<PAGE>
Registration No. 333-1837
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
Amendment No. 3
To
FORM S-1
Registration Statement
Under
The Securities Act of 1933
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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)
United States 6021 46-0168855
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or Classification Code No.) Identification No.)
organization)
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)
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Copies to:
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
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
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, 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. |_|
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
Proposed Maxi- Proposed
Amount mum Offering Maximum
Title of Each Class of Securities to to be Price Aggregate Amount of
be Registered Registered Per Unit(1) Offering Price(1) Registration Fee(2)
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<S> <C> <C> <C> <C>
Class A Asset Backed Certificates $ 500,000 100% $ 500,000 $172.41
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Class B Asset Backed Certificates $ 500,000 100% $ 500,000 $172.42
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TOTAL $1,000,000 100% $1,000,000 $344.83
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</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>
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.
Preliminary Prospectus Subject to Completion dated _______ __, 1997
First Bank Corporate Card Master Trust
Issuer
$ ____________________ Class A ___% Asset Backed Certificates, Series 1997-1
$ ____________________ Class B ___% Asset Backed Certificates, Series 1997-1
First Bank of South Dakota (National Association)
Transferor
FBS Card Services, Inc.
Servicer
Each Class A __% Asset Backed Certificate, Series 1997-1 (collectively, the
"Class A Certificates") and each Class B __% Asset Backed Certificate, Series
1997-1 (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") governed by 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 1997-1,
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 22.
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.
================================================================================
Price to Underwriting Proceeds to
public (1) discount the Transferor (1)(2)
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Per Class A Certificate % % %
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Per Class B Certificate % % %
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Total $ $ $
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(1) Plus accrued interest, if any, calculated from , 1997.
(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
_________ __, 1997 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.
_________ __, 1997
<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(R) 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 90. 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 1997-1 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 ______ __, 1997 and is
payable semi-annually on ________ and _________ (or, if any such day is not a
business day, on the next succeeding business day) commencing ________, 1997
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 __ 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) ,
which is 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) may be viewed. The Internet address of
such World Wide Web site is http://www.sec.gov.
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 ________ __, 1997 (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
Page Page
---- ----
Available Information.............. 2 First Bank of South Dakota (National
Reports to Certificateholders.... 3 Association) and First Bank
Summary............................ 4 System, Inc...................... 39
Risk Factors....................... 22 Description of the Certificates.... 39
The Trust.......................... 26 Certain Legal Aspects of the
First Bank's Corporate Card and Receivables...................... 78
Purchasing Card Programs......... 26 Federal Income Tax Consequences.... 81
The Receivables.................... 33 State and Local Tax Consequences... 86
Maturity Considerations............ 38 ERISA Considerations............... 86
Use of Proceeds.................... 39 Underwriting....................... 87
Legal Matters...................... 88
Index of Terms..................... 90
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 so long as the Certificates
are outstanding.
3
<PAGE>
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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 90.
Type of Securities............ Class A __% Asset Backed Certificates, Series
1997-1 (the "Class A Certificates") and Class
B __% Asset Backed Certificates, Series 1997-1
(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") was 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 Certifi- cates--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 Invested Amount.
For a discussion of other risk factors
applicable to the Certificates, see "Risk
Factors."
Trust ........................ The Trust will be governed by a pooling and
servicing agreement (the "Agreement"), among
First Bank of South Dakota (National
Association) ("First Bank" or the "Bank"), as
transferor, FBS Card
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4
<PAGE>
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Services, Inc., as servicer, and Citibank,
N.A., as trustee (the "Trustee"). The Trust
was 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 1997-1 Supplement") (the term
"Agreement," unless the context requires
otherwise, refers to the Agreement as
supplemented by the Series 1997-1 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 1997-1 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 1997-1" refers to the Series issued
pursuant to the Agreement, as supplemented by
the Series 1997-1 Supplement. The Collateral
Interest Holder will not be an affiliate of
First Bank.
Series 1997-1 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 "Transfer- or"), 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 "Receiv- ables") arising
under certain VISA(R)* charge card accounts
(the "Accounts"), including any Additional
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 Portfo- lio"),
(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 pro-
- - ----------
* VISA(R) is a federally registered servicemark of VISA USA, Inc.
- - --------------------------------------------------------------------------------
5
<PAGE>
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gram), (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
1997-1, and the holders of certificates of
other Series will not be entitled to the
benefits of any Enhancement issued with
respect to Series 1997-1.
On ______ __, 1997 (the "Closing Date"), the
Transferor will con- ====== vey 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 November 30, 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 Certifi cates--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 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 Certifi- cates.
Allocations will be made to the Collateral
Investor Interest, and the Collateral Interest
Holder will have voting and certain other
rights, as if the Collateral Investor Interest
were a subordi- nated 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 Certifi- cate Rate"), accruing
from the Closing Date and (ii) principal on
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6
<PAGE>
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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 Receivables 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 Certifi- cate 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 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
Certifi- cates or as Investor Charge-Offs
allocable to the Class B Certifi- cates 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.
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7
<PAGE>
- - --------------------------------------------------------------------------------
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
1997-1 will terminate on the earliest to occur
of (a) the Distribu- tion 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 1997-1 Termination Date").
After the Series 1997-1 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 Defaulted Receivables at all
times, and Principal Collections during the
Revolving Period, will be allocated to 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 Percent- age,
respectively, applicable during the related
Collection Period. Principal Collections
during the Accumulation Period and the Early
Amortization Period will be allocated to 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
- - --------------------------------------------------------------------------------
8
<PAGE>
- - --------------------------------------------------------------------------------
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.
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 Ac- counts")
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, (ii) certain
amounts of Net Interchange attributed to card-
holder charges in the Accounts with respect to
such Collection Period and (iii) any earnings
(net of losses and investment expens- es) on
funds on deposit in the Excess Funding Account
during 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 2.00%,
and is a means of allocating collections on
the Receivables to the payment of interest and
principal on the Certificates which does not
change the aggregate cash flow available to
the Trust. "Net Interchange" consists of
certain fees received by the Transferor from
VISA as partial compensation for
- - --------------------------------------------------------------------------------
9
<PAGE>
- - --------------------------------------------------------------------------------
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 certifi- cates: (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 Transfer- or 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, 100% of the certificates
representing any Series issued by the Trust
and the Exchangeable 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
transac- tions 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 "Descrip- tion 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.
Certificatehold- ers 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
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10
<PAGE>
- - --------------------------------------------------------------------------------
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
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 Certifi- cates (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, amounts available
from the Overconcentration Account 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, amounts available from the
Overconcentration Account and Reallocated
Collateral Principal Collections (to the
extent available) and (c) with respect to the
Collateral Investor Interest, from Excess
Spread , Shared Excess Yield Collections and
amounts available from the Overconcentration
Account. See "Description of the Certifi-
cates--Overconcentration Account,"
"--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
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11
<PAGE>
- - --------------------------------------------------------------------------------
deposited in one or more trust accounts and
will generally be invested in certain Eligible
Investments pending distribution to
Certificateholders. See "Description of the
Certifi cates--Interest Payments."
Principal Payments............ Principal on the Class A Certificates is
scheduled to be paid on the _______
Distribution Date (the "Class A Expected Final
Payment- Date"). 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 Class A Invested Amount
has been paid in full. Distributions of
principal with respect to the Class A Certifi-
cates 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 Consider- ations."
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
Certificatehold- ers until the Class A
Invested Amount has been paid in full. For the
period beginning on the Closing Date and
ending with the com- mencement of the
Accumulation Period or the Early Amortization
Period (the "Revolving Period"), Principal
Collections otherwise allocable to the
Certificateholders and the Collateral Interest
Holder (other than Principal Collections
allocated to the Class B Certifi- cateholders
and the Collateral Interest Holder
("Reallocated Principal Collections") that are
used to pay any deficiency in the Class A
Required Amount or the Class B Required
Amount) 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, subject
to certain limitations, paid to the Transferor
as holder of the Exchangeable Transferor
Certificate or deposited into the Excess
Funding Account 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.
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12
<PAGE>
- - --------------------------------------------------------------------------------
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 1997-1 Termination Date.
During the Accumulation Period, prior to the
payment of the Class A Invested Amount in
full, amounts equal to the least 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
1997-1 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 1997-1 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 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
- - --------------------------------------------------------------------------------
13
<PAGE>
- - --------------------------------------------------------------------------------
holder of the Exchangeable Transferor
Certificate or deposited into the Excess
Funding Account. If, for any Collection
Period, Principal Collections allocable to the
Certificateholders for such Collection Period
are less than the applicable Controlled
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 losses and
investment expenses) on funds on deposit in
the Principal Funding Account (the "Principal
Funding Investment Proceeds") during the Ac-
cumulation 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 , a withdrawal from
the Reserve Account, to the extent available,
a withdrawal from the Overconcentration
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 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 1997-1 Termination
Date (the "Early Amortization Period"), Prin-
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14
<PAGE>
- - --------------------------------------------------------------------------------
cipal 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
as holder of the Exchangeable Transferor
Certificate or deposited into the Excess
Funding Account; 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 Collections
or distributed to the Transferor as holder of
the Exchangeable Transferor Certificate or
deposited into the Excess Funding Account;
(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
Certifi- cates. See "Description of the
Certificates--Allocation Percentag- es."
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
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15
<PAGE>
- - --------------------------------------------------------------------------------
payments with respect to the Class A
Certificates . 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 and amounts on deposit in
the Overconcentration Account are depleted,
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
and amounts on deposit in the
Overconcentration Account are depleted, 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."
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
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16
<PAGE>
- - --------------------------------------------------------------------------------
Class B Investor Default Amount for the
related Collection Period exceeds the amount
of Excess Spread and Shared Excess Yield
Collections allocable to Series 1997-1
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 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, the
amount, if any, available from the
Overconcentration Account will be used to fund
the remaining Class A Required Amount. If the
amount available from the Overconcentration
Account is insufficient to fund the remaining
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
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 Trans- fer
Date). In the event that such reduction would
cause the Collateral Invested Amount to be a
negative number, the Collater- al 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 . 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
(such reduction, a "Class A Investor
Charge-Off"). If the Collateral Invested
Amount and the Class B Invested Amount are
reduced to zero and amounts on deposit in the
Overconcentration Account are
- - --------------------------------------------------------------------------------
17
<PAGE>
- - --------------------------------------------------------------------------------
depleted, the Class A Certificateholders will
bear directly the credit and other risks
associated with their undivided interest in
the Trust. See "Descrip tion of the
Certificates--Reallocation of Cash Flows" and
"--Defaulted Receivables; Rebates and
Fraudulent Charges; 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, the
amount, if any, available from the
Overconcentration Account not required to fund
the Class A Required Amount will be used to
fund the remaining Class B Required Amount. If
the amount available from the
Overconcentration Account is insufficient to
fund the remaining Class B Required Amount,
Reallocated Principal Collections allocable to
the Collateral Investor Interest for the
related Collec- tion 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 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 (a) $______ on the initial Transfer Date
and (b) on any Transfer Date thereafter, an
amount equal to the sum of (i) __% 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
- - --------------------------------------------------------------------------------
18
<PAGE>
- - --------------------------------------------------------------------------------
the related Distribution Date), and the
Collateral Invested Amount on the prior
Transfer Date after any adjustments made on
such Transfer Date and (ii) during the
Accumulation Period, the excess, if any, of
the Required Overconcentration Account Amount
over the amount on deposit in the
Overconcentration Account (after giving effect
to any deposit to be made to, and any
withdrawal to be made from, the
Overconcentration Account on such Transfer
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 1997-1 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 will not be available to the
Certificateholders. See "Description of the
Certificates--Enhancement; Required Collateral
Invested Amount."
Overconcentration
Account..................... An account (the "Overconcentration Ac count")
will be held in the name of the Trustee for
the benefit of the Certificateholders and the
Collateral Interest Holder. The
Overconcentration Account will have a
beginning balance of zero. On any Transfer
Date on which the aggregate amount of Eligible
Receivables due from companies with specified
credit ratings and their employees and
consolidated affiliates exceed specified
percentages of the total amount of Eligible
Receivables as described herein, certain
amounts of Excess Spread and Shared Excess
Yield Collections are required to be deposited
in the Overconcentration Account. To the
extent that on any Transfer Date the sum of
Excess Spread and Shared Excess Yield
Collections is less than the Class A Required
Amount, the Class B Required Amount and the
Collateral Required Amount, amounts, if any,
available from the Overconcentration Account
will be applied to fund the remaining Class A
Required Amount, Class B Required Amount and
Collateral Required Amount, in that order of
priority. If, on any Transfer Date, amounts on
deposit in the Overconcentration Account
(after giving effect to any deposits therein
or withdrawals therefrom on such Transfer
Date) exceed the amount required to be on
deposit there- in, such excess shall be paid
to the Collateral Interest Holder in
accordance with the Loan Agreement and will
not be available to the Certificateholders.
See "Description of the Certifi-
cates--Overconcentration Account."
Shared Excess Yield
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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 certificatehold- ers 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
Certificates--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
corpora- tion. 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 a regulation issued by the Department of
Labor (the "Plan Assets Regulation"), the
Trust's assets would not be deemed "plan
assets" of any employee benefit plan holding
interests in the Class A Certificates if the
Class A Certificates qualify as "publicly-
offered securities" within the meaning of the
Plan Assets Regula tion. To qualify as
publicly-offered securities, certain
conditions must be 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 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
Plan Assets Regulation will be met with
respect to the Class A
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20
<PAGE>
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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 transactions 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 Plan Assets Regulation. Accordingly, the
Class B Certificates may not be acquired by
employee benefit plan investors, including but
not limited to by insurance company general
accounts. Each Certificate Owner of a Class B
Certificate, by its acceptance thereof, will
be deemed to have represented that it is not
an employee benefit plan investor. See "ERISA
Consider- ations."
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 Factors--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 Investor- Interest. See
"Description of the
Certificates--Subordination of the Class B
Certificates and the Collateral Investor
Interest" and "Risk Factors--Certificate
Rating."
