis of the percentage
equivalent of the ratio which the amount of the Floating Investor Percentage of
cardholder charges for goods and services in the Accounts bears to the total
amount of cardholder charges for goods and services in the MasterCard and VISA
credit card accounts owned by First Union, as reasonably estimated by the
Transferor. MasterCard and VISA may from time to time change the amount of
Interchange reimbursed to banks issuing their credit cards. Interchange will be
treated as collections of Finance Charge Receivables for the purposes of
determining the amount of Finance Charge Receivables, allocating collections of
Finance Charge Receivables, making required monthly payments, and calculating
the Portfolio Yield. Under the circumstances described herein, Interchange will
be used to pay a portion of the Investor Servicing Fee required to be paid on
each Transfer Date. See "Description of the Certificates -- Servicing
Compensation and Payment of Expenses" herein and "First Union's Credit Card
Activities -- Interchange" in the Prospectus.
THE RECEIVABLES
The Receivables conveyed to the Trust arise in Accounts selected from the
Bank Portfolio on the basis of criteria set forth in the Agreement as applied on
the Cut-Off Date and, with respect to Additional Accounts, as of the related
date of their designation (the "Trust Portfolio"). Pursuant to the Agreement,
the Transferor has the right, subject to certain limitations and conditions set
forth therein, to designate from time to time Additional Accounts and to
transfer to the Trust all Receivables of such Additional Accounts, whether such
Receivables are then existing or thereafter created. Any Additional Accounts
designated pursuant to the Agreement must be Eligible Accounts as of the date
the Transferor designates such accounts as Additional Accounts. The Transferor
will be required to designate Additional Accounts, to the extent available, (a)
to maintain the Transferor Interest so that during any period of 30 consecutive
days, the Transferor Interest averaged over that period equals or exceeds the
Minimum Transferor Interest for the same period and (b) to maintain, for so long
as certificates of any Series (including the Certificates) remain outstanding,
an aggregate amount of Principal Receivables equal to or greater than the
Minimum Aggregate Principal Receivables. "Minimum Transferor Interest" for any
period means 7% of the average Principal Receivables; provided,
S-18
<PAGE> 20
however, that the Transferor may reduce the Minimum Transferor Interest to not
less than 2% of the average Principal Receivables for such period upon
satisfaction of the Rating Agency Condition and certain other conditions to be
set forth in the Agreement, provided further, however, that Standard & Poor's
may increase the Minimum Transferor Interest in the future if, on any Record
Date, the amount of Principal Receivables arising in the Rebate Accounts exceeds
10% (or such greater percentage as to which the Rating Agency Condition is
satisfied) of the total Principal Receivables as of such Record Date. "Minimum
Aggregate Principal Receivables" means an amount equal to the sum of the
numerators used to calculate the Investor Percentages with respect to the
allocation of collections of Principal Receivables for each Series then
outstanding; provided, that the Minimum Aggregate Principal Receivables may be
reduced to a lesser amount at any time if the Rating Agency Condition is
satisfied. Further, pursuant to the Agreement, the Transferor will have the
right (subject to certain limitations and conditions) to designate certain
Removed Accounts and to require the Trustee to reconvey all Receivables in such
Removed Accounts to the Transferor, whether such Receivables are then existing
or thereafter created. Throughout the term of the Trust, the Accounts from which
the Receivables arise will be the Accounts designated by the Transferor on the
Cut-Off Date plus any Additional Accounts minus any Removed Accounts. As of the
Cut-Off Date and, with respect to Receivables in Additional Accounts, as of the
related date of their conveyance to the Trust, and on the date any new
Receivables are created, the Transferor will represent and warrant to the Trust
that the Receivables meet the eligibility requirements specified in the
Agreement. See "Description of the Certificates -- Representations and
Warranties" in the Prospectus.
"Rating Agency Condition" means the notification in writing by each Rating
Agency to the Transferor, the Servicer and the Trustee that a proposed action
will not result in such Rating Agency reducing or withdrawing its then existing
rating of the investor certificates of any outstanding Series or class with
respect to which it is a Rating Agency.
The Receivables in the Trust Portfolio, as of the beginning of the day on
March 1, 1996 included $4,327,772,241 of Principal Receivables and $67,127,136
of Finance Charge Receivables. The Accounts had an average Principal Receivable
balance of $1,885 and an average credit limit of $5,324. The percentage of the
aggregate total Receivable balance to the aggregate total credit limit was
35.95%. The average age of the Accounts was approximately 57 months. As of the
beginning of the day on March 1, 1996, cardholders whose Accounts are included
in the Trust Portfolio had billing addresses in all 50 States, the District of
Columbia and other United States territories and possessions. As of the
beginning of the day on March 1, 1996, 58.08% of the Accounts were standard
accounts and 41.92% were premium accounts, and the aggregate Principal
Receivable balances of standard accounts and premium accounts, as a percentage
of the total aggregate Principal Receivables, were 37.99% and 62.01%
respectively.
The following tables summarize the Trust Portfolio by various criteria as
of the beginning of the day on March 1, 1996. Because the future composition of
the Trust Portfolio may change over time, these tables are not necessarily
indicative of the composition of the Trust Portfolio at any subsequent time.
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF TOTAL OF TOTAL
ACCOUNT BALANCE RANGE ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ---------------------------------------------- --------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Credit Balance................................ 29,326 1.28% $ (2,861,898) (0.07)%
No Balance.................................... 728,900 31.74 0 0.00
$.01 -- $1,500.00............................. 648,012 28.22 378,352,446 8.61
$1,500.01 -- $5,000.00........................ 587,553 25.59 1,780,041,667 40.50
$5,000.01 -- $10,000.00....................... 275,831 12.01 1,843,482,000 41.95
$10,000.01 or More............................ 26,577 1.16 395,885,162 9.01
--------- ---------- -------------- -----------
Total............................... 2,296,199 100.00% $4,394,899,377 100.00%
======== ======== ============= ========
</TABLE>
S-19
<PAGE> 21
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF TOTAL OF TOTAL
CREDIT LIMIT RANGE ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ---------------------------------------------- --------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Less than or equal to $1,500.00............... 309,798 13.49% $ 174,428,382 3.97%
$1,500.01 -- $5,000.00........................ 919,315 40.04 1,235,803,590 28.12
$5,000.01 -- $10,000.00....................... 956,341 41.65 2,357,100,645 53.63
$10,000.01 or More............................ 110,745 4.82 627,566,760 14.28
--------- ---------- -------------- -----------
Total............................... 2,296,199 100.00% $4,394,899,377 100.00%
======== ======== ============= ========
</TABLE>
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
PERIOD OF DELINQUENCY NUMBER OF NUMBER OF TOTAL OF TOTAL
(DAYS CONTRACTUALLY DELINQUENT) ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ---------------------------------------------- --------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Not Delinquent................................ 2,234,692 97.31% $4,166,301,630 94.80%
31-60 Days.................................... 22,685 0.99 80,119,493 1.82
61-90 Days.................................... 13,693 0.60 50,554,454 1.15
91-120 Days................................... 10,062 0.44 39,153,727 0.89
121 or More Days.............................. 15,067 0.66 58,770,073 1.34
--------- ---------- -------------- -----------
Total............................... 2,296,199 100.00% $4,394,899,377 100.00%
======== ======== ============= ========
</TABLE>
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF TOTAL OF TOTAL
ACCOUNT AGE ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ---------------------------------------------- --------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Not More than 6 Months........................ 0 0.00% $ 0 0.00%
Over 6 Months to 12 Months.................... 442,586 19.27 981,190,781 22.33
Over 12 Months to 24 Months................... 908,599 39.58 2,049,370,011 46.63
Over 24 Months to 36 Months................... 152,060 6.62 230,970,653 5.26
Over 36 Months to 48 Months................... 69,083 3.01 94,683,430 2.15
Over 48 Months................................ 723,871 31.52 1,038,684,502 23.63
--------- ---------- -------------- -----------
Total............................... 2,296,199 100.00% $4,394,899,377 100.00%
======== ======== ============= ========
</TABLE>
S-20
<PAGE> 22
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF TOTAL OF TOTAL
STATES, TERRITORIES AND POSSESSIONS ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ------------------------------------------------ --------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Alabama......................................... 24,946 1.09% $ 46,285,849 1.05%
Alaska.......................................... 3,291 0.14 7,565,396 0.17
Arizona......................................... 13,894 0.61 32,209,784 0.73
Arkansas........................................ 6,703 0.29 14,964,481 0.34
California...................................... 216,948 9.45 493,272,425 11.23
Colorado........................................ 17,107 0.75 38,313,233 0.87
Connecticut..................................... 20,127 0.88 47,186,022 1.07
Delaware........................................ 3,937 0.17 8,803,349 0.20
District of Columbia............................ 11,180 0.49 20,308,290 0.46
Florida......................................... 365,395 15.90 624,205,784 14.21
Georgia......................................... 151,144 6.58 261,324,968 5.95
Hawaii.......................................... 4,434 0.19 10,944,404 0.25
Idaho........................................... 4,545 0.20 10,213,854 0.23
Illinois........................................ 40,137 1.75 93,694,213 2.13
Indiana......................................... 23,304 1.01 54,653,953 1.24
Iowa............................................ 10,892 0.47 23,800,915 0.54
Kansas.......................................... 11,841 0.52 27,474,305 0.63
Kentucky........................................ 38,316 1.67 48,320,460 1.10
Louisiana....................................... 14,421 0.63 29,151,133 0.66
Maine........................................... 5,872 0.26 13,609,750 0.31
Maryland........................................ 54,102 2.36 106,949,992 2.43
Massachusetts................................... 22,016 0.96 45,484,682 1.03
Michigan........................................ 36,898 1.61 86,978,615 1.98
Minnesota....................................... 14,733 0.64 34,318,878 0.78
Mississippi..................................... 8,855 0.39 17,678,863 0.40
Missouri........................................ 20,059 0.87 49,300,180 1.12
Montana......................................... 3,486 0.15 7,469,500 0.17
Nebraska........................................ 4,214 0.18 9,138,211 0.21
Nevada.......................................... 10,413 0.45 28,338,971 0.64
New Hampshire................................... 4,955 0.22 11,720,742 0.27
New Jersey...................................... 56,665 2.47 132,565,695 3.02
New Mexico...................................... 7,820 0.34 17,349,106 0.39
New York........................................ 82,632 3.60 180,546,627 4.11
North Carolina.................................. 309,599 13.48 492,740,256 11.22
North Dakota.................................... 2,119 0.09 4,515,724 0.10
Ohio............................................ 47,880 2.09 104,296,208 2.37
Oklahoma........................................ 13,183 0.57 30,705,674 0.70
Oregon.......................................... 20,093 0.88 45,569,636 1.04
Pennsylvania.................................... 51,506 2.24 105,150,540 2.39
Puerto Rico..................................... 448 0.02 916,510 0.02
Rhode Island.................................... 6,562 0.29 15,568,932 0.35
South Carolina.................................. 69,173 3.01 121,523,385 2.77
South Dakota.................................... 2,329 0.10 5,231,381 0.12
Tennessee....................................... 66,365 2.89 114,580,496 2.61
Texas........................................... 91,091 3.97 204,658,413 4.66
Utah............................................ 3,397 0.15 7,071,638 0.16
Vermont......................................... 2,125 0.09 4,821,409 0.11
Virgin Islands.................................. 104 0.00 189,642 0.00
Virginia........................................ 229,454 9.99 357,663,645 8.14
Washington...................................... 35,367 1.54 82,136,157 1.87
West Virginia................................... 8,333 0.36 14,728,781 0.34
Wisconsin....................................... 18,511 0.81 41,682,318 0.95
Wyoming......................................... 1,694 0.07 3,781,543 0.09
Other........................................... 1,584 0.07 3,224,459 0.07
--------- --------- -------------- -----------
Total................................. 2,296,199 100.00% $4,394,899,377 100.00%
======== ======== ============= ========
</TABLE>
S-21
<PAGE> 23
MATURITY ASSUMPTIONS
The Agreement provides that Class A Certificateholders will not receive
payments of principal until the Class A Scheduled Payment Date, or earlier in
the event of a Pay Out Event which results in the commencement of the Rapid
Amortization Period. The Agreement also provides that Class B Certificateholders
will not receive payments of principal until the Class B Scheduled Payment Date,
or earlier in the event of a Pay Out Event which results in the commencement of
the Rapid Amortization Period (in the latter case, only after the Class A
Investor Interest has been paid in full). The Class B Certificateholders will
not begin to receive payments of principal until the final principal payment on
the Class A Certificates has been made.
Controlled Accumulation Period. On each Transfer Date during the
Controlled Accumulation Period prior to the payment of the Class A Investor
Interest in full, an amount equal to, for each Monthly Period, the least of (a)
the Available Investor Principal Collections, (b) the "Controlled Deposit
Amount" for such Monthly Period, which is equal to the sum of the Controlled
Accumulation Amount for such Monthly Period and the Accumulation Shortfall, if
any, for such Monthly Period and (c) the Class A Adjusted Investor Interest
prior to any deposits on such day, will be deposited in the Principal Funding
Account (the "Principal Funding Account") established by the Trustee until the
principal amount on deposit in the Principal Funding Account (the "Principal
Funding Account Balance") equals the Class A Investor Interest. After the Class
A Investor Interest has been paid in full, or following the first Transfer Date
upon which the Principal Funding Account Balance has increased to the amount of
the Class A Investor Interest, Available Investor Principal Collections, to the
extent required, will be distributed to the Class B Certificateholders on each
related Distribution Date beginning, during the Controlled Accumulation Period,
on the Class B Scheduled Payment Date, until the earlier of the date the Class B
Investor Interest has been paid in full and the Series 1996-2 Termination Date.
After the Class A Investor Interest and the Class B Investor Interest have each
been paid in full, Available Investor Principal Collections, to the extent
required, will be distributed to the Collateral Interest Holder on each related
Transfer Date until the earlier of the date the Collateral Interest has been
paid in full and the Series 1996-2 Termination Date. Amounts in the Principal
Funding Account are expected to be available to pay the Class A Investor
Interest on the Class A Scheduled Payment Date. After the payment of the Class A
Investor Interest in full, Available Investor Principal Collections are expected
to be available to pay the Class B Investor Interest on the Class B Scheduled
Payment Date. Although it is anticipated that collections of Principal
Receivables will be available on each Transfer Date during the Controlled
Accumulation Period to make a deposit of the applicable Controlled Deposit
Amount and that the Class A Investor Interest will be paid to the Class A
Certificateholders on the Class A Scheduled Payment Date and the Class B
Investor Interest will be paid to the Class B Certificateholders on the Class B
Scheduled Payment Date, respectively, no assurance can be given in this regard.
If the amount required to pay the Class A Investor Interest or the Class B
Investor Interest in full is not available on the Class A Scheduled Payment Date
or the Class B Scheduled Payment Date, respectively, a Pay Out Event will occur
and the Rapid Amortization Period will commence.
Rapid Amortization Period. If a Pay Out Event occurs, the Rapid
Amortization Period will commence and any amount on deposit in the Principal
Funding Account will be paid to the Class A Certificateholders on the
Distribution Date in the month following the commencement of the Rapid
Amortization Period. In addition, to the extent that the Class A Investor
Interest has not been paid in full, the Class A Certificateholders will be
entitled to monthly payments of principal equal to the Available Investor
Principal Collections until the earlier of the date on which the Class A
Certificates have been paid in full and the Series 1996-2 Termination Date.
After the Class A Certificates have been paid in full and if the Series 1996-2
Termination Date has not occurred, Available Investor Principal Collections will
be paid to the Class B Certificateholders on each Distribution Date until the
earlier of the date on which the Class B Certificates have been paid in full and
the Series 1996-2 Termination Date.
Pay Out Events. A Pay Out Event occurs, either automatically or after
specified notice, upon (a) the failure of the Transferor to make certain
payments or transfers of funds for the benefit of the Certificateholders within
the time periods stated in the Agreement, (b) certain material breaches of
certain representations, warranties or covenants of the Transferor, (c) certain
events of insolvency, receivership or bankruptcy relating
S-22
<PAGE> 24
to the Transferor or other holder of the Transferor Certificate, (d) a reduction
in the average of the Portfolio Yields for any three consecutive Monthly Periods
to a rate that is less than the average of the Base Rates for such period, (e)
the Trust becoming an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, (f) the Transferor is unable for any reason to
transfer Receivables to the Trust in accordance with the provisions of the
Agreement, (g) the occurrence of a Servicer Default which would have a material
adverse effect on the Certificateholders, (h) insufficient monies in the
Distribution Account to pay the Class A Investor Interest or the Class B
Investor Interest in full on the Class A Scheduled Payment Date or the Class B
Scheduled Payment Date, respectively, or (i) the Transferor fails to convey
Receivables arising under Additional Accounts or Participations to the Trust
when required by the Agreement (including due to an increase in the Minimum
Transferor Interest as described in "The Receivables"). See "Description of the
Certificates -- Pay Out Events." The term "Base Rate" means, with respect to any
Monthly Period, the annualized percentage equivalent of a fraction, the
numerator of which is the sum of the Class A Monthly Interest, the Class B
Monthly Interest and the Collateral Monthly Interest, each for the related
Interest Period, and the Certificateholder Servicing Fee and the Servicer
Interchange, each for such Monthly Period, and the denominator of which is the
Investor Interest as of the close of business on the last day of such Monthly
Period. The term "Portfolio Yield" means, with respect to any Monthly Period,
the annualized percentage equivalent of a fraction, the numerator of which is
the sum of collections of Finance Charge Receivables, Principal Funding
Investment Proceeds and amounts withdrawn from the Reserve Account deposited
into the Finance Charge Account and allocable to the Certificates and the
Collateral Interest for such Monthly Period, calculated on a cash basis after
subtracting the Investor Default Amount for such Monthly Period, and the
denominator of which is the Investor Interest as of the close of business on the
last day of such Monthly Period.
Payment Rates. The following table sets forth the highest and lowest
cardholder monthly payment rates for the Bank Portfolio during any month in the
period shown and the average cardholder monthly payment rates for all months
during the periods shown, in each case calculated as a percentage of total
ending monthly account balances during the periods shown. Payment rates shown in
the table are based on amounts which would be deemed payments of Principal
Receivables and Finance Charge Receivables with respect to the Accounts.
CARDHOLDER MONTHLY PAYMENT RATES
BANK PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED ---------------------------
MARCH 31, 1996 1995 1994 1993
------------------ ----- ----- -----
<S> <C> <C> <C> <C>
Lowest Month............................... 8.88% 8.19% 9.10% 12.41%
Highest Month.............................. 9.51% 10.72% 14.21% 14.94%
Monthly Average............................ 9.22% 9.35% 10.47% 13.18%
</TABLE>
Currently, with some exceptions, cardholders must make a minimum monthly
payment generally equal to the sum of (a) the greater of 2.0% of the outstanding
balance (including purchases, cash advances, finance charges, and fees posted to
the account) or $10, plus (b) any past due and any over limit amounts. If the
cardholder's outstanding balance is less than $10, then the minimum monthly
payment equals the amount of the outstanding balance. Payments are applied
pursuant to the terms of the credit card agreements governing the Accounts.
There can be no assurance that the cardholder monthly payment rates in the
future will be similar to the historical experience set forth above. In
addition, the amount of collections of Receivables may vary from month to month
due to seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that collections of
Receivables with respect to the Trust Portfolio will be similar to the
historical experience set forth above or that deposits into the Principal
Funding Account or the Distribution Account, as applicable, will be made in
accordance with the applicable Controlled Accumulation Amount. If a Pay Out
Event occurs, the average life of the Certificates could be significantly
reduced or increased.
Because there may be a slowdown in the payment rate below the payment rates
used to determine the Controlled Accumulation Amounts, or a Pay Out Event may
occur which would initiate the Rapid
S-23
<PAGE> 25
Amortization Period, there can be no assurance that the actual number of months
elapsed from the date of issuance of the Class A Certificates and the Class B
Certificates to their respective final Distribution Dates will equal the
expected number of months. As described under "Description of the
Certificates -- Postponement of Controlled Accumulation Period," the Servicer
may shorten the Controlled Accumulation Period and, in such event, there can be
no assurance that there will be sufficient time to accumulate all amounts
necessary to pay the Class A Investor Interest and the Class B Investor Interest
on the Class A Scheduled Payment Date and the Class B Scheduled Payment Date,
respectively. See "Maturity Assumptions" and "Risk Factors -- Timing of Payments
and Maturity" in the Prospectus.
RECEIVABLE YIELD CONSIDERATIONS
The gross revenues from finance charges and fees billed to accounts in the
Bank Portfolio for each of the three calendar years contained in the period
ended December 31, 1995 and the three calendar months contained in the period
ended March 31, 1996 are set forth in the following table.
The historical yield figures in the following table are calculated on an
accrual basis. Collections of Receivables included in the Trust will be on a
cash basis and may not reflect the historical yield experience in the table.
During periods of increasing delinquencies or periodic payment deferral
programs, accrual yields may exceed cash amounts accrued and billed to
cardholders. Conversely, cash yields may exceed accrual yields, as amounts
collected in a current period may include amounts accrued during prior periods.
However, the Transferor believes that during the three calendar years contained
in the period ended December 31, 1995 and the three calendar months contained in
the period ended March 31, 1996, the yield on an accrual basis closely
approximated the yield on a cash basis. The yield on both an accrual and a cash
basis will be affected by numerous factors, including the monthly periodic
finance charges on the Receivables, the amount of the annual membership fees and
other fees, changes in the delinquency rate on the Receivables and the
percentage of cardholders who pay their balances in full each month and do not
incur monthly periodic finance charges. See "Risk Factors" in the Prospectus.
BANK PORTFOLIO YIELD
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED ------------------------------------
MARCH 31, 1996 1995 1994 1993
------------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1)........ $5,384,570 $4,135,129 $2,308,994 $1,375,335
Finance Charges and Fee Revenue Billed.... $ 198,295 $ 615,579 $ 323,466 $ 214,899
Average Bank Portfolio Yield(2)(3)........ 14.81% 14.89% 14.01% 15.63%
</TABLE>
- ---------------
(1) Average Receivables Outstanding is the average of the daily ending
receivable balance during the period indicated.
(2) Average Bank Portfolio Yield is the result of dividing Finance Charges and
Fee Revenue Billed by the Average Receivables Outstanding for the period
and does not include revenue attributable to Interchange or recoveries.
(3) The percentage reflected for the three months ended March 31, 1996 is an
annualized figure.
The revenue for the Bank Portfolio of credit card accounts shown in the
above table is comprised of monthly periodic finance charges and other fees
billed and excludes revenue attributable to Interchange and recoveries. These
revenues vary for each account based on the type and volume of activity for each
account. Because the Trust Portfolio is only a portion of the Bank Portfolio,
actual yield with respect to Receivables may be different from that set forth
above for the Bank Portfolio. See "First Union's Credit Card Portfolio" herein
and "First Union's Credit Card Activities" in the Prospectus.
S-24
<PAGE> 26
FIRST UNION CORPORATION AND FIRST UNION
First Union Corporation (the "Corporation") is a North Carolina-based,
multi-bank holding company registered under the Bank Holding Company Act of
1956, as amended, and the rules and regulations thereunder (the "BHCA"), and was
organized in 1967. The Corporation has banking offices in twelve states and
Washington, D.C. The Corporation also provides various other financial services,
including mortgage banking, home equity lending, leasing, investment banking,
insurance and securities brokerage services, through other subsidiaries. The
Corporation and its predecessors have been conducting credit card related
activities since 1959. On January 1, 1996, the Corporation acquired First
Fidelity Bancorporation, a New Jersey-based bank holding company with banking
offices in six states. On a combined, restated basis, as of December 31, 1995,
the combined Corporation had assets of $131,879,873,000 and shareholders' equity
of $9,043,144,000.
The Corporation is the parent corporation of First Union Corporation of
Georgia, a Georgia corporation registered under the BHCA, which in turn is the
parent corporation of First Union.
First Union is a national banking association formed in 1986 that provides
a wide range of commercial and retail banking services and trust services in
Georgia. In 1988, the Corporation and certain subsidiaries transferred their
credit card accounts and certain related assets to First Union. As of December
31, 1995, First Union had assets of $12,116,072,000 and shareholders' equity of
$677,918,000.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement and the Series
1996-2 Supplement. Pursuant to the Agreement, the Transferor and the Trustee may
execute further series supplements in order to issue additional Series. The
following summary of the Certificates does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Agreement and the Series 1996-2 Supplement. See "Description
of the Certificates" in the Prospectus for additional information concerning the
Certificates and the Agreement.
GENERAL
The Certificates will represent the right to receive certain payments from
the assets of the Trust, including the right to the applicable allocation
percentage of all cardholder payments on the Receivables in the Trust to the
extent necessary to pay principal and interest on the Certificates. Each Class A
Certificate represents the right to receive interest at the Class A Certificate
Rate on the principal amount of the Class A Certificates for the related
Interest Period and payments of principal on the Class A Scheduled Payment Date
or, to the extent of the Class A Investor Interest, on each Distribution Date
relating to the Rapid Amortization Period, funded from collections of Finance
Charge Receivables and Principal Receivables, respectively, allocated to the
Class A Investor Interest and certain other available amounts. Each Class B
Certificate represents the right to receive payments of interest at the
applicable Class B Certificate Rate on the principal amount of the Class B
Certificates for the related Interest Period and payments of principal on the
Class B Scheduled Payment Date or, to the extent of the Class B Investor
Interest, on each Distribution Date relating to the Rapid Amortization Period
after the Class A Certificates have been paid in full, funded from collections
of Finance Charge Receivables and Principal Receivables, respectively, allocated
to the Class B Investor Interest and certain other available amounts. Amounts
payable to the Class A Certificateholders may be paid from collections of
Finance Charge Receivables and Principal Receivables, from Excess Spread, funds
on deposit in the Principal Funding Account and the Reserve Account and certain
investment earnings thereon, Reallocated Principal Collections and Shared
Principal Collections and certain other available amounts. Amounts payable to
the Class B Certificateholders may be paid from collections of Finance Charge
Receivables and Principal Receivables, from Excess Spread, Reallocated
Collateral Principal Collections and Shared Principal Collections. Payments of
interest and principal will be made, to the extent of funds available therefore,
on each Distribution Date on which such amounts are due to Certificateholders in
whose names the Certificates were registered on the last business day of the
calendar month preceding such Distribution Date (each, a "Record Date").
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<PAGE> 27
The Transferor initially will own the Transferor Certificate. The
Transferor Certificate will represent the right to receive certain payments from
the assets of the Trust, including the right to a percentage (the "Transferor
Percentage") of all cardholder payments on the Receivables in the Trust equal to
100% minus the sum of the applicable Investor Percentages for all Series of
certificates then outstanding. The Transferor Certificate may be transferred in
whole or in part, subject to certain limitations and conditions set forth in the
Agreement. See "Description of the Certificates -- Certain Matters Regarding the
Transferor and the Servicer" in the Prospectus.
Application will be made to list the Certificates on the Luxembourg Stock
Exchange.
The Class A Certificates and the Class B Certificates initially will be
represented by certificates registered in the name of Cede, as nominee of DTC.
Unless and until Definitive Certificates are issued, all references herein to
actions by Class A Certificateholders and/or Class B Certificateholders shall
refer to actions taken by DTC upon instructions from DTC Participants and all
references herein to distributions, notices, reports and statements to Class A
Certificateholders and/or Class B Certificateholders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Class A Certificates and the Class B Certificates, as the case may
be, for distribution to Certificate Owners in accordance with DTC procedures.
Certificateholders may hold their Certificates through DTC (in the United
States) or Cedel or Euroclear (in Europe) if they are participants of such
systems, or indirectly through organizations that are participants in such
systems. Cede, as nominee for DTC, will hold the global Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants and
the Euroclear Participants, respectively, through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective Depositaries
which in turn will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC. See "Description of the
Certificates -- General," "-- Book-Entry Registration" and "-- Definitive
Certificates" in the Prospectus.
EXCHANGES
The Transferor Certificate is transferable only as provided in the
Agreement. The Agreement also provides that the holder of the Transferor
Certificate may tender the Transferor Certificate to the Trustee in exchange for
one or more new Series and a reissued Transferor Certificate as described under
"Description of the Certificates -- Exchanges" in the Prospectus.
INTEREST PAYMENTS
Interest will accrue on the Class A Certificates at the Class A Certificate
Rate and on the Class B Certificates at the Class B Certificate Rate from the
Closing Date. Interest will be distributed to Certificateholders on June 20,
1996 and on each Distribution Date thereafter. Interest payments on the Class A
Certificates and the Class B Certificates on any Distribution Date will be
calculated on the outstanding principal balance of the Class A Certificates and
the outstanding principal balance of the Class B Certificates, as applicable, as
of the preceding Record Date, except that interest for the first Distribution
Date will accrue at the applicable Certificate Rate on the initial outstanding
principal balance of the Class A Certificates and the initial outstanding
principal balance of the Class B Certificates, as applicable, from the Closing
Date. Interest due on the Certificates but not paid on any Distribution Date
will be payable on the next succeeding Distribution Date together with
additional interest on such amount at the applicable Certificate Rate plus 2%
per annum (such amount with respect to the Class A Certificates, the "Class A
Additional Interest," and such amount with respect to the Class B Certificates,
the "Class B Additional Interest"). Additional Interest shall accrue on the same
basis as interest on the Certificates, and shall accrue from the Distribution
Date on which such overdue interest first became due, to but excluding the
Distribution Date on which such Additional Interest is paid. Interest payments
on the Class A Certificates on any Distribution Date will be paid from Class A
Available Funds for the related Monthly Period, and to the extent such Class A
Available Funds are insufficient to pay such interest, from Excess Spread and
Reallocated Principal Collections (to the extent available) for such Monthly
Period. Interest payments on the Class B Certificates on any Distribution Date
will be paid from Class B Available Funds for the related Monthly Period, and to
the extent such Class B Available Funds are insufficient to pay such interest,
from Excess Spread and Reallocated Collateral Principal
S-26
<PAGE> 28
Collections (to the extent available) remaining after certain other payments
have been made with respect to the Class A Certificates.
"Class A Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (a) the Class A Floating Allocation of collections of
Finance Charge Receivables allocated to the Investor Interest and deposited in
the Finance Charge Account with respect to such Monthly Period (excluding the
portion of collections of Finance Charge Receivables attributable to Interchange
that is allocable to Servicer Interchange), (b) Principal Funding Investment
Proceeds, if any, with respect to the related Transfer Date and (c) amounts, if
any, to be withdrawn from the Reserve Account which are required to be included
in Class A Available Funds pursuant to the Series 1996-2 Supplement with respect
to such Transfer Date. "Class B Available Funds" means, with respect to any
Monthly Period, an amount equal to the Class B Floating Allocation of
collections of Finance Charge Receivables allocated to the Investor Interest and
deposited in the Finance Charge Account with respect to such Monthly Period
(excluding the portion of collections of Finance Charge Receivables attributable
to Interchange that is allocable to Servicer Interchange).
The Class A Certificates will bear interest from the Closing Date through
May 19, 1996, from May 20, 1996 through June 19, 1996 and with respect to each
Interest Period thereafter, at a rate of 0.11% per annum above LIBOR prevailing
on the related LIBOR Determination Date with respect to each such period (the
"Class A Certificate Rate"). The Class B Certificates will bear interest from
the Closing Date through May 19, 1996, from May 20, 1996 through June 19, 1996
and with respect to each Interest Period thereafter, at a rate of 0.24% per
annum above LIBOR prevailing on the related LIBOR Determination Date with
respect to each such period (the "Class B Certificate Rate").
The Trustee will determine LIBOR on April 19, 1996 for the period from the
Closing Date through May 19, 1996, on May 16, 1996 for the period from May 20,
1996 through June 19, 1996 and for each Interest Period thereafter, on the
second business day prior to the Distribution Date on which such Interest Period
commences (each, a "LIBOR Determination Date"). For purposes of calculating
LIBOR, a business day is any business day on which dealings in deposits in
United States dollars are transacted in the London interbank market.
"LIBOR" means, as of any LIBOR Determination Date, the rate for deposits in
United States dollars for a one-month period which appears on Telerate Page 3750
as of 11:00 a.m., London time, on such date. If such rate does not appear on
Telerate Page 3750, the rate for that LIBOR Determination Date will be
determined on the basis of the rates at which deposits in United States dollars
are offered by the Reference Banks at approximately 11:00 a.m., London time, on
that day to prime banks in the London interbank market for a one-month period.
The Trustee will request the principal London office of each of the Reference
Banks to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that LIBOR Determination Date will be the arithmetic mean
of the quotations. If fewer than two quotations are provided as requested, the
rate for that LIBOR Determination Date will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the Servicer, at
approximately 11:00 a.m., New York City time, on that day for loans in United
States dollars to leading European banks for a one-month period.
"Telerate Page 3750" means the display page currently so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank market
selected by the Servicer.
The Class A Certificate Rate and the Class B Certificate Rate applicable to
the current and immediately preceding Interest Period may be obtained by
telephoning the Trustee at its Corporate Trust Office at (212) 815-5368.
Interest on the Certificates will be calculated on the basis of the actual
number of days in the related Interest Period and a 360-day year.
S-27
<PAGE> 29
PRINCIPAL PAYMENTS
On each Transfer Date relating to the Revolving Period (which begins on the
Closing Date and ends at the commencement of the Controlled Accumulation Period
or, if earlier, the Rapid Amortization Period), collections of Principal
Receivables allocable to the Investor Interest will, subject to certain
limitations, including the allocation of any Reallocated Principal Collections
with respect to the related Monthly Period to pay the Class A Required Amount
and the Class B Required Amount, be treated as Shared Principal Collections.
On each Transfer Date relating to the Controlled Accumulation Period, the
Trustee will deposit in the Principal Funding Account an amount equal to the
least of (a) Available Investor Principal Collections with respect to such
Transfer Date, (b) the applicable Controlled Deposit Amount and (c) the Class A
Adjusted Investor Interest prior to any deposits on such date. Amounts in the
Principal Funding Account will be paid to the Class A Certificateholders on the
Class A Scheduled Payment Date. After the Class A Investor Interest has been
paid in full, on each Transfer Date during the Controlled Accumulation Period,
amounts equal to the lesser of (a) Available Investor Principal Collections with
respect to such Transfer Date and (b) the Class B Investor Interest will be
deposited in the Distribution Account for distribution to the Class B
Certificateholders until the Class B Investor Interest has been paid in full.
Such amounts in the Distribution Account will be paid to the Class B
Certificateholders on the Class B Scheduled Payment Date. On each Transfer Date,
if a reduction in the Required Collateral Interest has occurred, a portion of
collections of Principal Receivables allocable to the Investor Interest will be
applied in accordance with the Loan Agreement to reduce the Collateral Interest
to the Required Collateral Interest. During the Controlled Accumulation Period
until the final principal payment to the Class B Certificateholders, the portion
of Available Investor Principal Collections not applied to Class A Monthly
Principal, Class B Monthly Principal or Collateral Monthly Principal on a
Transfer Date will generally be treated as Shared Principal Collections.
"Available Investor Principal Collections" means, with respect to any
Monthly Period, an amount equal to the sum of (a) (i) collections of Principal
Receivables received during such Monthly Period and certain other amounts
allocable to the Investor Interest, as more fully described herein and in the
Series 1996-2 Supplement, minus (ii) the amount of Reallocated Principal
Collections with respect to such Monthly Period used to fund the Required
Amount, plus (b) any Shared Principal Collections with respect to other Series
in Group One that are allocated to Series 1996-2.
On each Distribution Date relating to the Rapid Amortization Period, the
Class A Certificateholders will be entitled to receive Available Investor
Principal Collections for the related Monthly Period in an amount up to the
Class A Investor Interest until the earlier of the date the Class A Certificates
are paid in full and the Series 1996-2 Termination Date. After payment in full
of the Class A Investor Interest, the Class B Certificateholders will be
entitled to receive on each Distribution Date relating to the Rapid Amortization
Period Available Investor Principal Collections until the earlier of the date
the Class B Certificates are paid in full and the Series 1996-2 Termination
Date. After payment in full of the Class B Investor Interest, the Collateral
Interest Holder will be entitled to receive on each Transfer Date (other than
the Transfer Date prior to the Series 1996-2 Termination Date) and on the Series
1996-2 Termination Date, Available Investor Principal Collections until the
earlier of the date the Collateral Interest is paid in full and the Series
1996-2 Termination Date. See "-- Pay Out Events" below for a discussion of
events which might lead to the commencement of the Rapid Amortization Period.
POSTPONEMENT OF CONTROLLED ACCUMULATION PERIOD
Upon written notice to the Trustee, the Transferor may elect to postpone
the commencement of the Controlled Accumulation Period, and extend the length of
the Revolving Period, subject to certain conditions including those set forth
below. The Transferor may make such election only if the Accumulation Period
Length (determined as described below) is less than twelve months. On the August
1997 Determination Date and on each Determination Date thereafter, until the
Controlled Accumulation Period begins, the Servicer, on behalf of the Transferor
will determine the "Accumulation Period Length," which is the number of whole
months expected to be required to fund the Principal Funding Account up to the
initial outstanding principal amount of the Class A Certificates no later than
the Class A Scheduled Payment Date, based on (a) the
S-28
<PAGE> 30
expected monthly collections of Principal Receivables expected to be
distributable to the Certificateholders of all Series (excluding certain other
Series), assuming a principal payment rate no greater than the lowest monthly
principal payment rate on the Receivables for the preceding twelve months and
(b) the amount of principal expected to be distributable to Certificateholders
of all Series (excluding certain other Series) which are not expected to be in
their revolving periods during the Controlled Accumulation Period. If the
Accumulation Period Length is less than twelve months, the Servicer may, at its
option, postpone the commencement of the Controlled Accumulation Period such
that the number of months included in the Controlled Accumulation Period will be
equal to or exceed the Accumulation Period Length. The effect of the foregoing
calculation is to permit the reduction of the length of the Controlled
Accumulation Period based on the investor interest of certain other Series which
are scheduled to be in their revolving periods during the Controlled
Accumulation Period and on increases in the principal payment rate occurring
after the Closing Date. The length of the Controlled Accumulation Period will
not be determined to be less than one month.
SUBORDINATION
The Class B Certificates and the Collateral Interest will be subordinated
to the extent necessary to fund certain payments with respect to the Class A
Certificates. In addition, the Collateral Interest will be subordinated to the
extent necessary to fund certain payments with respect to the Class B
Certificates. Certain principal payments otherwise allocable to the Class B
Certificateholders may be reallocated to cover amounts in respect of the Class A
Certificates and the Class B Investor Interest may be reduced if the Collateral
Interest is equal to zero. Similarly, certain principal payments allocable to
the Collateral Interest may be reallocated to cover amounts in respect of the
Class A Certificates and the Class B Certificates and the Collateral Interest
may be reduced. To the extent the Class B Investor Interest is reduced, the
percentage of collections of Finance Charge Receivables allocated to the Class B
Certificates in subsequent Monthly Periods will be reduced. Moreover, to the
extent the amount of such reduction in the Class B Investor Interest is not
reimbursed, the amount of principal distributable to, and the amounts available
to be distributed with respect to interest on, the Class B Certificateholders
will be reduced. No principal will be paid to the Class B Certificateholders
until the Class A Investor Interest is paid in full. See "-- Allocation
Percentages," "-- Reallocation of Cash Flows" and "-- Application of
Collections -- Excess Spread."
ALLOCATION PERCENTAGES
Pursuant to the Agreement, with respect to each Monthly Period the Servicer
will allocate among the Investor Interest, the investor interest for all other
Series issued and outstanding and the Transferor Interest, all amounts collected
on Finance Charge Receivables, all amounts collected on Principal Receivables
and all Default Amounts with respect to such Monthly Period.
Collections of Finance Charge Receivables and Default Amounts at any time
and collections of Principal Receivables during the Revolving Period will be
allocated to the Investor Interest based on the Floating Investor Percentage.
