<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission File Number 33-98546-01
First Union Direct Bank, N.A.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
on Behalf of the First Union Master Credit Card Trust
<TABLE>
<S> <C>
United States 56-2017017
- ------------------------------------------------- --------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION)
600 Broad Street
Augusta, Georgia 30903
- ------------------------------------------- ------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (706) 823-2580
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None
<PAGE> 2
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Series 1996-1 Floating Rate Asset Backed Certificates
Class B Series 1996-1 Floating Rate Asset Backed Certificates
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __________
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
2
<PAGE> 3
PART I
Item 1. Business.
Not Applicable.
Item 2. Properties.
Not Applicable.
Item 3. Legal Proceedings.
Not Applicable.
Item 4. Submission of Matters to a vote of Security-Holders.
Not Applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters.
The certificates representing investors' interests in the First Union
Master Credit Card Trust are represented by one or more Certificates registered
in the name of Cede & Co., the nominee of the Depository Trust Company.
Item 6. Selected Financial Data.
Not Applicable.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Not Applicable.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data.
Not Applicable.
3
<PAGE> 4
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Not Applicable.
Item 11. Executive Compensation.
Not Applicable.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) The Certificates of each Class of Series representing investors'
interests in the First Union Master Credit Card Trust are represented by one or
more Certificates registered in the name of Cede & Co., the nominee of The
Depository Trust Company ("DTC"), and an investor holding an interest in the
First Union Master Credit Card Trust is not entitled to receive a certificate
representing such interest except in certain limited circumstances. Accordingly,
Cede & Co. is the sole holder of record of the Certificates, which it held on
behalf of brokers, dealers, banks and other direct participants in the DTC
system at December 31, 1998. Such direct participants may hold Certificates for
their own accounts or for the accounts of their customers. At December 31, 1998,
the following direct DTC participants held positions in the Certificates
representing interests in the First Union Master Credit Card Trust equal to or
exceeding 5% of the total principal amount of the Certificates of each Class of
each Series outstanding on that date:
SERIES 1996-1
<TABLE>
<CAPTION>
Class A
Participant Quantity Percentage
----------- -------- ----------
<S> <C> <C>
Bank of New York $320,350,000 34.82%
Bankers Trust $122,150,000 13.28%
Boston Safe Deposit and Trust Co. $81,500,000 8.86%
Chase Manhattan $68,500,000 7.45%
IFTC/SSB $88,750,000 9.65%
Swiss American Securities, Inc. $85,000,000 9.24%
Class B
Swiss American Securities, Inc. $75,273,000 100%
</TABLE>
The address of each above participant is:
c/o The Depository Trust Company
55 Water Street
4
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New York, New York 10041
(b) Not Applicable.
(c) Not Applicable.
Item 13. Certain Relationships and Related Transactions.
Not Applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report.
1. Not Applicable.
2. Not Applicable.
3. Exhibits.
99.1 Annual Servicer's Certificate dated March 31, 1999.
99.2 Annual Auditors' Reports dated March 15, 1999.
99.3 Year 2000 Information.
(b) The following four (4) reports on Form 8-K were filed by the
registrant during the quarter ending December 31, 1998:
1. Form 8-K, dated September 15, 1998 filed on October 14, 1998.
(Item 5, Item 7)
2. Form 8-K, dated October 15, 1998 filed on October 22, 1998.
(Item 5, Item 7)
3. Form 8-K, dated November 16, 1998 filed on November 19, 1998.
(Item 5, Item 7)
4. Form 8-K, dated December 15, 1998 filed on December 28, 1998.
(Item 5, Item 7)
(c) See Item 14(a)(3) above.
(d) Not Applicable.
5
<PAGE> 6
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
FIRST UNION DIRECT BANK,
N.A., as Servicer on Behalf
of the First Union Master
Credit Card Trust.
By: /s/ JAMES H. GILBRAITH
----------------------------
Name: James H. Gilbraith II
Title: Managing Director Securitization
& Structured Finance
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<PAGE> 1
Exhibit 99.1
ANNUAL SERVICER'S CERTIFICATE
FIRST UNION DIRECT BANK, N.A.
