<PAGE>
REGISTRATION NO. 333-1837
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
FIRST BANK CORPORATE CARD MASTER TRUST
(Issuer with respect to the Certificates)
------------------------------
FIRST BANK OF SOUTH DAKOTA
(NATIONAL ASSOCIATION)
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
UNITED STATES 46-0168855
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
</TABLE>
------------------------------
141 NORTH MAIN AVENUE
SIOUX FALLS, SOUTH DAKOTA 57117
(605) 339-8600
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
LEE R. MITAU
CORPORATE SECRETARY AND GENERAL COUNSEL
FIRST BANK SYSTEM, INC.
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
(612) 973-0363
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
CHARLES F. SAWYER, ESQ. SUSAN M. CURTIS, ESQ.
DORSEY & WHITNEY LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
220 SOUTH SIXTH STREET 919 THIRD AVENUE
MINNEAPOLIS, MINNESOTA 55402 NEW YORK, NEW YORK 10022
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvesment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act , please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
Class A Asset Backed Certificates..... $500,000 100% $500,000 $151.51
Class B Asset Backed Certificates..... $500,000 100% $500,000 $151.52
TOTAL........................... $1,000,000 100% $1,000,000 $303.03
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $344.83 of which was previously paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
DATED , 1996
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
FIRST BANK CORPORATE CARD MASTER TRUST
ISSUER
$ CLASS A % ASSET BACKED CERTIFICATES, SERIES 1996-1
$ CLASS B % ASSET BACKED CERTIFICATES, SERIES 1996-1
FIRST BANK OF SOUTH DAKOTA (NATIONAL ASSOCIATION)
TRANSFEROR
FBS CARD SERVICES, INC.
SERVICER
Each Class A % Asset Backed Certificate, Series 1996-1 (collectively, the
"Class A Certificates") and each Class B % Asset Backed Certificate, Series
1996-1 (collectively, the "Class B Certificates" and, together with the Class A
Certificates, the "Certificates") will represent an undivided interest in the
First Bank Corporate Card Master Trust (the "Trust") created pursuant to a
Pooling and Servicing Agreement among First Bank of South Dakota (National
Association), as transferor, FBS Card Services, Inc., as servicer, and Citibank,
N.A., as trustee. In addition, a Collateral Investor Interest (as defined
herein) having an initial principal balance of $ will be issued as part
of Series 1996-1, and will be subordinated to the Certificates as described
herein.
(COVER CONTINUED ON FOLLOWING 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" ON PAGE 23.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR RECOURSE OBLIGATIONS OF FIRST BANK OF SOUTH DAKOTA (NATIONAL
ASSOCIATION), FIRST BANK SYSTEM, INC., FBS CARD SERVICES, INC. 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 SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING THE TRANSFEROR
PUBLIC (1) DISCOUNT (1)(2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Certificate % % %
- -------------------------------------------------------------------------------------------
Per Class B Certificate % % %
- -------------------------------------------------------------------------------------------
Total $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, calculated from , 1996.
(2) Before deducting expenses estimated to be $ .
The Certificates are offered by the Underwriters when, as, and if issued by the
Trust and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. The Underwriters reserve the right to withdraw,
cancel or modify such offer. It is expected that the Certificates will be
delivered in book-entry form through the facilities of The Depository Trust
Company, Cedel Bank, societe anonyme and the Euroclear System on or about ,
1996 against payment therefor in immediately available funds.
UNDERWRITERS OF THE CLASS A CERTIFICATES
J.P. MORGAN & CO.
UNDERWRITERS OF THE CLASS B CERTIFICATES
J.P. MORGAN & CO.
, 1996
<PAGE>
The Collateral Investor Interest is not offered hereby. The property of the
Trust will include receivables (the "Receivables") generated from time to time
in a portfolio of designated VISA-Registered Trademark- charge card accounts
originated under First Bank's Corporate Card or Purchasing Card programs (the
"Accounts"), all monies due in payment of the Receivables, all proceeds of the
Receivables, any Enhancement (as defined herein), all monies on deposit in
certain bank accounts of the Trust and the right to receive certain amounts of
Net Interchange allocable to the Certificates, as described herein. 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" on page 83. First Bank initially will own the remaining undivided
interest in the Trust not represented by the Certificates, by the Collateral
Investor Interest, by other investor certificates issued by the Trust and by the
interests of Enhancement providers, if any. Series 1996-1 is the first Series
issued by the Trust. First Bank may from time to time offer and sell other
Series that evidence undivided interests in certain assets of the Trust, which
may have terms significantly different from the Certificates.
Interest will accrue on the Class A Certificates at the rate of % per annum.
Interest will accrue on the Class B Certificates at the rate of % per annum.
Interest will accrue on the Certificates from , 1996 and is payable
semi-annually on and (or, if any such day is not a business day, on
the next succeeding business day) commencing , 1996 and, with respect to
each Class, on the Expected Final Payment Date for such Class, or in the event
an Early Amortization Event shall have occurred, monthly on or about the 15th
day of each month. Principal on the Class A Certificates is scheduled to be
distributed on the Distribution 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 Distribution Date, but
may be paid earlier or later under certain limited circumstances described
herein. See "Maturity Considerations."
The Class B Certificates will be subordinated to the Class A Certificates to the
extent necessary to fund payments on the Class A Certificates as described
herein. The Collateral Investor Interest will be subordinated to the Class A
Certificates and the Class B Certificates as described herein.
AVAILABLE INFORMATION
This Prospectus (the "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 Securities and Exchange Commission
(the "Commission"). For further 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 Citicorp 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. In
addition, the Commission maintains a public access site on the Internet through
the World Wide Web at which the Registration Statement (including any amendments
thereof and exhibits thereto) and any reports and other document incorporated
herein by reference may be viewed. The Internet address of such World Wide Web
site is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Servicer, on behalf of the Trust,
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as
amended (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 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). Requests for such copies should be directed to
First Bank System, Inc., 601 Second Avenue South, Minneapolis, Minnesota 55402,
Attention: Investor Relations ((602) 973-2263).
2
<PAGE>
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.
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained or incorporated by reference in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Transferor or any agent or
Underwriter. This Prospectus does not constitute an offer or solicitation by
anyone in any state in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to anyone to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Transferor or the Receivables or the Accounts since the date
hereof or that the information contained or incorporated by reference herein is
correct as of any time subsequent to its date.
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
UPON RECEIPT OF A REQUEST BY AN INVESTOR OR HIS OR HER REPRESENTATIVE WITHIN THE
PERIOD DURING WHICH THERE IS A PROSPECTUS DELIVERY OBLIGATION, THE TRANSFEROR OR
THE UNDERWRITERS WILL TRANSMIT OR CAUSE TO BE TRANSMITTED PROMPTLY, WITHOUT
CHARGE, AND IN ADDITION TO ANY SUCH DELIVERY REQUIREMENTS, A PAPER COPY OF A
PROSPECTUS, OR A PROSPECTUS ENCODED IN AN ELECTRONIC FORMAT.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
--- ---
<S> <C> <C> <C>
Available Information............................ 2 Use of Proceeds.................................. 38
Incorporation of Certain Documents by First Bank of South Dakota (National
Reference.................................... 2 Association) and First Bank System, Inc.......... 38
Reports to Certificateholders.................... 3 Description of the Certificates.................. 39
Summary.......................................... 4 Certain Legal Aspects of the Receivables......... 71
Risk Factors..................................... 23 Federal Income Tax Consequences.................. 74
The Trust........................................ 27 State and Local Tax Consequences................. 78
First Bank's Corporate Card and ERISA Considerations............................. 79
Purchasing Card Programs..................... 28 Underwriting..................................... 81
The Receivables.................................. 34 Legal Matters.................................... 82
Maturity Considerations.......................... 37 Index of Terms................................... 83
</TABLE>
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual reports,
containing information concerning the Trust and prepared by the Servicer, will
be sent on behalf of the Trust to Cede & Co. ("Cede"), as nominee of The
Depository Trust Company ("DTC") and registered holder of the Certificates,
pursuant to the 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 Commission such periodic reports with respect to the
Trust as are required under the Exchange Act and the rules and regulations of
the Commission thereunder.
3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. CERTAIN CAPITALIZED TERMS
USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS. A LISTING OF THE
PAGES ON WHICH SUCH TERMS ARE DEFINED IS FOUND IN THE "INDEX OF TERMS" BEGINNING
ON PAGE 83.
<TABLE>
<S> <C>
TYPE OF SECURITIES........................... Class A % Asset Backed Certificates, Series
1996-1 (the "Class A Certificates") and Class
B % Asset Backed Certificates, Series
1996-1 (the "Class B Certificates," and
together with the Class A Certificates, the
"Certificates").
OVERVIEW OF THE TRANSACTION.................. The First Bank Corporate Card Master Trust
(the "Trust") will be formed for the purpose
of holding the Receivables and issuing the
Certificates and other similar securities.
Each Certificate will represent 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 payment date.
The Class A Certificates will also have the
benefits of certain excess collections, and
the subordination of the Class B Certificates
and the Collateral Investor Interest. The
Class B Certificates will also have the
benefits of certain excess collections not
needed to cover shortfalls in respect of the
Class A Certificates and the subordination of
the Collateral Investor 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--Certificate Rating." For a
description of the subordination of the Class
B Certificates, see "Summary--Subordination
of the Class B Certificates and the
Collateral Investor Interest" and "Risk
Factors-- Effect of Subordination."
Both the Class A Certificates and the Class B
Certificates are subject to repayment earlier
than expected if certain events called Early
Amortization Events occur. See "Description
of the Certificates--Early Amortization
Events." Both the Class A Certificates and
the Class B Certificates are also subject to
potential delayed repayment if the payment
rate on the Receivables decreases. See "Risk
Factors--Timing of Payments and Maturity" and
"Maturity Considerations." 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."
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
TRUST........................................ The Trust will be formed pursuant to a
pooling and servicing agreement (the
"Agreement"), among First Bank of South
Dakota (National Association) ("First Bank"
or the "Bank"), as transferor, FBS Card
Services, Inc., as servicer, and Citibank,
N.A., as trustee (the "Trustee"). The Trust
will be created as a master trust under which
one or more series (each, a "Series") may be
issued pursuant to a series supplement to the
Agreement (each, a "Series Supplement"). The
Certificates will be issued pursuant to the
Agreement, as supplemented by the Series
Supplement relating to the Certificates (the
"Series 1996-1 Supplement") (the term
"Agreement," unless the context requires
otherwise, refers to the Agreement as
supplemented by the Series 1996-1
Supplement). An interest referred to as the
"Collateral Investor Interest" and deemed to
be a class of investor certificates will also
be issued as part of Series 1996-1 and will
be subordinated to the Certificates as
described herein. The Collateral Investor
Interest is not offered hereby. As used in
this Prospectus, the term
"Certificateholders" refers to holders of the
Certificates, the term "Class A
Certificateholders" refers to holders of the
Class A Certificates, the term "Class B
Certificateholders" refers to holders of the
Class B Certificates, the term "Collateral
Interest Holder" refers to the holder of the
Collateral Investor Interest and the term
"Series 1996-1" refers to the Series issued
pursuant to the Agreement, as supplemented by
the Series 1996-1 Supplement.
Series 1996-1 is the first Series to be
issued by the Trust. Additional Series
consisting of one or more classes of
certificates (each, a "Class") may be issued
from time to time by the Trust.
THE TRANSFEROR............................... First Bank of South Dakota (National
Association) (the "Transferor"), a national
banking association organized under the laws
of the United States and a wholly-owned
subsidiary of First Bank System, Inc., a
Delaware corporation. The principal offices
of the Transferor are located at 141 North
Main Avenue, Sioux Falls, South Dakota 57117,
and its telephone number is (605) 339-8600.
THE SERVICER................................. FBS Card Services, Inc. (the "Servicer"), a
Minnesota corporation, and a wholly-owned
subsidiary of First Bank System, Inc.
THE TRUSTEE.................................. Citibank, N.A., a national banking
association.
TRUST ASSETS................................. The assets of the Trust will include (i)
receivables (the "Receivables") arising under
certain VISA-Registered Trademark-* charge
card accounts (the "Accounts"), including any
Additional
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Accounts following their designation,
originated under the Bank's Corporate Card or
Purchasing Card programs and selected from
the portfolio of VISA accounts in such
programs owned by the Bank (the "Bank
Portfolio"), (ii) all monies due in payment
of the Receivables (including recoveries on
charged-off Receivables and amounts, if any,
paid by corporate clients as co-obligors
under the Corporate Card program), (iii) all
proceeds of the Receivables, (iv) the right
to receive certain amounts of Net Interchange
(as defined herein) allocable to the
Certificates (which right may not be afforded
to other Series issued by the Trust), (v) all
monies on deposit in certain bank accounts of
the Trust (other than investment earnings on
such amounts, except as otherwise specified
herein) and (vi) any Enhancement (as defined
herein) with respect to any particular Series
or Class as described herein. The
Certificateholders will not be entitled to
the benefits of any Enhancement issued with
respect to any Series other than Series
1996-1, and the holders of certificates of
other Series will not be entitled to the
benefits of any Enhancement issued with
respect to Series 1996-1.
Upon the formation of the Trust, the
Transferor will convey to the Trustee for the
benefit of the Trust all Receivables existing
under certain Accounts that will be selected
from the Bank Portfolio based on criteria
provided in the Agreement as applied on
, 1996 (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 be obligated
to (subject to certain limitations and
conditions) designate Additional Accounts for
inclusion in the Trust. See "The Receivables"
and "Description of the
Certificates--Addition of Accounts."
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 Investor
Interest"), the Collateral Interest Holder
(the "Collateral Investor 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 Investor
Interest constitutes Enhancement for the
Certificates. Allocations will be made to the
Collateral Investor
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Interest, and the Collateral Interest Holder
will have voting and certain other rights, as
if the Collateral Investor 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 Investor
Interest or the holders of other undivided
interests in the Trust. The principal balance
of the Transferor Interest will fluctuate as
the amount of Receivables in the Trust
changes from time to time.
Each Class A Certificate represents the right
to receive from the assets of the Trust
allocated to the Class A Certificates
payments of (i) interest at the rate of %
per annum (the "Class A Certificate Rate"),
accruing from , 1996 (the "Closing
Date") and (ii) principal on the
Distribution Date (the "Class A Expected
Final Payment Date") or, under certain
limited circumstances, during the Early
Amortization Period, funded from a percentage
of the payments received with respect to the
Receiv ables and certain other funds
(including, under the circumstances specified
herein, funds, if any, on deposit in the
Principal Funding Account), as described
herein.
Each Class B Certificate represents the right
to receive from the assets of the Trust
allocated to the Class B Certificates
payments of (i) interest at the rate of %
per annum (the "Class B Certificate Rate"),
accruing from the Closing Date and (ii)
principal on the Distribution Date
(the "Class B Expected Final Payment Date")
or, under certain limited circumstances,
during the Early Amortization Period, funded
from a percentage of the payments received
with respect to the Receivables and certain
other funds, as described herein. No
principal will be distributed on the Class B
Certificates until the Class A Invested
Amount has been paid in full. See
"Description of the Certificates--
Subordination of the Class B Certificates and
the Collateral Investor Interest."
The interest in the Trust represented by the
Class A Certificates (the "Class A Invested
Amount") initially will equal $ (the
"Class A Initial Invested Amount") and will
decline as principal with respect to the
Class A Certificates is paid to the Class A
Certificateholders or as Investor Charge-Offs
allocable to the Class A Certificates occur.
The interest in the Trust represented by the
Class B Certificates (the "Class B Invested
Amount") initially will equal $ (the
"Class B Initial Invested Amount") and will
decline as principal with respect to
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
the Class B Certificates is paid to the Class
B Certificateholders, as Principal
Collections allocable to the Class B
Certificates are reallocated for the benefit
of the Class A Certificates or as Investor
Charge-Offs allocable to the Class B
Certificates occur.
The interest in the Trust represented by the
Collateral Investor Interest (the "Collateral
Invested Amount" and, together with the Class
A Invested Amount and the Class B Invested
Amount, the "Invested Amount") initially will
equal $ (the "Collateral Initial
Invested Amount" and, together with the Class
A Initial Invested Amount and the Class B
Initial Invested Amount, the "Initial
Invested Amount") and will decline as
principal with respect to the Collateral
Investor Interest is paid to the Collateral
Interest Holder, as Principal Collections
allocable to the Collateral Investor Interest
are reallocated for the benefit of the Class
A Certificates and the Class B Certificates
or as Investor Charge-Offs allocable to the
Collateral Investor Interest occur.
During the Accumulation Period, for the sole
purpose of allocating Yield Collections and
the amount of Defaulted Receivables with
respect to each Collection 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 Invested
Amount (as so reduced, the "Class A Adjusted
Invested Amount" and together with the Class
B Invested Amount and the Collateral Invested
Amount, the "Adjusted Invested Amount").
The Transferor Interest will initially be
held by the Transferor.
The final payment of principal and interest
on the Certificates will be made no later
than the Distribution Date. Series
1996-1 will terminate on the earliest to
occur of (a) the Distribution Date on which
the Invested Amount is paid in full, (b) the
Distribution Date or (c) the Trust
Termination Date (such earliest to occur, the
"Series 1996-1 Termination Date"). After the
Series 1996-1 Termination Date, the Trust
will have no further obligation to pay
principal or interest on the Certificates.
The Class A Certificates, the Class B
Certificates and the Collateral Investor
Interest will each include the right to
receive (but only to the extent needed to
make required payments under the Agreement)
varying percentages of Yield Collections and
Principal Collections and will be allocated
varying percentages of the amount of
Defaulted Receivables during each calendar
month (each, a "Collection Period"). Yield
Collections and the amount of
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Defaulted Receivables at all times, and
Principal Collections during the Revolving
Period, will be allocated to the Investor
Interest based on the Floating Allocation
Percentage and will be further allocated
among the Class A Investor Interest, the
Class B Investor Interest and the Collateral
Investor Interest based on the Class A
Floating Percentage, the Class B Floating
Percentage and the Collateral Floating
Percentage, respectively, applicable during
the related Collection Period. Principal
Collections during the Ac cumulation Period
and the Early Amortization Period will be
allocated to the Investor Interest based on
the Fixed Allocation Percentage and will be
further allocated among the Class A Investor
Interest, the Class B Investor Interest and
the Collateral Investor Interest based on the
Class A Fixed Percentage, the Class B Fixed
Percentage and the Collateral Fixed
Percentage, respectively. See "Description of
the Certifi cates-- Allocation Percentages"
and "--Early Amortization Events."
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 and, with respect
to certain Additional Accounts, if any, on
subsequent dates. The Receivables consist of
amounts charged by cardholders for goods and
services and cash advances plus the related
amounts billed to the Accounts in respect of
cash advance fees, annual cardholder fees,
late fees, and other fees and charges. In
addition, certain amounts of Net Interchange
attributed to cardholder charges for goods
and services in the Accounts will be
allocated to the Certificates and treated as
Yield Collections. See "First Bank's
Corporate Card and Purchasing Card
Programs--Interchange."
The aggregate amount of Receivables in the
Accounts as of the beginning of the day on
the Cut-Off Date was $ . During the
term of the Trust, all new Receivables
arising in the Accounts will be transferred
automatically to the Trust by the Transferor.
The total amount of Receivables in the 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. The Trustee is not required nor expected
to make any initial or periodic general
examination of the Receivables or any records
relating to the Receivables for the presence
or absence of defects, compliance with the
Transferor's representations and warranties
or for any other purpose.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Pursuant to the Agreement, the Transferor
will have the right (subject to certain
limitations and conditions), and in some
circumstances, will be obligated, to
designate additional eligible VISA charge
card accounts originated under the Bank's
Corporate Card or Purchasing Card programs
(the "Additional Accounts") and to convey to
the Trust all of the Receivables in the
Additional Accounts, whether such Receivables
are then existing or thereafter created. In
addition, 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"). See "The Receivables" and
"Description of the Certificates--Addition of
Accounts" and "--Removal of Accounts."
YIELD FACTOR; COLLECTIONS.................... The Receivables originated under the Accounts
are not subject to a monthly finance charge,
and therefore, a portion of the collections
on the Receivables received during the
preceding Collection Period will be treated
as "yield" to the Trust. The "Yield
Collections" for any Collection Period will
equal the sum of (i) the aggregate amount of
collections on the Receivables during such
Collection Period (other than Net
Interchange, if any) multiplied by the Yield
Factor, and (ii) certain amounts of Net
Interchange attributed to cardholder charges
in the Accounts with respect to such
Collection Period. The remainder of the
aggregate amount of collections on the
Receivables during any Collection Period will
be treated as "Principal Collections." The
"Yield Factor" of the Trust is equal to %.
"Net Interchange" consists of certain fees
received by the Transferor from VISA as
partial compensation for taking credit risk,
absorbing fraud losses and funding
receivables for a limited period prior to
initial billing, net of VISA dues and rebates
to corporate customers and travel agencies.
See "First Bank's Corporate Card and
Purchasing Card Pro grams--Interchange."
EXCHANGES.................................... The Agreement authorizes the 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
"Exchangeable Transferor Certificate"), which
initially will be held by the Transferor and
which generally will be retained by the
Transferor. Pursuant to any one or more
Series Supplements to the Agreement, the
holder of the Exchangeable Transferor
Certificate may tender the Exchangeable
Transferor Certificate or, if provided in the
relevant Series Supplement, certificates
representing any Series issued by the Trust
and the Exchangeable
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Transferor Certificate, to the Trustee in
exchange for one or more new Series and a
reissued Exchangeable Transferor Certificate
(any such tender, an "Exchange"). Any 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 of 1933, as amended (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. The Transferor's
ability to make an Exchange is subject to
certain conditions precedent, including the
requirement that each Rating Agency that has
rated any outstanding Series confirm that the
Exchange will not result in the reduction or
withdrawal of its rating on any outstanding
Series. 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.
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.
Certificateholders may elect to hold their
Certificates through DTC (in the United
States) or Cedel or Euroclear (in Europe).
Transfers will be made in accordance with the
rules and operating procedures described
herein. See "Description of the
Certificates--Definitive Certificates."
SERVICING FEE................................ The Servicer will receive a monthly fee as
servicing compensation from the Trust equal
to one-twelfth of the product of % per
annum and the Adjusted Invested Amount as of
the last day of the second preceding
Collection Period (the "Monthly Investor
Servicing Fee"). So long as FBS Card
Services, Inc. or any of its affiliates is
acting as Servicer under the Agreement, a
portion of the Monthly Investor Servicing Fee
equal to up to one-twelfth of the product of
% per annum and the Adjusted Invested
Amount as of the last day of the second
preceding Collection Period will be payable
solely from Net Interchange. See "Description
of the Certificates--Servicing Compensation
and Payment of Expenses."
INTEREST PAYMENTS............................ Interest will accrue on the unpaid principal
balance of the Class A Certificates at a per
annum rate equal to the Class A Certificate
Rate and will accrue on the unpaid principal
balance of the Class B Certificates at a per
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
annum rate equal to the Class B Certificate
Rate. Except as otherwise provided herein,
interest will be paid to Certificateholders
semi-annually on and (or, if any
such day is not a business day, on the next
succeeding business day) and on the Class A
Expected Final Payment Date with respect to
the Class A Certificates and on the Class B
Expected Final Payment Date with respect to
the Class B Certificates (each, an "Interest
Payment Date"). If an Early Amortization
Period commences, then thereafter interest
will be distributed to the Certificateholders
monthly on each Special Payment Date.
Interest for any Interest Payment Date or
Special Payment Date due but not paid on such
Interest Payment Date or Special Payment Date
will be payable on the next succeeding
Interest Payment Date or Special Payment
Date, together with additional interest on
such amount at the applicable Certificate
Rate (such amount, as applicable, "Additional
Interest"). Interest will be calculated on
the basis of a 360-day year comprised of
twelve 30-day months.
Interest payments on each Interest Payment
Date or Special Payment Date will be funded
from the portion of Yield Collections
collected during the Collection Period or
Collection Periods since the later of the
Closing Date or the last date on which a
payment of interest on the Certificates was
made 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, Shared
Excess Yield Collections 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, Shared Excess Yield
Collections and Reallocated Collateral
Principal Collections (to the extent
available) and (c) with respect to the
Collateral Investor Interest, from Excess
Spread and Shared Excess Yield Collections.
See "Description of the
Certificates--Reallocation of Cash Flows" and
"--Application of Collections--Payment of
Interest, Fees and Other Items."
If payments of interest on the Certificates
occur less frequently than monthly, amounts
allocable to interest on the Certificates
will be deposited in one or more trust
accounts and will generally be invested in
certain Eligible Investments pending
distribution to Certificateholders. See
"Description of the Certificates-- Interest
Payments."
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL PAYMENTS........................... Principal on the Class A Certificates is
scheduled to be paid on the Distribution
Date (the "Class A Expected Final
PaymentDate"). Principal on the Class B
Certificates is scheduled to be paid on
the Distribution Date (the "Class B
Expected Final Payment Date"). No principal
will be distributed on the Class B
Certificates until the principal balance of
the Class A Certificates has been reduced to
zero. Distributions of principal with respect
to the Class A Certificates or the Class B
Certificates may commence earlier than the
Expected Final Payment Date for such Class,
and the final distribution of principal with
respect to the Class A Certificates or the
Class B Certificates may be made later than
the Expected Final Payment Date for such
Class, if an Early Amortization Event occurs
and the Early Amortization Period commences
or under certain other circumstances
described herein. See "Description of the
Certificates--Principal Payments" and
"Maturity Considerations."
RECORD DATE.................................. The last business day of the month
immediately preceding an Interest Payment
Date or Special Payment Date.
REVOLVING PERIOD............................. No principal will be payable to the Class A
Certificateholders until the Class A Expected
Final Payment Date or, upon the occurrence of
an Early Amortization Event as described
herein, the first Special Payment Date with
respect to the Early Amortization Period. No
principal will be payable to the Class B
Certificateholders until the Class A Invested
Amount is paid in full. For the period
beginning on the Closing Date and ending with
the commencement of the Accumulation Period
or the Early Amortization Period (the
"Revolving Period"), Principal Collections
otherwise allocable to the Certificateholders
(other than Principal Collections allocated
to the Class B Certificateholders
("Reallocated Class B Principal Collections")
that are used to pay any deficiency in the
Class A Required Amount remaining after
application of Reallocated Collateral
Principal Collections) will, subject to
certain limitations, be treated as Shared
Principal Collections and applied to cover
principal payments due to or for the benefit
of certificateholders of other Series, if so
specified in the Series Supplements for such
other Series, or paid to the Transferor as
holder of the Exchangeable Transferor
Certificate or in certain circumstances, be
paid to the Collateral Interest Holder. See
"Description of the Certificates--Early
Amortization Events" for a discussion of the
events which might lead to the termination of
the Revolving Period prior to the
commencement of the Accumulation Period.
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
ACCUMULATION PERIOD.......................... Unless an Early Amortization Event has
occurred, the Revolving Period with respect
to the Certificates is scheduled to end and
the principal accumulation period with
respect to the Certificates (the
"Accumulation Period") is scheduled to
commence at the close of business on the last
day of the Collection Period.
Subject to the conditions set forth under
"Description of the
Certificates--Postponement of Accumulation
Period," the day on which the Revolving
Period ends and the Accumulation Period
begins may be delayed to no later than the
close of business on the last day of the
Collection Period. Unless an Early
Amortization Event has occurred, the
Accumulation Period will commence at the
close of business on the last day of the
Revolving Period and end on the earliest of
(a) the commencement of the Early
Amortization Period, (b) the payment in full
of the Invested Amount or (c) the Series
1996-1 Termination Date.
During the Accumulation Period, prior to the
payment of the Class A Invested Amount in
full, amounts equal to the lesser of (a) the
Fixed Allocation Percentage of Principal
Collections with respect to the preceding
Collection Period PLUS the amount of any
Shared Principal Collections with respect to
other Series that are allocated to Series
1996-1 in accordance with the Agreement MINUS
the amount of Reallocated Principal
Collections for such Collection Period, (b)
the Controlled Deposit Amount for the related
Transfer Date and (c) the Class A Adjusted
Invested Amount with respect to such Transfer
Date will be deposited monthly in a trust
account established by the Servicer (the
"Principal Funding Account") on each Transfer
Date beginning with the Transfer Date in the
month following the commencement of the
Accumulation Period until the Principal
Funding Account Balance is equal to the Class
A Invested Amount. After the Class A Invested
Amount has been paid in full, on each
Transfer Date during the Accumulation Period,
an amount equal to the lesser of (a) the
Fixed Allocation Percentage of Principal
Collections with respect to the preceding
Collection Period PLUS the amount of any
Shared Principal Collections with respect to
other Series that are allocated to Series
1996-1 in accordance with the Agreement MINUS
the amount of Reallocated Principal
Collections for such Collection Period MINUS
the portion of such amounts applied to Class
A Monthly Principal on such Transfer Date and
(b) the Class B Invested Amount with respect
to such Transfer Date will be deposited into
the Collection Account for distribution to
the Class B Certificateholders until the
Class B Invested Amount has
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
been paid in full. If, for any Collection
Period, Principal Collections allocable to
the Certificateholders for such Collection
Period exceed the applicable Controlled
Deposit Amount, the amount of such excess
will be first paid to the Collateral Interest
Holder to the extent that the Collateral
Invested Amount exceeds the Required
Collateral Invested Amount and then will be
treated as Shared Principal Collections and
allocated to the holders of other Series of
certificates issued and outstanding, if any,
or, subject to certain limitations, paid to
the Transferor as holder of the Exchangeable
Transferor Certificate. If, for any
Collection Period, Principal Collections
allocable to the Certificateholders for such
Collection Period are less than the
applicable Con trolled Deposit Amount, the
amount of such deficiency will be the
applicable "Deficit Controlled Accumulation
Amount" for the succeeding Collection Period.
See "Description of the
Certificates--Application of Collections."
Unless an Early Amortization Event shall have
occurred, prior to the payment of the Class A
Invested Amount in full, all funds on deposit
in the Principal Funding Account will be
invested at the direction of the Servicer by
the Trustee in certain Eligible 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
Accumulation Period will be applied as Class
A Available Funds. If, for any Transfer Date,
the Principal Funding Investment Proceeds are
less than the Covered Amount, the amount of
such shortfall (the "Principal Funding
Investment Shortfall") will be funded from
Class A Available Funds or a withdrawal from
the Reserve Account, to the extent available,
or from Reallocated Principal Collections.