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21
<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. If, upon the insolvency of the Transferor, the
Transferor were to be placed into conservatorship or receivership, the FDIC as
conservator or receiver would have 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. With respect to 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 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 statutory administrative claims procedure , or the FDIC were
to request a stay of judicial proceedings with respect to the Transferor ,
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,
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<PAGE>
a claim for the repudiated obligation is limited to "actual direct compensatory
damages" determined as of the date of the appointment of the FDIC as conservator
or receiver. The FDIC has not adopted a formal policy statement on "actual
direct compensatory damages" with respect to collateralized borrowings of banks
that 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
outstanding principal owed plus interest accrued 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, however, 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 the FDIC repudiated the Transferor's
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." If the FDIC were appointed as conservator or receiver
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 the FDIC were appointed as conservator or receiver for the Transferor and no
Early Amortization Event other than such conservatorship, receivership or
insolvency of the Transferor exists, the FDIC 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, the FDIC as
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. See "Maturity Considerations." 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.
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 adverse effect on
Certificateholders if such Receivable is charged off as uncollectible or if
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<PAGE>
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--Covenants,
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. See "Maturity Considerations."
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. See "Maturity Considerations." 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
24
<PAGE>
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.
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 and amounts on deposit in the Overconcentration
Account are depleted, 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 and amounts on deposit in the Overconcentration Account are
depleted, 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--Enhancement;
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 1997-1. 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."
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<PAGE>
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 1997-1 Supplement. However, the
Agreement and Series 1997-1 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
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.
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
26
<PAGE>
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, among other things,
that 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.
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,
27
<PAGE>
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
28
<PAGE>
balances at the end of the month in which the account becomes 150 days past due.
As of November 30, 1996, no one company accounted for more than 3.5% of total
Corporate Card and Purchasing Card account balances.
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.
29
<PAGE>
Receivable Turnover Rates for the Bank Portfolio
(Dollars in Thousands)
Year Ended December 31,
-------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
Charge Volume and Fees(1).... $5,124,989 $4,057,496 $2,745,798 $1,583,650
Average Net Receivables(2)... $ 568,822 $ 461,162 $ 317,324 $ 193,169
Receivable Turnover Rate(3).. 9.01 8.80 8.65 8.20
- - ----------
(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.
Monthly Payment Rates for the Bank Portfolio(1)
Year Ended December 31,
-------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
Monthly Average Rate....... 74.67% 72.62% 70.67% 69.93%
Highest Month.............. 79.22% 78.78% 75.13% 77.08%
Lowest Month............... 68.67% 67.36% 61.49% 59.98%
- - ----------
(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 any earnings on funds on deposit in the
Excess Funding Account) and the Yield Factor. Such collections, plus certain
amounts of Net Interchange attributed to cardholder charges in the Accounts and
any earnings on funds on deposit in the Excess Funding Account, 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 2.00% (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 2.00%.
30
<PAGE>
Periodic Yield Computation for the Bank Portfolio
Assuming a 2.00% Yield Factor
(Dollars in Thousands)
Year Ended December 31,
-------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
Computed Yield(1)............. $99,113 $77,364 $51,092 $29,672
Computed Yield
as a Percentage
of Charge Volume
and Fees (2)................ 1.93% 1.91% 1.86% 1.87%
Net Interchange(3)............ $84,072 $65,574 $44,554 $25,588
Net Interchange
as a Percentage
of Charge Volume and Fees... 1.64% 1.62% 1.62% 1.62%
Computed Yield and Net
Interchange as a Percentage
of Charge Volume and Fees... 3.57% 3.52% 3.48% 3.49%
- - ----------
(1) Computed Yield is the dollar amount equal to the product of the 2.00%
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
2.00% 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)
Year Ended December 31,
-------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
Gross Losses(1) ............... $ 6,691 $ 6,629 $ 4,682 $ 3,589
Gross Losses as a Percentage of
Charge Volume and Fees ...... 0.13% 0.16% 0.17% 0.23%
Recoveries .................... $ 2,411 $ 2,810 $ 1,404 $ 1,161
Recoveries as a Percentage of
Charge Volume and Fees ...... 0.05% 0.07% 0.05% 0.07%
Net Losses .................... $ 4,280 $ 3,819 $ 3,278 $ 2,428
Net Losses as a Percentage of
Charge Volume and Fees ...... 0.08% 0.09% 0.12% 0.15%
31
<PAGE>
- - ----------
(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.
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 2.00% Yield Factor
(Dollars in Thousands)
Year Ended December 31,
-------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
Computed Net Yield ....... $ 94,833 $ 73,545 $ 47,814 $ 27,244
Computed Net Yield as a
Percentage of Charge
Volume and Fees ........ 1.85% 1.81% 1.74% 1.72%
Computed Net Yield
and Net Interchange .... $ 178,905 $ 139,119 $ 92,368 $ 52,832
Computed Net Yield and Net
Interchange as a
Percentage of Charge
Volume and Fees ........ 3.49% 3.43% 3.36% 3.34%
- - ----------
The ability of the Trust to generate sufficient yield to pay interest to
Certificateholders and to pay the Servicing Fee depends upon the Receivable
Turnover 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, 1996, the Computed Net Yield as a Percentage of
Charge Volume and Fees was 1.85% and the Receivable Turnover Rate (total Charge
Volume and Fees divided by Average Net Receivables) was 9.01. The product of
these two variables results in a net yield as a percentage of Average Net
Receivables of 16.67% for the year ended December 31, 1996. Adding Net
Interchange for the period results in a net yield and Net Interchange as a
percentage of Average Net Receivables of 31.45% for the year ended December 31,
1996. 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.
32
<PAGE>
<TABLE>
Delinquency Experience for the Bank Portfolio
(Dollars in Thousands)
<CAPTION>
Average of Twelve Months
Ended December 31,
----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
------------------------ ------------------------ ------------------------ ------------------------
Number of Days Delinquent Delinquent Delinquent Delinquent
Delinquent(1) Amount(2) Percentage(3) Amount(2) Percentage(3) Amount(2) Percentage(3) Amount(2) Percentage(3)
- - ------------- ---------- ----------- ---------- ----------- ---------- ----------- ----------- ----------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
30 to 59 days .. $20,623 3.61% $16,869 3.66% $12,898 4.04% $ 8,021 4.28%
60 to 89 days .. 4,377 0.77 3,681 0.80 2,242 0.70 1,747 0.93
90 to 119 days . 1,662 0.29 1,511 0.33 1,032 0.32 623 0.33
120 or more days 1,028 0.18 871 0.19 642 0.20 382 0.20
Total(4) .. $27,690 4.83% $22,932 4.98% $16,814 5.26% $10,773 5.75%
</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.
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 $555,691,966.42. The Accounts originated under the
Corporate Card program had an aggregate balance of $423,389,097.17, an average
balance of $1,023.01 and an average age of approximately 26.95 months. The
Accounts originated under the Purchasing Card program had an aggregate balance
of $132,302,869.25, an average balance of $52,899.99 and an average age of
approximately 23.70 months. As of the Cut-Off Date, cardholders whose Accounts
are included in the Trust Portfolio had billing addresses in 50 States, the
District of Columbia and other United States territories and possessions.
The Receivables included in the Trust Portfolio, as of the Cut-Off Date,
represent aggregate Trust principal (the "Trust Principal Component") of
$544,578,127.09. 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
33
<PAGE>
the composition of the Trust Portfolio at any subsequent date. (Percentage
columns may not sum to 100% due to rounding.)
Composition by Account Balance
Trust Portfolio
Percentage
of Total Percentage
Number of Number of of Total
Account Balance Accounts Accounts Receivables Receivables
- - --------------- -------- -------- ----------- -----------
Credit Balance................ 18,800 4.52% $(10,400,071.02) 1.87%
No Balance.................... 154,766 37.17 -- --
$0.01 - $1,000.00............. 156,834 37.67 53,296,143.36 9.59
$1,000.01 - $5,000.00......... 73,294 17.60 155,855,751.59 28.05
$5,000.01 - $100,000.00....... 12,187 2.93 134,813,119.13 24.26
$100,000.01 - $1,000,000.00... 436 0.10 125,662,766.40 22.61
$1,000,000.01 or More......... 50 0.01 96,464,256.94 17.36
TOTAL..................... 416,367 100.00% $555,691,955.42 100.00%
Composition by Period of Delinquency
Trust Portfolio
Percentage
Period of Delinquency of Total Percentage
(Days Contractually Number of Number of of Total
Delinquent) Accounts Accounts Receivables Receivables
- - --------------------- -------- -------- ------------- ------------
Not Delinquent........... 370,866 89.07% $497,746,152.61 89.57%
Up to 30 Days........... 40,094 9.63 53,918,496.22 9.70
31 to 60 Days........... 5,407 1.30 4,029,317.59 0.72
61 or more Days.......... -- -- -- --
TOTAL................ 416,367 100.00% $555,691,966.42 100.00%
Composition by Account Age
Trust Portfolio
Percentage
of Total Percentage
Number of Number of of Total
Account Age Accounts Accounts Receivables Receivables
- - --------------- -------- -------- ----------- -----------
Not More than 6 Months....... 44,381 10.66% $ 34,589,902.59 6.22%
Over 6 Months to 12 Months.. 55,189 13.25 64,513,699.76 11.61
Over 12 Months to 24 Months.. 106,046 25.47 144,840,038.41 26.06
Over 24 Months to 36 Months.. 102,493 24.62 145,259,316.85 26.14
Over 36 Months to 48 Months.. 43,073 10.34 85,795,694.12 15.44
Over 48 Months to 60 Months.. 48,228 11.58 64,460,150.29 11.60
Over 60 Months to 72 Months.. 11,229 2.70 11,132,682.92 2.00
Over 72 Months............... 5,728 1.38 5,100,481.38 0.92
TOTAL.................... 416,367 100.00% $555,691,966.42 100.00%
34
<PAGE>
Geographic Distribution of Corporate Card Accounts Issued
Under the Individual Liability Plan or Joint & Several Liability
Plan in Trust Portfolio(1)
Percentage
of Total Percentage
Number of Number of of Total
State(2) Accounts Accounts Receivables Receivables
- - ----- -------- -------- ----------- -----------
Alabama................. 4,638 1.12% $ 3,127,073.07 0.85%
Alaska ................. 1,143 0.28 1,148,374.16 0.31
Arizona................. 6,805 1.65 4,574,204.66 1.24
Arkansas................ 3,689 0.89 1,563,599.31 0.42
California.............. 46,382 11.24 39,612,697.16 10.73
Colorado................ 10,427 2.53 11,000,719.98 2.98
Connecticut............. 3,698 0.90 6,797,005.08 1.84
Delaware................ 885 0.21 571,701.90 0.15
District of Columbia.... 915 0.22 1,065,720.13 0.29
Florida................. 10,595 2.57 8,215,971.90 2.23
Georgia................. 17,369 4.21 14,735,955.95 3.99
Hawaii.................. 290 0.07 216,933.00 0.06
Idaho................... 1,663 0.40 1,504,806.79 0.41
Illinois................ 25,044 6.07 23,033,730.80 6.24
Indiana................. 15,666 3.80 9,267,363.60 2.51
Iowa.................... 3,164 0.77 2,148,782.09 0.58
Kansas.................. 3,070 0.74 2,155,138.45 0.58
Kentucky................ 2,237 0.54 1,278,476.36 0.35
Louisiana............... 4,146 1.00 2,666,927.26 0.72
Maine................... 1,057 0.26 609,170.28 0.17
Maryland................ 7,166 1.74 5,965,662.55 1.62
Massachusetts........... 15,070 3.65 13,620,334.63 3.69
Michigan................ 11,250 2.73 9,995,185.13 2.71
Minnesota............... 23,991 5.81 14,193,959.08 3.85
Mississippi............. 2,463 0.60 1,345,585.92 0.36
Missouri................ 5,314 1.29 5,161,950.13 1.40
Montana................. 587 0.14 438,215.77 0.12
Nebraska................ 1,696 0.41 838,958.61 0.23
Nevada.................. 1,034 0.25 543,213.47 0.15
New Hampshire........... 5,827 1.41 6,517,844.41 1.77
New Jersey.............. 16,671 4.04 21,190,050.25 5.74
New Mexico.............. 6,859 1.66 2,110,205.68 0.57
New York................ 12,653 3.07 12,823,459.60 3.47
North Carolina.......... 7,723 1.87 6,934,130.94 1.88
North Dakota............ 932 0.23 559,953.05 0.15
Ohio.................... 16,586 4.02 14,056,753.90 3.81
Oklahoma................ 5,918 1.43 5,843,566.42 1.58
Oregon.................. 8,578 2.08 10,558,692.34 2.86
Pennsylvania............ 21,586 5.23 21,453,442.25 5.81
Rhode Island............ 1,168 0.28 1,077,681.62 0.29
South Carolina.......... 4,212 1.02 2,875,365.87 0.78
South Dakota............ 672 0.16 356,553.60 0.10
Tennessee............... 6,162 1.49 7,457,027.61 2.02
Texas................... 38,503 9.33 47,008,234.25 12.73
Utah.................... 2,528 0.61 1,858,830.92 0.50
Vermont................. 165 0.04 133,042.72 0.04
Virginia................ 7,985 1.93 5,912,010.32 1.60
Washington.............. 5,185 1.26 4,168,120.71 1.13
West Virginia........... 931 0.23 452,807.97 0.12
Wisconsin............... 8,598 2.08 7,052,325.53 1.91
Wyoming................. 1,163 0.28 773,647.48 0.21
Other................... 702 0.17 530,651.93 0.14
TOTAL............... 412,761 100.00% $369,150,816.59 100.00%
- - ----------
35
<PAGE>
(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 and Purchasing Card
Programs--First Bank's Corporate Card Program."
(2) Based on individual cardholders' current billing addresses.