The "Floating Investor Percentage" means, with respect to any Monthly Period,
the percentage equivalent of a fraction, the numerator of which is the Adjusted
Investor Interest as of the close of business on the last day of the preceding
Monthly Period (or with respect to the first Monthly Period, the initial
Investor Interest) and the denominator of which is the greater of (x) the
aggregate amount of Principal Receivables as of the close of business on the
last day of the preceding Monthly Period (or with respect to the first calendar
month in the first Monthly Period, the aggregate amount of Principal Receivables
as of the close of business on the day immediately preceding the Closing Date,
and with respect to the second calendar month in the first Monthly Period, the
aggregate amount of Principal Receivables as of the close of business on the
last day of the first calendar month in such first Monthly Period) and (y) the
sum of the numerators used to calculate the Investor Percentages for allocations
with respect to Finance Charge Receivables, Default Amounts or Principal
Receivables, as applicable, for all outstanding Series on such date of
determination; provided, however, that with respect to any Monthly Period in
which an Addition Date occurs or in which a Removal Date occurs on which, if any
Series has been paid in full, Principal Receivables in an aggregate amount
approximately equal to the initial investor interest of such Series are removed
from the Trust, the amount in clause (x) above shall be (i) the aggregate amount
of Principal Receivables in the Trust as of the
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<PAGE> 31
close of business on the last day of the prior Monthly Period for the period
from and including the first day of such Monthly Period to but excluding the
related Addition Date or Removal Date and (ii) the aggregate amount of Principal
Receivables in the Trust as of the beginning of the day on the related Addition
Date or Removal Date after adjusting for the aggregate amount of Principal
Receivables added to or removed from the Trust on the related Addition Date or
Removal Date, as the case may be, for the period from and including the related
Addition Date or Removal Date to and including the last day of such Monthly
Period. The amounts so allocated will be further allocated between the Class A
Certificateholders, Class B Certificateholders and the Collateral Interest
Holder based on the Class A Floating Allocation, the Class B Floating Allocation
and the Collateral Floating Allocation, respectively. The "Class A Floating
Allocation" means, with respect to any Monthly Period, the percentage equivalent
(which percentage shall never exceed 100%) of a fraction, the numerator of which
is equal to the Class A Adjusted Investor Interest as of the close of business
on the last day of the preceding Monthly Period (or with respect to the first
Monthly Period, as of the Closing Date) and the denominator of which is equal to
the Adjusted Investor Interest as of the close of business on such day. The
"Class B Floating Allocation" means, with respect to any Monthly Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction,
the numerator of which is equal to the Class B Investor Interest as of the close
of business on the last day of the preceding Monthly Period (or with respect to
the first Monthly Period, as of the Closing Date) and the denominator of which
is equal to the Adjusted Investor Interest as of the close of business on such
day. The "Collateral Floating Allocation" means, with respect to any Monthly
Period, the percentage equivalent (which percentage shall never exceed 100%) of
a fraction, the numerator of which is equal to the Collateral Interest as of the
close of business on the last day of the preceding Monthly Period (or with
respect to the first Monthly Period, as of the Closing Date) and the denominator
of which is equal to the Adjusted Investor Interest as of the close of business
on such day.
Collections of Principal Receivables during the Controlled Accumulation
Period and Rapid Amortization Period will be allocated to the Investor Interest
based on the Fixed Investor Percentage. The "Fixed Investor Percentage" means,
with respect to any Monthly Period, the percentage equivalent of a fraction, the
numerator of which is the Investor Interest as of the close of business on the
last day of the Revolving Period and the denominator of which is the greater of
(x) the aggregate amount of Principal Receivables as of the close of business on
the last day of the prior Monthly Period and (y) the sum of the numerators used
to calculate the Investor Percentages for allocations with respect to Principal
Receivables for all outstanding Series for such Monthly Period; provided,
however, that with respect to any Monthly Period in which an Addition Date
occurs or in which a Removal Date occurs on which, if any Series has been paid
in full, Principal Receivables in an aggregate amount approximately equal to the
initial investor interest of such Series are removed from the Trust, the amount
in clause (x) above shall be (i) the aggregate amount of Principal Receivables
in the Trust as of the close of business on the last day of the prior Monthly
Period for the period from and including the first day of such Monthly Period to
but excluding the related Addition Date or Removal Date and (ii) the aggregate
amount of Principal Receivables in the Trust at the beginning of the day on the
related Addition Date or Removal Date after adjusting for the aggregate amount
of Principal Receivables added to or removed from the Trust on the related
Addition Date or Removal Date, as the case may be, for the period from and
including the related Addition Date or Removal Date to and including the last
day of such Monthly Period; provided, however, that in no event shall the Fixed
Investor Percentage be larger than the Fixed Investor Percentage determined on
the last day of the Revolving Period. The amounts so allocated will be further
allocated between the Class A Certificateholders, the Class B Certificateholders
and the Collateral Interest Holder based on the Class A Fixed Allocation, the
Class B Fixed Allocation and the Collateral Fixed Allocation, respectively. The
"Class A Fixed Allocation" means, with respect to any Monthly Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction,
the numerator of which is equal to the Class A Investor Interest as of the close
of business on the last day of the Revolving Period, and the denominator of
which is equal to the Investor Interest as of the close of business on the last
day of the Revolving Period. The "Class B Fixed Allocation" means, with respect
to any Monthly Period, the percentage equivalent (which percentage shall never
exceed 100%) of a fraction, the numerator of which is equal to the Class B
Investor Interest as of the close of business on the last day of the Revolving
Period, and the denominator of which is equal to the Investor Interest as of the
close of business on the last day of the
S-30
<PAGE> 32
Revolving Period. The "Collateral Fixed Allocation" means, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is equal to the Collateral Interest
as of the close of business on the last day of the Revolving Period, and 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 Investor Interest" for any date means an amount equal to (a) the
aggregate initial principal amount of the Class A Certificates, minus (b) the
aggregate amount of principal payments made to Class A Certificateholders prior
to such date, minus (c) the excess, if any, of the aggregate amount of Class A
Investor Charge-Offs for all Transfer Dates preceding such date over the
aggregate amount of any reimbursements of Class A Investor Charge-Offs for all
Transfer Dates preceding such date; provided, however, that the Class A Investor
Interest may not be reduced below zero.
"Class A Adjusted Investor Interest," for any date of determination, means
an amount equal to the then-current Class A Investor Interest, minus the
Principal Funding Account Balance on such date.
"Class B Investor Interest" for any date means an amount equal to (a) the
aggregate initial principal amount of the Class B Certificates, minus (b) the
aggregate amount of principal payments made to Class B Certificateholders prior
to such date, minus (c) the aggregate amount of Class B Investor Charge-Offs for
all prior Transfer Dates, minus (d) the aggregate amount of Reallocated Class B
Principal Collections for all prior Transfer Dates for which the Collateral
Interest has not been reduced, minus (e) an amount equal to the aggregate amount
by which the Class B Investor Interest has been reduced to fund the Class A
Investor Default Amount on all prior Transfer Dates as described under
"-- Defaulted Receivables; Investor Charge-Offs," and plus (f) the aggregate
amount of Excess Spread allocated and available on all prior Transfer Dates for
the purpose of reimbursing amounts deducted pursuant to the foregoing clauses
(c), (d) and (e); provided, however, that the Class B Investor Interest may not
be reduced below zero.
"Collateral Interest" for any date means an amount equal to (a) the Initial
Collateral Interest, minus (b) the aggregate amount of principal payments made
to the Collateral Interest Holder prior to such date, minus (c) the aggregate
amount of Collateral Charge-Offs for all prior Transfer Dates, minus (d) the
aggregate amount of Reallocated Principal Collections for all prior Transfer
Dates, minus (e) an amount equal to the aggregate amount by which the Collateral
Interest has been reduced to fund the Class A Investor Default Amount and the
Class B Investor Default Amount on all prior Transfer Dates as described under
"-- Defaulted Receivables; Investor Charge-Offs," plus (f) the aggregate amount
of Excess Spread allocated and available on all prior Transfer Dates for the
purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c),
(d) and (e); provided, however, that the Collateral Interest may not be reduced
below zero.
REALLOCATION OF CASH FLOWS
With respect to each Transfer Date, the Servicer will determine the amount
(the "Class A Required Amount"), which will be equal to the amount, if any, by
which the sum of (a) Class A Monthly Interest due on the related Distribution
Date and overdue Class A Monthly Interest and Class A Additional Interest
thereon, if any, (b) the Class A Servicing Fee for the related Monthly Period
and overdue Class A Servicing Fee, if any, and (c) the Class A Investor Default
Amount, if any, for the related Monthly Period exceeds the Class A Available
Funds for the related Monthly Period. If the Class A Required Amount is greater
than zero, Excess Spread allocated to Series 1996-2 and available for such
purpose will be used to fund the Class A Required Amount with respect to such
Transfer Date. If such Excess Spread is insufficient to fund the Class A
Required Amount, first, Reallocated Collateral Principal Collections and, then,
Reallocated Class B Principal Collections will be used to fund the remaining
Class A Required Amount. If Reallocated Principal Collections with respect to
the related Monthly Period, together with Excess Spread, are insufficient to
fund the remaining Class A Required Amount for such related Monthly Period, then
the Collateral Interest (after giving effect to reductions for any Collateral
Charge-Offs and Reallocated Principal Collections on such Transfer Date) will be
reduced by the amount of such excess (but not by more than the Class A Investor
Default Amount for such Monthly Period). In the event that such reduction would
cause the Collateral
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Interest to be a negative number, the Collateral Interest will be reduced to
zero, and the Class B Investor Interest (after giving effect to reductions for
any Class B Investor Charge-Offs and any Reallocated Class B Principal
Collections for which the Collateral Interest was not reduced on such Transfer
Date) will be reduced by the amount by which the Collateral Interest would have
been reduced below zero (but not by more than the excess of the Class A Investor
Default Amount, if any, for such Monthly Period over the amount of such
reduction, if any, of the Collateral Interest with respect to such Monthly
Period). In the event that such reduction would cause the Class B Investor
Interest to be a negative number, the Class B Investor Interest will be reduced
to zero and the Class A Investor Interest will be reduced by the amount by which
the Class B Investor Interest would have been reduced below zero (but not by
more than the excess, if any, of the Class A Investor Default Amount for such
Monthly Period over the amount of the reductions, if any, of the Collateral
Interest and the Class B Investor Interest with respect to such Monthly Period).
Any such reduction in the Class A Investor Interest will have the effect of
slowing or reducing the return of principal and interest to the Class A
Certificateholders. In such case, the Class A Certificateholders will bear
directly the credit and other risks associated with their interests in the
Trust. See "-- Defaulted Receivables; Investor Charge-Offs."
With respect to each Transfer Date, the Servicer will determine the amount
(the "Class B Required Amount"), which will be equal to the sum of (a) the
amount, if any, by which the sum of (i) Class B Monthly Interest due on the
related Distribution Date and overdue Class B Monthly Interest and Class B
Additional Interest thereon, if any, and (ii) the Class B Servicing Fee for the
related Monthly Period and overdue Class B Servicing Fee, if any, exceeds the
Class B Available Funds for the related Monthly Period and (b) the Class B
Investor Default Amount, if any, for the related Monthly Period. If the Class B
Required Amount is greater than zero, Excess Spread allocated to Series 1996-2
not required to pay the Class A Required Amount or reimburse Class A Investor
Charge-Offs will be used to fund the Class B Required Amount with respect to
such Transfer Date. If such Excess Spread is insufficient to fund the Class B
Required Amount, Reallocated Collateral Principal Collections not required to
fund the Class A Required Amount for the related Monthly Period will be used to
fund the remaining Class B Required Amount. If such Reallocated Collateral
Principal Collections with respect to the related Monthly Period are
insufficient to fund the remaining Class B Required Amount, then the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
Reallocated Principal Collections on such Transfer Date and after any
adjustments made thereto for the benefit of the Class A Certificateholders) will
be reduced by the amount of such deficiency (but not by more than the Class B
Investor Default Amount for such Monthly Period). In the event that such a
reduction would cause the Collateral Interest to be a negative number, the
Collateral Interest will be reduced to zero, and the Class B Investor Interest
will be reduced by the amount by which the Collateral Interest would have been
reduced below zero (but not by more than the excess of the Class B Investor
Default Amount for such Monthly Period over the amount of such reduction of the
Collateral Interest), and the Class B Certificateholders will bear directly the
credit and other risks associated with their interests in the Trust. See
"-- Defaulted Receivables; Investor Charge-Offs."
Reductions of the Class A Investor Interest or Class B Investor Interest
described above shall be reimbursed by, and the Class A Investor Interest or
Class B Investor Interest increased to the extent of, Excess Spread available
for such purposes on each Transfer Date. See "-- Application of Collections --
Excess Spread." When such reductions of the Class A Investor Interest and Class
B Investor Interest have been fully reimbursed, reductions of the Collateral
Interest shall be reimbursed until reimbursed in full in a similar manner.
"Reallocated Class B Principal Collections" for any Monthly Period means
collections of Principal Receivables allocable to the Class B Investor Interest
for the related Monthly Period in an amount not to exceed the amount applied to
fund the Class A Required Amount, if any; provided, however, that such amount
will not exceed the Class B Investor Interest after giving effect to any Class B
Investor Charge-Offs for the related Transfer Date.
"Reallocated Collateral Principal Collections" for any Monthly Period means
collections of Principal Receivables allocable to the Collateral Interest for
the related Monthly Period in an amount not to exceed the amount applied to fund
the Class A Required Amount and the Class B Required Amount, if any; provided,
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however, that such amount will not exceed the Collateral Interest after giving
effect to any Collateral Charge-Offs for the related Transfer Date.
"Reallocated Principal Collections" for any Monthly Period means the sum of
(a) the Reallocated Class B Principal Collections for such Monthly Period, if
any, and (b) the Reallocated Collateral Principal Collections for such Monthly
Period, if any.
APPLICATION OF COLLECTIONS
Allocations. Except as otherwise provided below, the Servicer will deposit
into the Collection Account, no later than the second business day following the
date of processing, any payment collected by the Servicer on the Receivables. On
the same day as any such deposit is made, the Servicer will make the deposits
and payments to the accounts and parties as indicated below; provided, however,
that for as long as First Union remains the Servicer under the Agreement and (a)
(i) the Servicer provides to the Trustee a letter of credit or other credit
enhancement covering the risk of collection of the Servicer and (ii) the
Transferor shall not have received a notice from the Rating Agency that reliance
on such letter of credit or other credit enhancement would result in the
lowering of such Rating Agency's then-existing rating of any Series then
outstanding or (b) the Servicer has and maintains a certificate of deposit
rating of P-1 by Moody's and of A-1 by Standard & Poor's and deposit insurance
provided by the FDIC, then the Servicer may make such deposits and payments on
the business day immediately prior to the Distribution Date (the "Transfer
Date") in an amount equal to the net amount of such deposits and payments which
would have been made had the conditions of this proviso not applied.
With respect to the Certificates and any Monthly Period, and
notwithstanding anything in the Agreement to the contrary, whether the Servicer
is required to make monthly or daily deposits from the Collection Account into
the Finance Charge Account or the Principal Account, (i) the Servicer will only
be required to deposit Collections from the Collection Account into the Finance
Charge Account or the Principal Account up to the required amount to be
deposited into any such deposit account or, without duplication, distributed on
or prior to the related Distribution Date to Certificateholders or to the
Collateral Interest Holder and (ii) if at any time prior to such Distribution
Date the amount of Collections deposited in the Collection Account exceeds the
amount required to be deposited pursuant to clause (i) above, the Servicer will
be permitted to withdraw the excess from the Collection Account.
Payment of Interest, Fees and Other Items. On each Transfer Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply the Class A
Available Funds, Class B Available Funds and Collateral Available Funds in the
Finance Charge Account in the following priority:
(a) On each Transfer Date, an amount equal to the Class A Available
Funds will be distributed in the following priority:
(i) an amount equal to Class A Monthly Interest for the related
Distribution Date, plus the amount of any overdue Class A Monthly
Interest and Class A Additional Interest thereon, if any, will be
deposited into the Distribution Account for distribution to Class A
Certificateholders on such Distribution Date;
(ii) an amount equal to the Class A Servicing Fee for the related
Monthly Period, plus the amount of any overdue Class A Servicing Fee,
will be paid to the Servicer;
(iii) an amount equal to the Class A Investor Default Amount, if
any, for the related Monthly Period will be treated as a portion of
Available Investor Principal Collections and deposited into the
Principal Account for such Transfer Date; and
(iv) the balance, if any, will constitute a portion of Excess
Spread and will be allocated and distributed as described under
"-- Excess Spread."
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<PAGE> 35
(b) On each Transfer Date, an amount equal to the Class B Available
Funds will be distributed in the following priority:
(i) an amount equal to Class B Monthly Interest for the related
Distribution Date, plus the amount of any overdue Class B Monthly
Interest and Class B Additional Interest thereon, if any, will be
deposited into the Distribution Account for distribution to Class B
Certificateholders on such Distribution Date;
(ii) an amount equal to the Class B Servicing Fee for the related
Monthly Period, plus the amount of any overdue Class B Servicing Fee,
will be paid to the Servicer; and
(iii) the balance, if any, will constitute a portion of Excess
Spread and will be allocated and distributed as described under
"-- Excess Spread."
(c) On each Transfer Date, an amount equal to the Collateral Available
Funds will be distributed in the following priority:
(i) if First Union, an affiliate thereof or an Acceptable Successor
Servicer is no longer the Servicer, an amount equal to the Collateral
Interest Servicing Fee for the related Monthly Period, plus the amount
of any overdue Collateral Interest Servicing Fee, will be paid to the
Servicer; and
(ii) the balance, if any, will constitute a portion of Excess
Spread and will be allocated and distributed as described under
"-- Excess Spread."
"Class A Monthly Interest" with respect to any Distribution Date will equal
the product of (i) the Class A Certificate Rate for the related Interest Period,
(ii) the actual number of days in such Interest Period divided by 360 and (iii)
the outstanding principal balance of the Class A Certificates as of the related
Record Date; provided, however, with respect to the first Distribution Date,
Class A Monthly Interest will be equal to the interest accrued on the initial
outstanding principal balance of the Class A Certificates at the applicable
Class A Certificate Rate for the period from the Closing Date through June 19,
1996.
"Class B Monthly Interest" with respect to any Distribution Date will equal
the product of (i) the Class B Certificate Rate for the related Interest Period,
(ii) the actual number of days in such Interest Period divided by 360 and (iii)
the outstanding principal balance of the Class B Certificates as of the related
Record Date; provided however, with respect to the first Distribution Date,
Class B Monthly Interest will be equal to the interest accrued on the initial
outstanding principal balance of the Class B Certificates at the applicable
Class B Certificate Rate for the period from the Closing Date through June 19,
1996.
"Collateral Available Funds" means, with respect to any Monthly Period, an
amount equal to the Collateral Floating Allocation of collections of Finance
Charge Receivables allocated to the Investor Interest with respect to such
Monthly Period (excluding the portion of collections of Finance Charge
Receivables attributable to Interchange that is allocable to Servicer
Interchange).
"Excess Spread" means, with respect to any Transfer Date, an amount equal
to the sum of the amounts described in clause (a)(iv), clause (b)(iii) and
clause (c)(ii) above.
Excess Spread. On each Transfer Date, the Trustee, acting pursuant to the
Servicer's instructions, will apply Excess Spread with respect to the related
Monthly Period, to make the following distributions in the following priority:
(a) an amount equal to the Class A Required Amount, if any, with
respect to such Transfer Date will be used to fund the Class A Required
Amount; provided, that in the event the Class A Required Amount for such
Transfer Date exceeds the amount of Excess Spread, such Excess Spread shall
be applied first, to pay amounts due with respect to such Transfer Date
pursuant to clause (a) (i) above under "-- Payment of Interest, Fees and
Other Items;" second, to pay amounts due with respect to such Transfer Date
pursuant to clause (a)(ii) above under "-- Payment of Interest, Fees and
Other Items;" and third, to pay amounts due with respect to such Transfer
Date pursuant to clause (a)(iii) above under "-- Payment of Interest, Fees
and Other Items";
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<PAGE> 36
(b) an amount equal to the aggregate amount of Class A Investor
Charge-Offs which have not been previously reimbursed (after giving effect
to the allocation on such Transfer Date of certain other amounts applied
for that purpose) will be deposited into the Principal Account and treated
as a portion of Available Investor Principal Collections for such Transfer
Date as described under "-- Payments of Principal" below;
(c) an amount equal to the Class B Required Amount, if any, with
respect to such Transfer Date will be used to fund the Class B Required
Amount and will be applied first, to pay amounts due with respect to such
Transfer Date pursuant to clause (b)(i)above under "-- Payment of Interest,
Fees and Other Items;" second to pay amounts due with respect to such
Transfer Date pursuant to clause (b)(ii) above under "-- Payment of
Interest, Fees and Other Items;" and third, the amount remaining, up to the
Class B Investor Default Amount, will be deposited into the Principal
Account and treated as a portion of Available Investor Principal
Collections for such Transfer Date as described under "-- Payments of
Principal" below;
(d) an amount equal to the aggregate amount by which the Class B
Investor Interest has been reduced below the initial Class B Investor
Interest for reasons other than the payment of principal to the Class B
Certificateholders (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) will be deposited
into the Principal Account and treated as a portion of Available Investor
Principal Collections for such Transfer Date as described under
"-- Payments of Principal" below;
(e) an amount equal to the Collateral Monthly Interest for such
Transfer Date, plus the amount of any Collateral Monthly Interest
previously due but not distributed to the Collateral Interest Holder on a
prior Transfer Date, will be distributed to the Collateral Interest Holder
for distribution in accordance with the Loan Agreement;
(f) if First Union, an affiliate thereof or an Acceptable Successor
Servicer is the Servicer, an amount equal to the Collateral Interest
Servicing Fee for the related Monthly Period, plus the amount of any
overdue Collateral Interest Servicing Fee, will be paid to the Servicer;
(g) an amount equal to the aggregate Collateral Default Amount, if
any, for such Transfer Date will be deposited into the Principal Account
and treated as a portion of Available Investor Principal Collections for
such Transfer Date as described under "-- Payments of Principal" below;
(h) an amount equal to the aggregate amount by which the Collateral
Interest has been reduced below the Required Collateral Interest for
reasons other than the payment of principal to the Collateral Interest
Holder (but not in excess of the aggregate amount of such reductions which
have not been previously reimbursed) will be deposited into the Principal
Account and treated as a portion of Available Investor Principal
Collections for such Transfer Date as described under "-- Payments of
Principal" below;
(i) on each Transfer Date from and after the Reserve Account Funding
Date, but prior to the date on which the Reserve Account terminates as
described under "-- Reserve Account," an amount up to the excess, if any,
of the Required Reserve Account Amount over the Available Reserve Account
Amount will be deposited into the Reserve Account; and
(j) the balance, if any, after giving effect to the payments made
pursuant to subparagraphs (a) through (i) above, will be applied in
accordance with the provisions of the Loan Agreement.
"Collateral Monthly Interest" with respect to any Transfer Date will equal
the product of (a) an amount equal to LIBOR plus 1.0% per annum, or such lesser
amount as may be designated in the Loan Agreement (the "Collateral Rate"), (b)
the actual number of days in the related Interest Period divided by 360 and (c)
the Collateral Interest as of the related Record Date or, with respect to the
first Transfer Date, the Initial Collateral Interest.
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<PAGE> 37
Payments of Principal. On each Transfer Date, the Trustee, acting pursuant
to the Servicer's instructions, will distribute Available Investor Principal
Collections (see "-- Principal Payments" above) on deposit in the Principal
Account in the following priority:
(a) on each Transfer Date with respect to the Revolving Period, all
such Available Investor Principal Collections will be treated as Shared
Principal Collections and applied as described under "Description of the
Certificates -- Shared Principal Collections" herein and in the Prospectus;
(b) on each Transfer Date with respect to the Controlled Accumulation
Period or the Rapid Amortization Period, all such Available Investor
Principal Collections will be distributed or deposited in the following
priority:
(i) an amount equal to Class A Monthly Principal will be deposited
in the Principal Funding Account (during the Controlled Accumulation
Period) or distributed to the Class A Certificateholders (during the
Rapid Amortization Period); and
(ii) for each Transfer Date after the Class A Investor Interest has
been paid in full (after taking into account payments to be made on the
related Distribution Date), an amount equal to the Class B Monthly
Principal for such Transfer Date will be distributed to the Class B
Certificateholders;
(c) on each Transfer Date with respect to the Controlled Accumulation
Period and the Rapid Amortization Period in which a reduction in the
Required Collateral Interest has occurred, Available Investor Principal
Collections not applied to Class A Monthly Principal or Class B Monthly
Principal will be applied to reduce the Collateral Interest to the Required
Collateral Interest; and
(d) on each Transfer Date with respect to the Controlled Accumulation
Period and the Rapid Amortization Period, the balance of Available Investor
Principal Collections not applied pursuant to (b) and (c) above, if any,
will be treated as Shared Principal Collections and applied as described
under "Description of the Certificates -- Shared Principal Collections"
herein and in the Prospectus.
"Class A Monthly Principal" with respect to any Transfer Date relating to
the Controlled Accumulation Period or the Rapid Amortization Period, prior to
the payment in full of the Class A Investor Interest, will equal the least of
(i) the Available Investor Principal Collections on deposit in the Principal
Account with respect to such Transfer Date, (ii) for each Transfer Date with
respect to the Controlled Accumulation Period, prior to the Class A Scheduled
Payment Date, the applicable Controlled Deposit Amount for such Transfer Date
and (iii) the Class A Adjusted Investor Interest prior to any deposits on such
Transfer Date.
"Class B Monthly Principal" with respect to any Transfer Date relating to
the Controlled Accumulation Period, beginning with the Transfer Date following
the Monthly Period in which the Class A Investor Interest has been paid in full,
or with respect to any Transfer Date relating to the Rapid Amortization Period,
beginning with the Transfer Date immediately preceding the Distribution Date on
which the Class A Certificates have been paid in full (after taking into account
payments to be made on the related Distribution Date), will equal the lesser of
(i) the Available Investor Principal Collections on deposit in the Principal
Account with respect to such Transfer Date (minus the portion of such Available
Investor Principal Collections applied to Class A Monthly Principal on such
Transfer Date) and (ii) the Class B Investor Interest for such Transfer Date.
"Collateral Monthly Principal" means with respect to any Transfer Date
relating to the Controlled Accumulation Period or Rapid Amortization Period an
amount equal to the lesser of (a) the excess, if any, of the Collateral Interest
(after giving effect to reductions for any Collateral Charge-Offs and
Reallocated Principal Collections on such Transfer Date and after giving effect
to any adjustments thereto for the benefit of the Class A Certificateholders and
the Class B Certificateholders on such Transfer Date) over the Required
Collateral Interest on such Transfer Date, and (b) the excess, if any, of (i)
the Available Investor Principal Collections on such Transfer Date over (ii) the
sum of the Class A Monthly Principal and the Class B Monthly Principal for such
Transfer Date.
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<PAGE> 38
"Controlled Accumulation Amount" means (a) for any Transfer Date with
respect to the Controlled Accumulation Period, prior to the payment in full of
the Class A Investor Interest, $25,000,000; provided, however, that if the
commencement of the Controlled Accumulation Period is delayed as described above
under "-- Postponement of Controlled Accumulation Period," the Controlled
Accumulation Amount may be higher than the amount stated above for each Transfer
Date with respect to the Controlled Accumulation Period and will be determined
by the Servicer in accordance with the Agreement based on the principal payment
rates for the Accounts and on the investor interests of other Series (other than
certain excluded Series) which are scheduled to be in their revolving periods
and then scheduled to create Shared Principal Collections during the Controlled
Accumulation Period and (b) for any Transfer Date with respect to the Controlled
Accumulation Period after the payment in full of the Class A Investor Interest,
an amount equal to the Class B Investor Interest on such Transfer Date.
"Accumulation Shortfall" means (a) on the first Transfer Date with respect
to the Controlled Accumulation Period, the excess, if any, of the Controlled
Accumulation Amount for such Transfer Date over the amount distributed from the
Principal Account as Class A Monthly Principal for such Transfer Date and (b) on
each subsequent Transfer Date with respect to the Controlled Accumulation
Period, the excess, if any, of the applicable Controlled Accumulation Amount for
such subsequent Transfer Date plus any Accumulation Shortfall for the prior
Transfer Date over the amount distributed from the Principal Account as Class A
Monthly Principal for such subsequent Transfer Date.
SHARED PRINCIPAL COLLECTIONS
Collections of Principal Receivables for any Monthly Period allocated to
the Investor Interest will first be used to cover, with respect to any Monthly
Period during the Controlled Accumulation Period, deposits of the applicable
Controlled Deposit Amount to the Principal Funding Account or the Distribution
Account, and during the Rapid Amortization Period, payments to the
Certificateholders and then under certain circumstances payments to the
Collateral Interest Holder. The Servicer will determine the amount of
collections of Principal Receivables for any Monthly Period allocated to the
Investor Interest remaining after covering required payments to the
Certificateholders and any similar amount remaining for any other Series in
Group One ("Shared Principal Collections"). The Servicer will allocate the
Shared Principal Collections to cover any scheduled or permitted principal
distributions to certificateholders and deposits to principal funding accounts,
if any, for any Series entitled thereto which have not been covered out of the
collections of Principal Receivables allocable to such Series and certain other
amounts for such Series ("Principal Shortfalls"). Shared Principal Collections
will not be used to cover investor charge-offs for any Series. If Principal
Shortfalls exceed Shared Principal Collections for any Monthly Period, Shared
Principal Collections will be allocated pro rata among the applicable Series in
Group One based on the relative amounts of Principal Shortfalls. To the extent
that Shared Principal Collections exceed Principal Shortfalls, the balance will,
subject to certain limitations, be paid to the holder of the Transferor
Certificate.
REQUIRED COLLATERAL INTEREST
The "Required Collateral Interest" with respect to any Transfer Date means
(i) initially $39,090,975 and (ii) thereafter on each Transfer Date an amount
equal to 10.75% of the sum of the Class A Adjusted Investor Interest and the
Class B Investor Interest on such Transfer Date, after taking into account
deposits into the Principal Funding Account on such Transfer Date and payments
to be made on the related Distribution Date, and the Collateral Interest on the
prior Transfer Date after any adjustments made on such Transfer Date, but not
less than $10,909,110; provided, however, (1) that if certain reductions in the
Collateral Interest are made or if a Pay Out Event occurs, the Required
Collateral Interest for such Transfer Date shall equal the Required Collateral
Interest for the Transfer Date immediately preceding the occurrence of such
reduction or Pay Out Event and (2) in no event shall the Required Collateral
Interest exceed the unpaid principal amount of the Certificates as of the last
day of the Monthly Period preceding such Transfer Date after taking into account
payments to be made on the related Distribution Date.
With respect to any Transfer Date, if the Collateral Interest is less than
the Required Collateral Interest, certain Excess Spread, if available, will be
allocated to increase the Collateral Interest to the extent of such
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<PAGE> 39
shortfall. Any of such Excess Spread not required to be so allocated or
deposited into the Reserve Account with respect to any Transfer Date will be
applied in accordance with the Loan Agreement. See "-- Application of
Collections -- Excess Spread."
DEFAULTED RECEIVABLES; INVESTOR CHARGE-OFFS
On or before each Transfer Date, the Servicer will calculate the Investor
Default Amount for the preceding Monthly Period. The term "Investor Default
Amount" means, for any Monthly Period, the product of (a) the Floating Investor
Percentage on the day the applicable Account became a Defaulted Account and (b)
the aggregate amount of Receivables in Defaulted Accounts (the "Default Amount")
for such Monthly Period. A portion of the Investor Default Amount will be
allocated to the Class A Certificateholders (the "Class A Investor Default
Amount") on each Transfer Date in an amount equal to the product of the Class A
Floating Allocation applicable during the related Monthly Period and the
Investor Default Amount for such Monthly Period. A portion of the Investor
Default Amount will be allocated to the Class B Certificateholders (the "Class B
Investor Default Amount") on each Transfer Date in an amount equal to the
product of the Class B Floating Allocation applicable during the related Monthly
Period and the Investor Default Amount for such Monthly Period. A portion of the
Investor Default Amount will be allocated to the Collateral Interest Holder (the
"Collateral Default Amount") on each Transfer Date in an amount equal to the
product of the Collateral Floating Allocation applicable during the related
Monthly Period and the Investor Default Amount for such Monthly Period.
On each Transfer Date, if the Class A Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Principal
Collections available to fund such amount with respect to the Monthly Period
immediately preceding such Transfer Date as described under "-- Application of
Collections -- Excess Spread," the Collateral Interest (after giving effect to
reductions for any Collateral Charge-Offs and any Reallocated Principal
Collections on such Transfer Date) will be reduced by the amount of such excess,
but not more than the lesser of the Class A Investor Default Amount and the
Collateral Interest (after giving effect to reductions for any Collateral
Charge-Offs and any Reallocated Principal Collections on such Transfer Date) for
such Transfer Date. In the event that such reduction would cause the Collateral
Interest to be a negative number, the Collateral Interest will be reduced to
zero, and the Class B Investor Interest (after giving effect to reductions for
any Class B Investor Charge-Offs and any Reallocated Class B Principal
Collections on such Transfer Date) will be reduced by the amount by which the
Collateral Interest would have been reduced below zero. In the event that such
reduction would cause the Class B Investor Interest to be a negative number, the
Class B Investor Interest will be reduced to zero, and the Class A Investor
Interest will be reduced by the amount by which the Class B Investor Interest
would have been reduced below zero, but not more than the Class A Investor
Default Amount for such Transfer Date (a "Class A Investor Charge-Off"), which
will have the effect of slowing or reducing the return of principal and interest
to the Class A Certificateholders. 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 Transfer Date (but not by an amount in excess of the aggregate Class A
Investor Charge-Offs) by the amount of Excess Spread allocated and available for
such purpose as described under "-- Application of Collections -- Excess
Spread."
On each Transfer Date, if the Class B Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Collateral
Principal Collections which are allocated and available to fund such amount with
respect to the Monthly Period preceding such Transfer Date, the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
any Reallocated Principal Collections on such Transfer Date and after giving
effect to any adjustments with respect thereto as described in the preceding
paragraph) will be reduced by the amount of such excess, but not more than the
lesser of the Class B Investor Default Amount and the Collateral Interest (after
giving effect to reductions for any Collateral Charge-Offs and any Reallocated
Principal Collections on such Transfer Date and after giving effect to any
adjustments with respect thereto, as described in the preceding paragraph) for
such Transfer Date. In the event that such reduction would cause the Collateral
Interest to be a negative number, the Collateral Interest will be reduced to
zero and the Class B Investor Interest will be reduced by the amount by which
the Collateral Interest would have been reduced below zero, but not more than
the Class B Investor
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<PAGE> 40
Default Amount for such Transfer Date (a "Class B Investor Charge-Off"). The
Class B Investor Interest will also be reduced by the amount of Reallocated
Class B Principal Collections in excess of the Collateral Interest (after giving
effect to reductions for any Collateral Charge-Offs and any Reallocated
Collateral Principal Collections on such Transfer Date) 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. The Class B Investor
Interest will thereafter be reimbursed (but not in excess of the unpaid
principal balance of the Class B Certificates) on any Transfer Date by the
amount of Excess Spread allocated and available for that purpose as described
under "-- Application of Collections -- Excess Spread."
On each Transfer Date, if the Collateral Default Amount for such Transfer
Date exceeds the amount of Excess Spread which is allocated and available to
fund such amount as described under "-- Application of Collections Excess
Spread," the Collateral Interest will be reduced by the amount of such excess
but not more than the lesser of the Collateral Default Amount and the Collateral
Interest for such Transfer Date (a "Collateral Charge-Off"). The Collateral
Interest will also be reduced by the amount of Reallocated Principal Collections
and the amount of any portion of the Collateral Interest allocated to the Class
A Certificates to avoid a reduction in the Class A Investor Interest or to the
Class B Certificates to avoid a reduction in the Class B Investor Interest. The
Collateral Interest will thereafter be reimbursed on any Transfer Date by the
amount of Excess Spread allocated and available for that purpose as described
under "-- Application of Collections -- Excess Spread."
PRINCIPAL FUNDING ACCOUNT
Pursuant to the Series 1996-2 Supplement, the Trustee will establish and
maintain with a Qualified Institution a segregated trust account held for the
benefit of the Certificateholders (the "Principal Funding Account"). During the
Controlled Accumulation Period, the Trustee at the direction of the Servicer
will transfer collections in respect of Principal Receivables (other than
Reallocated Principal Collections) and Shared Principal Collections from other
Series, if any, allocated to Series 1996-2 from the Principal Account to the
Principal Funding Account as described under "-- Application of Collections."
Such collections will be retained in the Principal Funding Account and
ultimately used to pay principal of the Class A Certificates on the Class A
Scheduled Payment Date or the Distribution Date after the commencement of the
Rapid Amortization Period, whichever occurs earlier.
Funds on deposit in the Principal Funding Account will be invested to the
following Transfer Date by the Trustee at the direction of the Servicer in
Permitted Investments. Investment earnings (net of investment losses and
expenses) on funds on deposit in the Principal Funding Account (the "Principal
Funding Investment Proceeds") will be applied on each Transfer Date as Class A
Available Funds.
RESERVE ACCOUNT
Pursuant to the Series 1996-2 Supplement, the Trustee will establish and
maintain with a Qualified Institution a segregated trust account held for the
benefit of the Certificateholders (the "Reserve Account"). The Reserve Account
is established to assist with the subsequent distribution of interest on the
Certificates during the Controlled Accumulation Period. On each Transfer Date
from and after the Reserve Account Funding Date, but prior to the termination of
the Reserve Account, the Trustee, acting pursuant to the
Servicer's instructions, will apply Excess Spread allocated to the Certificates
(to the extent described above under "-- Application of Collections -- Excess
Spread") to increase the amount on deposit in the Reserve Account (to the extent
such amount is less than the Required Reserve Account Amount). The "Reserve
Account Funding Date" will be the Transfer Date with respect to the Monthly
Period which commences no later than three months prior to the commencement of
the Controlled Accumulation Period, or such earlier date as the Servicer may
determine. The "Required Reserve Account Amount" for any Transfer Date on or
after the Reserve Account Funding Date will be equal to (a) 0.5% of the
outstanding principal balance of the Class A Certificates or (b) any other
amount designated by the Transferor; provided, that if such designation is of a
lesser amount, the Transferor shall have provided the Servicer, the Collateral
Interest Holder and the
S-39
<PAGE> 41
Trustee with evidence that the Rating Agency Condition has been satisfied and
the Transferor shall have delivered to the Trustee a certificate of an
authorized officer to the effect that, based on the facts known to such officer
at such time, in the reasonable belief of the Transferor, such designation will
not cause a Pay Out Event or an event that, after the giving of notice or the
lapse of time, would cause a Pay Out Event to occur with respect to Series
1996-2. On each Transfer Date, after giving effect to any deposit to be made to,
and any withdrawal to be made from, the Reserve Account on such Transfer Date,
the Trustee will withdraw from the Reserve Account an amount equal to the
excess, if any, of the amount on deposit in the Reserve Account over the
Required Reserve Account Amount and distribute such excess to the Collateral
Interest Holder for application in accordance with the terms of the Loan
Agreement.
Provided that the Reserve Account has not terminated as described below,
all amounts on deposit in the Reserve Account on any Transfer Date (after giving
effect to any deposits to, or withdrawals from, the Reserve Account to be made
on such Transfer Date) will be invested to the following Transfer Date by the
Trustee at the direction of the Servicer in Permitted Investments. The interest
and other investment income (net of investment expenses and losses) earned on
such investments will be retained in the Reserve Account (to the extent the
amount on deposit is less than the Required Reserve Account Amount) or deposited
in the Finance Charge Account and treated as Class A Available Funds.