The "Covered Amount" shall mean for any
Transfer Date with respect to the
Accumulation Period or the first Special
Payment Date of the Early Amortization
Period, an amount equal to one-twelfth of the
product of (i) the Class A Certificate Rate
and (ii) the Principal Funding Account
Balance, if any, as of the Record Date
preceding such Transfer Date.
Funds on deposit in the Principal Funding
Account will be available to pay the Class A
Certificateholders in respect of the Class A
Invested Amount on the Class A Expected Final
Payment Date. If the aggregate principal
amount of deposits made to the Principal
Funding Account is insufficient to pay the
Class A Invested Amount in full on the Class
A Expected Final Payment Date, the Early
Amortization Period will commence as
described below. Although it is anticipated
that during the Accumulation Period prior to
the payment of the
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Class A Invested Amount 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 Expected
Final Payment Date, no assurance can be given
in that regard. See "Maturity
Considerations."
EARLY AMORTIZATION PERIOD.................... During the period beginning on the day on
which an Early Amortization Event has
occurred and ending on the earlier of (a) the
date on which the Invested Amount has been
paid in full and (b) the Series 1996-1
Termination Date (the "Early Amortization
Period"), Principal Collections allocable to
the Certificateholders will be applied to the
payment of principal on the Certificates and
will be distributed monthly on each Special
Payment Date, beginning with the Special
Payment Date following the occurrence of an
Early Amortization Event, to the Class A
Certificateholders and, following payment of
the Class A Invested Amount in full, to the
Class B Certificateholders and, following
payment of the Class B Invested Amount in
full, to the Collateral Interest Holder. The
Early Amortization Period is intended to
result in the fastest possible distribution
of principal to Certificateholders following
an Early Amortization Event in order to
better ensure the repayment of principal to
Certificateholders. See "Description of the
Certificates--Early Amortization Events" for
a discussion of the events which might lead
to the commencement of the Early Amortization
Period.
PRINCIPAL COLLECTIONS; CERTAIN ALLOCATIONS... Principal Collections for any Collection
Period will be allocated on the basis of
varying percentages. Under the Agreement,
such collections will generally be, (i)
during the Revolving Period, treated as
Shared Principal Collections or distributed
to the Transferor; PROVIDED that (a)
Principal Collections allocable to the
Collateral Investor Interest may be used to
cover shortfalls in Yield Collections used to
pay or allocate interest and other amounts to
the Class A Certificates and the Class B
Certificates on any Transfer Date, and (b)
Principal Collections allocable to the Class
B Certificates may be used to cover remaining
shortfalls in Yield Collections used to pay
or allocate interest and other amounts to the
Class A Certificates on any Transfer Date;
(ii) during the Accumulation Period,
deposited into the Principal Funding Account
in an amount up to the Controlled
Distribution Amount, with any excess (a) paid
to the Collateral Interest Holder as
principal on the Collateral Investor Interest
or (b) after the Collateral Investor Interest
has been paid in full, treated as Shared
Principal
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
Collections or distributed to the Transferor
as holder of the Exchangeable Transferor
Certificate; (iii) on or after the Class A
Expected Final Payment Date or during any
Early Amortization Period, paid to Class A
Certificateholders in respect of the Class A
Invested Amount or (iv) after the Class A
Invested Amount has been paid in full, on or
after the Class B Expected Final Payment Date
or during any Early Amortization Period, paid
to Class B Certificateholders as principal on
the Class B Certificates. See "Description of
the Certificates--Allocation Percentages."
SUBORDINATION OF THE CLASS B CERTIFICATES AND
THE COLLATERAL INVESTOR INTEREST............ The Class B Certificates and the Collateral
Investor 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 Investor Interest
will be subordinated as described herein to
the extent necessary to fund certain payments
with respect to the Class B Certificates. If
the Class B Invested Amount and the
Collateral Invested Amount are each reduced
to zero, the Class A Certificateholders will
bear directly the credit and other risks
associated with their undivided interest in
the Trust and thus will be more likely to
suffer a loss. To the extent the Class A
Invested Amount is reduced, the percentage of
Yield Collections allocable to the Class A
Certificateholders with respect to subsequent
Collection Periods will be reduced. Moreover,
to the extent the amount of such reduction in
the Class A Invested Amount is not
reimbursed, the amount of principal
distributable to the Class A
Certificateholders will be reduced. If the
Collateral Invested Amount is reduced to
zero, the Class B Certificateholders will
bear directly the credit and other risks
associated with their undivided interest in
the Trust and thus will be more likely to
suffer a loss. To the extent the Class B
Invested Amount is reduced, the percentage of
Yield Collections allocable to the Class B
Certificateholders with respect to subsequent
Collection Periods will be reduced. Moreover,
to the extent the amount of such reduction in
the Class B Invested Amount is not
reimbursed, the amount of principal
distributable to the Class B
Certificateholders will be reduced. No
principal will be paid to the Class B
Certificateholders until the Class A Invested
Amount is paid in full. See "Risk
Factors--Effect of Subordination,"
"Description of the Certificates-- Allocation
Percentages," "--Subordination of the Class B
Certificates and the Collateral Investor
Interest" and "--Application of Collections."
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
ADDITIONAL AMOUNTS AVAILABLE TO
CERTIFICATEHOLDERS.......................... With respect to any Transfer Date, Excess
Spread and Shared Excess Yield Collections
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 Addi tional
Interest thereon, (b) the Class A Servicing
Fee for the related Collection Period and any
overdue Class A Servicing Fee and (c) the
Class A Investor Default Amount, if any, for
the related Collection Period exceeds the
Class A Available Funds for the related
Collection 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 thereon and (ii) the
Class B Servicing Fee for the related
Collection Period and any overdue Class B
Servicing Fee exceeds the Class B Available
Funds for the related Collection Period and
(b) the amount, if any, by which the Class B
Investor Default Amount for the related
Collection Period exceeds the amount of
Excess Spread and Shared Excess Yield
Collections allocable to Series 1996-1
available to cover the Class B Investor
Default Amount for the related Collection
Period. "Excess Spread" for any Transfer Date
will equal the sum of (a) the excess of (i)
Class A Available Funds for the related
Collection 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 Collection
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 Collection Period not
used under certain circumstances to pay the
Collateral Servicing Fee, as described
herein. "Shared Excess Yield Collections" for
any Transfer Date will equal the aggregate
amount of Yield Collections for the related
Collection Period allocable to other Series
in excess of amounts necessary to make
required payments with respect to such
Series, if any.
If, on any Transfer Date, the sum of Excess
Spread and Shared Excess Yield Collections is
less than the Class A Required Amount,
Reallocated Principal Collections allocable
first to the Collateral Investor Interest and
then to the Class B Investor Interest with
respect to the related Collection Period will
be used to fund the
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
remaining Class A Required Amount. If
Reallocated Principal Collections with
respect to such Collection Period are
insufficient to fund the remaining Class A
Required Amount for the related Transfer
Date, then the Collateral Invested Amount
(after giving effect to reductions for any
Collateral Investor Charge-Offs and any
Reallocated Collateral 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 Collection Period). In the event that
such reduction would cause the Collateral
Invested Amount to be a negative number, the
Collateral Invested Amount will be reduced to
zero, and the Class B Invested Amount (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 Invested Amount would
have been reduced below zero (but not by more
than the excess of the Class A Investor
Default Amount, if any, for such Collection
Period over the amount of such reduction, if
any, of the Collateral Invested Amount with
respect to such Collection Period). In the
event that such reduction would cause the
Class B Invested Amount to be a negative
number, the Class B Invested Amount will be
reduced to zero and the Class A Invested
Amount will be reduced by the amount by which
the Class B Invested Amount would have been
reduced below zero (but not by more than the
excess, if any, of the Class A Investor
Default Amount for such Collection Period
over such reductions in the Collateral
Invested Amount and the Class B Invested
Amount with respect to such Collection
Period) (such reduction, a "Class A Investor
Charge-Off"). If the Collateral Invested
Amount and the Class B Invested Amount 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 Certifi
cates--Reallocation of Cash Flows" and
"--Defaulted Receivables; Rebates and
Fraudulent Changes; Investor Charge-Offs."
If, on any Transfer Date, the sum of Excess
Spread and Shared Excess Yield Collections
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 Collec tions
allocable to the Collateral Investor Interest
for the related Collection 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 Investor Interest
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
with respect to such Collection Period are
insufficient to fund the remaining Class B
Required Amount for the related Transfer
Date, then the Collateral Invested Amount
(after giving effect to reductions for any
Collateral Investor Charge-Offs and any
Reallocated Collateral Principal Collections
and any adjustments made thereto for the
benefit of the Class A Certificateholders on
such Transfer Date) will be reduced by the
amount of such deficiency (but not by more
than the Class B Investor Default Amount for
such Collection Period). In the event that
such reduction would cause the Collateral
Invested Amount to be a negative number, the
Collateral Invested Amount will be reduced to
zero, and the Class B Invested Amount will be
reduced by the amount by which the Collateral
Invested Amount would have been reduced below
zero (but not by more than the excess, if
any, of the Class B Investor Default Amount
for such Collection Period over such
reduction in the Collateral Invested Amount
with respect to such Collection Period) (such
reduction, a "Class B Investor Charge-Off").
In the event of a reduction of the Class A
Invested Amount, the Class B Invested Amount
or the Collateral Invested Amount, the
amounts available to fund payments of
principal and interest 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; Rebates and Fraudulent Charges;
Investor Charge-Offs."
REQUIRED COLLATERAL INVESTED AMOUNT.......... The "Required Collateral Invested Amount"
means, with respect to any Transfer Date, an
amount equal to % of the sum of the Class A
Adjusted Invested Amount and the Class B
Invested Amount (after giving effect to any
reductions thereof on such Transfer Date and
the related Distribution Date); PROVIDED,
HOWEVER, that if an Early Amortization Event
occurs, then the Required Collateral Invested
Amount shall equal the Required Collateral
Invested Amount on the Transfer Date
immediately preceding the occurrence of such
Early Amortization Event. With respect to any
Transfer Date, if the Collateral Invested
Amount is less than the Required Collateral
Invested Amount, certain Excess Spread and
Shared Excess Yield Collections allocable to
Series 1996-1 will be used to increase the
Collateral Invested Amount to the extent of
such shortfall. If on any Transfer Date, the
Collateral Invested Amount exceeds the
Required Collateral Invested Amount, such
excess may be applied in accordance with the
loan agreement among the Transferor, the
Trustee, the Servicer and the Collateral
Interest Holder (the "Loan Agreement") and
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
will not be available to the
Certificateholders. See "Description of the
Certifi cates--Required Collateral Invested
Amount."
SHARED EXCESS YIELD COLLECTIONS.............. Subject to certain limitations, Shared Excess
Yield Collections, if any, with respect to
any Series may be applied to cover any
shortfalls with respect to amounts payable
from Yield Collections allocable to any other
Series, PRO RATA based upon the amount of the
shortfall, if any, with respect to each
Series. See "Description of the
Certificates--Shared Excess Yield
Collections."
SHARED PRINCIPAL COLLECTIONS................. Principal Collections and certain other
amounts otherwise allocable to other Series,
to the extent such collections are not needed
to make payments to or deposits for the
benefit of the certificateholders of such
other Series, will be applied to cover
principal payments due to or for the benefit
of the holders of the Certifi cates. See
"Description of the Certificates--Shared
Principal Collections."
OPTIONAL REPURCHASE.......................... The Invested Amount will be subject to
optional repurchase by the Transferor on any
Distribution Date on or after the
Distribution Date on which the Invested
Amount is reduced to an amount less than or
equal to 5% of the Initial Invested Amount,
if certain conditions set forth in the
Agreement are met. The repurchase price will
be equal to the Invested Amount plus accrued
and unpaid interest on the Certificates and
the Collateral Investor Interest, if any. See
"Description of the Certifi cates--Final
Payment of Principal; Termination."
TAX STATUS................................... In the opinion of counsel to First Bank, for
federal income tax purposes, the Class A
Certificates and the Class B Certificates
will be characterized as debt and the Trust
will not be characterized as an association
or publicly traded partnership taxable as a
corporation. Under the Agreement, the
Transferor, the Servicer, the Class A
Certificateholders and the Class B
Certificateholders will agree to treat the
Class A Certificates and the Class B
Certificates as debt for federal, state and
other tax purposes. See "Federal Income Tax
Consequences" for additional information
concerning the application of federal income
tax laws.
ERISA CONSIDERATIONS......................... Under the 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 Class A
Certificates if certain conditions are met,
including that interests in the Class A
Certificates be held by at least 100
independent persons upon completion of the
public offering being made hereby. The Class
A Certificates may be held by at least 100
independent
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
persons 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.
The Transferor anticipates that the other
conditions of the regulation will be met with
respect to the Class A Certificates. If the
Trust's assets were deemed to be "plan
assets" of such a plan, there is uncertainty
whether existing exemptions from the
"prohibited transaction" rules of the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), would apply to
all transac tions involving the Trust's
assets. Accordingly, benefit plan fiduciaries
should consult with counsel before making a
purchase of Class A Certificates. See "ERISA
Considerations."
The Underwriters do not expect that the Class
B Certificates will be held by 100 or more
independent investors and, therefore, do not
expect that the Class B Certificates will
qualify as publicly-offered securities under
the regulations referred to in the preceding
paragraph. Accordingly, the Class B
Certificates may not be acquired by employee
benefit plan investors. Each Certificate
Owner of a Class B Certificate, by its
acceptance thereof, will be deemed to have
represented that it is not a benefit plan
investor. See "ERISA Considerations."
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
nationally recognized rating organization
selected by the Transferor (each, a "Rating
Agency"). The rating of the Class A
Certificates is based primarily on the value
of the Receivables as determined by the
applicable Rating Agency and the terms of the
Class B Certificates and the Collateral
Investor Interest. See "Description of the
Certificates--Subordination of the Class B
Certificates and the Collateral Investor
Interest" and "Risk Fac tors--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 as determined by
the applicable Rating Agency and the terms of
the Collateral InvestorInterest. See
"Description of the Certificates--
Subordination of the Class B Certificates and
the Collateral Investor Interest" and "Risk
Fac tors-- Certificate Rating."
</TABLE>
- ------------------------
* VISA is a federally registered servicemark of VISA USA, Inc.
22
<PAGE>
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 the Certificates offered hereby will make a market in the
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, or if it does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for the
life of the Certificates.
NON-RECOURSE OBLIGATION. No Certificateholder will have recourse for payment of
its Certificates to any assets of any of the Transferor, the Servicer or any
affiliates thereof. Consequently, Certificateholders must rely solely upon
payments on the Receivables and the Enhancement for the payment of principal of
and interest on the Certificates. Furthermore, under the Agreement, the
Certificateholders have an interest in the Receivables and collections on the
Receivables only to the extent of the Invested Amount. Should the Certificates
not be paid in full on a timely basis, Certificateholders may not look to any
assets of any of the Transferor, the Servicer or any affiliates thereof to
satisfy their claims.
POTENTIAL PRIORITY OF CERTAIN LIENS. The Transferor warrants in the Agreement
that the transfer of the Receivables to the Trust is either a valid transfer and
assignment of the Receivables to the Trust or the grant to the Trust of a
security interest in the Receivables. The Transferor will take all actions as
are required under applicable law to perfect the Trust's interest in the
Receivables and the Transferor warrants that if the transfer by the Transferor
to the Trust granted the Trust a security interest in the Receivables, such
security interest constitutes a first priority perfected security interest
therein and, to the extent provided under the applicable Uniform Commercial Code
(the "UCC"), in proceeds thereof (except for liens for local taxes and
government charges not due and payable or being contested in good faith by the
Transferor). Nevertheless, if the transfer of the Receivables to the Trust is
deemed to create a security interest therein under the UCC, a tax or government
lien on property of the Transferor arising before Receivables come into
existence may have priority over the Transferor's or the Trust's interest in
such Receivables, and, if the Federal Deposit Insurance Corporation (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.
In OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir. 1993), CERT.
DENIED, 114 S. Ct. 554 (1993), the United States Court of Appeals for the 10th
Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's estate in a bankruptcy of the seller. If the Transferor
were to be placed into receivership and a court were to follow the OCTAGON
court's reasoning, Certificateholders might experience delays in payment or
possibly losses in their investment in the Certificates. Counsel to the
Transferor has advised the Transferor that the facts of the OCTAGON case are
distinguishable from those in the sale transactions between the Transferor and
the Trust and the reasoning of the OCTAGON case appears to be inconsistent with
established precedent and the UCC. See "Certain Legal Aspects of the
Receivables--Transfer of Receivables" and "--Certain Matters Relating to
Receivership."
RECEIVERSHIP OF TRANSFEROR. A conservator or receiver would have the power
under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") to repudiate contracts of, and to request a stay of up to 90 days of
any judicial action or proceeding involving, the Transferor. However,
notwithstanding the insolvency of, or the appointment of a receiver or
conservator for, the Transferor, subject to certain qualifications a valid
perfected security interest of the Trustee in the Receivables should be
enforceable (to the extent of the Trust's "actual direct compensatory damages"
(as described below)) and payments to the Trust with respect to the Receivables
(up to the amount of such damages) should not be subject to an automatic stay of
payment or to recovery by such a conservator or receiver. If, however, the
conservator or receiver were to assert that the security interest was
unperfected or unenforceable, or were to require the Trustee to establish its
right to those payments by submitting to and completing the administrative
claims procedure established under FIRREA, or the conservator or receiver were
to request a stay of judicial proceedings with respect to the Transferor as
provided under FIRREA, delays in payments on the Certificates and possible
reductions in the amount of those payments could occur. In the event of a
repudiation of obligations by a conservator or receiver, FIRREA provides that a
claim for the repudiated obligation is
23
<PAGE>
limited to "actual direct compensatory damages" determined as of the date of the
appointment of the conservator or receiver (which in most cases are expected to
include the outstanding principal on the Certificates plus interest accrued
thereon to the date of payment). The FDIC has not adopted a formal policy
statement on payment of principal and interest on collateralized borrowings of
banks which are repudiated. The Transferor believes that the general practice of
the FDIC in such circumstances is to permit the collateral to be applied to pay
the principal owed plus interest at the contract rate up to the date of payment,
together with the costs of liquidation of the collateral if provided for in the
contract. In one case involving the repudiation by the Resolution Trust
Corporation (the "RTC") of certain secured zero-coupon bonds issued by a savings
association, a United States federal district court held that "actual direct
compensatory damages" in the case of a marketable security meant the value of
the repudiated bonds as of the date of repudiation. If the court's view were
applied to determine the Trust's "actual direct compensatory damages" in the
event a conservator or receiver of the Transferor repudiated its obligations
under the Agreement, the amount paid to Certificateholders could, depending upon
circumstances existing on the date of the repudiation, be less than the
principal of the Certificates and the interest accrued thereon to the date of
payment. See "Certain Legal Aspects of the Receivables--Certain Matters Relating
to Receivership." 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 insolvency of the Servicer exists, the
conservator or receiver may have the power to prevent either the Trustee or
Certificateholders from effecting a transfer of servicing to a successor
Servicer. If a conservator or receiver were appointed for the Transferor,
pursuant to the Agreement, new Receivables would not be transferred to the Trust
and the Trustee would sell the portion of the Receivables allocable in
accordance with the Agreement to each Series (subject to certain limited rights
of the Certificateholders to instruct otherwise as described under "Description
of the Certificates--Early Amortization Events"), thereby causing an early
termination of the Trust and a pro rata loss to the Certificateholders if the
net proceeds of such sale were insufficient to pay such Certificates in full.
Upon the occurrence of an Early Amortization Event, if a conservator or receiver
were appointed for the Transferor and no Early Amortization Event other than
such conservatorship, receivership or insolvency of the Transferor existed, the
conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of the Early
Amortization Period. Such action could cause delays or shortfalls in the amounts
ultimately repaid to Certificateholders. In addition, a conservator or receiver
for the Transferor may have the power to cause the early payment of the
Certificates, which could result in Certificateholders receiving principal
payments earlier than expected.
ABILITY TO CHANGE TERMS OF THE RECEIVABLES. Pursuant to the Agreement, the
Transferor does not transfer to the Trust the Accounts but only the Receivables
arising in the Accounts. As owner of the Accounts, the Transferor retains the
right to determine the charges and fees which will be applicable from time to
time to the Accounts and to change various other terms with respect to the
Accounts. Under the Agreement, the Transferor will agree not to change the terms
of the Accounts unless the change is also made applicable to the comparable
segment of its portfolio of accounts with characteristics similar to the
Accounts. 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 and other comparable accounts. Except as specified above,
there will be no restrictions on the Transferor's ability to change the terms of
the Accounts. The Rating Agencies will not be asked to reassess their ratings of
the Certificates in the event the Transferor changes the terms of the Accounts.
There can be no assurance that a change made in the terms of the Accounts would
not result in a downgrade of the ratings of the Certificates. 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 Account terms in a manner adverse to the interests of
Certificateholders.
EFFECTS OF CONSUMER PROTECTION LAWS AND LITIGATION. The Accounts and the
related Receivables are subject to numerous federal and state consumer
protection laws which impose requirements on the making and collection of
consumer loans. 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 annual cardholder fees and other
charges and fees, and failure by the Servicer to comply with such requirements
also could adversely affect the Servicer's ability to collect on the
Receivables. Pursuant to the Agreement, the Transferor will represent and
warrant that each Receivable complies with all requirements of applicable law
the failure to comply with which would have a material
24
<PAGE>
adverse effect on Certificateholders if such Receivable is charged off as
uncollectible or if the proceeds of such Receivable are not available to the
Trust. The Transferor will also make certain other representations and
warranties relating to the validity and enforceability of the Accounts and the
Receivables. The sole remedy if any such representation or warranty is breached
and such breach continues beyond the applicable cure period, if any, and such
Receivables are charged off as uncollectible or the proceeds of such Receivables
are not available to the Trust will be the assignment of a balance of zero to
all affected Receivables for purposes of determining the Trust Principal
Component. In addition, in the event of a breach of certain representations and
warranties, the Servicer may be obligated to accept the assignment and transfer
of the affected Receivables or the Transferor may be obligated to accept the
reassignment of all the Receivables in the Trust. Such Receivables will be
assigned or reassigned without any cost, direct or indirect, incurred by
Certificateholders, except that realization of amounts due with respect to such
Receivables will depend upon the ability of the Servicer or the Transferor to
accept such assignment or reassignment, respectively. See "Description of the
Certificates--Representations and Warranties" and "--Servicer Covenants" and
"Certain Legal Aspects of the Receivables--Consumer Protection Laws."
EFFECTS OF DEBTOR RELIEF LAWS. 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 Enhancement or other
sources to cover any resulting shortfalls in amounts payable to
Certificateholders. See "Description of the Certifi cates--Defaulted
Receivables; Rebates and Fraudulent Charges; Investor Charge-Offs."
COMPETITION IN THE CORPORATE CARD/PURCHASING CARD INDUSTRY. The corporate
charge card/purchasing card industry is experiencing increased competition.
Although First Bank is currently one of the dominant issuers in the corporate
card/purchasing card industry, as new charge 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. The 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 the
Trust, an Early Amortization Event could occur, in which case the Early
Amortization Period 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 the Accumulation Period will be dependent upon
the continued generation of new Receivables to be conveyed to the Trust. A
significant decline in the amount of Receivables generated could result in the
occurrence of an Early Amortization Event and commencement of the Early
Amortization Period. 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 ability to generate new Receivables to be conveyed to the Trust
and may also affect payment patterns. A significant decrease in the monthly
payment rate could slow the return or accumulation of principal payable to
Certificateholders during the Early Amortization Period or Accumulation Period.
No assurance can be given that payments of principal to the Certificateholders
will be made as expected during the Early Amortization Period or, with respect
to an Accumulation Period, on the applicable Expected Final Payment Date.
EFFECT OF SUBORDINATION. The Class B Certificates and the Collateral Investor
Interest will be subordinated to the extent necessary to fund certain payments
with respect to the Class A Certificates. In addition, the Collateral Investor
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 Invested Amount may be
reduced if the Collateral Invested Amount is equal to zero. Similarly, certain
principal payments allocable to the Collateral Investor Interest may be
reallocated to cover amounts in respect of the Class A Certificates and the
Class B Certificates and the Collateral Invested Amount may be reduced. To the
extent the Class B Invested Amount is reduced, the percentage of Yield
Collections allocated to the Class B Certificates in subsequent Collection
Periods will be reduced. Moreover, to the extent the amount of such reduction in
the Class B Invested Amount is not reimbursed, the amount of principal and
interest distributable to the Class B Certificateholders will be reduced.
25
<PAGE>
CERTIFICATE RATING. Any rating assigned to the Class A Certificates or the
Class B Certificates by a Rating Agency will reflect such Rating Agency's
assessment of the likelihood that Class A Certificateholders or Class B
Certificateholders will receive the payments of interest and principal required
to be made under the Agreement and will be based primarily on the value of the
Receivables in the Trust and the availability of the Enhancement. However, any
such rating will not address the likelihood that the principal of the Class A
Certificates or the Class B Certificates will be paid on a scheduled date. In
addition, any such rating will not address the possibility of the occurrence of
an Early Amortization Event 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 either the Class A
Certificates or the Class B Certificates, 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 lowered or withdrawn
entirely by a Rating Agency if in such Rating Agency's judgment circumstances so
warrant. The Transferor will request a rating of each Class of the Certificates
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 the Certificates or either Class thereof, and, if so,
what such rating would be. A rating assigned to the Certificates or either 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 ENHANCEMENT. The amount of Enhancement available to the
Certificateholders will be limited. If the amount of the Collateral Invested
Amount is reduced to zero, the Class B Certificateholders will bear directly the
credit and other risks associated with their undivided interest in the Trust and
thus will be more likely to suffer a loss. If the Class B Invested Amount is
reduced to zero, the Class A Certificateholders will bear directly the credit
and other risks associated with their undivided interest in the Trust and thus
will be more likely to suffer a loss. See "Description of the
Certificates--Required Collateral Invested Amount."
MASTER TRUST CONSIDERATIONS. The Trust, as a master trust, may issue Series
from time to time. While the principal terms of any Series (the "Principal
Terms") 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 invested percentages and allocating collections,
provisions creating different or additional security or other 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 will be a condition precedent to the issuance of any
additional Series by the Trust that each Rating Agency that has rated any
outstanding Series 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 or otherwise adversely affect Series 1996-1. 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 the 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 the Trust or
to previously-designated Additional Accounts, because such accounts were
originated at a different date. Consequently, there can be no assurance that
Additional Accounts designated in the future will be of the same credit quality
as previously-designated Accounts. The designation of Additional Accounts will
be subject to the satisfaction of certain conditions described herein under
"Description of the Certificates-- Addition of Accounts."
CONTROL OF ACTION UNDER AGREEMENT. Subject to certain exceptions, the
Certificateholders may take certain actions, or direct certain actions to be
taken, under the Agreement or the Series 1996-1 Supplement. However, the
Agreement and Series 1996-1 Supplement provide that under certain circumstances
the consent or approval of a specified percentage of the aggregate Invested
Amount or of the invested amount of each Series will be required to direct
26
<PAGE>
certain actions, including amending the Agreement in certain circumstances.
Certificateholders of such other Series may have interests which do not coincide
in any way with the interests of the Certificateholders. In addition, Class A
Certificateholders and Class B Certificateholders may have interests which do
not coincide. In such instances, it may be difficult for the Certificateholders
of either Class 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 prevalence and popularity of charge cards as
a means of payment for businesses. Legal factors include legislative and
judicial developments affecting the enforceability of various fees and charges
and the remedies available to lenders on credit and charge card receivables.
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 states and the District of Columbia. The Transferor, however,
is unable to determine and has no basis to predict whether, or to what extent,
social, legal or economic factors will affect use of credit or repayment
patterns.
EFFECTS OF BOOK-ENTRY REGISTRATION. The Class A Certificates and the Class B
Certificates initially will each be represented by one or more Certificates
registered in the name of Cede, as 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, Certificate Owners will not be recognized by
the Trustee as Certificateholders, as that term is used in the 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. Because DTC can only act on behalf of individuals
who are Participants in DTC's system (or participate indirectly through a
Participant), the ability of a Certificate Owner to pledge its Certificates to
persons or entities that do not 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 representing such Certificates. See "Description of the
Certificates--Book-Entry Registration" and "--Definitive Certificates."
THE TRUST
The Trust will be formed in accordance with the laws of the State of New York
pursuant to the Agreement. The Trust will not engage in any activity other than
acquiring and holding Receivables, issuing Series of Certificates and the
related Exchangeable 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, the Trust is not expected to have any need for additional capital
resources other than the assets of the Trust.
27
<PAGE>
FIRST BANK'S CORPORATE CARD AND PURCHASING CARD PROGRAMS
GENERAL
The Receivables conveyed or to be conveyed by First Bank to the Trust arise
under certain charge card accounts originated under First Bank's Corporate Card
or Purchasing Card programs. These accounts were generated under the VISA USA,
Inc. ("VISA") program and are owned by First Bank.
First Bank's Corporate Card and Purchasing Card programs differ significantly
from revolving credit plan products. The Corporate Card program is designed as a
means of payment for company-related travel and entertainment expenses incurred
by employees. The Purchasing Card program is designed as a means of reducing the
administrative and processing costs associated with a company's frequent
small-dollar purchases. Accounts generated under either program are not intended
to be used as a method of financing purchases. Under each program, an account's
full balance is billed at least monthly and is due within 30 days or less of the
date the bill is printed. As a result of these payment requirements, Corporate
Card and Purchasing Card account balances turn over rapidly relative to their
charge volume when compared to revolving credit plan products. Under each
program, the account balance is not subject to finance charge assessments.
FIRST BANK'S CORPORATE CARD PROGRAM
ORIGINATION OF ACCOUNTS. Corporate Card accounts are originated by First Bank
primarily through direct solicitation of managers who have responsibility for
and control over employee travel and entertainment expenses. First Bank focuses
its marketing effort on corporations with a large number of employees, requiring
a substantial number of corporate charge cards. First Bank competes in this
market primarily with American Express and Diners Club.