FIRST UNION MASTER CREDIT CARD TRUST
The undersigned, a duly authorized representative of First Union Direct
Bank, N.A. ("First Union"), as Servicer pursuant to the Pooling and Servicing
Agreement dated as of September 29, 1995 (the Pooling and Servicing Agreement")
by and between First Union and the Bank of New York, as trustee (the "Trustee")
does hereby certify that:
1. First Union is Servicer under the Pooling and Servicing Agreement
2. The undersigned is duly authorized pursuant to the Pooling and
Servicing Agreement to execute and deliver this Certificate to the Trustee.
3. This Certificate is delivered pursuant to Section 3.05 of the Pooling
and Servicing Agreement.
4. A review of the activities of the Servicer during the 12 month period
ended December 31, 1998 was conducted under the supervision of the undersigned.
5. Based on such review, the Servicer has, to the best of the knowledge
of the undersigned, fully performed all its obligations under the Pooling and
Servicing Agreement throughout such period and no default in the performance of
such obligations has occurred or is continuing except as set forth in paragraph
6 below.
6. The following is a description of each default in the performance of
the Servicer's obligations under the provisions of the Pooling and Servicing
Agreement, including any Supplement, known to the undersigned to have been made
during such period which sets forth in detail (i) the nature of each such
default, (ii) the action taken by the Servicer, if any, to remedy each such
default and (iii) the current status of each such default:
NONE
IN WITNESS WHEREOF, the undersigned has duly executed this certificate
this 31st day of March, 1999.
/s/ JAMES H. GILBRAITH, II
----------------------------------
Name: James H. Gilbraith, II
Title: Managing Director
Securitization & Structured Finance
<PAGE> 1
Exhibit 99.2
[KPMG LETTERHEAD]
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
First Union Direct Bank, N.A.
We have examined management's assertion regarding First Union Direct Bank,
N.A.'s compliance, as Servicer, with the servicing requirements in Article IV,
Section 4.03 of the Pooling and Servicing Agreement for the First Union Master
Credit Card Trust dated September 29, 1995, as amended, including supplements
dated March 5, 1996 and April 23, 1996, by and between First Union Direct Bank,
N.A. (the "Bank"), as Transferor and Servicer, and The Bank of New York, as
Trustee (collectively, the "Agreement"), as of and for the year ended December
31, 1998, included in the accompanying Management's Assertion on the First Union
Direct Bank, N.A.'s Compliance, as Servicer, with the Servicing Requirements of
the Pooling and Servicing Agreement. Management is responsible for the Bank's
compliance with the aforementioned section of the Agreement. Our responsibility
is to express an opinion on management's assertion regarding the Bank's
compliance based upon our examination.
Our examination was made in accordance with standards established by the
American Institute of Certified Public Accountants and, accordingly, included
examining, on a test basis, evidence about the Bank's compliance with the
aforementioned section of the Agreement and performing such other procedures as
we considered necessary in the circumstances. We believe that our examination
provides a reasonable basis for our opinion. Our examination does not provide a
legal determination on the Bank's compliance with the aforementioned section of
the Agreement.
In our opinion, management's assertion that the Bank was materially in
compliance with the servicing requirements in Article IV, Section 4.03 of the
Agreement as of and for the year ended December 31, 1998, is fairly stated, in
all material respects.
This report is intended solely for the information and use of the board of
directors and management of the Bank and The Bank of New York, and is not
intended to be and should not be used by anyone other than these specified
parties. However, this report may be distributed to those authorized to receive
such information as specified in the Agreement.
KPMG LLP
March 15, 1999
<PAGE> 2
[FIRST UNION LOGO]
FIRST UNION DIRECT BANK, N.A.
MANAGEMENT'S ASSERTION ON FIRST UNION DIRECT BANK, N.A.'S
COMPLIANCE, AS SERVICER, WITH THE SERVICING REQUIREMENTS
OF THE POOLING AND SERVICING AGREEMENT
Management of First Union Direct Bank, N.A., as Servicer, is responsible for
compliance with the servicing requirements in Article IV, Section 4.03 of the
Pooling and Servicing Agreement for the First Union Master Credit Card Trust
dated September 29, 1995, as amended, including supplements dated March 5, 1996
and April 23, 1996, by and between First Union Direct Bank, N.A., as Transferor
and Servicer, and The Bank of New York, as Trustee (collectively, the
"Agreement"), as of and for the year ended December 31, 1998.