On or before each Transfer Date with respect to the Controlled Accumulation
Period and on the first Transfer Date with respect to the Rapid Amortization
Period, a withdrawal will be made from the Reserve Account, and the amount of
such withdrawal will be deposited in the Finance Charge Account and included in
collections of Finance Charge Receivables to be applied to the payment of the
Class A Monthly Interest for such Transfer Date in an amount equal to the lesser
of (a) the Available Reserve Account Amount with respect to such Transfer Date
and (b) the Reserve Account Draw with respect to such Transfer Date; provided,
that the amount of such withdrawal shall be reduced to the extent that funds
otherwise would be available to be deposited in the Reserve Account on such
Transfer Date. On each Transfer Date, the amount available to be withdrawn from
the Reserve Account (the "Available Reserve Account Amount") will be equal to
the lesser of the amount on deposit in the Reserve Account (before giving effect
to any deposit to be made to the Reserve Account on such Transfer Date) and the
Required Reserve Account Amount for such Transfer Date.
The Reserve Account will be terminated upon the earlier to occur of (a) the
termination of the Trust pursuant to the Agreement and (b) if the Controlled
Accumulation Period has not commenced, the first Transfer Date with respect to
the Rapid Amortization Period or, if the Controlled Accumulation Period has
commenced, the earlier to occur of (i) the first Transfer Date with respect to
the Rapid Amortization Period and (ii) the Transfer Date immediately preceding
the Class A Scheduled Payment Date. Upon the termination of the Reserve Account,
all amounts on deposit therein (after giving effect to any withdrawal from the
Reserve Account on such date as described above) will be distributed to the
Collateral Interest Holder for application in accordance with the terms of the
Loan Agreement. Any amounts withdrawn from the Reserve Account and distributed
to the Collateral Interest Holder, as described above, will not be available for
distribution to the Certificateholders.
PAY OUT EVENTS
As described above, the Revolving Period will continue through August 31,
1997 (unless such date is postponed as described under "-- Postponement of
Controlled Accumulation Period"), unless a Pay Out Event occurs prior to such
date. A "Pay Out Event" refers to any of the following events:
(a) failure on the part of the Transferor (i) to make any payment or
deposit on the date required under the Agreement (or within the applicable
grace period which shall not exceed five days) or (ii) to observe or
perform in any material respect any other covenants or agreements of the
Transferor set forth in the Agreement, which failure has a material adverse
effect on the Certificateholders (which determination shall be made without
reference to the amount of the Collateral Interest) and which continues
unremedied for a period of 60 days after written notice and continues to
materially and
S-40
<PAGE> 42
adversely affect the interests of the Certificateholders (which
determination shall be made without regard to the amount of the Collateral
Interest) for such period;
(b) any representation or warranty made by the Transferor in the
Agreement, or any information required to be given by the Transferor to the
Trustee to identify the Accounts proves to have been incorrect in any
material respect when made or when delivered and which continues to be
incorrect in any material respect for a period of 60 days after written
notice and as a result of which the interests of the Certificateholders are
materially and adversely affected (which determination shall be made
without reference to the amount of the Collateral Interest) and continue to
be materially and adversely affected for such period; provided, however,
that a Pay Out Event pursuant to this subparagraph (b) shall not be deemed
to occur thereunder, if the Transferor has accepted reassignment of the
related Receivable or all such Receivables, if applicable, during such
period in accordance with the provisions of the Agreement;
(c) the average of the Portfolio Yields for any three consecutive
Monthly Periods is reduced to a rate which is less than the average of the
Base Rates for such period;
(d) a failure by the Transferor to convey Receivables arising under
Additional Accounts, or Participations, to the Trust when required by the
Agreement;
(e) any Servicer Default occurs which would have a material adverse
effect on the Certificateholders;
(f) the Class A Investor Interest is not paid in full on the Class A
Scheduled Payment Date or the Class B Investor Interest is not paid in full
on the Class B Scheduled Payment Date;
(g) certain events of insolvency, receivership or bankruptcy relating
to the Transferor or other holder of the Transferor Certificate;
(h) the Transferor becomes unable for any reason to transfer
Receivables to the Trust in accordance with the provisions of the
Agreement; or
(i) the Trust becomes an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
In the case of any event described in clause (a), (b) or (e) above, a Pay
Out Event will be deemed to have occurred with respect to the Certificates only
if, after any applicable grace period, either the Trustee or Certificateholders
and the Collateral Interest Holder evidencing undivided interests aggregating
not less than 50% of the Investor Interest, by written notice to the Transferor
and the Servicer (and to the Trustee if given by the Certificateholders) declare
that a Pay Out Event has occurred with respect to the Certificates as of the
date of such notice. In the case of any event described in clause (g), (h) or
(i), a Pay Out Event with respect to all Series then outstanding, and in the
case of any event described in clause (c), (d) or (f), a Pay Out Event with
respect to only the Certificates, will be deemed to have occurred without any
notice or other action on the part of the Trustee or the Certificateholders, the
Collateral Interest Holder or all certificateholders, as appropriate,
immediately upon the occurrence of such event. On the date on which a Pay Out
Event is deemed to have occurred, the Rapid Amortization Period will commence.
In such event, distributions of principal to the Certificateholders will begin
on the first Distribution Date following the month in which such Pay Out Event
occurred. If, because of the occurrence of a Pay Out Event, the Rapid
Amortization Period begins on or prior to July 31, 1998, Certificateholders may
begin receiving distributions of principal earlier than they otherwise would
have, which may shorten the average life of the Certificates.
See "Description of the Certificates -- Pay Out Events" in the Prospectus
for an additional discussion of the consequences of an insolvency,
conservatorship or receivership of the Transferor.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The share of the Servicing Fee allocable to the Investor Interest with
respect to any Transfer Date (the "Investor Servicing Fee") shall be equal to
one-twelfth of the product of (a) 2.0% and (b) the Adjusted Investor Interest as
of the last day of the Monthly Period preceding such Transfer Date; provided,
however,
S-41
<PAGE> 43
with respect to the first Transfer Date, the Investor Servicing Fee shall be
equal to $767,678. On each Transfer Date, but only if First Union, an affiliate
thereof, The Bank of New York or such other successor servicer as described in
the Series 1996-2 Supplement (an "Acceptable Successor Servicer") is the
Servicer, Servicer Interchange with respect to the related Monthly Period that
is on deposit in the Finance Charge Account shall be withdrawn from the Finance
Charge Account and paid to the Servicer in payment of a portion of the Investor
Servicing Fee with respect to such Monthly Period. The "Servicer Interchange"
for any Monthly Period for which First Union, an affiliate thereof or an
Acceptable Successor Servicer is the servicer will be an amount equal to the
portion of collections of Finance Charge Receivables allocated to the Investor
Interest with respect to such Monthly Period that is attributable to
Interchange; provided, however, that Servicer Interchange for a Monthly Period
shall not exceed one-twelfth of the product of (i) the Adjusted Investor
Interest, as of the last day of such Monthly Period and (ii) 0.75%. In the case
of any insufficiency of Servicer Interchange on deposit in the Finance Charge
Account, a portion of the Investor Servicing Fee with respect to such Monthly
Period will not be paid to the extent of such insufficiency, and in no event,
shall the Trust, the Trustee, the Certificateholders or the Collateral Interest
Holder be liable for the share of the Servicing Fee to be paid out of Servicer
Interchange.
The share of the Investor Servicing Fee allocable to the Class A
Certificateholders with respect to any Transfer Date (the "Class A Servicing
Fee") shall be equal to one-twelfth of the product of (a) the Class A Floating
Allocation, (b) 1.25%, or if First Union, an affiliate thereof or an Acceptable
Successor Servicer is not the Servicer, 2.0% (the "Net Servicing Fee Rate") and
(c) the Adjusted Investor Interest as of the last day of the Monthly Period
preceding such Transfer Date; provided, however, that with respect to the first
Transfer Date, the Class A Servicing Fee shall be equal to $395,833. The share
of the Investor Servicing Fee allocable to the Class B Certificateholders with
respect to any Transfer Date (the "Class B Servicing Fee") shall be equal to
one-twelfth of the product of (a) the Class B Floating Allocation, (b) the Net
Servicing Fee Rate and (c) the Adjusted Investor Interest as of the last day of
the Monthly Period preceding such Transfer Date; provided, however, that with
respect to the first Transfer Date, the Class B Servicing Fee shall be equal to
$32,387. The share of the Investor Servicing Fee allocable to the Collateral
Interest Holder with respect to any Transfer Date (the "Collateral Interest
Servicing Fee," together with the Class A Servicing Fee and the Class B
Servicing Fee, the "Certificateholder Servicing Fee") shall be equal to
one-twelfth of the product of (a) the Collateral Floating Allocation, (b) the
Net Servicing Fee Rate and (c) the Adjusted Investor Interest as of the last day
of the Monthly Period preceding such Transfer Date; provided, however, that with
respect to the first Transfer Date, the Collateral Interest Servicing Fee shall
be equal to $51,578. The remainder of the Servicing Fee shall be paid by the
holder of the Transferor Certificate or other Series (as provided in the related
Series Supplements) or, to the extent of any insufficiency of Servicer
Interchange as described above, not be paid. In no event shall the Trust, the
Trustee, the Certificateholders or the Collateral Interest Holder be liable for
the share of the Servicing Fee to be paid out of Servicer Interchange. The Class
A Servicing Fee and the Class B Servicing Fee shall be payable to the Servicer
solely to the extent amounts are available for distribution in respect thereof
as described under "-- Application of Collections -- Payment of Interest, Fees
and Other Items."
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, payment of the fees and disbursements of the Trustee and independent
certified public accountants and other fees which are not expressly stated in
the Agreement to be payable by the Trust or the Certificateholders other than
any tax imposed on or measured by income, including United States federal, state
and local income and franchise taxes, if any, of the Trust or the
Certificateholders.
REPORTS TO CERTIFICATEHOLDERS
On each Transfer Date, the Trustee will forward to each Certificateholder
of record, a statement prepared by the Servicer setting forth the items
described in "Description of the Certificates -- Reports to Certificateholders"
in the Prospectus. In addition, such statement will include certain information
regarding the Principal Funding Account and the Collateral Interest, if any, for
such Transfer Date.
S-42
<PAGE> 44
UNDERWRITING
Subject to the terms and conditions set forth in the Class A Underwriting
Agreement (the "Class A Underwriting Agreement") between the Transferor and the
Class A Underwriters named below (the "Class A Underwriters"), and the terms and
conditions set forth in the Class B Underwriting Agreement (the "Class B
Underwriting Agreement," and together with the Class A Underwriting Agreement,
the "Underwriting Agreement") between the Transferor and the Class B
Underwriters named below (the "Class B Underwriters," and together with the
Class A Underwriters, the "Underwriters"), the Transferor has agreed to sell to
the Underwriters, and each of the Underwriters has severally agreed to purchase,
the principal amount of the Certificates set forth opposite its name:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF
CLASS A UNDERWRITERS CLASS A CERTIFICATES
-------------------------------------------------------------------- --------------------
<S> <C>
First Union Capital Markets Corp. .................................. $ 75,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .......................................... 75,000,000
Chase Securities, Inc. ............................................. 75,000,000
Citicorp Securities, Inc. .......................................... 75,000,000
--------------------
Total .................................................... $300,000,000
==============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF
CLASS B UNDERWRITERS CLASS B CERTIFICATES
-------------------------------------------------------------------- --------------------
<S> <C>
First Union Capital Markets Corp. .................................. $ 12,273,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .......................................... 12,273,000
--------------------
Total .................................................... $ 24,546,000
==============
</TABLE>
In the Class A Underwriting Agreement, the Class A Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Class A Certificates offered hereby if any of the Class A Certificates
are purchased. In the Class B Underwriting Agreement, the Class B Underwriters
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the Class B Certificates offered hereby if any of the Class B
Certificates are purchased. The Underwriters have agreed to reimburse the
Transferor for certain expenses of the issuance and distribution of the
Certificates.
The Class A Underwriters propose initially to offer the Class A
Certificates to the public at the price set forth on the cover page hereof and
to certain dealers at such price less concessions not in excess of 0.125% of the
principal amount of the Class A Certificates. The Class A Underwriters may
allow, and such dealers may reallow, concessions not in excess of 0.100% of the
principal amount of the Class A Certificates to certain brokers and dealers.
After the initial public offering, the public offering price and other selling
terms may be changed by the Class A Underwriters.
The Class B Underwriters propose initially to offer the Class B
Certificates to the public at the price set forth on the cover page hereof and
to certain dealers at such price less concessions not in excess of 0.175% of the
principal amount of the Class B Certificates. The Class B Underwriters may
allow, and such dealers may reallow, concessions not in excess of 0.100% of the
principal amount of the Class B Certificates to certain brokers and dealers.
After the initial public offering, the public offering price and other selling
terms may be changed by the Class B Underwriters.
Each Underwriter has represented and agreed that (a) it has not offered or
sold, and will not offer or sell any Certificates to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom for the purposes of the
Public Offers of Securities Regulations 1995, (b) it has complied and will
comply with
S-43
<PAGE> 45
all applicable provisions of the Financial Services Act 1986 of Great Britain
with respect to anything done by it in relation to the Certificates in, from or
otherwise involving the United Kingdom and (c) it has only issued or passed on
and will only issue or pass on in the United Kingdom any document in connection
with the issue of the Certificates to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 or is a person to whom the document may otherwise
lawfully be issued or passed on.
The Transferor will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriters may be required to make in respect thereof.
First Union Capital Markets Corp., an Underwriter, is an affiliate of the
Transferor, the Servicer and the Corporation.
This Prospectus Supplement and the related Prospectus may be used by First
Union Capital Markets Corp., an affiliate of the Transferor and Servicer, in
connection with offers and sales related to market-making transactions in the
Certificates. First Union Capital Markets Corp. may act as principal or agent in
such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale or otherwise.
The Underwriters or agents and their associates may be customers of
(including borrowers from), engage in transactions with, and/or perform services
for, the Transferor, the Servicer, or the Corporation, their respective
affiliates and the Trustee, in the ordinary course of business.
S-44
<PAGE> 46
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Acceptable Successor Servicer......................................................... S-42
Accounts.............................................................................. S-1
Accumulation Period Length............................................................ S-28
Accumulation Shortfall................................................................ S-9
Additional Interest................................................................... S-8
Adjusted Investor Interest............................................................ S-6
Agreement............................................................................. S-3
Available Investor Principal Collections.............................................. S-28
Available Reserve Account Amount...................................................... S-40
Bank.................................................................................. S-3
Bank Portfolio........................................................................ S-4
Base Rate............................................................................. S-23
BHCA.................................................................................. S-25
Certificateholder Servicing Fee....................................................... S-42
Certificateholders.................................................................... S-4
Certificates.......................................................................... S-1
Class A Additional Interest........................................................... S-26
Class A Adjusted Investor Interest.................................................... S-6
Class A Available Funds............................................................... S-27
Class A Certificate Rate.............................................................. S-2
Class A Certificateholders............................................................ S-4
Class A Certificates.................................................................. S-1
Class A Fixed Allocation.............................................................. S-30
Class A Floating Allocation........................................................... S-30
Class A Investor Charge-Off........................................................... S-12
Class A Investor Default Amount....................................................... S-38
Class A Investor Interest............................................................. S-4
Class A Monthly Interest.............................................................. S-34
Class A Monthly Principal............................................................. S-36
Class A Required Amount............................................................... S-11
Class A Scheduled Payment Date........................................................ S-2
Class A Servicing Fee................................................................. S-42
Class A Underwriters.................................................................. S-43
Class A Underwriting Agreement........................................................ S-43
Class B Additional Interest........................................................... S-26
Class B Available Funds............................................................... S-27
Class B Certificate Rate.............................................................. S-2
Class B Certificateholders............................................................ S-4
Class B Certificates.................................................................. S-1
Class B Fixed Allocation.............................................................. S-30
Class B Floating Allocation........................................................... S-30
Class B Investor Charge-Off........................................................... S-13
Class B Investor Default Amount....................................................... S-38
Class B Investor Interest............................................................. S-4
Class B Monthly Interest.............................................................. S-34
Class B Monthly Principal............................................................. S-36
Class B Required Amount............................................................... S-11
Class B Scheduled Payment Date........................................................ S-2
Class B Servicing Fee................................................................. S-42
</TABLE>
S-45
<PAGE> 47
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Class B Underwriters.................................................................. S-43
Class B Underwriting Agreement........................................................ S-43
Closing Date.......................................................................... S-2
Code.................................................................................. S-15
Collateral Available Funds............................................................ S-34
Collateral Charge-Off................................................................. S-39
Collateral Default Amount............................................................. S-38
Collateral Fixed Allocation........................................................... S-31
Collateral Floating Allocation........................................................ S-30
Collateral Interest................................................................... S-5
Collateral Interest Holder............................................................ S-5
Collateral Interest Servicing Fee..................................................... S-42
Collateral Monthly Interest........................................................... S-35
Collateral Monthly Principal.......................................................... S-36
Collateral Rate....................................................................... S-35
Controlled Accumulation Amount........................................................ S-37
Controlled Accumulation Period........................................................ S-8
Controlled Deposit Amount............................................................. S-9
Corporation........................................................................... S-25
Cut-Off Date.......................................................................... S-4
Default Amount........................................................................ S-38
Distribution Date..................................................................... S-2
ERISA................................................................................. S-15
Excess Spread......................................................................... S-12
First Union........................................................................... S-1
Fixed Investor Percentage............................................................. S-30
Floating Investor Percentage.......................................................... S-29
Group One............................................................................. S-14
Initial Collateral Interest........................................................... S-13
Interest Period....................................................................... S-8
Investor Default Amount............................................................... S-38
Investor Interest..................................................................... S-5
Investor Servicing Fee................................................................ S-41
LIBOR................................................................................. S-2
LIBOR Determination Date.............................................................. S-27
Loan Agreement........................................................................ S-14
Minimum Aggregate Principal Receivables............................................... S-19
Minimum Transferor Interest........................................................... S-18
Monthly Period........................................................................ S-6
Net Servicing Fee Rate................................................................ S-42
Pay Out Event......................................................................... S-40
Portfolio Yield....................................................................... S-23
Principal Funding Account............................................................. S-9
Principal Funding Account Balance..................................................... S-22
Principal Funding Investment Proceeds................................................. S-10
Principal Shortfalls.................................................................. S-37
Rapid Amortization Period............................................................. S-11
Rating Agency Condition............................................................... S-19
Reallocated Class B Principal Collections............................................. S-32
Reallocated Collateral Principal Collections.......................................... S-32
Reallocated Principal Collections..................................................... S-33
</TABLE>
S-46
<PAGE> 48
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Receivables........................................................................... S-1
Record Date........................................................................... S-25
Reference Banks....................................................................... S-27
Required Amount....................................................................... S-12
Required Collateral Interest.......................................................... S-13
Required Reserve Account Amount....................................................... S-39
Reserve Account....................................................................... S-39
Reserve Account Funding Date.......................................................... S-39
Revolving Period...................................................................... S-8
Series 1996-2 Supplement.............................................................. S-4
Series 1996-2 Termination Date........................................................ S-7
Servicer Interchange.................................................................. S-42
Shared Principal Collections.......................................................... S-14
Telerate Page 3750.................................................................... S-27
Transfer Date......................................................................... S-33
Transferor............................................................................ S-4
Transferor Certificate................................................................ S-6
Transferor Interest................................................................... S-5
Transferor Percentage................................................................. S-26
Trust................................................................................. S-1
Trust Portfolio....................................................................... S-18
Trustee............................................................................... S-4
Underwriters.......................................................................... S-43
Underwriting Agreement................................................................ S-43
</TABLE>
S-47
<PAGE> 49
ANNEX I
OTHER SERIES ISSUED
The table below sets forth the principal characteristics of the other
Series previously issued by the Trust, all of which are in Group One. For more
specific information with respect to any Series, any prospective investor should
contact First Union at (704) 374-6782. First Union will provide, without charge,
to any prospective purchaser of the Certificates, a copy of the Disclosure
Documents for any previous publicly-issued Series.
1. SERIES 1995-A
Initial Investor Interest....................................$2,000,000,000
Certificate Rate.....................................Commercial Paper Index
Annual Servicing Fee Percentage........................................2.0%
Initial Cash Collateral Amount.................................$300,000,000
Series Issuance Date.....................................September 29, 1995
2. SERIES 1996-1
Class A Initial Investor Interest..............................$920,000,000
Class A Certificate Rate...............One-Month LIBOR plus 0.17% per annum
Class B Initial Investor Interest...............................$75,273,000
Class B Certificate Rate...............One-Month LIBOR plus 0.29% per annum
Controlled Accumulation Amount (subject to adjustment)..........$76,666,667
Commencement of Controlled Accumulation Period (subject to
adjustment)................................................January 31, 2000
Annual Servicing Fee Percentage..............................2.0% per annum
Initial Collateral Interest....................................$119,878,821
Series 1996-1 Termination Date.............September 2003 Distribution Date
Series Issuance Date..........................................March 5, 1996
A-1
<PAGE> 50
PROSPECTUS
FIRST UNION MASTER CREDIT CARD TRUSTS
ASSET BACKED CERTIFICATES
FIRST UNION NATIONAL BANK OF GEORGIA
TRANSFEROR AND SERVICER
---------------------------
THE ASSET BACKED CERTIFICATES (COLLECTIVELY, THE "CERTIFICATES") DESCRIBED
HEREIN MAY BE SOLD FROM TIME TO TIME IN ONE OR MORE SERIES (EACH, A "SERIES"),
IN AMOUNTS, AT PRICES AND ON TERMS TO BE DETERMINED AT THE TIME OF SALE AND
WHICH ARE SET FORTH IN A SUPPLEMENT TO THIS PROSPECTUS (A "PROSPECTUS
SUPPLEMENT"). THE CERTIFICATES OF EACH SERIES WILL REPRESENT AN UNDIVIDED
INTEREST IN THE ASSETS OF A SPECIFIED FIRST UNION MASTER CREDIT CARD TRUST
(EACH, A "TRUST"). A TRUST HAS BEEN FORMED PURSUANT TO A POOLING AND SERVICING
AGREEMENT BETWEEN FIRST UNION NATIONAL BANK OF GEORGIA ("FIRST UNION"), AS
TRANSFEROR AND SERVICER, AND THE BANK OF NEW YORK, AS TRUSTEE. ADDITIONAL TRUSTS
MAY BE FORMED FROM TIME TO TIME, EACH PURSUANT TO A POOLING AND SERVICING
AGREEMENT TO BE ENTERED INTO BETWEEN FIRST UNION, AS TRANSFEROR AND SERVICER,
AND A TRUSTEE IDENTIFIED IN THE PROSPECTUS SUPPLEMENT RELATING TO THE SERIES OF
CERTIFICATES REPRESENTING INTERESTS IN SUCH TRUST. THE PROPERTY OF EACH TRUST
WILL INCLUDE RECEIVABLES (THE "RECEIVABLES") GENERATED FROM TIME TO TIME IN A
PORTFOLIO OF CONSUMER REVOLVING CREDIT CARD ACCOUNTS (THE "ACCOUNTS"), ALL
MONIES DUE AND TO BECOME DUE IN PAYMENT OF THE RECEIVABLES, ALL PROCEEDS OF THE
RECEIVABLES AND PROCEEDS OF CREDIT INSURANCE POLICIES RELATING TO THE
RECEIVABLES, ANY ENHANCEMENTS AND ALL MONIES AND OTHER PROPERTY ON DEPOSIT IN
CERTAIN BANK ACCOUNTS OF THE TRUST (INCLUDING ANY PERMITTED INVESTMENTS IN WHICH
ANY SUCH MONIES ARE INVESTED), AS MORE FULLY DESCRIBED HEREIN AND, WITH RESPECT
TO ANY SERIES, IN THE RELATED PROSPECTUS SUPPLEMENT. CERTAIN CAPITALIZED TERMS
USED HEREIN ARE DEFINED ELSEWHERE IN THIS PROSPECTUS. A LISTING OF THE PAGES ON
WHICH SUCH TERMS ARE DEFINED IS FOUND IN THE "INDEX OF TERMS FOR PROSPECTUS"
BEGINNING ON PAGE 64. FIRST UNION INITIALLY WILL OWN THE REMAINING UNDIVIDED
INTEREST IN EACH TRUST NOT REPRESENTED BY THE CERTIFICATES ISSUED BY SUCH TRUST
AND THE OTHER INTERESTS ISSUED BY THE TRUST FROM TIME TO TIME AND WILL SERVICE
THE RELATED RECEIVABLES.
(Continued on next page)
ANY SERIES OF CERTIFICATES MAY BE SOLD TO OR THROUGH UNDERWRITERS, INCLUDING
FIRST UNION CAPITAL MARKETS CORP., AN AFFILIATE OF THE TRANSFEROR AND SERVICER,
ACTING AS PRINCIPALS FOR THEIR OWN ACCOUNT OR AS AGENTS. SEE "PLAN OF
DISTRIBUTION."
THIS PROSPECTUS AND ANY RELATED PROSPECTUS SUPPLEMENT MAY BE USED BY FIRST
UNION CAPITAL MARKETS CORP. IN CONNECTION WITH OFFERS AND SALES RELATED TO
MARKET-MAKING TRANSACTIONS IN ANY SERIES OF THE CERTIFICATES. FIRST UNION
CAPITAL MARKETS CORP. MAY ACT AS PRINCIPAL OR AGENT IN SUCH TRANSACTIONS. SUCH
SALES WILL BE MADE AT PRICES RELATED TO PREVAILING MARKET PRICES AT THE TIME OF
THE SALE.
---------------------------
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH IN "RISK FACTORS" ON PAGE 18.
---------------------------
THE CERTIFICATES WILL REPRESENT INTERESTS IN THE RELATED TRUST ONLY AND WILL
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF FIRST UNION NATIONAL BANK
OF GEORGIA OR ANY AFFILIATE THEREOF. A CERTIFICATE IS NOT A DEPOSIT
AND NEITHER THE CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR
RECEIVABLES ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------------
CERTIFICATES MAY BE SOLD BY FIRST UNION DIRECTLY TO PURCHASERS, THROUGH
AGENTS DESIGNATED FROM TIME TO TIME, THROUGH UNDERWRITING SYNDICATES LED BY ONE
OR MORE MANAGING UNDERWRITERS OR THROUGH ONE OR MORE UNDERWRITERS ACTING ALONE.
IF UNDERWRITERS OR AGENTS ARE INVOLVED IN THE OFFERING OF THE CERTIFICATES OF
ANY SERIES OFFERED HEREBY, THE NAME OF THE MANAGING UNDERWRITER OR UNDERWRITERS
OR AGENTS IS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT. IF AN UNDERWRITER,
AGENT OR DEALER IS INVOLVED IN THE OFFERING OF THE CERTIFICATES OF ANY SERIES
OFFERED HEREBY, THE UNDERWRITER'S DISCOUNT, AGENT'S COMMISSION OR DEALER'S
PURCHASE PRICE IS SET FORTH IN, OR MAY BE CALCULATED FROM, THE RELATED
PROSPECTUS SUPPLEMENT, AND THE NET PROCEEDS TO FIRST UNION FROM SUCH OFFERING
WILL BE THE PUBLIC OFFERING PRICE OF SUCH CERTIFICATES LESS SUCH DISCOUNT IN THE
CASE OF AN UNDERWRITER, THE PURCHASE PRICE OF SUCH CERTIFICATES LESS SUCH
COMMISSION IN THE CASE OF AN AGENT OR THE PURCHASE PRICE OF SUCH CERTIFICATES IN
THE CASE OF A DEALER, AND LESS, IN EACH CASE, THE OTHER EXPENSES OF FIRST UNION
ASSOCIATED WITH THE ISSUANCE AND DISTRIBUTION OF SUCH CERTIFICATES. SEE "PLAN OF
DISTRIBUTION."
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF ANY SERIES OF
CERTIFICATES UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
---------------------------
THE DATE OF THIS PROSPECTUS IS APRIL 12, 1996.
<PAGE> 51
(Continued from previous page)
Each Series will consist of one or more classes of Certificates (each, a
"Class"), one or more of which may be fixed rate Certificates, floating rate
Certificates or other type of Certificates, as specified in the related
Prospectus Supplement. Each Certificate will represent an undivided interest in
the related Trust and the interest of the Certificateholders of each Class or
Series will include the right to receive a varying percentage of each month's
collections with respect to the Receivables of such Trust at the times, in the
manner and to the extent described herein and, with respect to any Series
offered hereby, in the related Prospectus Supplement. Interest and principal
payments with respect to each Series offered hereby will be made as specified in
the related Prospectus Supplement. One or more Classes of a Series offered
hereby may be entitled to the benefits of a cash collateral account or guaranty,
a collateral interest, a letter of credit, a surety bond, an insurance policy or
other form of enhancement as specified in the Prospectus Supplement relating to
such Series. In addition, any Series offered hereby may include one or more
Classes which are subordinated in right and priority to payment of principal of,
and/or interest on, one or more other Classes of such Series or another Series,
in each case to the extent described in the related Prospectus Supplement. Each
Series of Certificates or Class thereof offered hereby will be rated in one of
the four highest rating categories by at least one nationally recognized rating
organization.
While the specific terms of any Series in respect of which this Prospectus
is being delivered are described in the related Prospectus Supplement, the terms
of such Series are not subject to prior review by, or consent of, the
Certificateholders of any previously issued Series.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series to be offered thereby and
hereby, among other things, sets forth with respect to such Series: (a) the
initial aggregate principal amount of each Class of such Series; (b) the
certificate interest rate (or method for determining it) of each Class of such
Series; (c) certain information concerning the Receivables allocated to such
Series; (d) the expected date or dates on which the principal amount of the
Certificates will be paid to holders of each Class of Certificates (the
"Certificateholders"); (e) the extent to which any Class within a Series is
subordinated to any other Class of such Series or any other Series; (f) the
identity of each Class of floating rate Certificates and fixed rate Certificates
included in such Series, if any, or such other type of Class of Certificates;
(g) the Distribution Dates for the respective Classes; (h) relevant financial
information with respect to the Receivables; (i) additional information with
respect to any Enhancement relating to such Series; and (j) the plan of
distribution of such Series.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
reports, containing information concerning each Trust and prepared by the
Servicer, will be sent on behalf of such Trust to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
related Certificates, pursuant to the related Agreement. See "Description of the
Certificates -- Book-Entry Registration," "-- Reports to Certificateholders" and
"-- Evidence as to Compliance." Such reports will not constitute financial
statements prepared in accordance with generally-accepted accounting principles.
The Transferor does not intend to send any of its financial reports to
Certificateholders or to the owners of beneficial interests in the Certificates
("Certificate Owners"). The Servicer will file with the Securities and Exchange
Commission (the "Commission") such periodic reports with respect to each Trust
as are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
AVAILABLE INFORMATION
This Prospectus, which forms a part of the Registration Statement, omits
certain information contained in such Registration Statement pursuant to the
rules and regulations of the Commission. For further
2
<PAGE> 52
information, reference is made to the Registration Statement (including any
amendments thereof and exhibits thereto) and any reports and other documents
incorporated herein by reference as described below under "Incorporation of
Certain Documents by Reference," which are available for inspection without
charge at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, New York, New
York 10048; and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Servicer, on behalf of each
Trust, pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Certificates shall be deemed to be incorporated by reference
into this Prospectus and to be part hereof. Any statement contained herein or in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Servicer will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated herein by reference, except
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to 999 Peachtree Street, Atlanta, Georgia 30309, Attention:
Secretary. Telephone requests for such copies should be directed to First Union
National Bank of Georgia at (404) 827-7350.
3
<PAGE> 53
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the accompanying
Prospectus Supplement. Certain capitalized terms used in this summary are
defined elsewhere in this Prospectus and in the accompanying Prospectus
Supplement. A listing of the pages on which some of such terms are defined is
found in the "Index of Terms for Prospectus." Unless the context requires
otherwise, capitalized terms used in this Prospectus and in the accompanying
Prospectus Supplement refer only to the particular Series being offered by such
Prospectus Supplement.
TYPE OF SECURITIES......... Asset Backed Certificates (the "Certificates")
evidencing an undivided interest in the assets of
a First Union Master Credit Card Trust (each, a
"Trust") may be issued from time to time in one
or more series (each, a "Series") which will
consist of one or more classes of Certificates
(each, a "Class").
THE TRUST.................. A Trust (the "Trust") was formed pursuant to a
pooling and servicing agreement dated as of
September 29, 1995 (as amended from time to time
the "Agreement") between First Union National
Bank of Georgia ("First Union"), as transferor
(in such capacity, the "Transferor") and
servicer, and The Bank of New York, as trustee.
Additional Trusts (each such Trust, a "New
Trust") may be formed from time to time, each
pursuant to a pooling and servicing agreement
(each such agreement, a "New Agreement" or an
"Agreement") to be entered into between First
Union, as transferor and servicer, and a trustee
to be identified in the Prospectus Supplement
relating to the Series of Certificates
representing interests in such Trust (each
trustee under an Agreement, a "Trustee"). The
Trust was, and each New Trust will be, created as
a master trust under which one or more Series
will be issued pursuant to a series supplement to
the related Agreement (each such series
supplement a "Series Supplement"). A Series
issued by a Trust may be offered pursuant to this
Prospectus, or may be offered in a transaction
exempt from the registration requirements of the
Securities Act of 1933, as amended (the
"Securities Act"). Each Prospectus Supplement
identifies the related Trust and all Series
previously issued by such Trust.
TRUST ASSETS............... The assets of the Trust include, and the assets of
each New Trust will include, receivables (the
"Receivables") arising under certain
MasterCard(R) and VISA(R)* revolving credit card
accounts (the "Accounts") selected from the
portfolio of MasterCard and VISA accounts owned
by First Union that are not subject to certain
loss-sharing arrangements with the FDIC (the
"Bank Portfolio") and all monies due or to become
due in payment of the Receivables, all proceeds
of the Receivables and proceeds of credit
insurance policies relating to the Receivables,
and may include the right to receive Interchange,
if any, allocable to the Certificates of a Series
and all monies and other property on deposit in
certain bank accounts of the Trust (including any
Permitted Investments in which any such monies
are invested, but excluding investment earnings
on such amounts unless otherwise specified in the
related Prospectus Supplement), and any
Enhancement with respect to any particular Series
or Class, as described in the
- ---------------
*MasterCard(R) and VISA(R) are federally registered servicemarks of MasterCard
International Inc. and VISA U.S.A., Inc., respectively.
4
<PAGE> 54
related Prospectus Supplement. See "The
Receivables" and "Description of the
Certificates -- Addition of Trust Assets."
"Interchange" consists of certain fees received
by First Union from VISA and MasterCard as
partial compensation for taking credit risk,
absorbing fraud losses and funding receivables
for a limited period prior to initial billing.
The term "Enhancement" means, with respect to any
Series or Class thereof, any Credit Enhancement,
guaranteed rate agreement, maturity liquidity
facility, interest rate cap agreement, interest
rate swap agreement or other similar arrangement
for the benefit of the Certificateholders of such
Series or Class. The term "Credit Enhancement"
means, with respect to any Series or Class
thereof, any letter of credit, cash collateral
guaranty or account, collateral interest, surety
bond, insurance policy, spread account, reserve
account or other similar arrangement for the
benefit of the Certificateholders of such Series
or Class. Credit Enhancement may also take the
form of subordination of one or more Classes of a
Series to any other Class or Classes of a Series
or a cross-support feature which requires
collections on Receivables of one Series to be
paid as principal and/or interest with respect to
another Series.
At the time of formation of the Trust and at
certain other times subsequent thereto, the
Transferor conveyed, and at the time of formation
of each New Trust the Transferor will convey, to
the related Trustee all Receivables existing
under certain Accounts selected from the Bank
Portfolio based on criteria provided in the
related Agreement and all Receivables arising
under such Accounts from time to time thereafter
until termination of the related Trust. In
addition, the Agreement provides, and each New
Agreement will provide, that First Union may from
time to time (subject to certain limitations and
conditions), and in some circumstances will be
obligated to, designate additional eligible
revolving credit card accounts to be included as
Accounts (the "Additional Accounts"), the
Receivables of which will be included in the
related Trust. The Agreement provides, and each
New Agreement will provide, that in lieu of
Additional Accounts or in addition thereto, First
Union may include in the related Trust,
participations representing undivided interests
in a pool of assets primarily consisting of
receivables arising under revolving credit card
accounts owned by the Transferor and collections
thereon ("Participations"). See "The Receivables"
and "Description of the Certificates -- Addition
of Trust Assets."
CERTIFICATE INTEREST
AND PRINCIPAL............ Each Series of Certificates will represent an
undivided interest in the
assets of the related Trust. Each Certificate of
a Series will represent the right to receive
payments of (i) interest at the specified rate or
rates per annum (each, a "Certificate Rate"),
which may be fixed, floating or other type of
rate and (ii) payments of principal during the
Controlled Amortization Period, the Principal
Amortization Period, or, under certain limited
circumstances, the Rapid Amortization Period
(each, an "Amortization Period"), or on Scheduled
Payment Dates, in which case such Series will
have a Controlled Accumulation Period and, under
certain limited circumstances if so specified in
the related Prospectus Supplement, a Rapid
Accumulation Period (each, an "Accumulation
Period"), as well as, under certain limited
circum-
5
<PAGE> 55
stances, a Rapid Amortization Period, all as
specified in the related Prospectus Supplement.
Each Series of Certificates will consist of one or
more Classes, one or more of which may be Senior
Certificates ("Senior Certificates") and one or
more of which may be Subordinated Certificates
("Subordinated Certificates"). Each Class of a
Series may evidence the right to receive a
specified portion of each distribution of
principal or interest or both. The Certificates
of a Class may also differ from Certificates of
other Classes of the same Series in, among other
things, the amounts allocated to principal
payments, priority of payments, payment dates,
maturity, interest rates, interest rate
computation, and availability and form of
Enhancement.
The assets of each Trust will be allocated among
the Certificateholders of each Series of such
Trust and the holder of the Transferor
Certificate of such Trust and, if any Credit
Enhancement constitutes an undivided interest in
the Trust as specified in the related Prospectus
Supplement, the related Credit Enhancement
Provider. See "Credit Enhancement" herein, and
"Description of the Certificates -- Allocation
Percentages" in the Prospectus Supplement. With
respect to a Trust, the aggregate principal
amount of the interest of the Certificateholders
of a Series in such Trust is referred to herein
as the "Investor Interest" and is based on the
aggregate amount of the Principal Receivables in
such Trust allocated to such Series. If specified
in the related Prospectus Supplement, the term
"Investor Interest" with respect to the related
Series includes the Collateral Interest with
respect to such Series. The aggregate principal
amount of the interest of the holder of the
Transferor Certificate in a Trust is referred to
herein as the "Transferor Interest" and is based
on the aggregate amount of Principal Receivables
in such Trust not allocated to the
Certificateholders or any Credit Enhancement
Provider with respect to such Trust. See
"Description of the Certificates -- General."
The Certificateholders of each Series will have the
right to receive (but only to the extent needed
to make required payments under the related
Agreement and the related Series Supplement and
subject to any reallocation of such amounts if
the related Series Supplement so provides)
varying percentages of the collections of Finance
Charge Receivables and Principal Receivables for
each month and will be allocated a varying
percentage of the amount of Receivables in
Accounts which were written off as uncollectible
by the Servicer ("Defaulted Accounts") for such
month (each such percentage, an "Investor
Percentage"). The related Prospectus Supplement
specifies the Investor Percentages with respect
to the allocation of collections of Principal
Receivables, Finance Charge Receivables and
Receivables in Defaulted Accounts during the
Revolving Period, any Amortization Period and any
Accumulation Period, as applicable. If the
Certificates of a Series offered hereby include
more than one Class of Certificates, the assets
of the related Trust allocable to the
Certificates of such Series may be further
allocated among each Class in such Series as
described in the related Prospectus Supplement.
See "Description of the Certificates -- Investor
Percentage and Transferor Percentage."