First Bank offers three liability plans for Corporate Card customers:
Individual, Joint & Several, or Corporate. Under the Individual liability plan,
the individual employee is responsible for payment of all charges while the
employer agrees to reimburse the cardholder for legitimate travel and
entertainment expenses. If the individual fails to pay, however, the company
does not have an obligation to pay First Bank provided the company notifies
First Bank promptly in the event the individual's employment is terminated.
Under the Joint & Several liability plan, the company is not liable for any
charges on the individual employee's account unless the account becomes 90 days
past due. Under the Corporate liability plan, the company is directly
responsible for payment of all charges and fees. As of , , the
percentage of Corporate Card account balances outstanding under each liability
plan was: Individual liability plan, %; Joint & Several liability plan, %;
and Corporate liability plan, %.
Once the company submits an application for a Corporate Card account, a First
Bank credit analyst reviews financial statements and other credit information
regarding the company. Even if the company has chosen the Individual liability
plan, First Bank considers it essential to review the company's credit because
the company's ability to offer the cardholder stable employment and to reimburse
the cardholder for legitimate charges will directly affect the cardholder's
willingness and ability to make payment on the account. The credit review of the
company will focus on the company's current and expected financial condition,
the maximum receivables balance the company is expected to have outstanding at
any one time, and the aggregate exposure of First Bank and its affiliates to the
company and any related borrowers. An aggregate credit limit for all
company-related accounts is established based upon such credit review. If the
company has chosen the Individual liability plan, a review of each proposed
cardholder is performed based upon credit scores obtained from credit bureaus.
Credit scores are based on a variety of factors including payment performance on
other loans and credit facilities, stability of employment, length of time at
current address and amount of recent usage of other credit sources. The company
also specifies certain categories of card purchases that are deemed pre-approved
(I.E., legitimate travel and entertainment expenses). First Bank does not
establish spending limits for individual cardholders with respect to legitimate
travel and entertainment expenses, but does establish spending limits for other
categories of purchases, based on First Bank's review of the cardholder's credit
history and the anticipated level of usage by the cardholder.
First Bank monitors the performance of the company's accounts, and periodically
updates its analysis of the company's financial strength. The frequency, scope
and depth of these reviews depend on First Bank's assessment of the company's
financial strength, First Bank's aggregate credit exposure to the company, and
the performance of the company's accounts. Credit limits are adjusted
accordingly as a result of such reviews.
BILLING AND FEES. Statements are sent to each Cardholder if the company chose
the Individual or Joint & Several liability plan, while statements are sent
directly to the company if the company chose the Corporate liability plan.
28
<PAGE>
Companies can also choose to have certain charges, such as annual fees or
airline tickets, centrally billed to the company. Unlike a revolving credit
card, the entire balance on a charge card issued under the Corporate Card
program (a "Corporate Card") is due 30 days after the statement is printed.
Payments may be made by check or, for centrally billed accounts, via electronic
funds transfer. Annual fees, late fees and cash advance fees vary among
Accounts, but are not expected to represent a significant portion of Yield
Collections on the Receivables.
FIRST BANK'S PURCHASING CARD PROGRAM
ORIGINATION OF ACCOUNTS. First Bank markets its Purchasing Card program
directly to large corporations. Charge cards under the Purchasing Card program
("Purchasing Cards") are issued directly to individual corporate employees whose
job responsibilities require them to make small-dollar purchases. The Purchasing
Card can eliminate much of the administrative and processing costs associated
with processing a company's traditional purchase orders.
Once the company submits an application for a Purchasing Card account, the
credit approval process is similar to that for a Corporate Card account issued
under the Corporate liability plan. A First Bank credit analyst reviews
financial statements and other credit information regarding the company. The
credit review of the company will focus on the company's current and expected
financial condition, the maximum receivables balance the company is expected to
have outstanding at any one time, and the aggregate exposure of First Bank and
its affiliates to the company and any related borrowers. First Bank monitors the
performance of the company's accounts, and periodically updates its analysis of
the company's financial strength. The frequency, scope and depth of these
reviews will depend on the company's perceived financial strength, First Bank's
aggregate credit exposure to the company, and the performance of the company's
accounts. Credit limits are adjusted accordingly as a result of such reviews.
BILLING AND FEES. Statements are sent to the company at least monthly and
balances are generally due 14 days after the statement is printed. The company
has the choice of making payments by check or via electronic funds transfer.
Annual fees, late fees and cash advance fees vary among Accounts, but are not
expected to represent a significant portion of Yield Collections on the
Receivables.
COLLECTION EFFORTS
CORPORATE CARDS WITH INDIVIDUAL OR JOINT & SEVERAL LIABILITY. First Bank
considers a Corporate Card account delinquent when a customer fails to make a
payment 30 days after the billing statement is printed. Efforts to collect
account balances that are delinquent less than 60 days are made by First Bank's
Technical Collections Services group, through a combination of mailed notices
and telephone calls. First Bank generally suspends any account that becomes 30
days delinquent, denying authorization of any further purchases, and generally
closes any account that becomes 60 days delinquent. Once an account becomes 60
days delinquent, responsibility for collection is transferred to First Bank's
Corporate Card Collections Department, where a more individualized effort at
collection is made. If the account was registered under the Joint & Several
liability plan, First Bank charges the corporate customer for amounts due when
the account becomes 90 days delinquent. First Bank generally charges off
Corporate Card account balances at the end of the month in which the account
becomes 150 days delinquent (although charge-offs may be made earlier in some
circumstances), and transfers collection responsibility to a separate unit of
First Bank System responsible for collection of charged-off accounts of all
First Bank System consumer credit products. First Bank's collection and
charge-off practices may change over time in accordance with its business
judgment and applicable law.
PURCHASING CARDS AND CORPORATE CARDS WITH CORPORATE LIABILITY. The collections
process for Purchasing Cards and for Corporate Cards with corporate liability is
conducted by First Bank's Relationship Management Department. First Bank
generally considers a Purchasing Card account delinquent when the company fails
to make a payment 14 days after the billing statement is printed, and generally
considers a Corporate Card account with corporate liability delinquent when the
company fails to make a payment 30 days after the billing statement is printed.
Following the sending of notices, a National Account Manager will contact the
company when the account becomes 15 days past due and will seek to determine the
reason for the delinquency and work to resolve any discrepancy. The account will
generally be suspended when it becomes 30 days past due, and the account will
generally be closed when it becomes 60 days past due. First Bank typically
charges off corporate liability account balances at the end of the month in
which the account becomes 150 days past due. As of , , no one
company accounted for more than % of total Corporate Card and Purchasing Card
account balances.
29
<PAGE>
THE SERVICER -- FBS CARD SERVICES, INC.
First Bank retains FBS Card Services, Inc. ("Card Services"), a wholly owned
subsidiary of First Bank System, located in Minneapolis, to perform various data
processing and administrative functions associated with servicing the Corporate
Card and Purchasing Card accounts, as well as First Bank's retail credit card
accounts. Pursuant to the Agreement, Card Services will be retained to service
the Receivables on behalf of the Trust. In processing payments on First Bank's
credit and charge card accounts, Card Services utilizes both proprietary systems
and a variety of services provided by Total System Services, Inc., a third-party
provider of credit and charge card processing services to numerous credit and
charge card issuers.
INTERCHANGE
Creditors participating in the VISA association receive interchange as partial
compensation for taking credit risk, absorbing fraud losses and funding
receivables for a limited period of time prior to initial billing. Under the
VISA system, a portion of this interchange in connection with cardholder charges
for goods and services is conveyed through the VISA system from banks which
clear the transactions for merchants to card issuing banks. Interchange revenue
is based on the number of VISA card transactions and the amount charged per
transaction. The Transferor will be required, pursuant to the terms of the
Agreement, to transfer to the Trust a percentage of Net Interchange attributed
to cardholder charges for goods and services in the Accounts. Net 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
Allocation 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 accounts in the Bank Portfolio. VISA may from time to time change the
amount of interchange reimbursed to banks issuing VISA cards. Net Interchange
will be treated as Yield Collections for the purposes of allocating Yield
Collections to Certificateholders.
BANK PORTFOLIO EXPERIENCE
The following tables set forth the historical receivable turnover rate, monthly
payment rate, periodic yield computation, loss experience, and delinquency
experience for each of the periods shown for the entire Bank Portfolio.
Because the Accounts are only a portion of the Bank Portfolio, actual experience
with respect to the Accounts may have been different from that of the Bank
Portfolio. Because the Accounts have been selected from the Bank Portfolio in a
manner not adverse to Certificateholders and represent a sizable portion of the
Bank Portfolio, the Transferor believes that the performance of the Bank
Portfolio reflected in the following tables is indicative of the historical
performance of the Accounts. There can be no assurance that the future
performance of the Accounts will be similar to that of the Bank Portfolio in the
past or in the future.
RECEIVABLE TURNOVER RATE AND PAYMENT RATE EXPERIENCE. The accounts are designed
for use as a method of payment for the purchase of merchandise and services and
for cash advances. Account balances are due in full each billing cycle.
Therefore, accounts cannot be used by cardholders for the purpose of financing
these purchases or cash advances. In contrast to revolving credit plan products
which do not require payment in full each month, the requirement that account
balances be paid in full each month creates a high monthly payment rate and
Account balances which turn over rapidly relative to charge volume. The
following two tables illustrate this product characteristic based on the
historical Bank Portfolio experience.
30
<PAGE>
RECEIVABLE TURNOVER RATES FOR THE BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
Charge Volume and Fees(1).................... $ 3,750,340 $ 2,958,263 $ 4,057,496 $ 2,745,798 $ 1,583,650
Average Net Receivables(2)................... $ 543,528 $ 439,038 $ 461,162 $ 317,324 $ 193,169
Receivable Turnover Rate(3).................. 9.20(4) 8.98(4) 8.80 8.65 8.20
</TABLE>
- ------------------------
(1) Charge Volume and Fees is the sum of (a) amounts charged by cardholders for
merchandise, services and cash advances for each period shown and (b) all
annual, late and other fees billed to Accounts for each period shown. Charge
Volume and Fees is shown net of adjustments made to accounts due to returned
goods, customer disputes or certain other miscellaneous adjustments.
(2) Average Net Receivables is the arithmetic average of the daily Bank
Portfolio balances for each period shown.
(3) Receivable Turnover Rate is calculated by dividing Charge Volume and Fees by
Average Net Receivables for each period shown.
(4) Annualized rate.
MONTHLY PAYMENT RATES FOR THE BANK PORTFOLIO(1)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
Monthly Average Rate.................................... 75.31% 72.54% 72.62% 70.67% 69.93%
Highest Month........................................... 79.22% 78.78% 78.28% 75.13% 77.08%
Lowest Month............................................ 70.42% 67.36% 67.36% 61.49% 59.98%
</TABLE>
- ------------------------
(1) Monthly Payment Rate is calculated by dividing total collections received
(excluding recoveries on charged-off receivables and excluding Net
Interchange, if any) during each month by such month's opening balance.
There can be no assurance that the Receivable Turnover Rate and the Monthly
Payment Rate for Receivables in the Accounts, and thus the rate at which
Certificateholders can expect principal to accumulate in the Principal Funding
Account or to be paid on the Class A Expected Final Payment Date or Class B
Expected Final Payment Date, as applicable, or during any Early Amortization
Period, will be similar to the historical Bank Portfolio experience set forth
above.
PERIODIC YIELD COMPUTATION. Receivables originated under the Accounts,
consisting of amounts charged by cardholders for goods and services, cash
advances, annual, late and other fees, are not subject to a monthly finance
charge. As a result, a portion of the collections on the Receivables received
during the preceding Collection Period will be treated as "yield" to the Trust.
Such yield will equal the product of the aggregate amount of such collections
(excluding Net Interchange, if any) and the Yield Factor. Such collections, plus
certain amounts of Net Interchange attributed to cardholder charges in the
Accounts, will be treated as Yield Collections. The remainder of such
collections will be treated as Principal Collections.
The dollar amounts representing Computed Yield in the table below have been
derived by applying a Yield Factor of % (which is the Yield Factor under the
Agreement) to historical monthly collections of receivables (excluding
recoveries on charged-off receivables and excluding Net Interchange, if any) in
the accounts in the Bank Portfolio for each period shown. Each of those dollar
amounts is divided by Charge Volume and Fees for the appropriate period to
produce a Computed Yield for the Bank Portfolio. To the extent that Charge
Volume and Fees did not equal collections for any given period, there is a
difference between the Computed Yield as a Percentage of Charge Volume and Fees
and the assumed Yield Factor of %.
31
<PAGE>
PERIODIC YIELD COMPUTATION FOR THE BANK PORTFOLIO
ASSUMING A % YIELD FACTOR
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Computed Yield(1)............................ $ $ $ $ $
Computed Yield as a Percentage of Charge
Volume and Fees (2).........................%%%%%
Net Interchange(3)........................... $ $ $ $ $
Net Interchange as a Percentage of Charge
Volume and Fees.............................%%%%%
Computed Yield and Net Interchange as a
Percentage of Charge Volume and Fees........%%%%%
</TABLE>
- ------------------------
(1) Computed Yield is the dollar amount equal to the product of the % assumed
Yield Factor and collections (excluding recoveries on charged-off
receivables and excluding Net Interchange, if any) for each period shown.
(2) Computed Yield as a Percentage of Charge Volume and Fees may not equal the
% assumed Yield Factor because Charge Volume and Fees may not equal
collections (excluding recoveries on charged-off receivables and excluding
Net Interchange, if any) for the periods shown.
(3) The amount of Net Interchange for each of the periods indicated above has
been estimated. Net Interchange is equal to gross interchange reduced by
VISA dues and rebates to corporate customers and travel agencies.
There can be no assurance that the yield experience for Receivables in the
Accounts will be similar to the periodic yield computation for the Bank
Portfolio set forth in the table. The actual yield experience will vary month to
month due to variations in Receivable Turnover Rates, Monthly Payment Rates and
cardholder charge activity. Changes in the amount of Net Interchange will also
affect actual yield experience. VISA may from time to time change the amount of
interchange reimbursed to banks issuing VISA cards, including the Bank.
Reductions in the amount of Net Interchange would reduce the actual yield
experience.
LOSS EXPERIENCE. The following table sets forth the Bank Portfolio's historical
gross loss, recovery and net loss experience for the periods shown. Due to the
Bank Portfolio's Receivable Turnover Rate and Monthly Payment Rate, Gross
Losses, Recoveries and Net Losses are expressed as a percentage of Charge Volume
and Fees.
LOSS EXPERIENCE FOR THE BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gross Losses(1)...................................... $ 4,769 $ 4,827 $ 6,629 $ 4,682 $ 3,589
Gross Losses as a Percentage of Charge Volume and
Fees................................................ 0.13% 0.16% 0.16% 0.17% 0.23%
Recoveries........................................... $ 1,880 $ 1,932 2,810 $ 1,404 $ 1,161
Recoveries as a Percentage of Charge Volume and
Fees................................................ 0.05% 0.07% 0.07% 0.05% 0.07%
Net Losses........................................... $ 2,889 $ 2,895 $ 3,819 $ 3,278 $ 2,428
Net Losses as a Percentage of Charge Volume and
Fees................................................ 0.08% 0.10% 0.09% 0.12% 0.15%
</TABLE>
- ------------------------
(1) Gross Losses are charge-offs before recoveries and do not include the amount
of any reductions in receivables balances due to fraud, returned goods,
customer disputes or certain other miscellaneous adjustments.
(2) Gross Losses minus Recoveries may not equal Net Losses due to rounding.
32
<PAGE>
There can be no assurance that the loss experience for the Accounts in the
future will be similar to the historical Bank Portfolio experience set forth
above.
PERIODIC NET YIELD COMPUTATION. Computed Net Yield is the dollar amount equal
to Computed Yield minus Net Losses. Computed Net Yield and Net Interchange is
the dollar amount equal to Computed Yield plus an estimate of the amount of Net
Interchange received during the period minus Net Losses. The table below sets
forth the Computed Net Yield and the Computed Net Yield and Net Interchange for
the periods shown.
PERIODIC NET YIELD COMPUTATION
FOR THE BANK PORTFOLIO ASSUMING A % YIELD FACTOR
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Computed Net Yield............................. $ $ $ $ $
Computed Net Yield as a Percentage of Charge
Volume and Fees...............................%%%%%
Computed Net Yield and Net Interchange......... $ $ $ $ $
Computed Net Yield and Net Interchange as a
Percentage of Charge Volume and Fees..........%%%%%
</TABLE>
The ability of the Trust to generate sufficient yield to pay interest to
Certificateholders and to pay the Servicing Fee depends upon the Monthly Payment
Rate, the Yield Factor, Net Losses, the amount of Net Interchange and the
generation of new Receivables. Based on the Bank Portfolio experience described
in the foregoing tables, the following example illustrates how these variables
would interact to produce yield to the Trust. For the year ended December 31,
1995, the Computed Net Yield as a Percentage of Charge Volume and Fees was %
and the Receivable Turnover Rate (total Charge Volume and Fees divided by
Average Net Receivables) was . The product of these two variables results
in a net yield as a percentage of Average Net Receivables of % for the year
ended December 31, 1995. There can be no assurance that the experience for the
Accounts in the future will be similar to the historical Bank Portfolio
experience set forth above.
DELINQUENCY EXPERIENCE. The table below sets forth the Bank Portfolio's
delinquency experience for the periods shown.
DELINQUENCY EXPERIENCE FOR THE BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE OF NINE MONTHS AVERAGE OF TWELVE MONTHS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
-------------------------------------------------- -------------------------------------
1996 1995 1995 1994
------------------------ ------------------------ ------------------------ -----------
NUMBER OF DAYS DELINQUENT PERCENT- DELINQUENT PERCENT- DELINQUENT PERCENT- DELINQUENT
DELINQUENT(1) AMOUNT(2) AGE(3) AMOUNT(2) AGE(3) AMOUNT(2) AGE(3) AMOUNT(2)
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
30 to 59 days....................... $ 19,875 3.61% $ 15,824 3.54% $ 16,869 3.66% $ 12,898
60 to 89 days....................... 4,383 0.79 3,492 0.78 3,681 0.80 2,242
90 to 119 days...................... 1,560 0.28 1,412 .032 1,511 0.33 1,032
120 or more days.................... 926 0.17 842 0.19 871 0.19 642
Total(4)........................ $ 26,744 4.85% $ 21,570 4.83% $ 22,932 4.97% $ 16,814
<CAPTION>
1993
------------------------
NUMBER OF DAYS PERCEN- DELINQUENT PERCENT-
DELINQUENT(1) TAGE(3) AMOUNT(2) AGE(3)
- ------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
30 to 59 days....................... 4.04% $ 8,021 4.28%
60 to 89 days....................... 0.70 1,747 0.93
90 to 119 days...................... 0.32 623 0.33
120 or more days.................... 0.20 382 0.20
Total(4)........................ 5.26% $ 10,773 5.78%
</TABLE>
- ------------------------
(1) Delinquency is measured as the number of days after a charge is first
included within an unpaid "Previous Balance" on any monthly billing
statement.
(2) Delinquent amounts are the arithmetic average of the month-end billed
delinquencies by category for the appropriate period.
(3) Delinquency percentage is the arithmetic average of the month-end
percentages equal to ending net receivables by category divided by the
aggregate ending net receivables balance.
(4) Columns may not total due to rounding.
33
<PAGE>
THE RECEIVABLES
The Receivables conveyed to the Trust will arise in VISA accounts originated
under the Bank's Corporate Card or Purchasing Card programs and selected from
the portfolio of VISA accounts in such programs owned by the Bank 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"). 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 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
also have 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. 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. See "Description of the Certificates--Addition of
Accounts" and "--Removal of Accounts."
The Receivables included in the Trust Portfolio, as of the Cut-Off Date, had an
aggregate balance of $ . The Accounts originated under the Corporate Card
program had an aggregate balance of $ , an average balance of $
and an average age of approximately months. The Accounts originated under
the Purchasing Card program had an an aggregate balance of $ , an average
balance of $ and an average age of approximately months. As of
, 1995, cardholders whose Accounts are to be included in the Trust
Portfolio had billing addresses in States, the District of Columbia and
certain U.S. territories.
The Receivables included in the Trust Portfolio, as of the Cut-Off Date,
represent aggregate Trust principal (the "Trust Principal Component") of
$ . The Trust Principal Component as of any date is an amount equal to
the product of the total amount of Receivables in the Trust as of such date and
one minus the Yield Factor.
The following tables summarize the Trust Portfolio by various criteria as of the
Cut-Off Date. Because the future composition of the Trust Portfolio will change
over time, these tables are not necessarily indicative of the composition of the
Trust Portfolio at any subsequent date.
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
----------------------------------------------------
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF OF TOTAL
ACCOUNT BALANCE ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ----------------------------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Credit Balance................................................... % $ %
No Balance.......................................................
$0.01 -- $500.00.................................................
$500.01 -- $1,000.00.............................................
$1,000.01 -- $2,000.00...........................................
$2,000.01 -- $3,000.00...........................................
$3,000.01 -- $4,000.00...........................................
$4,000.01 -- $5,000.00...........................................
$5,000.01 -- $6,000.00...........................................
$6,000.01 -- $7,000.00...........................................
$7,000.01 -- $8,000.00...........................................
$8,000.01 -- $9,000.00...........................................
$9,000.01 -- $10,000.00..........................................
$10,000.01 or More...............................................
TOTAL........................................................
</TABLE>
34
<PAGE>
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
<TABLE>
<CAPTION>
----------------------------------------------------
PERCENTAGE
OF TOTAL PERCENTAGE
PERIOD OF DELINQUENCY NUMBER OF NUMBER OF OF TOTAL
(DAYS CONTRACTUALLY DELINQUENT) ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ----------------------------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Not Delinquent................................................... % $ %
Up to 30 Days....................................................
31 to 60 Days....................................................
61 to 90 Days....................................................
91 to 120 Days...................................................
121 or more Days.................................................
TOTAL........................................................
</TABLE>
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
----------------------------------------------------
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF OF TOTAL
ACCOUNT AGE ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ----------------------------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Not More than 6 Months........................................... % $ %
Over 6 Months to 12 Months.......................................
Over 12 Months to 24 Months......................................
Over 24 Months to 36 Months......................................
Over 36 Months to 48 Months......................................
Over 48 Months to 60 Months......................................
Over 60 Months to 72 Months......................................
Over 72 Months...................................................
TOTAL........................................................
</TABLE>
GEOGRAPHIC DISTRIBUTION OF CORPORATE CARD ACCOUNTS
ISSUED UNDER THE INDIVIDUAL LIABILITY PLAN OR JOINT & SEVERAL LIABILITY PLAN
IN TRUST PORTFOLIO(1)
<TABLE>
<CAPTION>
--------------------------------------------------
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF OF TOTAL
STATE(2) ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ----------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
% $ %
TOTAL...................................................... 100.00% $ 100.00%
----------- -----------
----------- -----------
</TABLE>
- ------------------------------
(1) Includes only Corporate Card accounts issued under either the Individual
liability plan or the Joint & Several liability plan in the Trust
Portfolio. See "--First Bank's Corporate Card Program."
(2) Based on individual cardholders' current billing addresses.
35
<PAGE>
[GEOGRAPHIC] [STANDARD INDUSTRIAL CLASSIFICATION CODE]
DISTRIBUTION OF PURCHASING CARD ACCOUNTS AND
CORPORATE CARD ACCOUNTS ISSUED UNDER THE CORPORATE LIABILITY PLAN
IN TRUST PORTFOLIO(1)
<TABLE>
<CAPTION>
--------------------------------------------------
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF OF TOTAL
[STATE(2)][SIC CODE(2)] ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ----------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
% $ %
TOTAL........................................................ 100.00% $ 100.00%
----------- -----------
----------- -----------
</TABLE>
- ------------------------------
(1) Includes only Purchasing Card accounts and Corporate Card accounts issued
under the Corporate liability plan in the Trust Portfolio. See "--First
Bank's Purchasing Card Program" and "--First Bank's Corporate Card
Program."
[(2) Based on the [current billing addresses] [current addresses of the
principal executive offices] [or, state other criteria for determining
geographic location] of corporate cardholders.]
[(2) Based on the primary Standard Industrial Classification Codes of corporate
cardholders.]
36
<PAGE>
MATURITY CONSIDERATIONS
The Agreement provides that the Class A Certificateholders will not receive
payments of principal until the Class A Expected Final Payment Date, or earlier
in the event of an Early Amortization Event which results in the commencement of
the Early Amortization Period. Class A Certificateholders will receive payments
of principal on each Special Payment Date following the Collection Period in
which an Early Amortization Event occurs until the Class A Invested Amount has
been paid in full or the Series 1996-1 Termination Date has occurred. The
Agreement provides that the Class B Certificateholders will not receive payments
of principal until the Class B Expected Final Payment Date, or earlier in the
event of an Early Amortization Event which results in the commencement of the
Early Amortization Period; PROVIDED, HOWEVER, that the Class B
Certificateholders will in no event begin to receive payments of principal until
the final principal payment on the Class A Certificates has been made.
Should an Early Amortization Event occur with respect to the Certificates and
the Early Amortization Period commence, any amount on deposit in the Principal
Funding Account will be paid to the Class A Certificateholders on the first
Special Payment Date with respect to the Early Amortization Period. Thereafter,
Certificateholders will be entitled to receive Principal Collections allocable
to Series 1996-1 on each Special Payment Date with respect to such Early
Amortization Period, until the Series 1996-1 Termination Date occurs. See
"Description of the Certificates-- Early Amortization Events."
The ability of Certificateholders to receive payments of principal on the
applicable Expected Final Payment Date depends, among other factors, on the rate
of repayment on the Receivables, the timing of the receipt of such repayments,
the amount of outstanding Receivables, the Yield Factor, delinquencies and
charge-offs on the Accounts, the potential issuance by the Trust of additional
Series and the availability of Shared Principal Collections. Monthly payment
rates on the Receivables may vary due to seasonal purchasing and payment habits
of cardholders and to changes in any terms of discount programs in which
cardholders participate. The Transferor cannot predict, and no assurance can be
given, as to the cardholder monthly payment rates that will actually occur in
any future period, as to the actual rate of payment of principal of the
Certificates or whether the terms of any subsequently issued Series might have
an impact on the amount or timing of any such payment of principal.
Certificateholders should consider, in the case of Certificates purchased at a
discount, the risk that a slower than anticipated rate of payment of principal
on the Certificates could result in an actual yield that is less than the
anticipated yield and, in the case of Certificates purchased at a premium, the
risk that a faster than anticipated rate of payment of principal on the
Certificates could result in an actual yield that is less than the anticipated
yield.
The amount of collections of Receivables may vary from month to month due to
seasonal variations, general economic conditions and payment habits of
cardholders. There can be no assurance that Principal Collections with respect
to the Trust Portfolio, and thus the rate at which Certificateholders could
expect to receive payments of principal on their Certificates during the Early
Amortization Period or the rate at which the Principal Funding Account could be
funded during the Accumulation Period, will be similar to the historical
experience set forth herein.
The Trust, as a master trust, may issue additional Series from time to time, and
there can be no assurance that the terms of any such Series might not have an
impact on the timing or amount of payments received by Certificateholders.
Further, if an Early Amortization Event occurs, the average life and maturity of
the Class A Certificates and Class B Certificates, respectively, could be
significantly reduced.
For the reasons set forth above, there can be no assurance that deposits in the
Principal Funding Account will be made in accordance with the applicable
Controlled Deposit Amount or that the Class A Certificates and the Class B
Certificates will be paid in full on their respective Expected Final Payment
Dates. Any reinvestment risks resulting from the payment of principal on the
Certificates earlier or later than expected will be borne entirely by the
Certificateholders. Such reinvestment risks include the risk that interest rates
may be lower at the time such holders receive payments of principal on their
Certificates than interest rates would otherwise have been had such payments of
principal not been made or had such payments of principal been made at a
different time.
37
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be paid to the
Transferor. The Transferor will use such proceeds for its general corporate
purposes.
FIRST BANK OF SOUTH DAKOTA (NATIONAL ASSOCIATION)
AND FIRST BANK SYSTEM, INC.
First Bank of South Dakota (National Association) is a national banking
association organized under the laws of the United States. First Bank provides a
broad range of products and services to its customers in the areas of credit,
treasury management, leasing, trust, mortgage, insurance, investment and other
financial services. First Bank markets these services through seventeen branches
located primarily in regional trade centers, including Sioux Falls and Rapid
City. First Bank is a wholly-owned subsidiary of First Bank System, Inc. ("First
Bank System"). First Bank System is a bank holding company registered under the
Bank Holding Company Act of 1956, as amended, with its principal assets being
the stock of its banking and non-banking subsidiaries. Through its banking
subsidiaries and various non-banking subsidiaries, First Bank System provides
domestic banking and banking related services primarily throughout the Midwest
and Rocky Mountain regions. As of September 30, 1996, First Bank had assets of
$2.01 billion and shareholder's equity of $175.1 million, determined in
accordance with regulatory accounting principles (which differ, in certain
instances, from generally accepted accounting principles). As of June 30, 1996,
First Bank System had assets of $36.18 billion and shareholders' equity of $3.19
billion, determined in accordance with generally accepted accounting principles.
38
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement and the Series 1996-1
Supplement, copies of the forms of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. 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
1996-1 Supplement.
GENERAL
The Certificates will represent undivided interests in the Trust, including the
right to receive varying percentages of all collections received with respect to
the Receivables in the Trust up to (but not in excess of) amounts required to
make payments of, with respect to the Class A Certificates, interest at the
Class A Certificate Rate and the Class A Invested Amount on the Class A Expected
Final Payment Date and, with respect to the Class B Certificates, interest at
the Class B Certificate Rate and the Class B Invested Amount on the Class B
Expected Final Payment Date. See "--Allocation Percentages." The property of the
Trust consists of the Receivables generated under the Accounts and any
Additional Accounts subsequently designated to the Trust, all monies due or to
become due in payment of the Receivables (including recoveries on charged-off
Receivables and amounts, if any, paid by corporate clients as co-obligors under
the Corporate Card program), all proceeds of the Receivables, the right to
receive certain amounts of Net Interchange allocable to the Certificates and all
monies on deposit in certain bank accounts of the Trust (other than investment
earnings on such amounts, except as otherwise specified herein), and any
Enhancement with respect to any particular Series or Class as described herein.