Geographic Distribution of Purchasing Card Accounts and
Corporate Card Accounts Issued
Under the Corporate Liability Plan in Trust Portfolio(1)
Percentage
of Total Percentage
Number of Number of of Total
State(2) Accounts Accounts Receivables Receivables
- - ----- -------- -------- ----------- -----------
Alabama..................... 19 0.53% $ 381,162.72 0.20%
Alaska...................... 11 0.31 347,997.44 0.19
Arizona..................... 27 0.75 1,483,166.90 0.80
Arkansas.................... 37 1.03 443,967.45 0.24
California.................. 387 10.73 27,602,396.70 14.80
Colorado.................... 119 3.30 5,399,938.88 2.89
Connecticut................. 49 1.36 1,770,014.57 0.95
Delaware.................... 12 0.33 3,138,102.70 1.68
District of Columbia........ 13 0.36 834,887.32 0.45
Florida..................... 92 2.55 1,963,800.18 1.05
Georgia..................... 146 4.05 3,855,982.72 2.07
Idaho....................... 24 0.67 894,323.94 0.48
Illinois.................... 154 4.27 11,890,645.43 6.37
Indiana..................... 73 2.02 4,610,521.19 2.47
Iowa........................ 49 1.36 538,173.19 0.29
Kansas...................... 67 1.86 5,580,699.30 2.99
Kentucky.................... 5 0.14 57,665.10 0.03
Louisiana................... 23 0.64 468,353.86 0.25
Maine....................... 12 0.33 399,911.16 0.21
Maryland.................... 35 0.97 3,883,988.19 2.08
Massachusetts............... 140 3.88 6,515,887.45 3.49
Michigan.................... 153 4.24 7,431,821.13 3.98
Minnesota................... 201 5.57 11,672,240.30 6.26
Mississippi................. 35 0.97 132,859.20 0.07
Missouri.................... 112 3.11 3,618,812.11 1.94
Montana..................... 1 0.03 -- 0.00
Nebraska.................... 11 0.31 1,759,005.22 0.94
Nevada...................... 13 0.36 185,841.97 0.10
New Hampshire............... 16 0.44 311,555.97 0.17
New Jersey.................. 120 3.33 8,027,745.56 4.30
New Mexico.................. 10 0.28 417,631.75 0.22
New York.................... 294 8.15 15,739,803.79 8.44
North Carolina.............. 76 2.11 5,049,226.28 2.71
North Dakota................ 4 0.11 47,978.70 0.03
Ohio........................ 158 4.38 10,002,750.46 5.36
Oklahoma.................... 96 2.66 2,479,188.31 1.33
Oregon...................... 36 1.00 3,908,787.93 2.10
Pennsylvania................ 140 3.88 10,579,321.34 5.67
Rhode Island................ 10 0.28 183,811.07 0.10
South Carolina.............. 34 0.94 1,482,237.19 0.79
South Dakota................ 1 0.03 15,188.48 0.01
Tennessee................... 79 2.19 2,254,207.27 1.21
Texas....................... 323 8.96 6,877,950.18 3.69
Utah........................ 22 0.61 2,236,873.30 1.20
Vermont..................... 1 0.03 6,232.63 0.00
Virginia.................... 43 1.19 4,117,979.47 2.21
Washington.................. 32 0.89 1,547,893.60 0.83
West Virginia............... 6 0.17 79,163.96 0.04
Wisconsin................... 52 1.44 3,807,930.24 2.04
Wyoming..................... 7 0.19 60,995.98 0.03
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Other....................... 26 0.72 444,530.05 0.24
TOTAL................... 3,606 100.00% $186,541,149.83 100.00%
- - ----------
(1) Includes only Purchasing Card Accounts and Corporate Card Accounts issued
under the Corporate liability plan in the Trust Portfolio. See "First
Bank's Corporate Card and Purchasing Card Programs--First Bank's
Purchasing Card Program" and "--First Bank's Corporate Card Program."
(2) Based on the current billing addresses of the relevant Corporate Card and
Purchasing Card Accounts.
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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 1997-1 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 1997-1 on each Special Payment Date with respect to such
Early Amortization Period, until the Series 1997-1 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
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otherwise have been had such payments of principal not been made or had such
payments of principal been made at a different time.
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, South Dakota. 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 December 31, 1996,
First Bank had assets of $1.94 billion and shareholder's equity of $188.2
million, determined in accordance with regulatory accounting principles (which
differ, in certain instances, from generally accepted accounting principles). As
of September 30, 1996, First Bank System had assets of $36.84 billion and
shareholders' equity of $3.18 billion, determined in accordance with generally
accepted accounting principles.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement and the Series
1997-1 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
1997-1 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
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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 pursuant to the
Loan Agreement to one or more third-party investors which will not be affiliates
of the Transferor. 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 providers of Enhancement , if any, applicable to any Series. 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. The Transferor Percentage as of any date of determination will
equal 100% minus the sum of the applicable allocation percentages for all Series
outstanding as of the date on which such determination is being made. See
"--Allocation Percentages."
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 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'
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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.
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.
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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 the 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 in the Trust 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 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.
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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").
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
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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 _______,
1997, 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 ___ 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 ___ 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 1997-1, amounts available from the Overconcentration Account 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 Invested Amount, the Principal Funding
Investment Proceeds, if any, with respect to the related Transfer Date; and
(iii) amounts, if any, to be withdrawn from the Reserve Account which are
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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 1997-1, amounts available from the Overconcentration Account 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 Class A
Invested Amount. 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 Class B Invested Amount. During the Early
Amortization Period, which will begin upon the occurrence of an Early
Amortization Event, and until the Series 1997-1 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 least 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 1997-1 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 1997-1 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 1997-1
Termination Date occurs, the Class A Certificateholders will be entitled to
receive Class A Monthly Principal in an amount up to the Class A Invested
Amount. After payment in full of the Class A Invested Amount , the Class B
Certificateholders will be entitled to receive
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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 1997-1
Termination Date.
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 two 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
two months, the Transferor may, at its option, postpone the commencement of the
Accumulation Period such that the number of months included in the Accumulation
Period will equal one. 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 the 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
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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."
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 100% of 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 periods during which or dates
on which principal will be paid or accrued, (vi) the method for allocating
collections to certificateholders, (vii) the names of any accounts to be used by
such Series and the terms governing the operation of any such accounts, (viii)
the percentage used to calculate servicing fees, (ix) the Minimum Transferor
Amount and minimum Transferor percentage (the "Minimum Transferor Percentage")
applicable to such Series, (x) the applicable Minimum Trust Principal Component
required to be maintained through the designation by the Transferor of
Additional Accounts, (xi) the issuer and terms of any Enhancement with respect
thereto, (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) whether Net Interchange or other fees will be included in the funds
available to be paid for such Series, (xvii) the priority of any Series with
respect to any other Series, if applicable, (xviii) the rights of the holder of
the Exchangeable Transferor Certificate that have been transferred to
certificateholders of such Series and (xix) 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
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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
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 income 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.
Covenants, 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 Addition 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 the applicable Addition Date. 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, the Trust's rights in, to or under the
Receivables or their proceeds are impaired or the proceeds of such Receivables
are not available for any reason to the Trust free and clear of any lien, 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
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given by the Trustee, then such Receivable shall be designated an "Ineligible
Receivable ." Additionally, the Transferor will covenant in the Agreement to
accept, under certain conditions, the designation as an Ineligible Receivable of
each Receivable which is subject to certain specified liens immediately upon the
earlier to occur of the discovery of any such lien by the Transferor or the
Servicer, or receipt by the Transferor of written notice of any such lien given
by the Trustee. Each Ineligible Receivable 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 Amount, the Transferor shall
make a deposit into the Excess Funding Account in an amount equal to the amount
required to cause the Transferor Amount to equal the Minimum Transferor Amount.
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.
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 1997-1 Supplement and to
execute and deliver to the Trustee the Certificates pursuant to the Agreement,
(ii) the Agreement and the Series 1997-1 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 the proceeds
thereof (except for liens for local taxes and government charges not due and
payable or being contested in good faith by the Transferor), 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
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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
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 "Addition 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 (or, if First Bank or First Bank System fails to maintain
a certificate of deposit rating or to meet other criteria required by the
applicable Rating Agency, as of the end of any business day), the Trust
Principal Component plus the principal amount, if any, on deposit in the Excess
Funding Account minus the sum of the invested amounts (or adjusted invested
amounts for Series with a Principal Funding Account) and any Receivables
allocated to Enhancement providers for all Series (the "Transferor Amount") is
less than the Minimum Transferor Amount or if, as of the end of any Collection
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Period (or, if First Bank or First Bank System fails to maintain a certificate
of deposit rating or to meet other criteria required by the applicable Rating
Agency, as of the end of any business day), the Trust Principal Component plus
the principal amount, if any, on deposit in the Excess Funding Account is less
than the aggregate of the minimum amounts of the Trust Principal Component (the
"Minimum Trust Principal Component") specified in the Series Supplement for each
outstanding Series. Failure to make any such required designation will result in
an Early Amortization Event with respect to the related Series. The "Minimum
Transferor Amount " is equal to the product of (a) the Minimum Transferor
Percentage and (b) the sum of (i) the Trust Principal Component as of the end of
the preceding Collection Period and (ii) the principal amount, if any, on
deposit in the Excess Funding Account as of the end of such Collection Period;
provided, however, that the Transferor may reduce the Minimum Transferor Amount
upon receiving written confirmation from each Rating Agency that has rated any
outstanding Series that such reduction will not result in the reduction or
withdrawal of its rating on any outstanding Series and upon satisfaction of
certain other conditions to be set forth in the Agreement. The "Minimum
Transferor Percentage" is the highest percentage specified as the Minimum
Transferor Percentage in any Series Supplement for any outstanding Series. 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) the
Transferor shall give the Trustee, the applicable Rating Agency and the Servicer
written notice that such Additional Accounts will be included, which notice
shall specify the approximate aggregate amount of the Receivables or interests
therein to be transferred; (ii) the Transferor shall have delivered to the
Trustee a written assignment (including an acceptance by the Trustee on behalf
of the Trust for the benefit of the certificateholders) as provided in the
Agreement relating to such Additional Accounts (the "Assignment"), and the
Transferor shall have delivered to the Trustee a computer file or microfiche
list, dated the date of such Assignment, containing a true and complete list of
such Additional Accounts; (iii) the Transferor shall represent and warrant that
(x) each Additional Account is, as of the Addition Date, an Eligible Account,
and each Receivable in such Additional Account is, as of the Addition Date, an
Eligible Receivable, (y) no selection procedures believed by the Transferor to
be materially adverse to the interests of certificateholders were utilized in
selecting the Additional Accounts from the available Eligible Accounts from the
Bank Portfolio, and (z) as of the Addition Date, the Transferor is not
insolvent; and (iv) the Transferor shall deliver certain opinions of counsel
with respect to the transfer of the Receivables in the Additional Accounts to
the Trust. 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.
The Minimum Transferor Percentage specified in the Series 1997-1
Supplement is equal to, on any date of determination, the result obtained by
rounding upward to the nearest integer percentage which is evenly divisible by
two (which percentage shall never be less than 10% or more than 100%), the
percentage equivalent of the product of (A) 1.6 times (B) the highest result
obtained for any Collection Period within the twelve Collection Periods
preceding the date of determination by computing for each such Collection Period
a fraction, the numerator of which is the aggregate amount of Adjustments for
such Collection Period and the denominator of which is the aggregate gross
amount of cardholder charges and fees in the Accounts with respect to such
Collection Period times (C) a fraction, the numerator of which is the aggregate
gross amount of cardholder charges and fees in the Accounts with respect to the
Collection Period immediately preceding the date of deter mination and the
denominator of which is the net Receivables balance as of the close of business
on the last day of such Collection Period; provided that if such calculations
would require reference to one or more Collection Periods that occur prior to
the Closing Date, the amount of Adjustments, cardholder charges and fees, and
the net Receivables balance referred to above will be determined with respect to
all the receivables in the accounts in the Bank Portfolio. The Minimum Trust
Principal Component specified in the Series 1997-1 Supplement is the Invested
Amount.
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.
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Removal of Accounts
Subject to the conditions set forth below, on each Determination Date with
respect to which (a) the Transferor Amount exceeds the Minimum Transferor Amount
at the end of the related Collection Period and (b) the Trust Principal
Component plus the principal amount, if any, on deposit in the Excess Funding
Account exceeds the Minimum Trust Principal Component 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 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 lesser of (x) the excess of the Transferor Amount
over the Minimum Transferor Amount as of the end of the related Collection
Period and (y) the excess of the Trust Principal Component plus the principal
amount, if any, on deposit in the Excess Funding Account over the Minimum Trust
Principal Component at 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, among others: (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 which 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), the deposits
in which are insured by the FDIC and which at all times has a short-term
unsecured debt or certificate of deposit rating of at least A-1+ or 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, provided that such institution at all times has a long-term
unsecured debt rating of at least Baa3 so long as Moody's Investors Service,
Inc. is a Rating Agency. 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) 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
(v) 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
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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.
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's 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 (i) the Servicer provides to the Trustee a letter of credit or other credit
support acceptable to the applicable Rating Agency or (ii) First Bank or First
Bank System maintains a certificate of deposit rating or meets other criteria
required by the applicable Rating Agency, the Servicer need not deposit
collections and payments made by the Transferor allocable to the
Certificateholders' and Collateral Interest Holder's 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 (the "Transfer 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.
Notwithstanding anything in the Agreement to the contrary, whether the
Servicer is required to make monthly or daily deposits into the Collection
Account with respect to any Collection Period, (i) the Servicer will only be
required to deposit collections from the Collection Account into the Principal
Funding Account, Interest Funding Account, Overconcentration Account or Excess
Funding Account up to the required amount to be deposited into any such account
or, without duplication, distributed on or prior to the related Distribution
Date to Certificateholders or to the Collateral Interest Holder and (ii) if at
any time prior to such Distribution Date the amount of collections deposited in
the Collection Account exceeds the amount required to be deposited pursuant to
clause (i) above, the Servicer will be permitted to withdraw the excess from the
Collection Account. 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 1997-1 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.