6
<PAGE> 56
The Certificates of each Series will represent
interests in the related Trust only and will not
represent interests in or obligations of the
Transferor or any affiliate thereof. A
Certificate is not a deposit and neither the
Certificates nor the underlying Accounts or
Receivables are insured or guaranteed by the
Federal Deposit Insurance Corporation (the
"FDIC") or any other governmental agency.
RECEIVABLES................ The Receivables held in each Trust will arise in
Accounts that have been selected from the Bank
Portfolio based on criteria provided in the
related Agreement and described in the related
Prospectus Supplement as applied initially on the
date (the "Cut-Off Date") specified in the
related Prospectus Supplement and, with respect
to certain Additional Accounts, if any, on the
subsequent dates specified in the related
Prospectus Supplement.
The Receivables will consist of amounts charged by
cardholders for goods and services and cash
advances (the "Principal Receivables"), plus the
related periodic finance charges and amounts
charged to the Accounts in respect of certain
credit card fees, amounts with respect to
recoveries on the Accounts and certain other
amounts as described herein (the "Finance Charge
Receivables"); provided, however, that if the
Transferor exercises the Discount Option with
respect to a Trust, an amount equal to the
product of the Discount Percentage and the amount
of Receivables arising in the related Accounts on
and after the date such option is exercised that
otherwise would be Principal Receivables will be
treated as Finance Charge Receivables. See
"Description of the Certificates -- Discount
Option." In addition, if so specified in the
related Prospectus Supplement, certain amounts of
Interchange attributed to cardholder charges for
goods and services in the Accounts may be
allocated to the Certificates of a Series or any
Class thereof and treated as collections of
Finance Charge Receivables for purposes of such
Series or Class thereof or may be applied in some
other manner as described in the related
Prospectus Supplement. See "First Union's Credit
Card Activities -- Interchange."
During the term of each Trust, all new Receivables
arising in the Accounts relating to such Trust
will be transferred automatically to such Trust
by the Transferor. The total amount of
Receivables in any Trust will fluctuate from day
to day, because the amount of new Receivables
arising in the Accounts and the amount of
payments collected on existing Receivables
usually differ each day. It is not required or
anticipated that the Trustee will make any
initial or periodic general examination of the
Receivables or any records relating to the
Receivables for the presence or absence of
defects, for compliance with the Transferor's
representations and warranties or for any other
purpose.
Pursuant to each Agreement, the Transferor will
have the right (subject to certain limitations
and conditions), and in some circumstances, such
as the maintenance of the Transferor Interest at
a specified minimum level (the "Minimum
Transferor Interest" ), will be obligated, to
designate additional eligible revolving credit
card accounts to be included as Additional
Accounts and to convey to the related Trust all
of the Receivables in the Additional Accounts,
whether such Receivables are then existing or
thereafter created, or to designate
7
<PAGE> 57
Participations to be included in the related
Trust in lieu thereof or in addition thereto. See
"Description of the Certificates -- Addition of
Trust Assets."
Pursuant to each Agreement, the Transferor will
have the right (subject to certain limitations
and conditions) to designate certain Accounts and
to accept the reconveyance of all the Receivables
in such Accounts (the "Removed Accounts"),
whether such Receivables are then existing or
thereafter created. See "Description of the
Certificates -- Removal of Accounts."
EXCHANGES.................. The Agreement authorizes, and each New Agreement
will authorize, the related Trustee to issue two
types of certificates: (i) one or more Series of
Certificates that will be transferable and have
the characteristics described below and (ii) a
certificate that evidences the Transferor
Interest (the "Transferor Certificate"), which
initially will be held by the Transferor and
which will be transferable only as provided in
the related Agreement. Pursuant to any one or
more Series Supplements to the related Agreement,
the holder of the Transferor Certificate may
tender the Transferor Certificate or, if provided
in the relevant Series Supplement, Certificates
representing any Series (which may include Series
offered pursuant to this Prospectus) issued by
such Trust and the Transferor Certificate, to the
Trustee in exchange for one or more new Series
(which may include Series offered pursuant to
this Prospectus) and a reissued Transferor
Certificate (any such tender, an "Exchange"). Any
such Series, or one or more Classes of such
Series may be offered to the public or other
investors under a prospectus or other disclosure
document (a "Disclosure Document") in offerings
pursuant to this Prospectus or in transactions
either registered under the Securities Act, or
exempt from registration thereunder, directly or
through one or more other underwriters or
placement agents, in fixed-price offerings or in
negotiated transactions or otherwise. See
"Description of the Certificates-- Exchanges."
An Exchange may occur only upon delivery to the
Trustee of the following: (i) a Series Supplement
specifying the principal terms of such Series
(the "Principal Terms"), (ii) an opinion of
counsel to the effect that, for federal income
tax purposes, (1) such issuance will not
adversely affect the tax characterization as debt
of Certificates of any outstanding Series or
Class that were characterized as debt at the time
of their issuance, (2) following such issuance
the Trust will not be deemed to be an association
(or publicly traded partnership) taxable as a
corporation and (3) such issuance will not cause
or constitute an event in which gain or loss
would be recognized by any Certificateholder (an
opinion of counsel with respect to any matter to
the effect referred to in clause (ii) with
respect to any action is referred to herein as a
"Tax Opinion"), (iii) if required by the related
Series Supplement, the form of Credit
Enhancement, (iv) if Credit Enhancement is
required by the Series Supplement, an appropriate
Credit Enhancement agreement with respect
thereto, (v) written confirmation from each
Rating Agency that the Exchange will not result
in such Rating Agency reducing or withdrawing its
rating on any then-outstanding Series rated by
it, (vi) an officer's certificate of the
Transferor to the
8
<PAGE> 58
effect that after giving effect to the Exchange,
the Transferor would not be required to add the
Receivables of any Additional Accounts pursuant
to the related Agreement and the Transferor
Interest would be at least equal to the Minimum
Transferor Interest and (vii) the existing
Transferor Certificate and, if applicable, the
Certificates representing the Series to be
exchanged. See "Description of the
Certificates -- Exchanges."
DENOMINATIONS.............. Beneficial interests in the Certificates will be
offered for purchase in denominations of $1,000
and integral multiples thereof or such other
denominations specified in the Prospectus
Supplement.
REGISTRATION OF
CERTIFICATES............... Except as specified in the related Prospectus
Supplement, the Certificates of each Series
initially will be represented by Certificates
registered in the name of Cede, as the nominee of
DTC. No Certificate Owner will be entitled to
receive a definitive certificate representing
such person's interest, except in the event that
Certificates in fully registered, certificated
form ("Definitive Certificates") are issued under
the limited circumstances described herein. See
"Description of the Certificates -- Definitive
Certificates."
CLEARANCE AND SETTLEMENT... Except as specified in the related Prospectus
Supplement, Certificate Owners of each Series
offered hereby may elect to hold their
Certificates through any of DTC (in the United
States) or CEDEL or Euroclear (in Europe).
Transfers within DTC, CEDEL or Euroclear, as the
case may be, will be made in accordance with the
usual rules and operating procedures of the
relevant system. Cross-market transfers between
persons holding directly or indirectly through
DTC, on the one hand, and counterparties holding
directly or indirectly through CEDEL or
Euroclear, on the other, will be effected in DTC
through the relevant Depositaries of CEDEL or
Euroclear. See "Description of the
Certificates -- Book-Entry Registration."
TRANSFEROR AND SERVICER.... First Union National Bank of Georgia. The principal
executive offices of First Union are located at
999 Peachtree Street, Atlanta, Georgia 30309,
telephone number (404) 827-7350. The Servicer
will receive a fee as servicing compensation from
the related Trust in respect of each Series in
the amounts and at the times specified in the
related Prospectus Supplement (the "Servicing
Fee"). The Servicing Fee may be payable from
Finance Charge Receivables, Interchange or other
amounts as specified in the related Prospectus
Supplement. In certain limited circumstances,
First Union may resign or be removed, in which
event the Trustee or a third-party servicer may
be appointed as successor servicer (First Union,
or any such successor servicer, is referred to
herein as the "Servicer"). First Union is an
indirect subsidiary of First Union Corporation
(the "Corporation"). See "First Union Corporation
and First Union."
COLLECTIONS................ Except in circumstances specified in the related
Prospectus Supplement, the Servicer will deposit
all collections of Receivables in an account
required to be established for such purpose by
the related Agreement (the "Collection Account").
All amounts deposited in the Collection Account
with respect to a Trust will be allocated by the
Servicer between amounts collected on Principal
Receivables and amounts collected on Finance
Charge Receivables. If so specified in the
related
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<PAGE> 59
Prospectus Supplement, Principal Receivables
and/or Finance Charge Receivables may be
otherwise characterized. See "Description of the
Certificates -- Discount Option." All such
amounts will then be allocated in accordance with
the respective interests of the
Certificateholders of each Series of Certificates
or Class thereof, the holder of the Transferor
Certificate and, in certain circumstances,
certain Credit Enhancement Providers. See
"Description of the Certificates -- Investor
Percentage and Transferor Percentage."
INTEREST PAYMENTS.......... Interest on each Series of Certificates or Class
thereof for each accrual period (each, an
"Interest Period") specified in the related
Prospectus Supplement will be distributed in the
amounts and on the dates (which may be monthly,
quarterly, semiannually or otherwise as specified
in the related Prospectus Supplement) (each, a
"Distribution Date") specified in the related
Prospectus Supplement. Interest payments on each
Distribution Date will be funded from collections
of Finance Charge Receivables allocated to the
Investor Interest during the preceding monthly
period or periods (each, a "Monthly Period"), as
described in the related Prospectus Supplement,
and may be funded from certain investment
earnings on funds in certain accounts of the
related Trust and from any applicable
Enhancement, if necessary, or certain other
amounts as specified in the related Prospectus
Supplement. If the Distribution Dates for payment
of interest for a Series or Class occur less
frequently than monthly, such collections or
other amounts allocable to such Series or Class
may be deposited in one or more trust accounts
pending distribution to the Certificateholders of
such Series or Class, all as described in the
related Prospectus Supplement. See "Description
of the Certificates -- Application of
Collections," "-- Shared Excess Finance Charge
Collections," "Credit Enhancement" and "Risk
Factors -- Limited Credit Enhancement."
REVOLVING PERIOD........... Unless otherwise specified in the related
Prospectus Supplement, with respect to each
Series and any Class thereof, no principal will
be payable to Certificateholders until the
Principal Commencement Date or the Scheduled
Payment Date with respect to such Series or
Class, as described below. For the period
beginning on the date of issuance of the related
Series (the "Closing Date") and ending with the
commencement of an Amortization Period or an
Accumulation Period (the "Revolving Period"),
collections of Principal Receivables otherwise
allocable to the Investor Interest will, subject
to certain limitations, be paid from the Trust to
the holder of the Transferor Certificate or,
under certain circumstances and if so specified
in the related Prospectus Supplement, will be
treated as Shared Principal Collections and paid
to the holders of other Series of Certificates
issued by such Trust, as described herein and in
the related Prospectus Supplement. See
"Description of the Certificates -- Pay Out
Events" for a discussion of the events which
might lead to early termination of the Revolving
Period.
PRINCIPAL PAYMENTS......... The principal of the Certificates of each Series
offered hereby will be scheduled to be paid
either in installments commencing on a date
specified in the related Prospectus Supplement
(the "Principal Commencement Date"), in which
case such Series will have either a
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Controlled Amortization Period or a Principal
Amortization Period, as described below, or on an
expected date specified in, or determined in the
manner specified in, the related Prospectus
Supplement (the "Scheduled Payment Date"), in
which case such Series will have an Accumulation
Period, as described below. If a Series has more
than one Class of Certificates, a different
method of paying principal, Principal
Commencement Date or Scheduled Payment Date may
be assigned to each Class. The payment of
principal with respect to the Certificates of a
Series or Class may commence earlier than the
applicable Principal Commencement Date or
Scheduled Payment Date, and the final principal
payment with respect to the Certificates of a
Series or Class may be made later than the
applicable expected payment date, Scheduled
Payment Date or other expected date, if a Pay Out
Event occurs and the Rapid Amortization Period
commences with respect to such Series or Class or
under certain other circumstances described
herein. See "Description of the Certificates --
Principal Payments."
CONTROLLED AMORTIZATION
PERIOD................... If the Prospectus Supplement relating to a Series
so specifies, unless a Rapid Amortization Period
with respect to such Series commences, the
Certificates of such Series or any Class thereof
will have an amortization period (the "Controlled
Amortization Period") during which collections of
Principal Receivables allocable to the Investor
Interest of such Series (and certain other
amounts if so specified in the related Prospectus
Supplement) will be used on each Distribution
Date to make principal distributions in scheduled
amounts to the Certificateholders of such Series
or any Class of such Series then scheduled to
receive such distributions. The amount to be
distributed on any Distribution Date during the
Controlled Amortization Period will be limited to
an amount (the "Controlled Distribution Amount")
equal to an amount specified in the related
Prospectus Supplement (the "Controlled
Amortization Amount") plus any existing deficit
controlled amortization amount arising from prior
Distribution Dates. If a Series has more than one
Class of Certificates, each Class may have a
separate Controlled Amortization Amount. In
addition, the related Prospectus Supplement may
describe certain priorities among such Classes
with respect to such distributions. The
Controlled Amortization Period will commence at
the close of business on a date specified in the
related Prospectus Supplement and continue until
the earliest of (a) the commencement of the Rapid
Amortization Period, (b) payment in full of the
Investor Interest of the Certificates of such
Series or Class and, if so specified in the
related Prospectus Supplement, of the Collateral
Interest, if any, with respect to such Series,
and (c) the Series Termination Date with respect
to such Series.
PRINCIPAL AMORTIZATION
PERIOD..................... If the Prospectus Supplement relating to a Series
so specifies, unless a Rapid Amortization Period
with respect to such Series commences, the
Certificates of such Series or any Class thereof
will have an amortization period (the "Principal
Amortization Period") during which collections of
Principal Receivables allocable to the Investor
Interest of such Series (and certain other
amounts if so specified in the related Prospectus
Supplement) will be used on each Distribution
Date to make principal distributions to the
Certificateholders of such
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Series or any Class of such Series then scheduled
to receive such distributions. If a Series has
more than one Class of Certificates, the related
Prospectus Supplement may describe certain
priorities among such Classes with respect to
such distributions. The Principal Amortization
Period will commence at the close of business on
a date specified in the related Prospectus
Supplement and continue until the earlier of (a)
the commencement of the Rapid Amortization
Period, (b) payment in full of the Investor
Interest of the Certificates of such Series or
Class and, if so specified in the related
Prospectus Supplement, of the Collateral
Interest, if any, with respect to such Series,
and (c) the Series Termination Date with respect
to such Series.
CONTROLLED ACCUMULATION
PERIOD................... If the Prospectus Supplement relating to a Series
so specifies, unless a Rapid Amortization Period
or, if so specified in the related Prospectus
Supplement, a Rapid Accumulation Period with
respect to such Series commences, the
Certificates of such Series or any Class thereof
will have an accumulation period (the "Controlled
Accumulation Period") during which collections of
Principal Receivables allocable to the Investor
Interest of such Series (and certain other
amounts if so specified in the related Prospectus
Supplement) will be deposited on the business day
immediately prior to each Distribution Date or
other business day specified in the related
Prospectus Supplement (each, a "Transfer Date")
in a trust account established for the benefit of
the Certificateholders of such Series or Class (a
"Principal Funding Account") and used to make
distributions of principal to the
Certificateholders of such Series or Class on the
Scheduled Payment Date. The amount to be
deposited in the Principal Funding Account on any
Transfer Date will be limited to an amount (the
"Controlled Deposit Amount") equal to an amount
specified in the related Prospectus Supplement
(the "Controlled Accumulation Amount") plus any
deficit Controlled Accumulation Amount arising
from prior Distribution Dates. If a Series has
more than one Class of Certificates, each Class
may have a separate Principal Funding Account and
Controlled Accumulation Amount. In addition, the
related Prospectus Supplement may describe
certain priorities among such Classes with
respect to deposits of principal into such
Principal Funding Accounts. The Controlled
Accumulation Period will commence at the close of
business on a date specified in or determined in
the manner specified in the related Prospectus
Supplement and continue until the earliest of (a)
the commencement of the Rapid Amortization Period
or, if so specified in the related Prospectus
Supplement, the Rapid Accumulation Period, (b)
payment in full of the Investor Interest of the
Certificates of such Series or Class and, if so
specified in the related Prospectus Supplement,
of the Collateral Interest, if any, with respect
to such Series and (c) the Series Termination
Date with respect to such Series.
Funds on deposit in any Principal Funding Account
may be invested in Permitted Investments or
subject to a guaranteed rate or investment
contract or other arrangement intended to assure
a minimum return on the investment of such funds.
Investment earnings on such funds may be applied
to pay interest on the related Series of
Certificates. In order to enhance the likelihood
of payment in full of principal at the end of
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an Accumulation Period with respect to a Series
of Certificates, such Series may be subject to a
principal guaranty or other similar arrangement.
RAPID ACCUMULATION
PERIOD..................... If so specified and under the conditions set forth
in the Prospectus Supplement relating to a Series
having a Controlled Accumulation Period, during
the period from the day on which a Pay Out Event
has occurred until the earliest of (a) the
commencement of the Rapid Amortization Period,
(b) the payment in full of the Investor Interest
of the Certificates of such Series and, if so
specified in the related Prospectus Supplement,
of the Collateral Interest, if any, with respect
to such Series and (c) the related Series
Termination Date (the "Rapid Accumulation
Period"), collections of Principal Receivables
allocable to the Investor Interest of such Series
(and certain other amounts if so specified in the
related Prospectus Supplement) will be deposited
on each Transfer Date in the Principal Funding
Account and used to make distributions of
principal to the Certificateholders of such
Series or Class on the Scheduled Payment Date.
The amount to be deposited in the Principal
Funding Account during the Rapid Accumulation
Period will not be limited to the Controlled
Deposit Amount. The Rapid Accumulation Period is
intended to result in the fastest possible
accumulation of funds available to make principal
distributions to Certificateholders of a Series
or Class on the Scheduled Payment Date following
a Pay Out Event with respect to such Series in
order to better assure the repayment of principal
to such Certificateholders.
The term "Pay Out Event" with respect to a Series
of Certificates issued by a Trust means any of
the events identified as such in the related
Prospectus Supplement and any of the following:
(a) certain events of insolvency or bankruptcy
relating to the Transferor or any other holder of
the Transferor Certificate, (b) the Transferor is
unable for any reason to transfer Receivables to
such Trust in accordance with the provisions of
the related Agreement or (c) such trust becomes
an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. See
"Description of the Certificates -- Pay Out
Events" for a discussion of the events which
might lead to commencement of a Rapid
Accumulation Period.
During the Rapid Accumulation Period, funds on
deposit in any Principal Funding Account may be
invested in Permitted Investments or subject to a
guaranteed rate or investment contract or other
arrangement intended to assure a minimum return
on the investment of such funds. Investment
earnings on such funds may be applied to pay
interest on the related Series of Certificates or
make other payments as specified in the related
Prospectus Supplement. In order to enhance the
likelihood of payment in full of principal at the
end of the Rapid Accumulation Period with respect
to a Series of Certificates, such Series may be
subject to a principal guaranty or other similar
arrangement.
RAPID AMORTIZATION
PERIOD..................... During the period from the day on which a Pay Out
Event has occurred with respect to a Series or,
if so specified in the Prospectus Supplement
relating to a Series with a Controlled
Accumulation Period, from such time specified in
the related Prospectus Supplement after a Pay
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Out Event has occurred and the Rapid Accumulation
Period has commenced, to the earlier of (a) the
date on which the Investor Interest of the
Certificates of such Series and the Enhancement
Invested Amount or the Collateral Interest, if
any, with respect to such Series have been paid
in full and (b) the related Series Termination
Date (the "Rapid Amortization Period"),
collections of Principal Receivables allocable to
the Investor Interest of such Series (and certain
other amounts if so specified in the related
Prospectus Supplement) will be distributed as
principal payments to the Certificateholders of
such Series and, in certain circumstances, to the
Credit Enhancement Provider, monthly on each
Distribution Date with respect to such Series in
the manner and order of priority set forth in the
related Prospectus Supplement. During the Rapid
Amortization Period with respect to a Series,
distributions of principal will not be subject to
any Controlled Deposit Amount or Controlled
Distribution Amount. In addition, upon the
commencement of the Rapid Amortization Period
with respect to a Series, any funds on deposit in
a Principal Funding Account with respect to such
Series or any Class thereof will be paid to the
Certificateholders of such Series or Class on the
Distribution Date in the month following the
commencement of the Rapid Amortization Period.
The Rapid Amortization Period is intended to
result in the fastest possible distribution of
principal to Certificateholders of a Series
following a Pay Out Event with respect to such
Series in order to better assure the repayment of
principal to such Certificateholders. See
"Description of the Certificates -- Pay Out
Events" for a discussion of the events which
might lead to commencement of a Rapid
Amortization Period.
SHARED EXCESS FINANCE
CHARGE COLLECTIONS......... Any Series offered hereby may be included in a
group of Series (a "Group"). If so specified in
the related Prospectus Supplement, the
Certificateholders of a Series within a Group or
any Class thereof may be entitled to receive all
or a portion of Excess Finance Charge Collections
with respect to another Series within such Group
or Class thereof to cover any shortfalls with
respect to amounts payable from collections of
Finance Charge Receivables allocable to such
Series or Class. See "Description of the
Certificates -- Application of Collections,"
"-- Shared Excess Finance Charge Collections,"
and "-- Defaulted Receivables; Rebates and
Fraudulent Charges; Investor Charge-Offs."
SHARED PRINCIPAL
COLLECTIONS................ If so specified in the related Prospectus
Supplement, to the extent that collections of
Principal Receivables that are allocated to the
Investor Interest of any Series are not needed to
make payments or deposits with respect to such
Series, such collections ("Shared Principal
Collections") will be applied to cover principal
payments due to or for the benefit of
Certificateholders of another Series. If so
specified in the related Prospectus Supplement,
the allocation of Shared Principal Collections
may be among Series within a Group. Any such
reallocation will not result in a reduction in
the Investor Interest of the Series to which such
collections were initially allocated.
FUNDING PERIOD............. The Prospectus Supplement relating to a Series of
Certificates may specify that for a period
beginning on the Closing Date and ending on a
specified date before the commencement of an
Amortization Period
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or Accumulation Period with respect to such
Series (the "Funding Period"), which period is
expected to be less than one year, the aggregate
amount of Principal Receivables in the related
Trust allocable to such Series may be less than
the aggregate principal amount of the
Certificates of such Series and that the amount
of such deficiency (the "Pre-Funding Amount")
will be held in a trust account established with
the related Trustee for the benefit of
Certificateholders of such Series (the
"Pre-Funding Account") pending the transfer of
additional Principal Receivables to the Trust or
pending the reduction of the Investor Interests
of other Series issued by the related Trust. The
Pre-Funding Amount may be up to 100% of the
principal amount of the Certificates of a Series.
The related Prospectus Supplement will specify
the initial Investor Interest on the Closing Date
with respect to such Series, the aggregate
principal amount of the Certificates of such
Series (the "Full Investor Interest") and the
date by which the Investor Interest is expected
to equal the Full Investor Interest. The Investor
Interest will increase as Principal Receivables
are delivered to the related Trust or as the
Investor Interests of other Series of the related
Trust are reduced. The Investor Interest may also
decrease due to Investor Charge-Offs or the
occurrence of a Pay Out Event and the
commencement of the Rapid Amortization Period, as
specified in the related Prospectus Supplement.
During the Funding Period, funds on deposit in the
Pre-Funding Account for a Series of Certificates
will be withdrawn and paid to the holder of the
Transferor Certificate to the extent of any
increases in the Investor Interest. In the event
that the Investor Interest does not for any
reason equal the Full Investor Interest by the
end of the Funding Period, any amount remaining
in the Pre-Funding Account will be payable to the
Certificateholders of such Series in a manner and
at such time as set forth in the related
Prospectus Supplement. Such payment will reduce
the aggregate principal amount of such
Certificates. In addition, a prepayment premium
or penalty or similar amount may be payable to
the Certificateholders of such Series, if
specified in the related Prospectus Supplement.
If so specified in the related Prospectus
Supplement, monies in the Pre-Funding Account
with respect to any Series will be invested by
the Trustee in Permitted Investments or will be
subject to a guaranteed rate or investment
agreement or other similar arrangement, and
investment earnings and any applicable payment
under any such investment arrangement will be
applied to pay interest on the Certificates of
such Series.
CREDIT ENHANCEMENT......... Credit Enhancement with respect to a Series or any
Class thereof may be provided in the form or
forms of subordination, a letter of credit, a
cash collateral guaranty or account, a collateral
interest, a surety bond, an insurance policy, a
spread account, a reserve account or other form
of support as specified in the related Prospectus
Supplement. Credit Enhancement may also be
provided to a Class or Classes of different
Series by a cross-support feature which requires
that distributions of principal and/or interest
be made with respect to Certificates of one or
more Classes of a particular Series before
distributions are made to one or more Classes of
another Series.
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<PAGE> 65
The type, characteristics and amount of the Credit
Enhancement will be determined based on several
factors, including the characteristics of the
Receivables and Accounts included in the Trust
Portfolio as of the Closing Date with respect to
any Series, and will be established on the basis
of requirements of each Rating Agency rating the
Certificates of such Series. If so specified in
the related Prospectus Supplement, any such
Credit Enhancement will apply only in the event
of certain types of losses and the protection
against losses provided by such Credit
Enhancement will be limited. The terms of the
Credit Enhancement with respect to a Series, and
the conditions under which the Credit Enhancement
may be increased, reduced or replaced, are
described in the related Prospectus Supplement.
See "Credit Enhancement" and "Risk
Factors -- Scope of Certificate Rating."
OPTIONAL REPURCHASE........ With respect to each Series of Certificates, the
Investor Interest will be subject to optional
repurchase by the Transferor on any Distribution
Date after the Investor Interest and the
Enhancement Invested Amount, if any, with respect
to such Series, is reduced to an amount less than
or equal to 5% of the initial Investor Interest,
if any, or such other amount specified in the
related Prospectus Supplement, if certain
conditions set forth in the related Agreement are
met. The repurchase price will be equal to the
Investor Interest (less the amount, if any, on
deposit in any Principal Funding Account with
respect to such Series), plus accrued and unpaid
interest on the Certificates and interest or
other amounts payable on the Enhancement Invested
Amount or the Collateral Interest, if any,
through the day preceding the Distribution Date
on which the repurchase occurs or such other
amount specified in the Prospectus Supplement.
See "Description of the Certificates -- Final
Payment of Principal; Termination."
TAX STATUS................. Except to the extent otherwise specified in the
related Prospectus Supplement, Special Counsel to
the Transferor will deliver its opinion that
under existing law the Certificates of each
Series will be characterized as debt for federal
income tax purposes. Except to the extent
otherwise specified in the related Prospectus
Supplement, the Certificate Owners will agree to
treat the Certificates as debt for federal income
tax purposes. See "Certain Federal Income Tax
Consequences" for additional information
concerning the application of federal income tax
laws.
ERISA CONSIDERATIONS....... Under regulations issued by the Department of
Labor, the Trust's assets would not be deemed
"plan assets" of any employee benefit plan
holding interests in the Certificates of a Series
if certain conditions are met. If a Trust's
assets were deemed to be "plan assets" of an
employee benefit plan, there is uncertainty as to
whether existing exemptions from the "prohibited
transaction" rules of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), would apply to all transactions
involving such Trust's assets. No assurance can
be made with respect to any offering of the
Certificates of any Series that the conditions
which would allow the Trust assets not to be
deemed "plan assets" will be met, although the
intention of the underwriters (but not their
assurance) as to whether the Certificates of a
particular Series will be "publicly-offered
securities", and
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<PAGE> 66
therefore eligible for an ERISA exemption, is set
forth in the related Prospectus Supplement.
Accordingly, employee benefit plans contemplating
purchasing interests in Certificates should
consult their counsel before making a purchase.
See "ERISA Considerations."
CERTIFICATE RATING......... It will be a condition to the issuance of the
certificates of each Series or Class thereof
offered pursuant to this Prospectus and the
related Prospectus Supplement that they be rated
in one of the four highest rating categories by
at least one nationally recognized rating
organization (the rating agency or agencies
selected by the Transferor to rate any Series,
the "Rating Agency"). The rating or ratings
applicable to the Certificates of each Series or
Class thereof offered hereby will be set forth in
the related Prospectus Supplement.
A rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or
withdrawal at any time by the assigning Rating
Agency. Each rating should be evaluated
independently of any other rating. See "Risk
Factors -- Scope of Certificate Rating."
LISTING.................... If so specified in the Prospectus Supplement
relating to a Series, application will be made to
list the Certificates of such Series, or all or a
portion of any Class thereof, on the Luxembourg
Stock Exchange or any other specified exchange.
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RISK FACTORS
Potential investors should consider, among other things, the following risk
factors in connection with the purchase of the Certificates.
Limited Liquidity. It is anticipated that, to the extent permitted, the
underwriters of any Series of Certificates offered hereby will make a market in
such Certificates, but in no event will any such underwriter be under an
obligation to do so. There is no assurance that a secondary market will develop
with respect to the Certificates of any Series offered hereby, or if it does
develop, that it will provide Certificateholders with liquidity of investment or
that it will continue for the life of such Certificates.
Potential Priority of Certain Liens. While the Transferor has transferred
interests in Receivables to the Trust and will transfer interests in Receivables
to each New Trust, a court could treat any such transaction as an assignment of
collateral as security for the benefit of holders of Certificates issued by such
Trust. The Transferor has represented and warranted in the Agreement and will
represent and warrant in each New Agreement that the transfer of the Receivables
to the related Trust is either a valid transfer and assignment of the related
Receivables to such Trust or the grant to the related Trust of a security
interest in such Receivables. With respect to the Trust, the Transferor has
taken and will take, and with respect to each New Trust the Transferor will
take, certain actions as are required to perfect each such Trust's security
interest in the related Receivables and, with respect to the Trust, has
warranted, and with respect to each New Trust will warrant, that if the transfer
to such Trust is deemed to be a grant to such Trust of a security interest in
the related Receivables, the Trustee will have a first priority perfected
security interest therein, and, with certain exceptions and for certain limited
periods of time provided for in the Uniform Commercial Code, in the proceeds
thereof (subject, in each case, to certain potential tax or other governmental
liens referred to under "Description of the Certificates -- Representations and
Warranties"). Nevertheless, if the transfer of Receivables to a Trust is deemed
to create a security interest therein, a tax or government lien or other
nonconsensual lien on property of the Transferor arising before Receivables come
into existence may have priority over the Trust's interest in such Receivables,
and if the FDIC were appointed receiver of the Transferor, the receiver's
administrative expenses may also have priority over the Trust's interest in such
Receivables. The existence of such liens or rights of the receiver of the
Transferor could reduce the amount payable on the Receivables and result in
possible reductions in the amount of payments on the Certificates. See "Certain
Legal Aspects of the Receivables -- Transfer of Receivables."
Insolvency or Bankruptcy of Transferor or Other Holder of Transferor
Certificate. To the extent that the Transferor has granted or will grant a
security interest in Receivables to a Trust and that security interest is
validly perfected before the Transferor's insolvency and was not or will not be
taken in contemplation of insolvency of the Transferor, or with the intent to
hinder, delay or defraud the Transferor or the creditors of the Transferor, the
Federal Deposit Insurance Act ("FDIA"), as amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, as amended ("FIRREA"), provides
that such security interest should not be subject to avoidance by the FDIC, as
receiver for the Transferor. Positions taken by the FDIC staff prior to the
passage of FIRREA do not suggest that the FDIC, as receiver for the Transferor,
would interfere with the timely transfer to a Trust of payments collected on the
related Receivables. If, however, the FDIC were to assert a contrary position,
such as requiring the Trustee to establish its right to those payments by
submitting to and completing the administrative claims procedure under the FDIA,
or the conservator or receiver were to request a stay of proceedings with
respect to the Transferor as provided under the FDIA, delays in payments on the
Certificates and possible reductions in the amount of those payments could
occur.
If a conservator or receiver were appointed for the Transferor or other
holder of the Transferor Certificate or a bankruptcy or insolvency event were to
occur with respect to the Transferor or other holder of the Transferor
Certificate, then a Pay Out Event will occur with respect to all Series then
outstanding and, pursuant to the related Agreement, new Principal Receivables
would not be transferred to the related Trust and the Trustee would sell the
Receivables (unless otherwise instructed by holders of more than 50% of the
Investor Interest of each Series of Certificates, or with respect to any Series
with more than one Class, of each Class, and the Transferor and each holder of
an interest in the Transferor Certificate not subject to the
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appointment of a conservator or receiver or the occurrence of an insolvency
event, and any other person designated by the Transferor in an officer's
certificate delivered to the Trustee prior to the Insolvency Event or specified
in the related Series Supplement, which may include any provider of
Enhancement), thereby causing early termination of the Trust and a loss to
Certificateholders of a Series if the net proceeds of such sale allocable to
such Series were insufficient to pay the Certificateholders of such Series in
full. If a Pay Out Event occurs involving either the bankruptcy or insolvency of
the Transferor or other holder of the Transferor Certificate or the appointment
of a conservator or receiver for the Transferor, the conservator, receiver or
bankruptcy trustee (including the other holder of the Transferor Certificate as
debtor-in-possession) for the Transferor or other holder of the Transferor
Certificate may have the power to prevent the early sale, liquidation or
disposition of the Receivables and the commencement of the Rapid Amortization
Period or, if applicable with respect to a Series as specified in the related
Prospectus Supplement, the Rapid Accumulation Period. Such action could cause
delays or shortfalls in the amounts ultimately repaid to Certificateholders. A
conservator, receiver or bankruptcy trustee (including the other holder of the
Transferor Certificate as debtor-in-possession) for the Transferor or other
holder of the Transferor Certificate may also have the power to cause the early
sale of the Receivables and the early retirement of the Certificates of each
Series or to prohibit the continued transfer of Principal Receivables to a
Trust. In addition, in the event of a Servicer Default relating to the
conservatorship or receivership of the Servicer, if no Servicer Default other
than such conservatorship or receivership exists, the conservator or receiver
for the Servicer may have the power to prevent either the Trustee or the
Certificateholders from appointing a successor Servicer under the related
Agreement. See "Certain Legal Aspects of the Receivables -- Certain Matters
Relating to Receivership."
Ability to Change Terms of the Receivables. Pursuant to each Agreement,
the Transferor does not transfer to the related Trust the Accounts but only the
Receivables arising in the Accounts. As owner of the Accounts, the Transferor
retains the right to determine the monthly periodic finance charges and other
fees which will be applicable from time to time to the Accounts, to alter the
minimum monthly payment required on the Accounts and to change various other
terms with respect to the Accounts, including changing the annual percentage
rate from a fixed rate to a variable rate. A decrease in the monthly periodic
finance charge and a reduction in credit card or other fees would decrease the
effective yield on the Accounts with respect to a Trust and could result in the
occurrence of a Pay Out Event with respect to each Series relating to such Trust
and the commencement of the Rapid Amortization Period or, if so specified in the
related Prospectus Supplement, the Rapid Accumulation Period with respect to
each such Series. Under the Agreement, the Transferor has agreed, and under each
New Agreement the Transferor will agree, that, except as otherwise required by
law or as is deemed by the Transferor to be necessary in order to maintain its
credit card business, based upon a good faith assessment by it, in its sole
discretion, of the nature of the competition in that business, the Transferor
will not reduce the annual percentage rate of the monthly periodic finance
charges assessed on the related Receivables or other fees on the related
Accounts if, as a result of such reduction, the Portfolio Yield for any Series
as of such date would be less than the Base Rate for such Series. The terms
"Portfolio Yield" and "Base Rate" for each Series will have the meanings set
forth in the Prospectus Supplement relating to each such Series. In addition,
the Agreement provides, and each New Agreement will provide, that the Transferor
may change the terms of the contracts relating to the related Accounts or its
policies and procedures with respect to the servicing thereof (including without
limitation the reduction of the required minimum monthly payment and the
calculation of the amount or the timing of finance charges, credit card fees,
and charge offs), if such change (i) would not, in the reasonable belief of the
Transferor, cause a Pay Out Event for any related Series to occur, and (ii) is
made applicable to the comparable segment of revolving credit card accounts
owned and serviced by the Transferor which have characteristics the same as or
substantially similar to the related Accounts which are subject to such change.
In servicing the Accounts, the Servicer will be required to exercise the same
care and apply the same policies that it exercises in handling similar matters
for its own comparable accounts. Except as specified above or in any Prospectus
Supplement, there will be no restrictions on the Transferor's ability to change
the terms of the Accounts. There can be no assurance that changes in applicable
law, changes in the marketplace or prudent business practice might not result in
a determination by the Transferor to take actions which would change this or
other Account terms. Currently, the Transferor has no basis to determine what
effect various changes in the terms of the
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Receivables may have had in the past and has no basis to determine what change
in the terms of the Receivables may be made in the future or what effect those
changes may have.
Legal Matters and Litigation. In October 1991, the United States District
Court for the State of Massachusetts held that Greenwood Trust Company (a
federally-insured, Delaware-chartered bank that issues the Discover credit card)
was prohibited by Massachusetts law from assessing late charges on credit card
accounts of Massachusetts residents. On August 6, 1992, that decision was
reversed by the United States Court of Appeals for the First Circuit, which held
that the Massachusetts law was preempted by federal law permitting the charges
in question. In January 1993, the United States Supreme Court denied a petition
from the Commonwealth of Massachusetts to accept the case. Following the
District Court's decision, a number of class action lawsuits or administrative
actions were filed in several states against out-of-state banks (both
federally-insured, state-chartered banks and federally-insured, national banks)
which issue credit cards. These actions challenge a portion or all of the
various fees and charges (such as late fees, overlimit fees, returned check
fees, and annual membership fees) assessed against residents of states in which
such suits were filed, based on restrictions or prohibitions under such states'
laws alleged to be applicable to the out-of-state credit card issuers. On
January 19, 1996, the U.S. Supreme Court accepted an appeal of a California
Supreme Court decision which found that the charge in question was governed by
federal law and was therefore proper. Such actions, if successful and, if
supported by the U.S. Supreme Court and if applied to the Accounts, could reduce
the Portfolio Yield. If such reduction were significant, a Pay Out Event could
occur, in which case the Rapid Amortization Period or the Rapid Accumulation
Period would commence. Certificateholders of an affected Series might then
receive principal payments earlier than expected.
There can be no assurance that the Transferor will not be named as a
defendant in future lawsuits or administrative actions. Such litigation
involving the Transferor, if decided adversely to the Transferor, could result
in the reduction of the Portfolio Yield on the Accounts. If the Portfolio Yield
is significantly reduced, a Pay Out Event could occur, in which case the Rapid
Amortization Period or, if so specified in the related Prospectus Supplement,
the Rapid Accumulation Period would commence. See "Description of the
Certificates -- Pay Out Events."
Effects of Consumer Protection Laws. Federal and state consumer protection
laws impose requirements on the making and enforcement of consumer loans.
Congress and the states may enact new laws and amendments to existing laws to
regulate further the credit card and consumer credit industry or to reduce
finance charges or other fees or charges applicable to credit card accounts.
Such laws, as well as any new laws or rulings which may be adopted, may
adversely affect the Servicer's ability to collect on the Receivables or
maintain previous levels of monthly periodic finance charges and other credit
card fees. One effect of any legislation which regulates the amount of interest
and other charges that may be assessed on credit card account balances would be
to reduce the Portfolio Yield on the Accounts. If such legislation were to
result in a significant reduction in the Portfolio Yield, a Pay Out Event could
occur, in which case the Rapid Amortization Period or, if so specified in the
related Prospectus Supplement, the Rapid Accumulation Period would commence.
Certificateholders of an affected Series might then receive principal payments
earlier than expected. See "Description of the Certificates -- Pay Out Events."