Monies on deposit in bank accounts of the Trust that are established for the
benefit of any other Series and the drawing on or payment of Enhancements issued
with respect to any other Series will not be available to Certificateholders.
The Trust will not include the Receivables from any Removed Accounts. On the
Closing Date, the Trustee will authenticate the Class A Certificates and the
Class B Certificates and deliver such Certificates to the Transferor which will
in turn deliver them to the Underwriters against payment of the net proceeds of
the sale of the Certificates. The Trustee will also deliver the Collateral
Investor Interest and the Exchangeable Transferor Certificate to the Transferor.
The Transferor intends to sell the Collateral Investor Interest to one or more
third-party investors pursuant to the Loan Agreement. The Collateral Investor
Interest is not offered hereby. The Class A Initial Invested Amount will equal
$ , the Class B Initial Invested Amount will equal $ and the
Collateral Initial Invested Amount will equal $ .
The Transferor initially will own the Exchangeable Transferor Certificate. The
Exchangeable Transferor Certificate will represent the undivided interest in the
Trust not represented by the Certificates, by the Collateral Investor Interest,
by other investor certificates issued by the Trust and by the interests of
Enhancement providers. The holder of the Exchangeable Transferor Certificate
will have the right to a percentage (the "Transferor Percentage") of all
collections on the Receivables in the Trust.
During the Revolving Period, the Invested Amount will remain constant except
under certain limited circumstances. See "--Defaulted Receivables; Rebates and
Fraudulent Charges; Investor Charge-Offs." The amount of Principal Collections
in the Trust, however, will vary each day as new 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 Receivables in the Trust.
When a Series is amortizing, the invested amount of such Series will generally
decline as payments of principal are distributed to the Certificateholders or
accumulated in a principal funding account. As a result, the Transferor Interest
will generally increase each month during the amortization period with respect
to a Series to reflect the reductions in the invested amount of such Series and
will also change to reflect the variations in the amount of Principal
Collections. The Transferor Interest may also be reduced as the result of an
Exchange. See "--Exchanges."
The Class A Certificates and the Class B Certificates 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. 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 the Certificates. No
39
<PAGE>
Certificate Owner acquiring an interest in the Certificates will be entitled to
receive a certificate representing such person's interest in the Certificates
unless Definitive Certificates are issued. Unless and until Definitive
Certificates are issued 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."
BOOK-ENTRY REGISTRATION
Certificateholders may hold their Certificates through DTC (in the United
States) or Cedel or Euroclear (in Europe), which in turn hold through DTC, 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 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 its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers (who may
include the Underwriters), 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 DTC 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 in the United States, 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 or securities in Cedel or Euroclear as
a result of a transaction with a DTC 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 DTC 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.
40
<PAGE>
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 its 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 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 Invested Amount 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 by 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
regulations 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. 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 (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 27 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
41
<PAGE>
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.
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 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. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a Certificateholder under the Agreement on behalf of a Cedel
Participant or a 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
The Certificates will be issued in fully registered, certificated form to
Certificate Owners or their nominees ("Definitive Certificates"), rather than to
DTC or its nominee, only if (i) the Transferor advises the Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as Depository with respect to the 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% of the Invested
Amount 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").
42
<PAGE>
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 on each
Interest Payment Date and interest and principal payments on the Expected Final
Payment Date of each Class (or, if an Early Amortization Event occurs, on each
Special Payment 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.
INTEREST PAYMENTS
Interest on the principal balance of the Class A Certificates and the principal
balance of the Class B Certificates will accrue from the Closing Date at the
Class A Certificate Rate and Class B Certificate Rate, respectively. Interest
will be distributed on each Interest Payment Date, commencing , 1996, to
Certificateholders in whose names the Certificates were registered at the close
of business on the last day of the calendar month preceding the date of such
payment (a "Record Date"). Interest for any Interest Payment Date will include
interest at the Class A Certificate Rate or the Class B Certificate Rate, as
applicable, accrued from and including the fifteenth day of the calendar month
in which the preceding Interest Payment Date occurred or, in the case of the
first Interest Payment Date, from and including the Closing Date, to but
excluding the fifteenth day of the calendar month in which such Interest Payment
Date occurs. Interest on the Certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
On each Transfer Date, Class A Monthly Interest and Class B Monthly Interest
will be deposited in a trust account in the name of the Trustee maintained with
an Eligible Institution which initially shall be the Trustee (the "Interest
Funding Account"). Funds on deposit in the Interest Funding Account generally
will be invested in certain Eligible Investments described under "--Collection
Account." Although such Eligible Investments are highly rated,
Certificateholders will bear the risk of losses on such Eligible Investments to
the extent that losses exceed any earnings thereon. Any earnings (net of losses
and investment expenses) on funds in the Interest Funding Account will be paid
monthly to the Transferor. If an Early Amortization Event occurs and an Early
Amortization Period commences, then thereafter Class A Monthly Interest or Class
B Monthly Interest, as the case may be, will be distributed to the Class A
Certificateholders or the Class B Certificateholders monthly on each Special
Payment Date and any amounts on deposit in the Interest Funding Account will be
distributed to the Class A Certificateholders and the Class B Certificateholders
on the first Special Payment Date.
Interest due but not paid on any Interest Payment Date or Special Payment Date
will be due on the next succeeding Interest Payment Date or Special Payment Date
with, to the extent permitted by applicable law, additional interest on such
amount at the Class A Certificate Rate or the Class B Certificate Rate, as
applicable.
Payments of interest in respect of the Class A Certificates on any Distribution
Date will be funded from Class A Available Funds for the related Collection
Period. To the extent Class A Available Funds are insufficient to pay such
interest, Excess Spread and Shared Excess Yield Collections allocated to Series
1996-1 and Reallocated Principal Collections will be used to make such payments.
"Class A Available Funds" means, with respect to any Collection Period, an
amount equal to the sum of (i) the Class A Floating Percentage of Yield
Collections with respect to such Collection Period (excluding the portion of
Yield Collections attributable to Net Interchange that is allocable to Servicer
Interchange); (ii) if such Collection Period relates to a Distribution Date that
occurs on or prior to the payment in full of the Class A Certificates, the
Principal Funding Investment Proceeds, if any, with respect to the
43
<PAGE>
related Transfer Date; and (iii) amounts, if any, to be withdrawn from the
Reserve Account which are required to be included in Class A Available Funds
with respect to the related Transfer Date as described under "--Reserve
Account."
Payments of interest in respect of the Class B Certificates on any Distribution
Date will be funded from Class B Available Funds for the related Collection
Period. To the extent Class B Available Funds are insufficient to pay such
interest, Excess Spread and Shared Excess Yield Collections allocated to Series
1996-1 and Reallocated Collateral Principal Collections (in each case after
application of such amounts in respect of the Class A Certificates) will be used
to make such payments. "Class B Available Funds" means, with respect to any
Collection Period, an amount equal to the Class B Floating Percentage of Yield
Collections with respect to such Collection Period (excluding the portion of
Yield Collections attributable to Net Interchange that is allocable to Servicer
Interchange).
PRINCIPAL PAYMENTS
During the Revolving Period (which begins on the Closing Date and ends on the
day before the commencement of the Accumulation Period or, if earlier, the Early
Amortization Period), no principal payments will be made to Certificateholders.
During the Accumulation Period (on or prior to the Class A Expected Final
Payment Date), principal will be deposited in the Principal Funding Account as
described below and on the Class A Expected Final Payment Date will be
distributed to Class A Certificateholders up to the outstanding principal
balance of the Class A Certificates. After the Class A Invested Amount has been
paid in full, principal will be deposited into the Collection Account as
described below and on the Class B Expected Final Payment Date will be
distributed to Class B Certificateholders up to the outstanding principal
balance of the Class B Certificates. During the Early Amortization Period, which
will begin upon the occurrence of an Early Amortization Event, and until the
Series 1996-1 Termination Date occurs, principal will be paid first to the Class
A Certificateholders until the Class A Invested Amount has been paid in full,
and then to the Class B Certificateholders until the Class B Invested Amount has
been paid in full.
On each Transfer Date during the Accumulation Period, the Trustee will deposit
in the Principal Funding Account an amount equal to the lesser of (a) the Fixed
Allocation Percentage of Principal Collections with respect to the preceding
Collection Period PLUS the amount of any Shared Principal Collections with
respect to other Series that are allocated to Series 1996-1 in accordance with
the Agreement MINUS the amount of Reallocated Principal Collections for such
Collection Period, (b) for each Transfer Date with respect to the Accumulation
Period prior to the Class A Expected Final Payment Date, the Controlled Deposit
Amount for such Transfer Date and (c) the Class A Adjusted Invested Amount with
respect to such Transfer Date prior to any deposits on such date. Amounts on
deposit in the Principal Funding Account will be paid to the Class A
Certificateholders on the Class A Expected Final Payment Date. After the Class A
Invested Amount has been paid in full, on each Transfer Date during the
Accumulation Period, the Trustee will deposit in the Collection Account an
amount equal to the lesser of (a) the Fixed Allocation Percentage of Principal
Collections with respect to the preceding Collection Period PLUS the amount of
any Shared Principal Collections with respect to other Series that are allocated
to Series 1996-1 in accordance with the Agreement MINUS the portion of all such
amounts applied to Class A Monthly Principal on such Transfer Date MINUS the
amount of Reallocated Principal Collections for such Collection Period and (b)
the Class B Invested Amount with respect to such Transfer Date prior to any
deposits on such date. Such amounts in the Collection Account will be paid to
the Class B Certificateholders on the Class B Expected Final Payment Date. If an
Early Amortization Event occurs with respect to the Certificates during the
Accumulation Period, the Early Amortization Period will commence and any amount
on deposit in the Principal Funding Account will be paid to the Class A
Certificateholders on the first Special Payment Date with respect to the Early
Amortization Period.
On each Special Payment Date during the Early Amortization Period until the
Class A Invested Amount has been paid in full or the Series 1996-1 Termination
Date occurs, the Class A Certificateholders will be entitled to receive Class A
Monthly Principal in an amount up to the outstanding principal balance of the
Class A Certificates. After payment in full of Class A Certificates, the Class B
Certificateholders will be entitled to receive on each Special Payment Date
Class B Monthly Principal until the earlier of the date the Class B Invested
Amount is paid in full and the Series 1996-1 Termination Date.
44
<PAGE>
POSTPONEMENT OF ACCUMULATION PERIOD
Upon written notice to the Trustee, the Transferor may elect to postpone the
commencement of the 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
Determination Date and on each Determination Date thereafter, until the
Accumulation Period begins, the Servicer, on behalf of the Transferor, will
determine the "Accumulation Period Length," which is the number of months
expected to be required to fully fund the Principal Funding Account no later
than the Class A Expected Final Payment Date, based on (a) the expected monthly
Principal Collections expected to be distributable to the certificateholders of
all Series (excluding certain other Series), assuming a rate of payment on the
Receivables no greater than the lowest monthly rate of payment 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 Accumulation Period. If the Accumulation Period Length is less than
twelve months, the Servicer may, at its option, postpone the commencement of the
Accumulation Period such that the number of months included in the 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
Accumulation Period based on the invested amounts of other Series, if any,
scheduled to be in their revolving periods during the Accumulation Period and on
increases, if any, in the payment rate occurring after the Closing Date. The
length of the Accumulation Period will not be less than one month.
SUBORDINATION OF THE CLASS B CERTIFICATES AND THE COLLATERAL INVESTOR INTEREST
The Class B Certificates and the Collateral Investor Interest will be
subordinated to the extent necessary to fund certain payments with respect to
the Class A Certificates. In addition, the Collateral Investor 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 the Class A Certificateholders
and the Class B Invested Amount may be reduced. Similarly, certain principal
payments allocable to the Collateral Investor Interest may be reallocated to the
Class A Certificateholders and the Class B Certificateholders and the Collateral
Invested Amount may be reduced. To the extent the Class B Invested Amount is
reduced, the percentage of Yield Collections allocated to the Class B
Certificateholders in subsequent Collection Periods will be reduced. Moreover,
to the extent the amount of such reduction in the Class B Invested Amount 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 Invested Amount is paid in full. See
"--Allocation Percentages," "--Reallocation of Cash Flows," and "--Application
of Collections--Excess Spread; Shared Excess Yield Collections."
TRANSFER AND ASSIGNMENT OF RECEIVABLES
On the Closing Date, the Transferor will transfer and assign to the Trust all of
its right, title and interest in and to Receivables in the Accounts outstanding
as of the Cut-Off Date, all of the Receivables thereafter created under the
Accounts and the proceeds of all of the foregoing.
In connection with the transfer of the Receivables by the Transferor to the
Trust, the Transferor will indicate in its records, including any computer
files, that the Receivables have been transferred from the Transferor to the
Trust. In addition, the Transferor will provide to the Trustee a computer file
or a microfiche list containing a true and complete list showing for each
Account, as of the Cut-Off Date and for each Additional Account as of the date
of its designation for inclusion in the Trust, (i) its account number and (ii)
the amount of Receivables in such Account. Card Services, as initial Servicer,
will retain and will not deliver to the Trustee any other records or agreements
relating to the Accounts or the Receivables. Except as set forth above, the
records and agreements relating to the Accounts and the Receivables will not be
segregated from those relating to other charge card accounts and receivables and
neither the computer files nor the physical documentation relating to the
Accounts or Receivables will be stamped or marked to reflect the transfer of
Receivables to the Trust. The Trustee will have reasonable access to such
records and agreements as required by applicable law or to enforce the rights of
the Certificateholders. The Transferor will file one or more UCC-1 financing
statements in accordance with applicable law to perfect the Trust's interest in
the Receivables. See "Risk Factors--Potential Priority of Certain Liens" and
"Certain Legal Aspects of the Receivables."
45
<PAGE>
EXCHANGES
The Agreement will provide for the 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 Exchangeable Transferor
Certificate, a certificate which evidences the Transferor Interest, which will
be held by the Transferor and generally will not be transferable. The Agreement
will also provide that, pursuant to any one or more Series Supplements, the
Transferor may tender the Exchangeable Transferor Certificate, or the
Exchangeable Transferor Certificate and the certificates evidencing any Series
of certificates, to the Trustee in exchange for one or more newly issued Series
and a reissued Exchangeable Transferor Certificate. This exchange feature
permits the creation of new Series to be issued from an already existing trust.
Under the Agreement, the Transferor may define, with respect to any newly issued
Series: (i) its name or designation, (ii) its initial principal balance (or
method for calculating such balance), (iii) its certificate rate (or formula for
the determination thereof), (iv) the interest payment date or dates and the date
or dates from which interest shall accrue, (v) the method for allocating
collections to certificateholders, (vi) the names of any accounts to be used by
such Series and the terms governing the operation of any such accounts, (vii)
the percentage used to calculate servicing fees, (viii) the minimum Transferor
percentage (the "Minimum Transferor Percentage") and minimum Transferor amount
(the "Minimum Transferor Amount") applicable to such Series, (ix) the applicable
Minimum Trust Principal Component required to be maintained through the
designation by the Transferor of Additional Accounts, (x) the issuer and terms
of any Enhancement with respect thereto, (xi) the base rate for such Series, if
applicable, (xii) the terms on which the certificates of such Series may be
repurchased at the Transferor's option or remarketed to other investors, (xiii)
the stated Series termination date, (xiv) any deposit into any account
maintained for the benefit of certificateholders, (xv) the number of Classes of
such Series, and if more than one Class, the rights and priorities of each such
Class, (xvi) the extent to which the certificates of such Series will be
issuable in temporary or permanent global form (and, in such case, the
depositary for such global certificate or certificates, the terms and
conditions, if any, upon which such global certificate may be exchanged, in
whole or in part, for definitive certificates, and the manner in which any
interest payable on a temporary or global certificate will be paid), (xvii)
whether the certificates of such Series may be issued in bearer form and any
limitations imposed thereon, (xviii) the priority of any Series with respect to
any other Series, if applicable, (xix) the rights of the holder of the
Exchangeable Transferor Certificate that have been transferred to
certificateholders of such Series and (xx) any other relevant terms (all such
terms, the "Principal Terms" of such Series). None of the Transferor, the
Servicer, the Trustee or the Trust is required or intends to obtain the consent
of any Certificateholder to issue any additional Series. However, as a condition
of an Exchange, the Transferor will deliver to the Trustee written confirmation
that the Exchange will not result in the applicable Rating Agency reducing or
withdrawing its rating of any outstanding Series. The Transferor may offer any
Series to the public under a Disclosure Document in transactions either
registered under the Act or exempt from registration thereunder directly,
through one or more underwriters or placement agents, in fixed-price offerings
or in negotiated transactions or otherwise. Any such Series may be issued in
fully registered or book-entry form in minimum denominations determined by the
Transferor.
The Agreement will provide that the Transferor may perform Exchanges and define
Principal Terms such that each Series has a period during which amortization of
the principal balance 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 revolving periods while other Series
are not. Thus, certain Series may not be amortizing, while other Series are
amortizing. Each Series may have the benefits of a form of Enhancement issued by
issuers different from the issuers of the form of Enhancement with respect to
any other Series. Under the Agreement, the Trustee shall hold any such
Enhancement only on behalf of the Series with respect to which it relates.
Likewise, with respect to each such Enhancement, the Transferor may deliver a
different form of Enhancement agreement. The Agreement will also provide that
the Transferor may specify different Certificate rates and monthly investor
servicing fees with respect to each Series. The Transferor will also have the
option under the Agreement to vary between Series the terms upon which Series
may be repurchased at the Transferor's option or remarketed to other investors.
Additionally, certain Series may be subordinated to other Series, or Classes
within a Series may have different priorities. There is no limit to the number
of Exchanges that the Transferor may perform under the Agreement. The Trust will
terminate only as provided in the Agreement.
Under the Agreement and pursuant to a Series Supplement, an Exchange may only
occur upon the satisfaction of certain conditions provided in the Agreement.
Under the Agreement, the Transferor may perform an Exchange by
46
<PAGE>
notifying the Trustee at least three business days in advance of the date upon
which the Exchange is to occur. Under the Agreement, the notice will state the
designation of any Series to be issued on the date of the Exchange and, with
respect to each such Series: (i) its initial invested amount (or method for
calculating such amount) and (ii) its certificate rate (or the method for
allocating interest payments or other cash flow to such Series). On the date of
the Exchange, the Trustee will issue any such Series only upon delivery to it of
the following: (i) a Series Supplement specifying the Principal Terms of such
Series, (ii) (a) an opinion of counsel to the effect that, unless otherwise
stated in the related Series Supplement, the certificates of such Series will be
characterized as indebtedness for federal income tax purposes and (b) an opinion
of counsel to the effect that, for federal income tax purposes, (1) such
issuance will not adversely affect the federal and applicable state 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 classified as 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 or the Trust (an opinion of counsel with respect to any matter
to the effect referred to in clause (b) with respect to any action is referred
to herein as a "Tax Opinion"), (iii) if required by the related Series
Supplement, the form of Enhancement and any related agreement, (iv) 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, and (v) the existing Exchangeable Transferor Certificate and, if
applicable, the certificates representing the Series to be exchanged. Upon
satisfaction of such conditions, the Trustee will cancel the existing
Exchangeable Transferor Certificate and the certificates of the exchanged
Series, if applicable, and issue the new Series and new Exchangeable Transferor
Certificate.
REPRESENTATIONS AND WARRANTIES
The Transferor will make representations and warranties to the Trustee for the
benefit of the Certificateholders relating to the Accounts and the Receivables
to the effect, among other things, that (i) each Receivable is an Eligible
Receivable, (ii) each Receivable has been conveyed to the Trust free and clear
of all liens (except such liens as may be permitted by the Agreement) or in
compliance in all material respects with all applicable requirements of law,
(iii) all material information with respect to the Receivables, and the Accounts
related thereto, in the list provided to the Trustee is true and correct in all
material respects, (iv) the Transferor has obtained all consents, licenses,
approvals or authorizations required in connection with the conveyance of the
Receivables to the Trust, or (v) as of the initial Closing Date, and as of the
applicable Additional Account Closing Date with respect to Additional Accounts,
the computer file or list of Accounts or Additional Accounts, as the case may
be, provided by the Transferor to the Trustee is an accurate and complete
listing of all such Accounts in all material respects or the information
contained therein with respect to the identity of such Accounts and the
Receivables existing thereunder is true and correct in all material respects as
of the Cut-Off Date or, with respect to Additional Accounts, as of their date of
designation for inclusion in the Trust. If any representation or warranty of the
Transferor described in this paragraph is not true and correct in any material
respect and, as a result, any Receivables are charged off as uncollectible or
the proceeds of such Receivables are not available to the Trust, unless cured
within 60 days or any longer period agreed upon by the Trustee (not to exceed an
additional 60 days) from the earlier to occur of the discovery of any such event
by the Transferor or the Servicer, or receipt by the Transferor or the Servicer
of written notice of any such event given by the Trustee, then such Receivable
shall be designated an "Ineligible Receivable" and shall be assigned a balance
of zero for the purpose of determining the Trust Principal Component on any day.
On and after the date of its designation as an Ineligible Receivable, each
Ineligible Receivable shall not be given credit in determining the Trust
Principal Component used to calculate the Transferor Amount and the allocation
percentages with respect to collections on the Receivables. See "--Allocation
Percentages." In the event that the exclusion of an Ineligible Receivable from
the calculation of the Trust Principal Component would cause the Transferor
Amount to be reduced below the Minimum Transferor Percentage of the Trust
Principal Component, the Transferor shall make a deposit into the Collection
Account in an amount equal to the amount required to cause the Transferor Amount
to equal the Minimum Transferor Percentage of the Trust Principal Component. Any
such deposits by the Transferor shall be allocated in respect of Principal
Collections and Yield Collections as provided in the Agreement. The obligation
of the Transferor to make such deposits is the sole remedy with respect to
Ineligible Receivables available to Certificateholders or the Trustee on behalf
of the Certificateholders.
47
<PAGE>
The Transferor will represent and warrant as of the Closing Date, to the Trustee
for the benefit of the Certificateholders, that (i) the Transferor is duly
organized and validly existing in good standing under the laws of the United
States of America, has the full power, authority and legal right to own its
properties and conduct its business as such properties are presently owned and
such business is presently conducted, and to execute, deliver and perform its
obligations under the Agreement and the Series 1996-1 Supplement and to execute
and deliver to the Trustee the Certificates pursuant to the Agreement, (ii) the
Agreement and the Series 1996-1 Supplement constitute legal, valid, binding and
enforceable obligations of the Transferor, and (iii) the Agreement constitutes a
valid transfer to the Trust of all right, title and interest of the Transferor
in and to the Receivables, whether then existing or thereafter created in the
Accounts, and the proceeds thereof, or the grant of a first priority perfected
security interest in such Receivables and, with certain exceptions made for
certain limited time periods, the proceeds thereof, which is effective as to
each Receivable upon the transfer thereof to the Trust or upon its creation, as
the case may be. In the event that (x) any of the representations and warranties
described in clauses (i) through (iii) above are not true and correct or (y) a
material amount of Receivables are not Eligible Receivables, and in either case
such event has a material adverse effect on the interest of holders of the
Certificates (without regard to the amount of any Enhancement), either the
Trustee or the holders of Certificates evidencing undivided interests in the
Trust aggregating more than 50% of the aggregate invested amount of all Series,
by written notice to the Transferor (and to the Trustee and the Servicer, if
given by the certificateholders), may direct the Transferor to accept
reassignment of all Receivables within 60 days of such notice or any longer
period agreed upon by the Trustee (not to exceed an additional 60 days). The
Transferor will be obligated to accept reassignment of all such Receivables on a
Distribution Date occurring within such applicable period, unless the
representations and warranties shall then be true and correct in all material
respects or there shall no longer be a material amount of such Receivables which
are not Eligible Receivables, as the case may be. The price for such transfer of
Receivables shall be equal to the sum of the aggregate invested amounts of all
Series on the Record Date related to the applicable Distribution Date on which
the transfer is scheduled to be made (less the aggregate principal amount on
deposit in any principal funding account) plus an amount equal to all interest
accrued but unpaid on all Series at the applicable certificate rates through the
end of the applicable interest periods of such Series plus certain amounts
payable to Enhancement providers, if applicable. The payment of such amount into
the collection account in immediately available funds will be considered a
prepayment in full of all such Receivables and will be paid in full to the
certificateholders and, if applicable, to Enhancement providers. The obligations
described above shall be the sole remedies respecting the foregoing
representations, warranties and events available to the Trustee or the
certificateholders. The certificateholders will not incur any costs, direct or
indirect, related to the reassignment of Receivables to the Transferor.
An "Eligible Receivable" is defined to mean each Receivable (i) which has arisen
under an Eligible Account, (ii) which was created in compliance with all
applicable requirements of law, and pursuant to a cardholder agreement which
complies with all applicable requirements of law in either case the failure to
comply with which would have a material adverse effect upon Certificateholders,
(iii) with respect to which all material consents, licenses, approvals or
authorizations of, or registrations 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 cardholder agreement have been duly obtained or given and are in full
force and effect as of such date of creation, (iv) as to which at the time of
the transfer of such Receivable to the Trust, the Trust will have good and
marketable title, free and clear of all liens, encumbrances, charges and
security interests (except those permitted by the Agreement), (v) which has been
the subject of either a valid transfer and assignment from the Transferor to the
Trust of all of the Transferor's right, title and interest therein or the grant
of a first priority perfected security interest therein (and in the proceeds
thereof), effective until the termination of the Trust, (vi) which will at all
times be the legal, valid and binding payment obligation of the cardholder
thereof enforceable against such cardholder in accordance with its terms,
subject to certain bankruptcy and equity related exceptions, (vii) which
constitutes an "account" or a "general intangible" under and as defined in
Article 9 of the applicable UCC as then in effect, (viii) which, at the time of
its transfer to the Trust, has not been waived or modified except in accordance
with the policies and procedures of the Transferor relating to the operation of
its Corporate Card program or Purchasing Card program, as applicable, (ix) which
is not subject to any setoff, right of rescission, counterclaim or other defense
(including the defense of usury), other than certain bankruptcy and equity
related defenses, (x) as to which the Transferor has satisfied all obligations
to be fulfilled at the time it is transferred to the Trust and (xi) as to which
the Transferor has done nothing, at the time of its transfer to the Trust, to
impair the rights of the Trust or
48
<PAGE>
Certificateholders therein. In order to qualify as an "Eligible Account," each
such Account must, as of the date of its selection, (i) be in existence and
owned by the Transferor, (ii) be payable in United States dollars, (iii) not
have the related card reported lost or stolen or be designated as fraudulent,
(iv) not be identified in the Transferor's computer files as cancelled due to
the obligor's bankruptcy or insolvency, (v) not have the receivables in such
Account written off as uncollectible, (vi) not have the receivables in such
Account assigned, pledged or sold, (vii) have an obligor who has provided a
billing address in the United States or its territories or possessions and
(viii) not be an account with respect to which First Bank or any affiliate of
First Bank is the obligor.
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 purpose of establishing the presence or absence of defects,
compliance with the Transferor's representations and warranties or for any other
purpose. In addition, it is not anticipated or required that the Trustee will
make any initial or periodic general examination of the Servicer for the purpose
of establishing the compliance by the Servicer with its representations or
warranties or the performance by the Servicer of its obligations under the
Agreement for any other purpose. The Servicer, however, is required to deliver
to the Trustee on or before April 30 of each calendar year, beginning with April
30, 1998, an opinion of counsel with respect to the validity of the security
interest of the Trust in and to the Receivables.
ADDITION OF ACCOUNTS
Subject to the conditions set forth below, the Transferor will have the right to
designate from time to time additional eligible VISA charge card accounts
originated under the Bank's Corporate Card or Purchasing Card programs (the
"Additional Accounts") to be included as Accounts and to convey to the Trust on
designated dates all Receivables in such Additional Accounts (each such date, an
"Additional Account Closing Date"), whether such Receivables are then existing
or thereafter created. In addition, the Transferor will be required to designate
the Receivables of Additional Accounts (to the extent available) and to transfer
the Receivables in such Additional Accounts to the Trust if, as of the end of
any Collection Period, the Trust Principal Component minus the sum of the
invested amounts (or adjusted invested amounts) and any Receivables allocated to
Enhancement providers for all Series (the "Transferor Amount"), as a percentage
of the Trust Principal Component, is less than the Minimum Transferor Percentage
specified in the Series Supplement for any Series or if, as of the end of any
Collection Period, the Trust Principal Component is less than the minimum amount
of the Trust Principal Component (the "Minimum Trust Principal Component")
specified in the Series Supplement for any Series. Failure to make any such
required designation will result in an Early Amortization Event with respect to
the related Series. The Minimum Transferor Percentage and the Minimum Transferor
Amount applicable to the Certificates are % and $ , respectively. The
Minimum Trust Principal Component applicable to the Certificates is the sum of
the Invested Amount, the invested amounts (or other amounts, if applicable) of
other Series outstanding from time to time and the Minimum Transferor Amount.
The Transferor will in each case convey to the Trust its interest in all
Receivables in such Additional Accounts, whether such Receivables are then
existing or thereafter created, subject to the following conditions, among
others: (i) each such Additional Account at the time of its selection must be an
Eligible Account; (ii) the selection of the Additional Accounts by the
Transferor will be made in a manner which it reasonably believes will not
materially adversely affect the certificateholders' interest; and (iii) the
Transferor shall have delivered prior written notice of the addition to the
applicable Rating Agency, the Trustee and the Servicer, and if required by the
Agreement, shall have been notified in writing that such addition will not
result in a reduction or withdrawal of the rating of any Series of certificates.
The right to designate Additional Accounts and to transfer Receivables in such
Additional Accounts to the Trust permits the Transferor to increase the Trust
Principal Component, thereby permitting the issuance of additional Series or
avoiding the occurrence of certain early amortization events with respect to
existing Series. Certificateholders will not incur any costs, direct or
indirect, as a result of the exercise of this feature.
Although each Additional Account must satisfy certain criteria set forth in the
Agreement at the time of its selection, Additional Accounts may not be of the
same credit quality as the initial Accounts.
REMOVAL OF ACCOUNTS
Subject to the conditions set forth below, on each Determination Date with
respect to which the Transferor Amount as a percentage of the Trust Principal
Component exceeds the percentage required by the Agreement at the end of the
related Collection Period, the Transferor will have the right to accept removal
of Receivables in certain Accounts designated by the Transferor from the Trust
(the "Removed Accounts") and accept the conveyance of all the
49
<PAGE>
Receivables in the Removed Accounts, without notice to the certificateholders.