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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 1997-1) and the denominator of
which is equal to the greater of (i) the sum of (A) the Trust Principal
Component as of the close of business on the last day of the immediately
preceding Collection Period and (B) the principal amount on deposit in the
Excess Funding Account as of the close of business on such day 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 1997-1) and the denominator of which is
equal to the greater of (i) the sum of (A) the Trust Principal Component as of
the close of business on the last day of the immediately preceding Collection
Period and (B) the principal amount on deposit in the Excess Funding Account as
of the close of business on such day 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 1997-1) and the denominator of which is
equal to the greater of (i) the sum of (A) the Trust Principal Component as of
the close of business on the last day of the immediately preceding Collection
Period and (B) the principal amount on deposit in the Excess Funding Account as
of the close of business on such day 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 1997-1 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 1997-1 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 sum of (A) the Trust
Principal Component as of the close of business on the last day of the
immediately preceding Collection Period and (B) the principal amount on deposit
in the Excess Funding Account as of the close of business on such day 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 sum of (A) the Trust
Principal Component as of the close of business on the last day of the
immediately preceding Collection Period and (B) the principal amount on deposit
in the Excess Funding Account as of the close of business on such day and (ii)
the sum of the numerators used to
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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 sum of (A) the Trust
Principal Component as of the close of business on the last day of the
immediately preceding Collection Period and (B) the principal amount on deposit
in the Excess Funding Account as of the close of business on such day 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 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.
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"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 1997-1
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 losses and investment expenses ) 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 Excess Spread and Shared Excess Yield Collections, the amount, if any,
available from the Overconcentration Account or 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 1997-1 Supplement, the Trustee will establish and
maintain with an Eligible Institution a 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 Class A Certificates during the Accumulation Period to the extent the
Principal Funding Investment Proceeds and other Class A Available Funds are
insufficient. The Reserve Account will have a beginning balance of zero. 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) 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
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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 1997-1. On each
Transfer Date (after giving effect to any deposit to be made to, and any other
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 losses and investment expenses ) 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 (after taking into
account any interest and other investment income (net of losses and investment
expenses ) retained in the Reserve Account on such Transfer Date, but 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.
Overconcentration Account
Pursuant to the Series 1997-1 Supplement, the Trustee will establish and
maintain with an Eligible Institution an overconcentration account as a
segregated trust account held for the benefit of the Certificateholders (the
"Overconcentration Account"). The Overconcentration Account provides a source of
funds for the payment of the Class A Required Amount, the Class B Required
Amount and the Collateral Required Amount. The Overconcentration Account will
have a beginning balance of zero. On each Transfer Date, 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 Overconcentration Account
(to the extent
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such amount is less than the Required Overconcentration Account Amount). The
"Required Overconcentration Account Amount" for any Transfer Date will be equal
to the product of (a) the Overconcentration Balances as of the close of business
on the last day of the immediately preceding Collection Period and (b) the
Floating Allocation Percentage applicable during such Collection Period.
The "Overconcentration Balance," on any date of determination and with
respect to any company, will be equal to the amount of Eligible Receivables due
from such company and (without duplication) its employees and consolidated
affiliates which, expressed as a percentage of the amount of all Eligible
Receivables, exceeds (a) 6.0% for companies rated A-1 by Standard and Poor's
Ratings Services ("S&P"), (b) 4.5% for companies rated A-2 by S&P, (c) 3.5% for
companies rated A-3 by S&P and (d) 2.45% for companies rated below A-3 or not
rated by S&P and with no Implied Rating (as defined below); provided that other
percentages may be used to the extent that the applicable Rating Agency has
confirmed in writing that such use will not result in the reduction or
withdrawal of its ratings of the Certificates. In addition to, but without
duplication of, amounts computed in accordance with the preceding sentence, the
Overconcentration Balances will include: (x) with respect to the A-2 rating
category, an amount equal to the excess, if any, of (i) the sum of the amount
of Eligible Receivables due from the two companies in that category that
(together with their employees and consolidated affiliates) represent the two
highest percentages of Eligible Receivables in such category over (ii) 7% of
the amount of all Eligible Receivables; (y) with respect to the A-3 rating
category, an amount equal to the excess, if any, of (i) the sum of the amount
of Eligible Receivables due from the three companies in that category that
(together with their employees and consolidated affiliates) represent the three
highest percentages of Eligible Receivables in such category over (ii) 7% of
the amount of all Eligible Receivables; and (z) with respect to the below
A-3/not rated category, an amount equal to the excess, if any, of (i) the sum
of the amount of Eligible Receivables due from the four companies in that
category that (together with their employees and consolidated affiliates)
represent the four highest percentages of Eligible Receivables in such category
over (ii) 7% of the amount of all Eligible Receivables. Receivables due from
companies (including their employees and consolidated affiliates) rated A-1+ by
S&P will be excluded from the computation of the Overconcentration Balance.
The percentage applicable to any company will be the percentage
associated with S&P's short-term debt rating that is in effect for such
company. If no S&P short-term debt rating is in effect for a company, the
percentage applicable to such company will be the percentage associated with
the company's Implied Rating based on S&P's long-term debt rating or claims
paying ability that is in effect for such company. If no S&P short-term or
long-term debt rating or claims paying ability is in effect for a company, the
percentage applicable to such company will be the percentage associated with
S&P's short-term debt rating that is in effect for such company's corporate
parent, if any, or if no such S&P short-term debt rating is in effect for such
corporate parent, the corporate parent's Implied Rating based on S&P's
long-term debt rating or claims paying ability that is in effect for such
corporate parent. If there is no basis to determine an actual or Implied Rating
for a company or its corporate parent in accordance with the foregoing, such
company will be considered not rated. The "Implied Rating" associated with each
S&P long-term debt rating or claims paying ability category will be as follows:
companies rated A+ to AAA will be assigned an Implied Rating of A-1+; those
rated A- to A will be assigned an Implied Rating of A-1; those rated BBB to
BBB+ will be assigned an Implied Rating of A-2; those rated BBB- will be
assigned an Implied Rating of A-3; and those rated below BBB- will be assigned
an Implied Rating of "below A-3." The Servicer will determine and advise the
Trustee of the company credit ratings in effect on the Closing Date and
thereafter will determine and advise the Trustee of such ratings quarterly on
or prior to the Transfer Dates occurring in the months of February, May, August
and November.
On each Transfer Date (after giving effect to any deposit to be made to,
and any other withdrawal to be made from, the Overconcentration Account on such
Transfer Date), the Trustee will withdraw from the Overconcentration Account an
amount equal to the excess, if any, of the amount on deposit in the
Overconcentration Account over the Required Overconcentration Account Amount and
shall distribute such excess to the Collateral Interest Holder for application
in accordance with the terms of the Loan Agreement. Any amounts withdrawn from
the Overconcentration Account and distributed to the Collateral Interest Holder
as described above will not be available for distribution to the
Certificateholders.
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All amounts on deposit in the Overconcentration Account on any Transfer
Date (after giving effect to any deposits to, or withdrawals from, the
Overconcentration 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 losses
and investment expenses) earned on such investments will be retained in the
Overconcentration Account to the extent the amount on deposit is less than the
Required Overconcentration Account Amount and otherwise will be paid to the
Transferor.
On or before each Transfer Date, a withdrawal will be made from the
Overconcentration Account in an amount equal to the lesser of (a) the Available
Overconcentration Account Amount with respect to such Transfer Date and (b) the
sum of any Class A Required Amount, Class B Required Amount and Collateral
Required Amount remaining after application of Excess Spread and Shared Excess
Yield Collections to the payment thereof (as specified under "--Application of
Collections--Excess Spread; Shared Excess Yield Collections"). Amounts withdrawn
from the Overconcentration Account on any Transfer Date will be used to fund
first any remaining Class A Required Amount, second any remaining Class B
Required Amount and third any remaining Collateral Required Amount, in each case
after application of Excess Spread and Shared Excess Yield Collections allocable
to the payment thereof. On each Transfer Date, the amount available to be
withdrawn from the Overconcentration Account (the "Available Overconcentration
Account Amount") will be equal to the lesser of the amount on deposit in the
Overconcentration Account (after taking into account any interest and other
investment income (net of losses and investment expenses) retained in the
Overconcentration Account on such Transfer Date, but before giving effect to any
deposit to be made to the Overconcentration Account on such Transfer Date) and
the Required Overconcentration Account Amount for such Transfer Date.
Excess Funding Account
If on any date the Transferor Amount would be less than the Minimum
Transferor Amount (after giving effect to any addition of Additional Accounts to
the Trust on such date) if the Servicer were to distribute to the holder of the
Exchangeable Transferor Certificate any Principal Collections that otherwise
would be distributed to the holder of the Exchangeable Transferor Certificate,
the Servicer will not distribute such amounts, but will instead deposit such
funds in a segregated account established and maintained by the Servicer, in the
name of the Trust, for the benefit of certificateholders of all Series issued by
the Trust, with an Eligible Institution (the "Excess Funding Account"). Funds on
deposit in the Excess Funding Account will be withdrawn and paid to the holder
of the Exchangeable Transferor Certificate on any date to the extent that the
Transferor Amount exceeds the Minimum Transferor Amount on such date; provided,
however, that if an accumulation period or amortization period commences with
respect to any Series other than Series 1997-1, any funds on deposit in the
Excess Funding Account not released to the holder of the Exchangeable Transferor
Certificate will be treated as Shared Principal Collections to the extent needed
to cover principal payments due to or for the benefit of such Series, if the
Series Supplement with respect to such Series so provides. This feature is
intended to avoid or forestall the occurrence of an early amortization event
(and thus certain unexpected prepayments of the certificates) at a time when
adequate Principal Collections are not being generated in the Accounts by
retaining Principal Collections in the Trust for the benefit of
certificateholders. Certificateholders will not incur any costs, direct or
indirect, as a result of the inclusion of this feature.
Funds on deposit in the Excess Funding Account generally will be invested
in certain Eligible Investments described under "--Collection Account." Any
earnings (net of losses and investment expenses) on funds on deposit in the
Excess Funding Account during any Collection Period will be withdrawn from the
Excess Funding Account and treated as Yield Collections with respect to such
Collection Period.
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
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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 1997-1 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, the amount, if any,
available from the Overconcentration Account will then be used to fund the
remaining Class A Required Amount. If the amount available from the
Overconcentration Account is insufficient to fund the remaining Class A Required
Amount, Principal Collections allocable first to the Collateral Investor
Interest ("Reallocated Collateral Principal Collections") and then to 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 1997-1 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 1997-1 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, the amount, if any, available from the
Overconcentration Account not required to fund the Class A Required Amount will
then be used to fund the remaining Class B Required Amount. If the amount
available from the Overconcentration Account is insufficient to fund the
remaining 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
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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 1997-1 available for such purposes on each
Distribution Date.
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 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
1997-1 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 1997-1 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 to 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 amount,
if any, available from the Overconcentration Account not required to fund the
Class A Required Amount or the Class B Required Amount will then be used to fund
the remaining Collateral Required Amount. If the amount available from the
Overconcentration Account is insufficient to fund the remaining 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;
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(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 1997- 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 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.
(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 as of
the Closing Date 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 as of
the Closing Date at the Class B Certificate Rate for the period from and
including the Closing Date through the day preceding such Distribution Date.
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"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 ____, 1997.
"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 1997-1 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 1997-1 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 1997-1 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 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 1997-1 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 1997-1 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 Collec-
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tions allocable to Series 1997-1 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;
(k) an amount up to the excess, if any, of the Required
Overcollateralization Account Amount over the Available
Overcollateralization Account Amount shall be deposited into the
Overconcentration Account;
(l) an amount equal to the aggregate of any other amounts then due
to the Collateral Interest Holder pursuant to the Loan Agreement shall be
applied in accordance with the Loan Agreement; and
(m) 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 holder of the Exchangeable Transferor
Certificate.
"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 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 1997-1 available therefor ("Available Investor 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 Investor 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 Investor 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
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B Monthly Principal for such Transfer Date will 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 least of (i) the
Available Investor 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 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 Investor Principal Collections on deposit in the Collection Account
with respect to such Transfer Date (minus the portion of such Available Investor
Principal Collections applied to Class A Monthly Principal on such Transfer
Date) and (ii) the Class B 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 Invested Amount (after taking into account
payments to be made on the related Distribution Date), either (A) during the
Revolving Period, subject to certain limitations specified in the Loan
Agreement, the excess of the Collateral Invested Amount (after giving effect to
reductions for any Collateral Investor Charge-Offs and any Reallocated
Collateral Principal Collections) 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 Investor Principal Collections not applied to Class A
Monthly Principal or Class B Monthly Principal; provided, however, that the
amount determined pursuant to either clause (A) or (B) above shall not exceed
the Available Investor Principal Collections remaining after application to pay
Class A Monthly Principal or Class B Monthly Principal; and provided, further,
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
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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
with respect to the Class B Certificates will constitute "Enhancement" for the
Class A Certificates and the Class B Certificates, respectively. In addition,
the amounts, if any, on deposit in the Overconcentration Account will constitute
"Enhancement" for the Class A Certificates, the Class B Certificates and the
Collateral Investor Interest. 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 (a) $______ on the initial
Transfer Date and (b) an amount equal to the sum of (i) __% 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) , and the Collateral
Invested Amount on the prior Transfer Date after any adjustments made on such
Transfer Date and (ii) during the Accumulation Period, the excess, if any, of
the Required Overconcentration Account Amount over the amount on deposit in the
Overconcentration Account (after giving effect to any deposit to be made to, and
any withdrawal to be made from, the Overconcentration Account on such Transfer
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 1997-1
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 and the amounts, if any, on deposit in the Overconcentration
Account are limited and will not provide protection against all risks of loss.