Pursuant to each Agreement, the Transferor will covenant to accept
reassignment, subject to certain conditions described under "Description of the
Certificates -- Representations and Warranties," of each Receivable that does
not comply in all material respects with all requirements of applicable law. The
Transferor will make certain other representations and warranties relating to
the validity and enforceability of the Receivables. However, it is not
anticipated that the Trustee will make any examination of the related
Receivables or the records relating thereto for the purpose of establishing the
presence or absence of defects, compliance with such representations and
warranties, or for any other purpose. The sole remedy, if any such
representation or warranty is breached and such breach continues beyond the
applicable cure period, is that the Transferor will be obligated to accept
reassignment, subject to certain conditions described under "Description of the
Certificates -- Representations and Warranties," of the Receivables affected
thereby. Such Receivables will be reassigned to the Transferor without any cost,
direct or indirect, incurred by Certificateholders. See "Description of the
Certificates -- Representations and Warranties" and "Certain Legal Aspects of
the Receivables -- Consumer Protection Laws."
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Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders in the Receivables if such laws
result in any Receivables being written off as uncollectible when there are no
funds available from any Credit Enhancement or other sources to cover any
resulting shortfalls in amounts payable to Certificateholders. See "Description
of the Certificates -- Defaulted Receivables; Rebates and Fraudulent Charges;
Investor Charge-Offs."
Effects of Rebate Programs. Since May 1995, First Union has established
rebate programs applicable to certain accounts in the Bank Portfolio and may in
the future establish rebate programs applicable to certain accounts in the Bank
Portfolio, which may have substantially different terms from those described
below (the "Rebate Accounts"). These programs permit a qualifying cardholder
participating in the program to earn rebates payable by First Union in an amount
equal to a portion of certain qualifying finance charges on such cardholder's
account. Currently, the portion of qualifying finance charges subject to rebate
for any cardholder under the programs increases according to such cardholder's
length of participation in the program. Currently, for example, if a cardholder
selects an option of a 50% rebate and pays monthly finance charges on their card
during the initial five year participation period, beginning in the first month
of the sixth year, the cardholder will receive a credit for 50% of the
qualifying finance charges paid during the first month of the five year
participation period. Likewise, if a cardholder selects an option of a 100%
rebate and pays monthly finance charges on their card during each month on the
initial ten year participation period, beginning in the first month of the
eleventh year, the cardholder will receive a credit for 100% of the qualifying
finance charges paid during the first month of the initial ten year
participation period. Cardholders are not entitled to any rebate if their
participation in the program is discontinued prior to the completion of their
selected initial participation period. A cardholder could reduce the amount
payable to First Union in respect of its account balance by the amount of rebate
credits earned and applied to such cardholder's account. The amount of the
Transferor Interest in a Trust will be reduced by the aggregate amount of any
reduction in Principal Receivables transferred to such Trust as a result of any
such cardholder reduction. If after giving effect to such reduction in the
Transferor Interest, the Transferor Interest would be less than zero, First
Union will be required to pay the Trust an amount equal to the amount of such
net reduction in the Principal Receivables. In no event will a Trust assume the
obligation to pay any rebate earned by a cardholder under any of First Union's
rebate programs. See "Descriptions of the Certificates -- Defaulted Receivables;
Rebates and Fraudulent Charges; Investor Charge-Offs." If accounts subject to
any such rebate programs are included in the portfolio of Accounts included
within a Trust, the Prospectus Supplement for each Series issued under that
Trust will provide additional information concerning possible consequences to
the Certificateholders of that Series and related matters.
Competition in the Credit Card Industry. The credit card industry is
highly competitive. As new credit card issuers enter the market and all issuers
seek to expand their share of the market, there is increased use of advertising,
target marketing and pricing competition. Each Trust will be dependent upon the
Transferor's continued ability to generate new Receivables. If the rate at which
new Receivables are generated declines significantly and the Transferor is
unable to designate Additional Accounts with respect to a Trust, a Pay Out Event
could occur with respect to each Series relating to such Trust, in which case
the Rapid Amortization Period or, if so specified in the related Prospectus
Supplement, the Rapid Accumulation Period with respect to each such Series would
commence. Certificateholders might then receive principal payments earlier than
expected.
Timing of Payments and Maturity. The Receivables may be paid at any time
and there is no assurance that there will be additional Receivables created in
the Accounts or that any particular pattern of cardholder repayments will occur.
The commencement and continuation of a Controlled Amortization Period, a
Principal Amortization Period or a Controlled Accumulation Period for a Series
or Class thereof with respect to a Trust will be dependent upon the continued
generation of new Receivables to be conveyed to such Trust. A significant
decline in the amount of Receivables generated could result in the occurrence of
a Pay Out Event for one or more Series and the commencement of the Rapid
Amortization Period or, if so specified in the related Prospectus Supplement,
the Rapid Accumulation Period for each such Series. Certificateholders might
then receive principal payments earlier than expected. Certificateholders should
be aware that the Transferor's ability to continue to compete in the current
industry environment will affect the Transferor's
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ability to generate new Receivables to be conveyed to each Trust and may also
affect payment patterns. In addition, changes in periodic finance charges can
alter the monthly payment rates of cardholders. A significant decrease in such
monthly payment rate could slow the payment or accumulation of principal for the
benefit of Certificateholders during an Amortization Period or Accumulation
Period. No assurance can be given that payments of principal will be made as
expected during the Controlled Amortization Period or the Principal Amortization
Period, or with respect to an Accumulation Period, on the Scheduled Payment
Date, as applicable. See "Maturity Assumptions."
Pre-payment Risks Connected with a Pre-Funding Account. With respect to
any Series having a Pre-Funding Account, in the event that there is an
insufficient amount of Principal Receivables in the related Trust at the end of
the applicable Funding Period, the Certificateholders of such Series will be
repaid principal from amounts on deposit in the Pre-Funding Account (to the
extent of such insufficiency) following the end of such Funding Period, as
described more fully in the Prospectus Supplement. Such repayment of principal
would be prior to the scheduled date of such repayment. As a result of such
repayment, Certificateholders would receive a principal payment earlier than
they expected. In addition, Certificateholders would not receive the benefit of
the applicable Certificate Rate for the period of time originally expected on
the amount of such early repayment. There can be no assurance that a
Certificateholder would be able to reinvest such early repayment amount at a
similar rate of return.
Effect of Subordination. With respect to Certificates of a Series having a
Class or Classes of Subordinated Certificates, except in circumstances specified
in the related Prospectus Supplement, payments of principal in respect of the
Subordinated Certificates of a Series will not commence until after the final
principal payment with respect to the Senior Certificates of such Series. In
addition, if so specified in the related Prospectus Supplement, if collections
of Finance Charge Receivables allocable to the Certificates of a Series are
insufficient to cover required amounts due with respect to the Senior
Certificates of such Series, the Investor Interest with respect to the
Subordinated Certificates will be reduced, resulting in a reduction of the
portion of collections of Finance Charge Receivables allocable to the
Subordinated Certificates in future periods and a possible delay or reduction in
principal and interest payments on the Subordinated Certificates. Moreover, if
so specified in the related Prospectus Supplement, in the event of a sale of
Receivables in a Trust due to the bankruptcy or insolvency with respect to the
Transferor or any other holder of the Transferor Certificate or the appointment
of a conservator or receiver for the Transferor or any other holder of the
Transferor Certificate, or due to the inability of the Trustee to act as or find
a successor Servicer after a Servicer Default, the portion of the net proceeds
of such sale allocable to pay principal to the Certificates of a Series will be
used first to pay amounts due to the Senior Certificateholders and any remainder
will be used to pay amounts due to the Subordinated Certificateholders.
Scope of Certificate Rating. Any rating assigned to the Certificates of a
Series or a Class by a Rating Agency will reflect such Rating Agency's
assessment of the likelihood that Certificateholders of such Series or Class
will receive the payments of interest and principal required to be made under
the Agreement (including amounts payable from any Pre-Funding Account) and will
be based primarily on the value of the Receivables in the Trust and the
availability of any Enhancement with respect to such Series or Class. However,
any such rating will not, unless otherwise specified in the related Prospectus
Supplement with respect to any Class or Series offered hereby, address the
likelihood that the principal of, or interest on, any Certificates of such Class
or Series will be paid on a scheduled date. In addition, any such rating will
not address the possibility of the occurrence of a Pay Out Event with respect to
such Class or Series or the possibility of the imposition of United States
withholding tax with respect to non-U.S. Certificateholders. The rating will not
be a recommendation to purchase, hold or sell Certificates of such Series or
Class, and such rating will not comment as to the marketability of such
Certificates, any market price or suitability for a particular investor. There
is no assurance that any rating will remain for any given period of time or that
any rating will not be reduced or withdrawn entirely by a Rating Agency if in
such Rating Agency's judgment circumstances so warrant. Such a reduction or
withdrawal may affect the price or marketability of the Certificates, however,
the Transferor has no basis to determine what specific effects such a reduction
or withdrawal might have on any particular Certificateholder or Certificate
Owner.
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The Transferor will request a rating of the Certificates offered hereby of
each Series by at least one Rating Agency. There can be no assurance as to
whether any rating agency not requested to rate the Certificates will
nonetheless issue a rating with respect to any Series of Certificates or Class
thereof, and, if so, what such rating would be. A rating assigned to any Series
of Certificates or Class thereof by a rating agency that has not been requested
by the Transferor to do so may be lower than the rating assigned by a Rating
Agency pursuant to the Transferor's request.
Limited Credit Enhancement. Although Credit Enhancement may be provided
with respect to a Series of Certificates or any Class thereof, the amount
available will be limited and will be subject to certain reductions. If the
amount available under any Credit Enhancement is reduced to zero or the Credit
Enhancement is otherwise not available to cover a loss, Certificateholders of
the Series or Class thereof covered by such Credit Enhancement will bear
directly the credit and other risks associated with their undivided interest in
the Trust and will be more likely to suffer a loss. See "Credit Enhancement."
Basis Risk. If so specified in the related Prospectus Supplement, a
portion of the Accounts in a Trust will have finance charges set at a variable
rate above a designated prime rate or other designated index. A Series of
Certificates issued by such Trust may bear interest at a fixed rate or at a
floating rate based on an index other than such prime rate or other designated
index. If there is a decline in such prime rate or other designated index, the
amount of collections of Finance Charge Receivables on such Accounts may be
reduced, whereas the amounts payable as Monthly Interest on such Series of
Certificates and other amounts required to be funded out of collections of
Finance Charge Receivables with respect to such Series may not be similarly
reduced. Such an event could result in the occurrence of a Pay Out Event, in
which case the Rapid Amortization Period or, if so specified in the related
Prospectus Supplement, the Rapid Accumulation Period would commence.
Certificateholders of an affected Series might then receive principal payments
earlier than expected.
Master Trust Considerations. The Trust, as a master trust, is expected to
issue Series from time to time. Each New Trust, as a master trust, may issue
Series from time to time. While the Principal Terms of any Series will be
specified in a Series Supplement, the provisions of a Series Supplement and,
therefore, the terms of any additional Series, will not be subject to the prior
review by or consent of, holders of the Certificates of any previously issued
Series. Such Principal Terms may include methods for determining applicable
investor percentages and allocating collections, provisions creating different
or additional security or other Credit Enhancement, provisions subordinating
such Series to another Series or other Series (if the Series Supplement relating
to such Series so permits) to such Series, and any other amendment or supplement
to the related Agreement which is made applicable only to such Series. It is a
condition precedent to the issuance of any additional Series by a Trust that
each Rating Agency that has rated any outstanding Series issued by such Trust
deliver written confirmation to the Trustee that the Exchange will not result in
such Rating Agency reducing or withdrawing its rating on any outstanding Series.
There can be no assurance, however, that the Principal Terms of any other
Series, including any Series issued from time to time hereafter, might not have
an impact on the timing and amount of payments received by a Certificateholder
of any other Series. See "Description of the Certificates -- Exchanges."
Effect of Addition of Trust Assets on Credit Quality. The Transferor
expects, and in some cases will be obligated, to designate Additional Accounts,
the Receivables in which will be conveyed to a Trust. Such Additional Accounts
may include accounts originated using criteria different from those which were
applied to the Accounts designated on the Cut-Off Date related to such Trust or
to previously-designated Additional Accounts, because such accounts were
originated at a different date or were acquired from another institution.
Consequently, there can be no assurance that Additional Accounts designated in
the future will be of the same credit quality as previously-designated Accounts.
In addition, the Agreement provides that the Transferor may add Participations
to a Trust. The designation of Additional Accounts and Participations will be
subject to the satisfaction of certain conditions described herein under
"Description of the Certificates -- Addition of Trust Assets," however, there is
no mechanism to assure consistent credit quality from time to time. The credit
quality of the Certificates is related to the credit quality of the underlying
Accounts.
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Control of Action under Agreement. The Certificateholders generally have
limited control over the administration of the Trust or the applicable Series.
Subject to certain exceptions, the Certificateholders of each Series may take
certain actions, or direct certain actions to be taken, under the related
Agreement or the related Series Supplement. However, the related Agreement or
related Series Supplement may provide that under certain circumstances the
consent or approval of a specified percentage of the aggregate Investor Interest
of other Series or of the Investor Interest of a specified Class of such other
Series will be required to direct certain actions, including requiring the
appointment of a successor Servicer following a Servicer Default, amending the
related Agreement in certain circumstances and directing a repurchase of all
outstanding Series upon the breach of certain representations and warranties by
the Transferor. Certificateholders of such other Series may have interests which
do not coincide in any way with the interests of Certificateholders of the
subject Series. In such instances, it may be difficult for the
Certificateholders of such Series to achieve the results from the vote that they
desire.
Social, Legal and Economic Factors. Changes in use of credit and payment
patterns by customers may result from a variety of social, legal and economic
factors. Social factors include the public's perceptions of the use of credit
cards. Legal factors include any changes in the current legal structure
affecting the relative positions of credit card issuers and obligors under
credit card accounts. Economic factors include the rate of inflation,
unemployment levels and relative interest rates. Cardholders whose accounts are
included in the Bank Portfolio have addresses in 50 states and the District of
Columbia. Social, legal and economic factors in the States of California,
Florida, North Carolina and Virginia may have a disproportionate effect on the
Trust because of the concentration of Accounts in such States. See "The
Receivables" in the Prospectus Supplement. The Transferor, however, is unable to
determine and has no basis to predict whether, or to what extent, social, legal
or economic factors in California, Florida, North Carolina, Virginia or any
other State will affect future use of credit or repayment patterns.
Effects of Book-Entry Registration. Unless otherwise specified in the
related Prospectus Supplement, the Certificates of each Series initially will be
represented by one or more Certificates registered in the name of Cede, the
nominee for DTC, and will not be registered in the names of the Certificate
Owners or their nominees. Unless and until Definitive Certificates are issued
for a Series, Certificate Owners relating to such Series will not be recognized
by the Trustee as Certificateholders, as that term will be used in each
Agreement. Hence, until such time, Certificate Owners will only be able to
exercise the rights of Certificateholders indirectly through DTC, CEDEL or
Euroclear and their participating organizations. See "Description of the
Certificates -- Book-Entry Registration" and "-- Definitive Certificates."
THE TRUSTS
The Trust has been formed, and each New Trust will be formed, in accordance
with the laws of the State of New York pursuant to an Agreement. No Trust will
engage in any business activity other than acquiring and holding Receivables,
issuing Series of Certificates and the related Transferor Certificate, making
payments thereon and engaging in related activities (including, with respect to
any Series, obtaining any Enhancement and entering into an Enhancement agreement
relating thereto). As a consequence, no Trust is expected to have any need for
additional capital resources other than the assets of such Trust and there is no
reasonable potential for such need to develop. Furthermore, no such additional
capital resources will be available.
FIRST UNION'S CREDIT CARD ACTIVITIES
GENERAL
The Receivables which First Union has conveyed or will convey to the Trust
pursuant to the Agreement have been generated from transactions made by
cardholders of Classic VISA and VISA Gold credit accounts and Standard
MasterCard and Gold MasterCard credit card accounts. The Accounts were generated
under the VISA or MasterCard programs and were either originated by First Union
or acquired by First Union from other credit card issuers. First Union is a
member of VISA U.S.A., Inc. and of MasterCard International Inc.
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First Union currently offers VISA and MasterCard credit card accounts with
various program features, fees and rate structures.
A cardholder may use a credit card to purchase or lease goods or services
wherever the card is honored ("Purchases") or to obtain cash loans ("Cash
Advances") from any financial institution or automatic teller machine that
accepts VISA or MasterCard credit cards. Cash Advances may also be obtained
through the use of checks ("Credit Line Checks") issued by First Union which may
be used by a cardholder in the same way as a regular personal check.
ORIGINATIONS AND UNDERWRITING
The VISA and MasterCard credit card accounts owned by First Union were
principally generated through (a) national direct-mail solicitations for
Accounts on a pre-approved credit basis, (b) affinity group marketing programs,
(c) applications made available to prospective cardholders through a network of
over 1,200 branches operated by First Union and its sister banks in Florida,
Georgia, North Carolina, South Carolina, Virginia, Maryland, Tennessee and the
District of Columbia, and (d) acquisitions of other financial institutions.
Prior to 1994, Accounts were originated primarily through the 1,200 branch
network or acquired through acquisitions of other financial institutions. After
February 1994, the Accounts have been originated primarily through national
direct-mail solicitations and through the branch network.
Before acquiring a financial institution with a credit card portfolio,
First Union reviews the historical performance and seasoning of the portfolio
and the policies and practices of the financial institution to be acquired.
First Union, however, does not requalify individual accounts. There can be no
assurance, therefore, that Accounts so acquired have been originated in a manner
consistent with First Union's policies or that the underwriting and
qualification of such Accounts conform to prudent underwriting and qualification
standards.
First Union's national direct-mail solicitation program begins with a
pre-screening review to identify credit-worthy consumers for a credit card
account. As part of the pre-screening process, First Union provides a set of
credit history criteria to credit reporting agencies, which in turn, generate a
list of prospective cardholders with desired attributes. First Union further
refines the list by applying additional First Union underwriting criteria. These
criteria include risk and other models designed to predict the potential credit
risk of prospective cardholders. Such refinement results in a new list of
prospective cardholders who will receive a direct-mail solicitation. Consumers
receiving a solicitation package may respond by telephone or by returning an
acceptance certificate. Acceptance certificates are used to initiate a back-end
verification process during which an applicant's credit history is reviewed a
second time and updated and verified against First Union's established
underwriting criteria. First Union reserves a predetermined credit limit for
each solicited consumer. The credit limit may be based upon, among other things,
each consumer's credit profile, level of existing and potential indebtedness
relative to assumed income and estimated income, and demographic data.
In the case of applications which are not pre-approved, the credit risk of
each applicant is evaluated with a credit scoring system, intended to provide a
general indication, based on the information available, of the applicant's
willingness and ability to repay his or her obligations. Applications are scored
and evaluated based on the information received on the application as well as
data obtained from independent credit reporting agencies.
Affinity marketing involves the solicitation of prospective cardholders
from identifiable groups with a common interest. Affinity marketing is conducted
through two approaches: the first relies on the solicitation of organized
membership groups with the written endorsement of the group's leadership; the
second utilizes solicitation of prospective cardholders with common interests.
Prospective affinity cardholders are evaluated using the credit scoring system.
Cardholder requests for increased credit limits are evaluated based on
current credit bureau reports, updated application data, and prior Account
performance. In addition, credit limit increases are affected periodically by
First Union for cardholders meeting specific criteria.
Each cardholder is subject to an agreement governing the terms and
conditions of the Accounts. Pursuant to such agreement, First Union reserves the
right to change or terminate any terms, conditions, services or
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features of an Account (including increasing or decreasing monthly periodic
finance charges, other fees or minimum payments).
CUSTOMER SERVICE
Customer service representatives are available seven days a week. All
representatives have access to customer Account information and are trained in
human relations skills. First Union believes that such representatives have the
knowledge and ability to resolve most customer issues immediately. Technologies,
such as voice response units for calls and an image system for letters, together
with multiple tracking and reporting systems, are employed to help ensure that
service standards are achieved and maintained.
INTERCHANGE
Creditors participating in the VISA and MasterCard associations receive
Interchange as partial compensation for taking credit risk, absorbing fraud
losses and funding receivables for a limited period prior to initial billing.
Under the VISA and MasterCard systems, a portion of this Interchange in
connection with cardholder charges for goods and services is passed from banks
which clear the transactions for merchants to credit card issuing banks.
Interchange fees are set annually by MasterCard and VISA and are based on the
number of credit card transactions and the amount charged per transaction. The
Transferor may be required, as described in the related Prospectus Supplement,
to transfer to a Trust a percentage of the Interchange attributed to cardholder
charges for goods and services in the related Accounts. If so required to be
transferred, Interchange arising under the Accounts will be allocated to the
related Certificates of any Series in the manner provided in the related
Prospectus Supplement, and, unless otherwise provided in the related Prospectus
Supplement, will be treated as collections of Finance Charge Receivables and
will be used to pay required monthly payments including interest on the related
Series of Certificates, and, in some cases, to pay all or a portion of the
Servicing Fee to the Servicer.
THE RECEIVABLES
The Receivables conveyed to each Trust will arise in Accounts selected from
the Bank Portfolio on the basis of criteria set forth in the related Agreement
as applied on the relevant Cut-Off Date and, with respect to Additional
Accounts, as of the related date of their designation (the "Trust Portfolio").
The Transferor will have the right (subject to certain limitations and
conditions set forth therein), and in some circumstances will be obligated, to
designate from time to time Additional Accounts and to transfer to the related
Trust all Receivables of such Additional Accounts, whether such Receivables are
then existing or thereafter created, or to transfer to such Trust Participations
in lieu of such Receivables or in addition thereto. Any Additional Accounts
designated pursuant to an Agreement must be Eligible Accounts as of the date the
Transferor designates such accounts as Additional Accounts. Furthermore,
pursuant to each Agreement, the Transferor has the right (subject to certain
limitations and conditions) to designate certain Accounts as Removed Accounts
and to require the Trustee to reconvey all Receivables in such Removed Accounts
to the Transferor, whether such Receivables are then existing or thereafter
created. Throughout the term of each Trust, the related Accounts from which the
Receivables arise will be the Accounts designated by the Transferor on the
relevant Cut-Off Date plus any Additional Accounts minus any Removed Accounts.
With respect to each Series of Certificates, the Transferor will represent and
warrant to the related Trust that, as of the Closing Date and the date
Receivables are conveyed to the Trust, such Receivables meet certain eligibility
requirements. See "Description of the Certificates -- Representations and
Warranties."
The Prospectus Supplement relating to each Series of Certificates will
provide certain information about the related Trust Portfolio as of the date
specified. Such information will include, but not be limited to, the amount of
Principal Receivables, the amount of Finance Charge Receivables, the range of
principal balances of the Accounts and the average thereof, the range of credit
limits of the Accounts and the average thereof, the range of ages of the
Accounts and the average thereof, the geographic distribution of the Accounts,
the types of Accounts and delinquency statistics relating to the Accounts.
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MATURITY ASSUMPTIONS
For each Series, following the Revolving Period, collections of Principal
Receivables are expected to be distributed to the Certificateholders of such
Series or any specified Class thereof on each specified Distribution Date during
the Controlled Amortization Period or the Principal Amortization Period, or are
expected to be accumulated for payment to Certificateholders of such Series or
any specified Class thereof during an Accumulation Period and distributed on a
Scheduled Payment Date; provided, however, that, if the Rapid Amortization
Period commences, collections of Principal Receivables will be paid to
Certificateholders in the manner described herein and in the related Prospectus
Supplement. The related Prospectus Supplement specifies when the Controlled
Amortization Period, the Principal Amortization Period or an Accumulation
Period, as applicable, will commence, the principal payments expected or
available to be received or accumulated during such Controlled Amortization
Period, Principal Amortization Period or Accumulation Period, or on the
Scheduled Payment Date, as applicable, the manner and priority of principal
accumulations and payments among the Classes of a Series of Certificates, the
payment rate assumptions on which such expected principal accumulations and
payments are based and the Pay Out Events which, if any were to occur, would
lead to the commencement of a Rapid Amortization Period or, if so specified in
the related Prospectus Supplement, a Rapid Accumulation Period.
No assurance can be given, however, that the Principal Receivables
allocated to be paid to Certificateholders or the holders of any specified Class
thereof will be available for distribution or accumulation for payment to
Certificateholders on each Distribution Date during the Controlled Amortization
Period, the Principal Amortization Period or an Accumulation Period, or on the
Scheduled Payment Date, as applicable. In addition, the Transferor can give no
assurance that the payment rate assumptions for any Series will prove to be
correct. The related Prospectus Supplement will provide certain historical data
relating to payments by cardholders, total charge-offs and other related
information relating to the Bank Portfolio. There can be no assurance that
future events will be consistent with such historical data.
The amount of collections of Receivables may vary from month to month due
to seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that collections of Principal
Receivables with respect to any Trust Portfolio, and thus the rate at which the
related Certificateholders could expect to receive or accumulate payments of
principal on their Certificates during an Amortization Period or Accumulation
Period, or on any Scheduled Payment Date, as applicable, will be similar to any
historical experience set forth in a related Prospectus Supplement. If a Pay Out
Event occurs and the Rapid Amortization Period commences, the average life and
maturity of such Series of Certificates could be significantly reduced.
Because, for any Series of Certificates, there may be a slowdown in the
payment rate below the payment rate used to determine the amount of collections
of Principal Receivables scheduled or available to be distributed or accumulated
for later payment to Certificateholders or any specified Class thereof during an
Amortization Period or an Accumulation Period or on any Scheduled Payment Date,
as applicable, or a Pay Out Event may occur which could initiate the Rapid
Amortization Period, there can be no assurance that the actual number of months
elapsed from the date of issuance of such Series of Certificates to the final
Distribution Date with respect to the Certificates will equal the expected
number of months.
USE OF PROCEEDS
The net proceeds from the sale of each Series of Certificates offered
hereby will be paid to the Transferor. The Transferor will use such proceeds for
its general corporate purposes or for such other purpose specified in the
Prospectus Supplement.
FIRST UNION CORPORATION AND FIRST UNION
First Union Corporation (the "Corporation") is a North Carolina-based,
multi-bank holding company registered under the Bank Holding Company Act of
1956, as amended, and the rules and regulations thereunder (the "BHCA") and was
organized in 1967. The Corporation has banking offices in twelve eastern
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states and Washington, D.C. The Corporation also provides various other
financial services, including mortgage banking, home equity lending, leasing,
investment banking, insurance and securities brokerage services, through other
subsidiaries. On January 1, 1996, the Corporation acquired First Fidelity
Bancorporation, a New Jersey-based bank holding company with banking offices in
six states. The Corporation and its predecessors have been conducting credit
card related activities since 1959.
The Corporation is the parent corporation of First Union Corporation of
Georgia, a Georgia corporation registered under the BHCA, which in turn is the
parent corporation of First Union.
First Union is a national banking association formed in 1986 that provides
a wide range of commercial and retail banking services and trust services in
Georgia. In 1988, the Corporation and certain subsidiaries transferred their
credit card accounts and certain related assets to First Union.
The Prospectus Supplement for each Series of Certificates contains
additional information, including financial information, relating to the
Corporation and First Union.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued in Series. Each Series will represent an
interest in the specified Trust other than the interests represented by any
other Series of Certificates issued by such Trust (which may include Series
offered pursuant to this Prospectus) and the Transferor Certificate. Each Series
will be issued pursuant to an Agreement entered into by First Union and the
Trustee named in the related Prospectus Supplement and a Series Supplement to
the Agreement, a copy of the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Prospectus
Supplement for each Series describes any provisions of the particular Agreement
relating to such Series which may differ materially from the Agreement filed as
an exhibit to the Registration Statement. The following summaries describe
certain provisions common to each Series of Certificates. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the related Agreement and Series
Supplement.
GENERAL
The Certificates of each Series will represent undivided interests in
certain assets of the related Trust, including the right to the applicable
Investor Percentage of all cardholder payments on the Receivables in such Trust.
For each Series of Certificates, the Investor Interest on any date will be equal
to the initial Investor Interest as of the related Closing Date for such Series
(increased by the principal balance of any Certificates of such Series issued
after the Closing Date for such Series) minus the amount of principal paid to
the related Certificateholders prior to such date and minus the amount of
unreimbursed Investor Charge-Offs with respect to such Certificates prior to
such date. If so specified in the Prospectus Supplement relating to any Series
of Certificates, under certain circumstances the Investor Interest may be
further adjusted by the amount of principal allocated to Certificateholders, the
funds on deposit in any specified account, and any other amount specified in the
related Prospectus Supplement.
Each Series of Certificates may consist of one or more Classes, one or more
of which may be Senior Certificates and one or more of which may be Subordinated
Certificates. Each Class of a Series will evidence the right to receive a
specified portion of each distribution of principal or interest or both. The
Investor Interest with respect to a Series with more than one Class will be
allocated among the Classes as described in the related Prospectus Supplement.
The Certificates of a Class may differ from Certificates of other Classes of the
same Series in, among other things, the amounts allocated to principal payments,
maturity date, Certificate Rate and the availability of Enhancement.
For each Series of Certificates, payments of interest and principal will be
made on Distribution Dates specified in the related Prospectus Supplement to
Certificateholders in whose names the Certificates were registered on the record
dates (each, a "Record Date") specified in the related Prospectus Supplement.
Interest will be distributed to Certificateholders in the amounts, for the
periods and on the dates specified in the related Prospectus Supplement.
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For each Series of Certificates, the Transferor initially will own the
Transferor Certificate. The Transferor Certificate will represent the undivided
interest in each Trust not represented by the Certificates issued and
outstanding under such Trust or the rights, if any, of any Credit Enhancement
Providers to receive payments from each Trust. The holder of the Transferor
Certificate will have the right to a percentage (the "Transferor Percentage") of
all cardholder payments from the Receivables in the Trust. If provided in the
related Agreement and Prospectus Supplement, the Transferor Certificate may be
transferred in whole or in part subject to certain limitations and conditions
set forth therein. See "-- Certain Matters Regarding the Transferor and the
Servicer."
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, during the Revolving Period, the amount
of the Investor Interest in the Trust will remain constant except under certain
limited circumstances. See "-- Defaulted Receivables; Rebates and Fraudulent
Charges; Investor Charge-Offs." The amount of Principal Receivables in each
Trust, however, will vary each day as new Principal Receivables are created and
others are paid. The amount of the Transferor Interest will fluctuate each day,
therefore, to reflect the changes in the amount of the Principal Receivables in
the Trust. When a Series is amortizing, the Investor Interest of such Series
will decline as customer payments of Principal Receivables are collected and
distributed to or accumulated for distribution to the Certificateholders. As a
result, the Transferor Interest will generally increase to reflect reductions in
the Investor Interest for such Series and will also change to reflect the
variations in the amount of Principal Receivables in the related Trust. The
Transferor Interest in each Trust may also be reduced as the result of an
Exchange. See "-- Exchanges."
Unless otherwise specified in the related Prospectus Supplement,
Certificates of each Series initially will be represented by certificates
registered in the name of the nominee of DTC (together with any successor
depository selected by the Transferor, the "Depository") except as set forth
below. Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, beneficial interests in the Certificates
will be available for purchase in minimum denominations of $1,000 and integral
multiples thereof in book-entry form only. The Transferor has been informed by
DTC that DTC's nominee will be Cede. Accordingly, Cede is expected to be the
holder of record of each Series of Certificates. No Certificate Owner acquiring
an interest in the Certificates will be entitled to receive a certificate
representing such person's interest in the Certificates. Unless and until
Definitive Certificates are issued for any Series under the limited
circumstances described herein, all references herein to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
its Participants (as defined below), and all references herein to distributions,
notices, reports and statements to Certificateholders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Certificates, as the case may be, for distribution to Certificate
Owners in accordance with DTC procedures. See "-- Book-Entry Registration" and
"-- Definitive Certificates."
If so specified in the Prospectus Supplement relating to a Series,
application will be made to list the Certificates of such Series, or all or a
portion of any Class thereof, on the Luxembourg Stock Exchange or any other
specified exchange.
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, Certificateholders may hold their
Certificates through DTC (in the United States) or CEDEL or Euroclear (in
Europe) if they are participants of such systems, or indirectly through
organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Certificates. CEDEL and
Euroclear will hold omnibus positions on behalf of the CEDEL Participants and
the Euroclear Participants, respectively, through customers' securities accounts
in CEDEL's and Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform
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Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC was created to hold securities for its
participating organizations ("Participants") and facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entry changes in accounts of Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers (who may include the underwriters of any Series), banks, trust companies
and clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (the "Indirect
Participants").
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a Participant will be received with
value on the DTC settlement date but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following settlement in DTC.
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interest
in, Certificates may do so only through Participants and Indirect Participants.
In addition, Certificate Owners will receive all distributions of principal of
and interest on the Certificates from the Trustee through the Participants who
in turn will receive them from DTC. Under a book-entry format, Certificate
Owners may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede, as nominee for DTC. DTC will
forward such payments to Participants which thereafter will forward them to
Indirect Participants or Certificate Owners. It is anticipated that the only
"Certificateholder" will be Cede, as nominee of DTC. Certificate Owners will not
be recognized by the Trustee as Certificateholders, as such term is used in the
Agreement, and Certificate Owners will only be permitted to exercise the rights
of Certificateholders indirectly through the Participants who in turn will
exercise the rights of Certificateholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Certificates and is required to
receive and transmit distributions of principal and interest on the
Certificates. Participants and Indirect Participants with which Certificate
Owners have accounts with respect to the Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess Certificates, Certificate Owners will receive payments and will
be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge Certificates to persons or entities that do not
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participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
DTC has advised the Transferor that it will take any action permitted to be
taken by a Certificateholder under any related Agreement only at the direction
of one or more Participants to whose account with DTC the Certificates are
credited. Additionally, DTC has advised the Transferor that it will take such
actions with respect to specified percentages of the Investor Interest only at
the direction of and on behalf of Participants whose holdings include undivided
interests that satisfy such specified percentages. DTC may take conflicting
actions with respect to other undivided interests to the extent that such
actions are taken on behalf of Participants whose holdings include such
undivided interests.
Cedel Bank, societe anonyme ("CEDEL") is incorporated under the laws of
Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations ("CEDEL Participants") and facilitates the clearance
and settlement of securities transactions between CEDEL Participants through
electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to its CEDEL Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. CEDEL interfaces with domestic
markets in several countries. As a professional depository, CEDEL is subject to
regulation by the Luxembourg Monetary Institute. CEDEL Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters of any Series
of Certificates. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 32
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of any Series of Certificates. Indirect access to the Euroclear
System is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of
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Euroclear Participants and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Certain Federal Income Tax Consequences." CEDEL or the Euroclear Operator,
as the case may be, will take any other action permitted to be taken by a
Certificateholder under the related Agreement on behalf of a CEDEL Participant
or Euroclear Participant only in accordance with its relevant rules and
procedures and subject to its Depositary's ability to effect such actions on its
behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
In the event that any of DTC, Cedel or Euroclear should discontinue its
services, the Transferor would seek an alternative depository (if available) or
cause the issuance of Definitive Certificates to Certificate Owners or their
nominees in the manner described under "-- Definitive Certificates."
DEFINITIVE CERTIFICATES
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series will be issued as Definitive Certificates in fully
registered, certificated form to Certificate Owners or their nominees rather
than to DTC or its nominee, only if (i) the Transferor advises the Trustee for
such Series in writing that DTC is no longer willing or able to discharge
properly its responsibilities as Depository with respect to such Series of
Certificates, and the Trustee or the Transferor is unable to locate a qualified
successor, (ii) the Transferor, at its option, advises the Trustee in writing
that it elects to terminate the book-entry system through DTC or (iii) after the
occurrence of a Servicer Default, Certificate Owners representing not less than
50% (or such other percentage specified in the related Prospectus Supplement) of
the Investor Interest advise the Trustee and DTC through Participants in writing
that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interest of the Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificate representing the Certificates and instructions for
re-registration, the Trustee will issue the Certificates as Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as holders under the Agreement ("Holders").
Distribution of principal and interest on the Certificates will be made by
the Trustee directly to Holders of Definitive Certificates in accordance with
the procedures set forth herein and in the Agreement. Interest payments and any
principal payments on each Distribution Date will be made to Holders in whose
names the Definitive Certificates were registered at the close of business on
the related Record Date. Distributions will be made by check mailed to the
address of such Holder as it appears on the register maintained by the Trustee.
The final payment on any Certificate (whether Definitive Certificates or the
Certificates registered in the name of Cede representing the Certificates),
however, will be made only upon presentation and surrender of such Certificate
at the office or agency specified in the notice of final distribution to
Certificateholders. The Trustee will provide such notice to registered
Certificateholders not later than the fifth day of the month of such final
distributions.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar, which shall initially be the
Trustee. No service charge will be imposed for any registration of transfer or
exchange, but the Transfer Agent and Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith. The Transfer Agent and Registrar shall not be required to register
the transfer or exchange of Definitive Certificates for a period of fifteen days
preceding the due date for any payment with respect to such Definitive
Certificates.
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INTEREST PAYMENTS
For each Series of Certificates and Class thereof, interest will accrue
from the relevant Closing Date on the applicable Investor Interest at the
applicable Certificate Rate, which may be a fixed, floating or other type of
rate as specified in the related Prospectus Supplement. Interest will be
distributed to Certificateholders on the Distribution Dates specified in the
related Prospectus Supplement. Interest payments on any Distribution Date will
be funded from collections of Finance Charge Receivables allocated to the
Investor Interest during the preceding Monthly Period or Periods and may be
funded from certain investment earnings on funds held in accounts of the related
Trust and from any applicable Credit Enhancement, if necessary, or certain other
amounts as specified in the related Prospectus Supplement. If the Distribution
Dates for payment of interest for a Series or Class occur less frequently than
monthly, such collections or other amounts (or the portion thereof allocable to
such Class) may be deposited in one or more trust accounts (each, an "Interest
Funding Account") pending distribution to the Certificateholders of such Series
or Class, as described in the related Prospectus Supplement. If a Series has
more than one Class of Certificates, each such Class may have a separate
Interest Funding Account. The Prospectus Supplement relating to each Series of
Certificates and each Class thereof describes the amounts and sources of
interest payments to be made, the Certificate Rate, and, for a Series or Class
thereof bearing interest at a floating Certificate Rate, the initial Certificate
Rate, the dates and the manner for determining subsequent Certificate Rates, and
the formula, index or other method by which such Certificate Rates are
determined.
PRINCIPAL PAYMENTS
Except in the circumstances specified in the related Prospectus Supplement,
during the Revolving Period for each Series of Certificates (which begins on the
Closing Date relating to such Series and ends on the day before an Amortization
Period or Accumulation Period begins), no principal payments will be made to the
Certificateholders of such Series. During the Controlled Amortization Period or
Principal Amortization Period, as applicable, which will be scheduled to begin
on the date specified in, or determined in the manner specified in, the related
Prospectus Supplement, and during the Rapid Amortization Period, which will
begin upon the occurrence of a Pay Out Event or, if so specified in the related
Prospectus Supplement, the Rapid Accumulation Period, principal will be paid to
the Certificateholders in the amounts and on Distribution Dates specified in the
related Prospectus Supplement. During an Accumulation Period, principal will be
accumulated in a Principal Funding Account for later distribution to
Certificateholders on the Scheduled Payment Date in the amounts specified in the
related Prospectus Supplement. Principal payments for any Series or Class
thereof will be funded from collections of Principal Receivables received during
the related Monthly Period or Periods as specified in the related Prospectus
Supplement and allocated to such Series or Class and from certain other sources
specified in the related Prospectus Supplement. In the case of a Series with
more than one Class of Certificates, the Certificateholders of one or more
Classes may receive payments of principal at different times. The related
Prospectus Supplement describes the manner, timing and priority of payments of
principal to Certificateholders of each Class.