The Transferor may, at its sole discretion, accept such offer in an aggregate
amount equal to an amount not greater than the excess of the Transferor Amount
over the Minimum Transferor Percentage of the Trust Principal Component as of
the end of the related Collection 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 costs, 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 upon satisfaction of the following conditions: (i) the
Transferor shall have delivered to the Trustee for execution a written
instrument of reassignment and a computer file or microfiche list containing a
true and complete list of all Accounts in the Trust after such removal, the
Accounts to be identified by account number and aggregate amount of Receivables;
(ii) the Transferor shall represent and warrant that no selection procedures
adverse to the interests of the certificateholders or any provider of
Enhancement were utilized by the Transferor in selecting the Removed Accounts;
(iii) the removal of any Receivables of any Removed Accounts shall not, in the
reasonable belief of the Transferor, cause an early amortization event to occur;
(iv) the Transferor shall have delivered prior written notice of the removal to
each Rating Agency which has rated any outstanding Series and prior to the date
on such Receivables are to be removed shall have received notice from each
Rating Agency that such removal will not cause the reduction or withdrawal of
its rating of any Series of certificates; and (v) the Transferor shall have
delivered to the Trustee and each Rating Agency an officer's certificate
confirming the items set forth in clauses (i) through (iv) above.
COLLECTION ACCOUNT
The Trustee will establish and maintain or cause to be established and
maintained, in the name of the Trustee, on behalf of the Trust, a segregated
trust account (the "Collection Account") for the benefit of the
Certificateholders with an Eligible Institution. An "Eligible Institution" means
a depositary institution, which may include the Trustee, organized under the
laws of the United States or any one of the States thereof including the
District of Columbia (or any domestic branches of foreign banks), which at all
times has a short-term unsecured debt or certificate of deposit rating of at
least A-1+ and P-1 by the applicable Rating Agency; PROVIDED, HOWEVER, that no
such rating shall be required of an institution which shall have corporate trust
powers and which maintains the Collection Account, any Principal Funding
Account, any Interest Funding Account or any other account maintained for the
benefit of Certificateholders as a fully segregated trust account with the trust
department of such institution. Funds in the Collection Account may be invested,
at the direction of the Servicer, in (i) obligations fully guaranteed by the
United States of America or its agencies, (ii) time deposits, demand deposits,
certificates of deposit or banker's acceptances of certain depository
institutions or trust companies having the highest rating from the applicable
Rating Agency, (iii) commercial paper having, at the time of the Trust's
investment, a rating in the highest rating category from the applicable Rating
Agency, (iv) Eurodollar time deposits having, at the time of the Trust's
investment or contractual commitment to invest therein, a rating in the highest
rating category from the applicable Rating Agency, (v) 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 Corp. and (vi) any other investments as may be
approved in writing by the applicable Rating Agency prior to the Trust's
investment therein, 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 (collectively, the "Eligible Investments"). Any such
investment shall be held to maturity. Any earnings (net of losses and investment
expenses) on funds in the Collection Account shall be paid monthly to the
Transferor unless an Early Amortization Event occurs, in which event such funds
will remain on deposit in the Collection Account. 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 Collection Account for the
purpose of carrying out the Servicer's or the Trustee's duties under the
Agreement. So long as no Servicer Default has occurred and First Bank or an
affiliate of First Bank maintains certain short-term credit ratings, or obtains
written confirmation of the ratings on the Certificates from each Rating Agency,
the Servicer need not deposit funds into the Collection Account until the
business day preceding the following Distribution Date (the "Transfer Date") and
may use such funds for its own purposes. See "--Allocation of Collections;
Deposits in Collection Account."
50
<PAGE>
ALLOCATION OF COLLECTIONS; DEPOSITS IN COLLECTION ACCOUNT
On the date of processing, the Servicer will, subject to certain exceptions,
deposit collections on the Receivables and payments in respect of Ineligible
Receivables made by the Transferor allocable to the Certificateholders' and
Collateral Interest Holder' interests into the Collection Account except as
described below. So long as a Servicer Default has not occurred, Card Services
or another affiliate of First Bank is the Servicer and First Bank (i) maintains
a certificate of deposit rating or meets other criteria required by the
applicable Rating Agency, or (ii) obtains a written notification from each
Rating Agency to the effect that such Rating Agency does not intend to downgrade
or withdraw its then current rating of any outstanding Series of certificates
despite the Servicer's inability to satisfy the rating requirement specified in
clause (i), and for the two business day period following any reduction of
either such rating or failure to satisfy the conditions of clause (ii), the
Servicer need not deposit collections and payments made by the Transferor
allocable to the Certificateholders' and Collateral Interest Holder' interests
into the Collection Account on the date indicated in the preceding sentence but
may use for its own benefit all such Collections and payments until the business
day preceding the Distribution Date at which time the Servicer must deposit such
amounts (net of the Monthly Investor Servicing Fee and net of any amounts to be
distributed to the Transferor) into the Collection Account. Until such
collections and payments are deposited in the Collection Account, such amounts
will not be segregated from the assets of the Servicer, and the proceeds of any
short term investment of such proceeds will accrue to the Servicer. While the
Servicer holds collections and payments in respect of Ineligible Receivables
made by the Transferor and is permitted to use such collections and payments for
its own benefit, the Certificateholders are subject to risk of loss, including
risk resulting from the insolvency of the Servicer. The Servicer will pay no fee
to the Trust or the Certificateholders for use of such funds. Collections on
Receivables allocable to the Transferor Interest will be remitted by the
Servicer on each day to the Transferor.
ALLOCATION PERCENTAGES
Pursuant to the Agreement, the Servicer will allocate among the Certificates,
the certificateholders' interest for all other Series of certificates issued and
outstanding, the interest of any Enhancement providers, if applicable, and the
Transferor Interest all Yield Collections, Principal Collections and Defaulted
Receivables with respect to each Collection Period.
Yield Collections and Defaulted Receivables with respect to any Collection
Period will be allocated to Series 1996-1 based on the Floating Allocation
Percentage. The "Floating Allocation Percentage" means, with respect to any
Collection Period, the sum of the Class A Floating Percentage, the Class B
Floating Percentage and the Collateral Floating Percentage.
The "Class A Floating Percentage" means, with respect to any Collection Period,
the percentage equivalent (which percentage shall never exceed 100%) of a
fraction the numerator of which is equal to the Class A Adjusted Invested Amount
as of the close of business on the last day of the immediately preceding
Collection Period (or the Class A Initial Invested Amount, in the case of the
first Collection Period applicable to Series 1996-1) and the denominator of
which is equal to the greater of (i) the Trust Principal Component as of the
close of business on the last day of the immediately preceding Collection Period
and (ii) the sum of the numerators used to calculate the allocation percentages
with respect to Yield Collections and Defaulted Receivables for all Series
outstanding as of the date on which such determination is being made.
The "Class B Floating Percentage" means, with respect to any Collection Period,
the percentage equivalent (which percentage shall never exceed 100%) of a
fraction the numerator of which is equal to the Class B Invested Amount as of
the close of business on the last day of the immediately preceding Collection
Period (or the Class B Initial Invested Amount, in the case of the first
Collection Period applicable to Series 1996-1) and the denominator of which is
equal to the greater of (i) the Trust Principal Component as of the close of
business on the last day of the immediately preceding Collection Period and (ii)
the sum of the numerators used to calculate the allocation percentages with
respect to Yield Collections and Defaulted Receivables for all Series
outstanding as of the date on which such determination is being made.
"Collateral Floating Percentage" means, with respect to any Collection Period,
the percentage equivalent (which percentage shall never exceed 100%) of a
fraction the numerator of which is equal to the Collateral Invested Amount as of
the close of business on the last day of the immediately preceding Collection
Period (or the Collateral Initial Invested Amount, in the case of the first
Collection Period applicable to Series 1996-1) and the denominator of which
51
<PAGE>
is equal to the greater of (i) the Trust Principal Component as of the close of
business on the last day of the immediately preceding Collection Period and (ii)
the sum of the numerators used to calculate the allocation percentages with
respect to Yield Collections and Defaulted Receivables for all Series
outstanding as of the date on which such determination is being made.
Principal Collections with respect to any Collection Period during the Revolving
Period will be allocated to Series 1996-1 based on the Floating Allocation
Percentage. Principal Collections with respect to any Collection Period during
the Accumulation Period or the Early Amortization Period will be allocated to
Series 1996-1 based on the Fixed Allocation Percentage. The "Fixed Allocation
Percentage" means, with respect to any Collection Period, the sum of the Class A
Fixed Percentage, the Class B Fixed Percentage and the Collateral Fixed
Percentage.
"Class A Fixed Percentage" means, with respect to any Collection Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction
the numerator of which is equal to the Class A Invested Amount as of the close
of business on the last day of the Revolving Period and the denominator of which
is equal to the greater of (i) the Trust Principal Component as of the close of
business on the last day of the immediately preceding Collection Period and (ii)
the sum of the numerators used to calculate the allocation percentages with
respect to Principal Collections for all Series outstanding as of the date on
which such determination is being made.
"Class B Fixed Percentage" means, with respect to any Collection Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction
the numerator of which is equal to the Class B Invested Amount as of the close
of business on the last day of the Revolving Period and the denominator of which
is equal to the greater of (i) the Trust Principal Component as of the close of
business on the last day of the immediately preceding Collection Period and (ii)
the sum of the numerators used to calculate the allocation percentages with
respect to Principal Collections for all Series outstanding as of the date on
which such determination is being made.
"Collateral Fixed Percentage" means, with respect to any Collection Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction
the numerator of which is equal to the Collateral Invested Amount as of the
close of business on the last day of the Revolving Period and the denominator of
which is equal to the greater of (i) the Trust Principal Component as of the
close of business on the last day of the immediately preceding Collection Period
and (ii) the sum of the numerators used to calculate the allocation percentages
with respect to Principal Collections for all Series outstanding as of the date
on which such determination is being made.
As used herein, the following terms have the meanings indicated:
"Class A Invested Amount" means, on any date of determination, an amount equal
to (a) the Class A Initial Invested Amount, MINUS (b) the aggregate amount of
principal payments made to the Class A Certificateholders prior to such date,
MINUS (c) the aggregate amount of unreimbursed Class A Investor Charge-Offs for
all prior Transfer Dates; PROVIDED, HOWEVER, that the Class A Invested Amount
may not be reduced below zero.
"Class A Adjusted Invested Amount" means, on any date of determination, the
Class A Invested Amount on such date of determination minus the Principal
Funding Account Balance on such date.
"Class B Invested Amount" means, on any date of determination, an amount equal
to (a) the Class B Initial Invested Amount, MINUS (b) the aggregate amount of
principal payments made to the 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 amount of Reallocated Class B Principal
Collections used to make payments in respect of the Class A Certificates on all
prior Transfer Dates that have not resulted in a reduction of the Collateral
Invested Amount, MINUS (e) an amount equal to the amount by which the Class B
Invested Amount has been reduced on all prior Transfer Dates to fund the Class A
Investor Default Amount as described under "--Defaulted Receivables; Rebates and
Fraudulent Charges; Investor Charge-Offs", PLUS (f) the amount of Excess Spread
and Shared Excess Yield Collections 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 Invested
Amount may not be reduced below zero.
"Collateral Invested Amount" means, on any date of determination, an amount
equal to (a) the Collateral Initial Invested Amount, 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 Investor Charge-Offs for
all prior Transfer Dates, MINUS (d) the amount of Reallocated Collateral
Principal Collections used to make payments in respect of the Certificates on
52
<PAGE>
all prior Transfer Dates, MINUS (e) an amount equal to the amount by which the
Collateral Invested Amount has been reduced on all prior Transfer Dates to fund
the Class A Investor Default Amount or the Class B Investor Default Amount as
described under "--Defaulted Receivables; Rebates and Fraudulent Charges;
Investor Charge-Offs," PLUS (f) the amount of Excess Spread and Shared Excess
Yield Collections 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 Invested Amount may not be
reduced below zero.
"Invested Amount" means, on any date of determination, the sum of the Class A
Invested Amount, the Class B Invested Amount and the Collateral Invested Amount.
"Adjusted Invested Amount" means, on any date of determination, the sum of the
Class A Adjusted Amount, the Class B Invested Amount and the Collateral Invested
Amount.
PRINCIPAL FUNDING ACCOUNT
The Servicer will establish and maintain in the name of the Trustee, on behalf
of the Trust, the Principal Funding Account, for the benefit of the
Certificateholders. During the Accumulation Period, the Servicer shall transfer
Principal Collections, Shared Principal Collections allocated to Series 1996-1
and other amounts described herein to be treated in the same manner as Principal
Collections from the Collection Account to the Principal Funding Account as
described under "--Application of Collections." Such collections and amounts
will be retained in the Principal Funding Account and ultimately used to pay
principal of the Class A Certificates on the Class A Expected Final Payment Date
or the first Special Payment Date with respect to the Early Amortization Period,
whichever occurs earlier.
Unless an Early Amortization Event has occurred with respect to the
Certificates, all amounts on deposit in the Principal Funding Account (the
"Principal Funding Account Balance") on any Transfer Date (after giving effect
to any deposits to, or withdrawals from the Principal Funding Account to be made
on such Transfer Date) will be invested in Eligible Investments that mature on
or prior to the following Transfer Date.
On each Transfer Date with respect to the Accumulation Period (on or prior to
the Class A Expected Final Payment Date) the interest and other investment
income (net of investment expenses and losses) earned on such investments (the
"Principal Funding Investment Proceeds") will be withdrawn from the Principal
Funding Account and will be treated as a portion of Class A Available Funds. If
such investments with respect to any such Transfer Date yield less than the
Class A Certificate Rate, the Principal Funding Investment Proceeds with respect
to such Transfer Date will be less than the Covered Amount for the following
Transfer Date. It is intended that any such shortfall (the "Principal Funding
Investment Shortfall") will be funded from Class A Available Funds or a
withdrawal from the Reserve Account as described under "--Reserve Account" or
from Reallocated Principal Collections. The Available Reserve Account Amount at
any time will be limited (and could be zero) and there can be no assurance that
sufficient funds will be available to fund any such shortfall. The "Covered
Amount" shall mean for any Transfer Date with respect to the Accumulation Period
or the first Special Payment Date of the Early Amortization Period, an amount
equal to one-twelfth of the product of (i) the Class A Certificate Rate and (ii)
the Principal Funding Account Balance, if any, as of the Record Date preceding
such Transfer Date.
RESERVE ACCOUNT
Pursuant to the Series 1996-1 Supplement, the Trustee will establish and
maintain with an Eligible Institution the reserve account as a segregated trust
account held for the benefit of the Certificateholders (the "Reserve Account").
The Reserve Account provides a source of funds for the distribution of interest
on the Certificates during the Accumulation Period to the extent the Principal
Funding Investment Proceeds and other Class A Available Funds are insufficient.
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 and Shared Excess Yield
Collections allocated to the Certificates (to the extent described under
"--Application of Collections-- Excess Spread; Shared Excess Yield Collections")
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 Collection Period
which commences no later than three months prior to the commencement of the
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)
53
<PAGE>
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 Trustee with written confirmation that such
designation will not result in the applicable Rating Agency reducing or
withdrawing its ratings of the Certificates or the certificates of other Series
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 an Early Amortization Event or an event that, after the giving of
notice or the lapse of time, would cause an Early Amortization Event to occur
with respect to Series 1996-1. 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 shall 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 Eligible 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 Collection Account and treated as Class A Available Funds.
On or before each Transfer Date with respect to the Accumulation Period and on
the first Special Payment Date with respect to the Early Amortization Period, a
withdrawal will be made from the Reserve Account, and the amount of such
withdrawal will be deposited in the Collection Account and included in Yield
Collections 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 Principal Funding
Investment Shortfall 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 Accumulation
Period has not commenced, the first Transfer Date with respect to the Early
Amortization Period or, if the Accumulation Period has commenced, the earlier to
occur of (i) the first Transfer Date with respect to the Early Amortization
Period and (ii) the Transfer Date immediately preceding the Class A Expected
Final 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.
REALLOCATION OF CASH FLOWS
With respect to each Transfer Date, the Servicer will determine the amount (the
"Class A Required Amount"), if any, by which the sum of (i) Class A Monthly
Interest due on the related Distribution Date, (ii) any Class A Monthly Interest
previously due but not paid to the Class A Certificateholders on a prior
Distribution Date, (iii) any Class A Additional Interest for the related
Distribution Date and any Class A Additional Interest previously due but not
paid to the Class A Certificateholders on a prior Distribution Date, (iv) the
Class A Servicing Fee for the related Collection Period and any unpaid Class A
Servicing Fee for a prior Collection Period and (v) the Class A Investor Default
Amount, if any, for the related Collection Period exceeds the Class A Available
Funds. If the Class A Required Amount is greater than zero, Excess Spread and
Shared Excess Yield Collections allocable to Series 1996-1 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 and Shared Excess Yield Collections
are insufficient to fund the Class A Required Amount, Principal Collections
allocable first to the Collateral Investor Interest ("Reallocated Collateral
Principal Collections") and then to
54
<PAGE>
the Class B Certificates ("Reallocated Class B Principal Collections" and,
together with the Reallocated Collateral Principal Collections, the "Reallocated
Principal Collections") for the related Collection Period will then be used to
fund the remaining Class A Required Amount. If such Reallocated Principal
Collections with respect to the related Collection Period are insufficient to
fund the remaining Class A Required Amount, then the Collateral Invested Amount
(after giving effect to reductions for any Collateral Investor Charge-Offs and
any Reallocated Collateral Principal Collections on the related Transfer Date)
will be reduced by the amount of such insufficiency (but not by more than the
Class A Investor Default Amount for such Collection Period). In the event that
such reduction would cause the Collateral Invested Amount to be a negative
number, the Collateral Invested Amount will be reduced to zero, and the Class B
Invested Amount (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 Invested Amount
would have been reduced below zero (but not by more than the excess of the Class
A Investor Default Amount, if any, for such Collection Period over the amount of
such reduction, if any, of the Collateral Invested Amount with respect to such
Collection Period). In the event that such reduction would cause the Class B
Invested Amount to be a negative number, the Class B Invested Amount will be
reduced to zero, and the Class A Invested Amount will be reduced by the amount
by which the Class B Invested Amount would have been reduced below zero (but not
by more than the excess, if any, of the Class A Investor Default Amount for such
Collection Period over such reductions in the Collateral Invested Amount and the
Class B Invested Amount with respect to such Collection Period). Any such
reduction in the Class A Invested Amount 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 undivided interest in the Trust. See
"--Defaulted Receivables; Rebates and Fraudulent Charges; Investor Charge-Offs."
With respect to each Transfer Date, the Servicer will determine the amount (the
"Class B Required 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, (ii) any Class B Monthly Interest previously due but not paid to the Class
B Certificateholders on a prior Distribution Date, (iii) any Class B Additional
Interest for the related Distribution Date and any Class B Additional Interest
previously due but not paid to the Class B Certificateholders on a prior
Distribution Date and (iv) the Class B Servicing Fee for the related Collection
Period and any unpaid Class B Servicing Fee for a prior Collection Period
exceeds the Class B Available Funds, and (b) the amount, if any, by which the
Class B Investor Default Amount for the related Collection Period exceeds the
amount of Excess Spread and Shared Excess Yield Collections allocable to Series
1996-1 available to cover the Class B Investor Default Amount on such Transfer
Date as specified under "--Application of Collections" herein. If the Class B
Required Amount is greater than zero, Excess Spread and Shared Excess Yield
Collections allocable to Series 1996-1 not required to fund 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 and
Shared Excess Yield Collections are insufficient to fund the Class B Required
Amount, Reallocated Collateral Principal Collections not required to fund the
Class A Required Amount will then be used to fund the remaining Class B Required
Amount. If such Reallocated Collateral Principal Collections with respect to the
related Collection Period are insufficient to fund the remaining Class B
Required Amount, then the Collateral Invested Amount (after giving effect to
reductions for any Collateral Investor Charge-Offs and any Reallocated
Collateral Principal Collections on such Transfer Date and any adjustments made
thereto for the benefit of Class A Certificateholders on such Transfer Date)
will be reduced by the amount of such insufficiency (but not by more than the
Class B Investor Default Amount for such Collection Period). In the event that
such reduction would cause the Collateral Invested Amount to be a negative
number, the Collateral Invested Amount will be reduced to zero, and the Class B
Invested Amount will be reduced by the amount by which the Collateral Invested
Amount would have been reduced below zero (but not by more than the excess, if
any, of the Class B Investor Default Amount for such Collection Period over such
reduction in the Collateral Invested Amount with respect to such Collection
Period), and the Class B Certificateholders will bear directly the credit and
other risks associated with their undivided interest in the Trust. See
"--Defaulted Receivables; Rebates and Fraudulent Charges; Investor Charge-Offs."
Reductions of the Class A Invested Amount or Class B Invested Amount will
thereafter be reimbursed and the Class A Invested Amount or Class B Invested
Amount increased to the extent of Excess Spread and Shared Excess Yield
Collections allocable to Series 1996-1 and Reallocated Principal Collections
available for such purposes on each Distribution Date.
55
<PAGE>
With respect to each Transfer Date, the Servicer will determine the amount (the
"Collateral Required Amount"), if any, equal to the sum of (a) the amount, if
any, by which the sum of (i) Collateral Monthly Interest due on the related
Distribution Date, (ii) any Collateral Monthly Interest previously due but not
paid to the Collateral Interest Holder on a prior Distribution Date, (iii) any
Collateral Additional Interest for the related Distribution Date and any
Collateral Additional Interest previously due but not paid to the Collateral
Interest Holder on a prior Distribution Date and (iv) the Collateral Servicing
Fee for the related Collection Period and any unpaid Collateral Servicing Fee
for a prior Collection Period exceeds the Collateral Available Funds, and (b)
the amount, if any, by which the Collateral Default Amount, if any, for the
related Collection Period exceeds the amount of Excess Spread and Shared Excess
Yield Collections allocable to Series 1996-1 available on such Transfer Date as
specified under "--Application of Collections" herein. If the Collateral
Required Amount is greater than zero, Excess Spread and Shared Excess Yield
Collections allocable to Series 1996-1 not required to fund the Class A Required
Amount or the Class B Required Amount or reimburse Class A Investor Charge-Offs
or Class B Investor Charge-Offs or pay certain other amounts will be used to
fund the Collateral Required Amount with respect to such Transfer Date. If such
Excess Spread and Shared Excess Yield Collections are insufficient to fund the
Collateral Required Amount, the Collateral Invested Amount will be reduced by
the amount of such insufficiency (but not by more than the Collateral Default
Amount for such Collection Period).
APPLICATION OF COLLECTIONS
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 following
priority:
(a) On each Transfer Date, an amount equal to the Class A Available Funds with
respect to such Transfer Date 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 Class A Monthly Interest previously due but not
paid to the Class A Certificateholders on a prior Interest Payment Date or
Special Payment Date, plus additional interest at the Class A Certificate Rate
with respect to amounts that were due but not paid to Class A Certificateholders
on a prior Interest Payment Date or Special Payment Date ("Class A Additional
Interest"), will be deposited into the Interest Funding Account;
(ii) an amount equal to the Class A Servicing Fee for the related Collection
Period, plus the amount of any Class A Servicing Fee previously due but not
distributed to the Servicer for a prior Collection Period, will be distributed
to the Servicer;
(iii) an amount equal to the Class A Investor Default Amount for the related
Collection Period will be treated as a portion of Principal Collections
allocable to Series 1996-1 for such Transfer Date; and
(iv) the balance, if any, will constitute Excess Spread and shall be allocated
and distributed as described under "-- Excess Spread; Shared Excess Yield
Collections" below.
(b) On each Transfer Date, an amount equal to the Class B Available Funds with
respect to such Transfer Date 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 Class B Monthly Interest previously due but not
paid to the Class B Certificateholders on a prior Interest Payment Date or
Special Payment Date, plus any additional interest at the Class B Certificate
Rate with respect to amounts that were due but not paid to Class B
Certificateholders on a prior Interest Payment Date or Special Payment Date
("Class B Additional Interest"), will be deposited into the Interest Funding
Account;
(ii) an amount equal to the Class B Servicing Fee for the related Collection
Period, plus the amount of any Class B Servicing Fee previously due but not
distributed to the Servicer for a prior Collection Period, will be distributed
to the Servicer; and
(iii) the balance, if any, will constitute Excess Spread and shall be allocated
and distributed as described under "-- Excess Spread; Shared Excess Yield
Collections" below.
56
<PAGE>
(c) On each Transfer Date, an amount equal to the Collateral Available Funds
with respect to such Transfer Date will be distributed in the following
priority:
(i) an amount equal to the Collateral Servicing Fee for the related Collection
Period, plus the amount of any Collateral Servicing Fee previously due but not
distributed to the Servicer for a prior Collection Period, will be distributed
to the Servicer; and
(ii) the balance, if any, will constitute Excess Spread and will be allocated
and distributed as described under "--Excess Spread; Shared Excess Yield
Collections" below.
"Class A Monthly Interest" means, with respect to any Distribution Date, an
amount equal to one-twelfth of the product of (i) the Class A Certificate Rate
and (ii) the outstanding principal balance of the Class A Certificates as of the
immediately preceding Record Date; PROVIDED, HOWEVER, with respect to the first
Distribution Date, Class A Monthly Interest will be equal to the interest
accrued on the outstanding principal balance of the Class A Certificates at the
Class A Certificate Rate for the period from and including the Closing Date
through the day preceding such Distribution Date.
"Class B Monthly Interest" means, with respect to any Distribution Date, an
amount equal to one-twelfth of the product of (i) the Class B Certificate Rate
and (ii) the outstanding principal balance of the Class B Certificates as of the
immediately preceding Record Date; PROVIDED, HOWEVER, with respect to the first
Distribution Date, Class B Monthly Interest shall be equal to the interest
accrued on the outstanding principal balance of the Class B Certificates at the
Class B Certificate Rate for the period from and including the Closing Date
through the day preceding such Distribution Date.
"Collateral Available Funds" means, with respect to any Collection Period, an
amount equal to the Collateral Floating Percentage of the Yield Collections with
respect to such Collection Period (excluding the portion of Yield Collections
attributable to Net Interchange that is allocable to Servicer Interchange).
"Distribution Date" means the day of each month (or, if any such day is not
a business day, on the next succeeding business day), commencing , 1996.
"Excess Spread" means, with respect to any Distribution Date, an amount equal to
the sum of the amounts described in clauses (a)(iv), (b)(iii) and (c)(ii) above.
"Special Payment Date" means each Distribution Date with respect to any Early
Amortization Period.
EXCESS SPREAD; SHARED EXCESS YIELD COLLECTIONS. On each Transfer Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply Excess
Spread and Shared Excess Yield Collections allocable to Series 1996-1 with
respect to the related Collection 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 any deficiency pursuant to clauses (a)(i),
(ii) and (iii) above under "--Payment of Interest, Fees and Other Items," in
that order of priority;
(b) an amount equal to the aggregate amount of Class A Investor Charge-Offs
which have not been previously reimbursed will be treated as a portion of
Principal Collections allocable to Series 1996-1 for such Transfer Date as
described under "--Payments of Principal" below;
(c) an amount up to the Class B Required Amount, if any, with respect to such
Transfer Date will be used to fund any deficiency pursuant to clauses (b)(i) and
(ii) above under "--Payment of Interest, Fees and Other Items," in that order of
priority;
(d) an amount equal to the Class B Investor Default Amount for such Transfer
Date will be treated as a portion of Principal Collections allocable to Series
1996-1 for such Transfer Date as described under "--Payments of Principal"
below;
(e) an amount equal to the aggregate amount by which the Class B Invested Amount
has been reduced pursuant to clauses (c), (d) and (e) of the definition of
"Class B Invested Amount" under "--Allocation Percentages" above (but
57
<PAGE>
not in excess of the aggregate amount of such reductions which have not been
previously reimbursed) will be treated as a portion of Principal Collections
allocable to Series 1996-1 for such Transfer Date as described under "--
Payments of Principal" below;
(f) an amount up to the Collateral Required Amount, if any, with respect to such
Transfer Date will be used to fund any deficiency pursuant to clause (c)(i)
above under "--Payment of Interest, Fees and Other Items";
(g) an amount equal to the Collateral Monthly Interest for such Transfer Date
will be distributed to the Collateral Interest Holder;
(h) an amount equal to the Collateral Default Amount for such Transfer Date will
be treated as a portion of Principal Collections allocable to Series 1996-1 for
such Transfer Date as described under "--Payments of Principal" below;
(i) an amount equal to the aggregate amount by which the Collateral Invested
Amount has been reduced below the Required Collateral Invested Amount 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 treated as a portion of Principal
Collections allocable to Series 1996-1 for such Transfer Date as described under
"--Payments of Principal" below;
(j) 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 shall be deposited into
the Reserve Account; and
(k) the balance, if any, will constitute "Shared Excess Yield Collections" to be
applied with respect to other Series in accordance with the Agreement; PROVIDED
that if no other Series exists, the balance, if any, will be distributed to the
Transferor.
"Collateral Monthly Interest" means, with respect to any Transfer Date, an
amount equal to the interest payable to the Collateral Interest Holder pursuant
to the Loan Agreement. Collateral Monthly Interest is generally payable at the
Collateral Rate on the outstanding principal balance of the Collateral Investor
Interest. "Collateral Rate" means a rate equal to , or such lesser rate
designated pursuant to the Loan Agreement.
"Collateral Default Amount" means, with respect to any Transfer Date, the
product of the Collateral Floating Percentage applicable during the related
Collection Period and the Investor Default Amount for such Collection Period.