If losses occur which exceed the amount covered by the Collateral Invested
Amount and the amounts on deposit in the Overconcentration Account,
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
1997-1. Series 1997-1 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
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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. To the extent that Shared Principal Collections exceed the
amount necessary to cover principal payments due to or for the benefit of
certificateholders of other Series, the balance will be paid to the holder of
the Exchangeable Transferor Certificate or, in certain limited circumstances,
deposited into the Excess Funding Account. Series 1997-1 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 amount of Defaulted Receivables 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 amount of Defaulted
Receivables 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 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 1997-1, amounts available from the
Overconcentration Account and Reallocated Principal Collections applied as
described above in "--Application of Collections--Payment of Interest, Fees and
Other Items," "--Overconcentration Account" 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 1997-1, amounts available from the
Overconcentration Account 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 1997-1 , (b) amounts available from the Overconcentration
Account and (c) 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 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. 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
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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 1997-1 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 1997-1 not required to pay the Class A Required Amount or
reimburse Class A Investor Charge-Offs , (b) amounts available from the
Overconcentration Account not required to pay the Class A Required Amount and
(c) 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 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 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 1997-1 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 (a) 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 "
and (b) amounts available from the Overconcentration Account not required to pay
the Class A Required Amount or the Class B Required Amount, 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 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 1997-1 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 or refund, unauthorized charge, billing error or
certain other noncash items, or because such Receivable was created in respect
of merchandise which was refused or returned by a cardholder, or any Receivable
is discovered as having been created through a fraudulent or counterfeit charge
(each, an "Adjustment"), the aggregate balance of the Receivables will be
reduced, on a net basis, 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 Minimum Transferor Amount, the Transferor
shall deposit an amount sufficient to prevent the Transferor Amount from being
reduced below the Minimum Transferor Amount into the Excess Funding Account.
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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 1997-1 Termination Date. If the Invested Amount is greater
than zero on the Series 1997-1 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 1997-1 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) unless a Trust extension shall have
occurred, the day following the day on which the aggregate invested amounts of
all Series and any amounts payable to Enhancement providers is zero, (b) if a
Trust extension shall have occurred, the date specified in the applicable
notice, (c) ______ __, 20__ or (d) 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 1997-1 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;
(c) certain events of insolvency, conservatorship or receivership
relating to the Transferor or any holder of an interest in the
Exchangeable Transferor Certificate (such events include the
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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 any
holder of an interest in the Exchangeable Transferor Certificate or all or
substantially all of their respective property; the Transferor or any
holder of an interest in the Exchangeable Transferor Certificate 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;
(h) on any Transfer Date the Collateral Invested Amount is less than
the Required Collateral Invested Amount;
(i) on any three consecutive Transfer Dates, the excess of the
Required Overconcentration Account Amount over the amount on deposit in
the Overconcentration Account (after giving effect to any deposit to be
made to, and any withdrawal to be made from, the Overconcentration Account
on such Transfer Dates) divided by the Trust Principal Component is
greater than 1% for such Transfer Dates; or
(j) the Portfolio Yields for any three consecutive Collection
Periods are less than the average of the Base Rates for such Collection
Periods.
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) , (h), (i) or (j), 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. The term "Base Rate" means, with respect to any
Collection Period, the annualized percentage equivalent of a fraction, the
numerator of which is the sum of the Class A Monthly Interest, the Class B
Monthly Interest and the Collateral Monthly Interest, each with respect to the
Distribution Date immediately following such Collection Period, and the Class A
Servicing Fee, the Class B Servicing Fee and the Collateral Servicing Fee, each
with respect to the Transfer Date immediately following
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such Collection Period, and the denominator of which is the Invested Amount as
of the close of business on the last day of such Collection Period. The term
"Portfolio Yield" means, with respect to any Collection Period, the annualized
percentage equivalent of a fraction, the numerator of which is the sum of Yield
Collections (excluding Net Interchange, if any), Principal Funding Investment
Proceeds and amounts withdrawn from the Reserve Account and the
Overconcentration Account, in each case to the extent such amounts are available
and allocable to the Certificateholders or the Collateral Interest Holder with
respect to such Collection Period minus the Investor Default Amount for such
Collection Period, and the denominator of which is the Invested Amount as of the
close of business on the last day of such Collection Period.
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 certain events of insolvency, conservatorship or receivership relating
to Transferor or any holder of an interest in the Exchangeable Transferor
Certificate occur, on the day of such occurrence the Transferor will immediately
cease to transfer Receivables to the Trust and the Transferor will promptly give
notice to the Trustee of such occurrence. Within 15 days, the Trustee will
publish a notice of the occurrence of such an event 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)
, any holder of an interest in the Exchangeable Transferor Certificate with
respect to which such event of insolvency, conservatorship or receivership has
not occurred and each provider of Enhancement, if any, applicable to any Series,
the Trustee will sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms. If the
Trustee is instructed not to liquidate the Receivables as described in the
preceding sentence, the Trustee will retain the Receivables and apply
collections thereon in accordance with the Agreement; provided that the Trustee
shall nevertheless liquidate any remaining Receivables no later than three years
after the date the event of insolvency, conservatorship or receivership occurs.
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."
Indemnification
The Agreement provides that the Servicer will indemnify the Trust, and the
Trustee, including its officers, directors , employees and agents, 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 or the Trustee or its officers, directors or
employees for any liabilities, costs or expenses with respect to (a) the Trustee
for liabilities imposed by reason of fraud, negligence, or willful misconduct by
the Trustee in the performance of its duties under the Agreement, (b) the Trust,
the Certificateholders or the Certificate Owners for liabilities arising from
actions taken by the Trustee at the request of Certificateholders, (c) the
Trust, the Certificateholders or the Certificate Owners for any losses, claims,
damages or liabilities incurred by any of them in their capacities as investors,
including without limitation, losses incurred as a result of defaulted
Receivables or Receivables which are written off as uncollectible, or (d) the
Trust, the Certificateholders or the Certificate Owners for any liabilities,
costs or expenses of the Trust, the Certificateholders or the Certificate Owners
arising under any tax law, including without limitation, any federal, state or
local income or franchise tax or any other tax imposed on or measured by income
(or any interest or penalties with respect thereto or arising from a failure to
comply
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therewith) required to be paid by the trust, the Certificateholders or the
Certificate Owners in connection with the Agreement to any taxing authority.
Under the Agreement, the Transferor and any holder of an interest in the
Exchangeable Transferor Certificate 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 New York Partnership Law in
which the Transferor and any such holder of an interest in the Exchangeable
Transferor Certificate are general partners.
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.
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 satisfy
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; (iii) it will do nothing to
impair
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the rights of the Certificateholders in the Receivables and will not reschedule,
revise , waive and/or defer payments due on the Receivables, except in
accordance with the Servicer's usual and customary servicing practices and (iv)
all approvals, authorizations, consents, orders or other actions of any
governmental authority required in connection with the execution, delivery and
performance by the Servicer of the Agreement have been obtained.
In the event that (i) any covenant of the Servicer set forth above has not
been complied with in respect of any Receivable and (ii) such noncompliance has
a material adverse effect on the Certificateholders' interest in such Receivable
(without regard to the amount of any Enhancement), the Servicer will be
obligated to accept the transfer of such Receivable (or, at the Transferor's
option, all the Receivables with respect to the related Account) within 60 days,
or such longer period as may be agreed to by the Trustee (not to exceed on
additional 60 days), of the earlier to occur of the discovery of such
noncompliance by the Servicer or receipt by the Servicer of written notice of
such noncompliance given by the Trustee. Such assignment and transfer will be
made when the Servicer deposits an amount equal to the amount of such Receivable
into the Collection Account prior to 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 any
such covenant 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 Rate") 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 Rate, (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, which portion shall equal
one-twelfth of the product of the Servicing Base Amount and __%. 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 the Servicing Base Amount and __%. In the event the Servicer
Interchange on deposit in the Collection Account on any Transfer Date is less
than one-twelfth of the product of the Servicing Base Amount and __%, 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 Transfer
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 Transfer 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.
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
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Amount as of the last day of the second preceding Collection Period and (b) __%,
or if Card Services or any of its affiliates is not the Servicer, __% (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 and there is no reasonable action which the
Servicer could take to make the performance of its duties permissible. 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.
Servicer Default
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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 90 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 and subject to the consent of any provider of Enhancement. If the
Transferor does not nominate an entity to be successor Servicer , 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 may 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 or notice to the Trustee to make any
withdrawal or payment, 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 shall have been given to the Servicer by the
Trustee or to the Servicer and the Trustee by certificateholders of any
Series representing undivided interests aggregating not less than 50% of
the invested amount thereof 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 shall have been given to the Servicer by the Trustee or to the
Servicer and the Trustee by certificateholders of any Series representing
undivided interests aggregating not less than 50% of the invested amount
thereof 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
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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 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.
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 and the Interest 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).
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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, 1998, 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.
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, 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 and to enable the Trust or a portion thereof to
elect to qualify for federal income tax purposes as a "financial asset
securitization investment trust" or comparable tax entity for the securitization
of financial assets, provided that (i) the Transferor delivers to the Trustee a
certificate of an authorized officer of the Transferor to the effect that such
amendment will not adversely affect in any material respect the interest of such
Certificateholders, (ii) the Transferor delivers a Tax Opinion to the Trustee
and (iii) such amendment will not result in a withdrawal or reduction of the
rating of any outstanding Series by any Rating Agency. 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
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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 investor
percentage 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.
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. 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 Transferor may also remove
the Trustee, if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances, 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.
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
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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 the proceeds thereof
(except for liens for local taxes and government charges not due and payable or
being contested in good faith by the Transferor), 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, 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 should be enforceable (to the extent of the Trust's "actual direct
compensatory damages") notwithstanding the 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)
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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 statutory administrative claims procedure , or the FDIC were
to request a stay of proceedings with respect to the Transferor , delays in
payments on the Certificates and possible reductions in the amounts of those
payments could occur. In the event of a repudiation of obligations by the FDIC
as conservator or receiver, a claim for the repudiated obligation is limited to
"actual direct compensatory damages" determined as of the date of the
appointment of the FDIC as conservator or receiver. 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. The FDIC has not adopted a formal policy
statement on payment of "actual direct compensatory damages" with respect to
collateralized borrowings of banks that 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 costs of liquidation of the collateral if
provided for in the contract. In one case, however, involving the repudiation by
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 market value of the
repudiated bonds as of the date of repudiation. If that court's view were
applied to determine the Trust's "actual direct compensatory damages" in the
event the FDIC repudiated the Transferor's 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.
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 would 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 , any holder of an
interest in the Exchangeable Transferor Certificate (other than the Transferor)
and each provider of Enhancement, if any, applicable to any Series, or unless
otherwise required by the receiver or conservator for the Transferor, the
Trustee would 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, the FDIC as 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.
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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 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--Covenants, 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."
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
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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 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
non-payment 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
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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.
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
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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 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 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
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.
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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 , (iii) an estate the income of which is
includible in gross income for U.S. federal income tax purposes, regardless of
its source or (iv) a trust if (A) a court within the United States is able to
exercise primary supervision over the administration of the trust and (B) one or
more United States trustees have authority to control all substantial decisions
of the trust, except that the term does not include certain former citizens of
the United States whose income and gain on the Certificates will be subject to
United States taxation.
(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 States federal estate
tax as a result of the owner's death if, immediately before his death, (i)
the decedent did 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.
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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 a publicly traded partnership taxable as
a corporation, a Certificate 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.
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
consid-
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ering 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
"Plan Assets 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 Plan Assets 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 Plan Assets
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 Plan Assets
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.
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
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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.
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.
Principal Balance
Underwriters of Class A Certificates
- - ------------ -----------------------
J.P. Morgan Securities Inc............................ $ __________
...................................................... __________
...................................................... __________
...................................................... __________
---------------
Total............................................. $
===============
Principal Balance
of Class B Certificates
-----------------------
J.P. Morgan Securities Inc............................ $ __________
...................................................... __________
...................................................... __________
...................................................... __________
---------------
Total............................................. $
===============
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 who 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
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of the Financial Services Act 1986 and other applicable laws and regulations
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.
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. In addition, the
Underwriters may from time to time take positions in the Certificates and other
certificates issued by 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.