Funds on deposit in any Principal Funding Account applicable to a Series
may be subject to a guaranteed rate agreement or guaranteed investment contract
or other arrangement specified in the related Prospectus Supplement intended to
assure a minimum rate of return on the investment of such funds. In order to
enhance the likelihood of the payment in full of the principal amount of a
Series of Certificates or Class thereof at the end of an Accumulation Period,
such Series of Certificates or Class thereof may be subject to a principal
guaranty or other similar arrangement specified in the related Prospectus
Supplement.
TRANSFER AND ASSIGNMENT OF RECEIVABLES
With respect to the Trust, the Transferor has transferred and assigned, and
with respect to any New Trust the Transferor will transfer and assign at the
time of formation of each such Trust, all of its right, title and interest in
and to the Receivables in the related Accounts and all Receivables thereafter
created in such Accounts.
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In connection with each previous transfer of the Receivables to the Trust,
the Transferor indicated, and in connection with each subsequent transfer of
Receivables to a Trust, the Transferor will indicate, in its computer files that
the related Receivables have been conveyed to such Trust. In addition, the
Transferor has provided to the Trustee, with respect to the Trust, and will
provide to the Trustee with respect to each New Trust, computer files or
microfiche lists, containing a true and complete list showing each related
Account, identified by account number and by total outstanding balance on the
date of transfer. The Transferor will not deliver to the related Trustee any
other records or agreements relating to the Accounts or the Receivables, except
in connection with additions or removals of Accounts. Except as stated above,
the records and agreements relating to the Accounts and the Receivables
maintained by the Transferor or the Servicer are not and will not be segregated
by the Transferor or the Servicer from other documents and agreements relating
to other credit card accounts and receivables and are not and will not be
stamped or marked to reflect the transfer of the Receivables to a Trust, but the
computer records of the Transferor are and will be required to be marked to
evidence such transfer. The Transferor has filed, with respect to the Trust, and
will file with respect to each New Trust, Uniform Commercial Code financing
statements with respect to the Receivables meeting the requirements of Georgia
state law. See "Risk Factors -- Potential Priority of Certain Liens" and
"Certain Legal Aspects of the Receivables."
EXCHANGES
Each Agreement will provide for the related Trustee to issue two types of
certificates: (i) one or more Series of Certificates which are transferable and
have the characteristics described below and (ii) the Transferor Certificate, a
certificate which evidences the Transferor Interest, which initially will be
held by the Transferor and will be transferable only as provided in such
Agreement. Pursuant to any one or more Series Supplements, the holder of the
Transferor Certificate may tender such Transferor Certificate, or the Transferor
Certificate and the Certificates evidencing any Series of Certificates issued by
such Trust, to the related Trustee in exchange for one or more new Series (which
may include Series offered pursuant to this Prospectus) and a reissued
Transferor Certificate. This exchange feature permits the creation of new Series
to be issued from an already existing Trust. Pursuant to each Agreement, the
holder of the Transferor Certificate may define, with respect to any newly
issued Series, all Principal Terms of such new Series. Upon the issuance of an
additional Series of Certificates, none of the Transferor, the Servicer, the
Trustee or the related Trust will be required or will intend to obtain the
consent of any Certificateholder of any other Series previously issued by such
Trust. However, as a condition of an Exchange, the holder of the Transferor
Certificate will deliver to the Trustee written confirmation that the Exchange
will not result in the reduction or withdrawal by any Rating Agency of its
rating of any outstanding Series. The Transferor may offer any Series under a
Disclosure Document in offerings pursuant to this Prospectus or in transactions
either registered under the Securities Act or exempt from registration
thereunder directly, through one or more other underwriters or placement agents,
in fixed-price offerings or in negotiated transactions or otherwise.
The holder of the Transferor Certificate may perform Exchanges and define
Principal Terms such that each Series issued under a Trust has a period during
which amortization or accumulation of the principal amount thereof is intended
to occur which may have a different length and begin on a different date than
such period for any other Series. Further, one or more Series may be in their
amortization or accumulation periods while other Series are not. Moreover, each
Series may have the benefit of a Credit Enhancement which is available only to
such Series. Under the related Agreement, the Trustee shall hold any such form
of Credit Enhancement only on behalf of the Series with respect to which it
relates. Likewise, with respect to each such form of Credit Enhancement, the
holder of the Transferor Certificate may deliver a different form of Credit
Enhancement agreement. The holder of the Transferor Certificate may specify
different certificate rates and monthly servicing fees with respect to each
Series (or a particular Class within such Series). The holder of the Transferor
Certificate will also have the option under the related Agreement to vary
between Series the terms upon which a Series (or a particular Class within such
Series) may be repurchased by the Transferor or remarketed to other investors.
Additionally, certain Series may be subordinated to other Series, or Classes
within a Series may have different priorities. There will be no limit to the
number of Exchanges that may be performed under a related Agreement.
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An Exchange may only occur upon the satisfaction of certain conditions
provided in the related Agreement. Under each Agreement, the holder of the
Transferor Certificate may perform an Exchange by notifying the Trustee at least
three days in advance of the date upon which the Exchange is to occur. Under
each Agreement, the notice will state the designation of any Series (and Class
thereof, if applicable) to be issued on the date of the Exchange and, with
respect to each such Series: (i) its initial principal amount (or method for
calculating such amount), (ii) its certificate rate (or method of calculating
such rate), if any, and (iii) the provider of Credit Enhancement, if any, which
is expected to provide support with respect to it. Each Agreement will provide
that on the date of the Exchange the Trustee will authenticate any such Series
only upon delivery to it of the following, among others (i) a Series Supplement
specifying the Principal Terms of such Series, (ii) a Tax Opinion, (iii) if
required by the related Series Supplement, the form of Credit Enhancement, (iv)
if Credit Enhancement is required by the Series Supplement, an appropriate
Credit Enhancement agreement with respect thereto executed by the Transferor and
the issuer of the Credit Enhancement, (v) written confirmation from each Rating
Agency that the Exchange will not result in such Rating Agency's reducing or
withdrawing its rating on any then outstanding Series rated by it, (vi) an
officer's certificate of the Transferor to the effect that after giving effect
to the Exchange the Transferor would not be required to add Additional Accounts
pursuant to the related Agreement and the Transferor Interest would be at least
equal to the Minimum Transferor Interest and (vii) the existing Transferor
Certificate and, if applicable, the certificates representing the Series to be
exchanged. Upon satisfaction of such conditions, the Trustee will cancel the
existing Transferor Certificate and the certificates of the exchanged Series, if
applicable, and authenticate the new Series and a new Transferor Certificate.
REPRESENTATIONS AND WARRANTIES
The Transferor has made in the Agreement, and will make in each New
Agreement, certain representations and warranties to the Trust to the effect
that, among other things, (a) as of the Closing Date, the Transferor was duly
incorporated and in good standing and that it has the authority to consummate
the transactions contemplated by the related Agreement and (b) as of the
relevant Cut-Off Date (or as of the date of the designation of Additional
Accounts), each Account was an Eligible Account (as defined below). If so
provided in the related Prospectus Supplement, if (i) any of these
representations and warranties proves to have been incorrect in any material
respect when made, and continues to be incorrect for 60 days after notice to the
Transferor by the related Trustee or to the Transferor and the related Trustee
by the Certificateholders holding more than 50% of the Investor Interest of the
related Series, and (ii) as a result the interests of the Certificateholders are
materially and adversely affected, and continue to be materially and adversely
affected during such period, then the Trustee or Certificateholders holding more
than 50% of the Investor Interest may give notice to the Transferor (and to the
related Trustee in the latter instance) declaring that a Pay Out Event has
occurred, thereby commencing the Rapid Amortization Period or, if so specified
in the related Prospectus Supplement, the Rapid Accumulation Period.
The Transferor has made in the Agreement, and will make in each New
Agreement, representations and warranties to the related Trust relating to the
Receivables in such Trust to the effect, among other things, that (a) as of the
Closing Date of the initial Series of Certificates issued by such Trust, each of
the Receivables then existing is an Eligible Receivable (as defined below) and
(b) as of the date of creation of any new Receivable, such Receivable is an
Eligible Receivable and the representation and warranty set forth in clause (b)
in the immediately following paragraph is true and correct with respect to such
Receivable. In the event (i) of a breach of any representation and warranty set
forth in this paragraph, within 60 days, or such longer period as may be agreed
to by the Trustee, of the earlier to occur of the discovery of such breach by
the Transferor or Servicer or receipt by the Transferor of written notice of
such breach given by the Trustee, or, with respect to certain breaches relating
to prior liens, immediately upon the earlier to occur of such discovery or
notice and (ii) that as a result of such breach, the Receivables in the related
Accounts are charged off as uncollectible, the Trust's rights in, to or under
the Receivables or its proceeds are impaired or the proceeds of such Receivables
are not available for any reason to the Trust free and clear of any lien, the
Transferor shall accept reassignment of each Principal Receivable as to which
such breach relates (an "Ineligible Receivable") on the terms and conditions set
forth below; provided, however, that no such reassignment shall be required to
be made with respect to such Ineligible Receivable if, on any day within the
applicable period (or
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such longer period as may be agreed to by the Trustee), the representations and
warranties with respect to such Ineligible Receivable shall then be true and
correct in all material respects. The Transferor shall accept reassignment of
each such Ineligible Receivable by directing the Servicer to deduct the amount
of each such Ineligible Receivable from the aggregate amount of Principal
Receivables used to calculate the Transferor Interest. In the event that the
exclusion of an Ineligible Receivable from the calculation of the Transferor
Interest would cause the Transferor Interest to be a negative number, on the
date of reassignment of such Ineligible Receivable the Transferor shall make a
deposit in the Collection Account (for allocation as a Principal Receivable) in
immediately available funds in an amount equal to the amount by which the
Transferor Interest would be reduced below zero. Any such deduction or deposit
shall be considered a repayment in full of the Ineligible Receivable. The
obligation of the Transferor to accept reassignment of any Ineligible Receivable
is the sole remedy respecting any breach of the representations and warranties
set forth in this paragraph with respect to such Receivable available to the
Certificateholders or the Trustee on behalf of Certificateholders.
Certificateholders will not incur any costs, direct or indirect, relating to any
such reassignment to the Transferor.
The Transferor has made in the Agreement, and will make in each New
Agreement, representations and warranties to the related Trust to the effect,
among other things, that as of the Closing Date of the initial Series of
Certificates issued by such Trust (a) the related Agreement will constitute a
legal, valid and binding obligation of the Transferor and (b) the transfer of
Receivables by it to the Trust under the Agreement will constitute either a
valid transfer and assignment to the Trust of all right, title and interest of
the Transferor in and to the Receivables (other than Receivables in Additional
Accounts), whether then existing or thereafter created and the proceeds thereof
(including amounts in any of the accounts established for the benefit of
Certificateholders) or the grant of a first priority perfected security interest
in such Receivables (except for certain tax and other governmental liens) and
the proceeds thereof (including amounts in any of the accounts established for
the benefit of Certificateholders), which is effective as to each such
Receivable upon the creation thereof. In the event of a breach of any of the
representations and warranties described in this paragraph, either the Trustee
or the Holders of Certificates evidencing undivided interests in the Trust
aggregating more than 50% of the aggregate Investor Interest of all Series
outstanding under such Trust may direct the Transferor to accept reassignment of
the Trust Portfolio within 60 days of such notice, or within such longer period
specified in such notice. The Transferor will be obligated to accept
reassignment of such Receivables on a Distribution Date occurring within such
applicable period. Such reassignment will not be required to be made, however,
if at any time during such applicable period, or such longer period, the
representations and warranties shall then be true and correct in all material
respects. The deposit amount for such reassignment will be equal to the Investor
Interest and Enhancement Invested Amount, if any, for each Series outstanding
under such Trust on the last day of the Monthly Period preceding the
Distribution Date on which the reassignment is scheduled to be made less the
amount, if any, previously allocated for payment of principal to such
Certificateholders or such holders of the Enhancement Invested Amount or the
Collateral Interest, if any, on such Distribution Date, plus an amount equal to
all accrued and unpaid interest less the amount, if any, previously allocated
for payment of such interest on such Distribution Date. The payment of the
reassignment deposit amount and the transfer of all other amounts deposited for
the preceding month in the Distribution Account will be considered a payment in
full of the Investor Interest and the Enhancement Invested Amount, if any, for
each such Series required to be repurchased and will be distributed upon
presentation and surrender of the Certificates for each such Series. If the
Trustee or Certificateholders give a notice as provided above, the obligation of
the Transferor to make any such deposit will constitute the sole remedy
respecting a breach of the representations and warranties available to the
Trustee or such Certificateholders. Certificateholders will not incur any costs,
direct or indirect, related to the reassignment of the Trust Portfolio to the
Transferor.
An "Eligible Account" will be defined to mean, as of the relevant Cut-Off
Date (or, with respect to Additional Accounts, as of their date of designation
for inclusion in the related Trust), each Account, other than business accounts,
owned by the Transferor (a) which was in existence and maintained with the
Transferor, (b) which is payable in United States dollars, (c) the customer of
which has provided, as his most recent billing address, an address located in
the United States or its territories or possessions, (d) which has not been
classified by the Transferor as cancelled, counterfeit, bankrupt, fraudulent,
stolen or lost, (e) which
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has either been originated by the Transferor or acquired by the Transferor from
other institutions, (f) which has not been charged off by the Transferor in its
customary and usual manner for charging off such Account as of the Cut-Off Date
and, with respect to Additional Accounts, as of their date of designation for
inclusion in the Trust and (g) which is not subject to any loss sharing
arrangement or other similar arrangement with the FDIC. Under the Agreement and
each New Agreement, the definition of Eligible Account may be changed by
amendment to such Agreement without the consent of the related
Certificateholders if (i) the Transferor delivers to the Trustee a certificate
of an authorized officer to the effect that, in the reasonable belief of the
Transferor, such amendment will not as of the date of such amendment adversely
affect in any material respect the interest of such Certificateholders, and (ii)
such amendment will not result in a withdrawal or reduction of the rating of any
outstanding Series under the related Trust.
An "Eligible Receivable" will be defined to mean each Receivable (a) which
has arisen under an Eligible Account, (b) which was created in compliance, in
all material respects, with all requirements of law applicable to the
Transferor, and pursuant to a credit card agreement which complies in all
material respects with all requirements of law applicable to the Transferor, (c)
with respect to which all consents, licenses, approvals or authorizations of, or
registrations or declarations with, any governmental authority required to be
obtained or given by the Transferor in connection with the creation of such
Receivable or the execution, delivery and performance by the Transferor of the
related credit card agreement have been duly obtained or given and are in full
force and effect as of the date of the creation of such Receivable, (d) as to
which, at the time of its creation, the Transferor or the related Trust had good
and marketable title free and clear of all liens and security interests arising
under or through the Transferor (other than certain tax liens for taxes not then
due or which the Transferor is contesting), (e) which is the legal, valid and
binding payment obligation of the obligor thereon, legally enforceable against
such obligor in accordance with its terms (with certain bankruptcy-related
exceptions) and (f) which constitutes an "account" or a "general intangible"
under Article 9 of the Uniform Commercial Code as then in effect in the State of
Georgia.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Certificates, it will not be required or anticipated that the Trustee
will make any initial or periodic general examination of the Receivables or any
records relating to the Receivables for the purpose of establishing the presence
or absence of defects, compliance with the Transferor's representations and
warranties or for any other purpose. The Servicer, however, will deliver to the
Trustee on or before March 31 of each year (or such other date specified in the
related Prospectus Supplement) an opinion of counsel with respect to the
validity of the security interest of the Trust in and to the Receivables and
certain other components of the Trust.
ADDITION OF TRUST ASSETS
As described above under "The Receivables," the Transferor will have the
right to designate for each Trust, from time to time, Additional Accounts to be
included as Accounts with respect to such Trust. In addition, the Transferor
will be required to designate Additional Accounts under the circumstances and
in the amounts specified in the related Prospectus Supplement. The
Transferor will convey to the related Trust its interest in all Receivables of
such Additional Accounts, whether such Receivables are then existing or
thereafter created. This feature permits the Transferor to increase the amount
of Principal Receivables in a Trust over the amount that would otherwise be
included, thereby permitting the issuance of additional Series or avoiding the
occurrence of certain Pay Out Events with respect to existing Series.
Certificateholders will not incur any costs, direct or indirect, as a result of
the exercise of this feature.
Each Additional Account must be an Eligible Account at the time of its
designation. However, Additional Accounts may not be of the same credit quality
as the initial Accounts. Additional Accounts may have been originated by the
Transferor using credit criteria different from those which were applied by the
Transferor to the initial Accounts or may have been acquired by the Transferor
from an institution which may have had different credit criteria.
If so specified in the Prospectus Supplement relating to a Series, in
addition to or in lieu of Additional Accounts, the Transferor under the
Agreement is, and under each New Agreement will be, permitted to add to the
related Trust, participations representing undivided interests in a pool of
assets primarily consisting of
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receivables arising under consumer revolving credit card accounts owned by the
Transferor and collections thereon ("Participations"). Each Participation must
(a) have been (i) previously registered under the Securities Act or (ii) held
for the holding period required under Rule 144(k) under the Securities Act and
(b) be acquired in a bona fide secondary market transaction and not from the
Transferor or an affiliate thereof, in each case to the extent required by the
Securities Act. Participations may be evidenced by one or more certificates of
ownership issued under a separate pooling and servicing agreement or similar
agreement (a "Participation Agreement") entered into by the Transferor which
entitles the certificateholder to receive percentages of collections generated
by the pool of assets subject to such Participation Agreement from time to time
and to certain other rights and remedies specified therein. Participations may
have their own credit enhancement, pay out events, servicing obligations and
servicer defaults, all of which are likely to be enforceable by a separate
trustee under the Participation Agreement and may be different from those
specified herein. The rights and remedies of the related Trust as the holder of
a Participation (and therefore the Certificateholders) will be subject to all
the terms and provisions of the related Participation Agreement. The Agreement
and each New Agreement may be amended to permit the addition of a Participation
in a Trust without the consent of the related Certificateholders if (i) the
Transferor delivers to the Trustee a certificate of an authorized officer to the
effect that, in the reasonable belief of the Transferor, such amendment will not
as of the date of such amendment adversely affect in any material respect the
interest of such Certificateholders, and (ii) such amendment will not result in
a withdrawal or reduction of the rating of any outstanding Series under the
related Trust.
A conveyance by the Transferor to a Trust of Receivables in Additional
Accounts or Participations is subject to the following conditions, among others:
(i) the Transferor shall give the Trustee, each Rating Agency and the Servicer
written notice that such Additional Accounts or Participations will be included,
which notice shall specify the approximate aggregate amount of the Receivables
or interests therein to be transferred; (ii) the Transferor shall have delivered
to the Trustee a written assignment (including an acceptance by the Trustee on
behalf of the Trust for the benefit of the Certificateholders) as provided in
the Agreement relating to such Additional Accounts or Participations (the
"Assignment") and, the Transferor shall have delivered to the Trustee a computer
file or microfiche list, dated the date of such Assignment, containing a true
and complete list of such Additional Accounts or Participations; (iii) the
Transferor shall represent and warrant that (x) each Additional Account is, as
of the Addition Date, an Eligible Account, and each Receivable in such
Additional Account is, as of the Addition Date, an Eligible Receivable, (y) no
selection procedures believed by the Transferor to be materially adverse to the
interests of the Certificateholders were utilized in selecting the Additional
Accounts from the available Eligible Accounts from the Bank Portfolio, and (z)
as of the Addition Date, the Transferor is not insolvent; (iv) the Transferor
shall deliver certain opinions of counsel with respect to the transfer of the
Receivables in the Additional Accounts or the Participations to the Trust and
(v) under certain circumstances with respect to Additional Accounts, and in all
cases with respect to Participations, each Rating Agency then rating any Series
of Certificates outstanding under such Trust shall have consented to the
addition of such Additional Accounts or Participations.
In addition to the periodic reports otherwise required to be filed by the
Servicer with the Commission pursuant to the Exchange Act, the Servicer intends
to file, on behalf of each Trust, a Report on Form 8-K with respect to any
addition to a Trust of Receivables in Additional Accounts or Participations that
would have a material effect on the composition of the assets of such Trust.
REMOVAL OF ACCOUNTS
Subject to the conditions set forth in the next succeeding sentence, the
Transferor may, but shall not be obligated to, designate from time to time
(which may be restricted to certain periods if so specified in the related
Prospectus Supplement) certain Accounts to be Removed Accounts, all Receivables
in which shall be subject to deletion and removal from the related Trust;
provided, however, that the Transferor shall not make more than one such
designation in any Monthly Period. This feature is intended to permit the
Transferor to obtain unencumbered ownership of Receivables not needed to support
any Series of Certificates. Certificateholders will not incur any cost, direct
or indirect, as a result of the exercise of this feature. The Transferor will be
permitted to designate and require reassignment to it of the Receivables from
Removed Accounts only
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upon satisfaction of the following conditions: (i) the removal of any
Receivables of any Removed Accounts shall not, in the reasonable belief of the
Transferor, cause a Pay Out Event to occur; (ii) the Transferor shall have
delivered to the related Trustee for execution a written assignment and a
computer file or microfiche list containing a true and complete list of all
Removed Accounts identified by account number and the aggregate amount of the
Receivables in such Removed Accounts; (iii) either (a) the Trust Portfolio is
not more than 15% delinquent and the weighted average delinquency rate of such
Trust Portfolio does not exceed 60 days, (b) the Trust Portfolio is not more
than 7% delinquent and the weighted average delinquency rate of such Trust
Portfolio does not exceed 90 days or (c) the Trust Portfolio is not more than
the specified percentage delinquent and the weighted average delinquency rate of
such Trust Portfolio does not exceed the number of days specified in the related
Prospectus Supplement; (iv) the Transferor shall represent and warrant that no
selection procedures believed by the Transferor to be materially adverse to the
interests of the holders of any Series of Certificates outstanding under such
Trust were utilized in selecting the Removed Accounts to be removed from such
Trust; (v) each Rating Agency then rating each Series of Certificates
outstanding under such Trust shall have received notice of such proposed removal
of Accounts and the Transferor shall have received notice from each such Rating
Agency that such proposed removal will not result in a downgrade of its
then-current rating for any such Series; (vi) the aggregate amount of Principal
Receivables of the Accounts then existing less the aggregate amount of Principal
Receivables of the Removed Accounts shall not be less than the amount, if any,
specified for any period specified; (vii) the Principal Receivables of the
Removed Accounts shall not equal or exceed 5% (or such other percentage
specified in the related Prospectus Supplement) of the aggregate amount of the
Principal Receivables in such Trust at such time; provided, that if any Series
has been paid in full, the Principal Receivables in such Removed Accounts may
equal or approximately equal the initial Investor Interest of such Series;
(viii) such other conditions as are specified in the related Prospectus
Supplement; and (ix) the Transferor shall have delivered to the Trustee an
officer's certificate confirming the items set forth in clauses (i) through
(viii) above. Notwithstanding the above, the Transferor will be permitted to
designate as a Removed Account without the consent of the related Trustee,
Certificateholders or Rating Agencies any Account that has a zero balance and
which the Transferor will remove from its computer file.
COLLECTION AND OTHER SERVICING PROCEDURES
For each Series of Certificates, the Servicer will be responsible for
servicing and administering the Receivables in accordance with the Servicer's
policies and procedures for servicing credit card receivables comparable to the
Receivables. The Servicer will be required to maintain, or cause to be
maintained, fidelity bond coverage insuring against losses through wrongdoing of
its officers and employees who are involved in the servicing of credit card
receivables covering such actions and in such amounts as the Servicer believes
to be reasonable from time to time.
DISCOUNT OPTION
The Transferor may at any time designate a specified fixed or variable
percentage (the "Discount Percentage") of the amount of Receivables arising in
the Accounts with respect to the related Trust on and after the date such option
is exercised that otherwise would have been treated as Principal Receivables to
be treated as Finance Charge Receivables. Such designation will become effective
upon satisfaction of the requirements set forth in the related Agreement,
including written confirmation by each Rating Agency in writing of its then
current rating on each outstanding Series of the related Trust. On the date of
processing of any collections, the product of the Discount Percentage and
collections of Receivables that arise in the Accounts on such day on or after
the date such option is exercised that otherwise would be Principal Receivables
will be deemed collections of Finance Charge Receivables and will be applied
accordingly, unless otherwise provided in the related Prospectus Supplement.
Such feature is intended to permit the Transferor to increase the Portfolio
Yield and thereby decrease the risk of the occurrence of a Pay Out Event.
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TRUST ACCOUNTS
The related Trustee will establish and maintain in the name of the Trust
two separate accounts in a segregated trust account (which need not be a deposit
account), a "Finance Charge Account" and a "Principal Account," for the benefit
of the Certificateholders of all related Series, including any Series offered
pursuant to this Prospectus. Each Agreement will provide that the Trustee shall
have the power to establish series accounts in Series Supplements, including an
Interest Funding Account, a Principal Funding Account, a Pre-Funding Account or
such other account specified in the related Series Supplement, each of which
series accounts shall be held for the benefit of the Certificateholders of the
related Series and for the purposes set forth in the related Prospectus
Supplement. The Trustee will also establish a "Distribution Account" (a non-
interest bearing segregated demand deposit account established with a Qualified
Institution other than the Transferor). The Servicer will establish and
maintain, in the name of the Trust, for the benefit of Certificateholders of all
Series issued thereby including any Series offered pursuant to this Prospectus,
a Collection Account, which will be a non-interest bearing segregated account
established and maintained with the Servicer or with a "Qualified Institution,"
defined as a depository institution, which may include the related Trustee,
organized under the laws of the United States or any one of the states thereof,
which at all times has a certificate of deposit rating of P-1 by Moody's
Investors Service, Inc. ("Moody's") and A-1+ by Standard & Poor's Ratings Group
("Standard & Poor's") or long-term unsecured debt obligation (other than such
obligation the rating of which is based on collateral or on the credit of a
person other than such institution or trust company) rating of Aa3 by Moody's
and deposit insurance provided by the FDIC, or a depository institution, which
may include the Trustee, which is acceptable to the Rating Agency. Funds in the
Principal Account and the Finance Charge Account for each Trust will be
invested, at the direction of the Servicer, in (i) obligations of or fully
guaranteed by the United States of America, (ii) demand deposits, time deposits
or certificates of deposit of depository institutions or trust companies, the
certificates of deposit of which have the highest rating from Moody's and
Standard & Poor's, (iii) commercial paper having, at the time of the Trust's
investment, a rating in the highest rating category from Moody's and Standard &
Poor's, (iv) bankers' acceptances issued by any depository institution or trust
company described in clause (ii) above and certain repurchase agreements
transacted with either (a) an entity subject to the United States federal
bankruptcy code or (b) a financial institution insured by the FDIC or any
broker-dealer with "retail customers" that is under the jurisdiction of the
Securities Investors Protection Corporation and (v) any other investment if the
Rating Agency confirms in writing that such investment will not adversely affect
its then current rating or ratings of the investor Certificates, provided, that
such investment will not cause the Trust to be treated as an investment company
within the meaning of the Investment Company Act of 1940, as amended (such
investments, "Permitted Investments"). Any earnings (net of losses and
investment expenses) on funds in the Finance Charge Account or the Principal
Account will be paid to the Transferor or used for another purpose if specified
in the related Prospectus Supplement. Funds in any other series account
established by a Series Supplement may be invested in Permitted Investments or
otherwise as provided in the related Prospectus Supplement. The Servicer will
have the revocable power to withdraw funds from the Collection Account and to
instruct the Trustee to make withdrawals and payments from the Finance Charge
Account and the Principal Account for the purpose of carrying out the Servicer's
duties under the Agreement. The Trustee will initially be the paying agent and
will have the revocable power to withdraw funds from the Distribution Account
for the purpose of making distributions to the Certificateholders.
FUNDING PERIOD
For any Series of Certificates, the related Prospectus Supplement may
specify that during a Funding Period, the Pre-Funding Amount will be held in a
Pre-Funding Account pending the transfer of additional Receivables to the Trust
or pending the reduction of the Investor Interests of other Series issued by the
related Trust. The related Prospectus Supplement will specify the initial
Investor Interest with respect to such Series, the Full Investor Interest and
the date by which the Investor Interest is expected to equal the Full Investor
Interest. The Investor Interest will increase as Receivables are delivered to
the related Trust or as the Investor Interests of other Series of the related
Trust are reduced. The Investor Interest may also decrease due to Investor
Charge-Offs or the occurrence of a Pay Out Event with respect to such Series as
provided in the related Prospectus Supplement. See "-- Addition of Trust
Assets." This feature is intended to permit the
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Transferor to issue a new Series of Certificates at an opportune time, if the
Investor Interest of existing Series are expected to be reduced or additional
Receivables are expected to be included in a Trust at a subsequent time.
Certificateholders will not incur any costs, direct or indirect, as a result of
the exercise of this feature. If the Investor Interest does not equal the Full
Investor Interest by the end of the Funding Period, Certificateholders of the
affected Series will receive principal repayments prior to the expected date of
receipt. See "Risk Factors -- Pre-payment Risks Connected with a Pre-Funding
Account." Any designation of Additional Accounts (or Participations) during the
Funding Period will be subject to the same conditions and protections applicable
at any other time.
During the Funding Period, funds on deposit in the Pre-Funding Account for
a Series of Certificates will be withdrawn and paid to the Transferor to the
extent of any increases in the Investor Interest. In the event that the Investor
Interest does not for any reason equal the Full Investor Interest by the end of
the Funding Period, any amount remaining in the Pre-Funding Account and any
additional amounts specified in the related Prospectus Supplement will be
payable to the Certificateholders of such Series in the manner and at such time
as set forth in the related Prospectus Supplement. Such payment will reduce the
aggregate principal amount of such Certificates. In addition, if so specified in
the related Prospectus Supplement, a prepayment premium or penalty or similar
amount may be payable to the Certificateholders of such Series.
Monies in the Pre-Funding Account will be invested by the Trustee in
Permitted Investments and, if so specified in the related Prospectus Supplement,
will be subject to a guaranteed rate or investment agreement or other similar
arrangement, and, in connection with each Distribution Date during the Funding
Period, investment earnings on funds in the Pre-Funding Account during the
related Monthly Period will be withdrawn from the Pre-Funding Account and
deposited, together with any applicable payment under a guaranteed rate or
investment agreement or other similar arrangement, into the Finance Charge
Account for distribution in respect of interest on the Certificates of the
related Series in the manner specified in the related Prospectus Supplement.
INVESTOR PERCENTAGE AND TRANSFEROR PERCENTAGE
For each Trust, the Servicer will allocate between the Investor Interest of
each Series issued by such Trust and outstanding (and between each Class of each
Series) and the Transferor Interest, and, in certain circumstances, the interest
of certain Credit Enhancement Providers, all amounts collected on Finance Charge
Receivables, all amounts collected on Principal Receivables and all Receivables
in Defaulted Accounts. The Servicer will make each allocation by reference to
the applicable Investor Percentage of each Series and the Transferor Percentage,
and, in certain circumstances, the percentage interest of certain Credit
Enhancement Providers (the "Credit Enhancement Percentage") with respect to such
Series. The Prospectus Supplement relating to a Series specifies the Investor
Percentage and, if applicable, the Credit Enhancement Percentage with respect to
the allocations of collections of Principal Receivables, Finance Charge
Receivables and Receivables in Defaulted Accounts during the Revolving Period,
any Amortization Period and any Accumulation Period, as applicable. In addition,
for each Series of Certificates having more than one Class, the related
Prospectus Supplement specifies the method of allocation between each Class.
The Transferor Percentage will, in all cases, be equal to 100% minus the
aggregate Investor Percentages and, if applicable, the Credit Enhancement
Percentages, for all Series then outstanding.
APPLICATION OF COLLECTIONS
Except as otherwise provided below, the Servicer will deposit into the
Collection Account for the related Trust no later than the second business day
(or such other day specified in the related Prospectus Supplement) following the
date of processing, any payment collected by the Servicer on the Receivables. On
the same day as any such deposit is made, the Servicer will make the deposits
and payments to the accounts and parties as indicated below; provided, however,
that for as long as First Union remains the Servicer under the related
Agreement, and (a)(i) the Servicer provides to the Trustee a letter of credit
covering risk collection of the Servicer and (ii) the Transferor shall not have
received a notice from any Rating Agency that such letter of credit would result
in the lowering of such Rating Agency's then-existing rating of the related
Series (and if a Trust has issued more than one Series, any Series of
certificates previously-issued and then-
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outstanding thereunder), or (b) the Servicer has and maintains a certificate of
deposit rating of P-1 by Moody's and of A-1 by Standard & Poor's and deposit
insurance provided by the FDIC, then the Servicer may make such deposits and
payments on a monthly or other periodic basis on the Transfer Date in an amount
equal to the net amount of such deposits and payments which would have been made
had the conditions of this proviso not applied.
Notwithstanding anything in the related Agreement to the contrary, whether
the Servicer is required to make monthly or daily deposits from the Collection
Account into the Finance Charge Account, the Principal Account or any series
account, with respect to any Monthly Period, (i) the Servicer will only be
required to deposit Collections from the Collection Account into the Finance
Charge Account, the Principal Account or any series account established by a
related Series Supplement up to the required amount to be deposited into any
such deposit account or, without duplication, distributed on or prior to the
related Distribution Date to Certificateholders or to the provider of
Enhancement and (ii) if at any time prior to such Distribution Date the amount
of Collections deposited in the Collection Account exceeds the amount required
to be deposited pursuant to clause (i) above, the Servicer will be permitted to
withdraw the excess from the Collection Account.
The Servicer will withdraw the following amounts from the Collection
Account for application as indicated unless the related Prospectus Supplement
specifies otherwise:
(a) an amount equal to the Transferor Percentage of the aggregate
amount of such deposits in respect of Principal Receivables and Finance
Charge Receivables, respectively, will be paid or held for payment to the
holder of the Transferor Certificate;
(b) an amount equal to the applicable Investor Percentage of the
aggregate amount of such deposits in respect of Finance Charge Receivables
will be deposited into the Finance Charge Account for allocation and
distribution as described in the related Prospectus Supplement;
(c) during the Revolving Period, an amount equal to the applicable
Investor Percentage of the aggregate amount of such deposits in respect of
Principal Receivables will be paid or held for payment to the holder of the
Transferor Certificate, provided that if after giving effect to the
inclusion in the related Trust of all Receivables on or prior to such date
of processing and the application of payments referred to in paragraph (a)
above the Transferor Interest is reduced to zero, the excess will be
deposited in the Principal Account or other specified account and will be
used as described in the related Prospectus Supplement, including for
payment to other Series of Certificates issued by the related Trust;
(d) during the Controlled Amortization Period, Controlled Accumulation
Period or Rapid Accumulation Period, as applicable, an amount equal to the
applicable Investor Percentage of such deposits in respect of Principal
Receivables up to the amount, if any, as specified in the related
Prospectus Supplement will be deposited in the Principal Account or
Principal Funding Account, as applicable, for allocation and distribution
to Certificateholders as described in the related Prospectus Supplement,
provided that if collections of Principal Receivables exceed the principal
payments which may be allocated or distributed to Certificateholders, the
amount of such excess will be paid to the holder of the Transferor
Certificate until the Transferor Interest is reduced to zero, and
thereafter will be deposited in the Principal Account or other specified
account and will be used as described in the related Prospectus Supplement,
including for payment to other Series of Certificates issued by the related
Trust; and
(e) during the Principal Amortization Period, if applicable, and the
Rapid Amortization Period, an amount equal to the applicable Investor
Percentage of such deposits in respect of Principal Receivables will be
deposited into the Principal Account for application and distribution as
provided in the related Prospectus Supplement.
In the case of a Series of Certificates having more than one Class, the
amounts in the Collection Account will be allocated and applied to each Class in
the manner and order of priority described in the related Prospectus Supplement.
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Any amounts collected in respect of Principal Receivables and not paid to
the Transferor because the Transferor Interest is zero as described above (with
respect to each Series, "Unallocated Principal Collections"), together with any
adjustment payments as described below, will be paid to and held in the
Principal Account and paid to the Transferor if and to the extent that the
Transferor Interest is equal to or greater than zero. If an Amortization Period
or Accumulation Period has commenced, Unallocated Principal Collections will be
held for distribution to the Certificateholders on the related Distribution Date
or accumulated for distribution on the Scheduled Payment Date, as applicable,
and distributed to the Certificateholders of each Class or held for and
distributed to the Certificateholders of other Series of Certificates issued by
the related Trust in the manner and order of priority specified in the related
Prospectus Supplement.
SHARED EXCESS FINANCE CHARGE COLLECTIONS
Any Series offered hereby may be included in a Group. The Prospectus
Supplement relating to a Series specifies whether such Series is included in a
Group and identifies any previously issued Series included in such Group. If so
specified in the related Prospectus Supplement, the Certificateholders of a
Series within a Group or any Class thereof may be entitled to receive all or a
portion of Excess Finance Charge Collections with respect to another Series
within such Group to cover any shortfalls with respect to amounts payable from
collections of Finance Charge Receivables allocable to such Series or Class.
With respect to any Series, "Excess Finance Charge Collections" for any Monthly
Period will equal the excess of collections of Finance Charge Receivables, and
certain other amounts allocated to the Investor Interest of such Series or Class
over the sum of (i) interest accrued for the current month ("Monthly Interest")
and overdue Monthly Interest on the Certificates of such Series or Class,
together with, if applicable, interest on overdue Monthly Interest at the rate
specified in the related Prospectus Supplement ("Additional Interest"), (ii)
accrued and unpaid Investor Servicing Fees with respect to such Series or Class
payable from collections of Finance Charge Receivables, (iii) the Investor
Default Amount with respect to such Series or Class, (iv) unreimbursed Investor
Charge-Offs with respect to such Series or Class and (v) other amounts specified
in the related Prospectus Supplement. The term "Investor Servicing Fee" for any
Series of Certificates or Class thereof means the Servicing Fee allocable to the
Investor Interest with respect to such Series or Class, as specified in the
related Prospectus Supplement. The term "Investor Default Amount" means, for any
Monthly Period and for any Series or Class thereof, the aggregate amount of the
applicable Investor Percentage of Receivables in Defaulted Accounts. The term
"Investor Charge-Off" means, for any Series or Class thereof, the amount by
which (a) the related Monthly Interest and overdue Monthly Interest, if any
(together with, if applicable, Additional Interest), accrued and unpaid Investor
Servicing Fees payable from collections of Finance Charge Receivables, the
Investor Default Amount and any required fees exceeds (b) amounts available to
pay such amounts out of collections of Finance Charge Receivables, available
Credit Enhancement amounts, if any, and other sources specified in the related
Prospectus Supplement, but not more than such Investor Default Amount. This
feature permits amounts that would otherwise be payable to the holder of the
Transferor Certificate to be used for the benefit of Series of Certificates that
would otherwise experience shortfalls in amounts payable from collections of
Finance Charge Receivables or from Credit Enhancement. See "Description of the
Certificates -- Application of Collections" and "-- Defaulted Receivables;
Rebates and Fraudulent Charges; Investor Charge-Offs."
SHARED PRINCIPAL COLLECTIONS
If so specified in the related prospectus supplement, to the extent that
collections of Principal Receivables and certain other amounts that are
allocated to the Investor Interest of any Series are not needed to make payments
or deposits with respect to such Series, such collections will constitute Shared
Principal Collections and will be applied to cover principal payments due to or
for the benefit of Certificateholders of other Series. If so specified in the
related Prospectus Supplement, the allocation of Shared Principal Collections
may be among Series within a Group. Any such reallocation will not result in a
reduction in the Investor Interest of the Series to which such collections were
initially allocated. This feature permits amounts that would otherwise be
payable to the holder of the Transferor Certificate to be used for the benefit
of Series of Certificates that would otherwise experience a shortfall or delay
in the payment of principal thereon.