PAYMENTS OF PRINCIPAL. On each Transfer Date, the Trustee, acting pursuant to
the Servicer's instructions, will distribute Principal Collections allocable to
Series 1996-1 available therefor ("Available Principal Collections") on deposit
in the Collection Account in the following priority:
(a) On each Transfer Date with respect to the Revolving Period, all such
Available Principal Collections, less any portion thereof relating to Principal
Collections allocated at the option of the Transferor as part of Collateral
Monthly Principal to make a payment with respect to the Collateral Investor
Interest (subject to maintaining the Required Collateral Invested Amount), will
be treated as Shared Principal Collections with respect to other Series and
applied as described under "--Shared Principal Collections;" and
(b) On each Transfer Date with respect to the Accumulation Period or the Early
Amortization Period, all such Available Principal Collections will be deposited
or distributed in the following priority:
(i) an amount equal to Class A Monthly Principal for such Transfer Date will,
during the Accumulation Period, be deposited in the Principal Funding Account
for payment to the Class A Certificateholders on the earlier to occur of the
Class A Expected Final Payment Date and the first Special Payment Date with
respect to the Early Amortization Period or, during the Early Amortization
Period, be distributed to the Class A Certificateholders;
(ii) after the Class A Invested Amount 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
58
<PAGE>
distributed to the Class B Certificateholders on the earlier to occur of the
Class B Expected Final Payment Date and the first Special Payment Date with
respect to the Early Amortization Period or, during the Early Amortization
Period, be distributed to the Class B Certificateholders;
(iii) an amount equal to Collateral Monthly Principal for such Transfer Date
will be applied in accordance with the Loan Agreement; and
(iv) the balance, if any, will be treated as Shared Principal Collections with
respect to other Series and applied as described under "--Shared Principal
Collections."
"Class A Monthly Principal" with respect to any Transfer Date relating to the
Accumulation Period or the Early Amortization Period, prior to the payment in
full of the Class A Invested Amount, will equal the lesser of (i) the Available
Principal Collections on deposit in the Collection Account with respect to such
Transfer Date, (ii) for each Transfer Date with respect to the Accumulation
Period and on or prior to the Class A Expected Final Payment Date, the
applicable Controlled Deposit Amount for such Transfer Date and (iii) the Class
A Adjusted Invested Amount (after giving effect to reductions for any Class A
Investor Charge-Offs) prior to any deposits on such Transfer Date.
"Class B Monthly Principal" with respect to any Transfer Date relating to the
Accumulation Period or the Early Amortization Period, after the Class A Invested
Amount has 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
Principal Collections on deposit in the Collection Account with respect to such
Transfer Date (minus the portion of such Available Principal Collections applied
to Class A Monthly Principal on such Transfer Date) and (ii) the Class B
Invested Amount (after giving effect to reductions for any Class B Investor
Charge-Offs and any Reallocated Class B Principal Collections) on such Transfer
Date.
"Collateral Monthly Principal" means (i) on any Transfer Date prior to the
payment in full of the Class B Certificates, either (A) during the Revolving
Period, subject to certain limitations specified in the Loan Agreement, the
excess of the Collateral Invested Amount over the Required Collateral Invested
Amount (such excess, the "Enhancement Surplus") or any lesser amount (including
zero) as the Transferor may determine, at its option and in its sole discretion,
or (B) during the Accumulation Period, subject to certain limitations specified
in the Loan Agreement, an amount up to the Enhancement Surplus and (ii)
beginning with the Transfer Date on which the Class
B Invested Amount has been paid in full (after taking into account payments to
be made on the related Distribution Date), the Available Principal Collections
not applied to Class A Monthly Principal or Class B Monthly Principal; PROVIDED,
HOWEVER, that Collateral Monthly Principal may not exceed the Collateral
Invested Amount with respect to any Transfer Date.
"Controlled Deposit Amount" shall mean, for any Transfer Date with respect to
the Accumulation Period, an amount equal to the sum of the Controlled
Accumulation Amount for such Transfer Date and any Deficit Controlled
Accumulation Amount for the immediately preceding Transfer Date.
"Controlled Accumulation Amount" means (a) for any Transfer Date with respect to
the Accumulation Period prior to the payment in full of the Class A Invested
Amount, $ ; PROVIDED, HOWEVER, that if the commencement of the
Accumulation Period is delayed as described above under "--Postponement of
Accumulation Period," the Controlled Accumulation Amount may be higher, and (b)
for any Transfer Date with respect to the Accumulation Period after the payment
in full of the Class A Invested Amount, an amount equal to the Class B Invested
Amount on such Transfer Date.
"Deficit Controlled Accumulation Amount" means (a) on the first Transfer Date
with respect to the Accumulation Period, the excess, if any, of the Controlled
Accumulation Amount for such Transfer Date over the amount distributed from the
Collection Account as Class A Monthly Principal for such Transfer Date and (b)
on each subsequent Transfer Date with respect to the Accumulation Period, the
excess, if any, of the Controlled Deposit Amount for such subsequent Transfer
Date over the amount distributed from the Collection Account as Class A Monthly
Principal for such subsequent Transfer Date.
ENHANCEMENT; REQUIRED COLLATERAL INVESTED AMOUNT
The subordination of the Class B Certificates and the Collateral Investor
Interest to fund certain payments with respect to the Class A Certificates, and
the subordination of the Collateral Investor Interest to fund certain payments
59
<PAGE>
with respect to the Class B Certificates will constitute "Enhancement" for the
Class A Certificates and the Class B Certificates, respectively. On each
Transfer Date, the minimum amount of the Collateral Investor Interest will be
the Required Collateral Invested Amount. The "Required Collateral Invested
Amount" means, with respect to any Transfer Date, subject to certain limitations
more fully described herein, an amount equal to % of the sum of the Class A
Adjusted Invested Amount and the Class B Invested Amount (after giving effect to
deposits into the Principal Funding Account on such Transfer Date and payments
to be made on the related Distribution Date); provided, however, that if an
Early Amortization Event occurs, then the Required Collateral Invested Amount
shall equal the Required Collateral Invested Amount on the Transfer Date
immediately preceding the occurrence of such Early Amortization Event. With
respect to any Transfer Date, if the Collateral Invested Amount is less than the
Required Collateral Invested Amount, certain Excess Spread and Shared Excess
Yield Collections allocable to Series 1996-1 will be used to increase the
Collateral Invested Amount to the extent of such shortfall. If on any Transfer
Date, the Collateral Invested Amount exceeds the Required Collateral Invested
Amount, distributions in respect of such excess may be applied in accordance
with the Loan Agreement and will not be available to the Certificateholders. See
"--Application of Collections." The Collateral Invested Amount is limited and
will not provide protection against all risks of loss. If losses occur which
exceed the amount covered by the Collateral Invested Amount, Certificateholders
will bear their allocable share of deficiencies.
Enhancement with respect to any other Series or Class thereof issued by the
Trust from time to time may include any letter of credit, guaranteed rate
agreement, maturity guaranty facility, liquidity facility, cash collateral
account, cash collateral guaranty, surety bond, insurance policy, interest rate
cap agreement, interest rate swap agreement, spread account, reserve account or
other similar arrangement for the benefit of the certificateholders of such
Series or Class.
SHARED EXCESS YIELD COLLECTIONS
Certificateholders may be entitled to receive all or a portion of Shared Excess
Yield Collections with respect to another Series to cover any shortfalls with
respect to amounts payable from Yield Collections allocable to Series 1996-1.
Series 1996-1 is the first Series to be issued by the Trust. The Transferor may
cause the Trust to issue additional Series from time to time but there can be no
assurance that the Transferor will do so.
SHARED PRINCIPAL COLLECTIONS
To the extent that Principal Collections and certain other amounts that are
allocated to the invested amount 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. Any such reallocation will not
result in a reduction in the invested amount of the Series to which such
collections were initially allocated. Series 1996-1 is the first Series to be
issued by the Trust. The Transferor may cause the Trust to issue additional
Series from time to time but there can be no assurance that the Transferor will
do so.
DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES; INVESTOR CHARGE-OFFS
On or before each Transfer Date, the Servicer will calculate the Investor
Default Amount for the preceding Collection Period. The term "Investor Default
Amount" means, for any Collection Period, the product of (i) the Floating
Allocation Percentage with respect to such Collection Period and (ii) the amount
of Defaulted Receivables for such Collection 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 Percentage applicable during the related
Collection Period and the Investor Default Amount for such Collection 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 Percentage applicable
during the related Collection Period and the Investor Default Amount for such
Collection Period. The amount of "Defaulted Receivables" for any Collection
Period will be an amount (not less than zero) equal to the result of (a) the
amount of the Receivables that were charged off in such Collection Period less
(b) the amount of recoveries received by the Servicer in such Collection Period
with respect to Receivables previously charged off as uncollectible and less (c)
the full amount of any Defaulted Receivables which were assigned a balance of
zero as a result of their designation as Ineligible Receivables or as to which
the Transferor or the Servicer becomes obligated to accept reassignment for such
Collection Period unless certain events of bankruptcy, insolvency or
receivership have
60
<PAGE>
occurred with respect to the Transferor or the Servicer. Receivables in an
Account will be considered charged off for the purposes of the Agreement on the
earlier of (i) the last day of the month in which such Account becomes 150 days
delinquent on a contractual basis and (ii) the date on which such Account is
charged off in accordance with the customary and usual servicing procedures of
the Servicer.
An amount equal to the Class A Investor Default Amount for each Collection
Period will be funded with Class A Available Funds, Excess Spread and Shared
Excess Yield Collections allocable to Series 1996-1 and Reallocated Principal
Collections applied as described above in "--Application of Collections--Payment
of Interest, Fees and Other Items" and "--Reallocation of Cash Flows." An amount
equal to the Class B Investor Default Amount for each Collection Period will be
funded with Class B Available Funds, Excess Spread and Shared Excess Yield
Collections allocable to Series 1996-1 and Reallocated Collateral Principal
Collections applied as described above in "--Application of Collections--Payment
of Interest, Fees and Other Items" and "--Reallocation of Cash Flows."
On each Transfer Date, if the Class A Required Amount for such Transfer Date
exceeds the sum of (a) Excess Spread and Shared Excess Yield Collections
allocable to Series 1996-1 and (b) Reallocated Principal Collections, then the
Collateral Invested Amount (after giving effect to reductions for any Collateral
Investor Charge-Offs and any Reallocated Collateral 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 Transfer Date. In the
event that such reduction would cause the Collateral Invested Amount to be a
negative number, the Collateral Invested Amount will be reduced to zero, and the
Class B Invested Amount (after giving effect to reductions for any Class B
Investor Charge-Offs and any Rellocated Class B Principal Collections on such
Transfer Date) will be reduced by the amount by which the Collateral Invested
Amount would have been reduced below zero. In the event that such reduction
would cause the Class B Invested Amount to be a negative number, the Class B
Invested Amount will be reduced to zero, and the Class A Invested Amount will be
reduced by the amount by which the Class B Invested Amount would have been
reduced below zero (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 Invested Amount has been reduced by the
amount of any Class A Investor Charge-Offs, it will thereafter be increased 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 and Shared Excess Yield
Collections allocable to Series 1996-1 and available for such purpose as
described above in "--Application of Collections--Excess Spread; Shared Excess
Yield Collections."
On each Transfer Date, if the Class B Required Amount for such Transfer Date
exceeds the sum of (a) Excess Spread and Shared Excess Yield Collections
allocable to Series 1996-1 not required to pay the Class A Required Amount or
reimburse Class A Investor Charge-Offs and (b) Reallocated Collateral Principal
Collections not required to pay the Class A Required Amount, then the Collateral
Invested Amount (after giving effect to reductions for any Collateral Investor
Charge-Offs and any Reallocated Collateral 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 by more than the Class B Investor Default Amount for such
Distribution Date. In the event that such reduction would cause the Collateral
Invested Amount to be a negative number, the Collateral Invested Amount will be
reduced to zero, and the Class B Invested Amount will be reduced by the amount
by which the Collateral Invested Amount would have been reduced below zero (a
"Class B Investor Charge-Off"). If the Class B Invested Amount has been reduced
by the amount of any Class B Investor Charge-Offs, it will thereafter be
increased on any Transfer Date (but not by an amount in excess of the aggregate
Class B Investor Charge-Offs) by the amount of Excess Spread and Shared Excess
Yield Collections allocable to Series 1996-1 and available for such purpose as
described above in "--Application of Collections--Excess Spread; Shared Excess
Yield Collections."
On each Transfer Date, if the Collateral Required Amount for such Transfer Date
exceeds the sum of Excess Spread and Shared Excess Yield Collections which are
allocated and available to fund such amount as described under "--Application of
Collections--Excess Spread; Shared Excess Yield Collections," the Collateral
Invested Amount will be reduced by the amount of such excess, but not by more
than the lesser of the Collateral Default Amount and the Collateral Invested
Amount for such Transfer Date (a "Collateral Investor Charge-Off" and, together
with the Class A Investor Charge-Offs and the Class B Investor Charge-Offs, the
"Investor Charge-Offs"). If the Collateral Invested Amount has been reduced by
the amount of any Collateral Investor Charge-Offs, it will thereafter be
increased on
61
<PAGE>
any Transfer Date (but not by an amount in excess of the aggregate Collateral
Investor Charge-Offs) by the amount of Excess Spread and Shared Excess Yield
Collections allocable to Series 1996-1 and available for such purpose as
described above in "--Application of Collections--Excess Spread; Shared Excess
Yield Collections."
If the Servicer makes a downward adjustment of the amount of any Receivable
because of a rebate, refund, unauthorized charge, billing error or certain other
noncash items, or if the Servicer otherwise adjusts downward the amount of any
Receivable without receiving collections therefor or charging off such amount as
uncollectible, or any Receivable is discovered as having been created through a
fraudulent or counterfeit action (each, an "Adjustment"), the aggregate balance
of the Receivables will be reduced by the amount of such Adjustments. To the
extent that such reduction in the aggregate balance of the Receivables would
cause the Transferor Amount to be less than zero, the Transferor shall deposit
an amount sufficient to prevent the Transferor Amount from being reduced below
zero. Any such deposit into the Collection Account shall be deemed a Principal
Collection.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
The Certificates will be subject to optional repurchase by the Transferor on any
Distribution Date on or after the Distribution Date on which the Invested Amount
is reduced to an amount less than or equal to 5% of the Initial Invested Amount,
if certain conditions set forth in the Agreement are met. The repurchase price
will be equal to the Invested Amount plus accrued and unpaid interest on the
Certificates and the Collateral Investor Interest.
The Certificates will be retired on the day following the Distribution Date on
which the final payment of principal is made to the Certificateholders, whether
as a result of optional reassignment to the Transferor or otherwise. The final
distribution of principal and interest on the Certificates will be made no later
than the Series 1996-1 Termination Date. If the Invested Amount is greater than
zero on the Series 1996-1 Termination Date, the Trustee will sell or cause to be
sold certain Receivables (in an amount up to 110% of the Invested Amount and any
other amounts specified in the Agreement) in the manner provided in the
Agreement and pay the net proceeds of such sale and any collections on the
Receivables, up to an amount equal to the Invested Amount plus accrued interest
due on the Certificates and any other amounts specified in the Agreement, to the
Certificateholders on such Series 1996-1 Termination Date as final payment of
the Certificates.
Unless the Transferor instructs the Trustee otherwise, the Trust will only
terminate on the earlier to occur of: (a) the day following the day on which the
aggregate invested amounts of all Series and any amounts payable to Enhancement
providers is zero , (b) or (c) if the Receivables are sold, disposed of or
liquidated following the occurrence of certain events of insolvency,
conservatorship or receivership relating to the Transferor, immediately
following such sale, disposition or liquidation (such date, the "Trust
Termination Date"). Upon the termination of the Trust and the surrender of the
Exchangeable Transferor Certificate, the Trustee shall convey to the Transferor
all right, title and interest of the Trust in and to the Receivables and other
funds of the Trust (other than amounts in the accounts maintained by the Trust
for the final payment of principal and interest to Certificateholders).
EARLY AMORTIZATION EVENTS
An "Early Amortization 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) or
(ii) duly to observe or perform in any material respect any other covenants or
agreements of the Transferor set forth in the Agreement or the Series 1996-1
Supplement, which failure in the case of clause (ii) hereof continues unremedied
for a period of 60 days after written notice thereof and continues to materially
and adversely affect the interests of the Certificateholders 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 and continues to be incorrect in any material respect for a period of 60
days after written notice thereof and as a result of which the interests of the
Certificateholders are materially and adversely affected and continue to be
materially and adversely affected for such period; PROVIDED, HOWEVER, that an
Early Amortization Event pursuant to this subparagraph (b) shall not be deemed
to occur if during such 60- day period (or such longer period as the Trustee may
specify) the Transferor has accepted designation of the related Receivable or
all such Receivables, if applicable, as Ineligible Receivables or reassignment
of such Receivables in accordance with the provisions of the Agreement;
62
<PAGE>
(c) certain events of insolvency, conservatorship or receivership relating to
the Transferor (such events include the appointment (voluntary or involuntary)
of a conservator, receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings relating to
the Transferor or all or substantially all of its property; the Transferor
admitting in writing its inability to pay its debts as they become due, filing a
petition to take advantage of an insolvency or reorganization statute, making an
assignment for the benefit of its creditors or voluntarily suspending payment of
its obligations; and the Transferor being unable to transfer Receivables to the
Trust in accordance with the Agreement);
(d) failure by the Transferor to transfer Receivables in Additional Accounts to
the Trust when required pursuant to the Agreement;
(e) any Servicer Default occurs which would have a material adverse effect on
the Certificateholders;
(f) the Trust becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;
(g) insufficient moneys in the Principal Funding Account to pay the Class A
Invested Amount in full on the Class A Expected Final Payment Date or in the
Collection Account to pay the Class B Invested Amount in full on the Class B
Expected Final Payment Date; or
(h) on any Determination Date the Collateral Invested Amount is less than the
Required Collateral Invested Amount.
In the case of any event described in clause (a), (b) or (e) above, an Early
Amortization Event will be deemed to have occurred with respect to the
Certificates only if, after any applicable grace period, either the Trustee or
Certificateholders (including, for this purpose, the Collateral Interest Holder)
evidencing undivided interests aggregating more than 50% of the Invested Amount,
by written notice to the Transferor and the Servicer (and to the Trustee if
given by the Certificateholders) declare that an Early Amortization Event has
occurred with respect to the Certificates as of the date of such notice. In the
case of any event described in clause (c) or (f), an Early Amortization Event
with respect to all Series then outstanding, and in the case of any event
described in clause (d), (g) or (h), an Early Amortization 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 or all
certificateholders, as appropriate, immediately upon the occurrence of such
event. On the date on which an Early Amortization Event is deemed to have
occurred, the Early Amortization Period will commence. If, because of the
occurrence of an Early Amortization Event, the Early Amortization Period begins
earlier than the Class A Expected Final Payment Date or the Class B Expected
Final Payment Date, Certificateholders will begin receiving distributions of
principal earlier than they otherwise would have, which may shorten the average
life of the Certificates.
If the only Early Amortization Event to occur is either the insolvency of the
Transferor or the appointment of a receiver or conservator for the Transferor,
the receiver or conservator for the Transferor may have the power to delay or
prevent commencement of the Early Amortization Period.
In addition to the consequences of an Early Amortization Event discussed above,
if the Transferor voluntarily enters liquidation or any person is appointed a
receiver or conservator of the Transferor, on the day of such liquidation or
appointment the Transferor will immediately cease to transfer Receivables to the
Trust and the Transferor will promptly give notice to the Trustee of such
appointment. Within 15 days, the Trustee will publish a notice of the
liquidation or the appointment stating that the Trustee intends to sell, dispose
of or otherwise liquidate the Receivables in a commercially reasonable manner
and to the best of its ability. Unless otherwise instructed within a specified
period by the Certificateholders representing undivided interests aggregating
more than 50% of the invested amount of each Series (or if any Series has more
than one Class, of each Class of such Series) and each Enhancement Provider, the
Trustee will sell, dispose of or otherwise liquidate the portion of the
Receivables allocated to the Certificates and the Receivables allocable to any
other Series that did not vote to continue the Trust in accordance with the
Agreement in a commercially reasonable manner and on commercially reasonable
terms. The proceeds from the sale, disposition or liquidation of the Receivables
will be treated as collections and will be applied as provided above in
"--Application of Collections." If the portion of such proceeds allocated to the
Invested Amount and the proceeds of any other amounts allocable to the
Certificates under the Agreement are not sufficient to pay in full the remaining
amount due on the Certificates, the Certificateholders will suffer a
corresponding loss. See "Certain Legal Aspects of the Receivables--Certain
Matters Relating to Receivership."
63
<PAGE>
INDEMNIFICATION
The Agreement provides that the Servicer will indemnify the Trust, for the
benefit of Certificateholders, and the Trustee, including its officers,
directors and employees, from and against any loss, liability, expense, damage
or injury arising out of or relating to any claims, actions or proceedings
brought or asserted by third parties which are suffered or sustained by reason
of any acts or omissions of the Servicer pursuant to the Agreement; PROVIDED,
HOWEVER, that the Servicer shall not indemnify the Trust for the benefit of
Certificateholders or the Trustee or its officers, directors or employees for
any liabilities, costs or expenses with respect to (i) any action taken by the
Trustee at the request of Certificateholders, (ii) any U.S. federal, state or
local income or franchise taxes required to be paid by the Trust, the Trustee or
the Certificateholders or (iii) with respect to the Trustee and its officers,
directors and employees, any wrongful actions taken by or omissions of the
Trustee.
Under the Agreement, the Transferor will be liable directly to an injured party
for the entire amount of any losses, claims, damages or liabilities (other than
those incurred by a Certificateholder in the capacity of an investor in the
Certificates) arising out of or based on the arrangement created by the
Agreement or the actions of the Servicer taken pursuant to the Agreement as
though the Agreement created a partnership under the Uniform Partnership Act.
The Transferor will also pay, indemnify and hold harmless each Certificateholder
for any such losses, claims, damages or liabilities (other than those incurred
by a Certificateholder in the capacity of an investor in the Certificates)
except to the extent that they arise from any action by any Certificateholder.
In the event of a Service Transfer, the successor Servicer will indemnify the
Transferor for any losses, claims, damages and liabilities of the Transferor as
described in this paragraph arising from the actions or omissions of such
successor Servicer.
Except as provided in the preceding paragraph, the Agreement provides that none
of the Transferor, the Servicer or any of their directors, officers, employees
or agents will be under any other liability to the Trust, the Trustee, the
Certificateholders, any Enhancement provider or any other person for any action
taken, or for refraining from taking any action, in good faith pursuant to the
Agreement. However, none of the Transferor, the Servicer or any of their
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 any such person in the performance of their duties.
In addition, the Agreement provides 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. The Servicer
may, in its sole discretion, undertake any such legal action which it may deem
necessary or desirable for the benefit of Certificateholders with respect to the
Agreement and the rights and duties of the parties thereto and the interest of
the Certificateholders thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Agreement, the Servicer, whether acting itself or through one or
more subservicers, will be responsible for servicing, collecting, enforcing and
administering the Receivables in accordance with the policies and procedures and
the degree of skill and care applied or exercised with respect to charge card
receivables owned by the Servicer or any subservicer. The Servicer and any
subservicer 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 receivables covering such actions
and in such amounts as the Servicer believes to be reasonable from time to time.
Servicing activities performed by the Servicer with respect to the Accounts
include collecting and recording payments, communicating with cardholders,
investigating payment delinquencies, providing billing records to cardholders
and maintaining internal records. Managerial and custodial services performed by
the Servicer on behalf of the Trust include providing assistance in any
inspections of the documents and records relating to the Accounts and
Receivables by the Trustee pursuant to the Agreement, maintaining the
agreements, documents and files relating to the Accounts and Receivables as
custodian for the Trust and providing related data processing and reporting
services for Certificateholders and on behalf of the Trustee.
64
<PAGE>
SERVICER COVENANTS
In the Agreement, the Servicer covenants to the Certificateholders and the
Trustee as to each Receivable and related Account that: (i) it will duly fulfill
all obligations on its part to be fulfilled under or in connection with the
Receivable or Account, and will maintain in effect all qualifications required
in order to service the Receivable or Account and will comply with all
applicable requirements of law in connection with servicing the Receivable and
the Account, the failure to comply with which would have a material adverse
effect on Certificateholders (without regard to the amount of any Enhancement);
(ii) it will not permit any rescission or cancellation of the Receivable, except
as ordered by a court of competent jurisdiction or except in accordance with the
Servicer's usual and customary servicing practices; and (iii) it will do nothing
to impair the rights of the Certificateholders in the Receivables and will not
reschedule, revise or defer payments due on the Receivables, except in
accordance with the Servicer's usual and customary servicing practices.
Under the terms of the Agreement, the Servicer will be obligated to accept the
transfer of any Receivable if it discovers, or receives written notice from the
Trustee, that (i) any covenant of the Servicer set forth above has not been
complied with in respect of such Receivable or (ii) the Servicer has not
complied in all material respects with all applicable requirements of law
applicable to the Receivables or Accounts, and in either case such noncompliance
has not been cured within 60 days thereafter and the Receivable has been charged
off as uncollectible or the proceeds of the Receivables are not available to the
Trust. Such assignment and transfer will be made when the Servicer deposits an
amount equal to the amount of such Receivable into the Collection Account on the
business day preceding the Distribution Date following the Collection Period
during which such obligation arises. The amount of such deposit shall be deemed
a payment in respect of the related Receivable and will be treated under the
Agreement in the same manner as are payments received by the Servicer from
cardholders under the Accounts. Any amounts so paid by the Servicer shall be
allocated in respect of Principal Collections and Yield Collections as provided
in the Agreement. This transfer and assignment to the Servicer constitutes the
sole remedy available to the Certificateholders if such covenant or warranty of
the Servicer is not satisfied and the Trust's interest in any such reassigned
Receivables shall be automatically assigned to the Servicer.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities is a monthly servicing
fee (the "Servicing Fee"). The share of the Servicing Fee allocable to the
Certificateholders with respect to any Transfer Date (the "Monthly Investor
Servicing Fee") will be equal to one-twelfth of the product of (a) % (the
"Servicing Fee Percentage") and (b) the Adjusted Invested Amount as of the last
day of the second preceding Collection Period (the amount calculated pursuant to
this clause (b) is referred to as the "Servicing Base Amount"); PROVIDED,
HOWEVER, with respect to the first Transfer Date, the Monthly Investor Servicing
Fee will be equal to the product of (x) the Servicing Fee Percentage, (y) the
Initial Invested Amount and (z) a fraction, the numerator of which is equal to
the number of days in the period from and including the Closing Date through the
day preceding the initial Distribution Date and the denominator of which is 360.
On each Transfer Date, Servicer Interchange with respect to the related
Collection Period that is on deposit in the Collection Account shall be
withdrawn from the Collection Account and paid to the Servicer in payment of a
portion of the Monthly Investor Servicing Fee with respect to such Collection
Period. The "Servicer Interchange" for any Collection Period or portion thereof
during which Card Services or any of its affiliates is acting as Servicer under
the Agreement will be equal to the product of (a) the Floating Allocation
Percentage for such Collection Period and (b) the portion of Yield Collections
with respect to such Collection Period that is attributable to Net Interchange;
PROVIDED, HOWEVER, that Servicer Interchange for a Collection Period shall not
exceed one-twelfth of the product of (i) the Servicing Base Amount and (ii) %.
In the case of any insufficiency of Servicer Interchange on deposit in the
Collection Account, a portion of the Monthly Investor Servicing Fee with respect
to such Collection Period will not be paid to the extent of such insufficiency
until the Transfer Date or Dates with respect to which Servicer Interchange is
available in the Collection Account prior to giving effect to the payment of the
portion of the Monthly Investor Servicing Fee constituting Servicer Interchange
for such Transfer Date or Dates. 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.
65
<PAGE>
The share of the Monthly Investor Servicing Fee allocable to the Class A
Certificateholders (after giving effect to the distribution of any Servicer
Interchange to the Servicer) with respect to any Transfer Date (the "Class A
Servicing Fee") will be equal to one-twelfth of the product of (a) the Class A
Adjusted Invested Amount as of the last day of the second preceding Collection
Period and (b) % (the "Net Servicing Fee Rate"); PROVIDED, HOWEVER, that with
respect to the first Transfer Date, the Class A Servicing Fee will be equal to
the product of (x) the Class A Initial Invested Amount, (y) the Net Servicing
Fee Rate and (z) a fraction, the numerator of which is equal to the number of
days in the period from and including the Closing Date through the day preceding
the initial Distribution Date, and the denominator of which is 360. The share of
the Monthly Investor Servicing Fee allocable to the Class B Certificateholders
(after giving effect to any distribution of Servicer Interchange to the
Servicer) with respect to any Transfer Date (the "Class B Servicing Fee") will
be equal to one-twelfth of the product of (a) the Class B Invested Amount as of
the last day of the second preceding Collection Period and (b) the Net Servicing
Fee Rate; provided, however, that with respect to the first Transfer Date, the
Class B Servicing Fee will be equal to the product of (x) the Class B Initial
Invested Amount, (y) the Net Servicing Fee Rate and (z) a fraction, the
numerator of which is equal to the number of days in the period from and
including the Closing Date through the day preceding the initial Distribution
Date and the denominator of which is 360. The share of the Monthly Investor
Servicing Fee allocable to the Collateral Interest Holder (after giving effect
to the distribution of any Servicer Interchange to the Servicer) with respect to
any Transfer Date (the "Collateral Servicing Fee") will be equal to one-twelfth
the product of (a) the Net Servicing Fee Rate and (b) the Collateral Invested
Amount as of the last day of the second preceding Collection Period; provided,
however, that with respect to the first Transfer Date, the Collateral Servicing
Fee will be equal to the product of (x) the Net Servicing Fee Rate, (y) the
Collateral Initial Invested Amount and (z) a fraction the numerator of which is
equal to the number of days in the period from and including the Closing Date
through the day preceding the initial Distribution Date, and the denominator of
which is 360. The remainder of the Servicing Fee shall be paid by First Bank or
the certificateholders of 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 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 by First Bank or the certificateholders of any
other Series or to be paid out of Servicer Interchange. The Class A Servicing
Fee, the Class B Servicing Fee and the Collateral Servicing Fee shall be payable
to the Servicer solely to the extent amounts are available for distribution in
respect thereof as described under "--Payment of Interest, Fees and Other Items"
above.
The Servicer will pay from its servicing compensation certain expenses incurred
in connection with servicing the Accounts and the Receivables including, without
limitation, expenses related to enforcement of the Receivables, payment of fees
and disbursements of the Trustee and independent accountants and all other fees
and expenses which are not expressly stated in the Agreement to be payable by
the Trust or the Certificateholders other than federal, state and local income
and franchise taxes, if any, of the Trust.