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INDEX OF TERMS
Term Page
- - ---- ----
Accounts ............................................................... 2, 5
Accumulation Period .................................................... 13
Accumulation Period Length ............................................. 46
Additional Accounts .................................................... 9, 50
Additional Interest .................................................... 11
Addition Date .......................................................... 50
Adjusted Invested Amount ............................................... 8, 55
Adjustment ............................................................. 68
Agreement .............................................................. 4, 5
Assignment ............................................................. 51
Available Investor Principal Collections ............................... 64
Available Overconcentration Account Amount ............................. 59
Available Reserve Account Amount ....................................... 57
Bank ................................................................... 4
Bank Portfolio ......................................................... 5
Base Rate .............................................................. 70
Card Services .......................................................... 29
Cede ................................................................... 3
Cedel .................................................................. 42
Cedel Participants ..................................................... 42
Certificateholders ..................................................... 5
Certificate Owners ..................................................... 3
Certificates ........................................................... 1, 4
Class .................................................................. 5
Class A Additional Interest ............................................ 61
Class A Adjusted Invested Amount ....................................... 8, 55
Class A Available Funds ................................................ 44
Class A Certificateholders ............................................. 5
Class A Certificate Rate ............................................... 6
Class A Certificates ................................................... 1, 4
Class A Expected Final Payment Date .................................... 7, 12
Class A Fixed Percentage ............................................... 54
Class A Floating Percentage ............................................ 53
Class A Initial Invested Amount ........................................ 7
Class A Invested Amount ................................................ 7, 55
Class A Investor Charge-Off ............................................ 17, 67
Class A Investor Default Amount ........................................ 67
Class A Investor Interest .............................................. 6
Class A Monthly Interest ............................................... 62
Class A Monthly Principal .............................................. 64
Class A Required Amount ................................................ 16, 59
Class A Servicing Fee .................................................. 73
Class B Additional Interest ............................................ 62
Class B Available Funds ................................................ 45
Class B Certificateholders ............................................. 5
Class B Certificate Rate ............................................... 7
Class B Certificates ................................................... 1, 4
Class B Expected Final Payment Date .................................... 7, 12
Class B Fixed Percentage ............................................... 54
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Term Page
- - ---- ----
Class B Floating Percentage ............................................ 54
Class B Initial Invested Amount ........................................ 7
Class B Invested Amount ................................................ 7, 55
Class B Investor Charge-Off ............................................ 18, 68
Class B Investor Default Amount ........................................ 67
Class B Investor Interest .............................................. 6
Class B Monthly Interest ............................................... 62
Class B Monthly Principal .............................................. 65
Class B Required Amount ................................................ 16, 60
Class B Servicing Fee .................................................. 73
Closing Date ........................................................... 6
Code ................................................................... 81
Collateral Available Funds ............................................. 62
Collateral Default Amount .............................................. 64
Collateral Fixed Percentage ............................................ 54
Collateral Floating Percentage ......................................... 54
Collateral Initial Invested Amount ..................................... 7
Collateral Interest Holder ............................................. 5
Collateral Invested Amount ............................................. 7, 55
Collateral Investor Charge-Off ......................................... 68
Collateral Investor Interest ........................................... 5
Collateral Monthly Interest ............................................ 64
Collateral Monthly Principal ........................................... 65
Collateral Rate ........................................................ 64
Collateral Required Amount ............................................. 61
Collateral Servicing Fee ............................................... 73
Collection Account ..................................................... 52
Collection Period ...................................................... 8
Commission ............................................................. 2
Controlled Accumulation Amount ......................................... 65
Controlled Deposit Amount .............................................. 65
Cooperative ............................................................ 42
Corporate Card ......................................................... 27
Counsel ................................................................ 81
Covered Amount ......................................................... 14, 56
Cut-Off Date ........................................................... 6
Defaulted Receivables .................................................. 67
Deficit Controlled Accumulation Amount ................................. 14, 65
Definitive Certificates ................................................ 43
Depositaries ........................................................... 41
Depository ............................................................. 40
Determination Date ..................................................... 75
Disclosure Document .................................................... 10
Disqualified Persons ................................................... 86
Distribution Date ...................................................... 62
DOL .................................................................... 86
DTC .................................................................... 3, A-1
Early Amortization Event ............................................... 69
Early Amortization Period .............................................. 14
Eligible Account ....................................................... 50
Eligible Institution ................................................... 52
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Term Page
- - ---- ----
Eligible Investments ................................................... 52
Eligible Receivable .................................................... 49
Enhancement ............................................................ 65
Enhancement Surplus .................................................... 65
ERISA .................................................................. 21, 86
Euroclear .............................................................. 42
Euroclear Operator ..................................................... 42
Euroclear Participants ................................................. 42
Euroclear System ....................................................... 42
Excess Funding Account ................................................. 59
Excess Spread .......................................................... 17, 62
Exchange ............................................................... 10
Exchangeable Transferor Certificate .................................... 10
FASIT .................................................................. 85
FDIA ................................................................... 79
FDIC ................................................................... 22
First Bank ............................................................. 4
First Bank System ...................................................... 39
Fixed Allocation Percentage ............................................ 54
Floating Allocation Percentage ......................................... 53
Foreign Person ......................................................... 84
Global Securities ...................................................... A-1
Holders ................................................................ 43
Indirect Participants .................................................. 41
Ineligible Receivable .................................................. 48
Initial Invested Amount ................................................ 7
Interest Funding Account ............................................... 44
Interest Payment Date .................................................. 11
Invested Amount ........................................................ 7, 55
Investor Charge-Offs ................................................... 68
Investor Default Amount ................................................ 66
Investor Interest ...................................................... 6
IRS .................................................................... 81
Loan Agreement ......................................................... 19
Minimum Transferor Amount .............................................. 51
Minimum Transferor Percentage .......................................... 47
Minimum Trust Principal Component ...................................... 51
Monthly Investor Servicing Fee ......................................... 10, 73
Monthly Servicer Report ................................................ 75
Net Interchange ........................................................ 9
Net Servicing Fee Rate ................................................. 73
OID .................................................................... 82
Overconcentration Account .............................................. 19, 57
Overconcentration Balance .............................................. 57
Participants ........................................................... 41
Parties in Interest .................................................... 86
Payment Date Statement ................................................. 76
Plan ................................................................... 86
Plan Assets Regulation ................................................. 20, 86
Portfolio Yield ........................................................ 70
Principal Collections .................................................. 9
92
<PAGE>
Term Page
- - ---- ----
Principal Funding Account .............................................. 13
Principal Funding Account Balance ...................................... 56
Principal Funding Investment Proceeds .................................. 14, 56
Principal Funding Investment Shortfall ................................. 14, 56
Principal Terms ........................................................ 25, 47
Proposed Regulations ................................................... 85
Prospectus ............................................................. 2
Purchasing Cards ....................................................... 28
Rating Agency .......................................................... 21
Reallocated Class B Principal Collections .............................. 60
Reallocated Collateral Principal Collections ........................... 60
Reallocated Principal Collections ...................................... 12, 60
Receivables ............................................................ 2, 5
Record Date ............................................................ 44
Regulations ............................................................ 82
Removed Accounts ....................................................... 9, 52
Required Collateral Invested Amount .................................... 18, 66
Required Overconcentration Account Amount .............................. 57
Required Reserve Account Amount ........................................ 56
Reserve Account ........................................................ 56
Reserve Account Funding Date ........................................... 56
Revolving Period ....................................................... 12
RTC .................................................................... 23
RTC Policy Statement ................................................... 79
S&P .................................................................... 58
Securities Act ......................................................... 10
Series ................................................................. 5, A-1
Series 1997-1 .......................................................... 5
Series 1997-1 Supplement ............................................... 5
Series 1997-1 Termination Date ......................................... 8
Series Supplement ...................................................... 5
Service Transfer ....................................................... 74
Servicer ............................................................... 5
Servicer Default ....................................................... 75
Servicer Interchange ................................................... 73
Servicing Base Amount .................................................. 73
Servicing Fee .......................................................... 73
Servicing Fee Rate ..................................................... 73
Shared Excess Yield Collections ........................................ 17, 64
Shared Principal Collections ........................................... 66
Special Payment Date ................................................... 62
Tax Opinion ............................................................ 48
Terms and Conditions ................................................... 43
Transfer Date .......................................................... 53
Transferor ............................................................. 5
Transferor Amount ...................................................... 50
Transferor Interest .................................................... 6
Transferor Percentage .................................................. 40
Trust .................................................................. 1, 4
Trust Portfolio ........................................................ 33
Trust Principal Component .............................................. 33
93
<PAGE>
Term Page
- - ---- ----
Trust Termination Date ................................................. 69
Trustee ................................................................ 5
U S Person ............................................................ A-4
UCC .................................................................... 22
Underwriters ........................................................... 87
Underwriting Agreement ................................................. 87
VISA ................................................................... 26
Yield Collections ...................................................... 9
Yield Factor ........................................................... 9
94
<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.
A-1
<PAGE>
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 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
A-2
<PAGE>
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;
(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
A-3
<PAGE>
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 , (iii) an estate the income
of which is includible in gross income for U.S. federal income tax purposes,
regardless of its source or (iv) a trust if (A) a court within the United States
is able to exercise primary supervision over the administration of the trust and
(B) one or more United States trustees have authority to control all substantial
decisions of the trust, except that the term does not include certain former
citizens of the United States whose income and gain on the Global Securities
will be subject to United States taxation. 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-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Registration Fee......................... $344.83
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...................... $ *
=======
- - ----------
* To be supplied by amendment.
Item 14. 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
II-1
<PAGE>
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.
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.
[End of Article Twelve]
The effect of any such insurance described above would be to reduce
the risk to shareholders and depositors of First Bank that any such
indemnification payments might have a material adverse effect on the financial
condition of First Bank. First Bank System, Inc., the holding company of First
Bank, has purchased directors' and officers' liability insurance, which policy
extends to directors and officers of First Bank.
Item 16. Exhibits
Number Description
- - ------ -----------
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 1997-1 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*
- - ----------
* Previously filed.
(b) Financial Statement Schedules
II-2
<PAGE>
Not applicable.
Item 17. Undertakings
The undersigned Registrant hereby undertakes as follows:
(a) 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.
(b) 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 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.
(c) 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.
(d) 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 has duly caused this Amendment No. 3 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 February 4, 1997.
FIRST BANK CORPORATE CARD MASTER
TRUST
By FIRST BANK OF SOUTH DAKO TA
(NATIONAL ASSOCIATION)
By /s/ Daniel P. Murphy*
------------------------
Daniel P. Murphy
Director and President
*By /s/ David J. Parrin
------------------------------------------
(David J. Parrin, Attorney in Fact)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 3 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 February 4, 1997.
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. 3 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 February 4, 1997
----------------------- (principal executive officer)
Daniel P. Murphy
/s/ Susan E. Lester* Executive Vice President and February 4, 1997
----------------------- Chief Financial Officer
Susan E. Lester (principal financial officer)
/s/ David J. Parrin* Senior Vice President and February 4, 1997
----------------------- Controller (principal
David J. Parrin accounting officer)
/s/ Thomas J. Flynn* Director February 4, 1997
-----------------------
Thomas J. Flynn
/s/ Barry L. Martin* Director February 4, 1997
-----------------------
Barry L. Martin
/s/ Craig A. Johnson* Director February 4, 1997
-----------------------
Craig A. Johnson
/s/ Philip G. Heasley* Director February 4, 1997
-----------------------
Philip G. Heasley
*By /s/ David J. Parrin
(David J. Parrin, Attorney in Fact)
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
- - ------- ----------- ------------
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 1997-1 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*
- - ----------
* Previously filed.
<PAGE>
EXHIBIT 5.1
First Bank of South Dakota (National Association)
141 North Main Avenue
Sioux Falls, South Dakota 57117
Re: Registration Statement on Form S-1
File No. 333-1837
Ladies and Gentlemen:
We have acted as counsel to First Bank of South Dakota (National
Association), a national banking association (the "Transferor"), in connection
with the preparation of a Registration Statement on Form S-1, File No. 333-1837
(the "Registration Statement"), relating to the registration of Class A Asset
Backed Certificates, Series 1997-1, and Class B Asset Backed Certificates,
Series 1997-1 (collectively, the "Certificates") to be issued by First Bank
Corporate Card Master Trust (the "Trust"). The Certificates are to be issued
under a Pooling and Servicing Agreement (the "Pooling and Servicing Agreement")
substantially in the form filed as Exhibit 4.1 to the Registration Statement,
among the Transferor, FBS Card Services, Inc., a Minnesota corporation, as
Servicer, and Citibank, N.A., as trustee (the "Trustee"), and a Series 1997-1
Supplement (the "Series 1997-1 Supplement") to the Pooling and Servicing
Agreement substantially in the form filed as Exhibit 4.2 to the Registration
Statement.
We have examined the Registration Statement, the Pooling and
Servicing Agreement, the Series 1997-1 Supplement and such other documents, and
have reviewed such questions of law, as we have considered necessary and
appropriate for the purposes of this opinion. Based on the foregoing, we are of
the opinion that the Certificates, when duly executed, authenticated and
delivered in accordance with the terms of the Pooling and Servicing Agreement
and the Series 1997-1 Supplement, will be legally and validly issued, and will
be binding obligations of the Trust pursuant to the terms of the Pooling and
Servicing Agreement and the Series 1997-1 Supplement.
The opinion set forth above is subject to the following
qualifications and exceptions:
(a) Our opinion is subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar law of
general application affecting creditors' rights.
<PAGE>
First Bank of South Dakota (National Association)
January 31, 1997
Page 2
(b) Our opinion is subject to the effect of general principles of
equity, including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing, and other similar doctrines
affecting the enforceability of agreements generally (regardless of
whether considered in a proceeding in equity or at law).
Our opinion expressed above is limited to the laws of the State of
New York.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus comprising part of the Registration Statement.
Dated: January 31, 1997
Very truly yours,
/s/ DORSEY & WHITNEY LLP
CFS
<PAGE>
Exhibit 8.1
[LETTERHEAD OF DORSEY & WHITNEY LLP]
First Bank of South Dakota (National Association)
141 North Main Avenue
Sioux Falls, South Dakota 57117
Re: Registration Statement on Form S-1
File No. 333-1837
Federal Tax Characterization Issues
Ladies and Gentlemen:
We have acted as counsel to First Bank of South Dakota (National
Association), a national banking association (the "Transferor"), in connection
with the preparation of a Registration Statement on Form S-1, File No. 333-1837
(the "Registration Statement"), relating to the registration of Class A Asset
Backed Certificates, Series 1997-1 (the "Class A Certificates"), and Class B
Asset Backed Certificates, Series 1997-1 (the "Class B Certificates" and,
together with the Class A Certificates, the "Offered Certificates") to be
issued by First Bank Corporate Card Master Trust (the "Trust"). The Trust
also will issue a third class of uncertificated interest in the Trust known
as the Collateral Investor Interest, Series 1997-1 (the "Collateral Investor
Interest") (the Offered Certificates and Collateral Investor Interest are
collectively the "Investor Certificates"). The Investor Certificates are to be
issued under a Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement") substantially in the form filed as Exhibit 4.1 to the Registration
Statement, among the Transferor, FBS Card Services, Inc., a Delaware
corporation, as Servicer, and Citibank, N.A., as trustee (the "Trustee"),
and a Series 1997-1 Supplement (the "Series 1997-1 Supplement") to the
Pooling and Servicing Agreement substantially in the form filed as Exhibit 4.2
to the Registration Statement.
You have requested our opinion with respect to the federal income
tax characterization of the Offered Certificates and the Trust. For purposes of
rendering
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First Bank of South Dakota (National Association)
January 31, 1997
Page 2
our opinion we have examined the Registration Statement, the Pooling
and Servicing Agreement, the Series 1997-1 Supplement and the related documents
and agreements contemplated therein (collectively, the "Transaction Documents")
and we have reviewed such questions of law as we have considered necessary and
appropriate. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the Pooling and Servicing Agreement
or the Series 1997-1 Supplement, as applicable.