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DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES; INVESTOR CHARGE-OFFS
For each Series of Certificates, on the second business day preceding each
Transfer Date (the "Determination Date"), the Servicer will calculate the
aggregate Investor Default Amount for the preceding Monthly Period, which will
be equal to the aggregate amount of the Investor Percentage of Principal
Receivables in Defaulted Accounts; that is, Accounts which in such Monthly
Period were written off as uncollectible in accordance with the Servicer's
policies and procedures for servicing credit card receivables, comparable to the
Receivables. In the case of a Series of Certificates having more than one Class,
the Investor Default Amount will be allocated among the Classes in the manner
described in the related Prospectus Supplement. If so provided in the related
Prospectus Supplement, an amount equal to the Investor Default Amount for any
Monthly Period may be paid from other amounts, including collections in the
Finance Charge Account or from Credit Enhancement, and applied to pay principal
to Certificateholders or the holder of the Transferor Certificate, as
appropriate. In the case of a Series of Certificates having one or more Classes
of Subordinated Certificates, the related Prospectus Supplement may provide that
all or a portion of amounts otherwise allocable to such Subordinated
Certificates may be paid to the holders of Senior Certificates to make up any
Investor Default Amount allocable to such holders of Senior Certificates.
With respect to each Series of Certificates, the Investor Interest with
respect to such Series will be reduced by the amount of Investor Charge-Offs for
any Monthly Period. Investor Charge-Offs will be reimbursed on any Distribution
Date to the extent amounts on deposit in the Finance Charge Account and
otherwise available therefor exceed such interest, fees and any aggregate
Investor Default Amount payable on such date. Such reimbursement of Investor
Charge-Offs will result in an increase in the Investor Interest with respect to
such Series. In the case of a Series of Certificates having more than one Class,
the related Prospectus Supplement describes the manner and priority of
allocating Investor Charge-Offs and reimbursements thereof among the Investor
Interests of the several Classes.
If the Servicer adjusts the amount of any Principal Receivable because of
transactions occurring in respect of a rebate or refund to a cardholder
(including any rebates arising under a rebate program (see "Risk
Factors -- Effects of Rebate Programs")), or because such Principal Receivable
was created in respect of merchandise which was refused or returned by a
cardholder, then the amount of the Transferor Interest in the related Trust will
be reduced, on a net basis, by the amount of the adjustment. In addition, the
Transferor Interest in such Trust will be reduced, on a net basis, as a result
of transactions in respect of any Principal Receivable which was discovered as
having been created through a fraudulent or counterfeit charge.
DEFEASANCE
The Transferor may terminate its substantive obligations in respect of such
Series or the related Trust by depositing with the Trustee, from amounts
representing, or acquired with, collections of Receivables, money or Permitted
Investments sufficient to make all remaining scheduled interest and principal
payments on such Series or all outstanding Series of Certificates of such Trust,
as the case may be, on the dates scheduled for such payments and to pay all
amounts owing to any Credit Enhancement Provider with respect to such Series or
all outstanding Series, as the case may be, if such action would not result in a
Pay Out Event for any Series. Prior to its first exercise of its right to
substitute money or Permitted Investments for Receivables, the Transferor will
deliver to the Trustee (i) an opinion of counsel to the effect that such deposit
and termination of obligations will not result in the related Trust being
required to register as an "investment company" within the meaning of the
Investment Company Act of 1940, as amended and (ii) an opinion of counsel with
respect to such deposit and termination to the effect that it will not cause the
Trust or any portion thereof to be treated as an association or publicly traded
partnership taxable as a corporation. Upon any such deposit, holders of
Certificates of the affected Series could recognize taxable gain for federal
income tax purposes to the extent that the value of the related Certificate
exceeds its tax basis therein, but would in no event be allowed to deduct a
taxable loss for such purposes. See "Certain Federal Income Tax
Consequences -- Sale or Exchange of Certificates."
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FINAL PAYMENT OF PRINCIPAL; TERMINATION
With respect to each Series, the Certificates will be subject to optional
repurchase by the Transferor on any Distribution Date after the total Investor
Interest of such Series and the Enhancement Invested Amount, if any, with
respect to such Series, is reduced to an amount less than or equal to 5% of the
initial Investor Interest, if any (or such other amount specified in the related
Prospectus Supplement), if certain conditions set forth in the related Agreement
are met. The repurchase price will be equal to the total Investor Interest of
such Series (less the amount, if any, on deposit in any Principal Funding
Account with respect to such Series), plus the Enhancement Invested Amount, if
any, with respect to such Series, plus accrued and unpaid interest on the
Certificates and interest or other amounts payable on the Enhancement Invested
Amount or the Collateral Interest, if any, through the day preceding the
Distribution Date on which the repurchase occurs.
The Certificates of each Series will be retired on the day following the
Distribution Date on which the final payment of principal is scheduled to be
made to the Certificateholders, whether as a result of optional reassignment to
the Transferor or otherwise. Each Prospectus Supplement specifies the final date
on which principal and interest with respect to the related Series of
Certificates will be scheduled to be distributed (the "Series Termination
Date"); provided, however, that the Certificates may be subject to prior
termination as provided above. If the Investor Interest is greater than zero on
the Series Termination Date, the Trustee or Servicer may be required to sell or
cause to be sold certain Receivables in the manner provided in the related
Agreement and Series Supplement and to pay the net proceeds of such sale and any
collections on the Receivables, in an amount at least equal to the sum of the
Investor Interest and the Enhancement Invested Amount, if any, with respect to
such Series plus accrued interest due thereon.
Unless the Servicer and the holder of the Transferor Certificate instruct
the Trustee otherwise, each Trust will terminate on the earlier of (a) the day
after the Distribution Date on which the aggregate Investor Interest and
Enhancement Invested Amount or Collateral Interest, if any, with respect to each
Series outstanding is zero, (b) September 30, 2035 or (c) if the Receivables are
sold, disposed of or liquidated following the occurrence of an Insolvency Event,
immediately following such sale, disposition or liquidation (such date, the
"Trust Termination Date"). Upon the termination of each Trust and the surrender
of the Transferor Certificate, the Trustee shall convey to the holder of the
Transferor Certificate all right, title and interest of the Trust in and to the
Receivables and other funds of the Trust.
PAY OUT EVENTS
Unless otherwise specified in the related Prospectus Supplement, as
described above, the Revolving Period will continue through the date specified
in the related Prospectus Supplement unless a Pay Out Event occurs prior to such
date. A Pay Out Event occurs with respect to all Series issued by a Trust upon
the occurrence of any of the following events:
(a) certain events of insolvency, receivership or bankruptcy relating
to the Transferor or other holder of the Transferor Certificate;
(b) the Transferor is unable for any reason to transfer Receivables to
such Trust in accordance with the provisions of the related Agreement; or
(c) such Trust becomes an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
In addition, a Pay Out Event may occur with respect to any Series upon the
occurrence of any other event specified in the related Prospectus Supplement. On
the date on which a Pay Out Event is deemed to have occurred, the Rapid
Amortization Period or, if so specified in the related Prospectus Supplement,
the Rapid Accumulation Period will commence. If, because of the occurrence of a
Pay Out Event, the Rapid Amortization Period begins earlier than the scheduled
commencement of an Amortization Period or prior to a Scheduled Payment Date,
Certificateholders will begin receiving distributions of principal earlier than
they otherwise would have, which may shorten the average life of the
Certificates.
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In addition to the consequences of a Pay Out Event discussed above, if a
conservator or receiver were appointed for the Transferor or other holder of the
Transferor Certificate, or a bankruptcy or insolvency event were to occur with
respect to the Transferor or other holder of the Transferor Certificate, on the
day any such event occurs the Transferor will immediately cease to transfer
Principal Receivables to the Trust and promptly give notice to the Trustee of
such event and the related Agreement and the Trust shall terminate, subject to
the liquidation, winding-up and dissolution procedures described in the related
Agreement. Within 15 days, the Trustee will publish a notice of the termination
of the Trust and the liquidation or the appointment stating that the Trustee
intends to sell, dispose of, or otherwise liquidate the Receivables in a
commercially reasonable manner. Unless otherwise instructed within a specified
period by Certificateholders representing undivided interests aggregating more
than 50% of the Investor Interest of each Series (or, with respect to any Series
with more than one Class, of each Class) and the Transferor and each holder of
an interest in the Transferor Interest not subject to the appointment or
insolvency event, and any other person designated by the Transferor in an
officer's certificate delivered to the Trustee prior to the Insolvency Event or
specified in the related Series Supplement, which may include any provider of
Enhancement, to the effect that such Persons disapprove of the liquidation of
the Receivables and wish to reconstitute the Trust pursuant to the terms of the
related Agreement (as amended in connection with such reconstitution), the
Trustee will promptly sell, dispose of, or otherwise liquidate the Receivables
in a commercially reasonable manner and on commercially reasonable terms. If the
Trustee is instructed not to liquidate the Receivables as described in the
preceding sentence, the Trustee will retain the Receivables and apply
collections thereon in accordance with the Agreement. The proceeds from the
sale, disposition or liquidation of the Receivables and any Participation will
be immediately deposited in the Collection Account and allocated as specified
above in "-- Application of Collections" and in the related Prospectus
Supplement.
If the only Pay Out Event to occur is either the insolvency of the
Transferor or the appointment of a conservator or receiver for the Transferor,
the conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of a Rapid
Amortization Period or, if applicable with respect to a Series as specified in
the related Prospectus Supplement, a Rapid Accumulation Period. In addition, a
conservator or receiver may have the power to cause the early sale of the
Receivables and the early retirement of the Certificates. See "Risk
Factors -- Insolvency or Bankruptcy of Transferor or Other Holder of Transferor
Certificate" and "Certain Legal Aspects of the Receivables -- Certain Matters
Relating to Receivership."
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
For each Series of Certificates, the Servicer's compensation for its
servicing activities and reimbursement for its expenses will take the form of
the payment to it of the Servicing Fee payable at the times and in the amounts
specified in the related Prospectus Supplement. The portion of the Servicing Fee
allocated to the investor Certificates will be funded from collections of
Finance Charge Receivables allocated to the Investor Interest and will be paid
each month, or on such other specified periodic basis, from amounts so allocated
and on deposit in the Finance Charge Account (which, if so specified in the
related Prospectus Supplement, may include all or a portion of the Interchange
arising from the Accounts) or, in certain limited circumstances, from amounts
available from Enhancement and other sources, if any. The remainder of the
servicing fee for each Trust will be allocable to the Transferor Interest, the
Investor Interests of any other Series issued by such Trust and the interest
represented by the Enhancement Invested Amount or the Collateral Interest, if
any, with respect to such Series, as described in the related Prospectus
Supplement. Neither the Trust nor the Certificateholders will have any
obligation to pay the portion of the servicing fee allocable to the Transferor
Interest.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, payment of the fees and disbursements of the Trustee and independent
certified public accountants and other fees which are not expressly stated in
the Agreement to be payable by the related Trust or the Certificateholders other
than federal, state and local income and franchise taxes, if any, of the Trust.
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CERTAIN MATTERS REGARDING THE TRANSFEROR AND THE SERVICER
With respect to each Series of Certificates, the Servicer may not resign
from its obligations and duties under the related Agreement, except upon
determination that performance of its duties is no longer permissible under
applicable law. No such resignation will become effective until the Trustee or a
successor to the Servicer has assumed the Servicer's responsibilities and
obligations under the related Agreement.
The Agreement provides and each New Agreement will provide that the
Servicer will indemnify the related Trust and Trustee from and against any
reasonable loss, liability, expense, damage or injury suffered or sustained by
reason of any acts or omissions or alleged acts or omissions of the Servicer
with respect to the activities of the Trust or the Trustee; provided, however,
that the Servicer shall not indemnify (a) the Trustee for liabilities imposed by
reason of fraud, negligence, or willful misconduct by the Trustee in the
performance of its duties under the Agreement, (b) the Trust, the
Certificateholders or the Certificate Owners for liabilities arising from
actions taken by the Trustee at the request of Certificateholders, (c) the
Trust, the Certificateholders or the Certificate Owners for any losses, claims,
damages or liabilities incurred by any of them in their capacities as investors,
including without limitation, losses incurred as a result of defaulted
Receivables or Receivables which are written off as uncollectible, or (d) the
Trust, the Certificateholders or the Certificate Owners for any liabilities,
costs or expenses of the Trust, the Certificateholders or the Certificate Owners
arising under any tax law, including without limitation, any federal, state or
local income or franchise tax or any other tax imposed on or measured by income
(or any interest or penalties with respect thereto or arising from a failure to
comply therewith) required to be paid by the Trust, the Certificateholders or
the Certificate Owners in connection with the Agreement to any taxing authority.
In addition, the Agreement provides and each New Agreement will provide
that, subject to certain exceptions, the Transferor will agree to be liable to
an injured party for any losses, claims, damages or liabilities (other than
those incurred by a Certificateholder as an investor in the Certificates)
arising out of or based upon each of the arrangements created by the Agreement
and the actions of the Servicer as though the Agreement created a partnership
under the New York Uniform Partnership Act in which the Transferor is a general
partner.
The Agreement provides and each New Agreement will provide that neither the
Transferor nor the Servicer nor any of their respective directors, officers,
employees or agents will be under any other liability to the related Trust,
Trustee, Certificateholders or any other person for any action taken, or for
refraining from taking any action, in good faith pursuant to the Agreement.
Neither the Transferor, the Servicer, nor any of their respective directors,
officers, employees or agents will be protected against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence of the Transferor, the Servicer or any such person in the performance
of its duties or by reason of reckless disregard of obligations and duties
thereunder. In addition, the Agreement provides and each New Agreement will
provide that the Servicer is not under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its servicing
responsibilities under the Agreement and which in its opinion may expose it to
any expense or liability.
The Agreement provides and each New Agreement will provide that, in
addition to Exchanges, if applicable, the Transferor may transfer its interest
in all or a portion of the Transferor Certificate, provided that prior to any
such transfer (a) the Trustee receives written notification from each Rating
Agency that such transfer will not result in a lowering of its then-existing
rating of the Certificates of each outstanding Series rated by it and (b) the
Trustee receives a written opinion of counsel confirming that such transfer
would not adversely affect the treatment of the Certificates of each outstanding
Series as debt for federal income tax purposes.
Any person into which, in accordance with each Agreement, the Transferor or
the Servicer may be merged or consolidated or any person resulting from any
merger or consolidation to which the Transferor or the Servicer is a party, or
any person succeeding to the business of the Transferor or the Servicer, upon
execution of a supplement to the Agreement and delivery of an opinion of counsel
with respect to the compliance of the transaction with the applicable provisions
of the Agreement, will be the successor to the Transferor or the Servicer, as
the case may be, under the Agreement.
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SERVICER DEFAULT
In the event of any Servicer Default (as defined below), either the Trustee
or Certificateholders representing undivided interests aggregating not less than
50% of the Investor Interests for all Series of Certificates of the related
Trust, by written notice to the Servicer (and to the Trustee if given by the
Certificateholders), may terminate all of the rights and obligations of the
Servicer as servicer under the Agreement and in and to the Receivables and the
proceeds thereof and the Trustee may appoint a new Servicer (a "Service
Transfer"). The rights and interest of the Transferor under the related
Agreement and in the Transferor Interest will not be affected by such
termination. The related Trustee shall as promptly as possible appoint a
successor Servicer. If no such successor Servicer has been appointed and has
accepted such appointment by the time the Servicer ceases to act as Servicer,
all authority, power and obligations of the Servicer under the Agreement shall
pass to and be vested in the Trustee. If the Trustee is unable to obtain any
bids from eligible servicers and the Servicer delivers an officer's certificate
to the effect that it cannot in good faith cure the Servicer Default which gave
rise to a transfer of servicing, and if the Trustee is legally unable to act as
successor Servicer, then the Trustee shall give the Transferor the right of
first refusal to acquire the Receivables on terms equivalent to the best offer
as determined by the Trustee.
"Servicer Default" under any Agreement refers to any of the following
events:
(a) failure by the Servicer to make any payment, transfer or deposit,
or to give instructions to the Trustee to make certain payments, transfers
or deposits, on the date the Servicer is required to do so under the
related Agreement or any Series Supplement (or within the applicable grace
period, which shall not exceed 10 business days);
(b) failure on the part of the Servicer duly to observe or perform in
any respect any other covenants or agreements of the Servicer which has a
material adverse effect on the Certificateholders of any Series issued and
outstanding under such Trust and which continues unremedied for a period of
60 days after written notice and continues to have a material adverse
effect on such Certificateholders; or the delegation by the Servicer of its
duties under the Agreement, except as specifically permitted thereunder;
(c) any representation, warranty or certification made by the Servicer
in the Agreement, or in any certificate delivered pursuant to the
Agreement, proves to have been incorrect when made which has a material
adverse effect on the Certificateholders of any Series issued and
outstanding under such Trust, and which continues to be incorrect in any
material respect for a period of 60 days after written notice and continues
to have a material adverse effect on such Certificateholders;
(d) the occurrence of certain events of bankruptcy, insolvency or
receivership of the Servicer; or
(e) such other event specified in the related Prospectus Supplement.
Unless otherwise stated in the related Prospectus Supplement,
notwithstanding the foregoing, a delay in or failure of performance referred to
in clause (a) above for a period of 10 business days, or referred to under
clause (b) or (c) for a period of 60 business days, shall not constitute a
Servicer Default if such delay or failure could not be prevented by the exercise
of reasonable diligence by the Servicer and such delay or failure was caused by
an act of God or other similar occurrence. Upon the occurrence of any such
event, the Servicer shall not be relieved from using its best efforts to perform
its obligations in a timely manner in accordance with the terms of the
Agreement, and the Servicer shall provide the Trustee, any provider of
Enhancement and/or any issuer of any third-party Credit Enhancement (a "Credit
Enhancement Provider"), the Transferor and the holders of Certificates of each
Series issued and outstanding under the related Trust prompt notice of such
failure or delay by it, together with a description of the cause of such failure
or delay and its efforts to perform its obligations.
In the event of a Servicer Default, if a conservator or receiver is
appointed for the Servicer and no Servicer Default other than such
conservatorship or receivership or the insolvency of the Servicer exists, the
conservator or receiver may have the power to prevent either the Trustee or the
majority of the Certificateholders from effecting a Service Transfer.
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REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified in the related Prospectus Supplement, for each
Series of Certificates, on each Distribution Date, or as soon thereafter as is
practicable, as specified in the related Prospectus Supplement, the agent making
payments to the Certificateholders (the "Paying Agent") will forward to each
Certificateholder of record a statement prepared by the Servicer setting forth,
among other things: (a) the amount of the distribution on such Distribution Date
allocable to principal on the Certificates, (b) the amount of such distribution
allocable to interest on the Certificates, (c) the amount of collections of
Principal Receivables processed during the preceding month or months since the
last Distribution Date and allocated in respect of the Certificates, (d) the
aggregate amount of Principal Receivables in the Trust as of the end of the last
day of the preceding Monthly Period or Periods since the last Distribution Date,
(e) the aggregate outstanding balance of Accounts which are 35 or more days
delinquent by class of delinquency as of the end of the last day of the
preceding Monthly Period or Periods since the last Distribution Date, (f) the
aggregate Investor Default Amount for the preceding Monthly Period or Periods
since the last Distribution Date, (g) the amount of Investor Charge-Offs for the
preceding Monthly Period or Periods since the last Distribution Date and the
amount of reimbursements of previous Investor Charge-Offs for the preceding
Monthly Period or Periods since the last Distribution Date, (h) the amount of
the Servicing Fee allocated to the investor Certificates for the preceding
Monthly Period or Periods since the last Distribution Date, (i) the amount
available under any Enhancement and Credit Enhancement, if any, as of the close
of business on the related Transfer Date, (j) the aggregate amount of
collections on Finance Charge Receivables processed during the preceding Monthly
Period or Periods since the last Distribution Date, (k) the Portfolio Yield for
the preceding Monthly Period or Periods since the last Distribution Date, and
(l) certain information relating to the floating or variable Certificate Rates,
if applicable, for the Interest Period relating to such Distribution Date. In
the case of a Series of Certificates having more than one Class, the statements
forwarded to Certificateholders will provide information as to each Class of
Certificates, as appropriate.
On or before January 31 of each calendar year or such other date as
specified in the related Prospectus Supplement, the Paying Agent will furnish to
each person who at any time during the preceding calendar year was a
Certificateholder of record, a statement prepared by the Servicer containing the
information required to be contained in the regular monthly report to
Certificateholders, as set forth in clauses (a), (b) and (c) above aggregated
for such calendar year or the applicable portion thereof during which such
person was a Certificateholder, together with such other customary information
(consistent with the treatment of the Certificates as debt) as the Trustee or
the Servicer deems necessary or desirable to enable the Certificateholders to
prepare their United States tax returns.
EVIDENCE AS TO COMPLIANCE
The Agreement provides and each New Agreement will provide that on or
before March 31 of each calendar year, beginning with March 31, 1997, or such
other date as specified in the related Prospectus Supplement, the Servicer will
cause a firm of independent certified public accountants to furnish a report to
the effect that such accounting firm has made a study and evaluation of the
Servicer's internal accounting controls relative to the servicing of the
Accounts and that, on the basis of such examination, such firm is of the opinion
that, assuming the accuracy of reports by the Servicer's third party agents, the
system of internal accounting controls in effect on the date of such statement
relating to servicing procedures performed by the Servicer, taken as a whole,
was sufficient for the prevention and detection of errors and irregularities in
amounts that would be material to the financial statements of the Servicer and
that such servicing was conducted in compliance with the sections of the related
Agreement during the period covered by such report (which shall be the period
from January 1 (or for the initial period, the relevant Closing Date) of the
preceding calendar year to and including December 31 of such calendar year (or
for the initial period, December 31, 1996)), except for such exceptions or
errors as such firm shall believe to be immaterial and such other exceptions as
shall be set forth in such statement.
The Agreement provides and each New Agreement will provide for delivery to
the Trustee on or before March 31 of each calendar year or such other date as
specified in the related Prospectus Supplement, of an annual statement signed by
an officer of the Servicer to the effect that the Servicer has fully performed
its
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obligations under the Agreement throughout the preceding year, or, if there has
been a default in the performance of any such obligation, specifying the nature
and status of the default.
AMENDMENTS
Each Agreement and any Series Supplement (unless, with respect to the
Series Supplement, otherwise specified in the related Prospectus Supplement) may
be amended by the Transferor, the Servicer and the related Trustee, without the
consent of Certificateholders of any Series then outstanding, for any purpose,
provided that (i) the Transferor delivers an officer's certificate to the
Trustee to the effect that such amendment will not adversely affect in any
material respect the interest of such Certificateholders, and (ii) such
amendment will not result in a withdrawal or reduction of the rating of any
outstanding Series under the related Trust. The Agreement and each New Agreement
and any related Series Supplement may be amended by the Transferor, the Servicer
and the related Trustee, without the consent of the Certificateholders of any
Series then outstanding, to provide for additional Enhancement or substitute
Enhancement with respect to a Series, to change the definition of Eligible
Account or, to provide for the addition to the Trust of a Participation,
provided, that (i) the Transferor delivers to the Trustee a certificate of an
authorized officer to the effect that, in the reasonable belief of the
Transferor, such amendment will not as of the date of such amendment adversely
affect in any material respect the interest of such Certificateholders, and (ii)
such amendment will not result in a withdrawal or reduction of the rating of any
outstanding Series under the related Trust.
Each Agreement and the related Series Supplement may be amended by the
Transferor, the Servicer and the related Trustee with the consent of the holders
of Certificates evidencing undivided interests aggregating not less than 66 2/3%
(or such other percentage specified in the related Prospectus Supplement) of the
Investor Interests for all Series of the related Trust, for the purpose of
adding any provisions to, changing in any manner or eliminating any of the
provisions of the Agreement or the related Series Supplement or of modifying in
any manner the rights of Certificateholders of any outstanding Series of the
Trust. No such amendment, however, may (a) reduce in any manner the amount of,
or delay the timing of, distributions required to be made on the related Series
or any Series, (b) change the definition of or the manner of calculating the
interest of any Certificateholder of such Series or any Certificateholder of any
other Series issued by the Trust or (c) reduce the aforesaid percentage of
undivided interests the holders of which are required to consent to any such
amendment, in each case without the consent of all Certificateholders of the
related Series and Certificateholders of all Series adversely affected. Promptly
following the execution of any amendment to the Agreement, the Trustee will
furnish written notice of the substance of such amendment to each
Certificateholder. Any Series Supplement and any amendments regarding the
addition or removal of Receivables from the Trust will not be considered an
amendment requiring Certificateholder consent under the provisions of the
related Agreement and any Series Supplement.
Additionally, each Agreement and any Series Supplement will be amended by
the Servicer and the Trustee at the direction of the Transferor without the
consent of any of the Certificateholders (i) to add, modify or eliminate such
provisions as may be necessary or advisable in order to enable all or a portion
of a Trust to qualify as, and to permit an election to be made to cause all or a
portion of a Trust to be treated as, a "financial asset securitization
investment trust" as described in the provisions of the "Seven Year Balanced
Budget Act of 1995," H.R. 2491, 104th Cong., 1st Sess. (1995), or to enable all
or a portion of a Trust to qualify and an election to be made for similar
treatment under such comparable subsequent federal income tax provisions as may
ultimately be enacted into law, and (ii) in connection with any such election,
to modify or eliminate existing provisions of an Agreement and any Series
Supplement relating to the intended federal income tax treatment of the
Certificates and the related Trust in the absence of the election. See "Certain
Federal Income Tax Consequences -- Treatment of the Trusts -- Pending
Legislation." It is a condition to any such amendment that each Rating Agency
will have notified the Transferor, the Servicer and the Trustee in writing that
the amendment will not result in a reduction or withdrawal of the rating of any
outstanding Series or Class to which it is a Rating Agency. The amendments which
the Transferor may make in connection with any election described above without
the consent of Certificateholders may include, without limitation, the
elimination of any sale of Receivables and termination of the Trust upon the
occurrence of an
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event of receivership or insolvency with respect to the Transferor or other
holder of the Transferor Certificate. See "Certain Legal Aspects of the
Receivables -- Certain Matters Relating to Receivership."
LIST OF CERTIFICATEHOLDERS
With respect to each Series of Certificates, upon written request of
Certificateholders of record representing undivided interests in the Trust
aggregating not less than 10% (or such other percentage specified in the related
Prospectus Supplement) of the Investor Interest, the Trustee after having been
adequately indemnified by such Certificateholders for its costs and expenses,
and having given the Servicer notice that such request has been made, will
afford such Certificateholders access during business hours to the current list
of Certificateholders of the Trust for purposes of communicating with other
Certificateholders with respect to their rights under the Agreement. See
"-- Book-Entry Registration" and "-- Definitive Certificates" above.
THE TRUSTEE
The Prospectus Supplement for each Series will specify the Trustee under
the related Agreement. The Transferor, the Servicer and their respective
affiliates may from time to time enter into normal banking and trustee
relationships with the Trustee and its affiliates. The Trustee, the Transferor,
the Servicer and any of their respective affiliates may hold Certificates in
their own names. In addition, for purposes of meeting the legal requirements of
certain local jurisdictions, the Trustee shall have the power to appoint a
co-trustee or separate trustees of all or any part of the Trust. In the event of
such appointment, all rights, powers, duties and obligations conferred or
imposed upon the Trustee by the Agreement shall be conferred or imposed upon the
Trustee and such separate trustee or co-trustee jointly, or, in any jurisdiction
in which the Trustee shall be incompetent or unqualified to perform certain
acts, singly upon such separate trustee or co-trustee who shall exercise and
perform such rights, powers, duties and obligations solely at the direction of
the Trustee.
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor Trustee. The Transferor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances, the
Transferor will be obligated to appoint a successor Trustee. Any resignation or
removal of the Trustee and appointment of a successor Trustee does not become
effective until acceptance of the appointment by the successor Trustee.
CREDIT ENHANCEMENT
GENERAL
For any Series, Credit Enhancement may be provided with respect to one or
more Classes thereof. Credit Enhancement may be in the form of the subordination
of one or more Classes of the Certificates of such Series, a letter of credit,
the establishment of a cash collateral guaranty or account, a collateral
interest, a surety bond, an insurance policy, a spread account, a reserve
account, the use of cross support features or another method of Credit
Enhancement described in the related Prospectus Supplements, or any combination
of the foregoing. If so specified in the related Prospectus Supplement, any form
of Credit Enhancement may be structured so as to be drawn upon by more than one
Class to the extent described therein. The form of Credit Enhancement, with
respect to any Series of Certificates, will be determined by the Transferor
prior to the issuance of such Certificates, based principally on the alternative
costs of the various forms of Credit Enhancement prevailing at that time.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Credit Enhancement will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by the Credit Enhancement or which are not covered by the Credit
Enhancement, Certificateholders will bear their allocable share of deficiencies.
If Credit Enhancement is provided with respect to a Series, the related
Prospectus Supplement includes a description of (a) the amount payable under
such Credit Enhancement, (b) any conditions to payment
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thereunder not otherwise described herein, (c) the conditions (if any) under
which the amount payable under such Credit Enhancement may be reduced and under
which such Credit Enhancement may be terminated or replaced, (d) any material
provision of any agreement relating to such Credit Enhancement and (e) the
allocation (if any) of Trust assets to such Credit Enhancement Provider.
Additionally, the related Prospectus Supplement may set forth certain
information with respect to any Credit Enhancement Provider, including (i) a
brief description of its principal business activities, (ii) its principal place
of business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies which exercise primary jurisdiction over the conduct of its
business and (iv) its total assets, its stockholders' or policy holders'
surplus, if applicable, and other appropriate financial information as of the
date specified in the Prospectus Supplement. If so specified in the related
Prospectus Supplement, Credit Enhancement with respect to a Series may be
available to pay principal of the Certificates of such Series following the
occurrence of certain Pay Out Events with respect to such Series. In such event,
the Credit Enhancement Provider will have an interest in certain cash flows in
respect of the Receivables to the extent described in such Prospectus Supplement
(the "Enhancement Invested Amount").
SUBORDINATION
If so specified in the related Prospectus Supplement, one or more Classes
of any Series will be subordinated as described in the related Prospectus
Supplement to the extent necessary to fund payments with respect to the Senior
Certificates. The rights of the holders of any such Subordinated Certificates to
receive distributions of principal and/or interest on any Distribution Date for
such Series will be subordinate in right and priority to the rights of the
holders of Senior Certificates, but only to the extent set forth in the related
Prospectus Supplement. If so specified in the related Prospectus Supplement,
subordination may apply only in the event of certain types of losses not covered
by another Credit Enhancement. The related Prospectus Supplement sets forth any
applicable information concerning the amount of subordination of a Class or
Classes of Subordinated Certificates in a Series, the circumstances in which
such subordination will be applicable, the manner, if any, in which the amount
of subordination will decrease over time, and the conditions under which amounts
available from payments that would otherwise be made to holders of such
Subordinated Certificates will be distributed to holders of Senior Certificates.
If collections of Receivables otherwise distributable to holders of a
Subordinated Class of a Series will be used as support for a Class of another
Series, the related Prospectus Supplement specifies the manner and conditions
for applying such a cross-support feature.
LETTER OF CREDIT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof will be provided by one or more letters of
credit. A letter of credit may provide limited protection against certain losses
in addition to or in lieu of other Credit Enhancement. The issuer of the letter
of credit (the "L/C Bank") will be obligated to honor demands with respect to
such letter of credit, to the extent of the amount available thereunder, to
provide funds under the circumstances and subject to such conditions as are
specified in the related Prospectus Supplement.
The maximum liability of an L/C Bank under its letter of credit will
generally be an amount equal to a percentage specified in the related Prospectus
Supplement of the initial Investor Interest of a Series or a Class of such
Series. The maximum amount available at any time to be paid under a letter of
credit will be determined in the manner specified therein and in the related
Prospectus Supplement.
CASH COLLATERAL GUARANTY OR ACCOUNT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof will be provided by a guaranty (the "Cash
Collateral Guaranty") secured by the deposit of cash or certain permitted
investments in an account (the "Cash Collateral Account") reserved for the
beneficiaries of the Cash Collateral Guaranty or by a Cash Collateral Account
alone. The amount available pursuant to the Cash Collateral Guaranty or the Cash
Collateral Account will be the lesser of amounts on deposit in the Cash
Collateral Account and an amount specified in the related Prospectus Supplement.
The related Prospectus
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Supplement sets forth the circumstances under which payments are made to
beneficiaries of the Cash Collateral Guaranty from the Cash Collateral Account
or from the Cash Collateral Account directly.
COLLATERAL INTEREST
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof will be provided initially by an undivided
interest in the Trust (the "Collateral Interest") in an amount initially equal
to a percentage of the Certificates of such Series as specified in the
Prospectus Supplement. Such Series may also have the benefit of a Cash
Collateral Guaranty or Cash Collateral Account with an initial amount on deposit
therein, if any, as specified in the Prospectus Supplement which will be
increased (i) to the extent the Transferor elects, subject to certain conditions
specified in the related Prospectus Supplement, by the application of
collections of Principal Receivables allocable to the Collateral Interest to
decrease the Collateral Interest, (ii) to the extent collections of Principal
Receivables allocable to the Collateral Interest are required to be deposited
into the Cash Collateral Account as specified in the related Prospectus
Supplement and (iii) to the extent excess collections of Finance Charge
Receivables are required to be deposited into the Cash Collateral Account as
specified in the related Prospectus Supplement. The total amount of the Credit
Enhancement available pursuant to the Collateral Interest and, if applicable,
the Cash Collateral Guaranty or Cash Collateral Account will be the lesser of
the sum of the Collateral Interest and the amount on deposit in the Cash
Collateral Account and an amount specified in the related Prospectus Supplement.
The related Prospectus Supplement sets forth the circumstances under which
payments which otherwise would be made to holders of the Collateral Interest
will be distributed to holders of Certificates and, if applicable, the
circumstances under which payment will be made under the Cash Collateral
Guaranty or from the Cash Collateral Account.
SURETY BOND OR INSURANCE POLICY
If so specified in the related Prospectus Supplement, insurance with
respect to a Series or one or more Classes thereof will be provided by one or
more insurance companies. Such insurance will guarantee, with respect to one or
more Classes of the related Series, distributions of interest or principal in
the manner and amount specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a surety bond will be
purchased for the benefit of the holders of any Series or Class of such Series
to assure distributions of interest or principal with respect to such Series or
Class of Certificates in the manner and amount specified in the related
Prospectus Supplement.
SPREAD ACCOUNT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof will be provided by the periodic deposit of
certain available excess cash flow from the Trust assets into an account (the
"Spread Account") intended to assist with subsequent distribution of interest
and principal on the Certificates of such Class or Series in the manner
specified in the related Prospectus Supplement.
RESERVE ACCOUNT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof or any Enhancement related thereto will be
provided by the establishment of a reserve account (the "Reserve Account"). The
Reserve Account may be funded, to the extent provided in the related Prospectus
Supplement, by an initial cash deposit, the retention of certain periodic
distributions of principal or interest or both otherwise payable to one or more
Classes of Certificates, including the Subordinated Certificates, or the
provision of a letter of credit, guarantee, insurance policy or other form of
credit or any combination thereof. The Reserve Account will be established to
assist with the subsequent distribution of principal or interest on the
Certificates of such Series or Class thereof or such other amount owing on any
Enhancement thereto in the manner provided in the related Prospectus Supplement.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Transferor has represented and warranted in the Agreement, and will
represent and warrant in each New Agreement, that the transfer of Receivables by
it to the related Trust is either a valid transfer and assignment to such Trust
of all right, title and interest of the Transferor in and to the related
Receivables, except for the interest of the Transferor as holder of the
Transferor Certificate, or the grant to the Trust of a security interest in such
Receivables. The Transferor also has represented and warranted in the Agreement
and will represent and warrant in each New Agreement that, in the event the
transfer of Receivables by the Transferor to the related Trust is deemed to
create a security interest under the Uniform Commercial Code, as in effect in
the State of Georgia (the "UCC"), there will exist a valid, subsisting and
enforceable first priority perfected security interest in such Receivables
created thereafter in favor of such Trust on and after their creation, except
for certain tax and other governmental liens. For a discussion of the Trust's
rights arising from a breach of these warranties, see "Description of the
Certificates -- Representations and Warranties."
The Transferor has represented as to previously-conveyed Receivables, and
will represent as to Receivables to be conveyed, that the Receivables are
"accounts" or "general intangibles" for purposes of the UCC. Both the transfer
and assignment of accounts and the transfer of accounts as security for an
obligation are treated under Article 9 of the UCC as creating a security
interest therein and are subject to its provisions, and the filing of the
appropriate financing statements is required to perfect the security interest of
the related Trust. Financing statements covering the Receivables have been and
will be filed with the appropriate governmental authority to protect the
interests of the related Trust in the Receivables. If a transfer of general
intangibles is deemed to be a sale, then the UCC is not applicable and no
further action under the UCC is required to protect the Trust's interest from
third parties.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables coming into existence after a Closing Date
could have an interest in such Receivables with priority over such Trust's
interest. Under the Agreement, however, the Transferor has represented and
warranted, and under each New Agreement, the Transferor will represent and
warrant, that it transferred the Receivables to the Trust free and clear of the
lien of any third party. In addition, the Transferor has covenanted and will
covenant that it will not sell, pledge, assign, transfer or grant any lien on
any Receivable (or any interest therein) other than to the Trust. A tax or
government lien or other nonconsensual lien on property of the Transferor
arising prior to the time a Receivable comes into existence may also have
priority over the interest of the Trust in such Receivable. In addition, if the
FDIC were appointed as receiver of the Transferor, certain administrative
expenses of the receiver may also have priority over the interest of the Trust
in such Receivable.
CERTAIN MATTERS RELATING TO RECEIVERSHIP
The Transferor is chartered as a national banking association and is
subject to regulation and supervision by the Office of the Comptroller of the
Currency, which is authorized to appoint the FDIC as conservator or receiver of
the Transferor upon the occurrence of certain events relating to the
Transferor's financial condition.
The FDIA, as amended by FIRREA, sets forth certain powers that the FDIC in
its capacity as conservator or receiver for the Transferor could exercise.
Positions taken by the FDIC prior to the passage of FIRREA do not suggest that
the FDIC, if appointed as conservator or receiver for the Transferor, would
interfere with the timely transfer to a Trust of payments collected on the
Receivables or interfere with the timely liquidation of related Receivables, as
described below. To the extent that the Transferor has granted a security
interest in related Receivables to a Trust, and that interest was validly
perfected before the Transferor's insolvency and was not taken in contemplation
of the insolvency of the Transferor, or with the intent to hinder, delay or
defraud the Transferor or the creditors of the Transferor, the FDIA provides
that such security interest should not be subject to avoidance. As a result,
payments to such Trust with respect to the Receivables should not be subject to
recovery by the FDIC as conservator or receiver of the Transferor. If, however,
the FDIC, as conservator or receiver for the Transferor, were to assert a
contrary position, or were to
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require the Trustee to establish its right to those payments by submitting to
and completing the administrative claims procedure established under the FDIA,
or the conservator or receiver were to request a stay of proceedings with
respect to the Transferor as provided under the FDIA, delays in payments on the
related Series of Certificates and possible reductions in the amount of those
payments could occur.