CERTAIN MATTERS REGARDING THE SERVICER AND THE TRANSFEROR
The Servicer may not resign from its obligations and duties under the Agreement,
except upon determination that such duties are impermissible under applicable
law, regulation or order. 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 Agreement.
Card Services, as Servicer, will be permitted under the Agreement to delegate
certain of its servicing obligations. Notwithstanding any such delegation, Card
Services, as Servicer, will continue to be liable for all of its obligations as
Servicer under the Agreement.
Any person into which, in accordance with the Agreement, any of the Transferor
or the Servicer may be merged or consolidated or any person resulting from any
merger or consolidation to which any of the Transferor or the Servicer is a
party, or any person succeeding to the business of any of the Transferor or the
Servicer, will be the successor to the Transferor or the Servicer, as the case
may be, under the Agreement.
66
<PAGE>
SERVICER DEFAULT
In the event of any Servicer Default (as defined below), either the Trustee or
Certificateholders evidencing undivided interests aggregating more than 50% of
the aggregate principal balance of all Series, 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, in its capacity as servicer under
the Agreement, with respect to all of the Receivables held by the Trust with
respect to all Series, and the proceeds thereof, and the Trustee shall
thereafter appoint a new Servicer (a "Service Transfer"). The rights and
interests of the Transferor under the Agreement in the Transferor Interest will
not be affected by any Service Transfer. The Transferor shall have the right,
exercisable at any time within 60 days of the giving of the notice of
termination as described above, to nominate to the Trustee a potential successor
Servicer. The Trustee shall as promptly as possible appoint the entity nominated
by the Transferor if such entity meets certain eligibility criteria set forth in
the Agreement. If the Transferor does not nominate an entity to be successor
Servicer within such 60 day period, the Trustee shall as promptly as possible
appoint a successor Servicer, and if no successor Servicer has been appointed by
the Trustee 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 will pass to, and be vested in, the Trustee. Prior to any Service
Transfer, the Trustee will seek to obtain bids from potential Servicers meeting
certain eligibility requirements set forth in the Agreement to serve as a
successor Servicer for servicing compensation not in excess of the Servicing
Fee. 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 related Servicer Default, then the Trustee will offer the
Transferor the right to accept the retransfer of all of the Receivables. The
deposit amount of such a retransfer for the Certificates shall be equal to the
sum of the Invested Amount plus accrued and unpaid interest on the Certificates
and Collateral Investor Interest.
A "Servicer Default" refers to any of the following events:
(i) failure by the Servicer to make any payment, transfer or deposit, or to give
instructions to the Trustee to make any withdrawal, on the date the Servicer is
required to do so under the Agreement or any Series Supplement (upon expiration
of a five day grace period), PROVIDED, HOWEVER, that any such failure caused by
a nonwillful act of the Servicer shall not constitute a Servicer Default if the
Servicer promptly remedies such failure within five business days after
receiving notice thereof;
(ii) failure on the part of the Servicer duly to observe or perform any other
covenants or agreements of the Servicer in the Agreement or any Series
Supplement which has a material adverse effect on the certificateholders of any
Series issued and outstanding (without regard to the amount of any Enhancement),
which continues unremedied for a period of 60 days after written notice and
which continues to materially adversely affect the rights of such
certificateholders, or the Servicer assigns its duties under the Agreement,
except as specifically permitted thereunder;
(iii) any representation, warranty or certification made by the Servicer in the
Agreement or any Series Supplement or in any certificate delivered pursuant to
the Agreement or any Series Supplement proves to have been incorrect when made,
which has a material adverse effect on the rights of the certificateholders of
any Series issued and outstanding (without regard to the amount of any
Enhancement), and continues to be incorrect in any material respect for a period
of 60 days after written notice and continues to materially adversely affect the
rights of such certificateholders; or
(iv) the occurrence of certain events of bankruptcy or insolvency relating to
the Servicer (such events include the appointment (voluntary or involuntary) of
a conservator, receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings relating to the
Servicer or all or substantially all of its property and the Servicer admitting
in writing its inability to pay its debts as they become due, filing a petition
to take advantage of an insolvency or reorganization statute, making an
assignment for the benefit of its creditors or voluntarily suspending payment of
its obligations).
Notwithstanding the foregoing, a delay in or failure of performance referred to
under clause (i) above for a period of 10 business days after the applicable
grace period or a delay in or failure of performance referred to under clauses
(ii) or (iii) for a period of 60 business days after the applicable grace period
shall not constitute a Servicer Default, if such delay or failure could not have
been prevented by the exercise or reasonable diligence by the Servicer and such
67
<PAGE>
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 reasonable efforts to perform its obligations in a timely manner in
accordance with the terms of the Agreement or any Series Supplement and the
Servicer shall provide the Trustee and the provider of Enhancement, if any,
applicable to any Series, the Transferor and the certificateholders of each
Series issued and outstanding prompt notice of such failure or delay by it,
together with a description of its efforts to so perform its obligations. The
Servicer will immediately notify the Trustee in writing of any Servicer Default.
REPORTS TO CERTIFICATEHOLDERS
Prior to each Distribution Date, the Servicer will forward to the Trustee a
statement (the "Monthly Servicer Report") prepared by the Servicer (as
determined on the fifth business day prior to such Distribution Date (the
"Determination Date")) setting forth certain information with respect to the
Trust and the Certificates, including: (a) the aggregate amount of collections,
the aggregate amount of Yield Collections and the aggregate amount of Principal
Collections processed during the immediately preceding Collection Period; (b)
the applicable allocation percentages with respect to Yield Collections and
Principal Collections for such Collection Period; (c) the total amount to be
deposited in the Principal Funding Account; (d) the aggregate outstanding
balance of the Accounts which were delinquent by 30 days, 60 days, 90 days and
120 days or more as of the billing date for each such Account occurring in the
Collection Period immediately preceding such Distribution Date; (e) the Investor
Default Amount for the Collection Period immediately preceding such Distribution
Date; (f) the amount of Investor Charge-Offs and the amount of reimbursements
thereof for the Collection Period immediately preceding such Distribution Date;
(g) the amount of the Monthly Investor Servicing Fee for the Collection Period
immediately preceding such Distribution Date; (h) the aggregate amount of
Receivables in the Trust at the close of business on the last day of the
Collection Period preceding such Distribution Date; (i) the Invested Amount at
the close of business on the last day of the Collection Period immediately
preceding such Distribution Date; and (j) whether an Early Amortization Event
shall have occurred. The Trustee will make such statement available to the
Certificateholders or Certificate Owners upon request.
On each Interest Payment Date (including the Class A Expected Final Payment Date
and the Class B Expected Final Payment Date) or Special Payment Date, as the
case may be, the Paying Agent, on behalf of the Trustee, will forward to each
Certificateholder of record a statement (the "Payment Date Statement") prepared
by the Servicer setting forth the information with respect to the Certificates
set forth in the Monthly Servicer Report supplied to the Trustee as described in
the preceding paragraph since the immediately preceding Interest Payment Date or
Special Payment Date, as the case may be, and the following additional
information (which, in the case of (a), (b) and (c) below, will be stated on the
basis of an original principal balance of $1,000 per Certificate): (a) the total
amount distributed; (b) the amount of such distribution allocable to principal;
(c) the amount of such distribution allocable to interest; (d) the amount, if
any, by which the principal balance of the Certificates exceeds the Invested
Amount as of the Record Date with respect to such Interest Payment Date or
Special Payment Date; and (e) the "series factor" as of the end of the Record
Date with respect to such Interest Payment Date or Special Payment Date
(consisting of an eight-digit decimal expressing the Invested Amount as of such
Record Date (determined after taking into account any increase or decrease in
the Invested Amount which will occur on the following Interest Payment Date or
Special Payment Date) as a proportion of the Initial Invested Amount).
The fiscal year of the Trust ends on December 31 in each year. On or before
January 31 of each calendar year, beginning with January 31, 1997, the Paying
Agent, on behalf of the Trustee, will furnish or cause to be furnished to each
person who at any time during the preceding calendar year was a
Certificateholder of record (or, if so provided in applicable Treasury
regulations, made available to Certificate Owners) a statement prepared by the
Servicer containing the information required to be provided by an issuer of
indebtedness under the Code for such calendar year or the applicable portion
thereof during which such person was a Certificateholder, together with such
other customary information as the Servicer deems necessary or desirable to
enable the Certificateholders to prepare their tax returns.
68
<PAGE>
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that on or before April 30 of each calendar year,
beginning on April 30, 1998, the Servicer will cause a firm of nationally
recognized independent accountants to furnish a report to the effect that such
firm has applied procedures, as agreed upon between such firm and the Servicer,
to certain documents and records relating to the servicing of the Receivables
and that, based upon such agreed-upon procedures, no matters came to their
attention that caused them to believe that such servicing was not conducted in
compliance with certain applicable terms and conditions set forth in the
Agreement except for such exceptions or errors as shall be set forth in such
statement. In addition, on or before April 30 of each calendar year, beginning
with April 30, 1998, such accountants will compare the mathematical calculations
of the amounts contained in the Monthly Servicer Reports and other certificates
delivered during the preceding calendar year with the computer reports of the
Servicer and statements of any agents engaged by the Servicer to perform
servicing activities which were the source of such amounts and deliver a
certificate to the Trustee stating that such amounts are in agreement except for
such exceptions which shall be set forth in such report.
The Agreement will provide for delivery to the Trustee on or before April 30 of
each calendar year, beginning with April 30, 1998, of a statement signed by an
officer of the Servicer to the effect that the Servicer has, or has caused to
be, fully performed its obligations in all material respects 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.
Copies of all statements, certificates and reports furnished to the Trustee may
be obtained by a request in writing delivered to the Trustee. See "--The
Trustee."
AMENDMENTS
The Agreement may be amended by the Transferor, the Servicer and the Trustee,
without Certificateholder consent, to cure any ambiguity, to correct or
supplement any provision therein which may be inconsistent with any other
provision therein and to add any other provisions with respect to matters or
questions arising under the Agreement which are not inconsistent with the
provisions of the Agreement. In addition, the Agreement may be amended from time
to time by the Transferor, the Servicer and the Trustee, without
Certificateholder consent, for the purpose of adding any provisions to, changing
in any manner or eliminating any of the provisions of the Agreement or of
modifying in any manner the rights of certificateholders of any Series then
issued and outstanding provided that (i) the Servicer must provide an opinion of
counsel to the Trustee to the effect that such amendment will not materially and
adversely affect the interests of the certificateholders of any outstanding
Series, which opinion of counsel may rely as to any rated Series solely on the
rating confirmation referred to in clause (iii) below (or 100% of the Class of
certificateholders so affected shall have consented), (ii) such amendment shall
not, as evidenced by an opinion of counsel, cause the Trust to be characterized
for federal income tax purposes as an association taxable as a corporation or
otherwise have any material adverse impact on the federal income tax status of
any outstanding Series of certificates or the federal income taxation of any
certificate owner and (iii) the applicable Rating Agency shall confirm that such
amendment shall not cause a reduction or withdrawal of the rating of any
outstanding Series of certificates. Any Series Supplement and any amendments
regarding the addition or removal of Receivables from the Trust will not require
Certificateholder consent under the provisions of the Agreement.
The Agreement may also be amended by the Transferor, the Servicer and the
Trustee with the consent of the holders of certificates evidencing undivided
interests aggregating not less than 66 2/3% of the principal balance of all
Series adversely affected for the purpose of adding any provisions to, changing
in any manner or eliminating any of the provisions of the Agreement or of
modifying in any manner the rights of certificateholders of any Series then
issued and outstanding. Any such amendment shall require that the applicable
Rating Agency confirm that such amendment will not cause a reduction or
withdrawal of the rating of any outstanding Series of certificates. No such
amendment, however, may (i) reduce in any manner the amount of, or delay the
timing of, distributions required to be made on such Series, (ii) change the
definition or the manner of calculating the invested amount, the invested
percentage, the applicable available amount under any Enhancement or the
investor default amount of such Series, or (iii) 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 all
Series adversely affected.
69
<PAGE>
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 of all Series (or with respect to an amendment of a Series
Supplement, to the applicable Series).
LIST OF CERTIFICATEHOLDERS
Upon written request of any certificateholder or group of certificateholders of
record representing undivided interests in the Trust aggregating not less than
10% of the invested amount of a Series, the Trustee 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.
The Agreement generally does not provide for any annual or other meetings of
certificateholders.
THE TRUSTEE
Citibank, N.A. will be Trustee under the 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; however, any Certificates so held shall not be
entitled to participate in any decisions made or instructions given to the
Trustee by the Certificateholders as a group. The Trustee's Corporate Trust
Office is located at 120 Wall Street, New York, New York 10043.
For purposes of meeting the legal requirements of certain local jurisdictions,
the Trustee will 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 will be
conferred or imposed upon and exercised or performed by the Trustee and such
separate trustee or co-trustee jointly, or, in any jurisdiction in which the
Trustee will 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 a successor Trustee will be
appointed as provided in the Agreement. The Servicer 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, a
successor Trustee will be appointed as provided in the Agreement. 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.
70
<PAGE>
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Transferor will covenant and warrant that the transfer of Receivables by it
to the Trust constitutes either a valid transfer and assignment to the Trust of
all right, title and interest of the Transferor in and to the Receivables,
except for the interest of the Transferor as holder of the Exchangeable
Transferor Certificate, or a grant of a security interest to the Trust in and to
the Receivables. The Transferor will also covenant and warrant to the Trust in
the Agreement that, in the event the transfer of Receivables by the Transferor
to the Trust is deemed to create a security interest under the UCC and assuming
that the Transferor is not at the time the subject of any insolvency
proceedings, there exists a valid, subsisting and enforceable first priority
perfected security interest in the Receivables in existence since the time of
the formation of the Trust in favor of the Trust and a valid, subsisting and
enforceable first priority perfected security interest in the Receivables
created thereafter and, with certain exceptions, and for certain limited time
periods, the proceeds thereof, in favor of the Trust on and after their
creation.
The Receivables are "accounts" or "general intangibles" as defined in Article 9
of the UCC. The absolute transfer of accounts and the transfer of accounts and
general intangibles 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, including the filing of financing statements to perfect the Trust's
security interest. Financing statements covering the Receivables will be filed
under the applicable UCC to protect the Trust. The absolute transfer of general
intangibles is not governed by Article 9 of the UCC but by applicable state law.
There are certain limited circumstances under the UCC in which prior or
subsequent transferees of Receivables coming into existence after the date on
which such Receivables are transferred to the Trust could have an interest in
such Receivables with priority over the Trust's interest. A tax or other
government 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 Receivables. 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 Receivables. Under the
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, except
certain permitted tax liens. In addition, the Transferor 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.
Unless continuation statements are filed within the time specified in the UCC in
respect of the security interest of the Trust in the Receivables, the perfection
of such interest will lapse.
As set forth under "Description of the Certificates--Allocation of Collections;
Deposits in Collection Account," cash collections of Receivables will, except in
certain circumstances, be available for use by the Servicer until deposited into
the Collection Account on the business day preceding each Distribution Date. In
the event of insolvency or receivership of the Servicer or, in certain
circumstances, the lapse of certain time periods, the Trust may not have a
perfected interest in such cash collections.
CERTAIN MATTERS RELATING TO RECEIVERSHIP
The Federal Deposit Insurance Act ("FDIA"), as amended by the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), which
became effective August 9, 1989, sets forth certain powers that the FDIC could
exercise if it were appointed as receiver or conservator of the Transferor.
Among other things, the FDIA grants such a conservator or receiver the power to
repudiate contracts of, and to request a stay of up to 90 days of any judicial
action or proceeding involving, the Transferor.
To the extent that (i) the Transferor granted a security interest in the
Receivables to the Trust, (ii) the interest was validly perfected before the
Transferor's insolvency, (iii) the interest was not taken or granted in
contemplation of the Transferor's insolvency or with the intent to hinder, delay
or defraud the Transferor or its creditors, (iv) the Agreement is continuously a
record of the Bank, and (v) the Agreement represents a bona fide and arm's
length transaction undertaken for adequate consideration in the ordinary course
of business and that the Trustee is the secured party and is not an insider or
affiliate of the Transferor, such valid perfected security interest of the
Trustee would be enforceable (to the extent of the Trust's "actual direct
compensatory damages") notwithstanding the
71
<PAGE>
insolvency of, or the appointment of a receiver or conservator for, the
Transferor and payments to the Trust with respect to the Receivables (up to the
amount of such damages) should not be subject to an automatic stay of payment or
to recovery by the FDIC as conservator or receiver of the Transferor. If,
however, the FDIC were to assert that the security interest was unperfected or
unenforceable or were to require the Trustee to establish its right to those
payments by submitting to and completing the administrative claims procedure
established under FIRREA, or the conservator or receiver were to request a stay
of proceedings with respect to the Transferor as provided under FIRREA, delays
in payments on the Certificates and possible reductions in the amounts of those
payments could occur. The FDIA does not define the term "actual direct
compensatory damages." On April 10, 1990, the RTC, formerly a sister agency of
the FDIC, adopted a statement of policy (the "RTC Policy Statement") with
respect to the payment of interest on collateralized borrowings. The RTC Policy
Statement states that interest on such borrowings will be payable at the
contract rate up to the date of the redemption or payment by the conservator,
receiver, or the trustee of an amount equal to the principal owed plus the
contract rate of interest up to the date of such payment or redemption, plus any
expenses of liquidation if provided for in the contract, to the extent secured
by the collateral. In a 1993 case involving zero-coupon bonds, however, a
federal district court held that the RTC was instead obligated to pay
bondholders the fair market value of repudiated bonds as of the date of
repudiation. The FDIC itself has not adopted a policy statement on payment of
interest on collateralized borrowings.
The Agreement will provide that, upon the appointment of a receiver or
conservator for the Transferor, the Transferor will promptly give notice thereof
to the Trustee, and an Early Amortization Event with respect to all Series will
occur. Under the Agreement no new Receivables will be transferred to the Trust
and, unless otherwise instructed within a specified period by the holders of
certificates representing undivided interests aggregating more than 50% of the
aggregate principal balance of each Class of each Series and, if specified in
the related Prospectus Supplement, the Enhancement provider with respect to such
Series, or unless otherwise required by the receiver or conservator for the
Transferor, the Trustee will proceed to sell, dispose of or otherwise liquidate
the Receivables in a commercially reasonable manner and on commercially
reasonable terms. The proceeds from the sale of the Receivables would then be
treated by the Trustee as collections on the Receivables. If the only Early
Amortization Event to occur is either the insolvency of the Transferor or the
appointment of a receiver or conservator for the Transferor, such receiver or
conservator may have the power to require the Transferor to continue to transfer
new Receivables to the Trust, and to prevent the early sale, liquidation or
disposition of the Receivables and the commencement of the Early Amortization
Period.
In OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir. 1993), CERT.
DENIED, 114 S. Ct. 554 (1993), the United States Court of Appeals for the 10th
Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's estate in a bankruptcy of the seller. If the Transferor
were to be placed into receivership and a court were to follow the OCTAGON
court's reasoning, Certificateholders might experience delays in payment or
possibly losses in their investment in the Certificates. Counsel has advised the
Transferor that the facts of the OCTAGON case are distinguishable from those in
the sale transactions between the Transferor and the Trust and that the
reasoning of the OCTAGON case appears to be inconsistent with established
precedent and the UCC. In addition, because the Transferor, the Trust and the
transactions governed by the Agreement do not have any particular link to the
10th Circuit, it is unlikely that the Transferor would be subject to a
receivership proceeding in the 10th Circuit. Accordingly, the OCTAGON case
should not be binding precedent on a court in a receivership proceeding.
CONSUMER PROTECTION LAWS
The relationship between the cardholder and charge card issuer is extensively
regulated by federal and state consumer protection statutes. With respect to
charge cards issued by the Transferor the most significant federal laws include
the federal Truth-In-Lending and Equal Credit Opportunity Acts. These statutes
and certain state laws impose disclosure requirements before and when an Account
is opened, at the end of monthly billing cycles and at year-end and, in
addition, limit cardholder liability for unauthorized use, prohibit certain
discriminatory practices in extending credit, impose certain limitations on the
type of account-related charges that may be issued and regulate collection
practices. In addition, cardholders are entitled under these laws to have
payments and credits applied to the charge card account promptly and to require
billing errors to be resolved promptly. The Trust may be liable for certain
violations
72
<PAGE>
of consumer protection laws that apply to the Receivables, either as assignee
from the Transferor with respect to obligations arising before transfer of the
Receivables to the Trust or as the 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 the obligation to pay the amount of
Receivables owing. The Transferor has agreed to accept the designation as
Ineligible Receivables of all Receivables that have been charged off and that
were not created in compliance in all material respects with the requirements of
such laws. The Servicer has also agreed in the Agreement to indemnify the Trust,
among other things, for any liability arising from such violations. For a
discussion of the Trust's rights if the Receivables were not created in
compliance in all material respects with applicable laws, see "Description of
the Certificates--Representations and Warranties."
Application of federal and state bankruptcy and debtor relief laws would affect
the interests of the Certificateholders, if such laws result in any Receivables
being charged off as uncollectible when there are not funds available under any
Enhancement. See "Description of the Certificates--Defaulted Receivables;
Rebates and Fraudulent Charges; Investor Charge-Offs."
73
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Set forth below is a discussion of the material federal income tax consequences
to Certificate Owners. This discussion is based upon present provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial or ruling authority, all of which are
subject to change (which may be retroactive). Dorsey & Whitney LLP, counsel to
First Bank ("Counsel"), is delivering its opinion regarding certain federal
income tax matters discussed below. The opinion of Counsel specifically
addresses only those issues specifically identified below as being covered by
such opinion; however, the opinion of Counsel also states that the additional
discussion set forth below accurately sets forth Counsel's advice with respect
to material tax issues. No ruling on any of the issues discussed below will be
sought from the Internal Revenue Service (the "IRS"). This discussion does not
deal with all aspects of federal income taxation that may be relevant to
Certificate Owners in light of their personal investment circumstances, nor to
certain types of owners subject to special treatment under the federal income
tax laws (E.G., banks, life insurance companies and tax-exempt organizations).
Prospective investors are encouraged to consult their own tax advisors with
regard to the federal income tax consequences specific to such investor of
owning and disposing of the Certificates, as well as the tax consequences
specific to such investor arising under the laws of any applicable state,
foreign country or other jurisdiction.
TREATMENT OF THE CERTIFICATES AS INDEBTEDNESS OF THE TRANSFEROR
The Transferor and the holders of Certificates will express in the Agreement the
intent that, for federal, state and local income and franchise tax purposes, the
Certificates will be indebtedness secured by the Receivables and any other Trust
assets allocable to the Certificates. The Transferor, by entering into the
Agreement, and each Certificate Owner, by the acceptance of an interest in a
Certificate, will agree to treat the Certificates as indebtedness for federal,
state and local income and franchise tax purposes. The Agreement generally will
refer to the transfer of the related Receivables as a "sale," however, and since
different criteria are used in determining the nontax accounting treatment of
the transaction, the Transferor will treat the Agreement, for certain nontax
purposes, as effecting 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 the tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its economic
substance. In appropriate circumstances, the courts have allowed taxpayers, as
well as 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 nontax
purposes.
The determination of whether the economic substance of a property transfer is a
sale or 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 factors
examined are whether the transferee has the opportunity to gain if the property
increases in value and bears the risk of loss if the property decreases in
value. Based upon an analysis of such factors, Counsel's opinion provides that
for federal income tax purposes the Certificates will be characterized as
indebtedness secured by the Receivables and any other Trust assets, and the
Trust will not be characterized as an "association" or "publicly traded
partnership" taxable as a corporation.
INTEREST INCOME TO CERTIFICATE OWNERS
Assuming the Certificates are debt obligations for federal income tax purposes,
interest on the Certificates will be taxable as ordinary interest income when
received by Certificate Owners utilizing the cash-basis method of accounting and
when accrued by Certificate Owners utilizing the accrual method of accounting.
Under the applicable regulations, the Certificates would be considered issued
with original issue discount ("OID") if the "stated redemption price at
maturity" of a Certificate (generally equal to its principal balance as of the
date of issuance plus all interest other than "qualified stated interest"
payable prior to or at maturity) exceeds the original issue price (in this case,
the initial offering price at which a substantial amount of the Certificates are
sold to the public). Any OID would be considered DE MINIMIS under the
regulations if it does not exceed 1/4% of the stated redemption price at
maturity of a
74
<PAGE>
Certificate multiplied by the number of full years until its maturity date. It
is anticipated that the Certificates will not be considered issued with more
than DE MINIMIS OID. Under the OID regulations, an owner of a Certificate issued
with a DE MINIMIS amount of OID must include such OID in income, on a PRO RATA
basis, as principal payments are made on the Certificate.
While it is not anticipated that the Certificates will be issued at a greater
than DE MINIMIS OID, under applicable Treasury regulations (the "Regulations")
the Certificates may nevertheless be deemed to have been issued with OID. This
could be the case, for example, if interest payments on the Certificates are not
treated as "qualified stated interest" because the IRS determines that (i) no
reasonable legal remedies exist to compel timely payment and (ii) the
Certificates do not have terms and conditions that make the likelihood of late
payment (other than a late payment that occurs within a reasonable grace period)
or nonpayment a remote contingency. Applicable regulations provide that, for
purposes of the foregoing test, the possibility of nonpayment due to default,
insolvency, or similar circumstances, is ignored. Although this provision does
not directly apply to the Certificates (because they have no actual default
provisions), the Transferor intends to take the position that, because
nonpayment can occur only as a result of events beyond its control (principally,
loss rates and payment delays on the Receivables substantially in excess of
those anticipated), nonpayment is a remote contingency. Based on the foregoing,
the Transferor intends to take the position that interest payments on the
Certificates constitute qualified stated interest. If, however, interest
payments on the Certificates were not classified as qualified stated interest,
all of the taxable income to be recognized with respect to the Certificates
would be includible in income as OID but would not be includible again when the
interest is actually received. If the yield on a Class of Certificates were not
materially different from its coupon, this treatment would have no significant
effect on Certificate Owners using the accrual method of accounting. However,
cash method Certificate Owners may be required to report income in respect to
the Certificates in advance of the receipt of cash attributable to such income.
A Certificate Owner must include OID in income as interest over the term of the
Certificate under a constant yield method. In general, OID must be included in
income in advance of the receipt of cash representing that income. Each
Certificate Owner should consult its own tax advisor regarding the impact of the
OID rules if the Certificates are issued with OID.
A Certificate Owner who purchases a Certificate at a discount may be subject to
the "market discount" rules of the Code. These rules provide, in part, for the
treatment of gain attributable to accrued market discount as ordinary income
upon the receipt of partial principal payments or on the sale or other
disposition of the Certificate, and for the deferral of interest deductions with
respect to debt incurred to acquire or carry the market discount Certificate. A
Certificate Owner who purchases a Certificate at a premium may elect to amortize
and deduct this premium over the remaining term of the Certificate in accordance
with rules set forth in Section 171 of the Code.
As an alternative to the above treatments, accrual method Certificate Owners may
elect to include in gross income all interest with respect to a Certificate,
including stated interest, acquisition discount, OID, DE MINIMIS OID, market
discount, DE MINIMIS market discount, and unstated interest, as adjusted by any
amortizable bond premium or acquisition premium, using the constant yield
method.
DISPOSITION OF CERTIFICATES
Generally, gain or loss will be recognized on a sale or other taxable
disposition of Certificates in an amount equal to the difference between the
amount realized and the seller's tax basis in the Certificates. A Certificate
Owner's tax basis in a Certificate will generally equal the cost thereof
increased by any OID, market discount and gain previously included by such
Certificate Owner in income with respect to the Certificate and decreased by any
bond premium previously amortized and any principal payments previously received
by such Certificate Owner with respect to the Certificate. Any such gain or loss
will be capital gain or loss if the Certificate was held as a capital asset,
except for gain representing accrued interest and accrued market discount not
previously included in income. Capital gain or loss will be long-term if the
Certificate was held by the holder for more than one year and otherwise will be
short-term. Any capital losses realized generally may be used by a corporate
taxpayer only to offset capital gains, and by an individual taxpayer only to the
extent of capital gains plus $3,000 of other income.
75
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid on the Certificates
(and the amount of interest withheld for federal income taxes, if any) for each
calendar year, except as to exempt holders (generally, holders that are
corporations, tax-exempt organizations, qualified pension and profit-sharing
trusts, individual retirement accounts, or nonresident aliens who provide
certification of their status as nonresidents). As long as the only
"Certificateholder" of record is Cede, as nominee for DTC, Certificate Owners
and the IRS will receive tax and other information only from Participants and
Indirect Participants rather than from the Trustee. Each nonexempt Certificate
Owner will be required to provide, under penalties of perjury, a certificate on
IRS Form W-9 containing the Certificate Owner's name, address, federal taxpayer
identification number and a statement that such Certificate Owner is not subject
to backup withholding. Should a nonexempt Certificate Owner fail to provide the
required certification, the Trustee (or the Participants or Indirect
Participants) will be required to withhold (or cause to be withheld) 31% of the
interest (and principal) otherwise payable to the Certificate Owner, and remit
the withheld amounts to the IRS as a credit against the Certificate Owner's
federal income tax liability.
POSSIBLE CLASSIFICATION OF THE TRUST AS A PARTNERSHIP OR ASSOCIATION
As described above, it is the opinion of Counsel that for federal income tax
purposes the Certificates will be characterized as debt and the Trust will not
be characterized as an association or publicly traded partnership taxable as a
corporation. However, this opinion is not binding on the IRS and no assurance
can be given that this characterization will be sustained.