Our opinion is based upon the existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), currently applicable Treasury
Department regulations issued thereunder, current published administrative
positions of the Internal Revenue Service (the "Service") contained in revenue
rulings and revenue procedures, and judicial decisions, all of which are subject
to change, either prospectively or retroactively, and to possibly differing
interpretations. Any change in such authorities may affect the opinions rendered
herein.
Our opinion is also based on the projections, representations,
warranties, covenants and agreements set forth in the Transaction Documents and
the assumption that the Transferor, the Servicer, the Investor
Certificateholders, the Trustee, and the holders of all other classes and series
of certificates issued by the Trust will at all times comply with the
requirements of the Transaction Documents.
For purposes of this opinion you have represented, and with your
permission we have assumed, that the Collateral Initial Invested Amount will
be not less than 4.5% of the total Initial Invested Amount, that the Minimum
Transferor Percentage with respect to Series 1997-1 will be not less than
10%, that the Class A Certificates will have an initial rating of "AAA" or
its equivalent from at least one nationally recognized rating agency; and
that the Class B Certificates will have an initial rating of not less than
"A" or its equivalent from at least one nationally recognized rating agency.
An opinion of counsel is predicated on all the facts and conditions
set forth in the opinion and is based upon counsel's analysis of the statutes,
regulatory interpretations and case law in effect as of the date of the opinion.
It is not a guarantee of the current status of the law and should not be
accepted as a guarantee that a court of law or an administrative agency will
concur in the opinion.
I. Federal Income Tax Characterization of the Offered Certificates.
In general, for federal income tax purposes, the characterization of
a transaction as a sale of property or a secured loan is a question of fact, the
resolution of which is based upon a determination of who will receive the
benefits of, and bear the burdens relating to, the property. Thus, the
determination of whether an instrument arising from such a transaction will be
treated as debt for federal income
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First Bank of South Dakota (National Association)
January 31, 1997
Page 3
tax purposes, or instead will be treated as a sale of the assets which secure
such debt, depends on all the facts and circumstances in each case. In general,
the substance of the transaction in which the Offered Certificates are issued
is consistent with treatment of the Offered Certificates as debt. Although
there are certain judicial precedents holding that, under appropriate
circumstances, a taxpayer should be required to treat a transaction in
accordance with the form chosen by the taxpayer regardless of the transaction's
substance, the application of these authorities should not prevent the
treatment of the Offered Certificates as debt because the form, as well as the
substance, of the transaction is consistent with debt treatment. Even if it
should be determined that certain aspects of the transaction are indicative of
a sale of the Receivables or an interest therein, the transaction's form as a
whole would at worst be viewed as ambiguous rather than clearly as a sale.
Accordingly, the characterization of the Offered Certificates should be
governed by the substance of the transaction which should be viewed as most
similar to the issuance of debt.
A. Economic Substance of the Transaction. If the economic substance
of a transaction differs from the form in which it is cast, except in certain
limited circumstances (see discussion below), the substance, rather than the
form, governs the federal income tax consequences of the transaction. Gregory v.
Helvering, 293 U.S. 465 (1935); Helvering v. F. & R. Lazarus & Co., 308 U.S.
252, aff'g, 101 F.2d 728 (6th Cir. 1939); Gatlin v. Commissioner, 34 B.T.A. 50
(1936).
Whether the Offered Certificates are in substance debt or ownership
interests in the Receivables is based on a determination of which party to the
transaction holds the "substantial incidents of ownership." The courts have
identified a variety of factors that must be considered in making that
determination. See Town & Country Food Co. v. Commissioner, 51 T.C. 1049 (1969),
acq., 1969-2 C.B. xxv; United Surgical Steel Co. v. Commissioner, 54 T.C. 1215
(1970), acq., 1971-2 C.B. 3; G.C.M. 39584 (December 3, 1986); Plumb, The Federal
Income Tax Significance of Corporate Debt: A Critical Analysis and a Proposal,
26 Tax L. Rev. 369 (1971). In the context of this transaction, the most
important considerations are: (i) whether the Transferor bears the burdens of
ownership (i.e., the risk of loss from the Receivables) and (ii) whether the
Transferor retains the benefits of ownership (i.e., the potential for gain from
the Receivables). The following discussion considers
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First Bank of South Dakota (National Association)
January 31, 1997
Page 4
these as well as other relevant factors and demonstrates that each factor should
be viewed as supporting characterization of the Offered Certificates as debt.
1. The Transferor Bears the Burdens of Ownership. The principal
burden of ownership with respect to the Receivables is risk of loss arising from
defaulted payments. The risk of loss arising from defaults, under most
reasonable default scenarios, is borne by the Transferor.
The principal amount of all Defaulted Receivables will be allocated
between the Transferor Interest and the Investor Certificateholders according
to the Floating Allocation Percentages. Before any such allocation of Defaulted
Receivables has the effect of reducing the Invested Amount of any class of
Investor Certificates, certain Excess Spread and Shared Excess Yield
Collections and amounts, if any, to be withdrawn from the Overconcentration
Account will be applied to make up for any deficiency caused by such Defaulted
Receivables. If the amount of Defaulted Receivables allocated to the Investor
Certificates exceeds the amount of such Excess Spread, Shared Excess Yield
Collections and Overconcentration Account withdrawals so applied, the amount of
any such Defaulted Receivables will first be allocated to reduce the Collateral
Invested Amount according to the provisions of the Series 1997-1 Supplement
governing Reallocated Principal Collections and Collateral Investor
Charge-Offs. Defaulted Receivables will be allocated to reduce the Class B
Invested Amount only if the Collateral Invested Amount is reduced to zero by
such allocation, and Defaulted Receivables will be allocated to Class A
Invested Amount only if the Class B Interest Amount is reduced to zero.
The Transferor is ultimately entitled to receive the excess yield
collections from the Receivables which are not applied to payments on the
Investor Certificates. Since payments made to fund shortfalls due to Investor
Certificateholders will ultimately be funded out of such excess yield
collections, the Transferor ultimately bears the risk of default losses realized
on the Receivables.
The Series 1997-1 Supplement provides that the Offered
Certificateholders are entitled to receive a fixed principal amount and a fixed
rate of return. Thus, the economic return to the Offered Certificateholders is
not affected by any change in the value of the Receivables. Finally, due to the
subordination of the Collateral Investor Interest to the Offered Certificates,
the Offered Certificateholders will suffer an economic loss only after the
Collateral Investor Interest has been reduced to zero by losses. Therefore, the
Offered Certificateholders do not substantially bear the risk of loss with
respect to the Receivables.
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First Bank of South Dakota (National Association)
January 31, 1997
Page 5
2. The Transferor Retains the Benefits of Ownership. As mentioned
above, the Series 1997-1 Supplement provides that the Offered Certificateholders
are entitled to receive a fixed principal amount and a fixed rate of return.
Thus, the economic return to the Offered Certificateholders is not affected by
any change in the value of the Receivables, and the Offered Certificateholders
do not receive any benefit from any increase in the value of the Receivables.
The Transferor has retained the sole opportunity to realize gain on
the Receivables by retaining the Exchangeable Transferor Certificate, which
represents the interest in all of the assets of the Trust in excess of the
required payments to Investor Certificateholders. Thus, the Transferor receives
the benefit from any increase in the value of the Receivables. When the
Invested Amount of the Investor Certificates is reduced to less than 5% of the
initial Invested Amount, the Transferor has the option to repurchase the
Investor Certificates for an amount equal to the Invested Amount plus accrued
and unpaid interest. Furthermore, subject to the satisfaction of certain
conditions, the Transferor has the option to require the Trust to convey to the
Transferor all Receivables arising under specified Accounts at any time.
Therefore, the Transferor retains the benefits and burdens
associated with owning the Receivables.
3. Subordination and Ratings. As mentioned above, the principal
amount of all Defaulted Receivables will be allocated between the Transferor
Interest and the Investor Certificateholders according to the Floating
Allocation Percentages. Before any such allocation of Defaulted Receivables has
the effect of reducing the Invested Amount of any class of Investor
Certificates, certain Excess Spread, Shared Excess Yield Collections and
Overconcentration Account withdrawals will be applied to make up for any
deficiency caused by such Defaulted Receivables. If the amount of Defaulted
Receivables allocated to the Investor Certificates exceeds the amount of yield
collections and other amounts so applied, the amount of any such Defaulted
Receivables that are allocable to the Investor Certificates will first be
allocated to reduce the Collateral Invested Amount through Reallocated
Principal Collections and Collateral Investor Charge-Offs; if the Collateral
Invested Amount is reduced to zero by such allocation, then Defaulted
Receivables will be allocated to reduce the Class B Invested Amount; if the
Class B Invested Amount is reduced to zero by such allocation, then Defaulted
Receivables will be allocated to reduce the Class A Invested Amount. Thus, the
Class B Invested
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First Bank of South Dakota (National Association)
January 31, 1997
Page 6
Amount will be affected by Defaulted Receivables only if the Collateral
Invested Amount is reduced to zero, and the Class A Invested Amount will be
affected by Defaulted Receivables only if the Collateral Invested Amount and
Class B Invested Amount are reduced to zero. In addition, even if the Class B
Invested Amount or Class A Invested Amount is so reduced by allocations of
Defaulted Receivables, such Invested Amounts may be subsequently increased by
certain Excess Spread and Shared Excess Yield Collections available for that
purpose. All of these factors increase the likelihood that the principal
payments made to the Offered Certificateholders ultimately will equal the
initial Class A and Class B Invested Amount.
In addition, the likelihood of the Offered Certificateholders
bearing any actual loss is considered to be relatively remote, reflected by the
fact that the Class A Certificates will have an initial rating of "AAA" or its
equivalent from at least one nationally recognized rating agency, and the Class
B Certificates will have an initial rating of "A" or its equivalent from at
least one nationally recognized rating agency. These ratings are based, in part,
on the fact that such losses would occur only if the excess yield collections
which are used to offset any defaults on the Receivables, as well as other
distributions due with respect to the Collateral Investor Interest, which is
subordinated to the Offered Certificates, were all exhausted. These ratings are
investment grade ratings, and such ratings indicate that it is likely that all
interest and principal will be paid. Accordingly, one would reasonably expect
that the Offered Certificateholders would not bear the risk of loss associated
with ownership of the Receivables.
4. Other Factors. A number of other factors support the conclusion that the
Offered Certificates are in substance debt. The terms of the Receivables differ
materially from the terms of the Offered Certificates with regard to their
respective interest rates and maturity dates. The Receivables do not bear
interest. During the Revolving Period, the obligors on the Receivables will
make payments of principal on the Receivables. During the Revolving Period, the
Offered Certificateholders will receive interest payments from Yield
Collections, but collections of principal on the Receivables otherwise
allocable to the Offered Certificate holders will be paid to the Transferor, to
the extent not treated as Reallocated Principal Collections. Payments of
principal on the Offered Certificates are scheduled to commence on the
___________ Distribution Date.
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First Bank of South Dakota (National Association)
January 31, 1997
Page 7
The Transferor will retain control and possession of
the Receivables. The Servicer is responsible for servicing,
management, collection and administration of the Receivables and
will bear all costs and expenses incurred in connection with such activities,
although the Servicer will be entitled to receive the Servicing Fee. In
addition, the Transferor will agree to indemnify the Certificateholders for the
entire amount of losses, claims, damages or liabilities arising out of the
activities of the Servicer. The Trustee, on behalf of the Certificateholders,
has the right to inspect the Servicer's documentation on the Receivables, a
right which is common in loan transactions. In addition, the Servicer, an
affiliate of the Transferor and the entity from whom the Transferor purchases
the Receivables, collects the Receivables without significant supervision by the
Trustee or Certificateholders. As long as the Servicer maintains a specified
credit rating and a Servicer Default has not occurred, the Servicer is not
required to deposit Collections into the Collection Account on a daily basis,
but may make such deposits instead on each Transfer Date. The foregoing
additional factors support the conclusion that the transaction described in the
Agreement with respect to the Offered Certificates constitutes an issuance of
debt.
B. Form versus Substance. As mentioned above, a basic premise of federal income
taxation is that the economic substance of a transaction, and not its form,
determines the tax consequences. In appropriate cases, the courts have allowed
taxpayers, as well as the IRS, to treat a transaction in accordance with its
economic substance even though they have cast it in a different form for
non-tax purposes. For example, in Helvering v. F. & R. Lazarus & Co., 308 U.S.
252, aff'g, 101 F.2d 728 (6th Cir. 1939), the taxpayer purportedly "sold"
property to a bank as trustee for $3.25 million and concurrently leased the
property back for 99 years. The rental payments on the lease were equal to 5%
of $3.25 million, and the taxpayer was required to make payments to a fund that
would be sufficient to repay $3.25 million within 48.5 years. The IRS denied
the taxpayer's claim of depreciation deductions on the property on the ground
that the taxpayer had transferred ownership of the property. The Supreme Court,
however, upheld the taxpayer's right to show that, for tax purposes, the
transaction was in substance a loan secured by the transferred property.
There is a series of cases holding that, in certain circumstances,
the taxpayer is bound by the form of the transaction selected notwithstanding
that the
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First Bank of South Dakota (National Association)
January 31, 1997
Page 8
characterization of the economic substance of the transaction would be
different from the form of the transaction. For example, in Commissioner v.
Danielson, 378 F.2d 771 (3rd Cir.), cert. denied, 389 U.S. 858 (1967), a
purchase agreement expressly allocated consideration to a covenant not to
compete, while the taxpayer reported the entire amount as proceeds from the sale
of capital assets. The court held that the taxpayer could not contradict the
form of the agreement and attack the allocation to the covenant not to compete
except in cases of fraud, duress or undue influence. See also Spector v. U.S.,
641 F.2d 376 (5th Cir. 1981)(pursuant to a written agreement, a partnership
deducted Section 736 guaranteed payments to a withdrawing partner; the partner,
contrary to the terms of the agreement, treated such payments as Section 741
capital gain payments realized upon the sale of the partnership interest; the
court held that the taxpayer was bound by the terms of the agreement unless he
could show mistake, fraud or undue influence); Sullivan v. U.S., 618 F.2d 1001
(3d Cir. 1980)(taxpayer disavowed original allocation of purchase price between
land and agreements to lease space in a shopping mall to be built on the land
when, upon audit, the gain on the sale of the leases was held to be short-term
capital gain; the court held that the contract allocations must be respected).