If a conservator or receiver were appointed for the Transferor or other
holder of the Transferor Certificate or a bankruptcy or insolvency event were to
occur with respect to the Transferor or other holder of the Transferor
Certificate, then the Transferor will promptly give notice thereof to each
Trustee and a Pay Out Event will occur with respect to all Series then
outstanding under the related Trust. Pursuant to each Agreement, newly created
Principal Receivables will not be transferred to the related Trust on and after
any such appointment or insolvency event, and the Trustee will proceed to sell,
dispose of or otherwise liquidate the Receivables in a commercially reasonable
manner and on commercially reasonable terms, unless otherwise instructed within
a specified period by holders of Certificates representing undivided interests
aggregating more than 50% of the Investor Interest of each Series (or if any
Series has more than one Class, of each Class) and the Transferor and each
holder of an interest in the Transferor Interest not subject to the appointment
or insolvency event, and any other person designated by the Transferor in an
officer's certificate delivered to the Trustee prior to the Insolvency Event or
specified in the related Supplement, which may include any provider of
Enhancement, or unless otherwise required by the FDIC as receiver or
conservator. Under the Agreement, the proceeds from the sale of the Receivables
would be treated as collections of the Receivables and the Investor Percentage
of such proceeds would be distributed to the Certificateholders or, if so
specified in the related Prospectus Supplement, collected and held for the
benefit of Certificateholders. This procedure could be delayed, as described
above. If the only Pay Out Event to occur is either the appointment of a
conservator or receiver for the Transferor or other holder of the Transferor
Certificate, or a bankruptcy or insolvency event with respect to the Transferor
or other holder of the Transferor Certificate, the conservator, receiver or
bankruptcy trustee (including the other holder of the Transferor Certificate as
debtor-in-possession) for the Transferor or other holder of the Transferor
Certificate may have the power to prevent the early sale, liquidation or
disposition of the Receivables and the commencement of a Rapid Amortization
Period or, if applicable with respect to a Series as specified in the related
Prospectus Supplement, a Rapid Accumulation Period. In addition, a conservator,
receiver or bankruptcy trustee (including the other holder of the Transferor
Certificate as debtor-in-possession) for the Transferor or other holder of the
Transferor Certificate may have the power to cause the early sale of the
Receivables and the early retirement of the Certificates or to prohibit the
continued transfer of Principal Receivables to the Trust. See "Description of
the Certificates -- Pay Out Events."
CONSUMER PROTECTION LAWS
The relationships of the cardholder and credit card issuer and the lender
are extensively regulated by federal and state consumer protection laws. With
respect to credit cards issued by the Transferor, the most significant laws
include the federal Truth-in-Lending, Equal Credit Opportunity, Fair Credit
Reporting, Fair Debt Collection Practice and Electronic Funds Transfer Acts.
These statutes impose disclosure requirements when a credit card account is
advertised, when it is opened, at the end of monthly billing cycles, and at year
end. In addition, these statutes limit customer liability for unauthorized use,
prohibit certain discriminatory practices in extending credit, and impose
certain limitations on the type of account-related charges that may be assessed.
Cardholders are entitled under these laws to have payments and credits applied
to the credit card accounts promptly, to receive prescribed notices and to
require billing errors to be resolved promptly. A Trust may be liable for
certain violations of consumer protection laws that apply to the related
Receivables, either as assignee from the Transferor with respect to obligations
arising before transfer of the Receivables to such Trust or as a party directly
responsible for obligations arising after the transfer. In addition, a
cardholder may be entitled to assert such violations by way of set-off against
his obligation to pay the amount of Receivables owing. The Transferor has
warranted in the Agreement and will warrant in each New Agreement that all
related Receivables have been and will be created in compliance with the
requirements of such laws. The Servicer will also agree in each Agreement to
indemnify the Trust, among other things, for any liability arising from such
violations caused by the Servicer. For a discussion of the Trust's rights
arising from the breach of these warranties, see "Description of the
Certificates -- Representations and Warranties."
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Certain jurisdictions may attempt to require out-of-state credit card
issuers to comply with such jurisdiction's consumer protection laws (including
laws limiting the charges imposed by such credit card issuers) in connection
with their operations in such jurisdictions. A successful challenge by such a
jurisdiction could have an adverse impact on the Transferor's credit card
operations or the yield on the Receivables in a Trust.
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders if such laws result in any
related Receivables being written off as uncollectible when the amount available
under any Credit Enhancement is equal to zero. See "Description of the
Certificates -- Defaulted Receivables; Rebates and Fraudulent Charges; Investor
Charge-Offs."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain material federal income
tax consequences relating to the purchase, ownership and disposition of a
Certificate. Additional federal income tax considerations relevant to a
particular Series may be set forth in the related Prospectus Supplement. This
discussion is based on current law, which is subject to changes that could
prospectively or retroactively modify or adversely affect the tax consequences
summarized below. The discussion does not address all of the tax consequences
relevant to a particular Certificate Owner in light of that Certificate Owner's
circumstances, and some Certificate Owners may be subject to special tax rules
and limitations not discussed below. Each prospective Certificate Owner is urged
to consult its own tax adviser in determining the federal, state, local and
foreign income and any other tax consequences of the purchase, ownership and
disposition of a Certificate.
For purposes of this discussion, "U.S. Person" means a citizen or resident
of the United States, a corporation or partnership organized in or under the
laws of the United States, any state thereof, or any political subdivision of
either (including the District of Columbia), or an estate or trust the income of
which is includible in gross income for U.S. federal income tax purposes
regardless of its source. The term "U.S. Certificate Owner" means any U.S.
Person and any other person to the extent that income attributable to its
interest in a Certificate is effectively connected with that person's conduct of
a U.S. trade or business. The term "non-U.S. Certificate Owner" means any person
other than a U.S. Certificate Owner.
TREATMENT OF THE CERTIFICATES AS DEBT
The Transferor expresses in the Agreement and will express in each New
Agreement the intent that for federal, state and local income and franchise tax
purposes, the Certificates will be debt secured by the Receivables. The
Transferor, by entering into an Agreement, and each investor, by the acceptance
of a beneficial interest in a Certificate, will agree to treat the Certificates
as debt for federal, state and local income and franchise tax purposes. However,
each Agreement is generally ambiguous in characterizing the transfer of
Receivables, and because different criteria are used in determining the non-tax
accounting treatment of the transaction, the Transferor will treat each
Agreement for certain non-tax accounting purposes as causing a transfer of an
ownership interest in the Receivables and not as creating a debt obligation.
A basic premise of federal income tax law is that the economic substance of
a transaction generally determines its tax consequences. The form and non-tax
characterization of a transaction, while relevant factors, are not conclusive
evidence of its economic substance. In appropriate circumstances, the courts
have allowed taxpayers as well as the Internal Revenue Service (the "IRS") to
treat a transaction in accordance with its economic substance as determined
under federal income tax law, even though the participants in the transaction
have characterized it differently for non-tax purposes.
The determination of whether the economic substance of a transfer of an
interest in property is instead a loan secured by the transferred property has
been made by the IRS and the courts on the basis of numerous factors designed to
determine whether the transferor has relinquished (and the transferee has
obtained) substantial incidents of ownership in the property. Among those
factors, the primary ones examined are
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whether the transferee has the opportunity to gain if the property increases in
value, and has the risk of loss if the property decreases in value. Orrick,
Herrington & Sutcliffe, counsel to the Transferor ("Special Counsel"), will
deliver its opinion generally to the effect that, under current law as in effect
on the Closing Date, although no transaction closely comparable to that
contemplated herein has been the subject of any Treasury regulation, revenue
ruling or judicial decision, for federal income tax purposes the Certificates
will not constitute an ownership interest in the Receivables but will properly
be characterized as debt. Except where indicated to the contrary, the following
discussion assumes that the Certificates are debt for federal income tax
purposes.
TREATMENT OF THE TRUSTS
General. The Agreement permits the issuance of Certificates and certain
other interests (including any Collateral Interest) in the related Trust, each
of which may be treated for federal income tax purposes either as debt or as
equity interests in the related Trust. If all of the Certificates and other
interests (other than the Transferor Certificate) in a Trust were characterized
as debt, that Trust might be characterized as a security arrangement for debt
collateralized by the Receivables and issued directly by the Transferor (or
other holder of the Transferor Certificate). Under such a view, that Trust would
be disregarded for federal income tax purposes. Alternatively, if some of the
Transferor Certificate, the Certificates and other interests in a Trust were
characterized as equity therein, that Trust might be characterized as a separate
entity owning the Receivables, issuing its own debt, and jointly owned by the
Transferor (or other holder of the Transferor Certificate) and any other holders
of equity interests in the Trust. However, Special Counsel will deliver its
opinion generally to the effect that, under current law as in effect on the
Closing Date, any such entity constituted by a Trust will not be an association
or publicly traded partnership taxable as a corporation.
Possible Treatment of a Trust as a Partnership, a Publicly Traded
Partnership or an Association. Although, as described above, Special Counsel
will deliver its opinion that the Certificates will properly be treated as debt
for federal income tax purposes and that each Trust will not be treated as an
association or publicly traded partnership taxable as a corporation, such
opinion will not bind the IRS and thus no assurance can be given that such
treatment will prevail. Further, such opinion will be made with respect to
current law, which is subject to change. If the IRS were to contend successfully
that some or all of the Transferor Certificate, the Certificates or any other
interest in a Trust, including any Collateral Interest, were equity in the Trust
for federal income tax purposes, all or a portion of the related Trust could be
classified as a partnership or an association taxable as a corporation for such
purposes. Because Special Counsel will deliver its opinion that the Certificates
will be characterized as debt for federal income tax purposes and because any
holder of an interest in a Collateral Interest will agree to treat that interest
as debt for such purposes, no attempt will be made to comply with any tax
reporting requirements that would apply as a result of such alternative
characterizations.
If a Trust were treated in whole or in part as a partnership in which some
or all of the holders of interests in the publicly offered Certificates were
partners, that partnership would be classified as a publicly traded partnership,
and so could be taxable as a corporation. Further, regulations published by the
Treasury Department on December 4, 1995 (the "Regulations") could cause a Trust
to constitute a publicly traded partnership even if all holders of interests in
the publicly offered Certificates are treated as holding debt. The Regulations
generally apply to taxable years beginning after December 31, 1995, and thus
could affect the classification of presently existing entities and the ongoing
tax treatment of already completed transactions. Although the Regulations
provide for a 10-year grandfather period for a partnership actively engaged in
an activity before December 4, 1995, it is not clear whether the Trust would
qualify for this grandfather period, and any New Trust would not qualify. If a
Trust were classified as a publicly traded partnership, whether by reason of the
treatment of publicly offered Certificates as equity or by reason of the
Regulations, it would avoid taxation as a corporation if its income was not
derived in the conduct of a "financial business"; however, whether the income of
a Trust would be so classified is unclear.
Under the Code and the Regulations, a partnership will be classified as a
publicly traded partnership if equity interests therein are traded on an
"established securities market," or are "readily tradable" on a "secondary
market" or its "substantial equivalent." The Transferor intends to take measures
designed to
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reduce the risk that a Trust could be classified as a publicly traded
partnership by reason of interests in the Trust other than the publicly traded
Certificates. Although the Transferor expects such measures will ultimately be
successful, certain of the actions that may be necessary for avoiding the
treatment of such interests as "readily tradable" on a "secondary market" or its
"substantial equivalent" are not fully within the control of the Transferor. As
a result, there can be no assurance that the measures the Transferor intends to
take will in all circumstances be sufficient to prevent a Trust from being
classified as a publicly traded partnership under the Regulations.
If a Trust treated as a partnership nevertheless were not treated as a
publicly traded partnership, that partnership would not be subject to federal
income tax. Rather, each item of income, gain, loss and deduction of the
partnership generated through the ownership of the related Receivables would be
taken into account directly in computing taxable income of the Transferor (or
the holder of the Transferor Certificate) and any Certificate Owners treated as
partners in accordance with their respective partnership interests therein. The
amounts and timing of income reportable by any Certificate Owners treated as
partners would likely differ from that reportable by such Certificate Owners had
they been treated as owning debt. In addition, if a Trust were treated in whole
or in part as a partnership other than a publicly traded partnership, income
derived from the partnership by any Certificate Owner that is a pension fund or
other tax-exempt entity may be treated as unrelated business taxable income.
Partnership characterization also may have adverse state and local income or
franchise tax consequences for a Certificate Owner. From time to time,
legislation has been introduced in Congress that would affect the treatment of
any "large partnership," defined as any partnership in which there are at least
250 partners in a taxable year. Under such legislative proposals, among other
things, the availability of certain deductions to partners may be limited, and
certain computations (such as those relating to the level of allowable
miscellaneous itemized deductions and the netting of capital gains and losses)
would be made at the partnership rather than the partner level. No prediction
can be made regarding whether any such legislation will be enacted or, if so,
what its ultimate effective date will be.
If the arrangement created by an Agreement were treated in whole or in part
as a publicly traded partnership or an association taxable as a corporation,
that entity would be subject to federal income tax at corporate tax rates on its
taxable income generated by ownership of the related Receivables. That tax could
result in reduced distributions to Certificate Owners. No distributions from the
related Trust would be deductible in computing the taxable income of the
corporation, except to the extent that any Certificates were treated as debt of
the corporation and distributions to the related Certificate Owners were treated
as payments of interest thereon. In addition, distributions to Certificate
Owners not treated as holding debt would be dividend income to the extent of the
current and accumulated earnings and profits of the corporation (and Certificate
Owners may not be entitled to any dividends received deduction in respect of
such income).
Pending Legislation. The United States Congress recently passed the "Seven
Year Balanced Budget Act of 1995," H.R. 2491 (the "Bill"). Although the Bill was
vetoed by President Clinton, it would have created a new type of entity for
federal income tax purposes called a "financial asset securitization investment
trust" or "FASIT," and future legislation may include provisions similar to the
FASIT provisions of the Bill. If those provisions are reintroduced and enacted
in the form contained in the Bill, they generally will enable certain
arrangements similar to a Trust to elect to be treated as a FASIT. Under the
FASIT provisions of the Bill, a FASIT generally would avoid federal income
taxation and could issue securities substantially similar to the Certificates,
and those securities would be treated as debt for federal income tax purposes.
Upon satisfying certain conditions set forth in an Agreement, the Transferors
will be permitted to amend the Agreement and any Series Supplement in order to
enable all or a portion of a Trust to qualify as a FASIT and to permit a FASIT
election to be made with respect thereto, and to make such modifications to the
Agreement and any Supplement as may be permitted by reason of the making of such
an election. See "Description of the Certificates -- Amendments." However, there
can be no assurance that FASIT provisions of the Bill will be reintroduced and
enacted, that they will be enacted in their present form, or that they will
permit an election to be made with respect to all or any portion of a Trust.
There also can be no assurance that the Transferor will or will not cause any
permissible FASIT election to be made with respect to a Trust, or amend an
Agreement or any Series Supplement in connection with any election. However, if
such an election is made, it may cause a holder to recognize gain (but not loss)
with respect to its Certificate, even though Special Counsel will
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deliver its opinion that a Certificate will be treated as debt for federal
income tax purposes without regard to the election and the Certificate would be
treated as debt following the election. Additionally, any such election and any
related amendments to an Agreement and any Series Supplement may have other tax
and non-tax consequences to Certificateholders. Accordingly, prospective
Certificateholders should consult their tax advisors with regard to the effects
of any such election and any permitted related amendments on them in their
particular circumstances.
TAXATION OF INTEREST INCOME OF U.S. CERTIFICATE OWNERS
General. Stated interest on a beneficial interest in a Certificate will be
includible in gross income in accordance with a U.S. Certificate Owner's method
of accounting.
Original Issue Discount. If the Certificates are issued with original
issue discount ("OID"), the provisions of sections 1271 through 1273 and 1275 of
the Internal Revenue Code of 1986 (the "Code") will apply to the Certificates.
Under those provisions, a U.S. Certificate Owner (including a cash basis holder)
generally would be required to accrue the OID on its interest in a Certificate
in income for federal income tax purposes on a constant yield basis, resulting
in the inclusion of OID in income somewhat in advance of the receipt of cash
attributable to that income. In general, a Certificate will be treated as having
OID to the extent that its "stated redemption price" exceeds its "issue price,"
if such excess is more than 0.25 percent multiplied by the weighted average life
of the Certificate (determined by taking into account only the number of
complete years following issuance until payment is made for any partial
principal payments). Under section 1272(a)(6) of the Code, special provisions
apply to debt instruments on which payments may be accelerated due to
prepayments of other obligations securing those debt instruments. However, no
regulations have been issued interpreting those provisions, and the manner in
which those provisions would apply to the Certificates is unclear. Additionally,
because the failure to pay interest currently on a Certificate is not a default
and may not be considered to give rise to any penalty or remedy to compel
payment, the IRS could take the position based on Treasury Regulations that all
of the interest payable on a Certificate should be included in its stated
redemption price at maturity. If sustained, such treatment should not
significantly affect tax liabilities for most Certificate Owners, but
prospective U.S. Certificate Owners should consult their own tax advisors
concerning the impact to them in their particular circumstances.
Market Discount. A U.S. Certificate Owner who purchases an interest in a
Certificate at a discount that exceeds any unamortized OID may be subject to the
"market discount" rules of sections 1276 through 1278 of the Code. These rules
provide, in part, that gain on the sale or other disposition of a Certificate
and partial principal payments on a Certificate are treated as ordinary income
to the extent of accrued market discount. The market discount rules also provide
for deferral of interest deductions with respect to debt incurred to purchase or
carry a Certificate that has market discount.
Market Premium. A U.S. Certificate Owner who purchases an interest in a
Certificate at a premium may elect to offset the premium against interest income
over the remaining term of the Certificate in accordance with the provisions of
section 171 of the Code.
SALE OR EXCHANGE OF CERTIFICATES
Upon a disposition of an interest in a Certificate, a U.S. Certificate
Owner generally will recognize gain or loss equal to the difference between the
amount realized on the disposition and the U.S. Certificate Owner's adjusted
basis in its interest in the Certificate. A taxable exchange of a Certificate
also could occur as a result of the Transferor's substitution of money or
investments for Receivables; see "Description of the
Certificates -- Defeasance." The adjusted basis in the interest in the
Certificate will equal its cost, increased by any OID or market discount
includible in income with respect to the interest in the Certificate prior to
its disposition and reduced by any principal payments previously received with
respect to the interest in the Certificate and any amortized premium. Subject to
the market discount rules, gain or loss will be capital gain or loss if the
interest in the Certificate was held as a capital asset. Capital losses
generally may be used only to offset capital gains.
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NON-U.S. CERTIFICATE OWNERS
In general, a non-U.S. Certificate Owner will not be subject to U.S.
federal income tax on interest (including OID) on a beneficial interest in a
Certificate unless (i) the non-U.S. Certificate Owner actually or constructively
owns 10 percent or more of the total combined voting power of all classes of
stock of the Transferor entitled to vote (or of a profits or capital interest of
a Trust characterized as a partnership), (ii) the non-U.S. Certificate Owner is
a controlled foreign corporation that is related to the Transferor (or a Trust
treated as a partnership) through stock ownership, (iii) the non-U.S.
Certificate Owner is a bank described in Code Section 881(c)(3)(A), (iv) such
interest is contingent interest described in Code Section 871(h)(4), or (v) the
non-U.S. Certificate Owner bears certain relationships to any holder of either
the Transferor Certificate other than the Transferor or any other interest in
the Trust not properly characterized as debt. To qualify for the exemption from
taxation, the last U.S. Person in the chain of payment prior to payment to a
non-U.S. Certificate Owner (the "Withholding Agent") must have received (in the
year in which a payment of interest or principal occurs or in either of the two
preceding years) a statement that (i) is signed by the non-U.S. Certificate
Owner under penalties of perjury, (ii) certifies that the non-U.S. Certificate
Owner is not a U.S. Person and (iii) provides the name and address of the
non-U.S. Certificate Owner. The statement may be made on a Form W-8 or
substantially similar substitute form, and the non-U.S. Certificate Owner must
inform the Withholding Agent of any change in the information on the statement
within 30 days of the change. If a Certificate is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the Withholding Agent. However,
in that case, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the non-U.S. Certificate Owner to the organization
or institution holding the Certificate on behalf of the non-U.S. Certificate
Owner. The U.S. Treasury Department is considering implementation of further
certification requirements aimed at determining whether the issuer of a debt
obligation is related to holders thereof.
Generally, any gain or income realized by a non-U.S. Certificate Owner upon
retirement or disposition of an interest in a Certificate will not be subject to
U.S. federal income tax, provided that (i) in the case of a Certificate Owner
that is an individual, such Certificate Owner is not present in the United
States for 183 days or more during the taxable year in which such retirement or
disposition occurs and (ii) in the case of gain representing accrued interest,
the conditions described in the preceding paragraph for exemption from
withholding are satisfied. Certain exceptions may be applicable, and an
individual non-U.S. Certificate Owner should consult a tax adviser.
If the Certificates were treated as an interest in a partnership, the
recharacterization could cause a non-U.S. Certificate Owner to be treated as
engaged in a trade or business in the United States. In that event, the non-U.S.
Certificate Owner would be required to file a federal income tax return and, in
general, would be subject to U.S. federal income tax (including the branch
profits tax) on its net income from the partnership. Further, certain
withholding obligations apply with respect to income allocable or distributions
made to a foreign partner. That withholding may be at a rate as high as 39.6
percent. If some or all of the Certificates were treated as stock in a
corporation, any related dividend distributions to a non-U.S. Certificate Owner
generally would be subject to withholding of tax at the rate of 30 percent,
unless that rate were reduced by an applicable tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of U.S. federal income tax at a rate of 31 percent may
apply to payments made in respect of a Certificate to a registered owner who is
not an "exempt recipient" and who fails to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the manner required. Generally, individuals are not exempt recipients whereas
corporations and certain other entities are exempt recipients. Payments made in
respect of a U.S. Certificate Owner must be reported to the IRS, unless the U.S.
Certificate Owner is an exempt recipient or otherwise establishes an exemption.
Compliance with the identification procedures (described in the preceding
section) would establish an exemption from backup withholding for a non-U.S.
Certificate Owner who is not an exempt recipient.
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In addition, upon the sale of a Certificate to (or through) a "broker," the
broker must withhold 31 percent of the entire purchase price, unless either (i)
the broker determines that the seller is a corporation or other exempt recipient
or (ii) the seller provides certain identifying information in the required
manner, and in the case of a non-U.S. Certificate Owner certifies that the
seller is a non-U.S. Certificate Owner (and certain other conditions are met).
Such a sale must also be reported by the broker to the IRS, unless either (i)
the broker determines that the seller is an exempt recipient or (ii) the seller
certifies its non-U.S. status (and certain other conditions are met).
Certification of the registered owner's non-U.S. status normally would be made
on Form W-8 under penalties of perjury, although in certain cases under proposed
Treasury regulations it may be possible to submit other documentary evidence. As
defined by Treasury regulations, the term "broker" includes all persons who
stand ready to effect sales made by others in the ordinary course of a trade or
business, as well as brokers and dealers registered as such under the laws of
the United States or a state. These requirements generally will apply to a U.S.
office of a broker, and the information reporting requirements generally will
apply to a foreign office of a U.S. broker as well as to a foreign office of a
foreign broker (i) that is a controlled foreign corporation within the meaning
of section 957(a) of the Code or (ii) 50 percent or more of whose gross income
from all sources for the three year period ending with the close of its taxable
year preceding the payment (or for such part of the period that the foreign
broker has been in existence) was effectively connected with the conduct of a
trade or business within the United States.
Any amounts withheld under the backup withholding rules from a payment to a
Certificate Owner would be allowed as a refund or a credit against such
Certificate Owner's U.S. federal income tax, provided that the required
information is furnished to the IRS.
STATE AND LOCAL TAXATION
The discussion above does not address the taxation of a Trust or the tax
consequences of the purchase, ownership or disposition of an interest in the
Certificates under any state or local tax law. Each investor should consult its
own tax adviser regarding state and local tax consequences.
ERISA CONSIDERATIONS
Section 406 of ERISA and section 4975 of the Code prohibit certain pension,
profit sharing or other employee benefit plans, individual retirement accounts
or annuities and employee annuity plans and Keogh plans (collectively, "Plans")
from engaging in certain transactions involving "plan assets" with persons that
are "parties in interest" under ERISA or "disqualified persons" under the Code
with respect to the Plan. A violation of these "prohibited transaction" rules
may generate excise tax and other liabilities under ERISA and section 4975 of
the Code for such persons, unless a statutory, regulatory or administrative
exemption is available. Plans that are governmental plans (as defined in section
3(32) of ERISA) and certain church plans (as defined in section 3(33) of ERISA)
are not subject to ERISA requirements.
Subject to the considerations described below and except to the extent
otherwise specified in the related Prospectus Supplement, the Transferor
anticipates that each Class of Certificates will be eligible for purchase by
Plan investors.
A violation of the prohibited transaction rules could occur if any Series
of Certificates were to be purchased with assets of any Plan if the Transferor,
the Trustee, any underwriters of such Series or any of their affiliates were a
"party in interest" or a "disqualified person," with respect to such Plan,
unless a statutory, regulatory or administrative exemption is available or an
exception applies under a regulation (the "Plan Asset Regulation") issued by the
Department of Labor (the "DoL"). The Transferor, the Trustee, any underwriters
of a Series and their affiliates are likely to be "parties in interest" and
"disqualified persons" with respect to many Plans. Before purchasing
Certificates, a Plan fiduciary or other Plan investor should consider whether a
prohibited transaction might arise by reason of the relationship between the
Plan and the Transferor, the Trustee, any underwriters of such Series or any of
their affiliates and consult their counsel regarding the purchase in light of
the considerations described below. The DoL has issued four class exemptions
that may apply to otherwise prohibited transactions arising from the purchase or
holding of the Certificates: DoL Prohibited Transaction Exemptions 95-60 (Class
Exemption for Certain Transactions Involving Insurance
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Company General Accounts), 91-38 (Class Exemption for Certain Transactions
Involving Bank Collective Investment Funds), 90-1 (Class Exemption for Certain
Transactions Involving Insurance Company Pooled Separate Accounts) and 84-14
(Class Exemption for Plan Asset Transactions Determined by Independent Qualified
Professional Asset Managers).
Under certain circumstances, the Plan Asset Regulation treats the assets of
an entity in which a Plan holds an equity interest as "plan assets" of such
Plan. Because the Certificates will represent beneficial interests in a Trust,
and despite the agreement of the Transferor and the Certificate Owners to treat
each Series of Certificates as debt instruments, the Certificates are likely to
be considered equity interests in the Trust for purposes of the Plan Asset
Regulation, with the result that the assets of the Trust are likely to be
treated as "plan assets" of the investing Plans for purposes of ERISA and
section 4975 of the Code, unless either of the following exceptions applies.
The first exception applies to a "publicly-offered security." A
publicly-offered security is a security that is (a) freely transferable, (b)
part of a class of securities that is owned, immediately subsequent to the
initial offering, by 100 or more investors who were independent of the issuer
and of one another ("Independent Investors") and (c) either is (i) part of a
class of securities registered under section 12(b) or 12(g) of the Exchange Act,
or (ii) sold to the plan as part of an offering of securities to the public
pursuant to an effective registration statement under the Securities Act and the
class of securities of which such security is a part is registered under the
Exchange Act within 120 days (or such later time as may be allowed by the
Commission) after the end of the fiscal year of the issuer during which the
offering of such securities to the public occurred. For purposes of the 100
Independent Investor criterion, except to the extent otherwise disclosed in the
related Prospectus Supplement, each Class of Certificates should be deemed to be
a "class" of securities that would be tested separately from any other
securities that may be issued by the Trust. Except to the extent otherwise
disclosed in the related Prospectus Supplement, it is anticipated that each
Class of Certificates will meet the foregoing criteria for treatment as
"public-offered securities." No restrictions will be imposed on the transfer of
the Certificates. Except to the extent otherwise disclosed in the related
Prospectus Supplement, the Transferor expects that each Class of Certificates
will be held by at least 100 Independent Investors at the conclusion of the
initial public offering although no assurance can be given, and no monitoring or
other measures will be taken to ensure, that such condition is met. Each Class
of Certificates will be sold as part of an offering pursuant to an effective
registration statement under the Act and then will be timely registered under
the Exchange Act.
The second exception applies if equity participation in the entity by
"benefit plan investors" (i.e., Plans and other employee benefit plans not
subject to ERISA, such as governmental or foreign plans, as well as entities
holding assets deemed to be "plan assets") is not "significant." Benefit plan
investors' equity participation in a Trust is not significant on any date on
which any Series of Certificates is issued and outstanding if, immediately after
the most recent acquisition of any equity interest in the related Trust, less
than 25% of the value of each class of equity interests in the Trust (excluding
interests held by the Transferor, the Trustee or their affiliates) is held by
benefit plan investors. No assurance can be given by the Transferor as to
whether the value of each class of equity interests in any Trust held by benefit
plan investors will be "significant" upon completion of the offering of any
Series of Certificates or thereafter, and no monitoring or other measures will
be taken with respect to the satisfaction of the conditions to this exception.
If neither of the foregoing exceptions under the Plan Asset Regulation were
satisfied with respect to a Trust and the Trust were considered to hold "plan
assets," transactions involving the Trust and "parties in interest" or
"disqualified persons" with respect to a Plan that is a Certificate Owner might
be prohibited under section 406 of ERISA and/or section 4975 of the Code and
result in excise tax and other liabilities under ERISA and section 4975 of the
Code unless an exemption were available. The three DoL class exemptions
mentioned above may not provide relief for all transactions involving the assets
of a Trust even if they would otherwise apply to the purchase of a Certificate
by a Plan.
The Certificates of any Series may not be purchased with the assets of a
Plan if the Transferor, the Servicer, the Trustee or any of their affiliates (a)
has investment or administrative discretion with respect to such Plan assets;
(b) has authority or responsibility to give, or regularly gives, investment
advice with respect to such Plan assets, for a fee and pursuant to an agreement
or understanding that such advice (i) will serve as
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a primary basis for investment decisions with respect to such Plan assets, and
(ii) will be based on the particular investment needs of such Plan; or (c) is an
employer maintaining or contributing to such Plan.
In light of the foregoing, fiduciaries or other persons contemplating
purchasing the Certificates on behalf or with "plan assets" of any Plan should
consult their own counsel regarding whether the Trust assets represented by the
Certificates would be considered "plan assets," the consequences that would
apply if the Trust's assets were considered "plan assets," and the possibility
of exemptive relief from the prohibited transaction rules. Finally, Plan
fiduciaries and other Plan investors should consider the fiduciary standards
under ERISA or other applicable law in the context of the Plan's particular
circumstances before authorizing an investment of a portion of the Plan's assets
in the Certificates. Accordingly, among other factors, Plan fiduciaries and
other Plan investors should consider whether the investment (i) satisfies the
diversification requirement of ERISA or other applicable law, (ii) is in
accordance with the Plan's governing instruments, and (iii) is prudent in light
of the "Risk Factors" and other factors discussed herein and in the related
Prospectus Supplement.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting agreement
(an "Underwriting Agreement") to be entered into with respect to each Series of
Certificates, the Transferor will agree to sell to each of the underwriters
named therein and in the related Prospectus Supplement, and each of such
underwriters will severally agree to purchase from the Transferor, the principal
amount of Certificates set forth therein and in the related Prospectus
Supplement (subject to proportional adjustment on the terms and conditions set
forth in the related Underwriting Agreement in the event of an increase or
decrease in the aggregate amount of Certificates offered hereby and by the
related Prospectus Supplement). First Union Capital Markets Corp., an affiliate
of the Transferor, the Servicer and the Corporation, may participate as an
underwriter in the offering of the Certificates.
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all the
Certificates offered hereby and by the related Prospectus Supplement if any of
such Certificates are purchased. In the event of a default by any underwriter,
each Underwriting Agreement will provide that, in certain circumstances,
purchase commitments of the nondefaulting underwriters may be increased or the
Underwriting Agreement may be terminated.
Each Prospectus Supplement will set forth the price at which each Series of
Certificates or Class being offered thereby initially will be offered to the
public and any concessions that may be offered to certain dealers participating
in the offering of such Certificates. After the initial public offering, the
public offering price and such concessions may be changed.
This Prospectus and the related Prospectus Supplement may be used by First
Union Capital Markets Corp., an affiliate of the Transferor and Servicer, in
connection with offers and sales related to market-making transactions in the
Certificates. First Union Capital Markets Corp. may act as principal or agent in
such transactions. Such prices will be made at prices related to prevailing
market prices at the time of sale or otherwise.
Each Underwriting Agreement will provide that the Transferor will indemnify
the related underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
The place and time of delivery for any Series of Certificates in respect of
which this Prospectus is delivered will be set forth in the accompanying
Prospectus Supplement.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates will be
passed upon for the Transferor by Orrick, Herrington & Sutcliffe, Washington,
D.C., special counsel to the Transferor. Certain legal matters relating to the
federal tax consequences of the issuance of the Certificates will be passed upon
for the Transferor by Orrick, Herrington & Sutcliffe. The validity of the
Certificates will be passed upon for the Underwriters by Sullivan & Cromwell,
New York, New York. Sullivan & Cromwell from time to time has rendered legal
services to the Transferor and to affiliates of the Transferor.
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INDEX OF TERMS FOR PROSPECTUS
<TABLE>
<CAPTION>
TERM PAGE
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<S> <C>
Accounts............................................................................. 1
Accumulation Period.................................................................. 5
Additional Accounts.................................................................. 5
Additional Interest.................................................................. 43
Agreement............................................................................ 4
Amortization Period.................................................................. 5
Assignment........................................................................... 38
Bank Portfolio....................................................................... 4
Base Rate............................................................................ 19
BHCA................................................................................. 27
Bill................................................................................. 58
Cash Advances........................................................................ 25
Cash Collateral Account.............................................................. 52
Cash Collateral Guaranty............................................................. 52
Cede................................................................................. 2
CEDEL................................................................................ 31
CEDEL Participants................................................................... 31
Certificate Owners................................................................... 2
Certificate Rate..................................................................... 5
Certificateholder.................................................................... 30
Certificateholders................................................................... 2
Certificates......................................................................... 1
Class................................................................................ 2
Closing Date......................................................................... 10
Code................................................................................. 59
Collateral Interest.................................................................. 53
Collection Account................................................................... 9
Commission........................................................................... 2
Controlled Accumulation Amount....................................................... 12
Controlled Accumulation Period....................................................... 12
Controlled Amortization Amount....................................................... 11
Controlled Amortization Period....................................................... 11
Controlled Deposit Amount............................................................ 12
Controlled Distribution Amount....................................................... 11
Cooperative.......................................................................... 31
Corporation.......................................................................... 9
Credit Enhancement................................................................... 5
Credit Enhancement Percentage........................................................ 41
Credit Enhancement Provider.......................................................... 48
Credit Line Checks................................................................... 25
Cut-Off Date......................................................................... 7
Defaulted Accounts................................................................... 6
Definitive Certificates.............................................................. 9
Depositaries......................................................................... 29
Depository........................................................................... 29
Determination Date................................................................... 44
Disclosure Document.................................................................. 8
Discount Percentage.................................................................. 39
Distribution Account................................................................. 40
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------------------- -----
<S> <C>
Distribution Date.................................................................... 10
DoL.................................................................................. 61
DTC.................................................................................. 2
Eligible Account..................................................................... 36
Eligible Receivable.................................................................. 37
Enhancement.......................................................................... 5
Enhancement Invested Amount.......................................................... 52
ERISA................................................................................ 16
Euroclear............................................................................ 31
Euroclear Operator................................................................... 31
Euroclear Participants............................................................... 31
Excess Finance Charge Collections.................................................... 43
Exchange............................................................................. 8
Exchange Act......................................................................... 2
FASIT................................................................................ 58
FDIA................................................................................. 18
FDIC................................................................................. 7
Finance Charge Account............................................................... 40
Finance Charge Receivables........................................................... 7
FIRREA............................................................................... 18
First Union.......................................................................... 1
Full Investor Interest............................................................... 15
Funding Period....................................................................... 15
Group................................................................................ 14
Holders.............................................................................. 32
Independent Investors................................................................ 62
Indirect Participants................................................................ 30
Ineligible Receivable................................................................ 35
Interchange.......................................................................... 5
Interest Funding Account............................................................. 33
Interest Period...................................................................... 10
Investor Charge-Off.................................................................. 43
Investor Default Amount.............................................................. 43
Investor Interest.................................................................... 6
Investor Percentage.................................................................. 6
Investor Servicing Fee............................................................... 43
IRS.................................................................................. 56
L/C Bank............................................................................. 52
Minimum Transferor Interest.......................................................... 7
Monthly Interest..................................................................... 43
Monthly Period....................................................................... 10
Moody's.............................................................................. 40
New Agreement........................................................................ 4
New Trust............................................................................ 4
non-U.S. Certificate Owner........................................................... 56
OID.................................................................................. 59
Participants......................................................................... 30
Participation Agreement.............................................................. 38
Participations....................................................................... 5
Pay Out Event........................................................................ 13
Paying Agent......................................................................... 49
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------------------- -----
<S> <C>
Permitted Investments................................................................ 40
Plan Asset Regulation................................................................ 61
Plans................................................................................ 61
Portfolio Yield...................................................................... 19
Pre-Funding Account.................................................................. 15
Pre-Funding Amount................................................................... 15
Principal Account.................................................................... 40
Principal Amortization Period........................................................ 11
Principal Commencement Date.......................................................... 10
Principal Funding Account............................................................ 12
Principal Receivables................................................................ 7
Principal Terms...................................................................... 8
Prospectus Supplement................................................................ 1
Purchases............................................................................ 25
Qualified Institution................................................................ 40
Rapid Accumulation Period............................................................ 13
Rapid Amortization Period............................................................ 14
Rating Agency........................................................................ 17
Rebate Accounts...................................................................... 21
Receivables.......................................................................... 1
Record Date.......................................................................... 28
Regulations.......................................................................... 57
Removed Accounts..................................................................... 8
Reserve Account...................................................................... 53
Revolving Period..................................................................... 10
Scheduled Payment Date............................................................... 11
Securities Act....................................................................... 4
Senior Certificates.................................................................. 6
Series............................................................................... 1
Series Supplement.................................................................... 4
Series Termination Date.............................................................. 45
Service Transfer..................................................................... 48
Servicer............................................................................. 9
Servicer Default..................................................................... 48
Servicing Fee........................................................................ 9
Shared Principal Collections......................................................... 14
Special Counsel...................................................................... 57
Spread Account....................................................................... 53
Standard & Poor's.................................................................... 40
Subordinated Certificates............................................................ 6
Tax Opinion.......................................................................... 8
Terms and Conditions................................................................. 31
Transfer Date........................................................................ 12
Transferor........................................................................... 4
Transferor Certificate............................................................... 8
Transferor Interest.................................................................. 6
Transferor Percentage................................................................ 29
Trust................................................................................ 1
Trust Portfolio...................................................................... 26
Trust Termination Date............................................................... 45
Trustee.............................................................................. 4
U.S. Certificate Owner............................................................... 56
U.S. Person.......................................................................... 56
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------------------- -----
<S> <C>
UCC.................................................................................. 54
Unallocated Principal Collections.................................................... 43
Underwriting Agreement............................................................... 63
Withholding Agent.................................................................... 60
</TABLE>
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered First Union
Master Credit Card Trust Asset Backed Certificates (the "Global Securities") to
be issued in Series from time to time (each, a "Series") will be available only
in book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), CEDEL or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior First Union Master Credit Card
Trust issues. Investors securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payments in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior First
Union Master Credit Card Trust issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear
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Participant, the purchaser will send instructions to CEDEL or Euroclear through
a CEDEL Participant or Euroclear Participant at least one business day prior to
settlement. CEDEL or Euroclear will instruct the respective Depositary, as the
case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date. Payment will then be
made by the respective Depositary to the DTC Participant's account against
delivery of the Global Securities. After settlement has been completed, the
Global Securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the CEDEL
Participant's or Euroclear Participant's account. The Global Securities credit
will appear the next day (European time) and the cash debit will be back-valued
to, and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the CEDEL or Euroclear cash debit will be valued instead as of the actual
settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the CEDEL Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the CEDEL Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the CEDEL
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
CEDEL Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date. Finally, day traders that use CEDEL or
Euroclear and that purchase Global Securities from DTC Participants for delivery
to CEDEL Participants or
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Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the CEDEL Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must
be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners
residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the
treaty provides only for a reduced rate, withholding tax will be imposed at
that rate unless the filer alternatively files Form W-8. Form 1001 may be
filed by the Certificate Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of
a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom
it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
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The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. Federal income tax withholding that may be relevant to foreign holders
of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Securities.
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