Management assessed First Union Direct Bank, N.A.'s compliance with the
servicing requirements in Article IV, Section 4.03 of the Agreement. Based upon
this assessment, management believes that First Union Direct Bank, N.A. was
materially in compliance with the servicing requirements in Article IV, Section
4.03 of the Agreement as of and for the year ended December 31, 1998.
/s/ DAVID NOLE
David Nole
Senior Vice President
First Union Direct Bank, N.A.
/s/ JAMES H. GILBRAITH II
James H. Gilbraith II
Vice President and Managing Director
First Union Direct Bank, N.A.
March 15, 1999
<PAGE> 3
[KPMG LETTERHEAD]
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
First Union Direct Bank, N.A.
We have examined management's assertion that First Union Corporation and
subsidiaries (the "Corporation") maintained effective internal control over
financial reporting as of December 31, 1998 included in the accompanying
Management Representations under the FDIC Improvement Act. First Union Direct
Bank, N.A. is a wholly-owned subsidiary of the Corporation. Management has
informed us that the scope of their assertion includes financial reporting
presented in conformity with both generally accepted accounting principles and
the Board of Governors of the Federal Reserve System instructions for the FRY-9C
report (The Consolidated Financial Statements for Bank Holding Companies).
Our examination was made in accordance with standards established by the
American Institute of Certified Public Accountants and, accordingly, included
obtaining an understanding of the internal control over financial reporting,
testing, and evaluating the design and operating effectiveness of the internal
control, and such other procedures as we considered necessary in the
circumstances. We believe that our examination provides a reasonable basis for
our opinion.
Because of inherent limitations in any internal control, errors or fraud may
occur and not be detected. Also, projections of any evaluation of the internal
control over financial reporting to future periods are subject to the risk that
the internal control may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assertion that the Corporation maintained effective
internal control over financial reporting as of December 31, 1998 (as described
above) is fairly stated, in all material respects, based upon criteria described
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
KPMG LLP
January 14, 1999
<PAGE> 1
EXHIBIT 99.3
YEAR 2000 INFORMATION
IMPACT OF YEAR 2000
In February 1996, First Union Corporation (the "Corporation") initiated
a Year 2000 project to address the issues associated with its computer systems
and business functions through the turn of the century. The project is under
the overall direction of the chief information officer, and it consists of a
project team representing all areas within the Corporation. The progress of the
work related to Year 2000 compliance is reported to a Year 2000 steering
committee on a monthly basis and to the Audit Committee of the Board of
Directors on a bimonthly basis.
The Corporation has assessed the Year 2000 risk of information
technology systems, non-information technology systems and business
relationships as: Mission Critical -- those areas where lack of compliance could
cause major operational risk to the Corporation; High Risk -- those areas where
lack of compliance could affect the Corporation, but would not cause the
failure of core operations; Medium Risk -- those areas where lack of compliance
would not have a major impact to the Corporation's customers; or Low Risk --
those areas that do not affect customers and that could be delayed or otherwise
processed on an exception basis.
The Planning and Assessment phase, which includes the identification of
potential points of failure requiring focused Year 2000 efforts, was
substantially completed in 1998.
INFORMATION TECHNOLOGY SYSTEMS
Information technology systems include proprietary and vendor-supported
business applications. The most significant phases of the Year 2000 project
related to information technology systems are analysis and remediation,
partition testing, and certification. Analysis and remediation includes the
modification of program code to address date-related issues. Partition testing
includes limited integrated testing to validate remediation. In this phase each
application is tested for Year 2000 compliance in an isolated and fully
functional environment to verify that the application executes correctly with
Year 2000 changes included. The Corporation considers information technology
systems to be Year 2000 compliant when these phases of the Year 2000 project
have been completed, which is consistent with bank regulatory guidelines.
As of December 31, 1998, the Corporation has completed the analysis and
remediation and partition testing phases on approximately 90 percent of the
major business applications, excluding those applications from entities
acquired in 1998, and which the Corporation will retain. Of the remaining 10
percent, the major business applications rated Mission Critical and High Risk
are scheduled for completion by March 31, 1999, with the exception of one
vendor application that is scheduled for completion by July 31, 1999, based on
the application vendor's Year 2000 compliance plan. The rest of the major
business applications are scheduled for completion by June 30, 1999.