In general, the Danielson line of cases involve taxpayers who, contrary to the
written documents, later adopt inconsistent positions regarding the allocation
of purchase price, the valuation of assets or the character of income or gain to
the detriment of the Treasury.
Under the standards in Lazarus and similar cases, the Offered
Certificates should be treated as debt and the Transferor should be treated as
the owner of the Receivables. The Offered Certificateholders do not have
possession of the Receivables or the authority to dispose of them. Like the bank
in Lazarus, the Offered Certificateholders are entitled to receive only a
specified return and do not enjoy the benefit of any increase in the value of
the Receivables.
Neither Danielson nor any similar decision would, in our opinion,
prevent the Transferor and the Offered Certificateholders from treating the
Offered Certificates as debt for federal income tax purposes. The rules from
Danielson and such cases are not intended to require consistent treatment of a
transaction for tax and non-tax purposes. Rather, they are intended to prevent a
taxpayer from renouncing intentions previously expressed in a document governing
the transaction. In this case, treating the Offered Certificates as debt does
not contravene any statement of intent in a governing document, and the form of
the transaction is
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First Bank of South Dakota (National Association)
January 31, 1997
Page 9
not necessarily inconsistent with characterization of the Offered Certificates
as debt. The Pooling and Servicing Agreement and the Offered Certificates each
provide that the Transferor, the Servicer, the holder of the Exchangeable
Transferor Certificate and each Offered Certificateholder agree to treat and to
take no action inconsistent with the treatment of the Offered Certificates as
debt for purposes of federal, state, local or foreign income or franchise
taxes. The language in the Agreement whereby the Transferor agrees to
"transfer" all "right, title and interest" in the Receivables to the Trust is
consistent with language of transfer in other security arrangements where
debtors pledge assets to secure debt. The Offered Certificates will state that
they represent an "undivided interest" in the Trust. However, the only rights
of an Offered Certificateholder are to receive payments of interest on the
outstanding amount of the Offered Certificates and repayment of the Invested
Amount of the Offered Certificates on or prior to their maturity dates. The
Offered Certificates will not provide the Offered Certificateholders with any
specific rights in any Receivable, but rather will provide only for rights to
receive a specified amount of payments out of the cash flow from the
Receivables pool.
Moreover, even if certain aspects of the transaction should be
determined to be inconsistent with treatment of the Offered Certificates as debt
and the form of the transaction is therefore considered ambiguous, numerous
cases hold that the economic substance of the transaction controls the
transaction's characterization. Elrod v. Commissioner, 87 T.C. 1046, 1066
(1986); Smith v. Commissioner, 82 T.C. 705, 713 (1984); Morrison v.
Commissioner, 59 T.C. 248, 256 (1972), acq., 1973-2 C.B. 3; Kreider v.
Commissioner 762 F.2d 580, 588 (7th Cir. 1985); Comdisco, Inc. v. United States,
756 F.2d 569, 578 (7th Cir. 1985). In such circumstances, it would be
inappropriate to restrict taxpayers to the "four corners" of their document,
since the written instrument by its own terms is unclear. "The Danielson rule .
. . [is not] applicable to exclude parole evidence offered with respect to an
ambiguous document." Elrod, supra, at 1066. Accordingly, it is our view that the
Danielson line of authorities is not applicable to the transaction and will not
cause the transaction to be treated as a sale of an interest in the Receivables
to the holders of the Offered Certificates. Even if the form of the transaction
is deemed to be ambiguous, the transaction's economic substance will determine
its character.
C. Accounting Treatment. In Notice 94-47, 1994-19 I.R.B. 1 (April
18, 1994), the Internal Revenue Service has taken the position that the fact
that an instrument is intended to be treated differently for tax purposes than
for other purposes, including regulatory accounting purposes, is a factor to be
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First Bank of South Dakota (National Association)
January 31, 1997
Page 10
considered in determining whether the instrument should be characterized as debt
or equity for federal income tax purposes. That factor, however, should not by
itself control the classification of the instrument for tax purposes.
Accordingly, the fact that the Transferor intends to report the transaction as a
sale for certain regulatory and financial accounting purposes should not by
itself control the result for tax purposes, and such fact is not necessarily
inconsistent with characterizing the form of the transaction as a financing for
tax purposes.
Indeed, the Supreme Court has frequently rejected the proposition
that the financial accounting treatment of a transaction controls its tax
treatment. For example, in Cottage Savings Ass'n v. Commissioner, 499 U.S. 554
(1991), rev'g 890 F.2d 848 (6th Cir. 1989), rev'g 90 T.C. 372 (1988), reciprocal
"sales" of mortgage loans were respected as sales for federal income tax
purposes (permitting thrifts to realize losses that produced loss carrybacks and
tax refunds) even though such transactions were not treated as sales for
regulatory accounting purposes. Thus, thrifts were able to generate tax losses
without such losses being reflected on their financial statements for regulatory
accounting purposes. (It should be noted that in Cottage Savings the legal form
of the transaction was respected. Thus, the taxpayer was not asserting a tax
position inconsistent with the form of the transaction.)
Several other Supreme Court cases demonstrate that divergence
between tax and financial accounting is not uncommon. See Thor Power Tool Co. v.
Commissioner, 439 U.S. 552, 538-44 (1979)(company's inventory deductions for
financial accounting purposes were disallowed for federal income tax
purposes--"any presumptive equivalency between tax and financial accounting
would be unacceptable"); Commissioner v. Hansen, 360 U.S. 446 (1959)(reserve to
cover contingent liability in event of nonperformance of guaranty); Lucas v.
American Code Co., 280 U.S. 445 (1930)(reserve to cover expected liability on
contested lawsuit). (These cases, however, involved taxpayer reliance on
accounting treatment rather than IRS reliance thereon.) See also Frank Lyon Co.
v. United States, supra, at 577 (financial accounting treatment of a mortgage
reflected the taxpayer's proper tax treatment of a sale leaseback transaction
although tax and accounting treatment "need not necessarily be the same").
In our opinion, although the matter is not free from doubt, the
substance and form of the transaction are more consistent with the
characterization
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First Bank of South Dakota (National Association)
January 31, 1997
Page 11
of the Offered Certificates as debt than with the
characterization of the Offered Certificates as a form of equity interest in the
Receivables. To the extent that the form of the transaction were determined to
include some features of a sale in addition to the features indicative of a debt
financing, the form is at worst ambiguous. Accordingly, in our opinion, pursuant
to the aforementioned authorities, the Offered Certificates will be treated as
debt for federal income tax purposes.
II. Characterization of the Trust.
In many respects, the Trust is similar to trusts established to hold
collateral pledged as security in connection with lending transactions. If all
classes of Investor Certificates issued by the Trust were debt for federal
income tax purposes, the Trust should be disregarded for federal income tax
purposes and should be characterized as a mere security arrangement. Treas. Reg.
ss. 1.61-13(b); Rev. Rul. 76-265, 1976-2 C.B. 448; see also Rev. Rul. 73-100,
1973-1 C.B. 613 (domestic corporations's transfer of securities to Canadian
security holder, to secure liabilities to policyholders in Canada, does not
create a trust where discretionary powers retained by corporation); Rev. Rul.
71-119, 1971 C.B. 163 (settlement fund administered by "trustee" not a trust).
If the Trust is recognized as an entity for federal tax purposes,
the Trust should be viewed as a business entity whose federal tax
characterization would be determined under Treasury Regulations ss.ss.
301.7701-2 and 301.7701-3. Treasury Regulations ss. 301.7701-2 provides that "a
business entity is any entity recognized for federal tax purposes . . . that is
not properly classified as a trust under ss. 301.7701-4 or otherwise subject to
special treatment under the Internal Revenue Code." Because the Trust would not
be properly classified as a trust under ss. 301.7701-4, if the Trust is
recognized as an entity for tax purposes it would be a "business entity" within
ss. 301.7701-2.
Section 301.7701-2 also provides that certain types of entities are
treated as corporations for federal tax purposes, including entities formed
under a state statute which refers to the entity as "incorporated or as a
corporation, body corporate or body politic," or as a "joint-stock company or
joint-stock association". The definition of corporation also includes insurance
companies, certain banking
<PAGE>
First Bank of South Dakota (National Association)
January 31, 1997
Page 12
entities, foreign entities and other entities specified in ss. 301.7701-2. The
Trust is not an entity which is treated as a corporation under ss. 301.7701-2.
Treasury Regulations ss. 301.7701-3 refers to a business entity that
is not classified as a corporation as an "eligible entity". That section
provides that an eligible entity with a single owner can elect to be classified
as an association (which is taxed as a corporation) or to be disregarded as an
entity separate from its owner. An eligible entity with at least two members can
elect to be classified as either an association or a partnership. Treasury
Regulations ss. 301.7701-3 further provides certain default rules pursuant to
which an eligible rule entity is disregarded as an entity separate from its
owner if it has a single owner, and is treated as a partnership if it has two or
more members.
If the Trust is recognized as an entity for federal tax purposes but
all classes of Investor Certificates are treated as debt for federal tax
purposes, then the Trust would be an eligible entity with a single owner. Under
the default rules of Treasury Regulations ss. 301.7701-3, the Trust would be
disregarded as an entity separate from the Transferor.
If any class of Investor Certificates issued by the Trust were
treated as an equity interest in the Trust, the Trust would be an eligible
entity with two or more members. The members of the Trust in such case would be
the Transferor, as the holder of the Exchangeable Transferor Certificate, and
the holders of any class of Investor Certificates so characterized as equity. In
such a case, under the default rules of Treasury Regulations ss. 301.7701-3, the
Trust would be treated as the partnership for federal tax purposes.
Under Section 3.7 of the Pooling and Servicing Agreement, the
Transferor, the Servicer and the Trustee have agreed not to file any election
to treat the Trust as an association taxable as a corporation.
Based on the foregoing, it is our opinion that the Trust will not be
treated as an association taxable as a corporation for federal tax purposes.
Publicly Traded Partnership. Section 7704 of the Code provides that,
subject to certain exceptions, a partnership the interests in which are (i)
traded on an established securities market or (ii) readily tradable on a
secondary market (or the substantial equivalent thereof) will be treated as a
corporation for federal income tax purposes.
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First Bank of South Dakota (National Association)
January 31, 1997
Page 13
Treasury Regulations ss. 1.7704-1, issued on November 29, 1995 (the
"PTP Regs"), provide further explanation of the rules governing publicly traded
partnerships. The PTP Regs provide that an "established securities market"
includes a national, foreign, regional or local exchange, as well as an
interdealer quotation system which regularly disseminates firm buy or sell
quotations by identified brokers or dealers, by electronic means or otherwise.
The PTP Regs also provide that interests in a partnership are readily tradable
on a secondary market or the substantial equivalent thereof if the partners are
readily able to buy, sell or exchange their partnership interests in a manner
that is economically comparable to trading on an established securities market.
The PTP Regs provide a safe harbor pursuant to which interests in a
partnership will not be considered readily tradable on a secondary market or the
substantial equivalent thereof if (i) all interests in such partnership were
issued in a transaction (or transactions) that was not required to be registered
under the Securities Act of 1933 and (ii) the partnership does not have more
than 100 partners at any time during the taxable year of the partnership.
As discussed above, it is our opinion that the Offered Certificates
will be treated as debt for federal income tax purposes. The Collateral
Investor Interest will be issued in a private placement and thus will be exempt
from registration under the Securities Act of 1933 pursuant to Section 4(a) of
that Act. Under the Pooling and Servicing Agreement and the Loan Agreement (as
defined in the Series 1997-1 Supplement), if any interest or participation in
the Collateral Investor Interest is sold, each purchaser will be required to
make certain representations and covenants for the benefit of the Transferor,
Servicer and Trustee (with the express acknowledgement that this Firm will be
relying on such representation for purposes of rendering this opinion) that
would be breached if any such purchaser were to buy or sell any such interest
on an "established securities market" or a "secondary market." The Loan
Agreement also contains limitations on the number of holders of interests in
the Collateral Investor Interest and other restrictions on transfer designed to
prevent the Trust from being treated as a publicly traded partnership. In
addition, the Pooling and Servicing Agreement permits the Transferor to prevent
a transfer, participation or other disposition of any interest in any
Certificate with respect to which an Opinion of Counsel was not received
stating that such certificate would be treated as debt for federal income tax
purposes if the Transferor, in its sole and absolute discretion, determines that
such transfer, participation or other disposition, if effected, would cause the
Trust to be treated as a publicly traded partnership under the PTP Regs.
Accordingly, under current law, if the Trust were considered to be a
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First Bank of South Dakota (National Association)
January 31, 1997
Page 14
partnership for federal income tax purposes, it would not be a publicly traded
partnership for purposes of Section 7704.
We note that an entity that meets the definition of a "publicly
traded partnership" may nevertheless not be taxable as a corporation if 90% of
its income consists of interest income. Because it is not clear whether the
Trust, if viewed as an entity separate from the Transferor, would be viewed as
engaged in a "financial business," and thus ineligible for the exception, we
have not relied on the exception. See Code ss. 7704(d)(2).
We express no opinion about the tax treatment of any features of the
Trust's activities or an investment therein other than those expressly set forth
above. Except as provided below, the foregoing opinions are being furnished to
you solely for your benefit and may not be relied upon by, nor may copies be
delivered to, any other person without our prior written consent.
We hereby consent to the inclusion of this opinion as an exhibit to
the Registration Statement and to the use of our name under the heading "Federal
Income Tax Consequences" in the prospectus forming a part of the Registration
Statement, and we hereby confirm that the discussion under such heading
accurately sets forth our advice as to the likely outcome of material issues
under the federal income tax laws.
Dated: January 31, 1997
Very truly yours,
/s/ Dorsey & Whitney LLP
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Dorsey & Whitney LLP