If the IRS were to contend successfully that any class of Certificates is not
debt for federal income tax purposes, the Trust might be classified for federal
income tax purposes as a partnership, an association taxable as a corporation,
or a publicly traded partnership taxable as a corporation. In the opinion of
Counsel, if the IRS were to contend successfully that the Collateral Investor
Interest were not debt for federal income tax purposes (assuming that neither
the Class A Certificates or Class B Certificates, nor certificates of any other
outstanding Series, were also recharacterized), the arrangement between the
Transferor and the Collateral Interest Holder would be classified as a
partnership for federal income tax purposes and would not be treated as a
publicly traded partnership because of an exception for (i) an entity whose
income is interest income that is not derived in the conduct of a financial
business or (ii) partnership interests that are privately placed. In such case,
the partnership would not be subject to federal income tax. If the Class A
Certificates or Class B Certificates are treated as equity interests in a
partnership, the partnership would in all likelihood be treated as a publicly
traded partnership. A publicly traded partnership is, in general, taxable as a
corporation. If the partnership were nevertheless not taxable as a corporation
because of an exception for an entity whose income is interest income that is
not derived in the conduct of a financial business, it would not be subject to
federal income tax. Rather, each item of income, gain, loss, deduction and
credit generated through the ownership of the Receivables by the partnership
would be passed through to the partners in the partnership (including the
Certificate Owners) according to their respective interests therein.
The income reportable by the Certificate Owners as partners in such a
partnership could differ from the income reportable by them as holders of debt.
However, except as provided below, it is not expected that such differences
would be material. If the Certificate Owners were treated as partners, a
cash-basis Certificate Owner might be required to report income when it accrues
to the partnership rather than when it is received by the Certificate Owner.
Moreover, if the Certificates are interests in a partnership, an individual
Certificate Owner's share of expenses of the partnership would be miscellaneous
itemized deductions that might not be deductible in whole or in part, causing
the Certificate Owner to be taxable on a greater amount of income than the
stated interest on the Certificates. Finally, if any Class of Certificates is
treated as equity in a partnership in which other Certificates are debt, all or
part of a tax-exempt Certificate Owner's share of income from Certificates
treated as equity would be treated as unrelated debt-financed income taxable to
the Certificate Owner.
Alternatively, if the Trust were treated as either an association taxable as a
corporation or a publicly traded partnership taxable as a corporation, the
resulting entity would be subject to federal income taxes at corporate tax rates
on its taxable income generated by ownership of the Receivables. Distributions
by the entity (other than interest
76
<PAGE>
distributions on Classes of Certificates properly characterized as debt) would
probably not be deductible in computing the entity's taxable income. Such an
entity-level tax could result in reduced distributions to Certificate Owners,
and the Certificate Owners could be liable for a share of such a tax. Moreover,
all or part of the distributions on Certificates treated as equity would
probably be treated as dividend income to the recipients, although such
dividends might, under certain circumstances, be eligible for the dividends
received deduction under the Code.
Since the Transferor will treat the Certificates as indebtedness for federal
income tax purposes, the Trustee (and Participants and Indirect Participants)
will not comply with the tax reporting requirements that would apply under these
alternative characterizations of the Certificates and the arrangement created by
the Agreement.
FOREIGN INVESTORS
If, in accordance with the opinion of counsel, the Certificates are classified
as debt for federal income tax purposes, the following information describes the
federal income tax treatment of investors that are not U.S. persons (each a
"Foreign Person"). The term "Foreign Person" means any person other than (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity 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 U.S. federal income tax purposes, regardless of
its source.
(A) Interest paid or accrued to a Foreign Person would be exempt from U.S.
withholding taxes (including backup withholding taxes); PROVIDED that the
Foreign Person complies with applicable identification requirements (and does
not actually or constructively own 10% or more of the voting stock of First Bank
or, upon the issuance of an interest in the Trust that is treated as a
partnership interest, does not actually or constructively own such interest, and
is not a controlled foreign corporation with respect to First Bank or the holder
of such interest). Applicable identification requirements will be satisfied if
there is delivered to a securities clearing organization (or bank or other
financial institution that holds the Certificates on behalf of the customer in
the ordinary course of its trade or business) (i) IRS Form W-8 signed under
penalties of perjury by the beneficial owner of the Certificates stating that
the owner is not a U.S. person and providing the owner's name and address, (ii)
IRS Form 1001 (or other appropriate successor form thereto) signed by the
beneficial owner of a Certificate or the owner's agent, claiming exemption from
withholding under an applicable tax treaty, (iii) IRS Form 4224 (or other
appropriate successor form thereto) signed by the beneficial owner of the
Certificates or the owner's agent claiming exemption from withholding of tax on
income connected with the conduct of a trade or business in the United States;
PROVIDED that in any such case (x) the applicable form is delivered pursuant to
applicable procedures and is properly transmitted to the United States entity
otherwise required to withhold tax and (y) none of the entities receiving the
form has actual knowledge that the owner is a U.S. person or that any
certification on the form is false.
(B) An owner of a Certificate who is a Foreign Person will not be subject to
United States federal income tax on gain realized on the sale, exchange or
redemption of the Certificate; PROVIDED that (i) the gain is not effectively
connected to a trade or business carried on in the United States, (ii) in the
case of an owner who is an individual, the owner is not present in the United
States for 183 days or more during the taxable year in which the sale, exchange
or redemption occurs, (iii) in the case of gain representing accrued interest,
the conditions described in paragraph (A) above are satisfied, and (iv) the
Certificate was held as a capital asset.
(C) If the interest, gain or income on a Certificate held by a Foreign Person is
effectively connected with the conduct of a trade or business in the United
States by the Foreign Person (which characterization could occur if the
interests of owners of certificates of a Series are reclassified as interests in
a partnership (not taxable as a corporation)), the holder (although exempt from
the withholding tax previously discussed if an appropriate statement is
furnished) generally will be subject to United States federal income tax on the
interest, gain or income at regular federal income tax rates and, additionally,
will be required to file a federal income tax return. In addition, if the
Foreign Person is a foreign corporation, it may be subject to a branch profits
tax equal to 30 percent of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty.
(D) A Certificate owned by an individual who at the time of death is a
nonresident alien will not be subject to United Sates federal estate tax as a
result of the owner's death if, immediately before his death, (i) the decedent
did
77
<PAGE>
not actually or constructively own 10% or more of the voting stock of First Bank
and (ii) the ownership of the Certificate was not effectively connected with the
conduct by the decedent of a trade or business in the United States.
If the IRS were to contend successfully that the Certificates are equity
interests in a partnership (not taxable as a corporation), a Certificate Owner
that is a Foreign Person might be required to file a U.S. income tax return and
pay tax on its share of partnership income at regular U.S. rates, including, in
the case of a corporation, the branch profits tax (and would be subject to
withholding tax on its share of partnership income). If the Certificates are
recharacterized as equity interests in an association taxable as a corporation
or a publicly traded partnership taxable as a corporation, an owner who is a
Foreign Person would generally be taxed (and be subject to withholding) on the
gross amount of the distributions on the Certificates, to the extent they are
treated as dividends, at the rate of 30% (unless the rate is reduced by
applicable treaty).
Recently proposed Treasury regulations (the "Proposed Regulations") could affect
the procedures to be followed by a Foreign Person in complying with United
States Federal backup withholding and information reporting rules. The Proposed
Regulations are not currently effective but, if finalized in their current form,
would be effective for payments made after December 31, 1997. Prospective
investors are urged to consult their tax advisors regarding the effect, if any,
of the Proposed Regulations on the purchase, ownership, and disposition of the
Certificates.
FASIT PROVISIONS
Recently enacted provisions of the Code provide for the creation of a new type
of entity for federal income tax purposes, the "financial asset securitization
investment trust" ("FASIT"). However, these provisions are not effective until
September 1, 1997, and many technical issues concerning FASITs must be addressed
by Treasury regulations that have yet to be drafted. Although transition rules
permit an entity in existence on August 31, 1997, such as the Trust, to elect
FASIT status, at the present time it is not clear how outstanding interests of
such an entity would be treated subsequent to such an election. In particular,
it is not clear whether Certificates of any Series outstanding on August 31,
1997, would be treated as "regular interests" in a FASIT if the Transferor were
to elect FASIT status for the Trust after that date.
STATE AND LOCAL TAX CONSEQUENCES
In addition to the federal income tax consequences described above, potential
investors should consider the state and local tax consequences of the
acquisition, ownership, and disposition of the Certificates. State and local tax
law may differ substantially from the corresponding federal law, and the
discussion above does not purport to describe any aspect of the tax laws of any
state or locality. Therefore, potential investors should consult their own tax
advisers with respect to the various state and local tax consequences of an
investment in the Certificates.
78
<PAGE>
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
the Code impose certain restrictions on (a) employee benefit plans (as defined
in Section 3(3) of ERISA), (b) plans described in Section 4975(e)(1) of the
Code, including individual retirement accounts and Keogh Plans, (c) any entities
whose underlying assets include plan assets by reason of a plan's investment in
such entities (each of (a), (b) and (c) a "Plan") and (d) persons who have
certain specified relationships to such Plans ("Parties in Interest" under ERISA
and "Disqualified Persons" under the Code). Moreover, based on the reasoning of
the United States Supreme Court in JOHN HANCOCK LIFE INS. CO. V. HARRIS TRUST
AND SAV. BANK, 114 S. Ct. 517 (1993), an insurance company's general account may
be deemed to include assets of the Plans investing in the general account (E.G.,
through the purchase of an annuity contract), and the insurance company might be
treated as a Party in Interest with respect to such Plans by virtue of such
investment. ERISA also imposes certain duties on persons who are fiduciaries of
Plans, and both ERISA and the Code prohibit certain transactions involving "plan
assets" between a Plan and Parties in Interest or Disqualified Persons with
respect to such Plans. Violation of these rules may result in the imposition of
an excise tax or penalty. Thus, a Plan fiduciary considering an investment in
Certificates should consider, among other things, whether such an investment
might constitute or give rise to a prohibited transaction under ERISA or the
Code.
Neither ERISA nor the Code defines the term "plan assets." Under Section
2510.3-101 of the United States Department of Labor ("DOL") regulations (the
"Regulation"), a Plan's assets may be deemed to include an interest in the
underlying assets of an entity (such as a trust) for certain purposes, including
the prohibited transaction provisions of ERISA and the Code, if the Plan
acquires an "equity interest" in such entity. Accordingly, an investment in
Certificates by a Plan might result in the assets of the Trust being deemed to
constitute Plan assets, which in turn could have the consequence that certain
aspects of such investment, including the operation of the Trust, might give
rise to or result in prohibited transactions under ERISA and the Code.
CLASS A CERTIFICATES
The Regulation contains an exception to the plan asset rules that provides that
if a Plan acquires a "publicly-offered security," the issuer of the security is
not deemed to hold plan assets, regardless of the fact that the security might
otherwise represent an equity interest in the issuer. A publicly-offered
security is a security that is (i) freely transferable, (ii) part of a class of
securities that is "widely-held," I.E., owned by 100 or more investors
independent of the issuer and of one another and (iii) either is (A) part of a
class of securities registered under Section 12(b) or 12(g) of the Exchange Act
or (B) sold to a 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. Under the Regulation, a
class of securities will not fail to be widely-held solely because subsequent to
the initial offering the number of independent investors falls below 100 as a
result of events beyond the control of the issuer.
The Class A Certificates may be held by at least 100 independent investors at
the conclusion of the offering, although no assurances can be given, and no
monitoring or other measures will be taken, to ensure that such condition will
be met. The Transferor anticipates that the other conditions of the Regulation
will be met with respect to the Class A Certificates. If the Trust's assets were
deemed to be "plan assets" of a Plan investor, there is uncertainty whether
existing exemptions from the "prohibited transaction" rules of ERISA, would
apply to all transactions involving the Trust's assets. Accordingly, Plan
fiduciaries should consult with counsel before making a purchase of Class A
Certificates.
CLASS B CERTIFICATES
The Underwriters do not expect that the Class B Certificates will be held by 100
or more independent investors. Accordingly, the Class B Certificates may not be
purchased by Plans.
EACH CERTIFICATE OWNER OF A CLASS B CERTIFICATE (INCLUDING BUT NOT LIMITED TO
ANY INSURANCE COMPANY GENERAL ACCOUNT) WILL BE DEEMED TO HAVE REPRESENTED THAT
IT IS NEITHER A PLAN NOR ACQUIRING THE CLASS B CERTIFICATES ON BEHALF OF OR
USING THE ASSETS OF ANY PLAN.
79
<PAGE>
GENERAL INVESTMENT CONSIDERATIONS
Prospective Plan investors should consult with their legal advisors concerning
the impact of ERISA and the Code and the potential consequences of making an
investment in the Class A Certificates with respect to their specific
circumstances. Moreover, each Plan fiduciary should take into account, among
other considerations, whether the fiduciary has the authority to make the
investment; the composition of the Plan's portfolio with respect to
diversification by type of asset; the Plan's funding objectives; the tax effects
of the investment; and whether under the general fiduciary standards of
investment procedure and diversification an investment in the Class A
Certificates is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
80
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement (the
"Underwriting Agreement") between the Transferor and the underwriters named
below (the "Underwriters"), the Transferor has agreed to sell to the
Underwriters, and each of the Underwriters has severally agreed to purchase, the
principal balance of the Class A Certificates and Class B Certificates set forth
opposite its name.
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
OF CLASS A
UNDERWRITERS CERTIFICATES
- ------------------------------------------------------------------------- -------------------
<S> <C>
J.P. Morgan Securities Inc. $
--------
Total $
--------
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
OF CLASS B
CERTIFICATES
-------------------
<S> <C>
J.P. Morgan Securities Inc. $
--------
Total $
--------
--------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Certificates
offered hereby if any of the Certificates are purchased.
The 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 % of the principal balance of the
Class A Certificates. The Underwriters may allow, and such dealers may reallow,
concessions not in excess of % of the principal balance 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
Underwriters.
The 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 % of the principal balance of
the Class B Certificates. The Underwriters may allow, and such dealers may
reallow, concessions not in excess of % of the principal balance 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 Underwriters.
Each Underwriter has represented and agreed that (a) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it 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 1996 or is a person to whom the
document may otherwise lawfully be issued or passed on, (b) it has complied and
will comply with 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) if that
Underwriter is an authorized person under the Financial Services Act 1986, it
has only promoted and will only promote (as that term is defined in Regulation
1.02 of the Financial Services (Promotion of Unregulated Schemes) Regulations
1991) to any person in the United Kingdom the scheme described herein if that
person is of a kind described either in Section 76(2) of the Financial Services
Act 1986 or in Regulation 1.04 of the Financial Services (Promotion of
Unregulated Schemes) Regulations 1991.
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.
81
<PAGE>
In the ordinary course of business, the Underwriters and their affiliates have
engaged and may engage in investment banking and/or commercial banking
transactions with First Bank, its affiliates and the Trust.
LEGAL MATTERS
Certain legal matters and federal income tax matters relating to the issuance of
the Certificates will be passed upon for First Bank by Dorsey & Whitney LLP.
Certain legal matters relating to the issuance of the Certificates will be
passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP.
82
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Accounts................................................................................................. 2, 5
Accumulation Period...................................................................................... 14
Accumulation Period Length............................................................................... 45
Additional Account Closing Date.......................................................................... 49
Additional Accounts...................................................................................... 10, 49
Additional Interest...................................................................................... 12
Adjusted Invested Amount................................................................................. 8, 53
Adjustment............................................................................................... 62
Agreement................................................................................................ 4
Available Principal Collections.......................................................................... 58
Available Reserve Account Amount......................................................................... 54
Bank..................................................................................................... 5
Bank Portfolio........................................................................................... 6
Card Services............................................................................................ 30
Cede..................................................................................................... 3
Cedel.................................................................................................... 41
Cedel Participants....................................................................................... 41
Certificateholders....................................................................................... 5
Certificate Owners....................................................................................... 3
Certificates............................................................................................. 1, 4
Class.................................................................................................... 5
Class A Additional Interest.............................................................................. 56
Class A Adjusted Invested Amount......................................................................... 8, 52
Class A Available Funds.................................................................................. 43
Class A Certificateholders............................................................................... 5
Class A Certificate Rate................................................................................. 7
Class A Certificates..................................................................................... 1, 4
Class A Expected Final Payment Date...................................................................... 7, 13
Class A Fixed Percentage................................................................................. 52
Class A Floating Percentage.............................................................................. 51
Class A Initial Invested Amount.......................................................................... 7
Class A Invested Amount.................................................................................. 7, 52
Class A Investor Charge-Off.............................................................................. 19, 61
Class A Investor Default Amount.......................................................................... 60
Class A Investor Interest................................................................................ 6
Class A Monthly Interest................................................................................. 57
Class A Monthly Principal................................................................................ 59
Class A Required Amount.................................................................................. 18, 54
Class A Servicing Fee.................................................................................... 66
Class B Additional Interest.............................................................................. 56
Class B Available Funds.................................................................................. 44
Class B Certificateholders............................................................................... 5
Class B Certificate Rate................................................................................. 7
Class B Certificates..................................................................................... 1, 4
Class B Expected Final Payment Date...................................................................... 7, 13
Class B Fixed Percentage................................................................................. 52
Class B Floating Percentage.............................................................................. 51
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Class B Initial Invested Amount.......................................................................... 7
Class B Invested Amount.................................................................................. 7, 52
Class B Investor Charge-Off.............................................................................. 20, 61
Class B Investor Default Amount.......................................................................... 60
Class B Investor Interest................................................................................ 6
Class B Monthly Interest................................................................................. 57
Class B Monthly Principal................................................................................ 59
Class B Required Amount.................................................................................. 18, 55
Class B Servicing Fee.................................................................................... 66
Closing Date............................................................................................. 7
Code..................................................................................................... 74
Collateral Available Funds............................................................................... 57
Collateral Default Amount................................................................................ 58
Collateral Fixed Percentage.............................................................................. 52
Collateral Floating Percentage........................................................................... 51
Collateral Initial Invested Amount....................................................................... 8
Collateral Interest Holder............................................................................... 5
Collateral Invested Amount............................................................................... 8, 52
Collateral Investor Charge-Off........................................................................... 61
Collateral Investor Interest............................................................................. 6
Collateral Monthly Interest.............................................................................. 58
Collateral Monthly Principal............................................................................. 59
Collateral Rate.......................................................................................... 58
Collateral Required Amount............................................................................... 56
Collateral Servicing Fee................................................................................. 66
Collection Account....................................................................................... 50
Collection Period........................................................................................ 8
Commission............................................................................................... 2
Controlled Accumulation Amount........................................................................... 59
Controlled Deposit Amount................................................................................ 59
Cooperative.............................................................................................. 42
Corporate Card........................................................................................... 29
Counsel.................................................................................................. 74
Covered Amount........................................................................................... 15, 53
Cut-Off Date............................................................................................. 6
Defaulted Receivables.................................................................................... 60
Deficit Controlled Accumulation Amount................................................................... 15, 59
Definitive Certificates.................................................................................. 42
Depositaries............................................................................................. 40
Depository............................................................................................... 39
Determination Date....................................................................................... 68
Disclosure Document...................................................................................... 11
Disqualified Persons..................................................................................... 79
Distribution Date........................................................................................ 57
DOL...................................................................................................... 79
DTC...................................................................................................... 3, A-1
Early Amortization Event................................................................................. 62
Early Amortization Period................................................................................ 16
Eligible Account......................................................................................... 49
Eligible Institution..................................................................................... 50
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Eligible Investments..................................................................................... 50
Eligible Receivable...................................................................................... 48
Enhancement.............................................................................................. 60
Enhancement Surplus...................................................................................... 59
ERISA.................................................................................................... 19, 79
Euroclear................................................................................................ 42
Euroclear Operator....................................................................................... 42
Euroclear Participants................................................................................... 42
Euroclear System......................................................................................... 42
Excess Spread............................................................................................ 18, 57
Exchange................................................................................................. 11
Exchange Act............................................................................................. 2
Exchangeable Transferor Certificate...................................................................... 10
FASIT.................................................................................................... 78
FDIA..................................................................................................... 71
FDIC..................................................................................................... 23
FIRREA................................................................................................... 23, 71
First Bank............................................................................................... 5
First Bank System........................................................................................ 38
Fixed Allocation Percentage.............................................................................. 52
Floating Allocation Percentage........................................................................... 51
Foreign Person........................................................................................... 77
Global Securities........................................................................................ A-1
Holders.................................................................................................. 42
Indirect Participants.................................................................................... 40
Ineligible Receivable.................................................................................... 47
Initial Invested Amount.................................................................................. 8
Interest Funding Account................................................................................. 43
Interest Payment Date.................................................................................... 12
Invested Amount.......................................................................................... 8, 53
Investor Charge-Offs..................................................................................... 61
Investor Default Amount.................................................................................. 60
Investor Interest........................................................................................ 6
IRS...................................................................................................... 74
Loan Agreement........................................................................................... 20
Minimum Transferor Amount................................................................................ 46
Minimum Transferor Percentage............................................................................ 46
Minimum Trust Principal Component........................................................................ 49
Monthly Investor Servicing Fee........................................................................... 11, 65
Monthly Servicer Report.................................................................................. 68
Net Interchange.......................................................................................... 10
Net Servicing Fee Rate................................................................................... 66
OID...................................................................................................... 74
Participants............................................................................................. 40
Parties in Interest...................................................................................... 79
Payment Date Statement................................................................................... 68
Plan..................................................................................................... 79
Principal Collections.................................................................................... 10
Principal Funding Account................................................................................ 14
Principal Funding Account Balance........................................................................ 53
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Principal Funding Investment Proceeds.................................................................... 15, 53
Principal Funding Investment Shortfall................................................................... 15, 53
Principal Terms.......................................................................................... 26, 46
Proposed Regulations..................................................................................... 78
Prospectus............................................................................................... 2
Purchasing Cards......................................................................................... 29
Rating Agency............................................................................................ 22
Reallocated Class B Principal Collections................................................................ 13, 55
Reallocated Collateral Principal Collections............................................................. 54
Reallocated Principal Collections........................................................................ 55
Receivables.............................................................................................. 2, 5
Record Date.............................................................................................. 43
Regulation............................................................................................... 79
Regulations.............................................................................................. 75
Removed Accounts......................................................................................... 10, 49
Required Collateral Invested Amount...................................................................... 60
Required Reserve Account Amount.......................................................................... 53
Reserve Account.......................................................................................... 53
Reserve Account Funding Date............................................................................. 53
Revolving Period......................................................................................... 13
RTC...................................................................................................... 24
RTC Policy Statement..................................................................................... 72
Securities Act........................................................................................... 11
Series................................................................................................... 5, A-1
Series 1996-1............................................................................................ 5
Series 1996-1 Supplement................................................................................. 5
Series 1996-1 Termination Date........................................................................... 8
Series Supplement........................................................................................ 5
Service Transfer......................................................................................... 67
Servicer................................................................................................. 5
Servicer Default......................................................................................... 67
Servicer Interchange..................................................................................... 65
Servicing Base Amount.................................................................................... 65
Servicing Fee............................................................................................ 65
Servicing Fee Percentage................................................................................. 65
Shared Excess Yield Collections.......................................................................... 18, 58
Shared Principal Collections............................................................................. 60
Special Payment Date..................................................................................... 59
Tax Opinion.............................................................................................. 47
Terms and Conditions..................................................................................... 42
Transfer Date............................................................................................ 50
Transferor............................................................................................... 5
Transferor Amount........................................................................................ 49
Transferor Interest...................................................................................... 6
Transferor Percentage.................................................................................... 39
Trust.................................................................................................... 1, 4
Trust Portfolio.......................................................................................... 34
Trust Principal Component................................................................................ 34
Trust Termination Date................................................................................... 62
Trustee.................................................................................................. 5
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------------- ---------
<S> <C>
U.S. Person.............................................................................................. A-3
UCC...................................................................................................... 23
Underwriters............................................................................................. 81
Underwriting Agreement................................................................................... 81
VISA..................................................................................................... 28
Yield Collections........................................................................................ 10
Yield Factor............................................................................................. 10
</TABLE>
87
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered First Bank
Corporate Card Master 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 U.S. corporate debt obligations. Investor
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 payment 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 U.S. corporate
debt obligations 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 Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day
A-1
<PAGE>
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 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;
A-2
<PAGE>
(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.
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 advisers for
specific tax advice concerning their holding and disposing of the Global
Securities.
A-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Articles of Association of the Transferor**
3.2 Bylaws of the Transferor**
4.1 Form of Pooling and Servicing Agreement among the Transferor, the Servicer and the Trustee*
4.2 Form of Series 1996-1 Supplement to the Pooling and Servicing Agreement among the
Transferor, the Servicer and the Trustee*
4.3 Form of Class A Certificate (contained in Exhibit 4.2)*
4.4 Form of Class B Certificate (contained in Exhibit 4.2)*
5.1 Opinion of Dorsey & Whitney LLP re Legality*
8.1 Opinion of Dorsey & Whitney LLP re Tax Matters*
23.1 Consent of Dorsey & Whitney LLP (contained in Exhibit 5.1)*
23.2 Consent of Dorsey & Whitney LLP (contained in Exhibit 8.1)*
24 Powers of Attorney**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee................................................... $ 303.03
Printing and Engraving............................................. $ *
Trustee's Fee...................................................... $ *
Legal Fees and Expenses............................................ $ *
Blue Sky Fees and Expenses......................................... $ *
Accountants' Fees and Expenses..................................... $ *
Rating Agency Fees................................................. $ *
Miscellaneous Fees and Expenses.................................... $ *
---------
Total Expenses..................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Twelve of the Amended and Restated Articles of Association of First Bank
of South Dakota (National Association) provides as follows:
TWELFTH. Any person, such person's heirs, executors, or administrators, may be
indemnified or reimbursed by the Association for reasonable expenses actually
incurred in connection with any action, suit or proceeding, whether civil,
criminal, or administrative, to which such person or such person's heirs,
executors, or administrators shall be made a party by reason of such person
being or having been a director, advisory director, officer, employee, or agent
of the Association or of any firm, corporation, or organization which such
person served in any such capacity at the request of the Association. Provided,
however, that no such person shall be so indemnified or reimbursed in relation
to any matter in such action, suit, or proceeding: (1) as to which such person
shall finally be adjudged to have been guilty of or liable for gross negligence,
willful misconduct, or criminal acts in the performance of such person's duties
to the Association, or (2) which has been made the subject of a compromise
settlement except with the approval of a court of competent jurisdiction, or the
holders of record of a majority of outstanding shares of the Association, or the
board of directors acting by vote of directors not parties to the same or
substantially the same action, suit or proceeding constituting a majority of the
whole number of directors, or (3) against expenses, penalties, or other payments
incurred in an administrative proceeding or action instituted by an appropriate
bank regulatory agency, which proceeding or action results in a final order
assessing civil money penalties or requiring affirmative action by such person
in the form of payment to the Association. The foregoing right of
indemnification or reimbursement shall not be exclusive of other rights to which
such person, such person's heirs, executors, or administrators, may be entitled
as a matter of law.
Such expenses actually incurred by such person in connection with such action,
suit, or proceeding may be paid by the Association in advance of the final
disposition of such action, suit, or proceeding upon receipt of an undertaking
by or on behalf of such person to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Association. Prior to the advancement of any such expenses, the board of
directors shall determine in writing that all of the following conditions are
met: (1) such person has a substantial likelihood of prevailing on the merits,
(2) in the event such person does not prevail, such person will have the
financial capability to reimburse the Association, and (3) payment of such
expenses by the Association will not adversely affect the safety and soundness
of the Association. If at any time the board of directors believes, or should
reasonably believe, that any of the above conditions are not met, the
Association shall cease paying such expenses. Further, the Association shall
enter into a written agreement with such person specifying the conditions under
which such person shall reimburse the Association.
II-1
<PAGE>
The Association may, upon the affirmative vote of a majority of its board of
directors, purchase insurance for the purpose of indemnifying such directors,
advisory directors, officers, employees, or agents to the extent that such
indemnification is allowed in this Article Twelfth. Such insurance shall not
provide coverage of liability for any formal order issued by a regulatory
authority assessing civil money penalties against a director, advisory director,
officer, employee, or agent. Further, such insurance may, but need not be, for
the benefit of all such directors, advisory directors, officers, employees, or
agents. The effect of any such insurance would be to reduce the risk to
shareholders and depositors of the Bank that any such indemnification payments
might have a material adverse effect on the financial condition of the Bank.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Amended and Restated Articles of Association of the Transferor**
3.2 -- Bylaws of the Transferor**
4.1 -- Form of Pooling and Servicing Agreement among the Transferor, the Servicer and the Trustee*
4.2 Form of Series 1996-1 Supplement to the Pooling and Servicing Agreement among the
-- Transferor, the Servicer and the Trustee*
4.3 -- Form of Class A Certificate (contained in Exhibit 4.2)*
4.4 -- Form of Class B Certificate (contained in Exhibit 4.2)*
5.1 -- Opinion of Dorsey & Whitney LLP re Legality*
8.1 -- Opinion of Dorsey & Whitney LLP re Tax Matters*
23.1 -- Consent of Dorsey & Whitney LLP (contained in Exhibit 5.1)*
23.2 -- Consent of Dorsey & Whitney LLP (contained in Exhibit 8.1)*
24 -- Powers of Attorney*
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules Not applicable.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(a) The undersigned registrant hereby undertakes that, for puroposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(b) To provide to the Underwriter at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names as
required by the Underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or con trolling person in connection with the securities being
registered, the Registrant will, unless in
II-2
<PAGE>
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b) (1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(e) For the purpose of determining any liability under the Securities Act of
1933, each post effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Sioux Falls, State of South Dakota, on
November 5, 1996.
FIRST BANK OF SOUTH DAKOTA
(NATIONAL ASSOCIATION)
By /s/ DANIEL P MURPHY*
-----------------------------------------
Daniel P Murphy
DIRECTOR AND PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ DANIEL P MURPHY* Director and President
- ------------------------------ (principal executive November 5 1996
Daniel P Murphy officer)
Executive Vice President
/s/ SUSAN E. LESTER* and
- ------------------------------ Chief Financial Officer November 5, 1996
Susan E. Lester (principal financial
officer)
Senior Vice President and
/s/ DAVID J. PARRIN* Controller
- ------------------------------ (principal accounting November 5, 1996
David J. Parrin officer)
/s/ THOMAS J. FLYNN*
- ------------------------------ Director November 5, 1996
Thomas J. Flynn
/s/ BARRY L. MARTIN*
- ------------------------------ Director November 5, 1996
Barry L. Martin
/s/ CRAIG A. JOHNSON*
- ------------------------------ Director November 5, 1996
Craig A. Johnson
/s/ PHILIP G. HEASLEY*
- ------------------------------ Director November 5, 1996
Philip G. Heasley
*By /s/ DAVID J. PARRIN
-------------------------
(David J. Parrin,
ATTORNEY IN FACT)
II-4