<PAGE> 2
Of the major business applications from entities the Corporation has
acquired in 1998, the analysis and remediation and partition testing phases
were complete as of December 31, 1998, for 40 percent of major business
applications rated Mission Critical and High Risk, and 25 percent for those
rated Medium and Low Risk. The rest are expected to be substantially complete
by March 31, 1999, with the exception of two vendor applications that are
scheduled for completion by July 31, 1999, based on the application vendor's
Year 2000 compliance plan. The Corporation had originally anticipated
completing the testing in 1998; however, systems conversion activity has
delayed the completion of this phase.
With respect to personal computers, the Corporation has identified which
versions of software and which models of hardware the manufacturers have
identified as Year 2000 compliant, and the Corporation continually reassess
manufacturers' representations. As of December 31, 1998, approximately 60
percent of the personal computer hardware had been certified as Year 2000
compliant, with the remainder expected to be substantially complete by April
30, 1999, including the additional equipment from acquired entities. The
Corporation had originally anticipated completing this certification in 1998;
however, the integration of acquisitions, and the resulting increase in
personal computers, delayed this effort.
The goal of the certification phase is to obtain reasonable assurance
that the corporation-wide production environment is capable of the integrated
processing of future dates and that they have not been adversely affected by
Year 2000 remediation and testing efforts. The Corporation's certification
phase addresses all frequencies of processing and all major computing
platforms. Every effort has been made to emulate a production environment,
including applications, system software, hardware and critical internal and
external interfaces. Certification also includes user acceptance testing and
testing with customers and other key counterparties.
The certification phase has commenced, and the Corporation expects to be
approximately 50 percent complete by March 31, 1999, with all aspects expected
to be complete by September 30, 1999. During the fourth quarter of 1999, a
final system test will take place and a strict change control process will be
implemented to ensure that information technology systems remain Year 2000
compliant.
NON-INFORMATION TECHNOLOGY SYSTEMS
The Corporation's Year 2000 project encompasses embedded technology in
non-information technology areas, including facilities and related building
services, such as utilities, security systems, general business equipment and
non-computer office equipment. Approximately 50 facilities and the related
building services have been identified as Mission Critical or High Risk.
Testing of these Mission Critical and High Risk facilities and the related
building services was approximately 25 percent complete by December 31, 1998.
The Corporation expects that testing of these facilities and related business
services will be complete and they will be Year 2000 compliant by June 30,
1999. The Corporation had originally anticipated completing this testing by
March 31, 1999; however, acquisition integration has delayed this effort.
2
<PAGE> 3
BUSINESS RELATIONSHIPS
The Corporation has requested warranties from our vendors certifying
that their products will be Year 2000 compliant. Vendors who were not compliant
by September 30, 1998, who have not responded to the Corporation's requests or
who have not adequately demonstrated they can make their products Year 2000
compliant are being separately identified and monitored.
The Corporation is evaluating the Year 2000 readiness of its borrowers
and the resulting effect on the credit quality of its loan portfolio. The
Corporation has developed a Year 2000 credit risk policy, which requires that a
risk assessment be performed on all new and existing borrowers, subject to
certain criteria. As of September 30, 1998, all borrowers covered by the policy
had been assigned a Year 2000 risk rating.
BUSINESS CONTINUITY PLANNING
Another significant aspect of the Year 2000 project is business
continuity planning, which is a process to ensure that the Corporation can
continue operations in the event that information technology systems,
non-information technology systems or business relationships are not Year 2000
compliant. As of December 31, 1998, all critical areas of the Corporation were
actively engaged in the business continuity planning program. The Corporation
had originally anticipated that all of the plans would be completed by December
31, 1998; however, the Corporation has adjusted the timing of our process based
on current regulatory guidance. The Corporation anticipates completion of all
the plans by March 31, 1999 and critical business continuity plans will be
validated as defined by current regulatory guidance by June 30, 1999. Business
continuity planning includes consideration of the most reasonably likely worst
case scenario that the Corporation could encounter.
COST
The Corporation currently estimates the cost for the Year 2000 project will
amount to $60 million to $65 million pretax. This amount includes only the cost
associated with the core Year 2000 project office team, incremental personnel
and contractors hired specifically to participate in the Year 2000 project and
direct expenses incurred on the project. The cost associated with the
redeployment of personnel to the Year 2000 project is expected to be
significantly less than the incremental cost. In 1998, $21 million was incurred
on the Year 2000 project, and as of December 31, 1998, $26 million had been
incurred since project inception.
3
